Liberia - First and Second Petroleum Exploration Promotion Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 8126 PROJECT COMPLETION REPORT LIBERIA PETROLEUM EXPLORATION PROMOTION PROJECT (LOAN 1907-LBR) AND PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIT 1580-LBR) OCTOBER 17, 1989 Industry and Energy Division Technical 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.  ABBREVIATIONS AND ACRONYMS MLME Ministry of Land, Mines and Energy NEC National Energy Committee LPRC Liberia Petroleum Refining Company CGG Compagnit Generale de Geophysique JCF Jean-Claude Ferrand and Associates DAM Duncan, Allen and Mitcheil ARL Atlantic Resources Limited PSA Petroconsultants, S.A. EDI Energy Development International Currency: During the two projects, the Liberian Dollar was officially at parity with the American Dollar.  ?.EWOLOg IoAoNc, AifONLI W41,om DC- 20433 U.S.A. October 17, 1989 mEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECTs Project Completion Report on Liberia Petroleum Exploration Promotion Project (Loan 1907-LBR) and Petroleum Sector Technical Assistance Project (Credit 1580-LBR) Attached, for information, is a copy of a report entitled *Project Completion Report on Liberia - Petroleum Exploration Promotion Project (Loan 1907-LBR) and Petroleum Sector Technical Assistance Project (Credit 1580-LBR)" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment TM dumeut a maj dbuftma NW may be mad by ue"isw S* ike piwf% a_ _r dt ofka mu... Eu Nom Mv e eewg be dimud wkbm o lash uimutm  FOR OMCIAL USE ONLY PROJECT COMPLETION REP1,RT LIBERIA Petroleum Exloration Proaotion Project (Loan 1907-LBR) end Petroleum Sector Technical Assistance (Credit 1580-L8R) TABLE OF CONTENTS Preface ................. i Basic Data Sheet I ................. ii Basic Data Sheet II ................. iv Hihllights ......... vi I. INTRODUCTION . . 1 A. Background .1 B. Petroleum Sector . C. Project's Genesis .2 II. PROJECT IMPLEMENTATION A. Petroleum Exploration Promotion. 3 B. Petroleum Legislation. 5 C. Promotional Seminars. 5 D. Activities of Oil Companies. 6 E. Second Petroleum Project. 7 F. Digicon Seismic Survey. 8 G. Amoco Position Regarding a New Promotion. 8 H. Exploration Consultant's Work Program. 8 I. Training. 9 J. Building and Equipment .10 K. Accounting Audit .10 L. Costs and Disbursements .10 M. Procurement .12 N. Comments on the Implementation of the Project . 14 0. Evaluation of the Performance of the Borrower . 14 P. Evaluation of the Performance of Consultants . 15 Q. Evaluation of Bank'a Performance .16 III. ENERGY ASSESSMENT STUDY .16 IV. PETROLEUM PRODUCTS SUPPLY AND STORAGE .17 V. CONCLUSION .17 ANNEXES 1. Map of Offshore Exploration Blocks .19 2. Assessment: Summarized Report as drafted by the Borrower .20 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.  i PROJECT COMPLETION REPORT LI3ERIA Petroleum Exploration Promotion Proiect (Loan 1907-LBR) and Petroleum Sector Technical Assistance (Credit 1580-LBR) PREFACE On October 7, 1980, the Board approved a US$5,000,000 loan (Loan 1907-LBR) to finance a petroleum exploration promotion project, aimed mainly at evaluating the hydrocarbon potential of the Liberian Sedimentary Basins. The project was satisfactorily implemented, since it resulted in two petroleum exploration contracts, under which the o4l company Amoco drilled three exploration wells. However, approximately one-third of the available acreage remained unleased. The Government requested a continuation of IDA assistance in its promotional efforts to attract experienced companies to carry out exploration of this acreage. The Bank agreed to this request, and on April 11, 1985, the Board approved to that effect a SDR 2.7 million credit (Credit 1580-LBR). In addition to the assistance in further promotional efforts, the project included the funding of a study of (i) the Liberian Petroleum Refining Company (LPRC) reorganization and (ii) the supply, storage and distribution sector. This second project did not meet all its objectives, since on June 1, 1987, it was abandoned, due to the Government's arrears on debt service payments to the Bank. This project completion report covers both Loan 1907 and Credit 1580. The closing date of Ln. 1907 was extended for four successive periods up to June 30, 1987. It was almost fully disbursed. Ar undisbursed balance of US$95,800 was cancelled. An amount of US$997,477 had been disbursed under the Credit-1580, when all disbursements under Bank projects in Liberia were suspended. In August 1988, the Bank cancelled the US$2,525,993.12 remaining under the credit. This Project Completion Report was prepared by the Africa Technical Department, Industry and Energy Division (APTIE), and was based on information obtained during supervision and from the appraisal, President's and supervision reports, as well as other documents in the Project files. The Borrower submitted a final Completion Report containing its views on the project implementation and supplied additional data for the Project Completion Report. This PCR was read by the Operations Evaluation Department (OED). The draft PCR was sent to the Borrower on July 28, 1989, for comments by September 15, 1989, but none were received.  ii PROJECT COMPLETION REPORT LIBERIA PETROLEUM EXPLORATION PROMOTION PROJECT (LOAN 1907-LBR) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 6.0 5.8 (Under)/Overrun (Z) - (3) Loan Amount (US$ million) 5.0 5.0 Disbursed 5.0 4.9 Cancelled - 0.1 Date for Completion of Physical Components 06/83 06/87 Economic Rate of Return (X) n.a n.a Financial Rate of Return n.a n.a Institutional Performance Satisfactory Satisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS CUS$ million) As of June 30, 1981 1982 1983 1984 1985 1986 ii) Appraisal Estimate 4.2 4.8 5.0 5.0 5.0 5.0 (ii) Actual 3.4 4.5 4.8 4.8 4.8 4.9 (iii) (ii) as 2 of Mi) 81 94 96 96 96 98 OTHER PROJECT DATA Original Plan Actual First Mention in the Files 01/05/78 Preappraisal/Preparation 11/15179 Appraisal 01/00/80 Negotiations 03/00/80 Board Approval 10/07/80 Loan Agreement Date 11121/80 Effectiveness Date 12/31/80 01/09/81 Closing Date 12/31/83 06/30/87 Borrower Government of the Republic of Liberia Executing Agency Ministry of Land, Mines and Energy Fiscal Year of Borrower January 1 - December 31 Follow-on Projects Petroleum Sector Technical Assistance Project (Credit 1580-LBR)  .iii STAFF INPUT (Staff-Weeks) Bank FY 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 Total Preappraisal 8.2 12.4 20.6 Appraisal 3.3 0.5 3.8 Negotiations 1.5 7.3 8.8 Supervision 3.1 34.7 10.6 6.9 0.6 1.9 3.1 2.5 63.4 Total 8.2 17.2 10.9 34.7 10.6 6.9 0.6 1.9 3.1 2.5 96.6 MISSION DATA Honth/ No. of No. of Date of Year Weeks Persons Manweeks Report Identification 06/78 1 1 1.0 08f04178 Identification II 02179 2 1 2.0 03/12/79 Preparation I 03/79 0.5 2 1.0 05/15/79 Preparation II 06/79 0.5 2 1.0 06/20/79 Preappraisal 10/79 1 2 2.0 11/15/79 Supervision I 12/79 0.5 2 1.0 12/21/79 Supervision II 04180 0.5 1 0.5 04/23/80 Supervision III 08/81 0.5 4 2.0 09/14/81 Supervision IV 11/81 0.5 3 1.5 12/17/81 Supervision V 03/82 0.5 4 2.0 05/25/82 Supervision VI 10/82 1 1 1.0 11/06/82 Supervision VII 08/83 1 2 2.0 08/29/83 Supervision VIII 03/84 0.5 2 1.0 04/12/84 PCR 05/87 1 1 1.0 06/04187 Total 19.0  iv PROJECT COMPLETION REPORT LIBERIA PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIT 1580-LBR) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 3.4 0.8 (Under)/Overrun (Z) - (78) a/ Credit Amount (SDR million) 2.7 2.7 Disbursed 2.7 0.8 Cancelled - 1.9 Date for Completion of Physical Components 12/89 n.a a/ Economic Rate of Return (2) n.a n.a Financial Rate of Return n.a n.a Institutional Performance Satisfactory Satisfactory CUMWLATIVE ESTIMATED AND ACTUAL DISBURSEMENTS CUSS million) As of June 30, 1986 1987 1988 1989 (i) Appraisal Estimate 1.0 1.7 2.2 2.6 (ii) Actual 0.7 0.9 1.0 (iii) (ii) as S of Mi) 74 53 45 a/ OTHER PROJECT DATA Original Plan Actual First Mention in the Files 04/02/83 Appraisal 08/C0/84 Negotiations 02100/85 Board Approval 04111185 Loan Agreement Date 10/21/85 Effectiveness Date 07/31/85 01/17/86 Closing Date 06/30/90 06/01/87 a/ Borrower Government of the Republic of Liberia Executing Agency Ministry of Land, Mines and Energy Fiscal Year of Borrower January 1 - December 31 Follow-on Projects None a/ The project was not completed due to the suspension of disbursements (PCR, para. 33).  