world bank document · currency equiv.alent currencv unit = tanzanian shilling(at appraisal year,...

Document of

The World Bank

FOR OFCLAL USE ONLY

Report No. 12638

PROJECT COMPLETION REPORT

UNITED REPUBLIC OF TANZANIA

PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT(CREDIT 1604-TA)

DECEMBER 27, 1993

Infrastructure Operations DivisionEastern Africa DepartmentAfrica Regional Office

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

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CURRENCY EQUIV.ALENT

Currencv Unit = Tanzanian Shilling(at Appraisal Year, 1984)

Tsh. I 0 = Iss 0 059LSis I 0 = Tsh 170

(At Completion Year. 1992 Annual Average)Tsh 1 0 = USS 0.003I.SS 1 0 = Tsh 300

ABBREVIATIONS

CNG Compressed Natural GasIDA International Development AssociationLNG Liquified Natural GasLPG Liquid Propane Gas%1WEM Mlinistry of Water, Energy & MineralsPSRP Petroleum Sector Rehabilitation ProjectSS Songo SongoTA Technical AssistanceTIPER Tanzania and Italian Refinery Company LimitedTPDC Tanzania Petroleum Development Corporation

MEASUREMENT

km Kilometerm meterTOE (toe) tonne of oil equivalent = 39.68 BTUtonne metric ton = 1,000 kilogram (kg), 2,204 6

FISCAL YEAR

Government: July I - June 30TPDC Januarv I - December 31

FOR OFFICIAL USE ONLY

THE WORLD BANKWashington, D.C. 20433

U.S.A.

.fice of Director-GeneralOperacions Evaluation

December 27, 1993

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion on TanzaniaPetroleum Sector Technical Assistance Proiect (Credit 1604-TA)

Attached is the "Project Completion Report on Tanzania - PetroleumSector Technical Assistance Project (Credit 1604-TA)" prepared by the AfricaRegional Office. No comments were received from the Borrower.

This Technical Assistance project supported a wide range of petroleumrelated activities in Tanzania, including: (i) rehabilitation of petroleumproduct distribution equipment, including LPG bottles and bottling equipment;(ii) repair, maintenance and rehabilitation of Songo Songo offshore gas wells toensure their continued safety; (iii) the continuation of Tanzania's explorationpromotion program to increase foreign investment in this sector; (iv)institutional strengthening for Ministry of Energy Petroleum activities; and (v)studies on gas utilization for Songo Songo gas field and designing a pipelinedistribution system if this proves economically viable.

The exploration promotion component was successful in its efforts toinduce additional foreign investment in petroleum exploration activities;however, to date no new reserves have been discovered. The project was less thanfully successful in providing equipment to rehabilitate the petroleum productdistribution system, and failed to establish the necessary conditions to use theLPG gas that is being flared by the refineries. However, it did implement adistribution study which led to a further project to rehabilitate thedistribution sector. The Songo Songo gas wells were also successfully repaired,although only after substantial delays.

The gas utilization studies were inadequate. Further work in thisarea is still being carried out, and the Region is currently working on a projectto make economic use of this gas. The PCR states that the institutional supportprogram has been reasonably successful, although the standard used to reach thisjudgement is unclear.

The PCR is comprehensive, except that it fails to identify thespecific revisions made in 1988 to the scope of the project. The performance ofthe project is rated as satisfactory, institutional development as partial andsustainability of the benefits likely. No audit is planned.

Attachment

This docurment has a restricted distribution and may be used by recipients only in the performance oftheir officiaL duties. Its contents may not otherwise be discLosed without WorLd Bank authorization.

FOR OMCIAL USE ONLY


PETROLELUI SECTOR TECHNICAL ASSISTANCE PROJECT

(CR 1604-TA)


TABLE OF CONTENTS

Page No.

P R E F A C E ...................................................

EVALUATION .................................................... ii

PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE ......................I

1. Project Identitv .................................................. I

2. Project Background .1

Sector Issues and Objectives ........................... 1

Institutional and Policy Context .......................... 2

3. project Objectives and Description ........................... 3

Project Objectives .......................... 3

Project Components. .......................... 3

4. Project Design and Oranization ........................... 4

5 Project Implementation ........................... 5

6. Project Results .8.. ................................................................................. 8

7. Project Sustainabilitv ............... ..................................................... 9

8. Bank Performance ................ 9

Lessons Learnt ............... 10

9. Borrower Performance ......................... 10

Lessons Learnt: .1........................1

10. Project Relationship ........................ 11

I1. Consulting Services ......................... 11

12. Project Documentation and Data ........................ I I

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

IABLE OF CONTENTS (Cont'd)

Page No.

PART H. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 12

PART HI STATISTICAL INFORMATION. 13

A. Table .Related Bank Loans and/or Association Credits 13

B. Table 2. Project Timetables 14

C. Table 3. Credit Disbursement 15

D. Table 4,Project Implementation 16

E. Table 5.Project Costs and Financing 17

F. Table 6.Projectr Results 18

G. Table 7. Status of Covenants 21

H. Use of Bank Resources 22

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PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT(CR. 1604-TA)

PROJECT COMPLETION PROJECT

PREFACE

This is the Project Completion Report (PCR) for the Petroleum Sector Technical AssistanceProject in Tanzania for which IDA Credit 1604-TA in the amount of SDR 8.1 million was approved onJune 6, 1985. The credit was closed on December 31, 1992, three years and six months later thanoriginallv expected. Disbursements were completed on May 18, 1993 and the remaining balance of SDR1.79 million will be canceled when the issue of an outstanding amount of US$40,000 from the SpecialAccount is resolved.

The PCR was prepared by the Infrastructure Operations Division, Country Department II of theAfrican Region (Preface, Summary, Part I and III). On April 2, 1993, the Association sent Parts I and IIIto the Beneficiarv with a request to prepare Part II by May 31, 1993, and their reply is awaited.

Preparation of this PCR was started during the Association's final supervision of the project inAumust. 1992 and is based, inter alia, on information contained in the Issues/Decision Papers, Project Brief,President's Report, the Development Credit Agreement (DCA), supervision reports, progress reports,correspondence between the Association and the Borrower/Beneficiary, internal memoranda andinformation gathered in Tanzania.

