world bank document of the world bank for official use only report no. 15679 implementation...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 15679

IMPLEMENTATION COMPLETION REPORT

THAILAND

BONGKOT GAS TRANSMISSION PROJECT(LOAN 3508-TH)

Mlay 17, 1996

Infrastructure Operations DivisionCountry Department IEast Asia and Pacific Region

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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CURRENCY EQUIVALENTSCurrency Unit - Baht (B)

At the time of Appraisal (Dec 1991) At the time of ICR Mission (March 96)US$1.00 B 25.52 US$1.00 = B 25.00B 100 = US$ 3.92 B 100 = US$ 4.00

UNITS AND MEASURES

bbl barrelbcf billion cubic feetbpd barrels per daybtu British Thermal Unitmcf 1000 cubic feetmmbtu million btummcfd million cubic feet per day

PTT's FISCAL YEAR

October 1 to September 30FY 1995 denotes the year ending on 30 September 1995

From 1996 PTT's Fiscal Year will be the same as the calendar year

ABBREVIATIONS AND ACRONYMS

ADB Asian Development BankEGAT Electricity Generating Authority of ThailandJDA Joint Development AreaJEXIM Exim Bank of JapanLNG Liquified Natural GasLPG Liquified Petroleum GasMIS Management Information SystemPTT Petroleum Authority of ThailandSCADA Supervisory Control and Data AcquisitionUSEXIM Exim Bank of the United States

FOR OFFICIAL USE ONLYIMPLEMENTATION COMPLETION REPORT

THAILAND


Table of Contents

Page No.

Preface . ................................................... iEvaluation Summary ......................... ii

PART I: IMPLEMENTATION ASSESSMENTA. Statement/Evaluation of Objectives .......... ............... 1B. Achievement of Objectives ......................... 2C. Major Factors Affecting the Project .......... ............... 4D. Project Sustainability ......................... 5E. Bank Performance ......................... 5F. Borrower Performance ......................... 6G. Assessment of Outcome ......................... 7H. Future Operations ......................... 7I. Key Lessons Learned ......................... 8

PART II: STATISTICAL ANNEXTable 1: Summary of Assessments .................................. 10Table 2: Related Bank Loans ...................................... 11Table 3: Project Time Table ...................................... 11Table 4: Loan Disbursements ...................................... 12Table 5: Key Indicators of Project Implementation .12Table 6: Key Indicators of Project Operation .13Table 7: Studies Included in the Project .13Table 8A: Project Costs .14Table 8B: Project Financing .14Table 9: Economic Costs and Benefits .15Table 10: Status of Legal Covenants .16Table 11: Compliance with Operational Manual Statements .18Table 12: Bank Resources: Staff Inputs .18Table 13: Bank Resources: Missions .................................. 18Table 14: Actual Production of Gas and Condensate .19Table 15: PTT's Forecast and Actual Financial Performance .19

APPENDICESA. Mission's Aide Memoire .20B. Borrower's Contribution to the ICR .22

MAPSIBRD No. 23485RIBRD No. 23519

This document has a restricted distribution and may be used by recipients only in the performance of their| official dutes. Its contents may not otherwise be disclosed wiLhout World Bank authorization. I

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KINGDOM OF THAILANDBONGKOT GAS TRANSMISSION PROJECT

(LOAN 3508-TH)

Preface

This is the Implementation Completion Report (ICR) for the Bongkot Gas TransmissionProject in the Kingdom of Thailand for which Loan 3508-TH in the amount of US$ 105.00 millionequivalent was approved on July 7, 1992 and made effective on December 8, 1992.

The loan was closed on December 31, 1995, one year later than the original closing dateof December 31, 1994. Final disbursement took place on October 26, 1994, and the undisbursedbalance of US$ 13.29 million was canceled in two installments on December 13, 1994 and onDecember 31, 1995. Co-financing was provided by Asian Development Bank (ADB), Exim Bank ofJapan (JEXIM) and Exim Bank of the United States (USEXIM). PTT did not provide the Bank withany comments from the co-financiers.

The ICR was prepared by V. Krishnaswamy (Consultant) of the Infrastructure OperationsDivision of the East Asia and Pacific Region, Country Department I, and reviewed by M. Farhandi,Principal Energy Specialist, J. Shivakumar, Infrastructure Division Chief and W. Schwermer, ProjectAdviser, EAL.

Preparation of this ICR was begun during the Bank's final supervision/completion missionin March 1996. It is based on material in the project files and information gathered during the ICRmission from the Borrower and other sources. The Borrower contributed to the preparation of the ICRby: (i) providing information to the ICR mission; (ii) contributing views reflected in the mission's AideMemoire; (iii) preparing its own evaluation of the project implementation; and (iv) commenting on thedraft ICR.

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KINGDOM OF THAILAND


Evaluation Summarv

Introduction

i. The Bongkot Gas Transmission Project was the fourth in the series of Bank loans to thePetroleum Authority of Thailand (PTT) to augment the supply of indigenously available andenvironmentally friendly natural gas in Thailand. It was also designed to encourage commercializationof the transactions between two parastatals-- PTT and the Electricity Generating Authority of Thailand(EGAT). PTT had completed all three earlier projects on schedule and within the budget and the projectsrealized their main objectives. The Bank had provided significant technical assistance for the institutionalstrengthening of PTT, which has emerged as one of the successful and well run energy entities in theregion.

Project Objectives

ii. The main objective of the project was to increase the gas supply capability of Thailandby: (a) expanding the gas transmission system; (b) strengthening the institutional effectiveness of PTT;and (c) enabling Thailand to make a more efficient use of its capital resources in the gas sector throughannual reviews of PTT's investment programs.

iii. In pursuit of the physical objective, the Loan Agreement (LA) required the Borrower notonly to execute the project with due diligence, and also carry out: (a) a thorough inspection and testingof the older pipeline between Erawan and Rayong to determine the limit of its capacity to transmit gassafely; and (b) an engineering study for a new gas transmission project to augment the transmissioncapacity from Erawan to Rayong.

iv. To strengthen the institutional capacity of PTT, covenants under the loan required PTTto: (a) conduct and implement a study to upgrade PTT's Management Information System (MIS); (b)conduct and implement a study on establishing the safety engineering and environmental standards forPTT operations; and (c) conduct a safety audit of PTT's operations by external experts to be hired forthis purpose!'. During loan negotiations it was agreed: (a) that in addition to an audit by the AuditorGeneral, PTT's accounts would be audited by an independent private audit firm acceptable to the Bank;and (b) that PTT would strengthen its internal audit office and allow it to report directly to the Governorof PTT. As part of project preparation, PTT was persuaded to enter into a formal commercial gas supplycontract with EGAT, and a loan covenant required PTT to consult the Bank before making any majoramendments to its gas purchase contract with the gas field operator and its gas sales contract with EGAT.

1/ In addition, a study on establishing Environmental Standards and Regulations for on-shore and off-shore exploration,development and production of Oil and Gas in Thailand, and another study on the Business Strategies and Privatization of PTT wereparts of the Project allocated for grant financing by ADB technical assistance.

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v. With regard to the third objective, it was agreed during negotiations that PTT wouldprovide towards the end of each year its investment plan for the next few years and that the Bank andPTT would jointly review it to identify possible improvements to make a more efficient use of PTT'scapital resources.

vi. The project's objectives were considered timely, practical, realistic and consistent withthe country's priority (of rapidly increasing commercial energy supplies to sustain the momentum ofeconomic growth), the Bank's country assistance strategy (which stressed support for removinginfrastructural bottlenecks to growth) and the sector strategy (which focused on environmentally friendlyenergy options and on public sector management reforms that would promote competitive privateinvestments in the energy sector).

