Tanzania - Petroleum Sector Technical Assistance Project

Document of The World Bank FOR OmCIAL USE ONLY Report No. P-4013-TA REPORT AND RECOMMENDATION 0O- THEE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS FOR A PROPOSED DEVELOPMENT CREDIT OF SDR 8.1 MILLION TO THE UNITED REPUBLIC OF TANZANIA FOR A PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT May 10, 1985 This docoume has a resticted disd trib and im be wed by recipient ony in te perforunuce of hdr offidl duis. Its cotenot not herwise be died wthou Word Dak authorizat.  -CURlBCT EQUIVALENTS 8/ Currency Unit - Tanzania shilling (TSh) TSh 1.00 - US$0.06 USS 1.00 - TSh 17.0 US$ 1.00 - SD8 .9912730 AURREVIATIONS BP British Petroleum Caltex Caltec Oil Corporation CIF Cost, insurance and freight CNG Compressed Natural Gas ENI Ente Nazionale Idrocarburi EPDC Engineering & Pover Development Consultants IDA International Development Association IEDC Intermntional Energy Development Corporation IFC International Finance Corporation KOPEC Kuwait Overseas Petroleum Exploration Company LNG Liquified Natural Gas LPG Liquid Propane Gas HLNRT Ministry of Lands, Natural Resources & Tourism HIRT Ministry of NaturaL Resources & Tourism HlmU Ministry of Water, Energy & Minerals NPD Norwegian Petroleum Directorate NTIC Narional Transport C. rporation Ss Songo Songo TAIESCO Tanzania Eleetric Supply Company Tazara Tanzania Zambia Railway Authority Tiper Tanzania and Italian Refinery Company Limited TIRDO Tanzania Industrial Research and Development Organization TPDC Tanzania Petroleum Development Corporation TrC Tanzania Railway Corporation UNIDO United Nations industrial Development Organization BCF Billion Cubic Feet BTU (Btu) British thermal unit - 0.252 kilocalories CF cubic foot - 0.02832 Cubic Meter Cuh Gigawatt-hour - 1,000,000 kilowatt-hours (kWh) kgoe kilograms of oil equivalent km Kilometer - 0.62 miles - 1,000 meters lb/hr nounds/hour n meter m3 cubic meter - 6.289 barrels mefd thousand cubic feet/day MMCF million cubic feet mmcfd million cubic feet/day mt metric tonnes MW Megawatt - 1,000 Kilowatts (KU) TCF Trillion cubic feet TOE (toe) tonne of oil equivalent - 39.68 million BTU tonne metric con - 1,000 kilogram (kg); 2,204.6 pound (lb) Tpd (tpd) tonnes per day tpy (Tpy) tonnes per year FISCAL TEAR Government: July 1 - June 30 TPDC: January 1 - December 30 / AS the Tanzania shilling is officially valued in relation to a basket of the currencies of Tanzania's trading partners, the USDollarlTanzania shilling echanige rate is suba ect to change. A rate of USS 1.00 - TSh 17.0, which was the level set in the moSt recent exchange rate adjustmenc of June 1984, was used for appraisal of this project. The 'USDoLlar/SDL exchange rate used in this report is that of March 31, 1985.  FOR OMCLCAL USE ONLY - i - TANZANIA Petroleum Sector Technical Assistance Project Credit and Project Summary Borrower: United Republic of Tanzania Beneficiary: Ministry of Water, Energy and Minerals (MWEM) and Tanzania Petroleum Development Corporation (TPDC) Amount: A credit of SDR 8.1 million (US$8.0 million equivalent) Terms: Standard. Relending Terms: The proceeds of the Credit would be passed on to TPDC initially as a Government advance, to be later converted into a loan or equity. Project The proposed project would address immediate sectoral Description: concerns, including product distribution bottlenecks and the protection of the Songo Songo reservoir. In the longer-term, the project lays the groundwork for the rehabilitation and rationalization of the petroleum product distribution system and for the development of a strategy for the utilization of Tanzania's indigenous gas resources. The proposed credit would finance: (a) provision of inputs for the petroleum distribution system, and a study to analyze and make recommendations to improve the system; (b) the workover, rehabilitation and protection of the Songo Songo gas wells, a gas utilization study to evaluate the gas for domestic markets including a compressed natural gas feasibility study and a pilot scheme; (c) preparation of an exploration promotion package, and a TPDC minority share in a venture program of speculative seismic data acquisition and exploration study for promotion to the oil industry; and (d) technical assistance, staff training and related equipment for MWEM and TPDC institutional development Risks: Project risks include the small possibility of an explosion at Wells SS-3/4 during the rehabilitation, although every reasonable precaution would be taken. The improvements expected from product distribution measures to transportation of agricultural inputs and crops may be limited by the deteriorating condition of roads and of road and rail stock. In the longer term, this risk would be mitigated to a large extent by the Government's proposed development program which places increased priority on the rehabilitation of infrastructure. This document has a resticted distnbution 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.  - ii - Project Cost Estimates Local Foreign Total ---US$ '000 Equivalent-- Part A. Petroleum Product Distribution a) Product Distribution Equipment 490 530 1,020 b) Product Distribution Study 18 126 144 Part B. Domestic Gas Utilization a) Songo Songo Well Rehabilitation and Protection 640 2,600 3,240 b) Gas Utilization Study 220 530 750 c) CNG Demonstration Scheme 490 1,980 2,470 Part C. Exploration Promotion 175 580 755 Part D. Institutional Development 224 168 392 Project Coordination 48 336 384 Base Cost 2,305 6,850 9,155 Contingencies Physical 231 685 916 Price 464 465 929 Total Project Cost a/ 3,000 8,000 11,000 Financing Plan: Source Local Foreign Total - - US5'000 Equivalent IDA - 8,000 8,000 Government of Tanzania 100 - 100 TPDC 2,900 - 2,900 Total 3,000 8,000 11,000 Estimated Disbursements: IDA FY 1986 1987 1988 1989 Annual (US$ million) 4.0 2.5 1.0 0.5 Cumulative 4.0 6.5 7.5 8.0 Rate of Return: Not applicable Staff Appraisal Report: No separate report. Maps: IBRD 17580Q1 IBRD 17582R1 a/ Including taxes and duties of US$0.42 million equivalent.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS FOR A-PROPOSED CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A PETROLEUM SECTOR TECHNICAL ASSISTANCE PROJECT * 1. I submit the following report and recommendation for a proposed credit to the United Republic of Tanzania of SDR 8.1 million (US$8.0 million equivalent) on standard IDA terms to help finance a Petroleum Sector Technical Assistance Project. These funds would be passed on to the Tanzania Petroleum Development Corporation (TPDC) initially as a Government advance, to be later converted to a loan or equity. PART I - THE ECONOMY 2. An economic memorandum on Tanzania (Report No. 5019-TA), based on the work of an economic mission which visited the country in September/ October 1983, was issued in August 1984. This section is based on that economic memorandum, with subsequent updating. A summary of social and economic data is in Annex I. Background 3. At Independence in 1961, Tanzania was one of the poorest countries in the world. Almost solely dependent on subsistence agriculture and a few estate crops, the country had a very modest industrial base, which accounted for less than 5% of Gross Domestic Product (GDP), and a very small number of educated and trained personnel. For the first six years after Independence, the Government's development objectives resembled those of many other less developed countries, stressing growth in per capita income and national self-sufficiency in skilled manpower, based on market forces and capital intensive agricultural projects. This approach had a number of drawbacks, such as high investment costs in the agricultural sector. It led, in the Government's view, to unacceptable economic and social conditions, such as widening income differentials and unequal opportunities for advancement in the rural areas. In response to this situation, the national development strategy was reassessed in 1967. The new priorities, enunciated in the Arusha Declaration and related policy statements, were directed toward establishing a socialist society, with emphasis on broad-based rural development, self-reliance in development efforts, and mass education. To accomplish these ends, the State, with guidance from the Party, was expected to play the leading role, especially in the reform and creation of appropriate institutions. This led in the late 1960s to the nationalization of large-scale industry, commerce and finance, the creation of numerous parastatal bodies, the formation of ujamaa (cooperative) villages, the decentralization of Government (1972), and the mass campaign of villagization (1974-76).  -2- 4. Despite some disruption arising from these major inatitutional changes during the period, Tanzania managed to show improvements both in social welfare and in macroeconomic performance. Since Independence, primary school enrollment increased by more than 50%, life expectancy rose by almost 5 years, and access to safe water increased ii both the rural and urban areas. GDP grew by 4.4X per annum from 1966 to 1973, investment averaged 241 of GDP from 1970 to 1973, and domestic resource mobilization improved with recurrent revenues rising as a proportion of GDP from 151 in 1967/68 to 19% in the mid-1970s. However, the productive sectors grew slowly and the rate of return on new investments (which-were concentrated on the industry and transport sectors) was poor. Perhaps the principal disappointment was in agriculture, the dominant sector of the economy, which grew by only 2.3% per annum from 1966 to 1973. Growth was also uneven among regions and precluded any narrowing of rural-urban income differentials. Tanzania made rapid progress toward the Africanization of key posts in the economy, but large gaps in manpower requirements remained. Dependence on foreign aid to finance both domestic investment and the wideaing balance of payments gap also increased. By 1973, the issues that were to be so important for Tanzania throughout the later 1970s and early 1980s were becoming clear. How quickly could.a country with limited trained personnel develop a strong and efficient centrally administered economy? How long could the country afford the costs, in terms of efficiency and incentives, often resulting from the Government's emphasis on equity? What could be done to improve the growth rate of the monetized, productive sectors? 5. The oil price increases and world recession of 1973-74 coincided with two years cf below average rainfall in Tanzania, which had a detri- mental effect on agricultural production. Agricultural production also was affected by disruptive changes in the rural areas at this time (decentrali- zation and villagization), and foodgrain production was reduced. The Government was forced into the world market, making large purchases of foodgrains for cash. Export crop production also fell during this period and the barter terms of trade dropped by about one-third during these two years. As a result, the current account deficit rose from US$118 million in 1973 to around US$340 million in both 1974 and 1975. Domestically, the recurrent budget fell into deficit and Gcvernment bank borrowing rose from TSh 416 million in 1973/74 to TSh 1,061 million in 1975/76. 6. The Government prepared a program to deal with at least the short-term effects of the crisis and received some assistance from the IMF and a program loan from the Bank Group. Under the Government program, import levels were tightly restricted, wages were frozen, government devel- opment expenditures were redirected towards the productive sectors, and the Tanzanian shilling was devalued by 102 against the SDR. Producer prices for food crops were substantially increased and, at the same time, the National Milling Corporation (NMC) was instructed to purchase a number of drought-resistant crops such as cassava, sorghum, and pigeon peas in addi- tion to the usual foodgrains like maize. While these steps were taken to increase food production, they also discouraged the production of export crops, weakened the financial position of NKC, and required the banking system to extend large amounts of credit to NMC. Aside from the devalua- tion, little scope was given to market forces and Tanzania made no basic changes in its system of administered prices and government controls. The  3 basic weaknesses of the economy persisted -- declining export volumes, limited trained manpower, disappointing growth in the monetized and produc- tive sectors, and poor maintenance of existing capital stock and infra- structure, especially in agriculture and transport. 