Document of The World Bank FOR OFFICIAL USE ONLY ReportNo. 12607-Zh STAFF APPRAISAL REPORT ZAMIABT PETROLEUMSECTOR REHABILITATION PROJECT NAY 6, 1994 Industryand Energy Operations Southern Africa Department This document has a resticted distribution and may be used by redpient only in the performance of their officall duties. Its contents may not otrwise be disclosed without World Bank autho0izaion 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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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 12607-Zh
STAFF APPRAISAL REPORT
ZAMIABT
PETROLEUM SECTOR REHABILITATION PROJECT
NAY 6, 1994
Industry and Energy OperationsSouthern Africa Department
This document has a resticted distribution and may be used by redpient only in the performance oftheir officall duties. Its contents may not otrwise be disclosed without World Bank autho0izaion
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Currency Equivalents(Annual Average Exchange Rates)
Currencv Zambian Kwacha (K)
US$1.00 = K 600K 1.00 - US$ 0.002
1980 US$1.00 = K .791983 US$1.00 K 1.261984 US$1.00 = K 1.811985 US$1.00 = K 3.141986 US$1.00 = K 7.791987 US$1.00 = K 8.891988 USS1.00 = K 8.821989 US$1.00 = K 12.901990 US$1.00 = K 28.901991 US$1.00 = K 61.701992 US$1.00 = K171.001993 US$1.00 = K460.00
Currency Tanzanian Shilline (TSh)
US$1.00 = TSh. 499 (exchange rate)TSh.1.00 = US$ 0.002
Weights and Measures
1 Metric Ton (MT) = 1,000 kilograms (kg)1 Barrel (Bbl) = 0.159 cubic metersI Metric Ton of Oil (API 30) = 7.19 barrels1 Ton of Oil Equivalent = 10 million kilocalories (39.7 million Btu)1 Kilocalorie = 3.97 British Thermal Units (BTU)1 Gallon = 3.785 Liters1 Hectare (ha) = 0.01 square kilometer (2.47 acres)1 Liter = 0.26 Gallon
FOR OFFICiL USE ONLY
Abbreviations
ADB African Development BankAGIP Agip PetroliAPI Amecican Petroleum InsduteBP BP (Zaumbia) Limitedbpsd barml per stream dayBZ Bank of ZambiaCAPC Centmal Afica Power CorporationBIB European Investment BankBURR Economic Internal Rate of ReturnESMAP Energy Sector Management Assi tanc; ProgrmmeDOE Depautment of EnergyOlD Group Investment DliectorGRZ Govenment of the Republic of ZambiaHFO Heavy Fuel OilICB Intemational Competitive BiddingIndeni Indeni Petroleum Company LimitedkgIc kdlograms of oil equivalentMBWD Ministy of Enegy and Wate DevelopmentMF Ministry of FmanceNEC National Energy CouncilOMC Oil Marketing CompaniesOMCC Consortium of Oil Marketing CompaniesPIRC Privatization and Industrial Resrcuing CreditROW Right of WaySPM Single Point Mooringtoe tons oil equivalenttpa tons per annumTazama Tazama Pipelines LimitedZA-,ICO Zambia PForetry and Porest Industries Corporation LimitedZCCM Zambia Consolidated Copper Mines LimitedZESCO Zambia Electricity Supply Company LinitedZIMCO Zambia Industrial and Mining Corporation LimitedZ{MOIL Petroleum Procurement and Supply Division of ZIMCOZOC Zambia Oil CompanyZPA Zambia Privatization AgencyZR Zambia Railways Limied
icalYr
Government - January 1 - De¢ember 31ZOC, TAZAMA - April 1 - March 31
This document has a restricted distintion and may be used by reipients only in the pefmae of dteirofflcisl duties. Its contts may not otherwie be disclosed without World Bnk authorzaion
ZAMBIAPEIROLEUM SECTOR REUABILITATION PROJECT
TABLE OF CONTENTS
Page
CREDIT AND PROJECT SUMMARY ................. i-i
I. INTRODUCTION .................................... 1-3
H. THE ENERGY SECTOR ................................... 4-15
Eectric Power .............................................. 4Coal ............................ 5Woo-ifuels and Charcoal ............................ 6Other Renewable Energy ............................ 7Energy Efficiency and Substitution . ............................ 7Sector Organization ............................ 7Zambian Regulatory Agencies ............ ................ 8The Petroleum Subsector ............................ 8Hydrocabon Potential ............................ 9Petroleum Demand ........................................... 9Pote"t Regional Market ......................... 11Petroleum Refining ......................................... 11Petroleum Distribution ......................... 12Petroleum Product Pricing ......................... 12Government's Energy Sector Objectives and Development Plans .13Role oe the Bank Group in the Energy Sector
and Lessons of Experience ................ 14Systematic Client Consultation .15
m. AGENCIES OPERATING IN THE PETROLEUM SECTOR. 16-20
The Borrower and the Executing Agencies .16Kmistry of Energy and Water Development .16Parastatal Energy Companies .16Proposed Institutional Reforms .17Staffing: Parastatal Energy Companies .19Accounts ......... ....... 20
This report is based on the findings of a preappraisal mission which visited Zambia inAugust 1992 and February 1993 and an appraisal mission in June 1993. The appraisa missionwas led by T.S. Nayar, Pr. Chemical Engineer ([ENOG), and included Mr. Eric Daffern, Pr.Energy/Industrial Specialist (IENOG) Oead adviser), Ms. Yurilo Sakairi, Economist (AF6IE) andMr. P.K. Subramanian, FinancW Analyst (Consultant). Secretarial support was provided byMmes. Joyce Chinsen and Ethiopia Taddese (AF6IE). Messrs. David Cook (AF61E) and StephenDenning (AF6DR) are the managing Division Chief and Departnent Director.
IV. THEPROJECT ............................ 21-31
Project Objectives ......... .............. ................... 21Project Descripii ......................................... 21Related investments to be Financed by the Private Sector ..... ........... . 24Projet Management and Implementation ......... .................... 24Project Cost Estimates . ........................................ 25Financing Plan ............. ............................ 26Project Schedule and Disbursement Profile ......... I.................. 27Procurement .......................................... 28Allocation and Disbursement of IDA Credit ........ ................... 30Environmental and Safety Aspects ............. .................... 30Project Development Impact . ................................... 31Project Monitoring ......................................... 31List of Documents on File ...................................... 31
V. FINANCLAL ANALYSIS ..................................... 32-41
Introduction ............................................ 32Financial Policies of Zambia's Parastatals ......... ................... 32ZIMOL .......................................... 32Zambia Oil Company ......................................... 34Oil Marketing Companies Consortium .......... .................... 36Tazama Pipeline Limited ....................................... 38Indeni Refery ......................................... 40
VI. JUSTDFCATION, BENEFrTS AND RISKS ....... ................. 42-44
Project Justification ......................................... 42Economic Analysis .......................................... 42Pipeline Rehabilitation Economics ............. .................... 42Rail Loading Expansion . ....................................... 43Indeni Refinery Economics ...................................... 43Project Risk .......................................... 44
VII. AGREEMENTS REACHED AND RECOMMENDATIONS .45-46
LIS OF ANNEXES
Annex 1.1 Letter of Sector PolicyAnnex 2.1 Energy Balance 1992Annex 3.1 Zimoil Organization ChartAnnex 3.2 Tazama Pipeline Limited Organization ChartAnnex 4.1 Project Cost EstimatesAnnex 4.2 Implementation ScheduleAnnex 4.3 IDA Supervision MissionAnnex 4.4 Disbursement Schedule for IDA FinancingAnnex 4.5 Environmental IssuesAnnex 4.6 Project Monitoring Indicators and Performance Monitoring Criteria for
Tazama Pipelines LimitedAnnex 4.7 List of Documents on FileAnnex 4.8 Petroleum Export Market Assessment - Draft Terms of ReferenceAnnex 4.9 Petroleum Sector Capacty Building in the Ministry of Energy and Water
Development - Terms of Reference fbr the Technical Cell)Annex 5.1 Notes and Assumptions on Financial ProjectionsAnnex 5.2 ZIMOIL - Income StatementAnnex 5.3 ZIMOIL - Balance SheetAnnex 5.4 Zambia Oil Company - Notes and Assumptions on Financial ProjectionsAnnex 5.5 Zamnia Oil Company - Income StatementAnnex 5.6 Zambia Oil Company - Balance SheetAmex 5.7 Tazama Pipeline Ltd. - Income Statement 1988-93Annex 5.8 Tazama Pipeline Ltd. - Balance Sheet 1988-93Annex 5.9 Tazama Pipeline Ltd. - Notes and Assumpdons for Financial ProjectionsAnnex 5.10 Tazama Pipeline Ltd. - Income StatementAnnex 5.11 Tazama Pipeline Ltd. - Balance SheetAnnex 5.12 Tazama Pipeline Ltd. - Funds Flow StatementAnnex 6.1 Economic Analysis of Petroleum Distribution ComponentsAnnex 6.2 Economic Analysis of Refinery Operations and Product Pipeline Options
TEXT TABLES
Table 2.1 - Electricity Consumption by Sector ............................. STable 2.2 - Production and Sales of Coal ................................ 6Table 2.3 - Fuels used for Cooking by Households .......................... 7Table 2.4 - Sales and Market Shares of Oil Marketing Companies .............. 9Table 2.5 - Final Consumption of Petroleum Products by Sector in 1992 ........... 10Table 2.6 - Petroleum Consumption in Zambia .............. 10Table 2.7 - Demand Forecast for Petroleum Products ..... ......... 11Table 2.8 - Petroleum Products Price Structure as of May 1993 .............. 12Table 4.1 - Summary of Project Cost Estimates .............. 26Table 4.2 - Petroleum Sector Rehabilitation Project Financing Plan .. . ........... 27Table 4.3 - IDA Disbursement Schedule .............. 28Table 4.4 - Procurement Arrangements .............. 29Table 4.5 - IDA Credit Allocation .............. 30Table S.1 - ZIMOIL Summary Financial Statements 1990-92 .............. 33Table 5.2 - Zambia Oil Company Pricing Structure ...... ......... 35Table 5.3 - Zambia Oil Company Summary Projected Financial Statement
1995-2000 . ............... 36Table 5.4 - Oil Marketing Companies Consortium - Pricing Structure ............. 37Table 5.5 - Tazama Summary Financial Statements 1990-92 .......... .... 39Table 5.6 - Tazama Summary Projected Financial Statements 1993-98 ............. 40
REPUBLIC OF ZAMBIA
PEROLEtUM SECTOR REI:ABILITATION PROJECT
CREDrr AND PROJECT SUMMARY
Borrower: Government of the Republic of Zambia
Beneficiaries: Ministry of Energy and Water Development, TazamaPipeline Company and Zambia Oil Company.
Amount: SDR 21.6 million (US$30 million equivalent)
Terms: Standard IDA terms, with 40 years of maturity.
Objectives: The objectives of the proposed project are: (a) policydevelopment through encouraging establishment ofsatisfactory regulatory famework, competitive imports ofpetroleum and eventual deregulation of market; (b)rehabilitate Tazama pipeline as a least cost and reliablemeans of supplying petroleum to Zambia and strengthenTazama's Institutional set up; (c) improve infrastructurefacilities to reduce the delivered cost of petroleum; and (d)provide a basis for the private sector companies tefacilitate exports to neighboring landlocked countries,using surplus pipeline capacity, to generate exportearnings.
Components: The proposed pro,jet consists of rehabilitation of Tazamapipeline (repairs and replacement of pipeline from KM 250to KM 1710), corrosion protection, overhauling of 14pumps and their drives, replacement of 9 generators in thepump stations, improving telecommunication system,repairs to existing storage tan! s and construction of a newtank in Ndola, purchase of vehicles, spare parts andproject equipment; expansion of Ndola rail loadingfacilities with simultaneous loading of 12 wagons,replacement of loading pumps and product measuringinstruments; and capacity strengthening in Tazanma and theMinistry of Energy and Water Development.
ii
Financing Plan: (miliions of US Dollars)
Agency Local Foreign Total
IDA 30.0 30.0EIB - 15.0 15.0GRZ 3.0 - 3.0
Tosal 3.0 45.0 48.0
Economic Rate of Return: As the pipeline solution is cheaper in all years than otheroptions, the economic rate of return is over 100%. EIRRis about 15% for improving petroleum distribution systemsat Ndola (5% of project costs).
Staff Appraisal Report: Report No. 12607-ZAM
Map: IBRD No. 20145RIBRD No. 25541
ZAMBIA
rPLROLEUM SECTOR REHABILITATION PROJECT
I. INTRODUCrION
1.1 Zambia is a landlocked country in southem central Africa with a land mass of753,000 km2: i. shares borders with Angola, Botswana, Malawi, Mozambique, Namibia,Tanzania, Zaire and Zimbabwe. The closing of Zambia's southern border and the imposition ofeconomic sanctions on Rhodesia in 1965 constrained the supply of petroleum fuels. To ensure asteady supply of petroleum products, the construction of the 1710 km Tnzama Pipeline, from Dar-es-Salaam, Tanzania to Ndola, Zambia, was completed in 1968. The pipeline was onvertea intocrude oil service in 1973 when the Indeni Refinery at Ndola was commissioned. Pipeline leakagedue to external and inte corrosion became serious in the early 1980s, causing in loss of oiland serious pollution in Tanzania. The Government of the Republic of Zambia (GRZ) iniatedsteps in rehabilitating the pipeline as a priority, but this had to be done in stages according topriorities because of shortage of funds. The first stage with Zambia Industial and MiningCorporation's (ZIMCO) own financing and the second stage (with European Investment Bank(EIB) and Italian Government fiancing) are complete: the third stage (with African DevelopmentBank (ADB) financing) is nearing completion.
1.2 The emergency which caused the initial pipeline and the philosophy of theGovernment at that time made it natural for the pipeline and refinery to be publicly owned.However, Zambia is now committed to using the private sector for business activities, and isseelng to transfer virtually all parastatals to private ownership. This project seeks to modifyZambi's policies in the petroleum sector so that all activities can gradually be passed to theprivate sector, and supports the completion of the rehabilitation of the Tazama pipeline. It alsosupports modification of the national storage facilities and the provision of working capital financeso that private sector oil companies can take ownership of the oil as soon as it is offloaded at Dar-es-Salarn. These changes are important as being the means of maximing private sector activity.Fuil details ar set out in the GRZ's Letter of Petroleum Sector Policy (Annex 1.1).
1.3 To make Zambia's system suitable for major private sector operators, therehabilitation of the Tazama pipeline must be completed. The fourth and final stage of this isunder consideration; GRZ has asked IDA for assistance in financing rehabilitation of: O) theunimproved portions of the Tazama Pipeline; (ii) the facilities for reducing the cost of supply anddistribution of petroleum products; and (iii) technical assistance for improving the managerialcapacity in Tazama and monitoring and regulatory functions in the Ministry of Energy and WaterDevelopment (MEWD). This project will establish a reliable and cost effective system for: (X)transportation of refinery feedstock or required products; and (ii) supply and distribution ofpetroleum produets. To evaluate the scope and to arrive at a comprehensive and least costrehabilitation/efficiency improvement program, IDA financed the Tazama Pipeline EngineeringProject (Cr. 1627-ZA) which evaluated the physical condition of the pipeline and associatedfacilities, and prepared a comprehensive rehabilitation program Becmase of severe corrosion,parts of the pipeline required attention even before the engineering study was completed. At thetime the engineering study was completed, IDA had suspended isbu ts o Zambia, and wasunable to proceed. In view of the emergency, Italy, EIB and ADB provided financial assistanceamounting to US$42 million equivalent to implement the emergency rehabilitation repairs in three
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stages. The remaining rehabilitation work for the Tazama pipeline would be addressed in theproposed project.
1.4 Engineering studies, financed under the Indeni Refinery Engineering Loan (Loan2151-ZA), evaluated several options for modernizing the refinery and conserving energy. Theseoptions included upgrading the refinery through installing visbreakers or hydrocrackers. At thethen differential between crude oil and petroleum product prices, this investment lookedinteresting but required capital investments beyond the czpabilities of Zambia and Indeni. Laerdiscussions between the Bank and 3RZ reviewed updated data on operating cost, fuelconsumption and losses by Indeni refinery and ZIMOILJ/, and concluded that the refineryoperation was economically marginal, and that moderization could not be justified. Inconsultation with GRZ and ZIMCO, the economic viability of shutfing down the refey andconverting the Tazama pipeline into a product pipeline to reduce the cost of bulk transport ofpetroleum products was found to be the most promising long-term option which will alsoencourage regional exports of products imported from Dar-es-Salaam. However, this cannot bestarted until repairs to the Dar-es-Salaam tanks and rehabilitation of the pipeline itself arecompleted. This is expected to take between 2 and 3 years. Once the Tazama rehabilitation iscomplete, Government will review the economics of using the pipeline for feedstock -nd will thendecide whether to keep the refinery in operation or convert it for the transnort of refinedpetroleum products. Facilities for reducing the cost of bulk distribution of petroleum productswithin Zambia are included in the proposed project.
1.5 There would be three project beneficiaries: (a) Tazama Pipelines Limited(Tazama); (b) a Zambia Oil Company (ZOC), a new company to be set up to take over some ofZIMOIL's activities (para. 3.9); and (c) MEWD. Tazama is a joint venture between theGovernments of Zambia and Tanzania and has been operating for the past 25 years under anIernational Convention signed in January 1967. The Government of Tanzania fMlly supports theproject and has reconfirmed its commitment to the 1967 Convention through the life of theproject. Although Zambia would be the sole beneficiary of the proposed project, Tanzania willbe a signatory to the recommendations of the International Development Statutory Committee tobe established pursuant to section 1(d) of Article V of the Articles of Agreement of theAssociation. Tte Zambia Oil Company will be formed as a parastatal to replace ZIMOIL as theimporter of feedstock and (initially) as the owner of the Ndola storage facilities. The remainigresponsibilities of ZIMOIL, to own the feedstock in the Tazama and Indeni systems, to negotateagreements with Tazama and Indeni for transport and refining of oil, and to operate the Ndolastorage, will be transferred to a Consortium of Oil Companies.
1.6 Ihe project is estimated to cost about US$48 million equivalent including US$45million in foreign exchange. The proposed IDA Credit is for US$30 million equivalent out ofwhich US$2.8 million will be used for technical assistance to MEWD: US$25.1 million will beonlent to Tazama and US$2.1 million will be onlent to ZOC. The IDA credit would finance 67percent of the foreign exchange cost; the balance of US$15 million equivalent would be financedin parallel by EIB. The local currency cost of US$3 million equivalent would be financed byMEWD, Tazama and ZOC.
I/ ZIMOIL is ZIMCO's division responsible for oil procurement, for storage and ewports toneigboring countries and for arranging transport and refining of petroleum products.
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1.7 The Tazama Pipeline is the least cost and cnly, potentially reliable mode oftransport of petroleum for Zambia. Over the past ten years lack of maintenance, exteracorrosion due to failure of the pipeline coating and the effect of the low resistivity "black-cotton"soil, and internal corrosion due to persistent incursion of sea water into the pipeline from theSingle Point Mooring (SPM) system offshore Dar-es-Salaam haroor, have caused seriouxsdeterioration to the pipeline and its associated facilities. The proposed final stage of rehabilitationwill consolidate the benefits of three previous stages of rehabilitation and prevent collapse of thepipeline system. The cost of rehabilitation is significantly lower than the investment required forthe next best alternative-the Tazara Railway.
1.8 The goal of the Ban:'s strategy for Zambia is to assist the Goverunent to achievesustainable economic growth. This translates into a three-pronged strategy of direct assistameaimed at: (a) supporting policy reform and providing balance of payments support throughadjustment operations; (b) improving the enabling environment for private sector growth throughproject investments in infrastructure and human resources; and (c) targeting the poor andvulnerable groups with programs in agriculture and social services and ensuring thatenvironmnal issues are addressed promptly. These interventions are mutually supportive andmutually reinforcing. The Petroleum Rehabilitation Project dird*ty supports improving theenabling environment for private sector growth, and minimizing environmental problems. Itindirectly supports poverty alleviationobjectives through improving the reliability and efficiencyof petroleum supplies.
1.9 The proposed project is consistent with the Government's focus on rehabilitatgexistng facilities and avoiding large new investments. The project primarily aims to achieve: (a)the restructring of the oil industry in Zambla (b) the enhanced activity of the private sector in acommercial manner; and (c) the reform of the pricing system for petroleum products. At thesame tm it would also address: (i) the issue of least cost petroleum supply in its entirety; (ii)take remedial measures for the pipeline corrosion and related problems; (iii) deal with themanagement and insttiona aspects to improve efficiency and prevent recurrence of theproblems; (iv) reduce the cost of bulk transportation of products; and (v) increase energyconservation and reduce costs of internal distribution. The project was appraised in June, 1993.
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H. THE ENERGY SECTOR
2.1 Zambia's considerable indigenous energy resources, especially woodfuels,hydropower and coal satisfy almost 90 percent of the country's energy needs. The energy supplyconsists of domestically produced hydropower (12.2%), coal (5.2%), fuelwood and charcoal(70.1%), and imported petroleum (12.3%). Final domestic energy consumption in 1992 totalledabout 4.6 million tons of oil equivalent (toe), of which household accounts for 62.8%, mining14.2%, industry and commerce 11.5%, transport 6.8%, agriculture and forestry 2% andGoverament and services 2.6%2/. Of the total energy consumption, commercial energyaccouned for 1.4 million toe, or about 31.1%, which is high for a low-income country. Percapita annual commercial energy consumption of about 379 kilograms of oil equivalent (kgoe) in1991 was the fourth from the highest (602 kgoe for China, 594 kgoe for Egypt and 517 kgoe forZimbabwe) among the low income countriesl/. Copper mining is the largest energy consumer,accounting for 45.7% of total commercial energy demand, followed by transport 22%, industryand commercial 16.2%, and Government and services 8.5%. The major sources of commercialenergy supply are petroleum (41.7%), electricity (40.9%) and domestic coal (17.4%).
Eleic Power
2.2 Zambia has ample hydropower potential; the reserves at exploitable hydro sitesare estimatd at 4,000 MW. The total installed power-generating capacity is 1,778 MW, ofwhich 94% is hydro-power. Because of the abundant hydro supply, excess capacity (total demandof around 1,500 MW) and the well established high voltage grid, the marginal cost of power islow. Virtualy all electricity is supplied by the Zambia Electricity Supply Company (ZESCO),which has an istalled capacity of 1,640 MW4/. The Zambia Consolidated Copper Mines(ZCCM) operates four gas turbine generators and a waste heat plant in the Copperbelt, which areon cold standby, and the hydro station which provides electricity for the mines at Kabwe.ZESCO also transmits and distributes electricity direcdy to consumers through the network whichcovers most urban areas. The power system consists of the main grid and the isolated systems.The main grid comprises the major power stations in the south of the country and thetransmission lines and substations which serve the main load centers in the north. The isolatedsystem comprises the mini hydro power stations and diesel power stions that serve the ruralareas. The power transmission system comprises 6,100 km at 330, 220, 88 and 66 kV, of which1,900 km of 330 kV lines connects the major power stations.
2.3 The Zambian power system is interconnected at high voltage with the systems ofZimbabwe, Zaire and Botswana. Under the axisting power exchange arrangements, Zambia hasreciprocal access to standby capacity from Zimbabwe and Zaire, and exports power to the
2/ The national energy balance for 1992 is provided in Annex 2.1.
I/ Ihe commercial energy consumption per capita in 1965 was the highest among the low-incomecountries, at 464 kilograms of oil equivalent. The consumption dropped by about 18 percent from1965 to 1991.
&1 Out of 1,640 MW, the total insIled capacity of hydro power plants is 1,632 MW: Kafue GorgePower Station (900 MW), Kariba North Bank (600 MW), Victoria Falls (108 MW), Lusiwasi (12MW), Chshimba Falls (6 MW), Musonda Falls (5 MW) and Lunzua (0.75 MW).
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northeastern region of Botswana. Because of the commissioning of a thermal power station inZimbabwe, the major importer of power from Zambia, the exports of power have declined since1982 when 37% of electricity generated was exported. In 1990 total exports declined to 657GWh, accounting for 11% of total power generated; exports were badly affected by the fire atKafue Gorge Power Station. i)uring 1992/93, covering a year of extensive drought, exportsincreased to 921.2 GWh.
2.4 In 1992 elecuricity consumption in Zambia reached about 6,163 GWh and the peakdemand on the system was about 993 MW. Annual consumption growth was maitained at 1.7percent over ten years (1980-1990). Mining demand for electricity accounts for 71%, industryand commerce 10%, household 9%, government and services 7% and agriculture and forestry3%.
2.5 In response to the serious drought, ZESCO imposed seven-hour power blackoutsin September 1992 for domestic and agricultural consumers. Industrial and commercialconsumers could choose between a weeldy ration of four days of full supply or a full week of halfday supplies. Hospitals, the maize-milling companies and ZCCM were exempt from the supply
uts. In November when the rain started, the limit for domestic and agricultural consumers waslifted.