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PETROLEUMI SECTOR TECHNICAL ASSISTANCE PROJECT(CR. 1604-TA)


EVALUATION SUMMARY

Objectives.

1. The project was designed to address key issues in the energy sector which had been identifiedduring a comprehensive Energv Assessment Review (EAR). Firstly, the project aimed at addressingimmediate concerns relating to product distribution bottlenecks, wastages and protection of the SongoSongo reservoir. Secondly, the project sought to lay the groundwork for a long term strategy for: (i)improved efficiencv in the product distribution system; (ii) utilization of Tanzania's indigenous gasresources; and (iii) maintenance of the private sector exploration effort. The project also supportedstrengthening of institutional capacity (para. 3. 1).

Implementation Experience

2. The project was implemented over seven years against the appraisal estimate of four years. Theextended implementation period was due to both delays in most of the components as well as modificationsin design in response to changing needs in the sector. The delays in implementation were caused mainly byprocessing bottlenecks in the main implementing agency, Tanzania Petroleum Development Corporation(TPDC). These bottlenecks were due to capacity constraints as well as cumbersome decision makingprocedures which were intended to ensure transparency (paras. 5.1 to 5.19).

3. The final total cost of the project was within the appraisal estimate (Part III, Table 5) but withreallocations as a result of modifications in design. Expenditures on consultants and exploration promotionwere higher than appraisal estimates as a result of the potential identified under the project for exploitationof the gas reserves and further exploration of the main fields. Expenditures on vehicles and equipmentwere less than appraisal estimates because of shortfalls in the Petroleum Distribution Component (paras.5.3 and 5.4) and cancellation of the Compressed Natural Gas (CNG) component (para. 5.9).Disbursements under the Credit (Part III, Table 3) were slow throughout the project period reflecting thedelays in implementation.

4. The project was successful in meeting its objectives, both short and long term. In the Songo SongoReservoir, two leaking wells were repaired, and three off-shore wells were provided with the appropriateprotective measures. Less success was achieved in addressing the product distribution bottlenecksprimarilv because of the magnitude of the constraints in the sector which were highlighted by theDistribution Study carried out under the project and addressed under a follow-on project (para. 6.1). Noprogress was made in reducing wastage of petroleum gas which was being flared because expectedimprovements at the refinery (through other sources of financing) were not carried out.

5. The project was highly successful in its objectives of laying the foundations for a long-term strategvfor the product distribution system, utilization of gas resources and private sector exploration efforts The

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distribution studv and a petroleum products pricing study led to the design of the Petroleum SectorRehabilitation Project (PSRP) Cr. 2202-TA. The PSRP has been designed to improve the efficiency of thebulk distribution of petroleum products and reduce the delivered costs. The project also had a majorimpact on the strategy for the development of Tanzania's indigenous gas resources. The studies financedunder the project identified the feasibility and prepared the initial designs and costings for the developmentof the Songo-Songo Reservoir through a gas pipeline to Dar-es-Salaam and the generation of power fordomestic and export (Kenya) markets. A study on the appropriate institutional framework for the gas sub-sector was also financed under the project. The findings of the studies are being incorporated into aproposed Songo-Songo Gas Development Project which is being prepared for potential IDA financing.

6. The promotion of private sector involvement in exploration was successfully supported under theproject through the acquisition of data, its interpretation and analysis, brochures and promotional meetings.As a result of these efforts a number of companies initiated or expanded their exploration efforts inTanzania (paras. 6.1 to 6.3).

Sustainability

7. The impact and achievements of all components of the project are expected to be sustainable. Boththe short-term improvements in efficiency and the long-term strategies are either being supported under thefollow-on PSRP or expected to be incorporated in the proposed Songo-Songo Gas Development Project.The benefits to the Tanzanian economy from these projects and the development of the gas reserves areexpected to be manifold. The institutional development under the project, is also expected to besustainable. Data processing facilities were strengthened on a modest scale and these can be easilysupported from the expected retums to the sector. Training was carried out in an ad-hoc manner but thefields of study were all clearly linked to requirements in the sector and therefore likely to have a sustainableimpact. (para. 7.1)

Lessons Learnt:

8. The project experience provided the following three main lessons:

(a) Client implementation capacity should be carefully evaluated and supervising consultantsappointed for highly technical and/or specialized activities (para. 8.4)

(b) Given the experience with the leaking wells, it would have been useful if some sort of facilitywere available to provide quick assistance for emergencies potentially damaging todevelopment, when other donor financing is not immediately available (para. 8.5).

(c) The format and required information for monitoring project implementation should be agreedupon at negotiations and used in implementation. Attention should be paid to ensuring thatthe indicators selected are regarded as management tools by project management and thatthere is utility in generating the indicators for both the implementing agency and the Bank(para. 9.4).


PETROLEU'M SECTOR TECHNICAL ASSISTANCE PROJECT

(CR 1604-TA)


PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

1. PROJECT IDENTITY

Project Name: Petroleum Sector Technical Assistance Project

Credit No: 1604-TA

RVP Unit: Africa

Country: United Republic of Tanzania

Sector: Energy

Subsector: Oil and Gas

2. PROJECT BACKGROUND

Sector Issues and Objectives

2.1 In 1984 when the project was appraised, Tanzania had no proven petroleum resources, its gas

potential was not yet developed and energy imports were a major drain on its foreign exchange earnings,

therebv hampering the country's overall development. A joint UJNDP/World Bank energy assessment hadbeen carried out in 1983 and the final reportl provided a comprehensive review of the energy sector inTanzania and a set of recommendations for the efficient development of the sector. The major objectivesand recommendations set out in the study were as follows:

(a) development of indigenous energy sources to stimulate growth and reduce the drain onforeign exchange earnings,

(b) increase fuelwood production through improved management and increased plantings;

(c) improvement in efficiency in the petroleum products subsector in order to ensure availabilityof timely and sufficient transport services for the productive sectors, agriculture in particular.

Tanzania - Issues and Options in the Energy Sector, Report No. 4969-TA, November 1984. Joint UNDP/World BankEnern- Assessment Program.