Implementation Experience and Results

vii. The project's objectives have been substantially achieved. The physical facilities wereconstructed and commissioned substantially on schedule, optimum transmission capacity of the firstpipeline between Erawan and Rayong was determined, and the engineering study led to the constructionof the second pipeline between Erawan and Rayong under a follow-up Bank loan (Loan 3799-TH). Theinstitutional and investment review objectives were also realized, especially with the completion of theFuel Options Study (December 1993), which provided an analytical framework for investment choice andtiming of investments. PTT's operations have become more commercialized and it is moving graduallyto corporatize and eventually privatize some of its business units.

viii. The project's sustainability seems to be assured in the context of more than the forecastlevel of availability of gas (350 mmcfd compared to the estimate of 250 mmcfd) and condensate from theBongkot gas field, continued high demand for gas in Thai economy, and the adoption by PTT of a salescontract to EGAT ensuring continuity of sales and an adequate return on investment. Construction ofthe project pipelines and the second pipeline from Erawan to Rayong encouraged the timely investmentin gas development and production by private sector operators like Unocal and Total.

ix. The project was completed at a cost of US$ 333.94 million, which was about ten percentlower than the appraisal estimate. The saving was essentially due to the contingency amount providedin the cost estimate not being required, as a result of prudent project management. Despite someunfavorable weather conditions, the project was completed basically on schedule and was in fullcommercial operation by March 1994, four to five months ahead of the date envisaged during appraisal.The revised economic internal rate of return (ERR) for the project is 34 percent compared to 26 percentestimated at appraisal. The pricing formula for the sale of gas to EGAT enables PTT to achieve financialinternal rates of return (FRR) of 16 percent as estimated during appraisal.

x. PTT hedged against external factors such as oil price changes, by partially indexing itsgas purchase and sale prices to oil prices. Natural disturbances such as cyclones did affect the laying ofoff-shore pipe, but astute construction scheduling allowed the experienced contractors to make up the losttime in later stages. The performance of consultants and contractors was excellent and the financiersincluding the Bank helped maintain the project schedule. There was a high level of ownership of theproject on the part of PTT, which was determined to complete it on schedule to meet its take-or-payobligations under the gas purchase contract. The Government gave PTT a large measure of autonomy andwas supportive of its initiatives.

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xi. The Bank's performance on the whole was highly satisfactory. Its quick response to theloan request and willingness to spend nearly a year in project preparatory assistance was commendable.Also noteworthy were its attention to the exhaustive review of the gas reserves, and its initiatives tohave the reserve levels certified by the experts, its contributions to make the environment impactassessment comprehensive, and its focus on stakeholder incentives to sustain the arrangement. Itsdecision to provide more than the usual percentage of retroactive financing, helped in the timelyimplementation of the project. PTT found the assistance provided by the supervision and other missionsuseful and constructive. The Borrower's performance was highly satisfactory in all areas except for adelay in carrying out one of the studies and having its accounts audited by a private firm. Itsperformance was characterized by a high degree of ownership of the project and reflected theorganization's maturity.

xii. In the light of the achievement of its objectives, the sustainability of its operations, andthe institutional changes that have taken place, the project outcome was judged highly satisfactory.

Summary of Findings, Future Operations and Key Lessons Learned

xiii. This is the fourth Bank-financed project, which PTT has implemented successfully,thereby proving that it is a mature organization capable of implementing successfully complex projectsin the oil and gas sector. All the conditions for the continued success of the project operation arefavorable. The Bank's following up with another gas transmission project to augment supplies to theBangkok area was timely and appropriate. Given the urgent need to increase commercial energy suppliesand the need to ensure that the incremental supplies come from environmentally friendly sources, theBank's continued support for gas transmission and gas import projects is appropriate. Conditions in theoil and gas sector in Thailand are favorable for a gradual restructuring of the sector with increasingprivate sector involvement in a competitive milieu. PTT is poised for a major, gradual transformationand the Bank will need to be involved in the sector to support and orient the change appropriately. Thefocus of the future operations could be to support regional co-operation initiatives, help Thailand to adoptappropriate regulatory mechanisms to enable greater private investment in a competitive environment,and to help PTT to gain access to international capital and commercial debt markets on the basis ofconforming to the disclosure requirements such access demands.

xiv. The key lessons learned from the project include: (a) in the Asian context support tonational oil and gas companies, to construct gas transmission systems helps unbundle the sector, reducesthe marketing risk for those engaged in exploration, development and production of oil and gas andthereby promotes private investment in such upstream activities; (b) projects with a high degree ofownership by the borrower succeed, especially when the Bank focuses on identifying and managingpossible risks to ensure sustainability; (c) gas reserve and recovery level estimates need to be reviewedand certified by external experts; (d) Bank missions need to cover areas far beyond the traditional projectboundaries and work with a wide range of agencies which translates into extra resources and time toaddress adequately the Bank's environmental concerns; (e) the use of the same Task Manager forappraisal and supervision leads to greater efficiencies in Bank performance; (f) Bank divisions dealingwith public utilities need to have adequate in-house financial expertise.

PART I: IMPLEMENTATION ASSESSMENT

A. Statement/Evaluation of Objectives

1. The Bank has had a long and successful record of assisting Thailand over two decades inits efforts to increase commercial energy supplies, develop indigenous resources (such as hydro power,lignite, oil and natural gas), make the supply process environmentally acceptable, and improve theoperational efficiency and financial performance of the energy supply entities. The Bongkot GasTransmission Project (the Project) was the fourth in the series of Bank loans to the Petroleum Authorityof Thailand (PTT) in the oil and gas sector. Its main objective was to increase the natural gas supplycapability of Thailand by: (a) expanding the gas transmission system; (b) strengthening the institutionalfunctioning of PTT; and (c) enabling Thailand to make a more efficient use of its capital resources inthe gas sector through annual reviews of PTT's investment program. In the past, the Bank hadprovided significant technical assistance to PTT to improve its efficiency and performance and theProject was designed to further commercialize the transactions of parastatals among themselves (e.g.,PTT and EGAT) and with others to enable the country to attract and sustain private investment in theupstream and down stream activities of the oil and gas sector.

2. Given Thailand's rapid economic growth and the sharp rise in the demand for commercialenergy, the project objectives were considered timely, relevant to the urgent needs of the country,practical and realistic. They were also consistent with the country's priority (augmenting commercialenergy supplies to sustain growth momentum), the Bank's Country Assistance Strategy (which stressessupport for removing infrastructural bottlenecks to growth, especially in the energy and transportsectors), and the energy sector strategy (which focuses on environmentally sound energy options tominimize green house gas emissions, and public sector management conducive to attract and sustainprivate investment in the energy related areas). The objectives were clear and sharply focussed, andwere achievable. The level of complexity of the project and the demands it made on PTT were withinthe capability of PTT with selective external support. The risks (uncertain gas reserves and possiblecost escalations in offshore production and transport of gas) were normal for all offshore gas supplyprojects, and PTT had adequate technical support during the preparation and implementation phases tomanage them reasonably.

3. To expand the country's gas transmission capacity, construction of offshore pipelinesbetween Bongkot and Erawan and between Erawan and Khanom along with the associated on-shore andoffshore facilities was included as a component under the loan. Also, PTT was required to inspect andtest, with the help of external experts, the extent to which gas could be transmitted safely through theolder pipeline between Erawan and Rayong (Loan Agreement (LA), Sch. 5 para. Al). In addition PTTwas required to carry out an engineering study for a second pipeline between Erawan and Rayong (LA,Sch 5, para. DI).

4. To strengthen PTT's institutional capacity the project involved: (a) conducting a study toupgrade the Management Information System (MIS) of PTT and training the PTT staff (LA. Sch. 5,para. Bl); (b) conducting a safety audit of PTT's operations by external experts hired for this purpose(LA Sch. 5, para. CI); (c) carrying out a study to establish safety engineering and environmentalstandards for PTT's oil and gas operations (LA Sch. 5, para. C2); and (d) carrying out an audit ofPTT's financial statements, not only by the Auditor General but also by a firm of independent privateauditors acceptable to the Bank (para. 7 of the Minutes of Loan Negotiations). Further, while preparingthe loan, PTT was persuaded to enter into a formal commercial gas supply contract with EGAT and a

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loan covenant required PTT to consult the Bank before amending any major provision of the gaspurchase contact with the field operator and the gas sales contract with EGAT (LA, Sec. 5.02). Twoadditional technical assistance studies, one on environmental standards and regulations for the onshoreand offshore oil and gas exploration, development and production and the other on PTT's businessstrategy and privatization options were designed to meet the project's institutional objectives. They werefunded by an ADB technical assistance grant.

5. To use capital resources in the oil and gas sector more efficiently, it was agreed duringloan negotiations that the Bank and PTT will jointly review PTT's investment plans each year (Minutesof Loan negotiations, para. 19).

6. The physical, institutional and allocative efficiency objectives were also further followedup under the subsequent loan (Loan 3799-TH) for the Second Gas Transmission Project.

