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Document of The World Bank FOR OFFICIAL USE ONLY c k tf/S- 53J Report No. 6628-GH STAFFAPPRAISAL REPORT GHANA PETROLEUM REFINING AND DISTRIBUTION PROJECT May 20, 1987 EnergyDepartment This document has a restricted distribution and may be used by recipients only in the performance of their officialduties. Its coutel ts may not otherwise be disclosedwithout World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

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Page 1: World Bank Document · 2016. 7. 14. · Document of The World Bank FOR OFFICIAL USE ONLY c k tf/S- 53J Report No. 6628-GH STAFF APPRAISAL REPORT GHANA PETROLEUM REFINING AND DISTRIBUTION

Document of

The World Bank

FOR OFFICIAL USE ONLY

c k tf/S- 53J

Report No. 6628-GH

STAFF APPRAISAL REPORT

GHANA

PETROLEUM REFINING AND DISTRIBUTION PROJECT

May 20, 1987

Energy Department

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its coutel ts may not otherwise be disclosed without World Bank authorization.

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Page 2: World Bank Document · 2016. 7. 14. · Document of The World Bank FOR OFFICIAL USE ONLY c k tf/S- 53J Report No. 6628-GH STAFF APPRAISAL REPORT GHANA PETROLEUM REFINING AND DISTRIBUTION

CURRENCY EQUIVALENTS

Currency Unit = Cedi (¢¢ 159 = US$1.00 _

WEIGHTS AND MEASURES

1 Metric Ton (MT) = 1,000 Kilograms (kg)1 Barrel (BBL) = 0.159 Cubic Meter1 Metric Ton of Oil (API 30) = 7.19 Barrels1 Ton of Oil Equivalent (TOE) = 10 Million Kilocalories (39.7 Million BTU)1 TOE = 1,000 Kilogram of Oil Equivalent (kg OE)1 Kilocalorie = 3.97 British Thermal Units (BTU)1 Gallon = 3.785 Liters

ABBREVIATIONS AND ACRONYMS

BEICIP = Bureau d'Etudes Industrielles et de Cooperationde l'Institut Francais du Petrole

ECG = Electricity Corporation of GhanaEIB = European Investment BankENI Ente Nazionale IdrocarburiGHAIP Ghanaian Italian Petroleum Company LimitedGNPC Ghana National Petroleum CorporationCOIL - Ghana Oil Company LimitedKfW = Kreditanstalt fur WiederaufbauMFP Ministry of Fuel and PowerNEB = National Energy BoardPNDC = Provisional National Defense CouncilUNDP = United Nations Development ProgramVLTC = Volta Lake Transportation CompanyVRA Volta Lake Authority

FISCAL YEAR

January 1 - December 31

1/ A dual exchange rate system was established on September 19, 1986 when aforeign exchange auction was instituted for specified transactions. A t90rate applied to the first window (cocoa and residual oil exports,petroleum and essential drugs imports, and central government debt servicecontracted before January 1, 1986); the rate on the second window wasestablished at the weekly auction. The two rates were unified with effectfrom February 20, 1987; all transactions are now valued at the rateemerging in the weekly auction. In the week ending May 8, 1987, themarginal rate at the auction was ¢159 = US$1.

Page 3: World Bank Document · 2016. 7. 14. · Document of The World Bank FOR OFFICIAL USE ONLY c k tf/S- 53J Report No. 6628-GH STAFF APPRAISAL REPORT GHANA PETROLEUM REFINING AND DISTRIBUTION

FOR OFFICIAL USE ONLY

GHA

APPAUISAL OF PETROLEUM REFINING AND DISTRIBUTION PROJECT

TABLE OF CONTS

Page No.

I. INT RODUCTION *v***ev***-*v¢**X**v*** 1

II. THE ERGY SECTOR ..................... 2

A. Energy Resources, Supply and Demand ....................... 2

B. Sector Organization . .............. ................ 4

C. The Renewable Energy Sector .............................. 5

D. The Petroleumn Sector ................... 5......... 5

1. Hydrocarbon Potential .....* ........................... 52o Petroleum Consumption 000000000000000000toooeoOO-oO 63. Petroleum Refining 000000 00 00000000 000000000*ooOoo* 0000 94. Petroleum Product Distribution and Marketing .. o..... 115. Petroleum Product Transport via Volts Lake *ooo**.ooo.. 126. Distribution in the Rural Areas ....................... 127, LPG Distribution 000...... ... 0 0 4 0000000. 0 0 O..00 000000.00.00 138. Petroleum Product Pricing ............................. 139. Private Sector Activities .......................... 15

E. Government's Sector Ob3ectives and Development Plans *e*oe* 15

F. Role of the Bank Group 1..........................o.*.o. 16

III. THE BORROWER AND THE IMPLEMENTING AGENCIES ..................... 17

A. Introduction .... .00000.00000000... * .............. 17

B. The Ghana Italian Petroleum Limited *....*......*e . o* 18

1. Organization .0.0.0.0............o.o...o................. 182. Management and Staff .... .............................o 193. Accounts and Audit 0000... 0 204. GRAIP's Finances ................ 20

This report was prepared by Messrs. N. Tin and T. Nayar of the EnergyDepartment with the assistance of Mr. N. Kassatly (Consultant).Mrs. R.M. Colon provided secretarial assistance.

This document has a restricted distribution and may be used by recipients onlb in the perfomaeof their oflicial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Page No.

C. The Ghana Oil Company Limited ...........*................. 25

I1 Organisation .ooo.o.eoe....ooo*oo........*........... , 25

2. Management and Staff .................................. 253. Accounts and Audit ...o,....,.....0.0...........o.....0 264. GOIL's Finances o*o*ooooo,.ooo.o*.*oo.oo.ooo,ooooe oo.*. 26

IV. THE PROJECT o.o.o... *oe........ee...... *.ee................ 29

A. Genesis .o,o.,o o.o..o*.... ooo. oo.o.oooooo*o..oooo..e.oo*.. 29

B. Project Objectives oo..o e e 30

C. Project Description ....................oo...............o.. 30

1. Rehabilitation of GRAIP's Tema Refinery Facilities .... 312. Rehabilitation of COIL's Bulk Petroleum Depots

at Takoradi and Kumasi *.oo5oeo*oo....oe.*oo eO*..O.oso0. 323. Rehabilitation of Retail Outlets .......... 0........... 324. Expansion of LPG Marketing Facilities ..............o.. 335. Petroleum Product Transport via Volta Lake .....o...... 336. Farmers' Service Reseller Outlets o.......ooo..o..oo... 347. Training for GOIL Personnel and Computer Facilities oo. 34

D. Project Management and Implementation ... ** ................ 34

E. Project Schedule ......... .......................... 36

Fo Project Cost Estimates ....................... 36

Go Financing Plan so,,... .ovsoo**oX*oeoo...ss.s..... 38

R. Procurement e 39

I. Allocation and Disbursement of IDA Credit .0........0...... 40

J. Environmental and Safety Aspects o............. . ...... 41

K. Project Monitoring and Reporting Requirements ....o....... 42

V. PROJECT JUSTIFICATION AND RISKS ....... oo... o.......eeooo.0*0 43

A. Project Justification ...o ooo oo ..................... 0.0.00.0 43

1. Sectoral and Institutional Objectives 0 ................ 432. Econ%iMic Returns *o..o..o....o..o..o........ooooooooooo 44

3. GHAIP's Tema Refinery Operating Economics ............. 44

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S. Project Risks *................,.o........*..0,.,00......*, 45

VI * AGREE13MET ............. *..,...........* 46

ANNUE$E

2-1 Ghana - Estimated Energy Supply/Demand Balance, 19852-2 Petroleum Products Price Structure3-1 CHAIP - Organization Structure3-2 GRAIP - Historical Income Statements, 1981-19853-3 CHAIP - Historical Balance Sheets, 1981-19853-4 GUAIP - Projected Income Statements, 1986-19923-5 GBAIP - Projected Balance Sheets, 1986-19923-6 QUAIP - Projected Sources and Application of Funds, 1986-19923-7 QUA!P - Notes and Assumptions for Financial Projections3-8 COIL - Organisation Structure3-9 COIL - Historical Income Statements, 1981-19853-10 COIL - Historical Balance Sheets, 1981-19853-11 COIL - Projected Income Statements, 1986-19923-12 COIL - Projected Balance Sheets, 1986-19923-13 COIL - Projected Sources and Application of Funds, 1986-19923-14 COIL - Votes and Assumptions for Financial Projections4-1 Project Implementation Schedule4-2 Detailed Project Cost Estimates4-3 Estimated Disbursement Schedule4-4 Project Monitoring Indicators5-1 Economic Analysis5-2 QUAIP - Tema Refinery Operating Economics

MAPS

Ghana - Existing and Proposed Petroleum Supply and DistributionFacilities (IBRD 20017)

Volta Lake Petroleum Transport - Akosombo Works (IBRD 20018)Volta Lake Petroleum Transport - Buipe Works (IBRD 20019)

DOCUMENTS CONTAINED IN PROJECT FILE

1. Improvement and Expansion of the Volta Lake Transport System: FuelHandling Facilities at Akosombo and Buipe, VLTS Engineering Consortium,L&P - GOPA - RRI, April 1986.

2. Regulations of the Ghanaian Italian Petroleum Company Limited.

3. Regulations of the Ghana Oil Company Limited.

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CHANA

PETROLEUM REFINING AMD DISTRIBUTION PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Republic of Ghana

Beneficiaries: Ghanaian Italian Petroleum Company Ltd. (GHAIP) andGhana Oil Company Ltd. (COIL)

Amount: SDR 11.7 million (US$15 million equivalent)

Terms: Standard IDA

Onlending Terms: The Government would onlend the full amount of theCredit to GRAIP (SDR 1.3 million or US$1.7 millionequivalent) and COIL (SDR 10.4 million or US$13.3million equivalent) at 1.1 times the prevailing(currently 7.92X) Bank interest rate for 15 yearsincluding 3 years of grace. GHAIP and COIL would bearthe foreign exchange risk on the Credit.

Colenders: SIB is expected to provide US$6.5 million equivalenttowards .he financing of GHAIP's Tema refineryrehabilitation. The Federal Republic of Germany,through KfW, would provide DM 16 million (US$8.7 millionequivalent) to Vofta Lake Transportation Company (VLTC)to finance on a parallel basis the waterside facilitiesof the Volta Lake petroleum transport system.

Project Description: The proposed project would increase the reliability andreduce the cost of supply and distribution of petroleumproducts throughout the country by further improving theoperating efficiency of CHAIP's refinery and by rehabi-litating and improving COIL's existing o4tl distributionand marketing facilities. It would also open a newroute of transport (Volta Lake) of petroleum products tothe north and enable the distribution of diesel andkeroser.e to outlying/remote areas mainly to facilitatemovemont of agricultural products. The proposed projectcomprises the following components:

(a) Completion of the ongoing rehabilitation of theTema Refinery of GCAIP (under Credit 1446-GH)particularly offsite facilities, utility systems,LPC handling, product shipping facilities andenergy efficiency improvement of the existingdistillation unit, and acquisition of vehicles;

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(b) rehabilitation of GOIL's bulk petroleum storagedepots located at Takoradi and Kumasi;

(c) rehabilitation of GOIL's existing network of retailoutlets;

(d) expansion of the infrastructure and increasedavailability of LPG bottles and stoves to marketadditional LPG that could be made available fromthe Tema refinery;

(e) provision of storage tanks and transfer facilities(i.e. land side facilities) at Akoaombo and Buipeto transport petroleum products on the Volta Laketowards the northern parts of the country;

(f) provision of oil jetties at Akosombo and Buipe,petroleum barges and tug boat (i.e. water sidefacilities);

(g) provision of transport vehicles to move LPG andother petroleum products;

(h) provision of facilities for farmers' servicereseller outlets to make essential petroleumproducts (mainly kerosene and diesel) available tothe farmers in remote areas; and

(i) project engineering and management assistance forCHAIP and COIL, computer facility for COIL andtraining of GOIL's managerial and operationalpersonnel.

Project Benefitsand Risks: The main benefits of the proposed project would be:

increased reliability and reduction of cost in thesupply and distribution of petroleum products throughoutthe country; increased access to petroleum products inthe northern regions and the outlying/remote areas tosupport their economic development; slowing downdeforestation with f rther distribution of LPG readilyavailable from the Tema refinery; restructuring theoperating and earning basis of CRAIP and strengtheningthe commercially-oriented operations of CHAIP and COIL;and further reducing oil pollution from Tema refineryoperations to normal industry standards. There are nounusual risks associated with the proposed project.

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Estimated Cost: LaLocal Foreign Total

(i) Rehabilitation of TemRefinery Facilities 1.4 5.3 6.7

(ii) Rehabilitation of GOIL'sDepots at Takoradi & Kumasi 0.2 0.5 0.7

(Mii) Rebabilitation of Retail Outlets 0.5 1.9 2.4(iv) Expansion of LPG Narketing Facilities 0.9 3.6 4.5(v) Handling facilities at

at Akosombo and Buipe 1.4 3.8 5.2(vi) Jetties at Akosombo and Buipe,

Petroleum Barges and Tug Boat 0.9 7.7 8.6(vii) Farmer's Service Reseller Outlets 0.2 0.5 0.7(viii) Transport Vehicles - 0.8 0.8(ix) Training for COIL Personnel 0.1 0.3 0.4(x) Computer Facility for COIL 01 0.2 0.3

Base Cost Estimate 5.7 24.6 30.3Physical Contingencies 0.7 2.6 3.3Price Contingencies 1.7 1.0 2.7Total Project Cost 8.1 28.2 36.3

Financing Plan:

IDA -- 15.0 15.0SIB 2.0 4.5 6.5COIL 5.0 -- 5.0KfV -- 8.7 8.7VLTC/VRA 1.1 - 1.1

Total Financing 8.1 28.2 36,3

/a The project Is exempt riro a11 duties and taxes.

Estimated Disbursement

(Us million)IDA PY 1988 1989 1990 1991Annual 4e3 6.7 3.2 0.8Cummulative 4.3 11.0 14.2 15.0

Rate of Return: Ranging from 18 percent to 26 percent for various projectcomponents.

Staff Appraisal Report: No. 6628-CE

Maps: Ghana - Existing and Proposed Petroleum Supply and DistributionFacilities - IBID 20017

Volta Lake Petroleum Transport- Akosombo Works - IBRD 20018Volta Lake Petroleum Transport - Buipe Works - IBRD 20019

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I. INTRODUCTION

1.01 Bank Group involvement in the petroleum sector in Ghana began withIDA credits of SDR 10.2 million in May 1983 for the Energy Project (Credit1373-GH) and of SDR 6.6 million in March 1984 for the Petroleum RefineryRehabilitation and Technical Assistance Project (Credit 1446-GE). Throughthese operations, IDA focussed and assisted in strengthening the capabilitiesand operations of the sectoral institutions, including the newly createdNational Energy Board (NEB) responsible for energy policy formulation andplanning; addressed the key policy issues of energy pricing and investmentprograming; and accelerated the exploration and development of indigenoushydrocarbon resources, through the revision of petroleum laws and acquisitionof seismic data and basin studies for promotion to foreign oil comapnies.

1.02 The Government of Ghana has requested IDA assistance to finance aproject that would reduce the cost and increase the reliability of supply anddistribution of petroleum products in the country. The proposed project is anoutgrowth of studies by the French consultants, BEICIP, financed under theongoing Refinery Rehabilitation and Technical Assistance Project. It is aresult of long discussions with the Government on the petroleum sector and ispart of the Government's "core" capital investment program reviewed andsupported by the various Bank's Public Expenditures Reviews and the EnergyAssessment Mission in November 1985.

1.03 The proposed project has served as an important vehicle forcontinuous dialogues with the Government on a number of important policyissues, namely the rationalization of the investment program in public and/orprivate petroleum refining and distribution, the roles of the state-ownedsectoral entities and of private sector investment in the marketingsubsector. With regard to the investment prograam, the Government, throughdiscussions with IDA, agreed to postpone a major investment for a refinerysecondary conversion project (US$85-130 million) in view of the uncertaintiesin the crude and finished product prices in the international market and theneed to Teduce the public sector investment program. With respect to thestate-owned sectoral entities including the Ghanaian Italian Petroleum CompanyLtd. (CHAIP) and the Ghana Oil Company Ltd. (COIL) responsible respectivelyfor the refinery and distribution operations, it was agreed that they wouldoperate strictly on a commercial basis, and be as efficient as private sectororganizations. On the issue of inducing investments by the private oilcompanies operating in Ghana, which together market nearly two-thirds ofpetroleum products in the country, the Government recognized that, to removepresent impediments to such investments, all companies in the sector wouldhave to be allowed to repatriate dividends, In view of the complexities ofthis issue as well as foreign exchange constraints, a resolut:ion would take along time to emerge. However, prior to the commencement of the foreignexchange auction in September 1986, the Government had decided, on IDA'ssuggestions, to release certain amount of foreign exchange through normalbudgetary appropriation to the private oil companies for spare parts andmaterials to rehabilitate their distribution facilities particularly inoutlying areas. Currently foreign exchange for purchasing essential spareparts and materials is released through the auction system. This arrangementwould achieve the objective of rehabilitating the distribution sector as awhole, with the private oil companies maintaining their shares of the market.

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1.04 The proposed project consists mainly of: (i) completing the ongoingrehabilitation of the Tema refinery of GRAIP and improving the efficiency ofits operations through increased energy conservation and production ofliquified petroleum gas (LPG); (ii rehabilitating the oil depots at Kumasiand Takoradi and the network of retail outlets of COIL; (iii) establishing anew and economic mode for bulk transport of petroleum products -- via VoltaLake -- to northern regions; (iv) supporting a pilot scheme for bringingdiesel and kerosene to the remote areas essentially aimed at improving themovement of agricultural productsl and (v) providing operational andmanagerial training to COIL personnel. The Volta Lake petroleum transport,which would be cofinanced by the Federal Republic of Germany throughKreditanstalt fiur Wiederaufbau (Kf), would be the backbone of a transportsystem that in the future could also reduce the cost cf supplying petroleumproducts to neighboring countries such as Burkina Paso and northern Togo.

1.05 The total project cost exclusive of interest auring construction isestimated at US$36.3 million equivalent including US$28.2 million in foreignexchange. The proposed IDA credit of US$15 million equivalent would finance53 percent of the foreign exchange requirement or 41 percent of the totalproject cost. The balance of the project cost would be provided by theEuropean Investment Bank (RIB) (US$6.5 million equivalent or 18 percent), KfW(US$8.7 million equivalent or 24 percent), COIL (US$5.0 million equivalent or14 percent) and the Volta Lake Transportation Conpany Ltd. (VLTC) and itsparent company Volta Lake Authority SVRA) (US$1.1 million equivalent or 3percent). VLTC is the owner and operator of the port and navigation system onVolta Lake.

1.06 The proposed project was init4ally identified in early 1985 based onBRICIP's reports (para. 1.02). Subsequent IDA preparation missions visitedGhana to help the Government and the entities involved define the scope andcost of the project, as well as to discuss cofinancing possibilities with anumber of bilateral and multilaterial aid agencies. The project was appraisedby Messrs. T. Nayar and N. Tin in April/May 1986. Follow-up discussions wereheld with the Government and relevant entities in November 1986.

II. THE ENERGY SECTOR

A. Energy Resources, Supply and Demand

2.01 Ghana is well-endowed with energy resources, of which fuelwood andhydropower are the most important. Wood-based energy supplies are abundant inthe two main forested areas -- the high forest zone in the southwest and thesavanna woodland zone in the northern part of the country - which togethercover about 17.8 million ha or two-thirds of the total land area. Hydropowerresources are also abundant particularly in the central and western regionswhich are drained by three major areas with over twenty tributaries andstreams. The usable Lydropower potential is estimated at about 2,000 MW,about twice the presently installed capacity. Two hydropower plants,constructed with the financial assistance of the Bank, with respectiveinstalled capacity of 912 NW (Akosombo) and 160MW (Kpong) are located on theVolta River. Tapping the remaining hydropower potential is likely to becostlier than thermal alternatives.

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2.02 Proven petroleum reserves amount to less than 2.5 million barrels,but the petroleum potential is considered much larger, in the offshore Tanoand Cape Three Points structures where hydrocarbon deposits have beenidentified. There are no known coal, lignite or peat deposits. The resourcesof biomass other than woodfuels comprise mainly crop residues, the extent ofwhich may be considerable. Solar energy is plentiful, while wind energy is oflimited potential.

2.03 Domestic energy output consists primarily of wood, hydropower, cropresidue and, to a very minor extent, petroleum. It is estimated at 3.9million tons of oil equivalent (TOE) in 1985 and covered 87% of Ghana'soverall energy requirements. The balance was met by imported petroleum. Ofthe 1985 energy output, firewood accounts for 76%, hydropower for 20%. cropresidue for 3.6%, and domestic petroleum for 0.4%. During 1976-85, theincrease in domestic energy output averaged less than 2% per annum, with aconsiderable drop in 1982-84 due to substantially reduced hydropowergeneration caused by a severe drought.

2.04 Ghana's net energy consumption in 1985 is estimated at 3.1 millionTOE, or about 232 kgOE per capita, which is low even by African standardsgiven the favorable energy resource endowment and the relatively advanceddegree of industrialization. As shown in the tabie below, about 70% is metfrom fuelwood and charcoal mainly for urban and rural household consumption,followed by petroleum products (22%), agricultural residues (4.6%) andelectricity (3.4%). Net per capita consumption of commercial energy (i.e.,petroleum products and electricity) estimated at 59 kgOE in 1985, also is lowcompared to other Sub-Saharan countries such as Ivory Coast (136 kgOE in 1982)and Senegal (102 kgOE in 1981). Commercial energy consumption increasedthroughout the 1970s and early 1980s, spurred by subsidized prices ofpetroleum products and electricity, but declined sharply in 1982 as the supplyof petroleum and electricity was drastically reduced due to short_ge offoreign exchange and drought. An energy supply/demand balance for 1985 isshown in Aniuex 2-1.

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Ghana - Energy Consumption - 1985(Thousand TOE)

Fuel Crop PetroleumConsumption Wood Charcoal Electricity Residues Products Total (t)

Transport - -- -- -- 336.9 336.9 (11.0)

Industry 90.9 -- 48.6 -- 105,5 245.0 (8,0)

Agriculture -- - -- 92 92.8 (3.0)

Commercial -- -- 16,1 -- 43,4 59.5 (2.0)

Residential 1,726.1 312,8 37.6 138.7 106.6 2.321,8 (76,0)

Total 1,817.0 312,8 102,M 138.7 685.2 3,056.0 (100.0)(S) (59,4) (10,2) (3,4) (4,6) (22.4) (100.0)

Sources: Ministry of Fuel and Power, NE@, GNPC, GHAIP, VRA, EOG,

B. Sector Organization

2.05 The Ministry of Fuel and Power (MPP) is charged with the overallrespensibility for the energy sector. It supervises the Ghana NationalPetroleum Corporation (GNPC) which is responsible for petroleum exploration,development and production (which have been carried out by foreign oilcompanies); GRAIP for petroleum refining; and GOIL for petroleum productsdistribution and marketing. In the power sector, MPP supervises the VoltaRiver Authority (VRA), which is responsible for hydroelectric powergeneration, transmission and bulk distribution, and the ElectricityCorporation of Ghana (ECG) which essentially distributes power to theconsumers throughout the country. Aside from the aforementioned Government-owned entities, there are four private oil companies which are wholly-ownedlocal subsi'taries of the major international oil companies (BP, Mobil, Shell,and Texaco _T). Their responsibilities are limited to the storage,distribution and marketing of petroleum products alloted to them. Althoughtheir activities are monitored and controlled by NIP, they enjoy a fair amountof freedom in the actual distribution and marketing of petroleum products.

2.06 There have been serious institutional weaknesses facing the sector,resulting in the inadequacy especially in energy planning and in thecoordination among the various subsectors and entities. To alleviate theseweaknesses, the Government formally established in late 1983 the MEB (para.1.01) which serves mainly as a policy analysis and advisory body to MFP. NEBis responsible for formulating recommendations of overall energy policies;

1/ In West Africa including Ghana, Texaco was sold to Shell in December 1986.

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directing demonstration and development projects in renewable energy;monitoring/inspection of petroleum exploration, development, production,refining and distribution; and enforcing the terms and conditions ofexploration and production agreements. NEB commenced its operations in 1985with the appointment of its Board of Directors and Executive Director. Itreceives technical assistance from IDA, through the Energy Project (Credit1373-CH), and the United Nations Development Programme (UNDP).

C. The Renewable Energy Sector

2.07 More than 95% of Ghanaian households depend on wood or charcoal forcooking fuel. Forest based products also meet a substantial proportion ofenergy needs in activities such as food processing, and beverage making.Fuelwood consumption in 1985 is estimated as 8.6 million MT or about 802 oftotal wood use. While there is no overall lack of forest resources andvegetative growth, and the supply still exceeds woodtree demand, the gap isnarrowing. In fact, wood consumption might exceed the natural forestincrement in the 1990s if the present trend of deforestation and rangedegradation continues. To arrest them, the government may increase thewoodfuel supply through improved forest management, expanded tree planting,higher efficiency of charcoal production and increased use of wood waste and,at the same time, improve the end-use efficiency of stoves and developwoodfuel substitutes. These issues would be addressed in a Forestry SectorReview currently under preparation.

