Zambia - Maamba Coal Engineering Project

Documut Of The World Bank FOR OFFMCIAL USE ONLY RqeotNo. 9171 PROJECT COMPLETION REPORT ZAMBIA MAAMBA COAL ENGINEERING PROJECT (CREDIT 1333-ZA) NOVEMBER 30, 1990 * Energy Division Asia Technical Department Asia regional Office This document has a restricted distribution and may be used by recipients only in the performace of their oWficial duties. Its contents may nh)t ot erwise be disclosed without World Bank authorlzation.  ABBREVIATIONS AND ACRONYHS AfDB - African Development Bank AfDF - African Development Fund BMCL - British Mining Consultants BUA - Bank Unit of Accounting FR - Feasibility Report GRZ - Government of Republic of Zambia IDA - International Development Association MCL - Maamba Collieries Ltd. MIS - Management Information System mtoe - Million Tonne Oil Equivalent PCR - Project Completion Report tpy - Tonnes per Year UDI - Unilateral Declaration of Independence ZCCM - Zambia Consolidated Copper Mines Ltd. ZIMCO - Zambia Industrial and Mining Corporation, Ltd. ZK - Zambian Kwacha  THE WORLD &AN FOR OFFICIAL USE ONLY WAoIton. 0 C 20433 U.$ A Of fice of Director-Q.anral Opetatima 3YeluaL1 November 30, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Zambia Maamba Coal Engineering Project (Credit 1333-ZA) Attached, for information, is a copy of a report entitled "Project Completion Report on Zambia - Maamba Coal Engineering Project (Credit 1333-ZA)" prepared by the Africa Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment Ths ocument hua I et1 dstnbution and may bc iBid by r Iuenu only ID Lbm pWarMae of thetr officul uta,ua iu coetents may not otherrK be tMc wtthout Wor halt a& uauUi f,,  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT ZAMBIA MAAMBA COAL ENGINEERING PROJECT (CREDIT 1333-ZA) Table of Contents Page No. PREFACE ......................................................... i EVALUATION SUMMARY. ii PART I. PROJECT REVIEW FROM BANK'S PERSPECTIVE Project Identity .1 Project Background .......................................... Project Objectives and Description Project Objectives. 3 Project Description. 3 Project Design and Organization Project Design. 4 Project Organization. 4 Project Implementation Project Start-up. 4 Implementation and Procurement. 5 Project Costs and Disbursement. 5 Project Results Physical Results. 5 Impact of Project. 6 Financial Performance ..................................... 6 Project Sustainability ...................................... 7 Bank Performance. 7 Borrower's Performance. 8 Project Relationship. 8 Consultant Services ...... .................................. 9 Project Documentation and Data .............................. 9 PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ............ 10 PART III. STATISTICAL INFORMATION Energy Sector Bank Loans and Credits ........................ 16 Project Timetable ........................................... 16 Loan Disbursements .......................................... 17 Project Implementation ...................................... 17 Project Production .......................................... 17 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.  Table of Contents (continued) Page LNo, Project Costs and Financing Project Costs ............................................. 18 Project Financing ................ ..................... 18 Project Results Direct Benefits ........................................... 19 Economic Benefits ......................................... 19 Financial Impact .......................................... 19 Studies ................................................... 20 Status of Covenants ......................................... 21 Use of Bank Resources Staff Input ............................................... 21 Missions .................................................. 22  PROJECT COMPLETION REPORT ZAMBIA MAAMBA COAL ENGINEERING PROJECT (CREDIT 1333-ZA) Preface This is the Project Completion Report (PCR) for the Maamba Coal Engineering Project of Zambia, for which Credit 1333-ZA in the amount of SDR 4.0 million (equivalent to US$4.3 million) was approved on March 15, 1983. All disbursements to Zambia were suspended in May, 1987. This project was also affected except for disbursements for prior commitments which continued up to January, 1988. The credit was closed on September 30, 1987, two years behind schedule. It was almost fully disbursed except SDR 0.18 equivalent. The PCR has been prepared by the Energy Division staff of Asia Technical Department (Preface, Evaluation Summary, Parts I and III), and the Borrower (Part II). Preparation of the PCR is based, inter alia, on the President's Report (no separate Staff Appraisal Report was prepared) the Development Credit Agreement, Project Agreement, supervision reports, correspondence between the IDA and the Borrower; and internal Bank memoranda.  - ii - PROJECT COMPLETION REPORT ZAMBIA MAAMBA COAL ENGINEERING PROJECT (CREDiT 1333-ZA) Evaluation Summary Objective 1. The objective of the project was to foster the substitution of indigenous coal for expensive oil products and to provide low-cost energy to meet the growing demand from the industry. The project was to review the existing operation and performance of MCL, analyze the various constraints and prepare a Feasibility Report for the rehabilitation of the mine complex. During the interim period, critical e ant and equipment were to be kept in running order with adequate supply of ,)re parts and components and by providing training to essential staff (para. 3.1). &.. A poor management structure and weak technical capabilities were identified as among the main causes for low level of performance. Any rehabilitation effort was to include strengthening of the technical management capability. ZCCM agreed to enter into a contract with MCL to take over its technical management, including mining, engineering, material management, training, etc.. Suitable senior level technical managers were to be seconded from the ZCCM operation. ZCCM's training center was to undertake training of technicians (paras. 4.2 and 4.3). Implementation Experience 3. The Feasibility Report (FR) was prepared in time by the BMCL, a project implementation team at ZIMCO provided overall supervision and guidance. Though the chief executive of ZCCM was also the Chairman of MCL, he faced many problems during implementation which could not be anticipated earlier. As ZCCM itself was then undergoing a major reduction of its expatriate professionals, it was unable to second its best available staff to Maamba. Similarly, though the ZCCM had a strong in-house material management and training system, it was unable to tailor any program suited to MCL's needs. Efforts to recruit expert professionals from outside also did not meet with success, engineers of proven caliber were unwilling to accept short time assignments in a remote part of Africa (paras. 