RESTRICTED PE-260 L 622-THA

This Report has been piepared for the eAclusive use of t/)e Bank.

ASIAN DEVELOPMENT BANK

Post-Evaluation Office

PROJECT PERFORMANCE AUDIT REPORT

NATURAL GAS TRANSMISSION PROJECT

IN

THAI LAND

[I

September 1988

CURRENCY EQUIVALENTS Currency Unit = At Appraisal B 1.00 $1.00 At Project Completion B 1.00 $1.00 AtI'os t - Evaluation B 1.00 $1.00 ABBREVIATIONS AR DMR EIRR EGAT FIRR IDC LIBOR LPG OCR ocs PCR PEM PPM?. PTT SCADA - - - - - - - - - - - - - - - Appraisal Report Department of Mineral Resources Economic Internal Rate of Return Electricity Generating Authority of Thailand Financial Internal Rate of Return Interest during construction London Interbank Offered Rate Liquefied Petroleum Gas Ordinary Capital Resources Onshore Compressor Station Project Completion Report Post-Evaluation Mission Project Performance Audit Report Petroleum Authority of Thailand Supervisory Control and Data Acquisition (System) MEASURES MMBTU MMCF MMCFD TCF - - - - Million British thermal unit Million cubic feet Million cubic feet per day Trillion cubic feet NOTES (i) (ii) In this Report, "$" refers to US dollars. The fiscal year of the Government and PTT ends on 30 Septeniber. $0.0399 B 25.05 - - $0.0390 B 25.61 $0.0435 B 23.00 Baht (B)

TABLE OF CONTENTS Page Basic Project Data Map I. HIGHLIGHTS (i) (ii) 1 1 Rationale Objectives and Scope Financing Completion Evaluation 1 2 2 2 3 3 3 4 5 6 7 7 10 10 11 13 13 14 14 14 14 15 15 15 15 16 17

II. BACKGROUND A. B. C. D. E. Project Project Project Project Ex-Post

III. IMPLEMENTATION PERFORMANCE A. B. C. D. Project Design Construction and Commissioning Project Costs and Financing Monitoring and Supervision

IV. PROJECT RESULTS A. B. C. D. E. F. C. V. Operational Institutional Financial Economic and Financial Evaluation Environmental Aspects and Control Compliance with Conditions and Covenants Sustainability of Future Operations

KEY ISSUES A. B. C. Levy of Commitment Charges Procurement of Complex Plant and Equipment Gas Pricing Policy

VI. CONCLUSIONS A. B. C. Overall Assessment Lessons Learned Follow-up Action

APPENDIXES ATTACHMENT: PROJECT COMPLETION REPORT Map Basic Data Project Description I. II. Project History III. Evaluation of Project Implementation IV. Conclusions and Recommendations Appendixes

(Ai i) (Aiii) Al A3 Al2 A18 A20

(i) BASIC PROJECT DATA Natural. Gas Trarimisslon Prolect (Loan No. 622-TM) ConsuLtant I&NQ. TA ProJect Name PP o.rt (S an) $40,000 Approval Date 21 January 1981

Nan-months 3

396-TNA Natural. Gas TransmissIon and Distribution KEY PROJECT DATA (S an):

OriginaL (Dec. 1982)

Revised (Feb. 1984) 62.0 50.0 40.0 - Actual 9-27 August 1982 22-25 Noventer 1982 22 Decanter 1982 6 February 1986 13 February 1984 5 June 1984 1987 Kay 24 ApriL 1986 35 PCR PPAR 29. 16. 5 Actual 44.4 37.8 23.9 16.1

TotaL Project Cost Forei Currency Cost Bank Loan Ainotrit/Utitization Bank Loan CanceLLation KEY DATES: AppraisaL Loan Negotiations Board Approval Revised Loan Agreement Loan Agreement Loan Effectivity Project Ccalet ion Loan CLosing Months (Effectivity to CoapLetion) KEY PERFORMANCE INDICATORS (%): Estimated Economic Internal. Rate of Return Estimated Financial InternaL Rate of Return BORRC?.&R GUARANTOR EXECUTING AGENCY MISSION DATA: Type of Mission Appraisal. Project Acininistration - Inception - Review - Disbursements - Special Project Acininistration - Project CoapLetion Post-EvaLuation : : :

135.0 102.0 87.0 Expected

1984 13 Nay March 1985 31 Decanter 1985 10 Appraisal 77.8 61.3

PETROLEIJI AUTHORITY OF THAILAND (PTT) Kingdom of Thai Land PTT

No. of Missions

Man-days 90 10 39 6.7 16 30 28

2 5 2

a! For PTT's overaLL Natural Gas Devetopnent Program.

(ii)
98E 102E

THAILAND NATURAL GAS TRANSMISSION PROJECT

To Cement Plants r- \
C , r...-'

I H A I L A N 0 r' /,________ Pr0jt Location

BANGKOK south Bangkok Power Plant

Ratchaburi

Bang Pakong Power Plant Scada Extension SpTT Operations Center Onshore Pipeline Onshore Corn presso
Rayong Stati n (OC

Sattahuii LPG Plant

5
C.. 12N

ii

1' /\
j )/ J( /

(z//

:f

/illa'rd

1
& /

J)

rj
oChumpon

-Offshore Pipeline

( ) /

Project PiPellflel
Kaphong Structure

?'ORanong / - Platong Platform Suratlhani0

43 km.
24"

Platong Structure

Surat Structure Pladang Structure 1lSatun Structure Erawan Structure

Erawan Platform Baanpot Structure

-8N

'B' Structure 0Ph,ket Phatthalung Gas F palds

Trang

8N-

LEGEND

Existing Gas Transmission Lines Project Gas Pipeline Project Components International Boundaries (not necessarily authoritative) 98E

Songkhla0 - -

f \
I \ .-.. -' . Narathiwat 102E

30 60 Kilometers

i20

I. HIGHLIGHTS 1. The Project was generally successful in meeting its objective of assisting in the substitution of imported fuel oil by domestically produced natural gas, thereby reducing the country's dependence on imported fuel. 2. Latest assessment of reserves and actual production of natural gas at the Platong gas field were lower than appraisal estimates. As a result, the submarine pipeline component of the Project from Platong was underutilized. System demand for natural gas and full utilization of the onshore compressor station (OCS), the other major Project component could however be maintained by an increase in natural gas production at the existing Erawan gas production platform. 3. The Project highlighted the risk of error in geological assessment of gas reserves and the need to invoke more refined, longer and sometimes costly procedures when doubt exists about normal assessment results. 4. The pipeline component was completed one month before the commencement of gas production from Platong, with only a nominal delay of about one month. Delay occurred in the completion of OCS but it had no adverse impact as it came on stream just in time when the slower than expected growth in demand for natural gas exceeded the existing free flow capacity of the downstream pipeline. 5. The final Project cost was $44.4 million, compared with an appraisal estimate, in 1982, of $135.0 million and a revised estimate, in 1984, of $62.0 million. The substantial cost underrun was largely caused by overestimation and strong competition at that time among contractors for gas transmission projects due to an international recession in the gas production and pipeline industry. 6. The Project highlighted the need to consider use of a two stage bidding procedure in the procurement of complex plant and machinery. 7. The institutional capability and financial performance of the Petroleum Authority of Thailand (PTT), the Borrower and Executing Agency, were sound. 8. The Borrower prepaid the loan in 1987 as it could borrow funds elsewhere on more favorable terms; the Bank agreed, as a special case to waive the prepayment charges. II. BACKGROUND A. Project Rationale

9. In the l970s, Thailand was almost entirely dependent on imported crude oil or refined petroleum products to meet its petroleum requirements. Government strategy during that period to reduce the oil import bill included award of concessions to foreign oil companies to encourage accelerated exploration activities for the development of indigenous oil and gas resources. Exploration efforts were rewarded with the discovery of

substantial natural gas deposits in two offshore concessions in the Gulf Thailand. A supply contract for supply of natural gas from the Erawangas field, was finalized between the concessionaire and PTT in 1980. This was followed by the construction, in 1981, of a gas transmission system, including offshore and onshore pipelines, with financing from the World Bank and other lenders. In 1982, a second contract was finalized by PTT with the same concessionaire for additional supply of natural gas from its Platong group of fields. At that time, the Government requested Bank financial assistance for the Project, to facilitate transmission of additional quantities of natural gas. B. Project Objectives and Scope

10. The main objectives of the Project were to facilitate transmission of additional quantities of natural gas and thereby reduce the country's dependence on imports by accelerating the substitution of imported fuel oil by additional ,.tura1 gas expected to be available from the Platong group of gas fields. The Project was also expected to help downstream development of natural gas-based petrochemical industries such as urea fertilizer, polyethylenes (plastics) and other petrochemicals. 11. The Project included: (i) design, engineering and construction of a 28 inch diameter 43 km submarine pipeline, including metering facilities, to link the Platong group of gas fields to the existing main submarine pipeline of PTT; (ii) design, engineering and construction of an OCS at Rayong for boosting gas pressure to facilitate transmission of additional gas supply to the downstream users of gas; (iii) provision of a team of technical experts to assist PTT in Project implementation; and (iv) provision of training for technical personnel of PTT in the operation and maintenance of the Project facilities. C. Project Financing

12. In response to the Go' ,rnment's request in January 1981, the Bank provided technical assistance in the amount of $40,000 for the appointment of a pipeline technologist consultant to help PTT complete a feasibility study for the Project. To meet a part of the foreign exchange cost of the Project, an OCR loan of $87.00 million was approved in December 1982 but later, at the request of the Borrower, the amount was reduced on 6 February 1984, to $40.00 million. A loan agreement was signed on 13 February 1984. The PTT was both the Borrower and the Executing Agency. The loan has been the Bank's only assistance to PTT, so far. D. Project Completion

13. The Project was completed in May 1987, compared with an appraisal completion date of March 1985. A Project Completion Report (PCR) prepared by the Bank's Industry and Minerals Division, circulated in August 1987 is appended to this Report. It discusses the design, scope, implementation and operational aspects of the Project and provides detailed Project information.

For details, see map on page (ii). 2/ These included Platong, Kaphong, Pladang, Satun and Baanpot gas fields. / TA No. 396-THA, Natural Gas Transmission and Distribution.

E.

Ex-Post Evaluation

This Project Performance Audit Report (PPAR) reviews the Project 14. ex-post, focuses on pertinent aspects of the Project, and presents the findings of a Post-Evaluation Mission (PEM) which conducted a field study during May 1988. The PPAR also presents an assessment of the Project's effectiveness in terms of achieving its objectives, the benefits derived from it, and the sustainability of the Project's operations. This PPAR is based on a review of the attached PCR, the Appraisal 15. Report (AR), material in Bank files, and discussions with staff members of the Bank, the Executing Agency and other agencies of the Government. Copies of the draft PPAR were provided to the Government, the Executing Agency and Bank staff concerned for review and comment. Comments received were taken into consideration in finalizing the Report. Dissenting views of PTT in respect of some aspects are included in footnotes at appropriate places. III. IMPLEMENTATION PERFORMANCE A. Project Design

The first natural gas supply contract (see para. 9) provided for 16. the concessionaire's supply of gas from its Erawan field located in the Gulf of Thailand. The PTT was responsible for transmission of gas in a 34" diameter 425 km submarine pipeline from Erawan to the landfall point at Rayong The second natural gas supply contract provided for supply of 17. natural gas from the Platong, Kaphong, Pladang, Satun and Baanpot gas fields. The concessionaire was to provide all facilities for production of gas and its delivery at the existing Erawan and the new Platong processing platforms, while PTT was to provide metering facilities and the pipeline connection from Platong to the existing Erawan-Rayong submarine pipeline. The contract provided for a supply at the rate of 150 MMCFD of 18. natural gas in the first year, 300 MMCFD in the second year and 400 MMCFD thereafter, but did not specify the quantities to be supplied at Erawan and Platong. However, as Satun and Baanpot gas fields were closer to Erawan, these were expected to be drained via Erawan and supplies from only Platong, Kaphong and Pladang gas fields, of about 150 MMCFD, were expected to be drained through Platong platform and the Project pipeline. Further, as some portions of Kaphong gas fields lay in an area involving a territorial dispute between Thailand and Viet Nam, the Government and PTT assured the Bank that PTT would not be drawing gas from this field until the dippute was resolved; as a consequence supplies of only about 100 MMCFD-' were expected to flow through the Project pipeline.
This figure is not specifically mentioned in available

)J

documentation but has been inferred from a revised calculation of internal rates of return presented to the Bank's Board of Directors (Board Doc. R168-82, Proposed Loan - Natural Gas Transmission Project (Thailand), dated 16 December 1982).

The second gas supply contract was finalized, based on an 19. assessment by the concessionaire and PTT's Consultants of proven gas reserves of over 0.9 TCF for the five gas fields in the Platong group. However, during the period of Project appraisal, It was noted that the actual production of gas from Erawan under the first gas supply contract was much less than anticipated and gas reserves were being scaled down to about one-third of the original estimate. The lower production was attributable mainly to faults which had been found in gas bearing structures at Erawan (see AR, para. 28). As the Platong group of gas fields had similar gas bearing structures, estimates of Platong reserves too became suspect. Because of these doubts, the Bank while approving the loan, hired 20. a firm of Consultants to carry out a reservoir evaluation to provide an independent assurance that 150 MMCFD could be delivered to the Project pipeline over the period of Project life of 15 years. In this evaluation, the proven reserves from Platong, Kaphong and Pladang gas fields were assessed at 0.85 TCF but the Bank staff's review noted that in view of a number of assumptions, which were made in arriving at the assessment, the figures should not be regarded as definite but as an upper limit order of recoverable reserves. It was also noted by the Bank staff that due to non-availability of results from a three dimensional (3D) seismic survey and insufficient well testing data, the more reliable well performance method could not be used and the Consultant had to resort to volumetric method of assessment. B. Construction and Commissioning 1. Procurement

21. Procurement of major equipment and materials was carried out in accordance with the Bank's Guidelines for Procurement (for details, see PCR, paras. 16-24). There were some delays due to PTT's unfamiliarity with Bank procedures and Guidelines for Procurement but the processing of contracts for the submarine pipeline from Platong to the tie-in point (Contract Package No. 1) and the extension of supervisory control and data acquisition (SCADA) system was fairly smooth. In Contract Package No. 2 for OCS, there was initial divergence of views between the Bank and PTT on certain technical aspects such as the acceptability and proven past performance of the GTC-22C model of turbines for compressor drive as well as the capacity and configuration, technical responsiveness and fuel consumption of OCS. As a result, even though the bids were opened in19arly November 1983, award of contract for OCS was delayed until July 1984.'

1/ The PTT is of the view that the Bank had little experience in executing turnkey contracts and had it approved PTT's recommendations promptly, as was done in the case of Contract No. 1 and the SCADA contract, the OCS contract too could have been finalized early as originally planned, and that the Bank's actions were solely responsible for the delay.

