Document of

The World Bank

Report No. 13014-BD

STAFF APPRAISAL REPORT

BANGLADESH

GAS INFRASTRUCTURE DEVELOPMENT PROJECT

APRIL 7, 1995

Infrastructure Operations DivisionCountry Department ISouth Asia Region

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CURRENCY EOUIVALENTS(as of September 1994)

Currency Unit = Taka (Tk)

US$ 1.00 = Tk 40.25

Taka 1.00 = US$ 0.025

MEASURES AND EOUIVALENTS

BCF = billion cubic feetkgoe = kilogram oil equivalent

kWh = 1,000 watt hoursMMCFD = million standard cubic feet per day

MCF = thousand standard cubic feetTCF = trillion (1,000 billion) cubic feet

1 metric ton of oil = 41.2 thousand standard cubic feet

ABBREVIATIONS AND ACRONYMS

ADB = Asian Development BankBAPEX = Bangladesh Petroleum Exploration CompanyBGFCL - Bangladesh Gas Fields Company Limited

BGSL = Bakhrabad Gas Systems Limited

BPC = Bangladesh Petroleum Corporation

BPDB = Bangladesh Power Development Board

DESA = Dhaka Electric Supply Authority

ERL = Eastern Refinery Limited

ESA = Environmental and Safety Assessment

ESAC = Energy Sector Adjustment Credit

GOB = Government of Bangladesh

GTCL = Gas Transmission Company Limited

ICB = International Competitive Bidding

IOC = International Oil Company

JGTDSL = Jalalabad Gas Transmission and Distribution Company

LIB = Limited International Bidding

LPG - Liquefied Petroleum Gas

LRMC - Long Run Marginal Cost

MEMR = Ministry of Energy and Mineral Resources

MSIP = Managentent System Improvement Program

NGL = Natural Gas Liquids

00 - Operating Company

ODA = Overseas Development Administration

PAP = Project Affected Person

Petrobangla (BOGMC) = Bangladesh Oil, Gas and Minerals Corporation

PHC - Petrobangla Group Holding Company

PIP = Priority Investment Program

PSC = Production Sharing Contracts

REB = Rural Electrification Board

SCADA = Supervisory Control and Data Acquisition

SGDP = Second Gas Development Project

SGFL - Sylhet Gas Fields Limited

TGTDC - Titas Gas Transmission and Distribution Company

Fiscal Year

July 1 to June 30

BANGLADESH

GAS INFRASTRUCTURE DEVELOPMENT PROJECT

Credit and Pro-ect Summary

Borrower: People's Republic of Bangladesh

Beneficiaries: Gas Transmission company Limited (GTCL), Sylhet Gas FieldsLimited (SGFL), and Bangladesh Oil, Gas and MineralsCorporation (Petrobangla)

Amount: SDR 83.4 million (US$ 120.8 million equivalent)

Terms: Standard, with 40 years maturity

Onlendincr Terms: The Government of Bangladesh (GOB) would onlend the proceedsof the credit to GTCL, SGFL and Petrobangla at an interestrate of 8% per annum, repayable over 15 years, including 5years of grace. The beneficiaries would bear the foreignexchange risk.

ProiectDescription: The principal objectives of the project are to help

alleviate gas supply shortages and support further reformsto improve overall gas sector management. The project wouldalso assist the sector entities in their institutionaldevelopment. The project would finance: (a) a 58 km, 30-inch diameter gas transmission pipeline from Ashuganj toBakhrabad; (b) SCADA and telecommunication facilities forthe gas trunkline from Kailashtilla to Chittagong; (c) threeproduction wells at the Rashidpur gas field; (d) a gasprocessing plant for the above wells; and (e) technicalassistance.

Benefitsand Risks: Benefits would include increased availability and improved

reliability of gas supply, and resource savings fromsubstitution of gas for imported alternative fuels. Theinstitutional support would improve sector entities'operational efficiency and safety. The project would alsocontribute toward mitigating the impact of energy use on thequality of the environment. The project would not pose anyspecial technical risks. The potential risks for theproject are delays in procurement and shortfalls in the

beneficiaries' project management capacity. To minimizethese risks, advance procurement actions have beeninitiated, and adequate technical assistance is provided toassist in the implementation and construction supervision ofproject works. To keep the overall project on track, GOBwould carry out a joint annual review with IDA of projectprogress as well as GOB's progress in carrying out furtherreforms in the gas sector.

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Estimated Costs:l/

Local Foreicn Total

------- US$ million---------

Ashuganj-Bakhrabad pipeline 12.5 41.8 54.3

SCADA and Telecom System 9.5 10.4 19.9

Emergency Response Equipment 0.5 1.6 2.1

Development of Three Wells 4.0 16.4 20.4

Gas Processing Plant 5.0 15.5 20.5

Consultancy Services 3.7 15.5 19.2

Training 0.3 1.8 2.1

Base Cost 35.5 103.0 138.5

Physical Contingencies 3.6 10.3 13.9

Price Contingencies 2.4 6.8 9.2

Total Project Cost .5120.1 161.6

Interest During Construction 10.1 0.0 10.1

Total Financing Required 51.6 120.1 171.7

FinancinQ Plan:Local Foreian Total

-----------US$ million---------]

IDA 18.3 102.5 120.8

ODA 9.3 17.6 26.9

GTC 5.0 - 5.0

SGFL 7.7 7.7

GOB 11.3 - 11.3

Total 51.6 120.1 171.7

Estimated IDA Disbursements:

IDA Fiscal Year FY95 FY96 FY97 FY98 FY99 FY2000

(US$ Million)

Annual 9.6 30.2 30.2 30.2 14.5 6.1

Cummulative 9.6 39.8 70.0 100.2 114.7 120.8

Economic Rate of Return: About 33%

Poverty Cateaorv: Not Applicable

M: IBRD 25735

I/ Including US$ 8.9 million in duties and taxes.

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BANGLADESH

STAFF APPRAISAL REPORT

GAS INFRASTRUCTURE DEVELOPMENT PROJECT

Table of Contents

Page No.

CREDIT AND PROJECT SUMMARY .......................... .i

I. THE ENERGY SECTOR

A. Energy Resources .......................... 1B. Energy Consumption .2

C. Energy Sector Organization .2

D. GOB's Energy Sector Strategy . . . . . . . . . . . . . . . . . . . 3

E. Energy Pricing .4

II. THE GAS SECTOR

A. Gas Reserves .......................... . 6B. Gas Supply Systems ....................... . 6C. Gas Demand and Supply Outlook .................. . 7D. Sector Constraints ... . . . . . . . . . . . . . . . . . . . . . 9E. Directions of Reform ...................... . 10

F. IDA's Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

III. THE BENEFICIARIES

A. Background ........................... . 14

B. Organization and Management ................... . 15

C. Staffing and Training .................... . 15D. Accounts and Audit ....................... . 16

E. Beneficiaries .......................... . 16

:V. THE PROJECT

A. Project Objectives . . . . . . . . . . . .17

B. Project Description ....................... . 17

C. Status of Project Preparation .................. . 20

D. Environmental and Safety Aspects ................ . 21

E. Land Acquisition and Resettlement ................ . 22

F. Project Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

G. Project Financing and Terms . . . . . . . . . . . . . . . . . . . . 25

H. Procurement and Disbursement .................. . 27

tis report is based on the findings of an appraisal mission in Jure 1993 and a subsequent post-appraissl mission Inupte.ber 199. The report was prepared by Mmes./Messrs. M. Zhao (Sr. Financial Analyst, Task Manager), H. Morsi;r. Petroleum Engineer), 0. Koenig (Sr. Economist), and M. Tumaliwan (Operations Analyst). Messrs. S. Khwaja (Sr.is SpecIalist), A. Jerve (Anthropologist), J. Thonms (Geologist, Consultant), B. Mink (Process Engineer, Consultant),ZawAn (Resettlement SpeciaList, Consultant), and R. Islam (Program Officer, Resident Mission) participated In the

.oject appraisal and post-appraisal. Peer reviewers are Messrs. C. Khelil (Petroleum Group Leader) and J. Bond (Pr.iergy Specialist). The report has been endorsed by Mr. P. Isenmn (Director, SAI) and Ns. M. Garcia-Zumor (Chief,,11N). Secretarial support was provided by Mes. P. Reed and B. Duggal.

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Paae No.

I. Project Implementation . . . . . . . . . . . . . . . . . . . . . . 29J. Project Monitoring and Supervision . . . . . . . . . . . . . . . . 30K. Project Risks ............. ..... ..... ... . 31

V. FINANCE

A. Introduction ...................... 31B. Past Financial Performance . . . . . . . . . . . . . . .31C. Financial Outlook . . . . . . . . . . . . . . . . . . . .34

VI. PROJECT JUSTIFICATION

A. Justification ............. ..... ..... ... . 36B. Project Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 37C. Economic Rate of Return ....... .. .. .. .. .. .. .. . 37

VII. AGREEMENTS TO BE REACHED AND RECOMMENDATION . . . . . . . . . . . . . . 37

1.1 Natural Gas Tariffs 1985-1994. . . . . . . . . . . . . . . . . . . . . 52.1 Gas Demand Forecast FY95-2000 . . . . . . . . . . . . . . . . . . . . . 84.1 Project Cost Estimate . . . . . . . . . . . . . . . . . . . . . . . . . 254.2 Project Financing Plan . . . . . . . . . . . . . . . . . . . . . . . . . 264.3 Procurement Arrangements . . . . . . . . . . . . . . . . . . . . . . . . 275.1 Petrobangla Group's Operating Performance FY86-93 . . . . . . . . . . . 325.2 Financing of Investment FY86-93 . . . . . . . . . . . . . . . . . . . . 335.3 SGFL's Operating Performance FY86-93 . . . . . . . . . . . . . . . . . . 345.4 SGFL-Summary of Projected Financial Performance . . . . . . . . . . . . 355.5 GTCL - Summary of Projected Financial Performance . . . . . . . . ... . 35

ANNEXES

1.1 Natural Gas Tariffs FY86-941.2 Retail Prices of Petroleum Products FY87-94

2.1 Gas Reserve Estimates2.2 Gas Consumption FY80, 85-942.3 Gas Demand Forecast FY95-20002.4 Petrobangla Group's Priority Investment Program

3.1 Staff Composition of Petrobangla Group3.2 GTCL Organization Chart3.3 SGFL Organization Chart

4.1 Project Description4.2 Terms of Reference for Institution Building Technical Assistance4.3 Training Program4.4 Summary of Environmental and Safety Assessment4.5 Detailed Project Procurement Arrangements4.6 Disbursement Profile4.7 Implementation Schedule4.8 Project Reporting Requirements4.9 Indicative Supervision Plan

v

4.10 Performance Indicators

5.1 Historical Financial Statements5.2 SGFL and GTCL Projected Financial Statements5.3 Assumptions used in the Financial Projections

6.1 Economic Analysis

7.1 Selected Documents and Data Available in the Project File

BANGLADESH

GAS INFRASTRUCTURE DEVELOPMENT PROJECT

STAFF APPRAISAL RZPORT

I. THE ENERGY SECTOR

A. Enerza R-sources

1.1 Bangladesh's indigenous energy resources consist of substantialreserves of relatively low cost natural gas, limited hydroelectric powerpotential and a large base of traditional fuels in the form of crop residues,animal dung and fuelwood. About 55% of the country's overall energy supply isbased on traditional fuels, with the balance being met by natural gas (24%),imported oil and coal (19%), and hydroelectricity (2%). The potential ofeconomically recoverable oil and coal resources has yet to be determined.

1.2 Natural Gas. Natural gas is Bangladesh's most important source ofcommercial energy. During the last two decades, the gas sector has undergonemajor expansion. Natural gas output increased from 11.5 billion cubic feet(BCF) in FY72 to 210 BCF in FY93, and now accounts for about 60% of thecountry's commercial energy supply. Current estimates of gas reserves inplace are about 21 trillion cubic feet (TCF), of which about 12.4 TCF areconsidered as recoverable. The known gas fields also contain a substantialquantity of condensates; under conventional separation systems, about 65million barrels of condensates could be recovered in association with gasproduction. Prospects for proving up new gas reserves in the numerous knownfield extensions as well as in the new exploration blocks are very good withthe implementation of a more intensified field appraisal program in the nearterm and a comprehensive exploration program in the longer term.

1.3 Oil. Apart from the discovery of a limited quantity of oil in theSylhet gas field area, exploration carried out thus far has not found anysignificant accumulation of oil. Recognizing that Bangladesh lacks thecapital and technology required to competently explore and develop itshydrocarbon endowment, and encouraged by the visible successes of othercountries in attracting international private participation in theirpetroleum/gas sectors, the Government of Bangladesh (GOB) announced in July1993 a new petroleum policy to seek participation of international oilcompanies (IOCs) in hydrocarbon exploration and production through productionsharing contracts (PSCs). To date, four PSCs have been signed and are nowunder implementation (para. 2.17).

1.4 Hvdropower. Bangladesh's total hydropower potential is estimatedat about 1,500 Gigawatt hours (GWh)/year, of which 1,050 GWh/year has beendeveloped with the installation of 330 MW capacity on the Karnafuli river atKaptai (near Chittagong). The remaining potential is located at two othersites whose development would flood prime agricultural land and require therelocation of about 30,000 people. In view of the high cost involved andpotential social impact, its development is not being considered at this time.

1.5 Coal. Recent work by the Geological Survey of Bangladesh in theBarapukuria area of Dinajpur district has located several thick coal seams,with an estimated in-situ reserve of about 300 million tons. A feasibilitystudy funded by the Overseas Development Administration (ODA) of the UK wascompleted in 1990. In March 1994, GOB signed an agreement with a Chinese

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consortium for the development of an underground coal mine with a productioncapacity of one million tons of coal per year. Because of the long lead timeinvolved, it is not expected that the proposed mine could come into operationbefore the year 1998. Bangladesh is giving due importance to exploration ofcoal and has advertised internationally for foreign investors. Recently, GOBhas signed a production sharing contract with BHP, USA for exploration anddevelopment of coal deposits in northwestern region of the country.

1.6 Traditional Fuels. Traditional fuels are the predominant sourcesof energy in rural areas. However, biomass supplies are continuallydiminishing on a per capita basis due to deforestation and rapid populationgrowth. Increasing fuelwood planting to meet the supply gap is not feasibledue to the high population density and pressure for agricultural land. Thedecline in the relative contribution of traditional fuels to the country'senergy supply, from above 65% in the early 1980s to the current level of 55%,reflects the role of gas as the main source of supply to meet the country'sincremental energy requirements.

B. Enercrv Consumption

1.7 Bangladesh's annual per capita energy consumption is estimated atabout 100 kilograms of oil equivalent (kgoe), among the lowest in the world.Per capita annual consumption of commercial energy is estimated to be only 45kgoe. In FY93, gross commercial energy consumption was about 5.2 million tonsof oil equivalent, of which natural gas accounted for 60%, petroleum 32%,hydropower 4%, and coal 4%. The consumption of commercial energy increased atabout 7% a year during the 1980s, compared to an annual average growth rate ofabout 4% for real GDP. With the development of indigenous gas supply, theshare of natural gas in total commercial energy consumption increased from 26%in FY81 to 60% in FY93, making it possible to contain annual imports of crudeand petroleum products to around two million tons.

C. Enerov Sector Organization

1.8 The principal institutions responsible for energy sector policy andmanagement are: (a) the Planning Commission, responsible for macroeconomicplanning; including Five-Year Plans and Annual Development Plans, and (b) theMinistry of Energy and Mineral Resources (MEMR), responsible for overseeingthe operations of the five publicly-owned energy sector entities that produce,transport and deliver most of the commercial energy in Bangladesh. Theentities are the Bangladesh Oil, Gas and Minerals Corporation (Petrobangla),the Bangladesh Petroleum Corporation (BPC), the Bangladesh Power DevelopmentBoard (BPDB), the Dhaka Electric Supply Authority (DESA), and the RuralElectrification Board (REB).

1.9 Petroleum/Gas Sector. The gas sector in Bangladesh is dominated bythe Petrobangla group consisting of eight state-owned companies responsiblefor the exploration, production and delivery of natural gas, as well as the

exploration for and development of oil and solid minerals, including coal.Until mid-1993, the Petrobangla Group consisted of the holding corporation(Petrobangla), one exploration and drilling company, two production companies,three transmission and distribution companies and a natural gas liquidscompany. In May 1993, the Cabinet approved the establishment of the GasTransmission Company Limited (GTCL) to operate the recently completedKailashtilla-Ashuganj (North-South) pipeline and' the new Ashuganj-Bakhrabadpipeline to be constructed under the project, with a view to achieving optimal

gas supply despatch and providing pipeline access to eventual private gas

producers when excess capacity is available in the system.

1.10 BPC is responsible for purchasing and refining crude oil, andimporting and marketing petroleum products. Refining is carried out atBangladesh's only refinery, the Eastern Refinery Limited (ERL), a BPCsubsidiary. Liquefied Petroleum Gas (LPG) is bottled and sold to privatedistributors by LPG Limited (LPGL), another BPC subsidiary. Three other BPCsubsidiaries (Jamuna, Meghna and Padma oil companies) market petroleum

products.

1.11 Power Sector. BPDB is responsible for electricity generation,transmission and distribution, except in areas served by DESA and REB. DESA

distributes electricity in the Greater Dhaka area, whereas REB is responsible

for the construction of rural electrification schemes and organizingprospective consumers into semi-autonomous cooperatives called Palli Bidyut

Samities (PBSs) which buy electricity from BPDB and distribute it to their

consumers.

D. GOB's EnerQ'y Sector StrateQv

1.12 Sectoral Obiectives. In recognition of gas's pivotal role,accelerating development of domestic gas resources has been the primary focus

of GOB's energy sector strategy in the Third and Fourth Five-Year Plans (FY86-95). GOB's principal energy sector objectives are to: (a) expand domesticnatural gas supply to meet energy demand and reduce the country's dependenceon oil imports; (b) adjust energy prices to promote the efficient and economic

use of energy, taking into account social objectives; (c) increase theavailability and improve the quality of electricity supply and reduce systemlosses; (d) improve energy sector entities' performance; and (e) encourageprivate sector participation in energy sector development, particularly in oil

and gas exploration. To underscore the priority accorded to the sector'sdevelopment, energy accounted for 16% of the total public sector investmentallocation during the Third Five-Year Plan, of which 29% (US$ 690 million) wasearmarked for the gas sector.

1.13 In the pursuit of the above objectives, the main thrust of GOB's

gas sector strategy in the 1970s was to develop the fields at Titas, Bakhrabadand Habiganj to take advantage of their relative proximity to the main markets

of Dhaka and Chittagong. To ensure adequate long-term supply and optimaldevelopment of the country's hydrocarbon endowment, a parallel effort wasinitiated in the mid-1980s to develop the large gas fields in the northeasternpart of the country and to link them with the main consumption centers throughan integrated gas transmission network.

1.14 Sectoral Development. Progress in implementing the energy sector

strategy has been uneven. Overall, the gas sector has played an importantrole in the country's development during the past decade. The availability oflow-cost indigenous natural gas has been the basis for the expansion of thepower sector and the rapid development of the fertilizer industry in

Bangladesh. Currently, about 90% of power generation is based on natural gas,

and all of the agricultural sector's urea fertilizer requirements (1.4 milliontons p.a.) are met by local production using gas as feedstock. Power

generation and fertilizer production account for about 46% and 35%,respectively, of the total gas consumption, with the remaining 19% accountedfor by industrial, commercial and residential consumers. Unlike many other

public enterprises, the gas sector has been a significant source of revenuefor the Treasury. Through payment of excise duty (at a level equal to 62% ofgross sales revenue in FY93), a 50% corporate tax and dividends, Petrobangla'scontribution to GOB has been increasing steadily, from Tk 2.0 billion in FY86to Tk 7.3 billion (US$ 183 million) in FY93, reflecting the results of a 10%average annual increase in the volume of gas sales and average gas tariff.

1.15 By comparison, the development of the power sector has beenseriously affected by the continuing poor performance of the two main sectorentities -- BPDB and DESA, as evidenced by the inordinately high systemlosses, low level of collections and extremely weak finances. To assist GOBin effecting a significant and sustained improvement in power sectorperformance, IDA together with other donors has been pursuing an intensivedialogue with GOB over the last few years, focussing on the need for GOB toundertake basic reforms to address fundamental deficiencies in sectorgovernance. Resumption of new lending for power by IDA (and some other majordonors) depends on GOB's formulating and initiating implementation of acredible reform program.

E. Energy Pricing

1.16 Natural Gas. Under IDA's Second Gas Development Project (SGDP,Cr. 1586-BD), GOB adopted the principle of pricing natural gas based on theestimated economic costs of supply, including a depletion premium. Inaccordance with that agreement, the average price of gas was increased by 20%on July 1, 1985 and July 1, 1986, respectively. Starting from 1987, in thecourse of preparing the Energy Sector Adjustment Credit (ESAC, Cr. 1999-BD),GOB endorsed the approach of setting gas prices closer to that of substitutefuels to mobilize resources for the budget. In line with this, during 1987-1992, gas prices were increased on average by 105%, or about 13% p.a., asagainst 9% p.a. average domestic inflation. In March 1994, GOB announced a10% increase in end-user tariffs for power, fertilizer, industrial andcommercial uses retroactive March 1, 1994; monthly charges for unmetereddomestic consumers were raised by 27% for single burner and 16* for doubleburner. The evolution of gas tariffs for the period 1985-1994 is summarizedin Table 1.1 and given in greater detail in Annex 1.1. The prevailing end-user tariffs for bulk supply to power and fertilizer and the weighted averagetariff of Tk 54 per thousand cubic feet (MCF) (US$ 1.35/MCF) are comparable to

the latest estimates of economic costs of supply. However, as can be seenfrom Table 1.1, GOB's excise duty on gas sales has remained high and is the

root cause of Petrobangla group's weak financial performance. The need forfurther reforms in the levels of retail prices and margins allowed to thesector operating companies is discussed in para. 2.19.

TabLe 1.1: WaturaL Gas Tariffs 1985-1994

(In Taka/mcf)

7/1/85 7/1/86 7/1/87 7/1/88 7/1/89 7/1/90 7/1/91 5/1/92 3/1/94

End User PricesPower 15.66 19.09 24.82 28.54 33.00 37.95 39.08 43.04 47.57

FertiLizer 15.66 19.09 24.82 28.54 28.54 32.82 33.98 37.38 41.34

IridustriaL 43.20 52.14 52.14 59.96 70.00 80.50 85.24 93.73 103.07

Co=merciaL 54.24 65.39 85.00 97.77 110.00 126.50 134.23 134.23 147.53

ResidentiaL 40.80 44.8 56.10 56.10 65.00 74.75 74.75 82.12 82.12

Tea Estates 40.05 40.05 40.05 83.15 83.15 95.62 100.25 110.15 113.27

Of which:

GOB - Excise Duties

Power 12.80 15.72 20.30 23.28 25.96 25.96 27.26 27.18 26.16

Fertilizer 12.80 15.72 20.30 23.28 23.28 23.28 24.44 24.35 22.74

Industrial 28.13 35.73 35.73 41.99 48.01 48.01 52.81 52.67 56.69

CommerciaL 37.54 47.02 62.70 72.90 80.24 80.24 88.27 88.07 81.15

ResidentiaL 27.77 31.24 40.21 40.21 45.55 45.55 45.55 45.59 45.17

Tea Estates 37.15 37.15 37.15 45.83 45.83 45.83 50.41 50.41 62.30

Petrobangla Group Margin

Power 2.86 3.37 4.52 5.26 7.04 11.99 11.82 15.86 21.41

Fertflizer 2.86 3.37 4.52 5.26 5.26 9.54 9.54 13.03 18.60

Industrial 15.07 16.41 16.41 17.97 21.99 32.49 32.43 41.06 46.38

Couercial 16.70 18.37 22.30 24.87 29.76 46.26 45.96 46.16 66.38

ResidentiaL 13.03 13.64 15.89 15.89 19.45 29.20 29.20 36.53 36.95

Tea Estates 2.90 2.90 2.90 37.32 37.32 49.79 49.84 59.74 50.97

1.17 Petroleum Products. In the pursuit of its economic efficiency and

resource mobilization objectives, GOB has maintained domestic prices of

petroleum products significantly above border prices. Under the ESAC, GOB

agreed on a pricing formula which would ensure that the weighted average

domestic petroleum product prices, net of distribution, marketing and other

handling costs, would always exceed border prices by at least 15%; it also

agreed not to reduce the weighted average retail price of petroleum products

below levels existing in FY87. Except for a brief period in early 1990, GOB

has followed these principles and, in fact, responded very promptly to the

Gulf crisis in late 1990 with a cumulative increase in petroleum product

prices of about 85% between August and October 1990. These adjustments have

also brought the relative pricing structure of domestic prices closer to that

of border prices. Although world oil prices have now generally returned to

pre-Gulf crisis levels, GOB's present plans are to maintain the high prices

for purposes of resource mobilization. Retail prices of petroleum products

for FY87-94 are given in Annex 1.2.

1.18 Electricitv. During 1987-91, BPDB's average tariff rate was

increased about 39%, or about 91 p.a. in nominal terms, as against domestic

inflation of about 9t p.a. over the same period. The average revenue from

electricity sales in FY93 at Tk 2.3 per kilowatt hour (kWh) (US¢ 5.8/kwh) is

estimated to be about 65-70% of long-run marginal cost (LRMC).

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II. THE GAS SECTOR

A. Gas Reserves

2.1 Natural gas was first discovered in Bangladesh by private companies-- Pakistan Petroleum Limited at Sylhet, and Shell at Kailashtilla, Rashidpur,Habiganj, Titas and Bakhrabad. These companies, together with the state-ownedOil and Gas Development Corporation (OGDC), were exploring for oil and gas ona limited scale during the 1950s and 1960s. Immediately after independence,GOB took over the private interests in the gas sector, and efforts were madeto continue exploration and develop the fields at Titas, Habiganj andBakhrabad which are closest to the main markets of Dhaka and Chittagong. By1990, these three fields were supplying 93t of the gas used in Bangladesh.

2.2 The development of the gas fields in Bangladesh is still at a veryearly stage. There are presently 17 known gas fields; however, only the firstround of appraisal drilling has been made, and only three fields -- Titas,Bakhrabad and Habiganj -- have sufficient wells and production data to allowreasonably accurate estimates to be made of gas reserves in place andrecoverable. Because of this, gas reserve estimates have been made in asubjective fashion under several studies. The most conservative estimate putsthe total gas reserves at 21 TCF, of which 12.4 TCF are considered asrecoverable. Five fields -- Kailashtilla, Rashidpur, Habiganj, Titas andBakhrabad -- account for two thirds of the known gas reserves. The reserveestimates by each gas field together with the production in FY94 are given inAnnex 2.1.

2.3 While the current reserve estimates appear to be small, there issignificant potential for proving up new gas reserves in the numerous currentfield extensions as well as in new prospects. Several major studies byinternational petroleum consultants indicate that the Bengal Delta Basin,which underlies most of Bangladesh, is gas-prone. The likelihood ofsignificant increases in the reserve base over and above what is required tosustain domestic supply indicates a potential for export.

B. Gas SuDDly Systems

2.4 The development of gas supply infrastructure in Bangladeshreflects the concentration of economic activity in the country. Presently,gas is supplied through three systems, all located in the east zone: (i) theTitas system covering the Greater Dhaka area and the Brahmaputra Basinnorthwest of Dhaka, which receives gas from the Titas, Habiganj and Bakhrabadgas fields, having maximum daily peak demand of around 560 million cubic feet(MMCFD); (ii) the Bakhrabad system covering the southeastern part of thecountry, including the Chittagong area, which takes gas from the Bakhrabad andFeni gas fields, having maximum daily peak demand of around 110 MMCFD; and(iii) the Jalalabad system covering the Sylhet area, which receives gas fromthe Kailashtilla, Sylhet, and Habiganj gas fields, having maximum daily peakdemand of 40 MMCFD. The Rashidpur field, a newly developed gas field underthe SGDP, is now producing at a rate of 82 MMCFD for supply to the Jalalabadand Titas franchise areas. Cumulative gas production as of the end of FY94was about 2.2 TCF, half of which was drawn from the Titas gas field, followedby Habiganj (0.4 TCF) and Bakhrabad (0.4 TCF).

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2.5 Until the mid-1980s, the three gas supply systems were notinterlinked. Recognizing the capacity constraint of the Titas gas field inmeeting the projected incremental gas demand in the Titas franchise area, GOBadopted the strategy of focusing on developing the large gas fields atKailashtilla, Rashidpur and Habiganj in the northeastern part of the countryto cover gas supply shortages in the Titas franchise via the Kailashtilla-Ashuganj (North-South) pipeline. Further integration of the three supplysystems into one grid via the Ashuganj-Bakhrabad (A-B) pipeline was plannedfor a later stage. To support GOB's effort, the SGDP (Cr. 1586-BD, approvedin April 1985) was conceived, which provided financing for appraisal anddevelopment drilling (nine wells), installation of gas and condensatetreatment facilities, and construction of the North-South pipeline and aparallel condensate pipeline.

C. Gas Demand and SupplY Outlook

2.6 Past Trend. Annual gas sales more than tripled during the 1980s,increasing from 45.7 BCF in FY80 to 159.9 BCF in FY90, equivalent to anaverage annual growth of 13%. The growth tapered off to around 7% duringFY91-94, partly due to the power sector's inability to undertake plannedgeneration capacity expansion investments as a result of donors' suspension ofnew lending to power. Gas sales to each sector for FYBO-94 is given in Annex2.2. During this period, power and fertilizer combined accounted for 83% ofthe incremental gas sales. In FY94, power generation and fertilizerproduction accounted for about 46% and 35t, respectively, of the total gasconsumption, followed by industry (10%), domestic (7%) and commercial (2%).

2.7 System Loss Reduction Plan. Gas supply to domestic consumersexpanded rapidly during the past decade, and the total number of connectionsrose from some 225,000 in 1985 to about 528,000 in 1993. The vast majority ofdomestic consumers (404,000) are supplied by the Titas Gas Transmission andDistribution Company (TGTDC). Domestic users are offered the option of asingle or double burner connection, which forms the basis for the flat ratebilling system adopted by the three distribution companies in the late 1980s.This arrangement replaced the former system based on metering because of majorproblems arising from faulty meters and insufficient replacements.Unfortunately, the flat rate system has been abused as customers hook upadditional appliances or commercial users seek to be classified as domesticconnections. Meter tampering, illegal connections and underbilling have alsocontributed to the problem. As a result, the difference between total gassales and purchases in TGTDC rose from 2% in FY81 to 9t in FY93. To stem lossof revenues, during the processing of ADB's Third Natural Gas DevelopmentProject, TGTDC/GOB agreed to implement a system loss reduction plan. The mainelements being pursued include: (a) increase in the assessed volume of gasconsumption by non-metered domestic consumers; (b) disconnection of delinquentconsumers; (c) installation of 60,000 meters in the first phase, starting withhouseholds with multiple appliances; and (d) contracting out meter-reading,billing and collections in selected service areas. While GOB has raised theexpectations that TGTDC bring down its overall system losses to 2% by June 30,1995, a gradual reduction to about 4% by FY97 appears more realistic andachievable.

2.8 Gas Demand Forecast. Given the dominance of power generation ingas utilization, growth in electricity supply will continue to be a keydeterminant of gas demand. To support higher economic growth required for asignificant reduction in poverty, provision of adequate electricity supply is

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essential. Given the economic benefits of gas use in combined-cycle power

plants and its environmental benefits, gas offers the least cost option forthe country's power generation requirements.

2.9 The gas demand forecast for FY95-2000 is summarized in Table 2.1

and given in more detail in Annex 2.3. The forecast is based on the plannedgeneration capacity additions, totalling 1529 MW, during the forecast period,commissioning of new fertilizer plants, and a projected aggregate growth of

10% p.a. for the remaining consumer categories in line with the historical

trend. Total gas sales are projected to grow on average at 9% p.a., with theshare of power generation in gas consumption increasing to 55% by FY2000.About half of the projected incremental demand, 500 MMCFD by FY2000, would be

in the Bakhrabad franchise area; the known new loads include: the KAFCO jointventure fertilizer plant (commissioning date January 1995), the second 210 MW

steam turbine power generating unit at Raujan near Chittagong (financed by

supplier's credit from China, commissioning date January 1997), and 600 MW of

combined-cycle generating capacity at Meghnaghat (commissioning date December1998 onwards).