2.08 Although Ghana's hydroelectric potential has been well studied with aview to identifying large scale projects, efforts have been only recently toassess the small scale hydroelectirc potential on a country-wide basis. Infact, the surveys by NEB with the assistance of UNDP and IDA have identifiedsome 40 mini-hydro sites with a total potential capacity of 20 NW. It may beeconomically feasible to supply electricity from these sites to isolated ruralareas. NEB is preparing a program for investment in renewable energy with thetechnical assistance provided under the Energy Project (Credit 1373-GC).

D. The Petroleum Sector

1. Hydrocarbon Potential

2.09 Ghana's hydrocarbon prospects are located in three onshoresedimentary basins, the large Volta Basin (104,000 sq km) in the north, theTano basin on the southwest coast, and the Keta basin in the southeasterncoastal area - and one offshore basin of about 70,000 sq km, including thedeep offshore. The offshore basin has attracted most of the exploration. Todate, some 56 exploration wells (36 were offshore wells) have been drilled byforeign companies resulting in few commercial discoveries. Only themarginally economic offshore Saltpond field was developed in the early 1980sbut its operators decided to return the field to the Government afterproduction had dropped to 650 B/D in mid-1985, down from 4,000 BID around

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1980.11 More recently, two offshore wells drilled in the Tano basin byPetroCanada International Assistance Corporation (PCIAC) of Carada identifiedpromising prospectt which are being further evaluated.

2.10 With exploration by foreign companies tapering off in the early19809, and with the objective of reducing dependence on petroleum imports, theGovernment, with the assistance of the Bank/IDA took steps to rekindle andaccelerate hydrocarbon exploration. For this purpose, GNPC (para. 2.05) wascreated as an autonomous body responsible for exploration and flelddevelopment, including the negotiation of contracts with foreign companies.Through the Energy Project, the Bank/IDA assisted in the revision of thepetroleum legislation and the formulation of a draft model agreement as partof the Government's concerted efforts to attract foreign companies to exploreand develop hydrocarbon resources. This project also finances the collectionand processing of available geological and geophysical data on the offshorebasin to better establish and promote Ghana's hydrocarbon potential;assistance in preparing promotional packages, contract negotiations andmonitoring the companies' activities; and training of GNPC staff in geology,geophysics, engineering, economics and law. The Government's promotionalefforts and invitation to bids for 17 offshore blocks in 1985 generated someinterest by the industry. However, thus far, only one exploration contractwas concluded, i.e. with Diamond Shamrock, a U.S. independent company,covering one onshore block in the Keta basin and IFC later participated inthis deal. Negotiations with other international oil companies are inprogress.

2. Petroleum Consumption

2.11 By international standards, Ghana is not a petroleum intensiveeconomy. Per capita petroleum consumption of around 51 kilograms (kg) of oilequivalent is less than half that of other African countries with similar percapita incomes, such as Angola, Kenya and Sudan. Consumption was limited to0.5 million MT of crude oil in 1983 through strict rationing due to foreignexchange shortages, but increased to around 0.9-1.0 million MT per year in1984 to 1986. As shown below, although Ghana's net petroleum imports havefallen from US$248 million in 1980 to US$165 million in 1985, they stillclaimed about 25X of the country's total export earnings in 1985. With thedrastic reduction in oil prices beginning January 1986, Ghana's net petroleumimports decreased to US$98 million in 1986, representing 12 percent of totalexport earnings for the year.

1/ Production from Saltpond commenced in 1978 and met nearly 5S of Ghana'scrude requirements. Production started to decline in 1982 and by the time thefield was shut-in in mid-1985, about 3.5 million barrels had been recovered.

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Ghana - Petroleum Imports

(USS million)

1980 1983 1984 1985 1986Crude Oil Imports (millon MT) 0.986 0.482 fa 0.80 0.949 0,893Refined Product Imports (million MT) 0.030 0,029 0.024 - 0.085Petroleum Imports 284.0 155,4 173.0 199.0 113.6Petroleum Exports b 36.0 20,0 23.0 33.5 16.0Net Petroleum Imports 248,0 135.4 150.0 165.5 97.6Total Export Earnings 1175.0 478.0 604,0 671.0 818.0Petroleum Imports/Export

Earnings (%) 21,0 28.3 24.8 24.6 12.0

/a Drastic reduction due to severe distruption of supply and foreign exchange shortages,/b Mainly fuel oil.

Sources: Ministry of Fuel and Power; Bank Ot Ghana and IMF for 1981-84;Estimates for 1985.

2.12 Ghana's petroleum consumption profile, as in most other developingcountries, is dominated by middle distillates (kerosene and diesel oil).Kerosene is used primarily in rural areas for lighting while diesel is usedfor mass and freight transportation and fishing boats. Middle distillateconsumption in 1986 was around 60 percent of total domestic petroleum productconsumption. Light and middle distillate consumption increased slightly fromabout 90 percent of the domestic market, to 92 percent in 1986. This trendtowards increasing distillate demand and decreasing fuel oil demand isexpected to continue into the future. The past consumption of petroleumproducts is given in the following table:

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Ghana - Petroleum Products Consumption(thousand NT)

1980 /a 1981 /a 1982 1983 1984 19-5 1986

Products

LPG 6.9 6.1 6.2 4.5 6.0 6.0 6.2Gasoline 243.0 255.0 236.0 181.0 174.0 213.0 227.2Kerosene/ATF 158.0 162.2 124.3 /b 117.0 105.0 129.0 142.5Diesel c 233.8 229.7 194.7 190.0 191.0 225.0 241.7Fuel Oil 66.4 58.1 47.7 23.0 23.0 33.0 48.1Bitumen 6.4 7.4 _74 N.A 5.0 12.0 10.3

Subtotal 714.5 718.5 616.3 515.5 504.0 618.0 676.0

Bui'ker Diesel 57.6 60.6 60 6 lb 42.e 41.0 56.0 43.9Bunker Fuel Oil 5.4 6.4 6:4 Lb 2.0 5.0 7.0 0.1

Subtotal 63.0 67.0 67.0 44.0 46.0 63.0 43.9

Total Products 777.5 785.5 683.3 559.5 550.0 681.0 719.9

/a Figures were converted from barrels to metric tons using the followingspecific gravities: LPG .56, gasoline .73, kerosene/ATF .80, diesel .84,fuel oil .94, and bitumen 1.01.

/b Estimated.7T Includes industrial and marine diesel.

Source: Ministry of Fuel and Power.

2.13 During the period 1982-84, consumption of kerosene and diesel oildeclined substantially as a result of Government rationing. In the future,opportunities to reduce petroleum consumption without seriously hurtingeconomic activity appear limited. The transport sector, the largest petroleumconsumer with 65 percent of the total consumption, has only limited energyefficiency improvement possibilities in the near future. Industrial andcomercial sectors also have limited scope for reducing petroleum consumptionsince their petroleum use is comparatively low (22 percent). Price increasesand frequent shortages have already driven some private sector industries toimprove efficiency and/or shift to wood or electricity to meet their energyneeds. Petroleum use in the residential sector (11 percent) consists almostentirely of illuminating kerosene used in the rural areas, and could only bereduced through substitution of other energy forms (electricity or LPG), whichdoes not, however, appear immediately feasible.

2.14 In view of limited potential for reducing petroleum consumptionthrough conservation, it appears that reduction in the total petroleum billcan best be achieved through more efficient crude/product procurement,optimization of the refinery operation to reduce cost and match the refinedproducts to domestic requirements and increased efficiency of an improveddistribution system.

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3. Petroleum Refining

2.15 Ghana has a 28OOO barrels per stream day (bpsd) or 1.25 million MTper annum refinery located at Tems, near Accra. The facilities in therefinery consist of a crude oil distillation, catalytic reforming and treatingunits for light naphtha and kerosene/jet fuel (ATK). The refinery also hastho necessary offaite facilities and an oil jetty (32 feet draft) connected tothe refinery crude tank-farm through an 8-kilometer 24/16 inch pipeline. Fromthe tanker, crude oil is unloaded into the pipeline through two 8-inchdiameter unloading arms, with a similar-size unloading arm as a standby.

2.16 The refinery facilities were commissioned in 1963 by Snamprogetti forGHAIP, then owned by Ente Nazionale Idrocarburi (ENI) of Italy. In November1977, SNI transferred its 100l ownership of GRAIP to the Government as part ofa negotiated settlement. The refinery was designed for Iraqi Kirkuk crudeoil. However, in order to maximize distillate products to meet the marketrequirements and minimize fuel oil production, the refinery has beenprocessing light crude oils from Wigeria during the past few years. In spiteof the lighter crudes being processed, excess fuel oil continued to beproduced, and had to be exported invariably at depressed prices. In theabsence of any secondary conversion facilities, the refinery is unable tofurther reduce the fuel oil production. Quantities of crude oil processed andthe products produced from 1981 to 1986 are shown in the sable below.

Ghana - Crude Oil Processed and Products(thousand MT)

Products 1981 S 1982 % 1983 1984 A 1985 £ 1986 A

LFIG 6.8 0.6 7.1 0.7 533 0.7 4.7 0.6 5.7 0.6 6e2 0.7Gasoline 255.9 22,7 245.4 23.6 126.5 26.3 173.6 23.2 223.9 23.4 203,2 22.5Kerosene/Jet 165.1 14.6 163.7 15,7 75.3 15.7 101,4 13.6 148.2 15.5 127.8 14.2Diesel 318.2 28.2 286.2 27.5 121,5 25.3 208.5 27*9 284*4 29.7 271.2 30.0Fuel Oil 316.2 28.0 279,0 26.6 117.0 24,3 198,0 26.6 232,3 24.3 239,3 26.5Total 1,004.1 94,9 1,062.2 94.1 981.4 94.3 443.6 92.3 686.2 91.9 847.7 93.9

Fuel and Loss 66.4 59 59.0 5.7 37.0 7.7 60.5 8.1 63.2 6.6 55,4 6.1CrudeProcesse 1.128,6 10010 1,040.4 100.0 480,6 100,0 746.7 100,0 957.8 100.0 903.1 100.0

Source: Ministry of Fuel and Pwoer,

2.17 In addition to the problem of excess fuel oil (para 2.16), therefinery, due to its design limitations and shortage of maintenance parts,incurs an unusually high fuel consumption and loss of over 6% against a normof 4.0X of crude throughput for refineries of similar size andconfiguration. This problem is being partially rectified under the ongoingRefinery Rehabilitation and Technical Assistance Project (Credit 1446-GH) byproviding adequate spare parts, repairing leaking storage tanks and improving

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the efficiency of the existing boilers. There are also some institutionalproblems, most notably the lack of coordination and accountability in crudeoil procurement (para. 3.05).

2.18 Prior to IDA involvement with the Tema refinery, oil leakages fromcorroded and worn out facilities (especially the oil jetties and loading arms,crutde and product pieplines, storage tanks, truck loading arms and pumps) haveresulted in oil spills. IDA has assisted GNAIP in alleviating these problemsby either replacing or repairing such facilities through the ongoing firstphase refinery rehabilitation. Additional provisions under the proposedproject, in particular the installation of a ne,w API oil separator to removethe oil from the refinery effluent water, would reduce oil pollution of theenvironment to normal industry standards (paras. 4.04 and 4.25).

2.19 Tema refinery, operating exclusively for the domestic consumption ofpetroleum products and situated near a large crude oil (light and low sulfur)producing country (Nigeria) and away from the surplus markets in WesternEurope/Mediterranean, enjoys certain operating advantage, mainly in thedifferential of crude and product transport cost, that makes it economicallyviable as compared to import of finished products. The crude and productfreight advantage, on an average, amounts to US$12.50 per MT (US$1.68 perbatrel). Currently operating at aboeit 21,000 barrels per day capacity usingBonny Light crude from Nigeria, the refinery is able to produce all theproducts required in the country with minimum of surplus residual fuel oil.Since the crude is extremely low in sulfur and other metal content, thesurplus fuel oil also has a ready market outside as cracking feedstock atpremium prices. With these specific advantages, the Tema refinery has anannual savings ranging from US$11.6 million in October 1985, to US$6.7 millionin December 1986 as shown on page 2 of Annex 5-2. By implementing additionalenergy conservation measures envisaged in the proposed project, the refinery'soperating cost would be further reduced by about US$1.0 million at curtentfuel oil price.

2.20 Since the main advantage for the Ghana refinery is in the crude andproduct freight differential, it is important to note that the West Africaregion as a whole is a net importer of petroleum products of about 7 millionMT per year (equivalent to approximately 150,000 barrels/day refinerycapacity). Western Europe/Mediterranean is the main source for these imj.orts,so that this is the pricing base for the region (e.g. surplus products fromthe Abidjan refinery are exported on the basis of North West Europe/Medi-terranean FOB prices plus freight to the region). Current information on thefifteen refineries in the West Africa region (Mauritania to Angola) is givenin Annex 5-2.

2.21 Under the ongoing refinery rehabilitation project, the consultantsstudied various options for secondary conversion in the refinery and concludedthat thermal cracker (TC) or fluid catalytic cracker (FCC) would be the mostsuitable options with investment costs ranging from US$85 million to US$130million for TC and FCC respectively. In view of the prevailing uncertaintiesin crude and finished product prices in the international market and the needto reduce the public sector investment program, the Government, on IDA'ssuggestion, decided to postpone the secondary conversion in the Tema refineryand removed it from the "core" investment program for the energy sector (para.1.03).

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4. Petroleum Product Distribution and MarketinA

2.22 All products, except lubricants and bitumen, come from the Temarefinery finished product tankage; about SO of the products goes by roadtanker directly to retail outlets, reseller points and large "volume"customers, mostly in the Accra-Tema area (see the Map of Ghana at the end ofthe report). Most of the remaining product is transhipped from Tema todistribution tankage in Takoradi (15) to serve the Western Region and partsof the Central Region, and Kumasi (35X) to serve the Ashanti, Brong Ahafo, andthe Northern and Upper Regions. Two tankage depots exist in Takoradi - oneowned and operated by COIL and the other by BP, with Mobil and Shell/Texacomaking use of the BP facilities. Ocean tankers of 18,000-25,000 DiT vesselsfrom Tema supply these depots which have a total tankage capacity for allproducts of about 33,000 MT. In Kumasi, Shell, BP, COIL and Mobil own tankagetotalling 5,000 MT. The depot in Kumasi is supplied from Tema mostly by largeroad tankers, with very limited volumes supplied by rail tank wagons due tothe unreliability of the rail system. The approximate market shares of thedistributors and the number of their retailing outlets are shown below. It isnoted from this table that while COIL and Shell currently have about equalmarket shares, COIL has almost twice as many retail outlets as Shell. Thisreflects, to a large extent, the fact that COIL, as a Government-ownedcompany, is bcund to distribute throughout the country, while the privatecompanies operate where financial viability is optimized.

Ghana - Petroleum Products Market Share and Retailing Outlets

Market Shares Retailing Outlets(2) Number (X)T

COIL 33 352 41Mobil . 17 119 14Shell } 17 }a 84) 10)Texaco} 17 34 94 118 11 21BP 16 199 24Total 100 848 100

a/ Shell purchased Texaco's facilities in December 1986, thus increased itstotal market share in Ghana to 34 percent.

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2.23 The main problems faced in the distribution and marketing of refinedproducts are the lack and/or the poor conditions of the infrastructuresincluding those necessary to bring fuels especially diesel and kerosene toreote/outlying areas as veil as the lack of financial incentive to distributeproducts to those areas. In particular, GOIL's depots at Takoradi and Kumasiare in poor condition for lack of spare parts, poor maintenance and worn outmachinery; the product-transfer pipelines from the refinery to Tema harbor arebadly corroded; the retail outlet pumps, underground storage tanks and supportfacilities are in poor condition due to corrosion and wear; and the road tankcars which constitute the main transport system for the whole country partlyare in poor condition due to lack of spare parts and partly due to theextremely bad conditions of the road. These problems, which threaten todisrupt the supply and distribution of petroleum products in the country,would be remedied under the proposed project. The necessary incentive, i.e.marketing/distribution margin, to induce the distribution of products to theremote/outlying areas would be part of an appropriate pricing structurecurrently being studied with UNIDO assistance (para. 2.27).

5. Petroleum Product Transport via Volta Lake

2.24 As an alternative to the long distance movement of products to thenorthern region by road tank cars, Volta Lake could be used for transportingproducts from Akosombo to Buipe by barges (a distance of about 385 km,, see MapIBRD-20017 at the end of this report). At present drr cargos are moved bybarges from Akosombo to various points along the lake in the North. VRA/VLTChave already signed contracts for the development of jetty facilities at Buipefor dry cargo handling with financial assistance from the Federal Republic ofGermany (through KfW). The Government and VRA/VLTC are very keen to buildfacilities for petroleum products transportation from Akosombo to Buipe, whichwill reduce overall transportation cost, as part of the port development atAkosombo and _Ape. Because of the very poor conditions of the existing road,particularly from Kumasi to the North, the life of the road trucks is greatlyreduced, and operating and maintenance costs increased. Even if the road isrehabilitated in the future, bulk transportation by barges over the lake isfound to be more cost effective. Lake transportation from Akosombo to Buipewould avoid the road transportation to the North by about 500 km, and wouldincrease the reliability of supply to the interior locations in the North and,at a later stage, to the neighboring Burkina Faso. At present, supplies ofpetroleum products to these areas are often interrupted.

6. Distribution in the Rural Areas

2.25 While the number of retailing outlets, if rehabilitated, would meetthe needs of the urban areas, the facilities for distributing essentialpetroleum products (mostly kerosene and diesel) for the agricultural communityin the rural areas are inadequate due to lack of infrastructure and inadequatemarketing margins. The four private oil marketing companies and GOIL are notwilling to extend such facilities due to the small volume of trade andcomparatively higher cost of transportation involved. Local privateentrepreneurs, if at all interested, invariably expect prices associated withblack market conditions. The Government attaches high priority to extendbasic minimum facilities to such areas, especially to ameliorate the movementof agricultural products in the North. The Government encourages the localadministration authorities to form farmers' cooperatives to distribute

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essential fuels. As a pilot scheme, the Government has proposed to establishinitially 125 such outlets all over the interior locations at a cost of aboutUS$5.0 million. This pilot scheme is included in the proposed project.

7. LPG Distribution Facilities

2.26 The five oil marketing companies together currently market about6,000 MT per year of LPCt produced in the Tema Refinery. The refinery has apotential production capacity of 12,000 MT per year at the current crudethroughput level (20,000 bpd) without requiring any additional investment.The major constraints to increased marketing of LPC are insufficient storageand bottle filling plant, LPG bottles, table-top cooking stoves, and LPG bulktransport vehicles. Marketing of another 6,000 MT per year of LPG wouldenhance the refinery's operating economies and would lead to a substitution ofabout 24,000 MT per year of wood fuel and charcoal. The marketing companiesare confident that the domestic market would be capable of absorbing thisadditional volume of LPG within a relatively short period of time.

8. Petroleum Product Pricing

2.27 Petroleum product prices are fixed by the Government at the ex-refinery, wholesale and retail levels. Ex-refinery prices are currently basedon an allocation of total crude cost and refinery processing fee. Therefinery fee is paid to the refinery (GRAIP) to cover operating andadministrative expenses and earn a certain returft on its share capital.Retail (ex-pump) prices are obtained by adding the following items to the ex-refinery prices: dealer's margin, marketer's margin, transportation costs,special fund and energy fund contribution. A table showing the build-up ofex-pump prices from the ex-refinery prices is shown in Annex 2-2. Petroleumproduct as well as distribution margins are currently applied contrywide. Inorder to induce the companies to distribute the products in the outlying aras,the Government recognized that, in addition to providing the necessaryinfrastructure which is the primary constraint, the pricing system may need tobe modified to allow varying distribution margins. This issue is beingaddressed in the ongoing petroleum products pricing study discussed in thefollowing paragraph.

2.28 Petroleum product prices have been revised upwards substantially overthe past three years, as shown in the table below, in line with theGovernment's policy of maintaining prices that generally reflect internationallevels. It is noted that, in consultation with the IMF, the Governmentinstituted a second window auction system in September 1986 which covers allimports except for petroleum and consumer goods. Thus oil imports weretemporarily excluded from the auction rate and continued at exchange rate ofCedi 90 per US$1.0. This exclusion was, however, terminated in late February1987 and since that time oil imports are based on the auction rate.Concurrent with the unifying of the exchange rate, petroleum prices wereraised substantially as shown in the table below. It is noted from this tablethat the exchange rate of Cedi 158 per US$1.0, retail prices of petroleum areabove CIF prices.

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Ghana - Petroleum Product Prices

(Cedis per U.S. Gallon)

Gasoline (Regular) Gasoline (Super) Kerosene Diesel Fuel Oil

Mid 1983 18.00 20,00 11.00 13.00 7.00Oct. 1983 25.00 28,00 16.00 19.00 11.00March 1984 40.00 44,00 24.00 29.00 16.00Sept. 1984 45.00 48.00 28.00 37.00 -Dec. 1984 66,61 70,77 38.30 58.29 -

April 1985 74.93 79.10 41.63 66.61 -March 1986 112.50 116.70 66,70 95.83 54.17June 1986 120.83 125.00 66.70 108.33 58.33Feb. 1987 150,00 158.33 91.66 137.50 100,00

CIF, Tema /bApril 1985 /c 45.54 47.65 45.54 44.57 35.23February 1987 /d 72.00 78.00 87.00 81.00 55.50

May 1987 Io 80.60 86.90 80.60 79,00 66.40

Ia Fuel oil Is sold directly from the refinery and Takoradi depot tanks./b CIF, Tema price was estimated on the basis of Mediterranean spot price plus US$14.0

per ton for freight, insurance and ocean loss. For fuel oil dirty tanker rates are assumed./c Using official exchange rate of US$1.0 a Cedi 57 In April 1985.,/d Using auction rate of US$1.0 = Cedi 150.Ye Using auction rate of USS1.0 n Cedi 159.

Source: GOIL

2.29 Under the Energy Project (Credit 1373-GH), the Government agreed tocarry out a petroleum product pricing study which would address, among otherthings, the various refinery and marketing/distribution margins. Althoughconsultants were identified for the study, the Government subsequently decidedthat the study would be carried out with technical assistance to be obtainedthrough bilateral assistance (grant money). UNIDO approved in late 1986 theGovernment's request for such technical assistance and the study isunderway. The Government has agreed to establish a pricing system based onthe recommendations of this study before credit effectiveness, and toimplement such an agreed system by December 31, 1987. Furthermore, theGovernment has confirmed that it will in principle maintain petroleum pricesat or above international levels. The Government intends to review with IDAthe progress/status of product distribution by June 30, 1989 to ascertainwhether there would be a need to institute a differential distribution marginupon completion of the Volta Lake petroleum transport system and takeappropriate action accordingly.

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9. Private Sector Activities

2.30 Petroleum operations in Ghana, from exploration to marketing/distri-bution, were entirely in the hand of the private sector until the early 1970swhen the Italian Companies (ENI, Agip s.p.a. and SNAM s.p.a.) decided to leaveGhana and turned over their operations to the Government. As a result of thistransfer, the Government, through GHAIP and GOIL, handles the refineryoperation and distributed about one-third of the petroleum products, i.e. themarket share of Agip in Ghana. The Government's policy continues to putstrong emphasis on private sector investment. With regard to hydrocarbonexploration, as mentioned in para. 2.10, the Government, with the assistanceof the Bank/IDA, revised the petroleum laws and established a legal frameworksuitable for the purpose of promoting foreign investments. As a result ofthese promotional efforts, Diamond Shamrock of the US signed a contract for anacreage in the Keta basin in late 1985 and negotiations are ongoing with twomajor international oil companies (para. 2.10). Recently, the IFC enteredinto a joint-venture with Diamond Shamrock to further accelerate the workprogram on its blocks.

2.31 With regard to the marketing/distribution sector, three private oilcompanies are currently distributing two-thirds of the petroleum products.The issues faced in this area are mainly the lack of incentives to invest inthe expansion, or even rehabilitation of their storage and distribution systemapparently due to the question of repatriation of profits and to distributepetroleum products to outlying/remote areas. The Government is obviouslyconcerned about these issues; following suggestions of the Bank/IDA during thepreparation of the proposed project, the Government was willing to provideprivate sector companies with foreign exchange for their rehabilitationrequirements although this course of action was no longer necessary when theauction system was introduced in September 1986 (para. 1.03). The issue ofregional distribution and the related marketing margin would be addressed inan appropriate pricing system being studied with the assistance of UNIDO. TheGovernment, through a component of the proposed project (farmer's servicereseller outlets), attempts to further promote private sector investment inthe distribution of petroleum products in the outlying/remote areas. TheGovernment, following the review of the petroleum sector investment programwith the Bank/IDA, has also decided to earmark a viable lube oil blendingproject for investment by the private sector.

E. Government's Sector Objectives and DeveLopment Plans

2.32 The Government's overall objectives for the energy sector are:(a) to improve the availability of long-term security of supply of energy atreasonable cost to sustain the development of all geographic regions andeconomic sectors of the country; (ii) to reduce the country's vulnerability toshort-term supply disruptions, particularly for petroleum products andhydroelectric power; (iii) to rationalize the development of indigenous energysources to meet the growing needs of the economy and to substitute forimported fuels; and (iv) to promote more efficient use of energy throuighappropriate pricing and demand policies.

