RESTRICTEDPE-260

L 622-THA

ASIAN DEVELOPMENT BANKPost-Evaluation Office

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

PROJECT PERFORMANCE AUDIT REPORT

NATURAL GAS TRANSMISSION PROJECT

IN

THAI LAND

[I

September 1988

CURRENCY EQUIVALENTS

Currency Unit = Baht (B)

At Appraisal

B 1.00 $0.0435$1.00 = B 23.00

At Project Completion

B 1.00 - $0.0390$1.00 - B 25.61

AtI'os t - Evaluation

B 1.00 $0.0399$1.00 B 25.05

ABBREVIATIONS

AR - Appraisal ReportDMR - Department of Mineral ResourcesEIRR - Economic Internal Rate of ReturnEGAT - Electricity Generating Authority

of ThailandFIRR - Financial Internal Rate of ReturnIDC - Interest during constructionLIBOR - London Interbank Offered RateLPG - Liquefied Petroleum GasOCR - Ordinary Capital Resourcesocs - Onshore Compressor StationPCR - Project Completion ReportPEM - Post-Evaluation MissionPPM?. - Project Performance Audit ReportPTT - Petroleum Authority of ThailandSCADA - Supervisory Control and Data

Acquisition (System)

MEASURES

MMBTU - Million British thermal unitMMCF - Million cubic feetMMCFD - Million cubic feet per dayTCF - Trillion cubic feet

NOTES

(i) In this Report, "$" refers to US dollars.(ii) The fiscal year of the Government and PTT ends on

30 Septeniber.

TABLE OF CONTENTS

Page

(i)(ii)

1

1

12223

3

3456

7

7101011131314

14

141415

15

151516

17

Basic Project DataMap

I. HIGHLIGHTS

II. BACKGROUND

A. Project RationaleB. Project Objectives and ScopeC. Project FinancingD. Project CompletionE. Ex-Post Evaluation

III. IMPLEMENTATION PERFORMANCE

A. Project DesignB. Construction and CommissioningC. Project Costs and FinancingD. Monitoring and Supervision

IV. PROJECT RESULTS

A. OperationalB. InstitutionalC. FinancialD. Economic and Financial EvaluationE. Environmental Aspects and ControlF. Compliance with Conditions and CovenantsC. Sustainability of Future Operations

V. KEY ISSUES

A. Levy of Commitment ChargesB. Procurement of Complex Plant and EquipmentC. Gas Pricing Policy

VI. CONCLUSIONS

A. Overall AssessmentB. Lessons LearnedC. Follow-up Action

APPENDIXES

ATTACHMENT:

PROJECT COMPLETION REPORTMapBasic Data

I. Project DescriptionII. Project HistoryIII. Evaluation of Project ImplementationIV. Conclusions and Recommendations

Appendixes

(Ai i)(Aiii)

AlA3

Al2A18A20

Revised

(Feb. 1984) Actual

62.0 44.4

50.0 37.8

40.0 23.9

- 16.1

Actual

9-27 August 1982

22-25 Noventer 1982

22 Decanter 1982

6 February 1986

13 February 1984

5 June 1984

Kay 1987

24 ApriL 1986

35

PCR

I

PPAR

29.

16. 5

No. of Missions

Man-days

90

10

2

39

5

6.7

2 16

30

28

(i)

BASIC PROJECT DATA

Natural. Gas Trarimisslon Prolect (Loan No. 622-TM)

ConsuLtant

Approval

I&NQ. TA ProJect Name Nan-months o.rt (S an)

Date

396-TNA Natural. Gas TransmissIon PP 3 $40,000

21 January 1981

and Distribution

KEY PROJECT DATA (S an): OriginaL

(Dec. 1982)

TotaL Project Cost 135.0

Forei Currency Cost 102.0

Bank Loan Ainotrit/Utitization 87.0

Bank Loan CanceLLation -

KEY DATES: Expected

AppraisaL

Loan Negotiations

Board Approval

Revised Loan Agreement

Loan Agreement

Loan Effectivity 13 Nay 1984

Project Ccalet ion March 1985

Loan CLosing 31 Decanter 1985

Months (Effectivity to CoapLetion) 10

KEY PERFORMANCE INDICATORS (%): Appraisal

Estimated Economic Internal. Rate of Return 77.8

Estimated Financial InternaL Rate of Return 61.3

BORRC?.&R : PETROLEIJI AUTHORITY OF THAILAND (PTT)

GUARANTOR : Kingdom of Thai Land

EXECUTING AGENCY : PTT

MISSION DATA:

Type of Mission

Appraisal.

Project Acininistration

- Inception

- Review

- Disbursements

- Special Project Acininistration

- Project CoapLetion

Post-EvaLuation

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

(ii)

98°E 102°E

THAILANDNATURAL GAS TRANSMISSION PROJECT

To Cement Plants

r- \C, r...-'

BANGKOKI H A I L A N 0

south Bangkok Bang Pakong Power Plant

r' Power Plant Scada Extension

/,________ Ratchaburi SpTT Operations Center

k I Pr0jt • Onshore PipelineLocation

Onshore Corn presso Stati n (OC

•Rayong

ISattahuii

LPG Plant

512°NC..

ii1' (z// :f /illa'rd

1

/\ J) rjj •& -Offshore Pipeline

)/ / /J(() oChumpon

/ Project PiPellflel

/ ?'ORanong Kaphong Structure43 km.

/ 24"Ø Platong Structure

- • Surat StructurePladang Structure

Platong Platform1lSatun Structure

Suratlhani0

Erawan Structure

Erawan PlatformBaanpot Structure

-8°N 'B' Structure 8°N-• 0Ph,ket

LEGEND Phatthalung

Gas F palds °Trang

- Existing Gas Transmission Lines

Project Gas Pipeline Songkhla00 Project Components

International Boundaries - -(not necessarily authoritative) f \ 0 30 60 i20

I •.-.. -'Narathiwat° Kilometers

98°E \ .• 102E

I. HIGHLIGHTS

1. The Project was generally successful in meeting its objective ofassisting in the substitution of imported fuel oil by domestically producednatural gas, thereby reducing the country's dependence on imported fuel.

2. Latest assessment of reserves and actual production of naturalgas at the Platong gas field were lower than appraisal estimates. As aresult, the submarine pipeline component of the Project from Platong wasunderutilized. System demand for natural gas and full utilization of theonshore compressor station (OCS), the other major Project component couldhowever be maintained by an increase in natural gas production at theexisting Erawan gas production platform.

3. The Project highlighted the risk of error in geologicalassessment of gas reserves and the need to invoke more refined, longer andsometimes costly procedures when doubt exists about normal assessmentresults.

4. The pipeline component was completed one month before thecommencement of gas production from Platong, with only a nominal delay ofabout one month. Delay occurred in the completion of OCS but it had noadverse impact as it came on stream just in time when the slower thanexpected growth in demand for natural gas exceeded the existing free flowcapacity of the downstream pipeline.

5. The final Project cost was $44.4 million, compared with anappraisal estimate, in 1982, of $135.0 million and a revised estimate, in1984, of $62.0 million. The substantial cost underrun was largely causedby overestimation and strong competition at that time among contractors forgas transmission projects due to an international recession in the gasproduction and pipeline industry.

6. The Project highlighted the need to consider use of a two stagebidding procedure in the procurement of complex plant and machinery.

7. The institutional capability and financial performance of thePetroleum Authority of Thailand (PTT), the Borrower and Executing Agency,were sound.

8. The Borrower prepaid the loan in 1987 as it could borrow fundselsewhere on more favorable terms; the Bank agreed, as a special case towaive the prepayment charges.

II. BACKGROUND

A. Project Rationale

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

2

substantial natural gas deposits in two offshore concessions in the GulfThailand. A supply contract for supply of natural gas from the Erawan-gas field, was finalized between the concessionaire and PTT in 1980. Thiswas followed by the construction, in 1981, of a gas transmission system,including offshore and onshore pipelines, with financing from the WorldBank and other lenders. In 1982, a second contract was finalized by PTTwith the same concessionaire for additional supply of natural gas from itsPlatong group of fields. At that time, the Government requested Bankfinancial assistance for the Project, to facilitate transmission ofadditional quantities of natural gas.

B. Project Objectives and Scope

10. The main objectives of the Project were to facilitatetransmission of additional quantities of natural gas and thereby reduce thecountry's dependence on imports by accelerating the substitution ofimported fuel oil by additional ,.tura1 gas expected to be available fromthe Platong group of gas fields. The Project was also expected to helpdownstream development of natural gas-based petrochemical industries suchas urea fertilizer, polyethylenes (plastics) and other petrochemicals.

11. The Project included: (i) design, engineering and construction ofa 28 inch diameter 43 km submarine pipeline, including metering facilities,to link the Platong group of gas fields to the existing main submarinepipeline of PTT; (ii) design, engineering and construction of an OCS atRayong for boosting gas pressure to facilitate transmission of additionalgas supply to the downstream users of gas; (iii) provision of a team oftechnical experts to assist PTT in Project implementation; and (iv)provision of training for technical personnel of PTT in the operation andmaintenance of the Project facilities.

C. Project Financing

12. In response to the Go' ,rnment's request in January 1981, the Bankprovided technical assistance in the amount of $40,000 for theappointment of a pipeline technologist consultant to help PTT complete afeasibility study for the Project. To meet a part of the foreign exchangecost of the Project, an OCR loan of $87.00 million was approved in December1982 but later, at the request of the Borrower, the amount was reduced on 6February 1984, to $40.00 million. A loan agreement was signed on 13February 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 appraisalcompletion date of March 1985. A Project Completion Report (PCR) preparedby the Bank's Industry and Minerals Division, circulated in August 1987 isappended to this Report. It discusses the design, scope, implementationand operational aspects of the Project and provides detailed Projectinformation.

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

14. This Project Performance Audit Report (PPAR) reviews the Projectex-post, focuses on pertinent aspects of the Project, and presents thefindings of a Post-Evaluation Mission (PEM) which conducted a field studyduring May 1988. The PPAR also presents an assessment of the Project'seffectiveness in terms of achieving its objectives, the benefits derivedfrom it, and the sustainability of the Project's operations.

15. This PPAR is based on a review of the attached PCR, the AppraisalReport (AR), material in Bank files, and discussions with staff members ofthe Bank, the Executing Agency and other agencies of the Government.Copies of the draft PPAR were provided to the Government, the ExecutingAgency and Bank staff concerned for review and comment. Comments receivedwere taken into consideration in finalizing the Report. Dissenting viewsof PTT in respect of some aspects are included in footnotes at appropriateplaces.

III. IMPLEMENTATION PERFORMANCE

A. Project Design

16. The first natural gas supply contract (see para. 9) provided forthe concessionaire's supply of gas from its Erawan field located in theGulf of Thailand. The PTT was responsible for transmission of gas in a 34"diameter 425 km submarine pipeline from Erawan to the landfall point atRayong

17. The second natural gas supply contract provided for supply ofnatural gas from the Platong, Kaphong, Pladang, Satun and Baanpot gasfields. The concessionaire was to provide all facilities for productionof gas and its delivery at the existing Erawan and the new Platongprocessing platforms, while PTT was to provide metering facilities andthe pipeline connection from Platong to the existing Erawan-Rayongsubmarine pipeline.

18. The contract provided for a supply at the rate of 150 MMCFD ofnatural gas in the first year, 300 MMCFD in the second year and 400 MMCFDthereafter, but did not specify the quantities to be supplied at Erawan andPlatong. However, as Satun and Baanpot gas fields were closer to Erawan,these were expected to be drained via Erawan and supplies from onlyPlatong, Kaphong and Pladang gas fields, of about 150 MMCFD, were expectedto be drained through Platong platform and the Project pipeline. Further,as some portions of Kaphong gas fields lay in an area involving aterritorial dispute between Thailand and Viet Nam, the Government and PTTassured the Bank that PTT would not be drawing gas from this field untilthe dippute was resolved; as a consequence supplies of only about 100MMCFD-' were expected to flow through the Project pipeline.

)J This figure is not specifically mentioned in availabledocumentation but has been inferred from a revised calculation ofinternal rates of return presented to the Bank's Board of Directors(Board Doc. R168-82, Proposed Loan - Natural Gas TransmissionProject (Thailand), dated 16 December 1982).

4

19. The second gas supply contract was finalized, based on anassessment by the concessionaire and PTT's Consultants of proven gasreserves 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 theactual production of gas from Erawan under the first gas supply contractwas much less than anticipated and gas reserves were being scaled downto about one-third of the original estimate. The lower production wasattributable mainly to faults which had been found in gas bearingstructures at Erawan (see AR, para. 28). As the Platong group of gasfields had similar gas bearing structures, estimates of Platong reservestoo became suspect.

20. Because of these doubts, the Bank while approving the loan, hireda firm of Consultants to carry out a reservoir evaluation to provide anindependent assurance that 150 MMCFD could be delivered to the Projectpipeline over the period of Project life of 15 years. In this evaluation,the proven reserves from Platong, Kaphong and Pladang gas fields wereassessed at 0.85 TCF but the Bank staff's review noted that in view of anumber of assumptions, which were made in arriving at the assessment, thefigures should not be regarded as definite but as an upper limit order ofrecoverable reserves. It was also noted by the Bank staff that due tonon-availability of results from a three dimensional (3D) seismic surveyand insufficient well testing data, the more reliable well performancemethod could not be used and the Consultant had to resort to volumetricmethod of assessment.

B. Construction and Commissioning

1. Procurement

21. Procurement of major equipment and materials was carried out inaccordance with the Bank's Guidelines for Procurement (for details, seePCR, paras. 16-24). There were some delays due to PTT's unfamiliarity withBank procedures and Guidelines for Procurement but the processing ofcontracts for the submarine pipeline from Platong to the tie-in point(Contract Package No. 1) and the extension of supervisory control and dataacquisition (SCADA) system was fairly smooth. In Contract Package No. 2for OCS, there was initial divergence of views between the Bank and PTT oncertain technical aspects such as the acceptability and proven pastperformance of the GTC-22C model of turbines for compressor drive as wellas the capacity and configuration, technical responsiveness and fuelconsumption of OCS. As a result, even though the bids were opened in19arlyNovember 1983, award of contract for OCS was delayed until July 1984.—'

1/ The PTT is of the view that the Bank had little experience inexecuting turnkey contracts and had it approved PTT's recommendationspromptly, as was done in the case of Contract No. 1 and the SCADAcontract, the OCS contract too could have been finalized early asoriginally planned, and that the Bank's actions were solelyresponsible for the delay.

S

.

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

3. Project Schedule

23. The OCS was the last component to be completed in May 1987. Theoverall completion of the Project thus had a delay of 26 months comparedwith the appraisal completion date of March 1985.

24. The pipeline laying and tie-in was completed in January 1985 onemonth before the commencement of gas production from Platong. Itrepresented a marginal delay of only about one month, compared with theappraisal target of December 1984. There was however a considerablygreater delay of 26 months in the construction and commissioning of OCSas a result of deficiencies in the contractor's project and contractmanagement and coordination capabilities, which could not be overcome bya change of Project Manager. Return of gas turbine units to themanufacturers also contributed to delays. Substantial contractualpenalties were imposed on the contractor for the delays (see PCR, para.44).

