Tanzania - Coal Engineering Project

~- -i - Document of The World Bank FOR OFFICUAL USE ONLY Report No. 10181 PROJECT COMPLETION REPORT TANZANIA COAL ENGINEERING PROJECT (CREDIT 1371-TA) DECEMBER 6, 1991 Industry and Energy Operations Division Country Department VI 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.  GLOSSARY Association - International Development Association CA - Development Credit Agreement mOM - Ministry of Minerals PA - Project Agreement PCR - Project Completion Report PIU - Project Implementation Unit STAMICO - State Mining Corporation of Tanzania  FOR OMCIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Ofce of Drectow.Genral Opetatkw Evaliti4m December 11, 1991 MEMORANDUN TO TME EXECUTIVE DIRECTORS AND TME PRESIDENT SUBJECT: Project Completion Report on Tanzania Coal Engineering Project (Credit 1371-TAT. Attached. for information, is a copy of a report entitled "Project Completion Report on Tanzania - Coal Engineering Project (Credit 1371-TA)" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. w72 Attachment 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.  FOR OFFICIL USE ONLY PROJEC COMLE=ON PORT TANZANIA COAL-ENGINEERING PROJECT (CREDIT 1371-TA) TABLE OF CONTENTS Paze No. PREFACE . . . . . . . . . . . . . . . . , . . . . . . . . ii EVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . iv I. PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . 1 A. Project Identity . . . . . . . . . . . . . . . . . . 1 B. Background . . . . . . . . . . . . . . . . 1 . . . . I C. Project Objectives and Description . . . . . . . . . 1 Project Objectives . . . . . . . . . . . . 1 . . . I Project Description . . . . . . . . . . . . . . . . 2 D. Project Design and Organization . . . . . . . . . . . . 2 E. Project Implementation . . . . . . . . . . . . . . . 3 Credit Effectiveness and Project Start-Up . . . . . 3 Implementation Schedule . . . . . . . . . . . . . . 3 Procurement . . . . . . . ... . . . . . . . . . . . 3 Project Costs . . . . . . . . . . . . . . . . . . . 3 Disbursements . . . . . . . . . . . . . . . . . . . 4 Credit Allocation . . . . . . . . . . . . . . . . . 4 F. Project Results . . . . . . . . . . . . . . . . . . . 4 Project Objectives . . . . . . . . . . . . . . . . 4 Physical Results .. 4 Environmental Impact . . . . . . . . . . . . . . . 5 Financial Performance . . . . . . . . . . . . . . . 5 C. Project Sustainability . . . . . . . . . . . . . . . 5 H. Bank Performance . . . . . . . . . . . . . . . . . . 5 I. Borrower Performance . . . . . . . . . . . . . . . . 5 J. Project Relationship ........ ... _ 6 K. Consulting Services .. 6 L. Project Documentation and Data . . . . . . . . . . . 6 This PCR was prepared by Paul Dyson and Sadhan Chattopadhya (ASTEG) who were the Task Managers during most of the implementation period. The managing Division Chief (AF6IE) and Country Director (AF6DR) are David Cook and Stephen Denning. 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.  UI. PRWJECT REVIEW FROM BORROWER S PERSPECTIVE . . . . . . . III. STATIGTICAL INFORMATION.7 A. Related Bank Loans and Credits . . . . . . . . . . . 7 B. Project Timetable . . . . . . . . . . . . . . . . . . 8 C. Credit Disbursements . . . . . . . . . . . . . . . . 9 D. Project Implementation . . . . . . . . . . . . . . . 9 E. Project Cost and Financing . . . . . . . . . . . . . 10 Project Costs .................. . 10 Project Financing . . . . . . . . . . . . . . . . . 10 F. Project Results ..11 Direct Benefit . . . . . . . . . . . . . . . . . . 11 Economic Impact . . . . . . . . . . . . . . . . . . 11 Financial Impact .... . . . ...... . . . . 11 Studies . . . . . . . . . . . . . . . . . . . . . . 11 G. Status of Loan Covenants . . . . . . . . . . . . . . 12 H. Use of Bank Resources ............... . 15  I PROJECT COMPLETION REPORT KINGDOM OF MOROCCO FIRST HOUSING LOAN TO CREDIT IMMOBILIER ET HOTELIER (CIHI (LOAN 2245-MOR) PREFACE This is the Project Completion Report (PCR) for the Coal Engineering Project in Tanzania for which Credit 1371-TA in the amount of SDR 5.9 million, (equivalent to US$6.3) was approved on May 19, 1983. The credit was closed on June 30, 1990, three years behind schedule. It has been fully disbursed and the last disbursement was on January 4, 1991. The PCR was jointly prepared by the Energy Division of Asia Technical Department and Industry and Energy Operations Division of Southern Africa Department (Preface, Evaluation Summary, Parts I and III). On March 28th, 1991 the Bank sent to the Borrower Parts I and III with the request to prepare Part I1 within three months, but no reply was received. Preparation of the PCR was started during the Bank s final Supervision Mission in August 1990, and is based, inter alia, on the President s Report; the Credit and Project Agreements; supervision repuots; correspondence between the Bank and the Borrower, and internal Bank memoranda.  - ii - PROJECT COMPLETION REPORT VALAN_Q CALg ENGtINEERING PROJECT CREDIT 1371-TAM Evaluation Summarv 1. Oblectives The project objectives were to provide the Government with updated geological data of Kabulo Ridge area in the Songwe-Kiwira coalfield; to prove additional coal reserves to extend the life of the existing Ilima colliery; and to strengthen the technical and managerial capabilities of the then Ministry of Minerals (MOM) and the State Mining Corporation (STANICO) in coal operations (para. 3). 2. Implementation Experience The Credit Effectiveness was delayed by more than 8 months due to the failure of STAMICO to sign a contract with selected consultants who were to provide technical assistance and to obtain necessary mining rights from the MOM for the Kabulo Ridge area (para. 8). The exploration of Kabulo-Ridge was delayed only by a period equivalent to the delay in start but the Ilima component was not completed until mid-1990, almost 3 years behind schedule (para. 9). The selection of the principal consultants was very slow because of lack of familiarity of STAMICO with the Bank guidelines on the subject. Delays in goods procurement resulted from a slow start-up in the process by STAMICO and until the consultants were In place (para. 10). 3. Results More than 45 million tons of reserves amenable to open-pit mining, and suitable for thermal power generation were proved at Kabulo Ridge. Another 0.5 million tons of reserves were proved at Ilima colliery. All equipment for full rehabilitation of Ilima mine were procured but lack of available funding prevented rendering technical assistance for installation and commissioning them. The sectoral study showed that the Chinese-financed coalmine was not financially viable but this did not prevent its construction. A satisfactory budgetary system was established at STAMICO and all financial reports were made current (para. 15).  4. Su tainability STAMICO may not be able to sustain the improvements in management and the colliery operations following the termination of technical assistance and of funding to provide necessary foreign exchange for spare parts and consumables. Improvements in STAMICO is further jeopardized by frequent transfer of staff and re-assignments. However, the country has gained from the valuable training and technical assistance input (para. 18). 5. Findings and Lessons Learned The Bank made a positive contribution to the exploration of coal resources and in the preparation of the reports on the role of coal in the economy. The Bank, however, failed to (a) prevent the construction of an uneconomic Chinese-assisted coal project in the immediate vicinity of its own project (para. 19(a)); (b) insist that the PIU in STAMICO should be fully staffed and shoulder more responsibility in the project implementation (para. 19(b); (c) STAMICO used the consultants not only to implement the technical aspects of the project but also to handle many administrative tasks wherever its own staff was found wanting. Thus valuable consultant time was put to lower priority use (para. 19(c)). .)~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  PROJECT COMPLETION REPORT TANZANR COAL ENGINEERING PROJECT (CREDIT 1371-TA) PART I. PROJECT REVIERFROM EBANK'S PERSPECTIVE A. Proiect Identity Project Name - Coal Engineering Project Credit No. - 1371-TA RVP Unit - Africa Sector * Industry Subsector - Mining B. Backeround 1. During the period 1970-75 demand for commercial energy in Tanzania grew at an average rate of 4.9% p.a. In 1975-80, this rate of growth slowed to 1.4% p.a. following steep increases in oil product prices, import restrictions, higher domestit; prices and conservation measures together with an overall decline in economic growth. In 1980, it was believed that consumption of commercial energy would grow at about 3% p.a. during the 1980s, including a 6.6% per annum increase in electricity sales following expansion of the national grid. 2. In view of the above anticipated growth in energy consumption, and electricity consumption in particular, the Government developed a strategy to foster domestic exploration for oil, gas and coal with a view to eventual development of such resources and to the lowering of the country s dependency on imported oil. The Government at the time looked to coal development (a) to satisfy the immediate and future demand of industries for which energy is an important cost item and coal an appropriate fuel (cement, paper, sugar); (b) to substitute for firewood and chaucoal in household uses and hence reduce deforestation; and (c) to replace fuel-oil in power generation, as far as possible, in the 1990s. C. Proiect Obiectives and Description 3. Prolect Objectives. The project was designed to support the Government s efforts to evaluate the economic potential of the coal resources of Tanzania as a first step towards increased coal usage. The project s objectives were: (a) to provide the Government with updated geological data on the Kabulo Ridge area in the Songwe-Kiwira coael field and, if warranted, to complete a mine feasibility study for this deposit; (b) to further assist with the exploration and delineation of reserves to extend the life of the existing Ilima colliery; and (c) to strengthen the technical and managerial capabilities of the then Ministry of Minerals (MOM) and the State Mining Corporation (STAMICO) in coal operations.  