Document of FILE COPYThe World Bank L

FOR OFFICIAL USE ONLY

Report No. P-2689-MAG

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

DEMOCRATIC REPUBLIC OF MADAGASCAR

FOR A

PETROLEUM EXPLORATION PROMOTION PROJECT

April 17, 1980

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.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Calendar 1979 January 1980

Unit ' Malagasy Franc (FMG) - Malagasy Franc (FMG)US$1.00 - FMG 212.72 - FMG 201.91FMG 1,000 u US$4.70 - US$4.95FMG 1,000,000 - US$4,701 . US$4,952

(The cost estimates are based on US$1 - FMG 210)

GLOSSARY OF ABBREVIATIONS

OMNIS - Office Militaire National pour les Industries Strategiques

KRAOMA - Malagasy Chromite Mines

SOLIMA - Malagasy Petroleum Company

JIRAMA - Malagasy Electricity and Water Corporation

SECREN - Malagasy Ship Repair Enterprise

GOVERNMENT OF MADAGASGAR FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLYMADAGASCAR

PETROLEUM EXPLORATION PROMOTION PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Democratic Republic of Madagascar

Beneficiary: Office Militaire National pour les IndustriesStrategiques (OMNIS)

Amount: US$12.5 million

Terms: Standard

Onlending Terms: The Government would make the proceeds of the Creditavailable to OMNIS as a non-reimbursable contribution.

Project (i) Objective: The project would support theDescription: Government's efforts to develop a domestic

supply of hydrocarbons and improve planningof the energy sector.

(ii) Main Project Components: The project componentsare:

(a) consultant services (107 man-months) tocompile and review geological and geo-physical data and to supervise seismicsurveys;

(b) a 12-months program of onshore reconnaissanceseismic work;

(c) engineering study for a heavy oil pilotplant at Tsimiroro;

(d) consultant services (18 man-months) forenergy planning and development andrelated training of local staff.

(iii) Benefits: The project would help attract privatecapital to undertake oil exploration in Madagascar.If the search for oil is successful, the projectwould contribute to meeting part of Madagascar'spetroleum needs from domestic sources within tenyears. It would also improve the planning andimplementation capacity of OMNIS, the Governmentagency responsible for energy development.

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

- ii -

(iv) Risks: There is a risk that the geophysicaldata acquired would be inadequate, but thisshould be mitigated by provision of technicalassistance in supervising the contractor.The major risk is that the geological datacollected would be insufficiently attractiveto generate industry interest in applying forexploration permits. Given present indicationsand energy prices, these risks are acceptable.

Foreign Local Total---------- (US$'000) --------

Estimated Costs:

Assistance to Energy Planning 160 40 200Assistance to OMNIS 2,615 130 2,745Training 75 5 80Reconnaissance Seismic Survey 4,500 2,700 7,200Tsimiroro Heavy Oil Engineering Study 1,300 300 1,600Geochemical and Laboratory Equipment 150 150 150

Baseline Cost 8,800 3,175 11,975

Physical Contingencies 640 270 910Price Contingencies 1,260 455 1,715

Total Contingencies 1,900 725 2,625

Total Project Costs 10,700 3,900 14,600(no customs duties or taxes applicable)

Financing Plan:

IDA 10,700 1,800 12,500Government - 2,100 2,100

TOTAL 10.700 3,900 14,600

Estimated Disbursements:IDA FY FY 80 FY 81 FY 82 FY 83

…______----…(US$000) …

Annual 200 4,120 5,620 2,560Cumulative 200 4,320 9,940 12,500

Rate of Return: N.A.

Staff AppraisalReport: N.A.

Map: IBRD 14787

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMIENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

ON A PROPOSED CREDITTO THE DEMOCRATIC REPUBLIC OF MADAGASCAR

FOR A PETROLEUM EXPLORATION PROMOTION PROJECT

1. I submit the following report and recommendation on a proposeddevelopment credit to the Democratic Republic of Madagascar for the equiva-lent of US$12.5 million on standard IDA terms to help finance a petroleumexploration promotion project. The proceeds of the credit would be passedon by the Government to the Office Militaire National pour les IndustriesStrategiques (OMNIS) as a non-reimbursable contribution.

PART I - THE ECONOMY

2. A report entitled "Madagascar - Recent Economic Developments andFuture Prospects" was distributed to the Executive Directors on October 24,1979. A summary of recent economic developments is set out below. Countrydata sheets are provided in Annex 1. The next economic mission to Madagascaris scheduled for May 1980.

3. With a population of 8.3 million and a GNP per capita estimated atUS$250 in 1978, Madagascar is one of the poorest countries in the world. Itis predominantly an agricultural country and 85 percent of its populationlive in rural areas with a per capita income of about US$120 per annum. Inmany areas the standard of living is at the subsistence level. Although thecountry is sparsely populated (an average of 14 inhabitants per square kilo-meter), there is great pressure on cultivable land in some regions. Owingmainly to different ecological conditions, the highlands are more advancedthan the coastal areas, and the south is particularly poor with a harsh, aridclimate and infertile soils. The east coast is rich agriculturally, but cropsare frequently devastated by cyclones. Internal migration is common and hasaccelerated as improved roads have provided access to new areas. However,poor roads remain a major constraint to development; many of the main highwaysare not passable during the rainy season in a country where production centersmay be as far as 800 kilometers from main points of consumption. Many areasare virtually cut off from the rest of the country for several months each year.

4. Over the past few years the growth of the economy continued to beslow and uneven. Having risen but marginally in 1975, real GDP fell in 1976by 2.9 percent owing to a slight decline in agricultural production and asteep drop of about 14 percent in manufacturing output. GDP is estimated tohave increased by 3.9 percent in 1977; even so, output of goods and servicesshowed only a slight increase over the period since 1974; and, with populationincreasing by about 2.5 percent annually, per capita GDP fell by about 5

percent. Extensive drought adversely affected economic growth in 1978; butthe reported resurgence of economic activity the following year is likely tohave raised the real GDP growth rate above the trend average. Budgetary in-vestment outlays were stepped up considerably after 1975; but the investmentrate has generally varied around 14 percent as the sharp rise in Governmentcapital expenditures was largely offset by a substantial decline in privateinvestment. The savings rate also continued to be fairly stable and fluc-tuated around 10-11 percent. The resource gap as a consequence has beenmaintained at a low level.

5. Agricultural production has not recorded any marked growth overthe last few years. Even over the longer period since 1970 it has increasedat an annual rate of only about 1 percent. Despite periodic good crops, paddyproduction did not keep pace with demand; and production in 1977, estimatedat 2.0 million tons, was only about 7 percent higher than in 1970. Groundnutproduction, after rising significantly in 1976, fell back to 47,000 tons in1977, while meat production did not register any significant rise. Imports ofrice and edible oils have increased to 105,000 tons and 16,000 tons, respec-tively, and were about three to four times as large in 1977 as in 1970-71.Sugarcane production continued to stagnate as there has been no addition tothe refinery capacity for several years. Among other cash and export crops,coffee production, except for a 6 percent drop in 1976, has been risingsteadily, reaching some 89,000 tons in 1977. However, raw cotton production,which had been increasing fairly fast, levelled off after 1975 due to shortagesof fertilizers and pesticides; vanilla output declined, while pepper more thandoubled. Hit badly by the drought in 1978, agricultural output is neverthelessexpected to have risen significantly last year, although some major exportcrops, such as vanilla and coffee, encountered production problems.

6. The development of the industrial sector after independence in 1960was encouraged by promotional measures such as fiscal incentives, protectionagainst competition from imports and provision of institutional term financing.Industrial production now accounts for about 14 percent of GDP. Despitesignificant diversification of capacity that has taken place, manufacturing isstill dominated by food processing, textiles and apparel industries. Togetherthey account for close to 70 percent of the manufacturing output. Among otherindustries the important ones include tobacco manufactures, chemicals (mainlysoap and matches), petroleum refining and production of construction materials.

7. Industrial growth since 1972 has been erratic. Following a marked9.3 percent rise in 1974 the industrial production index declined again in1975 and 1976; and despite recovering somewhat in 1977 it remained below thelevel attained in 1974. Within the manufacturing sector itself, however,performance varied between different industry groups. While the output ofprocessed foods and textiles followed a stagnant or a declining trend after1974, some of the comparatively minor industries, such as chemicals, tobaccomanufactures, rubber and paper products maintained a fairly steady growth.However, more recently, the industrial sector has reportedly shown signs ofgreater dynamism and more rapid expansion.

- 3 -

8. Over the past few years a number of industrial establishments con-

sidered to be of national importance were taken over by the State. Some

unprofitable enterprises facing closure were also nationalized to prevent

layoff of workers. In some other cases the State assumed majority control.

The important foreign-owned industrial enterprises that were nationalized

include the oil refinery (January 1976), the power and water supply company

(January 1976) and two sugar firms (December 1976). At present, the State

owns, or has acquired majority participation in all major industrial units

employing a thousand or more workers.

9. Madagascar's fiscal situation deteriorated considerably after 1975,

due to a sudden and sharp rise in current budget expenditure and Government

spending on capital investment. Current expenditures rose steeply with the

rising wage bill of the Government and increasing outlay on maintenance; and

the current budget surplus, which used to be substantial, dwindled as revenues

failed to keep pace with the growth of expenditures. Furthermore, as Govern-

ment intensified its efforts to raise investment levels and stimulate the

economy, public investment expenditure rose from 11.2 billion FMG in 1975 to

20.5 billion FMG in 1977. The outlays on the consumer rice subsidy, although

they declined in 1976, rose again to 3.6 billion FMG in the subsequent year.

The overall Treasury deficit, which more than doubled to 20 billion FMG

between 1975 and 1977, was financed increasingly through recourse to Central

Bank advances. In 1978, the overall deficit has been larger than the projected

16.1 billion FMG owing to underestimation of expenditure on personnel and the

settlement of payments deferred from 1977 on the one hand, and shortfalls in

revenues on the other. The fiscal situation is likely to have worsened

considerably in 1979, owing partly to the increasing emphasis on budgetary

expenditure for capital development. The Government is now said to be seeking

ways and means of reducing both recurrent and capital expenditures.

10. Monetary and credit developments since 1975 have been influenced

mainly by the Government's deficit financing needs. Outstanding domestic

credit went up by more than 50 percent to 126 billion FMG during 1975-77, due,

for the most part, to the steep and continued rise in net claims on Government.

As a result, money supply, which had been increasing moderately, rose by 15

percent in 1976 and as much as 25 percent in 1977. Despite this monetary

expansion and little growth in the output of goods and services, the annual

inflation rate has been moderate -- about 9-10 percent during 1976-77, largely

because of increasing demand for cash balances and the consequent accumulation

of idle funds. Similar monetary trends have persisted subsequently and infla-

tionary pressures might even have strengthened.

11. The balance of payments situation which had been deteriorating

showed a substantial improvement in 1976, when a surplus of 2 billion FMG was

recorded; but the payments surplus in 1977 is now estimated to have been much

smaller. The turnaround in the balance of payments situation occurring in

1976 is attributable more to exogenous factors than to any significant im-

provement in the structure of the balance of payments. Trade surpluses were

recorded in 1976 and 1977 as a result of (a) a sharp rise in prices of exports,

particularly coffee, which reversed the continuing deterioration in the terms

of trade, and (b) the imposition of more strict quantitative restrictions onimports in 1976. There was a substantial decline in the availability ofimports after 1975. On the other hand, the volume of exports dropped sharplyin 1976, and continued to fall in 1977, while there was no lasting reductionin the services deficit, nor any sustained rise in capital inflows. Morerecently the balance of payments position has been increasingly strained bya number of adverse developments: production shortfalls and transportationproblems affecting some important export crops, food imports needed toreplenish stocks after the drought, international inflation, rising energyprices and the impact on the demand for imports of high levels of publicinvestment. The balance of payments is expected to show a very largeoverall deficit in 1979.

12. The growth and development of the Malagasy economy have over afairly long period been affected by constraints resulting from shortage ofsavings, slow growth in markets for major primary exports and low productivityof traditional agriculture. The country, however, is relatively well-endowedwith natural resources and has a well-established administrative set-up. Withappropriate policies and adequate external capital assistance, medium andlong-term prospects for the economy should be favorable. There is consider-able scope for the expansion of agriculture and livestock production. Onlyabout a fifth of the arable land is at present being cultivated, and fer-tilizer consumption, estimated to be some 14,000 tons in 1976, is still rathersmall. The irrigation potential has as yet been only partially exploited.The outlook for further development of manufacturing based on locally avail-able materials is promising. On the whole, sustained growth at an averageannual rate of 4-5 percent appears to be feasible.

