Document of F i

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-3414-PAK

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$12 MILLION

TO THE

STATE PETROLEUM REFINING AND PETROCHEMICAL CORPORATION LT]

WITH THE GUARANTEE OF

THE ISLAMIC REPUBLIC OF PAKISTAN

FOR A

REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

November 19, 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 Pakistan Rupee (Rs)US$1 = Rs 11.9 1/

Rs 1 = US$0.08

FISCAL YEAR

Government of Pakistan and PERAC GroupJuly 1 - June 30

ACRONYMS AND ABBREVIATIONS

ADB Asian Development BankARL Attock Refinery Ltd.BCF Billion cubic feetBP British PetroleumBTU British thermal unitDGER Directorate General of Energy ResourcesEDS Engineering design specificationENAR ENAR Petrotech Services Ltd.EPC Engineering, procurement and construc-

tionGOP Government of PakistanHOBC High octane blending componentLPG Liquified petroleun gasMW MegawattNPC National Petrocarbon Ltd.NRL National Refinery Ltd.OGDC Oil and Gas Development CorporationPBS Pakistan Burmah Shell LtdPERAC State Petroleum Refining and Petro-

chemical Corporation Ltd.POL Pakistan Oilfields Ltd.PRL Pakistan Refinery Ltd.PSO Pakistan State Oil Ltd.SAL Structural adjustment loanSCFD Standard cubic feet per dayTCF Trillion cubic feetTOE Tonnes oil equivalenttpy Tonnes per yearUNIDO United Nations Industrial Development

Organisation

1/ As of January 1982, the Rupee was placed on a floating basis against abasket of currencies. A rate of Rs 11.9/US$1 is used throughout thisreport, except where historical data are being presented for earlierperiods, in which case the applicable rate is identified in the text.

FOR OFFICIAL USE ONLY

PAKISTAN

REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

Loan and Project Summary

Borrower: State Petroleum Refining and Petrochemical Corpora-tion Ltd. (PERAC).

Guarantor: Islamic Republic of Pakistan.

Beneficiaries: State Petroleum Refining and Petrochemical Corpora-tion Ltd. (PERAC), ENAR Petrotech Services Ltd. andNational Refinery Ltd. (NRL).

Amount: US$12 million equivalent (including capitalizedfront-end fee).

Terms: Repayable in 20 years, including five years of grace,at the standard variable interest rate.

Relending Terms: PERAC would relend US$0.4 million to ENAR and US$1.4million to NRL on terms satisfactory to the Bank.

Project Description: (1) Refinery Engineering. First stage design and

basic engineering work for a hydrocrackerproject, including: (a) licensing agreementsfor provision of technical know-how, (b)preparation of an engineering design specifica-tion package, (c) preparation of capital costestimates, (d) prequalification of engineeringfirms and contractors for implementation of thehydrocracker project and (e) site surveys.

(2) Energy Conservation. (a) Institution-buildingmeasures to strengthen the ability of ENAR toundertake industrial energy audits and conserva-tion studies, including staff training byspecialist consultants and acquisition ofinstrumentation and equipment; (b) Energy con-servation measures at the existing facilities ofNRL including (i) an energy audit and follow-upconservation studies, (ii) acquisition of energymonitoring instrumentation and (iii) investmentsto improve fixed heater efficiencies and reduceevaporation losses in crude oil storage. Theproject involves no special risks.

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

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Estimatea Costs:

Local Foreign Total…US$ million------…

(a) Refinery Engineering (PERAC)- Licenses - 2.1 2.1- Design, Engineering andConsulting Services 0.4 6.5 6.9

- Land Acquisition and Surveys 2.1 - 2.1- Project Group Costs 0.2 - 0.2

2.7 8.6 11.3

(b) Energy Conservation (ENAR)- Consulting and Technical Services 0.3 0.3 0.6- Energy Monitoring Equipment - 0.1 0.1

0.3 0.4 0.7

(c) Energy Conservation (NRL)- Consulting and Technical Services 0.1 0.1 0.2- Energy Monitoring and Conserva-tion Equipment 0.3 1.2 1.5

0.4 1.3 1.7

Total Base Cost 3.4 10.3 13.7

Physical Contingencies 0.2 0.5 0.7Price Contingencies 0.4 1.0 1.4

Front-End Fee - 0.2 0.2

Total Financing Required 4.0 12.0 16.0

Note: Local costs are net of taxes and duties.

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Financing Plan:

Local Foreign Total--- US$ million-------

Bank - 12.0 12.0

PERAC 3.2 - 3.2

ENAR 0.4 - 0.4NRL 0.4 _ 0.4

Total 4.0 12.0 16.0

Estimated Disbursements:

FY83 FY84 FY85

Annual 1/ 2.5 4.0 5.5

Cumulative 2.5 6.5 12.0

Rate of Return: not applicable.

Map: IBRD 16248

1/ Front-end fee included in estimated FY83 disbursement.

I

iNTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

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

STATE PETROLEUM REFINING AND PETROCHEMICAL CORPORATION LTD.WITH THE GUARANTEE OF THE ISLAMIC REPUBLIC OF PAKISTAN FOR

A REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

1. I submit the following report and recommendation on a proposed loanto the State Petroleum Refining and Petrochemical Corporation Ltd. (PERAC)with the guarantee of the Islamic Republic of Pakistan for the equivalent ofUS$12 million to help finance a Refinery Engineering and Energy EfficiencyProject. The loan would have a term of 20 years, including five years ofgrace, at the standard variable interest rate. Part of the proceeds of theloan would be relent to subsidiaries of PERAC responsible for carrying outthe energy efficiency components of the project.

PART I - THE ECONOMY

2. The most recent economic report "Pakistan: Econoriic Developments andProspects" (No. 3802-PAK, dated April 14, 1982) was distributed to the Execu-tive Directors on April 16, 1982.

3. The past five years have witnessed a significant economic recovery inPakistan. Between FY77 and FY82 GDP growth averaged over 6% p.a. Thisgrowth was accompanied by a recovery in agricultural and industrial produc-tion well above the rate of population growth, currently averaging about 2.8%p.a., and by a rapid growth in exports. Exports increased in real terms by10% p.a. Value added in agriculture rose by an average of 3.8% p.a. and inindustry by 9.3% p.a. This performance contrasts markedly with the economicstagnation of the early and mid-1970s, when the growth of GDP averaged only3-4% and goods production 1.1% p.a., and export growth was negligible.

4. The recovery in the economy since 1977 has been aided by severalfactors, including favorable weather and higher domestic demand associatedwith better crops, rising rural incomes and workers' remittances from theMiddle East. Various policy changes introduced by the Government have alsocontributed significantly to the recovery.

5. In recent years the Government has taken a number of initiatives toimprove agricultural production. Particular attention hag been given toimproving farmer incentives and input supplies. Support prices for all majorcrops have been raised so that they are now closer to world prices. At thesame time, steps have been taken to reduce the fertilizer subsidy (which hasbeen creating budgetary problems) and to separate it from the developmentbudget for agriculture in order to protect allocations for other priorityagricultural projects and programs. An Agricultural Prices Commission hasbeen set up to make recommendations on appropriate changes in crop supportand input prices on a consistent and timely basis.

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6. The Government has formulated and beguin to implement a new agricul-tural policy based on the main recommendations of a UNDP study on irrigatedagriculture which emphasizes the need to improve the efficiency of the waterdelivery system through the rehabilitation of distributaries and betterscheduling of water deliveries to the farmer; and to expand the role of theprivate sector, for example, through the promotion of private tubewelldevelopment in sweet groundwater areas. Other programs--in pesticides,seeds, agricultural credit, extension, research and farm power--have alsobeen strengthened. These initiatives are still at an early stage and abreakthrough from the problems of low productivity at the farm level is yetto take place.

7. Major changes have also been made during the past four years inGovernment policies in the industrial sector. The policies pursued in theearly and mid-1970s of extensive nationalizations, tight restrictions on theprivate sector, and rapid expansion of the public sector to spearheadindustrial investment and growth have been gradually reversed. Most agricul-tural processing and some industrial units have been denationalized; con-stitutional safeguards have been provided to private industry against furtherarbitrary government acquisitions; and the areas open to the private sectorhave been widened. A wide range of incentives including tax holidays, exciseand import duty concessions, concessionary credit and income tax provisions,and direct cash rebates have been granted to encourage private investment andexports. These have been supplemented by a partial liberalization of importswhich have improved the availability of inputs. The investment sanctioningprocedure has been streamlined. These measures have led to an improvement inprivate sector confidence and to a sharp increase in private investment,mainly in small and medium-scale projects.

8. At the same time, the Government has embarked on the difficult andinevitably long process of reforming the public industrial sector, which hasbeen plagued by low efficiency and profits. Mlajor studies have been com-pleted of the management and organization of the public sector, and theperformance of individual enterprises. In accordance with the recommenda-tions of these studies, the Board of Industrial Management (BIM) has beenabolished, the number of sector holding corporations has been reduced, andboards of directors have been established which have helped to increaseautonomy at the enterprise level. Some public sector units which have littleprospect of improved financial performance have been closed down. Thesemeasures, together with additions to capacity and steps to retain skilledtechnical personnel through salary adjustments, for example in the fertilizersubsector, have helped to increase production and capacity utilization sub-stantially in the public sector.

9. The higher level of economic activity during the past five years andthe Government-s efforts to raise existing tax rates, introduce new taxes andreduce tax evasion have helped to improve public revenues. The budgetarysituation improved significantly during FY80 through FY82. Government

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revenues, following increases of 21% in FY78 and 16% in FY79, rose by anaverage of 18% p.a. during the next three years as a result of the continuedgrowth of the economy, tax and tariff increases and intensified efforts toimprove tax collections. Although political developments outside Pakistan'sborders led to unplanned expenditures, tight restraints were maintained ontotal spending; the growth of public expenditures was limited to 13% p.a.The expansion of development and administrative expenditures were restrained,while subsidies were reduced by more than 25%. These restraints on expendi-tures, continued revenue growth and some improvement in surpluses generatedby public sector agencies helped to increase the availability ofnon-inflationary domestic resources. During FY80 through FY82, the overallbudget deficit averaged 5.7% of GNP and the bank-financed budget deficit 1.7%of GNP; both figures are well below those of the late 1970s.

10. Pakistan's export performance improved considerably between FY77 andFY81. Rapidly rising workers' remittances from abroad, from US$578 millionin FY77 to over US$2.1 billion in FY81, also greatly assisted the externalposition. These increases, however, were partly offset by an increase in thevalue of imports, mainly petroleum, oil and lubricants, fertilizer, edibleoil and capital goods. The current account deficit was US$947 million or3.1% of GNP in FY81, compared to US$1,050 million or nearly 7% of GNP in FY77in current prices.

11. A number of developments contributed favorably to Pakistan's abilityto finance the FY81 current account deficit. These included the conclusionof an Extended Fund Facility arrangement with the IMF in fiovember 1980; apositive response from aid donors to the country's improved economic perfor-mance resulting in increased aid commitments and inflows; and an agreementwith bilateral creditors in the Pakistan Consortium for rescheduling of debtservice payments on official concessional debt falling due over an 18-monthperiod beginning mid-January 1981. As a consequence of inproved performanceon both current account and capital account, foreign exchange reservesL';reased from US$748 million to US$1,058 million during the year; the latterwas the equivalent of about two months' worth of import of goods and serv-ices.

12. The balance of payments deteriorated somewhat during FY82. Theprincipal reasons were a 17% decline in the value of exports coupled withrelatively slow growth of migrant remittances (6%). For Pakistan's majorexports, rice and cotton, the combination of deteriorating world economicconditions plus output expansion in other countries led to a decline in bothunit values and volumes. For manufactured exports, the slowdown in the worldeconomy and the deterioration in Pakistan's competitiveness resulting fromthe linkage of the rupee to the US dollar up to January 1982 led to a declinein value as compared with the previous year. Because of the decline in worldpetroleum prices and import substitution in some key sectors (most par-ticularly, fertilizers), the volume of imports of essential raw materials and

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capital goods could still grow sufficiently to provide for a real GDP expan-sion of 6% while the total value of imports expanded by only 1%. Owing tothe above factors, Pakistan's current account deficit rose from US$947 mil-lion in FY81 to US$1,530 million in FY82 (the latter being equivalent to 4.4%of GNP). Net inflows of official assistance, private capital and IMF resour-ces were not sufficient to cover the increased deficit and there was a draw-down of about US$250 million in reserves. At the end of FY82, reserves wereUS$809 million, the equivalent of about 1.5 months of imports.

