Tunisia - Petroleum Exploration Promotion Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14507 IMPLEMENTATION COMPLETION REPORT TUNISIA PETROLEUM EXPLORATION PROMOTION PROJECT LOAN 3023-TIN APRIL 28, 1995 Private Sector Development, Finance and Infrastructure Division Maghreb and Iran Department Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Tunisian Dinar (TD) September 20, 1988 November 1994 US$1 = TD 0.8885 TD 0.984 TD1 = US$1.130 US$1.016 The rate used in the Memorandum and Recommendation of the President was: US$1 = TD 0.8885 FISCAL YEAR OF BORROWER Fiscal year = Calendar Year ABBREVIATIONS AND ACRONYMS ETAP - Entreprise Tunisienne d'Activit6s Petrolieres (Tunisian Petroleum Activity Company)  FOR OFFICIAL USE ONLY Table of Contents Page Preface i Evaluation Summary ii Part I Project implementation assessment A. Project Objectives 1 B. Achievement of Project Objectives 1 C. Implementation Record and Major Factors Affecting the Project 2 D. Project Sustainability 3 E. Bank Performance 4 F. Borrower and Guarantor Performance 5 G. Assessment of Outcome 6 H. Future Operation 6 I. Key Lessons Learned 6 Part II Statistical annexes Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Studies Included in Project Table 6A: Project Costs Table 6B: Project Financing Table 7: Status of Legal Covenants Table 8: Bank Resources: Staff Inputs Table 9: Bank Resources: Missions Appendix: Borrower Contribution to the ICR This document has a restricted distribution and may be used by recipients only in the performance of their |official duties. Its contents may not otherwise be disclosed without World Bank authorization.  I  IMPLEMENTATION COMPLETION REPORT TUNISIA PETROLEUM EXPLORATION PROMOTION PROJECT (LN 3023-TUN) Preface This is the Implementation Completion Report (ICR) for the Petroleum Exploration Promotion Project in Tunisia, for which Loan 3023-TUN in the amount of US$ 5.5 million equivalent was approved on February 21, 1989 and made effective on December 21, 1989. The loan was closed on December 31, 1993, compared with the original closing date of June 30, 1993. Effective November 3, 1992, US$ 2.5 million had been cancelled. Final disbursement took place on February 9, 1994, at which time a balance of US$ 1.6 million was cancelled. There was no cofinancing for the project. The ICR was prepared by Nichola Dyer Cisse of the Private Sector Development, Finance and Infrastructure Division of the Maghreb and Iran Department, Middle East and North Africa Region and reviewed by Amir Al- Khafaji, Division Chief, and Francois Amiot, Acting Project Adviser. The borrower provided comments that are included as an appendix to the ICR. Preparation of this ICR was based on material in the project file. It was agreed with the Department that no completion mission would take place on the grounds of: (i) the small loan amount; (ii) poor project execution; and (iii) current budgetary constraints. The borrower contributed to preparation of the ICR by providing some of the requested data and commenting on the draft ICR.   - ii - Petroleum Exploration Promotion Loan 3023-TUN TUNISIA Evaluation Summary Introduction Within the ten years prior to this loan, the Bank supported five energy sector projects in Tunisia (Table 2). Two power loans continued the expansion of the subsector: (i) the Third Power project in 1981 for USS 41.5 million, of which US$ 5.4 million were cancelled (loan 2003-TUN); and (iii) the Fourth Power project in 1984 for US$ 38.7 million, of which US$ 17.2 million were cancelled (loan 2455-TUN). The Second Natural Gas Pipeline project in 1980, originally for US$ 37 million and reduced to US$ 27 million (loan 1864-TUN), financed pipeline construction. The 1982 US$ 5 million Technical Assistance loan (loan 2197-TUN) contained a US$ 700,000 energy component that financed energy audits and efficiency studies. The 1986 Energy Conservation and Demonstration project (loan 2735-TUN) for US$ 4 million financed energy audits and demonstration projects. Project Obiectives The project's objectives were to provide the basis for increasing the rate of discovery and development of Tunisia's hydrocarbon resources through: (i) attracting further private sector participation in exploration of prospective open areas; (ii) strengthening ETAP's technical capabilities to assess hydrocarbon potential; and (iii) providing, through state-of-the-art exploration data acquisition techniques, "leads" to induce international oil company (IOC) activity in open areas currently left unexplored. [Para. 1]. The project had three components: (a) exploration promotion technical assistance and training, consisting of development of promotion packages and presentations to the oil industry; (b) geological and geophysical data acquisition, processing and reprocessing, which included new seismic data; and (c) procurement of laboratory equipment and material, which comprised acquisition of geochemistry laboratory equipment, computer hardware, and software packages for reservoir engineering and log processing. [Para. 2]. The project objectives were unrealistic given the need to strengthen and restructure ETAP. Also, the third objective is essentially a restatement of the first two. Project design was inadequate because the small loan size provided insufficient leverage to achieve the objectives. [Paras. 3, 4]. Implementation Experience and Results The project did not have a substantial impact on petroleum exploration in Tunisia. The acquisition of specialized geophysical/geological equipment and training strengthened ETAP'B technical capabilities somewhat. fPara. 