Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-3725-GH

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT OF SDR 6.6 MILLION

TO THE

REPUBLIC OF GHANA

FOR A

PETROLEUM REFINERY REHABILITATION AND TECHNICAL ASSISTANCE PROJECT

February 23, 1984

This document has a restricted distribution and way be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

C:urrency Unit = Cedis (4)ITS$1 = 30.0 Cedis a/SDR1 = US$1.06

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

BEICIP Bureau d'Etudes Industrielles et de Cooperationde L'Institut Francais du Petrole

ECG Electricity Corporation of GhanaEIB European Investment BankENI Ente Nazionale IdrocarburiGHAIP Ghanaian Italian Petroleum Company LimitedGNPC Ghana National Petroleum CorporationGOG Government of GhanaGOIL Ghana Oil CompanyICB International Competitive BiddingLPG Liquefi-ed Petroleum GasMFP Ministry of Fuel and PowerNEB National Energy BoardSBM Single Buoy MooringVRA Volta River Authority

a/ Since October 10, 1983.

FOR OFFICIAL USE ONLY

GHANA

PETROLEUM REFINERY REHABILITATION AND TECHNICAL ASSISTANCE PROJECT

CREDIT AND PROJECT SUMMARY

Borrower : Republic of Ghana

Beneficiary : Ghanaian Italian Petroleum Company Limited (GHAIP)

Amount : SDR 6.6 million (US$6.9 million equivalent)

Terms Standard

Onlending Terms The Government of Ghana (GOG) would onlend SDR 2.71million (about US$2.9 million equivalent) of theproceeds to GHAIP at an interest rate of not lessthan 12 percent per annum, and repayable in 12 yearsincluding three years of grace period. TheGovernment of Ghana would bear the foreign exchangerisk.

Project Description: The project has two objectives. Its main objectiveis to provide technical assistance to conduct studiesand prepare plans: to rationalize the petroleumrefinery to match its production to domestic demand;to improve the refinery's energy and operating effi-ciency; to reduce losses of crude oil in ocean trans-port, at the harbor and in the refinery itself; andto improve the product distribution system in thecountry. The project's second objective is tofinance equipment and materials already identifiedand immediately required for rehabilitation andenergy efficiency improvement. Possible risksinclude likely delay in the project implementationdue to delays in appointment of consultants andrelease of payments. These risks are minimized bysteps already taken to recruit consultants andadvances approved under the Project PreparationFacility.

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Est.imated Project Cost a/Local Foreign Total------US$ million------

(i) Technical assistance for the executionof inspection of refinery and crudehandling facilities; surveyor's inspect-ion of the crude oil loading, transporta-tion and unloading system; studiesrelated to demand forecast, rehabilitation,revamping, energy conservation, marketingand distribution facilities, andtraining. 0.08 1.79 1.87

(ii) Technical assistance for feasibilitystudies for second.ary conversion optionsand bitumen manufacturing facilities,Volta Lake transportation of petroleumproducts, single buoy mooring (SBM)facility at Tema port, and lube blendingplant. 0.02 0.75 0.77

(iii) Technical assistance for managementimprovement program. 0.05 0.30 0.35

(iv) Equipment and materials requiredimmediately for rehabilitation andenergy efficiency improvement. 1.20 11.65 12.85

Base Cost EstiLmate 1.35 14.49 15.84Physical Contingency 0.14 1.45 1.59Price Contingency 0.11 0.76 0.87

Total Project Costs 1.60 16.70 18.30

Financing Plan:

IDA 0.0 6.9 6.9European Investment: Bank (EIB) 1.6 4.7 6.3Government of Ghana (GOG) 0.0 5.1 5.1

1.6 16.7 18.3

Disbursement Estimates (IDA FY) 1984 1985 1986

Annual 2.5 3.5 0.9Cumulative 2.5 6.0 6.9

Rate of Return: 65% for the Rehabilitation and Energy EfficiencyImprovement Component

Staff Appraisal Report: None

a7 Services and materials i.mported under this project are exempt fromtaxes.

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THEINTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORS ON APROPOSED PETROLEUM REFINERY REHABILITATION AND TECHNICAL

ASSISTANCE PROJECTTO THE REPUBLIC OF GHANA

1. I submit the following report and recommendation on a proposedPetroleum Refinery Rehabilitation and Technical Assistance Credit to theRepublic of Ghana for SDR 6.6 million (US$6.9 million equivalent) onstandard IDA terms. The Government of Ghana (GOG) would onlend SDR 2.71million (about US$2.9 million equivalent) to the Ghanaian Italian PetroleumCompany Limited (GHAIP) on terms and conditions acceptable to theAssociation (see para 63). The foreign exchange risks would be borne bythe Government. The European Investment Bank would provide US$6.3 millionof cofinancing for the project.

PART I - THE ECONOMY 1/

2. An economic report entitled "Ghana: Policies and Program forAdjustment" was distributed to the Executive Directors in October 1983(4702-GH). Part I of this Report contains the principal findings of thereport. Basic economic data and selected social indicators are summarizedin Annex I.

Basic Structural Characteristics

3. Ghana is endowed with considerable natural and human resources.The country has valuable mineral deposits, particularly gold, but alsodiamond, bauxite and manganese. The large hydropower potential has onlybeen partly tapped to generate electric power for the country as well asfor export to neighboring countries. Recently some oil deposits have beendiscovered and offshore oil exploitation is under way. Ghana hassufficient arable land to grow various kinds of food cereals and starchystaples and possesses considerable fishing resources. The country is alsorich in forest resources.

4. Agriculture is the largest sector of the economy, accounting forabout 51 percent of GDP, although only about 11 percent of the land area iscultivated, divided equally between cocoa and food crops. Nearly 70

1/ Parts I and II of this report are substantially the same as Parts Iand II of the President's Report for the Export Rehabilitation Project(No. P-3695-GH), dated December 12, 1983.

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percent of the population derive an income from agriculture or relatedactivities. The basic staple foods are maize, rice, millet, yam, cassava,and plantain but, except for cassava, yields of these crops havestagnated. Food production in 1980 was only 88 percent of that in 1975.Prolonged droughts in 1975-77 and 1982-83, inadequate support services,poor transport facilities and lack of fertilizers and other inputscontributed to the decline. In the last five years, Ghana has had toimport 10 to 15 percent of its cereal consumption (mainly rice and maize).Most foodstuffs other than cereals and starchy staples are eitherunavailable or can be purchased only on the black market.

5. Ghana is typical of a developing country that depends on primaryproducts for exports. Cocoa (of which Ghana is the world's third largestproducer) contributes about 60 percent of total export earnings; productionhas been declining, however, and world cocoa prices are depressed. Timberis also an important export. Although production has been declining forthe past two decades, mining is still Ghana's second largest foreignexchange earner, contributing 10 to 15 percent of the total.Div(ersification of the export base, although emphasized by every Governmentover the past 25 years, has not made much headway.

6. Industrial production and services account for 7.5 and 41 percentof GDP, respectively. Manufacturing--including textiles, steel, tires, oilrefining and simple consumer goods--contributed 9 percent of GDP in 1980(down from 14 percent in 1971) and provided full- or part-time employmentto about 12 percent of the labor force. Manufacturing in Ghana remainsheavily dependent on imported inputs, however. As a result, the goal ofimport substitution through industrialization has met little success andimposed a serious burden on the economy.

7. Ghana used to import all of its petroleum, mostly in the form ofcrude oil, which is refined domestically and used chiefly as a source offuel for the transport sector. Recently, some oil deposits have beendiscovered and commercial exploitation has commenced. Production of crudeis now about 1,200 barrels per day, equivalent to 7 percent of Ghana'srequirements. Hydroelectric power meets most of Ghana's non-transportcommercial energy needs.

Recent Economic Developments

8. Despite relatively abundant natural resources and human capital,Ghana's economy has been ailing for many years. Prominent among thesymptoms are: declining per capita income, persistent high inflation, agreatly overvalued exchange rate, widespread smuggling and other illegaleconomic activities, large public-sector deficits, a difficult balance ofpaynents situation, low productivity, low domestic saving and declininginvestment, deteriorating infrastructure, severe under-utilization ofproductive capacity, high unemployment, a brain drain of skilledprofessionals, skewed income distribution, and much-weakened institutions.Real GDP has declined every year since 1975, except for 1978, and real percapita income has fallen by 25 percent since 1975. Per capita income incurrent prices was estimated at US$360 in 1982. Per capita food

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availability is 30 percent lower than in 1975. The reasons for thesedifficulties are manifold. Political instability and persistentmismanagement of the economy by successive Governments, an over-extendedparastatal sector, sharp increases in oil prices, adverse terms of tradefor Ghana's major exports, and declining export production are among themost important factors.

9. Inflation has been rampant since the mid-1970s. The consumerprice index increased by an average of 80 percent a year after 1975, andreached the triple digit level (116 percent) in 1981, despite extensiveGovernment use of price controls. Large public deficits, excess liquidity,and shortages of goods all contributed to the rise in prices. Fixed wageearners and cocoa farmers have suffered the most, while traders, importlicensees, speculators, and farmers with marketable crops have been themain beneficiaries.

10. Budget deficits grew, as the Government proved unable to sustaina program of stabilization begun in 1978, when Government expenditures werecut by about one-third in real terms and the deficit was reduced to 5percent of GDP (compared with 12 percent in 1977). An increase in theminimum wage in November 1980 and a serious shortfall in revenues--due to adramatic fall in cocoa duties to 5 percent of total revenues (from 47percent in 1978/79) and to a narrowing of the Government tax base--widenedthe deficit to ¢4.7 billion, or 10 percent of GDP, in 1980/811/. In1981/82, the deficit amounted to about t5 billion--i.e., 50 percent ofestimated expenditures for the year and equivalent to the entire revenuecollection.

11. Balance of payments difficulties persist. Capital inflows havevirtually dried up, due to political uncertainties. Commercial lending wasnot feasible due to lack of creditworthiness and accumulation of largearrears, while official aid was reduced in response to lack of action onmacroeconomic policy. Without capital inflows, imports and servicepayments were perforce held to the level of export earnings, which werealso declining in quantity and value. Export earnings in 1981 wereestimated to be 33 percent lower than in 1980 (US$766 million vs US$1.1billion). The overvalued exchange rate acted as a strong disincentive toproduction for export, since the cost of production far exceeded the pricereceived at the official exchange rate. Overvaluation, along withshortages of consumer goods in rural areas, also resulted in a wide varietyof illegal and unproductive economic activities. Domestically produced andimported goods were smuggled to the Ivory Coast and Togo for sale againstthe hard CFA, with tremendous losses (unofficially estimated at over US$100million a year) to the country's external account. International recessionalso contributed to the poor export performance. Because of weak demand,world prices of cocoa plummeted and prices of other primary exports wereequally unfavorable. The international oil crisis compounded Ghana'sproblems. Imports of crude oil and petroleum products preempted almosthalf the country's export earnings.

12. Ghana has held its current account deficit low (it actuallyshowed a small surplus in 1979), but at the cost of severely restrictingimports. The import-GDP ratio, which stood at 20 percent in 1974, declined

1/ Through 1982, the fiscal year was July-June.

