Liberia - Issues and options in the energy sector

Report No. 5279-LBR Liberia: Issues and Options in the Energy Sector December 1984 Report of the Joint UNDP/World Bank Energy Sector Assessment Proam This document has a restricted distribution. Its contents may not be disclosed without authonzation from the Govemment, the UNDP or the Worid Bank. ...  JOINT UNDP/WORLD BANK ENERGY SECTOR ASSESSMENT PROGRAM REPORTS ALREADY ISSUED Country Date Number Indonesia November 1981 3543-IND Mauritius December 1981 3510-MAS Kenya May 1982 3800-KE Sri Lanka May 1982 3792-CE Zimbabwe June 1982 3765-ZIM Haiti June 1982 3672-HA Papua New Guinea June 1982 3882-PNG Burundi June 1982 3778-BU Rwanda June 1982 3779-RW .Malawi August 1982 3903-MAL Bangladesh October 1982 3873-BD Zambia January 1983 4110-ZA Turkey February 1983 3877-TU Bolivia April 1983 4213-BO Fiji June 1983 4462-Fli Solomon islands June 1983 4404-SOL Senegal July 1983 4182-SE Sudan July 1983 4511-SU Uganda July 1983 4453-UG Nigeria August 1983 4440-UNI Nepal August 1983 4474-NEP Gambia November 1983 4743-GM Peru January 1984 4677-PE Costa Rica January 1984 4655-CR L esothc Tanuary 1984 4676-LSO Seychelles january 1984 4693-SE'Y Morocco March 194 4157-MOR Portugal Acri; i984 4824-PO Niger May 1984 4642-NIR E;thiopia Ju`v 1984 4741-ET C.ape Verde Auzust 1984 5073-CV Guinea Bissau Auzaust 1984 5033-CUB Botswana Seotember 1984 4'998-BT St. Vincen: and the Grenadcnes September 1984 5103-STV St. Lucia Sep1e r 984 5111-SLU Paraguay Oc' h.er 1984 51'5-PA Tanzania Ncv e.-nber 1984 '959-TA  FOR OFFICIAL USE ONLY REPORT NO. 5279-1BR LIBERIA ISSUES AND OPTIONS IN THE ENERGY SECTOR DECEMBER 1984 This is one of a series of reports of th- Joint UNDP/World Bank Energy Sector Assessment Program. Finance for thie work has been provided, in part, by the UNDP Energy Account, and the work has been carried out by the World Bank. This report has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank.  ABSTRACT The economy of Liberia has been in decline since 1979 and the prospects for future economic growth are uncertain. Between 1979 and 1983, the modern sector GDP was estimated to have declined at a rate of 5.6Z per year. The impact of the lessened demand for Liberia's export products, especially iron ore, has been magnified by poor management of the economy and of the major state-owned enterprises. The two main energy parastataLs - the Liberian Electricity Corporation (LEC) and the Liberian Petroleum Refining Company (LPRC) -- are now threatened with severe liquidity problems. Three main themes have been pursued in this report to address the severe issues facing the Liberian energy sector: restoring financiaL viability to LEC and LPRC; maximizing the service- ability and productivity of installed energy production, storage, and handling capacity in the petroleum and power sectors; and optimizing the exploitation and replenishment of presently abundant woody fuel resources. An energy sector investment program of US$60 million is put forth between 1984 and 1993, and technical assistance projects are recom- mended to assist in the implementation of the investment program.  ABBREVIATIONS AND ACRONYMS Abbreviations bbl barrel bd bone dry GJ gigajoule GDP gross domestic product GWh gigawatt hour ha hectare kg kilogram KVA kilovolt ampere kW kilowatt kWh kilowatt hour 1 liter LPG Liquified Petroleum Gas m mcwb moisture content, moisture content wet basis * cubic meter M,M thousand MM million MVA megavolt ampere KW megawatt KWh megawatt hour OD oven dry sv,s solid volume, solid tonne,te metric tonne toe tonnes of oiL equivalent tpa,tpy tonnes per annum, tonnes per year Acronyms AfDB African Development Bank EFMC Econonic and Financial Management Committee LEC Liberia ELectricity Corporation LPRC Liberia Petroleum Refinery Corporaticn GOL Government of Liberia DOE Department of Energy MLME Ministry of Lands, Mines and Energy FDA Forestry Development Authority NEC National Energy Committee ORNL Oak Ridge National Laboratory This report is based on the findings of an energy assessment mission which visited Liberia in February, 1984. The mission assignments were, K. Newcombe, Mission Leader, Power Sector Management and Household Energy; H. Ansari, Deputy Mission Leader, Petroleum Sector Co-ordination and Institutional Arrangements; G. Alibaruho, Economist, Macroeconomic Linkages; G. Herrmann, (Cons) Power Systems Planning and Engineering; R. Chronowski, (Cons) Wood- fired Power Systems and Industrial Energy; G. Duxbury, (Cons) Petroleum Economist; J. Russel, (Cons) Petroleum Procurement and Transportation Issues; J. Shillingford, (Cons) Refinery and Depot Engineering and Economics. Ken Newcombe was the principal author of the report.  CUB ENY ND EEGY ZQUIVALENTS cUrRC US$1.00 = Liberian Dollar $1.00 CONVERSION FACTORS 1 MJ = 948 BTU = 239 Kcal = 0.278 kWh 1 kWh = 3.6 MJ 1 US gaLlon = 3.79 liters 1 toe = 42.74 GJ = 6.82 barrels of oil equivalent, bbloe Major Fuels MJ/i Toe/te 1/toe Petroleum Products Aviation Gasoline 33.1 1.11 1436 Gasoline 34.3 1.09 1356 Kerosene 36.5 1.09 1271 Diesel oil 37.8 1.07 1209 Fuel oil 40.7 1.01 1065 LPG (butane) 25.4 1.16 1723 Woodfuels Firewood (air dried,25% mcwb) 14.3 0.335 Charcoal (52 mcwb) 29.7 0.697 Firewood (oven dry) 20.0 0.468 Basic Density of wood = 500 kg/m3 unless otherwise stated One tonne of wood equivalent = twe = 1000 kg of wood at 25Z mcwb = 14,300 MJ Electricity Thermal equivalent (supply) = 4037 kWh per toe (at 34X thermal efficiency unless otherwise stated).  TABLE OF CONrENTS Page SUMMARY AND RECOMMENDATIONS ................... ......... .... i I. ENERGY AND THE ECONOMY OF LIBERIA .......................... 1 Country Background ............ ....... .........-. 1 Trends in Economic Performance ........................... 1 Energy and the Economy........ ........................... 2 Indices of Change in the Energy Economy ................ 3 The Present Pattern of Energy Consumption** ............. 3 Recent Trends in Power and Petroleum Consumption ....... 6 Future Energy Demand ................................... . 8 Changing Fuel Mix.......... ........................... 10 Energy Pricing .................... .............................. 11 II. PETROLEUM ..................................... ............. 14 Background ......... .. ........... ............ 14 Petroleum Resources ...................................... 14 Petroleum Product Demand ........................................ . 14 Supply of Petroleum ......................... ......... 16 Port Facilities ............. ................................. 17 Procurement Arrangements ...... ................... 18 Product Purchasing Performance......................... 19 Other Components of the Landed Price ................... 20 Final Cost of Petroleum Supply at the Depot*& ........a 21 Short Term Measures. ........... ....... ....... 23 Financing of Petroleum Imports ........................... 23 Distribution Costs.....6-0-060 ........ ....... 24 Private Sector RoLe in Product Supply . . 25 Options for Private Sector Involvement ......ol em....en.t. 26 Product Storage Capacity ................................. 26 Parcel Size Limitations ................................ 28 Prospects for Oil Refining in Li b e r i a ................. 28 Institutional Issues and Options . . 29 Petroleum Investment and Technical Assistance Requirements..................... 30 III. ELECTRICITY ................. e-sov.......... e.e........ 31 Introduction .......................................... 31 Institutional Arrangements ............................... 31 The Power System .... 00 ........... . 32 Short Term Problems .... .. ............................ 36 Current Financial Status ............................... 36 Liquidity ................. 0......................... 36 Non-Technical Losses ................................... 37 Reducing Non-Technical Losses...... ....... .... 37 Privatization ...................................... 39 Reducing Technical L o s s e s ................. 39 rmplementation ...................................... 40 Efficient Use of ELectricity ........................... 41  Page Electricity Demand Projections............................ 42 Financial Projections....... ...... 43 Generation Needs and Options............................. 43 Immediate Supply .......................... ............ 44 Long Term Supply Agreement with BMC.................... 45 Fuel Oil Fired Dieselse....................... 46 Wood-fired Steam Power Generation..................... 46 Coal as a Power Source ................... 47 Hydropower ............................................ 48 Upgrading the Mt. Coffee Hydropower Station............ 49 Conclusions and Recommendations on Generation Expansion ................................ 50 Generation and Transmission Planning Studies........... 51 HydroLogy ............................................... S1 Transmission Expansion...6.06606606-see ............... . 52 Isolated Supply Systems........................ .......... 52 Alternative Energy Supply for Isolated Power Generation ..................................... 55 Electricity Pricinge.e.e........................... 56 Short Run Marginal Cost of Hydropower ........0........ 56 Long Run Marginal Costs................................ 56 Tarif fs. . . . . . . . . . . . . . 0. 0. . . . . . . .4. 000. a6. . ... . . 56 M-anagement Isus.......................58 Subsector Investment and Technical Assistance Requirements................. e............. 59 IV. HOUSEHOLD AND INDUSTRIAL ENERGY ............................* 62 Introduction................................................ 62 Household Energy....................................... 62 The Pattern of Household Energy Use .................... 62 Comparative Economy of HousehoLd Fuels ................. 63 Woodfuel Supply and Demand............................... 66 Present Woodfuel Resources ............................. 66 National Woodfuel Demandt.. .. . . . . . . e.. .. ... .. e.e..... . 67 Supply and Demand of Woodfuels to Monroviao.s............ 67 Rubber as an Energy Crop............... ............. ... 68 The Economics of Rubbertree Wood Charcoal Production... 70 Policy Implications and Recommendations ................ 72 Other Woodfuel Resource Management Optionse............. 72 The Charcoal Industry...& ..............o ........ .... 74 Improved Charcoaling Efficiency ........................ 74 The Prospect for Exporting Charcoal.................. O.. 75 Modifying Demand for Household Cooking Fuels....e..... 78 Kerosene and LPG Supplies................. .............. 