Report No. 886-YU

Appraisal of the ,ga UayYugoslaviaOil Pipeline(Yugoslavenski Naftovod Poduzece za Transport Nafte U Osnivanju)

October 7, 1975Regional Projects DepartmentEurope, Middle East, and North Africa Regional Office

Not for Public Use

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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CURRENCY EQUrJAIJ.iTS

Currency Unit -- +aosiaviga Dinar (Din,)Din. 1 u us$oo059US$1 - Di]t, J7W)

WEIGHTS AND MASA-RES

1 inch (in) - 2,54 CentImeters1 meter (m) = 3.28 feet (ft)1 kilometer (km) = O.6214 miles (mi)1 square kilometer (km2) = 02386 s.-are mile 1 cubic meter (m3 ) = 6.28-3 baxrels

= 0.80 to 095 metric tons of crude oil1 barrell (bbl) =42 'S gallons (gal)1 kilocalorie (kcal) - 3,968 British thermal units (Btu)

0 0,001,6 kilowatt hours (kWh)1 horsepower - 07)46l kilo-watt (kW)1 Megawatt (MW) = 1,000 kilowatts (16-kkW)1 Gigawatt hour (GWh) 1 mil lion kilDwatt hours (106kWh)1 long ton (lg ton)1/ 2,21iO pouids (lbs)1metric ton (ton) - 2,205 pounds (lbs)1 short ton (sh ton) - 20G0O pounds (lbs)Tons oil equivalent (Toe) - 10 million kilocalories (kcal)

GLOSSARY OF ABBREVILATIONS

ANSI - American National Stand&us Inst:ituteAPI - American Petroleum InstituteCCITT - Comite Consultatif International Telegrafique et

TelephorniqueCCIR - Comite Consultatif InternatLonal des Radiocommunicationsdwt - Deadweight tons, oil carrying capacity of tanker in lg tonsFCEI - Federal Committee on Energy and IndustryIEC - International Electric CodeJUGEL - Union of Yugoslav Electric Power IndustryMATREZ - Federal Directorate for Reseries of Foodstuffs and Strategic

StocksNEC - National (US) Electric CodeSAS - Social Accounting Service

JUGOSLAVENSKI NAF2C'OYGDFISCAL YEAR

January 1 - December 31

1/ Used throughout the report when referrLig t.o c;rude oil and pipe

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

(Jugoslavenski Naftovod Poduzeceza Transport Nafte U Osnivanju)

CONTENTS

Page No.

SUMMARY ........................................... i

I. INTRODUCTION ..................... .................

II. BACKGROUND ........................................ 2

A. The Country and the Economy .... .............. 2B. Energy Resources ............................. 3C. Energy Sector Policy and Organization ........ 3D. The Oil and Gas Sector .... .................... 4E. Past Developments in Energy Supply and Demand. 5F. Present Situation and Future Prospects ....... 6

III. THE BORROWER ...................................... 7

A. Background ....... ........................... . 7B. Organization and Management ............... .. . 7C. Recruitment and Training ................. .... 7D. Line Fill ................................... . 8E. Insurance ....... ........................... . 8F. Operations and Maintenance ............... .... 8G. Operational Arrangements with Clients and

Others . ..................................... 9H. Investment Plan ...... ....................... . 9

IV. THE PROJECT ....................................... 10

A. Objectives ................... ................ 10B. Description ...... ............ ................ 10C. Status of Engineering ........... .. ........... 12D. Cost Estimate ............... .. ............... 12E. Financing Plan .......... .. ................... 14F. Implementation ............... .. .............. 15G. Disbursements ............... .. ............... 17H. Ecology and Safety .......................... 17

TABLE OF CONTENTS (Continued)

Page No.

V. FINANCIAL EVALUATION ............................... 18

A. Financial Forecasts ............ .. ............ 18B. Tariffs ...................... . ................ 19C. Cash Flow ...... ............. ................. 20D. Audit ....... .............. ................... 20E. Special Loan Repayment Guarantees .... ........ 20

VI. ECONOMIC EVALUATION ................................ 21

A. General ...................................... 21B. Demand Projections ........ ;: ................. 21C. Size of the Proposed Facilities .... .......... 22D. Alternatives to the Proposed System .... ...... 22E. Project Benefits ..................... 23F. Sensitivity to Changes in Traffic Growth ..... 23G. Beneficiaries and Employment .... ............. 23H. Impact on Alternative Means of Transport 24

VII. AGREEMENTS REACHED AND RECOMMENDATIONS .... ........ 24

ANNEXES

1. The Energy Sector ir. Yugoslavia2. Tanker Terminal3. Duties of The Foreign Consultants4. Detailed Project Cost Estimate5. Estimated Schedule of Disbursements6. Budget and Accounting Procedures7. Bases and Assumptions Used in Financial Ana:Lysis8. Revenue Accounts9. Balance Sheet10. Cash Flow11. Resume of Transport Agreements12. Background and Assumptions Used in the Justification of the Project13. Design Codes and Standards

CHARTS

1. Organization Chart (World Bank 9761)2. Schematic Diagram of the Pipeline System (World Bank 9754)3. Project Schedule (World Bank 15172)

>APS

1. Location of The Pipeline System (IBRD 11536)2. Location of Hydrocarbons and Coal (IBRD 11617)

APPRAISAL OF

THE YUGOSLAVIA OIL PIPFLINE

(Jugoslavenksi Naftovod Poduzeceza Transport Nafte U Osnivanju)

SUMMARY

i. Yugoslavia's energy resources are lignite and coal (97%), hydrocar-bons (oil and gas 3%) and hydropower. At the 1975-1990 forecast level ofconsumption, lignite and coal will last some 260 years. Despite the largecoal reserves and hydroelectric potential, Yugoslavia is not self-sufficientin energy; the low quality of the coal makes long distance haul uneconomic andlimits its use to power and steam generation while development of the hydro-electric potential has been hampered by administrative considerations.

ii. Energy producers, consumers and the authorities are in the processof negotiating social agreements which will define the interrelationship ofall parties. The Government created a Federal Committee on Energy and Indus-try (FCEI) to study long-term energy policy; the Committee's findings arethat: (a) Yugoslavia should limit its dependence on imported fuels by substi-tuting coal and hydropower for the former wherever feasible; (b) conservationmeasures should be adopted where appropriate but not at the expense of econo-mic development and (c) pricing policies should be revised to support anational energy policy. The Government has agreed to discuss these findingswith a Bank mission scheduled to visit Yugoslavia in the fall of 1975.

iii. These measures should provide a logical framework for energy devel-opment in Yugoslavia. The Government's energy demand forecasts which werelowered after the oil crisis show total energy demand to increase three timesbetween 1975 and 1990. Hydrocarbons demand will increase at the same paceas total energy and imports of crude oil are expected to increase from 7.9million in 1975 to 28 million tons in 1990. Considering Yugoslavia's currentlow per capita energy consumption, these projections are reasonable.

iv. To handle the increased volumes of oil imports three oil and gasenterprises decided to build the necessary facilities and the Government hasasked the Bank for assistance in financing the facilities for the projectwhich will provide an oil port and overland transport of crude oil by pipe-line to five inland refineries and to Hungary and Czechoslovakia. The crudeoil will be imported through the Adriatic Port of Omisalj. Besides the oilport, the project will comprise seven pump stations, five oil storage tankfarms, a control system and 736 km of pipelines. The project will lower thecost of inland transport of oil in Yugoslavia.

v. The project costs, net of duties and other local taxes, are estimatedat Din. 6,532.2 million (US$384.2 million) of which Din. 3,675 million(USS216.2 million) would be foreign exchange and Din. 2,857.2 million(US$168.0 million) represent the local currency expenditure.

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vi. This would be the second loan to Yugoslavia in the pipeline sub-sector. The first loan (Loan 916-YU, June 1973) was made for the NaftagasPipeline Project to transport and distribute natural gas to industrial con-sumers in Serbia and Vojvodina and contemplated future expansion into Kosovo,a less-developed area. Due to a tripling of the price of pipe, this projectis facing a large cost overrun which the Borrower and the local guarantorbank is unable to finance. The restructuring of the project and a revised.financing plan are now being considered.

vii. The project would be financed by the Bank loan (US$49 million) at8.5% repayable in 18 years including a grace period of four years; other for-eign loans will be from Kuwait (US$125 million), Libya (USS70 million),Hungary (US$25 million) and Czechoslovakia (US$25 million). The local loanswill be for US$26.5 million, US$59.0 million and US$20.5 million respectivelyfrom three oil and gas enterprises, the Federal Petroleum Fund and two banks.The proceeds of all loans total US$400 million and will cover the projectcosts including taxes and interest during construction on the Kuwait and Bankloans. Bank financing would be parallel with that of other foreign lenders.

viii. The Borrower would be Jugoslavenski Naftovod Poduzece za TransportNafte U Osnivanju (Naftovod), an enterprise established by three oil and gasenterprises in Yugoslavia, INA, Naftagas, and Energoinvest. Naftovod wouldbe responsible for project implementation and for oPeration of the facilitiesexcept the port. Consultants have been employed to carry out design andconstruction supervision.

ix. The foreign exchange costs of consultants, construction, two tugsand oil loading arms would be financed under the Bank loan and would be pro-cured under international competitive bidding except for the services offoreign consultants. The Kuwaiti loan will comprise cash and the supply ofpipe, and the Czechoslovakian loan comprises pipe and construction servicesfor the Sisak-Hungary section of the pipeline.

x. The construction period would start in March or April 1976; Stage I(16 million tons annual capacity) would be completed in May 1978, and StageII (20 million tons) would be finished in 'May 1979.

xi. The project will start earning revenue from 1978 at the completionof Stage 1. The financial forecasts indicate that it will earn sufficientrevenue to meet all liabilities and generate funds for financial reserves.

xii. The pr,ject will provide economical transport of crude oil to fiveYugoslav refineries. When compared to expanding the existing means of oiltransport, railways and barges, the rate of discount at which both coststreams are equalized is 50% after taking account of foreign transit revenues.

xiii. In view of the problems with recent cost overrtns in Yugoslavia,special overrun guarantees have been provided. To cope with unforeseenemergencies, which might create temporary liquidity problems, special debtservice guarantees have also been provided. In view of the very tight proj-ect schedule, contingency planning will be provided to help ensure that thefacilities required for the foreign transit are completed in time.

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xiv. Subject to agreement on the issues set forth in this report, theproject is suitable for a Bank loan of US$49 million to Jugoslavenski NaftovodPoduzece za Transport Nafte U Osnivanju. A reasonable term for the loan is18 years including four years of grace.

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

(Jugoslavenski Naftovod Poduzeceza Transport Nafte U Osnivanju)

I. INTRODUCTION

1.01 The Socialist Federal Republic of Yugoslavia and INA, Naftagas,and Energoinvest (the Founders) have asked the Bank to help finance a pipe-line project to transport imported crude oil from an Adriatic port to fiveinland refineries and Hungary and Czechoslovakia. Jugoslavenski NaftovodPoduzece za Transport Nafte U Osnivanju (Naftovod, the Borrower) was createdto implement the project and operate the facilities. The project was pre-pared by the Borrower with the assistance of consultants.

1.02 The concept of pipeline transport of imported oil dates back to1969 when the Founders proposed rival pipeline schemes. In 1973 the Founderspooled their activities and the project was selected as being the most econom-ical scheme. The Bank was asked to participate in financing the projectwith the principal aim of attracting other foreign loans on reasonable terms.To enable the Bank to influence project execution, a loan of US$49 million isrecommended. The proposed facilities will transport "transit" oil to Hungaryand Czechoslovakia at a profit and will provide economical oil transport tothe inland refineries. The project comprises an oil-receiving port in OmisaljBay, five oil storage tank farms, seven pump stations, 736 kilometers (km) ofvarious sizes of pipelines, and the services of foreign engineering consult-ants.

1.03 The project is estimated to cost Din. 6,409.4 million (IJS$377 mil-lion) including all contingencies and local taxes. The foreign exchange com-ponent is estimated at Din. 3,284.4 million (US$193.2 million) or 51% of thetotal.*

1.04 Including the Bank a total of five foreign lenders are contributingUS$294 million, while local financing in the amount of US$106 million is be-ing contributed by six Yugoslav lenders. The financing plan includes inter-est during construction of Din. 390.6 million (US$23 million).

1.05 This report is the result of an identification mission in December,1973, and pre-appraisal and appraisal missions in Septerber, 1974, andJanuary, 1975, respectively. The appraisal. mission consisted of Messrs.P. Bourcier (Economist), A. Krishnan (Financial Analyst), J. Ristorcelli(Engineer), and H. Harries (consultant).

* Net of duties and other local taxes but including interest during con-struction, the project is estimated to cost Din. 6,532.2 million(US$384.2 million).

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II. BACKGROUND

A. The Country and The Eoomy

2.01 Yugoslavia is a federation of six republics and two autonomousprovinces. It has an area of 255,804 km2 and a population of 21 milliongrowing at 1% per annum. It has a socialist market economy, in which mostof the means of production are owned by society as a whole, but are entrusted,through a system of self-management, to the control of the workers that usethem. There is a private sector, accounting for only 15% of GDP, which ismade up of small farms and small commercial enterprises 1-rincipally in theretail and service trades.

2.02 In the social sector decisions are decentralized and largely out-side the scope of government at any level, although there are policies formandatory coordination in certain instances. The basic principle for alleconomic decision-making is self-management by the workers. The basicdecision-making units are called Basic Organizations of Associated Labor(BOAL) which are technically identifiable units which could, at least inprinciple, function independently. In most instances, several BOALs areintegrated into Work Organizations of Associated Labor through revocablecontracts knonm as Self-Management Agreements. The affairs of BOALs andwork organizations are governed by councils elected by all the workers.

2.03 When the economic activities of workers are of concern to others,such as in public utilities and public services, Self-Managing Conmunities ofInterest are established by the organizations of associated labor in thesefields and the beneficiaries of their products or services. The Communitiesof Interest provide the framework for developing, financing, and regalatingthe activity concerned. They are a recent development and many of them arestill in the process of being established.

2.04 The economy has grown at the high rate of 5.5% per annum over thelast two decades, and GDP per capita, measured in real terms, at 4.5% perannum. Wide disparities exist between regions; compared with the nationalaverage of about US$900 (1973), per capita GDP is one-third in Kosovo andnearly double in Slovenia. Industry, which now accounts for 40% of GDP, hasgrown about 9% per annum. Agriculture now accounts for 20% of GDP, and itsgrowth rate has been about 2.5% per annum. The projected trend of economicgrowth implies continuation of the past high-growth rate in overall energydemand, and, more particularly, electricity, oil, and natural gas (para.2.19).

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B. Energy Resources

2.05 Yugoslavia's main energy resources are lignite, coal, and hydro-power (Map 2). Total fossil fuel reserves are estimated at 4,100 milliontons of oil equivalent (Toe) with low-grade coal and lignite accounting for97% and hydrocarbons for 3%. Reserves of coal and lignite are located inKosovo (70%) and Bosnia-Herzegovina (20%). Reserves of oil and gas arelocated in Vojvodina (40%) and Croatia (60%). Hydro resources represent about60,000 million kWh/year and 70% df it is located in Croatia, Serbia, andBosnia-Herzegovina.

2.06 Despite large coal reserves, Yugoslavia is not self-sufficient inenergy and has to rely on imports of hydrocarbons and coking coal to satisfyinternal demand. This is principally due to the low quality of lignite andbrown coal which prohibits transport over long distances and limits its useto power and steam generation. Annex 1 gives a detailed description of energyreserves.