Table 2.1 Electricy Consumption by Sectr (n GVwh)
t987 1988 1989 1290 122I 1922
Agiouture and Foresry 149 175 186 179 187 245Commercaandlndustry 778 703 703 619 623 627Minkng 4,709 4,637 4,626 4,498 4,128 4,274Transpot 12 6 9 10 10 14Households 536 411 494 581 599 616Govemnient and Services 33 428 460 467 476 387Total 6,521 6,359 6,342 6,355 6,024 6,163
Sourc Depautment of Energy, Ministy of Energy and Water Developmentk Energy Statiss Buletn 1974-1990,January 1992; ZESCO: Anmual Repoits 1991 and 1992
Coal
2.6 Coal production at Maamba Colliery in the mid-Zambezi basin has falengradually from a peak of 790,000 tons in 1975 to 377,000 tons in 1990. The decline inproduction started around 1980 mainly because of inadequate repair and maintenance of plant andequipment and poor mine design. Production fell short of domestic demand in FY84 requiring58,000 tons of coal to be imported from Zimbabwe. A rehabilitation program in FY86 restoredproduction capacity and increased production by 53,000 tons. Since the rehabilitation, the marketdemand for coal has fallen and Maamba has been unab!e to sell the producible capacity. MaambaColliery estimates that proved and probable reserves total about 91 million tons of which provedreserves amount to around 58 million tons of coal with a high ash contend/, and that provedopen pit reserves of saleable coal total at least 13 million tons, sufficient for 25 years productionat a production rate of around 500,000 tons. The major consumers are copper mines, accounting
I/ Ihe calorific value of one ton of Maamba coal is estimated at 0.6 toe.
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for about 50% of total domestic coal sales. Coal consumption in the copper mines has declinedrfiecting the shift to fuel oil in the 1970s.
2.7 The cost of producing Coa is high, in part due to lack of foreign exchange topurchase necessary parts to replace and maintain equipment. The railway system for deliveringcoal from the Colliery to the main trunk line and to the copper mines at Ndola is inefficient.From time to time coal has to rely on road transport, raising costs substantially.
Table 2.2 Froduction and Saks of Coal Cut thousand tons)
Domestic TotalPioducdon Saldo xo Salea
1975 790 742 21 7631980 570 618 0 6181985 Si1 471 7 4771986 552 522 22 5431987 463 442 53 4951988 524 S03 44 5471989 411 469 40 5091990 377 375 65 4401991 345 369 23 3921992 422 359 14 373
Source: Depaitmn of Energy, Mimistry of Energy and Waw DeNmen:nergY Sttisti Bullen 1974-1990, January 1992; Msanaba CoLiry:
Maamba Coal Sals 1991-1992.
Woodfuels and Charcoal
2.8 The woodlands and forests, covering about 50 million ha (66 percent of Zambia'stotal land area), yield over 20 million cubic meters of wood annually, which satisfies 70 percentof tie nation's total energy needs. About 87 percent of woodfuels are consumed by households;in rural areas, fuel consumption is in the form of firewood; in urban areas mainly in the form ofchwcoal.
2.9 Charcoal and fdelwood account for more than 95% of household energyrequirments. About 75% of urban households depend totally on charcoal for cooking and waterand space heating, consuming 1,370 kg annually. In 1992, Zambian urban households consumedabout 667,000 tons of charcoal.
2.10 Per capita annual consumption of fuelwood was about 730 kg and of charcoalabout 100 kg. The total national wood consumption is estimated at 15.7 million m3 (11 miliontons), of which 14.4 million mi is consumed by housebolds as fuelwood and 1.3 million m' asroundwood and sawnwood.
2.11 The esdmated current sustainable yield of forests and sawn woodlands (19-24million in) and the current consumption of woodfuels and sawn wood (16-17 million ni) suggestthat wwoodftel demand is not causing general deforestation. However, deforestation locally couldbe in prowspect because of Ci) regional imbalances between woodfuel supply and demand, and (ii)agcultural land clearing. There is localized deforestaion caused by woodfuel gathering alongthe line of ran.
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Table 23 Pues used for Cooking by Households
Percnt of HouseholdsEMI InA Rni UdaElectricily 8.8 4.1 18.0LPG/Kerosene 2.8 2.4 3.5Wood, Charcoal and Coal 87.5 92.2 78.4Othr 1.3 0.1Total 100.0 100.0 100.0
Source: Department of Energy, Ministry of Eneg and Water DevelopmenetEnergy Satstics Buletin 1974-1990, January 1992.
Other Renewable Energy
2.12 Involvement with new and renewable sources of energy has been limited. Ihepotential applications of solar energy (for cooling, water heating and fish and vegetable drying),wind energy (for water pumping), biomass and geothermal energy have been reviewed. Solarenergy through photovoltaic technology is being used in a small way in remote areas for lighting,refrigeration and water pumping.
Energ EMcency and Substitution
2.13 The Government seeks to promote energy efficiency and fuel substitution,specifically a reduction in oil consumption. In 1983 the Department of Energy (DOE) launchedthe national energy conservation and management program for the uc industry, themining industry and the service and commercial industry to identify energy conservation andsubstitution opportunities. From the series of energy surveys at 30 industa plants, DOEconcluded that management of the plants could reduce expenditure of energy by between 7 and 33percent In 1986, Kafue Textiles replaced a fuel oil boiler with an electric boiler at the cost ofUS$1.1 million; this reduced annual energy costs by US$869,000. Between 1986 and 1987, atKapiri Glass Products, because of low cost energy saving investments, the production rate rose by50 percent whfle the total energy cost fell by 22 percent.
2.14 The energy audits carried out up to 1990 estimated that about 330 MW ofelectricity would be required to substitute for diesel and light fuel oil consumed in non-miningindustries. However, the analysis did not establish the investment required in new electricitysupply facilities to satisfy increased power demand. The ZCCM consumption of fuel oil isessnial to balance the refinery product slate, and any switch from fuel oil demand will constrainthe refinery's ability to produce white products. ZCCM has looked into the possibility of usingmore coal and found it to be uneconomic under the present circumstances.
Sector Organition
2.15 In the energy sector, there are three types of institution: (i) the CentralGovnment; (ii) Public Enterprises; and (iii) a private sector more efficient than the publicsector, but not highly competitive with each other. The Central Government is responsible forenergy policy and plang. In 1991, the new Government consolidated the responsibility forenergy under a single portfolio in the newly-ceted MEWD, which consists of five separateunits: the Zambezi River Authority (jointly-owned by the Zimbabwean Government, 50/50), theDepartmnt of Water Affairs, the Water Board, the National Energy Council (NEC) and the
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Department of Energy (DOE). The energy component is handled by NEC and DOE. NEC actsas policy adviser to the Ministry and is responsible for integrating the plans of the various sectoralinstitutions, while DOE concentrates on technical/administrative advisory services. Both units areweak in technical and analytical capacities and require recruiting more qualffied candidates andproviding suitable training. MEWD is responsible for providing energy policy guidelines to theZIMCO group companies; Indeni, ZIMOIL, Tazama and ZESCO.
2.16 The Hydrocarbon Unit, which regulates exploration activities, is under theGeological Survey Department of Ministry of Mines and Minerals Development. The Departmentis responsible for licensing coal exploration and production. The Departm of Forestry underthe Ministry of Environment and Natural Resources is responsible for forestry managementincluding the availability of woodfuel. Although coal and charcoal are important energy sourcesin the country, MEWD is not responsible for the production policy of these fuels.
Za ian Regulatory Agendes
2.17 During 1994 Zambia will establish a system for regulating prices and performanceof the public utilities. The Government will establish an autonomous Energy Regulatory Board.Zambia will also establish a Monopolies Commission to monitor and investigate anti-competitivepractices. Until these agencies are established, a separate division within ZIMCO will take careof the udlities and the operations of the three strategic companies in the petroleum sector, acingas the initial regulator. Except for their toll services, Tazama and Indeni are likely to beregulated by contract. Each utility, together with ZIMOIL, Tazama and Indeni has preparedproposals for periodic price adjustment to reflect changes in costs and exchange rate; a system foreach entity is now operational.
The Petroleum Subsector
2.18 Under ZIMCO, the holding company, several energy parastatas operate: ZESCO,Maamba Colliery, Tazama, Indeni, ZIMOIL, as do partnerships between ZIMCO and twomultinational oil companies involved in petroleum distribution (BP and AGIP)6/. In thepetroleum subsector, most policy decisions such as pricing, tariffs and investment are initated bythe energy parastatals.
2.19 The public sector is concentrated mainly in activities that have limited scope forcompetition and require large investments, such as pipeline, storage and wholesale supplyfacilities. The Indeni refinery is jointly owned by Government (50%) and by the private sector(50% AGIP) which manages its operations. The product distribution and retail sales are handledexclusively by the five private and joinly-owned oil marketing companies who own and opertstorage depots. The sales and individual market shares of 1992 are:
{/ AGIP (ambia) and BP (Zambia) are 50/50 joint ventures with the Government.
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Table 2.4 The Sales and Market Sharm of Oil Marketing Companies
Sales (tons) lb=BP 367,782 (53.4%)AGIP 149,434 (21.7%)CALTEX 67,961 (9.9%)TOTAL 55,683 (8.1%)mBIL 48.113 (7.0%)Total 688,973 (100.0%)
Source: BP Zambia, 1992.
The retail outlets are owned by local private businessmen as dealerships and the road transport iscontracted to public and private transport companies. The rail tank wagons used by the marketingcompanies are owned and operated by Zambia Railways (ZR). Tazara Railways does nottransport refined petroleum products in Zambia. Petroleum products not produced by Indeni(mostly lubricants, greases and specialty products) are imported by the marketing companiesdirectly.
Hydrocarbon Potential
2.20 Zambia has four sedimentary basins. The Western Zambia Basin is the largest: itcovers 180,000 km2 of Western Zambia and extends to Botswana and Angola. Under PetroleumExploration Promotion Project (Ln. 2152-ZA) funded by the World Bank, an aeromagnetic surveyover the country and a limited gravity survey were conducted. The countrywide geological workidentified two prospective areas: the Luangwa Valley and part of the Western Zambia Basin.Two companies (Placid Oil Company and Mobil Oil Company) eventually entered into agreementswith the Government for exploration. Having had no positive result from exploration, bothcompanies relinquished the exploration acreage by mid-1988. Placid and Mobil expressed aninterest in the north of Lake Kariba, which was not included in the initial offering from theGovernment, but Placid did not pursue this matter further. Mobil still possesses a concession onthe Zimbabwean and Zambian sides of the Zambezi River.
2.21 The Luangwa Basin7/ is still perceived to be promising for oil and gas;however, considering the country's sluggish economy, the lack of foreign exchange and the highrisk of the investments, publicly-finded petroleum exploration should not be a priority.
Petroleum Demand
2.22 Domestic petroleum demand depends on the level of activity in the mining sector.The total sales of petroleum products reached a peak of 818,565 tons in 1976/77. In the next tenyears, the total sales declined by over 35.4% to 528,858 tons in 1986/87. The petroleumconsumption profile, as in most developing countries, is dominated by middle distillates(kerosene, jet fuel and diesel). The share of middle distillates was 52.4% in 1984 and around60% during 1991-93.
1/ The Luangwa Valley, part of the Rift Valley has shown some potential.
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Tablis 2.5 Final Consumption of Petroleum Products by Sector in 1992 (in tons)
Gasoline Diese msen Jet fuc Fuel oil LPG TIbIl
Agriulturo and Forestry 2,359 7,374 0 0 0 0 9,733Commercial and Industry 15,332 58,991 2,306 0 28,981 1,812 107,422Households/others 0 0 20,758 0 0 9 20,767Mining 11,794 34,411 5,766 0 87,130 0 139,101Transpot 88.455 145.019 0 53.606 _ O _ 0 287.08
Total 117,940 245,795 28,830 53,606 116,111 1,821 564,103
Source: ZIMOIL: Sectoral Classification of Major Petroleum Fuels, 1992.
Table 2.6 Petroleum Consumption in Zambia (in tons)
ProductslYea 19 86/87 1X7/88 1988/89 1989/90 1990/91 199112
LPG 2,160 1,644 2,033 2,032 2,175 2,169
Gasoline 96,393 99,378 :19,030 122,656 118,082 113,772
Kersn 26,294 31,186 38,729 38,643 31,726 29,406
Jet Fuel 16,949 35,878 62,124 63,772 45 217 26,403
Diesel 266,643 248,978 270,258 283,702 267,396 258,874
Fuel Oil 91,005 83,806 88,764 94,304 91,519 77,796
Bitimen 29.406 3211 27.143 2S42 20.3 19.1S1
Total 528,858 530,011 608,081 630,951 576,153 527,521
Source: BP Zambia, 1993; ZIMOIL: Sectoral Classification of Major Petroleum Fuels, 1992.
2.23 The domestic demand growth scenario and the consumption pattern areunlikely to change significanly in the medium-term because: (a) restrictions on Governmentexpenditures and scarcity of external resources for investments are expected to continue forsome time; and (b) copper production is expected to decline. Because of the Government'simplementation of structural adjustment program, total petroleum product demand over thenext ten years is predicted to grow at about 2.2 percent per annum from 532,000 tons in 1993to 646,000 tons in 2002.
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Table 2.7 Demand Forecst for Petroleum Producs (in Thounsad tons)
Ftodu 1993 1994 199* 1996 1997 1998 1992 2000 2001 2002LPG 3 3 3 4 4 4 5 5 5 5Gasoline 120 128 129 131 132 133 135 136 137 139Kerosene 30 33 33 34 34 34 35 35 35 36Jet Fuel 25 26 26 27 27 28 28 29 29 30Diesel 260 280 286 291 297 303 309 315 325 335FuelOil 84 84 84 84 84 84 84 84 90 90Bitumen IQ 12 1Q 1Q 10 IQ 12 IQ 12 12Total 532 S64 571 580 588 59 606 614 634 646
Source: MDA mission esdimats
Potential Regional Market
2.24 The amount of fuel oil and bitumen demand (103,769 tons including 5,200tons of bitumen in 1992/93, of which 77,870 tons of fuel oil is for the mining sector and20,699 tons for industries) detennines the maximum feedstock mix throughput that therefinery can process without generating excess fuel oil which cannot be sold. The presentdemand level limits refining capacity to about 700,000 tons. As long as the refinery isoperated, for geographical and cost reasons the exports will be dimlted at around 75,000 tonsper anmnm (tpa) of white products mainly to the Shaba area of Zaire. Competition in theSouthern Zambia market is expected from the neighboring region by competitive pricingespecially by South Africa. Competition in supplying the Malawi mcrket results from movingproducts from Dar-es-Salaam to Malawi by rail through the new Tanzanian facilities.Inefficient operation of the Zambian rail system impedes export promotion.
Petroleum Refinng
2.25 The Indeni Refinery at Ndola was commissioned in 1973. Its design capacityis 25,000 barrels per stream day (bpsd) or about 1.1 miUion tpa of feedstock. It was designedto process Iranian Light crude with a flexibility of spiking products up to 25 percent of thethroughput. Since the refinery is a simple hydroskimming plant, the product yield mix can bechanged only by altering the quantity of products spiked in the feedstock. At present the levelof reduced crude in the mix is limited by the demand for fuel ofl and bitumen. Because ofthe high percentage of light products in the feedstock, the refinery's capacity is constrained atabout 750,000 tpa. Any sigmficant increase in light products spiking at this capacity levelwould result in poor product separaion and deterioration of product quality. Being designedbefore the 1973 increase in oil prices, the refinery fuel consumption and loss is on the highside (7 to 8% against the current industry norm of about 4% for such straight-run crude oilrefineries). To improve fuel efficiency through energy conservation and increase distillationcapacity, the refinery management has developed various proposals costing in the range ofUS$1.0 million. Options for the future of Indeni include conversion to a bulk terminal, andkeeping Indeni operating as now but with improved efficiency.
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Petroeum Distribution
2.26 The refinery feed-stock received at the terminal in Dar-es-Salaam istransported to Ndola by the Tazama Pipeline. Apart from the storage capacity at the terminal(6 tanks of 38,000 cubic meter-about 30,000 metric tons-capacity each), the pipeline itselfhas a holding capacity of about 117,000 cubic meters of-92,000 metric tons-feedstock.ZIMOIL purchases the crude and owns it until required products from it are sold to thedistributors. This modus operandi has prevailed over the last two decades, and thereforeduring that period the private sector distributors have not used the pipeline for "own imports".The refined products (except fuel oil, LPG, and some bitumen) are transferred to the adjacentterminal, owned by ZIMOIL, by interconnected pipelines. ZIMOIL sells all the products inbulk to the oil marketing companies for distribution throughout the county. Nearly 90percent of the refined products are transported from the ZIMOIL terminal by road: the restare sent by rail. The road system, although expensive, is widely used because the railway isinefficient and has limited rail load/unloading facilities. 15 engines were added in 1992 and50 new tank wagons to be added in 1986. Nevertheless, turn-around remains poor. This isattributable to the absence of full-train loading at Ndola and unloading facilities at Lusaka andin the Southern regis.
Peoleum Product Pridng
2.27 Wholesale prices for all petroleum products are fixed by ZIMOIL allowing forprocurement cost, Tazaa's transport charges, the refinery processing fee and storage costs.The Government levies duties on most products. The marketers' margins and inland transportcosts have been negotiated with the Government from time-to-time to adjust for changes in thecost of operations and to ensure an agreed return on investment. Prices were not linked tointenational prices, and until recently have not been regularly updated. The new pricingsystem now in place is part of the parastatal reforms under the Privatization and IndustrialReform Adjustment Credit (PIRC), intended to ensure that prices are adjusted promptlyproduct by product to reflect import costs. To be assured of a sound petroleum productspricing policy, Government agreed that GRZ/ZOC would review petroleum productprices at least monthly, and would adjust prices as required to reflect all domestic andforeign costs, including those caused by devaluation of the Kwacha. IDA will review thelevel and structre of petroleum prices with the Government at least twice yearly. Currentwholesale ex-Ndola terminal and Lusaka ex-pump prices are shown in Table 2.8.
Table 2.8 Petroleum Products Price Sure as of May 1993(convened to US$ at the average exchange rate for 1993, K4601S)
Cbsoinc ~~Dieu Bwoen
Wholsale prce 378.26 347.83 239.13
Termndal fee 1.40 1.40 1.40
EBcise duty 113.48 97.39 35.87
Transport to Lusaka 58.82 58.82 58.82
maretnrs' and deale's muain 41.40 37.91 25.14
Ex-pMp pric 637.86 584.10 387.39
E-pump price (itr) 0.64 0.58 0.39
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2.28 The (weighted) composite price for bulk sales (based on the white products) atthe Ndola terminal Is about 138 percent of the sum of the average feedstock price CIF Dar-es-Salaam price (US$165.94/ton), plus cost of pipeline transport (US$22/ton), refining(US$23/ton), Ndola terminal fee (US$0.94/ton), and financing cost (1% of CIF Dar-es-Salaam). Until December 1992 the full cost of imports was passed on to customers, but pricecontrols were reintroduced with the devaluation at the beginning of 1993. The Govermentthen increased the prices to be comparable with import parity prices by the end of June 1993.Subject to ZOC operating efficiently, the current objective is to recover the losses incuredbefore June 1993 through the pridng system, before December 31, 1994. Governmentconfirmed this at negotiations. The next stage in development of pricing policy is to definea mechanism for seting and revising margins, and for adjusting for changes in transportcosts. The Government engaged a consultant and confimed that a report would be and beforwarded to IDA in September 1994. Implementation of the first stage ofrecommendations, as agreed with IDA, will be a condition of effectiveness.
Government's Energy Sector Objectives and Development Plans
2.29 The investment framework in the energy sector continues to stress themaintenance and rehabilitation of infrastructure and completion of projects already startedrather than the conception of new projects. Over the last few years, the Government made ita priority to complete Phase Im of the Kafue Gorge Rehabilitation, the Victoria Falls PowerStation Rehabilitation, the Lusaka Reinforcement Power Project, the Taama PipelineRehabilitation and the Indeni Oil Refinery Rehabilitation. Out of US$2.1 billion, the totalinvestment program for the period 1993-1995, the Govermment plans to invest US$131million (6.2%) in the sector. Priority investment for the period also includes reinforcement ofthe distribution networks in Lusaka and around the Copperbelt towns, the electrification of theMkushi Farm Block and rehabilitation of the Tazama Pipeline.
2.30 To improve the efficiency and reduce the cost of the labor employed, theworkforce must be reduced. While ZIMOIL and Indeni management agree in principle onreducing the workforce, no time-bound action program is available yet. Tazama submitted aproposal to reduce the workforce by 123 personnel (21%) and has implemented it. Theothers are still submitting such proposals. The Bank recommends creating a competitiveenvironment through contractual performance standards for Tazama and the Indeni refineryand petroleum product pricing reforms including wholesale and retail margins, as a steptoward full deregulation.
2.31 The economic benefits can be maximized if the existing pipeline is convertedto transport refined petroleum products and the refinery operations are suspended. Thepipeline would operate by carrying sequential batches, gasoline, kerosene and diesel; thesecould be tapped off at points along the pipeline. The product line with depots along the linewould allow efficient and less costly distribution to the country's easte regions and toneighboring countries. Conversion requires investment, but this can be justified If productexports to neighboring countries are vigorously pursued. As long as the refinery exists, thepipeline should provide open-access to any importer (private companies should be alUowed toprocure feedstock Internaionally and use the pipeline for transporting it to the refinery).ZIMOIL is prepared to consider proposals from the oil marketing companies to use thesuplus capacity available in the facilities of Tazama and the Indeni refnery and has informed
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the oil companies to this effect. The Government has confirmed that imports of petroleumproducts are deregulated, subject to payment of appropriate taxes. Tazama and Indeni haveimplemented toll tariffs for their services. Government has agreed to end controls on retailprices before the end of 1996.
Role of the Bank Group In the Energy Sector and Lessons of Experience
2.32 The Bank's previous lending for energy in Zambia has focussed on thedevelopment of hydropower generation, including expansion of the transmission network.The Bank helped the Government prepare to rehabilitate the coal industry and to evaluateoptions for modifying the country's only refinery. Bank assistance has especially helped tostrengthen the management and planning of key institutions in the energy sector, notablyZESCO, ZIMCO, the Central Africa Power Corporation (CAPC, which the Bank helpedestablish to encourage joint energy development between Zambia and Zimbabwe); the coalindustry; the energy planning function of the former Ministry of Power, Transport andCommunications; and the oil exploration promotion capacity of the Hydrocarbon Unit of theMinistry of Mines. Technical assistance rendered under the UNDP/World Bank EnergySector Management Assistance Programme recommended institutional restructuring and otherimprovements to enhance energy planning and coordination. The Bank's first loan (Loan 145-RN, June 1956) was made before Zambia's independence, to assist with construction of theKariba Dam and the South Bank power station. The second loan (Loan 392-RN, October1964)-the first to independent Zambia-helped to finance a 330 Kv high-tension transmissionline, the third (Loan 701-ZA, July 1970) was for the Kariba North Power Station. A fourthoperation (Loan 919-ZA, July 1973) helped to construct the Kafue Stage II hydroelectricproject and was followed by a supplementary loan for Kariba North in 1974. In 1982 anengineering project was approved (Loan 2151-ZA, June 1982) to study the technical andeconomic feasibility of modifying the Indeni Refinery. The Bank also funded (through Loan2152-ZA, June 1982) detailed geologic, aeromagnetic and gravity surveys to gather andorganize data for promoting exploration of hydrocarbons by foreign oil companies. In 1983 itfinanced an engineering project (Credit 1333-ZA) to prepare for the rehabilitation of theMaamba Colliery. An engineering credit (Credit 1627-ZA) supported a project to assess therehabilitation requirements of the Tazama pipeline.
2.33 Focussing on the problems identified by the studies under the IDA financedengineering credit, a pipeline rehabilitation project was prepared and a Credit was negotiatedin July 1987. However, disbursements to Zambia were ..ispended from late 1987 to early1991 and again from September 1991 to January 1992, and all IDA-financed assistance washalted during these periods. Some of the most urgent parts of the project were carried out byADB and EIB. The proposed project completes the renaining rehabilitation work. It buildson the Energy Sector Strategy prepared in 1988. The proposed project is consistent withoverall Bank strategy in the country in Its focus on strengthening basic infrastructure and inits attention to environmental issues. Through dialogue with the Government, the Bank hasidentified the following issues: (a) encouragement of private sector participation; (b) reviewof the work of state-owned sector entities; (c) introduction of a competitive environment to thesupply of petroleum; (d) reform and subsequent deregulation of petroleum retail prices; and(e) improvement in the efficiency of petroleum supply organizations througih performancecontracts with well defined targets. These issues and concerns will be addressed through theproposed project.
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identified the following issues: (a) encouragement of private sector participation; (b) reviewof the work of state-owned sector entities; (c) introductior. of a competitive environment to thesupply of petroleum; (d) reform and subsequent deregulation of petroleum retail prices; and(e) improvement in the efficiency of petroleum supply organizations through performancecontracts with well defined targets. These issues and concerns will be addressed through theproposed project.
2.34 The policy of limiting new public sector investments to strictly essential itemswill be exemplified by the proposed project. Before completion of the Project, Governmentwill not permit Indeni, Tazama and ZOC to undertake any new capital investment Inexcess of US$5 million beyond those Included in the Project without first consultng withIMA. The Bank's involvement was instrumental in rationalizing the management structure ofthe agencies operating in the petroleum sector and in establishing training programs aiming (i)at preventing the recurrence of maintenance problems which caused the current deteriorationof the facilities and (ii) at ensuring reliability of supply for Zambia and its neighbors.
