Benin - Technical Assistance to the Petroleum Sector Project

Document of The World Bank FOR OFCIAL USE ONLY Repot No- 8377 PROJECT COMPLETION REPORT BENIN PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIT 1207-BEN) FEBRUARY 6, 1990 Industry and Energy Division Technical Department Africa Regional Office T1.s db omeut bus a restricted ditribution and may be wsed by recipients only In the performance of their offkcl duties. Its conitents may not otherwise be disclosed without World Bank authorization.  COUNTRY RXCPB GE RATES Name of Currency: 'Communaut6 Financnire Africalnef Franc (CAPF) Years Appraisal Year Average (1981) SDRI - 334.52 Intervening Years Average SDRI - 417.61 Completion Year Average (1987) SMU - 378.78 LIST OF ABBREVIATIONS RIB European Investment Bank GOB Government of Benin OBEZINES Office Beninois des Mines et de l'Energie SEP SAGA Benin Development S. A. SDB Service des Hydrocarbures SPE SAGA Petroleum Benin S.A. Unocal Union Oil of California STB Stock-tank barrels (Q surface conditions) PANOCO PanOcean Oil Company H  TO* WORLD SANK w y WhWomE. DC *0433 U.S A Oft we M u,-GIa(wal February 6, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PaE IDENT SUBJECT: Project Completion Report on Blenin Petroleum Sector Technieal Aasiqntanee Projeet (Credlt 1207 -lEN Attached, for information. is a copy of a report entitled Project Completion Report on Benin - Petroleum Sector Techniical Assistance Project (Credit 1207-BEN)" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This dosmont hUa mutW dltloe ad a" be Wd "b asipis alp In th p_wf m of thei Olde Its emm msv ew om ba dfs without We* %ft a Wia si  FOR OFCIAL USE ONLY PROJECT CO0PLHTION REPORT PEOPLE'S REPUBLIC OP BRVIN TECHNICAL ASSISTANCE PROJECT IN THE PETROLEUM SECTOR CREDIT 1207-BEN TABLE OF CONTENTS Page No. Preface ..................................................... i Basic Data Sheet ..ii Highlights .. v I. INTRODUCTION. 1 II. PROJECT ORIGIN - PREPARATION - APPRAISAL . . 6 Origin of the Project.. . 6 Project Preparation and Appraisal . . 6 III. DMPLEMENTATION ... 8 Implementation Plan 8. .......... .8 Changes in Project Schedule and Scope ... 10 Reporting and Auditing . . .10 Project Costs ... 11 Disbursements ...12 Performance of Consultants. . 13 Performance of Contractors . . .13 IV. PROJECT RESULTS ..14 Technical Assistance . .14 Petroleum Ezploration Promotion . .14 Engineering Studies. 15 V. INSTITUTIONAL PERFORMANCE . . .16 Organization and Management . . .16 *t14 BANK PERORMNCE. .17 VII. CONCLUSIONS AND LESSONS LEARNED .18 ANNEXES 1. Project Costs ..... ... 19 2. Schedule of Cumulative Disbursements .20 3. Contract Implementation Schedule .21 ATTACHMENTS 1. Comments from Cofinancier .23 2. Comments from Consultant .25 ltis document hasa restricted distribution and may be used by recipients only In the performapce of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  POECT COMPLETION REPORT PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIXT 1207-BEN) Preface This is the Project Completion Report (PCR) for a technical assistance project for the petroleum sector in Benin (then Dahomey), which the IDA helped finance vith Credit 1207-BEN (US$8.0 million). The Borrower was the Government and the beneficiary was OBEMINES, Off.ce Beninois des Mines, which is the Government agency responsible for developing the mining and hydrocarbon resources of the country. OBEMINES completed the project with only minor changes and some tine overrun. During the period of project execution (1981-1987), the financial and technical performance of this agency improved considerably, reaching a level higher than expected at appraisal. Approval of the Credit Agreement occurred on February 16, 1982; signing, on February 19, 1982; and effectiveness, on July 22, 1982. The final Closing Date was December 31, 1986 (as compared with the original Closing Date of June 30, 1984). The Industry and Energy Division of the Africa Technical Department prepared this report based on an incomplete set of reports, data and documents in the Africa Information Center files, without, however, the benefit of a Government prepared completion report. This PCR was read by the Operations Evaluation Department (OED). The draft PCR was sent to the Borrower and Cofinanciers for comments and they are attached to the Report (Attachments 1 and 2).  - ii - PROJECT COMPETIN REPORT BENI PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIT 1207-BSEN) BASIC DATA SHEET KEY PROJECT DATA Actual or Actual as S Appraisal Current of Appraisal Item Exvectation Estimate Estimate Total Project Cost (USS million) 9.95 n.a.* n.a. cost overrun (t) - n.a. n.a. Credit Amount (SDR million) 7.0 7.0 100 Disbursed 7.0 7.0 100 Cancelled - $15,291.11 0 Date Physical Component Completed 03.19.84 Proportion Completed by that date S35 100 100 (1) Training 0611985 100 (2) Exploration (03/1985) 80 (3) Engineering Studies Economic Rate of Return (Z) Financial Performance Satisfactory Good Institutional Performance Satisfactory Good CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (SDR million) PY82 FY83 FY84 FY85 FY86 FY87 Appraisal Estimate 2.8 6.3 7.0 - - Actual .4 1.6 3.5 5.9 6.9 7.0 Actual as S of Appraisal 16.3 25.0 49.6 - - - Date of Final Disbursement: July 17, 1987 * The total foreign expenditures of the project were equivalent to SDR 6.985 million. However, local expenditures are not known because they were not accounted (paras. 3.13-3.15).  - IU. - PROJECT DATES Item Original Plan Revisions Actual First Mention in Piles 11/19177 Negotiations 04/05,81 11.81 12/81 Board Approval 06107,81 01.19.82 02/82 Signing (Credit Agreement Date) 02/82 Effectiveness 04.82 07/82 Closing Date 06.30.84 06.30.85 12/86 STAPF INPUTS (staff weeks) FY '82 PY '83 FY '84 PY '85 PY '86 PY '87 Total Identification Preparation 10.0 10.0 Appraisal 7.4 7.4 Negotiations 4.2 4.2 Supervision 9.0 16.7 20.9 27.3 15.9 3.2 93.0 Subtotal 30.6 16.7 20.9 27.3 15.9 3.2 114.6 MISSION DATA Date No. of Specialization Performance Type of (MoIYr) Persons Represented RatLnl Trend Problems Identification 08/1979 2 Preparation 03,06/1980 3 - - Appraisal 0411981 3 - Post Appraisal Supervision 1 06/1981 3 2 ?/1981 3 3 03/1982 3 4 09/1982 4 5 04/1983 4 6 06/1983 1 7 0711983 1 8 10/1983 1 9 0711984 4 10 1111984 1 11 11/1984 4 12 03/1985 2 PA. PE 1 1 13 03/1985 1 PA 2 1 14 0511985 3 PA, PE - 15 06/1985 2 PA, PZ 1 1 16 03/1986 3  - iv - OTHER PROJECT DATA Borrower People's Republic of Benin Executinlg Agency OBEUINES/HIMK Fiscal Year of Borrower 01.01-12.31 Follow-On Project Seme Oilfield Phase II Development Project Credit Number 1503-BEN Amount (SDR million) 17.2 Approval Date July 26, 1984  - v PROJECT COMPLETION REPORT PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIT 1207-BEM- HIGNLIGUTS 1. The IDA credit under review in the amount of SDR 7.0 million (US$8.0 million equivalent) helped finance a technical assistance project in the petroleum sector to train Beninese personnel in oilfield operations and petroleum exploration, promote exploration by foreign oil companies, and lay the basis for the future second phase development of the Seme field. The beneficiary of the credit was OBEMINES, the Office Beninois des Mines et de l'Energie. 7. At project appraisal, Benin had no domestic petroleum production and no refinery. All products were imported (118,000 tons), mostly from Algeria which offers more attractive CIP prices than neighboring Nigeria. = The recorded import bill was about US$ 38 million, but the smuggling from Nigeria probably amounted to another 20 percent. The small size of the market and the proximity tv refineries in Nigeria and C.Ote d'Ivolre do not warrant the installation of a refinery. Succesk1ul oil exploration resulted in the discovery of the Seme offshore field in 1968 by Union Oil of California (UNOCAL). The field had not been put on production because the COB refused Union Oil's development scheme (1973). The company then pulled out of Dahomey, now Benin. Other interested companies did not agree to pay the large front-end signature bonus requested by the GOB because there was no schem that could develop the field and yield a reasonable rate of return, given the prevailing crude prices (US$1.80/bbl). 3. Finally, following a study on Seme's development financed by NORAD, Norway's bilateral aid agency, the GOB decided to develop the field on its own, and signed in May 1979, a service contract with the authors of the study, SAGA Petroleum, a private Norwegian oil company eager to act as operator for the first time in their existence. The cost of field development was financed initially by a consortium of Norwegian and British financial institutions and subsequently by the proceeds of crude oil sales. Benin borrowed about US$130 million at an average interest rate of 7S. The original contract with SAGA, however, was unbalanced, in that Benin assumed all the risks while SAGA operated on a cost-plus basis. The terms of the contract vere later renegotiated.  - vi - 4. The Bank project was identified and appraised when Seme's initial development was about to be undertaken. It had two main objectivess (a) laying the basis for the future second phase development of Seme field through training Beninese personnel and evaluating the applicability of secondary recovery methods to the field, and (b) assisting the GOB to promote the sedimentary basin free acreage to the oil industry. 