25. The work relating to the SCADA system was completed according toschedule. Initial testing and operational use commenced in late 1985 eventhough its final acceptance was delayed until November 1986 because of thedelay in the completion of OCS.

C. Project Costs and Financing

26. The final Project cost was $44.4 million compared with $135.00million estimated at appraisal and $62.00 million assessed in a revisedestimate prepared on February 1984 (see Appendix 1). In the revisedestimate of costs, based on actual bid prices in two major bid packages,the provision of $6.50 million for price contingencies was excessive andwas not used. The provision for import taxes and duties remained largelyunutilized as such duties and taxes were not applicable for the materialfor offshore pipeline and tie-in work directly shipped to the offshoreconstruction site. Some savings were also realized in the cost of

J During loan negotiations held on 22-25 November 1982, PTT hadindicated that pipeline diameter was to be re-examined after theProject design and supervision consultants had been selected.

6

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 gasconcessionaire. Levy of a penalty of over $1.5 million on the contractorfor delay in implementation of the OCS contract also reduced the overallpayments for that contract.

27. The foreign exchange cost of the Project was estimated, atappraisal, at $102.00 million out of which the Bank loan was to cover anamount of $87.00 million. The balance was expected to be financed by loansfrom commercial banks and/or other sources as well as PTT's own internalcash generation. During the period of delay in the signing of the loan andguarantee agreements the Project cost was reassessed to be much lower (seepara. 26) and at the request of the Government and PTT, the Bank loan wasultimately 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 $16.11million. The cancelled amount comprised not only the savings due to lowerforeign currency cost of the Project but also an amount of $8.23 millionfinanced from other sources at more favorable terms. As against a fixedinterest rate of 11.0 per cent per annum for the Bank loan, PTT'sborrowings from othr1 sources were at interest rates of London interbankoffered rate (LIBOR)—' + 1/8 per cent per annum for the first two years andLIBOR + 1/4 per cent per annum for the next eight years, but at shortermaturity than the Bank loan. For similar reasons, PTT also prepaid inMarch 1987, the entire disbursed amount of $23.89 million; PTT's request towaive 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 relativelynew organization. It was also its first contact with the Bank and at thatstage it was not fully familiar with the Bank's procedures andrequirements. This led to some delays in procurement. On an overallbasis, however, PTT's management of Project implementation was carried outin a professional and efficient manner and enabled transmission of Platonggas to take place as soon as its production at the gas fields commenced.

30. The Bank provided useful assistance to PTT both during appraisaland implementation of the Project. With the benefit of hindsight, it isclear that the Bank's concerns both in regard to the assessment of gasreserves and inadequate operational experience of the selected gas turbineswere well founded. The Bank's judgment to have an independent assessmentof gas reserves through its own Consultants was sound but unfortunately theBank did not follow through by requiring the adoption of a more reliableand conservative assessment of gas reserves. At appraisal, a closer Bankscrutiny of the Consultant's cost estimates and a better appreciation ofthe prevailing environment of depression in the pipeline industry and thepossibility of obtaining more competitive prices might have facilitatedpreparation of more realistic cost estimates. Equipment at offshorelocations 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.

7

inclusion in the estimates of large amounts for payment of taxes and dutiesfor the offshore work was unrealistic. Similary, provision of over 10 percent 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 OCSbecame operational in May 1987. Fortnightly despatches from OCS from May1987 to April 1988 are shown in Appendix 2. During construction andcommissioning, all gas turbine units for OCS we sent back to themanufacturer in USA for rectification and return,—' suggesting that theBank's initial concern in regard to the unproven nature of the particularturbine model was not unfounded (see para. 21). Some other technicalaspects such as the lubrication system and instrumentation also neededremedial attention during the commissioning period. The overall operationsof the OCS plant were satisfactory but problems associated with theinstrumentation and lubrication system of turbines were still beingresolved in consultation with the manufacturers. The extended SCADA systemand 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 theProject pipeline are shown in Table 1.

33. Supplies from Platong gas field were much lower than expected andeven with a rate of production and supply well below the anticipated 100MMCFD (see para. 18), the field was likely to cease production much soonerthan expected. The PTT advised the PEN that to partially bridge the gap,the concessionaire planned to commence production of gas from 1990, fromtwo areas of the Kaphong gas field, which are outside the area ofterritorial dispute.

34. Uncertainty dogged the assessments of gas reserves from the verybeginning 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 threegas fields Kaphong, Platong and Pladang which could feed the Projectpipeline through the Platong processing platform were no longer adequate toprovide enough gas for the life of the Project pipeline.

35. The Project pipeline would have become idle after 1991 but forthe proposed development of Kaphong gas fields, and even this source islimited and only likely to extend the pipeline usage, albeit at a much

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

8

TabLe 1: ActuaL and Pro j ected NaturaL Gas St pLies at the Ptatong PLatform

(NMCFD)

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

A. ActuaLs

& New

Projections

Ptatong 57.7" 67.8 67.0 ' 70.0 70.0 52.0 10.0 - - - - - - -KaF ong - - - - 13.0 56.0 50.0 50.0 49.0 45.0 37.0 18.0 7.0

P(adang - . - - - - - - - -

TotaL 60.2 70.5 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. Açpraisat

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 tomeet its total contractual obligation by a greater supply at Erawanplatform from its Satun and Baanpot gas fields. The production profile ofnatural gas for different gas fields of the concessionaire is shown inAppendix 4.

36. It is quite well known that geological assessments in gasexploration can be very uncertain, that the usual gas verification methodentails considerable risk of error and that more refined procedures forreducing that risk are long and costly. In fact the major risk of asubstantial decrease in the amount of gas delivered from the Platong fieldwas noted at appraisal (see AR, para. 95). Nevertheless, when in 1982there was considerable evidence of faults in gas bearing structures inErawan, and the Platong gas field was expected to have a similar structure,the Bank accepted an assessment of gas reserves made by its Consultants onthe basis of the not so precise volumetric method (and that too with anumber of assumptions); this assessment failed to bring to light thefactors which finally resulted in much smaller gas reserves.

37. With hindsight, it can be concluded that in these conditions itwould have been preferable if the Bank had required a firmer, more reliableassessment of gas reserves through 3D seismic surveys and well testing andperformance data. The final production outcome of the Project pipeline maystill be positive because of circumstances quite different from thoseassumed at appraisal such as the discovery of Surat gas fields;nevertheless, under similar circumstances in future, a more comprehensiveanalysis with higher levels of dependability, would seem to be moreappropriate.

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

9

3. Gas Demand

38. The profile of demand for natural gas in Thailand is shown inTable 2 (for details, see Appendix 5).

TabLe 2: Profile of Demnd for NaturaL Gas

(MMCFD)

CaLendar Year 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

AR A AR AAR A AR A AR A AR A AR P AR PAR PAR P

Gas Separation

PLants - - 39 3 60 58 60 71 222 69 222 70 222 70 222 120 222 120

PetrochemicaL - - - - 73 0 73 0 73 0 112 0 112 47 112 47

Inó.jstriaL Cement

& Others - 30 7 30 22 30 21 50 10 80 5 100 8 115 15 120 33 130 35

Electric Power

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. A - Actuats P - Current projections

Source: PTT

39. The gas distribution system was extended in 1982 in the north byabout 180 km to connect two cement factories in Saraburi. It was expectedat appraisal that the demand for natural gas would exceed the free flowcapacity of 350 MMCFD of the pipeline beyond Rayong, in 1985. However,total demand lagged considerably behind projections as a result of ageneral slow-down of the Thai economy in the intervening years and thedelay in completion of OCS did not have any significantly adverse impact asthe gas demand exceeded the free flow capacity of the pipeline beyondRayong, only in January 1987 when OCS was already undergoing finalcommissioning tests. Substitution of natural gas for fuel oil alsoreceived a setback due to a significant drop in the international price ofimported fuel oil (see para. 47). As a consequence, domestically producednatural gas lost its price advantage for consumers and both the ElectricityGenerating Authority of Thailand (EGAT) and the cement industry reducedtheir consumption of natural gas in 1986. EGAT's consumption of gas hassince picked up but that of the cement industry continues to be low.Commissioning of petrochemical industries was also delayed and these arenow expected to come on stream in 1990.

40. Gas purchase, sale and losses in the PTT gas transmission anddistribution 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 purchasequantities is attributable to metering tolerances.

4. Maintenance and Inspection

41. Maintenance and inspection procedures for the PTT's gastransmission and distribution system were satisfactory (for details, seeAppendix 7).

10

B. Institutional

1. Organization

42. The PTT is the national oil company of Thailand. It was set upas a state enterprise on 29 December 1978 under an Act of Government,through a merger of the then existing petroleum related governmentagencies. The PTT is now involved in all phases ranging from exploration,production, transportation, refining and distribution of petroleum, itsproducts d gas and it has grown into one of the largest corporations inThailand. —' Its operations are marked by sound organization and commercialpractices.

43. The Department of Mineral Resources (DMR) of the Ministry ofIndustry is responsible for regulation of oil and gas exploration andsupply and PTT reports to DMR. In addition, the National Economic andSocial Development Board and a number of other ministries and departmentsare 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 theenergy sector. This dichotomy was2 pxpected to be examined in the thenongoing Energy Master Plan Study. —' The Study report recommended theestablishment of a central focus for energy sector planning and adequatedecision making. For this purpose, a cabinet level National Energy PolicyCommittee chaired by the Prime Minister was constituted but theGovernment's response to the recommendation was otherwise cautious. It didnot much change the cooperative type of decision-making system which isconsidered to be a basic strength of the Thai system of public management;efforts were however being made to improve the pace of decision making andimplementation.

2. Training

44. During Project implementation, PTT trained a number of its staffin operation and maintenance of Project facilities (see PCR, Appendix 5).Such training included overseas, classroom and field hands-on training ofProject staff as a part of turnkey contracts and under PTT's own trainingprograms. Later the same Project staff were assigned to operation andmaintenance tasks, so maintaining the technical experience gained duringimplementation and providing a smooth transition from the implementation tothe 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. Financialindicators, such as debt/equity and debt-service coverage ratios aresatisfactory. The operations are profitable even though profitsdeclined from FY1984/85. The reasons were first a drop in revenue due

J 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 inthe international prices of fuel oil. Second, PTT's liability in baht onits external borrowings increased due to 1 n appreciation of currencies suchas the Japanese Yen and the German Mark.-'

a. Gas Prices

46. Prices for PTT's purchase of natural gas from the concessionaireand its sale to EGAT, its major consumer, are shown in Appendix 9. Wellhead price of gas is governed by PTT's two gas sales contracts with theconcessionaire. The pricing formulae include annual adjustments for priceof fuel oil in the international oil markets and levels of inflation.

47. To promote the use of domestic natural gas in lieu of importedfuel oil, PTT set a pricing policy in which natural gas was sold, prior to1986, at about 80-90 per cent of the equivalent fuel oil price. A sharpdecline in international prices of fuel oil in 1986 which was not promptlymatched by PTT's reduction in price of natural gas resulted in EGAT and thecement industries turning to other energy sources which were morecompetitive. This resulted not only in a slowdown in the change over butin an actual decline in consumption of natural gas by about 8 per cent.Later, in order to maintain a competitive edge of natural gas especiallyvis-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 programand its efforts to accelerate substitution for imported fuel oil. Thecapacity to supply up to 350 MMCFD of natural gas was set up in the firstphase of the program which involved laying of 425 km of submarine pipelineand 350 km of onshore pipeline. The Project, as the next phase, was tofacilitate the flow to land based consumers of incremental supplies of 150MMCFD of natural gas produced at the Platong group of fields, but itinvolved, as a matter of necessity, the use of the network of trunkpipelines set up in the earlier phase. In the circumstances, evaluationencompassing PTT's total gas development program, including both phases,was more meaningful than a stand-alone evaluation of the Project carriedout at the time of appraisal (on the basis of incremental costs andbenefits). However, for purposes of comparison, a stand-alone economicevaluation 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 shownas an expense item in the year itself, but in a new accounting systemadopted by the Government since FY1986/87, state enterprises are nowallowed 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, thebenefits accrue from substitution of natural gas for imported fuel oil usedmainly by power and cement plants. Natural gas converted into liquefiedpetroleum gas (LPG) was also used as a substitute for fuel oil for smallindustries and other conventional fuels for domestic cooking. However, inthe absence of data about consumption of different categories of consumersfor LPG, benefits were assessed conservatively on the basis of displacementof only fuel oil. The PTT's gas transmission and distribution system(including the increase in capacity created as a part of the Project) canhandle a maximum of about 500 MMCFD of natural gas and benefits are frozenwhen gas supply reaches this level; handling of additional demand of over150 MMCFD will require new investments.

(c) Costs

50. Capital costs were the investment costs for: (i) the first phasecomprising construction of 425 km long 34" diameter Erawan-Rayong submarinepipeline and 350 km onshore pipelines, including a 180 km connection to thecement plants; (ii) cost of conversion of cement plants to use natural gasin 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 theconcessionaire and a depletion premium for the use of natural gas reserves.Operation and maintenance costs, for PTT's total gas transmission anddistribution system, were also included. In the alternative evaluation onthe basis of only incremental costs and benefits of the Project, thecapital costs of the first phase and the cost of conversion of cementplants were treated as sunk costs and excluded from the cost stream.

51. Costs excluded duties and taxes, interest during construction andgains and losses in foreign exchange transactions. Local currency costswere subjected to a standard conversion factor (SCF) of 0.90. No shadowwage rate was applied since the gas transmission projects used littleunskilled labor.

(d) Economic Internal Rate of Return (EIRR)

52. For PTT's total gas development program, the EIRR was estimatedat 29.0 per cent (for details, see Appendix 10).

53. In an alternative evaluation where the sunk cost of the firstphase was excluded and the incremental costs and benefits of the Project,limited to additional natural gas supplies from the Platong group of gasfields, were evaluated. The resultan1 1ElRR of 93 per cent compared wellwith the 112 per cent at appraisal.-' The high EIRR was attributablefirstly to the lower project cost and secondly to the peak international

J At appraisal, EIRR was calculated at 77.8 per cent but as cementdemand is negligible, the PEM assessed the appraisal EIRR toexclude the cost of gas pipeline to the cement plants and theconversion cost of cement plants, to make EIRRs in the appraisalreport and PPAR comparable.

13

oil prices in the first year of operation of the pipeline in 1985generating very substantial benefits in that one year, even for aconsiderably lower than envisaged natural gas throughput in the Projectpipeline. The operations of the Project pipeline in that year alonevirtually justified its construction, and its limited use or non-use and areduction in benefits due to lower oil prices in later years did not verymuch affect the rate of return.

54. On the other hand if benefits of additional natural gas suppliesfrom both the Platong and Erawan groups of fields (which made up for theshortfall from Platong) were considered in the stand-alone evaluation, theEIRRR was 102 per cent. The only marginal increase from 93 per centreinforces the conclusion that the Project viability stemmed substantiallyfrom the natural gas supplies from Platong in the initial years ofoperations.