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to cnly 3.6 percent by 1981 at the official exchange rate. This hascreated chronic and extremely acute shortages of raw materials, spareparts, and investment and consumer goods, resulting in stagnation inproduction and consumption and sharp deterioration in the physicalinfrastructure. Production in the manufacturing sector is only one-fourthof installed capacity. An estimated 70 percent of road vehicles arepresently out of service, while more than a third of railway locomotivesare awaiting spare parts for major repairs or overhaul. The entire roadnetwork is deteriorating rapidly and is already unusable in many places.All this has badly affected the export mining and forestry industries aswell as the efficiency of the ports.

13. Capital formation was quite rapid in the 1950s, but becameincreasingly negative thereafter. By the 1970s, gross investment averagedonly 8.9 percent of GDP, suggesting that net investment may have beennegative. Gross investment is currently estimated at an extraordinarilylow 2 percent of GDP, compared to 21 percent for Sub-Sahara Africa as awhole. In an inflationary environment, with very little scope forproductive investment and negative real interest rates for savers, domesticsavings are also low--about 3 percent of GDP compared to 23 percent for therest of Sub-Saharan Africa. The binding constraint, however, is lack offoreign exchange rather than domestic resources for investment.

14. State enterprises have been assigned a large role in productionand distribution of goods and services ever since independence. However,their performance has been distressing both in terms of output andrrofitability. They have generated serious pressures on fiscal andmonetary policies. The main problems are inefficient and frequentlychanging management, Government control over prices, lack of requiredinputs, machinery and spare parts, heavy overhead expenses on redundantlabor, and lack of strict accountability.

15. Ghana originally had a large reservoir of trained manpower, butin recent years there has been a tremendous exodus of professional workersto countries where salaries and living conditions are better. It isreported that one-third of alL secondary-school teachers have migrated toNigeria, Liberia, Sierra Leonte and elsewhere. The outflow of managerialand professional personnel has further thinned the administrative talentsat senior levels of the civil service, which has been demoralized byrelatively low salaries, an economic system that penalizes them severelycompared with other segments iin the society, and uncertain and adverseworking conditions. On the other hand, unskilled manpower is inoversupply, and redundancy and overstaffing are special problems at lowerlevels of Government administration.

Economic Developments in 1982/83

16. Soon after it came to power, the Rawlings Government took someextraordinary measures to arrest the slide in the economy. These includeddemoaetization to siphon off excess liquidity and severe restraint onGovernment expenditure and monetary growth. It was rewarded with somemoderation in inflation; the consumer price index rose only 30 percent in

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1982, compared to 116 percent the previous year. The budgetary deficit

during the last six months of 1982 was contained at t2.5 billion--at leastno worse than in the preceding 12 months and lower in real terms and as a

ratio of current GDP. But this improvement was achieved at a substantialcost: the wage/non-wage ratio of recurrent expenditures became more skewed

and development expenditures as a proportion of total Government spendingdeclined significantly. Furthermore, export earnings continued to slide

(to US$627 million in 1982) and external capital flows, both official and

private, slowed to a trickle. New loans and grants from all bilateral andmultilateral sources amounted to only US$45 million in 1982. Net transfersfrom all external sources were still lower--US$38 million, or enough tofinance only 6 percent of the country's already depressed imports.Consequently, imports had to be held to US$694 million, down by 35 percentover 1980. This is less than US$60 per capita, or about half thecorresponding level for Senegal and one-fourth that for Ivory Coast. In

nominal value, non-oil imports were lower in 1982 than in 1974.

17. The foreign exchange shortage, combined with the border closing,dried up remaining supplies of raw materials and spare parts and reducedproduction levels throughout the economy still further. Inadequaterainfall exacerbated Ghana's economic problems. Cereal productionregistered a shortfall of 332,000 tons. The Volta Lake Reservoir fell toan historic low, resulting in the shutdown of three out of five potlines ofVALCO Aluminum Smelter and further reducing foreign exchange earnings.Furthermore, a steep fall in world cocoa prices meant that the unit exportvalue of cocoa in 1982 was only US$1,594/ton, 37 percent lower than in1981. To make matters worse, some one million Ghanaian citizens--about 10

percent of the population--were expelled from Nigeria in early 1983 as aresult of Nigeria's own economic difficulties. Their requirements addedsevere pressure on the economy. Food shortages became acute and marketprices shot up. Absenteeism on farms, mines and offices became more

pronounced with adverse effects on productivity that was low to begin with.

Economic Recovery and Short-Term Outlook

18. On April 21, 1983, the Government announced the 1983 budget, ashort-term stabilization program, and a series of economic reforms,including a long overdue reform in the exchange rate. A new system ofexport bonuses and import surcharges resulted in de facto devaluation of809 percent; subsequently, a unification of the exchange rate at cedis 30per US dollar became effective on October 10, representing a 990 percentdevaluation since April 1983; and at the same time, the interest rates wereadjusted upwards by 35 to 40 percent.

19. The new economic recovery program is designed to begin theprocess of correcting structural imbalances and rehabilitating theeconomy. If implemented successfully, the program will realign relativeprices in favor of production and export sectors, reduce budget deficitsand thereby the underlying inflationary pressures, and facilitate the flow

of imports needed to permit the growth of export production. Thus, amongother important measures announced in April were an increase in cocoa

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producer prices to provide incentive to farmers, a doubling of gasolineproducer prices as a step toiwards more realistic pricing of petroleumproducts, greater balance in Governmient budget and emphasis on productivesectors in the allocation of foreign and domestic resources. Water, power,railway and telecommunication tariffs were raised substantially. A priceand incomes policy was instituted whereby the minimum wage was doubled andcivil service salaries were raised by an average of 60 percent.

20. The 1983 budget reflects the impact of adjustments in theexchange rate and attempts to restore tax bases. Government revenues areexpected to rise from t4.6 billion in 1982 to ¢14.6 billion in 1983, anincrease of 217 percent. The Government is also committed to eliminatingsubsidies to public sector enterprises and keeping a tight rein on otherexpenditures. Despite the increases in wages and salaries, therefore, thedeficit is expected to fall from 44 billion in 1982 to 43.4 billion in1983--i.e., from 50 percent of the 49.2 billion spent in 1982 to 24 percentof a projected expenditure of ¢18.1 billion.

21. In the export sector, the changes in exchange rates and priceincentives will have a favorable impact, but it is unlikely that exportearnings will increase much in the immediate future. Cocoa exports, inparticular, are unlikely to respond quickly, since infrastructureconstraints, inelastic world demand, and agronomic problems related to pastnegLe,ct will continue to operate in the short run, and production andexports are likely to increase by only 5 to 10 percent a year for the nextfew years. A more vigorous recovery is projected for mining and timber,perittting total exports to rise from about US$582 million in 1983 to anexpected US$960 million in 1985, with continuing recovery thereafter.

22. While the stabilization program will, with adequate externalassistance, provide some relief from the present economic crisis, it hasalso been conceived as a first step in a longer-term process of returningthe economy to a more satisfactory growth path. Thus, a critical next stepwill be preparation of a comprehensive economic rehabilitation program tobe initiated during the stabilization period and continued for three tofour years thereafter. A program to rehabilitate the roads, ports, railwayand transport infrastructure will also be needed. Other necessary tasksinclude improvement of parastatal operations, a review of the role of theprivate and public sectors, and strengthening Government capacity forplanning and economic management.

23. Ghana's growth prospects beyond the stabilization andrehabilitation phases will depend to a considerable extent on (a) thedetermination of the Government to sustain the kind of economic policies ithas now begun even though some features may not be universally popular, and(b) an investment plan that fulfills the key requirements of the economy.So far, the Government has resisted all pressures to rescind or modify itseconomic recovery program despite serious economic and politicaldifficulties. But an immediate inflow of food, fuel and other imports isessential, since shortages in these areas could set back the Government'sefforts to arrest inflationary tendencies and thus erode the success ofdevaluation. A minimum imporl program of about US$1 billion f.o.b. isneeded to begin the reconstruction program with sufficient momentum, and

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this will require a substantial infusion of foreign exchange, especially inview of the need to build up reserves and reduce arrears. Also, allocationof these imports will have to be improved in order to appreciably augmentthe supply of basic consumer goods, raw materials and spare parts that areprerequisite to increasing export production.

24. Beyond the short term, if the Government is able to maintain amore realistic structure of prices and costs and a viable exchange rate,restrain growth in public consumption, improve public revenue performance,reduce the inflationary tendencies associated with large public-sectordeficits, and make a concerted drive to expand production and exports,particularly of cocoa and minerals, through more appropriate priceincentives, support services, and more assured supplies of necessaryinputs, it should be feasible to achieve rates of real growth in excess of4 percent a year (or one percent per capita) after 1985/86. The attainmentof even such a modest rate of growth after two or three years would be amajor turnaround. Of course, this presupposes a more stable politicalenvironment than exists at present. It also presupposes that Ghana's ownefforts will be supported by an augmented flow of external assistance.Ghana's needs for external capital over the next few years are substantialand will call for a major effort on the part of the donor community.Unless concessional assistance is forthcoming, the possibility ofsuccessful stabilization and economic rehabilitation will be seriouslydiminished and could adversely affect the country's stability.

Relations with IMF

25. At the request of the Government, an IMF mission visited Ghanafrom May 1-25, 1983 to negotiate ad referendum, a stabilization programwhich forms the basis for a one-year standby agreement. The elements ofthe stabilization program have been discussed in paras 18-24 above. TheExecutive Directors of the IMF discussed the program on August 3, 1983 andapproved a standby agreement amounting to SDR 238.5 million and alsoapproved a drawing from the compensatory financing facility in the amountof SDR 120.5 million.

External Debt and Creditworthiness

26. An agreement on a long-term rescheduling of Ghana's medium-termexternal debt was concluded in March 1974. Under this agreement, allpayments due after February 1, 1972, in respect of pre-1966 debtobligations, are to be paid over a period of 28 years beginning 1982, aftera grace period of 10 years, at 2-1/2 percent per annum. Ghana's medium andlong-term external public debt outstanding and disbursed at end-1982 isestimated at US$1,163.6 million representing about 3 percent of GDP. Thedebt service ratio of public and publicly guaranteed medium and long-termdebt is about 10.7 percent of exports of goods and non-factor services andis expected to rise modestly after the grace period on the rescheduled debtexpires. Arrears on Ghana's short-term debt increased from US$245 millionin 1977 to US$489 million by end-1978. By December 1980 these arrears haddeclined to US$332 million. However, 1981 saw a relapse with arrears

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increasing by US$142 million., By the end of 1982, the short-term arrearshad accumulated to US$580 mi'Llion. The economic recovery program aims toreduce these arrears in a phased manner.