Systematic Client Consultation
2.35 The project will make serious efforts to listen to the beneficiaries of the creditand to adjust project components based upon feedback received. The primary beneficiaries ofthe project are the MEWD, Tazama, ZOC and the oil marketing companies. Secondarybeneficiaries are the customers of the OMCs, but as the project is designed to prevent seriousproblems arising, it is impractical to measure the results against the performance that waslikely to happen in the absence of the project.
2.36 There has already been extensive discussion with the MEWD, Tazama, ZOCand OMC. We are preparing a baseline assessment of current performance, against whichfuture performance can be measured. Government is also setting up a mechanism for regularconsultation with the project beneficiaries, to ensure prompt feedback and corrections to theproject components as needed. It will be important to ensure that the training program isimplemented as planned, to ensure a thorough skills improvement and transfer of knowledge,and to review this at the mid-term review. In this way the project implementation will bemonitored and corrected to take account of the concerns of the beneficiaries and to meet theoverall needs.
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MI. THE AGENCIES OPERATING IN THE PEIOLEUM SECTOR
The Borrower and the Exec-uting Agencies
3.1 GRZ would be the borrower of the US$30 million Credit. The proceeds ofthe Credit would be onlent to Tazama (US$25.1 million) and ZOC (US$2.1 million) asexecuting agencies and the Government would retain US$2.8 million for MEWD. Theonlending terms (in US dollars) would be for 20 years including a grace period of five yearsat an interest rate of 8% (equal to 1.1 times the prevailing IBRD interest rate). Tazama is amajority-owned subsidiary of ZIMCO on behalf of GRZ, the minority share being owned bythe Government of Tanzarma. Execution of a subsidiary loan agreenent with Tazama willbe a condition of effectiveness. A separate entity, Zambia Oil Company (ZOC), will beformed to manage the procurement of feedstock and to own the ZIMOIL bulk storage. ZOCwill replace ZIMOIL, currently a Division of ZIMCO. Incorporation of ZOC andexecution of a subsidiary loan agreement will be among the conditions of disbursementfor the ZOC component.
Ministry of Energy and Water Development (MEWD)
3.2 The petroleum supply in the country is within the portfolio of MEWD, whichis responsible for identifying, analyzing and formulating appropriate policies and strategies toaddress current and emerging energy issues such as pricing reform and restructuring of sectororganzations. The Minister for Energy and Water Development is responsible forcoordinating all aspects of energy sector development in the country, including (a) overseeingthe preparation and implementation of the national energy strategy, the annual energy planand the rolling five year investment plan; (b) reviewing and advising on all significant energycapital expenditures; and (c) advising on all energy policy issues, including price levels andstructures. The Ministry is inadequately staffed meet these responsibilities fully. ESMAP hasidentified the technical assistance components needed to overcome this deficiency and developthe Kmistry's policy function over the next year. The proposed project includes a componentfor implementing this support.
3.3 The energy component of the MEWD's portfolio will be handled by the DOE.Ihis Department's functions include (a) review of energy sector investment proposals forconsistency with the national energy strategy; (b) prioritization of potential investments byfinancial and economic viability and contribution to the achievement of sector strategicobjectives; (c) maintenance of an energy data bank; (d) provision of technical advice; and (e)analysis of energy prices in relation to economic efficiency. At present the Departme -- lacksstaff with the qualifications and experience to carry out any of these functions to the extentneeded.
Prastatal Energy Companies
3.4 ZIMCO was converted to an investment holding company from April 1, 1993as part of the reorganization and privatization program of the Government. The ZIMCOcompanies scheduled for privatization employ about 67,000 staff (approximaty 45% out ofZIMCO's total employment of approx 150,000). In principle, all other ZIMCO companiesare aso to be privatized. ZIMCO itself is to be phased out during 1994 and 1995. Thepresent privatization program shows no Government plan for the sale of the three parastatal
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utilities, ZIMOIL (and ZOC, its replacement), Tazama and Indeni. Except as initiated as partof the proposed project, the privatization program will not affect ZOC, Tazama and Indeni inthe immediate future.
3.5 ZIMOIL is currently responsible for procurement, ownership and bulk storageof feedstock, and for supervising transportation, processing and marketing of petroleumproducts in Zambia. The ZIMOIL tasks will be divided between ZOC (for oil procurement)and the Consortium of Oil Marketing Companies (OMCC) (ZIMOIL's remaining functions).Petroleum products are imported by ZIMOIL on a competitive basis, which has already led tosignificant cost savings. In its Letter of Sector Policy Government has confirmed that ZOCwould use international competitive bidding procedures for petroleum procurement. Becauseof the need for stocks in Dar-es-Salaam as well as Ndola, and the time taken to pumpfeedstock to Zambia, ZIMOIL typically owned the crude/products for 16 weeks beforepayment by the distributors-an exceptionally favorable and low risk operating environmentfor distributors. Successful oil importation depends on managing this financing problem. Asdiscussed below, the areas for improvement in ZIMOIL's operations are manpower levels,time taken for loading of rail tankers and improved oil procurement.
3.6 Transportation Tazama's costs of bulk transportation (Dar-es-Salam toNdola) are low because of the age of the pipeline system and the use of historic cost fordepreciation. Losses are high and environmental damage has been significant at times.Moreover, the exposed parts of the pipeline are at risk. Recurring leakages in the pipelinehave brought down the pressure for pumping. Tazama's pumping capacity is 1.1 million tpabut is not fully used because of lack of Zambian demand and the pipeline leaks which wouldfollow higher pumping pressures. The major issues connected with Tazama are the need forbetter performance, implementation of an improved pricing system, and whether the pipelineshould transport feedstock or products.
3.7 The Refinery at Indeni has been maintained in reasonable condition, but wasdesigned in an era of lower energy costs and lower expectations of efficiency. The majorissues connected with Indeni are the need for better performance, implementation of animproved pricing system, and the long term role of Indeni.
3.8 Marketing is done mainly through the following five oil marketingcompanies, BP Zambia Ltd., AGIP Zambia Ltd., Caltex Zambia Ltd., Mobil Zambia Ltd.and Total Zambia Ltd. The major issues connected with the marketing companies are theneed to reform the pricing mechanisms and redetermination of the role of the companies inrelation to feedstock procurement. Although sales to large customers are competitive, inretail marketing price competition Is not keen.
Proposed Institutional Reforms
3.9 The Ministry of Energy and Water Development has obtained Cabinetendorsement of a fundamental reform of the energy sector. In relation to the petroleum sub-sector the focus of the reform is to take Government out of the sector, and to liberalize in anorderly manner. MEWD has discussed the changes with the oil marketing companies andthey have all expressed clear support.
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3.10 In relation to the oil procurement role of ZIMOIL, the Government willestablish Zambia Oil Company (ZOC) as a replacement company to undertake internationalprocurement of refinery feedstock. Government will have a 'golden share' but to the extentpossible the shareholding will be in oil company and private ownership. Incorporation ofZOC and execution of the ZOC Subsidiary Loan Agreement wiUl be a condition ofdisbursement of funds allocated to ZOC. ZOC would engage a petroleum procurement expertto supervise feedstock procurement, and would have a procurement supervisory committee toensure transparency. Procurement of feedstock will be through international competitivebidding processes.
3.11 The Government objective is for ZOC to sell the feedstock to a consortium ofthe oil marketing companies (OMCC) at the Dar-es-Salaam terminal as soon as it has arrived.Arrangements have to be made for the consortium to finance the purchase of the linefill (theoil in the tanks and pipeline, about $30 million). Government will take all measuresnecear for the establishment of OMCC by not later than December 31, 1994, andZOC will implement agreed steps for OMCC to take over ownership offeedstock/petroleum products by March 31, 1995. A timetable for implementation of thesearrangements, satisfactory to IDA, will be agreed.
3.12 OMCC would negotiate a transport contract with Tazama by March 31,1995 which would have progressively tighter performance standards on operatingefciency and physical losses, recopizing the exchange adjustments in the tariffstructr
3.13 By March 31, 1995 the OMCC would negotiate a processing agreementwith Indeni with progressively tighter performance standards with respect to operatingefficiency, physical losses and operating costs, automatically taking into account exchange rateadjustments in the processing fee. Privatization of Indeni is currently being studied, but is notfeasible until the pricing system has been reformed and a decision is taken on the longer termrole of the pipeline. Privatization of Tazama, if feasible, will be pursued late in the nationalprvatization program, and after gaining experience of management through the performance-based management contract.
3.14 Management of the Ndola storage terminal is to be pased to the OMCC,prior to effectiveness of this credit. It is expected that ZIMCO will transfer ownership ofthe terminal to ZOC, and initially ZOC will lease the facilities to OMCC for a two yearperiod, with OMCC having full responsibility for operations and maintenance on a contractmanagement basis. ZPA has commissioned a study on the Ndola terminal with a view todeciding on whether in the medium-term to lease or sell the assets, recognizing the need toprotect the national interest, particularly, and the need to provide access to this facility fornewcomers licensed to market products in the country. ZOC will, for the initial two years,retain responsibility for new investments including the proposed ZOC component of thisproject.
3.15 OMCs would construct facilities at their Lusaka terminals to use the railwaysfor bulk transport of petroleum products to Lusaka (and possibly beyond) and negotiate atransport contract with ZR with tight performance standards on travel time, wagon returntime, and physical losses. ZR will confirm its acceptance In principle of these standardsas a condition for disbursement for ZOC's Ndola component. In light of the proposed
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modifications to the marketing companies' Lusaka facilities to allow full train unloadingfacilities for all OMCs, any companies making investments that would benefit other OMCswould negotiate a throughput agreement fee with other OMCs.
Staffing: Parastatal Energy Companies
3.16 The ZIMCO holding company role has been reduced to providing a chairmanfor each company (a Group Investment Director) and to financial controls and group legalservices. The energy companies fall under the Director for Utilities and Services. This samedirector is responsible for the interim regulatory system. The longer term arrangementsresulting from the phasing out of ZIMCO have not yet been determined.
ZIMOIL
3.17 The ZIMOIL Division employs 75 operating and administrative staff members@igh for the turnover handled) at Lusaka and Ndola as follows:
Senior Middle Operating andManagement Management Administration
Staff
Lusaka 4 2 11
Ndola 4 1 64
Total 8 10 75
The Division is headed by the Group Investment Director (Utilities Secretariat and Services)based in the corporate offices in Lusaka, having overall charge of all the operations ofZIMOIL. The present organization chart of ZIMOIL is given in Annex 3.1. All positionsare fiiled by local recruitment. The ZIMOIL terminal has prepared a proposal for reducingits workforce by replacing existing security personnel by hiring a private security service todo the work on a contract basis. This proposal, which is expected to save about 8.5 millionKwacha per year, is yet to be approved by the management. Under the proposed project, themanagement of the bulk storage will be passed to OMCC, and the OMCC wil determine theperformance standards. Tnese will be revised and (as appropriate) incorporated into theregulatory system.
Tazama Pipelines Ltd. (Tazama)
3.18 The 586 personnel working in Tazama earlier had been reduced to 474 as ofJune 14, 1993, resulting in a net saving of 97 million kwacha per year. The organizationchart is given in Annex 3.2. While not eliminating overmanning, this action goes far towardsachieving the appropriate level. Tazama has entered into a performance contract withZIMOIL, and in due course will enter one with OMCC, setting out the standards to beachieved.
Indeni Petroleum Refinery Company Ltd. (Indeni)
3.19 Indeni currently employs 402 personnel, equally spread between engineering,production and finance/administration. There are six expatriates-five AGIP seconded staff
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and one other non-Zambian. Indeni is also reducing Its manpower but has yet to present aconcrete proposal showing the plan and its associated compensation costs. An action plan isat the draft stage. ZIMOIL has entered into a performance contract with Indeni, and (in duecourse) the OMCC will enter into a performance contract setting out the standards to beachieved by Indeni.
Acounts
ZIMOIL/Zambia Oil Company
3.20 ZIMOIL maintained separate accounts which are regularly audited (as part ofthe ZIMCO audit) by a private firm of chartered accountants. The audited statement wasincorporated into the consolidated accounts of ZIMCO. The quality of audits is acceptable.After ZIMOIL is reorganized into discrete procurement and storage companies, a separatefuil-tiedged audited report will be available for each entity. It was agreed that ZOC annualaccoumts showing both activities, together with the auditor's reports, should be submittedto IDA not later than six months after the end of the fiscal year.
Tazama Pipelines UImited
3.21 Tazama's accounts are acceptable and up-to-date. The annual accounts areaudited by an acceptable private accounting firm, and are satisfactory. The audit is normallycompleted within four months of the close of the financial year. It was agreed thatTazama's annual awcounts, together with the auditor's reports, should be submitted toIDA not later than six months after the end of the fiscal year.
Indeni Petroleum Refinery Company Limited
3.22 indeni's accounting and management information systems are well established.The company's accounts are audited by an acceptable private firm of chartered accountantsand submitted to the shareholders within six months after the close of the financial year. Thequality of the accounts and audits is acceptable and the books are up-to-date. As the projectdoes not support Indeni, IDA will not seek submission of Indeni's accounts.
Mistry of Energy and Water Development
3.23 The Ministry will maintain Project Accounts to summarize the expenditurein relation to those parts of the project for which the Ministry is the implementing agency.These accounts wlll be audited annually by an independent auditor and be submitted toWlA not later than six months after the end of the fiscal year.
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IV. TBE PROJECT
Project Objectives
4.1 The main objectives of the proposed project are to:
(i) restructure the petroleum industry to become more competitive and costeffective;
(ii) develop policy through encouraging establishment of a satisfactory regulatoryframework and effective competition in petroleum importation and marketing;
(iii) rehabilitate the Tazama Pipeline as a least cost, reliable means of transportingoil to Zambia;
(iv) strengthen Tazama's operational and financial management to ensure ta thepipeline stays in satisfactory operational condition;
(v) improve infrastructure facilities to reduce the cost of petroleum producttransport and distribution; and
(vi) provide a basis for the private sector companies to facilitate exports by usingsurplus pipeline capacity.
Pec Description
4.2 Capacity Strengthening of MEWD MEWD is responsible for identifyingand formulating policies and strategies to address current and emerging energy issues such aspricing reform and restructuring the sector organization. A Technical Cell will be establishedin MEWD to frame regulatory measures concerning energy sector issues and to monitor andmaintain records with respect to petroleum (Annex 4.9). The Ministry is inadequately staffedfor these tasks. ESMAP has identified the technical assistance components needed toovercome this deficiency in the Ministry. The proposed project includes a component forcapacity building in the Ministry and for policy support (pricing, petroleum products exportpotential and Ndola terminal leasing arrangements). Studies on pricing and on terminalleasing are in progress; the study for petroleun exports will be completed by December31,1999 prior to completion of the rehabilitation of the pipeline. Draft TORs are inAnnex 4.8.
4.3 Tazama Pipeline Rehabilitation The Tazama pipeline was originallydesigned to transport a full range of petroleum products. It was later converted into a crudeoil line when the Indeni Refinery was commissioned. With the modifications and additionsincluded in the proposed project, the pipeline could be put back into product service for alimited period. However, for long-term product pumping certain changes in the single pointmooring facilities and a second submarine pipeline are required (costing about US$12 million)for as long as the TIPER refinery in Dar-es-Salaam continues to unload crude oil through theexistng system. Provision of an independent SPM for Tazama would significantly enhanceZambia's security of supply. However, in view of the SPM's reliability record, its low usage(ess dt 33%), and the options for replacement in the event of damage, decisions on
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replacement of the SPM should be deferred until the Government again reviews the refinery,or until Tanzania needs to change its own use of the SPM.
4.4 To evaluate the extent of damage and assess the scope of the proposedrehabilitation, a detailed survey using intelligent pigs with sensors (a mechanical device thatsenses and measures pipeline defects while travelling inside the pipeline) was conducted withIDA finascing (Cr. 1627-ZA). A reliable assessment of the corroded sections was thus madepossible, and the cost of repairs and replacement was accurately estimated. The surveyshowed that the pipeline developed severe external corrosion because of (a) failure of thepipeline outside coating; and (b) the effects of the low resistivity "black cotton" soil in whichthe pipeline is buried. Although usual cathodic protection methods had been employed, theireffectiveness has been limited because of (i) inadequate preventive maintenance; and (ii)widespread coating separation. Persistent incursion of sea water into the pipeline after eachcargo delivery at the Dar-es-Salaam offshore SPM has caused internal corrosion (concentratedIn the initial 250 km section). This pipeline portion was repaired/replaced in 1988 and 1990using fumds from the Italian Government and EIB. The leaks which occurred in the Ruvuriver basin (close to the pumping station that supplies drinking water to Dar-es-Salaam) havealready been repaired (5 km between KM 74 and KM 79) using Tazama's own funds in 1987.As a result of these repairs, the unaccounted-for pipeline losses have decreased from 15,219tons in FY88 (CIF cost US$3 million) to about 6,146 tons in FY90. These losses in FY91and FY92 were 3,788 tons and 1,295 tons, respectively. Since then an increase in productleaks amounted in FY93 to 6,436 tons, presumably because of increased corrosion inunrepaired areas of the pipeline. Problems caused by corrosion and inadequately trainedpersonnel persist. Two of the river crossings pose a physical risk. There is extensivepollution at the various oil storage depots, where new operating practices will have to beinstituted. To maintain the mechanical integrity and safe operation of the whole system,repairs and replacements are urgently required for the storage tank-farm in Dar-esSalaam, formain and booster pump stations, for the cathodic protection, for the telecommunicationnetwork and for transport vehicles.
4.5 Project Subcomponents The proposed project envisages repairs wherefeasible and replacement where repairs cannot suffice. The project would rehabilitate theremaining weak portions of the pipeline and all its auxiliary systems: the entire system wouldthen operate reliably. To prevent entry of salt water into the pipeline system, one of the tanksat the Dar-es-Salaam tank farm will be dedicated to receiving oil contaminated by seawater.In this tank, sufficient settling time will allow for the water to be separated and drained outbefore the oil is transferred to the pipeline system. A new tank has been constructed toensure this even when one or more tanks are under repair. Suitable interphase detectors andnecessary modifications in the piping arrangements have been installed at the tank farm. Thisscheme (coupled with the injection of corrosion inhibitors in the pipeline) would guarnteeprevention of internal corrosion. The cost of pipeline rehabilitation with other related items isestimated at US$48 million (detailed cost break-down in Annex 4.1). The followingsubcomponents are proposed:
(i) Pipeline Rehabilitation from KM 250 to KM 1710 which includes 50 sleeverepairs and 30 km of line pipe replacement on the 8-inch line, and 40 sleeverepairs and 3 km of line pipe replacement on the 12-inch line. Strengtheningof the pipeline support at river crossings is necessary.
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(ii) Corrosion Protection The cathodic facilities which protect the pipeline fromexternal corrosion will be strengthened with the addidon of 6 new ACcathodic protection stations with deep well ground beds and ten solar cathodicprotection stations with horizontal ground beds.
(iii) Mechanical Because the pump stations have been without major repairs sincethey were commissioned, 14 pumps and engines must be overhauled.
(iv) Electrical and Istrumentation Replacement of 9 existing station generatorsand provision of new instruments for pumping units.
(v) Telecommunications Eight sets of new HF radio systems to includetelemetry, HF and VHF support and telephone patch-up are required.
(vi) Tank Farm The rehabilitation work related to the storage facilities at Dar-es-Salaam will include replacement of bottom plates for tanks T4, TS and T6,repairs to the roof of five tanks, and construction of one new tank. This workwill minimize pollution through oil leaks from the tanks and prevent recurrentincursion of salt water from the floating hose at the SPM into the pipelinesystem. A 40,000 mn tank at Ndola will be constructed for receivingfeedstock.
(vii) Vehicles, Spare Parts and Project Equipment To permit Tazama'soperation (and project implementation) to function efficiently, the project willprovide a motorboat, vehicles, project equipment (tractors, 20-ton crane,excavators, bulldozer), spare parts, computers, and office equipment.
(viii) Environmental New operating practices are to be introduced to minimizeenvironmental damage, and new methods of waste disposal will be presented.Engines at the pumping stations will be modified for more efficientcombustion of fuel.
(ix) Comultancy and Project Management The subcomponent includesconsulting services to assist Tazama in the detailed engineering design foritems (i) through (vi), in procurement of material and services includingpreparation of tender documents, evaluation of proposals, and in thesupervision, monitoring and quality control of construction/installation work.
4.6 Institutional Strengthening of Tazama An important component of theproject is technical assistance to Tazama to improve its efficiency and environmentalawareness. Experienced managers are to be engaged to bring Tazama up to internationalstandard in operations, maintenance and finance, and to give on-the-job training to Tazamastaff. The project provides US$3.3 million in foreign exchange, for hiring three qualifiedpeople to fill the posts of key managers for 2 years; hiring one experienced project manager,to be shared by Tazama and ZOC, required for the Project Implementation Unit for threeyears (see para. 4.10); and financing the trainlng requirements of Tazama. The appointmentof three qualified persons to fiff the posts of key managers for 2 years by April 1, 1995and the appointment of an experienced company to manage the pipeline based on aperformance contract by not later than April 1, 1997 have been agreed.
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4.7 Rail Loading Facility Expansion At present 90% of the products fromZIMOIL's termina at Ndola are transported by road tankers. The financial transport costcould be reduced by about US$1.4 million p.a. (US$8 per ton based on ZR's tariff as of June1993) if the long distance bulk transport of products were done by unit trains using theexisting rail system. Without adequate rail loading facilities unit train loading at Ndola is notfeasible. Sufficient storage tanks and unloading facilities at the receiving points are alsoneeded. The proposed project will expand the rail loading facilities at Ndola to includeloading facilities for 12 wagons at a time (enabling loading of unit trains of 24 wagons in twoplacements), six loading pumps will be replaced, tank meters will be installed, andcomputerized product loading facilities and product flow meters will be developed and used.The proposed expansion of facilities at Ndola would also facilitate exporting surplus productsto the Shaba region of Zaire. A satisfactory transport contract between OMCs and ZambiaRailways is essential to achieving the distribution benefits, and confirmation by ZR of theprinciples of such a contract will be a condition of disbursement. A possible coordinatingarrangement and draft transport contract is in the project files.
Related Investments to be Flnanced by the Private Sector
4.8 Indeni Refinery The refinery's operation is marginal because of its poorproduct yield pattern, high consumption and loss of hydrocarbons. The Government wishesto keep its only refinery in operation, but considers it inappropriate to invest public money inwhat should be a commercial venture, and has requested AGIP to undertake the investmentmerited by the economics of the refinery. AGIP has a study underway to consider potentialinvestments. To improve fuel efficiency through energy conservation and increase distillationcapacity, the refinery management has developed various proposals costing in the range ofUS$1.0 million.
4.9 Lusaka Bulk Storage To complement the improved train loading facility atNdola it will be necessary to improve the unloading capability at Lusaka to enable a unit trainto be unloaded in not more than two placements. The private sector oil marketing companieswill undertake this investment after agreeing among themselves the facilities to be expanded.As the pricing system will be based on rail use and road use will become too expensive, thecompanies have a strong incentive to have these facilities ready on time. There is no need foran implementation agreement with them on this issue.
Project Management and Implementation
4.10 Project implementation would be the responsibility of MEWD, Tazama andZOC. The rail loading facility expansion would be implemented by ZOC, the technicalassistance component to develop an efficient monitoring unit by MEWD, and the pipelinecomponent by Tazama. Tazama and ZOC would be responsible for coordinating activitiesconcerning appointment of consultants and contractors, procurement, project programmingand budgeting for their respective portions of the project. A project implementation team willbe established within the engineering department of Tazama. The Tazama Project Manager,who will be an experienced pipeline engineer with experience in project implementation,would lead the pipeline project team. The Project Manager's job description has been agreedbetween Tazama and the Association. Appointment is a condition of effectiveness.
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4.11 Of the three beneficiaries of the proposed project, two beneficiaries, Tazamaand ZOC, would require assistance from qualified and experienced engineering consultants.Tazama would require the assistance of experienced engineering consultants for design,engineering, preparation of project specifications and tender documents, bid evaluation andconstruction supervision. Tazama has given IDA a short list of engineering consultantssatisfactory to IDA and has set out the selection criteria. Appointment of the engineeringconsultant is a condition of credit effectiveness.
4.12 ZOC, In consultation with Tazama and under arrangements satisfactory to theAssociation, would use the services of the same consultants for design, engineering,preparation of tender documents, bid evaluation and construction supervision.
4.i ± Tazama and ZOC would use the services of an experienced Contract LegalAdvisor for all contracts financed from the project funds including the technical assistancecomponent. The Contract Legal Advisor, whose charges would be financed from theproposed IDA Credit, would be hired by Tazama and ZOC on terms and conditionssatisfactory to the Association.
Project Cost Estimates
4.14 Project base costs have been estimated at January 1993 prices. No taxes orduties are levied on project goods. The total project cost, including contingency, is estimatedat US$48 million equivalent. This includes US$42.3 million equivalent for Tazama, US$2.6million equivalent for ZOC and US$3.1 million equivalent for capacity building to MEWDincluding US$0.2 million for training. Of the estimated US$6.2 million for technicalassistance excluding contingencies, US$2.2 million is for policy development, US$3.2 millionfor capacity strengthening, and the balance for project implementation. Foreign exchangecosts would be equivalent to US$45 million, or about 94 percent of the total. The costs to beincurred in Tanzania are included among foreign expenditure costs. The physical contingencyis estimated separately for each project component: the average is about 12.5% of the basecost Price contingencies have been included on the international component of equipment,materials and other supplies at 3.4% for 1994, 2.9% for 1995, 3.0% for 1996, 2.7% for1997, 2.7% for 1998 and 2.5% for 1999, and the Zambian local component of civil worksand materials was calculated in US dollars. It is assumed that Zambian inflation will continueto be promptly reflected in the exchange rate. Price contingencies total in aggregate 11% ofbase cost. A summary of project cost estimates is shown in Table 4.1.