7. Nonetheless, the Government program, boosted greatly by the coffee boom of 1977, additional foreign assistance, and reasonable weather for agriculture, was able to keep the economy in balance until 1978. During 197t, the overly stringent import controls were relaxed at the same time as the terms of trade began to deteriorate again. The balance of payments went into deficit and foreign reserves were drawn down. Then, in October 1978, the country was invaded by forces from Uganda. The resulting war, the oil price increases of 1979, and the flooding and drought in different parts of Tanzania led to a worsening balance of payments deficit. The Government built up major arrears on its import payments for the first time since Independence. The domestic budget fell heavily into deficit as expenditures (led by defense) rose by 50% and revenues improved by only 1OZ from 1977/78 to 1978/79. As a result, Government borrowing from the banking system increased from TSh 600 million in 1977/78 to more than TSh 3,000 million in 1978/79. Such borrowing was the major factor in money supply growth, which exceeded 53X in this period. 8. The economy became troubled by major problems of falling production in agriculture and industry and declining factor productivity. In the mid 1970s, average GDP and per capita income growth rates were similar to those of other Sub-Saharan African countries. The average GDP grew by 5.2Z per annum between 1970 and 1978. With population growing at 3.3% annually, per capita GDP increased at an average rate of about 2% annually. Between 1978 and 1980, growth in aggregate output slowed to 3.3% per annum. In 1981, falling agricultural and industrial production caused GDP to decline by 1.7%; the rate of decline accelerated to 3.2% in 1982. Output in subsistence agriculture and manufacturing, which had experienced high growth rates of 6% to 7% per annum before 1978, fell by 8% and 16.6% per annum respectively over the next four years, while output in the services sector continued to grow steadily. The services sector, which accounted for only 9% of value added in 1966, now accounts for more than 25%. Output in the services sector reflects remuneration rather than output, and trends in subsistence production are at best guess-estimates with potentially large margins of error. For these reasons, trends in the rate of growth of GDP are in some doubt, but the shift away from a monetary to an informal economy is confirmed by the decline in the share of output marketed through official channels. 9. Although Tanzania has sustained a high investment ratio, this has not been matched by a similar success in the mobilization of domestic savings or in the return on investments. Up to the mid-1970s, foreign savings had financed 20-40% of domestic investment. However, the depen- dence on foreign savings rose sharply to more than 6U% of domestic invest- ment during the crisis years of 1974-75 and again from 1978. The major shortfalls in domestic savings have occurred in the Government sector, where they have actually been negative in some years since 1975. lU. Agriculture remains the most important sector in Tanzania, accounting for 83% of total employment, 45% of GDP, and 8U% of exports.  - 4 - The long-term trend growth rate of agricultural production has hardly kept pace with population growth and apparently has fallen in more recent years as the initial expansion of export crop production (through the mid-1960s) has been reversed. This poor performance cannot be adequately explained by the limitations of the natural environment. Although the importance of rural development has continuously been highlighted in Government state- ments, including the Arusha Declaration and successive plans, this has not always been reflected in the allocation of resources to the agricultural sector or in policy formulation and implementation. The general direction of the Government's post-Arusha agriculture strategy has also tended to emphasize the transformation of the institutional structure of rural devel- opment (through the formation of villages and increasing public involvement in the sector) over measures designed to improve agricultural production directly. Many of these institutional changes were introduced too rapidly, without careful planning or sufficient recognition that by themselves they could not compensate for inadequate incentives and shortages of skilled manpower and managers. More recently there has been a greater awareness of the role of incentives, and recent price adjustments attest to the Govern- ment's willingness to use incentives to influence the pattern of agricul- tural production. Available manpower, however, is still stretched rather thinly throughout the sector, mainly because of the predominant role assigned to the public sector. This has resulted in weakened capacity for policy planning and implementation, especially in the areas of research and extension, and deficient dietribution of fertilizers and other on-farm supplies and equipment. Another factor underlying the poor performance of agriculture has been the deterioration of transport services. Road, rail, and water services have declined owing to a lack of spare parts, poor main- tenance, and inadequate planning and management. The Current Balance of Payments Crisis and Medium Term Prospects 11. The slow growth in agricultural production, tl-auleport bottle- necks, and external shocks described above have all contrib,uted to the severe deterioration in the balance of payments since 1979. By 1982, export volumes had fallen to a level one-third below the peaks of the mid- l960s and early 1970s. Furthermore, the terms of trade have declined by 40% since the coffee boom of 1977 due to a sharp increase in import costs, especially for petroleum, at a time when the overall level of export prices has been rising very slowly. Owing to these adverse developments, the pur- chasing power of Tanzania's exports in ;982 was more than one-third lower than in 1977 and only one-half of the 1966 level. The basic adjustment to the high current account deficits following the second oil shock was through a cutback in imports. By 1982, irport volumes were 32% below the level in 1978 and 24% below the level prevailing in the early 1970s. Aid inflows have been maintained, but they increasingly have been tied to specific projects. Currently, food, oil and debt service account for almost all of export earnings resulting in a severe shortage of foreign exchange for many categories of imports for which aid resources are not available. As a result, Tanzania has built up almost US$400 million of import arrears, and has drawn down all of its reserves. 12. Given the poor prospects for internatioaal commodity prices as well as the limited scope for further external aid, there is little immediate prospect for an improvement in the balance of payments. This  continuing balance of payments constraint is inevitably having a debilitating effect on the economy, with lower imports reducing production and nmintenance of existing assets, resulting in further falls in exports and available foreign exchange. This vicious circle will be difficult to break inless there is a substantial injection of foreign exchange and major improvements in producer incentives, parastdtal operations, import alloca- tions, promotion of non-traditional exports, and overall government planning and budgeting. 13. In spite of intensive discussions with the Government in 1980 and 1981, it was difficult to focus on specific corrective measures needed for structural adjustment. In the absence of a comprehensive reform program, an Export Rehabilitation Program Credit (Credit 1133-TA) in the amount of US$50 million was negotiated in March 1981 to support a limited but sharply defined sec of measures intended to assist the Government in arresting the decline in earnings from the country's major export crops. During negotiations of this Program Credit, agreement was also reached on a Memorandum of Understanding on Follow-Up Measures. These included more restraint and selectivity in the public investment program, more emphasis in the recurrent budget on the operations and maintenance needs of the economy, improved foreign exchange budgeting, reexamination of the roles (particularly purchasing mandates) of the State-owned crop authorities, introduction of more payment-by-results schemes in industry, and review of subsidy and cost recovery arrangements in the public sector. A special agricultural account was established to channel imports into agriculture with suprisingly little friction among the institutions concerned, although the Government was not able to meet its own obligation to contribute USS50 million to the account. The Government also agreed that an independent Advisory Group would be established to assist in preparing a comprehensive program of economic rehabilitation and recovery. 14. The Advisory Group began work in November 1981 and completed its Report in April 1982. A large number of its recommendations were adopted by the Government and incorporated into a Structural Adjustment Program, which was issued in July 1982. This Program includes a series of important initiatives and proposals. The development budget was substantially cut back in 1982/83 for the second year in a row to release resources for the operations and maintenance needs of the economy. Agricultural producer prices were adjusted in 1983/84 and in 1984/85, which initially maintained them broadly constant in real terms and more recently increased them in real terms. The Government also announced its intention to relax restrictions on interregional trade. It also opened up the marketing of some crops (mainly minor grains such as millet) to anyone interested in conducting such trade. 15. In the 1984/85 budget submitted to Parliament on June 14, 1984, the Government announced a series of new measures. The most recent measures include a major exchange rate adjustment (36Z), the second in tw', years, an increase in agricultural producer prices of between 46% and 55Z, and an initiation of a program to improve the efficiency and productivity of agricultural parastatals. Preliminary analysis shows that these pricing changes are sufficient to allow agricultural parastatals as a group to break even while zesulting in an increase of 5% in real incomes of export crop producers. There is a serious attempt to make the NMC, the parastatal  - 6 - respoasible for grain marketing, financially viable through an increase in the consumer price for maize and a decontrol of the price of maize flour (sembe). These measures together should eliminate the need for budgetary transfers to the parastatals, which had amounted to nearly 11% of total recurrent expenditures in 1982/83. The measures also include politically sensitive actions such as the removal of subsidies on fertilizer and insecticides and the introduction of fees for secondary schools to cover a part of the costs. 16. The 1984/85 budget is thus bold in its attempts to reverse previous economic policies. However, the success of the budget in meeting its financial targets will, to a large extent, be contingent on availability of additional external assistance. Similarly, the supply response in agriculture to the improved incentives is likely to be weak in the absence of an increase in import capability that could finance incentive goods and agricultural inputs. 