27. Ghana is relying on official sources for most of the externalcapital required to support its development program, and relatively littleof its medlium- and long-term borrowing is on commercial terms.Consequently, Bank loans and IDA credits disbursed together representedabout 22 percent of the country's estimated public external debt atend-1982. Net transfers over the last decade averaged US$25 to US$30million per annum but were US,$7 million in 1982. Bank Group commitments ona per capita basis amounted to US$1.76 during 1977-82 and lending droppedto Less than a project a year during this period. Service payments on Bankloans and IDA credits in 1982 accounted for 25 percent of the country'sexternal debt service, but they are projected to decline to 17 percent ofexternal debt service by 1987 as other sources of lending revive.

28. Ghana's extremely difficult economic conditions and itsvulnierability to fluctuations: in cocoa export earnings make it desirablethat future debt service obligations be kept as low as possible.Consequently, Ghana will have to depend on IDA resources for Bank Groupborrowing over the next few years. This is also consistent with Ghana'srelatively low per capita income. At the same time, to help ensure a moreadequate flow of foreign exchange into the country, it would be appropriateto finance some local costs cf projects.

PART II - BANK GROUP OPERATIONS IN GHANA

29. Since 1962, when the Bank Group financed its first operation inGhana, the Bank has made 10 loans totalling US$190.5 million and 21 creditstotalling US$279.3 million. Included in the 21 credits is one project inwhich Ghana is a beneficiary of a Bank-financed regional clinker projectcovering three countries (Togo, Ivory Coast and Ghana). There are no IFCinvestments. Annex II contains a summary statement of Bank loans and IDAcredits as of November 30, 1983.

30. Power generation and distribution represents the largest share ofpast: commitments (27 percent) and the sector has been assisted by threepower generation projects and three power distribution projects. BankGroup involvement in the sector started in 1962 with the Volta Riverproject which included the construct-ion of the Akosombo dam, the country'sfirst hydro power plant (912 MW) and the transmission grid. The projectalso helped to create the Volta River Authority (VRA), the power generatingcompany. Subsequent Bank involvement in power generation included theVolta River expansion project in 1968 and Kpor.g Hydroelectric project in1977. In power distribution three Bank Group operations (in 1968, 1971 and1977) helped to establish and expand a low voltage distribution network andcreate the Electricity Corporation of Ghana (ECG), the power distributioncompaniy. Cofinancing was a major operation in our lending to the powersector and involved a number of donor agencies including the Arab Funds,EIB, the Canadian International Development Agency (CIDA), the EuropeanDevelopment Fund, the Development Loan Fund (USA), US Exim Bank, and the

Export Credit Guarantee Department (UK). Agriculture has received 22.5percent of the Bank Group's lending to Ghana. The lending program inagriculture has covered fisheries (1969), Eastern Region cocoa (1970),sugar rehabilitation (1973), livestock development (1974), Ashanti Regioncocoa (1975), oil palm (1975), Upper Region agricultural development (1976)and Volta Region agricultural development (1980). The main thrust of theBank Group's lending operations in agriculture has been to assist thecountry in achieving greater self-sufficiency in agricultural production,particularly food and raw materials for agro-industries, and rehabilitatingthe cocoa subsector. Earlier Bank Group projects in the sector weredirected towards development of specific subsectors, while starting in late1970s, more emphasis has been given to a broad-based integratedagricultural development. Two such projects are currently underimplementation, one in the Upper Region and the other in the Volta Regionwhich aim at increasing agricultural production and farm incomes and thestandard of living of a large number of smallholders by introducingimproved farming technology, providing farm support services and developingrural infrastructure. Major donor agencies which provided cofinancing inour agriculture sector operations were the Overseas DevelopmentAdministration (UK), the International Fund for Agricultural Development,and the Arab Bank for Economic Development in Africa. The Bank Group isalso executing a UNDP-financed technical assistance project designed tostrengthen the management and operation of the Ghana Cocoa Marketing Board.

31. Transportation is the third most important sector in the BankGroup's program in Ghana (20.5 percent of commitments). Projects financedin the sector include three road projects (in 1973, 1975 and 1980) and arailway rehabilitation project approved in 1981. The road projectsfocussed initially on rehabilitation and reconstruction of part of thecountry's main trunk road system but, in light of rapid deterioration inthe entire road sector principally due to acute shortages of importedinputs, later emphasis was placed on emergency maintenance to keep roadsopen for agricultural and export traffic. An ongoing railway project whichis cofinanced with the African Development Bank (ADB) seeks to remove thepresent transport bottleneck to Ghana's traditional exports (cocoa, timberand minerals), for the movement of which railways have a comparativeadvantage. A telecommunications project currently under implementationaims at improving and expanding domestic telephone services in Accra andmajor urban centers. In the field of water supply two projects (in 1969and 1974) have helped increase and improve the water supply in theAccra/Tema metropolitan area and adjacent rural areas. The first projecthelped expand the water supply distribution network and sewerage system inthe Accra/Tema area and the second project which was cofinanced with ADBand CIDA included construction of a reservoir at Weija, a treatment plantand a transmission pipeline. A third water supply project was approved bythe Executive Directors in March 1983 to help carry out emergency repairsand maintenance on the pipeline from Kpong which presently provides twothirds of the Accra water supply. The project also includes substantialtechnical assistance to strengthen the management and operations of theGhana Water and Sewerage Corporation and to increase its capacity forimproving water supply, especially in the rural areas. In themanufacturing sector, two DFC operations (in 1975 and 1979) have financed

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investment projects in manufacturing and agro-industry undertaken by smalland medium enterprises. The main emphasis of Bank Group lending in thissector has been to encourage enterprises using local raw materials andwhi ch are capable of contributing to foreign exchange earnings andsavings. A related objective for the DFC projects was to strengthen theinstitutional capacity of the National Investment Bank, Ghana's maindevelopment finance institution. The second DFC project which includescof inancing under an EEC Special Action Credit is providing foreignexchange working capital to help increase capacity utilization of priorityenterprises, in addition to long-term capital investment. An energyprcject aimed at strengthening Ghana's technical capacity to acceleratepetroleum exploration was approved by the Executive Directors in May 1983.

32. The serious economic difficulties which the country hasexperienced in recent years have adversely affected implementation of anumber of Bank Group-financed projects. The dwindling revenue base of theGovernment has constrained its ability to finance the local costs ofprojects, and the lack of foreign exchange has resulted in a severeshortage of imported materials and spare parts required for the operationand maintenance of completed projects; the mass exodus of qualifiedGhanaians to neighboring countries, and demoralization, absenteeism and lowproductivity among the remaining work force have also adversely affectedpro ject performance. The unusually adverse conditions surrounding BankGroup financed projects and their generally poor performance have beendescribed in greater detail in the Project Performance Audit Reports.Overall, the main conclusion of the Reports was that macroeconomic andsectoral policy constraints were the major factors responsible for poorper:formance of the audited projects. Because of delays experienced in theimpLeMentation of a number of Bank Group projects in Ghana, thedisbursements performance is falling behind appraisal estimates. Annualgross disbursements have averaged about 25 percent of outstandingloan/credit commitments and as of November 30, 1983, US$148.8 millionremained undisbursed. The Bank Group has held periodic implementationreviews with the Government to identify steps which could be taken byBorrowers and the Bank Group to accel-erate disbursement on ongoing loansand credits.

33. The principal objectives which will guide the formulation of theBank Group assistance program to Ghana are: (a) to support the adoption ofpolicies designed to reverse the downward trend in the economy and returnit to a path of growth; (b) to help rehabilitate and improve capacityutilization of the country's existing assets; (c) to stimulate agriculturaland industrial production, particularly for export promotion and efficientimport substitution; and (d) to improve the country 's essentialinfrastructure (transport, water, petroleum, power) so as to relieve majorbottlenecks to increased production. A substantial increase in economicand sector work is also planned to broaden and deepen our understanding ofthe constraints which are likely to impede the recovery process, to providedireztion to future lending program and the design of project components.In both our lending and economic and sector work, attention will be givento ways of strengthening the iLnstitutions responsible for economicmanagement and development spending.

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34. In response to Ghana's economic recovery program, the ExecutiveDirectors approved a US$40 million Reconstruction Import Credit in June1983 and a US$76 million Export Rehabilitation Project and a US$17.1million Export Rehabilitation Technical Assistance Project in January1984. In addition to these and the proposed project, a more broadly-basedprogram of rehabilitation of the country's economic assets will berequired. In the near term IDA would support a program to rebuild thenetwork of trunk roads, including major bridge reconstruction and portsrehabilitation components, and provide assistance to rehabilitate the powerdistribution system. In agriculture, further assistance to the developmentof oil palm production is envisaged as well as for cocoa given theoverwhelming importance of this crop, at least in the short term, forforeign exchange earnings. In energy, through the proposed project,assistance will be provided to help reduce the cost of petroleum productsrequired by the country. In brief, projects with major rehabilitationcomponents are likely to absorb tlhe bulk of Bank Group resources for thenext few years as these are likely to show the highest benefits andquickest returns. For the outer years, the Bank will begin to examineprospects for new productive investments including support for education,health and other important activities in the social sectors. The extent towhich the Bank Group can provide financial and technical assistance tosupport such a broad-based program will be conditioned by the performanceof the Government in carrying through its economic recovery program.

35. The Government of Ghana has requested the Bank Group to act as acatalyst to help muster external assistance through cofinancing and moregenerally in the context of strengthened aid coordination. At the requestof the Government, the Bank Group reconvened a meeting of the GhanaConsultative Group on November 23 and 24, 1983. The participants of themeeting have endorsed the Government's economic recovery program, and it isexpected that the foreign exchange requirements for 1984 under the programwill be substantially met by the donors' contributions.

PART III - ENERGY AND PETROLEUM SECTORS

Energy Sector

36. Resource Overview. Ghana is well endowed with renewable energyresources, of which fuelwood and hydropower are the most important.Wood-based energy supplies are abundant in the High Forest Zone of thecountry which covers about 34 percent of the total land area. Despitefuelwood demand increasing at an average annual rate of more than 5 percentduring the 1970s, the sustainable yield of Ghana's forests is sufficient toaccommodate the projected consumption through the 1990s. Hydropowerresources are also abundant particularly in the central and western regionsof the country. Three major rivers, with over twenty tributaries andstreams, drain these regions. Economically usable hydroelectric potentialis estimated at about 2,000 MW, about twice the presently installedcapacity, although the costs of tapping this unused potential are high.Recent completion of the Bank-financed Kpong Hydroelectric Project (Loan1380-GH) has increased installed capacity to 1,030 MW. Although thepetroleum potential is considered large, proven reserves amount to lessthan 8 million barrels, but exploration work is currently being undertaken

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witn assistance from IDA under the Energy Project (Credit 1373-GH) approvedin Kay 1983. Ghana, due to its geographical Location, also enjoys abundantsolar energy potential. The-re are no known coal, lignite or peat depositsand the potential for wind er,ergy is limited.