B. Achievement of Objectives

7. The project's objectives were substantially achieved. With regard to physical objectives,expansion of the capacity of the gas transmission system was achieved as planned when the projectfacilities were in full commercial operation in early 1994. The project had been completed at a totalcost of US$ 333.94 million, or about ten percent lower than the cost of $370 million estimated atappraisal. The saving was realized as the funds provided for contingencies were not required, due toextensive advance procurement and high quality project management. Despite unfavorable weather thataffected the off-shore pipe laying work, the Project was essentially completed on schedule and was incommercial operation from March 6, 1994, compared to the date of June 30, 1994 estimated atappraisal. Gas deliveries actually commenced at Erawan in July 1993k' and at Khanom in Feb 1994.The outlook for gas and condensate availability from the Bongkot field has become much moreoptimistic than before and the field operator will be able to increase the daily contract deliveries from250 mmcfd to 350 mmcfd after June 1, 1996. Condensate recoveries are also correspondingly higher.Thus, it is not surprising that the economic internal rate of return (ERR) calculated in the ICRfollowing the methodology adopted during appraisal, was 34 percent compared to the 26 percentestimated at appraisal.

8. The financial internal rate of return (FRR) calculated at appraisal was 16 percent. TheICR mission did not consider it necessary to reassess it, since the selling price to EGAT (whichaccounts for over 85 percent of PTT's gas sales) is governed by the formula that allows PTT to fullyrecover: (a) the cost of gas purchased from the field operator; (b) the cost of transmission including areasonable internal rate of return (not less than 12 percent) to PTT on its investment in the transmissionfacilities; and (c) applicable value added tax. In practice an internal rate return of 15 percent is used todetermine the sale price to EGAT. On its gas sales to industry, PTT is able to secure prices severaltimes higher than that for EGAT. Thus PTT is virtually assured of securing FRRs in excess of 16percent by this pricing mechanism.

1/ A total of 11.08 bcf of gas was delivered from Bongot gas field in July-December 1993 to Erawan and then on toRayong.

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9. The physical objectives achieved also included the determination of the safe gastransmission capacity of the older Erawan-Rayong pipeline, the completion of the engineering study forthe second Erawan-Rayong pipeline and the commencement of the construction of that pipeline underthe follow-up Bank loan (Loan 3799-TH). Construction of the pipelines under the two Bank loansencouraged the private sector field operators such as Unocal and Total to invest further in the gasdevelopment and production activities in the Gulf of Thailand. By achieving the physical objectives, theproject also served the environmental goal of minimizing greenhouse gases. Action plans andmonitoring arrangements set up as a result of the environment impact assessment review at thebeginning of the project minimized adverse impacts during construction and monitoring reportsconfirmed that the adverse impacts were insignificant.

10. In relation to the institutional objectives, PTT carried out the MIS study with a Canadiangrant (rather than with the funds allocated under the Bank loan for this purpose). The terms ofreference were agreed upon with the Bank and PTT implemented the recommendations of the study inconsultation with the Bank. The associated training of the PTT staff was also completed. The safetyaudit of PTT's operations was carried out by external experts, as envisaged. The study on SafetyEngineering and Environmental Standards, however, was delayed. The loan closing date was extendedfrom December 31, 1994 to December 31, 1995 on account of this. However, the study could not becompleted before the extended closing date. In the event, PTT used its own funds (instead of theUS$200,000 allocated for it) to complete the study. The Bank received the final report in April 1996.Its scope has also been somewhat abbreviated to cover only the natural gas related operations of PTT,using Bongkot Gas Transmission Project as a model or pilot program. Staff manuals are expected to beprepared and issued based on this study sometime in 1996. As a result of the agreements reachedduring loan negotiations, the internal audit office of PTT was strengthened with additional staff, andallowed to report directly to the Governor of PTT. The same principle was also been adopted in theorganizations of PTT's subsidiary business units. The study on environmental standards and regulationsfor exploration and development of oil and gas in Thailand under ADB financing was also successfullycompleted and increased the institutional capacity of several agencies in Thailand.

11. The objective of improving the allocative efficiency of PTT's investment plans wasachieved through reviews of the investment plans by the Bank missions which made suggestions forimprovement. Though formal reporting of such activity appears to have made by only one of thesupervision missions, PTT regarded the discussions with the Bank missions as providing useful inputsto the process of its investment planning. Further the comprehensive sector and economic work donefor the highly acclaimed Fuel Options Study (December 1993) provided a useful analytical frameworkin which PTT could determine its investment priorities and decide on the ranking and scheduling of itsoptions. The Government and PTT were greatly appreciative of this major contribution by the Bank.

12. The financial objectives have also been substantially achieved. PTT's financialperformance during FY1992-FY1996 was even better than what was forecast at appraisal (see Table15). Current projections by PTT indicate that it will have no problem maintaining current levels ofperformance. However, the objective of having the accounts of PTT audited by independent privateauditors has not yet been realized. This issue was brought up during the negotiations for Loan 3799-TH, when it was agreed that the purpose of the private audit would be to restate the financial statementsof PTT in accordance with the International Accounting Standards (IAS) and to certify PTT'scompliance with financial ratios covenanted with the Bank. A long form audit report of the privateauditor was to be submitted to the Bank every year (commencing from FY1993) within three months ofthe date of submission of the Auditor General's report. PTT has concluded a contract with a private

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audit firm acceptable to the Bank to review its accounts for FY 1994 and advise on changes to itssystem to conform to IAS. The review is still underway and PTT expects to provide the long formreport sometime between October and December 1996.

13. PTT's financial statements, audited by the Auditor General do not disclose all detailsnecessary to calculate the covenanted self financing ratio and debt service ratio. Full information wasnot disclosed on items such as non-cash charges included in expenses (e.g., provident fundcontributions, depreciation charged as part of cost of sales, etc), debt repayments relating torefinancing, their effect on the current portion of the long term loans due, and on the changes of thenon-cash working capital. PTT's financial situation is essentially sound, but in the absence of adequatedisclosure in the audited financial statements, it is made to look like an entity performing at a muchlower level. Thus, it is necessary that the full details required to calculate these ratios and the actualcalculations themselves should be part of the audit report by the Auditor General and the privateauditor. If PTT is to raise resources from the international capital markets, such complete disclosureswould be a minimum requirement. Securing compliance in this regard may not be difficult, sinceanother leading energy entity (EGAT) had been complying with somewhat similar provisions for a longtime. This will be followed up as a part of the supervision of Loan 3799-TH.

14. Over the years PTT has become a well managed public sector energy entity in the regionand has benefitted from a range of technical assistance provided by the Bank. In January 1992,following the concept of profit centers, PTT was reorganized into separate business units for oil,gas,petrochemicals, central services and head office. Based on further studiesi', it was furtherreorganized again in February 1996, following the concept of arms-length subsidiaries, into businessunits for oil, gas, international trading operations, and a head office in the form of a holding company.All these units will be completely self contained and produce their own balance sheets, so that theycould be corporatized and listed in the local stock exchange in the near future. PTT's approach tobusiness has become increasingly commercial and it is poised for corporatization, and for partial or fullprivatization of its business units eventually. Public sector management objectives may thus beregarded as having met a large measure of success.

C. Major Factors Affecting the Project

15. Natural disturbances such as unseasonable and severe cyclones affected the laying of off-shore pipe, but the experienced contractors were able to make up the lost time in the later stages.Theperformance of the contractors and consultants on the whole was excellent. The financiers including theBank were understanding and co-operative. There was a high level of ownership of the project on thepart of the Government and PTT. With some advice from the Bank, PTT's approach to managingexternal risks and factors affecting the project was successful. It sought to protect itself by partiallyindexing the purchase price of gas to oil prices changes along with prescribed floor and ceiling prices.Its sale price of gas to EGAT recovers the purchase price of gas and provides a reasonable return on itsinvestment in transmission facilities. Uncertainties relating to gas reserves were resolved throughdetailed investigations, certification of the reserves by the best available experts and appropriate

2/ Study on the Business Strategy and Privatization of PTT carried out as a part of the Project under ADB technicalassistance funding,

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contracting arrangements with the field operator. Delays in carrying out one of the studies and inhaving its accounts audited by private auditors were mainly due to different interpretations about thefrequency of the private audit and the cost of the study, as well as to staff changes caused by the tworeorganizations of PTT. There was some delay in the loan becoming effective, caused by the processof the legal opinion being reviewed by the Juridical Council of Thailand, but it did not affect project'sprogress.

D. Project Sustainability

16. Project sustainability over the medium-to-long term seems to be assured. The project wascompleted as scheduled and at a cost lower than estimated. PTT's business unit for natural gas is awell run and is able to operate the facilities properly. The outlook for gas and condensate availabilityin the Bongkot field is much brighter than at appraisal (see para. 8). Further, there seems to be noslackening of demand for natural gas in Thailand in the foreseeable future. More importantly, thecommercial arrangements among the key participants are likely to sustain the Project operations asplanned. The gas sales contracts between the field operator and PTT and between PTT and EGATminimize the risk for all and spread the risks and rewards in an equitable manner, ensuringstakeholders' interest in the continued survival of the arrangements. The follow-up project under Loan3799-TH further reinforces these trends and will make the project even more sustainable, as will futureplans to link Bongkot pipeline to the JDA area.