2.33 During the past three years, the Government has made importantprogress in a number of areas, most notably, in securing arrangements forcrude oil imports from Nigeria, in reactivating hydrocarbon exploration and

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development activities through private sector investment as well as bilateralassistance, in initiating long overdue rehabilitation of energy sectorinfrastructure, and in rationalizing the organizational framework of theenergy sector including the establishment of two new statutory entities, GNPCand NEB. The Government's strategy for the next few years is to expand onthese initiatives, especially to complete the ongoing rehabilitation of allexisting energy sector infrastructure/facilities, to complete the appraisal ofhydrocarbon deposits at Tano basin and initiate their development, tostrengthen and expand the capacity and flexibility of petroleum refining anddistribution facilities and to increase access to electricity of differentgeogr&phic regions. On the institutional aspects, further work still needs tobe done to better define the functions of the sectoral organizations and therelative roles of Government and public entities operating on a commercialbasis. The management improvement study for GHAIP and COIL (para. 3.04) andthe rationalization of the crude procurement/bulk product salesresponsibilities (para. 3.05) would be important steps in this direction.

F. Role of the Bank Group

2.34 The Bank/IDA have been closely involved in the development of theenergy sector in Ghana. In the power sector, the Bank/IDA have approved overthe past twenty-five years seven projects with total financing of US$150million for power generation, distribution and rehabilitation of the powersystems. Another project, the Northern Grid Extension Project, approved byIDA in February 1987, would bring hydro-based grid to the northern regions andfurther strengthen the power sector entities. The Bank/IDA involvement in thepetroleum sector began recently, with IDA Credits of SDR 10.2 million for theEnergy Project in May 1983 and af SDR 6.6 million for the Petroleum RefineryRehabilitation and Technical Assistance Project in February 1984. Both ofthese projects are under implementation. Through the Energy Project IDAsupports the Government's promotion of the exploration and development ofindigenous hydrocarbon resources and the strengthening of sectorinstitutions. It also attempts to address the petroleum products pricing andenergy planning issues through the financing of a pricing study and a gasutilization study, both of which are currently under preparation. Through theRefinery Rehabilitation and Technical Assistance Project, IDA financed thefirst phase rehabilitation of the Tema refinery and studies to review thepetroleum supply and distribution sector and the management of the sectororganization. The implementation of the management study, however, has beendelayed as explained in para. 3.04.

2.35 The proposed project is a result of long discussions with theGovernment on the petroleum refining and distribution subsector covering anumber of important sectoral issues on institutional aspects including theroles of the state-owned sector entities, on development/investment plans andpetroleum pricing. With regard to the institutional aspects, the Bank/IDAwould help improve the efficiency and commercial orientation of CHAIP's andGOIL's operations, by restructuring the operating/earnings basis for GHAIPaway from the hitherto cost-plus basis and transferring to it theresponsibility of bulk procurement of crude/bulk marketing of products, and byexposing their senior personnel, especially GOIL's to international operatingpractices and standards. The Bank/IDA would also ensure that the managementimprovement study for GHAIP and GOIL be completed and that a plan of actionwould be agreed for the implementation of the recommendations. With respect

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to the development/investment plans, the Bank/IDA have critically reviewedthese plans with the Government and have persuaded the Government to drop amajor investment (US$8S-130 million) for refinery secondary conversion andadopt a least-cost investment plan for the refining and distributionsubsector. Such decision was justified in view of the uncertainties in theprices of crude oil and finished products in the international markets and theneed to reduce the size of the public sector investment program. On petroleumproduct prices, which are currently above international levels, the ongoingpricing study with UNIDO assistance (para. 2.26) would also focus on anappropriate structure that would provide incentives for the private sector todistribute petroleum products to the outlying regions and remote areas tosupport their economic development efforts.

2.36 In financing the proposed project, the Bank/IDA would directlysupport the Government's policy for accelerating economic development in theregions. The proposed project would increase the reliability and reduce thecost of supply of petroleum products throughout the country. It would bringthe much needed diesel fuel to the remote areas to facilitate especially themovement of agricultural products. It woula also double the amount ofdistributed LPG readily available from the refinery to counter thedeforestation problems in the country. In addition, the proposed projectwould open a new and economical supply route via Volts Lake to northernregions, which would form the backbone of a transport system that could supplypetroleum products economically to neighboring countries in the north.Finally, the proposed project would reduce the oil pollution resultiag fromTema refinery operations to normal industry standards.

III. THE BORROWER AND THE IMPLEMENTING AGENCIES

A. Introduction

3.01 The proposed credit would be made to the Government of Ghana and on-lent to the Ghanaian-Italian Petroleum Company Limited (GEiAIP) and the GhanaOil Company Limited (COIL), which are responsible for the implementation oftheir respective components of the proposed project. GRAIP and GOIL were setup in the early 1960s by ENI/Agip/Snam of Italy and were transferred to theGovernment when the Italian companies left Ghana in the mid-1970s. With aview to strengthening the organization and management of the petroleum sector,a study was included in the IDA-financed Refinery Rehabilitation and TechnicalAssistance Project to review the organizational structures, financialmanagment and accounting systems of all the sectoral entities. This study,however, has been delayed due to a reorganization of the sector (creation ofGNPC) and the Government's insistence in finding grant money for the study.Although UNDP has financed the study for GNPC, no grant funds have beenobtained for GHAIP/GOIL study. The proposed credit would support thecompletion of this management improvement study for GHAIP/GOIL and formulationof a plan of action for implementation of the recommended changes (paras. 3.04and 3.23).

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B. The Ghanaian Italian Petroleum Company Limited

1 Organization

3.02 GHAIP was incorporated in 1963 as a private company under theCompanies Code to construct, own and operate the Tema refinery. The companywas wholly-owned by ZVI of Italy until 1977 when, as originally provided forin the company's regulations, all the company's shares were acquired by theGovernment of Ghana. In a transfer agreement between ENI and the company, ENIprovided a teem of 14 experts to assist GHAIP's Ghanaian managerial andtechnical personnel in gradually assuming the responsibility for themanagement and operation of the refinery. This technical assistance programproved to be successful and was gradually phased out with the last Italiantechnical expert leaving GHAIP in 1983.

3.03 According to GHAIP's .-egulations, the general direction of thecompany is vested in a Board of Directors, which in turn delegates theresponsibility for the day-to-day operations to a Managing Director. However,since 1983, a Joint Consultative Committee was appointed to act in lieu of theBoard of Directors. This Committee, which meets once a month, comprises onlyGHAIP's personnel (including the Managing Director, Re!inery Manager, ChiefAccountant, one representative of the middle management and two staffrepresenting the Committee for the Defense of the Revolution, and onerepresenting the local workers' union) and, therefore, would not benefit fromadvices from outside Board or Committee members. CHAIP's decision makingprocess would be strengthened with the reappointment of a proper Board ofDirectors. As shown in the organization structure in Annex 3-1, GHAIP has tendepartments/offices, of which four (Technical, Maintenance, Production andProduction Planning and Control), are directly responsible for the refineryoperations and report to the Managing Director through a Refinery Manager, andthe remainder (Personnel, Commercial, Accounts, Solicitor/Secretary, MedicalResources, and Refinery Rehabilitation Projects Office) report directly to theManaging Director. CHAIP's organization structure including the role andcomposition of its Board of Directors will be reviewed in the managementimprovement study discussed below.

3.04 Under the Refinery Rehabilitation and Technical Assistance Project(Credit 1446-GH), approved by IDA in March 1984, it was agreed that studieswould be carried out for the im,rovement of the organization and management ofthe petroleum refinery sector, including CHAIP, GOIL and the former PetroleumDepartment of MFPP (The Petroleum Departmentt which was then responsible forthe bulk purchase of crude oil as well as bulk sales of products to the oilmarketing companies, was subsequently abolished and partially absorbed intothe newly created GNPC.) These studies were to focus on the organizationalstructures, financial management and accounting systems, auditing, refinery'sprofitability and staff development and training. The implementation of thesestudies was delayed due to the aforementioned changes in the sectoralorganization (namely, the abolishment of the Petroleum Department and thecreation of GNPC) and to the Government's general decision to requestassistance on a grant basis from bilateral and multilateral Aid agencies tocarry out such studies. While UNDP subsequently provided assistance to GNPCfor the organization and management study carried out by Braspetro (Brazil),no assistance has been obtained for GHAIP and COIL. The Government has nowselected the consultants as agreed under Credit 1446-CH (based on the terms of

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reference already agreed with MPP) to carry out the management improvementstudy for OHAIP and COIL. The Government has agreed that the consultants'report will be jointly reviewed with IDA and that a plan of action forimplementing the recommendations will be agreed with IDA by December 31, 1987.

3.05 Although GRAIP's regulations allow the company to engage in petroleumrefining as well as supply and distribution of petroleum products, it hasoperated to date essentially as a toll processing refinery. GHAIP basicallyprocesses the crude oil procured and delivered to the refinery by GNPC andturns over the refined products to GNPC from the storage tanks at Tema.CHAIP's services are compensated for by GNPC through a processing fee whichcovers all operating and maintenance cost plus a 12.5 percent return on itsshare capital, as further elaborated in para 3.10. In an attempt to improvethe efficiency of the refinery operation and the coordination of bulkprocurement of crude, discussions have been held within the Government totransfer the bulk procurement of crude oil and bulk marketing of finishedproducts and re-export of fuel oil from GNPC, which is mainly involved inpetroleum exploration and development, to GHAIP, and to change the processingfee basis to convert the refinery operation into a commercial operation. Thiswould enable GHAIP to procure the appropriate types and volumes of crude atthe right time as required by its refinery operations. This arrangement wouldalso bring about a measure of accountability and control by GRAIP for thequantity of crude oil purchased and received, and any losses thereafter, fromthe loading ports, through the unloading port at Tema and the processing atthe refinery, to the storage tanks of finished products. The Government hasagreed that its final decision on this bulk procurement/marketing arrangementsatisfactory to IDA will be made before credit effectiveness and that suchfinal arrangements will be put into effect by January 1, 1988. As an interimmeasure, GNPC is expected to enter into an agency agreement with GRAIP to beeffective not later than June 30, 1987, whereby GRAIP will be responsible forthe operational aspects of bulk procurement of crude oil and bulk marketing ofpetroleum products (i.e. decisions with regard to quantity/quality of oilproducts to be procured, tanker scheduling, measurement and oil accounting).With respect to the processing fee as discussed in para. 3.12, the governmentand OHAIP have agreed on a system that will periodically adjust the processingmargin for GRAIP taking into consideration the prevailing comparableinternational levels, international market prices for crude and products andthe financial viability of GHAIP. Furthermore, this system will be applied toGHAIP beginning with financial year 1988.

2. Management and Staff

3.06 CHAIP has an experienced top management team, most of whom startedtheir careers with the company when the refinery came into operation. Thecurrent Managing Director has held this positicn since 1978. He is an ableand competent manager. GHAIP's total staff numbers around 650. Staffturnover is low. The technical staff, particularly those dealing with therefinery operation, are competent as evidenced by their successful assumptionof the responsibility for the running of the refinery with the gradual phasingout of ENI technical assistance (para. 3.02). They clearly had benefited fromthe various training programs over the past years, both on-and off-the-job.Recently, as part of the Refinery Rehabilitation and Technical AssistanceProject (Credit 1446-GH), a staff development/training program was preparedby BEICIP for the technical staff. This program has been approved by IDA for

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implementation. On the financial management and accounting side, there isroom for improvement, in terms of filling vacancies as well as upgradingqualifications. CHAIP has initiated action to fill the vacancies. Thedevelopment and training of finance and accounting scaff would be dealt withas part of the pending management improvement study (para. 3.04).

3. Accounts and Audit

3.07 GHAIP's accounting and management information systems, which wereadopted since the early years of the refinery operations, could be improvedparticularly with regard to cost accounting, financial planning and control.In addition, a comprehensive system of oil accounting should be developed tomonitor the actual and permissible losses of oil at each stage (transfer,storage, processing, etc.) and identify potential problem areas for remedialactions. This oil accounting system would be essential especially when theresponsibility for bulk procurement of crude oil is transfered to GHAIP. Theaccounting system is partly computerized at present; it is expected to befully computerized with the computer equipment being purchased under theongoing Refinery Rehabilitation and Technical Assistance Project. The aboveaccounting and financial management aspects are to be dealt with in the afore-mentioned management improvement study (para. 3.04).

3.08 GHAIP is making good progress in keeping its accounts up-to-date.While the 1984 accounts were not audited until eighteen months after the closeof the years, due to shortage of qualified staff and machine breakdown, the1985 accounts were audited within eleven months after year-end and the 1986accounts are expected to be audited within six months after year end as agreedunder Credit 1446-GH. CHAIP's accounts have been audited by Pannell, Kerr andForster Chartered Accountants, a private auditing firm. The quality of theaudit is good. CHAIP has agreed that the audited accounts, together with theauditor's report, will be submitted to IDA not later than six months after theclose of the year.

4. GHAIP's Finances

(a) Past Operating Results and Financial Position

3.09 GHAIP's operating results and financial position for the period 1981-1985 are shown in the audited Income Statements and Balance Sheets in Annexes3-2 and 3-3 and summarized below:

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GHAIP - Summary Financial Statements, 1981-1985 /a(in current million Cedis)

1981 1982 1983 1984 1985

Crude Processed (fT '000) 1,128.6 1,040.4 480,6 746.7 973.7

Processing Fees 44,4 38.8 92.0 183.4 360.3Store Sales 0.9 0.9 3.1 2. *1 6.3Total Sales Revenue 45.3 39.7 9Sol 185.5 366.6

Total Operating Costs 41.3 37.1 86.7 172,2 347.1

Operating Income 4,0 2.6 8,4 13.3 19.5

Interest Expense 0.8 0.5 4.1 6.8 8*6

Taxable Income 3,2 2.1 4.3 6.5 10.9Incme Tax < 0.0 2.2 4.4 8.8

Net Income 2.1 2.1 2.1 2.1 2.1

Cash 5.2 6.7 6.0 65,5 85*5A>counts Receivable 15e2 13,3 40,3 103.4 253,8Total Inventories 12.1 13.2 26.5 47.2 100,5Total Currant Assets 32.5 33,2 72,8 216,1 439.8

Trade Investments - - - -- 29.0

Net Fixed Assets 15,6 19.7 26.6 40,4 98.7

Total Assets 48,1 52,9 99.4 256.5 567.5

Accounts Payable 18.0 23,4 60.1 147.8 384,4Other Current Liabilities 9,1 6,4 16,8 11.2 16.2Total Current Liabilities 27.1 29.8 76,4 159,0 400.6Employee Benefits -- - - 74,4 143.9

Share Capital 16.8 16,8 16,8 16.8 16,8Retained Earnings 4.2 6.3 _60.3 6,3 6.3Total Equity 21,0 23.1 23.1 231 23

Total Liabilities 48,1 52,9 99.4 256.5 567.5

Current Ratio 1.2 1.1 1,0 1.3 1.1Equity/Total Liabilities 44/56 44/56 23/77 10/90 4/96Not Ir.come/Revenues (S) 4,6 5,3 2.2 1.1 0.6

/a Audited

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3.10 The financial results of CHAIP are largely determined by theprocessing fee established in the "Processing Agreement" dated June 18, 1965between CHAIP and the Government. This agreement, which is still in forcebetween CHAIP and GNPC, provides for CHAIP to be paid a fee covering allrefining expenditures (operating costs, general and administrative expenses,amortization of the refinery assets, interests on loans, and taxes) plus areturn (dividends) on the paid-up capital not exceeding 12.5% per annum.Thus, with paid-up share capital remaining unchanged at Cedi 16.8 million (orUS$0.10 million at current auction exchange rate) as shown in the above table,CHAIP earned a net income after taxes of only Cedi 2.1 million every yearduring 1981-1985. This resulted in extremely low and declining profitabilityratios. Furthermore, CHAIP's earnings have been drastically reduced in realterms as the Cedi was steadily devalued during this period from Cedi 2.75 perUS$1.0 in 1981 to Cedi 54.0 per US$1.0 in 1985, and no provision was made forthe revaluation of GHAIP's assets and equity base. The net result was thatCHAIP was unable to build up any reserves for its rehabilitation needs. Therise of the total liabilities-equity ratio from 56/44 at end-1981 to 96/4 atend-1985 reflects the effects of inflation on assets and liabilities, butshould not cause great concern as CHAIP in fact had no outstanding long-termdebt' and had been able to maintain a current ratio of 1.0 to 1.3 during thisperiod.

3.11 It is noted from the summary table in para. 3.09 that, in 1985, therefinery earned a processing fee of US$6.8/MT or US$0.95 per barrel (with theCedi being converted at Cedi 54.0/US$1.0 during that year). Although this feeis net of internal fuel consumption which, under the existing "ProcessingAgreement" is charged directly to the Covernment/GNPC, it is a rather lowmargin, reflecting the fact that CHAIP's fixed assets had almost been fullyamortized and that the return on equity had not been adjusted for inflation.

(b) Financial Projections

3.12 Under the "Processing Agreement" as described in para. 3.10, which isessentially a cost-plus fee arrangement, CHAIP does not have any incentive toimprove its operational efficiency and profitability. Furthermore, sinceinterests on loans and amortization of assets are apart of the processing fee,GRAIP normally would not be encouraged to incur any expenditures beyond thebare minimum to keep the refinery running. This has led to the accumulateddeterioration of the refinery facilities as well as the inadequacy of itssafety and environmental protection equipment which are being addressed underthe onging Refinery Rehabilitation and Technical Assistance Project and theproposed project. For the above reasons, IDA has recommended and theGovernment has agreed that the refinery should be allowed to operate as acommercially/financially viable entity, with a processing margin delinked fromshare capital and sufficient for GHAIP to meet operating requirements and tocontribute towards investment requirements. Furthermore, this margin shouldbe reviewed from time to time to ensure increased efficiency/ competitivenessof the refinery operation. Along these lines, the processing agreement shouldbe discontinued and the refinery operation converted into a commercialoperation with value addition to the crude oil imported in line withinternational product prices and with operational efficiency comparable tointernational standards for similar refineries. A mechanism to achieve thisobjective is expected to emerge as a result of the ongoing petroleum productpricing study financed by UNIDO (para. 2.29). The management of GHAIP would

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also be improved through the recommendations of the management study (para.3.04). A processing margin established through negotiations with theGovernment taking into account the prevailing comparable internationalrefining margins, international market prices for p'oducts and the financialviability of CHAIP (para. 3.05) would be the main features of the proposedmechanism. Financial projections presented below on a processing fee of Cedis420 (US$2.55 equivalent) per barrel, including about Cedis 150 (US$0.90equivalent) per barrel to cover internal fuel consumption, indicate that CHAIPwould be able to maintain satisfactory financial conditions. Of this fee, theAet margin to CHAIP would be about Cedis 270 (US$1.65 aquivalent) per barrelwhich is in line with the levels for comparable refineries in Kenya, CostaRica, and Jamaica, etc.

3.13 CHAIP's projected operating results and financial position for 1986-1992 are shown in the projected income statements, balance sheets and fundsflow statements in Annexes 3-4, 3-5 and 3-6 and summarized below. The notesand assumptions used in these projections are given in Annex 3-7.

GiAIP - Summary Projected Financial Statements, 1986-1992(in current million CedIs) 'a

Year 1986 1981 1988 1989 1990 1991 1992

Crude Processed ('000 MT) 985.2 1,013.4 1,042.4 1,072.2 1,102.8 1,160.1 1,220.3Total Sales Revenue /b 498.6 1,039.4 3,444.7 3,805.6 4,029.8 4,333.4 4,713.2Total Operating Costs 489.4 631,0 2,259.8 2,469.7 2,484.1 2,659.1 2,797.3(of which: Internal fuel

consumption co ) (-) (1,426.7) (1,444.3) (1,389.6) (1,420.9) (1,470.7)Operating Income 9.2 408.4 1,184.8 1,335.9 1,545.8 1,674.2 1,915.9Net income 2.1 110,6 - 397,3 447.8 566,2 660.4 810.6

Total Current Assets 348,2 617.9 1,670.4 1,836.2 2,203.2 2,710.3 3,683.0Net Fixed Assets 718,9 2,032,1 2,761.1 3,115.4 3,204.9 3,030.0 2,855,1Total Assets 1,067.1 2,650.0 4,431.5 4,951.6 5,408.1 5,740.3 6,538.1Total Current Liabilities 385.3 727,9 1,551.1 1,386.4 1,465.6 1,493.4 1,814,4Total Equity 21.0 131.7 529,0 976.9 1,429.8 1,958.1 2,606.6Total Liabilities 1,067.1 2,650,0 4,431.5 4,951.6 5,408,1 5,740.3 6,538.1

Current Ratio 0.9 0,8 1.0 1.3 1.5 1.8 2,0Equity/Total Liabilities 2/98 5/95 12/88 20/80 .26/74 34/66 40/60Times Debt Serv, Coverage 3.3 1.0 1.4 1.6 1l7 1.9 2.4

/a Projected international and domestic inflatlor rates and exchange rates are given In Annex 3-7./b Based on existing "Processing Agreement" through 1987 and new processing margin beginning 1988

onward./c lIternal fuel consumption Is charged directly to Government/GNPC under existing "'Processing

Agreement" assumed to be terminated at end-1987. Under new processing margin arrangement from 1988onwards, It would be charged to GHAIP's accounts.

/d Including Cedis 2.1 million return on share capital and Cedis 108.5 million of debt service coveredunder existing "Processing Agreement".

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3.14 Processing Revenues. GCAIP's future production is projected on agrowth rate of 2.8 percent until 1989 and 5.2 percent from 1990 onwards. Ithas been assumed that the "Processing Agreement" would be discontinued at theend of 1987 and, beginning in 1988, GRAIP would be paid a processing fee ofCedis 420 (US$2.55 equivalent) per barrel in real terms including Cedis 150(US$0.9 equivalent) per barrel to cover internal fuel consumption (para.3.12). While the processing fee will be the key element to improving GHAIP'sprofitablilty, internal fuel consumption which is expected to drop, as aresult of the first phase refinery rehabilitation and the proposed project,from its current level of 6.0 percent of total throughput to 5.0 percent uponproject completion in 1990 would also result in substantial savings.

3.15 Liquidity. The projections show a relatively high level of short-term indebtedness in the form of accounts payable which result in a currentratio of 0.8 in 1987. However, liquidity is expected to improve gradually asa result of the new processing margin ag*eement to be applied beginning in1988. Current ratios will rise gradually from 1.0 in 1988 to 2.0 in 1992.Such a liquidity position is satisfactory since fuel inventories for internalconsumption purposes would be held by the Government.

3.16 Leverage. The projected processing margin will allow GHAIP torebuild its equity base and improve its leverage ratios provided that itpursues a reasonable dividend policy. The projections assume that GRAIP willpay no dividends during the construction period and thereafter retain 20percent of its net income as a legal reserve and distribute 25 percent of theremainder in the form of dividends to Government. The balance will be held asa supplementary reserve to strengthen its equity base. Under such conditions,the resulting equity/debt ratio would improve from 2/98 in 1986 to 26/74 uponproject completion in 1990 and 40/60 in 1992.

3.17 Cash Generation. CHAIP is expected to improve its operating marginsonce it is granted a more realistic processing fee. The projections indicatea ratio of operating income/sales of about 37 percent on average during theconstruction period, riking gradually to 41 percent in 1992. Likewise, thenet income/sales is expexted to rise from 12 percent to 17 percent over thesame period. GRAIP should be able to generate sufficient funds fromoperations to finance its working capital needs. Total projected cashgeneration by 1990 is Cedi 1,770 million (US$10.7 million) of which Cedi 850million (US$5.1 million) will serve to retire long-term debt and the balanceCedis 920 million (US$5.6 million) to finance net working capital increases.

3.18 Debt Servicing. Assuming that the new processing fee would takeeffect from 1988 onwards, GHAIP's debt servicing ratios will remain atacceptable levels. Debt service coverage is projected to improve from 1.0 in1987 to 1.4 in 1988 and 2.4 in 1992.

(c) Financial Covenants for GHAIP

3.19 CHAIP has agreed that it will (a) maintain a debt service coverage ofat least 1.4 in 1988 and 1.5 in 1989 and onward; (b) maintain a current ratioof at least 1.0 in 1988 and at least 1.1 thereafter; and (c) pay no dividendsduring the project construction period. In addition, it will review with IDAevery year beginning 1988 its rolling three-year investment program. Asstated in para 3.05, the Government and GHAIP have agreed that, beginning in

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1988, the refinery processing margin will be adjusted periodically taking intoconsideration the financial viability of CHAIP, the prevailing comparableinternational levels, and international market prices for crude and petroleumproducts.

C. The Ghana Oil CoIpany Limited

1. Organization

3.20 COIL was established in 1960 under The Company Code as Agip GhanaCompany Ltd., with share capital wholly-owned by AGIP s.p.a. and SNAM s.p.a.Its main business is marketing of petroleum products in Ghana. In 1974, theGovernment concluded negotiations with AGIP and SNAM for the purchase of allthe company's share-, and COIL became wholly-owned by the Government.

3.21 The general direction of the Company's operations is set by the Boardof Directors, which comprises of not more than nine members. The Boarddelegates the responsibility for the day-to-day operations to a ManagingDirector. As in the case of GAIP (para. 3.03), its Board was abolished in1983 and a Joint Consultative Committee was appointed to act in lieu of theBoard. This committee, which consists of seven members including the GeneralManager, two department managers, two senior satff and two junior staff, meetsonce every two months. The Committee consists entirely of COIL staff, andthus lacks outside views and advice. COIL's decision making process would bestrengthened with the reappointment of a proper Board of Directors. Thisaspect, among others, will be examined in the management improvement studyelaborated in para. 3.04.

