Document of

The World Bank FILE COPYFOR OFFICIAL USE ONLY

Report No. P-2580-EGT

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

EGYPTIAN GENERAL PETROLEUM CORPORATION

WITH THE GUARANTEE

OF THE

ARAB REPUBLIC OF EGYPT

FOR A

GULF OF SUEZ GAS PROJECT

June 7, 1979

This document has a restricted disributen aad may be ued by recipints ondy In the performance oftheir offical duties. Its contents may nt otherwise be disclosed without Wold Dank authorization.

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CURRENCY EQUIVALENTS

Official Rate 1/

1 Egyptian Pound (LE) US$2.56 or SDR 2.1181 US Dollar LE 0.391

Parallel Market Rate 1/

1 Egyptian Pound (LE) = US$1.431 US Dollar = LE 0.70

1/ As of January 1, 1979, all major transactions are carried outunder the Parallel Market Rate.

FISCAL YEAR

January 1 to December 31

List of Abbreviations

kwh kilowatt hourMMcf/d million cubic feet per day

EGPC Egyptian General Petroleum CorporationGUPCO Gulf of Suez Petroleum CompanyLPG Liquified Petroleum GasNGL Natural Gas LiquidsSOPCO Suez Oil Processing CompanyPPCO Petroleum Pipeline Company

(See also Anney I', - -lossarv of Technical Terms.)

FOR OFFICIAL USE ONLYARkB REPUBLIC OF EGYPT

GULF OF SUEZ GAS PROJECT

Loan Summary

Borrower: Egyptian General Petroleum Corporation (EGPC).

Guarantor: Arab Republic of Egypt.

Amount: US$75 million loan.

Terms: 20 years, including four years grace, at 7.9 percentinterest. EGPC will pay to the Guarantor a guaranteefee of 2.1 percent per annum on the principal outstandingamount olf the loan.

ProjectDescription: The proposed loan would finance part of the foreign

exchange costs of a project for gathering, processing andtransporiting associated 1/ gas from oil fields in the Gulfof Suez which is presently being flared. The strippedgas would be used principally as fuel for electric powergeneration and cement manufacture where it would replacefuel oil and high value diesel oil and as a feed stockfor a fertilizer plant where it would replace naphtha.Specifically the project would consist of:

(i) three gas gathering stations for associated gas,

(ii) a liquified petroleum gas (LPG) and condensaterecovery plant,

(iii) compression facilities and pipelines and relatedservices,

(iv) sector studies, training and technical assistance;andl

(v) engineering and consulting services for a Cairogas distribution project.

The principal benefit to be derived from the developmentof the project would be to develop an energy source,which is presently being wasted and, to that extent,increase Egypt's exportable surplus of fuel oil andNaphtha and reduce LPG imports. The proposed investment,despite low domestic prices, would generate for EGPCa financial rate of return of 13 percent. Sensitivityanalyses indicate that under optimum conditions ofreservoir productivity, the economic return could be ashigh as 41 percent.

1/ A glossary of the technical terms used in this report is attached as- Annex IV.

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

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Adverse conditions including diversion of gas forreservoir pressure maintenance, could reduce the rateof return to 22 percent which is fully satisfactory.

The project faces no special risks other than thoseinherent in petroleum production and pipeline industryand for which adequate safeguards have been provided.

Cost Estimates: In US$ MillionLocal Foreign Total

1. 382 Gas Gathering Station 4.8 12.0 16.82. GUPCO Gas Gathering Station 1.1 4.2 5.33. Ramadan Gas Gathering Station 4.1 11.6 15.74. Ras Shukheir-Suez Pipeline 7.6 24.4 32.05. Suez Distribution System 1.6 2.0 3.66. LPG Plant & Compressor Station 8.0 24.0 32.07. Suez-Cairo Pipelines & 24" Line 3.1 10.5 13.68. Project Design, Implementation,

Training & Studies 3.2 7.4 10.69. Miscellaneous Support Items 1.0 3.2 4.2

Basic Project Estimate 34.5 99.3 133.8

Physical Contingency 4.4 12.7 17.1

Price Contingency 5.1 11.0 16.1

Total 44.0 123.0 167.0

Financing Plan:

Bank Loan - 75.0 75.0Suppliers' Credits - 24.5 24.5Government/EGPC 44.0 23.5 67.5

Total 44.0 123.0 167.0

EstimatedDisbursements: US$ Million

Bank FY 1980 1981 1982

Annual 15.0 40.0 20.0Cumulative 15.0 55.0 75.0

Economic Rateof Return: 32 percent.

Staff AppraisalReport: No. 2435 - EGT, dated May 30, 1979

Petroleum Projects DivisionEnergy, Water and Telecommunications Department, CPS

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOAN TO THE EGYPTIAN GENERAL PETROLEUM CORPORATIONWITH THE GUARANTEE OF THE ARAB REPUBLIC OF EGYPT

FOR A GULF OF SUEZ GAS PROJECT

1. I submit the following report and recommendation on a proposed loanto the Egyptian General Petroleum Corporation (EGPC) with the guarantee of the

Arab Republic of Egypt, for the equivalent of US$75.0 million to help financepart of the foreign exchange cost of a Gulf of Suez Gas Project. The loanwould have a term of 20 years, including 4 years of grace with interest at 7.9

percent per annum. EGPC will pay the guarantor a guarantee fee of 2.1 percentper annum on the principal outstanding amount of the loan.

PART I - THE ECONOMY 1/

2. A Basic Economic Report entitled "Arab Republic of Egypt: EconomicManagement in a Period of Transition" (No. 1815-EGT), and dated May 8, 1978,has been diLstributed to the Executive Directors. A report on "Recent Economic

Development:s and External Ca,pital Requirements" (No. 2071-EGT), prepared fora meeting of the Consultative Group was distributed to the Executive Directorson May 30, 1978. Economic missions visited Egypt in October 1978, and inMarch 1979. Country data sheets are attached.

The Open-Door Strategy

3. Rtecent economic tr ends in Egypt have been strongly influenced by the

new "open-door" strategy enunciated by President Sadat in October 1973 andapproved in a national referendum in May 1974. This strategy reflects a majoreffort to accelerate economiLc development through modernization and makingEgypt's largely publicly-owned and centrally-controlled economy more market-oriented. Specifically, the! strategy envisages (i) a gradual dismantling ofgovernment regulations, many of which are to be replaced by the price mech-anism; (ii) the decentralization of decision-making in state-owned enter-prises; (iii) a more active role for the private sector, including privateforeign investors; and (iv) expanded economic cooperation with Arab andwestern countries. Substantial inflows of external assistance from Arab andWestern aid donors and institutions are considered essential to support thenew strategy.

4. To implement the open-door strategy the Government has taken anumber of specific policy actions. Among the more important ones were the

1/ Part I of this report :Ls virtually identical to Part I of the President'sReport for the Tourism Project, which was approved by the ExecutiveDirectors on May 17, 1979.

gradual devaluation of the Egyptian pound, and the concurrent liberalizationof foreign exchange regulations. Starting in 1973 when the parallel marketrate was introduced, Egypt's curency has been effectively devalued fromUS$2.56 to US$1.43 per pound (by 44 percent) at present. At the same time,exchange restrictions were eased, specific import allocations were replacedby general import quotas, and more foreign exchange made available to boththe public and private sector. A new investment law (1974, amended in 1977)offers attractive incentives to foreign firms. Trade agreements, especiallywith the EEC, opened new markets for export products; at the same time, bila-teral trade with COMECON countries was much reduced. A debt management unitwas established in the Central Bank, and became operative in mid-1978.

5. Internally, the autonomy of public enterprises was strengthened,especially by a new law issued in 1978 which grants greater flexibility toindividual enterprises in (i) setting up organizational structures, (ii) in-troducing material incentives, (iii) establishing productivity related wagescales, (iv) adjusting the work force to production requirements, and (v)undertaking investments from own resources. Provincial authority to undertakeregional development programs was also expanded.

6. A start has been made to rationalize the price structure, and toincrease price flexibility. Thus, the share of industrial output subject tocentralized price control was reduced from some 50 percent in 1975 to about 35percent by 1978, and prices for a number of controlled products (including agri-cultural crops and some public service tariffs) were substantially increased.Interest rates were raised several times and stand now at 10 to 12 percent forlending (to the non-government sector) and 6 to 8.5 percent for term deposits.Private sector activity is being encouraged, and has been freed from manyprevious restrictions. Moreover, a growing number of foreign investment con-tracts are being signed, especially in the important oil and tourist sectors.

Recent Economic Developments

7. The open-door strategy and subsequent policy action have yieldedsome impressive results. Above all, they have led to a rapid increase inEgypt's foreign exchange earnings which rose from $1.4 billion in 1973 to anestimated $5.5 billion in 1978. During this period, oil exports, workers'remittances, tourism and the Suez Canal emerged as major new sources offoreign exchange. This was accompanied by a major shift of agricultural andindustrial exports from COMECON countries to the hard currency area. In addi-tion, the Government managed to attract large amounts of foreign assistance.Gross inflows of medium- and long-term capital averaged $3.4 billion p.a.during 1975-78, compared with an average of only $0.6 billion during 1967-72.The bulk of these aid flows came from Arab and Western donors, and were pro-vided at highly concessional terms.

8. The increased availability of foreign exchange from Egypt's ownexports of goods and services and from external assistance has eased the pres-sure on the balance of payments and allowed much higher levels of imports.This in turn paved the way for a rapid increase of investment, larger domestic

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consumption., and a better utilization of existing production capacities.Imports of goods and services (excluding interest payments) rose from about$2.0 billion in 1973 to an estimated $6.7 billion in 1978; imports of capitalgoods increased at an even faster rate. Gross capital formation expanded fromLE 515 million ($1.2 billion) 1/ in 1973 to LE 2,700 million (Y4.0 billion) 1/in 1978, reaching the equivalent of 30 percent of GNP in the latter year.Increased availability of foreign exchange to industrial producers and farmersenabled them to import more raw materials, intermediate goods - includingfertilizer and pesticides - and spare parts thus breaking crucial bottlenecksthat had constrained local production. Together with investments in newcapacities and a vigorous expansion of services such as trade, tourism andshipping, these developments sharply accelerated the rate of economic growth.

9. The Ministry of Planning estimates that GDP at constant prices roseat an average rate of close to 10 percent p.a. during 1975-78. 2/ Much of thegrowth was concentrated in the petroleum sector, construction, manufacturing,transport and public utilities. Agricultural production, on the other hand,increased very slowly (about 1 percent p.a.). The higher level of economicactivity together with large-scale labor migration to neighboring oil export-ing countries absorbed much of the excess labor force that existed in theearly 1970s. In fact, serious labor shortages have begun to emerge in anumber of occupations, especially in the construction sector.

10. Increased exchange earnings and foreign aid inflows resulted in aconsolidation of Egypt's external debt, and strengthened the country's credit-worthiness. Short-term cred[its owed by the Government to commercial bankswere reduced from $1.4 billion at the end of 1976 to $490 million at end 1978,largely with the help of loans granted by the Gulf Organization for the Devel-opment of Egypt (GODE). During the same period substantial arrears in debtpayments were cleared which had built up in the previous years. These changeshave solved the pressing liquidity problems that threatened Egypt's financialposition in 1975 and 1976. Favorable terms on new borrowings have also easedthe burden on the country's medium- and long-term debt. Although Egypt'stotal medium- and long-term public debt increased sharply during recent years--from $2.1 billion end 1973 to an estimated $9.2 billion end-1978--the debtservice ratio declined from 33 percent to 24 percent, respectively. Thisreflects not only more favorable credit terms--i.e., lower interest rates andlonger maturities--but also the rapid increase in foreign exchange earnings.

11. There are indicat:ions that the growth of production and investmenthas slowed down in the last twelve months. One important reason for this isthat existing production capacities are now used at relatively high levels

1/ Conversions are made ait the weighted average of the official and theparallel market exchange rates, the weights being their prevalent respec-tive shares of trade.

2/ The growth rate of GNP was much higher, about 15 percent per annum,because of the massive growth in workers' remittances (see Annex I).

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while new capacities do not come on stream quickly due, in large part, toadministrative delays and construction bottlenecks. There are also growinglabor scarcities, especially in the skilled categories, and some branches facestiff competition from imported consumer goods. Internal demand, on the otherhand, continues to grow rapidly creating rising inflationary pressures and ahigh propensity to import.

Development Potential and Constraints

12. Egypt has considerable potential for further development. Thereasons for this are, in brief: a large domestic market, a proficientpopulation, an agricultural resource base not yet fully developed, variedraw materials (including oil and gas), and a key geographical location.In addition, there are good prospects for a continued growth of foreignexchange earnings from tourism, workers' remittances and the Suez Canal whichis undergoing a major expansion. While oil exports are likely to decline inthe long-run--in the light of increasing domestic consumption and less opti-mistic assumptions on new discoveries--the outlook for new industrial andagricultural products are promising.

13. However, future economic growth will come less easily than duringthe past five years. As was mentioned above (para 11) capacities are nowstrained in a number of sectors, including infrastructure. Investment innew capacities is moving slower than anticipated, and is constrained byadministrative inefficiency, weakness in national coordination and sectorprogramming. Managerial effectiveness in public enterprises is still weak,while financial incentives for production are inadequate in many instances.The latter problem has recently been reinforced by indiscriminate competitionfrom imports, many of which enter the country with little restrictions.

14. Low levels of investment during the late 1960's and early 1970'shave led to a deterioration in physical infrastructure, mainly railways,ports, airports, telecommunications and power. Similarly, there are seriousshortages in social investments, especially housing and urban facilities(water supply, sewerage, etc.). Lack of adequate drainage facilities con-strains agricultural productivity, while in industry large investments areneeded merely for balancing and modernization. These bottlenecks became morepronounced as the economy expanded in recent years. Higher levels of economicactivity together with labor emigration have led to shortages in criticalprofessional and technical skills (see paragraph 9 above). Educationalfacilities in Egypt still reflect a non-technical bias and their quality needsto be upgraded.