E. Bank Performance

17. Bank performance in identifying, preparing and appraising the Project was consideredhighly satisfactory. The project as formulated was consistent with the country's priorities, the Bank'scountry strategy and sector policy. The Bank responded to the loan application from the country in atimely fashion, eliminated the component relating to the onshore pipe line to Namphong power plant,the viability of which was not entirely satisfactory, and spent nearly a year in helping PTT prepare theproject and mobilizing co-finance from the Asian Development Bank and the Exim Banks of Japan andUSA. The considerable time taken by the Bank to have the gas reserve estimate reviewed, and gasreserve levels certified by the best available experts in this activity and to ensure that the contractingarrangements for the purchase and sale of gas by PTT were based on commercial considerations and onan acceptable gas pricing formula indicate the Bank's concern for identifying project risks and devisingmethods to manage them to ensure project sustainability. In this effort, the appraisal team was guidedby lessons from earlier PTT projects.

18. Bank's performance in relation to the environmental concerns during the preparatory phaseis noteworthy. To deal effectively with environmental concerns, the Bank had to cover areas farbeyond the conceptual project limits and work with several agencies besides PTT. Thus it interactedwith the Department of Mineral Resources, National Energy Policy Office, Office of EnvironmentalPolicy and Planning, National Environment Board, and the Ministry of Science, Technology andEnvironment as well as private gas field operators like Unocal and Total in order to formulate thetechnical assistance proposals and terms of reference for the Study on Environmental Standards and

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Regulation for the on-shore and off-shore oil and gas exploration and development-'. Repeated andcomprehensive reviews by Bank staff of the several versions of the Environment Assessment ReviewReport produced by PTT with consultant assistance, resulted in the production of a final report that laidthe foundation for the environmentally sound construction and operation of the Project. The Bank'sdecision to provide more than the usual share of retroactive financing, at the request of the Borrower,helped move implementation in a timely fashion.

19. Based on the experience under past operations with PTT, procurement arrangements weredesigned to be simple and conducive to speedy implementation. The number of the contracts was keptto the minimum and most of them were made single responsibility contracts. Bidding and bidevaluation was carried out in the preparation phase and the Bank staff spent considerable time inreviewing and discussing the evaluation reports and proposals for contract awards. Complexprocurement issues such as the correctness of separating the coating and jacketing of line pipes from themain contract for the supply of line pipes arose and were deliberated upon at length, and the issueswere resolved in the larger interests of the economy and efficiency, generally upholding the proposalsof the Borrower. The Bank's attention to strengthening the capacity of PTT with comprehensiveconsultant support for project management, and to ensure continuous and meaningful co-ordination withall co-financiers throughout the project cycle was also noteworthy.

20. Bank supervision was satisfactory-- indeed, more than was evident in the institution'srecords. Apart from the regular supervision missions, missions involved with identifying and preparingof the follow-up loan (3799-Th) and Fuel Options Study also provided useful inputs for resolvingproblems. PTT thought highly of such contributions. Sectoral loan covenants were followed up andcompliance secured. The inability to follow up on the audit related agreements (see paragraphs 12 and13) was caused by a shortage of financial analysts in the division.

21. In retrospect, it would also appear that for a project with such complete commercialorientation, it would have been more appropriate to arrange for some commercial co-financing ratherthan relying exclusively on export credits and official co-financing. PTT could also have beenencouraged to consider international bond issues and to adopt discipline in accounting, audit, anddisclosures required for such bond issues. But the tirne frame in which the Project had to be completedto meet the take-or-pay obligations under PTT's contract for gas purchase from the field operatorperhaps did not allow adequate time to prepare PTT for such exercises.

F. Borrower Performance

22. The Borrower's performance was highly satisfactory in all aspects, except with respect tothe audit covenant (see para. 12) and one of the studies (see para. 10). It was characterized by a highdegree of ownership of, and commitment to, the project. PTT was determined to design, fund,implement and operate the project in time to meet the take-or-pay obligations under its gas purchaseagreement with the Bongkot field operator. It engaged competent consultants to carry out all pre-investment investigations and responded well to the Bank's suggestions to have the gas reserve levelscertified appropriately and have the project prepared in a manner acceptable to the Bank and the co-

3/ This was eventually allocated for funding by ADB technical assistance.

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financiers. It provided out of its own internally generated cash about 28 percent of the project cost andraised through domestic bond issues another 16 percent. It allowed the consultants and contractors tooperate with adequate freedom and non-interference, but kept a meaningful and rigorous control overcost and time schedules. It is remarkable that in a major complex off-shore pipeline project, allcontract claims were settled and completion certificates issued to all contractors within 6 months of thedate of the initial operation.

23. PTT was fully responsive to the Bank's suggestions to improve the Environmental ImpactAssessment Review report, which included an action plan and a monitoring plan. It carried out thoseplans engaging competent staff and consultants.

24. PTT, through its good financial and corporate performance, has earned the status of"Good State Enterprise" from the Government, which gives such enterprises a high degree of autonomyin running their business. The Government was also fully supportive of PTT's efforts to raise externalloans and to issue domestic bonds to finance the project.

25. PTT's record of compliance with the covenants under the loan was considered satisfactory.Most of the sectoral, financial and audit covenants have been complied with in a timely and meaningfulmanner (see Table 10). The only deviations relate to the delay in carrying out one of the studies and inhaving its accounts audited by external auditors (see paragraphs 10 and 12). In both cases remedialaction is underway and progress can be monitored by the Bank as a part of the supervision of Loan3799-TH.

G. Assessment of Outcome

26. All the Project objectives covering the physical, institutional and allocative efficiencyaspects were substantially achieved. The project has met and exceeded the levels of gas and condensatedeliveries planned at the time of appraisal and produced a higher ERR. It is also clearly sustainable.Thus, the outcome was judged highly satisfactory.

H. Future Operations

27. PTT's natural gas business unit is well run and capable of operating the project facilitiesproperly. Its commercial and financial policies and procedures as well as its personnel are adequate toensure that the operation remains financially sound. Increasing availability of gas and condensate fromthe Bongkot field and the continued high demand have made the outlook for the project brighter thanbefore. Nonetheless, PTT will need to closely watch the gas reserves situation and also revise the gassale prices to EGAT from time to time based on the agreed formula. Overall monitoring and evaluationof the project performance in the future will be made through the records of PTT relating to theoperation of the facilities, as well as through the internal and external audit systems in place. The Bankhas already given a follow-up loan (3799-TH), through which the sectoral and institutional objectiveswill be pursued further. The two items to be followed up by the Bank staff as a part of the supervisionunder that loan would be the matters relating to external audit of PTT's accounts by independent privateauditors and the implementation of the study on Safety Engineering and Environmental Standards of

-8-

PTT's natural gas operations. As a part of some future operation, PTT could be helped to carry out asimilar study for its oil related operations. The optimal timing for a future evaluation of the projectwould be after five years of operation (sometime in 1999).

28. A number of major developments are taking place in Thailand's oil and gas sector. PTT,after its reorganization, is poised for the corporatization of its subsidiary business units and for listingthem on the local stock exchange in the near future. Also, projects involving co-operation among thedeveloping countries of the region are taking shape. Such projects included in PTT's investment plansare for: (a) LNG import facilities; (b) the import of gas from Myanmar and the JDA area throughoffshore pipelines. In this context, the Bank will need to continue its involvement in Thailand's oil andgas sector focussing on the objectives of promoting regional co-operation, encouraging PTT in thedirection of corporatization and eventual privatization, and creating appropriate regulatory mechanismsin the oil and gas industry to foster increased private investment and competition.

I. Key Lessons Learned

29. Many lessons can be learned from the successful implementation of the project. Theyinclude the following:

(a) By supporting gas transmission projects by national entities like PTT, the Bank indirectlyhelps in unbundling the sector, reduces the business risk for the private investment inexploration, development and production of oil and gas, and promotes private investmentin the upstream and down stream activities.

(b) With respect to natural gas projects the risk relating the reserve level estimates could bemade manageable not only by careful reviews of reserve estimates by bank staff andproject consultants but also by having the safe reserve and recovery levels certified by thebest experts in the profession.

(c) Projects with a high degree of ownership by the Borrower succeed, especially when theBank's preparatory assistance focuses on risks, risk management and sustainability.