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Institutional and Policy Context

2.2 At the time of appraisal of the project responsibilities for the energy sector were divided amongseveral agencies. and there were no major changes in those arrangements over the life of the project. TheM5inistry of Water, Energy and Minerals (.MWEM) was responsible for hydrocarbons, electricitv, coal anduranium. The Ministry of Lands, Natural Resources and Tourism (MLNRT) handled fuelwood. Inaddition to their policy formulation responsibilities, the ministries also supervised the actiVities of theparastatal organizations under their jurisdiction. In the commercial energy sector, MWETM supervised theTanzania Petroleum Development Corporation (TPDC), the Tanzania Electric Supply Company(TAN'ESCO), the State Mining Corporation, and the Rufiji Basin Development Authority

2.3 Within MWEM, energy sector matters were dealt with by the newly created Energy Department inthe Ministrv. The Energy Department was headed by the recently appointed Commissioner for Energy andPetroleum Affairs, who reported to the Principal Secretary. This Department was responsible for energyplanning and policy development activities2 , evaluation of energy projects and monitoring of TPDC'simplementation responsibilities. The Department was divided into four directorates, each of which wasassisted by an external adviser. The establishment of a separate Energy Department and the higherauthority which has been accorded to its head was expected to strengthen MWEM's capacity in dischargingits energy sector responsibilities.

2.4 Responsibilitv for the implementation of Government policies in the petroleum sector was assignedto TPDC TPDC was established as a parastatal corporation in 1969 with responsibility for: (a) petroleumexploration and development (on its own account or as joint venturer); (b) purchase, processing and sale ofcrude and refined products; (c) coordination of product allocation and marketing; (d) advising on productpricing; and (e) promotion of industrial projects based on the petroleum sector.

2.5 TPDC used to carry out its responsibilities both directly and through the private sector. By 1984Government had restricted TPDC's responsibilities to the implementation of Government's policies inpetroleum exploration, development and marketing. Government was looking to the private sector toprovide the financial and technical resources to indertake operational responsibility in these areas. Theproject included provision to both strengthen TPDC and facilitate private sector involvement.

2 6 Petroleum exploration was being carried out in Tanzania under production sharing or joint ventureagreements by a number of intemational companies. Refining of imported crude was being carried out bythe jointly owned Tanzanian and Italian Refinery Limited (TIPER) under a long term cost -- plus tollrefining contract with TPDC. Petroleum products were being marketed by five Tanzanian subsidiaries ofinternational companies. The Government, through TPDC, held a 50% share in two companies while theothers were wholly owned by their respective parent companies. In all cases, management was beingprovided by the parent oil company.

2.7 TPDC was therefore involved in a number of activities, and at the time of appraisal measures werebeing implemented to strengthen the institutional capacity of TPDC. These measures were based on astudy carried out by the Commonwealth Secretariat with funding under the Second Songo SongoPetroleum Exploration Project (Credit 1199-TA). A training program for TPDC technical staff was

2 The Enern Assessment Report had recommended the establishment of an Energy Commission, comprising the PrincipalSecretaries of the ministries concerned in the energy sector. with a supporting secretariat, to promote sector coordination andplanrung. This recommendation was under consideration within Govermnent at the time of appraisal.

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underway, financed under Norwegian aid. There was a need, however, to supplement that trainingprogram with specific training for TPDC staff in key analytical areas and provisions for training weretherefore included under the project.

2.8 Pricing and Distribution. The prices of petroleum products were controlled by the Government.The retail prices of petroleum products (including gas oil) were at least equal to their economicopportunity costs, delivered in Dar es Salaam. Prices were uniform at the 16 major regional distributioncenters in the country. The price structure provided for freight and equalization funds to reimburse themarketing companies for transport cost differentials between the regional distribution centers.

2.9 The EAR had also identified a number of inefficiencies in the distribution system for petroleumproducts. These inefficiencies were related to poor equipment, wastages, bottlenecks and the yieldpatterns and comparative efficiency of TIPER. The project was therefore designed to include specificcomponents to deal with these issues.

3. PROJECT OBJECTIVES AND DESCRIPTION

Project Objectives

3. 1 The project objectives were both immediate and long-term. Firstly, the project aimed ataddressing immediate sectoral concerns relating to production bottlenecks, wastages and protection of theSongo Songo reservoir. Secondly, the project sought to lay the groundwork for the development andimplementation of a long term strategy for: (i) the rehabilitation and rationalization of the productdistribution system; (ii) the utilization of Tanzania's indigenous gas resources; and (iii) the maintenance ofthe private sector exploration effort. To assist Government in developing and implementing this strategy,the project also sought to strengthen the technical capability of the newly formed Department of Energy ofMWEM in its supervisory function, and of the national petroleum company (TPDC) as the Government'sprincipal petroleum sector implementing agency.

Project Components

3.2 The main project components at appraisal were:

Part A Support to the petroleum distribution system through: (i) supply of equipment fortankers and pumps; (ii) mobile radio equipment; (iii) bottles and related equipment tomarket Liquefied Petroleum Gas (LPG) which was being flared at TIPER, and (iv) aproduct distribution study to analyze the current system of distribution and storage inTanzania and to make recommendations for the overall rationalization and rehabilitation ofthe system.

Part B Support to the domestic gas sector through: (i) the workover and rehabilitation ofonshore Songo Songo Wells SS-3 and -4 to a safe operating condition, and the constructionof platforms and protective structures around offshore Songo Songo Wells SS-5, -7, and 9to safeguard against seawater corrosion and main collision hazards; (ii) undertaking a gasutilization study in three phases to evaluate the economic utilization of the Songo Songogas for the domestic markets, including: (1) an assessment of the domestic markets in Dares Salaam served by a gas pipeline from Songo Songo (for industry, Tiper Refinery andnational grid power generation) and for other markets in transportation, independent powerstations and agribusiness, (2) if justified by the market assessment studv, the preliminary

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desiga sizing and routing of the Dar es Salaam gas supply system, including distribution:and (3) the development of an overall strategy for the utilization of Songo Songo gasreserves, including gas pricing, the identification of financing sources and the formulation ofappropriate institutional arrangements; and (iii) subject to the recommendations of the gasutilization study. the implementation of a demonstration scheme for the utilization of C.NGfor public transportation in Dar es Salaam and for such other industrial and commercialusers as may be recommended by such study.

