DocDmnt Of

The World Bank

FOR OFFICIAL USE ONLY

A. C />

Report No. 6059-lD

STAFF APPRAISAL REPORT

BANGLADESH

REFINERY MODIFICATION AND LPG RECOVERY AND DISTRIBUTION PROJECT

November 11, 1986

Energy DepartmentPetroleum Projects, Division I

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Taka (Tk)US$1.00 = Tk 31.00Tk 1.00 = US$0.0323

WEIGHTS AND MEASURES

1 barrel (bbl) 0.159 cubic meters (03)l cubic foot (CF) = 0.028 mI British Thermal Unit (Btu) - 0.252 kilocalories (Kc)I metric ton (mT) of oil 0.85 sp.gr. = 7.4 bblI kilometer (km) - 0.621 milesMCF - thousand standard cubic feetMMCFD = million standard cubic feet per dayBCF = billion cubic feetTCF - trillion (1,000 billion) cubic feettoe - tons of oil equivalent in heating valuekgoe = kilogram of oil equivalent in heating valuemw megawatt (1,000 kilowatts)MMtoe = million tons of oil equivalent

ABBREVIATIONS AND ACRONYMS

BOC Burmah Oil CompanyBOGMC Bangladesh Oil, Gas and Minerals CorporationBPC Bangladesh Petroleum CorporationBPDB Bangladesh Power Development BoardCIDA Canadian International Development AgencyCNG Compressed Natural GasERL Eastern Refinery LimitedGOB Government of BangladeshICB International Competitive BiddingIDA International Development AssociacionIFC International Finance CorporationIoC International Oil CompanyLNG Liquefied Natural GasLPG Liquefied Petroleum GasLP Gas LP Gas LimitedLRMC Long-run Marginal CostMHC Mild HydrocrackerNGL Natural Gas LiquidPIU Project Implementation Unitp.a. per annumUNDP United Nations Development Programme

FISCAL YEAR

July 1 to June 30

FOR OMCIAL USE ONLY

BangladeshRefinery Modification and LPG Recovery and Distribution Prr ̂ ct

Development Credit and Project Summary

Borrower: People's Republic of Bangladesh

Beneficiaries: Eastern Refinery Limited (ERL) and LP Gas Limited (LP Gas),which are subsidiaries of Bangladesh Petroleum Corporation(BPC), and Bangladesh Oil, Gas and Minerals Corporation(BOGMC),

Amount: US$47.00 million

Terms: Standard

On-LendingTerms: The Government would onlend at an interest rate of 11*5%

per annum and on repayment terms of 15 years including 4years grace, US$35.5 million of the proceeds of the Creditto ERL for the refinery modification component; US$4.6million to BOGMC for the LPG recovery component; and US$5.8million to LP Gas Limited for the LPG storage anddistribution component. ERL, 9OGMC and LP Gas Limitedwould bear the foreign exchange risk. US$1.1 million willbe applied to finance GOB'equity share in a privately-operated LPG distribution company to be establisbed.

ProjiectDescription: The project provides assistance to minimize the cost of

petroleum imports to the country by rationalizing thesupply of petroleum products and promoting the substituteuse of LPG for kerosene. To achieve these objectives, theproject includes: (i) a modification of the refinery toenhance its flexibility to better match its production tothe domestic demand for petroleum products, therebyreducing the cost of meeting these requirements; and (ii)LPG recovery, storage, distribution and marketingfacilities for some 11,000 mTpa of LPG.

Risks: The technical, financial and commercial risks involved ineach component are minimal. The expected economic rate ofreturn from the refinery modification project is 21%, basedon a margin of $35 increasing to $40 per mT between dieseland fuel oil, a margin below the historical and prevailing$45 to $50 per mT. At prevailing margins, the ERR is about40%. With regard to the LPG component, the LPG market islarge and will displace mainly imported kerosene andfirewood. The risks of the benefits being eroded to alevel to make the project uneconomic are small, as foreignexchange savings are significant when LPG displaceskerosene. The non-quantifiable benefits of reduceddeforestation when LPG substitutes for firewood would alsobe important.

This document has a restricted distribution and may be used by recipients only in the performaneeof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Estimated Project Cost

Povei Local a/ Total----- US$ ilo -

I. Refinery Modification(1) Refinery Moc.ification and

Operations Assistance 21.1 6.4 28.1(2) Project Management Assistance 1.0 0.1 1.1(3) Training and Technical Assistance 0.5 0.1 0.6(4) Spare Parts 3.2 0.8 4.0

Sub-total 26.4 7.4 33.8

II. LPG Recovery FaCiliLiesLPG Recovery Facilities atKailashtila 3.5 0.7 4.2

Sub-total 305 0.7 4.2

III LPG Storage and Distribution(1) LPG Bottling Plants 0.6 0.2 0.8(2) LPG Bottles 3.0 0.6 3.6(3) LPG Transport (Trucks and Barges) 3.0 0.8 3.8(4) LPG Retail Filling Units 0.2 0.2 0.4(5) Implementation Assistance/Training 0.5 0.2 0.7(6) Infrastructure Facilities/Port/Land 103 1.3 2.6

Sub-total 8.6 3.3 11.9

Base Cost Estimate (Total. of I, II & III) 38.5 11.4 49.9Physical Contingencies 3.9 1.1 5.0Price Contingencies 10.1 3.8 13.9

Total Cost 52.5 16.3 68.8

Iaterest during Construction - 12.5 12.5

Total Financing Required 52.5 28.8 81.3

a/ Local costs include USS8.2 million of customs duties.

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Fincin Plan

Foreigl Local Totel(lS$ million)…--

IDA 4 59 1G1 47.0Government of 8anggadeslh 19.5 19.5Internal Cash Cene^atioin- 7.3 7.3Private Investors 6.6 0.9 7.5

52.5 28.8 81.3

Estimated Disbursements (US$ million)

(IDA Fiscal Year) 1987 1988 [989 1990 1991 1992 1993

Annual 5.5 ?.6 I il~o 3.6 1.8 0.3Cumulative 5.5 13.1 30.3 41e3 44.9 46.7 47.0

Economic Rate of Return

(i) Refinery Modification PLuject Component 21%(ii) LPG Early Recovery Priject Component (Kailashtila) 17%

(iii) LPG Distribution Project Cowponeat (Westecn Zone) 15%

BANGLADESH

REFINERY MODIFICATION AND LPC RECOVERY AND DISTRIBUTION PROJECT

Table of Contents

Page No.

IIs ITHE DENE ION SECTO... ..... ....... ... .0 *00000.000*OO S .II. THEEB. CROmmErCTI O .......... ..E.e...... ....... * .... ...............

A. Betkgroundm Produts.Sbseco............... ..... , .2B. Commercial Energy Asalanceoo ................ C.'Resource Edwet.......... ¢&*o**X^v**¢*****D. Sector Planning**. ......... Oe6z5E. Petroleum Products Subsector *.......... o.. . .........#.9*. 5

1. Consumption and Supply of Petroleum Products ..............52. Petroleum Products Demand Forecast and Balance.o ......,....63. Refinery Investment Strategy ................ .6

F. LPG Consumption and Supply ........... .*.... ... a7.0G. Pricing.** ...0 ...... 8

1. Natural Gas ......... ......... . ...... .82. Petroleum Products.*. .. . ....... . .... to .......... 93. LPG9... ........ . ... 10

H. IDA's Role and Lending Strategy in the Petroleum Sector ...... lO

III. THE BENEFICIARIES ............. **so** .......... ...... ......... llA. Bangladesh Petroleum Corporation (BPC) ........................ llB. Eastern Refinery Limited (ERL) ........................ *.12C. LP Gas Limited ........0........ . 12D.OGM ......... o .** *...............................IE. Accounts and Audits ................. ...... 13

IV. THE PROJECT .................................. 14AL. Project Objectives and Scope ..................................14B. Project Rationale*.........&s. .......... so.......... 14C. Project Description and Implementation..* ........ oo ........ 15

1. Refinery Modification Component..........................152. Early LPG Recovery, Storage and Distribution..*..........l7

D. Project Preparation Status ......... 000000000 000 0000000000000.18

E. Capital Cost Estimates............... 0 l9F. Financing Plan .......... * eGo Procurement ..e..**.***.o*... ......2H. Disbursements ....... 0000000000000000000000000002

I. Monitoring and Reporting.** ..o009. ............. 23J. Ecology and Safety.......*........ ......... ..... 23K. Insurance.. . .............

This report is based on the findings of a mission that visited Bangladesh inOctober 1985 and was prepared by Messrs. L. Wijetilleke, J.P. Pinard,F. Manibog, P.T. Venugopal and A.C.W. Vonck.

Page No.

V, FINANCIAL ANALYSTS. ......................... .o... f. .... 4 0 .... 0 44 0.9.24A. Refinery Modificationi Component:..... ................. o4o,..24

14 ERL's Past F'inancial Perfornmaice .... 9 o . .... e *-...e 242, Remuneration of FRRL.OO.. - ..............

3. Financiat P.o..t..i.. ...*.....0* * e .25B. Early LPG Recovery Comipoutentt (BoaCtr4C..t.................o..27C. LPC Storage and i.sLributiOil Corioip*nt- (I'P Gas Limited) ..... 27

VI. ECONOMIC E.VAL.UATION e * 0e0 4 .e**c* * *00 0 -..... 28

A. Introduction - Past Trt'nds. Dr 4 *...... o . .o .............. 9 ....... 28

B. Crude Oil and rdndtuit Price Asscumptions .... v....0 4........ ,*29

C. Refinery Operations ................... .......

1. Refinery ModificaLion Contponent..4....... ............. *30

2. Retiilery As hk .......OO^.e ....... *.ee #.Dev eo .. 4*e30

D. LPG Recovery, Storage and Distribution e.e 4. ............. 3

1. Kailashtila LPG Component- - ..... ........ ....... 31

2. WesLern Zofie LPC Campon2ent-- ...... , ............... o*#32

E. Project Risks0........... .9. . . 00. 4 0...... 0..........o.....32

1. Refinery Modification..... 0 ....... .. .. o 32

2. LPC Recovery, Stor.-ge and nistribution .......... 0... ... 32

VII. AGREEMENTS0...... 4....... 40.....0.400 .04.40........0.......0 0 33

ANNEXES

2-1 Sectoral Shares in Petroleum Products Consumption

2-2 Consumption of Petroleum Products, 1976-1984

2-3 Petroleum Products Demand Projections

2-4 Sector-wise Consumption of Kerosene, 9iesel and Fuel Oil, 1984/85

2-5 Review of BPC PetroleLum ProdueLs Supply Strategy

2-6 Summary of Consultanris Study anfi an Assessment of Future Crude Oil

and Product Pricic!g3-1 BPC Subsidiaries4-1 Estimated Sched.ule of Dishturrpment

5-1 Eastern Refinery Limited - 'inqnrcal Projections

5-2 BOGMC LPG Recovery Component - Finaiicial Evaluation

5-3 LPG Storage and Distribution Coumponent Financial Evaluation

6-1 Economic Analysis - ERL Refinery Modification Component

6-2 Economic Analysis - ERL Refinery As A WShole

6-3 Graph - Crude and Product Price Variations at Singapore (1976-1984)

6-4 Graph - Crude and Product Price Variations at Singapore (1987-2000) -

Base Case6-5 Graph - Crude and Product Price Vari2tiors at Singapore (1987-2000) -

Lower Crtude Oil Price Scenario

6-6 Economic Analysis Kailashtila Component

6-7 Ecotiomic AnalyEis We stern ½nne Componenr

CHARTS

1. Energy Sector Organization2. Implementation Schedule

MAP

IBRD No. 19490R(Location of ERL, Kailashtila LPG Recovery Facilities andBaghabari and Khulna LPG Storage and Distribution Terminals'

** * * ** **' *f** *

DOCUMENTS AVAILABLE IN THE PROJECT FILE

A. Techno-Economic Feasibility Study by Lummus Crest Engineering, Inc.

Volume 1 - Executive SummaryVolume 2 - Demand/SupplyVolume 3 - Review of ERLVolume 4 - Alternative Processing ConfigurationVolume 5 - Optimization StudiesVolume unnumbered - Addendum to above.

B. Memorandum of Association of ERLC. ERL Annual Accounts 1982/83 and 1983/84D. BPC Annual Accounts 1982/83 and 1983/84

I. INTRODUCTION

1.01 The Government of Bangladesh (GOB) has requested an IDA Credit ofUS$47 million to assist in financing an integrated package of investments andconsulting services to modify the country's sole refinery located atCbittagong, recover LPG from natural gas and promote its use mainly as asubstitute for firewood and kerosene. The project is aimed at reducing thecost of imported crude oil and petroleum products, which in FY84 claimed aboutUS$450 million or 60% of the country's total export earnings.

1.02 The project consists of two main components: (a) modification of theEastern Refinery Limited (FRL) in Chittagong, to increase the yield of premiumvalue kerosene and diesel, which would otherwise be imported, by conversion ofsurplus fuel oil which is currently cxported at depressed prices. Thiscomponent includes project management assistance, training, and spare partsand materials for preventive maintenance; and (b) LPG recovery, storage anddistribution facilities, which include modifications to existing gas treatmentfacilities at the Kailashtila gas field to recover about 5,000 metric tons perannum (mTpa) and 2,000 addit-onal mTpa of condensate; an importantcontribution of this component is the establishment of an organizationalstructure for the marketing of LPG featuring both public and private entitiesoperating in parallel, which could be progressively expanded to handle largerquantities of LPG in the future. The implementation of these components isexpected to be completed by FY92.

1.03 Total financing requirements for the project, including physical andprice contingencies and interest during construction, are estimated at US$81.3million, of which US$52.5 million are in foreign exchange. The IDA Creditwill be made to GOB on standard IDA terms. GOB will on-tend US$45.9 millionto ERL, BOGMC and LP Gas Limited at an interest rate of 11.51 per annum (p.a.)and on repayment terms of 15 years including four years of grace. The foreignexchange risk will be borne by the companies. US$1.1 million will be appliedagainst a Government minority share in a privately operated LPG distributioncompany to be established.

1.04 The modification of the refinery resulted from the on-going EnergyEfficiency and Refinery Rehabilitation Project (Credit 1357-BD) under which adetailed techno-economic study was conducted by consultants (C.E. Lummus ofthe USA) to compare the various options available to Bangladesh to reduce thecost of petroleum supply, including closing down the refinery. Theconsultants concluded that this objective could best be achieved by improvingthe use of existing facilities, thereby minimizing the need for costly capitalinvestments which had been considered previously.

1.05 The project, which should significantly reduce foreign exchangeoutlays, has been accorded a high priority by the Government. The economicrate of return on the refinery modification component is estimated at 21%p.a., that of the LPG recovery and distribution component at Kailashtila at17Z, and that of the LPG storage and distribution component (Western Zone) at15%. The project was appraised in October 1985 by Messrs. L. Wijetilleke,J.P. Pinard, F. Manibog, P.T. Venugopal and A.C.W. Vonck of the EnergyDepartment.

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II. THE ENERGY SECTOR 1/

A. Background

2.01 Per capita energy consumption in Bangladesh is among the lowest inthe world, It is estimated at about 90 kilograms of oil equivalent (kgoe) peryear, of which about 402 is accounted for by cormercial energy and the rest bynon-commercial sources such as fuelwood, crop residues and animal wastes. Percapita commercial energy consumption, estimated at only 36 kgoe, is about one-sixteenth of the corresponding world average and one-tenth of the average forlow-income countries. Otherwise poorly endowed in primary energy, Bangladeshhas an abundant potential supply of natural gas. Although traditional biomassenergy forms are expected to remain the predominant energy source particularlyin rural areas, the accelerated development of the gas sector has led to arapid growth in co mrcial energy utilization and a progressive decline in theshare of commercial energy derived from liquid hydrocarbons. Natural gas nowaccounts for 522 of total couercial primary energy. Despite thisdevelopment, petroleum product imports continue to make disproportionateclaims on the country's limited foreign exchange resources. This is dueprimarily to the almost Lzclusive dependence on petroleum products of thetransport and agriculture sectors, which account for 472 of total oroductsdemand, and for which opportunities for gas substitution are limited. InFY84, total primary coumercial energy supply (gross of conversion losses)amounted to 3.9 NHtoe (million tons of oil equivalent), of which net oilimports contributed 1.4 HNtoe (at a cost of about US$450 million), claimingabout 602 of the country's total export earnings. In addition, there is awidening imbalance between the patterns of domestic petroleum productconsumption and refinery output, which has led to a steady increase in thevolume of middle distillate imports while surplus fuel oil had to be exportedat a loss.

2.02 There is a large potential for expanded commercial energy use tosupport economic development. Natural gas is the obvious resource to fillthis gap since it can provide both fuel and feedstock ecosomically. Indeed,subject to confirmation of potential reserves and well productivity, naturalgas offers an unparalleled development opportunity by making the establishmentof a reliable, comparatively low cost energy base a feasible objective withinthe country's severe resource constraints. The Government of Bangladesh (GOB)has accordingly focussed its energy policy on the reduction of the economy'sdependence on oil imports by accelerating the development of domestic gasresources and incresing the economy's absorptive capacity for gas.

2.03 There are, however, geographical (all known gas fields are east okthe Jamuna river) as well as technological and economic factors (particularlyin the western zone, and in the transport and agriculture sectors) that limitthe substitution of liquid fuels by natural gas. Hence, sizeable imports ofpetroleum products in addition to imports of crude processed in the refinery

1/ A more detailed description and analysis of the sector is contained in thereport entitled "Bangladesh: Issues and Options in the Energy Sector" (October1982, Report go. 3873-BD), which is part of a series of reports of the JointUNDP/World Bank Energy Sector Assessment Program.

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are expected to continue. Accordingly, GOB is attempting to intensify thesearch for oil, whieh has proved unsuccessful so far and is currently at avery low level. The oil companies that entered into production sharingcontracts in the late 1970s for offshore exploration have all relinquishedtheir concessions and Bangladesh Shell Oil Company is the only remainingactive foreign company exploring in Bangladesh. In an effort to attract motecompanies to explore in Bangladesh, GOB has undertaken, partly with IDAassistance, a program of seismic surveys and geological studies which wouldform the basis of a promtion effort to attract participation by internationaloil companies. On the downstream side, GOB is also undertaking with IDAassistance the rehabilitation of the country's sole refinery at Chittagong andthe preparation of an industrial energy conservation program.

B. Commercial Energ Balance

2.04 Commercial sources of primary energy in Bangladesh are hydropower,natural gas, imported oil and coal. The table below estimates Bangladesh'senergy balance in terms of oil equivalent:

ronarcial Energy Balance - 1983/84('000 toe)

SUPPLY DEMAND

Domestic Res Idential/CommercIaf 747 (22%)

Natural Gas 2,009Piydro Power 281 lodustrial a/ 1,103 (32%)

Energy Imports

Petroleum (net) 1,405 Transport 506 (15%)Coal 177

Total Primary Suppiy 3,872 Agriculture 901 (27S)(of which fertilizer) (754) (22%)

Less: Conversion andTransmission Losses 475 Others 140 ( 4%)

Total Net Energy Supply 3,397 Total Demand 3,397 (100%)

a/ Excluding gas used as fertilizer feedstock.