(d) With respect to projects in Thailand, adopting the use of single responsibility contracts andkeeping the total number of contracts to the minimum leads to fewer problems and rapidimplementation.

(e) The use of the task manager who prepared and appraised the project, also for itssupervision leads to continuity of relations with the executing agency and to more effectivesupervision.

(f) Adequate attention paid at the stage of reviewing the Environment Impact AssessmentReport to set up appropriate action plans and monitoring mechanisms leads to anenvironmentally sound implementation and operation of the project, and helps to avoidpublic resistance which is a common feature in many infrastructure projects.

-9-

(g) To address adequately environmental concerns, the Bank has to cover areas far beyond thetraditional project boundaries and deal with a wide range of agencies, besides the projectexecuting agency. Adequate resources need to be provided for this.

30. On the downside, project experience showed that it was necessary to improvecommunication among the different agencies in Thailand such as PTT and EGAT, to ensure that theirdevelopment and business plans become congruent in substance, details and timing. It was also foundnecessary to improve communication within PTT among its technical, financial and commercial groups.The next Bank operation focused on this aspect.

31. The project experience also showed that Bank divisions dealing with public utilities andinfrastructure must have an adequate number of financial analysts on their staff to follow up on theaudit and financial covenants meaningfully. Given the budget constraints, it may not always be possibleto remedy this problem.


THAILAND


PART II: STATISTICAL ANNEX

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Table 1: Summary of Assessments

A. Achievement of Objectives

| Substantial Partial Negligible [ Not Applicable

Macro policies X

Sector policies X

Financial objectives X

Institutional development X

Physical objectives X

Poverty reduction x

Gender Issues X

Other social objectives X

Environmental objectives X

Public sector management X

Private sector management X

Other (Financial Recovery) X

B. Project Sustainability

Project sustainability I Likely | Unlikely [ Uncertain |

||Project sustainability |Xl

C. Bank Performance

Highly satisfactory Satisfactory | Deficient

Identification X

Preparation assistance X

Appraisal X

I Supervision x

D. Borrower Performance

I Highly satisfactory Satisfactory | Deficient

Preparation X

Implementation X

Covenant compliance X

Operation (if applicable) X

E. Assessment of Outcome

Highly satisfactory Satisfactory Unsatisfactory IHighly

I AssessmentI unsatisfactory

[Assessment jfotoe I xII1

-11-

Table 2: Related Bank Loans

Loan/Credit Title Purpose 1 Year of Statusl_______________ _ |__ | Approval |

Preceding operations

1. Natural Gas Development Engineering loan to prepare the Project under item 2 1978 CompletedEngineering Project below.(Loan 5010-TH)

2. Second Natural Gas Erawan to Bangkok offshore gas pipeline 1979 CompletedDevelopment Project(Loan 1773-TH)

3. Liquefied Petroleum Gas Gas separation plant at Rayong and built storage for LPG 1982 CompletedProject(Loan 2184-TH)

4. Sirikit Petroleum Project Oil field development 1985 Completed a/(Loan 2639-TH)

Following operations

1. Second Gas Transmission Second gas pipeline from Erawan to Bangkok area 1994 OngoingProject(Loan 3799-TH)

a/ Though the Project was implemented, the entire loan amount was canceled in two installments in 1986 and 1988.

Table 3: Project Timetable

Steps in Project Cycle Date Planned a/ Date actual/l ____________________________________________________________ l l_____________________ _ Ixlatest estim ate

Identification (Executive Project Summary) March 91 March 1991

Preparation Oct 90 - Nov 91 Oct 90 - Nov 91

Appraisal Oct 91 - Nov 91 9-22 Dec 91

Negotiations Feb 1992 27 April - I May 92

Board presentation May 1992 7 July 92

Signing June 1992 8 July 92

Effectiveness July 1992 8 Dec 92

Project completion 30 June 94 31 Dec 93

Loan closing 31 Dec 94 31 Dec 95

a/ Based on the BTOR of the first mission (March 20-30, 1991) and the President's Memorandum for the Loan.

-12-

Table 4: Loan Disbursements: Cumulative Estimated and Actual(US$ millions)

_ | i~~~~~~~ ~~~~~~Y1993 17 FY1994 FY1995

Appraisal estimate 75.00 96.00 105.00Actual 33.73 42.86 91.71Actual as % of estimate 44.5 % 44.7 % 87.3 %

Date of Final Disbursement: 26 October 1994The remaining amount of $ 13.29 was cancelled in two instalments.

Table 5: Key Indicators of Project Implementation

[ Key implementation activities in SAR Estimated Actuall ~~~~~~~ ~~in SAR l

A. Award of Contracts1) Consulting services for project engineering 30 Apr 91 30 Apr 912) Supply of linepipe contract 20 Dec 91 20 Dec 913) Supply of coating services for pipes 20 Dec 91 15 Jan 924) SCADA and communications contract 1Jun 92 4 Jun 925) Pipeline construction contract 25 Jun 92 25 Jun 92

B. Engineering and Design 31 Dec 91 31 Dec 91

C. Material Supply and Construction1) Supply of linepipe-complete delivery 31 Oct 92 30 Sep 922) Complete pipe coating 31 Dec 92 30 Mar 933) Complete 32" pipe laying 31 Mar 93 19 Jun 934) Complete 24" pipe laying 31 Aug 93 31 May 935) Complete riser platforms and onshore facilities 30 Nov 93 30 Nov 936) Complete SCADA and communications work 30 Nov 93 31 Dec 93

D. Completion, Testing and Operation1) Certificates of completion of all contracts 31 Dec 93 30 Sep 942) Testing and Commissioning 30 Nov 93 3 Feb 943) Start of regular operations 31 Dec 93 /a 6 Mar 94

E. Key delivery dates for gas1) Gas delivery from Bongkot to Erawan 30 Jun 93 17 Jul 932) Gas delivery from Erawan to Khannom 31 Dec 93 4 Feb 94

a/ SAR noted that this estimate by PTT might be optimistic and indicated that regular operations were more likely tocommence from June 30, 1994.

-13-

Table 6: Key Indicators of Project Operation

Key Indicator | Estimated [ Actual

Delivery of Natural Gas 1993 - 1993 11.08 bcf1994 64.00 Bcf 1994 71.72 bcf1995 82.50 Bcf 1995 83.69 bcf

Sale of Condensate 1993 - 1993 0.61 mmbl1994 1.0 nmmbbl 1994 1.24 mmbbl1995 1.25 mmbbl 1995 1.50 mmbbl

Table 7: Studies Included in the Project

Purpose as defined at iStudy l appraisal/redefined J Status Impact of study

1. Study on MIS and staff To upgrade the management Completed under Bank prepared the terms oftraining information systems in PTT and to Canadian grant reference and reviewed Study.

train related staff funding Recommendations have beenimplemented. Trainingcompleted.

2. Engineering Study For transportation of additional gas Completed Resulting Project was fundedfrom Erawan to Bangkok Area by the Bank under Loan 3799-

TH

3. Engineering Safety and A study to enable the preparation of Completed in Will result in staff manuals forEnvironmental Standards standards of engineering safety and mid-April 1996 the subject covering PTT'sStudy environmental aspects of PTT's oil and natural gas operations.

gas operations

4. Environmental Standards To evolve common norms and Completed under Amendments to the Petroleumand Regulations for Oil standards for all field operators in ADB technical Act of Thailand and Regulationand Gas Exploration and Thailand and especially in the Gulf of assistance are expected to be issued soon.Production Thailand.

PTT was recently reorganized5. Study on the Business Completed under into business units following

Strategy and Privatization To review the options available to PTT ADB technical the concept of arms-lengthof PTT. in a value maximizing environment. assistance subsidiaries for eventual

I I Iprivatization.