2. Financial Re-Evaluation

55. For financial re-evaluation, the benefits were based on gasproduction volume (with a ceiling of 500 MMCFD) and the prevailing andforecast selling prices to consumers. The capital costs comprised costexcluding IDC, of the entire gas development program including the Project,cost of purchase of natural gas from the concessionaire and O&M costs. Theex-post FIRR was estimated at 16.5 per cent. If only incremental financialcosts and benefits of the Project were evaluated, the resultant FIRR wouldbe 45.6 per cent, compared with 61 per cent at appraisal (for details, seeAppendix 10). The variation is attributable mainly to alower than anticipated sale price of natural gas, to make it competitivewith the lower price of imported fuel oil.

E. Environmental Aspects and Control

56. An environmental impact statement prepared at the time ofimplementation of the first phase of PTT's gas development program notedthat there was no likelihood of any significant adverse environmentalimpact. Monitoring before, during and after the first phase confirmedthat there was no observable permanent adverse impact on ecology orenvironment. The pipeline was constructed to international safetystandards. The PTT had also commissioned a local university to carryout a continuing computer simulation of accidental gas leaks/bursts toevolve procedures to provide timely response to emergencies (fordetails, see Appendix 11).

F. Compliance with Conditions and Covenants

57. During pre-appraisal discussions in March 1982, the Bank hadclarified a PTT query that it was not possible to delay loan negotiationstill the main bids were opened and similarly signing of loan agreementcould not be delayed until the Project reached a stage where disbursementsof funds was required. Nevertheless, even after Board approval on 22December 1982, the Government and PTT delayed signing of loan and guaranteeagreements, apparently to avoid commitment charges. In the meanwhile bidopenings in October/November 1983 revealed substantial reduction in thecost of major components and the loan and guarantee agreements were signedonly in February 1984 after the loan amount was reduced.

14

58. The PTT's compliance with financial covenants(see para. 45 and Appendix 8). The debt/equity ratio wascovenanted figure of 70:30 in FYs1981/82 and 1982/83 butwas foreseen during loan negotiations.

was satisfactoryhigher than thethis possibility

C. Sustainability of Future 0erations

59. A lack of adequate gas reserves in the Platong field resulted inonly partial utilization of the Project pipeline with the prospect of itsbecoming totally idle after 1991. The proposed development of Kaphong gasfield may extend the partial utilization to 1997. In addition, if thepromising prospects of substantial gas production from the Surat gas fieldactually materialize, a greater utilization of the pipeline may be expectedin future.

60. The operations at OCS were satisfactory and should be sustainablethroughout its normal life; it was however essential to satisfactorilyresolve the few residual problems related to instrumentation andlubrication systems that wr,e still being encountered in the operation ofcompressor drive turbines. —' No problems were visualized by PTT in thecontinued 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 fordisbursements to commence, the Borrower being keen to avoid commitmentcharges for this period, delayed the signing of the loan documents byalmost 14 months. Commitment charges are levied by the Bank from a date60 days after the signing of a loan agreement on the unused portion ofits committed ordinary capital resources funds primarily to cover the costof keeping liquid funds for the use of the borrowers. The suggestion wastherefore made that it might be more equitable to both parties to the loanagreement if the funds were committed and a commitment fee charged by theBank on the basis of deviation from the disbursement schedule, rather thancharging commitment fee on the entire unused loan amount. The Bank'srevised system applicable to loans approved after 1 July 1987, involves alevy of commitment charges of 0.75 per cent per annum on a progressivebasis on irçeasing portions of loan rather than on the full amount fromthe outset. —' The PEM is of the view that the levy of commitment chargesin the revised arrangement is more equitable.

B. Procurement of Complex Plant and Eauipment

62. Finalization of contract for the turbine compressor units for OCSwas considerably delayed as there were differences of opinion between PTTand the Bank on the technical responsiveness of the bids. In procurement

jJ The PTT stated in its comments on the draft Report that all OCSproblems including instrumentation and lubrication which occurredduring commissioning were satisfactorily resolved prior to the finalacceptance.For details, see Appendix 12.

15

of such complex plant and equipment where a problem of evaluation andranking of technically unequal bids often arises, the Project experienceconfirms that a two-stage bidding, in accordance with pr,a. 2.44 of theBank's Guidelines for Procurement, would be preferable. —' In two-stagebidding, the technical bidders , can be brought to common acceptabletechnical standards and.spcitications by discussions, and all ambiguitiesand deficiencies elimtnated i-: the first stage; thereafter the prices areobtained in the second stage and price evaluation is then much simpler andfaster.

C. Gas Pricing Policy

63. In 1986, there was a substantial decline in the internationalprice of fuel oil. A lack of a long-term pricing policy to providelinkages between alternative fuel prices and PTT's price of gas for itsmajor customers such as EGAT led to a cutback on natural gas consumptionand a slowdown in the country's efforts to, accelerate substitution of fueloil by domestic natural gas. It is therefore essential that a clear policyfor pricing of supplies of natural gas to major consumers, inter aliaproviding for linkages with alternative fuel prices, be expeditiouslyformulated.

VI. CONCLUSIONS

A. Overall Assessment

64. The Project was largely able to meet its objectives offacilitating transmission of additional quantities of natural gas andassisting substitution of imported fuel oil by the domestically producednatural gas, thereby reducing the country's dependence on imports. Thesubmarine pipeline component of the Project from Platong was underutilizedas a result of considerable scaling down of appraisal estimates of gasreserves and a lower than expected production in the Platong field but theoverall system supplies could be maintained by an increase in productionand transmission from the pre-project Erawan platform, thereby ensuringfull utilization of the OCS component of the Project. There was no adverseimpact of delay in completion of OCS as it was commissioned just in time,when the slow growing demand started exceeding the existing pipelinecapacity. Downstream development of petrochemicals industries was delayedand is now expected to commence in 1990. At ex-post evaluation, the EIRRfor PTT's overall gas development program was estimated at 29.0 per centand the FIRR at 16.5 per cent. The Project was generally successful.

B. Lessons Learned

65. Geological assessment in gas exploration can be very uncertainand usual gas verification methods have considerable risk of error. Themore refined procedures for reducing the risks are costly and lengthy

1/ The PTT is of the opinion that "a two-stage bidding procedure wouldhave played insignificant role to the successful completion of theProject".

16

but it is essential that such procedures be invoked when there isevidence to seriously doubt the results of the usual reserve assessmentprocedures.

66. In procurement of complex plant and equipment items whereproblems of evaluation and ranking of technically unequal bids oftenarises, a two-stage bidding procedure in accordance with the Bank'sGuidelines for Procurement is preferable.

C. Follow-uD Action

67. The Borrower prepaid the Bank loan as it could obtain otherfunds at more favorable terms. As such, all contractual obligationsbetween the Bank and the Borrower and the Guarantor have ceased toexist. 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 beenslower than expected as a result of an erosion of price advantage ofnatural gas due to a significant drop in international prices of thecompeting fuel oil and lack of consistent policy on regulation of pricesof domestic and imported fuels. It would therefore be preferable forthe Government, PTT and EGAT to consider early formulation and adoptionof a clearcut, long-term gas pricing policy.

17

APPENDIXES

Appendix Page

1 Estimated and Actual Project Cost 18

2 Quantities of Natural Gas Despatchedby OCS, Rayong 20

3 Recoverable Gas Reserves (TCF) 21

4 Production Profile - Actual and Forecast 22

5 Profile of Demand for Natural Gas in 23Thailand

6 Offshore Natural Gas Purchase, Sale andLosses 24

7 PTT System Maintenance and InspectionProcedures 25

8 Summary Financial Results of PTT 26

9 PTT's Purchase and Sale Prices of Natural Gas 27

10 Economic and Financial Re-Evaluation - 28

11 Environmental and Safety Aspects 39

12 Commitment Charges on Loans from the 40Bank's ordinary capital resource$

18

Appendix 1

Page 1

ESTIMATED AND ACTUAL PRO,TECT COST

($ Million)

------------------•------....------------------•------...----------------._...-------------------------------------

Appraisal Estimate Revised Estimate

Project (Noveaiber 1982) (February 1984) Actual Cost

Conponents --- -------- ---------- ---------------.._..-- - -- -- -----•- -Foreign local Total Foreign Local Total Foreign Local Total

----------------------------------------------------------•--------------------------------------------------------

Offshore Pipeline and Tie-in 46.644 0.887 47.531 19.700 1.000 20.700 18.910 1.087 19.997

Onshore Cosipressor 19.487 3.732 23.219 9.000 1.000 10.000 6.473 2.106 8.579SCADA 1/ - - - - - - 0.883 0.295 1.178

PTT Facilities 1/ - - - 5.000 0.300 5.300 3.972 0.995 4.967

Traininy includin9 Project

ManaOement Cost 2.681 2.735 5.416 0.200 0.200 - 1.036 1.036

Consultinp Services 5.506 1.436 6.942 5.000 1.400 6.400 4.359 0.776 5.135Interest During Construction 7.450 7.450 3.000 3.000 3.252 0.303 3.555laport Duties i Taxes 18.348 18.348 6.500 6.500 - -

Physical Continyency 7.432 0.879 8.311 2.997 0.666 3.663 - - -

Price Continpency 12.800 4.983 17.783 5.103 1.134 6.237 - - -

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 1Page 2

1. At appraisal, the Project cost was estimated at $135.00 million,with a foreign currency component of $102.00 million. The appraisalmission considered the base cost estimate, arrived at on the basis offeasibility studies and project reports prepared by PTT and itsConsultants, as r.asonable. Provision was also made for physical and pricecontingencies. Signing of loan and guarantee agreements was-delayed (seepara. 61 of the main text) and in the meanwhile opening of tenders for thepipeline and OCS components (Bid Packages 1 and 2) in October/November 1983revealed substantially lower bid prices. A Government request for areduction in the loan amount followed. In the paper submitted to theBank's Board of Directors for consideration of this request, the Projectcost was re-estimated at $62.00 million, with a foreign exchange componentof $50.00 million; it included a provision of $9.90 million formiscellaneous d contingency expenditure and $6.50 million for taxes andimport duties. —' It was then explained that the reduction in Project costoccurred as a result of strong competition among contractors for gastransmission projects due to the then prevailing international economicrecession and its impact on petroleum industry; a reduction in mobilizationcosts as a result of availability of contractors near the Prqject site; alower cost escalation due to a lower-than-anticipated rate of inflation; areduction in pipeline diameter from 28 inch to 24 inch because of reductionin re-estimated quantity of gas fléws; and, a change in the method oflaying the pipeline.

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

Appendix 2

1987

May 11,527.60

371.86June 13,070.82

435.69July

12,468.60

402.21August

12,100.63

390.34September

13,314.75

443.83October

13,468.27

434.46November

12,960.76

432.03December

11,595.58

374.05

1988

January

13,167.19

424.75February

12,992.23

448.01March

13,500.75

438.70April

13,600.64

453.35May

14,107.74

455.09June 14,282.38

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 throughPlatong platform _l;rawan_^latform

haphong Flatong_ Fladang - _Subtotal Satun _Baanpot - Total

1980 PTT Consultants - - - - - > 0.900

1982 Appraisal 0.740 0.043 0.783 0.120 0.082 0.985

1983 Bank Consultants 0.109 0.646 0.094 0.849 1.577 0.159 2.580

1988 Current. 0.119 0.147 - 0.266 0.931 0.110 1.307

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

27.5127.8146.0183.8183.0159.0205.3184 .0220.0250.0249.0227.0193.0159.0143.0120.067.035.017.0

2.830.221.5

10.030.030.025.025.025.025.025.024.013.05.02.0

57.767.867.070.070.052.010.0

64.9

86.8164.9206.0235.0260.0260.0260.0255 .0280.0172.0138.0112.088.052.029.018.0

38.077.0

159.0180.0169.0169.0139.075.034.014.0

36.0123.0180.0180.0180.0159.0108.055.026.08.0

47.0149.0180.0180.0179.0146.098.048.022.03.0

27.5127.8148.9214.0327.2313.7447.2490 .0555.0600.0600.0600 .0600.0600.0600.0600.0598.0600.0504.0402.0319.0201.0124.056.022.03.0

13.056.050.050.049.045.037.018.07.0

22

Appendix 4

PRCUCT I ON PROFILE - ACTUAL AND FORECAST(MNCFD)

CaLerxar GAS (MMCFD)

Year Erawan Baarot PLatonq Satun Kachonq Funan .Jakrawan Gomin Total

19801981"L982"L983"1984w1985w1986'1987"19881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

Reserves 1.053 0.110 0.147 0.931 0.119 0.385 0.385 0.384 3.513(IC F)a/ ActualNotes: 1981-1987 = Actual Prodjctthn/365

- 1988-2006 = From Forecast (Nov. 1987)Source: PIT

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

CD

CD

'1

CD

CD

CD

r

CD

PROFILE OF DEMAND FOR NATURAL GAS IN THAILAND

(MMCFD)

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2009 2001

I. Feedstock

GSP 1 69 70 70 70 70 70 70 70 70 70 70 70 70 70 70GSP 2 0 0 0 50 50 50 50 50 50 50 50 50 50 50 50GSP 3 0 0 0 0 0 0 0 40 40 40 40 40 40 40 40NPC 0 0 0 47 47 47 47 47 47 47 47. 47 47 47 47NFC 0 0 0 0 0 0 0 0 30 30 30.' 30 30 30 30Total Feedstock 69 70 70 167 167 167 167 207 237 237 237 .. 237 237 237 237

II. Industrial Fuel

CFHEHT 3 5 10 10 10 10 10 10 10 10 10. 10 10 10 10Others 2 3 5 8 10 15 20 25' 30 35 40 45 50 50 50Map Ta Put Coeplex 0 0 0 15 15 20 40 50 50 50 50 50 50 50 50Sthtota( Industrial

FueL 5 8 15 33 35 ' 45 70 ' 85 90 95 100 105 110 110 110

III. Power Generation

EGAT Existing

BPK CC. 11-2255

110 113 112 96 104 96 112 96 96 96 96 96 96 96BPK ThermaL 11-2 ) 160 166 166 166 166 166 166 166 166 166 166 166 166 167South Bangkok

ThermaL 11-5 119 172 1% 109 81 196 166 136 178 207 127 122 118 117 117Sthtotat 374 442 475 388 343 466 436 398 440 485 389 384 380 379 379

EGAT FUTURE

BPK CC. 13-4 0 0 0 12 55 72 72 72 72 72 72 . 72 72 72 72BPK Thermal 13-4 0 0 0 0 0 0 76 159 181 181 181 181 181 181 181New ThermaL 11 0 0 0 0 0 0 0 0 0 . 0 91 91 91 91 91Nam Phong CC 0 0 0 0 30 30 30 29 29 29 29 29 29 29 29

SiitotaL 0 0 0 12 85 . 102 178 260 283 283 373 373 373 373 373

Si.Atotal EGAT 374 442 475 400 428 568 613 , 658 723 768 763 758 753 753 753

TOTAL DEMAND 448 520 560 600 630 700 850 950 1,050 1,100 1,100 1,100 1,100 1,100 1,100

Notes: GSP - Gas Separation PLant NPC - National Petrochemical Corporation NFC - National FertiLizer Corporation

Source: PTT

CD

24

ApDendix 6

Offshore Natural Gas Purchase. Sale and Losses(MMCF)

Calendar Year Purchase Sale Losses Loss as Percentageof Sai.e

1981198219831984198519861987

10,03546,63354,33278,314

119,440114,488163,238

9,26647,45155,62780,467

120,883115,512163,487

769(818)

(1,295)(2,153)(1,443)(1,024)

(249)

8.3

Source: PTT

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

25Appendix 7

PTT's System Maintenance and Ins pection Procedures

1. Due to its own weight, the Project pipeline lay partially buriedin sand and clay on the seabed. Ship anchors are a potential source ofdanger for submarine pipelines which are not fully buried but as shippinglanes (to and from Bangkok) did not cross the pipeline, the risk of suchdamage was small. A 1984 underwater survey by an inspectjipn company withthe use of a remote operated vehicles and intelligent pigs —' indicated thatthe pipeline was in sound condition and there were no leaks. According tonormal industry practice, such inspection was ordinarily undertaken on aquinquennial basis and the next inspection was due in 1989. The PPT alsohad on call a specialist offshore contractor to provide timely response andexpeditious repair in cases of reported damage/leaks in the offshorepipelines.

