Zambia - Petroleum Exploration Promotion Project

Document of The World Bank FOR OFFICIAL USE ONLY Rephwt No. 8175 PROJECT COMPLETION REPORT THE REPUBLIC OF ZAMBIA PETROLEUM EXPLORATION PROJECT (LOAM 2152-ZA) NOVEMBER 6, 1989 Industry and Energy Division Technical Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of thdr official duties. Its contents may not otherwise be disclosed without World Bank authorization.  AUUVIATIONS AND ACRONYMS CGG Compagnie General de Geophysique GS Geological Survey KW Kilowatts MOM Ministry of Mines MK Megawatts PPF Project Preparation Facility PU Petroleum Unit TNDP Third National Development Plan PIMCO Zambia Industrial and Mining Corporation Limited COUNTRY EXCNANGE RATES Name of Currency: Zambian Kwacha (ZK) Appraisal Estimate: USS/Kvacha 1.2 Actuals Year end 1982 1983 1984 1985 1986 1987 US$SZK 1.077 0.662 0.454 0.175 0.127 0.125  T* WOLLD BANK FOR OFFICIAL USE ONLY W&shiton. DC. 2033 U.S A. COke.d Ouctm.Guwei November 6, 1989 MS WRANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Zambia Petroleum Exploration Project (Loan 2152-ZA) Attached, for information, is a copy of a report entitled OProject Completion Report on Zambia - Petroleum Exploration Project (Loan 2152-ZA)m prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document ha a retriW ditrbutio ad may be usW by mciplts only in do pefonmme of thi offik duties Its eownas ay not orwwe be dbiosed whbout Wod Bank au_tuion  FOR OMCIAL USE ONLY PROJECT COMPLETION REPORT THE REPU!LIC OF ZAMBIA PETROLEUM EMPLOR&TION PROMOTION PROJECT LOAN 2152-ZA Table of Contents Preface ....................................................... i Basic Data Sheet ......... . ................................ ii Highlights ... iv I. INTRODUCTION . ........................ 1 A. Energy Resource Base ................................ l B. Main Policy Objectives and Investment Priorities ....l C. Institutional and Legal Framework ................... 2 D. Status of Exploration ........... 2 E. rroject Objectives .................................. 2 II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL .......3 A. Project Identification .......... . .3 B. Project Preparation and Appraisal ................... 3 III. IMPLEMENTATION ..................... 5 A. Implementation Start-up and Project Preparation Facility . . 5 B. Airmag Survey ........ .. . ...... . ...... 5 C. Project Administration ... 6 D. Exploration Consultants ............................. 6 E. Gravity Survey ............................ . .... 7 F. Training .......... .................................. 7 G. Legal Services .................... 7 H. Landsat Geological Mapping . . 7 I. Purchases . . O... ... . . .8... J. Acreage Promotion ................................... 8 K. PLocurement . ....................................... 8 L. Annual Audit Reports ...... ............... . 9 M. Performance of Consultants and Contractors .. 9 IV. PROJECT RESULTS ....................# .................. 10 A. Technical Assistance . .. .... ... . .10 B. Institutional Performance .......................... 11 C. World Bank Performance ....................... ...... 12 V. CONCLUSIONS AND LESSONS LEARNED . . ..................... 13 Annex 1: Map - Hydrocarbon Exploration Blocks Annex 2: Comments from the Borrower and Executing Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authoriziation.  - i - POJ3C! COMPlUTION 1POR! THe REPUBLIC OF Walk PmR OLIW XxPLOIL!ION P10NTION PUOJECt LOAN 2152-4k PRWACI Loan 2152-ZA (Petroleum Exploration Promotion Project) in the amount of US$6.6 million was approved on May 5, 1982 to assist the Ministry of Mines (MOM), the Government's entity responsible for all petroleum matters in the country, in the promotion of acreage to oil companies for petroleum exploration, to assist the Government to establish a Petroleum Unit (PU) within the MOM and to strengthen the PU so that it could manage the petroleum sector. These objectives were largely met. To assist in an early start-up of the project, a Project Preparation Facility (PPF) was granted. The project closed on December 31, 1986, during which time approximately 74 percent of the Loan was disbursed. A total of US$1,706,604.12 was cancelled effective July 13, 1987. This Project Completion Report was prep-%red by the Africa Technical Department, Industry and Rnergy Division based on reports, data and documents in the project files. This PCR was read by the Operations Evaluation Departmnet (OED). The draft PCR was sent to the Borrower for comments and they are attached to the Report (Annex 2).  - ii - PROJUTC OOMLNUTON UZPOR2 2= El IZUBC OF ZAUIA PUTROLWIM ZZPLOIION PCMOTION PROJECT LOAN 2152-LA BASIC DATA SEW KEY PROJECT DATA Appraisal Actual at Proj. IzPectation closing Total Project Cost (US$ million) 8.1 N/A Loan Amount (US$ million) 6.6 4.9 Loan Amount Disbursed 4.9 Physical Components completed 12186 12/86 Financial Performance fair poor Sconomic Rate of Return N/A N/A Institutional Performance fair poor CUMLATIE DISBURSEMENTS FY82 FY83 FY84 PY85 FY86 Mi) Appraisal Estimate 0.46 4.37 5.60 6.55 6.60 (iL) Actual 1.66 2.26 3.97 4.71 4.90 (iii) (ii) as 2 of (i) 360 52 71 72 74 OTHER PROJECT DATA Original Actual First Mention in Files 07107181 Negotiations 02/rx/82 04/09182 Board Approval Date 04/x1/82 05/20182 Signing Date 06/14182 Effective Date 08115/82 08/06/82 Loan Closing 12/31/86 12131/86  - iJ.i - STAFF INPUTS (Staff Weeks) (Reliable data unavailable) MISSION DATA Month/ No. of No. of man/ Date of Year Days Persons Weeks Report Identification 08181 5 2 2 10/16/81 Prep/Appraisal 12/81 6 3 3.6 01/21/2 Supervision 1. 04/82 2 2 .8 04/27/82 2. 05182 8 1 1.6 3. 08/82 2 1 .4 09/15/82 4. 09/82 15 1 3.0 10/01/82 5. 11/82 5 1 1.0 12/22/82 6. 03/83 7 1 1.4 0V131/83 7. 07/83 2 2 .8 07/26/83 8. 09/83 3 2 1.2 10/18/J3 9. 06/84 5 2 2.0 08/15/84 10. 08/84 3 2 1.2 11. 09/84 6 1 1.2 10/05/84 12. 10/84 10 1 2.0 11/16/84 13. 02/85 6 2 2.4 03/20/85 14. 