Document of

The World Bank p G

FOR OFFICIAL USE ONLY

Report No. P-3300-RO

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMFm"

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

INVESTMENT BANK OF ROMANIA

WITH THE GUARANTEE OF

THE SOCIALIST REPUBLIC OF ROMANIA

FOR A

VIDELE/BALARIA ENHANCED OIL RECOVERY PROJECT

April 30, 1982

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

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CURRENCY EQUIVALENTS

Currency Unit: Leu (Plural Lei)

1. Conversion Rate for Traded Goods effective January 1, 1981

Lei 15.00 = US$1.00Leu 1.00 = US$0.07

2. Tourist Rate effective February 15, 1981

Lei 11.00 = US$1.00Lei 1.00 = US$0.09

Fiscal YearJanuary 1 to December 31

GLOSSARY OF ABBREVIATIONS

EOR - Enhanced Oil Recovery

IB - Investment Bank of Romania

ICPPG - Institute of Research and Design for Oil and GasProduction

Toe - Tons of Oil equivalent

TPB - Trustul Petrolului Bolintin (Bolintin PetroleumTrust)

ROMPETROL - Romanian enterprise for international economiccooperation in oil and gas

FOR OFFICIAL USE ONLY

ROMANIA

VIDELE/BALARIA ENHANCED OIL RECOVERY PROJECT

Loan and Project Summary

Borrower: Banca de Investitii (Investment Bank of Romania (IB))

Guarantor: Socialist Republic of Romania

Beneficiary: Bolintin Petroleum Trust (TPB)

Loan Amount: US$101.5 million (including capitalized Front-End Fee)

Terms: Repayable in 15 years, including a 3-year graceperiod through semi-annual installments. Interest at11.6 percent per annum.

Relending Terms: Relending to the Bolintin Petroleum Trust at 12.1percent per annum, repayable in 15 years including a3-year grace period. The Government would bear theforeign exchange risk.

Project Description: The project aims at reversing the recent sharpdecline in oil production at two important oilfields, Videle and Balaria by introducing an advancedenhanced oil recovery (EOR) technique, namely in-situcombustion. Use of this technique is expected toresult in increasing the ultimate oil recovery fromabout 15 percent under current techniques to about 39percent of the oil initially in place in thereservoirs. This would result in an annualincremental production, at full development in 1986,equivalent to roughly 10 percent of the country'scurrent net oil imports thereby saving some $0.2billion (1981 constant dollars) per year in foreignexchange. The project covers the 1982-86 portion ofa long term EOR program for the Videle and Balariaoil fields situated West-Southwest of Bucharest. Itconsists of: (i) drilling of about 910 new wells forair injection and oil production; (ii) constructionof 24 oil and gas separation centers nine of whichwill be equipped with water injection facilities;(iii) construction of a central oil treatment,storage and pumping facility similar to the existingfacility which will also be expanded; (iv)construction of a treatment facility for waterreinjected into the reservoir; (v) construction ofair injection facilities comprising five compressorstations; (vi) laying of approximately 1,300 km.

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

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of pipelines and flow lines for air and waterinjection, gas supply and fluid collection anddisposal; (vii) construction of power substations anddistribution lines, and treated water and steamsupply facilities; (viii) construction of about 50km. of main and 70 km. of access roads and fieldoffices and laboratories; (ix) laboratory and fieldmonitoring instruments; and (x) engineering andtechnical services. There are risks deriving fromthe heterogenous nature of oil reservoirs whichintroduce uncertainties in the prediction ofoperating results in EOR projects. However, in-situcombustion is an established commercial EOR techniqueand adequate provisions have been made in the projectto minimize operating risks.

Cost Estimates: 1/ Local Foreign Total---------- US$ Million ---------

Design, Engineering & Supervision 12.4 - 12.4Land Development & Roads 18.6 0.6 19.2Well Drilling 46.1 48.8 94.9Well Completion and Hook-up 33.0 18.4 51.4Compressed Air Supply 74.0 36.5 110.5Other Facilities 32.4 11.5 43.9

Base Cost 216.5 115.8 332.3Physical Contingencies , 25.4 13.4 38.8Price Contingancies 43.6 26.7 70.3

Installed Cost 285.5 155.9 441.4Incremental Working Capital 5.6 5.7 11.3Front-End Fee on Bank Loan - 1.5 1.5

Total Financing Required 291.1 163.1 454.2

Financing; Local Foreign Total----------US$ million----------

TPB Internal Funds 115.3 - 115.3State Funds 175.8 61.6 237.4IBRD - 101.5 101.5

291.1 163.1 454.2

Estimated Disbursement: ----------- US $ Million ---------IBRD Fiscal Year 1983 1984 1985 1986

Annual 46.0 37.4 13.5 4.6Cumulative 46.0 83.4 96.9 101.5

Economic Rate of Return: About 29 percent.

Appraisal Report: No. 3745a-RO dated April 30, 1982, Energy Dept.

1/ The project is exempt from sales and import taxes.

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO

THE BANCA DE INVESTITII (INVESTMENT BANK OF ROMANIA) (IB)FOR A VIDELE/BALARIA ENHANCED OIL RECOVERY PROJECT

1. I submit the following report and recommendation on a proposed loanto the Banca de Investitii (IB) with the guarantee of the Socialist Republicof Romania, for the equivalent of US$101.5 million (including the capitalizedFront-End Fee of $1.5 million) to help finance a Videle/Balaria Enhanced OilRecovery Project. The loan would have a term of 15 years, including 3 yearsof grace, with interest at 11.6 percent per annum.

PART I. THE ECONOMY

2. The first basic report on Romania (Report No. 1601-RO, "TheIndustrialization of an Agrarian Economy under Socialist Planning") wascirculated to the Executive Directors on April 20, 1978. An updating CountryEconomic Memorandum (CEM) was circulated to the Executive Directors on August20, 1980 (Report No. 2757-RO). An economic mission visited Romania inMay/June, 1981; its findings are included in this part of the report. Countrysocial and economic data are given in Annex 1.

A. Long-term Trends and Development Strategy

3. Over the past three decades, Romania has pursued a developmentstrategy designed to industrialize a primarily agrarian economy. The mainfeatures of this strategy have been (a) a high rate of investment; (b)development of a broad industrial base, with priority given to heavy industry;(c) development of local natural resources, including the reorganization andmodernization of agriculture; (d) balanced regional distribution of productionand incomes; and (e) training of a skilled labor force. This strategy hasbeen carried out through a system of comprehensive central planning andmanagement, guided by party and government authorities.

4. Romania's economic development since 1950 has been impressive,characterized by rapid economic growth and considerable structural change.According to official statistics, national income has grown in real terms atan annual average rate of about 9 percent. Per capita GNP in 1980 isestimated to have been $2,340. Investment has grown at even higher rates thannational income, as a result of which the share of gross investment in GNP hadrisen to about 34 percent in 1980. Industry, which grew at 11 percent perannum over 1970-1980, has been the driving force of economic growth, receivingaround 50 percent of investment, most of which has been allocated to thecapital goods industry. As a result, industry has become the leading sector,accounting in 1980 for about 62 percent of national income and for 36 percentof the labor force, compared with agriculture's 12 percent share of nationalincome and 29 percent of the labor force. With the transfer of labor fromagriculture to industry, the population has become increasingly urbanized.Standards of living have increased substantially, partly because of the growthof personal incomes and partly because of provision through the state budgetof expanded and improved education, medical services, housing and socialexpenditures of other kinds. Furthermore, Romania's integration into theworld economy has increased, as the level of trade has grown and itscomposition altered.

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B. Recent Economic Developments

5. During the last plan period (1976-80), the expansion of the Romanian

economy slowed perceptibly. The average annual rate of national income growthof 7.2 percent was below that of the previous plan period (11.3 percent), andgrowth decelerated, falling from 11.2 percent in 1976 to 2.8 percent in 1980.National income growth in 1981 is estimated to have been still lower, at 2.1percent. 1/ These changes reflect the emergence of a number of internal andexternal constraints, notably the pace at which improvements in productivityand efficiency can be attained; the ability of the economy to bring newcapacity into operation as planned and a successively growing shortage offoreign exchange, which in late 1981 developed into an acute liquiditycrisis. It should perhaps be noted that the very poor agricultural outturnboth in 1980 and 1981 contributed significantly to the low growth ratesrecorded for national income in these years.

6. Industry continued to be the leading sector of the economy. However,

the growth of gross industrial production also slowed down from an average of12 percent per annum during 1976 and 1977, to 6.5 percent in 1980. As in thepast, the growth of capital goods production exceeded that of consumer goodsand the fastest growing subsector was machine-building. The need to adjust tothe very tight foreign exchange constraint affected industrial productionsignificantly in 1981. As a result, industrial output grew by only 2.6percent in 1981. Gross agricultural production grew at a respectable averagerate of 6.1 percent during the plan period 1976 to 1980 2/, displayinghowever, large annual variations due to changing weather conditions. inparticular, in 1980 gross agricultural production fell by about 5 percent.Preliminary information indicate a further decrease by 0.9 percent inagricultural output in 1981.

7. As elsewhere, energy has become a critical sector for the Romanianeconomy. In the aftermath of the 1973 fuel price increase, an emergencydecree was issued, fostering domestic energy production and imposing cuts andstringent restrictions on industrial energy consumption. These steps werefollowed by further measures in 1977 and 1979, designed to conserve domesticoil and gas resources and expand use of domestic coal and hydropowerresources. To the same end, energy prices for both consumers and enterpriseshave been increased significantly in recent years. Total domestic primaryenergy production was virtually unchanged between 1975 and 1980; increases inproduction of natural gas, coal and hydroelectric power compensated for a 20%reduction in petroleum production. Primary energy imports (oil, coal andnatural gas) increased 2.5 times. This, together with the increasedinternational price of oil, has been the main reason for the deterioration in *

the foreign trade balance (see paragraph 10 below).

8. During the plan period 1976-80 investment fell about 7 percent shortof planned levels. The shortfalls occurred chiefly in industry where theplanned annual growth rate of investments of over 20 percent could not be met,partly because of the diversion of resources in 1977 to the repair ofearthquake damage. Industrial investment, in fact, grew by 11 percent a

1/ Data for 1981 are preliminary.

2/ Annual average growth rate for the whole plan period compared with annual

average for the previous (1971-1975) plan period.

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year--in itself a very respectable achievement. The shortfall in investmentin 1976-1980 was due mainly to domestic supply-related factors, in particular,capacity constraints of design institutes and, in the construction sector,shortfalls in the production of construction materials and production delaysfor domestically produced equipment. In contrast, the sharp reduction ininvestment in 1981, 7.3 percent according to preliminary estimates, isexplained by restrictive measures made necessary by the difficult externalsituation.

9. Changes in the level and distribution of employment accompanied thegrowth and structural change of production. The total labor force increasedby only 0.4 percent per year during 1976-80, but large intersectoral shifts inthe labor force continued. During the five year period, the agriculturallabor force fell from 38 percent to 29 percent of the total. The outflow fromagriculture, which is determined chiefly by the needs of non-agriculturesectors rather than the ability of agriculture to compensate for the lossthrough mechanization, h.s led to seasonal labor shortages; recourse has beennecessary to students and other groups to meet short term labor needs. TheGovernment recognizes that the transfer of labor has to slow down to avoidadverse effects on agriculture output, and is thus giving even greateremphasis to increases in labor productivity.

C. External Trade and Foreign Borrowing

10. In foreign trade, developments in the 1976-1980 plan period have beensubstantially different from and decidedly less favorable than those planned.The five-year plan envisaged growth rates of 13 percent per annum for importsand 18 percent for exports in real terms, aiming at a trade surplus whichwould allow the country to repay some of its foreign debt. During the1976-1980 plan period, in fact, imports is estimated to have increased at anannual average rate of 8.8 percent and exports of 5.3 percent in constantprices. This resulted in a sharply growing trade deficit which in 1980reached $1.6 billion, virtually all of it in the convertible currency area.On the import side, the deteriorating trade balance reflects rapidly risinginternational prices, especially for petroleum. Export growth was unable tokeep pace with import requirements, partly because of less favorable pricemovements in Romania's principal export markets. The insufficient growth ofexports is also explained by the vulnerability of Romanian exports to importdemand fluctuations and import policies of the receiving countries, and todifficulties in meeting design and quality standards and establishingmarketing policies essential to extend the foothold in highly competitiveproduct markets. Developments in 1981 represent a sharp break with earliertrends. Imports from the convertible currency area were reduced drasticallyby sharp reductions in investments. As a consequence, the trade balanceimproved significantly, resulting in a slight surplus of about $0.1 billion in1981.