Sources: Bangladesh ofl, Gas and MInerals Corporation (formerly Petrobangla), BangladeshPetrolewu Corporation, Enstern Riefinery Limited, Bangladesh Power Develogmsnt B0ardand Bangladesh Bank.

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C. Resource Endowment

2.05 Natural gas and a limited hydropower potential are the only twodomestically available commercial primary energy sources. Mining of coal andpeat deposits is presently not considered economic. More critically,Bangladesh has no known oil reserves and has to meet all its liquidhydrocarbon requirements through imports.

2.06 Past exploration efforts have led to the discovery of substantialreserves of natural gas. Thirteen gas fields--:welve onshore and oneoffshore--have been discovered, all located east of the Jamuna River whichdivides the country from north to south into eastern and western zones. Totalgas reserves are currently estimated at about 11 trillion standard cubic feet(TCF), of which 75% are expected to be recoverable. Gas output has increasedsteadily over the last decade, growing at an average of 14% p.a. from 29billion cubic feet (BCF) in 1975/76 to 81 BCP in 1983/84 (2.0 MMtoe). Thebulk of gas consumption is in power generation and fertilizer production,while other industrial, commercial and domestic uses are expanding steadily.

2.07 Two of the world's largest rivers, the Ganges and the Brahmaputra,flow through Bangladesh. The flat t3rrain, however, makes the potential forhydroelectric power limited. The hydropower potential that can beeconomically harnessed at Kaptai in the Chittagong Hill Tracts has beenevaluated at 340 MW, of which 130 MW has been developed. Elsewhere, thenorthern portion of the Brahmaputra river offers an estimated capacity of 400MW but the remote location and high development costs make the construction ofa dam at this site a remote possibility.

2.08 About 60% of the total energy used in Bangladesh continues to be metfrom traditional biomass sources such as crop residues, animal wastes, straw,rice husks, jute sticks and firewood. 1/ Overall, binmass energy use isestimated at 5 MMtoe annually. While the relative share of biomass fuelswithin the overall energy balance is expected to gradually decline, Bangladeshdoes not have the resources to sustain a major shift to commercial energy, anddemand for traditional sources is likely to keep pace with populationgro-h. The rapid depletion of the country's forest resources has become acritical issue. Fuelwood resources are being overexploited to meet increasingdemand, and alarming increases in fuelwood prices and the commercialization ofjute residues portend a crisis situation, particularly in North Bengal.Foreign assistance has recently started to support forestry studies andcommunity forestry projects. Further support to accelerate ruralafforestation is essential. In addition, concerted efforts are required toupgrade end-use efficiency of traditional energy through the introduction ofimproved cooking stoves or wood-burning devices.

I/ A more detailed discussion of the rural energy subsector is provided in areport entitled "Bangladesh: Rural and Renewable Energy Issues and Prospects"(Energy Department Note No. 5, April 1982).

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D. Sector Planning

2.09 The energy assessment prepared in 1982 under the Joint WorldBank/(NDP Energy Assessment Program identified major weaknesses in energysector planning and management. Recognizing the need to improve sectorplanning and establish a central planning body, GOB has recently taken majorsteps to strengthen its energy policy making capabilities. COB is in theprocess of drafting a five-year plan (FY85-89) which is expected to continuegiving high priority to the energy sector in the allocation of investmentresources. Over the last two years, an Energy Study and Planning Cell (ESPC)was established within the Planning Commission with the objective of upgradingthe capability for energy planning within the Planning Commission. This cellhas been supported by a UNDP/ADiB funded technical assistance project, theEnergy Planning Project (EPP), which was completed in mid-1985. GOB has alsocommissioned a Power System Master Plan to guide future investment in thepower sector. Finally, the IDA-financed Rnergy Efficiency and RefineryRetabilitation Project has assisted COOB in preparing a program of industrialenergy conservatioa measures, and developing an optimum petroleum productssupply strategy. The effects of these recent actions on improving sectorplanning will need to be closely monitored in the next few years.

E. Petroleum Products Subsector

1. Consumption and Supply of Petroleum Products

2.10 Despite the increased utilization of natural gas in almost all thesectors of the economy, petroleum products still account for 36% of totalcommercial energy consumption. About 37% of the total consumption ofpetroleum products is in the transport sector, followed by domestic usage(20%, mainly for cooking and lighting), power generation (19%) and theindustrial sector (14%) (Annex 2-1). The pattern of consumption of petroleumproducts in Bangladesh has changed noticeably since the mid-seventies (Annex2-2). Increased use of natural gas has dampened demand for lighter petroleumproducts (naphtha) as well as for heavier residual fuel oil.

HistoricaI Consumption of Petroleum Products, 1975-1984(in thousand metric tons)

Average AnnualGrowth Rate

1975 1980 1984 1975-80 1980-84

LPG - - 2.7 0.2 6.9 0.5 - 26.4Gasol ine 58.8 5.4 62.0 4.4 557. 3.8 1.1 -2,6Jet Fuel 23.8 2.2 44.4 3.1 64.0 4.4 13.3 9.6Kerosene 340.9 31.4 384.0 27.2 351.4 24.2 2.4 -2.2Diesel Oil 278.8 25.7 447.2 31.7 615,8 42.4 9.9 8.3Fuel Oil 383.4 35.3 470,7 33,4 359,5 24,7 4.2 -6.5

Total 1,085.7 100.0 1,411.0 100.0 1,453.3 100.0 5.4 0.7

Source: Bangladesh Petroleum Corporation

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2.11 Consumption increased at an average annual rate of 5.42 from 1975 to1980, diesel oil registering a growth of 9.91 and fuel oil 4.2X per annum.However, between 1980 and 1984 while diesel oil consumption continued toincrease at 8.3Z per annum, fuel oil demand declined by 6.51 per annum, due toits displacement by natural gas. During this same period, the share of middledistillates# comprising of jet fuel, kerosene and diesel oil, increased from621 to 71Z while the demand for fuel oil declined from 331 to 25X.

2. Petroleum Products Demand Forecast and Balance

2.12 The future rate of growth in energy use will depend in part on thepace of investment in the economy, the level and composition of foreign aid toBangladesh, and on such outside events as changes in world oil prices, or theproduction and relative prices of jute goods, the country*s most importantexport commodity. The uncertainties surrounding these factors make long-termprojections of energy consumption subject to wide margins of error. Theconsultants appointed to design the proposed refinery modification projectprepared demand forecasts for petroleum products based on three alternativegrowth scenarios (Annex 2-3): a no growth per capita petroleum consumption, alow growth scenario (5.3% p.a.) in petroleum consumption derived fromhistorical demand over the past five years, and a high growth scenario (7.8Xp.a.) developed from a predicted 5.5% p.a. growth in commercial energy. Underthese scenarios, demand for middle distillates is projected to grow at annualrates ranging from 21 to 9% p.a. This is expected to reinforce the dominationof middle distillates whose share would grow to between 751 and 85X of totalproduct demand by 1995.

2.13 In FY84, Bangladesh imported some 400,000 mT of middle distillates(diesel and kerosene) and exported 95,000 mT of naphtha, bearing the cost oftransport to and from Singapore on both export and import. The surplus ofnaphtha is unavoidable and will continue to increase, especially as additionalquantities of condensate, about two-thirds of which are direct gasolineblending components, -re recovered from natural gas. Fuel oil export (in acurrently depressed mLrket) has so far been largely avoided by reducing therefinery throughput. This, however,, will become increasingly difficult asmore natural gas is utilized in place of fuel oil in the power and industrialsectors. This will force the export of fuel oil at depressed prices, unlesssuitable modifications are brought to the refinery to better tailor itsoperating capability to the consumption pattern. Because of the supplyconstraints described above, the rapid growth in diesel consumption is a keysource of concern for GOB. Diesel products are used mainly in the transportand agriculture sectors, 38' in road transport alone (Annex 2-4). Diesel usefor irrigation and for road transport have grown equally rapidly over the lastten years at about 11% p.a.

3, Refinery Investment Strategy

2.14 Bangladesh has no known petroleum reserves and meets its petroleumproduct requirements entirely through imports. Petroleum products areobtained from three different sources: (i) domestic refining of imported crudeoill (ii) purchases of petroleum products mostly under short-term contracts;and (iii) product imports under barter arrangements with the Soviet Union.Responsibility for importing and refining crude oil, marketing refinedproducts, and importing deficit petroleum products is assigned to the

Bangladesh Petroleum Corporation (BPC) which has been managing the country'spetroleum supply competently (Annex 2-5). The country's only refinery, theEastern Refinery Limited (ERL) at Chittagong, is a fully owned subsidiary ofBPC. The refinery facilities consist of a 1.5 mTpa crude oil distillationunit, a platformer to convert low octane value naphtha to high octanegasoline, a gas oil hydro-desulfurizer to remove sulfur, and a recently addedasphalt plant. The crude distillation unit is capable of separating crude oilinto fractions conforming to the boiling ranges of different petroleumproducts, while the other downstream facilities can only improve the qualityof these products. The refinery's production pattern is therefore limited tothat generated by the type of crude oil being processed.

2.15 In 1982, the Covernment sought IDA assistance to examine the variousoptions available to minimize the cost of meeting the country's petroleumproduct requirements. Several options were evaluated including thepossibility of mothballing the refinery and importing all products. Offshoreprocessing in Singapore of crude oil procured by GOB-an option which BPC/ERLhad been pursuing for some time and abandoned as uneconomic--was alsoevaluated. Evaluation of these issues and options called for an assessment offuture crude oil and product prices over the medium and long-term, the relatedinfluence of new refining facilities in OPEC and existing refineries inSingapore, and the relative availability of different types of crude oils.These aspects, together with the results of the evaluation of the varioussupply alternatives available, are in Annex 2-6.

2.16 Given the uncertain outlook for future crude oil and product prices,COB in consultation with the Bank opted for the lower capital cost, and lowerrisk, option described in Chapter IV (pars 4.04). With this investment,surplus fuel oil will be converted to premium value diesel oil, whileeliminating the downgrading of diesel oil to low value fuel oil needed toreduce the viscosity of fuel oil. The additional production of diesel, evenif demand were to remain at the FY85 level, will easily be absorbed within thecountry. While fuel oil will remain in surplus, it will be at e substantiallylower level than without the project.

F. LPG Consumption and Supply

2.17 Even after the refinery is modified, Bangladesh will need to importabout 150,000 mTpa of kerosene, of which about 501 is estimated to be forcooking, for which LPC could substitute. In addition, firewood is usedextensively for cooking in the western zone of the country causing acutedeforestation. Currently, about 7,000 mT of LPG is consumed annually in theChittagong area. The potential supply is considerably larger. In the mediumterm, with the completion of the refinery modification, SIL's LPG productioncould reach a capacity of 13,000 mTpa; a further 5,000 mTpa could be recoveredby modifying the existing Kailashtila gas treating unit. In the long term, itis estimated that up to 120,000 mTpa could be recovered from natural gasproduced at the Bakhrabad, Beani Basar, Kailashtila and Titas fields.Currently, LPC is consumed mostly in the eastern zone. With the availabilityof natural gas in the east, demand for LPG will decline. It is thereforelikely that the entire additional supply of LPG from the refinery, about 6,000mTpa, as well as some of the 6,000 mTpa of LPC currently consumed in the east,will be available for marketing in the west. It is also the objective of theGovernment to promote a greater balance between the western and eastern zones

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of the country in terms of access to energy sources. LPG is thereforetargetted to be marketed increasingly in the west where natural gas is notavailable.

2.18 Presently, neither the institutional arrangements nor the facilitiesexist for distribution and marketing of LPG. The development of transporta-tion, storage and marketing networks for the smaller quantities of LPG fromERL and Kailashtila would in effect constitute the first stage of a majordrive to promote the use of LPG in Bangladesh. In line with its generalpolicy to encourage the involvement of the private sector in the economy, itis the Government's intention to seek the participation of private investorsin this effort. Thu small-scale distribution component included in theproject provides an opportunity to initiate a strategy of active privatesector participation in the area of LPG distribution which would lay thefoundation for a subsequent larger project when a large-scale LPG recoveryplant (from natural gas) is constructed, possibly in the late 1980s.Agreement was reached in principle with GOB during negotiations to inviteprivate sector participation in the project, as discussed in para 4.07.Participation of the public sector concern currently engaged in LPG bottling(LP Cas Limited) in parallel with a privately operated company would at oncebring an element of competition in the sector and help define the long-termarrangements for private participation in a subsequent larger project, interalia, the need for monitoring of operations, enforcement of safety standardsand the setting of a competitive price structure.

G. Pricing

2.19 Pricing of biomass-derived fuels in Bangladesh is determined in themarket place. Prices of petroleum products, natural gas, coal and electricityon the other hand, are set by the Government at various points in the deliverysystem and at the consumer level. Natural gas pricing aims to encouragesubstitution while reflecting overall economic costs. The prices of otherenergy products are uniform for all classes of consumers throughout thecountry, except for natural gas, for which GOB sets differential prices forvarious classes of consumers.

1. Natural Gas

2.20 Gas pricing has been one of the principal ingredients of IDA'seconomic dialogue with GOB. The average price of natural gas to industry wasabout $0.63 per thousand cubic feet (about one million Btu) in July 1984.Under the Second Gas Development Project approved in April 1985, GOB agreed onfixing gas prices and excise duty rates at such levels as to ensure that: (a)sale prices are higher than the long-run marginal cost (LRMC) of natural gasafter taking into account a depletion allowance; 1/ (b) the revenues from gasoperations permit the gas production and distribution entities to remainfinancially viable and contribute substantially towards future investments;

1/ Due to the relative abundance of gas reserves in relation to demand, gasprices should as a minimum cover the costs of production and distribution(LRMC) as well as an allowance reflecting the progressive depletion ofreserves rather than its substitution value (opportunity cost).

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and (c) gas tariffs mobilize resources for the economy. In accordance withprevious agreements reached with IDA, natural gas prices were increased by 20Xin July 1, 1985 to $0.76 per thousand cubic feet on the average for industrialconsumers and again by 20% in July 1, 1986 to $0.91 per thousand cubic feet.During negotiations for the Second Gas Development Project, IDA also receivedassurances from GOB that, beginning July 1987, gas prices will be adjusted inaccordance with a program to be agreed with IDA based on the long-run marginalcost 4f extractiont transmission and distribution plus an appropriatedepletion allowance.

2. Petroleum Products

2.21 Consistent with GOB policy of maintaining stable product retailprices, BPC has absorbed international crude and product price fluctuationsthrough its transfer prices to the marketing companies, which provide a bufferbetween international and domestic prices. Losses incurred during the early1980s when international prices were higher than BPC's transfer prices are nowbeing translated into profits due to the decline in international prices,which are currently lower than transfer prices.

2.22 Retail prices are well above border (c._.f.) prices although therelative pricing structure differs significantly from that of c.i.f. importprices, as shown in the following table:

Import Parity and Retail Prices of Petroleum Products, 1985/86'$/per metric ton)

Ratio of RetailImport Parity Retail Prices to Import Price

Gasoline 169 571 3.38Jet Fuel 150 379 2.53Kerosene 140 272 1.94Diesel 132 268 2.03Fuel Oil 60 152 2.53

Retail prices have not been revised by GOB, pending stabilization of crude oiland product prices in the region. Even though in relative terms gasoline ispriced much higher than diesel in the domestic market (the current ratio is2.2), there appears to be little uneconomic substitution of diesel forgasoline. For road transport, this apparently happens because the taxationsystem and restrictions on the import of diesel vehicles offset the pricedifferential. The potential for cross-substitution between diesel andgasoline consumption through a reduction in the price margin between theseproducts is limited: while an increase in kerosene/diesel prices would runcounter to some of GOB's key social and development objectives in rural areas,a decrease in the duties on gasoline would encourage consumption of gasolinein the highest income groups, but little of this incremental consumption couldbe expected to entail a corresponding decrease in diesel use.

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3. LPG

2.23 LPG is a direct substitute for kerosene in cooking and itssubstitution value is thus related to the border price of kerosene. Both LPGand kerosene prices are above corresponding economic cos.s. A 12.5 kgcylinder of LPG is currently marketed at a price of Tk lOS at field depots.Taking into account the higher calorific value and combustion efficiency ofLPG versus kerosene on a weight basis, LPG price could in effect be up to 150%that of kerosene, but is in fact 6% lower. The current price ratio of 0.94,however, provides financial conditions conducive to a rapid penetration of LPGin the domestic market. While, in the short term, it seems appropriate toprice LPG on the basis of its marginal costs of production, there is stillscope to increase the price of LPG as the market develops, while maintainingits competitiveness with kerosene. The government has agreed that it will notlater than July 30, 1989 remove oil price controls over the distribution andsale of LPG.

H. IDA's Role and Lending Strategy in the Petroleum Sector

2.24 In the absence of other sources of commercial energy, Bangladesh willhave to rely increasingly on natural gas and petroleum products to meet thedemand of the modern economic sectors, as well as part of the basic needs ofits growing population (household energy). The main concern of IDA over theyears has been to ensure that adequate energy supplies are available atreasonable cost and that prospects for the development of domestic energyresources are identified, explored and developed efficiently. In order toachieve these objectives, IDA lending in the oil and gas sector has proceededalong three main lines addressing natural gas, efficiency improvements andexploration promotion.

2.25 In the natural gas subsector IDA has, in parallel with ADB, supportedthe development of the transmission and distribution infrastructure requiredto bring natural gas to the markets. It is also assisting in establishing areliable reserve base from which Bangladesh's future requirements could bemet. One gas infrastructure project has been satisfactorily completed and gasappraisal projects are currently under implementation. These projects haveformed the basis for institutional improvements which in turn have led to thereorganization of the gas industry and the concept of an integrated gassystem. In terms of policies, IDA has strongly suggested the introduction ofrational gas pricing policies, as described in para 2.20, and the developmentof new markets including the introduction of CNG in the transport sector.

2.26 One of the issues identified by the Energy Assessment was theinefficiency of the energy processing and utilization industries, includingthe ERL refinery and a number of industrial plants. The refineryrehabilitation project as well as the proposed project have addressed theseissues and provided support for the rehabilitation of existing facilities andthe introduction of energy conservation measures that would reduce the overallcost of supply. With this project, IDA will support the efforts of theGovernment in expanding LPG production and use, thus increasing significantlythe value of natural gas and petroleum products while makin_ available a cleanfuel which could meet a significant share of the residential needs in urban aswell as rural areas (cooking and illumination). LPG could in the future playa significant role in domestic energy supplies and attract domestic andforeign private investors.

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2.27 Finally IDA is supporting GOB's exploration promotion program aimedat attracting foreign capital for exploration in areas which are believed tohave oil potential. This three-pronged approach will continue to be supportedin the future through further lending operations.