3.22 The Managing Director is assisted by six department managers foroperations, commercial, fianuce, personnel, solicitor/secretary, and internalauditing. Under the commercial department, there are four regional officesresponsible for the commercial operations in their respective geographicalareas. The organization structure of COIL is shown in Annex 3-8.

3.23 As discussed in para. 3.04, the organization structure and staffingof COIL is being reviewed as part of the management improvement study to becarried out in connection with the Refinery Rehabilitation and TechnicalAssistance Project. The Government has agreed that the study report will bejointly reviewed with IDA and that a plan of action for implementing therecommendations will be agreed with IDA by December 31, 1987.

2. Management and Staff

3.24 COIL's top management was apparently welL experienced. However, theManaging Director's position recently became vacant. Agreement would besought during the negotiations that the Government will appoint before crediteffectiveness a Managing Director with the necessary qualifications andexperience in oil marketing.

3.25 COIL has a total staff of about 400 including some 70 at supervisinglevels. The staff seem well motivated. The turnover rate is low at around5%. Although the COIL's managers and staff seem to perform their work well inaccordance with the company's practices which were established in early yearsunder Agip management, they need to be exposed to the more modern practices of

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the leading oil marketing companies elsewhere in the world. The proposedproject includes provision for a training program particularly for COILmanagers to attend short courses overseas preferably with international oilmarketing companies (para. 4.10). COIL has prepared the details of theproposed training program satisfactory to IDA.

3. Accounts and Audit

3.26 COIL's accounting and management information systems, which wereoriginally implemented by Agip, are acceptable; nevertheless, they could beimproved especially with regards to cost accounting, financial planning andcontrol. The accounting system is partially computerized and would be fullyautomated with the computing facilities to be provided under the proposedproject. Improvements with regard to the accounting and financial managementaspects are to be dealt with in the management improvement study (para. 3.04)

3.27 GOIL's accounts are normally up-to-date except for 1984 when thefinancial manager's position was vacant. The annual accounts are audited byPannell, Kerr and Forster, a private auditing firm, and are of satisfactoryquality. COIL has agreed that its annual accounts will continue to be auditedby qualified external auditors and that the audited accounts, together withthe auditors' report, will be submitted to IDA not later than six months afterthe cloie of the year.

'f.. GOIL's Finances

(a) Past Operating Results and Financial Position

3.28 GOIL's operating results and financial position for the period 1981-1985 are shown in the audited Income Statements and Balance Sheets in Annexes3-9 and 3-10 and summarized below:

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GOIL - Summary Financial Statements, 1981-1985 /a(in current million Cedis)

1981 1982 1983 1984 1985

Total Sales Revenue 366.4 338.7 1,012.0 2,387.8 3,952.2Total Operating Costs 330.3 299.5 930.6 1,960.4 3,477.5Operating Income 21.5 17.8 52.0 427.5 474.6

Non-Operating Income 1.4 2.1 4.4 11.2 41.8Income Before Taxes 22.9 19.9 56.4 438.7 516.4Income Tax 14.0 (6.4) 32.4 249.0 297.0Net Income 8.9 26.3 24.0 189.7 219.4

Cash 62.4 74.0 314.5 433.1 583.3Accounts Receivable 65.0 73.6 129.0 379.5 911.5Finished Products 12.4 17.8 47.5 248.6 645.1Total Current Assets 139.8 165.5 491.0 1,061.1 2,139.9Net Fixed Assets 10.6 11.4 12.7 17.7 71.5Total Assets 150.3 176.9 503.8 1,078.9 29211.4

Current Liabilities 125.3 132.6 442.4 840.2 1,768.5Share Capital 1.9 1.9 1.9 1.9 1.9Legal Reserve - 10.0 20.0 70.0 120.0Retained Earnings 23.1 32.4 39.4 166.8 321.2Total Equity 25.0 44.3 61.3 238.7 443.1Total Liabilities 150.3 176.9 503.8 1,078.9 29211.4

Current Ratio 1.1 1.3 1.1 1.3 1.2Equity/Liabilities 16/84 25/75 12/88 22/78 20/80Net Income/Revenue (X) 2.4 7.8 2.4 7.9 5.6

/a Audited

3.29 In the face of rising prices and the successive devaluations of theCedi, GOIL has been able to maintain comfortable distribution margins of over5 of sales from 1981 to 1983. This margin was substantially higher in 1984due to a twofold increase of petroleum products retail prices in line with theGovernment policy of maintaining prices in relations to international levels,and GOIL's high inventories purchased at lower prices the year before. Thishowever was accompanied by more than a proportional increase of accountsreceivable which were about 900 million Cedis due by several Governmentagencies at the end of 1985. The Government has initiated discussionsinvolving MFP and the Central Bank to resolve this issue '--solution of thisissue is part of the ongoing structural adjustment credi: * .-ration. TheGovernment has confirmed under this project that it will ensure that allarrears between COIL and other state-owned enterprises will be settled with atimetable acceptable to IDA.

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(b) Financial Projections

3.30 GOIL's projected operating results and financial position for 1986-1992 are shown in the projected income statements, balance sheets and fundsflow statements in Annexes 3-11, 3-12 and 3-13 and summarized below. Thenotes and assumptions used in these projections are given in Annex 3-14.

GOIL - Summary Prolected Financial Statem"nts, 1986-1992(in current million Codis)

Year 1986 1987 1988 1989 1990 1991 1992

Total Sales (UT '000) 174.9 185.1 196.2 208.2 221.2 235.4 250.8Total Sales Revenue 6,390.6 10,269.4 14,770.9 16,706.3 18,133,6 19,586.5 21,442.2Total Operating Costs 6,025.4 9,558.6 13,655.6 15,469.4 16,798,4 18,300.7 20,025.3Operating Income 365.2 710.8 1,115,2 1,236.9 1,335,2 1,285.8 1,416.9Not Income 181.3 338.1 498.9 519.5 547.9 530.1 606.1Total Current Assets 2,469,0 3,944.4 5,519.0 6,227.6 6,833.6 7,452,1 8,378.8Net Fixed Aslett 1,080,6 1,243.2 2,429.5 3,404.9 3,677.0 3,506.3 3,335.6Total Assets 3,549.6 5,187.6 7,948,5 9,632,5 10,510.6 10,958.4 11,714.4Total Current LIabilIties 1,994.6 3,289.6 4,759.6 5,411,0 5,942.6 6,307.4 6,940,9Total Equity 1,555.1 1,730.9 1,990,3 2,260.4 2,545.3 2,820.9 3,136.1Total Liabilities 3,549.6 5,187.6 7,948.5 9,632.5 10,510.6 10,958.4 11,714,4

Current Ratio 1.2 1.2 1,2 1e2 1,1 1.2 1.2Equity/total Debt 44,56 33/67 25/75 23/77 24/76 26/74 27/73Times Debt Serv. Cowerage NA NA 10.1 5,0 2.7 2.3 2,6

3.31 Sales Revenue. GOIL's total sales volume for all products in 1986is estimated to reach 175,000 MT, about 4% higher than in 1985. Sales areexpected to increase at an average annual rate of 6.5Z approximately over thenext 10 years. In line with the Government policy of concentrating on dieseltransport vehiclesp diesel consumption has been assumed to increase by 10%annually while other products except gasoline to increase by 2.51 annually.

3.32 Liquidity. GOIL's liquidity position will remain within acceptablelevels with a current ratio of over 1.0 during 1987-92 even with a dividendpayout ratio of 60% of net income after providing for a 201 reserve assumed inthe projections.

3.33 Leverage. While GOIL has been able to maintain its margins in theface of rising inflation, the value of its fixed assets which were stillcarried at book value until the end of 1985 have been eroded. This hasresulted in an undervalued equity position and high leverage ratios. COIL'smanagement has decided to revalue certain fixed assets; as at December 1986,land property with a book value of Cedis 6.9 million was written up to Cedis372.3 million and plant and machinery with a book value of Cedis 3.8 millionwas written up to Cedis 656.2 million. As a result of new long-termborrowing, the equity/debt ratio will fall from 44/56 in 1986 to 24/66 uponDorier ;et elat,;nn ; n 1 qn-

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3.34 Cash Generation. It is expected that GOIL will maintain relativelyhigh margins with a ratio of operating income/sales of 7.0% on average from1987 onwards. Net income/sales will remain above 2*7% even upon projectstart-up when it will have to face high interest payments on its new long-termcommitments. The projections indicate that COIL would be able to generatesufficient funds from operations to finance the local cost component of theproject and increased working capital needs. Total cash generation by 1990 isprojected at Cedi 2,070 million (US$12.6 million) of which Cedi 730 million(US$4.5 million) would cover the capital expenditures while the balance wouldfinance increases in net working capital amounting to Cedis 600 million(US$3.6 million) and dividends totalling Cedi 740 million (US$4.5 million).

3.35 Debt Servicing. Since COIL is currently free from long-term debt,its debt servicing ratios are projected to remain at very satisfactorylevels. Debt service coverage is projected to be 10.1 in 1988 declining to2.3 in 1991, but increasing to 2.6 in 1992 and onwards.

(c) Financial Covenants for COIL

3.36 COIL has agreed that it will maintain a debt service coverage of atleast 1.5 and a current ratio of at least 1.1 in 1988 and thereafter. Inaddition, it will review with IDA every year beginning 1988, its rollingthree-year investment program.

IV. THE PROJECT

A. Genesis

4.01 The proposed project is the result of continuous discussions with theGovernment on the petroleum sector. Its preparation has served as animportant vehicle for dialogue with the Government on certain key policyissues such as the rationalization of the investment program in petroleumrefining and distribution, the strengthening of the commercial orientation ofthe state-owned GUAIP's and COIL's operations and promotion of the privatesector investment in the marketing subsector. A Bank mission that visitedGhana for the Public Expenditures Review in June 1985, reviewed with theGovernment all investment options studied by the consultants, BEICIP, underthe ongoing Refinery Rehabilitation and Technical Assistance Project (Credit1446-GH), in the petroleum refining, supply and distribution sector in orderto identify their relative priorities. As a result of these discussions, theGovernment agreed to postpone a large investment for secondary conversionfacilities (US$85-130 million) in the Tema refinery. The rehabilitation ofthe facilities for product storage, distribution, and marketing was recognizedas urgently required and of high priotity for investment. Other priorityinvestments also identified were facilities for marketing all the LPG that canbe produced without additional investment in the refinery; for marketingessential petroleum products in the remote locations of the country; and fortransportation of products via Volta Lake to the northern regions. SubsequentIDA missions assisted the Government and the entities concerned (MFP, CHAIP,GOIL, VRA,VLTC) in defining the detailed scope and costs of the proposedproject.

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B. Project Objectives

4.02 The main objectives of the proposed project are:

(i) to rationalize the investment plan in the petroleum refiningand distribution subsector which results in least cost to theeconomy;

(ii) to increase the reliability and reduce the cost of supply anddistribution of petroleum products in the country byimproving the operating efficiency of the Tema refinerythrough additional LPG recovery and energy conservationmeasures, and rehabilitating/ameliorating the existing oildistribution and marketing facilities;

(iii) to further reduce oil pollution related to Tema refineryoperations to normal industry standards through installationof an API separator (to separate and collect traces of oilfrom refinery effluent water);

( iv) to establish a new and economic mode and a backbone for bulktransport of petroleum products -- via Volta lake -- to thenorthern regions of Ghana and potentially to its neighboringcountries;

(v) to improve the movement of agriculturil products in theremote areas by bringing diesel and kerosene to such areas;

(vi) to counter deforestation with the increased availability ofLPG and kerosene;

(vii) to restructure the operating/earning basis of the Temarefinery that would encourage it to operate more efficientlyand to rationalize the responsibility for bulk crudeprocurement/bulk marketing of petroleum products; and

(viii) to strengthen the organization, management and operatingpractices of the sectoral entities involved (GHAIP and GOIL)and to ensure rhat they operate on commercial basis.

C. Project Description

4.03 The proposed project comprises the following components:

(i) Completion of the ongoing rehabilication of the Tera Refineryof GHAIP (under Credit 1446-GH) particularly offsitefacilities, utility systems, LPG handling, product shippingfacilities and energy efficiency improvement of the existingdistillation unit, and acquisition of vehicles;

(ii) rehabilitation of GOIL's bulk petroleum storage depotslocated at Takoradi and Kumasi;

(iii) rehabilitation of GOIL's existing network of retail outlets;

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(iv) expansion of the infrastructure and increase availability ofLPG bottles and stoves to market additional LPG that could bemade available from the Tema refinery;

(v) provision of storage tanks and transfer facilities atAkosombo and Buipe (i.e. land side facilities) to transportpetroleum products on the Volta Lake towards the northernparts of the country;

(vi) provision of oil jetties at Akosombo and Buipe, petroleumbarges and tug boat (i.e. water side facilities);

(vii) provision of transport vehicles to move LPG avd otherpetroleum products and for the project management;

(viii) provision of facilities for farmer's service reseller outletsto make essential petroleum products (mainly kerosene anddiesel) to the farmers in remote areas; and

(ix) training of GOIL's managerial and operational personnel andcomputer facility for COIL.

These projects components are further elaborated in the following paragraphs.

1. Rehabilitation of GHAIP's Tema Refinery Facilities

4.04 The ongoing Refinery Rehabilitation and Technical Assistance Projectjointly financed by IDA (Credit 1446-GH) and EIB is expected to be completedby December 1987. Due to the limited financing available at that time,certain items recommended for rehabilitation and energy conservation by theconsultants (BEICIP) had to be postponed; these items would be implemente4under the proposed project, including:

(a) Improvements in LPG treatment, storage and transfer facilities:The existing LPG treating facilities do not have causticcoalescer or sand filter resulting in high carry over of causticsoda to the storage tanks. A number of fittings in the LPGstorage tanks and truck and marine loading facilities needreplacement and/or improvement in order to maintain good safetyrequirements. Existing LPG transfer lines to COIL depot andjetty require repairs and replacement. Under the proposedproject, necessary hardware required to rectify theseshortcomings will be procured and installed;

(b) API oil separator: A new API separator with air floatationfacilities will be installed to improve environmental protectionfacilities in the refinery (para. 4.25);

(c) Improvement in furnace efficiency: The flue gas leaving thefurnace of the crude distillation unit has temperatures above450°C causing high energy loss from the furnace. To rectifythis deficiency, the furnace will be provided with new efficientburners, and its convection section will be modified to transferadditional heat to the crude oil.

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(d) Product vigelines: Existing crude and product pipelines fromthe refinery to jetty are corroded at places where they areburied0 These corroded portions will be replaced, and the pipeswill be laid overground to prevent such corrosion in the future;

(e) Jet fuel tankst Three existing jet fuel tanks will be repairedand provided with cone roof with internal floating screens toreduce vaporizatiots losses;

(f) Boiler improvement: The three existing boiler drums will beprovided with mist eliminators to prevent carry over of waterfrom the steam drums that was causing super heater tube rupture,premature shutdowns and increased maintenance costs;

(g) Fire alarm sz8tem: As a safety precaution, a fire alarm systemwill be provided in the refinery;

(h) Chlorination system: In order to reduce seawater fouling ofplpes and exchanger tubes, chlorination facility, which includeschlorine generation, and continuous and shock chlorineinjection, will be provided;

5i) Crane: In order to facilitate removal and repairs of heat-exchangers, condensers, etc. and to reduce overall maintenancetime, a 27-ton crane will be provided; and

(j) Laboratory Instruments: Certain urgently required laboratoryequipment instrument for sampling and measurement ofenvironmental pollutants in the wastewater leaviLng the refinery,and instrument workshop items are also included in the projectscope.

2. Rehabilitation of GOIL's Bulk Petroleum Depots at Takoradi andKumasi

4.05 GOIL's facilities over the years, like those of other public sectorcompanies, have been badly maintained due to serious shortages of foreignexchange. The proposed project would thus provide funds for the accumulatedbacklog rehabilitation and maintenance requirements. In the Takoradi denot,replacement of firefighting water pumps with drives, product shipment pumpswith drives and motor control centers, truck loading arms, new facilities forcollection and safe disposal of oil and oil contaminated wastes, and repairsof the rail loading gantry with suitable arrangements for collecting oilspillage are required. In the Kumasi depot, replacement of firefighting waterpumps with drives; product shipment pumps with drives and motor controlcenter, truck loading arms, safety precautionary measures for the LPC storageand filling areas, and new facilities for collection and safe disposal of oiland oil contaminated wastes are required.

3. Rehabilitation of Retail Outlets

4.06 As mentioned in para. 4.05, the proposed project would provide fundsmainly to cover GOIL's accumulated rehabilitation requirements. Specifically,

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replacement/repairs of dispensang pump meters; replacement of air compressors,pneumatic hoists, lubrication facilities, and, in a few cases, replacement ofunderground storage tanks are required for the rehabilitation of the GOIL'sretail outlets. Foreign exchange provided under this project (about US$2.2millio.') for the distribution outlets is intended to cover the overhang ofaccumulated maintenance requirements and improve GOIL's operating andmaintenance systems and procedures. For the recurring maintenance, GOIL wouldbuy the foreign exchange from the auction market out of its operation cashflow in the same way as any private oil company would. To preventdeterioration of the facilities in the future, the project provides fortraining GOIL management and personnel, establishment of an operation andmainteaance programs and procedures, and appropriate monitoring system toensure that COIL's maintenance needs are met. In order to maintain a well-balanced distribution network throughout the country after the rehabilitation,it is also necessary to provide spares and materials for the facilities of theprivate oil companies at specified locations. The Government has provided therequired foreign exchange for this purpose through the foreign exchangeauction so that the private oil companies could purchase the spares andmaterials for rehabilitating their facilities.

4. Expansion of LPG Marketing Facilities

4.07 Safety relief valves and facilities for fire protection in theexisting LPG storage and filling plants of COIL are not adequate. Necessaryequipment and materials to rectify this deficiency are included in thiscomponent. In order to market the additional 6,000 MT per year of LPG readilyavailable from the refinery, three filling plants at Accra, Takoradi andKumasi would be installed and additional LPG bottles, regulators and table topstoves would be provided. For the safe operation of the filling plant andmaintaining safety of the LPG bottles, necessary spares and equipment fortesting and repairs are also included. Additional bulk transport vehicles andpick-up trucks are provided for the bulk transportation of LPG anddistribution of LPG bottles.

5. Petroleum Product Transportation on Volta Lake

4.08 Tank truck unloading facilities and storage depot consisting of onetank each for gasoline, kerosene, and diesel; interconnecting pipes and pipefittings; safety equipment; and oil spill collection and disposal facilities,are required at Akosombo. A similar storage depot, truck loading facilities,interconnecting pipes and pipe fittings, safety e4uipment, oil spillcollection and disposal facilities are required at Buipe. Essential utilitiessuch as electricity, and water will be purchased from VLTC/VRA facilities.VL1C/VRA will also provide, with financial assistance from KfW (para. 4.11),separate oil jetty facilities at Akosombo and Buipe, and separate petroleumbarges for carrying the products over the Volta Lake. The works at Akosomboand Buipe are shown in the Maps (IBRD-20018 and 20019) at the end of thisreport.

4.09 VLTC/VRA with financial assistance from the Federal Republic ofGermany through KfW has developed jetty facilities and navigational aids forgeneral cargo movement over the Volta Lake from Akosombo to Buipe. For thepetroleum product movement, VLTC/VRA will provide separate oil jetties, twopetroleum barges and one pusher tug (i.e. water-side facilities) for which the

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foreign exchange cost of US$8.7 million will be financed by KfW, and VLTC/VRAwill provide the local cost of US$1.1 million. The Government has confirmedthat the water-side facilities will be provided for the Volta Lake petroleumtransport system by December 31, 1989, and that an agreement between VLTC andGOIL for the bulk transport of petroleum products will be finaiized byDecember 31, 1987.

6. Farmers' Service Reseller Outlets

4.10 Two small overground storage tanks mounted with hand pumps forkerosene and diesel, essential safety equipment and a small office facilitiesare required for each of the farmers' service reseller outlets. The outletswould be constructed by COIL and would be owned and operated by localagricultural cooperatives or private individuals. Each outlet is estimated tocost about US$8,000 according to standard design prepared by COIL andacceptable to IDA. IDA funds are required only for the purchase of steelplates, pipes, hand pumps and safety equipment. The socio-economic impact ofthese facilities is expected to be substantial since they are intended toprovide the most essential requirement of the farmers in the rural areas. Theproposed project includes about 125 pilot stations in different regions forthe time being. The program would be expanded if this pilot scheme provessuccessful. The Government has agreed to evaluate the socio-economic impactof this pitot scheme and prepare an evaluation report for review with IDA notlater than two menths after its completion but not later than June 30, 1989.

7. Training for COIL Personnel and Computer Facilities

4.11 Being a Government-owned entity without external assistance, GOIL'spersonnel in charge of supply and distribution are not exposed to moderntechniques used elsewhere in the industry. Courses covering up to datepractices in petroleum marketing; operation and maintenance of facilities usedin the industry; safety regulations and environmental protection measures usedin the industry, and petroleum measurements and accounting practices will beorganized by experienced agencies. A few key personnel will be given on-the-job training and exposure in well established petroleum installations abroadas part of the training scheme (para. 3.25). For the purpose of GOIL'smanagment improvement, a suitable computer and essential peripherals will beprovided under the proposed project.

D. Project Management and Implementation

4.12 GRAIP would be responsible for the implementation of therehabilitation of its Tema refinery facilities (project component (i) in para.4.03). The implementation of other project components, items (ii) through(ix) except for (vi) in para 4.03, would be handled by COIL. With regard tothe Volta Lake transport system, while the land-side facilities (storage tanksand transfer facilities) are implemented by COIL, the water-side facilities(item (vi) in para. 4.03), as elaborated in paras. 4.08 and 4.09 at Akosomboand Buipe would be implemented by VLTC/VRA as an addition to its ongoingco;-struction of Akosombo/Buipe port facilities.

4.13 GRAIP will implement its portion of the proposed project through anexisting Project Unit which was established in connection with the ongoingfirst phase refinery rehabilitation (Credit 1446-CH) and with the assistance

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of engineering consultants provided under the proposed project. CIAIP hasagreed to maintain the Project Unit at least until the completion of theproposed second phase refinery rehabilitation. It will also retainengineering consultants (around 33 man-months) on terms and conditionsacceptable to IDA to assist in the implementation of.this project component.GHAIP intends to employ BEICIP, the engineering consultant currently workingon the first phase refinery rehabilitation, for the necessary design,preparation of bid documents and evaluation as well as project supervision.This arrangement is adequate and an addendum to the existing BEICIP contractwould be submitted to IDA for approval.

4.14 As discussed with IDA at the time of appraisal. COIL has set up aProject Unit to be responsible for the implementation o` its projectcomponents. This Project Unit, which is coriposed of a mechanical engineer, acivil engineer, a project accountant and a procurement officer, will beassisted by an experienced engineer consultant (Advisor) for a period of abouttwo years provided for under the proposed project. The mission was satisfiedthat COIL, with this technical assistance to its Project Unit, is sufficientlyequipped to implement the rehabilitation components (project components (ii)and (iii), para 4.03) which are of relatively routine maintenance nature, aswell as straightforward procurement of other project items including LPGbottles and stoves, trucks, etc. (components (iv), (vii), (viii), (ix), para4.03). In fact, COIL has satisfactorily carried out work of this nature inthe past. However, COIL would need technical assistance for theimplementation of the land-side Volta Lake petroleum transport facilities(project component (v), para 4.03). Thus, COIL has agreed that it will employengineering consulting services (around 30 man-months) under terms andconditions acceptable to IDA for the detailed design, preparation of biddocuments and evaluation and construction supervision for the storage depotsand handling facilities at Akosombo and Buipe. Some of the civil works neededfor the implementation of the water side facilities (project component (vi),para 4.03) at Akosombo and Buipe carried out by VLTC/VRA with theirengineering consultants and contractors is currently ongoing. COIL andVLTC/VRA have maintained close coordination in the implementation of the VoltaLake petroleum transport system.

4.15 Contracting Arrangements. The rehabilitation of the Tema refineryfacilities would involve a number of contracts including an extension of anexisting BEICIP engineering contract (para. 4.13), a supply and erectioncontract for the distillation furnace convection section (para. 4.16) forwhich a contractor (Foster Wheeler, France) has been selected on the basis ofinternational competitive bidding, and various small supply and/or erectioncontracts to be tendered internationally or locally as appropriate. Withregard to COIL's facilities at Akosombo and Buipe, in addition to theengineering consultancy contract mentioned in para. 4.14, GOIL will employ acontractor for the construction of these facilities. In view of the smallamount and geographical location of the works, this contract would be tenderedamong internationally experienced contractors currently engaged in otherprojects in Ghana. Rehabilitation of COIL's oil depots and retail outletswould be implemented by the company's own technical services teamcomplemented, where necessary, by local contractors to be financed by GOIL andselected through local competitive bidding. The work involved is mostlyreplacement of worn out equipment and parts and minor civil works. Since thespecifications are already available from original suppliers and no design and

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engineering is involved, COIL with the assistance of the Advisor providedunder the project (para. 4.14) should be able to organize and implement thework in an efficient manner.

E. Project Schedule

4.16 Most of the components included in the proposed project involvesprocurement of items that require very little engineering and could becompleted within 18 months of credit effectiveness. However, a few itemsinvolve design, engineering and fabrication an4 would take 24 months forcompletion. The implementation schedule for various components of theproposed project is shown in Annex 4-1. CHAIP discovered during its regular6-week shut down inspection at the time of the appraisal that one item in theproposed project, namely the rehabilitation/modification of the distillationfurnace convection section, needs to be implemented without delay at the timeof the next scheduled shutdown in October/November 1987. Since theprocurement of hardware takes about nine months, GRAIP has proceeded withadvance implementation of this work in accordance with Bank/IDA procurementguidelines (para. 4.15); the foreign exchange expenditures estimated at US$0.8million as from January 1, 1987 but prior to credit signing, would beretroactively financed from the proposed IDA credit.