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Table 4.1 ZAMBIA - Summary of Project Cost Estimates
Project Component Local Foreig Total Local Foreign Total
- (USS MilLion) - -(Million Z. Kwacha*)-
Pipline Rehabiliation 1.4 30.1 31.5 840.0 18,060.0 18,900.0
TaPma Project Management 0.1 0.6 0.7 60.0 360.0 420.0
Tazama Institutional Strengthening 0.2 2.5 2.7 120.0 1,500.0 1,620.0
Sub Total 1.7 33.2 34.9 1,020.0 19,920.0 20,940.0
Contingency 0.5 6.9 7.4 300.0 4,140.0 4,440.0
Total For Tazama ; 40.1 42.3 1,320.0 24.060.0 25.380.
ZOC 0.3 1.7 2.0 180.0 1,020.0 1,200.0
Contingency 0.2 0.4 0.6 120.0 240.0 360.0
Total for ZOC O S 2.1 I. 300.0 1260.0 1S60.0
ME"P 0.2 2.3 2.5 120.0 1,380.0 1,500.0
Contingency 0.1 0.5 0.6 60.0 300.0 360.0
Total for MEWD 0.3 2.8 3.1 180.0 1.680.0 1.860.0
Total Project Cost ; Q 2&82.80
aBased on k 600/S, an average exchange rate for 1994 (projection).
Fnandng Plan
4.15 The total project requirement of US$48 million equivalent would be financedby IDA (US$30 million equivalent), EIB (US$15 million equivalent), andTazama/ZOClMEWD (US$3 million). IDA and EEB would finance US$45 million equivalentIn parallel to cover the entire foreign exchange requirement of the project. Government hasconfirmed EIB's agreement in principle to this finance structure. Execution of an agreementwith EIB, including fulfilling condidons precedent to effectiveness, would be a conditionfor IDA credit effectiveness. The proposed IDA Credit of US$30 million equivalent wouldmeet about 67 percent of the foreign exchange and about 63 percent of the total financingrequired. The proposed Credit would be made to the Government. Of the total IDA Creditof US$30 million equivalent, US$2.8 million equivalent would be used to develop an efficientmonitoring unit in MEWD, US$25.1 million equivalent would be onlent to Tazama andUS$2.1 million equivalent would go to ZOC. The onlending terms (in US dollars) would befor 20 years including a grace period of five years at an interest rate of about 8%, or equal to1.1 times the prevailing IBRD interest rate. The foreign exchange risks would be borne bythe beneficiaries up to the time they discharge their debt obligation. Tazama and ZOC wouldfinance the local costs from internal cash generation. The proposed fiancing plan issummardzed in Table 4.2.
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Table 4.2 ZAMBIA - Petroleum Sector Rehabilitation Project Funancing Plan(USS Million equivalent)
Comoonalt ~~~Sourco ljocal EoreQn Toa S of Sub-Toal
Tazama IDA - 25.1 25.1 60EIB - 15.0 15.0 35Local 22 aSub-Total 2.2 40.1 42.3 100
Supply and Distr. (ZOC) IDA - 2.1 2.1 81Local Q, JO 19Sub-Total 0.5 2.1 2.6 100
Monitoring Unit in IDA 2.8 2.8 90MEWD Local 0.3 -A
Sub-Total 0.3 2.8 3.1 100
Total IDA - 30.0 30.0 63BEB - 15.0 15.0 31
ocal 3.0 3.0 6Total 3.0 45.0 48.0 100
Project Schedule and Disbursement Profile
4.16 Completion of the project is estimated to require 40 months from the start ofphysical work. However, in recognition of delays generally experienced in Zambia, theproject disbursements are forecast to take 60 months. On this basis the Project is expected tobe completed by December 31, 1999. The Credit closing date will be June 30, 2000. Iheimplementation schedule for the various components is shown in Annex 4.2. A nid-termreview is planned for June 1996. From this review, the Government will prepare (and witlcause Tazama and ZOC to prepare) an action plan acceptable to IDA, for furter institutionalrefrm, and will cause Tazama and ZOC to implement that action plan. The tentativesupervision plan for IDA is shown in Annex 4.3. The proposed disbursement profile is basedon a realistic implementation schedule for individual project components and theimplementation profile for various petroleum sector and technical assistance projects. Theprofile recognizes that the proposed project is a continuation of rehabilitation work beingcompleted using EEB and ADB financing, and using experienced engineering consultants forproject management. The disbursement schedule for IDA financing is summarized in Table4.3 and is shown more fully in Annex 4.4.
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Table 4.3 ZAMBIA - IDA Disbursement Schedule
IDA Disbursements
{:onpoonents 1994/95 1995/96 1996197 1997/98 1998/99 Totl
Tazama 1.7 2.0 4.8 8.7 7.9 25.1ZOC 0.1 0.3 0.4 0.7 0.6 2.1MEWD 0.2 0.2 0.4 10 1+ ?J
Totl 2.0 2.5 5.6 10.4 9.5 30.0
(%) 7.0 8.0 19.0 35.0 31.0 100.0
Prourement
4.17 The procurement arrangements to be used for various categories of equipment,materials and services to be financed by IDA are itemized in Table 4.4. Internationalcompetitive bidding (ICB) in accordance with Bank guidelines, totalling US$20.1 million,would include US$18.9 million for Tazama (bid packages for linepipe, pipelaying,rehabilitation of tanks, telecommunications, generators) and US$1.2 million for ZOC. IheBank's Standard Bidding/Contract Document for goods, works and consulting services shallbe used. For fixed price contracts the bid documents will provide for the bidder's bid to beincreased by reference to two predisclosed correction factors for foreign and local componentsof the bid price respectively. To cover the cost of proprietary spare parts and othercomponents for existing equipment and machines, IDA would finance up to US$1 million ona sole source basis. For specialized equipment for which only a limited number of suppliersare available, Limited International Bidding procedures up to an aggregate amount ofUS$1 million will be adopted. Small items or groups of items (including office equipmentand vehicles) costing up to US$100,000 per contract for Tazama, and up to US$50,000 percontract for ZOC would be procured under contracts awarded after International and LocalShopping procedures by obtaining at least three quotations from reliable suppliers, oralternatively using IAPSO up to an aggregate amount of US$1 million. The aggregate amountof non-ICB procurement is US$3 million. The major consultancy contracts are theEngineering services for the design and supervision of the Project (see paras. 4.6 and4.1014.11) and the strengthening of Tazama's operations through incorporating threeexperienced line managers into Tazama's structure (para. 3.10). Engineering consultancyservices amounting to US$0.6 million (40m/m) for Tazama and US$0.2 million for ZOC(lSm/m), and services for institutional strengthening of Tazama (250m/m) and the MEWD(lSOm/m) for US$3.3 million and US$2.6 million respectively, would be awarded inaccordance with Bank Guidelines for Consultants. US$500,000 for Tazama will be allocatedfrom the capacity strengthening budget and US$0.2 million is provided in the credit forMEWD for short and medium-term job-related training, seminars and courses. Trainingprograms with an annual timetable have been agreed upon. The institutional strengthening ofMEWD has been reviewed by ESMAP and appropriate measures have been suggested (para.4.2).
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Table 4.4: Zambia: Summay of Proposed Procurement Arrangements(US$ mfllion equivalent)
Proourentl Methd
PfoieotElements ICB LCB Othe 12
1. Work
Tazma - IDA 5.9 - - 5.9Othor Finance 15.0 - - 15.0
ZOC 0.6 - - 0.6
2. Goods (upent and Matdals)
Tazama 13.0 - 2.1 15.1
ZOC 0.6 - 0.9 1.S
3. Consultncies
Tara - - 3.6 3.6
MEWD - - 2.6 2.6
4. Trining
Tazam - 0.5 0.5
ME - -u
Total inoludin cofinanin 35.1 - 9.9 4S.0for IDA 20.1 - 9.9 30.0
All the figu unles otherise noted will be finanted by IDA. IDA finncing figures are contracts net of taxesand will b finaed 100% for forcin expenditu and 90% for local expenditure.
Procureae of goods and works will be canried out as per Bank's Procurement Guidelnes (May 1992).
lhe ivations to bid, bidding documents, bid evaluation and final contract should be subjectto IDA's prior review for all procurement for goods and works exceeding US$150,000.Contracts below $150,000 would be subject to IDA's post-review on a selective basis (one infour). Consultancy contracts for firms would be subject to IDA prior review for contractsexceeding US$75,000; all contracts below $75,000 will be subject to IDA's selective postreview. Contracts with individuals will be awarded according to Part V of the Bank'sConsultant Guidelines (1981). Such contracts above $50,000 will be subject to the Bank'sprior review. Procurement information will be collected and recorded through promptreporting of contract award information by the implementing agencies, and comprehensivequaterly reports to the Association by the implementing agencies, indicating revised costestimates for individual contracts and the total project cost, including best estimates forphysical and price contingency; revised timing of procurement actions, including advertising,bidding, contract award, and completion time for individual contracts; and compliance ofaggregate limits on specified methods of procurement.
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Allocation and Disbursanent of IMA Credit
4.18 The allocation of the proposed IDA Credit is summarized in Table 4.5.Special Accounts (one each for MEWD, Tazama and ZOC) would be established incommercial banks and operated on terms and conditions acceptable to IDA. These accountswould receive advances in amounts of US$1.5 million for Tazama, US$100,000 for ZOC andUS$150,000 for MEWD, and would be replenished periodically in accordance with applicableIDA procedures. Disbursements would be made against full supporting documents, except forpayments against contracts for goods and works costing less than US$150,000 equivalent, andfor individual training programs. Supporting documents associated with SOE claims would beretained in a central location by the relevant implementing agency, suitably cross-referencedto the withdrawal application, and made available on request for review by visitingsupervision missions. As part of the annual audit for each implementing agency, theindependent auditors would give an opinion with respect to the Special Accounts and to theamounts withdrawn on the basis of SOEs. The estimated disbursement schedule for theproposed IDA Credit, shown in Table 4.3, has been based on the implementation schedulesfor individual project components and is discussed in para. 4.16.
Table 4.5: Zambia - IDA Credit Allocation(UYS$ million equivalent)
MLYD TAZAMA ZOC TOTAL DISBURSEMENT
Equipment and - 11.3 1.2 12.S 1009% of foreignMaterials expenditures, 90%
of localexpeadtu
Civil Works and 4.8 0.5 5.3 100% of foreignEretion expenditur, 90%
of localexpenditure
Engineering and - 0.6 - 0.6 100% of foreignProject Managent expenditures
Trining and 2.3 2.8 - 5.1 100% of totalInstitutional cxpenditumesStengdening
Contingencies Q.5 5.6 0.4 6.5
Total 2 . 30.0
Envinmental and Safety Aspects
4.19 The project Is classified as Category B. The environmental review,undertaken by a Canadian consulting group, and inarized in Annex 4.6, identified tworiver crossings where the pipeline is exposed and vulnerable, and three other locations wherethe pipeline is exposed. A number of operational sites were noted where the exhaustemissions from pumps are severe and where changes in operational practices or machinery arerequred. Operations have not been well managed and leaks have been extensive, with theresult that minor strucural modifications are needed at a number of operation sites to preventspillage affecting the soil. Some clearing up is needed for areas already damaged. The
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operators will be trained in environmental awareness. In relation to the rehabilitation of theTazama pipeline and the expanded rail loading and unloading facilities, the consultantidentified no specW problems, and pointed out that once the work is complete theenvironmental impact should be much improved. However, the consultant recommended thedevelopment for Tazama and ZIMOIL/ZOC of environmental standards, preparation of anenmironmental protection plan, installation of hard standings and devices for containing andcollecting oil spills, and for ensuring the proper functioning of the cathodic protection system.A simple emergency plan will be developed to deal with a serious oil spill or a fire. Basicequipment tO stop a serious leakage or a fire will be available at places along the pipeline andat the terinals. Operators will be trained how to handle emergency situations.
4.20 Tazama and the Government (on behalf of ZOC) have agreed on theenvironmental measures to be implemented in conjunction with the construction program,substanly as outlined here and summarized more fully in Annex 4.5.
Project Development Impact
4.21 The goal of the Bank's strategy for Zambia is to assist the Government toachieve sustnable economic growth and to reduce poverty. The proposed project is anintegal part of selected initiatives important to the support of IDA's country strategy:promoting economic growth by focussing on strengthening basic infrastructure whilerecognizing related environmental issues, reviewing the role of state-owned sector entities,promoting competition in petroleum supply arrangements, supporting deregulation ofpetroleum retail prices and the improvement of petroleum supply organizations' efficiencythrough performance contracts. The rehabilitated system would supply petroleum fuels in anenvironmentally and economically sustainable manner. The technical assistance to Tazama,included in the Project, would help to improve its operational efficiency and its projectmanagement. The proposed restructuring of ZIMOIL and its arrangement for early custodytrnfer of petroleum to an Oil Company Consortium would enhance the financialcommitment and presence of private sector companies in the importation and distribution ofpetroleum fuels in the country.
Project Monitoring
4.22 MEWD, Tazama and ZOC, for their respective components, will implementthe proposed project in accordance with the indicators shown in Annex 4.6. The indicatorswould establish whether the project is perceived as importing and distributing the oilsuccessfully and economically. These indicators would be included in the requirements forquarterly progress reports from these organizations to IDA. Agreement was reached thatwithin six months after the completion of the project, the companies concerned would prepareimplementation completion reports using an outline to be agreed with IDA.
List of Documents on File
4.23 The proposed project and its components were defined and appraised as aresult of specialized engineering inspection of the facilities and consultarts' reports. Variousdocuments related to these inspections and studies are listed in Annex 4.7.
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V. FINANCIAL ANALYSIS
Introduction
5.1 The financial analysis has been made on the basis of the audited statementssubmitted by the companies and the projections are on the basis of the notes and assumptionsexplained in Annex 5.1.
Flnancial Policies of Zambia's Parastatals
5.2 Each parastatal has full authority on pricing as well as staffing, salaries, andother management issues. Parastatals are to be managed as profit centers. There are to be nosubsidies from Government or from the holding company, and no loan guarantees except forpublic utilities. The Government will not be involved in parastatal pricing. This policy wasnot followed in the first part of 1993: in a number ef parastatals political involvement inpricing has been extensive.
5.3 Government has set a mandatory dividend policy of 10% on revalued netassets. Although revaluations have been normal at ZCCM and most of the Indeco companies,this is not the case elsewhere: at this stage full implementation of this policy is impracticable.Asset revaluations have been commissioned for the major public utilities but not forcompanies scheduled for early privatization, except as needed in conjunction with theprivatization program. In implementing the dividend policy, the companies are findingsignificant price resistance, and it may be impossible to achieve the dividend targets.
5.4 Overall financial policies common to most parastatals include the need foreach compauy to achieve a growth of at least 10% in the volume of production reflected by acorresponding increase in productivity measured by the production per employee ratio. Thepolicy envisages a foreign exchange saving of 10% In real terms on forex utilization and anincrease of 10% on forex earnings. In capital expenditure projects the need to yield aninternal rate of return of 20% after providing for borrowing costs and mandatory dividend onthe inflation-adjusted Goverment equity (share capital+ accumulated earnings+ revaluationreserves) has been prescribed.
ZIMOIL
FSnancdal Implications of ZIMOIL Operations
5.5 In the pre-1994 arrangement, ZIMOIL imports and owns the crude and usesthe services of Tazama and Indeni on a cost plus basis. ZIMOIL invoices the buyers (the oilmarketing companies). This arrangement has resulted in high costs of operation because ofexcess manpower and the consequent establishment expenses for each company. There islittle or no accountability among the companies for these higher than necessary costs ofoperation. There are no set standards for measuring efficiency. All costs and operations needtD be better monitored to ensure conformity to international standards. Since early 1994Zimoil has moved away from cost plus to negotiated contracts including some performancestandards.
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Financial Performance
5.6 ZIMOIL's operating results and financial position for the period 1990-92 areshown in the audited income statements and balance sheets in Annexes 5.2 and 5.3 andsummarized in Table 5. 1. The figures reflect ZIMOIL's policy to set sales prices ofpetroleum products so as to recover: (a) the cost of procurlig refiuery feedstock and shippingit to Dar-es-Salaam; (b) harbor and storage costs in Dar-es-Salaam; (c) financial charges forprocuring feedstock; (d) Tazama's fees (e) Indeni's refining fees including fuel consumptionand loss; and (f) Ndola terminal costs.
Table S.l ZAMBIA - ZIMOIL Summary Fuiancial Statment 1990-92(n curnt million Kwacha)
1989190 1990/91 1991
Saks mooa 0)
Domestic 615 533 S1S
Expoet 13 22
Income Statemet Itm
sales 2,638 8,529 IS,491
Odher Income 82 m
Total Income 2,720 8,534 16,412
opacting Costa
Cost of impoted oil 2,146 6,094 11,318
Tazt and Jldeni Fees 361 567 1,203
Other Costs 1 729 1.174
ToWal Cosa 2.?.390 13.695
Taxable Income 5. 4 ,2.717
Sam heet1
Cuffent Acta 1,725 8,185 11,407
Fixd asos 16 52 60
Total Assets zL LA.UM
Currten LlAoliles 1,627 7,122 7,641
LonsTea Debt 53 154 341
Reseres 961 3.48S
Total Uabities and Equity 11.741 27 7.
5.7 During late 1992 and the first part of 1993, ZIMOIL was not allowed tochange its prices in response to the depreciation of the Kwacha. This resulted in accumulatedarrears of n;arly 19 billion Kwacha (approximately US$35 million). The prices have sincebeen revised and current prices reasonably reflect current costs and adequately cover thearrs. It will take until end-1994 to fully recover the accumulated arrears of exchange
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losses. Earlier, ZIMOIL borrowed through expensive international credit facilities to financethe procurement of feedstock. Because of this credit system, ZIMOIL was bearing the cost ofexchange fluctuations for 180 days-long after its ability to pass these on to marketers hadlapsed. ZIMOIL is now working on a cash basis by carefully pooling the petroleum productsales proceeds in a separate account reserved for procurement of feedstock. These proceedsare used to buy foreign exchange on a weekly basis. This procedure needs to be continuedvery strictly for payment for feedstock to avoid ZIMOlL/ZOC bearing the cost of exchangefluctuations. The Cuneo study identified ZIMOIL's procurement practices and Letter of Creditcosts as two areas for major cost savings. Procurement is now being conducted usinginternational competitive bidding. The adoption of a cash system for oil purchases and theopening of a separate foreign exchange account for oil procurement has gone a long way tominimizing Letter of Credit costs and should avoid losses due to exchange fluctuations,provided that prices continues to reflect the costs incurred.
inanclal Projections
5.8 The financial projections have been prepared on the assumption that a newZambia Oil Company (ZOC) will be set up to procure feedstock and that bulk distributionwill be managed by a consortium of oil marketing companies (OMCC).
Zambia Oil Company (ZOC)
5.9 Under the proposed arrangement, ZOC will be responsible for procuringfeedstock, transporting it to Dar-es-Salaam and delivering it to OMCC in Dar-es-Salaam. Theprice structure of ZOC will be worked out as in the schedule given in Table 5.2.
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Table 5.2 ZAMBIA - Pricing Structure for ZOC for Import of Feedstock / Petroleum Products(Dollar, per ton)
With BZ Fund Without BZ Fund
Fegdt Product* Feodsl Prduct
FOB Gulf Postings 150.00 150.00
Ocean Freight 13.00 - 13.00
Insurance - --- 00
CIF Cost 150.00 164.00 150.00 164.00
Harbor Dues 0 1.5% CIF 2.25 2.46 2.25 2.46
Ooean Loss 0 0.3% CIF 0.45 0.60 0.45 0.60
Inspection/Demurrage @ 0.25% CIF 0.38 0.41 0.38 QA
LANDED DAR 153.08 167.47 153.08 167.47
Financ Charge @ 1% CIF 1.50 1.64 1.50 1.64
BZ Fund 90.00 90.00 - -
Lonses Fund 5 S% CIF 75_0 8.20 7.50 8.20
COMPOSrrE EX-DAR 252.08 267.31 162.08 177.31
Iapor's Margin @ S1 per ton 1.00 1.00 1.00 1.00
insome Tax Q 40% (on BZ fund) 36.00 3.-
SELLING PRICE Ex-DAR 28X.08 304.31 163.08weaihted average, asumiU facilities exit for product imports
5.10 Given the current state of the Zambian economy, no significant growth indomestic demand is forecast. Local sales are assumed to increase by 6.6% over a period offive years (1995 to 2000). Export sales are assumed to be constant at 75,000 tons-substantialy above the current level. Financing cost is assumed at 1% of CIF cost. Harbordues are levied at 1.5% of CIF value. Ocean loss is allowed @ 0.3% of CIF value. Ihe keyassumption is that sales prices are set by OMCs at a level to cover the losses acceptable byinternational norms for pipeline transport, refining and storage. The Bank of Zambia (BZ)fimd is to provide funds for repayment of loans to BZ to the tune of 19 billion Kwacha. It isexpected that these arrears together with the accumulated interest will be completely paid backby December 31, 1994. A loss fund has been set up to compensate for any abnormal losses(over and above the international standards) which are likely to experienced until therehabilitation program is completed. Thereafter, performance will be strictly monitored toperform competitively and any loss above normally acceptable international standards will beborne by the entites concerned. The detailed assumptions are given in Annex 5.4 and theprojected income statement and balance sheet are given in Annexes 5.5 and 5.6. Thesummary of the projections of ZOC is given in Table 5.3. ZOC will adopt an appropriateprice adjustment system for timely and prompt adjustments to prices to reflect currencyfluctuations and changes in international oil prices.
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Table S.3 ZAMBIA - ZOC Sumary Projeote Fnnial Statenmnt 199S-2000(in 1993 constant million Kwacha)
Ail" 1995 12 1997 1998 1999 2000
Quanlity(00tons) 702 712 721 729 740 749
Ptie per ton (I) 173,400 97800 97800 97800 97800 97800
nome Sam
Sales-Oil 121,727 69,634 70,S14 71,296 72,372 73,2s2
OCher Income W47 2.746 2.264 Lt iR 818
Totd Income 12623 72 .778 73.078 73.62 74.070
opt. Coats - OHl 63,199 64,099 64,909 65,630 66,620 67,430
Other cods 234S8 7.805 729m 6.970 §IS71 6X
Tota COS 86.657 71.904 72.301 72.600 3.191 73.588
NetIxxome =7 _ 287
Cumren Assets S7,538 37,169 31,564 25,699 20,050 14,491
Fxedass .42 S.0 S94 L1. I.S L5Total Assets &010 42.269 1 26.81 2 .610 Q
Cufren Liabiities 22,950 7,41S 8,3S6 7,977 7,794 7,617
Lov,g Tem Debt and Project Loas 28,416 22,925 17,494 12,242 6,931 1,260
Equity and Reeves 1LM4 11.29 6.0 .S gm8 z4
Toal Liabies and Equity 42.69 &W "2 0 L2U
Oil Marketing Companies Consortium (OMCC)
5.11 Under the proposed new arrangement, OMCC will own and take delivery ofthe crude from Dar-es-Salam and use the Tazama pipeline to pump the crude to the IndeniRefinery. The crude will be refined at Indeni and the finished products wil be stored at theNdola terminal facilities of the present ZIMOIL. Tazama and Indeni will be paid theirpumping and refining fee by the OMCC at a contracted rate. Internationally accepted normallosses will be taken ino account in fixing the tariffs for Indeni aad Tazama, any cost over andabove the normal standards will have to be borne by the entities concerned. Until completionof the rehabilitation, the special loss fund to be maintained by ZOC will be used for meetingextra losses up to the amount in the fund. After rehabilitation is completed, all these unitswill be monitored to very strict standards of efficiency and performance. The facilities atNdola terminal will be leased out to OMCC for a contracted fee pending a decision to lease orsell. The break-down of the proposed pricing structure for OMCC is given in Table 5.4.
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Table 5.4 ZAMBIA - Pricing Stnuctue for Bulk Distributon by OMCC(Dollars per ton)
With BZ Pund Without BZ Fund
Feedstock Product Product
Cost of CnutdPioduct at Dar 289.08 304.31 163.08 178.31
PunVing FPes 0 $22 per ton 22.00 22.00 22.00 22.00
Rarioad Fee for blak oils - 20.00 - 20.00
Tazuaa Lss 0 0.25% of Cos 72 0t91 0t41
cohMEsrri EX-Tazama 311.80 347.23 185.48 220.85
Refining Pees a $23 per tan 23.00 - 23.00
Refinaey and Cons.Loss i 7.5% Ex-Tazana 23.38 - L I3 .