4]. The project is unlikely to be sustainable as it has not achieved any of its major objectives. Future energy sector operations must squarely address the deep problems of institutional inadequacy, weak management, and lack of borrower commitment. [Para. 15]. Implementation progress was poor from the outset. The government had sufficient reservations that in 1992 the Minister of Planning requested the cancellation of the loan, and in May 1992 ETAP and the Bank agreed that it would be advisable to cancel the uncommitted funds. Effective November 3, 1992, US$ 2.5 million were cancelled and the closing date extended by six  - iii - months to December 31, 1993 to permit completion of ongoing procurement. [Para. 9]. Total project cost of US$ 1.93 million was markedly lower than the expected US$ 9.0 million. Expenditures on each component were less than forecast: (i) exploration promotion, US$ 0.71 million versus US$ 1.5 million (main output was a videotape); (ii) data acquisition and processing (not implemented, original estimate US$ 3.9 million); and (iii) equipment and material, US$ 1.22 million versus US$ 2 million. Once the loan closed the remaining balance of USS 1.6 million was cancelled effective February 9, 1994. Only US$ 1.44 million (26.2%) had been disbursed. [Para. 10]. The outcome of this operation is highly unsatisfactory because it failed to achieve its major objectives, yielded no substantial development results, and had significant shortcomings. [Para. 26]. Key factors that interfered with the achievement of the project's objectives were: (i) Bank weakness in approving and supervising the operation without redressing basic institutional inadequacies; (ii) lack of government commitment and support, with excessive government control over ETAP; and (iii) inadequacy and ineffectiveness of ETAP management and staffing. [Paras. 12,13,14]. The Bank did not adequately address institutional issues; the loan was too small to foster borrower commitment (exploration activity was already rebounding in Tunisia) and should have been a component of an energy sector adjustment loan. [Para. 16]. During preparation, the Bank provided strong technical support, but did not allocate resources efficiently. [Paras. 6,17]. At appraisal, the Bank failed to address the well-known institutional issues. [Para. 18]. Supervision was poor as the Bank did not enforce covenant compliance or tackle ETAP's inadequacies. [Paras. 20,21]. Except for highly satisfactory revisions to the petroleum law, guarantor commitment to the project during preparation was weak; it did not adhere to important agreements with the Bank, particularly with respect to the state/ETAP relationship. [Para. 23]. The borrower and guarantor did not comply with key covenants (adequate staffing, procurement, audit). [Paras. 24, 251. Summary of Findings. Future Operation and Key Lessons Learned Despite commendable legal and regulatory changes by the borrower and high Bank involvement in preparation, the project's fundamental design flaws created irremediable problems. [Para. 28]. Implementation problems were exacerbated by the lack of borrower and guarantor commitment to the project, and the lack of Bank leadership in addressing critical issues. [Para. 29]. Most of the planned outputs were unrealized, and the Bank's soft stance with respect to conditionalities and covenants undermined its credibility. The project was inefficient on the part of the Bank and the borrower; this type of operation should not be repeated. (Para. 26]. There is neither an ongoing operation nor a plan for a future operation. [Para. 27]. The lessons learned from these problems are that the Bank should: (i) lend only when all aspects of the institutional framework are satisfactory (managerial and technical capacity, administrative and regulatory framework), or the operation itself addresses the problems directly; (ii) rigorously evaluate borrower and guarantor commitment to small projects where the loan carries little leverage, and consolidate such small projects into a coherent sectoral operation; (iii) rigorously enforce critical covenants; (iv) use retroactive financing only under justified circumstances and under highly  - iv - satisfactory institutional arrangements; and (v) make discussions of new projects contingent on resolution of problems on ongoing projects. Management should enforce early action to resolve issues appropriately. [Paras. 28, 29).   Part I Project Implementation Assessment   A. PROJECT OBJECTIVES 1. The project's objectives were to provide the basis for increasing the rate of discovery and development of Tunisia's hydrocarbon resources through: (i) attracting further private sector participation in exploration of prospective open areas; (ii) strengthening ETAP's technical capabilities to assess hydrocarbon potential; and (iii) providing, through state-of-the-art exploration data acquisition techniques, "leads" to induce international oil company (IOC) activity in open areas currently left unexplored. 2. To achieve the objectives, the project had three components: Ci) exploration promotion technical assistance and training; (ii) seismic data acquisition, processing, and reprocessing; and (iii) procurement of laboratory equipment and material. The exploration promotion component consisted of development of promotion packages and presentations to the oil industry in major oil capitals. The data component included both geological and geophysical data. The equipment component comprised acquisition of: (a) geochemistry laboratory equipment; (b) computer hardware; and (c) software packages for reservoir engineering and log processing. 