13. The developments in the Pakistan economy since 1977 represent welcomesteps towards the solution of a set of problems which are essentially struc-tural and long-term in nature. Notwithstanding these improvements, furtherwide-ranging measures to address the basic issues which are limiting economicgrowth in the longer term are necessary if Pakistan is to sustain itsrecently improved economic performance over the present decade and bringabout a modest improvement in the living standards of its population. Theseissues include the farm-level factors affecting low productivity in agricul-ture; the structure and competitiveness of the industrial sector; the need toimprove performance of public sector enterprises; the factors lying behindcontinued rapid growth in population; the need to redirect social serviceexpenditures; and the problems of resource mobilization.

14. Agriculture remains the economyTs mainstay, accounting directly forroughly a third of GDP, employing about 60% of the labor force and, directlyor indirectly, providing nearly two thirds of total exports. Despite recentimprovements in output and yields, a number of fundamental factors continueto limit agricultural productivity at levels well below the potential impliedby the resources and technologies already available. Generally, outputgrowth has not been commensurate with the substantial increases in availableinputs, especially water and fertilizer. While considerable potential stillexists for the additional use of fertilizer and other inputs, it appearsessential to give greater priority to evolving complementary policies andprograms which would have a direct impact on yields at the farm level. Theimportance of increasing farm productivity is now more widely recognized inthe Government and a beginning has been made in addressing this problem.Nevertheless, support for programs to strengthen research, extension, watermanagement and other programs in the agricultural and water sectors needs tobe intensified, while fertilizer subsidies must be further reduced, accom-panied by necessary adjustments in output and consumer prices.

15. Manufacturing contributes about 15% of GDP and during much of the1950s and 1960s provided a major stimulus to growth. Growith rates inmanufacturing production, though recently better, remain below the levelsattained in the 1960s. The textile industry, in particular, which accountsfor nearly 40% of value added in large-scale industry, has suffered fromproblems of inefficiency, excess capacity and a lack of competitiveness inforeign markets. Although there have been some recent improvements in theoutput and profitability of public enterprises, these improvements need to be

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carried further through appropriate reforms to remove distortions in pricingand improve performance criteria and incentives to managers. To assist therecovery in private investment and to maintain the increased momentum in theindustrial sector will require an adequate supply of local and foreignfinancing, both for investments and current inputs, and the more rapid provi-sion of necessary utilities and other infrastructure requirements. At thesame time, it is necessary to ensure that the Government's incentive systemsupports those industries in which Pakistan has a comparative advantage.Analysis is in progress to determine levels of effective protection in orderto provide the basis for formulating an appropriate industrial developmentstrategy for the 1980s.

16. The Government's efforts to deal with the energy situation by adjust-ing domestic oil prices, and by encouraging the substitution of other energyforms and the exploration and development of domestic oil resources, have metwith some success. Growth of petroleum consumption has been restrained bythe development of hydro electricity and natural gas resources as well as bypetroleum price adjustments. At the same time, activity in the oil sectorhas been stepped up, in some instances through joint ventures with foreignprivate companies. Nevertheless, due to a variety of technical, geologicaland other reasons, progress on exploration of new fields as well as thedevelopment of existing fields has been slow; and the benefits of Pakistan'sconsiderable potential in the oil and gas sector are yet to be realized. TheGovernment has begun to implement a number of reforms relating to such mat-ters as energy planning, pricing and organization in order to realize thispotential.

17. W4hile it is clearly vital to sustain rapid growth in the com-modity-producing sectors, it is also necessary to contain the rapid growth inpopulation, currently running at about 2.8% p.a., which has seriously hand-icapped the country-s ability to improve living standards. Family planningprograms have so far had little effect and there have been few changes in thesocio-economic environment of a type that usually accompany declines infertility. Rapid population growth places severe burdens on governmentresources simply to maintain education and health programs at their currentinadequate standards. However, without higher literacy rates, improvedhealth facilities and a reduction in child mortality, it is doubtful thatpopulation growth rates can be much reduced. Expenditures on social serviceshave been low and undue emphasis has been given to higher education and urbanhealth facilities. The Government has recently shown more awareness of thisproblem; a new and more promising population program is in the initial stagesof implementation, and several special programs to improve basic health andeducation facilities were introduced in the FY82 budget, especially for ruralareas.

18. Policies that face the longer-term issues in both the productive andthe social sectors will take time to have an appreciable effect and will haveto be implemented in the context of continued domestic and external resource

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constraints. To improve the budget and the balance of payments, a fundamen-tal improvement is required in the overall savings levels in the economy,particularly in public savings. At 13% of GNP, national savings are substan-tially above the levels of the early and mid-1970s, but are still low for acountry at Pakistan's per capita income level and stage of development. Thecontinuation of the Government's recent efforts to restrain public spending,improve the performance of the public sector and encourage private investmentwill help to reduce present imbalances between investment and savings flows.At the same time, an increase in savings inevitably calls for restrainingprivate consumption through further appropriate price adjustments and selec-tive duty increases on non-essential imports. Continued restraints on spend-ing and measures to further improve revenues through improvements in taxadministration and tax and rate increases (for example, property taxes,domestic water rates and irrigation water charges) are also needed.

19. Increased agricultural production of major crops (particularly riceand cotton) will help directly to sustain export growth. Efforts are alsonecessary to stimulate the output of minor crops, for exariple, pulses,potatoes, onions and fruits, for which markets exist in neighboringcountries. In addition, substantial scope exists for increasing Pakistan'sexports of manufactured goods such as textiles and engineering products, aswell as of a wide range of goods produced by the small-scale industrialsector. Increased domestic output of wheat, edible oil, sugar, mineral fuelsand fertilizer would help to moderate import growth considerably.

20. Although, as described above, the Pakistan economy continues to facea number of difficulties, the improvements over the past few years in demandmanagement and in planning, incentives and government programs in agricul-ture, industry and energy have helped to create a climate more conducive torapid economic growth and better international trade performance,and haveestablished an improved framework within which further reforms can be effec-tively pursued. The recent government policy initiatives, which have beenformulated in close consultation with the Bank and Fund, lhave improved Pakis-tan's creditworthiness for commercial borrowing and for a blend of Bank andIDA borrowing.

21. At the end of calendar 1981, Pakistan's external public debt (exclud-ing the undisbursed pipeline) stood at US$8.8 billion, of which US$4.6 bil-lion was owed to bilateral members of the Pakistan Consortium, US$1.2 billionto OPEC and US$1.9 billion to multilateral agencies and the balance to otherbilateral and private lenders. In 1981, the Bank Group-s share in Pakistan-sexternal public indebtedness was 13.8% and in external debt service was13.3%. According to Bank forecasts, provided recent policy improvements aresustained, Pakistan's debt service ratio (debt service divided by exports ofgoods and factor and non-factor services), which was about 10% in 1981,should rise slowly during the 1980s, even assuming substantial commercialborrowing, reaching 12% in 1985 and about 17.5% in 1990.

PART II - BANK GROUP OPERATIONS IN PAKISTAN

22. The cumulative total of Bank/IDA commitments to Pakistan (exclusive

of Loans and Credits or portions thereof which were disbursed in the formerEast Pakistan) now amounts to approxinately US$2 billion. During its longassociation with Pakistan, the Bank Group has been involved in almost allsectors of the economy. This has included its involvement with other donors,over a 20-year period, in the major program of works to develop the waterresources of the Indus Basin. Approximately 38% of total Bank/IDA commit-ments to Pakistan have been for public utility services, 30% for agriculture,31% for industry (of which 9% was for industrial imports) and 2% for educa-tion. Lending for public utility services has included loans and credits forrailways, electric power, gas pipelines, ports, highways, telecommunicationsand water supply.

23. Lending operations in Pakistan have three main objectives: first,to support the directly productive sectors of the economy; secondly, tosupport the expansion of, and to improve the institutions which are respon-sible for, the principal public services supporting econonic growth; andthirdly, to meet basic needs in the areas of rural and urban development.

24. In pursuit of these objectives, the Bank Group has placed specialemphasis on lending for agriculture, which is the mainstay of the Pakistaneconomy. Projects in this sector are aimed at augmenting the supply ofessential inputs, principally irrigation water, fertilizer, seeds and credit;strengthening research, extension and other agricultural supporting services;improving water management; reclaiming land by controlling salinity andwaterlogging; and providing essential facilities including tubewells, live-stock development and dairy processing. An important purpose of this lendingis to assist the Government's program to increase the productivity of avail-able land and water resources in the Indus Basin through quick-yieldinginvestments, as recommended recently in a UNDP-financed study for which theBank was executing agency.

25. In industry, most lending for the private sector has been throughthe DFCs, principally through eleven Loans/Credits amounting to US$270 mil-lion for the Pakistan Industrial Credit and Investment Corporation (PICIC),and two Credits to the Industrial Development Bank of Pakistan (IDBP), total-ing US$50 million. Direct lending for industry has also included assistanceto three large fertilizer plants, as well as for small-scale industry. IFChas made investments in 15 Pakistan enterprises for a total of US$92.2 mil-lion, of which US$82.4 million was by way of loans and US$9.8 million byequity participations (these are shown in Annex II). About US$33.9 millionof these investments remains outstanding. The enterprises assisted by IFCinclude three in the field of pulp and paper products, two in textiles, twoin food and food processing, and one each in cement, steel, fertilizers,

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plastics, wood processing and petrochemicals. IFC is also a shareholder inPICIC.

26. The focus of Bank Group lending for transport and communications hasshifted increasingly towards assisting Pakistan to better utilize existing a

capacity by improving the efficiency of operations and strengthening theinstitutions responsible for these services, especially the Karachi PortTrust, Pakistan Railways, the Telephone and Telegraph Department, and federaland provincial highway agencies. In the power sector, the Bank Group hasassisted the Karachi Electric Supply Corporation (KESC) and the Water andPower Development Authority (WAPDA) with four and three projects respec-tively; the sector has also been assisted by the construction under the IndusBasin Development Program of Mangla and Tarbela Dams.

27. In the oil and gas sector, the two Sui gas transmission companieshave been assisted with five projects, while IDA has recently financed apetroleum development project and begun to play an important role instrengthening the Oil and Gas Development Corporation. These efforts areassisting in the efficient development and utilization of Pakistan's domesticenergy resources. A second water supply project in Lahore is currently underimplementation. Five credits for education, totaling US$62.5 million, haveassisted in upgrading primary, post-secondary and higher technical andagricultural education, middle-level training of primary teachers andagricultural extension agents.

28. In addition to financing specific high-priority projects in keysectors of the economy, the Bank has from time to time supported Pakistan'sdevelopment through program assistance. A first structural adjustment lend-ing operation (SAL) was approved by the Executive Directors in June 1982.This SAL program consists of a number of significant reforms in governmentdevelopment planning and in policies and programs in the agriculture, energyand industrial sectors.

29. Annex II contains a summary statement of Bank loans and IDA creditsas of September 30, 1982, and notes on the execution of ongoing projects.Credit and loan disbursements have been generally satisfactory. Someprojects have experienced initial delays due to protracted government proce-dures for project approval, which have now been streamlined, and to slownessin the procurement of goods and services. Rapid turnover of managerial andtechnical staff, in part due to migration to the Middle East, and budgetaryconstraints have been problems in the case of some projects.

30. A number of further projects for Bank Group financing are currentlyunder appraisal or being prepared in Pakistan. These include projects forwater supply, population planning, oil and gas development, and education.Pakistan continues to have domestic resource constraints for the reasons setout in Part 1. To assist the Government to finance agricultural and other

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high-priority projects which have a low foreign exchange component, financingof some local expenditures in specific cases is justified.

31. In addition to lending, economic and sector work provides the basisfor a continuing dialogue between the Bank Group and the Government of Pakis-tan on development strategy, and for the coordination of external assistancewithin the Pakistan Consortium.

PART III - THE ENERGY AND PETROLEUM SECTORS

A. Energy Sector

32. Inadequate domestic production of energy has becone an increasinglyserious constraint to economic growth in Pakistan. While recent efforts toexpand domestic energy supplies have led to moderate increases in domesticproduction, particularly of hydro-electricity, the country remains heavilydependent upon imported petroleum to meet its primary energy requirements.Tn 1980/81 imports of crude oil and petroleum products totalled US$1.6 bil-lion, equivalent to 26% of total imports. The Government has instituted arange of policies to encourage further exploration and development of domes-tic energy resources and to facilitate greater private participation in thesector, and is strengthening its institutional capacity in energy planning,development and conservation. Under the Three-Year (FY82-84) Public SectorDevelopment Program, public investment in energy is planned to increase from20.7% of total public investment in FY81 to 27.8% in FY84.