06/85 5 3 3.0 06/25/85 15. 11/85 7 2 2.8 12/23/85 TOTAL 30.4 OTHER PROJECT DATA Borrower s The Republic of Zambia Executing Agency s Ministry of Mines Fiscal Year of Borrower: January 1 - December 31  - iv - PROJICYf CWLKTON RUPOD!T T,E RIPUBLIC OF WII& PITROLnI ZPLOSATIOR PROtiMON PROSCT LOAN 2152-IL i. The World Bank Loan under review, In the amount of US$6.6 million financed a petroleum exploration promotion project for the prospective areas In Zambia. The beneficiary of the loan and executing agency vas the Ministry of Mines which is in charge of all mining and mineral activities, including petroleum exploration and production. ii. Zambia has a relatively large energy resource potential consisting of hydropower, coal, uranium and renewable energy such as fuelvood, bagasse, molasses, wind, solar and geothermal. I3dropower generation capacity is 1,608 NW with substantial potential for expazsion. Proven coal reserves exceed 30 million tons of fair quality and satisfy 9Z of energy demand. Fuelvood supplies the bulk (66Z) of the total energy needs of the population. Potential exists for solar and wind energy development to be used for crop drying and water pumping. Geothermal energy development of small units (500KW) is being pursued by the Government in areas of local need but outside of the national electrical grid. iii. At project appraisal, petroleum fuels met 142 of Zambia's energy needs all of which needed to be imported. Firewood and charcoal met about 452 of the needs, however, supplies of wood were shrinking rapidly. At the present time, petroleum accounts for 102 of total imports and satisfies 122 of energy demands. Hydroelectric power supplies the bulk of the industrial demand as well as power re lrements along the national electrical grid. Because of the large supply of hydropower, Zambia is a net exporter of electrical power, and with interconaections to Zimbabwe and Zaire, until recently approximately one-third of the capacity was exported. There had been no petroleum exploration and production in Zambia at the time of appraJ.sal, and the consumption and distribution pattern is completely geared to imports. The project was designed to acquire sufficient geological and geophysical data in order to upgrade the industry perception of the petroleum potential of the country. In addition, it was recognized that a suitable legal framework and model contract were necessary in order attract serious oil companies to Zambia to agree to explore for oil and gas. iv. Project implementation proceeded soon after project appraisal by meacs of a PPP which allowed the aeromagnetic survey to start quickly in order to take advantage of the dry season. The areas where the airmag  survey was to be flown were identified by surface geolo'ttcal information and by searching the data on file with the Geological Survey. Additional areas were flown which were covered by water and hence no geological data were available. A gravity survey was planned to supplement the airmag data to resolve any ambiguities in the interprecitions. Finally, a program of geological mapping on the Landeat images was undertaken to assure that all the interpretations and r*ew ideas on rifting would agree with and complement the surface geology as observed on the images. Once it became fairly obvious that areas existed which might be of interest to oil companies, the legal consultants were set into motion designing a suitable model contract and a legal framework which would be acceptable to the Government and at the sam time be attract've to oil companies. A total of four blocks were designated by the Government as being available and open for oil industry bids; Blocks wA' through "DO. vs Once all of the geological and geophysical interpretationa were in hand, a report, 'The Hydrocarbon Potential of Zambia,' was prepared by the Government's geological consultant and was made available for purchase by interested parties. At the same time a promotional seminar was presented in London, which was attended by representatives of more than 40 oil companies, during which tne geological and geophysical findings were presented. Subsequent to the meeting in London, companies were given a set time in which to interpret and evaluate the data and prepare a bid for presentation to the Government. Two oil companies, Placid Oil Co. and Mobil Oil Co., signed agreements on three of the four blocks and spent over US$20 million on exploration efforts and drilling. Although the oil companies have not made any discoveries as yet, the project has been successful in that oil companies have been encouraged to come to Zambia and risk funds to attempt to find oil and gas. Mobil has decided to withdraw from Block B a- a result of its exploration efforts and Placid has requested, and been granted, a period of time during which it can evaluate the findings of ita two tests in the Luangwa Valley. Since then, Mobil has been actively talking vith the Governmept concerning the Zambian portion of the Kariba Basin near Lake Kariba. vi. The lessons learned from this project which can be applied to similar lending operations by the Bank group are: (a) There should be close project supervision by Bank technical staff during implementation of the technical portion of the project to ensure that good technical practices are observed (paragraph 41) during tne project, and that the objectives of the project are attained to the satisfaction of the borrower and of the Bank supervisory staff. (b) The borrower should be informed early on that the Bank attaches a great deal of importance to training of nationals and should be encouraged to assign nationals to all operations to work along- side of the consultants and contractors in order to understand  - vi - what is trying to be achieved. In the exploration contracts signed by oil companles, the training fund has proven to be very useful toward furthering training of nationals and