v I STAFF INPUT (Staff-Weeks) BaI-k ?Y 1983 1984 1985 1986 1987 1988 Total Preappraisal 5.2 1.5 6.7 Appraisal 13.1 13.1 Negotiations 5.4 5.4 Supervision 0.1 9.5 13.7 4.8 28.1 Other 0.1 - - -0.1 Total 0.1 5.2 20.1 9.5 13.7 4.8 53.4 MISSION DATA Month/ No. of No. of Date of Year Weeks Persons Manweeks Report Appraisal 08184 1 2 2.0 10125/84 Supervision I 07185 0.4 2 0.8 11/12/85 and 03117/86 Supervision II 09186 2 1 2.0 09/30186 Supervision III 10186 1.6 2 3.2 11/25/86 Supervision IV 12/87 0.4 1 0.4 12/04/87 (Aide Memoire) PCR 11/88 1.4 1 1.4 11/21/88 Total 9.8  vi PROJECT COMPLETION REPORT LIBERIA Petroleum Exploration Promotion Project (Loan 1907-LBR) and Petroleum Sector Technical Assistance (Credit 1580-LBR) HIGHLIGHTS Background i. Well-endowed in forestry resources, disposing of an installed hydroelectric capacity of 68 MW, with a further underdeveloped potential of 750 MW, the Republic of Liberia has no hydrocarbon production of its own. Oil imports account for 202 of total imports. ii. Within the frame of the conventional concession regime of the 1969 Petroleum Act, four oil companies carried out offshore exploration operations including seismic surveys and the drilling of four wells. Although the results were negative, there was some indication that commercial oil could 1. discovered in this basin. Project Preparation iii. The Government was anxious to rekindle petroleum exploration activities in the country and requested the assistance of the Bank to that effect. Having verified that this assistance would be within the scope of its operation in the country, the Bank agreed to this request. The Loan Agreement under review became effective on January 9, 1981, for an amount of US$5 million. The implementing agency was the Ministry of Lands, Mines and Energy (MLME). iv. The components of the project were: (i) the shooting of a 2500 km marine seismic survey; (ii) preparing a geological evaluation for the report geared at the promotion of exploration offshore by oil companies; (iii) assistance in energy planning; and (iv) training and equipment for MLME. During the third extension period of the project, the Bank agreed with the MLME, that the US$76,000 remaining under the loan would be  vii utilized to participate to the funding of a pre-fabricated office and storage building. Project Implementation Promotion v. Based on competitive bids, the contract for the seismic survey was awarded to the Compagnie Generale de Geophysique (C.G.G.) of France, which carried out the seismic survey in 1981. Jean Claude Ferrand and Associates (JCF), selected out a list of six consulting companies to prepare the promotion, incorporated the seismic results into a geological study of Liberian offshore sedimentary basins, which was presented to the oil industry during seminars held in March/April 1982. Concurrently, the firm Duncan, Allen and Mitchell, of the U.S., had revised the petroleum legislation, with the introduction of a production sharing regime, with the government's share escalating with contractor's rate of return. vi. As a result of the seminars, Amoco signed successively two petroleum exploration agreements with the Government, which was assisted in this negotiation by the firm Mac Lachlan of the U.S. Amoco shot an extensive seismic survey and drilled three wells. No oil was discovered. However, oil shows, good reservoirs, and source-rocks identified through these wells, indicate the possible existence of hydrocarbon accumulation. vii. The company Atlantic Resources Limited (ARL) selected out of a list of three consulting companies, assisted the Government in monitoring Amoco's activities. viii. The possible existence of commercial oil in the free acreage led IDA to agree to the Government's request to finance a new petroleum exploration project with an IDA credit. The corresponding credit agreement was approved on April 11, 1985 (Cr 1580-LBR), and became effective on January 17, 1986. ix. The main objectives of this second energy project (Petroleum Sector Technical Assistance) was the promotion of free acreage for exploration, including acquisition of about 1000 km of new seismic data. However, the appraisal mission had found other serious problems in the sector, e.g. Liberia's refinery had by that time been shut in through shortage of working capital and certain technical problems. Supply of petroleum products was being assured by the refining company (L.P.R.C.), which had little experience in procurement. L.P.R.C. inexperience in petroleum products procurement, together with other management practices, led to an annual loss for the Government which was estimated by the Bank to be at least US$13 million a year. A study of the reorganization of the petroleum products supply, storage and distribution was therefore included in the project.  viii X. Atlantic Resources Ltd. (ARL) assisted the Government in selecting the geophysical contractor to carry out the seismic survey on a speculative basis. As a result of an evaluation of the proposals received from three companies, the contract was awarded to Digicon. The company agreed to finance 702 of the cost of the survey. The survey was carried out, with the acquisition of 1040 km of seismic lines, in the fall of 1984, i.e., before the credit was signed. xi. ARL updated the geological study of the Liberian offshore basins, as prepared by J.C.F., through the incorporation in the report of the results of the exploration program carried out by Amoco. This revised geological study was presented to the oil industry 'n Barcarena, Portugal, on November 7-8, 1985. The promotional presentation did not meet a big success. Only six oil companies attended the meeting. No report was sold, and no petroleum exploration proposal was presented. xii. In 1986, Amoco relinquished most of their acreage at the closing date of their contract. They obtained from the Government a 3-year extension of the contract, for one block, with no technical commitments. Under the terms of the extension, the company is paying a rental to the Government. xiii. Comments on the implementation of the projects: A. Both projects were interrupted twice due to uncleared arrears to the Bank, for 10 and 9 months respectively (February to October, 1985 and February to September 1986). Eventually, as the Government remained delinquent on its debt service to the Bank, all loans and credits to Liberia were suspended on June 1, 1987, and have yet to be Leinstated. B. These suspensions of disbursements affected mainly the second petroleum project (credit 1580-LBR). While the hydrocarbon exploration component of the project was implemented, at least partially, owing to the willingness of Digicon and ARL to carry out their work at their own risk during the disbursements suspension periods, no progress was registered regarding LPRC mismanagement, in spite of the Bank's insistence, with a resulting high cost to the Government in terms of foregone revenues, and to the economy as a whole in terms of exercise cost of petroleum products. C. Four one-year extensions were granted by the Bank to the Loan 1907-LBR, on the following grounds: (a) necessary monitoring of oil companies' activities which extended to 1986; (b) as ML14E had initially concentrated its effort towards getting the technical and legal work off the ground, the training program was only carried out from 1984 to 1987; and (c) the procurement of the new  ix building for MLME took longer than anticipated, and in spite of these four extensions, the procurement of the building was not yet completed when the disbursements under both projects were definitely suspended. D. Following the success of the first promotional seminars, in 1982, J.C. Ferrand was substituted by another exploration consultant company, Atlantic Resource, Limited (A.R.L.), of Portugal; this substitution was (i) probably premature and (ii) carried out in a way which raised doubt on the procedure followed, and, possibly on the Bank's procurement supervision. In retrospect, the change from J.C. Ferrand to A.R.L. has been detrimental to the overall success of the project. E. Judging from the history of the projects under review, it would have been advisable, at the outset of the first project, to hire an experienced resident exploration advisor, independent from the consulting firms involved in the implementation of the projects. Such a resident advisor could have fruitfully assisted the MLME in supervising the work of both exploration consultants JCF and ARL, and in hiring the successor to JCF at the appropriate moment, under acceptable procedures.  