Part C Exploration Promotion through: (i) preparation of an overall exploration promotionpackage, in consultation with private sector oil companies, covering prospective areas in theCoastal Basin, including data gathering assignments by TPDC staff, and the promotion ofexploration in such areas to interested companies; and (ii) financial participation by TPDCin joint venture programs of speculative seismic data acquisition and exploration studies inthe Coastal Basin for promotion to the oil industry.

Part D Institutional Development through: (i) strengthening of MWEM to undertake the policvdevelopment and energy sector strategy through the provision of technical assistance, stafftraining and equipment, including short term consultancies, workshop facilities, trainingprograms, data base building and analysis; and (ii) training and managerial assistance toTPDC staff in the collection, analysis and processing of product marketing and distributiondata and in the monitoring of exploration expenditures.

4. PROJECT DESIGN AND ORGANIZATION

4.1 The project had a clear conceptual foundation in that it was based on a comprehensive EnergvAssessment Review (EAR) and its objectives of addressing the immediate concerns and laying thegroundwork for a long-term strategy were clearly defined. The project design was consistent with theseobjectives, the recommendations of the EAR, and the sectoral priorities (paras. 2.1 to 2.9) The manvcomponents may appear disjoint but within the overall sector framework, availability of donor financingand the pressing issues in the sector, design of components was indeed consistent. The revisions incomponents during implementation were not design flaws, but responses to changing conditions in arapidly evolving sector and were justified.

4.2 It would appear that the project concept and design were understood and shared bv all relevantparties. The project concept was not particularly innovative, except that in some wavs it was atroubleshooting operation, responding to emerging needs in a volatile and growing sector.

4.3 The scope and scale of the project were appropriate in relation to its objectives, the priorities andthe capacity in the sector. The project was sufficiently well prepared given its type and purpose. Thetiming of the project was also appropriate to the needs in the sector.

4.4 The organizational arrangements for the project were clearly defined and consistent wvith theresponsibilities and organizational arrangements existing in the sector. Since the arrangements followedwell-established and understood institutional arrangements there were no major coordination issues duringproject implementation. The project did not attempt to promote major organizational changes such as theEnergy Commission recommended by the EAR report but left it to the consideration of Government (para.2.3 footnote 2).

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4.5 The clear objectives, focus. flexibility of design and the organizational arrangements contributed tothe success of the project. Since the objectives of addressing immediate concerns and developing a longterm strategy were clearly defined it was relatively easy to shift funds within the project duringimplementation according to priority needs. The minimalist approach to organizational changes was also amajor factor in the success of the project. The project design gave some attention to institutionalNveaknesses but the major focus was on developing the productive base of the sector. Given the needs ofTanzania and the importance of the sector in overall development, this approach appears to have beenappropriate.

4.6 The design of the gas utilization study in phases also proved to be useful . During implementationthere appears to have been some pressure to combine phases but project staff were able to refer to projectdesign which required clear answers at each stage before proceeding to the next. It was therefore possibleto eliminate the CNG demonstration component early in the process and focus on the pipeline and poweroptions.

A. PROJECT IMPLEMENTATION

5.1 Credit Effectiveness and Project Start-Up. The credit became effective on October 9, 1985,two months behind the original targeted date. The short slippage was caused by the delays in appointing alocal Project Coordinator with qualifications and experience acceptable to the Bank. An IDA supervisionmission was sent out to discuss the matter which was satisfactorily resolved with the appointment of theoriginally proposed candidate as an assistant to a more experienced TPDC manager as ProjectCoordinator. Unfortunately, disbursements to Tanzania were suspended because of overdue payments, atthe same time as the credit was declared effective and implementation was therefore hampered from thebeginning.

5.2 Implementation Schedule. A detailed implementation schedule for the components of theproject had been prepared and included in the President Report. Most of the components were expected tobe completed by mid 1987, only the CNG demonstration scheme was expected to continue to October1988. These projections proved to be far too optimistic as demonstrated in the discussion below of theimplementation experiences of the major components. Due to delays and modifications in design, theoriginal closing date of June 30, 1989 was extended four times and the project was finally closed onDecember 30, 1992. The proceeds of the credit were reallocated three times and the Development CreditAgreement was amended twice, first in May 1988 and then in September 1991 to respond to the changingneeds in the sub-sector.

Part A. Support to the Petroleum Distribution System

5.3 It had been planned that a study of the product distribution system would be completed by August1986 and the priority equipment for improving the system would be purchased by April 1987. The studydid not get underway until March 1987 and was completed satisfactorily in June 1987. There appears tohave been numerous delays in the purchase of equipment. Tenders were placed for LPG bottles andequipment but these were apparently not purchased. Draft tender documents were prepared in February1986 for spares and equipment for tankers and product pumps but it would appear that it was only in late1989/early 1990 that two companies were able to purchase distribution equipment. The other companieswere requested to obtain quotations from their suppliers. It is not clear if they availed themselves of thefacility.

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5.4 A study' on Petroleum Products Pricing Policy was carried out by an internationally recruitedconsulting firni the summary was submitted to MWEM in February 1990 and circulated to the petroleumindustrv for comnments. It was determined that the study was of low quality and unusable. The contractwith the firm was therefore abandoned. The study was subsequently completed by MWEM based ondiscussions with the private sector and IDA.

Part R Support to the domestic gas sector

(i) Songo-Songo Gas Wells

5.5 Rehabilitation. This sub-component was the most problematic during both preparation andimplementation. It had been planned that the work-over and rehabilitation of the leaking on shore Songo-Songo Wells (SS3 and 4) which were posing major environmental and safety hazards would be completedbetween June and November 1985. Considerable Bank staff effort had been expended on trying to obtainpre-financing for this activity. It had finally been agreed that this would be financed from an on-goingcredit (Cr. 1060-TA) and then refinanced from the credit for this project when it became effective. As itturned out even though the bid was awarded to an international company in Mav 1985, the contractor didnot arrve in Tanzania until the end of October 1985 (after effectiveness of the project).