F. Project Cost Estimates

4.17 The estimated total cost of the proposed project is about US$36.3million. This includes US$9.8 million for the water-side facilities (jetties,petroleum barges and pusher tug) for the Volta Lake petroleum transportcomponent to be financed by KfW (US$8.7 million equivalent for foreignexchange cost) and VLTC (US$1.1 million equivalent for local cost). Foreignexchange costs would be equivalent to about US$28.2 million, or 78 percent ofthe total project cost. The cost estimates are detailed in Annex 4-2 andsummarized below:

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Summary of Project Cost Estimates

(January 1987 Prices)

Cadl Million /a USS Million

Project CoMponents Local ForeIgn Total Local Foreign Total

51) Rehabilitation of TameRefinery Facilities 232e7 874,5 1.107.2 1*4 5.3 6.7 22.2

(11) Rehabilitation of GOIL's

Depots at Takoradi & Kumasi 39*6 75.9 115.5 0,2 0.5 0*7 2.3

(III) Rehabilitation of RetailOutlets 77*6 311.9 389.5 0.5 1.9 2*4 7.8

(iv) Expap.Aon of LPG MarketingFacilities 156.8 587.4 744.2 0.9 3.6 4.5 14.9

(v) Handling Faclitles at

Akosombo and Buipe 234.3 627.0 861.3 1.4 3.8 5S2 17.3

(vi) Oi Jetties at Akosombo andBuipe, Barges and Tug Boat 143.6 1,275.5 1,419.1 0,9 7.7 8.6 28.5

(vii) Farmar's Service Reseller

outlets 39*6 82,5 122.1 0.2 0.5 0.7 2.5

(vill) Transport Vehicles - 123.8 123.8 - 08 0.8 2*5

(Ix) Training for 60IL Personnel 9.9 49.5 59.4 0.1 0.3 0.4 1.0

(x) Computer Facility for GOIL 9.9 33.3 42.9 0.1 0.2 0.3 1.0

Base Cost Estimate 944.0 4,041.0 4,98S.0 5.7 24.6 30.3 100.0

Physical Contingencies 117.2 425,7 542,9 0.7 2,6 3.3 11.0

Price Contingencies 283.8 171.6 455,4 1.7 1.0 2.7 9,0

Total Project Cost 1.345,0 4,638.3 5,983.3 8,1 28.2 36.3 120.0

/a Base Cost estimates are converted at USS1.0 = Cedi 165. Errors due to rounding.VLTC.

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4.18 The cost estimates are considered to be realistic. They areexclusive of duties and taxes. They were prepared by the consultants on thebasis of the contracts awarded by CHAIP under the ongoing project, and thequotations that CHAIP and GOIL have obtained from potential suppliers. Theestimated cost included a physical contingency of 11 percent and priceescalation for foreign costs based on the international inflation rates indollar terms of 3 percent in 1987g 1 percent per annum in 1988 through 1990,domestic inflation rates of 18 percent in 1987, 15 percent in 1988, 10 percentin 1989 and 7 percent in 1990, and exchange rates per US$1.0 of Cedi 165 in1987, Cedi 180 in 1988 and 187 in 1989 and onwards.

G. Financing Plan

4.19 The proposed IDA credit of US$15 million equivalent would meet53 percent of the foreign exchange and 41 percent of the total financingrequired. The proposed financing plan is summarized in the following table.

Financing Plan(US$ Million Equivalent)

% ofComponent Source Local Foreign Total Subtotal

I. CHAIP IDA - 1.7 1.7 21EIB 2.0 4.5 6.5 79

Subtotal 2.0 6.2 8.2 100

II. GOIL IDA - 13.3 13.3 73GOIL 5.0 - 5.0 27

Subtotal 5.0 13.3 18.3 100

III. VLTC KfW - 8.7 8.7 90VLTC 1.1 - 1.1 10

Subtotal 1.1 8.7 9.8 100

TOTAL IDA - 15.0 15.0 42EIB 2.0 4.5 6.5 18KfW - 8.7 8.7 24GOIL/VLTC 6.1 - 6.1 16

Total 8.1 28.2 36.3 100

4.20 The proposed IDA credit would be made to the Government to be onlentto GHAIP and GOIL. Of the total IDA credit of US$15 million, US$1.7 millionwould be onlent to GHAIP and US$13.3 million to GOIL. The onlending termswould be for 15 years including a grace period of 3 years at interest rateequal to 1.1 times the prevailing IBRD interest rate (presently 7.92%). Theforeign exchange risks would be borne by GHAIP and GOIL. The onlendingagreements between the Government and GHAIP/GOIL will be finalized beforecredit effectiveness. GOIL would finance local costs of US$5.0 millionequivalent from its internal cash generation. Interests during construction

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would be financed by GOIL, but capitalized for CHAIP. The water-sidefacilities (jetties, barges ant pusher tug) at Akosombo and Buipe would befinanced by KfW and VLTC/VRA (paras. 4.08 and 4.09).

4.21 EIB has committed to provide US$6.5 million equivalent to bridge theforeign exchange financing gap for the refinery rehabilitation estimated ataround US$4.5 million equivalent and related local costs amounting toUS$2.0 million equivalent.

H. Procurement

4.22 The procurement of various equipment and materials to be financed byIDA that are not proprietary items or need not match with existing equipment(the specific items would be firmed up with EIB before the negotiations) wouldbe through international competitive bidding (ICB) in accordance with Bank/IDAguidelines. The rest would be purchased by direct contracting amounting toUS$0.4 million for the engineering consultants (BEICIP), who are currentlyassisting GHAIP in the implementation of the ongoing first phase refineryrehabilitation; Local Competitive Bidding (LCB) for civil works related to therefinery and '0IL's land-side facilities at Akosombo and Buipe and for certainspecialized items to match with existing components. Also, small items(costing up to US$50,000) would be procured under contracts awarded afterobtaining at least three quotations from reputable suppliers (up to a maximumof US$0.5 million). There will be an advance contracting up to US$1.0 millionequivalent (paras. 4.15 and 4.16). Project items to be financed byeofinanciers are expected to be procured in accordance with theirguidelines. Procurement arrangements for the over all financing and for theproposed IDA credit are summarized in the table below.

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Procurment Arrang!emnt(USS Millon Equlvalent)

Prolect Component ICB LCB Other a/ Total

(I) Rehabilitation of Tmeo Refinery Facilities (1.3) 6.5 (0.4) 8.2 (1.7)(11) Rehabilitation of Dspots at Takoradi and Kumasi (0.6) 0.3 (0.1) 0.1 1.0 (0.7)(111) Rehabilitatlon of Retail Outlets (0,7) 2,1 (1.3) 0.1 2,9 (2.0)(1v) Expanslon of LPG Marketing Facilities (3.3) 2.0 (0.8) 0.1 5.4 (4.1)(v) Handling of Facilities at Akoeombo and Buipe (2.8) 3.6 (1.6) - 6e4 (4,4)(vi) Jetties at Akosombo and Buipe, Barges and

Tugs for VLTC - - 9.8 c/ 9.8 -(vii) Farm ers Service Reseller Outlets (0.6) 0.3 - 009 (0.6)(vill) Transport Vehicies (0.8) - - 0.8 (0.8)(Ix) Training for GOIL Personnel - 0.5 (0.3) - 0.5 (0.3)(x) Computer and Peripherals for Management Training (0.4) - - 0.4 (0,4)

Total (10.5) 15.3 (4.1) 10.5 (0,4) 36.3 (15.0)

- Figures In parentheses denote IDA credit./a "Others" Include cost of 601L's force accounts.ob Extension of consultancy services of the present consultant, BEICIP (France), which Is appointed

under the ongoing Refinery Rehabilitation and Technical Assistance Project (Credit 1446-01)./c Project component financed by Kf{ (West Germany) for VLTC.

I. Allocation and Disbursement of IDA credit

4.23 The allocation of the proposed IDA credit is shown in the tablebelow. The estimated quarterly disbursement schedule for the proposed IDAcredit, shown in Annex 4-3, has been based on the implementation schedules forindividual project components to be financed under the credit, given thatthere is no previous disbursement profile for this type of projects. Thisschedule is considered realistic given the advanced status of preparation byCHAIP for project implementation, and the fact that a substantial amount ofequipment and materials would be purchased off the shelves. To facilitateproject implementation, the Government and IDA have agreed for CHAIP and COILto open Special Accounts in respective amounts of US$200,000 and US$750,000 tobe used for expenditures made by them under the proposed project. Theaccounts will be held in a commercial bank, and operated on terms andconditions acceptable to the Association. Withdrawal applications will besubmitted with full supporting documents, except for payments against civilworks contracts of less than $100,000 equivalent, owher contracts of less than$50,000 equivalent, and individual training programs, which will be reimbursedon the basis of statements of expenditures (SOEs). Supporting documentsrelated to SOEs will be retained in a central location by CHAIP of GOIL, AnMmade available for review by visiting missions. Aa part of the annual auditof each implementing agency, auditors will specifically review accounts anddocuments related to amounts withdrawn on the basis of SOEs, and give theiropinion on the adequacy of these records.

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IDA Credit Allocation(US$ Million Equivalent)

CUAIP GOIL TOTAL Disbursement

Equipment and Materials 1.0 11.8 12.8 1OOZ of foreign expenditures

Civil Work and Erection 0.3 1.0 1.3 1002 of expenditures

Engineering and ProjectManagement 0.4 0.2 0.6 100l of expenditures

Training - 0.3 0.3 100l of expenditures

TOTAL 1.7 13.3 15.0

J. Environmental and Safety Aspeets

4.24 In general, environmental pollution from petroleum refining couldoccur through gaseous effluent and liquid waste. Gaseous effluent consists ofhigh sulfur gases containing hydrogen sulfide and mercaptans that escape intothe atmosphere and flue gases from process furnaces, boilers and refineryflare system. Liquid waste released from the refinery, if not treatedproperly, could contain traces of oil, phenolic compounds, and derivatives ofchromium, depending on the technical treatment and process configurationemployed in the refinery. Temn refinery, as described in para. 2.15, is asimple hydro-skimming refinery processing low sulfur Nigerian Bonny lightcrude oil without any complicated chemical treatment or cracking unit. Sincethe refinery does not process any high sulfur crude, the production ofunacceptable level of hydrogen sulfide and sulfur oxides through the fuelburned in the furnaces, boilers and flare system does not exist. Therefore,no treatment for the gaseous effluent from the refinery is required.Similarly, in the absence of chemical treatment using chromium chemical andcracking unit, the refinery wastewater does not contain any toxic compoundssuch as phenolic chronium deratives, arsonic, etc.

4.25 The only significant pollutant the refinery releases through itswastewater is traces of oil. The existing oil separation facilities(generally called API separator) is outmoded and is not effective incollecting oil from the refinery wastewater at level acceptable to industrynorms. It was noted that Ghana has no regulatory limit for oil contentadmissible in the refinery wastewater and that the refinery was not keepingrecords of the extent of oil relea"ed through wastewater. Since the waterultimately flows to the sea near the harbor, the accumulated effect of the oilover the years potentially could endanger marine life in the area. Sincethere are no other refinery or oil processing facilities (petrochemicalplants) in the area, the existing level of pollution is not in an alarmingproportion. Nevertheless, as recommended by the appraisal mission, GHAIPagreed to install a modern API separator to remove the oil from the refinerywastewater to levels normally acceptable to industry standard (less than 30parts per million). This API separator will be designed and constructed asper standards laid down by the American Petroleum Institute. Biological

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oxygen demand (BOD) is another quality that is not being maintained in thewastewater from the refinery. At the suggestion of the mission, suitablefacilities are included in the proposed project to control the BOD as perindustry norm. The API separator and the equipment to measure/monitor the BODin the refinery wastewater are funded under the project (para. 4.04 (b)).GHAIP has agreed to measure the oil content and BOD in the refinery wastewateron a regular basis and maintain them at limits as per appropriate USEnvironmental Protection Agency standard or its equivalent and to report thesedata in the quarterly reports to be submitted to IDA (para. 4.27).

4.26 All the components of the proposed project are planned withenvironmental and safety aspects meeting API standards and/or World Bankenvironmental guidelines whichever stricter. Replacement of corroded crudeand product lines connecting the oil jetty would reduce oil pollution of theenvironment to the normal industry standards. Similarly, rehabilitation ofthe Takoradi and Kumasi depots would reduce the oil spills from these depotsto normal industry standards. In designing the Volta Lake transport systemand additional LPG marketing facilities, all necessary precautions would betaken to limit environmental pollution and maintain safety standards thatwould meet normal industry practices. Increased LPG marketing would reducedeforestation since it would replace about 24,000 MT per year of wood fuel andcharcoal.

K. Project Monitoring and Reporting Requirements

4.27 Various indicators for monitoring project implementation and theoperations of CHAIP and GOIL (Annex 4-4) have been agreed with GHAIP andCOIL. These would be included in the requiremerts for GHAIP's and GOIL'speriodic (quarterly) progress reports to IDA. The Government, CHAIP and GOILhave also agreed that within three months after the completion of the project,they will jointly prepare a "Project Completion Report" on the basis of anoutline to be agreed with IDA.

4.28 As part of the Government's strucutral adjustment program, 14priority SOEs with major budget and fiscal impact will be expected to preparecorporate plans for review by Government and to negotiate performanceagreements (based on the plans) with Government setting out SOE's objectives,performance targets, performance incentives, and levels of Governmentfinancing (if any). The pet formance agreements are designed to increasemanagerial autonomy in day-to-day operations while also increasingaccountability to Government through setting performance targets and providingincentives based on actual results. Preparation and implementation of thecorporate plans on an agreed timetable for the 14 priority SOEs is an agreedaction under the structural adjustment program. Satisfactory progress is acondition of the SAL second tranche release. In accordance with thistimetable, GHAIP and COIL have agreed to prepare corporate plans for 1988-90by December 31, 1987, and conclude performance agreements with the Governmentbased on these plans by June 30, 1988 and implement them thereafter.

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V. PROJECT JUSTIFICATION AND RISKS

A. Project Justification

1. Sectoral and Institutional Objectives

5.01 Prom the sectoral perspective, the proposed project with its variouscomponents represents the most logical and urgently required investment inGhana's petroleum supply and distribution sector. The proposed project,particularly the rehabilitation components, would correct the presentdilapidated conditien of GOIL's supply and distribution facilities whichthreatens to disrupt the vital supply of petroleum products to end users.These rehabilitation requirements have been accumulated over the past yearsdue to the country's severe shortages of foreign exchange; future maintenancework would be carried out as part of the companies' normal operation. Adisruption of the petroleum supply most likely would have serious effectacross the sectors of the Ghanaian economy. The proposed project would alsoestablish and start up a new cost effective petroleum transport mode via VoltaLake, thus laying a framework for supplying petroleum products to Ghana'snorthern regions and potentially to its neighboring countries such as BurkinaFaso, Northern Togot etc.

5.02 The proposed project emerged from fruitful dialogues between theGovernment and the Bank on the development strategies and investment plans forthe petroleum supply and distribution sector. It is indeed a part of the"core" public investment program discussed and supported by the Bank throughpublic expenditure review and energy assessment exercises (paras. 1.02 and4.01). In addition, through the development of the project, the Governmentrecognized the need to promote private sector investment in the petroleumdistribution sector and was prepared to provide foreign exchange throughbudgetary allocation to the private oil marketing companies operating in Ghanato purchase spare parts and materials for their maintenance requirements.Such provisions were no longer necessary with the institution of the auctionscheme in September 1986, through which these companies can obtain therequired fnreign exchange (paras. 1.03 and 406).

503 Prom the institutional standpoint, the proposed project would enhancethe commercial orientation of the operations of GHAIP and COIL and wouldrationalize the responsibiliy of bulk procurement of crude/bulk marketing ofproducts by transfering it to CHAIP. It would further improve the efficiencyof CHAIP's Tema refinery operations by strengthening the crude oil procurementfunction and restructuring the operating/earning basis for the Tema refineryoperation by setting the processing margin on a periodic basis in a mannerthat would encourage the refinery to operate at maximum efficiency and, at thesame time, ensure that CHAIP maintain sufficient financial strength to upkeepand modernize its facilities in the long run. The transfer of bulk crudeprocurement responsibility to CHAIP would give the refinery the flexibility ofprocessing possible crude slates that would yield more economic productpatterns taking into account the country's petroleum product requirements.The proposed project would expose GOIL's managerial staff to the currentpractices of the international oil marketing companies with a view toimproving the management of their own operations.

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2. Economic Returns

5.04 The proposed project has components which are mainly intended torehabilitate the existing facilities, increase the safety aspects especiallyagainst fire hazards, and effect pollution control. Justification for suchcomponents should be mainly on the basis of safe operating practices and theneeds for environmental protection. Wherever the operational efficiency isincreased to effect improved productivity and reduce cost, it is taken intoaccount in evaluating the economic viability of the investment. For theeconomic evaluation, the project components are regrouped and their economicreturns are estimated as follows:

Project Components Economic Return(%)

(i) Refinery Rehabilitation 24

(ii) Rehabilitation of retail outlets,depots and additional transport vehicles 24

(ii) Farmer's Service Retail Outlets 26

(iv) Volta Lake transportation facilities 18

(v) LPG production and distribution 19

5.05 It has also been calculated that compared to road transport, theVolta Lake petroleum transport system would result in a net savings of aboutUS$2 million a year to the economy (assuming an annual cargo of 50,000 MT).Details of the above economic return calculations are shown in Annex 5-1.

3. CHAIP's Tema Refinery Operating Economics

5.06 The proposed rehabilitation of the Tema Refinery presupposes that therefinery operation is economic. Assessment of the refinery economics has thusbeen carried out as elaborated in Annex 5-2. The economics of the Temarefinery hinges largely on: (i) the type of crude mix that would best meetthe domestic white product requirement and, at the same time, minimize theproduction of .esidual fuel oil (to be re-exported at very low prices); (ii)the extent that fuel consumption and hydrocarbon losses in the refiningprocess could be reduced; and (iii) the savings on transport costs, resultingfrom lower freight costs for bringing crude oil to Ghana from nearby Nigeriacompared to bringing finished petroleum products from Western Europe. Asshown in Annex 5-2, the operating economics have been assessed under differenthistorical crude and product prices scenariosp which indicateq that therefinery operation would be economic at prevailing crude and product prices inthe past even when refinery fuel consumption and hydrocarbon losses wereassumed at the present rate of 6% on crude. Another way to assess theeconomic viablity of Tema refinery operation is to compare its refinery marginper barrel after taking account the transportation advantage (savingsresulting from bringing crude from nearby Nigeria in lieu of finished productsfrom northwest Europe/Middle East) accrued to the economy with thedifferential between crude and product FOB prices (say Rotterdam) per

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composite barrel. As shown in Annex 5-2S over the past 12 years except forthe period 1979-81 when the market was destabilized, this differential betweencrude and product prices per barrel varied between US$2.28 and US$4.68, whichwas above the Tema refinery breakeven margin (including transport savings) ofUS$0.95 per barrel. Thus Tema refinery operation has been economicallyviable. In the future, while the operating economics of the refinery wouldgreatly depend on the movements of crude and product prices, it is certainthat the refinery's operational efficiency would improve due to therehabilitation and energy conservation improvement achieved under the ongoingproject (Credit 1446-GH) as well as the proposed project, which whencompleted, would further reduce the fuel consumption and losses to about 51 oncrude throughput.

B. Project Risks

5.07 Since the project preparation is well-advanced and the projectcomponents are identified with specific details, no major risk is anticipatedin the implementation of the proposed project. Three major components of theproject-rehabilitation of the GHAIP's Tema refinery, GOIL's depots at Takoradiand Kumasi, and GOIL's retail outlet facilities - are existing facilities incontinuous operation with reasonable economic viability, especially if theinvestments in the existing facilities are considered sunk cost. Rehabili-tation of these facilities would increase the operating efficiency of thesefacilities and consequently their economic and financial viability.

5.08. In view of the currently unmet demand for LPC and high price forcharcoal, no difficulty is expected to market the additional LPG (about 6,000MT per year) once the proposed facilities are established. Since theadditional production is out of gases burned in the refinery furnaces andflare stack, there is also no uncertainty about its availability. Investmentsproposed for the farmer's service reseller outlets have been scaled downconsiderably, and only the bare minimum facilities will be provided. It isintended for the most essential needs of the farming communities in the remoteareas for which the Government attached very high priority. Since COIL isfully equipped to organize the manufacture of the tanks and install thefacilities, the only risk associated with this project component would be theextent that the potential owners (farmers cooperatives, private investors,etc.) would come forward to invest in and operate such facilities. This risk,however, is minimized given the support of regional and local authorities forthis oroject component. Furthermore, this component would be implemented on apilot basis under the proposed project and would be expanded if the schemeproved to be successful.

5.09 The other main component of the project - facilities for transpor-financial assistance from the Federal Republic of Germany through KfW. ThisKfW-financed system, which includes the main harbor facilities, pusher tugsand barges, navigational aids, other infrastructure around Volta Lake, andtechnical assistance to VLTC, are nearing completion. Only bare minimumadditional facilities are proposed to be added for the transportation ofpetroleum products, arnd no specific risk in project implementation isexpected. Coordination arrangements among the VLTC/VRA, COIL and MFP areadequate and should not pose any special problemso

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VI. AGREEMENTS

6.01 Agreements have been reached with the Government that:

(a) the Government would introduce a new petroleum pricing systemsatisfactory to IDA by December 31, 1987 and maintain petroleumprices at or above international levels (para. 2.29);

(b) the Government would bring into effect by January 1, 1988 thefinal arrangements for the bulk procurement of crude oil andbulk marketing of products (para. 3.05);

(c) the water-side facilities (jetties, barges and navigationalaids) would be prdvided by December 31, 1989, to transportpetroleum products between Akosombo and Buipe (para. 4.09);

(d) an agreement between GOIL and VLTC for the bulk transport ofpetroleum products via Volta Lake would be finalized not laterthan December 31, 1987 (para. 4.09); and

(e) the Government would prepare an evaluation report for reviewwith IDA two months after the completion of the pilot scheme forfarmers' service reseller outlets but not later than June 30,1989 (para. 4.10);

6.02 Agreements have been reached with the Government and/or GHAIP that:

(a) the management improvement study for GHAIP would be jointlyreviewed with IDA and a plan of action for implementing therecommendations would be agreed by December 31, 1987 (para.3.04);

(b) beginning with 1988 financial year, the refinery processingmargin for GHAIP would be established periodically taking intoconsideration the prevailing comparable international levels,international market prices for products and the financialviability of GHAIP (paras. 3.05 and 3.12);

(c) CHAIP's annual audited accounts, together with the auditor'sreport, would be submitted to IDA not later than six monthsafter the close of the year (para. 3.08);

(d) GHAIP would maintain a debt service coverage of at least 1.4 in1988 and at least 1.5 in 1989 onward, and a current ratio of atleast 1.0 in 1988 and at least 1.1 thereafter; also, it wouldpay no dividends during the construction period and would reviewwith IDA each year its rolling three-year investmentprogram (para. 3.19);

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(e) GHAIP would maintain the existing Project Unit at least untilthe completion of the proposed second phase refineryrehabilitation (para. 4.13);

(f) GRAIP would retain qualified consultants to assist in theimplementation of the refinery rehabilitation included in theproposad project (para. 4.13);

(g) CHAIP would measure the oil content and BOD in the refinerywastewater on a regular basis and maintain them as perappropriate US Environmental Protection Agency standard or itsequivalent and that GHAIP would report these data in thequarterly r4lporte to be submitted to IDA (Para. 4.25); and

(h) GHAIP would prepare a corporate plar. for 1988-90 by December 31,1987, and conclude performance agreement with the Governmentbased on this plan by June 30, 1988 and implement it thereafter(para. 4.28).

6.03 Agreements have been reached with the Government and/or GOIL that:

(a) the management improvement study for GOIL would be reviewed withIDA and a plan of action for implementing the recommendationswould be formulated by December 31, 1987. (para.3.23);

(b) GOIL's audited annual accounts, together with the auditor'sreport, wot-ld be submitted to IDA not later than six monthsafter the close of the year (para. 3.27);

(c) COIL would maintain a debt service coverage cf at least 1.5 anda current *atio of at least 1.1 in 1988 and thereafter and wouldreview witht IDA each year its rolling three-year investmentprogram (piira. 3.36);

(d) COIL would maintain the Project Unit at least until thecompletion of its components of the proposed project and employan experienced engineer consultant for about two years to assistthe Project Unit (para. 4.14);

(e) GOIL would employ and retain qualified consultants to assist inthe design and implementation of the land-side facilities atAkosombo and Buipe (para. 4.14); and

(f) COIL would prepare a corporate plan for 1988-90 by December 31,1987 and reach Performance agreement with the Government basedon this plan an1 implement it thereafter (para. 4.28).

6.04 Before credit effectiveness, the Government will:

(a) agree with IDA on a petroleum product pricing system based onthe recommendations of the ongoing pricing study (para. 2.29);

(b) make a decision on a final arrangement satisfactory to IDA forbulk procurement of crude oil/bulk marketing of petroleumproducts (para. 3.05);

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(c) appoint a Managing Director for GOIL (para. 3.24); and

(d) finalize the on-lending agreements with CRAIP and COIL (para.4.20).