purchase of training and reference material even after the close of the project. (c) Petroleum exploration is a very specialized field reqwiring inputs from professional geologists and geophysicistc. It is important to secure sufficient budgetary resources so that required skills are brought into the project supervision throughout the project life. This would help ensure that a dialogue is established with the borrower and maintained so that all questions of the borrower are sufficiently addreseoed. This vill avoid having the borrower feel "left out' of the decision-making process (paragraph 40), or that the Bank was non-responsive and provided a technically inadequate input (paragraph 34). (d) The appointment of consultants to advise the borrwier during the early phase of the project, if deemed sufficiently importaut, should be made a condition of effectiveness of the project rather than left hanging to be delayed until the project is well underway Cparagrayh 38). (e) There should be a clearer understanding developed with the implementing agency on the purposes of the loan and the potential use of cost savings for purposes outside of the original project description. This might avoid some of the ill-feeling surrounding the cancellation of undisbursed funds in the loan.  PR JECT C4OPLSTION REPORT TMi REPUBLIC or WSIA PRTROLUIK IIPLORATIOR PROMOTION PROJECT LCeN 2152-ZA I. INTRODUCTION A. Energy Resource Base 1. The project under review was the first lending operation in the petroleum sector of Zambia. While petroleum accounted for nearly 14Z of the total energy consumption in 1980, the importation of petroleum products cost the country US$191 million, equivalen.t to 142 of the total export earnings. Apart from minor coal and coke imports, petroleum was the only cnergy import. Below is the energy const'mption profile in 1981 at the time of project identification: Estimated Energy Consumption 1981 (in metric tons of' oil equivalent) Petroleum Fuels 644,000 14 Hydroelectric Power 1390,000 31 Coal 366,000 8 Charcoal/Pirewood 2000,000 45 Coke 60,000 1 Bagasse 32,000 1 100 At the time of project identification, petroleum imports were becoming a growing burden on Zambia's economiy. Rising oil prices were expected to boost the petroleum import bill at a time when exports were decreasing. The country decided, therefore, to attempt to interest international oil companies in coming to Zambia to explore for and develop indigenous hydrocarbon resources. To accomplish this, Zambia needed to upgrade the industry's perception of the hydrocarbon p:oapects in the country. The Government, therefore, turned to the Bank for assistance in promoting its prospective areas to the oil companies. B. Main Policy Obiectives and Investment Priorities 2. The energy sector objectives, as reflected in the Third National Development Plan of 1979-1983 (TNDP), were to (i) reduce domestic consumption and imports of petroleum products; (ii) promote a slift to the use of electricity and coal; and (iii) consolidate supplies of traditional fuels. These priorities were refleck 'I the energy investment proposals  -2- included in the TNDP. The bulk of the K145 million TNDP energy budget was earmarked for electric power, followed by petroleum and wood fuels. There was little or no allocation for coal, nuclear, and soft energies, such as wind, geotherma:, and solar. 3. The thrust of the TNDP, as mentioned above, was to ultimately reduce the dependence on imported petroleum by increasing the consumption of electricity, coal and other energy sources. The Petroleum Exploration Promotion Project was not yet identified at the time of preparation of TNDP; however, following its identification, the Government added the proposed project to its investment program. C. Institutional and Legal Framework 4. Because in Zambia, petroleum exploration and production are considered as part of the mining sector, the Ministry of Mines (MOM) is in charge of the petroleum sector as far as exploration is concerned, while refining and distribution are being handled by the existing ZIHCO companies under the supervision of the Ministry of Power. The Geological Survey Department (GS), in MOM department established in 1951, monitors mining operations, gathers geological data for resource evaluation and was in charge of petroleum exploration. 5. Because oil exploration and production had never been considered in Zambia, petroleum legislation vas non-existent. Once attractive areas for petroleum exploration would be identified, the project would undertake to put into place a suitable legal framework within which petroleum exploration, production and export could take place. D. Status of Exploration 6. At the time the project was appraised, there was no petroleum exploration taking place in the country. Moreover, no oil companies seemed to look at Zambia with an eye to exploration as the perception was that Zambia was basically a mining country with only poor prospects, at best, for petroleum. At the time of appraisal, there had never been any exploration or drilling for petroleum in Zambia. S. Proiect Obiectives 7. The project's objective was to support the Government's efforts to gather geological and geophysical information to promote hydrocarbon exploration by attracting foreign companies tc undertake petroleum exploration. Financing of the project was provided by an IBRD loan (Loan 2152-ZA) in tihe amount of US$6.6 million to cover the full foreign exchange costs of the project. Estimated local costs amounting to US$1.45 million equivalent were to be financed by the Government.  