5.6 Implementation of the rehabilitation works did not proceed smoothly Delays were caused bylogistical problems and inadequate supporting facilities which were supposed to have been provided byTPDC. as well as the performance of the contractor. Work was completed to an acceptable standard inMarch 1986, several months behind schedule. According to the evaluation by the external supervisingconsultants, the planning by the contractor was inadequate, crucial pieces of equipment were missing,inappropriate or poor-working pieces of equipment had also been supplied, and there had been delays onthe part of the contractor in addressing the problems. On the basis of this assessment it was decided that inaccordance with the Development Credit Agreement, it was not appropriate to use the credit proceeds tofinance the considerable cost overruns which were being claimed by the contractor. The government wasinformed that it should seek altemative sources of financing for the over-runs. The outstanding balanceswere never paid and the contractor made representation to the Bank. TPDC offered to go to arbitration toresolve the issue but the contractor did not follow up.

5 7 Protective structures of off-shore wells (SS5, 7, 9). Subsequent to appraisal, it was determined,follo,wing an Italian financed study, that the wells would be developed for gas extraction purposes. A shortstudy was commissioned to examine the need for protective structures (as well as for further work on SS3)in the light of potential development of the wells, and it was decided that minor temporary measures wereadequate. The sub-component was therefore deleted from the project in the 1988 restructuring exercise.

(ii) Gas Utilization Study.

5.8 The first phase of this study (on the feasibility of developing the domestic gas market) wassupposed to be completed by October 1986 but it did not get underway until December 1986. The draftconsultant report was evaluated by TPDC as being too general and weak in analysis. Conclusions werepresented without sufficient analysis. After considerable correspondence and dialogue between TPDC andthe consultant. the contract for subsequent phases of the study was canceled in late 1988. TPDC recruitedanother firm, wNith Canadian aid funding, to carry-out a subsequent feasibility study of a Songo-Songo/Dares Salaam pipeline for development of the gas reservoir. Project funding was then used to finance the firstphase of the basic engineering designs for the pipeline. A study on the optimal location of the terminal

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depot and offshore unloading facility for the gas pipeline was also satisfactorily carried out by anotherconsulting firm.

5.9 CNG Demonstration. The first phase of the Gas Utilization Study determined that due totransportation problems, CNG use was not feasible in the absence of a pipeline from the reservoir to themain consuming centres. It was decided that CNG use would follow, and not precede, the construction ofa pipeline and the generation of electric power from gas and other industrial uses. This component wastherefore deleted from the project in May 1988.

Part C E&ploration Promotion

(i) Promotion Package

5.10 A contract was awarded to an international consulting firm to compile and interpret geological andgeophysical data and then identify and rank prospective exploration areas. This assignment wassatisfactorily completed in October 1989 and was followed by successful promotional meetings in Londonin November and Houston in December 1989. More than 50 oil companies attended each meeting andnine companies expressed interest in exploring for oil in Tanzania.

(ii) Seismic Data Acquisition

5.11 Seismic Data Acquisition for the Lindi Mtwara field commenced in August 1989 and wassatisfactorily completed by the contractor in January 1990.

Part D. Institutional Development

5.12 Institutional arrangements in the sector were complex (paras. 2.2 to 2.9) and there were a numberof ongoing studies and training programs (para. 2.7), the project component was therefore designed toonly supplement ongoing activities. As a result there was no clearly defined institutional development planor training program. A number of staff from TPDC, TIPER and MWEM were trained under the project.The selection of fields of study and of candidates appears to have been ad hoc and it is not clear how thetraining fitted into the overall program. The fields of study were all useful areas to the sector but whetheror not these were the pressing priorities cannot be determined. Most of the courses were short-term (a fewweeks); given the weaknesses, rapid growth and changing conditions in the sub-sector, some medium termtraining (3 months to I year) in sector policy and management should have been included under theproject. Presumablv long-term (degree) training was being financed by other donors.

5.13 The project also financed some computer equipment and software to improve analytical capacityand management in MWEM and TPDC. Project costs had included provision for an internationallyrecruited project coordinator but after discussions between the Bank and Government (para. 5.1) anexperienced TPDC management staff was assigned to the positions supported by an Assistant ProjectCoordinator. This arrangement appears to have worked well but could perhaps have been more effectiveas a management training approach if a management development program (including training andincreasing responsibilities) had been defined for the Assistant.

5.14 Two long term technical assistance (TA) positions were financed under the project. Bothcandidates had been working in-country under contracts with other donors. IDA financing for thecontinuation of their contracts was requested by the project authorities on the basis of the need for theirskills and their performance. One of the TA provided technical support in paleontology and was alsoinvolved in the training of staff The other TA provided managerial and coordination support in petroleum

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policy and processing matters. Given their previous involvement in the subsector both advisors performedsatisfactorily under the project.

5. 15 Disbursements. The estimated and actual disbursement of the credit is shown in Part III, Table 3.A total of SDR 6.31 million (approx. US$8.0 million) was disbursed, and the remaining balance of SDR1.79 million will be canceled w hen the outstanding issue of US$40,000 from the Special Account isresolved. Disbursements were much slower than expected because of delays in implementation (wellrehabilitation and equipment purchase) and the cancellation of components which were overtaken byevents.

5.16 Project Costs. The total project cost over the original four year implementation period had beenestimated at US$1 1.0 million at appraisal, with a foreign exchange component of US$8.0 million or 73%.The local costs of US$3.0 million were to be financed by TPDC (US$2.9 million), and Government ofTanzania (US$0.1 million). Actual costs over the seven year implementation period of about US$1 1.0million, were consistent with these estimates, details on costs and financing are in Part III Table 5.

5.17 Procurement. Procurement procedures generally followed Bank Guidelines and there were nomajor problems. The process appears to have been slow but apparently was consistent with Government'sapproach to ensuring transparencv. There was one procurement complaint during implementation by abidder whose bid arrived late. The complaint was dealt with promptly by the project authorities and wasproven unfounded since there had been public bid opening with several independent witnesses.

5.18 Project Risks. Two risks were foreseen at appraisal. The small risk of an explosion duringrehabilitation of wells 3 and 4 did not materialize. There were problems during implementation but thenecessary precautions were taken. The supervising consultants were thorough and diligent about allaspects of implementation - equipment, communications, staff (including rest periods) catering andemergency care on the island.