37. Energy Consumption, Ghana's per capita commercial energyconSunption is about 177 kg of oil equivalenl: (oe); this is about12 percent of the world average of 1,455 kg but twice that of the averagefor Sub-Saharan Africa of 88 kg. Principal sources of energy are wood andhydroelectricity derived from domestic resources, and petroleum productsobtained from imported crude oil and refined in the country's sole refineryat 'emna, near Accra. Total energy consumption in 1979 (the latest year forwhich reliable statistics are available) amounted to 3.9 million tons ofoil equivalent (toe), or about 345 kg per capita. As shown in the tablebelow, wood and charcoal accounted for about 71 percent, hydroelectricityfor about 9 percent, thermal electricity for 1 percent and petroleumproducts for 19 percent.

Ghana - Energy Consumption (1979)(thousand toe)

Wood 2,644 67.8Charcoal 115 2.9Hydro-electricity 367 9.4Thermal Electricity 39 1.0Petroleum Products 740 18.9

Total 3,905 100.0

Sources: Ministry of Fuel & Power, Accra; Ghana Energy Outlook and Optionsfor the 1980s, IBRD Report No. 3124-GH, October 1980.

38. Development and Organization of the Energy Sector. The principalresponsibility for the energy sector rests with the Ministry of Fuel andPower (MFP) which is headed by a Secretary (equivalent of a Minister). MFPis responsible for monitoring all aspects of the petroleum industry fromcrude oil procurement and production to refining and distribution of finalproducts. MFP is also responsible for matters pertaining to firewood andcharcoal. Hydroelectric power generation is the responsibility of theVolta River Authority (VRA), which was created in 1961 as an autonomousentity by a special Government Act. VRA distributes power directly to thelarge consumers such as Volta Aluminium Company (VALCO), the mines,Akosombo township, and for export to Togo and Benin. The remainingconsumers account for about 22 percent of VRA's generation and are servicedthrough the Electricity Corporation of Ghana (ECG).

39. In response to the pressures brought on by rising petroleumimport costs and by a Nigerian oil embargo in 1979, the Government set upthe %,mmittee on Energy Resources to review options available to the

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Government for effective management of the sector. The Committeerecommended setting up of a permanent body to deal with energy matters--aproposal subsequently endorsed by an IDA energy assessment mission. TheGovernment has proceeded with the recommendation and has approved theestablishment of the National Energy Board (NEB) as the single advisorybody to the MFP. NEB would be responsible for maintaining a comprehensivestatistical data base on energy resources, production, transformation andend-use; for developing and coordinating energy policies and conductingenergy studies; and coordinating activities and preparing a work program inthe renewable energy field. NEB has already been established and willbenefit from the recently approved IDA-financed Energy Project (Credit1373-GH) which contains a component to strengthen in-house technicalcapabilities.

The Petroleum and Refining Sector

40. The Petroleum Situation. By international standards Ghana is nota petroleum intensive economy. Per capita petroleum consumption of around65 kilograms (kg) is less than half that of other African countries withsimilar per capita incomes, such as Angola, Kenya and Sudan. In recentyears, consumption has been limited to 0.7 to 0.8 million tons of crude oilper year through strict rationing. In spite of such controls, petroleumconsumption claims on the country's export earnings have continued toincrease as a result of rising international oil prices and decliningexport revenues. As shown below, Ghana's petroleum imports in 1982 ofabout US$273 million claimed about 47 percent of the country's total exportearnings.

Ghana - Petroleum Imports

(in US$ million)

1979 1980 1981 1982

Crude Oil Imports (Million tons) 1.09 1.03 1.16 1.11Crude Oil Imports 201.3 304.4 346.0 305.2Refined Product Imports - - 12.3 -

Lube Oil Imports n.a. 22.4 22.3 12.1Petroleum Export a/ n.a. 36.5 44.8 44.4

Net Petroleum Import 201.3 290.3 335.8 272.9

Total Export Earnings 1,066.1 1,159.5 766.0 623.1Export Earnings (Net ofPetroleum Exports) 1,066.1 1,123.0 721.2 578.7

Petroleum Imports/ExportEarnings (%) 18.9 25.9 46.6 47.2

a/ Mainly fuel oil.

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41. Petroleum Sector Organization. The petroleum sector in Ghana ismanaged by the Government through the Ministry of Fuel and Power. Crudeoil exploration, production aLnd importation are the responsibility of thePetroleum Department of MEP. Crude oil is processed at Ghana's solerefiLnery located at Tema, and! owned by the Ghanaian Italian PetroleumCompany Limited (GHAIP), a 100 percent Governrnent-owned company. ThePetroleum Department pays a processing fee to the refinery for processingcrude oil and maintains ownership of the crude and the products. Refinedproducts are distributed by five petroleum marketing companies operating inthe country: Shell, Texaco, Br-ltish Petroleum, Mobil, and the Ghana OilCompany (GOIL), a Government-owned company. Surplus fuel oil is exporteddire!Ctly by the Petroleum Department.

42. With the assistance of the UN Center for TransnationalCorporations and Robertson Research International of the UK, the Governmenthas carried out studies on improving the organization of the petroleumsector. As a result, it decided to create a new company, Ghana NationalPetroleum Corporation (GNPC), to be responsible for exploration,development and production of crude oil. It will be the instrument throughwhich the Government will participate with foreign firms in exploration anddevelopment of oil fields in Ghana. The new company will be 100 percentGovernment-owned and all its key positions are expected to be filled bystaff from the Petroleum Department and MFP. The other two Governmentcomparties, GHAIP and GOIL will continue to be independent. Theresp.onsibility for crude oil procurement would be with GNPC after itbecomes operational.

43. The Petroleum Consumption P'rofile. Ghana's petroleum consumptionprofile, as in most other developing countries, is dominated by middledistillates (kerosene and diesel oil). Kerosene is used primarily in ruralareas for lighting while diesel is used for mass and freight transportationand fishing boats. Middle distillate consumption has been around55 percent of total domestic petroleum product consumption (excludingbunker). Light and middle distillate consumption increased from about86 percent of the domestic market (excluding bunker), to over 91 percentby 1982 and could have been even more if it were not for the strictrationing in recent years. This trend towards increasing distillate demandand decreasing fuel oil demand is expected to continue into the future.The past evolution of consumpl'ion of petroleum products is given in thefollowing table:

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Ghana - Petroleum Products Consumption(in thousand tons)

Products 1970 1978 1979 a/ 1980 a/ 1981 a/ 1982

LPG 4.0 6.5 6.3 6.9 6.1 6.2Gasoline 172.3 263.6 223.0 243.0 255.0 236.0Kerosene/ATF 72.5 173.9 155.2 158.0 162.2 124.3c/Diesel b/ 241.7 250.5 226.3 233.8 229.7 194.7Fuel Oil 79.4 77.5 67.8 66.4 58.1 47.7Bitumen n.a. - 1.9 6.4 7.4 7.4c/

Subtotal 569.9 772.0 680.5 714.5 718.5 616.3

Bunker Diesel n.a. 64.9 58.2 57.6 60.6 60.6c/Bunker Fuel Oil n.a. n.a. 8.7 5.4 6.4 6.4C/

Subtotal - 64.9 66.9 63.0 67.0 67.0

Total Products 570.4 836.9 747.4 777.5 785.5 683.3

a/ Figures were converted from barrels to metric tons using the follow-ing specific gravities: LPG .56, gasoline .73, kerosene/ATF .80,diesel .84, fuel oil .94, and bitumen 1.01.

b/ Includes industrial and marine diesel.iz/ Estimated.

44. During the last few years, consumption of kerosene and diesel oildeclined substantially as a result of Government rationing. In thefuture, opportunities to reduce petroleum consumption without seriouslyhurting economic activity appear limited. The transport sector, thelargest petroleum consumer with 65 percent of the total consumption, hasonly limited energy efficiency improvement possibilities in the nearfuture. Industrial and commercial sectors also have limited scope forwaste reduction in their petroleum consumption since their petroleum use iscomparatively low (22 percent). Price increases and frequent shortageshave already driven some private sector industries to improve efficiencyand/or shift to wood or electricity to meet their energy needs. Petroleumuse in the residential sector (11 percent) is almost entirely kerosene usedin the rural areas, mainly for lighting. These needs are so basic thatthere is little scope for reducing consumption other than throughsubstitution of other energy forms such as electricity. Such substitutiondoes not, however, appear immediately feasible and in any case would haveto be examined within a total energy context to determine its economicattractiveness in various areas of the country.

45. The overall petroleum consumption profile suggests that Ghana canachieve only limited reduction in consumption through conservation at thefinal consumer level. Therefore, although efforts in energy conservationshould continue to be pursued, it appears that reduction in the totalpetroleum bill can best be achieved through refinery optimization and animproved distribution system.

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46. Petroleum Refining. The GHAIP refinery is a 28,000 barrels perstream day (bpsd) or 1.25 milLion tpy simple hydroskimming refinery. Thefacilities consist of crude oil distillation, catalytic reforming, andtreating units for light naphtha and kerosene/jet fuel. There are nosecoadary conversion facilities to convert the residual fuel oil intodistillate products. The refinery has the necessary offsite facilities andan oil Jetty connected to the refinery crude tank farm through an 8kilometer pipeline. The refinery facilities were commissioned in 1963 bySnam-rogetti for GHAIP, then owned by Ente Nazionale Idrocarburi (ENI) ofItaly. In November 1976 the ownership of the refinery was transferred toGOG. COMERINT, a consultancy service company under the ENI group,continues to act as a technical adviser, although the management isGhanaian.

47. The refinery was originally designed to process Iraqi Kirkukcrude oil. However, in order to minimize the production of low-value fueloil, the refinery has been processing light crudes from Nigeria, Algeriaand libya capable of lower fuel oil yield per barrel when processed in ahydroskimming refinery. In spite of processing lighter crudes, therefinery continues to face significant surpluses of fuel oil which have tobe exported at depressed prices. Refinery production between 1979 and 1982is shown below:

Ghana - GHAIP Refinery Production(in thousand tons)

Product Mix

(%)Products 1979 1980) 1981 1982 1979 1982

LPG 7.3 6.8 6.8 7.1 0.7 0.7Gasoline 227.6 246.5 255.9 245.4 23.4 23.6Kerosene/Jet 162.0 157.9 165.1 163.7 15.9 15.7Diesel 283.9 307.8 318.2 286.2 27.9 27.5Fuel Oil 271.1 285.1 316.2 279.0 26.7 26.8

Total 951,9 1,004.1 1,062.2 981.4 93.6 94.3

Fuel and Loss 65.0 53.5 66.4 59.0 6.4 5.7

Crude Processed 1,016.9 1,057.6 1,128.6 1,040.4 100.0 100.0

48. The total distillation capacity of the refinery is sufficient tocover the needs of the country until the early 1990s. However, the productyield pattern achievable with the refinery's present equipment andprocessing configuration is not in balance with Ghana's demand profile, and

results in substantial surpluses of fuel oil. In fact, domestic consump-tion of fuel oil in 1982 amounted to about 48,000 tons (para 43), comparedto the refinery output of 279,000 tons in that year (para 47). Secondaryconversion to convert the low-value surplus fuel oil into higher-value

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distillate products will reduce the import cost of petroleum products toGhana. A detailed study to select the right type of secondary conversionwill be carried out under this Project. Furthermore, due to the designphilosophy used (which was common during the period prior to the 1973 oilcrisis), and inadequate maintenance and repairs during the past severalyears, the energy efficiency of the distillation unit, especially its heatexchange system and furnace, is low. Consequently, total fuel consumptionand loss in the refinery is about 6 percent of the crude processed comparedto about 3.5 to 4.0 percent for a well-maintained refinery of similarconfiguration. In addition to the refinery processing losses, there aresignificant losses in the ocean shipment of crude and its pipeline transferfrom the harbor to the refinery and in the distribution of final productsto the consumers. Ocean losses and port handling losses are estimated atabout 2.0 percent of crude transported compared to industry upper limit of0.5 percent. Such excessive crude oil losses which amount to over US$5million per year will be investigated by independent inspection of crudeoil loading, transportation, unloading and storage, to be financed underthe proposed Project. The Government would review the surveyor'srecommendations with GHAIP and IDA and take all action necessary andappropriate to enable GHAIP to prepare a plan of action acceptable to theBorrower and the Association to implement such recommendations (Section3.03 (b) of the Development Credit Agreement).