8. This report is based on documents and reports existing in the project files, interviews with Bank staff and discussions with some consultants and Government officials. The borrower has submitted a project completion report which has been used in compiling thia PCR. II. P10J1C! IDOHIVICATION, PREPARATION AND APPRAISAL A. Proiect Zdentification 9. Although Zambia had never had any reason to contact oil companies regarding exploration for petroleum, the Geological Survey, in the Spring of 1981 approached the Bank in an attempt to obtain assistance to interest oil companies to explore for petroleum in Zambia. A short paper, "Hydrocarbon Potential of Zambia' had been prepared by the Geological Survey which sumnarized the fairly sparse data available. However, Zambia's attempts to interest companies into taking a position in Zambia consistently met with failure due to the (i) general lack of knowledge of the sedimentary basins as well as the stratigraphy therein and (ii) a complete absence of relevant laws and regulations which would allow for the exploration and development of hydrocarbons. 10. In August of 1981, a World Bank identification mission found that there wsq a need to acquire additional data in the form of airmag and possibly gravity surveys and to compile the results of the-s surveys with the known geology into an overall evaluation report of the country. Moreover since no peiroleum legislation was in place, it would be necessary to finance legal consultants to draft the proper legislation and draw up a model exploration contract. To properly administe: the activities during the project, and after when oil companies would be working in the country, a Petroleum Unit (PU) would need to be set up within the Ministry of Mines. Since the Ministry of Mines was the entity responsible for other mining endeavors within the country, and probably all of the technical expertise in the PU would be drawn from the Geological Survey (a part of the MOM),it was reasonable that the petroleum exploration efforts should be managed by the Ministry of Mines. The PU would need to be staffed with the proper people to deal with the activities during the project implementation as well as to negotiate with oil companies and to monitor their activities. B. Project Preparation and Appraisal 11. A World Bank mission prepared and appraised the project in December 1981 in light of the project otjectives mentioned above. The project was described fully in the President's Report and no Staff Appraisal Report was prepared. Specifically the project would consist of two major parts, (i) Geophysical Surveys and (ii) Technical Assistance and are described as follows:  -4- 1. Geophysical Surveys (a) Airsma Survoes A aimag survey (estimated at about 90,000 line-km) would be flown over the prospective sedimentary Karoo areas to establish their structural setting, the thickness of the sediments above the basement and the magnitude of possible volcanic intrusions in order to appraise the prospectiveness of these areas and generate interest in further petroleum exploration. (b) GravitZ Surveys A broad reconnaissance gravity survey of about 1,500 stations would cover traverses to check the airmag interpretations. The gravity survey would help tie in the airmag results to make them more readily usable and confirm structural trends in the basins and would only be performed if the airmag survey yielded results which would make further exploration appear worthwhile. (c) Airmaz Supervision and Quality Controls About 15 man-months of consultants' services for supervision, quality control and interpretation of the results of the airmag survey. ,d) Reprocessing of Available Mineral Airmag Surveys: Reprocessing and reinterpretation of relevant data collected under 5 previous mineral airmag surveys covering about 50,000 line-km over part of the Katanga Group sediment areas. 2. Technical Assistance (a) Exploration Consultants: A geologist and a geophysicist (24 man-months) assisted by a photogeologist for about 6 months. The consultants would (1) review all of the geological data in sedimentary areas; (2) select rock samples for paleontologic and maturation analysis; (3) monitor the various geophysical surveys, including the reprocessing of existing mineral oriented airmag data, and also the laboratory analysis; (4) prepare a photogeologic map of Zambia's sedimentary areas from conventional air photographs and Landeat imagery; (5) interpret the results of the surveys, reprocessed data and laboratory analyses and integrate them with the new geologic information in a final promotion report for sale to interested companies; (6) prepare a strategy report for exploration blocks offering, administer the bidding, negotiate the contrrcts; (7) assist the legal consultants in the preparation of model agreements; (8) help establish the Petroleum Unit, (9) coordinate the various project components, in particular the airmag and gravity surveys, and (10) provide training for Zambians in the Petroleum Unit.  (b) Legal Consultinis Nine man-months of legal consultgnt services by an experienced law firm to draft petroleum exploration legislation, prepare model exploration/production contracts which vould be both attractive to potential Investors and protect Zambia's interests, and assist the Government in negotiating with oil companies. (c) Trainings Overseas training of two GS geologists and two GS geophysicists and the attendance of specialized short-term courses abroad by senior GS staff. (d) Equipment, Vehicles to be used in the field as well as some office, lab, camping and training equipment. 