Table 2.1: Gas Demand Forecast FY95-2000(in BCF)

1994 1995 1996 1997 1998 1999 2000

(actuat)

Power 97.3 115.0 126.0 134.4 145.5 172.1 191.5

Fertilizer 74.5 89.6 92.6 95.8 97.5 97.5 97.5

IndustriaL 18.5 18.8 21.0 23.4 26.1 28.0 30.2Cooe rciaL 2.9 3.9 4.4 4.9 5.4 5.8 6.2

Domestic 15.4 17.5 19.7 22.0 24.6 26.2 27.9

Other ..1.7 1.9 2.0 2.2 2 4 J2.5 2.7

Total Seles 210.3 246.6 265.7 282.6 301.7 332.5 356.3

by Franchise:

Titas 152.4 169.5 180.1 190.4 201.3 204.0 206.8

Bekhrabad 42.7 60.5 64.6 65.5 71.3 99.0 119.6

Jolalaabd 15.2 16.6 20.9 26.7 29.1 29.5 29.9

Losses 13.1 12.7 11.7 10.7 9.4 9.9 10.4

in X 56 4.9 4.2 3.7 3.0 __.9 2.5

Total Purchases 477.3 36.7

Field Use 0.2 0.4 0.4 0.4 0.4 0.5 0.5

Production 223.5 259.6 277.7 293.8 311.6 342.9 367.2

Ave.Dafly (IMCFD) 612.3 711 761 805 854 939 1006

Max Daily (NNCFD) 804 860 909 865 1062 1137

Max Daily Peak 751.0 947 1013 1072 1137 1251 1340

Source: IDA estim_tes.

2.10 SupplY Outlook. While Bangladesh has significant gas reserves, thecountry is currently faced with a major supply constraint. Because ofcumulative delays in the completion of gas field development, pipelineinfrastructure and surface facilities, demand started to outstrip deliverablesupply capacity in 1993. The tight gas supply situation is partly responsiblefor the high flow rates imposed on the producing wells and for deferring much-needed well workover in the Titas and Bakhrabad fields. Consequently,Bakhrabad has been showing pressure drop in recent years; out of the eightproduction wells, three need workovers and two are producing at half capacity.In view of that the current production level of 150 MMCFD at the Bakhrabadfield barely satisfies the present demand and is not sustainable, developmentof production capacity at the large, known fields in the north and transfer ofsurplus gas supply to the gas-deficient southern region throughinterconnecting the two transmission subsystems represents the least-costapproach.

2.11 Priority Investment Proaram. To balance supply with demand in themedium term, a priority investment program (PIP) to be implemented duringFY95-2000 has been drawn up. The PIP, estimated at about US$ 600 million in1994 prices, consists primarily of (a) development drilling of 15 new wellsand installation of associated gas treatment facilities; (b) workover of eightexisting wells at Titas and Bakhrabad gas fields; (c) integration andexpansion of the high pressure transmission grid by construction of theAshuganj-Bakhrabad pipeline (58 km), the Habiganj-Ashuganj loopline (53 km),addition of compressor capacity, and installation of a new Supervisory Controland Data Acquisition (SCADA) and pipeline telecommunication system; and (d)upgrading and expansion of gas distribution network. Details of the PIP aregiven in Annex 2.4. The proposed project, together with assistance extendedby the Asian Development Bank (ADB) and the Overseas Economic Cooperation Fund(OECF) of Japan, would help finance the most urgently needed components of thePIP; private sector financing of investments scheduled for the outer years ofthe PIP is being pursued. Any delay in execution of those investments, forwhich financing is yet to be arranged, will not affect the implementation orthe viability of the proposed project (para. 6.5). To ensure satisfactoryimplementation of the PIP, it was agreed during negotiations that, prior tothe beginning of each fiscal year, GOB will review with IDA the gas sector'sPIP and its implementation in the current fiscal year, as well as theimplementation plan for the three succeeding fiscal years.

D. Sector Constraints

2.12 Bangladesh's gas sector is now at a critical juncture. The sectorhas a large potential for increased contribution to the country's economicgrowth. However, experience of the past decade clearly indicates that, forthe country to fully benefit from its hydrocarbon endowment, GOB needs to takesteps to address the major constraints on the sector's development, i.e., thecountry's limited financial resources and technology limitations, and thePetrobangla group's weak institutional capability.

2.13 Capital Shortages. Funds required to enable accelerated sectordevelopment far exceed what the GOB can manage to allocate to it. Minimuminvestments required up to the year 2000 to balance supply and domestic demandare estimated at about US$ 600 million in 1994 prices (para. 2.11). Thisamount could increase significantly depending on the pace of the sector'sfuture development.

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2.14 PetrobanQla GrouD's Canabilitv. Notwithstanding its contributionto resource mobilization, Petrobangla group's limited implementationcapability has impaired the delivery of prior gas sector investments.Presently, the group has insufficient in-house capability to plan, design andsupervise the sector's expansion program. Moreover, operation and maintenancecapabilities need to be built up commensurate with the system expansion thathas so far been undertaken.

2.15 Several factors have contributed to the Petrobangla group's weakinstitutional capability and inadequate performance. First, since itsinception, the Petrobangla group has been operated like an extension of theGovernment. Besides tariff setting, many operational decisions are controlledby GOB. The group is governed by the Government salary scales and internalprocedures, and requires approval from the Government agencies forinvestments, operating budgets, procurement and staffing. Operating budgetsare not tied to annual and long term corporate plans, and there are no agreedsets of specific, annual and quantified performance targets for the group andindividual operating companies. Thus, the accountability of the group'smanagement for performance is severely undermined. Second, GOB's excessivelevy of excise duty on gas sales has resulted in OC margins that neither meetfinancial requirements nor reflect cost structures; this is the root cause ofthe group's low earning capacity and weak financial position. Third, being astate-owned monopoly and having two state-owned entities -- BPDB and theBangladesh Chemical Industries Corporation, BCIC -- as its major consumers,the group faces no competition and, therefore, has not been spurred to improveperformance.

E. Directions of Reform

2.16 In order to mobilize the capital required for accelerated sectordevelopment and improve the performance of the existing sector entities, GOBhas recognized the need to overhaul the prevailing.sector arrangements. Themain initiatives being pursued by GOB relate to increasing private sectorparticipation, particularly by IOCs, and commercializing/privatizing existingoperations.

2.17 Private Sector Particilation. With its potential hydrocarbonendowment, Bangladesh would benefit immensely from the risk capital,management expertise, efficient operations, technical advances and globalexperience that IOCs could provide under favorable conditions. Untilrecently, Bangladesh was unsuccessful in attracting private capital inhydrocarbon development, basically because incentives offered were notattractive. During the preparation of the proposed project, IDA has beenpursuing a continuing dialogue with GOB on the need to create an enablingenvironment to promote private participation in the gas sector. Over the pasttwo years, GOB has made significant progress in this regard. In July 1993,GOB announced a new Petroleum Policy which offers significantly liberalizedcontractual terms for production sharing contracts (PSCs), including taxexemptions and the direct linkage of gas producer prices to the internationalfuel oil price. Furthermore, highly prospective exploration blocks originallyreserved for Petrobangla have now been opened for private bidding. In May1993, the Cabinet approved the establishment of GTCL, which will provide equalaccess to private gas producers and operate on the basis of a wheeling charge.GOB also lifted the long-standing ban on the importation of LPG to enableprivate entry in LPG imports, bottling and distribution. In September 1993,

GOB with IDA's assistance held an investment promotion roundtable in Houston,

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which was attended by representatives of 45 IOCs. To date, the responses from

the IOCs have been encouraging; four PSCs have been signed, and negotiationswith interested IOCs for other exploration blocks are proceeding in earnest.

2.18 Commercialization/Privatization of Petrobanala Group. There is abroad consensus at the Government level that privatization of the Petrobanglagroup would help transform the individual OCs into efficient businesses. GOBis planning to float a portion of its shareholding in two OCs -- Bangladesh

Gas Fields Company and Titas Gas Transmission and Distribution Company -- inthe local capital market. To make the eventual privatization offeringssuccessful, GOB needs to carry out a range of readying steps. These include(a) letting OCs operate under private company law in form and substance withadequate managerial autonomy; (b) reforming gas tariffs to enable OCs tooperate on a commercial basis; (c) decentralizing operational decision-makingand developing competition in the sector, with each OC becoming an independententity charged with being financially self-sufficient and placing itsfinancial relationship with other OCs and GOB at arm's length; and (d)establishing a regulatory framework and institutional arrangements to monitoroperator performance, prevent abuses of market power, and promote thedevelopment of competition. Under the ADB's Third Natural Gas DevelopmentProject, consultants are being engaged to help GOB formulate an action programfor (i) the restructuring/ divestiture/privatization of the existing gassector entities; (ii) the establishment of an appropriate petroleum/gas sectorregulatory framework and a national regulatory function for a decentralizedpetroleum/gas sector with mixed ownership; and (iii) the implementation of arational gas pricing structure. It was confirmed during negotiations that GOBwill, by December 1995, carry out a joint review with IDA and other donors ofits action program for strengthening the institutional and regulatoryframeworks for the petroleum/gas sector.

2.19 Gas Tariff Reform. Given the fact that Bangladesh is presently anet oil importer, and the country has potential for developing gas export, anappropriate benchmark in setting gas prices is the cost of substitute fuel(e.g., fuel oil) or the value of gas export that would have to be foregone tosatisfy domestic demand. Using fuel oil as a comparator, the import-parityprice of gas is about $ 2.2/MCF, or about twice the present tariff forelectricity geheration. To provide adequate incentives to attract privateinvestment in natural gas development, GOB has decided to use 75% of theinternational price of high sulphur fuel oil (less a negotiable discount) asthe benchmark in determining the wellhead price of non-associated gas to beoffered to private gas producers. To implement the above pricing formula andto enable the public gas sector entities to operate on a commercial basis andbe self-sustaining, GOB needs to implement a phased program of tariff reformto: (i) raise wellhead gas price to the above-mentioned benchmark; (ii) ensurean adequate margin for the gas production companies through reducing GOB'sexcise duty; and (iii) rationalize the margins allowed to the gas transmissionand distribution companies based on the costs incurred in meeting the demandsof various consumer groups, taking into account the financial objectives ofthe entities involved and appropriate socio-economic considerations. As afirst step, GOB increased the average end-user gas tariff by 1Ot effectiveMarch 1, 1994 with a parallel reduction of GOB's excise duty from 62% to 55%.At the same time, GOB decided to implement the following: (i) 2% of the gastransmission and distribution OCs' gross sales revenue will be withheld, on a

time-bound basis, by GOB to recoup the amount required for servicing theexternal debt incurred in connection with the past operations of theBangladesh Petroleum Exploration Company (BAPEX); (ii) upto 2% of gross gas

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sales revenue will be withheld on a time-bound basis and administered byPetrobangla to meet BAPEX's expenses during its restructuring; and (iii) ahydrocarbon development fund to the tune of 2.5% of gross gas sales revenuewill be established to help strengthen the OCs' self-financing capabilities;the amount of revenue so appropriated will be allocated among the gasproduction, transmission and distribution OCs on the basis of their respectiveshares of group margins and volumes of operations. The net impact of theabove raised the combined margins of the gas production, transmission anddistribution OCs from 36% to 41% as of March 1, 1994. During negotiations,GOB agreed that it will, before the start of each fiscal year, review with IDAthe margins allowed to the gas operating companies in respect of such year.

F. IDA's Role

2.20 Past ExDerience. IDA's involvement with Bangladesh's energy sectorbegan in 1979 when a credit of US$ 28 million was made to GOB to help financethe electricity distribution system for the Greater Khulna area. To date, IDAhas made 14 credits for the energy sector in Bangladesh. IDA funds committedthrough these operations have totalled US$ 903 million, representing about 16%of total IDA resources committed to Bangladesh. Seven of the credits (US$ 454million) were for power projects, two (US$ 186 million) for gas, four (US$ 146million) for petroleum exploration promotion, refinery modification and LPGdevelopment, and one (US$ 116 million) for the Energy Sector Adjustment Credit(ESAC). Eleven projects have been completed. Projects currently underimplementation include two power distribution projects and the LPG Transportand Distribution Project (Cr. 2263-BD).

2.21 The two IDA-financed gas sector projects -- the Bakhrabad GasDevelopment Project (Cr. 1091-BD) and the Second Gas Development Project(Cr. 1586-BD) -- featured substantial cofinancing from several bilateralsources, including the Canadian International Development Agency, theDirectorate General Voor Internationale Samenwerking (the Netherlands), the UKOverseas Development Administration (ODA), the Japan Overseas EconomicCooperation Fund (OECF), the OPEC Fund for International Development, and theUnited Nations Development Programme (UNDP). The Bakhrabad Gas DevelopmentProject was approved in December 1980 and consisted of: (a) drilling of fivewells at the Bakhrabad gas field, (b) the installation of associated gas

treatment facilities, (c) a 24-inch, 177 km pipeline from Bakhrabad toChittagong, and (d) a 88 km distribution network in and around Chittagong.The project was successfully implemented with only a slight delay from theoriginal schedule.

2.22 The Second Gas Development Project (SGDP) suffered an initialimplementation delay of almost three years, due primarily to the delay inprocuring and mobilizing the bilaterally financed drilling rig for the

project's drilling component. In the absence of drilling results, the designand procurement for the gas and condensate treatment facilities and theKailashtilla-Ashuganj (North-South) pipeline could not proceed. The projectfinally started in 1988; the drilling component was successfully completed inDecember 1990, followed by the completion of the Kailashtilla-Ashuganj gas andcondensate pipelines in May 1992. The drilling results have been veryencouraging. All nine new wells drilled were successful and completed asproduction wells; besides providing a total productive capacity of about300 MMCFD, they proved about 4 TCF of recoverable gas reserves, increasing thecountry's proven recoverable gas reserves from about 8 TCF to 12 TCF.

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2.23 In response to the findings that the Kailashtilla field containsmuch larger reserves than previously estimated and is relatively rich innatural gas liquids (NGLs) including propane and butane, extensiveconsultations between GOB/Petrobangla, IDA and other cofinanciers took placeand a decision was reached to change the original design of gas treatmentfacilities proposed for the Kailashtilla field with a view to extractingpropane and butane to produce LPG. The agreed configuration comprises: (i) a90 MMCFD molecular sieve turbo-expander at Kailashtilla to extract NGLs(financed by ODA); and (ii) a fractionation plant at Ashuganj to fractionatethe NGLs which would be transported from Kailashtilla to Ashuganj using theNorth-South condensate pipeline already constructed under the SGDP. Thecontract for the turbo-expander was awarded in December 1991. However, fundsprovided under the SGDP for the proposed Ashuganj NGL fractionation plant werenot utilized because of the failure to award the contract in time. The creditfor the SGDP was closed on December 31, 1993 after three one-year extensions.

2.24 To find a suitable solution, GOB requested IDA to finance thefractionation plant through the restructuring of the LPG Transport andDistribution Project (Cr. 2263-BD). The above credit for SDR 49.8 million(US$ 67.2 million) was approved on June 11, 1991 to fund investments for thedownstream storage, transport, bottling and cylinder distribution of LPG to bemade available by the proposed Ashuganj NGL fractionation plant; the creditwas signed on June 21, 1991 and became effective on September 30, 1992.Because contract award of the Ashuganj NGL fractionation plant is a conditionof disbursement, implementation of the LPG Project has practically been onhold. On the other hand, GOB's recent decision to allow private entry in LPGimports, bottling and distribution has opened the possibility of securingprivate financing for the LPG storage facilities, bottling plants andcylinders, valves and regulators included in the LPG Project. In response toGOB's commitment to seek private sector involvement, IDA is now consideringGOB's request to modify the project scope and reallocate credit proceeds forfinancing a NGL fractionation plant. As an interim arrangement, the molecularsieve turbo-expander has been modified to permit re-injection of the propaneand butane fractions back into the pipeline gas stream. The-turbo-expander,together with the two wells at Kailashtilla, was commissioned in November1994.

2.25 Lessons Learned. In summary, GOB's protracted procurementprocedures, high turnover of key personnel in the project implementation unit,and complexity resulting from multiple parallel cofinancing arrangements arethe primary implementation impediments. Based on the lessons learned from theSGDP, a number of safeguards have been included in the project design tominimize implementation slippages. These include: (a) beneficiaries takingdirect responsibilities for project implementation coupled with an adequateprovision of project implementation support technical assistance; (b) advanceprocurement actions to minimize procurement delays; and (c) IDA's closeproject supervision through annual and mid-term reviews against a set ofagreed project implementation targets (para. 4.44).

2.26 Rationale for IDA Involvement. Given the gas sector's importanceto the country's economic development, IDA's country assistance strategyapproved by the Board on February 17, 1994 seeks and supports reforms by GOBto open the sector for private participation and improve overall sectormanagement. The policy reforms recently undertaken by GOB evolved to a largeextent from the intensive dialogue with IDA over the past two years.

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Nevertheless, the reform process in the gas sector has only just begun andmuch remains to be done. In this context, IDA's lending strategy in the gassector is focused on: (a) supporting the creation of an enabling environmentfor increased private sector participation; (b) partially financingPetrobangla's urgent investment requirements to help balance supply withdemand in the immediate term, thereby minimizing the costs of impending supplyshortages to the economy; and (c) assisting sector entities to build technicaland managerial capabilities in key areas essential for efficient and safeoperation of an integrated gas supply and delivery network. The proposedproject, together with a restructured LPG Project, would help removeimbalances/bottlenecks in the gas supply and delivery infrastructure andsupport the implementation by GOB of ongoing and further sector reforms.

III. THE BENEFICIARIES

A. Backcround

3.1 Under the Petroleum Act of 1974, the Bangladesh Oil, Gas andMinerals Corporation (BOGMC) was established as a state corporation entrustedwith the exploration for and production of oil; import, refining and marketingof petroleum products; and exploration, production and delivery of naturalgas. In 1976, the functions relating to import, refining and marketing ofpetroleum products were transferred to the newly established BangladeshPetroleum Corporation (BPC). By 1985, BOGMC consisted of five regionaloperating companies: the Bangladesh Gas Fields Company Limited (BGFCL) and theSylhet Gas Fields Limited (SGFL), operating the fields at Titas and Habiganj,and at Sylhet, Chattak and Kailashtilla, respectively; the Bakhrabad GasSystems Limited (BGSL) responsible for producing the Bakhrabad gas field anddelivering gas in the Bakhrabad franchise area; the Titas Gas Transmission andDistribution Company (TGTDC) and the Jalalabad Gas Transmission andDistribution Systems Limited (JGTDSL) dealing with gas transmission anddistribution in the Titas and Jalalabad franchise areas, respectively.

3.2 The organization of BOGMC owed much to progressive historicaldevelopments, with the production and distribution activities growing out ofthe previous private sector operations. During the preparation of the SGDP,an international management consultant was retained to examine itsorganizational structure and management systems with a view to determining howfar, and in what manner, existing structure and systems would need to bechanged so as to best serve future development. Based on the consultant'srecommendations, a program for the reorganization of BOGMC was agreed duringthe ESAC negotiations. The main thrusts of the reorganization were to divestBOGMC of all operational activities and to reorganize them, together withthose of the existing OCs, under a new set of operationally independent OCsorganized along functional lines. BOGMC would then operate as a holdingcompany, holding equity in the OCs on GOB's behalf and being responsible forinvestment planning and monitoring as well as sector policy formulation. Thereorganization was to be carried out in two phases; the first phase focussedon the legal restructuring of BOGMC, followed by institution- buildingtechnical assistance to help individual OCs establish appropriate accounting,financial management and management information systems in the second phase.

3.3 To date, BOGMC's reorganization has been partially implemented. InJuly 1989, BOGMC was restructured into a holding corporation namedPetrobangla, and seven operating companies -- two gas production companies,

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three regional transmission and distribution companies, a national explorationand drilling company, and a natural gas liquids company. However, measures toaccord adequate managerial as well as financial autonomy to the OCs, therebyenabling them to operate on a full commercial basis, are yet to beimplemented. Implementation of the second phase was basically stalled due toa difference between GOB and the donor agency (ODA) regarding the terms ofreference and the extent of external assistance. ODA has agreed to resume the

technical assistance under the proposed project (para. 4.12).

B. OrQanization and Management

3.4 Petrobangla is answerable to the Ministry of Energy and MineralResources (MEMR) and is managed by a GOB-nominated nine-member Board includingthe chairman. Five directors are responsible, respectively, for Operations,Planning, Mines & Minerals, Finance, and Administration. In broad terms, alldecisions relating to gas pricing, operating and development budgets ofindividual oCs, organizational set-up and staffing, and major procurementexceeding Taka 75 million (US$ 1.9 million) must be referred to GOB.

3.5 The Petrobangla group's highly centralized decision-making ischaracterized by a practice of strictly hierarchical communication and verylimited horizontal coordination. Management attention is mainly concentratedon day-to-day operations, on fulfilling GOB's administrative requirements withrespect to project sanctioning and procurement, and on cumbersome internalprocedures resulting from inadequate delegation of operational responsibilityto the OCs.

C. Staffing and Training

3.6 As of end 1993, the Petrobangla group had about 7,500 employees. Asummary of staff composition by each operating company is given in Annex 3.1.The three transmission and distribution OCs had a combined staff level ofabout 4,200 people serving about 536,000 consumers, yielding aconsumer/employee ratio of 127:1. Currently, there are serious staffingimbalances in the group; for example, the consumer/employee ratio of BGSL at59:1 is only one third of the level achieved in TGTDC (177:1). Besides theproblem of overstaffing in some OCs, the group has been suffering fromshortages of motivated and experienced technical and professional staff. Toovercome these manpower problems will require both short-term and long-termmeasures, including reform of the compensation and reward system to enable OCsto attract and retain the high- quality staff needed to operate the gas supplysystem in an efficient and effective manner.

3.7 Mainly due to the cumbersome GOB approval procedures pertaining tothe selection of candidates for training, staff training has not receivedadequate attention during the past decade. Despite provisions made by each ofthe co-financiers under the SGDP, training undertaken was very limited.Recognizing the urgent need to develop and upgrade the skills of its staff tooperate a gas supply and delivery system of growing size and complexity,Petrobangla management has decided to initiate a training program to developin-house capabilities in all aspects of gas sector operations. The proposedproject would help train the Petrobangla group's staff in key areas (para.4.13). Attention would be given to the selection of both hostingorganizations and target groups. Progress and effectiveness of the trainingcomponent would be closely monitored through quarterly progress reporting and

IDA supervision missions.

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D. Accounts and Audit

3.8 Accounts. Petrobangla and its OCs are required by law to preparefull commercial accounts. A recent review carried out by an ODA-financedconsultant concludes that basic accounting systems are in place in all the OCsexcepting BAPEX. To improve the timeliness and accuracy of financial data,and to build up the capability of Petrobangla's/OCs' management to usefinancial data for better operational control, a management system improvementprogram (MSIP) would be implemented under the project with ODA financing(para. 4.12). The MSIP would include an extensive training program forfinancial, accounting and internal audit staff.

3.9 Audit. The Petrobangla group of companies is subject to two typesof external audit. The first audit is by a firm of chartered accountants.Accounts are required to be ready for external audit within six monthsfollowing the end of the financial year and are audited within three monthsafter submission. The quality of audit reports and the degree of informationprovided in audit reports produced by Bangladeshi chartered accounting firmsis very variable. The second form of audit for state-owned enterprises isGOB's commercial audit. These audit arrangements are adequate, except for thetimeframes for the preparation of statements and their audit. To ensureaccountability for resources used by the project beneficiaries, it was agreedduring negotiations that Petrobangla, SGFL and GTCL will submit to IDA auditedannual accounts together with the auditor's reports within six months of theend of the fiscal year under consideration.

E. Beneficiaries

3.10 GTCL. With the recently completed North-South pipeline and the A-Bpipeline to be constructed under the proposed project, Bangladesh would havean interconnected high pressure gas transmission system in the eastern zone ofthe country. Effective dispatching of gas supply to allow greater flexibilityin field management and increased supply reliability would be significantlyenhanced by the creation of the GTCL, which would operate the North-Southpipeline and the A-B pipeline. The Cabinet approved the establishment of GTCLin May 1993; subsequently GTCL was incorporated under the 1913 Companies Actin December 1993 as a public limited Company with an initial authorized sharecapital of Tk-lo billion (US$ 251 million). GTCL's Memorandum and Articles ofAssociation allow it to operate as a common carrier and permit it to formjoint ventures with private partners; thus, its formation would alsofacilitate equal pipeline access by private gas producers. GTCL'sorganizational set-up is given in Annex 3.2. Appointment of GTCL's Board andkey staff has been made and GTCL started operations as of December 14, 1993.Institutional support will be provided under the project through a (twinning)arrangement with an established gas transmission company which can providebroad-based technical assistance in key operational areas (para. 4.9).

3.11 SGFL. SGFL was set up in 1972 when GOB took over the operations ofthe former Pakistan Petroleum Limited and entrusted their management to thenewly created company. SGFL is responsible for operating the northern gasfields, including Kailashtilla, Rashidpur, Beani Bazar. In FY94, SGFLaccounted for 10% of total gas supply in Bangladesh; however, with thecommissioning of existing and planned supply capacity at Rashidpur andKailashtilla, SGFL's operation would expand rapidly and its share in total gassupply is projected to increase to 33% by FY98. SGFL currently has 310employees; its organization chart is given in Annex 3.3.

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IV. THE PROJECT

A. Proiect Obiectives

4.1 In line with GOB's energy sector objectives and IDA's lending

strategy in the gas sector (paras. 1.12 and 2.26), the proposed project's

objectives are:

(a) to alleviate the worsening gas supply shortages through partially

financing the sector's priority investments;

(b) to assist GOB in implementing further reforms to improve the

enabling environment for private sector participation in the

sector; and

(c) to develop the sector entities' institutional capabilities,

particularly in the areas of operations and maintenance, safety,

environmental protection, and accounting and financial management.

B. Proiect Description

4.2 To achieve the project objectives, the project consists of the

following components:

(a) a 58 km, 30-inch diameter gas pipeline from Ashuganj to Bakhrabad;

(b) a Supervisory Control and Data Acquisition (SCADA) and pipeline

telecommunication system for the entire transmission trunkline from

Kailashtilla to Chittagong and integration with existing

facilities;

(c) three production wells at the Rashidpur gas field;

(d) a gas processing plant to purify gas from the new wells;

(e) technical assistance consisting of:

(i) project implementation support through consulting services to

prepare designs and bid documents, assist in bid evaluation and

provide construction supervision/management for the components

listed in items (a), (b), (c) and (d) above;

(ii) institution-building assistance through consultancy and

management services to develop GTCL's managerial and technical

capabilities, establish a group-wide environmental and safety

management system, strengthen reservoir management, and improve

the Petrobangla group's management systems; and

(iii) training of Petrobangla staff in key aspects of gas sector

operations.

Details of the specific components are outlined below. Full details of the

project's physical components are given in Annex 4.1 and their geographic

locations shown on Map IBRD 25735.

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Aszhuani-Bakhrabad PiDeline (USS 63.3 million)

4.3 To transport gas from the northern fields of Rashidpur, Habiganj

and Kailashtilla to the gas-deficient southeastern region, the need for, andthe urgency of, the A-B pipeline is self-evident. The A-B pipeline will linkthe recently completed North-South pipeline (170 km long, 24-inch diameter,320 MMCFD capacity) with the Bakhrabad-Chittagong gas transmission system (176km long, 24-inch diameter, 320 MMCFD capacity). The pipeline would have adiameter of 30 inches and an initial flow rate of 200 MMCFD. The largediameter is chosen to minimize gas transmission pressure drop and, moreimportantly, to allow a considerable increase in the line's capacity (up to1000 MMCFD) through compression, which is expected to be required at a muchlater stage. The pipeline route has been surveyed and selected taking intoaccount possible future offtake points and the need for minimizing involuntaryresettlement. The route runs through a poorly drained lowland which isaubject to annual flooding. The pipeline would be buried in the ground to aminimum depth of 1.2 meters. To prevent the pipeline from floating during themonsoon season, concrete weight coating would be applied to the entire lengthof the pipeline. Construction of the pipeline would involve three rivercrossings (the Titas/Pagla River near Ashuganj, and the Buri and Gumti Riversnear Bakhrabad), and is estimated to cost US$ 63.3 million (39% of totalproject cost).

SCADA and Telecommunication System (USS 23.2 million)

4.4 Except for the recently completed ADB-financed Brahmaputra basindistribution network, which has a SCADA system (without dispatch center), theexisting gas transmission and distribution networks are not equipped withSCADA. These networks have been operated independently with microwave radiolinks supplemented by telephone facilities. After completion of the A-Bpipeline, efficient management of a major gas trunkline, which runs formKailashtilla in the northeast to Chittagong in the southeast, requires acomplete SCAQDA system with dispatch center and telecommunication link. Thiswould allow accurate monitoring and control of all transmission parameterssuch as gas flows at supply and offtake points, current line pressuresthroughout the network, movement of gas and condensate volumes, and quality ofgas being supplied to the system by the producing companies. Furthermore, theSCADA would provide pipeline integrity monitoring, leak detection and alarm,metering values of gas and condensate at each of the inlet and outlet points,open-closed status of all line and station valves, direct digital datatransmission and voice communication. To allow data transmission, themicrowave analog radio system of the Bakhrabad-Chittagong pipeline would beupgraded (digitized) to match the new system. The proposed SCADA andtelecommunication system would be of a modular type to facilitate itsoperation and maintenance. The installation of the SCADA system with dispatchcenter and telecommunication would cost about US$ 23.2 million (14% of theproject cost).

Development of RashidDur Gas Field (USS 47.7 million)

4.5 The Rashidpur gas field is located about 80 km northeast ofAshuganj, near the recently completed North-South pipeline. Discovered in1960, no activity was undertaken at this field until 1989, when two appraisalwells (later completed as production wells) were drilled and workover of twoexisting wells was carried out under the SGDP. The drilling results indicatethe drilled area contains some 2.2 TCF of proven gas reserve and constitutes

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Bangladesh's fourth largest gas accumulation, after Titas, Kailashtilla andHabiganj. The field has two gas-bearing zones; the lower zone contains amoderate amount of condensate. Two separate gas processing schemes areadopted for the four wells completed under the SGDP: the upper zone withdehydration (water removal) only, using a simple liquid desiccant glycolprocess; the lower zone with dehydration and condensate recovery, using a morecomplex process with dry desiccant silica gel. The glycol plant (60 MMCFD)was commissioned in December 1993. Since the commission of the silica gelplant (70 MMCFD) in March 1994, all four wells have been into production.

4.6 To meet the impending gas supply shortfall, Petrobangla needs tocommission at least 300 MMCPD of additional gas supply capacity by FY98-99.The choice of Rashidpur field as one of the three primary sources for capacityaddition (the other two being Habiganj and Kailashtilla) was made after acareful field-by-field review, taking into account reserve availability,infrastructure requirements, and construction lead time. The three wells tobe drilled at Rashidpur would produce 622 BCF of gas and 149,000 tons ofcondensate over a 20-year period, and would firm up additional reserveestimates for the field. A 90 MMCFD capacity silica gel plant is proposed todehydrate and process gas from the new wells. The drilling, completion andtie-in of three wells, and construction of the proposed gas treatment plantare estimated to cost US$ 47.7 million (30% of the total project cost).

Technical Assistance (US$ 24.9 million)

4.7 Technical assistance provided under the project will assist thePetrobangla group as detailed below.

4.8 Proiect Imnlementation SuvDort (GTCL and SGFL). In view of thecurrent limitations of GTCL and SGFL, project engineering and implementationsupport consultancy services will be provided through resident experts. Theseexperts will assist in preparation of component specifications, engineeringdesign and bidding documents, bid evaluation, contract execution andconstruction supervision. Altogether, some 300 consultant-months ofexpatriate consultants' services would be provided through the projectimplementation period. To ensure know-how transfer through activeparticipation in the above tasks, terms of reference for the aboveconsultancies include counterpart training requirements.