15. There is a severe shortage in domestic investment funds, especiallyfor the public sector. Notwithstanding high rates of taxation--over 30 per-cent of GNP in recent years--savings generated by the government budget arerelatively low. During 1974-78 current budget surpluses averaged onlyless than one percent of GNP, while their contribution to the financing ofpublic investment did not exceed an average of 10 percent p.a. This is theresult of high defense and security expenditures, large consumer subsidies

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and fast growing interest payments which taken together claimed 71 percent ofthe Government's tax revenues in 1978. At the same time, savings generated bypublic enterprises are constrained by price regulations which frequently donot allowi full cost recovery or seriously limit profit margins.

16. Another key issue is population. Already very large for Egypt'slimited living space--about 40 million in 1978 with an average density exceed-ing 1,300 per square kilomleter of agricultural land--the population is growingat a rate of 2.2 percent p.a., adding more than 800,000 people every year.This creates great pressures on resources for consumption and investment, andaggravates the employment problem in the longer run.

17. A serious side-effect of the open-door strategy has been a growingdisparity in income distribution and consumption levels. Income differentialshave been further widened by inflationary pressure (18 percent in 1978). Itis estimated that currently the lower 40 percent of the rural populationreceive about 25 percent of the rural incomes while in the urban areas theproportion is about 21 percent. About 30 percent of the rural and 22 percentof the urban population are below absolute poverty lines. Although the abovepattern of inequality and incidence of absolute poverty are less than in mostdeveloping economies it is nevertheless a serious issue, which could worsen ifno effective policy action is taken.

Further Action Required

18. The peace treaty with Israel presents a new situation the fulleconomic impact of which cannot be assessed easily at this stage. Internally,it should allow the Governiment to devote crucially needed time and energy todealing with economic and development policy issues; it could free importanthuman, material and financial resources and provide a breathing space for pre-paring a medium- to long-term framework for economic development. Externally,however, there could be significant repercussions, at least in the short run,particularly in terms of Foreign aid flows.

19. To maintain the momentum of development, major efforts are requiredto overcome present structural constraints. More specifically, action isneeded to (i) increase the efficiency of government administration throughorganizational and procedural modifications, and selective changes in salarystructures; (ii) strengthen the capacity for development programming andproject preparation/implementation; (iii) pursue a vigorous and balancedprogram to upgrade the country's physical infrastructure; (iv) substantiallyexpand the program to curb population growth; (v) articulate urban and ruralstrategies aimed at decentralizing urban agglomeration in Cairo and Alexan-dria, and creating more productive opportunity in smaller towns and ruralareas; (vi) further activate the use of prices as indicators of relativescarcities; (vii) strengthen the management of public enterprises; (viii)improve professional and technical education; (ix) increase public savings;and (x) develop a coordinated export promotion policy. There is an ongoingdialogue' on all these issues between the Egyptian authorities and the Bank;they have also been the focus of the discussion among the members of theConsultative Group for Egypt, especially at its second meeting in June 1978.

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20. Over the last few years, the Government has initiated action in manyof these areas, often with support from the World Bank, IMF, UNDP, regionaland bilateral aid donors. Above all, the Government has prepared a Five-YearPlan which was adopted by Parliament in mid-1978 and which provides a medium-term perspective to the Govenment's development strategy and policy objectives.It advocates a high growth strategy spearheaded by an industrialization driveand supported by fast growing exchange earnings. The domestic and foreignprivate sectors are expected to play an increasing role in the developmentprocess, although the public sector will retain its dominant position. Eachyear the plan is being updated and moved forward by one year, to flexibilyrespond to changing economic conditions and investment options.

21. In support of the overall plan a number of sector and subsectorprograms are presently under preparation with the assistance of the Bankand other donors. They include a water master plan, various industrialsub-sector studies, a review of the transport sector, and an electrificationprogram. These programs will identify sectoral priorities, define appropriatepolicies and institutional arrangements, and prepare specific developmentprojects, many of which could be cofinanced by foreign donors. Other pro-grams such as those for the development of the oil sector, the widening anddeepening of the Suez Canal and a national drainage scheme, have alreadyreached the stage of implementation.

22. The Government is also preparing a more rational price policy. Inline with this, a comprehensive Bank study on the adjustment of agriculturalprices is underway, and first results are expected by the end of the year.Price ceilings are expected to be lifted for most industrial products, andfurther adjustments will be made for utility tariffs. However, care will haveto be taken that these price changes will not erode the standard of living ofthe poor. In this context, efforts have been initiated to define the frameworkfor a more active program to provide for the basic needs of the lower incomegroups. In the past two years the Government, at the highest level, has alsocome to a new commitment to direct action on population matters. While it hasalready initiated such action (e.g. an intensified home visiting program underthe second IDA financed population project), it will take time until measure-able results in fertility reduction can be seen.

23. Last year, the Government negotiated an arrangement under the IMF'sextended facility, which was approved by the IMF's Board of Directors in July1978. The agreement permits Egypt to make purchases from the IMF over thenext three years up to a total amount equivalent to SDR 600 million (about$770 million). As part of this arrangement, the Government has adopted sinceJanuary 1979, the parallel market rate for virtually all foreign exchangetransactions, and has undertaken to further reduce exchange control restric-tions. The Government has also undertaken to continue decontrolling theoutput prices of public sector companies. The effect of this policy will beto improve the financial situation of such companies as well as the Govern-ment, and thus facilitate efforts to increase budgetary savings. A firstdrawing of $96 million was made in June 1978.

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External Debt and Creditworthiness

24. Egypt's non-military medium- and long-term public debt outstandingand disbursed at December 31, 1978 was estimated at about $9.2 billion (seeparagraph IC). Of the total, medium- and long-term loans amounted to $6.4billion (of which $0.4 billion was in non-convertible currencies), medium-and long-term deposits with the Central Bank of Egypt were $2 billion, andsuppliers' credits $0.8 billion. Major creditors were Kuwait and SaudiArabia, followed by the USA, USSR and the Federal Republic of Germany.IBRDIIDA debt comprised about 5 percent of the total disbursed debt. Debtservice on mledium-and long-term debt was estimated at $1.4 billion in 1978 1/giving a debt service ratio of about 24 percent. No reliable estimates ofmilitary debt are available.

25. The Government's recent policy actions have initiated structuraladjustments called for by Egypt's economic situation and international envi-ronment. If progress towards overcoming present constraints is maintained andthe country's foreign exchange earning potential realized, the average deficiton current account is estimated at about $3 billion per annum for the comingfive years. The required capital inflows are large--but if they are availableon the terms expected, Egypt would have the debt servicing capacity to borrowthe amounts envisaged, includ,ing a limited amount on harder terms. The burdenof servicing medium- and long-term debt as a percentage of total foreignexchange earnings is estimated to fluctuate between 21 and 28 percent during1979-83, and to gradually decline thereafter to about 16 percent in 1988. Inthese circurnstances Egypt may be considered creditworthy for a limited amountof Bank lending in addition to the IDA assistance which Egypt merits on theground of iIts poverty.

PART II - BANK GROUP OPERATIONS IN EGYPT 2/

26. The proposed loan would be the World Bank's forty-third lendingoperation in Egypt. It would bring Bank and IDA commitments made since 1970to $1,430.5 million. 3/ Annex II contains a Summary of Bank loans and IDAcredits as of April 30, 1979, and notes on the execution of ongoing projects.

1/ Inclusive of IMF repayments of $75 million.

2/ Paras. 27 to 31 of this report are virtually identical to paras. 27 to 31of the President's Report for the Tourism Project which was approved bythe Executive Directors on May 17, 1979.

3/ Includes Shoubra El Kheima Power Project ($102 million Bank loan and $37million IDA credit) for which documents were distributed to the ExecutiveDirectors on June 7, 1979 for consideration on June 19, 1979.

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27. Given Egypt's basic structural problems: pressure of population onresources; lacking economic infrastructure; a large public sector constrainedby administrative fragmentation and a network of controls over investment,production, distribution and prices; significant balance of payments deficitsand pressing demand for finding domestic resources, the Bank's response hasbeen tailored to address, in a very broad fashion and in close cooperationwith other donors, these long-term developmental issues. The necessarybreadth of the Bank's contribution to Egypt has dictated a strategy whichinvolves entry into the whole spectrum of sectors with a view to provide notonly direct finance with the relatively limited resources that the Bank/IDAcan make available but, equally, to act as a catalyst for other financingagencies, both bilateral and multilateral, and as a spur for initiating dis-cussion and, hopefully, positive action on a coherent framework of policiesand investment proposals which can tackle the substantive issues. Theapproach must also include delivery of technical assistance not only foradequate implementation of specific investment programs but for developingthe domestic institutional capability to articulate and implement futurepolicies and programs. The Bank's deliberately broad multisectoral inter-vention has been differentiated by sectors and by the pace at which theEgyptian authorities can address these issues.

28. Industry, which has been over the past five years the sector receiv-ing the largest portion of Bank resources and significant attention, illus-trates the nature and scope of the Bank's intervention. It is the one sectorwhich has the capacity for creating employment opportunities which can meetthe demands of Egypt's growing population and limited agricultural land.However, this sector is beset by a complex constellation of problems whichstem largely from the rigidity of centralized control and lack of managementautonomy, the distorted pricing, and the lack of incentives. Efforts underour projects have gone beyond the immediate objective of improving capacityutilization (Imports loans and credits Nos. Cr. 524, Ln. 1062 and Ln. 1456).and increasing production capacity and supply of essential commodities inresource-based industries (cotton ginning, textiles, cement and fertilizerprojects). The more fundamental effort--embodied in these projects--has beendirected at introducing policy and structural improvements through initiatingsix subsector studies in textiles, building materials, pulp and paper, foodprocessing, metallurgy, and engineering industries, which would provide thefoundations for formulating a package of policy and investment proposals. Tocomplement these efforts in basic industries the Bank has also carried out astudy on small-scale industries which we hope would form a basis for Egyptianand our efforts in this area.

29. The illustrative sketch provided above of the scope and breadth ofour intervention in one sector is representative of the multifaceted approachthat we have adopted in varying degrees in the entire spectrum of the Egyptianeconomy. It is a role that is in harmony not only with that the EgyptianGovernment wants us to play but is welcomed by the various bilateral andmultilateral donors as an appropriate function, which the Bank as the Chairmanof the Consultative Group, should fulfill. Preparation of projects for futurelending follows this strategy. A development finance project, a second

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textiles project, a pulp and paper project, and an agro-industries projecthave been appraised. A pipeline of projects for possible future lending isalso being developed, including further projects in water supply and sewerage,telecommunications, education, power, rural and urban development, transporta-tion, agriculture (including drainage) and agro-industry, development financeand industry.

30. Bank Group disbursements in 1978 represent 2.8 percent of Egypt'smedium- and long-term capitaL inflow. The Bank and IDA shares of totalexternal debt outstanding and disbursed were about 2.3 percent and 2.5percent, respectively at the end of 1978. For the future, the Bank and IDAshares of total external debt outstanding and disbursed (excluding militarydebts) are estimated to reaclh about 5.4 and 3.4 percent respectively in 1981.It is estimated that in 1981, debt service payments due to the Bank and IDAwill represent about 2.3 percent and 0.2 percent, respectively of servicepayments due on Egypt's external debt.

31. The first IFC participation and lending, for a ceramics project, wasapproved by the Executive Directors in 1976, the second, for a ready-madegarment project, in 1977, and the third, a project for an agricultural complexprimarily for sugar beet, in May 1978. IFC is also discussing several otherprivate sector and joint venture projects.

PART III - OIL AND GAS SECTOR

Introduction

32. Egypt's energy outlook has consistently improved over the lastdecade. With the commissioning of the Aswan High Dam, Egypt successfullydeveloped its largest hydroelectric resource. Increases in oil production'have made it self-sufficient and more recently an exporter of oil. In 1977petroleum exports accounted for 25 percent of its foreign trade earnings.Gas finds have further strengthened the energy base and increased exportpossibilities of oil. These positive developments notwithstanding, the mediumand long term outlook is not as clear. Much of Egypt's current economicand industrial planning is predicated upon ample and continued availabilityof low cost energy and a significant increase in oil exports. However, it isnot certain that this will necessarily come about. A fast growing domesticdemand for oil stimulated by prices well below the international level,decreasing productivity in some of Egypt's major oil fields, slackening inexploration activities and delay in developing natural gas, are the areasof concern.

Resource Endowment

33. The main sources of primary commercial energy in Egypt are hydropower and petroleum. While coal deposits have been discovered in the western

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desert and Sinai peninsula, and are estimated at around 100 million tons, they

are not of cokable quality and are presently not being considered for exploi-

tation. As in other developing economies, non-commercial fuels in the form

of crop residues and animal waste are in extensive use but no data are avail-

able in regards to their magnitude. A recent study estimates energy produced

by non-commercial fuels at around 5 million tons of oil equivalent, which

would be one-third of the total commercial energy used. Though the level ofutilization of animal and vegetable waste is high, the end-use efficiency is

low and is typically of the order of 10 to 15 percent.

34. Hydro power for Egypt is an important source and in 1977 accounted

for 20 percent of primary commercial energy. By equipping the Aswan Dam

with turbine generators having cumulative capacity of 345 MW, the first stepwas taken in 1960 to tap the hydro power potential of the river Nile. With

the completion of the Aswan High Dam in 1970, having an installed capacity of

2100 MW, 80 percent of the Nile's hydro power potential has been harnessed.

The remaining 60 meter drop between Aswan and Cairo represent a generating

potential of 600 MW which, subject to the establishment of economic viability,

could be secured by electrifying three existing barrages and constructing others.