COIP<OSrF EX-INDENI 358.18 347.23 222.39 220.85
Terminals @S 0.40 per ton 0.40 0.40 0.40 0.40
Tenninal Capital Cots ($10 mi1 over 10 yrs.) 1.60 1.60 1.60 1.60
Stora Los 0 0.3% Ex-Indeni 1.07 1.04 0.67 0.66
Interes 15.60 15.60 10.80 10.80
BULK SELLING PRICE (Rounded to neares cot) 376j.86 XL.87
5.12 The 'producta cost exceeds the 'crude' cost by less than the notional railroadfee, which represents the weighted average cost of transporting black products by rail if thepipeline were converted to a white products pipeline. In practice, alternative arrangementswould avoid much of this cost by substituting alternative fuels; and there is no materialdifference in cost between the options if allowances are made for at least 75,000 tons perannum of exports.
5.13 The pumping fee of US$22 per ton for Tazama and the refining fee of US$23per ton for Indeni have been based on the present tariff paid by ZIMOIL. These fees wouldbe adjusted as a result of the rehabilitation program and in response to changes in thethroughput rate. The bulk selling prices will also be adjusted to recognize the revised tariffsfrom these companies. OMCC will enter into separate contracts with each entity involved inthe process to set tariff rates as well as the standards to be achieved in the operations.Exports have been assumed to be 75,000 tons per year for the purpose of these projections.Exports have been priced at US$20 above the domestic price.
5.14 OMCC wiU need an appropriate price adjustment system for timely andprompt adjustments to pnces to reflect changes in international oil prices and currencyfluctations. It is expected that this will closely mirror the ZOC system. A study on thiscritical concern is to be financed under the project. Subject to this, the OMCC financialposition is expected to be fully satisfactory.
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Tazama Pipelines Limited
Financial Implications of Tazama's Operation
5.15 Tazama, which was established in 1968, is operating under the terms of a1967 convention between the two governments. Tazama owns and operates the crude oilpipeline from Dar-es-Salaam to Ndola, with an annual transportation capacity of 1.1 millionmetric tons. The lack of demand (due to a depressed Zambian economy) means that thepipeline's pumping capacity is not fully used. Tazama has only one customer (ZIMOIL) andaccordingly cannot adopt a satisfactorily competitive pricing policy. Although manning levelshave been reduced by about 20%, there is still room for further manpower savings. Becauseof the monopoly there is no scope for directly measuring the efficiency of operations. Allcosts are passed on to the consumer. Although comparison with pipeline operations indeveloping countries shows that Tazama is better than average, it falls short of the bestperformance achieved elsewhere. Previous attempts to gain efficiency by restructuring thebudget led to lack of maintenance, and eventually the need to seek a performance contrt(see Chapter 3).
Financial Performance
5.16 The Convention provides that Tazama operate on a cost recovery basis andperiodically set the tariff that it charges ZIMOIL, to ensure that the company meets all itsfinancial obligations from current revenues. In view of Zambia paying all costs but Tanzaniashaing the dividends, a cost recovery basis with nominal profits is appropriate. Tazama actsas a carrier of oil but does not own the oil at any stage. Until recently it has borne noresponsibility for losses. Tazama's operating results and financial information for the period1988-93 are shown in the audited income statements and balance sheets summarized inAnnexes 5.7 and 5.8. A summary of fimancial results is shown in Table S.S. Tazama'sfinancial performance in 1992 and 1993 was unsatisfactory, mainly because of theunexpectedly low volumes transported, the high inflation and exchange rate movements, andthe delays of recognizing these changes by adjustments to the price structure. Tazama has setup a separate fund and an account for monitoring the debt payment by transferring the debtservicing portion in the pumping tariff to this fund.
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Table 5.5 ZAMBIA - Tazama Summay Fmancial Statements 1991-93(in nmllion current Kwacha)
1221 19 1993
h!FMe Statement Rtems
Strvice Fee 312 387 2,475
Other Inome 4 9 15
Total Revenue 316 396 2490
opeaX Cost 268 837 2649
Net Income 48 "44(1
Blhnce Sheet Items
Cutrent Asse 191 219 1,709
Fude Amu 1.445 4.319 1939
Totl Asst 1.636
Curent Liabitltes 212 882 3,892
lqozg-Tern Debt 1,282 3,955 20,215
Paid in Capital 9 9 9
Reserves133 (308) (468
otl Liabilities and Equity 1463i' 438 am
Fianca Projections
5.17 The summary financial projections are presented in Table 5.6. The detailednotes and assumptions are in Annex 5.9 and the income statements, balance sheet and findsflow statements are in Annexes 5.10 through 5.12. Tazama's tariff is set annually at a levelsufficient to recover all estimated costs, including debt service, on the basis of the projectedthroughput of the pipeline. The key assumptions for the soundness of the position shown bythe projections are that prices will be revised regularly to recognize exchange rate movementsand inflation. The new tariff for 1994/95 will be set mostly in dollars so that exchange ratemovements are fully recognized. Subject to this, the constant price projections fairlyrepresent the position likely to be achieved. The projected tariff takes into account proisionfor an expanded level of maintenance equivalent to US$1 million per annum.
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Table 5.6 ZAMBIA -Tazama Sununary Projected Financia Statemens 1993-98(n million 1993 constant Kwacha)
19994 S 15 996 1997 1998 1999
Income Statement Items
Service Fee 8,144 7,423 7,444 7,483 7,513 7,544 7,574
Other Icome 30 30 30 0 3Q IQ 30
Toall Revenue 8,174 7,453 7,474 7,S13 7,S43 7,574 7,604
opeatin costs 2.93L 2.994 3.015 Id 0 3.4 L5
Net Income (aRer 3.563 3.71 LUI 3 .271Int.and Depra.)
Balance Sheet Items
Cment Awets 3,292 4,756 5,288 6,478 7,994 9,426 10,207
Fxed and Other Ase 24.871 27276 30.72 36.409 45.720 5421 5SA3
Total Asse .163 032 Q 4288 53644 7 g.42
Curret liabilities 1,450 1,992 1,407 1,375 1,261 1,279 1,219
LongTerm Debt 23,246 23,302 24,624 28,232 35,902 42,546 41,330
Pid in Capital 9 9 9 9 9 9 9
Reserves 34 6.729 10 000 IL1 16.S4 12JL3 23.QL4
Toal Liabiities and Equity 32.0323 42.887 63.64M
5.18 Tariffs are currently set in dollars at a level permitting financial viability. Itwas agreed that by no later than March 31, 1995, the tariff levels would be establshedand maintained at a level suffcient to permit the fnancial viability of Tazama and wouldbe on a basis that would continuously reflect all costs and provide adequate maintenance.This could include setting tariffs in dollars, or adjusting monthly to cover devaluations of theKwacha and debt service. Tazama shall arrange to revalue the assets periodically so thatthese are represented at replacement value in the financial statements, the first being dueduring 1994. Tazama shall submit the first revaluation report of the auditors (which is inprogress) to IDA within a month of its receipt.
Indeni Refinery
Financial Implications of Indeni Operations
5.19 Indeni now refines a mix of semi-finished petroleum products. The financialposition of Indeni is dependent solely on the processing agreement with ZIMOIL, and needbear no relation to Indeni's economic justification. While in principle Indeni will also processoil transported by Tazama for other companies, the high cost of Indeni's operation is unlikelyto auract many customers. The operaing cost of the refinery amounts to US$23 per tonover and above 7 to 8 percent fuel consumption and losses. This is 50% higher than insimilar refineries in other developing countries. The path toward resolving this is through a
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progressively tighter performance standard and fee (para. 5.16), and through constrction oftanks at Dar-es-Salasm so that product imports become possible (para. 4.3), and throughnegotiations with AGIP (para. 3.14).
Fb da l Performance
5.20 The refinery operates on a commercial basis, with the processing fee being anegotiated fixed amount per ton of throughput processed. Indeni has been showing anincrease In net income. But all its operating costs are being fully reimbursed by ZIMOIL.So net income cannot be taken as indicating the unit's efficiency until the processing fee isfixed on a more realistic basis to measure Indeni's effectiveness.
5.21 Since Indeni is not a proposed beneficiary of the Credit, no financialcovenants are recommended.
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VI. JUSTIFICATION, BENEFTIS AND RISKS
Project Justification
6.1 The proposed project represents the core investment requirement in thepetroleum sector. It would rehabilitate the pipeline and improve the rail loading facilities atNdola. (The private sector oil companies will be responsible for improving the unloadingfacilities at Lusaka.) It would remove the environmental threat in Zambia and Tanzania fromfeedstock leakage. The pipeline's rehabilitation needs have accumulated over the yearsbecause of institutional and technical weaknesses. The project would provide adequatetechnical support, training and institutional strengthening so that the beneficiaries can operateefficiently and avoid the management and maintenance problems of the past.
Economic Analysis
6.2 The economic analysis for each project component was conducted separately:rehabilitation of Tazama pipeline and improvement of existing rail loading/unloading facilitiesat Ndola and Lusaka. For improving loading/unloading facilities, the investment costs werecompared to the next least-cost alternative, distributing petroleum by road. For Tazamapipeline rehabilitation, the investment costs have been compared to the alternative of shuttingdown the pipeline and using the next least-cost alternative, the Tazara Railway.
Pipeline Rehabilitation Econondes
6.3 Investment costs have been compared to the next least-cost alternative ofsupplying Zambia (and its land-locked neighbors) with petroleum products. Without theTazama pipeline the region's least-ost access to the sea would be by the Tazara railwaysystem, which runs parallel to the pipeline from Dar-es-Salaam. Tazara connects with theZambia Railway System at Kapiri Mposhi. Tazara's gauge is common with the railwaysystem in Zambia, Zaire, Malawi, Zimbabwe, Botswana, Angola, Mozambique and SouthAfrica. If access to the sea via Mozambique and South Africa were denied, the Tazararailway would also provide alternative access to the traffic from the land-locked CentralAfrican countries.
6.4 Tazara carries most Zambian imports (mostly fertilizer and wheat) and exports(copper and other metals) through interchange of wagons with ZR. It currently carries aroundone million net tons of traffic a year, but has a design capacity of 5 million tons. Undercurrent conditions of efficiency and locomotive availability, the optimum turn around timebetween Dar-es-Salaam and Ndola for a dedicated unit train is 9 to 10 days but averages 30days. With improved maintenance (and availability of the existing locomotives), Tazara canhandle a traffic volume up to 2 million tpa. The turn around time on the system wouldincrease because of longer average lead time, delays at the ports and congestion on thesystem. To supply the petroleum requirements of the country at 550,000 tpa increasing to800,000 tpa by FY2002, three dedicated trains a day would be needed initially, increasing toabout five a day. This would require an initial stock of 450 new tank wagons and 28locomotives at a cost estimated at US$99 million. About US$3 million would be required foradditional maintenance facilities and US$13 million for loading/unloading facilities, bringingthe initial investment to about US$115 million. Once imports reach about 800,000 tpa, thenumber of tank wagons needed would increase to 670 (assuming a 90% availability factor)
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and locomotives needed would increase to 42. This level of rolling stock would require atotal investment of US$84 million for locomotives, about US$64 million for tank wagons andabout US$15 million in loading and unloading facilities (excluding tankage). The totalincremental investment for the railway option (under the most probable scenario) would bearound US$163 million. This option would also increase the environmental risk comparedwith the rehabilitated pipeline.
6.5 Against the alternatives of moving petroleum feedstock by the Tazara System,or through the more expensive Southern African Railways carrying products from Durban, thecontinued operation of the pipeline with investment of US$31.3 million in core rehabilitation,and a later investment of US$14 million (in its 10th year of operation) for non-core needs, isthe least-cost option. As the "with pipeline" solution is less costly than the rail option in allyears, the economic benefit from the pipeline rehabilitation component is estimated at over100%.
Rail Loading Facility Expansion
6.6 The investment costs to improve the rail loading of petroleum productsinclude: extending the facilities at Ndola to load 12 wagons at a time and modernizing therail unloading facilities of oil company depots in Lusaka. At both Ndola and Lusaka, sidingsconnect the rail stations and depots. The loading facilities for tank wagons in Ndola arelimited to 6 to 8 wagons a day. Although the train system and loading/unloading facilitiesexist at Lusaka, 80 percent of the petroleum transported from Ndola to Lusaka currently mustdepend on road conveyance mainly because of the inefficiency of the rail facilities and tankwagon turn around times.
6.7 The refined petroleum product is distributed by road and rail through thedepot located next to the Indeni refinery in Ndola. The loading capacity of the facilities at theNdola depot limits loading to only two rail tank wagons simultaneously, permitting 6 to 8tank wagons a day. The unloading capacity at the BP depot in Lusaka (the biggest depot) canhandle up to 16 rail tank wagons simultaneously. In Lusaka, each OMC has its own depot-the OMC's depots are adjacent-and there are several possible configurations of thiscomponent. About 20% of the total demand for gasoline, kerosene and diesel in the Lusakaarea is now transported by rail.
6.8 The major benefits from the distribution component would be a reduction Intransport costs from a shift from road haulage to the improved railway transportaton system.The increase in demand to be expected would be fumished through a more efficient and lessexpensive system. EIRR for improving the distribution system of petroleum by upgradingfacilities at Ndola and Lusaka with the base demand case was 14.9% (See Annex 6.1). Thismodest rate of return is due to the small volume of products likely to be transported and therelatively poor performance of the ZR.
Indeni Refinery Economics
6.9 The refinery operating economics were evaluated on two cases: energyefficiency improvement in the existing refinery, and mothballing the processing facilities inthe refinery and using the remaining facilities for a bulk products terminal to be supplied bythe Tazama pipeline operating as a multi-product line. Those options were analyzed using
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three assumptions of the demand: domestic demand only; domestic demand together withexports of 75,000 tons; and domestic demand together with maximum exports with the fiulpipeline capacity used. The least-cost option to satisfy the demand (domestic and exports)would be mothballing of the refinery together with conversion of the pipeline to a product line(See Annex 6.2). However, the economic case for closure does not prove that closure shouldbe immediate, and consultants have recommended that closure wait until major expenditure atthe refinery is needed.
Project Risk
6.10 In Tazama there has been a long history of inadeqpate inspection andmintenance resulting in extensive pipeline leaks which caused product losses and downtime.This risk is mitigated by the proposed management contracts and on-the-job training. Pooroperation and neglected maintenance of the modernized facilities at Ndola and Lusaka wouldbe less likely to happen, since management would rest with the private oil distributors. Butthe cost differential between road and rail may change, especily in view of weakperformance by ZR. There is some risk that ZR will never accept responsibility for losses ofproduct under its care, and that the Ndola rail loading component would not proceed. It isnormal practice in OECD countries for the railroad to accept responsibility for product lossesand to protect itself trough Insurance.
6.11 Converting the pipeline to a product line (not part of the project at this stage)would improve the reliability and flexibility of the oil supply system. The transport ofproducts would enhance the likelihood of theft and would lead to need for strongersurveillance. However, the success lies primarily in the capacity of Zambia to reduceoperating costs and losses by mobilizing the commercial and technical expertise of the oilmarketing companies to its best advantage. In addition, international refinery margins couldbe expected to change, which could enhance or reduce the benefits of refinery closure.
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VII. AGREEMENTS REACHED AND RtECOMMMATIONS
A. Agreements
7.1 Before credit effectiveness:
(a) Government wil execute subsidiary loan agreements with Tazam (para. 3.1);
(b) Government will execute agreement with EIB, including fulfilling EIB'sconditions of effectiveness (para. 4.15);
(c) Government will implement the first stage of pricing reforms as agreed withIDA (para 2.28);
(d) Tazama will appoint Project Manager (pan. 4.10) and engineering consultantfor project engineering and supervision (para. 4.11 and 4.12); and
(e) ZIMCO (or ZOC, if by then it is the owner of Ndola terminal) will contractto transfer management and operation of Ndola terminal to OMCC (para3.14).
7.2 As conditions of disbursement for allocation of funds to ZOC:
(a) The incorporation of ZOC and execution of Subsidiary Loan Agreementbetween ZOC and Government (para. 3.1); and
(b) Zambia Railways will confirm its acceptance in principle of performancestandards on travel time, wagon return time and physical loss (para. 3.15).
7.3 Other agreements:
(a) Government wil ensure that petroleum product prices will be reviewed atleast monthly and adjusted as required to reflect all foreign and local currencycosts, including these caused by devaluation of the Kwacha (pamr 2.27) andwiUl be set at a level so as to permit ZOC to recover the losses incurred prorto June 1993, through the pricing system, before December 31, 1994 (para.2.28);
(b) Government will remove controls on retail prices before the end of 1996(par. 2.28);
(c) Prior to the completion of the Project, Government will not permit Indeni,Tazama and ZOC to undertake any new capital investment in excess of US$5million beyond those included in the Project without prior consultation withIDA (para. 2.34);
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(d) Government will cause OMCC and Tazama to negotiate a transport contractwhich would have progressively tighter performance standards on operatingefficiency and physical losses, recognizing the exchange adjustments in thetariff structure to be implemented by March 31, 1995. The Government willcause OMCC and Indeni to negotiate a corresponding contract by March 31,1995. A timetable for implementation of these arrangements, satisfactory toIDA, will be agreed. (paras. 3.12 and 3.13);
(e) MEWD, Tazama and ZOC will submit to IDA audited accounts together withauditors report, as appropriate, not later than six months after the end of theyear (para. 3.20, 3.21, 3.23 and 4.18);
(D) Establishment and incorporation of OMCC by not later than December 31,1994 (para. 3.11);
(g) By no later than March 31, 1995, Tazama will establish and maintain tariffs ata level sufficient to permit its financial viability and will be on a basis thatcontinuously reflects all costs and provides adequate funds for maintenance(para. 5.18);
(h) Tazama will appoint three qualified personnel in line management formnanagement positions in operation, maintenance and financial affairs for 2years by April 1, 1995 and appoint an engineering company to manage thepipeline based on a performance contract by not late, than April 1, 1997(para. 4.6);
(-i) ZOC will implement agreed steps for OMCC to take over ownership offeedstock/petroleum products by March 31, 1995. A timetable forimplementation of these arrangements, satisfactory to IDA, will beagreed (para. 3.11);
GI) IDA and Government will undertake a mid-term review in June 1996.Based on the review, the Government will prepare, and will causeTazama and ZOC to prepare, an action plan acceptable to IDA, forfurther institutional reform, and will cause Tazama and ZOC toimplement such an action plan. (para. 4.16); and
(r) Government will complete a study of petroleum exports by December 31,1999 (para 4.2).
B. Recommendations
With the above agreements and assurances, the proposed project constitutes a suitablebasis for an IDA credit of SDR 21.6 million to the Govemment of Zambia on the IDAstandard terms.
May 6, 1994
ANNEXES
-47 - Annex 1.1Page 1 of 4
OmCE OF THIE MINISTER
MINISTRY OF ENERGY AND WATER DEVELOPMENTP.O. BOX 3609
LUSAKA
5 May, 1994
w De%"~ Cook, reff ME WDI71121/1Division Chif(Inuhtaby and EswrMy Oerations),Soudther Afiica Deparuuiat,World BanklIl#HSftv0eN.W.WaslnSgtan D.C. 20433
Dea Mr. Cook,
RE: Lo ww OF PEzROLEum swwTR 1~jm
With rfvac. t doI. receBad nugotistdes hold in W&ahskint D.C. taxn 4th to 6thApti 1994 reSwding di. peirohm SeCOW Reabblgitatn pa&jca, I hav the ploasw. tosubi the Zambia. Gommuins Ltte Of PMtOIsUM SecOr Policyu asrolown:
1. Govenmmea stratsu for the secto
Thm sttes of die Gavenmnaft in 13w pwaolem subsector is to amcougeeffiGial pouvnment, Irnprai. rcalg ItIuinad consumption OfP*UoheW and/or potolsum pxOduct in dwe OoankY TO achiev &ii. utiltie and odiventiftis n ghe sub-secto wal be encowVed to operat at list coug, and more emphasis wilbe laid on toe pawtcipatio of the prfivate seto tro of competition inal aspects oDf thedkA pero mini iduy and hibrlm nion of pricig and maa*tingtrutrs
2. Rok of ovwnmont
Th role of Gowunnntod in tW u,.Cr s be* to 61= ia the pehtremnust i pro1994 wrth an opmm R_vIh t fow pwiv vauna ad ploidecisons This wil be achleved byv providIn an appropriatejV legLvlfdt*Wo and pokiyftasnewoz to ncoua cospi and provide poliy pda to G o sb-sector in Pnfwi* Goverme objective for do eFh sect a a whalg and th ee econmny. _kbhl aso be Guvoinuafa ra, t ar as possbl pemit dh nonal vvorking of marD
-48- Amex1.1Page 2 of 4
fore4a in h sub-scclor, and whine nocessiy to instpb sequired suctura an to_intItAtonal, pciGy, lega ad oweloiy Iament tat may be in exisence at any SWentw. Govenmnwt wi so be repaonsble foc MAia4 contct with _duct Govemenr%wading ntemadonal s may he requed withi the sub-sector.
Another impount rsu for Govenunet in th sector is to ensur tat wdre areadegquate st&ft*o reres of petolen produc-to ume swourty of aSply and sustainntional con_uMpto in dme whe disuptions to nonnal supply occiw.
3. Roe of the Reulatorly system
As Gowvmnwat movs swa fom diect participation n the coammaci operqtof the sub-soctor, it is imporan t at a suitable reguatoy sysem is put in place to ensethat private is in ih, mxwr uporat on commercial tns and ar wcll ma This wlrqure tdie usetg and fihctivw m ntaio of pesfomace standards dia willdeine the parametcn of operation and pwvidr ldc basis for prcing deciions in thoect-. The rcgulatoy ysm should Aso be ale to monitor and enfrc teclmka
shaards to ensure t opas_ of firm wthi th idusty coform to intenaauqulreinauts and promoto olncy end W st cost of suppy.
In dw Naiona Enez Po&-y ad4pped by Cabint in January, 1994 there is a prvisio forthe eablshment of an Enwa Replatory Board whih shal be respw_sble for te
Qep eeulan of all er tr nticns al8g hc 1 mentioned abovc.
4. Role of the ZIMCO Group
In the ikem7, ZIMCO will pWvidc he wseawarut fr uilities in the bector, andauue ta thY operapt poftbl an lin with th _uAMe polcy of gm oavrment.
P_ a£g the n r of7Zamba il Company (ZOCX) 0oL Divso of ZfCOwvl continue to mpor pecm f_ took for tho couny a has bw the practico in twpasL Upon the foton of th oil MA*oting Compais Cuvaoium (OMCC), ZMOILand aUbsequenflY ZOC s l wRe feedtock to Ihe OMCC 'A Dar-a-Salaam. TAZAMAPpens shl nter into a businss Wationstip wih th OMCC, as dual tDENt rfiney.
'be ZLMOIL tel Somnul at Mdola N cun¶od under study, nd depndg on trecomm is of th consult hrd to undeake dw sty, it shall be wsld or l dto the 0C.
hI v*w of wommates desire to divht its rol hen th day to day oportions ofthe poleum sub-setor, and th economy as a whole, a working grup of Govnuu..ioffic has been, onstictd and a cosutt wa be auitd dewinc die modaie ofZIMCOs A dudy i alo nderway to deom_in how bost i utiltes d tZIMCO Group can be related. Ouvennt will work owt the modali of di_vsgshcas in cnear parastatals Pending discusionx with th differen akeodor inhldinth Zabia Pudatio Aseny (ZPA).
- 49 - Annex 1.1Page 3 of 4
S. Sector Ulberalzaton
OGv Owc dominance of Govenment paricipation dhat has characteuized the setorin th past, it ts GovnnfS inbtntion to esucturt th petoleum ndustay in Zambia 6open it up to wider partcipation by Oa pivate setr. As a dat, Govarment inend. toncurA age dtc fonnation of an Oil Matdetig Companie Conxoium (OMCC) hat wVA
optmize the patipon of the prvat Oil Marktin Companies in th unilpg of di_iduy. The Govrrmn aball also pemit the prvatts sector to undak A1 commedall"es m ihe sub-seckor and apart fmn regulatory activit, it shll have no i _nemnt in
the operaten of the ol industry. Now e.ntr*Pt io the indWustrY shafl be ouraged, andall umoopolitic tendncie shall be reviewed and appropriate corroai acin taken toeawre free and fa cmpeaiton M all sags In he indusy. The nw ent will bealowed fbl access to nainal storage and other common facliti in tho sub-ector.
5. Procurement
n lin with t Govennment policy of hbalizhion and transpart naret andpricing mechaua8l procuremet and importation of petroleum and petrolnum produ_tshal be conducted on dte basd of iniaonay a"pta biddng praotces for oiProcuement.
7. Pring Policy
Pticig poiW will be encouagpd to retee th ful cos of effmiinty op&rtWeitean thc seotor, in ohe to panit haGm c waY and pro*de a rMason profit-n hWeatnIt in d1e peum y.ust in case of stae wher a natuw monepoyedsts. fuly trnpant piing forinlA£- wM be put in place to su tht all vaiable that
fuincI puicric decisiono m tak it account and tt pnicn decsons am notd vwgtp but mad. objcdvey. Gov n hall not make my p decisions butdsal make full ue ofthe orguaty meebam to nr tat prices tne sector recoveAl cos", allow a easonab profit and are equitable to All stakehodlr in th sector. AUl
atd priesan tarnff (such as those fr Irndni and Tazuam) will be pub0ied.