. 22. The total length of the submarine pipeline from Platong to the tie-in point on the existing pipeline was 43 km but only 38 km was included in the Bank-financed contract. The metering facilities and the remaining 5 km of the pipeline nearest to Platong end were separated for construction, for PTT, by the gas concessionaire. This was done to ensure coordination between construction activities at and around the Platong processing platform and the concessionaire's gas production and processing operations at that platform. The pipeline diameter was reduced from 28 inche,to 24 inches after a further study of gas reserves of Platong fields. ' The pipeline laying method was also amended, from trenching and burial below seabed, to laying on seabed. Construction of OCS and the extension of the SCADA system were accomplished without any significant changes in scope. 3. Project Schedule

The OCS was the last component to be completed in May 1987. The 23. overall completion of the Project thus had a delay of 26 months compared with the appraisal completion date of March 1985. The pipeline laying and tie-in was completed in January 1985 one 24. month before the commencement of gas production from Platong. It represented a marginal delay of only about one month, compared with the appraisal target of December 1984. There was however a considerably greater delay of 26 months in the construction and commissioning of OCS as a result of deficiencies in the contractor's project and contract management and coordination capabilities, which could not be overcome by Return of gas turbine units to the a change of Project Manager. manufacturers also contributed to delays. Substantial contractual penalties were imposed on the contractor for the delays (see PCR, para. 44). The work relating to the SCADA system was completed according to 25. schedule. Initial testing and operational use commenced in late 1985 even though its final acceptance was delayed until November 1986 because of the delay in the completion of OCS. C. Project Costs and Financing

The final Project cost was $44.4 million compared with $135.00 26. million estimated at appraisal and $62.00 million assessed in a revised estimate prepared on February 1984 (see Appendix 1). In the revised estimate of costs, based on actual bid prices in two major bid packages, the provision of $6.50 million for price contingencies was excessive and was not used. The provision for import taxes and duties remained largely unutilized as such duties and taxes were not applicable for the material for offshore pipeline and tie-in work directly shipped to the offshore Some savings were also realized in the cost of construction site. During loan negotiations held on 22-25 November 1982, PTT had indicated that pipeline diameter was to be re-examined after the Project design and supervision consultants had been selected.

consulting services and cost of PTT's facilities at the offshore platform, including the cost of 5 kin of pipeline laid on behalf of PTT by the gas concessionaire. Levy of a penalty of over $1.5 million on the contractor for delay in implementation of the OCS contract also reduced the overall payments for that contract. 27. The foreign exchange cost of the Project was estimated, at appraisal, at $102.00 million out of which the Bank loan was to cover an amount of $87.00 million. The balance was expected to be financed by loans from commercial banks and/or other sources as well as PTT's own internal cash generation. During the period of delay in the signing of the loan and guarantee agreements the Project cost was reassessed to be much lower (see para. 26) and at the request of the Government and PTT, the Bank loan was ultimately reduced, in January 1984, to $40 million. 28. In the event, the Borrower utilized only $23.89 million, cancelling in August 1985 and April 1986 the balance loan amount of $16.11 million. The cancelled amount comprised not only the savings due to lower foreign currency cost of the Project but also an amount of $8.23 million financed from other sources at more favorable terms. As against a fixed interest rate of 11.0 per cent per annum for the Bank loan, PTT's borrowings from othr1 sources were at interest rates of London interbank offered rate (LIBOR) ' + 1/8 per cent per annum for the first two years and LIBOR + 1/4 per cent per annum for the next eight years, but at shorter maturity than the Bank loan. For similar reasons, PTT also prepaid in March 1987, the entire disbursed amount of $23.89 million; PTT's request to waive the prepayment premium was accepted by the Bank, as a special case. D. Monitoring and Supervision

29. At the time of commencement of the Project, PTT was a relatively new organization. It was also its first contact with the Bank and at that stage it was not fully familiar with the Bank's procedures and requirements. This led to some delays in procurement. On an overall basis, however, PTT's management of Project implementation was carried out in a professional and efficient manner and enabled transmission of Platong gas to take place as soon as its production at the gas fields commenced. 30. The Bank provided useful assistance to PTT both during appraisal and implementation of the Project. With the benefit of hindsight, it is clear that the Bank's concerns both in regard to the assessment of gas reserves and inadequate operational experience of the selected gas turbines were well founded. The Bank's judgment to have an independent assessment of gas reserves through its own Consultants was sound but unfortunately the Bank did not follow through by requiring the adoption of a more reliable and conservative assessment of gas reserves. At appraisal, a closer Bank scrutiny of the Consultant's cost estimates and a better appreciation of the prevailing environment of depression in the pipeline industry and the possibility of obtaining more competitive prices might have facilitated preparation of more realistic cost estimates. Equipment at offshore locations did not attract levy of import taxes such as customs duty and

1/

During 1985 and 1986, the LIBOR rate ranged around 6 to 7 per cent.

inclusion in the estimates of large amounts for payment of taxes and duties for the offshore work was unrealistic. Similary, provision of over 10 per cent for price contingencies in the revised estimate prepared by the Bank, after opening of bids for the two major contract packages, was too liberal. IV. PROJECT RESULTS A. Operational 1. General

31. The Project pipeline was operational from March 1985. The OCS became operational in May 1987. Fortnightly despatches from OCS from May 1987 to April 1988 are shown in Appendix 2. During construction and commissioning, all gas turbine units for OCS we sent back to the manufacturer in USA for rectification and return,' suggesting that the Bank's initial concern in regard to the unproven nature of the particular turbine model was not unfounded (see para. 21). Some other technical aspects such as the lubrication system and instrumentation also needed remedial attention during the commissioning period. The overall operations of the OCS plant were satisfactory but problems associated with the instrumentation and lubrication system of turbines were still being resolved in consultation with the manufacturers. The extended SCADA system and the new Remote Terminal Units, including those at OCS and Platong, operated satisfactorily. 2. Gas Supplies

32. Actual gas supplies and projections for the future through the Project pipeline are shown in Table 1. 33. Supplies from Platong gas field were much lower than expected and even with a rate of production and supply well below the anticipated 100 MMCFD (see para. 18), the field was likely to cease production much sooner than expected. The PTT advised the PEN that to partially bridge the gap, the concessionaire planned to commence production of gas from 1990, from two areas of the Kaphong gas field, which are outside the area of territorial dispute. 34. Uncertainty dogged the assessments of gas reserves from the very beginning and finally they were scaled down considerably (see Appendix 3). It is apparent that the most recent gas reserves of 0.266 TCF in the three gas fields Kaphong, Platong and Pladang which could feed the Project pipeline through the Platong processing platform were no longer adequate to provide enough gas for the life of the Project pipeline. 35. The Project pipeline would have become idle after 1991 but for the proposed development of Kaphong gas fields, and even this source is limited and only likely to extend the pipeline usage, albeit at a much

1/ This related to provision of inadequate clearance between the casing and rotor blades of the CT 22C model gas turbines.

TabLe 1: ActuaL and Pro j ected NaturaL Gas St p Lies at the Ptaton g PLatform (NMCFD)

CaLendar Year:1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

A. ActuaLs

& New Projections Ptatong

Ka F ong P(adang TotaL 60.2

57.7" 67.8 67.0

- - - 70.5

'

70.0 70.0 52.0 10.0

- . - - -

-
-

-
-

-
-

-
-

-
-

-
-

7.0

13.0 56.0 50.0 50.0 49.0 45.0 37.0 18.0

70.0 70.0 70.0 67.0 66.0 50.0 50.0 49.0 45.0 37.0 18.0 7.0

8. Apraisat Project ion TotaL 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0

a/ Actuats. Source: PIT

reduced capacity, for a few years) 1 The concessionaire is however able to meet its total contractual obligation by a greater supply at Erawan platform from its Satun and Baanpot gas fields. The production profile of natural gas for different gas fields of the concessionaire is shown in Appendix 4. 36. It is quite well known that geological assessments in gas exploration can be very uncertain, that the usual gas verification method entails considerable risk of error and that more refined procedures for reducing that risk are long and costly. In fact the major risk of a substantial decrease in the amount of gas delivered from the Platong field was noted at appraisal (see AR, para. 95). Nevertheless, when in 1982 there was considerable evidence of faults in gas bearing structures in Erawan, and the Platong gas field was expected to have a similar structure, the Bank accepted an assessment of gas reserves made by its Consultants on the basis of the not so precise volumetric method (and that too with a number of assumptions); this assessment failed to bring to light the factors which finally resulted in much smaller gas reserves. 37. With hindsight, it can be concluded that in these conditions it would have been preferable if the Bank had required a firmer, more reliable assessment of gas reserves through 3D seismic surveys and well testing and performance data. The final production outcome of the Project pipeline may still be positive because of circumstances quite different from those assumed at appraisal such as the discovery of Surat gas fields; nevertheless, under similar circumstances in future, a more comprehensive analysis with higher levels of dependability, would seem to be more appropriate.

)J

Some recent exploratory wells in Surat area, close to Platong, have shown highly promising prospects and if the present expectations of gas reserves materialize, it may well provide 100-120 MMCFD of gas to substantially utilize the Project pipeline for 10-15 years.

3.

Gas Demand

38. The profile of demand for natural gas in Thailand is shown in Table 2 (for details, see Appendix 5).
TabLe 2: Profile of Demnd for NaturaL Gas (MMCFD) CaLendar Year 1982 1983 1984 1985 1986 1987 AR A AR AAR A AR A AR A AR A 1988 AR 1989 1990 1991 P AR PAR PAR P

Gas Separation PLants - PetrochemicaL - In.jstriaL Cement & Others - Electric Power

- -

39 3 60 58 60 71 222 69 222 70 222 70 222 120 222 120 - - 73 0 73 0 73 0 112 0 112 47 112 47 8 115 15 120 33 130 35

30 7 30 22 30 21 50 10 80 5 100

Generation(EGAT) 200 130 220 146 208 194 324 252 410 236 519 374 542 442 505 475 488 400 601 428 Total 200 130 250 152 277 220 414 331 588 317 894 448 937 520 954 560 942 600 1065 630 AR - Projections at praisat. Source: PTT A - Actuats P - Current projections

39. The gas distribution system was extended in 1982 in the north by about 180 km to connect two cement factories in Saraburi. It was expected at appraisal that the demand for natural gas would exceed the free flow capacity of 350 MMCFD of the pipeline beyond Rayong, in 1985. However, total demand lagged considerably behind projections as a result of a general slow-down of the Thai economy in the intervening years and the delay in completion of OCS did not have any significantly adverse impact as the gas demand exceeded the free flow capacity of the pipeline beyond Rayong, only in January 1987 when OCS was already undergoing final commissioning tests. Substitution of natural gas for fuel oil also received a setback due to a significant drop in the international price of imported fuel oil (see para. 47). As a consequence, domestically produced natural gas lost its price advantage for consumers and both the Electricity Generating Authority of Thailand (EGAT) and the cement industry reduced their consumption of natural gas in 1986. EGAT's consumption of gas has since picked up but that of the cement industry continues to be low. Commissioning of petrochemical industries was also delayed and these are now expected to come on stream in 1990. 40. Gas purchase, sale and losses in the PTT gas transmission and distribution system fed by the offshore gas fields are shown in Appendix 6. In the last six years, PTT's sale of gas quantities in excess of purchase quantities is attributable to metering tolerances. 4. Maintenance and Inspection

41. Maintenance and inspection procedures for the PTT's gas transmission and distribution system were satisfactory (for details, see Appendix 7).

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B.

Institutional 1. Organization

42. The PTT is the national oil company of Thailand. It was set up as a state enterprise on 29 December 1978 under an Act of Government, through a merger of the then existing petroleum related government agencies. The PTT is now involved in all phases ranging from exploration, production, transportation, refining and distribution of petroleum, its products d gas and it has grown into one of the largest corporations in Thailand. ' Its operations are marked by sound organization and commercial practices. 43. The Department of Mineral Resources (DMR) of the Ministry of Industry is responsible for regulation of oil and gas exploration and supply and PTT reports to DMR. In addition, the National Economic and Social Development Board and a number of other ministries and departments are involved in decision making in the sector. The Appraisal Report (para. 17) noted that with the involvement of a large number of ministries, agencies and corporations of the Government in planning and policy making, it was difficult to effectively coordinate programs and policies in the energy sector. This dichotomy was2 pxpected to be examined in the then ongoing Energy Master Plan Study. ' The Study report recommended the establishment of a central focus for energy sector planning and adequate decision making. For this purpose, a cabinet level National Energy Policy Committee chaired by the Prime Minister was constituted but the Government's response to the recommendation was otherwise cautious. It did not much change the cooperative type of decision-making system which is considered to be a basic strength of the Thai system of public management; efforts were however being made to improve the pace of decision making and implementation. 2. Training

44. During Project implementation, PTT trained a number of its staff in operation and maintenance of Project facilities (see PCR, Appendix 5). Such training included overseas, classroom and field hands-on training of Project staff as a part of turnkey contracts and under PTT's own training programs. Later the same Project staff were assigned to operation and maintenance tasks, so maintaining the technical experience gained during implementation and providing a smooth transition from the implementation to the operational phase. C. Financial 1. Financial Results

45. Appendix 8 includes a summary of PTT's financial results. Over the years, PTT has consolidated its financial position. Financial indicators, such as debt/equity and debt-service coverage ratios are satisfactory. The operations are profitable even though profits declined from FY1984/85. The reasons were first a drop in revenue due See PCR, para. 10 and Appendix 2, for PTT's organizational chart. Under Bank TA No. 3l3-THA, Energy Master Plan.

11

to a reduction in the price of domestic natural gas, following the fall in the international prices of fuel oil. Second, PTT's liability in baht on its external borrowings increased due to 1 n appreciation of currencies such as the Japanese Yen and the German Mark.-' a. Gas Prices

46. Prices for PTT's purchase of natural gas from the concessionaire and its sale to EGAT, its major consumer, are shown in Appendix 9. Well head price of gas is governed by PTT's two gas sales contracts with the concessionaire. The pricing formulae include annual adjustments for price of fuel oil in the international oil markets and levels of inflation. 47. To promote the use of domestic natural gas in lieu of imported fuel oil, PTT set a pricing policy in which natural gas was sold, prior to 1986, at about 80-90 per cent of the equivalent fuel oil price. A sharp decline in international prices of fuel oil in 1986 which was not promptly matched by PTT's reduction in price of natural gas resulted in EGAT and the cement industries turning to other energy sources which were more competitive. This resulted not only in a slowdown in the change over but in an actual decline in consumption of natural gas by about 8 per cent. Later, in order to maintain a competitive edge of natural gas especially vis-a-vis fuel oil, PTT reduced its gas price by about 15 per cent. D. Economic and Financial Evaluation 1. Economic Evaluation (a) Methodology 48. The Project was a part of PTT's overall gas development program and its efforts to accelerate substitution for imported fuel oil. The capacity to supply up to 350 MMCFD of natural gas was set up in the first phase of the program which involved laying of 425 km of submarine pipeline and 350 km of onshore pipeline. The Project, as the next phase, was to facilitate the flow to land based consumers of incremental supplies of 150 MMCFD of natural gas produced at the Platong group of fields, but it involved, as a matter of necessity, the use of the network of trunk pipelines set up in the earlier phase. In the circumstances, evaluation encompassing PTT's total gas development program, including both phases, was more meaningful than a stand-alone evaluation of the Project carried out at the time of appraisal (on the basis of incremental costs and benefits). However, for purposes of comparison, a stand-alone economic evaluation of the Project on the basis of incremental costs and benefits, was also included.

1/ In FY1984/85 and FY1985/86 such an increase in liability was all shown as an expense item in the year itself, but in a new accounting system adopted by the Government since FY1986/87, state enterprises are now allowed to spread the loss over the remaining years of the loan.

12

(b) Benefits 49. In line with the methodology adopted in the appraisal report, the benefits accrue from substitution of natural gas for imported fuel oil used mainly by power and cement plants. Natural gas converted into liquefied petroleum gas (LPG) was also used as a substitute for fuel oil for small industries and other conventional fuels for domestic cooking. However, in the absence of data about consumption of different categories of consumers for LPG, benefits were assessed conservatively on the basis of displacement of only fuel oil. The PTT's gas transmission and distribution system (including the increase in capacity created as a part of the Project) can handle a maximum of about 500 MMCFD of natural gas and benefits are frozen when gas supply reaches this level; handling of additional demand of over 150 MMCFD will require new investments. (c) Costs 50. Capital costs were the investment costs for: (i) the first phase comprising construction of 425 km long 34" diameter Erawan-Rayong submarine pipeline and 350 km onshore pipelines, including a 180 km connection to the cement plants; (ii) cost of conversion of cement plants to use natural gas in place of or in addition to fuel oil; and (iii) cost of the Project. Cost of natural gas was based on price (excluding royalty) paid to the concessionaire and a depletion premium for the use of natural gas reserves. Operation and maintenance costs, for PTT's total gas transmission and distribution system, were also included. In the alternative evaluation on the basis of only incremental costs and benefits of the Project, the capital costs of the first phase and the cost of conversion of cement plants were treated as sunk costs and excluded from the cost stream. 51. Costs excluded duties and taxes, interest during construction and gains and losses in foreign exchange transactions. Local currency costs were subjected to a standard conversion factor (SCF) of 0.90. No shadow wage rate was applied since the gas transmission projects used little unskilled labor. (d) Economic Internal Rate of Return (EIRR) 52. For PTT's total gas development program, the EIRR was estimated at 29.0 per cent (for details, see Appendix 10). 53. In an alternative evaluation where the sunk cost of the first phase was excluded and the incremental costs and benefits of the Project, limited to additional natural gas supplies from the Platong group of gas fields, were evaluated. The resultan1 1 ElRR of 93 per cent compared well with the 112 per cent at appraisal.-' The high EIRR was attributable firstly to the lower project cost and secondly to the peak international

At appraisal, EIRR was calculated at 77.8 demand is negligible, the PEM assessed exclude the cost of gas pipeline to the conversion cost of cement plants, to make report and PPAR comparable.

per cent but as cement the appraisal EIRR to cement plants and the EIRRs in the appraisal

13

oil prices in the first year of operation of the pipeline in 1985 generating very substantial benefits in that one year, even for a considerably lower than envisaged natural gas throughput in the Project pipeline. The operations of the Project pipeline in that year alone virtually justified its construction, and its limited use or non-use and a reduction in benefits due to lower oil prices in later years did not very much affect the rate of return. 54. On the other hand if benefits of additional natural gas supplies from both the Platong and Erawan groups of fields (which made up for the shortfall from Platong) were considered in the stand-alone evaluation, the EIRRR was 102 per cent. The only marginal increase from 93 per cent reinforces the conclusion that the Project viability stemmed substantially from the natural gas supplies from Platong in the initial years of operations. 2. Financial Re-Evaluation

55. For financial re-evaluation, the benefits were based on gas production volume (with a ceiling of 500 MMCFD) and the prevailing and forecast selling prices to consumers. The capital costs comprised cost excluding IDC, of the entire gas development program including the Project, cost of purchase of natural gas from the concessionaire and O&M costs. The ex-post FIRR was estimated at 16.5 per cent. If only incremental financial costs and benefits of the Project were evaluated, the resultant FIRR would be 45.6 per cent, compared with 61 per cent at appraisal (for details, see Appendix 10). The variation is attributable mainly to a lower than anticipated sale price of natural gas, to make it competitive with the lower price of imported fuel oil. E. Environmental Aspects and Control

56. An environmental impact statement prepared at the time of implementation of the first phase of PTT's gas development program noted that there was no likelihood of any significant adverse environmental impact. Monitoring before, during and after the first phase confirmed that there was no observable permanent adverse impact on ecology or environment. The pipeline was constructed to international safety standards. The PTT had also commissioned a local university to carry out a continuing computer simulation of accidental gas leaks/bursts to evolve procedures to provide timely response to emergencies (for details, see Appendix 11). F. Compliance with Conditions and Covenants

57. During pre-appraisal discussions in March 1982, the Bank had clarified a PTT query that it was not possible to delay loan negotiations till the main bids were opened and similarly signing of loan agreement could not be delayed until the Project reached a stage where disbursements of funds was required. Nevertheless, even after Board approval on 22 December 1982, the Government and PTT delayed signing of loan and guarantee agreements, apparently to avoid commitment charges. In the meanwhile bid openings in October/November 1983 revealed substantial reduction in the cost of major components and the loan and guarantee agreements were signed only in February 1984 after the loan amount was reduced.

