Tanzania - Petroleum Sector Technical Assistance Project

Document of The World Bank FOR OFCLAL USE ONLY Report No. 12638 PROJECT COMPLETION REPORT UNITED REPUBLIC OF TANZANIA PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIT 1604-TA) DECEMBER 27, 1993 Infrastructure Operations Division Eastern Africa Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIV.ALENT Currencv Unit = Tanzanian Shilling (at Appraisal Year, 1984) Tsh. I 0 = Iss 0 059 LSis I 0 = Tsh 170 (At Completion Year. 1992 Annual Average) Tsh 1 0 = USS 0.003 I.SS 1 0 = Tsh 300 ABBREVIATIONS CNG Compressed Natural Gas IDA International Development Association LNG Liquified Natural Gas LPG Liquid Propane Gas %1WEM Mlinistry of Water, Energy & Minerals PSRP Petroleum Sector Rehabilitation Project SS Songo Songo TA Technical Assistance TIPER Tanzania and Italian Refinery Company Limited TPDC Tanzania Petroleum Development Corporation MEASUREMENT km Kilometer m meter TOE (toe) tonne of oil equivalent = 39.68 BTU tonne metric ton = 1,000 kilogram (kg), 2,204 6 FISCAL YEAR Government: July I - June 30 TPDC Januarv I - December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. .fice of Director-General Operacions Evaluation December 27, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion on Tanzania Petroleum Sector Technical Assistance Proiect (Credit 1604-TA) Attached is the "Project Completion Report on Tanzania - Petroleum Sector Technical Assistance Project (Credit 1604-TA)" prepared by the Africa Regional Office. No comments were received from the Borrower. This Technical Assistance project supported a wide range of petroleum related activities in Tanzania, including: (i) rehabilitation of petroleum product distribution equipment, including LPG bottles and bottling equipment; (ii) repair, maintenance and rehabilitation of Songo Songo offshore gas wells to ensure their continued safety; (iii) the continuation of Tanzania's exploration promotion program to increase foreign investment in this sector; (iv) institutional strengthening for Ministry of Energy Petroleum activities; and (v) studies on gas utilization for Songo Songo gas field and designing a pipeline distribution system if this proves economically viable. The exploration promotion component was successful in its efforts to induce additional foreign investment in petroleum exploration activities; however, to date no new reserves have been discovered. The project was less than fully successful in providing equipment to rehabilitate the petroleum product distribution system, and failed to establish the necessary conditions to use the LPG gas that is being flared by the refineries. However, it did implement a distribution study which led to a further project to rehabilitate the distribution sector. The Songo Songo gas wells were also successfully repaired, although only after substantial delays. The gas utilization studies were inadequate. Further work in this area is still being carried out, and the Region is currently working on a project to make economic use of this gas. The PCR states that the institutional support program has been reasonably successful, although the standard used to reach this judgement is unclear. The PCR is comprehensive, except that it fails to identify the specific revisions made in 1988 to the scope of the project. The performance of the project is rated as satisfactory, institutional development as partial and sustainability of the benefits likely. No audit is planned. Attachment This docurment has a restricted distribution and may be used by recipients only in the performance of their officiaL duties. Its contents may not otherwise be discLosed without WorLd Bank authorization.   FOR OMCIAL USE ONLY UNITED REPUBLIC OF TANZANIA PETROLELUI SECTOR TECHNICAL ASSISTANCE PROJECT (CR 1604-TA) PROJECT COMPLETION REPORT TABLE OF CONTENTS Page No. P R E F A C E ................................................... EVALUATION ....................................................ii PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE ......................I 1. Project Identitv ..................................................I 2. Project Background .1 Sector Issues and Objectives ...........................1 Institutional and Policy Context ..........................2 3. project Objectives and Description ...........................3 Project Objectives ..........................3 Project Components. ..........................3 4. Project Design and Oranization ...........................4 5 Project Implementation ...........................5 6. Project Results .8.. .................................................................................8 7. Project Sustainabilitv ............... .....................................................9 8. Bank Performance ................9 Lessons Learnt ............... 10 9. Borrower Performance ......................... 10 Lessons Learnt: .1........................1 10. Project Relationship ........................ 11 I1. Consulting Services ......................... 11 12. Project Documentation and Data ........................ I I This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  IABLE OF CONTENTS (Cont'd) Page No. PART H. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 12 PART HI STATISTICAL INFORMATION. 13 A. Table . Related Bank Loans and/or Association Credits 13 B. Table 2. Project Timetables 14 C. Table 3. Credit Disbursement 15 D. Table 4,Project Implementation 16 E. Table 5.Project Costs and Financing 17 F. Table 6.Projectr Results 18 G. Table 7. Status of Covenants 21 H. Use of Bank Resources 22  i UNITED REPUBLIC OF TANZANIA PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CR. 1604-TA) PROJECT COMPLETION PROJECT PREFACE This is the Project Completion Report (PCR) for the Petroleum Sector Technical Assistance Project in Tanzania for which IDA Credit 1604-TA in the amount of SDR 8.1 million was approved on June 6, 1985. The credit was closed on December 31, 1992, three years and six months later than originallv expected. Disbursements were completed on May 18, 1993 and the remaining balance of SDR 1.79 million will be canceled when the issue of an outstanding amount of US$40,000 from the Special Account is resolved. The PCR was prepared by the Infrastructure Operations Division, Country Department II of the African Region (Preface, Summary, Part I and III). On April 2, 1993, the Association sent Parts I and III to the Beneficiarv with a request to prepare Part II by May 31, 1993, and their reply is awaited. Preparation of this PCR was started during the Association's final supervision of the project in Aumust. 1992 and is based, inter alia, on information contained in the Issues/Decision Papers, Project Brief, President's Report, the Development Credit Agreement (DCA), supervision reports, progress reports, correspondence between the Association and the Borrower/Beneficiary, internal memoranda and information gathered in Tanzania.   li UNITED REPUBLIC OF TANZANIA PETROLEUMI SECTOR TECHNICAL ASSISTANCE PROJECT (CR. 1604-TA) PROJECT COMPLETION REPORT EVALUATION SUMMARY Objectives. 