5. The project consisted of the following five components: (a) construction of a training centers (b) training for about 220 Beninese personnel who would eventually operate the Seae field (in drilling and production operations); tc) training of six Beninese professionals during 1981-1984 to build a team capable of advising the GOB on technical, economic and legal matters related to petroleum exploration; sd) promotion of exploration acreage; and se) consulting seriices to evaluate whether secondary recovery methods would apply to the Seme field, and if warranted, prepare detailed engineering of the facilities. 6. While IDA was processing the credit, the GOB decided to appoint the Seme Operator, SAGA also as its exploration advisor. After some debate, IDA decided to agree with this decision. SAGA's exploration promotion efforts were later supplemented by those of other consultants selected according to IDA's procedures, who reviewed the petroleum legislation, drafted a model contract, and participated in the prevaration of promotion of the available acreage. The leading management consulting. firm, while internationally well-known, had, however, limited specific experience with the promotion of oil and gas exploration in LDCs. 7. Project implementation had a normal start thanks to the dedication of Beninese officers and the assistance of SAGA which had a prime interest in moving the project swiftly. All the funds but SDR 15,291 (or around US$20,000) were disbursed. 8. Subsurface information concerning the Benin Coastal Basin not including the Seme field block were assembled, organized and compiled to serve as a database for the basin's geological study prepared by outside consultants.  - vii - 9. Although not all the project components were equally successful, the two basic objectives of the project were achieveds Beninese nationals were suitably trained in view of assisting with the development of Seme field; and the preparation for promoting the adjoining free acreage was adequately completed, includiw a review of the petroleum law and a geologlical evaluation of the basin's potential. 10. However, one of the expected outcomes of the project, namely the promotion of exploration investments in the available acreage in Benin's sedimentary basin, did not materialize. This was because, (a) the work preparatory to the promotion took much longer than planned and (b) before it was completed the Government arbitrarily decided in 1985, to rescind the contract with SAGA, its exploration advisor and the operator of the Seme field, and to give a blanket concession on the entire territory to a newcomer, PANOCO. This put an end to all other oil companies' interest in Benin. The situation has since been corrected following PANOCO's failure to deliver and its departure from Benin in May 1986, largely as a result of pressures exercised by IDA. 11. Lessons. The key lessons to be derived from this project, ares (a) unbalanced contractual arrangements between the host country and an oil field operator can lead to the disruption of the project, as was the case with the original SAGA contract. By agreeing to finance the Techlical Assistance project related to Seme development, IDA implicitly approved the SAGA contract without weighing the consequences with sufficient cares even the renegotiation of fairer terms did not prevent the Government's rescission of the contract to the detriment of the IDA-financed technical assistance project, and to the subsequent field development project; (b) the functions of oil field operator and of exploration promotion advisor, which for this project were both carried out by SAGA, should be entrusted to independeut companies to avoid conflicts of interest;l (c) strict adherence to the letter a.d the spirit of the Bank procurement guidelines is especially important in selecting consulting firms to promote petroleum exploration, a task for which extensive experience on a world-wide basis is absolutely essential. The acceptance by the Bank of the abridged procedure by which GOB appointed its consultants led to this critical function being entrusted to firms which did not meet these prerequisites; 1/ SAGA has suh%sequently commented that they do not agree with this assessment, and that the company abstained from bidding during the concession round to avoid any conflIct of interest.  - viii - (d) the eftectiveness of Bank supervision is greatly affected by the continuLty of the staff assigned to it, and their technical competence in the specific fields exploration promotion projects should be supervised by an expiorationist, preferably the same through the life of the project. This has not been the case for the project under review; (e) it is esseatial that supervision missions follow-up on the bc-ower's commitment to keep good project accounts, also as regards the borrower's share of costs: for this project there is no trace of the govexment's expenditures.  PROJECT COMPLETION REPORT PETROLEpM SECTOR TECHNICAL ASSISTANCE PROJECT (CREDIT 1207-BEN) I - INTRODUCTION Eneray Recource Base 1.01 Benin's energy situation is characterized by heavy dependence on imported petroleum products and electricity in order to meet commercial requirements. Benin's energy resources are limited, its forests being rapidly depleted, and the country having no coal deposits. The only known hydrocarbon resource is the Seme field located some 16 km offshore. Furthermore, there is no hydropower plant in operation, although several potential sites have been reconnoitered, which could yield as much as 750 GWh per year. Renewable energy sources such as solar or agricultural wastes might become significant, but they are not now commercially utilized. 1.02 At project appraisal, the economy was showing some improveients. Although Benin enjoyed an average Lanual real GDP growth rate of 4.5 percent and a sound financial position over the 1976-80 period, it remained a poor country with a GNP per capita of $320 p.a., and a population of 3.4 million (1980). Between 1976 and 1980, exports of goods-and non-factor services increased from $103 million to $243 million, but because of an even higher rise in imports and deteriorating terms of trade, the resource gap remained at about 20 percent of GDP. Agriculture which generates about 45 percent of GDP, has stagnated since 1970. With respect to export crops, cotton which peaked in 1972 at 50,000 tons has now fallen to around 20,000 tons. Palm oil production continued to increase until the mid-1970's, but output has slackened somewhat. 1.03 Because of low per capita income and an undeveloped industrial sector, energy consumption is among the lowest in the world (190 kg of oil equivalent per capita in 1980). Traditional fuels, wood and charcoal, satisfy 72 percent of domestic needs, the rest being met by importel petroleum products (24 percent) and electricity which is 92 percent imported. 1.04 Bank Group operations in Benin total USS124.4 million through 13 credits for agriculture (4 projects and 27 percent of lending) road construction/maintenance (six project and 47 percent), and one each for port expansion, education and development of small-scale enterprises. 1.05 The project under review mas the first lending operation in the petroleum sector of Benin. Natural resources in energy were little developed at time of appraisal. Hydropower sites were inventoried but  - 2 - there was no project for their development. Petroleum was discovered in the offshore Seme field in 1968 but the field was put on stream only in October 1982, and the production rate attained around 7,000 bld in early 1984. The reserves are deemed sufficient to last some 14 years at an average rate of 5,000 b/d. Efforts were made to promote the areas surrounding Seme field, but only scant exploration took place and no discovery has been recorded so far, for the prolific Niger delta basin does not extend into Benin. However, Benin's geology has its own merits and there is scope to promote its petroleum potential. Institutional and Legal Framework 1.06 A number of Government entities participate in energy policy making. The Ministry of Industry, Mines and Energy supervises a public enterprise - Societe Beninoise d'Electricite et d'Eau (SBEE) and the Office Beninois des Mines (OBEMINES), the parastatal responsible for developing the mining and hydrocarbon resources of the country. The Ministry of Commerce supervises Societe Nationale de Commercialisation des Produits Petroliers (SONACOP), a state enterprise with the monopoly to import, transport and distribute petroleum products. The Ministry of State Farms, Livestock and Fisheries supervises Societe Nationale pour le D6veloppement Forestier (SNAFOR), which is in charge of developing forestry products including fuelwood and charcoal. The Ministries of Finance and of Planning play also a role in energy matters (taxation and public investment plans). Finally, energy prices are set by a Price Committee which draws representatives from various ministries and political organizations. 1.07 Responsibility for petroleum exploration and production rests with the Service des Hydrocarbures (SDH), which is part of the Office Beninois des Mines (OBEMINES). This last entity, which is in charge of developing the mining and hydrocarbon resources of the country, belongs to the Ministry of Industry, Mines and Energy. The SDH staff which lacked proper expertise to supervise oil exploration and a petroleum development project, needed strengthening to implement its tasks. 