L s StrengthenIng
In sAogutko of the maltude of structural and o ianal chawe that will benoeessitated by the of gm National *I Policy and 8ealibrlzaion of Ihe ube tor, theo nnt iWtnda to VisuOrwY pum X.
eQhcning of Institutinal capaGay at boo pohey and opeqtina levls to a a_sttutios in th sdb-ector am capable of perfomang thk rols in die now _asna nL
At tho policy level, the Ministy of 1a and Watr Devopmen reqies tho& ad a to efftively mnitor deloment of the subct, an dknct
-50- Page 4 of 4
pdua for publc b_ulit ne petu emor. fAlu MeiN&M alo a requ tdlcpaciy to cma stuctual chnp in th sector whn rquird to do so, And to *&eUyp1@Wd pobcy uidance to the sctor as a whoe.
Al Om qouaia lewi, oWrcni s and fhind thAt wil main gm pubicdarn for seow time sqe utiarna st thenngo to ence mAnaid ghl and_chau pwfonuance sW d- Bc_ of peifonrmnce caiwna a be set witi thewualatozy systm for such .. atep to onm== dit awwmmu naped-Wo_& standards are naind.
I taL Ihc abaoc snffniently addrsem my Gov _maWs intention in the petrlemscw, and look foward to waig with Dank in es repad.
Yas Snc4rly,
UdItb 7 Nawakwrl UP
cc: HorH. Roald -D. S. Peaza, LPUmbtaroafFtance,
.iam
cc: Mr. Gideon Nko$o,Rasw Rre a,World Rank
ZAMBIA
PETROLEUM SECTOR REHABILITATIONI PROJECT
ENERGY BALANCE 1002
UF('c"%7.t SOURCES AND FORMS OF ENERGY
P PRIVARY ENEROY SECONDARY ENEORY
t 2 8 4 6 4 * 0 0 * tO tt 60 14 Is I0 17
SP1 NYHo. TOTAL -- 89 OTJLPLOWOfMy CRUM ILCY. "Swo amOU CRON FUEL G.T- 8000AR
O CM WOW W000 SR sum Rem" tSf FUIL ROEB t Utit 0M0 RIY CHARCOAL SOURESe 10MAL
X t^t wn 4tW2I 009460110PROOMPION 274. 40164 "SIS. 4487 402 t0_ 04.4 0* . .0 . 0* VA6g*pt4 -.121.1 t.. -16. -10
4 TTMSIWPLY Ult IIL0 004 SM. 44T to 6 . 4?.?s SamoTS .0 0.1 S 00 0.0 1.1 to tW0 00 460 UPPLY 5j. 4 "M. 40 4.0 4t -. 4.1 4 6.2 46O0.7
" "ERIES 413.1 461.1 94.0 O 76. .0 04 "A4 LT w.t 4"
* WIUCIYUIul 47.4 .427.4 -1.t 7.4 66. 73.* I594 400.7 -my. 610. 61.1 .47.
10 IT.RMIORMAI1N 4610.tl r.604 -m. -20072 "A 3.0 *7. gas 0.4 ? OVA 610. W7 440.t
Oki~~~~~~~~~~~J
r~~~~~~~~~~~~~~~~~~~~~" _ 1.N 06T.Jm m LOam6 am ge
if ESI £2K 2V * O4K1 00C
t4 MRICULtURADPORSM 0" o2n ttU .4 O.0 71.1 Kr 0.a-10 1610 16. 6.1 1.2 1. .9* 7.0 6.0 6.1 A0 UPS to ow. 6.01t OWOO NIDCOMWICI l18* 212.4 W" 7.1 0.7 24t 0* 1# Sao no
t7 41v""WIEVe t. 7. OA ?9 I titt tl9Is -RA so.?.as70 07. 6.4 16 08 11* $110.6tS 71JP407 40.7 10.6 1071 #84 e.o t.2 611.4 011.4
_ _ ___ __ _ __ _ _ __ _ __ _ _ _ _ _ _ _ _ .. i wj : :: ::jl u
n* DDJiJtIS 0.0 4 -22 r .0 -1.0 0 -7 e4. -10* 646. 72 46.2 DOJTUN 0oPUI4.0040 6.0 -. 4.1 2.2 -4.0 10.0 -4. -. 6.e -0. n0 .0 0* *.0 -4.5 -tJ~
Spoiflc Hea Spocifio HtPtodS ~ Qm~ auk Cote wt1 PdUl° 1O
Arabia Ligh 0.8580 42.62 LFO 0.9395 40.95Napth 0.6970 42.71 HFO 0.9490 40.32Coadnd_t 0.7800 42.71 Bitumen 0.°300 42.'71 ,W.10 0.5450 45.43 Pwoodt . 35.50
Petolu (Rglas) 0.WO3 43.13 Carcoa - 32.60 Petroleum(Premm)" 0.7470 42.92 Colt - 2.7.21 Ker.A. 0.7960 43.34 Ebtdt-W. (3AW) - 3.60 AbiaIo Pad 0.7965 43.34 t to0 - 41.90DNeb&a 0.649S 42.71
-52- Annx 3.1Page 1 of 1
ZAMBIA
PEItOLEUM SECTOR REHABILITATION PROJECT
ZAMBIA - ZIMQIL DIVIS1ON ORGANIZATION CHART
t DIRECTORGENERAL
GROUPINVESTMENT
DIRECTOR
TA~~~~~-T
DEPUTY GROUPINVESTMENTDIRECtOR
M r gRMIANAL CHIEF;>Utim) |MANAGER | ACCUNTANT |
= =*rF--X
rPERSONNEL TERMINAL OFFICER ACCOUNTAN4T
STAFF SAFFAFF
MEMBERS ACCOUNTMNSS
OPERATIONSMANAGER
w i ~~~~~~STAFFI STAFF BMER
l MEMBERS_
TUnzam MiDcliin IJLmicdn RCAN I S A T I O 11 C n A R T
~~~~~oa~~~~ow
I~~~~~~~~~I v~f 4 ls 1pwwa I., oAM
* I IfWii"M I
I~~~~~~~ ~ _ _ _ _ _ _ ,
-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Uh~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I .A 0 to EProtcoltAAI trt offic
| NW A fLanc l Aconant iUAZ
M0C ts m [Oanagemn Inomto Sevie M CIa |l>s tis _1r
S P A 0Senior Protoco. Ana inistrivOfce
H A -- - Ileureen AcutantL 1~ ~--- !E ;E
S S A 1 -l SeniorF Syateme Anaulys -!0btw"5S
Chief Engr. F. Opera Clief Engineer - Field OperationsCHief Engr. Telecom- Chief Engineer - Teleca.munictiona.H I H " Hcnaonen lafreatoB Srvle Hn .1Kr
-54 Annex 4.1Page 1 of 1
ZANMIA
PETROLEUM SECTOR REHABILITATION PROJECT
PROJECT COST ESTIMATES
Foreign Local Total
(US$ Million equivalent)
A. TAZAMA PIPELINEMech. & Electricals 2.60 0.10 2.70Telecommunications 2.20 - 2.20Dar Tank Repairs (T4, TS, T6) 2.20 0.20 2.40Dar tankroof Repairs (5 Nos) 2.20 0.20 2.40Pipeline Rehab. (Km 250-1710) 9.30 0.20 9.50Cathodic Protection 5.00 0.20 5.20Vehicles, Tugboat, Computer 1.80 0.05 1.85New Tank at Ndola (40,000 in) 4.00 0.45 4.45Proj. Mag. & Cons. Supn. 0.60 0.10 0.70Tech. Asst. & Training 3.30 0.20 3.50Base Cost 33.20 1.70 34.90Physical Contingency 3.25 0.20 3.45Price Contingency 3.65 0.30 3.95Sub-Total 40.10 2.20 42.30
B. ZOCNdola Terminal Modern.* 1.70 0.30 2.00Physical Contingency 0.20 0.10 0.30Price Contingency 0.20 0.10 0.30Sub-Total 2.10 0.50 2.60
C. MEWDTech. Asst. to MEWD 2.30 0.20 2.50Physical Contingency 0.30 0.05 0.35Price Contingency 0.20 0.05 0.25Sub-Total 2.80 0.30 3.10
TOTAL PROJECT COST 45.00 3.00 48.00includes molifications to the rail iitirplacement of s loading pumps,
insallaton of tank meters, computerized product loading facilities and product flow meters.
ZAMBIAPETROLEUM SECTOR REHABBITATION PROJE
hIplementation Schedule|~~~~~~~ M.J t * " 4 -t0t|1 m ASNJM9 _ 8* O
ITatIEA JA80NDJ FMAMJJNASW J F MAM JJ A8 SODJ FPUAMJJ AMAN' J MA*J J A80NC J F MAUJ
ems R_ -rTP F.I F,rn' -EST P"m _l bWM r_ P- ---- JFE_TST&
IbwTnJc6tN"drt~~~~~~~~~~~~ TP T_} FE.TEST&C _ _
1 _w TkTP b- N---- &doI_Meoh and Eb.ot_I__
Oa#WoloFVtotelcn -c, -ITP AO
Tech. Ankwm 1 TCMtJg
a. ZIMOIL
Vddd@e, ~TP T AC P
NoTfnacdeIaIWnt h h - _s~ _ _ --- - - -_ _
raMl UnloaMIngFanUs - _ _
I"D T AC I
E *Engelg ,TP -TenderPbepmtn.T-Todeitg,AC Aw ofContrmtF F a PakTIm, Tlta *apoaotanERan, T mft*LnbT*.TE8T *T_sni0M .OI mn*ulankg, P- Pmoreew_t~ * hwtalU Ilpsmnta
_~~~~~~~~~~~~~~1
- 56 -
Annex 43Page 1 of 1
ZAMBIA
PETROLEUM SECTOR REHABILITATION PROJECr
IDA SUPERVISION PLAN
APPROXIMATE ACTIVITY SKILL STAFFDATES REQUIREMENTS INPUT (SW)
8/94 Reviow of Pricing Study Policy 2 inEconomics Washington
9/94 Project Launch Mission Engineering 6InstitutionalEconomics
9/94 Review of Ndols terminal study, review Engineering 3of instiutional reforms Economics
Institional
1/95 Review of role of new managers, Engineering 3project team, etc. Review of bid Economicsprocesses and proposed awards
5/95 Review of institutional reforms Institutional 2
10/95 Further review of instiutional refonns. Institutional 1Training interim review Engineering 1
6t96 Mid-term review Policy 4
FY96 Regular supervision missions twice 8/yryearly
PY96 Special review of development of price 2system and deregudaon plan
FY2000 Supervision mission to include PCR 10preparation
- 57 - AWMAAPage 1 of 1
Petroleum Sector RehablUtadon ProjectProject Disbursment kb§bid
Quart-y cumulative
(U.S. Dolars Minion)
Fiscal 1994/95
Quartr 1.75 1.75
Quarterfl 0.1 1.85
Qutfm 0.1 1.9S
Quarter IV 0.05 2.0
Fi 19922S
Quarter Q 0.7 2.7
Quarter I 0.7 3.4
Quaotr m 0.3 3.7
Quarter IV 0.8 4.S
tFiwal 1996/97
Quarter I 1.4 5.9
Quarer ll 1.2 7.1
Quaem 1.4 8.5
QuarterIV 1.6 10.1
Piso 1997/98
Quuter 2.6 12.7
Quar II 2.6 15.3
Quater M 2.6 17.9
Quarter IV 2.6 20.5
Qiscal 1998499
Quarter H 2.4 22.9
Quarter I 2.4 27.3
Q Xm 2.4 27.7
QuadT"l TVa
Total
- 58 -
Aiex 4.,SPage 1 of 5
ZAMBIA
PETROLEUM SECTOR REUABITATION PROJECT
Environmental Issues
Ihe summary of the consultant's report is attched. The mitigation plan for presenlyexisting environmental issues is as follows:
Pipeline
1. Implement an extenal control program. Rewrap the pipe wherever it is exposed(e.g., during repairs). Rehabilitate the cathodic protection system.
2. Institute regular surveillance of the pipeline, improve vegetaton control.
3. Improve river crossings where pipeline is exposed with a view to minimizingenvironmental risk.
4. Clear away or break up damaged soil and encourage revegetation.
Pipeline Statons
1. Remove or break up damages soil and encourage revegetation.
2. Install drums to collect oil spillage.
3. Review pump operations and improve maintenance. If necessary, replace worn outparts. Should this not resolve the emissions problem, alternatives will be reviewedand the most cost-effective environmentally satisfactory scheme will be adopted.
Tenminals
1. Line floors of the area where rail tank cars and road tankers are loadedlunoaded soas to prevent leakage into the soil. Increase the containment area dyke wall.
2. Remove damaged soil and treat, or 'landform".
In relation to the proposed project, the mitigation plan is:
1. Prepare environmental standards, practice and procedures and operations andmaintenace guidelines.
- 59 -
Annex 4.5Page 2 of 5
2. Prepare an environmental protection plan for pipeline route selection (where reroutingis necessary), construction and operation.
3. Ensure that construction is in accordance with the environmental protection plan.
4. Use the opportunity created by the rehabilitation to remedy environmental problems.
5. Install drums, hard standings, improved containment walls and similar measures, asrelevant, for all new construction.
6. Ensure that the pipeline cathodic protection system functions properly.
SU1MARY OF CONSULTANT'S REPORT
Tanzania PipeUne FaciUties
Row Vegetation
The review of the pipeline revealed that the majority of the ROW was well vegetatedwith native grasses and bush. In areas such as Mikumi National Park and Makata Plains, theROW was not visible being covered with substantial growth of grasses and bush. Throughthe sections of hilly and mountainous topography, the ROW was clear of woodlands and wascovered in grasses to reduce the potential for slope erosion. In some areas of the pipeline,such as Elphons Pass, vegetation growth was dense restricting access to the ROW.
Regular surveillance of the pipeline ROW is required for: pipeline leak detection; formaintenance and repair operations; and to assess potential ROW encroachment by agricultural,commercial and industrial developments. Overgrown vegetation on the ROW inhibitssurveillance activities, detection of pipeline and equipment leaks and may restricted access tothe pipeline for maintenance and repair. It is recommended that an enhanced annual brushcontrol program be implemented to control vegetaion growth, a'igment vegetation to increasewildlife habitat and reinforce pipeline monitoring operations.
River Crossings
The pipeline ROW crossed numerous permanent and intermittent rivers, streams andlow-lying swamp areas. The majority of the river crossings did not exhibit any river slopemovement or erosion and were restored with good vegetative cover. As indicated in Section4.1, pipeline exposures were noted in five locations with only two river crossings, the SongweRiver and the crossing east of Iringa, that will require extensive reconstruction or theselection of new pipeline routes. None of the pipeline exposures were an immediate threat towater resources or associated riverine habitat.
At river crossing repair locations, it is recommended that the pipe be placed below theriver bed at sufficient depth to avoid exposure due to river bed erosion. Ihe pipe should becoated with concrete to counteract buoyant forces and hold the pipeline in place. Pipelinesagbends should be extended into both banics to provide a factor of safety against pipe
- 60 -
Annex 4.5Page 3 of S
exposure because of lateral bank erosion. Final engineering design of scour depths and bankerosion should account for 1:100 flood conditions and changes to the river course over theoperating life of the pipeline. The river banks should be regrated and revegetated followingconstruction to pre-ent bank erosion and siltation of the river.
Pipeline Repair Locations and Pig Traps
Most of the pipeline failure and leak locations had been restored to surroundingvegetated conditions within a few years of repair. There were a few locations wherevegetative recovery was impeded due to petroleum residue remaining on the ground.
At pig trap sites and pipeline locations which have experienced crude oil andpetroleum product spills in the past, it is recommended that operating personnel remove orbreakup the petroleum residue on the ground covering the sites, use implements to work theremnants into the soil and add soil amendments, such as fertilizers, to assist in the bio-degradation of the hydrocarbons and the restoration of the sites.
Although wastes from pigging operations have been routed by piping to burning pitsadjacent to pig traps, or slop tranks at pump stations, pig waste remnants in the trap receiversand launchers were routinely dumped to the ground surface. Over time, the pig wasteaccumulates on the ground and forms a residue or crust that inhibits vegetation growth andrestoration of the site. Petroleum residues also may percolate into the soil and contaminategroundwater aquifers. To minimize this situation, it is recommended that drums (200L orgreater) be installed below each pig trap door to catch and retain the pig waste remnants asthe doors are opened. With drum installation, the pig waste will not interfere with operatingpersonnel and the wastes may be removed from the site at a more convenient time.
Facility additions are planned to complete the NPS 12 pipeline loops and abandon theNPS 8 pipeline. The pipeline leak locations repaired with sleeves and clamps were consideredtemporary repairs. These repairs, and any new corrosion points identified during the 1993pipeline internal inspection program, are planned to be excavated and replaced with new pipe.Pipeline construction and replacement along the existing ROW will have minimal impact onthe surrounding environment due to existing disturbance from current pipeline operations. Inareas where pipeline alignments are to be modified and new pipeline routes selected, it isrecommended that route selection and engineering design incorporate environmental protectionprocedures to mitigate environmental impacts from construction and operation activities.
Pipeline Corrosion Protection
Tazama Pipeline officials stated that the cathodic protection system was functioning.However, during the pipeline field inspection, test lead terminals for monitoring the cathodicprotection impressed on the pipeline were either missing or destroyed. At pipeline excavationand exposure locations, external pipeline coating systems were damaged or absent. It isrecommended that an external corrosion control program be implemented. The programshould investigate the cathodic protection power supply locations for the impressed currentinstallations, the isolation of the marine and cross-country pipelines from each other, theground bed Illaions, and include repairs to the cathodic protection test lead terminals. In
- 61 -
Annex 4.5Page 4 of 5
addition, each pipeline repair location, the pipes should be cleaned, inspected, hand wrappedand coated with a suitable coating material to prevent the flow of corrosive electrical currentfrom the pipeline to the surrounding soil.
Pipeline Station Pumps
At the Tazama Pipelines Pump Stations, crude oil is used as a fuel for the pumpdrivers. As a result, the driver exhausts emit dense black smoke containing particulate thatimpinge on the station operating areas and surrounding environment. The constant exposureto this exhaust add a continuous pollution source to equipment and grounds; augmentcontamination stress to the natural environment; and, may be a contributory factor to healthproblems of station employees. It is recommended that Tazama Pipelines investigate theconversion of the pipeline pump drivers from crude oil to the continued use of diesel fuel. Asexample, the pump station electrical generator drivers are run on diesel fuel which do notemit black particulate exhaust. With the potential conversion of the pipeline from crude oil toutasport of petroleum (products, supply of diesel fuel to the stations by pipeline would reduce
iansportation and storage costs. In addition, the pump driver exhaust stacks should bereviewed for exhaust height to modify the point of ground impingement.
Pipeline Terminals, Tank Farms And Depots
Under the Petroleum Sector Rehabilitation Project, planned additions andodifications include: additional tankage of Kigamboni, Ndola and Lusaka; improvements to
rail car loading facilities at Kigamboni, Ndola and Lusaka; and, improvements to petroleummeasurement and computerization. The planned facility additions by Tazama, ZIMOIL andBritish Petroleum at the terminals, tank farms and depots in Kigamboni, Ndola and Lusakaare located at their existing facilities within established industrial areas. The additions aredesigned to enhance operating capability, capacity and control of petroleum product handling.The modifications also will have the effect of reducing, and in some cases, eliminatingpetroleum operations that currently are adversely affecting the surrounding environment, suchas capturing petroleum product spills and surface water in API separators.
Tank Containment Areas
The terminals, tank farms and fuel depots were well equipped and staff trained toprevent petroleum spills. All had the capability to control and clean up spills when theyoccurred. However, small spills of petroleum products transpired from fuel loading andoverflows at tank and truck locations or from corroded equipment.
At spill locations, pump stations and petroleum terminals and tank farms, largequantities of petroleum contaminated soils are generated. These soils may be left in place toacumulae and eventually create future disposal and groundwater problems. The soils can beexcavated and removed off-site at considerable expense, or they can be treated in a landfarmenvironment. Although not applicable to all types of soils and petroleum products, landfarmsare a proven cost effective method of treating most petroleum wastes. It is recommended thatTazama Pipelines and ZIMCO investigate the application of landfarming for the clean-up,treatment and disposal of petroleum wastes at their operating facilities.
- 62 -
Annex 4.5Page 5 of 5
Except for the Kigamboni Terminal, the tank containment area dykes at the terminals,tank fms and fuel depots were not large enough to contain the tank volumes. Ihecontainment area floors were unlined and allowed the infiltration of crude oil and petroleumproducts into the underlying soils. Consideration should be given to increasing thecontainment area dyke wall and constructing containment floor liners to avoid soil andgroundwater contamination and the loss of petroleum product. In addition, containment areasshould be constructed for drum storage areas at each Tazama Pump Station to contain leaksand spills.
ENVIRONMENTAL PROTECTION PLANNING
Based on the environmental review of the proposed pipeline rehabilitation programand facility additions at the terminals, tank farms and fuel depots, the planned activities canbe constructed and operated with minimal impact to the environment. Any significant impactscan be mitigated by design details and the implementation of operational procedures. It isrecommended that an environmental protection plan (EPP) for pipeline route selection,construction and operation should be prepared. The EPP can form the environmental baselinefor fiuture facility additions and modifications. The EPP should include the preparation ofenvironmetal standards, practice and procedures and operations and maintenance guidelines.
SAFETY ASPECr
The operators of the pipeline will be trained in environmental awareness. A simpleemergency plan will be developed in case of a serious oil spill or a fire. Basic equipments tostop a serious leakage or a fire will be available at some places along the pipeline and at theterminals. Operators will be trained how to handle emergency situations.
- 63 -
Anlux 4.6Page 1 of 2
ZAMBIA
PEIROLEUM SECTOR REHABILITATION PROJECT
PROJECT MONITORING INDICATORS
During negotiations, indicators pertinent to the project implementation and efficient operationof the Tazama and Ndola oil terminal facilities, and arrangements for petroleum import and bulkdistribution would agreed upon with the entities involved as the basis for establishing an agreedproject monitoring system. The main indicators would be drafted along the lines outlined below.
1. THE MINISTRY OF ENERGY AND WATER DEVELOPMENT(a) Preparation of quarterly and annual reports by the Technical Cell, created under the
proposed project, on progress in the implementation of covenants regarding institutional restructuringand privatization, petroleum imports, exports from Zambia, CIF price paid, Tazama pipeline tariff,Indeni refining cost, export price realized and movement of petroleum product prices to reflect allforeign and local currency costs, including the effects of devaluation of the Kwacha, summary ofregulatory measures undertaken during the period, and capital investment plans by various agencies inthe petroleum sector under consideration; and
(b) Preparation of quarterly and annual reports on the progress of training personnel in theTechnical Cell and performance of the consultants in preparing monitoring and regulatory standardsand their implementation.
2. TAZAMA PIPELINE:(a) Preparation of quarterly and annual financial statements for IDA review;
(b) Preparation of quarterly and annual reports on the physical and financial progress of theproject, the status of procurement and the contracting and disbursement schedule;
(c) Preparation of half-yearly reports on the physical condition and maintenance history ofthe pipeline, Dar-esSalaam storage tanks and associated facilities, cathodic protection facilities andpump station equipment, number of leaks, quantity of oil leaked, actions taken to clean up the oilleaked, and oil losses incurred in the pipeline operation; and
(d) Preparation of quarterly reports on organizational development and progress of thetraining program.
3. NDOLA OIL TERMINAL:(a) Preparation of quarterly and annual reports on operation and maintenance of the terminal
facilities, highlighting quantity of each grade of oil delivered through the facility, quantity of eachproduct delivered by rail and road, operating cost of the terminal, quantity of oil lost in the terminal;and
(b) Preparation of quarterly and annual reports on the physical and finacial progress of theproject implemention, and the status of procurement and contracting and disbursement.
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Annex 4.6Page 2 of 2
ZAMBIA
PETROLEUM SECTOR REHABILITATION PROJECT
PERFlORMANCE MONrIORING CRITERIA FOR
TAZAMA PIPELINES LIMITIED
PERFORMANCE CRITERIA
1 Operational Efficiency: When sufficient quantities of stock are available, the pipeline shouldoperate at its maximum rated capacity for not less than 345 days per year (The rated capacity shoudbe established by trial runs after rehabilitation is completed).
2 Operational Losses: After rehabilitation of the storage tanks and the pipeline system,hydrocarbon losses should not exceed 0.3% of the total quantity handled through the system.
3 Consumption of Fuels and Lubricants: After the rehabilitation, realistic consumption of fuelsand lubricants in all pump stations should be established, and actual consumption should not exceedby 10%.
4 Cost of Manpower Employed: Tazama has discharged 125 employees. This has generatedsubstantial savings in labor costs. However, there is room for further review.
5 Demurrage Payment to Tankers: There should be no payment of demurrage to tankers sincethe mooring facilities are used only once or twice a month and demurrage is paid only when theplanning and scheduling are inefficient.
6 Maintenance Cost: Annual maintenance cost and its relationship with the total cost ofoperation should be monitored; unusual increases should be subject to inspection and verification.
RECORD OF PERFORMANCE MONiTORING
Item to be monitored Reason Present Level Post Rehab.Level
1. Operational Efficiency, + + 345(Pumping rate and operating days)
2. Operational Losses, + + 0.5%% of throughput
3. Consumption of Fuels and Lubricants + + +4. Cost of Manpower Employed + + +5. Tanker Demurrage + + 06. Cost of Maintenance + + +
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Annex 41Page 1 of 1
ZAMBLA
PETROLEUM SECTOR REHABILITATION PROJECT
LgSr OF DOCUMENTIS ON FILE
1. Report of VETCO Pipeline Services, Houston, on Tazama Pipeline corrosion.
2. Report of the Consultants, Cuneo e Associati of Italy, on Petroleum Supply andDistribution in Sub-Saharan Africa, July 1992.