3. The objectives were overambitious because ETAP confronted significant and well-known administrative and managerial hurdles that impeded achievement of the technical objectives. In addition, the third objective (providing leads to induce IOC activity) is essentially subsumed by the first two (attracting private participation and strengthening ETAP's technical capabilities). These issues were not raised during the review process; the project was justified on the grounds that the objectives fit well with the Tunisian government's policy to rely primarily on private risk capital to finance exploration and development and restrict its own role to promotion and regulation. B. ACHIEVEMENT OF PROJECT OBJECTIVES 4. There is little evidence that the project itself had any substantial impact on exploration, although it is difficult to isolate the project's contribution and the Bank's endorsement may have nudged some IOCs to participate. The project design was inadequate because the small loan size did not provide sufficient leverage to ensure the objectives would be achieved; to do so would have required a substantial component to restructure and strengthen ETAP. The acquisition of specialized geophysical/geological equipment and training strengthened ETAP's technical capabilities somewhat. No rate of return was calculated for the project, which is appropriate for this type of project because actual prospects cannot be evaluated in advance. 5. Several indicators were mentioned in the Memorandum and Recommendation of the President and earlier project documents. Tracking these would have helped to assess the project's impact on exploration activity in Tunisia: (i) number of exploration wells drilled, considered to be fairly high given the oil slowdown in the mid-1980s (17 in 1987, up from 10 in 1986, and an average of 14 from 1983-85); (ii) number of permits issued to number of licensed IOCs (in April 1988, 50 permits had been issued to 18 licensees, and the government was negotiating further with newcomers and established producers); and (iii) new exploration investment commitments due to the project (estimated at appraisal at US$ 30 million). Another set would have helped to assess the project's impact on Tunisia's hydrocarbon reserves: Ci) reserve/production  2 ratio (estimated at 12 in 1988) and (ii) increase in life span of total reserves resulting from recent discoveries (estimated at 6 years in 1987). However, these indicators were not tracked within the project. 6. A total of 94.4 staff-weeks was allocated during the entire project cycle (Table 8) and 11 field missions were carried out (Table 9), of which 7 took place prior to effectiveness. Roughly equal time was devoted to the project before it became effective (about 42 staff-weeks over a little less than 2 years) as to its supervision (about 44 staff-weeks over a period of about 3 years). The preparation mission to Tunisia consisted of 2 staff for 2 days, while the followup mission to Houston to hold discussions with oil industry representatives involved 3 staff for 4 days. A more appropriate use of Bank time and resources would have been a longer mission to Tunisia, and conference calls to industry representatives (or a single staff member travelling to Houston). Also, it would have been desirable to have ETAP directly involved in the discussions with industry representatives. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT 7. Before effectiveness, some equipment and software purchases were financed retroactively to make it possible for ETAP to hold its first bid round of the Gulf of Hammamet area by March 1990, before oil companies' budgets were fixed. Delays in procurement occurred because the Ministry of Energy and Mines was directly involved in the details of the preparation of bidding documents. A study of ETAP's software and hardware needs, which formed the basis for later equipment purchases, was also carried out before effectiveness. The loan became effective December 21, 1989, after a delay of about nine months because of slow Tunisian legal procedures (Table 3). 8. After effectiveness, two aspects of government involvement continued to impede procurement progress: (i) requiring ETAP to use international competitive bidding (ICB) for all purchases, although the loan agreement specified that less rigorous procedures could be used for specialized purchases; and (ii) cumbersome approval procedures. In early 1990 ETAP attempted to hire a consultant to conduct a two-year geophysical and geological survey, but procedural delays impeded signature of the contract until late that year. By May 1991 the project was essentially stalled: (a) ETAP had not prepared the bidding documents for the airmag survey, as previously agreed with the Bank, to accommodate the Ministry of Energy and Mines' interest in substantially increasing the survey to acquire mining data; and (b) although tendering procedures for procurement of gravimeters had been completed, the government's procurement committee raised an objection that postponed acquisition of the equipment. In view of such problems, the Bank and ETAP agreed in May 1991 on the need to restructure ETAP. However, although ETAP had already commissioned a consultant to prepare the terms of reference for the reorganization study, no further concrete action took place. 9. In view of the extremely poor implementation progress (less than 20% of the loan had been disbursed), the government had sufficient reservations that in 1992 the Minister of Planning requested the project's cancellation. In May 1992 ETAP and the Bank agreed it would be advisable to cancel the uncommitted funds of the loan; US$ 2.5 million were cancelled effective November 3, 1992.  