12. Loan negotiations were held in Washington in April, 1982 and the loan was approved by the Board on June 14, 1982. There were no specLal conditions of effectiveness and the loan was effective as' of August 6, 1982. III. IHPLUEKTlON A. Imlementation Start-up and Project Prearation Facility 13. In order to accelerate the implemertation of the project, a Project Preparation Facility (PPF) in the aziount of US$1,000,000 was requested in February, 1982. The PPF was requested in order to finance the following components before the loan became effectives exploration consultants, mobilization and start-up of the ainmag survey, quality control consultants for the airmag survey, and vehicles for the PU. B. Airmat Survey 14. The MOH sent out bidding documents to a number of airmag contractors and to a short-list of quality control and interpretation consultants. Bids were received and evaluations made and an airmag contractor was chosen to acquire the airmag data and a well-known firm was chosen as the airmag quality control and interpretation consultants. Some delays were experienced in the acquisition phase of the program due to the attempted coup in Kenya (which seemed to have grounded aircraft in many parts of Africa) and a serious lack of fuel. These delays at the time were quite serious as there was the possibility that the flying might well extend Into the rainy season, thereby causing an almost unacceptable delay in the acquisition and hence in the overall implementation time of the project. The airmag survey was completed in mid November, 1982 after a total of 104,432 line-km were flown. Some delays were experienced in the processing of the data and hence the eventual interpretation due to some errors which were discovered on the original data tapes. These errors were subsequently corrected but not without the attendant delays.  15. Once the processing of the data was completed, the data were given to airmag consultants who then proceeded to make att interpretation as to the approximate thickness of the sediments overlying basement. At the same time, the firm reprocessed and mapped the older airmag data which were flown for minerals some years back. These data were upward continued so that there would be no obvious change in character due to change of flying height. This allowed for a smoother Interpretation of the magnetic datum. 16. In the northwestern part of Zambia, the magnetic interpretation as prepared by the airmag consultants was questioned by the PU, whose doubts and questions were supported by the Bank. It was agreed that a second interpretation be made of the magnetic data so that a decision could be made regarding the advisability of additional geophysical work in the area. For this reinterpretation the government chose an airmag interpretation consulting firm to make another interpretation. This new interpretation was in conflict with the previous interpretation, and both consultants were requested to defend their interpretations. After listening to the presentations by both consultants, it was agreed by all concerned that the first interpretation would be considered as the more credible. C. Project Administration 17. Although one of the objectives of the project was to h4re exploration consultants to a-sist in setting up the PU and to advise the PU in its technical studies, the Government did not hire an exploration consultant for this purpose but chose instead to staff the PU with an expatriate Coordinator and an expatriate Chief Accountant. These two people were assigned from the Geological Survey. In fact, while with the PU the people maintained their positions with the Geological Survey. Very early in the project, both the Project Coordinator and the Chief Accountant were removed from the PU and returned to work solely for the Geological Survey and were replaced by a Zambian Project Administrator, Geologist and a Geophysicist. This caused only minor delays in implementation. D. Exploration Consultants 18. Although clearly spelled out in the project objectives, the Government did not see its way clear to hire an exploration consulting firm to undertake the objectives listed above. Only when it came time to integrate the geological and geophysical data did the Government give this responsibility in part to a well-known potential field consulting firm (for the geophysical integration). Later in February, 1985, a geological consultant was hired to assist in the integration of the geophysical and geological data. In addition to field checking the geology at specific locations identified by the airmag consultant, the geological consultant was to prepare the promotion report and to present the technical side of the program at the promotion meetings. It is felt that if exploration consultants had been hired earlier in the project, the project may have progressed more smoothly. Without a doubt the training aspect of the project may have been addressed earlier and with more satisfactory results.  -7- S. Gravity Survey 19. Once the results of the airmag survey were known and areas of possible interest were identified, it became obvious that a gravity survey would be necessary in order to refine the interpretation and to remove some of the ambiguities inherent in most magnetic surveys. It was decided that a helicopter supported gravity crew would be used because of the rather large separation of the gravity profiles and the impressive savings of time by going to the helicopter supported mode. After requesting bids from a number of companies who could do the work, the Government chose a geophysical contracting firm to undertake the work. A total of 1092 gravity stations were occupied along a few profiles which were strategically located in order to be of greatest value in refining the magnetic interpretations. In most cases, the gravity survey accomplished its purpose in that interpretations of the magnetic data were strengthened and upheld by the gravity data. F. TraininR 20. Every attempt was made to assure that Zambian nationals were assigned to all phases of the project. This included trainees on the airmag and gravity acquisition crews as well as trainees assigned to the groups processing and interpreting the airmag and gravity data in the USA and the UK. As mentioned above, it is felt that training suffered somewhat by not baving the exploration consultants on the job earlier so that a meaningful training program including short courses and seminars could be designed and implemented. As a part of each oil companies' contract, a modest training fund has been