13. The Government has been taking far-reaching steps to strengthennational control of the economy. As a part of this process, economic andfinancial institutions, productive sectors, foreign trade and internal market-ing have undergone extensive reorganization. Inspired by the basic needsapproach, the Government has also formulated long-term development objectiveswhich envisage a more egalitarian income distribution and satisfaction ofspecified minimum consumption requirements of the population by the end ofthe century. The Government also stresses national self-sufficiency and theeventual establishment of an industrial base large and diversified enough tomeet the domestic demand for basic equipment and other essential consumergoods.

14. A Three-Year Plan, which is to be the first of a series of medium-term investment programs designed to attain these long-run development objec-tives, was launched in 1978. The Plan envisages overall expansion of theeconomy at an average annual rate of 5.5 percent during 1978-80. The rate ofinvestment is projected to rise to 17.1 percent of GDP by 1980 from the Planestimate of 11.5 percent in 1977. The savings rate is to be stepped up,partly through the mobilization of additional budgetary resources for capitaldevelopment. But about a quarter of the investment outlays during the Planperiod is expected to be financed through external loans and grants. Greateremphasis will be placed on the development of food crops; and household con-sumption is targeted to rise, in real terms, by 3.6 percent per year. ThePlan accords high priority to manufacturing, particularly basic industryand processing of agricultural raw materials.

15. Madagascar's external public debt, outstanding and disbursed,

amounted to US$258.6 million at the end of 1978. Somewhat over 40 percentof it (US$111.3 million) was owed to the Bank Group, and as much as 23 per-cent to IDA alone. The Bank Group share of debt service in 1978 was 36percent. Among bilateral donors France and the Federal Republic of Germanyare the most prominent, each holding about 12 percent of the disbursed debt.Japan and the People's Republic of China rank next in importance (7 and 4percent respectively) followed by the USA (2 percent). Suppliers' creditsand commercial borrowing (9.4 percent of the disbursed debt) have been rela-tively unimportant. The Government had been generally prudent with regardto external debt, and outstanding disbursed debt at the end of 1977 amountedto only 11 percent of GNP as compared to the average of 25 percent for low-income countries. Because of relatively limited reliance on external assist-ance and concessionary terms of most loans and credits, debt service paymentshave remained small. The estimated debt service ratio of 3.1 percent in 1977was marginally lower than in 1970. However, since 1978 the debt service ratiohas tended to increase rapidly, mainly as a result of increasing foreignborrowing on commercial terms by the public sector.

16. The Bank should continue to be prepared to contribute to local costfinancing. In terms of performance, Madagascar appears to have performedabout as well as other countries at the same level of development encounter-ing similar constraints. Its domestic savings rate, 12 percent in 1977,compares favorably with the level in most of the countries in the low incomegroup, indicating that Madagascar has made a reasonable effort to mobilizedomestic savings. But as savings have fallen far short of the country'srequirements, despite resource mobilization efforts and restrictions onimports, the country's balance of payments and reserve position have becomevulnerable.

PART II - BANK GROUP OPERATIONS IN MADAGASCAR

17. Outstanding IDA credits to Madagascar amount to US$240.19 millionand Bank loans total US$31.80 million. About 54 percent of Bank Group lendinghas been for transport, 14 percent for electric power, 24 percent for agricul-ture and 8 percent for education. IFC's first investment was made in March1977 with an equity investment of US$290,000 and a loan of US$11.0 million forthe expansion of a textile mill; other projects in leather and ferrochrome areunder consideration. Annex II contains a summary statement of Bank loans,IDA credits, and IFC investments as of April 2, 1980, as well as notes on theexecution of ongoing projects.

18. The priority given to transport investment recognizes that improve-ment in communications is a precondition for Madagascar's development. Fourprojects have been for the construction of all-weather highway links betweenthe island's different regions; a fifth highway project for road maintenancewas signed on July 30, 1979. There has been a project for improvingMadagascar's main port of Toamasina (Tamatave) and one for modernizing therailway line between Toamasina and the capital, Antananarivo; a second project

supporting the railways' modernization efforts was signed on June 25, 1979.Bank Group lending for agriculture consists of two livestock developmentprojects, two irrigation projects and a forestry project. A credit for anagricultural development project in the Mangoky delta was signed on May 17,1979. Bank Group involvement in the utility sector includes the financingby IDA of part of the cost of the large Andekaleka hydroelectric project forwhich substantial bilateral assistance was secured by the Government. Addi-tional financing of US$10 million to help cover a doubling in cost of civilworks was approved by the Executive Directors on January 29, 1980. A firstcredit of US$5.0 million for an industrial bank project (BNI) was approvedby the Executive Directors on January 29, 1980, while a US$20.5 credit for awater supply and sanitation project for the city of Antananarivo was approvedon April 1, 1980.

19. In future lending to Madagascar, we expect agriculture to absorb alarger share of Bank Group lending, in line with Government strategy statedin its long-term development plan where it is recognized that expansion ofagricultural production is a prerequisite to the development of the country.A pipeline of possible projects has been identified in a sector memorandumdiscussed with the Government in mid-1979 and is reproduced on page 16 ofAnnex I to the Madagascar Economic Report dated October 24, 1979. In additionto the proposed project, IDA is assisting the Government in preparing anagricultural credit project, two rural development projects, a small-scaleirrigation project, a third livestock project and a second forestry project.We will also continue to support Government investment in such areas aseducation, urban development, roads, railways and ports; an audit projectis also being prepared. We expect the Government to seek cofinancing fromexternal lenders for some of the projects, and we intend to assist the Govern-ment in its efforts to mobilize new external sources of financing.

20. In the past, problems have arisen in the course of execution ofseveral projects. There were delays in execution, cost overruns and defi-ciencies in institution building, especially in agriculture. The MorondavaProject had to be substantially reduced, and the Government has prepared aplan of action to deal with the remaining problems. The main aspects of thisplan include a redefinition of the implementing agency's (SODEMO) responsibi-lities and financial structure, completion and audit of overdue accounts,and preparation of an investment program and budget for development of theMorondava area. Implementation of the plan of action has started and is beingclosely monitored by the Government and the Association. Implementation ofthe Village Livestock Project has improved substantially, although the dis-bursements remain slow. The first three highway projects have been completed.The fourth project is still being implemented; the road construction componentis nearly completed and the maintenance studies have been completed. However,there has been a delay in the start of the recommended highway maintenancetraining program for personnel in the Ministry of Public Works. Since traininglocal staff is essential, Government has agreed that training consultants willbe employed and that construction of training facilities would begin in thefirst half of 1980.

21. Since the start of our program in Madagascar two major constructionprojects which included technical assistance have been completed and auditedby the Operations Evaluation Department. The audit report No. 2143 of July 27,1978 concluded that the Madagascar Third Highway Project was well justifiedand had a good rate of return despite the substantial cost overrun experiencedby the project. The audit confirmed that training of local staff and adequateprovisions of Government funds were essential factors for a successful roadmaintenance program. Report No. 2299 of December 22, 1978 concluded thatthe physical objectives of the Tamatave Port Project were satisfactorilyachieved, but pointed out that the institutional objective was not accomplishedduring project implementation because of inadequacies in the staffing of theport authority and the failure of the technical assistance component.

PART III - THE ENERGY SECTOR

Energy Resources, Supply and Demand

22. Madagascar's energy resources are large and diverse but essentiallyundeveloped. No hydrocarbons are exploited at present although past explora-tion encountered oil and gas shows in the western part of the island andthere are sizeable deposits of heavy oil and bituminous sandstones. Depositsof lignite, steam coal (with extractable reserves of some 80 million metric tons)and radioactive minerals have also been discovered. There is a considerablehydro potential estimated at about 3,500 MW. Forests covering about 125,000km are the major energy source but their indiscriminate use is leading torapid deforestation in some areas. Sugar refineries in the northern part ofthe country use bagasse for steam and power generation. Renewable energysources such as solar and wind energy might be significant, but they are notcommercially utilized.

23. Energy consumption is still low--estimated at 142 kg of oil equiva-lent per capita in 1978--and has grown by less than 2 percent per annumthroughout the 1970s. There is heavy reliance on traditional fuels, primarilywood and charcoal, which meet nearly two thirds of requirements. Petroleumimports, amounting to US$53 million, or 15 percent of total exports in 1978,account for about 30 percent of total energy consumption. The remainder isprovided by hydropower and bagasse (3 percent) each, and imported steam coaland coke (1 percent). Electricity production and distribution are still at anearly stage of development. Total installed capacity is about 160 MW of whichonly about one third is hydro-based. With the completion around 1982 of theAndekaleka project, installed hydropower capacity is expected to double to100 MW. Power consumption, 325 GWh or 40 kWh per capita in 1978, accounts forsome 8 percent of final energy consumption.

Sectoral Institutions and Policies

24. Institutions. A number of government institutions participate inenergy policy-making. The Presidency of the Republic supervises the OfficeMilitaire National pour les Industries Strategiques (OMNIS), the entity in

- 8 -

charge of hydrocarbon and radioactive minerals exploration and development.The Ministry of Economy and Commerce's responsibilities include: regulatingexploration and development of coal and lignite as well as of hydro resources;supervising the State energy enterprises JIRAMA (the power and water utility)and SOLIMA (the entity in charge of petroleum imports, refining, transportand distribution); setting prices; and providing for overall energy planning,in coordination with OMNIS. The Ministry of Finance and Planning plays aminor role in energy matters by administering fuel taxation and participatingin decisions on the public investment program. Finally, the Ministry of RuralDevelopment and Agrarian Reform has started to promote more efficient produc-tion of traditional fuels, in particular, charcoal.

25. Main Policy Issues. The formulation and implementation of energypolicies are weak because of the lack of analytical support for decisionmaking, as well as inadequate coordination among government agencies concernedwith energy matters. Few data are available for establishing an energy balance,setting priorities in resource development and managing demand. The impactof energy pricing on the overall economy and the implications of economicgrowth on energy demand are rarely taken into account in the planning process.

26. Energy pricing policies, including taxation, have been determinedlargely by social and political considerations so that petroleum products andelectricity prices have been held at inadequate levels over extended periods.This has deprived the State energy corporations of adequate financial resources.Further, it has caused some distortions in relative prices as increases havebeen concentrated on particular segments of consumption (e.g., gasoline andLiquified Petroleum Gas (LPG)), while some consumers such as JIRAMA and therailway company obtained diesel and fuel oil at preferential rates. TheGovernment is taking steps to correct the most glaring deficiencies of theenergy price structure. A comprehensive study on electricity tariffs based onmarginal cost pricing has been carried out under the Andekaleka project andits recommendations are under review. Petroleum products pricing has becomemore flexible recently and increases in cost are taken into account morerapidly. Following the international petroleum price increases during thefirst half of 1979, product prices were raised--for the first time sinceJanuary 1977--by substantial amounts ranging from 47 percent for diesel to 76percent for premium gasoline. Retail prices for petroleum products are nowclose to international levels with the exception of fuel oil. 1/

27. Differences in relative energy prices reflect, to a certain degree,differential taxation. Petroleum products taxes--whose structure and rateshave remained largely unchanged since 1972--range from 31 percent of theretail price for normal gasoline to less than 8 percent for fuel oil. Incontrast, taxes on electricity sales total about 15 percent. Provincial andmunicipal levies further add to differentials in energy prices. Public sector

1/ In July 1979, prices of the major products were (in US$/gal equivalent)2.05 for LPG, 2.56 for regular gasoline, 1.38 for kerosene, 1.34 fordiesel and .62 for fuel oil.

-9 -

consumers are either exempt from energy taxes or taxed at a reduced rate.

Despite their relatively low rates, petroleum products taxes in 1978 produced

receipts of about US$20 million or 6 percent of the Government's current

revenues in that year.

28. Investment Priorities. Until recently there were no clearly defined

priorities in energy development. With the objective of developing the

country's energy resource potential to the fullest possible extent, theGovernment proposed tapping about every potential energy source without fullyassessing the comparative costs and benefits of individual options. Duringrecent discussions with the Bank Group, the Government confirmed that it wouldplace priority on the development of hydropower and hydrocarbons (both lightand heavy oil), which appear to provide the most effective way of meetingMadagascar's energy requirements. In contrast, the feasibility of developing

coal resources is less clear, at least over the medium term, in view of highinfrastructure investment required, long lead times, small domestic market andpoor export prospects.