-14-

Table 8A: Project Costs(US$ million)

Appraisal estimate Actual/latest estimateItem Local ffForeign T-otal Locad Foreign Total

1. Civil works/buildings 3.00 - 3.00 1.58 - 1.582. Pipe material (linepipe) - 77.20 77.20 - 77.22 77.223. Pipe coating and jacketing - 26.21 26.20 - 26.01 26.014. Pipeline construction 15.00 95.00 110.00 25.08 90.67 115.755. Total equipment - 20.00 20.00 - 18.04 18.046. SCADA/telecom 3.70 6.60 10.30 3.91 6.84 10.757. Riser platform - 38.00 38.00 - 43.80 43.808. Engineering consultancy 3.50 11.50 15.00 2.39 12.17 14.569. MIS and training 0.10 0.90 1.00 0.41 - 0.4110. Environmental study - 0.20 0.20 0.17 - 0.1711. Second pipeline study 0.20 1.80 2.00 0.16 0.83 0.9912. Taxes and duties 13.00 - 13.00 3.26 - 3.2613. Base Cost 38.50 277.40 315.90 36.96 275.58 312.5414. Physical Contingency 3.10 22.20 25.30 - - -

15. Price Contingency 0.80 6.00 6.80 - - -

16. Total Proiect Cost 42.40 305.60 348.00 36.96 275.58 312.5417. IDC and other charges 2.60 19.40 22.00 11.45 9.95 21.40

Total financing required 1 45.00 325.00 370.00 48.41 285.53 333.94

Table 8B: Project Financing(US$ million)

Appraisal estimate Actual/latest estimateSource Local ivoreign 7Total Local Total

1. IBRD 4.20 100.80 105.00 1.83 90.05 91.882. Eximbank US 0.70 6.60 7.30 - 2.35 2.353. Eximbank Japan 7.00 45.00 52.00 - 45.08 45.084. Asian Development Bank 8.00 50.00 58.00 - 47.41 47.415. PTT Bonds & other borrowings 10.00 46.00 56.00 40.98 14.01 54.996. PTT's internal cash generation 15.10 76.60 91.70 5.60 86.63 92.23

Total I 45.00 325.00 370.00 48.41 285.53 333.94

Source: PTT's Finance Division.

Table 9: Econoinic Costs and Bencfits(Do)llhrjigute as trc ic Lo hi.tacIt 1991 US Dollhn,-.)

1iongkot Field Gas l'otal Cost Gas Condeinsate Gas Net UJiti Value Coidenisate Toltal Bcnelit Net lcnelitProduictioni Gas Transport Strcari I'roduction Production 13ack Condcisate Gas Benelit 13enelit Stream Stream

Capital Cost O&M Cost Capital Cost O&M Cost(S mil) (S nil) (Smiil) (S nl) (n mil) Bcl MM131. (S/micl) (S/BI) (S Ind) inii) mil) (S mil)

1990 14.10 3.50 17.60 -17.601991 114.80 10.80 1.29 126.89 -126.891992 193.90 31.80 84.16 309.86 -309.861993 111.80 51.10 175.81 3.14 341.85 11.08 0.61 4.14 15.19 45.87 9.27 55.14 -286.711994 34.40 49.70 39.80 9.42 133.32 71.72 1.24 4.14 13.74 296.92 17.04 313.96 180.641995 36.20 52.50 11.82 9.42 109.94 83.69 1.50 4.14 14.25 346.48 21.38 367.85 257.911996 47.50 52.60 0.13 9.42 109.65 109.80 2.00 4.14 13.18 454.57 26.36 480.93 371.281997 12.80 52.50 1 9.42 74.72 127.75 2.45 4.14 12.44 528.89 30.48 559.36 484.641998 94.60 52.50 9.42 156.52 127.75 2.45 4.14 12.51 528.89 30.65 559.53 403.011999 53.80 58.00 9.42 121.22 127.75 2.45 4.14 12.39 528.89 30.36 559.24 438.022000 11.80 58.00 9.42 79.22 127.75 2.45 4.14 12.27 528.89 30.06 558.95 479.732001 62.80 58.00 9.42 130.22 . 127.75 2.45 4.14 12.27 528.89 30.06 558.95 428.732002 40.10 58.00 9.42 107.52 127.75 2.45 4.14 12.27 528.89 30.06 558.95 451.432003 5.30 58.00 9.42 72.72 127.75 2.45 4.14 12.27 528.89 30.06 558.95 486.232004 30.70 57.50 9.42 97.62 127.75 2.45 4.14 12.27 528.89 30.06 558.95 461.332005 38.10 57.50 9.42 105.02 127.75 2.45 4.14 12.27 528.89 30.06 558.95 453.932006 57.50 9.42 66.92 127.75 2.45 4.14 12.27 528.89 30.06 558.95 492.032007 51.50 9.42 60.92 127.75 2.00 4.14 12.27 528.89 24.54 553.43 492.512008 43.50 9.42 52.92 127.75 1.50 4.14 12.27 528.89 18.41 547.29 494.372009 32.50 9.42 41.92 127.75 1.00 4.14 12.27 528.89 12.27 541.16 499.242010 20.00 9.42 29.42 127.75 0.50 4.14 12.27 528.89 6.14 535.02 505.60

EIRR 34.16%NP'V $1.6106.7

Noles:1 Acitial c;apiltil expeodilitrc onll Songkol gas tranilsimission excuidi )og taxcs adl dtilics hals heii coniveltled into constanitl 1991 dollairs hy usinig i5-MIIV Idlex (Co(,uiloU/i/ytlareiIs & DJeveloin,g (CountrieCs, Feb 1996) lor loreigi curreiicy cosis andThailand Consumer lPrice Index) (TIHIA-Key IL'conanfic Indica/o/S) lir local currency costs.2. ( )& NI cx1icili l ores lor ( Gas Irasnis issioii is al 3`1 ol capital cost ol' thie Irallsiliission fI.i filics.3. Gas Iransinission acluals and outllook are better than Iorecast duriig appraisal. Production will increase 1rom 250 imclCd to 350 iimicld Ironi Juinc 1996.Condensate production will also increase correspondingly. These increases can be handled by the cxisting system wilhouit any additional capital invesiment.4. Gas net back value has been recomputcd at $4.50 mmblu in the Fuel Option Study (Dcc 1993) having importcd coal-based steampo%%er planit v.ilh 1'GI) as reference unit lo be replaced by gas-lired combined cycle unit and with 20/ of the gas being used by indusiry to replace lPG.Nonetla:hess. to be on the conservalive side, it has been decidcd to use $4. 14/,ncf calculated during appraisal as the gas nethack value.5. :olluwing the mtchodology in appraisal, condensale valuc is assumcd lo be $1.0 lower than crudc oil prices/barrel and price movementsfollo%% the oil price forecast contained in Commodity Markets and Developing Countries (Fcb 1996).6. Scnsilivity run using gas and condcnsate production levels exacily as given in the SAR for tie years 1996-2010 yields an ERR of27.81% and an NPV of $998.0 million.

-16-

Table 10: Status of Legal CovenantsI Loan No. Original RevisedAgreement Covenant Present fufillment fulfillment Description of covenant Comments

Section type Status date date

LA 5.0 1 - - Accounts to be audited by Audiung is by the(b)(i) independent auditor acceptable to Auditor General of

the Bank ThailandLA 5.01 I C - - Audited financial statements to be

(b)(ii) provided to the Bank within 6months from the end of financialyear.

LA 5.02 5 C - - PTT to consult the Bank before -

amending gas sales and gaspurchase agreements.

LA 5.03 6 C - - PTT to ensure full implementation -

of action plan contained in theEnvironmental Assessment Report.

LA 5.04 2 C - - PTT to achieve an SFR of 159% for -

FY1993 and 25% thereafter.LA 5.05 2 C - - PTT to maintain a debt service -

overage rato of 1.3 times orgreater.

LA 5.06 2 C - PTT's debt/debt+equity ratio not Under Loan No. 3799-to exceed 60% (on the basis of TH, this has beenrevalued assets). changed to 70% (on the

basis of book value).LA Sch. 5 13 C 31 Mar - PTTto fumish to the Bank anpara. Al 1993 ipspection test report on the

existing 34" pipeline before 31 Dec1992, exchange views with theBank before 31 Mar 93, andimplement the report.

LA Sch. 5 9 C - - PT7 is to furnish Quarterly -

para. A2 Progress Reports.LA Sch. 5 5 C 31 Dec - PTT to engage consultnts and This was done usingpara. B 1 1993 carry out a study on MIS and Canadian grant funds.

provide reports to the Bank.LA Sch. 5 5 C 31 Mar - PTT to exchange views with the -para. B2 1994 Bank on the above report and

ensure implementation.LA Sch. 5 6 C 31 Mar - PTf tO funimsh an audit report on -para. Cl 1993 the safety of its operations to the

Bank, exchange views and ensureimplementation of therecommendations.

LA Sch. 5 6 CD - PTr to engage consultants and Compliance waspan. C2 CP carry out a study on Safety delayed and the study

Engineering and Environmental was completed in mid-Standards of its operations and April 1996. Studyfumish the report to the Bank. covers only natural gas

related operations.LA Sch. 5 6 CD 31 Dec - P1 to exchange views with the Compliance is expectedpara. C3 1993 Bank on the above report and in the course of 1996.

ensure its implementation.LA Sch. 5 13 C 31 Mar - PTT to engage consultants andpam Dl 1993 carry out an engineering study for

the second pipeline from Erawan toRayong and provide report. to theBank

LA Sch. 5 13 C 30 Jun 1993 - PTT to exchange views with the The project is presentlypara. D2 Bank on the above report and under construcdon

ensure implementation. financing under LoanNo. 3799-TH.