C. Energy Sector Policy and Sector Organization

2.07 National energy policy is based on restraining dependence on im-ported fuels, particularly oil, through greater development and utilizationof indigenous sources, and this has been accounted for in the preparationof the project (Annex 1, para. 24). Until recently the role of the FederalGovernment was limited to pricing and foreign borrowing. The functions ofplanning and policy-making in the energy sector and the coordination of theenergy programs of the Republics were assigned to a Federal Committee onEnergy and Industry (FCEI) created in 1974. It consists of representativesof local governments and energy and industry sectors.

2.08 Responsibility for implementing energy policy lies, as in mostother sectors, with the energy enterprises which are the principal agents inthe development of energy. They draw up their development and investmentplans and arrange financing. A large number of enterprises are members ofprofessional associations which represent them within the Federal Chamber ofEconomy. Power enterprises belong to the Union of Yugoslav Electric PowerIndustry (JUGEL) and coal producers to the Association of Yugoslav Coal Pro-ducers. These V-dies have no executive power and cannot coordinate adequate-ly the development of the energy sector. There is not, so far, a similarbody in the oil and gas industry.

2.09 Since 1965 coordination between various subsectors (electricity,coal, and hydrocarbons) has been weak particularly in resource allocations.Investment decisions were made on a local basis without due attention tocountry and sector development. This was particularly true in the powersector and together with lack of adequate funds it resulted in severe powershortages in 1973. This situation is not expected to improve until 1977/78.

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2.10 The recent constitutional changes and the increase in the worldprice of energy, particularly oil, have brought about two major changes:

(i) relations between energy enterprises, users, and local andFederal Authorities are now regulated by "social agreements"which will form the framework of the future development ofthe sector for a period of five years, and

(ii) through FCEI the Federal Government is now playing a moresignificant role in the formulation and implementation oflong-term energy policies (para. 2.07),. and a statement onenergy policy by the Federal Executive Council recently ap-peared in the document entitled "The Basis of Common Policyfor the Long-Term Development of Yugoslavia."

2.11 Social agreements in the power and coal. industries are in the finalstage of negotiations; the oil industry was expected to complete its dis-cussions and sign the agreements by the end of 19,75. These agreements willdefine, inter alia, the quantitative objectives to be achieved for a partic-ular branch, the investment program and financing plan of that branch for thenext five years and the pricing policy. Since these agreements involve pro-ducers, users, and local and Federal Authorities, it is expected that theywill improve coordination within and among branches. Some positive resultshave already been achieved by eliminating duplication among individual devel-opment plans. There is, however, room for improvement in the definition ofsector priorities and in project preparation and implemertation.

2.12 The studies sponsored by FCEI should provide a rational frameworkfor the selection of priorities and the formulation of adequate developmentstrategy. It has initiated studies covering the immediate, medium, and long-term future (1985-1990) with the objective of submitting proposals to theFederal Govermnent by mid-1975. Preliminary results of these studies werediscussed by the mission and were found to be a substantial improvement onpast performance. Although it is too early to ma.ke a final judgment as to theeventual efficiency of the new procedures, Yugoslavia has now an adequatetool to deal with energy problems, and positive results should materializesoon. In agreement with Federal Authorities, the Bank has scheduled a mis-sion to review the findings and recommendations of FCEI.

D. The Oil and Gas Sector

2.13 The oil and gas sector consists primarily of two large integrateddomestic enterprises, INA and Naftagas, which cover all activities in the oiland gas industry from exploration to distribution. of final products. Inaddition there is one enterprise dealing with oil refining (Energoinvest)and several enterprises dealing with the distribu.tion of refined products.All these enterprises are independent and to a large extent competitive;however, they are linked together by market agreements regarding the purchas-ing of crude oil and the distribution of products. They also cooperate

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closely in the preparation of tariffs for approval by the Federal Governmentwhich coordinates the imports of oil. By year-end 1975 Yugoslavia expectsto sign long-term oil supply contracts covering 80% of the country require-ments over the five years ending in 1980.

2.14 Coordination between these enterprises in the past has been in-adequate; in many instances they could not agree on common development pro-grams and some projects have been delayed considerably by conflicting re-gional interests. This is the case for the proposed project which was firstinitiated in 1969, and for which agreement was not reached until the end of1973. The situation, however, is improving considerably, partly as a resultof the efforts of FCEI, and partly as a result of the proposed project whichled to intensive discussions on long-term supply and demand projections,pricing policies, and development of domestic refining capacity. Within thisframework, the oil and gas enterprises have agreed on common supply/demandfigures until 1985-1990 (Annex 1, para. 27) and have also agreed to lowerrefining capacity expansion to satisfy the projected demand. These will befinalized in the social agreement presently under negotiation (para. 2.11)and have been used as the basis for the project.

E. Past Developments in Energy Supply and Demand

2.15 After a period of relative stagnation, overall energy consumptionincreased rapidly from 1967 to 1973 at an average rate of 8.2% per annum com-pared with an average GNP increase of 6.4% per annum. During the same periodthe structure of demand changed considerably and coal whiLch had been tradi-tionally the predominant fuel in Yugoslavia was surpassed by oil. This wasdue primarily to the development of a modern industrial sector (40% of GDP)and to the rapid growth of road transportation. In 1973 total oil consump-tion accounted for over 40% of the total demand compared to 28% in 1967. Oilis used mainly in the industrial and transportation sectors, which accountfor 84% of total demand for main oil products; oil and gas consumption inpower generation has always been and will remain margi;ial, as most of the in-crease will be based on the use of domestic coal.

2.16 Domestic oil production has not kept pace with demand and Yugo-slavia has to rely increasingly on imports to supply its six domestic refin-eries (Rijeka, Sisak, Bosanski-Brod, Novi Sad, Pancevo, and Lendava). In 1973oil imports accounted for 70% of total internal demand for refined products.Traditionally, the USSR has been the main foreign supplier of oil; however,in recent years Yugoslavia has been importing increasingly from the MiddleEast (Iraq, Iran). Russian crude is imported through the Danube by barge,while Middle East crude is imported through Adriatic ports and transportedby rail to the refineries of Sisak and Bosanski Brod; in 1974 oil and oilproducts transport on the Yugoslav railways accounted for about 7% of totalfreight traffic, and the cost of oil imports represented about 12% of allimports.

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F. Present Situation and Future Prospects

2.17 Since Yugoslavia is a large importer of crude oil, it was seriouslyaffected by the oil crisis; the problem, however, wa- more one of prices thanof availability. Because of the poor quality of domestic coal, possible sub-stitution of coal for oil is limited and only minor adjustments could be madein the short run to reduce the country's dependence on foreign oil. The mainsteps taken were increases in the price of refined oil products and the crea-tion of an equalization fund to align the price of domestic crude with worldmarket prices; as a result, consumption growth slowed down to 6% per annumin 1974 compared to 7.7% in 1973.

2.18 Before the oil crisis it was expected that total energy demandwould continue to grow rapidly and would increase 3.5 times between 1973 and1990. Oil demand would continue to grow faster than overall demand and wouldbe primarily satisfied by imports, since domestic production was not expectedto meet more than 9% of the total energy demand.. Natural gas would also bedeveloped based on exploitation of domestic resources and on imports from theUSSR and North Africa and by 1990 hydrocarbons would account for more than51% of total energy demand.

2.19 Following the oil crisis these projections were lowered and thepreliminary results of studies sponsored by FCEI] show that total energy con-sumption will increase 3 times over the next 15 years reaching about 83 mil-lion Toe by 1990. Hydrocarbon demand will grow at the same pace as totaldemand; however, the volumes of oil imports in 1990 will be almost identicalto those projected previously because:

(i) previous projections were based on fast growth in the useof natural gas which is not likely to materialize. Recent -evaluations of domestic fields have been somewhat disap-pointing and import possibilities at competitive prices arelimited; and

(ii) previous projections for domestic oil production were over-optimistic. It is now estimated that domestic productionwould start declining after 1985 to reach 5 million tonsin 1990 instead of 8 million previously considered.

2.20 Based on these projections it is now considered that import ofcrude oil will increase from about 7.9 million tons in 1975 to 28 milliontons in 1990, at average rates per annum declining from 11% between 1975 and1980, to 8% and 7% between 1980 and 1985, and 1985 and 1990, respectively.Host of this oil would be imported from the Middle East through Adriatic portsand would have to be transported to the inland refineries. Conventionaltransport of such volumes of oil by rail is not economical and it was, there-fore, decided to build the pipeline.

III. THE BORROWER

A. Background

3.01 The three principal oil and gas enterprises of Yugoslavia, INA ofCroatia, Energoinvest of Bosnia-Herzegovina, and Naftagas of Serbia (theFounders), have jointly established a new enterprise, JUGOSLAVENSKI NAFTOVOD(Naftovod) to design, build and operate port and pipeline facilities forthe transport of imported crude oil to five local refineries and for transitto Hungary and Czechoslavakia. The new Enterprise has been registered in theDistrict Commercial Court in Rijeka; its headquarters will be in Rijeka withoffices in Zagreb and Belgrade. Naftovod will be the Borrower. The Enter-prise will charge the foreign offtakers at agreed commercial rates and localrefineries at cost, both arrangements being covered by take or pay clausesin the transport contracts.

B. Organization and Management

3.02 Currently and until completion of construction, Naftovod is an"enterprise under foundation" and a Council of 12 members, six appointed bythe Founders and six by Naftovod, which will be the governing body responsibleall policy decisions. The General Manager, guided by a Coordinating Commit-tee of six members (two from each Founder) will execute the Project in accord-ance with the Council's decisions. During this phase Naftovod, assisted bylocal and foreign consultants (para. 4.04), will be responsible for projectexecution. It will employ over 100 staff, 40 of whom have already been ap-pointed; no difficulties are envisaged in recruiting the balance. -

3.03 At the start of commercial operations, the Council will be substi-tuted by a Workers' Council and the Coordinating Committee will look afterthe interests of the Founders. The Enterprise will then consist of fivedepartments, namely: (1) Technical, (2) Economic and Financial, (3) Legaland Personnel, (4) Commercial, and (5) Operations, comprising a total of 350staff (Chart 1). The proposed organization appears suitable, and the manage-ment staff thus far appointed are capable and diligent.

C. Recruitment and Training

3.04 No difficulties are anticipated in the recruitment of the majorityof the skilled personnel, as experienced staff are available in the variousrefineries which employ thousands of skilled workers. Most of them will re-quire only familiarization with the new facilities and the pipeline's operat-ing procedures. However, Naftovod will have to train staff in some specialskills, such as electronics, instrumentation, and oil dispatching and schedul-ing. A program of training has yet to be worked out; this will be done by

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the foreign consultants (Annex 3). The specialized training will very likelyinvolve less than 40 individuals, and it will be carried out partly on thejob in Yugoslavia, partly in foreign suppliers' plants, and in part in simi-lar European facilities. The Bank has Naftovod's agreement to begin implement-ing the specialized training program no later than May 31, 1977.

D. Line Fill

3.05 The initial supply of crude oil to fill the pipeline and the storagetanks, the line fill, would amount to about US$30 million. In the case ofpipeline companies who are common carriers, the line fill is either providedby them as part of their capital investment and tariffs charged accordinglyor supplied by the users and treated by them as their "sailing stock." Thislatter procedure is common in Europe. In the case of Naftovod, the line fillwill be provided free of cost by the Federal Directorate for Reserves of FoodStuffs and Strategic Stocks (MATREZ), who will have first call on the linefill in case of a national emergency.

E. Insurance

3.06 Adequate insurance coverage for all assets and third-party risks,including possible damage from oil spills, will be provided; adequate pro-vision for insurance has been made in the revenue accounts.

F. Operations and Maintenance

3.07 The local refineries, under the coordination of the Federal Govern-ment, and Hungary and Czechoslovakia will be responsible for arranging de-livery of the crude oil to Naftovod at the oil port.

3.08 Handling the tankers and operating the port facilities will be theresponsibility of the Port of Rijeka (para. 3.12 b(i)).

3.09 Naftovod will be responsible for receiving the crude and deliveringit to the offtakers. Basic transport agreements have been signed betweenNaftovo.d on one hand and Hungary, Czechoslovakia, and the Founders on theother; detailed operational arrangements have yet to be agreed (para. 3.12(a)).

3.10 Electric power for the operation of the system will be provided bylocal enterprises. Naftovod will install telecontrol systems to serve thepipeline in areas where the Federal Communications Authority has no such in-stallations. In other areas, largely from Sisak eastward, Naftovod will leasecable facilities from the appropriate communications authorities (para. 3.12r) (ii) ).

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3.11 The principal maintenance depot will be located in Sisak and asmaller one in Omisalj. The maintenance crews of the various refineries willbe available to Naftovod during emergencies. The project estimate includesDin. 44.2 million (US$2.6 million) for warehouses, shops, and maintenanceequipment; this is adequate.

G. Operational Arrangements with Clients and Others

3.12 The Bank has Naftovod's agreement that it will sign: (a) by Novem-ber 15, 1975, operating agreements with the seven offtakers covering technicaland operational matters, such as batching procedures, metering and custodytransfer, types of crude, including physical and chemical properties, sche-duling of oil receipts and shipments, etc., (para. 3.09), and (b) by May 31,1977, the following agreements:

(i) a port operations agreement with the Port of Rijeka forproviding normal port facilities and services, whichwill ensure that Naftovod will receive suitable compensa-tion for the port facilities financed by the project andturned over to the port authority (para. 3.08 and Annex 2,para. 11), and

(ii) a telecommunications and power supply agreement with theappropriate authorities for the lease of communicationsfacilities and the supply of power (para. 3.10),

and that prior to such signature it will submit the draft agreements to theforeign consultants for their advice and thereafter the draft agreementunder b(i) to the Bank for its review and approval.

H. Investment Plan

3.13 The proposed project is the first and major part of a series inNaftovod's investment plan which provides for the project and for increasesin capacity to handle the traffic to 1990. The investment program totalsDin. 8,315 million during the period 1975-1990; this includes Din. 6,800million for the project and Din. 1,515 million, for expansion to ultimatecapacity (para. 4.01). The mission found that refineries' demand forecastswere high because they overlapped due to a lack of coordination (paras. 2.11and 2.14) and this led to inflated projections which were corrected after somediscussion. To help ensure proper coordination in preparing future demandprojections, the Bank has Naftovod's agreement not to undertake capacity ex-pansion programs without prior consultation with the Bank.

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IV. THE PROJECT

A. Objectives

4.01 Stage I of the project will be completed in 1978 and comprises thefacilities to transport 16 million tons of petroleum per year; Stage II willbe completed in 1979 and will increase the capacity to 20 million tons annual-ly. The facilities are capable df being expanded to 34 million tons yearly,the throughput in 1990. The project will provide substantial earnings toYugoslavia from the transit of foreign oil and economical transport of crudeto the Yugoslav refineries.

B. Description

4.02 The project is the least cost solution tCo oil transport and it com-prises (Chart 2 and Map 1) an oil port, five oil storage tank farms, sevenpump stations, 736 km of pipelines, a control system and engineering services.The project will be designed to the codes and standards listed in Annex 13and will consist of:

(a) the procurement of two tugs of about 2,000 horsepower each andseveral launches, to assist the tankers to and from the berths;

(b) the procurement and installation of two marine berths in OmisaljBay capable of handling tankers from 30,000 dwt to 350,000 dwt,including mooring dolphins, power, bunkering, fire-fighting andwater-supply facilities, and navigational aids at the approachesto the port.