PROJECT COMPLETION REPORT LIBERIA Petroleum Exploration Promotion Project (Loan 1907-LBR) and Petroleum Sector Tecbnical Assistance (Credit 1580-LBR) I. INTRODUCTION A. Background With a population of about 1.7 million, average per capita GNP in Liberia in 1979 was estimated at US$500. This average value conceals the high disparity between the traditional agriculture (per capita GNP of about US$160 per annum) and the modern sector consisting mainly of (i) iron-ore mines, (ii) rubber plantations, and (iii) forestry concessions (per capita GNP of about US$1,620 per annum). The objectives of Bank Group operations in Liberia are: (i) to help Liberians develop their own resources, (ii) to support policies and programs leading to a broader distribution of the benefits of economic growth, (iii) to help the Government in broadening the economic base and in overcoming infrastructure constraints to growth, and (iv) to assist the Government in mobilizing development resources from other external agencies. Within the frame of this policy, the Bank Group had made, at the start of the project under review, 19 loans for projects in Liberia totalling US$130.7 million and has granted eight IDA credit totalling US$44 million. The Bank Group's assistance had been for roads, agriculture, rural development, power, education, water supply and ports, but had never addressed hydrocarbon-related issues. The only significant indigeneous energy resource in Liberia is hydro-electric power. Installed hydroelectric capacity amounts to 68 MW, or about 24? of the total generating capacity in Liberia. Ultimate hydroelectric generation potential was estimated at 750 MW. Liberia is also well-endowed in forestry resources since about half of the land is covered by forests. Wood and charcoal are therefore important sources of energy, both in urban and rural areas, although no data had so far been gathered on quantities used. B. Petroleum Sector Until 1982, petroleum products were produced at the Government's refinery in Monrovia under the management of its wholly-owned Liberian  -2- Petroleum Refining Company (LPRC). The refinery was closed at the beginning of 1983, because of shortages of working capital. As a result of certain operating problems, the LPRC remains in charge of the supply and storage of the 11,000 barrels of petroleum products per day currently needed by the country. All upstream activities come under the Bureau of Hydrocarbons of the Ministry of Lands and Mines. Almost all of the sedimentary basins of Liberia are located offshore. Exploration activities carried out in this area during the 19609 sixties and early 1970s by Union Carbide, Chevron, Frontier and Syracuse Oil, Ltd., confirmed the presence of a thick sedimentary section offshore. Certain positive elements have been established, such as existence of structural and stratigraphic traps, the presence of reservoir sands, together with suitably mature source rocks. Following their disappointing results, the companies concluded in 1972 that only subcommercial fields were likely to exist in Liberia. Petroleum activities in the country were governed by the 1969 Petroleum Act, which set up a concession regime (royalty at 12.5Z and an income tax rate at 50Z), not in line with current practices. C. Proiect's Genesis Several companies had expressed interest in taking exploration permits in Liberia, without offering attractive conditions. As a result, the Government approached the Bank in early 1978 to request assistance in attracting foreign investments in petroleum exploration at conditions favourable to the country including exploration drilling commitments. Following the Bank's agreement, a petroleum exploration promotion project was prepared and approved by the Board on October 7, 1980. Such a project was consistent with the Bank's first objective in Liberia to assist Liberians in developing their own resources. The total amount of the credit was US$6 million, out of which US$5 million was to be financed by IDA, and US$1 million by the Government of Liberia. The project was geared to reinterpreting and reprocessing the results of past exploration to assess the presence of previously undetected exploration conceptual plays, and present these results to oil companies. It included a 2,500 KM seismic survey, where prospects appeared likely but insufficient data were available. The Bureau of Hydrocarbons was to be provided technical assistance for energy planning, training and equipment. Three successive PPF advances, granted respectively on June 1, 1979, February 14, 1980, and July 18, 1980 respesctively, totaled to US$900,000 and, paved the way to the project. The work program, carried out by an exploration consultant, was developed logically, without discontinuity from the outset of the first advance until the termination of the consultant contract in May 1988. Consequently, this audit of the project need not differentiate between the work implemented under the PPF from that done during the credit itself.  - 3 - II. PROJECT IMPLEEMETATION A. Petroleum Exploration Promotion 1. If the general opinion of the oil industry that only subcommercial oil fields were likely to exist in Liberia was to be proven incorrect, and the presence of commercially exploitable reserves was to be estaiblished, it was necessary to develop a new understanding of the processes w'nich could have led to commercial oil accumulation in the deep water as well as on the shelf. In order to reach this objective, and upon a call for bids sent to six companies, the MLME contracted the firm J.C. Ferrand, (J.C.F.] of Houston. The work-program of J.C.F. included (i) retrieval from the oil companies of all Liberian Petroleum Exploration Data, (ii) assistance to the Ministry in the implementation of a new seismic survey, (iii) definition of the exploration methods necessary to enhance and supplement the existing data, and assistance to MLME in carrying out the recommended special studies (iv) preparation of a geological report, integrating all available data, and including the outline of the exploration plays existing in Liberian Sedimentary Basins, and (v) presentation of this report to the oil industry during promotional seminars. 2. JCF concentrated its efforts initially on retrieving from the oil companies (Union Carbide, Chevron, Frontier, and Syracuse Oil Ltd.) the data available from the earlier surveys (seismic data and four exploration wells), including magnetic tapes of seismic data, together with well samples. This exercise, carried out after a seven-year interruption of oil company exploration activities in Liberia, required a considerable amount of effort and time. Eventually, all existing data were recovered. 3. The seismic survey included in the project was geared to (i) completion of the investigation on the shelf, so that no significant area of interest be left undetected; (ii) to better define the main prospective areas; and (iii) integrate the surveys previously carried out. J.C.F. assisted the Ministry in the implementation of the seismic survey. Upon a call for bids to ten geophysical companies, the Compagnie Generale de Geophysique (C.G.G.), of France was selected to carry out this survey, which was successfully completed in May 1981. The total program covered approximately 2,500 kilometers of lines. The acquired data were processed by C.G.G., and interpreted by J.C.F. 4. Having evaluated the exploration data recovered from oil companies, J.C.F. set up a program of special studies, to assess the hydrocarbon potential. The Ministry and IDA agreed on the proposed work program. JCF subcontracted, through direct negotiation, the following studies to outside experts: (a) A landsat imagery study, with digital enhancement of the data, aimed at determining whether the major alignments and fracture zones detected on the basement geological map, could be projected into the offshore. This study was carried out by Aeroservice, of Houston, Texas.  -4- (b) Behrendt and Waterson, of the U.S., were commissioned to Implement a detailed analysis of electrical logs in the four wells, to detect possible prospective zones, define sand-shales unit, and identify synthetic seismogram. The results were useful in (i) assessing petroleum geology parameters such as reservoirs porosity and fluid contents, and seals; and ('i) tying seismic interpretation to well data. (c) Robertson Research was appointed to perform the following studies: (1) Geochemical analyses of well samples to assess the potential of the Jurassic and the Cretaceous. A poor hydrocarbon potential was found for the Jurassic, while the Cretaceous displayed a very good potential. (ii) Biostratigraphy and Paleoenvironmental studies were needed because of conflicting evidence in the data concerning the age of certain formations in the offshore wells and the onshore outcrops. The results improved the reliability of the stratigraphic scale without resolving all the issues. Ciii) Laboratory analyses of selected cores and samples from certain wells for petrographic information of certain formations. The results were usefully integrated with electrical logs analyses. Cd) GSI was commissioned to carry out sophisticated reprocessing of selected lines involving velocity analyses, filtering and migration process. The seismic sections were significantly improved, which resulted in the better resolution of key seismic horizons and intervals. (e) A specific reprocessing displaying the acoustic impedance was carried out by CGG through their patented VFLOG process. It was hoped that this type of reprocessing would provide information regarding the facies change between points of well control. The results are unreliable due to (i) the overall quality of seismic data and (ii) lack of well ties. 5. Most of the special studies recommended by J.C.F., and implemented under their supervision, were very useful in enhancing the quality of the exploration data. However, a few of these studies were not strictly necessary. (i) Given the fairly advanced technical knowledge of the area at the time, a landsat study, aimed at determining the possible projection of alignments detected on the basement map into the offshore, was mainly of an academic interest. (ii) The factors which resulted in the poor results of the acoustic impedance reprocessing were known from the start. 6. J.C.F. integrated all available data, including the results of the special studies, in to a geological regional report. This report is excellent. Its scientific bases and its format meet the expectations of  the oil companies. In particular, the conceptual plays are presented, on standard forms, in a manner readily utilizable by oil companies. B. Petroleum Legislation 7. A modern petroleum law was prepared by the law firm of Duncan, Allen and Mitchell (D.A.M.) of the United States. JCF and DAM prepared a model contract based on the new law. 8. The principal features of the model contract are as followst for the shelf area, the initial exploration period will not exceed three years, with a possibility for two further periods of two years each. For deep water areas, the initial exploration period shall not exceed four years, and subsequent periods, three years. 30Z of the license area will be relinquished at the end of the initial and of the second exploration periods. 9. The fiscal regime includes a 12.5Z royalty, an oil-sharing arrangement, with Government's share escalating with contractor's pre-tax rate of return, with a 30? limit, and a 50 income tax on the contractor's share. The income tax is structured to satisfy U.S. requirements on foreign tax credits. The model contract allows all of the production, net of the Government's royalties, to be allocated to the recovery of exploration and development costs. During the production period, the contractor shall be free to export and dispose of hydrocarbons owned by him. 10. This petroleum legislation and the model contracts were fully satisfactory for the early 1980s. They should now be adjusted, however, in view of the changed conditons of today's market. The following enhancements are recommended: (i) tightening of the accounting procedure, which is inadequate for a contract based on the companies' rate of return; (ii) no financial commitments should be associated with technical obligations; (iii) the maximum Government share should be reduced to 15? or 20?, and the reimbursement to the contractor for the Government's carried share should bear interest; (iv) the production license should be more. clearly defined; and (v) the final say on exploration program and budget should be clearly left to the company, with adequate safeguard against unreasonable behavior of the operator. 11. The block strategy was conceived to create an even distribution of the potential of the offshore area, taking into consideration shelf, rise, scope, and deep water. This arrangement included 5 shelf blocks and 4 deep water blocks, each block including a well defined prospective area. C. Promotional Seminars 12. The JCF regional study, and the prepared petroleum legislation were presented to oil companies during petroleum exploration seminars held respectively in Monrovia and Houston on March 31, and April 21, 1982. About 100 persons, representing 39 oil companies, attended the seminars. The following companies bought part or all of the promotional documents:  -6 - Price paid in USS AGIP 350.000 AMOCO 350,000 CHEVRON 50,000 MARATHON 100.000 ELF 50,000 This US$900,000 Government revenue was deposited in a New York Bank account. D. Activities of Oil Companies 13. As a result of the promotion, the oil company Amoco entered into a petroleumlexploration/production contract, signed on April 19, 1983, concerning the four blocks Hl, S1, H4 and S3 (see map attached as Annex 1). The agreement called for Amoco to shoot about 3,500 km of seismic lines and drill at least two wells. On October 4, 1984, Amoco completed their acreage with a second petroleum exploration/production contract, covering the blocks H3 and S2, with the further commitnent to drill two wells. During the negotiations with Amoco, the Ministry was assisted by the firm Mac Lachlan Inc., of the United States, and, for all exploration issues, by J.C.F. 14. The project has thus been successful. After the JCF contract expired on May 31, 1983, the Ministry decided to bid for a new exploration consulting firm, to assist it ir. completing the project (monitoring of Amoco's work program, training and procurement of equipment). Upon a call for bids sent to three companies, Petroconsultants S.A., of Switzerland, Cambrian, of the United States, and Atlantic Resources, of Portugal, the later company was awarded the contract. 15. Amoco implemented most of their contractual work program. In 1983, a 5,000 km seismic survey was shot. In 198411985, Amoco drillpa the three following exploration wells: Well Slll was spudded on October 22, 1984, and abandoned as a dry hole at a total depth of 13,575 fteet. Good quality reservoirs were found in the marine top section of the Lower Cretaceous and source potential were good in the Cretaceous. Well S311 was spudded on January 8, 1985, and abandoned dry, at a total depth of 9,972 feet. A thin (4 ft.) oil bearing portion was found in the Upper Cretaceous. Well H3/1 was spudded on October 3, 1985, and abandoned dry at the total depth of 9,889 feet. Traces of oil in noncommercial quantities were observed in the Lower Cretaceous.  -7- E. Second Petroleum Proiect 16. The results obtained led Amoco to conclude that, regarding the lead they had been exploring, although source-rocks, reservoirs and seals are abundant and of good quality, there had been an improper timing between hydrocarbon expulsion and trap creation. Amoco requested the Government to be exempted from the drilling of the fourth contractual well. On June 19, 1986, the Government granted to the company, a three year extension, for one block only, and with no commitments other than rentas payments. 17. In the meantime, as early as 1983, while Amoco was still holding approximately two-thirds of the Liberian Sedimentary Basins, the Government requested the Association to grant a credit, aiming at promoting to the oil industry the remaining free portion of the basins. The Bank agreed to this request, and an IDA mission visited Monrovia on the week August 14 to 17, 1989 to appraise this second petroleum project. 