29. This strategy is reflected in the public investments in the energysector planned for the 1980-83 period, which are estimated at about US$275million (1979 prices). Of this program, nearly 75 percent would be absorbedby the power sector, especially the Andekaleka hydropower project (partlyfinanced by IDA (Credit 817-MAG)). Public investment in petroleum explorationwould amount to some US$3 million annually which would be covered mainly bythe proposed credit. SOLIMA's investments are estimated at about US$10million per annum and would include secondary processing facilities at therefinery and expansion of transport and storage facilities for which suppliers'and commercial bank financing is likely to be forthcoming. The emphasis onhydrocarbon exploration and development is well-advised since the petroleumsector offers attractive opportunities and since even a modest production byinternational standards would not only meet the country's needs but could alsoprovide an exportable surplus.

Petroleum Sector

30. Madagascar's crude oil imports, which originate mainly in Iraq,amounted to 479,000 metric tons in 1978 (compared to a peak of 760,000 metrictons in 1975) and are processed in the 2,200 metric tons/day refinery atTamatave. The decrease in crude imports reflects a decline in refining asso-ciated with the loss of the Reunion export market in 1976. Exports of petro-leum products, primarily fuel oil, dropped during 1975-78 from nearly 290,000metric tons to 72,800 metric tons. On the other hand, product imports--chieflygasoline and middle distillates--increased from 4,600 metric tons to 79,000metric tons over the same period, equivalent to 22 percent of domestic demand

in the latter year, due to declining refinery output.

31. As a result of slow economic growth and high fuel prices relativeto per capita income levels, domestic consumption has increased by less than1 percent per annum since 1970 to reach 349,000 metric tons (43 kg per capita)

in 1978. Diesel and fuel oil used primarily in power generation and rail trans-port account for nearly 60% of petroleum products consumption and gasoline for

- 10 -

about 25 percent. Jet and residential fuels (kerosene and butane) account forthe remainder. Use of the latter has been growing relatively fast as theyare being used increasingly by middle- to higher-income groups to replacewood and charcoal.

32. Petroleum imports represent an increasingly heavy burden onMadagascar's balance of payments. Net of product exports, petroleum importsincreased during 1973-78 from US$7.4 million to over US$53 million (or 15.5percent of total exports). Despite substantially reduced volumes of crudeimports, the petroleum imports bill for 1979 is likely to be nearly US$70million (net of product exports). Even if petroleum consumption in Madagascarin the years ahead is tightly controlled, net petroleum imports in 1985 wouldapproach to US$180 million (or 30 percent of export earnings), should there beno indigenous crude oil production by then.

Hydrocarbon-related Geology and Status of Exploration (ref Annexes VI and VII)

33. Geology. Nearly three quarters of Madagascar consists of an oldcrystalline core flanked by sedimentary basins (ref. Map 14787, attached).The largest and most important of these are at Morondava in the west andMajunga in the northwest. Basins to the east and south are relatively minor.The Morondava Basin has had the bulk of prior exploration and contains theonly known shows of oil and gas in Madagascar.

34. Exploration History. The search for hydrocarbons in Madagascarbegan in the early part of this century near the oil seeps in the Bemolanga-Tsimiroro area and until 1964 was dominated by French national companies.About 30 exploratory wells were drilled during this period, excluding shallowcore holes. In the decade 1965-74, international companies (includingChevron, Conoco, CFP, Elf, AGIP, Esso, Shell and Tenneco) dominated explora-tion. Most of the exploration took place in the Morondava Basin where someten exploratory wells were drilled. In addition, several exploratory wellswere drilled in the Majunga Basin and off the east coast.

35. Results of the pre 1964 drilling established the presence of heavyoil at Tsimiroro and one well tested gas in the southern part of the basin.The 1965-74 exploration program resulted in one minor gas test offshore.In nine core tests, a group led by Chevron failed to establish an area atTsimiroro with a sufficiently high saturation of heavy oil to warrant furtherevaluation. In the face of these disappointing results and a politicalclimate which became adverse to foreign investment, petroleum explorationceased in 1975. Since then what little exploration has been undertaken hasbeen carried out by OMNIS.

36. Petroleum Potential of the Morondava Basin. The departing com-panies left behind a wealth of geological data, both from wells drilled andseismic lines. Much of this data has yet to be thoroughly analyzed. Thisinformation, even upon superficial examination, establishes that the geologyof the Morondava Basin is quite complex. The potential of the basin has notreally been established by past efforts since specific targets have proven tobe more elusive than originally thought. A systematic and perhaps lengthyexploration program will be required to fully evaluate the Morondava Basin,

in addition to the Majunga Basin and others.

- 11 -

37. The onshore Karroo, because of the occurrence of Bemolonga tarsandstones and Tsimiroro heavy oil, is deemed the most promising. TheBemolanga deposits are situated some 500 km northwest of Antananarivo, andestimates of tar-in-place are upward of 300 million metric tons. The Tsimiroroheavy oil deposits are located about 50 km south-southwest of Bemolanga.The heavy oil is found at depths below 250 meters, and oil-in-place estimatesrange upward from 600 million metric tons. The only actual oil recovery fromthe subsurface in Madagascar occurred in the Tsimiroro area when a well bailedoil at the rate of 2 tons per day in the early 1950s. Outside of the knownheavy oil areas, the Karroo is the least explored, either by seismic surveysor by drilling. This appears due to its nonmarine deposition, generallyconsidered less prospective than formations deposited in the marine environmentand because the play exists primarily in the less accessible interior of theisland.

38. At present, the Jurassic (Middle and Lower) must be considered thesecond best play based on the wide extent of Middle Jurassic marine shalesas potential source rock, ample structuring, evidence of reefs in the MiddleJurassic and the presence of fair to good sandstone reservoirs in the LowerJurassic immediately underlying the likely source rock. The Cretaceous andyounger formations are somewhat prospective and occur at proper depths ofburial, principally in the offshore. As seen thus far, the reservoirs wouldchiefly be sandstone and the source rock would be the intervening shale beds.Limestones (former shell beds) may also form reservoirs and the presence ofreef traps should not be discounted, although none have been identified as yet.

39. It should be noted that the offshore seismic data acquired to datein the Morondava Basin are far inferior to that obtained on land (contrary tomost areas of the world). Sea conditions in the Mozambique Channel (moderateto heavy chop most of the year), hard limestone bottom with extensive patchreef and the abundance of volcanics in subsurface (particularly in the LowerCretaceous section) are considered to be responsible for this. Prospects inwater depths beyond the continental shelf are little known at present, eitherin regard to sediment thickness or structure. Any Tertiary prospect that mayexist will be largely relegated to this environment.

The Sectoral Institution: OMNIS

40. OMNIS was established on November 12, 1975 to be in charge ofeconomically strategic industries. It is an autonomous agency headed by thePresident of the Republic who also appoints its policy-making board (Conseild'Orientation), which includes the Prime Minister, the Ministers of Financeand Planning, Economy and Commerce, Higher Education and Scientific Researchand seven members of the Supreme Council of the Revolution. Its operationsare supervised by a directorate (Conseil de Direction), chaired by the Ministryof Economy and Commerce, and includes OMNIS' Director General and departmentdirectors, as well as representatives of the Presidency of the Republic andthe Ministry of Finance and Planning.

- 12 -

41. OMNIS has among its responsibilities the supervision of strategicnationalized industries, namely, the KRAOMA chromite mines and SECREN, a shiprepair enterprise, as well as the exploration for and development of radio-active minerals, bituminous sandstones and petroleum. Its radioactive mineralssection is organizing a survey of Madagascar's crystalline rocks with Inter-national Atomic Energy Agency assistance. Its bituminous sandstones sectionis investigating the exploitation of the Bemolanga deposit. The results ofstudies on different processes for extracting the bitumen--partially financedby the European Investment Bank--are expected by the end of 1980. OMNISintends to keep the Association informed on the progress of these studiesand might request its assistance for the development of the deposit. Inpetroleum exploration OMNIS has been mainly occupied with the interpretationof exploration data left by former operators and three subsequent seismicsurveys. Its petroleum staff include Malagasy professionals, four of whomwere trained abroad. This staffing is thin, since only one geologist hassufficient knowledge and practical experience to be considered a competentexplorationist by industry standards. OMNIS has little capability for geo-physical interpretation.

42. OMNIS is financed by transfers from the Central Government's budget,allocations from the National Economic Development Fund and payments fromKRAOMA. Government transfers in 1976-78 accounted for 84 percent of availablefunds, with the remainder provided by KRAOMA. While OMNIS is allowed toborrow, it has not used this power beyond short-term overdrafts with localbanks. Expenditures totaled 976 million FMG (US$4.3 million equivalent) in1978, of which investment outlays accounted for nearly 90 percent. Petroleum-related expenditures amounted to some 675 million FMG (US$3 million equivalent)over the 1976-78 period and represented over two thirds of capital expendi-tures. Exploration for uranium and investigation of bituminous sandstonesrepresented 14 percent and 7 percent respectively of capital expenditures overthe same period.

OMNIS' Strategy for Petroleum Exploration and Development

43. Light Oil. OMNIS is the exclusive holder of petroleum explorationrights in Madagascar. Its strategy in oil exploration is to promote theresumption of drilling for oil in the shortest period possible. Untilrecently, OMNIS was planning to drill and therefore was focusing its work onthe areas where the best hydrocarbon shows occurred. It has commissionedthree detailed seismic surveys, two in 1977 and 1978 near the EP-1 (offshore)and SK-1 (onshore) gas shows and one in 1979 across the Tsimiroro horst (thelocation of the heavy oil deposits) to investigate the possibility of deeptraps on the flanks of the structure that may contain lighter oil. Becauseof inadequate supervision and interpretation by OMNIS, the early surveys haveyielded disappointing results in terms of data quality. For lack of qualifiedpersonnel, OMNIS has also fallen considerably behind in the interpretation ofgeophysical data left by foreign companies.

44. More recently, OMNIS' management realized that it would be too ex-pensive to undertake exploratory drilling by itself. It is now seeking partnerswilling to undertake oil exploration in Madagascar at their own risk. However,

- 13 -

as of now, OMNIS is not ready to start promoting its petroleum potentialand discussing it with foreign companies. With few exceptions, it needs toimprove its knowledge of the petroleum potential of prospective areas toobtain a sound basis for meaningful negotiations with oil companies. Alsothere is considerable legal uncertainty since the Government does not wish toenter into agreements with companies under the 1962 Petroleum Code, which isbased on the French concession agreement. A legal and contractual frameworkin line with prevailing social, political and economic conditions has to beestablished.

45. OMNIS has defined the following strategy in promoting its petroleumpotential to international oil companies. First, with an advance grantedunder the Project Preparation Facility, it has employed consultants to revisethe petroleum legislation and to propose model agreements covering explorationand, in case of discovery, development. The draft Petroleum Code as well asthe general terms of such model agreements were reviewed during credit negotia-tions and found satisfactory. The Government intends to present the newPetroleum Code to Parliament before June 1980. Second, it will select fromthe areas on which its geological and geophysical work is most advanced thosewith the best prospects and offer them to foreign firms through competitivebidding. Third, it will add to its portfolio of prospective acreage bypursuing the interpretation of the documents left by former operating companiesand by undertaking seismic reconnaissance surveys of prospective zones whichhave not been explored by modern methods, in particular, the southern part ofthe Morondava Basin (see attached map). The purpose of the seismic programwould be to uncover structural and other leads in areas containing known orsuspected source rocks. Reconnaissance lines are preferred because a largerarea can be covered. OMNIS expects foreign oil companies to start drilling in1982 and 1983. In the case of oil discovery, the development of the fieldwould take 2-3 years before production.

46. Heavy Oil. OMNIS has been paying little attention to the Tsimiroroheavy oil deposits. Its efforts in the area (para. 43) were mainly aimed atidentifying traps for light oil. OMNIS realizes that the heavy oil depositsare known to amount to several hundred million tons of oil-in-place while theexistence of light oil is uncertain. Furthermore, the conclusions of pastoperators, that the deposits could not be exploited economically, might not bevalid today considering increasing crude oil prices. OMNIS is interested in afurther investigation of the Tsimiroro deposits to assess whether they couldbe economically tapped to supply the Malagasy market.

47. Conclusions. OMNIS' approach to oil exploration is basically sound.Its successful implementation will depend on the availability of human re-sources lacking at present. OMNIS should employ highly qualified techniciansto clear the backlog of geological and geophysical information, deal with thecompanies on a knowledgeable basis, supervise future seismic work and ensurethe acquisition of high quality data on prospective areas and assess theTsimiroro heavy oil deposits. OMNIS' management is aware that until moreMalagasy personnel is adequately trained, it will have to rely on foreignexpertise.

