Document of The World Bank ~~~ y FOR OFFICIAL USE ONLY Report No. 2956-BD STAFF APPRAISAL REPORT BANGLADESH BAKHRABAD GAS DEVELOPMENT PROJECT October 31, 1980 Energy Department Petroleum Projects Division 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 diselosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank~~~ y
FOR OFFICIAL USE ONLY
Report No. 2956-BD
STAFF APPRAISAL REPORT
BANGLADESH
BAKHRABAD GAS DEVELOPMENT PROJECT
October 31, 1980
Energy DepartmentPetroleum Projects Division
This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be diselosed without World Bank authorization.
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CURRENCY EQUIVALENTS
Currency unit = Taka (Tk.)US$1.00 = 15.5 Tk.Tk 1.00 = US$0.065
GOB Government of BangladeshBGSL Bakhrabad Gas Systems LimitedBMOGC Bangladesh Minerals, Oil and Gas Development CorporationBOGC Bangladesh Oil and Gas Corporation (Petrobangla)OGDC Oil and Gas Development CorporationBPC Bangladesh Petroleum CorporationBPDB Bangladesh Power Development BoardBGFCL Bangladesh Gas Fields Company LimitedBPL Bangladesh Petroleum LimitedADB Asian Development BankUNDP United Nations Development ProgramERL Eastern Refinery LimitedKPM Karnafuli Paper MillsCNG Compressed Natural GasLNG Liquified Natural Gas
FISCAL YEAR
July 1 to June 30
This report was prepared by Messrs. V. Nayyar, H. Schober, andM. Wormser, Ms. S. Shum of the Energy Department.
FOR OFFICIAL USE ONLY
BANGLADESH
BAKHRABAD GAS DEVELOPMENT PROJECT
STAFF APPRAISAL REPORT
TABLE OF CONTENTS
Page No.
I. ENERGY SECTOR ......................... 1....................
Pattern of Energy Use .... . ......... . ... .............. . 5
II. OIL AND GAS SECTOR *................. o..* ....*...*........** 5
Background ................... .. .................... 5Exploration ...... ..... *...... *........* ......................... 6Natural Gas ........................................ 6Gas Distribution ................. . . ................ . 7Gas Consumption Pattern ............................ 8Pricing of Natural Gas ............. * .. ............. 8Production and C,onsumption of Petroleum Products ... 10Investment in the Oil and Gas Sector .. ............. 13Sector Issues and Role of the Bank Group .......... . 13
Project Implementati.on . . .25Project Cost ... 26Financing Plan . .................................. 27Procurement and Disbursement .. ..................... 28Training ........................................... 29Ecology and Safety .... .................. . .......... 29Land and Right-of-Way . ............................. 29Project Risks .................. ......... 30
This document has a festricted distribution and may be used ;4y recipients . i in the performance oftheir official duties. Its contents may not otherwise be disc!csed without World Bank authorization.
Table of Contents (Continued) Page No.
V. FINANCIAL ASPECTS ....................................... 30
VI. ECONOMIC ASPECTS ........................................ 34
VII. RECOMMENDATIONS ......................................... 35
ANNEXES
1.01 Estimates of Energy Supplied by Traditional Fuels
2.01 Important Gas Fields in Bangladesh2.02 Production and Consumption of Natural Gas in Bangladesh2.03 Refinery Yield and Consumption of Petroleum Products2.04 Physical Program of Investment in Oil and Gas Sector2.05 Natural Gas Powered Vehicles
3.01 Organization Chart of the Petroleum Industry of Bangladesh3.02 Proposed Organogram for BGSL
4.01 Proposed Distribution System4.02 Project Schedule4.03 Estimated Cost pf Transmission Line4.04 Estimated Cost of Distribution Lines4.05 Breakdown of Foreign Expenditures4.06 Estimated Annual Consumption4.07 Estimated Schedule of Disbursement
5.01 Income Statement5.02 Notes and Assumptions on Financial Statement5.03 Balance Sheet5.04 Sources and Application of Funds
6.01 Economic Analysis
MAP IBRD 14869
I. ENERGY SECTOR
Introduction
1.01 Energy consumption in Bangladesh is characterized by heavy relianceon traditional fuels such as animal and vegetable wastes which, according toa recent estimate, account for 60% of its overall requirement. Consumptionof commercial energy is extremely low, compared to other countries in thesubcontinent and the average for the less-developed world in general. Measuredin oil equivalent per capita, it is estimated at 34 kg per annum. In terms ofresource endowment, Bangladesh has an abundant potential supply of naturalgas; its reserves are currently estimated at 9 trillion cubic feet, equivalentto 220 million tons of oil. Relative to availability, gas consumption is lowand currently is equivalent to one million tons of oil per atinum. Bangladeshis otherwise poorly endowed in primary energy. The potential for hydropoweris extremely limited and has largely been harnessed. Coal deposits exist, butare presently not considered economic to mine. Sporadic exploratory effortsfor oil stretching over the last seventy years have, so far, yielded noresults. Consequently, Bangladesh has to import all its requirements of oiland petroleum products. Even at the existing low level of consumption (1.5million tons), in 1980 Bangladesh would need to dedicate 60% of its projectedexport earnings for oil imports.
1.02 An apparent paradox characterizes the energy sector in Bangladesh.While it is expending a major portion of its foreign exchange earnings onimport of liquid hydrocarbons, it may have what could be a relative surfeit ofprimary energy in the form of natural gas. To reduce Bangladesh's reliance onimported oil, energy policy for Bangladesh must assiduously aim at increasingthe economy's absorptive capacity for gas. There are, however, tclihnologicaland economic limits to the substitution of liquid hydrocarbons by naturalgas. Thus, Bangladesh twould simultaneously need to intensify its search foroil, specially in prospects which are believed to hold high hydrocarbonpotential. This would require reinterpretation of the existing seismic data,undertaking additional seismic surveys, and increasing the pace of exploratorydrilling.
Energy Balance
1.03 The commercial sources of energy in Bangladesh are hydropower,natural gas, oil, and coal, the latter two being imported. The table belowestimates Bangladesh's. energy balance, in terms of oil equivalent.
(b) Natural Gas 2/ 1,072 (b) Petroleum Products 1,417
(c) Non Commercial Energy 3/ 4,810 (c) Refinery Losses 75
Total 6,050 (d) Natural Gas 1,072
(e) Coal 156
(f) Non Commercial Energy 4,810
Imports
(a) Crude Oil & Products 1,492
(b) Coal 156
Total 1,648
Total Availability 7,698 Total Consumption 7,698
Resource Endowment
1.04 Hydropower and natural gas are the only two sources of primarycommercial energy currently available within Bangladesh. The specifics ofBangladesh's energy resources are as follows:
(a) Natural Gas
1.05 In 1979 hydrocarbons accounted for 89% of the commercial energyused in Bangladesh. While exploration for oil commenced as early as 1908, ithas so far yielded no positive results. Bangladesh has to import all its oilrequirements. Extensive gas deposits have, however, been identified and ofthe nine gas fields discovered, eight can be exploited commercially. Gasreserves are estimated at 9 trillion cubic feet. On account of the limited
2/ Average calorific value assumed at 1030 BTU/Standard Cubic foot (SCF).
3/ Estimate made by the UNDP energy study.
domestic market. only four gas fields have so far been partially developed.Availability of natural gas has permitted Bangladesh to contain the growthin the use of liquid hydrocarbons, which have to be imported, and presentlynatural gas accounts for 44% of total hydrocarbon use.
(b) Power
1.06 Bangladesh's generating systems and the power grid, like the country,are split into two by the river Jamuna. These two power systems exist asseparate entities, having no inter link with one another. In the East Zone,
besides hydropotential, gas in abundant quantities is available for gener-
ating power. The West Zone, however, has to rely on imported fuel oil anddiesel oi` for power generation.
(i) Hydropower:
1.07 Bangladesh, except for the northern hills of Chittagong, is a flat
deltaic area. The prospects of economic hydropotential development are there-fore limited. Hydropotential of the Karnafuli River, flowing in the hills
of Chittagong, has largely been harnessed at Kaptai which has an installedcapacity of 80 MW (2 x 40 MW). The Bangladesh Power Development Board (BPDB)is currently engaged in installing a third unit of 50 MW which will be com-
missioned in 1982. Potential exists for adding two more units of 50 MW each,but these would provide only peaking power. The hydropotential of the riverSangu, also flowing from the hills of Chittagong, has been evaluated at 97MW. To tap this potential, a dam at Tarasa Chara would need to be constructed.Presently there is no proposal for tapping this source. The northern portionof the river Bramahputra (Jamuna) has a potential for a dam site with an
estimated capacity of 400 MW, but the size and large cost make it only aremote possibility.
(ii) Thermal Power:
1.08 Both in terms of transmission and generating capabilities, the EastZone is relatively better endowed than the West Zone. In 1978 BPDB installedcapacity, including isolated units, amounted to 752 MW, 1/ of which 526 MW wasin the East Zone and 226 MW in the West Zone. However, a large number of theseunits are in a state of disrepair with the result that tot.il available capacityin the East Zone is 450 MW, and in the West Zone, 122 MW. Power in the WestZone is generated from fuel oil and diesel oil which have to be imported. TheEast-West Power connector, which is currently afiler construction across the
river Jamuna, would link the two power grids and permit power generated inthe East Zone to be transferred to the West. This would enable Bangladeshto substitute imported liquid hydrocarbons by indigenous natural gas. Theinterconnector is expected to be completed in June 1982. It would initiallyhave a capacity of 200 MW which could subsequently be increased to 500 MW.
1/ There are in addition captive power stations, owned by various industrial
units, which cumtulatively have a generating capacity of 120 MW.
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1.09 In 1978 the overall power system included about 1600 KM of 132 kvtransmission lines, about 5000 KM of 66 kv and 33 kv subtransmission lines,and 13,200 KM of 11 kv lines. Total energy generated in 1979 was estimatedat 2140 GWh, of which about 1600 GWh was in the East Zone and 540 GWh inthe West Zone. The present quality of service is poor, characterized byfrequent breakdowns. This is attributable to outdated generating stationsand inadequate and overloaded transmission facilities. On the other hand,consumption has been growing rapidly at an average annual rate of 13%, overthe last three years. Over the period 1979-85 power consumption is expectedto increase at 14.6% annually.
(c) Coal and Peat:
1.10 Bangladesh uses limited amounts of coal for railways, in industryand as domestic fuel. This demand is met exclusively from imports; overthe last five years the annual imports of coal have been about 250,000 tons.In 1979-80 Bangladesh expects to import 350,000 tons of coal involving aforeign exchange expenditure of US$20 million. Coal deposits exist inBangladesh near Jaipurhat and the reserves are estimated at a thousand milliontons. However, coal seams lie at a depth of 3,000 feet and the overlyingformation is unconsolidated, or poorly consolidated, alluviums, sand-stone,shale, and water-bearing lime stone. Various feasibility studies carried outindicate that the cost of extraction will be high. It is not yet certainwhether coal extraction in Bangladesh is economic, and in view of the largegas reserves, even necessary. In addition, peat deposits exist in Faridpurand Khulna districts. However, both on account of the high cost of extractionand low calorific value, at present, it does not appear economic to expLoitthis resource.
(d) Non-Commercial Energy:
1.11 Non-commercial sources are the predominant form of energy inBangladesh. While no systematic data base exists for quantifying the rela-tive share of non-commercial energy, a number of estimates have been made,including the recent energy study undertaken by UNDP. The major source ofnon-commercial energy is crop residue and animal wastes. Annual productionof rice straw is estimated at about 30 million tons. While most of thisstraw is used as cattle feed, it is estimated that at least 3-5 milliontons is used as an energy source. Rice hull production is estimated at 5million tons. While a small proportion is used as cattle feed, a majorportion is used for parboiling of rice and as a fuel in small rice mills.Jute sticks and bagasse together provide about 2.5 million tons of householdfuel, while firewood provides 1.75 million tons annually. With cattle popula-tion reckoned at 10 million, animal waste becomes another important source ofenergy. Use of dry dung as domestic fuel is estimated at 6 million tons
annually. On the basis of these estimates the UNDP study assessed that thetotal energy provided from non-commercial sources amounted to 200 trillionBTU, equivalent to 5 million tons of oil (Annex 1.01). As in other developingeconomies, the level of utilization of this form of energy is high, althoughthe end use efficiency is low - typically of the order of 10% to 15%. Whilein the future, the relative share of traditional fuels will be declining,Bangladesh does not have the resources to sustain a major shift to commercialenergy. Concerted efforts are therefore required to augment the use ofnon-commercial energy and upgrade its end use efficiency through improvedappliances, etc.
Pattern of Energy Use:
1.12 Estimates of the current end use of petroleum products, naturalgas and electric power, and the pattern that is likely to emerge in 1985,are given in the following table. On account of the limited hydropotentialand in the absence of any oil find, Bangladesh will have to rely largely onnatural gas for meeting its commercial energy needs. Natural gas, whichpresently constitutes 44% of Bangladesh hydrocarbon consumption, is esti-mated to increase to 62% by 1985. Major end users would continue to bepower generation and the fertilizer sectors.