1.08 Contractual and Fiscal Framework. The initial petroleum legislation of Dahomey, now Benin, was inherited from colonial times. An updated version, the Petroleum Code Ordinance 73-33 dates from April 13, 1973; it governs the exploration, production, transport and distribution of hydrocarbons and petroleum products in Benin. However, the Government understood the need to modernize again its petroleum legislation and, with the help of IDA-financed consultants, prepared an Outline of Principal Terms for production sharing agreements. The first draft was submitted in 1984 to the oil industry for feedback comments, and some important terms such as the size of the Government's participation, duration of exploration periods etc., remained to be defined. SAGA's agreement of 1979 to develop Seme field was basically a service contract whereby all the costs were carried by the GOB. Status of Exploration and Production 1.09 Benin covers an area of 112,600 km2 and constitutes a long, narrow stretch of land perpendicular to the Coast of the Gulf of Guinea (or the Bight of Benin) between Nigeria to the east and Togo to the west. The main  - 3 - sedimentary area consists of about 15,600 km2 on land, 3,500 km2 on the continental shelf (up to the 200m water depth) and 8,000 km2 of deep water area (200-3,000m). The Seme oilfield is situated on the shelf about 15 km offshore. 1.10 Geologically, the Benin sedimentary basin is part of a much larger. elongated pull-apart basin -- the Dahomey Embayment, whose history is regarded as closely related with the opening of the Atlantic Ocean. This basin has all the prerequisites for oil discoveries: several potential source rocks, multiple reservoir rocks and a variety of potential trapping mechanisms, some of which have a significant potential. Hydrocarbon exploration began in 1964 when Union Oil of California (Unocal) and the Government signed an agreement whereby Unocal acquired all the exploration rights over the basin, onshore and offshore as far out as the shelf's limit. In 1970, Unocal relinquished 25Z of the initial surface (15,125 km2), and this block was assigned to Shell. The Seme oilfield was discovered in 1968 but additional delineation drilling led the company to conclude that the field was marginal at prevailing crude prices (US$1.80/bbl). Finally, after the Government turned down a proposed development scheme, Unocal pulled out of Dahomey, now Benin, in 1975 at the expiration of its license. Shell made extensive seismic surveys but finally did not drill any wells and left Benin in 1977. Since that time, no permits for petroleum exploration have been issued. The main reason for the lack of experienced companies showing interest in the field development, was the very high front-end payment that the Government was requesting, thus distorting the project's economics and rendering the venture non-viable. 1.11 This was the time (1976-1977) when the GOB approached NORAD for assistance with developing the Seme field, and SAGA Petroleum of Oslo jointly with Kvaerner Engineering was asked to prepare a feasibility study of the development of Seme field on the basis of new geological and geophysical interpretation. The study estimated the total oil-in-place to be 124 million STB with ultimate recoverable reserves of 21.7 million bbl (9.8 million by depletion and 11.9 million by waterflooding). SAGA also proposed a development scheme to be implemented in two phases. As a result of the feasibility study, a service contract was signed in May 1979 between the GOB and SAGA Petroleum Benin regarding the development of the Seme field with the assistance of Norwegian and minor British financing. The agreement empowered SAGA as the sole agent of the GOB and the operator responsible for carrying out all construction, production and marketing operations. SAGA was remunerated as follows: 12S of the costs of its services provided and goods from non-Norwegian suppliers, and in addition 4Z of the gross volume of crude produced once accumulated gross sales of crude equals 213? of the maximum negative cashflow. The contract, however, was unbalanced compared to normal industry practice, because the Government assumed all technical and financial risks while SAGA operated on a cost- plus basis. 1.12 The Norwegian Royal Ministry of Foreign Affairs has since commented that this unusual arrangement resulted from the then existing climate in the petroleum subsectors, and the unwillingness of any other companies to assume the risk of the project. It has also remarked that financing 802 of the project through Norwegian banks with a Norwegian Government guarantee represented a high risk involvement, offset to some by' of the the n I a  - 4 - certain part of the goods and services should come from Norwegian suppliers. At the time the arrangement was reached (1979), these conditions were considered reasonable and in accordance with OECD consensus regulations. New terms more favorable to the Government were subsequently renegotiated in 1985. 1.13 In October 1980, the GOB informed the Association that it had decided to nominate SAGA also as its exploration adviser to help with the preparation of a petroleum exploration promotion project for the areas outside the Seme block. In spite of concerns over possible conflicts of interest arising from the exploration advisor's function being entrusted to the operator of an oil field, IDA decided that SAGA's appointment was acceptable in the context of the T.A. project that IDA was preparing. 1.14 At appraisal in April 1981, SAGA was still implementing Phase 1 of the development scheme, which consisted in the drilling of another 5 delineation/development wells and the construction of production facilities. The second phase, contingent upon first phase results indicating that waterflooding is technically feasible, would be the drilling of injectors, equipment and works for the water injection. The development of Seme field was envisaged by the GOB and SAGA to be undertaken in two phases, the first one to be financed by other sources (para. 1.08), and the second phase by the IDA (Cr. 1503-BEN), European Investment Bank (EIB) export credits and equity. The first phase development, including the purchase of a jack-up rig, was expected to cost around US$129.0 million, and preliminary estimates for the second phase around US$50.0 million, or a total project cost estimate of about US$179.0 million. 1.15 The financing of the first phase was provided essentially by Norwegian loans to the GOB, the balance coming from a British commercial bank with the British Export Pinancing guarantee (ECGD). The Government's contribution of US$ 13.0 million was for local costs. The financing plan looked like thiss USS million Eksportfinans 55.7 Den Norske Creditbank 60.0 Midland Bank 8.5 Total 124.2 GOB 11.8 Project Cost 136.0 Actual borrowings for the first phaset amounted to US$ 129 million due to cost overruns. The average interest rate was around 72 per annum. 1.16 Objectives of the IDA-financed Technical Assistance Project. The main objectives of the project were to assist the GOB in its efforts to strengthen its capability to understand and control the petroleum sector- and in particular (i) to operate the Seme field in the mid-term rather than having it under a full service contract, as at the time of appraisal, with  -5- foreign inputs for even simple labor tasks; (ii) to lay the ground for the future second phase develipment (vaterflooding) of the Seme field: and (iii) promote exploration by international companies in free acreage outside of the Seme producing licence block. 1.17 This report is based on documents and reports available in the project's files. Discussions with previous project officers could take place only by phone, since the individuals involved have left the service of the Bank. The general opinion concerning the performance of the basin evaluation study expressed by the Exploration Advisor is that cooperation between the various parties involved (Bank, Government, Exploration Advisor and consultants) was excellent.  -6- ; 1I - PROJECT ORIGIN - PREPARATION - APPRAISAL I 2.01 Origin of the Project. In a visit in late 1977 to Norway to inquire about NORAD's involvement in LDC's and to present IDA's new policy of intervention in petroleum matters, the Bank mission was asked to cofinance with Norway assistanLe to Benin. After lengthy debates and the review of a feasibility report prepared by SAGA of Oslo on the development of the Seme oilfield, the Association decided to finance some additional assistance that NORAD was not able to. 2.02 The identification mission in late March 1980 confirmed that there was a further need to assist the GOB in its efforts to develop the Seme field and also to promote exploration in other prospective areas, both onshore and offshore. The proposed project was accepted by the GOB. Its objectives were stated as follows. (a) the preparation of the petroleum exploration promotion component by compiling existing geological information and making recommendations for additional work: and, (b) the preparation of training programs for oilfield workers and for professionals in the Government including the selection of candidates and the initial implementation of the program. Upon Government request, a PPF of US$500,000 wase approved on December 3, 1980 to prepare the project. A second PPP in an equal amount of US$500,000 was approved on October 22, 1981 to bridge the financing needs until credit effectiveness which was expected for Spring 1982. Proiect Preparation and Appraisal 2.03 An IDA mission prepared and appraised the project in April 1981 in line with the project objectives mentioned above, and after considerable discussions with SAGA, it was agreed that the proposed IDA credit of US$8 million would finance 84S of the project cost, the balance to be financed by the GOB with a minor contribution from EIB. The project consists of the following components: Part A - Training Program (1) Construction, furnishing and equipping of an oil training center; and (2) establishment and implementation of a program for formal and on-the-job training for local oilfield workers (roughnecks and drillers) Part B - Professional Training Training of six professionals in technical, economic and contractual matters related to petroleum exploration and production.  - 7 - Part C - Petroleum Exploration Promotion (1) (a) Review and interpretation of existing geophysical and geological data; (b) preparation of a work program for future offshore seismic survey's under the Borrower's monitoring, supervision of (C(2)) of the Project and reprocessing of existing seismic data; (c) promotion of exploration acreage to interested companies and negotiation of exploration agreements; and . (d) monitoring of the exploration activities. (2) Offshore seismic surveys covering approximately 1,400 line-km. I (3) (a) Review of the existing petroleum legislation and lts appropriate modification; (b) preparation of a model explorationlproduction agreement; and 5C) negotiating exploration agreements. Part D. Enpineering Studles (1) Reservoir engineering study to determine the feasibility of secondary recovery (waterflocding) for the Seme oilfield; and (2) detailed engineering design of a water injection platform and relevant facllities for the Seme field. 2.04 Credit negotiations were held in Washington (Nov 30 - Dec 04, 1981) and the Credit was approved by the Board on February 16, 1982. 2.05 The credit became effective on July 16, 1982 and there were no special conditions of effectiveness. At that time, the first PPF ($500,000) had been entirely spent while the second PPF was still unused.  - 8 - III - IMPLEMENTATION Implementation Plan 3.01 OBEKINES managed the project through its agent SAGA Petroleum Benin. SAGA acted in Its capacity of the contractor to develop Seme oilfield regarding the implementation of the training and engineering studies components (Parts A, B and D). Saga also managed the exploration component (Part C of Project) in its capacity of exploration advisor of the GOB. As OBEMINES' agent, SAGA, together with a Government representative, prepared the bidding documents, made the selection of subcontractors for goods, services and consultancy, signed the contracts, and generally assumed responsibility for all practical aspects of project implementation, including supervision and cost accounting. Training Program for Oilfield Workers (Part A) 3.02 The first step was the construction, furnishing and equipping of an oil training center, on a piece of land owned by the GOB. The construction of the prefabricated center vas finished in early May 1982, before effectiveness under PPF and the center was commissioned the following month; it included a small demonstration rig. The training itself started in mid-April 1982 with the arrival of five instructors and the selection of 50 workers for training in field operatlnst tank farms, drilling, maintenance, security, etc. The purpose of this training was to enable OBELINES to make available qualified local labor on the offshore operations and thus decrease the number of expensive expatriate personnel. Altogether 153 Beninians were trained in the course of the project duration. Professional Training (Part B) 3.03 The recruiting of six professionals (2 geologists, 2 geophysicists, 1 petroleum engineer and 1 lawyer) was not easy, particularly in the last two cases, but eventually OBEMINES and SAGA found suitable candidates. Prior to credit effectiveness, already one geologist and three petroleum engineers had followed training courses in Norway on SAGA's premises. With the credit in place, another contingent was recruited and sent for training in Norway and France also. The purpose of the training of these engineers was to prepare a solid professional core for the soon-to-be-created national oil company of Benin. The objective was achieved in a reasonably satisfactory manner. Petroleum Exploration Promotion (Part C) 3.04 The decision of the GOB to take SAGA Petroleum Benin as its exploration consultant adviser was somewhat of a surprise to the Bank mission; nevertheless that firm was accepted, although their experience in that field was considered to be rather meager. Responsible staff within this company did however have significant prior experience in the international petroleum industry. Shortly thereafter, SAGA started gathering all previous geological and geophysical data and making their interpretation. They prepared a work program for additional seismic  - acquisition and for reprocessing old seismic lines as well as the processing of the new data, so that a modern interpretation of the entire offshore basin could be presented to the GOB for guidance ir establishing oil exploration policies and to the oil industry to attract exploration investments in the screage outside the Seme field block. A seismic survey of about 1498 line-km was shot in August 1982 by Western Geophysical, a well-known firm from Houston, while the processing was made by another company (Sefel). These firms were selected according to Bank Guidelines, supervised by the exploration advisor, and their work was well done. 3.05 The petroleum code was reviewed by a law firm for its adequacy concerning double taxation, and by an internationally reputed management consulting firm for its suitability to encourage exploration investment. These firms were selected according to Bank rules. The code provides for three types of permitss (a) the non-exclusive prospecting licence allows preliminary superficial work on an unlimited area for a short period; (b) the exclusive exploration permit or Permit H allows drilling and is valid for three years with two renewable periods of three years each; and (c) the production licence, after a commercial discovery, is valid for 25 years with two 10-year extensions. The code also provided for a hefty signature bonus and production bonuses. 3.06 The existing code was deemed flexible enough to accommodate a model contract based on the production sharing approach. The consultants prepared a draft model contract which was submitted to the Bank for comments, prior to being circulated among some oil companies to get their comments, particularly in respect to duration, sharing percentage options and cost recovery oil percentage. Three promotional seminars were organized in March 1985 in London, Houston and Calgary to present Benin's petroleum potential and the new model contract. These seminars led to a fair amount of interest from the international petroleum industry, and discussions with three oil companies were initiated. However, all work stopped in September 1985 as a result of the Government's sudden decision to rescind SAGA's contract and appoint a new operator, PANOCO. The Government also granted to PANOCO a blanket exploration concession on the entire territory of Benin. This induced all other oil companies to lose interest in Benin, and discussions with the other companies ceased. 3.07 The Government decided to dismiss SAGA and contract PANOCO, in spite of the just completed negotiations of more favorable contractual terms with SAGA. This created serious difficulties with the financiers of phase one of Seme's development. Eventually the deal with PANOCO turned sour as this operator failed to deliver not only on its empty promises of generous investment in the country, but also on its contractual payment obligations. Upon PANOCO's departure from Benin in 1987, partly owing to IDA's pressure on the Government, the operatorship of Seme has been awarded to a bona fide oil company, Ashland of the United States. The promotion of free acreage, however, was not resumed. The Government subsequently  - 10 - awarded the entire offshore acreage excluding S&me to International Petroleum Ltd., of Vancounver, in 1989, after an informal consultation with interested petroleum companies. Engineering Studies (Part D) 3.08 The Technical Assistance Project was meant to serve as a preparatory step for the second project requiring much greater financial assistance from IDA, na ily the waterflooding scheme in the Seme field. The first reservoir engineering study of the feasibility of secondary recovery (waterflooding) in Seme, was financed with a separate EIB loan of US$370,000. The French consulting firm FRANLAB was selected to undertake the job in two steps. The first step which consisted of a complete subsurface evaluation and the preparation of a reservoir model simulation, was completed in August 1982. The second step of the study was not needed as early as initially thought because the reservoir behavior turned out to be better than forecasted. The new forecast of Harch 1983 predicted that water injection would not be needed prior to September 198!. However, because of the need to have a sounder understanding of the complex Seme geology, it was decided to shoot a 3-D seismic survey over the northern part (about 1367 line-km) and a 2-D survey over the small southern part (about 150 line-km), and also to wait for the information from two other wells planned for 1984. Discussions among Benin, IDA, EIB, Western and SAGA representatives on the interpretation of the survey combined with the results of a well drilled under the second project, convinced OBEMINES and GOB in July 1985 to delay the water injection and instead, to conduct a reservoir simulation study based on the new st. ctural map in order to immediately optimize field production and crude recovery. IDA agreed with this decision. 