3 The closing date of the loan was extended by six months to December 31, 1993, on the grounds of ETAP's progress on procurement of: (i) specialized geological/geophysical instruments and (ii) promotional tools to attract IOCs. 10. The loan closed on December 31, 1993, and the balance of US$ 1.6 million was cancelled effective February 9, 1994. Only about one-quarter of the US$ 5.5 million total had been disbursed (US$ 1.44 million or 26.2%), as a result of the overwhelming delays. Total project cost of US$ 1.93 million was markedly lower than the expected US$ 9.0 million (Tables 6A & 6B). The most significant change in the project's cost structure was the complete lack of activity on the data acquisition and processing component, which at US$ 3.9 million had originally been expected to account for over one-quarter of the total project cost. Less than one-half of the amount originally expected was spent on the exploration promotion component (US$ 0.71 million compared to the estimate of US$ 1.5 million). Expenditures on equipment and material were roughly 60% of the original forecast (US$ 1.22 million versus US$ 2 million). 11. Implementation of this project was stymied by ETAP's lack of financial and administrative autonomy, which was well-known before the project was implemented. Previous experience with loans 2197-TUN and 2735-TUN and discussions with oil industry representatives had indicated the potential for delays arising from the government's procurement guidelines and cumbersome procedures. The 4-year implementation schedule was not realistic in view of this institutional environment (the Memorandum and Recommendation of the President did not mention Tunisia's average disbursement profile). 12. Factors beyond government control The major factor beyond government control was the Bank's weakness in approving an operation with low potential for success and in providing inadequate supervision. In not ensuring that the project redressed basic institutional deficiencies, the Bank failed to provide the leadership that would have helped the project to achieve its objectives. 13. Factors within government control Government control over ETAP's finances and its staffing, procurement, and administrative procedures hampered ETAP's operations and prevented it from fulfilling its obligations under the loan agreement. The lack of government commitment and support was the most important factor that prevented the achievement of the project's objectives. 14. Factors subiect to ETAP control ETAP management, particularly project management, accounting and reporting, was not effective. Timetables were not respected, training programs were not undertaken as agreed, and report deadlines slipped without appropriate followup. Project Unit staffing was weakened during the project. Lack of familiarity with Bank procedures also hindered ETAP's effectiveness. ETAP's institutional inadequacies substantially interfered with the achievement of the project's objectives. D. PROJECT SUSTAINABILITY 15. The project is unlikely to be sustainable as it has not achieved its major objectives. Tunisia's sound energy policy is a positive factor for sustainability of any future energy sector operations there. However, it is highly unlikely that any followup project will be sustainable if it does not  4 squarely address the deep problems of institutional inadequacy, weak management, and lack of borrower commitment. E. BANK PERFORMANCE 16. Identification While the project was consistent with the government's development strategy and priorities, and with the Bank's overall strategy for Tunisia, the Bank did not adequately consider institutional issues. The loan was too small to foster borrower commitment, when exploration activity was already rebounding in Tunisia despite the sluggish world oil market; it would have been more effective as a component of a comprehensive energy sector adjustment loan. As the stand-alone operation it was, the project should have included assistance to ETAP to develop aspects of corporate management, in particular project management, accounting, and reporting. 17. Preparation Assistance The project design, based on a small technical assistance loan with insufficient leverage to tackle the well-known institutional hurdles, was flawed. Otherwise, the Bank provided satisfactory aBsistance with preparation, particularly with strong technical support. The skill mix of mission members was appropriate for that design, including an energy specialist and a geologist (Table 9). The time spent on preparation was minimal, however, given the emphasis being placed on speed. Given the marginal fields to be explored, it would have been appropriate to determine the size of the smallest discovery that could be put into production with a satisfactory financial return, and evaluate the likelihood of prospects exceeding this minimum size. However, such an exercise would have required resources out of proportion with the size of the project, and the Bank performed only a rough assessment of the commercial potential of Tunisia's remaining oil fields. 18. Appraisal Bank performance at appraisal was deficient, on the grounds that at this point the institutional problems could still have been addressed through a redefinition of the objectives and appropriate changes to project design. The deficiencies in ETAP's capacity and the time-consuming procedures were known to the Bank and stressed by oil industry representatives, but the proposed Project Implementation Unit was, unrealistically, expected to resolve them. The Bank appraised the project positively despite questionable borrower commitment, as illustrated by ETAP's lack of firm commitment to a schedule for exploration promotion activities. The appraisal thus failed to identify the factor that ultimately proved to be the greatest risk to the project. 