80 Solar Water Heating.... ... * . ........ & 80 Industry ........es........ 0.00........ ........................ 81 Energy Efficiency in Manufacturing ..................... 81 Interfuel Substitution in the Manufacturing Sector..... 82 Risks and Logistics ........ ......... .... ... 84  Page V. INVESTMENT, INSTITUTIONAL ARRANGEMENTS AND MPOW...ER........ 85 Energy Sector Investment... .6..... .0.....e.g...... .... 85 Revised Energy Sector Investment Program .............. 86 Investment Priorities....... .............. 87 Source of Funds ...... ............................0 89 Energy Planning, Institutions and Manpower Needs ......... 89 Institutional Arrangements ...... .... ....060000000 89 Energy Planning ...................... 90 Role of an Energy Policy and Planning Division0. o...... 91 Prerequisites for Effectiveness ...........000......... 92 Policies and ............................ ..... 92 Manpower Needs .........................................* 92 Technical Assistance.........e.............e............ 93 ANNEXES 1. Energy Balance, 1983 ................... 95 2. Energy Balance, 1993.... ... . .. .g..... ... **** 96 3. Border Price Build-up for Liberia, First Quarter 1984 .... 97 4. Ex-Depot Price Build-up. ....... . 98 5. 1983 Purchase/Sales Pattern............................. 99 6. Estimated Oil Product Consumption, 1983................ 100 7. Product Prices Paid by LPRC Compared to International Spot Market Levels, 1983 ........... ............. 102 8 Main LPRC Tankage ................ ........ 104 9. Economics of Refining in Liberia, 1988 and 1993 .......... 105 10. Refining Options ................l................. 111 11. LPRC Staff Distribution and Numbers...................... 114 12. Schedule of Installed and Available Generating Plant..... 115 13. Statistics on the Nature and Performance of Government Isolated Power Systems, 1982/83............. 116 14. Historical Trends in Sales and Generation................ 117 15. LEC Actual & Projected Income & Expenditure Statements ............................. .00..................... 118 16. Proposed Regulations and Corporate Reorganization of LEC .... .6 *** 0*........... 119 17. Assumptions for Energy and Power Sector Demand Forecast ..... ...... ......* 123 18. LEC Historical and Projected Sales ...... 125 19. LEC Historical and Projected Generation Mix and Fuel Consumptione. .. .........e.e.o... 126 20. Parallel Operation of BMC and LEC Systems ..0............. 127 21. Cost of Production from Modern Slow Speed Diesels........ 128 22. Wood Fired Steam Power ............ ...... ... ....... *0 129 23. Operations Cost of Coal Fired Steam Generating Plant..... 131 24. Generation Equipment for Government Isolated Power Systems, 1983 .......................... 132 25. Wood Steam vs. Wood Gasification Power Pl ant ........... 133 26. Estimation of Long Run Marginal Costs For Monrovia ....... 137 27. Firewood Prices, 1984 . ............. o ..................... 138 28. Charcoal Prices, 1984 .................................... 139  Page 29. Forest Resources, 1983 ........... . 140 30. Estimated Rubber Tree Stand, 1983 ........................ 141 31. Plantation Timber Resources, 1983........................ 142 32. Current and Projected Woodfuel Use by Households ......... 143 33. Woodfuels Supply and Demand to Monrovia Households ....... 144 34. Price Build-up for Charcoal in Liberia, 1984 ............. 145 35. Energy Sector Investment Program, 1984-93...........0..... 146 TABLES 1. Final Energy Consumption 1.1 Trends in GDP and Modern Energy Consumption 1.2 Petroleum Imports, Re-exportes, and Total Merchandise Trade, 1976-82 1.3 Final Energy Consumption, 1983 1.4 Energy Intensities of Selected Regional Countries, 1981-82 1.5 Recent Consumption Trends for Petroleum and Power 1.6 Final Consumption of Petroleum Products by Sector, 1982 1.7 Significant Future Trends in Energy Supply and Consumption 1.8 Petroleum Prices and Costs, Monrovia, Liberia, First Quarter, 1984 2.1 Development of Petroleum Products Consumpti3n, 1979-83 2.2 Mining Sector Fuel Requirements 2.3 Countrywide Petroleum Demand Forecast 2.4 Premia Paid by LPRC on 1983 Imports 2.5 LPRC's Other Purchasing Costs 2.6 Simplified Comparison of Costs of Petroleum Products Import 2.7 LPRC Refined Petroleum Product Storage Capacity, 1984 2.8 Petroleum Sector Investment Program 3.1 Installed Capacity of Electrical Generating Plant in Liberia, 1983 3.2 Estimated Power Generation in Lib-ria, 1983 3.3 Generation and Sales for the Monrovia Power System, 1979-83 3.4 Generation and Sales Projection for the Monrovia Power System 3.5 Short Run Marginal Costs of Thermal Generation, 1984 3.6 Hydropower Resources of Liberia 3.7 Characteristics of IsoLated Generating Systems, Liberia, 1982-83 3.8 Load Projection for Isolated Generating Stations, Liberia, 1984-93 3.9 Long Run Marginal Cost Estimates, Monrovia Power System 3.10 Power Sector Investment Program, 1984-93 4.0 HousehoLd Energy Consumption, 1983 4.1 Comparative Cost of Household Energy Forms in Monrovia, First Quarter, 1984 4.2 CharcoaL Production Costs, 1983 4.3 CharcoaL Production Costs Using Improved Metal Kilns 4.4 Possible Charcoal Export Price Structure 4.5 Cost of Cooking in Liberia with Present and Improved Stoves 5.1 Overview of Energy Investment in the Public Sector, 1976-87 5.2 Average Annual Component of Public Investment Program by Sector, 1981-87 5.3 Major New Investments by Priority Class 5.4 Energy Sector Investment Program: 1984-93  MAPS IBRD 12867R: Country Map IBRD 18368: Offshore PetroLeum Exploration IBRD 18383: Generation and Transmission Network  MAIN FINDINGS AND COECLUSIG0S 1. Liberia has a population of about two million and a land area of 112,000 square kms. It's economy has been in decline since 1979 and prospects for future economic growth are uncertain. There is a sharp division between the modern sector of the economy, which is largely con- fined to urban areas, the enclave mining, rubber and forestry conces- sions, and the traditional rural sector. The latter is characterised by shifting cultivation, and remains little influenced by the developments in the former. Between 1979 and 1983, modern sector CDP is estimated to have declined at the rate of 5.62 per annum, and with the present de- pressed global market for iron and steel it is clear that all of Liberia's iron ore mines will continue to face problems and may close within the nezt ten years, limiting prospects for fast economic growth. The plantation sector, comprised primarily of rubber, but also palm oil and other tree crops, has better prospects. The impact of the declining demand for Liberia's export products, especially iron ore, and their increased costs of production in the aftermath of the the 1979/80 oil price increases, was exacerbated by poor management of the economy and of major state owned companies in particular. In fact, both major energy parastatals (the Liberia Electricity Corporation (LEC) and the Liberia Petroleum Refining Corporation (LPRC)) are now threatened with severe liquidity problems despite energy prices and margins that, in normal circumstances, would generate considerable profits. Table 1: FINAL ENERGY CONSUMPTION a/ ('000 toe) Biomass Percentage Fuels Electricity Petroleum Total Share - 1983 - Mining and Other Industry 4.4 55.9 46.4 104.1 11.6 Transport - - 147.6 147.6 16.1 Agriculture - 1.9 5.7 7.6 0.8 Bouseholds 625.7 9.0 4.5 639.2 69.7 Coouerce/Government 12.0 4.2 16.2 1.8 Total 630.1 76.2 208.4 917.3 Share (Z) 68.7 8.7 22.7 100.0 - 1993 - Mining and Other Industry 10.2 3.5 2.2 15.9 1.5 Transport 175.2 175.2 16.0 Agriculture 1.9 9.1 11.0 1.0 Households 845.9 14.3 6.7 866.9 79.4 Coerce/Government 17.9 4.5 22.4 2.1 Total 856.1 37.6 197.7 1091.4 Share (X) 78.4 3.5 18.1 100.0 a/ Consumption at the point of end-use. Source: Annexes 1 and 2.  - ii - The pattern of final energy consumption is summarized in Table 1.1. From 1980 to 1984, Liberia's consumption of petroleum and electricity declined in line with economic activity and is projected to decline further, both in absolute terms, and relative to the consumption of traditional biomass fuels, particularly during the early 1990s as the Bong mine closes. Con- versely, over the same period the share of firewood and charcoal is pro- jected to increase from about 70% to 80%. While Libe-ia's present per capita energy consumption of 438 kgoe per year is well above that of its neighbours, the likelihood is that this distinction will be shortlived. In effect, the Liberian energy economy is in a transition just the oppo- site of most developing economies where the share of modern fuels of the total energy mix increases as urbanization and industrialization pro- ceeds. In Liberia, the overall growth in energy supply over the 1984- 1993 period is expected to be 3.6% p.a., or marginally higher than popu- lation growth, and its source will be almost exclusively woodfuels. The declining demand for modern fuels has far-reaching implications for power and petroleum subsector management and planning, and the growing demand for woodfuels raises important questions regarding the optimal exploita- tion of the country's forests. Overall Energy Strategy 2. Three main themes of a comprehensive energy strategy emerge from this energy assessment: (a) Restore financial viability to the main public sector energy supply and production agencies - the Liberian Electricity Cor- poration (LEC) and the Liberian Petroleum Refining Corporation (LPRC). So long as these parastatals are unable to generate sufficient surpluses for adequate maintenance and for capital investment there is little prospect of reliable and reasonably priced energy supply. The achievement of this objective will require upgraded management and strict enforcement of payment of energy accounts supported by new legislation, regulations and consumer billing practices and a determined political will to succeed. (b) Maximize the serviceability and productivity of installed energy production, storage and handling capacity in the petro- leum and power sectors. While there is either declining or almost stagnant markets for modern energy forms, maximum bene- fit will be derived from the rehabilitation of existing faci- lities in each subsector, with the exception of the refinery which should be dismantled forthwith. Crash programs to re- meter consumers, redesign and refurbish electrical distribution and to rehabilitate economically serviceable ceieration plant are required. Similarly, maximum use is to be made of under- utilized generating plant within the enclave mining sector in preference to