(c) the procurement and installation of an oil storage tank farmwith a capacity of approximately 720,000 m3 (about 612,000tons), including piping, utilities, and a fire-fighting system;

(d) the procurement and installation of:

(i) approximately 173 km of 36-in pipeline between Omisaljand Sisak with a short lateral pipeline to the Sisakrefinery;

(ii) two pump stations (Omisalj and Melnice) totalling ap-proximately 17,500 kW;

(iii) a maintenance depot at Omisalj housing specialized equip-ment and personnel;

(iv) a pressure-reducing station between Melnice and Sisak;

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(v) a buffer oil storage tank farm at Sisak with a capacityof about 70,000 m3 (approximately 60,000 tons);

(e) the procurement and installation of:

(i) approximately 105 km of 28-in pipeline from Sisak toVirje and Gola 1/ (Hungarian border);

(ii) a 7,500 kW pump station and a maintenance depot atSisak;

(iii) a buffer oil storage tank farm of about 30,000 m3

(approxlmately 25,500 tons) capacity at Virje;

(iv) a pump station at Virje of about 600 kW, and

(v) a 67 km long 12-in pipeline between Virje and theLendava refinery;

(f) the procurement and installation of:

(i) approximately 138 km of 28-in pipeline between Sisakand Slobodnica with a 4.5 km lateral pipeline betweenSlobodnica and the Bosanski Brod refinery;

(ii) two additional pumps at Sisak with a total power of3,200 kW, and

(iii) a buffer oil storage tank with a capacity of 40,000 m3

(approximately 34,000 tons) at Slobodnica;

(g) the procurement and installation of:

(i) a 16-in pipeline about 85 km long between Slobodnicaand Negoslavci;

(ii) a 4,100 kW pump station at Slobodnica;

(iii) a 22-in 78 km long pipeline between Negoslavci andNovi Sad with a short lateral pipeline between NoviSad and the Novi Sad refinery;

(iv) a 2,300 kW pump station at Negoslavci,

1/ At Gola a connection will be made with the Hungarian pipeline which willbe built to transport the crude oil into Hungary and to Ctechoslovakia.

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(v) a buffer oil storage tank farm of 40,000 m3 (approxi-mately 34,000 tons) at Novi Sad;

(vi) a 2,600 kW pump station at Novi Sad,, and

(vii) a 86 km 18-in pipeline between Novi Sad and thePancevo refinery;

(h) the incorporation into the system of an existing 16-in pipelinebetween Slobodnica and Negoslavci;

(i) the procurement and installation of a supervisory controlsystem including telecommunications, telemetering and tele-control;

(j) the services of pipelines engineering consultants to do thebasic designs, tendering and project plarnning and to provideoverall supervision during implementation.

C. Status of Engineering

4.03 The project is based on a feasibility study by INA Engineering(Zagreb) and INEG Consultants (UK) and optimization studies by Industropro-jekt, Zagreb consultants. Although final designs have not yet been started,sufficient preparatory work has been done to define! the project and makerealistic cost estimates. Slight reductions in the size of the facilitiesmay be indicated upon completion of final designs.

4.04 Naftovod has assigned overall design responsibility to Industro-projekt of Zagreb, assisted by Omniam Technique des Transports par Pipelines(OTP, a French firm) who will be responsible for designs, tender preparation,project coordination, and some of the duties outlined in Annex 3. Industro-projekt may, at its discretion, subcontract further work to other competentlocal firms on terms and conditions acceptable to Naftovod and the Bank.Naftovod informed the Bank that it will assign overall responsibility forconstruction supervision also to Industroprojekt assisted by OTP, who willcarry out the remaining duties in Annex 3. These arrangements are satis-factory.

D. Cost Estimate

4.05 The project is estimated to cost Din. 6,409.4 million (US$377 mil-lion) including all contingencies and local taxes plus interest during con-struction of Din. 390.6 million (US$23 million) on the proposed Kuwaiti andBank loans. The foreign exchange component is estimated at Din. 3,675 million(US$216.2 million) or 54% of the total. Customs duties and other local taxesare estimated at Din. 267.8 million (US$15.7 million).

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4.06 The basic components of the project and their estimated costs(rounded) are shown below; further details are shown in Annex 4.

% of Basic---- Din Million ------ -----US$ Million----- ProjectLocal Foreign Total Local Foreign Total Cost

A. Port Facilities 224.7 202.6 427.3 13.22 11.92 25.14 9.3

B. Terminals, Tanksand Pump Stations 580.0 607.5 1,187.5 34.12 35.74 69.86 25.9

C. Pipelines 958.2 1,488.0 2,446.2 56.35 87.52 143.87 53.3

D. Telecommunication& Control 21.1 124.3 145.4 1.24 7.31 8.55 3.2

E. Owners supervision,training & consult-ants 312.8 69.4 382.2 18.40 4.08 22.48 8.3

Basic project cost 2,096.8 2,491.8 4,588.6 123.33 146.57 269.90 100.0

F. Contingencyallowances

1. Physical 285.1 231.7 516.8 16.77 13.63 30.40 11.32. Price 743.1 560.9 1,304.0 43.70 23.00 76.70 28.4

Subtotal F 1,028.2 792.6 1,820.8 60.47 46.63 107.10 39.7

G. Total projectcost 3,125.0 3,284.4 6,409.4 183.80 193.20 377.00 139.7

4.07 The estimate was prepared by Naftovod and the consultants; it wasreviewed by the Bank and found adequate. Although it is not anticipated thatforeign contractors alone will win many bids due to the advanced state ofthe contracting industry in Yugoslavia, some participation by foreign con-tractors is expected. The above estimate reflects Naftovod's and the Bank'sjudgment of the most likely degree of participation by foreign contractors(para. 4.15). The foreign exchange costs of the project could increase toUS$213:2 million or decrease to US$179.2 million based, respectively, onmaximum and minimum awards to and participation by foreign contractors. Theestimate provides an overall physical contingency of 11.3% which is ample.Price contingencies of 15% and 12% were applied to local costs for 1975 andthereafter, respectively; foreign costs were escalated at 11% and 8%, respect-ively, in 1975 and thereafter. These escalation factors are in accordancewith current Bank guidelines.

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E. Financing Plar

4.08 The project is expected to be financed frc, the sources shomn below.Interest during construction on all loans biit Kuwait's and the Bank's proposedloan (para. 4.11) will accrue but will not be payable until operations startand Naftovod has made adequate provisions for this in its operating budgets.The interest during construction on the Kuwait and Bank loans, US$23 million,is covered by the financing plan.'

US$ (Million) Interest Rate Grace RepaymentLocal Foreign Annual % Period Period

(1) IBRD 49.0 8.50 4.0 14(2) Kuwait 125.0 8.50 4.0 8(3) Hungary 25.0 8.25 3.0 6(4) Czechoslovakia 25.0 8.25 3.0 6(5) Libya 70.0 9.00 3.0 7(6) Founders 26.5 - 6.0 25(7) Petroleum Fund/i /2 59.0 2.00 3.0 15(8) Local Banks/2 * 20.5 12.0 3.5 7

Totals $106.0 $294.0

Grand Totals $400

/1 The Federal Petroleum Fund was created to cover investments and emergen-cies in the oil sector and its revenues are derived from a tax of Din.0.15/liter on Petroleum products, levied by the Federal Government. Itwill have reserves of nearly Din. 3 billion by the end of 1975 and is

accumulating further reserves at a rate of some Din. 1.7 billion annually.

/z Grace period likely to be increased to tally with Bank loan.

4.09 All loans are considered firm. Protocol agreements have been signedwith Kuwait and Libya, the Founders have signed an agreement covering theircontribution, the draft contract with the local banks has been agreed and theFederal Executive Council will shortly give formal approval to the loan fromthe Petroleuml Fund. Basic Transport Agreements with Hungary and Czechoslovia,stipulating the loan amounts, were ratified in December 1974.

4.10 Bank financing would be parallel with that of other foreign lenders.The loan from Kuwait would include the supply of some 58,000 tons of piperepresenting about 33% of its loan; the balance would be in cash and theBorrower plans to finance mainly local expenditures with it. The Hungarianloan will be in fully convertible currency while the Czechoslovak loan islikely to be in the forrmi of 28-in pipe (about 15,000 tons) and constructionservices for the Sisak-Hungarian border pipeline. The Libyan loan would beused to finance both foreign and local expenditures. A condition of loaneffectiveness is the effectiveness of the other loans.

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The Loan

4.11 The project is suitable for a Bank loan of US$49 million with repay-ment in 18 years, including a grace period of four years which corresponds withthe construction period. The proposed Bank loan would cover the foreign ex-change costs of consultants, construction services (para. 4.14) and procure-ment of two tugs and oil loading arms. These elements would be disbursed inrhythm with construction or late in the procurement cycle, and this wouldprovide the Bank with an effective means of influencing project execution(paras. 4.15 and 4.16). Retroactive financing of foreign consultants' ser-vices to May 1975 in an amount not to exceed US$0.5 million is provided.

Cost Overrun Guarantees

4.12 Loan proposals did not provide cost overrun guarantees with the ex-ception of the local banks who had agreed to guarantee overruns in propor-tion to their contribution to the project, 50; this is inadequate. Duringappraisal the Bank asked the Federal Authorities and Naftovod to considercovering cost overruns with guarantees from: (a) the Petroleum Fund; or (b)the Founders; or (c) the five refineries. The Bank has now obtained confirma-tion that the Founders will provide this guarantee and a condition of loaneffectiveness is that the Founders Agreement will be suitably amended.

F. Implementation

Land Acquisition

4.13 According to Yugoslav regulations many formalities have to-be com-pleted before the land required for the project can be acquired and construc-tion work can commence. These involve obtaining approvals in principle (thishas been done), based on preliminary studies and then construction permitsbased on final designs and estimates; the approvals and permits are grantedby many committees in each Republic. Although no serious impediments are anti-cipated, the complex procedures involved could delay the project. It hasbeen agreed that Naftovod shall promptly take all such action as shall benecessary and shall supply evidence satisfactory to the Bank that it has ob-tained all construction permits and acquired all the land and right-of-waypermits require I for the project.

Procurement

4.14 Procurement under the loan would be by international competitivebidding in accordance with the Bank Group's "Guidelines for Procurement."(For construction contracts the loan would cover foreign exchange costs ofthese contracts whose total value is estimated at US$160 million excludingproject materials and pipe and the laying of the Sisak-Gola pipeline whichwould be financed by other loans and with the exceptions noted below). Ex-ceptions would be: (a) construction contracts estimated not to exceed

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US$100,000 (provided that in the aggregate they do not exceed US$1,000,000)which would be procured by local shopping, and (b) construction contractsestimated not to exceed US$500,000 (provided that in total they do not exceedUSS9,000,000) which would be procured by local competitive bidding. Localshopping and competitive bidding in accordance with local procedures areappropriate for the above contracts because they are geographically dispersedand the amounts involved are such that foreign firms would not be interested.Moreover, these contracts would cover mostly preparatory works such as sitepreparation and construction of materials yards wrhich should be awarded earlyin view of the tight schedule, and international competitive bidding wouldinvolve delays. Bank staff has reviewed the local procedures and they areacceptable since they ensure adequate competition. The construction coststo be financed by the loan would exclude project materials since these wouldbe financed by other foreign loans. Yugoslavia has no preference treaties,and bids for the tugs and loading arms included in the Bank loan will be com-pared on a CIF basis net of customs duties; a preference of 15% of the CIFprice or the actual customs duties, whichever is the lower, will be given tolocal manufacturers who qualify as preferred bidders.

4.15 In view of the specialized nature of the work and of the tight proj-ect schedule (para. 4.17), the Bank has Naftovod's agreement to prequalifyconstruction contractors under the Bank's Guidelines for Procurement; it wouldthus assist Naftovod in screening contractors, particularly local ones, whomight be fully occupied in the many oil and gas projects being undertaken inYugoslavia and who might require the cooperation of international contractors.Local contractors are competent to construct the port facilities, pump sta-tions, tanks and most of the pipelines and depending on their commitments arelikely to bid for these contracts. The most probable outCome will be a mixof local contractors and joint ventures of foreign and local firms, and thisis the basis for the project estimate.

4.16 As stated in para. 4.10, the Kuwait and Czechoslovak loans involvethe supply of some 73,000 tons of pipe. It is important that the pipe be madeaccording to internationally recognized standards, reasonably priced and sup-plied in accordance with the project schedule. The Borrower provided the Bankwith an engineering report on the capabilities of the Kuwait Metal Pipe In-dustries Mill. The report states that the qualit:y of the pipe produced bythe Mill is good, but it casts some concern as to the ability of the Millto supply the pipe in time to meet the construction schedule. Any delay inthe delivery schedule will, however, be detected in time for Naftovod to ob-tain supplies from alternative sources. The Bank has Naftovod's agreementto select and hire competent inspection agencies to inspect all pipe at theMills.

Project Schedule

4.17 The schedule for the project is very tight (Chart 3) since Stage Iis to be completed and operating by May 31, 1978 and Stage II one year later.Failure to start delivering oil to all offtakers by May 31, 1978 could subjectNaftovod to penalties and to avoid this, extremely careful planning is needed.

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This will require that Naftovod place orders for pipe and long lead materi-als for Stage I in late 1975 at the latest and follow the progress of theseorders with extreme care. In some cases, premiums for early deliverieswill be required, but they will be well within the contingency allowance.Since the Omisalj tank farm and the pipelines lie on the critical path, thiswill require starting site clearing, grading and blasting in 1misalj this fallor very early in 1976 and pipeline construction soon thereafter; moreover, atleast two construction crews each for the pipelines, tank farms and pump sta-tions will be required. Valuable time has been lost in obtaining financingbut with proper controls and good planning, Naftovod should be able to meetthe target completion date for Stage I. If construction slips and timelycompletion is threatened, contingency plans would give priority to the facil-ities required to deliver oil to the foreign offtakers, and the Bank hasNaftovod's agreement to assign such priority and to seek the refineries' agree-ment not to impose penalties on Naftovod for failure to deliver oil accordingto schedule. The timely completion of Stage II does not pose serious problems.

G. Disbursements

4.18 Loan disbursements would cover: (a) the foreign exchange costs ofthe foreign consultants (b) the foreign exchange costs of construction con-tracts - the Bank would disburse against the foreign exchange costs, estimatedat 38% of total costs for foreign firms and 25% for local firms or jointventures - and (c) the costs of two tugs and loading arms for two berths ifprocured abroad or 75% of their total costs if procured locally, up to US$4million. Disbursements are expected to take place over four years from thefourth quarter of 1975 to the fourth quarter of 1979. The estimated scheduleof disbursements is given in Annex 5. Since this is a self-contained project,any surplus loan amounts on completion of the project should be cancelled.

H. Ecology and Safety

4.19 Environmental impact studies and related recommendations will bemade by four Yugoslav agencies 1/ and the UNDP Study Group for "Protectionof Human Environment in the Yugoslav Adriatic Region." These organizationswill also monitor the project during construction.

1/ Institute Ruder Boskovic (Zagreb), the Hydrographic Institute of theNavy (Split), the Institute for Oceanography and Fishing (Split), theBiological Institute of the Yugoslavian Academy of Arts and Sciencies(Dubrovnik).