5.19 The second risk of limited impact of the product distribution measures did prove to be tangible butas foreseen at appraisal the problems were addressed outside the project through a larger program underthe PSRP and Government's infrastructure program which improved the road networks.

6. PROJECT RESULTS

6.1 The project was successful in meeting its objectives, both short and long term. The leaking wellswere repaired, and the off-shore wells were provided with the appropnrate protective measures. Lesssuccess was achieved in addressing the product distribution bottlenecks partly because of delays inimplementation but primarily because of the magnitude of the constraints in the sector which werehighlighted by the Distribution Study carried out. The findings of the study led to the design of thePetroleum Sector Rehabilitation Project (Cr. 2202-TA) which was approved on January 15, 1991. Theproject had little impact in reducing wastage of petroleum gas which was being flared. Tenders wereplaced for equipment (para. 5.3) but the program was never launched because improvements which wereplanned at the refinery (with other sources of funding) were not carried out.

6.2 The project was highly successful in its objectives of laying the foundations for a long-termstrategy for the product distribution system, utilization of gas resources and private sector explorationefforts (para. 3.1). As mentioned above the petroleum study led to the design of the Petroleum SectorRehabilitation Project (PSRP) w-hich was also supported by the petroleum products pricing study whichwas carried out under the project. The PSRP has been designed to improve the efficiency of the bulk

9

distribution of petroleum products and reduce the delivered costs. The project also had a major impact on

the strategy for the development of Tanzania's indigenous gas resources. The studies financed under the

project identified the feasibility and prepared the initial designs and costings for the development of the

Songo-Songo Reservoir through a pipeline to Dar-es-Salaam and the generation of power for domestic and

export (Kenya) markets. A study on the appropriate institutional framework for the gas sub-sector was

also financed under the projects. The findings of the studies have been incorporated into the proposed

Songo-Songo Gas Development Project which is being prepared for potential IDA financing.

6.3 The promotion of private sector involvement in exploration was successfully supported under the

project. The project played a major role in attracting private sector interest through the acquisition of data,

its interpretation and analysis, preparation of promotion of brochures and promotional meetings in London

and Houston. As a result of these meetings a number of companies initiated or expanded their exploration

efforts in Tanzania.

7. PROJECT SUSTAINABILITY

7.1 Given its nature and design there are no major recurrent cost implications directlv associated with

the project. The impact and achievements of all components are expected to be sustainable. Both the

short-term improvements in efficiency and the long-term strategies are either being supported under the

follow-on PSRP or expected to be included in a proposed Songo-Songo Gas Development Project. The

benefits to the Tanzanian economv from the projects and the development of the gas reserves are expected

to be manifold. Even the weakest of the project components, institutional development, is expected to be

sustainable. Data processing facilities were strengthened on a modest scale and these can be easily

supported from the expected returns to the sector. Training was carried out in an ad-hoc manner but the

fields of study were all clearly linked to requirements in the sector and therefore likely to have a sustainable

impact.

8. BANK PERFORMANCE

8.1 Bank performance was satisfactory Bank staff expended commendable efforts in trying to obtain

funding for rehabilitation of the on-shore wells (SS3 and 4) which were posing safety and environmental

hazards. Donors were approached without success, alternative IDA funding mechanisms (existing projects

and the project preparation facility) were explored and refused by Government authorities or 1DA

management. It was only after persistent efforts and intervention of the Vice President for Africa Region

with the Tanzanian authorities that funding was obtained from Cr. 1060-TA for financing of the initial

expenses for rehabilitation.

8.2 The project was adequately prepared (given its nature), terms of references for major studies and

the project coordination along *ith a detailed implementation schedule were prepared and discussed at

negotiations. There was initially close follow-up on effectiveness and implementation but this decreased as

other developments (such as the PSRP) evolved in the sector. Supervision effort was adequate but there

should have been more emphasis on project reporting on implementation progress and on institutional

development during implementation. It is recognized that productive capacity was the clear priority for the

sub-sector but more attention should have been paid to training and man-power development in MWEM

and TPDC, even if thev were being financed by other donors.

10

8.3 In retrospect, given the problems experienced in the rehabilitation of SS3 and 4, with thecontractor as well as the technical problems which arose, the Bank should have foreseen the need toappoint supervising consultants. It was only after the contract had been awarded that TPDC made arequest for the financing of supervisory consultants to which the Bank agreed, on condition that it wasconfined to one firm to cover all aspects. Some of the problems encountered would perhaps have beenavoided if the supervising consultants had been involved in bid preparation and evaluation as well as in thedrafting of the contract.

Lessons Learnt

8.4 The project experience highlights the need for careful and realistic assessment of clientimplementation capacity and the limitations of large bureaucracies in responding to emergencies. Clientimplementation capacity should be assessed early in the preparation process, for the project as a whole andfor each component (especially when highly specialized technical skills are involved). Implementation orsupervision responsibility for each component or sub-component should be clearly identified and anassessment made of the agency, department or staff responsible. Such a detailed approach would help inidentifying, more clearly than a global approach, the need for specialized technical assistance and orsupervising consultants.

8.5 The experiences with the wells, including the bureaucratic bottlenecks (in country and in the Bank)and the amount of staff time and resources expended in trying to obtain financing, indicate that it wouldhave been useful to have a facility for the various types of emergencies which arise and for which otherdonor financine is not iumediately available.

9. BORROWER PERFORMANCE

9.1 Borrower response to the environmental and safety hazards of the on-shore wells (SS3 and 4) wasless than satisfactory, Even though the Bank/IDA had not been involved in the construction of the wells, itspent considerable effort in seeking funding for rehabilitation (para. 5.5). The Goveimnent agenciesconcemed initiallv refused to cooperate with the proposal (which had been endorsed by IDA/BankManagement after much effort) to finance the rehabilitation from Cr. 1060. Despite repeated interventionsat the Director level, the matter was not resolved until the Bank's Vice-President intervened. This shouldnot have been necessary, the problem should have been resolved by the Ministry of Finance or the Cabinetas soon as it emerged.