Minutes of 5 C . PTT and the Bank to jointly review These reviews tookLoan PTT's investment plan every year place in the context of

Negotiation based on reports to be given by supervision andpam. 19 PTI before 31 Dec each year. preparation of the

following project.

-17-

Loan No. Or41nal RevisedAgreement Covenant Present fulfilllnent fulUillment Description of covenant Comments

Section type Status date date

Minutes of I NC - - In addition to the audit by the Under the loanLoan Auditor General, PTT is to have its negotiations of the next

Negotiation accounts audited by a private loan (Loan 3799-TH),para. 7 auditing firm acceptable to the this was reiterated and

Bank according to an agreed scope the private auditor wasof work. required to provide a

long form report withinthree months from thesubmission of theAuditor General'sreport. Compliance isbeing followed upunder this loan.

Present status:

C - In complianceCD - Compliance delayedCP - Partial complianceNC - Not in compliance.

Types of covenants:

I - Accounts and audit2 - Financial performance; - Management aspects of executing agency6 - Environment9 - Monitoring, review and reporting13 - Other

-18-

Table 11: Compliance with Operational Manual Statements

Statement number and title Description and comment on lack of compliance

None No significant lack of compliance withan applicable Bank manual statement.

Table 12: Bank Resources: Staff Inputs

l ~~Actual*Stage of project cycle tee ul*

Pre-appraisal 53.7 171.3Appraisal 22.3 75.0Negotiations 18.3 64.5Supervision 6.7 a/ 25.6Completion 1.0 8.8

TOTAL [ 102.0 345.2

* As of 1/5/96.a/ Most of the supervisions of this project were combined with sector work and

lending/supervision work of the Fuel Option Study and Second Gas Transmission Project.

Table 13: Bank Resources: Missions

Stage of Month/ Number Days Specialzed staff Performance rating Types ofproject cycle year of in skills represented a/ Implementation Development problems

persons field status Objective

Preappraisal 3/91 3 9 1,2,3 | | |6-7/91 5 13 1,2,3,4,5 - - l

Appraisal 12/91 7 9 2,4,5,6,7 | | |

Supervision 9/92 1 2 2 - - |2/93 4 1 1 2,4,5,6 1 1 l9/94 1 2 2 S HS l12/94 1 8 2 S HS safery study12/95 1 9 2 S HS delayed safety

study delayed

Completion 3/96 2 5 1,2 S HS safety studyl________ l_________ l____________________ l_________________ delayed

a/ I =encrgy economist, 2=energy specialist, 3=informatics, 4=financial analyst, 5=environmental specialist, 6=petroleum geologist,7 = senior management.

-19-

Table 14: Actual Production of Gas and Condensate

Average Daily gas Flow from Actual Production |Period Bongkot Fleld (mmcfd) of Condensate

Bongkot to Erawan Erawan to Khanom Erawan to Rayong mmbbl

1994 196.50 92.66 103.84 1.24

1995 229.30 122.42 106.88 1.50

1996 Jan 275.00 157.00 118.00 0.181

1996 Feb 294.00 154.00 140.00 0.144

Note: In 1993, a total of 11.08 bcf of gas was produced in the Bongkot field and flowed to Rayong via Erawan. A total of 0.61 numbl ofcondensate was also produced in 1993.

Source: PTT, Supply Operations Division, Natural Gas Supply Department.

Table 15: PTT's Forecast and Actual Financial Performance

Item | Covenant I FY92 I FY93 I FY94 FY95 FY96 FY97 | FY98

1. Self Financing Ratio >25%(a) 25 16 25 25 38 -

(b) 135 32 42 27 48 37 802. Debt Service Coverage Ratio > 1.3 times

(a) 3.1 2.3 1.8 1.7 1.9 - -

(b) <70% 3.2 3.5 3.0 3.4 2.7 3.0 2.53. Debt/(Debt+Equity) Ratio

(a) 40 48 55 55 53 - -

(b) 42 42 50 55 58 60 59

Notes:

(a) = forecasts in SAR (Dec. 91)(b) = actuals/forecasts during ICR mission (March 96)

I . Items (1) and (2) calculated after excluding prepayments of loans by PIT (which is restructuring its debts) as agreed to duringnegotiations under Loan 3508-TH.

2. Item (3) calculated on the basis of historical costs of assets (book values) as agreed to during negotiations under Loan 3799-TH.3. Calculations for FY92 to FY95 are based on audited Financial Statements and clarifications provided by PIT. Those for other

years are based on PTT's forecasts.


THAILAND


Appendix A

-20- Appendix APace I of 2

THAILAND: BONGKOT GAS TRANSMISSION PROJECT(Loan No. 3058-Th)

AIDE IMEMOHE

LMPLEtYENTATION COMPLETION REPORT MISSION

1. A World Bank Implementation Completion Report Mission (ICR Mission)visited Thailand during 11-15 March 1996 to collect materials for the preparartionof the ICR for the above mentioned Project and to hold discussions with the officialsof the Borrower, Petroleum Authority of Thailand (PTT).

2. A World Bank loan of $ 105 million was approved for the above Project on7 July 1992 and became effective on 8 December 1992. The construction of theProject facilities was completed by end 1993 as originally scheduled andcommercial operations commenced in January 1994. The pipelines are operatingnormally since then and planned gas deliveries from the Bongkot gas fields arebeing made. The gas availability in the Bongkot field has turned out to be more thananticipated and the field operator is ready to increase the contracted deliveries fromthe level of 250 mmcfd to 350 mmcfd; In the context of demand for natural gas inThailand increasing at higher than forecast rates, the sustainability of the Projectseems to be fully assured. The Project has been imnplemented at a cost of aboutS 334 million or about 10 percent lower than the cost estirnated at the time ofappraisal. The economic and financial rates of return, based on actuals uponcompletion of the project are expected to be even higher than those calculated at thetime of Project appraisal. The World Bank loan account was closed on 31 December1995, after canceling a surplus amount of about S 13 million. The Project, thus, hasbeen successfully completed and PTT believes that there are no special issues to beraised for discussion.

3. PTT has carried out most of the studies, it agreed to undertake, and hascomplied with most of the covenants under the loan. It would appear that there areonly a few items to be highlighted for follow up.

4. The Study on Safety Engineering and Environmental Standards for the PTTOperations had been delayed and a draft report had been sent to the Bank recently:The draft covers only the operations of PTT relating to natural gas, using theBongkot Gas Transmission Project facilities as an example/pilot for the study. Thedraft is being revised taking into account the comrnments of the various sections ofPTT, and the revised version will be forwarded to the Bank not later than 15 April1996. PTT plans to use this study to prepare and issue the relevant Manuals for staffuse on this subject. PTT also plans to carry out a similar study for its oil relatedoperations at an appropriate time.

5. PTT had agreed earlier to engage an independent private auditor experiencedin the oil and gas industry to review its financial statements and prepare a long formreport to restate them in accordance with International Accounting Standards. Suchlong form reports are to be sent to the Bank every year commnencing from FY 1993,

-21- AppEendix APage 2 of 2

within three months from the date of submission of the Audit Report of the AuditorGeneral. However, PTT had been able to conclude a contract with a suitableintemational accounting firm for this purpose only in September 1994. The work inrelation to the accounts of 1994 are ongoing, and the long form report for FY 1994could be made available to the Bank in the fourth quarter of 1996. This needs to befollowed up by PTT.

6. Under the current procedures of the Bank, the ICR should include anappendix giving the Borrower's part of the ICR. The format and possible items to beincluded in this had already been communicated to PTT and further explained to itsstaff during this mission. PTT has agreed to send its part of the ICR to the Bank notlater than 25 March 1996, so that the Bank's draft ICR including the Borrower's ICRas an appendix could be finalized and sent to PTT by mid April for review andcomments. PTT's comments on this draft of the Bank needs to be communicatedwithin a week or ten days to enable the Bank to finalize the ICR and circulate it toits Board of Directors on the scheduled date. Under the Bank's current policy ondisclosures, ICR is a document accessible to the public.

7. The comprehensive Environment Impact Assessment Statement Reportprepared at the time of appraisal includes an action plan to be pursued by PTT bothduring the construction phase and'the operational phase of the Project. PTTconfirms that it will maintain the appropriate monitoring arrangements and pursuethe action plan throughout the operational phase of the Project facilities.