11. The trade gaps together with rising interest payments led to acurrent account deficit in convertible currencies of $2.4 billion in 1980 andabout $0.8 billion in 1981. The deficit has been financed through increasedcapital inflows, with total medium and long-term debts rising from $2.8billion in 1975 to about $7.3 billion at the end of 1980 and about $8.0billion by end 1981. Most of the inflows have been suppliers credits and

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eurocurrency borrowings. The scale of term borrowing available to Romania hasnot been sufficient, however, to finance the current account deficit fully andthe Government had to resort to substantial short-term borrowing between 1977and 1980. The net inflow of short-term capital in convertible currencies wasparticularly large in 1979, $813 million, and by the end of 1980, outstandingshort-term debt had increased to $2.1 billion. This adversely affected thematurity profile of outstanding debt.

D. Development Prospects

12. The Five-Year Plan for 1981-85 was approved by the National Assemblyon July 2, 1981. The new plan gives priority to the completion of ongoingprojects. This is reflected in the new investment law, published in December1980, which includes measures designed to speed up project implementation.Production gains will come mainly from these projects as they come on stream,and from a generally higher utilization of existing capacities. Investment isthus planned to grow at lower rates than production. Overall growth targetsare, however, lower than the levels actually achieved in the preceding planperiod.

13. Special emphasis is placed on narrowing the energy gap through rapiddevelopment of domestic resources and through further savings in energyconsumption. The plan envisages: (i) stabilizing oil production at the levelof 13 million tons per year and natural gas at approximately the 1980 level;(ii) more than doubling coal production between 1980 and 1985; (iii)installing additional hydroelectric capacity for 2,500 MW. The implementationof the above program would result in an increase in domestic primary energyproduction of the order of 25 percent above the 1980 level. It would requiresuccessful implementation of the enhanced recovery program in oil production,some success in oil exploration and a massive mobilization of technical andmanpower resources for coal production. Energy savings are to be achievedmainly by giving more emphasis to less energy intensive investments togetherwith retrofitting and other measures to save energy in existing plants.

14. In the manufacturing sector priorities will shift from basic productssuch as steel or bulk chemicals for which adequate capacities already exist orwill come on stream in the next few years, to more sophisticated goodsincluding electronic equipment, special-purpose machine tools, specialtysteels and other high technology products. Light industry including foodprocessing, will continue to expand. A growing share of industrial productionis planned to be exported. Local industries are expected to manufacture mostof the capital goods required for the investment programs.

15. While industrialization remains the primary objective of the plan,agriculture will receive greater emphasis than in the past. The share oftotal investment for the agricultural sector will, however, be somewhat lowerthan in the previous plan period. Agricultural investment will shift towardincreased mechanization, drainage and higher fertilizer application as theprincipal means of increasing crop yields. With an improved feed base,livestock production is also planned to increase. Gross agriculturalproduction is expected to grow at an annual average rate of 4.5-5.0 percentover the plan period, lower than the actual growth (6.1 percent) during the

previous plan period. The additional output from agriculture would be partlyexported but would also allow higher consumption levels at home.

16. The strategy of the plan, which responds well to Romania's economicchallenges, is also reflected in the sectoral composition of the investmentprogram which gives greater emphasis to energy production and less to heavyindustry than realized in the last plan period. Total real capitalexpenditure is planned to grow by only 5.2 percent per year in 1981-1985compared with an achieved growth rate of 10.9 percent in 1976-1980. About 17percent of total investment in 1981-1985 is planned to go to the energy sectorcompared with about 12 percent in the previous plan; the volume of investmentin energy will be about 85 percent higher than during the previous plan.Investment in machine building is expected to grow little, and the metallurgysector will actually invest less than during 1976-80 since substantialadditions to capacity were initiated during the previous plan. Moderateincreases in investment are contemplated for agriculture, transport andhousing. However, provisions in the annual plans for 1981 and 1982 indicatethat investments in agriculture will get a significantly higher priority thanindicated by the five-year plan.

17. Another major element of the Government's strategy to eliminatepresent imbalances in the economy is an exchange rate and price reform, whichis designed to bring the structure of domestic prices into greater conformitywith prices on world markets. A first step in this direction was taken at thebeginning of 1981 when the exchange equalization fund was abolished and alimited number of discrete exchange rates were established for foreign trade.The immediate results of these reforms were a doubling of producer prices forenergy and an overall increase in industrial producer prices of about 13percent, taking into account both the increases in energy prices and theireffect on the prices of downstream products. These changes were followed byan adjustment of retail prices by 11.2 percent at the beginning of 1982.Additional steps to reduce the number of discrete exchange rates and theirspread were taken at beginning of 1982 and consequent changes in producerprices are in the process of being implemented. Further exchange rate andprice adjustments are expected in 1983 and 1984. By bringing domestic pricesmore into line with world market prices, many previously unprofitableactivities - especially in energy and raw material production - will againbecome profitable, thereby reducing the need for budget subsidies andencouraging the expansion of production and economizing on use of inputs. Thesimplification of the exchange rate system will allow world prices to bereflected more directly to users of imports and producers of exports. Thecloser alignment of domestic prices with relative resource costs as expressedin world market prices, should improve the general efficiency of resourceallocation, especially since profitability affects investment proposals madeby enterprises during plan formulation and, conveys information to the centralplanners about the relative efficiency of different enterprises, investments,and mixes of inputs and outputs.

E. Creditworthiness

18. With the large increase in the current account deficit and theassociated increases in external borrowing described in paragraphs 10 and 11above, debt service payments in convertible currencies (including interest on

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short-term credits) rose to $2.22 billion in 1981 or the equivalent of 27.5percent of gross convertible exchange earnings, increasing from 20.5 percentin 1979 and 23.5 percent in 1980. The deterioration of the current accountbalance up until the end of 1980, and the more negative evaluation of EasternEuropean countries in general as borrowers on the international capitalmarkets, have recently led individual bankers and suppliers, includingRomania's traditional banking and trading counterparts in the industrializedcountries, to reduce their exposure by curtailing short-term credit lines toRomania. The unexpected withdrawal of short term credits and the lack ofalternative financing has created arrears to suppliers and on bankersshort-term credit lines. Following these developments, the Romanianauthorities instituted proceedings for a rescheduling of debts due in 1982,and these proceedings are underway. Despite these short-term liquidityproblems, Romania's basic external position in the longer term looks moresound. The exchange and price reforms described in paragraph 17 above willhelp to contain future deficits and to keep the debt service burdenmanageable. The reform is supported by a three year stand-by agreement withthe IMF. Under this the Fund is prepared to lend up to SDR 1,102.5 million($1,356 million); part of these funds would be used to consolidate short-termdebts and part to build up the foreign exchange reserves. The program calledfor a reduction of the convertible current account deficit to $1.8 billion in1981 with further reductions in 1982 and 1983. Recent estimates indicate thatthe actual deficit in 1981 was reduced significantly to only slightly above$0.8 billion with a continued improvement expected in 1982. As part of theprogram, the rate of growth of domestic expenditure, especially on investment,will be sharply reduced compared with the past. The measures associated withthe price and exchange reform and possible future steps are aimed at enhancingexports and economizing on the use of imported inputs and on keeping thecountry's debt burden within manageable limits, thus preserving itscreditworthiness for medium-term and long-term borrowing.

PART II. BANK GROUP OPERATIONS IN ROMANIA

19. The proposed loan would bring total Bank commitments to Romania to$2,184.1 million for 33 loans in agriculture, industry, power and transport.Initially slow Bank loan disbursements have improved considerably since 1976,and the overall disbursement record for Romania is one of the best among theBank's active borrowers. Annex II contains a summary statement of Bank loansto Romania and notes on the execution of ongoing projects as of March 31, 1982.

20. Foreign exchange, especially in convertible currencies, continues tobe a major constraint. It remains one of the major objectives of Bank lendingto help alleviate the country's shortage of foreign exchange by providinglong-term external capital and by financing projects which will expand foreignexchange earnings or savings. The Bank has also assisted the Government tomobilize cofinancing for appropriate projects. The Bank helped to attractforeign commercial banks to provide $100 million cofinancing in August 1979for the Second Livestock Project for which a Bank loan of $75 million was madein April 1979. Also, syndicated cofinancing loans of $00 million in totalwere concluded for the Mostistea and Calmatui Irrigation and Drainage Projectfor which a Bank loan of $70 million was made in April 1979 and the ThirdLivestock Project for which a Bank loan of $85 million was made in January

1980. More recently, another $200 million syndicated cofinancing loan fromcommercial banks was concluded in January 1981 for the Danube-Black Sea Canalproject for which a Bank loan of $100 million was approved in April 1980.Through their contacts and subsequent negotiations with commercial banks, theRomanian authorities now appear convinced of the positive value of cofinancingin the form of financial credits, and have indicated their intention to seeksimilar arrangements for future Bank assisted projects.

21. Bank lending also aims at supporting the steps being taken by theGovernment to introduce new industrial technologies, to improve the quality ofproducts and production efficiency, to reduce production costs and to providefor necessary electric power development. Marketing, especially for exportgoods, is also emphasized. Special attention is given to agriculture whereproduction is still unnecessarily dependent upon weather and whereproductivity levels are still comparatively low. A number of further loansare under consideration, including loans for industry, power, regionalagricultural development, drainage and land reclamation, and port construction.

22. In addition to lending, the Bank (through EDI) has assisted Romaniaby conducting training courses on economic and financial evaluation andmethods of analysis in transport and industry. About 240 Romanian officialshave attended these courses, starting with an industrial projects course inBelgrade in 1973 and in Bucharest where the courses have been held annuallyfrom 1975 to 1980 in collaboration with a Romanian academic institution. Themethodologies taught in these courses are becoming more widely known inRomania and are expected for some projects to begin to supplement themethodology normally used by the Romanian planning authorities.

23. The projects, for which assistance has been committed or is beingconsidered, represent only a small portion of Romania's total need forexternal financing. However, they will provide a substantial net addition tothe inflow of convertible currency, and are helping to set a pattern forobtaining longer-term convertible finance from other sources. The disburseddebt outstanding to the Bank constituted 11.2 percent of Romania's totalconvertible currency debt at the end of 1981; the Bank's share in Romania'sdebt service payments in convertible currencies in 1981 was 5.1 percent.

PART III. PETROLEUM SECTOR

Background

24. Romania's energy situation deteriorated considerably in the lastdecade as the country's need for energy outgrew its domestic supply capacity.The increasing demand for energy was compounded by a sharp decline in domesticoil production since the mid-seventies, as well as by substantial shortfallsin targetted production of solid fuels, particularly lignite. Romania is oneof the oldest oil-producing countries in the world and one of the largestproducers of natural gas in Europe. Nevertheless, it became a net energyimporter in 1973 and a net oil importer in 1976, and will continue to be sothrough the 1980s. Net imports of energy in 1980 supplied some 20 percent ofRomania's domestic energy needs, while the oil import bill reached nearly $2.0billion, seriously draining the nation's foreign exchange resources. Under

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presently practiced recovery methods, production from Romania's existing oilfields (about 12 million tons in 1980) could be expected to decline by afurther 35 percent over the period 1980-85. However, the large investments inadvanced enhanced oil recovery (EOR) methods in these fields as well asincreased exploration activities, planned as part of the present Five-YearPlan, could potentially slow this otherwise rapid decline. Increasing energyproduction from non-petroleum resources, changing the structure of energy use,and implementing effective conservation measures are further means theGovernment plans to use to move the nation toward greater self-sufficiency inenergy.

Energy Context

25. Consumption. The consumption of primary energy in Romania increasednearly four-fold since 1960 to about 66 million tons of oil equivalent (Toe)in 1980, and is planned to grow by an additional 15 million Toe by 1985.Closely linked with the requirements of the national industrialization anddevelopment effort, but offset in part by energy conservation initiatives,growth in energy consumption in Romania has slowed to an average annual rateof about 4.5 percent during 1976-80, compared with a rate of over 8 percentduring the sixties.