4.9 Twinning (GTCL). To assist the newly formed GTCL in establishingappropriate organization structure and mantagement systems and building up itscapability commensurate with the operation of a modern gas utility, broad-based technical and management support is required. The project will financea twinning arrangement between GTCL and a mature foreign gas operating entity.It is intended that the twinning partner identify itself fully with the needsof GTCL and provide GTCL with continuing services, advice and experiencedpersonnel over a number of years to the point where GTCL can independently andefficiently carry out its operations. To enhance the effectiveness oftwinning in the transfer of managerial and technical skills and systems, theproposed twinning anticipates a direct operational involvement of the foreignpartner through placing a team of expatriate personnel into line managementpositions who will, together with GTCL's top management, have jointresponsibility for overseeing day-to-day operations and implementation ofsystems, procedures and practices. Agreed terms of reference are given inAnnex 4.2.

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4.10 Environmental and Safety Management (Petrobanrla Groun). Giventhat the Petrobangla group currently has no well-defined safety engineeringstandards and environmental regulation, nor does it have an adequateinstitutional framework and capability to properly administer the safety andenvironmental aspects of its operations, the project provides technicalassistance to help it (a) develop adequate safety standards and environmentalprotection rules for its entire operations, and (b) implement a group-wideenvironmental and safety management system. Agreed terms of reference aregiven in Annex 4.2.

4.11 Reservoir Management. Under the SGDP, consultants were engaged tocarry out reservoir studies of six gas fields and provide training toPetrobangla group staff in the areas of field management and productionplanning. The above technical assistance was instrumental in theestablishment of the Reservoir Engineering Department at Petrobangla.Notwithstanding the positive results obtained to date, the paucity ofreservoir information, resulting from inadequate monitoring and evaluation ofthe performance of each producing well due to the lack of an integratedprogram for pressure testing/monitoring and shortage of trained staff,continues to be a major constraint to the optimal development of the country'shydrocarbon endowment. To address this situation, the project includesprovision of state of the art reservoir management tools and consultancyservices to assist in the development and implementation of a comprehensivepressure testing program.

4.12 Management System ImDrovement Proaram (Petrobanqla Group). Toimprove the timeliness and accuracy of financial reporting for betteroperational control and planning, a management system improvement program(MSIP) will be implemented under the project. The MSIP provides for thegroup-wide implementation of (i) improvements in accounting and financialpolicies and procedures, (ii) improvements in the management informationsystems; (iii) a program of computerization; and (iv) a related program ofstaff training. Agreed terms of reference are given in Annex 4.2.

4.13 Training (Petrobanqla GrouD). To assist the Petrobangla groupdevelop its staff capabilities to properly operate and maintain a growing gassupply system, a program providing a total of 300 staff-months of trainingwould be implemented under the project. The program will complement thetraining to be provided under the twinning, MSIP and environmental and safetymanagement consultancies, and will cover training needs in geophysics,geology, well drilling, well completion, gas treatment processes, gastransmission system management, and safety engineering. Annex 4.3 outlinesthe priority areas of training. Petrobangla will prepare and furnish to IDAfor review a detailed training program identifying staff to be trained in eacharea, proposed hosting organizations, schedules and locations. A 3-4 yeartimeframe is envisaged for the program.

C. Status of Prolect Preparation

4.14 The project is at an advanced stage of preparation. A contract forthe turnkey construction of the A-B pipeline has been awarded in accordancewith IDA's procurement guidelines. Land acquisition and requisition for theA-B pipeline has been completed and GTCL has taken legal possession of theland required. The consultant for the A-B pipeline construction supervisionwas appointed in June 1994 in accordance with IDA guidelines. TORs and shortlists

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for all other consultancy services to be financed under the proposed credit(except for the training program) were agreed and proposals invited, which arenow under evaluation. Regarding the SCADA/pipeline telecommunicationcomponent to be implemented with ODA financing, preparation work to define thescope, system configuration and cost estimate has been completed with theassistance of ODA-financed consultant; the implementation managementconsultant will be mobilized in April to prepare detailed design and biddocuments for the turnkey contract construction of this component.

D. Environmental and Safety Aspects

4.15 The proposed project is a category A project under IDA'sOperational Directive for environmental screening. TOR for the Environmentaland Safety Assessment (ESA) of the project were prepared jointly byPetrobangla and IDA. The ESA was carried out by Petrobangla with theassistance of international consultants. As part of the environmentalassessment process, a comprehensive baseline data acquisition program for theproject area was carried out during July 1993 - July 1994; this provides asound basis for future environmental mitigation and monitoring. Annex 4.4provides the summary of the ESA report.

4.16 The proposed project would have significant environmental benefits.Increased gas supply and utilization would reduce consumption of liquidpetroleum products and fuelwood, wnich would in turn reduce emission of SO2and CO2, and alleviate the pressure on deforestation. Gas produced from knownfields contains no sulphur. Furthermore, gas used in combined-cycle powerplants -- the typical technology for generation capacity addition, emits onlyhalf as much CO2 as a oil-fired power plant. The reduction in Co2 emissionoffers a highly effective response to the greenhouse effect.

4.17 Potential significant negative environmental impacts include: (a)surface/ground water contamination which may be caused by improper handling ofwastes from well drilling sites, process facilities and the A-B pipelineduring both the construction and operational phases; and (b) soil erosionwhich may arise from the construction of the A-B pipeline. The ESA reportfully addresses these potential impacts and recommends appropriate mitigationactions. The pipeline route has been selected based on the criterion of

minimizing involuntary resettlement. Directional drilling underneath the

river beds would be used for river crossing in order to eliminate impact on

river flow regimes and fish habitat. Location of drilling well sites and

surface facilities would be chosen to minimize land requirement anddegradation. The entire project design and construction would conform withinternational engineering and safety standards as well as sound environmentalmanagement practices. Based on the results of an already completed soil

survey, a topsoil restoration program would be executed by the pipelinecontractor along the pipeline route.

4.18 The safety aspect of gas transmission, distribution and storage is

regulated by Bangladesh's existing law, i.e., the 1991 Natural Gas Safety

Rules. However, the lack of adequate formal, uniform standards and technical

procedures within the Petrobangla group tends to inhibit the effectiveness ofthe above legislation. As part of the environment and safety assessment, a

team of experts from British Gas was engaged in August 1993 to carry out a

safety audit of the group's entire operations. The audit concludes that alloperating companies are generally operating an adequate system. Nevertheless,

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to properly manage potential hazards associated with a growing gas network,the audit recommends that Petrobangla:

(a) adopt a common set of safety standards and codes that arecomprehensive, up-to-date and are disseminated to managers andsupervisors;

(b) carry out technical audits of existing facilities and systems toensure their compliance with the requirements of the 1991 GasSafety Rules;

(c) adopt common emergency response procedures; and

(d) provide formal and certificated training for managers, supervisorsand operatives particularly with regard to Ci) regulator design,operation and maintenance; (ii) pipeline maintenance; (iii) leakdetection and pipeline surveillance; and (iv) corrosion prevention.

These recommendations have been incorporated in the terms of reference for theenvironmental and safety management technical assistance to be implementedunder the project.

4.19 Notwithstanding its good operational safety records and itscommitment to adhere to the laws issued by the Government for the protectionof the national environment and the health and safety of its employees,consumers and the general public, as manifested in the December 15, 1992Environmental and Safety Policy Statement, the Petrobangla group currently hasno well-defined safety engineering standards and environmental regulation, nordoes it have an adequate institutional framework and capability to properlyadminister the safety and environmental aspects of its operations.Recognizing the critical need to address this deficiency, Petrobangla hasrecently created an Environment and Safety Division which would serve as thefocal point for coordinating among all operating companies (i) development anddissemination of a comprehensive set of safety standards and environmentalprotection rules, and (ii) implementation of an environmental and safetymanagement system. Technical assistance will be provided under the proposedproject to help Petrobangla develop and implement a group-wide environmentaland safety management program, including the implementation of a soundmonitoring system (para. 4.10).

E. Land Acauisition and Resettlement

4.20 Bangladesh is administratively divided into districts which aresubdivided into thanas and further into unions. The project area totals about17.5 km2, involving three districts -- Habiganj District where the Rashidpurgas field is located, and the Brahmanbaria and Comilla Districts through whichthe A-B pipeline is routed. About 60% of the project area is undercultivation throughout the year.

4.21 Construction of the A-B pipeline would require permanentacquisition of a 10-meter wide strip for pipeline right of way and temporaryrequisition of a 15-meter wide strip for construction purposes. IDA isgenerally satisfied with the effort made by Petrobangla to minimizeinvoluntary resettlement in selecting the pipeline route. Populationdisplacement by the A-B pipeline is very limited, involving twelve households;the amount of land acquired per owner is very small. Land acquisition (about

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5S hectares) and requisition (about 91 hectares) has been completed. In theRashidpur area, the main land ownership rests with GOB (the Ministry ofForestry). The new gas processing plant will utilize the existing acquiredsite. To minimize taking of land for the drilling operation, directionaldrilling will be adopted wherever practical, and use of a single commondrilling operations camp and closed drilling systems will be specified in thedrilling contract. Land required for the drilling sites would not exceed1.5 hectares. Existing access roads and pipeline rights-of-way will be usedwherever possible to minimize impact of road construction.

4.22 Affected landowners are compensated as per recorded land value plusa SOW premium as per the 1993 Amendment to the 1982 Acquisition andRequisition of Immovable Property Ordinance. In addition, affected farmersare compensated for loss of crops according to the current market prices.Assurance has been given by Petrobangla that, as per its practice, theaffected land owners have the additional benefit of cultivating the landacquired by Petrobangla after the completion of pipeline construction exceptfor the periods for emergency and/or maintenance work.

4.23 Taking the lessons of experience from the construction of theNorth-South pipeline, Petrobangla has recognized the need to improve theinformation provided to the people affected by the project (PAPs) and formonitoring of the compensation and land acquisition/requisition process.Specifically, Petrobangla, with the assistance of a local consultant, hasundertaken the following steps:

On information/consultation:

(a) establish Public Consultation and Grievance Committees at thanalevel. The role of the committees is to hear any grievances ofPAPs, including sharecroppers, and bring the matter to theappropriate authority (District Commissioners or Petrobangla).Each Committee would have one representative from the affectedcommunities, one appointed by the District authorities and one fromPetrobangla. The Committees would hold their meetings close to theaffected areas, according to a timetable announced well in advance;

(b) prepare and distribute brochures explaining the project, thecommitments of Petrobangla in assisting affected people, and thegrievance mechanism;

(c) issue separate notices of eviction at least four months prior tothe contractor being given possession of the land;

On compensation:

(d) arrange with District Commissioners (DCs) for retroactive paymentof a full 50% premium on the compensation for loss of land (i.e.,payment of an additional 30t premium);

(e) compile records of the names of all affected property owners, basedon the files of the DCs. Information on lost properties,compensation amount, and compensation received will be recorded.The database will be made available to the Public Consultation andGrievance Committees;

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(f) carry out a complete registration of all households subject torelocation and assist them, on a case-by-case basis, in findingreplacement homestead land;

(g) postpone auctioning of acquired houses to the greatest extentpossible, to allow the households concerned maximum time forrelocation; and

(h) announce that a person is entitled to his/her full compensationbefore vacating the acquired property. Petrobangla will activelyassist those persons who has problems in getting theircompensation.

F. Prolect Costs

4.24 The total cost of the project, including price and physicalcontingencies, duties and taxes, is estimated at US$ 161.6 million, with aforeign exchange component of US$ 120.1 million. Duties and taxes wouldamount to about US$ 8.9 million. Project base costs are at mid-1994 pricelevel.. Physical contingencies are included at 10% of base cost. Pricecontingencies for foreign costs are based on an average annual price increaseof 2.5% for 1995-2000. Price contingencies for local costs are based onprojected annual inflation rate of 4% for FY95-97, 4.5% for FY98-99, and 5%for FY2000. Purchasing power parity is assumed for exchange rate changes overthe life of the project. Total price contingencies amount to 6% of the basecost plus physical contingencies. Project cost estimates are summarized inTable 4.1.

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TabLe 4.1: Proiect Cost Estimate

[Taka miLlion] [USs million]

Local Foreign TotaL LocaL Foreign Total

Ashuganj-Bakhrabad Gas PipeLine 503.1 1682.4 2185.6 12.5 41.8 54.3

SCADA and Telecom System 382.4 418.6 801.0 9.5 10.4 19.9

Emergency Response Equipment 20.1 64.4 84.5 0.5 1.6 2.1

Development of Three WeLLs 161.0 660.1 821.1 4.0 16.4 20.4

Gas Processing PLant 201.3 623.9 825.1 5.0 15.5 20.5

Technical Assistance:

Project Imptementation Support 88.6 346.2 434.7 2.2 8.6 10.8

Capacity Building 60.4 277.7 338.1 1.5 6.9 8.4

Training 12.1 72.5 84.5 0.3 1.8 2.1

Total Base Cost 1428.9 4145.8 5574.6 35.5 103.0 138.5

Physical Contingencies 142.9 414.6 557.5 3.6 10.3 13.9

Price Contingencies 185.7 528.6 714.3 2.4 6.8 9.2

TotaL Project Cost 1757.5 5088.9 6846.4 41.5 120.1 161.6

Interest During Construction 421.6 0.0 421.6 10.1 0.0 10.1

Total Financing Required 2179.1 5088.9 7268.0 51.6 120.1 171.7

G. Proiect Financing and Terms

4.25 The total financing required, including interest duringconstruction, would amount to US$ 171.7 million. The proposed IDA credit ofUS$ 120.8 million would finance 85% of the project's foreign cost and 56' ofthe local cost, covering about 79% of the total project cost net of duties andtaxes. ODA will provide US$ 26.9 million equivalent in grant financing forthe SCADA/telecommunication component and the MSIP technical assistance. Theremaining local cost financing requirement of US$ 24.0 million equivalentwould be met by GTCL (US$ 5.0 million), SGFL (US$ 7.7 million), and GOB'sequity contribution tb GTCL (US$ 11.3 million) I/ Table 4.2 summarizes thefinancing plan.

1/ including US$ 8.5 million in custom duties.

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Table 4.2: Proiect Financing Plan(US$ million equivalent)

Local ForeiQn Total *

IDA 18.3 102.5 120.8 70ODA 9.3 17.6 26.9 16GTC 5.0 - 5.0 3

SGFL 7.7 _ 7.7 4

GOB 11.3 - 11.3 7

Total 51.6 120.1 171.7 100

4.26 Retroactive financing up to US$ 6.5 million equivalent (about 5 of

the proposed credit) for expenditures incurred after July 1, 1994 is provided

for the A-B pipeline turnkey construction and supervision consultancycontracts; advance contracting for the same totals about US$ 50 millionequivalent.

4.27 The proposed IDA credit would be provided to GOB on standard IDA

terms. GOB would onlend the proceeds of the credit to GTCL, SGFL andPetrobangla under three separate Subsidiary Loan Agreements (SLAs) at a rateof 8t p.a., repayable over fifteen years, including five years of grace, withGTCL/SGFL/Petrobangla bearing the foreign exchange risk. Based on the spreadbetween the projected increases in international prices and local inflationrates and assuming purchasing power parity, the effective annual interest rateis expected to reach 16% by 1999, compared with the weighted average interestrate on domestic commercial bank advances of 14.5t p.a. in March 1993. The

signing of SLAs between GOB and GTCL/SGFL/Petrobangla under terms andconditions acceptable to IDA and signature of the ODA grant agreement areconditions of credit effectiveness.

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H. Procurement and Disbursement

Procurement

4.28 Procurement arrangements are summarized in Table 4.3 below.

Table 4.3: Procurement Arrm nts(in U#S mIllion)

Procurement MethodsProject Elements ICB LCB Other UF Total

(1) Turnkey ContractsConstruction of Gas Pipeline 63.3 63.3

(55.9) (55.9)Construction of Gas Processing Plant 23.9 23.9

(22.5) (22.5)SCADA & TeLeconmunication 23.2 S/ 23.2

(2) WorksConstruction & Maintenance of Wall Locations 1.8 1.6

(1.3) (1.3)(3) Eouimnent & Materials 9.7 6. 8 / 16.5

(9.2) (6.0) (15.2)(4) Technical Services

Drilling Rig Service 5.0 5.0(5.0) (5.0)

Cementing, Logging & other Services 3.0 k' 3.0(3.0) (3.0)

(5) Technical Assistance & TrainingProject Implementation Support:

A-B Pipeline 2.0 2.0

(2.0) (2.0)SCADA 4.4 g/ 4.4WeLls 2.9 2.9

(2.9) (2.9)Gas Processing Plant 3.2 3.2

(3.2) (3.2)Capacity Building:

GTCL Twinning 2.5 2.5

(2.5) (2.5)Environmental and Safety TA 2.5 2.5

(2.5) (2.5)Reservoir Management 2.4 2.4

(2.4) (2.4)MSIP 2.6 / 2.6

Training 2.4 2.4

-at2 4) _2&

Total 101.9 1.8 27.7 30.2 161.6(92.6) (1.3) (26.9) (120.6)

Note: Figures in parenthesis are aounts to be finncd by IDA. UP - Not Bank Financed.1/ Consisting of items procured through LIB CUSS 5.5 m) end direct

purchase CUSS 1.3 m)kl Services procured through LIg.LI Cofinancing by ODA.

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4.29 Goods. Works and Technical Services. Procurement of materials,equipment, services and works to be financed under the proposed credit wouldbe carried out in accordance with IDA's procurement guidelines, using IDA'sstandard bid documents for procurement under ICB and local bid documentsacceptable to IDA. Detailed procurement arrangements are given in Annex 4.5.International competitive bidding (ICB) procedures would be followed for most

of the project's procurement, and about 75% of the proposed credit amountwould be disbursed against ICB procurement. There would be six ICB packageswith an estimated total value of about US$ 100 million, comprising: (a) twoturnkey construction contracts for the A-B pipeline (US$ 63.3 million) and gas

processing plant (US$ 23.9 million), respectively; (b) three supply packagesfor tubulars (US$ 5.2 million), fluid chemicals (US$ 1.3 million), and oilwellcement (US$ 1.2 million); and (c) charter hire of one drilling rig to drillthree wells at the Rashidpur field (US$ 5.0 million).

4.30 Highly specialized materials, equipment and services, availablefrom only a small number of suppliers and contractors would be procured underlimited international bidding (LIB) procedures. There would be ten LIBpackages, with an estimated aggregate value of US$ 8.5 million, covering: (a)supply of drilling and coring bits (US$ 1.4 million), wellheads (US$ 1.3million), downhole completion equipment (US$ 1.8 million), casing accessories(US$ 0.3 million), drilling fluid additives (US$ 0.3 million), oilwell cementadditives (US$ 0.2 million), wellhead fittings (US$ 0.2 million); (b) threeservice contracts for electric well-logging (US$ 1.5 million), well cementingand production testing (US$ 1.0 million), and drilling mud (US$ 0.5 million);

and (c) emergency response equipment (US$ 2.5 million). Under LIB procedures,bids would be invited from a list of potential suppliers broad enough toensure competitive prices, without open advertisement.

4.31 Proprietary spare parts and items for some of the existing fieldservicing units and laboratories up to an aggregate amount of US$ 1.3 millionwouuld be procured from sole source through direct negotiations. Construction

and maintenance of the three well drilling location pads along with their

access roads, estimated to cost US$ 1.8 million, would be packaged in onecontract and procured under local competitive bidding procedures acceptable to

IDA. The contract involves labor-intensive work, and is unlikely to attract

the attention of foreign bidders. However, foreign bidders would be allowedto bid if they so desire.

4.32 Local bidders participating in ICB for supply of goods would

receive a preference in bid evaluation of 15% of the CIF price or the

prevailing customs duty applicable to nonexempt importers, whichever is less.For contracts for works to be awarded on the basis of ICB, a margin of

preference of 7.5% would be granted to eligible domestic contractors. Nodomestic preference would be applicable to procurement under LIB procedures.

4.33 Consultancv Services and Training. Consultancy services financedby IDA would be procured in accordance with the Bank's Guidelines for Use of

Consultants by World Bank Borrowers and by the World Bank as Executing Agency(August 1981), including use of the Bank's Standard Form of Contract for

Consultants' Services. Selection of consultants for all assignments,including the GTCL twinning arrangement, would be from a shortlist agreed by

IDA and under terms of reference satisfactory to IDA. Specialized

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institutions will be engaged to implement the agreed training program,

following procedures acceptable to IDA.

4.34 All goods and technical services contracts valued US$ 200,000 ormore, works contracts US$ 300,000 or more, consulting firm contracts US$100,000 or more, and individual consultant contracts US$ 50,000 or more will

be subject to prior review by IDA. This would cover about 90' of procurement

financed under the proposed credit.

4.35 Procurement of goods and services financed by ODA would follow thecofinancier's procurement guidelines.

Disbursement

4.36 Disbursement from the proposed credit would be made against:

(a) 100% of foreign expenditures and 100% of local expenditures (ex-

factory cost) for goods procured through ICB, LIB and directpurchase, and 70% of local expenditures for items procured locally;

(b) 100% of foreign expenditures and 75% of local expenditures forturnkey construction of the A-B pipeline and gas processing plant;

(c) 100% of total expenditure for well drilling and completionservices;

(d) 70% of total expenditures for civil works procured locally; and

(e) 100% of total expenditure for consultancy services and training.

4.37 To facilitate disbursement, a Special Account in US dollars wouldbe established for the proposed credit with an authorized allocation of US$ 5million, estimated on the basis of four months' average expenditures. Alldisbursements would be made following standard IDA documentation requirements,except for contracts valued at US$ 100,000 equivalent or less per contract forgoods, well drilling services, civil works, and consulting services (firms

only) and individual consultant contracts valued at US$ 50,000 equivalent orless per contract for which Statement of Expenditures (SOE) procedures wouldbe used. Project beneficiaries would retain detailed documentation supportingSOEs for inspection by IDA's supervision missions.

4.38 The disbursement profile shown in Annex 4.6 is based on completionof the proposed project by June 30, 1999. The credit closing date will beJune 30, 2000. The total disbursement period for the project is expected to

be about 5.5 years after credit approval.

I. Prolect Implementation

4.39 Project implementation responsibilities rest with GTCL for the A-Bpipeline, SCADA/telecommunication and twinning, with SGFL for the Rashidpurfield development, and with Petrobangla for the environmental and safetytechnical assistance, reservoir management, MSIP and training program. Theproject implementation schedule is shown in Annex 4.7.

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4.40 Physical Works. Implementation arrangements for the project'sphysical works builds on the lessons learned from previous projects andproject entities' current limitations. Four project managers have beenappointed, one each for the A-B pipeline, SCADA, drilling and gas processingcomponents. The A-B pipeline, SCADA/telecommunication system, and gasprocessing plant would be constructed on a turnkey contract basis.Consultants from reputable international engineering firms will be engaged to

assist the project implementation units of GTCL/SGFL in carrying out bidevaluation and construction supervision. To minimize risk of delay in theproject's physical start-up, the signing of the A-B pipeline constructioncontract and appointment of supervisory consultants for the Rashidpur fielddevelopment drilling and associated gas processing plant are conditions of

credit effectiveness.

4.41 Petrobangla Group's Capacitv Buildina. For the environmental andsafety TA, Petrobangla's Environment and Safety Division will serve as the keycounterpart to the team of international and local consultants and will beresponsible for coordinating among all operating companies the implementationof a group-wide environmental and safety management system; the ReservoirEngineering Department at Petrobangla will be responsible for implementing thereservoir management TA; the office of the Director of Finance, Petrobangla,will oversee the implementation of the MSIP; and Petrobangla's Training

Department will administer the delivery of the agreed training program.Implementation of the above technical assistance is scheduled to commence byOctober 1995.

J. Proiect Monitoring and Sunervision

4.42 The frequency and format of project reporting requirements (Annex4.8) were discussed and agreed with project beneficiaries during negotiations.During project implementation, GTCL/SGFL/Petrobangla will report progress on

the various physical and institutional components of the project throughquarterly progress reports and on the financial performance through annualfinancial statements. GOB will furnish to IDA not later than six months afterthe end of each fiscal year the auditor's report on withdrawals made on thebasis of statements of expenditures and from the Special Account. Within fourmonths of the project closing date, GTCL/SGFL/Petrobangla will prepare and

furnish to IDA a Project Implementation Completion Report of such scope and insuch detail as IDA shall reasonably request, on the execution and initialoperation of the project, its costs and the benefits derived from it, theaccomplishment of the objectives of the credit, the plan for the project'sfuture operation and the lessons learned.

4.43 The consultants employed for implementing various technical

assistance assignments provided under the project will submit monthly reportscomparing actual progress against agreed performance indicators to respectiveproject implementing entities with an executive summary. A copy of theexecutive summary will also be sent to IDA. On completion of their

assignments, the consultants will submit a detailed report with a copy to IDA

on their achievements of assignment objectives. These reporting requirementsare included in the terms of reference for consultancy services.

4.44 It is expected that two supervision missions per year will berequired over the life of the project, with an estimated total staff input of64 staff-weeks. A tentative supervision plan is given in Annex 4.9. During

- 31 -

negotiations agreement was reached on (a) an annual review involving IDA, ODAand GOB to evaluate the project implementation progress, GTCL's/SGFL'sfinancial performance, implementation of the sector's PIP, and GOB's progressin carrying out further reforms in the gas sector, (b) a comprehensive mid-term review to be carried out not later than March 31, 1997; and (c)performance indicators against which the reviews will be carried out. Theagreed performance indicators are given in Annex 4.10.

K. Prolect Risks

4.45 The proposed project would not have any significant technicalrisks. The wells are to be drilled in the known field with currentlyestimated recoverable reserve sufficient to sustain the production of sevenwells for at least twenty years. Also, given that the country has sufficientrecoverable reserves to meet domestic requirements for another fifty years orso, the risk of insufficient gas reserves to justify the pipeline investmentis minimal. The potential risks for the project fall into two categories: (a)delays in project procurement, and (b) the Petrobangla group's limitedcapability to implement the project and complementary investments in a timelymanner. These risks have been recognized and actions initiated to minimizetheir impact. Adequate technical assistance is provided under the project toassist in the implementation and construction supervision of project works.Advance procurement actions have been initiated, and appointment ofsupervisory consultants and contract award for the A-B pipeline are conditionsof credit effectiveness. To ensure balanced and timely implementation of thesector's overall priority investment program, donor coordination will bevigorously pursued through joint supervision missions and semi-annualcoordination meetings.

V. FINANCE

A. Introduction

5.1 While the gas sector has mobilized significant amounts of revenuesfor the Treasury, the Petrobangla group's past financial performance has beenmarginal. GOB's excessive levy of excise on gas sales have left grosslyinadequate funds for the OCs to carry out their operations in accordance withcommon industry standards and practices, and the group's ability to contributeinternal resources toward capital investments remains limited. Financing forthe group's investment program has been entirely arranged by GOB, and fundssecured were passed on to the OCs largely as loans. The pace of the sector'sfuture development depends on the extent of GOB's success in attractingforeign private investment and in improving the existing sector entities'self-financing capabilities.

B. Past Financial Performance

GrouD Performance

5.2 The consolidated operating performance of the five OCs responsiblefor gas production, transmission and distribution for the period FY86-93 issummarized in Table 5.1. Historical financial statements are provided inAnnex 5.1.

- 32 -

Table 5.1: Petrobanata GrouW's Operatina Performance FY86-93(in Tk million)

FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93

Gas Sales (bcf) 101.0 118.8 140.9 146.3 148.4 164.1 178.6 194.5

Average Tariff (Tk/mcf) 23.5 28.8 32.0 35.6 41.5 44.8 47.0 49.6Average GOB Excise (Tk/mcf) 18.4 23.0 25.3 28.8 31.3 28.2 28.9 32.1

Average Margin (Tk/mcf) 5.1 5.8 6.8 6.8 10.2 16.6 18.1 17.5

Net Income (28) (155) 115 (208) (224) 355 578 702

Operating Ratio 0.52 0.71 0.62 0.68 0.55 0.41 0.41 0.42

Return on HistoricaL Assets(X) 7.6 4.3 5.1 4.6 7.9 11.6 11.9 12.0Current Ratio 1.0 1.0 1.0 1.0 0.9 1.0 1.1 1.1Debt Service Coverage 0.7 1.1 1.7 1.4 0.9 1.6 1.6 1.3

Contribution to Treasury 2030 2838 3716 4329 4905 5306 6043 7360Internal Cash Generation 469 658 852 907 1372 2262 2651 2790

Net Fixed Assets 3721 7318 7765 6968 10705 13666 13997 15344

5.3 The most salient feature of the group's combined operations in theperiod is their impressive growth. While gas sales doubled, net fixed assetsin operation at historical value quadrupled, reflecting the large up-frontcost for development of the gas fields and transmission/distributioninfrastructure. Even more impressive is the growth in the group'scontribution to the Treasury, which increased from Tk 2.0 billion in FY86 toTk 7.4 billion in FY93, reflecting the combined results of an average annualgrowth of 10% and 11t, respectively, achieved in the gas sales and average gastariff. However, GOB's excessive levy of excise on gas sales has seriouslyaffected the group's financial position. The group's operations during theperiod were characterized by (a) low earning capacity, (b) dependence onexternal sources to finance investment, and (c) inadequate collections.

5.4 Low Earning CaDacitv. Since its inception, the Petrobangla grouphas been operated like a direct extension of the Government. This managementphilosophy is reflected in GOB's policy on excise duty levied on gas sales.During FY86-90, excise duty was at a level exceeding 75% of gas sales revenue,a situation unprecedented elsewhere. As a result, the OCs' combined rate ofreturn on historically valued net fixed assets in operation was around orbelow 8% during the period. Although the reduction in GOB's take to about 62%in FY91 helped to increase the OCs' combined rate of return to around 12% inFY91-93, internally generated funds were insufficient to provide a significantlevel of self-financing after meeting debt service and other mandatoryoutlays. The shortage of funds resulted in absence of proper maintenance ofthe group's facilities. This is an area where corrective action is criticallyrequired to prevent potentially serious safety hazards and damage to assets.

5.5 Financing of Investment. During the period, internal cashgeneration of the five OCs totalled Tk 12.0 billion, 68% of which wasearmarked for debt service. As shown in Table 5.2, the OCs financed about 70%of their investment requirements by borrowing. GOB provided a total of

- 33 -

Tk 21.0 billion or about 92% of total investment requirements, about threequarters of it passed as loans and the balance as equity contribution.

Table 5.2: Financing of Investment. FY86-93(in Tk billion)

Capital Investments 22.8 100

Internal Cash Generation 12.0Less:Debt Service 8.1

Increase in Working Capital 0.8Dividends 0.7Contribution to Bapex 0.5

Internal Funds Available for Investment 1.8 8

Amount Financed from External Sources 21.0 92of which:Loans onlent by GOB 16.0 70GOB Equity Contribution I/ 5.0 22

1/ including debt to equity conversion totalling Tk 2284 million.

5.6 Collections. Under the SGDP, Petrobangla was required to ensurethat OCs' accounts receivable would not exceed three months of gas sales. Asof March 31, 1994, total accounts receivable was equivalent to 3.2 months'billings. The three categories of consumers with arrears exceeding threemonths as of March 31, 1994 were: private consumers (34% of total accountsreceivable and 4.0 months' billings; public sector consumers, excluding powerand fertilizer (17% of total and 21.8 months' billings); and BangladeshPetroleum Corporation (9% of total and 4.6 months' billings). While aggregateaccounts receivable from BPDB and BCIC are now maintained at a level equal totwo months of billings, the backlog of arrears from sales of gas to thefertilizer plant at Fenchuganj and the Shahaji Bazar power station hasnegatively impacted on JGTDSL's, and hence SGFL's, accounts receivableposition. During negotiations, it was agreed that GOB will cause to becarried out a program satisfactory to IDA to clear public sector consumers'arrears for gas and condensates supplied by the gas operating companies.

Svlhet Gas Fields Limited (SGFL)

5.7 SGFL is the oldest gas production company in Bangladesh.Presently, gas is produced from three gas fields, i.e., Kailashtilla, Sylhetand Rashidpur, with average daily production of about 110 MMCFD of gas and 255BBL/day of associated condensates. The company is also producing oil from asingle well in Sylhet at the rate of 240 BBL per day. Although gas salesremained stagnant during the period FY86-93, SGFL had maintained a profitableposition, primarily due to the proceeds of its sales of oil and condensateswhich have a much lower excise duty than natural gas. As shown in Table 5.3,at the end of FY93, SGFL had a satisfactory financial position. Its long termdebt was 45% of its capital structure, and its current ratio of 2.6 was instriking contrast with the position of other OCs. The return on average nethistorical fixed assets was around or above 50% during FY89-93, reflecting thefact that the company had benefitted from having a small, old asset base.