1. The project was designed to address key issues in the energy sector which had been identified during a comprehensive Energv Assessment Review (EAR). Firstly, the project aimed at addressing immediate concerns relating to product distribution bottlenecks, wastages and protection of the Songo Songo reservoir. Secondly, the project sought to lay the groundwork for a long term strategy for: (i) improved efficiencv in the product distribution system; (ii) utilization of Tanzania's indigenous gas resources; and (iii) maintenance of the private sector exploration effort. The project also supported strengthening of institutional capacity (para. 3. 1). Implementation Experience 2. The project was implemented over seven years against the appraisal estimate of four years. The extended implementation period was due to both delays in most of the components as well as modifications in design in response to changing needs in the sector. The delays in implementation were caused mainly by processing bottlenecks in the main implementing agency, Tanzania Petroleum Development Corporation (TPDC). These bottlenecks were due to capacity constraints as well as cumbersome decision making procedures which were intended to ensure transparency (paras. 5.1 to 5.19). 3. The final total cost of the project was within the appraisal estimate (Part III, Table 5) but with reallocations as a result of modifications in design. Expenditures on consultants and exploration promotion were higher than appraisal estimates as a result of the potential identified under the project for exploitation of the gas reserves and further exploration of the main fields. Expenditures on vehicles and equipment were less than appraisal estimates because of shortfalls in the Petroleum Distribution Component (paras. 5.3 and 5.4) and cancellation of the Compressed Natural Gas (CNG) component (para. 5.9). Disbursements under the Credit (Part III, Table 3) were slow throughout the project period reflecting the delays in implementation. 4. The project was successful in meeting its objectives, both short and long term. In the Songo Songo Reservoir, two leaking wells were repaired, and three off-shore wells were provided with the appropriate protective measures. Less success was achieved in addressing the product distribution bottlenecks primarilv because of the magnitude of the constraints in the sector which were highlighted by the Distribution Study carried out under the project and addressed under a follow-on project (para. 6.1). No progress was made in reducing wastage of petroleum gas which was being flared because expected improvements at the refinery (through other sources of financing) were not carried out. 5. The project was highly successful in its objectives of laying the foundations for a long-term strategv for the product distribution system, utilization of gas resources and private sector exploration efforts The  ii distribution studv and a petroleum products pricing study led to the design of the Petroleum Sector Rehabilitation Project (PSRP) Cr. 2202-TA. The PSRP has been designed to improve the efficiency of the bulk distribution of petroleum products and reduce the delivered costs. The project also had a major impact on the strategy for the development of Tanzania's indigenous gas resources. The studies financed under the project identified the feasibility and prepared the initial designs and costings for the development of the Songo-Songo Reservoir through a gas pipeline to Dar-es-Salaam and the generation of power for domestic and export (Kenya) markets. A study on the appropriate institutional framework for the gas sub- sector was also financed under the project. The findings of the studies are being incorporated into a proposed Songo-Songo Gas Development Project which is being prepared for potential IDA financing. 6. The promotion of private sector involvement in exploration was successfully supported under the project through the acquisition of data, its interpretation and analysis, brochures and promotional meetings. As a result of these efforts a number of companies initiated or expanded their exploration efforts in Tanzania (paras. 6.1 to 6.3). Sustainability 7. The impact and achievements of all components of the project are expected to be sustainable. Both the short-term improvements in efficiency and the long-term strategies are either being supported under the follow-on PSRP or expected to be incorporated in the proposed Songo-Songo Gas Development Project. The benefits to the Tanzanian economy from these projects and the development of the gas reserves are expected to be manifold. The institutional development under the project, is also expected to be sustainable. Data processing facilities were strengthened on a modest scale and these can be easily supported from the expected retums to the sector. Training was carried out in an ad-hoc manner but the fields of study were all clearly linked to requirements in the sector and therefore likely to have a sustainable impact. (para. 7.1) Lessons Learnt: 8. The project experience provided the following three main lessons: (a) Client implementation capacity should be carefully evaluated and supervising consultants appointed for highly technical and/or specialized activities (para. 8.4) (b) Given the experience with the leaking wells, it would have been useful if some sort of facility were available to provide quick assistance for emergencies potentially damaging to development, when other donor financing is not immediately available (para. 8.5). (c) The format and required information for monitoring project implementation should be agreed upon at negotiations and used in implementation. Attention should be paid to ensuring that the indicators selected are regarded as management tools by project management and that there is utility in generating the indicators for both the implementing agency and the Bank (para. 9.4).  UNITED REPUBLIC OF TANZANIA PETROLEU'M SECTOR TECHNICAL ASSISTANCE PROJECT (CR 1604-TA) PROJECT COMPLETION REPORT PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. PROJECT IDENTITY Project Name: Petroleum Sector Technical Assistance Project Credit No: 1604-TA RVP Unit: Africa Country: United Republic of Tanzania Sector: Energy Subsector: Oil and Gas 2. PROJECT BACKGROUND Sector Issues and Objectives 2.1 In 1984 when the project was appraised, Tanzania had no proven petroleum resources, its gas potential was not yet developed and energy imports were a major drain on its foreign exchange earnings, therebv hampering the country's overall development. A joint UJNDP/World Bank energy assessment had been carried out in 1983 and the final reportl provided a comprehensive review of the energy sector in Tanzania and a set of recommendations for the efficient development of the sector. The major objectives and recommendations set out in the study were as follows: (a) development of indigenous energy sources to stimulate growth and reduce the drain on foreign exchange earnings, (b) increase fuelwood production through improved management and increased plantings; (c) improvement in efficiency in the petroleum products subsector in order to ensure availability of timely and sufficient transport services for the productive sectors, agriculture in particular. Tanzania - Issues and Options in the Energy Sector, Report No. 4969-TA, November 1984. Joint UNDP/World Bank Enern- Assessment Program.  