Liquefied petroleum gas transport and distribution project
 Report No: ; Type: Report/Evaluation Memorandum ; Country: Bangladesh; Region: South Asia; Sector: Refining Storage & Distribution; Major
                                                Sector: Oil & Gas; ProjectID: P009462


Bangladesh: Liquefied Petroleum Gas Transport and Distribution Project (Credit 2263-BD)

    The Liquefied Petroleum Gas Transport and Distribution Project, supported by Credit 2263-BD for US$67.2
million equivalent, was approved in FY91. The Credit was closed In FY96, as scheduled, with an undisbursed
amount of US$66.4 million because the physical components of the project were not implemented. The
Implementation Completion Report (ICR) was prepared by the South Asia Reizional Office. The borrower did not
submit a separate evaluation report.

         The main objective of the project was to substitute liquefied petroleum gas (LPG) for imported
kerosene and commercial fuelwood. Other objectives were: (i) to save on foreign exchange for imported fuel; (ii) to
alleviate biomass shortages in the countrv; (iii) to establish economic LPG prices; (iv) to develop a suitable
institutional framework for LPG development and operations and facilitate private sector involvement in LPG
transport and distribution; and (v) to promote an environmentally and operationally safe petroleum industrv, Project
components comprised: construction of LPG storage facilities, an LPG-dedicated pipeline and related river crossing
drilling works, and two LPG bottling plants and storage facilities: acquisition of equipment and spare parts for the
new facilities; and technical assistance.

         The physical components of the project were not implemented. The project was to finance downstream
transport and bottling facilities for LPG while an ongoing IDA-financed project, the Second Gas Development
Project (Credit 1586-BA), was to finance upstream facilities. These upstream facilities included the construction of
the Ashuncanj fractionation plant to separate LPG - propane and butane.- from natural gas liquids. The award of the
contract for the plant was made a condition of project effectiveness because the proposed downstream transport and
distribution facilities were dependent on construction of the plant. Credit effectiveness was extended three times
because Govemment had not awarded the contract for the Ashuncanj plant, partly because of concerns that only two
bidders had submitted tenders. Finally, the bid validity period expired and bidders refused to continue to offer the
prices bid and the Bank closed Credit 1586 (after three one-year extensions). Subsequent attempts bv the Borrower
to find other sources of suitable financing met with no success. Meanwhile, the Borrower requested IDA to make
Credit 2263 effective in order to proceed with those project components not affected bv the Ashunaanj plant delays.
IDA agreed to the Borrower's request and the project was made effective in September 1992, but disbursements for
the pipeline and LPG bottlin-, plants were made conditional on the award of a contract for the Ashunganj plant.
However, the Government abandoned its attempts to build the plant in early 199') and IDA finallv closed the project
in .June 1996: only USSO.84 million had been disbursed for consultant engineering services for the LPG pipeline.

        The Operations Evaluation Department (OED) rates project outcome as highly unsatisfactory and
sustainability as unlikely. These ratings are consistent with those in the ICN. OED rates institutional development
impact as negligible: no ratino, was given in the ICN. IDA performance is rated as unsatisfactory because of (i)
IDA's decision to make the credit effective before the contract was awarded for the Ashunganj plant, despite the
Borrower's history of long procurement delays, and (ii) the long time taken by IDA to close the project. The ICR
rates IDA's project preparation and appraisal performance as satisfactory and supervision performance as
unsatisfactory.

    The main lesson to be drawn from the project is that implementation of projects that are part of sequential and
inter-dependent investments should allow for longer lead times where there are technical uncertainties about
upstream production (such as uncertainty over volume of available gas for LPG production), limited institutional
capacity, and a history of long procurement delays by the Borrower. To avoid makinc, premature commitment to
dovmstream investments, projects should be only presented to the Board when upstream projects are well under
implementation

The ICN satisfactory covers the events during project implementation but did not include a.
separate evaluation report by the Borrower.

No audit of the project is planned.