Report No. 7984-JO

JordanEnergy Sector Study(In Two Volumes) Volume II: Background PapersFebruary 7, 1990

Country Department IlIlIndustry & Energy Operations DivisionEurope, Middle East and North Africa Regional Office

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EQUIVALENTSCurrency Unit Jordan Dinars (JD)JD 1.00 = 1,000 filsJD 0.500 US$1.00 (March, 1989)JD 1.00 = US$2.00

WEIGHTS AND MEASURES1 meter (m) = 3.281 (feet)1 kilometer (km) = 0.621 mile1 kilogram (kg) 2.205 pounds1 ton (1,000 kg) - 1.102 short ton

- 0.984 long ton1 barrel (bbl; o.159 m3) - 42 US gallons1 kilowatt (kW) = 1,000 watts1 megawatt (MW) 1,000 kW1 kilowatt hour (kWh) 1,000 watthours1 gigawatt hour (GWh) = 1,000,000 kWh - 1,000 MWh (10 6kWh)1 kilovolt (kV) 1,000 volts1 kilovolt ampere (kVA) = 1,000 volts amperes1 megavolt ampere (MVA) 1,000 kVA1 kilo liter (103 liters) - 6.28981 American barrels1 cubic meter - 6.29 barrels1 bbl oil = 0.1349 tons oil1 cubic meter 6.28976 US bbl1 tonnes = 8.17 US1 metric ton - 0.77 cubic meters

GLOSSARY OF ABBREVIATIONSATPS - Aqaba Thermal Power StationEMENA - Europe, Middle East and North AfricaESS - Energy Sector StudyFBC - Fluidized Bed CombustionHTPS - Hussein Thermal Power StationICB - International Competitive BiddingIDECO - Irbid District Electricity CompanyIAEA - International Atomic Energy AgencyIOC - International Oil CompanyJEA - Jordan Electricity AuthorityJEPCO - Jordanian Electric Power CompanyJPRC - Jordan Petroleum Refining CompanyLPG - Liquefied Petroleum GasMAED - Model for Analysis of Energy DemandMEMR - Ministry of Energy and Mineral ResourcesMOP - Ministry of PlanningPCIAC - PetroCanada International CooperationNRA - Natural Resources AuthoritySOE - Statement of Expendituretoe - tons of oil equivalentWASP III - Wien's Automatic System Program Package III

Financial Year - Calendar Year

FOR OFFICIAL USi ONLY

JORDAN

ENERGY SECTOR STUDY

Abstract

The oblective of this report is to assist GOJ develop a refined energysector development strategy. It reviews changes in Jordan's energy sector inlight of macro-economic situation; institutional changes, current energypricing policies, demand management and conservation needs; energy supplydiversification; and the prospects for developing primary energy resourceswithin Jordan. The report analyzes issues of energy demand projections,exploration and development of domestic energy resources, institutional andoperational efficiency and energy sector investment and financing. It focuseson ke factors: human resources development, debt reduction and the expansionof the private sector role in energy investment and environmental protection.The preferred strategy is a continuation of GOJ's policies: energyconservation; the development of indigenous resources to substitute forimports; economic pricing; efficient investment and operations; and theremoval of institutional rigidities. The report recommends continuingpetroleum products and electricity pricing reforms, restructuring of sectorinstitutions to improve efficiency and expanding the role of the privatesector in energy sector development projects.

The study was undertaken as a collaborative effort of the World Bank and theGovernment of Jordan. The World Bank core group for this report was R.Vedavalli (Task Manager), J. Maweni, A. Adamantiades and P. Cordukes (PowerSubsector); U. Kirmani (Oil and Gas, and Oil Shale); and R. Berney (PetroleumRefining). The core Jordanian counterpart team: R. Aburas (Team Coordinatorand Energy Conservation), A. El-Saadi (Joint Team Coordinator), M. Zaharan, M.Dabbas and M. Talal (Macroeconomic Prospects); Ali Anani (Renewable Energy),M. Faisal and M. Abu-Aqola (Energy Demand, Energy-Economy Model, and PetroleumRefining); F. El-Karmi, F. Kharbhat, N. Idris, Z. Khamis (Power Subsector andWASP model), M.A. Nabulsi and K.H. Khal4di (Oil and Gas); M. Abu Ajamieh, F.El-Faiz, W. Jaouni, and M. Bseaso (Ot' Shale).

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

JORDAN'

Energy Sector Study

Background Papers - Volume II

Table of Contents

Background Paper 1: Oil and Natural Gas Exploration and Development ... 1

Backgrouid Paper 2: Oil Shale Development ............................. 33

Background Paper 3: Petroleum Refining, Storage and Transportation .... 44

Background Paper 4: Power Subsector .68

Background Paper 5: Renewable Energy .136

Background Paper 6: Energy Conservation ........ ............... . ... 145

Maps: IBRD 21350IBRD 21349IBRD 21351

aQ'

Background Paper 1

Oil and Natural Gas Exploration and Development

Table of Contents

Page No.

Introduction ...... I............................................. 1Role of Oil and Gas in Jordan's Energy Sector ..... .............. 1Regional Geology and Exploration Areas .......................... 2Summa'y Overview of Exploration Plays ........................... 5Review of Exploration Activities in Jordan ...................... 6Production Sharing Agreements ................................ 9Government's Strategy for Oil and Gas Exploration .... ........... 10Review of Current Status ........................................ 11Future Strategy to Accelerate Exploration, Exploitation andDevelopmeint Activities ........................................ 13

Natural Gas .............. ....................................... 15Geology and Risha Field Evaluation .............................. 15Future Program ............ ...................................... 15Reserve Estimates and F4ztor Determining Production Profile .15Estimation of Potential Demand for Gas .......................... 16Institutional Aspects ............................................ 17Current Status of Natural Resources Authority ..... .............. 17Proposals to Improve Oil and Gas Sector Activities .... .......... 17Revised Role of N.R.A. .......................................... 18Petroleum Law ........... 18Proposed Organizational Structure of an Oil Company .... ......... 19Natural Gas Pricing ............................................. 20Recommen'ed Pricing Approach .................................... 20Investment Strategy ............................................. 20Investment in Oil and Gas Exploration and Production Between1986-1990 . .................................................... 20

Investment for Exploration and Development (1990-2000) .... ...... 20

AnnexesAnnex 1.1 Oil and Gas DevelopmentAnnex 1.2 Oil and Gas Exploration and DevelopmentAnnex 1.3 Seismic Surveys in Different Exploration AreasAnnex 1.4 Distribution of Regions and Areas

Tablk of Contants (cont'd)

Annex 1.5 NRA Oil and Gas Exploration ExpendituresAnnex 1.6 Petroleum LawAnnex 1.7 Terms-of-Refererce for a diagnostic study of Risha Gas Reservoir

Organization Chart: Natural Resources Authority (Present Status)Organization Chart: Natural Resources Authority (Proposed Status)

JORDAN

Energy Sector Study

Background Paner I

Oil and Natural Gas Exploration and DeveloRment

Introduction

1.01 The Role of Oil and Gas in Jordan's Energy Sector. Jordan is totallydependent on imported crude oil to meet the bulk of its energy requirements.Petroleum consumption is expected to grow at an average rate of 31 per annumin the next ten years. Crude oil imports are projected at about 3.4 milliontoe in 1990. as compared with about 3.1 million toe in 1988. Oil importsaccount for 501 of projected exports in 1990 and will have a significantimpact on the balance of payments. It is, therefore, clear that Jordan willincreasingly depend on imported petroleum in the foreseeable future unlesssignificant reserves of recently discovered oil and gas resources are provenand addditinal discoverias arc mrnde thrcugh the ongoinr. e.pl^rat4^n cempvign.

1.02 Jordan's presently known indigenous energy resources consist of largeoil shale deposits and tar sands, modest hydro potential (87 Gwh per year),and low geothermal sources. To date no commercially exploitable coal, orlignite reserves have been discovered. Only small deposits of oil werediscovered in Azraq in 1984, and some oil shows were tested in Sirhan area in1988. In 1987 gas was discovered in the Risha area, however, commercialreserves have yet to be proven. It is therefore clear that to date, with theexception of wind and solar energy, Jordan's resources of proven commercialand renewal energy are modest.

1.03 With the addition of recent knowledge in the subsurface geology of thepotential hydrocarbon bearing areas in Jordan's sedimentary basin, and thepresence of oil and gas in some areas (e.g. Sirhan and Risha), the prospectsfor petroleum resources have enhanced significantly. The interest by a numberof foreign oil companies, and recently signed exploration and productionsharing agreements with the international oil companies (IOC's), demonstratestheir optimism in proving Jordan's oil potential.

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1.04 Regional Geology. Jordan covers an area of 96,500 sq km in thenorthwestern part of the Arabian peninsula, of which about 75,000 sq km iscovered by sedimentary rocks ranging in age from Lower Cambrian toQuarternary. These sediments attain a thickness of more than 12 km in theJordan Rift area, and betwean 6 and 8 km in other areas.

1.05 While most of the Arabian peninsula is characterized by uniformmorphology, the northwestern part, where Jordan is located, shows considerablevariations with distinct physiographic properties. On this basis, Jordan canbe broadly divided into the following geological regions:

(i) The Central Plateau

It is bordered in the west by ridges that follow the Dead Sea graben,grading into flat lands in the east. This region covers an area of10,527 sq km south of Amman. The south and southw.est is mainlyunderlain by sedimentary rocks of Mesozoic age with thickness rangingfrom 3,000 to 4,000 meters. These rocks contain an abundance ofclastics and only minor shale deposits. In the eastern part, oldersedimentary formations are overlain by very thick Cretaceous andTertiary rocks that can attain a thickness of several thousand meters.Harls, limestones and dolomites predominate, but there are some thicksandstones which are potential reservoir rocks- Source and cap rocksare well estnblished. Surface geolegic'l -Aork and scs:mic studiesindicate that traps for oil accumulation could be present. To date theonly major occurrence of petroleum are the huge oil shale deposits ofEl Lajun and Sultani. Other than that, there has so far not been muchevidence of large oil bearing reservoirs in this area. Further studiesare needed to identify the subsurface hydrocarbon accumulations.

(ii) Northeastern Plateau (Risha)

It is a monotonous flat area which extends into Syria in the north,Iraq in the east and Saudi Arabia in the south. The area within Jordancomprises some 15,250 sq km between the Basalt plateau and theinternational border. Zxtensive seismic surveys indicate that asedimentary column extending in thickness to 7,000 meters exists with awidespread angular unconformity separating Mesozoic and Paleozoicrocks. Exploratory wells on Mesozoic anomalies in the western part ofthe Risha region revealed the presence of thick Silurian (Paleozoic)hydrocarbon source rocks beneath the Mesozoic unconformity. Detailedanalysis has indicated that source rock sections thicken towards theeast and cover most of the Risha area. The geochemical analysis of thewell data indicate the possibility of a petroliferous Paleozoic basinin the Risha area. In 198f, NRA discovered natural gas in Risha andproved the existence of gaseous hydrocarbons in Ordovician sandstonesin this area at about 2,700m. Other areas within the Risha regionappear to offer good prospects for finding hydrocarbon accumulations.

Recent improvemerts in processing the seismic data have shown thac thedeep Paleozoic structures can be mapped. This opens up a series of newdeep prospects which could prove to be oil bearing. NRA is condiuctingextensive seismic data evaluation in cooperation with PetroCana5aInternational Cooperation (PCIAC) to assess the hydrocarbon potentialof this area.

(iii) The Mountain _id-t along the Dead Sea Graben and Northern Highlands

This area forms part of a regional geological trend which extends fromEgypt and plunges northward into the I!mascus Basin in Syria. Thethick sediments are of Mesozoic age, mostly of marine origin and thusfavorable for oil generation. Reservoir rocks and seal rocks areevidenced in Triassic and Jurassic sequences. Recent seismic data andlandset interpretation by NRA suggest that Jurassic and Triassicformation may offer good hydrocarbon prospects. Further detaileds:ismic surveys followed by exploratory drilling is required toinvestigate the hydrocarbon potential of this area.

(iv) The Aaaba-jordan Rift Valley

This is a narrow depression extending from Aqaba, 360 km to the north(Lake Tiberies). It is a highly disturbed zone, over 300 km long and14-30 km wide, and contains a sedimentary sequence over 10,000 metersin thiclties. Xost likely, Paleozoic and Mesozoic sediments could bepresent at the base, but the late Tertiary sedimentary sections attairgreat thickness. Included in this area are isolated deposits of saltand other evaporates with a thickness of some 5,000 meters.

Flanking the valley are some oil and gas seepages which may be linkedgeochemically with rich upper Cretaceous source rocks on both flanks.Strong subsidence, particularly during the late Tertiary age, togetherwith intensive salt flow structures suggest that some structural trapsfor hydrocarbons may have been formed. The seismic data obtained todate is not sufficient to map deeper horizons because thick salt layersoverlap these formations. So far oil exploration work in this area hasbeen inconclusive.

(v) Southern Mountain Desert

This area is characterized by crystalline basement outcrops with littleoil potential. t'o the north, sedimentary sequences of Paleozoic andMesozoic ages could be favorable to oil occurrences. Detailed seismicand other studies are required to study the prospects for hydrocarbonexploration in this area.

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(vi) &rth Pla-teau-Basalt Province

The large basalt plateau covering over 11,000 sq km in northeasternJordan is a Mesozoic basinal area. On the eastern flank of the Basaltplateau, gentle regional dips prevail toward the west in a Mesozoicsection which thickens westwards. It is bqlieved that the Basaltplateau overlies a graben area similar to the Azraq region. Basaltlavas occur at the surface over a stretch of 700 km from Syria throughJordan into Saudi Arabia, with a maximum thickness of basalt of about1,00) meters. However, most of the area is covered by about 100 metersof basalt.

The hydrocarbon prospects in this area are considered similar to thatof the Azraq area; and similar plays are anticipated with theCretaceous source rocks feeding into the Cretaceous and Jurassicsandstones and carbonates. Due to deeply weathered basalt flows,accessibility has hampered exploration in the past. However,Petrofina, a Belgian company, has recently acquired concessions overthis area and, by utilizing the latest techniques, has overcomelogistics problems and run extensive seismic surveys in the concessionarea.

(vii) !' -an.Area

The Paleozoic prospects appear most interesting for hydrocarbonexploration in this basin since the Mesozoic and Tertiary sections arethin and presumably immature. Silurian shales, which are up to 500meters thick in exploratory wells drilled so far, are considered to bethe source rock for this large Paleozoic basin. Recently NRA has foundoil in Wadi Sirhan test wells. Detailed seismic surveys are needed todefine the potential hydrocarbon traps. The Japanese have recentlysigned a cooperation agreement with NRA to further explore the northernpart of the Sirhan area.

(viii)Azrag Area

The Azraq basin lies between the high central plateau on the west andthe basalt plateau on the east. The first oil discovery at Hamza wasmade by NRA in this basin. Some 20 wells have been drilled on thefield which produces about 500 bbl/day oil from cretaceous limestonesand dolomites.

The Fuluk growth fault is the main structural feature responsible forthe development of a NW-SE trending graben. Because of the extensivefaulting, the traps are structural closures in many fault blocks.

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In additional to the proven oil accumulations in the Hamza area,located on down side of the Fuluk fault, there are shallower prospectson the ward block which need additional detailed seismic andexploratory drilling to prove oil reservoirs.

1.06 Exploration Artas. As discussed in pf.ra 1.05 above, Jordan canbe divided into a series of broad plateau-like ar.hes and gentle desertcovered by basins. For exploration purposes NRA has divided the abovegeological regions into ten areas (see Annex 1.1).

A) Precambrian OutcropB) Basalt PlateauCl) Azraq DepressionC2) Risha AreaC3) Sirhan AreaC4) Jordan ValleyCS) North HighlandsC6) Aljafr DepressionC7) Central PlateauC8) Southern Desert Area

1.07 NRA has signed production sharing agreements w;hn several IOCs(para 1.23) in some of the areas (e.g. B, Cl, C4 and C6) and is continuingexploration promotion in the remaining open areas (Annex 1.4 and IBRD Map:21350).

1.08 Jordan is favorably located between the Precambrian outcrop beltand the rich oil-producing area of the Gulf Coast. This is a prime area forfinding oil and gas in Mesozoic and Paleozoic sediments, as evidenced by thefollowing features: (a) a favorable environment for oil hydrocarbongeneration, oil seepages, and accumulation is seen in the numerous oil and gasshown in the wells drilled, asphalt impregnations and extensive oil shaledeposits; (b) the presence of source rocks at different stratigraphic levelsranging from the Tertiary to the Paleozoic is well established. The abilityof some of these potential source rocks to generate hydrocarbons in differentbasins is demonstrated by the discovery of oil in tne Cretaceous of the Azraqbasin, the Ordovician in the Sirhan area and the natural gas in the Ordoviciansands in the Risha area, as well as in the live oil and asphalt seepages inthe Dead Sea area. (para 1.05); (c) potential reservoir rocks are alsoabundant. There are substantial thicknesses of clean Paleozoic and LowerCretaceous sands, as well as reservoir potential in Triassic and Cretaceouscarbonates; (d) seals are present at different levels ranging from LowerCambrian to the Cretaceous, and a very thick Silurian shale covers the rest ofthe Paleozoics in the Risha and Sirhan area; (e) traps can be found instructural anomalies in the different sedimentary areas. These can beanticlinal features, tilted fault blocks and saltdomes, as may be found in theAzraa. Risha and the Jordan rift areas; and (f) stratigraphic plays include

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the possibilities of sand pinchouts, thinning over highs and lensing in thePaleozoic in Risha and Sirhan areas, as well as the possible development ofporous facies (reefs, dolomitized zones) in the Mesozoic of the northhighlands area.

1.09 Review of Exoloration Activities in Jordan. The explorationactivities in Jordani can be divided into the following phases.

(a) Phase I: Exploration by International Oil Companies (IOCs)1946-1978)

(b) Phase II: by NRA only (1976-current)

(c) Phase III: NRA and International Oil Companies (IOCs)(1986-current)

Phase I: Exploration by International Oil Comganies (1946-1978)

1.10 Between 1946 and 1978 seven foreign oil companies acquiredconcessions in Jordan. Geological and geophysical surveys were undertaken,and 14 exploratory wells were drilled. In several wells, oil and gas showswere observed. However no commercial oil and gas discoveries were made. As aresult, by the mid-7Qs all internationa. oil companties abandoned explorationwork in Jordan.

1.11 The inability of various concessionaires to locate commercialhydrocarbon deposits could be attributed to several reasons, namely: (i) theinsufficient and poor quality of the seismic data gathered; (ii) the faultylocation of exploration wells, based on limited geological and geophysicaldata; (iii) insufficient capital expenditure allocations to meet contractualobligations; and (iv) the disappointment in not striking "mid-east" type oilreserves in exploration efforts.

Phase II: Exploration by Natural Resources Authority (NRA)(1976-current)

1.12 In 1965, the Government established the Natural ResoarcesAuthority (NRA) to undertake investigations of mineral resources anid conductgeological surveys. NRA started direct participation in the exploration forhydrocarbons in 1976, only after the Government was convinced that foreign oilcompanies were not interested in further exploration and that in order tofully evaluate the oil and gas p:tential, a national exploration effort fundedby the Government was necessary.

1.13 NRA started by a revision and reassessment of all previousgeological and geophysical data, with the assistance of foreign consultants.Later NRA hived foreign companies under service contracts to condu%.c extensive

geophysical surveys using the latest techniques and reprocessing all previousdata. In 1980 NRA made another effort to attract foreign companies in oilexploration by compiling and offering a complete geological and geophysicaldata package. The response by foreign oil companies was very disappointing.As a result, NRA embarked upon an exploration plan utilizing funds allocatedby the Government from its own resources.

1.14 Since 1980 NRA has embarked on its own seismic work andexploration drilling program. It shot over 14,700 km seismic surveysutilizing international geophysical service comipanies.

1.15 Other oil exploration work was carried out by Yugoslavia's Naftagas under an agreement signed in 1981 for the supply of ar oil drilling rigand for exploration drilling in Azraq area. The first well discovered oil insmall quantities at 2,650 feet near Azraq. NRA stepped up its drillingactivities by hiring two more drilling rigs from Rompetrol (Romania). Modestreserves of oil were found in Cretaceous limestones in the Hamza field in1984. However, because of the geological complexities of the Azraq area,further exploration efforts by NRA were suspended until a comprehensive andintegrated study covering geological, geophysical and well data was completed.In the Sirhan area, NRA tested 43 deg. API oil at 1,398 meters from Ordoviciansandstones in Wadi Sirhan Well No. 4. The data obtained is being studied, andfurther appraisal drilling is planned.

1.16 In 1987, NRA made a gas discovery at Risha when well No. 3 test idry sweet gas at 15 million cu. ft/day. To date NRA has drilled fourteenwells in Risha. Some of the wells have shown the presence of gas. However,only two wells have been tested to provide commercial quantities of gas.Additional studies are required to evaluate the subsurface data gathered todate in order to delineate the limits of the Risha field and to determine gasreserves. Currently, NRA is continuing its exploratory drilling with two rigsin the Sirhan and Hamza area. It is continuing seismic surveys and dataanalyses with the collaboration of the PCIAC in the Risha and Sirhan area.Other exploration is being undertaken by IOCs under production sharingagreements (para 1.23).

1.17 GCJ has spent over US$220 million for oil/gas exploration fromits own resources. The annual expenditures are given in Table 1. So far,except for small oil and gas finds in Hamza and Risha, respectively, and someencouraging oil shows in the Wadi Sirhan area, no commercial production hasbeen achieved.

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Table 1&RDloration Expenditures

Year USS Million

1977 0.21978 2.61979 0.8.980 0.91981 15.11982 14.11983 13.01984 13.91985 35.81986 43.51987 35.61988 44.4 1/

1/ Budget Allocation.

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Phase III: Extloration by NRA/IOCs (1986-current)

1.18 In order to share the exploration risks and to benefit from the moderntechnology available to IOCs, the Government has directed its explorationstrategy towards: (a) inviting IOCs to participate in exploration in theidentified sedimentary areas isee Annex 1.3) by preparing explorationpromotion packages and offering attractive financial terms (under productionsharing agreements); (b) collaborating with PCIAC for seismic dataacquisition, processing and the interpretation of geological complexities; and(c) continuing its own exploration program in some of the areas not coveredunder the production sharing agreements.

1.19 In 1987 NRA entered into a technical cooperation agreement with PCIACfor the technical assistance to (a) shoot 6,000 line km seismic surveys in theRisha and Sirhan area and (b) reprocess and analyze about 8,000 km of seismicdata available with NRA with a view to preparing an exploration promotionpackage for the Risha area. NRA also hired a Canadian deep drilling rig totest the deeper horizons in the Risha area. The geological data obtained fromthe wells drilled in Risha is being evaluated by NRA.

Production Sharing Agreements (PSA)

1.20 In order to step up its exploration activities, in 1985 the Governmentinvited foreign oil companies to enter into a production-sharing agreementwith NRA on eight idontified sedimentary areas (IBRD Map: 21350). Under theBank financed Energy Development Project (Ln 2371-JO), technical assistancewas provided to NRA to prepare a Petroleum Promotion Package and to prepare amodel concessions agreement with less stringent financial commitments, in viewof the high risks involved. Based on such a model contract, NRA invitedforeign oil companies to participate in the production sharing agreements.

a) Amoco Jordan Petroleum

1.21 In March 1986, Amoco Jordan Petroleum, a subsidiary of Amoco (U.S.),signed an agreement covering 4,400 sq km in Jordan's Valley and Dead Seaareas, and 6,550 sq km in the Azraq area, excluding Hamza and the Wadi Rajilarea, which NRA is exploring itself. (IBRD Map: 21350). Over a 7-1/2 yearexploration period, Amoco is committed to carry out geological, geophysicaland geochemical surveys and drill five wells. Amoco started its operations inlate 1986 and has conducted gravity and magnetic surveys, as well as a landsetstudy of both blocks. Detailed geological and geochemical studies areunderway. Amoco spudded the first exploratory well in November 1988. InDecember 1988 OMV, Austria was formed with Amoco for a 30% interest in thecontract. So far Amoco has drilled two wells, which did not encounter anyhydrocarbon. Amoco has therefore terminated their activities and haveassigned their share to OMV. OMV is looking for other partners to continuewith PSA.

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b) Jordan Hunt Oil Comnanv (USA)

1.22 Jordan Hunt Oil Company was awarded an exploration license over 8,806sq km in the southern area bordering Saudi Arabia in 1986 (IBRD Map: 21350).Hunt is committed to spend about US$20 million over a 7-1/2 year explorationperiod for geological, geophysical surveys and to drill four exploratory wellsto test deeper horizons (about 15,000 feet). Hunt started seismic surveys in1987 The first wildcat well was drilled to 13,360 feet. This well did notfind any hydrocarbons. In December 1988, BP farmed in with Hunt a 50%interest in the contract. Hunt/BP still find merit in the area and haveexpressed their desire to find a third partner before eirtering into a secondexploration phase under PSA.

c) Petrofina (Belgium)

1.23 Petrofina was awarded a seven-year exploration license covering anarea of 12,650 sq km in the Basalt plateau (IBRD MAP: 21350). It has afarm-in agreement with ARCO (Petrofina 50X, ARCO 50%). Petrofina is theoperator and is committed to spend $9 million in first three years and $6million in the subsequent two-year period. Petrofina is currently conductingseismic surveys. It is the first time that any company has undertaken such atask in the Basalt area. Petrofina expects to obtain good seismic resultsfrom the deeper horizons similar to those found in the Azraq area, which mayhave considerable oil potential.

(d) Japan National Oil Company (JNOC)

1.24 In November 1988, the Japanese National Oil Company (JNOC) signed anagreement with NRA to conduct extensive seismic surveys in the North SirhanConcession area. JNOC plans to complete these surveys within 18 months. Ifthe results are encouraging, JNOC expects to attract Japanese companies toenter into production sharing agreements for further exploration in theirarea.

(e) OKV (Austri-a)

1.25 OMV signed an assistance agreement with NRA to study the southwestSirhan area with an option to negotiate a PSA at the end of these studies,which are expected to be completed by March 1990. So far, OMV has done 750line kn seismic in the area.

The Government's Strategy for Oil and Gas Exnloration

1.26 Since the oil price increases of 1973 and 1979, the Government ofJordan has emphasised the exploration and development of domestic hydrocarbonresources. The Government's strategy is to attract international oilcompanies to join in the exploration effort, sharing the financial risks andbringing state-of-the-art exploration technology into Jordan, and, at the same

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time, carrying on its own exploration program in open areas. This strategyhas so far proved to be successful in that production sharing agreements weresigned in the period 1986-8C with several internationally known oil companies.NRA has discovered modest oil reserves in the Azraq, and more recently in theSirhan areas, (para 1.22) and natural gas was discovered in the Risha area.Many international oil companies (over 40) have visited Jordan to review theavailable technical data with NRA.

1.27 The Government is continuing its strategy by vigorously implementingits exploration promotion program and the adoption of an open-door policy forthe international oil industry. Currently NRA, in cooperation with PCIAC, isundertaking an exploration promotion campaign by making presentations toAmerican and Canadian oil companies in Houston and Calgary, respectively.

1.28 Review of Current Status

(i) Incentives for Attracting Private ComRanies

The Government, through NRA, will continue the open-door policyfor the private oil companies, giving them free access to thelarge technical data bank now available with NRA. The wealth ofgeological and seismic data accumulated over the years proved tobe very useful in attracting many well-known companies in the oilindustry and provided more favorable understanding of the geologyof Jordan and its petroleum potential. Furthermore, NRA adopteda flexible attitude in its model contract; during actualnegotiations with the oil companies, it provided enoughincentives to attract investments in oil exploration in Jordan.NRA is continually reviewing its policies and is trying todevelop the most competitive position possible for Jordan tocontinue to encourage exploration.

(ii) Key Features of the Model Agreement

Jordan is currently using a model production-sharing agreement,which was originally based on the Egyptian model agreement. Itwas modified to suit the different geological, fiscal and legalconditions in Jordan. The model contract appears to besatisfactory for exploration and development in Jordan. However,NRA is continuing its efforts in updating and improving thismodel contract in all its aspects. Recently, NRA through theUnited Nations Aid Program (UNTDP) hired a consulting firm toreview the model agreement. This review was completed in October1988. Some of the recommendations for the improvements have been

accepted by NRA and will be incorporated in the existingmodel contract.

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The key features of the Model Agreement are:

a. Fiscal Terms

- Production sharing based on a 40X cost-recovery limit and aprofit oil split with a sliding scale based on the levels ofproduction. In case of a gas discovery, the cost-recoverylimit is 501, and profit gas is split 70:30 in N.R.A's favorfor all levels of production.

- A signature bonus.

- Production bonuses.

- Payment for exploration data.

- Annual payments for the training of NRA professionals andthe transfer of technology.

- Corporate income taxes included in NRA's profit oil.

- Customs exemptions on all items used for petroleumoperations.

The cost-recovery limit, profit oil split, payment forexploration data and bonuses are all negotiable items.

b. Non-Fiscal Terms

- An exploration period of 7 to 8 years divided into threeexploration terms.

- A production period of 25 years, with possible extensions of5 years for oil and 10 years for gas.

- Relinquishments of parts of the original contract area atthe end of each exploration term and the relinquishment ofthe total area at the end of the exploration period, exceptthose areas designated as production areas.

- Right of Export: Contractors have the right to export allpetroleum to which they are entitled and are not required tosatisfy domestic consumption requirements.

Domestic Consumption: Contractors shall be paid in U.S.Dollars the current international market value for anypetroleum sold for domestic consumption.

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- Foreign Exchange Control: None.

c. Legal Framework

- All petroleum resources belong to the Hashemite Kingdom ofJordan.

- Law No. 12 of 19t8 organized the Natural Resources Authorityand authorized it to enter into agreements, subject toGovernment approval, with the foreign investors for theexploration and exploitation of petroleum.

- Each negotiated agreement shall become law followingsignature and Government approval.

Future Strategy to Accelerate Exploration. Exploitation and DeveloRmentActivitles

1.29 In recent years considerable progress has been made by NRA inaccelerating exploration in Jordan through its own efforts and in attractingIOCs to explore for petroleum as well. However, considering the extent ofsedimentary basins with potential hydrocarbon prospects, detailed work usingstate-of-the-art seismic techniques is needed to identify deep Mesozoic andPaleozoic sediments and resolve geological complexities, followed by drillingor deep exploratory wells. This would require substantial high riskinvestments.

1.30 It would therefore be prudent for NRA/MEMR to follow a long-termstrategy to meet most of the energy needs of Jordan through finding anddeveloping indigenous hydrocarbon resources on the lines suggested below:

(i) To continue the "open door" policy for IOGs by offering themattractive incentives to participate in the explorationactivities, keeping in view the international petroleum scenario.

(ii) To provide incentives to IOCs in developing known oil and gasdiscoveries, e.g. the Hamza and Risha field, through mutuallybeneficial agreements with NRA in order to maximize theapplication of the latest state-of-the-art technologies; providetraining to the inexperienced Jordanian staff; and assist in thedevelopment of institutions to run oil and gas operationsefficiently.

- 14 -

(iii) To fully evaluate the Risha Gas potential prior to making long-term investment d:.cisions. If sufficient gas reserves areproven, then prepare gas development and utilization plan fornatural gas. All gas-related investments should be based on sucha plan.

(iv) To continue ongoing cooperation with the Petro-CanadaInternational Assistance Corporation (PCIAC), JNOC and similaragencies for the promotion of Sirhan, Risha and other areas.

(v) To continue NRA's own exploration activities in areas notcurrently under contract with IOCs.

(vi) To strengthen the technical expertise of NRA staff inexploration, production and reservoir engineering, gasdevelopment, transmission and distribution, by providing trainingin Jordan and abroad.

(vii) To establish facilities with NRA for advanced geological,geophysical, and geochemical reservoir engineering and gasengineering work by NRA staff.

(viii) To strengthen NRA's role in monitoring the act,v ,Ies of IOCsduring the exploration phase and later participate as partners inthe development of oil/gas production, transport and otheroperations.

(ix) To establish an autonomous national oil company, which could takeover oil/gas functions of NRA. This autonomous entity wouldperform the functions of a petroleum company on the industrystandards and interact with IOCs on an equal professional andinstitutional basis. It would plan for the future development ofhydrocarbon resources in an efficient manner and apply yardstickssimilar to other international petroleum companies for itsperformance.

(x) To change NRA's role to include monitoring and regulating of theactivities relating to geological surveys, mineral surveys, oilshale, and petroleum. NRA should continue with the scientificinvestigations, however, for the economic exploitation of mineralresources; it should also encourage commercially-orientedorganizations, both in public and private sectors. NRA shoulddevelop the capability to advise the Government in preparing andimplementing oil and gas rules and legislation. NRA should alsointegrate the planning of oil and gas resources along with othermineral resources of the country. It should develop the strategyfor strengthening technical expertise in Jordan by continuingresearch and development program and by interacting with otherinternational agencies (e.g. API, Institute of Petroleum,Institute France des Petrole USA, IFP, UK, and other similaragency.

- 15 -

Natural Gas

2.01 Geology and Risha Field Evaluation. The discovery of gas in Risha byNRA in 1987 has renewed the enthusiasm of the Government for finding andexploiting indigenous oil and gas resources. Risha Well No. 3 encounteredcommercial quantities of gas in an Upper Ordovician sandstone reservoir.Seismic data in the discovery area is of poor quality and the conventionalseismic interpretation does not help to define the areal extent of the gas-bearing sand body. Several sedimentological and reservoir geology studieswere carried out in an attempt to define the extent of these sands. Thesestudies indicated that the sandstones have complex distribution representingstacked submarine sand dunes deposited on a basal silstone sheet and orientedin a northeast-southwest direction. Several subsequent diagenetic processesadversely affected the reservoir quality. However, porosity was locallyenhanced by the dissolution of the cementing materials at a later stage.Since the discovery of natural gas in Well No. 3 at about 15 MMCFD ft. perday, NRA has drilled 12 appraisal and delineation wells. Of these, threewells have produced gas in commercial quantites.

Future Program

2.02 While the Government appreciates the need to fully evaluate the limitsof the Risha Gas field and determ'ne gas reserves, it has taken steps toutilize the producible gas from Risha by installing two 30 MW gas turbine-driven power units at Risha field and then transmitted the electricitygenerated through a 132 kV double circuit transmission line to Azraq. Thisline was commissioned in March 1989. The Government has prudently planned toutilize the gas produced during the long-term production tests of the twoproducing wells to determine gas deliverability in power generation, whichwould otherwise be flared during such tests. At the same time, the Governmentis planning to undertake studies for the evaluation of reserves and gasdeliverability from the Risha field in cooperation with PCIAC. The gasproduction data from the wells will be utilized to confirm the amount of thegas reserves. Meanwhile other geological, geophysical and engineering studieswill continue in an attempt to reach a better understanding of the possibleextent of the reservoir sands. If these studies prove the existence ofsizable gas reserves, then delineation wells will be drilled and a developmentplan will be formulated for the full development of the field.

Reserve Estimates and Factors Determining the Production Profile

.03 The preliminary reserve estimate of 58 BCF is calculated on the basisif production tests performed on Risha wells for relatively short periods.These data indicate that these wells could produce up to 20 MMCF/day. Severalhypothetical scenarios for gas reserves and production profiles are possible.These are based upon the assumptions concerning the size of reserves that

- 16 -

might be discovered at Risha. Starting with 58 BCF aa the base case, thefollowing are three possible scenarios:

Year of RecoverableScenario MMSCF/D Production Reserves BCF

I 200 10 730II 100 10 365III 20 3-4 42

2.04 It must be recognized that the above scenarios for the Risha field areconceptual in nature owing to the absence of the detailed geologicalinformation on which the estimates of possible reserves could be based. Ahypothetical rate of addition to the reserves and a rate of field developmentsufficient to support the indicated levels of production has been assumed.For case III, no transmission pipeline is contemplated. The gas produced isassumed to be supplied at the well head, i.e. used at the Risha field gasturbine driven power plant.

2.05 However, in order to establish the reliable gas deliverability of theRisha wells, long-term testing with careful monitoring by experts, preferablyindependent consultants, is needed. This data would be an important input inthe Risha Reservoir Study. Similar long-term tests are required for otherRisha wells which have shown some gas flows (e.g. Risha Well No. 8). Theheterogeneity of the gas sands and continuity of the reservoir would beimportant factors in preparing the production profile from the Risha field.

2.06 Further investigations are needed to determine the reservoircharacteristics, the limits of the reservoir, gas reserves and the factorswhich control gas deliverability. In the meantime, NRA's program for long-term tests would provide the production data for evaluating the reservoir.The data from the first six months of production tests will be crucial forrecalculating the reserves of this gas discovery. It would be prudent todrill only selected appraisals and, based on their results and the results ofthe proposed reservoir study, to make long-term gas utilization plans in orderto minimize the risks regarding the Risha Gas Reserves. It may take up to twoyears to get reliable gas reserves estimates. NRA/MEMR 's tnerefore advisedto set its investment priorities for gas utilization only after the gas supplysituation from the Risha field is determined with some confidence. Suchplanning could later be extended to other sources of gas supply which may bediscovered in the course of ongoing exploration activities in various areas ofJordan.

Estimation of Potential Demand for Gas

2.07 Jordan offers potentially very attractive markets for indigenousnatural gas. Recent sttudies commissioned by MEHR (Bechtel) have visualizedtotal gas demand for the power sector alone at about 347 MMCFD (based on

- 17 -

simultaneous full capacity operation at all the user plants). The Amman andAqaba areas are considered as centers for major gas demand. In addition,natural gas could be used in residential and commercial sectors primarilyreplacing kerosene, LPG and diesel in the major towns. Compressed natural gas(CNG) offers po2sibilities for use in the transport sector.

Institutional AsRects

3.01 Current Status of Natural Resources Authority. NRA was established asa Government agency entrusted to undertake all work related to geologicalsurveys, mineral and hydrocarbon exploration, and the exploration andmanagement of water resources, which in 1983 was handed over to the newly-formed Jordan Water Authority. Since 1978, NRA has been activelyparticipating in oil and and gas exploration activities. In addition to thepetroleum exploration, NRA also handles geological surveys, geologicalmapping, mining, laboratories, geochemicals and other laboratories andoilshale exploration. NRA's lead in the mining sector contributed to thefinding of potash and oilshale and other-minerals such as aluminum . In thesesectors NRA's research and development activities contributed valuablegeological data. NRA's role in mining exploration, scientific studies, andgeological mapping have been technically excellent and should continue tohandle these activities to encourage mineral development by the privatesector.

3.02 Chart: 43931C shows NRA's current petroleum orgauization. Thedirectorate of petroleum is one of eight directorates, each headed by adirector reporting to the Director General. Over the years, NRA has fulfilledan important role in initiating geological surveys and mapping, mineralexploration and exploitation, and in conducting geological, geophysical,geochemical and oil shale studies. During the last decade NRA's directexploration efforts have resulted in small oil and gas discoveries (para1.18). Additionally, NRA has collected useful subsurface data and preparedexploration promotion packages to successfully attract IOCs for petroleumexploration in Jordan.

Proposals to Improve Oil and Gas Sector Activities

3.03 In spite of the extensive exploration activities during the last twodecades, the success ratio of NRA's direct effort has been very low. NRAlacks the capability of a professional petroleum exploration company tocarefully evaluate the exploration risks in a prospective area. Although NRAhas highly qualified individuals among its staff members, NRA is still lackingthe professional, technical and managerial expertise to plan and implement theprograms according to industry standards. Such weaknesses exist in almost alldisciplines necessary to run an efficient operation. While expertise can behired or provided through a discreetly planned training program, by the verynature of its set up, NRA will still not develop into an entity responsiblefor efficient, cost effective and profit motivated planning, unless it is

- 18 -

reorganized as an autonomous commercially-oriented petroleum organization withfinancial independence and a goal-oriented strategy. Further, in order toachiave its goals, NRA should be able to attract the right talent withadequate incentives in its work force.