18. The Government's exploration consultants had concluded that the conceptual plays existing in the Amoco blocks should also exist in the free acreage. They had also recommended to acquire new seismic data [approximately 800 km of lines] in blocks H5 and S4, and to reprocess previously acquired seismic data on block H2 using newer techniques. 19. Furthermore, the appraisal mission identified the needs of the Liberian Petroleum Refining Company [LPRC] for assistance. Since the refinery was closed at the beginning of 1983, LPRC had been in charge of petroleum products procurement. LPRC staff had little experience in this field, however, and frequently procured items at a price above the market price and on an untimely basis. This weakness, together with other mismanagement practices, led to substantial additional and avoidable cost burden to the Government and to the economy as a whole, which the mission evaluated at approximately US$13 million. To address this issue, the mission recommended that the proposed project would include a study of the petroleum products supply and storage problems. 20. The objectives of this second project addressing petroleum issues were defined in accordance with the above-mentioned findings and recommendations. They included: (a) Institutional support to MLME; (b) Promotion of free offshore acreage for petroleum exploration purposes, including acquisition of about 1,000 km of new seismic data; (c) Promotion of onshore sedimentary basins, including gravity survey and geochemical analyses; and (d) A study to determine means of participation by the private sector in the procurement and supply of petroleum products in Liberia, and feasibility studies for the storage of petroleum products.  - 8 - 21. The new Credit, denominated "Petroleum Sector Technical Assistance (Cr 1580-LBR) was approved by the Board on April 9, 1985, for an amount of SDR 2.7 million. Due to a suspension of disbursements which lasted until October 1, 1985, the Credit was only declared effective on January 17, 1986. F. Digicon Seismic Survey 22. As a result of consultations held with three seismic companies, the MLME commissioned the geophysical company Digicon to carry out the seismic survey. This selection was based on (i) cost considerations, (ii) availability of the seismic vessel; (iii) harmonization with Amoco seismic data which had been acquired by the same contractor; and (iv) Digicon's acceptance to enter in a semi-speculative survey contract, according to which the company would bear 70? of the cost, with the understanding that it would recoup its participation from the revenues to be derived from the sale of acquired data to oil companies. The seismic survey included 1,040 km of lines. Acquired data were processed by Digicon. 23. ARL was retained by the Ministry as its exploration consultants. ARL initially concentrated its efforts in interpreting the newly acquired seismic data. Next, it integrated into a new geological report, (i) the J.C.F. Report, (ii) geological conclusions drawn from Amoco's seismic surveys exploration wells and (iii) their own interpretation of seismic data acquired by Digicon. G. Amoco Position Regarding a New Promotion 24. Amoco had previously expressed their anxiety that the central offshore in Liberia should not remain open while Amoco was planning to drill. At that time they were trying to put together a group that would negotiate a contract over this central area, with the understanding that they would be a non-operator minority partner. When they learned about the Ministry's intentions to promote the free acreage to the oil industry, they proposed to cooperate with the Ministry's efforts, which the Ministry accepted. Unfortunately, Amoco did not have any success in this exercise. 25. Upon a suggestion presented by IDA, the block strategy was modified. According to the new design, the blocks were of an approximately equal acreage, the limits between them are trending perpendicular to the coasw line, and each block offers a whole set of water depth and conceptual plays. H. Exploration Consultant's Work Program 26. After updating the hydrocarbon potential evaluation, ARL prepared a Geological Synthesis Report. A provisioaal draft of this promotional report was given to a Bank team which visited ARL just five days before the presentation of the finalized version to the international oil companies. This team found that the results from both geophysical and geological studies were not satisfactorily put together and recommended that the  consultant make the necessary corrections. Given the time-frame, it is doubtful that these modifications were included in the final version. Despite reiterated requests from the Association, the consultant never forwarded a revised report to Washington. 27. ARL presented its evaluation of the hydrocarbon potential of offshore Liberian Basins during a petroleum exploration promotion seminar which was held in Lisbon on November 7-8, 1985. The promotion was a failure, since, in addition to Amoco representatives, only six oil companies attended the seminar, signifying the scarce interest of the oil industry in the Liberian Basins. A combination of many factors may account for this lack of success; (i) the depressed situation of the international petroleum sector, (ii) the unsuitable location of the seminar, (iii) the previous presentation of the same acreage to many oil companies by Amoco (iv) the negative results of wells recently drilled by Amoco, and (v) the high quality of JCF report, which could be easily updated by any oil company by crossing off the play explored by Amoco. The promotional seminar did not result in the sale of a single report, nor in any proposal from an oil company for any kind of petroleum exploration contract. 28. As already mentioned, (see paragraph 29 above) in 1986 Amoco requested an extension on part of its acreage, with no corresponding technical commitments. In order to assist them in negotiating an agreement with Amoco, the Ministry request A.R.L. to (i) formulate recommendations with regard to this issue, and (ii) to carry out an evaluation of the hydrocarbon potential of Amoco blocks. The initial A.R.L. recommendation, made without previous consultation with IDA, was to let Amoco to pull out of the area. The Ministry selected the wisest solution to keep Amoco on a limited acreage. 29. An IDA technical panel reviewed the consultant's evaluation of the potential of Amoco blocks, together with the company's proposed work program for 1987. These documents were found poorly formatted and with weak technical support. These findings, together with the reservations aroused by the geological report (see paragraph 39 above) prompted an IDA team to visit the consultant's headquarters. The mission found that inadequate work had been accomplished, at least since the promotional seminars, and recommended to the ministry (i) to request a corresponding readjustment of the consultant's invoicing, and (ii) to issue a call for bids to select a new exploration consultant. While the consultant's invoices were eventually readjusted (see paragraph 46 below), the Ministry, through a letter dated March 2, 1987 confirmed their trust in A.R.L. I. Training 30. The implementation of the first project (Loan 1970-LBR), concentrated on the preparation of promotion and devoted little time to the design of a training program. One geologist received on-the-job training in 1979-1980, and was sent to study at the Texas Institute of Technology, where he obtained an M.Sc. in Sedimentology. During the second project, A.R.L. organized and supervised the training program, which Amoco cofinanced under  - 10 - ",eir petroleum exploration contract. Five Ministry staff members received un-the-job training in ARL offices, and two others graduated from United States universities. The Ministry, however, considers that a well-defined training program, implemented independently of participating companies whether serving as consuitants or licensees for the project, could have significantly improved the results of the training component of the credit. J. Building and Equipment 31. In 1986, the company 'Movex, of Lisbon, was selected to provide and erect the pre-fabricated office and storage building. The contractual cost was US$200,000. This