established by which nationals can continue to be trained and materials for training and reference can be purchased even after oil companies have left the country. This fund has been used recently to purchase a number of additions to the reference library and to fund staff of the PU to attend seminars and conferences. G. Legal Services 21. The Government chose a legal firm in August of 1984 to draft the petroleum legislation which was subsequently passed by parliament on March 20, 1965. In addition, the legal firm drafted the model production sharing agreement which formed the basis of negotiations with oil companies. During the time of negotiations with oil companies, representatives of the legal firm, supplied negotiation expertise. H. Landsat Geological Mapping 22. A remote sensing processing and interpretation firm was chosen to supply and interpret the Landsat images of the areas. In general, the results of the Landsat Geological study confirmed the results of the airmag and the gravity surveys.  I. Purchases 23. The project purchased ten vehicles which included 2 station wagon Landrovers, 2 Fiat cars. 2 Datsun (Kingcab) Vanettes, 1 Datsun Tracker and 1 Mitsubishi 3-ton truck. In addition a considerable amount of laboratory equipment, instruments and filing cabinets were purchased. J. Acreage Promotion 24. On June 13, 1985, a promotion meeting was held at the Roy'l Garden Hotel in London. The meeting was opened by an address by the Minister of Mines, and was followed by presentations of the geology, the results of the airmag and gravity surveys and the Landsat interpretation. This was followed by a review of the legal framework and the model contract. Over one hundred oil industry officials representing forty-four oil companies attended the meeting. After the meeting, some five oil companies chose to have private meetings with the Zambian Government officials. A deadline of November 14, 1985 was established for the receipt of bids. 25. The results of all of the geophysical surveys plus the integration of the surveys with the field geology and the Landeat mapping, were made available in the form of a report which was for sale to anyone for US$10,000 per copy. A total of twelve copies of the report were sold. K. Procurement 26. The Petroleum Unit of the Ministry of Mines complied fully with the Bank's procurement guidelines and adhered completely to the Bank's procurement requirements. The technical assistance contracts, exploration consulting, quality control and legal assistance were all awarded on the basis of selections made upon techiical merits of proposals received from Bank-approved shortlists of consultants. The Bank approved each of the appointments. 27. Procurement for the airmag and gravity acquisition contracts was done through International Competitive Bidding in accordance with Bank guidelines. Procurement for the Landsat Interpretation was done on a sole source basis in that the anticipated contract was rather small and there were time constraints. 28. The following tables (in US$) indicates the disbursements by category, as compared with the corresponding amounts allocated in the Loan Agreement and estimated local currency disbursement.  Foreign Currency Initial Disbursement Amouct Amount CateRgoE (US$) (US$) 1. Airmag Survey 1,750,000 2,040,380 2. Gravity Survey 1,000,000 1,094,806 3. Training 150,000 0 4. Equipment & Materials 150,000 132,147 5. Consultant's Services & Project Administration 1,250,000 1,282,292 6. Refunding of PPF 1,000,000 246,234 7. Fee 97,537 97,537 8. Unallocated 1,202.463 0 TOTAL 6,600,000 4,893,396 Cancelled 1,706,604* Local Currency Initial Disbursement Amount Mount Category (US$) (US$) 1. Airmag Survey 400,000 MIA 2. Gravity Survey 270.000 N/A 3. Training 50,000 VIA 4. Equipment & Materials 70,000 V/A 5. Consultant's Serives & ProJect Administration 340,000 N/A 6. Unallocated 322.000 VIA TOTAL 1,452,000 N/A The zero amount indicated in the Training category, does not reflect the funds devoted to training as all training was conducted by the consultants and contractors. Therefore, the funds spent for training are thus included under those disbursements. L. Annual Audit Reports 29. In accordece with the Loan Agreement, an international accounting firm audited the project accounts. However, the final audit report for the period Jauuary 1, 1986 - July 31, 1987 has yet to be released by the Government. M. Performance of Consultants and Contractors. 30. Without exception, all consultants performed excellent work. The Government and the World Bank were quite pleased with the quality of the * Despite the loan's closure, the Minister of Mines continues to ask that the money be made available.  - 10 - consultants' work which has led to oil companies' entering into exploration agreements with the government. The contractors which were involved with the airmag and gravity acquisition performed very well, although it can be argued that the airmag contractor was somewhat remLss in planning for availability of aircraft fuel. IV. PROJECT RESULTS A. Technical Assistance 31. The results of petroleum promotion projects are often difficult to assess especially in the short term. The object of the project was to interest international oil companies in coming to Zambia and to enter into contractual agreements with the Government to start petroleum exploration on blocks within the country. It is, of course, hoped by all that the quest for petroleum is successful, however, the success of the project is not measured by the success or failure of the exploration venture, but rather if oil companies were sufficiently interested by the results of the project, to come into Zambia to risk exploration funds. By this yardstick, therefore, the project was a success in that 75 percent of the blocks were taken up by oil companies. 