14

58. The PTT's compliance with financial covenants was satisfactory (see para. 45 and Appendix 8). The debt/equity ratio was higher than the covenanted figure of 70:30 in FYs1981/82 and 1982/83 but this possibility was foreseen during loan negotiations. C. Sustainability of Future 0erations

59. A lack of adequate gas reserves in the Platong field resulted in only partial utilization of the Project pipeline with the prospect of its becoming totally idle after 1991. The proposed development of Kaphong gas field may extend the partial utilization to 1997. In addition, if the promising prospects of substantial gas production from the Surat gas field actually materialize, a greater utilization of the pipeline may be expected in future. 60. The operations at OCS were satisfactory and should be sustainable throughout its normal life; it was however essential to satisfactorily resolve the few residual problems related to instrumentation and lubrication systems that wr,e still being encountered in the operation of compressor drive turbines. ' No problems were visualized by PTT in the continued satisfactory operations of the SCADA system and its extension. V. KEY ISSUES A. Levy of Commitment Charges 61. As there was a long lead time after loan approval for disbursements to commence, the Borrower being keen to avoid commitment charges for this period, delayed the signing of the loan documents by almost 14 months. Commitment charges are levied by the Bank from a date 60 days after the signing of a loan agreement on the unused portion of its committed ordinary capital resources funds primarily to cover the cost of keeping liquid funds for the use of the borrowers. The suggestion was therefore made that it might be more equitable to both parties to the loan agreement if the funds were committed and a commitment fee charged by the Bank on the basis of deviation from the disbursement schedule, rather than charging commitment fee on the entire unused loan amount. The Bank's revised system applicable to loans approved after 1 July 1987, involves a levy of commitment charges of 0.75 per cent per annum on a progressive basis on ireasing portions of loan rather than on the full amount from the outset. ' The PEM is of the view that the levy of commitment charges in the revised arrangement is more equitable. B. Procurement of Comp lex Plant and Eauipment 62. Finalization of contract for the turbine compressor units for OCS was considerably delayed as there were differences of opinion between PTT and the Bank on the technical responsiveness of the bids. In procurement

jJ

The PTT stated in its comments on the draft Report that all OCS problems including instrumentation and lubrication which occurred during commissioning were satisfactorily resolved prior to the final acceptance. For details, see Appendix 12.

15

of such complex plant and equipment where a problem of evaluation and ranking of technically unequal bids often arises, the Project experience confirms that a two-stage bidding, in accordance with pr,a. 2.44 of the Bank's Guidelines for Procurement, would be preferable. ' In two-stage bidding, the technical bidders , can be brought to common acceptable technical standards and.spcitications by discussions, and all ambiguities and deficiencies elimtnated i-: the first stage; thereafter the prices are obtained in the second stage and price evaluation is then much simpler and faster. C. Gas Pricing Policy

63. In 1986, there was a substantial decline in the international price of fuel oil. A lack of a long-term pricing policy to provide linkages between alternative fuel prices and PTT's price of gas for its major customers such as EGAT led to a cutback on natural gas consumption and a slowdown in the country's efforts to, accelerate substitution of fuel oil by domestic natural gas. It is therefore essential that a clear policy for pricing of supplies of natural gas to major consumers, inter alia providing for linkages with alternative fuel prices, be expeditiously formulated. VI. CONCLUSIONS A. Overall Assessment

64. The Project was largely able to meet its objectives of facilitating transmission of additional quantities of natural gas and assisting substitution of imported fuel oil by the domestically produced natural gas, thereby reducing the country's dependence on imports. The submarine pipeline component of the Project from Platong was underutilized as a result of considerable scaling down of appraisal estimates of gas reserves and a lower than expected production in the Platong field but the overall system supplies could be maintained by an increase in production and transmission from the pre-project Erawan platform, thereby ensuring full utilization of the OCS component of the Project. There was no adverse impact of delay in completion of OCS as it was commissioned just in time, when the slow growing demand started exceeding the existing pipeline capacity. Downstream development of petrochemicals industries was delayed and is now expected to commence in 1990. At ex-post evaluation, the EIRR for PTT's overall gas development program was estimated at 29.0 per cent and the FIRR at 16.5 per cent. The Project was generally successful. B. Lessons Learned

65. Geological assessment in gas exploration can be very uncertain and usual gas verification methods have considerable risk of error. The more refined procedures for reducing the risks are costly and lengthy 1/ The PTT is of the opinion that "a two-stage bidding procedure would have played insignificant role to the successful completion of the Project".

16

but it is essential that such procedures be invoked when there is evidence to seriously doubt the results of the usual reserve assessment procedures. In procurement of complex plant and equipment items where 66. problems of evaluation and ranking of technically unequal bids often arises, a two-stage bidding procedure in accordance with the Bank's Guidelines for Procurement is preferable. C. Follow-uD Action

The Borrower prepaid the Bank loan as it could obtain other 67. funds at more favorable terms. As such, all contractual obligations between the Bank and the Borrower and the Guarantor have ceased to exist. As a result there are no items for the Bank's follow-up action. The PEM, however, noted that the change over to natural gas had been slower than expected as a result of an erosion of price advantage of natural gas due to a significant drop in international prices of the competing fuel oil and lack of consistent policy on regulation of prices of domestic and imported fuels. It would therefore be preferable for the Government, PTT and EGAT to consider early formulation and adoption of a clearcut, long-term gas pricing policy.

17

APPENDIXES App endix 1 2 3 4 5 6 Estimated and Actual Project Cost Quantities of Natural Gas Despatched by OCS, Rayong Recoverable Gas Reserves (TCF) Production Profile - Actual and Forecast Profile of Demand for Natural Gas in Thailand Offshore Natural Gas Purchase, Sale and Losses PTT System Maintenance and Inspection Procedures Summary Financial Results of PTT Page 18 20 21 22 23

24

7 8 9 10 11 12

25 26

PTT's Purchase and Sale Prices of Natural Gas 27 Economic and Financial Re-Evaluation Environmental and Safety Aspects Commitment Charges on Loans from the Bank's ordinary capital resource$ - 28 39 40

18

Appendix 1 Page 1

ESTIMATED AND ACTUAL PRO,TECT COST ($ Million)

------------------------....------------------------...----------------._...------------------------------------Appraisal Estimate Project Conponents (Noveaiber 1982) --- -------Foreign Revised Estimate (February 1984) Actual Cost

----------

---------------.._..--

-- -- ------
Local

local

Total Foreign Local

Total Foreign

Total

------------------------------------------------------------------------------------------------------------------

Offshore Pipeline and Tie-in Onshore Cosipressor SCADA 1/

46.644 19.487 -

0.887 47.531 3.732 23.219 - -

19.700 9.000 - 5.000

1.000 20.700 1.000 10.000 - 0.300 - 5.300

18.910 6.473 0.883 3.972

1.087 19.997 2.106 0.295 0.995 8.579 1.178 4.967

PTT Facilities 1/ Traininy includin9 Project ManaOement Cost Consultinp Services Interest During Construction laport Duties i Taxes Physical Continyency Price Continpency

-
2.681 5.506 7.450

-
2.735 1.436

-
5.416 6.942 7.450

0.200 5.000 3.000 6.500 2.997 5.103 0.666 1.134 1.400

0.200 6.400 3.000 6.500 3.663 6.237

- 4.359 3.252 - - -

1.036 0.776 0.303 - -

1.036 5.135 3.555 -

18.348 18.348 7.432 12.800 0.879 4.983 8.311 17.783

Totel

102.000 33.000 135.000 50.000

12.000 62.000 37.849

6.597 44.446

-----------------------------------------------------F--..-------------------------------------------------------1/ Orisinally, the SCADA 4ystem and the PTT facilities were included in the offshore pipeline component. Source: PTT

(Reference in text: page S, para. 26)

19 ApDendjx 1 Page 2

1. At appraisal, the Project cost was estimated at $135.00 million, with a foreign currency component of $102.00 million. The appraisal mission considered the base cost estimate, arrived at on the basis of feasibility studies and project reports prepared by PTT and its Consultants, as r.asonable. Provision was also made for physical and price contingencies. Signing of loan and guarantee agreements was-delayed (see para. 61 of the main text) and in the meanwhile opening of tenders for the pipeline and OCS components (Bid Packages 1 and 2) in October/November 1983 revealed substantially lower bid prices. A Government request for a reduction in the loan amount followed. In the paper submitted to the Bank's Board of Directors for consideration of this request, the Project cost was re-estimated at $62.00 million, with a foreign exchange component of $50.00 million; it included a provision of $9.90 million for miscellaneous d contingency expenditure and $6.50 million for taxes and import duties. ' It was then explained that the reduction in Project cost occurred as a result of strong competition among contractors for gas transmission projects due to the then prevailing international economic recession and its impact on petroleum industry; a reduction in mobilization costs as a result of availability of contractors near the Prqject site; a lower cost escalation due to a lower-than-anticipated rate of inflation; a reduction in pipeline diameter from 28 inch to 24 inch because of reduction in re-estimated quantity of gas flws; and, a change in the method of laying the pipeline.

1/

Doc. No. R6-84, Loan No. 622-THA: Natural Gas Transmission Project (Thailand) - Request b y Borrower to reduce the loan amount and change other terms and conditions of loan, dated 16 January 1984.

Appendix 2

1987 May June July August September October November December 1988 January February March April May June

11,527.60 13,070.82 12,468.60 12,100.63 13,314.75 13,468.27 12,960.76 11,595.58

371.86 435.69 402.21 390.34 443.83 434.46 432.03 374.05

13,167.19 12,992.23 13,500.75 13,600.64 14,107.74 14,282.38

424.75 448.01 438.70 453.35 455.09 476.08

Source: PTT

(Reference in text: page 7, para. 31)

21

Appendix

_3

Recoverable_Gas _Reserves -[TCF)

To be drained through To be drained through _l;rawan_^latform Platong platform Satun _Baanpot - Total haphong Flatong_ Fladang - _Subtotal

1980 1982 1983 1988

PTT Consultants Appraisal Bank Consultants Current.

- 0.740 0.109 0.119 0.646 0.147

- 0.043 0.094 -

- 0.783 0.849 0.266

- 0.120 1.577 0.931

> 0.900 - 0.985 0.082 0.159 2.580 1.307 0.110

(Reference in text: page 7, para. 34)

22

Appendix 4

PRCUCT I ON PROFILE - ACTUAL AND FORECAST (MNCFD) CaLerxar Year 1980 1981" L982" L983" 1984w 1985w 1986' 1987" 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 GAS (MMCFD) Satun Kachonq

Erawan

Baarot PLatonq

Funan

.Jakrawan

Gomin

Total

27.5 127.8 146.0 183.8 183.0 159.0 205.3 184 .0 220.0 250.0 249.0 227.0 193.0 159.0 143.0 120.0 67.0 35.0 17.0

2.8 30.2 21.5 10.0 30.0 30.0 25.0 25.0 25.0 25.0 25.0 24.0 13.0 5.0 2.0

57.7 67.8 67.0 70.0 70.0 52.0 10.0

64.9

86.8 164.9 206.0 235.0 260.0 260.0 260.0 255 .0 280.0 172.0 138.0 112.0 88.0 52.0 29.0 18.0

13.0 56.0 50.0 50.0 49.0 45.0 37.0 18.0 7.0

38.0
77.0

159.0 180.0 169.0 169.0 139.0 75.0 34.0 14.0

36.0 123.0 180.0 180.0 180.0 159.0 108.0 55.0 26.0 8.0

47.0 149.0 180.0 180.0 179.0 146.0 98.0 48.0 22.0 3.0

27.5 127.8 148.9 214.0 327.2 313.7 447.2 490 .0 555.0 600.0 600.0 600 .0 600.0 600.0 600.0 600.0 598.0 600.0 504.0 402.0 319.0 201.0 124.0 56.0 22.0 3.0

Reserves 1.053 0.110 0.147 0.931 (IC F) a/ Actual Notes: 1981-1987 = Actual Prodjctthn/365 - 1988-2006 = From Forecast (Nov. 1987) Source: PIT

0.119

0.385

0.385

0.384

3.513

(Reference in text: page 8, para. 35)

PROFILE OF DEMAND FOR NATURAL GAS IN THAILAND (MMCFD)

1987
I. Feedstock

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999 2009 2001

GSP GSP

1 2

GSP 3
CD CD '1 CD

NPC NFC Total Feedstock

69 0 0 0 0 69

70 0 0 0 0 70

70 0 0 0 0 70

70 50 0 47 0 167

70 50 0 47 0 167

70 50 0 47 0 167

70 50 0 47 0 167

70 50 40 47 0 207

70 50 40 47 30 237

70 50 40 47 30 237

70 70 50 50 40 40 47. 47 30.' 30 237 .. 237

70 50 40 47 30 237

70 50 40 47 30 237

70 50 40 47 30 237

CD

II. Industrial Fuel

CD r

CFHEHT Others Map Ta Put Coeplex Sthtota( Industrial FueL

3 2 0 5

5 3 0 8

10 5 0 15

10 8 15 33

10 10 15 35 '

10 15 20 45

10 20 40 70 '

10 25' 50 85

10 30 50 90

10 35 50 95

10. 40 50 100

10 45 50 105

10 50 50 110

10 50 50 110

10 50 50 110

CD

III. Power Generation EGAT Existing BPK CC.

11-2 11-2 )

BPK ThermaL

255 119 374

110 160 172 442

113 166 1% 475

112 166 109 388

96 166 81 343

104 166 196 466

96 166 166 436

112 166 136 398

96 166 178 440

96 166 207 485

96 166 127 389

96 166 122 384

96 166 118 380

96 166 117 379

96 167 117 379

South Bangkok ThermaL

11-5

Sthtotat

EGAT FUTURE BPK CC.