5.1 and 5.2). Results 4. The FR indicated that the coal demand in Zambia and in the neighboring countries will be about 700,000 tpy. In addition to arrear overburden removal, future mining operations would have to deal with much higher overburden to coal ratio. The coal preparation plant and the aerial ropeway required major rehabilitation. Technical assistance was required to  - iii - assist MCL to reorganize, direct and improve the level of operational efficiency in mining, coal preparation, field maintenance and material management. The rehabilitation program needed an investment of US$40 million spread over a period of 5 years (paras. 6.1 and 6.2). 5. When the FR study was in progress, the African Deve'opment Bank (AfDB) became interested in the project and approved a loan and a credit totalling US$24.4 million to implement the FR during the initial three year period. Since 1984, the IDA and AfDB projects were runnirg together complementing eRch other. The AfDB project is now extended up to August, 1991. The planned reorganization of the mine complex has now progressed to the stage that a production rate of 700,000 tpy is achievable. But consequent to lower economic activities in the country, the overall demand is now placed at 550,000 tpy only. However, since Zambia Railways is unable to provide adequate transport capacity,the actual production perforce is restricted to a much lower level of 400-450,000 tpy (paras. 6.3 -6.5). 6. Despite the large investment in the rehabilitation measures only a modest increase in production could be achieved. Being unable to adjust its coal prices in step with the high rate of inflation, MCL experienced only a modest improvement in its finances. However, there has been continuous progress in the development of skills and engineering capability. Zambian nationals are now managing the company at all levels with minimum assistance from outside (paras. 6.6 and 6.7). Sustainability 7. The declining trend of production during the previous five years has been arrested and a capacity build-up has taken place. Customers are receiving consistent sizes and quality of coal. Coal costs are high by international standards. If the company is unable to market at least 550,000 tones of coal per year and adjust the coal price to overcome the high inflation rate, it well be unable to meet its debt repayment obligation and remain viable (paras. 7.1-7.3). Lessons Learned 8. Though small, it has been one ot the successful projects. The Bank performed satisfactorily all through the project cycle from identification to implementation. The Bank has learned that such small companies operating in isolated areas are not able to maintain a high level of management skill and engineering efficiency. Since they cannot attract very competent professionals for employment, there should be greater emphasis on technical assistance and training (paras. 8.1-8.3).  PROJECT GOMPLETION REPORT ZAMBIA MAAMBA COAL ENGINEERING PROJECT (CREDIT 1333-ZA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTlVE 1. Project Identity Project Name - Coal Engineering Project Credit No. - 1333-ZA RVP Unit - Africa Country - Zambia (AF6IE) Sector - Energy Sub-sector - Coal 2. Project Background (1983) 2.1 Zambia is well-endowed with energy resources, most of which are still only partly explored. The main energy resources are hydropower and coal, but there are also large amounts of uranium, as well as renewable resources such as wood, bagasse, molasses, wind, solar and geothermal. There are as yet no firm indications of exploitable hydrocarbons. 2.2 The hydroelectric generating capacity is equivalent to 2.2 million tonnes of oil equivalent (mtoe). It meets the domestic demand fully, and part of the demand for Zaire and Zimbabwe. There is sufficient potential (estimated at 4,000 megawatt) for further development of hydroelectric power to meet the country's requirements for decades ahead. Zambia has also ample coal resources, though most of it is still unexplored. 2.3 Commercial energy consumption in 1981 was estimated at 2.5 mtoe, of which 1.4 and 0.3 mtoe were met by hydropower and coal respectively, and the balance by imported oil and coke. Hydropower is the main source of induscrial energy, constituting 55.4 percent of the total consumption, followed by oil products (30.6 percent), coal (11.2 percent) and coke (2.8 percent). Over 80 percent of domestic consumption of hydropower, 60 percent of coal and 34 percent of oil products are by the mining sector alone. The mining sector provides over 20 percent of foreign exchange earnings and 30 percent of gross value added. 2.4 The main consumers of coal in Zambia are the mining, chemical fertilizer and cement industries, which together account for 85 percen: of the demand. Coal is used primarily as a heat source and not for power generation. It can replace much of the imported petroleum products used in the copper smelters and other industries, and thus make a valuable contribution in the saving of foreign exchange. Despite conservation efforts, the consumption of  oil products in the mining and mineral industries has been rising, and the share of coal declining. This is primarily due to decline ir. the volume and quality of coal production. 2.5 The structure of Zambia's energy sector evolved largely in response to the effects of the Unilateral Declaration of Independence in 1965 in neighboring Zimbabwe, then Southern Rhodesia. Prior to that, nearly all of Zambia's commercial energy supplies came from or were imported through Zimbabwe. As a result of events following the UDI, the Government of Republic of Zambia (GRZ) found itself unable to rely on previous arrangements to meet commercial energy requirements and had to set up its own institutions to develop the domestic energy base. 2.6 In early 1966, Zambia Electric Supply Corporation was established for the development of hydroelectric energy. Other institutions established were the Maamba Collieries Ltd. (MCL), for the mining of domestic coal, and the Tazama Pipelines Ltd., for the transport of crude petroleum from Dar-es-Salaam to the Indeni Petroleum Refinery Ltd. in Ndola. The authority for the devel- opment of the country's energy resources was shared amongst these institutions on the one hand, and three separate Ministries of the Government. Partly as a result of this sharing of authority, the development of individual domestic energ, resource was not guided by an integrated strategy i