III. THE BENEFICIARIES

3.01 The beneficiaries of the project are Eastern Refinery Limited (ERL)and LP Gas Limited (LP Gas), both of which are fully owned subsidiaries of theBangladesh Petroleum Corporation (BPC), and the Bangladesh Oil, Gas andMinerals Corporation (BOGMC). BPC and BOGMC report directly to the Ministryof Energy and Mineral Resources (Chart 1). The operations and performance ofBPC, ERLp BOGMC and LP Gas Limited are discusse4 below.

A. Bangladesh Petroleum Corporation (BPC)

3.02 BPC is a fully state-owned holding company established in 1976 tooptimize crude oil and products procurement and implement GOB policy withrespect to distribution and retail pricing of petroleum products. BPCmanagement is vested in a GOB-appointed Board of Directors consisting of aChairman and five members. BPC operates as a trading company and supervisesERL, LPG Limited and three petroleum marketing companies (PMCs). BPC'ssubsidiaries, their responsibilities and ownership structure are summarized inAnnex 3-1.

3.03 A review of BPC's operations and management informatien systemsduring the appraisal of the ongoing Energy Efficiency and RefineryRehabilitation Project identified two major weaknesses that are presentlybeing addressed: (i) the need to strengthen BPC's qualified core group withadditional staff with the skills and experience necessary for handling thegrowing volume, diversity and complexity of BPC opErations; and (ii)inadequacy in BPC's accounting and management information systems. About tensenior level staff are undergoing training abroad under the rehabilitationproject. Further training is required to use the new procedures contained ina recently completed set of manuals on accounting, management reporting,financial planning and budgeting, and job evaluation. A manual dealing withinternal audit procedures is also under preparation for BPC's internal auditgroup.

3.04 BPC's financial position is adequate. An area of continuing concern,however, has been the status of BPC's accounts receivables. These stood at15 days of sales (as of June 30, 1985), with some customers, like theBangladesh Power Development Board (BPDB), in default for about ten months tothe marketing subsidiaries. This is due in part to the absence of a definitecredit period for invoices against BPC's subsidiaries as well as for thoseraised by the subsidiaries against large petroleum product customers. It wasagreed during negotiations that GOB shall, not later than January 1, 1987,cause BPC to operate a system satisfactory to the Association, which shallinter alia: (i) limit credits to a period of 45 days to subsidiaries and otherdirect customers of BPC's subsidiaries; and (ii) levy interest at theprevailing commercial bank rate together with an appropriate administrativecharge on amounts outstanding beyond 30 days of billing date. In respect of

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BPDB, it was further agreed that receivables accumulated up to June 30, 1986,would be required to be paid to BPC at a rate of not less than Tk 50 millionper month until the arrears are fully cleared.

B. Eastern Refinery Limited (ERL)

3.05 ERL was established in 1966 as a fully integrated refinery. From1968 to 1985, Burmah Oil Company (BOC) of the U.K. had a 30% interest in ERLoperations, entitling it to a guaranteed 15Z return (net of taxes) on paid-incapital. Recently, in keeping with corporate policy of disinvestment from therefinery sector worldwide, BOC negotiated an agreement with GOB to dispose oftheir ERL shares. Bank staff met with BOC management on several occasions toexplore means of encouraging more active BOC participation in ERL operationsas well as in the proposed project. BOC, however, has firmly decided towithdraw from ERL, which is now fully owned by BPC.

3.06 The existing relationship between BPC and ERL is not consistent withautonomous operations and restricts ERL management initiatives andperformance. ERL has no responsibility for production optimization, which isa function of BPC. BPC also exercises close control and supervision of ERL'soperating budget, capital investments, appointment of senior staff and day-to-day operations. Although ERL has its own Board of Directors, with the BPCChairman also acting as ERL Chairman, ERL Board decisions are still subject tofinal review and approval by the BPC Board. Although some form of control byBPC, being the sole owner of ERL, is justified, such control could best beachieved by having one of BPC'F full-time directors sit on both BPC and ERLBoards and assume executive rLdponsibility for ERL operations. Therefore GOBhas decided that BPC's Director of Planning and Operations will be appointedconcurrently as Managing Director of ERL and will assume responsibility asChief Executive of ERL starting January 1, 1987. GOB also agreed to raise thefinancial authority of ERL's Chief Executive to Tk 5 million and thLt of ERL'sBoard of Directors to Tk 20 million. These limits would be reviewed by IDAannually, taking into account domestic inflation, and adjusted as necessary.

3.07 ERL operations are headed by the General Manager who sits on itsBoard, and is assisted by several senior managers. Although the senior staffas well as the junior engineers are technically well qualified, the loss ofmany top-level managers to foreign employment has resulted in lack ofadequately experienced staff in the company. Over the past few years,however, ERL has managed to retain senior staff. In order to strengthenskills at all levels, the ongoing Energy Efficiency and Refinery Rehabilita-tion Project made provision for a comprehensive training program. A trainingcenter is now in operation and management information systems are beingupgraded as part of the technical assistance provided to BPC as discussed inpara 3.03.

C. LP Gas Limited (LP Gas)

3.08 LP Gas was incorporated in 1983 as a fully-owned subsidiary of BPC.Bottled LPG is sold by LP Gas to BPC marketing subsidiaries which handleretail marketing either directly in gasoline stations or through privatedealers. The organization and staffing of LP Gas is scaled to its presentoperation of handling up to 6,000 mTpa only, and consists of a manager,foreman and skilled labor. The activities of LP Gas will be expanded during

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the project period to include two additional bottling plants. LP Gas willalso supply retail filling stations by trucks and supervise the operations ofthese stations. To carry out these tasks, LP Gas will require appropriatetechnical assistance support, preferably from an experienced LPG operatingcompany. Technical assistance is particularly needed in the implementation efthe pilot retail filling station scheme and in drafting a set of operatingcodes and safety standards. The project provides for such technicalassistance (para 4.08). Recruitment of a General Manager for LP Gas, withqualifications and experience satisfactory to the Association, will be acondition of disbursement under the LPG Storage and Distribution Component.

D. BOGMC

3.09 BOGMC (previously Petrobangla) is the sector corporation responsiblefor oil, gas and minerals exploration and production. BOGMC is managed by aGOB-nominated Board of Directors consisting of six members, including theChairman, and is organized in four directorates (planning, finance,exploration and administration) and a Secretariat. While BOGMC coordinatesthe activities of operating gas production and distribution companies, it isnot a holding company as such. A major reorganization of the gas sector willtake place with technical assistance provided by ODA under the Second GasDevelopment Project to address the fragmentation of the existingorganization. In lieu of the existing operating companies, three newcompanies would be created with responsibilities assigned on a functionalrather than regional basis, i.e. for petroleum exploration and drilling, gasfield development, and gas transmission and distribution.

3.10 BOGMC assumes direct responsibility for the implementation of a largeshare of gas development projects, including the Second Gas DevelopmentProject financed in part under Credit 1586-BD. BOGMC was also responsible forthe construction of the existing surface facilities at Kailashtila and willimplement the LPG Recovery Component.

E. Accounts and Audits

3.11 BOGMC, ERL and LP Gas are required by law to prepare full accounts oftheir financial position and the results of their operation. Their accountingsystems are reasonably good. The companies also follow adequate internalcontrol procedures and are subject to two types of external audit: (a)external audit by a firm of chartered accountants, after which the balancesheet and profit and loss account of each entity are to be presented to thegeneral meeting of the stockholders at least once during each calendar year;accounts are required to be ready for external audit within six monthsfollowing the end of the financial year and are reviewed within three monthsafter submission; (b) each entity is also subject to the Government'scommercial audit whose report is submitted to the concerned Ministry of theGovernment. Agreement was reached with GOB that it will cause the threecompanies to supply the Association with copies of their unaudited financialstatements, including the project accounts, not later than six months afterthe end of each fiscal year, and not later than nine months after the end ofthe fiscal year copies of the audited statement together with a copy of thereport and comments of the Comptroller and Auditor General.

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IV. THE PROJECT

A. Project Objectives snd Scope

4.01 The man objective of the project is to help minimize the cost ofpetroleum imports to the country by rationalizing the supply of petroleumproducts and promoting the substitute use of LPG for kerosene. To helpachieve this general objective, the project includes:

(a) a Refinery Modification Component to enhance the flexibility of therefinery in bringing about a better match between refinery output andpetroleum products demand than has been possible hitherto, therebyreducing the cost of meeting petroleum product requirements; -nd

(b) an Early LPG Recovery, Storage and Distribution Component toestablish the institutional framework and the facilities necessary topromote the use in the medium term of about 12,000 mTpa of LPGrecovered from natural gas and at the refinery, as a substitute forkerosene and firewood, and, in a longer term perspective, market thesubstantially larger quantity of LPG expected to be recovered fromnatural gas.

B. Project Rationale

4.02 The project is an important element of IDA's assistance in thecountry's energy sector. The refinery modification component followed fromthe detailed techno-economic studies undertaken by Lummus Crest (U.S.) underthe on-going Energy Efficiency and Refinery Rehabilitation Project (Credit1357-BD). As noted in paragraph 2.15 and Annex 2-6, several options wereevaluated including the possibility of mothballing the refinery and importingpetroleum products. The study concluded that continued operation of therefinery in its present configuration was economic and that economic benefitswould be enhanced by minor modifications in the refinery configuration. IDAhas been closely involved with the study and the evaluation of the variousalternatives, impressing upon GOB the need to select a low capital option thatminimizes the vulnerability of the investment to future fluctuations in theprice margins among petroleum products, which is the major risk factor inrefining operations. The main elements underpinning the economic rationalefor the refinery investment are the imbalance between refinery output anddomestic consumption patterns, the continued need for middle distillateimports, the surplus of fuel oil in the domestic market resulting fromextensive gas use, the accentuated price margin between these two productsbrought about by Bangladesh absorbing transport costs for both import andexport of petroleum products, and the low capital cost of the project.

4.03 The earl, LPG recovery component and the LPG storage and distributioncomponent will increase the economic value of existing gas production and setthe basis for wider LPG use when gas production from the Kailashtila field isexpanded. An important element of this component is the setting up of theorganizational structure and groundwork for marketing the substantially largerquantity of LPG expected to be recovered from natural gas in the future. Inparticular, the project will support the entry of private investors in the

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area of LPG distribution in parallel with the existing public sector entitiesinvolved in the distribution of petroleum products, thereby initiating astrategy of active private sector participation in the LPG sector and layingthe foundation for a subsequent larger LPG distribution scheme. The projectwilL help bring about important institutional changes by enhancing ERL'sautonomy and financial accountability, partly through the introduction of atoll fee processing scheme, and by building up the capabilities of LP Gas.Finally, each of the project components have been designed with a view toimproving the operating efficiency of the public entities involved andencouraging their development as revenue generating profit centers to whichprivate investment capital could eventually be attracted.

C. Project Description and ITplementation

1. Refinery Modification Component

4.04 Description. This component will consist essentially of theinstallation of secondary conversion facilities in the refinery, resulting inimproved yie:ds of middle distillates and reduced yields of fuel oil.Specifically, this component involves the revamping the refinery's hydro-desulfurizer to a mild hydrocracker, the installation of a long residuevisbreaker and associated facilities, detailed engineering, upgrading ofexisting facilities as required, bulk materials procurement, construction,start-up, training, and management and technical assistance. On completion ofthe proposed modification of the refinery, the petroleum products yields willchange as shown below:

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Refinery Yields Before and After Modification(in '000 mTpa)

Without a/ With IncreaseProduction Modification Modification (Decrease)

LPG 13 13 --

Naphtha 102 114 12Gasoline 49 49 --

Kerosene 331 344 13High Speed Diesel Oil 341 458 117Fuel Oil 631 478 (153)Bitumen 25 25 --

Total 1,492 1,481 (11)

Process Fuel(excludes natural gasused as process fuel) 8 19 (11)

Total Crude Throughput 1,500 1,500 0

Crude Used - Arab Light (34.80 API)

a/ The product yields shown here are those now expected to be obtained uponcompletion of the ongoing refinery rehabilitation program. They differfrom those shown in the appraisal report for the Energy Efficiency andRefinery Rehabilitation Project as better results are now expected from therehabilitation program than was anticipated at appraisal.

In addition to the process units and ancillary equipment, the project providesfor operations assistance, training and spares for preventive maintenance fora period of five years.

4.05 Implementation. The implementation of the project component will bethe responsibility of ERL. The engineering consultants (C.E. Lummus), whichcarried out the original feasibility study, have prepared the invitation-to-bid documents, including basic and project design specifications, and thenecessary project details to enable the award of the contract on a lump-sumturnkey basis. Project implementation is expected to take 36 months, assumingimplementation will ceomence with Credit effectiveness and ends withcommissioning of the facilities. A General Contractor will be selected toimplement the project and provide operations assistance on the basis of asingle contract. A Project Implementation Coordinator will assumeresponsibility for project implementation. A project unit, headed by theProject Implementation Coordinator, will be established within ERL tosupervise project implementation. The Project Implementation Coordinator willreport to the Managing Director of ERL. A Project Management Assistance Team(PSAT) will be recruited by ERL to assist with the execution of the project,including evaluation of bids received, selection of the General Contractor,

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supervision of works and establishment of operating norms (para 5.04). ThePMAT will answer directly to the Project Implementation Coordinator. Adetailed project implementation plan was submitted during negotiations. Theappointment of the PNAT is a condition of effectiveness for the RefineryModification Component.

2. Early LPG Recovery, Storage and Distribution

4.06 Description. LPG from natural gas offers an opportunity to reducethe cost of imported petroleum fuels substantially. The quantity of LPG to be.marketed under the proposed project component is relatively small, compared tothe 120,000 mTpa expected to be recovered from the Bakhrabad, Beani Bazar,Kailashtila and Titas natural gas fields in the future. The proposed projectcomponent provides the vehicle to develop the institutional arrangements aswell as the management and operational skills and distribution and marketingnetwork, which are now lacking. This component is in effect a pilot project,the benefits of which would be fully realized with the marketing of largerquantit.es of LPG (possibly up to 120,000 mTpa) in the future. The projectcomponent includes: (i) the modification of existing gas treating facilitiesat Kailashtila to recover about 5,000 mTpa of LPG and 2,000 mTpa ofcondensate; (ii) installation of bulk LPG loading facilities at Chittagong tofacilitate the loading of LPG tankers; (iii) construction of bulk storage anddistribution terminals at Khulna, Kailashtila and Baghabari; (iv) LPG tankers;(v) LPG cylinders; (vi) installation of bottling plants at Khulna, Baghabariand Kailashtila; (vii) equipment for eight retail filling outlets; (viii) LPGtank trucks; (ix) related infrastructure facilities; and (x) training andoperational assistance to LP Gas.

4.07 Imelementation. The LPG recovery facilities will be implemented byBOGMC. No project implementation assistance is required as BOCMC hasreasonably competent project management staff who presently handle projects oflarger magnitude and complexity. Engagement by BOGMC of consultants for thedesign and detailed engineering of the LPG recovery plant at Kailashtila willbe a condition of Credit effectiveness. The LPG Storage and Distributioncomponent will be implemented in part by LP Gas and by a privately operatedentity to be established with the possible assistance of the InternationalFinance Corporation (IFC) and in which the Government may take a minorityparticipation. Both entities will share responsibility for the distributionof LPG in the western zone, LP Gas from a terminal located at Baghabari, theprivate entity from a terminal located at Khulna or any other suitablelocation in the western zone. LP Gas will be responsible for the constructionof loading facilities at Chittagong and bottling plants and associatedfacilities at Baghabari and Kailashtila; both LP Gas and the private companyfor bulk transport of LPC from Chittagong to the western zone; and the privatecompany for the construction and operation of the Khulna bottling terminal anddistribution of LPG therefrom. Agreement was reached with GOB duringnegotiations that it will involve private investors in the distribution of LPGalong the lines suggested above (or any similar scheme). GOB has invitedproposals from private investors for participation in the project. Theestablishment of one or more privately owned LPG Storage and Distributioncompanies, on terms and conditions satisfactory to the Association, will be acondition of disbursement (except for the Kailashtila LPG bottling and storagefacilities).

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4.08 Selected expatriate consultants, preferably from an operating LPGdistribution company, will be engaged to assist LP Gas in designing andimplementing the different project sub-components for which it is responsible,and in establishing safety and inspection standards consistent withinternational standards for the operation of the bottling facilities, bulktransport and retail stations. Recruitment of LPG Distribution and MarketingConsultants, satisfactory to IDA, will be a condition of disbursement underthe LPG Storage and Distribution Component. The LPG Recovery Component isexpected to be implemented within 24 months from the date of Crediteffectiveness to start-up of facilities; and the LPC Storage and DistributionComponent about 30 months from Credit effectiveness to extension ofdistribution to all areas envisaged (Chart 2).

D. Project Preparation Status

4.09 The Refinery Modification Component is at an advanced stage ofpreparation. The consultants engaged for the techno-economic feasibilitystudy are also responsible for preparation cf the project design includingbasic engineering up to the preparation of piping and instrument drawings andinvitation-to-bid documents. The feasibility study was completed in March1985. At the request of the Association further work was done to define thescope of the project. This was completed in October 1985. The consultantscompleted the project design and basic engineering in early April 1986. BPCand ERL have reviewed and finalized the design package. The invitation-to-biddocuments necessary for the selection of the General Contractor is expected tobe issued by November 1986.

4.10 The feasibility of an LPG Recovery Component at Kailashtila has beenestablished. An engineering firm responsible for the detailed engineering hasbeen selected by BOGMC; contract arrangements are expected to be finalized bythe end of 1986. The scope of the LPG Storage and Distribution Component wasdeveloped by BPC together with IDA staff. No extensive design work is neededother than a detailed work plan, the design of infrastructure facilities of amodest scale, and procurement of LPG tank crucks and cylinders, BPC togetherwith LP Gas are currently developing project proformas for all needed items.

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E. Capital Cost Estimates

4.13 The total financing requirements of the project, including physicalcontingencies, price escalation and interest during construction, areestimated at US$81.3 million equivalent, of which $47.0 million are in foreignexchange, as shown below:

Project Cost Estimates(in US$ million)

Foreign Local al Total

I. Refinery Modification(}) Refinery Modification and

Operations Assistance 21.7 6.4 28.1(2) Project Management Assistance 1.0 0.1 1.1(3) Trainir.g and Technical Assistance 0.5 0.1 0.6(4) Spare Parts 3.2 0.8 4.0

Sub-total 26.4 7.4 33.8

II. LPG Recovery FacilitiesLPG Recovery Facilities atKailashtila 3.5 0.7 4.2

Sub-total 3.5 O.7 4.2

MII. LPG Storage and Distribution(1) LPG 3ottling Plants 0.6 0.2 0.8(2) LPG Bottles .3.0 0.6 3.6(3) LPG Transport (Trucks and Barges) 3.0 0.8 3.8(4) LPG Retail Filling Units 0.2 0.2 0.4(5) Implementation Assistance/Training 0.5 0.2 0.7(6) Infrastructure Facilities/Port/Land 1.3 1.3 2.6

Sub-total 8.6 3.3 11.9

Base Ccst Estimate (Total of I, II & III) 38.5 11.4 49.9Physical Contingencies 3.9 1.1 5.0Price Contingencies 10.1 3.8 13.9

Total Cost 52.5 16.3 68.8

Interest during Construction - 12.5 12.5

Total Financing Required 52.5 28.8 81.3

a/ Local costs incl-ude US$8.2 million of customs duties.