17. Tanzania has not had access to IMF facilities since December 1980, when the Government failed to meet performance targets under a previous Standby. Despite four rounds of discussions (in May, June, August, and October 1982), no agreement could be reached on a reform program. Following the announcement of devaluation and other new measures on June 14, 1984 (paragraph 15), the Government and the IMF have resumed discussions. Senior officials of the Ministry of Finance visited Washington in early July to elaborate upon the basis for the new measures. An IMF mission visited Tanzania in October to discuss the outline of a possible IMF program. la. Even with a much improved export performance, Tanzania will continue to face a very difficult balance of payments situation, especially over the next three to five years. A halt in the decline in per capita GD2 will require increasing amounts of aid in real terms and a careful review of import requirements, especially those for low-priority projects with long gestation periods and high foreign exchange costs. Otherwise the prospects would be for generally stagaant economic activity over the 1980s as a whole, with a substantial decline in per capita incomes. To avoid this situation, continued emphasis will be needed on export performance and concerted effort will be required to improve the level of capacity utiliza- tion and efficiency in the economy. Furthermore, this must be done without jeopardizing vital food production. 19. Although it may be possible to finance a small portion of the current account gap through commercial borrowings, the scope for this is clearly limited; in addition to the difficulties of raising commercial credit during a period of balance of payments problems, Tanzania simply cannot afford the heavy burden of debt service payments. Therefore, the bulk of the financing requirements will have to be met by additional foreign assistance. Possible sources for this assistance include deferred payment arrangements and other concessional finan"ing from oil-supplying countries, additional new commitments from traditional bilateral and multilateral sources, and continued movement toward non-project assistance.  -7 External Debt 20. Owing to the very concessional terms on which past aid has been given to Tanzania and the Government's previous reluctance to use higher cost commercial loans and suppliers' credits, the country's overall debt service ratios have historically been less than 10%. In recent years, there has been somewhat greater reliance on non-concessional borrowing. This borrowing, combined with falling exports, has resulted in an increase in the debt service ratio, which was estimated in 1982 to have been about 20%. The Bank Group is assisting the Government in carrying out a complete review of its external debt and improving its debt management system. This effort, which is still underway, has revealed that the reports on publicly guaranteed debt are incomplete and projected debt service payments may rise sharply as a number of old loans begin to fall due and coverage of the debt information improves. Unless Tanzania's poor export performance is re- versed, the debt service ratio over the next several years may be signifi- cantly higher than indicated above. Based on existing data, the Bank Group held 38Z of Tanzania's external debt outstanding and disbursed in 1982 (IBRD 13%) and obligations to the Bank Group accounted for 14X of total debt service. PART II - BANK GROUP OPERATIONS IN TANZANIA I/ 21. Tanzania joined the Bank, the Association, and the International Finance Corporation in 1962. Beginning with an IDA credit for education in 1963, 59 IDA credits and 19 Bank loans, two of these on Third Window terms, amounting to US$1,126.5 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of 11 loans totalling US$244.8 million which were extended for the development of the common services and development bank operated regionally by Tanzania, Kenya, and Uganda through their association in the former East African Community. IFC investments in Tanzania, totalling US$4.7 million, were made to the Kilombero Sugar Company in 1960 and 1964. This Company encountered financial difficulties and in 1969, IFC and other investors sold their interest in the Company to the Government. Another IFC investment of US$1.7 million in soap manufac- turing in Mbeya was approved by the Executive Directors in June 1978, an investment of US$1.5 million in metal product manufacturing was approved in May 1979 and in June 1984 an investment of US$3.2 million was approved for the Amboni sisal rehabilitation project. Annex II contains summary statements of Bank loans, IDA credits and IFC investmeats to Tanzania as of March 31, 1985. 22. Bank Group lending in Tanzania has been centered on: (i) agri- culture; (ii) transport and communications; (iii) industry; and (iv) educa- tion and manpower development. Since FY81, new Bank Group lending has been tocussed primarily on the rehabilitation and use of existing productive 1/ Part II of this report is substantially unchanged from Part II of the Report and Recommendation of the President for the Port Rehabilitation Project (Report No. P-3898-TA) of November 8, 1984.  -8- facilities and the introduction of infrastructure and services (such as power generation and education facilities) of long term use to the economy. Projects have been designed to minimize new demands on the Government's recurrent, development, and foreign exchange budgets; have been centered on already experienced or financially healthy institutions; and have been logistically insulated, as far as possible, from general supply difficulties in the economy. They have included technical assistance and training for better maintenance and use of existing capital facilities and mDre effective resource allocation in the economy. Lending during FY82-FY85 along these lines included a second petroleum exploration project, third and fourth technical assistance projects (focussed on key manpower gaps in the agricultural sector), a rehabilitation project for the Dar es Salaam sewerage system, a coal engineering project, a hydroelectric power project, and a port rehabilitation project. 23. A small number of other projects may be proposed in the agricul- tural, energy, and transport sectors during the next three years. A sixth highway project, involving mainly maintenance and reconstruction (particu- larly sections of the Tanzania-Zambia highway), and an agriculture rehabi- litation project are under preparation. however, the design and implemen- tation of viable projects including new investments in the productive sectors of the economy, especially agriculture and industry, will remain problematical in the absence of a wide-ranging economic adjustment program. 24. In addition to financing specific projects, the Bank Group has provided non-project assistance on three occasions in support of Govern- ment efforts to deal with its balance of payments difficulties. The first such Credit was made in 1974, the second in 1977, and the most recent, an Export Rehabilitation Program Credit (No. 1133-TA), in April 1981. 25. Project implementation in Tanzania has been adversely affected during the last five years by the disruptions of the Uganda War and the country's extreme foreign exchange difficulties, which have resulted in shortages of fuel and building materials, even when budgetary allocations for such purchases have been adequate. External financing agencies have been increasing the share of direct and indirect foreign exchange costs covered by project budgets; however, it is impossible to cushion projects completely, particularly in remote areas, from the ramifications of the economic crisis. Bank Group disbursements grew from US$58 million in FY78 to US$115.9 million in FY82 and then declined to US$71.2 million in FY84. A comparison with other portfolios in the Eastern Africa Region indicates that Tanzanian disbursements have been about average for the Region, rang- ing as a proportion of outstanding commitments from 25.5% in FY78 to 21.4% in FY84 (compared with 24.5% and 23.0X in the same years for the Region as a whole). 26. Supervision missions have been concerned with adapting project implementation to difficult factors facing the country or individual sectors, which were not anticipated or have proved worse than expected at appraisal. A major Country Implementation Review was held in Dar es Salaam in uctober 1982 during which Government officials and Bank Group staff agreed to recommend the restructuring or discontinuation of several projects experiencing persistent implementation problems. Intensive supervision and, in the case of the Mufindi Pulp and Paper Project (Credit  -9- 1370-TA), timely assistance from co-financiers have already had some reme- dial results. Even in the agricultural sector, where constraints on imple- mentation have been most severe, there have been improvements Lu some projects. However, considerable work remains to be done in improving project implementation and disbursements. The Country Implementation Review scheduled for May 1984, had to be deferred because of changes in the Government, but discussions were held on further rationalization of the project portfolio. The next Review is planned for Fall, 1985. PART III - THE ENERGY SECTOR Introduction 27. A recent joint UNDP/World Bank energy assessment report, entitled Tanzania - Issues and Options in the Energy Sector2/, contains a comprehensive review of the energy sector in TanzaWnia and a set of recommendations aimed towards the efficient develupment of the sector. According to this report Tanzania's final energy consumption totalled about 9.0 million toe in 1981, of which 92Z was consumed as non-commercial energy (fuelwood and charcoal) and the balance (8Z) as commercial energy (hydroelectricity, coal and petroleum products). The overall per capita consumption, estimated to be about 470 Kgoe, is comparable to other developing countries at similar levels of per capita income. 28. Tanzania's energy requirements, except for petroleum products, are supplied from the country's large indigenous resources of fuelvood, hydropower and coal. Although gas reserves of about 0.725 TCF have recently been proved at Songo Songo, a small island about 250 km, southeast of Dar es Salaam, with IDA assistance, they have not yet been developed and Tanzania is still dependent entirely on crude and product imports to meet its petroleum requirements. Since petroleum products accounted for over 90% of the total commercial energy consumption, their import has had a major impact on the country's balance of payments. In 1982, they accounted for 51% of Tanzania's "free' foreign exchange (export earnings and foreign aid not tied to specific projects), a proportion which has increased rapidly since the late 1970's. 29. To improve the efficiency of hydrocarbon distribution and utilization in Tanzania, with consequent benefits to tht economy, the Energy Assessment Report identified a number of key areas which should be addressed urgently, including: (a) the rehabilitation and rationalization of the petroleum importation, refining and distribution system; (b) the economic development of Tanzania's gas resources which are the only proved hydrocarbon resources in the country; 2/ Report No. 4969-TA, dated November 1984, of the Joint UNDP/World Bank Energy Sector Assessment Program.  - 10 - (c) the continuance of the petroleum exploration effort by the private sector; and (d) strengthening of the relevant institutions. Sector Organization 30. Responsibility for the energy sector rests with several agencies. The Ministry of Water, Energy and Minerals (MWEM) is in charge of hydrocarbons, electricity, coal and uranium. The Ministry of Lands, Natural Resources and Tourism (MLNRT) handles fuelvood. In addition to their policy formulation responsibilities, the ministries also supervise the activities of the parastatal organizations under their jurisdiction. As regards the commercial energy sector, M4WEM supervises the TPDC, the Tanzania Electric Supply Company (TANESCO), the State Mining Corporation, and the Rufiji Basin Development Authority. 31. Within MWEM, energy sector matters are dealt with by the newly created Energy Department in the Ministry. The Energy Department is headed by the recently appointed Commissioner for Energy and Petroleum Affairs, who reports to the Principal Secretary. This Department is responsible for energy planning and policy development activities 3/, evaluation of energy projects and monitoring of TPDC's implementation responsibilities and is divided into four Directorates, Petroleum, Electricity, Energy Systems and Exploration and Renewable Energy, each of which is assisted by an external adviser. The establishment of a separate Energy Department and the higher authority which has been accorded to its head should strengthen MWEM's capacity in discharging its energy sector responsibilities. 