purchase of new generating equipment. In the  - iii - petroleum subsector, storage facilities should be revamped and port handling equipment upgraded to facilitate efficient operation of a petroleum depot relocated at the Water Front area instead of at the old refinery site. (c) Optimize the exploitation of presently abundant woody fuel resources in order to reduce the destruction of accessible high forest and to increase the benefit to the economy of the con- sumption of woodfueLs by using wood from retired rubber tree plantations. Resource inventories, systematic incentives for private sector exploitation of the least cost forest resources and the demonstration of modern efficient production and end- use equipment will be required. Key Issues and Options Petroleum Subsector 3. Until 1982, petroleum products were produced at the Govern- ment's refinery in Monrovia under the management of its wholly-owned Liberian Petroleum Refining Corporation (LPRC). The refinery was closed at the beginning of 1983 due to the LPRC's inability to meet a major payment for crude oil. Subsequently the GOL decided not to re-open the refinery because further evaluation indicated that it was cheaper to import petroleum products than to refine them locally. However, LPRC staff had little experience in product procurement and frequently bought too late and paid above market rates. In addition, not only were most refinery cost centers kept active but new equipment was purchased and installed after the Government's decision that the refinery was not to be re-opened. Unauthorized extraction of petroleum products added further to the costs of petroleum supply. The LPRC management is also burdened by serious litigation following the collapse of crude oil supply arrange- ments, and by confused debtor-creditor obligations and, as a resutlt, is unable to devote sufficient attention to day-to-day problems of opera- tional inefficiency. The net result of these problems in 1983 was an additional and avoidable cost burden of at least US$13 million, or about US$77 per tonne of product imported by the LPRC. The key issues in the sector are, then, how best to improve the efficiency of petroleum pro- curement and supply to the wholesale market, and whether to completely dismantle or to mothball the refinery. Of even more immediate concern is the need to secure for the LPRC sufficient liquidity to procure product when required and in the desired quantities. By February 1984 the com- pany's effective reserves had fallen so low that it had to reduce cargo sizes to make ends meet against rising costs. LPRC's solvency is threatened both by the ongoing inability of the Liberian Electricity Corporation to fully pay for products suppLied, and by its own ineffi- ciency. The most important of the measures nroposed by the mission to resolve these problems are as follows:  iv - (a) dissolve the LPRC and form a Liberian Petroleum Supply Company with the sole objective of importing and wholesaling petroleum products. As part of this re-arrangement all present refinery cost centers should be closed, staff retrenched, salable assets reaLised, and a clear determination made of the current finan- ciaL and legal obligations of the LPRC. (b) procure the services of an experienced oil industry company to manage under contract the new supply company, to train Liberian staff to operate the company within three years, and to expe- dite the liquidation of LPRC assets and the re-employment of staff qualified and suitable to serve the new company. Staff employed in petroleum supply should be reduced from 480 to a maximum of 85 in the process. (c) dismantle the refinery to the extent of its saLable components, rent or sell office facilities, and move the site of the petro- leum depot to the Water Front area in the port of Monrovia. (d) Upgrade the storage at the Water Front area as well as off- loading and other handling facilities to promote efficient and cost-effective operations in the new location. This will require an investment of about US$7.5 million which must be prepared by an immediate engineering design and costing study. Power Subsector 4. Power supply to the Monrovia power system (MPS) fell at almost 22 per annum between 1980 and 1984. Throughout this period losses have been about 35% of generation (20% unbilled consumption and 15X technical losses). Since only about 70X of electricity officially sold is paid for, this means that payment is received for less than half of the elec- tricity generated. Tariffs are at least 50X higher than the present costs of production and the long run marginal costs of supply. Until recently the LEC was able to remain solvent because of the large differ- ence between the cost of supply and tariffs, which were raised as re- quired. Now the LEC is faced with stricter te-ms of credit, higher costs of production due to the growing use of gas turbines, and a further tariff increase is unlikely to be acceptable to the Government. During the 1984 dry season a major fuel oil fired engine generator set failed and, as with the previous dry season, supply was at best intermittent. LEC chose to meet supply with gas turbines which have direct costs of production well above the tariff level, instead of negotiating additional supply from the Bong Mine (see para 3.3) of low cost fuel oil fired generation, or rehabilitating its lower cost diesel generators. Demand is forecast to grow at about 0.2% per annum over the next decade and subsequently the need for major new generating capacity is limited to securing supply at the present level, although an excellent opportunity exists for the suppLy of additional hydropower to the Bong Mine in return for thermal generation in the dry season and for sale on commercial terms. The most pressing problems are the theft of power and the failure  -v- to enforce payment for all electricity consumption billed. Indeed if LEC is unable to pay the LPRC for petroleum fuels because it cannot enforce payment from its own consumers it may eventually be responsible both for its own and the LPRC's insolvency. On system planning and development, the mission believes that a combination of generation and distribution rehabilitation, additional low speed diesels fired with fuel oil, and wood-fired steam power using Bomi Hills forest resources are part of a least cost solution. However, the precise conf_guration and timing of the Least cost options for power suppLy must be determined by the recom- mended planning studies. There is no economic justification for Large scaLe hydropower development on the St. Paul and Mano rivers for at least a decade, and even implementing the projects recommended by the mission will pose serious fiscal constraints. In this context, major transmis- sion construction now appears to have a lower priority in the face of urgent short to medium term generation and distribution rehabilitation requirements. In the mission's view, it would be useful to review with the AfDB the project recently negotiated with a view to possibly resche- duling it and emphasizing the valuable metering component it contains. Similarly, in the isolated supply systems funded directLy by the GOL and managed by the LEC, costs exceed revenue by almost US$6 million per year compared with a budgeted subsidy of US$750,000, and plans are afoot to expand supply of both diesel, wood and hydropower to these systems. Under present circumstances this can only greatly increase the annual loss. The key issues center first on the means by which unpaid consump- tion can be cut, bills can be paid and the financial viability of the institution restored and, secondly, on the least cost means of supply over the remainder of the decade. In order for any program of reform to be successful, however, existing management practices will have to be changed and administration improved markedly, including better staff dis- cipLine and wholly revised accounting, planning, decision making and operational procedures. 5. Urgent measures include: (a) introduction of regulations and procedures designed to ensure payment for electricity supplied and sharp curtailment of un- paid consumption. These regulations would have to be supported by new legislation to enable the LEC to quickLy apply strong penalties for non-compliance. Essential to the success of any such approach however, is the full and public support of government. (b) rehabilitation and redesign of distribution facilities and metering all consumers not served by an operational meter, and possibly the introduction of tamper-proof load limiters for consumers with very low level power consumption. These steps are to be undertaken in parallel with the enforcement of new reguLations, and revision of consumer billing and accounting procedures. A comprehensive power system efficiency audit is required to identify the highest priority measures and to prepare for a larger program of generation and distribution rehabilitation.  - vi. - (c) management of the LEC for a period of three years under an ex- ternal management contract on a "fee plus" performance related basis. The contractor concerned would be specifically charged with implementing the reforms outlined herein, training staff to replace them in their management role in the near term, and reducing costs, including those for staff. The contractor would also assume respbnsibility for revising consumer billing and accounting procedures, and implementing metering and con- sumer level distribution rehabilitation programs. (d) negotiation of an extended contract with the Bong Mining Com- pany for the supply of thermal power during the 1985 dry season to reduce reliance on high cost LEC thermal generation. On the cost and source of power supply to rural towns: (e) The average variable cost of production is 27C/kWh and the receipts average 4centslkWh, which led to a loss of US$5.3 million in the last financial year. This loss will grow rapidly to US$8 million per year if planned diesel installa- tions proceed. Consequently, no additional capacity of any kind should be installed until the tariff is set at 15e/kWh in the first instance, and metering and billing arrangements are such that all consumers pay for supply at this level. In the longer term tariffs need to be raised to at least cover vari- able costs. If demand persists under these revised tariffs, a wood-fired steam plant appears justified in some supply centres and the interconnection of Gbarnga with the Monrovia Power System should be evaluated. Household Energy Woodfuel Resources 6. Liberia has forest cover of some kind over more than 80% of