2.01 The quest for oil in Bangladesh dates back to the turn of thetwentieth century, but has so far yielded no positive result. In 1908, theBurmah Oil Company carried out geological mapping over a few of the structuresin the Chittagong area. In 1914 this company drilled the first exploratorywell in the Sitakund structure and was followed by the Indian ProspectingPetroleum company, which drilled three wells in the same structure. Nohydrocarbons were discovered. Again between 1922 and 1927, Burmah Oil Company
and the Whitehall Petroleum Company carried out geological mapping and drillingin the Patharia structure of Sylhet district and in some parts of Chittagong -but without success. Drilling was resumed by the Pakistan Petroleum CompanyLtd. (Burmah Oil Group) in the Haripur and Chhatak region in 1955 and by thePakistan Shell Oil Company, in 1957, in Titas, Habiganj, Kailashtilla, andBakhrabad. It was in search for oil in these areas that considerable reservesof natural gas were discovered.
Exploration
Onshore Exploration:
2.02 The Exploration Department of Petrobangla is responsible for allgeophysical/seismic surveys and onshore drilling. Petrobangla has six geo-logical and seismic parties for carrying out investigations in relation tostratigraphy, structures and sedimentation of Bangladesh and is currentlyconcentrating on the southeast region. Over the Second Five-Year Plan(1979-80 - 1984-85) it proposes to undertake geological surveys over 2000 sq.km., gravity surveys over 17,500 sq. km. and seismic surveys over 6,000 sq.km. In addition, it has recently commissioned an aeromagnetic survey whichwould be undertaken over 120,000 sq. km. During this period it proposesto drill 20 exploratory wells of which Petrobangla would drill 13 wells andthe balance would be undertaken by foreign contractors. The Federal Republicof Germany will provide technical and financial assistance to Petrobangla forundertaking seismic surveys and exploratory drilling.
Offshore Exploration:
2.03 For offshore exploration, GOB in 1974 entered into productionsharing contracts with six foreign oil companies. These oil companiescumulatively drilled seven wells, of which only Union Oil Company struckgas at Kutubdia, 55 nautical miles offshore from the Kutubdia island in theChittagong district at depth of 11,500 feet. As success attending theseefforts was limited, all foreign oil companies, including Union Oil, havesince relinquished their concessions and no offshore exploration is currentlybeing undertaken. In an attempt to attract back foreign oil companies, GOBrecently announced its willingness to depart from the provision of the earliernegotiated production sharing contract so as to provide additional incentivesfor poorer geological prospects and adverse tax laws in the country of originof the oil company. The Government has also announced its willingness toaccept foreign participation in onshore areas including those reserved forPetrobangla. Although these concessions have so far failed to secure any firmforeign participation, discussions have been in progress with British Petroleum,for an onshore production sharing agreement, in northeast Bangladesh.
Natural Gas:
2.04 Bangladesh is well endowed with natural gas and so far eight gasfields onshore, and one gas field offshore, have been discovered. All thesediscoveries are confined to the East Zone. There have been few gas showsin the West Zone, but data secured so far are inconclusive. Specifics of the
more important gas fields are provided in Annex 2.01. Whereas nine gas fieldshave been discovered so far, no systematic attempt has been made to quantifythe reservoirs or even delineate the fields. The number of wells drilled inrelation to discoveries have been limited. However, on the basis of availabledata, estimates of proven, possible, and probable reserves have been made byPetrobangla. To arrive at an estimate of total reserves, probabilities of 1.0were used for proven reserves, 0.5 for probable reserves and 0.25 for possiblereserves. On this basis gas in place is estimated at about 9 trillion cubicfeet, of which 75% should be recoverable through normal production methods.The current gas reserves and other specifics of the gas field are indicatedbelow:
NATURAL GAS RESERVES AND PRODUCTION
Gas Fields Year of No. of wells Reserve Cumulative Condensate Calorificdiscovery drilled estimate production recovery value
2.05 At present only the Titas field is being exploited in any significantmeasure. A 14" pipeline, 55 miles long, transports gas to Dacca via Ashuganjand Ghorasal. There are three other lines, each of which connects a mainconsumer to a particular field. The Chhatak Cement Factory is supplied fromthe Chhatak field, the Fenchuganj Fertilizer plant from the Sylhet field, andShahjibazar power station from Habiganj field. As production facilities inTitas are presently limited, Petrobangla proposes to supply the new AshuganjFactory with gas from the Habiganj gas field and for this purpose a 12" pipe-line is currently under construction. The proposed project will link Chittagongwith the Bakhrabad gas field through a 24" high pressure pipeline. In addition
to these transmission pipelines, there are gas distribution networks in Daccaand eight other towns of Bangladesh. These networks extend-over 1250 KM andpresently service 90,000 customers. The salient features of the existingpipelines are given in the followirg table:
GAS PIPELINES
Pipeline Diameter Length Line flow Existing workinginches miles capacity pressure
2.06 Initially the use of natural gas was confined to the FenchuganjFertilizer unit and the Chhatak Cement Factory. However, subsequent to thediscovery of the Titas gas field in 1962, gas production was stepped up andits use diversified to include generation of power, production of fertilizer,and other industrial, commercial, and domestic uses. Gas consumption indifferent sectors of the economy, for the last 10 years, is indicated inAnnex 2.02. In 1979, the consumption of natural gas was 43,540 MMCF,equivalent to about 1.1 million tons of oil.
Pricing of Natural Gas:
2.07 The producing companies (BGFCL and BPL) presently receive a well-head price of Tk. 1.48/MCF ($0.1/MCF). GOB levies an excise duty on naturalgas, which as of 1980, has been increased from Tk. 3/MCF to Tk. 4.5/MCF forthe power and fertilizer units and Tk. 5.0/MCF for other users. The priceat which the distribution companies further affect sales depends on theconsumers and the end use of the product. In June 1979, GOB increased thegas rates by an average of 42% and by a further 12% in June 1980. In spite ofthe recent two increases, in terms of fuel oil equivalent, the tariff for gasis well below the international price (Tk. 63/MCF). In pricing gas at thislevel, the government apparently hopes to provide incentives to new andexisting domestic industries in Bangladesh. However, this has resulted inprices being not only out of alignment with the international prices, but alsoin relation to domestic prices of liquid hydrocarbons. The comparative costto consumers in Bangladesh between natural gas on the one hand, and substituteliquid hydrocarbons on the other, is as shown below:
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Natural Gas Domestic PriceTaka/MMBtu $/MMBtu Petroleum Liquid Hydrocarbon
2.08 The levels at which gas should be priced requires careful consider-ation. On account of its relatively abundant availability, Bangladesh has sofar been pricing the gas well below the cost of alternate fuel supplies. Thishas resulted in adventitous gains accruing to industrial units and sectorswhich are in a position to utilize gas by virtue of their geographical location.Provision of gas in Chittagong would reduce the fuel cost to industries by afactor of three to four. Domestic households, privileged to be connected withgas, would reduce their fuel bill fivefold. Besides generating these distor-tions, such a pricing policy is depriving the government of a unique oppor-tunity to mobilize resources for the economy. Accordingly, gas tariffs shouldbe structured in a manner which would:
(a) ensure that revenue from the sale of gas is higher than theeconomic cost of gas;
(b) ensure that the operating entity (BGSL) is a financially viableorganization; which would imply that its revenues after theinitial operating period cover operating expenses, ensuredebt service while achieving an adequate rate of return onrevalued gross fixed assets and generate sufficient cash tocontribute to its future investments; and
(c) mobilize resources for the economy.
2.09 The average economic cost of natural gas from Bakhrabad is estimatedto be Tk. 13/MCF; this includes a depletion premium of approximately Tk. 3/MCF.In order to achieve the objective of financial viability, the Governmentagreed to set the net revenue to BGSL in such a way as to reach a 5% returnon revalued gross fixed assets to BGSL in 1985 and 10% afterwards. Accordingto the projections, this would require a net revenue of Tk. 17 in 1985 (seepara. 5.03). The Government furthermore agreed to increase by no later thanJune 30, 1981, the national average price of gas to consumers by at least20% over the existing price. GOB also agreed to periodically increase
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gas prices to fully reflect domestic inflation taking into account movementsin international prices of fuel oil, and in addition to provide a margin fordomestic resource mobilization. GOB agreed to carry out a study, with theassistance of consultants acceptable to the Association, in order to ascertainthe appropriate levels of gas prices and net revenues to gas distributorsnecessary to achieve, inter alia, the financial viability of gas distributorsand the efficient mobilization of resources for the borrower's economy. GOBagreed to review each year with the Association its proposals for increasesin gas prices.
Production and Consumption of Petroleum Products:
Import and Refining
2.10 The entire domestic demand for oil and petroleum products is metthrough imports. In 1979, Bangladesh imported 1.58 million tons of crudeoil from Iran, Saudi Arabia, Iraq and U.A.E. As there is an imbalancebetween the domestic consumption pattern and product yield, Bangladesh hashad to export a few products (naphtha and fuel oil), and import kerosene,aviation fuel and diesel oil. Overall, however, it remains a net importerof petroleum products. Import of oil has imposed a considerable foreignexchange burden on the economy. The recent price increase has furtherexacerbated this situation; in 1980 the import bill for oil and petroleumproducts is expected to be of the order of $420 million, or about 60% ofthe Bangladesh's export earnings target.
2.11 Imported crude oil is refined in Bangladesh's only refinery inChittagong which has a capacity of 1.5 million tons, with a throughput in1979 of the order of 1.38 million tons. This refinery was establishedby the Burmah Oil Company in 1963. It employs an atmospheric distillationprocess and has a catalytic reforming unit and a hydrodesulfurization unit.There are, however, no secondary processing facilities. In order to recoverbutane and propane, which were earlier used as refinery fuel, it establishedan LPG recovery and bottling plant with an initial capacity of 6,000 tons.Separately an asphaltic bitumen and drum making plant is under construction,which would be commissioned by 1982. This unit will not only meet the domesticrequirements of bitumen but would also increase the availability of middledistillates. Current refining capacity is inadequate to meet the needs ofBangladesh, and therefore part of the crude (200,000 tons) is being refined inSingapore. The Government of Bangladesh is now considering the establishmentof a second refinery at Khulna with a capacity of two million tons.
Marketing:
2.12 Before independence, marketing of petroleum products was beingundertaken by Pakistani and foreign companies. These companies were takenover or acquired by the Government after the formation of Bangladesh. InJanuary 1977 the Bangladesh Petroleum Corporation (BPC) was established as aholding company and charged with the responsibility of importing, exporting,
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refining, and marketing of crude oil and petroleum products. BPC, however,does not distribute or market these products directly, but discharges these
functions through its various subsidiaries. The distribution and marketing of
petroleum products is currently being undertaken by three marketing companies.
The major share of the market (40%) is held by Burmah Eastern, a successor tothe Burmah Oil Company, which still retains 49% of the equity capital. The
management is however with BPC which owns a majority of the remaining capital.
The other major marketing unit is Jamuna Oil Company, the successor to thePakistani National Oil Company which is now fully owned by BPC and presently
markets 32% of the petroleum products. Meghna Petroleum Company (successor
to ESSO) controls 27% of the market share. In addition BPC owns two othersubsidiaries, the Eastern Lubricating Plant Limited and the Standard Asiatic
Company, which are currently engaged in blending and marketing lubricants and
special products.
Consumption Pattern:
2.13 Consumption of petroleum products over the last 10 years has been
almost stagnant and in some cases (motor spirit and kerosene) consumption hasdecreased in absolute terms. The only product which has shown a significantgrowth rate is diesel oil. Like all developing countries the consumption
pattern in Bangladesh is skewed in favor of the middle distillates (Annex 2.03).
Diesel oil, which is used in transport, power generation and agriculture, is
the most extensively used petroleum product (29%) followed by kerosene (28%),
which is used largely for illumination, and marginally as a domestic fuel.