9.2 Performance by the agencies directly involved in the project was adversely affected by theinstitutional framework and implementation capacity (paras. 2.2 to 2.7 and 5.17). Implementation delayswere more marked in some components than others, reflecting perhaps the priority attached by TPDC indeveloping the gas resources rather than in addressing inefficiencies in the petroleum refining anddistribution sectors. Obligations for local costs funding were fulfilled. There were some delays andshortfalls in TPDC's contributions for the rehabilitation of the wells SS3 and 4 (para. 5.6).

9.3 There were some initial delays in complying with audit covenants but these were remedied andproject accounts were brought up to date, including the audits of the special accounts and use of localproceeds from the sale of equipment. Reporting on project implementation was weak, no comprehensiveprogress reports were ever submitted, only three quarterly reporting telexes were found on file.

11

Lessons Learnt:

9.4 The format and required information for monitoring implementation should be agreed upon atnegotiations and used in implementation. Attention should be paid to ensuring that the indicators selectedare regarded as management tools by project management and that there is utility in generating theindicators for both the implementing agency and the Bank.

10. PROJECT RELATIONSHIP

10.1 The relationship between the Bank and the implementing agencies was good throughout theproject and this contributed to the smooth implementation of the project. There were no major differencesof opinions. Queries from the Bank on procurement procedures were answered promptly andsatisfactorily.

11. CONSULTING SERVICES

11.1 Consultants' performance under the project was mixed. Details are presented in the discussion onimplementation. Consultants plaved major roles in the implementation of the project and most assignmentswere satisfactorily carried out. Two studies were considered inadequate (paras. 5.4 and 5.8) and theconsultant contracts were terminated. The problems with the contractor for the rehabilitation of the wellsare discussed in para. 5.6.

12. PROJECT DOCUMENTATION AND DATA

12.1 The Presidents Report, Legal Documents and Working papers (mainly terms of references) werewell prepared and appropriate to the project.

12.2 There are gaps in the data on implementation. There were no annual or semi-annual progressreports, only a few quarterly telexes available in the project file. A project completion report has not yetbeen prepared by the Borrower. More detailed supervision reports, at least once a year, on overall statusand progress of the various components would have been useful for preparing the PCR.

12




PART II. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE

No comments were received from the Borrower.

13


TANZANIA


PART III STATISTICAL INFORMATION

Table 1. Related Bank Loans and/or Credits

Loan/Credit Title Purpose Year of Status andApproval Comments

Songo Songo Petroleum Finance the first phase of a 1980 Completed inExploration Project drilling program designed to 1991.Cr.S027-TA (US$ 30 M) assist the Borrower in the

assessment of the hydrocarbonpotential of the Songo Songo fieldarea and strengthen the capabilityof MWEM in the energy sector.

Second Songo Songo Finance the second phase of a 1982 Completed inPetroleum Exploration drilling program designed to 1991.Project assist the Borrower in theCr. 1199-TA (US$ 20 M) assessment of the hydrocarbon

potential of the Songo Songofield.

Petroleum Sector Improve the efficiency of the bulk 1991 On going.Rehabilitation distribution of petroleum productsCr.2'02-TA (US$ 30 M) and reduce the delivered cost.

Proposed Songo Songo Develop Tanzania's gas reserves n.a. Initial ExecutiveGas Development for power generation; explore the Project SummaryProject potential of exporting power was issued in

generation to Kenya; promote the February 1992.role of private investors; assist inestablishing the institutional andregulatory framework andappropriate pricing and costrecovery policies of the gassector.

1 4

Table 2. Project Time Table

Item Date Planned Date Revised Date Actual

Identification July 1984

Preparation October 1984

Appraisal December 1984 November 1984

Negotiation April 1985 April 1985

Board Approval June 1985 June 6,1985

Signature July 1985 July 11,1985

Effectiveness August 1985 October 9,1985

Completion December 31,1988 December 31,1989 December 31.1992December 31,1990December 31,1991December 31,1992

Closing June 30,1989 June 30, 1990 December 31,1992October 31, 1991

June 30, 1992December 31, 1992

15

Table 3. Disbursement (US$ million)

Year Appraisal Estimate Actual Actual as % ofAnnual Cumulative Annual Cumulative Appraisal Estimate

1986 4.0 4.0 2.4 2.4 30

1987 2.5 6.5 0.3 2.7 34

1988 1.0 7.5 0 2.7 34

1989 0.5 8.0 1.8 4.5 56

1990 2.2 6.7 84

1991 0.3 7.0 88

1992 0.6 7.6 95

1993 0.4 8.0' 100

'(Equivalent of SDR 6.31 million from the original credit of SDR 8.10 million

16

Table 4. Project Implementation

Indicators Appraisal Estimate Actual

Product Distr. Equip. Nov.85 to Apr.87 Tender documents wereprepared in Feb. 1986 but notmuch progress in late1989/early 1990. Twocompanies received someequipment.

Product Distr. Study Nov.85 to Aug.86 Mar.87 to Jun.87

Petroleum Pricing Study Dec.89 to Sep.90

Wells SS-3/4 Rehab. Jun.85 to Nov.85 Oct 85 to Mar 86

Wells SS-5/7/8 Prot. Oct.85 to Mar.86 Component was considered nolonger necessary in light offurther development of SSfield. Temporary navigationalaids were installed in 1989.

Gas Utilization Study Nov.85 to Oct.86 Dec.86 to Sep.88 a/

CNG Demonstration Scheme Nov.86 to Oct.88 Canceled in May 1988.

Exploration Prom. Nov.85 to Oct.86 Jan.89 to Oct.89

Seis. Acqsn/Expir. Study Nov.85 to Feb.86 Aug.89 to Jan.90

Institutional Deve. Nov.85 to Dec.86 Nov.85 to Dec.92

a/ Contract was canceled and subsequent phases completed with Canadian aid financing.

17

Table 5. Project Costs and Financing

A. Project Costs and Financing (US$ million))

Sources Appraisal Estimate Revised Actual a/Local Foreign Total 1991 1992

IDA1.Civil Works 2.6 2.1 1.82. Equip.Veh.& Materials 2.7 1.0 0.53. Studies 0.7 0.9 1.04. Consultant & Training 0.6 1.4 2.55. TPDC Participation in l

Exploration Programs 0.3 1.5 2.26. Unallocated 1.1 1.1 -

IDA Total 8.0 8.0 8.0 8.0

Government of Tanzania 0.1 - 0.1 0.1 0.1

TPDC 2.9 - 2.9 2.9 2.9

Total 3.0 8.0 11.0 11.0 11.0

a/ Estimated.