2- 4. Project Descrigtion The Coal Engineering Project originally provided for a three part program as follows: latx_.: Exploration and Feasibilitv Studies of K&abulo Ridge Project (i) First Phase: Research and interpretation of the available geological data base, photogeological studies, and initial field works. (iL) Second Phase: Collection of all data for the feasibility study included in the third phase blelow, including drilling of about 120 drillholes, evaluation of all data so obtained, geological and topographic mepping, test pitting, bulk sampling and underground drivage for bulk samples. (iii) Third Pbasg. Feasibility study to determine the economic, financial and technical viability of an open-pit coal mine in the most favorable area located by the exploration carried out in phases one and two above. Special case was to be taken to assess the environmental impact of the mine development, particularly the risk of possible pollution through the acid water drainage from the mine. The program was to be a staged exercise with the decision to progress from one phase to another to be agreed between the Borrower and the Bank. Part B: Exploration of the Tlima Coal Reserv__ Exploration in the immediate vicinity of the Ilima Colliery to establish additional economically minable reserves. Part C: Technical Assistance and Training (i) Strengthening the Borrower s capability to manage development of coal reserves in Tanzania and training of staff of the Borrower s Ministry of MInerals. tit) Establishment of a financial management and control system and training of STAMICO s staff. 5. In addition to the above, IDA assisted the Government to prepare a Coal Sector Report and provided funding to rehabilitate the Ilima mine following the establishment of additional reserves. D. Project Design and Organization 6. STAMICO was the coordinating agency for all mining enterprises under the Government of Tanzania. The project was to be implemented under the authority of STAMICO, with guidance from MOM. Major emphasis was given to strengthen the capability of STAMICO through the technical assistance and training programs. A project implementation team or unit (PIU) at STAMICO headquarter was to report to the Director of Mining Development. The PIU was  -3- to be chaired by a senior administrator and include senior technical officials, 7. Internationally recruited geology and mining consultants were to be retained to undertake supervision of the Kabulo Ridge component of the project. They were also to assist STAMICO staff with exploration and mine planning at Ilima. The PIU was to oversee the activities of the consultants. E. Project Implementation 8. Credit Effectiveness and Proiect Start-Up. Although Credit 1371-TA was approved on May 19, 1983 and signed on September 22, 1983, the Credit did not become effective until August 23, 1984. The delay was due to the failure by STAMICO, the executing agency to: (a) sign a contract with the selected consultants who were to provide technical assistance (Section 3.02(a) of the CA); and,(b) obtain the necessary mining rights from MOM for the Kabulo Ridge area (Section 3.06 of the CA). Project start-up was thus delayed almost 8 months from the original schedule. 9. ImpleMentation Schedule. The project was originally scheduled to be completed by December 31, 1986. While the exploration component at Kabulo Ridge was completed by late 1987 4.e. delayed only by a period equivalent to the delay in start-up, the Ilima mine rehabilitation component was not completed until mid-1990. The principal delays were caused by: (a) the delayed start-up of the total project; (b) the failure of STAMICO to maintain a fully staffed project implementation unit; (c) delays in the provision by the Government to STANICO of the necessary local funds; and (4) slow initiation of the procurement of the spares/consumables for the Ilima rehabilitation. Possible means to avoid future delays of these types are discussed below in paras. 19 and 20. 10. Procurement. The general progress with procurement was slow. The selection of the principal consultants for the project was especially slow because of lack of familiarity with Bank guidelines. Delays in goods procurement usually resulted from a slow start-up in the process by STAMICO rather than from slow evaluation and contract placement. It should be noted that consultants were responsible for processing most of the goods procured with STAMICO having a review and approval role. 11. Project Costs. The total project cost was estimate4 at appraisal to be about US$7.0 million of which US$5.9 million would be in foreign exchange. The project was essentially completed within the budgeted costs but it would have been preferable if an additional US$100,000 had been available for  -4- technical assistance to complete the rehabili,.atior %2 the Ilima mine and to supervise start-up of the new equipment. No detaileu _akdown of local costs is available from STAMICO but it ls believed that while they exceeded the budgeted Tanzanian shillings they were generally in line with the budgeted dollar equivalent sum. 12. pisbursements. The estimated disbursements of Credit 1371-TA relative to actual disbursements are given in Table C in Part III. The disbursements were delayed by a very slow start-up in implementation of the project and then further delayed by both the lack of timely availability of local counterpart funds and the delays in processing withdrawal applications. The original closing date for the credit was June 30, 1987; however, the credit closed only on June 30, 1990, after three extensions of the closing date. Disbursement against commitments were made until January 4, 1991 at which time the available funds were fully disbursed. 