amount was to be funded partly from the remaining funds under the first project, and under the category 4 of the second one. IDA reminded the MLME that applications related to this downpayment should be supported with invoices and a certified copy of a Bank letter of guarantee for the sum advanced to the Government. The foundation was prepared by the Ministry, the pre-fabricated materials were ready to be shipped. Because the required documents were not received by IDA before the disbursements under the credit was suspended the pre-fabricated building was never erected. The equipment purchased included only office supplies such as copying machines, printing outfit, binding system, and the magnetometer bought in 1981, for the preparation of the seismic survey carried out by C.G.G. K. Accounting Audit 32. The project accounts were satisfactorily maintained, and the Ministry was, during the implementation of both projects, able to provide IDA with any information regarding the accounts. The audit of the projects accounts, however, which should have been prepared by the General Auditing Service of the Government, was never carried out due to the workload of that unit. The Ministry had agreed to hire an independent international audit firm when the project ended prematurely. L. Costs and Disbursements 33. The expenditures to be financed under the Loan 1907-LIB should have been funded respectively at 80S and 202 by the Bank Group and the Government. Due to foreign exchange constraints, the Government requested, on two occasions, that the Bank disburse 1002 of various foreign costs (seismic survey, interpretation, consultant's services), with the understanding that the Government's share would increase in the following years. Eventually, the Government's expenditures consisted of: Uq$ Energy Study as financed by USAID 450,000 Training as financed by AMOCO 40,000 Government Funding 290,000 TOTAL 780,000  - 11 - The following table includes the Bank's disbursements by category, as compared with the corresponding amounts allocated in the Loan Agreement. USs US$ Initial Amount Category Allocation Disbursed Cat 1 Seismic Survey, Processing, 2,500,000 3,475,078.45 Preparation of Report Cat 2 Promotion 340,000 399,417.05 Cat 3 Monitoring of Oil 780,000 64,570.35 Companies, Energy Planning and Training Cat 4 Library Equipment 80,000 7,451.36 Cat 5 PPF 900,000 957,677.56 Cat 6 UnallocatedlCancelled 400,000 95,805.23 5,000,000 5,000,000.00 The bulk of the disbursements (72Z) was made to meet J.C. Ferrand's invoices. These invoices included payments made to subcontractors, and various expenditures, such as training, promotion, organization, travel costs, etc., according to the following breakdown: Fees - Internal Cost 1,170,430.60 Payments to Subcontractor 726,152.96 Expenditures 1,611,847.04 The initial amount allocated under Credit 1580-LBR was SDR 2,700,000. Since the credit was suspended, and then cancelled, the allocated amount was only partially disbursed. The following table shows disbursement per category: Initial Disbursed Amount Amount Category SDR SDR 1. Storage Facilities 135,000 0 2. Sample Drilling & Gravity Survey 60,000 0 3. Seismic Survey 285,000 206,772.05 4. Laboratory Equipment and 105,000 0 Other Facilities 5. Training 105,000 10,132.73 6. Consultant's Service 1,560,000 542,050.62 7. Special Account 105,000 0 a. Unallocated/Cancelled 345,000 1,941,044.60 TOTAL 2,700,000 2,700,000.00 Two further points may be made regarding disbursements: (i) The Ministry informed us that revenues obtained from the sales of promotional documents (see para. 25 above), had been mainly used  - 12 - to finance further training, business travels and the purchase of office equipment; (ii) For various reasons (unjustified invoices, contractual over- expenditures, illegitimate in view of the weak quality of the technical documents presented), the MLME declined to pay their second exploration consultant a sum of US$332,400 out of an invoices amount of US$1,095,100. M. Procurement 34. The projects under review included (i) consultant's services, (ii) contractors to carry out seismic surveys, and (iii) office building and equipment. (i) Consultant's Services (a) In Spring of 1979, the Ministry sent a call for bids to six international companies, in order to prepare and organize the first petroleum exploration seminar (J.F.C., Technoprojekt, Beicip, Bell and Murphy and Associates, KLM Aerocarto, and Pexcon International). Upon a bid evaluation carried out according to Bank's guidelines, the MLME awarded the contract to J.C.F. (MLME's letter dated May 4, 1979). (b) The MLME initially relied on J.C.F. to revise the petroleum law and prepare a model contract. After some delay, MLME realized that J.C.F.'s assistance in the matter needed to be complemented by the service of specialists in hydrocarbon legislation and in petroleum contract negotiation. Taking into consideration the time constraints, the Association agreed to the selection of these consultants through direct negotiation. The firm Duncan, Allen and Mitchell of the U.S., was commissioned to revise the petroleum legislation, and the consultant Mac Lachlan was commisssioned to assist the Government in negotiating with oil companies. (c) In February 1981, the following consultants were invited to bid to implement the pricing study: William G. Matthews, of Canada; Booz, Allen and Hamilton, of Maryland, USA; Energy Institute of Albotus Platz, of West Germany; Transenerg, of France; and Energy Development International, of Washington, D.C. This latter was awarded the contract as a result of a proposals evaluation conducted in conformity with Bank's guidelines. Cd) In April 1983, the Ministry elected not to extend J.C.F.'s contract beyond its termination date and called for bids from a shortlist of exploration consultants to complete the exploration work program. This list included the following companies: Atlantic Resources, Ltd. (ARL), of Portugal;  - 13 - Petroconsultants S.A. (PSA), of Switzerland; and Cambrian International Corporation, of USA (Aide Memoire dated August S, 1983). Cambrian was later discarded because of its inexperience in similar projects, and particularly in Africa. The competition was thus limited to two companies. This loosening of MLME's vigilance coincided with weak procurement supervision on IDA's part. (ii) Geophysical Companies (a) First Seismic Survey Although ten companies had been prequalified, only four presented proposals. Those included: Western Geophysical, of USA; Compagnie General de Geophysique (CGG), of France; Geophysical Company (GECO), of Norway; and GSI, of USA. The latter did not conform to procedures for submissions and was disqualified. Proposals evaluation was based on (i) technical specificati.ons for the survey, (ii) contractor's experience in West Africa, (iii) qualification of field personnel, and (iv) timing of the survey. As a result of this evaluation, and with IDA's agreement, the contract was awarded to CGG. (b) Second Seismic Survey As a result of the evaluation of the proposals received from three companies, CGG, Western and Digicon, the latter was selected on the basis of technical and cost consideration. Digicon was terminating a contract for Amoco in Liberia, and the Government saw several technical advantages in using the same seismic boat: (i) seismic parameters were well tested in the area, and (ii) a coherence between Amoco's data and newly-acquired data would be obtained. Furthermore, Digicon agreed to finance 70Z of the program (semi-speculative contract). The Government acquired 1,040 km of seismic lines at the low cost of US$200 per kilometer. (c) Building and Equipment i. Prefabricated Building As a result of the evaluation of bids received from four suppliers, and upon IDA's agreement, the company Movex was selected to provide the prefabricated building materials. For reasons discussed in para. 45 above, this material was never shipped to Monrovia, and the building was never erected. ii. Office equipment for a total amount for US$7,450 was purchased through ARL, upon the evaluation of quotations  - 14 - received from three or four suppliers in Portugal. N. Comments on the Implementation of the Project (a) Absorbed by other priorities, the HLME delayed the procurement of office equipment and the implementation of