3.09 The second study which was planned to be the detailed engineering design for a water injection platform and relevant facilities, was replaced by a study of a free standing monopod structure (para. 4.10). Changes in Project Schedule and Scope 3.10 The only major change in project scheduling has been the postponement by some 17 months of the second step of the reservoir engineering study, i.e., the reservoir model simulation, after completion on schedule of the first step (para 3.08). There were two changes in project scope, the first one was the shooting of a detailed seismic survey over the extended Seme field (para. 3.08) and the resulting interpretation of the 1517 km survey, and the second one, the change in engineering studies (para. 3.08). Both of these changes were fully endorsed by IDA. There were no other modifications except for those due to the abrupt change of the operator in September 1985. Reporting and Auditing 3.11 Reporting was accomplished generally with negligible delays; two problems, however, were encountered (a) yearly auditing reports of the project accounts were submitted with considerable delays and sometimes after several requests; and (b) such reports never covered the Government's share of the project costs, consisting of local currency expenditures.  - 11 - Procurement 3.12 During the project duration, Bank procurement Guidelines were fairly well observed, even though SAGA included an unusual number of Norwegian firms in the shortlists. The Norwegian Royal Ministry of Foreign Affairs and SAGA have both pointed out, however, that no preference was granted to Norwegian firms in the final award of these contracts, as the list of contracts given on page 1 of Annex 3 indicates. All the technical assistance contracts were awarded on the basis of the technical merits of proposals received from IDA-approved shortlists of firms. 3.13 Bank procurement procedures appear to have created no problems to ORWMINZS. For a first time borrower, compliance was very good. ProJect Costs 3.14 The following table compares the actual project copts with the appraisal estimates. A more detailed presentation of costs is in Annex 1. Project Cost TOMle (SOR Million) Categ. Part Description Aperaisal (Credit Asrem_nt) Actual Local Forelon Total Local Foreian Total Traluina Center (1) A(1) Construction .160 .160 .860 n.a. .201 n.n. (2) A(1) Furnishing/Equipping - .270 .270 n.s. .268 n.S. Trtinina (9) A(2)*B Workers . .720 1.920 2.640 n.e. 1.686 n.m. Profeslonal Petr. ExDl. Pros. (4) C(1+') Promotion Prep .180 .440 .e20 n.e. .869 n.S. * Logiel. Update (S) C(2) Seismic Survey* .090 1.480 1.570 n.s. 2.775 n.s. Ensineorins Studies (6) D(2) .045 .610 .656 n.m. .728 n.S. PPF Ro undina (7) - .70 .870 - .458 - Continoencie (6) Unallocated .815 1.280 1.645 - - Total 1.580 7.000 8.630 6.985  - 12 - Changes in project scope have affected essentially Part C or the Petroleum Exploration Promotion component of the Project which was 90X overspent in relation to Appraisal estimates or by around SDR 1.724 million. The main reasons for this overspending were (a) the need for an additional 3-D survey over the Seme field area, and (b) the fact that the additional seismic survey requlred more interpretation and the promotion itself was considerably more costly and demanding and the consultants more expensive than initially estimated. Some of tbe cost overrun concerning the promotion can be attributed to the large number of meetings and presentations which had to be made to GOB and the Bank, the requirements to hire two external consultants to carry out quality control of the evaluation study, and an unplanned presentation of the report made in Calgary. 3.15 The project was completed with an underrun of SDR 15,291.11 or 2/10 of one percent. in foreign expenditures. This small amount was cancelled on November 23, 1987. Local expenditures, which were obviously incurred, have however not been accounted for, and therefore it is not possible to present the total actual cost situation of the project. Disbursements 3.16 The disbursement schedule prepared during appraisal (Annex 2) was modified to incorporate the changes in the scope of work as well as the unavoidable delays in project implementation, and the extensions of the Closing Dates. Cumulative Credit Disbursements (SDR Million) Fiscal Year Appraisal Forecast Actual 1981 - .17 1982 2.88 .45 1983 6.48 1.58 1984 7.00 3.47 1985 - 5.86 1986 - 6.88 1987 - 6.97 1988 - 7.000 3.17 Disbursements started in the last quarter of FY'81 from the first PPF (P 147) which was refinanced by the credit in the first quarter of FY '83 just a few days after credit effectiveness. The second PPF (P 180) was not used because some contracts were implemented prior to being signed by the GOB and therefore could not be disbursed gainst. At the end of the original Closing Date, only SOZ of the credit had been disbursed, and at the end of the first extension (June 30, 1985) around 84X was disbursed. Two further extensions to December 31, 1986 were needed to complete the project. The last disbursement took place in July 1987.  - 13 - Performance of Consultants 3.18 The training consultants have done a good job. The quality control specialists for seismic acquisition and processing as well as the engineering firms have also performed well. The law firm commenting on the petroleum law in relation to double taxation, did a valuable job. 3.19 The exploration consultant did a credible job, partly as a result of much prodding from Bank missions. Their performance. how- -r betrayed their lack of experience, and never matched the standard exp- -d of established exploration advisory firms, though they showed goodwill and were willing to improve. Some responsibility could possibly also be attributed to the lack of continuity on the part of Bank consultants. 3.20 The management consulting firm dealing with the organization of the exploration promotion seminars and with the preparation of a model contract could not complete the exploration model agreement on time for the promotion meetings where they were expecting some feedback from the attending companies. The firm's previous experience in this specific field was limited as was its familiarity with current industry practices in LDCs. However, the firm deserves high marks for its contribution in preparing the new SAGA Petroleum service contract and assisting the GOB in its negotiations. 3.21 In summary, the Government would have received better advice and obtained better results in exploratior strategy if more experienced consult.mts had been selected. Performace of Contractors 3.22 The seismic acquisition and processing contractors fox a total cost of around US$2.6 million were all executed very satisfactorily without undue problems other than norme] field problems.  - 14 - IV - PROJECT RESULTS Technical Assistance (Parts A and B of the Project) 4.01 About 153 Beninians were trained in oilfield operations - 133 men who were trained as skilled workers (derrickmen, welders, etc) are working in Seme fiel4 operations. Some 20 professionals, after completion of a theoretical and practical training program overseas, took up positions as engineers with the operating company SAGA Petroleum Benin. The overall dropout rate has been minimal. 4.02 Eleven professionals (geologists, geophysicists, petroleum engineers, contract specialists and economists) also received some special training in order to strengthen the energy sector management capability of the SDH. 4.03 It appears that in general, the results of the training for oilfield workers and technicians and for professionals, which entailed an overall cost of US$1.2 million, have been satisfactory. The rate of return on this investment though not easy to calculate in the absence of the Seme field operator's information, appears to be in line with the Appraisal estimate of 20S. The pay-back period is reported to be less than one year. 4.04 The training center which was established at a total cost of around US$350,000 appeared to be in good condition at the end of the project. Petroleum Exploration Promotion (Part C of the Project) 4.05 The preparation of the explrration promotion efforts, which included the completion of the basin. study and the organization of a promotional meeting, were properly executed. However, they did not lead to the conclusion of exploration agreements because the model contract was not finalized on time and, more importantly because no acreage was available for r -otiations upon conclusion of the promotion meetings. The consulting fi.r in charge of the model contract preparation, due to its lack of experience in such preparation, searched for the oil industry feedback at a time when the Government changed the deck by sacking SAGA and awarding a contract for: the entire prospective basin, including the Seme field development, to an unknown newcomer, PANOCO. 