2. Inspection of onshore pipeline was carried out by PTT throughregular line patrol surveys. Maintenance personnel inspected, for externaldamage and leakage, all above-ground metering and slam-shut valve stationsas well as vents on road/rail crossings. The corrosion protection systemfor pipelines was satisfactory and onshore maintenance, according towell-established procedures, was carried out by PTT's own staff, backed upby a central workshop.

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

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

42,464.98

5,304.66

2,370.20

16,953.47

36,733.42

13,337.95

13,234.94

9,646.36

58/42

58

42

2.28

38,577.91

3,774.73

1 .643.75

11,957.40

34,446.83

7,185.04

16,606.12

10,202.64

62/38

62

38

1.53

38,560.87

3,190.98

1,589.39

12,748.43

35,345.65

7,844.85

16,267.98

11,032.07

60/40

60

40

1.53

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 31,395.94 35,932.22 3S,222.10

Opei1i,tg Piufil 2,134.37 2,198.47 4,192.82

NL Puufit 937.90 1,065.52 3,550.15

B1anc Sheet

Curteiit Assels 13,723.04 12,435.89 13,955.07

Total AsseLs 24,160.34 24,011.71 29,682.17

CULLCIIL Liabilities 10,152.66 9,817.25 12.971.43

Loi,g-term Liabilities 11,930.02 10,665.21 10,919.19

TjLaI £uit y1,461.38 2,360.06 5.478.70

hid ice Lois

Debt/Equit y Ratio 89/11 82/18 67/33Debt 89 82 67

Equit. 11 18 33

Debt-Ser ice Cuwe

(times) 2.27 5.78

Cui-rent Assets/

Liabilities 1.35 1.27 1.08

Source: PIT's audited annual accounts.

1.27 1.66 1.63

(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

61.0

87.41986

60.5

83.91987

52.8

70.01988

51.7

70.01989

52.4

70.01990

52.6

70.01991

52.8

70.01992

53.0

70.01993

53.2

71.21994

53.2

74.21995

59.5

77.51996

61.6

79.61997

65.6

83.61998

68.6

86.61999

71.3

89.32000

73.0

91.02001

74.7

92. 7

a/ Price for sale to industry and domestic consumers ishigher.

Source: PTT

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

28Apnendix 10Page 1

ECONOMIC AND FINANCIAL RE-EVALUATION

A. Economic Re-evaluation

1. Costs

1. The major cost components considered in the economicre-evaluation were:

a. Economic Capital Costs

2. The economic capital costs were the investment costs i.e, thecapital expenditures of: (i) the main pipelines (the 425 km long 34"submarine pipeline and the onshore pipelines to EGAT plants) financed bythe World Bank, including the conversion costs of boilers; and (ii) theProject, less interest during construction (IDC), taxes and duties andgains/losses incurred in the foreign exchange transactions.

3. In addition, the cost of $57 million for the construction of 180km connection to the cement plants in Saraburi and the cost of $6 millionto convert two cement plants owned by Siam Cement Company to use gasinstead of fuel oil were included. This pipeline was completed in 1982 andthe expenditure was assumed to have been incurred in the preceding twoyears.

4. In the stand-alone evaluation of the Project cost only theProject components, excluding IDC, taxes and duties and gains/lossesincurred in the foreign exchange transactions, were considered.

b. Economic Cost of Feed Gas

5. The feed gas cost was derived from: (i) the adjusted purchaseprice of gas; and (ii) a depletion premium for use of non-replenishablereserves of natural gas.

6. The adjusted purchase price of gas was calculated by deductingfrom the purchase price the royalty paid by the concessionaire to theGovernment (12.5 per cent of purchase price)

7. The depletion premium of gas was estimated at $0.28 per MMBTU.The assumptions used were:

(i) adequacy of proven reserves for 25 years from 1982 (based on thepresent total reserves of 6.4 TCF and projected levels ofconsumption of natural gas).

(ii) the price of crude oil in 25 years projected to be $29 perbarrel, in constant 1987 prices, based on the World Bank'sprojections 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 10Page 2

c. Operation and Maintenance (O&M) Costs

8. Operation and maintenance costs for the whole distribution systemwere included.

9. All economic prices and costs were expressed in 1987 prices. Themanufacturing 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 usedlittle non-skilled labor.

2. Project Benefits

a. Overall Gas Development Proaram

10. The economic benefits realized from PTT's gas development programwere in terms of the value of equivalent heating value of fuel oil that wasto be replaced by natural gas. The calculation of benefit was based on thefollowing factors:

(i) The heating value of natural gas equivalent to 1,050 BTU percubic foot.

(ii) The heating value of fuel oil equal to 6.05 x 106 BTU perbarrel.

(iii) The price of fuel oil per annum based on the actual andprojected average price of crude oil as projected by theWorld Bank (released in February 1988), with the price thenadjusted 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 theexisting 34" pipeline is inadequately utilized both in terms of capacityand life (see paras. 33 and 34 of the main text). The gas supply contractbetween PTT and the concessionaire stipulated only the total quantity andeven though it was the expectation in the AR that 150 MMCFD would passthrough Platong platform and the Project pipeline, there was no contractualobligation of any specific quantity split between Platong and Erawanplatforms. In the event, the unrealized potential from Platong site didnot impair to any great degree the viability of the Project, as shortfallin gas supplies from Platong was made up by additional supplies from theexisting Erawan platform, without jeopardizing the intended economic lifeof the other Project component i.e. the OCS. The production shortfall atthe Platong site merely shifted some inevitably unused capacity within thesystem from the original 34" pipeline to the Project pipeline.

12. The Project pipeline was completed in March 1985. Supplies fromthe Erawan gas field were still below the 350 MMCFD capacity of the trunkpipeline and the commissioning of the Project pipeline facilitatedtransmission of additional gas produced at Platong. The incremental gas

30Appendix 10Page 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 streamand it helped increase supplies to consumers beyond the 350 MMCFD free flowcapacity of the downstream pipeline. At this stage, the higher of theincremental quantities facilitated by the Project pipeline or OCS was takenas the Project benefit.

B. Financial Re-evaluation

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

ph -t14

In

00 04f'L1

"4

•fc

I •.0

I

A-I.-

-

L

'.3-

31Appendix 10

Page 4

a00

C.

o t-. 4(4 -ø -. 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

L-0 -0 4 .11 C-i ('4 C-i ri I-i Cl c-i N. I ,-)r,r),- . 5-) -' -'

-; ; .; t i • -i) 5, -44 N, -.

o I', 4(1 .i1 - tIC - 0-SrI Ni Of'- III N' C F'- N- (.40 -.

'

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)

2; , 2- 2-

* a - - .0 P.- Ii, IC) P4 010 10 0 , 0-

II N. in t. N-A. a- a a a-. a- 00 a a UI' C. C' 0) 0

N. - CI I') .0 P.. - I" In .- 1.4 0- 0 - A 0 .54 C'P.. a- P-i I-. 0 - In hI .0 .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-

C) 0 C. C IC) Ci I". A' '0 IS) C •'4 NI IC) '0 .0 -II I'S C. I-- - a c- - I-. c-i 4 ,-, , ,.-, ., -. 1(1 .3) . I-) A-0' 5' .0 II') II) 4(1)1 In III Ii') In IC) .0 '0 -ON-I-f'.

3 ! 2

;; ;: ;: . .-• -.

-

0-C.

I') . 0 - .0 I'- PC) a- 0.0

a- N.

-.-

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

('4, 'UN. Co Ni

;:j ; -rN-

Z' N. a - ' 2-

a- a- a- a- a- a- a a- 0.0- 0 C- I) 0 47 4, Cl C--.

00

I-0

PTT's Gas Development ProgramEconomic Costs

(In 1987 constant prices)

Naturil Sac Tr&nsaisin Project IO..D BANE PROJECTTITAL FORE1BOX FORE!BN LOCAL

FOREIEN C3RRENCY EXPENDITURE LOCAL CURRENCY EXPENDITURE EIPENDITURES EICRAN6E CURRENCY EXPENDITURES CURRENCY EXPENDITURES OTHER COSTS a

Current Current Local 1987 Prices 1997 Prices Correct 1987 1987 Current once Current 1987Current Foreign Price 1987 1987 Price Econosic Price Econosac Econosic Prices Price Price EconoEc Price TOTAL

Year

Prices MIJV index Price Price (end tan (SCF 0.91 IndexI No I Mn B Mn 6 IOC (1997100( 4 Mn I Mi R Mn $ M B Mn (SF 0.9) 8 Mn

Mn

1977

0.731980

0.80

1991

0.80

1992

0.791993

1.564

0.77

2.03 52.82 10.8831984

5.517

0.76

7.29 189.54 6.5241905

21.596

0.16

28.25 734.46 86.3651986

5.543

0.90

6.16 160.13 23.7221987

0.543

1,00

0.54 14.-12 15.693

1988

(0.1661

1.07

-0.15 -4.02 1.6541989

1.121990

1.101991

1.111992

1.121993

1.131.14

1995

1.151996

1.231997

1.321998

1.421999

1.522000

1.64

2001

10.566.28

81.1321.9514.121.45

0.590.740.850.89

9.19 0.93

5.31 0.94

77.73 0.96

21.35 0,97

14.12 1.001.49 1.03

1.051.081.111.141.171.201.241.271.301.341.311.411.45

20.42 5.0 6.92 179.87 0.77 19.81 11.83 34.16 :!o.7

20.48 146.24 185.90 4833.51 41.76 855.24 I6P.72 1041.83 5875.34

21.82 93.31 116.4á 3027.95 28.69 626.02 563.41 663.46 3691.40

23.00 9.24 11.70 304.20 2.76 63.48 57.13 63.91 368.11

63.38 23.00 9.29 12.05 313.39 1.72 39.56 35.60 38.39 351.79

195.32 23.64 50.00 66.07 1717.76 1717.76

815.59 27.16 48.00 62.1! 1632.44 1632.44

182.08 26.30 102.00 113.33 2946.67 2946.67

28.24 26.00 170.00 170.00 4420.00 4420.00

-2.57 68.00 63.40 1646.33 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 bySiu Cseeet Co.oan y to use gas instead of fuel oil.

33

Appendix 10Page 6

PTT's Gas Development ProgramCalculation of Adjusted Gas Price

LocalYear GAS PRICE ROYALTY Price ADJUSTEL)

12.507. Index GAS PRICE8/Mti8t.0 (1987100) B/tiMBtu

in 87 prices

1979

19E3i1 98219831984

19861987198819891 99t:1199117927 r

1 C 941 ç.?r;1 9Q6

1 77 /

•: i I

S /.

5?. iné) 1. C.'

H51 - /

11

/ 1 6

68 . 6

7. 1 97.487.1. 6'./. Sb6.6.166,556.5136 - 606. (6 65

I r• C)I

7.41/ • / (jFl .1:1 ,

• 1'1 . I

0.590.740.850.890.93o 940.96

1 .1. . C):.

1 . (1)131 • t. 1..1. 14I . 17I . 201.241. 27I. .1 • :1:!, 'I

1 . 4 11 . 41i

:i6. 2956. 42552955.7154.4146.2044. 1.T.4.',. 564.1.574 1. . 6 148. 67

. is:9. 7142. 1,542.'Li -14 - 86

'1 r'

'I 1. (,)

o cn I to(0,430 I -v

P .'- (C' -i

Ito0-

'!

I:

r

V.

S

S Pt1 -1p,I

01

to

9a

to

(0

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

'0 - - 0 4.444 to . " Lit 0-

Pu.)1_

14 141 4-4 Pu.0-o 4 4 to Li,

-.1 -

(.44 .41 .1

I 4,4 to - - Pu

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

; 2 . N N0' 0- 0- 0' CC' 0- 0' 0- 0- 0- 0- 0' 0' '4 1,4 N-I .P. 0 0 -0

4,4 0-4 0-1 -(4 1,4 (.4 14 1.4 (4 4-1 0.1 (.4 -0 'C C-I Pu ".4 (0

; . Li i i L'.4 C' C') 0- 0- 0 044 4'.) C'S 0 (0 a' a "4 (0 Ci, 0 - (0 441

g N414 '-.4 (II (4 (.1 (.44 (4 a a ij 0' '.4 0 0' a 0'.0. (.4 -0 "4 0. 0- "4 44 (.1 to 0' Oil 0 .0' 0 -0 •'4 '0 (0

- N-Sac 00.-Pu-.it'00,"0-Ol0-(4L,4(0(4'Co.. (-.3-0

- C' 144 4-) ti 4S- o (.41 1-1 to '.4 Lu -.4 0 (.9 0' 4,4 - ill a(0 0.4 to 1.41 044 C'S "1 (0 '" to (0 0 "1 0' • a .o NJ 0

1:2 2(04,4.'.