its landscape and in gross terms the annual production of fuel quality bio- mass substantially exceeds demand. However, woodfuel demand is localised and concentrated particularly in Monrovia, the largest urban center, which is now growing at 5-6% per year. In Monrovia, charcoal now domi- nates the household energy market and hence, with the low efficiency of conversion from wood to charcoal, the demand for fuelwood in the hinter- land has grown rapidly in the past decade at the expense of nearby forests. By 1993, the demand for fuelwood is expected to be one-third higher than at present, suggesting that the pace of deforestation will quicken and that the price of woodfuels may rise in real terms as fire- wood and charcoal is transported from further and further afield. Thus, in contrast to the superficial impression that woodfuels are abundant, localized shortages may appear and it is now important to take stock of existing and accessible forest resources and to devise a strategy for  - vii - least cost supply to the household and commercial/industrial woodfuel market in the longer term. Perhaps the most important and economically attractive source of woodfuels for Monrovia and other urban areas is rubber plantations. Although rubber wood already supplies a portion of the Monrovia market for charcoal and firewood, the sustainable yield of rubber wood from retired rubber trees exceeds the annual demand for wood- fuels into the 1990's and the cash received by smallholders from selling their senile rubber trees can contribute substantially to replanting. Charcoal Production 7. Firewood and charcoal production and supply is generally man- aged by a large number of smalLholders and entrepreneurs and, despite the constraints of traditional technology and poor transport infrastructure, the market is supplied adequately and efficiently. The role of govern- ment in woodfuels supply shouLd therefore be in support of the private sector by providing incentives to use the most economic woodfuel re- sources and to upgrade the efficiency of conversion from wood to char- coal. For example, the carbonisation of retired rubber trees should be promoted as an integral part of the rehabilitation of the smallholder rubber industry. Similarly, more efficient metal kilns and charcoal stoves offer some prospect of reducing pressure on the remaining closed canopy native forests within reach of the major urban areas. Finally, with the economic prospects for pulpwood production fading, a case can be made for evaluating the managed exploitation of the designated State forest areas for the production of charcoal for export to countries in the West African region such as Mauritania, now suffering from defores- tation and desertification. 8. Specific measures arising from the above include: (a) a resource inventory of smallholder and concession plantations identifying the location and quantity of rubber tree wood available now and each year over the next decade at least. (b) expansion of the demonstration project for low cost metal kilns and the establishment of a credit facility for their supply to smallholders prepared to exploit retired rubber trees, residues from organised forest clearing and other wastes for charcoal production. (c) mounting a trial shipment of charcoal to Senegal or Mauritania as part of a feasibility study to identify logistical problems and the costs and benefits of the prospective trade. (d) production and demonstration of improved charcoal stoves from elsewhere in Africa (for example, Kenya). 9. Other household energy options which appear attractive include the use of solar water heating and the introduction of a range of more efficient kerosene stoves. Although both technological improvements  - viii - offer considerable financial benefits to the indir' lual consumer even their widespread adoption would only generate small economic benefit to the economy in comparison with other options identified here for reform in energy production and supply. Hence, for the time being, Government assistance should be limited to modest promotion. Industrial Energy 10. The manufacturing sector in Liberia is small and unlikely to expand significantly in the foreseeable future. Individual factories appear to have adjusted their energy consumption well to high prices and uncertain supplies. There are no outstanding cases for substitution of oil by fuelwood as residual fuel oil is already widely used for heat and steam raising. The enclave sector managers have also implemented many important fuel economy measures in recent years. The two biggest rubber producers have installed wood-fired boilers and the Bong Mine has fine- tuned process heat and thermal power production. There is, however, an exceLlent economic prospect of substituting fuel oil with fueLwood in iron ore drying at the Bong Mine. The Bong Mine initiated this proposal in 1983 but was unable to attract acceptable tenders for fuelwood supply. The mission was able to define the costs and logistics of fuelwood supply to the mine and found that annual fuel oil import costs can be reduced by about US$1.3 million and the BMC can save US$1 million per year using already existing but unutilized plantation timber resources. The key constraint to the implementation of this fuel substitution option is that the Bong Mining Company, faced with the present depressed market for its ore, is unwilling to offer a purchase contract of longer than one year at a time. Avenues should be investigated by which this investment barrier may be overcome including: (a) a precise definition of the investment required by an entre- preneur supplying fuelwood and by Bong Mining Company, and (b) the provision by the GOL of risk capital of the order of US$500,000 providing a one-year sales contract can be secured with Bong Mine by the local fuelvood supplier concerned. Energy Pricing 11. Energy prices in Liberia are characterised by being, cn the whole, cons,derably higher than the economic costs of production or supply. For electricity supplied to the MPS, if consumer billing and utility management reforms proposed by the mission are implemented, it should be possible to reduce tariffs in real terms in the 1986 wet season. Petroleum products are retailed at 2-3.5 times their border prices, hence the main pricing consideration is the extent to which gaso- line and diesel taxes are used to generate government revenue. Govern- ment and concession prices for diesel and fuel oil are very close to border prices and there is a case for slightly increasing the price which LPRC charges LEC for these products. The matter of serious underpricing of the electricity produced in the isolated power systems supplying smaller towns has been taken up earLier in para 5.  - ix - Institutional Arrangements 12. Energy policy and planning is weak in Liberia, partly as a re- sult of a shortage of staff and experience in the Department of Energy (DOE), and partly because of the isolation of its parent ministry - the Ministry of Lands, Mines and Energy - from the mainstream of decision- making in the Government. No energy sector investment program is pro- duced and hence there is no policy framework for the development of the sector. The existing vehicle for policy dialogue in the sector is the National Energy Committee (NEC). This body has advisory powers only, and although it has served a useful role initially in raising awareness in Government of the gravity of the energy problem, and later as a forum for the ORNL/GOL energy assessment, it is now time to make a transition to a well staffed and equipped full-time energy policy and planning agency closely associated with the highest levels of Government decision making. The major energy parastatals - the Liberian Electricity Authority and the Liberian Petroleum Refining Company - make their plans without meaningful consultation with each other or the DOE, and promote them to the Ministries of Finance, of Economic Affairs and Planning, and the Head of State, limiting critical review. Similarly, the Government is unable to adequately monitor the performance of its energy companies because its directors lack both management experience and familiarity with energy sector business. The main recommendations here include: (a) the formation of an energy policy and planning division within the DOE separate from any functions of the former Bureau of Hydrocarbons and dissolution of the NEC. (b) the formulation of administrative procedures which would estab- lish for this division a close advisory reLationship with the Economic and Financial Management Committee of the GOL. (c) representation of the head of the energy planning division or the Director of Energy on the boards of the LEC and the LPRC or its successor. (d) the provision of at least three full-time high level profes- sionals for the energy planning division plus support staff and trainees and finance for at least four man-years of training per year. Energy Sector Investment 13. Investment projects totalling US$122 million (Table 5.4), which include about US$80 million in foreign costs, are regarded as economi- cally justified by the mission for the 1984/1993 period. However, there are such serious short- to medium-term fiscal constraints on public sec- tor investment that this will almost certainly mean that a smaller program of high priority investments will have to be adopted. A list of the higher priority inwestments is provided in Table 5.3 amounting to US$72 million. Those in this priority category are urgent and need to be  implemented without deLay. Those in the higher priority category are indicative projects still to be precisely defined by engineering design and costing studies and Least cost planning studies. About 80Z of this investment is required in the power subsector. This reduced program avwerages US$7 million per year compared with a maximum resource availa- bility for public sector investment in the next few years of US$100 million p.a., although major investment is believed to be required early in the program. The major constraints on public sector investment gener- ally appear to be the provision of the local funds component of major projects. Both the LEC and the LPRC could generate sufficient local funds and a substantial proportion of the foreign funds required to finance their investment programs provided proposed reforms are made in their operations. Yet it seems unlikely that significant new donor funds will flow to the energy sector unless the energy parastatals demonstrate a capability to reform, and to restore their own financial