49. Projected Demand/Supply Imbalance. When the economy recoversover the next several years, overall demand for petroleum products isexpected to grow. The past trend towards increasing distillate demand anddecreasing fuel oil demand is expected to continue. In particular, withrecovery in the transportation sector, diesel demand will grow more rapidlythan demand for other distillate products. The demand/supply situation forpetroleum products in 1991 is expected to be as follows:

Ghana - Projected Demand/Supply Situationi in 1991(thousand tons)

Without Project With ProjectDemand Supply Surplus (Deficit) Supply Surplus (Deficit)

LPG 10 10 10 -

Gasoline 299 299 299 -

Kerosene/ATF 206 206 - 206 -Diesel 400 304 (96) 340 (60)Fuel Oil 77 357 280 340 263Bitumen 35 0 (35) - (35)

Total 1,027 1,176 1,195

50. Without appropriate secondary conversion facilities in therefinery, Ghana's petroleum products demand/supply imbalances are likely toworsen, with larger shortages in diesel and surpluses in fuel oil, makingthe petroleum sector even less economic. Future investment in the sectorshould therefore aim at matching refinery production to the changingdemand. Depending upon the type of secondary conversion process selected

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(expected to cost between US$60-US$85 million) as a result of the studies,the yearly net foreign exchange savings to the country could range fromUS$10 to 20 million.

Marketing of Petroleum Products

51. Refined petroleum products from the CHAIP refinery aretransported to various locations in the country by the five marketingcompanies by barges, rail and road. At present, the overall transportationcost of petroleum products is high and the pattern of movementinefficient. A detailed study to optimize the pattern of petroleum productmovement is necessary to improve the efficiency of the system and reducecosts.

52. Refined Petroleum Product Pricing. Refined petroleum productprices--both ex-refinery and at the consumer level--are set by theGovernment. Until the April 1983 devaluation, ex-refinery prices coveredfully the crude oil cost plus a refinery processing fee. The refinery feefully met operating and administrative expenses and then allowed a 12.5percent return on paid-in capital. Retail prices were obtained by addingduties, dealer's margin, marketter's margin, energy fund contribution, andtransportation charges to the ex-refinery cost. All foreign costs wereconverted to local costs at the official exchange rate, and therefore, inthe past the resultant prices (shown iLn table below) were significantlybelow world market prices. With the price increases of April and October1983, this situation has significantly improved.

Ghana - Petroleum Products Retail Prices(¢/Imperial Gallon)

1972 1975 1978 1980 1982 1983 a/ 1983 b/

LPG (lb.) 0.15 n.a. 0.31 0.50 0.80 n.a. n.a.Regular Gasoline 0.65 1.40 3.00 7.00 11.30 21.50 30.50Premium Gasoline 0.75 1.60 3.50 7.50 12.30 25.00 35.00Kerosene 0.35 1.00 2.00 4.00 8.50 13.20 20.00Gas Oil 0.42 1.00 2.00 4.00 8.50 15.90 24.00Fuel Oil n.a n.a 1.46 1.95 n.a. n.a. n.a.

a/ April-October 1983.b/ Since October 10, 1983.

53. The recent devaluation has increased crude oil and other refinerycosts several times. At the o]Ld arrangement for retail prices, ex-pumpprices would also have increased accordingly. However, the politicalenvironment in Ghana did not permit such a substantial price increase. TheGovernment therefore increased the old retail prices only by about 100percent and the shortfall was being met through subsidies. The Governmenthas agreed with the IMF that it would further increase retail prices andeliminate the subsidies by June 1984. As a first stage increase, newprices were announced in October 1983.

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54. Financial Position of GHAIP. Audited financial statements ofGHAIP are available only up to 1980. Key indicators from the 1979 and 1980financial statements are presented below:

GHAIP - Financial Summary(million Cedis)

1979 1980

Net Income 2.1 2.1Current Assets 28.7 31.2Current Liabilities 18.8 21.2Total Assets 35.6 42.2Long-term Debt 0.0 0.0Paid-in Capital 16.8 16.8

55. GHAIP has no long-term debt and has maintained a reasonablecurrent ratio in the past. However, with an annual net income of 2.1million Cedis, the profitability of the refinery is extremely low. Inaddition, GHAIP is required to distribute 100 percent of its profits asdividends to the Government, leaving no reserves to finance contingenciesand for necessary future investments. GHAIP's processing fee is determinedby the Petroleum Department allowing for a net income of 12.5 percent onthe paid-in capital. Since this is not adjusted with inflation, therefinery profitability has been decreasing in real terms. The issue ofGHAIP's earning power will be addressed as a part of the ManagementImprovement component of the proposed Project (see para 65). TheGovernment intends to allow GHAIP to retain a reasonable proportion ofits profits. Although the Government would determine the rate after reviewof the recommendations of the Management Improvement consultants, the rateis expected to be at least 20% of the profit.

Bank Group Role in Energy Sector

56. Until recently, Bank Group lending in the energy sector focussedexclusively on power projects. The power loans represented the largestshare (27 percent) of Bank Group commitments and consisted of three powergeneration projects and three power distribution projects. In May 1983, aUS$11 million Energy Project (Cr. 1373-GH) was approved to acceleratepetroleum exploration. The project entails collection, processing andevaluation of all past exploration data, acquisition of some new data aswell as evaluation of new seismic data to be acquired from a 7,300 kmsurvey financed by a private geophysical company. This work is expected toprovide the first countrywide assessment of the petroleum prospectsessential to intensifying petroleum exploration in Ghana. The projectbecame effective in August 1983 and is progressing in accordance withappraisal targets.

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PART IV - THE PROJECT

Background

57. The Project was identified by an IDA mission that visited Ghanain July 1982. The Project was appraised in March 1983 at which time theGovernment also requested an advance under the Project PreparationFacility. The advance was approved by IDA in July 1983. Negotiations forthe proposed Credit were held in Washington in November 1983; the Ghanadelegation was led by Mr. E. Appiah-Korang, PNDC Secretary for Fuel andPower. Significant events and special conditions are summarized inAnnex III (Supplementary Project Data Sheet).

Prolect Objectives and Justification

58. As discussed in para 48, the GRAIP refinery's existing processingconfiguration is inconsistent with the demand profile of petroleum fuels inGhana, creating a product imbalance resulting in surplus low-value fueloil. In addition, due to lack of preventive maintenance in the past, therefinery is in poor condition and suffers from high fuel consumption andloss.es. The proposed Project would: (i) prepare detailed plans torehabilitate the refinery; (ii) provide technical assistance for studies torevamp and rationalize the refinery to match its production to domesticdemand; (iii)improve its energy and operating efficiency; (iv) reduce oceanfreight losses and improve the crude handling system at the Tema harbour aswell. as in the refinery; and (v) improve the product distribution system inthe country, and thereby reduce the cost of petroleum consumed in thecountry. The refinery rationalization studies would aim at determiningthe most appropriate modification to the refinery to ensure a yield patternthat. maximizes distillate products consistent with the country'srequirements. The energy and operating efficiency investments included inthis Project are very economic, yielding a high economic rate of return ofabout 65 percent on the investment for rehabilitation and energy efficiencyimprovement (para 68).

Pro'ject Scope and Description

59. The proposed Project would include the following components:

(i) Technical assistance for the execution of inspection ofrefinery and crude handling facilities; surveyor'sinspection of the crude oil loading, transportation andunloading system; studies related to demand forecast,rehabilitation, revamping, maintenarnce improvements, energyconservation, marketing and distribution facilities, andtraining.

(ii) Technical assistance for feasibility studies for secondaryconversion options and bitumen manufacturing facilities,Volta Lake transportation of petroleum products, single buoymooring (SBM) facility at Tema port, and lube blendingplant.

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(iii) Technical assistance for the management improvement program.

(iv) Equipment and materials required immediately forrehabilitation and energy efficiency improvement.

60. In view of the age of the refinery (about 20 years) and poormaintenance practices in the past, a thorough inspection by a specializedengineering firm was essential before the exact scope and cost of therehabilitation, revamping and energy efficiency improvement components ofthe Project could be defined. The inspection has been completed and IDAstaff have discussed the results of the inspection with the consultants.The consultants have outlined the general nature of immediate investmentsrequired. These are estimated to cost about US$12.9 million (excludingcontingencies). The consultants' complete inspection report is expected tobe finalized shortly. GOG would review with GHAIP and IDA the consultants'recommendations and take all action necessary and appropriate to enableGHAIP to prepare a plan of action acceptable to the Borrower and theAssociation (Section 3.03 (a) of the Development Credit Agreement). Anyadditional investments in excess of that provided for in this project,which the consultants may recommend, could be financed in a subsequentproject together with the secondary conversion facilities that would beidentified under this Project. There is no commitment, however, that theBank Group would participate in this follow-up project. The presentProject would be economic even if these additional investments and thesecondary conversion project are not implemented.

61. Evaluation of alternative secondary conversion options would bedirected towards modifying the refinery to minimize fuel oil surpluses.Preliminary analysis of four probable options--(i) thermal cracker; (ii)fluid catalytic cracker; (iii) hydrocracker; and (iv) delayed coker--carried out by Bank staff indicates that refinery modification based on anyof these options can result in substantial economic savings. A detailedstudy to be carried out under the Project is, however, required to identifyand evaluate the benefits and potential risks of all the possible optionsand to determine the optimum refinery configuration for Ghana. This studywould be carried out in two stages. During the first stage, consultantswould carry out preliminary evaluation of alternative secondary conversionoptions to convert fuel oil into premium distillates, evaluation oflicensed know-how required for such options, and evaluation of installing abitumen plant to meet domestic requirements. At the completion of thefirst stage of the secondary conversion study, GOG and GHAIP would reviewwith IDA the recommendations emanating from the study. The second stagewould include detailed analysis of, and preparation of a feasibility studyfor the selected secondary conversion option including purchase of thelicensed know-how for such option. Upon completion of the first stage, theGovernment would review the consultants' recommendations with GHAIP and theAssociation. The Government would carry out the second stage of the studyaccording to a plan of action acceptable to the Association (Section3.03(c) of the Development Credit Agreement).