- 34 -

TabLe 5.3: SGFL's Operatina Performance FY86-93(in Tk miLLion)

FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93

Gas SaLes (bcf) 7.8 9.4 10.2 10.3 9.9 10.0 9.1 9.6Condensate (miLlion litre) 10.1 12.6 12.2 13.1 13.7 13.8 14.5 14.5

Net Income 32.6 16.0 29.0 31.0 33.9 72.7 84.0 78.7

Return on Historicat Asset (%) 43 23 38 53 49 68 68 67

Current Ratio 1.9 1.9 1.7 1.9 3.3 2.3 2.2 2.6

Debt/Debt + Equity (X) 37 53 53 52 52 49 49 45

Contribution to Treasury 198.6 265.1 320.8 362.9 381.6 405.8 397.6 416.3

InternaL Cash Generation 55.2 34.5 40.4 71.7 81.7 135.8 141.7 127.6

Net Fixed Assets 90.6 82.3 87.7 113.0 115.8 163.4 156.0 147.3

C. Financial Outlook

5.8 Financial Obiectives. To promote efficient and self-sustainingdevelopment of the gas sector, and to mobilize private capital, it isessential that the gas sector entities be operated on a commercial basis withclearly defined financial objectives in that revenues generated and retainedby the OCs cover operating expenses, debt service requirements, an adequateprovision of working capital, and a reasonable portion of their investmentrequirements. To improve the gas production, transmission and distributionOCs' finances and to pave the way for private entry, it was confirmed duringnegotiations that GOB will take all necessary actions, including authorizationof adjustments to gas tariffs and GOB's excise duty, to enable: (a) BGFCL,SGFL, TGTDC, BGSL and JGTDSL to self-finance a minimum of 20-30% of theirrespective investment programs after meeting debt service and provision ofworking capital; and (b) GTCL to achieve at least break-even during the lifeof the project.

5.9 Investment Proqram. According to the gas sector's priorityinvestment program (para. 2.11), GTCL's and SGFL's investments during FY95-2000 are estimated at US$ 177 million and US$ 167 million in 1994 prices,respectively, representing about 29% and 27% of the overall PIP. If the twoproduction sharing contracts referred to in para. 2.17 are successfullyimplemented, investments taken up by the private sector would partiallyreplace or postpone the need for capacity addition at the Kailashtilla field,thus reducing SGFL's overall investment requirement during the forecastperiod. Besides the A-B pipeline and the SCADA/telecommunication system,GTCL's investment program includes the 20,000 BHP capacity Ashuganj compressorstation (US$ 25 million) and the Habiganj-Ashuganj loopline (US$ 44 million),which will be required to increase the capacity of the North-South pipelinefor FY99 and beyond.

5.10 Financial Proiections. Based on the sales growth, investmentlevels and self-financing targets discussed above and other assumptions setout in Annex 5.3, pro forma financial statements for SGFL and GTCL for FY95-

- 35 -

2000 have been prepared and are given in Annex 5.2. The key financial

indicators are summarized in tables 5.4 and 5.5, respectively.

Table 5.4: SGFL - Summary of Proiected Financial Performance FY95-2000

(in current Tk million)

FY95 FY96 FY97 FY98 FY99 FY2000

Gas Sales (BCF) 50 68 77 103 11 126

Gas Liquids (million litre) 39 130 172 229 262 278

Gas Margin (Tk/MCF) 6.6 7.3 8.0 9.1 10.0 11.4

Net Income 211 270 455 750 808 829

Net Fixed Assets 4328 4096 4208 6130 11252 10777

Return on Assets (e) 16 13 17 20 15 14

Current Ratio 2.4 2.4 1.8 1.7 2.5 2.9

Debt/Debt + Equity (U) 61 63 66 69 65 60

LTD Service Coverage 3.3 1.5 1.8 2.3 2.2 2.1

Table 5.5: GTCL - Summary of Proiected Financial Performance FY95-2000

(in current Tk million)

FY95 FY96 FY97 FY98 FY99 FY2000

Throughput (BCF) 69 81 100 135 156 169

Wheeling Charge (Tk/MCF) 6.6 7.3 8.0 9.1 10.0 11.4

Net Income (49) 57 157 231 330 472

Net Fixed Assets 5370 5207 7680 8603 10332 9929

Return on Assets (t) 4 6 7 8 8 10

Current Ratio 0.6 0.6 0.6 0.7 1.0 1.2

Debt/Debt + Equity (e) 60 60 59 60 59 56

LTD Service Coverage 1.6 0.9 1.1 1.4 1.5 1.7

5.11 SGFL. During the projection period, SGFL is expected to grow

significantly. The commissioning of the investments constructed under SGDP,

together with planned addition of supply capacity at Rashidpur and

Kailashtilla (7 X 30 MMCFD), would bring its annual sales from the level of 23

BCFin FY94 to 103 BCF by FY98, a five-fold increase. Given the assumed margin

increases, the financial projections indicate that SGFL would produce

acceptable financial results. Despite the large increase in the size of asset

base, the rate of return on net fixed assets in use would be around 15% on

average. Cash flows from gas sales would develop to enable SGFL to achieve an

- 36 -

average self-financing ratio of about 25% 2/ and debt service would becovered a minimum of 1.5 times throughout the period. However, SGFL's futureperformance is sensitive to the timely implementation of tariff adjustments.To ensure adequate internal resource generation and SGFL's financialviability, agreement was reached with GOB/SGFL during negotiations that allnecessary actions will be taken to enable SGFL to: (a) achieve a minimum of15% annual rate of return on its average net fixed assets in operation; (b)maintain its accounts receivable from the sales of gas and condensates at alevel not exceeding the equivalent of three months' billings; and (c) maintaina debt/equity ratio of not greater than 70/30.

5.12 Given the debt service burden associated with the large investmentcosts of the North-South pipeline (Tk 5.6 billion or US$ 140 millionequivalent) and the timeframe required for the utilization of the new capacityto build up, it is realized that during FY95-98 GTCL will be unable to provideany meaningful self-financing for the A-B pipeline and SCADA components aftermeeting debt service. To ensure GTCL's meeting the minimum financialperformance target during the life of the project in that revenues generatedat least equal cash operating expenses and debt service, agreement was reachedwith GOB/GTCL that all necessary actions will be taken to enable GTCL to: (a)achieve a minimum annual rate of return of 4% in FY95, 6% in FY96-97, 7% inFY98, 8% in FY99, and 10% for FY2000 and thereafter; (b) maintain accountsreceivable at a level not exceeding the equivalent of three months' billings;and (c) maintain a debt/equity ratio of not greater than 60/40.

VI. PROJECT JUSTIFICATION

A. Justification

6.1 The proposed project's physical investments are the most urgentcomponents of the gas sector's priority investment program (PIP). The PIP,estimated to cost about US$ 600 million in 1994 prices, is a minimal set ofleast cost investments required to achieve supply and demand balance aroundFY98. The PIP was discussed with Petrobangla during project appraisal and thejustification for all its components was confirmed. About 54% of the requiredinvestment would be for development of new wells and construction ofassociated gas treatment facilities, 30% for integration and expansion of thehigh pressure transmission grid. The PIP would be updated and reviewed withIDA and other donors on an annual basis to take account of changes in the gasdemand and investments taken up by the private sector (para. 2.11).

6.2 As discussed in para.2.10, current gas demand during the peak hoursis already outstripping the supply capacity. Projected demand and supply ofnatural gas indicate that supply shortages would continue in the Titas andBakhrabad franchises through 1998 when additional supply capacity to beconstructed under the proposed project and ADB's Third Natural Gas DevelopmentProject is expected to come on stream. To increase the supply of gas as earlyas possible, thereby minimizing the cost to the economy, development of newcapacity at the Rashidpur, Habiganj and Titas gas fields and integration of

?J excluding the investments constructed under SGDP to be transferred to SGFCL with a debt/equity ratio of70/30.

- 37 -

the two transmission subsystems via the A-B pipeline represent the optimalsolution.

B. Proiect Benefits

6.3 Benefits would include increased availability and improvedreliability of gas supply, and resource savings from substitution of gas forimported alternative fuels, particularly for power generation. Theinstitutional support would bring about sustained improvement in Petrobanglagroup's operational safety and asset maintenance. The project would alsocontribute towards mitigating the impact of energy use on the quality of theenvironment.

C. Economic Rate of Return

6.4 While the proposed project constitutes an important part of thePIP, its benefits to consumers are not readily separable from those of otherleast cost investments in the PIP, as the A-B pipeline, the project'sprincipal component, is geared to provide a transportation link for the newproduction capacity included in the PIP. In these circumstances, it isappropriate to carry out the cost-benefit analysis of the sector's entireinvestment program to ensure that it is justified. For this purpose, thecapital costs of the investment program for the period FY95-2000, togetherwith the incremental operating and maintenance costs associated with theinvestment program, are compared with the economic benefit of the investmentprogram. All costs are expressed in terms of their equivalent border values.A minimum measure of the economic benefit associated with the investmentprogram is represented by incremental sales revenue. On this basis, the rateof return is estimated to be 23%. Sensitivity analysis based on the firstslice of the PIP, for which financing has been secured, yields a rate ofreturn of around 19%. Details of the analysis are given in Annex 6.1.

6.5 The foregoing revenue-based measure of rate of return is, by itsnature, more a measure of the adequacy of prevailing tariffs than of the trueeconomic merit of the investment program which includes the proposed project.A better measure of the rate of return can be obtained using the internationalprice of fuel oil as a proxy for economic benefit. The ERR thus calculated isabout 33% for the entire PIP, and 30% for the first slice. A 20% increase incapital costs would reduce the rate of return to about 29%. A lower gas salesgrowth of 7% p.a. would result in a rate of return of 31%. The proposedproject is fully justified.

VII. AGREEMENTS REACHED AND RECOMMENDATION

7.1 During negotiations, GOB agreed to:

(a) prior to the beginning of each fiscal year, jointly review with IDAthe gas sector's priority investment program, its implementation inthe current fiscal year and implementation plan for the threesucceeding fiscal years (para. 2.11);

(b) by December 31, 1995, carry out a joint review with IDA of itsaction plan for strengthening the institutional and regulatoryframeworks for the petroleum/gas sector (para. 2.18);

- 38 -

(c) before the start of each fiscal year, review with IDA the marginsallowed to the gas operating companies in respect of such year(para. 2.19);

(d) cause to be carried out a program satisfactory to IDA to clearpublic sector consumers' arrears for gas and condensates supplied

by the gas operating companies (para. 5.6);

(e) take all necessary actions to enable: (i) the gas operatingcompanies to meet their financial objectives (para. 5.8); and (ii)SGFL and GTCL to achieve specified rates of return on net fixedassets in operation (paras. 5.11 and 5.12); and

(f) provide to IDA not later than six months after the end of eachfiscal year the auditor's report on withdrawals made on the basisof statements of expenditures and from the Special Account (para.4.42).

7.2 During negotiations, agreement was reached on the following:

(a) GTCL/SGFL/Petrobangla will submit audited annual accounts togetherwith the auditor's report within six months of the end of thefiscal year under consideration (para. 3.9);

(b) Petrobangla will commence, by October 1, 1995, the implementationof the environmental and safety technical assistance, MSIP, and thetraining program (para. 4.41);

(c) GOB/GTCL/SGFL/Petrobangla will carry out an annual project reviewas well as a comprehensive mid-term review by March 31, 1997 (para.4.44); and

(d) GTCL/SGFL will earn specified levels of rate of return on net fixedassets in operation and maintain accounts receivable anddebt/equity ratio (paras. 5.11 and 5.12).

7.3 Prior to credit effectiveness, the following actions will becompleted:

(a) GTCL to sign the contract for the turnkey construction of the A-Bpipeline (para. 4.40);

(b) SGFL to appoint consultants for the Rashidpur drilling andassociated gas processing facilities components (para. 4.40);

(c) GOB, Petrobangla, GTCL, SGFL to sign subsidiary loan agreementsunder terms and conditions acceptable to IDA (para. 4.27); and

(d) GOB/ODA to sign the ODA grant agreement (para. 4.27).

7.4 With the above agreements and assurances, the proposed projectconstitutes a suitable basis for an IDA credit of SDR 83.4 million (US$ 120.8million equivalent) on standard IDA terms with 40 years maturity to thePeople's Republic of Bangladesh.

- 39 -ANNEX 1.1

NATURAL GAS TARIFFS (FY86-94)(TktMCF)

FY86 FY87 FY88 FY89 FY90 FY91 FY92 1 FY94 2/

End User PricesPower 15.66 19.09 24.82 28.54 33.00 37.95 43.04 47.57Fertilizer 15.66 19.09 24.82 28.54 28.54 32.82 37.38 41.34Industrial 43.20 52.14 52.14 59.96 70.00 80.50 93.73 103.07Commercial 54.24 65.39 85.00 97.77 110.00 126.50 134.23 147.53Residential 40.80 44.88 56.10 56.10 65.00 74.75 82.12 82.12Tea Estates 40.05 40.05 40.05 83.15 83.15 95.62 110.15 113.27

Excise DutyPower 12.80 15.72 20.30 23.28 25.96 25.96 27.18 26.16Fertilizer 12.80 15.72 20.30 23.28 23.28 23.28 24.35 22.74Industrial 28.13 35.73 35.73 41.99 48.01 48.01 52.67 56.69Commercial 37.54 47.02 62.70 72.90 80.24 80.24 88.07 81.15Residential 27.77 31.24 40.21 40.21 45.55 45.55 45.59 45.17Tea Estates 37.15 37.15 37.15 45.83 45.83 45.83 50.41 62.30

Production MarginPower 1.00 1.13 1.47 1.69 2.23 3.67 4.84 6.64Fertilizer 1.00 1.13 1.47 1.69 1.69 2.95 3.83 6.64Industrial 1.00 1.33 1.33 1.80 3.00 6.10 8.73 6.64Commercial 1.90 2.32 3.50 4.26 5.73 10.58 10.76 6.64Residential 1.00 1.15 1.82 1.82 2.89 5.75 7.83 6.64Tea Estates 2.90 2.90 2.90 3.55 3.55 7.22 9.99 6.64

Transmission/Distribution MarginPower 1.86 2.24 3.05 3.57 4.81 7.56 10.16 12.87Fertilizer 1.86 2.24 3.05 3.57 3.57 5.93 8.45 10.31Industrial 14.07 15.08 15.08 16.17 18.99 24.78 30.46 35.62Commercial 14.80 16.05 18.80 20.61 24.03 33.15 32.72 53.84Residential 12.03 12.49 14.07 14.07 16.56 21.96 27.06 27.03Tea Estates 0.00 0.00 0.00 33.77 33.77 40.66 47.55 39.80

Contribution to BAPEXPower - - - - - 0.76 0.86 1.90Fertilizer - - - - - 0.66 0.75 1.65Industrial - - - - - 1.61 1.87 4.12Commercial - - - - - 2.53 2.68 5.90Residential - - - - - 1.50 1.64 3.28Tea Estates - - - - - 1.91 2.20 4.53

Note: 1/ Effective May 1992.2/ End-User tariffs effective March 1, 1994. As of March 1, 1994. margins allowed to the gas production,

transmission and distribution companies Include respective shares of hydrocarbon development fund.Source: Petrobangla

- 40 -ANNEX 1.2

RETAIL PRICES OF PETROLEUM PRODUCTS (FY87-94) 1/(in Tk per litrs)

1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993194

Premium gasoline 13.86 13.86 13.86 8.58 14.95 14.95 14.65 14.28

Regular gasoline 13.20 13.20 13.20 8.20 14.00 14.00 13.70 13.34

Kerosene 7.40 7.40 7.40 7.30 14.00 14.00 13.70 12.41

Diesel oil 6.90 6.90 6.90 7.30 14.00 14.00 13.70 12.41

Fuel oil 4.70 4.70 4.70 5.10 7.41 7.41 7.11 4.51

Jet oil 8.67 8.67 8.67 9.07 16.92 16.92 16.62 16.12

(in U.S. dollars per gallon)

Premium gasoline 1.71 1.68 1.63 0.99 1.59 1.59 1.64 1.62

Regular gasoline 1.63 1.60 1.55 0.94 1.49 1.49 1.54 1.52

Kerosene 0.92 0.89 0.87 0.84 1.49 1.49 1.54 1.41

Diesel oil 0.85 0.83 0.81 0.84 1.49 1.49 1.54 1.41

Fuel oil 0.58 0.57 0.55 0.59 0.79 0.79 0.80 0.51

Jet oil 1.07 1.05 1.02 1.04 1.80 1.80 1.87 1.83

Note: 1/ End year data.

Source: Bangladesh Petroleum Corporation

- 41 -

ANNEX 2.1

GAS RESERVE ESTIMATES(in BCF)

Proven Cumulative Remaining ProductionGas Fields Probable Recoverable Production Recoverable in FY94

(6194)

Main FieldsBahkrabad 1432 867 375 492 47Titas 4138 2100 1107 993 98Habiganj 3669 1895 426 1469 50Rashidpur 2242 1309 12 1297 12Beani Bazar 243 114 - 114 -

Kallashtilla 3657 2529 73 2456 10

Subtotal 15381 8814 1993 6821 217

Other FieldsBelabo 194 126 - 126 -

Begumganj 25 15 - 15 -

Chattak 1900 1140 27 1113 -

Fenchuganj 350 210 - 210 -

Feni 132 80 17 63 6Jalalabad 1500 900 - 900 -

Kamta 325 195 21 174 -

Kutubdia 780 468 - 468 -

Meghna 159 104 - 104 -

Semutang 164 98 - 98 -

Sylhet 444 266 153 113 1

Subtotal 5973 3602 218 3384 7

Total 21354 12416 2211 10205 224

- 42 - ANNEX 2.2

GAS CONSUMPTION -- FY80. 85-94(in BCF)

Sector FY80 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY85-94Average Annual

Growth (%)

POWe 15.9 38.3 39.8 51.8 62.1 65.5 74.5 81.5 88.5 93.3 97.3 10.9

Fertilize 18.8 27.2 33.7 34.9 51.0 53.4 55.9 54.1 61.4 68.9 74.5 11.8

Industrial 7.1 12.6 16.4 18.7 16.7 15.0 14.7 15.5 14.1 14.5 18.5 4.4

Domestic 2.6 6.3 6.8 6.8 7.6 9.3 10.3 10.1 11.4 13.1 15.4 10.4

Commercial 1.1 2.2 2.7 3.4 3.6 3.2 3.8 3.2 3.4 2.9 2.9 3.1

Other 0.2 0.2 0.6 1.3 1.3 0.6 0.7 0.8 1.3 1.4 1.7

TOTAL 45.7 86.8 100.0 116.9 142.3 147.0 159.9 165.2 180.1 194.1 210.3 10.3

Source: Petrobangla - Production & Marketing Division

ANNEX 2.3Page 1 of 2

GAS DEMAND FORECAST -- FY95-2000(in BCF)

FY94 FY95 FY96 FY97 FY98 FY99 FY00

Titas Franchise AreaPower 75.0 89.9 96.5 102.7 108.9 108.9 108.9Fertilizer 51.3 50.3 50.3 50.3 50.3 50.3 50.3Industrial 11.6 11.8 13.4 15.1 17.0 18.0 19.2Commercial 2.1 3.0 3.4 3.9 4.3 4.6 4.9Domestic 11.6 13.8 15.7 17.7 19.9 21.2 22.5Other 0.9 0.7 0.8 0.8 0.9 1.0 1.0

Rflot& Tftw ' 109* t80" 100.4 R0.. . . . . . .

Bakhrabad Franchise AreaPower 16.8 18.1 18.5 18.5 23.4 50.0 69.4Fertilizer 17.4 33.5 36.5 36.5 36.5 36.5 36.5Industrial 5.3 5.6 6.0 6.6 7.3 8.0 8.8Commercial 0.6 0.6 0.6 0.7 0.7 0.8 0.9Domestic 2.5 2.5 2.7 2.9 3.1 3.4 3.7Other 0.1 0.2 0.3 0.3 0.3 0.3 0.3

Jalalabad Franchise AreaPower 5.5 7.0 11.0 13.2 13.2 13.2 13.2Fertilizer 5.9 5.8 5.8 9.0 11.0 11.0 11.0Industrial 1.6 1.4 1.6 1.7 1.9 2.0 2.1Commercial 0.2 0.3 0.3 0.3 0.3 0.4 0.4Domestic 1.3 1.2 1.3 1.4 1.5 1.6 1.8Other 0.7 0.9 1.0 1.1 1.2 1.3 1.4

,:R~~~~~~~~~~~.. .. .........-:: RBB B8' B

GRAND TOTALSPower 97.3 115.0 126.0 134.4 145.5 172.1 191.5Fertilizer 74.5 89.6 92.6 95.8 97.8 97.8 97.8Industrial 18.5 18.8 21.0 23.4 26.1 28.0 30.2Commercial 2.9 3.9 4.4 4.9 5.4 5.8 6.2Domestic 15.4 17.5 19.7 22.0 24.6 26.2 27.9Other 1.7 1.9 2.0 2.2 2.4 2.5 2.7

..- .' ... ~~~~~~~~~~~~~~~~~. ....

SouRce: IDA Estimates. ' '. ' B . g GRBRR BR BRB .' RR B ............. R .....'.R.

Source: IDA Estimates

- 41, - ANNEX 2.3

Page 2 of 2

The gas demand forecast for FY95-2000 is prepared based on the followingparameters:

1. Gas-fired Electricity Generation Capacitv Addition

Capacity CommissioningUnit (MM) Date

Ghorasal St #5 210 Sept 94Fenchuganj CC 90 Sept 95Haripur GT 33 Dec 96Haripur ST 2 X 36 Dec 96Raojan #2 ST 210 Jan 97Ghorasal #6 ST 210 Jan 97Mymensingh GT 100 Dec 97Meghnaghat CC 300 Dec 98Mechnaghat CC 300 Dec 99

2. Forecast Electricity Generation Requirements

TotalGeneration Gas-based Hydro Other

Year (GWh) (GWh) (GWh) (GWh)

1995 12164 10866 Boo 4981996 13824 11841 850 11331997 15207 12795 850 15621998 16319 13677 850 1792

1999 18462 16981 850 6312000 20304 18690 850 764

3. Fertilizer Sector

Gas consumption by fertilizer production during the forecast period isbased on-the commissioning of the Karnaphuli fertilizer plant in FY95(20.5 BCF p.a.) and the new Fenchuganj fertilizer plant in Jalalabad inFY97 (il.0 BCF p.a.).

4. Industrial. Commercial and Domestic Sectors

Given the unreliability of sectoral consumption statistics resultingfrom misclassified consumption, gas consumption by the three sectors areprojected to grow at an average annual rate of 12% in Titas franchise,9% in Bakhrabad franchise, and 10% in Jalalabad franchise, resulting inan aggregate annual growth rate of about 10% for the three franchisestaken together. This is close to the combined, loss-adjusted growthrate 1/ of these sectors during FY88-93.

1/ If constant percentage Losses are assumed over the 1988-93 period and the resulting additional salesattributed to the industrial, commercial and domestic sectors, the increase in sales for thesesectors taken together wouLd have been nearly 8X

45 - ANNEX 2.4PAGE 1 OF 2

Perabanala's Ptiority Inv waent Proaramlln 104 US$ millons)

Fiscal Year 1993 1994 1995 199 1997 1998 19w 2000 Total

RIWLNGKailahtdila (4 wells) 7.00 14.00 7.00 28.00

CDIVATRashidpur (3 wells) 14.00 7.00 21.00

CDNATHabiganj (4 wells) 14.00 14.00 28.00

CDNATTitas (3wells) 7.00 14.00 21.00

CDNATFeni (1 well) 6.00 1.40 6.40

CDNATConsultances 0.60 1.80 1.80 1.80 6.00

Subttal oxcluding CDNAT 0.00 0.00 5.60 38.20 43.80 22.80 0.00 0.00 110.40CDNAT 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

DRKOVERSTltas & Bahkrabad 1.70 1.70 1.70 5.10

CDNATFenchuganj 2.00 2.00

CDNAT

Subtotal excluding CDNAT 0.00 0.00 1.70 1.70 1.70 2.00 0.00 0.00 7.10CDNAT 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

RFACE FACILITIES & TIE-INSKalla;ahtilla rie-ins 3.00 3.00 6.00

CDNATKailauhtJlla 120 MMCFD Turbo-expander 14.00 24.00 10.00 48.00

CDNATRashidpur Tie-ins 0.90 0.90 1.80

CDNATRashidpur 90 MMCFD Silica Gel 3.00 12.00 7.65 22.65

CDNATBeani Bazar Tie-ins 1.50 1.50 3.00

CDNATBeanl Bazar 60 MMCFD Turbo-expander a.00 12.00 6.00 24.00

CDNATFenchuganj 30 MMCFD Silica Gel 4.00 4.00 *.00

CDNATHabigan) 2x75 Glycol+2x60 Titas LTS 6.00 9.00 3.00 1U.00

CDNATFeni 40 MMCFD Silica Gel 8.00 8.00

CDNATConsultancies 1.60 1.60 1.80 1.60 1.60 8.00

Aahuganj NGL Plant(1S0 MMCFD) 16.00 30.00 16.00 60.00CDNAT 3.60 7.20 3.60 14.40

Subtotal excluding CDNAT 16.50 32.60 70.65 67.10 20.61 0.00 207.36CDNAT 0.00 3.60 7.20 3.e0 0.00 0.00 14.40

- 46ANNEX 2.4PAGE2OF2

P.trbanala'e Prority Inwutmetit Praram(In 19W4 US$ millions)

Fiecal Year 1993 1994 1906 1996 1997 1998 1999 2000 TotalTRANSMISSION SYSTEM

A-B Pipeline 17.00 29.00 12.00 58.00CDNAT 5.00 5.00

Fenchuganj Connection 4.00 4.00CDNAT 0.45 0.45

Meghnaghat Connection 12.00 12.00CDNAT 1.35 1.35

Ashugani Compression 3.40 13.60 5.70 22.70CDNAT 0.40 1.38 0.60 2.38

Habigani-Ashuganj Loopline 8.00 16.00 16.00 40.00CDNAT 4.00 400

SCADA Systems 7.00 12.00 5.00 24.00CDNAT 3.00 3.00

Subtotal excluding CDNAT 17.00 26.00 27.40 42.60 21.70 16.00 160.70CDNAT 0.00 5.00 3.40 3.18 4.60 0.00 1e.18

DISTRIBUTION SYSTEMJGTDSL 3.00 6.00 6.00 1.00 1.00 17.00

CDNAT 0.45 0.90 0.90 0.15 0.15 2.55TGTDC 12.00 12.00 12.00 12.00 12.00 60.03

CDNAT 1.80 1.80 1.80 1.80 1.80 9.00BGSL 1.50 1.50 1.50 1.50 1.50 7.50

CDNAT 0.23 0.23 0.23 0.23 0.23 1.13

Subtotal excluding CDNAT 0.00 16.50 19.50 19.50 14.50 14.50 84.50CDNAT 0.00 2.48 2.93 2.93 2.18 2.18 12.68

SummaryWell Drilling 5.60 38.20 43.80 22.80 0.00 0.00 110.40Workovers 1.70 1.70 1.70 2.00 0.00 0.00 7.10Surface Facilities 10.50 32.50 70.65 67.10 20.60 0.00 207.35Transmission System 17.00 36.00 27.40 42.60 21.70 16.00 160.70Distribution System 0.00 16.50 19.50 19.50 14.50 14.50 84.50

Grand Total excluding CDNAT 40.80 124.90 163.05 154.00 56.80 30.50 570.05CDNAT 0.00 11.08 13.53 9.71 6.78 2.18 43.26Grand Total including CDNAT 40.80 135.9W 176.58 163.71 63.58 32.68 613.31

- 47 -

ANNEX 3.1

STAFF COMPOSITION OF PETROBANGLA GROUP

As of December 31, 1993

Officers Staff TotalSemi-

Skilled skilledTechnical Other Technical Technical Other

PHC 66 145 84 11 338 644BGFCL 106 116 189 80 359 850SGFCL 36 61 84 5 123 309TGTDC 335 270 557 232 911 2305BGSL 177 254 141 331 553 1456JGTDC 87 69 119 - 162 437BAPEX 287 121 634 - 363 1405RPGCL 14 15 9 12 49 99

Total 1108 1051 1817 671 2858 7505

Source: Petrobangla

BANGLADESHGAS INFRASTRUCTURE DEVELOPMENT PROJECT

Gas Transmission Company Limited (GTCL). Proposed Otgantzation Chart

0GM 0GM (Purc ase oeak) (lnin) (osulOl(Admisrai*80n (FIanro) £stores)

BANGLADESHGAS INFRASTRUCTURE DEVELOPMENT PROJECT

Sylhet Gas Fields Company Limited (SGFCL) Organization Chartr Ooad of Direckws

Ma|O Direlo l

I ConVany Seuselauy

Z3

Gene|alas Ihe Chtte Rashi[pur IAdriviiisjiaLon to son AccOUIS Futancan Fa Field Field Fietd /w5572b

madsJwSS792b

-0 ANNEX 4.1

Page 1 of 4

PROJECT DESCRIPTION

Background

1. The proposed project would be IDA's third lending operation toassist GOB in expanding the country's gas supply and delivery capacity,following the Bakhrabad Gas Development Project (BGDP, Cr. 1091-BD, approvedin December 19R0) and the Second Gas Development Project (SGDP, Cr. 1586-BD,approved in April 1985). With its main objective of making gas available toconsumers in the Chittagong area, the BGDP provided financing for thedevelopment of the Bakhrabad gas field (5 wells with associated gas treatmentfacilities), construction of the 177-km long, 320 MMCFD capacity Bakhrabad-Chittagong gas transport trunkline, and the establishment of a 88-kmdistribution network in and around Chittagong. The SGDP was designed toassist in developing the large northern gas fields to cover gas supplyshortages in the Titas franchise; it consisted of appraisal and developmentdrilling (9 wells), installation of gas and condensate treatment facilities atKailashtilla and Rashidpur fields, and construction of the 170-km long, 320MMCFD capacity Kailashtilla-Ashuganj (North-South) pipeline. Cr. 1091-BD wasclosed on December 31, 1985, and Cr. 1586-BD on December 31, 1993. Throughputof the Bakhrabad-Chittagong pipeline was around 40 BCF in FY94 (compared withdesigned throughput of 100 BCF p.a.). Throughput of the North-South pipelineis to reach 70 BCF in FY95.

2. The primary objective of the proposed project would be to assist inalleviating impending gas supply shortages in the Bakhrabad franchise areathrough financing development drilling at Rashidpur field and construction ofthe Ashuganj-Bakhrabad (A-B) pipeline.

Prolect Comoonents

3. To achieve the project's primary objective, the project would havethe following physical components:

(a) Drilling of three production wells with a total production of about90 MMCFD of gas and 250 barrels per day (BBLD) of condensate atRashidpur gas field;

(b) Construction of a gas processing plant to process about 90 MMCFD ofgas to pipeline quality and recover about 250 BBLD of condensate atRashidpur gas field;

(c) Construction of a gas pipeline, 58-km long, 30-inch diameter, fromAshuganj to Bakhrabad (A-B pipeline), to connect the northern andsouthern gas transmission subsystems; and

(d) Installation of a supervisory control and data acquisition (SCADA)and pipeline telecommunication system on the entire gas transporttrunkline from Kailashtilla to Chittagong to enhance the operatingefficiency of the gas network.

- 51 -ANNEX 4.1

Page 2 of 4

Rashidpur Field Production Drilling

4. To meet impending gas supply shortfall, Petrobangla would have toincrease its production capacity by at least 300 MMCFD by FY98-99. Todetermine from which field the required additional production would come, agas fields review in terms of reserves availability and infrastructurerequirements suggests that, although Kailashtilla field is a good candidatefor its richness in natural gas liquids (NGLs), Rashidpur field offers theleast cost option for the purpose of this project. Three production wellswould be drilled under the proposed project at Rashidpur gas field. The wellswould be completed in the Lower Sand with premium thread 4-1/2 inch sizetubing 1/. Based on commissioning of the gas processing plant by 1998, the 3wells would yield a total production of about 622 BCF of gas and 1.8 MMBBLS ofcondensate for 1998-2017 period. The wells are also expected to substantiallyincrease the field's resource base in terms of firming up additional gasreserves.

5. Discovered in 1960, some 80 km northeast of Ashuganj, near therecently completed North-South pipeline, Rashidpur field has not, until now,been put into production. No activity was undertaken in Rashidpur field until1989, when two appraisal wells were drilled under the SGDP. The resultsindicated that the drilled area contains more than 2 TCF of proven gas.Rashidpur with Titas, Kailashtilla and Habiganj fields, contain altogetherabout 70 percent (10.5 TCF) of the country's recoverable reserves andconstitute Bangladesh's four largest gas accumulations. Rashidpur's gasreserves are in two separate zones, one of which contains a reasonablequantity of condensate worth recovering. Rashidpur's gas flow rate can reachas much as 40 MMCFD per well, but for a long-term optimum delivery, the wellswould be operated at 30 MMCFD each. The contour maps of the two gas bearingzones are shown in Exhibit A.

ftashidpur Gas Processing Plant

6. Rashidpur field was known to have recoverable condensate only since1990 when the SGDP's well results revealed that the lower of the field's twogas bearing zones contains a moderate amount of condensate. Depending on theperformance of the process design, it is possible that between 2.3 and 3.0BBL/MMCFD of condensate could be recovered. With each zone containing morethan 1.0 TCF of proven reserves and a good potential for additionalquantities, Rashidpur production, unlike the other fields, has been initiatedunder the SGDP using two separate gas processing schemes, one for each gaszone. The upper zone would be produced with dehydration (water removal) only(using a simple liquid desiccant glycol process) and the lower zone withdehydration and condensate recovery (using a more complex process with a drydesiccant silica gel), the latter process is proposed for the project. Theplant would have 90 MMCFD capacity, with separate flowlines from each well.The plant would be operated at high inlet pressure (i.e., 1000 psi) toeliminate the need for compression for sales gas pipeline. The plant designwould take into account the experience so far gained on similar facilities at

I/ The 3 1/2 inch size tubing used in the four wetis completed uider the SCDP causes excessive pressuredrop in the tubing.

- 52 -ANNEX 4.1

Page 3 of 4

the Bakhrabad field. The proposed gas processing facility flowsheet is givenin Exhibit B.

Ashuqani-Bakhrabad Gas Pipeline

7. To transfer gas from the northern fields to the gas-deficientsoutheastern region and integrate the gas transmission systems, the recentlycompleted 170-km long, 24-inch diameter, 320 MMCFD capacity North-South gaspipeline needs to be connected to the 176-km long, 24-inch diameter, 320 MMCFDcapacity Bakhrabad-Chittagong gas subsystem by means of an Ashuganj-Bakhrabadgas pipeline. Taking into account the anticipated market growth rate, the A-Bpipeline would be a single high pressure, 58-km long, 30-inch diameterinterconnecting line with a 200 MMCFD initial flow rate capacity. The largediameter would avoid or minimize gas transmission pressure drop and, moreimportantly, allow to considerably increase (up to 1000 MMCFD) the line'scapacity through compression, which is expected to be required at a much laterdate. The pipeline route has been surveyed and selected taking into accountthe need for minimizing environmental degradation of the terrain and landacquisition requirements, and possible future offtake points. The route runsthrough a poorly drained lowland, which is typical of much of Bangladesh, andis generally flooded more than 5 months per year. The route also crosses theMeghna river basin area where floodings and frequent changes in river coursepatterns have been observed over the recent years. To account for this, thepipeline would be coated with concrete for its entire length to avoid the riskof floating during the monsoon season. The pipeline construction wouldinvolve 3 major river crossings and burial of the line at about one meter

below surface.

8. The pipeline construction design would consist of: (a) 58 km-long,30 inch-diameter pipeline from the Ashuganj multipurpose natural gas site toBakhrabad, with 1135 psi and 1090 psi design and working pressuresrespectively, and 200 MMCFD flow capacity; (b) pigging facilities at both endswith provision for pigging while the line is in operation; (c) 2 mainlinevalves, one at about 10 km and the other about 36 km from Ashuganj; (d) 3offtakes -- one located at Titas field to serve the Brahmanbaria area as wellas an inlet. for Titas gas, one about half way for future customers, and onenear Bakhrabad for the future Meghnaghat power plant; and (e) a completecathodic protection. A provision would also be made for future connection tothe Eakhrabad-Demra pipeline for serving the greater Dhaka area. The pipelinesizing was determined on the basis of a minimum pressure discharge of 450 psito meet the local distribution system pressure requirement. The designparameters are consistent with existing North-South and Bakhrabad-Chittagongpipelines and with most recent international standards. Corrosion coatingwould be either fusion bonded epoxy, which is preferable, or coal tar enamel.

Concrete coating would be used in addition to corrosion coating.

SCADA and Telecommunication System

9. The SGDP had a provision for installing a complete supervisorycontrol and data acquisition (SCADA) system along with a load dispatch centerand a telecommunication system on the North-South pipeline. Due to delays inthe pipeline construction and subsequent SGDP Credit closing, the SCADA couldnot be procured. Except for the recently completed ADB-financed Brahmaputrabasin distribution pipeline, which has a SCADA system (without dispatch

- 53 -ANNEX 4.1

Page 4 of 4

center), Bangladesh's gas transmission and distribution networks are notequipped with SCADA. These networks have been operated independently withmicrowave radio links supplemented by telephone facilities. After completionof the A-B gas pipeline, efficient operation of the Kailashtilla-Chittagonggas trunkline would necessitate a complete SCADA system with dispatch centerand telecommunication link. The SCADA would allow accurate remote monitoringand control of necessary transmission parameters such as gas flows at supplyand offtake points, current line pressures throughout the network, movement ofgas and volumes, and quality of gas being supplied to the system by theproducing companies. Furthermore, the SCADA would provide pipeline integritymonitoring, leak detection and alarm, metering values of gas and condensate ateach of the inlet and outlet points, open-closed status of all line andstation valves, direct digital data transmission and voice communication. Toallow data transmission, the microwave analog radio system of the Bakhrabad-Chittagong pipeline would be upgraded (digitized) to match the new system.

10. Final configuration of the SCADA system would be based on anengineering design, which would be undertaken at a later date. The systemconcept, however, includes: (a) a master dispatch center for centralizedcontrol and monitoring, to be located where it will make the most use of it(i.e., GTCL headquarters), equipped with (i) two identical computer basedmaster units, one on-line and the other as a back up, (ii) a large graphicpanel showing schematically the entire transmission network, and (iii) colorvideo display consoles; (b) remote terminal units to be installed at eachterminal station; and (c) various control and command systems, alarm and eventmonitoring devices, printers, loggers and various operating software. TheSCADA would be supported by a microwave backbone telecommunication systemsupplemented by a VHF mobile radio network and cabled phone links. Thetelecommunication system would include a digital multiplex radio, with datainterface, supervisory system, power supply, antenna supporting towers andother subsystems.

54 -EXHIBIT "A"

BANGLADESHGAS INFRASTRUCTURE OEVELOPMENT PROJECT

RASHIDPLJR G AS FIELD

LOWEP. ZONE CONTOUR IMAP UPPER ZONE CONTOUR I-AP

_ _ _ I . ' -

0 fA_~~~~~~~~~~~~~~~~~~~~~~-

______I.L_ _____% ' _-.____ .,_ _"e___- ,;,__ __ ,mAZ i. _ _ ._ __ __-

_ ~ ~ ~ ~ ~ ~ ~ 4 _ .- _ .* ~

-5 EXHIBIT "B"

BANGLADESHGAS INFRASTRUCTURE DEVELOPMENT PROJECT

RASHIOPUR GAS DEHYDRATION FACILITY FLOWSHEET

A 4 ~~~~HIGH PRESSR | az

I j M EXCCHOKE SAFEWELLHEATE

0 . .DISPOSAL

* z W* -*3IMEA

CHOKE C SALESGAS

SAFH ET .

S __~JEPARSTORAG

SAHTCONOEEAATEtJjW EULHEAD EO Do

CHOKE COALRESSOR

LIUNE '

SAFETY HEATER

VALVE ER 4Y

UG WTATERNENTO

WELLHEAD~~~~~~~~~~~~~IPOA

VALVE ~~~~~~~~~~STORAG HEAVY

CONDENSATIE

SALES

Prfot 3"I Pvducgon f tW (t - 2017 PA

Y-1 ims IMII 202001|2002120012004120X12eO6|20e71200| I201012010t1201212013|2t14j2015 12012017j b"1G 3 1331 3. 3 1331 3 3 1M 3 1M 3 1331 131 1 3 130 1286126 123 1 201_62

C I92969595 95 I95 9 96 I95 9I 9AS I _I95 95 95 G I60 75 66157 1 789

0 - Gas In BCF C * Condcnsaw in tousnd IwmiuL

- 56 -ANNEX 4.2

Page 1 of 10

Terms of Reference forInstitution BuildinQ Technical Assistance

A. GTCL TwinninQ

Background

1. Gas transmission and distribution in Bangladesh has been carriedout through three separate regional subsystems operated independently by threesubsidiary companies of Petrobangla. With the recent completion of theKailashtilla-Ashuganj (North-South) pipeline, the commissioning of theBrahmaputra Basin pipeline in 1992, and the construction of the Ashuganj-Bakhrabad (A-B) gas pipeline, Bangladesh will have a major gas trunklineinterconnecting the three subsystems and stretching from Kailashtilla toChittagong. To achieve effective dispatch of gas supply, thereby enablingbetter gas fields management and increased supply reliability, the Governmenthas recently created a national gas transmission company -- the GasTransmission Company Limited (GTCL) -- to operate the above trunkline. Todevelop its capabilities, GTCL intends to enter into a long term twinning(collaborative) arrangement with an experienced gas transmission company,hereinafter called the twinning "Partner".

Twinning Obiectives

2. The proposed twinning arrangement will be characterized by a closerinvolvement between the two parties than is generally obtained in a standardclient-consultant relationship. It is aimed at the direct transfer ofmanagerial and technical skills and systems that involve of the numerousfunctional aspects of GTCL.

3. The key objectives of the twinning would be:

(a) to provide sustained technical and managerial support aimed atbuilding up GTCL's capability to the point where it canindependently operate all aspects of a gas transmission network;

(b) to assist in the development and implementation of organizationalstructure, systems, procedures and practices required by acommercial gas utility; and

(c) to provide back-up support in carrying out day-to-day operations.

Scone of Services

4. On assignment the partner would promptly plan and render allnecessary advice and assistance to GTCL to achieve the objectives set forth inpara. 3 above within the timeframe to be specified in the contract. Suchassistance would include, but would not be limited to, the following:

(a) preparation of a quick diagnostic, jointly with GTCL, to identifypriority areas on which significant and rapid improvements can bemade to allow efficient start-up for GTCL;

- 57 -ANNEX 4.2

Page 2 of 10

(b) undertaking a complete physical inventory with conditions andperformance evaluation of the assets transferred from the regionalcompanies;

(c) development and implementation of organizational structure, systemsand procedures referred to in para. 3 (b) which would cover:

(i) network planning and engineering

(ii) operations and maintenance, including safety audit

(iii) inventory management

(iv) accounting and financial management

(v) management information system, including SCADA link to generatedaily, weekly, and monthly operational reports; and

(vi) personnel management and human resource development

Such assistance would be provided through secondment of experiencedprofessional personnel from the partner's own organization (not recruitedfor the purpose of the twinning contract) into parallel positions inGTCL. It is expected that at least five such personnel led by a teamleader would be posted at GTCL, who will serve in operational capacitiesand will, together with GTCL's top management, have joint responsibilityfor overseeing day-to-day operations and implementation of systems,procedures and practices.;

(d) provision of back-up services from the headquarters forstrengthening the corporate structure and systems referred to in(a) above;

(e) provision of technical specialist personnel and services toundertake discrete tasks, as required; and

(f) design and implementation of a comprehensive training program whichwould include on-the-job training, selective assignment of GTCL's

personnel to the partner's organization for first-hand exposure toefficient operations, and formal course training.

Selection Criteria of the Partner

5. GTCL would visit several prominent gas transmission companies thatare regarded as potential candidates for a twinning arrangement and wouldselect a partner. The selection criteria would be as follows:

(a) the partner should have proven record in successfully managing anorganization having similar scope of functions;

(b) the partner should have fairly extensive international experiencesand is willing to transfer its operational knowledge;

- 58 -

ANNEX 4.2Page 3 of 10

(c) the partner should identify fully with GTCL's operational andcapacity building needs; and

(d) the personnel to be seconded to GTCL should have direct operationalexperience and be capable of tackling problems.

Duration of TwinninQ Arrangement

6. The twinning arrangement would be initially for three years.Depending on GTCL's needs, and satisfaction with the services, the contractcan be extended for another period to be determined by both parties.

B. Environmental and Safety Management Technical Assistance

Backcrround

7. To meet the country's gas demand estimated to grow at about 10 peryear, Bangladesh is to double the current supply and delivery capacity ofabout 660 MMCFD by the year 2000. In the past, the sector's development hashad a relatively low impact on the environment and the sector operatingcompanies have maintained good safety records. Further expansion, however, inone of the most populated land areas (about 1300 people/km2) in the world,requires careful integration of environmental and safety considerations. Theoverall policy framework, legislation and institutional capabilities fordealing with emerging environmental and natural resource management issueshave not yet been sufficiently developed. An environmental protection law anda national environmental management plan covering a broad range ofenvironmental aspects of the national economy have been drafted over the lastfive years by the Ministry of Environment and Forests and are now in theprocess of being approved by the Government. Specific gas sectorenvironmental regulations have not yet been developed. With regard to safety,the Ministry of Energy and Mineral Resources issued in 1986 the Gas SafetyRules, which cover transmission, distribution and storage of natural gas, butnot the upstream activities.

8. Notwithstanding its good operational safety records and itscommitment to adhering to the laws issued by the Government for the protectionof the national environment and the health and safety of its employees,consumers and the general public, as manifested in the December 15, 1992Environmental and Safety Policy statement, Petrobangla currently has no well-defined safety engineering standards and environmental regulation, nor does ithave an adequate institutional framework and capability to properly administerthe safety and environmental aspects of its operations. Recognizing thecritical need to address this deficiency, Petrobangla has recently created anEnvironment and Safety Division in the Holding Company which would serve asthe focal point for coordinating among all operating companies (i) developmentand dissemination of a comprehensive set of safety standards and environmentalprotection rules and (ii) implementation of an environmental and safetymanagement system.

59 - ANNEX 4.2Page 4 of 10

Obiectives

9. The objectives of the envisaged technical assistance are to:

(a) assist in the development of comprehensive sets of safety standardsand environmental protection regulations covering exploration,production, processing, transmission, distribution, marketing andend-use;

(b) assist in the development and implementation of an adequateenvironmental and safety management system for each operatingcompany which shall include procedures for conducting routinetechnical and safety audits and programs for environmentalmitigation and monitoring;

(c) assess the human resources requirements for administering theenvironmental and safety aspects and assist in developingmanagerial and professional staff resources through a program ofin-country and overseas training and new recruitment; and

(d) assist in putting into place a mechanism/process for ensuringadequate public consultation and for stimulating public awarenessand support for enhancing environment protection and safety.

Scone of Work

10. To achieve the technical assistance objectives, the tasks of theconsultant would include, but not be limited to:

(a) review: i) existing government environmental and safety policiesand regulations; and (ii) Petrobangla's current environmental andsafety procedures and practices, and associated emergency response

plans;

(b) assess the environmental impact and safety hazards of existingfield production facilities and gas transmission and distributionsystems, including the performance and safety of gas flaringequipment configuration at all gas treatment plants;

(c) review the gas sector land use patterns in terms of environmentaland social costs, including human resettlements, if any, and forestdegradation;

(d) develop a framework for integration of environmental considerationsin the gas sector's development planning with a view to ensuringenvironmentally sound and sustainable sector development;

(e) develop guidelines and operating procedures for:

(i) groundwater protection in well drilling and workoveroperations;

(ii) soil protection and reclamation; and

- 60 -ANNEX 4.2

Page 5 of 10

(iii) field solid and liquid waste treatment and disposal;

(f) develop a comprehensive set of safety codes and standards andoperation manuals taking into account recognized internationalstandards as well as country-specific safety needs;

(g) assist each operating company in establishing a computerized database for the recording of operational records and statisticalanalysis of safety and fault data;

(h) develop, and assist in implementation of, appropriate environmentaland safety management systems for all operating companies, whichshall include procedures for conducting environmental and safetyaudits, and work programs for environmental mitigation andmonitoring;

(i) develop staffing requirements and detailed time-bound trainingprograms and oversee the implementation of the agreed trainingprograms;

(j) provide assistance to the Government in upgrading the office of theChief Inspector to enable it to carry out the following functions:

(i) prepare standards and enforce compliance;

(ii) investigate gas-sector related occupational accidents;

(iii) issue safety-related permits; and

(iv) clear new projects with regard to safety aspects.

Qualification of the Consultant

11. The consultant should be an environmental and safety audit firm,specialized in oil and gas upstream and downstream activities. Consultantstaff to be assigned to Petrobangla should have a minimum experience of fiveyears.

Duration of Technical Assistance

12. The consulting contract would be for three years. Depending onPetrobangla's needs, and satisfaction with the services, the contract can beextended for another period to be determined by both parties.

C. Manacement Systems Improvement Proqram

Backairound

13. Natural gas is Bangladesh's most important source of commercialenergy. To meet the country's gas demand estimated to grow at about 10 peryear, Bangladesh is to double the current supply and delivery capacity ofabout 660 MMCFD by the year 2000.

- 61 -ANNEX 4.2

Page 6 of 10

14. There are presently 17 known gas fields with a total (proven and

probable) reserves of 21 TCF. Five fields -- Kailashtilla, Rashidpur,Habiganj, Titas and Bakhrabad -- account for two thirds of the known gas

reserves.

15. The gas sector in Bangladesh is dominated by the Petrobangla groupconsisting of eight state-owned companies responsible for the exploration,production and delivery of natural gas, as well as the exploration for anddevelopment of oil and solid minerals, including coal. Until mid-1993, thePetrobangla Group consisted of the holding corporation (Petrobangla), oneexploration and drilling company, two production companies, three transmission

and distribution companies and a natural gas liquids company. In May 1993,

the Cabinet approved the establishment of the Gas Transmission Company Limited

(GTCL) to operate the recently completed Kailashtilla-Ashuganj (North-South)pipeline and the new Ashuganj-Bakhrabad pipeline. The six operating companiesresponsible for the production and delivery of natural gas are:

Production

- Bangladesh Gas Fields Company Limited (BGFCL), presently operatingthe fields at Habiganj, Titas, Bakhrabad and Feni; and

- Sylhet Gas Fields Limited (SGFL) responsible for producing thenorthern fields at Kailashtilla, Rashidpur and Sylhet.

Transmission

- Gas Transmission Company Limited (GTCL).

Transmission & Distribution

- Titas Gas Transmission and Distribution Company (TGTDC), operatingthe transmission and distribution network in the Titas franchisearea covering the Greater Dhaka area and the Brahmaputra Basinnorthwest of Dhaka, having maximum daily peak demand of around 560MMCFD;

- Bakhrabad Gas Systems Limited (BGSL), delivering gas to thesoutheastern part of the country including Chittagong area, havingmaximum daily peak demand of around 110 MMCFD; and

- Jalalabad Gas Transmission and Distribution Company (JGTDSL),dealing with gas transmission and distribution in the Sylhet area,having maximum daily peak demand of about 40 MMCFD.

16. The FY93 accounts of the five operating companies -- BGFCL, SGFL,TGTDC, BGSL and JGTDSL -- are given in Annex 1. Annex 2 contains profiles ofeach company with regard to the accounting systems in use and related matters.(This information needs to be reproduced from Eric Gills report] These

companies operate mainly manual accounting systems based on conventionaldouble entry principles. The drawbacks of manual systems together withunderstaffing result in, to various degree, backlog of work, and inaccuracies

and delays in financial reporting. Further, the lack of standardization of

data input across the group also causes inordinate delays in preparation of

- 62 -ANNEX 4.2

Page 7 of 10

consolidated group accounts. In the past, the operations of the gas sectoroperating companies suffered from the absence of clearly defined financialobjectives. Consequently, the top management paid inadequate attention tofinancial management, resulting in understaffing and shortage of qualified andtrained staff in the accounting and finance function. Presently, there aredeficiencies in the systems in use for monitoring/controlling all aspects offinancial operations; and financial data have not been used effectively bymanagement as a tool for operational control and corporate planning. In thecontext of ongoing gas sector reforms aimed at mobilizing private capital foraccelerated gas sector development and improving the operational efficienciesof sector entities, Petrobangla group management has recognized the urgent andcritical need to improve accounting and financial management and has thereforedecided to engage consultants to assist in the implementation of a group-widefinancial management improvement program (hereinafter referred to as theProgram).

Obiectives

17. The objectives of the Program are to (a) improve Petrobanglagroup's accounting and financial reporting in terms of accuracy, adequacy andtimeliness; (b) build up the capability of the group to discharge effectivelyand efficiently the functions of modern gas utilities in areas of financialmanagement and planning.

18. To achieve the above objectives, the Program would comprise (i) adiagnostic assessment of the current accounting and financial systems withinthe group companies, (ii) a program for clearing the backlog of book-keeping,(iii) a program for upgrading the group companies' management informationsystems and strengthening financial and accounting controls (includinginternal audit), (iv) a program of extensive management and staff training todevelop managerial and staff resources to operate, maintain the improvedand/or new systems, and (v) a program of establishing computerized accountingand management information systems in each operating company and at thePetrobangla holding corporation.

ScoDe of Work

19. The consultant, who may be a consortium, will provide a multi-discipline team experienced in international oil and gas accounting,management systems and computerization to assist with the implementation ofthe Program. The consultant shall provide services in two phases. The firstphase should focus on the evaluation of the group's existing systems andformulation of programs for upgrading to acceptable industry standards;implementation of programs as would be agreed by the Petrobangla group wouldbe the second phase.

20. The tasks of the consultant under Phase I should include but shouldnot be limited to the following activities:

(a) to establish effective project management arrangements withinPetrobangla and the operating companies in order that thedevelopment of the end products and recommendations arising fromthe Phase I consultancy are owned and understood by management ofPetrobangla and Operating Companies;

- 63 -ANNEX 4.2

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(b) to strengthen the institution's capacity in order that key userscan actively participate in the study. This may be accomplishedthrough workshops, seminars, training sessions during Phase I;

(c) am assessment of management information needs of the seniormanagement of Petrobangla and each operating company in light ofthe operating procedures in the group and international industrypractices;

(d) an assessment of the system of internal financial controlsoperating in the group companies as compared to internationalindustry practices;

(e) an assessment of the accounting and financial systems in the groupcompanies and their adequacy to provide financial information forinternal financial management and statutory financial reporting,including the need for computerization;

(f) an assessment of the organizational restructuring that may berequired of the existing finance operations and its impact on humanresources;

(g) an assessment of the existing group-wide Information Systems andTechnology (IS & T) infrastructure;

(h) an assessment of the appropriateness of the Wide Area Networkingbeing introduced as part of SCADA to the longer term developmentalplans for effective financial management systems;

(i) an assessment of the adequacy, in terms of the number as well asthe skill mix, of the existing staff resources in the group tooperate an adequate system of accounting and financial control,including training requirements for managerial, supervisory,accounting, bookkeeping, data processing and clerical staff; and

(j) based on the above assessments, the consultant should recommendprograms for upgrading the group's financial management andaccounting systems and financial management information systems inlight of international industry standards and practices. Therecommendations should be specific, practical and cost-effectiveand should include implementation phasing of various recommendedactivities, with the objective of enabling the group companies'reaching acceptable industry standards within a time frame of twoyears. At the end of Phase I, the consultant should present itsfindings and recommended upgrading programs to the Petrobanglagroup management and ODA for review.

21. Upon acceptance of recommended upgrading programs, the consultantwould proceed with implementation. Tasks to be performed by the consultantduring Phase II would include:

(a) prepare tender document for single responsibility contract for thesupply, installation, commissioning, and staff training of computer

- 64 - ANNEX 4.2

Page 9 of 10

systems and application software packages that will fulfil the

functional specifications laid down by the consultant forcomputerized accounting and financial management informationsystems for Petrobangla and six operating companies -- BGFCL,SGFCL, GTCL, TGTDC, BGSL and JGTDSL;

(b) assist in bid evaluation and contract award negotiations;

(c) on behalf of the Petrobangla group and in collaboration with thecounterpart staff to be assigned for the implementation of theProgram, supervise all aspects pertaining to the implementation ofthe above single responsibility contract with the exception of thefollowing for which Petrobangla/ODA retain responsibility:

(i) variations to contract price, scope of work, terms of referenceor conditions of contract; and

(ii) termination, suspension, and arbitration;

(d) prepare detailed training program for management and staff,identify candidates to be trained and areas of training, source andprocure training services form reputable and experienced providersfor overseas and in-country training, monitor the implementation oftraining program;

(e) develop a program for clearing the backlog of accounting work andprocure services of local accounting firms to clear the backlog;

(f) define standard accounting policies and develop a model CorporateAccounting Manual (CAM) incorporating documentation of policies,corporate procedures and levels of authority;

(g) develop a standard Chart of Accounts and uniform subsystems for thegroup;

(h) define key financial performance indicators (KFPIs) of each companyand the group and develop a financial management reporting system,including a reporting format for incorporation of revised KFPIs foreach company and the group;

(i) advise on the design of a model costing system in line withinternational practice for production, transmission, distributionand exploration companies;

(j) prepare a corporate internal audit manual (CIAM) includingprocedures for auditing computerized accounting systems ofsubsidiary companies and production sharing contracts (PSC);

(k) develop guidelines for an improved budgeting system related toproduction sharing contracts and donor funded development projects;and

(1) develop guidelines for the model accounting system for developmentprojects.

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Page 10 of 10

Involvement of Local ConsultinQ/Accountina Firms

22. While an expatriate consultant or a consortium is expected toassume overall responsibility for the assignment, it is encouraged to promoteparticipation of local consulting/accounting firms in carrying out theassignment with a view to acquiring local language capability and enhancingcost-effectiveness of the Program's implementation.

ReDortinc Requirements

23. The consultant should submit the following reports to thePetrobangla group management with copies to ODA:

(a) an interim report at the end of Phase I, presenting theconsultant's findings and recommendations for upgrading, includingimplementation schedule of various activities;

(b) monthly progress report, providing sufficient information on actualimplementation progress of each activity, including explanationsfor implementation slippages, if any, and measures taken or plannedto be taken to correct them, and their possible effects on theimplementation schedule of the Program;

(c) draft final report to be provided two months before the end of theassignment, detailing the implementation results of the Program andachievement of the Program's objectives;

(d) a final report to be provided weeks after receivingPetrobangla's and ODA's comments on the draft final report.

- 66 -ANNEX 4.3

Page 1 of 5

TRAINING PROGRAM

I. Background

1. Mainly due to the cumbersome internal approval procedures pertainingto the selection of candidates for training, staff training has not receivedadequate attention during the past decade. Despite provisions made by each ofthe co-financiers under the Second Gas Development Project (SGDP), trainingundertaken was limited to a few in-country drilling courses conducted by thedrilling contractor and attended by some 40 staff. Altogether, only 9% ofPetrobangla Holding Company staff received training; the ratio for the operatingcompanies is less than 1. Recognizing the urgent need to develop and upgradethe skills of its staff to implement capacity additions and operate a gas supplyand delivery system of growing size and complexity, Petrobangla management hasdecided to initiate a training program to develop in-house capabilities in allaspects of gas sector operations.

II. Manor Areas of Training

2. Overseas TraininQ. The proposed training program would cover keyoperational areas including geophysics, geology, well drilling, well production,gas transmission and distribution, SCADA, safety and environmental protection,and accounting and financial management.

Geovhysics

3. Past experience indicates that geophysical surveys are a veryeffective tool in appraising and developing Bangladesh's gas fields. With most

of the fields not yet fully developed, geophysics is expected to play animportant role in the sector's future development. Given the limited seismicactivity carried out in Bangladesh over the recent years and the tremendoustechnological advance worldwide in geophysics, Petrobangla would train selectedgeophysists in seismic surveys, including data acquisition, processing andinterpretation,. with a special focus on both outstep and inf ill drilling, and the

use of 3-D seismic in reserve evaluation and determination of reservoirboundaries. *The proposed training would also involve topics such as: (a) how tominimize the risk of offset well locations, which would be particularly usefulgiven the limited drilling resources available in Bangladesh; (b) resolvingstructural complexities of some of the fields where only one or two wells have

so far been drilled; and (c) database creation and integration of existingseismic data with other geological and drilling data for conversion to computerformat, which would facilitate future field work and enhance the explorationpromotion data packages. About 5 geophysists would benefit from this trainingfor about 4 weeks each.

Geoloa"y and Gas Reservoir

4. The geology of Bangladesh's gas fields can be complex, particularlyfor those with several gas bearing reservoirs. The lithology of several major

fields exhibits a great deal of variation with complex changes that affectreservoir characteristics. Field structural interpretations are often incompletedue to insufficient seismic coverage. To address the geological unknowns and

optimize the development of its gas resources, Petrobangla has formulated a

- 67 -ANNEX 4.3

Page 2 of 5

training program for its geologists and reservoir engineers. The training wouldinvolve interpretation of depositional environment of large deltaic sequenceswhich characterize much of Bangladesh' s geology, definition of hydrocarbon sourcerock, timing of hydrocarbon migration and accumulation, structural traps, andprospect definition. The training would also include reservoir analysis such asrock and fluid properties, reservoir mechanisms, reservoir modeling, ultimate gasrecovery and abandonment pressure, water drive and volumetric depletionmechanisms, and well completion techniques. The proposed training would alsoallow Petrobangla to establish computer-generated isopach, structure,paleostructure, porosity and pore volume maps using available seismic anddrilling data. About 6 geologists and reservoir engineers would benefit fromthis training for about 4 weeks each.

Well Drillinq

5. Petrobangla owns a drilling rig fleet which is old, worn out and mostof the time inactive. of this fleet, only two medium and two small size rigshave a salvageable value of less than one million US$. Presently, Petrobanglahas neither the necessary equipment nor the resources to drill gas wellsefficiently. Training on well drilling would allow its staff to access latesttechnologies. These include multiwell pad (cluster) drilling and horizontal welltechniques, both of which would considerably enhance the overall drillingperformance in terms of total well cost, productivity and, of equall importance,land use for well locations. The training would also focus on non-toxic drillingfluid chemicals, one of the concerns of Petrobangla's drilling activity. Suchtraining would help its staff to restructure its well drilling activity andrespond to any level of interest by the private sector in forming a joincventure. In addition, the training would enable Petrobangla to compare betweenrefurbishing its rig fleet or contracting the drilling activity to specializedcontractors, which proved to be the least cost approach under the SGDP. About20 staff would benefit from this training for about 4 weeks each.

Well Completion

6. Poor well completion has seriously affected the productivity andperformance of Petrobangla's gas wells, particularly those drilled under theSGDP. Although the main cause was- the poor performance of the technicalassistance associated with the drilling activity at that time, the lack ofawareness on the part of Petrobangla. technical staff could perpetuate theproblem. For this reason, selected staff would receive training in wellproductivity analyses and completion design, prediction of bottomhole and surfacepressures, productivity optimization techniques and wellhead configuration.Appropriate well completion design would allow Petrobangla to implement adequateoverall reservoir management and optimize its gas production. About 10 staffwould benefit from this training for about 4 weeks each.

Gas Treatment Processes

7. With more and more natural gas liquids extraction facilities to be puton stream during the next few years, Petrobangla requires extensive training ingas treatment technologies. The proposed training would involve basic equipmentand design concepts used in gas processing plants, various process technologies,basic plant instrumentation and operating procedures. Specific courses wouldinclude gas and liquids analyses; dew point calculations; flash calculations;

- 68 -ANNEX 4.3

Page 3 of 5

design concept of distillation columns, heat exchangers, dehydrators, andrefrigeration systems; gas and-liquids measurements; and, corrosion control.Training would also be offered in construction contract management; qualitycontrol procedures, both at manufacturers and during actual construction; and,plant testing and commissioning. The proposed training program would enablePetrobangla to operate its gas processing plants with minimum technicalassistance. About 14 staff would benefit from this training for about 5 weekseach.