19. Other elements of the appraisal were also poorly carried out. Recent Bank experience with other technical assistance operations in Tunisia's energy sector was not taken into account although it indicated the potential lack of borrower commitment, particularly with the small amounts involved. Also, although required by Bank procedures, the Memorandum and Recommendation of the President did not contain a discussion of the retroactive financing used for the seismic data bank update. 20. Supervision The Bank's supervision performance was deficient, primarily because it did not use the tools at its disposal to address ETAP's lack of financial and administrative autonomy and capacity, even before the loan became effective. Tunisia's procurement regulations were changed in April  5 1989, and the Bank was aware of the problems these new regulations caused, yet the Bank did not enforce the covenants in the loan and guarantee agreements during the lifetime of the project. On the contrary, in 1990 the Bank pursued a dialogue with Tunisian officials about a future petroleum exploration project. Bank reports on covenant compliance were incomplete and poorly prepared; the reports cited only the financial covenants and failed to show non-compliance. Only at the end of the project did the Bank communicate any lack of compliance (with the financial covenants) to the borrower. 21. Although implementation problems occurred early, the project's ratings for both overall status and project development objectives remained 1 until 1991, when the overall status rating was downgraded to 2 (Table 9). In 1992, with no significant progress achieved or expected, the project's overall status rating fell to 3 but its development objectives rating was still unrealistic at 1. The project closed with both ratings, appropriately, HU. 22. The unsatisfactory implementation progress was the major issue addressed in the May 1992 supervision mission, resulting in the agreement between the Bank and ETAP to cancel the uncommitted funds of the loan. The supervision strategy was then radically altered, with supervision reduced to contact from headquarters alone (no missions) to ensure proper progress of procurement but avoid any further wasteful allocation of Bank and borrower resources. F. BORROWER AND GUARANTOR PERFORMANCE 23. Preparation The guarantor's contribution to project preparation was mixed. With respect to the legal and regulatory framework, borrower performance was highly satisfactory. The guarantor enhanced the attractiveness of marginal fields to IOCs by revising the petroleum law in 1987 to: (i) simplify permit procedures; (ii) provide special incentives for gas development; and (iii) provide a more liberal tax regime for foreign investors. These measures reinforced the positive effect of a 1985 law that made special provisions for prospecting and producing hydrocarbons. On an institutional level, however, the guarantor was deficient in not substantially revising the state/ETAP relationship to allow ETAP the necessary autonomy to carry out its functions as a national oil company. Weak borrower commitment to the project is illustrated by its non-adherence to important agreements with the Bank, such as the timetables for exploration activities and for the setup of the Project Implementation Unit within ETAP's Exploration Department. 24. Implementation Borrower performance during implementation was also deficient. The Project Unit was weakened by a change of staff. ETAP had little autonomy, either financial or administrative, and remained poorly organized. ETAP was required by the guarantor to use ICB for all procurement, even specialized purchases, notwithstanding the less stringent conditions in the Loan Agreement. The process, involving the procurement committee, was too complicated. Timetables were not respected. The lack of guarantor commitment substantially interfered with the progress of the project. 25. Covenant compliance The guarantor did not comply with covenants requiring the autonomy and freedom of ETAP to conduct its activities, although the Bank did not raise the issues with the authorities (Table 7). The  6 weakening of the staffing of the Project Unit violated Covenant 3.01 of the Loan Agreement. The stringency of the government's procurement regulations was not in accordance with Covenant 3.02. The financial covenant 5.01(b) was complied with only partially and with delays: only one financial report was ever submitted (for 1989), and audit reports were sent late. Further, the borrower never complied with Covenant 5.01(c), which stipulated that the audit reports were to contain a separate opinion on the use of statements of expenditure. G. ASSESSMENT OF OUTCOME 26. The outcome of this operation is highly unsatisfactory because it failed to achieve its major objectives, yielded no substantial development results, and had significant shortcomings. Most of the loan was cancelled and little of the project was implemented. The major output of the promotion component was a videotape that was produced three years later than originally planned, while the other exploration promotion activities were not carried out as envisioned. Only one of the studies was completed, and only some of the planned equipment purchases were finalized. For the Bank's part, its soft stance with respect to key conditionalities and covenant enforcement significantly undermined its credibility. The project was inefficient on the part of the Bank and the borrower; this type of operation should not be repeated. H. FUTURE OPERATION 27. There is neither an ongoing operation nor a plan for a future operation; therefore no monitoring scheme is necessary. It is not recommended that OED conduct a future impact evaluation of this project because it was small, poorly executed, and by design was neither innovative nor a pilot. I. KEY LESSONS LEARNED 28. Despite commendable legal and regulatory changes by the guarantor and high Bank involvement in technical aspects of preparation, the project was destined to fail because it did not appropriately address key issues. The lessons learned from this failure are that the Bank should: (i) lend only when all aspects of the institutional framework are satisfactory (managerial and technical capacity, adm.inistrative and regulatory framework), or the operation itself addresses the problems directly; and (ii) rigorously evaluate borrower and guarantor commitment to small projects where the loan has little leverage, and consolidate such small projects into a coherent sectoral operation. 