viability. Priority Actions 14. The following are the highest priority activities proposed within each subsector, with the likely cost and duration in brackets: Petroleum (a) Design, costing and priority ranking in terms of benefit to operational cost and efficiency of investments required to transfer the petroleum depot from the refinery to the Water Front area, and to rehabilitate and reconfigure storage and handling facilities ($200,000, three months). (b) Procurement of management services to establish and operate the proposed new Petroleum Supply Company for three years and to liquidate the assets of the LPRC ($600,000 per year, six months to establish). Power (a) Power system efficiency audit to define the investments econo- mically justified in distribution and generation rehabilitation and to review the serviceability of all thermal generating plant ($75,000, four months). (b) Procurement of management services to manage and implement reforms in the LEC, including supervision of remetering, dis- tribution rehabilitation, re-organisation of accounting, estab- lishment of effective management information and decision- making systems and high-level management training and develop- ment ($500,000 per year, six months to establish). (c) Bong Mine-LEC power exchange capacity review to determine the present level at which power can be sent in both directions, and the transformer capacity, protection gear and other  xi - facilities required to facilitate transfer up to 40MW ($30,000, two months). HaLsehold Energy (a) Rubberwood and other forest energy resource inventory within reach of Monrovia and other urban centers (US$100,000, six months). (b) Expansion of demonstration project for extensive field trials of simplified metal charcoal kilns (US$80,000, six months). (c) Charcoal export feasibility study which would also define the prospect of managing the Cape Mount State forests as a sustain- able charcoal resource (US$100,000, six months). Industry (a) BMC fuelwood supply and conversion pre-investment analysis (US$50,000, three months).  I. ERGY AND THE ECONY OF LIBERIA Country Background 1.1 The area of Liberia is 112,000 square kilometers, more than half of which is covered by natural forest. At the end of 1982 the population was estimated to be about two million, with 35% classified as urban. However, the first census since 1974 was completed recentLy and may reveal a somewhat different demography. The economy is divided into two significant and quite discrete sectors, an enclave sector consisting of mining, forestry and rubber concessions dominated by multinational companies, and a subsistence agriculture sector. The latter supports more than 60% of the population, and all agricultural activities employ close to 80% of the work force. Industry and the service sector employ 7Z and 14% of the work force, respectively. Unemployment is estimated to be about 15Z of the potential work force and perhaps as high as 301 in the urban areas. The enclave sectors are the main source of foreign exchange hence the global demand for iron ore, and to a lesser extent rubber and timber, largely determines the economic performance of the modern sector. Iron ore mining alone accounts for about one-third of CDP, yet the links between this and other sectors are weak, resulting in uneven distribution of the benefits of their produ=tion, and localized infrastructure deveLopment. The estimated average per capita GNP in 1981 was US$520, whereas the enclave sector produced a per capita CDP of US$1,620, and the entire modern sector, US$780. These are in contrast with a per capita GDP of US$160 per year for the traditional sector. Trends in Economic Performance 1.2 During the 1960s and early 1970s, the Liberian economy recorded high growth rates in CDP, 6% and 4Z per annum, respectiveLy. This impressive performance was due to increasing output and unit value from iron ore and rubber concessions and indirectly to an improvement in the terms of trade. This period came to an end in the mid-1970s as the price of oil rose, the demand for iron ore and rabber declined precipitously, and the cost of mining operations escalated. The impact of these adverse global trends was exacerbated by poor management of the public sector where the number of unprofitable parastatal entities mushroomed. Between 1974 and 1979, GDP growth fell to an average of only 1Z per annum. Signs of economic recovery in 1978 and 1979 turned out to be illusory; growth was partially the result of only a brief upturn in iron ore, rubber and timber prices. Also, economic activity was temporarily stimulated by a large injection of capital for construction of OAU conference facilities which yielded little more in the medium term than an enduring debt ser- vice problem. On top of a declining external demand for enclave product, a revolution occurred in 1980 causing social disruption and ushering in a period of inappropriate policies, especially in fiscal management; a  - 2 - trend that persisted until recently. GDP in the modern sector declined by an average of 5.6% per annum between 1980 and 1982, compared with 1.1% per annum since 1976, 1/ as indicated in Table 1.1. In contrast to the early 1970s, the terms of trade also deteriorated, falling by 24.5Z between 1978 and 1982. Finally, the balance of payments has deteriorated during recent years due largely to the ongoing flight of capital. The capital account surplus, which was over US$135 million in 1978 (20X of monetary GDP), fell to US$6.1 million by 1981 and has been negative since, illustrating the devastating nature of capital flight folLowing the rice riots of 1979 and the coup of 1980. On the other hand, the current account deficit narrowed from US$158 million (23.6% of CDP) to US$44.6 million (6.2% of GDP) between 1978 and 1982. Energy and the Economy 1.3 Trends in economic performance and the consumption of modern energy forms over the last 8 years are shown in Table 1.1, and the cost of imported petroleum is compared with total imports and exports in Table 1.2. For the most part, the direction of change in these indices is parallel, with petroleum consumption falling more sharply than CDP, which reflects the relative petroleum intensity of the volatile enclave economy. There is also a close relationship between trends in electric- ity consumption and GDP - a matter discussed again when reviewing the power subsector in detail (see Chapter III). 1.4 It is evident that, like most other developing countries, Tiberia felt the impact of the oil price rises of 1979-80. The propor- tion of total export earnings spent on petroleum imports rose from a little over 102 in the mid-1970s to about 25% in the early 1980s. Not onLy is the impact of oil imports on the balance of payments every bit as severe in Liberia as in many other African economies, but because the foreign exchange for the procurement of petroleum products had to come from the public sector, the impact of oil procurement on Government fiscal and external balance of payments was disastrous. Indeed, financing petroleum imports, together with debt service, have been the most important elements in the Government's external payments problems. Until 1982, cr-de oil was imported by the government and processed at the government-owned petroleum refinery. The prima facie reason for the closure of this refinery in January of 1983 was the Government's inabi- lity to service the oil facility financed by a consortium of foreign banks for crude oil procurement. Since that time the country's refined product needs have been satisfied by imports arranged through the former 1/ No accurate estimates of traditional sector GDP have been available since 1979. However, assuming that this subsector has been growing at about the same rate as the population, the cumulative decline in total GDP becween 1980 and 1982 would be about 3.3% per annum.  refinery company and various enclave sector mulcinationals. Oil imports through the Government-owned LPRC are still constrained by a shortage of domestic revenue and foreign exchange. Indeed, in general, the import capacity of the public sector is determined by domestic revenue genera- tion, foreign exchange availability or foreign credit established with overseas banks. As foreign exchange and foreign credit have been con- strained over the past four years, there has been extreme difficulty in meeting scheduled oil payments. The deterioration in the public sector domestic financial resources and balance of payments have seriously undermined fiscal viability and overall confidence in the economy. Indices of Change in the Energy Economy 1.5 The Liberian energy economy has been devolving since th late 1970s if development in this context is defined as an increasing per capita consumption of modern fuels, i.e., petroleum and electricity. Petroleum consumption declined at more than ten times and electricity consumption fourfold the rate of decline in modern sector CDP since the end of the 1970s; in per capita terms the rate of decline is even sharper. However, it is likely that the bulk of the population, the subsistence sector, is relatively little affected by the vicissitudes of the enclave sector and its repercussions for urban-industrial produc- tivity and petroleum supply. There is practically no rural village electrification and the only petroleum consumption for most households is the occasional use of kerosene lamps. In the macroeconomic context, de- clining petroleum consumption is now being reinforced by declining over- all imports and, together with real decreases in unit costs for petroleum products, should ensure that the burden of petroleum import costs on the balance of payments is not further increased. The Present Pattern of Energy Consumption 1.6 An energy balance for Liberia for 1983 is presented in Annex 1. The gross supply of energy to the economy is estimated at 1.3 million toe, and final consumption after conversion losses at 0.9 million toe. The pattern of final energy consumption is summarized in Table 1.3 below. Biomass fuels comprise 69% of final consumption, compared with 23% for petroleum and 8Z for electricity. Almost 8% of final supply is met with charcoal within the biomass fuel component, and directed almost exclu- siveLy to the urban household market. On a sectoral basis, households dominate consumption albeit comprised largely of woodfuels. Mining and transport consume 10% and 162 of total final energy supply, accounting for the great majority of petroleum consumption outside of electricity generation for public supply, whereas the government, conmercial and estate agriculture sectors consume less than 3% between them.  