3. Report of Consultants, HBT Agra Limited, Canada, on environmental assessment.
4. Report of the Consultant, Jens Larsen, on petroleum product transportation.
S. National Energy Balance of Zambia for 1991 prepared by the Ministry of Energy andWater Development.
6. Draft Railway Contract and Terms of Reference for Railways Coordination Committee(RCC).
- 66 -
Annex 4.8Page 1 of 3
ZAMBIA
PETROLEUM SECTOR REHABILlTATION PROJECT
PETROLEUM EXPORT MARKET ASSESSMENTDRAFT TERMS OF REFERENCE
1. BACKGROUND: Zambia is a landlocked country in southern central Africa sharing borders wifthAngola, Botswana, Malawi, Mozambique, Namibia, Tanzania, Zaire and Zimbabwe. To ensure a steadysupply of petroleum products, a 1710 km pipeline was constructed from Dar-es-Salaam (Tanzania) toNdola (Zambia) in 1968. The pipeline with about 1 million tons per year capacity is the least-cost andonly reliable supply source of petroleum for Zambia. The pipeline transports a mixture of crude oil andproducts to the refinery in Ndola where it is refined into finished products (LPG, gasoline, kerosene,diesel, fuel oil and bitumen) mostly to meet Zambia's domestic product requirement. Small quantitiesof diesel are exported to Zaire and bitumen and LPG are exported to Zimbabwe.
2. Domestic demand for petroleum depends on the level of activity in the mining sector. The totalsales of petroleum products reached a peak of 818,565 tons in 1976/77. In the next 10 years, the salesdeclined over 35.4% to 528,858 tons in 1986/87. The domestic demand for petroleum products and theconsumption pattern are not expected to change significandy in the medium-term because of restrictionson Government expenditures, scarcity of external resources and decline in copper production.
3. Since the Indeni refinery at Ndola, commissioned in 1973, is a simple hydroskimming operation,the product yield mix can be changed only by altering the quantity of products spiked in the feedstockThe level of reduced crude in the mix is limited by the level of demand for fuel oil and bitumenamounting to about 15% of the feed mix. Because of the high percentage of the light products in themix, the refinery's capacity is derated to about 750,000 tons per year. Any significant increase in lightproducts spiking at this capacity level would result in poor product separation. As it was designed beforethe 1973 oil crisis and the resultant increase in oil prices, the fuel consumption and losses are high at 7to 8% of throughput. Under these circumstances, the operation of the refinery is economicallyunattractive, apart from the fact that the pipeline capacity is not fully utilized ., the organization incharge of petroleum import and bulk sale of products, intends to evaluate the economic merits ofconverting the pipeline into a product pipeline and using its surplus capacity for export of products intothe neighboring countries.
4. To establish the realistic potential for export of petroleum products into the neighboring countries(particularly Malawi, Tanzania, Burundi, Eastern Zaire and the Shaba region of Zaire), and evaluate theeconomic advantage of such exports ........... intends to appoint a consultant to conduct a survey andevaluate the consumption of various petroleum products in these areas. For the purpose of this study,
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Annex 4.8Page 2 of 3
it is asued t the pipeline will be converted into a product line. The proposed study wil be fnacedby unds from the World Bank.
5. OBJECTIVES AND SCOPE OF WORK: The main objectives of the proposed market survey areto explore the neighboring countries' market for petroleum products, establish Zambia's export potential,and evaluate the relative advantage in the delivered cost of products supplied at these export locationsthrough Zambia's Tazama pipeline as against products supplied from other possible sources in the region.The soope of work will include, but not be limited to, the following:
(a) review the consumption of petroleum products (gasoline, kerosene, diesel, fuel oil,bitumen and LPG) in Zambia and the Government's demand forecast for the next tenyears and modify as necessary taking into account present economic conditions andpossible improvements;
(b) review the consumption of petroleum products in the neighboring countries (Malawi,Tanzania around Makambako and Mbeya, Burundi, Eastern Zaire around Uvira, and theShaba region of Zaire) for the past five years and make realistic demand forecasts forthese areas;
(c) review the current modes of transportation of petroleum products to these neighboringcountries and establish the costs;
(d) review the current operating cost of the Tazama pipeline and esdmate the expectedpipeline tariff in the next ten years in consultation with Tazama;
(e) estimate the rail tariff to transport bulk bitumen and bulk LPG to Lusaka from the least-cost source (Dar-es-Salaam or Durban);
(f) study the Tazama pipeline route from Dar-es-Salaam to Ndola from available maps andother technical information and recommend suitable product tap-off points for theneighboring countries;
(g) review the Tazama pipeline capacity, as a product pipeline (current and in the future,taking into account its modernizion program) and estimate the potential product exportcapacity available with economic advantage to Zambia under the scenario emerging fromthe preceding findings and estimates; and
(h) review the current operation of Tazama and the marketing companies operating inZambia and the petroleum product pricing mechanism currently in effect at the wholesale(ex-deport level), evaluate the options available to Zambia and (takdng account of the
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Annex 41Page 3 of 3
need for the importing country to share in the benefit), recommend on the conmnercialarrangements most likely to obtain sustainable benefits to Zambia should the predictedvolume of exports be reached.
6. QUALIFICATIONS AND EXPEREENCE.: The selected consultant should have a minimum often years experience in conducting similar petroleum products demand surveys and evaluations of therelave economic advantages of different modes of bulk transportation. Experience in dealing withGovrmen officis and major intenational oil companies on all aspects of petroleum product marketingin land-ocked countries, especially product pricing, marketing and dealers margins, bulk portatoncosts, eport/import, inter-company hospitalities and settlement of bills is essential.
7. SCHEDULE OF WORK: The proposed market survey should be started in the field with initialbriefing meetings with the officials of ........ and Tazanma within 15 days after the contract becomeseffective. The consultant is expected to produce a draft report within 4 weeks thereafter which will beJointly reviewed by the officials from ., Tazama, the World Bank and the consultant. The consultantwill prepare the final report within 2 weeks thereafter, taking into account the modifications and additionsagreed upon during the joit review. The total services from the consultants are esdmated to take abouttwo manont.
8. REPORT PRESENTATION: The final report should contain all data collected during the surveyand review the technical and commercW data, both to be assembled and tabulated in a manner that willbe usefil for future reference. The report should indicate the basis and assumptions used for allaluations and estimations made. Sources of data collected should be indicated as footnotes to the tables
and charts. The reasons for selecting or rejecting a particular option should be clearly justified. Thereport should contain specific recommendations with respect to each aspect studied. A list of keypersonnel met during the survey and study should be appended.
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ZAMBIA: PETROLEUM SECTOR REHABILITATION PROJECT
PE.ROLEUM SECTOR CAPACITY BUILDING IN THEMINISTRY OF ENERGY AND WATER DEVELOPMENT
(TERMS OF REFERENCE FOR THE TECHNICAL CELL)
1. BACKGROUND
1.1 Ihe petroleum supply and distribution in the country is within the portfolio of theMinistry of Energy and Water Development (MEWD) which is responsible for identifying,analyzing and formulating policies and strategies to address current and emerging energyissues such as pricing reform, removal of supply constraints, restructuring of sectororganizations and enforcement of environmental and safety measures. The Ministry is alsoresponsible for coordinating all aspects of energy sector development in the country, includingthe national energy strategy, the annual energy plan and the rolling five-year investment planand advising on capital expenditures. The Ministry and the Department of Energy within theMinistry are now inadequately staffed to fulfil these functions satisfactorily. To overcomethis deficiency, MEWD intends to establish a Technical Cell of suitably qualified persomeland provide them with orientation and on-the-job training, as part of the proposed IDA-financed Petroleum Sector Rehabilitation. Initially the Technical Cell is expected to beorganized with consultants who will be assisted, in the day-to-day work, by suitably qualifiedMinistry staff. The consultants who will be on contract for carrying out the work initially,will train the Ministry staff while providing operational service, on a timebound program, sothat the Government stff could take over the responsibilities within a specified timetable.
2. JOB SPECIFICATION FOR THE TECHNICAL CELL
2.1 The main objective of the proposed Technical Cell is to build capacity in the MEWDto frame regulatory measures concerning energy sector issues, and monitoring andmaintaini records with respect to petroleum product consumption, sources of supply, energyconservation, international prices, ocean tanker rates, domestic pricing of petroleum products,stock position in the country, tariff levied by various modes of transportation in the country(pipeline, rail and road), review and advise on investment priorities in the sector, and developexport earning potential using the country's infrastructure and environmental and safetymeasures in the sector. The job specification for the Technical Cell will include, amongothers, the following:
(a) review consumption of each petroleum product (gasoline, kero/jet, diesel, fueloil for industry and mining, bitumen, LPG, lube oil and other specialty oilproducts) in each sector (industry, mining, agriculture, transport, commerciaestablishments and household) and record the figures for reference for at leastthe past ten years;
(b) prepare forecasts of consumption for the next five years and keep these
-70- Anex 4.9
Page 2 of 2
updated every year on a rolling basis;(c) review areas where petroleum is consumed in large quantities and evaluate
options for conservation wizh costs and benefits thereof;(d) monitor the international situation for supplying petroleum products on a
continuous basis and prepare cost-effective options for the country from time-to-time (including operation of the Indeni refinery);
(e) review the stock position for petroleum fuels in the country on a continuousbasis and advise MEWD on imports, timing and foreign exchangerequirements;
(t) monitor petroleum product prices in the country, their reasonableness withrespect to international prices, ocean transport, foreign exchange variationsand inflation, and advise MEWD on price revisions;
(g) monitor petroleum product prices in the neighboring countries on a continuousbasis with a view to check unauthorized border trade and evaluate exportpotential using Zambian infrastructure;
(h) monitor the tariff levied by various transport means (pipeline, rail and road),review operation of :he transport facilities and advise MEWD onrevisions/modifications required;
(D review all investment proposals in the public sector, evaluate technical andcommercial merits and these proposals for investment decisions by MEWD;and
(3) review environmental and safety measures in all operations in the sector andadvise MEWD of the corrections/modifications required.
(k) ensure healthy competition among the petroleum distributing companiesoperating in the country.
(I) supervise procurement arrangements for petroleum imports.
3. All information to be recorded for reference and future use, should be collected andtored In computers. All personnel employed in the Technical Cell should be computer-
sklled.
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Atmx 5.1Page 1 of 1
ZAMBIA
PETROLEUM SECTOR REHABILUTATION PROJECT
Notes and Assumptions on tnandal Projections
1. It is assumed that the present ZIMOIL will be replaced as the Zambia Oil Company (ZOC).All the assets and liabilities of ZIMOIL will be taken over by ZOC. ZOC wfll be in chageof procurement of feedstock only. The bulk distribution will be separated from ZOC.
2. A separate company (OMCC) will be responsible for the bulk distribution of products.OMCC will take delivery and own the feedstock from Dar-es-Salaam after ZOC passes it onto them.
3. ZOC wil continue to own the facilities for the first two years after the formation of the newcompanies and wiUl lease the facilities to OMCC at a mutually agreed fee. After two years,OMCC wiUl lease or purchase the facilities. For projection purposes, OMCC will have to buythe facilities from ZOC.
4. Tazama wiUl continue to offer its facilities to OMCC. The pumping facilities wil also beopen to other oil companies approved by the Government.
S. ZOC and OMCC will adopt the pricing structure described in Table 5.2 and 5.4 respectively.They wiUl revise the prices to reflect exchange fluctuations and international oil pricemovements.
ZAMBIAPE!ROLBU14 SroR RBBAILITATION PROJECT
ZIMOIL- INCOME STATEMENT (1988-93) - (In million of currtnt Kwacha)_ ~~~~~1987-88 1988-89 1989-90 1990-91 1991-92 1992-973
TumoverDom. Quanitity (000 Ton) 615 533 515 559Export Quantity (000 Ton) 25 13 22 2Revenuelton (Kwacha) N. ..
Domestic Sales _*7 Export Sales 175 152 637 148
Sales Revenue W a ,6 3 ;321 g;Other Income 43 0 81 6 921 873
_ow . M M I1 9aCost of Products 796 932 2,146 6,094 11,318 23,399
PERATING COSISHarbour Dues& Oceanfreight/Insurance 31 15 47 106 336 504Pipeline Thruput Cost 43 52 120 188 387 2,187Refining Cost 44 50 241 379 816 2,399Financing Cost 88 51 59 260 247 461Exchange Adjustment 2 12 21 133 227 361Demurrage 0 0 2 37 8 13Export Costs 4 3 5 1 3 2Terminal Costs 0 3 8 6 64 122Other Overhead Costs 9 28 19 185 289 319
Toa Opedatg Co 221 214 522 1295 2,377 6,369Interest 0 0 0 0 0 0Depreciation 0 0 0 0 0 0
PROFITBEFORE TAX 131 109 51 1,145 2,717 (248)Income Tax 0 0 473 1,112 13
I_PINC=&IE 8 _~; ____________ %,~. ","",y~~
MmiiPETROLEUM SECTOR R3EABILITATION PROJECT
ZIMOIL - BALANCE SHEET (1968-93) - (In million of curent Kwacha)- 1987-8 1 988-89 1 989-90 I1990-9 1 1991 I92 1 992 -93
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _Provisional
Cwment Assets Cash & Bank 519 450 651 2,367 3,618 3,441Stock in brade & in transit 290 267 666 4,096 5,193 13,680Accounts Receivables 207 106 408 1,722 2,596 3,320
Net Fixed Assets 3 12 16 52 60 83
LABSTESM RcrentLAhUAtfesTrade Creditors 863 443 1,383 6,793 6,181 15,407Other Creditors 0 8 244 329 1,460 890
---- ----Long-Term DeM 21 207 53 154 341 656
Own FudEquity Capita 0 0 0 0 0 0Reserves 135 177 61 961 3,485 3,571
Totwl Eq 135 77 961 3,485 3,571_3410-MMI-A _ IN, P, --A 1 W-M . MI
4~~~~~~~~~~~~~~~~~ V.
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Anxec 5.4Page 1 of 2
ZAMBIAPEROLEUM SECTOR REHABILITATION PROJECr
Zambia Oil Company
Notes and Assumptions on Fnandal Projectiom
All figures have been expressed in 1993 constant million Kwacha. The excnge rate assumed is 600Kwachas per one U.S. dolla.
Income Statemnt
1. Selling prices have been based on the price structure described in Table 5.2. Twocomputations have been shown-one with BZ fund: the other without the BZ fund. The BZfund relates to the arrears of 19 billion Kwacha (as . 6115193) payable to the Bank ofZambia by ZIMOIL. This is being paid in installm.-ats and it is expected ta the entre debitbalance will be cleared by the end of fiscal year 1994-95. Ihe selling price has beenaccordingy reduced to the ext of the BZ fund and the related tax effect (from US$289 perton in 1994-95 to US$163 per ton for later periods).
2. The CIF cost of feedstock is assumed 0 US$150 per ton, based on the average price for1993. It is estimatedthat afeedstock of 1.09039 tons wL be required to obtain one ton offinished product
3. The Landed Dar-es-Salaam cost includes:
(a) Harbor dues @ 1.5% of CIF(b) Normal ocean loss 0 0.3% of CIF(c) Inspection/Demurrage 0 0.25% of CIP
4. Finance charges have been assumed @ 1% of C]F
5. Interest on BZ fund relates to the interest payable on the arrears due to the Bank of Zambiafrom Zimoil.
6. t is assumed tat ZOC wll advance funds on a defered payment basis to OMCC for itsworking capital requme. Interest on these funds has been assmed a 8.5 % per year.
7. Abnormal loss has been costed a 5% of CIF. Any surplus in this account above the actualabnormal losses irred (over and above the internationally accepted standards) will betransferred to a special wLoss Fund" to be used in future need. This Fund will exist onlyduring the rehabiliation process. Once the rehabilitation is complete, the units will have tomeet to intemational standards. In the projections, the provision for abnormal loss has beenmade unti the year 2000.
8. Adminie costs have been provided 0 US$1 per ton.
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AnexL S.4Page 2 of 2
Balance Sheet
1. Stodck: On an average, one shipment of stock is always expected to be in transit or in theDar-es-Salaam storage tanks. This has been priced 0 US$150 per ton for 90,000 tons.
2. Accounts Recdvables: This represents the amounts advanced to OMCC. It is assumed thatZOC will have to grant credit to OMCC for the fuil amount of stock held in the Dar-es-Salaam storage tanks and in the pipeline (a total of approximately 180,000 tons 0 cost forOMCC [US$289 per ton for 94-95 and US$163 per ton from 95-96J) and in the Indead andthe terminal tanks at Ndola (approximately US$29.13 million for 1994-95 and US$17.91million later, estimated on the basis of the average stock held during Oct.and Nov.92 andFeb.93). This will be gradually reduced over five years fom 1996-97.
3. Plant and Equipment: Assets have been valued at the estimated replacement value ofUS$ 10 million. It is expected that OMCC will buy these facilities by the end of 1996-97.
4. DepreIation: 10% on a straight line basis assuming ten years of life.
5. Work In Progres: The proposed project loan amounts have been accounted as work inprogress until the completion of the project.
6. Long-Term Debt: Ihe funds proposed to be advanced by ZOC to OMCC for financingworking capital requirements are treated as long-term borrowing for ZOC to be repaid by theyear 2000. The amount payable within a year is shown as shortterm debt.
7. Project Leans: Proposed World Bank loan of US$2.1 million to be disbursed in stages.
8. Asset Reluon Reserre: Diffce between the book value and the revalued replacemenvalue. [6,000-93 = 5,907 million Kwachas]
PXTROLEUm SECTOR RERaBILITATION PROJECT
ZAMBIA OIL COMPANY- INCOME STATEMENT (In mMlam of 1993 estM Kwacba)
$=600 Kwadias 0-0X- 0 1 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000
Quantity (000 Tons) 702 712 721 729 740 749Price per ton (k) 173,400 97,800 97,800 97,800 97,800 97,800(@US$289 for 94-95 and US$163 later)Sates* 7E- 77§ 7Renu7Interest from OMCC 4,139 2,410 1,928 1,446 964 482Other Income 336 336 336 336 336 336
CIF cost 0 US$150 per ton * 63,199 64,099 64,909 65,630 66,620 67,430Harbour dues 0 1.5% CIF 948 961 974 984 999 1,011Inspection & Demurrage @ 0.25% CIF 158 160 162 164 167 169
DAD,R &,30,5 -- -----3-- ' r ; --ww ;_7 -WT -hFinance charges @1 % CIF 632 641 649 656 666 674Administrative costs @US$S/ton 421 427 433 437 444 449Interest on BZ fund 14,000 0 0 0 0 0Interest on credit to OMCC 4,139 2,410 1,928 1,446 964 482Abnormal losses @ 5% CIF 3,160 3,205 3,245 3,281 3,331 3,372
_ ' g 'Sw. 0PROFITBEFORE TAX 47 07 479 - 4T 48TTransfer to BZ fund 18,000 0 0 0 0 0Income Tax @ 40% on PBT 15,818 190 191 192 192 193
~43~SVOMF~~\' XI K. "''al -0w1 -- w -kQuantity purcluhsed assuming0.3% ocean loss (000 tons) 704 714 723 731 742 751
.0or
ZAMBIAPETROLlMS SECTOR REHBILITATION PROJECT
ZAMBIA OIL COMPANY - BALANCE SHEET In _m ef M1993 cet Kwacba)__ _ _ _ _ _ _ _ _ ___ _ iWSyb YiXM 1 Wi>ii9 2i
Cuffent AsstCash & Bank 742 713 779 585 608 720Stocks (90,000 tons @US$150) 8,100 8,100 8,100 8,100 8,100 8,100Accounts Receivables 48,696 28,356 22,685 17,014 11,342 5,671
Fixed AsseXPat & Equip. in Serv. 6,000 6,000 0 0 0 0Accumulated Depreciation (600) (1,200) 0 0 0 0Work in Progress 72 300 594 1,116 1,560 1,560
Net Pixed Assets -;7I 3T#i?F . ( 1W -3 1d* w
LIABILITIESCuffent Liabilities
Short term loans 20,340 5,671 5,671 5,671 5,671 5,671Other Creditors 2,610 1,744 2,685 2,306 2,123 1,946
Project Loans 60 240 480 900 1,260 1,260Long-Term Debt 28,356 22,685 17,014 11,342 5,671 0
F!mundsAsset Revaluation Reserves 5,907 5,907 0 0 0 0Equity Capital 10 10 10 10 10 10Reserves 5,727 6,012 6,298 6,586 6,874 7,164
Totl Equhy & Reseres ;7 r7 *-m- 77J
~siw.vx~nmiriun~v .~ _______
ft J4
ZAMBIAPnTROLEUM SECTOR REABILITATION PROJECT
TAZAMA PIPELINES LIMITED INCOME STATEMENT 1988-93 (In millions of current Kwcha1987-88 1988-89 1989-90 1990-91 1991-92 1992-93
Turnovet _ Unit Volume (000 ton) 635 708 663 649 550 634Service Fee (K/ton) __94__ 73 _ 8 481, 04 3Service Income 60 52 120 312 387 2,187other Income2 3 4 9 15
OPERATING COSTLabor Costs 5 6 22 81 285 353Technical Services Fee 1 1 6 11 7 43Fuel & Power 9 9 12 26 31 356Maintnce & Repair 1 1 3 7 11 35Tank Farm Operation 0 0 0 0 0 1 ccStock Obsolescence 0 0 0 0 0 0Admin. Salaries 2 3 8 27 95 151Vehicle Expenses .3 4 13 24 49 91Travel & Mess Expenses 2 4 6 10 25 49Property Maintenance 1 1 4 9 5 11Misc. Off. Expenses 4 7 10 14 60 83Exchange Adjustment(Gain)/Loss 3 (1) (2) 5 84 687Insurance 2 3 4 9 13 25Exceptnl. Items/Ass.Repl. (6) (8) 0 0 0 0Maintenance Reserve 0 0 0 - °- O 0
rotal OperatIng Costa 27 30 St 223 665 1,885Interest 75 14Depreciation ______7__ ____ 45 97 100
Ra_ E ,Mis ~~~~~~~~~~~~~~~~~~.~~~~~~~~~~~E
ZAMBIA... . . . PBTROLEUM SECTOR REUILITATION PROECT
.. .. SAMh PIPELINES LTD.- BALANCE SHEET 1988-93 (In millions of current Kwiacha)1987-88 1988-89 1989-90 1990-91 1991-92 1992-93
Current AssetsCash & Bank 9 9 59 54 8 109StocksAccounts Receivables 32 7 13 42 69 850Inventories 9 16 49 95 141 446
Fixed AssetsPipeline, Plant & Equip. 19 25 165 674 1,508 1,467Leasehold Land & Bldge. 9 9 11 11 11 10Investments zCapital Work in Progress 34 184 148 759 2,801 17,995
NNUMNg2'5e Nggl 45- W_ ___ ___*35 ____ ___A_____
LIABrkLsTEsCurrent LiabilitiesTrade Creditors 38 10 34 lie 595 1,557Dividend I 1 1 0Short Term Loans 0 4i928633
Long-Term Debt 23 168 301 1,282 3,955 19,383Own FundsEquity Capital 9 9 9 9 9 9Reserves 42 59 85 133 (308 10Total Equity 51 68 94 142 (299) (96)
'.*;iQlTS'FX!l>ALtL Th YZE8 44 E • E E4,53 _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~ 2 O . 7 ? _fiI
- 80 - Annex 5.9Page 1 of 5
ZAMBIAPETROLEUM SECTOR REHABILITATION PROJECT
Tazana Pipelines Limited (Tazama)
1. General Notes on Accounting Principles (Historical)
Fbied Assets.
1.1 Fixed assets include all capital items.
ShortlLong-Term Indebtedness
1.2 Short-term indebtedness comprises installments repayable within a year on long-termindebtedness.
Stocks
1.3 Stocks consist mainly of machinery spares, fuel and lubricants and are stated at thelower of cost and net realizable value. In general, cost is determined on a weightedaverage basis by reference to the actual landed cost of each consignment.
Depredation
1.4 Depreciation is calculated so as to write-off the cost of fixed assets on a straight linebasis over the expected economic life of the assets. The principal annual rates usedfor this purpose, which are consistent with those of the previous years, are:
Capital work in progress NilLeasehold land and buildings 2.5%Pipeline and tank farms 5%Plant, earth moving equipmentand office furniture 10%Cars, trucks, cffice equipmentand residential furniture 25%Bush vehicles 48%Loose tools 33.33%
Foreign Currencies
1.5 Assets and liabilities denominated in foreign currencies are translated to ZambianKwacha at the rates of exchange ruling at the balance sheet date. Net exchange gainsand losses on the translation of assets and short-term liabilities are recognized in theprofit and loss account in the period in which they arise. Exchange losses, interest,and other charges on pipelined amounts are recognized on a cash basis.
1.6 Net exchange gains and losses relating to the translation of long-term borrowing aredeferred for recognition in the profit and loss account over the period of (and in
- 81 - Annex 5.
Page 2 of 5
proportion to) the repayment of the loans to which they relate. To the extent thatexchange losses arise from a major depreciation of the Kwacha against the currenciesof borrowings incurred for fixed assets recendy acquired or not yet commissioned,these are capitalised as part of the cost of those assets.