29. Implementation problems were exacerbated by the lack of guarantor and borrower commitment to the project, and by the lack of leadership shown by the Bank in failing to address problems it had identified. The main lesson from the experience is that the Bank must use the tools at its disposal to send a credible message to the borrower by: (i) rigorously enforcing critical covenants; (ii) using retroactive financing only under justified circumstances and under highly satisfactory institutional arrangements; and (iii) making discussions of new projects contingent on resolution of problems on ongoing projects. Management should enforce early action to resolve issues appropriately.  Part II Statistical Tables Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Studies Included in Project Table 6A: Project Costs Table 6B: Project Financing Table 7: Status of Legal Covenants Table 8: Bank Resources: Staff Inputs Table 9: Bank Resources: Missions   Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macro policies / Sector policies / Financial objectives / Institutional development / Physical objectives / Poverty reduction / Gender issues / Other social objectives / Environmental objectives / Public sector management / Private sector development / Other (exploration promotion) / B. Proiect Sustainability Likely Unlikely Uncertain C. Bank Performance Highlv Satisfactora Satisfactory Deficient Identification / Preparation Assistance / Appraisal V Supervision / D. Borrower Performance Highlv Satisfactora Satisfactorv leficient Preparation / Implementation / Covenant Compliance / E. Assessment of Outcome Hihlv Hilvs Satisfactory Satisfactory Unsatisfactory Unsatisfactorv /0  Table 2: Related Bank Loans/Credits Year of Loan/Credit Purpose Approval Status Title Preceding Operations 1864-TUN / To build Tunisian on-shore section of 1980 Closed in 1987 after 2 extensions. Objectives Gas 11 Algerian Transcontinental Pipeline and substantially met, except for financial. Changes all network distribution lines in North. agreed with Bank; reflected external factors and clarification of loan agreement. 2003-TUN / To finance STEG's rural electrification 1981 Successfully completed in 1985 as originally Power IIn program, rehabilitation of urban scheduled, with appraisal objectives for physical distribution systems, and training facilities, social and economic considerations realized. program. Institutional objectives not fully achieved; Bank had been too optimistic about political and social framework. 2197-TUN I Energy component to finance energy 1982 Closed in 1990, 18 months behind schedule. Energy Technical audits and efficiency studies to assess component took 3 years longer than expected. Assistance and test new and renewable energy Problems included (i) lack of continuity in Bank potential. supervision; (ii) underestimation at appraisal of effort and money necessary for successful implementation; and (iii) failure of appraisal to consider impact of electricity subsidies on users' choice of energy sources. 2455-TUN I To help rehabilitate STEG's 1984 Closed in 1990, 2 years later than planned, with 2 Power IV transmission and distribution network extensions. Met social and economic objectives; in urban and rural areas. construction of facilities completed; institutional objectives not achieved. 2735-TUN / To help AME develop effective 1986 Closed in 1994, after 4 extensions and significant Energy institutional framework for national delays. Partially achieved energy conservation Conservation energy conservation program; to objectives after over half of loan reprogrammed. and strengthen local capabilities for Lack of borrower commitment to small project Demonstration monitoring program and conducting interfered with achievement of institutional objectives; energy audits; to finance short-term some strengthening of local capacity achieved. demonstration actions. Following Operations 3418-TUN / To develop gas transmission system 1991 Under supervision. Project expected to be completed Gas linking north and south, enhance before loan closes, at lower cost than originally Infrastructure flexibility of Tunis distribution estimated. Gas line commissioned in Dec. 1994, network, provide consultant services ahead of schedule. with training, plan for future infrastructure development and enhance security of supply. Source: Project Completion Reports  Table 3: Project Timetable Steps in project cycle Date planned Date actual / latest estimate Identification 01/88 01/31/88 Preparation 04/88 04/18/88 Appraisal 05/88 06/05/88 Negotiations 11/88 11/28/88 Board presentation 12/88 02/21/89 Signing 05/10/89 Effectiveness 03/89 12/21/89 Project completion 06/30/93 12/31/93 Loan closing 06/30/93 12/31/93 Sources: World Bank Management Information System, Initial Executive Project Summary, Final Executive Project Summary, Back to Office Reports, President's Report  Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ millions) FY89 FY90 FY91 FY92 FY93* FY94 Appraisal Estimate 1.6 2.0 4.8 5.5 5.5 5.5 Actual 0.0 0.0 0.0 0.76 1.10 1.44 Actual as % of 0.0 0.0 0.0 13.8 20.0 26.2 estimate Date of final 02/09/94 disbursement Sources: President's Report, FDB Reports * Original closing year of loan.  