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4.20 The following are some of the environmental protection measuresrecommended in the feasibility study: (a) a floating boom and skimmer (Annex2) to contain any oil spills inside the harbor and to remove any spilled oil;(b) a 15,000 ton capacity tank and API separator to receive slops from thetankers with backwash filtration of the settled water from the separator andof storm water from oil operating areas, and biological percolation of these,as well as sewerage, so that the oil content of the processed water will beless than 5 parts per million, and (c) oil storage tanks to be surrounded bydikes of such a height that the enclosed area will be able to contain one-and-a-half times the tank volume as safety in the event of tank leaks. TheBank has (a) Naftovod's agreement that these or similarly effective measures,such as purifying all effluents from the installations, monitoring for pipe-line leaks and air pollution, etc., will be taken, as well as any reasonablemeasures recommended by the environmental study agencies, and (b) the FederalGovernment's assurance that it will take such action, within its constitution-al powers, as necessary to ensure the expeditious and effective institutionand implementation of such measures.

4.21 Installation of the pipelines will pose no threat to the environ-ment. They will be buried at sufficient depth to avoid interference withland cultivation, highways, railways, natural drainage, and animal migration.At water crossings, they will be either suspended by a structure sufficientlyhigh to avoid interference with shipping or buried deep under the river beds.They will be a silent, nearly invisible, and clean means of overland trans-port. The only visible signs of the pipeline system will be its storage tankfarms and pump stations, and the former are required, in any case, by railsand barges, while the latter will be noiseless, clean, and unobtrusive.

V. FINANCIAL EVALUATION

A. Financial Forecasts

5.01 In 1978, the traffic handled will be 8.3 million tons increasingto 16.7 and 19.8 million tons, respectively, in 1979 and 1980. Revenue Ac-counts and Balance Sheets were prepared by Naftovod staff on the standardYugoslav pattern. These have been modified where necessary for the finan-cial analysis. A description of the budget and accounting procedures isgiven in Annex 6. Bases and assumptions used in the financial analysis aregiven in Annex 7, Revenue Accounts to 1988 in Annex 8, Cash Flow Statementin Annex 10 and Balance Sheet in Annex 9. Represeintative Revenue Accountsfor 1978, 1979 and 1980 are shown below:

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1978 1979 1980--------Din. Million------

Operating Revenue 760 1,486 1,554Operating Expenses 88 193 239Depreciation 178 315 315Surplus 494 978 1,000Interest Charges 277 606 586Repayment of Loan 185 415 454Operating Ratio 35 34 36Interest Coverage 1.7x 1.6x 1.7xDebt Service Coverage /1 1.4x 1.3x 1.3x

/1 Surplus + depreciation , interest and loan repayment.

5.02 Naftovod is protected by the take or pay clause in the transportagreements. The Revenue Accounts (Annex 8) show that under the existingtransport arrangements sufficient surplus is generated to meet all expendi-tures including debt service, and, therefore, the Enterprise is financiallysound. To ensure the continuance of this, the Bank has Naftovod's agreementthat it will not, without prior consultation with the Bank, consent to anymodification of the contracts which would affect the agreed quantities ofcrude oil to be transported and the basis of charges therefor.

B. Tariffs

5.03 The agreements with the Founders provide for the annual revisionof the tariffs payable by them on the basis of the actual expenditures in-curred by Naftovod, plus a surplus limited to 25% of the gross salarie's andwages. Under this arrangement, Naftovod would normally not incur a loss.As to Hungary and Czechoslovakia, the tariffs payable by them are laid downin the respective agreements, which provide for annual revisions accordingto price indices for steel, labor and electricity. Without providing forany changes in the price of steel 1/ but, allowing for inflation in wagesand electricity (para. 1, Annex 7), Naftovod is expected to make a substan-tial profit from transit oil beginning with Din. 118 million (US$7 million)in 1978 and totalling up to Din. 1,439 million (US$85 million) by 1988. Ifallowance is made for an increase in the price of steel, the profit is likelyto be even more. The yearly profit has been shown separately in the RevenueAccounts as "Profit from Transit." According to existing agreements, thisprofit is to be passed on to the refineries. A resume of the provisions inthe transport agreements is given in Annex 11.

1/ At the end of November 1974, the average price increase of the steelscited in the agreements was 34% over the base price of November 1973.

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C. Cash Flow

5.04 The Cash Flow (Annex 10) shows that the surplus funds available toNafto,cd increase from Din. 2.3 million (US$0.13 million) in 1978 to Din.214.8 million (US$12.6 million) in 1988. The initial working capital willbe provided by the Founders.

D. Audit

5.05 The annual financial statements of Naftovod will be checked by theSocial Acrounting Service (SAS), a separate statutory organization responsiblefor such work (para. 3, Annex 6). The staff of SAE; is being trained to enableit to carry out audits in accordance with standards, acceptable to the Bank(para. 5, Annex 6) and it is expected that staff will be suitably trained by1979. The Bank has Naftovod's agreement to have its annual financial state-ments audited in a manner acceptable to the Bank anid to submit them withinsix months of the end of each year.

E. Special Debt Service Guarantees

5.06 The foreign offtakers have signed transport agreements with Nafto-vod containing take or pay clauses which provide that the offtakers will payNaftovod 80% of the tariff for any amount of allocated capacity not utilizedby them; likewise Naftovod will pay the offtakers 80% of the tariff for anyagreed amount of oil that it fails to deliver. The take or pay clause isvoided by events of force majeure. Naftovod and the Founders have signeda sf,ilar agreement except that only events of force majeure lasting morethan six months would void the take or pay commitment.

5.07 A total shutdown of the pipeline for periods exceeding a few daysis extremely unlikely and as mentioned in para. 5.02, Naftovod is expected toearn sufficient revenue to cover all expenditures. A severe fire or an ex-tensive landslide could shut down the pipeline for 2 to 3 months and the six-months clause mentioned in para. 5.06 could pose a financial threat to Nafto-vod, because, in such an event, it would not only lose its revenue from allseven offtakers, thus causing it tc be unable to meet debt service, but itwould also have to pay t. the local refineries an amount that would approachits lost revenues. The same situation would arise if project completion weredelayed or if unusual problems were to be met during commissioning and _tiartup of facilities. Naftovod has obtained guarantees from the local banks tomeet these financial commitments in case of need, other than the debt serviceobligations with regard to the Bank loan, which is; guaranteed by the FederalGovernment. In the event of a shutdown of the pipeline for a short period,the estimated operating surplus available at the end of the year would be.-ore than sufficient to cover the annual debt service of the Bank loar.

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VI. ECONOMIC EVALUATION

A. General

6.01 According to recent projections for energy supply and demand inYugoslavia, it is expected that internal demand for hydrocarbons (oil and gas)will increase from 13 million Toe in 1974 to about 40 million Toe in 1990.A large part of the incremental demand will have to be imported from easternEurope, North Africa and the Middle East, and transported from the ports ofentry to the main oil processing and gas consumption centers. While there ispresently no economic alternative to pipelines for overland transport of gas,oil can be transported by a variety of means (road and rail tankers, barges,pipelines). Therefore, the economic feasibility of the proposed crude oilpipeline system was evaluated by comparing the cost of transporting oilthrough the pipeline with the cost of conventional transport.

B. Demand Projections

6.02 Annex 1 gives details of future energy supply and demand. Demandprojections used to size the project were derived from studies sponsored byFCEI after the oil crisis of 1973-1974 and are considered reasonable. Theyare lower than pre-crisis projections and reflect efforts being made undergovernment coordination to conserve energy and to substitute domestic fuels(mostly coal) for expensive foreign oil. Current energy demand projectionsfor Yuigoslavia are 15% and 18% lower than pre-crisis projections in 1980 and1985 respectively. This is comparable with the expected decrease in totalenergy demand in the European Economic Community (EEC) for the same period,according to a recent study 1/ by the Organization for Economic Cooperationand Development (OECD). However, the increase in demand for hydrocarbonswould be larger in Yugoslavia (3.0 times between 1972 and 1985) than it wouldbe in the EEC (1.8 times). This is due mainly to the limited scope forenergy conservation in a country which has low per capita consumption and lowquality coal, which in most instances cannot now be substituted economicallyfor hydrocarbons. 2/ However, the sensitivity of the feasiblity of the pro-posed project was tested against lower demand figures (para. 6.08).

6.03 Since domestic production is not expected to increase substantially,(para. 2.19) net oil imports in Yugoslavia should increase from 8.7 million

1/ Energy Prospects to 1985, OECD Paris 1974.

2/ Coal gasification and liquefaction on a commercial scale in Yugoslaviaare not expected to occur before 1985 to 1990 and would, therefore, notthreaten the viability of the project.

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tons in 1975 to 11.7 million tons in 1978, the first year of operation of theproposed pipeline and to about 20 and 28 million tons in 1985 and 1990 re-spectively. These figures do not account for any substantial discovery of oilin Yugoslavia or off-shore; if commercial discoveries should take place, thenew fields could be connected to the pipeline which crosses the main potentialareas (Map 2) and the flow of oil could even be reversed in some sections ofthe pipeline. A discovery off shore would imply that oil would be lifted bytanker from the drilling site and unloaded at the Omisalj terminal in much thesame fashion as imported oil. It is therefore not expected that new domesticdiscoveries would threaten the economic feasibility of the pipeline.

C. Size of the Proposed Facilities

6.04 The pipeline system and the terminal facilities were sized to handleabout 34 million tons of oil annually by 1990 (24 million tons for the Yugoslavinternal market and 10 million tons in transit for Hungary and Czechoslovakia).Naftovod used computer simulation models to optimize the size of the pipelineand tanker terminal. The methodology used was satisfactory and led to reduc-tion in the diameter of the Sisak-Slobodnica section of the line and in tank-age capacity. Naftovod, however, has decided to maintain the diameter of thefirst section (Omisalj-Sisak) at 36" for which the study shows the optimumsize to be 34". The main reason behind this decision is that transit trafficmight increase in the future (discussions have talcen place with Austria), andthat it would be difficult to increase the capacity of the first section ofthe line to satisfy additional transit requirements, since it crosses diffi-cult mountainous terrain. In the light of the comparatively small differencein initial investment costs (less than US$3 million, i.e. 0.75% of the totalproject cost) this decision is acceptable. The project was compared withother pipeline alternatives, in particular to one linking the port of.Plocewith the inland refineries, and was found to be the least cost solution.

D. Alternatives to the Proposed System

6.05 Since most oil imports are expected to come from the Middle Eastand North Africa, the next best alternative to the pipeline system is a com-bination of rail and inland water transport. Such an alternative would re-quire substantial investments in ports and railway facilities and the acqui-sition of railroad tank cars and barges. Since it would require frequentcrude oil transfers from one mode to another, it would increase the risk ofpollution, particularly in the main waterways. Estimates prepared by Nafto-vod, with the assistance of consultants, show that total investments of aboutUS$300 million would be required to expand existing and create new port andrailway facilities at Koper, Bakar, Bar, Pancevo, Novi Sad, Bosanski-Brod,Sisak and Lendava. In addition, the transport of 34 million tons of oilwould require the acquisition of some 12,500 rail tank cars and 750 locomo-tives and of barges and pusher tugs at a cost estimated at about US$460million.

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E. Project Benefits

6.06 The total project cost, including the cost of expansion to ultimatecapacity, is estimated at Din. 5,940 million (US$350 million) excluding taxes,customs duties, interest during construction, and price contingencies. Noadjustment was made for shadow labor costs or rate of exchange. The value ofthe land used by the pipeline proper was not included, since it will be re-stored to its normal use after construction; however, project costs includecompensation for crop and property damage along the pipeline and land valuesfor pump stations and tank farms.

6.07 The comparison of the project cost and of the next best alternativeshows that the rate of discount which equalizes both cost streams over 20years is 50%. This high rate indicates that the facilities should have beenbuilt sooner. Assumptions and details of the calculation are in Annex 12.

F. Sensitivity to Changes in Traffic Growth

6.08 If oil import demand should be lower so that the traffic in 1990 isonly 85% of the projections (a conservative assumption), the pipeline wouldstill be the least cost solution for the transport of oil, and the rate ofdiscount which equalizes both cost streams over 20 years being in excess of43%.

G. Beneficiaries and Employment

6.09 The benefits derived from the project would be savings in transporta-tion costs which are estimated at slightly over 1% of the average sales priceof oil products because oil is an expensive commodity. These marginal savingscan be passed on to the consumer without significantly increasing demand, thusthe beneficiary would be the public at large.

6.10 During construction, the pipeline will provide employment to some2,000 persons while during operations some 350 staff will be employed. Theincrease in the transport of oil products and other cargo resulting from nor-mal growth of the economy will, in a short time, make up any temporary slackcreated by the pipeline in the railways and the few local waterways carriersinvolved (paras. 6.11 and 6.12).

- 24 -

H. Impact on Alternative Means of Transport

6.11 The present requirement of about 12 million tons of crude oil perannum "or all the refineries in Yugoslavia is transported from overseas bytank'.ers and by rail and barges inside Yugoslavia. About 4 million tons arereceaivd in Rijeka by tankers for the Rijeka refinery. Of the remaining8 million tons, about 5.4 million tons are transported by rail from otherports in the Adriatic and from domestic oil fields and the remainder, about2.6 million tons, by barges on the Sava and Danube Rivers.

5,12 The construction of the pipeline will divert crude oil traffic fromthe railways and barges. However, this should not be a problem because railand river traffic is already congested. Since most of the oil moving in theInland waterways is transported in barges of foreign flags the impact of thisdiversion on the local carriers will be minimal. Many of the railway wagonsare fairly old and not likely to be in use very long, while others are onhire from foreign countries and can be returned when no longer required.Although oil and oil products account for only 7% of total rail traffic, therailway authorities are aware of the pipeline project and have taken it into-ccount in their projections of future rail traffic and investment programs.Because of the increase in the anticipated consumption of oil products inthe country, the railways and local water transport enterprises will profitfrom the increased transport of refined products.

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 Agreement has been reached on the main :issues referred to in thepreceding chapters and more particularly on cost overruns (para. 4.12), proj-ect schedule (para. 4.17) and Debt Service Guarantee (para. 5.07). Subject tothe conditions of effectiveness referred to in paras. 4.10 and 4.12, the pro-posed project is suitable for a Bank loan of US$49 million to Naftovod for aterm of 18 years including four years of grace corresponding to the period ofconstruction.

ANNEX 1Page 1

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

The Energy Sector in Yugoslavia

A. Background

1. The main part of Yugoslav proven energy reserves consists of low-grade coal (brown coal and lignite) located in Kosovo and Serbia, and of asizeable hydro power potential in Croatia, Bosnia-Herzegovina and Serbia.Known hydrocarbon reserves (oil and natural gas) located mainly in Serbiaand Croatia are relatively small. Other potential sources exist (nuclear,geothermal and oil shales) but have not yet been investigated in sufficientdetail to be evaluated accurately. A description of the reserves is givenin Table 1, and their location is shown on Map 2.

Coal

2. Coal reserves amount to about 4,000 million tons of oil equivalent(Toe) or about 260 years at average 1975-90 consumption. The largest partof the reserves (83%) consists of coal with an average heating value of about1,900 kcal/kg (7,520 Btu/kg) and high water and ash contents. The size andlocation of the deposits makes them suitable for open pit, mining each with anaverage annual production of about 12 to 15 million tons (2.50 to 3.00 mil-lion Toe). Brown coal reserves account for about 15% of total coal reserves;individual deposits are generally small and scattered and most of them arenot suitable for open pit mining because of the depth of the layer (150 to 500m). The average calorific value of Brown coal is about 3,500 kcal/kg (13,860Btu/kg). Hard coal accounts for 2% of the total coal reserves. MIost depo-sits have highly complex features and steeply dipping strata; the layers arethin and irregular and normally occur at considerable depth, limiting theuse of modern mechanical equipment. The use of domestically produced housecoal is limited because of its high sulphur content (1 to 9%); the averagecalorific value is about 6,420 kcal/kg (25,400 Btu/kg).