26. Per capita consumption of primary energy in Romania today, at about3.0 Toe, is still below that for Eastern and Western Europe (3.9 and 3.1 Toein 1978). However, the intensity of energy use at 1.3 Toe per $1000 of GNP ishigher than averages for Eastern and Western Europe (1.1 and 0.5 Toe in1978). The energy-intensive nature of the Romanian and Eastern Europeanecoriomies sLems in part from the relatively greater importance of theindustrial sectors in these countries (i.e., closer to 60 percent of GNP,compared with 30-40 percent in Western Europe), arising from the prioritygiven to industry's development, particularly heavy industry, since World WarII. Industry accounts for some 55-60 percent of primary energy use inRomania, thermal power production 25 percent, transport less than 5 percent,and the commercial, services, agricultural, and residential sectors theremaining 10-15 percent. This structure of energy consumption is somewhatdistorted by Romania's method of reporting energy use on a delivery ratherthan final use basis (e.g., energy reported as consumed by transport sector isonly that directly used by public and commercially-hired transport units).

27. Domestic Energy Resources. Domestic production of primary energy hasstagnated around 50 million Toe since 1975, while the current Five-Year Planshows an optimistic increase in production to nearly 66 million Toe by 1985.Petroleum constitutes 74 percent of the primary energy used in Romania today,coal, lignite and related fuels 20 percent, hydropower 4 percent, and wood andother non-commercial fuels 2 percent. Given its declining oil production,however, Romania has already begun to adjust its energy supply toward solidfuels (e.g., lignite), hydropower, nuclear power, and non-conventionalsources, with a target of reducing dependence on petroleum to about 63 percentby 1985.

28. Coal resources are limited; the bituminous coal, mostly found insoutheastern Romania, has a relatively low calorific value and is used

principally to supply two thermal power plants, while most of the coking coal

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as well as coke for the metallurgical industry is imported. Lignite and browncoal resources are more substantial, with deposits distributed throughout thecountry although many are not commercially exploitable because of thin seamsand complex geology. An estimated 90 percent of the lignite reserves arelocated in Oltenia in southwest Romania. Being of very low calorific value,exploitation of deposits is largely for use in power plants nearby; productionof lignite for this purpose is to increase substantially (nearly 2.7 times by1985), and production of an even lower quality fuel, bituminous shale, for thesame use is also planned. The country's hydropower potential is presentlyabout one-third developed, and is expected to reach nearly 50 percentdevelopment by 1985 and full development by year 2000. Construction of a 660MW nuclear power plant, the first of four units, has also begun but commercialoperation is not expected until 1987. Other energy resources, in use orundergoing research/development, include wood, peat, maize stalks, corn cobsand other agricultural by-products, geothermal potential, solar, wind and waveenergy.

29. Energy Policy and the Five-Year Plan. As early as 1973, after the

first oil crisis, Romania responded by issuing an emergency decree whichfostered domestic energy production and imposed cuts and stringentrestrictions on energy consumption in each sector of the economy. These stepswere reinforced by further energy conservation and diversification measures in1977-80. In the face of an increasing energy deficit, the Government adoptedin November 1979 an energy research and development strategy for the period1981-2000 based on the premise that Romania should regain energyself-sufficiency by 1990. The plan calls for: (i) increasing production anduse of domestic non-petroleum energy resources, particularly lignite,bituminous shale, hydropower, nuclear power, and non-conventional sources;(ii) emphasizing energy conservation, particularly by reducing industry's unitenergy consumption; and (iii) stabilizing oil and gas production at levelswhich ensure minimum use of petroleum as fuel, while intensifying geologicalexploration and enhanced oil recovery to arrest the decline in recoverablereserves.

30. The overall energy strategy of the Romanians appears for the mostpart to be well-founded, albeit overly ambitious as detailed in the 1981-85Plan. Particularly noteworthy is the shift of primary energy supply towardsolid fuels, primarily lignite; with most of the adjustment in the powersector, the share of solid fuels in power generation is planned to increasefrom 26 percent in 1980 to 47 percent by 1985 while the share of oil and gasdrops from 52 to 29 percent. New coal/lignite/shale mining-cum-thermal powerplant projects are invariably capital intensive, complex, time consuming, andprone to delays, as demonstrated by past experience in Romania when the 1980target for lignite production was less than 60 percent accomplished.Shortfalls in overall domestic energy production can, therefore, be expectedin the projected 66 million Toe for 1985, particularly of the solid fuels butalso of oil. At the same time, demand for primary energy can also be expectedto fall somewhat short of its 1985 Plan target of 81 million Toe due to slowereconomic growth than envisaged as well as improved energy efficiency inindustry and additional conservation measures. Nevertheless, net energyimports can be expected in 1985 and would therefore continue to be a heavydrain on the country's foreign exchange resources. Alternatively, shortfalls

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in domestic supply might be filled by increased production of natural gasresulting in faster depletion of available reserves, or domestic consumptionof energy might be curtailed potentially slowing economic growth; both meanswere employed during the 1976-80 Plan period to minimize energy imports.

31. Public consciousness of the current energy deficit in Romania ishigh. Energy use in the public sector, by far the major user, is controlledthrough physical allocations based on established norms and reinforced byfinancial penalties. The Government reports that it has exceeded its overalltargets of a 20 percent reduction in average unit consumption of fuels and 12percent in the case of electric energy over the 1976-80 Plan period.Romania's energy program to year 2000 calls for a further 40 percent reductionin industry's unit energy consumption. This is expected to includeimprovements in operations, equipment and technology, and longer term changesin industry configuration and technology, Even given past achievements, suchtargets may be attainable in some industries, particularly steel andchemicals, although it is doubtful whether an overall reduction of suchmagnitude is possible within the timeframe visualized. Moreover, our somewhatlimited knowledge regarding reserves and sectoral consumption leaves somequestion concerning the Government's long-term policy of conserving petroleum,in particular natural gas, at the expense of developing less efficient andmore costly energy sources. The Bank expects to continue to address theseconcerns in the course of future sector work and in preparing future projects(para. 44).

Trends in Petroleum Supply and Demand

32. Romania has a history of over 120 years of petroleum exploration andproduction, with domestic oil and gas production presently supplying about 18and 43 percent, respectively, of total consumption of primary energy (importedoil and gas supply an additional 11 and 2 percent). Annual production ofpetroleum peaked in 1976 at about 15 million tons of oil and 36 billion cubicmeters of gas (29 million Toe). Oil production has since declined to 12million tons in 1980. Since 1975 additions to reserves have not kept pacewith the depletion rate and the bulk of production is from fields developed inthe sixties and now undergoing extensive secondary recovery operations whichhave also peaked. Over 25 percent of current oil production is attributed toenhanced oil recovery. Natural gas production during the last five years, bycontrast, has remained nearly constant at about 35 billion cubic meters peryear.

33. The growth of oil consumption during the seventies, although somewhatsporadic, averaged nearly 8 percent per year for 1971-78, and has generallyexceeded that of overall energy consumption. Largely as a result of stringentrestrictions on both public and private use, consumption was cut back sharplyin 1974 and has been held steady at around 19 million tons per year since1978; it is expected to remain at or below this through 1985. Net oil importswhich began in 1976 grew to 38 percent of domestic oil consumption by 1980.Meanwhile, exports of refined products, a profitable business for Romania forover 30 years, reached nearly 9 million tons in 1980. With the worldwideexcess refining capacity and current depressed market for petroleum products,however, competition is intense and exports have become substantially less

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profitable. Given a refining capacity about 1.5 times its domesticrequirements and with half of the refineries integrated with petrochemicalcomplexes, a complete match of production with domestic demand is precluded,necessitating continuation of some product exports.

34. Romania is presently one of the largest users of natural gas inEurope. Following 15 years of rapid growth, domestic consumption of naturalgas fluctuated around 35 billion cubic meters (28 million Toe) for the lastfive years. Although existing fields have a higher productive potential,current Government policy is to limit consumption, and hence production, ofnon-associated gas to conserve reserves for higher value-added use such asfeedstock for petrochemicals. However, production has been allowed to expandas much as 10 percent over target during 1976-80 to offset coal/lignite andoil production shortfalls. While this may continue through 1985, importswhich first began in 1979 are expected to grow by about one billion cubicmeters by 1985 from 1.4 billion cubic meters (net) in 1980.

Petroleum Resources

35. As of late 1980, cumulative production of oil and gas in Romaniaamounted to about 522 million tons and 468 billion cubic meters,respectively. While official estimates of remaining reserves are not publiclyavailable information, Bank staff estimate that about 125 million tons of oiland 350-400 billion cubic meters of gas can be considered as recoverable underexisting extraction methods. Such reserves would correspond to about 6 yearsof oil and about 10 years of gas supply in terms of present consumptionlevels. With the exception of small quantities of recent production from deep(3,500 to 8,000 meters) onshore wells, all production is from shallow onshorefields.

36. The shallow onshore areas have been extensively explored; deeponshore exploration as well as offshore exploration therefore offer the besthope of significant commercial petroleum discoveries in the future. Deepdrilling is extremely difficult and time-consuming. To date, about 200exploration and appraisal wells have been drilled with about one-third havingoil and gas shows, although most of these have not yet been fully tested orconfirmed. Only 3 or 4 deep reservoirs are currently in production. Offshoreexploration in Romania's Black Sea shelf began in 1969 and about 15 promisingstructures have been identified. Of the three structures drilled starting in1976, two have shown gas while the third has shown oil. However, technicaldifficulties have delayed testing and confirmation of this discovery althoughthere are plans for drilling additional appraisal wells as well as for anextensive production test. Substantial production from deep onshore andoffshore reservoirs will likely materialize only toward the end of the 1980s;for the medium term therefore, Romania must rely on EOR programs in itsexisting fields to slow the decline in oil production and increase recoverablereserves.

37. The Government estimates that with the existing oil extractiontechniques in the country (mostly primary and secondary with a few reservoirsusing advanced EOR methods), the average oil recovery from known reservoirswould be about 32 percent of the oil initially in place. It is intended to

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improve this to 37 percent by the mid-1980s and 40 percent by the 1990sthrough implementing several EOR programs. At present, there are twocommercial scale in-situ combustion operations (including the largest in theworld), one steam injection operation, and about 16 pilot-scale operationsinvolving various advanced EOR methods in progress in Romania.

Petroleum Investment Program

38. The 1981-85 Plan provides for about $0.4 billion to the Ministry ofGeology for offshore petroleum exploration and about $3.6 billion to theMinistry of Petroleum for conventional exploration and development ($1.6billion), EOR programs ($1.0 billion), and deep exploration and development($1.0 billion). The EOR segment is about evenly divided between routinesecondary recovery operations and 18 commercial and pilot scale advanced EORprojects, of which the proposed Videle/Balaria EOR project is the largest andmost important.

39. Oil production under the Five-Year Plan is targetted to stabilize atabout 13 million tons per year during 1981-85, and natural gas to bemaintained at 35-36 billion cubic meters. Bank staff estimate that thetargetted oil production plateau would be attained only in 1986, and thecumulative shortfall would be about 8 million tons relative to theGovernment's target. Estimated oil production in 1985 would be just over 12million tons, with about 40 percent coming from the advanced EOR programs andnew discoveries arising from Plan investments and 60 percent from currentextraction techniques applied in existing fields. At the same time, the gasproduction target could be exceeded if necessary in that even assuming nomajor new gas discoveries, non-associated gas production (presently 80 percentof gas production) could be increased by as much as 15-20 percent by addingmore production wells and some related compressor and pipeline facilities inexisting fields.