Table 1,1: TREN0S IN GOP AND MOOERN ENERGY CONSL'PTION, 1976-83 Average Annual Growth 1976 1977 1978 1979 1980 1981 1982 1983 Rate (W) GOP at factor cost USS million (1971 prices) 357.2 354.2 368.2 384.4 366.2 350.1 328.5 307.1 -2.18 Traditional GDP econ. 73.5 77.2 77.2 78 S. 80 82.4 / 84.9 / 87.7 a/ 2.56 Total GOP f.c. (1971 prices) 430,7 431,4 445.4 462.4 446,2 432,5 413.4 394.8 -1.25 GOP at Current Market Prices 761.8 872.9 943.7 1067.6 1116.8 1055.4 1063.6 1046,9 4.65 Popeilatlon (1000) 1,632 1,690 1,743 1,810 1,873 1,941 2,012 2,088 3.55 Petroleum Consumption ('000) n.a. n,a. n,a. 602 609 472 438 422 -9,3 Electricity (GWh) b/ 329 339 344 367 364 341 323 308 -0.9 C Per Capita GOP f.c. (1971 USS prices) 263,9 255.3 254.7 255.5 238,2 222.8 205.5 189.1 -4.90 Petroleum Consumption (Kgoe/year) n.a. n.a. n,a. 333 325 243 218 202 -13.31 Electricity Consumption (kWh/year) 202 201 197 203 194 176 161 148 -4.50 a/ Estimates, ;/ Public or LEC Supply only: Generation minus 15S allowance for non-technical losses. Source: Bank staff and mission estimates and GOL.  Table 1.2: PETROLEUI IMPORTS, RE-EXPORTS, AND TOTAL MERCJWNDISE TRAME, 1976-82 (million S) 1976 1977 1978 1979 1980 1981 1982 Refined Petroelum Products Crude Oil 53.1 68.7 84.6 103.2 152.1 129,6 94.1 Petroleum Re-exports - - - - - - - Not Petroleum Imports 53.1 68,7 84.6 103.2 152.1 129.6 115.1 Total Merchandise Imports CIF 399.2 463.5 480.8 506.5 533.9 477.4 428.4 Non-petroleum merchandise Exports FOB 457.1 447.4 486.4 536.6 600.4 529.4 477.4 Net petroleum imports/ Total lmorts 13.3 14,7 17.6 20.4 28.4 27.1 26.9 Net petroleum Imports/ Total Exports 11.6 15.4 17.4 19.2 25.3 24.5 24.1 a/ Not considering aviation and marine bunkers as re-imports. Source: Economic Survey, 1982, pp. 15,20. Annual Report, National Bank of Liberia, 1982. Table 1.3: FINAL ENERGY CONSUMPTION, 1983 ('000 toe) Fuelwood Charcoal Electricity Petroleum Total Share Mining - - 53.1 44.8 95.3 10.7 Other Industry 4.4 _ 2.8 1.6 8.8 0.9 Transport _ - - 147.6 147.6 16.1 Agriculture - - 1.9 5.7 7.6 0.8 Households 556.2 69.5 9.0 4.5 639.2 69.7 Commerce/Government 12.0 4.2 16,2 1.8 Total 560.6 69,5 78.8 208.4 917.3 - Share (1) 61.1 7.6 8.6 22.7 100.0 Source: Annex 1.  -6- 1.7 In a regional context Liberia has one of the most energy inten- sive economies. Two very crude indices of energy intensity are provided in Table 1.4 for countries in the West African region for which either energy sector assessments have been completed or are underway. These indices compare only the use ot modern fuels with total population and economic production, and they illustrate well the impact of the mining sector on Liberia's energy economy for it is this activity which distin- guishes Liberia from the other countries for which this comparison is made. With resource constraints looming and demand projections showing poor iron and steel prospects, iron ore production in Liberia is certain to decline steadily during the remainder of the century. Therefore, by the mid to late 1990s, the energy intensity of economic production in Liberia will more closely resemble that of the other regionaL economies. Table 1.4: ENERGY INTENSITIES OF SELECTED REGIONAL COUNTRIES, 1981-82 Consumption of modern Consumption of modern GOP per Energy forms per Energy forms Capita capita per unit GOP (USS) (toe/1,000 people (toe/million USS) per year) Liberia 520 352 677 Ivory Coast 1,200 155 123 Mali 150 22 153 Upper Volta 250 26 104 Benin 380 33 88 Togo 320 92 288 Senegal 450 66 147 Source: World Bank and mission estimates. Recent Trends in Power and Petroleum Consumption 1.8 In the first instance, electricity production in the mining sector is about two-thirds of all power generation in Liberia but has been declining rapidly in the past three years. There is an exchange agreement between the public sector supply and the mines which has a minimal net balance but which effectively reduces the mining sectors petroleum-based power consumption during the wet season and reduces the cost of the public system's petroleum supply during the dry season (see Chapter III for details). However, excluding mining sales, demand by the public at large has been declining since 1980 (see Table 1.1 and Annex 14). Within the public supply system almost half of the consumption is by government and commerce and about 40% by households. The contribution of parastatals to commercial demand for el.ectricity is not identified,  -7- though it is undoubtedly significant since air-conditioning is the major load, and these quasi-governmental institutions are numerous and have their offices largely within the Monrovia Power System supply zone. Despite the overall decline in sales, it is likely that government con- sumption of electricity, directly or indirectly, has grown substantially in line with the growth in Government and parastatal employees since the revolution in 1980. It is also noteworthy that only about half the power generated is paid for, implying that roughly 40Z of power actually delivered is regarded as being free. When taken together, these observa- tions make the progressive decline in electricity generation and sales since 1980 all the more remarkable. The trends in petroleum product con- sumption year by year over this same period are also indicated in Table 1.5. These data show that the most uniform and sharp decline in consump- tion occurred in 1981, the year during which fuel oil consumption fell dramatically, reflecting a decline in mining activity. By 1983 the downward trend for fuels commonly used by the general public and business community - gasoline, diesel and kerosene - had bottomed out and a small amount of growth in demand was occurring over a greatly reduced consump- tion base. This recent positive trend in petroleum fuel consumption may be related to a small resurgence in rubber production in 1983. Table '.5: RECENT CONSUMPTION TRENDS FOR PETROLEUM AND POWER Average 1980 1981 1982 1983 1979-83 - Percentage Power Sales by LEC -0.9 -6.3 -5.3 -4.2 -4.5 Petroleum Product Supply LPG -4*9 -10.3 17.1 -2.4 0.6 Gasol ine -7.0 -14.4 -2.5 -5.3 -8.0 Avgas 0 6.0 -22.6 -2.4 -5.7 Jet fuel -28.9 -11.1 0.9 3.6 -10.9 Kerosene -8.5 -16.1 -31.7 3.6 -16.5 Diesel Oi l -13.3 -21.9 -13.5 5.3 -12.8 Fuel Oil 24.3 -26.4 -5.0 -16.9 -8.5 Source: Mission estimates, LPRC, LEC. 1.9 Petroleum end-use in 1983 is provided in Table 1.6. From a sectoral perspective the majority of the petroleum fuels used directly are consumed in transport. Excluding the aviation fuels, 60% of the internal transport fuel consumption is in the form of gasoline for taxis, light utility vehicles and other forms of public transport centered on Monrovia. Mining is responsible for more than 20% of direct petroleum consumption divided equally between diesel and fuel oil. Diesel use in  - 8 - mining is mostly for ore extraction and transport, whereas fuel oil is used for drying ore for pelLetisation. However, when petroleum-fueled power production is included, the mines become the dominant end-use sector for petroleum. Almost all the power supply to LANCO, the only other large iron ore mine, comes from this source. Petroleum fuel used in mining has, nevertheless, been declining during the 1980s and is expected to decline further, eventually ceasing in the early to mid-1990s as high grade accessible ore is exhausted. Petroleum is used to generate one-third of the public power supply, and combined with mines and other industry generation, is responsible for consumption of over half of total petroleum imports. During the next decade there is the opportunity to marginally increase the share of indigenous hydropower but there will be no significant displacement of oil-fired power generation by hydropower within the next ten years. The consumption of petroleum fuels in the household, manufacturing and agriculture sectors is less than 6% of the total used directLy. In industry fuel oil, diesel, and some kerosene are used for heat and steam raising. The manufacturing sector does generate electricity with diesel to support its operations during outages on the public power supply grid, and the lost profits and displaced investment capital in ensuring this back-up is sizeable. Upper income households used LPG as a back-up to electricity for cooking. However, since the refinery closed, all LPG has had to be imported at a much higher cost. The sharp increase in price and only intermittent supply has caused con- sumption to drop. If public power supply becomes reliable the latent demand for LPG will also decline and future imports are likely to be negligible in the context of overall petroleum supply. Kerosene is an important lighting source and is supplied from the Ivory Coast through unrecorded channels as well as through the port of Monrovia. The demand for kerosene lighting is largely outside of the urban economy and appears little influenced by more global economic trends. Petroleum consumption in agriculture is mostly in rubber production, with much smaller quan- tities in rice, palm oil, cocoa and other cash crops. Rubber prices have improved and the industry is being rapidly revived and expanded in Liberia though with the major rubber factories converting to wood-fired steam plant, there will be little increase in the direct use of petroleum products in the industry outside of transport and power production. Future Energy Demand 1.10 The prospects for economic growth in Liberia are uncertain, indeed the demand forecasts made by the mission assume that the mining sector will continue to decline and that possibly mining could cease by 1993 unless large investments are undertaken to develop new ore bodies; such investments are unlikely to materialize due to the secularly weak demand for iron ore. Such a prospect would greatly reduce the base and level of economic activity and modify the pattern of energy consumption in future. The energy balance projected for 1993 (Annex 2) is based on the most likely evolution of iron ore production and the respective mines as best forecast by the Bank's industry Department during the course of  -9- the energy assessment mission. The key assumptions are outlined in Annex 17 and are the best estimates that can be made on the basis of avaiLable information on the global steel market. This forecast bears strongly on the demand forecast for electricity and for petroleum products generally, and consequently bears strongly on the scale and nature of energy sector investment during the next ten years. However, because the major con- sumer in the iron ore sector, BMC, is