Oil and Gas

35. Hydro carbons are a major source of commercial energy in Egypt and

on account of limited hydro potential, are likely to be relied upon increasingly

for meeting Egypt's incremental demand for energy. Though the first oil well

in Egypt was drilled in 1886, oil exploration was not taken up on a systematic

basis until the turn of the century. Commercial production commenced in 1913,

but it was only after 1968 that oil production exceeded 10 million tons. The

current production level is around 500,000 barrels a day (25 million tons per

annum) of which about 20 percent represents the share of foreign partners, 40

perceht is consumed domestically and the balance is exported. Recoverablereserves are estimated at around 2.5 billion barrels (350 million tons).

Associated with the production of oil, 100 million cubic feet a day (MM cf/d

of gas) (one million tons of oil equivalent per annum) is expected to be

produced in 1979, which will be flared except for a small amount consumed in

the oil fields. Four non-associated gas fields have been discovered at Abu

Gharadig, Abu Madi, Abuqir and Amal (See Map), which cumulatively have recover-

able reserves of about 3.5 trillion cubic feet; production from the first

three of these fields, in 1978, has released 800,000 tons of oil for exports.

When fully exploited, the four non-associated gas fields would annually

replace liquid hydrocarbons to the extent of about 4 million tons.

Exploration Policy

36. For exploration, development and production of oil, Egypt has

consistently followed an 'open-door policy' and almost all exploration and

production work undertaken within the country has been through foreign oil

companies. The exploration agreements have evolved from the 'concessions' of

the pre-1960's to participation agreements which were subsequently converted

into production sharing agreements. Under the currently prevalent production

sharing agreements, the cost of exploration and development is borne exclu-

sively by foreign contractors and amortized, interest free, over the next 4

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and 8 years respectively. After taking into account these, as also theoperating costs, 'profit oil' 1/ is shared between the foreign contractors andEgypt in a given ratio. In successive agreements, Egypt has improved upon itsshare of profit oil and recently some agreements have been concluded in whichEgypt's share of profit oil has been negotiated at 87 percent.

37. The exploration policy, as pursued by Egypt, has served well theGovernment's objective of maximizing oil production without bearing any riskof exploration. Of the present level of production of 500,000 barrels perday, as much as 470,000 barrels are produced from these concessions. Since1973, Egypt has made consciouas efforts to invite foreign companies and 53exploration and production agreements have been entered into for an areacovering about 160,000 sq. kns. At present, the foreign contractors share oilwith the national oil company on average in the ratio of 1:3. Even at theanticipated higher level of production, the share of foreign contractors isnot likely to go down significantly. Remuneration to foreign oil companies interms of profit oil is fairly attractive to them and currently averages atabout $1.5C per barrel of oil.

Current and Anticipated Level of Oil Production

38. Cver the past few years, there has been an impressive recovery inthe production of oil in Egypt which rose from 11.5 million tons in 1974 to 20.9million tons in 1977, a level which had been attained earlier in 1969. Morethan 75 percent of Egypt's oil production is obtained from the Gulf of Suez bythe Gulf Oil Petroleum Company (GUPCO), an operator on behalf of Amoco and theEgyptian General Petroleum Corporation (EGPC), the borrower under the proposedloan (see paragraph 46 below).

39. Egypt anticipates a sharp upswing in petroleum production whichis projecte!d to exceed 35 million tons by 1980 and reach 47 million tons by1982, a production level it hopes to sustain over the next 20 years. Theseprojections take account of the fact that major oil fields, which currentlyaccount for 80 percent of Egypt's oil production, are anticipated to peak by1981. Attainment of the targeted production rate of 47 million tons is,predicated upon new discoveries being made, which will not only doublethe current. level of production but would also make good the declinein production from oil fields which have peaked. Failure to achieve theassumed discovery ratio could result in a significant shortfall. In anycase, the lags which are inherent in the development of an oil field, willmake it extremely difficult to achieve the target stipulated for the currentFive Year Development Plan (1978-82).

Consumption Pattern

40. The consumption of petroleum products has been rising sharply andin 1977 was of the order of 9.1 million tons p.a. against 6.7 million tons

1/ "Profi.t oil" is the difference between total oil production and "costoil". "Cost oil" consists of operating cost and amortized costrelative to exploration and development.

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in 1974. While the overall annual growth rate in oil consumption was of theorder of 11 percent, motor gasoline and Liquified Petroleum Gas (LPG) recordeda growth rate of 12.5 percent which is in line with the projected growth inGNP of about 7 percent and with past trends. It is anticipated that in theabsence of demand management and/or a significant increase in the price level,this growth rate in consumption would be maintained until 1985. This rela-tively high growth rate is in part attributable to a quantum jump in thermalpower generation which is projected to rise from 17 billion kwh in 1980 to 28billion kwh in 1985, resulting in the demand for fuel oil growing from 3.6million tons to 7.7 million tons p.a. A qualitative change in the patternof consumption is, however, anticipated with natural gas being increasinglyused to substitute liquid hydrocarbons, especially fuel oil. By early 1980,natural gas is expected to replace fuel oil to the extent of 2 million tonsand by 3.6 million tons in 1985. Despite the increasing use of gas, the con-sumption of liquid hydrocarbons could grow at around 11 percent p.a. between1980 and 1985. Exclusive of gas consumption and in the absence of demandmanagement, the consumption of petroleum products in 1985 may reach about 20million tons.

Energy Pricing

41. The most important issues in Egypt's energy sector are pricing andlack of adequate planning. Worldwide price increases and the consequent fallin the growth rates of oil consumption have had no effect in Egypt wheredomestic prices are still being maintained at essentially 1956 levels. EGPCsecures a net back of around $1.50 per barrel from domestic sales. Evenafter the excise and treasury dues are taken into account, the total revenuewhich the economy derives from the sale of crude domestically is around $4 abarrel. The implicit subsidy in relation to the international prices at thecurrent level of production exceeds $600 million a year. By artificiallymaintaining the petroleum price at this level, Egypt is losing a uniqueopportunity of using its finite petroleum wealth for increasing public sectorrevenues. Subsidies are also considerable in the power subsector wherepresent tariffs are below the marginal cost of supply. Both the levels andstructure of electricity tariffs are inadequate, according to an interimreport by French consultants (SOFRELEC and EdF) financed by the Bank under thefirst power project (Loan 1453-EGT). In connection with the Shoubra El Kheimapower project, for which documents have been distributed to the ExecutiveDirectors on June 7, 1979 for consideration on June 19, 1979, the EgyptianElectricity Authority agreed to take all measures, including tariff increasesif necessary, to reach a minimum 9 percent rate of return on revalued assetsby 1983.

Energy Prospects

42. Whereas Egypt is currently a net exporter of energy, it is notendowed with a particularly plenteous energy base. Hydro power, which inEgypt is synonymous with river Nile, has been harnessed to the extent ofabout 80 percent. Coal deposits exist but are not presently consideredeconomic to mine. Solar energy, though available in abundance, must awaita series of technological breakthroughs before it can be considered for

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extensive application. Hydrocarbons appear to be the only primary sourcewhich can sustain Egypt's incremental demand for energy. While Egypt can viewthe current level of production with satisfaction, its known oil reserves arenot high, being less than 0.4 percent of world resources. Its existing provenreserves are capable of sustaining the present level of production for littlemore than 10 years. Moreover, Egypt's major oil fields are likely to peakby 1981 and until and unless new discoveries are made, there could be anabsolute decline in production. With burgeoning demand for hydrocarbons onthe one hand and prospects of reduced productivity from existing oil fields onthe other, Egypt would need to redouble its exploration efforts if it isto maintain its present statuas as exporter of energy over the next decade.In parallel Egypt would have to place greater emphasis on gas explorationsince its ability to develop and utilize gas instead of oil within the economy,increases its exportable surplus of oil. As foreign oil companies have littleor no interest in developing gas resources for domestic consumption, it isnecessary for Egypt to take the initiative through domestic efforts.

Energy Planning

43. A joint assessment of Egypt's energy resources and needs up to theyear 2000 carried out by an Egypt/US team in March-July 1978 pointed outserious gaps and inconsisten,cies in Egypt's current energy planning. A lackof an adequate energy planning data base was also emphasized. The jointassessment concluded by recommending continuing assistance to help Egyptestablish a comprehensive energy planning capability to prepare and implementenergy development plans effectively. Bank Group technical assistance forthis is being proposed under the proposed loan through a study on the pricingof petroleum products and another study on the optimum utilization of asso-ciated and non-associated natural gas resources (see para. 45 below). Inaddition, under the power project mentioned above, the Government agreed toestablish not later than December 31, 1979, an Inter-Ministerial Committeeon Energy to be solely responsible for energy planning activities in Egypt,thus taking over and expanding the authority and scope of activities ofthe Ministerial Committee established by a Prime Ministerial Decision ofOctober 26, 1974.

44. Along with efforts to develop hydrocarbon resources within thecountry, it would be necessary for Egypt to take conscious steps to slowdown the current growth of consumption. Present pricing policy, inevitably,encourages wasteful consumption and would need to be reexamined. Further-more, on the assumption of abundant and cheap availability of this resource,energy intensive projects, even in the absence of basic raw materials, arebeing actively considered. Such a policy may require reevaluation as Egyptmay neither have the endowment nor the resources to permit an unabated growthin demand for energy.

45. Energy in Egypt coiuld, therefore, from being an expansive forcebecome a constraint in moving to higher rates of economic growth. A carefulevaluation of long-term supply and demand options are, therefore, called for.As a first step in that direction, the Bank would, as a part of the proposed

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loan, provide financial and technical assistance in undertaking the followingsector related studies, which would subsequently be reviewed between theGovernment, EGPC and the Bank.

(i) Exploration Study: This study would, inter alia, attempt toreorganize, collate and reinterpret the existing geological,seismic and drilling data. It would also cover the pastproduction data and assess whether it would be viable togo in for an enhanced/secondary recovery program.

(ii) Pricing Policy: In conformity with its existing regimeof administered prices in most segments of the economy,Egypt prices oil products at a fraction of internationalprices. As a part of the loan, Egypt would undertake astudy, which would aim at evaluating the effect of discreteprice increases of oil products, on goods and services inwhich it is an important input. This study is expected toprovide the Government with a set of policy options andassist it in moving towards more realistic prices.

(iii) Gas Utilization Study: Important gas discoveries havebeen made, but in order to maximize the benefits, enduse options would need to be carefully evaluated. Thegas utilization study would be initiated so as to preparea gas development plan, which, could also form the basisof future Bank lending operations.

Draft terms of reference of the above studies have been agreed upon duringnegotiations. EGPC agreed to implement all recommendations that are satisfac-tory to the Government, the Bank and EGPC in accordance with an agreed timeschedule for each study (Section 3.06 of draft Loan Agreement).

The Borrower

46. The proposed Bank loan would be made to the Egyptian General Petro-leum Corporation (EGPC), a Government owned enterprise established in 1976.EGPC is governed by a Board consisting of the Chairman and three Vice-Chairmenwho are in charge of exploration and production, planning and projects andoperations. Other members of the Board are: two General Managers for admin-istration and finance, three Chairmen of subsidiary companies (General Petro-leum Company, Suez Petroleum Company and the Petroleum Cooperation Society)and the General Manager of the Egyptian Petroleum Research Institute. TheBoard is empowered to establish EGPC's internal regulations with respect tofinancial, administrative and technical management as well as conditions ofemployment and remuneration. However, in matters affecting general Governmentpolicies, particularly as regards pricing of petroleum products, EGPC issubject to guidance given by the Supreme Petroleum Council which is presidedover by the Minister of Petroleum. Furthermore, all resolutions of the Boardhave to be approved by the Minister of Petroleum who can, at his discretion,amend or cancel them.

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47. EGPC functions as a holding company and performs the varied func-tions with which it is charged through fully-owned independent subsidiariesresponsible for the processing, transportation and marketing of petroleumproducts. To a limited extent it engages in exploration and production,though the main responsibility rests largely with foreign oil companies.EGPC's affiliated companies have considerable autonomy in managing theiraffairs but their capital and operational budgets must be approved by EGPC.These companies function on a cost plus basis and charge EGPC a fee forperforming the various functions relating to the processing and marketingof crude oil, and/or petroleumi products.

48. E(;PC's management a.t the senior level is competent and experiencedin the various aspects of the oil and gas industry. It has, over the lastdecade, expanded the marketin,g organization to meet growing demand, set upand rehabilitated a number of refineries, laid an extensive network of crude,petroleum products and gas pipelines; facilities which it operates withconsiderable competence. It has created within its organization a specializedgroup which has successfully negotiated production sharing agreements with 53foreign oil companies. Separately, EGPC has developed three non-associatedgas fields within Egypt and linked them to the market. While foreign partnersare largely responsible for the production of oil, EGPC closely monitors theirexploration and development programs. Egypt's improved energy position isin no small measure due to EGPC's effective intervention in the sector. Itcurrently faces the problem experienced by many national oil companies ofcompeting with the private sector and the Gulf area for experienced staff.Rapid growth has further strained its managerial resources. Plans are under-way to install a computerizecl management information system to assist ineffective control of these multi-facet operations which will increase incomplexity ias time goes on. There is an apparent need for assistance inthe area of financial planning, rationalization of accounts and budgetingtechniques. The proposed loan includes funds for financing consultantsin this area.

PART IV - THE PROJECT

Background

49. The project was identified in May 1978, and appraised in October-November 1978. Negotiations were held in Washington from May 1 to 7, 1979.The Government of Egypt was represented by Mr. Samir Koraiem, Undersecretary,Ministry of Economy, Foreign Trade and Economic Cooperation and the EgyptianGeneral Petroleum Corporation by Mr. Sami Andrawis, Deputy Chairman. A staffappraisal report is being circulated separately to the Executive Directors.