Gas Transmission

8. To properly operate and manage the expanded gas network system, thenewly formed gas transmission company, GTCL, would require extensive training inall aspects of gas transmission. Much of this training is expected to be carriedout under GTCL's twinning arrangement through a combination of classroom coursesand hands-on workshops. High priority would be placed on transmission operationsmanagement, demand management, system integrity assessment, preventivemaintenance, measurement engineering, grid control and dispatch, and long termplanning. The training would also include computer simulation of gas flowhydraulics, gas energy management modelling, welding technology, metallurgicaltesting, pipeline integrity, on-line inspection, and maintenance and repair. Inaddition to the training to be provided under the twinning arrangement, about 20staff would benefit from a specially designed training program for about 4 weeksper staff.

9. To ensure satisfactory operation and maintenance of the SCADA andtelecommunication system, specific training courses would be conducted in Dhakaby the contractor and the installation supervision consultant. A detailedtraining program would be finalized in conjunction with the supply andconsultancy contracts. The training would cover the following:

(a) for system operators -- keyboard skills, Scada functions, electronicmail, and telecommunication;

(b) for field technicians -- routine test procedures, preventivemaintenance and emergency repair procedures; and

(c) for engineers -- management and overall development and utilizationof the system.

Some of the training would take place during the manufacturing of the system atthe vendor's premises to familiarize and train the personnel in the use of thehardware and software. Prior to the SCADA training, the selected candidateswould be trained in computer language. Overseas study tours to visit similarinstallations would also be organized. Furthermore, about 10 staff would benefitfrom a specially designed training program for about 4 weeks per staff.

Safety

10. As Bangladesh's gas system expands, potential hazards are expected toincrease. Safety, therefore, will be given high priority by all operating

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Page 4 of 5

companies and Petrobangla management. To minimize the risks, as part of theoverall environmental and safety management, each company will conduct hazardassessment and develop safety codes and emergency procedures. The training,which would be provided by specialized firms in and outside Bangladesh, wouldallow Petrobangla's personnel to fully understand the environment in which gasoperations are undertaken, and would address safety topics associated with gasproduction, processing and transmission. Safety awareness will be initiated atall levels of field operations through workshops and seminars. The objectiveswould be to have all gas facilities, from the wellheads to processing plants andtransmission and distribution systems, operated in a framework where safety ispart of each step. Safety would also be promoted through standardization ofsurface facilities. In this regard, when a transmission company like GTCL iscreated, personnel should be able to travel from one location to another and befamiliar with the design and layout of the facilities. Standard designs shouldbe used for most of the installations, e.g. metering stations, valve stations andscraper stations. Standardization would facilitate emergency response. About20 staff would benefit from this training for about 4 weeks each.

Environment

11. The proposed training program in environmental protection would coverall facets of gas development. It would include:

(a) emission control, which should begin at the stage of equipment andfacility design and continue during the operational phase;

(b) groundwater protection against contamination during well drillingoperations;

(c) drilling and other process plant waste (spent molecular sievematerial) treatment and disposal;

(d) gas well blowout prevention while drilling and during production;

(e) methane leak control throughout the gas transmission and distributionnetwork;

(f) contingency plan and emergency response specifically designed tocontain and control any surface facility-related accident;

(g) treatment and discharge of formation water; and

(h) procedures for identifying, managing and minimizing hazardous wasteon site.

About 20 staff would benefit from this training for about 4 weeks each.

12. In-country Training. In-country training would also be developedunder the project where more than 200 staff are expected to benefit from thistraining, which will cover all aspects of gas sector development. However,Petrobangla has no adequate training facilities, except for the Titas GasTransmission and Distribution Company's (TGTDC) center at Demra. This centercould be used for part of the training programs intended for field operations.The center would need expansion which may require a lengthy construction work.

70 -

Page 5 of 5

While the center's expansion is worth considering, the use of the BangladeshPetroleum Institute (BPI) at Dhaka is another possibility. BPI was set up in1981 with the assistance of UNDP and NORAD of Norway to provide advancedtechnological support for the gas sector in Bangladesh. BPI reportedly performedwell during its early years and then its activity declined due to the lack ofresources. Petrobangla would reach an agreement with BPI to ensure itsavailability for most of the in-country training activity. The TGTDC's centercan still be sued for training field technicians.

- 71 - ANNEX 4.4

Page 1 of 8

Summary of Environmental and Safety Assessment

I. BackQround

1. Petrobangla, a group of eight state-owned companies, is responsiblefor the exploration, production and delivery of natural gas. To balancesupply with demand for gas, Petrobangla is to undertake further investments toexpand the country's gas supply capacity and delivery infrastructure. Theproposed project is a part of the gas sector's priority investment program forFY95-2000. As per GOB's environment policy, Petrobangla, assisted byinternational consultant, carried out an Environmental and Safety Assessment(ESA) for the proposed project under terms of reference prepared jointly byPetrobangla and IDA.

II. The Prolect

2. The proposed project consists of the following physical components:

(a) drilling of three production wells at Rashidpur gas field;

(b) construction of a gas dehydration plant to purify gas from the newwells;

(c) a 5S-km, 30-inch diameter gas pipeline from Ashuganj to Bakhrabad;and

(d) a Supervisory Control and Data Acquisition (SCADA) and pipelinetelecommunication system for the entire transmission trunkline fromKailashtilla to Chittagong.

The target date for the completion of the drilling and pipeline components isDecember 1996, while that of the SCADA system and gas dehydration plant areJune 1997 and December 1997 respectively.

III. Baseline Conditions

3. The project area including the well sites and the pipeline right-of-way totals about 17.5 km2, of which about 60% is under cultivationthroughout the year.

Ponulation and Land Use

4. Population densities in the project area vary from a high of 1313persons/km2 along the A-B pipeline route to a low of 591 persons/km2 in theRashidpur gas field. Land use is predominantly cereal and vegetable cropagriculture with limited agro-forestry and tea plantations.

5. Flat floodplains predominate in the project area. The A-B pipelineroute traverses the Middle Meghna River Flood Plain, the Old Meghna EstuarineFloodplain, the Titas Floodplain and the Old Brahmaputra Floodplain in amainly north-south direction in the districts of Brahmanbaria and Comilla.

- 72 - ANNEX 4.4

Page 2 of 8

The route area is open flat low-lying agricultural land; the main crops arerice and jute. The Rashidpur area is predominantly tea plantations and agro-forestry.

Climate

6. The project area has a tropical climate with a wet monsoon periodfrom April/May to September/October with frequent heavy storms and rainshowers. Annual rainfall varies between 1500 to 2500 mm in the Ashuganj areasto 3500 to 5000 mm in the Rashidpur area. Maximum daily temperatures varybetween 250C during winter and 350C during April and September. Lows of SICare recorded in December and January. Highs of 390C are recorded in May andJune.

Hvdroloqv and Water Oualitv

7. In the project area, there is a fairly extensive aquifer at ashallow depth of 6-12 m below ground level; at a depth of 60-120 m , there isa deeper aquifer. Both aquifers are accessed and utilized extensively byhandwells and deep tube wells for potable water and irrigation. The densityof tubewells ranges from 5 to 11 per km2. Groundwater samples taken atBrahmanbaria show elevated iron levels indicating impaired groundwaterquality.

Air Qualitx

8. Air quality in the project area is generally good. Fuelwood,kerosene and animal dung are used as fuels. Local air quality could beimpaired in the event of a well blowout. This concern will be addressedthrough the development of a well site contingency plan.

soils

9. Baseline studies have been carried out to establish the profile andsoil properties for major soil types along the A-B Pipeline route. Elevendifferent soil associations and four physiographic sub-regions are containedwithin a 500 m boundary along either side of the A-B Pipeline. Almost all ofthe soil associations are chromieutric gleysols, with some chromi-umbric-gleysols and molli-eutric-gleysol or fluvisol, and possibly some chromi-fluvicgleysols. The Rashidpur gas field is comprised of 6 soil associationscontained within three physiographic sub-regions. All soils requirefertilizers to allow high yield varieties and/or multiple cropping patterns.

Fisher

10. Small fish ponds along the pipeline route represent an importantsource of protein for rural population. A combination of over-fishing,pollution, deforestation and hydraulic structures have led to a continualdecline in fishery resources. Any proposed development which will altersediment load, flow regime or composition of the stream will require carefulplanning to avoid consequential impacts.

- 73 - ANNEX 4.4Page 3 of 8

Resettlement, Land Acauisition and Compensation

11. Given the high density of settlements, any incremental loss of landwhich affects food production, available living space, forest resources andwildlife habitat is significant to Bangladesh. Traditionally, landacquisition has been associated with delayed compensation payments. The lackof a public participation process has contributed to resentment of earlierpipeline projects. The pipeline route has been selected taking into accountthe need to minimize involuntary resettlement. Location of well sites wouldbe chosen to minimize well site land requirements and land degradation. Apublic consultation and information program is being implemented as part of A-B Pipeline land acquisition.

12. In order for environmental and social impacts to be fullyunderstood, properly planned for and mitigated, a baseline data acquisitionprogram was carried out during July 1993-July 1994. Table A provides asummary of the data acquired for the project.

IV. Potential Sicinificant Environmental Imnacts and Mitigation Measures

13. Potential significant environmental and social impacts of theproject pertain to the following:

(a) surface water and groundwater contamination due to improperhandling of solid and liquid wastes;

(b) soil degradation and loss of fertility due to compaction anderosion that could arise during the pipeline construction; and

(c) dissatisfaction of the people affected by the project.

The impacts, mitigation measures, work program and monitoring required toensure compliance are summarized in Table B.

V. Safety Aspects

14. The entire project design will be in accordance with applicableinternational safety codes and standards. Construction of the project workswill be undertaken by experienced international contractors who use highstandards of safety and environmental protection.

15. The safety aspect of gas transmission, distribution and storage isregulated by Bangladesh's existing law, namely, the 1991 Natural Gas SafetyRules. However, the lack of adequate formal, uniform standards and technicalprocedures within the Petrobangla group tends to inhibit the effectiveness ofthe above legislation. As part of the environment and safety assessment, ateam of experts from British Gas was engaged in August 1993 to carry out asafety audit of the group's entire operations. The audit concludes that alloperating companies are generally operating an adequate system. Nevertheless,several important recommendations have emerged from the audit. These relateto the need for the Petrobangla group to:

- 74 - ANNEX 4.4,Page 4 of 8

(a) adopt a common set of safety standards and codes that arecomprehensive, up to date and are disseminated to managers andsupervisors;

(b) carry out technical audits of existing facilities and systems toensure their compliance with the requirements of the 1991 GasSafety Rules;

(c) adopt common emergency response procedures;

(d) provide formal and certificated training for managers, supervisorsand operatives particularly with regard to the following:

(i) regulator design, operation and maintenance;

(ii) pipeline maintenance;

(iii) leak detection and pipeline surveillance; and

(iv) corrosion prevention.

Theme recommendations will be incorporated in the terms of reference for theenvironmental and safety management technical assistance to be implementedunder the project.

IV. Environmental and Safety Manaciement Tgchnical Assistance

,6. To assist the Petrobangla group in implementing the recommendationsof the ESA and in developing in-house capability to properly administer theenvironmental and safety aspects, the project includes a 3-year technicalassistance. Draft terms of reference is given in Annex 4.2.

l

TABLE A

GIDP BASELINE DATA ACQUISITION

DATA REQUIRED ACTION PLAN STATUS

1. Requirements for all GIDP Project Areas * Interview small parcel owners who have been affected DonePopulation/Settlement Survey * Population survey of routes in all pipeline aress Done* D of parcels * Prepare alignment sheets showing acquired and Done* Location of dweliings requisitioned land through the row

2. Vegetation/Forest SurveY * Plot all vegetation Information on alignment sheets Done* Location, size, specel composition of forests, areas of * Survey end map all forests and areas of native vegetation Done

native vegetation * Assess current use of forests/wetlands end protection Done* Expected loss of forests, native vegetation and status

homestead tree stands

3. Fish Production Area Survey * Survey fishing areas including streams, rivers, bils, fish Done* Turbidity and flow roquirements for fish production forms* Expected siltation increases * Determine spawning/production schedule through field Done* Effect of effluent on fish production surveys, local knowledge and administration* Location of aN fish production arges * Note fisheries Informetion on alignment sheets Done

4. Location, Condition and Type of all Tubewells * Sample if potential for contamination occurs Done Un* Potential for disruption * In conjunction with settlement survey, locate tubewells, Done* Potential for contamination from incremental loss and determine status

spills * If essential to disturb tubeweils, replace and upgrade Not Applicable

5. Location of Areas of Religious Importance * Meet with all affected mouza administration Done* Location of sites, markers and celebration locations * Avoid interference with Identified sites, ceremonies Done

B. Slope Stability, Erosion Potential at River Crossings * Slope and stability survey; erosion hazard assessment Doneand Hill Areas * During soil survey, measure slopes of routes Done* Erosion hazard based on soil type, flow, bank stability * Calculate erosion potential Done

Erosion hazard based on terrain, soil type, aspect. * Alter route if necessary or take steps to protect soil Donevegetation cover.

7. Soil Evalustion * Soil survey, sampling and analysis Done* soil type, depth of each horizon and characteristics, * Establish physical, chemical and biological criteria for Done

effects from desiccation evaluating soils for development and revegetation

8. Faunal Distribution * Wildlife surveys Done* Distbution of native wildlife and location of criticl * Wildlife habitat identification end maintenance Done

habitat * Endangered species sightings Done* Movemen and migration pattems and schedules * Meet with interested NGOs Ongoing

TABLE A

GIDP - BASELINE DATA ACQUISITION

DATA REQUIRED ACTION PLAN STATUS

9. Wetland Distribution * Survey route for wetlands Done* Flow rate required to sustain wetlands In conjunction * Identify size, tyPe, location and flow pattem of wetlands Done

with fisheries * Satellite image analysis Done* Drainage pattem of wetland system

10. Location of Archaeological Resources. Historical and * Archaeological/Historical resource survey DoneSacred Monuments * Identify those sites which require protection and others Done* Verify any sites and potential areas of archaeological which require excavation

concern * Establish excavation plan if required Not Applicable

11. Waste Guidelines * Develop waste handling, transportation and disposal Ongoing - to be completed by* Determine exact nature of waste produced end locate guidelines for pipeline construction, facility operation and September 1994

possible disposal skes or determine disposal options well sites* Determine handl"g requirements

12. Exact Routing of Tie-in Lines * Survey gas field areas and select route based on Done* Route alignfrents needed from Petrobangla for environmental end engineering considerations

Reshidpur field tie-ins

13. Water Quality at Affected Sites * Surface water sampling and analysis downstream of Done* Background upstream and downstream of facility and Rashidpur

major river crossings * Monitoring program Done* Test for general parameters, inorganics, and hydrocarbons Done

Review all affected streams Done

14. Groundwater Use and Locations * Conduct a study of groundwater users end well date Done* Locations, use and quality of groundwater along routes

snd at facilities

15. Safety and Hazardous Operations * review all safety programs used by Petrobangla and Done* background on safety programs in drilling, pipelines and contractors

facility operations * review and assess any emergency response plans available Done* data on emergency response plans including practice drills* risk levels for all operations * review risk to populations, environment and equipment Will be carried out under the

project's Environment andSafety Techcnical Assistance

* determine priority areas for hazardous plans and Emergency Same as aboveResponse Plan development

0q _\ W

O X

SUMMARY OF IMPACT, MITIGATION AND MONITORING

POTENTIAL IMPACT MITIGATION PROGRAM WORK REQUIRED MONITORING REQUIRED

1. Local Involvement and Compensation * Develop public participation * Establish public consultation * Maintain a public* Compensation Payments process model process Involving Thana sreations/contact program* Diasnfrenchised landowners * Base compensation on actual administration throughout project* No opportunity for public participation land values and properties * Adopt a system of fair lifetime* Employment of local manpower * Inform landowners of safety compensation payment * Ensure compensation* Damage to property limits payments are prompt

and fair

2. Discharge of Waste Water to River * Review InstaHation of treatment * Review workover fluid and * Complete monthly* Rsshidpur Facility mechanisms to bring water material requirements samples of waste water* Pipeline Hydrostatic Testing Fluids quality up to Quality Standards * Test waste water stream to stream during facility* Drilling and Workover Fluids * Determine what fluids could be determine discharge levels after operations* Pipeline Pigging substituted for drilling and commissioning of facility * Continue downstream

workover, hydrostatic testing, * Review spin handling at facilities sampling programsand facites chemicals and level of discharge to area * Assure adequate

* Conduct a surface and surface waters from incidental treatment is available togroundwater sampling program spins treat incremental and

* Determine spill response large hydrocarbon spillsequipment needs * Test waters during

* Determine concentration and type discharge of hydrostaticof hydrostatic test fluid used and testing _lmethods for treating its * Asses toxicity of 4discharged fluids workover fluidsSample surface waters

3. Disturbance to Groundwater * Locate all wells within 1.0 km of * Inventory all wells In affcted * Monitor wells In close* Impairment of water quality faclities, wallsites, and pipelines areas proximity to facilities* Change to water well production (according to topography) * Determine flow rates and quality * Review current cased

* Develop a groundwate In specifc wels logs and casing dateprotction plan to avoid short or * Determine effects from a pill of * Monitor wells In closelong-tem impact driung, workover fluids. proximity to drilling

condensate or waste water sumps* Detenmine drillng and workovwr

procedures for groundwaterprotection

4. SoIl Erosion and Fertility * Route design should mi cuts * Finalze ares route alinents for * Assess soi survey* H area are highly rodibie into steep slopes Rashidpur program* Soil with acid subsoil are toxic if * Develop soils data of all project * Soi surveys tor projet areas and * Review N-S and

uncovered and desiccated res along pipelines &ahmaputre Basin s* Soil contaminated with wastes Mre toxic * Develop aN drawings necessrY * iude soil handling spec, Ond Pipeline ROW for fertility t

and sources for groundwater for incluion In construction bid drawings In the engineering specs problems Ocontamination documn * Develop a son rclamation and * Assess effectiveness of <

* Develop handing techniques for planting program for each area reamation and erosionsON specific to each project a * Implement erosion mitigation control slng N-S 0

* Develop plantg and techniques on areas afready Pipeline ROW '-'_

reibntatement procedue. to conpleted during SGDPmaxdmize sH protecton

TABLE BSUMMARY OF IMPACT, MITIGATION AND MONITORING

POTENTIAL INRACT MITIGATION PROGRAM WORK REQUIRED MONITORING REQUIRED

5. Forest. Native Vegetation and Wetland Loss * Minimize disturbance through * Locate an forests, areas of native * Monitor use of forests* Loss of biodiversity, resources and forests vegetation, and wetlands and through new access

areas of wkildife and fisheries * If disturbance is unavoidable, assess predicted Impact pointsproduction, replace In other are * Survey for species composition, * Monitor reforestation and

* Increased iogging through new access * Use native species to revegetate size, access points, and rere pianting programsroutes right-of-ways where possible Species effectiveness

S. Loss of Wildlife * Avoid areas of critical habitat * Wildlife surveys to determine * Ensure hunting pressure* Loss of wildlihfe habitat * Schedule to avoid critical distribution, abundance, status does not rise* ncresm hunting presure periods (e.g. waterowl nesting) and requirements of wildlife * Monitor effects of

* Determine migration and habitat lossrrmovement schedules

7. Contamination by Wastes * Implement waste management * Document al typ and volumes * Track all wastes* Contamination of soil, surface water program including: of wastes produced produced, disposed and

and groundwater - DlilNg waste guldeines * Develop waste management stored* Expensive to remedbte - Hazardous waste gukdeines program * Develop an on-going* impir human health - Waste minimization * Asse aumps and containment training program for* Toxic to plants, widlife - Traneportation guideiines areas to enure wates ore safely workers

- Handing guideines contsined- Disposal and storage * Devop a land treatment facit y_guideinrs and operations guidelines c- Contaminant minimization

programTest hydrosutic test fluid, treator remove to containment area

S. Safet and Hazardous Opeations * Assess hazardous opeations * Audit all feilities and operations * Train and test personnel* Loss of Life sites for planning needs * Develop a safety management for comprehension* Damage to Environment * Develop safety manuas, system * Assure aN manuals are in* Demage to Equipment and Facilties procedures and practices * Develop a* necessary plans and place at field* Loss of Gas Supply Develop Emergency Reponse procedures * Conduct compliance

Plans assessments* Develop safety systems

throughout corporation and fiedunits

9. Equipment Damge & Loss Check equipment regularly Develop equipment maintenance/ Assure equipment isProces water quaity Clean, maintain and replace replcement program replaced and serviced asSoil acidity equipment as necessary required

1iologlal AttackAdjacent faciitisP

I`ICD

- 79 -ANNEX 4.5

Detailed Procurement Arranements

ICB LIB LCB Other

Procurement Packages Contract IDA Contract IDA Contract IDA Contract IDA Non IDA Toal

Value Financing Value Financing Value Financing Value Financing Fiunacing

1. Turnkey Contrct

Constuction of A-B Pipeline 63.3 55.9 63.3

Construction of Ges Plat 23.9 22.5 23.9

hatallation of SCADA System 23.2 23.2

Subtotal 87.2 78.4 23.2 110.4

n. Civil Worka

Cosuction of Well Locations 1.3 1.3 l.S

nn. Euldrment and Materials

Esmerercy Remn-e Equipment 2.0 1.9 2.0

Casings & Tubings 5.2 4.8 5.2

Casing Acceusories 0.3 0.2 0.3

Drilling Fluid C-emicala 1.3 1.3 1.3

Drillg Fluid Additive. 0.3 0.2 0.3

Drilling & Coring Bits 1.4 1.3 1.4

Oihweil Cement 1.2 1.2 1.2

Oihwell Cement Additves 0.2 0.2 0.2

Welbeads 1.3 1.2 1.3

Wellbead Panels & Fittings 0.2 0.2 0.2

Downhole Completion Equipment 1. 1.7 1.8

Field Equipment Part 1.3 1.0 1.3

Subtotal 9.7 9.2 5.5 5.0 1.3 1.0 16.5

IV.Technical Services

Cbarter Hire of one Drilling Rig 5.0 5.0 5.0

Eectric Logging 1.5 1.5 1.5

WeU Cementing & Production Tesing 1.0 1.0 1.0

Drilling Mud 0.5 0.5 0.5

Subtotal 5.0 5.0 3.0 3.0 8.0

V.Techlical Assistance & Traininr

Project fInplementation Support

A-B Pipeline 2.0 2.0 2.0

DrillI 2.9 2.9 2.9

Gas Procenuing Plant 3.2 3.2 3.2

SCADA 4.4 4.4

Subtotal 8.1 8.1 4.4 12.5

Capacity Building

OTCL Twinnng 2.5 2.5 2.5

Environment & Safety 2.5 2.5 2.5

Reservoir Mnagement 2.4 2.4 2.4

MSIP 2.6 2.6

Subtotal 7.4 7.4 2.6 10.0

Training 2.4 2.4 2.4

Total 101.9 92.6 8.5 8.0 1.8 1.3 19.2 18.9 30.2 161.6

ANNEX 4.6

DISBURSEMENT PROFILE

IDA Financial Year Disbursements USS Millionand Semester In Semester Cumulative Cumulative (%)

1995

June 30. 1995 9.6 9.6 7.9

196

December 31, 1995 15.1 24.7 20.4June 30, 1996 15.1 39.8 32.9

1997

December31, 1996 15.1 54.9 45.4June 30, 1997 15.1 70.0 57.9

December 31, 1997 15.1 85.1 70.4June 30, 1998 15.1 100.2 829

1w99

December 31, 1998 7.2 107.4 88.9June30, 1999 7.3 114.7 95.0

2000

December 31, 1999 3.0 117.1 97.4June 30, 2000 3.1 120.8 100.0

- 81 -

ANNEKX 4 . 7Page 1 of 2

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- 83 - ANNEX 4.8

Page 1 of 3

PROJECT REPORTING REOUIREMENTS

1. During project implementation, GTCL/SGFL/Petrobangla shall reportproject implementation status through quarterly progress reports and on theoperations and financial position through annual reports. Upon request,copies of ad hoc reports prepared on matters of importance to projectimplementation and operations should also be promptly furnished to IDA.

2. Quarterly reports should be sent to IDA not later than one monthafter the end of each quarter and should cover (a) procurement activities; (b)physical progress; (c) progress of institution building technical assistance;(d) cost estimates, expenditures and disbursements; and (e) management andoperations of project beneficiaries. The scope and contents of quarterlyreports are indicated in paras. 5 - 12 below.

3. During project implementation, GTCL/SGFL/Petrobangla shall submit:

(a) audited annual financial statements (consisting of incomestatement, funds flow statement and balance sheet) together withauditors' reports within six months from the end of the fiscal yearunder consideration, which should be accompanied by (i) reports onthe sources and applications of funds for each project componentboth for the most recent reporting period and on a cumulativebasis; and (ii) reports summarizing their respective keyperformance indicators for the fiscal year under considerationagainst the targets as agreed with IDA; and

(b) a separate auditor's report on withdrawals made on the basis ofstatements of expenditures and from the project Special Accountwithin six months from the end of each fiscal year.

4. Within four months of the credit closing date, GTCL/SGFL/Petrobangla will prepare and furnish to IDA a Project ImplementationCompletion Report (PICR) on the execution and initial operation of theproject, its costs and the benefits derived from it, the accomplishment of theobjectives of the credit, the plan for the project's future operation and thelessons learned. Near the end of the project implementation period, IDA shallinform GOB and GTCL/SGFL/Petrobangla of project completion reporting steps andPICR data requirements.

Ouarterly Proiect ImDlementation Progress Report

5. Quarterly implementation progress report shall summarize theoverall implementation status with a brief description of important phasesunderway and planned, and highlight any existing or anticipated issues, whichmay become critical to timely execution of the project. It shall providesufficient information on actual implementation progress for each projectcomponent covering at least the following aspects:

(a) physical work accomplished during the reporting period;

- 84 - ANNEX 4.8

Page 2 of 3

(b) a comparison (in percentage terms) of actual progress at the end ofthe reporting period with the original forecast of progress (SARschedule) at this date;

{c) changes, events or conditions which would materially delay theconstruction of the project or increase its cost; and

(d) the expected dates of completion of the project components.

Text of the Report

6. The text of the report should describe the work performed on eachcomponent during the reporting period. Where appropriate, the text shouldinclude explanations of and comments on:

(a) actual or expected material deviations from the original (oramended) design or schedule;

(b) actual or expected difficulties or delays, any measures taken orplanned to correct them, and the probable effects on theconstruction schedule;

(c) expected changes in the completion date of any major part of theproject or the project as a whole;

(d) actual or expected delays in delivery of major items of equipment.Reasons for such delays should be given, and their possible effecton the construction schedule should be estimated;

(e) changes in key personnel in the staff of project implementingagencies or their consultants;

(f) any actual or expected event or condition which may affect the costof the project; and

(g) any unusual occurrences affecting the progress of the project.

Tables and Bar Charts

7. In addition to the text, tables following formats similar to thoseattached shall be provided as part of the reports. Where appropriate, barcharts should be included to show separately scheduled and actual progress oneach of the main components of the project.

Procurement Activity

8. Because of its impact on overall project implementation progress,procurement shall be given special attention. In this regard, procurementtable should provide as many relevant details as possible, with complete listsof goods and services broken down by tenders for all goods and services to beacquired for the project. The table should indicate all key actions, such as:(i) IDA's concurrence to bidding documents as agreed under the Credit; (ii)prequalification of bidders as applicable to the type of procurement involved;

- 5 ANNEX 4.8Page 3 of 3

(iii) receipt of bids; (iv) bid evaluation and IDA's concurrence; (v) award ofcontract; and (vi) progress of delivery (see Exhibit A).

Cost Estimates. Expenditures and Disbursements

9. Table updating cost estimates, expenditures incurred anddisbursements claimed and forecasted shall be part of the quarterly projectimplementation progress report (see Exhibit B).

10. The figures of "Original Estimated Costs" should be those used inthe corresponding table in IDA's Appraisal Report. The table should show anysubstantial changes in the cost estimates that have become necessary since theprevious report. The reasons for such changes should be explained in the textof the report. Estimates should be reviewed and if necessary revised fromtime to time. Such revisions may be necessary after important contracts havebeen awarded, for instance, or when a substantial change has taken place inexchange rates. In any case, the estimates should be reviewed not lessfrequently than once a year.

11. As the exhibit indicates, the report should show the amount ofexpenditures up to the end of the reporting period, and the balance ofexpenditures still to be made to complete the project on the basis of thelatest estimated costs. Cost estimates and expenditures in foreign currencyshould be shown separately from those in local currency, for each of the mainitems comprising the project.

Ouarterly Report on ManaQement and Operations

12. This should be a narrative report, supplemented by graphs orschedules if necessary. The subjects which should be included are:

(a) actual or prospective changes in key personnel inGTCL/SGFL/Petrobangla;

(b) actual or prospective changes in the organizations of GTCL/SGPL/Petrobangla;

(c) the development of revenue collections;

(d) gas sales growth and gas supply and delivery system development;

(e) arrangements for financing and constructing major system additions;and

(f) any significant problems or development in GTCL/SGFL/Petrobangla'sgeneral operations.