8. The Mission wishes to place on record its appreciation of the co-operationand assistance provided by the PTT staff and thanks PTT for all the courtesies andhospitality extended during its stay at Bangkok.

March 14, 1996 M. FarhandiBangkok Task Manager, World Bank ICR Mission

Pichai ChunhavajiraActing Deputy Governor, Corporate Finance and Accounting


THAILAND


Appendix B

-22- Annex B

Page 1 of 3


BONGKOT-ERAWAN-KHANOM PIPELINE PROJECT

1. Project Description

The main objective of the Bongkot-Erawan-Khanom Pipeline Project was to provide the

Petroleum Authority of Thailand (PTT) with gas transmission capability from the Bongkot

and Erawan offshore gas fields to customers on Thailand's southern and eastern seaboards.

This additional supply capability was required to meet the increasing energy demands of

Thailand's growing economy.

The project consisted of the following major parts:

1. A 32-inch diameter submarine pipeline approximately 170km in length from the newly

developed Bongkot gas field to an existing platform in the Erawan gas field.

2. A 24-inch diameter submarine pipeline approximately 160 km in length from the

Erawan platform to shore at Khanom in southern Thailand.

3. An onshore gas receiving terminal at Khanom including a liquid slug catcher and a

short gas delivery pipeline to an EGAT power plant.

4. SCADA and Communications additions and upgrades to PTT's existing system,

including construction of a new control building in Chonburi, a Product Management

Information System, and a Pipeline Simulation Model.

The project began in April 1991 and was completed in December 1994.

2. Project Implementation.

The project was split into two phases, with Phase I including detailed engineering, site

surveys, and bidding, and Phase II consisting of installation engineering, construction,

precommissioning, commissioning, and start-up. Multiple Contractors were used for

-23- Annex BPage 2 of 3

supply of linepipe, pipe coating, construction, and SCADA and Communications

installation. Overall project coordination and project management services were provided

by a Consultant to PTT.

The project was executed well, with the only major difficulty being weather delays due to

unusual occurrence of two typhoons affecting the Gulf of Thailand during marine

construction. Since these delays occurred early in the project, Contractors were able to

compensate in later activities.

3. Project Costs

Final actual costs for each portion of the project were as follows (all figures in millions):

Consulting US$ 14.56

Supply of linepipe 77.22

Linepipe coating and jacketing 26.01

Pipeline and facilities 115.75

SCADA and Communications 10.75

Civil Works 1.58

TOTAL 18.04

RISER PLATFORM 43.80

MIS and Training 0.41

Environmental Study 0.17

2nd Pipeline Study 0.99

Taxes and Duties 3.26

IDC 21.40

Total US$ 333.94

-24- Annex Bl'age 3 of 3

4. Economic Re-evaluation

The economic evaluation of the project takes into consideration both the capital costs and

the operating costs for the pipeline against the benefit derived from sales of gas and

condensate. Detailed figures have been provided by PTT Planning Department showing

the costs and benefits on a year-by-year basis. Of greatest note is an improvement in the

benefit received from the gas streams over the original economic evaluation. This higher

gas stream benefit has contributed to the increased project EIRR of 29.73% over the

original estimated EIRR of 26.33%.

5. Performance of the Bank

The project was closely monitored by the Bank. During implementation, the Bank actively

played a constructive role in many parts of the Loan Projects. Close monitoring by the

Bank was of value in expediting implementation.

IBRD 23485R'.CHINA -TALN5* CHINA,,, 100° 102' 104'

MYANMAR )THIA,*' PEMPL S; BONGKOT GAS TRANSMISSION PROJECT

-RE._ ' 14 PROPOSED PIPELINE ROUTES AND OFFSHORE PLATFORMSi THAILAND ', i VIET BANGKOK FUTURE PROPOSED EXISTINGTHAI, AN ' . VIE1 - -NAM GAS PIPELINES

MBDAic .A A TERMINALS

AREA i ._ . _ I> * * * PLATFORMSA Chonburi * POWER PLANTSMAP GAS FIELDS

DISPUTED AREAMALAYSIARayng ) - - INTERNATIONAL BOUNDARIESMALAYSI[A )Sattahip 0 ! 5

98° )~1 I

-12' I' 12'-MYANMAR 0* o Prachuop

/ Khiri Khan / CAMBODIA

( / I7/DISPUTED AREA

/ 0 Chumphon

I-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I,. Pt,^T~~~~~~~~~~ONG /

KHANOM ONSHORETERMINAL & POWER PtANT 24 WAN PRODUCTION

A 2A" ~~~~~TO~MCOMPLEXSuratThanio EGAT 160KM EPA

POWER PLANT RISER PlA7TFORM \ \ \

PhongngaO Nakhon Si \ \\

Thammaratl

Krabi

Phuket O BOlQK 'STRUCTURE _ \ \

PROWCO \ Trang Phatthalung PL,\

0 0

0Songkhla

Satun. "S0ifl\ Yalo0

'5- J.i N Narnthiwat 0 Th,at-p h-ebop r.dby

6arthe -on-ninc of reder

a-d is nlus-nel far the

0 40 80 120 160 200 1 =1 erat The World 6-I___ ___ ___I ___ ___ __I _ ___ ____I __ ___ __I I and the boundaries sho-n( an ~~~~~~~~~~~~~~~~this -ap d net ;.sply, an ?heKILOMETERS par r nf The Wold Bank G-oup

a-y j.dgnteot o- the legal

9t8'` aFany t12nitainy a any

98~~~~~~~~~~ ~~o(, MA AY IA 10' -nh ban-dor- 104'

JULY 1992

IBRD 23519

CHINA -. 100 102 1u4

MYANMAR THAILAND, PEOPLE S BONGKOT GAS TRANSMISSION PROJECT/ ' 'IDEM I<,- REP_ 14 GULF OF THAILAND - GAS FIELDS 4

THAILAND ' BANGKOK {Z * BASIN OUTLINES) VIET..NAM 0 GAS DISCOVERIES

AMBODIA i 0 GAS FIELDS

AREA iOF .

MAP I DSPUTED AREAJ - ? - INTERNATIONAL BOUNDARIES

Rayong 0 40 80 120 160 200MALASIASattki 0 I 1 I 1 1 1MALAYSIA ) Sottohip KILOMETERS

Th,s .ep h-5boen pred byThe WdId Beh'ss -k-exclooelyfor the convenience of readers -and it esoloioefy for he1

-emol e of The Wortd ban 12'-16nop The deno,,insoti- A e IVYANMAR

on,d te boundories shown II.,,1oIV/lthia pdo rp - -ply. on th * 0 Prachuap

par of The World nk Grop. / Khiri Khan CAMBODIAony Idg-ent-on th;IepaI.s'hJs T-Y WJny -eley o n endor-et-enor,ocoept- of I,0oh hocodanes ( / /

/1 0 I //.s / I | j \ DISPUTED AREA /

_ /CHUM PON /\\/BASIN

( Chumphon /

PAITANI

/0 O BASINGHS TROUGHONGKHLA100 BASIN 710'-

01104

100Surat Thani Q 1 i 12\

700 ~20 60

Phongnga 1 00 Nakhon Si o13

Thommorato

Krobi-8 0 0 O 8-

Phuket O FUTURETHAILAND-MALAYSIA

| | | \ \ \ \ \ ~~~~~~~~~~~JOINT DEVELOPMENTGas Fields & Discoveries Trang Phattholung 20 OND AREA

Numbered by Basin O 0 AREA

OFFSHORE PATrANIGas Fields: Gas Discoveries:

I -Ere,oon " -Pladong 02-Boonpat 2-Pakarang Songkhlo 3 3-Satun 12 -Trot4-Platong 13 -Pailin5-Kaphong Satun MALAY BASIN6-Funan f Yala7-Jokrawcan _8-Gomin N , rathiwt/ 9V 09-Surat /Y N h 5 4

OFFSHORE MALAY _ 0Gas Fields: Gas Discoveries: ) 11 60

1 -Bongkot 2 -S.Bongkot / 0 6 -4-Jernch 3 -Pilong5-Bintang 9-Damon ' 012 076-Sepait 10Lawt 130 87-lnas II -Noring 8B-Buang 12 -Bedong tvtMALAYSIA

13 Tuioh 100' 102

FEBRIJAhY 1992

1 MAG I NG

ReDort No: 15679Type: ICR

world bank document of the world bank for official use only report no. 15679 implementation...

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