- 14 -

48. The Government attaches high priority to the development of domestichydrocarbon resources. Despite unsuccessful exploration efforts in the pastyears, the petroleum potential of Madagascar and of the Morondava Basin inparticular remains reasonably attractive. Private capital should be availablefor a new round of hydrocarbon exploration in Madagascar. With the everincreasing price of crude oil, the Tsimiroro heavy oil deposits warrantfurther investigation. The Malagasy authorities realize that they may be ata turning point in the development of their hydrocarbon resources.

PART IV - THE PROJECT

Introduction

49. The proposed project was identified during the visit of an IDAmission to Madagascar in March 1979 and appraised in November 1979. Anadvance of US$350,000 under the Project Preparation Facility was grantedon January 11, 1980 to assist OMNIS in preparing a modern legal frameworkfor meaningful negotiations with petroleum companies and in assessing theTsimiroro heavy oil deposits. Credit negotiations were held in Washington,D.C. on March 14, 1980. The Malagasy delegation was headed by Mr. LeonRajaobelina, Governor of the Central Bank of Madagascar, and includedMr. Hubert Andrianasolo, Director General of OMNIS. A credit and projectsummary appears at the beginning of this Report, and a supplementary projectdata sheet is given in Annex III.

Project Objectives and Description

50. The project would support the Government's efforts to developa domestic supply of hydrocarbons and improve planning of the energysector. It would include the following components:

(a) Assistance to OMNIS

OMNIS would employ consultants for a total of 107 man-months(ref. Annex V for a detailed description of this component).Its exploration consultant would assist in the compilationand review of existing geological and geophysical data,particularly on the Morondava Basin, the preparation ofpresentation documents on areas to be offered for explora-tion by foreign companies and the supervision of the preparedseismic work (para. (b) below). OMNIS' legal consultantswould assist in the preparation of an adequate legislative andcontractual framework for foreign companies to carry outpetroleum exploration in association with OMNIS. The

- 15 -

geological and geophysical consultants would work on theinterpretation of existing basins (other than Morondava)or on newly acquired data and supervise the seismic resultsand monitor data quality. The heavy oil specialists wouldassess the Tsimiroro heavy oil deposit. This componentwould also include on the job training for OMNIS staff,special studies (reprocessing of seismic lines, geochemicalanalysis and interpretation of Landsat imagery) as well asthe purchase of the equipment needed.

(b) Seismic Survey

The project would include a 12-month program of onshorereconnaissance seismic work. This seismic program is expectedto provide useful data on one or more areas at present poorlyknown. This is one of the principal requirements for attract-ing foreign company exploration on terms favorable toMadagascar. In July-August 1980, the exploration consultants(para (a) above) would submit a detailed seismic program. Acondition for disbursing the relevant funds would be for thisprogram to be satisfactory to IDA (Schedule 1, para 5(ii),draft Development Credit Agreement).

(c) Engineering Study of Tsimiroro

This study would be based on the recommendations ofthe heavy oil specialists employed by OMNIS and wouldinvestigate the feasibility of a pilot plant in Tsimiroro.It would primarily include further core drills of thedeposits as well as physical and chemical tests of thesamples. A condition for disbursing the relevant fundswould be for the preliminary assessment to conclude tothe satisfaction of OMNIS and the Association that theengineering study is warranted (Schedule 1, para. 5(iii)draft Development Credit Agreement); the engineering studyis expected to begin in the fall of 1980 for completion inearly 1982. A pilot plant could be brought into productionby 1985.

(d) Energy Planning

This component aims at enabling the Government to undertakeenergy planning on a continuous basis by (i) analyzingpriority issues of energy policies, (ii) establishingthe analytical framework for comprehensive energy sectorplanning and (iii) creating a national energy planningcapability. It provides:

- 16 -

(a) 18 manmonths of consulting services for analysisof the fuel pricing structure, identification ofdevelopment options including renewable energy,evaluation of project proposals with a view towardstrengthening the Government's ability to makeappropriate investment decisions, analysis of issuesrelated to rural energy and evaluation of institutionaland manpower needs; and

(b) two scholarships for participation by senior Governmentofficials responsible for energy planning in programs onenergy economic policies and administration (Schedule 2,Part D.2, draft Development Credit Agreement).

Project Costs and Financing

51. The total cost of the project, net of duties and taxes which are notapplicable, is estimated at US$14.6 million equivalent. The cost of one man-month of consulting services has been estimated on the average at US$13,800including travel, subsistence and overhead. This amount is reasonable, takinginto account the high level of expertise required and salaries prevailing inthe petroleum industry. The cost of seismic work has been estimated on thebasis of actual costs of surveys in Madagascar and comparable countries. Thecost estimates include 10 percent physical contingencies on the seismic surveyand the geochemical analysis. Price contingencies of 10.5 percent in 1980,9 percent in 1981 and 8 percent in 1982 have been applied to the foreignexchange and local cost of all project components. Total contingencies amountto US$2.3 million equivalent, about 22 percent of baseline cost estimates.Estimated costs by project components are given in the project summary at thebeginning of this Report.

52. The proposed IDA credit would finance the foreign exchange componentamounting to US$10.7 million, as well as US$1.8 million of local costs. Thisamount would include US$350,000 to reimburse an advance under the ProjectPreparation Facility, granted on January 11, 1980, to the Government ofMadagascar to cover OMNIS' expenditures for the services of consultants afterJanuary 1, 1980, and before credit signing. The remainder of the local costscomponent (US$2.1 million) would be financed by government cash contributionsto OMNIS amounting to US$600,000 in 1980, US$900,000 in 1981 and US$600,000 in1982 (Section 3.01(c), draft Development Credit Agreement). The proceeds ofthe IDA credit would be made available to OMNIS as a non-reimbursable contri-bution to its resources (Section 3.01(b), draft Development Credit Agreement).

Project Implementation

53. OMNIS, which would enter into a project agreement with the Associa-tion, would be in charge of implementing the project. With the agreementof the Association, it employed legal and exploration consultants in January1980 and heavy oil specialists in March 1980. The geological and geophysicalconsultants would be employed before June 1980. The seismic surveys would becarried out by specialized contractors under the supervision of OMNIS, its

- 17 -

exploration consultants and its field geophysicist. The Tsimiroro engineeringstudy would begin in September 1980 and be carried out by a specialized firm.OMNIS has been charged by the Government to implement the energy planningcomponent and would carry it out in close cooperation with the Ministry ofEconomy and Commerce. Draft terms of reference for the energy planningconsultants were reviewed during negotiations. The consultants would beemployed by December 1980. All consultants would be engaged on terms andconditions satisfactory to the Association and OMNIS. (A tentative scheduleof implementation is presented in Annex IV).

54. OMNIS is expected to sell some of the data collected during projectimplementation (in particular, the reconnaissance seismic lines) to interestedoil companies. The proceeds of any such sales would be kept in a specialaccount and used for further petroleum exploration (Section 4.03, draftProject Agreement). Until the completion of the project OMNIS shall alsoexchange views with the Association on petroleum exploration activities inthe Borrower's territory (Section 3.04, draft Project Agreement).

Procurement and Disbursement

55. Contracts for geophysical work would be awarded following inter-national competitive bidding. Core drilling work would be procured undera contract awarded after obtaining quotations from a limited number of con-tractors (Schedule B.2, draft Project Agreement). Vehicles, office andlaboratory equipment (estimated to cost less than US$150,000 in total) wouldbe procured following local bidding procedures which are satisfactory to theAssociation. The selection of consultants would be in accordance with theAssociation's guidelines for the use of consultants. Disbursements would bemade against 100 percent of foreign expenditures and 46 percent of localexpenditures. Special conditions of disbursement are attached to the fundsrelating to the seismic survey and to the engineering of the Tsimiroro heavyoil (Schedule 1, para. 5(ii and iii) draft Development Credit Agreement).

Accounting, Auditing and Reporting

56. OMNIS would keep separate project accounts. The project's andOMNIS' own accounts would be audited by external auditors acceptable to OMNISand the Association. OMNIS would submit audit reports to the Association nolater than five months after the closing of its fiscal year, starting withcalendar year 1980. OMNIS would submit quarterly and annual reports on theimplementation of the project in a format acceptable to the Association(Sections 4.01 and 4.02 of the draft Project Agreement). After completionof the project, OMNIS shall prepare a report on the execution of the project(Section 2.05(c), draft Project Agreement).

Project Benefits and Risks

57. The primary benefit of the exploration components (assistance toOMNIS and seismic survey) would be to provide partial oil import substitutionbeginning around 1985. To this end private capital would have to be attractedto undertake oil exploration in Madagascar. It is expected that at least twotracts would be ready to be offered to companies in the second half of 1980.The first, at Sud Serinam, lies within the Middle Jurassic play onshore in

- 18 -

the northern part of the South Morondava Basin in an area presenting severalmoderately sized but well-defined structures, as well as a Middle Jurassicreef. The second covers the deeper structures surrounding the Tsimiroro horston which OMNIS carried out a seismic survey in 1979. If the data are foundto be good, attractive prospects are likely to exist and if presented well,may draw industry interest, since there are so many nearby heavy oil shows.Following the reconnaissance seismic survey, it is likely that new areas couldbe offered as early as 1982.

58. The risks associated with the exploration components are two-fold.The first risk concerns the quality of the seismic data acquired. The projectprovides for a field geophysicist and a geophysical interpreter to supervisethe work of the seismic contractor and reduce, if not eliminate, the risk ofacquiring inadequate data. The second risk is that even if satisfactory datais acquired the leads uncovered might be insufficiently attractive to spurwidespread industry interest. However, given the current energy marketconditions, it is believed that the advantages of proceeding with the projectoutweigh the risks associated with it.

59. The major benefit of the heavy oil component would be to acceleratethe development of this deposit, which appears to offer the best opportunityto meeting part of Madagascar's petroleum needs from domestic sources withinten years. There is no special risk with regard to this engineering study.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

60. The draft Development Credit Agreement between the DemocraticRepublic of Madagascar and the Association, the draft Project Agreementbetween the Association and OMNIS, and the Recommendation of the Committeeprovided for in Article V, Section 1 (d) of the Articles of Agreement of theAssociation are being distributed separately to the Executive Directors.

61. The draft Development Credit and Project Agreements conform tothe usual pattern of agreements on petroleum exploration promotion projects.Special conditions of the credit are listed in Section III of Annex III ofthis Report.

62. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

63. I recommend that the Executive Directors approve the proposed credit.

Robert S. McNamaraPresident

Attachments by Ernest SternApril 17, 1980

ANNEX 1Pale L

TA8LE 3IAMrA0MICiSOCIAL INDICATORS DATA SHEET

MAD AACAR REFERENCE GROUPS (ADUUSTED AyJRAGESLAND AREA (THOUSAND SQ. M) - MOST RECENT ESTIMATE) -

TOTAL 587.0 SAME sM' NEXT RIGHERAGIICULTURAL 368.6 MDST RECENT CEOGRAPHIc tNCOME INCOME

1960 /b 1970 /b ESTInATE lb REGION /c GROUP /d CRO'P /a

GN? PER CAPITA (USS) 120.0 180.0 250.0 306.1 209.6 .67.5

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL. EUIVALE5IT) 38.0 71.0 66.0 S0.6 83.9 262.1

POPULATION AND VITAL STATISTICSPOPULATION. MID-YEAR (MILLIONS) 5.5 6.8 8.0UUBAN POPULATION (PERCENT OF TOTAL) 11.1 14.9 16.4, 17.1 16.2 24.6

POPULATION PROJtCTIONSPOPULATION IN EAR 2000 (MILLIONS) 15.0STATIONARtY POPULATION (MLLIONS) 39.0YEAR STATIONARY POPULATION IS REACD 2160

POPULATION DENSITYPER SQ. KM. 9.0 12.0 14.0 18.4 49.4 45.3PER Sq. KM. AGRICULTURAL LAND 15.0 18.0 22.0 50.8 252.0 149.0

POPULATION ArE STRUCTURE (PZRCZNT)a-1

4Ys. 44.6 44.4 45.0 44.1 43.1 45.2

15-64 YrS. 52.8 52.9 52.0 52.9 53.2 51.965 YRS. AMD ABOVE 2.6 2.7 3.0 2.8 3.0 2.8

POPULATION GROWEN RAT! (PERCENT)OTAL 1.8 2.2 2.5 2.7 2.4 2.7URBAN 4.0 5.1 4.3 5.7 4.6 4.3

CRPUOE BIRTH RATE (PER TROUSAND) 47.0 45.0 45.0 46.3 42.4 39.4CIUDE DEATH RATE (PER THOUSAND) 27.0 22.0 19.0 17.2 15.9 11.7GROSS REPRODUCTLON RATE 2.9 3.2 3.0 3.L 2.9 2.7FAMILY PLANNING