13-4 13-4 11

BPK Thermal New ThermaL Nam Phong CC SiitotaL

0 0 0 0 0 374 448

0 0 0 0 0 442 520

0 0 0 0 0 475 560

12 0 0 0 12 400 600

55 0 0 30 85 428 630

72 0 0 30 . 102 568 700

72 76 0 30 178 613 850

72 159 0 29 260 , 658 950

72 181 0 29 283 723 1,050

72 181 . 0 29 283 768 1,100

72 . 181 91 29 373 763 1,100

72 181 91 29 373 758 1,100

72 181 91 29 373 753 1,100

72 181 91 29 373 753 1,100

72 181 91 29 373 753 1,100

CD

Si.Atotal EGAT

TOTAL DEMAND

Notes: GSP - Gas Separation PLant Source: PTT

NPC - National Petrochemical Corporation

NFC - National FertiLizer Corporation

24 ApDendix 6

Offshore Natural Gas Purchase. Sale and Losses (MMCF)

Calendar Year Purchase

Sale

Losses

Loss as Percentage of Sai.e 8.3

1981 1982 1983 1984 1985 1986 1987 Source: PTT

10,035 46,633 54,332 78,314 119,440 114,488 163,238

9,266 47,451 55,627 80,467 120,883 115,512 163,487

769 (818) (1,295) (2,153) (1,443) (1,024) (249)

(Reference in text: page 9, para. 40)

25 Appendix 7

PTT's S ystem Maintenance and Ins pection Procedures Due to its own weight, the Project pipeline lay partially buried 1. in sand and clay on the seabed. Ship anchors are a potential source of danger for submarine pipelines which are not fully buried but as shipping lanes (to and from Bangkok) did not cross the pipeline, the risk of such damage was small. A 1984 underwater survey by an inspectjipn company with the use of a remote operated vehicles and intelligent pigs ' indicated that the pipeline was in sound condition and there were no leaks. According to normal industry practice, such inspection was ordinarily undertaken on a quinquennial basis and the next inspection was due in 1989. The PPT also had on call a specialist offshore contractor to provide timely response and expeditious repair in cases of reported damage/leaks in the offshore pipelines. Inspection of onshore pipeline was carried out by PTT through 2. regular line patrol surveys. Maintenance personnel inspected, for external damage and leakage, all above-ground metering and slam-shut valve stations as well as vents on road/rail crossings. The corrosion protection system for pipelines was satisfactory and onshore maintenance, according to well-established procedures, was carried out by PTT's own staff, backed up by a central workshop.

j/ A mechanical device which is introduced into a gas pipeline and travels inside it to

(Reference in text: page 9, para. 41)

26

Appendix 8

SUSULV Fiitetjui.jal Rsu1Ls of PIT Mi11iun BiJIlb}

1981/82

1982/83

1983/84

1984/85

1985186

1986/87

Incu.e SLa(.uil Toliti Rev,iue Opei1i,tg Piufil NL Puufit

31,395.94 2,134.37 937.90

35,932.22 2,198.47 1,065.52

3S,222.10 4,192.82 3,550.15

42,464.98 5,304.66 2,370.20

38,577.91 3,774.73 1 .643.75

38,560.87 3,190.98 1,589.39

B1anc Sheet Curteiit Assels Total AsseLs CULLCIIL Liabilities

13,723.04 24,160.34 10,152.66

12,435.89 24,011.71 9,817.25 10,665.21 2,360.06

13,955.07 29,682.17 12.971.43 10,919.19 5.478.70

16,953.47 36,733.42 13,337.95 13,234.94 9,646.36

11,957.40 34,446.83 7,185.04 16,606.12 10,202.64

12,748.43 35,345.65 7,844.85 16,267.98 11,032.07

Loi,g-term Liabilities 11,930.02 TjLaI uit y 1,461.38

hid ice Lois

Debt/Equit y Ratio Debt Equit. Debt-Ser ice Cuwe (times) Cui-rent Assets/ Liabilities 1.35 1.27 1.08 1.27 1.66 1.63 2.27 5.78 2.28 1.53 1.53 89/11 89 11 82/18 82 18

67/33
67 33

58/42 58 42

62/38 62 38

60/40 60 40

Source: PIT's audited annual accounts.

(Reference in text: page 10, para. 45)

27

Appendix 9

FT'S PURChASE_AND SALE PRICES OF NATURAL GAS (/MMI3TU) Purchase Price Sale Pric

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

61.0 60.5 52.8 51.7 52.4 52.6 52.8 53.0 53.2 53.2 59.5 61.6 65.6 68.6 71.3 73.0 74.7

87.4 83.9 70.0 70.0 70.0 70.0 70.0 70.0 71.2 74.2 77.5 79.6 83.6 86.6 89.3 91.0 92. 7

a/ Price for sale to industry and domestic consumers is higher. Source: PTT

(Reference in text; page 11, para. 46)

28 Apnendix 10 Page 1

ECONOMIC AND FINANCIAL RE-EVALUATION A. Economic Re-evaluation 1. Costs

The major cost components considered in the economic 1. re-evaluation were: a. Economic Capital Costs

2. The economic capital costs were the investment costs i.e, the capital expenditures of: (i) the main pipelines (the 425 km long 34" submarine pipeline and the onshore pipelines to EGAT plants) financed by the World Bank, including the conversion costs of boilers; and (ii) the Project, less interest during construction (IDC), taxes and duties and gains/losses incurred in the foreign exchange transactions. 3. In addition, the cost of $57 million for the construction of 180 km connection to the cement plants in Saraburi and the cost of $6 million to convert two cement plants owned by Siam Cement Company to use gas instead of fuel oil were included. This pipeline was completed in 1982 and the expenditure was assumed to have been incurred in the preceding two years. 4. In the stand-alone evaluation of the Project cost only the Project components, excluding IDC, taxes and duties and gains/losses incurred in the foreign exchange transactions, were considered. b. Economic Cost of Feed Gas

5. The feed gas cost was derived from: (i) the adjusted purchase price of gas; and (ii) a depletion premium for use of non-replenishable reserves of natural gas. 6. The adjusted purchase price of gas was calculated by deducting from the purchase price the royalty paid by the concessionaire to the Government (12.5 per cent of purchase price) The depletion premium of gas was estimated at $0.28 per MMBTU. 7. The assumptions used were: (i) adequacy of proven reserves for 25 years from 1982 (based on the present total reserves of 6.4 TCF and projected levels of consumption of natural gas).

(ii) the price of crude oil in 25 years projected to be $29 per barrel, in constant 1987 prices, based on the World Bank's projections for the average price of crude oil; (iii) a discount rate of 12 per cent per annum.

(Reference in text: page 12, para. 52)

29 Appendix 10 Page 2

c.

Operation and Maintenance (O&M) Costs

Operation and maintenance costs for the whole distribution system 8. were included. 9. All economic prices and costs were expressed in 1987 prices. The manufacturing unit value (MUV) index and Thailand's Consumer Price Index (CPI) were applied to adjust foreign currency and local costs, respectively. Local currency costs were subjected to a standard conversion factor of 0.90. No shadow wage rate was applied since the gas transmission projects used little non-skilled labor. 2. Project Benefits a. Overall Gas Development Proaram

10. The economic benefits realized from PTT's gas development program were in terms of the value of equivalent heating value of fuel oil that was to be replaced by natural gas. The calculation of benefit was based on the following factors: (i) The heating value of natural gas equivalent to 1,050 BTU per cubic foot.

(ii) The heating value of fuel oil equal to 6.05 x 106 BTU per barrel. (iii) The price of fuel oil per annum based on the actual and projected average price of crude oil as projected by the World Bank (released in February 1988), with the price then adjusted to 1987 prices, using MUV index as a deflator. b. Stand-alone Evaluation of the Project

11. The potential of the 43 km Project pipeline from Platong to the existing 34" pipeline is inadequately utilized both in terms of capacity and life (see paras. 33 and 34 of the main text). The gas supply contract between PTT and the concessionaire stipulated only the total quantity and even though it was the expectation in the AR that 150 MMCFD would pass through Platong platform and the Project pipeline, there was no contractual obligation of any specific quantity split between Platong and Erawan platforms. In the event, the unrealized potential from Platong site did not impair to any great degree the viability of the Project, as shortfall in gas supplies from Platong was made up by additional supplies from the existing Erawan platform, without jeopardizing the intended economic life of the other Project component i.e. the OCS. The production shortfall at the Platong site merely shifted some inevitably unused capacity within the system from the original 34" pipeline to the Project pipeline. 12. The Project pipeline was completed in March 1985. Supplies from the Erawan gas field were still below the 350 MMCFD capacity of the trunk pipeline and the commissioning of the Project pipeline facilitated transmission of additional gas produced at Platong. The incremental gas

30 Appendix 10 Page 3

supplies from Platong were treated as a Project benefit. In the meanwhile, supplies from Erawan also started picking up. In 1987, OCS came on stream and it helped increase supplies to consumers beyond the 350 MMCFD free flow capacity of the downstream pipeline. At this stage, the higher of the incremental quantities facilitated by the Project pipeline or OCS was taken as the Project benefit. B. Financial Re-evaluation

13. The principal parameters from which the financial internal rate of return was derived were capital costs of the whole distribution system net of interest during construction, operation and maintenance costs, gas production volume, cost of gas and the financial revenue arising from the Project. Gas cost was estimated on the basis of contract price of gas between PTT and the concessionaire. On the other hand, financial revenue was estimated on the basis of prevailing and forecasted selling prices to consumers. All prices and costs were adjusted to 1987 price level.

31
Appendix 10 Page 4 o t-. 4(4 - -. C. r- I- 11 -o ., C. i- . - Ii- -. 00 -,

10 N. IC) F IC) Ci a - 0' N- I -. ('4 1 - .4 s.c C' , - s - -is kIi41tL3P y .-.te,-i.r.C)..3r-.ass.aso

p
t14

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-0 -0 4 .11 C-i ('4 C-i ri I-i Cl c-i N. I ,-)r,r),- .

5-) -' -'

-;

.;

ti

i) 5,

-44 N, -.

I', 4(1 .i1

tIC - 0-SrI Ni Of'- III N' C F'- N'

(.40 -.

00 04 f'L1 "4

Ui i. .xc IC) 0 C) 0 0- 0 0) 0 0 Ci 0 0 0 0 Cl C. 0 .4) 100- PC) 100000000001010 0) 00 Ii) 10030) a

2;
00

, 2- 2-

C.

II

N.

* a - - .0 P.- Ii, IC) P4 010 10 0 , in t. N-A. a- a a a-. a- 00 a a UI' C. C' 0)

I-. 0
CI I') .0 P.. - In hI .0

00

fc

N. P.. a-

P-i

I" In .- 1.4 0- 0 - A 0 .54 C' .0 I'. I-. .-. a- 0) .4 NI -

2:
F'- I'- N-. F' . P..

.0 .0 -0 '0

-0 -0 '0

'0

I'-

I-'

ii) 141 IA

11

0-

'.3 -

C) 0 C. C IC) Ci I". A' '0 IS) C '4

0' 5' .0

NI IC) '0 .0 -II I'S C. I- - a c- - I-. c-i 4 ,-, , ,.-, ., -. 1(1 .3) . I-) AII') II) 4(1)1 In III Ii') In IC) .0 '0 -ON-I-f'.

.0
;;

3 ;:

! 2 ;: . .- -.

0-C.

I') . 0 - .0 I'- PC)

a- 0.0

I
AI.-

a- N.

.-

'4) 40 1.4 144 1-4 Iii P.) * a -

L
Z

('4, 'UN. Co Ni ;:j ; -r

N-

'

a- a- a- a- a- a- a

N.

' 2a - a- 0. 0- 0 C- I) 0 47 4, Cl C--.

PTT's Gas Development Program Economic Costs (In 1987 constant prices)
Naturil Sac Tr&nsaisin Project FOREIEN C3RRENCY EXPENDITURE LOCAL CURRENCY EXPENDITURE IO..D BANE PROJECT FORE1BOX FORE!BN TITAL LOCAL EIPENDITURES EICRAN6E CURRENCY EXPENDITURES CURRENCY EXPENDITURES Correct 1987 1987 Current once Current 1987 Prices Price Price EconoEc Price 4 Mn I Mi R Mn $ M B Mn (SF 0.9) 8 Mn

OTHER COSTS a

Year

Current Foreign Price MIJV index Prices I No

1987 Price I Mn

Current Current Local 1987 Prices 1997 Prices 1987 Price Econosic Price Econosac Econosic Price (end tan (SCF 0.91 Index B Mn 6 IOC (1997100( Mn

TOTAL

1977 1980 1991 1992 1993 1984 1905 1986 1987 1988 1989 1990 1991 1992 1993 1995 1996 1997 1998 1999 2000 2001

1.564 5.517 21.596 5.543 0.543 (0.1661

0.73 0.80 0.80 0.79 0.77 0.76 0.16 0.90 1,00 1.07 1.12 1.10 1.11 1.12 1.13 1.14 1.15 1.23 1.32 1.42 1.52 1.64

2.03 7.29 28.25 6.16 0.54 -0.15

52.82 189.54 734.46 160.13 14.-12 -4.02

10.883 6.524 86.365 23.722 15.693 1.654

0.59 0.74 0.85 0.89 9.19 0.93 0.94 5.31 77.73 0.96 0,97 21.35 14.12 1.00 1.49 1.03 1.05 1.08 1.11 1.14 1.17 1.20 1.24 1.27 1.30 1.34 1.31 1.41 1.45

10.56 6.28 81.13 21.95 14.12 1.45

63.38 195.32 815.59 182.08 28.24 -2.57

6.92 179.87 20.42 5.0 20.48 146.24 185.90 4833.51 21.82 93.31 116.4 3027.95 23.00 9.24 11.70 304.20 23.00 9.29 12.05 313.39 23.64 50.00 66.07 1717.76 27.16 48.00 62.1! 1632.44 26.30 102.00 113.33 2946.67 26.00 170.00 170.00 4420.00 68.00 63.40 1646.33

0.77 19.81 41.76 855.24 28.69 626.02 2.76 63.48 1.72 39.56

11.83 34.16 :!o.7 I6P.72 1041.83 5875.34 563.41 663.46 3691.40 57.13 63.91 368.11 35.60 38.39 351.79 1717.76 1632.44 2946.67 4420.00 1648.33

i/ Includes the cost of 157 sillion for the construction ot 180 ki cosnection to the cesent slants in Ssraburt end the cost of S 6 sI1aon to convert tso ce.ent plants owned by Siu Cseeet Co.oan y to use gas instead of fuel oil.

00

I-

33 Appendix 10 Page 6

PTT's Gas Development Program Calculation of Adjusted Gas Price

Local
Year

GAS PRICE ROYALTY

Price (1987100)

ADJUSTEL) B/tiMBtu

12.507.
8/Mti8t.0

Index GAS PRICE in 87 prices

1979 19E3i 1 982

1983 S /. 5?. in ) 1. C.' H 51 - / 11
7.

19

7.48

1984 1986 1987 1988 1989 1 99t:1 1991 1792 7r

1 94 1 .?r; 1 9Q6 1 77 /
C

7.

1. 6'. /. Sb 6.

0.59 0.74 0.85 0.89 0.93 o 94 0.96 1.

6.16

1. . C):. 1 . (1)13 1 t. 1. .1. 14 I . 17 I . 20 1.24 1. 27 I. . 1 :1:!, 'I 1.41 1 . 41i

6,55 6.513 6 - 60 6. ( 6 65
C)I
I

16

68 . 6

7.41 / / (j Fl . 1:1 , 1 '1 . I

:i6. 29 56. 42 5529 55.71 54.41 46.20 44. 1.T. 4.',. 56 4.1.57 4 1. . 6 1 48. 67 . is :9. 71 42. 1,5 42. 'Li 14 - 86 '1 r' 1. (,) 'I

: i

--j - - o CI 1) . 0 .43 .44 -O -O -0 fl -0 C) - (4.1444) 0 -0 0 0 0 - -0 0 '0 .41 ID '0 (0 04 (0 (0 (0 -Jp to (41 (0 4 CI 4.444.4,, N ''0-0 (0 '.4 (7' 441 -- 4,4 4.) -' 'C' -'4 4

o cn I to (0,430 I -v

P.'- (C'

-i

44

to . "

'0 - - 0 4.4 Lit 0-

I
0 '!
to

Pu.)1_
14 141 4-4 Pu.0 -o 4 4 to Li, -.1 (.44 .41 .1

I:
I 4,4 to - - - tit 0
CII -

Pu

4)1 - to (0 0 141 -i 0 (4 (.44 N-) Pu

V.
;

2
0- 0- 0-

. NN
0- 0' 0' '4 1,4 N-I 0 1.4 (4 4-1 0.1 (.4 -0 'C C-I .P. Pu
0 ".4

0' 0- 0- 0' CC' 0- 0' 4,4 0-4 0-1 -(4 1,4 (.4 14

-0 (0

; . Li i iL '.4 C' C') 0- 0- 0 044 4'.) C'S 0 (0 a' a "4 (0

Ci, 0 -

(0 441

g
414 '-.4 (II (4 (.1 (.44 (4 a a ij 0' ' 4 .0. (.4 -0 "4 0. 0- "4 44 (.1 to 0' Oil .0

N
.0' 0 -0

0'

'4 '0

a 0'

S 01

Pt1

-1p,I

(0

to -.it'00,"0-Ol0-(4L,4(0(4'Co .. (-.3-0 144 4-) ti 4S- o (.41 1-1 to '.4 Lu -.4 0 (.9 0' 4,4 - ill (0 0.4 to 1.41 044 C'S "1 (0 '" to (0 0 "1 0' a .o NJ

N-Sac

00.-Pu

- C'

9
to

a
(0

1:2
(04,4.'.

'0toW0J.4'.4'.4'.I-4J '.4 .4"4 "4 to to to to to -0 0' 49 .0 -4 a - 0 0 0 0 0 0 4,4 "4 - OR CR 00 (.4 0' 0' 0' (41 (4 Pu 0 0 0 0 0 0 -o a i - 44 -

- J
-4(0
0

.41 . '0 '.4 i "4 '.9 ".4 (049 0 0' '0-0 0.1 "S lit LII 0 0 '01)1

IA (-3 0 (4 p4 (4 "4 CII 0 .0 0 .0' (.1 41' 0' (-3

P-S ('S P.S

P-S

- - -

NJ 4-')

0 0- -'-1 4)4 a

4.