32. TPDC is the agency responsible for the implementation of Government policies in the petroleum sector. TPDC was established as a parastatal corporation in 1969 with responsibility for: (a) petroleum exploration and development (on its own account or as joint venturer); (b) purchase, processing and sale of crude and refined products; (c) coordination of product allocation and marketing; (d) advising on product pricing; and (e) promotion of industrial projects based on the petroleum sector. 3/ The Energy Assessment Report recommended the establishment of an Energy Commission, comprising the Principal Secretaries of the ministries concerned in the energy sector, with a supporting secretariat, to promoce sector coordination and planning. This recommendation is currently under consideration within Government.  - 11 - Since establishment, TPDC has carried out its responsibilities both directly and through the private sector, Its direct drilling operations at Songo Songo and elsewhere (paragraph 41) representing an example of the former. However, since the conclusion of these operations, Government has restricted TPDC's responsibilities to the implementation of Government's policies in petroleum exploration, development and marketing. Government looks to the private sector to provide the financial and technical resources to undertake operational responsibility in these areas. 33. Petroleum exploration has been carried out in Tanzania under production sharing or joint venture agreements by a number of international companies (including AGIP, Shell, International Energy Development Corporation (IEDC)). Refining of imported crude is carried out by che Tanzanian and Italian Refinery Limited (Tiper) under a long term cost -- plus toll refining contract with TPDC. Tiper is jointly owned by Government and Ente Nazionale Idrocarburi (ENI) of Italy with AGIP Petroli, an operating subsidiary of ENI, responsible for refinery management, for which it provides five expatriate managerial staff. Petroleum products are marketed by five Tanzanian subsidiary companies, British Petroleum (BP), AGIP, ESSO, Caltex and Total. The Government, through TPDC, holds a 50% share in the BP and AGIP companies while the others are wholly owned by their respective pareat companies. In all cases, management is provided by the parent oil company. 34. With a view to strengthening the TPDC organization, the Second Songo Songo Petroleum Exploration Project (Credit 1199-TA) included provision for a study of its managerial and financial structure. The study was carried out by the Commonwealth Secretariat and completed in 1983. Government, however, deferred implementation of the restructuring recommended by the study until January 1985, pending completion by TPDC of its drilling programs at Songo Songo and Kimbiji. The measures recommended by the study are now being implemented. A training program for TPDC's technical staff is underway, financed under Norwegian aid. This program needs to be supplemented with specific training for TPDC staff in collection and analysis of product marketing and distribution data, and in monitoring and budgeting of oil company exploration expenditures. The proposed project includes the provision of training for TPDC staff (paragraph 64). Petroleum Product Distribution 35. Refining: The Tiper Refinery has a design capacity of 750,000 mt per annum of products, based on Iranian or Iraqi crude, to yield about 700,000 mt of refined products. The yield pattern of the Refinery is not, however, in balance with current product demand, creating gasoline, kerosene and gas oil deficits and fuel oil surpluses. To reduce this imbalance, Tanzania has in recent years imported lighter crudes, such as Murban and Qatar, which have lowered maximum refinery output to 600,000 mt per annum. Even this level of production has not, however, been achieved because of periodic crude shortages and operating problems. 36. The Refinery's internal fuel consumption, including losses, ranges between 7% and 8%, which is high compared to the prevailing industry norm of 3.5% - 4% for refineries of similar configuration. An engineering  - 12 - study by Snamprogetti, an ltalian company, has now been completed with the assistance of Italian bilateral aid, to review measures to improve the Refinery performance. The economic justification for operating the Tiper Refinery is, however, affected by recent international and regional developments in the petroleum refining subsector, in particular the substantial refinery capacities coming onstream in the Middle East. In addition, the substitution of gas for competing fuels resulting from the utilization of Songo Songo reserves would also impact upon demand for Tiper Refinery products. The Government has confirmed that it has this question under continuing review but has emphasized that it would wish to take no action which might prejudice its current access to crude on preferential terms. The Bank Group will continue its dialogue with Tanzania regarding alternative overall schemes of supplying and distributing petroleum products for Tanzania and possibly also for other countries in the region. 37. Distribution: The transporcation network plays a key role in the economy, and particularly in the agricultural sector which is Tanzania's main source of export earnings, both in distribution of inputs (fertilizers and sprays) and in product marketing. It is, therefore, important that adequate fuel supplies are made available in a timely fashion to the crop areas. Petroleum products, principally gas oil for tractors and farm machinery and for long haul and local distribution trucks, are distributed to these areas by the five local oil marketing companies, BP, AGIP, Esso, Caltex and Total (paragraph 33). Imported and domestically refined products are stored by these companies in Dar es Salaam and then trans- ported by road, rail and sea to their respective regional storage facili- ties or direct to retail outlets and bulk customers. Petroleum products are transported by rail over the Tanzania Railway Corporation (TRC) network to the North and West, but not over the Tanzania Zambia Railways Authority (Tazara) line to Zambia, which lacks commercial petroleum product storage facilities. TRC also provides product transportation on Lake Victoria by lake tanker. The Government of Zanzibar provides product coastal transportation by two marine tankers. Road transportation of products is carried out by private road tanker operators under contract with the oil marketing companies. 38. The overall transportation sector is severely run down because of lack of maintenance and spare parts, partly reflecting foreign exchange constraints. As a result, petroleum product supplies in the principal agricultural areas are often low and periodically are depleted altogether. The generally poor road conditions also cause heavy strain on the road tanker fleet serving the Moshi/Arusha areas. Similarly, operating rail tarkcars are in short supply4/, and are therefore allocated exclusively to supply the Central (Dodoma), West (Kigoma) and Northwest (Mwanza) areas which are not accessable by road from Dar es Salaam. The lake and coastal vessels serving the Lake Victoria areas and the coastal areas north and south of Dar es Salaam are also often cut of operation for the same reasons. While the overall rehabilitation of the transportation sector 4/ Of a total of about 350 potentially usable rail tankears, only about 100 are currently in operational condition due to lack of maintenance and spare parts.  - 13 - requires a major Government program, some progress is already being made. A locomotive rehabilitation yard has recently been established by TRC at Morogoro with the assistance of Canadian CIDA, and the financing of rail tankcar rehabilitation facilities in Dar es Salaam has recently been approved by that agency. A major road rehabilitation project is currently under preparation by the Association. Pending overall rehabilitation of the transportaticon network, immediate measures are required to improve product distribution in agricultural crop areas and to reduce certain product wastages. The proposed project includes provision for these measures (paragraphs 59 and 60). 39. Liquified petroleum gas (LPG) produced by the Refinery is marketed principally in Dar es Sulaam by three of the local oil marketing companies, AGIP, BP and Esso, for domestic consumpt'on. The LPG is stored by the companies and distributed by them, either directly to bulk consumers, such as hotels and schools, or through distribution companies to the retail market in portable LPG bottles. Over the past few years, however, LPG bottles and other facilities have been increasingly scarce due to foreign exchange shortages. As a result, the Refinery has been unable to market its full LPG output, and has been flaring about 1,000 tpy out of 6,000 tpy produced. There is an urgent need to replenish the supply of LPG bottles and related facilities so that the flaring of LPG can be stopped. The proposed projecL includes provision of these facilities (paragraph 59). 40. Pricing. The prices of petroleum products are controlled by the Government. The retail prices of petroleum products (including gas oil) are at least equal to their economic opportunity costs, delivered in Dar es Salaam. Prices are uniform at the lb major regional distribution centers in the country. The price structure provides for freight and equalization funds to reimburse the marketing companies for transport cost differentials between the regional distribution centers. Utilization of Tanzania's Gas Reserves 41. Gas Reserves. The Songo Songo Petroleum Exploration Program, completed by TPDC in 1983 with the assistance of the Association and other cofinanciers, succeeded in proving up Tanzania's only commercial hydrocarbon reserves. The reserves are located at Songo Songo Island, about 250 km southeast of bar es Salaam. Proven gas reserves amount to 725 billion cubic feet, and proven and probable reserves to over one triliion cubic feet. The Songo Songo field should produce up to 100 million cubic feet of gas per day from wells SS-5, -7 and -9 (paragraph 45) when the existing 3+ inch production tubing is replaced by 4+ inch production tubing. A Summary of the Songo Songo exploration history is given in Annex 4. The well head assemblies of wells SS-5, -7, and -9 protrude about five feet above sea level. The well head assemblies are therefore subject to seawater corrosion and to marine collision hazards. Provision for protection of these wells is tikerefore included under the proposed project (paragraph 62). 42. before the beginning of the drilling program financed by the Association, TPDC had already drilled in 1977/78 two wells onshore Songo Songo Island, wells SS-3 and -4. These wells were not completed according to American Petroleum Institute standards and, starting in 1980, developed  - 14 - minor gas leaks for which temporary remedial action was taken. In mid-1984, these leaks increased to dangerous levels, with consequent risk to life and property on Songo Songo Island and to the overall productivity of the Songo Songo reservoir. While temporary remedial action has again been taken, the permanent rehabilitation of wells SS-3 and -4 is now urgently required. To enable this work to start as quickly as possible, funds are being made available on an interim basis by the Tanzania Investment Bank to TPDC out of the proceeds of IDA Credit 1060-TA, (paragraph 8U). 