However, over the last 10 years the consumption of natural gas has risensharply and in 1979 was equivalent to 1.1 million tons of oil. Thus while
the consumption of liquid petroleum products has fluctuated between 1.1
and 1.9 million tons over a ten year period, commercial energy derived fromhydrocarbons has doubled. The future consumption pattern will depend upon theextent to which GOB succeeds in increasing the economy-s absorptive capacity
for gas. Some investment decisions have already been taken in this direction.With the commissioning of Khulna power station (1981) it should be possible
to back down the diesel oil consuming power turbine station in the West Zone.The East-West connector, when completed (1983), should enable the transfer ofgas generated power from the East zone to the West zone, thereby reducing the
consumption of fuel oil. Commissioning the Bakhrabad-Chittagong gas system
will enable the replacement of fuel oil by natural gas in the steel mill,rerolling mills, power station, paper mill and other industries located in,
and around Chittagong. The rural electrification program will also help in
limiting the growth in the demand for kerosene. Working on the assumptionthat these investments will go on stream as scheduled, the consumption patternof petroleum products, over the next five years, is likely to be as under:
2.14 It is anticipated that the demand for fuel oil would increase to650,000 tons in 1983, but with the commissioning of the East West connector,reduce to 450,000 tons in 1985. Further reduction may not be possible asfuel oil will continue to be used in the West Zone for industrial uses andfor inland river and coastal transport. While diesel oil consumption forpower generation would gradually become nominal, growth in the road transportwould more than offset this saving. Estimates of diesel oil and motor gasolineconsumption are based on the expected growth in vehicle population and on theassumption that diesel would cease to be used, except nominally, as a fuel forpower generation. Further, if there is delay in the implementation of projectsrelating to the gas fired power stations, the East-West connector, or theproposed pipeline project, then the demand for liquid hydrocarbons couldincrease to 2 million tons by 1985. In the projected pattern of consumption,the proportion of middle distillates will continue to be high (66% in 1985).This would result in increased imbalance between the refinery product yieldand the consumption pattern, warranting additional investment in secondaryprocessing rather than investment on a new refinery as is presently beingconsidered by GOB (para. 2.11). This investment proposal will be reviewed asa part of the proposed natural gas study.
Prices
2.15 As GOB passes on all price increases to the consumer, the last tenyears have seen a sharp escalation in the domestic prices for petroleum pro-ducts. The consumer has not only had to absorb international price increases,but also successive increases in domestic prices arising from the erosion inthe value of the Taka in relation to the US dollar. Over the last seven yearsthe prices of petroleum products in Taka, on the average, have increased seven-fold. The price of motor gasoline, which was 3.74 Taka per imperial gallonin 1972, now stands at 45 Taka. Similarly, over the same period, the price ofhigh-speed diesel oil has increased from 3.5 to 15 Taka per gallon andkerosene from 2.2 to 13.5 Taka per gallon and fuel oil from 0.3 to 8.2 Takaper gallon. Consumer resistance to rapidly rising prices in part explains thealmost zero rate of growth in the consumption of liquid hydrocarbons.
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Investment in Oil & Gas Sector:
2.16 Bangladesh proposes to make substantial investment in the oil andgas sector during its second five year plan. The physical program targeted forthe plan is indicated in Annex 2.04 and the sector investment tentativelybeing considered for this purpose is indicated below:
Tentative Investment Plan for Petroleum Sector 1979-84(In million Takas)
Total Foreign ExchangeCost Component
1. Geological Survey 250 1202. Hydrocarbon Exploration 2000 12503. Gas Field Development 1150 8004. Gas Transmission & Distribution 3400 21825. Petroleum production & Disribution 900 6106. Development of Nonconventional energy 200 1007. Research & Training 100 60
Total 8000(US$516 5122(US$330Milion) Million)
Sector Issues and the Role of the Bank Group
(a) Gas Use
2.17 Bangladesh urgently needs to reduce its dependence on imported oil.The success of such an effort depends critically upon the speed with which itcan increase the economy's absorptive capacity for natural gas. Natural gascan replace diesel oil and fuel oil currently being used for power generationin the West Zone and in the captive power stations all over Bangladesh.Similar replacement could, to a large degree, be effected in the industrialsector. Certain investment decisions in this direction are already beingtaken. The East-West interconnector, when completed, will allow gas generatedpower to be utilized in the West. The proposed IDA financed Bakhrabad-Chittagong pipeline would permit the replacement of fuel oil and diesel oilby gas for power generation and other industrial uses in Chittagong and inadjoining areas. Gas will also be used as a feedstock for the manufacture ofurea permitting the substitution of imported fertilizer with a domesticproduct. It must, however, be recognized that there are major constraints tothe substitution of gas for oil. Firstly, there are technical limits beyondwhich gas cannot replace liquid hydrocarbons. Secondly, there are limits tothe feasible rate of capacity expansion in both the gas distribution sectorand the electricity sector. Thirdly, the capital cost of converting largeparts of the economy to natural gas, would create a large draft on theeconomy's resources. The issue which therefore needs to be addressed is theextent to which limited and otherwise fungible resources need to be dedicatedfor restructuring the economy so that it can absorb larger quantities of gas.
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(b) Gas Export
2.18 Even on the basis of very preliminary investigations undertakenso far, the supply of gas would appear to be in excess of Bangladesh'sinternal needs. Understandably, the policy makers in Bangladesh look uponit as a means of shoring up the country's limited foreign exchange resources.Bangladesh could:
(a) export the gas through a pipeline to a neighboring country;
(b) export the gas after liquefaction; and/or
(c) attract export-oriented industries which are energy intensiveand/or use natural gas as a feed stock.
Unlike crude oil, export of gas is beset with a large number of technologicaland financial problems. Bangladesh could conceivably market the gas in India,but this would require an East-West connector for gas. In any case such adecision would be predicated upon a large number of political considerationsand it is not at all clear, whether at the moment, this represents a viablepossibility. Gas could be exported after liquefaction, but a LNG plantcapable of liquefying 500 MMCFD of gas, including tankers, is likely tocost more than two billion dollars. In addition, considerable investmentwould be required to create a deep-sea terminal or make alternate arrangementsas Chittagong harbour is incapable of accepting LNG tankers. In any event,substantial new gas reserves will have to be found before an LNG plant can begiven serious consideration.
2.19 For purposes of determining the proportion of resources which wouldneed to be deployed for increasing the economy's absorptive capacity for gasand also for evaluating the various options available to GOB in terms of gasexport including liquefaction, a detailed study would be required. As part ofthis credit GOB has agreed to carry out such a study with help of consultantsand on the basis of terms of reference agreed upon between IDA and GOB. Thisstudy will also evaluate the impact of increased domestic use of gas onrefinery requirements.
(c) Study/Pilot Project for Natural Gas Powered Vehicles
2.20 It is in the context of diversifying the use of natural gas that thefeasibility of using it to replace motor gasoline, and subsequently dieseloil as an automotive fuel, needs to be examined. The use of compressednatural gas (CNG) to power automobiles is well established in Italy where ithas been extensively used for the past 30 years. New Zealand is undertaking alarge scale program to convert automobiles to CNG. The conversion is rela-tively simple requiring no internal changes to the engine, and the convertedvehicle can switch fuels with a selector mounted on the dash board. Dieselengines can also be fueled with CNG but the necessary technology related toautomotive engines has not yet been developed to the same level as is the casewith gasoline engines. For further details on the present state of the art ofnatural gas powered vehicles see Annex 2.05.
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2.21 CNG, even if it could partially replace motor gasoline and diesel,will result in significant foreign exchange savings for Bangladesh. Theproposed credit contains a provision ($1.3 million) for undertaking a study,establishing compression facilities, and converting a limited number of dieseland gasoline vehicles to CNG. Petrobangla, with the assistance of qualifiedconsultants, will carry out the study/pilot project. The consuitants would,inter alia, be required to evaluate the cost relating to conversion of vehiclesand compression of natural gas in Bangladesh and recommend necessary modifica-tion in technology. The study would propose a price differential betweennatural gas and gasoline so as to provide an adequate incentive for conversion,identify target groups and assess the extent to which CNG penetration is feasi-ble in Bangladesh. In addition,the consultants would be required to studythe technical feasibility of converting diesel powered vehicles to naturalgas, especially in the context of the limitation in range, which such aconversion imposes on the vehicle. In this context consultants would alsostudy the logistics and the economic feasibility of setting up "satellitestations" which would secure bottled CNG from compression stations locatedon the high pressure transmission pipeline. Simultaneously, Petrobangla willundertake a pilot project for converting a limited number of gasoline and dieselvehicles and establish the necessary compression facilities. The results ofthis project would constitute an important input in drawing up a future planof action.
(d) Demand Management and Exploration
2.22 There are, as indicated above, economic and technological limitsbeyond which it may not be feasible to substitute natural gas for liquidhydrocarbons. Current projections indicate that as a consequence of a moreextensive use of natural gas, the demand for fuel oil will begin to declinefrom 1983. However, the demand for diesel oil and, if per capita income growsas projected, the demand for kerosene will continue to increase. As a resultof these offsetting trends, the import requirement of petroleum products by1985 would be at least 1.7 million tons per annum. Even at this level,petroleum imports would impose an onerous burden on the balance of paymentsof the country.
2.23 Bangladesh would therefore need to intensify its search for oil.Exploratory efforts so far have been unsystematic and sporadic. Foreign oilcompanies which took out offshore concessions in 1974/75 have, after a fewexploratory wells, ceased operations. Petrobangla now needs to:
(a) initiate an extensive seismic program;
(b) collate and reinterpret the existing seismic anddrilling data; and
(c) step-up exploratory drilling.
Clearly, Petrobangla does not have the resources or the capacity to implementan adequate exploration program. It is already receiving assistance fromthe Federal Republic of Germany in this area, but this will need significant
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supplementation. As a first step toward identifying prospective areas forfurther exploration activities, the proposed project includes US$2.7 millionfor Petrobangla to undertake with the assistance of consultants seismicsurveys, and processing and interpretation of seismic data.
(e) Appraisal Drilling
2.24 No systematic attempt has so far been made to quantify or evendelineate gas fields, making the present reserve estimates somewhat specula-tive. Investment in a fuller appraisal of Bangladesh-s gas reserves appearsadvisable. Its justification goes beyond securing theoretical satisfaction inhaving made an inventory of an important natural resource. Accurate data inregard to reserves is necessary for determining the opportunity cost of gasand hence its price, pace of exploitation and the export options. Associationfinanced consultants, on the basis of existing data, have firmed up reservesestimates relating to Bakhrabad, Titas, and Habiganj gas fields. However,additional appraisal drilling would need to be done on these and other gasfields before any firm estimates can be made of the gas potential in Bangladesh.
(f) Traditional Fuels
2.25 A growing tightening in the traditional fuel market can be expectedover the foreseeable future. Bangladesh clearly does not have the resourcesto contemplate a major shift to commercial energy for rural domestic uses.Measures designed to alleviate the constraints of supply in the rural areaswill therefore have to focus on the traditional market itself. Improvementin the energy efficiency of cooking appliances, given the importance ofcooking requirements in the fuel demand, could potentially have an enormousimpact on the fuel situation in rural areas. Improved stoves have beendeveloped which could reduce cooking fuel requirements by as much as 50%.Prototypes would need to be developed and their extensive adoption promoted.Separately, social forestry would need to be encouraged, which could augmentthe limited supplies of firewood. A research and development program fortraditional fuels could prove rewarding.
2.26 These and other crucial sector issues can be dealt with only inthe context of national energy planning framework which evaluates the country'spresent and prospective energy balance and identifies the gaps in information,institutions and feasibility studies. Bangladesh clearly needs assistance indeveloping a natural energy planning capability and the role of the Bank Groupin this area will be discussed with the Government in the coming months.
III. BENEFICIARY
Background
3.01 Natural gas was first discovered in Bangladesh in 1955 at Sylhet bythe Pakistan Petroleum Company. Gas use, however, became extensive only afterShell discovered (1962) and developed the Titas gas field. In addition to
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production and distribution of gas, these private companies, along with theGovernment-owned Oil and Gas Development Corporation (OGDC), undertook explora-tion for oil and gas on a limited scale. Immediately after independence GOBassumed all Pakistani companies and subsequently took over Shell's interestin Bangladesh. In March 1972, through a Presidential Decree, BangladeshMinerals, Oii and Gas Development Corporation (BMOGC) was created. Throughan amendment of 1974, BMOGC was split into two sector corporations, and theoil and gas development functions were vested into the Bangladesh Oil andGas Corporation (in short, Petrobangla).
Sector Corporation
3.02 Petrobangla was entrusted with all tasks relating to the explorationand production of oil and gas, import of oil, refining and marketing ofpetroleum products, exploration production, transmission and distribution ofnatural gas. As of January 1, 1977 the functions relating to the import ofcrude oil, refining and marketing of petroleum products were taken away fromPetrobangla and entrusted to a newly-created corporation, namely, BangladeshPetroleum Corporation (BPC). As with other sector corporations in Bangladesh,Petrobangla acts as a holding company, with direct managerial and operationaltasks being performed by individual companies which function under its super-vision and control. Natural gas is being produced by two companies underthis corporation, namely the Bangladesh Gas Fields Company Limited (BGFCL)and Bangladesh Petroleum Limited (BPL). BPL was formed after GOB assumed theassets of the Pakistan Petroleum Company and it presently owns and operatesthe Sylhet and Chhatak gas fields. BGFCL was established in 1975 when GOBtook over Shell, and now operates the Titas and Habiganj gas fields. Fortransmission, distribution, and marketing of gas, there are two separateentities, namely Titas Gas Transmission and Distribution Company and theJalalabad Gas Transmission and Distribution Systems. These companies purchasegas from BGFCL and BPL and market it in the area of their respective franchise.Sector organization is at Annex 3.01. Petrobangla is managed by a Board ofDirectors presently consisting of four members including a Chairman; andfunctions under the overall supervision of the Ministry of. Petroleum andMineral Resources. GOB nominates the Board of Directors. Its authorizedcapital is ten million Takas of which ten per cent has been subscribed andpaid in by the Government. Petrobangla finances its expenses by splittingthem among the individual companies which function under its control.