N N N N
N-

L a2Lj 01 xpuadd'
I-ic

PTT's Gas Development Program Financial Cost (In 1987 constant prices)

NATURAL 808 TRANSMISSION PROJECT

WORLD BANK PIPELINE PROJECT

TOTAL FOREIGN CURRENCY EXPENDITURE LOCAL CURRENCY EXPENDITURE

FOREIGN

LOCAL

TOTAL

EXPENDITURES FOREIGN CURRENCY EXPENDITURES

CURRENCY EXPENDITURES EXPENDITS

-------------------------------------------------EXCI4AN6E--------------------------------------Total Year Year Current oreiqn Price Prices MXIV IcOn 1987 Price $ 1987 Price BAn Current Price Local 1987 Prices 1987 Prices Current Prices SAn 1987 Price SAn 1981 Price BAn SAn BAn Current Price 1987 Index 8Mn(1987100) Price BAn Price BAn 1987 Price Finncia1 Financial

1980 1961 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 1.64 1.15 1.564 5.517 21.596 5.543 0.543 (0.166) 1919 1980 1981 0.73 0.80 0.80 0.79 0.77 0.76 0.16 0.90 1.00 1.07 1.12 1.10 2.03 7.29 28.25 6.16 0.54 -0.15 52.82 189.54 734.46 160.13 14.12 -4.02 9.518 6.597 64.870 78.226 12.981 (6.277) 0.59 0,74 0.85 0.89 0.93 0.94 0.96 0.97 1.00 1.03 1.05 1.08 1.11 1.14 1.11 1.20 1.24 1.27 1.30 1.34 1.37 1.41 1.45 10.26 7.05 67.71 80.41 12.98 -6.12 63.08 196.59 802.17 240.54 27.10 -10.15 20.42 5.12 7.04 182.95 0.9'l 19.81 33.57 21.82 114.62 143.05 3719.33 23.00 23.00 23.64 27.16 26.30 2&.00 12.17 8.07 15.40 10.48 00.52 272.39 28.69 626.02 136.49 2.76 1.72 63.48 39.56 71.33 42.65 1979 20.48 166.24 208.47 5420.28 41.76 855.24 1155.74

216.52 6576.02 4455.82 471.85 315.05

OQ

xl

ECOWO1C INTER1IAL RATE Dr RETURI IliITURAL SAS TRA$N1SSI9N PROJECT

0RE16 CORP Y E1PIlD1T1ME Yei- C.rr pnt fricen

Slit

LOCAl. CORtY COPENDITORI TOTAl.

-

UP:

---:

I Prjcn PIuvIidH (19E71O0 1987

PricF

Total Cwreat Pric,

Local

0987 Eco.jr BAn 10.56 6.28 61.13 21.95 14.12 1.45

Prici Prices

VD P8010 ETH PROJEr' 646 ADJUSTED 1 TOTAL. IPRICE 1E VALIE: ECONO1C1 T I987ILESSSSP: 0IN/OWLATDJ: 6ASSUP?i.V 61 PRICE 8IJTALTY6*SPRICE IBASCOST:8&A 1ECUCOST:FIE1DhLuJ88 IBENEFIl IBEBEPIT Prcts mIZcD 1PCFD :IuIcD 1IOICVD : NIRFD IIRtu x 10 BfIBiBtv in 87 PRICES UN 1987 1II!ETL'
: :

PRBDN

Ecouk 1

BAr 1 53.28 191.21 740.96 161.55 14.24 -4.06

!I (B7r 100) 10.883 6.524 86.365 23.722 15.693 1.654 0.93 0.94 096 0.97 1.00 1.03 I .05 1.08 1.11 1.14 1.17 1.20 1.24 1.27 .30 1.34 1.37 1.41

BArt 03.85 197.49 822.05 183.49 26.37 -2.61 327 314 379 450 4cc 4:17 41.3 613 68:1 743 813 863 81.3 863 863 86:1 13

LU I BBIJ: 63.36 36.34 34.92 15.11 17.20 15.38 14.25 14.56 15.57 16,65 17.80 19.04 20.96 21.66 22.39
22.14

0.77 0.56' I8' 1985 1980 1987 1988

1985

5.517 21.596 5.543 0.543 LL..l86

0.76 0,76 0.90 1.00 1.07 1.12 1.10 1.11 1.12 1.13 1.14 1.15 1.23 .32 1.42 1.52

0.00 -63.38 6.01 5.77 2.50 2.8' 2.54 2.35 2.41 2.57 2.75 2.94 3.15 3.46 3.58 3.70 3.82 3.95 4.04 0.00 -195.85 3319.02 790.60 1687.43 -542.01 1898.03 160.52 2533.65 157.72 3284.96 1990.94 2897.67 4113.05 62.0 34.20 34:1.92 B3c.

195.82 327 314 350 350 35(1 350 350 350 350 350 350 350 350 350 350 Wi :150 29 100 140 83 113 150 150 150 150 150 150 150 150 ISO ISO 57.7 67.8 67.0 70.0 70,0 52.0 10.0 57.7 67.8 67.0 100.0 140.0 3.0 113.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 22.11 25.98
25.68

61.8 60.5 52.8 51.7 52.4 52.6

52.8

7.63

55.71 1,516,91 193.91 54.41 1,751.07 197.35 46.20 1,519.47 189.80 44.12 2,198.70 1P9.B0 43.56 3,033.14 189.80 42.57 1,766.94 189.80 41.61 2,363.95 189.80 40.67 3,093.92 189.80 39.75 3,031.04 189.80 38.71 2,970.97 189.80 42.15 3,189.04 189.80 42.49 3,188.61 189.80 44.06 3.276.84 189.80 44.81 3,325.04 185.90 45.40 ,356.07 185.90 45.26 3,346.05 185.80 45.10 3,336.64 189.80

7.56 6.60 6.46 6.55 0.58 6.60 6.63 6.65 6.65

7.44

38.73 53.66 31.81 43.31 57.49 57.49 57.49 57.49 57.49 574e 57.49 57.49 57.45 57.49

1 051 1992 1954 1995 1956 195?

09 2OC/

53.0 53.2 53.2 59.5 61.6 65.0 68.6 7.3 72.0 74.7

7.70 8.20 8.58 8.91 9. 1 9.34

2529.42 2130.50 1737.51 2375.92 3222.94 1950.74 2553.75 3273.72 3220.8' 3160.77 3358.84 3378.41 3468.64 3514.84 3545.87 3537.85 3528.44

4398.12 1177,27 4702.94 8542.17 5177.06 16I8.22,, 5351.31 157.!5 5530.74 2062.10' 5716.13 2201.2 5907.73 2361.86 6037.11 2495.26 6218.27 2689.78 E1RR 102.40

23.91 24.44

25.17

4.10

01) m

37 Appendix 10 Page IC Natural Gas Transmission Project Economic Cost (In constant 1987 prices)

TOTAL FOREIGN CURRENCY EXPENDITURE LOCAL CURRENCY EXPENDITURE Total Current Foreign Price Prices I Mn MUY Index 1987 Price 1987 Price Current EXPENDITURE

Current Price

Current Economic

local 1987 Prices Price Index (1987:100) Economic

1981 Prices Economic

Price (exci tax (SCF 0.9) B Mn & IDC) B Pin

I Pin B Mn a/

Year 1983 [984 1985 1986 1987 [998 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
1.564

0.77 0.76 0.76 0.90 1.00 1.07 1.12 1.10 1.11 1.12 1.13 114 1.15 1.23 1.32 1.42 1.52 1.64

2.03

52.82

10.883 6.524 86.365 23.722 15.693 1.654

10.88 6.52 86.31 23.72 15.69 1.65

9.79 5.87 77.73 21.35 14.12 1.49

0.93 0.94 0.96 0.97 1.00 1.03 1.05 1.08 1.11 1.14 1.17 1.20 1.24 1.27 1.30 1.34 1.37 1.41 1.45

10.56 6.28 81.13 21.95 14.12 1.45

63.38
195.82

5.517 21.596 5.543 0.543 (0.1661

7.29 189.54 28.25 734.46 6.16 160.13 0.54 -0.15 14.12 -4.02

815.59 182.08 28.24 -2.57

a! US$1.00 B 26.00

38

Appendix 10 Page 11

'4

)r

0 0 0

CM

C')

SC

0 .0 '0 CI C. F'-

P1 oa
C-00 (0 CI

C4

I-

3*1 k1 ,fl CC 0 F- .7- C-I - C-I O .-. .4- 5- 3 F'? I-C. -. CM - C') C-I CM ('4 CI I--I CM C') IC.) Cl C.?

33 A- C- a) a C (0 o In IS r- 0

:2

C-):-, C-I ..3* )C. .4) I-. * Ca .I -4 .4- -0 43 In SI *4- - -

. (A C - MM S) WI * 4 I.?

'0 0 0 CM C-I CCI 4) .4) .41 C.') C C::

.4) a) 0. C
(A 4))

3*

US 0 0 0 0 0 e 0 0 0 0 0 C. 0 0 0 (0 I

001

C)

2
0.

!s

C- 0 00000 5- C- I-C) 0 CM 0

'0-OP--C'-".-

3333333

a) -.10 I a
C-CC. F') C) P P-j) CM I_I C-) C-) C-)

.fl 53) F')

I
I

I,.-,rI---e-0-Or--WOCflCn.nwW
12 (0 I.

F)
-

I-

U
I 0 i MM SC CI (4 0 F')
3*. -0 a CM) (-a .3

a. S -I

a C 0-..

F I- 5- 0 0 0 -

-.

43

C)

I..

39

Appendix 11

Environmental and Safety Aspects

1. At appraisal, it was noted that an environmental impact statement prepared by PTT's consultants for construction of the 425 kin offshore pipeline from Erawan to Rayong and its onshore connection to South Bangkok power plant had concluded that there was no likelihood of any significant environmental effects and that similarly the Project pipeline was also not expected to cause any adverse environmental impact. Between October 1980 and November 1981, PTT organized cruise surveys before, during and after construction of the 425 km pipeline to study its environmental impact. The study concluded that temporary changes of water quality occurred but the recovery rate to normal conditions was faster than expected. The amount of demersal fish catches during three cruises had not changed significantly; in fact, in one experiment at a location near a production platform, the catches for certain pelagic fish had increased. Another study for assessing the environmental impact of onshore pipeline construction concluded that there were no observable permanent adverse impacts on ecology or environment. 2. The PTT confirmed that the submarine pipeline and OCS had been constructed in accordance with international safety standards and sufficient safety devices had been installed at the offshore and onshore facilities to isolate and protect persons, plant and property from any serious damage. No major leaks had so far occurred. The first annual technical and safety audit of OCS identified no major problems. An insurance audit was also planned on a two-year frequency basis. Since start-up, PTT had also commissioned a local university to carry out a continuing computer simulation of different scenarios of gas leaks and/or bursts with a view to suggesting methods of proper isolation of damaged sections and procedures for responding to such emergencies. As more operational experience was gained, safety systems and devices were being improved and additional safety features incorporated into personnel training.

(Reference in text: page 13, para. 56)

40

Commitment Char'es on loans from the Bank's Ordinary Capital Resources (Effective 1 July 1987) Portion of the Loan Subject to the Charge (a) 15 per cent of the loan less amount disbursed (b) 45 per cent of the loan less amount disbursed (c) 85 per cent of the loan less amount disbursed (d) 100 per cent of the loan less amount disbursed Source: Commencement Date of the Charge 60 days after date of loan agreement 12 months after (a) 24 months after (a)

36 months after (a)

Board Doe. R84-87, Net Income Targets and Reduction in Loan Charges, dated 27 July 1987.

(Reference in text: page 14, para. 61)

RESTRICTED

ASIAN DEVELOPMENT BANK

This Report has been prepared for the exclusive use of the Bank.

PROJECT COMPLETION REPORT

OF THE

NATURAL GAS TRANSMISSION PROJECT (LOAN NO. 622-THA)

IN THE

KINGDOM OF THAILAND

AUGUST 1987

CURRENCY EQUIVALENTS

Currency Unit

Baht ($)

Appraisal (August 1982) $ 1.00 $ 0.0435 - $ 1.00 - $23.00

Project Completion Review (May 1987) $ 0.0390 5 1.00 - $ 1.00 - $25.61

ABBREVIATIONS

CPP hp PTT UNOCAL MNCFD SCADA

- - - - - -

Central Production Platform Horsepower Petroleum Authority of Thailand Union Oil California Corporation, Thailand Million Cubic Feet Per Day Supervisory Control and Data Acquisition

NOTES

(1) The fiscal year of the Government of Thailand ends on 30 September. (ii) In this report, "$" refers to US dollars.

PROJECT COMPLETION REPORT

OF THE

NATURAL GAS TRANSMISSION PROJECT (Loan No. 622THA)

IN THE

KINGDOM OF THAILAND

AUGUST 1987

Note: This Report was prepared by a Bank Mission that visited Thailand from 12-22 May 1987. The Mission consisted of C.S. Chung (Senior Project Engineer/Mission Chief), H. Bustamante (Senior Assistant) and Y.K. Cho (Trainee under a Secondment Program).

(Al)

TABLE OF CONTENTS

Page

MAP - LOCATION OF PROJECT SITE BASIC DATA I. PROJECT DESCRIPTION A. B.

(All) (All!)

Al Al Al A3 A3 A4 Al 2 Al2 Al2 Al 2 A13 A14 Al4 A14 A14 A15 A15 A16 A18 A18 A18 A20

Objectives, Rationale and Scope Implementation Arrangements

II. PROJECT HISTORY A. B. Preparation and Appraisal Implementation

III. EVALUATION OF PROJECT IMPLEMENTATION A. B. C. D. E. F. C. H. I. J. K. Project Components Engagement of Consultants and Procurement of Goods and Services Performance of Consultants, Contractors and Suppliers Project Costs Disbursements Project Schedule Conditions and Covenants Environmental Impact Project Benefits Performance of the Borrower and Executing Agency Performance of the Bank IV. CONCLUSIONS AND RECOMMENDATIONS A. B. Conclusions Recommendations APPENDIXES

(xii) T F 98
102 E

THAI LAND NATURAL GAS TRANSiVIISSION PROJECT

South Bangkok ij'i Power Plant " Ratchaburi -' i-' 0 ? T H A I LA N D Bangkok
PRO.IFCT

BANGKOK Bang Pakong Power Plant 0 PTT Operations Center Onshore Pipeline Onshore Compressor Station

,CATION
U

I.

Rayong Sathip
LPG Plant - Gulf of Thaind

0
=

120 Km

Scale

I S 12N

C)

Gulf
(

of

Thailand

J
Offshore Pipeline Chumpon

/gflflg

7aPhon Structure Platong Structure

C 24" Q

/
A n d a m a n

Pladang Structure Satun Structure Erawan Structure Baanpot Structure

Surat Thani
s e a

IJnocaI (Union Oil) Platform

8 N Ophuket Phatthalung o
LEGEND: 0

TX5=e

8 N -I

Trang

Gas Fields Existing Gas Transmission on Lines - - - Gas Pipeline Songkhla

IJ
-

Project Areas International Boundaries ---- (Boundaries not necessarily authoritative)

&I

Narathiwat

98F

102F

(Aili)

BASIC DATA A. Loan Identification 1. 2. 3. 4. 5. 6. 7. Country Loan Number Project Title Borrower Guarantor Executing Agency Amount of Loan Original Revised Kingdom of Thailand 622-THA Natural Gas Transmission Petroleum Authority of Thailand (PTT) Kingdom of Thailand PTT $87,000,000.00 $40,000,000.00 1/

B. Loan Data 1. Appraisal - Date Started - Date Completed 2. Loan Negotiations - Date Started - Dated Completed 3. Date of Board Approval

9 August 1982 27 August 1982

22 November 1982 25 November 1982 22 December 1982

4. Date of Loan Agreement : 13 February 1984 5. Date of Loan Effectiveness - [n Loan Agreement 13 May 1984 - Actual : 5 June 1984 - Number of Extensions : Two 6. Closing Date - In Loan Agreement : 31 December 1985 - Actual : 24 April 1986 - Number of Extensions : One 7. Terms of Loan - Interest Rate : 11% p.a. - Maturity(no. of years): 15 - Grace Period (no. of years) : 5 8. Disbursements - Date of Initial Disbursement - Date of Final Dish ursement - Amount Disbursed - Amount Cancelled

15 September 1984 10 March 1986 $23,890,050.06 $16,109,949.94

1/ The original loan amount was $87.0 million. On 6 February 1984, the Bank approved the request of the Borrower to reduce the Bank loan from $87.0 million to $40.0 million prior to the signing of the loan agreement (see Board Doc. No. R6-84 dated 16 January 1984).