43. Potential Export Markets. Since the Songo Songo field is too small to justify a liquifled natural gas (LNG) project, the principal potential market for Songo Songo gas is fertilizer production for export. In 1981, TPDC entered into an agreement with Agrico, a member of the U.S. Williams Group, for the construction and operation at Kilwa of the Kilamco ammonia/urea plant, with capacity of 1,150 5/ tpd of ammonia and 1,725 tpd of urea, to be supplied by Songo Songo gas. Tanzania's domestic fertilizer demand is expected to take less than 10% of production; the balance would have to be exported to world markets under marketing agreements with Agrico. Arrangements for the financing of the fertilizer project, currently estimated to cost about US$500 million, including an approach to the International Finance Corporation, are still under discussion. Under the 1981 Agreement with Agrico, gas would be supplied from Songo Songo to the fertilizer plant as required up to a maximum of 66 mmcfd over a period of 25 years, a total requirement of up to 600 BCF of gas. 44. On the basis of current project cost estimates and projected fertilizer pr'ces, some concern arises as to whether the fertilizer project, as presently structured, would be able to pay an economic price for the Songo Songo gas, while at the same time earning a reasonable rate of return on the project investment. The Government is currently examining with Agrico the possibility of a reduction in the proposed capital costs of the fertilizer plant to make it competitive with other world scale fertilizer projects now being planned, and exploring whether an additional foreign equity participation can be introduced to make the proposed fertilizer project economically viable and reduce Government's financial exposure and risk. 45. Potential Domestic Markets. The potential domestic markets for gas comprise industrial fuel oil substitution (including supply to the Tiper Refinery), power generation and transportation. These markets have already been reviewed by the International Gas Development Corporation (IGDC) under the First Songo Songo Petroleum Exploration Project (Credit 1199-TA), and by the energy assessment mission. Their conclusions regarding the main domestic gas markets, together with the projected export 5/ An increase to 1,560 tpd of ammonia, to provide a surplus for export above urea production requirements, is currently under review. The daily gas deliverability and total reserves provided under the 1981 agreement should be sufficient to cover such an ammonia production increase.  - 15 - market demand referred to above, are summarized in Table I below, which shows the potential domestic gas market of about 12 mmcfd under zero growth projections and, alternatively, about 67 mmefd under growth projections applicable to the sector concerned. Such amounts of g's could be supplied from Songo Songo to Dar es Salaam via an 8-inch transmission pipeline, which, together with associated equipment, is estimated to cost about US$55 million to construct, although detailed field studies would be required to firm up this estimate. The Energy Assessment Report has analyzed the economic viability of this gas supply project using various assumptions on gas demand and pipeline system configuration. According to these preliminary analyses, the transmission pipeline investment would be economically justified even under the assumption of gas demand under zero growth projections. In the light of the positive findings of the IGLC study and the Energy Assessment keport, assistance is now required to enable Government to develop an overall strategy for the urilization of Tanzania's indigenous gas resources and provision for this purpose is included under the project (paragraph 71). An assessment of the various segments of the potential domestic gas markets is given in the following paragraphs. 46. Industrial Fuel uil Substitution: Total Dar es Salaam based industrial consumption of fuel oil, at the depressed 1982 production levels, amounted to about 80 million liters (75,000 toe) per year. Assuming continued industrial production at the 1982 levels and that all industries surveyed converted to gas, the substitution of 80 million liters of fuel oil by gas would represent an annual gas consumption of about 3.1 BCF or 8.4 mmefd, a total over 20 years of about 60 BCF. This consumption would be equivalent to gross annual savings in excess of US$10 million (valuing fuel oil at a conservative export price of US$140 per ton). If industrial fuel oil consumption were to grow at, say, 3% per annum from 1985 onwards, the industrial substitution gas market would grow to 10 mmcfdby 1990 and 15 mmcfd by 2007, a total of about 95 BCF over that period. Assistance to the Government (including on site engineers inspection) to firm up these assessments of the potential demand of industrial plants (including the supply of gas to the Tiper Refinery for boiler and furnace firing) in the Dar es Salaam area and of potential gas sales under alternative economic growth scenarios is now required. The proposed project includes provision for this assessment (paragraph 62(2)(a)). 47. The Power Generation Market: Power demand is estimated to exceed existing generation capacity by 1992 in the case of the growth scenario shown in Table 1, or by 1998 in the case of the alternative no growth scenario also shown in that Table. The next power generation increment could represent a substantial new market for gas either for peak shaving, or to defer major new power generation investment, or even to provide power to neighboring countries. The exact size of the long term gas market will depend on overall electricity demand projections and on the relative role played by gas, hydro and coal in Tanzania's overall power network. The least cost power generation study provided for under the Tanzania Fourth Power Project (Credit 1405-TA), approved by the Board in August 1983, addresses this issue. This study is being carried out by Acres of Canada and is expected to be completed by July 1985.  - 16 - Table I Potential Natural Gas Markets as at 2007 Nlo Growth I/ Growth 2' Cumulative Cumulative Daily Reserve Daily Reserve Delivery Requirement Delivery E4uirement (mmefd) (BCF) (mmcfd) (BCF) Export Fertilizer bb.0 602.0 6b.0 602.0 Domestic Industry Dar Plants 4.2 30.9 8.4 51.6 Wazo Hill 2.6 19.3 5.4 32.6 Tiper Refinery 3/ 1.5 11.2 1.5 11.2 Power Ubungo 4/ 3.5 25.4 3.5 25.4 Grid System - - 39.4 65.1 Transportation (CNG) - - 8.4 44.4 Domestic Subtotal 11.8 86.8 66.6 230.3 Total 77.8 688.8 132.6 832.3 I/ based on 1982 industrial fuel oil consumption. 2/ Industry - 3% p.a. from 1985 through 2007; Power - 2% 1982-87, 5% 1988-92 and 6% 1993-2007; and Transportation, irregular growth through 1996, constant thereafter (paragraph 4.36 of the Energy Assessment Report). 3/ No projected growth in TIPER demand since both cases assume refinery operation at capacity. 4/ dased on standby use at a 20X load factor, following station rehabilitation. No projected growth since both cases assume a constant Ubungo station load factor. 48. The 60 MW thermal Ubungo power station in Dar es Salaam, the only thermal generation capacity in the existing grid system, represents a potential market for gas for power generation in the short term which would be attractive given the high value of diesel savings (equivalent to US$7.40 per million Btu of gas compared to fuel oil value of US$3.67 per million Btu). Standby thermal capacity in Dar es Salaam is required as a back up against transmission line failure and reservoir shortfall in dry years and to add flexibility to grid system planning. In recognition of this need,  - 17 - the Tanzania Fourth Power Project (Credit 1405-TA) includes provision for review of the feasibility of rehabilitating the Ubungo station's original generation capacity of 60 MW, compared to its currently operative capacity of 10 MW, including the feasibility of converting the existing generators to gas, or replacing them by gas turbines. If operating at a 20X load factor, Ubungo station would generate lOU Gwh per annum and would consume about 3.5 mmcfd of gas, equivalent to savings of over US$9 million p.a. The results of the study, which is being carried by Engineering and Power Development Consultants (EPDC) of the UK, is expected to be available by July 1, 1985. 49. The Compressed Natural Gas (CNG) Market. The technology for CNG use in transportation is relatively straightforward and field tested, particularly for spark ignition engines. A full scale program for running motor cars on CNG rather than gasoline has been successfully in operation since the 1940s in the Po Valley, Italy, using local gas. More recently, schemes have been introduced in New Zealand, Canada and the USA for CNG use by gasoline engine cars and diesel engine trucks and buses. In addition to transportation, potential CNG markets also include use of CNG in areas not serviced by the national grid system, including use for power generation, iirigation, essential industries, and other cottage or rural agro-based industries remote from possible pipeline connections. The potential expansion of the market beyond stationery plants in the Dar es Salaam area, plus the higher values of the fuels, gasoline and diesel, which would be replaced by the CNG, make the potential CNG market attractive in planning the utilization of Tanzania's gas reserves. Although a number of experiments in developing countries with CNG have been initiated over the last few years, CNG utilization has not yet been introduced on a commercial scale. The proposed project therefore includes provision for a CNG study followed by a CAG demonstration scheme (paragraph 62). The estimated total potential market in Dar es Salaam for transportation, covering public service transportation (bus, rail, sea), truck and car fleet operations and general public use is of the order of 4 mmcfd of gas by 1991, rising to 8.4 mmcfd by the end of the decade, resulting in potential gross diesel oil savings rising from about US$11 million to US$22 million during this period. 50. Availability of Gas for Domestic Markets. Allowing for the maximum requirement of 66 mmefd by the fertilizer plant (Table 1), the gas available fer the domestic market (industrial fuel oil substitution, power generation and transportation) would be 125 BCF deliverable at up to 34 mmcfd. Compared to the potential gas demands for the domestic market shown in Table 1, the available gas would substantially exceed the daily and cumulative gas domestic demand over a 20 year period under zero growth projections. However, under the alternative growth projections also shown in the Table, the gas deliverability and reserve levels could constrain the full development over that period of the domestic market potential, particularly as regards gas supply for bulk power generation. A strategy is required to optimize the allocation of gas between markets in the event of supply constraints. Provision would be made under the project to assist in the development of such a strategy (paragraph 62).  - 18 - Petroleum Exploration 51. Government policy Is to look to the private sector to carry out petroleum exploration in Tanzania. Direct TPDC exploration is authorized only in limited circumstances. For example, the Songo Songo exploration program (financed in part by the Association under Credit 1199-TA) was entruatcd to TPDC because the prospective hydrocarbon reserves were considered too small to be attractive to the international oil companies as a basis for a large export-oriented project. To encourage private sector investment, the Petroleum (Exploration and Production) Act was enacted in 1980. That Act, together with the model form exploration and production license issued thereunder, sets out the basic fiscal and regulatory framework for private sector exploration in Tanzania. Government policy has been successful in attracting the substantial private sector exploration program now underway (see Nap IBRD 17580R) on the basis of this framework. Shell Oil (with a minority participation by ESSO) has taken out an exploration license over a large onshore area sothwest of Dar es Salaam and the International Energy Development Corporation (IEDC) an on and offshore area north of Dar es Salaam. Both companies have now drilled their first wells, the results of which are not as yet available. Shell, in partnership with Esso, is now mobilizing for a second well and Kuwait Overseas Exploration Company (KOPEC), a wholly-owned subsidiary of Kuwait Petroleum Corporation, and Elf Aquitaine have joined with IEDC for the same purpose. To further encourage the private sector in other prospective areas, Government has recently completed a regional aeromagnetic survey over the Tanganyika Graben under a ioint program with Zaire, Burundi and Uganda, in the case of Tanzania financed by an existing World Bank Group technical assistance project (Credit 1060-TA). The survey indicates sedimentary thicknesses of up to 4,000 m. As a result, a number of oil companies are currently discussing with Government the possibility of taking out exploration licenses. 