Project Objectives

50. More than 90 percent of Egypt's oil production is concentrated inthe Gulf of Suez and the entire associated gas becoming available from these

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fields, presently about 100 million standard cubic feet a day (MMcf/d),is being flared. This coexists with the situation where fuel oil of almostequivalent thermal value (one million tons per annum) and which couldotherwise be exported, is being used for power generation. Oil productionfrom existing Gulf of Suez oil fields, however, is now declining and conse-quently gas supplies will drop appreciably over the coming years. Studiesshow that there is demand for gas in the city of Suez and in Cairo and a fairproportion could be economically gathered and transported to these marketsfrom the Gulf of Suez. The primary objective of the proposed project is togather, process, and transport associated gas from oil fields in the Gulf ofSuez which is presently being flared, to secure for Egypt an energy sourcewhich is presently being wasted. Natural gas liquids (NGL), essentially thenaphtha fraction, and LPG would first be recovered from the gas at RasShukeir 1/ and the dry gas, up to 80 MMcf/d, would be transported to thecity of Suez through a 290 km, 16" pipeline. The stripped gas would be usedprincipally as fuel for electric power generation and cement manufacturewhere it would displace fuel oil, and as a feed stock for ammonia systhesis(fertilizer plant), where it would displace naphtha. Surplus gas up to amaximum of 42 MMcf/d would be transported to Cairo, where it would augment theexisting supplies which are being secured from the non-associated gas fieldsof Abu Gharadig. In Cairo, too, this gas would be used for power generationwhere it would replace fuel oil and high value diesel oil. The equivalentquantities of these petroleum products, along with naphtha recovered fromassociated gas, would be exported. LPG would be used as a domestic fuel andreplace the currently imported LPG.

Project Description

51. The proposed project would consist of the following major com-ponents:

(a) three gas gathering stations at the Ramadan, Location 382 andthe GUPCO gas oil separator plants. These stations wouldconsist of gas dehydration and compression facilities andpipelines to Ras Shukeir;

(b) an LPG and condensate recovery plant at Ras Shukeir;

(c) the main compression station located at Ras Shukeir anda 16" gas transmission pipeline from Ras Shukeir to aterminal at Suez, about 300 km in length, together withdistribution pipelines to the three main consumers in theSuez area;

(d) compression facilities for the existing Suez Cairo 10"gas line; its connection with and conversion to gas of

1/ The various locations referred to in this report are listed in the map.

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the 10" white product pipeline so as to establish a cumula-tive capacity of 42 MMcf/d. In addition 50 km of 24" pipe-line in Cairo to tie in the Ras Sukheir system to the Cairogas distribution system.

(e) supervisory control, cathodic protection and telemetry systemsfor the gas pipelines;

(f) sector studies (para. 45 above), training (para. 59) and tech-nical assistance (paras. 54 and 64 below); and

(g) engineering and consulting services for a gas distributionproject to be installed in Cairo and for which the Governmentand EGPC have sought Bank assistance.

Supply and Market

52. As pointed out above (para. 50), natural gas being produced in theGulf of Suez in association with oil production would be utilized, to theextent feasible, under the project. However, as the associated gas fromexisting oil fields appears inadequate to suport the gas system for the eco-nomic life of the project, non-associated gas would be used to supplement andsubsequently replace associated gas. Bank financed consultants have developedforecasts onl "proved" and "probable" reserves for the fields of July, Ramadan,Location 382 and Amal. For purposes of Bank evaluation, the proved levels ofreserves and half of what the consultants considered as probable have beenaccepted; even at these leveLs the reserves appear adequate for the economiclife of the project (20 years). However, in order to determine the extent towhich probable reserves could be classified as proved, further development ofthe Location 382, Deminex, and Amal fields would be required. EGPC thereforeagreed to review with the Bank its plans for development (including the financ-ing thereof) of Location 382, Deminex, Amal, the infield requirements 1/ ofJuly and Ranadan and the associated and non-associated gas reserve data forthe Gulf of Suez in order to determine the appropriate timing for the develop-ment of the Amal field, or any other appropriate gas field (Sections 3.07 and3.08 of the draft Loan Agreement).

53. As to the market, no problem is foreseen regarding the disposal ofcondensates recovered from natural gas. Naphtha would be exported and LPGwould be readily absorbed in the domestic market, where a continuing and agrowing deficit is anticipated. The 80 MMcf/d of dry gas would be used inSuez by an existing fertilizer plant (14 MMcf/d), a 300 MW power station (45MMcf/d), a cement plant and for miscellaneous industrial loads (15 MMcf/d).The cement plant and the power plant are currently under construction. Thecement plant is likely to be commissioned prior to 1981 and the power plant byearly 1983. In the interim, surplus gas, up to a maximum of 42 MMcf/d, would

1/ In an oil field, gas use consists typically of gas used for meeting oilfield requirements of power generation, motive power for compressors andturbines, gas lift for producing oil reservoir pressure maintenance etc.

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be piped to Cairo by creating compression facilities and connecting twoexisting pipelines at Suez. The gas carried to Cairo would augment suppliesbeing secured from the non-associated gas fields of Abu Gharadig and be used

to replace liquid fuel in power plants. Between the commissioning of the gassystem in 1981 and early 1983 there may be a marginal surplus of gas (possibly9 MMcf/d), which would be flared. However, EGPC intends to modulate theproduction of oil from the oil/gas fields serving the project in a manner thatthe surplus of gas will be kept even below the 9 MMcf/d.

Project Implementation

54. EGPC would have overall responsibility for implementing the proposedproject. It would be assisted by an Egyptian affiliate of a US consultingfirm in matters of detailed engineering, preparation of tender documents and

various procurement and technical services. A project management team hasbeen assembled within EGPC and attached to its Planning and Projects Departmentto coordinate and supervise the various implementation functions necessary todesign, procure, construct and commission the project facilities. Assistancein carrying out and commissioning phase of the project would be assigned totwo of its wholly-owned operating subsidiaries:

(i) the Suez Oil Processing Company (SOPCO) for the LPG plant, themain compressor station, the gas gathering stations and distri-bution system; and

(ii) the Petroleum Pipeline Company (PPCO) for the Ras Shukheir -Suez pipeline, Suez - Cairo lines and 24" tie - in to the Cairodistribution system.

Staffing of the project management team comes mainly from within the EGPCorganization including SOPCO and PPCO. Additional technical assistancerequiring skills and/or equipment not available within EGPC's organization orcovered by the scope of work of its engineering consultants would be assignedto local or expatriate consultants whose qualifications, experience andcondition of employment would be satisfactory to the Bank and EGPC (Section3.02 of draft Loan Agreement).

55. In accordance with its policy of entrusting its subsidiaries with

the processing, transportation and marketing of petroleum products (para. 47),upon completion of the project, EGPC would assign operation and transfer theassets of the project facilities to SOPCO and PPCO. The two operating subsi-diaries collectively have fairly extensive experience in the construction andoperation of pipelines, natural gas compressors and turbo-expander plants forfield gas processing. Consequently, the Bank is satisfied that experiencedqualified personnel is available within these organizations to assist with thesupport of consultants financed under the project in carrying out the projectand to operate the respective facilities after the completion of construction.EGPC, however, would assume overall coordination and implementation respon-sibility for the project. Composition, qualifications and organization of

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the project management team and the assignment of all project related imple-mentation functions between ECJPC and its two subsidiaries have been reviewedand found satisfactory.

Project Cost and Financing

56. The project cost is estimated at $167 million, of which $123 million(73 percent) represents the foreign exchange cost. A physical contingency of10 percent was applied againsi: the estimated project cost except for the gasgathering facility and distribution network for which 15 percent was used. Itwas considered prudent to use a higher contingency factor for offshore workand the distribution network on account of the inherent uncertainties involvedin such operations. The price contingency is calculated on a combined equip-ment civil works escalation of 7 percent during 1978 and 6.5 percent there-after for all foreign exchange costs and 15 percent per year for all localcosts. With the proposed loan of $75 million, the Bank would finance 44percent of the total or 61 percent of foreign costs. The proposed loan wouldbe made to EGPC at the current Bank lending rate for 20 years including fouryears of grace. In addition, EGPC would pay a guarantee fee to the Governmentso that the effective rate of interest to EGPC would be 10 percent. The Gov-ernment agreed to finance the project's local and remaining foreign costs(Section 2.02 of the draft Guarantee Agreement). Up to $24 million of theremaining costs might be secured through suppliers' credits. While approach-ing the Bank for its participation in the project the Government has alsomade serious efforts to obtain additional concessionary financing from othersources, however, without success since possible other lending institutionshad already committed their funds for other projects. Multinational orforeign oil companies which are generally prepared to engage in and providefinancial assistance towards the development of oil reserves, are in mostcases not in,terested in participating in the development of a country's gasreserves to be used for domestic consumption, as is the case in Egypt. Also,commercial institutions are not yet prepared to offer Egypt financing underterms and conditions which would make the use of such funds an attractivealternative source of financing.

Procurement and Disbursement

57. The gas gathering, compression and process (LPG) facilities would beprocured ancl constructed under two separate single responsibility contractsin accordance with the Bank's guidelines for international competitive bidding.Bidders would be separately prequalified for each of the two contracts. Pro-ceeds of the proposed loan would finance 100 percent of the foreign exchangecost of the two contracts, estimated at US$62.5 million including contingen-cies. Miscellaneous items of maintenance, operating and management equipment,which cost 'Less than US$250,000 each but not exceeding US$4.0 million in theaggregate, would be procured in accordance with EGPC's competitive biddingprocedures which are satisfactory to the Bank. In the event that the esti-mated amounl' of any contract or the aggregate amount for such items is likelyto be exceeded, EGPC would consult and agree with the Bank on the procurementprocedure to be followed.

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58. Disbursements would take place against (i) 100 percent of theforeign expenditures for (a) two single responsibility contracts for on-shoreand off-shore facilities, respectively, (b) engineering and related services,and (c) technical assistance, training and studies, and (ii) 100 percent ofthe foreign and local expenditures, ex-factory, and 70 percent of localexpenditures for imported items procured locally. It is anticipated thatthe loan would be fully disbursed by June 1982.

Training

59. Because of the new or unfamiliar equipment introduced by the proj-ect, it would be necessary to train supervisors and operating personnel inits operation and maintenance. The main items in this category are the largecombustion gas turbines and compressors, the telemetry and supervisory controlsystem for operating the pipelines and the turbo-expansion LPG process. Bankfinancing has been included under the project for staff overseas visits tomanufacturers' plants for training in the operation and maintenance of theequipment being supplied and for visits to facilities similar to those in-cluded in the project. Additional on-the-job training would be providedduring construction and start-up by equipment manufacturers' representativeswho would be at the job site during those periods.

Ecology and Safety

60. Two of the major consumers of the natural gas supplied by the proj-ect would be a power plant and cement factory which otherwise would have toburn residual fuel oil. By displacing these two major sulfur dioxide emissionsources, the project in effect makes a significant contribution to reducingatmospheric pollution in the Suez area. The pipeline itself would pose noserious environmental hazard since it would be buried and since measures wouldbe taken to assure proper protection, maintenance and operation. Design andconstruction would be in accordance with the appropriate codes and standardsto minimize the chances of overpressurization, corrosion and third partydamage.

Financial Position

61. EGPC, by virtue of its statutes, oversees the entire spectrum ofoil and oil-related functions within the Egyptian economy. Its activitiesrange from exploration to downstream operations like marketing and refining.However, except for foreign trade in crude oil and refined products, EGPCdischarges these functions through foreign partners (exploration) 1/ andfully-owned subsidiaries (refining, transportation and marketing). WhileEGPC is vested with considerable managerial and technical authority it islike all other government-owned enterprises and corporations not financiallyautonomous. In the domestic market EGPC has at best, an advisory role in thedetermination of petroleum products prices. All surpluses from its operationsbut for a nominal proportion, are transferred to the government, and EGPC has

1/ The only exception being the General Petroleum Company (GPC) a wholly-owned subsidiary of EGPC engaged in exploration and production.

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to seek appropriations from the general budget on a loan basis to finance most

of its investments.

62. EGPC's incremental project income would include its domestic sales,the export sales of recovered naphtha, and revenue from exportable surpluswhich will arise to the extent natural gas replaces liquid hydrocarbons.Over the project life EGPC will realize, on an average, incremental revenueof $115 million per annum. Of this, as much as $110 million would be from theexport of fuel oil ($100 million) and export naphtha ($10 million). Thebalance of $5 million would accrue from domestic sales of dry gas and LPG.Against an ultimate investment of little over $200 million, net annual profitsto EGPC would be $43 million with the government separately securing everyyear, $27 million in the form of taxes and fees and $15 million as savings onLPG subsidy. The project would yield EGPC, after taxes, a financial rate ofreturn of 13 percent in real terms. This figure is conservative particularlyin that it takes no account of the developments in the oil industry in 1979,and assumes that both domestic prices and relative prices of oil productswould remain unchanged over the project life.

63. Nevertheless, because of the specifics of the practices followedin Egypt in allocating funds, incremental cash flow would be unevenly shared.Eight-five to ninety percent of EGPC's surplus prior to debt redemption has tobe distributed to the Governmrent while EGPC's investments have in turn to befunded through loans. When taken EGPC's practice of borrowing to financeinvestments and transferring them to its subsidiaries without transferring theloan obligations, it is possible that EGPC could get into a situation whereit generates insufficient funds to meet its debt service obligations. There-fore, the Government and EGP(, agreed for EGPC to retain out of its profits aspecific reserve, additional to its other reserves as prescribed by law, forthe repayment of the Bank's ]Loan (Sections 3.02 and 5.05 of draft Guaranteeand Loan Agreements, respectively). Further, the transfer of assets createdunder the project to one or more of its subsidiaries (see para. 55 above),would be on terms satisfactory to the Bank. EGPC also agreed to maintainseparate project accounts unitil the project is completed or the assets havebeen transferred, whichever is later (Sections 4.04 and 5.01 of draft LoanAgreement, respectively).