32. The World Bank project finaiced the acquisition of geological and geophysical data and the compilation of these data into a promotional report which was offered for sale to the international petroleum exploration conmmunity. Some twelve copies of the report were sold at a cost of US$10,000 each. In addition, the results of the geological and geophysical studies as well as the legal aspects, were presented to the Industry at a promotional meeting held in London in June, 1985. As mentioned above, the meetings were attended by representatives of some forty-four oil companies as well as other representatives of she industry press and other ncn-affiliated attendees. 33. After the London meeting, telexes were sent to all oil companies which attended the meeting to advise them that additional information could be made available to them if they required it. In response to these telexes a number of companies sent geologists and geophysicists to collect samples or to examine the data more closely. As a result of the above, two companies eventually entered into agreements with the Government of Zambia for exploration acreage--these were Placid Oil Company and Mobil Oil Company. (a) Placid Oil Company--As a result of the meetings, Placid signed agreements on Blocks 'A' and IC* (see attached map). Placid started seismic work in Block A from June 1986 to October, 1987 and produced 3 or 4 drillable prospects in the block. Using their own drilling rig from Penrod Drilling Co., they drilled a test, Luangwa No. 1, to a depth of 8P38 feet (2709 m) followed by Chama No. 1 drilled to 10,727 feet (3270 m). Both wells failed to encounter oil and or gas. Luangwa No. 1 was stopped  - 11 - short of the programmed total depth, however, on the basis of the results in the hole, Placid negotiated with the PU to stop the well short. Since Karoo sediments, which were expected in both wells were absent, Placid felt that the geological and geophysical data should be studied much more carefully before making a decision to extend the exploration agreement or to withdraw. Therefore, Placid requested the Government for an extension of their second contract year by one year during which time the date could be carefully studied. The Government agreed to the modification of the work program and budget to accommodate a temporary suspension of petroleum operations in Block A. Total expenditure at the time of suspension was US$16,267,442 of which US$10,473,473 has been spent on the two wells, exceeding minim=m expenditure obligations by US$8,267,442. Placid started operations in Block C in Hay, 1986, however preliminary exploration results were not encouraging, hence Placid relinquished the acreage in October, 1987. (b) Mobil Oil Co.--Mobil signed a Production Sharing Agreement with the Government in January, 1987 after which exploration operations started. In Mobil's opinion, the results did not justify drilling and they subsequently relinquished the block from the end of July, 1988. Mobil spent a total of US$4,897,00 exceeding the expenditure obligation by US$2,397,000. 34. Once it became clear that Block D, in the Western portion of Zambia, would not be picked up by any company, the PU recommended that further geophysical work be done in this area in the hope that the area could be upgraded. The PU felt that this additional wozk was justified since the airmag data were not entirely conclusive and the gravity data suggested a *weak* basin indication. Therefore, as far as Block D was concerned and according to the PU, the objectives of project iad yet to be met. The additional geophysical work suggested initially by the PU was a limited Magneto-Telluric (MT) program. Although Bank technical staff recommended that the proposal by the PU be discussed with them, no meaningful dialogue was undertaken. A second recommendation by the PU to field a reflection seismic crew was turned down by the Bank on the basis it was expensive and could very well be inconclusive. The Ministry of Mines and the Geological Survey feel strongly that the recommendations for additional work in Block D should have been followed by discussions between the PU and World Bank Technical staff. This lack of follow up led them to question the adequacy of the Bank's technical input and its understanding of Zambian geology. B. Institutional Performance 35. Early in the project, the Project Coordinator and the Financial Officer were suspended causing a great deal of confusion in the Petroleum  - 12 - Unit until such time as they were replaced. Charges against the Project Coordinator and the Financial Officer were later dropped. This was a critical time in that the airmag survey vas being flown and numerous invoices had to be approved and withdrswal application submitted to the Bank for payment. Delays in payment to contractors and consultants probably were responsible for same delays in the implementation of the project. 36. It is further felt that the Petroleum Unit could have profited from the early appointment of an exploration consulting firm. The firm could have identified where strengthening of the PU was reqaired and could have made sure that the PU was supplied with the proper equipment, documents and supplies as well as design and implement a training program for the technical members of the PU. 37. On balance, the Petroleum Unit was very useful during the implementation phase in coor4inating the efforts of the MOP and the various consultants and contractors. Duri-g the promotion, the PU favorably impressed representatives of the petroleum industry as to its expertise and its ability to get things done. At the end of the project, the PU was quite effective in negotiating and signing with oil companies on exploration blocks in the country. During the time the oil companies were involved in their exploration effort, the PU assisted them them in many ways to ensure that their operations went along smoothly with no unusual delays or harassment. 