3.04 As mentioned above, with the expansion of oil and gas explorationactivities, the formulation of an independent national oil company is aprerequisite for effective petroleum operations. The shareholding of such acompany can initially be entirely with the Government, with a commitment fordivesting some of these holdings to the private sector, both national andforeign, in order to attract much needed capital. The newly restructuredcompany would operate with a commercial focus, like any other oil company inJordan, and would be subject to the same laws as other petroleum companies.

The major functions of this company are Eoreseen as:

(i) The exploration and development of oil and gas fields.

(ii) Production-sharing partnership with IOCs.

(iii) The promotion of acreage to IOC's for further exploration.

(iv) Natural gas operations and sales.

(v) Economic evaluation and corporate planning.

(vi) Financial control

(vii) Personnel management

(viii) The training and transfer of technology to Jordanians.

Revised Role of NRA

3.05 NRA should be reorganized to act as an arm of the Government to devisepolicies, forurjlate legislation and coordinate mining, geology and energysector work in Jordan. It should monitor the execution of the Government'spolicies. NRA should continue to perform its role in monitoring andregulating the oil and gas operations and should continue to advise theGovernment in formulating safety, environment and other codes relevant to theoil and gas industry.

Petroleum LaW

3.06 It is also necessary to examine the need for reformulating thePetroleum Law to improve the efficiency of the proposed organization, and itsrelations with the outside bodies instead of incorporating many details in thelaws of the organization itself. Nevertheless, it is of prime importance to

- 19 -

review on a regular basis the administrative, financial and legal status ofany organization to be able %vo cope with new tasks and to formui,ttestrategies.

Proposed Organizational Structur= of an Oil Com,anv

3.07 The proposed company should be set up as an autonorous organizationresponsible for managing its operations and should be accountable to itsshareholders. NRA and other organizations could be represented on its board.The participation of the private sector should be encouraged, and it shouldalso be represented on the board. This company should have strongprofessional management. The organizational set up should bo aimed atachieving maximum economy and efficiency in all operations. rhe companyshould be accountable for budgeting and expenditures to its board, who wouldapprove the budgets and plans before such expenditures were undertaken. Itshould be free to formulate its personnel policies to attract the best talent.

3.08 The management should be organized in such a manner that there shouldbe clear definition of responsibilities and functions at every level ofauthority. It is envisaged that the General Manager would be responsible forimplementing the board decisions and mrnnaging the company. Each manager wouldbe responsible for the budget allocated, and the tasks proposed to becompleted by his/her department. A conceptual organization chart of theproposed company is attached (Proposed Organization Chart for an Oil Company).It is based on the three levels of management with the authority and controlfunctions clearly defined at every level. The managers should be responsibleand accountable for the definition and achievement of their goals at apredetermined cost. The development of technical and management expertise atevery level woui.d be the task of the respective departmental manager.

3.09 Periodic review by senior management and close interaction would beneeded to ensure. that the objectives set out were being achieved with economyand efficiency. The proposed organization should provide the professionalenvironment for Jordanian professionals to freely apply their expertise toachieve the goals set for them. Additionally, training would be provided tothe younger Jordanian staff to keep them abreast of the latest state-of-the-art technology by interacting with specialized agencies both at home andabroad.

3.10 Prior to the formation of a new oil company, the structure, financialregulations, management and technical responsibilities of the proposedorganization should be studied carefully. It is suggested that a managementconsultant be hired to review the present organization of NRA and propose theorganizational setup, and formulate rules and regulations and job descriptionsfor running the proposed entity. The Government should review therecommendations regarding the proposed entity and prepare an implementationplan.

- 20 -

Natural Gas PricIns

4.01 Recommended Pricing Asp_pach. An appropriate strategy for natural gosdevelopment should have as its main objective the maximization of ret benefitsfrom the use of the country's exhaustible gas resources. This objestive hasthree important dimensions, each of which implies certain pricing principles.First, there must be incentives to promote the efficient use of gas. Gasprices must neither be so high as to inhibit consumption (especially where theusers must incur some cost to switch from other fuels) nor so low as toencourage wasteful use. Secondly, there must be adequate incentives toexplore for and produce the gas. Particularly in cases where the Governmentmay be able to attract foreign capital to assist in gas development, theprovision of an appropriate pricing and contractual framework is essential.Finally, the growth rates of both supply and demand for gas should be rapidand matched to speed up full development of gas resources.

Investment Strategy

5.01 Investment in Oil and Gas Exploration and Production between.19861990. In the National Five-"ear Plan for Economic and Social Development(1986-1990), estimated expenditures in oil and gas exploration are at aboutUS$86 million; however, actual expenditurs will be around US$100 million. Ir.addition to these planned expenditures related mainly to NRA's activities, theIOCs will spend about US$20 million for the same period. NRA's efforts andexpenditures have so far resulted in the oil discovery at Hamza and the recentdiscovery of light oil (43 degree API) in the Sirhan area and the gasdiscovery at Risha. It is anticipated that Risha gas production in 1989 willbe about 5,800 million SCF, which will give an income of more than US$6million per year.

5.02 Heaza field production and income are shown in the following table.These production levels are expected to continue in the nineties.

1986 1987 1988

Production (BBL) 110,661 162,968 109,884Income (J.D.) 414,247 888,520 502,800

Investment for Exploration and Development (1990-2000)

6.01 Based on the assumption that oil and gas exploration activities willcontinue at the current pace, the investment program is estimated to be around$35 million per year. Foreign oil companies' share of investment in oil andgas exploration activities is estimated to be about 50X of the investmentprogram. The investment program includes: (a) public investment by NRA in oil

- 21 -

and gas exploration, development and production activities in open areas; (b)Foreign National Oil Company investments by PCIAC and Japan National OilCompany (JNOC) in oil exploration activities in the Risha and Sirhan areas;and (c) private investment in oil exploration by IOCs in their respectiveconcession areas.

6.02 Public investment by NRA in the oil and gas sector includes: (a)expendit-ures for the continuation of oil production from the Hamza field; (b)the completion of long-term testing and the evaluation of the Risha gas fieldand expenditures on consultancy services for undertaking well services andtechnical studies; and (c) the continuation of NRA's seismic and explorationactivities in the ope. areas not under IOC's concession. NRA's plannedinvestment in seismic and drilling activities is estimated to be around US$15million per year. Seismic activities include use of one seismic crew fo:detailing features to find structures. NRA plans to carry out the drilling ofabout three to five exploration wells per year, with one rig purchased in1988, and a workover rig for servicing wells. NRA's plarned investment illdevelopment and production activivies are estimated to be around US$5.0million. The planned program includes: (a) $2.5 million investment ininfrastructure to build a small gathering station and a camp at the Hamza oilfield to continue oil production of about 500 bbl/day; (b) $2.5 million toconstruct gas gathering facilities and a gas treatment plant for the Rishaarea to supply gas from two production wells to the power station.

6.03 Overall, NRA's planned investment program is reasonable. The programaims to continue to undertake minimum efforts in exploration and drilling inopen areas while at the same time making efforts to attract foreigninvestments to accelerate oil exploration and development activities in theseareas. In this context, Jordan has already taken pioneering steps in theright direction by signing technical assistance contracts with foreignnational oil companies such as PCIAC and JNOC. PCIAC will provide technicalassistance to NRA in the evaluation of the Risha gas reservoir. In addition,PCIAC and JNOC plan to invest about US$30 million to undertake extensiveseismic surveys and evaluate both the Risha and Sirhan areas. Following thisevaluation, GOJ plans to promote these areas to international oil companies toaccelerate exploration activities. At present, IOC's (Amoco, Hunt andPetrofina) planned investments in oil exploration in their respectiveconcession areas in Jordan is estimated to be US$10 million per year over aperiod of seven years. Their exploration activities include geological,geophysical and geochemical surveys and the drilling of twelve exploratorywells between 1999-1995 in their respective concession areas. If ahydrocarbon discovery is made, plans for development will entail moreinvestment.

6.04 The investment program outlined above is based on the currentlyplanned program in seismic and exploratory drilling activities. Additionalnew investment requirements in oil and gas will depend on the acceleration ofexploration activities, the success rate of ongoing exploration, and new

- 22 -

discoveries and their development. Given the uncertainties about reserveassessments, the long lead times in project implementation compounded bydelays in the preparation of exploration and development programs, there couldhe changes both in the investment program and its priorities. Because ofinter-linkages of natural gas with coal, power, refining and other industrialactivities, it is essential that investment priorities are closely linked tohow much natural gas will become available and on what schedule. If there isno more gas than the present availability to fuel 2 x 3i MW gas turbines, noinvestment will be required for gas development. If natural gas reserveassessments from Risha and other potential discoveries show the availabilityof plentiful gas reserves, it would be economical to substitute natural gasfor fuel oil in power generation. If the present exploration efforts succeedin finding oil with associated gas or non-associated gas fields integrated gassupply and utilization studies should be undertaken to prepare a long-term gasdevelopment plan. The economic evaluation of the planrned investment should bemade, and related gas price and other issues should be addressed.

JORDANOIL AND GAS DEVELOPMENT

OF ~~~~~~~~~~~~~~~~~THEOLM Z lt E" S[ tMETR WICKS

L~~v

PRECAMBRIAe ROCKS

JOR A7', IN 4 GAS FIELD)

GULF OF SUEZ ~~~~~~~~~~~~~~~MAJOR BASIN 8(OJNL.Ahv

OF THE OIL AND SAS FIELD OF ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ CEA

THE MIDDLE EAST AND NORTH AFRICA

Source: NRA/MEMR

JORDONENERGY SECTOR STUDY

OIL AND GAS EXPLORATION AND DEVELOPMENT

LIST OF STRATIGRAPHIC AND EXPLORATORY WEI IS

No. Name of Well Symbol Operator DaleCompleted T.D.gM) T.D. Formation Shows& Remark%

I .Safra SA-I Pauly Dec.1975 2562 Precambrian granite basement

2 Ramallabh R- Pauly June 1958 4520 Triassic1 Suweileh SW-I Pauly May 1959 2329 Cambrian, Burj Ls. Oil & gas shows

4 Jofdan Valley JV-I Pauly 1959 1097 Jurassk Nooil ;hows

S Hlalhul H-l Phillips Jan.19596 Lisan L-1 Phillips 1960. 3672.8 Tertiary rock Oil shows

7 El-Ramiha ER-I Total April 1978 2755 Permian system?a Halbul (White Pigeon) H- I Mecom 1969 3850 Jurassic The same well, just depenei bv Mctoun

9 Mar Saba MS-I Mecom 1416.710 Azzun A-1 Mecom April 1965 564.011 Jericho J-l Mecom July 1965 1624 Jurassic12 Wadi (Chadaf WG-I INA 6-4-1970 3081 OrdovkianI1 Wadi Raiil WR-I INA 24-1971 3076 Alb/Apt. Kurnub Ssit.

14 Wadi Sirhan WS-I INA 8-7-1971 1800 OrdovicianI5 Wadi Hazim WH-I INA 7-10-1971 1861 Ordovkian16 S-I Ma'an Area S-l NRA Oct. 1965 138617 Jafr Area s-IS NRA Feb. 1966 1388t# Ma-an Area S-57 NRA April 1%8 130019 I.isan D)ead Sea NRA-2 NRA Feb. 1968 101421t 1 isan l)ead Sea NRA-3 NRA May 1968 IC0021 Ramiha S-90 NRA March 1970 2192 Triassk22 Khalidiyrh I KH-I NRA March 1971 1333 Triassic21 lIs Area SH-5 NRA March 1972 1405 Triassic24 (ihor l.s%afi GS- I NRA March 1972 27832s Airaql I AZ-I NRA 1963 1299 Kurnub Ssit. Alb/Apt26 Wadi Rail 2 WR-2 NRA 18-1-1982 3510 I ow doviclam Oditn Wads sEsir Fm.

27 Wadi Rajil 3 WR3 NRA 2-8-1982 2810 Alb /Apt Kurnub Sst. Ill in Wadi jtsir Fm.

0*1i& N

Tahle I (Wontinmed)

No. Name (r Wcll Symbol Operator DateCompleted T.D.(M) T.D. Formation Sh&Remarks

2R Wadi Rajil 4 WR-4 NRA 8-2-1981 3103 Triassic ysten? Oil shows in W.Essir Fm.

29 Iahikiyeh I DH-I NRA 1-9-1983 4433 LOWdVCdoin OlsibwsinW.EsP Fm.

10 Wadi Al(haldaf WC-2 NRA 7-9-1983 3740 Cambrian System Oil show s in Cenomanin

It Ilam7ch I HZ-I NRA 22-1-1984 3216.5 Trlassic Ofl in Hunmur&NNaur Fs.

32 Risha I RH-I NRA 15-1-1984 3177 Ordovdatn

3. Risha 2 RH-2 NRA 21-7-1984 3314 Ordovidtn Gasdtows inPaloiozoCks.

34 Ilam7ch 200 HZ-2 NRA 30.7-1984 3257 AMb /Apt Kiurnub Sst OilIn Shib Fm.

35 Wadi Sirhan 2 WS-2 NRA 25-12-1984 3331 Ordovkia System

36 Ilam7ch 1 HZ-3 NRA 20-2-1985 3262 TUrotoa. W. Essir OCIinW.Es* FM.

37 Ilamich 4 HZ4 NRA 23-7-1915 3984 Paleo20ic Ordovian OuO"MsIWS2&ShwiF11a1s.

18 Ilam7ch 5 HZ-5 NRA 3-7-1985 3310 Alb /Apt Kurnub Sst. Oil shos In Shub FM.

19 Ham7ch 6 HZ-6 NRA 22-7-1985 3265 Kurnub Ssl. OidshwsInShfldbFm.

40 llam7ch 8 HZ-8 NRA 8-10-1985 3595 Triassk Oil dtosIn WS2 FM.

41 Ham7eh 7 HZ-7 NRA 26-10I'8S 2900 Kurnub Ssl. OR In WdiulErFtn.

42 Itam,ch 9 HZ-9 NRA 5-12-1985 3578 Jurassic

43 lIam7eh IOl HZ-10 NRA 15-11-198S 3199 KurnubSst. OildnowshiHumm rFm.

1 tsronian Wadi Essir Fm.WS2

hucib Fm.(r .accoln Senomanian Hummar Fm.

Fuheis Fm.Naur Fm.

Alhian / Aptian Kurnub FmvInra %ic .............. Huni Fm.

I *ija ic . .Main Fm.

Ihe wellR Imhown on figtire 9 are key stratigraphk and exploratory,11%; water wtlk are nol shown.

t11/ -2-1 Marc htotly spaced and considered to be delineation wells.

Ao0ua

o0.MFt'3

JORDANOIL AND GAS DEVELOPMENT

TABLE II

SEISMIC SURVEYS IN DIFFERENT EXPLORATION AREAS SEISMIC SURVEYSg@0 .- Se AREA COMPANY YE AR FOLD U)TAL Km

C-I IINA 1969 24 690

.- J , (C.G.G 1978/79 24 5t6

eo 0,, } _ . . . i _ _ ._ _ __ __ w . 6G.S.1 1981 224 1312

SYRIA C.6.G 1982/0 2 4 2435.5

1773km. ~ ~ ~~~~~~ -2 RA . -9 .64 24 27 OA~523I.".O.C 1964 46 56.1 TOTALs 67O9.6 km

loe / f->. ,. t C-2 C.G.C 1978 24 960.3

- C C 1 3522 km. C.G.G 1979 24 384

| i 5 1ll7t3W8t ..| § '' | |C-3 I N A 1969 24 630C C-I1~ ¶ C.G.G 197679 24 304

6709 km. .. cC.G 1991 24 1896

so t J w, | | __.G.G 1982/S 24 560 TOTALs 3390 kmU C-? C-4 C.G.G 1982 24/48 49i.4

J | 515 ken. \ C-S \ | s C~5 FI,NO.C 1965 4 437 1OTALs 926.4 km'a / 315km. ~~~~~~~~~~ ~~~~~~~~~~c-5 FILON I97I/1 It 270

kC-41 3390kmr. \ G.SJ 1981 48 773oo _K { * _I.#C 105/64 40 730 TOTALS 1773km

C-6 C.G.G 1962 24 751.9 TOTALs 751.9km

C-? I.N.o.C 19 24 3157 ,TOTAL315.Tkm

A- J/ , _ 9, _ r_o.

*00 Energy souhces io vibrosi in all weoso m . . ^ _. . , -o _ : OcoC old welS in Ataq and N.Jordan

Source: NRA/ME?