the training program. Furthermore, Amoco's contract and technical commitments necessitated IDA's assistance in monitoring the company's activities. In order to complete the corresponding component of the project, four successive one-year extensions were granted by the Bank under Loan 1907. (b) While the first project lasted longer than expected, the second was prematurely suspended, as were all Bank credits to Liberia, due to arrears of the Government in honoring their debts service. Several components of the second project were never implemented: (i) Erection of the MLME prefabricated office building. (ii) Petroleum exploration promotion of the onshore basin. (iii) Study of the petroleum products supply and distribution issues. (iv) Privatization of L.P.R.C. Cc) As already mentioned (see para. 38 above), through two successive amendments to the Loan 1907-LBR Agreement, the structure of the payment of Government's share was modified. Due to foreign exchange constraints, the Government did not finance most of its share of the costs in hard currency. Instead, it claimed USAID's funding of the Energy Assistance Study, and Amoco-financed training, as counting toward its agreed participation in the funding of the project. (d) Following the success of the first promotional seminars in 1987, J.F. Ferrand could have very well monitored the activities of an oil company which had been attracted through Ferrand's report, and would have been more suited to carrying a program which it had recommended. Consequently, it does not seem to have been so urgent to substitute JCF for another consultant. If necessary, this substitution may have coincided with the outset of the second project. 0. Evaluation of the Performance of the Borrower 35. The Ministry implemented the project in a suitable manner. MLME staff demonstrated a keen interest in carrying out their exploration task. They provided adequate support to the consulting firms involved in the implementation of the different components of the project. In most cases, MLME was vigilant in applying the procedures to select consultants or contractors. The Government, however, did not always cooperate closely with IDA's effort to address the LPRC management issues.  - 15 - P. Evaluation of the Performance of Consultants 36. (a) J.C. Ferrand J.C.F. performed efficiently. Detailed and accurate reports published between August 1979 and October 1980 on an evaluation of the sedimentary basins of Liberia, as well as services rendered, attest to the company's competence. The geological synthesis report provided by J.C.F. is of high quality. However, J.C.F. displayed a certain prodigality in setting up the program of special studies which was aimed at improving and complementing the initial data base (see paras. 17 and 18 above). In a general manner, J.C.F.'s services were good. but expensive. The firm is still active in Houston, even though the nature of its activities has partially changed. It holds production leases in the U.S., and exploration leases in France. J.C.F. would now consider only sizable consulting jobs. (b) Atlantic Resources Until the second prometion seminar, held on November 7-8, 1985, the consultant performed acceptable work, albeit with some flaws in their regional geological report. Thereafter, the quality of their work gradually deteriorated. As was learned later on, this decline in the quality of ARC's technical work was the prelude to the ARL's disappearance from the market. The consultant's performance on financial matters was not satisfactory. Expenses exceeded the contractual amount without obtaining prior approval from Borrower, and staff time spent on specific tasks was overstated. (c) Duncan, Allen and Mitchell This consultant worked quite efficiently. Although having been called on short notice, they produced the new petroleum law according to schedule. The petroleum law is satisfactory. It should be improved, however, and be adapted to the present status of the oil market (see para. 23 above). (d) Mac Lachlan This consultant proved efficient in assisting the Ministry in negotiating the Amoco contract, which included the commitment to drill four wells. (e) Energy Development International (EDI) EDI conducted - on schedule - a very good assessment on schedule of the petroleum pricing structure in Liberia. Their recommendations, however, were too general to be useful to the Ministry.  - 16 - Q. Evaluation of Bank's Performance 37. During the implementation of the first project, IDA effectively assisted the Government in (i) getting the technical work off the ground, and getting the exploration activities going, (ii) preparing a hydrocarbon legislation, a model contract, and a bidding strategy, (iii) supervising the petroleum pricing study, and (iv) ensuring a close cooperation between EDI and Oak Ridge National Laboratories, which implemented the energy assessment financed by USAID (see para. 40 below). The relationship with the Borrower was usually very good. IDA did not perceive in time, however, the progressive deterioration of AVL.'e services, and, as a result, did not intensify its control of the consultanc' F performance. Furthermore, IDA was not vigilant regarding conformity to the Bank's procurement guidelines. 38. Finally, the Ministry has regretted that while the MLME team responsible for the implementation of the projects had always remained the same, there had been too many successive Bank interlocutors for the same projects. TII. ENERGY ASSESSMENT STUDY 39. In 1980, the Government created the National Energy Committee (N.E.C.), since it recognized the need for improved analytic capability and coordination in energy planning. NEC is an interagency body composed of several ministries and energy related parastatals, whose principal objective is to review energy sector policy and integrated planning. The NEC played a useful role in (i) reviewing energy policy proposals under consideration by various Government agencies; (ii) developing recommendations, such as for fundamental reforms of the power system serving Liberian rural areas, and (iii) serving as an information center for the private sector. The experience acquired during recent years, however, has led the Bank to recommend that the NEC be transformed into a well-staffed and well-equipped energy and planning division of energy that would have advisory relationship role to the Economic and Financial Management Committee, which is the highest Government decision making body. 40. The Bank's initially contemplated energy planning assistance encompassed all aspects of energy policy and planning. As USAID financed a full-scale energy assessment for Liberia, iDA's project was scaled down to a study of petroleum pricing. This study was entrusted to Energy Development International (EDI), of the U.S., while the USAID-financed study was carried out by Oak Ridge National Laboratories of the U.S. During the course of their studies, the two consulting companies cooperated closely. EDI's report gives a good analysis of the petroleum products prices structure and outlines pricing principles, but it does not recommend any definitive set of prices. Current petroleum products prices are appropriate to encourage conservation and to generate revenues for the Government. The main results of the USAID-financed energy assessment project are given in the Annex of this PCR.  - 17 - IV. PETROLEUK PRODUCTS SUPPLY AND STORAGE 41. Although petroleum products may be imported by other operators, the Liberian Petroleum Refining Company (LPRC), holds a de-facto monopoly on imports for the domestic market. In 1986, LPRC operations took the following charactericticss (i) Petroleum products are procured at prices considerably above international levels; (ii) Consumers pay a high price, since prices were not adjusted downward when the international prices declined in 1986; (iii) The increased margin of revenue and most of the excise taxes paid by distribution companies to LPRC are not transferred to the treasury. IDA estimated that in 1986, US$40 to $50 million in revenue were foregone. This loss in Government revenue represented an increase from 1980 due to a sharp decrease of the international prices of petroleum products which had not been transferred to the retail market. 