•'0toW0J.4'.4'.4'.I-4J '.4 .4"4 "4 to to to to to44 - -0 0' 49 .0 -4 a - 0 0 0 0 0 0 4,4 "4 - OR CR00 (.4 0' 0' 0' (41 (4 Pu 0 0 0 0 0 0 -o a i - -

J--4(0

0

.41 . '0 '.4 i "4 '.9 ".4 (049 0 IA (-3 0 (4 p4 (4 "40' '0-0 0.1 "S lit LII 0 0 '01)1 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 NN-

L a2Lj01 xpuadd'

I-ic

Year Year

1979

1919

1980

1980

1961

1981

1982

1982

1983

1983

1984

1984

1985

1985

1986

1986

1987

1987

1988

1988

1989

1989

1990

1990

1991

1991

1992

1992

1993

1993

1994

1994

1995

1995

1996

1996

1997

1997

1998

1998

1999

1999

2000

2000

2001

2001

PTT's Gas Development ProgramFinancial Cost

(In 1987 constant prices)

NATURAL 808 TRANSMISSION PROJECT WORLD BANK PIPELINE PROJECT

TOTAL FOREIGN LOCAL TOTAL

FOREIGN CURRENCY EXPENDITURE LOCAL CURRENCY EXPENDITURE EXPENDITURES FOREIGN CURRENCY EXPENDITURES CURRENCY EXPENDITURES EXPENDITS

-------------------------------------------------EXCI4AN6E---------------------------------------

Total Local 1987 Prices 1987 Prices

Current oreiqn Price 1987 1987 Current Price Finncia1 Financial Current 1987 1981 Current Price 1987

1987

Prices MXIV IcOn Price Price Price Index Prices Price Price Price

Price

$ BAn 8Mn(1987100) SAn SAn BAn SAn BAn BAn

BAn

0.73 0.59 20.42 5.12 7.04 182.95 0.9'l 19.81 33.57

216.52

0.80 0,74 20.48 166.24 208.47 5420.28 41.76 855.24 1155.74

6576.02

0.80 0.85 21.82 114.62 143.05 3719.33 28.69 626.02 136.49

4455.82

0.79 0.89 23.00 12.17 15.40 00.52 2.76 63.48 71.33

471.85

1.564 0.77 2.03 52.82 9.518 0.93 10.26 63.08 23.00 8.07 10.48 272.39 1.72 39.56 42.65

315.05

5.517 0.76 7.29 189.54 6.597 0.94 7.05 196.59 23.64

21.596 0.16 28.25 734.46 64.870 0.96 67.71 802.17 27.16

5.543 0.90 6.16 160.13 78.226 0.97 80.41 240.54 26.30

0.543 1.00 0.54 14.12 12.981 1.00 12.98 27.10 2&.00

(0.166) 1.07 -0.15 -4.02 (6.277) 1.03 -6.12 -10.15

1.12 1.05

1.10 1.08

1.11

1.14

1.11

1.20

1.15 1.24

1.27

1.30

1.34

1.37

1.64

1.41

1.45

OQ

xl

0.56'

I8' 5.517

1985 21.596

1980 5.543

1987 0.543

1988 LL..l86

1985

1 051

1992

1954

1995

1956

195?

09ç

2OC/

0.77 53.28

0.76 191.21

0,76 740.96

0.90 161.55

1.00 14.24

1.07 -4.06

1.12

1.10

1.11

1.12

1.13

1.14

1.15

1.23

.32

1.42

1.52

10.883 0.93

6.524 0.94

86.365 096

23.722 0.97

15.693 1.00

1.654 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

10.56 03.85

6.28 197.49

61.13 822.05

21.95 183.49

14.12 26.37

1.45 -2.61

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

38.73

53.66

31.81

43.31

57.49

57.49

57.49

57.49

57.4957•4e

57.49

57.49

57.45

57.49

61.8

60.5

52.8

51.7

52.4

52.6

52.8

53.0

53.2

53.2

59.5

61.6

65.0

68.6

7.3

72.0

74.7

7.63

7.56

6.60

6.46

6.55

0.58

6.60

6.63

6.65

6.65

7.44

7.70

8.20

8.58

8.91

9. 1

9.34

63.36

195.82

36.34

6.01

2529.42

34.92

5.77

2130.50

15.11

2.50

1737.51

17.20

2.8'

2375.92

15.38

2.54

3222.94

14.25

2.35

1950.74

14.56

2.41

2553.75

15.57

2.57

3273.72

16,65

2.75

3220.8'

17.80

2.94

3160.77

19.04

3.15

3358.84

20.96

3.46

3378.41

21.66

3.58

3468.64

22.39

3.70

3514.84

22.14

3.82

3545.87

23.91

3.95

3537.85

24.44

4.04

3528.44

25.17

4.10

ECOWO1C INTER1IAL RATE Dr RETURIIliITURAL SAS TRA$N1SSI9N PROJECT

0RE16 CORP Y E1PIlD1T1ME LOCAl. CORtY COPENDITORI TOTAl. UP: : :

- ---: PRBDN VD P8010 ETH PROJEr' 646 ADJUSTED 1 TOTAL. IPRICE 1E VALIE: ECONO1C1 £TYei- I Total Local 0987 I987ILESSSSP: 0IN/OWLATDJ: 6ASSUP?i.V 61 PRICE 8IJTALTY6*SPRICE IBASCOST:8&A 1ECUCOST:FIE1DhLuJ88 IBENEFIl IBEBEPITC.rr pnt Prjcn 1987 Cwreat Prici Prices Prcts mIZcD 1PCFD :IuIcD 1IOICVD : NIRFD IIRtu x 10 BfIBiBtv in 87 PRICES UN 1987 1II!ETL'fricen PIuvIidH PricF Pric, Eco.jr Ecouk 1 : :

Slit (19E71O0 BAr 1 !I (B7r 100) BAn BArt I LU I BBIJ:

327 327

314 314

379 350

450 350

4cc 35(1

4:17 350

41.3 350

613 350

68:1 350

743 350

813 350

863 350

81.3 350

863 350

863 350

86:1 Wi

£13 :150

57.7

67.8

29 67.0

100 70.0

140 70,0

83 52.0

113 10.0

150

150

150

150

150

150

150

150

ISO

ISO

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

0.00 -63.38

0.00 -195.85

3319.02 790.60

1687.43 -542.01

1898.03 160.52

2533.65 157.72

3284.96 62.0

1990.94 34.20

2897.67 34:1.92

4113.05 B3c.

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

01)

m

o

37Appendix 10Page IC

Natural Gas Transmission ProjectEconomic Cost

(In constant 1987 prices)

TOTAL

FOREIGN CURRENCY EXPENDITURE LOCAL CURRENCY EXPENDITURE EXPENDITURE

Total Current Current local 1987 Prices 1981 Prices

Current Foreign Price 1987 1987 Current Price Economic Price Economic Economic

Prices MUY Index Price Price Price (exci tax (SCF 0.9) Index

I Mn I Pin B Mn a/ B Mn & IDC) (1987:100)

B Pin

Year

1983 1.564 0.77 2.03 52.82 10.883 10.88 9.79 0.93 10.56 63.38[984 5.517 0.76 7.29 189.54 6.524 6.52 5.87 0.94 6.28 195.82

1985 21.596 0.76 28.25 734.46 86.365 86.31 77.73 0.96 81.13 815.59

1986 5.543 0.90 6.16 160.13 23.722 23.72 21.35 0.97 21.95 182.081987 0.543 1.00 0.54 14.12 15.693 15.69 14.12 1.00 14.12 28.24[998 (0.1661 1.07 -0.15 -4.02 1.654 1.65 1.49 1.03 1.45 -2.57

1989 1.12 1.05

1990 •1.10 1.08

1991 1.11 1.11

1992 1.12 1.14

1993 1.13 1.17

1994 114 1.20

1995 1.15 1.24

1996 1.23 1.27

1997 1.32 1.30

1998 1.42 1.34

1999 1.52 1.37

2000 1.64 1.41

2001 1.45

a! US$1.00 B 26.00

:

P1o a C4

C---

38-

'4

)r 0 0 0 0 0 0 0 CM C') SC 0 .0 '0 CI C. F'-

Appendix 10

Page 11

I-00(0 CI

A- C- a)

a C(0 -

.4) a)0. C

(A 4))

3*

(0 I

C)001 2 !s

0.

a)-.10 I a

I -

I 12 (0 I.

-

I-

U

I 0 i

3

• a. S a C• -I 0-..

-

C) • 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 :2C-):-, C-I ..3* )C. .4) I-. -4 Ca .I (A C . --0 43 In SI *4- - - * • .4- - MM S) WI * 4 I.?

o In IS r- 0 '0 0 0 CM C-I CCI 4) .4) .41 C.') C

C::

US 0 0 0 0 0 e 0 0 0 0 0 C. 0 0 0

C- 0 000005- C- I-C) 0 CM 0

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

3 3333333

C-CC. F') C) P P-j) CM I_I C-) C-) C-) •.fl 53) F')

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

F)

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

F I- 5- 0 0 0 - -. 43

39

Appendix 11

Environmental and Safety Aspects

1. At appraisal, it was noted that an environmental impact statementprepared by PTT's consultants for construction of the 425 kin offshorepipeline from Erawan to Rayong and its onshore connection to South Bangkokpower plant had concluded that there was no likelihood of any significantenvironmental effects and that similarly the Project pipeline was also notexpected to cause any adverse environmental impact. Between October 1980and November 1981, PTT organized cruise surveys before, during and afterconstruction of the 425 km pipeline to study its environmental impact. Thestudy concluded that temporary changes of water quality occurred but therecovery rate to normal conditions was faster than expected. The amount ofdemersal fish catches during three cruises had not changed significantly;in fact, in one experiment at a location near a production platform, thecatches for certain pelagic fish had increased. Another study forassessing the environmental impact of onshore pipeline constructionconcluded that there were no observable permanent adverse impacts onecology or environment.

2. The PTT confirmed that the submarine pipeline and OCS had beenconstructed in accordance with international safety standards andsufficient safety devices had been installed at the offshore and onshorefacilities to isolate and protect persons, plant and property from anyserious damage. No major leaks had so far occurred. The first annualtechnical and safety audit of OCS identified no major problems. Aninsurance audit was also planned on a two-year frequency basis. Sincestart-up, PTT had also commissioned a local university to carry out acontinuing computer simulation of different scenarios of gas leaks and/orbursts with a view to suggesting methods of proper isolation of damagedsections and procedures for responding to such emergencies. As moreoperational experience was gained, safety systems and devices were beingimproved and additional safety features incorporated into personneltraining.

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

60 days after dateof loan agreement

12 months after (a)

40

Commitment Char'es on loans from the Bank'sOrdinary Capital Resources(Effective 1 July 1987)

Portion of the Loan Commencement Date

Subject to the Charge of the Charge

(a) 15 per cent of the loanless amount disbursed

(b) 45 per cent of the loanless amount disbursed

(c) 85 per cent of the loanless amount disbursed

24 months after (a)

(d) 100 per cent of the loan 36 months after (a)less amount disbursed

Source: Board Doe. R84-87, Net Income Targets andReduction in Loan Charges, dated 27 July 1987.

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

RESTRICTED

ASIAN DEVELOPMENT BANKThis Report has been prepared forthe 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

Project Completion Review(August 1982)

(May 1987)

$ 1.00 - $ 0.0435

5 1.00 - $ 0.0390

$ 1.00 - $23.00

$ 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 30September.

(ii) In this report, "$" refers to US dollars.

PROJECT COMPLETION REPORT

OF THE

NATURAL GAS TRANSMISSION PROJECT(Loan No. 622—THA)

IN THE

KINGDOM OF THAILAND

AUGUST 1987

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

(Al)

TABLE OF CONTENTS

Page

MAP - LOCATION OF PROJECT SITE

(All)

BASIC DATA

(All!)

I. PROJECT DESCRIPTION

Al

A. Objectives, Rationale and Scope

Al

B. Implementation Arrangements

Al

II. PROJECT HISTORY

A3

A. Preparation and Appraisal

A3

B. Implementation A4

III. EVALUATION OF PROJECT IMPLEMENTATION

Al 2

A. Project Components

Al2

B. Engagement of Consultants and Procurement of

Al2

Goods and ServicesC. Performance of Consultants, Contractors and

Al 2

SuppliersD. Project Costs A13

E. Disbursements A14

F. Project Schedule Al4

C. Conditions and Covenants

A14

H. Environmental Impact

A14

I. Project Benefits

A15

J. Performance of the Borrower and

A15

Executing AgencyK. Performance of the Bank

A16

IV. CONCLUSIONS AND RECOMMENDATIONS

A18

A. Conclusions A18

B. Recommendations

A18

APPENDIXES

A20

120

Km

(xii)T98 F 102° E

THAI LANDNATURAL GAS TRANSiVIISSION PROJECT

BANGKOKSouth Bangkok ij'i

Power Plant " Bang Pakong Power PlantRatchaburi -'

0 i-' 0? T H A I LA N D

• PTT Operations CenterOnshore Pipeline

Bangkok Onshore

PRO.IFCT Compressor Station

j ,CATION I.

Rayong0

U=

- Gulf of ThaindSathip Scale

LPG PlantI

S 12°N

C)

(

Gulf of Thailand

(

JOffshore Pipeline

Chumpon

H /gflflg 7aPhon Structure

/ CPlatong Structure

A n d a m a n24" Q Pladang Structure

Satun Structure

Erawan StructureSurat Thani 0

s e a Baanpot StructureIJnocaI (Union Oil)

Platform

8° N

OphuketTX5=e

Phatthalung oLEGEND: 0

Trang

Gas Fields

Existing Gas Transmission Songkhlaon Lines

- - - Gas Pipeline

IJ Project Areasj

&I

- International Boundaries ---- Narathiwat- (Boundaries not necessarily authoritative)

S

98°F 102°F

8° N -I

(Aili)

BASIC DATA

A. Loan Identification

1. Country2. Loan Number3. Project Title4. Borrower5. Guarantor6. Executing Agency7. Amount of Loan

OriginalRevised

B. Loan Data

1. Appraisal- Date Started- Date Completed

2. Loan Negotiations- Date Started- Dated Completed

Kingdom of Thailand622-THANatural Gas TransmissionPetroleum Authority of Thailand (PTT)Kingdom of ThailandPTT

$87,000,000.00$40,000,000.00 1/

9 August 198227 August 1982

22 November 198225 November 1982

3. Date of Board Approval 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 InitialDisbursement

- Date of FinalDish 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, theBank approved the request of the Borrower to reduce the Bank loanfrom $87.0 million to $40.0 million prior to the signing of the loanagreement (see Board Doc. No. R6-84 dated 16 January 1984).

Actual

37,4675,127

42,594

10,33323,8908,371

42,594

F.C. L.C.

18,567 1,071

6,191 2,061

912 527

4,398 701

4,914 -

- 3412,485 217

- 209

(Aiv)

C. Project Data ($'OOO)

Appraisal EstimateOriginal Revised 1/

1. Project Cost

(a) Foreign Exchange Cost 102,000

50,000(b) Local Cost 33,000

12,000(c) Total Cost 135,000

62,000

2. Financing Plan

(a) Borrower Financing 33,000

12,000(b) Bank Financing 87,000

40,000(c) Other External Financing 15,000

10,000(d) Total 135,000

62,000

3. Cost Breakdown by Project Components

F.C. L.C.