Annex 1.4- 27 -

JORDANOIL AND GAS DEVELOPMENT

' i00 150 a 0 250 oo zo50 400 450 Sao ySo 6 o

.. 3 t; I I;6 A . a t

as- a ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~50

- a"- NORTHERN ~~~~~~RISHA AREA

a R . . 00

sot E _. _ 1''--* ,~t '\- _

150 * :50

CENTRAL*TH HASHEMITE KGt4Om AN

PLATEAU N.R.A.-ENERGY nF.Pt. 'FNT

DeAD SEA SRNA AREARIO AN A A

?IRESSION~ ~ ~~~~~~~~~~~~~~~~~RIRT . COI TO R I NCRTHER II 0 . N

/ I~ ~ ~ ~~~~~~~~~~~~~~

201~~~~~~~~~~~~~~~~EIN AND(5 AREAS3' ._, Xc2\ 0

I*i ~~~~~~~~~~~~~~~A a ooiONOUS ROCKs REGION

QC/A 'REGION C0VEREO By BASALTIC RtOCKS .

~~~i A ~ C 19C4111OEM1ETARY ROCKS RE'.ION

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~6*x - -0 _ _ _ __ ---_ T___ - 850

,ol-~ IS ZO !250_.|

sets *ee,ws me te ggssgaoi s,,svSi sse t eve-go- *tsses s-me-* ae-Sol sees, sgomg *SStS on-to Mt. wS

4I is:,se1 %"III as e st Weg" 99m @ onws mo 8t F "et ee-IV sst etS _ 61*SC -.I,* assaet s*"Isu fes,u sInlet ones eet*se us*a now:~s, sr m ul11,o tat ' * enao :e:s oo,os w* - - --a - -

Sol* es lle t' FV* tl8'§88 _ _ _ _ _ _ _ _ _ |at se* sest,% m ae: staves onve:e -, - - - - - - e,w.saw os5is togIS" 69CS0t9 SI tiltS io3 3 * #t - - s 1 - - - - -S - SW W*D s19'@ sY Tn ltos seloll *n1311 1089031 90810 aslt ctl@v no-go: nwa 0 imatm ~w soo <@w glvo goolo * *e$, M,I l eR asel Mles poolRsfiS.0B atn "oelse n gi am "_@ mo l 01e 1ss: *iolo ss legg It -a - -e-,$ - - - - - - 53853wAsSt's sesose t nts*ss* M,Oet *l*wa :'s egeti iooest g9vo an -t - - - - mauiSt' 91928 l- " t *t'"ts @|§-§aE oeW-@@ SWISS Saf-B88 3"9-2 cmE n- ee 1-E "ZS" ZwoeSt zeeets*t Irm's Serowe l esse*w t s 9el ts *e o* u9a *ev:s set - - - - - - s,,lu.nh OW=1119s0 @e*ams sa,sse*u nutu es vufi 855*A *e6l1t 41163 sWSIbB Et*se* M,& 8sea' 2 eta :lE : Stiihm oa- -gg*i egagI- @ SuS5C-1 iss*et *sveam sect-C st*ei§ St*-lS 05- BlSf St5 ,l*:.' et:. gevs @gej*g -sj esaaaw

___~~~ ... .. .......... _............. ... .... _ ......... .......................................... . ......... ,,,,,,,,,,,,,,,,,,,,,,,,,,,_, nessas Me not t goofsg oal goal Mae eassse 541 Sit stvist 011111211

(aibu uuI8Wo( ul)g aaaaaBBsmm uou--3vumwes me te

cr etq')

uoe1j0oldx3 sv9 pue 110ApnIS J1o03S 46Jau3

NY0aIO(

- 29 - ANNEX 1.6

JOR-DANEnergy Sector Study

Petroleum Law

Content of the law: a separate law for petroleum is desirable toclarify rules applicable to the sector where other laws exist which otherwisemay variously apply to petroleum. To minimize delays in its promulgation,provide some room for flexibility in contract format, and fit with existingcontracts, thp law should be broad in scope and brief in content. Most of theoperational and economic details should be written into the contract.Possible provisions of the law:

(a) ownership vested in state;

(b) foreign companies can operate in Jordan under contract from thestate or in association with Jordanian companies approved by thestate;

(c) all contracts to be approved by

(d) status of contract (force of law?);

(e) possible contract forms (include but not limited to jointventures, production sharing agreements, and/or servicecontracts);

(f) all exploration risks under contracts to be borne entirely bythe foreign or private company signing the contract;

(g) all operations to be carried out in accordance with good oilfield practice with appropriate measures to conserve petroleumreserves;

(h) natural gas flaring prohibited without prior authorization of

(i) agreements with foreign companies to include provisions for thetraining of Jordanians; and

(j) application of other laws (in particular tax laws, which shouldbe so structured as to avoid double taxation of foreign oilcompanies).

- 30 - ANNEX 1.7

JORDANEnergy Sector Study

Terms-of-Reference for a Diagnostic Study of the Risha Gas Reservoir

1. The consultant would study all available geological, geophysical,petrophysical, drilling, well test data and other studies performed on theRisha gas reservoir and prepare a geological model.

2. The consultant would digitize all well logs and correlate log anId coredata to determine reservoir rock properties. If necessary, detailed andspecial core analysis studies will be made to determine reservoir rockcharacteristics.

3. The consultant would determine gas reserves, both gas in place ardrecoverable reserves.

4. The consultant would perform reservoir simulation studiesincorporating the geology, well tcst and other data.

5. Based on these studies, the consultant would study reservoirproduction performance and develop gas production prediction cases.

6. The consultant will conduct stimulation studies on tight Risha gassands with a view to develop an optimal stimulation program to improve gaswell deliverability.

7. Based on the above studies, the consultant would recommend optimalfield development plans which would sustain gas deliverabilities over 10 and20 year periods.

8. The consultant would perform economic evaluations of variousproduction scenarios as recommended above.

9. The consultant would train NRA staff, both in Jordan and overseas, instate of the art technology, which would be applied in this study, and wouldcoordinate with NRA experts in various facets of this study.

- 31 -

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JORDANENERGY SECTOR STUDY

Ministry of Energy and Mineral ResourcesProposed Organization Chart

Policy Co"Inat io

l Power | Pte || petroleum | | Eneokrgyhatloa | | Renewable T. | . lPetrolem imports Effiolenoya EIiONcouEvbato

EnErierxg |Energy Planig rI |Proeect lData Pocy and letment Opratnsand Demand Pricing PlForocoat

EK1w46343b

JORDAN - ENERGY STRATEGY REVIEW

Background Paper 2

Oil Shale Development

Page No.

Introduction ....................... . 33

Historical Background .33

Oil Shale Resources in Jordan .34

Characteristics of the Oil Shale Deposits . . . . . . . . . . 34

Review of Efforts in the Exploitation and Development of Oil Shale .. 35

A. The Study by the German Institute of GeologicalResearch . . . . . . . . . . . . . . . . . . . . 35

B. The Klockner-Lurgi Study . . . . . . . . . . . . . 3C. Combustion Engineering (CE)/Lummns Canada Inc. Study 38D. Bechtel/Byropower Study . . . . . . . . . . . . . . 40

Options for the Exploitation of Oil Shale . . . . . . . . . . 41

Strategy for Oil Shale Exploitation . . . . . . . . . . . . . 42

(a) Geological Assessment of Oil Shale . . . . . . . . 42(b) Evaluation of Water Resource Availability, Ash

Disposal, and Environmental Issues . . . . . . . 42(c) Technical Issues (Retorting) . . . . . . . . . . . 43(d) Technical Issues: Direct Combustion . . . . . . . 43

Conclusions . . . . . . . . . . . . . . . . . . . . . . . 44

Annex 2.1 Oil Shale Reserves

- 33 -

JORDAN - ENERGY STRATEGY REVIEW

Aackground Paper 2

Oil Shale Development

Introdiuctio

2.01 Jordan is dependent on imports of crude oil and petroleumproducts to meet virtually all its energy needs, which is a significantdrain of foreign exchange in Jordan's economy. One of the key elements ofJordan's energy strategy is to diversify its energy supply sources byeconomic exploitation of its domestic oil shale resources to meet theenergy needs in the next decade and beyond.

2.02 Extensive studies made by the Natural Resources Authority (NRA)of the Government of the Hashemite Kingdom of Jordan (GOJ) and severalbilateral/multilateral agencies have indicated large reserves of oil shalein Jordan with shallow overburden cover that could be exploited usingappropriate technology, both for extraction of synthetic crude (Syncrude)and for direct combustion utilizing state of art circulating fluidized bedcombustion (CFBC) technology for power generation. However, the mainconsideration is whether such projects could economically produce Syncrudeor generate power and contribute towards reducing Jordan's foreign exchangeburden by substituting imported petroleum or any future imported coal.

2.03 This background paper reviews the progress in oil shaletechnology, with particular emphasis on the studies made on Jordan's vastresources (over 40 billion tons) during the last decade, investigates thetechnical and economic feasibility of utilizing oil shale, the disposal ofresidual ash, and water requirements in the context of scarce nationalwater resources, and recommends a strategy for future exploitation of oilshale.

Historical Background

2.04 Oil shale is a source of energy of fossil origin with a highcontent of mineral matter called kerogen. Oil can be extracted from oilshale by destructive distillation (retorting) of the kerogen content.Crushed raw oil shale can also be considered as a high ash content fuel fordirect combustion in power generation. With appropriate technology, oilshale offers great promise as an indigenous fossil fuel resource that cansupport the growing energy needs of Jordan and other developing countries.

2.05 The development of shale oil began in Europe in 1830. However,with the discovery of petroleum in .870, commercial shale oil productiondeclined. After the 1973 "oil crisis" and steep rise in crude oil prices,the interest was renewed in the research and use of oil shales and tarsands in the United States, Europe, Brazil, China and the Soviet Union. InChina several hundred oil retorts produced up to 780,000 tons/year of shaleoil. The Soviet Union used oil shale for power generation (up to 3,000 MW)and for the production of resin for petrochemical industries.

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2.06 Extensive research and advanced pilot projects were operated forthe production of oil from shale and tar sands in the USA and Canada inanticipation of oil price hikes to US$60/bbl. However, with the decline ofthe crude oil prices in the past few years to below US$20/bbl and thesurplus of crude supplies, the investment in large scale pilot projectsand, in some instances, in commercial production of syncrude was stopped.

2.07 The key to successful exploitation of the oil shale potential isthe use of appropriate technology that meets technical and economicrequirements. Until the early 1980s such technology was not commerciallyviable. In the last decade, new developments in direct burning, such asfluidized bed combustion (FBC) and, more recently, the second generation ofthis technology, i.e., circulating fluidized bed combustion (CFBC)utilizing low grade solid fuels, has been successfully developed andcommercially applied in power plants (over 60 units) in the USA, Canada,Finland, Sweden, Germany, Austria, Korea, and Japan. Such plants aregenerating power that is competitive with that from conventional powerplants.

Oil Shale Resources In Jordan

2.08 Jordan possesses a very large energy resource in its vastreserves of oil shale (over 40 billion tons of geological reserves). Thereare seventeen known surface and near surface occurrences of oil shale.Seven of the most important deposits are at El Lajjun, Sultani, Jurf edDarawish, Attarat Um Ghudran, Wadi Maghar, Siwaqa, and Khanez Zabib (seeMap: IBRD 21349). Their characteristics are given in Annex 2.2.

2.09 The major deposits of commercial scale interest are located southof Amman in Central Jordan and are easily accessible from the deserthighway from Amman to Aqaba. These are: (a) El Laii n, located about 100km south of Amman, about 15 km east of Karak and west of Qatrana;(b) Sultani, located at about 115 km south of Amman, just south ofQatrana; and (c) Jurf ed Darawish, located about 115 km south of Amman onthe desert highway near the town of Darawish.

2.10 So Ear. only the deposits at El Lajjun and Sultani have beengeologically investigated in detail. During the last decade, geological,techno-economic, and pre-feasibility studies for the exploitation of ElLajjun deposits for oil shale retorting and power generation, and ofSultani deposits for direct combustion in circulating fluidized bed thermalpower plants, have been undertaken by the Ministry of Energy and MineralResources (MEMR) and the Jordan Electricity Authority (JEA) incollaboration with American, Canadian and German consultants.

Characteristics of the Oil Shale DeRosits

2.11 Proven reserves at both El Lajjun and Sultani deposits areapproximately 2 billion tons, of which over 90X are exploitable by opencast mining. The reserves at Jurf ed Darawish are estimated at over 8billion tons. However, only 30X of these reserves may be exploitable. Themean oil content of El Lajjun, Sultani and Jurf ed Darawish are 10.5. 9.7,and 5.7 (wtX), respectively.

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2.12 The deposits are shallow with essentially horizontal beds. Mheoverburden 's unconsolidated sedimentary rock consisting of gravels andsilt with some marl and limestone stringers. The thickness range of theoverburden is 15-62 meters at El Lajjun, 2-65 meters at Sultani, and 19-128meters at Jurf ed Darawish. At the Sultani and Jurf ed Darawish, the oilshale is underlain with phosphate beds whose thickness and quality are yetto be determined. So far, NRA has concentrated on the studies regardingthe exploitation of El Lajjun and Sultani oil shale deposits.

Review of Efforts in the Exploitation and Develooment of Oil Shale

A. The study by the German Federal Inscitute for Geological Research

2.13 NRA has done extensive geological studies to determine the oilshale reserves in the El Lajjun and Sultani areas. In 1979, NRAcommissioned a study by the German Federal Institute for GeologicalResearch (BGR) for the evaluation of El Lajjun deposits and atechno-economic pre-feasibility study for an oil shale retorting complexusing the Lurgi-Ruhrgas (LR) process. The results of these studiesindicated that the El Lajjun oil shale deposit shows continuous hydrocarbonimpregnations over an area of 18 sq km, with about 1 billion tons of oilshale reserves containing some 100 million tons of shale oil. It would besuitable for open cast mining and could support a 50,000 barrels/day (b/d)oil shale retorting complex for 30 years.

2.14 In October 1980, NRA commissioned Phase I of two pre-feasibilitystudies for (a) an oil shale retorting complex using the LR process forextracting 50,000 b/d shale oil; and (b) a power plant of 300 MW capacityutilizing El Lajjun oil shale by using Lurgi's CFBC process.

2.15 These studies were completed in 1982 and concluded that bothoptions were technically viable, although a stepwise approa:.h should betaken to (a) elaborate basic technical data; (b) investigate waterresources in view of their limited availability; and (c) undertake aneconomic assessment for the installation of a 50,000 b/d oil retortingcomplex and a 300-MW power generation complex.

B. The Klockner-Lurgi Study

2.16 In March 1986, NRA contracted with the West German consortiumKlockner-Lurgi for an update of the previous studies to assess thetechnical and economic feasibility of a large scale oil retorting complexfor the production of 50,000 b/d of shale oil. This study consisted of arevised geological study, updated pre-feasibility study, performance ofretorting pilot tests, CFB combustion tests with a 200-ton sample of ElLajjun oil shale in Germany, and hydrogeological studies for waterresources. In addition, Klockner-Lurgi also undertook an assessment of thepossibility of burning the spent shale in a 350-MW electric powergeneration plant by adopting Lurgi's CFB combustion process. The finalreport of the updated study was submitted to NRA in April 1988.

- 36 -

2.17 The Klockner-Lurgi study found both the retorting process toproduce 50,000 b/d of shale oil and the Lurgi CFBC process to burn thespent shale in a 350-MW power plant to be technically viable. Theconsultants have also concluded that the shale oil production project, evenbased on a market price of crude oil of US$15.6/bbl, should generate a 10%IRR on an investment of JD 628 million. The main findings of the studyare:

(a) Using the LR oil shale retorting process at a rate of 74,500tons/day (t/d) of oil shale feedstock and by hydroprocessing thecrude shale oil fraction, an almost stable and sulfur-freesyncrude could be produced. The predicted results for the annualproduction volumes of various products of the updatedpre-feasibility study and the actual performance tests are givenin Table 2.1.

Tatle 2.1: Annual Production Volumes of a 74.500 t/dOil Shale Retorting Plant

Study Results Test results(cu. meters per year)

Naphta 656,000 905,000Kerosene 612,000 662,000Diesel 690,000 674,000Vacuum Gas Oil 482.000 261.000

Total 2,440.000 2.502.000

(b) The performance test results indicated that the final naptha,kerosene, and diesel fractions could be increased by 20X,representing 93X of total upgraded products.

(c) The high hydrogen sulphide content of the distillation gas andthe oil fractions could yield up to 340,000 cons/year ofmarketable sulfur.

(d) The.combustion tests with El Lajjun spent shale (obtained from LRretorting pilot plant) in the circulating fluidized bed pilotplant were done to generate all required data for Phase III ofthe feasibility study. The tests demonstrated that it istechnically feasible to combust the residual carbon from thespent shale for power generation and obtain the requiredenvironmental data.

(e) Tests performed over one week proved almost total burnout (over99Z) of residual carbon in the spent shale.

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(f) The flue gases from LR oil retorting tests and from thecombustion of spent shale met international environmentalstandards without special provisions.

(g) 350 MW of electric power would be generated in the complex. Ofthis gross output, 135 MW would be used for the internalconsumption of the complex and associated utilities, and 215 MWwould be available for sale to the national grid.

(h) Based on a total investment of JD 628 million 1,, and sales of(i) JD 138.6 million of petroleum products, and (ii) JD 45.5million of sulfur and electric power, an internal rate of returnof 10% on total investments would be realized at a averagerevenue of US$19.1/bbl of petroleum products.

2.18 Although the LR pilot test in Frankfurt, Germany demonstratedsmooth operation and provided interesting results, further technicalinvestigations are needed regarding: (a) the lower operating temperaturesand its effect on the decomposition of the carbonate in LR and CFBsystems; (b) the suitability of the residual shale after retorting tosustain stable operation of the power plant boiler; and (c) the suitabilityof the burnout residual of oil shale and ash as material for building orroad construction. Such studies would provide a firmer basis for decisionsregarding the viability of the integrated plant. In addition, furtherassessment of water resource availability, air/water cooling, commercialityof operations, and the economic viability of the complex is required tofully determine the feasibility of this option.

2.19 Water Resources. Klockner-Lurgi have made an assessment of theavailable water resources at El Lajjun and concluded that the waterrequirement of 22 million cu. meters per annum for the oil shale complexcannot be met from the existing shallow aquifer that provides water toAmman, other cities in Central Jordan, and to irrigation users in the area.Klockner-Lurgi have also made a preliminary investigation of theavailability of water from the deeper Karnub formation (about 1000 metersdeep) and found that up to 49 million cu. meters/year of water could bedrawn from this aquifer. Further studies are needed to ascertain theexploitability of this water resource. If this is found technicallyfeasible, the investments needed to produce Karnub water for oil shaleexploitation should be included in the economic evaluation of theseprojects. The Bank-sponsored Water Resources Sector Study in Jordan vexpressed serious doubts about the availability of water for oil shaleproje&ts. Therefore, the determination of the optimal water requirementsand reliable estimates of water availability are essential prerequisites

I, All cost estimates are based on the pre-August 1988 exchange rate of1 JD - 345 Fils.

g IBRD-Jordan Water Resources Sector Study (Report No. 7099-JO), June27, 1988.

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for the consideration of any oil shale project, both at El Lajjun andSultani.

2.20 AirWater Cooling. Klockner-Lurgi have indicated that the use ofair cooling at the plant would reduce water requirements to about 5 millioncu.meters/year. Although air cooling has been successfully and extensivelyused in power plants (Hussein Thermal Power Station being one of thelargest air-cooled plants in the world), the extent to which air coolingcan be substituted for water cooling in the shale retorting plant needsfurther elaboration. Even so, the availability of the required 5 millioncu. meters/year of water is uncertain.

2.21 Onerational Commerciality. The consultants/vendors have notdemonstrated their operational experience in commercial oil shale retortingplants. The pilot plant tests in Germany can at best be taken asencouraging; indicator tests need to be repeated in a small field pilotplant in Jordan before an ambitious project such as proposed byKlockner/Lurgi can be launched.

2.22 Economic Viability. The economic assessments made by theconsultants are preliminary. They need to be carefully analyzed takinginto consideration basic plant design, operating costs, cost of waterresources, and the experience of the operators of similar syncrude plantsin the USA, Canada, and elsewhere under the current petroleum pricescenario. In addition, the cost estimates should be revised to reflect thedepreciation of JD against foreign currencies since August 1988. NRA haslooked into the possibility of installing a 1,500 tons/day (oil shale feed)pilot plant at El Lajjun based on the results of the Klockner/Lurgi study.It is recommended that a decision on such a pilot project be deferred untilthe consultants have addressed the issues raised in the above comments andre-evaluated the techno-,conomic merits.

Summary of USAID and CIDA Sponsored Studies

2.23 Since 1986, JEA/NRA, with the assistance of US and Canadian aid(USAID and CIDA), has been invest'gating the possibility of exploitingSultani oil shales for direct combustion for power generation utilizingstate-of-the-art CFBC technology. The combustion tests performed onSultani oil shales under the Canadian (Lummus/Combustion Eng'g) and USAID(Bechtel/Pyropower) projects have demonstrated that Sultani oil shales aresuitable as fuel for direct combustion in CFB-based Rower plants withexcellent environmental emissions performance.

2.24 Both Lummus Engineering, Canada, and Bechtel/Pyropower, USA havesubmitted their pre-feasibility reports to JEA in early 1989. Both reportshave recommended exploitation of Sultani oil shale for direct combustion inpower generation using CFB technology. Details of these two studies arepresented below under sections C and D.

C. Combustion Engineering (CE/ Lummus Canada Inc. Study

2.25 A feasibility study for the direct combustion of Jordanian oilshale for electricity generation in a 25-MW demonstration plant using

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Sultani shale was undertaken under CIDA sponsorship. NRA/JEA also provideda 70-ton sample of Sultani oil shale for combustion tests in Lurgi'sfacilities in Germany and in CE laboratories in the USA. The consultantscommenced the study in 1987, submitted their draft report in October 1988,and prepared the final report after receiving comments from JEA.

2.26 Most of the combustion tests with the 70 tons of Sultani oilshale were conducted by Lurgi in Germany in June 1988. The test resultsdemonstrated that the combustion of oil shale at 700°C was satisfactorywith carbon burnout at 98 percent. With the crushing of oil shale to theappropriate feed particle size, the combustion of oil shale did not poseany problems, and the flue gas emissions were within the acceptedenvironmental standards. These burn tests have given the consultantsenough confidence to design the proposed 25-MW power plant to operateoptimally with the stated fuel characteristics. The consultants have alsosatisfactorily addressed the mining, crushing, and transport of the oilshale feed to the pilot plant. However, JEA and NRA need to evaluatevarious options presented in the study and to select the options that seemmost suitable technically and economically.

2.27 The proven geological reserves at Sultani are sufficient toprovide 2,000 tons/day of oil shale for the 25-MW plant. However,additional delineation core drilling and reserve analysis is required forinstalling a commercial-scale power plant. NRA needs to evaluate theconsultants' views and to further investigate the possibility for providingoil shale feed for a large commercial complex over its projected life.

2.28 The CFB technology has been proven to generate steam for powerunits using low grade fuels with calorific value as low as 1,200 Btu/lb(2,800 kJ/kg). CE NATCO/Lumujq Canada have built nine plants in the USAand Canada, and Lurgi has built 14 power plants in Germany using Lurgi CFBtechnology. In addition, since 1979 Ahlstrom/Pyropower have built over 60CFB power units located in Europe, USA, Japan, and Korea. However, none ofthe above plants have utilized oil shale similar to Sultani. Further, noneof the plants have so far been built and operated in the desert ambientconditions similar to those obtained in Jordan. Although there can be noreasonable doubt that CFB technology can be a technically viable option forpower generation in Jordan with the calorific value of Sultani oil shale atAbout 2,400 Btu/lb (5,582 kJ/kg), certain technical uncertainties stillexist.

2.29 Use of air cooling has been mentioned by the consultants andwater availability has been assumed for wetting the ash and for otherutilities. As discussed earlier, water availability over the life of theproject is a crucial matter and must be assessed carefully be'ore any firminvestment decision. Since none of the currently operating CFB powerplants are based on air cooling or use oil shale as fuel, and since theproposed plant would present acute problems of hot ash treatment anddisposal, the operation of such a power plant should be assessed in detailby JEA/NRA.

2.30 Cost EstiMates. The consulta,ats have estimated capital costs ofUS$69 million for a 25-MW plant (i.e., US$2,700 per MW gross output). The

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capital costs for a 50-MW and 100-MW plants are projected at US$100 millionand US$140 million, respectively. The operating costs for the 25-MW plantare estimated at 9.39 Fils/kWh, which are projected to be reduced to 8.02Fils/kWh for a 50-MW plant and 6.98 Fils/kWh for a 100-MW plant. Thesefigures appear to be preliminary and do not take into account the cost ofother infrastructure and water resource development. A more detailedeconomic analysis of the investments and the risks involved is recommended;also taking into account the 1988/89 devaluation of the JD against foreigncurrencies. Particular attention should be paid to the technical andeconomic assumptions of the analysis prior to making investment decisions.

D. iechtel/Pyropower Study

2.31 In 1987 USAID and GOJ agreed to jointly sponsor a pre-feasibilitystudy aimed at assessing the technical and economic viability of an oilshale power generation project based on CFB technology. Bechtel was theproject manager for the study and had the responsibility for conceptualdesign of all balance-of-plant (BOP) facilities. Bechtel also developedestimated capital and operating costs for the integrated project. NRAprovided a sample of 75 tons of Sultani oil shale to be used in a pilottest program. Pyropower, a subsidiary of Ahlstrom (Finland), created theCFBC boiler conceptual design and performed pilot combustion tests inFinland. Oakridge National Laboratory (USA) provided an independent reviewof forecasted power demand growth, assessed the existing power generationcapacity in Jordan, evaluated the merits of the CFB combustion technology,reviewed environmental issues, and performed an economic assessment of theproposed three project alternatives, i.e., 20-MW, 50-MW, 400-MW powerplants.

2.32 The Pyropower burn tests confirmed that Sultani oil shale couldbe burned under stable conditions with air pollutant emission levels whichare well below strict environmental standards. These tests establishedthat use of Sultani oil shale as boiler fuel was technically feasible.

2.33 The water demand for a 20-MW power unit was 538,000 cu.meters/year, while for a 400-MW unit it was 1.2 million cu. meters/year.These water requirement figures are lower than those given in the CE/Lummusstudy based on air cooling technology for heat rejection. The remarks madeearlier regarding air cooling in such plants are also valid here.

2.34 Capital and operating cost estimates were based on two scenariosfor project financing, i.e., on debt/equity ratios of (a) 80/20X and(b) 50/50%. These are summarized in Table 2.2.

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Table 2.2:-_Estimated CaRital and Electricity COss of Three Sizes ofCFBC Oil Shale Generating Plants

2QIMW Unit 50-MW Unit 400-MW -Ugj

Total Capital Costs,including Infrastructure,US$ Million 107.3 164.6 1,001.2

Cost of Electricity: Mills/kWhBased on Debt/Equity Ratio of

80/202 128 92 7150/50X 146 102 78

The consultants stated that 20- and 50-MW power plants would not beeconomical, and, therefore, would require some form of subsidization. Theconsultants have also compared the economics of an Incremental investmentof US$400 million for a 400-MW oil shale-based proj _ct compared to a coal-fueled power project. As the consultants' economi evaluation ispreliminary, further careful analysis by JEA/MEMR &s necessary. Additionalcapital investments, which may be needed to meet Local conditions obtainingin Jordan, need to be considered. Furthermore, the 400-MW unit proposal isspeculative, as needed infrastructure, transmission facilities, and otherrelevant factors have not been analyzed in any detail.

gRtions for the Exploitation of Oil Shale

2.35 Although oil shale retorting is a conventional technology, theresearch conducted by Americans and Europeans after the 1973 oil crisis andthe high oil prices (US$60-100/bbl) projected at that time, led to furtherdevelopment of modern oil shale retorting processes. The Lurgi process inGermany and other Syncrude processes based on tarsands in US and Canadahave proven the technology on a pilot scale. However, prohibitive capitaland operating costs, and current level of oil prices have renderedcommercial development and operation of such plants uneconomic.

2.36 In USA, Exxon suspended work on a Colorado oil shale projectafter making heavy initial capital investments. Similar projects in USA,Canada, Morocco, and other countries were suspended due to unfavorableeconomics. Therefore, in order to reduce risks associated with theconstruction of a pilot retorting complex at El Lajjun, NRA should proceedcarefully and review the experience and results obtained from operatingsimilar plants, prior to making a decision for large investments in such aproject.

2.37 The second option for the utilization of oil shale is to burn itfor power generation in CFBC boilers. This technology has been well provenin the last decade in over 60 such plants operating on fuels with calorific

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value similar to or lower than that of Sultani and El Lajjun oil shales.However, none of the plants have so far been operated on oil shales.Furthermore, in both the Canadian and American proposals for the oil shale-based power plant at Sultani, the technical issues disposal and/orutilization of spent ash, and the thermal efficiency of air cooledoperations and the comparative economics of such plants versus conventionalplants, have not been analyzed in detail. Such indepth analysis byMEMR/JEA is needed prior to making any major investment decisions.

Strategy for Oil Shale Exploitation

2.38 While the GOJ's concern to diversify its domestic energy supplyby developing indigenous oil shale resources is understandable andjustified, embarking on investments in oil shale exploitation in commercialplants either for the production of shale oil or in direct power generationmay be premature, until results abroad establish the technical andcommercial viability of such oil shale projects. The slowing rate ofgrowth in electricity demand; the planned grid interconnections betweenJordan and Egypt as well as with Turkey, Iraq, and Syria; and the potentialavailability of natural gas have removed the urgency for accelerating theprogram for the development of power generation from shale. It is furtheradvisable that GOJ should not use its scarce public investment resources inrisky operations of oil shale exploitation but, instead, await the resultsof techno/economic evaluations of commerciality elsewhere of both theretorting and CFB technologies. In the interim, the Government shouldcontinue to (a) monitor technological breakthroughs in commercial oil shaleexploitation and evaluations of both the retorting and direct combustionoptions; and (b) address the technical, environmental and operationalissues for the economic exploitation of oil shale in the long run wheneither the retorting and/or CFB technologies are proven commerciallyviable. (See also Background Paper No. 4.) A possible work program toaddress the technical, environmental, and operational issues of oil shaleexploitation should include the following tasks:

(a) The Geological Assessment of Oil Shale

2.39 Since most of the work on the assessment of Sultani oil shalereserves has been done in a limited area, with a view to proving oil shalereserves for a pilot 25-MW power plant, NRA should continue its geologicaland mining evaluation studies to prove the Sultani reserves for the supplyof fuel to the commercial scale plants, e.g.,100-MW and 400-MW power plantsas visualized in the Bechtel study. In addition, geological/geochemicalstudies and further hydrological investigations on the El Lajjun, Sultani,and other oil shale deposits should be continued.

(b) The Evaluation of Water Resources Availability. Ash DisRosal. andEnvironmental Issues

2.40 In conjunction with the geological assessment of the shale, GOJshould undertake an evaluation of underground water resources as well as ofwater requirements of a power and/or retorting plant. Such an evaluationshould address water resource availability for long-term oil shale

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exploitation, ash disposal methods, and potential short- and long-termenvironmental impacts.

(c) Technical Issues: Retorting

2.41 The technical issues that must be addressed include technologyoptimization; water resources and requirements; disposal and utilization ofspent ash; air cooling as an efficient substitute to water cooling; and theeconomics of the proposed project taking into account any additionalInvestments needed for water supply, ash disposal, environmental concerns,etc. A primary component of this task would be to review the technologyand economics of ongoing pilot and commercial oil shale retorting plants inthe USA, Canada, Europe, and other regions. The progress made in thedevelopment of oil shale technology, the experience gained in oil shaleretorting technology worldwide, and the analyses performed in Jordan shouldbe utilized in preparing a long-term strategy for the economic productionof oil shale in case oil market developments warrant such exploitation.

(d) Technical Issues: Direct Combustion

2.42 Although CFBC technology has been demonstrated in a large numberof plants around the world and interest in the technology is increasingowing primarily to its ability to burn low quality fuels and to itssuperior environmental performance, a number of technical uncertaintiesexist: experience with oil-shale burning units is lacking; start-upproblems were encountered in several units; post-commissioningmodifications were often necessary to correct design or constructionproblems; temperature control, which is crucial for efficient operation,has been difficult; and the smooth operation of plants often required thetraining of spec' lized operators over and above normal requirements. Suchtechnical problems should be expected to occur when a new technology isbeing established and would likely also occur in Jordan, perhaps withgreater impact because of a technical infrastructure that is lower thanthat of developed countries. Such difficulties could cause delays, theinterruption of operation, and the need for expensive backfits. Inaddition, the capital cost of the CFBC plants, as estimated in all threestudies is quite high and uncertain. The 25-MW size plant could be auseful demonstration unit but carries such a prohibitively high cost thatit is not likely to attract financing and institutional support. Units of100 MW or higher have a more favorable capital cost profile but carrygreater risk since the scale-up of CFB urits has been problematic andexperience is lacking. A 50-MW demonstration unit seems the most logicalchoice as a first step toward a long-term development strategy andindications exist that plant vendors would be pre3pared to offer therequired performance guaranties that would minimize the risk to the owner.Nevertheless, the capital cost of such a unit would still be fairly high,certainly much higher than existing alternatives. The environmentalargument, which could advocate up to a 30X capital cost pentlty equivalentto sulfur oxide scrubbing equipment, is not very powerful in the case ofJordan because of its low population density, relatively small generatingsystem and unit size, dispersion of power plants, and geography andclimatology which do not indicate any sensitive geographical or populationareas at risk. Besides, the use of low-sulfur oil or of the newly

- 44 -

discovered gas for power production is an obvious solution to any problemarising from sulfur and nitrogen oxide pollution concerns.

2.43 In spite of the above considerations, the enormous oil shalepotential in Jordan and the desirability to reduce the oil import billwarrant active and continued consideration of the oil shale potential fordirect combustion in power generation facilities. Since investments by GOJin this area are unlikely at this time, the most promising approaches are:(a) continued monitoring of similar CFBC plant activities in othercountries, especially in those with similar fuel and weather conditionse.g., Israel; (b) assimilation of lessons learned from worldwide experienceto date and study of their applicability to Jordan; (c) continuedfeasibility studies emphasizing, in addition to appropriate plant design,oil shale fuel preparation and handling, disposal and utilization of spentshale, water availab:ility, and the relative efficiency of air versus watercooling. It must be kept in mind that all of the above activities wouldsoon loose their momentum and focus unless the specific target of ademonstration plant is in sight. The possibility should be explored of ajoint undertaking for such a project as a research and development toolrather than as a commercial enterprise. Such a project, could, withsupport from relevant R&D organizations, help resolve technical andeconomic issues and create confidence for future large-scale exploitation.The model used in the solar power project, in which several foreign andinternational agencies are participating for a power plant that willgenerate power to be purchased by JEA at the avoided oil-plant-equivalentgenerating cost, could serve as a paradigm in this case. The technicallessons to be learned in such an endeavor would benefit not only Jordan butseveral other countries with reserves of similar fuel and the internationalcozmunity because of the superior environmental performance of thistechnology.

Conclusions

2.44 The progress made in the development of oil shale technologiesand in the monitoring of the experience worldwide, together with theanaiysis performed in Jordan of water resource availability, ash disposal,and environmental and other operational issues, should be utilized toformulate the strategy for the economic exploitation of oil shale to meetJordan's long-term energy requirements. Such a strategy should include:(a) the formulation of guidelines and codes for oil shale mining, ashdisposal, and water resource usage; (b) the preparation of a regulatoryframework to encourage private sector participation, including the optionto build, operate and transfer (BOT), both in oil shale mining and powerplant investments; (c) the reassessment of the economics of oil shaleexploitation reflecting the current exchange rate of JD against foreigncurrencies and the uncertainty of world oil prices; and (d) the explorationof the possibility of a demonstration CFBC power generating unit withsupport from local, foreign and international research and developmentorganizations as suggested in para 2.43, to provide experience andconfidence for a future long-term program of oil shale exploitation.

- 45 -Ainnex 2.l

JORAN - ENERGY STRATEG REVIE

Oil 8hale Dnvolomeont

Oil Shale Reserves

AverageGeological Surface Oi1 Shale Avg. Oil SulfurBReserve gff Overbuxden Thickness Content r9oiE

million tons sq. m X m wtSt I

1. El Lajjun 1.3 20.4 31 10-65 10.3 4.8

2. Sultant 1.0 24.0 44-90 2-65 3.2-17.2 -(mvg 69) (mean 31)

3. Jurf ed Darawish 8.0 n.S. 28-62 19-128 1.0-14.9(avg 47) (meon 68)

4. AttaratUm Ghudran 11.0 670.0 45-62 10-(3 9.0-13.0 2.0^5.0

(avn 40) (mean 40)

5. Wadi Waghar 316.0 n.a. 32-50 10-61 5.0-8.0 0.9-3.5

6. Siwaqa n.a. n.n.

7. 8honos Zabib n.a. n.a. 66 39-45 6.9 -

n.a.: Not available

JORDAN

RE1 ergv Sector Studv

Background Pager 3

Petroleum Refining, Storage and Transportation

Table of Contents

Page No.

Introduction ......................... ......................... 46

A. Petroleum ......................... 46Refinery Structure .............................................. 46Optimum Refinery Balance ......................... 47Pricing and Taxation Policies ............ ............. 49

B. Transport, Storage and Distribution ......................... 56Current Status .... ..................... 56Transport ......................... 56Distribution ......................... 58Petroleum Storage ......................... 61Storage Investments ............ ............. 63

AnnexesAnnex 3.1 Zarqa Refinery Block SchemeAnnex 3.2 Existing Petroleum TankageAnnex 3.3 Summary of Product Storage Requirements and OptionsAnnex 3.4 Tankage Requirements for 4 months total capacity

- 46 -

JORDAN

Energy Sector Study

Background Paner 3

Petroleum Refining, Storage and Transportation

Introduction

3.01 The petroleum refining, storage and transport subsector in Jordanfaces issues similar to those found in other oil importing countries, wherenational energy security and socio-economic reasons require ensuring futuredemand for petroleum products at least cost to the economy. This paperreviews Jordan's petroleum refining, storage and transportation system andevaluates the available options to meet the demand for petroleum products atleast cost-

A. Petroleum Refining

3.02 Jordan has only one refinery, the Jordan Petroleum Refinery Company(JPRC). It was established in 1957 as a private company with the exclusiveright to invest in and operate petroleum refining and derivative industries,including the right to market, store and distribute all such products. Therefinery is a widely held private corporation, which, according to the latestavailable information, was owned by more than 35,000 shareholders, with thelargest 25 holders owning 27Z of the shares. About 201 of the shares wereheld by non-Jordanian Arabs, and less than 1X were held by other foreigners.The Government's initial contribution was only 6%, and it is less today.

Refinery Structure

3.03 The JPRC is located at Zarqa, which is 35 km north of Amman. It'sannual throughput is currently about 2.4 million tons per year (44,000 barrelsper day), which is small relative to international scale refineries, but ithas a fairly comp'Lx structure, with several secondary cracking units. It hasthe following major processing units:

Atmospheric crude distillationVacuum distillationNaptha hydrotreaterCatalytic reformerFluidized catalytic crackerUnibon hydrocrackerAsphalt plantHydrogen plantLPG recoveryKerosene morox treaterHaS incinerator

3.04 The refinery configuration is unbalanced, with a substantially largercrude distillation capability relative to the secondary conversion capacity.The secondary conversion facilities provide the refinery great flexibility inproducing a full range of products, including LPG, gasoline, kerosene and

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sviation fuel, gasoil (both diesel fuel and light heating oil), heavy fuel oiland asphalt. Although it is possible to operate the crude distillation unitat a level of 4.6 million tons per year (about 92,000 barrels per day), thisproduction level would yield far too high a percentage of low-value fuel oilto be economical. Maximum economic production is, therefore, limited to about2.2 million tons per year. At this level of output the refinery produces asmuch straight run naptha as the hydrotreater units can handle. If productionis raised above this level, the resulting additional product slate wouldinclude a large percentage of fuel oil (which has a low economic value) andnaptha (which will have to be exported at low prices).

3.05 The operating principle for the refinery has been to meet as much ofthe domestic demand for high value (e.g., white) products as possible, usingthe cracking capacity to the fullest possible extent and avoiding anyproduction of naptha and straight run (uncracked) fuel oil. In 1987 thisstrategy resulted in a refinery throughput of 2.2 million tons; a productoutput of 2.02 million tons; and imports of 0.76 million tons of products, ofwhich 8,000 was LPG, 48,000 was diesel and 700,000 was heavy fuel oil,primarily for the electric power generation sector.

Optimum Refinery Balance

3.06 Under a USAID contract, Bechtel has developed a linear programmingmodel of the Zarqa refinery that analyzed an optimum refinery productionstrategy for a wide range of crude and product prices and demand levels.Because the refinery sector is fairly simple and straightforward, with onlyone refinery, and the country is small enough that transport costs are ofsecondary importance, the refinery model was able to provide a number of firmconclusions and recommendations. The most important of these were:

(a) the refinery should continue to focus its attention on maximizingthe production of the higher valued light-end products, subject tothe constraints in market demand;

(b) there should be no straight run simple distillation production,since this would produce too high a percentage of low value fueloil. However, all units, except the crude distillation unit,should be run at full capacity throughout the period under review;

(c) the total amount of gasoline that can be produced is fixed bytechnological factors related to the refinery configuration andthe characteristics of crude oil used. However, with this fixedquantity there is considerable flexibility in whether the gasolineis regular or super (e.g., high octane). However, high octanegasoline requires the use of processes which reduce the output ofother light products. The decision about the relative productionvolumes of super and regular gasoline should be market driven.The total demand for gasoline should be met as long as this ispossible. However, as demand increases, priority should be givento the production of regular gasoline rather than super gasoline.This will allow the refinery to increase the production of othermiddle distillate products; and

(d) priority should be given to the production of kerosene rather than

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diesel fuel. Kerosene and aviation fuel are the only products forwhich Jordan is likely to remain self-sufficient through the turnof the century, if there are no new major additions to thecracking capacity of the refinery.

3.07 Essentially, the available options to meet the future productdemand at least cost are: (a) to optimize the use of the existing Zarqarefinery configuration to process imported crude oil; (b) to determine theoptimum mix between imported crude oil and petroleum products; and (c) torationalize the Zarqa refinery to meet the future petroleum product demand.On the basis of the evaluation of these options a framework for supplyingfuture demand for petroleum products at least cost is developed with thefollowing elements:

(a) When both crude oil and product imports are available at currentinternational market price levels, the optimum mode of supply isto process sufficient crude through the Zarqa refinery so that thecatlytic cracker and hydrocracker are fully utilized and to importthe balance as finished products. This corresponds to between 2.0and 2.5 million tonnes per year crude throughput at Zarqa throughthe end of the century.

(b) This general conclusion is only marginally sensitive to variationsin assumptions regarding demand and imported product prices.

'c) Incremental crude oil processing above this level is only economicif crude oil is available at below international prices. For thebase assumptions, "hydroskimmin"' incremental Basrah crude oil iseconomic at a level of $4.70 barrel below international prices.

(d) Potentially attractive options for rationalization of the refineryare:

(i) The debottlenecking of conversion capacity. Thehydrocracker probably offers the best scope. A 25X increasein capacity would improve refining margins by $1.1 millionper year in the starting year and, then, rising to $4.9million per year in the year 2000.

(ii) The construction of a visbreaker of between 200,000 and400,000 tonnes/year capacity. A 200,000 tonnes/year (3,500bpd) visbreaker would improve refining margins by $1.5million per year 2000. The capital cost is estimated to be$8 million, although this could be reduced if one of thesmaller crude distillation units was modified into avisbreaker.

(iii) The PIMS model has highlighted the possibility to avoid, orreduce, the requirement to operate the hydrogen plant if thenaphtha hydrotreater off-gases can be upgraded to supply theunibon hydrocracker. However, in view of the current lowprice forecast of petroleum products in the review period1989-2000 the least cost solution for meeting its petroleumdemand is to improve the operational efficiency of the

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existing units at Zarqa without making major capitalinvestments in refinery expansion and to import the balanceof petroleum products to meet the required demand. However,a major domestic natural gas find is likely to increase theincentive to invest in the refinery's conversion processesto reduce fuel oil production.

Pricing and Taxation Policies

3.08 The main way to achieve the optimum refinery balance is throughfixing ex-refinery prices for petroleum products to encourage efficientrefinery operations and provide adequate incentives to refiners to make neededinvestments to optimize refining operations.

3.09 The Government's policy over the past ten years has been to setprices for all petroleum products at the retail level and to provide fixedmargins for each production/distribution activity. Thus, under the presentframework, taxes on petroleum products are determined as a residual of thegross revenue received for the sale of all petroleum products minus the totalcosts of crude oil purchases, transport, refining, distribution and retailsa1es.

3.10 As can be seen in table 3.1 below, prices were increased everyyear between 1977 and 1985, first, to reflect increases in world marketprices, so that the level of subsidies would be minimized, and then, after1985, to provide a source of revenue for the government budget. The realcosts of kerosene, diesel and fuel oil declined slowly under the pressure ofthe low level of Jordanian inflation; however, the decline was substantiallylower than the decline in real world market prices. Prices have deterioratedquite substantially in real terms in the past several months, reflecting theapproximately one half decline in the dollar value of the Jordanian dinar(from about JD 0.333 - US$1.0 in 1987 to JD 0.675 - US$1.00 in November 1989).Once again in May 1989, petroleum product prices were raised. At the presentmarket rate, weighted average domestic prices are still 28% aboveinternational prices. Table 3.2 shows domestic petroleum products comparedwith international prices.

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Table 3.1: Historical Petroleum Product Prices(JD per ton)

Date of RegularPrice LPG F/ Gasoline Kero3ene Diesel Fuel Oil AsphaltChange Bottle F/L K/L F/L JD/Ton JD/Ton

11/01/67 675 42.50 16.50 14.50 6 1602/02/71 750 1708/05/72 850 47.5028/04/76 1,050 60 20 15.50 811/11/77 75 902/03/79 1,200 95 24 19 1127/07/79 1,300 105 30 24 30 3507/02/80 1,500 130 40 35 45 4502/02/81 1,650 15004/04/81 1,650 55 50 5007/11/81 1,650 160 60 6003/02/83 1,650 165 65 6512/12/84 1,800 180 6001/11/88 1,800 180 65 65 50 6002/16/89 2,000 220 75 75 50 70

Table 3.2: Current Petroleum Product Prices as Percent ofWorld Market Prices

(Fils/liter)

Domestic Domestic Price asProduct Price as of Percent of World

Sept. 1989 Average Jan - Sept. 1989

LPG (12.5 kg) 2000 192Super gasoline 270 281Regular gasoline 220 251Kerosene 75 99Gas Oil 75 98Fuel Oil/ton J.D. 50 86Weighted average 128

Note: JD/USD exchange rate as of November, 1989 0.675 Fils/USD.

- 51 -

3.11 Crude oil is imported from Saudi Arabia and Iraq through officialGovernment-to-Government sales agreements. Crude oil from Saudi Arabia comesthrough a large pipeline (the Tapline), which was originally designed for muchlarger exports to the Mediterranean through southern Lebanon. The line iskept in operation through a fixed payment of US$15 million per year by theJordanian Government. Iraqi imports are transported by road, along with allimported fuel oil. Iraq has also been transporting about two million tons peryear of crude across Jordan to the Red Sea port of Aqaba during the Iran-Iraqhostilities, which closed the Gulf to Iraq's tankers.

3.12 Crude oil from Saudi Arabia has, until recently, been priced atofficial OPEC market prices. Since this price has been substantially abovethe spot market price fir most traded oil in the past year or two, Jordan wasable, recently, to renegotiate the price that it pays down to the spot marketprice, retroactive for 18 months. The price, which went from $17.35 to $14.35per barrel, does not include the fixed cost of the pipeline transport. Importof crude oil and products from Iraq are made under barter trade agreementsbetween the two countries. Since the road transport cost plays an importantpart in the pricing structure, the current procedure is for Iraq to pay forthe transport and to charge Jordan a little more than US$7 per ton, or abouthalf of the real cost. The prices that the Govternment charges the refineriesfor the crude are determined on the basis of the alternative border price.

3.13 Product prices are established at the final user level, with fixedshares allocated backwards in the chain to the retail distributers, therefinery and the Government. The most recent allocation of prices is shownbelow:

TabLe 3.3: Petroleum Product Prices (July 1988)(in Fils [1/100 of a Jordanian Dinar] per liter)

Regular Diesel Fuel OilGasoline Euel Kerosene (JD/ton)

Government charge 157.84 51 52.60 42.20Refinery charge 14.93 11.82 8.34 6.90Customs duty 4.00 0.00 1.00 0.00

Ex-refinery price 176.77 62.62 61.94 49.10

Distribution charge 0.93 0.70 1.09 0.20Transport charge 0.35 0.43 0.39 0.50Retailer commission 1.75 0.99 1.49 0.20Retail loss allowance 0.22 0.06 0.08 0.00

Consumer price in Amman 180 00 65.00 65.00 50.00

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3.14 Because product prices are defined at the retail level withoutreference to the costs of the crude oil or any other production ordistribution cost element, the tax element, or the amount that goes to theGovernment, is a residual after all other costs have been allocated.Historically, the sector was a net user of government funds until 1986, whenthe cost of imported oil fell dramatically. Between 1985 and 1986 transferpayments shifted from a payment to the sector of JD 21.7 million to a revenuefrom the sector of JD 93.1 million.

3.15 The system for transfer payments provides that the refinery buys crudeoil at the government-to-government determined price and sells the products atthe retail level. It then pays the Government all the additional net revenuesthat it collects over and above a negotiated refining margin and rate ofreturn on paid-in capital; the contribution of each individual product togovernment revenue is undefined.

3.16 When the refinery was built, it was agreed that the shareholdersshould receive a reasonable return on their invested capital. They were,therefore, guaranteed a minimum rate of return of at least 7.5%, but in recentyears they have been receiving a higher negotiated amount, which in 1987 wasapproximately 10%. All negotiations on what should be the acceptable rate ofreturn are done ex-post, at the end of the fiscal year, after actual costs andincome for the preceeding year can be examined. Thus, refinery net income istotally divorced from any considerations of operating efficiency and cost.

3.17 There are a number of good reasons why the system of guaranteedprofits was adopted. First, the refinery is quite small by interrationalstandard and was, therefore, much more expensive to build per barrelthroughput than an international-sized refinery. Second, the refinery wasbuilt in a period when international prices of crude and products werecontrolled by a small group of vertically integrated international oilcompanies whose practice was to set prices so that profits were generated inthe production rather than in the processing side of the business. Also,there was an r-remely high investment required for the refinery relaxive tothe size of the ,jcal private sector and the high risk of operating on a verynarrow margin. Therefore, the Government found that it had to provide minimumguarantees to attract private capital. The high volatility of the sector inthe past fifteen years has ensured that this guarantee remains an importantconsideration in each succeeding expansion or rehabilitation investment.

3.18 At the recent levels of border prices for crude and product, therefinery has been able to recover from sales substantially more than itsvariable costs. However, it is still unable to cover all of its fixed costs.For example, according to the Meta systems report in 1987, the refinery wouldhave total sales at international prices of JD 102.6 million and total crudeand materials cost of JD 97.2 million, leaving a net marginal return of JD 5.4million. On the other hand, the fixed costs, including debt service, returnon equity, labor, the cost of the tapline, and general overhead, were on theorder JD 18.2 million. Since most of these fixed costs would remain even ifthe refinery were to shut down for some time, it was still the optimumecor.omic decision to continue to operate the refinery. In fact, it wouldappear that the least cost solution for supplying petroleum products to Jordan