ACCEPTORS. ANNOAL (THOUSANDS) .. .. ..USERS (PERCENT OF MARRIED WOMEN) .. .. . .. l2.2 13.2

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTIONPER CAPITA (1969-71-100) 100.0 101.0 96.0 94.3 9s.2 99.6

PER CAPITA SUPPLY OPCALORIES (PERCENT OP

RQUIRDAENTS) 106.0 108.0 OS.0 89.5 93.3 94.7PROTEINS (GRAMS PE& DAY) 55.0 53.0 57.0 55.8 52.L 54.3OF WHICH ANIMAL AND PUTLSE 17.0/f 17.0 15.6 17.9 13.6 17.4

CHILD (AGES 1-4) MORTALITY LATE 41.0 32.0 27.0 22.3 18.5 11.4

REALTHLIFE EXPECTANCY AT BIRTH (YEARS) 37.0 42.0 46.0 47.0 49.3 54.7INFANT mORTALITY RATE (PERTHOUSAND) *- 177.0/R 1. .. 105.4 68.1

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL *- 11.0 26.0 20.3 26.3 34.4URBAN .. 67.0 76.0 53.9 58.5 57.9RURAL .. 1.0 16.0 10.1 15.8 21.2

ACCESS To EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. .. . 22.5 16.0 40.8URBAN 1 88.a .. 62.5 65.1 71.3RURAL .. . 9.0 13.9 3.5 27.7

POPLATION PER PsYSICYAN 8800.0 11390.0 10780.0 17424.7 11396.4 6799.4POPULATION PER NURSING PERSON .. 3760.0 3760.0 2506.6 5552.4 1522.1POPULATION ?ER HOSPITAL BED

TOTAL 510.0 400.0 410.0 502.3 1417.1 726.5URBAN . 170.0 220.0 201.4 197.3 272.7RURAL .. 520.0 510.0 1403.6 2445.9 1404.4

ADMISSIONS PER HOSPITAL 8ED .. .. .. Z23.4 24.8 27.5

HOUSI9CAVERAGE SIZE OF ROUSEHOLD

TOTAL 5.8 4.7 4.9 5.3 5.4URBAN 5.2 5.0 4.9 4.9 5.1RURAL 5.9 4.7 5.5 5.4 5.5

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. .. ..URBAN .. .. ..RURAL .. ..

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. 5.0 .. .. 22.5 28.1URBAN . .. .. .. 17.8 a5.1RURAL .. .. .. .. .. 9.9

ANNEX 1Page 2

TABLE 3AMADAGASCAR - SOCIAL INDICATORS DATA SHEET

MADAGASCAR REFERENCE GROUPS (I AJUSTED AYjRAGES- MOST RECENT "STIMATE) -

SAME SAME NEXT HIGHERMOST RECENT GEOGRAPHIC INCOME INCOME

1960 /b 1970 /b ESTIMATE /b RECtON /c GROUP /d GROUP /I

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 52.0 83.0 92.0 /h 59.0 62.3 82.7MALE 58.0 90.0 .. 64.2 79.1 87.3FEMALE 45.0 77.0 .. 44.2 48.4 75.8

SECONLARY: TOTAL 4.0 11.0 14.0 /h 9.0 16.7 21.4MALE 5.0 13.0 .. 12.0 22.4 33.0FEMALE 3.0 8.0 .; 4.4 10.2 15.5

VOCATIONAL ENROL. (Z OF SECONDARY) 9.0 9.0 7.0 7.0 5.6 9.8

PUPEL-TEACHER RATIOPRIMARY 70.0 65.0 61.0 42.2 41.0 34.1SECONDARY 24.0 20.0 24.0 22.9 21.7 23.4

ADULT LITERACY RATE (PERCENT) .. 39.0 50.0/h 20.8 31.2 54.0

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 4.0 6.0 6.4 4.0 2.8 9.3LADIO RECEIVERS PER THOUSAND

POPULATION 15.0 80.0 112.0 44.3 27.2 76.9TV RECEIVERS PER THOUSAND

POPULATION .. 0.5 1.0 2.9 2.4 13.5NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 8.0 8.0 9.0 5.6 5.3 18.3CINEMA ANNUAL ATTENDANCE PER CAPITA 0.5 0.7 0.4 0.4 1.1 2.5

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 2960.0 3570.0 3900.0

FEMALE (PERCENT) 46.2 45.7 46.0 31.9 24.8 29.2ACRICULTURE (PERCENT) 92.8 89.4 84.0 77.6 69.4 62.7INDUSTRY (PERCENT) 2.5 3.4 5.3 7.9 10.0 11.9

PARTICIPATION RATE (PERCENT)TOTAL 53.7 52.3 51.3 40.8 36.9 37.1MALE 58.7 57.7 56.6 53.9 32.4 48.8FEMALE 48.9 47.0 46.0 25.6 18.0 20.4

ECONOMIC DEPENDENCY RATIO 0.9 0.9 0.9 1.2 1.2 1.4

LSCOME DISTRIBUTIONPERCENT OF PRIVATE liNCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS 41.0/i .. .. .. .. L5.2HIGHEST 20 PERCENT OF HOUSEHOLDS 60.1/i .. .. .. .. 48.2LOWEST 20 PERCENT OF HOUSEHOLDS 5.27T .. .. .. .. 6.3LOWEST 40 PERCENT OF ROUSEROLDS 13.07i .. .. .. .. 16.3

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. 150.0 187.6 99.2 241.3RURAL *- * 86.0 96.8 78.9 136.6

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

tURAN .. .. 135.0 138.4 91.9 179.7RURAL .. .. 86.0 71.0 54.8 103.7

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAS .. .. 50.0 34.5 44.1 24.8RLUAL '' *' 50.0 48.7 53.9 37.5

Noc availableNot applicable.

NOTES

/a The adjusted group averages for each indicator are population-veighted geometric means, excluding the extremevalues of the indicacor and the most populated country in each group. Coverage of countries among theindicators depends on availability of data and is noc uniforrm.

/b Unless otherwise nteced, data for 1960 refer to any year between 1959 and 1961; for 1970. between 1969and 1971; and for Most Recent Estimate, between 1974 and 1977.

/c Africa South of Sahara; /d Low Income (5280 or less per capita, 1976); /e Lower Middle Income(S281-550 per capita, 1976); /f 1961-63; /R 1965-66; /h 1978; /i Populacion.

Most Recent Estimate of GNP per capita is for 1978.

ANNE 1

rISOP SOICIAL IXDICATOP Page 3Noiese Although the data are dress fra souce ge-erily judged tbs mot suboteitine se reliable, it should also ho noted that they may not be i.t.--tionolly oomparhle hensouc of the look of standardised deinition and -eopts used by different .ou. trill te collecting the dat. The dot . , noneheless,usefl to dasenib orders of magnitude, todicote trends, and oharacrertsite .rtreie major difforseree hs.aesncoustris..

The adjusted uroun a.rera for eac h indicator are ppelatio-esightod geasenit nooo * exclding the ontra rlefus of the indoator lend the most populatedcountrinec grop. Dhue to lebof dat,gop arnao of el inietr frCpital ourpl- "tt E-prtrsano lodicator o,f Acest -atr and -no-er

dipo ot,fosig,_ no dierhtfned Prry fo oher o...otty grops ore populotiet-eighted g.- tri J nan hwith a eleo ofte orse oaIt. u sdthe oo pulidcotry.Seste ooaoo -orsir on the tedi,tetre daneeda on ausilbit of daeo ad a not uin .catomst beene.rtisedto retatitacge of ioetodicotr to another. Tha vrge r oty afla enotston f'nooe"rtn hen oo rlns the oaluee ofon

LAND AREA ctooeerd uq o)an oeraodiseosal 1~leenet of eosulo1iIn - ttal. urhos. lendTotel-701 so -eeee oprin itt land ares and ,Inadetr,ual- terfpole ttl,rbnad ru.ral: ere benrer die-A -1AIrctuu - Mont rcoottu,of sgricu ra raI sdtempo..rarly posal1 aspercetsgos ofithei.r oslPective Popu1stion. toccata- dIIpo

orP pe ..r.r lv for cro ps, patue, narket and hitcher gsrden or to my include the col lertio n dIsposal, afeh or oithout tree tn-ot, oIts faIIo. ba ert an1:d waste-ae by eater-b,ore stt on the use of ptt

prirssen. IaILar testlItion.GNP PER CAPITA JO)$) - CAP Percp c ea etsecurrmrhet prices, Poelatin at~ physlicia- .poplation diolded bytob.r of prcttclt.g phpei-

oalcolacrd by san conect- rtdenworld Reek Atus (17-7 ale cine qullfted frl a madioal scoo a ot irr tevelHAl 190, ard 1977 data. Populatioseoriuoron- m.Ppopultion diri~dadby -tobo oif prec~1itrig-

male aod faste grad osto ue prociict ore..ad eettan unefENIERl CSN10PT10N pit CAPITAO-tnnOa I -o-nPtion of .ser lo.. enry(ol Poulstito nor huspitte1 hod - total, urban, and rural - Population trote1,

ur tgle,pIroecT I aualntad hydo,ncered geuthDelsl ar_be-, end .rurl)idicided bytheir reep-cire orsbor of hosplit1 boderlcrcc)I Algaao oo qiaetper 1960 lh, 9190siehet pblisdpI...e genraltend epociatood huplto1 atdre

-rd IHIt dets. habili.tia_on ceire. HosPital a are Itehhtfeete pe--an1cl ecffad byPO,PULOTI ANDOW VITAL STATISTICS oInet I... r physicist. Eteclihfamote prouilding Prttcipa11r cetodialTotal rpulacltr nlid-re.r loillioto - He of July 1; 1960, 1970, - d ceehett--ldd orlhsial oee, leltd- hltod. nel, d -

19'' date. cal caters not ~~Prnecly safd b.c physicIan (hut by a ..dcei a-Urbanocro t lo Irorect f Rtos j i-Oa tof orbsr ttutul1 popolattoc, ' slt,cm idnife, etc.) ohtch offer in-pactroc so- eneodetier a-d

dlffr__ defficto_. of tha o... mar. effect conpaca.bIit, of dote proyide e lisited rage of edlcal facIiltes.an_ cg rtie 1960, 1970 -od 1975 dab,. otA too,1n Pret lP, boeiolhd - Total _uber ofd.aci...le te or dtnchergtr

PouaicP-of-tiont frot op_ aodlcidod by the masher of hedr.