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4.14 Base cost estimates are expressed in June 1985 prices and weredeveloped based on: (i) the Refinery Modification Study prepared by theconsultants, CeE. Lummus; (ii) BOGMC and IDA estimates for the Early LPGRecovery Component; and (iii) BPC and IDA estimates for the LPG Storage andDistribution Component. Physical contingencies are 10% of the base cost.Price contingencies are based on projected international and local priceincreases of 7% in 1986, 7% in 1987, 7.5Z in 1988, 7.6% in 1989, and 4.5% in1990 for foreign costs; 10% each year from 1985 to 1990 for local costs.Consultant services are estimated at 60 man-months for project managementassistance to ERL and 24 man-months for LPG tistributiQn and marketingassistance.

F. Financing Plan

4.15 The financing plan for the project is established as follows:

LPGRefinery LPG Storage and

Modification Recovey Distribution Total--------------- US million)------

Long-Term Debt (IDA) 35.5 4.6 5.8 45.9

GOB Equity Contribution- IDA Credit - - 1.1 1.1- Own Resources 12.3 3.7 3.5 19.5

Internal Cash Generation (ERL) 7.3 - - 7.3

Private Investors - 7.5 7.5

Total 55.1 8.3 17.9 81.3(of which interestduring construction) (9.6) (1.8) (1.1) (12.5)

4.16 The IDA Credit (US$47 million) will cover about 90% of the projectcost net of taxes and duties and of the contribution of private investors.The proceeds of the Credit used for the Refinery Modification Component, theLPG Recovery Component and the publicly-managed LPG Transportation, Storageand Distribution Component will be onlent by GOB to ERL, BOGMC and LP Gas at arate of 11.5% for a period of 15 years, including a grace period of fouryears, on the basis of Subsidiary Loan Agreements satisfactory to theAssociation. The proceeds of the IDA Credit to finance BPC's share (US$1.1million) in a privately operated LPG Storage and Distribution Company will bepassed on to BPC as equity. A condition of effectiveness will be that theSubsidiary Loan Agreemerts between GOB and ERL, BOGMC and LP Gas respectively,have been executed and that the Project Proformas have been approved by COB.During negotiations, assurance was obtained from GOB that it will makeavailable to the beneficiaries on a timely basis any local and foreigncurrency funds including cost overruns that may be needed to complete theproject.

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G. Procurement

4.17 The procurement arrangements are summarized in the table below:

-- …(----(-US$ million)----Project Element Procurement Method

ICB Other N.A. a/ Total Cost

a) Equipment and MaterialsIncluding Installation andStart-up (Lump Sum Turnkey)

(1) Refinery Modification 30.6 - 5.4 bI 36.0(27.0) (-) (27.0)

(2) LPG Recovery Plant 6.1 - 0.4 b/ 6.5(4.6) (-) (4.6)

b) Equipment SuppLy(1) LPG Handling Equipment

and LPG Cylinders 4.2 2.0 c/ 0.9 b/ 7.1(2.9) (1.0) (-) (3.9)

(2) LPG Trucks and Tankers 4.8 - 0.9 b/ 5.7(2.0) (-) (2.0)

(3) Spare Parts for ERL 4.2 2.0 c/ 1.0 b/ 7.2(4.2) (2.0) (-) (6.2)

c) Civil Works - - 3.0 3.0

d) Project ImplementationAssistance/Training - 3.3 d/ - 3.3

(3.3) (3.3)

49.9 7.3 11.6 68.8 e/(40.7) (6.3) (-) (47.0)

Note: Figures in parenthesis are the respective amounts to be financed by IDA.

a/ Not applicablebl Customs dutiescl Limited International Biddingd/ Following IDA guidelines for the use of consultantse/ Net of interest during construction

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4.18 All contracts, equipment and materials to be financed by IDA will beprocured in accordance with IDA procurement guidelines. Internationalcompetitive bidding (ICB) will be used for the procurement of individual itemscosting over $200,OOO. For purposes of evaluation and comparison of bids forthe supply of goods procured under ICB, qualified domestic suppliers will beallowed a margin of preference equal to 15% of the CIF bid price of importedgoods or the actual customs duties and import taxes, whichever is less. Smallitems costing less than US$200,000, up to an aggregate of US$4.0 million, willbe procured through limited international bidding after solicitation ofquotations from qualified suppliers from at least three IDA-eligiblecountries. To the maximum extent possible, identical or similar items shallbe grouped together for the purpose of bidding and procurement. Consultingservices for project implementation assistance and training will be awarded inaccordance with IDA guidelines on the use of consultants. There is noprovision for local competitive bidding.

H. Disbursements

4.19 An estimated schedule of Credit disbursements is given in Annex 4-1.Disbursements are expected to be completed by December 1992. The rate ofdisbursement for the LPG Component follows the historic disbursement profilefor industrial projects in the South Asia Region. For the RefineryModification Component a faster rate of disbursement over the same spread ofyears as for the LPC component is provided for. For the Refinery ModificationComponent, the procurement would mainly be lump sum turnkey in nature andtherefore speedy. There is also the recent experience of a major energyproject in Bangladesh, the Bakhrabad Gas Development Project (Credit 1091-BD),which has been completed in less than four years with all disbursementseffected.

4.20 Disbursements will be fully documented. A special account with anauthorized allocation of US$5.0 million equivalent, representing about fourmonths of IDA-financed expenditures, will be established in a Bangladeshbank. The proceeds of the IDA Credit will cover, net of taxes and duties, thefollowing components:

Category ERL iOGMC LP Gas Total Eligible Expenditure…(USS million).

a) Equipment/Materialsincluding installation

and start-up 22.0 4.0 - 26.0 ) 100% of foreign expenditure,) 100% of local expenditure) (ex-factory), and 80% of) local expenditure.

b) Equipment/Materials ) 100% of foreign expenditure,excluding installatici ) tO0% of local expenditureor any other services 5.0 - 5,9 10.9 ) (ex-factors)

c) Project Implementation/Training 1.5 - I eO 2.5 100%

28.5 4.0 6.9 39.4Unallocated 7.6

Total 47.0

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I. Monitoring and Reporting

4.21 ERL, BOGMC and LP Gas will be required to submit to the Associationquarterly project progress and procurement status reports within 30 days ofthe end of each quarter. In addition, within six months after closing date ofthe project, each company will prepare and furnish to the Association acompletion report on the project, dealing with its implementation, initialoperations and the costs and benefits derived and expected to be derivedtherefrom.

J. Ecology and Safety

4.22 The refinery does not discharge any liquid or solid wastes harmful tothe environment. However, oil sludge some of which could contain lead fromthe gasoline tanks are either dumped in ponds or have been left in non-usabletanks in the past. With the repair and rehabilitation of tanks, sludge can nolonger be accumulated but will be treated in the separators and disposed ofeither as fuel oil, blended into asphalt or burnt. The rehabilitation of theprocess heaters will reduce significantly the level of sulfur and nitrogenoxide emissions.

4.23 Recovery of LPG from refinery gas or natural gas is a clean, non-polluting process and creates no harmful by-products. Process facilities bothat the refinery and at the Kailashtila gas treating plant will be designed inaccordance with international standards for the industry. The marketing ofbulk or bottled LPG is also a clean and safe process. The loading andunloading of bulk LPG cause the discharge of minute quantities of non-toxicgas into the atmosphere. However, compared to the discharges associated withthe transfer of other petroleum products, the contamination caused by LPG isnegligible. Unlike other petroleum products, LPG is delivered and storeduntil consumed under pressure. All equipment and storage vessels includingcylinders will be designed in conformity with standards applicable to pressurevessels as stipulated by the American Society of Mechanical Engineers (ASME)or comparable safety codes, and procured from suppliers with experience of notless than ten years in the fabrication of such equipment/facilities. Inaddition, to ensure proper maintenance of facilities, the project provides fortechnical assistance in LPG market,ng and distribution to help establishadequate safety and inspection procedures, provide training of staff andsupervise operations during the initial period.

K. Insurance

4.24 Both ERL and LP Gas have adequate insurance coverage for buiLdings,machinery, stores and spares against various risks including fire, flood andcyclone. The proposed Refinery Modification Project will be adequatelycovered during the construction and erection phase and, followingcommissioning, under an integrated insurance plan consistent with acceptedpracLices ir. the industry. Insurance coverage for LP Gas will be extended tocover new facilities as well as LPG tankers and tank trucks. The KailashtilaLPG recovery facility will similarly be covered under the existing insurancepolicy for the gas treating plant.

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V. FINANCIAL ANALYSIS

5.01 Financial analyses were carried out for each project componentseparately. The separate projections for ERL are discussed below. Thefinancial outlook of BOGMC's gas operating companies was discussed under theSecond Gas Development Project, for which an IDA Credit was approved in April1985, and financial covenants were agreed at that time to safeguard theirfinancial viability. The small LPG Recovery Component included in theproposed project is not expected to modify significantly the gas productionoperations placed under BOGMC.

A. Refinery Modification Component

1. ERL's Past Financial Performance

5.02 The current arrangement between ERL and BPC (which is responsible forcrude oil procurement and marketing of refined products) provides for ERL tobe reimbursed by BPC for all its processing costs and be given, in addition, a15X return on its paid-up capital, net of taxes. 1/ This has provided ERLwith an assured minimum, albeit limited, level of profitability. ERL'soperating expenses have remained at reasonable levels, with an averageprocessing cost of less than US$0.65/bbl of throughput over the last twoyears, which compares satisfactorily with similar (hydroskimming) refinerieselsewhere. Profit levels have been particularly modest since FY84 mainly dueto large tax obligations. A summary of ERL's financial performance in recentyears is presented in Annex 5-1. Key statistics are summarized below:

ERL - Summary of Recent Financial Performance(in million Takas)

FY82 FY83 FY84 FY85(Unaudited)

Gross Revenue 129.4 143.3 130.8 138.8Operating Profit 18.7 25.6 20.3 17.3Net Profit After Tax 17.9 22.6 12.0 11.5Current Assets 197.1 219.9 269.6 306.4Current Liabilities 81.3 63.1 82.7 79.3Net Fixed Assets 149.1 155.6 138.2 143.7Long-Term Debt 207.6 127.5 135.7 174.9Equity 57.3 184.9 189.4 195.9

RatiosNet Profit/Gross Revenue (%) 13.8 15.8 9.2 8.3Net Profit/Fixed Assets (X) 12.0 14.5 8.7 8.0Current Ratio 2.4 3.5 3.3 3.9Long-Term Debt/Equity Ratio 78/22 41/59 42/58 47/53

1V In addition there is a bonus of 25% on the value of any process fuel thatit may save from the 4.5% process fuel and losses allowed by BPC, or a penaltyif process fuel and losses should exceed 4.5%.

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5.03 The long-term debt/equity ratio stood at 78:22 on June 30, 1982(during the appraisal of the ongoing Energy Efficiency and RefineryRehabilitation Project) - a ratio which the Association considered too highlyleveraged. Of the Taka 212 million long-term debt outstanding at that time,nearly 60% (Taka 124 million) was related to debts contracted before thecreation of Bangladesh. The liability has since been transferred to a capitalreserve account in ERL's books and is thus no longer shown as a long-termdebt. Nevertheless, it remains a contingent liability. During negotiationsGOB agreed to raise the paid-in capital of ERL by Tk 1,200 million by acorresponding reduction in the long-term debts that ERL owes to GOB. Suchconversion of debt to equity will be a condition of disbursement for therefinery modification component, Following this change, the debt-equity ratioof ERL, even reckoning the pre-independence liability as debt, is expected tofall below 65:35.

2. Remuneration of ERL

5.04 The current arrangement between BPC and ERL for the remuneration ofERL refinery operations (para 5.02) is not satisfactory in that it does notprovide ERL management with adequate incentives to improve cost efficiency.As a result of the project, the refinery will help generate revenuessufficient to cover all production costs as well as provide an adequate returnon capital employed (para 5.06). The problem for GOB is (a) to allocate theincremental income that will accrue as a result of the project among ERL, BPCand itself through excise duties, (b) decide on a financial structure and afair dividend policy for ERL, and (c) establish a remuneration policy to ERLthat provides incentives to ensure operational efficiency. Refineries similarto ERL generally operate on the basis of a processing fee per barrel of crudefeed that reflects the complexity of their configuration, in addition to anallowance for refinery fuel and losses. IDA impressed upon GOB thedesirability of switching ERL operations to such a toll processing feearrangement. Agreement was reached during negotiations that ERL's mode ofremuneration will be changed, beginning January 31, 1987, to a system in whichERL will be paid a processing fee per barrel (in dollar equivalent) fixed at alevel that would provide ERL with a reasonable rate of return (about 1OZ) onrevalued assets employed in refinery operations under efficient operatingconditions, with a system of rewards and penalties designed to maximize theoutput of middle distillates based on a set of operating norms. The detailsof the system of norms, rewards and penalties will be prepared by BPC/ERL,with the assistance of their engineering consultants for the rehabilitatedrefinery, and that of the PMAT (para 4.05), for the refinery as it will beoperating upon completion:, of the modification project. The proposed set ofnorms for the rehabilitated refinery will be submitted to IDA prior to Crediteffectiveness. IDA also reached agreement with ERL that it will submit to theAssociation an optimized production program every six months during theproject implementation period, together with a review of the extent to whichagreed targets and norms have been met over the preceding six months.

3. Financial Projections

5.05 Proforma financial statements (income, sources and application offunds and balance sheet) for ERL with the proposed modification were preparedin constant 1985 Takas on the basis of ERL's fiscal year (July 1 to June30). The projections are based on the assumption that ERL will receive a

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processing fee per barrel of crude oil of $l/bbl between FY87 and FY90 and of$1.35 afterwards (i.e. after completion of the project) -- a level well withinthe average netback margin of $3-4 per barrel expected by 1990. Theprojections further assume an increase in the paid-in capital of ERL by Tk1,200 million by reduction of ERL long-term debt to the Government (para5.03). The detailed projections, together with the assumptions used, are inAnnex 5-1. Highlights of these projections are given below:

ERL - Summar of Financial Pro ectionsin million 1985 Takas)

(UnauditedActual) EstimatesFY85 FY87 FY90 FY93 FY95

Processing Fee

(including fuelsaving bonus) 138,8 267.9 468,9 468.9 468,9Income Before Taxes 21.5 24.7 93.1 86e6 139.8Not Income After Taxes 11,5 24.7 93,1 86.6 69X9Current Assets 306.4 463,4 663.9 832.2 1010.1Current Liabilities 74.2 106.1 247.7 247.7 307.3Fixed Assets in Operation 127.2 647.9 1395.9 934,3 584.5Long-term Debt 174.9 773,5 1183,8 772.3 508,4Equity 201.0 464,6 903,2 958.2 990.7

Ratios

Income Before Taxes/Gross Revenue (%) 15.5 9.2 19.9 18,5 29.8

Net Income afterTaxes/Gross Revenue( 8.3 9,2 19,9 18.5 14.9

Operating Profits/

Operating Fixed Assets (%) 15 13 11 15 23Current Ratio 4e1 4.4 2.7 3.4 3.3Long-term Debt/Equity Ratio 47/53 63/28 57/43 42/55 34/66Debt Service Coverage - 2e4 2,5 1.3 1,5

5.06 The projections indicate that, based on the processing fee levelsmentioned in para 5.05, ERL's financial position will be satisfactory. Thefinancial internal rate of return for the refinery as a whole for the 16 year-operating life of the project (1987-2003) is estimated at 11%. The debtservice coverage ratio, initially down to 1.2 in FY91 when repayment on theproposed loan begins, improves to 1.3 or higher thereafter. The operatingreturn on net fixed assets in operation is also satisfactory, starting at 11%in FY91 and improving to 23% in FY95. The financial covenants agreed underCredit 1357-BD (Energy Efficiency and Rehabilitation Project) will bemaintained under the project but for one change indicated below. Thecovenants require that: (i) ERL's long-term debt/equity ratio will not exceed65:35 from FY87. To this end, as a condition of disbursement the governmentwould convert Tk 120 million of ERL's debt to the government to equity; (ii)ERL's current ratio will be at least 1.5:1 from FY87; (iii) no dividend willbe declared by ERL if this would cause its current ratio to fall below 1.5;

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(iv) ERL will not incur any additional debt if this would cause ERL's debtservice coverage in any fiscal year to fall below 1.3 (it is 1.5 for eachfiscal year under Credit 1357-BD); and (v) ERL will not make any investmentsin fixed assets in excess of an aggregate amount of US$5.0 million withoutprior approval of IDA. The reduction from 1.5 to 1.3 in the minimum debtservice ratio will not adversely affect the financial viability of ERLconsidering the combined impact of the other covenants.

B. Earl LPGRecoverComonent (BOGMC)

5.07 The recovery of LPG from natural gas at Kailashtila is expected to befinancially viable despite the small-scale size of the undertaking, partly onaccount of the additional recovery of condensate. The financial projectionsat Annex 5-2 and summarized below assume a transfer price of LPG to LP Gas ofTk 3,500/ton (US$113/ton). The assumed transfer price of LPG would alsoensure the financial viability of downstream distribution activities, asdiscussed in the following section.

Summary of Financial Projections(in Million 1985 Takas)

FY91 FY93 FY95

RevenueLPG 14.0 17.5 17.5Condensate 6.4 8.4 8.9

Operating costs 7.9 8.0 8.0

Net cash flow(operations) 12.5 17.9 18.4

C. LPG Storage and Distribution Component (LP Gas)

5.08 This project component, to be implemented by a combination of publicand private sector entities, is of a pilot nature and carries costs that couldbenefit the larger LPG distribution operations that will be needed in thefuture. Moreover, the project is to be used as an instrument to test consumeracceptance of a different mode of retail marketing. Even though the currentretail price could be increased (para 2.23), it is not proposed to effect anymajor change in order to encourage consumption of LPG. As the market expands,there will be scope to increase the retail prices in order to help finance newinvestments.

5.09 BPC currently transfers about 6,000 tons of LPG from ERL to LP Gas ata price of Tk 5,200/ton (US$168/ton). LP Gas in turn transfers bottled LPG tothe marketing companies at its battery limits at Tk 7,600/ton (US$245/ton).The marketing companies then sell the bottled LPG to consumers at Tk 8,400/ton(US$270/ton) ex-depot. While the existing pricing arrangement, which allows amargin of approximately Tk 2,400/ton (US$77/ton) to LP Gas, is adequate forthe disposal of LPG within the Chittagong area, it will be necessary to raisethis margin substantially to cover the cost of transport to the westernzone. The current ex-refinery price of LPG was fixed based on the rationale

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that the alternate use of LPG in the refinery was as refinery fuel, displacingfuel oil, the refinery fuel at the time. Following the recent substitution ofnatural gas as refinery fuel, the ex-refinery price for LPG should be adjusteddownwards to reflect the opportunity price of natural gas to the refinery(currently US$63 per ton equivalent). There is also room to adjust theconsumer price of LPG upwards taking into consideration the relatively higheconomic value of LPG vis-a-vis'kerosene, as discussed in para 2.23. Thefinancial projections in Annex 5-3 assume a margin of Tk 7,100/ton(US$230/ton) for the LPG produced at the refinery and Tk 5,550/ton(US$180/ton) for the LPG to be produced at Kailashtila. On this basis, thefinancial internal rate of return for the LPG storage and distributioncomponent is estimated at 1OZ, which is adequate.