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clearly includes the continuation of the operation of the refinery, over awide range of crude product price spreads.

3.19 There are a number of reasons why the refinery cannot cover allof its fixa.d costs. The refinery facilities are somewhat unbalanced, so thatsome of them cannot be used economically. The process control system is basedon manual readings and adjustments, rather than on an automatic, computercontrolled system. This manual control and adjustment system leads to lowerthan optimum operating efftciency, simply because microadjustments can not becontinually calculated and implemented. However, the cost of changing thecontrol system may still be higher than could be justified by the potentialbenefits gained. Even if the adjustments were justified, there would be noincentive for the equity holders to invest the additional funds needed to makethe changes, since under the present pricing system the return to the companywould be unaffected. The refinery has, over the years, become saddled with alarge number of surplus employees who can not be dismissed, which addssubstantially to its operating costs.

3.20 The current pricing and payment arrangements for the refinery areclearly unsatisfactory. The major problem with the current policy is that therefinery has little incentive beyond professional pride to improve or evenmaintain its efficiency. The incentive for further investment, even smallinvestments for efficiency improvement, is almost non-existent since there cannever be a financial return on such investments. When such investments arebeing made, they have been initiated by government-sponsored studies onpotential efficiency improvements, and oily after Government insistance thatthey be undertaken. Clearly a new set of pricing policy guidelines areneeded.

3.21 In 1987, the Government, with the assistance of USAID,commissioned Meta Systems and Hagler Bailly to undertake a Petroleum ProductsPricing Study, with the view to introducing alternative methods forcompensating the refinery and taxing product consumption. The study, whichwas presented to the Government in March 1988, proposed a simple and directmethod of pricing and taxing products. It recommended that crude and productprices be set at the refinery gate on the basis of the border prices of eachproduct, and that specific fixed taxes be added to each product to provide theappropriate level of government revenues, taking into consideration allappropriate consumer equity issues. In addition to receiving the differencebetween the cost of crude oil and the price of products, the refinery wouldreceive a fixed annual payment that would be equivalent to its fixed overheadcosts (including labor).

3.22 This formulation would have the great advantage of providing ther, finery would a strong incentive to improve its operating efficiency sincea.l improvements would lead to higher profits; would also provide an incentiveto maximize the value of outputs based on border prices, which represent thereal value of the products to the economy. Prices would be changed graduallyby using an average index of prices of, say, the preceeding three months.Most importantly, the new pricing policy would emphasize the role of themarket in setting prices and limit the role of the Government to that ofsetting taxes. The Meta study also recommended that JPRC be given theauthority to import products whenever the cost of doing so was less than thecost of importing and processing crude, subject to the constraints of the

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minimum purchase contracts from government-to-government sales.

3.23 The Meta proposal has some inherent drawbacks. The first is thatit would appear to put the refinery at the mercy of the world marketcrude product price spreads. Since these spreads vary substantially overtime, the proposed policy would be unable to guarantee that the refineryactually earned an adequate profit, even if the refinery were to operateefficiently. The problem would, of course, be exacerbated by the problem ofpricing the imported crude oil. The imported crude oil is priced on the basisof a government-to-government negotiated contract. While prices on thesecontracts are closely related to world market prices, they are unlikely tovary with weekly, or even monthly, world spot market prices for crude. Yet,if the connection between the spot market price for crude and for products iscut, the spread for the typical refinery barrel may vary over an even greaterrange than when the refinery operates exclusively in the spot market, as dothe majority of European and American refineries. It is, therefore, difficultto see how the Government can expect the refinery, on the one hand, tomaximize its profits and also be restricted by the purchase agreements alreadynegotiated, and, on the other hand, to undertake all the risks of a marginalfree market operation.

3.24 Another problem that the Government has with the Meta proposal isthat it would give the refinery all of the benefits that the Government mightbe able to obtain from special government-to-government import arrangementswith Saudi Arabia and Iraq. It might, therefore, be preferred if the price ofcrude was fixed at the appropriate border price in the same market in whichthe border price of products is determined. This system would also protectthe refinery from the cost of changes in crude oil prices which were notoffset by immediate changes in product prices; both prices could be set at theaverage of world market prices for the preceding three months.

3.25 An alternative to the present cost plus system is, therefore, tofix ex-refinery prices on the basis of the internatonal price of importedpetroleum products. The main elements of the import parity principle are: the(a) weighted average (cif) price of imported crude oil including tapline feeand transport cost to the refinery; (b) the average cif prices of productsfrom Italy; and (c) weights of refinery products determined by the refineryoptimizing model. The gross refiner margin is the difference between the cifvalue of crude oil and the cif value of petroleum products based on theelements outline above. Table 3.4 shows the determination of the grossrefiner margin on the basis of the import-parity principle. The advantage offixing ex-refinery prices on the basis of import parity are it: (a) reflectsinternational standards of efficiency; (b) provides incentives to the refineryand discourages cost-push practices; and (c) eliminates fluctuations ingovernment revenues by separating ex-refinery prices from taxes on products.

- 55 -

Table 3.4: Determination of Es-Refinery Prices 198Z(US$/Ton)

1 2 3 42*3

Production CIF Price W. Average PirceProducts LI Tons Weights X US$/Ton 2/ USs

LPG 89,199 3.71% 158.30 5.87Gasoline 350,459 14.57X 181.32 26.43Jet fuel 187,393 7.79Z 173.18 13.50Kerosene 204,148 8.49% 163.18 13.85Gasoil 727,662 30.26Z 165.80 50.17Fueloil 711,161 29.58% 92.50 27.36Asphalt 133,960 5.57Z 92.50 5.15White spirit 551 0.02X 128.1i 0.03

Total. 2,404,533 100.00% 142.36

Crude oil price (US$/Ton) 113.00 /2Netback value of petroleum procucts 142.36Gross refinery margin (US$/Ton)(includes refining costs and profits) Z23

LI Based on actual production in 1987 in the refinery.12 Saudi price: (includes tapline cost)

$15.90 barrel C and F.L3 1987 average Mediterranean prices.

3.26 If the Government wishes to avoid direct taxation of individualproducts, the present alternative of including the tax element as thedifferential between crude oil and ex-refinery product prices can becontinued. However, while introducing ex-refinery pricing reforms, two issuesneed to be considered. First, the system should provide the refineries withan incentive to improve its operational efficiency on the basis of therefinery slate agreed to with the Government Second, the pricing systemshould provide appropriate incentives for changing the product slate so as tomaximize the return to the economy as the relative prices of products change.

3.27 The primary requirement for improving operational efficiency is that

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the refinery receive a processing fee or refiner's margin that is determinedon a griori basis, rather than on an ex-Rost basis. That is, the system needsto provide a reasonable rate of return to the refinery for operating at itscurrent level of efficiency and, more importantly, it must allow the refineryto keep any additional profits that it makes by becoming more efficient thanit is today. One way to accomplish this goal would be to define a refinerymargin that would be equal to the difference between the border price of theaverage barrel output products and the average barrel of crude, plus anappropriately determined fixed annual payment that would be sufficient toyield an acceptable return under present price conditions. The refinery couldthen be charged a price for the crude oil equal to the netback value of theproduct barrel that the crude oil produced, based on the net sales pricereceived by the refinery in a manner similar to what is done today. TheGovernment would receive the entire sales value of the products and would paythe refinery on a monthly basis for its services.

3.28 Under this system, the Government would have to provide instructionsfor the appropriate product slate, based on the Bechtel refinery model, whichcould be run both at the Ministry of Energy and at the refinery headquarters.This model is constructed to provide the optimum product mix for operatingconditions of the Zarqa refinery. In fact, it is just this model that therefinery would want to use itself if it were to optimize its own profits basedon any given set of crude oil and the product pattern it produces.

3.29 This system would provide a number of positive benefits for therefinery subsector as a whole. Most importantly, it would cut the linkbetween ex-refinery prices and consumer sales prices, without having tointroduce a specific tax on each product. It is important to cut this link,because retail price decisions need to be used to implement policies relatedto income distribution, equity and revenue generation, while ex-refineryprices need to be used to ensure efficiency in decision-making aboutproduction and investment. Second, the system would allow the Government tocalculate the real value of its crude oil purchase agreements and to keep thebenefits of any special pricing consideration given to it, while not burdeningthe refinery with any costs associated with political/strategic decisions topay more than the short-term market might suggest. Thus the cost ofmaintaining a barter agreement with Iraq or the strategic benefits of keepingthe Tapline open would fall on the Government's shoulders, rather than on theshoulders of the refinery industry, while at the same time making theGovernment acutely aware of the benefits of obtaining crude at the lowestpossible price, since the cost of the higher price would not be passed on tothe refinery.

B. Transnort. Storage and Distribution

TransRort

3.30 The Jordan Petroleum Refinery Company (JPRC) is primarily responsiblefor the transport, storage, and distribution of petroleum products in Jordan.For Zarqa refinery, JPRC imports crude oil from Iraq and Saudi Arabia. Allcrude oil imports from Iraq are transported by sellers to the Zarqa refinery,and the price of crude includes a freight component. Saudi crude is pipedthrough the TransArab pipeline (Tapline) and a spur pipeline near Mafraq tothe Zarqa refinery. The Government pays an annual fee of US$12 million for

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the operation and maintenance of Tapline.

3.31 JPRC has elaborately organized its transportation department to meetits transport and distribution responsibilities. It is headed by a DeputyGeneral Manager, who is directly responsible to the General Manager of JPRC.The Transport Department is run independently of the other refineryoperations. It owns a fleet of 260 tankers handling a variety of petroleumproducts in the country. The maintenance section of this d partment maintains600 vehicles (about 260 tankers and 340 other refinery vehicles). The totalstrength of the Transport Department is about 600 persons. JPRC transportsabout 1.55 MM tons year of petroleum products to the consumers using its owntankers. A freight charge of JD 0.5 ton is charged by JPRC to the consumersanywhere in Jordan. JPRC delivers diesel, kerosene and gasoline to privatelyoperated, as well as its own, retail stations. JPRC provides diesel and fueloil to JEA and other industries (e.g., cement, fertilizer, etc.) using its owntankers. Aviation gas used by airlines is transported to Amman Queen Aliaairport Li refinery tankers. Aviation gas and other products purchased by theDefence Ministry are transported in military vehicles.

3.32 Storage. At present there is a total of 843,000 cubic meters storagecapacity in the country. The details of existing petroleum tankage are givenin Table 3.5 About 80X of total storage is located at Zarqa, about 10 atAqaba, and the rest is spread at JEA plants and at other industries (e.g.,cement, fertilizer plants, etc.). Aqaba storage caters for the imported fueloil.

Table 3.5: Existing Petroleum Tankage

Others701 JEA

Zarqa remainder Total in JordanType of Specific 000 of m3 in other in '000 in '000Fuel Gravity Old New industries of m3 of Tonnes

LPG 0.55 18.2 18.2 10.0Gasoline 0.75 112.0 26.7 138.7 104.0Jet fuel 0.79 25.5 28.4 53.9 42.6Kerosene 0.79 60.0 60.0 47.4Gas oils 0.85 236.4 80.0 27.1 L1 343.5 292.0Fuel oil 0.98 94.0 200.4 La 294.4 288.5Asphalt 1.02 7.0 6.0 13.0 13.3Total products 553.0 141.1 227.5 921.7 797.7Crude oil 0.86 113.7 99.0 212.7 182.9

Total 666.7 240.1 227.5 1,134.3 980.7

21 10,000 m3 at Aqaba Tps.22Z 105,000 m3 at Aqaba Tps.1 cubic meter - 0.85 tonnes.

- 58 -

Distribution

3.33 The petroleum product distribution in Jordan is made through theprivate marketing companies, as well as by JPRC's own distribution stations.JPRC provides petroleum products to all distributors of gasoline, kerosene,diesel, and lube oils. JPRC imports LPG in tankers from Kuwait and Iraq; LPGis filled at JPRC's bottling plant and provided to private retailers at itsZarqa bottling terminal. Fuel oil is distributed to major industrialconsumers. JEA is the bulk consumer of fuel oil for power plants. Bothdiesel and fuel oil is distributed to other industries on the basis of theircontractual arrangements (e.g., JEPCO collects its requirements at Zarqa).The distribution pattern of petroleum product in various areas of the country(in 1987) is illustrated below:

Table 3.6: Jordan: Petroleum Products Distribution('000 tons)

Gas Oil X of

Region Area (diesel) Gasoline Kerosene Total Sales

AmmanGovernorate Amman 358,000 222,000 258,000 838,000 58

Zarqa 100,000 30,000 19,000 149,000 10

North Ibrid Irbid 94,000 39,000 35,000 168,000 12and Mafraq Mafraq 26,000 5,000 5,000 36,000 2

NaanGovernorate Belga 17,000 16,000 7,000 70,000 5

Kerak/Tafeila 70,000 10,000 6,000 86,000 6Maan 88,000 13,000 3,000 104,000 7

Total 783,000 335,000 333,000 1,451,000 100

It is clear from the above table that about 58X of total product sales areconcentrated in the Amman area. Irbid accounts for 141 and Karak:Belqa andthe Maan areas account for about 281 of total retail sales. Even if petroleumproduct demand is e-.pected to grow at &n average minimum rate of 3.11 p.a. tothe year 2000, the volume of products to be stored, transported anddistributed will increase by 60X, from 2.8 million tons in 1988 to 4.3 milliontons by the year 2000. The future pattern of growth of petroleum products isshown in Table 3.7.

- 59 -

Table 3.7: Consumption of Petroleum Products: 1988 - 2000('000 toe)

Products 1988 2000

LPG 118 166Gasoline 383 487Kerosene 187 270Aviation fuel 208 265Diesel 821 1,099Fuel oil 1,222 1,927Asphalt 139 176Total 3,078 4,390

3.34 At present the continuity of petroleum product supplies is dependenton the following key facilities: (i) Tapline for crude oil supplies from SaudiArabia; (ii) main highways for trucking in crude oil from Iraq and productsfrom Iraq, Kuwait and Saudi Arabia; (iii) the port of Aqaba presently used forfuel oil imports by ships; and (iv) the Zarqa refinery the main center forrefining, storage and distribution of products.

3.35 To meet the increasing petroleum product demand from the present 2.8million tons to 4.3 million tons by year 2000, the present storage andtransportation facilities need considerable expansion. With a 60X increase inthe transportation of petroleum products, the alternative option oftransportation by pipeline, with the expansion of storage at criticallocations, needs to be examined. In the past, the Government commissionedseveral studiest1 which reviewed the feasibility of crude oil and productspipelines. The William Brothers study (1984) also included the comparison ofcrude transportation using Tapline; the possibility of supplying fuel oil tothe central region from Zarqa and/or Aqaba, and the economic evaluation ofvarious pipeline options. This study looked at various alternatives andrecommended that: (a) a 20" diameter product pipeline from Aqaba to Zarqa,with the provision of intermediate storage terminals at S.E. Amman andEl-Hasa; (b) an 8" diameter pipeline from Zarqa to S.E. Amman; and (c) a 14"diameter pipeline from Aqaba to El Hasa as an optimal mode of transportingimported products. These options also provided an alternative to anydisruption in supplies from the Zarqa refinery as most of the products storagewas concentrated at Zarqa. The economies of pipeline costs against trucktransport were also compared. The pipeline unit cost appeared more sensitiveto transport levels, while trucking costs were more sensitive to inflation.For example, the trucking unit cost was determined at 22.2 fils per ton/km.In the case of a 12" diameter pipeline, the unit cost at 3.1 million tons/yearvolume was 5.19 fils per ton/km, while it shot up to 65.81 fils per ton/km ata volume of 200,000 tons/year.

,L (a) Feasibility study of Aqaba-Zarqa Pipeline (1982).

(b) Petroleum Product study by William Brothers (1984).

- 60 -

3.36 In view of the sensitivity of the pipeline option to the volume ofproducts to be transported, it is important to examine the aggregate volume,the pattern and areawide distribution of petroleum products in Jordan in thefuture. At present, all petroleum products produced by the refinery andimported petroleum products (fuel oil and diesel oil) are transported anddistributed by road using diesel oil, a higher value product. Of particularimportance is the transportation of fuel oil which accounts for about 40% ofall petroleum products consumed in 1988 and is expected to increase to 45X byyear 2000. Given that the optimum mode of supply is to process between 2 to2.5 million tons/year of crude oil at the Zarqa refinery, the balance of the2.0 to 2.5 million tons of products needs to be imported to meet the demand.By 1995 about 1.64 MM tons/year of products (1.2 MM tons fuel oil, 0.4 mm tonsdiesel) would have to be imported. The level of product imports couldincrease to 2.25 MM tons/year by the year 2000 (fuel oil 1.4 MM tons, diesel0.8 million tons). For example, if nW pipeline is built, 780 trucks, plus a30% retirement of oil trucks (i.e., 262 trucks) or 1042 trucks would berequired to transport 4.5 million tons of petroleum products to the year 2000.The cost of investment in road tankers is estimated to be $62.5 million in1989 prices. In addition, the operating cost of these trucks at 5 centston/km is estimated to total about $76 million per year. If a 20" 365 km longpipeline with intermediate distribution terminals is used to transportpetroleum products, the investment in road tankers can be reduced to only $15million between 1990-2000. Table 3.8 below shows the details of trucktransport of products with the pipeline option.

Table 3.8: Truck Transoort of Products to Year 2000

Total No. New trucks to Total No. Cumulativeof trucks Trucks meet additional of trucks to Investment Investment

Year in fleet retired demand be replaced $ x 1000 $ x 1000

1989 270 - 10 10 600 6001990 280 - 10 10 600 1,0001991 290 27 10 37 2,220 3,4201992 300 - 10 10 600 4,0201993 310 - 10 10 600 4,6201994 320 30 10 40 2,400 7,0401995 330 - 10 10 600 7,6401996 340 - 10 10 600 8,2401997 350 34 10 44 2,640 10,8801998 360 - 10 10 600 11,4801999 370 37 10 47 2,820 14,3002000 380 - 10 10 600 14,900

- 61 -

The potential for savings to the economy by improving the existing system ofhandling petroleum products would be in: (a) providing an economic andefficient form of transporting petroleum products az least cost (the operatingcosts of the pipeline are only about 232 of the road tankers operating costs);(b) reducing the safety hazards and damage of the roads; (c) relieving thetraffic congestion; and (d) realizing savings from the available costsincluding (i) savings of about 47.5 million in ir.vestments in trucks between1990-2000; (ii) reductions in operating and road maintenance costs; (iii)reductions in gasoline evaporation loss; (iv) reduction in the consumption ofdiesel oil; and (v) reduction in damage to the environment due to CO'emissions from truck exhausts. The pipeline option would reduce theconsumptior of gas (diesel) oil by about 800,000 tons during 1990-2000,representing about 8X of all the gas oil (diesel) demand during that period.

3.37 There are possibilities for Jordan to reduce the cost of transport anddistribution of petroleum products by constructing a pipeline network thatwould transport petroleum products to the main demand centers. The possibleoptions are: (a) a product pipeline from Zarqa to South East Amman; (b) anaviation fuel pipeline from Zarqa to the Queen Alia Airport; and (c) aproducts pipeline from Aqaba to Zarqa, with off-take at intermediateterminals; and (d) a fuel oil pipeline from Aqaba to El-Hasa. The totentialsavings to the economy by improving the existing system for the supply andtransportation of petroleum products can be clearly demonstrated once thevolume, distribution pattern and location of future demand centers forpetroleum products are studied. Although the Government has undertakenseveral studies to consider the pipeline option, there is a need tore-evaluate the transportation options to meet the expanding demand forpetroleum products at least cost. The Goverpment, therefore, should undertakea study for determining the optimal infrastructure configuration for thetransportation and distribution of petroleum products through the year 2000and beyond.

Eetroleum Storage

3.38 In order to meet the increasing demand of petroleum products, from thecurrent 2.8 millioni tornes/year to 4.3 million tonnes/year in the year 2000,there is a need to expand additional storage capacity. Bechtel has estimatedthat in order to meet the petroleum sector demand, and maintain about 4 monthsof strategic storage in the country, an additional 204,000 tons of storage isneeded by 1990. Further, to meet the projected demand of petroleum products bythe year 2000, an additional total storage of 712,000 tonnes would berequired. Table 3.9 summarizes the import profile of petroleum products.Since most of the existing storage is located at Zarqa, it would be advisableto diversify the location of additional storage in the country nearer the mainuser centers.

- 62 -

Table 3.9: Petroleum Product ImRorts 1987-2000

Products ('OOOt) 1987 1988 1990 1995 2000

LPG 17 20 30 59 71Regular gasolinePremium gasolineAviation fuelKeroseneDiesel 65 8 274 302 466Fuel oil 649 602 870 894 1,407AsphaltTotal 731 630 1,174 1,255 2,104

Additional storage required should be located: (a) to provide flexibility atthe Zarqa refinery and to avoid further congestion at Zarqa; (b) to diversifythe storage at various consumers centers; and (c) to meet the additionalstorage needs for fuel oil and other products imported by sea at Aqaba. Takingthese requirements into consideration on a long-term basis, it would beadvantageous to spread the storage in the country by: (a) constructingadditional storage at Aqaba mainly to cater to fuel oil and diesel imports;(b) providing storage at Mafraq near Tapline for crude oil to relievecongestion and to provide additional storage for products at Zarqa; and (c)constructing fuel oil storage at major consumer centers, e.g., at the AqabaThermal Power Station and at fertilizer and potash centers. The location ofcritical storage at user centers would assure the security of supply to majorconsumers, e.g., power and industrial plants, and provide diversification inthe main storage presently located at Zarqa. The diversification of storagefacilities in Jordan would optimize the investment in constructing additionalstorage to meet the demand profile in the medium and long-term. Theinvestment could be staggered over both public and private sectors and thusrelieve the burden of major investment in the public sector in a graduatedmanner.

- 63 -

Storage Investments

3.37 The investments for additional storage is estimated to be about $88.5million. This would include:

(a) Increased storage at Zarqa 33.9(b) New tankage at Mafag 18.2(c) Products storage at Aqaba 24.3(d) Products storage at existing industrial

locations 7.3(e) LPG storage at Zarqa 4.8

88.5

This investment could be staggered to meet the increasing demands as shown inTable 3.9.

Table 3.9: Storage Investments(US$ million)

Locations 1990 1995 2000 Total

Zarqa 8.4 12.2 13.2 33.9Mafraq 18.2 - 18.2Aqaba - 16.9 7.4 24.3Other Locations 2.3 5.0 7.3LPG storage (Zarqa .-. -A 4.8

Total 26.6 31.4 30.5 88.5

JORDAN

ENERGY SECTOR STUDY

ZARQA REFINERY BLOCK SCHEME (MODEL JOPETRL2)

Rtt~~~~~~~~~* J 2 1 | t lUlL OL

eadSt"4" Fsr) " l, 0164p WItaf, sr OWAAI- P | a1TS

A',f

-4 X .I 4 >

WI ov uW& 11 Id ;L III't,

_ ~~~~~~~~~~~~~~~~~cr IT Is' :L fa m ._'~~~~~~~t cAroc#4 "t"-

JORDAN: ENERGY SECTOR STUDY

EXISTING PETROLEUM TANKAGE

LOCAT IONTYPE OF SPECIFIC: ZARQA OTHERS TOTAL IN JORDAN:FUEL :GRAVITY : '000 of m3 :70% JEA, remainder: in 'OOOin '000 :

Old New :in other industies: of m3 of Tonnes,

LPG 0.55 ' 18.2 ' 18.2 10.0 :

Gasoline 0.75 112.0 26.7 138.7 104.0

Jet Fuel 0.79 ' 25.5 28.4 ' ' 53.9 42.6

korosene , 0.79 ' 60.0 ' 60.0 47.4

Gas Oils ' 0.85 236.4 80.0 : 27.1 (1) 343.5 2Z2.0

Fuel Oil 0.98 ' 94.0 200.4 (2) ' 294.4 288.5

Asphalt 1.02 7.0 6.0 : j 13.0 13.3

Total Products: 553.0 141. 1 227.5 921.6 797.7

Crude Oil 0.86 , 113.7 99.0 ' 212.7 182.9

TOTAL 666.7 240.1 : 227.5 : 1134.3 980.7 @

gl) 10,000 m3 at AQABA TPS

(2) 105.000 m3 at AQABA TPS

- 66 - ANNEX 3.3

JORDANENERGY SECTOR STUDY

SUNKIARY OF PRODUCT STORAGE REQUIREMENTS AND OPTIONS

'000 TonnesCURRENT STORAGE Crude 182.9

Products 797.5Total 980.4

REQUIRED ADDITIONAL TANKAGE Year 1987 01990 2021995 4412000 712

OPTIONS FOR ADDITIONAL TAllKAGE:

Factors Fuel Location Factors

BY TAPLINE * Dispersion of stocks * Higher* Alleviates conaestion Capital costat Zarqa * Higher oper-

* Pipeline to Zarqa ating costs+ Lower Capital * Shorter trucking

Expenditure distance from Iraq(bigger tanks) -------------_______,________________________________

* Allous refinery AQABA * Dispersion * Higher oper-to keep operating: * Flexibility for ating costs

:CRUDE OIL shipped imports * InvestmentDoes not pr;tect would beIf refinery needed forshuts doun larger ships

* Trucking costz-- - - ----- ------- ---- ---- ---- _ -_

ZARQA * Lower costs* Low operating costs* Flexibility

ZARQA * Lower costs All "eggs in* Can turnover one basketcontents congestion

_-. Protects if the , AQABA ' Could be used as * Double handlir4refirsery a produte impiport and truc)it.,shuts down terminal * Higher operati?afr

PRODUCTS costsHigher cost _________________________________--__----_Less flexibility OTHER * Dispersion * Higher oFperatir.L

LOCAT IONS * Reduced cost if and capital cos5tat point of double h4rdliregconsumption for additional

distributioncentres

___.-------------------------------__.------------___.------------------.----- -----

- 67 - ANNEX 3.4

JORDAN

ENERGY SECTOR STUDY

TANKAGE REQUIREMENTS FOR 4 MONTHS TOTAL CAPACITY

Annual Tonnage (X000 Tonnes):

TYPE OF 1987 1990 1995 2000F11SL, ------------------------- ---------------- ____________-------------

:DOMESTIC IMPORT TOTAL : TOTAL TUTAL :DOMESTIC IMPORT TOTAL------ __---------_------------------_--- -- _________--_--- _______________________

LPG 99.1 7.9 107.0 141.3 137.8 105.4 141.9 247.3

Gasoline : 346.0 346.0 407.3 468.9 : 366.5 168.6 535.1

.Jet Fuel 192.0 192.0 :4236.8 288.8 : 349.2 349.2

Kerosene 147.0 * 147.0 160.0 167.0 154.2 18.5 172.7

Gas Oils 743.8 48.2 792.0 : 980.4 1201.8 : 677.0 782.8 1459.8

Fuel Oil : 362.8 700.2 1063.0 : 1300.8 1571.7 419.8 1462.1 1881.9

Asphalt 132.0 132.0 149.5 163.9 : 178.1 178.1

Total Products: 2022.7 756.3 2779.0 3376.1 3999.9 : 2250.2 2573.9 4824.1

Crude Oil 2203.0 2203.0 : 2399.0 2417.0 2438.0 2438.0

TOTAL 2022.7 2959.3 4982.0 : 5775.1 6416.9 : 2250.2 5011.9 7262.1

Tankage (000 Tonnes)

4 months storage (1)Net 926.0 1125.0 1350.0 1608.0Gross (2) 975.0 1184.0 1421.0 1692.0

:xisting Tankage ----------------- 980.4 -------------------------

Additional Tankage Required: 0.0 203.6 440.6 711.6

(1) 4/12 * Annual products demand

(2) Allowing SX for dead volume

JORDAN - ENERGY STRATEGY REVIEW

BACKGROUND PAPER NO. 4

Power Subsector

Table of Contents

Page No.

A. Least-Cost Investment Program

Introduction .... . . . . . . . . . . . . . . . . . . . 68

Proposed Approach .... . . . . . . . . . ....... . 68Summary of Findings and Conclusions . . . . . . . . . . . . 71Electricity Demand Projections ... . . . . . ..... . 70

Uncertainties in Load Forecast . . . . . . . . . . . . . . 72Key Assumptions for Electricity Demand Projections ... . 72Energy Demand Projections .... . . . . . . . ..... . 72The Effect of Load Management on Demand Projections . ... 73Analysis of Demand Projections ... . . . . ..... . . 74Sensitivities to Demand Projections . . . . . . . . . . . . 75Efficiency Improvements . . . . . . . . . . . . . . . . . . 76Reduction in Fuel Consumption and Generation PerformanceImprovements .... . . . . . . . . . ..... . . . . 76

Power System Performance Improvement Areas ... . ... . 78Reduction in Transmission and Distribution Losses ... . . 79

Power Development Program Options ... . . . . . . . . . . 79

General Considerations .... . . . . . . . ...... . 79Existing Plant .... . . . . . . . . . . ....... . 80Recent Changes in Decisions on Capacity Addition Scenarios 80Future Generation Options .... . . . . . . . . . . . . . 81Choice of Fuels .... . . . . . . . . . . . . . . . . . . 81Fixed System-Interconnection with Egypt . . . . . . . . . . 82Choice of Generating Options . . . . . . . . . . . . . . . 83

Least-Cost Investment Strategy ... . . . . . . . . . . . 84

Need for Updated Least-Cost Investment Strategy . . . . . . 85Methodologies for Least-Cost Analysis . . . . . . . . . . . 85The PC/CUM Code .... . . . . . . . . . . . ...... . 85The WASP Code .... . . . . . . . . . . . ....... . 85Least-Cost Generation Expansion Analysis Using WASP . . . . 85Load Demand Scenario .... . . . . . . . ..... . . . 86Discount Rate . . . . . . . . . . . . . . . . . . . . . . . 86Escalation . . . . . . . . . . . . . . . . . . . . . . . . 87Fuel Costs . . . . . . . . . . . . . . . . . . . . . . . . 87Cost of Unserved Energy . . . . . . . . . . . . . . . . . . 88

Table of Contents (Cont'd)

Page No.

Reserve Margin . . . . . . . . . . . . . . . . . . . . . . 89Results and Discussion .... . . . . . . . . . . . . . . 90

Base Case .... . . . . . . . . . . . . . . . . . . . . . 90Variant Case (Natural Gas Scenario) . . . . . . . . . . . . 93Future Analyses .... . . . . . . . . . . . . . . . . . . 93Comparison with EdF Study .... . . . . . . . . . . . . . . 94Allocation of Investments between Generation, Transmissionand Distribution. 95

B. Analysis of Tariffs and Institutional Arrangements in Power Subsector

Electricity Tariff .... . . . . . . . . . . . . . . . . 95Levels of Existing Tariffs .... . . . . . . . . . . . . 95Structure of Existing Tariffs . . . . . . . . . . . . . . . 96Recommendations on Tariffs . . . I . . . . . . . . . . . . 97Historical and Current Financial Perfornance of the PowerEntities ..... . . . . . . . . . . . . . . . . . . . 98

Financial Adequacy of Tariffs . . . . . . . . . . . . . . . 98Level of Self-Financing .... . . . . . . . . . . . . . . 100Future Financial Prospects .... . . . . . . . . . . . . 100Recommendations on Financial Issues . . . . . . . . . . . . 102Impact of Currency Devaluation on Financial Viability ofPower Sector Entities .... . . . . . . . . . . . . . . 102

Management Information Systems ... . . . . . . . . . . . 103Recommendations on MIS .... . . . . . . . . . . . . . . 107Financial Planning and Management . . . . . . . . . . . . . 107Accounts Receivable .... . . . . . . . . . . . . . . . . 107Recommendations on Accounts Receivable . . . . . . . . . . 108Institutional Arrangements .... . . . . . . . . . . . . 108Irbid District Electricity Company . . . . . . . . . . . . 111Recommendations for Changing Institutional and RegulatoryArrangements .... . . . . . . . . . . . . . . . . . . 112

Review of Existing Regulatory Arrangements, Legislationand Concessions . . . . . . . . . . . . . . . . . . . . . 114

Annex-es

Annex 4.1 Historical Electricity Demand for JEAMonthly Energy Purchased from JEA (GWh)Monthly Energy Net Generation and Maximum Demand

Annex 4.2 Load Demand ForecastElectricity Demand Forecast

Annex 4.3 Operating Power Stations in Jordan and their InstalledCapacities in MW

Existing Generating Units

Table of Contents (Cont'd)

Annex 4.4 Candidate Units for Generation Expansion and theirCharacteristics

Annex 4.5 Least-Cost Power Investment AnalysisAnalytical Tools Available to JEA

Annex 4.6 Total Operation and Investment CostAnnex 4.7 Existing Electricity Tariff StructureAnnex 4.8 Income Statements for Years Ended December 31, 1988-1998Annex 4.9 Balance Sheets for Year Ended December 31, 1988-1998Annex 4.10 Sources and Applications of Funds (1988-1998)Annex 4.11 Income Statements (1988-1998)Annex 4.12 Balance Sheets (1988-1998)Annex 4.13 Sources of Applications of Funds (1988-98)Annex 4.14 Income Statements (1988-98)Annex 4.15 Balance Sheets (1988-98)AnnTex 4.16 Sources and Applications of Funds (1988-98)

- 68 -

JORDAN - ENERGY STRATEGY REVIEW

BACKGROUND PAPER NO. 4

Power Subsector

A. Least-Cost Investment Strateqgy

Introduction

4.01 The Ministry of Energy and Mineral Resources (MEMR.) of Jordan hasundertaken a wide-ranging review of Jordan's energy sector to reexamineJordan's resources, present and future needs, development options andinvestment plans. Within this review, the electric power sector, an importantcomponent of the overall energy sector, was reviewed.

4.02 Electricity consumption growth in Jordan has slowed downrecently, after exhibiting strong rising trends in past years. In addition,the commissioning at the end of 1986 of the 2 x 130-MW Aqaba oil-burningthermal power station increased the installed capacity of the Jordaniannational system from about 640 MW to about 900 MW or by 40X. This capacityaddition, combined with slow growth, has given the system a margin of reservethat is more than adequate at the present time. Nevertheless, the neeas forelectricity consumption will continue to grow as the Jordanian economy expandsand, therefore, a rational, least-cost expansion strategy must be devised toguide the investment program in generation, transmission, and distribution inthe next decades. This strategy development must take into account theavailable domestic energy resources, foreign sources of fuels, thetechnologies that can be utilized with their respective cost and operationalcharacteristics, fuel prices, and other constraints. Uncertainties thataffect certain important parameters, particularly load growth and fuel pricesmust also be taken into account.

ProRosed Approach

4.03 Traditionally, the Jordan Electricity Authority (JEA), which hasbeen responsible for the electric power sector, has relied on internationalconsultants to update the power investment plan. Since the beginning of the1980s, two such studies were conducted: by Chas. T. Main (USA) in 1981 and byMerz and Mclellan (UK) in 1984. Recently, however, the analysis has beenperformed by two different approaches: one is analysis by JEA staff with theWien Automatic System Planning (WASP) code, version III, with which JEA hasacquired considerable expertise; the other, complementary method, is oneutilized by Electricite de France (EdF) whose consultants have conducted aGeneration Expansion Study under contract to JEA. This latter methodology,although not a complete, long-term planning instrument like WASP, is based onheur.stic methods for the selection of the most promising and most realisticexpansion configurations, on which production cost is calculated to select themost economical configuration. The EdF methodology, has been appliedsuccessfully in a number of developing countries, as has WASP. A convergenceof results from the two methodologies is expected. This latter study has beencarried out in Jordan with active participation of JEA's Planning Divisionwith a view to strengthening the planning capability of the local staff.

- 69 -

Summarv of Findings and Conclusions

4.04 The present philosophy of JEA in determining future generatiunexpansion options is based on an objective to minimize, to the extentpossible, ruture investment, while maintaining adequate reliability of supply.This desire is prompted not only by general economic considerations but alsoby the recent deterioration of the country's foreign currency reserves and thedevaluation of the Jordanian Dinar (JD). In order to accomplish thisobjective, JEA, which is mainly responsible for generation in Jordan, islooking in three directions: (a) the establishment of interconnections withEgypt, Syria and other neighboring countries in order to take advantage ofload diversity and potential surpluses in these countries; (b) the upgradingof the existing generating system by increasing plant availability and theutilization factor and by lowering the specific fuel consumption; and (c) theinstitution of load management measures to reduce future demand growth withoutnegatively affecting the economy. In this context, JEA has performed analysesof least-cost generation expansion strategies with an emphasis on theutilization of domestic energy resources.

4.05 Ignoring a very small contribution by hydropower, the country ismainly dependent on imported oil to meet its energy needs, includingelectricity generation. This situation has been changed recently by thediscovery of natural gas in the Risha field, near the Iraqi border. Based onthis discovery, two 30-MW gas turbines have been installed along with adouble-circuit 132-kV transmission line of a maximum capacity of 180 MW. Thepotent:.al of larger gas resources at Ris a is being actively pursued, butreliable data are lacking at present to allow firm planning for additionalgenerating plants burning domestic natural gas. JEA has developed three gasscenarios; low, medium and high, on which the generation expansion strategiesare based.

4.06 The other important assumption needed in the analysis is theenergy and load demand forecast. Three scenarios have been developed: low,medium and high, using econometric models. They correspond to average,annual, compounded growth rates for load demands of 3.6%, 5.6% and 7.5%,respectively, in the 12-year period 1988-2000.

4.07 The analyses performed with the code WASP have assumed a mediumload growth scenario, taking also into account the effectiveness of loadmanagement, a discount rate of 10%, and a set of fuel prices with zeroescalation in the planning horizon covering the period 1989-2005. The priceof natural gas was set at either 50X or 70X of the heavy fuel oil price. Thereserve margin has been set to be not less than 30% and not higher than 45%.

4.08 Two analyses were executed with WASP: the "base case", whicikassumes that the interconnection with Egypt which will be available in 1994will be equivalent to a 130-MW oil plant and that natural gas is only adequateto fuel the existing 2 x 30-MW gas turbines at Risha; and the "variant case",which assumes that there is no interconnection with neighboring countries butthat natural gas is available to fuel up to 900 MW of an additional gasturbine/combined cycle plant. The results of the "base case" scenario arethat the country will continue to build 130-MW unirts burning heavy fuel oil;six additional units would be needed by the year 2005. This scenario alsoincludes two 30-MW combustion turbines burning No. 2 fuel oil.

- 70 -

4.09 The "variant case", based on the assumption of abundant naturalgas priced at 70% of the heavy fuel oil price, is dominated by combustionturbine/combined cycle units which are selected by the code owing to their lowconstruction and fuel cost. However, the "variant case" is based on an as yetunproven scenario of gas availability.

4.10 Comparing the two strategies that correspond to th.e pessimisticand optimistic gas scenario, clearly the first scenario is more realistic. Itis worth noting that the code did not select any imported coal or fluidizedbed boiler units burning oil shale. This is due to their assumed high capitalcost, the relatively low construction cost of the oil units, the low heavyfuel oil price and the relatively short planning period (17 years) which doesnot allow the economies of cheaper fuel (imported or domestic natural gas) totake their full effect.

4.11 These preliminary studies, which are being complemented byadditional analyses utilizing a range of input parameters and assumptions,indicate that there are two basic alternative strategies for generationexpansion in Jordan: heavy fuel oil and gas. The potential of the gasutilization for power is of high interest and importance because of thisfuel's domestic origin, favorable environmental characteristics and, possibly,low cost of production. However, the size of the resources are speculative atthis time, and no firm plans can be made based on high gas resourceavailability. A long-term testing plan is recommended to confirm the flow andpressure drop rates from the Risha field to help establish the commercialityof the reserves and the rate of sustained production. The various optionscorresponding to gas availability and load demand growth scenarios need to befully considered. The planned interconnection with Egypt, if the variousstudies confirm its technical and economic viability, and the interconnectionwith other neighboring countries present a definite advantage since they wouldallow the JEA system to operate at a lower required reserve margin (RM). Itis, therefore, recommended that future analyses for the time period beyond1994 set the minimum required RM equal to 20X. It is also recommended thatthe parameters for the coal option be reexamined and the planning periodlengthened to 30 years to see if this option could, under certain conditions,become economical. The fuel diversification that the coal piant additionwould offer to Jordan would be an important consideration.

4.12 Finally, the generation expansion study performed by EdFInternational, and completed in 1989, has offered additional insights as tothe desirability, economy, and viability af the various expansion strategies.This study, although not using a long-term optimization method like WASP, ismore detailed since it takes into account site suitability and accessibility,availability of cooling water, and transmission requirements and costs whichare not taken into account in WASP. The results of the EdF analysis indicatethat the addition of 130-MW units at Aqaba, where space is available adjacentto the existing plant and where existing infrastructure can be utilized, isquite likely in the future. However, with a fairly high present reservemargin and with the Egypt interconnection becoming available in 1994, there isno urgency in taking generation expansion decisions at this time.

Electricity Demand Projections

- 71 -4.13 The first important step in planning the expansion of theelectric power system is the determination of the country's future electricity

requirements takin3 into account trends and objectives in social, economic,and technical development, as well as the actual capability of the country tofulfill them. Following this first step, an optimal plan can be devised forexpanding the generating system in order to meet the demand determined in thefirst step, subject to certain requirements and constraints.

4.14 Historically, high growth rates in electricity consumption of 21%p.a. between 1975-84 reflected high investment levels generating largeincreases in demand for electricity in various sectors. During 1975-84, thehousehold sector's demand for electricity grew at the very high rate of 21%p.a., reflecting this sector's heavy investment in energy-using householdappliances, due to the large increase in disposable income through a highlevel of remittances. The rate of growth of the household sector's demand forelectrikity declined to 8% p.a. during 1984-88 due to the effects ofsaturation, as well as a decline in remittances from the high levels of1975-84. Details of the historical electricity demand are shown in Annex 4.1.

4.15 Industrial demand for electricity also grew at a very high rateof 20% p.a. during 1975-84 reflecting the effects of expansion and thediversification of Jordan's industrial base and of the setting up of energyintensive industries such as cement, mining, etc. In addition, extension ofthe central power grid with expansion in the availability of competitive powerencouraged the industrial sector to switch the sources of their power supplyfrom self-generation to buying power from the grid. In 1971, industry met 61%of its own electricity needs. This share declined steadily over the years to31X in 1986 and thereby contributed to the growth in industrial demand forelectric power supplied from the grid. The rate of growth of industrialelectricity demand declined to 5% p.a. during 1984-88 reflectirng the slowingdown of industrial activity and the absence of new energy-intensive industrialinvestment. Nevertheless, the industrial sector share of consumption in 1988was 38%.

4.16 In the commercial sector, the average growth in electricitydemand was 22% p.a. during 1975-84. This sector includes office buildings,shops, restaurants, .itals, etc. During 1984-88 the rate of demand growthdeclined to 8% p.a. ..ich reflected the overall reduced growth of thatsector.

4.17 A very significant addition to electricity demand in recent yearshas come from the water pumping sector. Annual growth rates increased from20% during 1975-84 to 30% during 1984-88. Between 1984-88, this sector added306 GWh of annual demand c: 30% of the total growth in electricity demandduring this period. Water pumping and agriculture now account for 15% oftotal national electricity demand compared to 8% in 1975.

4.18 The shares of street lighting and other uses in total electricitydemand have declined during 1984-88 to 3%, compared with 6% during 1975-84.Table 4.1 shows electricity demand by major sectors.

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Table 4.1: Electricity Demand by Major Sectors 1975-88(GWh)

Percentage p.a.Rate of Growth

1975 12Ut 124I 12& I Im La 1975-84 1284-88

Domestic 92 455 604 655 821 23.3 8.0Industrial 165 488 851 903 1,040 20.0 5.1Commercial 40 160 233 268 292 21.6 7.7Water Pumps 29 98 151 215 446 20.1 30.3StreetLighting 10 25 38 46 77 16.0 19.3

Others 2Q 48 67 64 85- 14.4 7.7

Total 356 1,274 1,944 2,171 2,761 20.8 9.4

Source: JEA

La Preliminary estimates.

4.19 Uncertainties in Load Forecasts. Electricity demand projectionsof small electrical systems in developing countries are quite uncertain andusually result in large variations from one forecast to the next. Theelectricity planning envirotment changes very rapidly due to the followingreasons: (i) sudden spurts in electricity demand resulting in high growthrates which cannot be accounted for in the planning process; (ii) the urgentneed to proceed with rural electrification projects from a social standpointeven when such projects may be uneconomic; (iii) lack of adequate and reliableinformation; and (iv) absence of coherent national plans.

4.20 Key AssumDtions far Electricty Demand Projections. Electricitydemand projections are based on assumptions which take into consideration thetrends observed in the growth and pattern of electricity consumption, the GDPand sectoral growth prospects, effects of pricing and conservation, and loadmanagement measures.

4.21 Energy Demand Projections. Based on the above assumptions,primary energy consumption in Jordan is projected to grow on average at 3.0Xp.a. to reach 4.4 million toe in 2000. Details are given in Table 4.2.

I

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Table_6.2: Primary Energy Demand Projections 1988-2000(000 toe)

Actual Projections Annual Average1987 19_8_8 I9 Growth Rate to 2000

(percentage)

LPG 116 118 130 166 2.9Gasoline 352 383 427 487 2.0Kerosene 183 187 207 270 3.1Fuel Oil 1,214 1,222 1,275 1,927 3.9Diesel 769 821 921 1,099 2.5Jet Fuel 191 208 233 265 2.0Lsphalt 127 139 155 176 2.0

Total 2j952 3.078 3,339 4.390 3.0

4.22 The Effect of Load Management on Demand Projections. TheMinistry of Energy and Mineral Resources (MEMR) appointed, in 1986,Gilbert/Commonwealth International, Inc. (GCII) in association with ManagementResources International, Inc. (MRI) and the Tennessee Valley Authority (TVA)to carry out a load research and management study of the power sector. Theproject was conducted with the active participation of the Jordan ElectricityAuthority (JEA), Jordanian Electric Power Company (JEPCO), and the IrbidDistrict Electricity Company (IDECO), in addition to MEMR. This study definedall actions with a potential to reduce the system maximum demand and theoverall energy requirements. Seven key strategies were identified andanalyzed: (i) tariff design; (ii) water pumping control; (iii) streetlighting; (iv) consumer lighting; (v) self-generation; (vi) industrial motors;and (vii) consumer power factor. The following discussion provides details onthe actions undertaken by JEA for some of the above-mentioned load managementstrategies:

TarLff Design. Several studies are underway to take into considerationload management aspects in some consumer sectors. These studies include:

(a) time of use (TOU) charges for domestic and commercial consumers;

(b) creation of new consumer tariff categories such as large and smallcommercial consumers and large and small hotels;

(c) introduction of a discounted interruptible tariff for large consumers;

(d) introduction of maximum demand tariff for large commercial consumers,including large hotels; and

(e) introduction of maximum demand tariff for industrial consumers formorning peak-periods.

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Street Lighting. JEA has introduced a special tariff for street lighting,which up to 1988 was free of charge, to effect load management and energyconservation. Moreover, the installation of more efficient lamps iscurrently being adopted as a standard for street lighting.

Consumer Lighting. The import tax on efficient lamps has been reduced toencourage their use.

Consumer Power Factor. The option of reducing import taxes on equlpmentfor power factor correction is being studied by the Government to encourageconsumers to increase their power factor and hence to help reduce systemlosses. Furthermore, studies through a load research program are underwayto determine the need to increase the power factor penalty threshold or tointroduce the penalty on other activities such as water pumping.

Self-Generation. The possibility of fully integrating all self-generationof large industries into the interconnected system is being studied. Theavailability of packaged cogeneration units at favorable prices on theinternational market raises the question of proper incentives for largeconsumers to invest in such facilities.

4.23 The above measures are being actively pursued and, as a result,growth rates in both the electricity (kWh) and peak demand (kW) are expectedto be lower. The demand forecasts have taken into account the savingsresulting from the above measures of load management, assuming that they willbe successful. As shown in Annex 4.2, the most recent forecast for energy andpeak load demand represent downward revisions of about 27% for the year 2000compared to earlier forecasts.

4.24 Analysis of Demand Projections. The "base case" scenario,consistent with JEA's medium growth scenario, is shown in Table 4.3. Detailsof electricity demand projections by sector are given in Table 4.4.

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Table 4.3: Electricity Demand Forecast (JEA only)

Medium ScenarioFinalDemand Generation Peak Load

Year GWh NW

1987 2,302 2,733 486.1988 2,406 2,860 522.1989 2,611 3,183 570.1990 2,782 3,332 601.1991 2,966 3,552 639.1992 3,163 3,788 681.1993 3,375 4,041 729.1994 3,558 4,260 774.v.995 3,751 4,491 814.1996 3,955 4,736 864.1997 4,171 4,994 910.1998 4,399 5,268 959.1999 4,640 5,557 1,011.2000 4,896 5,863 1,065.

Table 4.4: Sectoral Electricity Demand Projections 1987-2000(GWh)

Annual AverageSector Actual Projections La Growth (X)

1987 1988 1993 2000 1988-2000

Domestic 752 821 954 1,495 5.1Commercial &Services 293 292 582 713 7.1

Industry 1,061 1,040 1,093 1,543 3.4Water Pumping 404 446 650 1,000 7.2Street Lighting 66 77 97 145 5.4Others 79 85 _

Totals 2.655 2.761 3.376 4.896 4.8

/a Excludes private industries' self-generation; consistent with JEA's mediumscenario.

4.25 Sensitivity of Demand Projections. Sensitivity analysisindicates that failure to implement effective pricing, demand management andconservation measures would result in energy and electricity demand growththat would be one and one half times their "base case' levels (aggregatedemand would be about 7.2X p.a. instead of 4.8X p.a.). In an environment ofsluggish GDP growth and sectoral growth prospects, and under conditions ofuncertainty, the sensitivity factor has important implications for planning

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new generation capacity additions and capital expenditures. GOJ's strategy

should be to vigorously encourage energy conservation and promote theefficient use of energy by (a) continuing to implement demand managementmeasures including economic energy pricing and load management measures;(b) increasing the operational efficiency of power entities; (c) reducingdistribution losses; and (d) increasing the system reliability and efficiency.In parallel, given that the peak load is likely to grow between 5X to 7.5% inthe future, GOJ should also focus on meeting this growing load demand at leastcost. An important consideration in the determination of the least-costsolution is the need for the economic exploitation of Jordan's domestic energyresources.

Efficiency Improvements

4.26 The Jordanian electric power system operates at a fairly highefficiency level as can be deduced by overall loss figures, forced and plannedoutage rates, and other pertinent performance criteria. However, it isrecognized that there is room for improvement. Although operating efficiencyimprovements do not bring about a reduction in the load growth rate, they havethe potential to mitigating the requirements for future capacity additions bymaking a higher fraction of the existing plant available for generation at anygiven time or by making it available for a longer period of time within ayear. Such improvements would increase the utilization rate of existinginvestment and would reduce the need for long and costly plant outages forrepair. Most importantly, efficiency improvements would lower the specificfuel consumption (kg of fuel per kWh generated) and hence reduce the totalfuel bill of JEA. Considerable effort has been expended by JEA to study thepotential for and implement improvements in the Jordanian electric powersystem.

4.27 Reduction in Fuel ConsumDtion and Generation PerformanceImprovemen . The cost of electricity production is strongly related to fuelconsumption and generation efficiency. Table 4.5 indicates the trend of fuelconsumption in JEA power plants during the period 1982-1988.

Table 4.5: Total Fuel Consumption for Power Generation

Fraction ofFuel Consumption Growth Rate Fuel Consumption

Y_ear (in thousand tons? (X) _in Jordan (X)

1982 366 - 15.11983 456 24.6 17.61984 537 17.8 19.51985 593 10.4 21.01986 652 9.9 22.71987 702 7.7 23.51988 740 5.4 24.3

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4.28 The average compounded annual growth rate of fuel consumption forthe period 1982-88 was about 12.51. Since the average annual growth rate of

electricity production during the same period was 14.2Z, it is evident thatthe specific fuel consumption in the JEA power plants was reduced. Thisimplies an improvement in plant efficiency. The trend in thermal power plantefficiency improvement and specific fuel consumption for the period 1982-1988is shown in Table 4.6.

Table 4.6: Plant Efficiency and Specific Fuel Consumption

Efficiency Specific Fuel ConsumptionYear (X) (kg/kWh)

1982 31.1 0.2851983 31.2 0.2841984 31.5 0.2821985 31.4 0.2811986 32.0 0.2741987 33.5 0.2601988 33.9 0.258

This table indicates a gradual improvement of thermal efficiency of about 2.81(in absolute terms) and a reduction of 26 g/kWh in specific fuel consumptionbetween 1982 and 1988.

4.29 Another apprcach to improving the economics of power producrionis by improving the availability of power plants and network components.Higher availability of the most efficient units means less dependence on lessefficient units, which also translates in lower production costs. Moreover,higher availability factors imply, in general, fewer interruptions and thus areduction in the amount of lost revenue. Finally, it also means a reductionin the requirement for future power plant additions. Table 4.7 shows theavailability factor and forced outage rate of the JEA power plants during theperiod 1982-1988.

Sable 4.Z: Performance Indicators for JEA's Power Plants

1198- 1983 1984 1985 1986 1987 1988

Availability factor% 76.3 £3.4 92.2 91.6 93.7 93.2 91.5Forced outage rate X 15.8 13.43 0.99 1.49 1.65 0.97 0.63

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The figures in the table clearly indicate dramatic improvements in theperformance of thermal plant in JEA's generation system. Performance, as