1.7 All transactions of a revenue nature expressed in Tanzanian shillings are converted tothe Zambian Kwacha at an average rate throughout the year.
Cost of Borrowings
1.8 Interest on borrowings in respect of capital projects is capitalised together with otherborrowing costs. The rate of capitalization is the actual rate payable on identifiableborrrowings for specific projects.
Taxation
1.9 By a convention between the governments of the Republic of Zambia and the UnitedRepublic of Tanzania, the company is exempt from taxation.
Foreign Exchange Pipeline
1.10 From 1978 to October 3, 1985, Kwacha cover paid to the Bank of Zambia for thesettlement of foreign liabilities was placed in the foreign exchange pipeline awaitingallocation of foreign currency. At the date of depositing the Kwacha cover, theforeign liability was treated as setfled and both deposit and liability excluded from thebalance sheet. Since October 3, 1985, no further deposits have been placed in theforeign exchange pipeline and foreign liabilities have been incurred only when theavailability of foreign currency for repayments has been ascertained.
Inflation Adjustnents
1.11 The company has not yet complied with International Accounting Standard Number 29(AS29), "Accounting in Hyperinflationary Economies". No definitive statement hasyet been issued by the Zambia Institute of Certified Accountants, the body responsiblefor the regulation of accounting standards in Zambia.
-82- Annex .9Page 3 of 5
2. Projections
Notes and Assumptions on Financial Projecions
Ihe financial projections are based on historical accounts. The projections are made in 1993constant Kwacha ($=600 Kwachas), without considering inflation and exchange ratedetioraon. As Tazama is a subsidiary of ZIMCO, ZIMCO confirms that it will contiue toprovide adequate support of working capital to enable the company to maintain its operationsas a going concern for the duration of the project
A. Inoome Statement
Turnover
2.1 After providing for various losses, the volume of throughput for each year i assumedto be the following:
1993-94 - 6501994-95 - 7021995-96 - 7121996-97 - 7211997-98 - 7291998-99 - 7401999-2000 - 749
Tariff Rates
2.2 Tariff is determined for the whole year in advance on a cost plus basis, afer takinginto account:
(a) routine operating expenses(b) minor capital expenditure(c) debt servicing(d) machinery spares(e) sinking find(t) rehabilitaion expenses(g) staff loans(h) expansion fund equivalent to US $1 million per annum.
The tariff will be set mainly in dollars to obviate the need for exchange rateadjustment.
Abor Cots
2.3 No separate Tanzanian and Zambian inflation rates are used to detrmine labor costs.The company has reduced its workforce from the original authorized establisment of623 to the new authorized establishment of 498. 112 people have been released
- 83 - Annex S2
Page 4 of 5
during 1992-93 and the number of actual workforce now Is 474. Annual savings tothe tune of 96.878 million Kwacha is expected from this measure. This staffing levelfigure is assumed to be constant for the forecast period.
Technical Services Fee
2.4 There is no foreign currency element in this head. This consists of payments made tolocal companies for maintaining office machmes and equipment.
Fuel and Power
2.5 Ihe average fuel consumption to pump a metric ton of crude is 9 liters. The cost ofone liter of fuel is 32 Kwachas.
Administraive Salaries
2.6 This consists of salaries paid to management, engineering staff and clerical staff at theHead Office.
Vicle Expn
2.7 This consists of expenses for fuel, lubrication, service and repairs.
Travd and Mess Expenses
2.8 The company provides mess facilities along the line and at the two bases (Ndola andDar-s-Salaam).
;i aneous Expense
2.9 The components of miscellaneous expenses are typicall items such as stationery,telephone, telex, postage, cleaning materials, coffee and tea.
Excange Adjustmnt
2.10 Only one exchange rate is used through out the projection period.
Depredation
2.11 Depreciation has been projected at fixed rate and provision has not been made for theproposed capital expenditure financed by the World Bank since the project is expectedto be operational only after the year 2000.
inome Tax
2.12 Tazama is exempt from al taxation.
- 84 - Amex 5.9Page 5 of 5
B. BALANCE SHEUT
Stodks
2.13 The major components of stocks are fuel, lubricants, and machinery spares. Allstocks are assumed to be in good condition and likely to be used within three years.
Accounts Recelvables
2.14 This is calculated at one month's pumping fee receivable from ZIMOIL.
Plant and Equipment In Su-vice
2.15 These include land and building, pipeline, plant and machinery, motor vehicles, officeand household furniture and equipments. Additions include capital expenditure fromown resources and capital projects out of borrowed funds from the World Bank, EIBand ADB.
Work4n-Progress
2.16 This is composed of capital projects including pipeline rehabilitation still in process.
Other Credtors
2.17 They include:
(a) Leave and retirement benefits provisions for serving employees.(b) Personal tax borne in March, but paid in April of the following financial year.(c) Employees' contribution to pension and provident fund deducted from March
salaries but remitted in April of the following financial year.(d) Expenses accrued but not paid by 31st March.
Log-term Debt
2.18 This is made up of balances due to the World Bank, EB, ADB and the ItalianGovernment.
C. FUNDS FLOW SIATEMENTS
Project IAas Recived
2.19 These are loans receivable from the World Bank, EIB U, and ADB during the year.
Institutional Strengthenlng
2.20 This relates to the funding proposed to be made by the World Bank to strengthen themanagement of Tazama.
ZAMBIA- .- ;- . PPTROL3UM 8BCTOR RBIiILITATION PROJECT
. TAZAMA PIPELINES LTD. INCOME STATEMENT (In millons of 1993 constat Kwadaa)$=600 Kwachas 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000Turnover . .
Unit Volume (000 ton) 6s0 702 712 721 729 740 749Tariff (K/ton) 12,529 10,574 10,455 10,379 10,306 10,194 10,112Pumping Fee 8,144 7,423 7,444 7,483 7,513 7,544 7,574Other Income 30 30 30 30 30 30 30
OPERATING COSTSLabor Costs 732 743 755 766 777 78B 800Technical Services Fee 38 38 38 38 38 38 38Fuel & Power 751 763 774 786 797 809 820Maintenance & Repair 483 491 489 506 513 521 528Tank Farm Operation 8 8 8 8 8 8 8Stock Obsolescence 0 0 0 0 0 0 0Administrative Salaries 305 305 305 305 305 305 305Vehicle Expenses 234 234 234 234 234 234 234Travel & Mess Expenses 97 97 97 97 97 97 97Property Maintenance 28 28 28 28 28 28 28Miscellaneous Office Expens 234 234 234 234 234 234 234Exchange Adjustment 0 0 0 0 0 0 0Insurance 53 53 53 53 53 53 53
,.,= .~.- har ___ ... l4$Interest 1479 1019 1,019 1,019 1,019 1,019 1,019Depreciation 169 169 169 169 169 169 169
' ... , ..- 1 _ E~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I.
3~~~ 3
o o51K
PETROLEUM SECTOR REIIaJILIThTION PROJECT
TAsAs PIPELiNze LTD. BILaxCI HsEET 16s6-93 (In iillions of current Iwacba)_______________________________ | 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93
Current ssetsCash & Bank 9 9 59 54 8 109StocksAccounts Receivables 32 7 13 42 69 850inventories 91 99 4 4
Fixed-AssetsPlpeline, Plant & Equip. 19 25 165 674 1,508 1,467Leasehold Land 6 Bldgq. 9 9 11 11 11 10InvestmentaCapital Work in Progress 34 184 148 759 2,801 17,995 *
current LiabilitiesTrade Credltore 38 10 34 11 595 1,557Dividends 1 1 I Short Term Loans O 4 is 92 286 33
Long-Term Debt 23 168 301 1,282 3,955 19,383Own Funds
Stuity Capital 9 9 9 9 9 9Reserves 42 59 as 133 (308_ _105__e__Tocal Equity 51 68 94 142 (299) (96i
4 A5=11WiN M-~"',~R ",7777MM" ___' 3 E g ` iQ Z iIo _
ZAMIwAPBTIOLUMl SECTOR REHABILITATION PROJECT
TAZAMA PIPELINES LIMITED FUNDS FLOW STATEMENT (in milioms of 193 constant Kwacha)
$=600 Kwachas - ~1993X94 1994 T 95 19959 199697 1 1 99899 19992SOURCIES OF FlNDS -.
Intemal SouMeNet Income 3,563 3,271 3,271 3,271 3,271 3,271 3,271Depreciation 169 169 169 169 169 169 169Interest on Long term Debt 1,479 1,019 1,019 1,019 1,019 1,019 1,019
Borrowings:Project Loans Received 4,785 1,230 2,574 4,590 8,370 7,530 0Local Borrowings O 66 132 252 462 408 O
________ ~ .1-A 91 1 37 4*~*9-
APPLICATIONS OF FUNDSCapital Exenditure:Proposed Project 0 1,191 2,496 4,443 8,097 7,287 0Other Capital Expenditure 6,446 283 283 283 283 283 283
_111,1 Debt Service:
Interest on Long term Debt 1,479 1,019 1,019 1,019 1,019 1,019 1,019Repayment of Loans 1,754 1,216 1,216 1,216 1,216 1,216 1,216
Institutional Strengffiening O 105 210 399 735 651 0Changes in Working Capital 317 1,941 1,941 1,941 1,941 1,941 1,941
W s~9r t147 ~W
- 88 - Annex 6.1Page 1 of 3
ZAMBIA
PETROLEUM SECTOR REHABILITATION PROJECT
Economic Analysis of the Distribution Components
Assumtion
1. Demand for the petroleum products in Lusaka was based on the actual consumptionwhich represents 32% of Zambian demand for petroleum in Lusaka.
2. Capital investments were estimated at $2.4 million for Lusaka.
3. Economic costs of transporting petroleum products by rail and road were estimated asfolluws:
From Ndola to Lusaka
Rail (in Kwacha/ton/km)Costs before Proposed Investment Costs after Proposed Investment
Lusaka 3.16 2.51
Road (n Kwachal.ton/km)
Lusaka 4.8
ZAMBIA -PETROLEUM REHABILITATION PROJECT-Economic Analysis of Petroleum Products DistributionRehabilitation of Loadinglunloading Facilitles at Ndola and Lusaka
BASE 2% TRAFFIC 6% TRAFFIC 10% TRAFFIC
Economic Incremental SCENARIO GENERATION GENERATION GENERATION
Investment O & M Net Net Net Net
Year Cots Costs Benefit Benefit Benefit Benefit
1992 716 (3) (795) (796) (797) (789)
1993 1,192 2 (1,279) (1,280) (1,281) (1,283)
1994 477 28 (697) (S98) (599) (602)
1996 0 23 613 518 526 540
1996 0 23 522 527 635 649
1997 0 23 531 536 546 568
1998 0 23 540 545 564 56e
1999 0 23 649 555 563 678
2000 0 23 659 664 673 688
2001 0 23 672 678 587 602
2002 0 23 658 692 601 16e
2003 0 23 600 w0e e6s 6a1
2004 0 23 614 621 630 648
2005 0 23 629 636 645 662
2006 0 23 a44 661 e8l 678
2007 0 23 660 667 677 6894
EIRR: 14.9% 15.1% 15.3% 16.7%
ZAMBIA -PETROLEUM REHABILITATION PROJECT-Economic, nalysis of Petroleum Products DistributionRehabilitation of Loading/unloading Facilities at Ndola and Lusaka With 10% Costs Over-run
BASE 2% TRAFFIC S% TRAFFIC 10% TRAFFICEconomic Incremental SCENARIO GENERATION GENERATION GENERATION
Investment O & M Net Net Net NetYear Costs Costs Benefit Benefit Benefit Benefit1992 786 (2) (867) (868) (869) (871)1993 1,311 3 (1,400) (1,400) (1,402) (1.404)1994 624 32 (648) (649) (651) (663)1996 0 27 510 515 523 5371996 0 27 518 524 532 5461997 0 27 527 533 541 5551998 0 27 537 542 551 56S1899 0 27 546 561 560 5742000 0 27 555 S61 570 6842001 0 27 569 575 583 5982002 0 27 582 588 588 6132003 0 27 596 603 612 6282004 0 27 611 617 627 6432006 0 27 626 632 642 6582006 0 27 641 648 658 6742007 0 27 657 664 674 691
EIRR: 13.3% 13.65o 13.7% 14.1%
IIB
-91 - . sPage 1 of 7
ZAMBIA
PEMTOLEUM SECTOR BEIIABUXTATION PROJECT
Economic Analysis of Refinery Operationsand Product Pipeline Options
AsLumptions for the Economic Analysis
1. Consumption of products in Zambia was assumed as in Table 1 of Annex 6.2.Forecast demand agreed with the Zambian Government during the pre-appraisalmissions was based on growth in GDP. The demand for fuel oil was based onconsumption in the mining sector.
2. Crude and product prices were estimated on the basis of average March 1992 MiddleEast prices as follows:
FOB (US$/ton)Crude 127LPG 106Gasoline 193Jet fuel 182Naphtha 150Kerosene 170Diesel 151Fuel Oil 70Bitumen 85VGO 120
Prices were kept constant during the project life.
3. Crude and Product blends will be transported to Dar-es-Salaam SBM in 90,000-tontankers, and white products in 45,000-ton clean tankers. Ihe estimated freight costsper ton were US$6 for 90,000-ton tankers and US$8 for the clean tankers (exceptLPG and Bitumen). Freight costs per ton for LPG were estimated at US$150 andBitumen at US$300.
4. In the products option, products wiUl be unloaded through a separate submarine andon-shore pipeline connected to the SBM. Two additional storage tanks will beprovided at the Dar-es-Salaam terminal to segregate each product.
5. Pipeline use until fully rehabilitated is assumed to be 800,000 tons/year (1,000,000tonslyear afterwards).
6. Refinery capacity to achieve 7% fuel consumption and loss is assumed to be 750,000tons per year and 8% at lower capacity. After installing the preflash tower, refinerycapacity is assumed to be 1,000,000 tons per year, and after installing the energy
- 92 - Annex 6.2
Page 2 of 7
conservation measure the Iuel consumption and loss is assumed to improve by 1 %.
7. In the Product Line Case, two tap-off points at Makambako and Mbeya in Tanzaniaand one at Kalonji in Zambia were envisaged. The fuel oil requirement of the miningsector will be met by diesel supplied at the price of fuel oil initially. Usingexperience gained during the first year of operation, a cheaper product of vacuum gasoil (VGO) transported by the pipeline will be provided. Jet fael will be transportedby rail from Dar-es-SaWam initially, and after the first year of operation, it will betransported in the pipeline as Duel Purpose Kerosene (DPK).
8. The construction period for all facilities was assumed to be three years.
9. In the Refinery Cases, exports will be limited to the Shaba region of Zaire and areexpected to be 75,000 tons per year under normal circumstances. In the Product LineCase, exports to Shaba as well as to other countries from the pipeline were assumed.The potential export markets assumed were: Shaba (Zaire) = 75,000 tons; Tanzania= 60,000 tons; and South of Livingstone = 50,000 tons.
10. The operating costs of the refinery and the pipeline were estimated on the basis ofcurrent financial statements of Indeni and Tazama.
Table 1ZAMBIA-PETROLEUM REHABTATION PRWOJWTDeanwd Forsat for Pleum Products aIn Thos tons)
ProducXt 1002 100 1004 10 1900 1007 1008 10 2000 2001 202 200S 2004 2005 2 2007(Actal
LP? 2 3 3 3 4 4 4 5 5 6 S 6 6 5 6 6Gasdlne(s) 117 120 128 120 131 132 133 1ta 1se ts7 1t0 140 141 143 144 146Kersw*s) 29 30 2 3Ss 34 34 34 38 88 36 36 36 3* 37 37 seJetFuI 21 26 26 26 27 27 28 2a 20 20 30 S0 31 32 82 33Gus ON(s) 261 20 280 28 201 297 303 300 st5 325 3s5 346 355 3S0 377 388Fuiel ON(s) 73 84 8 84 84 84 84 84 84 so o0 00 00 90 90 90Biumen(s) 4 10 10 10 10 10 10 10 10 12 12 12 12 12 1. 12
TOW 407 832 564 671 580 588 a6n 6oe 614 634 646 a6n 671 684 an 711
u ..
94 - ~~~~~~Annext 6.2
Page 4 of 7
i g I I4 If o
---- - - - - - - -
I-~ ~ ~ ~ ~ ~~t
* _ a _ a a a
s o O O O O ~ ~ o o a
-. EZI ij I-
I ~ 1 9 @ °°°--"
. IS~~t Io jgo@@§@@o oo@@ oo oo@
e |j| 3S1b°oSa°°°°°°°° - - -
Zamba -Ptroeum Sector RehablItatlon Projt-
Currnt lneywh EMleno Impvments (poftOon)
(unit US$ houand)
bw*nent Code Operng cost NePewmathdle Transpost eitfwy A/nnad
youe 2I,P I DX C md s CO*W1 PIndW PWRoad 2M0 1902 1,900 6.700 1.800 23s16 67.141 6,402 8$.Sl 8,211 0 113.221 1063 2,600 10,050 2o800 29,074 86,O6 5,8 6,164 8790 0 124.8772 1994 1,660 11,725 2,000 290074 62,49 ,l2s 95,706 0,310 0 132*403 1008 0 8,026 0 29,074 62,33 6.142 C,M 6S3AO 0 122.0604 tIM 0 0 0 2S.074 64,143 6.37 69*92 0,481 0 118lk75 1067 o 0 0 2s,074 56650 6,323 10,130 s,612 0 120,047* 10o6 5,000 0 0 29.074 e6ss6 6,411 10M70 6.7A 0 127,3s7 1sss 0 0 0 29.074 66.482 6.811 10,430 CM06 0 124.368 2000 0 0 0 29,074 60,622 6O62 10,7 10.034 0 1262066 2001 0 0 0 31,646 70,311 6.14 10t,15 1o0,37 0 126
10 2002 0 0 0 31,649 72,363 6,944 11,123 1o,5 0 132,1t1 2003 6,000 0 0 1,6546 74,466 7.077 M1 10,768 0 140,16712 2004 0 0 0 31546 76.631 7,213 I1.56 10,064 0 137,91213 2006 0 0 0 31A146 76,680 7a364 11.780 11.177 0 140,710 "o14 200 0 0 0 SI1M6 81,129 7,406 12,011 11,9 0 143,80 Cos16 2007 0 0 0 31,540 82,102 7,64 12,248 11,40s 0 146,010 1,61.134
FIL
Zambla -Petroleum Rehabliltation Project-
Conmeron to Product Pipellne (Futl Expon(unle US$ thousand)
Invetment Costs OperatIng Costs NetRefinery Terminas Pipeline Tranqeaon Annual
Year Conversion Pletlne Depots & Tnaks Conversion Cmude Products Plieline RaiURoad O&M Code0 1902 0 6,700 1,600 000 2,400 23.816 60.040 6.217 8,6e1 9,450 16.526 5 1t3,s61 1093 0 10,060 2,600 2,800 3,600 2s.074 69,715 6,6s08 s,t4 10.02S 1s.526 128,0052 1904 2,000 11,725 2,000 2,600 4.200 29,074 75.148 8,B40 9.706 10.64S 15.626 138,3183 1006 0 6,026 0 800 1,80 0 161,617 8,000 13,630 1.600 71,004 110,3784 1098 0 0 0 0 0 0 178,251 10,000 11,3s6 1.600 112.476 88.8136 1007 0 0 0 0 0 0 178.630 10.000 1167 1,500 110,86 80,023a 1008 0 0 0 0 0 0 179,018 10,000 1122 1,800 109,27 93.0707 1000 0 ^0 0 0 0 179,672 10,000 12077 1.50 107,630 96.6198 2000 0 0 0 0 0 0 180,081 10,000 12226 1,500 106.084 97,8430 2001 0 0 0 0 0 181,086 10,000 12.756 1,600 102,11O 103230
10 2002 0 0 0 0 0 0 181.144 10.000 12,09 1,o5 09,23 106,37911 2003 0 0 0 0 0 0 1t1,129 10,000 13,1e8 1,600 06,214 100.60312 2004 0 0 0 0 0 0 181,112 10.000 13,414 1,600 93,110 112,01513 2006 0 0 0 0 0 0 181,094 10,000 13.646 1.600 89.924 116,316 NPVof14 2006 0 0 0 0 0 0 180,927 10,000 13,882 1,600 86,506 119,804 Cods15 2007 a 0 0 0 0 0 180.786 10,000 14,128 1'00 82.094 123,387 845,J80
0% |
Zambia -Peroleum Rehabilitation Proet-Convesion to Product Pipeline (Fuii iot from Yr a)
(unit. US$ thousand)
Invetsment Cot Operaing Costs tRefinery Terminals Pipeline Transporaln Annual
Year Conversion Pipeline i wos & Tnaks Conversion Crude Produts Piolne Rail/Road O i ExpottW Costs0 1982 0 6,700 1,600 000 2,400 23,816 67,141 6,402 8,561 8,211 0 114,6321 1903 0 10,060 2,600 2,800 3,60o 29,074 68,916 6,783 9.164 8,790 0 128,6772 1094 2,000 11,726 2,000 2,600 4,00 2' 62,340 6,126 9,706 9.310 0 138,9903 1096 0 5,026 0 800 1,800 0 161,617 8,000 13,630 1,600 71,994 110,3784 10986 0 0 0 0 0 178,261 10,000 11.636 1,6-0 112,476 88.8136 1097 0 0 0 0 0 0 178,630 10,000 11,678 1,500 110.886 90.6236 1098 0 0 0 0 0 0 179,018 10,000 11,22 1,600 109,270 03,0707 19S9 0 0 0 0 0 0 179,672 10,000 12,077 1,500 1,97,630 05,6198 2000 0 0 0 0 0 0 180,081 10,000 12,22 1,600 106.964 97,8439 2001 0 0 0 0 0 0 181.086 10,000 12.76B 1,600 102,110 103230
10 2002 0 0 0 0 0 0 181,144 10,000 12,099 1,600 09,38 106.37611 2003 0 0 0 0 0 0 181,129 10,000 13,189 1,60o 90,214 109.03 '.012 2004 0 0 0 0 0 0 181,112 10,000 13,414 1,500 03,110 112,91513 2006 0 0 0 0 0 0 181,094 10,000 13.646 1.600 89.024 116,8315 NPVot14 2006 0 0 0 0 0 0 180.927 10.000 13,882 1,60 86.605 119.804 Costs16 2007 0 0 0 0 0 0 180.766 10,000 14.126 1,600 82,804 123,387 947.736
ISRO 201455 t U G AND A > t ' 0 0 ,,0A ) U A
I- -j + 8000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~, KENYA
YA~~~~~~~AR
|RWAN DA r ld/t,s } < '.J\
t g \ / tOy 2/ ffi , + = 2 g 7 / , > 4 \ \ s 2 A | R E '.~~~~~~~~~~~~~~~~~~~~/ **~ ,, 6*
L_% ANZA s I J
K]GOM
PETROLEUM SUPPLY FACIUlTIES
I~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~ W\ u JAA''PI'p' *_
-- L TAu. r e UoIid0 bhmk~ ogow A%Ibo
0 b.r qt ?on .927 Lcla&1f 0 4
-A R~aC&
- scuho"clSW 1mb.porls
ZAR 91 jJ< vMI"lU
b.10-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ a.ma
7 bam&okneh. pc&Aww
71Ii ddany @woo*p.L~~~~~~~~~~~~~~~~ ZAMBIQUE ooy.od6amm..
To Ndato 4e 9=~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,. Of such~~~~~~~~~~~~~~MAII 9'
IBRD 25541
ZAMBIA/TANZANIA 2_ -PETROLEUM SUPPLY FACILIMES J / Kanalb. Boys u T A N Z A N I A
Coal Deposit Areas TAZAMA Pipeline te OIL DEPOTrAN(
Roads 0 Existing Oil Depots Meor aSe
Rcilroads ak Existin Pup Sttions927
Rivers O Exisfing Cofhodic Protection Stions
Swamps 927 Loration Identification
N oational Capital Planned Cathodic Pratection Stations
P province Capitals Kd,o.oefes 0 50 100 150 200 250
-+ -Province Boundaries MO1
*~~~~~~~~ie iiun p ~Quuneh ZGAPUZA ,19f11
* -Interncional Boundaries I - ' T H E i
*2- ! SIlwezi I ',
A N G O L A N O P T v r Ch.gel >2 ChIw
r~~ ~~~~~~~~~~*CPEB IERLU 0 NC)E MAD0 Mfuus f. > j MALAW I
bashi 29i5i Mposhi
N . toi g _ 0 _ g _._ ~~~~~~~ M O Z A M B I Q Ue i E3 0 12
A N G A TE M A U A K A _ __
8 w sA tXs r E R ~~~~~N 7° ._ 0 R CA m
16 ~~~~~~~~~~~~~~~~~~~~~~~hl a enxa K ael -oA-- -J SoMasr StrjZALI RENA} ,N\>
w (1 S TERN E SoIT E
I . t. 1 5 w0 A''X'Ht N D a . ,, PETROLEU ZM BAI BANLAW I
,_ OIL DESisazooSWs ( ,'O Z ANG OL A ,._ I tAIR5
Zombeli~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~ p.
r co bw ee o.bodri.~* d%o'\~ SOTSWANA *..o Se BOTSWANA ,,~..y '.
M 0 Z A M B I 0 U AR0 E 99
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