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Project Cost and Financing

62. Details of the Project cost and financing are presented in theCredit and Project Summary on page (ii). The total cost includingcontingencies, net of taxes (from which the Project would be exempt), isestimated at about US$18.3 million, including US$16.7 million in foreignexchange. The foreign exchange cost consists of US$16.7 million includingUS$2.8 million for consulting services. Since GHAIP could not delayordering of some of the urgently required equipment and materials, theGovernment provided about US$5.1 million in foreign. exchange from its ownsources. The Government has also approached the European Investment Bank(EIII) for financing. It is expected that EIB would provide about US$6.3million, of which about US$1.6 million would be used to finance localcost:s:j the remaining USS4.7 million would be used to finance foreign costs;about US$1.9 million of this would be used to finance retroactivelyequipment and materials already ordered. IDA disbursements for thepurchase of equipment and materials for rehabilitation works would not bemade before EIB financing is effective (para. 4 of Schedule 1 to theDeve!lopment Credit Agreement).

63. The IDA Credit would be made to the Republic of Ghana on standardterms. The Government would onlend US$2.9 million to GHAIP under asubsidiary loan agreement under terms and conditions acceptable to IDA; theinterest rate would be consistent with terms recently agreed upon betweenthe Goverrnment and the IMF, but in no event less than 12 percent. The loanwould be repayable in 12 years including a three-year grace period (Section3.01(b) of the Development Credit Agreement). The Government would bearthe foreign exchange risk.

Pro-ject Execution

64. The technical assistance component of the Project would beexecuted over a 24-month period by a specially created ProjectImplementation Committee set up within the Ministry of Fuel and Power withthe technical assistance of the foreign experts to be employed under theProlect. The refinery rehabilitation and energy efficiency improvementcomponient of the Project would be implemented by GHAIP through aspecially-created Project team. Three consulting firms would be engaged toundertake different components of the Project. Consulting services forstudies on energy conservation, refinery rehabilitation and productdistrribution as well as feasibility studies for modernization of theindustry, costing about US$1.7 million, would be undertaken by a singleengineering consulting firm. The Government indicated that in view of itsgood and long-established relationship with Bureau d' Etudes Industrielleset ce Cooperation de L'Institut Francais du Petrole (BEICIP) of France, itintEnded to retain it to carry out these studies. Given the existingrelationship with BEICIP, this arrangement is satisfactory to IDA.Agreement between GOG and BEICIP has been executed and refinery inspectioncompleted. Licensed technology for secondary conversion, and processdesign associated with it, costing about US$0.4 million would be selected

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by international competitive bidding for which BEICIP would providenecessary advice as consultant. Terms of reference for the engineeringconsulting firm were reviewed by IDA staff and found satisfactory.

65. Studies related to the Management Improvement Program and anindependent surveyor's inspection would be contracted separately to otherfirms which would be selected on the basis of technical proposals from ashort list of firms in accordance with Bank guidelines. The terms ofreference for the Management Improvement Program have been discussed withIDA and found satisfactory. The study would recommend, inter alia, amethodology for determining the crude processing fee to be paid to therefinery. It would also address issues related to the financial viabilityof GHAIP and recommend improvements. The Government would complete thestudy by July 1, 1984; and, by December 31, 1984, GOG would review with IDAand GHAIP the recommendations for the development of the ManagementImprovement Program and would prepare a plan of action, acceptable to IDA,to implement the recommendations (Section 3.03 (d) of the DevelopmentCredit Agreement).

Bank Advance Under PPF

66. The refinery was scheduled for maintenance shutdown in October1983. IDA and the Ghanaian authorities agreed that the refinery inspectionbe performed at that time in order to avoid any loss in production thatwould be caused as a result of a separate shutdown for the inspection.This maintenance shutdown was overdue by more than 18 months and could notbe postponed any further without compromising the safety of the refinery.In order to recommission the refinery after the shutdown, certain essentialitems (such as furnace tubes, heat exchange tubes, equipment for chemicalcleaning, etc.) were necessary and these needed to be procured prior to theShutdown. These items were not included in the items ordered with the fundsalready provided to the refinery by the Bank of Ghana as part of theGovernment's share of financing the Project. Given the country's economicsituation, it was unlikely that the Government could provide additionalforeign exchange to the refinery in a timely manner. Since procurement ofthese items normally takes about five months, it was necessary that thesebe procured at the earliest. The Government had requested IDA for anadvance of US$1.0 million equivalent to cover the inspection of therefinery by the consultants and procurement of the essential items neededto recommission the refinery after the October shutdown. Of the US$1.0million, US$300,000 would be used to pay for equipment and materialsrequired to recommission the refinery after the October shutdown, and thebalance of US$700,000 used to pay for the inspection cost and continuingwork on the studies. On the basis of the urgency and necessity of theinspection and related studies, IDA approved the PPF advance in July 1983.This advance would be refinanced from the proposed Credit (Section 2.02 (b)of the Development Credit Agreement). The refinery shutdown and inspectionhave been successfully completed.

Procurement and Disbursement

67. Equipment and materials to be financed by the IDA Credit wouldinclude replacement parts of existing equipment, items to improve energy

- 24 -

effiLciency of the refinery, and small items whose individual cost would notexceed US$50,000. Single source procurement would be used for therep]acement parts. Small items (costing up to US$50,000) would be procuredunder contracts awarded after obtaining quotations from at least threereputable suppliers. All other equipment and materials financed by IDACredit would be procured under ICB. The total amount of equipment andmaterials procured from propriety sources and limited quotations would belimited to a maximum of US$1.0 million equivalent or about 28 percent ofthe US$3.6 million of IDA Credit used 'or financing equipment andmaterials. The total cost of IDA-financed consultants is US$3.3 million.This is based on the requirement of 250 man-months of foreign technicalexpertise at an average cost of US$13,000 per man-month including salaries,social costs, profits, reimbtursable travel expenses and overhead. ThisincLudes US$1.7 million for studies on energy conservation, refineryrehabilitation and product distribution as well as feasibility studies formodernization of the industry; consultants for these studies have alreadybeen selected as specified in para 64. Consultants for the remainingstudies and supply of technology (US$1.6 million) would be selected inaccordance with IDA guidelines. The IDA Credit would be disbursed against100 percent of the foreign expenditures for services, training, equipmentand materials. Disbursements would be fully documented.

Benefits and Risks

68. The proposed Project represents the first stage of a major efforton t:he part of the Government to reduce Ghana's petroleum import bill. ThePro`ect is expected to result in addiitional economic life for the refinery,which, due to poor maintenance in the past, will not be able to operatesafely without the necessary investments included in the Project. Therehabilitation and energy efficiency improvement elements included in theProject are expected to reduce Ghana's petroleum import bill by about US$10mill]ion per year and yield an economic return of about 65 percent and a payback period of about a year. This does not include foreign exchangesavings that would result from the reduction of ocean losses to be achievedas a part of this Project. The full--scale refinery modification projectwhich is expected to emerge from this technical assistance project wouldresull: in balancing refinery production with demand, thereby minimizing theneed to import distillate products and export surplus residual fuel oil atdist:ress prices. The improved yield pattern will also reduce the totalcrude processing requirements to meet the domestic product demand.Preliminary analysis of the full scale modification project indicates aneconomnic rate of return in the range of 19 to 25 percent.

69. The Project is expected to contribute significantly to theinstitutional development in the petroleum refining subsector. TheManagement Improvement Program component of the Project will specificallyfocus on improving organizational management, accounting and financialmanagement, and auditing of the two key companies in the refiningsubsector, GHAIP and GOIL. No undue risks in implementation are foreseen.However, delays in the appointment of consultants and release of paymentscou.d cause an overall delay in the project implementation; these riskshave been minimized by taking early steps in the recruitment of consultantsand advances through PPF.

- 25 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

70. The draft Development Credit Agreement between the Republic ofGhana and IDA, the draft Project Agreement between IDA and GHAIP, and theRecommendations of the Committee provided for in Article V, Section l(d) ofthe IDA Articles of Agreement are being distributed separately to theExecutive Directors.

71. The main features of the Agreement are referred to in the text ofthis report and are listed in Annex III. The execution of a SubsidiaryLoan Agreement between GOG and GHAIP would be an additional condition ofCredit Effectiveness (Section 5.02 (b) of the Development CreditAgreement). Furthermore, fulfillment of all conditions precedent to thefirst disbursement of the EIB Credit would be a condition of disbursementagainst equipment and material procurement category under the refineryrehabilitation component of the Project (Schedule 1, para 4 of theDevelopment Credit Agreement).

72. I am satisfied that the proposed Credit would comply with theArticles of Agreement of IDA.

PART IV - RECOMMENDATION

73. I recommend that the Executive Directors approve the proposedCredit.

A. W. ClausenPresident

Attachments

Washington DC

February 23, 1984

- 26 -ANNEX I

T A B L E 3A Page 1 of 5GHANA - SOCIAL INDICATORS DATA SHEETGHANA REFERENCE GROUPS (WEIGHTED AVERAGES) /a

MOST (MOST RECENT ESTIMATE) /b

lb RECENT /b LOW INCOME MIDDLE INCCME

AREA (THO{lSAND SQ. KM) 1960-1-b 1970- ESTIMATE.- AFRICA S. OF SAHARA AFRICA S. OF SAHARA

TOTAL 238.5 238.5 238.5AGRICJLTURAL 65.4 61.4 62.3

GNP PER CAPITA (US$) 190.0 260.0 400.0 254.6 1147.9

ENERGY CONSUNFTlON PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 104.0 266.0 268.0 79.8 724.2

POPULATION AID VITAL STATISTICSPOPULATION,MID-YEAR (THOUSANDS) 6804.0 8614.0 11830.0URBAN POPULATION (% OF TOTAL) 23.3 29.1 36.6 19.5 28.5

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILL) 24.2STATIONARY POPULATION (MILL) 85.4YEAR STATIONARY POP. REACHED 2135

POPULATION DENSITYPER SQ. EM. 28.5 36.1 48.2 29.5 56.5PER SQ. KM. AGRI. LAND 104.0 140.2 184.6 94.1 131.8

POPULATION AGE STRUCTURE (%)0-14 YRS 44.5 45.8 46.8 45.0 45.9

15-64 YRS 52.9 51.6 50.5 52.1 51.265 AND ABOVE 2.6 2.7 2.7 2.9 2.8

POPULATION GROWTH RATE (2)TOTAL 4.4 2.4 2.9 2.8 2.8URBAN 9.2 4.6 5.0 6.2 5.3

CRUDE BIRTH RATE (PER THOUS) 50.2 50.2 49.3 47.9 47.6CRUDE DEATH RATE (PER THOUS) 20.3 16.9 13.4 19.2 15.2GROSS REPRODUCTION RATE 3.4 3.4 3.4 3.2 3.2