Petroleum Prices

40. The Romanian economic system relies primarily on physical norms andallocations to control the utilization and consumption of resources. Pricetherefore plays a minor role in resource allocation, and energy prices havetraditionally been low reflecting the country's heretofore low cost of primaryenergy production. However, given its deteriorating energy situation,increasing cost of domestic energy production and high cost of imports,Romania has begun to use prices to complement physical allocations as a meansto control energy use. Thus in 1979, retail prices for fuels, electricity,and heat were increased with progressive tariff structures. In 1981, aneconomy-wide price resetting was implemented with an overall increase inindustrial producer prices (i.e., prices received by an enterprise for itsproduct) of 13.0 percent, including roughly a doubling of crude oil andpetroleum product prices. While producer prices for domestic crude oil, at anaverage of $45 per ton, are still well below the price of imported crude($265/ton), petroleum product consumer prices in Romania appear to be lessthan 10 percent below the average of their border prices (about $251/ton).However, there is a wide variation in prices among various petroleum productsand between industrial and individual consumers. With the exception of gasoil

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and light fuel oil for heating, retail prices (i.e., to individual consumers)of major petroleum products are well above their border prices, and energyconsumption by this category of users is very low (less than 15 percent). Thebulk of energy and petroleum consumption is by the public or industrial sectorwhere the domestic mixed-ton price for petroleum products (about $210/ton) isabout 20 percent below the average of their border prices (about $251/ton),primarily because of the relatively low public sector prices for the middleand heavy distillates (e.g., fuel oils). The public sector price for naturalgas ($16.70/1000 cubic meters as fuel and $5.30 as feedstock), which is mostlyused as industrial fuel and hence can be substituted by fuel oil, is alsonotably low compared to its border price ($159/1000 cubic meters estimated infuel oil equivalent terms). The above discussion of relative prices ofpetroleum products is based on an exchange rate of LEI ll/$1 rather thanRomania's official trading rate of LEI 15/$l. These prices, in turn, arebased on an imported crude oil price converted at LEI 10/$1. This representscurrent practice in Romania and suggests that crude oil imports are subsidizedfrom the State Budget. However, since the January 1981 price resetting, therevenues collected from domestic sales as well as from exporting petroleumproducts at an appreciated exchange rate should largely offset this Statesubsidy.

41. The substantial increase in producer prices effected in 1981, alongwith the abolition of the equalization fund and simplification of the exchangerate system, was only a first step in Romania's medium-term stabilizationprogram (para. 17). A major element of this program is an exchange rate andprice reform designed to more fully reflect the cost of imported components inthe structure of domestic prices through eventual unification of the exchangerate which would result in an elimination of State subsidies. In the domainof energy prices, it is expected that the Government will apply the officialtrading rate to crude oil imports by the end of the standby period (mid-1984);this would bring the domestic prices of petroleum products closer to worldprices. The resetting and restructuring of retail prices scheduled for 1982to take into account the recent changes in producer prices has already begun;for example, gasoline prices have been increased 20 percent and diesel fuel by75 percent. Producer prices are also in the process of being furtherincreased, retroactive to January 1, 1982, but after the sizeable increases infuel prices in 1981, the major emphasis is expected to be on the relativelylower priced middle and heavy distillates and natural gas. At the same timethe exchange rate for crude oil imports and petroleum products exports isexpected to be a uniform LEI 12/$l. The progress of the Romanians withrespect to the quantitative performance criteria under the first year of theirprogram with the IMF has been encouraging and is expected to continue into thesecond and third year. The details of the annual programs to be implementedfor 1983 and beyond are to be agreed between the Romanian authorities and theIMF; the Bank is cooperating with the IMF in this area.

The Romanian Petroleum Industry

42. The main operations of the petroleum industry are organized underthree ministries - petroleum, geology, and chemical industry. The Ministry- ofPetroleum is responsible for onshore exploration, development, and productionof oil and gas, as well as the operation of petroleum pipelines. The Ministryof Geology is responsible for offshore oil and gas exploration and all

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exploratory works for minerals and solid fuels. Finally, the Ministry ofChemical Industry is responsible for refinery and petrochemical operations aswell as marketing and distribution of petroleum products. Under the Ministryof Petroleum is a network of semi-autonomous operating units called trusts,centrals, and enterprises reporting to one of two Deputy Ministers. The mainelements of this network are: six drilling and extraction trusts whichoperate the oil fields; one central which operates the non-associated gasfields; one research, engineering, and design institute (ICPPG) for handlingall oil and gas field projects; and one enterprise (ROMPETROL) which 4

undertakes foreign contracts for technical services and erection/constructionagreements in all facets of petroleum exploration, production and transport.Overall, about 100,000 people are directly employed under the Ministry ofPetroleum.

43. Over the years, Romania has developed a commendable technology andequipment building capacity for the petroleum industry especially for standardonshore operations such as the proposed project. Romanian oil field equipmentranges from tubular goods to seismic and some sophisticated laboratoryequipment. While equipment production is mostly for domestic requirements,exports of these products have grown rapidly during the last decade but exportmarkets are beginning to be constrained by quality and lack of up-to-datetechnology in some important equipment categories (e.g. deep and off-shoredrilling). This is due to the exclusive reliance on the development of localtechnology and equipment and from limited contact with the international oilindustry. This has restrained the industry's development in certain specialareas such as deep drilling and offshore exploration where the country couldbenefit substantially from foreign technology, equipment, and experience.

Bank Lending Strategy and Role in the Sector

44. The Bank's lending for energy consists of four loans in the powersector: two for thermal power projects (Loan Nos. 1028-RO of 1974 and 1652-ROof 1979); one for a hydropower project (Loan No. 1242-RO of 1976); and anotherto finance part of the 1980-83 investments in the power sector (Loan No.1936-RO of 1981). Lending commitments under these four loans amount to $305million, of which about $236 million have been disbursed as of March 31,1982. Although some technical problems and implementation delays have beenencountered, overall performance under these loans has been satisfactory. Theproposed Videle/Balaria EOR Project would be the Bank's first in the petroleumsector. In addition, an energy conservation project aimed at equipment andtechnology improvements in the metallurgical industry is being considered, andthe Government has requested Bank financing for a second time-slice of powersector investments in the current Plan. Finally, an energy sector survey isbeing planned for later in 1982 which would integrate the Bank's knowledge ofthe various energy subsectors, provide an opportunity to review thedevelopments and prospects for the entire energy sector, and examine thelinkages with the overall macro-economic framework.

45. The primary rationale for Bank involvement in the petroleum sectorlies in improving the quality and efficiency of project preparation andimplementation activities of an experienced and capable, but neverthelessingrown, petroleum industry. While the equipment and materials which will be

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used in the project are rather simple and quite standard for the oil industry,the technical and economic success of the project is critically dependent onthe way in which these tools are applied and the EOR process is implemented,monitored and controlled. Therefore, during preparation Bank engineering andgeological staff have contributed substantively to improving the overallconfiguration and design of the project as well as bringing to the Romanians'attention the technical and economic considerations affecting projectviability. The final project document prepared by the Romanians furtherbenefitted from discussions with and recommendations of a joint Canadian-Romanian consulting team brought in, at the Bank's initiative, to review theproject; particularly critical recommendations were those involving thephasing of project investments and operations and systemized monitoring of theongoing process to improve project economics, reduce operating risks andoptimize subsequent investments. Such cooperation is expected to continuethroughout project implementation in the careful monitoring of the projectboth by the Romanians and the Bank. Given their collaboration with InstitutFrancais du Petrole in the area of enhanced oil recovery since 1969 andfruitful exchange with consultants under the proposed project, we will furtherencourage the Romanians to continue to seek foreign expertise and technicalcooperation especially in those areas such as deep drilling and offshoreexploration where their own industry's experience is more limited.

PART IV. THE PROJECT

46. The Bank's involvement in the petroleum subsector was first evaluatedby a mission in November 1980. Following identification in March 1981 andpreappraisal in June 1981, the project was appraised in September/October 1981. Negotiations were held in Washington in April 1982. TheRomanian Delegation was headed by Mr. Gheorghe Popescu, President of theInvestment Bank and included representatives from the Ministry of Petroleumand the Institute of Research and Design for Oil and Gas Production (ICPPG).A Staff Appraisal Report entitled "Videle/Balaria Enhanced Oil RecoveryProject" No. 3745a-RO dated April 30, 1982 is being circulated separately tothe Executive Directors. The main features of the project are mentioned inthe Loan and Project Summary and in Annex III. A Map (IBRD No. 16066) ofRomania showing the project area is attached.

Project Objectives

47. Romania's major producing oil fields have long passed their peakproductive years despite the extensive application of conventional secondaryrecovery techniques (i.e., water and gas injection). Although the country hasan active exploration program, this is increasingly directed at the moreexpensive and time-consuming deep onshore exploration and offshore explorationin the Black Sea, and has been yielding low returns to date; new discoveriesof oil are quite inadequate to offset the depletion of older fields. However,there is still considerable scope for increasing the proportion of oilrecovered from known reservoirs by the application of more expensive modernenhanced oil recovery (EOR) techniques which have become economic after thelarge increases in oil prices in the mid-1970s. The application of modern EORtechniques is considered as offering the best possibility of slowing therelatively rapid decline of domestic oil production which is likely to

continue if no action is taken.

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48. The project's principal objective is to reverse the recent sharpdecline in oil production at two important oil fields, Videle and Balaria, byintroducing an advanced EOR technique, namely, in-situ combustion. Thistechnique involves the injection of compressed air, followed by ignition of asmall proportion, usually the heaviest fractions, of the oil in thereservoir. The combustion is sustained by continuous air injection. The heatgenerated reduces the viscosity of the oil near the combustion area, allowingit to flow toward the producing wells by the pressure of the combustiongases. A typical configuration involves one row of air injection wells behindthe combustion front and two to four rows of production wells ahead of it.After the front passes the production wells they are converted to injectionwells. Use of this technique is expected to result in increasing the ultimateoil recovery from about 15 percent under existing recovery techniques to about39 percent of the oil initially in place in the reservoirs.

Project Description

49. The project covers the 1982-86 portion of a long term EOR program forthe Videle and Balaria oil fields situated about 45 km. West-Southwest ofBucharest. It consists of: (i) drilling of about 910 new wells for airinjection and oil production; (ii) construction of 24 oil and gas separationcenters each with capacity for collecting and separating the fluids andcombustion gases from about 50 petroleum wells (nine of the separation centerswill be equipped with water injection facilities); (iii) construction of onecentral oil treatment, storage and pumping facility for handling oil andoil-water emulsions, similar to the existing facility which will also beexpanded; (iv) construction of one water treatment facility to treat waterbefore reinjection into the reservoir; (v) construction of air injectionfacilities comprising five compressor stations; (vi) laying of approximately1,300 kin. of pipelines and flow lines for air and water injection, gas supplyand fluid collection and disposal; (vii) construction of power substations anddistribution lines as well as treated water and steam supply facilities;(viii) construction of 50 km. of main and 70 km. of access roads and fieldoffices and laboratories; (ix) laboratory and field monitoring instruments;and (x) engineering and technical services.

50. The Videle/Balaria long-term EOR program is of high priority toRomania and has received final ministerial approval. This approval commitsthe Government to undertake the entire EOR program according to the phasing ofthe investments as agreed with the Bank during appraisal. It would also causethe Bolintin Petroleum Trust (TPB) to upgrade the monitoring of the combustionprocess thereby allowing it to make rapid operating adjustments in response tothe dynamic behavior of the reservoirs to optimize output.

The Borrower

51. The Borrower of the proposed loan would be the Investment Bank (IB)which is the Government's specialized agency under the Ministry of Financeresponsible for dealing with investments in all sectors of the economy, exceptagriculture and food processing. It has branch offices in all districts ofthe country and has the staff to review and appraise the technical andeconomic aspects of project proposals. The IB makes recommendations to the

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Council of State on major projects and their financing. All investment fundsfor an approved project are channelled through the IB which authorizespayments for work performed in accordance with the approved plan. It is theIB's responsibility to ensure that a project is executed according to thefinancial and technical data included in the final approval and its inspectorssupervise projects to ensure progress according to the approved schedule. Asthe Government's channel for investment financing in all sectors exceptagriculture, the IB's primary source of funds is the State Budget; theGuarantee agreement, therefore, includes assurances that all necessary fundswould be provided by the Guarantor for the implementation and operation of theproposed project.

Project Cost and Financing

52. The total financing required for the project is estimated at $454.2million including about $11 million for incremental working capital and about$1.5 million for the Front-End fee on the proposed Bank loan. The foreignexchange component is estimated at $163.1 million or 36 percent of the totalfinancing required. Physical contingencies have been estimated at 15 percentfor the air injection facilities and 10 percent for all other items. Priceescalation provisions were calculated on the basis of price increases of 8.0percent in 1982 and 1983, 7.5 percent in 1984, 7.0 percent in 1985 and 6percent in 1986 for foreign exchange costs. For local currency costs therates are 5.5 percent in 1982, 9.5 percent in 1983, 5.5 percent in 1984, 5.0percent in 1985 and 4.5 percent in 1986.