(Aiv)

C. Project Data ($'OOO) Appraisal Estimate Original Revised 1/ 1. Project Cost (a) Foreign Exchange Cost (b) Local Cost (c) Total Cost 2. Financing Plan (a) (b) (c) (d) Borrower Financing Bank Financing Other External Financing Total 33,000 87,000 15,000 135,000 12,000 40,000 10,000 62,000 10,333 23,890 8,371 42,594 102,000 33,000 135,000 50,000 12,000 62,000 37,467 5,127 42,594

Actual

3. Cost Breakdown by Project Components F.C. (a) Offshore Pipeline and Tie-In 18,752 (b) Onshore Compressor Station 9,000 (c) Supervisory Control and Data Acquisition System 948 5,000 (d) Consulting Services (e) PTT's Facilities on and 5,000 near Union Platform (f) Training including Project Management Cost 200 (g) Interest During Construction 3,000 - (h) Taxes and Import Duties (1) Physical Contingency 3,890 (j) Price Contingency 4,210 Total 4. Project Schedule Appraisal Estimate Actual L.C. F.C. L.C.

886 1,000 114 1,400 300 6,500 370 1,430

18,567 6,191 912 4,398 4,914 - 2,485 -

1,071 2,061 527 701 341 217 209

50,000 12,000

37,467

5,127

(a) Consulting Services (i) Recruitment of Consultant Date Started Date Completed Mar 1982 Dec 1982 Mar 1982 Jan 1983

1/ The total Project cost was revised in January 1984 prior to the loan effectiveness, which took place in June 1984. In this report, this revised Project cost is treated as an original cost estimate for the purpose of comparison with the actual Project cost.

(Av)

(ii) Duration of Consultant's Work Date Started Date Completed (b) Offshore Pipeline and Tie-In (1) Construction Date Started Date Completed (ii) Testing and Commissioning Date Started Date Completed (c) Onshore Compressor Station (1) Construction Date Started Date Completed (ii) Testing and Commissioning Date Started Date Completed (d) Supervisory Control and Data Acquisition System Jan 1985 Mar 1985 Aug 1985 May 1987 Jun 1984 Jan 1985 Jan 1985 Dec 1986 Oct 1984 Mar 1985 Nov 1984 Feb 1985 Aug 1984 Dec 1984 Aug 1984 Jan 1985 Dec 1982 Mar 1985 Jan 1983 Jun 1987

Ci) Procurement
Date Started Date Completed (ii) Testing and Commissioning Date Started Date Completed (e) Staff Training (i) Overseas Date Started Date Completed (ii) Local Date Started Date Completed Jan 1985 Mar 1985 Jan 1985 Mar 1987 Sep 1984 Dec 1984 Nov 1984 Oct 1985 Jan 1985 Mar 1985 Jan 1985 Nov 1986 May 1983 Oct 1983 Feb 1984 Jul 1984

(Avi)

D. Data on Bank Missions No. of Persons 2 2 1 4 1 2 2 2 2 2 3 No. of Mandays 10.0 10.0 6.0 29.0 10.0 1.5 1.3 1.5 1.2 1.2 30.0 Specialization 1/ of Members e a, e a a,b a e, f e,f e,f e,f e,f a,h,i

Type of Mission Inception SPA

Date

11-15 Apr 1983 1-6 Jun 1983 14-19 Sep 1983 6-15 Feb 1985 Review 4-13 Mar 1986 Disbursements 2-19 Apr 1986 16-31 Oct 1985 28 Feb-15 Mar 1985 14-24 Oct 1984 18-28 Mar 1984 PCR 12-22 May 1987

1/ a-engineer, b-financial analyst, c-counsel, d-economist e-procurement/consultant specialist, f-control officer g-country officer, h-senior assistant, i-trainee under a secondment program.

I. PROJECT DESCRIPTION A. Objectives, Rationale and Scope

1. The main objective of the Project was to utilize the natural gas reserves in the Platong group of gas fields to replace imported oil products in meeting the energy needs of the country. The Project was envisaged to reduce the country's dependence on imported oil and thereby help the country save foreign exchange. The Project was also intended to increase Government revenue from oil concessionaires, who would be encouraged to develop those offshore gas fields that had good expectations for production of natural gas that would be sold to PTT. The Project was justified from the viewpoint of the development and utilization of indigenous energy resources to replace high-cost imported oil. 2. The major components of the Project were: (i) construction of a submarine pipeline of about 43 km in length and about 24 inches in diameter to link the Platong group of gas fields to the existing 34 inch diameter offshore pipeline; (ii) construction of an onshore gas compressor station of about 16,000 hp, including auxiliary facilities to increase the transmission capacity of the existing 34 inch diameter onshore pipeline at Rayong; (iii) installation of a Supervisory Control and Data Acquisition (SCADA) System; 1/ (iv) provision of consulting services; and (v) provision of training for PTT personnel in the operation and maintenance of all Project facilities. B. Implementation Arrangements

3. The Petroleum Authority of Thailand was the Borrower and Executing Agency for the Project. For Implementation and operation of the Project, it was agreed that PTT would designate one of its department directors or another officer acceptable to the Bank as the chief executive to be responsible for overseeing the Project. PTT was also to designate a qualified Project Director to be responsible for the day-to-day implementation of the Project and for reporting to the chief executive on Important matters. A consulting firm was to be engaged to assist PTT in Project implementation, particularly in the preparation of basic engineering design, specification of materials and equipment, and preparation of tender documents for the offshore pipeline and onshore compressor station. PTT was to form a team of counterpart staff to 1/ SCADA system was originally included in (I) above, as discussed in para 17.

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assist the consultants in planning, organizing, co-ordinating and controlling all engineering, procurement and coistruction activities. During the construction phase of the Project, PTT was io recruit about 40 additional staff to be trained in the operation and maintenance of Project facilities. Project imp1mentation was to be completed In March 1985.

A3

II. PROJECT HISTORY A. Preparation and Appraisal

4. Petroleum exploration in the Gulf of Thailand since the early 1970s has resulted in the discovery of substantial gas deposits in two concessions, one belonging to Union Oil Corporation and partners, and the other to Texas Pacific Company and partners. During 1978-1981, PTT, with assistance provided by the World Bank and other lenders, constructed a gas transmission system to transport gas from Union Oil's Erawan fields to the Bangkok area. This gas transmission system consists of a 34 inch diameter, 425 km long offshore submarine pipeline; a 28 inch diameter, 170 km long onshore pipeline; and an onshore dew point control unit at Rayong. 5. In January 1981, the Bank approved technical assistance in the amount of $40,000 to the Government of Thailand for the appointment of a pipeline technologist-consultant to assist PTT in completing the feasibility study for the then - proposed Natural Gas Transmission project. The proposed project was designed to transport gas from the Union Oil's Platong group of gas fields through interconnection with PTT's existing main offshore submarine pipeline, to increase the availability of natural gas in Thailand and make fuller use of existing gas transmission facilities. 6. The scope of the proposed project was originally based on an envisaged gas supply of about 250 MMCFD from the Platong field only. During negotiations with Union Oil for a gas purchase contract, conducted from April 1981 to March 1982, the concessionaires presented to PTT for its consideration several proposals for increasing gas supply. In May 1982, PTT entered into a gas purchase agreement with the concessionaires for a gas supply of 300-400 NMCFD with a peak delivery of an additional 15 per cent from the Platong and four adjacent fields. In view of Increased availability of contracted gas supply, the scope of the proposed project was revised accordingly and further Bank assistance for project preparation and project financing was requested by PTT in a meeting with Bank staff held in Manila in March 1982. The Bank's offer to finance an optimization study for the revised project was not accepted by PTT, as the time required under the Bank's Guidelines for Recruitment of Consultants would not permit such a study to be completed by June/July 1982, as was desired by PTT. The necessary study on the revised project was financed by the Government of Canada on a grant basis. In early June 1982, Bank staff, at the request of PTT, participated In the preliminary review of the consultant's draft report and assisted In finalizing the scope of the project. In late June 1982, Bank staff, also in response to a request from PTT, attended the consultant's presentation of the draft final report of the Project. The final report of the consultant was received by the Bank In July 1982. 7. An Appraisal Mission that visited Thailand from 9 to 27 August 1982 found the proposed project to be technically feasible, financially sound, and economically viable. In December 1982, the Bank approved a loan of $87.0 million from its ordinary capital resources to PTT to finance major portion of the foreign exchange requirement of the Project.

A4

B.

Implementation 1. The Executing Agency

PTT is a Government-owned corporation established in December 8. a full range of petroleum and 1978 to engage in and promote petrochemical - related business activities. For the implementation and operation of the Project, PIT 9. formed a Project Office to coordinate with the Bank and the consultants, particularly in the areas of procurement, construction, and start-up and commissioning activities. The Project Office, through its Project Director, regularly reported the progress of Project implementation to the PTT Board of Directors and sought their advice from time to time when there was significant change in Project requirements. The Project Office consisted of five administrative staff and 13 technical staff. The organization chart of the Project Office or project task group Is shown in Appendix 1. Since the inception of the Project, PTT itself has grown to be 10. one of the largest corporations in Thailand. It now has seven functional groups: (1) Technical and Planning; (ii) Logistics and Refining; (iii) Natural Gas Operations; (iv) Marketing; (v) Administration; (vi) Finance; and (vii) Special Affairs. Each group is headed by a Deputy Governor. At present, PTT employs about 3,424 personnel, including seven Deputy Governors and seven Assistant Governors. The organization chart of PTT is shown in Appendix 2. 2. Loan Effectiveness

The loan was approved by the Bank on 22 December 1982. 11. However, the signing of the Loan and Guarantee Agreements was delayed substantially because of PIT's decision to await the opening of bids for the offshore pipeline construction and tie-in and for the onshore gas compressor station; this decision was made by PTT as it anticipated substantial cost savings due to some modifications of the dimensions and placement method of the pipeline as well as strong competition among the suppliers/contractors. When the bids for the offshore pipeline and tie-in and onshore 12. gas compressor station were opened, in October and November 1983, respectively, PTT found it possible to reduce the Project cost in the order of $25.0 million for the offshore pipeline and tie-in and of about $13.0 million for the onshore gas compressor station. In view of the expected price decreases In the two major bid packages, the provisions in the Bank loan for meeting price contingency and interest during construction could also be reduced by about $9.0 million. As a result, on zJ November 1983, PTT, with the concurrence of the Guarantor, requested that the Bank loan amount for the Project be reduced from $87.0 million to $40.0 million. A Board Paper regarding reduction of the amount by $47.0 million prior to the signing of the loan documents was circulated in January 1984.

A5

13. The Loan and Guarantee Agreements were signed on 13 February 1984. As stipulated in the Loan Agreement, the due date for loan effectiveness was set at 13 May 1984. The submission of the legal opinion and PTT's arrangements for securing foreign commercial banks' loan to finance the remaining portion of the foreign exchange costs of the Project were the major conditions for loan effectiveness. The due date for loan effectiveness was extended by three weeks due to a slight delay in the submission of the legal opinion by the Government. The loan was declared effective on 5 June 1984. 3. Recruitment of Consultants

14. The initial steps regarding recruitment of consultants for the Project were taken by PTT prior to the approval of the Bank loan. This included the preparation of (1) a letter of invitation; (ii) evaluation criteria; and (iii) a draft consultancy contract. 15. In March 1982, the Bank provided PTT with a longlist of consulting firms from which PTT made a shortlist of seven firms. In May 1982, PTT issued the invitations for submission of consultancy proposals to the seven shortlisted firms. Contract negotiations with the first-ranked firm were concluded by PTT in the later part of 1982. The Bank decided not to finance the cost of the consulting services because some procedures taken prior by PTT to the loan approval were not in accordance with the Bank's Guidelines on the Use of Consultants. PTT accepted this decision and financed the cost of the consulting services using its own resources and funds under co-financing arrangements. Although the Bank did not finance the services of the consultants, it reviewed a draft negotiated consultancy contract prior to its finalization. After the Bank's approval of the consultancy contract on 25 February 1983, PTT hired an American consulting firm. This firm commenced its services in January 1983 and continued until June 1987. The total cost of the consulting services as of May 1987 was about $5.099 million equivalent, consisting of $4.398 million in foreign exchange and $O.701 million equivalent in local currency cost. 4. Procurement

16. The procurement of major equipment and materials was carried out in three packages in accordance with the Bank's Guidelines for Procurement. These three packages were: (1) Package No. 1 - Offshore Pipeline and Tie-In; (ii) Package No. 2 - Onshore Compressor Station; and (iii) Package No. 3 - SC/WA System. 17. Originally, the SC/WA system was included in the offshore pipeline component of the Project. In August 1983, PTT requested Bank approval to separate the SC/WA system from the offshore pipeline component. The Bank approved PTT's request in light of the justification that the equipment should be compatible with PTT's existing telecommunication system and that the prospective suppliers were not only specialized but also quite different from those for the offshore pipeline and tie-in construction.

A6

On 17 March 1983, the Bank received the draft prequalificatlon 18. documents, including the evaluation criteria for the offshore pipeline and tie-in and the onshore compressor station. The prequalification document for the offshore pipeline, which was approved by the Bank on 18 March 1983, was issued on 21 March 1983. Prior to the issuance of the prequalification invitation, PTT requested Bank approval to reduce the period for the contractors to respond to the prequalificatlon from 60 days to 45 days so as to meet the target date for the award of contract. At that time PTT claimed that they might lose about $315,000 per day from delays in project implementation. The request of PTT was approved by the Bank on 17 March 1983. The draft tender documents for the offshore pipeline and onshore compressor station were approved by the Bank on 1 July 1983 and 29 July 1983, respectively. On 5 July 1983, the Bank received PTT's prequalification 19. evaluation report for the offshore pipeline and tie-in. Nine firms submitted their prequalification proposals on 9 May 1983. PTT evaluated the prequalification proposals with assistance from the consultants. Out of the nine firms, PTT prequalifled only the five firms that obtained 60 points or more out of the 100 points. Of the five firms that were recommended by PTT for prequalification, the Bank, on 22 July 1983, approved only four firms, because one firm was not from an eligible member country of the Bank.1/ The tender documents for Package 1 were issued to the four prequalified firms on 5 August 1983. The deadline for submission of bid was set at 4 October 1983. On 1 December 1983, representatives of PTT visited the Bank 20. Headquarters to discuss the result of bid evaluation for Package No. 1. On 29 December 1983, the Bank approved PTT's recommendation to award the turnkey contract for the offshore pipeline and tie-in to a Japanese firm, the lowest evaluated bidder. The contract was signed on 28 February 1984. With regard to Package No. 2, the invitation for 21. prequalification for turnkey contractors was issued on 23 March 1983. Out of the 31 firms that submitted prequalification proposals, PTT, in consultation with the consultants, recommended 11 firms/consortiums for prequalification to bid for the onshore compressor facilities. The prequalification evaluation report was received by the Bank on 9 August 1983 and was approved on 19 August 1983. The tender documents were issued to eleven prequalified firms on 9 September 1983. The deadline for submission of bid was set as 8 November 1983. On 30 March 1984, PTT advised the Bank that it might commence 22. contract negotiations with the lowest evaluated bidder in order to expedite the award of contract while waiting for Bank's approval. In its rep]' the Bank advised PTT that for the contracts to be awarded on the oasis of international competitive bidding, procurement actions should be subject to the review and approval by the Bank. PTT was furtFwr advised that if it commenced contract negotiations with the 1/ One of the members of the consortium was a Mexican firm.

A7

lowest evaluated bidder prior to Bank's approval, then PTT should assume the possible risk of the Bank not financing the proposed contract. PTT agreed to the Bank's view that it should contact the lowest evaluated bidder for contract negotiations after Bank's approval. From 23 to 24 April 1984, representatives of PTT visited the 23. Bank to clarify with Bank staff some complicated technical matters as well as the financial considerations applied by PTT in the evaluation of bids. The Bank's concurrence on PTT's recommendation to award the contact to another Japanese firm, the lowest evaluated bidder, was made after the Bank was satisfied with the technical clarifications given by PTT. The contract was signed on 26 July 1984. Even though the Bank approved PTT's request that the SCADA 24. system could be procured under direct purchase/negotiation because of its compatibility with the existing system, PTT invited three firms, one each from Japan, Sweden and the United States, in order to procure the item more economically. Of the three firms, two firms did not respond to the invitation; only the Japanese firm responded. Negotiations with the Japanese firm were held from 25 April 1984 to 4 May 1984. The contract was signed on 26 July 1984. 5. Civil Works and Installation of Machinery and Equipment

The offshore pipeline turnkey contract was for the 25. construction of a submarine pipeline of about 38 km in length and 24 inches in diameter, to link the Platong group of gas fields to the existing 34 inch diameter main offshore pipeline. During the initial stage of construction of the Platong offshore gas pipeline, PTT and the contractor found that the two valves at the tie-in location of the existing 34 inch pipeline were malfunctioning. Several attempts to close the two valves completely were made from 4 to 16 September 1984, but these were not successful. As it was not possible to close the valves tightly, gas was leaking into the tie-in portion of the assembly. In view of this, the contractor, together with the consultants, concluded that it would be impossible to carry out the originally planned connection (tie-in) method within the agreed time frame. So as to complete the construction of the offshore pipeline on time, the contractor suggested to PTT the adoption of a "contingency plan," under which the tie-in would be made by a bypass piping system in a place different from the originally planned location. Negotiations for the adoption of the contingency plan between 26. PTT and the contractor were concluded in October 1984. In November 1984, PTT requested Bank approval for an amendment to the contract, involving an increase in the foreign currency portion of the offshore turnkey -ontract by Japanese yen 518,911,200 (about $2.076 million equivalent). After PTT's satisfactory clarifications and justifications, the Bank approved the proposed amendment on 25 January 1985. The implementation of the contingency plan was divided into two stages. Stage I was for the design, procurement, inspection and transportation of necessary piping components. Stage II was for the fabrication, installation, testing, The atering and conunissioning of the by-pass piping system.