Pakistan's Energy Supply and Consumption

33. In 1980/81, consumption of commercial energy in Pakistan reached 13.0million tons of oil equivalent (TOE), having increased at a rate of 7.1% p.a.during the previous decade. During this period, the composition of commer-cial energy supply changed substantially, with the share of natural gas andhydro-electricity in total energy supply increasing from 46% to 58% and thatof oil (90% of which is imported) dropping from 45% to 37% (Annex IV). Thedomestic coal industry, which until recently had received little attention,stagnated in absolute terms. On the consumption side, industry and transpor-tation remained as the major consumers of commercial energy, representing 32%and 21%, respectively, of energy use in 1980/81. Commercial energy repre-sented 58% of total energy use in the country, with non-commercial energysources accounting for the remaining 42% (firewood, 23%; bagasse and othervegetable residues, 12%; and dungcake, 7%).

The Energy Resource Base

34. Natural Gas. Pakistan has significant reserves of natural gas, whichwas first discovered in 1952 and currently supplies about 42% of commercial

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energy requirements. Recent estimates place proven recoverable gas reservesat 12.9 trillion cubic feet (TCF). Although production of gas in 1980/81 atnearly 300 billion cubic feet (BCF) was 15.4% higher than in 1979/80, poten-tial demand exceeds supply. To further increase gas production, the GasInvestment Plan currently under formulation by GOP envisages investments infield development of US$488 million (constant 1981 prices) and associatedpipeline investments of about US$100 million. These investments have beendesigned to achieve a production increase of 190 BCF per year by 1986, or a66% increase over present output. It is estimated that, by developing allother presently known gas bearing structures, further supply increases ofabout 200 BCF per year could be achieved over the longer term. Even thesesupply increases, however, are expected to be insufficient to meet thecountry's energy demand requirements in the early 1990s.

35. Oil. Known domestic oil reserves are modest, with recoverable reser-ves estimated at about 70 million barrels (plus 34 million barrels of conden-sate from the Dhodak natural gas field). These reserve estimates are sub-stantially below some previous estimates due principally to the downwardre-evaluation of the potential of the largest single known field at Meyal,where the geological structure has proved to be more complicated thananticipated. Since 1977, when the Government introduced nore attractiveterms for exploration and production by private oil companies, explorationactivity has increased substantially but total domestic crude production hasremained steady, averaging about 3.6 million barrels (490,000 tons) p.a.This domestic output represented only 10% of total crude oil processed by therefineries in Pakistan in 1981. In view of the large share of oil in thetotal energy balance (36.6% of commercial energy consumption) and the modestlevel of domestic crude oil output, Pakistan is heavily dependent uponimports of crude oil (4.0 million tons in 1980/81) and refined products (1.6million tons in 1980/81), principally diesel and kerosene. The cost ofimports of crude and products in 1980/81 was US$1.6 billion; net of surplusproduct exports (449,700 tons of fuel oil and 108,600 tons of naphtha), theimport cost was US$1.3 billion.

36. Hydro-Electricity. In 1980/81, hydro-electric power capacity of1,850 MWJ accounted for 15.9% of commercial energy requirenents and 56% oftotal power generated. The total potential for hydro power (mainly on theIndus and Jhelum rivers) is estimated at between 10,000 and 30,000 MW.Investments under the present Three-Year Public Sector Development Programat Tarbela and long-term plans at Kalabagh, Tarbela and Mangla sites envisagea total increment in hydro capacity of about 1,000 MW by nid-1985, a further1,825 MW between 1985 and 1990 and 1,760 MW from Kalabagh by the mid-1990s.These increases would maintain the share of hydro in total power generationat its present level.

37. Coal and Nuclear. Coal production of 1.6 million tons p.a. (90% ofwhich is used for brick making) supplied only 5.3% of comnercial energy in1980/81. The Geological Survey of Pakistan estimates total recoverable

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reserves of coal at 640 million tons, of which only 20% are proven. Most ofthe proven coal reserves are of poor quality. The Governnent is now placinggreater emphasis on the'development of coal; this strategy would be assistedunder a proposed Bank project to assess possible development of coal suppliesin the Duki area of Baluchistan province for power generation. Pakistan hasone operational nuclear power station which provided 0.2% of commercialenergy consumption in 1980/81; a second is planned.

Energy Sector Organization

38. Overall responsibility for coordinating national energy planning hasbeen assigned to the Planning and Development Division of the Ministry ofFinance, Planning and Economic Affairs. The Ministry of Petroleum andNatural Resources (MPNR) has wide-ranging responsibilities for the develop-ment and execution of many aspects of energy policy; it is also the sponsor-ing ministry for two of the three refinery companies operating in the countryin which the Government has, directly or indirectly, minority ownership(Attock Refinery Ltd. and Pakistan Refinery Ltd.). The Ministry-s respon-sibilities include: (a) technical and financial regulation of the refinerysector; (b) administering prices for oil products at the production anddistribution levels; (c) the approval of all proposed contracts entered intoby the refineries to import crude oil or export refined products; (d) energysector statistical services; and (e) the promotion of renewable energyprojects and energy conservation. The Ministry of Production is involved inthe energy sector as the sponsoring ministry for the Government-owned StatePetroleum Refining and Petrochemical Corporation Ltd. (PERAC) which hasseveral subsidiaries including National Refinery Ltd. (NRL), in which PERACis the majority shareholder.

39. Another government institution, the Oil and Gas Development Corpora-tion (OGDC), shares with private operators the responsibility for explorationand development of oil and gas resources. Two predominantly private com-panies also play important roles in oil and gas production: PakistanPetroleum Ltd. (PPL), which operates the Sui gas field, and Pakistan Oil-fields Ltd. (POL), which operates the Meyal oil field. Shell, BritishPetroleum, Occidental and Union Texas are among the international companiesactively involved in exploration. The Government has recently adoptedpolicies to encourage greater private involvement in the sector, both throughimproved financial incentives and by inviting private sector participation inareas held under license by OGDC.

Energy Conservation

40. The increasing burden of oil imports on Pakistan's balance of pay-ments has made GOP aware of the importance of measures to control energydemand through pricing policies and the promotion and implementation ofenergy conservation measures. The MPNR, which is responsible for overseeingall energy conservation efforts, has initiated broad promotional campaigns

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and demonstration projects for renewable energy. At present, it is con-centrating on building up staff and expertise in this area through technicalassistance from various agencies (including UNIDO for estimating energybalances for selected industries and ADB for a review of energy consumptionin the textile, glass and leather industries). In the actual implementationof industrial energy conservation policies, the MPNR is expected to relyconsiderably on the Ministries of Industry (for the private sector) and ofProduction (for public enterprises). The Ministry of Production has recentlysponsored several industrial energy audits using the services of ENARPetrotech Services Ltd., a PERAC subsidiary, which has an established staffof competent engineers and systems analysts. To enable it to play anincreasing role in developing industrial conservation programs at plantlevel, ENAR is planning to form an Energy Conservation Unit within the com-pany to carry out additional energy audits and energy conservation studies,including one proposed for the fertilizer industry. Measures to strengthenENAR's capability in this field are included under the proposed project(paragraph 64).

Energy Strategy

41. Pakistan's energy strategy is at a transitional stage. Untilrecently there was considerable optimism that domestic supplies of naturalgas, together with some expansion in hydro-electric facilities, would meetmuch of the country's increase in energy requirements. However, recent dataindicate that in the long term proven gas reserves will be inadequate to meetthe rapidly growing demand and that, in the short and mid-term, supplies willbe limited by the lack of adequate treatment and transmission facilities.GOP development policies are being adjusted to this new situation. As dis-cussed below, reforms in wellhead and consumer pricing have been initiated.In the immediate future there is a need to moderate gas demand and toincrease the use of alternative fuels in the power sector through the conver-sion of some power stations presently burning gas to fuel oil. In addition,a number of new power stations may be based on fuel oil and other alternativefuels such as coal. Work on a comprehensive energy plan is under way withBank assistance.

42. Natural gas prices to consumers have in recent years been set farbelow equivalency with competing fuels and gas demand has grown so rapidlythat various forms of quantitative rationing have been adopted (such asseasonal reductions in supply to the power sector and a strict quota for newdomestic connections). Under the on-going Structural Adjustment Loan andCredit (Loan No. 2166/Credit No. 1255-PAK) GOP has stated its intention ofraising gas consumer prices to two thirds of fuel oil parity by FY88 (thepresent ratio is about 30%). Incentives to explore for and develop new oildiscoveries are attractive and have induced an increased level of activitywith private participation. Prices for oil from existing fields, previously

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set at low levels, have recently been increased and are now considered ade-quate to encourage the required investments. Incentives for exploration anddevelopment of gas have also been improved.

Bank Group Involvement

43. World Bank group operations in Pakistan in the energy sector haveincluded several power projects and substantial assistance for the extensionof the gas distribution system and for domestic oil production at the Tootfield. In addition, IFC has participated in financing the expansion incapacity at Attock Refinery and the development of the Meyal field; it isalso planning to participate in the further development of the Sui Gas field.The Bank's recent economic dialogue with GOP has focused on issues in theenergy sector which is one of the major policy areas being addressed underthe Structural Adjustment Loan/Credit. This dialogue has assisted GOP toformulate long-term plans for the sector and has led to agreements under theSAL on important policy changes in the sector, including tndertakings to:(a) promote the accelerated exploration of concession areas held underlicense by OGDC, inter alia, through the negotiation of private sector par-ticipation; (b) implement GOP's revised gas development strategy, inter alia,through inducing additional private investment; (c) progressively rationalizeconsumer/user prices of natural gas in relation to alternative energy forms;(d) strengthen and reorganize OGDC; and (e) work on an agreed program of datacollection and analysis leading to the preparation of a long-term integratedenergy plan for Pakistan.

B. Petroleum and Refining Sector

Petroleum Exploration and Production

44. In the medium to long-term there are reasonable prospects for modestincreases in domestic oil production in Pakistan. More than a dozen poten-tial structures have been seismically defined by OGDC; other areas withhydrocarbon potential have been identified which have not yet been adequatelyevaluated; and the recent discovery of crude oil in the south of the country(at Khashkheli) opens up new exploration possibilities. However, the scopefor large oil discoveries appears limited. Despite a higher level ofexploration following the introduction of new incentive policies in 1977, nonew commercial discoveries apart from Khashkheli have been made in recentyears and new survey data suggest that fields may be smaller and harder tofind than earlier anticipated.

Consumption of Petroleum Products

45. During the past ten years consumption of petroleuTI products in Pakis-tan grew at an average annual rate of 5%, from 2.8 million tons in 1972 to4.3 million tons in 1981 as shown in Annex V. The major growth in consump-tion was for transportation fuels (gasoline, high-speed diesel (HSD) and

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aviation fuel) which now account for 66% of total demand, with HSD aloneaccounting for 45%' of the total. Kerosene accounts for an additional 12% ofconsumption and is used in the domestic sector for cooking and lighting.Fuel oil accounts for 17% of petroleum consumption and is used mainly inindustry and on a seasonal basis in the power sector as a back-up fuel forperiods of low availability of hydro-electricity. Light diesel oil, account-ing for 5% of consumption, is used mainly in the agricultural sector forsmall irrigation pumps. In spite of the high growth rate in petroleum con-sumption, the share of petroleum in total commercial energy suppliesdecreased from 43% in 1972 to 37% in 1981.

Petroleum Refining Capacity

46. There are three oil refineries in Pakistan, two in the private andone in the public sector, with a total crude capacity of 6.1 million tpy.The smallest refinery is that operated by the Attock Refinery Ltd. (ARL) witha capacity of 1.5 million tpy of crude located on the outskirts of Rawal-pindi; this refinery operates exclusively on the basis of indigenous crudesupplies from various small domestic fields in the region. The two largerrefineries operated by Pakistan Refinery Ltd. (PRL) and National RefineryLtd. (NRL) with capacities of 2.5 and 2.1 million tpy, respectively, arelocated on the coast near Karachi. Except for small amounts of crudeproduced in recent months from the Khashkheli field, these two refinerieshave processed exclusively imported crude.