53. The proposed Bank loan of $101.5 million represents 22 percent of thetotal funds required and 62 percent of the foreign exchange requirements. TheBolintin Petroleum Trust (TPB) will provide about $115.3 million equivalent(26 percent) from internally generated funds and the balance of $237.4 million(52 percent) would be provided by the Government from State funds. TheGovernment has a program of borrowing from foreign commercial sources, but asa result of the current unfavorable market conditions, there is a hiatus inits foreign borrowing. Nevertheless, the Borrower has advised that whenmarket conditions are favorable it intends to seek cofinancing for the projectand to facilitate their borrowing abroad, the Bank would be prepared toinclude an appropriate linkage in the Loan Agreement. The proposed Bank loanwould be made to the Investment Bank for a period of 15 years including threeyears of grace at an interest rate of 11.6 percent per year. The InvestmentBank will relend the lei equivalent of the Bank loan to TPB with identicalgrace and maturity period and at an annual interest rate of one-halfpercentage point above the Bank's lending rate, as required by Romanian law.The Government, following Romanian practice, would bear the foreign exchangerisk.

Project Implementation

54. The project will be implemented by TPB over a period of about fiveyears starting in early 1982. TPB employs about 10,700 people mostlydistributed among seven semi-autonomous subsidiary enterprises. Four of theseenterprises are engaged in extracting oil from about 65 oil reservoirs, whilethe other three provide services (e.g. drilling and maintenance) for the oil

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extraction enterprises as well as for other outside entities. One of the oilextraction enterprises is the Videle Enterprise, which operates the Videle andBalaria oil fields. In 1981, these two oil fields provided about 39 percentof the Videle Enterprise's crude oil production (1.16 million tons), while TPBaltogether produced about 3 million tons of crude oil and 0.34 billion cubicmeters of associated natural gas corresponding to about 25 percent and 1percent, respectively, of the country's oil and gas production.

55. Project implementation will be supervised by IB with theparticipation of the Ministry of Petroleum including the Institute of Researchand Design for Oil and Gas Production (ICPPG) (para. 42) which will also dothe detailed engineering. The drilling of wells and installation ofwellheads, manifolds and flow lines will be undertaken by the appropriateenterprises under TPB. Major surface installations, such as compressorstations, oil and gas separation centers, as well as oil and water treatmentfacilities will be built by the Oil Installation and Construction Trust, whilethe electrical works will be done by the Electrical Installations Enterpriseacting as sub-contractor. Procurement for Bank-financed items will beundertaken by ROMPETROL (para. 42).

56. An important operational element of the project is the monitoring ofthe in-situ combustion process to optimize production and influence the designof subsequent phases of the project. A critical aspect for such monitoring isthe logging and coring of key wells drilled under the project. Agreement wasreached during negotiations that a selected number of oil wells at locationsagreed with the Bank would be cored and logged by TPB and new wells would becorrelated with the old wells through radioactive logging inside the casingusing appropriate techniques and equipment in consultation with the Bank (LoanAgreement, Section 4.01(a)(ii)).

57. In the recent past there has been a general aeiay in the impie-mentation of projects in Romania. In order to bring implementation ofBank-assisted projects back on schedule, the Government has recentlyestablished a high level inter-ministerial committee which meets each quarterto review progress and where necessary take appropriate action. Thisarrangement is expected to reduce the risks of delays for this project.

The Bolintin Petroleum Trust (TPB) - Financial Evaluation

58. Under existing Government policy, oil extraction trusts are requiredto earn during the current Five-Year Plan an average profit of about 7.5percent over their costs from extraction activities. However, followingRomanian practice, these trusts also provide housing and other social andcultural services to their employees. The costs of these services are notfully covered by the fees charged to the users. In addition, other serviceactivities of the trusts such as drilling and maintenance are normallyprovided at a small profit or at cost. The average profit when measuredagainst overall revenues would range between 4 and 6 percent per year.However, during 1979 and 1980 TPB incurred losses. This is because the priceset for TPB's crude has not been increased as rapidly as the rise in itsproduction costs which have gone up steadily due to its having to operateunder increasingly difficult production conditions. The Government's new

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pricing policy introduced in 1981, however, is aimed at more frequent changesto reflect production costs and it is expected that in the future TPB's crudeoil prices will be adjusted to enable it to earn the average profit rate.Consequently, TPB earned profits equivalent to about 8 percent of its revenuesin 1981. To safeguard against a recurrence of the financial losses of theearlier years, agreement was reached during negotiations that all actionsnecessary would be taken to enable TPB to earn a reasonable profit in relationto total revenues so that such profits together with depreciation and reservediscovery charges would be sufficient to service TPB's debts and to finance areasonable portion of its investments (Loan Agreement, Section 4.01 (a)(v)).

59. On the basis of the foregoing, TPB would be able to generatesufficient funds from its operations to enable it to service its debts andfinance at least 30 percent of its investment requirements including therecurrent annual investments for the project beyond 1986. While theGovernment's crude oil pricing policy based on production costs is perhaps notfully satisfactory since it does not focus enough on the financial return oncapital, the recent decision to ensure the average profit margin mentionedabove is a move in the right direction and is satisfactory. Although pricesof domestically produced crude is much lower than the international prices,the average mixed-ton price to the final users of petroleum products is set bythe Government much closer to their border prices (para. 40).

Audit

60. Agreement was reached at negotiations that the financial statementsof the Investment Bank and TPB would be audited each year by the Ministry ofFinance and furnished to the Bank within six months of the end of each fiscalyear (Loan Agreement, Sections 6.02).

Procurement and Disbursement

61. Procurement of equipment and materials valued at $94 million will beby International Competitive Bidding (ICB) in accordance with the Bank'sguidelines, on the basis of a list of items agreed with the Borrower. Theitems have been grouped into major categories required for drilling andcompletion of wells and for the surface facilities, such as tubular goods,roller-bits and pumps. Unless the Bank otherwise agrees, bidders will beprequalified in accordance with criteria acceptable to the Bank. Qualifiedlocal suppliers will be allowed to participate in ICB with a 15 percent (orthe import duty rate if lower) preference margin. The Bank will review allbidding and contract documents. Items valued up to $6.0 million would beprocurred through limited international tendering with quotations obtainedfrom at least three suppliers from three different countries. Such tenderingwill be restricted to items estimated to cost less than $300,000 equivalentand to items such as high pressure and temperature valves, control equipment,special packers and bottom-hole assemblies in limited international supplywhose delivery periods are critical to the timely completion of the project.Given the standard nature of the equipment and materials, of which Romania hasample supply capacity and which it has been manufacturing for many yearsbecause of its early involvement in the petroleum sector, the transportadvantage they have and the preference margin, it is expected that Romanian

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suppliers could win a high proportion of the internationally bid items. TheRomanians are expected to be most competitive in tubular materials and leastcompetitive in roller bits, pumps and the items to be procured through limitedinternational tendering.

62. The proposed loan would be disbursed against 100 percent of foreignexpenditures for imported goods and 100 percent of the local ex-factory priceof locally supplied items.

Environmental and Safety Considerations

63. The main sources of pollution are the oil well fluids (oil, water andcombustion gases), and with the exception of the combustion gases, will behandled in a semi-enclosed system. The water will be treated and reinjectedinto the reservoirs. The combustion gases, mostly nitrogen (N2), carbondioxide (CO2) and carbon monoxide (CO) with negligible hydrocarbon fumes dueto the low gravity of the oil, will be vented to the atmosphere through50-meter or taller stacks. Agreement was reached with the Borrower that TPBand ICPPG would take all steps necessary to ensure that concentration of COand C02 gases in the project area would not exceed the average of 2.0 and7,000 milligrams per cubic meter (mg/m3) over a twenty-four hour period and6.0 and 10,000 mg/m3 during any thirty minute period (Loan Agreement,Section 4.01(a)(iii)). These are considered satisfactory safety levels. Thein-situ combustion process does not present a safety hazard until thefire-front reaches a producing well. As a safety measure, all new wells willbe cemented to the surface with heat-resistant cement, and the advance of thefire-front will be continuously monitored through periodic temperaturesurveys, and when the fire-front reaches a producing well, cooling water willbe circulated inside the casing. This arrangement has proved to be adequatein other commercial and pilot tests using the in-situ combustion process inthe country, as well as in the pilot tests in the Videle and Balaria fields.

Project Justification and Risks

64. Enhanced oil recovery offers the most promising prospect to theRomanian petroleum industry for slowing production decline and stabilizingdomestic supply in the medium term, given the modest expectations ofproduction from new onshore developments over the same period. The primaryalternatives, deep drilling and offshore exploration and development, have notyet established production potential and involve a high technical risk. WithRomania's import deficit widening, all of the EOR investments included in the1981-85 Plan appear prima facie to be economic, and the precise sequence ofimplementation is more a function of the state of preparation rather than therelative economic returns of these investments. Among these projects, theproposed Videle/Balaria project is the largest in terms of incremental oilproduction potential, as well as the most advanced in terms of projectpreparation. It is expected that a major portion of the surface facilities ofthe project would be commissioned by mid-1984, followed by substantiveincremental production of crude oil beginning in 1985 and reaching an averageincremental production plateau of 0.73 million tons per year by 1986. Thiscorresponds to an ultimate recovery factor of about 39 percent of the oilinitially in place compared to about 15 percent without the project. It would

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more than double the expected oil recovery from the Videle/Balaria fields andresult in a total incremental production of about 30 million tons over thefull 40-50 years of the program. The proposed incremental production, at fulldevelopment in 1986, is expected to equal roughly 10 percent of the country'scurrent net oil imports thereby saving some $200 million (1981 constantdollars) per year in foreign exchange. The proposed project has both asatisfactory economic return and an acceptable risk.

65. The economic analysis has been done on an incremental cost andbenefit basis by comparing the cases with and without the project. All costsand benefits are in constant mid-1981 terms expressed as border values usingthe official trading rate of Lei 15 per US dollar. Because the Videle/Balariacrude oil is rather heavy, its economic value has been taken as $33 per barrel($221 per ton) compared to a value of $36 per barrel which is the averageprice Romania pays for imports. The analysis assumes a 20-year productivelife for the project investments and includes the recurrent annual capitalexpenditures of about $25 million after 1986 that would be required tomaintain the incremental oil production. The main project benefits are due tolower unit operating costs as well as higher output levels compared to thecase without the project. The economic rate of return of the project is about29 percent.

66. There are inherent operating risks that exist in all EOR projects dueto the heterogenous nature of petroleum reservoirs which introducesuncertainties in their performance and thus the prediction of operatingresults. In the case of in-situ combustion, the well spacing and pattern, aircompression capacity and skill of the operators monitoring and controlling thecombustion process are the most important operating factors affecting thetechnical risks of the project. Any deficiency in these aspects would bereflected in some combination of a need for additional wells or larger aircompression requirements or a lower ultimate oil recovery factor. Thephysical contingencies for wells and air compressor capacity provided in theproject design and cost estimate largely cover the first two of these risks,as based on actual results from the pilot tests and similar projects in thecountry. In addition, the twenty-year practical experience of the Romanianswith the in-situ combustion process, their generally high level of technicalcompetence in petroleum engineering and production as well as the monitoringprogram incorporated in the project design further reduce the technical risksto a relatively low level for a project of this type, especially with respectto the oil recovery factor. Project management risks, which would bereflected in substantial delays and cost overruns, also exist to some degree.Management risks primarily derive from the administrative and annual planrigidities in the Romanian system which makes it difficult for the projectmanagers to respond effectively to unforeseen events, particularly delays inthe delivery of local equipment and materials. The Government's high levelinter-ministerial committee established recently to follow-up progress ofBank-financed projects (para. 57) would reduce this type of risk. Sensitivitytests of the economic rate of return to account for these various risksindicate that in the worst case, characterized by one-year delay inproduction, increases in capital cost of 20 percent and production cost of 40percent and ultimate oil recovery down by 10 percent, the return would be

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about 18 percent, while in the best case reflecting an increase of 28 percentin ultimate oil recovery plus 3 percent per year real increase in the price ofoil it could be on the order of 40 percent.

PART V. LEGAL INSTRUMENTS AND AUTHORITY

67. The draft Loan Agreement between the Bank and Banca de Investitii,the draft Guarantee Agreement between the Socialist Republic of Romania andthe Bank, and the report of the Committee provided for in Article III,Section 4 (iii) of the Articles of Agreement are being distributed to theExecutive Directors separately.