(a) Offshore Pipeline andTie-In 18,752 886

(b) Onshore CompressorStation 9,000 1,000

(c) Supervisory Control andData Acquisition System 948 114

(d) Consulting Services 5,000 1,400(e) PTT's Facilities on and

near Union Platform 5,000 300(f) Training including

Project Management Cost 200 -(g) Interest During Construction 3,000 -(h) Taxes and Import Duties - 6,500(1) Physical Contingency 3,890 370(j) Price Contingency 4,210 1,430

Total 50,000 12,000

4. Project Schedule

37,467 5,127

AppraisalEstimate Actual

(a) Consulting Services

(i) Recruitment of Consultant

Date Started Mar 1982 Mar 1982Date Completed Dec 1982 Jan 1983

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

Aug 1984

Aug 1984Dec 1984

Jan 1985

Oct 1984

Nov 1984Mar 1985

Feb 1985

Jun 1984

Jan 1985Jan 1985

Dec 1986

Jan 1985

Aug 1985Mar 1985

May 1987

May 1983

Feb 1984Oct 1983

Jul 1984

Jan 1985

Jan 1985Mar 1985

Nov 1986

Sep 1984

Nov 1984Dec 1984

Oct 1985

Jan 1985

Jan 1985Mar 1985

Mar 1987

(Av)

(ii) Duration of Consultant's Work

Date StartedDate Completed

(b) Offshore Pipeline and Tie-In

(1) Construction

Date StartedDate Completed

(ii) Testing and Commissioning

Date StartedDate Completed

(c) Onshore Compressor Station

(1) Construction

Date StartedDate Completed

(ii) Testing and Commissioning

Date StartedDate Completed

(d) Supervisory Control and DataAcquisition System

Ci) Procurement

Date StartedDate Completed

(ii) Testing and Commissioning

Date StartedDate Completed

(e) Staff Training

(i) Overseas

Date StartedDate Completed

(ii) Local

Date StartedDate Completed

Dec 1982

Jan 1983Mar 1985

Jun 1987

No. ofPersons

2214122

2223

No. ofMandays

10.010.06.0

29.010.01.51.3

1.51.21.2

30.0

Specialization 1/of Members

ea, eaa,bae, fe,f

e,fe,fe,fa,h,i

(Avi)

D. Data on Bank Missions

Type of Mission Date

Inception 11-15 Apr 1983SPA 1-6 Jun 1983

14-19 Sep 1983Review 6-15 Feb 1985

4-13 Mar 1986Disbursements 2-19 Apr 1986

16-31 Oct 198528 Feb-15 Mar

198514-24 Oct 198418-28 Mar 1984

PCR 12-22 May 1987

1/ a-engineer, b-financial analyst, c-counsel, d-economiste-procurement/consultant specialist, f-control officerg-country officer, h-senior assistant, i-trainee under a secondmentprogram.

I. PROJECT DESCRIPTION

A. Objectives, Rationale and Scope

1. The main objective of the Project was to utilize the naturalgas reserves in the Platong group of gas fields to replace imported oilproducts in meeting the energy needs of the country. The Project wasenvisaged to reduce the country's dependence on imported oil and therebyhelp the country save foreign exchange. The Project was also intendedto increase Government revenue from oil concessionaires, who would beencouraged to develop those offshore gas fields that had goodexpectations for production of natural gas that would be sold to PTT.The Project was justified from the viewpoint of the development andutilization of indigenous energy resources to replace high-cost importedoil.

2. The major components of the Project were:

(i) construction of a submarine pipeline of about 43 km inlength and about 24 inches in diameter to link the Platonggroup of gas fields to the existing 34 inch diameteroffshore pipeline;

(ii) construction of an onshore gas compressor station of about16,000 hp, including auxiliary facilities to increase thetransmission capacity of the existing 34 inch diameteronshore 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 operationand maintenance of all Project facilities.

B. Implementation Arrangements

3. The Petroleum Authority of Thailand was the Borrower andExecuting Agency for the Project. For Implementation and operation ofthe Project, it was agreed that PTT would designate one of itsdepartment directors or another officer acceptable to the Bank as thechief executive to be responsible for overseeing the Project. •PTT wasalso to designate a qualified Project Director to be responsible for theday-to-day implementation of the Project and for reporting to the chiefexecutive on Important matters. A consulting firm was to be engaged toassist PTT in Project implementation, particularly in the preparation ofbasic engineering design, specification of materials and equipment, andpreparation of tender documents for the offshore pipeline and onshorecompressor station. PTT was to form a team of counterpart staff to

1/ SCADA system was originally included in (I) above, as discussed inpara 17.

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assist the consultants in planning, organizing, co-ordinating andcontrolling all engineering, procurement and coistruction activities.During the construction phase of the Project, PTT was io recruit about40 additional staff to be trained in the operation and maintenance ofProject facilities. Project imp1mentation was to be completed In March1985.

A3

II. PROJECT HISTORY

A. Preparation and Appraisal

4. Petroleum exploration in the Gulf of Thailand since the early1970s has resulted in the discovery of substantial gas deposits in twoconcessions, one belonging to Union Oil Corporation and partners, andthe 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'sErawan fields to the Bangkok area. This gas transmission system consistsof a 34 inch diameter, 425 km long offshore submarine pipeline; a 28inch diameter, 170 km long onshore pipeline; and an onshore dew pointcontrol unit at Rayong.

5. In January 1981, the Bank approved technical assistance in theamount of $40,000 to the Government of Thailand for the appointment of apipeline technologist-consultant to assist PTT in completing thefeasibility study for the then - proposed Natural Gas Transmissionproject. The proposed project was designed to transport gas from theUnion Oil's Platong group of gas fields through interconnection withPTT's existing main offshore submarine pipeline, to increase theavailability of natural gas in Thailand and make fuller use of existinggas transmission facilities.

6. The scope of the proposed project was originally based on anenvisaged 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 presentedto PTT for its consideration several proposals for increasing gassupply. In May 1982, PTT entered into a gas purchase agreement with theconcessionaires for a gas supply of 300-400 NMCFD with a peak deliveryof an additional 15 per cent from the Platong and four adjacent fields.In view of Increased availability of contracted gas supply, the scope ofthe proposed project was revised accordingly and further Bank assistancefor project preparation and project financing was requested by PTT in ameeting with Bank staff held in Manila in March 1982. The Bank's offerto finance an optimization study for the revised project was notaccepted by PTT, as the time required under the Bank's Guidelines forRecruitment of Consultants would not permit such a study to be completedby June/July 1982, as was desired by PTT. The necessary study on therevised project was financed by the Government of Canada on a grantbasis. In early June 1982, Bank staff, at the request of PTT,participated In the preliminary review of the consultant's draft reportand assisted In finalizing the scope of the project. In late June 1982,Bank staff, also in response to a request from PTT, attended theconsultant's presentation of the draft final report of the Project. Thefinal report of the consultant was received by the Bank In July 1982.

7. An Appraisal Mission that visited Thailand from 9 to 27 August1982 found the proposed project to be technically feasible, financiallysound, and economically viable. In December 1982, the Bank approved aloan of $87.0 million from its ordinary capital resources to PTT tofinance major portion of the foreign exchange requirement of theProject.

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B. Implementation

1. The Executing Agency

8. PTT is a Government-owned corporation established in December1978 to engage in and promote a full range of petroleum andpetrochemical - related business activities.

9. For the implementation and operation of the Project, PITformed a Project Office to coordinate with the Bank and the consultants,particularly in the areas of procurement, construction, and start-up andcommissioning activities. The Project Office, through its ProjectDirector, regularly reported the progress of Project implementation tothe PTT Board of Directors and sought their advice from time to timewhen there was significant change in Project requirements. The ProjectOffice consisted of five administrative staff and 13 technical staff.The organization chart of the Project Office or project task group Isshown in Appendix 1.

10. Since the inception of the Project, PTT itself has grown to beone of the largest corporations in Thailand. It now has seven functionalgroups: (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 DeputyGovernor. At present, PTT employs about 3,424 personnel, including sevenDeputy Governors and seven Assistant Governors. The organization chartof PTT is shown in Appendix 2.

2. Loan Effectiveness

11. The loan was approved by the Bank on 22 December 1982.However, the signing of the Loan and Guarantee Agreements was delayedsubstantially because of PIT's decision to await the opening of bids forthe offshore pipeline construction and tie-in and for the onshore gascompressor station; this decision was made by PTT as it anticipatedsubstantial cost savings due to some modifications of the dimensions andplacement method of the pipeline as well as strong competition among thesuppliers/contractors.

12. When the bids for the offshore pipeline and tie-in and onshoregas compressor station were opened, in October and November 1983,respectively, PTT found it possible to reduce the Project cost in theorder 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 theexpected price decreases In the two major bid packages, the provisionsin the Bank loan for meeting price contingency and interest duringconstruction 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 ofthe amount by $47.0 million prior to the signing of the loan documentswas circulated in January 1984.

A5

13. The Loan and Guarantee Agreements were signed on 13 February1984. As stipulated in the Loan Agreement, the due date for loaneffectiveness was set at 13 May 1984. The submission of the legalopinion and PTT's arrangements for securing foreign commercial banks'loan to finance the remaining portion of the foreign exchange costs ofthe Project were the major conditions for loan effectiveness. The duedate for loan effectiveness was extended by three weeks due to a slightdelay in the submission of the legal opinion by the Government. The loanwas declared effective on 5 June 1984.

3. Recruitment of Consultants

14. The initial steps regarding recruitment of consultants for theProject were taken by PTT prior to the approval of the Bank loan. Thisincluded the preparation of (1) a letter of invitation; (ii) evaluationcriteria; and (iii) a draft consultancy contract.

15. In March 1982, the Bank provided PTT with a longlist ofconsulting firms from which PTT made a shortlist of seven firms. In May1982, PTT issued the invitations for submission of consultancy proposalsto the seven shortlisted firms. Contract negotiations with thefirst-ranked firm were concluded by PTT in the later part of 1982. TheBank decided not to finance the cost of the consulting services becausesome procedures taken prior by PTT to the loan approval were not inaccordance with the Bank's Guidelines on the Use of Consultants. PTTaccepted this decision and financed the cost of the consulting servicesusing its own resources and funds under co-financing arrangements.Although the Bank did not finance the services of the consultants, itreviewed a draft negotiated consultancy contract prior to itsfinalization. After the Bank's approval of the consultancy contract on25 February 1983, PTT hired an American consulting firm. This firmcommenced 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 foreignexchange and $O.701 million equivalent in local currency cost.

4. Procurement

16. The procurement of major equipment and materials was carriedout in three packages in accordance with the Bank's Guidelines forProcurement. These three packages were: (1) Package No. 1 - OffshorePipeline 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 offshorepipeline component of the Project. In August 1983, PTT requested Bankapproval to separate the SC/WA system from the offshore pipelinecomponent. The Bank approved PTT's request in light of thejustification that the equipment should be compatible with PTT'sexisting telecommunication system and that the prospective supplierswere not only specialized but also quite different from those for theoffshore pipeline and tie-in construction.

A6

18. On 17 March 1983, the Bank received the draft prequalificatlondocuments, including the evaluation criteria for the offshore pipelineand tie-in and the onshore compressor station. The prequalificationdocument for the offshore pipeline, which was approved by the Bank on 18March 1983, was issued on 21 March 1983. Prior to the issuance of theprequalification invitation, PTT requested Bank approval to reduce theperiod for the contractors to respond to the prequalificatlon from 60days 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 dayfrom delays in project implementation. The request of PTT was approvedby the Bank on 17 March 1983. The draft tender documents for theoffshore pipeline and onshore compressor station were approved by theBank on 1 July 1983 and 29 July 1983, respectively.

19. On 5 July 1983, the Bank received PTT's prequalificationevaluation report for the offshore pipeline and tie-in. Nine firmssubmitted their prequalification proposals on 9 May 1983. PTT evaluatedthe prequalification proposals with assistance from the consultants.Out of the nine firms, PTT prequalifled only the five firms thatobtained 60 points or more out of the 100 points. Of the five firms thatwere recommended by PTT for prequalification, the Bank, on 22 July 1983,approved only four firms, because one firm was not from an eligiblemember country of the Bank.1/ The tender documents for Package 1 wereissued to the four prequalified firms on 5 August 1983. The deadline forsubmission of bid was set at 4 October 1983.

20. On 1 December 1983, representatives of PTT visited the BankHeadquarters to discuss the result of bid evaluation for Package No. 1.On 29 December 1983, the Bank approved PTT's recommendation to award theturnkey contract for the offshore pipeline and tie-in to a Japanesefirm, the lowest evaluated bidder. The contract was signed on 28February 1984.

21. With regard to Package No. 2, the invitation forprequalification for turnkey contractors was issued on 23 March 1983.Out of the 31 firms that submitted prequalification proposals, PTT, inconsultation with the consultants, recommended 11 firms/consortiums forprequalification to bid for the onshore compressor facilities. Theprequalification evaluation report was received by the Bank on 9 August1983 and was approved on 19 August 1983. The tender documents wereissued to eleven prequalified firms on 9 September 1983. The deadlinefor submission of bid was set as 8 November 1983.

22. On 30 March 1984, PTT advised the Bank that it might commencecontract negotiations with the lowest evaluated bidder in order toexpedite the award of contract while waiting for Bank's approval. In itsrep]' the Bank advised PTT that for the contracts to be awarded onthe oasis of international competitive bidding, procurement actionsshould be subject to the review and approval by the Bank. PTT wasfurtFwr 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 assumethe possible risk of the Bank not financing the proposed contract. PTTagreed to the Bank's view that it should contact the lowest evaluatedbidder for contract negotiations after Bank's approval.

23. From 23 to 24 April 1984, representatives of PTT visited theBank to clarify with Bank staff some complicated technical matters aswell as the financial considerations applied by PTT in the evaluation ofbids. The Bank's concurrence on PTT's recommendation to award thecontact to another Japanese firm, the lowest evaluated bidder, was madeafter the Bank was satisfied with the technical clarifications given byPTT. The contract was signed on 26 July 1984.

24. Even though the Bank approved PTT's request that the SCADAsystem could be procured under direct purchase/negotiation because ofits compatibility with the existing system, PTT invited three firms, oneeach from Japan, Sweden and the United States, in order to procure theitem more economically. Of the three firms, two firms did not respondto the invitation; only the Japanese firm responded. Negotiations withthe Japanese firm were held from 25 April 1984 to 4 May 1984. Thecontract was signed on 26 July 1984.

5. Civil Works and Installation of Machinery and Equipment

25. The offshore pipeline turnkey contract was for theconstruction of a submarine pipeline of about 38 km in length and 24inches in diameter, to link the Platong group of gas fields to theexisting 34 inch diameter main offshore pipeline. During the initialstage of construction of the Platong offshore gas pipeline, PTT and thecontractor found that the two valves at the tie-in location of theexisting 34 inch pipeline were malfunctioning. Several attempts to closethe two valves completely were made from 4 to 16 September 1984, butthese were not successful. As it was not possible to close the valvestightly, gas was leaking into the tie-in portion of the assembly. Inview of this, the contractor, together with the consultants, concludedthat it would be impossible to carry out the originally plannedconnection (tie-in) method within the agreed time frame. So as tocomplete the construction of the offshore pipeline on time, thecontractor suggested to PTT the adoption of a "contingency plan," underwhich the tie-in would be made by a bypass piping system in a placedifferent from the originally planned location.

26. Negotiations for the adoption of the contingency plan betweenPTT and the contractor were concluded in October 1984. In November 1984,PTT requested Bank approval for an amendment to the contract, involvingan 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 Bankapproved the proposed amendment on 25 January 1985. The implementationof the contingency plan was divided into two stages. Stage I was for thedesign, procurement, inspection and transportation of necessary pipingcomponents. Stage II was for the fabrication, installation, testing,

atering and conunissioning of the by-pass piping system. The

A8

construction of the offshore pipeline was completed in mid-February1985, with a delay of only 1.5 months. The offshore gas fields andsubmarine pipeline diagram including that under the Project is shown inAppendix 3.