2 Institutional and Policy Context 2.2 At the time of appraisal of the project responsibilities for the energy sector were divided among several agencies. and there were no major changes in those arrangements over the life of the project. The M5inistry of Water, Energy and Minerals (.MWEM) was responsible for hydrocarbons, electricitv, coal and uranium. The Ministry of Lands, Natural Resources and Tourism (MLNRT) handled fuelwood. In addition to their policy formulation responsibilities, the ministries also supervised the actiVities of the parastatal organizations under their jurisdiction. In the commercial energy sector, MWETM supervised the Tanzania Petroleum Development Corporation (TPDC), the Tanzania Electric Supply Company (TAN'ESCO), the State Mining Corporation, and the Rufiji Basin Development Authority 2.3 Within MWEM, energy sector matters were dealt with by the newly created Energy Department in the Ministrv. The Energy Department was headed by the recently appointed Commissioner for Energy and Petroleum Affairs, who reported to the Principal Secretary. This Department was responsible for energy planning and policy development activities2, evaluation of energy projects and monitoring of TPDC's implementation responsibilities. The Department was divided into four directorates, each of which was assisted by an external adviser. The establishment of a separate Energy Department and the higher authority which has been accorded to its head was expected to strengthen MWEM's capacity in discharging its energy sector responsibilities. 2.4 Responsibilitv for the implementation of Government policies in the petroleum sector was assigned to TPDC TPDC was established as a parastatal corporation in 1969 with responsibility for: (a) petroleum exploration and development (on its own account or as joint venturer); (b) purchase, processing and sale of crude and refined products; (c) coordination of product allocation and marketing; (d) advising on product pricing; and (e) promotion of industrial projects based on the petroleum sector. 2.5 TPDC used to carry out its responsibilities both directly and through the private sector. By 1984 Government had restricted TPDC's responsibilities to the implementation of Government's policies in petroleum exploration, development and marketing. Government was looking to the private sector to provide the financial and technical resources to indertake operational responsibility in these areas. The project included provision to both strengthen TPDC and facilitate private sector involvement. 2 6 Petroleum exploration was being carried out in Tanzania under production sharing or joint venture agreements by a number of intemational companies. Refining of imported crude was being carried out by the jointly owned Tanzanian and Italian Refinery Limited (TIPER) under a long term cost -- plus toll refining contract with TPDC. Petroleum products were being marketed by five Tanzanian subsidiaries of international companies. The Government, through TPDC, held a 50% share in two companies while the others were wholly owned by their respective parent companies. In all cases, management was being provided by the parent oil company. 2.7 TPDC was therefore involved in a number of activities, and at the time of appraisal measures were being implemented to strengthen the institutional capacity of TPDC. These measures were based on a study carried out by the Commonwealth Secretariat with funding under the Second Songo Songo Petroleum Exploration Project (Credit 1199-TA). A training program for TPDC technical staff was 2 The Enern Assessment Report had recommended the establishment of an Energy Commission, comprising the Principal Secretaries of the ministries concerned in the energy sector. with a supporting secretariat, to promote sector coordination and planrung. This recommendation was under consideration within Govermnent at the time of appraisal.  3 underway, financed under Norwegian aid. There was a need, however, to supplement that training program with specific training for TPDC staff in key analytical areas and provisions for training were therefore included under the project. 2.8 Pricing and Distribution. The prices of petroleum products were controlled by the Government. The retail prices of petroleum products (including gas oil) were at least equal to their economic opportunity costs, delivered in Dar es Salaam. Prices were uniform at the 16 major regional distribution centers in the country. The price structure provided for freight and equalization funds to reimburse the marketing companies for transport cost differentials between the regional distribution centers. 2.9 The EAR had also identified a number of inefficiencies in the distribution system for petroleum products. These inefficiencies were related to poor equipment, wastages, bottlenecks and the yield patterns and comparative efficiency of TIPER. The project was therefore designed to include specific components to deal with these issues. 3. PROJECT OBJECTIVES AND DESCRIPTION Project Objectives 3. 1 The project objectives were both immediate and long-term. Firstly, the project aimed at addressing immediate sectoral concerns relating to production bottlenecks, wastages and protection of the Songo Songo reservoir. Secondly, the project sought to lay the groundwork for the development and implementation of a long term strategy for: (i) the rehabilitation and rationalization of the product distribution system; (ii) the utilization of Tanzania's indigenous gas resources; and (iii) the maintenance of the private sector exploration effort. To assist Government in developing and implementing this strategy, the project also sought to strengthen the technical capability of the newly formed Department of Energy of MWEM in its supervisory function, and of the national petroleum company (TPDC) as the Government's principal petroleum sector implementing agency. Project Components 3.2 The main project components at appraisal were: Part A Support to the petroleum distribution system through: (i) supply of equipment for tankers and pumps; (ii) mobile radio equipment; (iii) bottles and related equipment to market Liquefied Petroleum Gas (LPG) which was being flared at TIPER, and (iv) a product distribution study to analyze the current system of distribution and storage in Tanzania and to make recommendations for the overall rationalization and rehabilitation of the system. Part B Support to the domestic gas sector through: (i) the workover and rehabilitation of onshore Songo Songo Wells SS-3 and -4 to a safe operating condition, and the construction of platforms and protective structures around offshore Songo Songo Wells SS-5, -7, and 9 to safeguard against seawater corrosion and main collision hazards; (ii) undertaking a gas utilization study in three phases to evaluate the economic utilization of the Songo Songo gas for the domestic markets, including: (1) an assessment of the domestic markets in Dar es Salaam served by a gas pipeline from Songo Songo (for industry, Tiper Refinery and national grid power generation) and for other markets in transportation, independent power stations and agribusiness, (2) if justified by the market assessment studv, the preliminary  4 