64. EGPC, like other public sector entities, follows Egypt's UnifiedAccounting System, which is not particularly useful for activities in the oilindustry. EGPC has faced numerous problems in relation to uniform costing,investment analysis and valuation of assets, consolidation of accounts andflexible budgeting. The accounts are not kept in a manner which permit accu-rate consolidation. The accounting procedures require review and simplifica-tion to permit adequate costing and financial planning. EGPC thereforeagreed to appoint consultants on terms and conditions satisfactory to theBank, who would (i) review the accounting systems and financial practices ofEGPC and its subsidiaries and their financial relationship with the Goverunment;(ii) recommend suitable changes in financial policies and practices; and (iii)assist EGPC and its subsidiaries in instituting a system of medium termplanning. Consultants would be required to complete a diagnostic study byApril 30, 1980, on the above issues. EGPC also agreed to consult with theBank on the findings of the diagnostic study and commence the implementation

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of a time-phased plan of action by July 31, 1980 (Section 3.09 of draft LoanAgreement). Given the present uncertainties in the financial informationavailable for EPGC it will be possible to set financial objectives in theconventional manner only after the completion of the proposed studies.Nevertheless, it is necessary to ensure that financial performance over thelonger term does not fall below a minimum standard. Therefore EGPC agreedto review its finances and those of its subsidiaries by September 30 of eachyear to ensure that, based on the findings of such review, the consolidatednet revenues of EGPC and all of its subsidiaries for such year shall notbe less than 1.5 times the consolidated debt service requirements of EGPCand all of its subsidiaries for that year (Section 5.04 and of draft LoanAgreement).

Project Justification and Benefits

65. The project's principal justification lies in its securing forEgypt an energy resource, which is presently being wasted and thereby allowingthe export of fuel oil which would otherwise be needed to meet domestic energyrequirements. Natural gas, both associated and non-associated, gathered fromthe Gulf of Suez would be processed for recovery of LPG and NGL. While LPGwould be sold in the domestic market, the NGL which will consist essentiallyof the naphtha fraction would be exported. Dry gas on an average of about 80MMcf/d would be sold in Suez and Cairo, where it would essentially replacefuel oil, which in turn will be exported. The total gas anticipated to berecovered by the system during the life of the project would be 570 billioncft (equivalent to 16.3 million tons of oil), one million tons of LPG and860,000 tons of naphtha. Even after incorporating the likely cost of thedevelopment of the Amal gas field (see para. 52 above), the project would havean economic rate of return of 32 percent. The economic rate of return on thisproject has been calculated on an incremental basis, with the past investmenton the development of oil fields in the Gulf of Suez being considered as sunkcosts. In computing the rate of return, petroleum products have been valuedat international FOB prices. No adjustment is considered necessary forinternal freight as products not consumed in the city of Suez can be exportedtherefrom, especially fuel oil as bunker to the tanker trade. Sensitivityanalysis indicates that under optimum conditions of reservoir productivity,the economic return could go as high as 41 percent. On the other hand, alower level of performance including diversion of gas for reservoir pressuremaintenance, could reduce the rate of return to 22 percent. Thus, even underadverse conditions, the rate of return is satisfactory.

66. The Bank's contribution to the proposed project goes far beyond itsfinancial support for the project investments since it will lead to institu-tional improvements important for the entire sector and to several criticalsector related studies which will have an impact on Egypt's overall economicdevelopment. These studies (see para. 45) should set a pattern for animproved oil and gas exploration policy, come up with reasonable proposals forproper pricing of oil and gas, and recommend ways and means to optimize theuse of gas.

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Project Risks

67. The risks associated with this project are those inherent in thepetroleum production and pipe:Line industry. These risks are somewhat com-pounded by off-shore work tholagh it forms a minor part of the proposed proj-ect. There are, however, two risks specific to this project, namely, (i)adequate and continuous supply of associated gas from the oil fields of July,Ramadan and location 382; and (ii) a further slippage on the implementationschedule of the power plant, presently under construction in Suez and slatedto be the main consumer of dry gas. In order to reduce these risks, the Bankhas commissioned an independent reservoir evaluation which confirms gasavailability. In any event availability of non-associated gas from Amal andDeminex provides adequate insurance, as these fields could be tied in earlier.Again, delay in the implementation of the power project in the city of Suez,which is likely to be the main consumer of this gas, could result in offshoreflaring of dry gas after condensates have been recovered. In order to contain,if not fully eliminate this risk, facilities for transporting gas to Cairo,through compression and connection of the two existing pipelines between Cairoand Suez, have been made in this project; Also, EGPC will modulate the produc-tion of oil at location 382 in a manner which would ensure that flaring ofgas will be kept to a minimum. The project risks are, therefore, consideredacceptable.

PART V - LEGAL INSTRUMENTS

68. Th.e draft Loan Agreement between the Egyptian General PetroleumCorporation and the Bank and the draft Guarantee Agreement between the ArabRepublic of Egypt and the Bank, and the Report of the Committee provided forin Article IIE, Section 4(iii) of the Articles of Agreement are being distri-buted to the Executive Directors separately.

69. Special conditions of the project are listed in Section III ofAnnex III.

70. I am satisfied that the proposed loan would comply with the Articlesof Agreement; of the Bank.

PARI VI - RECOMMENDATION

71. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

AttachmentsJune 7, 1979Washington, D.C.

-24 - ANNEX IPage 1 of 5

TARII 3AEGYPT - SOCIAL INDICATORS DATA SHEET

REFERENCE GROUPS (ADJUSTED AVERAGES

LAND AREA (THOUSAND SQ. Km.) EPT - MOST RECENT ESTIHATE)TOTAL 1001.4 SANF. SAME NEXT RICHERAGRICULTURAL 29.9 MOST RECENT GEOGRAPHIC INCOME INCOtE

1960 Lb 1970 Lb ESTIMATE Lb RECION G GROUP Ld GROUP L

GNP PFk CAPITA (US$) 100.0 160.0 310.0 1438.5 182.9 432.3

ENFRCY CO9W9N4PTION PER CAPITA(KILOGRAMS OF C9AL EQUIVALENT) 298.0 275.0 405.0 816.7 88.9 251.7

POPEILATIOI AIb VITAL STATISTICSTOTAL. P"PbLATION. KID-YEAR

(HILLIONS) 25.8 33.3 39.2URBAN POPULATION (PERCENT OP TOTAL) 38.0 42.1 44.6 45.8 15.0 24.2

POPULATION DENSITYPER SO. KM. 26.0 33.0 39.0 23.2 46.8 42.7PER SQ. KM. AGRICULTURAL LAND 982.0 1125.0 1311.0 112.4 254.1 95.0

BOPL9LATION ACE STRUCTURE (PERCENT)0-14 YRS. 43.0 42.1 40.7 46.0 43.6 44.9

15-64 YKS. 54.0 54.7 55.9 50.6 53.3 52.865 YRS. AND ABOVE 3.0 3.2 3.4 3.3 2.9 3.0

POPULATION GROWTH RATE (PERCENT)TOTAL 2.4 2.6 2.2 2.9 2.4 2.7URRAN 6.0 3.6 3.6 5.0 4.0 8.8

CRUDE BIRTH NATE (PER THOUSAND) 44.5 42.1 37.8 45.0 44.3 42.2CRUDE DEATH RATE (PER THOUSAND) 20.7 17.0 14.0 13.7 19.7 12.4GROSS REPRODUCTION RATE 2.8 /f 3.0 3.0 3.4 2.9 3.2FAMILY Pl,ANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 206.0 184.0USERS (PERCENT OF MARRIED WOMEN) .. 9.0 21.1 14.7 14.6 14.2

;FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1970-100) 93.5 100.0 100.0 107.1 96.4 104.3

PER CAPITA SUPPLY OPCALORIES (PERCENT OF

REQUIREMENTS) 95.0 106.0 113.0 99.2 92.3 99.5PROTEINS (GRAMS PER DAY) 66.0 66.0 70.7 63.4 50.0 56.8

OF iUilICH ANIHAL AND PULSE 17.0 YA 16.0 16.0 16.4 13.9 17.5

CHILD (AGES 1-4) KORTALITY RATE 39.3 .. .. .. .. 7.5

HEALTHLIFE EXPECTANCY AT BlIRTH (YEARS) 44.9 49.9 52.4 53.7 45.8 53.3INFANT MORTALITY RATE (PERTHOUSAND) 109.0 116.0 100.0 77.7 102.7 82.5

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

MOTAL .. .. 74.8 59.1 26.4 31.1URBAN .. .. 87.7 85.9 63.5 68.5RURAL .. .. 63.7 38.0 14.1 18.2

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. .. .. 64.3 16.1 37.5URBAN .. .. .. 94.5 65.9 69.5RLRAL .. .. .. 27.7 3.4 25.4

POPULATION PER PHYSICIAN 2500.0 /h 1910.0 1820.0 /i 4271.6 13432.7 9359.2POPULATION PER NURSING PERSON 2730.0 /h 1640.0 /I 1520.0 Li 2077.4 6983.3 2762.5POPULATION PER HOSPITAL BED

TOTAL 500.0 /h 460.0 460.0 580.2 1157.6 786.5URBAN -. 290.0 250.0 310.0 183.3 278.4RURAL .. 2110.0 2090.0 .. L348.8 1358.4

ADMISSIONS PER HOSPITAL BED .. .. .. 22.0 19.5 19.2

HOUSINGAVERACE SIZE OF HOUSEHOLD

TOTAL 5.0 .. 5.2 5.4 5.2URBAN 4.8 .. 5.0 .. 4.8RURAL . 8 5.5 5.3

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL 1.9 .. 1.8URBAN 1.6 .. .. 1.8 1.8 2.3RURAL

ACCESS TO ELECTRICITY (PERCENTOF DWELLINCS)

TOTAL 38.0 .. 45.7 40.3 25.9 28.3URBAN - 37.8 .. 77.0 *RURAL 19.6 12.2 .. 10.3

* Latest estimnate (January 1979) is 62 percent.

25 ANNEX ITABLE 3A Page 2 of 5

EGYPT - SOCIAL INDICATORS DATA SHEET

ErERENCP. GROUPS (ADJUSTED AVERAGESCCY PT .

- MOST RCF.ENT ESTIlATE)SAME SAMF NEXT HIGHER

LOSTI RECENT GEOGRAPHIC INCOME INCOME1960 Lb 1970 Lb ESTIMATE Lb RECION L G GROUP /d CROUP La

EDt7rATIONADJLISTED ElROLlUF!T RATIOS

PRIlARY TOTAL 66.0 69.0 72.0 80.8 62.9 75.8F .NALE 52.0 53.0 55.0 61.8 45.9 67.9

SECONDAItY: ToTAl. 16.0 33.0 40.0 23.6 14.4 17.7FEHALE 9.0 21.0 28.0 18.2 8.8 12.9

VOCATIONAL (PFkCENT OF SELONDARY) 22.0 19.0 18.0 6.7 6.6 7.4

PUPIL-TEACHER RATIOPRIKARY 39.0 38.0 40.0 31.5 38.5 34.3SECONDARY 16.0 25.0 29.0 22.3 19.8 23.5

ADULT LITERACY RATE (PERCENT) 20.0 .. 40.0 50.1 36.7 63.7

CONSIrMPTIONPASSENGER CARS PER THOUSAND

POPULATION 3.0 4.0 6.0 14.5 3.1 7.2RADIO RECEIVERS PER THOUSAND

POPULATION 58.0 132.0 140.0 125.8 31.1 71.1TV RECEIVERS PER THOUSAND

POPULATION 1.9 16.0 17.0 34.5 2.8 14.1NEWSPAPER ("DAILY GENERALINTEREST"- CIRCULATION PERTHOUSAND POPULATION .. 22.0 *. 17.4 6.0 16.3CINEttA ANNUAL ATTENDANCE PER CAPITA 3.0 2.0 *- 1.6 1.4 1.6

EMPLOTMENTTOTAL LABOR FORCE (THOUSANDS) 7800.0 /i 8300.0 /k 9600.0

FEMALE (PERCENT) 7.;3 7.2 7.6 9.3 24.2 28.0ACRICULTURE (PERCENT) 57.0 Li 53.0 /k 43.9 42.0 60.7 54.1INDUSTRY (PERCENT) 121.2 18.8 ..

PARTICIPATION RATE (PERCENT)TOTAL 211.9 28.0 28.0 26.9 39.8 37.8MALE 53.2 51.5 51.3 46.6 53.3 50.3PEM2ALE 1.2 4.1 4.3 5.3 19.6 20.9

ECONOMIC DEPENDENCY RATIO 1.8 1.8 1.8 1.9 1.3 1.3

INCOME DISl RIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHES: 5 PERCENT OF HOUSEHOLDS 13.2 /1 .. 21.0 .. 20.3 19.5HIGHES-^ 20 PERCENT OF HOUSEHOLDS 4S.4 1 .. 46.0 L .. 45.1 48.9LOWEST 20 PERCENT OF HOUSEHOLDS 4.6 7 .. 5.2 / .. 5.7 5.9LOWEST 40 PERCENT OF HOUSEHOLDS 14. L .. 16.0 Tu *- 16.8 15.7

POVERTY TARGET GROUPSESTIMATEIE ABSOLUTE POVERTY INCOMELEVEL (UiSS PER CAPITA)

URBAN .. .. 154.0 .. 88.5 155.9

RURAL .. .. 112.0 142.0 71.9 97.9

ESTIMATED RELATIVE POVERTY INCOMELEVEL (I3S$ PER CAPITA)

URBAN *- *- 122.0 236.1 100.8 143.7RURAL .. .. 60.0 144.7 42.0 87.3

ESTLATED POPULATION BELOW POVERTYINCOME LEVEL (PERCENT)

URBAN .. .. 22.0 21.5 46.0 22.9RURAL .. .. 30.0 37.4 48.0 36.7

Not availableNot applicable.