B. Project Financing by IDA (SDR million)

Category Appraisal estimate Actual -

1. Civil Works 2.6 1.42. Equip.Veh.& Materials 2.7 0.43. Studies 0.7 0.84. Consultant & Training 0.6 2.05. TPDC Participation in

Exploration Programs 0.3 1.76. Unallocated 1.2

Total 8.1 6.3

18

Table 6. Project Results

A. Physical Benefits

Indicators Appraisal Estimate Actual

No. of road tankers back in operation 40 Only about 25 percent ofthe original allocated

No. of retail & consumer product pumps 55 proceeds of the credit wereback in operation used for this component.

Rehabilitation of well SS-3/4 Completed

Construction of protective platforms for well It was decided thatSS-517/91 temporary navigational aids

were sufficient and thecomponent was deleted.

19

B. Studies

Title Purpose Status Impact

Product Analyze distribution and Completed Examined various economicDistribution storage systems, and make in 1987. options to satisfy theStudv recommendations for the petroleum product

overall rationalization and requirement in Tanzania.rehabilitation of the system.

Gas Utilization Evaluate the economic Completed Concluded that CNGStudy utilization of the Songo Songo in 1987. demonstration for use in

gas for the domestic market. transport sector, in theabsence of a gas pipeline, isnot an economic alternative.

Protective CompletedStructures for in 1987.Off-shore Wells

Petroleum Examine the petroleum supply Completed Concluded to effectivelySupply and and distribution system in in 1987. remove petroleum productDistribution Tanzania and provide distribution networkStudy recommendations. constraints in the country,

various aspects of thepetroleum trade must beimproved and rehabilitated.Contributed to design ofPSRP.

Petroleum Determine petroleum potential Completed Provided detailed informationExploration in Tanzania. in about 7 prospectivePotential 11/1989. sedimentary basins.

Petroleum Review and make Completed Contributed to design ofProducts Pricin2 recommendations on in 1990 PSRP.Policv improving pricing policies.

Feasibility Undertake a feasibility study of Completed Recommended TPDC proceedStudv of Soneo constructing and operating a in 7/1991. immediately with the designSongo. Dar es pipeline system to supply and construction of a 273-mmSalaamn Gas Songo Songo gas from landfall carbon steel gas pipeline withSupply System at Kilwa Kivinje to markets in 2.16 MJ/s to service the

Dar es Salaam. industrial and powergeneration markets in Dar esSalaam. Contributed todesign of proposed SSDevelopment Project.

20

Son,o Soneo Determine the technical and Completed Concluded the field canGas Reservoir economic feasibility of in 1/1991. produce 100 MMscf/d plusStudy developing the field to supply fuel gas for 20 years,

a fertilizer plant and to supply sufficient to supply 65gas to Dar es Salaam. MMscf/d to fertilizer plant

and 35MMscf/d to Dar esSalaam.

21

Table 7. Status of Covenants

Reference Covenants Status

Credit Agreement

2.02 (b) The borrower shall open and maintain a Compliance.special account in a commercial bank onterms and conditions satisfactory to IDA.

3.01 (a) The Borrower declares its commitment to Compliance.the objectives of the Project.

3.04 (a) The Borrower shall carry out the Gas Compliance.Utilization Study in three phases: (i)consolidate existing gas utilization studies;(ii) a study to supplement existing marketstudies. (iii) a study to prepare a detailedstrategv for the optimal utilization ofnatural gas.

Project Agreement

2.05 TPDC shall open an Project Account. Compliance. TPDC opened a specialAccount with the Citibank in NewYork.

3.03 TPDC shall take out and maintain proper Compliance.insurance.

3.04 TPDC shall inspect and maintain in a safe Compliance.operating condition all Songo Songo wellsand related facilities.

4.01 (a) TPDC shall maintain records and Compliance. Audited financial reportsand (b) accounts, and furnish audited financial from 1985 to 1991 were submitted.

documents.

Schedule 2 TPDC shall submit monthly and quarterly Only three telexes on progress wereprogress reports. found in the project file.

Table 8. Use of Bank Resources

A. Staff Inputs

Project Cycle 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

Preappraisal 20.4 26.6

Appraisal 45.4

Negotiation 1.0

Supervisioni 23.2 21.9 16.2 6.8 7.1 3.5 6.0 1.6

Total 20.4 73.0 23.2 21.9 16.2 6.8 7.1 3.5 6.0 1.6

23

B. Missions

Project Month/ No. of Days in Specialization Performance Types ofCycle Year Persons Field Represented a/ Rating Status Problems

b/ c/

Preparation 9/1984 1 n. a. PE

Appraisal 11/1984 5 21 F, PE, P, I., G

Supervision 10/1985 3 5 Eco, PE, F 1

Supervision 12/1985 2 2 n.a.* p

Supervision 6/1986 3 PS, PE, n.a.*

Supervision 11/1986 1 5 Geo n.a.*

Supervision 3/1987 1 n.a. F 1

Supervision 10/1987 3 8 Eco, F, Geo 1

Supervision 7/1988 3 20 d/ Eco, PE, F 2 M

Supervision 11/1988 *

Supervision 3/1990 1 9 dl Eco, PE, F 2 M

Supervision 7/1991 2 4 F, PE 2 M, L

Supervision 10/1991 3 7 d/ F, PE, Eco 2 M

Supervision 8/1992 1 5 d/ Fn.a.*

a/ Eco=Economist, F=Financial Analyst, G=Gas Specialist, Geo=Geologist,I= Institution Strengthening Specialist, P=Petroleum Specialist, PE=Petroleum Engineer

b/ I = Minor problems, 2 = Moderate problems, 3 = Major problems

c/ L =Legal, M = Management, P = Procurement

d/ Combined with preparation/supervision of Petroleum Sector Rehabilitation Project.

* No Form-590 in project file.