India - Petroleum Transport Project

 Petroleum Transport Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Oil & Gas Adjustment; Major Sector: Oil & Gas; ProjectID: P009986 The India Petroleum Transport Project, supported by Loan 3044-IN for US$340 million equivalent, was approved in FY89. At the request of the Government, US$290 million was canceled in March 1993. The loan was closed in FY95, as scheduled, with an undisbursed amount of US$6.4 million. The Implementation Completion Report (ICR) was prepared by the South Asia Regional Office. The Borrower's report is included as an appendix. The objectives of the project were: (i) to improve the efficiency and flexibility of petroleum transport and reduce the cost of domestic transport; (ii) to facilitate import of petroleum products and crude oil; and (iii) to modernize India Oil Corporation's (IOC) pipeline and refinery operations. Project components included a 1,450 km products pipeline, facilities to reduce the lead content of gasoline produced in two refineries, digital control systems and equipment and services to improve product yield and energy conservation in five refineries, other small components and technical assistance and training for IOC staff. The petroleum product pipeline, which constituted about 60 percent of project costs at appraisal, was seriously delayed at the beginning of the project because: (i) the economic viability of transporting petroleum products by pipeline as opposed to railways was reevaluated by Government after approval of the loan; and (ii) the lowest tender for the construction of the pipeline was substantially above original cost estimates and Government rules required that the tender be reviewed by several government agencies before approval could be given, resulting in a delay of 18 months. There also appear to have been delays in the tendering procurement process not mentioned in the ICR. When the contract had still not been awarded four years after approval of the loan, the Ministry of Finance became concerned that it would never be approved. Therefore, the Government requested that the US$290 million for the pipeline be canceled from the loan and the Loan Agreement was accordingly amended in March 1993. IOC was able to arrange alternate funding relatively quickly following changes in Government policy that opened up commercial sources of funding. The pipeline was completed in June 1996, nearly four years behind schedule. All of the remaining project components were completed, but three were not finished until after the loan was closed. The economic rates of return were higher than estimated for most components. Technical assistance provided engineering and design expertise not available in IOC and some training of senior staff was financed under the loan. IOC is an experienced operator in the oil industry and has well qualified and experienced staff. Financially, it has been strong and has had an adequate return on capital. Many of its problems stem from continuing Government control over its activities. The Operations Evaluation Department (OED) rates project outcome as satisfactory, despite the delays, since most of the project was completed by the original closing date. Sustainability is rated as likely, given the good performance of IOC and the economic viability of the project. Institutional development impact of the project is rated as modest. Bank performance is rated as satisfactory, although the project did not adequately take into account the risks associated with Government control over IOC procurement decisions. These ratings are consistent with those in the ICR. The major lesson of the project is that energy sector downstream activities, such as pipelines and refineries, can be financed either with private commercial financing or by private investors. The Bank's role is to act as a catalyst for the mobilization of such commercial funding and assess the priority and economic viability of investment projects. The ICR is satisfactory although not always providing complete information on all aspects of the project. No audit is planned.