Document of The World Bank FOR OFFICIAL USE ONLY C2-- Z (53- t-D; M)ORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNTIONAL DEVELOPMENT ASSOCIATION ON A PROPOSED CREDIT OF SDR 49.8 MILLION TO THE PEOPLE'S REPUBLIC OF BANGIADESH FOR A LIQFID PETROLUM GAS TRANSPORT AND DISTRIBUTION PROJECT * April 30, 1991 11.s dcuset bas h restricted distdbudon and may be used by recipients only n the performace of tber official dutes. Its contents may oot oterwise be dislosed without World BDok autbodzatlon. CURRENCY EQUIVALENTS Currency Unit - Taka (Tk) Taka 1.00 m US$0.0287 Taka 34.90 - US$1.00 Taka 1.00 m Paisa 100 WEIGHTS AND MEASURES bbl barrel MCF - thousand standard cubic feet MMCFD - million standard cubic feet per day mtpy = metric tons per year BCF ' billion cubic feet TCF trillion (1,000 billion) cubic feet ABBREVIATIONS AND ACRONYMS BPC - Bangladesh Petroleum Corporation CNGCL - Compressed Natural Gas Company Limited ESAC - Energy Sector Adjustment Credit (Cr.1999-BD) GOB - Government of Bangladesh LPG - Liquefied Petroleum Gas LGPL - Liquefied Petroleum Gas Limited NGL - Natural Gas Liquid(s) Petrobangla - Bangladesh Oil, Gas and Minerals Corporation RPGCL - Rupantarita Prakritik Gas Company Limited SGDP - Second Gas Development Project (Cr.1586-BD) TA - Technical Assistance FISCAL YEAR July 1 to June 30 FOR OFFICIAL US ONLY BANGLADESH LIQUEFIED PETROLEUM GAS (LPG) TRANSPORT AND DISTRIBUTION PROJECT CREDIT AND PtOJECT SU1QIARY Borrowert People's Republic of Bangladesh Beneficiarys Rupantarita Prakritik Gas Company Limited (RPGCL) and Liquefied Petroleum Gas Limited ILPGL) Amounts SDR 49.8 million (US$67.2 million equivalent) Terms: Standard, with 40 years maturity Onlending Termos The Government would onlend the proceeds of the Credit to RPGCL and LPGL at a rate of 101 per annum for a period of 15 years, including a grace period of 5 years. The Beneficiaries would bear the foreign exchange risk. FinancinR Plan: RPGCL US$ 5.6 million LPGL US$19.5 million Bilateral Grant Cofinancing US$ 1.9 million IDA US$67.2 million TOTAL US$94.2 million Economic Rate of Returns 202 Staff Appraisal Reports Report No. 9398-BD MAPs IBRD 22901 This document has a restricted distribution and may be used by recipients only In the performance of their oMcial duties Its contents may not otherwise be disclosed without World Bank authorizton. MEMORANDUM AND RECONNENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A LIQUEFIED PETROLEUM GAS TRANSPORT AND DISTRIBUTION PROJECT 1. The following memorandum and recommendation on a proposed development credit to Bangladesh for SDR 49.8 million (US$67.2 million equivalent), on standard IDA terms with 40 years maturity, is submitted for approval. The proposed credit would help finance a liquefied petroleum gas (LPG) transport and distribution project. The Government of Bangladesh (GOB) would onlend proceeds of the Credit to the Project Beneficiaries at a rate of 1OS per annum for a period of 15 years, including a grace period of 5 years, with the Beneficiaries bearing the foreign exchange risk. Technical assistance components of the project would be cofinanced by the Canadian International Development Agency (CIDA) for SDR 1.41 million (US$1.9 million equivalent). 