52. The principal petroleum prospective area not taken out, or under consideration by the private sector is the Tanzania Coastal Basin. Under a technical assistance program, the Norwegian Petroleum Directorate (NPD) has recrntly completed a geological study of the central Coastal Basin, which indicates a number of attractive petroleum prospects in the area, and is about to start a similar study of the southern Coastal Basin. The financing arrangements for these studies do not, however, include any promotional marketing of these prospects for oil company exploration. In addition, a data acquisition company and a petroleum exploration company are currently considering the possibility of undertaking a regional seismic program and a regional geochemical study respectively, to be carried on a speculative basis for subsequent sale to the industry. Pro-vision for consolidation of the NPD studies, for a TPDC minority share in the regional programs, and for marketing of prospects in the Coastal Basin for private sector exploration, is included under the proposed project (paragraph 63). The Role of the Bank Group in the Energy Sector 53. The Bank Group has been involved in the development of the energy sector in Tanzania for nearly two decades. It has assisted in the financing of four power generation projects for TANESCO with loans and credits totalling US$109.2 million. The last project (financed under an  - 19 - IDA Credit of US$32.0 million equivalent) was approved by the Board in 1983, for the construction of the Mtera hydroelectric station (Credit 1405-TA). This project is being implemented satisfactorily. A US$6.3 million IDA credit was also approved in 1983 for a Coal Engineering Project (Credit 1371-TA) to updace geological data on the Songwe-Kiwira field and to explore and delineate further reserves at Tanzania's only producing coal mine at Illima. The project has suffered delays in recruitment of consultants and advisory staff. Consultants have now been contracted, and the State Mining Corporation is actively searching for technical and financial advisory staff. In the petroleum sector, Tanzania has received two IDA credits for exploration (Credits S27-TA and 1199-TA), the first for USS30.0 million in 1980 for the initial phase of the Songo Songo exploration program, and the second in 1982 for US$2U.0 million to finance the second phase of the program. The combined drilling program resulted in the discovery of proven natural gas reserves of 725 BCF (paragraph 41) and was compleced satisfactorily in 1983. A combined completion report is being prepared. In addition, a regional aeromagnetic survey over the Tanganyika Graben has recently been completed by Tanzania, Zaire, Burundi and Uganda, in each case financed out of existing World Bank Group technical assistance projects for those countries. This survey indicated substantial sedimentary thicknesses. The Bank Group was also a sponsor of a reconnaissance seismic program over Lake Tanganyika which verified the aeromagnetie survey findings. Both programs have contributed towards the current private sector exploration interest in the area. 54. Over the past five years, the Bank Group has assisted the Government of Tanzania in the design and implementation of a rational energy strategy which would make maximum use of domestic energy resources (mainly hydro and natural gas) and draw on external sources of capital and expercise for risk investments. This process has been, and remains, difficult because of the severe economic difficulties that Tanzania has to face in the forseeable future. These difficulties have introduced considerable uncertainties in demand projections, thus making investment decision in new plant capacity (hydro or gas) very risky. The Bank Group continues to support institutional development and the building up of a sector and corporate management capability adequate to handle the future development of the energy sector as a whole. PART IV - THE PROJECT 55. The project was appraised in December 1984 in response to Government's invitation following its approval of the November 1984 Energy Assessment Report. Negotiations were lield between April 29-May 1, 1985 in Washington. The Tanzanian delegation was led by Mr. Fulgence Kazaura, the Principal Secretary, Ministry of later, Energy and Minerals. A Credit and Project Summary is given at the beginning of this report. A Supplementary Project Data Sheet is attached as Annex 3. No staff appraisal report was prepared for this project. Rationale for the lnvolvement of the Association in the Project 56. Through its support to Tanzania in the energy sector over the past 20 years, particularly under the two Songo Songo Petroleum Exploration  - 20- Projects and the recent Energy Assessment, the Bank Group has built up a detailed knowledge of the sector, and sectoral institutions. This knowledge places the Bank Group in a strong position to assist Government to develop the overal'l energy strategy described above. Furthermore, the involvement of the Bank Group in other countries in East Africa should facilitate regional cooperation in energy exploration, product distribution and potential energy export. The cofinancing between the Bank Group and other agencies In projects in Tanzania and elsewhere should also facilitate Government's identification of financing for future energy sector investment. Project Objectives 57. The Energy Assessment Report identified immediate petroleum sector requirements and made recommendations for a long-term petroleum sector strategy. The proposed project would support these recoimandations. The immediate project objective is to alleviate product distribution bottlenecks and wastages. In the longer term, the project seeks to assist Government, by building on information and analyses now available, to develop an overall strategy for: Ct) the rehabilitation and rationalization of the product distribution system; (ii) the utilization of Tanzania's indigenous gas resources; and (iii) the maintenance of the private sector exploration effort. To assist Government in developing and implementing this strategy, the project seeks to strengthen the technical capability of the newly formed Department of Energy (MWEM) in its supervisory function, and of the national petroleum company as the Government's principal petroleum sector implementing agency. Project Description 58. The proposed credit would finance: (a) equipment in support of the petroleum distribution system, and a study to analyze and make recommendations to improve the system; (b) wo-kover, rehabilitation and protection of the Songo Songo gas wells, a gas utilization study to evaluate the gas for domestic markets, including a CNG feasibility study, and a CNG demonstration scheme; (c) preparation of an exploration promotion package, and a TPDC minority share in a joint venture program of speculative seismatic data acquisition and exploration study for promotion to the oil industry; and (d) technical assistance, staff training, and related equipment for MWk4 and TPDC institutional development. Detailed Features Part A - Petroleum Product Distribution 59. This component comprises the provision of: (1) (a) tires, pumps and related items to put about 40 ruad tankers and about 55 retail and consumer product pumps back in operation in Dar es Salaam and in key agricultural areas (Mwanza, Mloshi and Arusha); (b) mobile radio equipment at the rail yard in Mwanza to decrease rail tanker turnaround by about 20% and at the Tiper Refinery to expedite product transfer at Dar es Salaam; and  - 21 - (c) LPG bottles and related equipment to market in Dar es Salaam about 1,000 tpy of LPG currently flared at the Tiper Refinery; and (2) undertaking a product distribution study to analyze the current system of distribution and storage in Tanzania and to make recommendations for the overall rationalization and rehabilitation of the system. 60. Pending the rehabilitation of the transportation network (para- graph 38) and rationalization of the petroleum product distribution system, the project would provide for immediate measures at a foreign exchange cost of about US$500,000 to improve petroleum product distribution in key agricultural areas and to reduce product wastages. The provision made for tires represents a 12-18 month supply for tankers distributing products locally from the regional storage facilities in Moshi, Arusha and Mwanza. in Dar es Salaam, the project would save about US$500,000 annual product losses by provision of about 12 transfer pumps at the main oil marketing company storage tanks. The project would eliminate the LPG flaring and put it back on the market In Dar es Salaam through the provision of about 2,000 LPG bottles and related facilities. 61. The product distribution study would examine various economic options to satisfy the petroleum product requirements in Tanzania. For the longer term, the product distribution study would identify priorities for the comprehensive rehabilitation of the petroleum transportation system and make recommendations for the rationalization of the overall petroleum product distribution system. eart B - Domestic Gas Utilization b2. To address the urgent need for protecting life, resources and capital assets, and to explore the possibility of petroleum product substitution, this component comprises: (1) the workover and rehabilitation of onshore Songo Songo Wells SS-3 and -4 to a safe operating condition (paragraph 42), and the construction of platforms and protective structures around offshore Songo Songo Wells SS-5, -7, and 9 to safeguard against seawater corrosion and marine collision hazards (paragraph 41); (2) undertaking a gas utilization study (paragraphs 45 and 46) in three phases to evaluate the economic utilization of the Songo Songo gas for the domestic markets, including: (a) an assessment of the domestic markets in Dar es Salaam served by a gas pipeline from Songo Songo (industry, Tiper Refinery and national grid power generation) and for markets in and outside that area served by CNG (transportation, independent power stations and agribusiness). (b) if justified by the market assessment study, the preliminary design, sizing and routing of the Dar es Salaam gas supply system, including distribution; and  - 22 - (c) the development of an overall strategy for the utilization of Songo Songo gas reserves, including gas pricing, the identification of financing sources and the formulation of appropriate institutional arrangements; and (3) subject to the recommendations of the g.8 utilization study, the implementation of a demonstration scheme for the utilization of CNG for public transportation in Dar es Salaam and for such other industrial and commercial users as may be recommended by such study. The CdG study would assume that appropriate energy conservation measures are taken, would assess the technical feasibility and cost of gas conversion, and would include recommendations as to the justification, timing and overall feasibility of proceeding with the demonstration scheme. The scheme would test the adaptability of the technology of operating in Tanzanian conditions for conventionally powered vehicles, for independent power generation and for agribusiness use. Part C - Exploration Promotion O3. In support of a petroleum promotional program, this component comprises: (1) preparation of an overall exploration promotion package, in consultfttion with private sector oil companies, covering prospective areas in the Coastal Basin, including data gathering assignments by TPDC staff, and the promotion of exploration in such areas to interested companies (paragraph 