47. ARL is owned 52.5% by private Saudi/Kuwait interests, 35% by GOP,7.5% by IFC and the remaining 5% by private local interests. It operatesfacilities dating from 1911 that were subject to a major capacity expansionin 1978 from 0.47 million tpy to 1.5 million tpy with IFC assistance. Atthat time, a major increase in the domestic output of crude was anticipated,based mainly on exploitation of the Meyal oil field. However, this increasehas not yet materialized--supplies have remained almost constant at about 0.5million tpy--so that considerable excess capacity now exists at ARL. Thefuels section of the refinery is of simple configuration and lacks secondaryprocessing facilities.

47. The refinery facilities of PRL commenced operations in 1962. Themain shareholders at that time were Shell, Burmah Oil, Exxon and Caltex,which between them held 60% of the equity, with proportionate productoff-take rights. In 1976 Exxon voluntarily withdrew from refining and dis-tribution in Pakistan, selling its interest to Pakistan State Oil Company(PSO). The present ownership of PRL is Shell, 15%; Burmah Oil, 15%; Caltex,12%; PSO, 18%; local institutions (insurance groups, Karachi Gas Company,etc.), 12%; and private investors, 28%. The PRL refinery is a simplehydro-skimming refinery with no secondary processing facility, and all of thereduced crude produced has to be converted into fuel oil by blending withdiluents such as kerosene and diesel oils.

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49. NRL, which is under effective public control through PERAC (paragraph38), commenced operations in 1966 with facilities to process 0.6 million tpyof crude oil. Subsequently, in 1978, a second refinery line with a capacityof about 1.5 million tpy was put into operation to give a total crudeprocessing capacity of 2.1 million tpy. In 1979, a 30,000 tpy aromaticscomplex was added to the company. NRL is the most complex refinery in Pakis-tan and produces a complete range of fuel products, lube base oils, bitumenand aromatics. At present a major expansion of the lube oil complex is underimplementation which, when completed in 1984, will increase the lube base oilproduction to 170,000 tpy. NRL is also planning to debottleneck and increasethe existing crude oil distillation capacity by about 0.6 million tpy by1984.

Suppy and Demand Balances for Petroleum Products

50. A comparison of actual production and consumption of refined productsin 1980/81 with forecasts for 1988/89 is shown in Annex VI. Crude processedin 1980/81 was 4.3 million tons (3.8 million tons of product) or 71% of therefinery capacity of 6.1 million tons. This relatively low capacity utiliza-tion was due to: (i) lack of local crude supplies to ARL, such that itsfacilities operated at only 29% of design capacity; and (ii) product mixconstraints and restricted availability of imported crude such that PRL andNRL were operating at an average 84% of capacity. While the country s over-all refining capacity is adequate compared to current overall demand levels,the sector faces a serious structural problem currently faced by mostdeveloping countries: there is an imbalance between domestic demand andsupply of individual refined products, due to the simple configuration of therefineries and absence of secondary conversion facilities with a consequentlack of flexibility in changing the product mix. Due in part to thisImbalance, in 1981 Pakistan had a major deficit of high value middle distil-lates (kerosene and diesel oil) necessitating imports of 1.4 million tons ofthese products, equivalent to 46% of local consumption, while 1.47 milliontons of low value fuel oil was produced, of which 0.64 million tons had to beexported (43% of production). This structural problem in the industry addssubstantially to the country s petroleum import bill. Unless steps are takento modify refinery configurations and eventually install additional capacity,the deficit of distillate products will continue to increase to an estimated2.7 million tpy in 1989 (2.5 million tpy of diesel oil and kerosene repre-senting 55% of their demand) even after allowing for increased capacityutilization at ARL (assuming improved local crude supplies) and PRL, with acorresponding production of 1.64 million tpy of fuel oil. Under the proposedloan the preparatory work for a Hydrocracker Project would be carried outwhich would allow processing of low value fuel oil from PPL and NRL into highvalue distillates and thus decrease the import requirements for high valuedistillates by 0.69 million tpy. However, even after implementation of thisproject, by 1988/89 the country will still need to import about 2 million tpyof middle distillates.

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Distribution of Petroleum Products

51. The distribution and marketing of petroleum products within Pakistanis undertaken by three companies; their current shares of the domestic fuelmarket are Pakistan State Oil Ltd. (PSO) 58%, Pakistan Burmah Shell Ltd. 30%and Caltex 12%. PSO is owned 25% by GOP, 51% by local financial institutionsand 24% by private Pakistani investors. PBS is owned 51% by Pakistani inter-ests (financial institutions and members of the general public) and 24.5%each by Shell Petroleum Company Ltd. and Burmah Oil Company Ltd.

52. The distribution companies are allowed ex ante distribution marginsbased on underestimated theoretical costs; ex post they can reclaim thedifference between the allowance and their actual costs. The movement ofproducts has been greatly facilitated since March 1981 by the opening of a865 km, 16-inch product pipeline from Keamari (near Karachi) to Gujarat (nearMultan in the center of the country). The pipeline is owned and operated bythe Pakistan Arab Refinery Company (PARCO), owned 40% by the Abu DhabiNational Oil Company and 60% by GOP. The pipeline now transports all sup-plies of high speed diesel and superior kerosene moved north from the coast,currently about 1.3 million tons p.a. Transport by rail and road continuesto be important for other products, and for distribution from the oil market-ing companies' joint installation at Mahmood Kot near Gujarat, which is fedby the pipeline, to wholesale depots and retailers.

Petroleum Product Pricing

53. Most petroleum products sold domestically are covered by governmentprice controls both at ex-refinery and consumer levels. Retail prices forpetroleum products have been equalized for all locations in the country since1966. During recent years GOP has made considerable progress in raisingconsumer prices to reflect international prices more adequately and Govern-ment policy is to pass on petroleum product cost increases promptly to thefinal consumers. As a result, consumer prices are generally in line withimported (border) prices, with local gasoline prices significantly higherat US$2.40 per gallon, and fuel oil lower (Annex VII).

54. Ex-refinery prices are set by GOP at a level that is intended toallow the refineries to earn a 15% return (net of taxes) on their paid upshare capital. In practice, during periods of increases in internationalcrude oil prices, increases in ex-refinery prices have not fully reflectedincreased costs, resulting in liquidity problems and the need for ad hocpayments by GOP to the refineries to achieve the guaranteed return.Ex-refinery prices for ARL have been lower than those for NRL and PRL toreflect the lower prices of local crude processed by ARL compared to the costof imported crude processed by PRL and NRL. The present system for settingex-refinery pricing does not take into account product mix, productivity andcapacity utilization, and gives little incentive for efficient operation orfor reinvestment. It is to the credit of the managements of the refineries

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that, notwithstanding the lack of incentives, the refineries are welloperated and, in the case of NRL, the company is prepared to make investmentsto improve energy efficiency. During negotiations for the proposed Engineer-ing Project the merits of alternative systems for setting petroleum pricesat the ex-refinery level were discussed with GOP and an understanding wasreached on the need to improve the present pricing system. Agreement onsuitable modifications in the system for setting ex-refinery prices would benecessary in connection with possible Bank assistance for the HydrocrackerProject that would follow the proposed Engineering Project.

C. Project Sponsors: The PERAC Group

55. A new company will be formed. to implement and eventually operate theplanned Hydrocracker Project to be implemented after the completion of theproposed Engineering Project. While the final ownership pattern of the newcompany is still to be finalized, the Government intends to maximize theparticipation of private interests. On the basis of ongoing discussions,PERAC is exploring an ownership equity structure in which PERAC and itssubsidiaries would own about 35%, financial institutions and banks 35% andprivate investors 30%. PERAC has been responsible for the formulation of theproposed Hydrocracker Project and will continue to act as project sponsoruntil the new company is formed and equity ownership is finalized.

56. PERAC acts partly as a holding company for various government inter-

est in refining, chemicals and oil tankers, and also as a planning unitgenerating new projects in these sectors which, when ready for implementa-tion, can be spun off to existing or other companies for execution and opera-

tion. PERAC's staff is relatively small but is well qualified and has con-siderable experience in the refinery sector. The subsidiary companies arealso staffed with experienced personnel and are efficiently managed. Thegroup has considerable experience in the development and implementation ofnew industrial projects. PERAC owns 16% of the equity in NRL but exercisescontrol of the company through perpetual proxies from various state-ownedfinancial institutions which hold 55.6% of the equity. The remainingshareholders are the Islamic Development Bank (15%) and members of the public(13.4%). PERAC owns 100% of the equity in National Petrocarbon Ltd. (NPC),which has an established business in the production and marketing ofspecialty oils and asphalts, and which is currently establishing an 8,100tpy capacity carbon black plant. Another wholly owned subsidiary of PERAC,ENAR Petrotech Services Ltd. provides consultancy, design and engineeringservices to the refining and petrochemical industries. In addition, PERACand the Pakistan National Shipping Corporation (PNSC) each own 50% of theequity in National Tanker Company which owns and operates an oil tanker.

57. Since PERAC does not operate any productive assets directly, itsincome and hence its ability to generate resources internally for investmentin new projects consists of dividends, interest payments and management and

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consultancy fees paid by its subsidiary companies. Revenue increased fromUS$1.4 million in 1979/80 to US$2.2 million in 1980/81 as shown in AnnexVIII. NRL is the most important source of revenues to PERAC and contributedUS$1 million in 1979/80 and TJS$1.4 million in 1980/81, or 71% and 63%,respectively, of total PERAC revenues. In 1980/81, after deducting PERAC'sown expenses, interest payments and taxation, PERAC reported a profit ofUS$0.9 million, from which it paid US$0.4 million in dividends on preferenceshares.

PART IV - THE PROJECT

58. The Government requested Bank assistance for the installation of ahydrocracking facility in July 1981, on the basis of an initial PERAC studydated December 1980. Further preparation continued throughout 1981, and inNovember 1981 PERAC and GOP requested Bank consideration of the proposedEngineering Project to assist in detailed preparation of the HydrocrackerProject and to finance energy conservation measures. The proposed Engineer-ing Project was appraised in May 1982. Negotiations took place in Washingtonfrom November 1 to November 4, 1982; the delegation from Pakistan was headedby Mr. Kunwar Idris, Additional Secretary, Ministry of Production. Noseparate appraisal report has been prepared for the proposed engineeringloan. Supplementary project data are contained in Annex III.

Background and Objectives

59. PERAC has carried out a number of studies, both in-house and utiliz-ing qualified international consultants, to identify and evaluate the mostappropriate process scheme for the upgrading of low value fuel oil, producedat Karachi by both NRL and PRL, to higher value products in order toalleviate the imbalance between the refinery product mix and demand patterns.Both PERAC and the consultants identified a hydrocracker scheme as the mostattractive secondary conversion facility under Pakistani conditions, afterreviewing various processing schemes, fluid catalytic cracking and thermalcracking. This recommendation is consistent with developitents elsewhere andits appropriateness for the Pakistan situation is confirmed by Bank staffanalysis. The Hydrocracker Project currently being studied by PERAC wouldconsist of a new self-contained facility located in the Karachi area whichwould take atmospheric residue (presently sold as fuel oil after addition ofkerosene as cutter stock) by pipeline from the NRL and PRL refineries andwould have a design throughput capacity of 1.35 million tpy of atmosphericresidue. The atmospheric residue produced by PRL and NRL is suitable forupgrading whereas much of the fuel oil available on the international marketcomprises cracked or processed products that are not suitable for furtherupgrading. The facilities would also require 7.65 million standard cubicfeet per day of natural gas (64,000 TOE p.a.) for hydrogen generationrequired in the hydrocracker unit. The design output of the HydrocrackerProject would include 0.74 million tpy of high value distillates and 0.5

million tpy of cracked fuel oil. The product pattern of the tacility isshown in Annex IX. The major process units required in the proposed instal-lation are vacuum distillation, visbreaker, hydrocracker, hydrogen unit andnaphtha reformer. Utility systems for treated and cooling water, steam andpower would also be required.

60. Preliminary estimates indicate an installed cost for the HydrocrackerProject facilities of about US$340 million (excluding import duties andtaxes), including about US$200 million in direct foreign exchange. Given thelarge size of the Hydrocracker Project and because of the need to carry outbasic design before the project scope, capital cost estimate and financingand implementation arrangements could be finalized, the Government requestedthe Bank to provide financing for a separate engineering project to carry outthe preparatory work required. In parallel with this design and engineeringwork, arrangements for the implementation, project ownership, sources offinancing and the pricing policy for the Hydrocracker Project will be firmedup. It is expected that, as a result, overall implementation of theHydrocracker Project will be improved both as regards cost and schedule andthat co-financing agreements will be more readily arranged. Although theGovernment has expressed interest that the Bank participate in financing theHydrocracker Project, the commitment of the Bank, if the proposed EngineeringProject is approved, is only to finance this phase of the work. Bank par-ticipation in the Hydrocracker Project would be considered at a laterappropriate stage.