42. In 1986, the Government embarked in direct negotiations with private companies to take over LPRC's role. Several small companies were attracted by the substantial potential benefits. The proposed contracts were generally disadvantageous for the Government. In early 1987, IDA stepped in to prevent the signature of unacceptable contracts with several of these firms. 43. The objectives of the second project included the hiring of a consultant to study the petroleum products supply and storage issues, and make recommendations to improve the process. The following three companies submitted proposals: Arthur D. Little, Skaarup Oil, and Coopers and Lybrand in association with Petroleum Economics Ltd. IDA suggested to MLME through a telex dated October 30, 1986 to include in the terms of reference, assistance to the Government in the privatization of the LPRC. When the credit was stopped, the Ministry had not yet reacted. V. CONCLUSION 44. While the second project was abandoned in the early stages, the first petroleum exploration project was successful: (a) The petroleum exploration of the sedimentary basins was started again, and the data resulting from the drilling of three wells and the acquisition of 5,000 km of seismic lines led to an improved geological knowledge of the area. (b) A group of knowledgeable technicians in petroleum exploration was established within the Ministry, which had been without such a base of knowledge prior to the project.  - 18 - 45. The Implementation of the project would have been improveds (a) by hiring a resident independent part-time exploration advisor, who could have supervised closely the consultant's selection, technical work, and invoicing; (b) by closer IDA supervision, which could have avoided the inadequate implementation of several components of the projects, and unduly high costs for the Borrower. 46. If and when the World Bank resumes lending to Liberia, it will be urgent to assist the MLHE again in: (a) privatizing the L.P.R.C., and improving the management of the petroleum products supply and storage, in order to stop the Government's financial haemorrage; (b) rekindling the interest of the oil industry in the petroleum exploration of the Liberian basins, since past exploration work indicates that commercial oil accumulation may exist in the area; and (c) further strengthening of MLME's technical capabilities.  -19- Annex I SIERRA 4-'~~~~~~~~~~~~~~6 LEONE + XGUINEA ......... 4- 44, ;s BS~ELt LOATON '''ooto' bloc*k WAER DEM h N MTER \ ~ > TSrR~F BLOCK/ IVORY .~~~~~ci F-WSr. ?A4 COAtCOST ~~~~~~~~~~~~~~ri C 4 - __* ..LEGENO- + wau. LOCATlONS ~~~~Fgo.l IMasp of Liberia showing offshore exploration blocks ,_si_ WATER DEPTH IN METERS {j) ~SNELF eLOCK SLOA BLOCK SCALE: I:3,ooo0,QC 0 2 40 o 60 sonrf 0 25 50 75 125 -ms  - 20 - Annex 2 LIBERIA Petroleum Exploration Promotion Prolect (Loan 1907-LUR) and Petroleum Sector Technical Assistance (Credit 1580-LBR) Project Cowpletion Report USAID financed and executed the Energy Assessment Project and IDA played no role. The summarized results of the study, as drafted by the Ministry in their version of the Project Completion Report, are given herebelow. ENERGY PLANNING STUDY RESULTS AND RELATED DOCUMENTS As a contribution to the energy planning study of Liberia, the U.S. Agency for International Development (USAID) agreed to fund a one-year project to provide energy planning assistance to the Government of Liberia. This assistance involved both direct help in conducting a National Energy Assessment and professional developmental support to upgrade the energy planning capability of the Government of Liberia's (GOL) agencies and staff. In response, the National Energy Committee (NEC) and the USAID consultants, in an Integrated Energy workshop held in Buchanan, Grand Bassa County, recommended that a number of specific actions be taken government on the following programs: I. Energy Use/Demand Management 1. Institute a program of mandatory reduction in electricity consumption in government offices during periods of officially declared emergency, with incentives for compliance and penalties for waste. 2. Institute an ongoing program of correcting obvious waste of electricity in government offices with incentives for compliance and penalties for waste.  - 21 - 3. Allocate realistic electricity budgets to GOL agencies and make electricity bill expenditures part of an agency's discretionary budget. II. Private Section Energy Demand Management LEC should totally revamp its metering, billing and collection system to ensure that bills are accurate and that all customers are billed and their bills paid. III. Encourage Increased Use of Energy Resources 1. Conduct a pre-investment ana.Lysis of the Bong Mining Company's (BMC) use of wood for Iron Ore processing. 2. Provide information and technical assistance to hydropower in place of petroleum fuels whenever this can be done economically. IV. Increase Security of Supply for Liquid Fuels 1. Expand petroleum product handling and storage facilities. 2. Permit and encourage diversification of oil importation agents and storage facility ownership. V. Improvements in Reliability and Efficient of LEC's Central Central Grid Electric Thermal Power Generation 1. Acquire additional slow-speed diesel generators. 2. Strengthen the maintenance and managerial supervision/support systems for the slow-speed diesels and increase operator accountability. VI. Upgrade Hydroelectric Reliability and Output for the LEC Central Grid 1. Rehabilitate the only existing turbine at Mt. Coffee. 2. Add a fifth generating unit to Mt. Coffee. 3. Institute a strengthened maintenance and management support/supervision program at Mt. Coffee with the aim of ensuring the lowest long run costs and greatest long run reliability for the plant's generating capacity. 4. Seek funds to construct a water storage reservoir upstream from Mt. Coffee to increase dry season St. Paul River flow and subsequent hydroelectric output from the Mt. Coffee plant.  - 22 - VII. ADpropriate Generating Technologies for Rural Electric Powers 1. Conduct a detailed resource evaluation/feasibility study for hydroelectric power sites to serve the Gbarnga region. 2. Conduct a feasibility study for a wood fire power plant to serve a rural town. 3. Institute an experiment with fast going wood species for possible use in a wood energy plantation to serve a wood demand as well. VIII. Energy Planning Agency 1. Strengthen one existing agency or create a new one to play a major role in integrated national energy planning in Liberia and connect this agency with a high-level decision-making body of the GOL. 2. Several possibilities exist for this agency: a) Strengthen and expand the Department of Energy in the Ministry of Lands, Mines and Energy (MLM&E). b) Strengthen and expand the utilities selection withir. the Ministry of Planning and Economic Affairs (MPEA). c) Create and independent National Energy Commission. d) Have the agency whether in the form of a, b, or c above, report directly to the Economic and Financial Management Committee or some other high level GOL body as its advisory arm on energy policy. IX. Organizational Reforms and Technical Assistance for LEC LEC should explore with the World Bank the terms of reference for Management Technical Assistance program to identify and implement basic organization reforms to help address LEC's structural problems. Such assistance might be in form of across the board involvement or might be applied selectively to vital organizational components. X. Organizational Reform and Technical Assistance for LPRC 1. Restructure LPRC into a strictly oil product importing company. 2. LPRC should enter into discussions with the World Bank or other agencies to determine the terms of reference for outside technical assistance to LPRC.  - 23- X. Energy Pricing and Policies 1. Price electricity supplied by public utilities in both Monrovia and in the rural areas so as to cover the long-run costs of supply. 2. Price petroleum products at approximately their present levels to encourage conservation, the development of alternative forms of energy, and to generate funds for the government. XI. Rural Electric System Reform The GOL should conduct a preliminary investigation into REA's including development of a study design for an experiment with an independent Rural Electric Authority n the Gbarnga area.