desiga sizing and routing of the Dar es Salaam gas supply system, including distribution: and (3) the development of an overall strategy for the utilization of Songo Songo gas reserves, including gas pricing, the identification of financing sources and the formulation of appropriate institutional arrangements; and (iii) subject to the recommendations of the gas utilization study. the implementation of a demonstration scheme for the utilization of C.NG for public transportation in Dar es Salaam and for such other industrial and commercial users as may be recommended by such study. Part C Exploration Promotion through: (i) preparation of an overall exploration promotion package, in consultation with private sector oil companies, covering prospective areas in the Coastal Basin, including data gathering assignments by TPDC staff, and the promotion of exploration in such areas to interested companies; and (ii) financial participation by TPDC in joint venture programs of speculative seismic data acquisition and exploration studies in the Coastal Basin for promotion to the oil industry. Part D Institutional Development through: (i) strengthening of MWEM to undertake the policv development and energy sector strategy through the provision of technical assistance, staff training and equipment, including short term consultancies, workshop facilities, training programs, data base building and analysis; and (ii) training and managerial assistance to TPDC staff in the collection, analysis and processing of product marketing and distribution data and in the monitoring of exploration expenditures. 4. PROJECT DESIGN AND ORGANIZATION 4.1 The project had a clear conceptual foundation in that it was based on a comprehensive Energv Assessment Review (EAR) and its objectives of addressing the immediate concerns and laying the groundwork for a long-term strategy were clearly defined. The project design was consistent with these objectives, the recommendations of the EAR, and the sectoral priorities (paras. 2.1 to 2.9) The manv components may appear disjoint but within the overall sector framework, availability of donor financing and the pressing issues in the sector, design of components was indeed consistent. The revisions in components during implementation were not design flaws, but responses to changing conditions in a rapidly evolving sector and were justified. 4.2 It would appear that the project concept and design were understood and shared bv all relevant parties. The project concept was not particularly innovative, except that in some wavs it was a troubleshooting operation, responding to emerging needs in a volatile and growing sector. 4.3 The scope and scale of the project were appropriate in relation to its objectives, the priorities and the capacity in the sector. The project was sufficiently well prepared given its type and purpose. The timing of the project was also appropriate to the needs in the sector. 4.4 The organizational arrangements for the project were clearly defined and consistent wvith the responsibilities and organizational arrangements existing in the sector. Since the arrangements followed well-established and understood institutional arrangements there were no major coordination issues during project implementation. The project did not attempt to promote major organizational changes such as the Energy Commission recommended by the EAR report but left it to the consideration of Government (para. 2.3 footnote 2).  5 4.5 The clear objectives, focus. flexibility of design and the organizational arrangements contributed to the success of the project. Since the objectives of addressing immediate concerns and developing a long term strategy were clearly defined it was relatively easy to shift funds within the project during implementation according to priority needs. The minimalist approach to organizational changes was also a major factor in the success of the project. The project design gave some attention to institutional Nveaknesses but the major focus was on developing the productive base of the sector. Given the needs of Tanzania and the importance of the sector in overall development, this approach appears to have been appropriate. 4.6 The design of the gas utilization study in phases also proved to be useful . During implementation there appears to have been some pressure to combine phases but project staff were able to refer to project design which required clear answers at each stage before proceeding to the next. It was therefore possible to eliminate the CNG demonstration component early in the process and focus on the pipeline and power options. A. PROJECT IMPLEMENTATION 5.1 Credit Effectiveness and Project Start-Up. The credit became effective on October 9, 1985, two months behind the original targeted date. The short slippage was caused by the delays in appointing a local Project Coordinator with qualifications and experience acceptable to the Bank. An IDA supervision mission was sent out to discuss the matter which was satisfactorily resolved with the appointment of the originally proposed candidate as an assistant to a more experienced TPDC manager as Project Coordinator. Unfortunately, disbursements to Tanzania were suspended because of overdue payments, at the same time as the credit was declared effective and implementation was therefore hampered from the beginning. 5.2 Implementation Schedule. A detailed implementation schedule for the components of the project had been prepared and included in the President Report. Most of the components were expected to be completed by mid 1987, only the CNG demonstration scheme was expected to continue to October 1988. These projections proved to be far too optimistic as demonstrated in the discussion below of the implementation experiences of the major components. Due to delays and modifications in design, the original closing date of June 30, 1989 was extended four times and the project was finally closed on December 30, 1992. The proceeds of the credit were reallocated three times and the Development Credit Agreement was amended twice, first in May 1988 and then in September 1991 to respond to the changing needs in the sub-sector. Part A. Support to the Petroleum Distribution System 5.3 It had been planned that a study of the product distribution system would be completed by August 1986 and the priority equipment for improving the system would be purchased by April 1987. The study did not get underway until March 1987 and was completed satisfactorily in June 1987. There appears to have been numerous delays in the purchase of equipment. Tenders were placed for LPG bottles and equipment but these were apparently not purchased. Draft tender documents were prepared in February 1986 for spares and equipment for tankers and product pumps but it would appear that it was only in late 1989/early 1990 that two companies were able to purchase distribution equipment. The other companies were requested to obtain quotations from their suppliers. It is not clear if they availed themselves of the facility.  