NOTES

/a The adjusted group averages for sach indicator are populatiot-weighted geometric meang, excluding the extremevalues of the indicator and the sost populated country in each group. Covetege of countries among theindicators depends on availability of data and is not uniform.

Ib Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970. between 1969and 1971; and for Most Recent Eat te, between 1973 and 1977.

/c North Africa & Middle East; /d Lov Income ($280 or less per capita. 1976); /e Lower MiddleIncome (5281-550 per capita, 1976); Lf 1950-55; j1 1960-62; /h 1962; /i Registered, not allpractiring in the country; LI Relaten to persons six years *nd over, excloding nomad population;/k Relates to 12-64 years of age.t 1966; /L 1964-65; /a rural only.

September, 1978

-26- ANNEX IPage9.5 of 5

DEFPNThICIS OF *9OCIAL IIIOICATORE

bates! Although rho date are drawn froxm.eorrma geomrally Judged the *sut authoritative and reliable, it should also be nouted that they may not be inter-

-oatloalt-psrable he..u.. of the leek of atenderdinad definitiome anid cemoepra used by different conties to col.trico. the dare. The date r.nnceea

-sfi -o desc.ribe ordere of magnitude, indicate trende, and ohsraeteriee cartelm maJor differennee. between coontria..

Th. adluatd atone e-eramee for easch indicator aer population-weighted gasttric mesana, eaclading the eatresme -aloc of the indicator end the neat_t.. e occyi uhgop Cvrage of onuntriee amog the indinatore dependa on availability of dae eod is rot otiforr. Duo to lack of dote.

arep oea0s lt opte Srpl osli oprterec iniaosof u e to water end socreta dispoeal, hoocing, J oune dietrihucton and pocerty ure

Ic pop 1.talo-onghtad geuntric _nar witht t1dhe en!cloo , ofonrem aus

..u.li AbEA (thouode. ~ Population. por hoespital bed - total. urban. end total - Population (total,

Total - Totul _urfsc urascoptialag lixd area and inland cetera, urban a rural) divided by their reopetivey nuber of hospital badeoptinlirel- Mat gost estivate of agricultural area weed temporarily avu Iel Vin public and private, general and epeclalined hoapitel aeddeccpemaetl,y foc c-pe, paetare.o market and kitchen gardaen on to habilitation centers. Noepitale are eatblihshmanro permanently aneffed by

Ito follow. ~~~~~~~~~~~~~~at leaset one pbyacian. Rtecblishm..nts providing principally ...enedialcaJre a1rent included, Rural hospitasis however, include health and modi-

GNP PER CAPITA (US)) - GNiP Pen capta. estimates at currant market poices.el errentperoman-tly etaffed by a phyalien. (but hy a medicel ae-o-lcul.ted by acne i cneaocmthod as World Bank Atlee (1975-77 basis)l eletant, nure, midwIfe, etc ) which uffer ie-putieot accesdatien and1q61,1970,.ad 1977 deco provide a limited r-ng of medIcal fociliotee.

A1dealns net hospital bad - loca1 l cmbr of odeieeion to. or discbargeaENtAiY CONSIIMPTIIN_tPu CAPITA - Annual coneumption of cemeoroia1 energy from oapitle divided by the comber of bode.

(ca and ligotin, petroleum, natural gee and hydre-, nuclear and gee-choa lctrllcty) in kilograme. of ocel equivalent per capita. HOUSING

Averag aoof houaohold (peroone per houa..boldl oa,uba,adrrlPOPULATION All hIA TAITC A...ueehe4d' to.ir of a group of individuele whtohebre livngqurtera

Totopooutumi-ermllna - do of July 1; if not available, and thsir main mealIs. A boerder or lodger may or may no ho included inovocoo of oo so-yea cetiateel19h0 19 o nd 1977 data. tbo he..e.hold for etatietical purp...ao. Statie tical definitIons of h....-

Irbun populatioL pecn o oal ati of urban to total popula- bold vary.don.; dirreee deinitions of urban arae may uff..oncoeperbiliny Avea- emba of cerso.o.netarom total, urban, end coral-Arrgsn1

of d to mongcoutrie... her of1 pare.n Perroom in a11, urban, end rural .. copiadcnv ntina

PouaInd...ity dwollinge, eeopoctively. Dwellinge ecluda no-permaent.c etr-cturee end

Per eu. km. - Mid-your population par square kilomeeter (100 becotree) unoccupied pents.of .tota r.a. Atces. to 1.t alonitr leercont of d.tlllnal - totu.A urban. and cocc -for so. Am. ariulr ln - Computed as above, for arcltrlland Cenventiena.l dwellinga wi th oIltociroty in l~ivig qartere as percentageonl,Y of total, urban, and rural deellege ree*pectively.

PP.I.pltlcc oE structure (pront - Ch!ildrenr (I-IA y are), working-age(15-64 yeorul, and retird(L yer n oa) pecoentags. of aid- EDUCATION

ynrppltion. Adjueted enrollment catieeL-Popultion acowb-t rate (percentl - total, and urban - Compound sonoaI Primary school - rutal, and fenle - total and femelo enrolint of all egeegrouch rates of total ad urban mid-yea poplations for 1950-60, at the primary level as percentages of respectively primary school-ageili6D-7O, eud 1970-75. pousi na;oumlly inoludoe child rn aed 6-l year bun adjueted for

I-do hitch rte (cot~ c -nsdl - Aunou. live- births par thousand ofdifforsor lsngche of primary eduoutieo; for cou.. rie it nob iu-ate ado-nId-y...uP poplationl iso-year aritheetico averagaa ending in 1960end cationtenrollmen may eced li perccent ein.. oma pupilo are below or

170 .adfloeyou average ending in 1971 dor moat receat anon,aboe he official erbol. ge(rude death rate (oar tusdi - Annual dsath. par thb.u.aend of mid- Scnayeco-ttl.ndfemal Coputed o above; eeced-ty oduu-

yea- oootn u-oraihei aea en sding in 1960.and 1970 tion. requirse at leas.t four ...sre of appro-d primary Inoiruction; Pr--and floe-Yer avrag OdngI 1971 for most recent estimate. vdeu ga...r-1 -cctlonu1, or teacher training inatructiono for pupila

.,ounrecrouclio rate -TAerge number of daughera a wom.an will bear usoully of 12 tc 17 yoare of ae.; -oraponde...r .roue.rs,ur goner allY

hoher ourmI-tproductin- period if,uba aperea p.seeat age-_encld.d.upoific fertl'it y ra..e; ueualy five-year avrsagee ending in 196i, VoCatina aeri tn (cemenat of secondary) - Vocationel ioetituciune in-1970, end 1.975. cld ehia , idostrie1, or other progrsee which operate iedepeodontly

Ponilo PI---nino - acoptora. annual liho:aaande -.Annual number of or as departmen ts of socudory.institutioo.-ccptorn of birth-controldevie asunderaepce fntional family .Pel-teochar rati - rmr.adacnao- Total studenoce enrolldinpluocing prrn primary antd eacondery levela divided by nnbere of teocbere in thecrr-

curie wuenofchid-eerngag (lI-i yer)wou brhcnrl Adult Lterary rat (percent) - Lirerate adultu (uble to rod end -r0t.) asd--oo to oIl maried come lo am age group. a paros..tago of total adult popultto- aged 15 yeosr and one.-

FWDl ll NLTI-ITIIN CONSUMiPTIONlodc i ludproucionre onpia (97-11) Inlden nuebec of per Peeaeuaet cere (yth thoucand opu,la.tio,n) - Peo...e ceacatlemtor cv

capit. annualI produotiue of all food teemditles. et,gle te ight Persone; -1cidea enbolne,h ,eer eend military

Percuchauccly f elulee(prcet f reouinemannte - Computad from vohicle..""'rY equivaet of nor food euppliss available in coun.try per capita raio aavr (Per thi....nd rorulntoi.. - All typea of receivers for radioy-rt , A IIy. .'ulal _upylion copt lee domti production, imports less brad caste to Sgeneral public pec ibo....ud of population; an,ultde nl-foe:nandooyrc ,t ond haugoc in uok Nteppi:les lrde, animal feed, seede, re..eivore in. contriee and ic years whet egistrenion of rsdioatws in

..u.cctieo o- tofod proros ing sod lesoa in diotribno.t in- effect; date for recant yoremy not be -eperabie ain.e meet co-triee

jlcorn to.. coentinted by FAO base.d or phyeiulugica1 needs for nor- abolished liroreing.-ol -utloy ned huI .h.nIdorieg -nvion-n,.I tepror,brdy TV receivero (car thcuaand ...uui-rc) -TVreioa for broadoaet to aenerA

crfi.oeod 0dirbttoe fpopultion, and allowing lf Per- pubLi per thousand.po.pulerico;e1 encldes u oeose TVl rciesinone

-eo for aute0 hounebId Iovl. triosan i yoor ho. regietreic ofI aeoueioffet.for caIta orplo o yrotin (aom`c ad -Prtein content of per Newspaper ciclto rthtcoaend populationl - Shoe he rerge circ..a-

-apt - net eJyply ~offood perTdy. Net-eppyo I foo sdefined a ono doIygeneral intereet newspaper", defined'ueha periodical publi-

uhre lquire...nte for all countries established bp USDA provide for cation devoted primarily to recording genera nes It Ia con..idered to

otno.... allowance of h0 iran of total protein per day and 20 grsma, be "daily" if it eppeers at Loaet four time.o.u...k.urinal and pulne protr,ic, owhc Irsheould be animal pronain. Cinem annual rtteuYdace per cap,it1aper year -tiuded -n the number fi tibete

Itrr cuoars nc oo thrI hre f g'7 fram of total proteir end sold durngteea, inclding edeluetus todIv- ciasse and nubil3or ioof0000 proret an no ev-rg for the world, propoun dby u,ito.

FADl in rho Thirdt World Prod Survey.Pc oioprtI ory rnaialadple- Prtetin supply of food EMPLOYMENT

d-rt-d fro animate nd pu1oe. io gr..a per daY.Total labor force (thou Eand ... innicelly ertico persons, including amed

Chil'd (gv11 noric0 ar (per tcoacand) -A A...I deaths per th-uc- forceiand unemployed but ealde oswve todonts, err. Dtfini-and it ngc group I-4 ysro.,ccchiIdre in ca hic age group. tiona n vrious co ttear o oporable.

paFale (crenl -Poo labor force .as.p.r.etcgo of tot lalibor force.hEAL 10 Airlra(ecnt) - Lehnr forc in farcing, for-ery, hunting and fiebingLife -oP-t-Y at birth yor)- Av-ragi nuAe, of years of life aepercentage of trot. labohr force

rr-iotc0 or hirth; ....ully tine-year --orage ending in 1960, 1970, unduatry (percent) - Lehbor. foc in otinig,rosrcin maoern nd

codI1975. eletricty, watr and fa.asa perenag.e of torol ibcr force.

lournocli rot (pr ~thu-adt AnnualI deeche of i.fente under Particlpation rate (prai -totl male andtieale- Crl ae non es f g per thoaoand lilv birhte. feaelbo oca per-enlgee of their roe peotiv-pplnoa

Oeosoaeutrrrotefrcl_o)- oa,ubn,adrrl- Tbhsee ey mi edja tad particiPati on cares reflecting ae-ea

luahot of peplo (.totl urban and rural) with -aamombld accesstoa trurue f the pcpuletio. dndlog tLno creod.uaf, oItopyy inldoe trace.d -uf-cwanre o,rhuntreatedibut tr.onoir dependency ratio - ratio of pouirruder 11 and 61 and ovr to

urcccutoudwatr och o hatfrom protected boobole, aprnga the labor force in age iroap f 15-hi yearn.

and urtr aeln) an p_renagsEoc obteepctivo popultion..r. o upurcoayblic (curtain orsnPoet teecdp notmr INCOME DISTIiBU'CION

fra- 2( orr foC houce may he co..idered aabeing within te- Perceotage ofiprinste i-ne. fbcth In cah and hind) r~eceived by richest 5

o -ti aeb ofca rca. In rural aros ranble acc-as would prcent, hiceot 20 percent, pooreer 20 percent, -nxpoet 4l percent'J,ycht h h un....ife or nobers of tho house.hol idontbasto f ho...ebolde.

ccoadtnprop-riooa- part of the day Lc fetuhiag the mmaily's

heosA ceoct d -sou (percent of ogplutionl - total, urban, and tE.timatad ebeloto poverty intn lvl I)pe a ie -ubanoad crsi -

rural - Nootufyocyl (total, uran,sdrural)scrved by ancrete Abuulate poverty incma Ioeliethat iooe level below which a ~ inIna

7 tpc.t. aontgao bi epctr pepleion. tot nunitcoaryadeuae Irt I.:.. enenial eon-food requirements is n.tnoo-l nay -Inclde rho latc ano dis,.posal, ith'or without of-odeb1o.

scto -,o .cnnert enod w.ece-oucer bpos.tor-horneoyeto.. tEtimared relativecvroicm ee S$i Per capital - urban and -rurl1