assumed to remain in production through 1992, assumptions of better prospects for the mining sector do not alter the conclusions materially (BMC's energy demand is five times that of LAMCO; see Table 2.2). It is, therefore, quite important to em- phasize that even with a more optimistic view of enclave sector produc- tivity, little change is implied during the 1980s in the overall energy demand and hence in the sector investment program the mission has devised. Moreover, no account has been taken in the forecast provided, of the potential savings in fuel oil in the Bong Mine through the use of fuelwood (see para. 4.29), which are greater than che entire consumption for the NIOC. Similarly, any success in having consumers pay for elec- tricity consumed will tend to depress demand further and this effect has not been strongly built into the power demand forecast as projected (only 25% of unpaid demand is assumed lost if it must be paid for: Annex 17), and the full impact of this, too, would tend to offset any new demand through better-than-forecast performance in the enclave sector. However, as a result of the changes in the forecast of economic prospects and the sectoral composition of production, major shifts are likely to occur in the fuel mix and the sectoral pattern of consumption over the 1983-84 period, rather than in the aggregate level of energy consumption. The more significant of these are presented in Table 1.7, which is a summary of selected components of the energy balances for 1983 and 1993 provided in Annex 2. Table 1.6: FINAL CONSLMPTION OF PETROLEUM PRODUCrS BY SECTOR, 1982 (toe per day) Gaso- Diesel Fuel Percentage LPG line Avgas Jetfuel Kerosene Oil Oil Total Share Mining - - - - - 23.0 21.8 44.8 21.5 Other Industry - 1.2 - - 0.2 0.6 0.8 1.6 0.8 Agriculture 1.2 4,5 - 5.7 2.7 Households 0.3 - - - 4.2 - - 4.5 2.2 Transport - 70.2 0.6 30.4 - 46.4 - 147.6 70.8 Comnercial/Government 0.3 - - - 1.0 2.9 - 4.2 2.0 Total 0.6 71.4 0.6 30.4 5.4 77.4 22.6 208.4 - Share (S) 0.3 34.3 0.3 14.6 2.6 37.1 10.8 - 100.0 Power Production - - - - - 54.4 156.1 203.9 50.3 Total 0.6 71.4 0.6 30.4 5,4 131.8 178.7 418.9 - Share (W) 0.1 17.0 0.1 7.3 1.3 31.5 42.7 - 100.0 Note: Excludes Petroleum DeDot Use. Source: Mission estimates, LPRC, LEC.  - 10 - Changing Fuel Mix 1.11 For reasons aLready elaborated above, fuel oil consumption de- clines sharply over the next decade. The decline would be even greater if an increase in fuel oil fired power generation for public power supply were not projected. For the foreseeable future fuel oil is perhaps the cheapest source of power generation to meet dry season demand, and to meet the heat and steam requirements of the manufacturing sector. The demand for diesel oil is projected to decline not only through the reduc- tion in mining activity, but because of the more extensive use of fuel oil displacing it for power generation as the least cost generation op- tions are implemented. However, diesel oil is the prime fuel for the transport of manufactured goods, agriculture and forest products, and the reduction in its demand for ore handling is somewhat tempered by the growing demand for transport generated by recovery in these activities. A slight expansion in hydropower is anticipated which will displace primarily fuel oil, but also diesel oil fired power generation. The greatest expansion in supply of any fuel is that anticipated for char- coal, for which demand is seen to be linked with urbanization, and which will remain cheaper than its competitors - LPG and kerosene - throughout the period. The market for kerosene is small and relatively insensitive to fluctuations in modern sector performance, as kerosene is predomin- antly used for lighting in rural areas. On balance, the demand for bio- mass fuels will grow slightly faster than the rate of population growth, and their share of final energy consumption will move from 70% to 80% over the period: a most atypical transition that can be likened to a devolution of the energy economy which in most other developing countries is undergoing a slow but certain transition away from biomass fuels with urbanization and industrialization. The fact that fuelwood resources can sustain this transition, with reasonable management, is in part why the transition is likely to occur but can be regarded, nevertheless, a for- tuitous characteristic of Liberia's natural resource endowment. The decline in consumption forecast for the major petroleum fuels is largely the result of the projected possible closure of some of the iron ore mines. The forecast increase in public power supply of 0.2% p.a. is very low in comparison with aLmost any other developing country, and again reflects the relatively unique circumstance anticipated of losing a major source of wage and salary income in the period. This strong negative im- pact, and the impact on demand of having more and more consumers experi- ence the true cost of their consumption by being forced to pay their electricity bills, is only counteracted by growing urbanization and the accumulation of minimum need for electricity for Lighting, some cooking and other services. 1.12 Sectoral consumption patterns change with the possible loss of mining and this counteracts any relative growth in transport energy use stimulated by the expansion of economic activity in commercial agricul- ture and forestry. The share of household energy use increases as dis- cussed above, though also as an outcome of the decLine in energy use in other sectors. The net effect of these sectoral and fuel mix changes is that final energy use per capita shrinks and overall energy use expands  - II - at less than the rate of population growth through 1993. How declining oil imports will affect the balance of payments depends, obviously, on the level of export earnings outside of mining, the price of oil, and many other factors that cannot be predicted with any accuracy. However, it is clear that the pressure on forests is going to increase dramatic- ally with the annual consumption of wood fuels growing by over one-third within the decade, and with this demand increasingly concentrated around cities and towns. The consequent need for improved forest and fuelwood resource management is elaborated later in this report. Table 1.7: SIGNIFICANT FUTURE TRENDS IN ENERGY SUPPLY AND CONSUMPTION Percentage Change 1983 1993 Per Year Major Energ yForms or Sources CGross Supply) Puel Oil COrO toe) 185.9 38.9 -16.6 Diesel Oil ('000 toe) 131.9 76.5 -5.6 Firewood ('000 tonnes) 1636.3 2168.7 2.9 Charcoal ('000 tonnes) 97.7 158.9 5.0 Hydropower (GCh) 283.4 305.9 0.8 Fuel Class (Gross Supgly) Electricity (GWh) -' (public supply) 307.7 302.6 -0.2 Petroleum ('000 toe) 407.2 256.8 -4.7 Biomass ('000 twe) 2,488.1 3,558.7 3.6 End-Use Sectors (Final use) Mining 000 toe) 95.3 0.0 n.a. Transport ('000 toe) 147.6 175.2 1.7 Households ('000 toe) 639.4 866.9 3.1 Agriculture ('000 toe) 7.6 11.0 3.8 Overall Energy Consumption (final use) Per caplta per year All Energy forms (kgoe) 438.1 367.9 -1.8 Electricity (LEC Supply; kWh) 147.4 102.4 -3.7 Petroleum (Kgoe) 99.8 66.6 -4.1 Total Energy ('000 toe) 914.7 1091.4 1.8 a/ Generation less 15% for non-technical losses. Source: Annexes 1 and 2. Energy Pricing 1.13 The prices of petroleum fuels and electricity on the fonrovia Power System (MPS) are for the most part above the economic costs of  - 12 - supply. Electricity pricing issues are discussed in detail in Chapter III (paras. 3.28-3.33) though, briefly, the current tariff for the HPS is a uniform 15 cents/kWh, and the estimated LRMC is a little more than 9 cents/kWh for low voltage consumers. Early in 1984 the SRMC for some of the thermal generation was above this tariff level, though measures have been proposed by the mission which would avoid this in the forthcoming dry seasons when thermal power is required at the margin. The main tariff issues for the MPS are financie.1 rather than economic and have to do with the rate of retirement of the LEC's short term debt, the size of which depends, in turn, on the extent to which present outstandings have to be regarded as bad debts. The mission has projected LEC's financial performance under certain assumptions and shown that there is adequate scope for quite steep debt service over the next few years providing metering, billing and other reforms are implemented (see para 3.19, and Annex 15). In the GOL's isolated supply systems, revenues provide for less than one-sixth of the SRMC and urgent tariff reform is required prior to any further investment in power supply to these areas. A series of steps towards levying a more realistic cost-based tariff are provided by the mission in Chapter III (para. 3.33). The issues in petroleum pricing are more akin to those in respect of power on the MPS. 1.14 Petroleum prices and costs for supply to Monrovia are provided in Table 1.8. Border prices to bulk and retail consumers are estimated in Annex 3, and the build-up of ex-depot prices from the Liberian Petro- leum Refining Corporation (LPRC) is provided in Annex 4. At the retail level, prices for gasoline and diesel oil are between 2.6 and 3.3 times the economic cost of supply, whereas fuel oil supplied to the manufactur- ing sector in Monrovia is about 2.3 times economic costs. Prices to con- cessions, on the other hand, range from being slightly below the border price in the case of fuel oil, to double this level in the case of gaso- line. Concession supply includes that to the Liberian Electricity Corpo- ration (LEC) which, in 1984, was evenly balanced between fueL oil and diesel such that, on average, the economic price was being paid. In the future, as fuel oil becomes the dominant source of thermal power supply to the public grid, the transfer price between the LPRC and the LEC should reflect full economic costs. Currently this is a rather academic consideration as the LEC does not pay for the greater part of the oil supplied by the LPRC. Similarly, concession holders, or the multina- tional companies operating the iron ore, timber and rubber enclaves, are increasingly supplying their own product, especially fuel oil, hence the only concern need be the level of cost recovery by the LPRC for the use of its product handling and storage facilities. The mission examined the charge now levied on the Bong Mine for this purpose ($0.65/bbl) and found it to be a fair reflection of economic costs incurred. A substantial part of the ex-depot price for petroleum products is excise duty and, additionally for gasoLine only, a contribution to a "stabilization fund" established by the GOL to finance the debt built up in the Public Sector through delinquency in payment between government departments and para- statals. The Level of excise tax and the stabilisation fund tax is a matter of fiscal policy about which there is ongoing dialogue between the COL, the IMF and the World Bank. The mission's only observation is that,  - 13 - unless the LEC greatly reduces unpaid power consumption, and both it and the LPRC reduce their own excessive operating costs, these fiscal measures will not in themselves be adequate to resolve the cycling public debt problem. Therefore, the mission urges the COL to enforce the mea- sures outlined in the following chapters which are designed to radically cut costs, improve operating efficiency, and increase cash flow to both parastatals. Table 1.8: PETROLEUM PRICES AND COSTS, MONROVIA, LIBERIA, FIRST QUARTER, 1984 (US dollars) Ex-depot Retail Concession Estimate Price Price Price Economic Cost -------- per US gallon -B- Bulk - Retail Gasoline (Premium) 2.81 3.00 1.89 0.84 0.90 Kerosene (Power) 2.33 2.55 1.4' 0.85 0.90 Oiesel Oil 2.16 2.35 0.87 0.84 0.90 Fuel Oi1 1.67 n.a. 0.68 0,72 n.a. Liquified Petroleum 1.75 2.00 n.a. n,a, n.a. Gas (per kg) (per kg) Source: Oil Companies, LPRC and mission estimates, Annexes 3 and 4. n.a. = not available/applicable. 