indicated in Table 4.7, compares favorably to even the best performing systemsin developing countries.V

4.30 Power System Performance Improvement Areas. The followinganalysis outlines the recommendations of the Gilbert-Commonwealth 1986 LoadResearch and Management Study which were adopted by JEA for implementation:

(a) Minimization of generation costs and system losses:

(i) Improvement of sysrean voltage/var management procedures: JEA isin the process of formulating a short and medium-term reactivepower management policy. This includes a mode of operatingreactive power reserve allocations and measures to rectifyproblems of over- or under-voltage. Moreover, the new extensionof the control center will be equipped with an optimal power flowcomputer program for such purposes.

(ii) Development of a Station Thermal Efficiency Program (STEP): sucha program is already being implemented, requiring that eachthermal generating unit be tested after major overhaul to updateinformation on its performance before it is placed back intoservice.

(iii) Introduction of more precise economic dispatch methods:currently JEA carries out this function through the controlcenter by means of a computer program. However, the extension ofthe control center will include a more precise economicdispatching software program.

(b) Maximization of system utilization efficiency:

(i) Performance improvement at the Hussein Thermal Power Station(HTPS).

(ii) Improvement of generation maintenance planning: JEA is currentlyimplementing a computerized maintenance program for all powerplants.

(iii) Implementation of load research program results.

(iv) Modification of the tariff structure.

(v) Improvement of efficiency in consumer and street lighting.

(c) Optimization of system Rerformance and reliability:

JI According to the statistics of the World Energy Conference/UNIPEDE,total availability of oil and gas thermal plants in the capacity rangeof 100-199 MW in 1987 for North America (the best of three groupingsof countries for that year) was 84.3X.

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(M) Enhancement of network planning and operating criteria: JEA hasacquired a computer program for this purpose.

(ii) Improvement of network fault reporting.

(iii) Development of network design standards.

(iv) Development of inter-utility groups for operational practices andfault reporting.

4.31 Reduction in Transmission and Distribution Losses. Thetransmission and distribution losses in JEA's system in the period 1982-1987have shown gradual improvement in spite of increased loading and the extensionof the network. Transmission losses decreased from 1.11% in 1982 to 0.76% in1987, while the distribution losses dropped from 11% to 9.8%. The totalsystem lossea were decreased to 14.91 in 1987 from 16.5X in 1982 exhibiting afavorable trend which is exrected to continue. The distribution losses in theconcession areas of JEPCO and IDECO may not be as low as JEA's due to thewidespread nature of their networku, suboptimal configuration, and overloadedcircuits. Improvements are expected in the JEPCO concession since the Ammanmaster plan is being worked out by French consultants (EdF International) andis planned for implementation in the near future. Improvements are alsoexpected in the IDECO concession area where distribution network investmentsare being made. The distribution network improvements are financed partly byBank loans 2371- and 2710-JO.

Power Development Program Options

4.32 General Considerations. The development of a generationexpansion plan is a complex undertaking, requiring consideration of severalfactors. These include:

(a) Investigaticn of different geographical sites based on factors such asproximity to load centers, availability of water and fuel,environmental aspects, accessibility, and the reliability of thegenerating system after expansion.

(b) Consideration of the different fuel types with potential for use inthe generation expansion schemes, along with their availability, cost,environmental characteristics, etc.

(c) The selection of the optimal unit size(s) and commissioning year inthe generation program. The choice of unit size(s) must taI.e intoconsideration required reserve, overall reliability of the system,operational and investment costs, and economies of scale.

(d) The applicability of alternative cooling systems for the selectedsites (i.e., dry cooling, wet tower cooling, or open cycle cooling).

(e) The possibility of incorporating a water desalination plant in thegeneration plants under consideration.

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(f) The investigation of optimum plant mix (steam, based on oil or coal,gas turbines, combined cycle, eta.) in terms of system performance,reliability and security of supply.

(g) The investigation of the effect of the existing and proposedinterconnections with neighboring countries on the local generationand transmission system with respect to required reserve margin,reliability, and capacity addition requirements.

(h) The implications of the alternative generation expansion schemes forthe transmission system. This investigation should include the sizeand cost of the additional transmission lines needed and the impact onsyscem maintenance, security, stability, and control under allswitching conditions.

(i) Construction and operation costs of the various alternative schemes.

The most important of these considerations will be discussed in the followingparagraphs.

4.33 Existing Plant. In the beginning of the 1970s, JEA embarked on aprogram to build a generation system which is both modern and economic.Production of electricity on a "central-station" basis started in 1977 by thecommissioning of the first 33-MW steam unit. Prior to that, JEA owned andoperated diesel units and gas turbines. The existing generating plant withthe corresponding gross and net available capacity and the fuel used is shownin Annex 4.3. The total nameplate installed capacity in January 1989 was906.8 MW. About 60% of the steam capacity is located at the Hussein ThermalPower Plant (360 MW) which uses the dry air cooling system making it one ofthe largest plants in the world using this technology.

4.34 With the exception of a very small hydroelectric component, thesystem relies on the burning of liquid hydrocarbons for the production ofelectricity. Heavy oil burning units (Hussein and Aqaba) account for the bulkof installed capacity (691), while combustion turbines represent 21X anddiesel engines about 71 of total. The above percentages do not includeindustrial cogeneration which separately contributes 96 MW of total systemcapacity. Due to internal station, needs and other reasons, only about 832.4MW are available to the grid including planned or unplanned outage of units,deratings, and other unavailabilities. The Aqaba power station(2 x 130 MW), the most recent addition to the system, partly financed underLoan 2162-JO, represented an increase of about 401 to the then existing systemof about 650 MW. This large addition increased the system's reserve margin toover 301. With the commissioning of the two combustion turbines (2 x 30 MW)at Risha in early 1989, the installed capacity further increased to 936.8 MW.

Recent Changes in Decisions on CaRacity Addition Scenarios

4.35 Whereas JEA was originally planning to expand the Aqaba powerstaLion with the addition of two 130-MW oil-burning units, it has recentlyreconsidered its future options and optimal strategy in view of threedevelopments: (a) a slowing down of demand growth which relieved the pressuresfor immediate decisions on generation additions; (b) the discovery of gas inthe Risha field close to the Iraqi border which affords a new possibility for

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less expensive and more flexible capacity additions; and (c) the prospects of

interconnection with Egypt via submarine cable and with other countries in theregion (Syria, Iraq and Turkey) in an integrated regional network. As aresult of these developments, the Aqaba Station Phase II was postponedindefinitely and two gas turbines, 33 MW each, were ordered for installationat the gas field, while a new transmission line was erected to evacuate powerfrom the Risha power station to Amman. The future generation expansionprogram is the object of a two-pronged investigation: first, JEA has utilizedthe WAS" code, in which its staff has acquired considerable expertise, toderive optimum expansion programs based on input scenarios and assumptions andto perform sensitivity studies showing the variation in the results caused bychanges in critical input parameters; second, consultants from EdFInternational, a Division of the French national electric utility, have beencontracted to review JEA's economic assumptions, demand forecast, andtechnology options and to propose least-cost expansion program options derivedwith EdF methodologies. This latter study has been completed and the finalreport was submitted to GOJ in October 1989. The remainder of section A ofthe background paper contains reviews of the various scenarios considered andof the input data necessary for the WASP runs, as discussed with JEA staff.

4.36 Based on different quantities of gas reserves available forexploitation of the Risha field, JEA has developed three scenarios for powerdevelopment. All scenarios use as a base an installed capacity of about 900KW at the end of 1988, which includes the two 30 MW gas turbines that wereinstalled and connected to the grid in the first half of 1989.

4.37 The pessimistic gas scenario corresponds to the discovery ofabout 80 billion standard cubic feet (SCF), with a present production of about15 million cubic feet per day (MNCFD) allowing the installation of the twocombustion turbines mentioned above. In case of limited gas, these turbinescan, of course, be operated on high speed diesel (HSD) oil without undueimpact on performance. The medium gas scenario foresees a gas productioncapaDility of about 125 MMCFD, which would allow the installation of up to 400MW of gas turbines combined cycle (GTCC) units. In that case, either thetransmission line Risha-Amman (presently at a total transmitting capacity of 2x 90 MW) would have to be duplicated to allow transmission of the additionalpower at Risha or the new GTCC units would have to be installed at Zarqa,closer to the load center of Amman. Finally, a high gas scenario is alsocontemplated in which gas production would be as high as 250 MMCFD. In such acase, it could be economically viable to build a gas pipeline to transport thegas to Zarqa and Amman for either industrial/chemical processes or domesticuse or both. Because of the uncertainties in the estimates of gas reservesand the existing comfortable margin of reserve in the generating system, JEAhas decided to postpone any further decisions on generating capacity,including the Aqaba, Phase II, until the middle of 1990 when long-term gasflow measurements and other related activities will have yielded more reliableestimates of the gas reserves at Risha.

Future Elctricity Supply Ovtions

4.38 Choice of Fuels. Given that the hydro potential is limited inJordan, that nuclear fuels do not exist in the country, and nuclear units arenot suitable because of the small size of the system and the high requirementsin technological infrastructure, the potential options of fuel are limited to

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fossil fuels and renewables. The fossil fuels include oil (imported or

domestic), gas (imported or domestic), imported coal, and indigenous oilshale. The analysis should take into account the possibility of steam powerplants burning imported coal which is available on the internationaL marketfrom a variety of sources and at border prices with future escalation agreedupon with the Bank. Similarly, oil is projected to be available at pricesrising slowly in the next 10-15 years. Gas has been discovered in Jordan butits quantities are uncertain. It was agreed that, at present, reserves areadequate to allow the operation of the 2 x 30-MW combustion turbines installedat Risha plus up to three additional 30-MW units. This corresponds to themedium gas scenario. This assumption can be revised when better estimates ofgas reserves are obtained in 1990. The importation of gas is consideredimpractical in the short term. However, additional distillate oil for theoperation of combustion turbines is possible.

4.39 The time flexibility gained with the gas discovery affords JEAthe opportunity to explore fuel alternatives, especially the potential ofutilizing Jordan's large oil shale resources. Jordan, with financialassistance from USAID and CIDA has been exploring the oil shale potential forthe past few years. In January and June 1988, combustion tests with about 70tons of shale from Sultani were performed in both Finland and the FederalRepublic of Germany, with satisfactory results. An important advantage ofJordanian shale is its limestone matrix which provides the sorbent materialnecessary t:o capture the sulfur in the fuel. Thus, the injection of limestoneand its associated cost of material and equipment is obviated while, at thesame time, the emissions of both nitrogen and sulfur oxides are minimized.However, under the current oil price forecast to the year 2000, exploitationof oil shale for power generation continues to te uneconomic (see BackgroundPaper No. 2).

4.40 Fixed System - Interconnection with Egypt. This analysis takesinto account the "fixed system," consisting of existing plants, plants inconstruction on firmly planned, and the retirement schedule or older units.In addition, JEA considers it certain that the grid interconnection with Egyptwill take place in 1994 and includes in the "fixed system" a thermal unit ofcapacity equivalent to 130 MW. The intercornection with Egypt constitutes agood strategy in principle since it has several potential economic benefits:reducing investments for generating plants by pooling reserves; reducing unitinvestment cost with the possibility of utilizing larger units; improvingtotal operating cost of the interconnected system by the use of the mosteconomic units; and decreasing the global spinning reserve. The consultantsfor the interconnection project (EdF, International) pointed out that thepotential savings in generating investment would be about US$125 million,stemming from deletion of one 130-MW oil steam unit. However, the Bank haspointed out the existence of certain technical and economic risks that requirea more detailed and more extensive study of the project. The main technicalrisk is the construction of the submarine cable under the Gulf of Aqaba, whichis one of the deepest gulfs with the steepest slope in the world. Theeconomic viability of the project depends heavily on the assumption of acontinuous supply of power (at 80? load factor) from Egypt to Jordan. Todetermine the project's economic viability from Jordan's point of view, ananalysis would be necessary, taking into account the project cost allocationto Jordarn (with associated risks) and the respective benefits in terms ofkilowatt-hours, reduction ir peak load capacity requirements, and system

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reliability Assuming that the interconnection is technically and

economically viable, the assumption of the availability of a 130-MW thermalplant may not be the most realistic way to include the interconnection in theWASP analysis. Although the base case scenario analyzed by JEA included theabove "130-MW unit," JEA plauts to conduct additional analyses in which theeffect of the interconnection will be to reduce the required reserve marginfor the system from a current 30X to 20X and, possibly, even to 151. Thiswould more accurately reflect the advantage of the interconnection with Egyptand other countries which may offer capacity to Jordan during peak demand timerather than on a continuous basis. The "fixed system' also includes aschedule for retiring old diesel and gas turbine units.

Choice of Generating Options

4.41 An analysis with the WASP code requires input data describing thecandidate units that are realistically available for generation additions.The characteristics of each candidate unit include size, fuel type,construction and operating costs (fixed and variable), heat rate, forced andplanned outage rate, and other features. A review of the candidate units wasperformed with JEA staff and common understandings were reached. A summary ofcandidate units for generation expansion and their characteristics is shown inAnnex 4.4. Ihe oil steam units considered for the planning horizon up to theyear 2005 are of two sizes, i.e., 130-MW and 200-MW, based on the rule ofthumb that no unit should exceed 15-201 of system peak. Considerableexperience in the construction and operation of the 130-MW units has beengained from the Aqaba station experience. Extension to the 200-MW size shouldnot present serious problems. The imported coal units -ould represent a firstintroduction of this technology in Jordan, and some initial difficulties maybe anticipated. However, with the international experience in coal-burningplant technology, the access to experienced consultants, and JEA's ownexperienced staff, no insurmountable problems are foreseen. The considerationof imported coal units is motivated by potential cost savings and the need todiversify the fuel used in Jordan.

4.42 The FBC technology is new not only in Jordan but in .he world.Although several FBC plants have operated successfully in many countries, thecommercial experience with shale as fuel is limited. Canadian and USconsultants have completed feasibility studies for 25-, 50-, and 100-MW sizeplants (see Background Paper No. 2). The CIDA-sponsored study by Lummus andthe USAID-sponsored study by Bechtel/Pyropower have been submitted to JEA.The main conclusions from these studies are the following:

(a) The manufacturers of the FBC boilers, particularly of the circulatingfluidized bed combustion (CFBC) type, feel quite confident that theyhave a viable technology, based on tests and on a number of operatingprototypes and demonstration units around the world.

(b) Extensive tests with Jordanian shale in Finland and the FederalRepublic of Germany indicate that the combustion characteristics ofthis shale are favorable, providing a high degree of confidence in theviability of a CFBC plant of commercial size utilizing Jordanian shaleas fuel; nence manufacturers may be willing .o offer the necessaryguarantees for the operation of the boiler up to a 50-MW size.

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(c) Whereas the cost of a 25-MW unit seems prohibitive, the cost dropsdramatically to US$1800-2000/kW for a 50-MW unit and is reducedfurther to US$1400-1600/kW for a 100-MW unit. Although a 25-MW unitcould be considered as demonstration unit, for economically viableunits one needs to consider 50-MW units or higher. However, under thecurrent capital cost for alternative plant anid oil price forecast, useof oil shale for power generation continues to be uneconomic.

(d) The large oil shale reserves in Jordan and the environmentaladvantages of FBC technology would indicate that the option should bemaintained through the installation of a demonstration plant to helpgain confidence in the technology and in shale as fuel. Since Jordanis not prepared to invest its own funds in a technology that carriestechnical and financial risk, participation of the private sectorunder conditions and terms that are mutually satisfactory should beencouraged. The experience with similar projects in other countries(e.g., Pakistan) could be instruct.ve.

4.43 Gas turbines of modern design are a prime candidate forgeneration expansion, either in single or in combined cycle operation, becauseof several important advantages which include: low construction cost perinstalled kW; good thermal efficiency; off-the-shelf commercial availabilityand hence short lead time and construction period; and modularity of design,allowing greater flexibility to the planner to adapt to changing system demandforecasts. Combustion turbines are also easy to operate, offer quick responseto changing demand, and can be easily located near load centers. Modernturbines can run on distillate fuel without loss of reliability and can useeven crude oil although at some cost in reliability. They can be operated fora lifetime of up to 30 years provided that crucial components are replaced atappropriate intervals. Single cycle units are used for peaking service butcombustion turbines can be also utilized as base-l.oad units in which case aheat-recovery section and steam turbine represent a cost effective investment,increasing the unit's output by 50-602. Both types of combustion turbinecycle are shown as in Annex 4.4.

4.44 A considerable effort on the development of renewable energyresources, mainly solar and wind, is proceeding in Jordan (see BackgroundPaper No. 5). However, the units under development are small and intended fordemonstration purposes. Because the unit cost of these units is several timeshigher than ocher available options, they were not included as candidates inthe expaAsion analysis. However, based on recent developments in the field ofmass production of photovoltaic cells (PVC), and encouraging results fromdemonstration units coupled with utility systems, it is believed that the PVCoption holds real promise for the future. It is recommended, therefore, thatrealistic technical and cost data for both PVC and solar-thermal plants beobtained for inclusion in future least-cost expansion analyses.

4.45 GOJ has conducted considerable exploratory work in the area ofgeothermal resources. Development of a limited number of discovered fieldshas been hampered by their use for recreational and tourist activities. Sinceno commercial-size discoveries of geothermal resources have been made to date,no geothermal power plants have been included as candidates in the generationexpansion study.

Least-Cost Investment Strategy

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4.46 Need for URdated Least-Cost Investment Strategy. A least-costinvestment strategy, to be most useful, must adapt to changing social andeconomic conditions and must take into account the latest forecast loaddemand, availability of fuels, evolving technologies, and fuel priceforecasts. Least-cost generation expansion studies have been performed by JEAwith the WASP code. With key parameters such as load demand forecast and gasavailability undergoing reevaluation, a fresh expansion analysis was needed.Such analysis has been undertaken by JEA using WASP, and by EdF International,as consultants to JEA, taking into account updated prices of fuels. Theresults of the analysis serve as a useful guide in deciding the necessaryinvestments to meet future demand, including investments in generation,transmission, and distribution and the corresponding needs in training oftechnical, managerial, and financial personnel in Jordan. JEA has at itsdisposal several tools for least-cost generation expansion analysis. Thesetools are listed and explained in some detail in Annex 4.5. A summarydescription of the main software packages is given in the followingparagraphs.

4.47 The PC/CUM Code. The PC/CUM computer simulation programcalculates the production cost and reliability indices of the system based onthe cumulant method. The method has been shown to be effective in evaluatingloss of load probability (LOLP) and production costs in generation planning.It is based on the analytical r.presentation of the equivalent load durationcurve (ELDC), which is the load duration curve combined with the effects offorced outages and maintenance requirements for individual facilities. Foreach year under study, the input data describe the demand characteristics inthe form of a load duration curve and the supply in the form of the operatingcharacteristics and costs for each of the generating units in the system.

4.48 The WASP Code. The second analytical tool utilized by JEA wasthe Wien Automatic System Planning (WASP), Version III, computer code package,henceforth to be referred to as the WASP code. First developed by theTennessee Valley Authority (TVA) and the Oak Ridge National Laboratory (ORNL)of the United States of America, it was reissued by the International AtomicEnergy Agency (IAEA) as Version II and was later che object of a joint effortby the United Nations Economic Commission for Latin America (ECIA) and theIAEA. The joint ECLA/IAEA effort culminated in the WASP/III Version issued in1980, with ar. improved capability to handle hydroelectric plants.

4.49 WASP/III is a computer code designed to determine the economicalyoptimal generation expansion plan for an electric utility system within a setof constraints specified by the user of the code. The code utilizesprobability methods to estimate system production costs, reliability, and theamount and cost of energy likely to remain unserved although demanded from thesystem. The mathematical method used to compare the costs of alternativesystem expansion plans is the dynamic programming method. WASP was used toderive the least-cost development plan based on a set of assumptions and inputparameters.

Least-Cost Generation Expansion Analysis Using WASP

4.50 An analysis with the WASP code was performed for the study period1989-2005, i.e., a period of 17 years. This period may not be long enov.gh forthe full economies of lower cost fuels to take effect. It is recommended that

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future studies be extended to a planning period of 25 years. In many cases,

the study period is longer tha.a the planning period by about 5 years in orderto accommodate end of-period effects. in this context, the study period couldbe 30 years while the planning period would be 25 years. The most critical ofthese inputs and assumptions are discussed below.

4.51 Load Demand Scenario. The medium load forecast scenario,presented in para 4.24, was used in the WASP runs. This scenario forecasts apeak load demand of 570 MW in 1989 and 1,296 KW in 2005. Although thisscenario is the best forecast under present economic conditions andprojections, it is desirable to make additional runs, using the low and highdemand scenarios, to determine the generation expansion program in case thesealternative scenarios materialize. The peak and minimum load, energv demand,and their respective growth rates are shown in Table 4.8. Peak load andenergy demand growth is between 5.4Z and 7.0X in the first 10 years of theperiod, falling to 4.01 during the last five years.

Table 4.8: Load and Energy Demand Forecast(Medium Growth Scenario)

Peak- Growth Minimum Growth Growth LoadLoad Rate Load sate Energy Rate Factor

Year MW (X) MW (X) GW (X) (M)

1989 570.0 - 208.3 - 3117.0 - 62.421990 601.0 5.4 219.6 5.4 3286.5 5.4 62.421991 639.0 6.3 233.5 6.3 3494.3 6.3 62.421992 681.0 6.6 248.8 6.6 3724.0 6.6 62.421993 729.0 7.0 267.0 7.3 3975.9 6.8 62.261994 774.0 6.2 283.5 6.2 4221.3 6.2 62.261995 814.0 5.2 298.2 5.2 4439.4 5.2 62.261996 864.0 6.1 316.5 6.1 4712.1 6.1 62.261997 910.0 5.3 333.3 5.3 4963.0 5.3 62.261998 959.0 5.4 351.3 5.4 5230.3 5.4 62.261999 1011.0 5.4 370.3 5.4 5513.9 5.4 62.262000 1065.0 5.3 387.8 4.7 5622.1 2.0 60.262001 1108.0 4.0 403.5 4.0 5849.1 4.0 60.262002 1152.0 4.0 419.5 4.0 6081.4 4.0 60.262003 1198.0 4.0 436.3 4.0 6324.2 4.0 60.262004 1246.0 4.0 453.7 4.0 6557.6 4.0 60.262005 1296.0 4.0 471.9 4.0 6841.6 4.0 60.26

The table also shows that the system-wide average load factor is expected tobe about constant during the period, with a value of 62.42X in 1989-92 andfalling slightly to 62.261 in 1993-2005. This is a reasonable figure, basedcn experience in similar countries.

4.52 Diacount Rate. One of the most important assumptions in agenerating system optimization is the discount rate, reflecting the time valueof money used to convert benefits and costs occurring at different points in

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time to their equivalent values at a common time. The discount rate strongly

affects the outcome since the optimization model minimizes the sum of alldiscounted costs over the planning horizon. The objective function to beminimized in WASP/III consists of six discounted cost streams:

(a) capital investment costs;(b) salvage value of investments at the end of the planning horizon;(c) fuel costs;(d) fuel inventory costs (considered non-depreciable capital costs);(e) non-fuel operation and maintenance costs; and(f) cost of energy not served.

No provision is made to include environmental costs from gaseous and liquideff'uants emanating from the plant. A figure of 1OX was used in performingthe current WASP analysis. A higher discount rate tends to downplay futurecosts and hence tends to favor solutions that have the lowest up front(investment) costs. If a longer range outlook is adopted and a hedge againstfuture rising fuel cost is desired, a lower discount rate, i.e., 5-6X may alsobe used in the analysis. It is suggested that such runs also be made.

4.53 Escalation. The WASP analysis was performed with the use ofconstant monetary units (US$) as of the beginning of the base year (1989).However, the code has provisions for taking into account price escalation,i.e., price increases in real terms. The current WASP analyses have usedconstant prices throtv,hout the study period, i.e., no escalation has beenassumed. It would be informative and useful to investigate the optimalsolution resulting from fuel escalation for the next 15-20 years. A 3.0X/aescalation for petroleum products and a 1.5X/a for coal used in similarstudies may be considered.

4.54 Fuel Costs. The cast for the fuel used in the analysis is shownin Table 4.9.

Table 4.2: Thermal Plant Fuel Costs

Cost (USS/ton) Equivalent CostFuel Local CIF Agaba Total (US$/million kcal)

Heavy Fuel Oil 4.0 87.0 91.0 9.3High SpeedDiesel 6.0 153.0 159.0 75.5

Coal 5.0 43.0 48.0 7.7Oil Shale 4.2 - 4.2 3.5Natural Gas n/a n/a n/a 4.9,6.5,9.3 /a

n/a Not applicable.

/a The natural gas price was set at 501, 701 or 10O1 of the heavy fuel oilprice on an equivalent heating value basis.

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4.55 The above costs reflect actual border prices of fuels at thebeginning of 1989. Jordan imports crude oil from Iraq, Saudi Arabia, and

Kuwait anc refines it at its Zarqe refinery. The domestic component of thecost reflects the value added to the oil from local transportation andrefinery processing. The price of heavy fuel oil corresponds to oil with 2-3%sulfur which could cause the plants to exceed the standards adopted by mostindustrialized countries. (The sulfur emission standards of the EuropeanEconomic Community (EEC) for new plants would be violated if higher than 0.8%sulfur content oil were to be burned in the 130-MW oil steam plant and higherthan 0.3Z sulfur content oil were to be burned in the 200-MW plant, if no fluegas desulfurization (FGD) equipment is installed.) If oil of sulfur contentlower than 1X were to be used, the cost of such oil would be higher, aboutUS$100-110 ton. The cost of coal assumed in the study may be somewhat low.It is recommended that coal at a cost of US$55-6C ton, delivered at Aqaba,should be used in future studies. The cost of coal would be somewhatdependent on sulfur content but not as strongly as would the cost of oil.

4.56 Regarding the price of natural gas from the Risha field, threeprices are being considered by JEA at 501, 701, and 100% of the heavy fuel oilprice on a heating value equivalent basis. In the "base case" run, it wasassumed that the natural gas available is only adequate to fuel the alreadyinstalled two 30-MW gas turbines and that any additional gas turbines and/orgas turbines with combined cycle would have to be fueled by high speed diesel(No. 2) oil. The cost of this limited availability gas was taken at US$4.9per million kcal, whicn is one half the price of heavy fuel oil. Since theopportunity cost of this Risha gas cannot be compared with other fuels (forwhich the gas cannot be a substitute, owing to its remote location), the 50%price for gas is not an unreasonable assumption. In the alternative scenario,it was assumed that natural gas could be availabe in which case it would beused in gas turbines/combined cycle units at a price equivalent to 70% of theprice of heavy fuel oil. Translated into cost of electricity, this gas priceis equivalent to 5.0 fils/kWh of gross generation. The above fuel costs donot include fuel inventory costs, which are usually expressed asnon-depreciable capital costs. These costs were assumed to be zero since theyrepresent a very small fraction of the capital cost.

4.57 Cost of Unserved Energy. The expected unserved energy is theprobabilistically determined amount of electricity demand per year that is notsupplied owing to generating capacity deficiencies. Unserved energy isdetermined in the WASP model through the probabilistic simulation process,which accounts for all combinations of random forced outages of generatingunits at the various load demand levels imposed on the generating system. Thecost of unserved energy is treated in the WASP objective function as if itwere an operating cost. Thus, if the cost per unit of unserved energy, is setto US$O.O/MWh, other constraints will determine the minimum amount of capacityneeded. If the cost per unit of unserved energy is relatively high and thegenerating system is somechat unreliable, the cost of adding new capacity maybe less than enduring the total cost of unserved energy and the least-costsolution will require a large excess capacity. In this way, the WASP modelsimultaneously considers cost and reliability in the optimization.

4.58 In the current study, the cost per unit of energy not served(CENS) was represented by a linear expression of the form

CENS -a, + a. (f)

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where a, - US$0.05/kWh, a2 - US$95/kWh and is the fraction of unserved overthe total generated energy. As can be seen from the results of the analysis,the amount of unserved energy was zero, owing to the large margin of reserveavailable to the system. However, in future analyses, it may be simpler torepresent the cost of energy not served by a fixed amount, equal to the costof generation from a small diesel generator which is a choice available toJordanian consumers that might want to guard against the eventuality ofsuffering electricity cut-off. Such a cost could be in the range ofUS$140-170/MWh. This cost is, of course, higher than the average generationcost of electricity, which in turn means that the optimization places a highpenalty on unavailability of power. Parametric studies conducted at the Bankindicate that the optimal price for unserved energy is at about two to threetimes the long run marginal cost (LRMC) of generation.

4.59 The reserve margin, defined as the difference between installedcapacity minus peak demand divided by peak demand, is an important measure ofthe system's reliability of supply. In order for WASP to select an optimumcapacity addition program, a target (or an allowable band) of margin ofreserve must be supplied. Alternately, the system's maximum unreliabilityalso called "loss of load probability (LOLP)", usually expressed in days peryear, must be specified.

4.60 The IOLP target varies from system to system depending on thesize of the system, the size of the units utilized, the state nf developmentof the system, and the interconnection with other systems. It is worthwhileto mention that the LOLP level improves as new units are added. However, anynew unit contribution to system capability is measured by effective loadcarrying capability (ELCC). This parameter measures relative impact of unitaddition in meeting system load growth. It is that part of the capacity ofthe unit that is available to supply the increase in demand in order to keepthe system unreliability to a value lower than or eq-ual to the LOLP target.JEA staff have proposed a minimum LOLP of 0.4 d/y, which is at the upper endof the range used in most developed countries (0.1 - 0.4 d/y). Based on thisfigure, the code's built-in stochastic model computes a reserve margin of 30%for JEA's system in the near future. Consequently, the allowable band ofmargin of reserve was set at a 30X minimum and a 45% maximum. The equivalentcritical value of LOLP was 0.109%.

4.61 The 30% minimum reserve margin might appear high, but for arelatively small power system such as Jordan's, such a high number is notunreasonable if a high reliability is to be maintained. Furthermore, JEAmaintains that in view of the volatility of the geographiic region in whichJordan is situated, a higher margin of reserve is required to guard againstunforeseen developments that may impact population patterns, commercial,agricultural, and industrial activities and, hence, the demand forelectricity. JEA intends to revise the minimum reserve margins downward whenthe interconnections with Egypt and other neighboring countries materialize.It is anticipated that the interconnections will allow a reduction of theminimum required RM to 20X or 15% without overall loss of reliability. Thesystem's reliability analyses were performed with the followingconsiderations:

(a) The system is considered secure for single contingency cases withoutreducing system load (N-1 criterion).

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(b) In selecting transmission equipment sizes, the principle of firmloading d is used, i.e., at least two elements, each with a capacityequal to the demand, are selected.

'c) No element in the system should carry load beyond its design ratingunder normal conditions.

(d) Voltage regulation on the 132-kV national grid is -6X to +62 undernormal conditions, and -10 to +10 under emergency conditions.

(e) The lifetime of the different assets is assumed to be as follows:

Steam generating plants 30 yrsGas turbines 15 yrsDiesel units 15 yrsT. & D. equipment 25 yrsT. & D. lines 40 yrs

(f) Short circuit interrupting capacity ratings: for 400 kV: 40 kA; for132 kV: 31.5 kA; and for 33 kV: 25 kA.

(g) Ambient temperature 40°C with 500C temperature rise.

Results of the WASP Analysis and Discussion

4.62 Based on the input data and assumptions discussed above, a seriesof runs were executed with WASP. The aalysis consists of a series ofleast-cost strategies corresponding to input scenarios.

4.63 Base Case. The "base case' run performed with WASP correspondsto the following principal assumptions:

(a) the interconnection with Egypt will be commissioned in 1994 and theJordanian system will have access to the equivalent of a 130-MWoil-burning plant. No credit was given to other interconnections;

(b) the system will experience a medium load growth scenario,corresponding to an average energy demand growth of 6.2X in the period1988-2000;

(c) the reserve margin window is 30-45X and;

(d) natural gas is available for the 2 x 30-MW gas turbines only. Thecost of this gas is 50X of the cost of heavy fuel oil (HFO).Additional gas turbines with or without combined cycle would burnNo. 2 oil at a cost about 50X higher than the cost of 1170.

The least-cost generation expansion program selected by WASP is shown in Table4.1,J which also lists the program selected for the "variant case' to bediscussed in para 4.67.

ftI This principle is currently under reevaluation by JEA and is likely tobe changed in the near future.

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Table 4,10: Least-cost Generation Expansion Programs

Unit-AdditionsYear Base Case Variant Case

1993 2 x 30/MW, GT 1x 30 GT, 1 x 100 GTCC19941995 - Ix 100 MW, GTCC1996 1 x 130/MW, Steam-oil 1 x 100 MW, GTCC1997 1 x 130/MW, Steam-oil 1 x 100 MW, GTCC1998 - 1 x 100 MW, GTCC1999 1 x 130/MW, Steam-oil 1 x 100 t'-, GTCC2000 - 1 x 100 hi, GTCC2001 1 x 130/NdW, Steam-oil -2002 1 x 130/MW, Steam-oil 1 x 100 MW, GTCC2003 - -2004 1 x 30/MW, Steam-oil 1 x 100 MW, GTCC2005 - 1x 30 MW, GT

Total Additions 840 MW 960 MW

^ GT: gas turbine.1 cTCC; gas turbine-combined cycle.

4.64 The "base case" solution consists of two gas turbines in 1993 andof additional 130-MW steam oil units in 1996, 1997, 1999, 2001, 2002 and 2004,for a total addition of 840 MW. The total installed capacity, taking intoaccount the existing system, retirement schedule and planned addition is givenin Table 4.11.

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Table 4.11: Total Nominal Installed Capacity (MW)

Year Base Case Variant Case

1989 935 9351990 929 9291991 929 9291992 926 9261993 983 1,0531994 1,101 1,0411995 1,071 1,1111996 1,183 1,1931997 1,313 1,2931998 1,268 1,3481999 1,398 1,4482000 1,389 1,5392001 1,459 1,4792002 1,583 1,5732003 1,583 1,5732004 1,713 1,6732005 1,713 1,703

4.65 It must be noted that neither imported coal nor oil shalefluidized bed combustion (7BC) plants were selected. The reason is the highconstruction cost of these plants and the relatively short horizon of thestudy. The two gas turbines were selected by the code in 1993, although theymust run on expensive No. 2 oil, because of capacity need and because theconstraints imposed on the code (CONGEN module) did not allow any steam oilunits until 1995, based on the required lead time. Similarly, theintroduction of imported coal was not allowed until 1995 because of therequired lead time. However, these lead times might be somewhat too long. Athree-year lead time for oil and four years for coal would not beiureasonable. Therefore, the selection of the two gas turbines in 1993 mustbe viewed as "forced". Otherwise, the expansion program depends exclusivelyon additional steam oil units at locations to be selected according topertinent siting criteria. Increasing dependence on imported oil may beacceptable at a time' of low oil prices. However, some consideration for fueldiversification in the future might be appropriate.

4.66 Regarding reserve margin, the total installed capacity of1,389 KW in 2000 exceeds by about 324 MW the expected medium scenario peakload in that year, representing a reserve margin of about 30.4X. In view ofthe availability of the interconnections with Egypt and other neighboringcountries, this would be an excessive reserve margin, representing anoverinvestment. As mentioned before, analyses with 15X and 20X reservemargins should also be performed to determine the necessary, but adequate,investment in power generation. This is particularly important in light ofrecent economic difficulties in Jordan which would support every effort toreduce the requirements for imported equipment. The WASP analysis alsoprovides an estimate of total operation and investment cost for the optimalgeneration expansion program. These costs are given in Annex 4.6.

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4.67 Variant Case (Natural Gas Scenario). A "variant case" was alsoperformed. 'The main differences between the "variant" and the "base" case arethe followin&:

(a) no interconnection with Egypt or other neighboring country wasassumed. Hence no additional power was included in t'-s "fixed"system;

(b) gas turbines running on single cycle were assumed to burn No.2 oil asin the "base case" but additional natural gas was assumed avaL.able torun several gas turbine-combined cycle units, 100 MW each. The priceof this gas was assumed at 70X of the heavy fuel oil price; and

(c) the other assumptions remained the same as in the "base case", namely:a medium load growth scenario, a 30-45X reserve margin, the same fuelprices with zero escalation, and a discount rate of 10%.

The least-cost generation expansion program selected by WASP for this case issummarized in Tables 4.10 and 4.11, together with the results of the "basecase". This case is dominated by the availability of additional natural gasfor up to 1,000-. A. Because of the low capital cost per installed kW of theGTCC units, and the relatively low pricing of the natural gas '70X of the HFOprice), the program selects any additional GTCC units that are made available,with the exception of two single cycle GT in 1993 and 2005 which were selectedbecause of capacity needs and reserve margin constraints. If an additional100-MW GTCC unit were selected in 1993, the RK would be 54X, wnich exceeds theupper constraint. The selection of GTCC burning natural gas underscores thebenefits of deve'oping the supply of domestic natural gas resources for powergeneration. However, because of the present uncertainty regarding thequantity of natural gas available, it would be appropriate to applyrestrictions (in the CONGEN module of WASP) to the annual and total number ofGTCC units in the system to comply with realistic gas quantities for powergeneration. The total installed capacities in the two cases (Table 4.11) aresimilar. The operating and capital investment costs for the "variant case"(also given in Annex 4.6) are shown to be lower than those of the 'base case",by 18% and 7Z, respectively.

Future Analyses

4.68 The two cases analyzed by JEA using WASP are two of a largenumber of possible combinations of assumptions and input parameters. Althoughthese results provide useful insights into the possible strategies availableto JEA, depending on the different gas reserves outcome, additional analyseswould be desirable and are recommended. These additional runs would establishthe sensitivity of the results to changes in the basic parameters and wouldallow JEA to select the most robust solution. Additional analyses shouldconsider the following variations in the assumptions and input parameters:

(a) the "revised base case" should use a lower reserve margin window,i.e., 20-402. A variation with a 15-35% window should also beconsidered. In this case the interconnection with Egypt should not berepresented by a 130-MW plant;

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(b) low, medium, and high gas scenarios should be clearly defined and thecorresponding constraints on power generation with gas should beapplied;

(c) realistic price escalation for oil, coal, and gas should be used;

(d) analyses with low, medium, and high demand scenarios should beperformed;

(e) analyses should be performed with the price of unserved energy set at2-3 times the long-run marginal cost (LRMC) of generation. If thecode is to select a solution on the basis of this cost, the reservemargin lower limit should be set to zero (or even -152) and the LOLPupper limit set at 100l. This setting would allow the selection ofthe optimal expansion program on purely economic considerations;

(f) larger unit sizes (e.g., 60-MW) should also be made available for gasturbine plants.

The additional 3nalyses would provide a wide range of options available to JEAfor expansion decisions and their proper timing. They would also provide abroader base for comparison with the generation expansion study beingperformed by EdF International consultants.

CoMRarison with EdF Studv

4.69 The preliminary results of the EdF capacity expansion study wereprovided to the Bank. The expansion strategy is structured in a decision treemethodology encompassing the combinations of low, medium, and high demand andlow, medium and high gas scenarios, i.e., a total oL nine scenarios. Withinsome scenarios, options are also considered by varying the plant site andplant type. The EdF medium-demand, low-gas scenario, which corresponds moreclosely to the WASP "base case", results in two 120-MW and one 200-MW units bythe year 2000, compared to two 30-MW gas turbines and three 130-MW steam/oilunits resulting from the WASP "base case". The total capacity additions inthe two solutions are almost the same. However, the WASP solution providestwo gas turbinas burring No. 2 oil instead of an additional HFO steam unit.The two overall solutions may not be very different, trading off the lowcapital cost of the gas turbines against the higher cost of No. 2 oil. Thegas turbine adeition in 1993 offers increased planning flexibility since onlyabout eighteen months are required for their installation versus about thirtymonths for a steam/oil plant. In the medium-demand, high-gas scenario, EdFrecommends gas turbines and combined cycle plant as in the WASP "variantcase". The broad conclusion of both analyses is that, if gas is plentiful,Jordan will be able to fulfill its future power needs with gasturbine/combined cycle plants which are efficient and require relatively lowcapital expenditures. However, if gas is not abundant and/or if a high demandgrowth is experienced, some additions of steam/oil units will be required,most suitably at Aqaba where the site and infrastructure are available. Bykeeping options open and following a path of maximum flexibility, JEA should(i) obtain an early but reliable estimate of gas reserves at Risha; and(ii) make plans for capacity additions in the latter part of 1990. It isquite possible that in case the gas reserves are limited, the addition of twoor three oil units at Aqaba will become necessary.

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Allocation of Investments batween Generatio. Transmisgion and Distributio

4.70 Slnce the Jordanian population is concentrated along a majornorth-south axis and since transmission lines have been constructed betweenAqaba and Amman and Risha and Amman, the future transmission program may notrequire major new investments. However, extensions and reinforcements willmost likely be required. The investment program for transmission anddistribution Ly JEA and the investment programs for distribution by JEPCO andIDEC0 were reviewed and were found to be reasonable and effective. Theon-going studies by EdF International, financed by Bank Loan 2710-JO, willprovide the basis for rational and least-cost extension, reinforcement, andgeneral improvements of tne distribution system in Jordan. The balance amongthe planned expenditures in generation, transmission, and distribution isreasonable given the present status and future demands on the system.

B. Analysis of Tariffs and Institutional Arrangements in Power Subsector

Electricity Tariffs

4.71 An examination of electricity tariffs during the period 1984-88shows that, for the power subsector as a whole, the average tariff levels havebeen adequate to cover the power subsector's operating costs, to furnish itsdebt service requirements, and to provide adequate levels of funding for itsinvestment programs up to and including 1987. However, following significar1devaluation of the Jordarian dinar against foreign cutrencies during 1988,debt service commitments are no longer being covered from internal sources,and all new capital expenditure will need to be financed externally. Inaddition, tariffs for individual consumer categories reveal variations betweeneconomic and financial costs of supply. Tariff levels for IDECO have been andremain insufficient to cover operatinrg costs before debt service. As aconsequence, IDECO is being supported by substantial payments from JEA and isno longer paying any dividend to shareholders.

Lvelgs of Existing Tariffs

4.72 Tariffs fell in the period 1984-88 as a result of minoradjustments during 1986 and 1988. In 1986, electricity tariffs to certainconsumer categories were reduced in parallel with the Government's decision topass on to consumers some of the benefits of declining oil prices. Theseadjustments led to a reduction of about 9% in the average revenue per kWh soldto final consumers. The resultant average revenue per kWh sold of about 30fils/kWh in 1986 represented about 85% of the economic cost of supply. Thecurrent (1988) average tariff is about 29.43 fils/kWh, which represents onlyabout 72% of the economic cost of supply. The increased disparity between theaNrerage tariff and economic costs from 1986 to 1988 (Table 4.2.1 below)occurred primarily because of str_:tural changes in consumption brought aboutby the faster growth of consumption in low tariff categories, notably bydomestic consumers. (Marginal tariff reductions became effective on November1, 1988 in the first block of the domestic tariff (3 fils/kWh), water pumping(2 fils/kWh), and in the off-peak bulk tariffs (3 1/2 fils/kWh)). Averageoperating costs declined from 29.29 fils/kWh in 1984 to 24.72 Fils/kWh in 1988principally due to reduced fuel costs and increases in efficiency. Thesubsector is no longer financially viable following substantial inoreases in

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the cost of debt servicing. A major restructuring of the finances and tariff

levels of the operating entities (i.e., JFA, JEPCO and IDECO) is now requi-:edto restore their liquidity so that they can meet their commitments and firancea reasonable portion of ongoing construction work.

Tabile 4.2.1: Revenues and OperatinZ Costs

1984 1985 1986 1987 1988

Electricity Sales (GWh) 1,632 1,834 2,198 2,655 2,387Ave. Tariff (Fils/kWh) 32.47 33.94 29.97 26.71 29.43Ave. Oper. Cost (Fils/kWh) 29.29 32.30 27.29 22.83 24.72

Electricity Revenues 52,983 62,242 65,881 70,911 70,245Other Revenues 2..050 -2.98 2.291 2.,889 2.342

Total Revenues 55,033 64,340 68,172 73,800 72,587Operating Costs 47,802 59,245 60,209 60,617 58,996Operating Income (before 7,231 5,095 7,963 13,183 13,591

interest)

Structure of Existing Tariffs

4.73 The current tariff structure comprises a maximum-demand chLargeand time-u..-day energy rates for bulk supply to the distribution companies andlarge industries. Domestic consumers and public institutions are charged flatrates except for the first block of 160 kWh/per month, which is atconcessional rates while commercial consumers, broade-asting TV, and smallindustrial consumers pay a flat rate per kWh. For medium-sized industrieswater pumping and agriculture, (i.e., above 200 KW), there are separatetwo-part demar.d/energy tariffs with time of day rates being applied for theenergy component. There is also a penalty for poor power factor. Dc ails ofthe current tariff structure (as of November 1988) are provided in Annex 4.7.

4.74 Table 4.2.2 below sets out the relationship between averagetariffs by individual consumer categories and the economic costs of supply.It shows that the bulk tariffs to JEPCO and IDECO are about 10 above economiccosts while other large bulk customers are about 6X below. On the other hand,most retail rates are below economic costs, particularly those for smallindustry, hotels and water pumping. Rates for commercial users are, however,considerably above economic costs. Street lighting has, until recently, beenprovided without charge. This will change following the Government's decisionto introduce a charge for street lighting of 13 fils/kWh for consumption above1988 levels. Domestic consumers with consumption in the block above 160 kWhare probably meeting their share of costs.

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Tablo 4.2.2: Comparison of Existing Tariffs with Economic Costs of Supply

Average Average TariffEconomic Cost Tariff as X of

Existing Tariffs (ll/kWh) (Eils/kWh) Economic Cost

Bulk TariffsJEPCO 33.00 21.26 64.42IDECO 33.00 ?l.36 61.03Large Consumers 31.00 16.93 54.61

Medium Industry 37.00 22.90 61.89Small Industr) 47.00 24.90 52.98

Commercial

Large (MV) 39.00 46.00 117.95Small (LV) 47.00 46.00 97.87Hotels 47.00 24.00 51.06Water Pumping and Agric. 64.00 21.00 32.81Domestic 50.00 36.30 72.60Institutions 50.00 38.00 76.00Street Lighting 56.00 13.00 23.21

Average 35.69 21.94 61.47

4.75 A comparison of the existing tariffs with the average operatingcost per kWh sold indicates the existence of financial cross subsidies. Theaverage cost/kWh sold to final consumers irn 1988 was about 25 fils. Mostcategories of consumers, with the exception of commercial, domestic and publicinstitutions, were charged at prices below this average cost. In fact, about60X of electricity sales were made at prices subsidized by commercial anddomestic consumers. JEA is estimated to incur losses on about 90X of itssales, JEPCO on about 602, and IDECO on about 85X.

Recommendatins on Tariffs

4.76 The existing cross-subsidies between and within consumercategories are not providing appropriate signals to users and may beencouraging some uneconomic use of electricity. Prudent monitoring of thelevel and extent of cross-subsidies should be maintained to enable theGovernment to make informed decisions with respect to their continuation. Lowrates for small domestic consumers can be justified on social grounds but notfor those on higher consumption levels. It is recommended that the existingtariff structure be modified progressively to better reflect the economiccosts of supply and minimize cross-subsidies between consumer categories.Where the Government wishes to support specific industries, financialassistance may be more appropriately given directly from its budget, where itcan be more readily identified and controlled. Specific areas which might beconsidered for review are:

(a) U.uriffs. Bulk tariffs to JEPCO, IDECO and large consumerscould be reset based on economic levels determined from the

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long-run marginal cost model, which may mean slightly lower

prices for JEPCO and IDECO, whichi would improve their financialposition, and slightly higher pzices for JEA's other large bulkconsumers. If uniform tariffs are to be maintained in the Irbiddistrict, distortion of rates for consumers in other parts of thecountry could be reduced, if the compensatory payments were madedirectly by the Governm'nt from its budget.

(b) Uiomestic Tariffs. Domestic tariffs coul. be modified so that theconcessional block applied only to domestic users withconsumption below 100 kWh/month. Those consuming above thislevel would not receive any consession.

(c) Commercial Tariffs. The present flat rate for commercialconsumers does not encourage load management. Commercialconsumers could be offered a two part maximum demand/energytariff, which could also provide for some overall lowerirng ofrates for the larger medium voltage users. The energy componentcould incorporate time-of-day rates. For low voltage commercialusers, a lower flat rate more consistent with the economic costscould be applied. The commercial tariff category could alsoinclude hotels and public institutions, thus providing thesecategories with incentives for load management. Tariffs forconsumers in these categories should be adjusted to reflecteconomic costs.

(d) Other. Small industry, water pumping and agricultural tariffscould also be reviewed and time differentiated, and demandcharges could be considered.

(e) Streetlighting. The cost of free streetlighting snould beaccounted for and consideration given to whether it might befinanced directly from the government budget.

(f) Discounts. All existing discounts should be identified andaccounted for so that the cost of these concessions could bemonitored.

Historical and Current Financial Performance of the Power Entities