- 86 -Exhibit A

b~ 1 0

F- -

rA~~~

z~~~~

F-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

OUARTERLY REPORT ON PROJECT COST ESTIMATE. EXPENDITURES AND COMMITMENTS

Reporting Period

Cost Estimte DIsburwmentsPrevious Balance of Renmining

Original Revised Revisions This Total Outstanding Cods toIstimate Etima This Quarter Previous Quarter Disbursemanit Commitments Total Complete Project

Projet (Col 4 + 5) (Col 6 + 7) (Col 3 -S)Components (1) (2) (3) (4) (5) (6) (7) (8) (9)

FrW= CoQtW US$tiIe

Total Forein Cot

LVW Coat = I

Total Local Codst I_ _ _ _ _ _ _ _ _ _ _ _ _

- 88 -ANNEX 4.9

Indicative Supervision Plan

Approximte SkilLs Staff InputDates Activity Required (staffwewks)

1. 02V95 Project Launfch workshop TN, PE, PRO, ENV, SAF 92. 07/95 Project Supervision with special focus on (i) A-B

pipeline construction nd Reshidpur drilling progrompreparation, and (ti) implementation of GTCL twirming,Envirormentsl and Safety TA nd training program TM, PE 5

3. 12/95 Project Supervision TM, PE 54. 06/96 Project Supervision with special focus on progress of

A-B pipeline construction nd Rsshidpur dehydrationpLant procurement TM, PE 5

5. 12/96 Mid-term review of all project components TN, PE, ENV, SAF, TRG 106. 06/97 Project supervision TM, PE 57. 12/97 Project supervision TN, PE 56 06/98 Project supervision TN, PE 59. 12/96 Project supervision TN, PE 510. 06/99 ICR mission TN, PE, ENV, SAF, TRG 10

TM a Task Maneger/Financial Analyst PE = Petroleum EngineerPRO u Procurement Specialist ENV a EnvironmentaL SpecialistTRC * Training Specialist SAF a Safety Specialist

- 89 -ANNEX 4.10PAGE 2 OF 2

Performance Indicators

FY95 FY96 FY97

Private Sector Participation

1) Divestment of GOB's shareholding in OCs:- amount (US$ million)- % of total GOB Equity

2) IOCs' Involvement:- no. of PSCs in execution- seismic work completed (km)- no. of wells drilled

- reserves proved up (BCF)- no. of production wells completed- gas production (BCF)

- capital spending (US$ million)

3) other Investment taken-up by the private sector(US$ million)

Gas Pricing

- end-user gas tariffs (Tk/MCF)% of international price of fuel oil

- share of GOB Taxation Revenue (I)

-I. Performance of Sector Entities

1) Production- gas production (MMCFD)- No. of producing wells- daily well production rates (MMCFD)- reserves to production ratio (years)- price received (Tk/MCF)

- operating expenses (Tk/MCF)- pre-tax margin (Tk/MCF)

2) Transmission Pipelines- capacity (MMCFD)

- throughput (MMCFD)- % utilization- revenue base (Tk/MCF)

- cash operating expenses (Tk/MCF)

3) Distribution- sales volume (bcf)

- distribution loss (%)- accounts receivable (months)- revenue base (Tk/MCF)

- marketing & distribution expenses (Tk/MCF)

- 90 - ANNEX 4.10

PAGE 2 OF 2

FY95 FY96 FY97

4) Corvorate Performance

a) Financial Performance- rate of return (%)- current ratio- debt/equity ratio (%)

b) Carital spending (USS million)of which:priority investment program (US$ million)

- % of self-financing

- % of private sector financing

c) Institutional Development- environmental and safety management- management systems improvements- training budget

- no. of staff-trained

- 91 -

ANNEX 5.1

BANGLADESHSylhet Gas Fields Company Limited (SGFCL)

Income Statement(In Tk million)

18se 1987 1988 1989 1990 1901 1992 1993

Sales RevenueGross Sales Revenue 263.8 336.9 373.4 454.4 487.7 564.5 560.4 556.1Lees: Excise Duties 151.0 240.5 278.5 324.7 345.3 316.8 306.0 328.4

Net Sales Revenue 112.8 96.4 94.9 129.7 142.4 247.7 254.4 227.7

Operating ExpensesSalaries & Wages 8.2 8.7 10.6 14.8 17.4 19.1 23.8 25.2Repairs & Maintenance 2.5 2.2 3.7 3.4 4.0 8.0 3.6 6.0Administration & Production Costs 14.9 25.4 41.6 27.0 20.2 9.5 10.2 10.0Depreciation & Depletion 15.8 14.2 8.4 17.5 24.8 40.0 31.2 24.1Others 19.2 29.7 (10.0) 2.1 7.7 18.1 9.1

Total Operating Expenses 60.6 80.2 54.3 64.8 56.4 84.3 86.9 74.4

Operating Income 52.2 16.2 40.6 64.9 76.0 163.4 167.5 153.3

Interest Charges 6.8 4.3 3.0 22.2 21.9 21.9 25.1 23.3FOREX Losses 0.0 0.0 0.0 1.0 1.1 1.2 1.4 1.5

Net Income Before Tax 45.4 11.9 37.6 41.7 53.0 140.3 141.0 128.5

Other Income 23.2 20.4 22.9 25.9 20.7 12.9 19.7 22.2

Provision of Workers' Profit Participation Fund 3.4 1.6 3.0 3.4 3.5 7.8 8.0 7.5

Income Tax 32.6 14.6 28.4 33.2 36.3 72.7 68.7 64.5

Net Income After Tax 32.6 16.0 29.0 31.0 33.9 72.7 84.0 78.7. ..... ...... 5 77 ....0. ......7 ...... ......3% .3%

Return on Not Fixed Assets 43.5%e 23.546 37.7qF 53.0%b 48.74b e7.8% es.34b e7.34%

- 92 -

ANNEX 5.1

BANGLADESHSylhet Gas Fields Company Limited (SGFCL)

Balance Sheet(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

Fixed AssetsGross Fixed Assets 162.0 164.5 176.1 209.2 220.0 293.4 306.6 313.2Accumulated Depreciation 71.4 82.2 88.4 96.2 104.2 130.0 150.6 165.9

Net Fixed Asets 90.6 82.3 87.7 113.0 115.8 163.4 156.0 147.3

Capital Work-in-Progress 0.7 0.5 5.4 4.9 1.0 1.0 12.6 3.0Prospecting Expenditures 73.0 70.1 68.4 288.6 281.3 271.6 260.6 252.6Project Dev - Wells 7 & 8, Chattak OilField 35.1 221.7 244.9 37.1 83.5 95.4 112.6 132.7Deferred Charges - FOREX 0.0 0.0 0.0 19.8 20.1 23.5 41.7 44.3IntracompanyAccount 107.9 120.6 120.8 146.9 172.0 112.4 194.4 201.2

Current AssetsCash and Bank Balances 184.4 220.8 258.9 280.3 91.2 163.5 248.1 270.6Accounts Receivable 104.9 112.8 191.5 203.1 159.0 155.1 182.0 192.6Stores and Spares 57.3 90.2 85.4 120.6 123.6 123.6 73.8 79.4Advances, Deposits & Prepayments 7.7 18.1 24.6 7.7 8.8 133.4 190.5 194.8

Total Current Assets 354.3 441.9 560.4 611.7 382.6 575.6 694.4 737.4

TOTAL ASSETS 661.6 937.1 1087.6 1222.0 1056.3 1242.9 1472.3 1518.5

EquityCapital 104.3 104.3 104.3 104.3 160.5 150.6 150.5 180.6Reserves& Retained Earnings 159.7 197.9 213.0 286.3 272.3 329.6 391.7 484.5

Total Equity 264.0 302.2 317.3 390.6 422.8 480.1 542.2 645.0

FOREX Reserve 20.8 22.2 26.9 45.5 56.3Long Term Debt 157.3 338.7 360.0 40e.3 442.1 431.6 477.5 460.9

Current LiabilitiesAccounts Payable 173.4 272.9 357.4 367.1 7.3 0.3 1.4 1.3Excise Duty Payable 96.7 77.2 109.8 88.5Interest Payable 19.7 19.5 19.8 19.1Worker's Profit Participation Fund 10.8 5.5 4.3 5.3 7.5 7.6 8.2 7.5Income Tax 35.1 -2.5 28.4 11.7 37.9 195.3 263.9 248.9Others 1.3 0.9 0.4 1.1 19.9 23.9 23.8 10.1

Total Current Liabilities 240.3 296.3 410.3 404.3 166.3 304.3 407.1 356.3

TOTAL EQUITY AND LIABILITIES 661.6 937.1 1087.6 1222.0 1056.4 1242.9 1472.3 1518.5U...... ...... ..... ... ....... am ...... .... a..... ...... ...... ..... ....... .... .............

Current Ratio (times) 1.5 1.5 1.4 1.5 2.3 1.9 1.7 2.1Accounts Receivable (months) 4.8 4.0 6.2 5.4 3.9 3.3 3.9 4.2Debt as % of Debt and Equity 37.3% 52.9% 53.2% 52.2% 52.3% 48.9% 49.1% 44.5%6

- 93 -

ANNEX5 1

BANGLADESHylhet Gas Filids Company Umited (SGFCL)

Funds Flow Statement(In Tk mllilon)

1986 1987 1988 1989 10w 1901 1902 1903

SourcesOperating Income 52.2 16.2 40.6 64.0 76.0 163.4 167.5 183.3Charges Not Requiring Funds:DeprecIation 15.3 14.2 8.4 17.5 24.8 40.0 31.2 24.1

Intemal Cash Generation 68.0 30.4 49.0 32.4 100.8 203.4 108.7 177.4

Other Income 23.2 20.4 22.9 25.9 20.7 12.9 19.7 22.2Equity Contribution 104.S 0.0 0.0 0.0 46.2 0.0 0.0 0.0New Long-Term Borrowings 26.3 185.4 11.5 52.5 36.6 0.3 60.2 0.0Interest CapItlzed 0.0 8.0 16.0 0.0 7.6 -4.8 0.0 0.0FOREXAdjustment 0.0 0.0 0.0 20.8 1.4 4.7 18.0 10.8Retained Eamings Adjustment 0.0 32.1 0.0 47.3 -47.9 1.0 1.0 47.6

Total Sources 221.3 276.3 90.4 228.9 165.4 217.5 29U.2 257.9is .... .... ..... .... .... ..... .....

UerCapital Works 162.7 2.3 16.5 33.1 6.9 73.4 24.4 -2.2Development - Gas and Oil Wells 35.6 116.6 23.2 21.6 55.9 16.4 17.2 20.1Deferred Charges - FOREX 0.0 0.0 0.0 19.3 0.3 3.4 13.2 2.6

Debt ServiceAmortization of principal 51.7 12.0 6.2 6.2 8.4 6.0 14.3 16.6Interest 6.5 4.3 3.0 22.2 21.9 21.9 25.1 23.3

Total Debt Service 58.5 16.3 9.2 23.4 30.3 27.9 39.4 39.9

FOREX Losses 0.0 0.0 0.0 1.0 1.1 1.2 1.4 1.5Provision for Workers' PPF 3.4 1.6 3.0 3.4 3.6 7.8 8.0 7.5Income Tax 32.6 14.6 28.4 33.2 36.3 72.7 68.7 64.5Contribution to Exchequer 15.0 10.0 13.9 5.0 0.0 16.4 22.9 23.4Intracompany account 107.9 12.7 0.2 26.1 25.1 -56.6 82.0 6.8Inc (Dec) in Working Capital -193.9 32.2 4.9 57.3 5.9 58.0 1o.0 93.8

Total Use 221.8 276.3 99.4 223.9 106.3 217.6 296.2 257.9..... ann a.... am=. a.an .... a aama .....

Debt Service Coverage 1.0 2.2 4.7 2.6 2.8 5.1 3.3 3.3

- 94 -

ANNEX 5.1

BANGLADESHBangladesh Gas Fields Company Limited (BGFCL)

Income Statement(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

Sales RevenueGross Sales Revenue 1556.4 2041.3 2560.6 3164.9 4806.2 5149.2 5917.2 7468.3

Less: Excise Duties 1386.1 1839.5 2299.1 2846.7 4358.5 4343.0 4097.7 6045.1

Net Sales Revenue 170.3 201.8 261.6 308.2 447.7 806.2 910.5 1423.2

Operating ExpensesSalaries & Wages 10.5 9.7 10.9 15.9 21.6 27.6 49.8 55.9

Repairs & Maintenance 2.3 2.4 1.9 1.6 9.2 30.0 20.7 33.7

Administration 21.9 32.7 36.0 19.3 28.8 19.5 18.2 33.1

Production and Field Expenses 28.8 49.1 64.6 70.9 78.0 75.5 29.9 35.0

Depreciation (incl depletion of gas wells) 16.4 76.0 69.9 136.8 198.8 200.0 240.0 276.1

Amortization of explo/drilling costs/forex 6.5 11.3 11.3 11.3 11.3 6.8 2.0 2.1

Total Operating Expenses 86.5 181.2 194.5 255.8 347.7 359.4 360.6 435.9

Operating Income 83.8 20.6 67.0 52.4 100.0 446.8 558.9 987.3

Interest Charges 34.6 92.7 81.6 129.5 286.4 315.7 183.7 181.4

FOREX Losses 0.0 0.0 0.0 7.6 55.0 68.5 90.9 101.1

Net Income Before Tax 49.2 (72.1) (14.6) (84.7) (241.4) 62.6 284.3 704.8

Other Income 35.2 33.6 26.4 74.2 121.8 54.4 74.9 118.1

Provision of Workers' Profit Participation Fund 4.2 - 0.6 -. - 5.9 17.9 41.1

Income Tax 40.1 - 5.6 - - 55.5 153.6 351.8

Net Income After Tax 40.1 (38.5) 5.6 (10.5) (119.6) 55.6 187.7 430.0.... ...... ----- - --- * - -- * -

Return on Net Fixed Assets 33.9% 8.7% 7.4% 6.0% 5.5% 11.2% 11.1% 17.5%

- 95 -

ANNEX 5.1

BANGLADESHBangladesh Gas Fields Company Limited (BGFCL)

Balance Sheet(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

Fixed AssetsGross Fixed Assets 348.4 1240.1 1606.1 3095.7 4075.5 4129.3 4596.8 4977.2Accumulated Depreciation 128.0 214.2 283.4 435.2 685.5 877.5 1151.0 1427.9

Net Fixed Assets 220.4 1025.9 1322.7 2060.5 3390.0 3251.8 3445.8 3549.3

Capital Work-in-Progress 391.0 159.0 390.7 366.1 273.3 475.3 92.0 572.2

Deferred Charges - Exploration 36.5 72.4 61.2 49.9 38.7 31.9 6.2 4.1

Deferred Charges- FOREX 0.0 0.0 0.0 972.4 1138.8 1442.4 1803.5 2040.0

Current AssetsCash and Bank Balances 243.9 271.2 216.5 350.4 455.8 416.4 840.3 1345.2Accounts Receivable 718.5 1496.4 1817.1 2871.8 2538.8 2170.9 1977.6 2445.7Stores and Spares 18.7 25.9 27.5 89.5 68.6 68.6 66.5 74.5Advances, Deposits & Prepayments 63.5 92.6 89.3 109.4 140.7 92.2 60.3OtherB 17.5 22.9 13.9 41.9 13.3 283.4 103.3 158.1

Total Current Assets 1062.1 1909.0 2164.3 3483.0 3217.2 2939.3 3079.9 4083.8

TOTAL ASSETS 1710.1 3166.4 3939.0 7511.9 8058.0 8140.7 8427.4 10258.4... ... .. mfln =.... .. a ... am

EquityCapital 230.5 230.5 230.5 270.8 244.0 244.3 1773.0 2041.4Reserves& Retained Earnings 323.3 289.3 294.6 -15e.1 125.8 178.1 339.5 779.3

Total Equity 553.8 519.8 525.1 114.7 369.8 422.4 2112.5 2820.7

Long Term Debt 397.1 935.6 1339.7 3818.6 4214.7 4757.4 3484.7 3924.6

Current LiabilitiesExcise Duty Payable 670.6 1445.1. 1719.4 2181.4 2427.4 1783.0 1563.2 1939.6Interest Payable 51.0 120.3 194.6 944.8 897.9 975.9 1064.9 1141.9Worker's Profit Participation 4.2 - 0.6 - 5.9 18.0 41.1Provision for Employees'Gratuity 3.9 4.4 6.0 6.6 15.5 17.3 22.4 25.9Income Tax - 0.0 5.6 0.0 0.0 55.6 153.6 351.8Others 29.4 141.2 148.0 445.8 132.8 123.2 8.1 12.8

Total Current Liabilities 759.1 1711.0 2074.2 3578.6 3473.6 2960.9 2830.2 3513.1

TOTALEQUITYANDLIABILITIES 1710.0 3166.4 3938.9 7511.9 8058.1 8140.7 8427.4 10258.4*---- *----*---- s--=-*--....-s- ...... ... ........ ......

Current Ratio (times) 1.4 1.1 1.0 1.0 0.9 1.0 1.1 1.2Accounts Receivable (months) 5.5 8.8 8.5 10.9 6.3 5.1 4.0 3.9Debt as % of Debt and Equity 41.8% 64.3% 71.8% 97.1 % 91.9% 91.8%O 62.3% 58.2%

- 96 -ANNEX 5.1

BANGLADESHBangladesh Gas Fields Company Limited (BGFCL)

Funds Flow Statement(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

SourcesOperating Income 83.8 20.6 67.0 62.4 100.0 446.8 558.9 987.3Charges Not Requiring Funds:Depreciation 16.4 76.0 69.9 136.8 198.8 200.0 240.0 276.1Amortization 6.5 11.3 11.3 11.3 11.3 6.8 2.0 2.1

Internal Cash Generation 106.8 107.8 148.1 200.5 310.1 653.6 800.9 1265.5

Other Income 35.2 33.6 26.4 74.2 121.8 64.4 74.9 118.1Equity Contribution/Conversion 0.0 0.0 0.0 40.3 -26.8 0.3 1528.7 268.4New Long-Term Borrowings 156.4 649.2 478.2 372.2 130.8 360.5 79.4 591.1

FOREX Adjustment 980.0 175.6 240.9 407.3 346.6Long Term Debt from BGSL 1140.2 160.3Depreciation from BKB - - - 80.9 -80.9 0.0 0.0 0.0Retained Earnings Adjustment 1.1 -39.9 -3.3 -2.2 169.4

Total Sources 298.3 600.7 652.7 2889.4 751.0 1312.4 2889.0 2760.1......... .......... ........ ... 0

UsesCapital Works 196.2 659.7 597.8 310.0 676.8 263.8 50.7 850.8Assets from BKB - - - 1140.0 158.7 0.0 - -

Delerred Charges - Exploration 0.0 47.2 0.0 0.0 0.0 0.0 -23.7 0.0Deferred Charges- FOREX 0.0 0.0 0.0 072.4 186.4 303.6 361.1 245.5

Debt ServiceAmortization - principal 4.0 10.8 74.1 13.5 70.6 64.7 230.7 277.7Amortization - forex 220.1Interest 34.6 92.7 81.6 129.5 286.4 315.7 183.7 181.4

Total Debt Service 38.6 103.5 155.7 143.0 357.0 380.4 414.4 679.2

Debt Converted to Equity 0.0 1528.7 0.0FOREX Losses 0.0 0.0 0.0 7.6 55.0 68.5 90.9 101.1Provision for Workers' PPF 4.2 0.0 0.6 0.0 0.0 5.9 17.9 41.1Income Tax 40.1 0.0 5.e 0.0 0.0 55.5 153.6 351.8Loss on Bakhrabad I Dividends 522.2 -522.2 0.0 24.1 159.6Inc (Dec) in Working Capital 19.2 -119.6 -107.0 -205.8 -140.7 234.7 271.3 321.0

Total Uses 298.3 690.7 652.7 2889.4 751.0 1312.4 2889.0 2759.1

Debt Service Coverage 2.4 1.4 1.1 1.9 1.1 1.5 1.4 1.2

- 97 -

ANNEX 6.1

BANGLADESHTitas Gas Transmission and Distribution Company (TGTDC)

Income Statement(In Tk million)

1986 1987 1988 1g89 19w 1991 1992 1993

Groes Sales Revenue 1702.0 2371.8 3152.9 3606.7 4362.7 5321.0 6172.1 7343.7Less:

Excise Duty 1374.0 1932.0 2623.0 2945.4 3309.8 3514.8 3826.1 6762.6Producers'Take 99.6 161.6 215.3 261.0 331.7 416.9 723.9Contribution to BAPEX 105.2 115.7 146.6Transmission Charge 251.6

Net Sales Revenue 228.4 278.2 414.6 400.3 721.2 1284.1 1506.4 1182.9

Operating ExpensesSalarles & Wages 93.6 96.3 127.6 137.6 163.3 177.7 217.6 248.8Repairs & Maintenance 17.2 20.8 20.0 20.8 24.9 28.7 32.4 37.6Administration 19.8 27.8 36.1 67.2 40.4 47.7 44.8 53.5Provision for Doubtful Debts 4.6 4.6 5.6 5.6 6.7 65.6 167.4 38.2Depreciation 62.9 89.2 107.0 129.4 151.7 208.7 255.8 273.1Miscellaneous 1.0 1.7 7.5

Total Operating Expenses 199.0 239.4 303.8 360.5 377.0 528.4 708.0 649.1

Net Operating Income 29.4 38.8 110.8 39.8 344.2 755.7 798.4 533.8

Interest Charges 56.1 108.9 108.4 111.2 130.1 120.7 296.4 285.0Provision of Workers' Profit Participation Fund 2.5 0.5 4.8 1.0 14.8 34.7 30.7 19.3Other Operating Income 22.0 7.1 12.2 13.3 14.6 31.7 96.4 104.4Interest Income 86.1 75.5 86.6 78.3 82 1 61.4 46.7 61.5

Net Income Before Tax 49.9 12.0 96.4 19.2 296.0 693.5 614.4 386.4

Provision for Tax 29.9 6.0 48.2 10.0 163.2 368.9 307.2 192.7

Net Income After Tax 20.1 6.0 48.2 9.3 142.8 334.6 307.2 192.7

Return on Net Fixed Assets 12.5% 14.2% 13.0% 8.3% 17.4% 18.7% 18.6% 12.0%

- 98 -

ANNEX 5.1

BANGLADESHTitas Gas Transmission and Distribution Company (TGTDC)

Balance Sheet(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

Fixed AssetsGross Fixed Assets 1007.1 1507.0 2000.1 2230.4 2514.8 4302.9 4597.4 6294.9Accumulated Depreciation 404.0 492.8 599.0 726.0 874.9 1080.0 1336.0 1608.1

Net Fixed Assets 603.1 1014.2 1401.1 1504.4 1639.9 3222.9 3261.4 4686.8

Capital Work-in-Progress 443.3 288.4 137.6 122.5 726.2 250.8 928.8 498.4Other Long Term Assets 355.1 519.e 556.0 874.7 748.7Intracompany Account -8.7 24.4 -47.3 -91.4 -100.4 0.0 0.0 0.0

Current AssetsCash & Bank Balances 208.1 251.9 150.9 243.9 274.4 220.9 268.3 409.1Accounts Receivable - net 660.7 1229.8 1400.2 1551.7 1792.7 2728.7 2609.4 2528.0Stores & Spares 280.2 266.6 332.4 354.3 333.5 338.0 304.7 259.2Advance & Prepayments 113.0 241.5 328.0 194.4 208.8 387.9 235.9 390.9Others 223.5 223.5 234.5 22.5 50.9 50.9 0.0 0.0

Total Current Assets 1491.5 2213.3 244e.0 2366.8 2660.3 3724.4 3418.3 3593.2

TOTAL ASSETS 2529.2 3538.3 3937.4 4257.4 5445.6 7754.1 8283.2 9527.1.. fl. ,l.. a. . f .. . ....... ......

EquityCapital 220.5 220.5 262.5 280.6 297.1 803.1 743.1 831.3Retained Earnings 82.4 120.1 174.5 166.2 358.4 863.4 902.4 1004.2

Total Equity 302.9 340.6 437.0 446.8 655.5 1266.5 1645.5 1835.5

Long Term Debt 10U4.7 1143.1 1141.2 1203.9 1840.9 2828.9 3475.3 4341.2Other Long Term Liabilities 139.5 226.1 259.0 173.7 196.5

Current LiabilitiesPayable for Gas Purchase 665.6 1501.1 1679.0 1867.8 1912.2 1739.0 1482.7 1840.2Payable for Goods & Services 30.9 58.5 149.7 45.7 74.2 544.5 301.0 215.5Interest Payable 184.4 218.8 228.0 294.2 336.7 476.9 469.2 511.7Tax Payable 83.9 29.4 32.9 16.9 112.1 272.4 319.8 61.3WorkerseProfit -Sharing Fund 6.2 4.4 4.7 0.6 16.0 42.6 40.5 20.5Security Deposits 190.6 242.6 264.9 242.0 271.9 324.3 376.5 504.7

Total Current Uanilities 1161.6 2054.7 2359.2 2467.2 2723.1 3399.7 2988.7 3153.9

Total Equity & Liabilities 2529.2 3538.3 3937.4 4257.4 5445.6 7754.1 8283.2 9527.1UflU f.a ..... a...M.= .... ... a.. ....... .......

Current Ratio (times) 1.3 1.1 1.0 1.0 1.0 1.1 1.1 1.1

Accounts Receivable (months) 4.7 6.2 5.3 5.2 4.9 6.2 5.1 4.1Debt as % of Debt and Equity 77.9% 77.0% 72.3% 75.0% 75.9% 70.9% 68.9% 71.2%

- 99 -

ANNEX 5.1

BANGLADESHTitas Gas Transmission and Distribution Company (TGTDC)

Funds Flow Statement(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

SOUrcesOperating Income 29.4 38.8 110.8 39.8 344.2 755.7 798.4 533.8Charges Not Requiring Funds:

Depreciation 82.9 89.2 107.0 129.4 151.7 208.7 255.8 273.1Provision for Doubtful Debts 4.6 4.6 8.6 5.6 6.7 65.6 157.4 38.2

Internal Cash Generation 96.9 132.6 223.4 174.8 502.6 1030.0 1211.6 845.1

Interest and Other Income 78.1 82.6 98.8 91.6 96.7 93.1 143.1 165.9Equity Contribution 0.0 0.0 42.0 18.1 16.5 306.0 -180.0 88.2Debt Converted to Equity 0.0 0.0 0.0 0.0 0.0 0.0 320.0 0.0New Long-Term Borrowings 231.5 138.4 75.9 99.7 693.0 1063.4 1034.8 921.7Other Long Term Liabilities 139.5 86.6 32.9 -85.3 22.8Retained Eainings Adjustment -1.0 46.6 19.5 -14.4 49.4 -29.6 22.7 10.6

Total Sources 405.5 400.2 459.6 509.3 1444.8 2495.8 2486.9 2044.3...... ......... ...... ......... ...... ......... ...... ......... * ..... ......... ......... ...

UsesCapital Expenditure 373.0 343.4 345.1 217.6 890.9 1316.3 972.3 1268.1

Debt ServiceAmortization of principal 26.1 60.0 77.8 37.0 56.0 75.4 68.4 55.8Interest 65.1 108.9 108.4 111.2 130.1 120.7 296.4 285.0

Total Debt Service 81.2 168.9 186.2 148.2 186.1 196.1 364.8 340.8

Debt Converted to Equity 0.0 0.0 0.0 0.0 0.0 0.0 320.0 0.0

Provision for Workers PPF 2.5 0.5 4.8 1.0 14.8 34.7 30.7 19.3Income Tax 29.9 6.0 48.2 10.0 153.2 358.9 307.2 192.7Payment to Exchequer 15.0 15.0 13.3 3.2 0.0 0.0 90.9 101.5Other Long Term Assets 355.1 164.5 36.4 118.7 74.0Intracompany Account -8.7 33.1 -71.7 -44.1 -9.0 100.4 0.0 0.0Inc (Dec) in Working Capital -87.3 -166.7 -66.2 -181.6 44.3 453.1 262.3 47.9

Total Uses 405.5 400.2 459.7 509.3 1444.8 2495.8 2486.9 2044.3.... ...... ...... .... .... .... ....... ..... ,,,.,,, ,,, ___ ___

Debt Service Coverage 1.2 0.8 1.2 1.2 2.7 5.3 3.3 2.5

1 0-Apr-95 Hidt_FS Page 9

-- 100 -

ANNEX S.1

BANGLADESHBakhrabad Gas Systems Limited (BGSL)

Income Statement(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

Gross Sales Revenue 478.0 904.1 1323.3 1510.6 1816.6 2190.3 2603.4 M7.4Loes:

Excise Duties and Dev Surcharge 340.0 675.1 1014.8 1078.0 0.0 0.0 0.0 0.0Contribution to BAPEX 43.1 49.7 30.6

Net Sales Revenue 136.1 229.0 308.5 432.6 1816.6 2147.2 2553.7 1648.8

Operating ExpenessGas Purchases 120.4 1439.7 1619.7 1045.2 1118.1Salaries and Wages 14.2 20.5 27.4 33.4 42.7 61.9 63.5 76.5Repairs and Maintenance 2.4 6.1 6.5 10.5 13.4 9.9 14.6 19.6Administration 20.8 43.0 62.2 69.9 47.2 35.1 29.0 32.0Depreciation & Depletion 17.5 144.5 163.6 152.5 172.0 225.0 228.0 233.9Amortization - Pre-op expenses 0.0 0.0 0.2 0.2 0.2 0.2 0.2 0.0Others 5.1 2.3 8.0 8.7 11.2 21.9 34.6 44.0

Total Operating Expenses 60.0 216.4 266.9 385.6 1726.4 1963.7 2315.1 1524.6

Operating Income 76.0 12.6 41.6 47.0 90.2 183.5 238.6 24.2

Interest Charges 184.2 155.6 52.1 247.9 445.4 405.9 351.8 348.8FOREX Losses 40.7 57.1 69.8 69.3 16.7 53.1 93.6 71.4

Net Income Before Tax (148.9) (200.1) (60.3) (270.2) (371.9) (275.5) (206.8) (396.0)

Interest Income on Deposits 9.6 12.4 46.1 49.4 56.2 51.3 42.0 59.3Other Inc (Exp) incl Line Rent trom TGTDC 15.9 41.8 25.0 17.7 37.5 36.7 46.9 301.9Provision for Workers' PPF - - - - - - - -

Income Tax

Net Income After Tax (123.4) (145.9) (9.2) (203.1) (278.2) (187.5) (117.9) (34.8)...... ....... ...... ...... ...... . a

Return on Net Fixed Assets 2.2% 0.2% 0.7% 0.8% 3.2% 3.6% 3.5% 4.6%

10-Apr-96 Hist_FS Page 10

ANNEX 5.1

BANGLADESH

Bakhrabad Gas Systems Limited (BGSL)Balance Sheet(In Tk million)

198e 1987 1988 1989 19o9 1991 1992 1993

Fixed AssetsGross Fixed Assets 2863.8 6234.1 6524.9 5668.1 6059.9 7739.5 8231.3 8463.6Accumulated Depreciation 98.4 300.0 533.4 602.3 759.5 1065.4 1387.4 1700.3

Net Fixed Assets 2765.4 5934.1 5991.5 5065.8 5300.4 6674.1 6843.9 6763.3

Work-in-Progress 4442.4 1860.8 2182.4 1439.0 1562.1 63.3 31.9 255.2

Deferred Charges 1.2 1.2 1.0 0.7 0.5 0.2 0.0 0.0lntracompany Account 429.8 38.3 (1.3) -19.9 -8.2 0.0 0.0 0.0

Current AssetsCash and Bank Balances 168.5 321.5 533.7 732.5 449.2 34e.6 614.2 830.8

Accounts Receivable 148.4 306.3 394.5 413.6 469.8 613.8 6e5.2 301.8Stores and Spares 545.1 596.5 813.7 516.5 440.6 527.2 500.4 471.4Advancess Deposits & Prepayments 76.7 52.6 54.8 107.0 140.5 158.0 150.4 106.4Others 7.5 3.8 84.4 32.0 12.7 5.2 2.4 136.2

Total Current Assets 946.3 1370.6 1681.1 1801.6 1512.8 1165.7 1841.6 1846.6

TOTAL ASSETS 8585.1 9205.0 9854.7 8287.2 8367.6 8388.3 8717.4 865.I1..... ....... ...... ......

EquityCapital 857.6 857.6 1244.0 2971.4 2981.9 2981.9 3451.3 3539.8Reserves & Retained Eamings (179.4) (327.8) (336.9) (973.9) (1,244.8) (1.367.3) (1,480.5) (1,588.3)

Total Equity 678.3 529.8 907.1 1997.5 1737.1 1614.6 1970.8 1951.5

Long Term Debt 6062.1 6607.5 6801.8 4463.7 4236.2 4235.4 3928.7 4006.5

Current LiabilitiesAccounts Payable - Goods & Services 74.9 99.1 43.9 61.2 58.9 50.7 719.1 387.8Excise Duties. Payable 171.2 357.8 588.9 589.9 141.4 3.3 3.3 3.3Interest Payable 1502.3 1445.8 1445.8 1067.8 1522.0 164.8 1854.6 2135.8Income Tax Payable 0.0Provision fo Gratuity 2.2 4.3 6.7 8.2 17.0 22.2 49.8Others 94.1 70.6 60.5 98.9 672.0 812.6 21S.7 240.4

Total Current Uabililies 1844.7 1977.6 2145.8 1826.0 2394.3 2538.4 2817.9 2817.1

TOTAL EQUITY AND LIABILITIES 8585.1 9205.0 9854.7 8287.2 8367.e 8388.3 8717.4 U6s5.1. a...... ..... ...... ......l . ..... ... ..

Current Ratio (times) 0.5 0.7 0.8 1.0 0.6 0.7 0.7 0.7

Accounts Receivable (months) 3.7 5.3 3.6 3.3 3.1 3.4 2.6 2.3Debt as% of Debt and Equity 89.9% 92.7% 88.2% 69.1 % 70.9% 72.4% 66.6% 67.7%

10-Apr-OS Hit_FS Page 1 1

ANNEX 5.1

BANGLADESHBakhrabad Gas Systems Limited (BGSL,

Funds Flow Statement(In Tk million)

1986 1987 1988 1989 1990 1991 1992 1993

SourcesOperating Incorme 76.0 12.6 41.6 47.0 90.2 183.5 238.6 24 2Charges Not Requiring Funds:

Depreciation 17.5 144.5 163.6 152.5 172.0 225.0 228.0 233.9Amortization - Preoperating Exp 0.0 0.0 0.2 0.2 0.2 0.2 0.2 0.0

Internal Cash Generation 93.5 157.1 205.5 199.7 262.4 408.7 466.8 258.1

Interest Income 9.6 12 4 46.1 49 4 56.2 51.3 42 59.3

Other Income 15.9 41.8 25.0 17.7 37.5 36.7 46.9 301.9Equity Contribution 144.9 0.0 44.3 1083.4 10.5 0.0 34.3 86.5DebttoEquityConversion 0.0 0.0 342.1 e44.0 0.0 0.0 435.1 0.0Borrowings 434.3 500.9 330.1 259.2 96.3 129.7 69.7 196.5FOREXAdjustment 730.5 276.2 236.6 121.0 319.3 110.6 328.7 180.9Asaets trandered to BGFCL 0.0 0.0 0.0 2448.9 -29.8 63.1 1.4 13.9Retained Earnings Adjustment 1.6 0.0 0.0 -433.9 7.4 65.0 4.8 -73.0

Total Sources 1430.4 968.4 1229.7 4389.4 759.8 865.1 1449.7 1026.1~~~...., ...... .. .... ......- ...... ...... .......-.