Table 5: Studies Included in Project Purpose as defined at Cost Study appraisal/redefined Status (USS) Impact of study Robertson Group report: Data base evaluation for Exploration Completed 19,191.86 Computer equipment 'Database Systems at ETAP and Department. purchased following Recommendations for New report recommendations, Software" including workstations, plotters and digitalizers. Gravity and airmag studies To complement geophysical data Never NA already available on northern begun. Tunisia. Seismic studies To organize fragmentary information Never NA into continuous and composite begun. exploration seismic coverage and to complete regional grid for overall geologic interpretation of selected area. SPA study: Geological & General survey of hydrocarbons Not Not NA geophysical survey prospects in Tunisi a completed. disbursed. NA: Not applicable. Sources: ETAP and project documents.  Table 6A: Project Costs Appraisal Estimate Actual/latest estimate (USSM) (USSM) Item Local Foreign Total Local* Foreign Total IBRD ETAP IBRD ETAP A. ExDloration Promotion and Technical Assistance 1. Consultancy** 0.40 0.40 0.06 0.63 0.69 2. Training 0.20 0.20 0.00 0.00 0.00 3. Special Services 0.20 0.20 0.00 0.02 0.02 4. Exploration Promotion 0.10 0.60 0.70 0.00 Subtotal 0.10 1.40 0.00 1.50 0.06 0.65 0.00 0.71 B. Data Aceuisition and Proceasine 1. Seismic Survey and Proce sing 0.S0 1.60 2.40 0.00 0.00 2. Gravity and Airmag 0.50 0.30 0.80 0.00 0.00 3. Data Reprocessing 3700 km 0.70 0.70 0.00 0.00 Subtotal 2.00 1.90 0.00 3.90 0.00 0.00 0.00 0.00 C. Eauivment and material 1. Geochemistry Laboratories 0.32 0.32 0.02 0.24 0.00 0.26 2. Software Seismic + Hardware 0.25 0.25 0.04 0.36 0.00 0.40 3. Equipment Reservoir Engineering 0.13 0.13 0.00 0.00 0.03 0.03 4. Software Reservoir Engineering 0.13 0.18 0.01 0.00 0.14 0.15 5. SofRware Logs Etc. 0.12 0.12 0.00 0.00 0.00 0.00 6. Software Geological/ Geophysical/ 0.60 0.60 0.02 0.19 0.00 0.21 Including Modeling for Computerization of Geophysical and Geological Mapping 7. Sedimentology Laboratories 0.40 0.40 0.02 0.00 0.15 0.17 Subtotal 1.29 0.71 2.00 0.11 0.79 0.32 1.22 Total Base Cost (1988 USS) 2.10 4.59 0.71 7.40 Physical Contingencies 0.20 0.41 0.13 0.74 Price Contingencies 0.20 0.50 0.16 0.86 TOTAL COST (current USS) 2.50 5.50 1.00 9.00 0.17 1.44 0.32 1.93 * Administrative costs (10% of total). " Actual/latest estimate includes exploration promotion. Sources: Memorandum and Recommendation of the President, ETAP, and FDB Reports.  Table 6B: Project Financing Appraisal Estimate Actual/latest estimate (USSM) Item Local costs Foreign Total Local costs Foreign Total costs costs IBRD/IDA 5.50 5.50 1.33 1.33 Domestic contribution 2.50 1.00 3.50 0.30 0.30 TOTAL 2.50 6.50 9.00 0.00 1.63 1.63 Sources: President's Report, ETAP and FDB Reports  Table 7: Status of Legal Covenants Tunisia Petroleum Exploranon Promotion Project Revised | Covenant Present Original fulfillment Agreement Section type status fulfillment date date Description of covenant Comments Loan Agreement 3.01(a) 5 C Commitment to project objectives outlined in Schedule 2; due l_________ _________ __________ diligence. 3.01(b) 5 NC Project Unit to be implementing unit with staff and resources and under PU became less efficient terms of reference satisfactory to Bank. due to staff changes. Bank requested composition of PU from ETAP, particularly individuals responsible for project administration and project accounts. 3.02 3 NC Procurement to be governed by provisions of Schedule 4. GOT required ETAP to use ICB for all procurement, even l_________ _________ __________ specialized equipment. 4.01 5 CP Sound administrative, financial, commercial, engineering and petroleum ETAP's financial industry practices; qualified and experienced management; adequate management distorted numbers of competent staff. due to government withdrawal of profits as dividends, compensating subsidies, and interest- free loans. 4.02 5 C Sound operating and maintenance practices. 4.03 5 C Borrower to take out and maintain insurance satisfactory to Bank. 4.04 5 C Borrower to maintain corporate existence and right to carry on operations and acquire, maintain and renew all necessary and useful rights, powers, privileges and franchises. 5.01(a) 1,9 C Borrower to maintain records and accounts in accordance with sound accounting practices.  Revised Covenant Present Original fulfillment Agreement Section type status fulfillment date date Description of covenant Comments 5.01(b) 1,9 C Records, accounts and financial statements to be audited annually by (i) independent auditors acceptable to Bank. 5.01(b) 1,9 CD 06/30/I* Certified copies of audited financial statements and audit report to be Several audit reports (ii)A, B submitted to Bank. submnitted late; only 1989 financial statements sent. 5.01(b) 1,9 C Other information about records, accounts and financial statements to (iii) . be submitted to Bank at Bank's request. 5.01(c) 1,9 C Borrower to maintain records and accounts for withdrawals from Loan (i) Account made on basis of Statements of Expenditure. 5.01(c) 1,9 a Until at least I Borrower to retain all evidence of expenditures and enable Bank to Bank has not requested (ii),(iii) year after Bank examine it. the information; no receives final completion mission audit report camed out. 5.01(c) 1,9 NC Borrower to ensure records and accounts and separate opinion on their No separate opinion (iv) reliability included in annual audit. provided. Guarantee Agreement 2.01 13 NC Guarantor commits to objectives of project as set forth in Schedule 2 of Government Loan Agreement. procurement guidelines and admiinistrative procedures interfered significantly with implementation. 