4.77 Financial Adequacy of Tariffs. JEA and JEPCO have, over the lastfour to five years, consistently achieved rates of return between 5% to 7% onthe historical value of average net fixed assets. IDECO has been makinglosses. Although for the power subsector as a whole the level of electricitytariffs was adequate, except for IDECO, during the period up to 1988, theincrease in debt service obligations arising from the devaluation of thecurrency now threatens the financial viability of all three entities. IDECO'sfinancial performance, in particutlar, has been weak since 1985 following theGovernment's decision to unify the tariff structure for the three powercompanies. This has led to decreases in tariffs in 1984 and again in 1986.Since 1984, IDECO's tariffs have been iaadequate to cover its operating costsand its debt service requirements. It can be seen from Table 4.2.3, whichshows revenues and operating costs for all three companies, that since 1984IDECO's average electricity tariff has declined every year from 41.57 Fils/kWhin 1984 to 28.61 Fils/kWh in 1988. This position clearly cannot be sustained.

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Table 4.2.3: Revenues and gperatiG Costs(JD 'OOOs)

14 .198_5 1986 1987 1988 LiA. j.MElectricity Sales (GWh) 1,741 1,935 2,375 2,791 2,570Ave. Tariff (Fils/kWh) 22.86 26.91 23.35 21.04 22.05Ave. Oper. Cost (Fils/kWh) 20.38 23.02 19.89 17.31 18.90

Electricity Revenues 39,794 52,077 55,463 58,713 56,661Other Revenues 307 483 1.101 921 -LA-401Total Revenues 40,101 52,560 56,564 59:634 58,062Operating Costs 35,473 44,542 47,242 48,302 48,573Net Income Before Interest 4,628 8,018 9,322 11,332 9,489

B. JEPCOElectricity Sales (GWh) 935 1,023 1,098 1,190 '1,298Ave. Tariff (Fils/kWh) 34.90 38.81 36.34 34.13 34.15Ave. Oper. Cost (Fils/kWh) 33.75 37.56 34.95 32.64 32.82

Eilectricity Revenues 32,631 39,704 39,900 40,619 44,33sOther Revenues 1L.236 1.113 1.377 1.A26 1,247Total Revenues 33,867 40,817 41,277 42,025 45,580Operating Costs 31,556 38,421 38,387 38,846 42,601Net Income Before Interest 2,311 2,3,c 2,890 3,179 2,979

C. IDECOElectricity Sales (GWh) 173 208 237 268 319Ave. Tariff (Fils/kWh) 41.57 34.64 32.82 29.87 28.61Ave. Oper. Cost (Fils/kWh) 41.84 45.83 41.55 37.00 35.33

Electricity Revenues 7,191 7,205 7,779 8,005 9,311Other Revenues 304 491 415 562 349Total Revenues 7,495 7,696 8,194 8,567 9,660Operating Costs 7,239 9,533 9,847 9,895 11,271Net Income Before Interest 256 (1,837) (1,653) (1,328) (1,611)

Li Includes exchange losses.

The recent tariff reductions (November 1988) will furthe.- reduce the averagetariff and adversely affect IllECO's financial performance. The Government'scurrent policy is to provide temporary compensation to IDECO of JD 2 millionannually (paid by JEA) while efficiency improvements are implemented whichwill allow operating costs to be gradually reduced. Since inception of thispolicy, efficiency gains have talken place in IDECO through reductions in powerlosses, improved financial management, budgeting and cost control. Theaverage operating costs have declined from 41.84 Fils/kWh in 1984 to 35.33Fils/kWh in 1988. This policy of encouraging IDECO to reduce its operatingcosts and achieve profitability is commendable. However, whereas ehie measuresrequired to bring about financial performance improvements have been broadlydefined, there is no prospect while uniform tariffs are applied that theGovernment will be able to avoid maintaining an open-ended commitment tosupport the company.

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4.78 Level oQ Self-financing. Table 4.2.4 below shows the powersubsector's aggregate capital expenditures for years 1984-88 and how they werefinanced.

Table 4.2.4: Financing oL Power Subsector Investments (1984-88)(JD '000s)

1984 198 18 1987 1988 Totals X---------------------(JD '000s)---------------------

SourcesInternal Sources 25,771 38,192 35,979 37,259 28,517 165,718Less Debt Service (10,563) (13,352) (15,840) (28,755) (37,258) (105,768)Less Dividends (2.,207) ( 1,217) ( 1140) ( 900) ( 900) ( 5.364)

14,001 23,623 18,999 7,604 9,641 54,586 24Equity Contributions 9,520 2,002 4,773 0 4,808 21,103 9

L-T Loans 23,449 42,348 30,133 13,264 18,787 127,981 57Increase in WorkingCapital and OtherSources _ 21.433 21.433 10Total Sources 46.970 67.973 53.905 20.868 35.387 225.103 100Total CapitalExpenditures 46.970 67.973 53.905 20.868 35.387 225.103 100

4.79 The table shows that the power subsector was able to finance about 24'of investment needs over this period. Long-term loans financed about 57X ofthe subsector's investment programs; 9X was provided by the Government throughequity contributions; and the remaining 10 was financed from increasedworking capital. Up to the end of 1987, about 35Z of capital expenditures wasfinanced from internal sources. However, in 1988 following the devaluation ofthe currency, internal financing became negative and only JEPCO was able tocover its debt service obligations. In the case of JEA, much of its debtservice was unpaid at the end of 1988. Debt service coverage of JEA declinedfrom 2.2 times coverage in 1984 to 0.75 times in 1988. The decline in abilityto service debt, if not corrected, poses a major liquidity problem for theindustry.

Future Financial ProsRects

4.80 The power utilities (JEA, JEPCO and IDECO) have prepared financialprojections as an input to this study. The projections were prepared assumingtariff increases of about 151 effective January 1, 1990; debts restated atcurrent exchange levels; increases in service charges and connection fees;slipping cor.struction expenditures; exchange losses amortized over the life ofloans; and other cost control measures. The projections are based on JEAbreaking even, with revenues equal to operating expenses, and on JEA meetinginterest expenses by 1991; JEPCO and IDECO would earn 10X on shares. Noallowances have been made for inflation or future changes in the exchangerate. The projections also assume present fuel prices to continue. Theenergy sales projections used by JEA are based on the medium growth scenarioadopted in the least-cost analysis.

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4.81 Table 4.2.5 shows the expected outlook based on the forecasts preparedby each of the utilities. The operating results shown would enable JEA, JEPCO

and IDECO to achieve positive net income before interest, after tariffincreases in 1990. This level of return, however, is insufficient to meetfull debt service coverage and would require JD58 million over the next threeyears to refinance.

Table 4.2.5: Forecast Revenue and Operating Costs(JD'OOOs)

12M2 1990 1991 1992RA&

Electricity Sales (GWH) 2,767 2,935 3,115 3,310Av. Tariff (fils/KWH) 21.24 24.40 24.20 24.22Av. Operating Cost (fils/KWH) 20.27 19.79 19.26 18.31Electricity Revenues 58,781 71,604 73,378 80,179Other Revenues 926 1.046 1.532 1.532Total Revenues 57,707 72,650 76,910 81,711Operating Costs La 55.092 58.082 59.988 60.603Net Income (befoLe interest) 3.615 14.568 16.922 21.108

JEPCOElectricity Sales (GWH) 1,350 1,419 1,506 1,580Av. Tariff (fils/KWH) 32.87 39.28 38.80 38.79Av. Operating Cost (fils/KWH) 33.85 38.22 37.98 37.86Electricity Revenues 44,374 55,736 58,436 61,285Other Revenues 1.247 1.834 1.889 1.945Total Revenues 45,621 57,570 60,325 63,230Operating Costs /a 45.698 A.230 57.192 59,812Net Income (before interest) (77) 340 3.133 3.418

IDECOElectricity Sales (GWH) 335 352 375 378Av. Tariff (fils/KWH) 28.61 36.53 36.43 40.00Av. Operating Cost (fils/KWH) 35.36 35.11 35.12 38.63Electricity Revenues 9,584 12,857 13,661 15,122Other Revenues 4.550 /b 400 410 420Total Revenues 14,134 13,257 14,071 15,542Operating Costs La 11.846 12.360 13.171 14.,604Net Income (before interest) 2.288 -. Z 900 941

/a Includes exchange losses.Lb Includes 2,230 payment from JEA.

4.82 The Government's strategy of holding tariffs, salaries and fuelcosts fixed at least until about mid-1990 has already put the subsector in avery serious liquidity squeeze. The devaluation of the Jordanian dinar onDecember 31, 1989 has increased the level of long-term debt by about lOOX fromabout JD 150 million to JD 300 million. Total debt service obligations overthe period of the loans are estim_ted to have risen by JD 160 million.Without a major restructuring of the finances of the companies through therefinancing of existing loans or a significant injection of new capital, allthree utilities are likely to be unable to meet their commitments on existingdebt or finance their planned construction.

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4.83 Table 4.2.6 shows the 1989-92 financing plans of JEA, JEPCO andIDECO on a consolidated basis. It shows that the subsector will be unable tofinance any expansion from internal sources. (The Bank's loan agreementsprovide for a 35% level of self-financing). JEA is no longer in a position tocontinue compensation payments to IDECO of JD 2 million annually to compensateit for losses arising from the adoption of uniform tariffs, nor can JEA affordto provide relief on its interest payments on debts of JD 240,000 annually, asproposed.

Table 4.2.6: Forecast Financing of Power Subsector Investments (1989-92)Investments (1989-92) (JD 000s)

1989 1990 1991 1992 Total

Sources of FundsInternal Sources 30,034 48,518 51,635 55,226 185,413Less Debt Service (53,424) (65,981) (61,457) (60,527) (241,389)Dividends - ) ( - ) ( 900) 900) ( 1.800)

(23,390) (17,463) (10,442) ( 6,201) (57,776)

Government Contributions 587 7,716 7,847 4,900 21,050Customer n 2,077 2,341 3,101 2,611 16,130Long-term Loans 22,482 40,678 52,787 52,281 168,228Changes in Working Capital& Other Sources 27,755 (8,250) (29,211) (13,655) (23,361)

Total Capital Expenditure 29.511 25,022 23.802 39.936 118.271

4.84 Prior to resolving the present crisis and revising tariffs, theGovernment must decide how it is going to treat foreign exchange losses andre-finance existing debt. The most appropriate course of action is for it toadopt the International Accounting Standard recommendations for accounting forforeign exchange losses. This would involve recouping these losses on asystematic basis over the remaining lives of the loans. Revised financialforecasts should be prepared when the Government has identified the sourcesand terms of financing that it can obtain to restructure the existing financesof the utilities. An increase in tariffs of at least 22X would be needed inFY90 to offset the impact of inflation and provide some contribution towardsconstruction needs. Subsequent increases would depend ola how existing loanswere able to be refinanced.

Recommendations on Financial Issues

4.85 Impact of Currency Devaluation on Financial Viability of Power SectorEntities. The first nrioritv should be given to identifying means for JEA,JEPCO and IDECO to overcome the adverse financial impact of the recentdevaluation of the Jordanian dinar. The companies are, as a result, facing asevere liquidity constraint in meeting their debt service payments andfinancing their operations and construction. The Bank has been advised thatthe Government is already considering proposals by JEA to provide someshort-term relief, namely:

- postponement of some loan repayments for three years

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- rescheduling of some outstanding loans- reduction of fuel prices- increase in tariffs- increase in connection fees- increase in meter service charges

4.86 In addition to these proposals, it is recommended that other short-term options might be considered by the Government, including:

(i) converting some existing loans to equity (or capital);

(ii) treating the devaluation losses as they are realized as equitycontributions;

(iii) refinaticing existing debt service commitments by rollover loansor new borrowing;

(iv) taking over JEA's commitment to pay IDECO compensation for theadoption of uniform tariffs (currently JD 2.2 million annually).

(v) temporary exemption of JEPCO and IDECO from corporate taxes; and

(vi) deferral of all construction and maintenance expenditures, exceptwhere fully committed or essential for maintaining supply.

4.87 In the long term, more permanent solutions may be needed to restorethe liquidity and financial viability of the sector such as:

Mi) new borrowing to restructure the finances and capital of thecompanies;

(ii) revaluation of fixed assets to reflect the alignment of theJordanian currency so as to increase depreciation charges andcash flow;

(iii) increases in the structure and level of tariffs to restorelong-term financial viability and remove existing distortions intariffs; and

(iv) development of a foreign currency risk management program,including proposals for monitoring debt service commitments tominimize the risk of loss from future movemen.s in foreignexchange rates.

Management Information Systems

4.88 A review of management policies relating to the design andimplementation of management information systems (MIS) in the three powerentities (JEA, JEPCO and IDECO) was carried out to determine whether t.hesepolicies are likely to result in an optimal information system for thesubsector as a whole. Broadly defined, MIS is a formalized process forgathering, compiling, analyzing and disseminating specific information. Assuch, every formal organization has a management information system. However,specific information will vary between different organizations and different

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levels of management within the same organization. The methods used in

gathering, analyzing and disseminating the information will also often differin different organizations.

4.89 The review of management information system policies has proceeded onthe assumption that, although there are three separate organizationis in thesubsector (two of which are mixed public-private sector corporations [JEPCOand IDEC0] and the other, JEA, a wholly government-owned authority), there arecrucial management policies relating to investment, financing and pricingwhich often have to be taken jointly or at least on a coordinated basis. Theneed for coordination of investment and pricing decisions, in particular,implies a need for comparability of data, which can be facilitated by similarmanagement information systems. All three organizations have receivedconsultant support in implementing uniform accounting systems, which haveenabled accounting data to be made available to management on a comparablebasis. However, there is no established policy or coordinated strategy forimplementing management information systems in all the three companies toensure that their outputs are comparable.

4.90 JEA has invited proposals frow consultants to carry out a feasibilitystudy for implementation of a management lnformation system. It has alreadyinstalled two powerful VAX 8530 computers, which are linked together, and anetwork of over 120 terminals has been located at various JEA sites. JEA hasa range of stand-alone systems operating under VMS software. These includecommercial systems covering billing, accounting payroll, personnel, etc., andengineering applications, including WASP, software for network studies andpowerstation maintenance. JEA's Computer and Informaton Department is staffedy a competent and well-qualified team.

4.91 JEA has already at-quired a relational data base management system(RDB/VMS). Because JEA's current computer applications are "stand alone" andhave been developed independently, there is little facility for exchange orsharing of data between systems. There is no uniform definition of data(i.e., data dictionary). The capability designing reports as required bymanagement is limited. In fact, JEA is seeking to develop integrated systems,based on a uniform data base using a relational data base management system.This would be a state-of-the-art system. It would be very expensive toinstall and require a number of years to establish and would necessarilyinvolve the re-development of most existing applications.

4.92 JEA's objective is not just to develop systems to meet its owninformation needs but also to use its facilities and capability as a base fordeveloping consulting services for the region, which it would then market.This would of course create enhanced career opportunities for its staff andpossibly a source of foreign exchange through payments received for services.However attractive this may be for JEA, it is not part of its core business,which under the General Electricity Law is to generate electrical energy. Itmay be prudent for JEA to evaluate carefully the cost and benefits of theproposals it is considering to satisfy itself that such developments willprovide corresponding opportunities for improvements in operational efficiencythrough access to better information.

4.93 JEPCO, on the other hand, has plans to implement several modules of aMIS in the next few years, with financing provided under the Sixth Power

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Project (Loan 2710-JO). These include inventory, distribution planning,

financial and budget models. It already has established basic commercialsystems on its Data General computers. Although JEPCO has agreed with theBank to proceed with the above-mentioned system developments, theseimprovements are not being accorded high priority. JEPCO is more conservativein its approach to MIS and is not anxious to develop systems too rapidly.IDECO has also received consultancy services for implementing computerizedbilling and uniform accounting systems on i-.. Burrough 1900 system. It ispresently evaluating proposals for supplying of new computer hardware. Beinga much smaller organization, and also lacking computer trained staff of thecalibre of JEA's, IDECO is likely to proceed with systems development in amodest way; this is considered appropriate.

4.94 Thus, in all the three organizations, MIS development has beenproceeding but with limited co-ordination. The Ministry, on the other hand,has been making good progress with planning of uniform systems for all thepower entities. Reports have already been drafted for:

(i) the establishment of a uniform distribution data base;

(ii) the improvement of customer management systems, especiallybilling and cash collection; and

(iii) the establishment of an electricity/energy data bank in Jordan.

4.95 The first two studies have been prepared by EdF (France) and are beingreviewed by the sector entities. The report on a distribution data baserecommends establishing a joint data base based on EdF's model; this wouldimprove system planning and operations. One obstacle to the development ofthis proposal is the difficulty of establishing a uniform system when eachorganization has different hardware. JEA, JEPCO and IDECO already haveacquired separate software for their own distribution system data base. Theymay, therefore, be reluctant to abandon their existing systems.

4.96 The customer management study proposes to introduce billing proceduresbased on the use of portable computer billing units, the mailing of bills,where feasible, and two monthly readings of meters and improvements in thecustomer enquiry processes. As in the case of the distribution data base, thedistribution companies have been taking action independently to addresscustomer management problems.

4.97 The electricity/energy data bank study has been sponsored by UNDP. Anexcellent report has been drafted as of February 15, 1989 which recommends JEAand UNDP coordinate their efforts in defining and proceeding with MISdevelopments. Key recommendations include:

(i) the preparation of a comprehensive list of the managementinformation needs of JEA's departments and agencies;

(ii) the conservation of the VAX Rdb environment to protect JEA'sinvestment in the VAX computer system;

(iii) the rewriting of JEA's existing systems in a relational data baseenvironment;

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(iv) the development of JEA's system as a model for technologytransfer; and

(v) the staged development of HIS to provide on-line capability whichwill gradually replace the existing systems.

A workplan for the implementation of these proposals over two years hasalready been drawn up.

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MIS Recommendations

4.98 The above-mentioned UNDP proposals appear to be well conceived. Theydo not propose to include JEPCO and IDECO. This seems to be appropriate giventhat the Ministry is already planning the development of a uniformdistribution system data base. JEPCO and IDECO do not need to develop withJEA, at least at the present time, any other MIS applications on a uniformbasis. However it would be desirable for JEA to seek the independent view ofUNDP's consultants on its own plans before entering into commitments with newconsultants.

4.99 It is recommended that JEA establish an in.Zormation system developmentplan following the identification of the information needs of its managers.This plan should establish the priority for systems development. It may beuseful to develop a data dictionary to ensure uniform definition of dataacross all new systems. This approach to systems development will be acontinuing one. It will require much more than the two years suggested by theUNDP report for establishing even the most important of JEA's systems on arelational data base management system. The cost of development of thesesystems has not been identified, and it is probably not possible to do sobefore an information system development plan is prepared. JEA currentlyexpects to finance these developments from its own internal sources of funds.

Financial Planning and Management

4.1.1 Under the current institutional arrangements, there is a need toimprove the coordination of financial planning and management across thesector at the ministry level. Within each of the present entities, moreemphasis is needed on financial planning, preferably through establishingresponsibility for planning in the financial departments of the powerentities. Upgradin- the skills of the financial staff is also necessary tomatch the range and complexity of financial issues the sector is now facing.

Accounts Receivable

4.1.2 The current status of outstanding receivables for electricity issummarized in the following table.

Average Number ofDays Bills Outstanding 1987 1988 1989

JEA 78 75 53JEPCO 55 56 52IDECO 52 53 51

Although the accounts receivables of JEA, JEPCO and IDECO have been sharplyreduced, government agencies and water pumping bills are very slow in payment.Budget credits are established for these institutions to pay their electricitybills, but cash is not readily available; as a consequence, payments of theseelectricity bills are largely settled through inter-agency budgets andseverely restrict needed cash flow.

4.1.3 The existing policies require payment by consumers to be made within30 days of receiving a bill. Interest is charged on overdue amounts at therate of 1i monthly. In the case of government departments and large

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corporations, an extra 30 days is permitted before interest is applied. This

latter provision contributes to the high number of days bills are outstandingat JEA and is difficult to justify.

4.1.4 The EDF cuistomer management study (para 4 2.25) (which proposesimproved billing processes, including the use of portable computer billingequipment, direct mailing and two monthly readings with the alternate montlbeing estimated) is being discussed with the utilities. However, theconsultants' proposals are meeting some resistance because of the high cost ofpurchasing portable billing machines, the lack of reliable postal addressesfor mailing bills, and the anomalies expected with two monthly reading.

Recommendations on Accounts Receivable

4.1.5 Based on the above review, the utilities are considered to havealready focussed adequately on their billing and collection problems.Appropriate steps are being taken to improve the pace of collections andreduce the lag between meter readings and the issue of bills. Time should nowbe allowed to guage the effectiveness of the changes being introduced.

4.1.6 Institutional Arrangements

(i) The Ministry of Energy and Mineral Resources (MENR)

4.1.7 The energy sector in Jordan is under the jurisdiction of the Ministrycf Energy and Mineral Resources (MEMR). The Ministry was established in 1984from the former Department of Energy and Electricity in the Ministry ofIndustry, and Trade. Its main functions are to regulate the technical andfinancial activities of the distribution companies--the Jordan Electric PowerCompany (JEPCO) and the Irbid District Electricity Company (IDECO)-- and theco-ordination of sector policies and plans. The Ministry also arrangessectoral studies of energy demand, pricing and statistical data and is activein the development of renewable energy.

4.1.8 The Ministry has its own regulations (No. 26 of 1985) which providefor its establishment, organization and functions. These include liaisingwith neighboring countries on possible interconnections, the settingelectricity standards and safety regulations. It is headed by aSecretary-General and with a staff of about 80 is organized into twodepartments--one responsible for industrial e.-ergy mainly studies and theother for renewable energy, focusing mainly on solar and wind applications.There is also a separate section responsible for supervision of thedistribution utilities. MEMR does not directly oversee the Jordarn ElectricityAuthority (JEA) which instead reports directly to the Minister, even thoughider the previously mentioned regulations, it is instructed to do so.

(ii) Ministry of Planning (MOP)

4.1.9 MOP reviews the energy sector plans and incorporates them within thenational planning process. It also coordinates the foreign borrowingrequirements for development projects. It actually executes foreign loans andcoordinates technical assistance from oNerseas development assistanceagencies. Funds borrowed are onlent usually, on commercial terms.

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(iii) Jordan Electricity Authority (JEAI

4.1.10 The principal operating entities in the electricity sector are theJordan Electricity Authority (JEA), which is an administratively autonomousgovernment-owned utility, and two semi-private distribution companies: JEPCOand IDECO. JEA was established in 1967 under a general electricity law(amended in 1976 and subsequently in 1986) to manage, administer, constructand operate the electric power system in Jordan. It has sole responsibilityfor the generation and transmission of electric power. Distribution, however,is carried out in two major concession areas: JEP"O in Amman and in the Zerqagovernorates in the center of the country and IDECO in Irbid and in the Mafraqgovernorates in the northern part of the county. JEA is also responsible forthe distribution in all other areas which are mainly rural. Overall, JEAsupplies about one third of the country's electricity to about 13,000consumers. However, its largest customers (about 90X of sales) are JEPCO,IDECO, the Water Authority and the large industrial usars, mainly the cementand fertilizer plants.

4.1.11 JEA has its own board of directors chaired by the Minister of Energyand Mineral Resources. The Director-General of JEA is the Vice Chairman. Theother representatives are from government departments, namely the SecretaryGenerals of Finance, Planning and Energy and Mineral Resources; the Presidentof the Water Authority; the Director of the Works Department; and the DeputyDirector-General of JEPCO. There are no direct representatives of the privatesector on the board. Directors are appointed for a three year term and aresubject to re-appointment at the end of this period.

4.1.12 JEA operates on a commercial basis and has enjoyed considerableindependence and flexibility of operation, in contrast to most governmentagencies in Jordan. Its board approves the annual budget and borrowingssubject to the confirmation of the Cabinet. Tariff changes must also besubmitted to the Cabinet for approval. It appoints its own staff on salariesand benefits designed to attract and motivate highly skilled professionals.Up until 1984, when MEMR assumed this function, the Cabinet also exercised aregulatory role over the distribution companies under concession agreements.

4.1.13 Since 1986, JEA has developed an effective corporate planning process.All of its main activities are now being coordinated through this process,under which a five year plan has been established setting out the direction,activities, objectives and targets of the authority. It will report itsachievements under the corporate planning process for the first time thisyear, based on its performance in 1988. Accompanying the development ofcorporate planning there has been a reorganization of the authority to reducethe number of managers reporting directly to the Director General. This hasled to the establishment of five divisions--finance and administration,transmission and distribution, production and operations, projects, andtechnical and corporate planning. Public relations and internal audit alsoreport to the Director General. At the end of 1988, JEA had about 2,000 staffcompared to about 1,000 in 1977. Productivity grew over this period from 0.42GWh to 1.7 GWh per emplovee. Tike authoritv is well managed and the staffcompetent. In fact, it is seeking consulting opportunities for its staff inneighboring countries through its own consulting arm JEA International. Italready has assignments in Yemen, Egypt and Mauritania. A joint venturecompany--Bailey Controls Jordan--is being set up for servicing system control

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equipment. In addition, plans are being prepared for a local manufacturing

arm to produce transformers and electrical equipment. As JEA builds its ownstaff capability and consulting services, it expects that it will be able tophase out its previous dependence on foreign consultants.

4.1.14 In 1988, a new civil service law was adopted by the government for allpublic enterprises. It was designed to curb excessive spending by theseorganizations, which had begun to create financial problems for theGovernment. Under the new code, all government enterprise staff will besubject to civil service conditions and autonomy will be restricted. PUblicenterprises will be under close scrutiny by the Government over most mattersincluding budgets, borrowing and procurement. JEA has unsuccessfully soughtexemption from the new law. However, the new code will not become effectivefor JEA until 1991.

(iv) Jordanian Electric Power Comnany (JEPCO)

4.1.15 JEPCO is a private utility company listed on the Amman Stock Exchange.It is responsible, under a concession arrangement, for the distribution of

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electricity in the city of Amman and its environs. The areas being suppliedcontinue to be extended into more rural areas. More than 951 of ruralvillages are now electrified. Overall, JEPCO is now responsible for 55X oftotal sales in Jordan to over 300,000 customers or over 641 of all consumers.

4.1.16 The company has a paid-up capital of 9 million shares owned by some12,000 shareholders. Individual investors control about 602 of the stock,government organizations 141, and municipalities 9X, the remainder is mainlycontrolled by corporations and financial institutions.

4.1.17 The concession agreement (1962) between the Government and JEPCO isfor a 50-year period. The Articles of Association (1978) define mattersconcerning the company's capital, the responsibility of shareholders, theissue &nd sale of shares, shareholders' meetings, the board of directors, thepreparation of accounts, the payment of dividends, etc. The company wouldUike to see the concession agreement revised since after 29 years it is nowoutdated. JEPCO is supplying customers outside its original concession areaswith the strong support of the Government, which has arranged foreign loansfrom international lending institutions such as IBRD, EIB and USAID. Theavailability of local finance, however, is a constraint to this expansion.Other provisions need review, especially the limitation on the revaluation ofassets. The company would also like to increase its share capital, but theapproval of the Government is required.

4.1.18 The board of directors comprises nine representatives from the privatesector appointed by the shareholders and two from the Government. The latteris JEA's Director-General and its Chief Engineer Transmission andDistribution. The strong representation of the private sector on the board isreflected in the company management, which is conservative and commerciallyoriented and focusses on ways of reducing costs and increasing efficiency.

4.1.19 The company has been reorganized with the assistance of consultantsfinanced by the Bank. The Deputy General Manager now has three assistantmanagers and a manager of administration and finance reporting to him. Thishas halved the number of managers that were previously under his directcontrol. The number of employees has been held at just under 2,000 forseveral years. JEPCO has many lower-level employees with long service who"eskills are limited and difficult to upgrade. It has attempted to replace someof these but has met considerable resistance because of the social impact ofthe displacement of less efficient staff and the high termination costs.

4.1.20 JEPCO, like JEA, has established the new uniform system of accounts onits computers. It has taken steps to improve its customer billing andcollections. MIS systems, as previously agreed with the Bank, are beingphased in over the next three years. Financial staff are competent andprovide timely financial state.ments and forecasts to management, but there isa need for a more active focus on strategic planning and managementaccounting, including forecasting, in the company.

Irbid District Electricity Company (IDECO)

4.1.21 Like JEPCO, IDECO operates under a 50-year concession agreement signedwith the Government in 1961. It has similar articles of agreement coveringthe conduct of the company, which are consistent with company law in Jordan.

- 112 -

However, 82X of the shares are held by the Government and the municipalities,

with the remainder in the hands of private investors. IDECO's concession areaof 23,000 knm is very much larger the JEPCO's (only about 2,000 kw?), andconsumers are more widely dispersed. JEPCO's sales represent about 13X ofpublic consumption to 113,000 consuzaers (i.e., about 24X). The companyoperates a few diesel plants burning heavy fuel in peak periods.

4.1.22 IDECO's share capital is only JD 3 million. Its shareholders,however, have not received a dividend since 1984, when the Governmentintroduced uniform tariffs across the country. Despite substantialcompensation payments received from JEA, IDECO's financial position hasdeteriorated to the point where it can barely meet its operating expensesbefore interest expense.

4.1.23 The board has 12 directors; 6 from the Government, 3 from themunicipalities and 3 from the private sector. The government directorsinclude the Minister and a representative of his department, and tworepresentatives from JEA and one from each of the two governorates in thedistrict.

4.1.24 The Ibrid district contains no major industry or the large consumers,and consumers, who are generally less affluent than in Amman are widelydistributed. As a consequence, IDECO has a relatively large staff of around1,200. Despite a strong growth in the number of consumers, mainly domestic(6X per annum) and a sales growth averaging more than 10% since 1985, staffnumbers have been frozen. District offices have been opened, and a high levelof service (24-hour) has been maintained, at some increase in cost.Management appears to be capable and to be following sound commercialpractices, despite the bleak future prospects for any improvement in finances.

Recommendations for Changing Institutional and Regulatory Arrangements

4.1.25 The power subsector entities in Jordan are facing severe liquidityproblems which, if not addressed promptly may, be impossible to overcomewichout financial restructuring arrangements to restore long-term financialviability.

4.1.26 The existing regulatory arrangements are not working effectively,principally because MEMR has too few competent staff to properly exercise itsfunctions as a regulator. JEA is reporting defacto to the Minister whoexercises a strong role in JEA's day-to-day management, in addition to beingchairman of the board. More regulation is not likely to lead to improvedefficiency in the present advanced state of development in which Jordan'sutilities are placed. The management and staff of these entities arecompetent and well experienced. If the Government proceeds with its intentionto require JEA to conform to the new civil service code, the morale,efficiency and performance of JEA will be severely eroded. In effect, itwould be treated as if it were a government department. This would beregrettable and a retrograde step. It would likely increase JEA's dependenceon public funds for financing its operations. The current advancements by JEAthrough the development of corporate planning, management information systems,and the extension of its consultancy and manufacturing activities could bestifled.

- 113 -

4.1.27 Operating of the electric power industry through governmentdepartmental structures has been shown to be less efficient operating than aseparate corporation. We3re government-owned corporations have been givenautonomy over day-to-day management, they can be held accountable throughtheir boards of directors and management for their performance. In fact, inJordan the electric power system has been established in a short period as anefficient and reliable electricity supply industry. Its growth anddevelopment have baen consistent with successful international utilitiesoperations.

4.1.28 As an alternative to increased government control over JEA, JEPCO andIDECO it may be more effective to review the existing regulatory andinstitutional arrangements. Several alternative arrangements might beconsidered. These include:

(i) establish a wholly new national power corporation comprising JEA,JEPCO and IDECO; or

(ii' establish JEA as a wholly-owned government corporationresponsible for generation and transmission, and merge JEPCO andIDECO into a single distribution company incorporating JEA'sdistribution areas.

4.1.29 Under both the above proposals, JEA would be corporatized. This wouldinvolve it operating fully on a commercial basis, paying corporate taxes anddividends. JEA should be fully accountable to the Government and made toconform to its policies; it should be responsible through its board andmanagement for achieving the agreed performance targets set out in itscorporate plan. The Government, in turn, should permit JEA to undertake itsown borrowing and set tariffs to achieve performance targets agreed with theGovernment. This could be done in conjunction with the financialrestructuring which is necessary to restore viability. Private sectorparticipation could be maintained by transferring the equity of existingshareholders of JEPCO and IDECO to the restructured JEA. In due course, JEAcould seek additional equity investors through the issue of shares. These newarrangements would remove the electricity subsector's dependence on theGovernment for borrowing and for the overseeing of its day-to-day operations.Personell policies, procurement and budgetary matters should be independent ofgovernment procedures. JEA, of course, would be able to pursue opportunitiesfor expanding its consulting and manufacturing activities. These should,however, be established separately as subsidiary functions to ensure that theyare not imposing any financial burden on -onsumers. Unification of all threeexisting entities through a single corporation would facilitate more economicoperations through the formation of a single management structure and oneinformation system.

4.1.30 Under the second proposal, distribution functfons would be combiredunder a single corporation. This would facilitate uniform distributionpolicies and the separation of the costs of distribution from generation andtransmission. The interests of the existing private shareholders of JEPCO andIDECO might also be better served.

- 114 -

Review of Existing Regulatorv Arrangements. Legislation and Concessions

4.1.31 If either of the proposals for the re-organization of the subsectorwere to be adopted, it would be necessary to review the role of theGovernment; especially MEMR's role in regulation of the sector. This wouldrequire giving greater autonomy to the new entities and establishing revisedregulatory arrangements to ensure greater accountability by the newcorporation. At the same time, the existing legislation (i.e., JEA'selectricity law of 1986) and the concession agreements would need to berenegotiated.

JOPDAN - ENERGY STRATEGY REVIEW

Historical Electricity Demand for JEA

Gener-Peak Load Peak Gener- atio- Total JordanIncluding Growth Load Growth ation Growth for (.owth Consum- Growth Consum- GrowthExports Rate Jordan Rate Total Rate Jordan Rate ption Rate ption Rate

Year (MW) X (MW) X GWH Z GWH Z GWH Z GWH X

1975 10.94 10.94 45 45 44 441976 23.05 110.7Z 23.05 110.7X 178 295.61 178 295.61 172 290.91 172 290.911977 89.40 287.9X 89.4 287.91 427 139.91 427 139.91 398 131.4X 398 131.41978 107.00 19.71 107 19.7X 530 24.11 530 24.1X 482 l1.1 482 21.111979 153.00 43.0 153 43.01 697 31.51 697 31.51 638 32.41 638 32.411980 163.60 6.91 163.6 6.9X 870 24.81 870 24.81 789 23.71 789 23.71 l1981 200.00 22.21 200 22.21 1,037 19.21 1,037 10.2% 946 19.91 946 19.91 -

1982 247.60 23.81 247.6 23.81 1,287 24.1X 1,287 24.11 1,169 23.61 1,169 23.61 %1983 309.60 25.01 309.6 25.01 1,609 25.01 1,609 25.01 1,456 24.61 1,456 24.611984 372.00 20.21 372 20.21 1,908 18.61 1,908 18.6% 1,741 19.61 1,741 19.611985 439.60 18.21 398 7.01 2,102 10.21 2,080 9.0 1,935 11.11 1,914 9.911986 528.00 20.11 457.6 15.01 2,612 24.31 2,379 14.41 2,375 22.81 2,161 12.911987 563.00 6.61 486 6.21 3,097 18.61 2,733 14.9X 2,791 17.51 2,457 13.71.1988 522.00 -7.31 522 7.41 2,860 -7.71 2,860 4.61 2,569 -8.01 2,569 4.61

m a

0.

- 116 -

Annex 4.1Page 2 of 3

JORDAN - ENERGY STRATEGY REVIEW

Monthly Energy_Purchased From JEA (GWh)

JEAQ.A.I.A. Water District

Month JEPCO IDECO Industry La Authority Areas Others Total

Jan. 117.62 25.75 27.21 3.31 3.30 18.56 0.23 195.98Feb. 110.07 24.05 25.66 3.76 2.94 17.45 0.21 183.54March 114.81 25.09 35.23 3.26 3.76 19.25 0.22 2C1.62April 108.59 26.57 35.70 3.23 3.50 20.85 0.19 198.63May 117.38 30.38 31.20 3.47 3.90 23.10 0.18 209.61June 122.72 30.53 31.10 3.55 4.00 22.15 0.16 214.21July 133.53 33.30 28.3 4.09 4.00 24.25 0.17 "27.64Aug. 136.80 33.27 24.9 4.10 6.70 24.88 0.36 241.01Sept. 126.28 31.77 40.6 3.70 9.0 22.98 0.61 234.94Oct. 121.84 31.17 41.29 3.29 8.90 22.98 0.57 227.61Nov. 115.63 28.75 33.29 3.03 12.76 18.65 1.09 213.20Dec. 119.49 29.17 32.6 3.55 15.20 18.95 1.84 220.80

TOTAL 1444.76 349.8 397.08 41.74 77.96 251.62 5.83 2568.79

/a Queen Alia International Airport

- 117 -

Annex 4.1Page 3 of 3

JORDAN - ENERGY STRATEGY REVIEW

Monthly Energy Net Generation and Maximum Demand

Net Generation Maximum Load DemandMonth (GWh) KMWT

Jan. 1988 200.53 424Feb. 1988 187.79 420March 1988 208.08 433April 1988 205.10 41May 1988 217.05 457June 1988 221.20 473July 1988 234.17 484Aug. 1988 248.41 506Sept. 1988 241.69 522Oct. 1988 233.10 479Nov. 1988 216.78 475Dec. 1988 225.71 467

Jan. 1989 247.22 458Feb. 1989 217.96 471

ELECTRICITY DEMAND FORECASTNW)

1.7-

1.5 -

t4 -

1.3 -

t2 l o q <~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~/ ~~~~~~~~co

0.8r0.70

0.6

0.5

0.4 d

0.3- a586 B 87 e 8 90 9 92 9 4 9 9 97 9 99 NW

YEARSACWL + CURNT FEC. o Pr Fra. .

*x0

ELECTRICITY DEMAND FORECASTIGW1S

9-

3 -~~~~~~~~~~~~~~~~~~~~~-

986 6 87 689 0 91 92 93 94 95997 9 20O

ACTUAL + CURRENIT FOREC. YEARS vioun Faroe.

0.

- 120 -

Annex -4 3Page 1 of 2

JORDAN - ENEZGY STRATEGY REVEW

QRerating Power Stations in Jordan andTheir Installed Cagacities in MW

Hydro Steam Gas Diesel Total

1. Ea

HTPS - 3x33.0 lx14.0 - 113.0- 4x66.0 1W18.0 - 282.0

ATPS 3.0 2x130.0 - - 263.0Marka P.S. - - 4x18.0 30.0 102.0Amman South G.T. - - 2x30,O - 60.0Aqaba Central P.S. - - 2x3.5 - 7.0

lxl5.0 15.0Karak P.S. - - lx18.0 3x1.5 22.5King Talal Dam 4.0 - - _4.Q

Total 7LQ 623.0 182.0 56.5 868.5

2. Other Organizations

IDECO - - - 6.0 6.0Cement Factory (Fuheis) - - - 9.0 9.0Refinery Co. - 14.0 - 2.0 16.0Arab Potash Co. - 15.0 - - 15.0Fertilizer Co. - 44.0 - 44.0El Hasa Phosphate Co. - - 12.0 12.0Municipalitiesq - - - 8.5 8.5

Total 73.0 M2I5 11.Q.5

GRAND TOTAL Z82.0 v94.2 22.L.MAa

La This figure includes industrial plant which is generating exclusivelyfor the company and is not available to the system. For this reasonthis figure is higher by 72.2 MW than the total on page 2 of this Annex.

- 121 -

Ann-ex 4, 3Page 2 of 2

JORDAN - ENERGY STRATEGY REVIEW

Existing-Generating nts

Installed NetCapacity Gross Capacity Fuel

(KW) (KW)

A. Oil FiredHussein TPS 363.0 332.0 HFO LAqaba TPS 260.0 244.0 HFO

Total 623.0 576.0

B. DieselAqaba 21.4 20.1 No.2 LdIDECO 2.5 2.3 No.2Karak 4.5 4.2 no.2Marka 34. 32.0 No.2

Total 62.4 58.6

C. Combustion TurbinesAmman South 60.0 59.6 No.2Karak 20.0 19.5 No.2Hussein La 32.0 17.7 No.2Marka 80.0 76.0

Total 192.0 172.8

D. HroAqaba 2.4 2.0King Talal Dam /h -

Total 6.4 2.0

E. Industrial CogenerationSteam 15.0 15.0 HFODiesel 8.0 .0 No.2

Total 23.0 23.0

GRAND TOTAL 832.4

La One of the Hussein combustion turbines (14.0 MW) is ignored for planningpurposes.

Lb The capacity from the King Talal hydro turbine is considered nonfirm.La HFO: Heavy Fuel Oil.Ld No. 2 diesel oil is also called distillate oil, or high speed diesel

(HSD) oil.

- 122 -

Annex 4.4

JORDAN - ENERGY STRATEGY REVIEW

Candidate Units for Generation ElDansion and their Characteristics

Unit Construction ForcedPlant/Fuel Sie Cot Outage Rate

MW US$ X

Steam Boiler/Oil 130 750 4.0200 700 5.0

Steam Boiler/Coal 130 1,100 5.5200 1,000 6.0

Fluidized Bed Boiler/Oil Shale 50 1,900 10.0

100 1,500 10.0Combustion Turbine/Natural Gas or HSD /a 30 400 6.0

Combustion Turbine-Combined Cycle//Natural Gas or HSD 100 600 4.0

/a HSD: High Speed Diesel Oil.

- 123 -

Annex La 5Page 1 of 2

JORDAN - ENERGY STRATGr-REVIW

Least-Cost Power Investment Analysis

Analytical Tools Avallable to JEA

A. Software

The following software packages are available and have been usedby JEA staff.

A.1 WASP: Wien Automatic system planning package.This package permits the determination of an optimum expansion

plan for a power generating system over a period of up to thirty years, withinconstraints specified by the planner. The optimwm is evaluated in terms ofminimum discounted total cost. WASP uses probabilistic estimation ofproduction costs, amount of energy not served and reliability, and the dynamicmethod of optimization for comparing the costs of .lternative system expansionprograms.

A.2 PSIM: Production simulation for planning (EdF program).This progtam is used to compute generation system operation and

production costs. It is not used to optimize a long-term generation plan. Itsimulates the operation of existing generation units, as well as of futureadditions, if these are assumed as known.

A.3 PC&CUM: (EDF program) This software package is a probabilisticutility production costing program based on a refined simulation approach inwhich the Gram-chalier series is used to represent the equivalent loadduration curve which is the basis of the probabilistic costing methodology.

A.4 PCCM: (EDF program) The marginal cost calculation program.This program is an annual simulation model for any electrical

system described by:

- a given demand described by an annual load curve;- a periodic amount of hydro energy divided in two parts: one part

used at the optimal time, and another part used uniformly duringthe period;

- a fixed generation unit structure;- a cost for unserved energy (cost of power shortages).

The PCCM model simulates the operation of the generating plants in merit orderto minimize the annual operating and shortage cost. It runs week by week,using a weekly load duration curve described by a maximum of ten steps andgives for each step of each week:

- the energy produced by each type of generating unit;- the average generation and shortage cost;- the marginal cost;- the loss of load probability.

- 124 -

Annex 4.5Page 2 of 2

A.5 LDISP: This program is used to compute generation systemoperation and production cost, in addition to tho monthly simulation of loaddispatch for various years.

The only software package that can be considered a completeoptimization program is the WASP model, while the others are production costsimulation programs.

Regarding transmission expansion optimization, the softwareavailable to JEA is ERACLES, a group of programs for assessing the suitabilityof transmission expansion schemes preselected by the planner.

B. Hardware

B.1 PKrsonal ComRuters

- Multitech personal computer with 640 kb of main memory, and 20 Mbof auxiliary memory (hard disk).

= IBM personal computer with 512 kb of main memory, and 70 Mb ofauxiliary memory (hard disk).

= AST personal computer with 640 kb of main memory, and 70 MB ofauxiliary memory (hard disk) with math coprocessor and colormonitor.

B.2 Mini Comnuters

VAX computer, model 8530 with a 32 MB core memory (32 bits perword, 8 bits per character) and 4.3 Gb virtual memory.

Microtomputer VA, model 2000 with 6 Mb of memory and I/O port.

- 125 -

Annex 4.6

JORDAN - ENERGY STRATEGY REVIEW

Total OQeration and Investment Cost(In Constant January 1989 US$ Million)

Base Case Variant Case (Natural Gas Scenario)Operation Investment Operation Investment

Year Cost za Cost /b Cost /a Cost /b

1989 116.8 - 128.11990 124.6 - 132.61991 132.3 - 137.4 6.21992 139.0 26.6 142.0 65.81993 131.8 24.4 127.7 6.21994 130.9 72.3 134.2 60.01995 136.2 75.7 125.0 60.01996 138.6 44.5 118.4 60.0 L1997 144.2 53.0 114.9 60.01998 149.4 47.0 111.5 60.01999 157.5 72.3 111.2 53.82000 161.3 75.7 110.1 6.22001 167.6 44.5 114.3 53.82002 174.2 50.5 115.0 6.2 :2003 179.1 22.7 119.9 12.02004 187.9 - 122.1 -2005 193.1 - 127.-

Total 2,564.4 609.0 2,091.7 564.0

Grand Total 3173.4 2655.7

/a Includes fuel, operation and maintenance, and energy not served costs.Xb Cash flow, including interest during construction.

- 126 -

Annex 4.7

JQRDAN - ENERGY STRATEGY REVIEW

Lxisting Electricity Tariff Structure a(November 1988)

A. Bulk Tariffs

Maximum Demand LcCustomer Chrge _ Day kWh Rate Night kWh Rate

(JD/KW/month) (Fils/kWh) (Fils/kWh)

JEPCO 2.4 19.0 9.47IDECO 2.4 19.0 9.47Large Industry 2.4 16.0 12.00

B. Retails Tariffs

First Block Second BlockConsumer Category UD to 160 kWh/month Over 160 kWh/month

(Fils/kWh) (Fils/kWh)

Domestic and Institutions 28 52Broadcasting and TV 38 38Commercial 46 46Hotels 24 24Small Industry (up to 200 kW) 32 La 22.5 /bStreet Lighting _ - -

Maximum DemandCharge Day kWh Rate Night kWh Rate

Customer (JD/KW/month) (Fils/kWh) (Fils/kWh)

Medium Industry Lf 3.05 19.0 13.00(above 200 kW)Water Pumping - 21.0 21.00Agriculture 23.0 23.00

/a For consumption of up to 2,500 kWh/month./b For consumption of over 2,500 kWh/month./c Monthly maximum demart is based on a 3 hour peak period to be defined

annually by the Minister.d 13 fils/kWh for consumption above 1988 average levels (except for new

villages) Exemptions levels for new areas connected will be specified bythe Minister.

/e Discounts are provided as follows: (i) electricity industry employees 75Xand places of worship, government schools, hospitals and charities 25X.

If Alternative flat rate tariff for medium industry is 24 fils (subject topower factor penalties).

- 127 - ANNEX 4.8

JORDAN ELECTRICITY AUTHORITYINCOKE STATEMENTS FOR THE YEARS ENDED

DECEMBER 31, 1988-1998(JD cOOs)

Actual Projected1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1Q98.... .... . .... .... . ... . .... . .... .... . . .... .... ........ ..... ..... ..... .....

Generation GUH 2,860 3,077 3,263 3,460 3,673 3,931 4,167 4,405 4,646 4,884 5,128Sales GUH 2,570 2,767 2,935 3,115 3,310 3,544 3,753 3,978 4,204 4,38L 4,605Average Revenues - FILS/KUN 22.02 21.24 24.40 24.20 24.22 24.23 24.18 24.16 24.15 24.28 24.30

Operating RevenuesElectricity Sales KUH 46,507 48.197 60,627 63,909 67,960 72,878 77,212 82,031 86,884 91,317 111,902ElectrIcity Sales MD 10,082 10,584 10,977 11,469 12,219 12,990 13,526 14,071 14,643 15,174 15,932Other Revenues 923 926 1,046 1,532 i,532 1,532 1,532 1,532 1,532 1,532 ',532Total Revenues 57512 59707 72650 76910 81711 87400 92270 97634 103059 1080c3 129366

Operating ExpensesFuel and Lubric.nts 27,344 25,820 26,244 27,193 28,450 30,673 33,497 35,429 39,809 42,316 44,432Salaries and Was 5,705 6,304 6,900 7,383 7,900 8,453 8,899 9,557 10,226 10,988 11,537Maintenance 1,082 1,496 1,939 1,742 1,875 2,035 1,583 1,674 1,795 1,856 1,925Administrative 694 530 555 583 612 642 675 708 744 781 800Other 242 260 240 320 323 323 346 436 446 457 470Depreciation 10,657 11,627 12,107 12,178 12,228 '2,205 12,977 14,421 16,006 19,827 24,585IRBID Corpensation 2,000 2,180Met Pote Plant 130 325 213 276 306 268Total Operating Expenses 48,054 48,542 48,198 49,675 51,694 54,599 57,977 62,225 69,026 76,225 83,749

Operating Inrcome 9,458 11,165 24,452 27,235 30,017 32,801 34,293 35,409 34,033 31,798 45,617

Interest Experae 11,488 13,894 16,362 15,774 15,303 14,861 14,081 13,591 13,497 13,602 12,250Less Interest Chgd. to Constr 310 140 52 311 1,080 2,110 2,677 2.352 1,951 3,837 3,000Net Interest Expense 11,178 13,754 16,310 15,463 14,223 12,751 11,404 11,239 11,546 9,765 9,250

Foreign Currency Adjustment 1,968 7,550 9,884 10,313 8,908 7,985 8,015 8,368 8,563 6.625 6,000

Net Income (3,688)(10,139) (1,742) 1,459 6,886 12,065 14,874 15,802 13,924 15,408 30,367

JEAIS12/7/89

- 128 - ANNEX 4.9

JORDAN ELECTRICITY AUtHORITYBALANCE SHEETS FOR THE YEARS ENDED

DECENBER 31. 1988-1998(JD 000s)

Actual Projected1988 1989 1990 1991 1992 19 3 1994 1995 1996 1997 1998.. .... ........................... .... ..... .... ..... --- .__..... ----

AssetsAssets in Service 294,050 319,8M8 328,510 332,517 336,559 337,959 363,668 454,835 465,979 478,345 793,345Less Accum. Depreciation 69,278 80,905 93,012 105,190 117,418 129,623 142,600 157,021 173,027 192,854 217,439Net Fixed Assets in Service 224,m 238,983 235,498 227,327 219,141 208,336 221,068 297,814 292,952 285,491 275,9G6work in Progress 20,954 16,445 19,640 27,534 52,589 84,363 92,195 36,965 72,117 115,664 129,827Total Fixed Assets 245,726 255,428 255,138 254,861 271,730 292,699 313,263 334,779 365,069 401,155 405,733

Other Long Term Assets 11,543 15,280 16,740 10,294 9,159 8,024 6,934 5,938 4,988 4,520 4,070

Current AssetsCash (1,686)C13,230)C18,400) (5,736) (727) 1,000 2,000 3,000 5,000 7,000 9,000Accounts Receivable - Elec. 11,741 12,093 13,339 14,000 15,000 16,000 17,000 18,000 19,000 20,000 21,000Accounts Receivable - Other 1,898 2,456 2,178 2.053 1,478 1,382 1,294 1,142 1,027 521 500Ir.entories 18,844 15,133 14,942 19,401 19,700 19,988 21,567 26,307 27,351 28,223 28,000Prepayments 1,296 1,296 1,311 862 2,077 3,634 3,999 1,263 3,042 5,126 4,000Total Current Assets 32,093 17,748 13,370 30,580 37,528 42,004 45,860 49,712 55,420 60,870 62,500

Total Assets 289,362 288,456 285,248 295,735 318,417 342,127 366,057 390,429 425,477 466,545 472,303

LiabilitiesCapital 75,204 75,204 83,204 91,204 96,204 96,204 96,204 96,204 96,204 96,204 96,204Retained Earnings 11,596 1,457 (285) 1,174 8,060 20,125 34,999 50,801 64,725 80,133 110,500Legal Reserve 2,661 2,661 2,661 2,661 2,661 2,661 2,661 2,661 2,661 2,661 2,661Rural Fund 6,551 6,532 6,089 6,068 6,047 6,026 6,005 5,984 5,963 5,942 5,921Total Equity 96,012 85,854 91,669 101,107 112,972 125,016 139,869 155,650 169,553 184,940 215,286

Other LiabilitiesLong Term Debt 124,122 110,512 101,623 109,000 118,440 147,439 134,403 127,001 160,249 186,125 161,315Consumer Contributions 16,629 16,890 17,521 19,121 20,221 21,321 22,421 23,521 24,621 25,721 25,821

Current LiabilitiesAccounts Payable 39,026 66,171 62,518 63,926 63,970 65,259 66,333 71,986 67,423 65,078 65,000Consumer Deposits 664 919 1,213 1,327 1,477 1,627 1,777 1,927 2,077 2,277 2,377Retentions 11,962 6,950 9,500 so 133 so 50 9,140 350 1,200 1,300Termination Reserves 947 1,160 1,204 1,204 1,204 1,204 1,204 .,204 1,204 1,204 1,204Total Current Assets 52,599 75,200 74,435 66,507 66,784 68,140 69,364 84,257 71,054 69,759 69,881Total Liabilities 289,362 288,456 285,248 295,735 318,417 361,916 366,057 390,429 425,477 466,545 472,303

JEABS12/7/89

- 129 - ANNEX 4.10

JORDAN ELECTRICITY AUTHORITYSOURCES AND APPLICATIONS Of FUNDS

FOR THE YEARS ENDED DECEMBER 31. 1988-1998(Jo 000s)

Actual Projected1988 1989 1990 1991 1992 1993 1994 95 1996 1997 1998.... .... . .... .... . .... .... . .... .... . .... .... . .... .. ..... ..... ..... ..... ..

Sources of Fundsoperating Income 9.458 11,165 24,452 27.235 30,017 32,801 34,293 35,409 34,033 31,798 45,617Depreciation 10,857 11,627 12,107 12,178 12,228 12.205 12.977 14,421 16,006 19,827 24,585Net Internal Sources 20.315 22,792 36,559 39,413 42,245 45,006 47,270 49,830 50,039 51,625 70,202Customer Contributions 2.252 261 631 1,600 1,100 1,100 1.100 1,100 1,100 1,100 1,100Customer Deposits 128 255 294 114 150 150 150 150 150 150 150Goverrinent Contributions 1,086 8,000 8,000 5,000Contractors Retentions (8,511) (5,012) 2,550 (2,500) 83 (83) 9,090 (8,790) 850Other 167 (19) (443) (21) (21) (21) (21) (21) (21) (21) (21Long-Tern'i Borrowings 18,804 17,393 30,611 43,452 45.869 63,350 21,365 27,104 72,267 56,960 5,190Increase/Decrease in Uork Cap. 25,984 36,333 (8,975) (31,036) (15,501) (29.281) 10,502 ;3,900) (26,712) (20,462) (4,771Total Sources 60,225 72,o0l 69,227 59,022 78,925 80.221 80,366 83,353 88,033 90,202 71,850

Applications of FundsConstruction Program 26,914 21,189 11,905 13,628 28,328 32,146 32,974 36,252 36,467 45,984 30,000Interest Chgd. to Construct. 310 140 52 311 1,080 2,110 2,677 2,352 1,951 3,837 3,000Total Construction 27,224 21,329 11,957 13,939 29,408 34,254 35.651 38.604 38,418 49,821 33,000

Debt ServiceAmortization 17,855 23,453 29,616 25,762 27,521 26,366 26,386 26,138 30.456 24,459 24,000Exchange Loss 1,968 7,550 9,884 10,313 8,908 7,985 8,015 8,368 8,563 6,625 6,000Interest Expense 11,178 13,754 16,310 15,463 14,223 12,751 11,404 11,239 11,546 9,765 9,250Total Debt Service 31,001 46,757 55,810 51,538 50,652 47,102 45,805 45,745 50,565 40,849 39,250

IRBID Compensation 2,000 2,180Other Assets 3,737 1,460 (6,446) (1,135) (1,135) (1,090) (996) (950) (468) (400

Total Applications 60,225 72,003 69,227 59,031 78,925 80,221 80,366 83,353 88,033 90,202 71,850

JEAS&A12/7/89

- 130 -

JORDAN ELECTRIC P2WER COIPANY ANNEX 4.11INCOME STATEMENTS FOR THE YEARS ENDED

DECEMSER 31, 1988-1998(JD 0008)

Actuat Projected1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