PART VI. RECOMMENDATIONS

68. Features of the project of special interest are listed inSection III of Annex III.

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

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

A. W. ClausenPresident

AttachmentsApril 30, 1982

-23 ANNEX 1Page 1 of 5 pages

TABLE 3AROMANIA - SOCIAL INDICATORS DATA SHEET

ROMANIA REFERENCE GROUPS (WEIGHTED AVERAGESLAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE4A

TOTAL 237.5 MOST RECENT MIDDLE INCOME INDUSTRIALIZEDAGRICULTURAL 149.7 1960 /b 1970 /b ESTIMATE /b EUROPE MARKET ECONOMIES

GNP PER CAPITA (US$) .. 480.0 1900.0 2609.1 9444.0

ENERGY CONSU1MPTION PER CAPITA(KILOGRAMS OF GOAL EQUIVALENT) 1468.8 3040.7 4810.0 2368.4 7896.6

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (THOUSANDS) 18407.0 20361.0 22068.0 *URBAN POPULATION (PERCENT OF TOTAL) 34.1 40.8 47.1 53.2 76.4

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 25.6STATIONARY POPULATION (MILLIONS) 29.0YEAR STATIONARY POPULATION IS REACHED 2075

POPULATION DENSITYPER SQ. KM. 77.5 85.7 92.9 80.6 142.7PER SQ. EM. AGRICULTURAL LAND 126.0 135.0 146.1 133.9 523.3

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 28.2 25.9 25.8 30.1 22.8

15-64 YRS. 65.1 65.5 64.3 61.5 65.665 YRS. AND ABOVE 6.7 8.6 9.9 8.3 11.6

POPULATION GROWTH RATE (PERCENT)TOTAL 1.2 1.0 0.9 1.5 0.8URBAN 4.1 2.8 2.5 3.1 1.3

CRUDE BIRTH RATE (PER THOUSAND) 20.0 20.1 18.1 22.9 14.5CRUDE DEATH RATE (PER THOUSAND) 9.0 9.9 9.4 9.1 9.5GROSS REPRODUCTION RATE 1.2 1.3 1.2 1.6 0.9FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS)USERS (PERCENT OF MARRIED WOMEN) .. ..

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71=100) 89.0 90.0 151.0 119.8 112.7

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 108.0 115.0 130.0 125.7 131.4PROTEINS (GRAMS PER DAY) 86.0 90.0 103.0 92.5 98.1

OF WHICH ANIMAL AND PULSE 30.0 34.0 43.0 39.7 62.2

CHILD (AGES 1-4) MORTALITY RATE 3.8 2.5 1.3 3.4 0.6

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 65.5 67.8 71.0 68.9 73.8INFANT MORTALITY RATE (PERTHOUSAND) 75.7 49.4 31.4 25.2 12.9

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL .. ..URBAN .. ..RURAL .. ..

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. ..URBAN .. ..RURAL .. ..

POPULATION PER PHYSICIAN 7

80.0/c 840.0/d 737.5 973.3 621.2POPULATION PER NURSING PERSON 620.07 .. 638.0 896.6 217.4POPULATION PER HOSPITAL RED

TOTAL 130.0/c 120.0 108.7 262.3 119.4

URBAN 50.077 50.0 72.7 191.8 120.9RURAL

6 20.Olc 770.0 816.7

ADMISSIONS PER HOSPITAL BED .. 23.0 .. 18.2 17.9

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL .. 3.2/eURBAN .. 2. 8/eRURAL .. 3.4/e .

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. 1.4/eURBAN .. 1.3/eRURAL .. 1. 4/e .

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. 49.0/e ..

URBAN .. 86.0 ..oRl'RAL .. 27.0/e ..

- 24 -

ANNEX 1TABLE 3A Page 2 of 5 pages

ROMANIA - SOCIAL INDICATORS DATA SHEET

ROKANIA REFERENCE GROUPS (WEIGHTED AVERtGES- MOST RECENT ESTIMATE)-

MOST RECENT MIDDLE INCOME INDUSTRIALIZED1960 /b 1970 /b ESTIMATE /b EUROPE MARKET ECONOMIES

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 98.0 112.0 106.0 105.9 99.6MALE 101.0 111.0 109.0 109.6 102.1FEMALE 95.0 113.0 103.0 102.2 101.8

SECONDARY: TOTAL 24.0 44.0 84.0 66.3 89.3MALE 27.0 51.0 90.0 73.2 83.3FEMALE 22.0 38.0 77.0 59.5 85.0

VOCATIONAL ENROL. (% OF SECONDARY) 54.0 58.0 84.0 28.4 18.1

PUPIL-TEACHER RATIOPRIMARY 25.0 21.0 23.0 26.8 21.2SECONDARY 16.0 18.0 22.0 23.6 16.4

ADULT LITERACY RATE (PERCENT) 88.6/f *- 98.0/g 75.4 98.9

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION .. 2.2 .. 83.9 349.7RADIO RECEIVERS PER THOUSAND

POPULATION 120.0 151.0 142.8 181.6 1018.0TV RECEIVERS PER THOUSAND

POPULATION 3.0 72.9 146.0 131.1 400.1NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 147.0 168.1 171.4 123.8 336.7CINEMA ANNUAL ATTENDANCE PER CAPITA 9.0 9.8 8.3 5.7 4.3

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 10405.1 11408.2 12084.4

FEMALE (PERCENT) 42.5 44.5 44.6 32.9 36.6AGRICULTURE (PERCENT) 65.3 49.1 32.5 34.0 6.1INDUSTRY (PERCENT) 15.1 23.1 33.5 28.7 37.7

PARTICIPATION RATE (PERCENT)TOTAL 56.5 56.0 54.8 42.3 45.7MALE 64.5 63.3 61.5 56.5 58.9FEMALE 48.4 49.0 48.2 28.5 33.0

ECONOMIC DEPENDENCY RATIO 0.6 0.6 0.7 0.9 0.8

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS ..

HIGHEST 20 PERCENT OF HOUSEHOLDS ..

LOWEST 20 PERCENT OF HOUSEHOLDS ..

LOWEST 40 PERCENT OF HOUSEHOLDS ..

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN ..

RURAL ..

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 394.0

RURAL .. .. 394.0 385.1

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN ..RURAL ..

Not availableNot applicable.

NOTES

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countriesamong the indicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1976 and 1979.

/c 1962; /d WHO estimates; /e 1966; /f 1956; /g 1975.

* The updated 1980 GNP per capita and population estimatesare $2340 (at 1978-1980 prices) and 22,268 thousands.

May, 1981

- 25 - ANNEX 1Page 3 of 5 pages

DEFINITIONDS OF SOCIAL INDIlCATORS

hone Although the aaae - drou freI ut. geeal.uge h otauhrt and.reia.ble, on should ae- be utri th- they ma otby tnreiooallonorrbebcueo b eko sedandleed defiotirin.. end -- ttPsa ted by diff-rere conties On telle-elg teda.The.es re us

etle,ueu odeinb reso ond,td inan treds, cod the....neefee terteit eajr differences r t-t

Obreeenc eurar llnssc.toneytnpfttsujtsoutyadIl eonoy rufinesett igroioaeeiondtstetateget

of the ut jetsoeueney(eteep foe "Cpital hrlus Il thoyabrtas group. abet 'Mdl i-oae OtrP Afita .. end riddle- -asohatese heos hof.. stronger ,

oneIniorator etatlstoamen0

thedtouror end t,fetrte grouye

Toa--Tnt uftsee -oI.es..s hand nose and - lnlaRdscrf aror..l orildiddd y btrtepetitoumercIn_paa bd

nulte by-en tofnsee.. s-nhoding Woed ..e.I.b Aclee d1-0-0 hot) 06.ednala 1treotteasn asaffn b fyita htt1900. end 1000 data. nedioul~-b- - aesteser d,toso. cdnif_ er. ar,ibofe :I Iin- tstst

E.1i..1. of ... ib.1 .. d..ocndeotdsliotcregeafIdhalfciiti-dFoeta-e

afdllgnlt,yet-leu, neraral. gacoohydot.,-. n flru -ge 1h7nalte- Iaodra-i-hoartt -lnlotalo-rt..relho-p I -aermdtlonIeenityf

T970tei P 197ano9 Mid-Yer (-hoserd) -dbiof JiI0 I lOIh1000fond 009 Ottl..data, bonnets~~~~~~~~~~~di. Slo o-drfIot-ho. .. Ioson Is househldf-iltesi- aorban sd ath

ENpheCNSPeoteinIOperoCAPTA of total)-atof ubrf tosel.y.ait hoshI ooet fegnso .n.I.iaalu so char liot, pi-ne

among, Y ionokitetih, 1000..f end1otP. p 19000data,0the ho19eho- d forstatist h-itolf yunpdnseey..dr o-OnalfieArosnios teogsa-r ofrnoe e toon cocci ofe, n rara - .

.1Prpojtniiot Md-. pataet.e.fo d.tatt rents ofuJmprier 60 of 70three 19e79euu HUSNGtuadyto

instate fo etiiyrieesbn chess - or lercacnogfoisi ofbtteA urtut,, . t.. ura dott inerseo er

en tfrtiit trends for proecio p1 yoso9a hu.e h nroldinet attettnry ouain-oea onr ouato hr ie-o g-nc eoosTnit esoo totl u2 an fe u-rban, tonal sale eArdinnate

the releosent enetol untro- .P1rependonto rate, sr' ecth gonesilt b arc hot P ud. untP foe d -ffrernlegeI of,pIuatoduost...; fee-.rby o-onIenssiret -ne Iy theI ....tooro. ppulaion tin ue- d- nrtant tiera auatn eromntsy aeK.00pte

pront n the bueP a of th noeti hasteitif o the I I popuatio sic. oeppl.rehln0 ho h ofca oolae

nent lerel rdueanloeeqairre a liahe fornyears opappeared tieiaty isnenetirnfsrnesionator-plto ntete b ea bteainaffplno peonie geosoalt , ooaioal orta e ecnu ntuttn2a ni

only 1060. tOy sod.10 data Auoi- tatbt- ret t - -eos.adeonaoSno tdnsntniiePeotair-n Ass I,i _cusr frereet) -rCilren f.II-i years)I. norhn-age 15- _tiat ad t 1dtyleel Idi-ided by ruIher of1 tsae ar toth

lenhn 1060.o.nrI l fr tgti.-sed lot data. udul linnedertat foredns fe 0 - -oterhteedflpelab Is toread afdoriPeoulaion mnth tas Irsceot)- tta -I ...iot rates of- noe td sproenege o toardurit tp -inge 15 yess ed ace 'r.

Tsar popasfions fo 1050-go lOg-t,Ibend 1h7--r-00. h,.1.i .. . TI- I--o-r~fiI1b.l..

Crd fei htefe banu) nol .oe.lb.a.y. to-hnd o el-.er.ern eatog lees 1 thansogh perons -- oludes-abat-eec -ere a-ed

po-alrson; i96O, 09000 sod 1000 dana nru. uo -hatoe ite.1,id . I,o h r,. hc .- idpd

poplcen; 19 O iN, 97 en 00dda ra 1978s notgotrto putlyo yet thssd-1 -poultin - ne-de o-ln i

64yernenalrprduttir' p65niodcfnbsde-renIeeoee yre..sgntagi-yp-optefr- _rnn -tafee deaorsen essIIItbroyseleit

.Pestleilannin-hntM nt.a(. donn-er1 feoseA) -. Ingnua rusher of eteepear TI eeite p. oer tousand. eA.otetpn ... 1- teonr for broaIdeati

Flog Bit A IS-OY-dq-f.III-bit..bt ... do iTETi-tobe daly i i appersa leas foot I-.oleesseb.l ... nP 96no 0PedPodoeo per0 faiaflb te t- ne o e npn at7ua__leenaAnnua gtedeete aiste en-tae rte ubro

Perilita surely of. nalnefies _eennto 197gemosf ompuid 17fInn a... fe-o- end1naslopd lib. nt oldn aueis,sudsn e

enrgy qedsfnt f se oo .uppi.. o avaiabl f.ilouey peein oPi oo-ogt..o- populaionp of.. al pageIt. einiton1iod- eunoeniscpen nap. Anenlubta aonnlioe tonprot do-me-atic pedunin,t rorte tsn not .orasaInt ith, 100 an 1070 data.. n ff

maote n rhooge to, snook Net mooln h enbludhan-ar fed d eede- r.endsItse)- esl br forteP as. e--ee_geo total -ebur fro-

seD NDssr ciae yPCbsda haooic sd e oa ti ihr neT p_arcenta.i, fe of nasal I labor for ts; 060 100ad0IaaInip and For t nd n sin.ered-tainioraas,bdynigts,- age lonnnfecn ebtdnrtfiig onnune,~uagto

and cn diortbunonPo popuaion n toig1 percent.' for eass on.en d-isniin , stnce gases pi eengedfitta lab-t frts -hihp unsotid tevel; lOh-gd irooOdi aud 1000 danao.o 1000d and 1000 datar.'t.

net` suppl yof fodttda. CNetsoppl n-f foodisr godefn en., chao,-- con..iln rae r cene e os,nas n esl aeefcsc

atlonneof6.e.ao eIa....napele pee day and_191-1 1900 gen fsta n O 00nd 1000d -1Lb-F (t-.den. Ths E t ae o lepaeepti arrolsepronse. ofebich10 crsa shuld b anist proein. hecaann,f rtflttie

5age-se stecrureof th rapuat to, endtoograsscttd.