FAMTLY PLANNINGACCEPTORS, ANNUAL (THOUS) .. 8.3 33.5/cUSERS (% OF MARRIED WOMEN) .. 1.5 4.07 d-

FOOD AND NUTRITIONINDEX OF FOOD PROD. PER CAPITA(1969-71=100) 93.0 101.0 72.0 87.8 95.7

PER CAPITA SUPPLY OFCALORIES (X OF REQUIREMENTS) 92.0 98.0 88.0 88.0 97.1PROTEINS (GRAMS PER DAY) 43.0 51.0 44.0 51.2 56.0

OF WHICH ANIMAL AND PULSE 13.0 17.0 15.0/c 18.1 17.2

CHILD (AGES 1-4) DEATH RATE 30.6 24.6 18.9 25.7 23.6

HEALTHLIFE EXPECT. AT BIRTH (YEARS) 44.8 49.9 54.5 47.4 51.9INFANT MORT. RATE (PER THOUS) 142.9 121.6 101.0 126.5 117.6

ACCESS TO SAFE WATER (%POP)TOTAL 35.0 35.0/e 24.7 25.4URBAN *- 86.0 86.07e 56.8 70.5RURAL 14.0 14.07-e 18.3 12.3

ACCESS TO EXCRETA DISPOSAL(X OF POPULATION)

TOTAL 55.0 56.0/e 28.1URBAN 9 92.0 95.c07e 65.7RURAL 40.0 40.o77 21.9

POPULATION PER PHYSICIAN 21600.0 12910.0/a 7630.0 27420.6 12181.6POP. PER NURSING PERSON 5430.0/f 1]070.0_{t 780.0 3456.2 2292.0POP. PER HOSPITAL BED

TOTAL 1290.0 760.0 660.0/c 1183.2 1075.4URBAN 300.0/f 770.0 830.077 380.6 402.3RURAL 47590.0/f 890.0 730.077 3177.5 3926.7

ADMISSIONS PER HOSPITAL BED ..

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL .. 4.7URBAN .. ..RURAL .. ..

AVERAGE NO. OF PERSONS/ROOMTOTAL .. ..

URBAN .. ..RURAL .. ..

ACCESS TO ELECT. (2 OF DWlELLINGS)TOTAL ..

URBAN .. ..

RURAL .. ..…-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - _- - - - - - - - - _ _ _ _ _ _ _ _ _ _ _- - - - - - - - - - - _ _ _ _ _ _ _ _ _ _ _ - - - - - - - - - -

- 27 - ANNEX IPage 2 of 5

T A B L E 3A

GHANA - SOCIAL INDICATORS DATA SHEETGHANA REFERENCE GROUPS (WEIGHTED AVERAGES) /a

MOST (MOST RECENT ESTIMATE) /b

lb RECENT b LW; INCOME MIDDLE INCOME1960- 1970 ESTIM4AT/- AFRICA S. OF SAHARA AFRICA S. OF SAHARA

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 38.0 64.0 69.0 63.9 97.2MALE 52.0 73.0 77.0 73.6 103.1FEMALE 25.0 54.0 60.0 51.6 88.5

SECONDARY: TOTAL 5.0 14.0 36.0 12.5 17.2MALE 9.0 21.0 44.0 16.7 23.5FEMALE 3.0 8.0 27.0 8.1 14.2

VOCATIONAL (1 OF SECONDARY) 12.6 23.3 3.5/d 7.3 5.2

PUPIL-TEACHER RATIOPRIMARY 31.0 30.0 27.0/d 46.4 42.9SECONDARY 1

6.0LL 17.0 19.o7d 25.1 23.7

ADULT LITERACY RATE (X) 27.0/h 30.2 * 36.5 37.1

CONSUMPTIONPASSENGER CARS/THOUSAND POP 3.0 4.6 6.8/c 3.3 18.8RADIO RECEIVERS/THOUSAND POP 42.7 81.6 162.6 45.3 97.8TV RECEIVERS/THOUSAND POP 0.1/i 1.9 5.0 2.2 18.6NEWSPAPER ("DAILY GENERAL

INTEREST") CIRCULATIONPER THOUSAND POPULATION 30.0 48.2 30.5 4.7 18.2

CINEMA ANNUAL ATTENDANCE/CAPITA 1.6 2.2 0.4 1.0 0.6

LABOR FORCETOTAL LABOR FORCE (THOUS) 2919.0 3421.n 4396.0

FEMALE (PERCENT) 42.6 42.1 41.1 34.5 36.1AGRICULTURE (PERCENT) 64.0 58.0 53.0 76.9 56.8INDUSTRY (PERCENT) 14.0 17.0 20.0 9.8 17.5

PARTICIPATION RATE (PERCENT)TOTAL 42.9 39.7 37.2 40.9 37.0MALE 50.0 46.6 44.0 53.0 47.1FEMALE 36.0 33.0 30.4 28.9 27.0

ECONOMIC DEPENDENCY RATIO 1.1 1.2 1.3 1.2 1.3

INCCME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5Z OF HOUSEHOLDS .. .. .

HIGHEST 20X OF HOUSEHOLDS .. ..

LOWEST 20X OF HOUSEHOLDS .. ..

LOWEST 40Z OP HOUSEHOLDS .. ..

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 307.0Jd 165.9 534.2RURAL .. .. 150.07d 87.4 255.9

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 156.0/d 100.8 491.5RURAL .. .. 130.o07T 64.6 188.1

ESTIMATED POP. BELOW ABSOLUTEPOVERTY INCOME LEVEL (%)

URBAN ' ' ' ' 39.5RURAL .. .. .. 69.0

NOT AVAILABLENOT APPLICABLE

N O T E S

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among theindicators depends on availability of data and Is not uniform.

lb Unless otherwise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and1971; and data for "Most Recent Estimate" between 1979 and 1981.

/c 1977; /d 1978; /e 1975; /f 1962; /g Registered, not all practicing in the country; /h Age 6 and over; /i 1964;/- Public Schools only.

May 1983

- 28 - ANNEX I

Pagae 3 of 5DEFINITIONS OF SOCIAL iNMlCuT-S

.l.oteel ditf'oug the ccse eed-t sors eeaLyjdgdte,otutioiano odetcil,IncoPdas o oc ta he a ntb ftratcal

desclis ordeecof eadol-de, I,dldcen treds, -ed-.t..tedccrti Jea.Jor diffeconce befucoco- yie

The re:reoce roups ae (I) he ea -oou prn Pnf tihes-bj-eci tooctyhnd....a.ontr hlro-p-eithsoehh..hig.anrgo--clloicouty groapo0thieubetocoutr feoep fo 'digt icie''Oilteprtrt'grAp her "Iidde rcoc NrthOilouandridlefat' I rtotn bcsctnenrngreooo-sltcaafintis. n herfernc dropdsch h cu-rcgeI are popoh-tl M Idtgttd-.urNihltef scan fo ah:3iuo n tonol0se aoi ftetnnisi

-' odf0fans Pnpisinidit OPsti ttei optetio disidd byoy be fprcicn

fo~~ ocope, pesturee , cerkef cod kitchen gurdene or to lie folios; 1960, hurting octlllariet. H u91 ad 19800 dat. _b.. o yrHsialid-nta rto, aniacl-Pepleo ea

Aglil -- ,.-ily 1, ~~~~~~~~~~~~~oba, ndrcs1- io fond it titeI-- dcpcioed ubyco hoPita P e-ut 0 CPT 15f-Gtuerapislnese ccrefsrktpirePciuOed ubi n pitegees ndseilie opia n

tacisr. i . un .oesn.nt.daP a -d a' At ias f.117-, Osi960eoiiuioocnr ,optltaeehiiiene etnTl tieduty liPId, snd liti uco. Op at deon r one chreicin hnh itenayood yridnpips,, ncrda

cue r nt t .d l ided. nuaby yni .~i itbc r inlud hes,ithad

tiNfO CP tdf0l5PO APITA (daaulupyrnoa ...oeniw of allafob nc ics rener not" Peract dyeaidOspyiia htb e

eneryori ouiad loie etntu,ntos gseo tdr- cner nfPtnt oce idfe end.)- g--ci o-fe i-psnlidanhannndst anand

1oo bcauinecrrnydn lorud o Amd li:oen' eropne ewiea idte sgeo edol ollte. o tuiis oeeeINtO ITYT, and 19ff lane rc oyrl o oe.C rniajee hopiai ,I and.li rorsi

EnRCY CONSU~~~~PTIO~~ "I IAPITA .~do Pi.i,oclror..piuendsdcaud..cipceeePOPOLuOlOfi NOD OITALSToTiSTICS Spento --ee hocdias r P t- e oily 1under-rorsi.Tnri oyleion hd-ea (iteoode -Os f nd i 90. Th ad iludantoi dr Ooyos fd Tosinoite o ueicinetoo dtttugdPli-i'Y P-9Y '-l -d -I, -- 1 -d,~ ~ ~ ~ ~ ~foe oe otec in deditp_t yaen he.ph.j. b y .dla

_rta dorlatonf c-rnn -otaf -daioff_riinnoon_i op_,fer

differnt deIndln fois ressyefc opariti iy iatdOihanog outne ; to id, ndHiddcc. ocogetioo oosesoifnceosor huetod)-ond.sba.an ers

PoyUAoiJon APDoVToL TiAoIISTIooeoi noooet ofogopohidodul lt hr - i-ioig urtr~ywanlt i yarDOO -Cwneniyooladn prjet fnes-~ hardon iCcoofofr oOnsels.0 oareror oder ay r ay-othe enude- ienipplErc iY aean e an-d) rteirf soctalin an_ttiptehoniodfrseisio sco

canes. Pojeoniorpurasetee forrorul ieyraes 9oepr 19ofnnrd doeogtone oyoeoe e doo -n lyiunta-d odo-i e-agnobe

dabylti 1ai-cn leuci., sodfecl fecpoer iiiigo:7. dseligt ronionoolr alog etluew-prnnsrnreaddfears The poron-nec foreriii) c re ln Ocetre lneo-1ope pars.llb

:nseinderfir -fe -ol --awo_iygo ..n . Pllnlooy'etaiy d-otetiocfecoooelne)scdsbn oericicen pcoeawt actcon-fisiTsed1e97eo0tre in wosti-d sllnn ld lctii1 o iin oacrsO

20 Is 1,sheedoldftrfcrleieewvjsedtrfoetdoo'eriiesonitreyinecett Icolof oirinceyrdoncitcec~,oitn rt;uryshonl-osol,calotdtesie-Crtotoai, sitoodncedcart

5eneranoooofoonenrepiucnitneif wouttly. Thesnerionay nooisosfiioeattri'iinlil'tetae

lipfetne ine Ps -ele cd on sit nad f rjwtditrct- ren scto_-g pepoln s nosip tlde hide gd -Ilstit -o to p-o1nn Onte er 00,ad r rn o coit fyer I __tohb udoee o difeet logt of- -edn-ny e --ron for

Poelara 16..9., o Hid dot - aopleoouly-f dPtll eanCo o_;,orr.p.decI ot,Iat

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yopiatn. 90.90,.od Ni dhe l-ooit -cti-rdeary- adscoan-os idn enidi

yen pnslstot;INt, lOi, rd Oi dos. OObPTI.OdO-a~

yn0oietdn; iNNO 970, andIOu 2d 00a curosrort-g ite-Ii-uneog-t-yrs-h-- end -odesd hnuuneldt-ane n