6 5.4 A study' on Petroleum Products Pricing Policy was carried out by an internationally recruited consulting firni the summary was submitted to MWEM in February 1990 and circulated to the petroleum industrv for comnments. It was determined that the study was of low quality and unusable. The contract with the firm was therefore abandoned. The study was subsequently completed by MWEM based on discussions with the private sector and IDA. Part R Support to the domestic gas sector (i) Songo-Songo Gas Wells 5.5 Rehabilitation. This sub-component was the most problematic during both preparation and implementation. It had been planned that the work-over and rehabilitation of the leaking on shore Songo- Songo Wells (SS3 and 4) which were posing major environmental and safety hazards would be completed between June and November 1985. Considerable Bank staff effort had been expended on trying to obtain pre-financing for this activity. It had finally been agreed that this would be financed from an on-going credit (Cr. 1060-TA) and then refinanced from the credit for this project when it became effective. As it turned out even though the bid was awarded to an international company in Mav 1985, the contractor did not arrve in Tanzania until the end of October 1985 (after effectiveness of the project). 5.6 Implementation of the rehabilitation works did not proceed smoothly Delays were caused by logistical problems and inadequate supporting facilities which were supposed to have been provided by TPDC. as well as the performance of the contractor. Work was completed to an acceptable standard in March 1986, several months behind schedule. According to the evaluation by the external supervising consultants, the planning by the contractor was inadequate, crucial pieces of equipment were missing, inappropriate or poor-working pieces of equipment had also been supplied, and there had been delays on the part of the contractor in addressing the problems. On the basis of this assessment it was decided that in accordance with the Development Credit Agreement, it was not appropriate to use the credit proceeds to finance the considerable cost overruns which were being claimed by the contractor. The government was informed that it should seek altemative sources of financing for the over-runs. The outstanding balances were never paid and the contractor made representation to the Bank. TPDC offered to go to arbitration to resolve the issue but the contractor did not follow up. 5 7 Protective structures of off-shore wells (SS5, 7, 9). Subsequent to appraisal, it was determined, follo,wing an Italian financed study, that the wells would be developed for gas extraction purposes. A short study was commissioned to examine the need for protective structures (as well as for further work on SS3) in the light of potential development of the wells, and it was decided that minor temporary measures were adequate. The sub-component was therefore deleted from the project in the 1988 restructuring exercise. (ii) Gas Utilization Study. 5.8 The first phase of this study (on the feasibility of developing the domestic gas market) was supposed to be completed by October 1986 but it did not get underway until December 1986. The draft consultant report was evaluated by TPDC as being too general and weak in analysis. Conclusions were presented without sufficient analysis. After considerable correspondence and dialogue between TPDC and the consultant. the contract for subsequent phases of the study was canceled in late 1988. TPDC recruited another firm, wNith Canadian aid funding, to carry-out a subsequent feasibility study of a Songo-Songo/Dar es Salaam pipeline for development of the gas reservoir. Project funding was then used to finance the first phase of the basic engineering designs for the pipeline. A study on the optimal location of the terminal  7 depot and offshore unloading facility for the gas pipeline was also satisfactorily carried out by another consulting firm. 5.9 CNG Demonstration. The first phase of the Gas Utilization Study determined that due to transportation problems, CNG use was not feasible in the absence of a pipeline from the reservoir to the main consuming centres. It was decided that CNG use would follow, and not precede, the construction of a pipeline and the generation of electric power from gas and other industrial uses. This component was therefore deleted from the project in May 1988. Part C E&ploration Promotion (i) Promotion Package 5.10 A contract was awarded to an international consulting firm to compile and interpret geological and geophysical data and then identify and rank prospective exploration areas. This assignment was satisfactorily completed in October 1989 and was followed by successful promotional meetings in London in November and Houston in December 1989. More than 50 oil companies attended each meeting and nine companies expressed interest in exploring for oil in Tanzania. (ii) Seismic Data Acquisition 5.11 Seismic Data Acquisition for the Lindi Mtwara field commenced in August 1989 and was satisfactorily completed by the contractor in January 1990. Part D. Institutional Development 5.12 Institutional arrangements in the sector were complex (paras. 2.2 to 2.9) and there were a number of ongoing studies and training programs (para. 2.7), the project component was therefore designed to only supplement ongoing activities. As a result there was no clearly defined institutional development plan or training program. A number of staff from TPDC, TIPER and MWEM were trained under the project. The selection of fields of study and of candidates appears to have been ad hoc and it is not clear how the training fitted into the overall program. The fields of study were all useful areas to the sector but whether or not these were the pressing priorities cannot be determined. Most of the courses were short-term (a few weeks); given the weaknesses, rapid growth and changing conditions in the sub-sector, some medium term training (3 months to I year) in sector policy and management should have been included under the project. Presumablv long-term (degree) training was being financed by other donors. 5.13 The project also financed some computer equipment and software to improve analytical capacity and management in MWEM and TPDC. Project costs had included provision for an internationally recruited project coordinator but after discussions between the Bank and Government (para. 5.1) an experienced TPDC management staff was assigned to the positions supported by an Assistant Project Coordinator. This arrangement appears to have worked well but could perhaps have been more effective as a management training approach if a management development program (including training and increasing responsibilities) had been defined for the Assistant. 5.14 Two long term technical assistance (TA) positions were financed under the project. Both candidates had been working in-country under contracts with other donors. IDA financing for the continuation of their contracts was requested by the project authorities on the basis of the need for their skills and their performance. One of the TA provided technical support in paleontology and was also involved in the training of staff The other TA provided managerial and coordination support in petroleum  8 policy and processing matters. Given their previous involvement in the subsector both advisors performed satisfactorily under the project. 