Hydroelectricity

4. Total economicallv exploitable hydropower generation potential inYugoslavia is evaluated at about 60,000 million kWh p.a. At the end of 1973only 30% of this potential was developed with an average production capabilityof 18,000 million kWh. The underdeveloped potential is spread rather evenlyover the country. While it is recognized that further development would bejustified, this has been delayed by lack of appropriate resources and admin-istrative considerations.

PaNNEX 1Page 2

Hydrocarbons

5. Total proven recoverable oil and natural gas reserves are estimatedat about 100 million Toe and they account for 2.5% of total Yugoslav energyreserves (about 16 years and 13 years at average 197j-19 90 oil and gasconsumption respectively). Known reserves evaluated at -15 million Toe arelocated in the Pannonian Basin (north and northeastern part of Yugoslavia)and are producing an average of 3 million tons of oil and 1,000 million m3 ofgas annually. Exploration has recently started in the Dinaric Basin offshorethe Adriatic coast where potential oil and gas-bearing structures exist. Sofar three gas-producing wells have been drilled but no commercial exploita-tion has started. Probable recoverable reserves in the Dinaric Basin areestimated at 200 million tons of oil and 37 million Toe of natural gas.

6. Local production of oil, supplemented by irports (para. 12) isprocessed in six refineries (Rijeka, Sisak, Bosanski-Brod, Pancevo, NoviSad and Lendava) with a total annual refining capacity of about 12 milliontons (Map 1).

Nuclear Fuel and Other Non-Conventional Fuels

7. Potential uranium bearing areas cover some 170,000 km2 of which65,000 km2 have been explored. Preliminary estimates show that some 36,500tons of uranium concentrate (U308) could be recovered. Further investigationsare being carried out to refine these estimates and to prepare the develop-ment of the most promising deposits which are in Slovenia.

B. Past Supply and Demand for Energy

8. Per capita consumption in Yugoslavia is 15% below the world averageand about 40% of the West European average. There are, however, considerablevariations in the level of consumption among the various Republics and Prov-inces. The highest levels are reached in Croatia and Serbia which are fairlydeveloped, and the lowest in elontenegro and Kosovo. From 1965 to 1973 annualper capita consumption grew from about 8.5 million keal to 12.6 million kcal,an average rate of 5% p.a.

9. Until the mid-sixties coal had been the predom½-nant fuel and Yugos-lavia was almost self-sufficient in energy except in oil production, whichhad to be supplemented by imports. After a period of relative stagnationfollowing the economic reforms of 1965, overall energy consumption increasedrapidly from 1967 to 1973 at a rate of 8.2% p.a. compared with an averageGDP increase of 6.4% per year. During the same period the structure of con-sumption changed considerably and coal was surpassed by hydrocarbons, prin-cipally oil. The share of hydroelectricity stayed almost constant while theuse of natural gas remained marginal. This was due mainly to the rapiddevelopment of modern industrial sectors (31% of GDP) based on heavy industry

ANTNEX 1

Page 3

(mining and metallurgy) which are energy-intensive and require high-gradecoal or liquid fuels, and to the rapid growth of road transport (Table 2 and3).

10. Most of the coal is used near the mining site, mostly in power andsteam generation which account for 70% and 30% of the total consumptionrespectively. The relatively small volumes of hard coal produced locally areused in the residential sector and by light industry. Coking coal for ironand steel industry is imported. 'In 1973 total coal consumption accounted for39.5% of the total internal demand compared to 64.3 in 1965.

11. About 84% of the demand for oil products is accounted for by thetransportation and industrial sector, the remainder being divided betweenagriculture (6%) and residential and commercial usage (10%). At present,demand for petrochemicals is low but is expected to grow in the future asfeedstock requirements for fertilizers and plastics increase. The use offuel oil for power generation has traditionally been limited; in 1973 thefirst oil-fired plant was commissioned, while four more were under construc-tion. Following the oil crisis, steps were taken to restrict further construc-tion of such plants (paras. 25 and 26).

CONSUMPTION OF MAIN REFINED PRODUCTS BY SECTOR IN 1973/1(000 Tons)

Gasoline Diesel Oil Fuel Oil Total % of Total

Agriculture 30 350 100 480 5.6Transportation 1,350 1,700 520 3,570 41.8Industry 315 520 2,280 3,115 36.3Power Generation 10 150 380 540 -6.3Others 35 500 320 855 10.0

Total 1,740 3,220 3,600 8,560 100.0

/1 Source: Federal Chamber of Economy_ excludes kerosene and aviation andbunker fuels.

12. From '965 to 1973 oil consumption grew from about 3 million tons to10.8 million to. s at an average rate of 17.5% p.a., almost three times fasterthan overall internal demand for energy. Growth between 1965 and 1970 was20%, reflecting the substitution of liquid fuels for solid fuels (mainlylignite) in the industrial sector.

ANNEX 1Page 4

PAST DEMAND FOR OIL PRODUCTS(000 Tons)

1965 1970 1973

Local Production 2,063 2,854 3,332Imports 1,503 5,543 7,810

Total 3,566 8,397 11,142

Less Exports 420 595 301Gross InternalDemand 3,146 7,802 10,841

13. Domestic oil production has not kept pace with the fast growingdemand and Yugoslavia has to rely increasingly on imports to supply itsdorestic refineries. Net imports of oil and refined products, whith in 1965accounted for 34% of internal demand for oil, rose to about 70% in 1973.Crude oil accounts for almost all the imports, and oil products are importedonly to balance refinery yields or to make up for seasonal shortages. Tradi-tionally, the main foreign suppliers have been the Eastern European countries,mnainly the USSR, although, in recent years Yugoslavia has bought increasingvolu:nes from the Middle East (Iran and Iraq). Presently crude oil from theUSSR is imported through the Danube ports to supply the inland refineries ofSisak, Bosanski-Brod, Pancevo and Novi Sad (Map 1), while crude oil from theMiddle East is imported at Rijeka on the northern Adriatic coast. Crude oilis transported to the refineries by barges, railroad tank cars and a shortpipeline linking the Bosanski-Brod refinery to Opatovac on the Sava River.

14. Yugoslavia has relatively important reserves of natural gas inSerbia and Croatia which so far have not been fully developed because of thelack of resources to finance transport and distribution facilities. At pres-ent, consumption is low at about 1,000 million m3/year (0.9 million Toe)and limited to Vojvodina and a small part of Croatia. However, this situationwill change rapidly when the Naftagas Project (Loan 916-YU) becomes opera-tional in 1977-1978. It is expected that natural gas consumption will in-crease fourfold by 1980 and demand will be met by local production and importsin a 50/50 ratio. Yugoslavia recently entered into an agreement with theUSSR for the import of up to 3,000 million m3 (2.7 million Toe) annuallystarting in 1976. This gas will be allocated to Naftagas, INA and Petrol(Slovenia). There are also plans to import liquefied natural gas from NorthAfrica to Bosnia and Slovenia, but negotiations are at an early stage and itis doubtful whether gas would be available prior to 1980-1982. Natural gasis used primarily in industry and petrochemicals as feedstock; public distri-bution to households is marginal.

15. Industry accounts for more than 60% of total per demand, theremainder being divided between the residential and corummerzial sectors ina'!out equal ratios. Agriculture, including irrigation, accounts for only 1Z

ANNEX 1Page 5

of total demand. From 1965 to 1973 final demand for power on the Jugel sys-tem grew from 15,500 GWh to 35,100 GWh an average rate of 11% p.a. Powergeneration capacity increased from 3,700 MW to 8,400 MW, of which hydropoweraccounts for 55%. Demand outside the Jugel system (some distribution enter-prises and captive plants) decreased from 700 GWh in 1965 to 380 GWh in 1973while generating capacity outside Jugel from 1,100 MW to 500 MW. Despite con-siderable efforts to develop new generating capacity, there are still someshortages of power, particularly in the summertime, and consumption restric-tions have to be imposed.

C. Organization of the Energy Sector

16. As in most other sectors, the energy enterprises are the principalagents in the development of energy. They draw up their development plans,and investment programs and arrange financing. Most power companies aremembers of Union of Yugoslav Electric Power Industry (JUGEL) and coal pro-ducers are united in the Association of Yugoslav Coal Producers. There isnot, so far, a similar body in the oil and gas industry which is dominatedby two very large enterprises, Naftagas and INA.

17. Theoretically, the Federal Government has no control over theenergy sector; however, it controls most of the fuel prices and has initiatedstudies to improve coordination between energy producers and define a nationalenergy policy. Energy producers, consumers, local authorities and the FederalGovernment are in the process of negotiating "social agreements" wh4ch willdefine the relationship of each part for the next five years. These arrange-ments will form the framework of the future development of the sector andwill define inter alia the quantitative objectives to be achieved, the invest-ment program and the financing plan by branch and the pricing policy. Theelectric power and coal industries are in the final stage of negotiating suchagreements and have already agreed on production and consumption targets forthe next five years. Discussions are still in progress in the oil industryand are expected to be completed by the end of 1975 (agreement has alreadybeen reached on future oil requirements until 1980).

18. While "social agreements" should provide the framework of a nationalenergy policy in the short run, the Government has sponsored a group of ex-perts in the energy field to study Yugoslavia's long-term energy policy. TheGovernment has also created an energy committee to improve coordination with-in the Sector. This group submitted an interim report a year ago that wasaccepted as a working document. However, the Federal Government requestedthat further studies be carried out to determine the effect of the 'energycrisis" on the development of the Sector. The final report is being completedand its main conclusions are:

(i) Yugoslavia should limit its dependence on imported fuels,and domestic energy resources should be developed withinreasonable economic justification. In particular coal and

ANNEX 1Page 6

electricity (hydro or coal-fixed thermal plants) should besubstituted for imported oil to the maximum extent feasible.

(ii) Hydrocarbons should be used only when coal cannot besubstituted for oil or natural gas.

(iii) Conservation measures should be adopted when and whereappropriate to save energy and more particularly hydro-carbons, but not at the expense of economic development.

(iv) Pricing policies should be revised to support the nationalenergy policy.

These conclusions have the support of the Federal Government and were takeninto account while drafting the social agreements for the coal and electricpower industries, and while negotiating these agreements with oil and gasenterprises. It is still too early to make a judgment on the efficiency andreliability of the new procedures for setting national arnd regional energypolicies. However, preliminary results are encouraging; discussions aretaking place among energy producers and consumers that should lead ultimatelyto better coordination of future development plans and to a more realisticapproach than in the past. Some practical results have already been achievedin the oil and gas sector and substantial reductions of demand projectionswere achieved by eliminating duplication among individual development plans.However, these procedures are new and complex and some prOb'Lems are to beexpected in the realization of the plans. The main difficulties are likelyto arise in the financing of energy-related facilit-ies. The proposed financ-ing plans (Table 6) overall do not include adequate provision for inflation,and it is to be expected that enterprises would have some difficulties insecuring adequate funds to achieve their targets and thus may have to delaysome of the proposed projects. However, the refining subsector app.ars tohave provided adequate estimates for its financing plans.

19. The new procedures are an important step towards the formulationof a national energy policy based on the rational evaluation of future re-quirements and on coordinated investment programs. This is evidenced by theproposed project which is sponsored by three enterprises which heretoforehad been competing with each other with several pi?elne schemes.

D. Present Situation and Future Prospects

The Impact of the Oil Crisis

20. Because of its heavy dependence on imported oil, Yugoslavia washit hard by the increase in the world price of oil. The problems created bythe energy crisis were more ones of price than of volume. Yugoslavia wasnot affected by the embargo, but the cost of imported oil rose from an esti-mated $25/ton in 1972 to about $100 in 1974, causing the oil imports bill to

ANNEX 1Page 7

increase by about $600 million (about 9% of total imports of goods and ser-vices). Because of the limited technical possibilities of substituting coaland electricity for imported oil, only minor adjustments could take place inthe short run. These were mostly increases in the retail price of refinedproducts, twice in 1974. At the same time the government initiated studiesto determine substitution possibilities for the long run.

21. The "oil crisis" had a direct effect on energy pricing policies.Energy producers had been requesting that fuel prices be such that the userswould pay the same price per unit of energy, whatever its form. Attempts havebeen made to link the price of gas and fuel oil, and the oil industry wassuccessful in obtaining that domestic crude oil be priced at the same levelas imported oil. However, the government has been somewhat reluctant, forseveral reasons, to increase substantially the price of electricity and coal,thus depriving the coal and power industries of adequate finances for expan-sion.

22. Energy pricing policy is presently under review and the proposalsmade by energy producers appear reasonable. The problem of aligning domesticoil prices with those of imported oil has been solved through an equalizationfund and an increase in the price of refined products. Gas producers havesubmitted a request for a substantial increase in gas prices to bring them inline with those of refined oil products, and thus avoid uneconomical alloca-tion of scarce resources.

Future Energy Demand

23. Before the oil crisis, it was projected that energy consumptionwould continue to grow at a ranid pace until the end of the century, asYugoslavia would be catching up with more developed countries. Demand projec-tions prepared in 1971 showed that total internal demand was expected to growat an average rate of 7.2% until 1990, to reach about 90 million Toe, equiv-alent to 3.5 times the 1973 level. According to these projections, hydro-carbons demand was expected to grow faster than total internal demand and by1990 oil and gas demand would account for 40% and 11% of the total, respectively,and coal for only 30%. These projections were based on a continuing substitu-tion of oil and natural gas for coal and a high level of imports which wouldreach 35% of total demand by 1990.

24. As a esult of the increase in the world price of oil, these projec-tions were lowered; it is now expected that overall energy demand will growat an average rate of 6.9% until 1990, reaching 83 million Toe. Hydrocarbonswill grow at the same pace as tot-J demand. However, the volume of oil im-ports in 1990 will be identical to those projected before the oil crisis(although the total demand will be less) because:

(i) Previous projections were based on fast growth in the use ofnatural gas, which is not likely to materialize. Recentevaluation of domestic fields has proved to be disappointing

ANNEX 1Page 8

as far as gas recovery is concerned and the estimates for localproduction in 1990 have been lowered from 6,000 million m3 to3,000 million m3. At the same time Yugoslavia has been experi-encing difficulties in signing import agreements for naturalgas and LNG. The USSR, which was expected to deliver up to4,000 million m3 annually starting in 1976-1977, has onlyagreed to 3,000 million m3, and negotiations for the import ofLNG from Algeria are at a standstill. Therefore, additionalvolume of oil will have to be imported.

(ii) Previous projections for domestic oil production were alsotoo optimistic, and it is now estimated that domestic pro-duction will start declining after 1985, to reach about 5million tons by 1990 instead of 8 million tons previouslyconsidered.

The revised projections are given in Tables 3, 4 and 5. They are preparedby a group of Yugoslav experts and are endorsed by the oil and gas industry.They do not account for any new discoveries in Yugoslavia as it is not expect-ed that new fields can begin producing before 1980.

Coal

25. The share of coal in total internal demand will continue to decreaseuntil 1980 and will then level off. This is due to the coming onstream offour oil-fired power plants that were started before the oil crisis; between1980 and 1990 coal will account for more than 30% of the incremental demandccQ;pared to 7% from 1965 to 1973.