5.10 The financial projections show that there would be sufficientinternal generation of cash to meet debt service commitments, although both LPGas and the private sector company would be building up assets fordistributing larger quantities of LPG in the course of time. In order toassure LP Gas of an adequate margin on the sale of LPG, agreement was reachedwith GOB that the transfer prices of LPG from ERL and BOGMC to LP Gas, andbulk and bottled LPG from LP Gas to the marketing companies, will be reviewedat least every 12 months beginning June 30, 1987, and set at such levels aswill ensure that LPG Limited has sufficient internal cash to meet, in theminimum, all its operating costs and debt service payments. Thisunderstanding is also expected to guarantee satisfactory operating conditionsfor the privately operated company.

5.11 Cylinders procured by LP Gas will be sold to the marketing companiesand/or private dealers except for a small inventory to be retained by LPGas. Cylinders and regulators were originally distributed at a price of Tk500; the selling price was then reduced to Tk 350 to encourage consumption andsubsequently raised to Tk 1,000 when the petroleum marketing companiespurchased additional cylinders and were allowed to recover their costs fromcustomers. The current price of Tk 1,000 (US$33) is adequate in relation tothe import price of cylinders but will require monitoring. Duringnegotiations GOB agreed to set the price of cylinders to reflect import costsas well as applicable taxes and duties and to review cylinder prices at leastonce a year.

VI. ECONOMIC EVALUATION

A. Introduction - Past Trends

6.01 The margin between the price of petroleum products and that of crudeoil determines the economics of refinery operations. For ERL, the petroleumproduct prices in Singapore will largely determine this margin. Over theperiod 1976-1984, when crude oil prices at Singapore (in 1985 dollars)increased from US$136/ton to US$242/ton in 1982 and then decreased toUS$210/ton in 1984, the margin ac Singapore fluctuated from US$35/ton in 1976to US$70/ton in 1981 but touched a low of US$11/ton in 1984. While theeconomics of a refinery as a whole would depend on the price margin betweenproducts and crude oil, the economic viability of a secondary conversionproject for processes which increase the yield of diesel oil is determined bythe price difference between diesel oil and fuel oil. For the period 1976-

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1984, this differential at Singapore (in 1985 dollars) changed from US$65/tonin 1976 to US$48/ton in 1981 and to US$68/ton in 1984, reaching its lowestlevel at US$46/ton in 1977. During the first quarter of 1986, subsequent tothe decline in the price of crude oilt the differential increased to US$751ton. A graph showing the price variations, in 1985 dollars, at Singapore forcrude oil, diesel oil and the composite product (the product mix to beachieved at ERL after the project is implemented) is presented in Annex 6-3.

B. Crude Oil and Product Price Assumptions

6.02 Until September 1985, the margin between the price of crude oil perbarrel and the composite price (i.e. the value of products derived from abarrel of crude oil) as well as the differential between the prices of dieseloil and fuel oil showed almost no change over 1984. Thereafter, despite theonset of a rapid decline in the price of crude oil, product prices have notdeclined as rapidly, and the margin between the crude oil price and thecomposite price, as well as the interproduct differentials, particularlybetween distillate petroleum products and fuel oil, have tended to be higher.

6.03 For the economic analysis, the crude oil price projections up to 1995developed by the Economic Analysis and Projections Department (EPD) in April1986 have been used, together with mission estimates up to 2000. For productprice projections, product-to-crude oil price ratios developed by the Bank inNovember 1984 1/ have been used. These ratios were developed in theperspective of the higher crude oil prices then prevailing and projected, aswell as the relatively low margins (in US$ or equivalent) in refining andmarketing. The current scenario is of far lower crude oil prices butimproving refining axid marketing margins. It would follow that since thelower crude oil price projections are being used for the economic analysis,the product-to-crude oil price ratios should be higher. Nevertheless, it wasdecided to adopt the ratios as developed in November 1984. As a result,product prices used in the economic analysis are lower than what they are inthe current market, thereby yielding economic rates of return which, althoughdepressed by the conservative product price assumptions used, remainsufficiently attractive. The projected crude oil and petroleum product price.._used in the analysis based on the assumptions just explained are given below(in constant 1985 dollars):

Product Prices (USM/ton)(FOB Singapore)

1990 1995 2000

Naphtha 154 172 198Gasoline 173 191 219Kerosene 165 182 209Diesel 157 175 201Fuel oil 88 112 129Crude oil 122 140 161Composite Product Price 135 154 177

1/ World Bank Technical Paper Number 32. World Refinery Industry: Need forRestructuring.

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C. Refinery Operations

1. Refinery Modification Component

6.04 The economic benefits to be derived from the modification componentwill come mainly from increased yields of premium value middle distillateproducts, namely, kerosene and diesel oil. The economic evaluation for thiscomponent is based on a comparison of the net benefits of meeting thecountry's petroleum product requirements with and without the project, takinginto account the incremental capital and operating costs of the newfacilities, the loss in revenue from reduced output of fuel oil and thebenefits to be derived from the increased yield of middle distillates. Theeconomic capital cost of the project component excludes interest duringconstruction, import duties and local taxes. The base case for the economicevaluation relates to the EPD crude oil price projections and petroleumproducts prices given in para 6.03. On these price assumptions, the projecthas an ERR af 21%. The economic analysis is presented in detail in Annex 6-1.

6.05 Sensitivity tests were carried out to arrive at a range of diesel-to-fuel oil price differentials over time, at which the project breaks even atthe cost of money (12%). For this to occur, the differential would have tofall and remain at less than US$45/ton (in 1985 dollars). This is higlyimprobable, when tested against the past from 1976. In 1977, the differentialwas at its lowest at US$46/ton (in 1985 dollars), at which time the price ofcrude was US$133/ton. In 1984 when the margin between the composite productprice and the price of crude was at the lowest for nine or ten years, atUS$11/ton, the differential between diesel price and fuel oil price wasUS$68/ton. The differential between diesel price and fuel oil priceapparently correlates better (excluding market factors) with the inve_.tmentsneeded to produce more diesel oil than with either the price of crude oil orwith the overall refinery margin. In 1977, the unit value index ofmanufactured exports 1/ was 75.9 on a 100 base in 1985.

2. Refinery As a Whole

6.06 The economic evaluation of the refinery is based on the estimatedvalue of existing facilities on completion of the ongoing rehabilitationprogram and proposed modifications, using the same base case assumptions asfor the refinery modification component for crude oil and product prices. Onthis basis, the refinery shows an ERR of 18%. The detailed economic analysisis provided in Annex 6-2. The refinery's economic viability was first testedto determine the margin between the composite product price and that of crudeoil (using Singapore as the reference location), which would bring the ERRdown to 12%, assigning a replacement value (depreciated) to the refinery as itexists. Such a margin would be US$10.5/ton (in 1985 dollars). if investmentsin the refinery as is (before rehabilitation or modification) are taken assunk costs, the margin has to be only US$9/ton. It is unlikely that such low

1/ Unit value index of manufactured exports from five industrial marketeconomies exporting to developing countries on a CIF basis (EPD publisheddata).

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margins would come to prevail at any time. Two graphs (see Annexes 6-4 and6-5) illustrate how the margins between the composite product price and thecrude price are projected to behave in the period 1987-2000, the first in the'base' case, and the other in a 'minimum' case where the ERR of the refinerywould drop to 12%. The result of other sensitivity tests are given below:

Sensitivity Analysis on Economic Rate of Returr.

%Base Case (Refinery as a Whole) 18

Capital cost increase by 30% 15Delay of 2-year in project implementation 11Capacity utilization less by 30% 13

D. LPG Recovery, Storage and Distribution

6.07 For the purpose of economic analysis, the recovery and distributionof LPG at Kailashtila, and the storage and distribution of LPG in the westernzone are considered as two inde;endent operations. The Kailashtila Componentcomprises recovery of LPG (5,000 tons) by BOGMC and its storage, bottling andsale by LPG Ltd. The Western Zone Component comprises storage, bottling,transportation and distribution of the additional LPG (6,000 tons) to beproduced by ERL, to be handled by LPG Limited and the privately operatedcompany.

1. Kailashtila LPG Component

6.08 5,000 mTpa of LPG are expected to be recovered and distributed underthia project component. The input streams consist of 3,000 mTpa recoveredfrom pipeline gas and 2,000 mTpa from flared gases. The input cost of all5,000 mTpa is the aggregate of its value as natural gas at the wellhead, plusthe fixed and operating costs of recovering, bottling and distributing theLPC. Annex 6-6 gives the estimated capital and operating costs for thiscomponent. For deriving the benefits the economic evaluation assumes that onemetric ton of LPG replaces 1.50 mT of kerosene, taking relative heat contentand combustion efficiency into account. Condensate which comes as a by-product when recovering LPG from natural gas yields additional benefits takenat the value of crude oil. The estimated ERR is 17%, which is satisfactoryfor a pilot project. Sensitivity test results below indicate that the pilotproject remains viable under a wide range of values for the main parameters.

Sensitivity Analysis on Economic Rate of Return

Base Case 17

Capital Cost Up 30% 12Kerosene Price Down 20% 13Demand Down 20% 12

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2. Western Zone LPG Component

6.09 The economic analysis assutmes that LPG will substitute largely forkerosene and that 1 ton of LPC will displace 1.5 tons of kerosene or thebasis of their relative combustion efficiencies and calorific values.Economic cost of the feed stream is assumed to be the economic cost of naturalgas at the refinery plus cost of recovering LPG in the refinery. Theestimated capital and operating costs and the economic evaluation for thiscomponent is given in Annex 6-7. This component is sensitive, among otherfactors, to bulk transportatien costs. While the facilities provided underthe project are capable of handling larger quantities of LPG, the economicevaluation is based on the distribution and marketing of the additional 6,000mTpa only. The ERR for this component is 15%, and would improve rapidly whenlarger quantities become available in the future. Results of sensitivitytests are summarized below:

Sensitivity Tests on Economic Rate of Return

Base Case 15

Demand Down 20% 10Kerosene Price Down 20% 10Capital Cost Up 30% 11

E. Project Risks

1 Refinery Modification

6.10 The main risks are those resulting from changes in the internationalprice of crude oil and petroleum products. With respect to the refinerymodification component, the anticipated economic return is satisfactory evenat price margins between diesel. and fuel oil well below past levels. There islittle risk of the margin between petroleum products and crude oildeteriorating to such an extent that refinery operations, with the proposedmodification, could become temporarily uneconomic. The project is expected toenhance the refinery's viabilicy.

2. LPG Recovery, Storage and Distribution

6.11 With regard to the LPG components, the LPG wrtrket is virtuallyuntapped and I s will displace mainly kerosene and firewood -- both high valuefuels. The ri,ks of the benefits being eroded to a level that makes theproject components uneconomic are slim, as -)reign exchange savings aresignificant when LPG displaces kerosene, and the additional benefits ofreduced deforestation when substituting for firewood are substantial. Therisk of an inadequate market for the additional LPG in low, since unsatisfiedLPC demand is very large due to its cleanliness in use and cheaper pricerelative to kerosene.

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VII. AGRE0MEETS

7.01 The following agreements were reached during negotiations:

With the Government that

(a) it will not later than July 30, 1989 remove all price controlsover the distribution and sale of {.PG (para 2.23);

(b) it will stipulate (through BPC) credit periods on accountsreceivable by B0C from subsidiaries of BPC as well as by thesubsidiaries from their customers and further cause BPDB toreduce its arrears to BPC by Tk 50 million per month until thesearrears are fully cleared (para 3.04);

(c) it will ensure the appointment of a General Manager for LP Gasand that this will be a condition of disbursement (para 3.08);

(d) as a condition of effectiveness, it will ensure the engagementof consultants for the desigr. and detailed engineering of theLPG recovery plant at Kailashtila and, as a condition ofdisbursement, it will ensure the establishment of one or moreprivately owned LPG Storage and Distribution companies, on termsand conditions satisfactory to the Association (para 4.07);

(e) as a condition of effectiveness, the Subsidiary Loan Agreementsbetween GOB and ERL, BOGMC, and LP Gas, respectively, will havebeen executed and the Project Proformas approved by GOB(para 4.16);

(f) it will ensure the availability of necessary resources tocomplete the project and meet any cost overruns or shortfall infunds to finance the project (para 4.16);

(g) as a condition of effectiveness, it will establish, beginningJanuary 31, 1987, a toll processing fee for compensating ERLbased on product yield, refining complexity and a reasonablereturn on inv,:stment, together with yield norms and a system ofrewards and penalties (para 5.04); and

(h) it will, as a condition of disbursement, convert Tk 120 millionof ERL's debt owed to the government to equity (para 5.06); and

(i) it will review, pending decontrol of LPG prices, at least every12 months beginning June 30, 1987, and set the transfer price ofLPG from ERL and BOGMC to LP Gas, snd from LP Gas to themarketing companies, at a level that will ensure that LP Gas hassufficient internal cash generation to meet, at the minimum, allits operating costs and debt service payments (para 5.10).

- 34 -

With ERL that

(a) the appointment of PMAT will be a condition of effectiveness(para 4.05);

(b) as a condition of effectiveness, it will, with the assistance ofconsultants, establish yield norms for the rehabilitatedrefinery for different crude oils likely to be processed,together with a system of rewards and penalties;

(c) it will submit optimized production programs semi-annuallyduring the project implementation period, together with a reviewof the extent to which production targets and norms have beenmet (para 5.04); and

(d) (i) its long-term debt/equity ratio will not exceed 65:35 fromFY87; (ii) its current ratio will be at least 1.5:1 from FY87;(iii) no dividend will be declared if this would cause itscurrent ratio to fall below 1.5; (iv) it will not incur anyadditional debt if this would cause ERL's debt service coveragein any fiscal year to fall below 1.3; and (v) it will not makeany investments in fixed assets greater than a total amount ofUS$5.0 million without prior IDA approval (para 5.06).

With LP Gas that

(a) it will obtain the services of LPG Distribution and MarketingConsultants to design different components and assist in theimplementation of the project, as a condition of disbursement(para 4.08); and

(b) it will review at least once a year and set the price of LPGcylinders to cover procurement costs, taxes and duties(para 5.11).

With BOGMC, ERL and LP Gas that

(a) they will supply the Association with copies of their unauditedfinancial statements, including the project accounts, not laterthan six months after the end of each fiscal year, and not laterthan nine months after the end of the fiscal year copies of theaudited statements together with a copy of the report andcomments of the Comptroller and Auditor General (para 3.11).

7.02 Subject to the above agreements and conditions, the proposed projectis suitable for an IDA Credit of US$47 million.

Energy DepartmentNovember 11, 1986

- 35 - Annex 2-1

Bangladesh: Refinery Modification and LPG Rcovery and Distribution Project

Sectoral Shares in Petroleum Products Consueption a/('000 MT)

Comparative Shares (%)1976 1977 1978 1979 1980 1981 1982 1983 1984 1976 1981 1984

----------------------------------------------------- ___----------____-_-_-_-__----_---------------------------

Transport 323 371 407 467 5S1 520 436 473 560 31 34 37

Residential/Cosurcial 338 377 398 392 361 366 303 300 311 3) 24 20

Power 178 171 178 206 245 254 195 246 291 16 17 19

Industry 206 294 304 320 297 274 209 238 214 19 18 14

Agriculture 37 52 71 84 85 102 110 140 150 3 7 10

TOTAL 1,082 1,265 1,358 1,469 1,499 1,516 1,253 1,397 1,526 100 100 100

a/ Including naphtha, jute Oetching oil, lubricants and bitumen.

Source: Bangladesh Petroleum Corporation

Energy DepartmentNovember 11, 1986

Bongladesh: Refinery ModificatIon and LPG Recovery and Distribution Project

Consumption of Petroleum Products, 1976-1984(1000 T)

1975-19841984 Share Averagein Total Annual

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Consumption Growth Rate(%) (M)

High Octane

Blending Component 2.4 2.9 4.0 5,3 6.2 6.9 6.7 5.6 6.3 7.1 0.5 12.6

Motor Spirit 51.4 51.9 55.9 60,8 55.8 49.6 47.8 38.6 42,0 48.6 3.3 -0.6

Jet Petrol 23.8 24.5 26.5 30.5 44,4 50.3 58.2 50.9 54.2 64.0 4.4 11.6

Superior Kerosene Oil 340.9 337.2 378.0 398.2 384.0 448.1 402.7 324.9 322.2 351.4 24.2 0.3

High Speed

Diesel Oil 246.8 252,5 304.4 334.9 414,6 413.3 511.6 455.2 516.5 595.8 41.0 10.3

Light Diesel Oil 32.0 23.0 31.0 31.0 32.4 35.2 30.2 22.0 20.6 20.0 1.4 -5.1

Furnace Oil,

High Sulfur 352.8 319.9 385,0 423.4 428,6 371.2 331.5 289.0 384.5 359.5 24.7 0.2

Furnace Oil,

Low Sulfur 30.6 32,i 36,6 40,3 42.1 40.0 29.8 4,0 - - - -

Liquefled

Petroleum Gas - - - 0.7 2,7 4.5 5.0 4.3 6.2 6.9 0.5 47.4 a/

TOTAL 1,080,9 i,044.6 1,221,4 1,325,1 1,410.8 1,419,1 1,423.5 1,194.5 1,352.5 1,453,3 100

a/ For the period 1978 to 1984

Source: Bangladesh Petroleum Corporation

N

Energy DepartmentNovember 11, 1986

Bangladesh: Refinery Modification and LAiO Racovery and Distribution Project

Petroleum Products Demand Projections

('000 mT)

No Growth Low Growth High Growth1985 1990 1995 2000 % p,a. 1990 1995 2000 % p.a. 1990 1995 2000 3 p.a.