6.05 Based on the above agreements, the proposed project is suitable for aproposed IDA Credit of SDR 11.7 million (US$15 million equivalent). Theproposed credit would be onlent to CHAIP (US$1.7 million equivalent) and GOIL(SDR 10.4 million or US$13.3 million equivalent) under on-lending agreementssatisfactory to IDA (para. 4.20). Retroactive financing of US$0.8 million forthe rehabilitation of the convection section of the heater for CHAIP (para.4.16) is also recommended, and is included in the amount mentioned above.

Energy DepartmentMay 1987

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GHANA

PETROLEUM REFINING AND DISTRIBUTION PROJECT

Estimated Energy Supply/Demand Balance, 1985

*nid. Pa- ow- 0q Ur. in aw- an 01 U a ty-ft". Ld ow MI Ial101. P arw W OU e

( pt.~ - (01t)

WOW Prht_m 471.6 8kvo 0.0 35. 0.0 0.0 0.0 0.0 0.0 &.0 0.0 21W.Q-.Kto 0.0 0.0 0.0 o .6 0.0 0.0 0.0 0.0 23. 0.0 23.9 7

trsy _na 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.610.0-ock f (- wa 0.0 0.0 0.0 51.9 -32 -3.6 -. 3 -0.6 -02 14. 0.9 0.0

T-a 471.6 8,60 0.0 .6 -362 -3.6 -. 3 -0.6 2L. 14.8 2%.8 1.4D.0

i"S n' o oI 0.0 0.0 0.i -1156 M0 3.0 11D.2 5.7 25.2 231.5 8W16 0.0SIMttd 1 0*0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -10.3 0.0 -10.3 24.0=n1 ftabla 0.0 -3.3260 40.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

=W400510 uma 0.0 0.0 0.0 -71.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0TWi 11t Uhuib. Lm 0.0 00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -2%.0

_ W 16471, 5,344.0 4U,%0 0.0 2WA 34.4 113.9 5.1 29N.6 63 90.1 1.21S.0U lo t 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.0 -0.2 -216.7 -219.9 0.0

= Om 471.6 5,1t.0 40.0 0.0 2.8 24.4 113.9 4.1 290.4 27.6 69.2 1,235.0N Me ~ 0.0 0.0 0.0 0.0 111.2 0.0 0.0 0.0 14 3LI 32.1 0.0IaauyAUulrq 0.0 170..0 .0 0.0 16.8 0.0 %54 1.0 46.2 24.5 93.9 615.0.ploalwwffUhtq 0.0 117V5 0.0 0.0 9.7 0.0 1.6 0.0 S3. 0.0 99.6 0.0

Id/3L4MC 0.0 a8 w10o 0.0 13.0 0.0 2.2 0.0 30.4 0.0 45.6 162.0bsoldmu 471,6 4,6 00 0.0 0.0 0.0 1. 3.1 0.0 0.0 W.9 430

PdLy f m 13L8.7 2,9342 0.0 1l. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 746.8 ,8S3.0.0 0.0 0.0 36.6 0.0 0.0 0.0 0.0 23.9 0.0 23.9 36.3 98

Iklaw 218ofto 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0*0 0.0 0.0 -2 .5 402L5S G% (- 1omG) 0.0 0.0 0.0 51.9 -3. -3.6 6.4 -0.6 -.02 13.6 -. 5 00 51.4

lcl 138. 2,9).2 0.0 16 -3.3 -3.6 -64 4.6 2L38 16 2.5 62.5 4^ 5

Ringa Rllbt 0.0 0.0 0.0 '0.5 20.7 L.3 121.8 6.1 MS. 213.4 M5S5 0.0Nctd" Qnma 0,0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.3 0.0 -10.3 2.0aOm hbl 0.0 -331L 312.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

-mLmin 0.0 U404. 0.0 40.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -245.5 .31.03lini& I , ,gb.1m 0.0 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 o0. 0.0 -22 -. LO

NMt O y 138. 1,817.0 312.8 0.0 221.4 24.7 II54 5.5 2".8 227.0 36. 10.3 3,270S_m9 i t 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.1 -0.2 -321.6 -3L3 40.0 -3.1

In1t Ibawoug c <138.7 18'170 31u 0.0 34 26.7 115.4 4.4 296 25.10 85.8 103 3,07.6-- I 0.0 0.0 0.0 0.0 l. 9 6.7 0.0 0.0 133.9 2.8 3A7.3 0.0 27.3

JaSqflhzdng 0.0 9.9 0.0 0.0 17,2 0.0 54 1.1 4.4 2L6 9L7 23 .90.0 0.0 0.0 0.0 100 0.0 1.6 0.0 3.7 0,0 30.2 0.0 1402

/ -A, Gn CIO 199 6.8 0.0 13.4 0.0 2.2 0.0 .6 0.0 46. 133.8 36.m 1uaI 138. 1.417.2 360 0.0 0.0 0.0 106.1 3.3 0.0 0.0 1094 37.2 2,^6

bant lNetY d PI ad r M Wl*; 613 1 01 Iar trnz s.

Energy DepartmentMay 1987

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6WWA

PETROLEUM REFINING AND DISTRIBUTION PROJECT

PETROLiUM PRODUCT PRICE STRUCTUIE /a(All Prices Are in Cadis Per lmperial Gallon).

Product Ex-Refinery Taxes Included In Dealer's Marketer's Transporterts Ex-PumP PricePrice Ex-Reftinery Prices Excise Margin ar£gin Margin lwperiai U.S.Road Fund Energy Fund Duties Gallon Gallon

Premium 144.30 5.0 1.0 21.0 2.60 5.60 tO.50 190.00 158.33Regular 139.30 5.0 1.0 16.0 2.60 5.60 10.50 1s0.OO 150.83Kerosene 89.30 1.0 1.0 - 2.60 5.60 10.50 110.00 91.46Gas Oil 109.30 10.0 1.0 26.0 2.60 5.60 10.50 165.00 137.50A.T.K. 170.00 - - - - - - 170.00 141.67 °R.F.O. 110.00 5.0 - 5.0 - - - 120.00 100.00L.P.G. (per pound) 11.40 0.2 - 2.0 1.50 2.05 2.85 20.00 -

/a Effective February 1987

Source: Ghana National Petroleum Corporation

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GHANAPETROLEUM REFINING AND DISTRIBUTION PROJECT

Ghalp OrgonIzation Chart

MonogwV Dftelw~~~~~~~~~~~~~~~~cla6n&3~7

1~~~~~~~~~~~~~~~~g~~~~~C4 wom { E E53 { g

sw1 ;7tt =, 2 J l Irll

I I Ll ~~~f~L IJfl. 11 r*X~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Wl So . k} r06r7 9Z

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- 52 -

ANNEX 3-2

GHN

PETROLEUM REFININO AND DISTRIBUTION PROJECT

GHAIP - Historical Income Stalsusnts, 1981-1985(MlillIon Cedis)

Year Ending December 31 1981 1982 1983 1984 1985

Sales VoiusCrude Processed MT ('000) 1,128.6 1,040,4 480U 6 748.7 973.7

Processing Fees 44.4 386, 92.0 183e4 360.3Store Soles 0.9 O 4.4 2.1 6.3

Total Sales Revenue 443 39.7 96.4 185.5 366*6

Maintenance Materials 10.0 4.4 26.3 26.0 61.5Chemicals 0.2 0*2 0.6 0,9 1.3utilities 1.1 1.2 0.9 5*4 0.0Other Industrial Costs 2.7 4e1 3.8 22.7 62,5Personnel 23.0 23.8 41.7 111.6 190.5Depreciation 0.' 055 155 1,0 3.2

Cost of Goods Sold 37,7 34.2 74.9 167.5 327.0

Gen. & Admin. Expenses 3.9 2.9 13.1 4.7 20,1

Total Operating Costs 41.3 37.1 88.0 172.2 347.1

Operating Income 4.0 2.6 8.4 13.3 19.5

Interest 0.8 O's 4.1 6.8 8.6

Income Before Taxes 3,2 2,1 4.3 6,5 10.9

Incom Tax 1.1 0.0 2,2 4.4 8.8

Net Income 2.1 2.1 2.1 2.1 2.18a3s 3a*= *33 =333 3=2=

S C.G.S,/Sales 82.6 86.2 77.7 82.1 89.2S Operating Income/Sales 8.8 6*4 8.7 7,8 5.3% Not Income/Sales 4.6 5.3 2.2 1.1 0.6

/a Audited

Energy DepartmentJanuary 1987

GHA-AX3-2 (li4C)

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- 53 - ANVIl 3-3

PETOLEWUN REFINI AND DISTRIBUTION PROJECT

AI4AP - Historical Balance Sheet, 1961-1985(Ml lI I on Cedis)

Yew Ending Decembr 31 1961 1982 1963 1964 1985

ASSETS

Total Cash a Investments 5.2 6.7 6.0 65.5 65.S

Accounts Recelvabie 15,2 13.3 40,.3 1OS.4 253.6Stocks 12.1 3.2 26.5 47.1 10.5

Total Current Asts 32.5 33.2 72.8 216.1 439.8

Bul ldings 6.0 8.0 6.0 6.O 8.0Machinery & Equipment 36.6 63.2 _8. S6.4 147.8

Total Fixed Assets 66.6 71.2 79.7 94.4 155.8Accum. Depreciation 51.0 51.5 53.1 54.0 57.2

Not Fixed Assets 15.6 19.7 26.6 40.4 96.6Trade I nvestmnts .0 .0 .0 .0 29.0

TOTAL ASSETS 48.1 52.9 99.4 256,5 967.5

LIABILITIES*=**amass=

Short-Term Borrowings 1.6 1.2 5.6 - 4.6Accounts Payable 16.0 23.4 61.0 147.8 384.4Taxes Payable 5.2 3.2 5.4 3.9 7.3Dividends Payable 2& 2.1 4.2

TOTAL CURRENT LIABILITIES 27.1 29.8 16.4 159.0 400,6

Emplooye Benefits - - - 74.4 143.9Share Capital 16.8 16.8 16.6 16.8 16.8Retained Earnings 4.2 6.3 6.3 3 6.3

TOTAL E9UITY 21.0 23.1 23.1 23.1 23.1

TOTAL LIABILITIES 48.1 52.9 99.4 256.5 567.5

Current Ratlo 1.2 1.1 1.0 1.3 1.1S Equity/Total Liabilities 44/56 44/56 23/77 10/90 4/96

Ia Audited

Energy Departmentmay 1987

GHA-AX3-3 (RMC)

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- 54 -ANNEX 3-4

CANA

PETROLUM REPININC AND DISTU8UTIOI PRWECT

GRAIP - Project Income Statements,, 1986-1992

Dar~u 31 1986 1987 1999 1999 1990 1991 1992uillian Cedis - - -- -

mm MMCDude Processd NT ('000) 995.2 1,013.4 1,042.4 1,072.2 1,102.8 1,160.1 1,220.3

PRcing Fee 0.0 0.0 3,386 3,720.1 3,937.1 4,2.1 4,610.8Stre SWles 60.0 65.4 76.1 95.5 92.7 99.2 102.4Refining fee until 1997 43.6 974.0 0.0 0.0 0.0 0.0 0.0

TML S RENEIIE 499.6 1,039.4 3,444.7 3,9(5.6 4,029.8 4S3M4 4,713.2

Naintwkwc Materials 122.9 181.1 254.9 281.3 297.9 320.3 348.7Chuicals U5ed 2.9 4.2 5.9 6.6 6.9 7.5 9.1Utilities 7.1 10.4 14.7 16.2 17.2 18.5 20.1Other Idmatrial CWSt5 50.8 74.8 105.2 116.2 123.0 132.3 144.0Pw5wnel 213.0 238.9 285.9 330.3 369.4 410.7 450.3Star Sales 62.0 9E99 121.5 130.4 134.2 137.3 142.1Refinery Casuwption 0.0 0.0 1,426.7 1,444.3 1,389.6 1,420.9 1,470.7

DPIATI(N 8.2 9.2 16.6 112.2 112.2 174.9 174.9

osT OF MOMS SOD 466.9 606.5 2,231.3 2,437.6 -,449.3 2,622.3 2,759.9

EN. &ADMIN. EXRENS 22.5 24.5 28.6 32.1 34.8 36.9 39.4

TDTAL OPERATINB CSTS 489.4 631.0 2,259.8 2,469.7 2,484.1 2,659.1 2,797.3

OPERATI INOIE 9.2 408.4 1,184.8 1,333.9 1,545.8 1,674.2 1,915.9

LG&B-rTER DEET INTEREST 0.0 138.9 243.6 273.3 272.9 249.7 213.3ST DETCDEPGJSIT) INTEREST 4.4 23.6 SB.2 67.S 14.8 (43.1) (98.8)

TOTAL GOMR EXPEIES 4.4 162.5 301.8 340.7 287.6 206.6 114.5

SNDE EF TAXES 4.8 245.9 993.0 995.2 1,259.1 1,467.6 1,801.4

TAIE IN= 4.8 245.9 P83.0 995.2 1,258.1 1,467.6 1,801.4DME TAX 2.6 135.2 4956 547.3 692.0 807.2 990.9

Er mE 2.1 110.6 397.3 447.9 5662 660.4 810.6-= ==s_

X C.B.S. t MMq 93.6 5M.3 64.9 64.1 60.8 60.5 585% aR. INVE/amES 1.9 39.3 34.4 35.1 39.4 38.6 40.7X MT D NIE / SS 0.4 10.6 11.5 11.8 14.0 15.2 17.2

Energy DepartmentMay 1987

Page 63: World Bank Document · 2016. 7. 14. · Document of The World Bank FOR OFFICIAL USE ONLY c k tf/S- 53J Report No. 6628-GH STAFF APPRAISAL REPORT GHANA PETROLEUM REFINING AND DISTRIBUTION

- 55 -ANNEX 3-5

GAN

PETIO L II4WINIC AND DISIBUTIOIN PROCT

GlAIP - Projected Balance Sheets, 1986-1992

31 196 19w7 19g 199 1990 1991 1992sillim Cadis - - - - - -

=#_

SIWWS Ca 0.0 0.0 0.0 0.0 268.5 637.6 1,437.1MINRIUI 1YU 27.9 35.9 129.4 136.0 136.8 143.3 151.3TOTAL CASH 27.8 35.9 129.4 136.0 405.3 791.0 1,59.3

fmNT6 REIUwLE 1E12.2 379.8 1,23L6 1,390.5 1,472.4 1,5.3 1,722.1

RN KATEIMS 139.2 202.2 22.3 309.7 32.5 346.0 372.5

TurAL INNIWlES 138.2 202.2 2923 309.7 W2.5 346.0 372.5

TOTAL a1 AETS 349.2 617.9 1,670.4 1,62 2,2032 2,710.3 3,63.0

TOTAL FIXED ASSETS 784.3 2,105.6 2,851.1 3,317.7 3,519.3 3,519.3 3,519.3AM1 [8RECIATWNo 65.4 7&.5 90.1 202.3 414.5 489.4 664.2

tET FIXED A 719.9 2,0=1 2,761.1 3,115.4 3,204.9 3,03D.0 2,85.1

1TOTL ASETS 1,067.1 2,650.0 4,431.5 4,951.6 5,40.1 5,740.3 6,5S.1

UABIUTIB

SlRT-TERM DIM NM 102.9 236.0 598.6 36.2 0.0 0.0 0.0AMMITS PAMR. 164.0 129.2 239.4 191.7 32.4 268.5 422.2aL rAT. L.T.D. 113.7 277.5 227.5 279.7 331.9 285.6 239.3TAXES PAYULE 2.6 1.2 45.6 547.3 692.0 907.2 990.8DIVIDMOS PAYAI.E 2.1 0.0 0.0 0.0 113.2 132.1 162.1

TOTAL U4T LIDILITIE 385.3 727.9 1,$1.1 1,386.9 1,465.6 1,493.4 1,814.4

ROVFNE MEUIT 175.0 210.8 27 303.2 38.5 420.1 467.6tElI 1WTEIM DMT 599.5 1,807.1 2,32.1 2,564.2 2,496.2 2,154.2 1,868.6LESS al AlRTITIES 113.7 227.5 227.5 2m.7 331.9 2F5.6 239.3

NET LUD NO EITS 67 1,790.4 2,351.4 2,587.8 2,512.7 2,297 2,117.0

S9 CNITAL 16.8 16.8 16.8 16.8 16.8 16.8 16.8LEIL FE 0.4 22.6 102.0 191.6 304.8 436.9 599.0RETAINED EIINS 3.8 92.3 410.2 768.5 1,108.2 1,504.4 1,990.8

TOTAL EQUITY 21.t, 131.7 529.0 976.9 1,429.8 1,958.1 2,606.6

TOTAL LIWILITIES 1,067.1 2,650.0 4,431.5 4,951.6 5,408.1 5,740.3 6,538.1eao := ==== - ==

0ildT RATIO 0.9 0.8 1.1 1.3 1.5 1.9 2.0EQUITY J TUrL LUA. 2.0 5.0 11.9 19.7 26.4 34.1 39.9

Energy DepartmentMay 1987

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_ 56 -AM=EX 3-6

lP - Projected ources and Appication of Fd, 198-12

31 196 1997 18 1969 1990 1991 1992A111e tadi- - - - - -

IT mDE 2.1 110.6 37.3 447.8 566.2 60.4 810.6En oATO 92 92 16.6 112.2 112.2 174.9 174.9

TOOAL FRl 1MTIO 10.3 119 413.9 560.0 6794 G3L3 595

lU3-19II ET Dam 599.5 1,321.4 745.5 466.5 201.6 0.0 0.0

TO1TL FRU DMW m99.5 1,321.4 745.5 466.5 201.6 0.0 0.0

TOTAL 9UURES 609.8 1,440.2 1,I59.4 1,0266 90.0 9.3 995

DDiTM 610 FIE AI 5999.5 1,321.4 745.5 466.5 201.6 0.0 0.0

OTAL MDITII4- 599.5 1,321.4 745.5 466.5 201.6 0.0 0.0

LTA.D 0.0 113.7 227.5 227.5 279.7 M.q 2E.6DNIIII AID 4.2 2.1 0.0 0.0 0.0 113.2 132.1O^E IN NIRD PI1M. 311 3L. 229.3 W.1 45.9 451.8 64O1 IN BPLY WEF f3.0) (35.9) (42.9) (49.6) (M.3) (61.6) (67.5)

T1TAL CATI= 609.8 1,440.2 1,159.4 1,0. 90.0 03L3 95.

tO DK MY-. MlME 33 1.0 1.4 1.6 t.7 1.9 2.4

luragy Departustmay 1987

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- 57 -ANVEX 3-7Page 1

OUWA

PBTOLIN REFINING AID DISTUIIUTMOV

GCAIP - Notes mnd AeusIptions for Financial Projections

I. General

1. The financial projections are based on CGHIP's historical accounts,estimated 1986 accounts and the staff's best judgement on future productionlevels and investment program. The following domestic and internationalinflation rates and exchange rates hav been used in the projections:

1987 1988 1989 1990 1991 1992

Domestic (Z) .8.0 15.0 10.0 7.0 5.0 3.5Foreign (S) 3.0 1.0 1.0 1.0 3.5 3.5Exchange rate(Cedis per US$1.0) 165 180 187 187 187 187

II* Income Statement

2. Revenues. For 1986 and 1987, processing fees have been projected onthe basis of the "Processing Agreement" which has been in force since thebeginning of the Tema refinery operation. Accortding to this agreement, thefee is established to cover:

Operating Costs;Depreciation of the total cost of the refinery;General and administrative expenses;Nunicipal and Income taxes;Local currency cost component of the investment program; andDividends to Government free of Tax not exceeding 12.52 per annum onthe paid up capital of the company.

From 1988 onwards, this processing fee would be established throughnegotiations with the Covernment taking into account the prevailing comparableinternational refining margins, international market prices for crude andpetroleum products and the financial viability of QUA!P. It has been assumedthat GHAIP would earn a processing fee of US$2.55 equivalent per barrelincluding US$0.9 equivalent per barrel to cover internal fuel consumption.This margin is escalated according to the intenational rate of inflation shownin para. 1.

3. Store Sales are sales of chemical products to GNPC and/or commercialentities. Sales volume is expected to remin constant, prices are escalatedaccording to the domestic rate of inflation.

G*4A-ANX3-? (RMC)

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- 58 -ANNEX 3-7Page 2

4. Operating Costs:

(a) Operating costs are based on CHAIP's budget for 1986 escalatedby inflation and production levels. They include maintenancematerials, chemicals, industrial costs and store sales ofadditives as well as the refinery's fuel consumption which areescalated at the foreign rate of inflation and adjusted annuallyat the prevailing exchange rate. Personnel costs and utilitiesare escalated at the domestic inflation rate.

(b) Refinery Fuel Consumption: This represents fuel consumedinternally in refinery operation. For 1986 and 1987, thisamount does not show in the income statements since, under theexisting "Processing Agreement", is covered directly by theGovernment/CNPC and not charged to the accounts of CHAIP. Underthe new processing fee arrangement expected to be effective from1988 onward, such fuel consumption would be charged directly toCHAIP. It has been assumed that the internal fuel consumptionwould be reduced to 6% of total throughput in 1988 as the firstphase rehabilitation program begins to take effect, and decreasegradually to 5X of total throughput in 1990 and thereafter.

5. Depreciation of the new assets is calculated according to thestraight line method over 20 years:

6. Income taxes are 55Z of income.

7. Dividends. It has been assumed that no dividends will be paid duringthe project construction period, i.e. up through 1989. From 1990 onwards,dividends are projected at a level of 25% of net income after retaining areserve of 20% which will maintain satisfactory liquidity ratios.

III. Balance Sheets and Funds Flow Statement

8. Cash. Minimum cash is based on average historical requirements of 21days of cash operating costs. Extra cash is assumed to be invested in short-term instruments yielding 10X per annum.

9. Accounts Receivable rose from 122 days of sales in 1981 to 218 daysin 1984 and 253 days 5- 1985. They are expected to decline to 134 days from1986 onwards.

10. Inventories are based on historical requirements of 122 days ofconsumables and maintenance materials excluding internal fuel consumptionrequirements, the latter being financed by Government.

11. Plant and Equipment are based on CHAIP's investment program.

12. Short Term Debt has been assumed to carry an interest rate of 15% perannum. CHAIP is projected to incur some short-term debt to finance increasesin working capital requirements since CHAIP's cash generation is limited bythe Processsing Agreement until 1987.

GNA-ANX3-7 (MN)

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ANNEX 3-7Page 3

13. Accounts Payable rose from 178 days of operating expenses isi 1981 to407 days in 1985. The latter figure however includes payments due tocontractors and suppliers for capital expenditures. They are expected todecline gradually fFom 75 days in 1987 to an average of 45 days thereafter.

14. Financing Plan for the Proposed Project. It has been assumed thatthe proposed IDA credit and EIB loan would be onlent to CKAIP at 1.1 times theprevailing Bank rate (currently 7.922) over 15 years including 3 yearsgrace. Interest during construction would be financed by Covernment, and thelocal currency portion of the project (about US$2.0 million equivalent) by EIBand onlent to CRAIP on the same terms and conditions as the foreign loan.Debt service and increases in working capital would be financed by internalcash generation from 1988 onwards when the new processing fee would takeeffect.