Oil and Refined Products

26. The demand for oil will continue to grow rapidly until 1980, partlybecause of the incremental demand of new oil-fired power plants, partly be-cause of the time required to implement conservation measures and substitutecoal for oil. However, from 1975 onwards the share of oil in total demandshould remain constant.

27. As domestic production is not expected to grow substantially, im-ports will increase considerably reaching 85% of oil internal demand by 1990.

PROJECTED OIL DEMAND(000 Tons)

1975 1980 1985 1990

Total internal demand 12,300 18,900 25,100 33,000Domestic production 3,600 4,500 5,200 5,000Imports (net)Crude oil 7,900 13,400 19,900 28,000Refined products 800 1,000 - -

ANNEX 1Page 9

Most of the imported oil is expected to come from the USSR, the Middle Eastand North Africa to the Adriatic coast. It will thence have to be transportedto iTnland refineries. Such transport by 1990 would represent about 16,000million ton/kms, equivalent to about 70% of the total freight traffic projec-ted for the railways in 1975.

Natural Gas

28. As explained in para.24(i) the prospects of widespread use ofnatural gas by 1990 have been reduced substantially. It is expected, however,that natural gas will cover a substantial part of the need of eastern Yugos-lavia, which is at the farthest (-nd of the proposed pipeline system, thusminimizing oil transport costs.

Power

29. It is the intention of Yugoslavia to fully develop its hydropotential by the year 2000. Hydropower will continue to grow and by 1980will begin to be supplemented by nuclear-power generation which by 1990 wouldaccount for 25% of primary electricity generation.

-a7X1

APPRAISAL OF

TIFE YUGO3L_AVIA CIL PIPELINE

Potential Ener-7 Resources/i(million tons of -il equivalent)

Hydro/2Energy Coal Oil Gas Totai ___

Bosnia andHerzegovina 147 835 982 91

Montenegro 45 52 97 2

Croatia 107 175 44 21 345 7

Macedonia 42 40 82 2

Slovenia 70 144 214 4

Serbia 143 2,770 22 31 2,966 64

Total 554 4,o14 66 52 4,686 100

% 812 6 1 1 100

/1 Proven reserves only, no allowance was made for potential oil and gas dis-coveries in the Adriatic (Dinaric Basin).

Excludes nuclear fuel estimated at the equivalent of 9,000 million kWhper year.

/2 Based on average production of 40,000 million kWi per year for about50 years at 2,800 kcal per kWh.

Source: Federal Committee for Energy and Industry

October 1975

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

Past Supply of Energy 1965-1974(000 tons of oil equivalent)

AverageLate of Growth

1965 1966 1967 1968 1969 1970 1971 1972 1973 1 9 7 4L1 RJ. Domestic Production (Primary Energy)

liard coal 724 702 564 518 422 399 438 371 357 360 (8.0)Brown coal 4,077 3,911 3,501 3,689 3,663 3,488 3,621 3,563 3,548 3,550 (1.6)Lignite 4,149 4,104 3,753 3,720 3,717 4,265 4,736 4.803 5,159 5,665 3.6

Total coal 8 950 8,717 7.818 7,927 7,802 8,152 8,795 8,737 9,064 9'575 /2

Cr,de oil 2,063 2,222 2,374 2,494 2,699 2,854 2,961 3,200 3,332 3,400 4.2Natural gas 307 374 429 543 679 909 1,070 1,155 1,236 1,500 19.5Hydroelectricity 2,318 2,549 2,749 3,801 3_803 4,036 4_639 4,230 4,850 8.6

Total 13,638 13,862 13,370 14,000 1 1 15,_718 16,862 17731 17,862 19_325 3.9

2. ImporEs

Coal and coke 1,494 1,305 1,028 1,214 1,269 1,314 1,468 1,424 1,604 1,650 -Crude oil and refinled produ,cts 1,503 2,614 3,328 3,743 4,027 5,543 5,966 7,155 7,810 8,100 20.6GasElectricity 111 54 31 84 42 82 44 22 78

Total 3,108 3.973 4.387 5.041 5,338 6,939 7,478 8,601 9,492 9,750 13.5

3. Exports3

Crude oil and refined products 420 1,167 1,038 572 450 595 600 307 301 200 (8.0)Others 102 86 146 87 173 264 238 507 440 300 13.0

Total 522 1,253 1,184 659 623 859 838 814 741 500 -

Gross Internal Demand (I + 2 - 3) 16,224 16,582 16,573 18,382 19,696 21,798 23,502 25,518 26,613 28,575 6.5

/I Based on six months estimates.2 - means less than 1%.

'3 Includes secondarv enerav.

Note: Lower calorific Value:Hard coal 6,200 kcal/kgBrown coal 3,880 kcal/kgLignite 2,270 kcal/kgCr,de oil and refined products 10,000 kcat/kgNatural gas 9,300 kca l/mHydroelectricity 2,580 kcal/kWh

Source: Federal Institute for Statistics, Naftovod

OcLnhb-, 1975

ANNEX 1"abl_

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

Structure of Yugoslavia's Internal Demandfor Primary Energy

(Percent)

----- Actual ------ ------------------ Projected -----------------1965 1970 1975 1980 1985 1990

Electricity:

Hydro 14.2 17.2 18.4 17.2 16.5 14.7

Nuclear . - - - 2.3 3.5 5.3

Sub-total 14.2 17.2 18.4 19.5 20.0 20.0

Solid Fuels (coaland lignite) 64.3 43.1 36.1 31.5 31.5 31.3

Hydrocarbons:

Oil 19.5 35.6 40.5 39.5 39.5 39.8

Natural Gas 2.0 4.1 5.0 9.5 9.0 8.9

Sub-total 21.5 39.7 45.5 49.0 48.5 48.7

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0

OCD Europe: /1

Electricity (hydro /2 /2and nuclear) 4.5 n.a. 10.5 - 10.0 16.0 - 15.1 n.a.

Coal 22.3 n.a. 18.5 - 17.2 14.7 - 14.0 n.a.

Oil 63.1 n.a. 50.0 - 55.1 47.8 - 52.8 n.a.

Gas 10.1 n.a. 21.0 - 17.7 21.5 - 18.1 n.a.

TOTAL 100.0 100.0 100.0 100.0 100.0

/1 1972.

/2 Oil at $6 and $9 per barrel.

Source: Tables 2 and 5, OECD Energy Prospects to 1985

0(>tober, 1975

ANNEX 1

lTble 4

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

Supply/Demand Projections forHydrocarbons 1975 - 1990

('000 tons of oil equivalent)

--- Original Projections ------- -------Revised Projections-1975 1980 1985 1990 1975 1980 1985 1990

I. Projected Demand

Crude Oil andRefined Products 12,500 21,000 30,000 37,000 12,300 18,900 25,100 33,000

Natural Gas 3,000 6,500 7,700 10,300 1,500 4,500 5,700 7,300

Total 15,500 27,500 37,700 47,300 13,800 23,400 30,800 40,300

r. Supl

Local production:

Crude Oil 3,800 6,ooo 7,000 8.000 3,600 4,500 5,200 5,000

Natural Gas 3,000 3,500 4,500 6,ooo 1,500 1,800 2,000 3,000

Sub-total 6,800 9,500 11,500 14,000 5,100 6,300 7,200 8,000

]riports:

Crude Oil 7,900 14,000 23,000 29,000 7,900 13,400 19,900 28,000

Refin d Products (net) 800 1,000 - - 800 1,000 -

Natural Gas - 3,000 3,200 4,300 - 2,700 3,700 4,300

Sub-total 8,700 18,000 26,200 33,300 8,700 17,100 23,600 32,300

Total 15,500 27,500 37,700 47,300 13,800 23,400 30,800 41,300

Source: Federal Secretariats for Finance and FlaanningNaftagas, Naftovod, Mission's estimates.

October, 1975

ANNEX I

Tablc 5

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

Projected Primary Energy Demand 1975 - 1990(000 tons of oil equivalent)

Average Rate

Average Rate Average Rate Average Rate of Growth

1975 1980 of Growth 1985 of Growth 1990 of Growth 1975 - 1990

I. Internal Demand(original projections)

Electricity:

Hydro 5,600 8,250 10,500 12,200

Nuclear - 1,100 2,200 4,400

Sub-total 5,600 9,350 10.5 12,700 6.3 16,600 5.4 7.5

Coal, 11,000 15,000 6.3 20,000 5.2 26,000 4.6 6.6Oil_

112,500 21,000 10.5 30,000 7.4 37,000 4.2 7.5

Natural Gas 3,000 6,500 16.5 7,700 3.4 10,300 6.o 8.5

Total 32,100 51,850 10.0 70,400 6.4 89,900 5.0 7.2

'I. Internal Demand(revised projections)

Electricity:

lIydro 5,600 8,250 10,500 12,200Nuclear - 1,100 2,200 4,400

Sub-total 5,600 9,350 10.5 12,700 6.3 16,60C 5.4 7.5

11,000 15,000 6.3 20,000 5.8 26,009 4.6 5.9il 1 2 12,300 18,900 8.9 25,100 5.9 33,000 5.6 - 6.8

Natural Ga/L 1,500 4,500 24.0 5,700 4.8 7,300 7.8 11.0

Total 30,400 47,750 9.4 63,500 5.9 82,9C0 5.5 6.9

Difference (%) 5 13 14 11

/1 Includes 1.1 nillion tons for power generation.2T Original projections reduced to take into account recent

import agreements with the USSR.

Source: Federal Secretariats for Finance and PlanningNaftovod, Mission's estimates.

October, 1975

APPRAISAT, OF

THE YUGOSLAVIA OIL PIPELINE

Energy Sector Financing Plan 1975-1980(Din. Million)

Coal Oil Gas PowerLocal Foreignt Local Foreign Local Foreign Local Foreign Total

Currency Exchange Total Currency Exclhange Total Currency Exchange Total Currency Exchange Total

A. Application of Funds

t. Exploration 22,000 3,000 25,000 5,500 2,600 8,100 - - - 33,1002. Production 8,000 4,500 12,500 8,000 5,000 13,000 2,500 1,600 4,100 36,000 20,000 56,000 85,6003, Processing 5,000 7,000 12,000 - 12,0004. Transport 1,800 6,700 8,500 6,200 2,500 8,700 12,000 6,000 18,000 35,2005. Distributtion 3,800 3,800 40,000 40,000 43,800

Total 8,000 4,500 12,500 40,600 21,700 62,300 14,200 6,700 20,900 88,000 26,000 114,000 209,700

B. Sources of Funds

1. Internally generated 500 500 27,300 27,300 7,000 7,000 8,000 8,000 42,8002. Government grants 6,500 6,500 8,000 8,000 3,500 3,500 75,000 75,000 93,0003. Local loans 1,000 1,000 5,300 5,300 3,700 3,700 5,000 5,000 15,0004. External loans - 4,500 4,500 21,700 21,700 6,700 6,700 26,000 26,000 58,900

Total 8,000 4,500 12,500 40,600 21 700 62,300 14,200 6,700 20,900 88,000 26,000 114,000 209,700

Sources: Federal Secretariat for Finance

October, 1975

ANNEX 2Page 1

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Tanker Terminal

Location

1. Several sites were considered for the tanker terminal. The pro-p>ed sive at Omisalj Bay was found to be the most suitable. This site is wellprotected from the prevailing winds and the entrance can be easily approached.'.I-ectly from the sea without turns. There is unlimited area for swinging:nkers outside the entrance, and in settled conditions, swinging could eventa place easily and safely inside the Bay, off the berths. Further, since

tnlE.rs will normlally be berthed head to sea, they will be able to leave thet_;- , with little or no outside assistance in case of Thisgency. Tis

ltva., 'hich has a rocky bottom, x.ater depth of 30 m and Cous ,ot need anyrxdg-' ig work, allows for the construetion of three or more -Iorlgside berths: western side of the Bay. Also, the layout of the Bay allo.1ws the im-

pIn' e-i..tation of practical and effective ste-ps to prevent oil Rollution. of theadjal-znt sea area.

2.ar Size, Number of Berths

'L The tonnage sizes of tankers, existing, being built, and on ordertt '-e end of 1974, have been tPken int:o consideration to assess the numberof ths at the tanker termini2.. There is no reason to s-X,r.ose that the

-.:1i terminal wil vary appieclably from these within the tinie scale oftn. Woiect. This assu-Lation is uriforced by the plans fo- axpansion of theSuez Canal, which l.:t the size :' -ar-kers using the Canal to 150,000 dwtstarting in 1977 and t.J 250,000 dl sLarting in 1980. To a1::ow for the pos-sibilitv of short and nK . aul cru'dve arriving from North .-nd West Africain larger tankers, and to op-Oly with the provisions of the transit contractswhich stipulate the minimuli- --- of tanker, the Dort will Be able to accommo-date ships from 30,000 to 350,5000 .iwt.

3D All berths would be designed to take the smallest .3;id largesttankers,expected to calP at Om.isaij bea-<iuse of the randomness of tankerarrivals and normal port Jperating prc:-edures whIch require tankers to beberthed in their arrival sequence.

4. To estimate the number of berths required, a computer program wasadopted. The program used variables such as type of tanker, size of storagetanks, unloading rate, pumping rate, annual traffic, types of crude oil,lenth of tanker stay and average occupancy of storage tanks. Based on thecomputer study it was found that two berths are sufficient until a yearly

ANNEX 2Page 2

throughput of 25 million tons is reached (1984). Thereafter, a third berthwill be needed. No additional berths are needed for tankers dischargingbunker fuel oil since sufficient spare capacity will always exist with twoor three berths.

Type of Berths

5. Since the terminal is intended solely for tankers, a dolphin-typestructure is recommended. Because it is required to berth tankers of differ-ent sizes ranging from the small to the very large crude carriers (VLCC), thegoverning factor in the location of dolphins is the straight side of thesmallest tanker when in light condition. For this project 4 dolphins areneeded at each berth. The ballards on the shore would be capable of with-standing a pull of 150 short tons applied at any angle between 300 above orbelow the horizontal, while the ballards on the dolphins would be capable ofwithstanding a pull of at least 75 short tons. All ballards would be locatedso as to allow the ropes to run close to horizontal, irrespective of thedraft of the tanker at different conditions of discharge.

Navigation Aids

6. To facilitate navigation during day and night and to reduce theprobability of accidents, two lighthouses each 20 m high are needed at PuntaErta and at Punta Kijac as well as adequate leading lights, berthing lightsand marking buoys.

Handling Characteristics of VLCC

7. These tankers differ very little from other ships when proceedingat full speed under normal deep sea conditions. However, when at port waterarea, their reaction to engine orders is slow. The result of an order-takesconsiderable time to take effect and any wrong or excessive order takes along time to correct. In particular, with the engines going astern, it isextremely difficult, if not impossible, to predict the direction in which theship's head may swing. Thus it is essential that a pilot be on board whilethe tanker is proceeding through the narrow channel between Cres Island andthe mainland. Two tugs (about 2,000 horsepower each) would join the tankerwhen clear of the channel, and two further tugs of the same capacity wouldjoin when the tanker is about 3 miles off the terminal entrance. The tankerwould approach the terminal at slow speed so as to arrive in front of theterminal in stopped condition without having to resort to large astern enginecommands.

Fire Protection

8. In view of the relatively limited fire-fighting resources aboardtankers, they are dependent on shore installations for assistance in firefighting should an emergency arise when a tanker is berthed at the terminal,and fire-fighting facilities at the berths would be provided. Experience has

ANNEX 2Page 3

shown, however, that in certain circumstances, fire and heat conditions atthe unloading platform may seriously hinder the fire-fighting effort fromshore. Therefore, floating fire-fighting equipment would also be availableat Omisalj.