61. Bank support for the proposed project will provide the framework fora dialogue with the Government on the rationalization of ex-refinery pricingpolicies (see paragraph 54 above), inter alia to improve the prospects forprivate participation in the Hydrocracker Project, as well as for discussionson suitable ownership arrangements for the Hydrocracker Project. Since atimely decision on ownership and financing of the Hydrocracker Project is anecessary condition for its early implementation, assurances have beenobtained that, in parallel with the above engineering worl-, the Governmentshall (i) carry out a study of and prepare proposals with respect to itspricing policies for the Hydrocracker Project, inter alia, with a view toencouraging private participation in the financing of the project; and (ii)furnish such proposals together with a proposed financing plan for theHydrocracker Project to the Bank by June 30, 1983, for its review and com-ments (Section 2.03 of the draft Guarantee Agreement).

62. In addition to the preparatory and engineering work for theHydrocracker Project, the proposed Engineering Project would support Govern-ment objectives for introducing energy conservation measures in industry.This component will: (a) substantially strengthen ENAR Petrotech-scapability in carrying out energy audits and conservation studies so thatENAR can perform the functions of an industrial energy conservation center;and (b) execute an energy audit and energy conservation measures at the NRLRefinery.

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Project Description

63. Refinery Engineering Component. This component would allow PERAC toproceed with the basic design and engineering work necessary to fully definethe scope of the Hydrocracker Project, to firm up the cost estimates andimplementation arrangements and to review ownership, pricing policy andfinancing arrangements. The basic design and engineering work will include:(a) licensing agreements for the provision of technical know-how requiredduring the Engineering Project for the basic design of the critical processunits (hydrocracker, visbreaker, reformer and hydrogen unit); (b) preparationby consultants of the engineering design specification package includingprocess design, equipment and material specifications, layout drawings anddetailed engineering of time-critical items; (c) preparation of costestimates and financing requirements; (d) prequalification and preparation ofbidding documents for the selection of engineering firms and contractors forthe implementation of the Hydrocracker Project; and (e) site topographic andsoil surveys.

64. Energy Conservation Component: ENAR Petrotech. ENAR Petrotech, aPERAC subsidiary established to provide engineering consultancy services toPERAC and its subsidiary companies and to outside organizations, has 60professional staff organized into three operating units: (a) a TechnicalAdvisory Unit responsible for feasibility studies and process design, (b) aProjects Unit dealing in all aspects of project implementation, and (c) anEnergy Unit which carries out studies in the energy sector, particularlyregarding forecasts and optimization. The Energy Unit has recently startedto carry out energy audits and conservation studies. As its work in energyconservation will increase substantially, ENAR is proposing to form aseparate Energy Conservation Unit to concentrate exclusively on this work.Under the proposed project, ENAR will (i) establish the Energy ConservationUnit to conduct audits and conservation studies in selected industries desig-nated by the Ministry of Production or other agencies, (ii) obtain specialistexpatriate assistance to train the unit's staff in energy audit techniquesand methodologies, and (iii) acquire instrumentation and equipment needed forsuch audits, including computer software for energy study-related analysis.In addition, ENAR will strengthen its engineering capabilities throughspecialist expatriate assistance to review and improve existing engineeringprocedures and practices so that ENAR is better equipped for participation inthe implementation of the Hydrocracker Project.

65. Energy Conservation Component: NRL Refinery. This componentincludes (a) an energy audit and study of the existing NRL facilities toidentify improvements in operating practices and economically attractiveinvestments to decrease energy consumption; (b) monitoring instrumentationrequired both for the energy audit and for day-to-day control of energy use;and (c) economically justified minor energy conservation investments already

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idLentified by NRL to improve fired heater efficiencies and to decreaseevaporation losses from crude oil storage tanks.

Project Implementation

66. PERAC has completed, in consultation with the Bank, the initial stepsfcor the evaluation and selection of process licensors and consultants for thebasic design and engineering work. The major process licensors will beselected prior to issuing bids for the design and engineering work. Thefinal licensing agreements and the award of the consultant contract arescheduled for December 1982. The work is expected to be completed by Decem-ber 1983 together with the completion of the bidding docurients for thedetailed engineering, procurement and construction package for theHydrocracker Project. Completion of these activities by the end of 1983would allow the main Hydrocracker Project to be initiated early in 1984 andcompleted about 40 months later in the second quarter of 1987. PERAC willcarry out site acquisition and investigations and soil surveys concurrentlywith the basic design and engineering work. The draft terms of reference andscope of the engineering work and the evaluation criteria for selection ofconsultants have been reviewed by the Bank and agreed witlh PERAC. PERAC hasdesignated an experienced project implementation group for the project whichwill also make use of the considerable expertise available in both ENAR andNRL.

Project Cost and Financing

67. The total cost of the proposed project is estimated at US$15.8 mil-lion of which US$11.8 million, or 75%, represents foreign exchange. Theproposed US$12 million Bank loan would cover the estimated foreign exchangecomponent, including the capitalized front-end fee. Detailed cost estimatesare shown in the Loan and Project summary. Major project foreign exchangecosts are for process licenses (US$2.1 million), engineering designspecification package (US$6.5 million), and US$0.4 million for consulting andtechnical services, based on US$10,000 per man month inclusive of travel andsubsistance, which is considered reasonable. The balance of US$1.3 millionin foreign exchange would be for energy conservation instrumentation andequipment. Project costs are based on recent cost data supplied by processlicensors and engineering companies. Physical contingencies of 10% have beenincluded except for the process licenses for which firm scope of supply andprice data are available. Price contingencies are based on an internationalannual price escalation rate of 8%.

68. PERAC would onlend US$0.4 million of the Bank loan to ENAR and US$1.4

million to NRL on terms satisfactory to the Bank; execution of satisfactorysub-loan agreements between PERAC and ENAR and PERAC and ITRL, respectively,would be a condition of effectiveness (Section 5.01 of the draft Loan Agree-ment). The companies would finance their own share of local costs.

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Procurement and Disbursement

69. The qualifications, experience, selection and contractual terms andconditions for the employment of specialized consultants and engineeringfirms required for the proposed project will be in accordance with BankGuidelines (section 3.02(a) of the draft Loan Agreement). The major processlicensors (hydrocracker, visbreaker and naphtha reformer) and the engineeringconsultants will be selected after an evaluation, using criteria agreed uponwith the Bank, of the proposals from qualified companies that have adequateexperience. For the energy conservation components, contracts for items tobe procured from the proceeds of the Bank loan will be awarded in accordancewith the Bank's guidelines for procurement; international competitive biddingwill be used for equipment and material purchases, except for US$0.5 millionof proprietary items, including equipment costing US$50,000 or less, whichmay be procured through direct negotiations with suppliers or limited inter-national tendering. For purposes of bid evaluation, local suppliers willreceive a preference of 15% or the customs duty, whichever is lower. Localgoods and services not financed by the Bank will be procured using the normalcommercial practices of the PERAC Group which are satisfactory. To avoiddelays in project implementation, retroactive financing of US$1.2 million isrecommended for payments made after October 1, 1982, for down payments onprocess licenses and initial payments to the selected engineering company.

70. Disbursements from the proposed Bank loan will be made for thefront-end fee and against 100% of foreign expenditures for (a) payments forlicense fee ; (b) the engineering cost for the basic design and engineeringpackage; (c) consulting and technical services to PERAC, NRL and ENAR; and(d) imported equipment required for energy monitoring and conservation at NRLand ENAR. For locally manufactured equipment, disbursements will be madeagainst 100% of the ex-factory cost. Disbursement of the Bank loan isexpected to be completed by June 1985.

Benefits and Risks

71. The proposed project will complete all preparatory work for thesubsequent proposed Hydrocracker Project, the principal purpose of whichwould be to upgrade low value fuel oil into higher value distillates that arein deficit supply within Pakistan. Initial analysis of the HydrocrackerProject shows that it will be financially and economically attractive with aneconomic rate of return of about 30%, and will generate considerable savingsin Pakistan's petroleum product import bill estimated at US$150 million p.a.(January 1982 prices).

72. The engineering work to be carried out under the proposed projectwill firm up project scope, detailed capital costs, financing requirementsand project schedule so that a firm financing plan and implementation arran-gements can be made for the Hydrocracker Project. It is expected that, bythese means, private capital can be attracted to the Hydrocracker Project,

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overall project implementation can be substantially improved, and cost over-runs minimized. The energy conservation component of the proposed projectwill develop the institutional capability within Pakistan to implementindustrial energy conservation measures, for which substantial scope appearsto exists, and commence implementation of such measures at NRL.

73. The proposed project will support the implementation of the Govern-ment s strategy in the energy sector to give increased emphasis to energyconservation, to strengthen pricing policies and to attract private sectorparticipation. Under the project, as well as in connection with the on-goingStructural Adjustment Loan and Credit, the Bank will continue discussionswith the Government on overall energy prices, in particular the structure ofcrude and petroleum products prices at the well-head, ex-refinery and con-sumer levels.

74. The engineering studies and energy efficiency components involve nospecial risks. Studies indicate that the Hydrocracker Project is economi-cally very attractive; the risk of the Hydrocracker Project not being imple-mented is negligible.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

75. The draft Loan Agreement between the Bank and the State PetroleumRefining and Petrochemical Corporation Ltd., the draft Guarantee Agreementbetween the Islamic Republic of Pakistan and the Bank and the Recommendationof' the Committee provided for in Article V, Section 1 (d) of the Articles ofAgreement, are being distributed to the Executive Directors separately.Special conditions of the project are listed in Section III of Annex III.

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

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PART VI - RECOMMENDATION

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

A. W. ClausenPresident

Attachments

November 19, 1982Washington, D.C.

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ANNEX I

TABLE 3APAXISgTMriCIAL INDICATORS DATA SHZZT

REFERENCE GRUPS (WEIGHTED AVERAGE8AREA (TOUSAND SQ.PAISAN - MOST RECENT ESTIMATZ)-

TOL 03 9 MOST RECENT LOW INCO-ME MIDDLE INCOMEAGRICULTURAL 249.9 1960 lb 1970 lb ESTIDATE /b ASIA & PACIFIC ASIA 6 PACIFIC

GNP PER CAPITA (US) 70.0 130.0 300.0 261.4 890.1

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 132.4 190.6 209.2 448.7 701.7

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (THOUSANDS) 45851.0 60449.0 82153.0URBAN POPULATION (PERCENT OF TOTAL) 22.1 24.9 28.2 17.3 32.4

POPULATrON PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 134.5STATIONARY POPULATION (MILLIONS) 308.0YEAR STATIONARY POPULATION IS REACHED 2125

POPULATION DENSITYPER SQ. RM. 57.0 75.2 99.2 158.1 255.9PER SQ. KM. AGRICULTURAL LAND 200.4 248.9 316.9 355.9 1748.0

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 43.5 46.3 46.5 36.8 39.9

15-64 YRS. 51.8 50.5 50.7 59.7 56.865 YRS. AND ABOVE 4.4 3.2 2.8 3.5 3.3

POPULATION GROWTH RATE (PERCENT)TOTAL 2.3 2.8 3.1 2.0 2.3URBAN 4.6 4.0 4.3 3.3 3.9

CRUDE BIRTH RATE (PER THOUSAND) 51.3 47.4 43.6 29.3 31.8CRUDE DEATH RATE (PER THOUSAND) 24.3 19.9 16.0 11.0 9.8GROSS REPRODUCTION RATE 3.7 3.5 3.0 2.0 2.0FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 1908.1 2085.0/cUSERS (PERCENT OF MARRIED WOMEN) .. .. 6.o7 19.3 36.3

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 89.0 102.0 101.0 108.1 115.6

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 87.8 97.1 98.8/d 97.3 106.4PROTEINS (GRAMS PER DAY) 58.1 59.8 62.87d 56.9 54.4

OF WHICH ANIMAL AND PULSE 23.3 20.1 19.97a 20.0 13.9

CHILD (AGES 1-4) MORTALITY RATE 25.4 21.5 17.8 10.9 6.7

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 43.3 46.2 49.8 57.8 59.8INFANT MORTALITY RATE (PERTHOUSAND) 161.5 143.0 125.5 89.1 63.7

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL .. 21.0 29.0 32.9 32.0URBAN .. 77.0 60.0 70.7 51.9RURAL .. 4.0 17.0 22.2 20.5

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 3.0 6.0 18.1 37.7URBAN .. 12.0 21.0 72.7 65.7RURAL .. .. .. 4.7 24.0

POPULATION PER PHYSICIAN 5396.8 4299.1/f 3775.1/e,f 3297.8 8540.4POPULATION PER NURSING PERSON 16961.8 13306.07f 10030.37/ 4929.3 4829.4POPULATION PER HOSPITAL BED

TOTAL 1794.5 1860.1 1903.4/e f 1100.4 1047.5URBAN 506.8 648.1 712.9e 301.3 651.6RURAL .. 12478.5 11870.1e. 5815.7 2597.6

ADMISSIONS PER HOSPITAL BED .. .. .. .. 27.0

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.4 5.3URBAN 5.6 5.5RURAL 5.4 5.2

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL 3.1 2.8 .URBAN 3.1 2.7 *RURAL 3.1 2.87j .