13. Credit Allocation. The original and revised allocation together with actual disbursements are shown in Table F.l, Part III. The original allocations were revised in June, 1988 to reflect changes in the Kabulo Ridge exploration/feasibility component and to provide additional funding for the rehabilitation of the Ilima mine. F. Proiect Results 14. Project Objectives. Overall the project was successful in defining a large coal reserve at Kabulo Ridge suitable for mining as a fuel for a thermal power plant. The fact that the reserve has not been developed and indeed is not planned for development in the foreseeable future is a reflection of the severe decline in actual and projected energy prices since project appraisal. A comprehensive analysis of the role of coal in the Tanzanian economy was completed which permitted the Government to realistically assess the potential role of indigenous coal in the economy. The Ilima mine was demonstrated to have significant additional coal reserves of a quality suitable for cement production and for industrial uses. The mine was rehabilitated to permit exploitation of these reserves. The project also assisted in strengthening the management and organization of STAMICO to a stage at which planning and budgeting now can be undertaken without outside assistance and the maintenance of financial records can be current. 15. Physical Results. The project proved coal reserves of more than 45 million tons at Kabulo Ridge which are amenable to recovery by open-pit methods. All equipment for full rehabilitation of Ilima mine were procured but lack of available funding prevented rendering technical assistance under the credit for installation and commissioning them. The sectoral study indicated to the Government that the Chinese-financed coalmine was indeed to be a non-viable operation as had been suggested during project appraisal. A Financial Adviser was recruited in 1987, almost 3 years behind schedule. After his appointment excellent progress was made in bringi,ng the financial reporting of STAMICO current by 1989, and in setting up a budgetary system within the corporation. However, the Bank has not yet received the audited accounts for 1989.  - 5 - 16. gnvironmental Impact. The execution of the project did not entail any environmental issues, as disturbances of the surface, such as drill sites and coal sample test pits were very minor. The mining underground at Ilima has also not caused any visible surface damage. Due to very low sulphur content of the coal, the mine effluents were not found acidic. There were no gas and dust problems in the mine. 17. Financial Performance. As the project was a technical assistance project there are no measurable financial parameters. G. Proiect Sustainability 18. It is doubtful whether STAMICO will be able to sustain the improvement in management and project execution following the termination of technical assistance and of funding to provide the necessary foreign exchange for consumables and replacements. The sustainability of the improvements in STAMICO is further jeopardized by frequent staff re-assignments and transfers to the Ministry. While the direct benefits to STAMICO may deteriorate the more qualified personnel will continue to assist in the development of the mining sector either in the Ministry of Water, Energy, and Minerals or in the private sector. H. Bank Performance 19. Throughout the implementation of the project the Bank made a positive contribution to the exploration of the coal resources and in the preparation of the reports on the role of coal in the economy. However, in retrospect, the following lessons may be learnt from the experience in the project. (a) at project negotiation the Bank failed to take a firm stand with respect to the proposed Chinese-financed coal mine. A firm stand by the Bank would have avoided needless investment by Tanzania in a white elephant ; (b) Bank should have been more forceful in insisting on the maintenance within STAMICO of a fully staffed and effective project implementation unit or team at all time; and (c) while having consultants manage many aspects of the project management may expedite the project, it leads to reduced responsibility by the Borrower thereby reducing the technology transfer aspects of the project. I. Borrower Performance 20. Table G, Part III contains a review of the performance of the Borrower and STAMICO with respect to the legal covenants. MQM played only a minor role in project implementation and all