(Actual) Growth Growth Growth

Motor Gasoline 55,6 48 51 53 -0.32 52 54 57 0.17 54 62 68 1,35

AvturA(erosene 415.5 427 449 472 +0,85 532 693 905 5,33 638 909 1207 7,37

Diesel/Gas Oil 628.7 622 726 846 2.00 761 1053 1436 5.67 955 1656 2818 10.52

Fuel Oil 394.1 310 328 346 -0.86 331 366 404 0.17 348 403 467 1.14

Others a/ 24.0 29 30 32 0.19 33 42 56 5.81 33 45 59 6.18

1517.9 1436 1584 1749 0.95 1709 2208 2858 4,31 2028 3075 4619 7.77

a/ Others include asphalts, lubricating oils and LPG; likely increased consumption of LPG resulting from proposed project isnot reflected,

Energy DepartmentNovember 11, 1986

- 38 - Annex 2-4

Bangladesh: Refinery Modification and LPG Recovery and Distribution Project

Sector-wise Consumption of Kerosene. Diesel and Fuel Oil, 1984/85

Total Fuel Sector Share in Fuel Shares InConsumption Fuel Consumption Total Product$

Fuel Sector ('000 mT) (I) Consumption (C)

SKO Residential/Commercial 305 87(Superior Power 46 13Kerosene Oil) ---

351 100 24

'ISD Power 60 10(High Speed Agriculture 150 25Diesel) a/ Transport: (376) (63.5)

Rail 47 8Road 226 38Water 100 17Foreign Bunker 3 0.5

Industry 10 1.5

596 100 41

FOMiS Power 175 47(Furnace Oil, Industry 171 46High Sulfur) Transport bl 25 7

371 100 25

a/ LOO (Light Diesel Oil) accounts for only 2S of total products consumption and is used mainlyin foreign bunkers.

b/ Mostly for foreign bunkers.

Source: Bangladesh Petroleum Corporation

Energy DepartmentNovember 11, 1986

- 39 - Annex 2-5Page 1 of 2

Bangladesh: Refinery Modification and LPG Recoveryand Distribution Project

Review of BPC Petroleum Products Supply Strategy

1. ERL operations as well as BPC crude oil and petroleum products supplystrategy were extensively reviewed by C.E. Lummus, the consultants. Theconclusions that emerged from their review are:

(a) the refinery operations, given the constraints of limitedmanpower and maintenance provision, are reasonably well managed;and

(b) that BPC, by a judicious choice of crude oils and a mix ofrefined products and crude oils, has minimized the cost ofpetroleum products needed by the country.

2. The mission reviewed critically the procurement and processing ofcrude oils over the past three years. Although there is a 3overnment-to-government contract between GOB and the Kingdom of Saudi Arabia, BPC hasregularly procured crude oils outside this contract as well. Crude oilsprocessed in the past include Tapis, Murban from the UAE, Iraq Basrah, IranianLight and Arabian Light. The crude oils that have been processed most areArabian Light and Murban at ratios that have varied from 70:30 to 50:50(Arabian Light to Murban). The consultants in their study, as evident fromthe graph attached, concluded this to be optimum range and the most suitablecrude oil mix.

3. Besides optimizing the crude oil mix, BPC has also taken advantage ofthe favorable petroleum product prices that prevailed over the past severalyears. Here again, the conclusion was that operating the refinery at around 1mmTpa was the optimum throughnut level.

Energy DepartmentNovember 11, 1986

; | ''t _40 - As I -$

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- 41 - Annex 2-6Page 1 of 5

BANGLADESH: REFINERY MODIFICATION AND LPG RECOVERY AND DISTRIBUTION PROJECT

SUMMARY OF CONSULTANTS STUDY AND AN ASSESSMENT OFFUTURE CRUDE OIL AND PRODUCT PRICING

1. The five-volume consultant study by Lummus Crest (U.S.) consisted ina review of several refinery operating and modification alternatives rangingfrom low-cost to more capital intensive options. The principal optionsevaluated were: (i) mothballing the refinery and importing all products; (ii)spiking crude oil while continuing to operate the refinery in its presentconfiguration; (iii) processing lighter crude oils better suited to meetBangladesh's changing consumption pattern; (iv) modification of the refinerywith a visbreaker (VB); (v) modification of the refinery by revamping theexisting hydro-desulfurizer into a mild hydrocracker (MHC) and adding avisbreaker; (vi) modification of the refinery with a new visbreaker and a newmild hydrocracker; and (vii) modification of the refinery with a full rangehydrocracker. The consultants concluded that mothballing of the refinery andimporting all product requirements would result in a marginal increase in thecost of acquiring essential petroleum products. Similarly, spiking was alsorejected as unfavorable, since the primary advantage of reduced transportationcosts for refined products is lost in Bangladesh due to the extra costsinvolved in lightering crude oils. The consultants concluded thatmodification of the refinery has substantial economic merit and that SaudiArabian Light is the optimal crude oil. The comparative economic merits ofdifferent modification options are given below:

Average Annual Foreign Exchange Savingsand Capital Costs of Various Modification Options

(Crude Oil: Arabian Light)

Average Annual No. of Years NPV at a/Foreign Exch- Capital to Recover IRR 12% Dis-ange Savings Costs Capital (%) count Rate------(USS Million)…------ ------------ ----- ---------

Visbreaker + Revamped MHC 13.40 20.00 1.49 44.12 48.24VIsbreaker + New MHC 18.80 43.66 2,32 3t,.92 53.70Visbreaker 11.10 15.86 1.42 45.72 40.65Hydrocracker 25.99 81.41 3.13 23.48 55.38Hydrocracker + Visoreaker 30.55 95,94 3.14 23.42 64,87Visbreaker + Thermal Cracker 9.30 47.82 5.14 13.25 3.05

a/ NPV of incremental investments and savings (losses) of different options compared to operatingrefinery "as is".

2. IDA has had a critical input in the selection of the most attractivestrategy for modifying the refinery configuration. Its review of theconsultants' conclusions was aimed at: (i) identifying the least-costeffective strategy for Bangladesh based on forecasts of the future demand for

- 42 - Annex 2-6Page 2 of 5

and price of the various petroleum fractions; and (ii) assessing theJustification for the most attractive option under various alternative pricescenarios that could affect adversely the viability of the proposedinvestment. As mentioned above, full hydrocracking options are expected toyield relatively higher net savings than the other less ambitious modificationoptions. However, they would involve considerably higher capital costs butonly marginally acceptable rates of return (below 20%)-on the incrementalinvestments over the MHC/VB options, making these additional investments veryvulnerable to changes in relative product prices. For these reasons, the twohydrocracking options were not considered any further. In the course of itsdiscussions with the Government, IDA underscored the fact that a similarargument would apply when comparing the new MHC option with the revamped MHCoption. The Government eventually concurred with IDA's recommendation thatthe most attractive option was the revamped MHC with visbreaker (returns onrevamping the MHC are almost equally as attractive as on the visbreakeralone). Using the net present value of the cost (NPV) to Bangladesh ofmeeting its petroleum product requirement as a basic criterion for comparisonpurposes, the suggested modification (visbreaker + revamped MHC) is expectedto yield savings on the NPV of US$49 million compared to operating therefinery "as is" and of US$111 million compared to mothbaLling the refinery.

Review of Some Factors that Affect Refining Economics

A. Supply from OPEC and Singapore Export Refineries

3. OPEC. With the completion of projects under construction or firmlycommitted, the primary distillation capacity in OPEC countries will increasefrom 5.3 million barrels per calendar day (bpcd) in 1982 to 7.7 million bpcdin 1990. Secondary conversion capacity will increase from 300,000 bpcd to820,000 bpcd.

Total crude distillation (CDU) 7,700,000 bpcdTotal conversion capacity 820,000 bpcdConversion as percent of CDU capacity 10.7

4. A substantial part of the new capacity is being built for domesticdemand but most of the new plants in Saudi Arabia, Kuwait, Libya and UAE areexport-oriented. The volume of product exports will depend on the domesticconsumption and the utilization rate of new facilities, which some industryanalysts believe would not exceed 70 for crude distillation facilities due topoor demand for residual fuel oil. However, assuming that these refineriescan operate at 85 to 90 percent of design capacity and a modest growth indomestic consumption, a recent internal OECD paper, considered reliable,estimates the following export potential by 1990.

Million Metric MillionTons per annum X bpcd %

Gasoline/Naphtha 22.00 (20.0) 0.51 (23.3)Middle Distillates 24.20 (22.0) 0.50 (22.8)Residual Fuel Oil 63.80 (58.0) 1.18 (53.9)

Total 110.00 (100.0) 2.19 (100.0)

- 43 - Annex 2-6Page 3 of 5

5. OECD estimates that about 40% of the above wil be targetted toWestern Europe from refineries in the Red Sea and Arabian Gulf areas. This ispartly due to the fact that the Jubail and Yanbu export refineries are owned50X by international oil companies which have been shutting down distillationcapacity in Western Europe, and also to the fact that the best netbackrealization for products is likely to be available in European Common Marketcountries. For the latter reason, a substantial part of exports fromMediterranean and North African refineries are likely to find their naturaloutlet in the Mediterranean basin itself and some in Japan and the Far Eastand alternatively in Northwestern Europe or conceivably also on the EasternSeaboard of the USA.

6. The above represents the scenario for exports from the Middle East.Undoubtedly, there will be products available to smaller countries.Bangladesh will have no difficulty obtaining needed products. Prices willoscillate between spot market prices as at present, and posted prices whensupply is tight.

7. Singapore. Outside OPEC, Singapore is likely to be the country mostlikely to influence the supply balance in South and East Asia. The totalinstalled refining capacity in Singapore consists of 1,096,000 bpcd ofatmospheric and 161,400 bpcd of vacuum distillation capacity, and 105,000 bpcdof thermal and 24,000 bpcd of hydrocracking facilities. Singapore has accessto light East Asian crude oils as well as crudes from the Middle East.Typical yield, averaged for all the refineries, resembles the breakdown givenbelow (volume X):

LPG 2.8Naphtha 10.0Motor gasoline 10.0Mid-distillates 40.0Fuel oil 33.2Refinery fuel/losses 4.0

Total 100.0

8. The current demand for products in Singapore including bunkers isestimated as follows (bpcd):

Naphtha 5,000Gasoline 10,000Mid-distillates 50,000Residual fuel oil 120,000Others 8,000

Total 193,000

_ 44 - Annex 2-6Page 4 of 5

9. Based on the yield structure, when not exporting fuel oil, theproduction from the refineries is estimated as follows (bpcd):

LPG 10,100Gasoline 36,000Naphtha 369200Mid-distillates 1459000Residual fuel oil 120,000Others 8,700

Total 356,000

10. Singapore would have, at this low throughput (40% of design), about95,000 bpcd of mid-distillates for export. The demand for mid-distillates inthe region is high, Thailand alone needing about 50,000 bpcd, Philippines,Taiwan, Korea and South Asia over 150,000 bpcd, not counting Japan whosedeficits are over 200,000 bpcd and are imported mostly from Singapore, whenavailable. In order to increase the output of middle distillates, Singaporewill need to increase throughput, which will also increase the output of fueloil. While in the medium term Singapore may be able to supply some of thedeficits, in the long term substantial secondary conversion capacity will beneeded to maintain the current level of exports with refineries operating ataround 65% of design.

B. Crude Oil and Petroleum Product Prices

11. In the face of uncertainties with respect to crude oil availability,demand and changing consumption patterns, projection of crude oil and productprices over a period as long as 10 to 15 years, which is required in theevaluation of high capital intensive projects, fall short of the desireddegree of reliability. A working group of World Bank staff from variousdepartments analyzed this problem over a period of several months to developguidelines for estimating the economic value of feed to, and products from, arefinery in the medium and long-term. The group concluded that estimation ofrefinery margins needed to support new investments would provide a morereliable basis for project evaluation than absolute prices, and that thesemargins could be used to project product-to-crude oil price ratios.

12. Production costs were developed by the group on the basis of thetotal feedstock and fixed and variable costs for each conversion facilityrequired by the industry, allowing an acceptable rate of return on conversioninvestment, for thermal cracking, fluid catalytic cracking andhydrocracking. Based on industry and demand trends, the refinery of thefuture is assumed to have either fluid catalytic cracking or hydrocrackingunits, possibly with some form of thermal cracking unit. The price ofdistillate products has been assumed to be intermediate between the cost ofproduction from refineries with respectively a hydrocracking or a fluidcatalytic cracking unit, and the margin between the net weighted average priceof products and crude oil. It was further observed that the margin had to beadequate to cover all operations costs as well as recover the capital andprovide a reasonable return on the investment over the project life

- 45 - Annex 2-6Page 5 of S

considered. The price projections thus obtained were then reviewed againsthistorical inter-r-oduct relationships and adjusted as appropriate. Theresulting product-to-crude oil price ratios are given below:

1982 1985 1990 1995

1. Rotterdam/ Caribbean

Premium Casoline/Crude 1.46 1.42 1.41 1.39Regular Gasoline/Crude 1.40 1.36 1.34 1.33Naphtha/Crude 1.19 1.13 1.18 1.17Jet Fuel/Crude 1.40 1.36 1.34 1.33Kerosene/Crude 1.29 1.28 1.27 1.26High Speed Diesel/Crude 1.21 1.21 1.27 1.26Fuel Oil/Crude 0.68 0.67 0.71 0.77

IT. Singapore/Bahrain

Premium Gasoline/Crude 1.51 1.50 1.48 1.42Regular Gasoline/Crude 1.45 1.44 1.42 1.36Naphtha/Crude 1.30 1.27 1.26 1.23Jet Fuel/Crude 1.45 1.44 1.42 1.36Kerosene/Crude, 1.38 1.36 1.35 1.30High Speed Diesel/Crude 1.33 1.30 1.29 1.25Fuel Oil/Crude 0.79 0.71 0.72 0.80

13. These estimates, which were prepared following several months ofstudy, are considered a reasonable reflection of likely long term trends inproduct relationships. In the short term, the possibility of greaterfluctuation in product pricing exists. A major uncertainty in this area isthe influence of the new export refineries shortly to be brought on-stream inseveral OPEC nations as well as the future role of the Singapore refineries.

Energy DepartmentNovember 11, 1986

- 46 - Annex 3-1

Bangladesh: Refinery Modification and LPG Recoveryand Distribution Project

BPC Subsidiaries

OwnershipSubsidiary Operating Responsibility Structure (%)

BPC Other

ERL Petroleum Refining 100% -

Burmah Eastern Co. Product Marketing 1.35X 98.65% (Other GOBagencies &privateinvestors)

Jamuna Oil Co. Product Marketing 100%

Meghna Petroleum Co. Product Marketing 100X -

Eastern Lubricants Lubricants Blending 17.33% 82.67% (Other GOBBlenders Limited and Special Products agencies &

privateinvestors)

Asphalt Plant Bitumen Production BPC Project -

LPG Limited LPG Bottling 100% -

Source: Bangladesh Petroleum Corporation

Energy DepartmentNovember 11, 1986

BANGLADESHREFINERY MODIFICATION AND LPG RECOVERY AND DiSrRI8A1ON~ PROJECT

Energ Sector Orgontettion

In

Mneras CcL,*zotm ManagerChowficn& Socrd f DOCctos Ctar Boorcl f Dbeclr

Dtrecta~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ad ~-O3~

Finonce~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i

BWNGLADESHREFRNERY MODIFICTION AND LPG RECOVERY AND DiSTRIBUTION PROJECT

IMggrrnenaon Schedule

ACWM (MON"10*111 II 2131415 6171 S 91411 12 is14 45116147148jil 20 12 2212 24125172 512 29 2103i 32!3I 3153 3a7383,0414243464 4546 AS

0) PCpOIfltM'lpt of Pfo)eC lfl lienyetolton Consultonftt

b* PtoqucltotIIIIIII I I 1iallC) dStel ln_t to__ to Bid DouMen lllI

U) ftpatlon M PlOPOIOFS (by b.dde) - - - |

t) 8 dOpenlng Is o Ivx L Conpoonts/M

0) Bid Evaluation RetleW by SDC/Bonk c

) SelecDon d

I) t-ftoct

k) AMigmteNl ot StaffI to Now FacitItles

I) O"WIbTe NW trttt^i Cooftactor imN

mn) Ttdeilng at Selecte Locdton Abrood

0) PlantStlerioBS-

0) Invitafton to Oid (Or PlatkoAl cotooii

c) Rettew & Selection of Conhtoctkx

ILKG TMANPOTA1Io* StORAG6

0)SWtatig of LPG UiMitd

b) Selection ofCmwatailing Film

C) Sibm4om Of olrorpmotl~ on toage IDistributoni & N ttWig Plan

I,) Rartian t s a

N-) LP tormIIUCi lanim ltet CMI

il) Issue orti

I) PFepatlon at PropOralts Iy B.dders

) Selection at Conlaoctoa/Sopttr IJaibi Itfiti

- 49 - Annex 4-1

Bangladesh: Refinery Modification and LPG Recoveryand Distribution Project

Estimated Schedule of Disbursement(US$ million)

IDA Fiscal Year Estimated Disbursements Annual Disbursementand Quarter By End of Quarter Cumulative As X of Credit

1987

September 30, 1986December 31, 1986 5.0 5.0March 31, 1987 0.2 5,2June 30, 1987 0.3 5.5 11.7

1988

September 30, 1987 1.7 7.2December 31, 1987 1.8 9.0March 31, 1988 2.0 11.0June 30, 1988 2.1 13.1 16.2

1989

September 30, 1988 4.3 17.4December 31, 1988 4.3 21.7March 31, 1989 4.3 26.0June 30, 1989 4.3 30.3 36.6

1990

September 30s 1989 2.8 33.1December 31, 1989 2.8 35.9March 31, 1990 2.7 38.6June 30, 1990 2.7 41.3 23.4

1991

September 30, 1990 1.0 42.3December 31, 1990 1.0 43.3March 31, 1991 0.8 44.1June 30, 1991 0.8 44.9 7.7

1992

September 30, 1991 0.6 45.5December 31, 1991 0.4 45.9March 31, 1992 0.4 46.3June 31, 1992 0.4 46.7 3.8

1993

September 30, 1992 0.2 46.9December 31,1992 0.1 47.0 0.6

Energy DepartmentNovember 11, 1986

- 50 - ~~~~Annex 5-1- -0 ~ Page 1 of 4

Bangladesh: Refinery Modification and LPG Recoveryand Distribution Project

Eastern Refinery LimitedFinancial Projections

Financial Statements - Assumptions

(1) The processing fee has been reckoned at the equivalent of $1/barrelfor FY87, FY88 and FY89 and at $1.35/barrel from FY90 onwards.

(2) Bonus on process fuel saved has been maintained in money terms at thesame level as in 1984, in view of its insignificance in comparison tothe total processing fee.

(3) Regarding operating costs, comments have been given in paragraph5.02. Depreciation on the Rehabilitation and Modification assets hasbeen calculated on the straightline basis with a 10-year life. It isrecommended that ERL should change the depreciation formulaaccordingly. For income tax purposes, however, the rates allowedunder the income tax law will apply. The breakup for the incrementaloperating costs may be ascertained from the consultants' report onmodification.

(4) Interest charges during construction have been capitalized. After theassets are commissioned, the interest on loans is charged to P&Laccount. The credit for Modification is to cover the foreign exchangecosts. The interest rate is 11.5%.

(5) Interest income at 14% is taken into account in respect of cash onhand and in banks on balances held over one year.

(6) The accounts receivable from BPC are on the basis of outstandings of180 days, as has been the experience of ERL.

(7) Insurance-spares represent 'capital' items in stock, which may berequired in emergencies and which in all probability will be used forturnaround after 1995.