The Beneficiary
3.03 For purposes of implementing the project and subsequently operatingthe gas fields and the gas system, GOB has decided to set up the Bakhrabad GasSystems Limited (BGSL) - a new, fully government-owned entity, establishedunder the Companies Act of 1913. BGSL, like other companies in the sector,will function under the overall supervision of Petrobangla. Articles ofAssociation for BGSL have been drafted and the chief executive (designate),along with a few key staff members, appointed. The proposed organization ofBGSL is shown in Annex 3.02.
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Functions
3.04 BGSL's functions, as envisaged in the draft Articles of Association,are as follows:
- Develop and produce gas from the Bakhrabad, Comilla, orsuch other gas fields as may be decided by the Governmentfrom time to time;
- Process and transport gas from the gas fields to the areaof its marketing franchise (Comilla, Feni, Chittagong, etc.);
- Provide natural gas to industrial plants, power stations,and residential areas;
- Establish a marketing system to carry out the aboveactivities.
Capital Structure
3.05 The authorized capital of the company is Tk.1000 million, (US$64.5million) comprising ten million shares of Tk. 100 each. The entire capital,as and when required, will be subscribed by the Government. Normally,Government channels all the funds to its companies through the respectivesector corporation as loans, under the annual development plan. GOB in thiscase has agreed to transfer direct to BGSL local currency expenditure in theform of equity.
Organization and Management Capabilities
3.06 BGSL, under its Articles of Association, is to be run by aBoard of Directors consisting of five members including the Chief Executive.Petrobangla appoints the Board of Directors and can remove them from officeat its discretion. BGSL is a new entity established specifically for purposesof implementing the project and subsequently operating the gas utility. Toman its senior levels, it has drawn upon competent and experienced personnelfrom the oil industry, especially the Titas Gas Company; a company which hasoperated successfully as a gas utility in Bangladesh for over fifteen years.The existing managers of BGSL have experience in operating gas distributionutilities and therefore can be expected to manage the distribution systemafter it has been established. However, they have limited experience in gasfield development and laying of high pressure transmission pipelines.
Project Implementation Considerations
3.07 Project implementation as currently planned takes note of theselimitations. However, BGSL has so far made good progress in the initialimplementation of the project. It has appointed a reservoir consultant toassist it in carrying out the Bakhrabad gas field development and drillingprogram and an engineering firm for executing the pipeline and distributionportion of the project.
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Furthermore, the construction contract for the high pressure transmissionpipeline from Bakhrabad to Chittagong and distribution pipeline to thefertilizer unit and the power station, would be the sole responsibility of aprequalified contractor on the basis of international competitive bidding(paras. 4.13 to 4.18).
3.08 Nonetheless, BGSL management and administrative capabilities arecritical to the successful implementation and completion of the project.It would need to establish an organization capable of managing the contract,ensuring extensive and effective supervision and operating and maintaining asafe and dependable supply of gas. During the pre-construction stage it willneed to provide specific facilities for contractor, develop a manpower recruit-ment and training schedule and create a corporate structure capable of managingthe project and supervising the contract. On account of the extremely tightimplementation schedule, it would be required to take prompt decisions relatedto engineering and construction activities, avoid undue delays in processingprocurement documents, evaluating bids and awarding contracts and purchaseorders. It will have to exercise its prime project management responsibili-ties; process bills, invoices, etc. and see to the acquisition and retentionof essential project documents and records. Finally, by the time the projectis completed it should have established an operational organization capable ofoperating the gas utility and servicing the customers.
3.09 BGSL, for achieving these objectives, would require close coopera-tion and assistance from various government agencies. This would, inter alia,involve assistance in securing the right of way, timely release of foreignexchange and local financing to BGSL, government approval to the award of con-tracts, adequate delegation of financial powers, port and customs clearancesetc.
3.10 In view of the above, assurances have been obtained during negotia-tions from the government, Petrobangla and BGSL that:
a) by March 31, 1981, a master plan by the critical path methodwould be prepared, which would include the time required byand allocated for the relevant government and Petrobanglaactivities;
b) the government and Petrobangla would take all action, as isnecessary, to enable BGSL to maintain the project schedule;
c) a condition of effectiveness of the credit would be appoint-ment of key BGSL staff responsible for project implementation;
d) within six months after the approval of the credit, BGSL,with the help of its consultants, would prepare and submitits recruitment and training program for review by theAssociation.
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Accounts and Audits
3.11 BGSL and Petrobangla are required by law to prepare full accountsof their financial position and results of their operations. The accountinginformation system of the existing Petrobangla group is satisfactory. How-ever, in view of the fact that BGSL is to be formed as a new and separateentity, during negotiations, BGSL agreed to provide the Association bySeptember 30, 1981, with a satisfactory plan regarding the design of anaccounting information system as well as the staffing and organization ofits accounting and finance departments. For internal control purposes,BGSL is expected to have its own internal audit staff which is in linewith the practice of Petrobangla's existing affiliates.
3.12 In addition to internal audit, BGSL and Petrobangla would, underlaw, be subject to two types of audit:
a) External Audit by a firm of chartered accountants appointedat the general meeting of the stockholders. The entity'sbalance sheet and profit and loss accounts are to be presentedto the general meeting within eighteen months after theincorporation of the entity and subsequently at least onceduring each calendar year. Accounts are required to beready for external audit within nine months after the endof the financial year and are reviewed within three monthsafter submission.
b) Besides the external audit, each entity is subject toGovernment s commercial audit. Its report is submitted tothe concerned Ministry of the Government within three monthsafter the end of each fiscal year.
During negotiations, BGSL and Petrobangla agreed to supply the Associationwith copies of the financial statements, duly audited by the Controller andAuditor General, and of the independent corporate auditor's opinion, no laterthan six months after the end of each fiscal year.
Insurance
3.13 National statutes require that all insurance within Bangladeshas well as on all imports be obtained from the state insurance corporation,Sadharan Bima Corporation. Insurances involving high value risk which, inthe event of loss, are required to be replaced by imports involving foreignexchange are reinsured abroad. The terms of reference of the project imple-mentation consultants include provisions for assisting and advising BGSL onadequate builders all risk coverage during the construction phase of theproposed project. After construction completion and acceptance of the projectfacilities, BGSL will take out a comprehensive insurance, which will includethird party liability and personnel and property damages.
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IV. THE PROJECT
Project Objectives
4.01 Currently, 55% of Bangladesh's commercial energy requirements aremet through imports. Although marginal quantities of coal are included, theenergy imports essentially comprise crude oil and petroleum products; domesticpetroleum production is limited to natural gas which provides about 35% ofcommercial energy requirements. Sharply rising oil prices have imposed anincreasingly heavy burden on the country's limited foreign exchange resources.In 1980 the import of liquid hydrocarbons should account for about 60% ofprojected export earnings. The proposed project aims at substituting indig-enous natural gas for imported fuel oil and diesel oil currently used byvarious industries in the Chittagong area. The project would also enablekerosene to be replaced by natural gas as a domestic fuel and provide a sourceof energy and feed stock for new industries, particularly fertilizers, plannedfor Chittagong.
Project Preparation
4.02 Williams Brothers Engineering Co. (USA) have completed a feasibilitystudy of the Bakhrabad-Chittagong pipeline and its distribution system. Thestudy was carried out in conjunction with the overall Chittagong FertilizerProject study financed by the Asian Development Bank (ADB). It includes apreliminary route survey and optimization of pipeline sizes for the gas trans-mission and distribution pipelines, and it will form the basis for detailedengineering.
4.03 The ADB financed study also included an evaluation of the recover-able gas reserves in the Bakhrabad field and a recommended drilling plan toproduce the required quantities of gas. This work was assigned to DeGolyerand MacNaughton (D & M) who have completed their assignment. D & M haverecommended that four slanted wells be drilled from an earth filled pad. Workon filling the drilling area and an access road is scheduled to be completedin May before the onset of the 1980 monsoon season.
4.04 BGSL has employed an expatriate engineering firm and drilling andreservoir consultants with qualifications and conditions of employment satis-factory to the Association to assist it in carrying out the pipeline projectand the Bakhrabad gas development program.
Gas Supply and Market
4.05 The Bakhrabad field consists of four potential petroleum bearingstructures (culminations) identified by seismic interpretation. In 1968 awell drilled into one of the structures, designated the B-1 culimination, byShell Oil Company struck gas in commercial quantities. Its plans for develop-ing and marketing the gas were interrupted by the war of independence and thesubsequent nationalization of its assets. There has been no further drillingin the field. Reservoir consultants engaged by the Association (James E. Lewis
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Engineering Co., Canada) have estimated that proven gas-in-place in B-lculmination at 1.6 TCF of which 1.3 TCF will be recoverable. In addition,probable reserves at this culmination are estimated at 1.0 TCF. An earlierestimate by D & M, who participated in the ADB fertilizer study, estimatedproven recoverable reserves to be 1.1 TCF. The extent to which additionalreserves can be classified as proven will depend on future drilling results.
4.06 The Association's consultants also evaluated the neighboring Titasand Habiganj gas field reserves which, if necessary, could supplement Bakhrabadproduction. Estimated recoverable reserves in these fields were reported tobe 1.3 TCF proven and 1.5 TCF probable for Titas and 1.0 TCF proven and 0.3TCF probable for Habiganj. Titas gas is now essentially committed to theDacca area market but the bulk of the Habiganj reserves are uncommitted.If necessary, the Habiganj gas can be almost exclusively dedicated for theChittagong market. Presently Habiganj gas field is being linked to Titas.Subsequent linking of Titas to Bakhrabad, which would require an investmentof about US$30 million, would provide necessary flexibility to the proposed gassystem to supplement shortfalls in Bakhrabad from either Titas or Habiganj.
4.07 Over the next 20 years, the projected Chittagong demand wouldrequire a cumulative production of about 0.8 TCF of gas. However, a consider-ably higher level of reserves (minimum gas-in-place reserves of 2.6 TCF) isrequired to supply sufficient gas to maintain the projected growth in demand.In the event that these reserves are not proved and developed by futuredrilling in the Bakhrabad field, it will be necessary to make up the shortfallfrom the Titas/Habiganj fields to meet the peak demand forecasts for 1993 andbeyond. To ensure an adequate gas supply for the Chittagong market, assurancehas been obtained from GOB during negotiations that:
(a) funds would be allocated, when required to meet market demand,for developing additional gas production from the Bakhrabadfield or, alternatively, from Titas/Habiganj along with allgathering facilities and interconnecting pipelines;
(b) 1.0 TCF of proven in-place reserves from the Titas/Habiganjfields would be committed to the Chittagong market untilsuch time as the necessary gas reserves and deliverabilityare established at Bakhrabad or another gas field; and
(c) the reserves committed under (b) above would take precedenceover all other reserves commitments except for any futurereallocations agreed to by GOB and the Association.
4.08 The Chittagong gas market has been surveyed by a number of organi-zations. Shell Oil undertook a detailed survey of the existing market andfuture growth potential in 1969, after the Bakhrabad discovery. In 1978,Hydrocarbon Consultants Ltd. (Bangladesh) completed a market survey and projec-tion of future demand sponsored by ADB as part of the Chittagong fertilizerstudy, led by the prime consultant, Unico (Japan). Also in late 1978, ChemSystems (UK/USA) undertook a similar study under the auspices of GOB and theAssociation. The different demand forecasts were reconciled during a meeting
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of representatives from GOB, the Association and ADB in May 1979. Projecteddemand forecast by different categories of consumers is shown in Annex 4.06and forms the basis for sizing the proposed facilities. Peak and averagedemand is projected to grow to approximately 320 and 203 MMCFD respectivelyby the year 2000 AD.
4.09 By 1985, it is anticipated that the Chittagong demand from the powerplant, steel mill, paper mill, industries, etc. will average about 35 MMCFD.The fertilizer plant would significantly increase the demand to about 80 MMCFD.ADB has preappraised the project, and according to its present estimates, theforeign exchange requirements would be about US$285 million. So far, US$177million financing has been committed in principle by 5 agencies. An addi-tional US$105 million is under consideration by various financing agencies.While slippage in the implementation of the fertilizer plant would adverselyaffect the cash flow of BGSL, the project would still be economically andfinancially viable, even without the proposed urea plant. In the eventthat financing of the ADB sponsored fertilizer plant at Chittagong cannotbe consummated, a condition of the proposed credit is that apart from theurea plant already proposed at Chorasal the next urea plant would be locatedat Chittagong.