38. The PU has demonstrated that it is quite flexible in its dealings with oil companies and seems to be cognizant of the oil companies' problems. This is demonstrated by the PU's agreeing with Placid to stop Luangwa No. 1 short of programed total depth and to suspend the contractual obligations during the period Placid is studying the results of the two wells. C. World Bank's Performance 39. The World Bank initially played a very efficient role in the implementation of the work program providing advice and guidance especially during the periods when goods and services were being procured. The early phases of the project were well supervised by the Bank where tecbnical expertise within the Bank was b.ought to bear on the project to good advantage. Questions concerning airmag and gravity program, interpretations and integration with the Landoat geological interpretations were continuously monitored and advice given by the Bank technical staff. The technical support supplied to the MOM during the promotion meeting in London, no doubt contributed to a large extent, to its success. Some 15 supervision missions were made up to November, 1985 and the results of the project demonstrate the effectiveness of frequent supervision especially during the implementation phase. 40. During the latter phases of the project it would appear that comunication between the Petroleum Unit and the Bank was not as good as  - 13 - one would hope. To requests by the Petroleum Unit that additional work in the Western portion of Zambia (in Block D) be programed, little attempt at establishing a dialogue with the PU was made. In fact the Petroleum Unit felt "abandoned" by the Bank when the project closed and the remainder of the loan was cancelled without any discussion, and blames the staff for being unsympathetic. The PU believed that it could have used the remaining funds ln the project for additional technical assistance in dealing with oil companies' operations as well as additional work in areas of less thAn unique results. The Bank's attitude was that the objec,ives of the project were met 100 percent with a net savings of VS$1.7 million in foreign exchange. Basinal areas were identified and two oil companies had made agreements on 75S of the blocks. Further exploration work in Block D was not considered justified since the project description did not include any geophysical work beyond gravity and magnetics. No doubt the PU thought the project should have been amended to include additional geophysical methods by which the presence of thick sediments in Block D could be further evaluated. It would have been better if the Minister and PU had more fully understood from the outvet the limitations on the use of surplus loan funds. In the absence of such an undetstanding, the Bank's unwillingness to modify the loan agreement for a wider range of related activity was not appreciated, and was a source of friction. V. CONCLUSIONS AND LESSONS LEARNED 41. In a country such as Zambia where no thought had evar been given to the possibility of accumulations of petroleum, the project can be considered a success. Geophysical and geological data were acquired and gathered into a readable and interesting report and presented to the petroleum industry. Although there was no great clamor to acquire exploration blocks, at least 75 percent of the blocks were acquired by interested and competent oil companies. This exceeded the realistic expectations of peop'a associated with the project. So far, no commercial oil or gas has been found; however, the project has been instrumental in bringing companies into Zambia to spend money, supply some employment, and by contractual terms, leave a fund of money by which some training and purchases of supplies and equipment can be accomplished. In spite of the fact that the wells which were drilled were non-productive, they did furnish information which may be invaluable in leading future exploration efforts towards commercial production. 42. It is felt that the Petroleum Unit could have benefited from the presence of a resident consultant assigned to the PU early on in the project. In future projects where such advice is deemed necessary, the legal documents might reflect that the installation of consultants would be a condition of effectiveness. 43. This project further points out the value of frequent and meaningful supervision missions by technical members of the Bank staff. This was especially true during the implementation phase where techniques and operational parameters were being established. Where technical decisions are made on the basis of interpretive results of technical  -14- information, these are best agreed to by qualified technical members of the Bank staff. Moreover, where decisions must be made regarding changes or additions to the planned program, these decisions are best made after consultations and discussions between Bank staff and representatives of the borrower's implementing agency. The lack of sufficient supervision missions during the last year of the project, and the Bank's apparent inability to send sufficiently specialized staff, probably is reflected by the lack of cummmnications at that time. 44. The PU and the operating oil companies, Placid and Mobil, should be complimented on their efforts to avoid damaging the environment. Although the companies' operations were in the Luangwa Valley Game Park, no significant adverse effect on the environment has been reported. The Bank technical staff were cognizant of environmental considerations during the operations and have received complete cooperation from the PU and the MOM in passing these concerns along to the operating companies.  - 15 - HYDROCARBON Anex EXPLORATION BLOCKS no.to le no a a* ao no i. 32* W O REPUBLIC OF ZAMBIA BALTa * I'fl ZAME ANGOL { MP gA no 'a0 _F6 . HYDROCARBON -t 6 \ ' St J ~~~~~~EXPLORATION BLOCKS \ > > J _lf 9 ~~~~~~BLOCK A ;t 33,000 Sq. Km. , ,-. r J _t BLOCK S * 40.000 Sq. Km. -1 . LI STONE ZIMBABWE BLOCK 0