1.15 The firewood, fuelwood and charcoal markets are in private hands and there is fair price competition. Some apparent anomalies in woodfuels pricing are discussed in Chapter IV whereby prices for firewood vary considerably across the Monrovia urban area and between Monrovia and its immediate hinterland. However, by and large, the market is operating well and supply of these fuels is efficient. Prospects have also been identified by the mission for reducing the economic cost of woodfuel pro- duction and exploitation of the natural forest resource by increasing the information available to entrepreneurs regarding opportunities to gain access to suitable fuelwood, and through offering incentives of credit and other facilities for the use of the least cost resources.  - 14 - II. PETROLEUN Background 2.1 The main issues in the petroleum sector are concerned with op- tions for the efficient procurement of refined petroleum products and the fate of the now dormant Liberian refinery. These issues embrace, in turn, the need to resolve serious financial problems threatening the con- tinuity of petroleum supply and the need to greatly streamline adminis- trative arrangements for importing and wholesaling petroleum as part of a wider cost reduction program. In order to define a least cost practical solution to these problems the mission reviewed in detail the operations of the Liberian Petroleum Refining Company (LPRC) and examined the physi- cal condition of the refinery and petroleum handling and storage faci- lities. Similarly, in order to better understand Liberia's petroleum procurement options the mission examined relevant international petroleum product markets in the context of projected local demand. This chapter presents the integration of these analyses of short and longer term issues and options in an attempt to define a strategy to reduce the con- straint imposed by high petroleum costs on Liberia's economic develop- ment. Petroleum Resources 2.2 There are no known hydrocarbon reserves in Liberia. Potential petroleum resources have been identified in small sedentary basins on- shore and in the extension of thiLs sedimentary sequence offshore. In 1971, four offshore wells were sunk, all of which proved to be dry, though there were hydrocarbon shows in many of the geological sequences drilled. Nevertheless, in line with the interests of the oil companies concerned in the global oil market -' che day, these concessions were abandoned. In 1980, the Bank extended a US$5 million loan to Liberia for petroleum exploration promotion, including a 2,500 km seismic program in the offshore prospective zone. The outcome of this project has so far been an exploration production agreement between the GOL and Amoco Inter- national which is currently undertaking additional seismic work and pre- paring to drill the first of the four exploratory wells to which it is committed. It is obvious that the profile of Liberian energy policy will change dramatically if economic reserves are established, though even if they were discovered this year there is unlikely to be an effect on the country's energy supply prior to the 1990s. Petroleum Product Demand 2.3 The most important factor determining Liberia's petroleum con- sumption pattern is the performance of the mining sector, which accounted for about 49% of petroleum demand in 1983. The 30% decline in petroleum  - 15 - product consumption since 1980 has been due mainly to reduced iron ore production (Table 2.1). There has been a fall in demand for each product between 1979 and 1983; however, some recovery was experienced in jet fuel and diesel oil demand in 1983 (see Table 1.5). The pattern of petroleum product consumption in Liberia is summarized in Table 2.1. Since 1981, the reduction in petroleum consumption has been in proportion to the de- cline in GDP, with the energy intensity of the modern sector of the eco- nomy remaining virtually sLatic over this period. Table 2.1: DEVELOPMENT OF PETROLEUM PRODUCTS CONSUMPTION, 1979-83 (Mtoe) 1979 1980 1981 1982 1983 LPG 0.6 0.5 0.5 0.6 0.6 a' Motor GasoLine 97.5 90.7 77.6 75.6 71.7 Aviation Gasoline 0.7 0.7 0.7 0.6 0.6 Kerosene 10.0 9.1 7.7 5.2 5.4 - Jet Fuel 46.0 32.7 29.1 29.3 30.4 Cas Oil b// 212.1 183.0 143.0 123.7 131.9 Fuel Oil b 234.0 289.5 213.0 202.4 180.9 Total -/ 600.9 606.2 471.6 437.4 421.5 a/ Including estimated quantitites of unrecorded consumption. b/ Includes bunkers on historical basis. c/ Includes refinery fuel on historical basis but excludes the use as part of LPRC depot operation. Excludes also minor quantities of naphtha available when refinery operated, but believed to have been mainly exported. Source: Mission estimates, LPRC. 2.4 Projections of Liberia's petroleum requirements over the next ten years have been made on a sectoral basis. These projections are based on a number of major assumptions regarding future economic growth, forecast iron ore production (see Annex 17), and the overall demand for electricity through 1993. The macroeconomic assumptions applied are that population growth will continue to average 3.5% per year, with urbaniza- tion of the population proceeding at about 5.8%, the major proportion of which will be concentrated in Monrovia. GDP is projected to increase at 3.2% per year between 1983 and 1985, to decline sharply in 1987, 1988 and 1993, but otherwise to grow at 3.4-3.5% per annum. The mining sector's projected fuel requirements are summarized in Table 2.2. Petroleum prod- uct demand in 1993 is expected to be 165 Mte lower than that of 1983. Almost 90% of this decline will be due to the fall in fuel oil demand (Table 2.3). Iron ore production is expected to increase slightLy in 1985, followed by a reduction in output under the scenario applied as  - 16 - mining activity falls off at the NIOC and LAMCO mines. The BMC mine is expected to continue its operation untiL 1992, requiring about 103 Mtoe per year toward the end of the period. The forecast for consumption by fueL type provided in Table 2.3 shows a drastic fall in the proportion of heavy fuel oil, from about 45% to 152 of petroleum consumption between 1988 and 1993, while over the same period gasoline demand climbs from about 21Z to 35%, and middle distillates increase from about 31% to 49X of the total. The very sharp decrease in demand projected for petroLeum products between 1984 and 1993 greatly influences petroleum supply options. Supply of Petroleum 2.5 Up to December 1982, most of the country's petroleum require- ments were met by processing imported crude oil at the Monrovia refinery. The refinery, which was built in 1968 by Sun Oil Corporation, had a sus- tainable throughput of 13,500 barreLs per day. It was operated until 1976, when a major fire disrupted operations. The GOL bought the refin- ery from Sun Oil in 1978 and formed the Liberian Petroleum Refining Cor- poration (LPRC) as a public sector corporation to operate the refinery with the technical and management assistance of a 15-man expatriate team provided under a 5-year management contract by Lummus Operating Asso- ciates (LOA) of New Jersey. Since then it has been operated at up to 10,000 bbls/day. In December 1982, the refinery was closed following the collapse of crude oil procurement arrangements (see para. 2.15). At present the LPRC is responsible for all aspects of petroleum supply, with two exceptions: (a) the major concessions are permitted direct imports if the LPRC price exceeds the "fair world market prices" and (b) the major distributors and concessions (iron ore and rubber) are allowed to import products when the LPRC is unable to supply their requirements. From the beginning of 1983 alL of Liberia's petroleum product requirements were met by imports from the spot market. Most purchases were made at the last possibLe moment due to inadequate procurement planning and diffi- culty in arranging foreign exchange to establish the required credit. As a result LPRC was regarded often as a distress buyer and frequently paid well above world market prices. Nevertheless, LPRC retained its virtual monopoly on the import of petroleum products throughout most of 1983. Because the LPRC could not adequately meet the enclave sector petroLeum demand the companies concernei 1-egan importing products directly, often utilizing their own port facilities. The LPRC charges a handling fee for products procured by other companies which are received through its port and storage facilities. In November 1983, LPRC's monopoly on product imports was lifted and all end-users were permitted to import petroleum fuel for their own business operations, although at the same time the LPRC issued a set of guidelines governing the import of products by others which were not conducive to their participation. Less restric- tive guidelines were subsequently agreed to by the GOL but had not been released by February, 1984.  - 17 - Table 2.2: MINING SECTOR FUEL REQUIREMENTS ('000 toe) 1983 1985 1988 1992 BMC 155.3 161.9 146.6 146.6 LAMCO 30.2 35.2 15.3 - NIOC 10.0 11.0 - - Total 195.5 208.1 161.9 146.6 a/ This is for total iron ore production of 14.6, 15.5 and 7.5 MMte respectively for the years 1983, 1985, 1988 and 1992. Source: Mission Estimates. Table 2.3: COUNTRYWIDE PETROLEUM DEMAND FORECAST -----1985 -- - ----1988----- -----1993