significant activities were undertaken by STAMICO. Early in the project it became clear that for STAMICO, a new borrower, implementation of the project would not be easy. There were  -6- delays in the formation of the project implementation unit and Bank procedures were more complex than those to which STAMICO were accustomed. Consultants were used not only to implement the technical aspects of the project but also to replace STAhIICO staff who were not qualified to handle procurement. The chief of the project unit performed well until such time when he left STAMICO at which time STAMICO became totally ineftective in monitoring the project. Failure by the Borrower to provide local tunds at the timing required seriotisly delayed project implementation from time to time. The main lessons the borrower should learn from the project are: (a) there is a need to maintain a strong project implementation unit or team and not to relinquish all project authority to consultants; and (b) local funds must be provided to the project in a timely manner to prevent costly implementation delays; J. Project Relationshi]2 21. The IDA relationship with the Government and STAMICO on the project was generally good. Some difficulties were encountered at credit closing owing to misunderstandings with regard to responsibilities for monitoring the remaining funds in the credit. K. Consulting Services 22. Extensive consultancy services were provided throughout the project to support STAMICO in all aspects of project implementation. The Bank was actively involved in supervising the consultants and their overall performance was deemed technically satisfactory. A stronger role by STAMICO would probably have resulted in significant project cost reductions as the consultants reportedly spent much time on day-to-day administrative matters more properly handled by STAMICO. While STANICO believe the consultants unnecessarily took on these tasks 't remains questionable as to whether the project could have been implemented on any other basis. L. Project Documentation and Data 23. The Credit Agreement and Project Agreement in the case of Credit 1371-TA were quite adequate and appropriate for achieving project objectives. Various covenants provided opportunity for periodic review of progress of work up to that stage, before proceeding to the next stage. It was not possible to accurately collect the data of local costs incurred by the Borrower, due to inadequate bookkeeping at STAMICO.  STATZSTZCAL ?0924AT1N A. Related Bank Loans ndlor Credits Loan/Credit Year of Title Purpose Approval Status Credit S-27 TA To help finance - on and June 30, 1980 Completed on September Songo-Songo offshore exploration 30, 1990 Petroleum I drillIng for oil and Exploration Project gas. US$30 million equivalent To help finance an and offshore exploration in January 13, 1982 Completed on December 31, Credit 1199-TA continuatLon of the 1983 Songo Songo eariLer project Petroleum TI US$20 million equivalent Credit 1604-TA To finance the vorkovers July 11, 1985 To be completed on Petroleum Sector Techaical of Songo-Songo gas December 31, 1991 Asslstance wells, a gas utilization SDR 8.1 million equivalent to study and a petroleum US$8.0 million product distribution study Credit 1687-TA To finance restoration May 6, 1986 To be completed on Rehablitation of Power Sector of a reliable power December 31, 1991 SDR 34.7 mllion equivalent system, energy resource to US$40 million development, Improve TAIESCO's financial performance, etc. Credit 1405TA Formal Pover To finance power July 26, 1983 To be completed on Project SDR32.S mm equivalent generation capacity, December 31, 1991. to US$3SMM particularly at Mtera. Petroleum Sector To improve petroleum January 15, 1991 Signature June 1991 Rehabilitation CredLt SDR distrLbution system and 33.7mm. equivalent to lower costs. US$44mm.  -8- B. Eroject Timetable Date Date Date Item Planned Revised Actual - Identification 9/81 09/21/81 - Preparation - - Preappraisal * Appraisal Mission 12/82 12/21/82 - Credit Negotiations 4/83 04/22/83 - Board Approval 5/83 05/19/83 - Credit Signature 6/83 9/83 09/22/83 - Credit Effectiveness 7/83 12/31/83 08/23/84 La - Credit Closing 06/30/87 06/30/88 06/30/90 ik 06/30/89 06/30/90 - Credit Completion 12/31/86 01/04/91 }A Delayed due to non-compliance of CA Section 5.01. id Disbursement was suspended for one year during FY87-88, till the Borrower complied with CA Section 3.05. C. Credit Disbursements (US$ million) Financial Estimated Actual Actual % of Year Cumulative Cumulative Cumulative 1984 0.2 NIL NIL 1985 2.5 0.3 12 1986 4.7 1.3 28 1987 6.3* 2.4 38 1988 3.6 57 1989 4.4 70 1990 7.0 100 1991 7.4* 100 Date of Final Disbursement 01/04/91 * Equivalent to SDR 5.9 million  -9- D. Project Implementation Indicators Appraisal Estimate Actual 1. Exploration of To be completed Completed by Kabulo Ridge and by July, 1985 Dec., 1986 Feasibility Study 2. Rehabilitation of To be completed Completed by Ilima Colliery by June, 1987 October, 1990. 3. Training of To be completed Completed by STAMICO and MOM by June, 1987 April, 1990. staff  - 10 - ProTeot Cost and Pinancfro 1. P