~~~~~. .... .... ..... .... ..... ... .. _ ..... _ .... --- .... ....

Sates GUW 1,298 1,350 1,419 1,506 1.580 1.656 1,703 1,770 1,835 1,858 1,913Average Revenue/KWH 34.15 32.87 39.28 38.80 38.79 38.65 38.97 38.86 38.75 38.92 38.62Operating Revenues

Etectricity Sales 44,333 44,374 55,736 58,436 61,285 64,004 66,358 68,776 71,110 72,316 73,876Other Income 1,247 1,247 1,834 1,889 1,945 2,004 2,064 2,126 2,190 2,255 2,323

Total Operating Expenses 45,580 45,621 5?,57 60,325 63,230 66,008 68,422 70,902 73,300 74,571 76,199

Operating ExpensesPurchased Pover 31,930 32,085 38,792 41,156 43,173 45,264 46,543 48,388 50,159 50,774 52,300Administrative Expenses 4,061 4,264 4,558 4,786 5,025 5,276 5,540 5,817 6,108 6,413 6,734Operating Expenses 2,034 2,231 2,454 2,699 2,969 3,266 3,593 3,952 4,347 4,782 5,260Provision for Employee

Termination 100 100 100 100 100 100 100 100 100 100 100Depreciation 3,121 3,1',2 3,499 3,879 4,200 4,580 4,988 5,449 5,910 6,299 6,671Corporation Tax 388 784 779 793 776 772 770 780 782 771Other Taxes 32 36 65 64 62 58 57 54 52 50 42Other Expenses 364 1,650 1,617 1,369 1,102 940 780 624 477 335 222

Total Operating Expenses 42,030 43,518 51,869 54.832 57,424 60,260 62,373 65,154 67,933 69.535 72,100Net Operating Income 3,550 2,103 5,701 5,493 5,806 5,748 6,049 5,748 5,367 5,036 4,099

Interest Expense 2,343 2,376 2,329 2,128 2,391 2,630 2,889 2,672 2,386 2,090 1,821Exchange Losses 577 2,180 2,361 2,360 2,388 2,112 2,158 2,074 1,962 1,924 1,264

Net Income 630 (2,453) 1,011 1,005 1,027 1,006 1,002 1,00. 1,019 1,022 1,014Statutory Reserve 104 101 101 102 101 100 100 102 102 101

JEPCO12-6-89

- 131 -

JORDAN ELECTRIC POWER COHPA4Y ANNEX 4.12BALANCE SHEETS FOR THE YEARS ENDED

DECEMBER 31, 1988-1998(JD GODs)

Actual Projected1988 1989 1990 1991 199 1993 1994 1995 1996 1997 1998

AssetsAssets in Service 75,197 80,820 91,445 98,762 106.677 116,553 125,592 137,793 146,756 155,681 163,767Less Accumulated Deprec. 22,504 25,656 29,155 33.034 37,234 41,814 46,802 52,251 58,161 64,460 71,130Net PLant In Service 52,693 55,164 62,290 65,728 69,443 74,739 78,790 85,542 88,595 91,221 92,637Work in Progress 287 300 300 300 300 300 300 300 300 300 300Total Fixed Assets 52,980 55,464 62,590 66,028 69,743 75,039 79,090 85,842 88,895 91,521 92,937

Investments 388 439 439 439 439 439 439 439 439 439 439

Current AssetsCash 356 145 145 145 145 145 145 145 145 145 145Prepaynyei- 39 100 100 100 100 100 100 100 100 100 100Accounts Receivable 8,740 9,600 11,129 11,589 11,474 11,927 12,320 12,723 13,112 13,313 13,573Inventories 6,352 6,461 6,319 6,200 6,200 6,200 6,200 6,200 6,200 6,200 6,200Total Current Assets 15,487 16,306 17,693 18,034 17,919 18,372 18,765 19,168 19,557 19,758 20,018

Deferred Debits 546 307 67Exchange Loss

Total Assets 69,401 72,516 80,789 84,501 88,101 93,850 98,294 105,449 108,891 111,718 113,394

LiabilitiesCommon Stock 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000Retained Earnings 5,335 2,597 3,608 4,614 5,641 6,361 6,457 6,556 6,674 6,779 6,874Long-Term Loans 22,859 24,459 30,180 34,695 37,158 40,931 42,580 48,280 50,286 51,929 52,327Exchange Losses 21,610 18,590 15,646 12,757 10,305 7,966 5,868 4,029 2,370 1,483

Current LiabilitiesAccounts Payable 14,088 17,770 17,527 14,587 13,516 13,664 15,277 15,585 15,880 15,982 16,237Dividends Declared 230 247 247 247 247 247 247 247 247 247 247Custoaer Deposits 7,008 7,608 8,208 8,808 9,408 10,008 10,608 11,208 11,808 12,408 13,008Accrued Taxes 338 784 779 793 776 772 770 780 782 771Totat Current Liabilities 21,714 25,625 26,766 24,421 23,964 24,695 26,904 27,810 28,715 29,419 30,263

Customer Contributions 7,459 8,178 8,740 9,264 9,750 10,197 10,607 10,979 11,312 11,608 11,868Medical Fund & Employee Term. 2,062 1,944 2,044 2,144 2,244 2,344 2,444 2,544 2,644 2,744 2,844Deferred Credits 546 307 67Rural Fils 426 405 384 363 343 322 301 280 259 238 217

Total LiabiLities 69,401 94,125 99,379 100,147 100,857 104,155 106,259 111,317 112,919 114,087 114,876

JEPCOBS12-6-89

- 132 - ANNEX 4.13

JORDA ELECTRIC POWE CWIPAMYSOURCES AND APPLICATIONS OF FUNDS STATEMENTSFOR THE YEARS ENDED DECENDER 31, 1988-1998

Actual Projected1908 1989 1990 1991 1992 193 1994 19Y5 1996 1997 1998

Sources of FundsNet Operating Incowe 3,550 2,103 5,701 5,493 5,806 5,748 6,049 5,748 5,367 5,036 4,099Depreciation 3,121 3,152 3,499 3.879 4,200 4,580 4,988 5,449 5,910 6,299 6,671Customer Contributions 620 719 562 524 486 447 410 372 333 296 260Customer Deposits 555 600 600 600 600 600 600 600 600 600 600Total Internal Sources 7,846 6,574 10.362 10,496 11,092 11.375 12,047 12,169 12,210 12,231 11,630

Less Debt ServiceInterest Expense 2,343 2,376 2,329 2,128 2,391 2,630 2,889 2,672 2,386 2,090 1,821Amortization 2,062 2,136 3,120 3,043 2,667 2,545 3,501 3,473 3,425 3,468 3,017Exchenge Losses 577 2,180 2,361 2,360 2,388 2,112 2,158 2,074 1,962 1,924 1,264Total Oebt Service 4,982 6,692 7,810 7,531 7,446 7,287 8,548 8,219 7,7m 7,482 6,102

Net Internal Cash Generation 2,864 (118) 2,552 2.965 3,646 4,088 3,499 3,950 4,437 4,749 5,528

Less Working Capital Change 2,552 (2,690) (641) 1,759 (624) (M9) (1,992) (677) (732) (740) (857)Other Asset Change 179 141Dividends 906 900 900 900 900 900 900 900 900 900EmpLoyee Reserves 132 167 100 100 100 100 100 100 100 100 100

Net Internal Sources (905) 1,974 2,193 206 3,270 4,081 4,451 3,627 4,169 4,489 5,385Long-Term Borrowings 6,706 3,736 8,841 7,558 5,130 6,319 5,149 9,173 5,431 5,111 3,415Total Sources of Funds 5,801 5,710 11,034 7,764 8,400 10,400 9,600 12,800 9,600 9,600 8,800

Applications of FundsConstruction Program 5,801 5,710 11,034 7,764 8,400 10,400 9,600 12,800 9,600 9,600 8,80C

JEPCOFS12/7/89

-i33 - ANNEX 4.14

IRBID DISTRICT ELECTRICITY CON PANYICNCOE STATEEINTS FOR THE YEARS

ENDED DECEMBER 31, 1988-1998(JD 000s)

Actual Projected1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Sales in GWN 319 335 352 375 378 395 412 431 453 460 479Average Revenue/KWH Sold 28.61 28.61 36.53 36.43 40.00 40.78 41.48 42.17 42.89 44.12 46.00Operatirng Revenues

Electricity Sales 9,311 9,584 12,857 13,661 15,122 16,110 17,090 18,176 19,429 20,293 22,035Other Income 349 349 400 410 420 430 460 450 460 470 480Total Operating Income 9,660 9,933 13,257 14,071 15,542 16,540 17,530 18,626 19,889 20,763 22,515

Operating ExpensesPurchased Power 7,845 8,065 8,120 8,753 9,962 10,485 11,000 11,613 12,300 12,548 13,125Administration 115 115 122 128 132 136 141 148 154 160 166Operation and Maintename 2,054 1,996 2,256 2,339 2,473 2,816 3,189 3,614 4,098 4,619 5,277Depreciation 886 1,095 1,190 1,279 1,365 1,454 1,545 1,634 1,726 1,804 1,886Taxes 122Total Operating Expenses 11,022 11,271 11,688 12,499 13,932 14,891 15,875 17,009 18,278 19,131 20,454

Operating Income (1,362) (1,338) 1,569 1,572 1,610 1,649 1,655 1,617 1,611 1,632 2,061Less Interest Expense 459 618 867 870 908 952 9'5 1,004 1,041 1,077 1,124

Exchange Losses 364 575 672 672 672 667 650 583 540 525 475

Net Income (2,185) (2,531) 30 30 30 30 30 30 30 30 462

Compensation from JEA 2,000 2,230

IRBIDIS12/7/89

- 134 - ANNEX 4.15

IRBID DISTRICT ELECTRICITY COMPANYBILANCE SHEETS FOR THE YEARSENDED DECEMBER 31, 1988-1998

(JO 000s)

Actual Projected1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998.... ..... -- .... ..... . ..... . ... .... .... ----. .. ..

AssetsPlant in Operation 24,943 27,125 29,156 31,255 33,383 35,556 37,651 39,688 41,695 43,658 45,603Less Depreciation 7,495 8,590 9,780 11,059 12,424 13,878 15,423 17,057 18,783 20,587 22,473Net Plant 17,448 18,535 19,376 20,196 20,959 21,678 22,228 22,631 22,912 23,071 23,130Work in Progress 2,315 2,315 2,315 2,315 2,315 2,315 2,315 2,315 2,315 2.315 2,315Total Fixed Assets 19,763 20,850 21,691 22,511 23,274 23,993 24,543 24,946 25,227 25,386 25,445

Current AssetsCash 340 300 200 150 300 300 400 400 450 450 500Accounts Receivable - Elec. 1,236 1,103 1,269 1,352 1,363 1,424 1,485 1,554 1,633 1,659 1,727Accounts Receivable - Other 830 872 916 962 1,010 1,061 1,114 1,170 1,299 1,290 1,355Inventories 3,502 2,398 2,362 2,527 2,427 2,579 2,734 2,882 3,024 3,164 3,299Prepayments 199 122 122 122 122 122 122 122 122 122 122TotaL Current Assets 6,107 4,795 4,869 5,113 5,222 5,486 5,855 6,128 6,528 6,685 7,003

Total Assets 25,870 25,645 26,560 27,624 28,496 29,479 30,398 31,074 31,755 32,071 32.448

LiabilitiesEquity - Capital 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000Retained Earnings 1,046 745 775 805 835 865 895 925 955 985 1,015EmpLoyee Termination Res.Consumer Contributions 4,049 4,197 4,350 4,509 4,675 4,848 5,027 5,188 5,331 5,456 5,563Goverrument Equity 587 303 150 50TotaL Equity 8,095 8,529 8,428 8,46 8,560 8,713 8,922 9,113 9,286 9,441 9,578

Long-Term Borrowings 11,174 11,745 12,089 13,020 12,796 13,527 13,565 13,595 14,029 15,914 16,319Exchange Losses 2,806 2,159 2,597 2,770 3,184 3,438 3,891 4,119 3,956 2,011 1,536

Current LiabilitiesShort-Term Loans & Other 1,551 850 800 850 900 925 950 975 1.000 1,025 1,075Accounts Payable 970 994 880 950 1,013 1,081 1,154 1,235 1,326 1,401 1,450Consumer Deposits 1,274 1,368 1,466 1,570 1,679 1,795 1,916 2,037 2,158 2,279 2,400Total Current Liabilities 3,795 3,212 3,146 3,370 3,592 3,801 4,020 4,247 4,484 4,705 4,925

Total Liabilities 25,670 25,645 26,260 27,624 28,132 29,479 30,398 31,074 31,755 32,071 32,358

IRBIDBS12/7/89

- 135 - ANNEX 4.16

IR8ID DISTRICT ELECTRICITY COMPAUYSOURCES AND APPLICATIONS OF FUNDS

STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1988-1998(aD OOs)

Actual Projected1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998.... .... . .... .... . .... .... . ---- .... . .... .... . .... .. ...........