5. 15 Disbursements. The estimated and actual disbursement of the credit is shown in Part III, Table 3. A total of SDR 6.31 million (approx. US$8.0 million) was disbursed, and the remaining balance of SDR 1.79 million will be canceled w hen the outstanding issue of US$40,000 from the Special Account is resolved. Disbursements were much slower than expected because of delays in implementation (well rehabilitation and equipment purchase) and the cancellation of components which were overtaken by events. 5.16 Project Costs. The total project cost over the original four year implementation period had been estimated at US$1 1.0 million at appraisal, with a foreign exchange component of US$8.0 million or 73%. The local costs of US$3.0 million were to be financed by TPDC (US$2.9 million), and Government of Tanzania (US$0.1 million). Actual costs over the seven year implementation period of about US$1 1.0 million, were consistent with these estimates, details on costs and financing are in Part III Table 5. 5.17 Procurement. Procurement procedures generally followed Bank Guidelines and there were no major problems. The process appears to have been slow but apparently was consistent with Government's approach to ensuring transparencv. There was one procurement complaint during implementation by a bidder whose bid arrived late. The complaint was dealt with promptly by the project authorities and was proven unfounded since there had been public bid opening with several independent witnesses. 5.18 Project Risks. Two risks were foreseen at appraisal. The small risk of an explosion during rehabilitation of wells 3 and 4 did not materialize. There were problems during implementation but the necessary precautions were taken. The supervising consultants were thorough and diligent about all aspects of implementation - equipment, communications, staff (including rest periods) catering and emergency care on the island. 5.19 The second risk of limited impact of the product distribution measures did prove to be tangible but as foreseen at appraisal the problems were addressed outside the project through a larger program under the PSRP and Government's infrastructure program which improved the road networks. 6. PROJECT RESULTS 6.1 The project was successful in meeting its objectives, both short and long term. The leaking wells were repaired, and the off-shore wells were provided with the appropnrate protective measures. Less success was achieved in addressing the product distribution bottlenecks partly because of delays in implementation but primarily because of the magnitude of the constraints in the sector which were highlighted by the Distribution Study carried out. The findings of the study led to the design of the Petroleum Sector Rehabilitation Project (Cr. 2202-TA) which was approved on January 15, 1991. The project had little impact in reducing wastage of petroleum gas which was being flared. Tenders were placed for equipment (para. 5.3) but the program was never launched because improvements which were planned at the refinery (with other sources of funding) were not carried out. 6.2 The project was highly successful in its objectives of laying the foundations for a long-term strategy for the product distribution system, utilization of gas resources and private sector exploration efforts (para. 3.1). As mentioned above the petroleum study led to the design of the Petroleum Sector Rehabilitation Project (PSRP) w-hich was also supported by the petroleum products pricing study which was carried out under the project. The PSRP has been designed to improve the efficiency of the bulk  9 distribution of petroleum products and reduce the delivered costs. The project also had a major impact on the strategy for the development of Tanzania's indigenous gas resources. The studies financed under the project identified the feasibility and prepared the initial designs and costings for the development of the Songo-Songo Reservoir through a pipeline to Dar-es-Salaam and the generation of power for domestic and export (Kenya) markets. A study on the appropriate institutional framework for the gas sub-sector was also financed under the projects. The findings of the studies have been incorporated into the proposed Songo-Songo Gas Development Project which is being prepared for potential IDA financing. 6.3 The promotion of private sector involvement in exploration was successfully supported under the project. The project played a major role in attracting private sector interest through the acquisition of data, its interpretation and analysis, preparation of promotion of brochures and promotional meetings in London and Houston. As a result of these meetings a number of companies initiated or expanded their exploration efforts in Tanzania. 7. PROJECT SUSTAINABILITY 7.1 Given its nature and design there are no major recurrent cost implications directlv associated with the project. The impact and achievements of all components are expected to be sustainable. Both the short-term improvements in efficiency and the long-term strategies are either being supported under the follow-on PSRP or expected to be included in a proposed Songo-Songo Gas Development Project. The benefits to the Tanzanian economv from the projects and the development of the gas reserves are expected to be manifold. Even the weakest of the project components, institutional development, is expected to be sustainable. Data processing facilities were strengthened on a modest scale and these can be easily supported from the expected returns to the sector. Training was carried out in an ad-hoc manner but the fields of study were all clearly linked to requirements in the sector and therefore likely to have a sustainable impact. 8. BANK PERFORMANCE 8.1 Bank performance was satisfactory Bank staff expended commendable efforts in trying to obtain funding for rehabilitation of the on-shore wells (SS3 and 4) which were posing safety and environmental hazards. Donors were approached without success, alternative IDA funding mechanisms (existing projects and the project preparation facility) were explored and refused by Government authorities or 1DA management. It was only after persistent efforts and intervention of the Vice President for Africa Region with the Tanzanian authorities that funding was obtained from Cr. 1060-TA for financing of the initial expenses for rehabilitation. 8.2 The project was adequately prepared (given its nature), terms of references for major studies and the project coordination along *ith a detailed implementation schedule were prepared and discussed at negotiations. There was initially close follow-up on effectiveness and implementation but this decreased as other developments (such as the PSRP) evolved in the sector. Supervision effort was adequate but there should have been more emphasis on project reporting on implementation progress and on institutional development during implementation. It is recognized that productive capacity was the clear priority for the sub-sector but more attention should have been paid to training and man-power development in MWEM and TPDC, even if thev were being financed by other donors.  