Oil Pollution

9. One of the most serious problems concerning the operation of 9misaljterminal is the effect of oil pollution on the environment. Minor oil spillsare inevitable in the day-to-day operation of the terminal. According to thelaw of probability, a major spill may occur after some time and may be causedby fire, explosion or collision between two tankers or by a tanker strikingthe Jolphins at speed or at the wrong angle. Spillage of possibly some40,000 to-s of oil, which may happen if a ship's tank is ruptured, could thusbe expected, and adequate foolproof measures would be available to deal withthe situation. The most effective method by which pollution of the abovenature imay be contained inside the terminal area is by using "a floatingboom." Such a device would be provided and moored in position at the entranceof Daisalj Bay with a gate to allow tankers to enter and leave safely. Inthe event of a major oil spill, a small motor boat can easily swing the gateinto the closed position.

10. The most efficient method to remove a spill which has been containedinside the terminal by the floating boom is by using skimmers. In view ofthe land-locked nature of the Omisalj Bay, and the fact that there is notidal flow in the Adriatic, any residue from dispersants and absorbents will,.ver a period of time, build up into a highly undesirable sludge on theharbor's bottom and may eventually find its way into Rijeka Gulf. Thus allprecautions would be taken to reduce the probability of major spillage andall efforts would be exerted to contain and remove it as quickly as possible,if it happens.

Operation - Administration

11. It is expected that Naftovod will entrust the Rijeka Port Enterpriseor a similar organization with the operation of the Omisalj port facilitieswhich are estimated to cost about Din. 720.6 million (US$2.4 million). Theport authority will meet all operating costs, provide port services 1/ andany facilities that may be required in addition to those included in theproject. The port authority will collect the prescribed port charges whichwill be similar to those prevalent in other ports in the area such as Genoa,Trieste, and Lavera. Fr: the use of the facilities provided by Naftovod, the.port authority will ha..e to pay an annual charge which should cover at leastdebt charges amounting to Din. 90 million (US$5.3 million). Naftovod, Lcw-ever, expects to enter into a more profitable arrangement.

1/ Pilotage, tugs, launches, mooring, berthing, etc.

ANNEX 3

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Duties of the Foreign Consultants

The foreign consultants, with assistance from local consultants,shall assume full responsibility for the following tasks:

(i) Executing basic engineering designs, including hydraulics, forthe entire project up to 20 million tons of capacity per year,including provision of economical options for expansion to 34million tons per year.

(ii) Checking and certifying detailed designs, main drawings, speci-fications and other documents prepared by the local consul-tants.

(iii) Checking and certifying all bid documents before issue and pre-paring the technical evaluation of bids.

(iv) Carrying out project planning, scheduling, and control includ-ing critical path analyses, and contingency planning to ensurethat the State I transit facilities are completed and operatingby May 31, 1978.

(v) Expediting of project materials and equipment, not supplied byconstruction contractor(s), until the construction contract(s)is awarded and the construction contractor(s) takes over thisfunction.

(vi) Coordination of project materials and equipment inspection andtesting, and of construction inspection and supervision.

(vii) Preparing an operational organization structure, operating andmaintenance job descriptions and designing and implementing atraining program for Naftovod staff.

(viii) Checking and certifying operating and maintenance manuals.

(ix) Checking and certifying the procedures for the start-up andcommissioning of the facilities.

(x) Reviewing Naftovod's operational arrangements with clients andothers.

The above tasks are estimated to require an input of 50 man-years.

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ANNEX 5

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Estimated Schedule of Disbursements

IBRD Fiscal Cumulative DisbursementsYear and Quarter at End of Quarter

us$ (OOO's)

1975/76

December 31, 1975 500March 31, 1976 1,200June 30, 1976 1,500

1976/77

September 30, 1976 5,800December 31, 1976 6,100March 31, 1977 9,4o.00June 30, 1977 12,700

1977/78

September 30, 1977 16,00December 31, 1977 19,300March 31, 1978 25,800June 30, 1978 29,100

1978/79

September 30, 1978 32,400December 31, 1978 37,000March 31, 1979 40,000June 30, 1979 42,300

1979/80

September 30, 1979 45,600December 31, 1979 49,000

Source: Mission Estimates

October, 1975

ANNEX 6Page 1

APPRASIAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Budget and Accounting Procedures

1. The accounts of the Enterprise will be presented in the prescribedBalance Sheet and Revenue Account forms for such enterprises; they includethe value of fixed assets, depreciation, current assets and liabilities, in-come and expenditure and the surplus that is available for appropriation.This surplus referred to as "DOHODAK" is a gross figure that represents thesocial surplus that the Enterprise generates. From the annual revenue, onlycertain items of expenditure, such as material operating costs, maintenanceexpenditure, sundry office expenses, and depreciation charges are deductedto arrive at this surplus. Other items of expenditure, such as salaries andwages, rates and taxes, interest charges, etc., are not deducted in calculat-ing the social surplus. They are treated as appropriations from the surplus.The balance remaining after such appropriations, usually 25% of the grosssalaries and wages, is retained by the Enterprise as a Fund for FinancialReserves (for meeting future investments, losses in particular years, etc.)and for welfare expenditure.

2. The accounting year for the Accounts and the Budget is the calendaryear. An Annual Revenue Budget and an Investment Budget are to be preparedby Naftovod as is done by all other enterprises in Yugoslavia. The Budgetsare approved by the Workers' Council. The Investment Budget is to be inkeeping with the overall Energy Policy and Investment Program approved by theFederal authorities and Republic Economic Councils. Interim financial state-ments will be compiled for the periods ending 30 June, 30 September, and 31December of each year and will be compared with the corresponding budget pro-visions, suitable explanations being given for variations.

3. The annual accounts of the Enterprise are presented to the Workers'Council by the end of February and thereafter submitted to the Social Account-ing Service for check and certification. The Social Accounting Service (SAS)is an independent statutory organization responsible for the payment (Giro)operations throughout the country and for the check and control of all organ-izations, including Government and Army.

4. The normal day-to-day transactions of Naftovod will be conductedthrough Yugobanka of Belgrade and the United Bank of Zagreb and SAS. Allvouchers have to be approved by SAS before they can be presented to the banksfor payment. All transactions will be recorded by SAS and daily statementsforwarded to the Borrower, who will verify the statements with the recordsmaintained by them. No expenditures will be approved by SAS unless it iswithin the budget provision. Thus, SAS will not only check the annual ac-counts, but also exercise a degree of control over the normal accountingtransactions of Naftovod.

ANNEX 6Page 2

5. The audit procedures of SAS are not entirely satisfactory. Thishas already been considered by the Bank and a training program for the staffof that organization was provided as part of Loan 916-YU (Naftagas PipelineProject). This training program is continuing in cooperation with foreignconsultants and with the Bank, and it is expected that suitably-trained staffwill be available for conducting the audit by 1979.

6. The accounts of the Borrower will also be subject to certain internalchecks which will be conducted annually by special inspectors appointed by theWorkers' Council to insure that the various transactions are in accordance withstatutes and orders issued by the latter.

ANNEX 7

APPPAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Basis and Assumptions Used in Financial Analysis

1. Operating expenses have been calculated on the following assump-tions: (a) total operating staff of 350; (b) total annual salaries and wagesescalated at 15% per annum; (c) electricity charges escalated at 10% perannum; (d) maintenance costs and sundry office expenses escalated at 5% perannum.

2. Depreciation is provided on the assumption that the assets will befully depreciated in 22 years.

3. Operating income: the receipts from domestic refineries have beencalculated to cover the estimated expenditures, including debt service, anda surplus amounting to 25% of gross salaries and wages; the receipts fromHungary and Czechoslovakia were based on the tariffs and quantities in thetransport agreements.

4. Debt Service: annual interest charges and repayment of loans on thebasis of the terms and conditions expected in the agreements with,the respec-tive lenders.

5. Interest during construction on the IBRD and Kuwait loans are in-cluded in the project cost.

6. Working capital requirements estimated at Din. 30 million.

7. No allowance has been made for investment of surplus funds andincome therefrom.

8. Additional investments, Din. 1,515 million met out of Surplus (5million) and Loan (1,510 million).

9. The cost of line fill has not been taken into account as it is tobe supplied free by MATREZ.

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

(Ju_oslavenski Naftovo.,

REVENUE ACCOUNTS - YEARS ENDED DEC. 31

(Din Millions)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

I INCOME

a. Transportation Charges 670.3 1396.1 1464.7 1276.4 1286.2 1286.9 1253.0 1245.5 1216.3 1260.0 1308.7b. Receipt from Port 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9

Total 760.2 1486.0 1554.6 1366.3 1376.1 1376.8 1342.9 1335.4 1306.2 1349.9 1398.6

SI EXPENDITURE

a. Variable;Electricity 27.4 59.2 97.6 107.4 118.1 129.9 142.9 157.2 172.9 190.3 209.3b. Fixed

1. Maintenance 8.5 20.3 21.2 22.3 23.5 24.6 25.8 27.0 28.5 29.9 31.32. Salaries and Wages 16.3 42.8 49.2 56.6 65.1 75.1 86.2 99.2 113.9 131.0 150.73. Sundry Expenses 3.1 7.3 7.7 8.1 8.5 8.8 9.3 9.8 10.3 10.8 11.44. Taxes and Raten 6.0 14.3 15.1 15.8 16.7 17.6 18.8 20.0 21.6 23.3 25.3S. Insurance 26.1 47.6 47.6 47.6 47.6 47.6 47.6 47.6 47.6 47.6 47.66. Trade Association Fees .5 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Total 87.9 192.5 239.4 258.8 280.5 304.6 331.6 361.8 395.8 433.9 476.6

III DEPRECIATION 177.9 315.3 315.3 315.3 315.3 345.6 345.6 362.2 362.2 362.2 381.6

IV TOTAL EXPENDITURE 265.8 507.8 554.7 574.1 595.8 650.2 677.2 724.0 758.0 796.1 858.2

V SURPLUS 494.4 978.2 999.9 792.2 780.3 726.6 665.7 611.4 548.2 553.8 540.4

VT INTEREST 277.2 605.8 586.4 399.3 338.9 314.9 266.8 226.8 190.1 158.6 124.4

VII CAPITAL LEVY* 6.9 100.1 139.2 195.5 235.9 249.7 199.1 124.0 68.3 99.8 114.6

VIII PROPIT FROM TRANSIT TO HUNGARY& CZECHOSLOVAKIA** 118.1 171.7 172.1 93.3 79.3 53.4 88.4 145.9 171.4 172.7 173.8

IX RECEIPT FROM PORT,* 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9 89.9

X RETAINED SURPLUS 2.3 10.7 12.3 14.2 16.3 18.7 21.5 24.8 28.5 32.8 37.7

XI SURPLUS AS % OF GROSS FIXED ASSETS 14.3 14.7 11.7 10.9 9.7 8.7 7.7 6.9 6.8 6.5

XII RETAINED SURPLUS AS % OF GROSS FIXEDASSETS 0.1 0.2 0.2 0.2 . 0.2 0.3 0.3 0.4 0.4 0.5

XIII DEBT SERVICE COVERAGE *0* l.3 1.3 1.2 1.2 1.2 1.2 1.4 1.5 1.5 1.5

NOTES:

* Difference between loan repayment and depreciation** To be paid to refincries

*** Surplus + deprecilion ,i intercst, and loan repayment

SOURCE: Zissis- derived from Naftovod data

October, 1975

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

(JugosolansKi Nl vo.)

BALANCF SHIRT - AS AT DEC, 31

(Din. Millions)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1918ASSETS

Fixed Ansots - T..s. 6361.8 6800.0 6800.0 6800.0 7135.3 7470.6 7663.9 7861.6 7861.6 8081.7 8315.0

Less DepreciatIon 177.9 493.2 808.5 1123.8 1439,1 1784.7 2130.3 2492.5 2854.7 3216.9 3598.5

Net 6183.9 6306.8 5991.5 5676.2 5696,2 5685.9 5533.6 5369.1 5006.9 4864.8 4716.5

Wnck in Progress 213.2 __ 335.0 334.7 195.0 196.7 225.0 229.9

St,htotal 6397.1 6306.8 5991.5 6011.2 6030.3 5880.9 5730.3 5369.1 5231.9 5094.7 4716.5

Cnrrent Assets - Net 53.3 43.0 55.3 69.2 85,2 103.4 124.4 149.2 176.0 207.1 244.8

Total Assets 6450.4- 6349.8 6046.8 6080.4 6116.1 5984.3 5854.7 5518.3 5407.9 5301.8 4961.3

LLABII.LIIES ASS 00UITY

L.ng-tenn Debt 6441.2 6229.8 5775.3 5599.5 5383.3 4983.0 4633.3 4147.1 3941.6 3704.6 3208.4Equity

Earned 5urplus 2.3 13.0 25.3 39.2 55.2 73.4 94.4 119.2 146.0 177.1 214.8Oquity in Foilitiso* 6.9 107.0 246.2 441.7 677.6 927.9 1127.0 1252.0 1320.3 1420.1 1538.1

Total Liabilities and Eqelity 6450.4 6349.8 6046.8 6080.4 6116.1 5984.3 5854.7 5518.3 5407.9 5301.8 4961.3Debt/Eqoity Uatie 99/1 98/2 95/5 92/8 88/12 83/17 79/21 75/25 73/27 70/30 65/35

*Capital levy plus norplus in-ested in project e-possi-n

SOURCE: Mission dei-ed fr- Nsftered dtat

October, 1975

ANNEX 10

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ANNEX 11Page 1

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Resume of Transport Agreements

A. Agreements with the Founders

1. The Founders are responsible for providing the following amountsfree of interest to Naftovod for meeting the project costs:

(a) Energoinvest-Bosanski-Brod refinery Din. 150.0 million(b) INA-Sisak refinery 100.5 million(c) INA-Lendava refinery 49.5 million(d) Naftagas-Pancevo refinery 105.0 million(e) Naftagas-Novi Sad 45.0 million

Total 450.0 million

2. The refineries are liable to pay transportation costs for the fullreserved capacity as specified below:

Years 1978 1979 1980 1981 1982 1983 1984 1985-----------------------(million tons per year)-----------------

Sisak 1.5 3.2 3.9 4.0 4.0 4.4 5.0 5.8Lendava 0.4 0.8 1.0 1.0 1.0 1.1 1.2 1.5B.Brod 1.2 2.1 2.4 2.8 2.8 2.8 2.9 3.1Novi Sad 0.6 1.1 1.2 1.2 2.0 2.0 2.2 2.3Pancevo 1.4 2.9 3.5 3.6 3.9 4.1 4.3 4.7

3. The refineries shall provide a guarantee of their business banksfor the payment of the transportation costs.

4. Naftovod shall repay the contribution of the Founders in 25 yearsin equ4l semi-annual installments, the first installment becoming due 3 yearsafter the completior of construction.

5. Transportation costs for the crude oil are to be paid by the refine-ries for the total reserve capacity per year on the following basis:

(a) Total actual fixed operating costs of the relevant section ofthe pipeline for transporting the reserve quantity. The fixedcosts will include the amount required for repayment of loansthat is not covered by normal depreciation.

ANNEX 11Page 2

(b) Variable costs in proportion to the quantity actuallytransported.

(c) If, in any particular year, the contracted quantity ofcrude oil is not transported because of Naftovod's fault,the users shall pay only the fixed cost in proportion tothe quantity actually transported.