52); and (2) financial participation by TPDC in joint venture programs of speculative seismic data acquisition and exploration study in the Coastal Basin for promotion to the oil industry (paragraph 52). The proposed project would finance a TPDC minority share in promotional programs in order to mobilize private sector finance for the balance of the program costs. The terms for TPDC participation would be provided for under joint venture arrangements to be entered into on terms and conditions satisfactory to the Association. The proposed project would support Government's continued efforts to maintain and attract further exploration activities by the private sector. Part D - Institutional Development 64. Tc. further support the institutional capabilities of MWEH and TPDC, this component would comprise: (1) strengthening of MWEM to undertake policy development and energy sector strategy through the provision of technical assistance, staff training and equipment, including short term consultancies, workshop facilities, training programs, data base building and analysis (paragraph 31); and  - 23 - (2) training and managerial aseistance to TPDC staff in the collection, analysis and processing of product marketing and distribution data and in the monitoring of exploration expenditures (paragraph 34). In addition to providing institutional development assistance to MWEM and TPDC staff, the project would provide for the participation of MWEM staff in the gas utilization study, and of TPDC staff in the product distribution and gas utilization studies provided for under the project. Project Costs and Financing 65. The total cost of the project is estimated at US$11.0 million consisting of US$8.0 million (73%) in foreign exchange costs and US$3.0 million (27%) in local costs, including taxes and duties of US$0.4 million.b/ A detailed breakdown of costs is given at Annex 5. The well rehabilitation and protection platforms cost estimates are based on quotations already received by TPDC, and the product distribution equipment costs on estimates provided by the oil marketing companies. The project provides for a total of 100 man months of various consulting and advisory services. The man-month scales are comparable to those charged in Eastern Africa for similar assignments, taking into account local conditions and the high level of expertise required in the petroleum industry. Physical contingencies total US$0.9 million or about 10% of base costs. Price contingencies amount to US$0.9 million or about 10% of base costs and were calculated assuming international price escalation of 4% in 1985, and 8% in 1986-88, and domestic price escalation of 15% in 1985, and 25% in 1986-88. Financing Plan 66. The proposed IDA credit of US$8.0 million (73% of total) would finance 100% of foreign exchange costs. Except for parts B.2 and D.l(a) of the project, the proceeds of the Credit would be made available by the Borrower to TPDC initially as a Government advance, to be converted into a loan or equity in consultation with the Association following completion of the financial restructuring to be carried out by TPDC not later than July 31, 1986. The Government would bear the foreign exchange risk. The local currency costs of the project amount to US$3.0 million equivalent, and would be respectively financed by TPDC (US$2.9 million equivalent) and by MWEM (US$0.1 million equivalent) from their own resources. The foreign and local expenditures incurred by TPDC for the benefit of the Tiper Refinery, Tanzania Railways Corporation and the oil marketing companies of US$0.5 million equivalent before contingencies would be repaid in full in local currency by the corporation or company concerned. TPDC would agree to pay 6/ No taxes or duties are shown in respect of imported equipment for the CNG demonstration scheme since TPDC will apply for exemption, as in the case of equipment imported for the Songo Songo Petroleum Exploration Projects. If taxes and duties are levied, TPDC has the financial capacity to pay them. The matter will be clarified on submission of the proposed CNG demonstration scheme to the Association for approval (paragraph 80).  - 24 - all monies so received into a local currency account (Project Account), and to use those monies exclusively for the purposes of the project (Section 2.05, draft Project Agreement). Project Implementation 67. TPDC would be responsible under a Project Agreement to be entered into with the Association, for the implementation of all parts of the project, except for the strategy development phase of the gas utilization study and institutional strengthening of MWEM, which would be implemented by MWEM. To assist TPDC in the overall coordination of each project compouent, TPDC would appoint a suitably qualified and experienced Project Coordinator, on a full time basis, for a period of not less than 24 months (paragraph 75) under terms of reference agreed at negotiations. 68. The Product Distribution measures would be carried out by the oil marketing companies, the Tanzania Railways Corporation (TRC) and the Tiper Refinery under implementation arrangements with TPDC to be agreed by the Association as a condition of disbursement (paragraph 80). The equipment would be treated as having been procured by TPDC in the currency of the supplier and immediately resold by TPDC to the companies, TRC or Tiper. The local currency sales price would be agreed in advance, based on the equipment's CIF cost at Dar es Salaam, plus duties, taxes and TPDC handling charges. TPDC would undertake to use the local currency sales proceeds for the purposes of the project (Section 2.05, draft Project Agreement). 69. The Product Distribution Study would be carried out by TPDC with the assistance of a consulting firm specialized in product procurement and distribution under terms of reterence agreed at negotiations. 70. The Songo Songo Well Rehabilitation and Protection would be carried out by specialized contractors on behalf of TPDC under the supervision of a petroleum engineering consulting firm to be retained by TPIC under terms of reference agreed at negotiations, in the former case with appropriate provision for production testing, certification and insurance. TPDC would be required to inspect and maintain all Songo Songo wells on a regular basis, and to report to the Association accordingly. 71. The Gas Utilization Study would be carried out under terms of reference agreed aE negotiations in three phases, namely: (i) an internal review to consolidate existing studies, to be carried out by NWEM; (ii) study of existing markets and, if justified, of gas supply system design and costs, to be carried out by TPDC; and (iii) preparation of a gas utilization strategy, to be carried out under implementation arrangements to be agreed between the Borrower and the Association at the end of Phase (ii). To provide a firm basis for the development of a gas utilization strategy, the marKeting study phase would consolidate existing data (including the  - 25 - IGDC gas utilization study and related studies on industrial energy conservation, refinery upgrading and future power generation planning), to be supplemented by additional field data as required; the gas supply system design and costing would include field studies of the route and take into account the aesign and engineering now being carried out of the supply system to Kilamco for the proposed fertilizer plant (paragraph 43). 72. The CNG Demonstration Scheme: TPDC would be responsible for carrying out the CNG study as part of the overall gas utilization study, with the assistance of consultants specialized in Lhe utilization of CNG in developing countries. The CNG study would evaluate the economic viability of CNG use in Tanzania, either independently of a pipeline system to Dar es balaam, or in combination with such a system. If CNG use was found to be economically viable, the study would prepare a detailed CNG demonstration scheme to test the technical feasibility of CNG use in Tanzania conditions and to initiate the introduction of CNG into commercial use. The CNG demonstration scheme would include use for public sector bus transportation, since the scheme could be operated on an enclave basis out of a single bus depot in Dar es Salaam, simplifying implementation, and since the gradual expansion of CNG use to the rest of the public bus service fleet in Dar es Salaam would be a logical next step to enlarge the CNG market. The CNG demonstration scheme would also include supply of CNG to large industrial and commercial users in Dar es Salaam to increase scheme revenues. Because of the potential of CNG in the transportation sector in Tanzania and elsewhere, private sector vehicle and equipment manufacturers, oil marketing companies, and their national bilateral aid agencies, would be invited to participate in the CNG demonstration scheme in addition to their ongoing programs, by providing CNG buses, storage and filling station equipment, and technical assistance or implementing specific parts of the demonstration scheme, or to expand it to other segments of the putential market. IDA funds would only be used to finance this equipment to the extent that bilateral or other financing could not be secured. The major bus manufacturers (Daimler-Benz, Leyland) supplying buses to Tanzania, and one of the oil marketing companies (Caltex) operating in Tanzania have already expressed interest in participating in the demonstration scheme. Their participation would not only contribute towards the stuccessful implementation of the scheme, but would also accelerate the transition from demonstration scheme to commercial CNG utilization. 73. Exploration Promotion: The exploration promotion component (including TPDC staff data gathering assignments) would be implemented by TPDC with the assistance of exploration consultants under terms of reference agreed at negotiations in accordance with a program for the implementation of the exploratior. promotion, to be agreed with the Association. The speculative programs of seismic acquisition and geochemical study provided for under the project would be implemented by seismic acquisition and exploration companies. 74. Institutional Development: A detailed program for the institutional development components would be formulated, in the case of MWEk, during its implementation of phase 1 of the gas utilization study, and, in the case of TPDC, by the consultants retained for the product distribution study and the exploration promotion project components.  - 26 - 75. Appointment of the Project Coordinator on terms of reference agreed during negotiations would be a condition of effectiventess of the proposed credit (Section 5.01, draft Development Credit Agreement). Agreement was reached during negotiations that TPDC would promptly appoint at least 3 professional staff (in petroleum marketing, operations and finance) to work with the Project Coordinator. 76. The two studies provided for under the project (product distribution and gas utilization (paragraphs 61 and 62) would be implemented by MWEM and TPDC with the assistance of consulting firms. MWEM and TPDC have agreed that these studies should be commenced by November 1, 1985. Upon completion of these studies, Government and TPDC agreed to review the study recommendations with the Association, for implementation as appropriate. 