Pee emitta oresi sof rein ran otna cod tuie- Protst pppy offoo dricd ineisican plss o ras eeda; _b-h.) CfOp end 100 es. ICof OIdTI...UfIIo.br-Z-.t

Chad ass -A bfralt tan fre.t.d ad -.,l. Atna dena - Per t-eosar it reoc e of. tr. en Inoe(ohi testen kind - trei.d. t rices

tIesdyndrie Peon I -lifetbe;- b,tO o 1000 de-te of boosIaho.ds.

enttf;191hOfUo Ind 1000 I II.~ni data, andF-1 should F.loIb he irerptofd no-looeideIhfcmriar

Acesn Its ae firce ofd- .ig .c ua Ia- total abut d, ribdtotal - Lun f-rtoal auon tr tsasoie nor-food hnqoigsee tano

sanertenppiy f AeoIude t daadsefnohoto orRu-tr..tad. r butunctnaitaa eiae fi. iatoI Pcrof In-1s Len,- fi-S$ pan96p0 a -97 urba a979 eeairnncdbhusthban -ios petcebsh tna, ort.ng..a dyssnitty..tls.. IAn.ryteafroor oaateise-btu rg etptpernnag.. of t-Ob- npeniv p opolaniona .11-aoar _oareptir -t"n g- .. ;, irtiy I r 'r-g7f tl b f I

cons-ideet ablgaihnraoai -,ao 2~n1r..Ieceeo hnhue frrlaenln la,bP-dj onsmane foe hi gnat tactr of dtfoirg in uttrsteen. -resnbeacs cId P mp. thn Yb huenIe aood hers of the bosb old tRiaa.nrlnt afuAsln Tonten - oone dLevel freeene- 1-ut

feell 5 oter needsll. ro -l.dbyUDp-i f i. Poo-t' .1Aces fn ttet I-roa of r-rr o pr.ouiacia total, 2 IIhat and turld 19- 90 d17 .. h .b..d L'

Ipercentages of thIr , I repat -e opl dion tropret. disp FOsal say Tid .... include1In 6 thrtldeFord and disposeS o1970o ndt out7 tIreatlot.of uma-eest

"'Id fr.. ni-1. od p.1... in gr... F- d.y; 1961-65.197t0 tndtc 197n7sa aedPIoCOrE faSTRIBUTrION

_~o of I-- In- (bbIh in -Ihtar loftPeelein tee1 hbsra ouaindcddhotra fpatltgoyi

-cgadrsq datissaafr..aslifta-ltho. a96un1970Ity7ldenIt2elc, .... 21.....- ....Poocletirn err tatnion Persen - Popueslot Iloidad by nuebee oO precegoih

sass eod Peale grsd uate norase , pracrVouTAoneTeGROand

- 26 -

ANNEX IPage 4 of 5 pages

ECONOMIC INDICATORS

NATIONAL INCOME IN 1981 1/Average Annual Growth in volume (%)

1976- of whichUS$Mln. 19SQ 1976 1979 1980 1981

National Income 35,350 7.2 11.2 6.2 2.8 2.1Gross Investment 13,900 10.9 8.5 4.1 3.1 -7.3Gross National Saving 13,067Current Account Balance -833Export of Goods, NFS 13,492 5.3 14.7 -7.6 8.5 n.a.Imports of Goods, NFS 13,308 8.8 15.7 4.3 0.5 n.a.

DUTPUT, EMPLOYMENT AND PRODUCTIVITY IN 1980

Net Value Added 1/ Labor Force 2/ N.V.A. Per WorkerUS$ Mln Z Mln Z US$ Z

Agriculture 3,930 11.6 3.05 33.9 1,289 34.3Industry 20,800 61.5 3.68 40.9 5,652 150.5Construction 3,200 9.5 0.86 9.6 3,721 99.1Others 5,870 17.4 1.4 15.6 4,193 111.6

Total/Average 33,800 100.0 9.0 100.0 3,756 100.0

GOVERNMENT FINANCE(in billions of lei)

1976 1977 1978 1979 1980 1981

Total Revenue 254.5 282.0 300.8 339.3 298.0 280.3Total Expenditures 180.4 196.5 198.9 224.7 191.6 179.5Current Surplus 74.1 85.5 101.9 114.6 106.4 100.8Investment Expenditure 69.7 83.9 100.4 112.9 105.1 92.3Overall Surplus 4.4 1.6 1.5 1.7 1.3 8.5

MONEY, CREDIT AND PRICES1976 1977 1978 1979 1980 1981

Koney Supply (blns of lei, end of year) . . 85.6 87.6 110.6 n.a.Bank Credit to enterprises (blns of lei, end of year) . . 386.0 405.0 428.0 n.a.Retail Prices (1975 = 100) 100.6 101.2 102.8 105.0 106.6 110.3

1/ Social material production methodology, excluding depreciation and output of the non-productive sector.2/ Excluding non-productive sectors.

EMIDDApril 23, 1982

- 27 -

ANNEX IPage 5 of 5 pages

BALANCE OF PAYMENTS(USg million)

1976 1977 1978 1979 1980 1981 MERCHANDISE EXPORTS, 1981 US$ Mln

Exports of Goods, NFS 6,642 7,357 8,728 10,133 12,087 13,492 Capital Goods 3,660 29Imports of Goods, NFS -6,540 -7,529 -9,319 -11,428 -13,730 13,308 Consumer Goods 1,980 16Resource Gap 102 -172 -591 -1,295 -1,643 184 Foodstuffs 1,010 8Interest Payments, net -118 -132 -168 -358 -777 -1,017 Intermediate Goods 3,350 26Balance of Current Account -16 -304 -759 -1,653 -2,420 -833 Raw Materials 2,610 21

Industrial (2,170) (17)MLT Borrowing Agricultural (440) (4)

Disbursements 712 861 1,174 2,065 2,805 2,160 12,610 100Amortization -502 -562 -586 -809 -851 -1,133Net 210 299 588 1,256 1,954 1,027 EXTERNAL DEBT, Dec. 31, 1981 US$Mln

MLT Lending, net -392 -358 -346 -309 -181 -174Convertible currencies 10,160

Short-term Borrowing, net 124 256 487 821 449 -1,385Medium and long-term 7,694

SDR allocation - - - 33 33 32 Short-term 643IMF credit 680

Use of IMF credit 181 38 -20 -8 52 290 Arrears 1,143

Payment Agreements 163 101 103 96 -47 -32and IBEC Non-convertible currencies 386

Errors and Omissions - - 65 -77 - - Total 10,546

Change in Reserves 1/ -23 306 -120 -149 202 -81= increase)

DEBT SERVICE RATIO, 1981 %Oil and Products

Exports 735 688 746 1,744 1,871 1,907 All Currencies: gross 2/ 16.6Imports 717 875 1,219 2,051 3,818 3,370 All Currencies, net 3/ 13.9

Convertible Currencies, gross 4/ 27.5

IBRD LENDING, March 31, 1982 5/ us$ MI.

Outstanding and disbursed 1,301.4Undisbursed 686.7Outstanding and undisbursed 1,987.6

1/ Includes foreign exchange and SDR holdings.2/ Debt service payments for credits received only.3/ Net of debt service payment receipts for credits extended.4/ Debt service payments included in convertible currencies as a percentage of export receipts in convertible currency.5/ Includes only effective loans.

EMIDDApril 23, 1981

- 28 -

ANNEX IIPage 1 of 8 pages

STATUS OF BANK GROUP OPERATIONS IN ROMANIAStatement of Bank Loans

(As of March 31, 1982)

US $ MillionLoan Fiscal Amount (less cancellations)Number Year Borrower Purpose Bank TW IDA Undisbursed

Ten loans fully disbursed 478.1 -1368-RO 1977 BAFI a/ Irrigation 60.0 0.011436-RO 1977 Investment Bank Bearings 38.0 4.41448-RO 1977 Investment Bank Polyester 50.0 0.31479-RO 1978 BAFI Agricultural Credit 71.0 3.91509-RO 1978 BAFI Irrigation 40.5 8.01536-RO 1978 Investment Bank Tire 85.0 34.01581-RO 1978 Investment Bank Post Earthquake 60.0 4.61634-RO 1979 Investment Bank Chemicals 40.0 2.71651-RO 1979 Investment Bank Pipe 40.0 25.71652-RO 1979 Investment Bank Thermal Power 70.0 22.21669-RO 1979 BAFI Livestock 75.0 16.21670-RO 1979 BAFI Irrigation 70.0 11.71764-RO 1980 BAFI Livestock 85.0 48.11794-RO 1980 Investment Bank Canal 100.0 0.91795-RO 1980 BAFI Irrigation 90.0 55.11876-RO 1980 BAFI Orchards 50.0 44.11936-RO 1981 Investment Bank Power IV 125.0 46.81937-RO 1981 BAFI Livestock 80.0 77.51938-RO 1981 BAFI Irrigation 75.0 75.01971-RO 1981 BAFI Irrigation 80.0 80.02034-RO 1982 Investment Bank Highways/Railways 125.0 125.02077-RO 1982 BAFI Agricultural Credit 95.0 c/ 95.0

Total 2,082.6 781.21of which has been paid 89.4

Total now outstanding 1,993.2

Amount sold 19.8of which repaid 19.2 0.6

Total now held by Bank b/ 1,992.6

Total undisbursed 781.21

a/ Bank for Agriculture and Food Industry.b/ Excluding exchange adjustments.c/ Not yet effective.

- 29 -

Annex IIPage 2 of 8 pages

PROJECTS IN EXECUTION 1/

Ln. No. 1027 Otelin3x Special Steel Project; USO7O Million Loan of July10, 1974; Date of Effectiveness: April 3, 1975; ClosingDate: December 31, 1979

Execution of the project was delayed about three years, primarilybecauSE: of the complexity of two large bid packages, the Romanians' lack offamili:arity with international competitive bidding procedures under the Bank'sGuidelines, and lack of interest and competition among suppliers. Delays werealso caused subsequently by late delivery and quality problems with Romanianmanufactured equipment. The cold mill is now in operation and the bar millwas scheduled to start operation, in August 1981 but is now delayed to thefirst half of 1982. Total project costs are expected to be essentially thesame as appraisal estimates. Final draft of the completion report is expectedin April 1982. The loan is now fully disbursed and closed.

Ln. No. 1028 Turceni Thermal Power Project; US$60 Million Loan of July10, 1974; Date of Effectiveness: November 6, 1974; ClosingDate: June 30, 1979

Project was completed after a 2-year delay but is operating at only50% of rated capacity due to lower calorific value of lignite than the plantwas designed for. Tests are being conducted to determine modificationsrequired for processing lower quality fuel; main units may require redesignand reorder of lignite handling equipment and the clearing of the units. Theloan is now fully disbursed and closed.

Ln. No. 1242 Riul Mare Retezat Hydropower Project; US$50 Million ofApril 28, 1976; Date of Effectiveness: July 26, 1976;Closing Date: December 31, 1981

Due to shortage of manpower, tunneling works have been delayed whichis hoped to be partially recovered by a modern large surface boring machine.Project completion will remain about two years behind schedule. Civil worksfor the dam and underground power station are well underway but also delayedby a similar period. The loan is now fully disbursed and closed.

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution and, in particular, to report anyproblems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understanding thatthey do not purport to present a balanced evaluation of strengths andweaknesses in project execution.