50 0 f put prrte cd imlr Potiale.rltv poetIroelvlis thut income level loea then ore-thirdlesIon ccccicaiciac - Poplatioc divided by umbeo of praciticig per capita pereona i..m of the country

physil&no q-llfied free a ndi-1i acho-I at unicereity level. Eteimaced roruation below poverty it-.m level (Parr..nnt -urban and-corel

.u-i.. pcocoon - Popolaion ividedtby numbor of Pereent of po.pulotloc )orbao and rural) who er either "uheolute poor" orprat.. ..rgmaleandfI l radane- ,a practical n-rea. and "relorive poor whichevr in greate.,

Et....omlc oaynie and ProJectiono Department

- 27 -

ANNEX 1ECONOMIC INDICATORS AgE o

Page 4 of 5 pages

GROSS NATIONAL PROCUCT IN 1978 ANNUAL RATE OF GROWTH (%, constant prices)

US$ Mln. _% 1961-66-/ 1 9 6 7 - 7 4 1' 1979-7A2/

GNP at Market PriceNs 13,520 10O.0 5.4 3.6 15.0Gross Domestic Investment 4,o40 29. 9 10.7 5.4 28.5-

Gross National Savinlg 3,110 23.0 3.0 -7.0 117.0Current Account Balance - 1,580 6.8Exports of Goods, NFS 3,620 15.7 4.3 6.2 7.6Imports of Goods, NFS 6,240 27.0 8.8 9.2 7.1

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 197b

Value Added Labor Force3/ V. A. Per WorkerUS$ Mln. _% Mln. 7. USS 7/

Agriculture 3,340 29.0 4.162 41.2 800 15.9Industry

4 3,420 29.7 1.903 18.9 1,800 35.6Distributive Sector 2,210 19.3 1.557 15.4 1,420 28.2Services 2,530 22.0 2.472 24.5 1,020 20.3

Total/Average 11500/2875 100.0 10.094 100.0 1,1140 100.0

GOVERNMENT FINANCE

Ge!neral Government-US$ Mln. 7. of GNP

1978 1973 1978

Current Receipts 5,090 32.7 37.7Current Expenditure 5,030 29.0 37.2Current Surplus 60 3.7 0.4Capital Expenditures 2,740 11.8 20.3External Assistance (net) 1,180 1.3 8.7

MONEY, CREDIT and PRICES 1973 1974 1975 1976 1977 1978(Million L.E. outstanding end period)

Money and Quasi Money 1207 1515 1883 2417 3185 4090Bank Gredit to Public Sector 1852 2338 3527 4123 4775 6035Bank Credit to Private Sector 102 149 230 251 434 570

(Percentages or Index Numbers)Money and Quasi Money as % of GDP 31.7 36.1 38.5 38.5 43.4 48.3Wholesale Price Index (1973 = 100) 100.0 112.4 119.1 131.4 145.0 171.1

Annual percentage changes in:Wholesale Price Index 10.4 12.4 6.0 10.3 10.4 18.0Bank Credit to Public Sector 9.6 26.2 50.9 16.9 15.8 26.4Bank Credit to Private Sector 10.9 46.1 54.4 9.1 72.9 31.3

NOTE: All conversions to dollars in this table are at the 1978 weighted exchange rate of 1¢$1.496 = 1 LE.

I/ At 1965 Constant Prices.

2/ At 1975 Const.nt Prices.3/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated" consists

mainly of unemployed workers seeking their first job.4/ Manufacturing and Mining, Petroleum, Electricity and Construction.5/ Local Government comprises a small part of General Government.

not applicableEM1DAMay 29, 1979

- 28 -ANNEX IPage 5 of 5 pages

TRADE PAYMENTS AND CAPITAL FLOWS

BALANCE OF PAYMENTS MERCHINDISE EXPORTS (AVERAGE 1975-78)

1975 1976 1977 19781/ US$ Mln. %(USs million)

Cotton 354 19.8Exports of Goods, NFS 2,194 2,759 3,536 3,620 Yarn and textiles 364 20.4Imports of Goods, NFS -4,931 -4,910 -5,486 -6,240 Petroleum 441 24.7

Other agriculture 224 12.5Imports of Foreign All other commodities 405 22.6Oil Companies -164 -281 -401 -420

Total 1,788 100.0Workers' Remittances 366 755 896 1,750Interest (net) -104 -202 -206 -290Net Transfers 262 553 690 1,460_ _ _ -I-

EXTERNAL DEBT (MLT), DECEMBER 31, 1978Balance on Current Account -2,639 -1,879 -1,661 -1,580Amortization -600 -734 -812 -930 US$ Mln.Total Deficit -3,239 -2,613 -2,473 -2510

Public debt, incl. guaranteed 9,221Direct Foreign Investment 165 342 504 570 Repayments on public debt 930Grants 1,076 792 445 200 Interest on public debt 390MLT Borrowing 2,509 1,622 3027 2510

3,750 2,756 3,976 3,280

Other Capital (Net) -152 236 -961 -250 DEBT SERVICE RATIO FOR 1978k! 24.0%Residual -421 -334 -347 -449Increase in Reserves (+) -62 45 195 71

Gross Reserves (end year) 294 339 534 605

Fuel and Related MaterialsImportsof which: Petroleum -477 -388 -250 -200

Exportsof which: Petroleum 164 268 600 730

RATE OF EXCHANGE

Rate of Exchange 1973 1974 - 1975 1976 1977 1978 1979(US$ : LE) 3/

Official Exchange Rate 2.5343 2.5556 2.5556 2.5556 2.5556 2.5556 --Parallel Market Rate 1.70 1.70 1.57 1.50 1.43 1.43 1.43

(Sept.) (Feb.) (May)

L/ Estimates

2/ Ratio of debt service to exports of goods andnon-factor services and factor services.

3/ As of January 1, 1979, official exchange rate has been EMIDAabolished except for some bilateral transactions. May 4, 1979

- 29 -

ANNEX IITHE STATUS OF BANK GROUP OPERATIONS IN EGYPT Page 1 of s

A. STATEMEST OF BANK LOANS AND IDA CREDITS

(As of April 30, 1979)

Amount in million US dollarsLoan/Credit Approved less cancellations

Numbers FY Borrower Purpose Bank IDA Undisbursed

Ln 243-UAR 60 SCA Suez Canal Expansion 56.5 --Cr 181-UAR 70 UAR Nile Delta Drainage - 26.0 2.3Cr 284-UAR 72 ARE Railways I -- 30.0 1.0Cr 393-UAR 73 ARE Upper Egypt Drainage - 36.0 7.0

Cr 412-UAR 73 ARE Development Industrial Bank 1/ -- 15.0 0.5Cr 423-UAR 74 ARE Cotton Ginning Rehabilitation - 18.5 4.1Cr 437-UAR 74 ARE Population - 5.0 0.3Cr 484-UAR 74 ARE Talkha Fertilizer - 20.0 2.8

Cr 524-EGT 75 ARE Ag/Ind Imports -- 35.0 1.28Ln 1062-EGT 75 ARE Ag/Ind Imports 35.0 - 31.3Ln 1064-EGT 75 SCA Suez Canal Rehabilitation 50.0 - 3Ln 1085-EGT 75 ARE Tourah Cement 40.0 - 7.8Ln 1098-EGI 75 ER Railways II 37.0 -- 12.5

Cr 548-EGT 75 ARE Telecommunications -- 30.0 9-1Cr 576-EGT 76 ARE Development Industrial Bank II 1/ -- 25.0 41.8Ln 1239-EGT 76 APA Alexandria Port 45.0 -- 46.8Ln 1276-T-EGT 2/ 76 ARE Fruit and Vegetable Dev. 50.0 -

Cr 637-EGT 76 ARE Upper Egypt Drainage II -- 40.0 35.8Ln 1285-EGT 76 ARE Upper Egypt Drainage II 10.0 -- 10.0Ln 1292-EGT 76 ARE Textile Rehabilitation 52.0 -- 50.9Ln 1369-EGI 77 AWA Alexandria Water Supply 56.0 -- 55.2Cr 681-EGT 77 ARE Education - 25.0 13.0

Cr 719-EGT 77 ARE Nile Delta Drainage II -- 27.0 17.5Ln 1439-EGT 77 ARE Nile Delta Drainage II 27.0 -- 27.0Ln 1440-T-EGT 2/ 77 ARE Nile Delta Drainage II 12.0 -- 41.2Ln 1453-EGI' 77 EEA Regional Electrification 48.0 -- 58.1Ln 1456-EG1' 77 ARE Industrial Imports 70.0 -- 1.8Ln S-005-EGT 77 ARE Iron Ore Beneficiation and 2.5 --

Engineering 69.3Ln 1482-EGT 78 SCA Suez Canal Expansion 100.0 -- 1.3Cr S-20-EGT 78 ARE Water Supply Engineering -- 2.0 53.0Cr 774-EGT 78 ARE Telecommunications II -- 53.0 38.8Ln 1533-ECT 78 DIB Development Industrial Bank III 40.0 -- 32.0Cr 830-EGT 78 ARE Agricultural Development -- 32.0 13.7Cr 831-EGT 78 ARE Urban Development -- 14.0 25.0Cr 850-EGT 79 ARE Second Population -- 25.0 40.0Cr 868-EGT 3/ 79 ARE Second Education -- 40La S-14-EGCT / 79 ARE New Valley Phosphate Engineering 11.0 11.0

and Technical Assistance79 ARE Tourism4/ -- 32.5 32.5

Totals 742.0 531.0Of which has been repaid 56.5Total now outstanding 685.5Amount sold 7.5Of which bas been repaid 6.0 1.5Total now held by Bank and IDA 684.0 531.0 809.9

B. STATEMENT OF IFC INVESTMENTS

(Amount in US$ million)Year Obligor Type of Business Loan Equity Total

1976 Arab Ceramic Company Ceramic Industry 4.25 .75 5.0(Plus .635 contingency commitment) (5.635)

1977 Nile Clothing ComparLy Ready-Made Garment Industry 0.40 0.20 0.601978 Delta Sugar Company Agricultural Production,

mainly sugar 20.0 2.00 22.00(Plus 1.0 standby commitment) (23.00)

1/ Formerly Bank of Alexandria.2/ Third Window Loan3/ Not yet effective.4/ Not yet signed.

ANNEX II-30- Page 2 of 8

C. PROJECTS IN EXECUTION 1/

Cr. No. 181-UAR - Nile Delta Drainage I Project; US$26 million Creditof April 17, 1970; Effective Date: December 22, 1970; Closing Date:September 30, 1979

Full completion of the project is expected by mid-1980, nearly 3years behind schedule. However, procurement is proceeding satisfactorily.It is expected that the whole of the credit will be committed in the nearfuture, and that disbursement will be completed during 1979.

Cr. No. 284-UAR - Egyptian Railway Project; US$30 million Credit of February9, 1972; Effective Date: July 17, 1972; Closing Date: June 30, 1979.

The project generally is being implemented satisfactorily. Allprocurement contracts have been awarded, and the credit has been fully com-mitted. To allow the remaining balance to be utilized, the closing datefor the parts of the credit allocated to signalling items, originally Sep-tember 30, 1976, has been postponed to June 30, 1979; the credit account forthe parts allocated to other items was closed on December 31, 1977.

Cr. No. 393-UAR - Upper Egypt Drainage I Project; US$36 million Credit ofJune 8, 1973; Effective Date: November 28, 1973; Closing Date: December 31,1979.

Over 50 percent of the project is complete; construction of opendrains is almost complete, and full completion is expected by end-1980, i.e.,I year behind schedule. The bilharzia control program is progressingsatisfactorily.

Cr. No. 412-UAR - Development Industrial Bank (formerly Bank of Alexandria)Project; US$15 million Credit of June 29, 1973; Effective Date: November 29,1973; Closing Date: September 30, 1979.

The entire amount of the credit has been committed to subprojectsand over 90 percent has been disbursed.

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report any prob-lems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understandingthat they do not purport to present a balanced evaluation of strengthsand weaknesses in project execution.

ANNEX II- 31 - Page 3 of 8

Cr. No. 423-UAR - Cotton Ginning Rehabilitation Project; US$18.5 millionCredit of July 30, 1973; Effective Date: February 15, 1974; Closing Date;December 31, 1980.

The scaled-down project financed by IDA is estimated to be completedin end-1980 and the remainder of the full project, financed by a loan from theSaudi Fund for Development, which became effective in July 1976, is expectedto be completed in 1981-82. The foreign cost of the project ($43.8 million)is now firm as all procurement has been completed, but the local componentcontinues to escalate mainly due to steady increase in the cost of civilworks. Recently, the project has also encountered delays because of shortageof local ftnds.

Cr. No. 43;'-UAR - Population Project; US$5.0 million Credit of November 6,1973; Effective Date: March 25, 1974; Closing Date: June 30, 1979.

The project is expected to be completed in 1979, although reduced inscope from the original proposal. About 94 percent of the credit has beendisbursed; remaining funds aLre mainly for software activities.

Cr. No. 484-UAR - Talkha II Fertilizer Project; US$20 million Credit of June24, 1974; Effective Date: JTanuary 22, 1975; Closing Date: April 1, 1980.

Procurement has been completed except for some small items. Accord-ing to the latest indication the project is likely to be mechanically com-pleted by July 1979 or 19 months behind schedule, partly because of delaysin civil wDrks and procurement.

Cr. No. 524-EGT and Ln. No. 1062-EGT - Agricultural and Industrial ImportsProject; US$35 million CredLt and US$35 million Loan of December 20, 1974;Effective Date: March 19, 1975; Closing Date: December 31, 1979.