27. The completion of the onshore gas compressor stationconstruction was delayed substantially. Based on the implementationschedule specified in the turnkey contract, the onshore gas compressorstation was to be completed by August 1985. However, it was declaredcompleted only in May 1987, after a successful test-run on 17 May 1987.This represented a nearly 20-month delay. The delay was attributedmainly 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 Managersbecause of unsatisfactory performance; and (lv) substantial delaysincurred in the initial testing and commissioning. The technicalproblems at the testing stage were as follows: (i) the damaged guidevane of gas generator Unit No. 2 and high vibration on gas generatorUnit No. 1; (ii) loss of lube/seal oil on the turbine/compressor units;and (iii) improper functioning of the anti-surge control system. Thecontractor in consultation with equipment suppliers has carried outsubstantial remedial measures to solve the technical problems. In spiteof all efforts made by PTT, the contractor, and the consultants, thecompletion of the onshore gas compressor station was delayed until May1987. The contractor had to make payments under the penalty clauseconcerning late commissioning.

28. As regards to the SCADA system, the installation of relevantequipment went smoothly. Testing and commissioning of the system wascompleted as scheduled, in September 1985. However, the final acceptancetest could not be made immediately thereafter, because of thenon-completion of the onshore gas compressor station at that time. Thistest was completed only in November 1986.

6. Compliance with Loan Covenants

29. PTT generally complied with the loan covenants stipulated Inthe Loan Agreement (see Appendix 4 for details) except for the covenantson (1) the recruitment of additional staff prior to the start-up ofProject facilities; and (ii) the debt/equity ratio for FY1982/83. Asstipulated in Schedule 6 of the Loan Agreement, PTT would recruit about40 key technical staff during the construction phase of the Project andtrain such staff as necessary prior to the operation of the Project.Instead of recruiting the additional staff members, PTT used theservices of their regular technical staff from its two divisions andprovided them with basic training in the operation and maintenance ofProject facilities.

30. The major financial covenants stipulated in the LoanAgreernnt 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 servicecoverage ratio of not less than 1.2 for each year of the fiscal yearsfrom F"1982/83 to FY1984/85 and 1.5 thereafter. PIT complied with all

A9

the above financial covenants except for the debt/equity ratio during1982/83, as shown in the following table.

Table 1: PTT's Financial Ratios from FY1982/83 to FY1985/86

Fiscal Year 1982/83 1983/84 1984/85 1985/86

Debt/Equity Ratio 82:18 67:33 58:42 62:38Current Ratio 1.3 1.1 1.3 1.7Debt Service Ratio 2.3 5.8 2.3 1.5

7. Staff Tralnin& Program

31. During Project implementation, PTT carried out staff overseastraining satisfactorily with its suppliers/contractors of the threeturnkey contracts. PTT also provided its staff with necessary localtraining in the operation and maintenance of project facilities. Thedetails of staff training status is shown in Appendix 5.

8. Utilization of Loan Proceeds and Disbursements

32. Out of the $40.0 million Bank loan, PTT has utilized only$23.89 million equivalent, cancelling the remaining portions of $8.0million and $8.11 million, in August 1985 and April 1986, respectively.The first cancellation was based on the expected cost savings at thattime. PTT's proposal for the second cancellation was to cancel all loanbalances at that time, involving (i) an amount of about $2.2 million ofcost savings; and (ii) an amount of about $5.9 million, which was theundisbursed portion of then existing Bank-financed contract. While theBank did not have any problem in the proposed cancellation of $2.2million, the Bank advised PTT to reconsider the cancellation of $5.9million. However, PTT insisted on its proposal for cancellation of theentire $8.1 million, claiming that it could finance the undisbursedportion under the Bank-financed contract from its own resources and thatthe contractor had no objection to the proposed change in the financingsources. After satisfactory clarifications by PTT on its financialposition, the Bank approved the cancellation of the $8.1 million on 5August 1986, with effect from 24 April 1986.

33. During loan negotiations, it was projected that disbursementsof loan proceeds would continence during the fourth quarter of 1983 andwould be completed in the second quarter of 1985. Due to delays in theloan signing and in loan effectiveness, the disbursements of loanproceeds commenced only in September 1984. The last disbursement of$19,904.46, for the SCADA system, was made in March 1986. Table 2 showsthe actual disbursements against the . allocation of loan proceeds undereach category.

AlO

Table 2: Allocation of Loan Proceeds and I)isbursements($ million)

AllocationCategory as Modified in 1984 Disbursements

Offshore Pipeline andTie- In

11. Onshore Gas CompressorStation and OtherFacilities

III. Interest and CommitmentCharges During Construction

IV. Unallocated

Total

19.800

19. 222

9.100

2.183

3.000

2.485

8.000

40. 000

23. 890

== = =

34. When PTT requested its first cancellation of $8.0 million, italso requested an extension of the Loan closing date from 31 December1985 to 30 September 1986 to enable PTT to make some remaining paymentsunder the existing Bank-financed contracts. The request was approved bythe Bank on 14 August 1985. However, the loan account was closed on 24April 1986, when all remaining balances of the loan were cancelled.

35. With the concurrence of the Guarantor, PTT advised the Bank on17 December 1986 that PTT would like to make a partial prepayment of theloan, subject to the Bank's approval of PTT's proposal for a waiver ofany prepayment premium. Later on, PTT further advised the Bank that itwould prepay all outstanding loan balances of about $23.890 million.After careful review of PTT's financial status and relevant Bankprocedures, Bank Management approved PTT's proposal for prepayment withwaiver of prepayment premium. The first prepayment of $21.023 million 1/equivalent was made on 16 March 1987, while the prepayment of theremaining balance of the Bank loan of $2.867 million 1/equivalent was made on 26 March 1987. With this full payment, PTT hasno 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 exchangecost of $102.0 million and a local currency cost of $33.0 million. Theactual Project cost as of May 1987 was computed at about $42.6 million,

IT These amounts are only indicative figures corresponding to thedisbursed amounts, applying the exchange rates at the time ofdisbursements. If the exchange rates at the time of prepayment areapplied, the equivalent dollar amounts are $32.350 million and $4.134million, respectively.

All

consisting of $37.5equivalent in localabout $92.4 millionestimate. However,between actual costlatter was abruptlyloan agreement.

million in foreign exchange cost and $5.1 millioncurrency cost. There was, therefore, a cost saving ofequivalent compared with the original Project costit is not especially meaningful to make a comparisonand the original Project cost estimate, as the

reduced to $62.0 million before the signing of the

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 Projectcost, as discussed in paras 11 and 12. The revised Project cost inJanuary 1984 was $62.0 million, consisting of $50.0 million in foreignexchange 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 detailedcomparison of the estimated and actual Project costs is shown inAppendix 6.

10. Project Implementation Schedule

38. As compared with the original project implementation schedule,the Project incurred a delay of about two years. The overallimplementation of the Project was scheduled to be completed by March1985. However, because of substantial delay In the completion of theonshore gas compressor station, the Project could not be completedwithin the scheduled time frame. The onshore gas compressor station wasthe only Project component that Incurred substantial delay in itsimplementation (see para 27). Appendix 7 shows a detail comparisonbetween the original and actual project implementation schedules.

11. Initial Operations

39. The Project commenced its operation immediately after thesuccessful commissioning of the onshore gas compressor station, inmid-May 1987. From 15-31 May 1987, an average of 428 MMCFD of naturalgas was delivered to PTT for distribution to end-users. Details ofnatural gas supply to PTT during the period 15 to 31 May 1987 from thethree gas fields is shown In Appendix 8. From the latter part of 1987,PTT is expected to take from the concessionaire an average of 400-450MMCFD of natural gas, which will be increased to 475 MNCFD in 1988 and500 MMCFD in 1989.

Al 2

III. EVALUATION OF PROJECT IMPLEMENTATION

A. Project Components

40. There was no change in the scope of the Project. Allcomponents of the Project were carried out as originally planned.However, the diameter o the offshore gas pipeline was reduced from 28to 24 inches. PTT deciued to reduce the size of the pipeline diametertaking into account the gas reservoir of the Platong group of gas fieldsand the projected gas demand in 1983. In retrospect, the decision toreduce the diameter of the pipeline was correct, and it contributed tosubstantial 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 ofconsultants prior to the loan approval in December 1982. FollowingPTT's early action, the Bank decided not to finance the cost of theconsulting services because PTT did not follow the Bank's Guidelines onthe Use of Consultants. PTT did not object to the Bank's decision.Even though the Bank did not finance the cost of the consultingservices, PTT still consulted the Bank in almost all steps of it'srecruitment process. PTT's procedures were considered fair, efficient,and acceptable to the Bank. Consequently, the consultants were engagedon time.

42. Procurement of goods, particularly for Bid Packages I and II,was carried out very efficiently. The prequalification and tenderdocuments were prepared in a professional way, with due consultationwith the Bank. There were sufficient competition and fairness in thebidding with regard to the above two main packages. Because of strongcompetition among the bidders/contractors, most of the bid prices weremuch lower than the cost estimates of each bid package (see para 12).

C. Performance of Consultants and Contractors

43. The consultants worked for PTT for about four and a halfyears, from January 1983 to June 1987. Their performance in supervisingthe construction and commissioning of the offshore pipeline and onshoregas compressor station was considered satisfactory, particularly withregard to remedial measures for the offshore compressor stationcommissioning. The consultants' advice on the adoption of contingencyplan in the tie-in of the offshore pipeline was good (see para 25). Itshould be noted that when there were various technical problems in theresting and commissioning of the onshore compressor facilities, theconsultants were instrumental in finding and sorting out the problemsand idvising PTT and the contractor as to courses of actions that shouldbe taken to solve the problems effectively.

44. The contractors for the offshore gas pipeline and the SCADAsystem did an excellent job in fulfilling the construction/installationschedules. However, the contractor for the onshore gas compressorstatioi experienced difficulty in installating gas turbines and

A13

compressors, encountered many technical problems in the testing andcommissioning of the compressor station, and had to make payment underall penalty clauses relating to the late completion. Furthermore, thecontractor had to assume the costs from May 1986 to June 1987 1/ forkeeping PTT's consultants, who would have been released by PTT earlierif there had been no delay in the commissioning. In spite of theprobable losses under the contract, the contractor honored all itsobligations/commitmecs and eventually completed final test run in May1987, to the satisfaction of PTT. PTT commended the attitude of thecontractor, even though the contractor failed to finish the job onschedule.

D. Project Cost

45. As discussed In paras 36 and 37, there were substantial costsavings as compared with the original Project cost estimate as well asthe Project cost estimate revised in January 1984. The main reasonsfor the cost savings are attributable to the following:

(i) In the construction of the offshore pipeline and tie-in, therewas a reduction In the diameter of the pipeline from 28 to 24inches. The diameter reduction of the pipeline becamenecessary after a careful study on the gas reservoir of thePlatong gas fields and gas demand projection at that time;

(ii) Of the 43 km of submarine pipeline originally envisaged to beconstructed under Bank-financing, a 5 km stretch wasseparated, for technical reasons, and given to theconcessionaire of the Platong gas field for construction. Theconcessionaire was able to construct this 5 km portion at amuch lower cost than estimated because of the facilities athis conunand.

(iii) Originally, the offshore pipeline was to be buried underthe sea bed. However, later on, PTT made a decision, inconsultation with the consultants, that the pipeline wouldbe naturally laid down on the sea bed without any deepdigging. In doing so, the pipeline was half buried in thesoft mud on the sea bed by its own weight and with minimalcivil works. The decision was made based on thetechnical and safety considerations to the effect that the24 inch diameter pipeline half buried in the mud on the seabed would be safe against sea currents and other hazards atthat area;

(iv) Due to strong competition during the bidding of Package I andII, the bid prices of the lowest evaluated bidders were muchlower than expected (see para 12). At the time of bidding ofthe offshore pipeline, the prospective contractor's equipmentand facilities were idle at places comparatively close to the

1/ Total payment to be made by the contractor up to June 1987 wouldamount to about $1.348 million and 3.362 million.

Al 4

Project site, such as Singapore. This situation helped thebidder f('r Package I quote its mobilization costssubstantially lower; and

(v) As the Project cost (revised in January 1984) was based on theresults of the actual opening of the main bids, the amount of$9.9 million allotted under the physical and pricecontingencies was excessive and was not utilized. Anotherfactor for the cost savings was that the actual amountpaid for taxes and import duties was much lower thanestimated (see Appendix 6).

E. Disbursements

46. The disbursement schedule envisaged during Project appraisalbecame meaningless, following unexpected delays in the loan signing andloan effectiveness. However, during Project implementation, there wereno problems at all with regard to disbursements. Because of the highinterest rate of the Bank loan, in April 1986 PTT requested that theBank cancel the remaining undisbursed loan balance of $8.1 million.Included in this amount were the undisbursed balances (about $5.9million equivalent) of the existing contracts financed by the Bank loan.

F. Prolect Schedule

47. Except for substantial delay in the construction of theonshore gas compressor station, particularly in its test-run andcommissioning, the Project was implemented almost within the timeallotted in the revised schedule. The delay in the commissioning of theonshore gas compressor station did not affect the operation of PTTadversely, as PTT did not need the compressor station during 1986 andthe first half of 1987 because of lower than projected gas demandresulting from the lower than projected cost of crude oil during theabovementioned period. If there had been the projected gas demandduring 1986, PTT would have lost much revenue and the relationshipbetween PTT and the contractor would have been more strained.

C. Conditions and Covenants

48. The loan covenants stipulated in the loan documents werereasonable, and PTT generally complied with the loan covenants withoutany difficulties. However, PTT failed to comply with a financialcovenant on the debt/equity ratio during FY1982/83 (82:18 actual versus70:30 required) during the initial stage of Project implementation.However, PTT corrected the situation and succeeded in meeting therequired ratio from 1983/84 onward.

H. Environmental Impact

49. So far no significant adverse effect on the environment by theProject facilities Is foreseen. The more important aspect in thisProject is the safety aspect of the Project facilities. If there wereany 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 theGulf of Thailand and the PTT gas separation plant in Rayong and itsvicinity. However, the offshore pipeline and compressor station wereconstructed in accordance with international safety standards, andsufficient safety devices have been installed at the offshore andonshore facilities. So f,ir, no negative environmental aspect on marineecology 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 gastransmission capacity by about 150 MNCFD as originally envisaged. Theaverage demand from June to December 1987 is projected to be 400 MMCFDand that of 1988 to be 450-500 MMCFD. PTT will not have any problem Intransmitting the above amounts of gas to the end-users by operating thegas compressor station from June 1987 onward. There Is no significantemployment 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 theopportunity to learn technologies relating to submarine pipeline-layingand the construction of large capacity gas compressor station.

51. As the Project was completed only in May 1987, the Missionconsiders that it is too soon to compute the financial and economicrates of return of the Project. It should also be noted that while theoriginal loan approved by the Bank was $87 million, the actual amountused for Project implementation was only $23.89 million. Under thiscircumstance, it is not meaningful to re-evaluate such rates of returnfor the purpose of comparison with those estimated at the time ofProject appraisal. As the Project constitutes only a small portion ofthe huge PTT operation facilities, It is not only meaningless but alsodifficult to compute the financial and economic rates of return of theProject by separating the Project from the entire operation of PTT. ItIs also difficult to quantify the benefits from the Project withoutconsidering the existing facilities as well as some additionalfacilities constructed under other PTT's projects implemented during theProject period. The Mission believes that the Project will have the highfinancial rate of return expected during Project appraisal, consideringthat (I) the actual project cost is much less than the original costestimate; (ii) PTT has a stable gas purchase agreement with theconcessionaire; and (Iii) there is steady and increasing demand of gasin Thailand.