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. 17.9 ..URBAN * - 54.4/ *

RURAL .. 4. 9/ ....

-26-ANNEX I

TABLE 3AFAKISTAN - SRCIAL INDICATORS DATA SHEET

PAKISTAN REFERENCE GROUPS (WEIGHTED AVl AGES- MOST RECENT ESTIMATE)-

MOST RECENT LOW INCOME MIDDLE INCOME1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 30.0 44.0 56.0 97.4 96.2MALE 46.0 62.0 81.0 101.0 99.8FEMALE 13.0 24.0 31.0 87.8 92.1

SECONDARY: TOTAL 11.0 14.0 16.0 53.0 37.6MALE 18.0 22.0 24.0 63.8 41.1FEMALE 3.0 6.0 8.0 41.3 34.1

VOCATIONAL ENROL. (% OF SECONDARY) 1.0 1.5 1.4 1.7 20.8

PUPIL-TEACHER RATIOPRIMARY 38.6 41.5 40.1 37.7 35.5SECONDARY 24.0 19.8 18.7 20.2 25.0

ADULT LITERACY RATE (PERCENT) 15.0/h 20.7/i 24.0 52.1 73.1

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 1.5 2.6 2.8/c 1.5 9.8RADIO RECEIVERS PER THOUSAND

POPULATION 6.0 17.1 65.8 35.4 116.5TV RECEIVERS PER THOUSAND

POPULATION .. 1.6 9.4 3.2 37.6NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 13.2 .. 13.7 16.4 53.7CINEMA ANNUAL ATTENDANCE PER CAPITA 0.8 3.0/j 2.4 3.6 2.8

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 14447.7 17364.1 22717.1

FEMALE (PERCENT) 8.6 9.3 10.2 29.5 33.6AGRICULTURE (PERCENT) 61.0 59.0 57.0 70.0 52.2INDUSTRY (PERCENT) 18.0 19.0 20.0 15.0 17.9

PARTICIPATION RATE (PERCENT)TOTAL 31.5 28.7 27.7 40.0 38.5MALE 55.2 50.4 47.2 51.8 50.5FEMALE 5.7 5.5 5.9 23.8 26.6

ECONOMIC DEPENDENCY RATIO 1.5 1.7 1.8 1.0 1.1

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS 20.3/k 17.8HIGHEST 20 PERCENT OF HOUSEHOLDS 45.37ik 41.8LOWEST 20 PERCENT OF HOUSEHOLDS 6.47k 8.0LOWEST 40 PERCENT OF HOUSEHOLDS 17.57k 20.2

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US5 PER CAPITA)

URBAN .. 68.0/i 176.0 133.8 194.7RURAL .. 47.07?i 122.0 111.5 155.1

ESTIMATED RELATIVE POVERTY INCOMELEVEL (USA PER CAPITA)

URBAN .. 34.0/i 88.0 .. 178.2RURAL .. 22.073? 58.0 .. 164.9

ESTIMATED POPULATION BELOW A3SOLUTEPOVERTY INZCOME LEVEL (PERCENT)

URBAN . . 42.0/i 32.0 43.8 24.4RURAL .. 43.0/i 29.0 51.7 41.1

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 1978 and 1980.

/c 1975; /d 1977; /e 1976; /f Registered, not all practicing in the country; /g 1973;/h 1962; /i 1972; /j 1968; /k 1964.

May, 1982

-27- ANNEX I

OOPtmi7tcul or JaCkAL ZO0hAg00U,..;s dlthacab the o drcttrt oucS.rtrsllc JuSde its ..et .ihttoa n .el....e it shu I loe r rateD LI hthey so cot he tote-tosruaoellcaoeperablo tenteso as she tak At -oncdce o ntin adcacro odb differen ICntis aoletotfsda,bs an nnCodas, useul cadatobe-od-r of pogotods, ictaoetro-rde. aod nh-re ocLA. Jr.070,ee)a dlf.tnMecAetsonMnotd

Ofoth refar'eu erouc are71 the ea- -onty ;r-n of the -- e -"etconr sAd (2)A SCnota gno .tar osno tAgho or ooetentetoss toofoh tbec ouo& lonop ot 'Kitah I---usoil0 -oorcs rc oper botddic I.o- loath AfricLa endttdA. ta.ct" IAscose h_c__ f inooe Ifa-ulcl. odttC io.I theW.- r Seoee.tno uto the -Sra., rA, plorelerdoy neihtd trinelst .. wan tsr eho doddotor ed ehn Iltylhssejoity of Uscoort to o grou hasd.. o that toio r Steno rh. -acrag of otooo oso hs oiaosbod.rteoolhto fdt

Oucos.peune era e kAocte p000d or to lieM ..... ;17 dote, hhiiatn eaee t ICpttale ore eettoheo-o I tosotiytoflbd.AW 'q. - J~~~~~~~~~~~~~~bys etco hentn eol.fwt tntf~ttnlolceolO a diA 651-.-- allyto topics.b secftes I tronla soke.pices,97 net-, bioliats erno tnnlod Octal toepIns h-rtont too-- hIT C.b

doon ndcncdeeluuSI es ofsdcey ciltotra cr oletdn

PC POtATIOt dill OffAL tOATItlICSt'.. P-....-CA

swab cMIn-oice;1960, 1970, so AM6119e9.-thehusndto-oeto utoa

Pnoctotinn tooter 0 d000- A,lufrscc pcclclnpt Isoto ar base,d ngo It o yproepryn oalctt n oa uuottnotta

boo,..Isl lfopnaoootlono 79 or.tepts nne co ddelnett .. IotItItyN ltott- Ceaton it tnotmot frtnnlnycreat hn nnsleea aulo ecoodno ttl t-oc An oce oltfaepctnybortllloyaocordtoo~~~~~" ~ totcoolar ndyarOolyyenkgyatcoce

lotanunr FisL tt,nn oee"'Le IeCtnoootsc*cnnr fecato iiTend tsntltcyocend far polettot curceos.dAicted1 tntcttse f dittosRA WIC bbiatuocory ooocitttoo - It t otsoau,nory carulotlan there to en grnosh otno-s Pcteoro school - tooal, selo cod ftsato-inoso nctou, enco sod toed.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AhC-h- C.-the itah cite e equA oo tOn Aset.yo, anDIoteeteroooco toleto i ose IC rar oo optnnso foeotcsoc nrtn .lte oetivdcLttft otItyrce eltec rotyoeoleo eultco:nrolytpudentlcaatd6irho r2n.ploeMn. selo niHe rSnuodo rts dis scab. .eer..ncoo tco IfdMCtr Aa tfcc lttsc yfsyeeutc uo t.nntpeccioltacl.Toetioayyplotbeoya ceoiernhutsoimucra oclon c oneAo onosohisotod o cba hees ti tho cnltctodnhoetosrtesAo fthel caueinetn o utl ee cc otn h clatteodlor

Pe At. M0 tld-ceer" -tcsto pe qaekletc(t onts of ccctoo sc llosn toecan et standCyl-tootol htiunou ye 9f.17 tdio deCho. Icn... scbdoc- uauotiol,cc tte -cce shi.h notr iltn-tilu t 91 91 n 99oto td-noncti - ro-eany ec 2 cncrZ etlIc,to,t'aedtteuon let 150,nt 19f uct Aultilten 0crIrocoyPA.tn,annocce obe n atoendo-no

tnpcetto 160.197, sa 161 ooc CIAlittoy orAtntro

ttlcy one; uusiy One-esooo2ooe sodtn to- 1pu56 o.Ity , and190. 000cunyoilcttrdtocttofhct-ota Csh e uaroolo f slolfoiyceoo bccsnen, tonrosoPohldo cn nhocd-rcuatoo -Cnlud- clYno-d Ta t ICeoot

tl n-ldocn otwA -c6yu d nlthn f eCht.nrl o eof csoeyc . sitos0yrdott.l 60 thtuOh ccd ha 'dailyt If. t In onyocr ci lcon Onr ntss0 dent

no cc yoOsodor p000 hoot L. CadtdioocTr. Ytltet anod le. parcoo- no wae- ctAloeos efl -caeo)ohlot ort odhls eec coteinnutadao..Isafcefyst ennocecnnnludal. oococatcyroountoo o sootIcuor to0 bho., on. ). AcIt PerotC.d. LCitIaolooerpsce poc Odhe;16-i,17M o 0000adate,Int,l EChrfrn noous h.ncotal octo ctnOs tldopIrt opia oool ofcolalee(poetn ciotoiaesooo - aretedfyc ocod frnr en a.touacrr ic tclodna cuottns-,oudots,mo.

pM dY. dootebi 970 tscspts uetcoodtho,ddoc lo oncrsols 96,1PIP >0 oe

hocosbold Iool; 1961-0, lope oAf9900 Into 160, t)70 en IbtaIo-h.ne dcl ftoe e e.ntopt oP-Puod to-doffiend e alcos. to- .n..... toonnpnrd00tctl slt od toloiccnfatsa

pela crfeto ofohon 100

t0 Alaul -h neenthcoCctn. Ifhosonnod- oto Aeto oeeootootoo h rcnu ion cod AMunenon

1-d e.00 1unoty; Itil-h, atf c 1977 uo otcntslknrnc01, fo an960o eu7d pulse LI8 oAte- yt s;16-1 90 ot11 ao clyoitfnnc1.iCoI

ondlon 00001ff o7A0--0IhZ11lit..casbit:-90, 1970, andlon das y ludt itOonl9t ectoltontn

boo o ytnco (nol, e ISo,od c Io Ith coocal 0050t cd elclhn

ntooclecoo col 01 thooIm.. Ithehco f -,c woboco of th hoseod t ruro- -i. cer.d ofr7(c (no o url h cdoyen hr to- op-l& Ag * 5 Y.cuoraor IamufOt ey o oah'g hey-n0

end ecoco-nooty ho osnro-hcooo oyooooo no ma coo intintpp-rAt n. end-st elPh - tII a - oulnonOulo i -tuoho cc rro,tn cAut Ancooedooe inIosP Aiti .lN Mi7yh Inea cbo oCnooit iol luoucnodcoYti o n)Olo ocnrotuetto tonouyo,oe ocoo- tcutenon Oofdr hy eaha nO yoncouc S.M IPStO Inao .nCeol bAodtt o dunooo, soetoon 00000 anouiut cuoceoAM onourto.d IuCtuacuoo.

d -1 --

-28-

68E I

ZCONOI/IC DEVIWPOP DATA

GROSS lUIONAL PRODIJCT in 1980/8t AIAL RA OP GROWTH . constant rice.)