(8) Workers' profit participation fund - it is assumed that a share inprofits will continue to be passed on to workers although the formulamay have to be changed.

(9) The capital reserve of Tk 123.6 million up to FY85 is raised toTk 309.3 million from FY86 to reflect revaluation of fixed assets inoperation to be effected as on June 30, 1986. Regarding the amount ofTk 123.6 million mentioned above, a reference to it is made inparagraph 5.03. When GOB causes the increase in paid-in capital byconverting a part of its loan to equity, the 'Capital Reserve' accountto the extent of Tk 123.6 million should, for the purpose ofdetermining long-term debt-equity ratio, be considered as if it is a'debt' heading, until there is a resolution of the pre-independenceliability.

E1l3 - CIWSITE - III BTTEIETUS

(As Is k 6billtation + f0ificatiaoe(Is flhlliam leAp

AcTual. EBTJUT~~~iik il iDp takes) 9~Tae

xmk ~~~~~~~~ESTINTED IC"tot 19*5 Tska)

Audited Uneuditad3983 1984 1985 3986 1987 198 1m 9 99 1991 l992 1993 Im 19995

-E- - - -- -

PrKMessing Fee 135.3 123.5 131.5 201.5 260.4 302.3 325.5 461.4 461.4 46.4 461.4 46.4 461.4Beaus an Process Fuel Saving 8.0 7.3 7.3 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5

Total 143.3 130.8 338.8 209.0 267.9 309.9 3m.0 46.9 468.9 41.9 468.9 441.9 468.9.. - - - - _ -----* ------ - - - - -- - -- . ... .. _...~- w

IP9R8TIUS COSTS

Salaries, ees 6 belits 32.5 36.7 42.3 43.7 43.7 43.7 43.7 43.7 43.7 43.7 43.7 43.7 43.7Chesocals 15.I 16.2 19.8 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5Stores aad sars 26.3 13.8 14.3 14.8 14.8 14.8 14.8 14.8 14.8 14.8 14.8 14.0 14.8Utilities L.I 6.3 4.4 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5Inserance 2.8 3.1 4.0 4.3 4.1 4.1 4.1 4.1 4.1 4.1 4.) 4.1 4.1Depreultion 30.7 29.7 32.6 75.3 103.3 134.2 134.2 177.0 374.t 174.9 174.9 174.9 374.9Nihsellaneus 4.2 4.7 3.9 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0

lncreantal op cost (rehab & sodif) 6.0 6.0 10.6 29.2 47.8 47.8 47.8 47.8 47.8 47.8(saint, ins, staf-l-

---- -- - -- - --- -- -. .... ----

Total 117.7 130.5 121.3 172.9 398.9 236.5 235.1 336.5 314.4 314.4 314.4 334.4 314.4

IERATINS PROFIT 25.6 20.3 17.5 36.3 69.0 93.3 98.0 152.4 154.5 154.5 154.5 154.5 354.5

INTEREST COAlERES (NET) 3.0 11.7) (4.03 15.3 44.3 52.0 61.1 59.3 110.3 90.3 67.9 42.8 34.7

INCOIIE BEFORE TAXES 22.6 22.0 23.5 20.8 24.7 41.3 36.9 93.3 44.2 64.2 86.1. 111.7 139.8

INCIOE TAX 10.0 10.0 30.3 55.9 69.9

NET INCWOE 22.6 12.0 13.5 20.5 24.7 41.3 36.9 93.1 44.2 64.2 86.6 55.9 69.9.... = :;tt =5-::: :5::: :55 znr .n2=55 555 5=-5 5555 555 55 5n

{ deprration on re.hab t sodaf coaponents included under dereciation in operating cost.

CURRENT RATIO (EICU INS-SPARES) 2.42 3.48 3.26 4.13 5.45 4.37 4.22 3.e3 2.69 2.82 3.05 3.36 3. 0 3.29 N

DEBT TO EOUITY RATIO 78/22 41/59 42/58 47/53 51149 6213S 65135 62/3. 57143 54/46 50/50 45/55 40/60 34/66

RETURN ON NET F.A. 0.17 0.14 0.15 0.35 0.13 0.11 0.o0 OL1 0.12 0.13 0.15 0.18 0.23

DEBT SERVICE COVERASE 2.67 2.42 3.53 1.52 2.45 1.38 1.26 1.34 1.43 3.53

ERL - CW'OSUTE - WIL^ MM$

Ihn It + Rtobabilatatien * Rofnlathgml(In Itullion Tadt t

1982 33 1984 1985 194 1987 398 1999 1990 19 199l2 I3 1994 1995

A. M

C"rrent Asets

Cim an hand nd in Banok 83.8 85.5 105.5 129.9 131.2 186.4 14.4 116.3 255.4 290.7 3t4.0 423.7 526.5 601.6Oeposits and prapayots 2.1 3.0 3.3 4.3 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4Attconts reiovablo free BPE 16.6 38.0 58.0 53.5 100.9 130.2 151.1 162.8 230.7 230.7 230.7 230.7 230.7 230.7Loas d advete, 11.3 8.0 11.3 17.7 18.3 18.3 18.3 18.3 18.3 18.3 10.3 18.3 18.3 19.3Stt4ks, spar. and chtnicals 83.3 BS.4 91.5 101.0 103.3 124.0 134.3 144.7 155.0 155.0 155.0 155.0 155.0 155.0

Wouirena - Wr"n 103.3 211.B 211.8 211.8 211.8 211.8 211.9 211.8

total Coutent As,ts 197.1 219.9 269.6 306.4 358.0 463.4 59.9 658.3 875.7 711.0 966.3 1,044.0 1,146.8 1,221.9----- _ -- - - -- -- - -- - -- - . -- - ...... _

Fined Akets

let fixed assets in Opation 349.1 154.4 127.2 106.1 35.5 647.9 1,086.6 1,401.1 1,395.9 1,284.1 1,109.2 934.3 759.4 584.5Capital assets undwr construction 1.2 11.0 37.0 130.7 233.0 319.9 108.8 63.1

_____ ----- ___ -- _* ----- ----- ... __ _ __ _~-~--~~

Total Fited Asets 149.3 155.6 138.2 143.7 516.2 880.9 1,406.5 1,509.9 1,459.0 1,284.1 1,109.2 934.3 759.4 5B4.5... ~ ~ ~ -- - -- - -_- - - - -. .... _ .... --- ..-. _-__

TOTAL ASSETS 34b.2 375.5 407.8 450.1 974.2 1,344.2 1,966.4 2,168.3 2,334.7 2,195.1 2,075.5 1,979.3 1,906.2 1,806.3o2=2 2*2 2- 2- 22222 ... 2 S. 222 2222 2== 222 *22* 22

S. LIB1ILITIES AID SIEIAIIIDIJFRS EUITY

Current Liabilities

Current pwrtion 6f long-tore debt 10.3 61.1 l6.1 61.1 137.2 137.2 137.2 137.2 137.2 126.8llrersl profit participation fund 0.4 0.4 0.4 0.0 1.1 1.1 1.1 1.1 1.3 1.1 1,1 1.1 1.1 1.1Accounts payable/other liabilities 73.4 47.9 60.5 73.4 54.3 43.9 4A.0 54.4 62.9 62.8 62.8 62.8 118.6 132.7Dividends payable 7.5 34.8 21.8 46.7 46.7 46.7 44.7 46.7 46.7

Total Current Liabikitine 81.3 63.1 82.7 74.2 65.7 106.1 108.2 116.6 247.7 247;7 247.7 247.7 303.6 3O;75-- - ---- --- _ -- -- ... .. -- --- ._. .... ._

Long-Tore Debt

s68 AlP loan 88.3 101.9 110.1 100.3 82.7 72.3 42.0 51.1 41.3 31.0 20.7 10.3Rdaab 299.1 507.3 456.5 405.8 355.1 304.4 253.6 202.9 152.2 101.5Nftdai 167.4 669.6 795.2 760.9 684.8 600.7 532.6 456.5 380.5

Debentures 12.0 12,0 12.0 12.0 12.4 12.4 12.4 .2.4 12.4 12.4 12.4 12.4 12.4 12.4Suppliers Credit 93.7 1Pro-liberation liabilities 13.6 13.6 13.6 13.6 14.1 14.1 34.1 14.1 14.1 14.1 14.1 1I.3 14.1 14.1

Total Lon-Term Debt 207.4 327.5 135.7 125.9 408.8 773.5 1,214.6 1,279.1 1,13.8 13,04.6 909.5 172.3 635.2 508.4

Shareholdnrs Equity t

Paid-in capital 50.0 50.0 50.0 50.0 51.7 91.9 229.5 321.5 405.0 405.8 405.8 405.8 405.8 405.Capital reerwe - 123.6 123.6 123.6 309.3 309.3 309.3 309.3 309.3 S30.3 309.3 309.3 309.3 309.3 ^

Retained Eatuings 7.3 11.3 15.9 27.4 38.8 63.5 104.8 143.7 188.1 185.7 203.2 243.2 252.3 275.6

Total Shareholders Equity 57.3 184.9 189.4 201.0 399.7 4b4.6 643.6 M.5 903.2 900.7 91B.3 958.2 967.4 990,7

TOTAL LIABILITIES AIDStURENOLDERS EQU1tY 346.2 375.5 407.8 401.1 874.2 1,344.2 1,966.4 2,168.1 2,334.7 2,195.1 2,075.5 1,978.3 13,06.2 1,806.3

:::22 :s::: ::222::: 22 *2... 22222 ::::: :::: s: m: =_:, 2=22 .. 222 t22a: -22:e

ERL - Cl"INPSITE - STATEIEITS OF SDUCES AlI USES OF FlAWS

(ks Is + Rehabilitation + Nndificationl(In lillin Takasl

IS6 1397 199 199 190 1 192 IM9 1994 35

SOURtES

NET IlCOiE SEFORE INTEREST 25.9 69.0 9, 99.0 152.4 154.5 154.5 154.5 ".7 54.6ADD: DEPRECIATION 75.3 101.3 1l; 114.2 177.0 174.9 174.9 174.9 174.9 174.9

INTERNAL CASH GENERATION 101.1 170.3 207.5 212.1 329.4 329.4 329.4 329.4 273.6 259.5

LAN BORRI3INSS 249.0 425.7 502.2 125.6 41.9INCREASE IN PAID-UP CAPITAL 40.2 137.6 92.0 94.3

TOTAL SOURCES 350.1 636.2 847.3 429.7 455.6 329.4 329.4 329.4 273.6 259.5

USES

INCREASE IP FIXED ASSETS 261.4 465.9 639.8 217.5 126.2DEBT SERVICELOAN REPAYMENT 10.3 10.3 61.1 61.1 61.1 137.2 137.2 137.2 137.2 137.2INTEREST PAYNENT 15.3 44.3 52.0 61.1 59.3 110.3 90.3 67.9 42.9 14.7

DIVIDENDS PAID 46.7 46.7 46.7 46.7 46.7 46.7INCREASE/IDECREASE) IN KS CP 62.7 115.7 94.4 90.0 162.4 35.3 55.3 77.7 47.0 61.0

TOTAL USES 349.9 636.2 947.3 429.7 455.6 329.4 329.4 32S.4 273.6 259.5=__:= ::__: 55=5= ::5 :Z= ::::=: C-202:3 C;lW te MCC:

Energy DepartmentNovember 11. 1986

_54 - Annex 5-2

Bangladesh: Refinery Modification and LPG Recovewyand Distribution Project

.SOC LPG RECUVERY

FIINACIAL EVALUATION(MILLION TAKAS IN 1995 PRICESt

1987 1988 19899 199 1991 1992 1993 1994 1995 1996

CAPITAL INVESTIENT (9.61 (48.3) (59.7) (62.8J (24.91 (5.1)

INCONE

1LPG SALES (tons) 4,000 5,000 5,000 5,000 5,000 5,000(a takas) 14.0 17.5 17.5 17.5 17.5 17.S

CONDENSATE SALES (tonsi 1,600 2,000 2,000 2,000 2,000 2,000(as takas) 6.4 9.2 9.4 8.6 8.9 9.1

20.4 25.7 25.9 26.1 26.4 26.6

OPERATING COSTS

COST OF SOURCE GAS (0.3) (0.4) (0.41 (0.4) (0.4) (0.4)

NAt4UFACTURING (7.61 (7.6) (7.6) (7.61 (7.6) (7.6)

(7.91 (9.01 (8.01 (9.0) (8.0) (8.0)

NET CASHFLOI (excluding interest payents) (9.6) (48.3) (59.71 (62.8) (12.41 12.6 17.9 18.1 11.4 8.622=5 22 223 33 U2 ' - 3 3 -_a 3

lal Plant/gate price of G6: Ti 3503/ton.

(b) Cost of source gas - Tk 1.96/mcf.

It) Evaluation includes isport duties but eicludes taxes.

(dl Capital investment as apportioned to the project (701 loan, 302 equity).

le) Debt service reaches a mxiium of 26 million takas in FY 91 andthereafter decreases as loan is repaid in installmts comencing frog that year.

Energy DepartmentNovember 11, 1986

- 55 - Annex 5-3

Bangladesh: Refinery Modification and LPG Recovery and Distribution Project

LPG Storage and Distribution ComponentFinancial Evaluat ion

(Million Takas in 1985 Prices)

1987 1988 1989 19% I99 1992 1993 19 199 1994

IUVETSI (58.91 (124.6) (2M.4) 1173.4) (98.0 (10.4) 2.4

SAESAXK 01S 3,000 3,000 3,000 3,000 3,000 3,00BOTTLE an S 1000 15,000 15,000 I5,000 15,000 15,00

NET REW 120.1 120.1 120.1 120.1 120.1 120.1

WRATIIB CMOMOTIDOMLING (8.91 (3.9) (8.9) W8.9) (0.L (80.9)RETIL STATIOS (0.3) (0.3) (0.31 40.3) 40.3) 40.3)niASPRTATI (1.0) (1.0) (1.0) 1.0) 41.01 (1.0)DISTRIBUTION (14.91 (14.91 (14.91 (14.91 (14.91 (14.91

NE CAULO (58.91) (124.h) 4210.4) (73.4) 7.0 84.4 97.4 9.0 95.0 95.033=32 :: .- s :8:2: 33883 :8:23 38832 38333 en su3 3a38 33338

FM 10.031

Asutions11 Sales quantitin and operating costs ar taien fra the KOnouiC aralysis stateomts,

and nisting LPG production is added, togothr w. corresponding operating costs.2) Revenu is calculated as foliouss

at 3550 takes/tn fr purchases froa 8OUat 7100 tahaslton fr purchases froa ERM.

3) Euisting invstment in the bottling plant at Chittagong is rovalued (2001)and included under inwestent in 1981.

4) Dbt service reacke a auisu of 72 oillion takas in FY 91 and thereaftrdecreNSe as loan is repaid in installOents caeeenCing froe that yoU.

Energy DepartmentNovember 11, 1986

- S6 - Anne5 6-1

BRauladesh: Refiner, Modificatton and LPG Recoverv and Dtistributton Project

ERL Reftnery Modtficattin ComponentEconomic Analvati

(tn millton (SS)

1987 3it 119 I91O 199t 1992 VSt 191l 1995 1116 "I57 t9it t 20Q0_-- --- --- ---- --- .... .. ... .. - .. ..... --- ... .. .. -_ -- --- .. .. .

CAPITAL CM51 (6.01 (11.001 (4.51 t1i.501

I8C8111f8t16 D4ERi8i83 COST tl 751 11.711 11.5t1 tl.751 l0.751 t1.751 t1.t5 11.15) 11.75) 11.751 U1.751

ElPDRT REYtiE5Mtt411M 1.74 I.80 1.S 4 1. S 9 1.95 0.f6 2.02 2.t0 2.Al 2.20 2.26FtEL OIL 112.621 13.W23 13.341 tl tWSI 114.151 (16.341 ILt.E1 117141 112.191 t1i.iti (1E.S71

Sl( 2.21 2.27 2.33 2.39 2.45 2.44 2.50 2.58 2.64 2.71 2.79ISO 19.45 19.60 20.04 20.59 21.15 21 21 I.P4 22.33 22.04 23.51 24.15

1L.001 (18.400 14.501 7.1t 8.90 .11 9..38 9.iS 7.45 7.65 7.89 9 .O9 8".34 8.5£tnf tnt :stsa -s .t;n Sa 555 ftSt Watm ts:ttas fttve 55553 .S:ttss

ERR 21.0N

hit COE DIL USED - NU LIGHT, 1040tii I PICT VIELOS - EFGRE AN A 1FtER tDIFICT1IN iS GIVEt 8t COitsLTtIITS11111 CRIII OIL PRICES Al STRUM */til

1998 1t9 19912 IM 1994 1995 199l I997 199i 199 2000

121.9 t25.4 128.5 132.2 135.8 140.2 143.9 148.3 151.9 154.3 160.7

(lv) PR102UT PRCI itATI6S TO iRUltE CIL

R8TIOS19 I"5 "9O 1991 t992 193 1994 I5 t991 I"?7 "8 119 2004

29818A 1.26 1.23 153.6 158.2 1f1.9 tx1.5 171.1 172.5 177.0 182.4 181.9 192.3 t97.7is 1.42 1.31 173.1 178.3 182.5 187.7 192.9 19.7 195.7 201.7 204.6 212.6 218.iSft 1.3' L.30 14.6 161.5. 171.5 T78.4 181.4 182,3 187.4 192.3 117.5 293.2 248.HoSt 1.29 1.25 157.3 162.0 165.8 170.5 175.2 175.3 t79.t 195.3 189.9 t95.4 200.9FO 0.72 0.80 87.8 9C.4 92.5 95.2 93.8 112.2 115.1 118.0 121.5 125.1 1280.

ty) FREG1Htt AMI FtiS I9 Dft1 S O1 AINID SUitRCtEQ FO9 EPD81tS FRM C0ITl0t0t.