10 8.3 In retrospect, given the problems experienced in the rehabilitation of SS3 and 4, with the contractor as well as the technical problems which arose, the Bank should have foreseen the need to appoint supervising consultants. It was only after the contract had been awarded that TPDC made a request for the financing of supervisory consultants to which the Bank agreed, on condition that it was confined to one firm to cover all aspects. Some of the problems encountered would perhaps have been avoided if the supervising consultants had been involved in bid preparation and evaluation as well as in the drafting of the contract. Lessons Learnt 8.4 The project experience highlights the need for careful and realistic assessment of client implementation capacity and the limitations of large bureaucracies in responding to emergencies. Client implementation capacity should be assessed early in the preparation process, for the project as a whole and for each component (especially when highly specialized technical skills are involved). Implementation or supervision responsibility for each component or sub-component should be clearly identified and an assessment made of the agency, department or staff responsible. Such a detailed approach would help in identifying, more clearly than a global approach, the need for specialized technical assistance and or supervising consultants. 8.5 The experiences with the wells, including the bureaucratic bottlenecks (in country and in the Bank) and the amount of staff time and resources expended in trying to obtain financing, indicate that it would have been useful to have a facility for the various types of emergencies which arise and for which other donor financine is not iumediately available. 9. BORROWER PERFORMANCE 9.1 Borrower response to the environmental and safety hazards of the on-shore wells (SS3 and 4) was less than satisfactory, Even though the Bank/IDA had not been involved in the construction of the wells, it spent considerable effort in seeking funding for rehabilitation (para. 5.5). The Goveimnent agencies concemed initiallv refused to cooperate with the proposal (which had been endorsed by IDA/Bank Management after much effort) to finance the rehabilitation from Cr. 1060. Despite repeated interventions at the Director level, the matter was not resolved until the Bank's Vice-President intervened. This should not have been necessary, the problem should have been resolved by the Ministry of Finance or the Cabinet as soon as it emerged. 9.2 Performance by the agencies directly involved in the project was adversely affected by the institutional framework and implementation capacity (paras. 2.2 to 2.7 and 5.17). Implementation delays were more marked in some components than others, reflecting perhaps the priority attached by TPDC in developing the gas resources rather than in addressing inefficiencies in the petroleum refining and distribution sectors. Obligations for local costs funding were fulfilled. There were some delays and shortfalls in TPDC's contributions for the rehabilitation of the wells SS3 and 4 (para. 5.6). 9.3 There were some initial delays in complying with audit covenants but these were remedied and project accounts were brought up to date, including the audits of the special accounts and use of local proceeds from the sale of equipment. Reporting on project implementation was weak, no comprehensive progress reports were ever submitted, only three quarterly reporting telexes were found on file.  11 Lessons Learnt: 9.4 The format and required information for monitoring implementation should be agreed upon at negotiations and used in implementation. Attention should be paid to ensuring that the indicators selected are regarded as management tools by project management and that there is utility in generating the indicators for both the implementing agency and the Bank. 10. PROJECT RELATIONSHIP 10.1 The relationship between the Bank and the implementing agencies was good throughout the project and this contributed to the smooth implementation of the project. There were no major differences of opinions. Queries from the Bank on procurement procedures were answered promptly and satisfactorily. 11. CONSULTING SERVICES 11.1 Consultants' performance under the project was mixed. Details are presented in the discussion on implementation. Consultants plaved major roles in the implementation of the project and most assignments were satisfactorily carried out. Two studies were considered inadequate (paras. 5.4 and 5.8) and the consultant contracts were terminated. The problems with the contractor for the rehabilitation of the wells are discussed in para. 5.6. 12. PROJECT DOCUMENTATION AND DATA 12.1 The Presidents Report, Legal Documents and Working papers (mainly terms of references) were well prepared and appropriate to the project. 12.2 There are gaps in the data on implementation. There were no annual or semi-annual progress reports, only a few quarterly telexes available in the project file. A project completion report has not yet been prepared by the Borrower. More detailed supervision reports, at least once a year, on overall status and progress of the various components would have been useful for preparing the PCR.  12 UNITED REPUBLIC OF TANZANIA PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CR. 1604-TA) PROJECT COMPLETION REPORT PART II. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE No comments were received from the Borrower.  13 PROJECT COMPLETION REPORT TANZANIA PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CR. 1604-TA) PART III STATISTICAL INFORMATION Table 1. Related Bank Loans and/or Credits Loan/Credit Title Purpose Year of Status and Approval Comments Songo Songo Petroleum Finance the first phase of a 1980 Completed in Exploration Project drilling program designed to 1991. Cr.S027-TA (US$ 30 M) assist the Borrower in the assessment of the hydrocarbon potential of the Songo Songo field area and strengthen the capability of MWEM in the energy sector. Second Songo Songo Finance the second phase of a 1982 Completed in Petroleum Exploration drilling program designed to 1991. Project assist the Borrower in the Cr. 1199-TA (US$ 20 M) assessment of the hydrocarbon potential of the Songo Songo field. Petroleum Sector Improve the efficiency of the bulk 1991 On going. Rehabilitation distribution of petroleum products Cr.2'02-TA (US$ 30 M) and reduce the delivered cost. Proposed Songo Songo Develop Tanzania's gas reserves n.a. Initial Executive Gas Development for power generation; explore the Project Summary Project potential of exporting power was issued in generation to Kenya; promote the February 1992. role of private investors; assist in establishing the institutional and regulatory framework and appropriate pricing and cost recovery policies of the gas sector.  