US$ billion S 1969/70-1974/75 1975/76-1980/81 1980/81

GNP at Market Prices 29.99 100.0 3.5 6.3 6.2Gross Dovs,tic Investnent 4.87 16.2 -5.5 5.4 4.4Gro.. National Saving 3.94 13.1 -2.1 8.2 10.3Current Accotmt BalasIc -0.95 -

Resource Gap -2.93 -9.8 6.7 15.1 -29.4

OUITP, LA80R FORCZ AN;D POOUCTIVTY IN 1979/801&

Value Added Labor Force V.A. Per WorkerUS$ million 2 Itillion % US5 million 2

Agriculture 7,538 30 13.2 54 5J1 56Industry 6,490 26 465 18 1,442 141Services 11,127 44 6.9 28 1,613 158

7otal/Average 25,155 100 24.6 100 1,023 100

GOVEBNM NT PLIWICE

General Gvrnrmnt Central Governmrnt(! billion) X of CDP (Rs billion) X of GDP1980181 1980/81 1976/77-1980/81 1980/81 1980/81 1976/77-1980/81

rurreot "ereipts 46.8 16.9 16.2 36.1 13.0 12.4Curtent Eapenditure. 36.8 13.3 14.0 28.6 10.3 10.5Current Surplu"/Deficit 100.0 3.6 2.2 7.5 2.7 1.9Capital Expenditures 25.0 9.0 9.7 21.5 7.8 7.3E.terz.l Assistance (neC) 5.7 2.0 3.0 5.7 2.0 3.0

3MO0EX, C8iX 8340 PRICES

1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/1Ab

Money and Quasi Mroney 33.1 41.6 51.7 63.7 76.5 90.7 104.0Bank Credit to Public Sector (net) 17.7 22.9 29.5 34.3 43.1 48.1 53.8Sank Credit to Private Sector (groe.) 19.7 23.1 30.1 35.7 42.7 50.6 58.7

loney end Quasi Money as 2 GDP 31.6 34.3 38.1 40.5 42.8 42.7 41.7Wholesale Price Index (1969/70 - 100) 211.3 229.4 255.3 271.4 239.7 316.7 358.8

Annual Percentage Change in:Wholesale Price Index 23.6 8.6 11.3 6.3 6.7 9.3 13.3Bank Credit to Public Sector (net) 21.2 29.4 28.8 16.6 25.6 11.6 11.8Bank Credit to Private Sector (gross) 26.3 17.3 30.3 19.6 19.6 18.5 16.0

as Labor force data are official figures of the Hinistry of Pinance and Planning. Serious underenumeretion may exist. espriily of .oonnn.

4b ProvisIonal.

Not applicable.

Fehr.ary 1982

-29-

ANNEX I

BALANCE OF PAYMENTS

(US$ nillion) MERChANDISE EXPORTS (AVERAGINC 1977/78-1980181)

1976/77 1977/78 1978/79 1979/80 1980/81 /a USS million X

Exports of Goods, NFS 1,404 1,651 2,107 2,955 3,450 Raw Cotton 259.4 8.5Imports of Goods, NFS 2,877 3,297 4,485 5,709 6,385 Cotton Yarn 179.3 9.8

Cotton Cloth 219.2 12.4Resource! Gap (deficit - -) -1,473 -1,646 -2,378 -2,754 -2,935 Rice 393.2 19.6

All Other Commodities 1,034.6 49.7Interest: Payments -172 -183 -261 -285 -322 Total 2,085.7 100.0Workers' Remittances 578 1,166 1,395 1,748 2,117Other Fakctor Payments (net) 15 62 134 151 193 EXTERNAL DEBT, DECEMBER 31, 1981Net Transfers .. .. ..

US$ millionBalance on Current Account -1,052 -601 -1,110 -1,140 -947

Public Debt, Including Guaranteed 8,813.9Direct Foreign Investment .. .. .. .. .. Non-guaranteed Private Debt if ..Net MLT Borrowing

Disbursements 961 841 813 1,134 1,067 Total Outstanding and Disbursed 8,813.9Amortization -175 -122 -235 -310 -358

DEBT SERVICE RATIO FOR 1980/81 /Sub-Tatal 786 719 578 824 709

Transactions with IMF/b 44 41 -14 78 331 PercentagePublic Debt, Including Guaranteed 9.5

Other Items n.e.i. /c 24 163 238 600 217 Non-guaranteed Private DebtIncrease in Reserves (-) 198 -322 308 -362 -310 Total 9.5

Gross Reserves (year end)/d 372 694 386 748 1,058 IBRD/IDA LENDING (SEPTEMBER 1981) (US$ million)Net Reserves (year end)/e -146 150 -92 340 330 IBRD IDAOfficial Gold (year end

million ounces) 1.6 1.7 1.8 1.8 1.8 Outstanding and Disbursed 312.2 825.6Undiabursed 36.5 549.9Outstanding, Including Vndisbursed 348.7 1,375.5

F%,el and Related Materials

Petroleum Imports 413 497 530 1,079 1,535Petroleum Exports 27 63 61 178 169

Rate of Excharnge

Through May 11, 1972 May 11, 1972-Feb. 15, 1973 Feb. 15, 1973-Jan. 8, 1982 Jan. 8, 1982 /h Jan. 1-Aug. 31, 1982 Average

US$ - Rs 4.7619 US$ - Rs 11.00 US$ Rs 9.90 US$ - Rs 10.1 US$ - Rs 11.61Rs - US$0.2100 Rs - US$0.0909 Rs - US$0.1010 Rs - US$0.099 Rs - 0.086

/a Government estimate.lb Including Trust Fund.7i Including net short-term borrowing and errors and omissions.Id Foreign exchange and SDR holdings of the State Bank.7e Excluding use of IMF credit.If Private debt is negligible.ig Ratio of debt service to exports of goods, non-factor services and worker's remittances;

nct including short-term or IMF changes./h Since January 8, 1982, value of rupee is being managed with reference to a

weighted basket of currencies.

Ncot available.

November 1982

-30-

ANNEX II

STATUS OF BANK GROUP OPERATIONS IN PAKISTAN

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 30, 1982)

(US$ million)Loan/ (Amount net of cancellations)Credit Fiscal Undis-Number Year Purpose Bank TW IDA bursed

Eighty-four loans and credits fully disbursed /a 635.8 720.7/e

1107 1975 Fourth Sui Northern Gas 53.0 -- 0.71208T 1976 Power (Second WAPDA) -- 32.0 -- 1.6620 1976 Seed Project -- 23.0 6.5630 1976 Second Lahore Water Supply 26.6 4.6648 1976 Irrigation & Drainage (Khairpur) -- 14.0 6.71366T 1977 Livestock Development (Punjab) -- 10.0 -- 9.31372) 1977 Railways 35.0 -- 1.0684 ) 1977 Railways -- 25.0 1.1678 1977 Third Education -- 15.0 7.0751 1977 Hill Farming Development -- 3.0 1.6754 1978 Salinity Control & Reclamation -- 70.0 68.8755 1978 Hazara Forestry Pre-investment -- 1.7 1.4813 1978 Punjab Ext. & Agric. Dev. -- 12.5 7.2846 1978 Fauji Fertilizer -- 55.0 3.4867 1979 Toot Oil & Gas Development -- 30.0 0.9877 1979 Salinity Control & Recl. (Mardan) -- 60.0 58.5892 1979 Primary Education -- 10.0 8.3922 1979 Sind Agricultural Extension -- 9.0 9.0957 1979 Agricultural Development (ADBP) -- 30.0 10.8968 1980 Power (Third WAPDA) -- 45.0 36.6974 1980 Third Highway -- 50.0 39.71019 1980 Development Finance (PICIC XI) -- 40.0 16.91109/d 1981 Vocational Training -- 25.0 24.81113/d 1981 Small Industries -- 30.0 29.911577d 1981 Grain Storage -- 32.0 32.01158/d 1981 Agricultural Research - 24.0 24.01163/d 1981 On-Farm Water Management -- 41.0 38.811867_ 1982 Industrial Development (IDBP II) -- 30.0 30.02122 1982 Telecommunication IV 40.0 -- 40.02166 1982 Structural Adjustment 60.0 -- 59.12172/f 1982 Fertilizer Industry Rehabilitation 38.5 -- 38.51239/b /d 1982 Irrigation Systems Rehabilitation -- 40.0 40.01243/b /d 1982 Baluchistan 21inor Irrig. & Agr. -- 14.0 14.012557W 1982 Structural Adjustment Credit -- 80.0 80.01256/d 1982 Technical Assistance Credit (SAL) -- 7.0 7.012787d 1982 Eleventh Railway Project _ 50.0 50.0

Total 862.3 42.0 1,613.5 809.7of which has been repaid 447.3 -- 30.5

Total now outstanding 414.9 42.0 1,583.0Amount sold 23.9of which has been repaid 23.9 -- -- --

Total now held by Bank and IDA7T- 414.9 7T2T. 1,583.0

Total undisbursed 139.3 10.9 659.5 809.7

/a Excludes the disbursed portion of loans and credits wholly or partly forprojects in the former East Pakistan which have now been taken over byBangladesh.

/b Not yet effective.7c Prior to exchange adjustment.7W IDA Credits under the 6th Replenishment denominated in SDRs. The

principal is shown in US$ equivalent at the time of negotiation.Undisbursed amounts are computed at the August 31, 1982, rate of 1.07234.

/e By using the rate at August 31, 1982, 1.07234, $41 million was disbursedunder Credit 1066-PAK, now fully disbursed. This amount is shown ascurrent principal for 1066-PAK.

/f Effective on October 21, 1982.

-31-

ANNEX II

B. STATEMENT OF IFC INVESTMENTS (as of September 30, 1982)

Fiscal Amount In US$ MillionYear Obligor Type of Business Loan Equity Total

1958 Steel Corp of Rolled Steel 0.63 -- 0.63Pakistan Ltd. Products

1959 Adamjee Industries Textiles 0.75 -- 0.75Ltd.

1962- Gharibwal Cement Cement 5.25 0.42 5.671965 Industries Ltd.1963- PICIC Development -- 0.52 0.521969- Financing19751965 Crescent Jute Textiles 1.84 0.11 1.95

Products1965- Packages Ltd. Paper Products 19.35 0.84 20.1919801967- Pakistan Paper1976 Corp Ltd. Paper 5.38 2.02 7.401969 Dawood Hercules Fertilizers 1.00 2.92 3.92

Chemicals Ltd.1969 Karnaphuli Paper Pulp and Paper 5.60 0.63 6.23

Mills Ltd.1979 Milkpak Ltd. Food and Food 2.40 0.38 2.78

Processing1979 Pakistan Oilfields Chemicals and 29.00 1.82 30.82

Ltd. and Attock PetrochemicalsRefinery Ltd.

1980 Fauji Foundation Woven Polypropy- 1.78 -- 1.78lene bags

1980 Premier Board Particle Board 2.70 -- 2.70Mills Ltd.

1981 Habib Arkady Food and FoodProcessing 3.15 0.17 3.32

1982 Asbestos Cement 3.60 -- 3.60

Total Gross Commitments 82.43 9.83 92.26

Less: Cancellations, Terminations,Repayments and Sales 48.85 1.02 49.87

Total Commitments Now Held by IFC 33.58 8.81 42.39

Undisbursed (including participants) 17.36 0.35 17.71

-32-

ANNEX II

C. PROJECTS IN EXECUTION I/

Credit No. 771 Tarbela Dam: US$35 Million Credit of March 10,1978; Effective Date: April 4, 1978; Closing Date:June 30, 1982

Work to construct a flip-bucket at the outlet of Tunnel No. 4 is inprogress and will be completed in 1983. Serious erosion in the plunge poolbelow the service spillway during 1977 necessitated additional protectionworks which, together with work in the downstream channel, were completed inJune 1980. Similar protection work in the auxiliary plunge pool wascompleted in 1982. Since 1975, irrigation requirements from the dam havebeen met. Power generation by the first four units began in 1977.Construction of a second power plant with four units is in progress. AllCredit proceeds have been disbursed; the Bank continues to administer theTarbela Development Fund.

Loan No. 1107 Fourth Sui Northern Gas: US$60 Million Loan of May 15,1975; Effective Date: July 5, 1975; Closing Date:December 31, 1982

This project has been completed.

Loan No. 1208-T Second WAPDA Power: US$50 Million Third Window Loanof February 19, 1976; Effective Date: April 30, 1976;Closing Date: September 30, 1982

All major works have been completed. One outstanding retentionpayment for about US$650,000 is expected to be disbursed shortly.

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

-33-

Credit No. 620 Seed Project: US$23 Million Credit of March 29, 1976;Effective Date: November 29, 1976; Closing Date:June 30, 1983

Delays have continued to be experienced in the construction andequipping of processing plants in Punjab, due mainly to disputes with civilworks contractors and structural defects in the buildings. The plant in Sindhas been completed. Field activities have made good progress.

Credit No. 630 Second Lahore Water Supply, Sewerage and DrainageProject: US$26.6 Million Credit of June 8, 1976;Effective Date: September 21, 1976; Closing Date:December 31, 1982

All major works have been contracted but construction delays havecontinued and will probably cause a further delay in project completion.Detailed action plans to improve operational and financial performance haverecently been agreed.