J. Performance of the Borrower and Executing Agency

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

A16

interest rate of the Bank loan was high compared with those prevailingfrom other financial sources in FY1986/87, it decided to refinance partof the foreign exchange cost of the Project and prepay all outstandingbank loan balances. From PTT's point of view, such decisions wereappropriate. Its supervision of the contractors and the monitoring ofthe progress of Project Implementation with the assistance ofconsultants were very good.

53. The overall financial performance of PTT since FY1981/82 showsthat it has been operating In a satisfactory manner. PTT's auditedfinancial statements (APS) for FY1986187 were not available during thevisit of PCR Mission, but It was estimated by PTT that the net profitwould be similar to that of FY1985/86. A summary of importantfigures from the PTT's AFS's from FY1981/82 to FY1985/86 are shown inTable 3. Although total revenue and operating profit for FY1985/86decreased by 9.2 per cent and 32..6 per cent, respectively, over theprevious fiscal year, the financial position of PTT appears to begenerally sound. A net profit of $1,644 million for FY1985/86 wasderived from the operations of natural gas for $1,045 million and of oilmarketing for $599 million.

Table 3: PTT's Summary Financial Figures during FY1981/82 to FY1985/86(B million)

Fiscal Year 1981/82 1982/83 1983/84 1984/85 1985/86

Income StatementTotal Revenue 31,396 35,932 38,222 42,465 38,577Operating Profit 2,049 1,937 4,136 4,954 3,340Net Profit 938 1,066 3,550 2,370 1,644

Balance SheetCurrent Assets 13,723 12,451 13,955 16,953 11,958Total Assets 24,160 24,012 29,682 36,733 34,447CurrentLiabilities 10,153 9,817 12,971 13,338 7,185

Long-Term Debt 6,899 8,432 8,578 13,123 16,494Equity 1,461 2,360 5,479 9,646 10,203

K. Performance of the Bank

54. During Project appraisal, the Bank played an important role indeciding on Project components and in devising implementationarrangements. However, the cost estimate made by Bank's AppraisalMission proved to be quite high, for the reasons given in para 45.During Project Implementation, the Bank was instrumental in guiding theExecuting Agency in carrying prequalification exercises and biddingprocedures for the two main procurement packages, namely, theofishore pipeline and tie-in, and the onshore gas compressor station.As the Project was the first Bank-financed project with PTT, PTT was notfamiliar with Bank's procurement procedures at the initial stage.However, through several Bank Mission visits to the Project and throughPTT delegation visits to the Bank, PTT became familiar with Bankprocedures and followed the Bank's requirements. The Bank helped PTTprepare a comprehensive set of bidding documents for the threeprocurement packages.

A17

Also, the Bank made decisions on various Project-related matters in atimely manner, and PTT appreciated such prompt decision-making by theBank. The Bank sent one Inception Mission, two Special ProjectAdministration Missions, two Review Missions, and several DisbursementMissions 1/ during Project implementation. Several other Bank Missionswhich stayed in or passed by Bangkok in connection with otherBank-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 comparedwith the original schedule. The delay In Project Implementation wasmainly attributable to the initial delays at the early stages of ProjectImplementation and some unexpected technical problems in theInstallation and commissioning of the onshore gas compressor station(see paras 38). However, the delay did not affect the operation of PTTadversely, because gas demand in Thailand during the last two years waslower than projected at the time of Project appraisal. The lower gasdemand resulted from comparatively lower price of crude oil during thesame period. Actual Project cost as of May 1987 ($42.6 millionequivalent) was only 68.7 per cent of the estimate ($62.0 millionequivalent) made in January 1984. The reasons for the cost savings arediscussed in detail in para 45. The main objective of the Project (toutilize indigenous natural resources to substitute part of imported oil)was fully achieved. With the completion of the Project, PTT is able totransmit about 450-500 MI4CFD of natural gas to the end-users from June1987 onward. Even though it is premature to re-estimate the financialinternal rate of return (FIRR) of the Project, the Mission believes thatthe Project would enjoy a high FIRR as projected during Projectappraisal (see para 51). In view of the above, the Project isconsidered 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 fordelay in Project implementation is the delay in the recruitment ofconsultants for project implementation. Under this Project, theExecuting Agency took earl.y action for the recruitment of consultants tohelp PTT implement the Project. Even though loan signing was delayedsubstantially and loan effectiveness consequently delayed by about 1.5years, 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 theconsultants whose services were already available before the loan wassigned. PTT was thus able to carry out Project implementation veryefficiently without being seriously affected by the delayed loansigning. Based on the experience from this Project, it is recommendedthat the Bank encourage borrowers and executing agencies to take earlyaction for the recruitment of consultants.

A19

2. Project Specific

57. After the loan approval by the Bank in December 1982, PTTintentionally delayed loan signing partly because of the expectedreduction in the Project cost and partly to save commitment charges.Between November 1982 nd February 1984, when the loan agreement wassigned, the Bank aria PTT spent considerable time in following up mattersrelating to loan signing as well as loan effectiveness, which took placein June 1984. During Project implementation, Bank Missions were toldby PTT that the Bank's commitment charges were too high. Mainly inorder to save commitment charges, PTT twice made its request for thecancellation of part of the loan amount; these requests were approved bythe Bank. One cancellation involved a substantial amount (about $5.9million) covered under the Bank-financed contract, and the Bank had torequest PTT to inform the contractor that the remaining undisbursedamount would not be financed out of the Bank loan. In view of theabove, It is recommended that the Bank make a study relating to loweringthe commitment charges to the extent possible and, if possible, duringloan negotiations agreeing with borrowers on a loan signing deadline.

58. The terms of the loan were to carry a fixed interest rate of11 per cent per annum with 20 years repayment period, including a fiveyears grace period. From early 1986, PTT considered that the terms ofthe loan were no longer favorable since lower interest rate loans wereeasily available to PTT from other financing institutions. In view ofthis, PTT decided to prepay their outstanding loan balance of $23.89million equivalent and requested that the Bank waive the prepaymentpremium, which was computed at about $2.03 million. After securing theBank approval of the PTT's request for prepayment waiver, PTT prepaidIts outstanding loan of $23.89 million in March 1987. Should there bemany such requests for prepayments from the DMCs, the Bank may have toreview its policy in this regard.

59. In respect of this Project, there is not much for the Bank tofollow up in future. However, it would be desirable for the Bank tokeep track of the development plans of PTT to enable possible financingby the Bank of some of PTT's future projects.

Appendix

A20

APPENDIXES

1 Organization Chart of Project Office 21

2 Organization Chart of Petroleum Authority ofThailand 22

3 Offshore Gas Fields and Submarine PipelineDiagram 23

4 Compliance with Loan Covenants 24

5 Staff Training Status 27

6 Comparison of Project Cost Estimate vs. Actual 28

7 Comparison of Project ImplementationSchedule Original vs. Actual 29

8 Latest Gas Transmission Status from the ThreeGas Fields 30

ORGANIZATION CHART OF PROJECT OFFICE

(t

CD

1

CD

CD

-ç

- No. of Staff

A 22

Appendix 2

ORGANIZATION CHART OF PETROLEUM AUTHORITY OF THAILAND

r: :::I (15)

GOVERNOR(1)

Advisor

Governor': Office ASSiStRnr "ernors(1)

(41) (7)

Deputy Governor:Technical & Planning

Ill

Departments:

Policy and Planning (38)Engineering (37)Research and

Development (49)Construction (47)Petroleum Exploration

and Production 9)

Deputy Governor:Logistic: & Refining

(1)

Departments:

Supply and Facilities

Planning (14)Refining Operations (13)Transportation and

Marine Operations (9Petroleum Procurement

and Contracts (11Supply Operations 4)

Deputy Governor:Natural Gas Operations

(1)

Departments:

Administration and

Marketing (35)Technical Service (71)Pipeline

Operations) 241Gas Separation

Plant (283)

Deputy GovernorMarketing

11)

IDepartments:Public and lnduttriel

Sales (103)Marketing Planning and

Evaluation (22)Retail Sales (32)Operations Planning (48)LPG Terminals and

Di gtribution (170Engineering and Serv. (348Terminals and

Transportation 617)

Deputy Governor:Administration

(1)

Dep.rtmen tz:Personnel

Administration (116)Procurement and

Supply (106)General

Administration (185)Legal Affairs (47)

Einence(1)

IDepartments:Finance (122)Accounting (105)Budget (57Financial Planning (21)

Lieputy UOverflorrSpecial Affairs

(1)

Departments:

Computing ServiceCentre (52)

Data and InformationCentre (30)

Public RelationsCentre (47)

Office of Internal Auditiand Follow-UP (96)

CommunicationCentre (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)

B.

1.

Complied with

Complied with

Complied with

Complied withexcept duringFY1982/83

Complied with

A24 App e niii±Page 1

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

Reference toNature of Covenants

Loan Documents Remarks

A. General Covenants

1. Carry out the Project with L.A., Section 4.01(a) Complied withdue diligence and efficiency

2. Make available the funds, L.A., Section 4.02facilities, services, landand other resources requiredfor the Project

Complied with

3. insure the goods to be L.A., Section 4.04(b) ComplIed with

4.

2.

3.

imported under the Projectagainst hazards incidentto the organization,transportation and delivery

Maintenance of records and L.A., Section 4.05accounts adequate to identifythe goods and services financedout of the proceeds of the Loan

Financial Covenants

Submission of audited L.A., Section 4.07financial statements within para. (a)six (6) months after theend of each related fiscalyear

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

Financial Ratios: L.A., Section 4.12para. (a)

i) Maintenance of debt-equity ratio of notmore than 70:30 from

ii) Maintenance of debtservice coverageratio of not less

(Reference in text: page 8, para. 29)

Complied with

Complied with

3. Submission of monthly reports L.A., Section 4.06on the execution of the para. (b)Project

4. Submission of detailed L.A., Section 4.06report on the execution pars. Cc)and initial operationof the Project

Complied with

Complied with

L.A., Schedule 6

Complied withpara. (1)

A25

Appendix 4Page 2

than 1.2:1 for eachof the fiscal yearsfrom FY1982/83 toFY1984/85 and 1.5:1thereafter

iii) Maintenance of ratioof current assets tocurrent liabilitiesof not less than 1:1from FY1982/83 onwards

C. Organization and Management Covenants

1. Conduct business and carry L.A., Section 4.10on operations in accordance para. (b)with sound administrative,financial, engineering andnatural gas transmissionpractices and under thesupervision of competentand experienced managementand personnel

Complied with

D. Project Implementation Covenants

1. Engagement of competent L.A., Section 4.03 Complied withand qualified consultants pars. (a)and contractors

2. Carry out the Project in L.A., Section 4.03 Complied withaccordance with the approved para. (b)plans, design standards,specifications, workschedules and constructionmethods

5. Appointment of ChiefExecutive responsiblefor overseeing the Projectand a Project Directorresponsible for the day-to-day implementation of theProject

A26

Appendix 4Page 3

Not Compliedwith

6. Recruitment of key L.A., Schedule 6technical staff and train para. (2)such staff as necessaryprior to the start-upof Project facilities

E. Operational Covenants

I. Installation of L.A., Schedule 6environmental and para. (7)pollution controls inthe Project facilities

2. Maintenance of adequate L.A., Schedule 6supply of natural gas for para. 4 (a)optimal operation of theProject facilities through-out the life of the Project

3. Implementation of the L.A., Schedule 6findings and recommendations para. (8)of the (i) Pricing Studiesof natural gas, petroleumproducts and lignite; and(ii) Energy Master PlanStudy

4. Operate and maintain PTT's L.A., Schedule 6plants, machinery, equipment para. (6)and other property inaccordance with appropriateengineering, financial andpublic utility and employeesafety practices

Coniplield with

Complied with

Complied with

Complied with

A27

AFpendj

Staff Training Status

Place of flirat inn TotalField of Training Training No. of Staff Fran To Mardays

A. Overseas

i) Onshore Canpressor USA 8 10 NOV'84 8 Dec'84 232Facilities

ii)SCN)A SystEn Japan 6 9 Oct'85 31 Oct'85 138

B. Local

i) Onshore Canpressor

Rayg

14 6 Oct'86 31 May'87 2,478Facilities

ii)SCADA Systna) Stage-I 15 14 Jan'85 25 Jan'85 180b) Stage-Il 15 24 Jun'85 9 Jul'85 240

Total 3,268

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

0 0.341

4.913 04.398 0.701

2.485 0.217

0 0.2090 00 0

37.467 5.127

A28

ipendix 6

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

Cost Estimatein February 1984 Actual Cost (Overrun) /Saving

Project Cmxxents Foreign local Total Foreign 1/ local 2/ Total Foreign local Total

19.700 1.000 20.700 19.480 1.598 19.639 1.132 (0.071) 1.061

9.000 1.000 10.000 6.191 2.061 9.691 1.897 (1.588) 0.309

Of fslcre PipelinesIre CcxiçressorStation

framing irhidingProj ect ManagantCost

prr's Facilities atOf fsre Platform

Consulting ServicesInterest LXiring

ConstructionTaxes and Iitort

IuitiesPhysical CaitingnncyPrice Cont1iery

Total

0.200 0 0.200

5.000 0.300 5.300

5.000 1.400 6.400

3.000 0 3.000

0 6.500 6.500

2.997 0.666 3.663

5.103 1.134 6.237

50.000 12.000 62.000

0.341 0.200 (0.341) (0.141)

4.913 0.087 0.300 0.387

5.099 0.602 0.699 1.301

2.702 0.515 (0.217) 0.298

0.209 0 6.291 6.2910 2.997 0.666 3.6630 5.103 1.134 6.237

42.594 12.533 6.873 19.406

1/ Part of the foreign ehange cost ($5 .205 milhiQn equivalent) s finarxed by 11fl' uri.ler the localcurreucy cost.

2/ The Bank! s ncnthly rates of exchange s.ere applied to convert local curreocy explitures toUS dollar equivalent.

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

1982PROJECT ACTIVITIES

PTT/CONSIJLTANT SERVICES

Recruitment of Consultant

Basic Design & Tender Document

Contractor Prequalification

Bid Proposal by Contractor

Bid Evaluation & Award

Project Management

OFFSHORE CONTRACTORDetail Pipeline Design

Procurement & Delivery

Construction

Testing & Commissioning

ONSHORE CONTRACTORDetail Station Design

Procurement & Delivery

Construction

Testing & Commissioning

STAFF TRAININGForeign

Local

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

II:f; IP

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

205

168

49 '4L L

16

201

106

50

35717

152

101

50

30318

203

132

50

38519

203

131

49

38320

205

166

51

42221

209

186

68

46322 '4 '4

205

180

66

45123

233

190

60

48324 '4

203

170

49

42225

237

178

67

48226

203

161

70

43427 '4

204

133

68

40528

200

163

64

42729 '4

264

177

69

51030

247

179

68

49431

204

161

69

434

Note: Average daily supply of natural gas - 428.05 MMCFD

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