1 4 Table 2. Project Time Table Item Date Planned Date Revised Date Actual Identification July 1984 Preparation October 1984 Appraisal December 1984 November 1984 Negotiation April 1985 April 1985 Board Approval June 1985 June 6,1985 Signature July 1985 July 11,1985 Effectiveness August 1985 October 9,1985 Completion December 31,1988 December 31,1989 December 31.1992 December 31,1990 December 31,1991 December 31,1992 Closing June 30,1989 June 30, 1990 December 31,1992 October 31, 1991 June 30, 1992 December 31, 1992  15 Table 3. Disbursement (US$ million) Year Appraisal Estimate Actual Actual as % of Annual Cumulative Annual Cumulative Appraisal Estimate 1986 4.0 4.0 2.4 2.4 30 1987 2.5 6.5 0.3 2.7 34 1988 1.0 7.5 0 2.7 34 1989 0.5 8.0 1.8 4.5 56 1990 2.2 6.7 84 1991 0.3 7.0 88 1992 0.6 7.6 95 1993 0.4 8.0' 100 '(Equivalent of SDR 6.31 million from the original credit of SDR 8.10 million  16 Table 4. Project Implementation Indicators Appraisal Estimate Actual Product Distr. Equip. Nov.85 to Apr.87 Tender documents were prepared in Feb. 1986 but not much progress in late 1989/early 1990. Two companies received some equipment. Product Distr. Study Nov.85 to Aug.86 Mar.87 to Jun.87 Petroleum Pricing Study Dec.89 to Sep.90 Wells SS-3/4 Rehab. Jun.85 to Nov.85 Oct 85 to Mar 86 Wells SS-5/7/8 Prot. Oct.85 to Mar.86 Component was considered no longer necessary in light of further development of SS field. Temporary navigational aids were installed in 1989. Gas Utilization Study Nov.85 to Oct.86 Dec.86 to Sep.88 a/ CNG Demonstration Scheme Nov.86 to Oct.88 Canceled in May 1988. Exploration Prom. Nov.85 to Oct.86 Jan.89 to Oct.89 Seis. Acqsn/Expir. Study Nov.85 to Feb.86 Aug.89 to Jan.90 Institutional Deve. Nov.85 to Dec.86 Nov.85 to Dec.92 a/ Contract was canceled and subsequent phases completed with Canadian aid financing.  17 Table 5. Project Costs and Financing A. Project Costs and Financing (US$ million)) Sources Appraisal Estimate Revised Actual a/ Local Foreign Total 1991 1992 IDA 1.Civil Works 2.6 2.1 1.8 2. Equip.Veh.& Materials 2.7 1.0 0.5 3. Studies 0.7 0.9 1.0 4. Consultant & Training 0.6 1.4 2.5 5. TPDC Participation in l Exploration Programs 0.3 1.5 2.2 6. Unallocated 1.1 1.1 - IDA Total 8.0 8.0 8.0 8.0 Government of Tanzania 0.1 - 0.1 0.1 0.1 TPDC 2.9 - 2.9 2.9 2.9 Total 3.0 8.0 11.0 11.0 11.0 a/ Estimated. B. Project Financing by IDA (SDR million) Category Appraisal estimate Actual - 1. Civil Works 2.6 1.4 2. Equip.Veh.& Materials 2.7 0.4 3. Studies 0.7 0.8 4. Consultant & Training 0.6 2.0 5. TPDC Participation in Exploration Programs 0.3 1.7 6. Unallocated 1.2 Total 8.1 6.3  18 Table 6. Project Results A. Physical Benefits Indicators Appraisal Estimate Actual No. of road tankers back in operation 40 Only about 25 percent of the original allocated No. of retail & consumer product pumps 55 proceeds of the credit were back in operation used for this component. Rehabilitation of well SS-3/4 Completed Construction of protective platforms for well It was decided that SS-517/91 temporary navigational aids were sufficient and the component was deleted.  19 B. Studies Title Purpose Status Impact Product Analyze distribution and Completed Examined various economic Distribution storage systems, and make in 1987. options to satisfy the Studv recommendations for the petroleum product overall rationalization and requirement in Tanzania. rehabilitation of the system. Gas Utilization Evaluate the economic Completed Concluded that CNG Study utilization of the Songo Songo in 1987. demonstration for use in gas for the domestic market. transport sector, in the absence of a gas pipeline, is not an economic alternative. Protective Completed Structures for in 1987. Off-shore Wells Petroleum Examine the petroleum supply Completed Concluded to effectively Supply and and distribution system in in 1987. remove petroleum product Distribution Tanzania and provide distribution network Study recommendations. constraints in the country, various aspects of the petroleum trade must be improved and rehabilitated. Contributed to design of PSRP. Petroleum Determine petroleum potential Completed Provided detailed information Exploration in Tanzania. in about 7 prospective Potential 11/1989. sedimentary basins. Petroleum Review and make Completed Contributed to design of Products Pricin2 recommendations on in 1990 PSRP. Policv improving pricing policies. Feasibility Undertake a feasibility study of Completed Recommended TPDC proceed Studv of Soneo constructing and operating a in 7/1991. immediately with the design Songo. Dar es pipeline system to supply and construction of a 273-mm Salaamn Gas Songo Songo gas from landfall carbon steel gas pipeline with Supply System at Kilwa Kivinje to markets in 2.16 MJ/s to service the Dar es Salaam. industrial and power generation markets in Dar es Salaam. Contributed to design of proposed SS Development Project.  20 Son,o Soneo Determine the technical and Completed Concluded the field can Gas Reservoir economic feasibility of in 1/1991. produce 100 MMscf/d plus Study developing the field to supply fuel gas for 20 years, a fertilizer plant and to supply sufficient to supply 65 gas to Dar es Salaam. MMscf/d to fertilizer plant and 35MMscf/d to Dar es Salaam.  21 Table 7. Status of Covenants Reference Covenants Status Credit Agreement 2.02 (b) The borrower shall open and maintain a Compliance. special account in a commercial bank on terms and conditions satisfactory to IDA. 3.01 (a) The Borrower declares its commitment to Compliance. the objectives of the Project. 3.04 (a) The Borrower shall carry out the Gas Compliance. Utilization Study in three phases: (i) consolidate existing gas utilization studies; (ii) a study to supplement existing market studies. (iii) a study to prepare a detailed strategv for the optimal utilization of natural gas. Project Agreement 2.05 TPDC shall open an Project Account. Compliance. TPDC opened a special Account with the Citibank in New York. 3.03 TPDC shall take out and maintain proper Compliance. insurance. 3.04 TPDC shall inspect and maintain in a safe Compliance. operating condition all Songo Songo wells and related facilities. 4.01 (a) TPDC shall maintain records and Compliance. Audited financial reports and (b) accounts, and furnish audited financial from 1985 to 1991 were submitted. documents. Schedule 2 TPDC shall submit monthly and quarterly Only three telexes on progress were progress reports. found in the project file.  Table 8. Use of Bank Resources A. Staff Inputs Project Cycle 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Preappraisal 20.4 26.6 Appraisal 45.4 Negotiation 1.0 Supervisioni 23.2 21.9 16.2 6.8 7.1 3.5 6.0 1.6 Total 20.4 73.0 23.2 21.9 16.2 6.8 7.1 3.5 6.0 1.6  23 B. Missions Project Month/ No. of Days in Specialization Performance Types of Cycle Year Persons Field Represented a/ Rating Status Problems b/ c/ Preparation 9/1984 1 n. a. PE Appraisal 11/1984 5 21 F, PE, P, I., G Supervision 10/1985 3 5 Eco, PE, F 1 Supervision 12/1985 2 2 n.a.* p Supervision 6/1986 3 PS, PE, n.a.* Supervision 11/1986 1 5 Geo n.a.* Supervision 3/1987 1 n.a. F 1 Supervision 10/1987 3 8 Eco, F, Geo 1 Supervision 7/1988 3 20 d/ Eco, PE, F 2 M Supervision 11/1988 * Supervision 3/1990 1 9 dl Eco, PE, F 2 M Supervision 7/1991 2 4 F, PE 2 M, L Supervision 10/1991 3 7 d/ F, PE, Eco 2 M Supervision 8/1992 1 5 d/ Fn.a.* a/ Eco=Economist, F=Financial Analyst, G=Gas Specialist, Geo=Geologist, I= Institution Strengthening Specialist, P=Petroleum Specialist, PE=Petroleum Engineer b/ I = Minor problems, 2 = Moderate problems, 3 = Major problems c/ L =Legal, M = Management, P = Procurement d/ Combined with preparation/supervision of Petroleum Sector Rehabilitation Project. * No Form-590 in project file.