UsesCapital Works 1321.0 569.6 445.6 874.1 214.0 122.0 131.5 352.4FOREX capitalized 689.8 219.1 11688 51.7 302.6 04.1 329.9 109.5

Debt ServiceAmortization - principal 196.4 84.6 60.5 24.4 442.3 165.2 196.4 175.6Amortization - arex 91.1Interest 184.2 155.6 52.1 247.9 446.4 405.9 351.8 348.8

Total Debt Service 379.6 240.2 102.6 272.3 887.7 571.1 64.2 616.4

FOREX Lossea 40.7 57.1 69.8 69.3 16.7 53.1 03.6 71.4Provision 70r Workers PPF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Income Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Contribution to Exchequer 2.5 2.5 0.0 0.0 0.0 0.0 0.0 0.0Debt to Equity Conversion 0.0 0.0 342.1 644.0 0.0 0.0 436.1 0.0Debt Transferred to BGFCL 0.0 0.0 0.0 2485.8 184.1 22.8 0.0 -128.4IntracomprnyAccount 429.8 -391.5 -s9.6 -18.6 11.7 8.2 0.0 0.0Inc (Dec) in Working Capital -1433.1 291.4 142.4 10.8 -857.0 .4.2 -4.6 5.8

Tota Uses 1430.3 968.4 1229.7 4380.4 769.8 865.1 1440.7 1026.1m ... ... n an .. .M. ..-- nn

Debt Service Coverage 0.2 0.6 2.0 0.7 0.4 0.8 0.8 0.9

10-Apr46 HMitFS Page 12

ANNEX 5.1

BANGLADESHJalalabad Gas Transmission & Distribution System Ltd. (JGTDSL)

Income Statement(In Tk million)

1988 1987 1988 1969 1990 1991 1992 1993

Sales RevenueGross Sales Revenue 238.2 309.7 512.3 647.2 507.3 671.4 610.9 700.8Less:

CostotGas 175.3 227.3 398.9 421.8 400.1 408.9 396.8 511.9Contribution to BAPEX 11.2 12.0 13.8

Net Sales Revenue 62.9 82.4 113.4 125.4 107.2 151.3 200.1 175.1

Operating ExpensesSalaries&Wages 7.4 9.4 10.9 14.6 18.3 18.7 24.9 33.1Repairs & Maintenance 0.8 0.2 0.7 0.8 1.6 2.0 1.6 2.6Administratlon 6.2 16.5 15.0 20.8 27.2 16.7 9.9 12.1Depreciation 27.5 27.9 35.7 39.6 40.0 41.4 43.6 43.6Provision for Bad Debts 0.3 0.3 0.5 2.1 2.2Miscellaneous 0.1 0.3 0.3 0.3 0.1 0.1 0.2 0.0

Total Operating Expenses 41.0 54.4 02.6 76.4 87.5 79.4 82.1 93.6

Net Operating Income 21.9 28.1 50.8 49.0 19.7 71.9 118.0 81.6

Other Income 12.7 17.4 24.1 31.6 39.1 33.5 39.0 38.3Interest Charges 28.4 31.8 25.3 38.8 38.7 37.7 35.0 31.8Provision of Workers' Profit Participation Fund 0.3 0.7 2.5 2.1 1.0 3.2 5.8 4.2

Net Income Before Tax 5.9 13.0 47.1 39.7 19.1 64.5 116.2 83.9

Income Tax 2.7 5.8 21.2 25.1 12.1 27.5 64.8 48.6

Net Income After Tax 3.2 7.2 26.9 14.6 7.0 37.0 51.4 35.3-W=. .... ...... ...... ....... .... .. .. -...... a...

Return on Net Fixed Assets 12.1% 14.2% 17.9% 16.8% 16.8% 29.9% 33.0% 32.4%

10-Apr-OS HIltFS Page 13

ANNEX 5.1

BANGLADESHJalalabad Gas Transmission & Distribution System Ltd. (JGTDSL)

Balance Sheet(In Tk million)

lse 1987 1988 1989 10 191 1992 1w93

Fixed AssetsGross Fixed Assets 312.0 364.8 398.5 437.6 451.6 475.8 492.8 521.3

Accumulated Depreciation 49.9 77.8 113.5 153.1 193.1 235.0 278.5 322.0

Net Fixed Assets 262.1 287.1 285.1 284.5 258.5 240.8 214.3 199.3

Capital Work-in-Progress 14.4 6.0 6.1 3.6 4.8 7.8 13.7 8.7

Current AssetsCash and Bank Balances 131.2 165.3 288.3 336.2 30O.1 299.1 321.4 316.8

Accounts Receivable - net 98.7 135.1 180.7 180.1 165.4 298.8 427.2 457.3

Stores*nd Spares 97.4 91.4 69.4 56.2 54.8 48.4 41.1 47.8Others 6.5 8.8 26.4 35.1 37.9 49.7 76.7 167.3

Total Current Assets 333.8 400.6 564.8 607.6 564.2 69e.0 e86.4 989.2

TOTAL ASSETS 610.30 693.73 856.90 895.7 827.5 944.6 1094.3 1197.1

EquityCapital 0.5 98.8 98.8 98.8 98.8 98.8 98.8Reserves & Retained Earnings 1.9 7.1 34.0 23.6 78.9 108.8 154.1 1995

Total Equity 1.9 7.6 132.7 122.3 177.7 207.6 252.9 298.3

Long Term Debt 392.4 434.1 334.8 334.8 332.8 314.6 288.6 345.5

Current LabillitiesAccounts Payable 223.8 123.0 - 177.9 213.5 201.8

Income Tax Payable 55.2 23.3 60.8 115.6 108.5

Interest Payable 115.2 102.7 124.5 133.3 107.9

Others 44.3 67.9 s9.3 90.4 135.1

Total Current Liabilities 215.9 252.1 388.3 438.5 316.9 422.5 552.8 653.3

Total Liabilities 608.3 6e8.2 723.2 773.3 649.7 737.0 841.4 898.8

TOTAL EQUITY AND LIABILITIES 610.3 693.7 855.9 895.6 827.5 944. 1094.3 1197.1

Current Ratio (times) 1.5 1.6 1.5 1.4 1.8 1.6 1.6 1.8

Accounts Receivable (months) 5.0 5.2 4.2 3.9 3.9 6.3 8.4 7.8

Debt as % of Debt and Equity 99.5% 98.3% 71.6% 73.2% 65.2% 60.2% 53.3% 63.7%

10-Apr-95 Hist_FS Page 14

- 1fl5 -

ANNEX 5.1

BANGLADESHJalalabad Gas Transmission & DiBtribution System Ltd. (JGTDSL)

Funds Flow Statement(In Tk million)

1986 1987 1988 1989 19o0 1991 1992 1993

Sources

Operating Income 31.6 39.0 51.2 63.4 45.7 74.7 86.4 67.1

Add: Non-Cash ChargesDepreciation 27.5 27.9 35.7 39.6 40.0 41.4 43.6 43.5

Provision for Bad Debts 0.0 0.0 0.0 0.3 0.3 0.5 2.1 2.2

Internal Cash Generation 59.1 66.9 86.9 93.3 86.0 1 16.6 132.0 112.8

Equity Contribution 0.0 0.5 -0.0 0.0 0.0 0.0 0.0 0.0

New Long-Term Borrowings 191.5 43.0 0.0 1.0 0.0 0.0 2.8 88.8

Debt Converted to Equity 98.3

Retained Earnings Adjustment 0.5 0.2 0.0 -26.7 45.0 -0.5 -4.9 -1.3

Additional Reserves 8.1 4.4 3.7 3.5 3.4 0.0 6.9 26.9

Total Sources 259.2 115.0 188.9 71.1 134.4 116.1 135.8 227.2

...... ......... .= ........ ...... ......... ,,......... ...... ......... ................. *-.....-

UsesCapital Works 164.1 44.5 33.7 38.6 15.2 26.7 22.9 23.5

Debt ServiceAmortization of principal 1.7 1.3 1.0 1.0 2.0 18.3 28.7 31.9

Interest 28.4 31.8 25.3 38.8 38.7 37.7 35.0 31.8

Total Debt Service 30.0 33.1 26.3 39.8 40.7 56.0 63.7 63.7

Debt Converted to Equity 98.3

Contribution to Exchequer 5.0 6.6 2.8 1.8 0.0 6.7 7.1 15.5

Inc (Dec) in Working Capital 60.0 30.7 27.9 -7.1 78.5 26.7 42.1 124.5

Total Uses 259.1 114.9 188.9 71.2 134.4 116.1 135.8 227.2

..... t ===-w ...- --- ...... ..... *---.. ....... .. .... ...... _ ...... _

Debt Service Coverage 2.0 2.0 3.4 2.4 2.1 2.1 2.2 1.8

10-Apr-95 Hist_FS Page 15

- 106 -ANNEX 5.2Page I of 6

Baneladehl

Os Wnrstructure Denlooment ProectSylhet OGas Fields Limited-Forecast Income Statement

(in Tk million)

FY9S FY96 FY97 FY98 FY99 FY2000

Vdaumo of Sle:Oas(bci 49.6 67.9 76.7 102.9 118.3 125.9Cad-ate(tilhioelkre) 39.0 11.1 10.4 14.6 17.1 18.3On Liquida(milcn^ lkte) 118.4 161.9 214.1 244.6 259.9

Salen Rev:am.as 1753.0 2541.1 3039.1 4357.2 5303.0 6031.1

Ccadumaaeiquids SO4.3 699.7 933.0 197.2 1549.7 1718.Total Gru Reveame 2257.3 3240.8 3972.1 5654.4 6852.7 7750.0

Excie:Gas 1443.7 2076.2 2463.0 3468.9 4185.1 4672.3Otwer Products 54.6 15.6 14.6 20 S 23.9 2

Total Excie Duty 1498.3 2091.8 2477.6 3489.4 4209.0 4697.9

Net Rveou 759.0 1149.1 1494.6 2165.1 2643.7 3052.0

Other Income 20.0 20.0 20.0 20.0 20.0 20.0

Oprating Expea:Salaries & wages 33.3 36.7 40.3 44.4 48.8 53.7Mailtenance 27.0 46.3 46.3 49.9 72.1 127.3A4winistrmtin, 40.0 44.0 48.4 53.2 58.6 64.4Deprecistion 163.7 271.7 280.5 344.9 438.9 550.0Other 12.8 14.0 15.4 17.0 18.7 20.6

To-s Oprwang Expenses 276.7 412.7 431.0 509.4 637.1 816.0

Opertng Income 502.3 756.4 1083.6 1675.7 2026.6 2256.0

Interet Charges 148.1 258.0 256.5 306.9 517.4 677.5Loesa from Foreign Excange 3.4 566 56.4 85.0 141.0 188.4

IncomabeformTax 350.8 441.8 770.7 1283.8 1368.3 1390.1Provision of Additional Expenses 17.5 22.1 38.5 64.2 68.4 69.5Income Tax 141.6 178.4 311.2 518.4 552.4 561.2

Nct Income 191.6 241.3 421.0 701.3 747.4 759.3

Contribution to Development Fund 19.1 28.2 34.2 49.5 61.0 69.5

Retum on Net Fixed As(%) 16.1 12.5 17.1 20.5 15.3 13.7

- 107 -ANNEX 5.2Page 2 of 6

Bansladesh

Gas Infrastructure Development Project

Svlhet Ga Fields Limited-Forecast Balance Sheet

(in Tk million)

FY95 FY96 FY97 FY98 FY99 FY2000

Asset

Fixed Asset

Gross Fixed Asst in Usw 4633.3 4633.3 4985.7 7212.1 12733.0 12767.8Les Accu. Depreciati 30.2 36.9 777.4 1082.3 1481.2 1991.2

Not Fixed Assets 4328.1 4096.4 4208.4 6129.8 11251.8 10776.6

Capital Work-in-Progres 211.8 1404.7 3470.9 4605.6 37.8 3.0

Deferred Charges 349.6 309.6 269.6 229.6 189.6 149.6

Current Assets

Cash & Bank Balance 693.0 659.7 474.3 312.5 899.3 2018.5Accounts Receivable(trade) 189.8 287.3 373.6 541.3 660.9 763.0Accounts Recelvable(intra group)Inventories 139.0 139.0 149.6 216.4 382.0 383.0Advances& Prepayment 20.3 113.7 225.6 306.7 76.5 0.0

Total Current Asscts 1042.0 1199.7 1223.1 1376.8 2018.7 3164.6

Total Assets 5931.5 7010.3 9172.0 12341.8 13498.0 14093.8

Equity

GOB Equity 1446.5 1446.5 1446.5 1446.5 1446.5 1446.5Retained Earnings 689.0 930.3 1351.3 2052.6 2800.0 3559.3Contribution to Development Fund 19.1 47.3 81.5 131.1 192.0 261.6Total Equity 2154.6 2424.1 2879.4 3630.2 4438.6 5267.4

Long Term Debt 3349.5 4076.4 5628.0 7885.2 8258.8 7730.8

Current Liabilities

Bank OverdraftAccounts Payable 12.7 47.9 146.5 211.0 85.3 0.0Excisc Payablelntcrest Payable 37.0 64.5 64.1 76.7 129.3 169.4Income Tax Payablc 35.4 44.6 77.8 129.6 138.1 140.3Staff Profit Sharing 17.5 22.1 38.5 64.2 68.4 69.5OtherCurrent Portion of LTD 324.7 330.7 337.7 344.9 379.5 716.4

Total Current Liabilities 427.4 509.8 664.6 826.4 800.6 1095.6

Total Equity & Liabilities 5931.5 7010.3 9172.0 12341.8 13498.0 14093.8

Current Ratio(timcs) 2.4 2.4 1.8 1.7 2.5 2.9

Debt as % of Debt and Equity 60.9 62.7 66.2 68.5 65.0 59.5

- 1o2 - ANNEX 5.2

Page 3 of 6

Bangladesh

Gas Wrastructure Develooment Proiect

Sylhet Gas Fields Limited-Forecast Funds Flow Statement

(in Tk milion)

FY95 EFY96 FY97 FY98 FY99 FY2000

Sources

Opeating Income 502.3 756.4 1083.6 1675.7 2026.6 2256.0

Depreciation 163.7 271.7 280.5 344.9 438.9 550.0Contribution to Development Fund 19.1 28.2 34.2 49.5 61.0 69.5Intgrnal Cash Generation 685.0 1056.2 1398.3 2070.2 2526.5 2875.6

GOB Equity 1296.0 0.0 0.0 0.0 0.0 0.0

Borrowings 3182.0 998.3 1816.8 2474.3 574.0 0.0

Total Sources 5163.1 2054.5 3215.1 4544.4 3100.6 2875.6

ADificationh

Capital Expenditure 4522.6 1137.3 2256.0 3067.1 765.4 0.0

IDC 6.3 52.8 146.7 251.1 149.8 0.0

Debt Service

Principal 12.8 324.7 330.7 337.7 344.9 379.5Intet 148.1 258.0 256.5 306.9 517.4 677.5

Income Tax 141.6 178.4 311.2 518.4 552.4 561.2

Staff Profit Sharing 17.5 22.1 38.5 64.2 68.4 69.5Dividend 0.0 0.0 0.0 0.0 0.0 0.0

Increae in Working Capital:

Cash Les Bank Overdraft 157.9 -33.3 -185.4 -161.8 586.8 1119.3

Non-cash 156.2 114.5 61.0 161.0 115.4 68.5

Total Applications 5163.1 2054.5 3215.1 4544.4 3100.6 2875.6

Long Term Debt Service Coverage 3.3 I.5 1.8 2.3 2.2 2.1

V

-- (i39 ANNEX 5.2

Page 4 of 6

BanoJadeshGas Infrastructure Develooment Proiect

Gas Transmission Comuanv Limited-Forecast Income Statement(in Tk million)

FY9S FY96 FY97 FY98 FY99 FY2000

Annual Volumre(bc) 69.2 80.8 100.4 134.7 156.4 169.2Wheeling Charge(Tk/icf) 6.2 6.8 7.5 8.6 9.4 10.8Revenue 431.4 553.1 7S4.0 1163.0 1478.2 1825.1

Operating Exp:

Salaries & wags 8.0 8.8 9.7 11.6 12.1 14.1Mainteane 28.0 28.0 41.5 47.6 58.0Admintration 15.0 16.5 18.2 21.8 24.0 26.4Depreciatioa 163.6 163.6 217.5 295.7 361.9 403.7Other 2.0 2.2 2.4 2.7 2.9 3.2

TotWl Operating Expause 188.6 219.2 275.7 373.2 449.1 505.3

Operating Income 242.8 333.9 478.3 789.8 1029.1 1320.5

Inter" Charges 271.0 261.1 300.0 388.9 457.2 499.2Loses from ForclgnExchange 48.8 49.6 57.1 100.0 120.0 134.0

Income before Tax -77.1 23.2 121.2 300.9 451.9 687.2Provision of Additioa Expases 1.2 6.1 15.0 22.6 34.4Los Carried Forward -51.6 -128.6 -105.5Income Tax 4.1 121.5 182.4 277.5

Net Income -77.1 22.0 111.0 164.3 246.8 375.4

Contribution to Davelopment Fund 28.0 35.0 46.5 66.8 83.0 96.1

Return on No Fixnd Asa*(%) 4.1 6.0 7.1 7.6 8.3 9.6

ANNEX 5.2

Page S of 6

Bandladesh

Gas Infrastructure Dcvelopment Proiect

Gas Transmission Company Limited-Forecast Balance Sheet

(in Tk million)

FY95 FY96 FY97 FY98 FY99 FY2000

Assets

Fixed Asset

Clros Fixed A-ea in Ume 5605.8 5605.8 8296.3 9515.5 11606.5 11606.5

Less Accu. Depreciation 235.5 399.1 616.6 912.2 ,1274.1 1677.

Net Fied Asst 5370.3 5206.7 7679.7 8603.3 10332.4 9928.7

Capital Work-In-Progress 374.7 2261.9 1080.1 2100.9 1386.7 2306.2

Current Assets

Cash & Bank Balance 77.5 179.6 174.5 239.7 290.0 445.9

Accounts Receivable(trade) 107.9 138.3 188.5 290.7 369.6 456.4

Other Accounts receivable

Inventories 81.8 81.8 135.6 160.0 201.8 201.8

Advances& Prepayment 1.5 10.7 15.1 29.6 24.4 20.8

Total Current Asst 268.7 410.4 513.7 720.1 885.8 1125.0

TotalAsts 6013.8 7878.9 9273.5 11424.3 12604.9 13359.9

Equity

GOB Equity 2351.7 2895.0 3312.9 3848.0 4162.5 4362.4

Retained Earnings -128.6 -106.6 4.4 168.7 415.6 790.9

Contribution to Development Fund 28.0 63.0 109.6 176 4 259.4 355.5

Total Equity 2251.0 2851.4 3426.9 4193.1 4837.5 5508.9

Long Term Debt 3321.2 4292.0 4981.6 6224.6 6872.9 6938.3

Current Liabilities

Bank Overdraft 25.0 300.0 400.0 450.0 300.0Accounts Payable 2.6 17.9 25.1 49.4 40.7 34.7

Interet¢ Payable 67.8 65.3 75.0 97.2 114.3 124.8

Income Tax Payable 0.0 0.0 1.0 30.4 45.6 69.4

Staff Profit Sharing Fund 0.0 1.2 6.1 15.0 22.6 34.4

Current Portion of LTD 346.2 351.2 357.8 364.5 371.4 649.5

Total Current Liabilities 441.5 735.6 865.0 1006.5 894.6 912.6

Total Equity & Liabilities 6013.8 7 92 11424.3 12604.9 13359.9

Current Ratio(times) 0.6 0.6 0.6 0.7 1.0 1.2

Debt a % of Debt and Equity 59.6 60.1 59.2 59.8 58.7 55.7

ANNEX 5.2

Page 6 of 6

BangladeshGas Infrastructure Development Proiect

Gas Transmission Company Limited-Forecast Funds Flow Statement

(in Tk million)

FY95 FY96 FY97 FY98 FY99 FY2000

Sources

Operating Income 242.8 333.9 478.3 789.8 1029.1 1320.5Depreciation 163.6 163.6 217.5 295.7 361.9 403.7

Contribution to Development Fund 28.0 35.0 46.5 66.8 83.0 96.1Interzal Csh 3ainumtin 434.4 532.6 742.3 1152.3 1474.0 1820.2

GOB Equiy 109.4 543.4 417.9 535.0 314.5 200.0Borrowings 255.2 1267.8 975.1 1498.1 880.7 559.9

Total Sources 798.9 2343.8 2135.3 3185.3 2669.2 2580.1

Avlications

Capital Expenditure 364.5 1811.2 1393.0 2140.1 1258.1 799.8IDC 10.2 71.5 100.4 90.5 99.8 98.6

Debt Service

Principal 0.0 346.2 351.2 357.8 364.5 371.4Intereat 271.0 261.1 300.0 388.9 457.2 499.2

Incomc Tax 0.0 0.0 4.1 121.5 182.4 277.5Staff Profit Sharing 0.0 1.2 6.1 15.0 22.6 34.4Dividend 0.0 0.0 0.0 0.0 0.0 0.0

Increae in Working Capital:

Cash Les Bank Overdraft -4.4 102.0 -5.0 65.2 50.3 155.9Non-cash 157.6 -249.4 -14.5 6.4 234.2 343.3

Total Applications 798.9 2343.8 2135.3 3185.3 2669.2 2580.1

LongTermDebtServiceCoverage 1.6 0.9 1.1 1.4 1.5 1.7

- l1l" -

ANNEX 5.3

Page 1 of 2

ASSUMPTIONS USED IN THE FINANCIAL PROJECTIONS

Income Statement

1. SGFL's Gas Sales & GTCL's based on the gas demand and supply

Throughput: projections prepared in accord with the

sector's priority investment program for

FY95-2000.

2. SGFL's Margin & GTCL's average end-user tariff has been assumed

Wheeling Charge: to increase at about 7% p.a. during FY96-

2000; assumed margin allocations among gas

production, transmission and distribution

companies are given in Table 1.

3. Maintenance Cost: forecast at 1% of gross fixed assets in

use for SGFL, and 0.5% for GTCL.

4. Wages, Salaries & assumed to increase by 10% p.a. to account

Administration: for changes in the staffing level and

annual merit increase.

s. Depreciation: equal to 5% of average gross fixed assets

in use for SGFL, and 4% for GTCL.

6. Interest: calculated at 8% p.a., interest during

construction is capitalized.

7. Income Tax: at 42.5% of taxable income.

Balance Sheet

8. Fixed Assets: at historical costs (no asset

revaluation).

9. Inventories: projected at a level equal to 3% of gross

fixed assets in use for SGFL, and 2% for

GTCL.

10. Accounts Receivable: equal to three months of billings.

11. Current Liabilities: including current maturities of long term

debt.

Funds Flow Statement

12. Investment: as per the sector's FY95-2000 priority

investment program; capital expenditures

expressed in Tk have been escalated based

on the projected annual inflation rate of

4% for FY96-97 and 4.5% for FY98-2000,

assuming purchasing power parity.

- 113 -

Page 2 of 2

13. Loan Terms: for debt service associated with IDA'sSecond Gas Development Project, repaymentwill be over a 10-year period, starting inFY96. For loans yet to be secured,maturity of 15 years, including 5 years ofgrace, at an interest rate of 8 p.a. havebeen assumed. SGFL and GTCL will bear theforeign exchange risk.

Table 1: Projected Gas Tariffs FY95-2000(in Tk/MCF)

FY95 FY96 FY97 FY98 FY99 FY2000

Annual Tariff Increase (X) 7 7 7 7 7Weighted Average End-User

Tariff (Tk/mcf) 54.0 57.8 61.8 66.1 70.8 75.7

Excise Duty (X) 55 54 53 52 51 50Excise Duty (Tk/mcf) 29.7 31.2 32.8 34.4 36.1 37.9

Producers' Margin (Tk/mcf) 6.6 7.3 8.0 9.1 10.0 11.4Transmission Margin (Tk/mcf) 6.6 7.3 8.0 9.1 10.0 11.4Distribution Margin (Tk/mcf) 8.9 9.7 10.6 12.2 13.3 15.1

- 114 - ANNEX 6.1

Page 1 of 3

ECONOMIC ANALYSIS

Method

1. As described in Chapter VI, the proposed project forms an integralpart of the gas sector's least cost priority investment program (PIP) forFY95-2000 and, therefore, cost-benefit analysis needs to be carried out of theentire PIP rather than of the project in isolation. Incremental capitalcosts, operating and maintenance costs, and benefit streams (all in terms of1994 prices) are shown in Table 1. Assumptions underlying these figures aredetailed below.

CaDital Costs

2. Anticipated capital expenditures at financial prices based on thesector's investment program for FY95-2000 are converted to economic prices by:(i) expressing the import content at CIF prices; and (ii) applying thestandard conversion factor of 0.90 to local costs.

OperatinQ and Maintenance Costs

3. Because of development lead time, commissioning of physicalinvestments would start from FY98 onwards. Incremental operating andmaintenance costs associated with the PIP are calculated at a level equal to3% of cumulative investment costs for FY98-2001 and assumed to be constantthereafter to FY2015.

Economic Benefits

4. Only the FY98-2002 cumulative incremental sales of gas and liquidshave been considered as benefits of the FY95-2000 PIP; for FY2002-2015, thebenefits are assumed to be constant and at the FY2002 level. Economicbenefits of incremental gas supply are calculated using (i) average gastariff; and (ii) the cost of substitute fuel, i.e., the CIF Chittagong pricefor high sulphur, heavy fuel oil, as proxies of benefits. Average tariff isassumed to reach Tk 54/MCF in FY95 and remain constant in real termsthereafter. The price of fuel oil used in the analysis is based on CIFChittagong price of about US$ 90 per metric ton.

Results of Analysis

5. The results of the economic cost/benefit analysis together withthose of the sensitivity test against (i) a 20% increase in capital costs,(ii) lower sales growth of 7% p.a., and (iii) combination of higher capitalcosts and slower sales growth are summarized in Table 2.

6. Sensitivity analysis based on the first slice of the PIP, for whichfinancing has been secured and of which the proposed project forms a part, hasalso been carried out. The results are summarized in Table 3.

Table 1: Economic Rate of Return(in 1994 Tk mlilon)

Tariff-based Fuel Oil Parity NOL Practionation(lS0 MMCFD Gas Production)Gas Increment Average Fuel Oil Producta(metzic tons IY) Unit Value(USS/t) Total

Fiscal Capital O&M Sales Sales Tariff Parity Net Net Motor Motor ValueYear Cost Cost (BCF) (BCP) (Tm/nf) (1\/m6f) Benefit Beneflt Benefit Benefit LPG Propane Spirit HSD LPO Propae Spirit HSD (I m)

1995 1601 246.6 54.0 S6.9 -1601 -16011996 4902 265.7 54.0 86.9 -4902 -49021997 6399 212.6 54.0 16.9 -6399 -63991991 6044 387 301.7 19.1 54.0 86.9 1031 -5399 1659 -47711999 2229 568 332.5 49.9 54.0 16.9 3778 981 5418 2621 37101 1883 72367 13315 260 260 170 200 10842000 1197 635 356.3 73.7 54.0 16.9 5063 3231 7416 5654 37108 3813 72367 13315 260 260 170 200 10142001 671 331.4 105.8 54.0 16.9 6795 6124 10272 9601 37108 8833 72367 13315 260 260 170 2W 10842002 671 423.3 140.7 54.0 86.9 1633 8011 13308 12637 37103 1813 72367 13315 260 260 170 200 10S42W3 671 423.3 140.7 54.0 16.9 8613 3011 13303 12637 37101 1133 72367 13315 260 260 170 200 1014204 'l 423.3 140.7 54.0 16.9 S633 101 1 13308 12637 37108 1113 72367 13315 260 260 170 200 10142005 423.3 140.7 54.0 86.9 8633 3011 13303 12637 37101 1883 72367 13315 260 260 170 200 10142006 671 423.3 140.7 54.0 16.9 8613 3011 13308 12637 37108 8383 72367 13315 260 260 170 200 10842007 671 423.3 140.7 54.0 16.9 1683 3011 13301 12637 37108 8183 72367 13315 260 260 170 2W 1084 1_2W0 671 423.3 140.7 54.0 16.9 8613 3011 13308 12637 37108 8883 72367 13315 260 260 170 200 10842009 671 423.3 140.7 54.0 86.9 S633 3011 13308 12637 37101 1883 72367 13315 260 260 170 200 10142010 671 423.3 140.7 54.0 86.9 8683 S011 13303 12637 37108 3333 72367 13315 260 260 170 2W 10842011 671 423.3 140.7 54.0 16.9 1683 3011 13308 12637 37108 3133 72367 13315 260 260 170 200 10842012 671 423.3 140.7 54.0 16.9 8633 3011 13301 12637 37103 1833 72367 13315 260 260 170 200 10142013 671 423.3 140.7 54.0 16.9 8633 3011 13303 12637 37108 31SU 72367 13315 260 260 170 200 10142014 671 423.3 140.7 54.0 16.9 86U3 3011 13308 12637 37103 8883 72367 13315 260 260 170 200 10142015 671 423.3 140.7 54.0 86.9 3683 3011 13308 12637 37108 8113 72367 13315 260 260 170 200 1034

Rate of Retun 23.17% 32.61%

Exchajge Rate: Tk4O.25/USS

0Q

t0

- 116 - ANNEX 6.1

Page 3 of 3

Table 2: Results of Economic Analysis and Sensitivity Tests (Entire PIP)

Using Average Tariff as Benefit Proxy ERR (e)

Base Case 23.2

Capital Cost up 20% 19.9

Sales Growth 7% p.a. 21.8

Combined Effect 18.7

Using Fuel Oil Price as Benefit Proxy

Base Case 32.6

Capital Cost up 20% 28.6

Sales Growth 7% p.a. 30.5

Combined Effect 26.8

Table 3: Results of Economic Analysis and Sensitivity Tests (First Slice)

Using Average Tariff as Benefit Proxy ERR (%)

Base Case 19.0

Capital Cost up 20% 15.9

Sales Growth 7% p.a. 18.4

Combined Effect 15.4

Using Fuel Oil Price as Benefit Proxy

Base Case 29.8

Capital Cost up 20% 25.7

Sales Growth 7% p.a. 28.8

Combined Effect 24.9

- 117 -ANNEX 7.1

Selected Documents and Data Available in the Prolect File

1. Reservior Study Reports of Kailashtilla, Beani Bazar, Rashidpur,Habiganj, Titas and Bakhrabad, Intercomp-Kanata Management Ltd, 1989-1991.

2. Gas Network Analysis of Bangladesh Gas Transmission System, P.C. Larsen& N. Mortensen, November 1992.

3. A-B Pipeline Route Survey, Pencol Engineering, November 1991.

4. A-B Pipeline Design Basis Memorandum, Pencol Engineering, November 1991.

5. GIDP-Environment and Safety Assessment Report and Summary, Komex,February/May 1994.

6. Safety Audit Report of the Petrobangla Group, British Gas, April 1994.

7. GIDP-Environmental Data Acquisition Report (Draft), Komex, September1994.

8. GIDP-Mitigation and Monitoring Plan Report (Draft), Komex, September1994.

9. GIDP-Land Acquisition, Compensation and Public Consultation, MohammadZaman, July 1993.

10. Bangladesh Petroleum Policy, July 1993.

11. Report on Bangladesh Petroleum Investment Roundtable, Petro consultantsS.A., September 1993.

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