Sources of FundsOperating Income (1,372) (1,338) 1,569 1,572 1.610 1,649 1,655 1,617 1,611 1,632 1,629Depreciation 886 1,095 1,190 1,279 1,365 1,454 1,545 1,634 1,726 1,804 1,886JEA Compensation 2,000 2,230Internal Sources 1,514 1,987 2,759 2,851 2,975 3,103 3,200 3,251 3,337 3,436 3,515Customer Contributions 545 148 153 159 166 173 179 161 143 125 107Customer Deposits 99 94 98 104 109 116 121 121 121 121 121Total Internal Sources 2,158 2,229 3,010 3,114 3,250 3,392 3,500 3,533 3,601 3,682 3,743

Long-Term BorroNing 2,114 1,353 1,226 1,777 1,282 1,433 958 970 1,400 2,883 1,435Goverr,ment Equity 587 (284) (153) (100) (50)Changes in Working Capital (252) (12) 440 (251) 125 (101) 182 61 (447) (2,002) (604)

Total Sources of Funds 4,020 4,157 4.392 4,487 4,557 4,674 4,640 4,564 4,554 4,563 4,574

Applications of FundsConstruction Program 2,180 2,082 1,931 1,999 2,028 2,077 1,995 1,937 1,907 1,863 1,845interest Chsrged to Constr. 135 100 100 100 100 IC 100 100 100 100 100Total Construction 2,315 2,182 2,031 2,099 2,128 2, i 2,095 2,037 2,007 1,963 1,945

Debt ServiceAmortization 882 782 822 846 849 882 920 940 966 998 1,030Exchange Losses 364 575 672 672 672 667 650 583 540 525 475Interest Expense 459 618 867 870 908 952 975 1,004 1,041 1,077 1,124Total Debt Service 1,705 1,975 2.361 2,388 2,429 2,501 2,545 2,527 2,547 2,600 2,629

fotal Applications of Funds 4,020 4,157 4,392 4,487 4,557 4,674 4,640 4,564 4,554 4,563 4,574

IR8IDS&A12/7/89

JORDAN

Energy Sector Study

Background PaRer 5

Renewable Energy

Table of Contents

Page No.

Resources . ...................................................... 136Ongoing Activities in Renewable Energy ......................... 136Proposed Action Plan ........................................... 140Efficiency of Use of RES ....................................... 140Selection of Materials ......................................... 140System Design .................................................. 141Efficient Use .................................................. 142

- 136 -

JORDAM

Energy Sector Study

Background Paper 5

Renewable Energy

A. Resources

5.01 Solar energy. Jordain is endowed with a high. radiation intensityaveraging 5 to 7 kwh/m2. This is one of the highest intensities recordedanywhere in the world. Jordan offers an excellent solar regime for deployingphoto voltaic and low to high temperature solar thermal systems for power r

generation. A total capacity of 30 MWe of solar generating capacity could beadded over the next ten years which would save about 4X of the fuelconsumption in Jordan.

5.02 Wind energy. Jordan has a potential wind regime suitable forelectricity generation and direct water pumping. It is estimated that about21 to 3% of total fuel consumption in Jordan can be substituted by wind energygeneration.

5.03 Biomass. Recent studies by MEMR show that biogas from animal anddomestic wastes can substitute for about 41 of imported fuel, equivalent to130,000 toe per year at a cost of US$20 million. Biogas production offersgreat potential to energy deficient and isolated areas in Jordan. Biogasproduction also has the advantage of alleviating pollution to the environmentand minimizing health hazards resulting from the handling of animal wastes.

B. Ongoing Activities in Renewable Energy

5.04 Jordan has made considerable progress in assessing its renewableenergy potential through several ongoing activities. Most of the Research andDevelopment (R&D) work is concentrated at the Royal Scientific Society (RSS)and in the department of renewable energy at MEMR. Ongoing activities insolar energy include R & D work in the areas of solar radiation measurement,solar water heating, solar desalination, photovoltaic, and passive systems.

5.05 Solar Water Desalination. A pilot research plant was constructed atthe solar energy experimental station in Aqaba through a West German bilateralprogram. It is a solar-assisted desalination system which employs heat pipecollectors and desalinates on an average about 50 gallons/day of sea water.The pilot research plant completed its evaluation by studying the behavior andperformance of the system and also undertook a comparison of the heat pipeprinciple method of water desalination with that of the solar stills. The RSSstudy found that the output of solar stills was much higher than that of theoriginal heat pipe system design.

5.06 The Solar House. A project was carried out jointly by RSS and theKuwait Institute of Scientific Research (KISR) to conduct research on solarspace heating and water heating, studying the various solar heating systems,

- 137 -

solar collectors, storage systems and auxiliary systems. This project alsocarried out the economic feasibility of a solar house and maintenance ofintegrated efficiency at 22%.

5.07 Solar Water Heating (SWH). Jordan has a well-developed industry inSolar Water Heating (SWH). The use of solar water heating systems forproviding domestic hot water, and in a few cases space heating needs, hassteadily increased in the past few years. At present, a total of 100,000(SWH) units (approximately 26% of household units) have been installed inJordan. Currently, over 50 manufacturers are producing hot water systems inthe country. The industry has a capital outlay of about US$5.0 million,employs over 500 technicians, and has an annual production capacity of about,ie million square feet of collector area (equivalent to about 28,000household units).

5.08 MEMR plans to increase the use of the SWH to reach 50X of thehousehold units by providing financial incentives to SWH-user households andimprove the life expectancy of SWH units by standardizing the efficiency ofSWH manufacturing units. The establishment of a solar heatering fund is understudy: users would be entitled to get an interest free loan to be paid back byrealized fuel savings provided the system is purchased from a qualifiedmanufacturer. The standardization of SWH systems and the strict enforcementof standard specifications are currently being monitored by MEMR/RSS throughEnergy Advisory Centers.

5.09 MEMR and RSS are jointly working on a project to deal with theproblems of corrosion, salt deposits and dust accumulation experienced in theusage of SWH. MEMR has developed a manual to assist in the proper selectionof materials as well as developed a "solar wheel" to assist manufacturers andusers in correctly sizing solar heating systems. MEMR's technical evaluationshave established that, to be cost effective, solar heaters should meet threerequirements: (i) SWH unit cost should not exceed US$450; (ii) the averageefficiency should be maintained at 30X; and (iii) the average lifetime of asolar heater should be at least 15 years. Assuming an average lifetimeefficiency of 301, total fuel saving for the already installed SWHs areequivalent to 62,000 toe per year resulting in an estimated annual saving offoreign exchange of about US$10 million. Should the efficiency be doubled,the realized fuel savings would be doubled to 124,000 toe, or US$20 million inforeign exchange savings, representing 41 of current fuel consumption.

5.10 Photovoltaic applications include photovoltaic water pumping systemsin isolated areas and photovoltaic power units to operate radio telephonesystems in rural and remote desert locations. Water pumping in areas isolatedfrom the national electric grid is achieved by diesel powered engines. Mostremote areas have relatively high yearly average solar radiation and the needfor water is usually higher in summer at a time the photovoltaic (PV) systemworks at its maximum efficiency. PV systems provide a cost effective sourcefor water pumping and substitute Eor diesel. RSS, under a contract with theJordan Water Authority, has completed the design and erection of five pumpingsystems. Four of these systems have been in operation for three years. Thefifth PV system has been newly installed and is still under evaluation.Yearly yield results of pumping from the first four systems are verytncouraging and design improvements should increase the efficiency of thesystems.

- 133 -

5.11 Individual Anplication of Photovoltaic Systems is being carried out incooperation between the RSS and the German Agency for Technical Cooperation(GTZ). The project has the objective of developing photovoltaic systems foruse in remote and isolated areas to meet the minimum electricity requirementsfor selected purposes such as clinic refrigerators, electric lighting,educational television and emergency telephones. Successful development ofsuch PV systems in Jordan will certainly improve the living conditions of thepeople living in remote areas. Other photovoltaic projects include: (a) a PVproject at the train station Fayan to provide electricity for the transmitterreceiver equipment. (The PV system replaced two diesel-powered generators andmeets the requirements of a daily energy load cf 6.24 kws day; and (b) a PVproject on the Dead Sea to provide electricity for the radio equipment tocontrol the direction of the potash harvestin,; engines owned by the ArabPotash Company Ltd. (The PV system was designed to supply a daily energy loadof 840 kwh day).

5.12 Jordan has a potential wind regime suitable for economic powergeneration. The wind farm in Jordan (4 wind turbines X 80 kw each) financedfrom the World Bank Loan 2371-JO has produced significant results in that themicrosite plays a dominant role in establishing the techno/economicfeasibility of wind-power generation. Over a distance of 300 meters, thesouthern most wind turbine produced ";X more power than the wind turbinelocated in north. The field experience also established the need for regularservicing and skilled technicians. A wind atlas currently under preparationshouild be ready by July 1989 to enable the selection of other sites for wind-power generation. The data have been acquired using advanced measuringequipment which takes measurements every two seconds to identify microsites.

5.13 In addition to the potential of power generation for grid connections,stand-alone systems are being studied for remote areas and in collaborationwith interested local pa-ties. A study to determine the possibility of localmanufacturing using locally developed designs and locally produced material.to establish the techno-economic feasibility of those of wind energy isunderway.

5.14 The use of wind energy for water pumping is currently being studied incollaboration with the Ministry of Agriculture. A survey is being conductedto assess the potential of wind-water pumping applications. A joint RSS/GTZproject to introduce wind energy technology in Jordan for water pumping iscurrently under implementation. This project will also determine thepotential application of wind energy technology for pumping from shallow anddeep wells and study its technical and socio-economic aspects.

5.15 Biogas. Recent studies by MEMR show that biogas from animal anddomestic wastes can save up to 4X of imported fuel, i.e., almost 130,000 toeper year. Table 5.1 shows the potential use of biogas in Jordan. Ongoingactivities ir biogas utilization are limited to gathering the data andstudying the experience of other countries, such as China and India, in theutilization of biogas as a source of renewable energy. Ongoing studies arecurrently underway to select a suitable biogas system for Jordan; a pilotproject will be mounted to make any necessary adjustments to the system beforea policy for biogas utilization is adopted.

- 139 -

JORDAN

ENERGY SECTOR STUDY

TABLE 5.1

POTENTIAL OF 810-GAS PRODUCTION FRON ANIMUA ORGANIC NATERIALS IN JORDAN

: : : :s : :TOTAL ENERGY PRODUCTION: : s 3 :- : - ::UNIT HNUNBER :FRESH WASTE :MOISTURE :DRY WASTE: TOTAL GAS

:CONTENTS : : PRODUCTION: 810-GAS : DIESIL TOE:~~~~~~~~~~~~~~~~~~~~~~~e AR-: --To- : -r--------,-

: Kg/HEAD :I ) : Kg/HEAD :N7/Ke/DAY :1f0tIMYEAR: ITON.: 1: : : : :: :/YEAR)

: -: : : - - :--: -- : - - -:CO: 34.60 : 12.00 : 80.00 : 2.40 : 0.26 : 6.80 3.40 : 3.46

:HORSE 3.20 : 6.00 : 80.00 : 1.20 : 0.25 0.35 0.18 : 0.18

:1CA1EL : 14.30 s 12.00 : 75.00 3.00 : 0.23 : 3.60 : 1.80 : 1.83 :

:SNEEP AND GOAT : 1636.00 s 0.75 : 68.00 : 0.24 s 0.20 : 28.60 : 14.30 : 14.57

: : - s s - s s - - ::-:- - sO-O! :LATRMNE :15782.00 : 0.05 : 60.00 : 0.02 : 0.47 : 53.60 : 26.80 : 27.31 :

92.95 : 46.48 47.3S :3 . - -- : - : .-:- --

- 140 -

5.16 Ongoing Activities in Renewable Energy consist of a set of separateprojects which are being undertaken mainly through bilateral assistance.These activities have resulted in access to excellent data, processingequipment, adequate laboratory facilities and a pool of competent staff tooperate them. In addition, Jordan's Research and Development efforts, inclose collaboration with the bilateral/multilateral agencies and governments,which are the leaders in RES technologies, have established Jordan as aregional center for testing, developing and dissemination RES applications.The proposed plan of action therefore, is based on Jordan's ability ta attractfunding from bilateral/multilateral sources for the further development anddissemination of RES systems.

C. ProRosed Action Plan

5.17 Realizinag tbe maximum contribution of renewable energy resources (RER)to the overall energy demand in Jordan requires the implementation of a planof actior: (a) to obtain all the available climatic data in an integratedmanrier; (b) to establish the efficiency of RES; (c) to improve the costeffectiveness of RES; and (d) to improve the rate of dissemination ofestablished and reliable RES.

5.18 Availability of Climatic Data. The effectiveness of RES depends onensuring that the systems conform to the climatic conditions so thatefficiency and longevity enhanced. The availability of reliable, recordedclimatic data and its retrieval for analysis for RES is a prerequisite fordesigning an efficient RES. Data on degrees of cloudiness, direct solarradiation, dust and corrosivity are important in the study of thecost-effectiveness of solar-electricity generation systems (SEGS). Likewise,wind data (including records of a number of years of wind velocity atdifferent time intervals, wind direction, the degree of matching betweenmaximum wind and speeds and peakloads, gusts, and the presence of corrosivematerials in the atmosphere) is also important. At present, there are severalagencies that have climatic stations for their own use. These include theWater Authority (WA), the Meteorological Department, and JEA. There is agreat need for correlation of data collected by different parties and for thepreparation of an integrated climatic data base in usable forms (such as acomprehensive solar and wind atlas using new technologies and satellitemapping). In addition, simulation models should be developed to enhance morein-depth analysis of climatic data.

Efficiency of the Use of RES

5.19 Having established the importance of climatic data to the efficientuse of RES, other factors influencing the efficiency of RES should beconsidered. These include the selection of materials, correct system designand more efficient use. These are discussed in more detail 'slow.

Selection of Materials

5.20 Renewable energy systems (RES) are made up of a host of materialswhich are quite often lacking in compatibility. Upon exposure to degradativeenvironments, such as intense solar radiation, high diurnal temperaturevariations, changeable wind directions, and a corrosive atmosphere,

- 141 -

incompatibility increases. The literature is enriched with examples toillustrate how incompatibility of materials resulted in significant reductionsof efficiencies of solar water heaters, wind turbines, biogas systems andother RES. In extreme cases tne concerned system was not functional at all inless than two years.

5.21 The climate prevailing in the mideast further complicates theselection of materials: intense solar radiation is needed to maximize theoutput of solar water heaters for instance. On the other hand, intense solarradiation deteriorates a host of materials used in solar water heaters such assealants, organic paints and plastic piping lowering the average lifetimeefficiency of the system. The importance of maintaining high efficiencies inlocations where the intensity of the renewable energy resource is highestbecomes evident.

Annual yearly sum ofenergy output - average annual system x radiation

(SWH) efficiency

Annual average output - Annual average system x yearly sum of(wind-power generator) efficiency (Cubic) wind

speed

5.22 It is extremely important that an Atlas of Energy Materials should bedeveloped in which the durability of materials under different climatic andenvironmental conditions is establi-hed. Careful selection of materials usedin manufacturing RES is of overriding importance. Wind-power generatorsrequire maximum wind speeds for the system to become cost-effective. Yet,should the wind keep changing directions, the wind turbines are put undercontinuous fatigue unless the selection of materials is done carefully. Thecombination of changeable winds of and corrosive pollutants leads topremature failure of materials, resulting in important reductions of overallsystem efficiency. The need for establishing an atlas for energy materialsis, thus, re-emphasized.

System Design

5.23 Assuming that materials have been correctly selected, these materialsshould be assembled in a correct design. There are many examples ofinstalling correct materials in faulty designs. For example, many SWHs havenot been designed so that the number of collectors matches with the size ofthe storage tank and the capacity of storage tank itself often does not matchwith water consumption. Optimal designs of biogas digesters and wind turbineshave not yet been perfected and are under continuous revision. An improveddata base would enable existing and promising designs to be assessed moreaccurately. The process of optimizing system design is constantly undergoingrevision and has not matured yet. The design of RES for a particularapplication is still a customized engineering assignment.

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5.24 The efficiency of wind-power generators is heavily dependent on thedesign of the wind turbine and its characteristics (cut-in speed, rated speedand cut-off speed). The overall efficiency is very much dependent on thedegree of matching between wind characteristics and the turbine designparameters.

Efficient Use

5.25 There are ample examples of RES being used inefficiently. Theseinclude covering SWH with laundry, failing to remove dust falling oncollectors resulting in important reductions of their ability to captureincident solar radiation (up to 30X), and growing plants on top of the solarcollectors. Inefficient use sometimes results from the unavailability ofspare parts or the lack of trained technicians. Even though removing dust,for example, does not cost money, this simple task is often neglected byowners of SWH. It is important, therefore, to establish Training Centers sothat the benefits expected from RES can be realized.

5.26 In addition, the effectiveness of assessing the potential of RES isinfluenced by the cost effectiveness of adopting the system. MEMR haveundertaken the cost-benefit analysis of different types of RES systems andhave established a standardized procedure for the comparative economicevaluation of solar, wind and biogas and passive design RES systems. Theseprocedures have established that the biogas system and passive design are themost economic at US$0.04/kwh, followed by wind energy at US$0.06 to 0.12/kwh,water heaters at US$0.18 to 0.24/kwh, and photovoltaics at US$1.0/kwh. Theoverall economic evaluation has established that solar, wind and biomas RESshave the potential of substituting between 8X to 10% of total energyconsumption in Jordan by the year 2000. This would account for substitutingabout 300,000 to 400,000 toe, and valued at the present oil price of$15/barrel, would save about $30-40 million annually in fuel import costs.

5.27 The rate of dissemination of RES is very much dependent on userattitudes. Not only are users sceptical about new technologies, but they arealso unsure of the long-term performance of these systems and of themaintenance required to keep them operational. The establishment of EnergyAdvisory Centers in Jordan has gone a long way in removing users' doubts andthis is helping a great deal in promoting RES. NEMR's efforts to establishthe reliability of the system and to develop functional systems to ensure thatdemonstration projects assessed are ongoing. Only after the system'sreliability is established, should a dissemination policy for mass productionbe formulated.

5.28 Jordan has adopted an integrated approach to maximize the utilizationof RES resources in Jordan by using local material and knowhow. Mainparameters are field and laboratory testing, computer simulation, theprovision of training and advisory facilities, the establishment of a databank, and introduction of incentives. The interphasing among these parametersin the integrated approach adopted is shown in the chart below.

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JOlt)k

Enuri= Sectr -Studf

ChArt; ThMlementAtion 0f Total- Energy Svtem

Cli"Lic Data( Data Bank )

__,Coaxputer.aPLerzed Data Processing.and Analysis

|Evalu ation Procedures

LEconom ic

Eva A.u.t a -- =.0

Preliminary - yt., FEconomic Desiga TTeshicFeasibilitySt.udy for

No SEvaiili Individualcomponents tLb

ytoo Testinag

Partial Local Cost Trainging Di_Seinat,i ProJecttauCact.uring pt4migat,n Centers Policy ELa cutbo

. .. SizuXblot. . .~~~neg

- 144 -

5.29 Future Programs. A number of renewable energy projects have alreadybeen identified as a complement to those currently underway at MEMR/RSS andcould be implemented through the next 10-12 years. The projects currentlyplanned include: (a) design construction and implementation of a 30/MWe solarthermal power plant by a joint European-American consortium. Negotiations onthis project are in progress. The total cost of this project is estimated tobe around US$175 million and will be funded by US-European bilateral andprivate financing in the form of aid and grants. Jordan's contribution islimited to providing local manpower and materials besides its readiness topurchase the generated electricity at the realized fuel savings. The projectis expected to be operational by 1995. This is a demonstration project ofcommercial value. (b) the establishment of a wind park in Jordan financedunder the World Bank Loan (2371-JO) has attracted several offers from renownedinternational manufacturers of Europe and Canada, wishing to have their windturbines tested for their performance at the site. The manufacturers areoffering their turbines at a subsidized cost (50X) such that the remaining 50Xwill be paid back by Jordan from realized fuel savings (at 280-300 grams/kwh)at international fuel prices. The wind projects listed above are generally ofresearch, development and demonstration types. Given the evolving and sitespecific nature of solar-wind energy technologies, such preparatory projectsare almost invariably needed before large-scale projects can be embarked upon.

5.30 In conclusion, Jordan has followed a sound policy for renewable erergyresource assessment, development and dissemination. In view of itsdemonstrated success in the completion of several pilot projects in solar windenergy resource assessment; its capability to develop the basic information onclimates, materials, svstem design; and its ability to conduct standardizedcost-benefit studies for the selection of a RES system, and trainprofessionals to properly install and maintain RES systems, Jordan hasattracted the attention of leading international manufacturers of RES solarwind technologies. The selection of Jordan among 60 candidate countries forthe design, construction and implementation of a 30-mWe solar thermal powerplant by a joint European-American consortium has established Jordan as theregional center for solar-wind energy development and its dissemination.

JORDAN

Energy Sector Study

Background PaRer 6

Energy Conservation

Table of Contents

Page No.

Introduction .................................................. 145The Need for Energy Conservation ....................................I 145The Role of MEMR in Promoting Energy Conservation ................... 145Rational Pricing Policies ........................................... :145Free Audits .................................................. 146Legislation and Regulations ......................................... 147Incentives ................................................... :148Consumer Education .................................................. 148Advisory Services .................................................. 148Fuel Substitution .................................................. 149Barriers to Energy Conservation ....................................1 49

AINNEX 6.1 - Summary of the Findings of the Energy Auditfor Large Industries

ANNEX 6.2 - Summary of Energy Savings in some of the InstitutionsAudited by the Ministry

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JORDAN

Energy Sector Study

Background Paper 6

Energy Conservation

Introduction

6.01 An important element of Jordan's energy policy is to promote energyconservation efforts to improve energy efficiency and thereby reduce therelative impact of the oil import bill on balance of payments. This paperreviews Jordan's program for energy conservation thus far and examines aframework for follow-up efforts to encourage energy conservation.

The Need for Energy Conservation

6.02 The high economic growth rates of the seventies and early eightieswere accompanied even faster rates of growth in energy consumption. Between1974-84 the energy bill averaged about 13X of the gross national product (GNP)and consumed most of the foreign exchange earned by Jordan's exports. Theshare of oil in Jordan's overall imports was from around 5 in 1973 to around221 in 1984. Under these circumstances, GOJ considered improving theefficiency of energy use an important element of Jordan's energy strategy.The newly created Ministry of Energy and Mineral Resources (MEMR) in 1984, wasentrusted with the task of designing and implementing energy conservation inan organized effort to increase efficiency in the use of energy:

(a) reduce oil imports;(b) improve the environmental, consequences of energy production and use;(c) reduce the need for new investments in production facilities such as

refi--'ries and power stations;(d) optimie.. energy investment at the margin with a better return than

investment in energy supply; and finally(e) stagger energy investment in small increments over a longer period.

The Role of MEM. in Promoting Energy Conservation

6.03 Since early 1985, MEMR has setup a program aimed at encouragingthe conservation of energy and the application of sound energy managementprinciples in all sectors of the economy. The following elements wereemphasized in the program.

Rational Pricing Policies

6.04 The most important of these measures is an energy pricing strategywhich can provide energy users with an incentive tc eliminate energy waste andchoose fuels on the basis of their cost to the economy. In recent years,Jordan has recognized the central importance of pricing in designingstrategies to manage the energy sector and thus began to raise prices toreflect increased cost, for both electricity and petroleum products.Consequently, Jordan has adopted pricing policies which aim at removing

- 146 -

subsidies to the energy sector and eliminating the non-economic usage ofenergy. Consequently, the weighted average price of retail petroleum productsis set higher than its equivalent import parity level. However, theGovernment recognized the necessity of making energy available to the lowincome groun and to the export oriented industries at relatively lower ratesthan those available to the other groups, but even these retail prices reflectthe real cost without subsidies. Table 6.1 below shows a comparison ofdomestic petroleum products in Jordan in 1987 with some Middle Eastern andEuropean countries.

Table 6.1: Energy Prices in Jordan ComRared to Other Countries - 1987

Gasoline Gas Oil Fuel OilUS cent/litre US centZlitre USS/ton

Jordan 52 19 145Syria 25 7 -Egypt 15 4 17France 78 54 150Belgium 67 45 133Greece 50 28 180

6.05 It could be seen from the table that gasoline and fuel oil prices inJordan are almost equal to those prevailing in the European countries. But,the price of gas oil is lower in Jordan due to the fact that the gas oil isused by almost all economic sectors, including the export oriented industriesand the low income groups. However, prices of all forms of energy in Jordanare much higher than those prevailing in the region and continue to remainhigh, even after the one-third devaluation in the Jordanian dinar.

Free Audits

6.06 Free audits are provided to the small, medium and large industrial,commercial and transport institutions. To date, comprehensive energy audits,free of charge, have been made by the Ministry in more than 40 institutions inthe industrial and power-generating sectors, accounting for over 40% of thecountry's energy consumption. These audits have been concentrated in sixmajor industries. These include: oil refining, power generation, cement,fertilizers, phosphate mining and potash extraction. As part of the energyconservation program, MEMR, in cooperation with Bechtel International,undertook a study on energy saving in large industries. The main objective ofthis study was to identify and develop practical economic measures for energyconservation that the industries themselves can put into operation. Emphasiswas first given to measures involving operational improvements and requiringno capital expenditures. Between fifty and sixty measures have proven to becost effective. In total, these measures would save over 12/Gwh/yr ofelectrical energy and between 80,000-100,000 tons per year of fuel oil,depending on the plant throughput. This is equivalent to more than 2X ofJordan's oil consumption in 1987. Annex 6.1 shows a summary of the energysavings in each individual industry.

6.07 While Jordan's industrial sector is dominated by a few majorindustries, there are a large number (about 1,500) of small and medium-sized

- 147 -

industries, each employing 5 to 25 employees. Most of these industries are infood manufacturing, mining and quarrying, furniture and wood products, mineralproducts, machinery, and clothing. MEMR, employing its own team, carried outenergy audits in more than 20 of those industries and in about 10 largecommercial enterprises including hotels, hospitals, shopping centers, etc.The potential for energy savings ranges from 7X to 30X as shown in Annex 6.2.Paybacks under one year are the rule, not the exception. The measuresproposed as a result of the audits include:

- improved operating and maintenance techniques;- better housekeeping;- heat recovery from flue gases;- improved process control and combustion control;- fuel oil preheating;- substitution of gas oil by fuel oil;- improved thermal insulation;- improved lighting systems;- improved power factor; and- electrical load management (peak to off-peak).

6.08 The potential savings through broad application of these types ofmeasures in small and medium-sized industrial and commercial enterprises areestimated to be in the range of 1.5% of total oil consumption in 1987,amounting to about 45,000 tons of fuel per year and valued at about US$4to US$5 million per year.

6.09 MEMR, in cooperation with APME of France, has carried out acomprehensive study to improve energy consumption in the transport sector,which consumes about 401 of Jordan's total primary energy consumption. Thestudy covered three parts: issues related to (i) infrastructure, trafficmanagement, prices, types of fuel used by the sector, etc.; (ii) the economicfeasibility of establishing training centers to train drivers; and energyaudits of five of the large transport companies. It was found that between 5Xto 101 of the consumption of these companies could be saved after theimplementation of the recommended measures.

6.10 MEMR also conducted a household energy survey in 1986 to collectenergy data on the level and structure of energy consumption in the householdsector and to estimate the potential for energy saving. The collected dataestimated that the final energy demand in the household sector in 1986amounted to about 250,000 (TOE) in in the form of oil products, 770 GWh (or215,000 (TOE) in electricity, 7,000 TOE in solar energy, and about 200 TOE infirewood and agricultural waste. The survey found the lack of awareness ofenergy conservation measures the main obstacle to progress in energyconservation efforts in the household sector. The household survey estimatedthat between 51 to 151 of the household energy consumption could be saved withthe design and implementation of appropriate information campaigns to createconsumer awareness of the benefits of energy savings and with theestablishment of a chain of "Energy Advisory Centers" to provide consultativeand technical services to the public to promote energy conservation.

Legislation and Regulations

6.11 Regulatory measures are necessary to achieve energy saving programs.

- 148 -

Regulations covering a broad range of energy-related activities and equipmentsuch as lighting, space heating, insulation, cars, etc., were issued. Forexample, the introduction of progressive taxes on cars by size of engine,helped to achieve a flat gasoline demand from 1984 to 1986. However, thereare still some areas where the regulatory approach should be investigated.For example, the reporting of energy consumption data could be madecompulsory. Regulations shouled also be introduced in the factory licensingprocedures to ensure that the energy efficiency of a new plant is consideredcarefully by both owners and designers. Regulations could also be introducedto require all firms to have their equipment regularly checked for efficiency.

Incentives

6.12 Incentives include direct financial assistance (grants) for research,development and demonstration projects; and soft loans through the 1 idustrialDevelopment Bank for installing energy-efficient devices or equipment. Inthis regard, the ministry has cofinanced one demonstration project on passivesolar energy and another one for electrifying a remote village by solar cellsand for utilizing of wind turbines for water pumping in the same village.

Consumer Education

6.13 Consistent with its oblectives of minimizing the use of regulation andfinancial or fiscal incentives, the ministry has chosen to concentrate oninformation, demonstration and technology transfer activities as thecornerstone of its energy efficiency promotion strategy. Informationcampaigns are used to create awareness on the part of consumers of thebenefits of energy savings. The campaigns include brochures, pamphlets, TVfilms, general or specific seminars, etc.

6.14 Education also includes training programs be addressed to severaldifferent groups such as energy auditors, energy managers of enterprises,boiler operators and maintenance engineers.

6.15 Moreover, MEMR always tries to acquire a full selection of reports andtechnical data from developed countries related to energy efficiency in abroad range of institutions and makes these available, free of charge, to therelevant local enterprises. In addition to technical information, MEMR isbuilding a data base of energy consumption information provided from energyusers. This information should be analyz'.d to check on specific energyconsumption. Any variations in energy intensity should be noted, and theresult of these analyses should be sent to the factory concerned, withcomments and suggestions. The information developed in the course of audits,such as the magnitude of savings obtainable from specif'c energy conservationmeasures and their typical payback periods, will be entered in the data baseand used for the development of promotional literature.

Advisory Services

6.16 Energy users, either individuals or firms, may simply be unaware ofthe potential benefits of using energy more efficiently or of the technicaloptions available for doing so. The access to recently developed energyefficient equipment and techniques is limited, and as with any "new"technology; there is still considerable skepticism that significant

- 149 -

improvements in efficiency can really be brought about.

6.17 The ministry has decided to establish a chain of "Energy AdvisoryCenters" to provide consultancy and technical services to the public,including the introduction of new energy saving equipment.

Fuel Substitution

6.18 Fuel diversification or fuel substitution entails the saLift from theuse of only one form of energy to a variety of fuels or the shift from highervalue fuels to lower value fuels. An example is the shift from oil to coal ornatural gas. This shift usually results in improving the cost of energy tothe economy. However, oil substitution in Jordan, for a number of economic,geographical and resource reasons, cannot be considered in the same light asin industrialized countries. First, the country is located in the center ofthe Arab oil-exporting countries, and Jordan is interconnected with most ofthese countries with trade agreements which entail an exchange of goods andcommodities. Second, the infrastructure needed for coal or gas importsrequires huge amounts of investment which a country with limited financialresources, like Jordan, cannot afford.

6.19 Despite these constraints, MEMR has exerted a great deal of effort toconvince energy consumers to shift from using higher-value oil products likegas oil to lower-value oil products like fuel oil and to shift from usingelectricity for domestic water heating to using solar energy. Monitoring theresults by field surveys has indicated that the response of energy consumersis encouraging. Moreover, the first power station utilizing domestic naturalgas will be put into operation in early 1989. The power station consists oftwo gas turbines each of 30 KW capacity, and the gas comes from a small gasfield which has been discovered recently.

Barriers to Energy Conservation

6.20 The successful definition, implementation and management of an energyconservation program requires more than the mastering of the laws ofthermodynamics. Energy conservation programs usually require the integrationof many activities and the overcoming of a variety of obstacles, includingthe lack of top management support, inadequate decision making structure, alack of information, the lack of energy-auditing capabilities and theunavailability of funds. The most important barriers are:

(a) Low energy costs: When the energy costs represent only a smallpercentage of total production cost, it is obvious that the managementwill not pay attention to energy savings and instead will focus onother production factors. Fortunately, energy prices in Jordan arehigh enough that most energy savings programs could be cost effective.

(b) Lack of awareness of potential benefits: Energy management is arelatively new management function, and it is most important that thedecision-makers in the different energy-consuming enterprisesunderstand that energy can be managed as efficiently as labor, rawmaterials and finance. MEMR always tries to involve the decisionmakers in the energy consuming enterprises in seminars and providethem with information materials on the subject.

- 100 -

(c) Inability to define problems: Partly because of lack of awareness ofthe potential benefits of energy efficiency, there appears to be aninability in some enterprises to define energy-related problems and toidentify specific areas where savings can be made. A lack ofexperienced engineering personnel in the typical small enterprise isapparently a serious barrier to improvements, especially in theabsence of outside help.

(d) Inability to economically evaluate the technical options: Wherecapital investment may be involved, small-and medium-sized enterprisestend to lack the technical skills needed to examine the range ofoptions for improving energy efficiency and select the mostcost-effective solution for specific situation. Equally important isthe financial evaluation of potential conservation investments. If aplant owner cannot be convinced that an investment is financiallyattractive, he clearly will not invest his money. Engineers must betrained to present the case of energy efficiency in financial terms,including an appraisal of any risk factors involved. Many engineershave insufficient experience in financial matters. To achieve goodresults, an engineer should have a basic understanding of thefinancial situation in his company; he must be able to relate hisconservation ideas to the magnitude of profit that can be achieved bythe company.

(e) Lack of energy accounting in enteaprises: One reason for a lack ofawareness of the significance of the cost of energy in overallproduction costs is the failure of bookkeeping in small-and medium-sized enterprises to identify energy consumption as a separate "lineitem". Energy is viewed as just another overhead cost that has to bepaid at the end of the month. Owners, also, are often unwilling togive their employees any information about costs or other financialmatters. Without proper accounting of energy and distribution of costinformation to managers in an enterprise, effective energy managementis imposs.ible. MEMR is making efforts to promote the collection andanalysis of routine energy consumption data as a necessary conditionto improvements in energy efficiency; be a plant manager cannot beresponsible for controlling energy costs if he is ignorant of whatthose costs actually are.

6.21 The imolications of energy conservation programs on energy demand andenergy investment. Jordan's national energy program was put into applicationin early 1985. During the period 1985 to 1988, the energy consumption growthrate dropped to less than 3X. The rate of growth in electricity consumptionalso slowed down during the period. The drop in energy consumption primarilyreflects the slowdown in the rate of GDP growth and economic activity.Changes in economic structure, higher energy prices and the initiation ofenergy conservation efforts contributed to improving energy efficiency inenergy utilization and, consequently, in arresting increase in the energyintensity.

6.22 The decline of real energy prices in 1986 did not affect theimplementation of the energy saving program. In fact, the implementation ofthe energy conservation program and the increase in the price of oil products

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since 1985--despite the decline oil prices in the international market -- hashelped the energy sector become a major source of income to the Governmentsince 1985. The value of the oil products that have been saved due toimplementation of energy saving programs would amount to about 10-12 millionUS$/year. The impact of energy saving programs on the energy investment plancan be clearly seen: Investment in new power plants was postponed for abouttwo years; and the refining capacity, which was to be extended in 1993 to1995, will be sufficient, at least, to the year 2000 as a result of thereduced demand on oil products.

6.23 However, the results of the program will be seen more clearly in thecoming few years because of a time lag between the implementation of theconservation program and the impact on realized energy savings. Moreover,although what has been done is quite good by developing countries standards,there is still room for improvement in all energy-consuming sectors ingeneral, and in the transport and industrial sectors in particular. Jordanhas made a good start in developing and implementing energy-conservationprograms. The rationale for continuing to support energy conservationefforts, many of which are just beginning to be implemented, is threefold:

(a) the investments are usually small and cheaper than efforts to increasesupply. Most conservation programs remain economic even at presentand forecasted energy prices, a fact that underscores the goodpotential for increasing efficiency of energy use in Jordan;

(b) energy savings are particu' -ly valuable economic stabilization andstructural adjustment tools, because they impinge directly on Jordan'soil import bill and enable large capital investments in energy supplyto be delayed; and

(c) efficient energy use, in turn, raises productivity and strengthensindustrial competitiveness.

6.24 The major constraints to effective implementation of energyconservation efforts in Jordan are:

(a) the inability to identify attractive projects at the individual plantlevel;

(b) the lack of adequate technical know-how in implementing such projectsat the plant level;

(c) an inadequate financial and incentive framework; and

(d) the need for improving effective coordination of conservation policiesacross industry, transport, and household sectors.

6.25 A framework for the effective implementation of energy conservationmeasures should include:

(a) an appropriate macro-link by continuing to pursue rational energypricing policies; and

(b) efforts towards industrial diversification by (i) setting eu&qU

-152 -

input/output ratios for determining the choice of technology; (ii)eliminating structural inefficiency; (iii) encouraging shifts inindustrial output composition and improving export performance;(c) continuing to pursue follow-up energy audit measures; (d) improvelegislation framework for promoting energy rationalization; (e)formulating incentives to promote energy conservation by providingfiscal incentives and setting industrial norms, incentives andpenalties; and (f) establishing a framework of priorities forindustrial and transport sector conservation programs and preparing adated and monitorable action plan for the prioritized programs.

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JORDAN

Energy Sector tu_dy-

Summary of the Findings of the Energy Audit Studyfor Large Industries

Expected SavingDesign Capacity Saving at Present Capacitv

Industry 1.000 tonaear tpn/Aar USS 104year

Oil Refinery 39 26 2,600Power Plants 2 2 200Cement Plants 2 2 200Fertilizer Plant 20 13 1,300Phosphate Mining 34 34 3,400Steel Mills 4 3 300Glass Plant 6 4 400Potash 2 1 100

Total 109 85 8,500

- 154-

ANNEX 2

JORDAN

Energy Sector Study

Summary of Energy Savings in some of the institutionsaudited by the Ministxy's Team

Investment Savings X Saving PaybackPlant Reguired (USS '000/yr) Year (USS'O00)

Arab Pharm Man Co. 54 42 15 1.3Batteries Factory 21 30 9 <1Jordan Pipes Manufact. 60 75 30 <1Jordan Sewing and

Netting Inds. 60 75 11 <1Polystrene Factory 30 72 30 <1Flour Mills 9 24 7 <1Yeat Manufact. Inds. 12 33 15 <1Plastic Bags Inds. 2 7 7 <1Jordan Rock Wall 10 36 25 <1General Plastics Inds. 9 12 20 <1

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lah ~~~~~~~~~~~~~~PRODUCrION SHARINGAGREEMENTS

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\ | jJ Ma'an HUNT PHYSIOGRAPHIC AREAS\ ) / \ \ / E OCCUPIEO TERRITORIES

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ARAB SHARING AGREEMENT( tIl TI/ if RN tOlINI/GUS HUNT PRODUCTION AUGUST 1986REGYPT vi S/W RT SHARING AGREEMENT

EGYPT AqabPETROFINA PRODUCTION MARCH 1987aba ,JSHARING AGREEMENT

JNOC COOPERATION MARCH 1987AGREEMENT

2 O0 40 60 80 100 NRAPaAC COOPERATION NOVEMBER 1988GUIF OF ~~~~~~~~~~~~AGREEMENT( IAQABA AQAHA 36 kilometers 38'

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DIESEL AND GAS TURBINE POWER

)K f ~~~MAAN I ST1ATIONS IN OPERATIONGAS TURBINE POWER STATIONS

30 30

ARAB \ JQWEIRA )1 TAh TI D -0 66 kV IN OPERATION

REP. OF \ 0 Y / ,)f sE/UT / ~~~~~~~~~~~~~~IN OPERATIONRIR OF - UNDER CONSTRUCTION

EGYPT 4 t| t)le>ArA/ ALHEIEA OOPERATON 230 kV IN OPERATIONFORMER 400kV INTERCONNECTIONan or ~~~~~~~~LINE IN OPERATION

/ 2 r / O ~~~~~~~~~~IN OPERATIONJ / / [~~~~~~~~~~E UNDER CONSTRUCTION ENOCCtUPIED TERRITORIES

t | GUtF OF / o 3~~~0 40 60 ro 100AQABA I '

36 kilometen 38'

JULY 1989