1975 totl pepolutton by ge rd ro aod their nortalit, utd frtiliy

ace,. Pco)ecclou pararec rn o tlt caePc"ieeo Aeel geru tir of.1 h.oune1ho '-reP rr o d bid- - toal urba,ader

tcoeI-ol , ucd fiale lIfe -pn-tacoy -tbtirinig oc777.5 years. urd their -eir-t n ore oclde o o a e eIrlddI rho caraurtoro for 7oct11 tcr rate a Ito haoe 3 lecelt eteunieg deolton hounehold forh- Id af tutloal perpones

uc1; dcciIt reds for pr-)-otte purpse.lrspclol. rollog ec lde ro-p--tecsto -eread -tccpted pa-t--P r .alnrePplaIn breI cgoth Acs to .nlrey-irioe foretof dtaeiui- -toal -rb- an -rra1

It htc T.eua Sto1 the dent rule.i, atdhere the age, C rettoudoIlig echelos tt nIlooqactta prrtge f

drol C 1 terrpacren Irolf el,te-eepodo-ticrrate,u.hensSe _ora fe o _.aot PI celat itrell eatjlv._Thr tutfnar Ppople,tio EDUCATION6tire oa-to.tolucd o- thebtsothprje td oracene los o th kdjfusted enroll-ne ratiospop,lutllo Ic the rear 2000, ucd the rate of d-citr of Ierctlc ar Prmrecot-oa.ntendfar-os tta.ruendeaerro-

ta .01toar -fro -Io tRahd- The year h..o tuti.nary, Popol- ochoe-ege 11 pultIos ronnaly inciod- ohild-e aged b-li rears bettIi oni-e tee b.e reac..hed. edjosted for dif feree Ie-gtht of prinlry, eduction; foe t..nt tee oth

rorolutlon d-nolc -io-r-a edeacio .. nro.ln7c may e.ceedI100 Pe rn- `tt- s-t "Pop' arePer qu or.. - Mid--ra .peoa-i- onPr s kar tture I. ltl0 h-.eotr ) heI or u boe- the officia e-oo ogo

oftotal aroa lon- r schoo - -ntal mle and f-ncir - Conp-td a bv,oonueooI" or. he. ac 1olorl ad - CouPued aatboe for 1g-otun od I...eqirsa las foer ynere of epproced piayisrc e.pol

genrl. rac.. l,orcachrtraIinlg i-u cre Iet -o pupilo ualvoPeltcA,rr-reoIre .... te.t - Cbtdre.r 7-.141y. ert,;aorhing-eg.. 12 to 17 yeArefagecorresPodnccureaegnreyecoed

715-A64ero ,ad retired (69 year urd rr speenae fnid- V_rti_onl eolnn .Inrcet. of ondml-VOu_aiaa inttiutont- teolodereor poolotfe. IHAA,1970 ad 1977 data, tehica. 1, identria1, or o-ther Prtgelle obih operuce iedeperd-nl or a

Pnaia ronirte lo1 (er-etj - tocel - Aoutgottriso o5 d:prn;h ofscnayintctosmid-year popelation. for 1950-60, 196t-70,. ad 1970-7). otti-teatherratto-eiay adscnay-oa tdnt noldI

I Iot.o entHrr (prerOeni - orbe- - .. I grooth rates rf urbanp-ayen eodr Pevo.edcded by -druer of teacherat .,Inth tor-

PoPLREiattntFrr2 1950-60. 1960-70. ard 1970-75. bepoediogt lerelLt.h -r1ee -huoad) - eelfohhS-1 per P huutdo Adult i1 ercyrat loerceori - LIcerateedelts s1lt to readad nite

,id -rea p 1oc 60 h. 7907 aed 1A' data. A prn g f coto adltpopulaIon aged 15 peer and 'rCrde detht rub _Leer thooondi ,1- ura deaths per thousan.d of mid-

Veer ro tiatto, 190, 1970 and1977 data,CONliPtrIONGros Prerduccton rae -torage rather of dauberh nari er Po..a.R.o ..rcsr (P- tho...a.d..realn ..sre cnr" ccrnertror

Ir hr torolreprdeolee erIo Ifsin npetence prsen uge erting I..ut .Ibeaight pernons , e-iedesareucs eaesudeltrspcific fertIlI ree saly fLee-roar a-ergen ending in 1960, ehiole..

1970, and 1975. gadiorreceicers Its 'MEERan roet2 n -All types of recetoer for redio

aeceptor of birc-contro deciccouoderao pies.o.raIoa fartirdeceteer -rcoencle sod in year eher reitrtono rdofes dFamIly latniru.csers orroeniof warnd aast -f Percntae o ablishd ,eenin

deotear toe 11 narcld o Lne In to age gr-oup. public per chonserd population, eucloden unIinered Ty r-celeereit ter-

0O0 ANl NiUTRITION n atrcirclt ion leer thousand poeuatre - IhnOh vreecraaIndex of food pr-d-e cto Iec tt, 119h9-71 s 100 -londes of per caPita tin of "daily geea ..trs tees lpaper, dotted asaperodiat puli-

onnul proooio of al fr cnufi rdutlion coo Isdee seed and cotton deroted Po,raIly to recording geeraI Itns,1 L, conidered tofeed aed to or -aLndar year haute. Cossdittee corer pr"aY goods be 'daily' if it appa-arot least four ti ae .

ito ugurcce teteudof suar) hlob urn edIble and cotainottes Cinem anu l.atedance esrest rya-aedo the ecber of tickets-t cffee andi',:.ar er. cuded. -grgI rdcin fec onr od during the year, to-udieg adtienion to driro-i.rtcnensa and obile

is bated on -oton.l arergeprdue prceeieht. unIte.Per crt naeey o coriesIeco ofruironsts) I- Conpoted fr-n

potdat suflaleoupi in cnp ' ne d blstctu io,bPorels Tots1 Ia. o .r-forcel sdi -tooica11Y entire persons, Intlodiog armdeote, ar heogea to stuc..iNe splies1 nrc lade an-oel feed , sn-ode foce and ons.plopd but erciading housseivee, atudeots, etc. Defit-

qaurc It ee used i ford proenelno, ud Ilee o distributin tetnsi carton coutr ies are not coparable.

qotetetseres dnted by FOG lse d 00 phytilolgIre needs for no- Pml nrei eoelao ocs enoaeo tote1 Ieb-r forc..eelsototyan belt cneidrir eeiosneteltepeatre boy ercocue teree) LborfreInfrIg, forestry, hunting and fishing

elbuagead dle diet otios of P.plaIo, and a11-iog 10 per- asprcetage of ctnl. tahr forc..etfor cast at hou..koId level, inotyf n L -Lbor forte in m.ieg, osrcin antccrn n

car pita re-pply u ofor prda. de noppytoffor feefind a

a sinints ellou Pca 2ofih g(S of. total P pr tein pardayan of gera enttvi~ttyren t- are dnSeted. pes .t ta,ms en fmlloor for_ a

The s stadard areline ibs chue of75 5ems f tral potei and 19kg,1970end 975 ana,fheat are11,te paniciatfnraeerefli tiI23 rot. of atbonl porinaft vrg frteioi, rp d byag-seth oi oeo heppasto,edlogtetee.Afe"siaaFA ib- eThr uorll.- td Pond.l eerrey arehfonbnetoo,&surcesi:i.- of ed on6 Poenspppo on cnindenanyrto- aI f ooatn ne 5 n 5andcrtderted ronanfals nd oiss i gran1 pertidsperdy.d2.:

anof ag group 1pyerst, ofc Jchfdre ft chte ag gr,-p p-or test peroecane o ediat indtone Th..h In cahOd k td irc Icedr byrce 5;

HEALTH of tnse.oldsir s Irh 1961 1970. andh1977 Herad flOitlO TAniCT iAfIEP

one pea ofhse peird .. hodeFd floe bIrths Abolte patrr teoeielieta os lelhls oc iiaAccess ca fsualerffertnec f ronu datol)l- total uba end" rura -oo turitiadq ot dietloof eseplalti non-feu 5 d re 6r5e Isd not

Clate od erl f,% ;4..o Itysl arbat andr rural)d sth raeoabetho es to., LNaffoSrdaBle.O

d.yeortantrac.toateri such 00-tha fron lrisccedboreo.s.. epfrg ooa freecre poerr inone- level Ie on-hird kof~ aoero-e per cpta

occe"t of cht hosb irthu,era) -I apess r fooah earcesoe lepfy - crl-Prio-o uuafn ubn e oaiacae te),t .ithe roseth e yr,0 otecer ot,I dtheheePoOVdEnrRee o ped TARGEcTvdho sItaoGRM1

olorop- cft Me parto the .. dacI fecIo dthe ~fselraiefrn.oleredo.. b.. P- I- .. 1I b. r-

ocoic t) cf bed rjofto.... ye" I I thllld II,.I Ab-l t -11 i.c-. level L. th.t I r. I.;.'I" -bL:.ht'tao 19)

ANNEX 1Page 4

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN 1977 Annual Rates of GrowthUS$ Mln % 1970-75 1972-77

GNP at Market Prices 1,772.3 100.0 0.9 0.4Gross Domestic Investment 282.9 16.0 -1.0 -3.0Gross Domestic Saving 233.7 13.2 27.5 36.1Current Account Balance -33.5 -1,9 -Exports of Goods, NFS 402.6 22,7 3.1 -1.3Isports of Goods, ITFS 451.8 25.5 -0.9 -7.0

OUTPUT LABOUR FORCE AND 1/ 2/PRODUCTIVITY IN 1976 Value Added Labour Force VA Per Worker

Agriculture 6 0 38.0 336 84.0 188.4 US$Industry 318.0 19.0 0.Z0 5.0 1,590.0 378.0Services 654.0 39.0 1Unallocated 69.0 3/ 4.0 f 0.42 11.0 1,721.0 409.0

1,674. 0 3.98 100.0 420.6 100.05

GOVERNMENT FINANCE Central GovernmentFM B1n ;ofGDP

1978 1977 1975-77

Current Receipts 86.5 15.3 14.8Current Expenditure 90.7 17.6 15.6Current Surplus -42 -- 2.3 -0.7Capital Expenditures 33.1 4.6 4.2External Assistance (not) 4.6 4/ 1.0 1.2

MONEY. CREDIT AND PRICES1975 1976 1977

(3Uli1on FMC Outstanding at thq Sad of the Period)

Money and Quasy Money 86.9 100.6 121.6Bank Credit to Public Sector 12,4 19.4 28.5Bank Credit to Private and Para-Public sectors 78.4 82.2 95.9

(Percentages or Index Numbers)Money and Quasy Money as 2 of GDP 22.8 25.0 27.4cDP deflator (1975s100) 100.0 108.2 115.3

Annual percentage changes in:5DP deflator * 3.2 8.2 6.6Bank Credit to Public Sector 148.0 56.5 46.9Bank Credit to Private and Par*-Public Sectors 2.1 4.8 16.7

NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered.

1/ At market prices./ Total labour force; unemployed workers are allocated to sector of their normal occupation.J/ Import duties4 / 1977 provisional.

ANNEX 1

ThA PAITE3S AXO CAPIAL P7WS Page 5

ALMANCE OF PAYMENTS 1976 97-7 MERCUHnAISE WXORTS (AVERACE 1975-779

USSNO

Export of Goods, NFS 392.9 341.9 402.6 Coffeo 122.4 37.8Imports of Coods, NFS 482.5 401.3 451.8 Vanilla 19.0 5.9

Iesource Gap -49.6 -59.4 -49*2 Clove. 3 7 13 5Meet and Heat Products 5.3 1.6

Interest Payments -4.2 -4.6 -4.9 Fish and shellfish 3.6 1.1

Workers' Remittances (not) -29.4 -26.5 -24.4 Sugar 12.6 3.9Other Factor Payments (not) -9.1 -0.1 - Perroleum Products 22.1 6.8Net Transfers 48.9 50.3 45.0 All other Cowuodities 95.1 29.4balance on Current Account -S3.4 -40.3 -23.5 Total 323.S 100.0

Direct Foreign Investent 4.5 1.4 2.8 EXTNALU DEBT, DECEXoER 31. 1978Net MLT Borrowing: USS Mln

Disbursemnts 42.1 20.4 22.0Amortization -6.4 -8.5 -8 3 Public Debt, including Guaranteed 259Subtotal 33. U9 13 1 Son-Guaranteed Private Debt

Capital Grants 33.6 26.4 20.0 Total Outstanding & Disbursed 259Otber Capital (not) I/ -15.6 -4.0 -2.6Incrsase in Reserve 7(-) 272 4.6 -0 .4 2/Meru iems i DErT SFRVLCE RATIO FOR 1978Transactions with 7= 9.7 1.6 1.6GrsssReserves 3S.6 42.2 68.9 ftbli Debt, including Guarnted 4.1set Reserves 3 57.2 5J S 56.9 %rn-Guaranteed Private 9obt

Total Outstanding 4 Disbursed 4.1

RATE OF EXCIUIGZIBRD/IDA LENDING APRIL 2 1980 US millio)

1975 1976 1977 1978 IBRD IDA'S51OO-FMG214.32 US'1.0O.OFMC238.96 USS1.0OFMCR245.67 US'. OO.MS2Z5 64 Outstanding & Disburee 28.74 96.66

'C1. O0US$O 0047 FMGl.00USSO 0042 FM!l.00USS0.0041 nGl.OOiJS$O. 0044 Umilburoed 3.06 143.53Outstatnig Inlding Wjiebured 31 * 80 240.19

e.I and staff estinatee.i/ Includes errors nd omissions, SD. allocations and other private abort term capital.2i Estimated ratio of debt service to exports of goods and non-factor service.3/ Net foreign assets of the bantng systm.