- 30 -

ANNEX IIPage 3 of 8 pages

Ln. No. 1247 Rasova-Vederoasa Irrigation and Agriculture DevelopmentProject; US$60 Million Loan of April 28, 1976; Date ofEffectiveness: November 3, 1976; Closing date; June 30,1981

Pumping stations, canals, and other project civil works are almostcomplete. The area irrigated in 1981 reached 52,000 ha. Out of 11 dairyfarms, nine farms are in operation. Procurement under ICB is complete. Thefeedmill and silo in Negruvoda is completed. The grain silo at Baneasa isbehind schedule and is not likely to be ready before June 1983. The loan isnow fully disbursed and closed.

Ln. No. 1368 Ialomita-Calmatui Irrigation Project; US$60 Million Loan ofMarch 2, 1977; Date of Effectiveness: June 23, 1977;Closing Date: June 30, 1982

Contracts for all equipment and materials have been awarded.Progress has been good until recently when a shortage of constructionmaterials and reduced allocation of investment funds have slowed downimplementation. Progress on main and distribution canals, pipe networks, anddrainage works are generally satisfactory.

Ln. No. 1436 Brasov Bearings Project; US$38 Million Loan of June 15,1977; Date of Effectiveness: August 11, 1977; ClosingDate: December 31, 1982

Contracts on all major packages, have now been signed, andimplementation of the project is proceeding ahead of the original schedule.However, delivery of retainer presses will delay full completion of theproject by eight months. Project costs are expected to be close to, orslightly over, appraisal estimates. Overall economic aspects of the projectlook somewhat more favorable than at appraisal due to the improved marketoutlook, improved product mix, and changes in project design to achieve lowerproduct costs.

Ln. No. 1448 Cimpulung-Muscel Polyester Project; US$50 Million Loan ofJune 15, 1977; Date of Effectiveness: October 3, 1977;Closing Date: March 31, 1982

Closing date was extended to March 31, 1982 due to delays in thedelivery of equipment for extrusion and drawing section which are manufacturedlocally. The loan is expected to be fully disbursed with withdrawalapplications on hand.

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ANNEX IIPage 4 of 8 pages

Ln. No. 1479 Pig Production and Processing Project; US$71 Million Loanof July 15, 1977; Date of Effectiveness: September 28,1977; Closing Date: June 30, 1982

The project represents the Bank's first participation in Romania in adevelopment plan on a nationwide basis. It provides for establishment andmodernization of large-scale pig breeding/fattening farms, development ofselection centers, and provision of slaughtering and processing facilities.ICB procurement is completed. Investments for State farms and slaughterhousescontinue to be ahead of schedule while those for cooperative farms andslaughter and meat processing facilities are behind schedule. Quality ofworkmanship and management of project facilities is satisfactory. Prospectsfor project completion as scheduled are good.

Ln. No. 1509 Viisoara Irrigation Project; US$40.5 Million Loan ofJanuary 27, 1978; Date of Effectiveness: May 15, 1978;Closing Date: December 31, 1983

Bids for all procurement contracts have been awarded. Constructionof project works is proceeding satisfactorily on all schemes except Calmatuisubproject which has slipped by about a year. Irrigation of the entire 98,328ha will now take place in 1984 rather than 1983. The Zimnicea and ViisoaraIrrigation systems are expected to be completed in June 1982.

Ln. No. 1536 Tires Project; US$85.0 Million Loan of March 31, 1978; Dateof Effectiveness: June 9, 1978; Closing Date: June 30,1983

Overall project implementation is proceeding satisfactorily. Plantstart-up is expected in mid-1982 for the Zalau plant (truck tires), and in1984 for Drobeta-Turnu Serverin (DTS) Plant (tractor and giant tires).Delays are also expected in the erection schedule at the DTS plant as well asin the delivery of local equipment for the off-the road (OTR) tire package.Slow disbursements is due to the delay experienced in obtaining a suitablesupplier of technology and equipment for the OTR tire package for DTS.

Ln. No. 1581 Post Earthquake Construction Assistance Project; US$60.0Million Loan of June 12, 1978; Date of Effectiveness:

- September 5, 1978; Closing Date: June 30, 1982

Implementation is proceeding satisfactorily. At the Borrower'srequest loan proceeds were reallocated to reflect more closely likely futurecommitments. The loan is expected to be fully disbursed by the closing date.

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ANNEX IIPage 5 of 8 pages

Ln. No. 1634 Craiova Chemical Project; US$40.0 Million Loan of January15, 1979; Date of Effectiveness: May 2, 1979; ClosingDate: December 31, 1982

There will be delays in startup of plants. The methanol plant willbe set back by a year because of delays in the delivery of equipment. Theacetic anhydride plant had some problems due to cracks discovered in the steelcoils supplied by Welders. The PVA plant will also be behind schedule becauseof late delivery of locally made equipment. Most subprojects will be delayedbecause of late delivery of critical equipment and unavailability ofconstruction labor.

Ln. No. 1651 Roman Seamless Pipe Project; US$40.0 Million Loan ofFebruary 26, 1979; Date of Effectiveness: July 31, 1979;Closing Date: December 31, 1982

Most of the main technology package is on site and erection isscheduled to begin April 1982, but additional delays that have occurred inprocurement will further set back project completion by another six months.The main building is almost completed and the foundation for the main mill isready for erection. Construction of water supply facilities is however behindschedule. Project completion is now expected in December 1983.

Ln. No. 1652 Second Turceni Thermal Power Project; US$70.0 Million Loanof February 26, 1979; Date of Effectiveness: June 29, 1979;Closing Date: December 31, 1982

The project is expected to be delayed by two years because of delaysin Turceni I and the necessary sequential arrangements for implementation ofboth projects. Ninety-two percent of the loan funds have been committed.

Ln. No. 1669 Second Livestock Project; US$75.0 Million Loan of April 16,1979; Date of Effectiveness: July 6, 1979; Closing Date;June 30, 1984

Progress in project implementation is satisfactory. Investments formodernization of existing pig complexes are far ahead of schedule while thosefor new pig breeding/fattening complexes and new slaughter/meat processingfacilities are being decreased. This shift is acceptable because of thehigher profitability in modernization. Contracts for procurement ofconstruction materials and slaughterhouse equipment have been awarded, but inFebruary 1982, $468,000 worth of slaughterhouse equipment was cancelled fromthe loan because of misprocurement.

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ANNEX IIPage 6 of 8 pages

Ln. No. 1670 Mostistea and Calmatui Irrigation and Drainage Project;US$70 Million Loan of April 16, 1979; Date ofEffectiveness: July 16, 1979; Closing Date: June 30, 1986

Project implementation is 2 years behind schedule, but a revisedconstruction schedule and investment program are being prepared to minimizedelays. All contracts for equipment and materials have been finalized exceptfor the laboratory equipment and some contruction equipment. Supplies againstcontracts are being received close to the schedule.

Ln. No. 1764 Third Livestock Project; USt85.0 Million Loan of January11, 1980; Date of Effectiveness: April 15, 1980; ClosingDate: December 31, 1985

Project implementation continues to be satisfactory. Contracts forconstruction materials, poultry farm and slaughterhouse equipment andchemicals for vaccine production have been awarded. Romania's present andexpected shortage of high protein content poultry feed is closely monitored,and concrete proposals made by the Bank to improve the situation are beingreviewed by the Romanian authorities concerned.

Ln. No. 1794 Danube-Black Sea Canal Project; US$100 Million Loan ofApril 30, 1980; Date of Effectiveness: September 5, 1980;Closing Date: December 31, 1983

Project implementation is generally satisfactory although slightdelays in excavation and construction of protection walls have beenexperienced. However, measures are being taken to make up for lost time.Procurement has been practically completed; 100% of the loan amount iscommitted and about 99% disbursed.

Ln. No. 1795 Covurlui Irrigation Project; US$90 Million Loan of April 8,1980; Date of Effectiveness: July 8, 1980; Closing Date:December 31, 1987

Award of ICB procurement contracts has been practically completed.Project implementation is about one year behind schedule mainly because ofshortage of construction equipment caused in part by slow ICB procurement anddelivery and by delays in transfer of equipment from other irrigation projectsites. The Government is conducting a comprehensive study of equipmentrequirement and availability to improve planning and implementation.

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ANNEX IIPage 7 of 8 pages

Ln. No. 1876 Orchards Project; US$50 Million Loan of June 30, 1980; Dateof Effectiveness: September 16, 1980; Closing Date:December 31, 1985

Project is progressing satisfactorily. The orchard componentexceeded appraisal planting schedule estimates by 80%. In the fall of 1980and spring of 1981, 4,800 ha were planted. An additional 1,200 ha currentlyare being planted, with future planting commitments totaling 11,715 ha.Construction of 4 of 19 cold stores is under way. The technical assistancecomponent is expected to be finalized soon, and the fruit market study isunder preparation by a special committee of 19 specialists.

Ln. No. 1936 Power IV; US$125 Million Loan of January 9, 1981; Date ofEffectiveness: April 23, 1981; Closing Date: June 30, 1984

Project is off to a slow start due to delay in completing the biddingdocuments for bank-financed items by the beneficiaries, its consultingorganization and trade enterprises as well as on reaching agreement with theBank on acceptable procurement procedures. Increases in operating expenseswhich are rising faster than increases in revenues have reduced internal cashgeneration to about 22% of proposed construction requiring additionalfinancing from the State Budget to achieve planned construction expenditures.

Ln. No. 1937 Livestock IV; US$80 Million Loan of January 9, 1981; Dateof Effectiveness: April 7, 1981; Closing Date: June 30,1986

Tender documents for ICB procurement of construction material havebeen delayed. Procurement of agroindustrial equipment is likely to be delayedto 1982. Upon Bank approval, international shopping procurement will commence.

Ln. No. 1938 Bucsani-Buzau-Siret-Prut Irrigation Project; US$75 MillionLoan of January 9, 1981; Date of Effectiveness: October14, 1981; Closing Date: June 30, 1988

The main objectives of the project are to increase and stabilize cropproduction and to raise productivity in a gross area of 158,485 ha in thesouth-eastern part of Romania. This is to be accomplished through theconstruction of irrigation and drainage systems and related facilities.Procurement of equipment and materials is underway.

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ANNEX IIPage 8 of 8 pages

Ln. No. 1971 Caracal-Titu Irrigation Project; US$80 Million Loan of June24, 1981; Date of Effectiveness: Not yet effective;Closing Date: June 30, 1986

The project has been declared effective on March 26, 1982. Threetender documents have been finalized and the remaining three are beingreviewed. Final engineering designs are expected to be completed by the endof 1982.

Ln. No. 2034 Land Transport Project; US$125 Million Loan of July 17,1981; Date of Effectiveness: November 16, 1981; ClosingDate: March 31, 1987

For the railways component, civil works have commenced on twosubprojects--the Danube bridges and the new line between Vilcele and RimnicuVilcea, while for the roads component, construction has started on the newlink between Fetesti and Cernavoda. Procurement by ICB of equipment andmaterials has already been approved. Consultants ae being retained to carryout the Traffic Optimization Study.

Ln. No. 2077 Moldova Agricultural Credit; USt95 Million Loan of April 9,1982; Date of Effeciveness: Not yet effective; ClosingDate: December 31, 1986

Loan documents were signed on April 9, 1982 and terminal date foreffectiveness is August 9, 1982.

L

- 36 -

ANNEX IIIROMANIA

VIDELE/BALARIA ENHANCED OIL RECOVERY PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

a) Timetable taken by country to 10 months (November 1980-prepare the project September 1981)

b) Agency which has prepared the project Ministry of Petroleum

c) Date of first presentation to the November 1980Bank

d) Date of first mission to consider March 1981the project

e) Date of departure of appraisal mission September 1981

f) Date of completion of negotiations April 16, 1982

g) Planned date of effectiveness September 15, 1982

Section II: Special Bank Implementation Actions:

Bank mission visited Romania in early May to assist the Borrower incompleting all formalities related to procurement documents and to revieworganizational arrangements underway for the start of project implementation.

Section III: Special Conditions

Special Conditions of the loan:

i) TPB and ICPPG will core and log key wells and correlate old wellswith new ones through radioactive logging inside the casing usingappropriate techniques and equipment in consultation with the Bank(para. 56);

ii) All necessary actions shall be taken to enable TPB to earnreasonable profits in relation to total revenues so that suchprofits together with depreciation and reserve discovery chargesshall be sufficient to service TPB's debts and to finance areasonable portion of its investments (para. 58); and

iii) TPB and ICPPG shall take all steps necessary to ensure thaticoncentration of harmful gases in the Project area will not exceedthe agreed safety level (para. 63).

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