Energy DepartmentMay 1987

GHA-ANX3-7 (RMC)

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4 If

ii E

- 09 -

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- 61 -

ANNEX 3-9

PElTOLEUM lEFININD AND DISMIRITION PROJECT

GOIL - Historical lcoc Statements. 1961-1965 (MIIlIon Codis)

Yoer Ending Oes*er 31 1961 1962 1983 1964 196S

Total Sales Revenue 36.4 338.7 1,012.0 2,387.8 3,952,2

Fuel and Lubrieants 32330 292.4 9*83 1,772.9 3,213.2Deot & Station Expense 6.1 539 20.8 14.3 56.7Dapreciation td2 1.2 06,C.A8

Gen, & Admi. Expeans 14.6 21.3 29.4 172.7 196.9

Total Operatin Cost 3 320.8 1 1f960,4 3g477,6

OpratIng Inome 21,5 17.6 52.0 427.5 474.6Non-orwating ncoMe 4.4 2l.2 41.8

inom Before Taxes 22,9 19.9 56.4 438.7 516.4inome Tax 60 4) 32.4 249.0 297.0

Not IncDan 6.9 26.3 24.0 189.7 219.4

S C.S.S.J5a1es t901 I8.4 92.0 74.9 83.0S0eating Inoem/sales 5g.9 5.3 S.1 17.9 12.0S Not Income/Sales 2.4 7.6 2.4 7.9 5.6

/a Audited

Energy Departmntmay 1987

GNA-AX3-9 (MC)

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- 62 -

AMX 3-10

GHANA

PETROLEUM REFINlINB AND DISTRIBUTION PROJECT

GOIL - Historical Balance Sheets, 1981-1985(Mil lion CodIs)

Year Ending December 31 1981 1982 1983 1984 1985

ASSETS

Cash 62.4 74.0 314.5 433.1 583.3

Accounts ReceIvable 65.0 13,6 129,0 379.5 911.5Finished Products 12.4 17.8 47.5 248.6 645.1

Total Current Assets 139.8 165.5 491.0 1,061,1 2,139,9

Total Fixed Assets 20,0 22.0 23.9 29.4 92.2Accum. Depreciation 9*5 10.6 11.2 11.7 20,7

Net Fixed Assets 10.6 11.4 12.7 17.7 71.5

TOTAL ASSETS 150.3 176.9 503.8 1,078*9 2,211.4

LIABILITIES

Accounts Payable 95.5 101.2 397*6 552.5 1,207.6Taxes Payable 29.8 17.4 21.0 237.4 482.9Dividends Payable 0.0 7,0 14.0 26.4 27.3

TOTAL CURRENT LIABILITIES 125,3 132.6 442,4 840.2 1,717,8

Share Capital 1.9 1.9 1.9 1.9 1.9Legal Reserve 10.0 20.0 70.0 120.0Retained Earnings 23.1 32,4 39.4 166,8 321.2

TOTAL EQUITY 25,0 44j 61.3 238,7 443,1

TOTAL LIABILITIES 150,3 176,9 503.8 1,078,9 2,211.43333a 3=333 s3n33 3=3333= 333w32

Current Ratlo 1.1 1,3 ,l1 1,3 1,2% Equity/Total Liabilities 17/83 25/75 12/88 22n8 20/80

/a Audited

Energy DepartmentMay 1987

GHA-AX3-10 (lMC1

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- 63 -

ANMIK 3-11

"wRaOM uwiuiuo AnD DI8UTIlIOI PIIOJ8CT

_OIL - Projected Income Stateasota 1986-1992

IDced 31 1986 1987 199 1999 1990 1991 1992

h4WV Nff I000) 38.7 39.6 40.6 41.6 42.7 43.7 44.9Nwbl MT('DD) 11.4 11.4 11.4 11.4 11.4 11.4 11.4Kerune NfTI'OO) 17.6 18.0 18.5 18.9 19.4 19.9 20.4ans 1 O l( 00) 81.4 89.5 99.5 103 119.2 131.1 144.2Fuel Dil K1WOO) 14.3 14.6 15.0 15.4 15.8 16.2 16.6L19 hT(OCO) 2.2 2.2 2.3 2.3 2.4 2.4 2.5LihricantsIT C000) 9.2 9.5 9.7 10.0 10.2 10.5 10.7Omtuca1s 19'('00) 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Sip 1,502.7 2,576.4 3,610.5 3,973.3 4,190.7 4,392.4 4,659.7 Wirmi 452.0 722.6 99.0 1,060.7 1,09.5 1,116.1 1,15.2Kerome 395.2 699.7 979.1 1,077.5 1,136.4 1,191.1 1,263.6Gan m1 2,416.3 3,944.1 5,931.5 7,0052 7,929.0 9,918.7 10,154.0Fuel M1 261.5 393.7 W7.7 591.7 624.1 64.1 693.9J1B 564 97,2 136.2 149.9 1SI.I 165.7 175.9Ldrlicats 1,164.9 1,761.4 2,468.4 2,716.4 2,865.0 3,002.9 3,195.7Owicals 61.6 a 3 119.5 131.5 13.7 145.4 154.3

uTriL MmS hE 6,:90.6 10,269.4 14,770.9 16,706.3 19,136 19,565 21,442.2

&W Cost 1,523.2 2,490.2 3,475.6 3,824.9 4,034.1 4,229.3 4,45.7Norl ot 43L6 694.7 949.8 1,019.7 1,049.3 1,073.0 1,110.5Kwomsse Cost 379.0 657.5 921.3 1,013.9 1,069.4 1,120.9 1,189.1an ml aost 2,2M9.7 3,751.9 5,642.4 6,63. 7,526 8,49.0 9,6S9.1 Fuel l st 239.9 350.6 491.3 540.7 570.3 597.7 634.1LP9 Cast 45.9 82.4 1155 127. 1 134.0 140.5 149.0Lubricant Cast 734.1 1,077.2 1,509.6 1,661.3 1,752.2 1,8365 1,949.3Oulcals dst 47.9 70.3 994 1l0S 114.3 119.9 127.1

DScIATIU 9.8 41.4 41.4 49.9 32.6 170.7 170.7

*MT OF GME SIID 5,702.0 9,206.1 13,245.4 15,0096 16,298.7 17,771.2 19,473.5

.L & ovN. EF B2S.4 3.5 410.2 460.8 499.6 529.4 51.9

TT FMTDN asm 6,OM4 9,ML6 13,6S.6 15,469.4 16,799.4 18,3D0.7 20,02i.3

MATIOG JDE 365.2 710.8 1,115.2 1,23.9 1,M.2 1,285.8 1,416.9

LiNETam MUT INIE8I 0.0 0.0 59.5 141.8 186.1 199.8 172.0ST IlE8OSIT IIEISz (37.61 (405) (s2.G) tS9.4) (69.5) (81.0) (101.9)

TOL. OIKR EWB (37.6) (40.5) 6.6 8Z4 117.6 107.8 70.1

ME T4E 40.8 751.3 1,108.6 1,154.4 1,217.6 1,177.9 1,346.

TA.E DAE 40L. 751.3 1,106 1,154.4 1,217.6 1,177.9 1,346.8INDE TAX 221.5 413.2 609.7 634.9 669.7 647.9 740.7

ET 1 181.3 D33.1 "9.9 519.5 547.9 530.1 606.1

I C..S. I MM 89.2 89.6 99.7 99.9 99.9 90.7 S0.9aW. / W Ks1f 5.7 6.9 7.6 7.4 7.4 6.6 6.6

%NET DMEI KB 2.8 3.3 3.4 3.1 '.0 2.7 2.8

Ehergy DepartmtMay 1987

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AMU 3-12

'WJIU hP:IS0 DISIUI3IWI FUJUCT

COIL - ftzoEctel Siaice Sbeeto, 19S6-1192

D 2CEnW 31 1986 199 19 1989 1990 1991 119

U CDI =.32a8 517.3 592.5 6.7 783. 916.6 1,223.7I"NWII W1 231.4 6. B6 53 64.8 69.3 763.6T1ML GAo4 54.2 9.3 1,116.1 1,247.8 1,428.4 1,613.9 1,7.4

AMl1 IEYIILE 1,229.0 1,974.9 8S6 ,22. 44P.2 3,766 4,13FINISO1 PRFIUMS 675.9 1,996.2 1,562.3 1,767.0 1,918.0 2,071.6 2,267.9

TOTAL D60IM 6.9 1,4862 1,2.3 1,767.0 1,918.0 2,071.6 2,267.9

TOTAL DIJIR S15 2,469.0 3944.4 5,59.0 ,227.6 6,936 7,41 0,78

TOTAL FIXED AREM9 1,110.1 1,314.2 2,561.0 3,62 3,870.9 3870.9 3,.9AC4. MEITCIU 29.5 70.9 112.4 161.3 1939 36.6 53.2

Et FIXED IrS 1,990.6 1,243.2 2,429.5 3,404.9 3,677.0 3,S6.3 333L6

TOtAL ASM 3,59.6 5,187.6 7,9485 9,625 10,510.6 .0,99%4 11,714.4

LIUITIB

OM9 PAYAILE 1,69.1 2,114.2 3,910.4 4,430.4 4,17.3 5,212.5 5,716.6O.HOET WT. L.T.L 0.0 0.0 0.0 63 192.6 1l. 192.6TARMES PMYAIE 221.5 413.2 609.7 .9 669.7 647.9 740.7DIVIIMIB PAYEE 87.0 I23 29.5 249.4 263.0 254.4 290.9

mWm. QI LW TB 1,994.6 3,38.6 4,7W.6 5,411.0 942.6 s37.4 6,940.9

LW-RTEM MD0 0.0 167.1 1, 19.6 2,97.4 2,215i4 2,022.7 1,90.1LESS ITR 1 MWtITIES 0.0 0.0 0.0 93 19 19.6 192.6

M(T O1I-R DEST 0.0 167.1 1,16 1,9I.1 2,0=7 1,.1 1,67.4

am APITAL 1,019.0 1,019.8 1,019.8 1,019.8 1,019.0 1,019.8 1,019.9LElBIL RE-JE M13 .9 23 =6 427.5 537.1 t1 764.3lETA1IED ENs 379.0 407.2 648 813.1 9994 1,1s.0 1,.0

TOTAL Willy 1,5.1 1,730.9 1,990.3 29260.4 2,9543 2,82L9 ';13L1

TlTAL L tL;T11 3,59.6 5,17.6 7,948S 9,63.5 10,510.6 10,094 11,714.4

a MTIo 1.2 1.2 1.2 1.2 1.1 1.2 1.2% M?f / 1TAL L. 438 334 2.0 2LS 324.2 2L7 2L8

buerg DepartmentMay 1987

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ANOEX 3-13

GUAXA

PROLEM REFIUING AND DISTRIBUTION PROJECT

COIL - Projected Sources and Aplication of Funds, 1986-1992

0c12iw 31 1986 1987 1988 1989 1990 1991 1992million Cudis - - - - -

ES3 aF RIGS

ET INDE 191.3 339.1 498.9 519.5 547.9 530.1 61DSIECIATION 8.9 41.4 41.4 48.9 32.6 170.7 170.7

TtO0L FAI UI TMN 190.1 3m.5 540.3 569.4 SO.5 700.7 776.7

OK CAITAL f IWU E1] 1,017.9 0.0 0.0 0.0 0.0 0.0 0.0LS-1EM DM DiIf 0.0 167.1 1,031.5 m8 254.3 0.0 0.0

MTAL F OM MM M90 1,017.9 167.1 1,031.5 8358.8 254.3 0.0 0.0

TOTAL 901 1,20&0 546.6 1,571.8 1,427.2 834.8 700.7 776.7

WUFATIG6

ADITIMNS TO FIXED AETS 1,017.9 204.1 1,227.7 1,024.4 304.7 0.0 0.0

TOAL ADDITIOB 1,017.9 204.1 1,227.7 1,024.4 304.7 0.0 0.0

L.T.D. REPAY#NS 0.0 0.0 0.0 0.0 96.3 192.6 192.6DIVIWS PAID 27.4 97.0 162.3 239.5 249.4 263.0 24.4OWE IN MINB CAPITOL iA7 ZL6 191.8 163.4 184.5 245.1 329.6

tM.r WNP TI( l,28.0 546.6 1,571.8 1,427.2 934.8 700.7 776.7

El] foLdting fri .qivalent etsrevaluation in 1996

TME T SWI. MNElA N N 10.1 5.0 2.7 2.3 2.6

Energy Departmenthay 1987

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- 66 -ANNEX 3-14Page 1

CuA

PEMTLEUM WPININC AND DISTRIBUTION PROJECT

COIL - Notes and Assumptions for Financial Projections

I. General

1. The financial projections are based oh COIL's historical accounts,estimated 1986 accounts and the staff's best judgement on future productionlevels and inyestment program. The following domestic and internationalinflation rates and exchange rates have been used in the projections:

1987 1988 1989 1990 1991 1992

Domestic (X) 18.0 15.0 10.0 7.0 5.0 3.5Foreign (t) 3.0 1.0 1.0 1.0 3.5 3.5Exchange rate(Cedis per US$1.0) 165 180 187 187 187 187

II. Income Statements

2. Revenues are based on the net retail sales prices set by theGovernment in 1987 and escalated according to the domestic rate ofinflation. Sales volumes for the various oil products is expected to grow atan average rate of 31 per annum.

3. Operating costs are based on GOIL's 1986 estimates escalated by salesvolume and the domestic rate of inflation.

4. Depreciation of the new assets is calculated according to thefollowing schedule:

(i)depots: straight line method over a period of 20 years; and

(ii)equipment and transport vehicles: straight line method over aperiod of 10 years.

5. Income Taxes are 55X of incume.

6. Dividends are projected at a level of 60X of net income afterproviding for a reserve of 20X.

III. Balance Sheets and Funds Flow Statements

7. Minimum Cash is based on average historical requirements of 15 daysof cash operating costs.

8. Extra Cash is the result of reserves built up over the years andfunds generated from operations. These are invested in short term instrumentsand yield 10.0% per annum.

GCA-AX3-14(RMC)

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ANNEX 3-14Page 2

9. Accounts receivable are expected to remain at 70 days of sales from1986 onwards.

10. Inventories are based on average historical requirements of 43 daysof oil product costs and maintenance materials.

11. Plant and Equipment are based on GOIL's investment program.

12. Accounts Payable are expected to remain constant at 108 days ofoperating expenses from 1986 onwards.

13. Financing Plan for the Proposed Project. It has been assumed thatIDA and other foreign loans would be onlent to GOIL at 1.1 times theprevailing Bank rate over 15 years including 3 years grace. The localcurrency portion of the project as well as interest during construction willbe financed by internal cash generation.

Energy DepartmentMay 1987

GHA-AX3-14(RMC)

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GH

PETROLEU REFINING AN) DISTRIBUTICN WOJECT

Pro.let loplmntation Schedule

PROJECT COPNTSfDnths: 0 2 4 6 8 10 12 14 16 16 20 22 24

1. Rehabilitation of To Raffinwy Fwcl tios

(a) Rahabilitation In LPG treatment,storage nd transfer facilltles DE t TP I FS | C I S

(b) API separator with air floatationfacilities DE I 1P F FS L c I s

(c) Heaster convection sclon modifications DE | P | FS C S I(d) Repairs for pipolles-tojetty JE I P FS | C | S |

(e) spalrs of three Jet ful tanks DE I TP IFS I C | S |(f ) Mist elominetors for existing boilers CE I TP F FS L C L S |(g) Sa wtwr chlorination system DE I 1P I FS I C I S

2. Rehabilitation of SOIL's 03pots as Takoradiand Kumesi DE I TP | FS I C I S

3. Rehabilitation of Retall Outlet CE _ TP I _ S I C | S I4. Expansion of LPO marketing facilities OE I TP FS I C I S |5. Farmers' service reseller outlets CE | TP F FS i C |

6. Training for GOIL personnel TP I I

DE a Design and EngineringTP a Tendering and ProcuremontFS r Fabrication and SupplyC = Construction

OS a Start-upI = implemntatlon

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GHANAPETROLEUM REFINING AND DISTRIBUTION PROJECT

Fuel Handling FacIlItles cat Akosombo

1. FME.tAGJETTY 1 2 3 4 6 7 _ 9 *0 44 12 - 2 3 4 5 6 7 8 |9 40 | 42

Dolphi & Guide Plis . _ -. -

Acess Dom & ___ . - -

& - _ _ -_ ____ _ t

B. TAMN FARM & FUN STATION

UndepOund Wod - --_ -- -tl I I I I I - I II-I

S"cW Tanks - -

Tank ITck Urlooading St|tion |

Buldings r I -

AuxilO,y FacIlItIes

World Bank-3067974

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ANNEX 4-1Page 3

-_ _ --

_ _ _-_ ___-t

CIO

8&~- 1 -- <

m S o~~~-X E-l

oss° WAT j L40

X 0.V S

0, ,'

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ANNEX 4-2Page 1

GHANA

PETROLEUM REFINING AND DISTRIBUTION PROJECT

Detalled Project Cost Estimates(USS Million Equivalent, January 1987 Prices)

ForeignQuantity Exchange Local Total

1, REFINING REHABILITATION

LPG Storage truck and marineloading Improvements 0.320 -

LiP 6" dlam6ter pipeline to Jetty 0.630 -

API separator with air flostationfacilItIes 0.435 -

LPG sand filter 0.085 -

Distillation Heseter convectionsection modifications 0.800 -

Repairs to pipelines to Jetty 0.475 -

Repairs for 3 Jet fuel tanks C.285 -

Mist *leminators for existing boilers 0.170 -

Laboratory equipment 0.250 -

Steel plates and materials for tank repairs 0.500

27-ton crane for maintenance 0,235 -

Fire alarm system 0.520 -

Chlorination system 0.365SInstrument work shop 0.105 -

Vehicles 0.125Subtotal 5.300 ! 410 6.710

2. VOLTA LAKE TRANSPORTATION - GOIi FACILITIES

(a) AKOSOMBO

(1) Earthwork 0.140 0.260(11) Underground & Pavement work 0.300 0.100

(111) Tanks, Pipelines, truckunloading station 0.510 0.100

(iv) Firefighting facilities 0.100 0.030(v) Electrical Installation 0.300 O.00

(vi) Miscellaneous 0.100 0.140

Subtotal 1.450 0.710 2.160

GHA-ANX4-2 (RMC)

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AMl 4-2Page 2

ForeignQuentlty Exchange Local Total

(b) CUIE

(1) Earthwork 0.280 0.075(ii) Underground & Pavement 0,350 0.150(Iii) Tanks, Pipolines, truck

unloading station 1.09S 0.200(iv) Firefighting fecilItels 0.125 O.05O(v) Electrical installetion 0.350 0.0g9(vI) Miscellaneous 0.150 0.150

Subtotal 2.350 0.870 3.060

3, VLTC'S INVESTMENT FOR JETTIES AND BARGESFINANCED B3Y KfW 7.730 0.670 S.600

4* EXPANSION OF LPG iNANETING FACILITIES

Kosan gas regulators 60,000 0.240 -Kosan gas cyllandr valves 60,000 0.170 -

2-point LPG filling plant 3 0.203 -Repairs ond testing equipment 6 0.002 -Speres for two years - 0,004 -

Pressure testing equlpmnt - 0.021 -15 kg. gas cylinders 60,00 1.390 -

Portable 3-burner gas cookers 60,000 1.360 -

ITEMS FOR TEMA LPG FILLING PLANT

4-Port safety valves 3 0.006 -Stand-by generators (25 kva) 1 0.010 -Fork lifts 3 0.054 -

Cylinder repair kits 2 0.001 -Weighing scales 3 0.002 -LPG loading pumps with drives 2 0.005 -LPG tanks for filling plant, 20M3 6 0.092 -

Subtotal 3.560 0.950 4.510

5. TRANSPORT VEHICLES

7-ton trucks 6 0.120 -2-ton pick-ups 6 0.036 -30-ton prime-movers 1 0,035 -15-ton chassis with 13,500 1, bullets 4 0.440 -Four wheel drives 6 0,069 -Station wagows 2 0.050 -

Subtotal 0.750 01750

GHA-ANX4-2 (RMC)

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AtMlK 4-2Page 3

ForeIgn

Quantity Exchange Local Total6. REHABILITATION OF RETAIL OUTLETS

Items roquired for 32 stations 1540 -

Spares for existing pumps and oqulpmant 00350

Subtotal 1.890 0.470 2.360

7, REHABILITATION OF TAMORADI AND KUMASI DEPOTS

Product loading pumps with electric

drives and two motor control contres 10 0.035 -

Fire water pumps with electric drives 2 0.030 -

Fire water pumps with diesel drlves 2 0.080 -

Truck loading arms (4 in each set) 3 0.020 -

Breather valves for tanks 15 0.008 -

Gate valves for tanks (16 x 6" + 14 x 10") 30 0.008 -

Water hydrant pipeline (3" and 6") metres 1100 0.018 -

Stand-by genorating sets (25 kva) 2 0.020 -

ForkI-lifts 3 0.060Bunkering pump with diesel drive 1 0.025 -

Steel pipes (6" and 3") metres 1200 O0b39 -

Pipe fittings - 0°030 -

MIscellaneous - 0.052 -

Earthing materials, metros 300 0.010 -

Spares for above matorials - 0.025 -

Subtotal 0.460 0.240 0.700

o HNM PIWS AND STEEL PLATES FORFAMIR'S SERVICE RESELLER OUTLETS 0,500 0.240 0.740

9. TRAINING FOR QOIL PERSONEL 0.300 0.060 0.360

10. C0WUTER AND PERIPIfRAL FOR SOIL MANAGEMENTIMR0VEMENT 0.200 0.060 0.260

BASE OOST ESTIMATE 24.490 5,720 30,210

Physical Contingencies 2.580 0.710 3.290

Price contingeneies 1,040 1,720 2.1760

TOTAL PROJECT COST 28.110 8.150 36.260

Energy DepartmentMay 1987

GHA-ANX4-2 (MC)

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AMEX 4-3

GltANA

PETROLEUM REFINING AND DISBURSEMENT PRNOJECT

Estimated Disburseent Schedule

Disbursement (USS million)Flscal Yoar uar_ter Quarterly Cummulative

FY 1988 11 0.80 0.80

III 1.20 2.00

iV 2*30 4.30

FY1989 1 1.60 5.90

II 1170 7.60

III 2,00 9.60

IV 1.40 11.00

FY1990 1 1,70 12.70

Ii 0.70 13.40

IIl 0.40 13.80

IV 0.40 14,20

FY1991 1 0.40 14.60

I I 0.40 1S.OO

Energy Department

may 1987

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75 -

ANNEX 4-4Page 1

PEMIOLCUN REFINING AID DISTU BUTION PROJECT

Project Monitoring Indicators

During negotiations, indicators pertinent to the projectimplementation and efficient operation of the two organizations (GHAIP andGOIL) involved, along the lines outlined below, would be discussed and agreedwith the representatives of the Government and the organizations as the basisfor establishing an agreed project monitoring system.

GHAIP

(i) Measuring and recording of the fuel consumed and hydrocarbonlost in the refinery operation with a view to control theconsumption and losses within the limits expected as a result ofthe implementation of energy conservation and rehabilitationenvisaged in the proposed project.

(ii) Evaluation of the cost of labour employed in the operation andmaintenance of the refinery periodically in order to control itwithin the limits comparable for refineries of similar size andconfiguration.

(iii) Maintaining up-to-date record of inspection history of allimportant equipment and macbinery, and necessary spares andmaterials required to carry out timely preventive maintenance.

(iv) Maintaining strict safety standards pertaining to the storageand handling of petroleum, particularly liquified petroleum gas(LPG).

(v) Maintaining up-to-date record of pollutants measured,particularly oil content and biological oxygen demand, at leastonce in a week in order to monitor the harmful effect of thewaste water leaving the refinery to internationAlly acceptableindustry standards and maintain their levels in the wastewaterat appropriate US Environmental Protection Agency standard orits equivalent.

(vi) Maintain up-to-date record of all technical and financialinformation required to assess the refinery processing marginperiodically (such as consumption of fuel, utilities, catalystsand ecbmicals; cost of labour, maintenance and administration;and quantity and cost of crude processed and productsdelivered).

(vii) PrepAration of quarterly and annual financial statements forreview with IDA.+

GHA-AX4-4 (RMC)

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ANNEX 4-4Page 2

(viii) Preparation of quarterly reports on the physical and financialprogress of the project, status of procurement and contracting,and disbursement schedule.

COIL

(i) Maintaining up-to-date record of products received, marketed andlist in storage, transportation and handling in order toevaluate the efficiency of each stage of COIL's marketingoperation.

(ii) Evaluation of the cost of labour employed and other marketingexpenses periodically in order to assess the overall operationalefficiency.

(iii) Maintaining up-to-date record of inspection history of allimportant equipment and machinery, and necessasry spares andmaterials required to carry out timely preventive maintenance.

(iv) Kaintaining strict safety standards pertaining to the storageand handling of petroleum, particularly liquified petroleum gas(LPC).

(v) Preparation of quarterly and annual financial statements forreview with IDA.

(vi) Preparation of quarterly reports on the physical and financialprogress of the project, status of procurement and contracting,and disbursement schedule.

Energy DepartmentMay 1987

CNA-AX4-4 (MNC)

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ANNEX 5-1

Page 1

GHANA

PITROIEUN REFINING AND DISTRIBUTION PROJECT

Economic Analysis

A. Introduction

An economic analysis and the resulting economic rate of return isshown below for the following project components which have relevant economiccosts and benefits:

(i) Refinery Rehabilitation

(ii) Volta Lake Transport

iii) LPG Production and Distribution

A financial analysis and the resulting financial rate of retus4 is shown forthe following project components which do not have directly measurableeconomic costs and benefits. These will have important qualitative benefitshowever, by increasing reliability and generally streamlining the process ofproducts distribution to the industrial and farming sector.

(i) Rehabilitation of Retail Outlets

(ii) Farmers Service Retail Outlets.

Assumptions and calculations for these components are shown in detail. Allcosts and revenues are in constant August 1986 terms and exclusive of dutiesand taxes. Local costs and revenues 'nclude a shadow pricing factor of 1.85for economic rate of return calculation only.

B. Refinery Rehabilitation

This component comprises an API separator with air floatationfacilities, modifications to the distillation heater convection section,repairs to the jetty pipelines, repairs (;f three jet fuel tanks, misteliminators for the existing boilers, a 27-ton maintenance crane andchlorination system for sea water used for cooling.

Capital cost is US$3.39 million of which US$2.77 million is inforeign exchange and US$0.62 million is in local cost. The residual value ofassets is 132 after 15 years of operation.

Ooerating Cost. No additional economic costs can be allocated tothese comp%ients as they are being implemented for their cost saving andproduction streamlining benefits. The cost of production *v already accountedfor in the existing cost structure of the refinery.

GHA-ANX5-1 (RmC)

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Benefits consist of the following savings:

-- US$0.17 million per year in oil loss due to new efficient APIseparator, based on 1,500 tons (0.15% of total throughput) andan average price of US$112.0 per ton.

-- US$0.28 million per year in fuel savings due to the moderni-zation of the heater convection section, based on 3,000 ton offuel at US$92.28 per ton.

-- JUS$0.26 million per year in oil savings due to repairs of crudeand product pipelines to the jetty, based on 2,000 tons at anaverage price of US$130 per ton.

-- US$0.08 million pee year in maintenance cost savings due to theuse of the 27-ton crane.

== US$0.08 million per year due to savings in cost of chlorine,based on 335 tons at US$190 per ton plus US$38 for freight.

Cost/Benefits Streams for the base case are shown in the tablebelow. The economic rate of return is 24.51.