2. Background. Bangladesh's only indigenous commercial energy resources are natural gas, natural gas liquids (NGL), dwindling supplies of biomass fuels, and possibly coal. The country imports all of Its petroleum supplies and kerosene alone accounts for almost 30S of total petroleum products consumption. Most of the pyopulation depends on biomass fuels, of which a large proportion is sold at market prices that are almost quadruple the price of kerosene on a useful energy equivalent basis. LPG (or bottled gas) recovered from gas prodt tion could substitute for kerosene and comuercial fuelwood used in cooking. Up to 100,000 metric tons per year (mtpy) of LPG could be recovered from the northern gas fields when fully developed during the 1990s. 3. Rationale for IDA Involvement. The Project is part of the MY91-93 Priority Investment Program agreed under the Energy Sector Adjustment Credit (ESAC/Cr. 1999-BD) for the Bangladesh Oil, Gas and Minerals Corporation (Petrobangla) and the Bangladesh Petroleum Corporation (BPC). The Project is consistent with the investment planning, pricing policy and institutional reform framework of the ESAC. IDA's involvement ir the Project would build on the pilot LPG component of the Refinery Modification and LPG Recovery & Distribution Project (Cr. 1749-BD) by assisting GOB, Petrobangla and BPC In the least-cost development of LPG supplies and the strengthening of their capabilities in LPG operations. IDA would pursue LPG pricing refonms inLtiated under the refinery project by assisting GOB in establishing economically and financially sound LPG pricing policies. In support of GOB's policy, IDA would play a catalytic role in encouraging private sector involvement, building on the private LPG joint venture under the refinery project. The Project would complement the Second Gas Development Project (SGDP/Cr. 1586-BD) by establishing a joint Petrobangla and BPC planning perspective, since LPG recovery and distribution need to be coordinated with gas production. 4. Project Obiectives. The main Project objective is to assist Bangladesh in carrying out an economic and least-cost household and commercial energy supply strategy through the substitution of LPG for imported kerosene and coa ercial fuelwood. Domestic LPG recovery is the least-cost option compared to LPG and kerosene imports. The Project would also promotes (a) LPG -2- prleing in accord with economLc efficiency and financial viability principles; (b) a suitable institutional framework for efficient LPG development and operations; (c) an environmentally and operationally safe petroleum industryt and (d) private sector involvement in LPG transport and distribution. 5. Proiect Description. The SGDP is finaneing upstream facilities for (a) gas dehydration and hence recovery of LPG and condensate by-products, and (b) pipeline transport and fractionation of these liquids at a central products terminal. The proposed Project would assist in the downstream storage. transport, bottling and cylinder distribution of LPG. The Project Beneficiaries would be the Rupantarita Prakritik Gas (or Converted Natural Gas) Company Limited (RPGCL) and Liquefied Petroleum Gas Limited (LPGL), which are operating subsidiaries of Petrobangla and JPC, respectively. The Project components includes (a) for RPGCL -- (i) storage facilities for LPG and condensates, (ii) an LPG pipeline from Ashuganj to Elenga, where LPG will be bottled and delivered to the energy-deficient west zone, and (iii) directional drilling for the pipeline's river crossings; and (b) for LOPGL -- (i) two LPG bottling plants, rehabilitation of an existing LPG plant, and storage, and (ii) LPG cylinders, valves and regulators. The Project's technical assistance (TA) components includes (a) construction implementation supervision; (b) training in the management and operations of the LPG facilities; (c) preparation of an LPG market development plan, and an environmental and operational safety assessment of the petroleum sector; (d) a Women in Development (WID) program to promote the role of Bangladeshi women in the retail distribution of LPG cylinders and energy-efficient cooking stoves; and (e) technical studies related to further LPG recovery and compressed naturai gas commercialization. The total Project cost is estimated at US$90.4 million equivalent, with a foreign exchange component of US$69.1 million, and includes retroactive financing of US$5.0 million for urgent work to rehabilitate the Chittagong LPG plant and undertake infrastructure design. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and the disbursement schedule are shown in Schedule B. A timetable of key Project processing events and the status of Bank Group operations in Bangladesh are given in Schedules C and D, respectively. A map highlighting the Project areas is attached. The Staff Appraisal Report, No. 9398-BD, dated April 30, 1991 is being distributed separately. 6. Agreed Actions. The key agreements reached with GOB include LPG and NGL pricing policy, the financial restructuring of RPGCL and LPGL, and measures to ensure their future financial viability, as follows: (a) LPG transfer and retail prices to be reviewed annually with IDA and adjusted to meet agreed financial and economic criteria satisfactory to IDA; (b) NGLe to be priced at levels that would allow revenues to cover RPGCL's and LPGL's operating expenses, debt service, additional working capital requirements and a minimum of 35Z contribution to investment; (c) all necessary actions to be taken to facilitate RPGCL's and LPGL's financial restructuring; and (d) 10OS GOB equity financing for RPGCL's compressed natural gas (CNG) pilot activities. The key agreements reached with RPGCL and LPGL include their financial restructuring and performance, as follows: (a) an action program to restructure the capital of RPOCL's CNG-related operations and LPGL's Chittagong operations by FY92; and (b) financial performance targets for both entities related to debtlequity ratio, debt service coverage, achievement of their own financial requirements before declaring any dividends, and annual review of capital expenditure programs and LPGL's depreciation rates. RPGCL and LPGL also agreed on staffing plans, training programs and terms of reference for the TA components. Board presentation conditions includes (a) confirmation of the availability of CIDA funding; (b) the SODP bid evaluation for the LPG-related upstream facilities to have reached an advanced stage satisfactory to IDA; and (c) GOB approval of the Project Concept Paper. Credit effectiveness conditions includes (a) execution of RPGCL and LPGL Subsidiary Loan Agreements satisfactory to IDA; (b) contract awards for the Project's implementation supervision consultancy services and the LPG-related facilities under SGDP; and (c) GOB approval of the Project Proforma. Dated covenants apply to the TA studies, whereby the recommendations and implementation action plans would be reviewed and agreed with IDA. 7. Environmental Impact. The environmnntal and operational safety assessment for the Project (B rating) was prepared under the CIDA-financed LPG Feasibility Study. Further IDA review led BPC to: (a) specify a safety limit of 502 for the LPG's maximum propane content; and (b) request inclusion In the Project of a repair and rehabilitation plan for the small LPG bottling plant at the Chittagong refinery. The LPG plants will be located within Petrobanglas and BPC's restricted and secure premises. The LPG pipeline will be laid on already acquired land and right-of-way. LPG has been used extensively and safely in densely populated developing countries. The Project design and installation will ensure strict compliance with international safety codes. RPGCL and LPGL will receive extensive management and operations assistance. At the point of end-use, LPG (like natural gas) is an extremely clean fuel. LPG substitution would also alleviate the negative environmental effects and safety risks of kerosene and fuelwood use. To promote environmental and safety measures in the petroleum sector, the Project includes an assessment of necessary equipment, standards and practices, to be implemented by the time the LPG under the Project comes on stream. 8. Poverty Alleviation. A primary benefit would be the creation of income-generation opportunities through small-scale private retail outlets for LPG cylinders and stoves. Through the VID component, an added social benefit would be the specific targeting of a relatively disadvantaged group, namely Bangladeshi omen, as retail marketing agents. There would also be cash savings where LPG substitution for commercial fuelwood occurs. 9. Women in Development. The Project includes measures to involve Bangladeshi women as agents of technology transfer and commercialization, particularly in areas where women may have comparative advantage (e.g., management of credit schemes, direct promotion to housewives, networking with non-governmental organizations). This component would set the stage for distributing larger amounts of LPG during the 19908. 10. Benefits. The Project would assist in reducing the foreign exchange drain from oil imports, alleviating biomass energy shortages and promoting social equity between the country's eastern region and less-developed western zone. Two of the Project's innovative TA components would also pioneer in promoting environmental and operational safety in the petroleum sector, and in enhancing the development role of Bangladeshi women. The Project's estimated economic rate of return is 202, based on conservative assumptions regarding petroleum prices and interfuel substitution rates. 11. Risk.. Implementation delay is the main Project risk. Construction delays would be minimized by providing for effective implementation supervision and project management for both RPGCL and LPGL, and careful monitoring of suitable financial performance targets to address resource constraints. 12. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the wxecutive Directors approve the proposed credit. Barber B. Conable President Attacbments Washington, D.C. April 30, 1991 - 5 - SONESL A EANGLADESI LIEED PETROLEUM GJS (LP) ReS-POn MD DISTRZIUTION PRCT ESTIMLTED COSTS AND FIAICING PLAN * Estimated Costs$ * RunasteWrts Prakeitiklt m Co. Ltd. t L A. Store. for LPG Wd Co_odaateo 1.0 5.9 6.9 S. Aohugsnj4E.w%V LPO pipeline 1.5 9.4 10.9 C. at &--t.snl Drilltin 0.8 1.0 2.2 °. ag- t10o rvi.ion 2.0 2.0 E. Maagmet A Operatons Assisbum/Tr Studies 0.2 2.2 F. Techtnicl A 1istao 0.3 0.8 SWML, IC nO:l BR L! t tedt Pet"r ol_. Om Ltd. (LP 0. LPG Bothling Plants: Elena 1.0 C.8 6.6 Kai al Its 0.4 2.2 2.6 Chittagon (RIhablltatl.a) 0.2 0.4 0.6 H. Cylinder., Valves, Rqalator. 10.9 12.0 22.9 I. Storage 1.2 0.8 9.6 J. :wI_sUlon "s10nllo 1.0 1.0 K. maement a Oporation Assistanco/Tralaing an Udie 2.8 2.8 L. Technical Assistanco 0.7 0.7 EmTOTAL, U CL IT 1 MY W.T "e. Cot .tl..t 16.5 4.9 71.4 Physical Continsonetos (105) 1.7 5.5 7.2 Price C4nt1ngon¢10 8.1 AJ? Ml A Total Project Cost 21.8 69.1 90.4 Intret DOurlng Constructlon .8.9. 0 0I Total Financing Required auJ Aul NOTE: Total Project coot net of duties and texs (US818.9 millton) Is USI80. millon. Financint Plant LoUa I or _l__ Tot 1 ~USglNlilon --;: IDA Credit - 67.2 67.2 WOOL 5.0 - 5. LP 19.5 - 19.6 Bilateral aren Cofinancing _ 1.9 ? I TOTAL 25.1 69.1 04.2 -6 - SCEL Pap 1 of 2 MRAURAP P 1RI GS o l41 IAPRT ANlD DISITIRUI ROJECT Om of II ")b Tot Steps" for L and Cendrmte 7.5 1. . (7.5) - - ) (7.5) AW bak nj4 leg Pipeline 11.0 - - 1.0 18.9 (1.09) - - C-) (11.9) Direticlfal Drilling - - 2.4 0.4 2.6 _ _ (2.4) (2.4) LP4 Bettling Plnts at El ong* 10.1 - 1.0 11.0 aId KCa lalalRa (10.1) - - -) (10.1) Rebabitlitaten of the Chittaeng - 0.5 0.8 0.0 LPG Pleant --(0-5) (0.5) Cylindero, Valves and Regulators 14.8 14.1 29.9 Storge" at Slang and 10.5 --1.5 12.0 Kal Iaehtitla (10.5 -C) (10.5) Cnsultant*/Trning - 11.4 - 11.4 - - ~~~(0.5) -(0.5) TOTAL 54.9 14.8 21.8 00.4 (54.8) - (12.4) C-) (07.2) v~ *OUmer° lncludes Limited Internatloal Sidding, local or iternatonal sh"op , Conutooy Sgrviee under IDA guidsllnee, and Coneultancy Service under bilateral colnncing guidelines.. v 'Met Applicable* Includes custom duties, eulpment and aervice filneced oO of RPOCL nd LPOL'e oa reourc". VS Figure. In penthanw are the *repectOlv amunte finnced by IDA. -7? - SCHEDULE B Pag 2 of 2 BANGLADESH LIQUEFIED PSTROLEUM GAS (LPG) TRANSPORT AND DISTRIBUTION PROJECT DISBURSEMENTS Category Amount S (11S$ Nillion) Materials and Equipment 52.0 1OOS of foreign expenditure, Including Installation 1001 of ex-factory expenditure for items manufactired locally, and 752 of local expenditure for other items procured locally Civil Works, Transport, 1001 of foreign expenditure, Erection and Comnissioning 1.0 and of Equipment 752 of local expenditure Consultant Services and 8.5 10O of expenditure Training Unallocated 5.7 67.2 Estimated IDA Disbursements: IDA Fiscal Year 92 93 94 95 96 ---------------e(Us$ Million)------------------- Annual 5.6 21.1 23.9 10.3 6.3 Cumulative 5.6 26.7 50.6 60.9 67.2 - 8 - SCHEDULE C BANGLADESH LIQUEFIED PETROLEUM GAS (LPG) TRANSPORT AND DISTRIBUTION PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS (A) Time taken to prepare : 18 months (B) Prepared by s Government, Petrobangla and BPC, with IDA assistance (C) First IDA mission : July 1989 (D) Appraisal mission departure s June 24, 1990 (E) Negotiations s April 8, 1991 (F) Planned effectiveness : September 1991 (G) Relevant Project Performance Audit Report: Bakhrabad Gas Development Project (Cr. 1091-BD), Report No. 6975, October 14, 1987 -9- Schedul- D __________ THE STATUS OF BANK GROUP PERATIONS IN Page I of 2 A. STATEMENT OF ANK LOANS D IDA CRED T (As of March $t8 199l) Amount tn USS oiltlon ( I- ---------- Credit No. FtY Borrower Purpose Bank IDA Undisbursed I Loan ad 6? credits have ben fully disbursed 66.9 2883.9 of which SECALs, SAL* and Progra Cr.dita a) Cr. 0980-BD 1980 angladeh Eighth LIoort. 60.0 Cr. 1071-SD 1981 Bangildeh Ninth Imports Program 8.0 Cr. 1194-3D 1982 Bangladesh Tenth Imports Program 100.0 Cr. 1300- 1888 IBangladesh Eleventh Imports Program 1100 Cr. 1471-SD 1984 Bangladeh Twelfth Imorts Program 140.0 Cr. 160440 1984 Bangladesh Supplwnetal Assistance 23.6 Cr. 166D-0 1980 Bangladesh Thirteenth Imports Program 200.0 Cr. 1816-80 1987 Bangladesh Industalel Soctor Credit 190.0 Cr. 1818-140 1989 Bangladesh Industrial Sector Crilt 2.6 Cr. 199-SO 1990 Bangladesh Energy Soctor Adj. Credit 176.0 Cr. 1999-140 190 Bangladesh Energy Sector Adj. Credit 2.8 Sub-Total 108.8 Cr. 121640 1982 Bangladesh Agricultural Extension ri 20.6 2.8 Cr. 1247-4 1982 Bangladesh Chittagong Port 48.7 37.4 Cr. 1287-8 1988 Bangladesh Deep Tubewellas r 36.2 2.0 Cr. 1221-80 1988 Bangladesh Telecoamunicatlons IiI 35.0 i2.0 Cr. 149-80 1983 Bangladesh Public Administration 10.4 2.7 Cr. 13844- 1983 Bangladesh Rural Development II 66.6 11.6 Cr. 1440-SD 1984 Bangladesh Technical Assistance V 26.0 17.9 Cr. 1465-80 1984 Bangladesh Agricultural Reserch II 17.2 8.3 Cr. 1487-80 1984 Bangladesh BWDS Small Scheme. 41.6 30.3 Cr. 1490-B0 1984 Bangladesh Techniale Education 31.8 9.3 Cr. 1674-E0 1985 Bangladesh Primary Education It 78.0 9.3 Cr. 1580-0 198S Bangladesh Second Gas Development 110.0 88.1 Cr. 1691-0 1985 Bangladesh Flood Control A Drainage II 48.0 38.8 Cr. 18S340 1986 Bangladesh Rural Electrification II 79.0 65.0 Cr. 1084-SD 1988 Bangladesh Forestry rl 28.0 18.7 Cr. 1848-SO 1986 Bangladesh Power Transmisson A Dist U8.0 21.1 Cr. 1649-40 1086 Bangladesh Population III 78.0 42.4 Cr. 1851-80 1985 Bangladesh Shrimp Culture 22.0 15.8 Cr. 1734-SD 1987 Bar adesh Dhaka WASA III 80.0 18.8 Cr. 1749-0 1987 Bangladesh Refinery Modification A LPG 47.0 38.1 Cr. 1784-0 198? Bangladesh Flood Control A Drainage IV 20.0 16.9 Cr. 1827-0 1987 Bangladesh Road Rehab A Maintenance 102.0 7656 Cr. 1870-8D 3988 Bangladesh S. Sc FCD & Irrigation II 81.5 37.1 Cr. 1930-80 1988 Bangladesh Urban Development 1 47.0 44.0 Cr. 1940-BD 1988 Bangladesh Rural Roads A Markets 62.3 44.6 Cr. 1942-4 1988 Bangladesh Industrial Energy Efficlney 11.4 11.2 Ce. 20004- 1989 Bangladesh Export Development 26.0 23.1 Cr. 2016-80 1989 Bangladesh Power Distributton (16 Towns) 87.0 83.5 Cr. 2048-SB 1989 Bangladesh Flood Rehabilitation III 133.6 88.0 Cr. 2099-80 1990 Bangladesh SWDS System Rehab 63.9 61.1 Cr. 2118-0 1990 Bangladesh General Education 159.3 152.7 Cr. 2129-B0 1990 Bangladesh Rural Electrification III 105.0 107.8 Cr. 2146-0 1990 a8ngladesh Fisheries II 44.6 48.0 *Cr. 2162-0 1990 Bangladesh Financial Sector Adjust. Credit 175.0 102.S oCr. 2152-40 1991 Bangladesh Financial Sector Adjust. Credit 3.5 3.4 Total 56.9 4900.2 c) 1343.0 c> of which has been repaid 13.2 00.9 Total now held by Bank and IDA 43.7 4839.S Amount sold 0.4 Of which repaid 0.4 Total Undltbursed 1343.0 a) Approved during or *fter FY80. b> Not yot effective. cO The principal amounts of IDA credits are shown In US Dollar equivalent at date of negotiations, as shown In the Preldent's Report. Undistursed amounts shown In US Dollar equivalent are valued at th. oxchange rate applicable on the date of this statment. In son cases, therefore, the undisbursed bletanc indicates a dollar amount greater thar the original principal credit amount expressed in dollars. a SAL, SECAL or Program Loan. - 10 Schedule D Page 2 of 2 STATEME.VT OF iYC IVESTENTZ (As of March 31, 1991) Investment Fiscal Type of Loan Equity Total Number Year Obliaor Business tUS$ Million) 139 1969 Karnafuli Paper Mills Ltd. Pulp and Paper 5.60 0.63 6.23 463 1979 Highspeed Shipbuilding and Heavy Engineering Co. Ltd. Shipbuilding 1.20 0.36 1.56 528 1980 Industrial Promotion and Development Company of Bangladesh, Ltd. DFC 0.00 1.05 1.05 785 1975 Industrial Development Leasing Company of Money and Capital Bangladesh Markets 3.02 0.16 3.18 767/ 19851 Bata Shoe Company 857 86 (Bangladesh) Ltd. Shoes 4.46 0.51 4.97 1991 b/ DTIL Textiles 2.50 0.0 2.5 Total Gross Commitments 16.78 2.71 16.99 Less cancellations, terminations, repayment and sales 10.00 0.99 10.99 Total Commitments now held by IFC 6.34 1.72 8.06 Total Undisbursed (includint varticlDants' portion) - 0.07 2.57 = - _ al Exchange adjustments account for variation in total gross commitments, less cancellations, etc., and total commitments now held by IFC. bt Includes approved but not committed projects to date. I=R 2290 A w 90t BANGLADESH TRANSMISSION SYSTEM FOR NATURAL GAS AND NATURAL GAS LIQUIDS (NGL) X PIPEUNES: Propowe Projet w2'; Under lmplementation: roz,^,Eo, kd.)a_ \ | tProposed: N Notrt Gas Dicoeries Gas - Primary Rowds N *-./.NGL Rcilroods Existing: Rivers N> < - o - Gos -*G- International Boundaries 221 op v _ ) \,si. Fen a * ' fshu ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~241~ -~ lC n, 0 i liitS. t .OKA"A rft.- * Kutubie 00 Om 40 ftm iq*. 50 0 IlLOMTEB Sm ANG-A e : 90' 91' 9r MAQY 1991