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esniloty reset, oe -cidy fiera -orgsndn n00 91 n broudcatnhogee-ul toldc ye d huud fppo-in sear cdaiode on-1901. lictnnodreceiotte~~~~~~P" in corre ndo rr t ntgsr-dtfo

lnTcnc aop p-idnfc ho-ohillI--l-ffn ionocrw-rIol O'.: hIt ItI)h 'I fzzoe''co colt'.PfinconY ecooic2

lidn"fc00

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00c t..lono_tou . dnooedn....she en-noOo

eoi acane nnne oof saun) rioc cncdltlcnccottoctonretnn e.9.dlccnnooddorlcohcmnu,iocidioiooiseOnsno eV-e-o-ineo-on

Oaf doiiai opltontdednei prduton,Onntelesd -uaon o ir sAt. efn,sor O

en fonoO i1n. 5d0t-60, 19607, and 1 970d8t. oAd lorci ,etn n a t erttgeo d` lhrfrt iOPe _aht sop_oarti gascr a)-Poenonnopedp,n9?nd10 es

ne upld o nn e LyiSeenPO o oo s eiedbille"fcioyninOue(etef _f_l si, n fei-PrOrptinwtIuieenc tn1il60 neie ePailhdbyOi ---oidt fo -dtio IOot ue rcczytdu oe ,sl,ud _eueiio oonal_ acenet rcoron rten19ueol nn oednnfpnOnos chnO sseofiOeoooono- snreyniey

poeepntiia f hchhIgesnoodpe-tnO roen.TendIh, 97,uh f9 odC hnrtcnoc n lO eri iecnruentoadatnwrianneolOatfnalpocnnlbru elconooseno19 Pf-typoaOooloonnncd

yernsidanottotoyOl ftononfei P0 .P-i o..-Pctinuopyo oo eno1mo ho-c-d

datze. y l_ __Jp OnisrOitTif.Oihh5n agnn1-1 eoittu pr hosud) -dwino es- per0 tocud I eooenfcon noc(omI orudco)-tcOe t ihnugeonnpl-Oearnnccitddre innileeg groo;focosodooiopio pcctr.7richnnllrrroc-dooren 1 f- rctl , dywocue 0 p--- ne o

coconnoen dano dcrooso Proc dlft cuhlen1

hid, 19I71 olio-dth-atf dfPa. tilo; .. on.

es tirn ; iStI, 070 acd0991 unn. soold hOtlnrlccbnocdot _dnrnhlnc_oc _oinfatdniallyiaeoyenl-d-a-p-ucofdeehl, of Pinf.nd.o..dcro- CnoucdsldrncdlfocerSptuitu- -itnwetoo

peseofous ysrnroonurdiooncicnhill9id,Olydarditildoio fhsofoc_ ,ro hndoOc--toiinohnosionbe--hcret -

OcesofSf Oo:lct--olpplain -coO Uorhuo, noddc-oral - ocleOtiRn. d ..r od und lIe: I__ctnilin-odrqicsn eoNotitczfynpletneu,urht, odrorifoit resonnbourrnonoafeP_fonu-i-

fceetoe tyh condrt s cn0

cdii tnoutl soenw ttn noenn o iftln coi't tono -och nts iatll ( --cn

hos.- ncd itssceo-iacenoc-spritehho.eoornoc......cicpIilouroodrn1fhotiettot

thedayin ft ichina tIi-e feil e-e- eeedcceestohcrens SiPo.....recTt of1opotbiorlton-, orbo-enrocl-nnerfrorc poni-wrd-O.undnotul_ sdrned-yseccdsu

di hpso g- percen doesf-the, re9co0in pudseoi.. f-crdl Iieo-s

sannloeteoticsonndiooeloldPcozhontef-oi-,ficlweIntosaeenwtohoonccntssdneiwoscn yoI-doonyi-u r'loe9ro ccolccuroeodrdrnonDeatno

yniosundsinlotietdells PAOnnbfr-90

- 29 - ANNEX I

Page 4 of 5GHANA ECONOMIC DATA

GNP PER CAPITA IN 1982: US$360 I/

GROSS NATIONAL PRODUCr 1N 1982 ANNUAL RAIE OF GRCWTH(%/, Constant Prices)

Cedis Min. % 1977-82

GNP at Market Prices 85,700 100.00 -0.86Gross Domestic Investment 1,148 1.30 -16.40Gross National Savirg 1,259 1.50 -16.45Current Account Balance --46 -0.05 -Export of Goods, NFS 2,009 2.34 -9.44Import of Goods, NFS 1,959 2.29 -20.22

OUTPLJT AND LABOR FORCE

Output in 1982 Labor Force, 1982Cedis Min. % Min. %

Agriculture 44,031 51.28 2.509 57.2Industry 6,440 7.50 0.671 15.3Services 35,395 41.22 1.206 27.5

Total 85,866 100.00 4.386 100.0

GOVERNMENT FINANCE

Central GovermnientCedis Min. % of GDP in 1981 Cedis Min. % of GDP in 1982

Total Revenue and Grants 4,855.3 6.33 5,253.2 6.12Total Expenditure and Net Lending 9,702.9 12.66 9,220.1 10.74Overall Deficit (-) -4,847.6 -6.32 -3,966.9 -4.62

MONEY, CREDIT AND PRICES

1976 1977 1978 1979 1980 1981 1982

P4oney and QOasi-imoney 1,903 3,044 5,131 5,942 7,949 12,029 15,072Bank Credit to Public Sector 1,966 3,203 5,636 6,537 8,481 14,043 1,714Bank Credit to Private Sector 385 560 739 7% 940 1,342 1,558

(Percentages of Index Numbers)

14bney and Quasi-money as % of GDP 29.2 27.3 24.4 21.1 19.4 15.7 17.6General Price Index (1977=100) 46.2 100.0 173.1 267.3 401.2 868.6 1062.4

1/ Staff estimate

September 1983

- 30- ANNEX IPage 5 of 5

B_JICE OF PAY)ENTS MERCHANDISE EXPORTS (AVERAGE 1978-1982)

1980 1981 1982 1 US$ Min. %(US$ million)

Cocoa Beans & Products 654.5 72.9Trade Balarnre 184.3 22.3 98.2 Tinber Logs & Products 38.2 4.3Exports 1208.9 766.3 627.2 Gold 135.1 15.0Imports -1024.6 -788.7 -529.0 Dianxids 10.3 1.1

Marganese 9.6 1.1Invi,sibles (Net) -168.0 -140.4 -114.8 All Other Goods 50.1 5.6Services -247.7 -223.3 -197.2Trarnsfers 79.7 82.9 82.4 Total 897.8 100.0

Current Blance 16.3 -162.7 -16.6EaRNAL DEBT, DEMB 1982 -

Capital Accounts US$ Min.Official Capital (Net) 187.9 57.3 149.7Private Capital (Net) 19.8 26.3 31.7 Total Outstandirg andArrears Paynmnts 78.9 141.4 35.2 Disbursed M&LT 1163.6

Total Outstandirg andoverall Balance 81.5 -262.5 56.4 Disbursed incl. Short-term 1648.6

Gross InternationalReserves (End of Period) 197.6 189.8 223.9 DEBT SERICE RATIO FOR 1981 %

Total Outstandirg andFebruary 1973 - June 18, 1978 Disbursed MOLT 10.7

US$ = 01.15 Total Outstanding andDisbursed incl. payment arrears 17.9

Since August 26, 1978US$ = 02.75 IBRD/IDA LENING (March 31, 1983)

IBRD IDA

Outstanding andDisbursed 130.2 122.1

Undisbursed 18.9 94.2Outstanding, incl.

Undisbursed 149.1 216.3

1/ Provisional estimates subject to change.2/ Includes errors and omissions.3/ Actual data not available. Estinates only.

Septimber 1983

- 31 -

ANNEX II

THE STATUS OF BANK GROUP OPERATIONS IN GHANA 1/

STATEMENT OF BANK LOANS AND IDA CREDIT (as of November 30, 1983)

Loan orCredit Fiscal Less Cancellation2/Number Year Borrower Purpose Bank IDA Undisbursed

Seven loans and twelve credits fully disbursed 136.5 89.9531-GH 1975 Republic of Ghana Oil Oil Palm 13.6 0.51122-GH 1975 Post & Telecom'tions Telecommunications 23.0 9.11180-GH 1975 Republic of Ghana National Investment

Bank 10.0 0.31291-GH3/ 1976 Republic of Ghana Agricultural

Development 21.0 5.7901-GH 1979 Republic of Ghana Second NIB 19.0 11.61009-GH 1980 Republic of Ghana Agricultural

Development 29.5 25.81029-GH 1980 Republic of Ghana Third Highway 25.0 7.14/1170-GH 1981 Republic of Ghana Railway 29.0 23.7T/1342-GH 1983 Republic of Ghana Water Supply 13.0 11.8T/1327-GH 1983 Republic of Ghana Reconstruction CIMAO 9.3 9.Ow1373-GH 1983 Republic of Ghana Energy Project 11.0 10.24/1393-GH 1983 Republic of Ghana Reconstruction Import _ _ 40.0 34.0X/

Total 190.5 279.3 148.8of which has been paid 47.3 3.0

Total now outstanding 143.2 276.3

Amount sold 0.4of which has been repaid 0.4 0.0 0.0

Total now held by Bank& IDA 143.2 276.3

Total undisbursed 15.1 133.7 148.8

1/ The status of the projects listed in this part is described in a separate report on allBank/IDA-financed projects in execution, which is updated twice yearly and circulatedto the Executive Directors on April 30 and October 31.

2/ Prior to exchange adjustments.T/ Interest subsidy fund (Third Window).4/ Calculated at the November 30, 1983 rate of SDR1 = US$1.05058.

- 32 -

ANNEX III

GHANA - PETROLEUM REFINERY REHABILITATIONAND TECHNICAL ASSISTANCE PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

I. Timetable of Key Events

(a) Time taken to prepare project About 9 months (July 1982 to March1983)

(b) Project prepared by Ministry of Fuel and Power and GRAIP

(c) First presentation to the Bank: July 1982

(d) Identification Mission : July 1982

(e) Departure of Appraisal Mission: March 1983

(f) Negotiations November 1983

(g) Planned date of effectiveness : May 1984

II. Special Bank Implementation Action

None

III. Special Conditions

(a) GRAIP to prepare a plan of action acceptable to IDA to implementrecommendations of independent surveyor to reduce ocean losses(para 48).

(b) GOG to review with IDA the refinery inspection report and preparea plan of action to implement measures for refineryrehabilitation, revamping and energy efficiency improvements(para 60).

(c) Government to carry out the second stage study for secondaryconversion according to plan acceptable to IDA (para 61).

(d) Government to complete Management Improvement Program Study byJuly 1, 1984 and by December 31, 1984 prepare a plan of action toimplement recommendations (para 65).

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