Design Criteria
4.10 The proposed project facilities comprise a gas well drilling program,gathering and conditioning facilities, a transmission pipeline, and a distribu-tion system. Based on an analysis of the various parameters affecting theoptimum sizing of pipelines, the feasibility study recommends a 24" transmis-sion line operating at 960 psi maximum pressure without compressors. A 22"line with an intermediate compressor station in 1996 is marginally less expen-sive on a discounted cost basis. However, simplicity of operation and lack ofmaintenance problems with complex machinery outweighs the slight cost advant-age. In the event additional reserves are not developed at Bakhrabad, it willbe necessary to extend the pipeline to Habiganj during 1993 to meet peak demandforecasts for that year and beyond. This would mean an additional expenditureof approximately US$30 million (1980 prices). The impact on the project'seconomic rate of return, however, would be marginal since, as can be seen inSection VI, the rate of return would still be acceptable. The transmissionand distribution pipelines were sized on the basis of the market forecastsrather than presently established gas reserves because:
(a) the possibility of confirming additional reserves atBakhrabad is high, with probable reserves being estimatedat an additional 1 TCF. Additional gas discoveries inthe area also cannot be ruled out;
(b) even if no additional reserves are proven in Bakhrabad, thedemand in the Titas/Chittagong market could still be met byconnecting the Titas/Habiganj gas fields with Chittagong,in the early 1990s; and
(c) although it is recognized that there is a possibility ofslippage of some of the potential consumers, a gas systemwith a technical life exceeding 30 years, needs to bedesigned to handle anticipated peak flow requirement.
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4.11 The proposed distribution system will have an initial capacity ofapproximately 160 MMCFD which will satisfy the projected demand until about theyear 1990 when the system will have to be expanded. Annex 4.01 shows the dis-tribution system prepared by the consultants. The Phase 2 portion completingthe distribution ring would increase the system capacity to 350 MMCFD to matchthe maximum pipeline capacity. The pipeline route and gas fields are shown inMap IBRD 14869.
Project Description
4.12 The proposed project includes the following:
(a) Development of the Bakhrabad gas field comprising fourdeviated wells in the B-1 culmination to a depth of 9,000to 15,000 ft from an earthen pad approximately 300 ft by400 ft in area and 12 ft high and recompletion of theexisting well, BK-1.
(b) Flow lines (6" in diameter) from each well-head to acentral area containing metering, pressure regulating,separation and dehydration and odorizing facilities.A small quantity of liquid hydrocarbons will be recoveredat this point, and provisions will be included for storingand transferring it to tank trucks.
(c) A 24" buried gas transmission pipeline, approximately 110miles long, from the Bakhrabad facilities (under (b) above)to a city gate station outside Chittagong and all necessaryancillaries.
(d) A gas distribution system along with operating and main-tenance facilities, including pressure regulating andmetering facilities and service piping to consumers,comprising approximately 11.7 miles of 20" piping from thecity gate station south to the Eastern Refinery and steelmill area, 13.5 miles of 16" piping from this point to theproposed Chittagong fertilizer plant and to the WAPDA powerstation including 0.6 miles of twin 12" river crossings atKarnafuli River and-29 miles of 10" piping from a pointon the 20" line approximately 4.5 miles south of the citygate station to the Karnafuli Paper Mill and serving theNasirabad and Kalurghat industrial estates in Chittagong.
(e) consultants for drilling, project engineering, managementand construction supervision services.
(f) Staff training (para. 4.25).
(g) Technical assistance comprising seismic surveys and pro-cessing and interpretation of seismic data with a viewto identifying prospective areas for possible exploratorydrilling (para. 2.23).
(h) Studies on gas utilization and pricing and a compressednatural gas pilot project (paras. 2.09, 2.19 and 2.21).
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Project Implementation
4.13 Implementation of the proposed project will be the responsibilityof Petrobangla and BGSL. A qualified expatriate engineering consulting firmsatisfactory to the Association has been appointed to assist in providingcomplete project management, engineering and training services for implement-ing the transmission pipeline, the distribution system, and the gas fieldfacilities portion of the project. The services to be provided by theconsultant comprise engineering and design, general project managementfunctions, procurement, contract administration, construction supervision,start-up, and commissioning assistance and training. The BGSL staff willinclude about 12 members trained abroad and with previous gas distributionexperience who will participate in project implementation. Appointment ofkey staff with appropriate qualifications and experience would be a conditionof effectiveness of the proposed credit. The project implementation scheduleis given in Annex 4.02.
4.14 Construction of the transmission pipeline and the distribution lineswill be tendered to prequalified foreign contractors. For the constructionof a 10" distribution line, domestic contractors will also be prequalified.There are several such contractors who have the experience and capability toinstall high pressure pipelines in the smaller diameters.
4.15 Pipeline construction will have to be limited to the dry season,roughly from about October to May. It is essential to complete the construc-tion during one season to avoid the expense of mobilizing and demobilizing thecontractor twice or paying standby charges during the period no work can beundertaken. To achieve a one season construction schedule, all equipment andmaterials must be on the job site on or before the scheduled constructionstart-up date. BGSL has set the construction target for the 1981-1982 dryseason, and there is a reasonable chance that it can be achieved as theconsultant have been mobilized, and the detailed engineering for the projecthas been initiated. However, to be conservative the appraisal of the projectis based on a 1982-1983 construction period.
4.16 BGSL has appointed a qualified consultant satisfactory to theAssociation for managing the Bakhrabad gas field development and well drillingprogram. The key personnel provided by the consultant for this assignmentinclude a drilling adviser, a reservoir engineer, two geologists and two toolpushers (drilling supervisors) for continuous well site duty and an overallcoordinator and manager of the program. Their chief responsibilities onbehalf of BGSL will be procurement of well materials and services, preparationof the work program for each well, monitoring and analyzing drilling, loggingand testing results, supervision of the drilling contractor and reservoirevaluation studies.
4.17 BGSL, with the assistance of its drilling consultant, has completednegotiations of a drilling contract for the Bakhrabad wells with the JapaneseExploration Company (Japex). A letter of intent was signed on September 17,1980, which requires that Japex deliver the drilling rig to Chittagong by
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January 1, 1981 and spud the first well by February 10, 1981. A condition ofthe proposed credit is that no materials procurement or pipeline constructioncontract will be awarded until this first well has been completed and the welldata has been analyzed to confirm the results obtained from the discoverywell.
4.18 The above implementation arrangements are satisfactory. Tenderscan be issued for the pipe and pipe laying contract while the first well isbeing drilled. If no drilling problems arise and the results are satisfactory,BGSL should be in a good position to achieve the 1982 completion goal.
Project Costs
4.19 Including contingencies, the project is estimated to cost US$164million of which the foreign exchange component is US$132 million or 80%.The proposed credit of US$85 million represents 64% of the estimated foreignexpenditures and 52% of the total estimated project cost. Sector studies andtechnical assistance to be financed by the proposed credit but not directlyrelated to the project are estimated to cost US$4.5 million. Import duties,which have averaged about 10% for imported goods and equipment on past pipelineprojects, contribute US$4.1 million to the project cost. Interest duringconstruction amounting to approximately US$13 million is not included in theabove costs.
4.20 Letters of intent have been signed (September 1980) for the projectengineering and implementation services and management of the gas fielddevelopment and drilling program. The engineering contract amounts to US$3.8million, including local and foreign costs based on 670 man-months (370expatriate and 300 local personnel). The drilling contract amounts to US$1.3million in local and foreign costs based on 85 man-months (64 expatriate and21 local personnel). These costs are slightly less than the amounts in theproject estimate not including contingencies. US$400,000 have been allocatedfrom Credit 622-BD (Subproject 24) to cover initial payments for theseservices prior to effectiveness of the proposed credit. A physical contin-gency of 10% was applied to all costs except for construction to which 15%was applied, since no detailed survey has been made of the pipeline route.The price contingency was calculated on the basis that local costs wouldescalate at an annual rate of 10% and foreign costs at 10.5% during 1980,9% during 1981, 8% during 1982, and 7% during the remaining projectimplementation period.
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4.21 The following table summarizes the project costs. Gas transmissionand distribution costs are detailed in Annexes 4.03 and 4.04.
Local F.E. Total Local F.E. Total(In Taka Millions) (In US$ Millions)
Bakhrabad Development
1. 5 Gas Wells 11 209 220 0.7 13.5 14.22. Gas Field Facilities 11 79 90 0.7 5.1 5.8
Total Estimated Project Cost 500 2046 2546 32.0 132.0 164.0
Project Financing Plan
4.22 The financing plan is based on the GOB providing equity from thenational budget to cover the US$32.0 million equivalent (including contin-gencies) local expenditure costs of the proposed project. Of the US$132million foreign exchange cost US$85 million is proposed to be financed fromthe IDA Credit, and the balance from the Overseas Economic Cooperation Fund(OECF) of Japan (US$26.0) and from the OPEC Fund for International Development(US$21.0 million). The proposed allocation is indicated below. A detailedbreakdown of the foreign exchange expenditures is given in Annex 4.05. Toensure prompt provision of budgetary funds and timing of project staff,approval of the Project Proforma 1/ by GOB would be a condition of crediteffectiveness.
1/ An internal GOB document, the approval of which is a prerequisitefor the release of funds and the hiring of staff.
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IDA OPEC Japan Total
1. Wells and Gas Field - - 26.0 26.02. Goods and Equipment 40.3 3.1 - 43.43. Construction 24" Line 31.9 - - 31.94. Construction 20"/16 Line - 11.9 - 11.95. Construction 10" Line - 6.o - 6.06. Engineering Consultants 7.0 - - 7.07. Training 1.3 - - 1.38. Technical Assistance 2.7 - - 2.79. Studies and compressed
natural gas pilot project 1.8 - - 1.8
TOTAL 85.0 21.0 26.0 132.0
% 64 16 20 100
4.23 The proposed IDA credit would be to GOB. GOB, in turn, will relendUS$80.5 million to BGSL for 15 years, including a grace period of five years,at an interest rate of 12 percent per annum. GOB would bear the foreignexchange risk. US$4.0 million will be relent to Petrobangla on IDA termsfor financing items 8 and 9 above except for one study (about US$0.5 millionequivalent) which would be carried out by GOB. A condition of effectivenesswould be that the Subsidiary Loan Agreements between GOB and BGSL andPetrobangla has been executed. GOB would further be required to fulfill allconditions of effectiveness of the OPEC and OECF Loan Agreements before theIDA credit is made effective.
Procurement and Disbursement
4.24 All procurement for the proposed project, including the OPEC Fundfinanced portion but excluding the well drilling and gas field facilitiesfunded by the OECF Loan, will be by international competitive bidding inaccordance with procedures set forth in the Association's procurement guide-lines. Items costing less than $100,000 of a specialized nature availablefrom a limited number of suppliers or not of sufficient value to attractwide international competition, may be procured through limited internationaltendering up to an aggregate amount of US$4 million. All bidding packagesUS$500,000 or above (about 16 of the total 40 estimated) would be subjectto prior review. Any goods or equipment which might be available from localsuppliers would be granted the usual 15% preference or customs duty if less.Qualified domestic construction contractors would be granted a 7.5% preference.
4.25 Disbursement for goods and equipment up to a maximum of US$40.3million would be made against 100% of the foreign exchange cost of itemsdirectly imported or the ex-factory cost if manufactured locally and 70%of total expenditues for items procured locally off-the-shelf. For the(i) 24" pipeline construction contract; (ii) consultants; (iii) training and(iv) technical assistance disbursement would be against 100% of the foreignexchange cost. Annex 4.07 gives the estimated disbursement schedule. Thecredit would be fully disbursed by June 1984, and the closing date would beDecember 31, 1984.
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Training
4.26 BGSL will have a nucleus of trained and experienced personnelrecruited from other Petrobangla organizations, but the bulk of its staffwill need training for the various administrative, operating, and maintenancefunctions of the company. Depending on job classification, the training needswill comprise technical courses and assignments with pipeline companies abroadand on-the-job training during engineering, construction and commissioning ofthc project facilities. The terms of reference of the project implementationconsultant include provisions for assisting BGSL with the preparation andimplementation of a training program for its personnel (see also para. 3.10(d)).Submission of a satisfactory training program would be a condition of disburse-ment for the training component.
Ecology and Safety
4.27 Neither the pipelines nor the gas field facilities are expectedto pose a significant ecological hazard. Preparation of an environmentalimpact statement is included in the terms of reference of the implementationconsultants. The pipelines will be buried and all drainage and other surfacefeatures will be restored. Some crop damage along the right of way will beunavoidable and compensation will be paid to the respective owners. Trenchingat river crossings will temporarily increase the turbidity of the water, andits effects should be addressed in the environmental study. A small quantityof brackish water will be separated from the gas at Bakhrabad. However, basedon test results from BK-1 (the discovery well), the quantities and salinityinvolved are not significant enough to warrant any special disposal measuresother than the natural drainage system of the area.
4.28 Although pipelines have a good safety record compared to othermodes of transportation, fire from leaks in gas pipelines is a real danger.It can only be minimized by strict adherence to safety codes and proper design,construction, operation, and maintenance. In this regard, the proposed projectpipelines will be designed in accordance with the appropriate internationalstandards and codes including the provision of adequate cathodic protectionagainst corrosion. BGSL's training program will include, and emphasize, safetyand preventive maintenance. In addition, the gas will be odorized at Bakhrabad,thus making leaks more easily detected.
Land and Right-of-Way
4.29 Petrobangla and BGSL will have to acquire rights-of-way and easementsalong the pipeline route and land for the well facilities, pipeline terminal,and other above ground installations. No major problems are foreseen in thisrespect since the government can exercise its power of eminent domain onbehalf of BGSL. However, to ensure that no costly delays will occur a condi-tion of the proposed credit is that no contract for civil works or goods forthe pipeline shall be awarded until the right-of-way for the pipeline routehas been acquired.
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Project Risks
4.30 Gas field and pipeline projects carry geological and operationalrisks which are common to the petroleum industry. They can be minimized, butnot entirely eliminated. In addition, the proposed project carries the riskof the market not growing at the projected rate. These risks are discussedbelow; none is considered a significant deterrent to the project.
4.31 The gas production potential of the Bakhrabad field is consideredto be highly promising by various experts who have examined existing geo-logical and well data. However, only one well has been drilled into thestructure. Additional drilling and geophysical study are necessary todelineate the production zone and ascertain with a high degree of certaintythe magnitude of the gas in place, and the rate at which it can be delivered.The project is to a large extent protected from this risk in that back-upreserves from the Titas and Habiganj fields can, if necessary, supplementthe Bakhrabad production. Furthermore, as shown below, even if gas deliveriesamount to only 80 MMCFD, the economic rate of return from the project willstill be quite attractive.
4.32 Finally, the possibility exists that the market will not grow,as predicted, to an average rate of 203 MMCFD by the year 2000 AD. Includingthe fertilizer plant, the initial market which can be foreseen with reasonablecertainty amounts to an average consumption of 80 MMCFD or 0.5 TCF cumulatively.Sensitivity analysis shows that this consumption level is sufficient to makethe project economically sound with a rate of return of about 50%. Therefore,future market growth is not a significant factor in the economic viabilityof the project. Nevertheless, failure of the market to grow to the projectedlevels would have the consequence of having invested in an oversized pipelinesystem from which maximum benefits cannot be derived. However, the incrementalinvestment for such oversizing would be relatively small assuming demand doesnot deviate radically from the forecast.
VI. FINANCIAL ASPECTS
5.01 Bakhrabad Gas Systems Limited (BGSL) will be incorporated as aseparate entity within the Petrobangla group. BGSL will be responsible forfield development as well as marketing of the gas of the Bakhrabad field.Its revenues will be derived exclusively from the sale of the gas to theChittagong area consumers. BGSL will account for and depreciate its ownassets, incur operating expenses, and generate revenues in order to meet itsdebt service requirements. It will ensure that most of its future expansionin terms of distribution network and production facilities will be met fromwithin its own resources after the initial implementation period.
Market
5.02 The market for gas is expected to develop as follows:
These figures were based on the consultants- market study as revised by IDAand agreed upon with GOB.
BGSL Revenues
5.03 GOB has agreed that gas tariffs should be set at such levels aswill meet the objectives mentioned in para. 2.08. Regarding the financialaspect, BGSL should be a financially sound organization with revenues suffi-cient to cover, after the initial operating period, operating expenses anddebt service, while achieving adequate rates of return on revalued assets andgenerate a reasonable proportion of BGSL-s future development requirements(see para. 5.07). It is estimated that the revenue to BGSL (net of exciseduty) which will meet this financial objective should be Taka 17 per MCF in1985, Tk. 18 in 1987 and Tk 31 in 1989, as described in paras. 5.06 and5.07.
BGSL's Financing Plan
5.04 The table sets out below a summary of BGSL's estimated capitalrequirements for the four-year (FY 1981 - 1984) construction period of theproject and the sources from which they would be met. Further details aregiven in Annex 5.04.
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Taka US$ %(millions)
Requirements
Fixed Investments 2,468 159.2 92Interest during Construction 203 13.1 7Working Capital 17 1.1 1
5.05 The Japanese loan will be made to GOB at the rate of 1.25% with arepayment period of 20 years including 10 years of grace period and onlent toBGSL at an interest rate of 12% per annum. The OPEC loan will be relent toBGSL at 12% rate of interest per annum, for a period of 15 years including 5
years of grace. On the basis of a subsidiary Loan Agreement, satisfactory tothe Association, the proposed credit would be onlent to BGSL at a rate ofinterest of 12% for a period of 15 years, including a grace period of fiveyears. GOB will bear the foreign exchange risk of these borrowings. GOB willfurthermore contribute the balance of the funds needed by the company presentlyestimated at about US$51 million. During negotiations, an assurance wasobtained from GOB and Petrobangla that they will make available to BGSL on atimely basis any local and foreign currency funds including cost overruns thatmay be needed to complete the project.
Future Finances
5.06 Projected income statements, balance sheets and statements ofsources and applications of funds are shown as Annexes 5.01, 5.03 and 5.04,with related assumptions in Annex 5.02. Salient financial indicators forthe first six years of BGSL's operation are presented below:
Debt/Equity Ratio 69/31 65/35 55/45 46/54 35/65 27/73
Debt Service Coverage (times) 0.7 1.4 1.2 1.4 2.1 2.0
5.07 In order to meet the criteria set out in para. 2.08, the Governmentand BGSL have agreed during negotiations to set BGSL-s tariffs (net of exciseduties) at such levels as to achieve a rate of return on revalued gross fixedassets of 5% in 1985 and 10% thereafter. The financial projections indicatethat: (i) the rates of return in 1984 and 1985 are expected to be low. Theseare, however, acceptable in view of the lag involved in the demand build up,particularly as the proposed fertilizer plant, the major consumer in earlyyears of operation, is not expected to be fully operational until 1986. Themethod of revaluation to be used in the computation of the rate of return onrevalued assets was discussed and agreed upon during negotiations. Sincemost of BGSL's fixed assets are expected to be imported, the UN index for theprices of machinery and equipment exported to developing countries will beused for purposes of revaluation; (ii) BGSL would start to pay income taxes in1988 2/; (iii) the current position is expected to remain satisfactory through-out the project period. During negotiations, BGSL undertook that accountsreceivable should at all times be lower than three months sale of gas. (iv)debt/equity ratio is expected to reach 83/17 in 1982 and to improve afterwardsto 69/31 in 1984 and 55/45 in 1986. The latter would still leave a margin forfurther borrowings. However, during negotiations, assurances were obtainedfrom BGSL that no long term debt will be incurred without prior agreement bythe Association, unless the maximum future debt service is covered 1.5 timesby net income before charging depreciation; debt service coverage is projectedto be 1.4 in 1985, 1.2 in 1986, and to remain above 1.4 afterwards, which issatisfactory. The low coverage of 1984 is acceptable in view of the projecteddemand for this year. Present forecasts indicate that the Company may have
1/ Result of loss carry forward tax laws.
2/ In accord'rice with the Companies Act of 1913, BGSL will incur incometaxes at the rate of 55% of net profit, while losses can be carriedforward up to five years for tax purposes.
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surplus cash and may be able to distribute dividends after 1985. However,in order to protect BGSL's financial viability, Petrobangla and BGSL agreedduring negotiations that surplus funds from operations would only be appliedto purposes other than gas operations after ensuring that sufficient in-ternally generated funds are available for meeting debt service requirements,operating expenses, and a reasonable proportion of investmeilt requirementsto ensure adequate gas supplies for the Chittagong market. The DCF rate ofreturn has been computed at 11% in real terms, which is satisfactory.
VI. ECONOMIC ANALYSIS
6.01 In addition to producing significant direct economic benefitsthrough import savings, this project represents an important contributionto the Government-s effort to enhance domestic resource mobilization andstimulate industrial development. Most of the gas produced by the projectwill be used in the industrial and power sectors to replace imported fuel oil.In addition, some of the gas will be used as feedstock, enabling the expansionof the country's domestic fertilizer industry, and thereby reducing the needfor fertilizer imports.
6.02 In estimating the project's benefit streams, it has been assumedthat the natural gas used by existing industry and power has a value of$164/ton, based on the thermal equivalence of gas and fuel oil and theSeptember 1979 cif price of fuel oil imported from Singapore. This value isassumed to increase by 3% in real terms each year. All the incremental gasdemand from industry and power subsequent to the completion of the project hasbeen conservatively assumed to be induced and the value of the induced demandhas been estimated at Tk. 25/MCF, representing 50% of the difference betweenthe economic cost of gas and the cost of imported fuel oil. The value of thegas used as a feedstock to the fertilizer plant is calculated as the valueadded by gas in fertilizer production which would leave the economy indifferentbetween domestic production and import. This is the difference between thecif Chittagong price of imported urea and the cost of production (excludinggas) in the proposed Chittagong fertilizer plant. 1/ This difference isestimated at Tk. 48 per MCF.
6.03 The project's cost streams used a foreign exchange shadow price ofTaka 20 per U.S. dollar, which is based on the free rate allowed for worker-sremittances from abroad. The local labour component was shadow-valued at75 percent of current wages owing to the surplus labour situation in thecountry. Because gas is a depletable resource, its supply cost must includean allowance for the lost opportunity of future use. Therefore, a depletionpremium for the gas has been computed on the assumption of gas availability
1/ Based on urea price Bank projection and on the Report on Chittagong UreaFertilizer Project in Bangladesh, November 1974, Unico, as updated bythe Bank for cost data in September 1979. A rate of return of 12% tothe fertilizer plant has been assumed in the computation.
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in Bangladesh for 40 years and an increase in real terms of 3% a year froman initial cif Bakhrabad-Chittagong price of $164 per ton for fuel oil. Thesocial discount rate is assumed to be 12% per year.
6.o4 The economic rate of return under these assumptions would be57% (Annex 6.01). If, on account of financing problems, the Chittagongfertilizer plant is delayed by two years, the economic rate of return wouldbe 51%. Similarly, if recoverable gas reserves in Bakhrabad, Titas andHabiganj limit the availability of gas in the Chittagong market to 80 MMCFD,the economic rate of return would be 50%. In the event Titas is to be linkedwith Bakhrabad at an additional project cost of US$30 million, the economicrate of return would be 47%. Under the worst scenario, where the fertilizerplant is delayed by two years, gas availability restricted to 80 MMCFD and theproject cost increased by US$30 million, the economic rate of return wouldstill be 35%.
6.05 Because Bangladesh is blessed with such large supplies of gasrelative to its domestic demand and because the possibilities for gas exportappears remote, there is a large "economic rent" to be captured betweenthe cost of the gas to the economy (basically its production cost plus adepletion premium) and its value to those consumers who would otherwise useimported fuel oil. Setting the price of gas above its cost to the economy(about Tk. 13/MCF) but below the fuel oil domestic equivalent price (Tk.47/MCF), encourages gas-based industries and at the same time mobilizesresources for other sectors of the economy. This will become increasinglyimportant in Bangladesh as the role of food aid as a source of budgetarysupport declines with continued movement toward food self-sufficiency. Thetax base must be diversified to encompass production and domestic income, inaddition to import-related levies. Bangladesh has few areas of its economywhere a surplus can be mobilized since agriculture incomes are difficult totax for political and administrative reasons. Its natural gas resourcespresent a unique and immediate opportunity to generate resources for thebenefit of the economy, with minimal economic disincentives and relativelylight administrative requirements.
6.06 Bangladesh is also likely to benefit from the small amounts ofnatural gas liquids (NGL) present in the gas. In addition, there will beenvironmental benefits in terms of reduced atmospheric pollution in theChittagong area as natural gas replaces fuel oil.
VII. RECOMMENDATIONS
7.01 During negotiations the following issues were raised with GOB andsatisfactory assurances were obtained that:
(a) GOB would undertake a gas utilization and pricing study(paras. 2.09 and 2.19);
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(b) GOB would increase national average gas prices by at least20% by June 30, 1981 and periodically thereafter to fullyreflect inflation taking into account movements in inter-national fuel oil prices and in addition to provide a marginfor domestic resource mobilization (para. 2.09);
(c) GOB would annually review with the Association its proposals tomeet the objectives of the above pricing policy (para. 2.09);
(d) GOB would give all necessary assistance to BGSL for maintainingthe project schedule (para. 3.10 (b));
(e) GOB would provide BGSL with all local funds for the projectin the form of equity and with the foreign currency fundsto complete the project (paras. 3.05 and 5.05);
(f) GOB would provide BGSL with the necessary funds for developingthe additional gas production needed for the future Chittagongmarket (para. 4.07 (a));
(g) the next urea plant, apart from the one proposed at Chorasalwould be located in Chittagong (para. 4.09);
(h) an additional 1.0 TCF of proven gas-in-place reserves wouldbe dedicated to the Chittagong market from the Titas/Habiganjfields until such additional reserves are established atBakhrabad or an alternarive field (para. 4.07 (b));
(i) the reserves committed under (h) above would take precedenceover all other commitments (para. 4.07 (c)); and
(j) GOB would give all necessary approvals to increases ingas prices by BGSL to ensure sufficient revenues for BGSLto achieve a rate of return on its revalued gross fixedassets of 5% in 1985 and 10% thereafter (para. 5.03).
7.02 Assurances were obtained that:
(a) BGSL would prepare a master plan for executing the project byMarch 31, 1981 (para. 3.10 (a));
(b) BGSL would submit to the Association its recruiting and trainingprogram within 6 months after approval of the IDA credit(para. 3.10 (d));
(c) BGSL would provide the Association with a satisfactory plan foran accounting information system and the staffing and organiza-tion of its accounting and finance department by September 30,1981 (para. 3.11);
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(d) BGSL and Petrobangla would forward independently auditedfinancial statements to the Association within 6 monthsafter the end of each fiscal year (para. 3.12);
(e) no civil works or materials contract for laying of thepipeline would be awarded until an additional well has beendrilled and its results analyzed and found satisfactory tothe Association and until the pipeline right-of-way has beenacquired (paras. 4.17 and 4.29);
(f) BGSL would maintain gas tariffs to meet its required ratesof return on gross revalued assets (para 5.07);
(g) accounts receivable would at all times be lower than threemonths of gas sales (para. 5.07);
(h) no long-term debt would be incurred without prior agreementof the Association unless debt service is covered 1.5 timesby net income before charging depreciation (para. 5.07); and
(i) surplus funds from operations would not be distributed and/orapplied to purposes other than gas operations unless theoperating expenses, debt service requirements and investmentneeds of BGSL are met from internally generated funds (para.5.07).
7.03 Conditions of effectiveness of the proposed credit would be:
(a) the execution of the Subsidiary Loan Agreements between theBorrower and BGSL and Petrobangla (para. 4.23);
(b) the completion of all conditions of effectiveness of theOPEC and OECF Loan Agreement by the Borrower (para. 4.23);
(c) the appointment by the Borrower of key BGSL staff forimplementation of the project (para. 3.10(c)); and
(d) the approval of the Project Proforma by the Borrower(para. 4.22).
7.04 A condition of disbursement for the training component would bethe submission of a satisfactory training program for BGSL staff.
7.05 With satisfactory resolution of the items outlined above, theproject constitutes a suitable basis for an IDA Credit of US$85 million.
BANGLADESH
BAKHRABAD GAS DEVELOPMENT PROJECT
Estimates of Consumption of Energy Supplied
by Traditional Fuels
Percent ofTotal
Production Total BTUFuel Used as Contet
Fuel x 10
Cow Dung 35 50
Jute Stick 50 12 X
Rice Straw 10 36
Rice Hulls 80 48
Bagasse 75 11
Firewood .. 7
Twigs, Leaves .. 18
OtherWastes .. 18
Total .. 200
Source: Bangladesh Energy Study, 1976
BTU - British Thermal Unit.
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Annex 2.01Page 1 of 2
BANGLADESH
BAKHRABAD GAS DEVELOPMENT PROJECT
IMPORTANT GAS FIELDS IN BANGLADESH
1. Sylhet
This was the first gas field to be discovered in Bangladesh by thePakistan Petroleum Limited in 1955 and is located 11 miles East of Sylhet.Sylhet structure is asymmetrical anticline trending from North East to SouthWest. Its Eastern flank is steeper in comparison to the Western flank whichis faulted at depth. There are two main gas producing zones at depth of3,973-4,202 feet and 4,290-5,430 feet. So far, six wells have been drilled,of which two were abandoned, two are producing and the remaining two could beput into production if required. The field was commercially commissioned in1961 and supplies gas to the Fenchuganj Fertilizer Factory. In addition itmeets the commercial and domestic requirements of the Syhlet town and varioustea gardens located in the district. Gas in place is estimated between 290 to430 billion cubic feet (bcf) of which 78 bcf have so far been produced.
2. Titas
This field, presently the most important in Bangladesh, is locatedin the Comilla district. It was discovered by the Shell Oil in 1962. It hasa dome like subsurface structure with a peripheral closure of some nine bytwelve miles, at a depth of 3,150 feet. It is asymmetric with a steeperEastern flank. Four gas bearing zones have been identified, which are at ahydrostatic prrssure ranging from 4,200 psi to 4,500 psi. Total pay zone hasa thickness of 426 feet and the gas saturation has been determined at 55% to77%. Four producing wells have been drilled at a depth ranging from 9,350feet to 12,325 feet. Gas from this field is being used by the power stationsat Ashuganj, Ghorasal and Shiddhirganj and by the fertilizer unit at Ghorasal.In addition, it also provides for the industrial, commercial and domesticrequirements of Dacca. Total reserves are estimated at around 2,250 bcf, ofwhich 167 bcf have so far been produced.
3. Chhatak
This gas field was discovered in 1959 by Pakistan Petroleum Ltd;its structure is an east west trending faulted anticline and is located inthe Sylhet district. This gas is used in the Chhatak cement factory, in theSylhet paper mills and for domestic use in the town of Sylhet. So far 17 bcfof gas has been used against estimated reserves of 40 bcf.
4. Habiganj
This gas field was discovered by he Shell Oil Company in 1963. Itis located in the Sylhet district, about 20 miles north east from the Titasgas field. The Habiganj structure is a continuation of the Baramura anticlineof Tipura State in India. Including Habiganj the length of the anticline isabout 80 miles. So far two wells have been drilled. Both the wells have two
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Annex 2.01Page 2 of 2
gas bearing zones at depths of 4,590 to 5,500 feet and 9,889 to 9,970 feet.Gas is being utilized for power generation at Shajibazar and in the adjoiningtea gardens. It is also proposed to utilize gas from this field for theAshuganj Fertilizer Factory and a 12" pipeline for this purpose is currentlyunder construction. So far, 38 bcf of gas has been produced from this gasfield against gas reserve estimates 1280 bcf.
5. Bakhrabad
This gas field is one of the most promising discoveries to date. Itis located west of the Tripura uplift, about 25 miles southwest of Titas andnorthwest of the town of Comilla. It consists of a seismic elongated anti-cline having four culminations. Presence of gas in this field was estab-lished by Shell, when the first and only well (BK-1) was drilled and completedin 1969. The well was tested for gas in two separate zones, though severaladditional zones were encountered and found through electrical interpretationto contain gas. According to the analysis made by Shell, the gas reserveswere estimated in the range of 2.8 to 3.7 tcf. No well has subsequently beendrilled though, on the basis of data collected by Shell, consultants haveestimated the proven reserves of B-1 culmination at 1.5 tcf, of which 1.1 tcfare considered recoverable. Further additional drilling at the B-1 site mightindicate a potential of around 1.4 tcf. However, to fully delineate thefield, additional drilling in other culminations (A-1, A-2 and B-2) would needto be undertaken.
BANGLADESHBAKHRABAD GAS DEVELOPMENT PROJECT
Production and Consumption of Natural Gas
(MMCF)
Crude Oil Consumption
Year Production Million Power Fertilizer Commercial Domestic Other- Total in Cafpt
(v) Waste Oil recycling 4,500 tons of base lubricating oil(in the private sector)
(G) Traditional and Non-Conventional Energy
(i) Field trial of Solar pump for irrigation a Pilot Plant basis.
(ii) Field trial of phototype wind mill which suits the technologicalbase of Bangladesh.
(iii) R & D on alternative energy sources and promotion of their uses.
(iv) Integrated study, monitoring and coordination of traditional andnon-conventional sources of energy by the Planning Commission.
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ANNEX 2.05Page l oi 5
BANGLADESH
BAKHRABAD GAS DEVELOPMENT PROJECT
Natural Gas Powered Motor Vehicles
Historical Development
1. The early development of the internal combustion engine was basedlargely on gaseous fuels. Beginning around 1800 coal gas, originally producedfor lighting, began to be used in engines. During the first three-quarters ofthe 19th century, a series of major advances in gas engine design were made,culminating in Nicolaus Otto's invention of the four cycle Deutz "A" engine of1877. Liquid fuels, developed at about the same time, however, proved to beeasier to distribute and store and to have a higher energy content. Wide-spread acceptance of gasoline and diesel fueled engines for the infant auto-mobile industry soon followed.
2. From the turn of the century to 1950, gas fueled engine technologyfound application primarily in the stationary engine market. The popularityof gas for water pumping, power generation, and other industrial uses was dueto its low cost, clean burning characteristics, and increased engine life.Only in recent years, spurred initially by air quality concerns and shortlythereafter by energy supply concerns, have gas fueled vehicles appeared on acommercial basis. An estimated 400,000 automobiles were operating on variousgas fuels worldwide in 1978, and the numbers have been growing ever since.This fact has remained obscure to the general public, as the utilization todate, except for Italy and France, has largely been limited to private coMaY.cial fleets, and more recently a few municipal fleets.
Status of Technology
3. CNG and Gasoline Engines. Virtually all of the gaseous fuel used topower transportation is in gasoline engines which have been retrofitted withdual-fuel apparatus allowing them to burn either gasoline or gas. CompressedNatural Gas (CNG) has been used extensively as an automotive fuel in Italysince the late 1930s. Currently nearly 250,000 vehicles, mainly private, arerunning on CNG in the central and nothern part of the country. A small numberof other countries are using CNG as an automotive fuel, although on a far morelimited scale. In Franice there are about 20,000 vehicles operating on CNG andin U.S.A. more than 200 million miles have been logged by CNG powered vehicles(owned largely by fleet operators) over the last ten years. Conversion tonatural gas occurred where (a) natural gas was abundant and relatively cheapin relation to other fuels; (b) an extensive distribution network existed; and(c) prices of gasoline on account of taxes etc. were high enough to justifyexpenditures on conversion. However, in the U.S.A. conversion was motivatedeither by a concern over the pollution levels or because captive gas wasavailable to some companies. In either case, conversion to CNG took place in
- 46 -ANNEX 2.05Page 2 of 5
a sporadic fashion and was a result of individual initiative. However, withsharply rising prices of gasoline and consequent higher import burden, CNGbecomes an attractive alternative for countries which are well endowed innatural gas. New Zealand which has a large natural gas resource, but has toimport liquid hydrocarbons, is sponsoring conversion of about 200,000 motorvehicles over the next few years.
4. Adapting a gasoline powered motor vehicle to a dual-fuel poweredvehicle using natural gas as the alternate fuel is relatively simple. Nointernal changes to the engine, its cooling, lubrication or iginition systemare necessary. The conversion kit consists of a two-stage pressure reducingassembly, an air-gas carburation unit, solenoid valves for the CNG and gasol-ine supply lines, and high pressure tubing and fittings. The CNG is storedin cylinders, normally two or three, located usually in the trunk of theautomobile or in the case of vans and trucks on the bed of the vehicle. Asafety requirement is that the passenger space of the vehicle must be her-metically sealed off from the cylinders if they are located in an enclosedportion of the vehicle such as the trunk. Furthermore, the cylinder spacemust be vented to the atmosphere. The pressure regulating assembly is nor-mally jacketed to allow the circulation of hot water from the radiator inorder to prevent freeze-up. A selector switch, generally mounted on thedashboard, allows the driver to select the desired fuel by actuating thesolenoid valves in the supply lines to the appropriate off-on position. Thereare five known manufacturers of CNG conversion systems in Italy supplying notonly the Italian but a substantial export market. In the U.S.A. there is onemanufacturer engaged in this work on a fairly active scale. Italy is alsothe leading supplier of CNG cylinders. There are five manufacturers, eachusing its own process, to fabricate seamless cylinders from mild alloy steel(chrome-moly or nickel-chrome-moly) billets or tubing. The cylinders aredesigned for an operating pressure of 200 atmospheres and are hydrostaticallytested at 300 atmospheres. Cost of conversion kit varies between $125 to $150and a pair of cylinders costs about $300. Including labour, the cost ofconversion per vehicle would be of the order of $550.
5. CNG and Diesel Engine. A considerable amount of development workhas been carried out by several groups in Italy on the conversion of dieselengines to CNG. The basic approach has been to retain the diesel cycle,inject diesel fuel by the usual direct injection pump in limited quantitiesand aspirate CNG in the induction manifold. No sparking device is added tothe engine, and diesel oil acts as a pilot fuel and sparks the CNG. In suchconversions, the proportion of CNG can vary from 0 to 75% without affecting theperformance of the vehicle. The impetus for this work came from the desireto reduce pollution, but the price differential between diesel fuel and CNGwas too small to make conversion attractive. Some research and developmenthas also been carried out in the U.S.A. A bus has been converted, and suc-cessfully operated over a long period, to run on 100% CNG by altering theengine to spark ignition. Work has also been done on converting dieselengines to dual-fuel systems with up to 90% CNG and 10% diesel. From thedevelopment works carried out so far, it would appear that conversion of
- 47 -ANNEX 2.05Page 3 of 5
diesel vehicles to dual-fuel (diesel and CNG) is technically feasible.However, range would be an inhibiting factor limiting its use essentially tourban transport.
6. Fueling Stations. Refueling is one area in which gas burning carsdiffer markedly from gasoline fueled vehicles. For compressing gas to 200atmosphere pressure special equipment is required to recharge the vehicle.A typical compression station comprises electric or gas engine driven com-pressors, storage cylinder to provide surge capacity, and flow and pressuremeasuring and recording facilities. For vehicle refueling there are normallyat least five bays, each equipped with a hose which is coupled to the vehiclesfilling connection. Two options are available on refueling stations; locatingthe stations so that natural gas be compressed directly from a pipeline orsupplying a station with mobile tanks or cylinders which are refilled at amother compression station on a pipeline. Usually it is a combination of thetwo; with a mother compression station operating off a high pressure transmis-sion pipeline and feeding 5 to 20 satellite stations therefrom. One of themost critical factors in selecting the site of a compression station is thepressure in the natural gas supply pipeline. The capital cost of compressioncan vary by a factor of six between operating at an inlet pressure of 20atmospheres compared to one atmosphere. Operating costs, especially compres-sion energy, are also significantly affected. The mother - satellite combin-ation permits the use of high pressure, if available, in the transmissionpipeline. On account of these considerations, cost of compression can varywidely. On the basis of preliminary computation, cost of compression inBangladesh would be of the order of US$0.05/litre.
7. Economy and Performance. Improvements in engine efficiency of 5 to40 percent have been observed in vehicles operating on CNG, with a figure of14 percent for an average. In a gasoline engine a portion of the total amountof fuel consumed by the vehicle is required to operate a device known as anaccelerator pump; a gas powered vehicle does not use such a pump, resultingin an immediate saving in fuel. In addition, gaseous fuels mix readily andcompletely with air and do not later separate or condense out; methane inparticular can burn over a wide range of air-fuel ratios. The result ismore complete combustion with increased energy efficiency and reduced pollu-tion. The degree of improvement in efficiency depends on the type of usage:(a) improvements on the order of 10 percent have been obtained under highwayconditions, while (b) improvements of up to 40 percent have been obtainedunder city stop-and-go driving conditions. Vehicle age and size do not appearto affect relative engine efficiency.
8. It is this very efficiency in energy usage which is, in part, res-ponsible for the engine power loss suffered by CNG fueled vehicles relativeto gasoline fueled ones. The extent of the power loss varies with the vehicleand driving situation, and is generally noticeable only when accelerating,climbing a hill, or carrying a heavy load. Averaged power losses experiencedwith CNG operation have been on the order of 10-20 percent, although thedrop-off can be substantial for vehicles in low throttle settings and higherRPM ranges and for heavily laden vehicles. Advancing spark timing within
- 48 -
ANNEX 2.05Page 4 of 5
rather strict limits may reduce the power loss. At the same time, by virtueof the gaseous state, natural gas offers easy starting, reliable idling, andstumble free acceleration.
9. Natural gas has an octane rating of 130, and therefore, does notneed the addition of lead--a substance harmful to both people and engines.Moreover, although day-to-day maintenance costs may be higher initiallyuntil experience is gained, use of natural gas can result in considerablesavings on routine preventative maintenance. Actual use has shown for example,that a CNG powered car can be driven up to 36,000 miles between oil changesand 40,000 miles between spark plug replacements. Engine life is also enhancedsubstantially. These advantages have to be measured against a loss in cargospace (30%) to CNG cylinders and limitations of range imposed on the auto-mobile. Two cylinders of gas, would on average carry CNG equivalent to20 litres of gasoline, giving an average vehicle a range between 150 and 200kilometers; after which it would either need to be refueled or switch over togasoline. Again, not only will refueling be required twice as often but itwill also be more time consuming. Refueling natural gas would take about tenminutes against three to five minutes for gasoline. Despite these dis-advantages there are reasons to believe that consumers would be willing toconvert provided adequate fiscal incentives are provided. However, the majorbenefactor of the conversion would be the economy and in the case ofBangladesh, a modest conversion program (6,000 vehicles), would secure a rateof return in excess of 70%.
10. Safety and Environment. CNG is as safe, if not a safer motor fuel,than gasoline. It is ligher than air, and unlike gasoline, quickly dissipateswhen released to the atmosphere. Moreover, because of its high pressure itmust be contained in very strong cylinders which have an extremely 10o prob-ability of bursting from excessive heat or mechanical damage. Durit)j 30 yearsof operation in Italy, which has the most extensive experience with CNC andwhere it is compulsory to report all accident damage involving gas cylinders,there is no recorded accident resulting from a faulty CNG system. AlthoughCNG vehicles have been involved in their fair share of accidents, none wereattributable to CNG components. Component failure has rarely resulted from anaccident, and there have been no injuries or deaths attributable to CNG in anaccident. In U.S.A. in over 175 million miles logged by CNG vehicles, therewas no death and only one injury attributable to CNG in about 1360 collisions,of which more than 800 were rear end collisions. This excellent safety recordof course does not mean that strict regulations and their enforcement, regard-ing the manufacture, installation and inspection are unnecessary. To ensure ahigh level of safety, iianufacturing quality and performance must be monitoredand installations checked and approved annually. Cylinders must be checkedand recertified at 5-year intervals. Particular attention must be paid in therouting and secure fastening of all high pressure piping and in reducing thenumber of connections and joints to a minimum. Cylinders involved in accidentsmust be recertified and those found mechanically defective or thermally over-stressed must be destroyed. A natural gas supply free of moisture and sulphurimpurities is an essential safety requirement.
- 49 -ANNEX 2.05Page 5 of 5
11. Natural gas is non-toxic and non-reactive in the atmosphere; thatis, it does not form smog. Moreover, it burns cleanly in a world in whichexhaust emissions from motor vehicles are a major source of air pollution,particularly in urban areas. A vehicle powered by natural gas releases airemissions totaling only 10-20 percent as much as discharged by a gasolinepowered vehicle. Composite emission comparisons in a series of tests inSouthern California showed an 83 percent reduction in carbon monoxide, a 72percent reduction in hydrocarbons, and a 97 percent reduction in oxides ofnitrogen when operating on CNG compared to stock gasoline. On a total energycycle basis (i.e., from extraction to end-use), fueling a vehicle with naturalgas would result in total air emissions of only 10-40 percent of the totalwhich would result from using present-day gasoline.
12. Potential for Use. Given the present price differential betweengasoline/diesel and indigenously available natural gas, conversion of vehiclesto CNG offers substantial economic advantage. At the same time, natural gasis more economical in terms of engine efficiency and maintenance, and moreenvironmentally sound in terms of both safety and pollution. Nevertheless,the increased use of natural gas faces several constraints--capital costs ofconversion, development of refueling stations and gas distribution, reducedvehicle range, and loss of engine power. Several of these constraints suggestthe urban environment with the existing infrastructure (pipelines, etc.) and,initially, commercial and governmental fleets as the principal market fornatural gas powered vehicles. In addition to clear identification of thepotential savings to the consumers in using natural gas rather than gasoline,conveniently located refuelling stations, adequate conversion facilities,financial assistance for undertaking conversion, introduction of investmenttax credits, accelerated depreciation schedules, road tax credits, and otherfinancial incentives may be necessary to encourage greater conversion ofvehicles. Important policies pertaining to standards, jurisdiction and fiscalincentives defined and established. Finally, caution must be exercised inattempting to introduce CNG powered motor vehicles in other countries, astechnical feasibility, financial and economic viability, and social accept-ability will differ from country to country. Conversion to CNG on an exten-sive scale should therefore be considered only after its economic feasibilityhas been studied in depth and its acceptability verified through a pilotproject.
BANGLADESHBAKHRABAD GAS DEVELOPMENT PROJECT
ORGANIZATION CHART OF THE PETROLEUM INDUSTRY IN BANGLADESH
Director ~~~~~~~~~~~~~~~~~~~~~~~Me hna StandardDrcoDierect or etr spotl & Directcr Bum auoPetrlu Latr atr AiatcAdinitrtion F ac lenn rdcin e atr ed i opn Company ReleyLurcn ii0
E:<ploralion 8GFCL BPLDivislot
.~~~~~~~~~~~~~~~~~~~~~~~~~~~~
|Gas T&rD Ltd. ||Gas T&D Ltd. || Systems Ltd.|World Bank - 21276
MANAGER MANAGER REGIONAL MANAGER CHITTAGONG LMANAGER PLANNING PRODUCTION AND DISTRIBUTION DISTRIBUTION MANAGER MATERIALS MANAGER PERSONNEL MANAGER FINANCE MANAGER ACCOUNTS
TR AN SM SSION
CURRENT PLANNING OPERATIONS COMILLA ACCOUNTS PURCHASES SERVI COST CONTRO ACCOUNTS
FOR EWARD CONSTRUCTION ON STORES PERSONNEL FINANCIAL PAYMENTS
d PIPELINE l i ADMINISTRATION | ENGG. SERVICES |
ACCOUNTS DISTRIBUTION
VVo,Id B-1,k - 22117
- 52 -
BANGLADESH ~~~~ANNEX 4.01TRANSMISSION PIPELINE FROMB BA GL OPES N PROJECTBaARHRARAD BAEtlRABAD GAS DEVELOPMNT PROJECT KARIAPHULI
CHITTAGONG C PROPOSED DISTRIBUTION SYSTEM PAPER KILL
PPOED 03 PRESSURE REDUCINIGIMETERING STATION*~~~e/~~j. 'S ~URE IA RESIcEirTIAL DEVELOINEJT AREAS
2 ~ PLANT MA4STER PLAN INDUSTRIAL AREA
BANGLADESHBAKHRABAD GAS DEVELOPMENT PROJECT
PROJECT SCHEDULE
1980 1981 1982 1983
1 2 3 3 4 1 2 3 4 1 2 3 4
INVITE PROPOSALS _
CONSULTANTS .SE LECT CONSULTANTSCONSULTANTS ~~~I IPIPELINE PROJECT MOBILIZEGAS FIELD DEVELOPMENT
ENGINEERINGROUTE SURVEYS _:DATA ACQUISITIONDETAI LED ENGINEERING
ISSUE TENDERPROCUREMENT , PLACE ORDER U,
LINE PIPE DELIVER'Y COMPLETED (See Note)COAT AND WRAP _VALVES, FITTINGS AND OTHERS ISSUE
TENDER AWARD CONTRACTCONSTRUCTION I $ MOBILIZEPIPELINE AND 20"/16" DIST. LINE COMPiLETE * * 1 I10" DISTRIBUTION LINE SITE I I -
PREPAWRATION AWARD DRILLING CONTRACTGAS FIELD DEVELOPMENT '11 MOBI LIZE
DRILLING PROGRAM I
PRODUCING FACILTIES |l| |!l l | START DRI LLING l l
START-UP AND COMMISSIONING ST-RT l -l L
NOTE: The 1982 completion date can be met if all construction materials are delivered to job site by the end of September 1981.Otherwise, the 1982 Monsoon Season will delay completion until 1983.
World Bank - 21275 C
- 54 -
BANGLADESH ANNEX 4.03
BAKHRABAD GAS DEVELOPMENT PROJECT
Estimated Cost of 24" Transmission Line
Local F.E. Total Local F.E. Total(In Taka Millions) (In US$ Millions)
TOTAL COST OF GAS DISTRIBUTED 3,370.44NET INCOME BEFORE INTEREST 1,445.92INTEREST
NET INCOME AFTER INTEREST 1,445.92
OPERATING RATIO 0.70
- 64 -ANNEX 5.02
NOTES AND ASSUMPTIONS ON FINANCIAL STATEMENT
Revenue Account
1. Sales revenues are based on an average net revenue to BGSL of Taka 17per MCF in 1985, increasing each year in order to meet a minimim of 10% rate ofreturn on revalued gross fixed assets for the entity starting in 1986.
2. Depreciation has been computed on the basis of a composite straightline rate of 5% on revalued capital assets.
3. Operatinrg costs were estimated by Williams Brothers and are inflatedby 10% per-year, in line with projected local inflation.
4. BGSL incurs taxes on its net income at the rate of 55%. For incometax purposes, losses can be carried forward up to 5 years, and depreciationexpense is based on historical costs.
5. Interest expense has been taken at 12% on the average balance oflong term debt outstanding for the year, and repayment period is 10 years,after 5 years of grace period.
Balance Sheet and Statement of Source of Application of Funds
1. Gross capital assets and accumulated depreciation are revalued atthe rate of 9% per year.
2. Accounts receivable represent one month of sales.
3. Cash is assumed to be one week of debt service, operating expensesand local fixed assets acquisition.
4. Accounts payable represent one month of assets acquisitions, andand of operating expenses.