4.06 The seismic survey of 1,492 line-km was diligently acquired with high quality resuliLs in August 1982 while the processing was completed by the following February. On this excellent basis, SAGA, the Government's exploration consultant prepared the interpretatiou, which they integrated in the Basin Evaluation Study that was completed in August 1984. The study, after many specific comments and suggestions from the Bank, turned out to be of good quality. However, only two Teports were sold. It also seems that a certain lack of coordination between the various consultants involved, as well as a lack of technical experience of some of them, was responsible for the rather inefficient promotional effort. In other successful promotion projects, the four steps --basin study, promotion strategy, model contract preparation and follow-up negotiations, were  - 15 - undertaken by a single firm or else Bank's exilorationists got deeply involved in the coordination of consultants. 4.07 The law firm which reviewed the petroleum code particularly from the point of view of double taxation in the case of American companies concluded that, due to conveniently timed changes in IRS regulations, there was no need to change the law, which was deemed flexible enough to accommodate the various types of exploration contracts commonly in use in the oil industry. The Government's economic adviser confirmed the above judgement and prepared a model contract to help speed up negotiations but it was never finalized. In any case, three promotional meetings were organized in London, Houston and Calgary in early 1985. Although only two companies indicated some interest in pursuing discussions with the GOB, many others were considering the issue and GOB was considering revising contract terms to encourage companies to apply. The Government's decision to rescind SAGA's contracts and to give the entire Benin basin including Seme to PANOCO, put an end to everything. 4.08 In summary, the promotional effort failed and until this day the effects of the GOB's decision to rescind the SAGA contract linger. Bowever, this does not reflect in any way on the prospectiveness of the Benin basin which is attractive, and should be promoted again, perhaps jointly with the small Togo acreage, although experience in Togo-Benin cooperation in t.he petroleum subsector has so far been poor. Enuineering Studies (Part D of the Project) 4.09 The reservoir engineering study on the feasibility of waterflooding in Seme field which was financed under an EIB loan, was redesigned on the basis of the resulta of the first stage of the study, and of the actual reservoir behavior. The study concluded also on the basis of the results of a new 3-D seismic survey financed under part C (2), and completed in the Spring of 1984, that no water injection was necessary at least for the next two or three years, since there was active waterdrive in the reservoir. The study also concluded that the reservoir has a larger extension than previously thought of. The consultant's performance was very satisfactory. 4.10 The engineering study to design the second phase development scheme (such as drilling/production platform design versus individual free standing monopod platforms and accessories) was completed in March 1984, on time for the appraisal of the Seme field 2nd phase development project (Cr. 1503-BEN). 4.11 In order to better define the geology and the reservoir extensions, and to optimize 2nd phase development which is currently being implemented, a 3-D seismic survey of 1,367km over the N Seme structure and a 2-D 150 km survey over the S outpost of Seme were ready for interpretation at the beginning of 1984. The results were available in final form in Summer 1984 but preliminary results had been used for completing the engineering studies (para. 4.10).  - 16 - V - INSTITUTIONAL PhRFORMNACE Organization and Management 5.01 The Government Implemented their share of the project in accordance with the covenants set forth In the Credit Agreement and with the procurement guidelines. They provided proper local support to the various consulting firms involved in the implementatLen of the project components. The Beninian staff demonstrated good wvil, keen interest in learning, and often enthusiasm in performing their tasks. The Bank missions enjoyed excellent collaboration on the part of the Benin personnel involved in the project. 5.02 However, the Government's decision to rescind SAGA's service contract and to enter in a deal with PANOCO fatally compromised the exploration promotion objective of the T. A. project. The problem bas since been resolved with PANOCO's withdrawal and with the appointment of Ashland as operator of the SEW field. As the GOB has subsequently awarded Beanin's entire offshore acreage excluding SimA to International Petroleum Ltd. of Canada, the possibility of other companies matlng ,roposals is excluded at the present time..  - 17 - VI - BANK P UWORMANCE ; 6.01 The project vas properly identified and appraised. IDA played a crucial role In the implementation of the work program provided for in the different components of the project. 6.02 ID and its experts assisted the Government in the close monitoring of all special studies and often intervened strongly in order to lmprove the quality of the studies. 6.03 The project was periodically supervised during its Implementation vith an average of 2.5 missions per year. The frequency and timing of the missions vere necessary for the supervising staff to assess the activities in progress and to express their views and recommendations on the project implementation. The Bank in consultation with the Government representatives maintained close contacts with the various consultan.ts financed under the project in order to ensure that the work programs were adhered to and that the output met quality standards. The wffectiveness of Bank supervieion, however, has been reduced by changes of the staff assigned to the task, and by the less than continuous involvement of explorationist experts in the supervision. 6.04 But the Bank failed by not satisfying itself of the adequacy of the SAGA service contract and by agreeing to the commingling of the operator's and advisor's functions, which reduced the exploration advisor's effectiveness, perhaps as a result of conflicts of interest.1 Also, the Bank should have been more cautious in ensuring that consulting firms included in the shortlists for key tasks met suitable standards of qualification. 6.05 The project was justified by its results, the second phase _ development of Seme field has started, production is hovering around 4,500 bid, an efficient, trained staff and around 150 skilled workers are m available to the country. | 1/ SAGA has commented that they disagree with this conclusion; they did not submit a bid in the exploration round nor did they take an equity stake in the same oilfield, and therefore consider that a conflict of interest was avoided.  - 18 - VII - CONCLUSIONS AND LESSONS LEARNED 7,01 The main goals of the project were to train Beninians for strengthening the Government agency in charge of petroleum and for petroleum industry needs, to lay the basis through engineering and geological studies for the future second phase development of Seme field and to promote petroleum exploration. The first two goals were achieved while the third one could not be completed. 7.02 Although the results of the exploration promotion efforts were initially disappointing (no exploration contract was signed), the petroleum potential of the Benin basin onshore and offshore has been enhanced by the project implementation and its prospectiveness appears substantially greater than it was at project onset. The only negative aspect is the rather small size of Benin's basin which precludes much competition for acquiring exploration rights. 7.03 Had the GOB made better selections of the exploration adviser and of the economic (contract) adviser who both lacked proper experience in the field they were tackling, perhaps the promotion preparation could have been completed on time before the fateful decision which derailed the project. 7.04 Although the Bank had no say concerning GOB's decision to take SAGA Petroleum as its authorized agent to develop Seme field under a service contract signed prior to Bank involvement (May 29, 1979), the Bank should have been more cautious in implicitly approving the service contract which widely favored SAGA, and also in approving SAGA as the exploration adviser --SAGA's previous experience was mainly as a joint-venture partner. The project strengthened the GOB's effectiveness in mAnaging the petroleum subsector (which probably led later to the sacking of SAGA). However, it appears that SAGA benefitted from the project as much as the Government, by acquiring badly needed oilfield experience at Government's cost. 7.05 Despite the above considerations, the project was well justified by its results which have been beneficial to Benin. The management of the energy sector or rather the petroleum subsector has been considerably strengthened through direct assistance, punctual seminars and on-the-job training; a pool of skilled workers of more than 150 men has been tightly trained and their skills can be of use in any other technical field in the country.  