(d) If, in any particular year, Naftovod fails to transportthe stipulated quantity of crude oil, it is liable to paya penalty amounting to 80% of the transportation costs forthat year for the quantity not transported.

6. The profit from the transport of crude oil to Hungary and Czechoslo-vakia shall be used to reduce the transport costs of the Founders.

7. Events of Force Majeure relieve either party of its obligationsprovided the condition or consequences of such events shall last more thansix months.

B. Agreement with lIungary and Czechoslovakia

1. The Yugoslav party undertakes to construct the port and pipelinewithin 36 months after the contract comes into force.

2. The contract shall remain in force for 20 years from the commence-ment of operations of the pipeline.

3. The Yugoslav party undertakes to construct the pipeline accordingto the following specifications:

(a) The port and terminal will be able to receive tankers up to200,000 dwt.

(b) The number of tankers to be handled on behalf of Hungary andCzechoslovakia annually will be between 50 and 70.

(c) At the border crossing the pipeline diameter will be 28 inches.

4. Crude oil will be transported according to the schedule and at thebasic rate per ton given below:

ANNEX 11Page 3

Hungary CzechoslovakiaQuantity Rate per Ton Quantity Rate per Ton

(million tons) (US$) (million tons) (US$)

1978 1.5 4.19 1.7 3.841979 3.0 3.65 3.6 3.461980 3.5 3.38 4.3 2.741981 4.0 2.92 5.0 2.181982 4.5 2.62 5.0 2.181983 5.0 2.18 5.0 2.181984 5.0 2.18 5.0 2.18

5. If, for any reason other than Force Majeure, either party fails todeliver or supply the stipulated quantity in any year, 80% of the transporta-tion costs for the unused capacity in that year will be paid as penalty.

6. The Czechoslovak and Hungarian parties agree to provide respectivelygoods and services, and cash totalling US$25 million each for the construc-tion of the pipeline project.

7. If, for any reason, except Force Majeure, either party fails todeliver or take the stipulated quantity, it is liable to pay compensation tothe other.

8. Port charges payable by ships are not included in the transportationcosts, but the Yugoslav party guarantees that the total port charges payableby the oil tankers will not exceed the usual charges paid by tankers transport-ing oil for Yugoslavia.

9. The basic transportation fee given in Paragraph 4 above will berevised annually according to the following escalation formula:

ANNEX 11Page 4

B - 1 E - 1 LP = P (0.33 + 0.35 n + 0.20 n + 0.12 n - 1)n o B E L

Nov. 1973 Nov. 1973 Nov. 1973

Where

index n the year for which transportation fee will be calculated

index n - 1 = the year previous to the year n

P corrected transportation fee for the year nn

P = basic transportation fee in US dollars/ton0

B - 1 = Ratio of price of thick sheet metal for the yearn n - 1 to November 1973, expressed in national cur-

B rencies of Germany, Belgium, France, Luxembourg,Nov. 1973- and Italy. It is based on the publication "Iron

and Steel Products", edited by European CommunityCommission, 1041 Bruxelles, 200 rue de la Loi,Batiment Berlaymont.

E - 1 = Ratio of cost of electricity for the year n - 1 ton November 1973. For this purpose, the average pricesE quoted in the official Yugoslav Statistical YearbookNov. 1973 will be taken.

L = Ratio of wages in the Oil Processing industry for then - 1 year n - 1 to November 1973. For this purpose the

L average wages quoted in the official Yugoslav Statis-Nov. 1973 tical Yearbook will be taken.

10. In case of changes in the rate of exchange of the US dollar inrelation to other European currencies as compared to the average rate inNovember 1973, suitable adjustment will be made in the transportation feesevery quarter.

11. Basic transportation fees and escalation formula will be in forcefor 8 years after the pipeline commences operation.

12. Both parties will provide bank guarantees to ensure fulfillmentof the commitments.

ANNEX 12Page 1

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Background and Assumptions Used inthe Justification of the Project

A. Background

1. As explained in Annex 1, Yugoslav internal demand for oil is expect-ed to grow from about 12.5 million tons in 1975 to about 33 million tons in1990. Since domestic production is not expected to be developed substantially,the largest part of the Yugoslav consumption would have to be imported fromthe USSR, the Middle East and North Africa, and transported from the portsof entry on the Adriatic coast to inland refineries. Although various modesof transport could be considered for such volumes, it is widely accepted thatpipelines are usually the least cost solution. The economic evaluation wastherefore based on the comparison of the proposed pipeline with conventionalmodes of transport.

B. Projected Demand

2. The projected traffic demand for the pipeline system is given inTable 1. It has been provided by Naftovod and is in agreement with Govern-ment projections (Annex 1) for the part which will supply the inland refine-ries and with contractual volumes for transit traffic to Hungary and Czecho-slovakia. The allocation of the domestic traffic to each refinery was madeaccording to their development plans.

C. Alternatives to the Pipeline

3. Two alternatives can be considered: (i) railways and (ii) inlandwater transport. The railway alternative could reach all refineries providedthat adequate terminAls and sidings are built at the main ports of entry (Bar,Bakar and Koper) and at the refinery sites. Railways could also be used toaccommodate the transit to Hungary and Czechoslovakia. Inland water transportwould be adequate for the supply of the Novi Sad, Pancevo, Bosanski-Brod andSisak refineries; it would be inadequate for the Lendava refinery and fortransit. The inland water transport alternative would be less reliable thanthe railway alternative (particularly for the supply of Sisak and Bosanski-Brod) since rivers are already congested and have a somewhat irregular traffic.

4. Optimization studies carried out by consultants show that the nextbest alternative to the pipeline is a combination of rail and inland watertransport. Rail would be used for transit and to supply Lendava, Sisak andBosanski-Brod, while inland water transport would be used to supply Novi Sad

ANNEX 12Page 2

and Pancevo. The cost of this alternative is estimated at about Din. 12,860million (US$756 million), of which Din. 5,020 million (US$295 million) arefor expansion of port and railway facilities and Din. 7,840 million (US$461million) for the acquisition of locomotives, rail tank cars, pusher tugs andbarges (Table 3).

5. Direct operating costs would be about Din. 0.17 per ton/km and Din.0.05 per ton/km for the railway and for inland water transport respectively.They would include fuel and labor costs as well as direct maintenance costs.

6. The cost stream of the rail and inland water transport alternativeis given in Table 3. Transit revenues have been estimated on the basis ofexisting Yugoslav rail and inland waterway tariffs; operating costs are netof transit revenues.

D. The Proposed Pipeline System

7. -The cost of the project is estimated at about Din. 5,940 million(US$350 million) excluding taxes, price contingencies and interests duringconstruction. It includes subsequent investments to increase the initialcapacity up to 34 million tons. Operating costs include power, labor andmaintenance costs and were derived from similar facilities in Europe and ad-justed to reflect Yugoslav conditions. Transit revenues were based on actualcosts of transporting oil and not on the tariffs and are, therefore, veryconservative. Operating costs are net of transit revenues.

E. Comparison of the Two Alternatives

8. The comparison of the two alternatives shows that the rate of dis-count which equalizes both cost streams over 20 years is 50%. The feasibilityof the proposed project is not very sensitive to a decrease in domestic trafficof about 15%. Under this assumption the rate of discount which equalizes bothcost streams over 20 years is in excess of 43%.

ANNEX 12Table 1

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINM -(Jugoslavenski Naftovod)

Crude Oil Throughputs, 1978 to 1997

(in millions of tons)/1

Omisalj- Omisalj- Omisalj-Sisak Sisak Sisak- Sisak- Slobodnica Novi Sad Virje-

Domestic Transit Total Slobodnica Novi Sad Pancevo Lendava

1978 8.3

1979 10.1 6.6 16.7 6.1 4.0 2.9 0.8

1980 12.0 7.8 19.8 7.1 4.7 3.5 1.0

1981 12.6 9.0 21.6 7.6 4.8 3.6 1.0

1982 13.7 9.5 23.2 8.7 5.9 3.9 1.0

1983 14.4 10.0 24.4 8.9 6.1 4.1 1.1

1984 15.6 10.0 25.6 9.4 6.5 4.3 1.2

1985 17.4 10.0 27.4 10.1 7.0 4.7 1.5

1986 18.6 10.0 28.6 11.0 7.7 5.2 1.6

1987 20.0 10.0 30.0 11.9 8.5 5.9 1.7

1988 21.3 10.0 31.3 12.6 8.9 6.0 1.9

1989 22.7 10.0 32.7 13.0 9.0 6.0 2.0

1990 24.0 10.0 34.0 14.0 9.0 6.0 2.0

1991 24.0 10.0 34.0 14.0 9.0 6.0 2.0

1992 24.0 10.0 314.0 14.0 9.0 6.0 2.0

1993 24.0 10.0 34.0 14.0 9.0 6.0 2.0

/1 Design properties of crude oil are 0.85 specific gravity and a viscosity of 24Centistokes at 10 degrees Celsius.

Source: Naftovod

October, 1975

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

Imported Crude Oil Requirements

(million tons)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

YugoslaviaRefineries

Rijeka/L 5.0 5.5 6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6 7.8 8.0

Sisak 1.5 3.2 3.9 4.0 4.0 4.4 5.0 5.8 6.0 6.4 6.8 7.7 8.0

Lendava 0.4 0.8 1.0 1.0 1.0 1.1 1.2 1.5 1.6 1.7 1.9 2.0 2.0

Bosanski Brod 1.2 2.1 2.4 2.8 2.8 2.8 2.9 3.1 3.3 3.4 3.7 4.0 5.0

Novi Sad 0.6 1.1 1.2 1.2 2.0 2.0 2.2 2.3 2.5 2.6 2.9 3.0 3.0

Pancevo 1.4 2.9 3.5 3.6 3.9 4.1 4.3 4.2 5.2 5.9 6.0 6.0 6.0

TOTA L 10.1 15.6 18.0 18.8 20.1 21.0 22.4 23.9 25.8 27.4 28.9 30.5 32.0

/1 The Ri,ieka refinery will not be supplied by the pipeline./2 Includes re-exports

Source: Naftovod 1g

October, 1975

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE

CJugoslavenski J'aftovod)

Economic Justification

(Din. million)

--Alternative I: Rail and Inland Waterway Transport-- ----Alternative II: Pipeline---- NetPorts and Rail- Barges and Operati Investment Operating Cash Flowway Facilities Rolling Stock Costs- Total Costs Costs/l Total (I & II)

1975 200 200 :(200)1976 600 600 1,3h0 1,340 (740)1977 1,005 1,770 2,775 2,630 2,630 1451978 1,205 515 (250) 1,h70 1,160 (130) 1,030 h4o1979 860 370 (10) 1,220 (50) 160 1,0601980 300 930 (5) 1,225 (h0) 360 8651981 200 1,035 (50) 1,185 20 20 1,1651982 300 220 (20) 500 40 4o 4601983 250 250 (ho) h60 60 60 hoo1984 100 1hO 30 270 70 70 2001985 100 965 80 1,145 95 95 1,0501986 100 190 290 130 130 1601987 265 265 150 150 1151988 320 320 170 170 1501989 460 460 195 195 2651990 520 520 215 215 3051991 520 520 215 215 3051992 1,500 520 2,020 215 215 1,8051993 400 520 920 215 215 705199h 170 520 690 215 215 475

The Rate of Discount at which the difference between the Net Present Value of both alternatives is equalto zero is 50%.

q 3

I thDirect operating costs less transit revenues. (D

Source: Naftovod and Mission estimates

October 1975

ANNEX 13

APPRAISAL OF

THE YUGOSLAVIA OIL PIPELINE(Jugoslavenski Naftovod)

Design Codes and Standards

ANSI B 31.4 Liquid Petroleum Transportation Piping Systems

ANSI B 16.5 Steel Pipe Flanges and Flanged Fittings

ANSI B 16.9 Steel Butt Welding Fittings

API 5LX or 5LS Steel (Seamless and Welded) High Test Line Pipe

API 6D Steel Gate, Plug, Ball and Check Valves for PipelineService

API 610 Centrifugal Pumps for General Refinery Service

API 650 Welded Steel Tanks for Oil Storage

API 1104 Standard for Welding Pipelines and Related Facilities

API 82100100 Manual on Disposal of Refinery Wastes

IEC and NEC Electrical Standards (or Yugoslavian Standards wherethese are applicable)

CCITT and CCIR Regulations and Recommendations

Yugoslavian General Building and Civil EngineeringStandards

Yugoslavian Fire and Safety Requirments

Source:. Naftovod

I

YUGOSLAVIAAPPRAISAL OF THE YUGOSLAVIA OIL PIPELINE

(J ugoslavenski Naftovod)Organization Chart

CouncilWorkers'Council (During Construction)

Coordinat ng General ManagerCommitte I

Asst General Manager Asst. General ManagerTechnical Affairs |Economic Affairs

Technical & Maintenance Operations ers3 &n Commercial Economic & F

World Bank-9761(R)

rr

Y U G OSLAV I A

APPRAISAL OF THE YUGOSLAVIA OIL PIPELINE

1I J.g.,OI-ks. NW0-d)

VISJE TERMINAL S_.- D_.- ithhenKc DElr tIlE P,p.In. Sys-n,

SLOBODNICA TEIRMINALAND PUMP STATION NOVI SAD TERMINAL

AND PUMP ST ATION UMSTIO

9~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SCAE TRA

V18l, LENDAVAVIC - NOVI SAD PIPELINE IVA ,

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YUGOSLAVIAAPPRAISAL OF THE YUGOSLAVIA OIL PIPELINE

(Jugoslavenski Naftovod)Project Schedule

1975 1976 1977 1978 1979

3Q 40 10 2Q 30 4Q 1Q 2Q 3Q 40 1Q 2Q 30 40 1Q 2Q

Appointment of EngineeringConsultants and PipeInspection Agencies

Design, Procurement, Ins- I

pection & Commissioning _ _ __ _ _ ~~~~~~C' C

5/31 5/31Training - -

Agreements with:

Port of Rijeka

Offtakers

Power Enterprises andTelecommunications Authorities

Pipeline Materials A

Pipeline Construction A

Tank Farm Materials A A D -

Tank Farm Construction A _ _ _ _ _ _ -

Pump Station Materials AM A D_ __

Pump Station Construction A _

Port Facilities, Materials A D

Port Facilities, Construction1 A

Telecomms, Telemetry, etc. A DMaterials & Installation

LEGEND

A = Contract Award I = Phase 1, 16 million tons/yr.D O Materials delivud to site II = Phase 11, 20 million tonstyr.* - Start of Activity C = CommissioningV = End of Activity ¢

tn

/ Excluding Piping which mould be ,installed under Tank Farm V/ork World Bank-15172

BR D 11586UU\ w / 1 1 2 X F .MAY

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"V,Y UGOSLAVIAAPPRAISAL OF THE YUGOSLAVIA

OIL PIPELINEPtoce, 0(JUGOSLAVENSKI NAFTOVob)LOCATION OF HYDROCARBONS AND COA

M 0 N, T E, N: E G RCoExploration under wcly

I

Dubroynik ' ' I I I I I /�

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o

Resources ndiccited

5, v oTiTOGRAP

rProspective areas

Refineries

Project oil p,peline

Cocil deposits,

I Iliard coal

Brown coal

Lignite

Autonomous province boundaries

M A C E D 0 N IInternational boundaries

20 60 80 100L

ORFFCF

2p 4p 6p 8p 1?0

Vid-