2.02 4 c Guarantor to provide funds to Borrower if needed to carry out project. * Unable to assess compliance.  Table 8: Bank Resources: Staff Inputs Planned* Revised Actual Stage of project cycle Weeks US$** Weeks US$ Weeks US$** Through appraisal 23.6 Appraisal - Board 18.8 Board - effectiveness Supervision 44.0 Completion 8.0 TOTAL 94.4 Source: World Bank Management Information System * No planned figures available. ** MIS did not provide dollar amounts.  Table 9: Bank Resources: Missions Performance rating' Number Days Specialized Implemen- Develop- Stage of Month/ of in staff skills tation ment project cycle year persons field** represented status objectives Types of problems Through 02/88 2 13 E, NS Identification appraisal 04/88 2 2 E, G Preparation 05/88 3 4 E, P, NS Preparation' 06/88 3 12 E, G, P Appraisal Appraisal 09/88 5 12 E, F, NS Post-Appraisal ETAP's lack of financial autonomy. through Board approval Board 07/89 2 4 E, G I 1 No Form 590 in files. approval 12/89 5 12 E, NS 1 1 Delay due to involvement of Sec. through d'Etat in details of preparation of effectiveness bidding documents; no Form 590 in files. Supervision 03/90 I 18 E I I ETAP's lack of familiarity with World Bank procurement guidelines: (i) bid selection criteria; (ii) information to be considered in selection. No Form 590 in files. 10/90 2 5 E, P 1 1 Slow implementation due to: (i) Cumbersome administrative procedures in Ministry of Energy and Mines; (ii) GOT required ETAP to use ICB even for specialized supplies. 05/91 2 7 E, P 2 1 As above, plus need to restructure ETAP. 05/92 1 1 EC 3 1 Cancellation of unused balance of loan; possible extension of closing date by 6 months. Completion 12/94 0 0 HU HU None scheduled due to (i) small size of loan; (ii) poor execution of project; and (iii) other priorities for limited budget. Sources: Back to Office Reports, Form 590s * Prior to FY94, Performance Ratings are for Overall Status and Project Development Objectives. ** Most missions involved two or more projects. Codes: E= Energy specialist, F=Financial specialist; G=Geologist; P=Petroleum specialist; EC=Economist; NS=not specified. 1/Mission to Houston to hold discussions with oil industry representatives.   APPENDIX Borrower Contribution to the ICR  A  Comments of the Exploration Division After review of the Implementation Completion Report for Loan 3023-TUN from the World Bank, we were surprised to discover that almost all of the negative technical conclusions are unfounded and arise from a simple extrapolation of the non- disbursement of the original loan amount. In fact, the technical component has been largely executed and did have a positive impact on petroleum exploration in the country. It is thus, and to cite only the principal works, that we have been able to characterize and evaluate the petroleum potential of our country and identify unexplored areas. Furthermore, new geologic horizons with good reservoir potential and containing appreciable hydrocarbon reserves have been added to the list of classic oil reservoirs known in Tunisia. Two regional studies, one concerning the Gulf of Hammamet and the other the south of Tunisia, were completed with the technical assistance of a foreign consultant and allowed us to stimulate exploration in these regions as well as in surrounding areas. The presentation of the results of these studies completed by ETAP encouraged firms to invest more in petroleum exploration in Tunisia and to show interest even in areas considered geologically difficult to explore and whose potential had not yet been proven (for example, the north of Tunisia). The promotion actions that we led and that were, among other things, based on the technical program had a direct impact in focusing the interest of oil companies on our country. We have thus been able to go from: - 25 exploration permits in 1989 to 40 in 1994 - 15 operators in 1989 to 26 in 1994 - 24 companies having shares in permits in 1989 to 43 in 1994 It is now clear that the World Bank's negative evaluation, in contradiction with reality, may be due to the fact that the authors of this draft report did not monitor the evolution of the situation in the domain of petroleum exploration in Tunisia. This state of affairs may be the consequence of frequent changes on the part of the World Bank with regard to the team members following the project. Comments of the Financial Direction The ICR put the emphasis essentially on administrative and procurement procedures as well as the financial autonomy of ETAP and its organization although the respect for legal procedures did not substantially hinder the realization of the program.  In fact, application of the administrative procedures relative to procurement seems long, but it is aimed mainly at optimizing the price/quality relationship in order to minimize ETAP's costs. Furthermore, although it has enjoyed financial autonomy since its creation, further clarified in June 1991, ETAP holds to respect governmental institutions, such as the supervisory ministry or monetary authority, for coordination at the national level. Regarding accounts management, ETAP enters records relative to the project in accounts appropriately opened on its books. These accounts are audited and certified annually by an independent expert. A copy of this expert's reports is sent regularly to the Bank. Several organization missions have been carried out within ETAP to guarantee the efficiency of its actions and to achieve its strategic objectives. For the project in question, a department was created solely for the achievement and monitoring of the project. April 6, 1995   I ,A G I NG - L-F -r t , 14 I .- Type.: Il-'E: