Gas development and utilization project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Myanmar; Region: East Asia And Pacific; Sector: Refining Storage & Distribution;
                                              Major Sector: Oil & Gas; ProjectID: P003384


 December 29, 1995

 Myanmar: Gas Development and Utilization Project (Credit 1840-BA)

 The Implementation Completion Report (ICR) on the Myamnar Gas Development and Utilization project (Credit
 1840-BA, approved in FY88, in the amount of US$63 million, US$21 million of which was disbursed), was
 prepared by the East Asia Regional Office. The UNDP provided US$2.7 million in grant cofinancing for the
 project's technical assistance and training. The Borrower's comments on the ICR are included. The loan was
 closed on June 30, 1994, the original closing date. An undisbursed amount of US$42 million was canceled.

 The project's objectives as stated at appraisal were: (i) to increase the supply and use of domestic natural gas as a
 substitute for oil; and (ii) to introduce modern petroleum technology. The project components were: (a)
 completing development of the Payagon gas field, to increase production by an additional 400 billion cubic feet
 (bcf) of gas over its lifetime; (b) constructing a second transmission pipeline and a city distribution system to bring
 the additional gas to large consumers in Rangoon; (c) upgrading the existing pipeline to protect against corrosion
 and leakages; and (d) implementing technical assistance, training and studies to strengthen gas utilization
 investment planning capabilities and identify possible enhanced oil production technologies in difficult to produce
 oil fields.

 The project impact was disappointingly small in terms of additional gas supply but very positive on institutional
 development. Two-thirds of the wells drilled did not find producable gas, and had to be plugged. The new wells
 produced only 41 bcf of gas, 10 percent of that expected at appraisal; the field was fully depleted in 1994, 14 years
 earlier than anticipated. The new gas pipeline component was canceled because it was no longer justified with the
 lower than expected production levels; the component to upgrade the existing pipeline was also canceled. While
 falling short of the appraisal estimate (46-72 percent), the project's re-estimated economic rate of return is a
 respectable 28 percent. The major reasons are: (i) the marginal nature of the investment, which shortened the time
 between the investment phase (drilling the well) and the production phase in this already established field, and
 made it possible to use the existing gas pipeline to transport the gas; and (ii) the high value attributed to the
 relatively small amount of gas produced (valued at the margin as a substitute for diesel fuel in power production).
 Technical assistance and training was successfully implemented. IDA's extensive dialogue with the Government
 during project preparation and implementation led to a quadrupling of domestic gas prices, and also contributed to
 the strengthening of sector policies and encouraged international oil companies (IOCs) to greatly expand their
 exploration and development activities.

 The Operations Evaluation Department rates the project outcome as marginally satisfactory, given its satisfactory
 rate of return, even though it fell far short of reaching its output objectives. However, sustainability is rated as
 unlikely because the gas reserves are too small. Institutional development is rated as substantial: sector policy
 shifts successfully encouraged IOC participation in petroleum exploration and production (over $500 million was
 invested by the end of 1994), and gas prices were raised sufficiently to put the national petroleum company on a
 sound financial footing. After a poor start in appraising the project, Bank supervision missions agreed quickly with
 the authorities on restructuring the project, while continuing the fruitful sector policy dialogue. Bank performance
 is therefore judged to be satisfactory. These ratings agree with those of the ICR, except for the outcome, rated as
 unsatisfactory in the ICR.
The major lesson learned is that in high risk natural resource development projects such as this, every effort needs
to be made to establish independent estimates of the quality and quantity of the resource reserves to be developed.

The ICR is good; it meets all the requirements. Its economic evaluation is an improvement over the one made at
appraisal.

No audit is planned.