PROJECT COMPLETION REPORT PEOPLE'S REPUBLIC OF BENIN TECHNICAL ASSISTANCE PROJECT IN TEE PETROLEUM SECTOR CREDIT 1207-BEN PROJECT COSTS IN SDR MILLION PROJECT COST (in SDR Million) Parts Description Appraisal (Credit Agreement' Actual Training Center Local Foreign Total Local Foreign Total 1. Atl) Construction 180 180 360 n.a. 201 n.a. 2. A(l) Furnishing/Equipping - 270 270 n.a. 268 n.a. Training 3. A(2)+B Workers & Professionals 720 1,920 2,640 n.a. 1,686 n.a. Petroleum Exploration Promotion ' 4. C(1+3) Promotion Preparation and Legislation Update 180 440 620 n.a. 869 n.a. 5. C(2) Seismic Surveys 90 1,480 1.570 n.a. 2,775 n.a. Engineering Studies 6. D(2) 45 610 655 n.a. 728 n.a. PPF RefundinR 7. - 870 870 - 458 - Contingencies 8. Unallocated 315 1,230 1,545 - - - t O T A L 1,530 7,000 8,530 n.a. 6,985 n.a. a/ Component D(l) for Reservoir engineering study was financed under an EIB loan.  - 20 - ANNEX 2 PROJECT COMPLETION REPORT PEOPLE'S REPUBLIC OF BENIN TECHNICAL ASSISTANCE PROJECT IN THE PETROLEUM SECTOR CREDIT 1207-BEN SCHEDULE OF CUMULATIVE DISBURSEMENTS (SDR Million) Fiscal Year Actual as and Quarter Appraisal Actual S of Appr. 1981 4th Quarter - 176.3 1982 1 250 176.3 70 2 900 255.6 28.4 3 1,800 255.6 14.2 4 2,800 455.9 16.3 1983 1 4,000 816.5 20.4 2 5,000 816.5 16.3 3 5,800 1,530.3 24.4 4 6,300 1,577.7 25.0 1984 1 6,600 2,785.2 42.2 2 6,750 2,900.8 43.0 3 6,900 2,929.5 42.5 4 7,000 3,473.4 49.6 1985 1 3,818.6 54.6 2 4,750.8 67.9 3 5,675.1 81.1 4 5,857.3 83.7 1986 1 6,266.9 89.5 2 6,425.5 91.8 3 6,701.0 95.7 4 6,876.3 98.2 1987 1 6,899.0 98.6 2 6,946.3 99.2 3 6.974.4 99.6 4 6,974.4 99.6 1988 1 6,991.8 100.0  - 21 - ANNEX 3 Page 1 of 2 PROJECT COMPLETION REPORT PEOPLE'S REPUBLIC OF BENIN TECHNICAL ASSISTANCE PROJECT IN THE PETROLEUM SECTOR CREDIT 1207-BEN A -List of Contracts Firm Contract Signed Approved Currency/Amount 1. Groom & Nordberg (law) 07.21.82 S25,000 2. Novamar (constr.) 01.13.82 12.30.81 DM 71,300 3. D'Appolonia (Monopod) 04.27.83 10.08.82 BF 3,000,000 4. SCAP (prefab.) 12.20.81 12.07.81 FP 715,780 5. EGTC (cloture) 06.25.82 CF 882,700 6. EGTC (dalle) 08.02.82 CF 1,879,564 7. EGTC (rehab) 12.24.86 CP 8,000,000 8. ADL (contracts) 10.14.83 $ 130,000 9. ECL (quality) 06.01.82 06.14.82 $ 12,000 10. ECL (quality) 01.16.84 L 6.000 11. Odfjell (dlg. tr.) 09.15.81 NK 24,000 12. ORCAL (damagaes) 05.21.85 PF 300,000 13. Protech (design) 08.20.82 Gu 2,200,000 14. SAGA (Spn. seis) 10.17.83 NK 1,303,000 15. SAGA (tr. prep.) 03.17.81 $ 400,000 16. SAGA (tr. prof.) 03.17.81 $ 25,000 17. SAGA (basin) .83 NK 4,346,540 18. SAGA (feasib.) 10.17.83 NR 1,303,333 19. Techno-Transfer (tr.) 06.29.81 10.21.81 FP 5,300,000 20. Arthur Young (audit) 05.02.84 $ 98,000 21. Sefel (processing) 08.13.82 04.12.82 $ 180,000 22. Western (seis) 04.12.82 $ 1,160,159 23. Western (3-D) 01.02.84 $ 1,160,702 24. Miller (storage) 05.23.83 02.13.84 L 3,444/yr 25. TRANSBOIS (equ. tr) 01.20.82 FF 529,000 26. Pay & Brinck (compr.) 03.26.82 $ 50,000 27. Welldrill (adviser) 05.31.84 05.14.84 $ 90,000 28. Petrofor (drlg. tr) 12.27.85 Fl 221,400  - 22 - ANNEX 3 Page 2 of 2 B - Expenditures According to Categories in SDR Categories Allocated Expensed (1) Civil works for Part ACl) 180,000 200,754.76 (2) Equipment/lurnishing 270,000 268,209.38 For Part A(l) (3) Training for Parts A(2) 1,920,000 1,686,069.08 and B (4) Consultants' Services for 440,000 869,120.71 Part C(1) and C(M) ,5'. Seiemic Surveys for 1,480,000 2,775,106.90 Part CM2) (6) Engineering Consultants' 610,000 727,160.29 Services for Part D(2) (7) PPF Refunding 870,000 458,287.77 (8) Contingencies/Unallocated 1,230,000 TOTAL 7,000,000 6,984,708.89 Cancelled November 23, 1987 SDR 15,291.11  - 23 - ATTACHMENT 1 ROYAL MINISTRY OF FOREIGN AFFAIRS Ourddo ou 20.11.1989 Jnr. 8315/89 ViII EA/ir Inquiri to Your dte Your refwence COMMENTS FROM THE COFINANCIER The World Bank, Operations Evaluation Deparatment, 1818 H. Street, N.W., Washington, D.C. 20433, U.S.A. Att.: Alexander Nowicki DENIN. TECHNICAL ASSISTANCE IN Tn PETROL EIN SECTOR PROJECT. WAFT PROJECT COMPLETION REPORT. Reference is made to Your letter dated October 11, requesting possible comments to the above mentioned report. We would in this respect like to forward the following comments: The report describes mainly the rDA activities and to which extend the objectivef behind the World Bank support has been achieved. The report is, however, also focusing on SAGA's total role in the project. The company is critizised for being unexperienced and to have an unbalanced contract with the Government of Benin. The report does not, however, in a very presise way describe the background and conditions leading up to SAGA's engagement. The situation in the oil business in 1979 was such that other oil compa- nies were unwillling to take the risk in the Seme project. Finan7-ing 80 per cent of the project through Norwegian Banks with a government guaran- tee through GIFK represented therefore a high risk involvement. Such participation consequently provided for Norwegian operatorship and that a certain part of the goods and services should come from Norwegian suppli- ers. This was considered vital from a purely banking security point of view. In 1979 these conditions were considered reasonable and they are in accordance with the OECD-consensus regulations and was probably the only alternative for the Government of Benin to start the Semk oil field project. This situation should in our opinion be more fully reflected in the report. Other more spesific comments to the report are the following: p. ii Basic data shect 8 Actual as % of Appraisal': FY82: 16,3 FY83: 25 FY84: 49,6 p. v para 3 SAGA's compensation in the Service contract from 1985 wvs not very diffe- rent from the original contract from 1979. The handling charge tee of Po"l adde: Offic address: Telephone: Telex: Telex: CabW: PAO.SOx 8114 Oep. 7. Pls 47244 36 00 7104 NOREG N 47244 95 80 NOE. Oslo 0032 Oslo I VIlol TwrssI  - 24 - ATTACHMENT 1 2 121 (also acting as guarantee money from non-Norwegian suppliers) was changed to a management fee + three yearly lumpsum payments. In 1985, the oil production from the field was considerable which guaranteed SAGA to a high degree a profitable engagement. p. vii para 10 PANOCO was fired in May 1986. (Also see p. 8, para 3.07.) p. 3 para 1.11 SAGA's 121 handling fee concerned only SAGA's services and non-Norwegian suppliers. The money acted also as regress money from such deliveries in case that guarantee money would have to be paid from GIER to DnC and Eksportfinans. p. 4 para 1.12 We assume that the stage" and *phase0 are identical. In this project the term 5phase is mostly used. Phase 2, preliminary estimated to U5$ 45 - 50 mill. was planned to be financed by IDA, EIB, Export Credits and Equity (Cash Flow). p. 4 para 1.13 The finance plan US $ Eksportfinans 55,7 OnC 60,0 Midland Bank 8,5 GOB 11,8 Project cost 136,0 p. 10 para 3.12 The report claims that an unusual number of Norwegian firms were shortlisted. This is somewhat difficult to understand. Apart from SAGA, Norwegian deliveries to the IDA projects were insignificant (documented on page 20). p. 11-12 para 3.19-20 The critic regarding the performance of the exploration consultant (SAGA) is quitevague. SAGA's experts and the Dank's consultants had in periods different opinions about the exploration strategies. Lack of experience from SAGA and poor continuity of the Bank's consultants are probably two elements contributing to this. However, the final outcome of this activity was in our opinion acceptable. /li rs sincer Iy, i os Dien o Direc or t ral f Head of Division  ATTACHMENT 2 - 25 - SWga PAtokm za& COMMETS FROM THE CONSULTANT The World BDank Attnt Alexander Novicki, Operations Evaluation Department WASHINGTON D.C. Your reference Your date Our reference Hovik B-RR-233/CEP/OEV 17th Nov. 1989 REP. BENIE: TECHNICAL ASSISTANCE IN THE PETROLEUM SECTOR PROJECT (LOAN 20/7-JM) DRAFT PROJECT COMPLSTION REPORT Enclosed please find our comments to subject report. Should further details be necessary, please let us know. Yours faithfully. for Saga Petroleum a.s. "/ Carl-Erik Pettersen Eac1. ..~ ~ ~ ~ ,. 