ANNEX IIPage 1

THE STATUS OF BANK GROUP OPERATIONSIN THE DEMOCRATIC REPUBLIC OF MADAGASCAR

A. Statement of Bank Loans and IDA Credits (as of April 2, 1980) 1/

Loan or US$ MillionCredit (net of cancellations)Number Year Borrower Purpose Bank IDA Undisbursed

Seven Credits and four Loanshave been fully disbursed 25.83 64.25 -

322-MAG 1972 Madagascar Irrigation 15.30 2.24506-MAG 1974 "I Livestock II 9.60 7.051065-MAG 1974 " Forestry 6.75 3.06641-MAG 1976 " Highways IV 22.00 11.62663-MAG 1976 Education II 14.00 2/ 11.80817-MAG 1978 Andekaleka

Hydroelectric 43.00 3/ 36.32881-MAG 1979 Mangoky 12.00 12.00903-MAG 1979 Railways II 13.00 4/ 13.00938-MAG 1979 Highways V 24.00 24.00

-MAG 1980 Industrial Bank 5.00 5/ 5.00-MAG 1980 Water/Sanitation 20.50 5/ 20.50

TOTAL 32.58 242.65 146.59of which has been repaid .78 2.46

TOTAL now outstanding 31.80 240.19

Amount soldof which has been repaid - -

TOTAL now held by Bank and IDA 31.80 240.19

TOTAL Undisbursed 3.06 143.53 146.59

B. Statement of IFC Investments (as of April 2, 1980)

Loan Equity Total(US$ Million)

1977 Sotema - Textile Mill at Majunga 11.0 0.29 11.29

1/ Prior to exchange adjustments.2/ Including a Norwegian grant participation of US$7.0 million.3/ Including a supplemental credit of US$10.0 million approved on

January 29, 1980 but not yet signed.4/ Not yet effective.5/ Not yet signed.

ANNEX IIPage 2

C. PROJECTS IN EXECUTION 1/

Credit No. 322-MAG: Morondava Irrigation and Rural Development Project;US$15.3 million credit of June 30, 1972; Date ofEffectiveness: April 30, 1973; Closing Date:December 31, 1981.

Initially, the project was to rehabilitate and extend, in theMorondava area, existing irrigation systems, and develop 9,300 ha (4,700 hafor smallholder rice, 2,700 ha for a tobacco state farm and 1,900 ha for acotton state farm); village development, roads, schools and health facilitieswere included. The project as revised and substantially reduced in February1976 will complete major civil works envisaged at appraisal, implement on-farm development works on 2,500 ha of rice areas, establish an appliedresearch station, and provide agricultural support services, roads and healthfacilities.

Major civil works (including construction of a diversion weir atDabara, rehabilitation of the Dabara Canal and the North Canal, constructionof secondary irrigation and drainage canals, and construction of the 8.1 kmroad between Mahabo and Ankilivalo) are almost completed and work has beensatisfactory. However, SODEMO, the agency responsible for on-farm developmentand agricultural services, faces serious management and financial problems andas a result, on-farm development and construction works have lagged behindschedule and agricultural production is poorly organized, with a small areacultivated and very low yields. The Government and IDA have agreed on a planof action to clarify SODEMO's responsibilities and financial plan and toimprove overall management, but this will require careful monitoring in thecoming months. The closing date was recently extended to allow SODEMO time tocarry out the project as it has been revised and to permit land development,which has just begun.

Credit No. 506-MAG: Village Livestock and Rural Development Project:US$9.6 million credit of August 21, 1974; Date ofEffectiveness: June 17, 1975; Closing Date:December 31, 1980.

The project encountered serious problems in the three years follow-ing credit signature, and, principally because of legal and organizationaldifficulties, little progress was made. Following significant changes ininstitutional and management arrangements, the Credit Agreement was exten-sively amended; the Amended Agreement became effective September 1, 1977.

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to reportany problems which are being encountered and the action taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluationof strengths and weaknesses in project execution.

ANNEX IIPage 3

The project's situation is much improved. FAFIFAMA, the principalproject implementing agency, is now well-established and operational, witha full staff complement. Implementation of the project's most importantcomponent - the development of veterinary and livestock services for villageproducers - is proceeding well. Pasture improvement experiments are beingundertaken. Schools and health centers are being constructed, and the Ministryof Health is preparing a utilization plan for the health centers. The develop-ment of water points and road improvement continue satisfactorily. Cooperation

with fokonolona institutions in all aspects of FAFIFAMA's work is excellent.In the middle west, OMBY continues to provide machine services to villagessurrounding the ranches established under the IBRD-financed Beef CattleDevelopment Project. The pilot pig program and ODEMO cattle share fattening

programs have barely begun, with action limited to construction of somebuildings. Financing and administration arrangements have been worked out,however, and the share fattening program should get underway shortly. The pig

program would be launched in early 1980 with cooperatives and on the basis ofbreeding pigs to be imported. The study of cattle marketing and meat priceshas been completed and is being reviewed; so are the evaluation of the current

project and the preparation report of the second phase.

Loan No. 1065-MAG: Mangoro Forestry Project; US$6.75 million loan andCredit No. 525-MAG US$6.75 million credit both of December 23, 1974;

Date of Effectiveness: July 8, 1975; Closing Date:December 31, 1980

The project assists in the planting of 35,000 ha of pine plantationsas part of an overall planting program of 96,000 ha, which it is proposed willeventually supply a future pulp mill to provide pulp for export. The plantingprogram is progressing according to the schedule and cost estimates are inline with forecasts, despite a reorganization of the project which entailsmore building and infrastructure than originally estimated, and the need formore intensive soil preparation than foreseen at appraisal. Technical diffi-culties which occurred at the early stages of the project have been resolved.

Credit No. 641-MAG: Fourth Highway Project; US$22.0 million credit ofJune 23, 1976; Date of Effectiveness: August 19,1976; Closing Date: December 31, 1980

The project assists the Government in the construction of two majorroads with a view to reducing transport costs and providing access to areaswith a high agricultural potential. It also includes training and strengthen-ing of the country's road maintenance organization. Project implementationis satisfactory. However, start of the training program for personnel in theMinistry of Public Works on highway maintenance has been delayed.

ANNEX IIPage 4

Credit No. 663-MAG: Second Education Project; US$14.0 million credit ofDecember 10, 1976; Date of Effectiveness: August 15,1977; Closing Date: December 31, 1981

The project is designed to assist the Government in decentralizingeducational control and to improve the quality of basic education. It in-cludes five Regional Education Centres and vehicles for school inspectorate,one Teaching Materials Production Centre and funds for textbook development,technical assistance and fellowships.

Architectural design work on all project institutions is now com-plete. Detailed operational planning for the Teaching Materials ProductionCentre is being carried out. The two key technical advisors for this Centre,provided by the Organization for Rehabilitation through Training arrived inMadagascar during September 1977. Architectural work has generally been wellexecuted although this has taken much longer than expected. Work on the majorproject components, the Regional Education Centres, was completed about 14months behind the appraisal schedule, although with ORT assistance, the plan-ning schedule for the Teaching Materials Production Centre has been maintained.

The project is presently about one year behind schedule due to cum-bersome Government approval/decision procedures, and the Government's recentproposals for the "socialisation" of the construction industry has introduceda further element of uncertainty which may adversely affect project imple-mentation. Serious delays have also been encountered on: the preparationof an educational sector survey; the establishment of task forces for educa-tion evaluation; proposals for decentralization of education; and textbookproduction.

Norway requested a 50 percent participation in the project, and anagreement to that effect was signed on December 16, 1977.

Credit No. 817-MAG: Andekaleka Hydroelectric Project; US$43.0 millioncredit of June 19, 1978 (including a supplementarycredit of US$10 million approved on January 29, 1980but not yet signed); Date of Effectiveness: May 30,1979; Closing Date: December 31, 1983.

The project would meet the growth in electricity demand until1992 in the Antananarivo area and provide for the strengthening of JIRAMA,Madagascar's national electricity and water corporation. It includes aconcrete diversion dam and an intake structure; a 4-km tunnel, undergroundpower house, tailrace and access tunnels; two turbines and two generators;electrical and mechanical equipment; a transmission line to Antananarivo;engineering services; preliminary investigation and design for a storagereservoir; and technical assistance and training for JIRAMA staff.

Contracts have been awarded for the civil works and all majorequipment and supplies. Total project costs are about 20 percent higherthan estimated at appraisal. However, even at the higher cost, the Projectis still the least-cost solution for the supply of power in Madagascar.

ANNEX IIPage 5

Credit No. 881-MAG: Mangoky Agricultural Development Project;US$12.0 million credit of May 17, 1979;Date of Effectiveness: March 17, 1980;Closing Date: June 30, 1983.

The Project would support the development of about 3,700 ha forproduction of rice and cotton, to be farmed by about 3,200 families. It wouldcomplete an irrigation system serving about 10,000 ha in the Lower MangokyValley which has been under development since the early 1960s. These invest-ments are based on a long-term master plan for the region which aims ultimatelyto bring about 100,000 ha of land into production. The Project will be imple-mented over a five-year period and would comprise: development of irrigationand drainage networks, and road infrastructure for 3,300 ha including produc-tion of concrete canal segments; improvement of water supply for about 400 haof traditional rice fields; consultant services for design and supervision;applied agricultural research; social infrastructure; training and projectpreparation for agriculture and rural development projects. IFAD is financingabout 25 percent of the total project cost.

Credit No. 938-MAG: Fifth Highway Project; US$24.0 million credit ofJuly 30, 1979; Date of Effectiveness: March 17,1980; Closing Date: June 30, 1983.

The Project would prevent further deterioration of the paved high-way network, thus reducing transport cost and avoiding early and costlyreconstruction works. It would also increase the maintenance capacity ofthe Ministry of Public Works and provide for an all-weather road connectionbetween the regional district of Antomboka and the capital, Antananarivo.Co-financing will be provided by a European Economic Community Special ActionAccount credit of US$10 million.

Credit No. 903-MAG: Second Railway Project; US$13.0 million creditof June 25, 1979; Terminal Date of Effectiveness:June 1, 1980; Closing Date: June 30, 1984.

The objectives of the Project are to help the Malagasy railwaycompany renew and modernize its facilities, improve the reliability andefficiency of its operations and improve its financial management andaccounting methods. The Caisse Centrale de Cooperation Economique providedUS$20.5 million in co-financing. The terminal date of effectiveness hasbeen extended to June 1, 1980 to allow for signature of the subsidiary loanagreement between the Borrower and the railway company.

ANNEX IIPage 6

Credit No. -MAG: Bankin'ny Indostria (BNI) Project; US$5.0 million(not yet signed)Closing Date: December 31, 1984.

The project will support Madagascar's growing industrial sectorand BNI's crucial development role by providing BNI with part of its foreignexchange requirements to finance projects in the artisanal/small-scale andmedium-scale enterprise sectors and by strengthening BNI itself throughtechnical assistance. The credit was approved on January 29, 1980 but isnot yet signed.

Credit No. -MAG: Antananarivo Water and Sanitation Project;US$20.5 million (not yet signed);Closing Date: December 31, 1985

The project will increase access to treated water for the Antananarivourban population and improve sanitation conditions. The credit was approved onApril 1, 1980 but is not yet signed.

ANNEX III

MADAGASCAR

PETROLEUM EXPLORATION PROMOTION PROJECT

Supplementary Prolect Data Sheet

Section I - Timetable of Key Events:

(a) Time taken to prepare project: 8 months

(b) Project prepared by: Government and IDA

(c) Initial discussion with IDA March 1979

(d) Departure of appraisal mission: November 1979

(e) Negotiations completed: March 1980

(f) Planned date of effectiveness: August 1980

Section II - Special IDA implementation action:

On January 11, 1980 an advance of US$350,000 under the ProjectPreparation Facility was granted to the Government to cover OMNIS'expenditures for the services of consultants after January 1, 1980and before credit signing.

Section III - Special Conditions:

(a) A condition for disbursing funds for the Tsimiroro heavyoil engineering is that the preliminary assessment con-clude, to the satisfaction of OMNIS and the Association,that the engineering study is warranted (para. 51(c)).

(b) A condition for disbursing funds for the seismic surveyis for the exploration consultants to prepare a detailedprogram satisfactory to OMNIS and IDA (para. 51(b)).

(e) The proceeds of the sales by OMNIS of some of the datacollected during project implementation would be kept ina special account and used for further petroleum explora-tion (para. 55).