A8

construction of the offshore pipeline was completed in mid-February 1985, with a delay of only 1.5 months. The offshore gas fields and submarine pipeline diagram including that under the Project is shown in Appendix 3. 27. The completion of the onshore gas compressor station construction was delayed substantially. Based on the implementation schedule specified in the turnkey contract, the onshore gas compressor station was to be completed by August 1985. However, it was declared completed only in May 1987, after a successful test-run on 17 May 1987. This represented a nearly 20-month delay. The delay was attributed mainly to (i) delay in the preparation of detailed engineering design; (ii) changes in the engineering design during the construction period; and (iii) replacement of the contractor's first two Project Managers because of unsatisfactory performance; and (lv) substantial delays incurred in the initial testing and commissioning. The technical problems at the testing stage were as follows: (i) the damaged guide vane of gas generator Unit No. 2 and high vibration on gas generator Unit No. 1; (ii) loss of lube/seal oil on the turbine/compressor units; and (iii) improper functioning of the anti-surge control system. The contractor in consultation with equipment suppliers has carried out substantial remedial measures to solve the technical problems. In spite of all efforts made by PTT, the contractor, and the consultants, the completion of the onshore gas compressor station was delayed until May 1987. The contractor had to make payments under the penalty clause concerning late commissioning. 28. As regards to the SCADA system, the installation of relevant equipment went smoothly. Testing and commissioning of the system was completed as scheduled, in September 1985. However, the final acceptance test could not be made immediately thereafter, because of the non-completion of the onshore gas compressor station at that time. This test was completed only in November 1986. 6. Compliance with Loan Covenants 29. PTT generally complied with the loan covenants stipulated In the Loan Agreement (see Appendix 4 for details) except for the covenants on (1) the recruitment of additional staff prior to the start-up of Project facilities; and (ii) the debt/equity ratio for FY1982/83. As stipulated in Schedule 6 of the Loan Agreement, PTT would recruit about 40 key technical staff during the construction phase of the Project and train such staff as necessary prior to the operation of the Project. Instead of recruiting the additional staff members, PTT used the services of their regular technical staff from its two divisions and provided them with basic training in the operation and maintenance of Project facilities. 30. The major financial covenants stipulated in the Loan Agreernnt were as follows: (i) debt/equity ratio of not more than 70:30; (ii) a current ratio of not less than 1.0; and (iii) a debt service coverage ratio of not less than 1.2 for each year of the fiscal years from F"1982/83 to FY1984/85 and 1.5 thereafter. PIT complied with all

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the above financial covenants except for the debt/equity ratio during 1982/83, as shown in the following table. Table 1: PTT's Financial Ratios from FY1982/83 to FY1985/86 Fiscal Year Debt/Equity Ratio Current Ratio Debt Service Ratio 1982/83 82:18 1.3 2.3 1983/84 67:33 1.1 5.8 1984/85 58:42 1.3 2.3 1985/86 62:38 1.7 1.5

7.

Staff Tralnin& Program

31. During Project implementation, PTT carried out staff overseas training satisfactorily with its suppliers/contractors of the three turnkey contracts. PTT also provided its staff with necessary local The training in the operation and maintenance of project facilities. details of staff training status is shown in Appendix 5. 8. Utilization of Loan Proceeds and Disbursements

Out of the $40.0 million Bank loan, PTT has utilized only 32. $23.89 million equivalent, cancelling the remaining portions of $8.0 million and $8.11 million, in August 1985 and April 1986, respectively. The first cancellation was based on the expected cost savings at that time. PTT's proposal for the second cancellation was to cancel all loan balances at that time, involving (i) an amount of about $2.2 million of cost savings; and (ii) an amount of about $5.9 million, which was the undisbursed portion of then existing Bank-financed contract. While the Bank did not have any problem in the proposed cancellation of $2.2 million, the Bank advised PTT to reconsider the cancellation of $5.9 million. However, PTT insisted on its proposal for cancellation of the entire $8.1 million, claiming that it could finance the undisbursed portion under the Bank-financed contract from its own resources and that the contractor had no objection to the proposed change in the financing sources. After satisfactory clarifications by PTT on its financial position, the Bank approved the cancellation of the $8.1 million on 5 August 1986, with effect from 24 April 1986. During loan negotiations, it was projected that disbursements 33. of loan proceeds would continence during the fourth quarter of 1983 and would be completed in the second quarter of 1985. Due to delays in the loan signing and in loan effectiveness, the disbursements of loan proceeds commenced only in September 1984. The last disbursement of $19,904.46, for the SCADA system, was made in March 1986. Table 2 shows the actual disbursements against the . allocation of loan proceeds under

each category.

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Table 2: Allocation of Loan Proceeds and I)isbursements ($ million) Allocation as Modified in 1984

Category Offshore Pipeline and Tie- In 11. Onshore Gas Compressor Station and Other Facilities

Disbursements

19.800

19. 222

9.100

2.183

III. Interest and Commitment Charges During Construction IV. Unallocated Total

3.000 8.000

2.485

40. 000 == =

23. 890 =

34. When PTT requested its first cancellation of $8.0 million, it also requested an extension of the Loan closing date from 31 December 1985 to 30 September 1986 to enable PTT to make some remaining payments under the existing Bank-financed contracts. The request was approved by the Bank on 14 August 1985. However, the loan account was closed on 24 April 1986, when all remaining balances of the loan were cancelled. With the concurrence of the Guarantor, PTT advised the Bank on 35. 17 December 1986 that PTT would like to make a partial prepayment of the loan, subject to the Bank's approval of PTT's proposal for a waiver of any prepayment premium. Later on, PTT further advised the Bank that it would prepay all outstanding loan balances of about $23.890 million. After careful review of PTT's financial status and relevant Bank procedures, Bank Management approved PTT's proposal for prepayment with waiver of prepayment premium. The first prepayment of $21.023 million 1/ equivalent was made on 16 March 1987, while the prepayment of the remaining balance of the Bank loan of $2.867 million 1/ equivalent was made on 26 March 1987. With this full payment, PTT has no outstanding loan from the Bank. 9. Project Cost

16. During the appraisal of the Project in August 1982, Project (:ost was estimated at $135.0 million, consisting of foreign exchange cost of $102.0 million and a local currency cost of $33.0 million. The actual Project cost as of May 1987 was computed at about $42.6 million,

IT These amounts are only indicative figures corresponding to the

disbursed amounts, applying the exchange rates at the time of disbursements. If the exchange rates at the time of prepayment are applied, the equivalent dollar amounts are $32.350 million and $4.134 million, respectively.

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consisting of $37.5 million in foreign exchange cost and $5.1 million equivalent in local currency cost. There was, therefore, a cost saving of about $92.4 million equivalent compared with the original Project cost estimate. However, it is not especially meaningful to make a comparison between actual cost and the original Project cost estimate, as the latter was abruptly reduced to $62.0 million before the signing of the loan agreement. 37. In November 1983, PTT, with the concurrence of the Guarantor, requested that the Bank loan amount be reduced from $87.0 million to $40.0 million because of the anticipated huge savings in the Project cost, as discussed in paras 11 and 12. The revised Project cost in January 1984 was $62.0 million, consisting of $50.0 million in foreign exchange and $12.0 million equivalent in local currency cost. Thus, there was about 32 per cent cost savings on overall project cost, compared with the revised Project cost of $62.0 million. A more detailed comparison of the estimated and actual Project costs is shown in Appendix 6. 10. Project Implementation Schedule 38. As compared with the original project implementation schedule, the Project incurred a delay of about two years. The overall implementation of the Project was scheduled to be completed by March 1985. However, because of substantial delay In the completion of the onshore gas compressor station, the Project could not be completed within the scheduled time frame. The onshore gas compressor station was the only Project component that Incurred substantial delay in its implementation (see para 27). Appendix 7 shows a detail comparison between the original and actual project implementation schedules. 11. Initial Operations 39. The Project commenced its operation immediately after the successful commissioning of the onshore gas compressor station, in mid-May 1987. From 15-31 May 1987, an average of 428 MMCFD of natural gas was delivered to PTT for distribution to end-users. Details of natural gas supply to PTT during the period 15 to 31 May 1987 from the three gas fields is shown In Appendix 8. From the latter part of 1987, PTT is expected to take from the concessionaire an average of 400-450 MMCFD of natural gas, which will be increased to 475 MNCFD in 1988 and 500 MMCFD in 1989.

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III. EVALUATION OF PROJECT IMPLEMENTATION A. Project Components

40. There was no change in the scope of the Project. All components of the Project were carried out as originally planned. However, the diameter o the offshore gas pipeline was reduced from 28 to 24 inches. PTT deciued to reduce the size of the pipeline diameter taking into account the gas reservoir of the Platong group of gas fields and the projected gas demand in 1983. In retrospect, the decision to reduce the diameter of the pipeline was correct, and it contributed to substantial cost savings for the Project. B. Engagement of Consultants and Procurement of Goods and Services

41. In order to save time, PtT initiated the recruitment of consultants prior to the loan approval in December 1982. Following PTT's early action, the Bank decided not to finance the cost of the consulting services because PTT did not follow the Bank's Guidelines on the Use of Consultants. PTT did not object to the Bank's decision. Even though the Bank did not finance the cost of the consulting services, PTT still consulted the Bank in almost all steps of it's recruitment process. PTT's procedures were considered fair, efficient, and acceptable to the Bank. Consequently, the consultants were engaged on time. 42. Procurement of goods, particularly for Bid Packages I and II, was carried out very efficiently. The prequalification and tender documents were prepared in a professional way, with due consultation with the Bank. There were sufficient competition and fairness in the bidding with regard to the above two main packages. Because of strong competition among the bidders/contractors, most of the bid prices were much lower than the cost estimates of each bid package (see para 12). C. Performance of Consultants and Contractors

The consultants worked for PTT for about four and a half 43. years, from January 1983 to June 1987. Their performance in supervising the construction and commissioning of the offshore pipeline and onshore gas compressor station was considered satisfactory, particularly with regard to remedial measures for the offshore compressor station commissioning. The consultants' advice on the adoption of contingency plan in the tie-in of the offshore pipeline was good (see para 25). It should be noted that when there were various technical problems in the resting and commissioning of the onshore compressor facilities, the consultants were instrumental in finding and sorting out the problems and idvising PTT and the contractor as to courses of actions that should be taken to solve the problems effectively. The contractors for the offshore gas pipeline and the SCADA 44. system did an excellent job in fulfilling the construction/installation However, the contractor for the onshore gas compressor schedules. experienced difficulty in installating gas turbines and statioi

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compressors, encountered many technical problems in the testing and commissioning of the compressor station, and had to make payment under all penalty clauses relating to the late completion. Furthermore, the contractor had to assume the costs from May 1986 to June 1987 1/ for keeping PTT's consultants, who would have been released by PTT earlier if there had been no delay in the commissioning. In spite of the probable losses under the contract, the contractor honored all its obligations/commitmecs and eventually completed final test run in May 1987, to the satisfaction of PTT. PTT commended the attitude of the contractor, even though the contractor failed to finish the job on schedule. D. Project Cost

45. As discussed In paras 36 and 37, there were substantial cost savings as compared with the original Project cost estimate as well as the Project cost estimate revised in January 1984. The main reasons for the cost savings are attributable to the following: (i) In the construction of the offshore pipeline and tie-in, there was a reduction In the diameter of the pipeline from 28 to 24 inches. The diameter reduction of the pipeline became necessary after a careful study on the gas reservoir of the Platong gas fields and gas demand projection at that time; Of the 43 km of submarine pipeline originally envisaged to be constructed under Bank-financing, a 5 km stretch was separated, for technical reasons, and given to the concessionaire of the Platong gas field for construction. The concessionaire was able to construct this 5 km portion at a much lower cost than estimated because of the facilities at his conunand. Originally, the offshore pipeline was to be buried under the sea bed. However, later on, PTT made a decision, in consultation with the consultants, that the pipeline would be naturally laid down on the sea bed without any deep digging. In doing so, the pipeline was half buried in the soft mud on the sea bed by its own weight and with minimal civil works. The decision was made based on the technical and safety considerations to the effect that the 24 inch diameter pipeline half buried in the mud on the sea bed would be safe against sea currents and other hazards at that area;

(ii)

(iii)

(iv) Due to strong competition during the bidding of Package I and II, the bid prices of the lowest evaluated bidders were much lower than expected (see para 12). At the time of bidding of the offshore pipeline, the prospective contractor's equipment and facilities were idle at places comparatively close to the 1/ Total payment to be made by the contractor up to June 1987 would amount to about $1.348 million and 3.362 million.

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Project site, such as Singapore. This situation helped the Package I quote its mobilization costs bidder f('r substantially lower; and (v) As the Project cost (revised in January 1984) was based on the results of the actual opening of the main bids, the amount of $9.9 million allotted under the physical and price contingencies was excessive and was not utilized. Another factor for the cost savings was that the actual amount paid for taxes and import duties was much lower than estimated (see Appendix 6). E. Disbursements

46. The disbursement schedule envisaged during Project appraisal became meaningless, following unexpected delays in the loan signing and loan effectiveness. However, during Project implementation, there were no problems at all with regard to disbursements. Because of the high interest rate of the Bank loan, in April 1986 PTT requested that the Bank cancel the remaining undisbursed loan balance of $8.1 million. Included in this amount were the undisbursed balances (about $5.9 million equivalent) of the existing contracts financed by the Bank loan. F. Prolect Schedule

Except for substantial delay in the construction of the 47. onshore gas compressor station, particularly in its test-run and commissioning, the Project was implemented almost within the time allotted in the revised schedule. The delay in the commissioning of the onshore gas compressor station did not affect the operation of PTT adversely, as PTT did not need the compressor station during 1986 and the first half of 1987 because of lower than projected gas demand resulting from the lower than projected cost of crude oil during the abovementioned period. If there had been the projected gas demand during 1986, PTT would have lost much revenue and the relationship between PTT and the contractor would have been more strained. C. Conditions and Covenants

The loan covenants stipulated in the loan documents were 48. reasonable, and PTT generally complied with the loan covenants without any difficulties. However, PTT failed to comply with a financial covenant on the debt/equity ratio during FY1982/83 (82:18 actual versus 70:30 required) during the initial stage of Project implementation. However, PTT corrected the situation and succeeded in meeting the required ratio from 1983/84 onward. H. Environmental Impact

So far no significant adverse effect on the environment by the 49. Project facilities Is foreseen. The more important aspect in this Project is the safety aspect of the Project facilities. If there were any leakage or explosion from the gas pipeline and/or the gas compressor

A 15

station, it would cause serious environmental damage to the sea of the Gulf of Thailand and the PTT gas separation plant in Rayong and its vicinity. However, the offshore pipeline and compressor station were constructed in accordance with international safety standards, and sufficient safety devices have been installed at the offshore and onshore facilities. So f,ir, no negative environmental aspect on marine ecology and air pollution from the Project facilities has been noticed, and none is expected. I. Project Benefits

50. By completing this Project, PTT is able to increase its gas transmission capacity by about 150 MNCFD as originally envisaged. The average demand from June to December 1987 is projected to be 400 MMCFD and that of 1988 to be 450-500 MMCFD. PTT will not have any problem In transmitting the above amounts of gas to the end-users by operating the gas compressor station from June 1987 onward. There Is no significant employment effect from the Project as the Project Is capital-intensive. The Project contributed to create only about 30 new jobs. However, during the implementation of the Project, technical staff of PTT had the opportunity to learn technologies relating to submarine pipeline-laying and the construction of large capacity gas compressor station. As the Project was completed only in May 1987, the Mission 51. considers that it is too soon to compute the financial and economic rates of return of the Project. It should also be noted that while the original loan approved by the Bank was $87 million, the actual amount used for Project implementation was only $23.89 million. Under this circumstance, it is not meaningful to re-evaluate such rates of return for the purpose of comparison with those estimated at the time of Project appraisal. As the Project constitutes only a small portion of the huge PTT operation facilities, It is not only meaningless but also difficult to compute the financial and economic rates of return of the Project by separating the Project from the entire operation of PTT. It Is also difficult to quantify the benefits from the Project without considering the existing facilities as well as some additional facilities constructed under other PTT's projects implemented during the Project period. The Mission believes that the Project will have the high financial rate of return expected during Project appraisal, considering that (I) the actual project cost is much less than the original cost estimate; (ii) PTT has a stable gas purchase agreement with the concessionaire; and (Iii) there is steady and increasing demand of gas in Thailand. J. Performance of the Borrower and Executing Agency