7muineA'0 Td, 71 Ts Tonz AgkuSAdUmw Tedetm 1bri7I Tiom TONSir MI.... _Ejm(O~1600 16nPtbl7 Nuojomn 576655 3344ap Paf2i. 6m =Z4722600 Tlfx &l 403FOeu bfom. .4174576656 eea 0M IuNAS NKaa660 Nm~Ns (404)1 157 10 61 I NSUW im~~~~~~~~~.ee saws k~~~~~~~~~We. * 47566  - 26 - ATTACHMENT 2 Re: BDeni: TeCnical AssIStance In the Petroleum Sector Project (Loan 2017-JM) Draft Project Completion Report Page vi: Par. SC. Training of Benin professionals did not end In 1983, but lasted practically up to completion of the evaluation report le. end of 1984. Page v Par. 6: According to report other consultant (Arthur D. Little) "prepared promotion". We would Ulke to correct this statement as Saga performed most of this work by preparing the sales brochure "Future Hydrocarbon Exploration and Production" and preparation of the technical part and the presentation of this to the oil Industry In 3 seminars. Page VI: Par. 8: Saga Interprets this to be Western/Sefel and tberefore wants to add that due to Saga's standard procedure for QC during acquistdon and processing of seismic data, good quality data was expected (ref. Par. 3.04, page 8). Saga Is well known In the Industry for obtaining good quality seismic data. Page vi1 Par. 10: The report states that one reason to why "the promotion of exploraton Investments In available acreage In Beeni's sedi'entary basin did not materilie was that the preparatory work to the promootion took much longer time tbhs planed. This Is correct, but the delay was mainly caused by the long time of gettiyg approval from authorites and World Bank of for example the Sales Brochure. Additlonafly some tme was spent before agreement ws reached of which principal terms should be cluddW In a future Prodction Shaing Agement, and f revision of eonin's Petroeum Code was necessary. This delayed the completion of the Sales Brochure. Saga did In fact recommend the anslation of the Petroleum Code from french Into eonlisb. The prentation of the evalustion report to the oil Industry was from Sags point of view a success as we after the London seminar was Invited especially by oil companies based in Canad, to arrange a prentation In Calgary. This presentation was origloWily neither announced nor planned. Page vik Ptr. I1b.: Concerning the World Bank's scepticism to Saga's role as "Exploration Advisoxr to Benim for the promotion of Denim's sedimentary basin, we would like to remind the World Bank that Saga had sustaled from participating In concesslon ound to follow the completion of the basin study (ref. Contract between Saga ad Benin for the basin evaluation study). We can therefore not see any "conflicts of lterest In Saga as an oil company, being respoondble for this study, and Saga's opinion during the project period was to do a thorougb Job with the aim to create maximum Interest for Benin's sedimentay basin In the oil Industry. Pago 4: Par. 1.15: Saga's general opinion of the performaoce of the baslo evaluatlon study Is that the co-operation with Benin's autbortides and professionais, the World Bank and later on, Arthur D. Lttle was excellent The completion of the study was somewhat delayed, but this must patly be creditted to the long distance between the eonin authorities, the World Bank on ote side and Saga on the otber, and partly that Saga had to walt several times for approval before proceeding to next step In the execution of the project (this one of conclusions In Par. 2.05, page 6). Page 6: Par. 2.05: The credit which also includes the basin evaluation study, to Beoni was not effective before July 22, 1982. At this time the pre-study  - 27 - ATTACHMENT 2 report was completed. This report concluded with a noew seismic survey whicb commenced already early July 1982. Page 7: Par. 3.04: Concerning WV's opinion of Saga's meager experience In exploration for Petroleum, plase be aware of the following: The responsible person for the Benl. Basin EvaluatIon Study was Elgill Nysuetber, Exploration Mansger, with more than IS years experience In petroleum exploration. Several of this year witbin International exploration. All key personael Involved In the project bad at that time 5-11 years experience within modem geology/geophysics. Even If Saga was a young company within petroleum exploration, the company was acknowledged by Its partners and authorities as a professional oil company. Saga had also gained International exoerience In this field by pertIcIpatig In licences In several countries Greenland West, Guatemala, Ireland, Italy, Netherland, Peru, UK and last, but not least In USA (also as operator). Page 8: Par. 3.06: The results from the promotional seminars arranged spring 1985 were discussions with 3 companies, according to the report. Discussions with otber companies took place also during this promotional tour. The lnterest In the Industry was blgb, but due to strict contrctual terms the companies were somewbat reluctant to commit themselves. Still some companies kept a hbigh Interest unti PANOCO's overtake of all petroleums rights In Benin. Amoco, which purcbased all available data was the most Interested company, and discussions were arranged with thIs company until Saga left Benin. Therefore the on reason for that the promotion did not materialwe In any company applied for exploration acreage In Benln, was that PANOCO was granted all petroleums rights. Page 8: Par. 3.07: The report correct concludes that the promotlon could not be roomed as long as PANOCO wa holding al petroleum rigts. Therefore the lack of Interest for explortion l Benin was not a result of the promotion, but PANOCo's overtake. To our knowledge Is the entire offshore area, divided Into 3 lkences, now allocated to the Caadin based company, Interational Petroleum Ltd., Vancouver. Page 9: Par. 3.08: In this paragapb Saga Is given crdt for the decision of 3D survey over main structure in the Sim& field witb the purpose of ealuotig If Injection wels were necesay to optimIae the producton. We find this surprsing compared to the statement lo prgraph 3.04 (page 7). Page 10: Par. 3.12 We would like to corment the statement: .. even thougb Saga Included an unoual number of Norwegian fims In the shorldste. Io the basin evaluation study all sub-contractors were non-norweglan this was also the case for many of the contracts awarded la the development of the S6m6 feld. One example i contracts awarded for all geophyscal services In Benin. The contractors awarded contracts (ECL, Sefel, SSI and Western) were all recommended by Saga pdor to approval from the World Bank. Page 10: Par. 3.14: In part (b) of this paragrapb It Is stated that some of the overru was due to consultants whicb were more expensive than iitially estimated and that the promotion study was more costly and demading than estmated. If demanding Is ment more time spent, this is attributable to all time spent In meetings with and presentations to GOB and WB; this was not Included In Saga's manpower estimate for the project. In addition, Saga was Imposed by IDA to hire two exteroal consultants to r quality control the evaluation study. The cost for these consultants was charged to the project. This was not estimated by Saga as we understood that the quality control would be performed by the World  - 28 - ATTACHMIENT 2 BDnk's own professionals. Additionally, the promotdonal seminars arranged for the ol Industry more costly than expected due to one extra presentation. The presentation I Calgary was neither announced nor planned. Page 11 IPar. 3.19: We understand that In this paragraph other consultants than Saga Is d_med. Page 13: Par. 4.06: We expect that Arthur D. Little (ADL) Is discussed here. Saga wants tberefore to add that In sevea meetings/discusslon where ADL ptcipated It turned out that due to their lack of tecbhical knowhow in petroleum exploratlon, most of the constructive Ideas and proposals were forwarded by Saga personnel. Page 14: Par. 4.07: The report states that only two companies Indicated some Interest In pusuing discussions witb the GOB. To our knowledge there was more tbhs two companies lnterested, but as we do not hold a file of the companies sbowing lnterest, we can not quntify this. However, everyone should be aware of the fact that at the time when everytbhing stopped, we were In the most critical phase of the promotion as GOB was considering revision of the contract terms to encourge companies to apply for acreage In Beni. Page 14: Par. 4.08: A possible jolntly promotion of the Togo and Ben acreage Is a Interesting thought. But we would lilke to Inform the World Dank that our experlence for a posible co-operation between Togo and Denio Is not the best. This comes from the time when w. tra4ed the Lom# weUs with S6m6 wells and from our meetings with Tog authoddtes In order to get geolgical lnformton from the Lom6 wells which could ast us Io the evaluation of the western part of Denlm's offshore area. Page 15: Par. 5.02 As mentioned ealer (our comments to par. 10 abo"), the total offshore area Is allocated to a Canadin company. Page 16: Par. 6.04: Saga disagrees with the World BDank's concluson that because of possible conflets of Interest, Saga reduced Its effectiveness a exploraton advisor. We repeat again (as under our comments to par. l1b above), that Saga In the contract witb GOB sustained from parclipating In the concession round following completion of the study. The same argument Is also valid for the development of the Some fleld; Saga did not have any economical Interest In the field. Page 17: Par. 7.02: Saga does not agree with the World Bank's statement that the "Exploration Promotion' was a disappointment. We like to remnd you that at the time when our engagement In Benin ceased, we were In the most crical phase when serous diSuSSions witb Interesting companies were just to start In additon we should take Into consideration the possibiity that the companies did not vtlue the Benin sdmentary area sufficient attadve In light of the attinable terms In the prodction sharing ageement. In all such cases the companies will do a rsk analyds of all available acreage world wide.