ANNEX IV

MADAGASCAR

PETROLEUM EXPLORATION PROMOTION PROJECT

Tentative Schedule of Implementation

Exploration Promotion

Completion of draft model agreements and petroleum law April 1980

Approval of petroleum law by National Assembly June 1980

Submission of program for reconnaissance seismic survey August 1980

Call for bids for reconnaissance seismic survey September 1980

First round of acreage bidding September 1980

Signature of first agreements with companies January 1981

Beginning of reconnaissance seismic April 1981

Second round of acreage bidding January 1982

Completion of reconnaissance seismic September 1982

Third round of acreage bidding January 1983

Tsimiroro Heavy Oil

Employment of heavy oil consultants April 1980

Completion of preliminary assessment August 1980

Beginning of engineering study September 1980

Completion of engineering study March 1982

Energy Planning

Employment of consultants December 1980

Preliminary report June 1981

Final report October 1981

ANNEX VPage 1 of 2

MADAGASCAR

PETROLEUM EXPLORATION PROMOTION PROJECT

Technical Assistance to OMNIS

This project component would provide funds for:

(i) exploration consultants (24 man-months): OMNIS would retain theservices of exploration consultants-- at the minimum a seniorpetroleum geologist and a geophysicist full time for a periodof six months to assist OMNIS in:

(a) evaluating available data pertaining to conventionalpetroleum exploration in the Morondava Basin onshoreand offshore, reworking and reinterpreting the dataas necessary, supervising the preparation of such mapsand cross-sections needed to clearly exhibit thepetroleum potential;

(b) devising a strategy for a continuing exploration programwhich would include the locations and sizes of tractsthat may be attractive immediately and the work commit-ment desired from operators;

(c) designing an optimal onshore reconnaissance seismicprogram to uncover additional interesting leads inthe most prospective areas;

(d) together with the legal consultants (para. (ii) below),preparing a contractual framework for the participationof foreign oil companies;

(e) administering acreage bidding (including definitionof the permits, preparation of data packages, adver-tising of the bidding, evaluation and comparison ofthe bids); and

(f) together with the legal consultants, negotiatingwith companies.

Following the first six months of their assignment, the explorationconsultants would provide OMNIS with follow-up advice on a periodicbasis over a two-year period.

ANNEX VPage 2 of 2

(ii) legal consultants (5 man-months): OMNIS would engage a legalfirm to assist in the preparation of the legal framework andmodel contracts and in the negotiations with companies; thiswork would be performed in collaboration with the explorationconsultants.

(iii) geological/geophysical consultants (72 man-months): OMNIS wouldhire an experienced petroleum geologist and a geophysicist(seismic interpreter) to work full time for two and a half yearson the interpretation of existing or newly acquired data, as wellas a field geophysicist to represent OMNIS on a contract seismiccrew and monitor data quality. The field geophysicist andseismic interpreter would work closely together to ensurequality control on the output of the contract seismic crew;

(iv) heavy oil specialists (6 man-months): OMNIS would retain aspecialized firm to assess the Tsimiroro heavy oil deposits;

(v) training for OMNIS personnel who would attend well logging,formation evaluation and reservoir description courses, andobserve geochemical analyses and seismic record processing;

(vi) geochemical analysis by a specialized laboratory of a repre-sentative sample of all shale and limestone cores and cuttingsfrom wells not previously analyzed to identify the mostprospective plays. The question of whether the Middle Jurassicand Cretaceous shales are or can be an oil source is mostimportant to answer; and

(vii) equipment: field vehicles as well as office and laboratoryequipment to support the work of the consultants.

ANNEX VIPage 1 of 3

MADAGASCAR

PETROLEUM EXPLORATION PROMOTION PROJECT

Hydrocarbon Geology

1. Hydrocarbons are generated by living "debris" that have fallen onthe seafloor and have been covered by layers of sediments. As thick sedimentswith such an organic content ("source" rocks) progressively sink and eventuallyfold and fracture, the hydrocarbons migrate upwards until they are trapped in"reservoir" rocks properly structured and sealed by impermeable "cover" rocks.However, hydrocarbon generation depends on many environmental factors and onlya fraction of hydrocarbons generated over time accumulate in sizeable quantities,while a larger portion migrate to the surface and disappear.

2. Therefore, marine sedimentation basins of a certain extent andthickness promise petroleum prospects a priori, while accumulation of oil andgas are the evidence a posteriori of a successful completion of the generation/migration/trapping process over geological ages.

3. However, traps filled by oil and gas are normaly scarce "anomalies"of extremely small dimensions in comparison with the extent and volume of thecontaining basin. Their direct finding by well drilling, the only presentlyavailable method to detect the presence of hydrocarbons, would thus have avery low probability of success and would be excessively hazardous and expensive.

4. Exploring for oil and gas is therefore a lengthy search for informa-tion which leads to the understanding of the generation/migration process andto the identification of the in-depth geometry of sediments. A step by stepapproach is followed using existing methods which are being perfected andwhose relative performance, accuracy and costs are in direct proportion:

- geological survey (pre-reconnaissance) to identify andselect potentially promising basins or areas within basins,

- large-grid geophysical surveys (reconnaissance) consistingmainly of field or airborne magnetometry and gravimetry, andseismic lines, associated with a few stratigraphic wells(wildcat) to obtain a better correlation of data, with theview to developing "leads" and identifying "prospects" onselected areas,

- detailed seismic surveys of the most promising prospects todelineate structural traps, and eventually,

- well drilling to prove the presence of hydrocarbons in thesetraps.

ANNEX VIPage 2 of 3

After a discovery is made, reservoir conditions and field reserves areappraised by further drilling and production tests to assess whetherdevelopment would be feasible under given economic conditions.

5. In reality, these activities overlap, but the scheme applies eitherto unexplored basins or to deeper horizons in a basin where only shallowersediments have been explored. Over past decades, exploration efforts wereconcentrated on shallow depth objectives whose exploration was relativelyinexpensive and could be carried out with existing techniques. As time passedand techniques improved, exploration has moved to more difficult prospects innew basins as well as in deeper horizons of previously explored basins, wheremore costly exploration is now justified by the anticipated shortage ofpetroleum world resources and prevailing prices.

6. Although discoveries have been made and will continue to be madeearly in the exploration cycle, exploration in its initial phases remainsessentially an obstinate quest for information, for which a price has to bepaid. In this respect, exploratory drilling as well as seismic are complemen-tary in bringing about information, and each well has informative merits,irrespective of its success or failure to strike oil.

7. When exploration results fall below initial expectations, thedecision to abandon an area does not mean that there is no potential for oil,but rather that this potential is currently considered by the operator lessattrative than alternative prospects. Many important discoveries have beenmade on areas which had been relinquished by reputable companies, mainlybecause a new operator had a different interpretation of the results producedby previous exploration.

8. Exploration programs have consequently to be assessed and designedin view of their main objective - developing information or finding oil -which to a large extent depends on the stage of past exploration and is afunction of the resources available to the operator.

a. The rationale for exploring new basins of deeper horizons isto clarify their potential and develop "leads" for furtherdetailed exploration for oil. Areas to be explored are selectedon the basis of geological/geophysical surveys and initialwells, if any, on the likely evidence that all the elementswhich are necessary for the generation and accumulation ofhydrocarbons are present (source and reservoir rocks). Programsare therefore designed to maximize the collectin of valuableinformation within a given budget. When the informationgathered is sufficiently attractive, then the operator willstart looking for oil, either by itself or in seeking partners.

b. Exploration for oil and gas in already known basins pursuesobjectives and follows leads previously identified. Objectivesare structural traps or extension of trends which are producing

ANNEX VIPage 3 of 3

locally or nearby. In this process, operators move generally fromprospects which have the highest "expected economic value" towardsmore and more marginal prospects, whose development is justified bythe existence of infrastructure.

It should be pointed out, however, that the exploration of a producing basinmay lead to the identification of new "leads" which would then justify a newround of exploration of the "information collection" type until the newprospects have been proved productive or have to be abandoned.

ANNEX VIIPage 1 of 3

MADAGASCAR

PETROLEUM EXPLORATION PROJECT

Glossary of Geologic Terms

Source Rock: Those sedimentary rock formations which are eitherknown or thought to have retained the organic debriswhich under conditions of burial (heat, pressure andtime) are transformed into either oil or gas; usuallyshale (compacted clay) or fine grained carbonate(limestone).

Reservoir Rock: Those rock formations which have retained afterburial sufficient porosity and permeability (porespace connections) to contain fluids; either oil,gas or water.

Trap: A barrier to the migration of fluids through areservoir rock; may result from structural movementor lateral change in reservoir characteristics.

Reef: A build-up of carbonate rocks (limestone or dolomite)consisting of a particular assemblage of organicskeletal material formed in warm, nonturbid seas;following burial forms a unique type of reservoirand trap.

Diapir, diapiric: A flowage of plastic sedimentary rocks, usually saltor undercompacted shales (those which retain a highfraction of formation water relative to depth ofburial), caused by an inversion in the specificgravity of rocks with depth (light below heavy);diapiric relates to structuring developed whendiapirs are present or to the cause of the diapir,i.e., diapiric shale.

Facies: Descriptive of sedimentary rocks of a common compo-sition deposited in a particular manner; may applyto both general and/or specific conditions ofdeposition.

ANNEX VIIPage 2 of 3

Anticline: A term indicating a discrete positive (high) closure,usually an upward arching of sediments caused bycompressional forces within the earth; often used todenote any type of positive closure which may be theresult of drape over buried topography or residualstructure bounded by areas of negative closure(syncline); with regional or nondiscrete positiveclosures, the term arch is more common.

Horst (Horst Block): A fault bounded structurally high block in whichmovement involved crystalline basement rock as wellas overlying sedimentary rocks.

Graben (trough): A fault bounded structurally low block in whichmovement involves crystalline basement rock as wellas overlying sedimentary rocks; grabens are normallyassociated with and adjacent to horsts.

Rift: Similar to graben except used on a more regionalscale such as rift system when associated grabensand minor intervening horsts are included in theoverall rift (system).

Unconformity: A surface of divergence in the attitude between anunderlying and overlying sequence of sedimentaryrocks caused by structural movement and/or a changein the character of the depositional environment ofthe overlying sediments or involving a hiatus indeposition and a period of erosion of the underlyingsediments.

Transgression: The invasion of the sea (introducing a marineenvironment of deposition) over an existing sub-aerial surface caused either by subsidence or aworldwide rise in sea level; sediments depositedduring transgression are called a transgressivefacies and tend to be widespread in extent.

Progradation: The deposition of sediments in a seaward directionand outbuilding of shoreline, ultimately resultingin nonmarine sediments overlying marine, due toworldwide (lowering sea level due to uplift orworldwide fall in sea level), rapid influx ofsediments into a static sea level, or at a rateexceeding a rise in sea level.

Intrusive: A crystalline igneous rock injected in a fluidphase into preexisting rocks, either igneous,metamorphic or sedimentary.

ANNEX VIIPage 3 of 3

Dike, An intrusive body of crystalline rock whose geometryis tabular with a vertical or near vertical attitude,i.e., if the preexisting rock is sedimentary, cutsacross bedding planes.

Sill: An intrusive body of crystalline rock whose geometryis tabular with a horizontal or near horizontalattitude, i.e., if preexisting stock is sedimentaryis parallel to bedding planes.

Play: A grouping of petroleum prospects in which the typeof trap as well as age and composition of reservoirand source rocks (independently) are believed to becommon; synonomous with "trend" if and when prospectsbecome productive fields.

Show: A positive indication of the presence of oil and/orgas either in the subsurface (wells) or at thesurface from seeps, notes from surface samples,drill cuttings, subsurface cores or fluid recovery;shows may vary widely both quantitatively and quali-tatively.

Karroo: A thick, generally nonmarine sedimentary rocksequence found in the sub-Sahara of Africa rangingin age from the Paleozoic Carboniferous throughMesozoic Triassic and into the Mesozoic LowerJurassic; precise age determination often difficultand thus lumped into general term "Karroo".

Paleozoic: The system of sedimentary rock occupying the earlyages of the geologic time scale comprising theCambrian, Ordovician, Devonian, Silurian, Carboni-ferous and Permian Periods; the Paleozoic system istypified by an invertebrate fauna but witnessed theevolution of fish and near the shore primitivereptiles as well and a flora evolving through algae,ferns and primative conifers; the pre-Cambriansystem, consisting principally of nonsedimentaryrocks and occasionally sedimentary rocks deficientin fossils, underlies the Paleozoic.

Mesozoic: The system of sedimentary rocks occupying the middleages of the geologic time scale, comprising theTriassic, Jurassic and Cretaceous Periods; theMesozoic system is typified by a repetition of faunaand a coniferous flora which overlies the olderPaleozoic system and underlies the Cenozoic system(Tertiary, Quartenary and Recent).

or~~~~iN- t7~~~~~-

Z~~~~~~~~~~~~~~~~~~~~~'

0~~~~~~~

JIltI

IHWU~~~~~~~~~~~~~~~~~~~~~~~~~~~~-