TABLE

Fiscal Capital Working Operating NetYear Cost Capital Costs Benefit Benefit

1987 -0.68 0.00 0.00 0.00 -0.681988 -1.18 0.00 0.00 0.00 -1.181989 -1.53 0.00 0.00 0.62 -0.911990 0.00 0.00 0.00 0.87 0.871991 0.00 0.00 0.00 0.87 0.871992 0.00 0.00 0.00 0.87 0.871993 0.00 0.00 0.00 0.87 0.871994 0.00 0.00 0.00 0.87 0.871995 0.00 0.00 0.00 0.87 0.871996 0.00 0.00 0.00 0.87 0.871997 0.00 0.00 0.00 0.87 0.871998 0.00 0.00 0.00 0.87 0.871999 0.00 0.00 0.00 0.87 0.872000 0.00 0.00 0.00 0.87 0.872001 0.00 0.00 0.00 0.87 0.872002 0.00 0.00 0.00 0.87 0.872003 0.00 0.00 0.00 0.87 0.872004 0.44 0.00 0.00 0.87 1.31

ZE.R.R24.5

GHA-ANX5-1 (RMCI

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- 79ANNEX 5-1Page 3

Sensitivity Analysis

This component is equally sensitive to capital cost and prices.Since no operating costs can be allocated to this component, it is not acritical variable and has no impact on the economic rate of return. Theresults of the sensitivity analysis are shown in the table below:

Change of Critical CapitalVariable from Base Case X Cost Prices

20 20.0% 29.6%10 22.1% 27.0%0 24.5% 24.5%

-10 27.3% 21.8%-20 30.9% 19.1%

C. Volta Lake Transport

This component comprises jetty facilities, petroleum barges andpusher tugs financed through KfW, earthworks, underground and pavement works,storage tanks and truck/ unloading stations, firefighting and electricalinstallations, and miscellaneous equipment. Works will be undertaken both atthe Akosombo and Buipe locations. For the economic evaluation, the cost ofone diesel barge that is included in the ongoing VLTC project is also includedto arrive at the overall cost ard benefits. The cost of the storage tanks andtruck loading facilities at Buipe is excluded from the cost of the Volta Lakesystem since it is provided in lieu of the facilities required for building asupply depot at Tamale, and included in the rehabilitation of retail outlets.

Capital Costs is US$13.89 million of which US$1.31 million equivalentis local and 12.58 is foreign. The residual value of assets is 10% after 19years of operation.

Operating Costs of the barges is US$0.30 million per year whichincludes cost of labour, fuel, lubricants and spares.

Benefits. Annual average savings would be US$2.75 million for amovement of 50,000 tons of petroleum products over 500 km from Tema to Buipeat the esti ated road transport cost (economic cost) of US$0.11 equivalent/ton/km. The annual movement is expected to be 25,000 tons in 1989, 50,000tons in 1990 and will grow by 5% per year for five years and 3% subsquently.

Cost/Benefits Streams for the base case are shown in the tablebelow. The economic rate of return is 18.4%. In an alternative case, if40,000 tons per year are exported to Burkina-Faso over and above Ghana's ownrequirement, the economic rate of return of the Volta Lake transport componentis 27.2%.

GHA-ANX5-1 (RMC)

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ANNEX 5-1Page 4

TABLE

Fiscal Capital Working Operating Net SalesYear Cost Capital Costs Benefit Benefit Volume

1987 -2.78 0.00 0.00 0.00 -2.78 (000t)1988 -4.86 0.00 0.00 0.00 -4.86 0.001989 -6.25 0.00 -0.15 1.33 -5.07 0.001990 0.0Q 0.00 -0.30 2.75 2.45 25.001991 0.00 0.00 -0.32 2.89 2.57 50.001992 0.00 0.00 -0.33 3.03 2.70 52.501993 0.00 0.00 -0.35 3.18 2.84 55.13199A 0.00 0.00 -0.36 3.34 2.98 57.881995 0.00 0.00 -0.38 3.44 3.07 60.781996 0.00 0.00 -0.39 3.55 3.16 62.601997 0.00 0.00 -0.40 3.65 3.25 64.481998 0.00 0.00 -0.41 3.76 3.35 68.401999 0.00 0.00 -0.42 3.88 3.45 70.462000 0.00 0.00 -0.44 3.99 3.56 72.572001 0.00 0.00 -0.45 4.11 3.66 74.752002 0.00 0.00 -0.46 4.23 3.77 76.992003 0.00 0.00 -0.48 4.36 3.89 79.302004 0.00 0.00 -0.49 4.49 3.83 81.682005 0.00 0.00 -0.50 4.63 4.46 84.132006 0.00 0.00 -0.52 4.77 5.10 86.652007 1.39 0.00 -0.54 4.91 6.95 89.25

Z E.R.R18.4

S.nsitivity Analysis

This component is equally sensitive to capital cost and salesvolume. Since operating costs are small in relation to sales revenue theformer have a limited impact on the economic rate of return and is not acritical variable. The results of the sensitivity analysis are shown in thetable below.

Change of Critical Capital Operating SalesVariable from Base Case Z Cost Costs Volume

20 15.0X 17.91 22.5X10 16.51 18.1Z 20.5Z0 18.4X 18.4X 18.4Z

-10 20.5% 18.61 16.11-20 23.01 18.81 13.8Z

GHA-ANX5-I (I C)

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D. LPG Production and Distribution

This component comprises LPC truck and marine loading improvements inthe refinery, replacement of a 6" diameter pipeline to the jetty, LPG sandfilters, expansion of GOIL's LPG marketing facilities, additions to Tomea LPGfilling plant, and transport vehicleso

Capital Cost is US$4.51 million of which US$0.50 million equivalentis local and US$4.10 million is foreign. Residual value of assets is 10Xafter 15 years of operation.

Operating Costs. There are no incremental costs associated with theadditional LPG production.

Benefits from the project are US$1.14 million per year based onUS$190 per ton of LPC ex-refinery and an additional production of 6000 tons ofLPG. Production build-up is 70X of capacity in year 3 and full capacity inyear 4.

Cost/Benefits Streams are shown in the table below. The base caseeconomic rate of return is 19.4X.

TABLE

Fiscal Capital Working Operating getYear Cost Capital Costs Benefit Benefit

1987 -0.90 0.00 0.00 0.00 -0.901988 -1.58 0.00 0.00 0.00 -1.581989 2.03 0.00 0.00 0.00 -2.031990 0.00 0.00 0.00 0.80 0.801991 0.00 0.00 0.00 1.14 1.141992 0.00 0.00 0.00 1.14 1.141993 0.00 0.00 0.00 1.14 1.141994 0.00 0.00 0.00 1.14 1.141995 0.00 0.00 0.00 1.14 1.141996 0.00 0.00 0.00 1.14 1.141997 0.00 0.00 0.00 1.14 1.141998 0.00 0.00 0.00 1.14 1.141999 0.00 0.00 0.00 1.14 1.142000 0.00 0.00 0.00 1.14 1.142001 0.00 0.00 0.00 1.14 1.142002 0.00 0.00 0.00 1.14 1.142003 0.45 0.00 0.00 1.14 1.59

7E.R.R.19.4

GHA-ANX5-1 (RMC )

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- 82 -AM EX 5-1Page 6

Sensitivity Analysis

This component is equally sensitive to capital cost, prices and salesvolume. Since no operating costs can be allocated to chis coomponent, theformer are not critical variable and have no impact on the economic rate ofreturn. The results of the sensivity analysis are shown in the table below.

Change of Critical Capital SalesVariable from Base Case X Cost Prices Volume

20 16.19% 23.12 23.1%10 17.65% 21.3% 21.3Z0 19.44% 19.4% 19.4%

-10 21.53% 17.5% 17.5%-20 24.01% 15.4% 15.4%

E. Rehabilitation of Retail Outlets

This component comprises the rehabilitation of the Takoradi andKumasi depots including loading pumps, fire water pumps, miscellanousequipment, rehabilitation of 32 stations with spares for existing pumps andequipment, and installation of storage tanks and truck loading facilities atBuipe.

Capital Cost is US$4.6 million of which US$0.76 million equivalent islocal and US$3.84 million is foreign. Residual value of assets is 10% after15 years of operation.

Oeration Costs are already accounted for in the existingoperations. There are no incremental costs.

Benefits are US$1.31 million based on savings of liquids productsales at a rate of 4.5 Cedis per I.C.

Cost/Benefits Streams are shown in the table below. The base casefinancial rate of return is 24.0%.

GHA-ANXS-1 (R4C)

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ANNEX 5-1Page 7

TABLE

Fiscal Capital Working Operating NetYear Cost Capital Costs Benefit Benefit

1987 -1.38 0.00 0.00 0.00 -1.381988 -2.30 0.00 0.00 0.00 -2.301989 -0.92 0.00 0.00 0.65 -0.271990 0.00 0.00 0.00 1.31 1.311991 0.00 0.00 0.00 1.31 1.311992 0.00 0.00 0.00 1.31 1.311993 0.00 0.00 0.00 1.31 1.311994 0.00 0.00 0.00 1.31 1.311995 0.00 0.00 0.00 1.31 1.311996 0.00 0.00 0.00 1.31 1.311997 0.00 0.00 0.00 1.31 1.311998 0.00 0.00 0.00 1.31 1.311999 0.00 0.00 0.00 1.31 1.312000 0.00 0.00 0.00 1.31 1.312001 0.00 0.00 0.00 1.31 1.312002 0.00 0.00 0.00 1.31 1.312003 0.00 0.00 0.00 1.31 1.312004 0.46 0.00 0.00 1.31 1.77

z I.R.R.24.0

Sensitivity Analysis

This component is equally sensitive to capital cost, prices and salesvolume. since no incremental operating costs can be allocated to thiscomponent, the former are not a critical variable and have no impact on thefinancial rate of return. The results of the sensitivity analysis are shownin the table below.

Change of Critical Capital SalesVariable from Base Case % Cost Prices Volume

20 20.0% 28.5% 28.5%10 21.9% 26.3% 26.3%0 24.0% 24.0% 24.0%

-10 26.6% 21.6% 21.6%-20 29.7% 19.1% 19.1%

F. Farmers Service Retail Outlets

This component comprises hand pumps and steel plates for fuel tankswhich will be assembled locally.

GHA-ANX5-1 (Rf4C)

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ANNEX 5-1Page 8

Capital Cost is US$0.77 million of which 0.22 million is local and0.55 million is foreign. Residual value of assets is 20Z after 16 years ofoperation.

Operating Costs amount to US$0.6 million equivalent when the pilotscheme is in full operation.

Benefits are US$0.81 million per year based on a dealer margin of2.1 Cedi per I.G. and an additional 3.5 Cedi per I.G for transportation and atotal volume of 50,000 MT per year of diesel and kerosene.

Cost/Benefits Streams are shown in the table below. The base caseeconomic rate of return is 26.2%.

TABLE

Fiscal Capital Working Operating NetYear Cost Capital Costs Benefit Benefit

1987 -0.23 0.00 0.00 0.00 -0.231988 -0.39 0.00 -0.14 0.20 -0.331989 -0.15 0.00 -0.42 0.57 0.001990 0.00 0.00 -0.58 0.78 0.211991 0.00 0.00 -0.60 0.81 0.211992 0.00 0.00 -0.60 0.81 0.211993 0.00 0.00 -0.60 0.81 0.211994 0.00 0.00 -0.60 0.81 0.211995 0.00 0.00 -0.60 0.81 0.211996 0.00 0.00 -0.60 0.81 0.211991 0.00 0.00 -0.60 0.81 0.211998 0.00 0.00 -0.60 0.81 0.211999 0.00 0.00 -0.60 0.81 0.212000 0.00 0.00 -0.60 0.81 0.212001 0.00 0.00 -0.60 0.81 0.212002 0.00 0.00 -0.60 0.81 0.212003 0.00 0.00 -0.60 0.81 0.212004 0.15 0.00 -0.60 0.81 0.37

gI.R.R.26.2

Sensitivity Analysis

For this component, the financial rate of return is extremelysensitive to price and sales volume variations: a 10% drop would lower thefinancial rate of return to 15.4% while a 20% drop results in a very low rateof return of 2.5%. Sensitivity is not very critical to capital and operatingcosts which will remain at 21.62 and 18.1% for a 20% increase in capital andoperating costs respectively.

GHA-ANX5-1 (R4C)

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ANNEX 5-1Page 9

Change of Critical Capital Operating SalesVariable from Base Case X Cost Costs Prices Volume

20 21.62 18.1X 45.81 45.9110 23.7Z 21.81 36.22 36.2Z0 26.21 26.21 26.2X 26.2X

-10 29.21 31.2Z 15.41 15.41-20 32.81 36.81 2.5Z 2.51

Energy DepartmentMay 1987

GHA-ANX5-1 (ACM)

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ANNEX 5-2Page 1

GHANA

PETROLEUM REFIING AND DISTRIBUTION PROJECT

GHAIP - Tema Refinery Operating Economics

1. CHAIP's Tema Refinerv is a simple hydroskimming refinery consistingof 28,000 bpd crude distillation, catalytic reformer, product treating unitsand usual auxiliary facilities including electri- power generation. Therefinery normally operates at around 75% capacity (21,000 bpd) to meetexclusively the white products requirement of the domestic market. Being ahydroskimming refinery, it produces considerable quantities of residual fueloil which is exported at very low prices. Thus to improve its operatingeconomics, the refinery should select the right type of crude mix that willmore or less meet the domestic white product requirement and, at the sametime, minimize the production of surplus residual fuel oil. In the absence ofsuitable condensates or surplus finished products at the West African crudeoil export points, CHAIP's choices for crude are limited to light crude oilssuch as Bonny Light and Brass River from Nigeria. Between these two crudes,Bonny Light, with its high content of middle distillates, best suits therequirement of Ghana and the configuration of the Tema Refinery.

2. In order to further improve the operating economics of the refinery,the Government relaxed the specifications for diesel and fuel oil whichresulted in additional production of diesel (about 6% on crude) at the expenseof surplus residual fuel oil. In addition, fuel consumption and hydrocarbonlosses are being reduced considerably as a result of the first phase refineryrehabilitation financed under the ongoing Refinery Rehabilitation andTechnical Assistance Project (Credit 1446-GH). These losses will be furtherreduced with the second-phase rehabilitation included in the proposedpetroleum refinery and distribution project.

3. Beside the improved operating efficiency through rehabilitation, therefinery's operating economics depends greatly on the savings on transportcosts, i.e. lower freight costs for bringing to Ghana crude oil from nearbyNigeria as compared to bringing finished petroleum products from WesternEurope. On an average, the differential in freight rates amount to aboutUS$12.50 per ton. With this freight advantage, coupled with the qualityadvantage of Nigerian Bonny Light crude oil, the Tema Refinery is able togenerate a respectable profit most of the time in spite of the fluctuatingnature of the international prices for crude and products.

4. Since the economic viability of the refinery mainly depends on crudeand product freight differential, the possibilities of obtaining finishedproducts from the West Africa region itself have been considered. The fifteenrefineries in the West Africa region (Mauritania to Angola) have a totalrefining capacity of about 567,000 barrels per day (25.0 million MT/year), ofwhich 254,000 barrels per day (11.5 million MT/year) capacity is in the threerefineries in Nigeria. Due to operational problems and mismatch betweendemand and production, only about 180,000 barrels per day (8.0 million

ANX5-CHANA (RMC)

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ANNEX 5-2Page 2

MT/year) capacity is in regular operation, and at present Nigeria is a netimporter of products to the tune of about 4.5 million MT per year. Nigeria'splans for building a large refinery at Port Hartcourt has not materialized dueto financial consttaints. Outside Nigeria, only the 70,000 barrels per dayAbidjan refinery in Ivory Coast, and the 20,000 barrels per day Gabon refineryhave secondary conversion facilities; all the rest being simple hydroskimmingrefineries as in the case of Ghana's Tema refinery. Ivory Coast at presenthas a surplus capacity of about 35,000 barrels per day (1.75 million MT/year)which is being fully utilized for export by international oil companies,mostly by Chevron. Cabon operates at about 70X capacity for its own domesticuse. Among the remaining refineries in the region, Ghana's Tema refinery isin the forefront with more than 75% capacity utilization solely for domesticrequirements. Surplus products from other hydroskimming refineries in theregion, even if they are operated at full capacity, would not be competitivewith products from Ghana's own refinery since they are being operated withcostly expatriate assistance and with less operating efficiency than the Temarefinery. In addition, the crude and product freight advantages that thoserefineries enjoy would not be more than the advantage that Tema refineryenjoys at present. As a result, the West Africa region at present is a netimporter of petroleum products to the tune of about 7.0 million MT per year.Western Europe/Mediterranean is the main source for these imports.

5. Regarding prices for products from West Africa refineries, even thesurplus products from Abidjan refinery are exported on the basis of FOB pricesex Northwest Europe/Mediterranean plus freight. Under those circumstances,Ghana's choices for petroleum products are limited to direct imports from N.W.Europe/Mediterranean or refining Bonny Light crude oil in its refinery. Asshown below, the crude refining option is economically more advantageous thanthe product import option.

6. The historic crude and product price differentials (FOB Rotterdam)during 1974-1986 are presented in page 5. The effect of these pricedifferentials on the composite barrel produced from the Tema refinery based onGhana's domestic consumption pattern of products is shown in a graphical formon page 6. The price differential required to make the refinery operationbreak-even is estimated at US$0.95 per barrel or US$7.06 per ton (page 7 fordetails) which is shown in the graph in a dotted line. It is observed thatover the past 12 years, except for the period 1979-82 when the market wasdestabilized mainly due to the sudden effect of the breakout of war betweenIran and Iraq, the price differential varied between US$2.28 and IS$4.68 perbarrel which was considerably above the Tema refinery break-even margin ofUS$0.95 per barrel. Hence it is safe to assume that the Tema refineryoperation would continue to be economically viable as compared to productimports under stable market conditions. The energy conservation measures andmanagement improvement expected under the proposed project would furtherimprove the economic viability of the refinery.

7. The operating economics of the Tema Refinery have been assessed underdifferent historical crude and product prices scenarios. It should be notedthat the product pattern is based on fuel consumption and losses (6%)currently obtained in the refinery after the completion of some of therehabilitation jobs under IDA credit 1446-GH. It is expected to furtherreduce to 5-5.5% when the rehabilitation is completed under the proposedproject, The operating economics of the Tema Refinery are summarized below.Assumptions used in the calculations are shown on page 4 of this Annex.

ANX5-CHANA (RMC)

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AMX 5-2Page 3

PTROLEUM REtlNING AND DISTRIBUTION PROJECT

TENA REFItERY OPERATING ECOMICS

Requirements October 1985 August 1986 December 1986Products MT/Year SM 4 S/Ton W61M S/Ton M/YR

LPG 12,000 300.00 3.600 200.00 2.400 170,00 2.040Gasol ine 220,000 290.36 63,879 160.48 35.306 144.90 31.878Kerosene/Jetfuel 142,000 305.95 43.445 143.82 20.422 164.40 23.345Diese 320,000 284.30 90,976 136.77 43.766 139.90 44.768Fuel Oil (DOostic) 60.000 163.13 9.708 81157 48994 107.72 6,463

754,000 211.688 10.7681 108.494

Terminal Cost 1.538 1.538 1.538Total Cost of Prouct imports 213.226 108.326 110.032

cost of Crude 973,700 220.13 214.341 99.13 95.523 111.79 108.850Cost of Refining 9390 9.390 9.390Subtotal 223.731 105.913 118.240

Fuel Oil Export Credit 161,700 136,87 22.132 56.43 9.125 92.28 14,922Not Cost of Refining 201.59 96.788 103.318

Annual Savings In Refiningvis-a-vis product liport 11.627 11,53 6.714

Energy DepartmentFebruary 1987

ANX5-GHANA (1MC)

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ANNEX 5-2Page 4

PETOLEUN REPINIG AND DISTRIBUTION PROJECT

CHANA - Tema Refinery Operating Economics

Assumptions

- Crude processed : Nigerian Bonny Light- Crude transportation from Nigeria to Tema : 50,000 DWT vessels- Crude oil freight is estimated at W.S. 100 for 50,0OO DWT vessels.

Product freights are estimated at W.S. 150 for 25,000 DVT vessels fromNorthwest Europe.Prices of crude and products are based on Platt's Oilgram price reportsfrom October 29, 1985, August 11, 1986 and December 2, 1986. Since Ghanahas entered into long term contract (1 year) with Nigeria on "net-back"basis, the actual prices of crude oil would be slightty lower than thegoing spot market prices.Insurance and ocean losses are estimated at 0.7X of the FOB + freight costfor crude and products.The refinery fuel consumption and losses, product pattern, capacity'tilization and operating costs are assumed to be the same as currentlyexperienced after completion of some of the rehabilitation jobs under IDACredit 1446-CH. Additional savings would be achieved when the refineryrehabilitation is completed.Price of LPG was estimated as per market information at different periodsin the absence of actual postings.The refinery does not have any long term debts, and the existing plant andmachinery are fully depreciated.Terminal cost for product import includes cost of persornel, utilities,chemicals, etc. for operation and maintenance of product storage andhandling facilities.

Energy DepartmentFebruary 1987

ANX5-GHAVA (RMC)

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- 90 -

ANNEX 5-2Page 5

GHANA

PETROLEUM REFININC AND DISTRIBUTION PROJECT

GHAIP - Tema Refinery Operating Economics

Historical Product and Crude Prices for 1974-86(in US$/Ton)

Jet Premium Diesel Fuel CrudeKerosene Gasoline Oil Oil Oil

1974 110.29 140.2 95.9 69.5 79.01975 115.58 128.8 100.5 62.1 86.31976 122.48 149.2 106.5 67.2 91.91977 135.47 141.9 117.8 76.2 98.21978 147.89 170.3 128.6 75.7 100.51979 357.54 346.5 310.9 133.6 133.01980 353.17 369.7 307.1 170.3 219.81981 343.51 371.2 298.7 183.5 249.01982 337.41 339.6 293.4 164.7 246.71983 292.10 293.0 254.0 171.0 218.11984 276.00 265.5 240.0 178.3 206.81985 (Jan) 271.98 231.0 236.5 188.9 207.0-986 (Dec) 142.60 148.5 124.0 76.5 107.5

a) Crude and product prices are average for the year except for 1985and 1986.

b) Crude prices are for Arabian Light (34 API) FOB Rotterdam.c) Product prices are FOB Rotterdam.

Energy DepartmentFebruary 1987

ANX5-GHANA (RMC)

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- 91 -

- ~ j -- jj

i ! , ' Annex 5-2- CtIU.& I P.6age g-

PETROL,ET REFIPNS AND DISTRIBUTION PROJECg

GHAIP i TEMA REFINZRY OPERATINM ECONOMICS

I .

, + ~~~~~~~~~~~~~I 1 4.

I | g I j \r- Diffetential betw en Cruce a d TI 10.0 I Refintry Composit Product P iies

!I I | (FOB gotterdam;' 9.0 .\

- 7.0 .___ __I_ ____ __. .__.7.0

" 6.0

4.0

lBreakeven Ptice Differential betwern,

1.0 r Crude and P6oducts Prices for TemaiRefinery ' _

_~~~~~~~~~~~~~~~~~~~~~~~~~~~ :

1914 75 t6 77 18 79 19*0 81 42 83 84 85 46

Energy Department jM-ay 1987 I I

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1MAt? BURKINA PASCB U R .K I N A F A S °ou o;d 1 UIN 50 T-'

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('%~~~~~~~~~~~~~~~~~~~ Z-=5~V 'w' < Th Abid~~~~~~~~~~~~~~~~~~~~~~w,~~~~b

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GI-pErROLEUM REFINING /

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IBRD 20018

G HA N A4G AND DISTRIBIJTION PROJECTVorks at Buipe

Areat Pipelines

I Piles

AI Capitaltional Boundaries

50~~~~~~~~~~~~~~~~~~~-J~~~~~~~~~~~~~~~~~~~~~~~~~~~~ET

DUMPING PLACE FOR \< ~~~~SELECTED DREDG E SPOILW

Ts map haS been p.ep&ed by Thb rlhbd SW*s .1a e'e t., ktt cenece ofte res ad d d Afa t t e to,P. tetote of rhe WorU NOM &od fte flttknafPuntto Corpbstoo The deolwbu Utonet Vld the dtso b owttn on Ps mop do ootne- on ft c of rhe Wd a,*0 sod the k' afbot Puntce Ctpoatn. vy jod9eo0t toit eatMo of st teo toyr oa es rd,eosttt 0, sccaoptn Ot oh boSodses

SEPTEMBER 1986

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I

Lake SAFElY

Volt Cl ) ~~~~~~~~~~~Wn~ch 2O

V12

\,/Ct/'t ~ ~ ~ - 1J / O . -

bunker h~f : Sfr o

ACCESSEARTH DAM

8URNNA'FASO

SCIN

)TOGO)/

/G H A NIA .

AKosombo, a-6ta

Ao=jg-'-~ ~ ~ ~~~iA

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IBRD 20019

t ~~~~~GHANA

PETROLEUM REFINING AND DISTRIBUTION PROJECTWciks at Akosombo

Project AreasFencing

-ih ;2NEXProduct Pipelines

* 2 /oDolphin Plies

Roads

t National Capital~~~-14WM) ~~~~~~~~international Boundaries

TAFE TY ZlUCK UNLAD STAfEONRCC yr0ection vA zom water~SZldnggte

0 10 20 30 40 50

SEPTEMBER 1986