77. Implementation of the rehabilitation of Songo Songo Wells SS-3 and -4 is expected begin shortly and to be completed by November 30, 1985. TPLC agreed to appoint by October 1, 1985 contractors to carry out the Songo Songo Wells SS-5, -7 and -9 protective works (paragraph 62(1)) which would be expected to be completed by March 30, 1986 (Schedule 2, draft Project Agreement). TPDC agreed to submit by September 30, 1985, implementation proposals for the product distribution measures (paragraph 58), to the Association for review, with a view to implementing these measures over an 18-month period from November 1985. With reference to the exploration promotion component, LPDC agreed to appoint exploration promotion consultants by November 1, 1985. In addition, TPDC agreed by September 30, 1985 to solicit from the seismic acquisition and exploration companies concerned detailed joint venture proposals for TPDC participation in -'eculative seismic programs (paragraph 63(2)), to be submitted to the As.iciation for review. TPDC agreed that implementation of the proposals as reviewed with the Association would commence as soon as possible after the conclusion of that review (Schedule 2, draft Project Agreement). Implementation of the institutional development programs (paragraph 74) would begin following review of the programs between the Borrower and the Association not later than January 1986 in the case of MWEM, and not later than May 1986 in the case of TPDC. A timetable for project implementation is shown in Annex 6 (Schedule 2, draft Project Agreement). Procurement 78. The goods and services provided for under the project would be procured under the following procedures:  - 2i - Limited Project International International Individual Component Tendering Shopping Consultants Negotiation Total - US$ '000 Equivalent ------------ Civil Works 3900 - 3900 Equipment & Materials 2800 1630 - 4430 Studies 1400 1400 Consultant Services & Training - 900 - 900 TPDC Partic. in Joint Vent. Exploration - - - 370 370 b700 1630 2300 37U 01005 of which Association financed 5100 600 1900 400 8000 79. Quotations for the civil works required to rehabilitate Wells SS-3 and -4 (paragraph 62(1)) have already been invited by TPDC from three of the limited number of specialist contractors able to undertake this work. The award would be made to the lowest evaluated bidder. The civil works required to protect Wells SS-5, -7 and -9 would also be procured on the basis of limited international tendering because of the specialist nature of the work, and the urgent need for its completion. Equipment for the product distribution measures would be procured by the oil marketing companies (in the case of tires through the General Tire Company of Tanzania), or Tiper or TRC in accordance with international shopping procedures since this equipment is readily available off the shelf, and made up of low value items. Equipment for the CNG pilot scheme would be procured by TPDC on the basis of limited international tendering because of the specialist nature of the equipment required and, in the case of CNG buses, because of the need for standardization in the Dar es Salaam public bus service fleet. The consultancy services required under the project would be retained by TPDC on the basis of the Bank Group Consultant Guidelines. Certain components of the gas development study would be subcontracted out to consultants already having specialized Knowledge of specific sections of that study. The TPDC participation in joint venture exploration programs would be procured by individual negotiation with the companies proposing to carry out those programs, in order to mobilize private sector financing for a substantial part of the program costs.  - 28 - Disbursement 80. On effectlveness of the credit, the subloan made by the Tanzanian Investment Bank to TPDC out of the proceeds of IDA Credit 1060-TA to finance the rehabilitation of Wells SS-3 and -4 would be refunded out of the proposed credit, at an estimated cost of about US$1.25 million excluding contingencies. The proceeds of the disbursement would be refunded to Credit Account 1060-TA. The credit proceeds would be disbursed against 100% of eligible foreign expenditures for all project components. Disbursement in respect of the product distribution measures, CNG demonstration scheme, and speculative exploration programs provided for under the project would, in each case, be subject to the conclusion of implementation arrangements satisfactory to the Association (Schedule 1, paragraph 3, draft Developmeent Credit Agreement). As overall project implementing agency, TPDC would be responsible as authorized Government representative for preparation and submission of withdrawal applications to IDA for all goods and services to be financed under the project. In the case of goods or services procured by TRC, Tiper or the oil marketing companies on behalf of TPDC, the agencies concerned would submit the original suppliers invoices to TPDC for attachment to the withdrawal applications relating thereto (paragraph 68). 81. In order to expedite disbursements, agreement was reached during negotiations that a Special Account would be established by the Borrower in an external commercial bank in the United States and would cover all categories of expenditure except retroactive financing of Songo Songo Wells SS-3 and -4. TPDC would contract for the SS-3/4 well rehabilitation provided for under the project, using funds lent on an interim basis by the Tanzanian Investment Bank under Credit TA-1060. The Special Account would be designated in U.S. Dollars, and would be established with an initial deposit of US$0.5 million equivalent, representing about 3 months of average projected disbursements, exclusive of US$1.25 million allocated to the rehabilitation of Wells SS-3 and -4. The Special Account would be administered by TPDC as Government's authorized representative. TPDC would request replenishment to the Special Account from the Association using standard disbursement procedures. Accounting, Auditing and Reporting 82. TPDC would be responsible for maintaining separate accounts, including a breakdown between capital and operating expenditures, for those project components being implemented by TPDC, and for ensuring that the agencies implementing the remaining project components were maintaining equivalent accounts. TPDC would submit annual financial statements audited and certified according to generally accepted auditing procedures by independent auditors satisfactory to the Association within nine months of the end of each of the borrower's financial years. TPDC would submit to the Association at the end of each month a brief progress report as to project implementation, and at the end of each calendar quarter a detailed written progress report, in each case in form satisfactory to the Association. TPDC would submit to the Association, not later than six months after Closing Date of the Credit, a Project Completion Report relating to all project components.  - 29 - Environmental Impact 83. Elimination of the destructive potential to life, energy resources and capital assets, by rehabilitation of Songo Songo Wells SS-3 and -4 cannot be over-emphasized. Measures designed to improve petroleum product distribution would have no negative environmental impact. The studies to be undertaken under the project would take cognisance of the need for appropriate environmental protection. Project Benefits and Risks 84. The project would put about 40 road tankers and about 55 retail and consumer product outlets back into operation in key agricultural areas, thus reducing costly delays in agricultural production and transportation. The project would save about US$500,000 annually by reducing product losses at bulk storage terminals in Dar es Salaam, and would also save about US$300,000 annually through the sale of LPG currently being flared at the Tiper Refinery. Essential measures are also being provided to protect the Songo Songo Reservoir, which is Tanzania's only proved hydrocarbon resource. In the longer term, the project would assist Government to rationalize the overall product distribution system, as well as to identify priorities for the rehabilitation of the petroleum product transportation network. The project would assist Government to develop a strategy for the utilization of its indigenous resources, and to maintain the private sector exploration effort in prospective areas still available for license. The project would contribute to the more effective implementation of Government policies in all of these areas through the institutional strengthening of the Energy Department of ?WiA and of the national oil company. Due to the dangerous condition of Wells SS-3 and -4, any rehabilitation operation will carry a smiuel risk of explosion. The contractors carrying out the rehabilitation would, however, be fully qualified and experienced in this type of work and every precaution to avoid any accident would be taken. Poor conditions of roads and rail stocks may limit the benefit of increased product availability of product distribution measures provided under the project. In the longer term, this risk would be mitigated to a large extent by the Government's proposed development program which places increased priority on the rehabilitation of infrastructure (paragraph 38). PART V - LEGAL INSTRUMENTS AND AUTHORITY 85. The draft Development Credit Agreement between the United Republic of Tanzania and the Association, the draft Project Agreement between the Association and TPDC, and the Recommendation of the Committee provided for in Article V, Section L(d) of the Articles of Agreement are being distributed to the Executive Directors -separately. 86. Provisions contained in the draft Credit and Project Agreements of particular importance are noted in paragraphs 66 through 77 of this Report and those of a special nature are :-Iso listed in Section III of Annex III. The appointment of a project coordinator, would be a special condition of effectiveness for the proposed credit (Section 5.01 of the draft Development Credit Agreement and referred to in paragraph 75 of this  - 30 - Report). Special conditions of the project are listed in Section III of Annex III to this Report. 87. I am satlsfled that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 88. I recommend that the Executive Directors approve the proposed credit. A. W. Clausen President Attachments Washington, D.C. May 10, 1985  - 31 - JANNEX I * ABLE 1^ Page 1 of 6 TANZI UNITD REP. OP- SOCAL INICAOR DATA S TANZANIA UNITEDREP. OPREPREC GOUPS CHEICHD AVERACER) a - lT MOST RECNT STINATE) 19611a! LOWQt ICTINAT! s ArCA MIDDLE K issaLb i9mLk *rnTwA& SOUTH or BANAnLA AFRICA *. Ornu AM (TOAm SQ. m) TOTAL 945.1 945.1 945.1 AGRICULTURAL 361.1 B39.2 401.9 _ ISS CAPITA (USJ) 70.0 120.0 230.0 c 249.1 1112.9 E9S EamTms a CAlPITA CKILOCRAMN OP OIL EXUIVALEM) 17.0 50.0 50.0 63.6 529.0 POMAS1011 AMB VIfr.SO tl POPULATLON.NID-EAR (T1OUSAD3) 0L201.0 13300.0 19763.0 URIN POPULATION CE OF TOTAL) 4.8 6.9 12.9 19.2 29.7 PIOPULATON rROKCT1ONS POPULATIUK IN TER 2000 (HILL) 36.4 SrATLONARY POPULATION (HtLL) 117.0 POPULATION NONENT 2.0 FOFIILATLON brANSITY PERK SQ. X0. 1O.6 14.1 20.2 32.5 55.6 PEZR q. IM. AGII. LAND 26.6 33.4 47.6 119.2 111.5 POPULATION AGE STRUCrURE (I) 0-14 UIS 42.7 44.4 46.2 43.6 45.4 15-64 Y35 54.3 52.5 50.B 31.5 51.7 45 AN AOVE 3.0 3.1 3.0 2.9 1.9 POPULATION GROUTH RATE (I) TOTAL 2.2 2.7 3.3 2.8 2.6 UKUN 5.0 6.3 6.5 6.2 5.2 CRUDE BIRTH RATE (PR THU) 46.6 44.6 46.9 45.6 47.0 CRUDE DEATH ItATE (PER THOUS) 22.4 15.6 1A.5 17.7 15.2 CROSS REPRODUCTION BIATE 3.0 3.1 3.2 3.2 2.2 AMILY PLUNNING ACCEPTORS. ANNIIUAL (TIOUS) .. .. 93.6 Ia USERS CI OF HARRIED W1HN) .. .. looe ta inzrzo INDEX OF FOOD OD. PEE CAPITA (1969-71-100) 95.0 104.0 88.0 85.8 91.6 PEk CAPITA SUPPLY OF CALORIES (Z OF REQUIRENEErS) 90.0 91.0 83.0 66.4 96.2 PROTElNS (GEARS PUR DAT) 46.0 49.0 46.0 49.9 56.7 or WElCH ANIMAL AND PULSZ 16.0 21.0 20.0 la 1U.3 17.0 CHILD (AGS 1-4) DEATH RATE 31.0 24.0 16.4 23.8 18.7 LIFE EXECT. AT BIRTH (YEARS) 41.5 46.5 52.0 48.4 51.7 INFJANT tORT. RATE (PR THOUS) 144.0 122.0 98.0 117.5 102.7 ACCESS TO SAE MATER (%PIP) TOTAL .. 13.0 39.0 ft 21.8 35_6 tRsAN _. 61_0 86.0 /T 61.5 54.1 RURIAL -L 9-0 36.0 iF 14.2 27.3 ACCESS TO ESRETA DISPOSAL (Z OF POPULATION) TOTAL .. .. 17.0 if 32-0 - URN . - 38.O if 69.2 IElURAL .. .. 14.0 /i 24.8 . POPULATION PER PHYSICIAN 16220.0 22240.0 17560.0 /u 27477.8 11948.3 POP. PER NRHSING PERSON 11890.0/jbh 7160.0 2980.0 re 3396.2 2248.9 POP. PER HOSPITAL BO TOTAL 600.0 /jL 720.0 500.0 1e 1089.0 986.9 URBAN 60.0 60.0 80.0 if 395.2 368.7 RURAL 1530.0 j .. 1190.0 re 3094.0 4012.1 AZlSSIOIIS PER HOSPtTAL BED .. .. AVERAGE SIZE OF HOUSEHOLO TOTAL *- 4.4 1 . URBAN 3.1 I1 3.2 if . RURAL *- 4.5 if 5.3 Jf AVERAGE NO. OF PERSONS/IROO TOLAL .. .. SMBN 1.8 .. - . RURAL .. .. ACCESS TO ELECT. C1 or Dh lEINS) TOTAL -. - - R ... ._ RWtAL -. -. . .  -32- ANN I T AB LE 3A Page 2 of 6 TANAJIA.UNITED REP. 0F- SOIL INCATOS DATA NEXT ANS-A UIE R. OF R ENE GROUPS (WhRONhD