52. PTT, the Borrower-cum-Executing Agency, Is one of the most efficient and well organized government corporations in the country. Even though It is a state enterprise, it operates its business like a private corporation. The company, as a commercially oriented firm, carried out the Project in a professional manner and a most efficient way. Most of the financial decisions during Project implementation were made on the basis of commercial considerations. When PTT found that the

A16

interest rate of the Bank loan was high compared with those prevailing from other financial sources in FY1986/87, it decided to refinance part of the foreign exchange cost of the Project and prepay all outstanding bank loan balances. From PTT's point of view, such decisions were appropriate. Its supervision of the contractors and the monitoring of the progress of Project Implementation with the assistance of consultants were very good. 53. The overall financial performance of PTT since FY1981/82 shows that it has been operating In a satisfactory manner. PTT's audited financial statements (APS) for FY1986187 were not available during the visit of PCR Mission, but It was estimated by PTT that the net profit would be similar to that of FY1985/86. A summary of important figures from the PTT's AFS's from FY1981/82 to FY1985/86 are shown in Table 3. Although total revenue and operating profit for FY1985/86 decreased by 9.2 per cent and 32..6 per cent, respectively, over the previous fiscal year, the financial position of PTT appears to be generally sound. A net profit of $1,644 million for FY1985/86 was derived from the operations of natural gas for $1,045 million and of oil marketing for $599 million. Table 3: PTT's Summary Financial Figures during FY1981/82 to FY1985/86 (B million) Fiscal Year Income Statement Total Revenue Operating Profit Net Profit Balance Sheet Current Assets Total Assets Current Liabilities Long-Term Debt Equity K. 1981/82 1982/83 1983/84 1984/85 1985/86

31,396 2,049 938 13,723 24,160 10,153 6,899 1,461

35,932 1,937 1,066 12,451 24,012 9,817 8,432 2,360

38,222 4,136 3,550 13,955 29,682 12,971 8,578 5,479

42,465 4,954 2,370 16,953 36,733 13,338 13,123 9,646

38,577 3,340 1,644 11,958 34,447 7,185 16,494 10,203

Performance of the Bank

54. During Project appraisal, the Bank played an important role in deciding on Project components and in devising implementation arrangements. However, the cost estimate made by Bank's Appraisal Mission proved to be quite high, for the reasons given in para 45. During Project Implementation, the Bank was instrumental in guiding the Executing Agency in carrying prequalification exercises and bidding procedures for the two main procurement packages, namely, the ofishore pipeline and tie-in, and the onshore gas compressor station. As the Project was the first Bank-financed project with PTT, PTT was not familiar with Bank's procurement procedures at the initial stage. However, through several Bank Mission visits to the Project and through PTT delegation visits to the Bank, PTT became familiar with Bank procedures and followed the Bank's requirements. The Bank helped PTT prepare a comprehensive set of bidding documents for the three procurement packages.

A17

Also, the Bank made decisions on various Project-related matters in a timely manner, and PTT appreciated such prompt decision-making by the Bank. The Bank sent one Inception Mission, two Special Project Administration Missions, two Review Missions, and several Disbursement Missions 1/ during Project implementation. Several other Bank Missions which stayed in or passed by Bangkok in connection with other Bank-financed projects, also followed up the progress of the Project.

1/ Missions covering other Bank-financed Projects in Thailand.

A18

IV. CONCLUSIONS AND RECOMMENDATIONS A. Conclusions 55. Project completion was delayed by about two years compared with the original schedule. The delay In Project Implementation was mainly attributable to the initial delays at the early stages of Project Implementation and some unexpected technical problems in the Installation and commissioning of the onshore gas compressor station (see paras 38). However, the delay did not affect the operation of PTT adversely, because gas demand in Thailand during the last two years was lower than projected at the time of Project appraisal. The lower gas demand resulted from comparatively lower price of crude oil during the same period. Actual Project cost as of May 1987 ($42.6 million equivalent) was only 68.7 per cent of the estimate ($62.0 million equivalent) made in January 1984. The reasons for the cost savings are discussed in detail in para 45. The main objective of the Project (to utilize indigenous natural resources to substitute part of imported oil) was fully achieved. With the completion of the Project, PTT is able to transmit about 450-500 MI4CFD of natural gas to the end-users from June 1987 onward. Even though it is premature to re-estimate the financial internal rate of return (FIRR) of the Project, the Mission believes that the Project would enjoy a high FIRR as projected during Project In view of the above, the Project is appraisal (see para 51). considered as one of the successful Bank-financed projects in Thailand. B. Recommendations 1. General

56. In most Bank-financed projects, one of the common reasons for delay in Project implementation is the delay in the recruitment of consultants for project implementation. Under this Project, the Executing Agency took earl.y action for the recruitment of consultants to help PTT implement the Project. Even though loan signing was delayed substantially and loan effectiveness consequently delayed by about 1.5 years, PTT could pursue all preparatory work for Project implementation, such as general design work, pre-qualification of bidders/contractors, and preparation of tender documents with the assistance of the consultants whose services were already available before the loan was signed. PTT was thus able to carry out Project implementation very efficiently without being seriously affected by the delayed loan signing. Based on the experience from this Project, it is recommended that the Bank encourage borrowers and executing agencies to take early action for the recruitment of consultants.

A19

2.

Project Specific

After the loan approval by the Bank in December 1982, PTT 57. intentionally delayed loan signing partly because of the expected reduction in the Project cost and partly to save commitment charges. Between November 1982 nd February 1984, when the loan agreement was signed, the Bank aria PTT spent considerable time in following up matters relating to loan signing as well as loan effectiveness, which took place in June 1984. During Project implementation, Bank Missions were told by PTT that the Bank's commitment charges were too high. Mainly in order to save commitment charges, PTT twice made its request for the cancellation of part of the loan amount; these requests were approved by the Bank. One cancellation involved a substantial amount (about $5.9 million) covered under the Bank-financed contract, and the Bank had to request PTT to inform the contractor that the remaining undisbursed amount would not be financed out of the Bank loan. In view of the above, It is recommended that the Bank make a study relating to lowering the commitment charges to the extent possible and, if possible, during loan negotiations agreeing with borrowers on a loan signing deadline. The terms of the loan were to carry a fixed interest rate of 58. 11 per cent per annum with 20 years repayment period, including a five years grace period. From early 1986, PTT considered that the terms of the loan were no longer favorable since lower interest rate loans were easily available to PTT from other financing institutions. In view of this, PTT decided to prepay their outstanding loan balance of $23.89 million equivalent and requested that the Bank waive the prepayment premium, which was computed at about $2.03 million. After securing the Bank approval of the PTT's request for prepayment waiver, PTT prepaid Its outstanding loan of $23.89 million in March 1987. Should there be many such requests for prepayments from the DMCs, the Bank may have to review its policy in this regard. In respect of this Project, there is not much for the Bank to 59. follow up in future. However, it would be desirable for the Bank to keep track of the development plans of PTT to enable possible financing by the Bank of some of PTT's future projects.

A20

APPENDIXES

Appendix

1 2

Organization Chart of Project Office Organization Chart of Petroleum Authority of Thailand Offshore Gas Fields and Submarine Pipeline Diagram Compliance with Loan Covenants Staff Training Status Comparison of Project Cost Estimate vs. Actual Comparison of Project Implementation Schedule Original vs. Actual Latest Gas Transmission Status from the Three Gas Fields

21

22

23 24 27 28

4 5 6 7

29

30

ORGANIZATION CHART OF PROJECT OFFICE

(t

CD 1 CD

CD

No. of Staff

A 22 Appendix 2

ORGANIZATION CHART OF PETROLEUM AUTHORITY OF THAILAND

r:
I

:::
(15)

GOVERNOR (1)

Advisor (1)

Governor': Office (41)

ASSiStRnr (7)

"ernors

Deputy Governor: Technical & Planning Ill

Deputy Governor: Logistic: & Refining (1)

Deputy Governor: Natural Gas Operations (1)

Departments: Policy and Planning (38) Engineering (37) Research and Development (49) Construction (47) Petroleum Exploration and Production 9)

Departments: Supply and Facilities Planning (14) Refining Operations (13) Transportation and Marine Operations (9 Petroleum Procurement and Contracts (11 Supply Operations 4)

Departments: Administration and Marketing (35) Technical Service (71) Pipeline Operations) 241 Gas Separation Plant (283)

Deputy Governor Marketing 11)

Deputy Governor: Administration (1)

Einence (1)

Lieputy UOverflorr Special Affairs (1)

I
Departments: Public and lnduttriel Sales (103) Marketing Planning and Evaluation (22) Retail Sales (32) Operations Planning (48) LPG Terminals and Di gtribution (170 Engineering and Serv. (348 Terminals and Transportation 617) Dep.rtmen tz: Personnel Administration (116) Procurement and Supply (106) General Administration (185) Legal Affairs (47)

I
Departments: Finance (122) Accounting (105) Budget (57 Financial Planning (21) Departments: Computing Service Centre (52) Data and Information Centre (30) Public Relations Centre (47) Office of Internal Auditi and Follow-UP (96) Communication Centre (47)

I - No. of Slaff

(Reference in text: page 4, para. 10)

A 23

OFFSHORE GAS FIELDS AND SUBMARINE PIPELINE DIAGRAM

(Reference in text: page 7, pam. 26)

A24

App e niii Page 1

LOAN NO. 622-THA: NATURAL GAS TRANSMISSION PROJECT Compliance with Loan Covenants

Nature of Covenants A. 1. General Covenants

Reference to Loan Documents

Remarks

Carry out the Project with due diligence and efficiency Make available the funds, facilities, services, land and other resources required for the Project insure the goods to be imported under the Project against hazards incident to the organization, transportation and delivery

L.A., Section 4.01(a) Complied with

2.

L.A., Section 4.02

Complied with

3.

L.A., Section 4.04(b) ComplIed with

4.

Maintenance of records and L.A., Section 4.05 accounts adequate to identify the goods and services financed out of the proceeds of the Loan Financial Covenants Submission of audited financial statements within six (6) months after the end of each related fiscal year L.A., Section 4.07 para. (a)

Complied with

B. 1.

Complied with

2.

Submission of unaudited semi- L.A., Section 4.07 annual financial statements para. (b) within ninety (90) days after the end of the first six (6) months of each fiscal year Financial Ratios: L.A., Section 4.12 para. (a)

Complied with

3.

i)

Maintenance of debtequity ratio of not more than 70:30 from Maintenance of debt service coverage ratio of not less (Reference in text: page 8, para. 29)

Complied with except during FY1982/83 Complied with

ii)

A25 Appendix 4 Page 2 than 1.2:1 for each of the fiscal years from FY1982/83 to FY1984/85 and 1.5:1 thereafter iii) Maintenance of ratio of current assets to current liabilities of not less than 1:1 from FY1982/83 onwards C. Organization and Management Covenants 1. Conduct business and carry L.A., Section 4.10 on operations in accordance para. (b) with sound administrative, financial, engineering and natural gas transmission practices and under the supervision of competent and experienced management and personnel Project Implementation Covenants Engagement of competent and qualified consultants and contractors L.A., Section 4.03 pars. (a) Complied with Complied with

Complied with

Complied with

D. 1.

2.

Carry out the Project in L.A., Section 4.03 accordance with the approved para. (b) plans, design standards, specifications, work schedules and construction methods Submission of monthly reports L.A., Section 4.06 on the execution of the para. (b) Project Submission of detailed report on the execution and initial operation of the Project Appointment of Chief Executive responsible for overseeing the Project and a Project Director responsible for the day-today implementation of the Project L.A., Section 4.06 pars. Cc)

Complied with

3.

Complied with

4.

Complied with

5.

L.A., Schedule 6 para. (1)

Complied with

A26 Appendix 4 Page 3

6.

Recruitment of key technical staff and train such staff as necessary prior to the start-up of Project facilities Operational Covenants Installation of environmental and pollution controls in the Project facilities Maintenance of adequate supply of natural gas for optimal operation of the Project facilities throughout the life of the Project

L.A., Schedule 6 para. (2)

Not Complied with

E. I.

L.A., Schedule 6 para. (7)

Coniplield with

2.

L.A., Schedule 6 para. 4 (a)

Complied with

3.

Implementation of the L.A., Schedule 6 findings and recommendations para. (8) of the (i) Pricing Studies of natural gas, petroleum products and lignite; and (ii) Energy Master Plan Study Operate and maintain PTT's L.A., Schedule 6 plants, machinery, equipment para. (6) and other property in accordance with appropriate engineering, financial and public utility and employee safety practices

Complied with

4.

Complied with

A27

AFpendj

Staff Training Status

Field of Training A. Overseas i) Onshore Canpressor Facilities ii) SCN)A SystEn B. Local i) Onshore Canpressor Facilities ii) SCADA Systn a) Stage-I b) Stage-Il

Place of Training

No. of Staff

flirat inn Fran To

Total Mardays

USA

10 NOV'84 8 Dec'84

232

Japan

9 Oct'85 31 Oct'85

138

Rayg

14

6 Oct'86 31 May'87 2,478

15 15

14 Jan'85 25 Jan'85 24 Jun'85 9 Jul'85 Total

180 240 3,268

(Reference in text: page 9, para. 31)

A28 ipendix 6

Project Q)st Estimate vs. Actual ($ Million)

Cost Estimate in February 1984 Actual Cost (Overrun) /Saving Project Cmxxents Foreign local Total Foreign 1/ local 2/ Total Foreign local Total Of fslcre Pipeline sIre Ccxiressor Station framing irhiding Proj ect Managant Cost prr's Facilities at Of fsre Platform Consulting Services Interest LXiring Construction Taxes and Iitort Iuities Physical Caitingnncy Price Cont1iery Total 19.700 9.000 0.200 5.000 5.000 3.000 0 2.997 5.103 1.000 20.700 19.480 1.598 19.639 1.132 (0.071) 1.061 1.000 10.000 0 0.300 1.400 0 6.500 0.666 1.134 0.200 5.300 6.400 3.000 6.500 3.663 6.237 6.191 2.061 0 0.341 9.691 1.897 (1.588) 0.309 0.341 0.200 (0.341) (0.141) 4.913 0.087 5.099 0.602 0.300 0.387 0.699 1.301

0 4.913 4.398 0.701 2.485 0.217 0 0 0 0.209 0 0

2.702 0.515 (0.217) 0.298 0.209 0 0 0 2.997 5.103 6.291 6.291 0.666 3.663 1.134 6.237 6.873 19.406

50.000 12.000 62.000

37.467 5.127

42.594 12.533

1/ Part of the foreign ehange cost ($5 .205 milhiQn equivalent) s finarxed by 11fl' uri.ler the local curreucy cost. 2/ The Bank! s ncnthly rates of exchange s.ere applied to convert local curreocy explitures to US dollar equivalent.

(Referenee in tact: page 11, para. 37)

COMPARISON OF PROJECT IMPLEMENTATION SCHEDULE - APPRAISAL ESTIMATE VIS-A-VIS ACTUAL

PROJECT ACTIVITIES

1982

II:f;

IP

PTT/CONSIJLTANT SERVICES Recruitment of Consultant Basic Design & Tender Document Contractor Prequalification Bid Proposal by Contractor Bid Evaluation & Award Project Management OFFSHORE CONTRACTOR Detail Pipeline Design Procurement & Delivery Construction Testing & Commissioning ONSHORE CONTRACTOR Detail Station Design Procurement & Delivery Construction Testing & Commissioning STAFF TRAINING Foreign Local - pill"

usilfirnu. -s-- ... '111111 --: ..!

______________ IEtInato Actual

A3()

Appendix 8

Latest Gas Transmission Status from Three Gas Fields (In MMCFD)

Date/Gas Fields

Erawan

Satun

Platong

Total

15 May 87 16 17 18 19 20 21 '4 22 '4 23 24 '4 25 26 '4 27 28 29 '4 30 31

205 201 152 203 203 205 209 205 233 203 237 203 204 200 264 247 204

168 106 101 132 131 166 186 180 190 170 178 161 133 163 177 179 161

49 50 50 50 49 51 68 66 60 49 67 70 68 64 69 68 69

'4L L

357 303 385 383 422 463 451 483 422 482 434 405 427 510 494 434

Note: Average daily supply of natural gas - 428.05 MMCFD

(Reference in text: page 11, para. 39)