The bulk of the procurement actions has been completed and onlyabout $0.9 million and $1.2 million remain to be disbursed under the creditand loan, respectively. Fi-ve out of six surveys of industrial subsectorsfinanced under the project have been completed. The Government has requestedthat the unutilized balance of the loan and credit be used for an extension ofsome of these studies. These additional studies are designed to either turnpre-feasibility studies prepared in the context of the sector studies intofeasibility studies, as in the case of a proposed pulp and paper and possiblyanother textile project, or to follow up on issues identified in the contextof the sector studies, such as the need for a brick master plan. Whilepreparation of the pulp and paper feasibility study is almost completed, theadditional studies are expected to be contracted shortly and completed by end1979. An extension of the Closing Date until December 31, 1979 has, there-fore, been granted to allow further disbursements for the above studies underthe technical assistance component of the project.

- 32 - ANNEX II

Page 4 of 8

Ln. No. 1064-EGT - Suez Canal Rehabilitation Project; US$50 million Loan ofDecember 20, 1974; Effective Date: April 21, 1975; Closing Date: December 31,1980.

Progress to date has been good, although the implementation of the

reconstruction project proved to be much more complex than originally esti-mated. The financial situation of the Borrower is sound; canal traffic andrevenues are both considerably higher than expected at appraisal. Procurementis proceeding well.

Ln. No. 1085-EGT - Tourah Cement Expansion Project; US$40 million Loan of

February 10, 1975; Effective Date: June 9, 1975; Closing Date: June 30,1980.

Procurement of machinery and equipment is almost completed (95percent). Most items are already on site awaiting erection. After initial

difficulties with the civil works contractor the rate of construction has now

somewhat accelerated. However, delay in start-up of commercial operations isexpected to be about 1-1/2 years.

Ln. No. 1098-EGT - Railways II Project; US$37 million Loan of April 2, 1975;Effective Date: August 20, 1975; Closing Date: June 30, 1979.

Investment in mobile assets has been satisfactory but progress onfixed installations is slow. The Egyptian Railways' (ER) operations andmaintenance situation remains very poor with low availability of locomotivesand rolling stock, despite the receipt of new locomotives and spare parts. ERis implementing the recommendations of its consultants, TRANSMARK, with regardto ER's traction and rolling stock maintenance facilities. Track maintenanceis lagging far behind program, principally because of a lack of traction forwork trains but also because effort is directed to the construction of newlines. The 1979/83 draft investment program contains many large investmentsincluding new lines for which economic justification is doubtful. The finan-cial situation continues to suffer and a deficit of LE 33 million is forecastfor 1978, although freight tariffs of between 70% to 100% have recently beenapproved which should ameliorate the situation.

Cr. No. 548-EGT - Telecommunications Project; US$30 million Credit of May 16,1975; Effective Date: August 14, 1975; Closing Date: December 31, 1979.

Procurement has now been completed and the IDA credit has beenfully committed. Procurement of the telex exchanges was transferred tothe Telecommunications II project. Physical installations are about twoyears behind the appraisal schedule mainly because of initial delays inprocurement actions and in building construction. Tariffs for inter-national telecommunications services were increased in July 1978.

- 33 - ANNEX IIPage 5 of 8

Cr. No. 576-EGT - Second Development Industrial Bank (formerly Bank ofAlexandria) Project; US$25 million Credit of July 30, 1975; Effective Date:February 19, 1976; Closing Date: October 31, 1979.

The credit is now fully committed and $23.8 million have been dis-bursed as of April 30, 1979.

Ln. No. 1239-EGT - Alexandria Port Project; US$45 million Loan of April 19,1976; Effective Date: August 30, 1976; Closing Date: December 31, 1980.

Project implementation was initially slower than expected but isnow active. Consultants have completed the engineering preparation ofdredging and berth construction, and the works are under tender. Procurementaction on Bank-financed equipment and material is underway. Managementconsultants are helping to implement the measures recommended in Phase I oftheir study.

Ln. No. 1276-EGT - Fruit and Vegetable Development Project; US$50 millionThird Windcw Loan of June 11, 1976; Effective Date: December 20, 1976;Closing Date: December 31, 1982.

Project start-up has been slower than expected. Work on the drain-age and irrigation components of the project is proceeding although behindschedule. The seed component has major problems, which the Bank is nowdiscussing with Egyptian officials. The Agricultural Development Lending Unitin Bank Misr is attempting, with assistance from the World Bank, to ensurethat the various sub-borrowers proceed with their respective investments, andto identify additional sub-borrowers. The project is now over two yearsbehind schedule.

Ln. No. 1285-EGT and Cr. 637-EGT - Upper Egypt Drainage II Project; US$10million Loan and US$40 million Credit, both of June 11, 1976. EffectiveDate: Janlary 31, 1977; Closing Date: June 30, 1983.

Project implementation has been slower than expected. Constructionof open drains is on schedule. Field drainage was delayed by slow procurementof equipment for making pvc drains (financed by USAID).

Ln. No. 1292-EGT - Textile Project; US$52 million Loan of September 20, 1976.Effective ])ate: February 16, 1977; Closing Date: June 30, 1980.

The project is proceeding with a year to a year and a half delaycaused by a later and slower than anticipated start of the civil works. Theproject is now estimated to cost about US$21 million equivalent (all in localcurrency) more than appraised, due mostly to increased scope of civil works.In part this is due to the increased price of building materials recentlyapproved by the Government; no difficulties are foreseen in financing this,although some government equity contribution would be required in the nexttwo years to supplement the companies' internal cash generation in order toadhere to the financial covenants as well as project costs. Early management

ANNEX II- 34 - Page 6 of 8

problems have now been overcome and both companies have developed effectiveproject implementation units. Disbursements are slower than anticipatedreflecting initial delays in procurement. However, between 70-85 percent ofcontracts for machinery and equipment have now been awarded and the balanceis expected to be awarded in the near future.

Ln. No. 1369-EGT - Alexandria Water Supply Project; US$56 million Loan ofMarch 7, 1977; Effective Date: July 6, 1977; Closing Date: June 30, 1982.

With the exception of the water treatment plants and civil works,all contracts have been awarded for the Bank financed components under theproject. Bids for the treatment plants are now being evaluated and biddingfor civil works is in progress.

Cr. No. 681-EGT - Education Project; US$25 million Credit of March 7, 1977;Effective Date: August 19, 1977; Closing Date: June 30, 1980.

Project implementation through project units in the differentministries is proceeding satisfactorily. All technical assistance contractshave been awarded. Procurement of equipment and furniture under the projectis well advanced. Technical problems have been encountered with the construc-tion of the two Technical institutes which needed to be redesigned, resultingin a two year delay for this project item. However, the other 45 institutionsare expected to open classes as scheduled.

Cr. No. 719-EGT, Ln. No. 1439-EGT and Ln. No. 1440T-EGT - Nile Delta DrainageII Project; $27 Million Credit, $27 Million Loan and $12 Million Third WindowLoan of July 15, 1977; Effective Date: April 17, 1978; Closing Date:December 31, 1983.

Design work for the project is well advanced. Implementation isbehind schedule although construction on the open drains has begun. Tenderdocuments for the pumping stations have been issued.

Ln. No. 1453-EGT - Regional Electrification Project; US$48 Million Loan ofJuly 15, 1977; Effective Date: February 6, 1978; Closing Date: December 31,1981.

Engineering consultants started work in June 1977. All contractsfor electrification equipment and materials have been awarded and constructionhas started. Consultants for the extension of the UNDP Power Sector Surveyand for the Tariff Study are in the field. Contracts for the review ofsafety and inspection procedures and for training services have been awarded.

Ln. No. 1456-EGT - Industrial Imports Project; US$70.0 Million Loan of July 15,1977; Effective Date: November 7, 1977; Closing Date: December 31, 1980.

The progress of commitment and disbursement of funds under theproject has been slow because of problems associated with the administration

ANNEX II-35 - Page 7 of 8

of the loan and procurement difficulties arising from the sub-borrowers' lackof knowledge of Bank guidelines. Furthermore, until November, 1978, foreignexchange proceeds of the loan were available to sub-borrowers in the publicsector only against cash payments in local currency which suppressed demandfrom firms who were short of cash in local currency. Since November, 1978,government has been making funds available as subloans which has solved theresource constraint. The Bank has also agreed to simplify procurement pro-cedures for private sector sub-projects costing less than $100,000 to expeditedisbursement. As of April 3CI, 1979 about $20 million had been committed and$12 million disbursed under the project. In addition about $19 million inprojects involving equipment for public firms have been approved by the Bank.In aggregate, about 56% of ftnds have been committed or approved and about 17%actually disbursed. At the Government's request the Bank has agreed topostpone the closing date for the loan to December 31, 1980 to allow foradditional iisbursements.

Ln No. S-5 EGT - Iron Ore Engineering and Beneficiation Project; US$2.5 MillionLoan of July 15, 1977. Effective Date: February 2, 1978; Closing Date:June 30, 1979.

Consultants preparing both iron ore beneficiation and diagnosticstudies are expected to submit feasibility studies by May 1979.

Ln. No. 1482-EGT - Suez Canal Expansion Project; US$100 Million Loan ofSeptember 28, 1977; Effective Date: February 8, 1978; Closing Date:December 31, 1981.

Both dredging contracts to be financed by the Bank have been awarded.Dredging arid other civil works are making good progress. Tender documents forequipment have been drawn up and are currently being reviewed. Projectplanning and supervision arrangements are progressing well.

Cr. No. S-20-EGT - Water Supply Engineering Project; US$2.0 Million EngineeringCredit of D)ecember 29, 1977; Effective Date: April 28, 1978; Closing Date:June 30, 1980.

Consultants were mobilized in November 1978 and their interim reportwas completed in early April 1979.

Ln No. 1533-EGT - Development Industrial Bank III; US$40.0 Million Loan ofApril 12, 1978; Effective Date: July 18, 1978; Closing Date:December 31, 1982.

Commitments and disbursements are progressing satisfactorily. As ofApril 30, 1979 $1.2 million had been disbursed; $8 million have been committedand $3.8 million of subprojects are under review. The balance of the Loan isexpected to be committed before the end of 1979.

ANNEX II- 36 - Page 8 of 8

Cr. No. 774-EGT - Second Telecommunications Project; US$53.0 Million Creditof March 21, 1978; Effective Date: September 19, 1978; Closing Date:December 31. 1981.

Project implementation has started. Specifications for the equip-ment and materials to be financed under the Credit are being prepared. A Gov-ernment request for reallocation of credit proceeds is under consideration.

Cr. No. 830-EGT - Agricultural Development Project; US$32.0 Million Credit ofJuly 24, 1978; Effective Date: February 20, 1979; Closing Date: December 31,1983.

The implementing agencies are making satisfactory progress towardidentifying sub-project activities.

Cr. No. 831-EGT - Egypt Urban Development Project; US$14.0 Million Credit ofAugust 30, 1978; Effectiveness Date: April 30, 1979; Closing Date:December 31, 1982.

Project implementation has started.

Cr. No. 850-EGT - Second Population Project; US$25.0 Million Credit ofOctober 30, 1978; Effectiveness Date: April 30, 1979; Closing Date:December 31, 1983.

Project implementation has started.

Cr. No. 868-EGT - Second Education Project; US$40.0 Million Credit ofJanuary 26, 1979; Effectiveness Date: July 31, 1979; Closing Date:March 31, 1984.

Action on effectiveness is underway.

Ln. No. 5-14-EGT - New Valley Phosphate Engineering and Technical AssistanceProject; US$11.0 Million Loan of May 25, 1979; Effectiveness Date: October25, 1979; Closing Date: June 30, 1982.

Action on effectiveness is underway.

ANNEX III- 37 - Page 1

ARAB REPUBLIC OF EGYPT

GULF' OF SUEZ GAS PROJECT

Supplementary Project Data Sheet

Section I - Timetable of Key Events

(a) Time taken by the Egyptian GeneralPetroleum Corporation (EGPC) to preparethe project: 6 months (April-September

1978)

(b) Agency which has prepared the project: Egyptian General PetroleumCorporation

(c) Project first presented to the Bank: November 1977

(d) First Bank mission to consider project: May 1978

(e) Date of departure of appraisal mission: October 30, 1978

(f) Date of completion of negotiations: May 7, 1979

(g) Planned date of effectiveness: December 1979

Section II - Special Bank Implementation Actions

None

Section III - Special Conditions

1. Review of plans for the development of oil fields to ensure adequategas supply during life of project (para. 52).

2. Assignment of consultants and additional staff to assist and participatein project, implementation (paras. 54 and 55).

3. (i) Establishment of specific reserve to enable Egyptian General Petro-leum Corporation (EGPC) to meet loan repayment obligations; (ii) transfer ofassets to EGPC's subsidiaries requiring prior Bank approval; (iii) maintenanceof separal:e project accounts (para. 63).

- 38 - ANNEX III

Page 2

4. Appointment of consultants to review EGPC's and its subsidiaries'accounting systems and financial practices and review of action plan result-ing from consultants' report (para. 64).

5. Debt service obligation (para. 64).

- 39 - ANNEX IVPage 1

GLOSSARY OF TECHNICAL TERMS

associated gas - a hydrocarbon gas (natural gas)accompanying crude oil production

non-associated gas - a hydrocarbon gas which is producedfrom a reservoir containing no crudeoil

stripped gas - a hydrocarbon gas which has had oneor more of its components extractedsuch as propane, butane, etc.

LPG - Liquified Petroleum Gas, a hydrocarbongas consisting mainly of propane andbutane maintained in the liquid stateby refrigeration or in pressurizedcontainers

condensate recovery - a liquid which is separated from ahydrocarbon gas stream as a resultof changes in pressure or temperature

cathodic protection - a system for preventing electrolyticcorrosion in buried pipelines bymeans of impressed currents orvoltages and anodes

telemetry system - in pipeline operations, the process oftransmitting data and control functionsbetween an operations center and remoteunits usually through a radio link

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