Energy DepartmentNovember 11, 1986

- 57 -

Annew f-2Pake I of 2

Ban,ladesh: Refinery M4odification and LPG Recoverv and D1stributcton Project

RRL Refinery As A Whole!conomic Analysias

1987 1908 1989 9Q0 1991 t992 1993 994 1995 199 ts99 1998 1999 2000

ilVESTRENISAS IS - ESTIRATED

PRESENT VALUE MM3.0REUAILITATIOM (18.0)(IOOFIEAT1011 (S6.0 (18.O (4.5) (1.51COP REPAIRS .30) t3.01 (3.0) (3.01 (3,0) (5.0) (S.01 13.0) 13.0)

COST OF CRUDE Ol. (148.9) (710.9) 1184 91 (187.4) t192.91 1197.3) (202.) 1208.2) 1214.M) 1220.3) (226.9) t232.41 (239.0) (245.6)

PRQCESSINB COST (3.01 13.3) 13.5) (4.5) (4.5) (4.51 44.5) 14.5) (4.5) 14.5) (4.5) (4.5) (4.5) (4.5)

REFINERY "UEl (2.0) 2.0) (2.)) 12.3S 12.41 (2.6) (2.8) (7.91 13.1) (S.40 13.61 13.8) (4.1) (4.4)

PROOUCT VALUE - ERL 159.49 183.17 197.95 207.04 212.64 217.54 223.65 229.77 237.11 243.23 250.55 256.68 264.02 271.36

NET CASHFLON (31.4) '11.0) 2.9 11.4 12.8 10.2 10.6 11.1 11.6 12.0 12.5 12.9 13.4 13.9am .Sn:: nasa saa:sa ==:a s ===== a== ttn tan -tt Int =nfl: It.:

ASSlTIS

1987 I988 1989 1990 1991 1992 1993 1994 95 (996 1997 (998 1999 2000

(1) CRUOE COARE 0ooo TONS) 1200.00 1300.90 1399 80 1500.00 50000 1500.00 (500.00 1580.00 1500.00 (500.00 500.00 1500.00 150O.00 1500.00

(2) PRODUCT YIELD 1000 TNS)

LPG 10.00 IO.9 11.70 12.10 12.70 12.70 12.70 12.70 12.70 12.70 12.70 12.70 (2.70 12.70APIITHA 101.60 110.90 1)8.50 114.10 1)4.10 114.10 114.10 114.10 114.10 114.10 114.10 114.10 114.10 114.10

6SO INE 57.20 62.00 66.70 49.00 49.00 49.00 49.00 49.00 49.00 49.00 49.00 49.00 49.00 49.00KEROSE 357.20 387.00 416.70 344.00 344.00 344.00 344.00 344.00 344.00 34.00 344.00 344.00 344.00 344.00DIESEL OIL 265.90 288.00 310.20 458.00 458.00 458.00 458.00 458.00 458.00 458.00 458.00 458.00 458.00 458.00FUEL OIL 360.50 392.60 424.70 478.00 478.00 478.00 478.00 478.00 478.00 478.00 478.00 478.00 478.00 478.00OTIER (itummn) 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00

NET YIELD 1177.40 1276.40 1373.50 1480.88 1480.80 1480.80 1o0.80 1480.80 1480.80 1460,80 1480.30 1480.80 1480.80 1480.80PROC.FUEL4LOSS 22.60 24.50 26.30 19.20 (9.20 19.20 19.20 19.20 (9.20 19.20 I9.20 19.20 19.20 19.20

TOTAL 1200.00 1300.90 139.80 (500.00 1500.00 1500.00 (500.00 1500.00 1500.00 (500.00 (500.00 (500.00 1500.00 1500.00

13) CRUDE PRICE Sparen/T 116.07 123.39 124.12 121.92 125.58 128.51 132.17 135.83 140.22 143.30 148.28 (1.94 156.33 1607214) CRUDE PRICE BOnh/IT 124.07 131.39 132.12 124.92 128.58 131.51 135.17 138.83 143.22 46.88 tSI(.28 154.94 159.33 163.72

(5) CRUDE COST tS MR) 148.88 170.92 184.94 (87.39 192.88 197.27 202.16 208.25 214.84 220.33 226.91 232.40 238.99 245.58

Annex Oi-2Paile o0 2

RI. efiOnery As 4 VholeBeonomic Analysis

(in million ITSS>

163 PROOUCT PRICESRArtO tOCRUOE PRICE

9R1990 Y91995LPS 1.35 1.30 156.69 166.57 167.56 164.60 63.26 167.07 171.82 116.58 182.29 WA1.05 192.76 197.52 203.23 2".94NAPHTHA 1.26 1.23 146.25 155.47 56.39 153L62 t54.47 158017 162.57 161.07 172.48 176.98 182.38 186.88 192.28 m.69681O1.1E 1.42 1.36 164.B2 175.21 176.25 173.13 10.79 174.18 179.75 184.73 190.70 195.68 201.64 26.63 212.61 218.31kEOSEW 1.35 1.30 b156.b 166.57 167.56 164.60 163.26 167.07 171.8 176.58 192.29 187.05 192.76 197.52 203.23 2M8.9DIESEL 1.29 t.25 1W9.73 159.17 160.11 157.2 156.98 160.64 165.22 I69.79 175.28 179.86 185.8 109.92 19.41 20.90FUEL O1L 0.72 0.80 83.57 8s.84 89.37 l 7.7n 100.47 102.8t 105.74 108.67 112.18 It5,11 118.62 121.s5 12.06 128.56BITUME1N 1.00 1.00 116.07 123.39 12-.12 121.92 125.58 128.51 132.17 135.83 140.22 143.88 148.2B 151.9" 16.33 10.72

(10 FiB VALUE OF ERL P01TS

LP6 1.57 1.82 1.9 2.09 2.07 2.12 2.18 2.24 2.32 2.38 2.45 2.51 2.53 2.6511PHT81 14.86 17.24 L.53 17.53 17.62 18.04 18.55 19.06 19.68 20.19 20.81 21.32 21.94 22.566RS011n1 9.43 10.66 11.7b6 9.48 .37 8.56 8.81 9.05 9.34 9.59 9.88 10.13 10.42 10.71KEROSEE 55.97 64.46 b1.02 56.62 56.16 57.47 59.11 60.74 62.71 64.34 66.31 61.95 69.91 71.81DIESEL 39.81 45.B4 4.67 72.04 71.90 73.57 15.67 77.16 80.28 82.37 84.89 86.98 89.50 92.01FUEL OIL 30.13 34.88 37.95 41.9 48.02 49.14 50.54 51.94 53.62 55.02 56.70 58.10 59.78 61.46BITILEW 2.90 3.08 3.10 3.05 3.14 3.21 3.30 3.40 3.50 3.60 3.71 3.80 3.90 4.02

TOTAL 1S M)1t1 154.66 118.09 192.60 201.77 201.29 212.12 218.16 224.20 231.45 237.49 244.14 250.78 258.03 265.29

i8) CUNSUlP - tO 312.00 3108.00 3M5O00 33.0 338.00 344.00 351.00 359.00 366.00 373.00 180.00 3.40 396.00 4O.0019) ERL YIELD - FO 360.50 392.60 424.70 478.00 478.00 417.00 478.00 478.00 478.00 470.00 478.00 417.00 478.00 473.00

310) EIPORT - fO 48.50 14.60 99.70 147.00 140.00 134.00 127.00 120.00 112.00 105.00 8.00 98.00 02.00 74.00

(11) FREIGHT ADUIIIOM 4.82 4.9B 5.15 5.27 5.35 5.42 5.49 5.57 5.66 5.73 5.81 s.90 s.9 6.00

12) PRODUCT VALUE - ERL 159.49 183.17 197.95 201.04 212.64 217.54 223.65 229.77 237.11 243.23 250.55 256.6 20.02 271.36

113) REFIREY FtIELOTY - 41000 TOIMS OF NAT G8PRICEITOR 48.64 48.46 51.76 55.27 59.03 63.05 67.33 71.91 76.80 82.03 87.60 93.56 S'.92 lo.1n

Energy DepartmentNovember 11, 1986

Annex 6-J

-59-

Batjladenl. Ref£ineOry Modification and lPC; Recovery and Disttibution Proleot

Crule/rrodiwt Price V'afiations . Sh1slapuon (119C761q84)

~~~4,*.~~~~~~ ~ .

I

s~~~~~~~~~~~~~~~~~~~~~~~~~~~ .p; X F

.~ ~ ~~~~~~~~~~~'r - . p ! - . -

J~ ~ -,24--,

t 21 4 i - 9

,, ~ ~ ~ I 24t ;- * QCt-

2) The composite product price (product slate as would be yie-lded by ERL aftermodification) was $161.3/ton in 1976, $137.2/ton in 1978. $311.8/ton in 1981 and$221.7 in 1984.

3) Diesel price was $178.4/ton in 1976, $150.8/ton in 1978. $358.1/ton in 1981 and$244.1 In t984.

Energy DepartmentNOvember 11, 1986

- 60- -sem

Bangladesh: RetinerZ Modification and 1LPG Recvery and Distribution Prolect

GraPb~

CrudelProduct Ptice Variations at Singapore (1987-2000)

(in 1985 USS)

ERLli415E C;4S-E

279

2440

219-

1 7-

140 ~,.

-

119

190

.n . | ~~~~~I . I I

19e7 1961991 1-9 93 99' 199 199?

YE4Aj° DRUDE (2IESEL PODQE 7

1) Crude price is taken at 116.1/ton in 1987, 121.9/ton in 1990 and 140.2/ton in 1995(1985 terms).

2) Composite product price (from a ton of crude oil) per ton io taken at $128.9 in 1987,$134.5 in 1990 and $154.3 In A995.

3) Diesse price to taken at $149.7/ton in 1987, $157.3 in 1990 and $175.3/ton in 1995.

4) ERR for the vhole refinery is 18% and for the modificatlon component 212.

Energy DepartmentNovember 11, 1986

Aaex 6-5

61 -

Bangladesh: Refinery )bdification a n LPO Recovery and Distribution Project

GraPh

Crude and Prd%ct Pr!ie Variations at 5nLapore (198j-2000o

(in 1985 US$)

ERLLOER CRUDE OIL PRICE S14ANQ

24tQ561~

228

.17

CL 17('

" 1 -X

I 2')31

Ij 10 -

1987 19'9 19411 19 99 1997 199

0 CRUD E 4- DIEPRODU

1) Crude price is taken at $93.0/ton in 1987, $80.2/ton in 1990 and $109.0Gton in 1995(1985 terms).

2) Composite product price (from a ton of crude oil) per ton to taken at $105.4 in 1987,$90.3 in 1990 and $122.2 in 1995.

3) Diesel price to taken at $123.0/ton in 1987, $106.1/ton in 1990 and $139.5/ton in 1995.

4) ERP for the whole refinery is 122 and for the modification component 152.

Energy DepartmentNovezber 11, 1986

- 62 A n"%o 0~-

Refinery *Ic4i EoctIon f ,ndc LPrC Recovery nold r I t f I h.4 Ion PN c

Fcon-irl Anal. 'ftEFal laNt,t lie CowMn.,nent

(If,, ',( In IYI trices)

o*; 60s .~~~~~~. Os: 003 25)3 lEt 1015 ~~~~~~~~~~~~ 1450 .20' il lg0q 2000' 2001i 24D(2 2003 2004-

BEhEFTS[IPS SALES t,> 5..; ¾i 52 51t .; ss t5 5,606 5,00 5,006' 5,000 5,000 1,8000

0(80586E D050L4(00 ttqua. OO ,!' 56 .el .50. 7, 510 71,0 71,00 1,50Q 71,30 7.50( 1,500 7.10 7,100'600 1; ,.5C 4.10 137? !,0!' _400 1,444 1.45, I,'523 1,5i5 1,000 4,0352 1,698 1,744 j,793

CoIlOJsAIt floss ,-5 _ v,L. 2.,.w ,,o:V Ltid i,'& 2.0f)( 2,0001 ",OOv LOW 2.00* 2,000 2,000t ' 6 ~ 'L 2'S 'oh 204 %03 706 319 32? DS0 4o $5 3us

0u000t.1 .061L .45o [ott' 7,052 .tOE !6 7,05 30 , 1, 632 %e 1,000 I,3e 1.989 2,044 2,100 2,118

LOST OF 1110A6 I.0BAS. 1 13 .3 Ii .3 .11 13' 73, IIIt liii 1031

006T8118 COSTS0A6ACTUR10610 75 :2 S 5,5 ,sh, 15a. l o ' St., t110 'ISO. 71501 11501 11501IEP0th00TTLIN6 '45. 45. its '45~ '05 :4' 45 0' 45 5. .4, 1Oi 141 4.

016301801108 .c~~~~~~~~~~~~~~~~~~~~~~~.'A , -..w''20 i s 2,~L' 200. '200. 7200' 1200, 4209. .20 12001 12007

Subtotal ',':'Q: '01' ''N .30S.,305:CaA 105 305 .305; 3131 13951 13911 13051 .19" '91 G51 395) (391 1351 395

REI 01 U 7401080*2 ''12u'*. >2.*.* 4 .1 i O I 1;: 1,3861 1,424 i.4'u i.528 1,581 I,057 1,692 1,750

0760 125 1333.0

ta Lach household uce c,.lnao, I0q- pa. aroW cc tOe aw4'ee.

t6) Kerosbne -adjusted iur heat ConMer..cIt 0istrobutiwr - Tt IS 9e. t,)lndOr.

'd) (ruoe pfice it S.ogapure -c.10 Pt016 '¾ lv-'. 7S [II4 1405~ lOOt 10 1990 1999 2000 2001 2002 2002 200

i2.1 12.10; 151.50 i2i.11 12! 30 4,.2l 1'4.016 108.20 031.00 050.13' 160.73 165.24 1&9.90 174.69 119.62

Iie kerosenepUrice 2-33 O IX, It !175.24 lyaos; Y03 080.0 10'.10 ItS 11

.iu 20O-Q 200.17 214.44 220.3 220.20 222.50 239.00707 Condensate price [P1 : 3 :2.04tA: A-:.: 1 1::0 l6 004 151. 176 7341.030 159.328 103.12 160.24 172.90 171.00 102.62

ql1 Natoral gas p',te $Z7a- 24 -Ot.il ,.ul 3-1 LoO ta 2.00 3.a0 2.04 2,04 2.h4 2.a4 ZoO 2.04 2.64 2.04'ISa 70fouct at ealhihaur

Energy DepartmentNovemebr 11, 1986

- 63 - Annex A-7

las ladesh: Refinery 'qa,41ftation *n0 L6PG4 Recoverv and iltatrtbnct n Prolect

lcona.tc Analvsis

((100 ISS tn 19A5 vrices)

19S7 190M 1999 tn90 494 1992 t993 19 - 94 1996 14t97 U9I S 4 2000 2eo0 2002 203 2004.~~~~~~~~~~~~~~~~~~~~~~~- - -- - -- - . ._.... ----- , . .... .. ...

WltitL llFtr ttOtt 1s0 F1CIV4t41tit4 t; 4191 4911 41341 4131t 4071 4491

IBITUiS 0iUitlltttit BiUWITRO 42090 4 S14 11.199; t4431 4403) 140411li0 3 "'0 491*4 t1,3404 15101 ili10

MLItSOI iE R! 437 917 357 77--- .. .. . . .. -.-- --- -- -- ..... .... ___. ... . . ..

SitO l 4204 tl,4021 42,2031 (1,207, U403 S2 17. . . . .. .. . .. _ . _ . _~~~~~~~~~~~~~.. . ... -- - - - .. . ... . -----

UIPS"(PB hSAM lilA 3,000 3,000 3,000 3,000 3,000 1,000 3,000 3,000 3,990 3,000 3,000 3,000 2,000 3,000

WV1 3. S,Q00 0 30 ,000 3,000 3,600 3s,60 1,000 3,004 3,09* 3,000 3,000 S,000 S,00t 3,000tat. tONS ,000 0,000 0,0O0 6,000 6,000 6,000 6,000 6,000 6,000 0 6,000 t ,0QO t.000 0.000

MGM 014t0 S 9,000 9,000 9,000 9,000 9,000 9,00 9,0 9,00 9,000 9,000 9,000 9,000 9.t 9,00V(bfy t000 1,575 t,044 1,655 0,100 l,69Q I,?J3 ,1im ,I07 tjSt7 1,930 1,903 2,037 2,093 2,151

hiote 10o0 $1 1,575 1,t11 1,t55 1,700 I,69 1,3m3 1,7it 1,S27 1,819 t,950 1,98 2,037 2.09S 2,151

3T ilF km it414 tl941 42064 i216) 422 t24kl t26,t 1271i4 42954 45141 S3334 3551 3714 402i

t1*li# CmlSUoIIIII0 44034 441 10 3400 41034 (403) 41034 44034 41034 4403) 4403) 403 103 4 4403; 1103 4 isam SA1 3 494 494 194 194 (9) 491 494 19) (94 494 494 49 494 (94,in1601Ut OP3 4334 4334 1331 (33) (334 4334 US3) 4334 4334 M3 4331 433. 4334oitsItU 42i04 42004 420) (2M0l 430) 0301 1200) 40 18 ( 2 0047) 4200; 42004 4290; 42T00

..-- -- - . - - - - ..... -_- - - - - .... ... .,. -- .. - -- _--.-.

-i-otal 04253 44251 1425t (4251 l4251 (4254 (4254 404 1425) (4251 04251 44251 4425) 9254.~~~~~~~~- -- - ---- -- ---- -- - .. ____. .. -- - ---- -----

at 0U8 Lik It 42l02; ,204; 11,2071 903 t,074 4,102 4,G57 4,03 1,4062 1,090 1,125 1,159 1,191 1,224 1,257 1,291 4,324

w09 42in 846.36

05 ~~~~15.31

Ee Lghn aold an cylia* VW U,t0.( i1 Mmusladw rea cirthm.tcl br tu& cost - t0.025Tloa .ll0.I4d l TtOSciudar ad Tk 17600 too balk.tol L0S 0t -td it atomic value of 0 atural as

ditc tfu0r bus to aus to place oL 4.0 t 174t1o irefinmng taItt

1m m1 19'1 4M 49s 1994 1995 199t 1997 4M9 1999 2000 2004 202 20 GS

*.1 50.5 54.0 57.0 01.5 65.7 70.2 75.0 00.4 I 5.5 91.3 97.5 104.2 111.2 443.8 126.9

IOTei DprntNawaber 11, 1986

MAP SEC'ION

IBRO 19490R

819- 90 92e

B A N G L A D E S H

REFINERY MODIFICATION AND LPG RECOVERYf f)&orhar. AND DISTRIBUTION PROJECT

-26' ro J t taur_Proposed (Second Gas Project) 26-

Existing

Rangariur V Under Implernentation

rC KwA.o, D Natutal Gas DiscoveriesDira;purX \ \ t _ Primdry Roads

-a-- | iRailroads

Rivers

> 8 t- --- Internatiotnal Boundaries

-25 ) I C S -- 25r

aogao W ,) < JhJamalpar _ , h -2

) 1w30Nugaort a ogra Ks t \ ? l.Kia 5 o S,ktha,Mym enin F aea'lbazar

asa. \)shweqa/n:

;-.O->5-~~ ~~~ ag abt 5 ur + Ash.gan24 Iuri agaa 24-

-24c>, ,~~~~~'''S''ushia - -1 I N D I A 2-

Ta. *i~. ar. 3.aaas -ad u Pa,_tuak atra .h

I N D A Jemre dOfii.t ( 4

as5 a,, Ta bt,n hi #49 3

.Ir,atana' tfli,i ia's J ~ ~ ~ uin

aira' tgIant a' r r9

Srr

> \ A<J/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Kapta ,

rnrb v .... ~~~~~~~~~~~~~~~~or .. Patuzakhdt htagtA]

('D KutubdiaF0e rrons S J

O 25 5r r. MILES BURMA21H_ _ _ _ ' 21C

. . O 50 100 KILOMETERS

SII LANKA 90 92

90,~~~~~~~~~~~~~~~~~~~~~~~~~~~ 92 S ir