Credit No. 648 Khairpur Tile Drainage and Irrigated FarmingDevelopment Project: US$14 Million Credit of July 22,1976; Effective Date: March 14, 1977; Closing Date:July 31, 1984

Overall progress is about three years behind schedule due to initialdelays in employing consultants, procurement problems and difficulties ininstalling the subsurface collector drains. Canal remodeling, surveys andextension services are proceeding satisfactorily. Additional equipment isbeing procured to improve the rate of construction.

Loan No. 1366-T Punjab Livestock Development: US$10 Million ThirdWindow Loan of February 18, 1977; Effective Date:August 3, 1977; Closing Date: December 31, 1983

The reformulated project has been approved by the Executive Directorsand GOP and GOPun have signed the legal documents. The contract for therehabilitation of the Lahore Milk Plant (LMP) has been let and preparatorywork is under way. An outstanding issue is the appointnent of threeconsultants to strengthen LMP management.

Loan No. 1372 Tenth Railway: US$35 Million Loan and US$25 Millionand Credit of March 8, 1977; Effective Date: May 9, 1977;

Credit No. 684 Closing Date: Decemer 31, 1982

The project is proceeding satisfactorily. The telecommunications andsignaling scheme is making good progress and the complete network is expectedto be commissioned before mid-1983. Procurement has been completed and thetotal proceeds of the Loan/Credit have been committed.

-34-

Credit No. 678 Third Education: US$15 Million Credit of February 18,1977; Effective Date: July 6, 1977; Closing Date:December 31, 1983

The project is generally making good progress. Curriculumimprovements have been satisfactorily carried out. Nearly all civil workscontracts have been completed except at nuetta and Rahim Yar Khan whereconstruction of the Agricultural Training Institutes has been delayed forabout one year due to site problems. At Sind Agricultural Universityconstruction is also behind by one year due to initial delays in appointmentof project implementation staff.

Credit No. 751 Hill Farming Technical Development: US$3 MillionCredit of December 1, 1977; Effective Date: March 7,1978; Closing Date: September 30, 1983

Staff shortages and lack of a decision on upgrading field assistantshave caused implementation problems. Nevertheless, the vegetable seed, maizeproduction, service laboratory, training and apple production components areproceeding satisfactorily.

Credit No. 754 SCARP-VI: US$70 Million Credit of January 19, 1978;Effective Date: December 28, 1978; Closing Date:November 30, 1986

Although the project is about three years behind schedule,significant momentum has now begun in project implementation following theresolution of budgetary and other initial problems. Progress has been madein awarding the first civil works contracts and obtaining necessaryequipment, vehicles and materials.

Credit No. 755 Hazara Forestry: US$1.7 Million Credit of January 29,1978; Effective Date: July 14, 1978; Closing Date:December 31, 1983

There has been significant progress in different project activities.The Guzara socio-economic study, the chir pine forest inventory and thepulping tests for chir pine have been completed. However, on the basis of aforest resource assessment study, the immediate developnent of aneconomically sized pulp mill had to be ruled out; the scope of thefeasibility study will therefore be broadened to include a range ofdevelopment options. Terms of reference are now being prepared and fieldwork on the next phase of the study will start in the Spring of 1983.

-35-

Credit No. 813 Punjab Extension and Agricultural Development:US$ 12.5 Million Credit of June 6, 1978; EffectiveDate: September 12, 1978; Closing Date: June 30, 1984

The project is behind schedule despite some progress in staffrecruitment, acquisition of building sites and construction work.Implementation of the T&V system and the research-extension linkages continueto be weak. Low salaries for village level staff and delays in recruitingconsultants remain problems.

Credit No. 846 Fauji Fertilizer: US$55 Million Credit of September 14,1978; Effective Date: December 19, 1978; Closing Date:June 30, 1982

The plant is in operation. Final disbursements are expected to becompleted by December 1982.

Credit No. 867 Toot Oil and Gas Development: US$30 Million Credit ofJanuary 12, 1979; Effective Date: April 25, 1979;Closing Date: March 31, 1983

Two new producing oil wells in the Toot field have recently beencompleted despite very difficult drilling problems but well-drilling andmanagement problems persist. Project implementation is about 15 months behindschedule. The Closing Date, originally December 31, 1981, has been extentedto March 31, 1983, to allow completion of the original 8-well drillingprogram.

Credit No. 877 Salinity Control and Reclamation Project (SCARP)Mardan: US$60 Million Credit of February 7, 1979;Effective Date: October 16, 1979; Closing Date:June 30, 1986

The project has been reduced in scope and initial budgetary and otherproblems have been resolved. CIDA (the project co-financier) is assistingW4APDA in scheduling implementation activities as well as in preparingsubsurface drainage design and specifications. Although about two yearsbehind schedule, work is accelerating on the preparation of the final designsand tender documents for the restructured project. Some contracts have beenawarded.

-36-

Credit No. 892 Primary Education: US$10 Million Credit of April 18,1979; Effective Date: October 23, 1979; Closing Date:June 30, 1985

The project is progressing steadily. Nearly all of the projectinputs including civil works, equipment, staff appointments and training havebeen provided. The evaluation program has been redesigned and a comprehensiveproposal for the improvement of primary education is expected to be completedby June 1983.

Credit No. 922 Sind Agricultural Extension and Adaptive ResearchProject: US$9 Million Credit of June 12, 1979;Effective Date: June 26, 1981; Closing Date:June 30, 1984

Critical staff has been recruited and project iTIplementation hasstarted, although well behind schedule. Implementation of the T&V system andresearch-extension linkages remain weak. Recruitment of consultants has beendelayed.

Credit No. 957 Fourth Agricultural Development Bank: US$30 MillionCredit of December 7, 1979; Effective Date: June 5,1980; Closing Date: December 31, 1982

Overall progress of the agricultural credit component has beensatisfactory. The agricultural engineering training component in NWFP is 50%completed; implementation in Punjab is about to begin. Funds for ADBP onlend-ing are about 70% disbursed and will be fully disbursed by June 30, 1983.

Credit No. 968 Third WAPDA Power: US$45 Million Credit of January 10,1980; Effective Date: July 30, 1980; Closing Date:December 31, 1984

Despite some delays, mainly in land acquisition, execution of theproject is proceeding satisfactorily. Procurement schedules and constructiontargets for substations and transmission lines are generally being met.

Credit No. 974 Third Highway: US$50 Million Credit of April 9, 1980;Effective Date: August 21, 1980; Closing Date:June 30, 1984

Of the five rehabilitation contracts, two are nearing completion, onehas been terminated due to poor performance by the contractor and re-awarded,and work is progressing slowly on the remaining two contracts. Discussionsare in progress on equipment procurement and provision of technicalassistance to two provincial governments to improve road maintenance.

-37-

Credit No. 1019 PICIC Industrial Development: US$40 Million Credit of

May 30, 1980; Effective Date: October 29, 1980;Closing Date: March 31, 1984

About US$35 million had been authorized for 28 projects and US$23million had been disbursed by September 30, 1982. PICIC's recovery programis on target.

Credit No. 1109 Fifth Education (Vocational Training): SDR 19.7Million Credit (US$25 Million equivalent) of April 24,1981; Effective Date: October 27, 1981; Closing Date:December 31, 1986

The project has made progress in many areas, although there hasbeen slow progress in the establishment of In-plant Training AdvisoryServices in the provinces and in the appointment of staff for the ProvincialTraining Boards and the National Training Development Institute. TheGovernment has agreed to a new timetable for appointing staff and developmentof a staff training and work program for these institutions.

Credit No. 1113 Small Industries: SDR 23.6 Million Credit (US$30Million equivalent) of April 24, 1981; Effective Date:October 6, 1981, Closing Date: December 31, 1985

About $750,000 had been committed by July 1982. Selection ofconsultants has been completed for the service centers and for the expertpromotion component activities; building construction and procurement ofmachinery and equipment are in progress.

Credit No. 1157 Grain Storage: SDR 26.1 Million Credit (US$32 Millionequivalent) of October 21, 1981; Effective Date:March 15, 1982; Closing Date: December 31, 1985

Construction of the storage facilities is progressing satisfactorilyalthough there have been delays in hiring of consultants and staff, and inmaking training arrangements.

Credit No. 1158 Agricultural Research: SDR 33.4 IMillion Credit(US$24 Million equivalent) of August 19, 1981;Effective Date: June 14, 1982; Closing Date:December 31, 1986

Most of the staff required to operate the project have been recruitedand the procedures to appoint a consultancy firm to provide technicalassistance are well advanced. Preliminary selections have been made for thefirst 40 overseas training fellowships. Architects have been appointed,designs for civil works completed and construction commenced at the NationalAgricultural Research Center.

-38-

credit No. 1163 On-Farm Water Management: SDR 33.4 Million Credit(US$41 Million equivalent) of August 19, 1981;Effective Date: March 31, 1982; Closing Date:December 31, 1984

This Credit was declared etfective on March 30, 1982.

Credit No. 1186 Second Industrial Development Bank of Pakistan(IDBP II): SDR 26.7 Million Credit (US$30 Millionequivalent) of February 19, 1982; Effective Date:May 19, 1982; Closing Date: June 30, 1985

This Credit was declared effective on June 14, 1982.

Loan No. 2122 Fourth Telecommunications: US$40 Million Loan ofApril 13, 1982; Effective Date: June 9, 1982;Closing Date: June 30, 1987

This Loan was declared ettective on June 9, 1982.

Loan No. 2166 Structural Adjustment: US$60 Million Loan ofJune 23, 1982; Effective Date: September 9, 1982;Closing Date: December 31, 1983

This Loan was declared effective on September 9, 1982.

Loan No. 2172 Fertilizer Industry Rehabilitation: US$38.5 MillionLoan of June 23, 1982; Effective Date: October 21,1982; Closing Date: June 30, 1986

This Loan was declared effective on October 21, 1982.

Credit No. 1239 Irrigation Systems Rehabilitation: SDR 33.5 MillionCredit (US$40 Million equivalent) of June 3, 1982;Effective Date: December 1, 1982; Closing Date:December 31, 1985

This Credit is not yet effective.

Credit No. 1243 Baluchistan Minor Irrigation and AgriculturalDevelopment Project: SDR 12.5 Million Credit(US$14 Million equivalent) of June 3, 1982;Effective Date: January 5, 1982; Closing Date:December 31, 1988

This Credit is no yet effective.

-39-

Credit No. 1255 Structural Adjustment: SDR 71.9 Million Credit(US$80 Million equivalent) of June 23, 1982;Effective Date: September 9, 1982; Closing Date:December 31, 1983

This Credit was declared effective on September 9, 1982.

Credit No. 1256 Technical Assistance: SDR 6.3 Million Credit (US$7Million equivalent) of June 23, 1982; Effective Date:September 9, 1982; Closing Date: December 31, 1985

This Credit was declared effective on September 9, 1982.

Credit No. 1278 Railways XI: SDR 44.3 Million Credit (US$50 Millionequivalent) of July 13, 1982; Effective Date:September 13, 1982; Closing Date: December 31, 1985

This Credit was declared effective on September 13, 1982.

-40-ANNEX III

PAKISTAN

REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare project:

approximately two years.

(b) Agency which prepared the project

State Petroleum Refinery and Petrochemical CorporationLtd. (PERAC)

(c) Date of first presentation to the Bank, anddate of first Bank mission to consider theproject:

early 1981 and July 1981.

(d) Date of departure of appraisal mission:

May 8, 1982.

(e) Date of completion of negotiations:

November 4, 1982

(f) Planned date of effectiveness:

March 31, 1982

Section II: Special Bank Implementation Actions

None

Section III: Special Conditions

(i) the Government shall submit proposals with respect to itspricing policies for the Hydrocracker Project, togetherwith a proposed financing plan for the project, to theBank by June 30, 1983, for its review and comments(para. 61).

(ii) the execution of sub-loan agreements between PERACand ENAR and PERAC and NRL would be a special conditionof effectiveness (para. 68).

-41-

Annex IV

PAKISTAN- REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

PAKISTAN-COMMERCIAL ENERGY SUPPLY AND CONSUMPTION

Supply by Source (%) Consumption by Sector (%)

1971/72 1980/81 1971/72 1980/81

Oil 45.0 36.6 Industry 36.3 31.5Gas 36.3 41.7 Transport 16.4 20.9Hydro 9.3 15.9 Power 15.7- 16.6Coal 9.0 5.3 Residential 8.8 12.2Nuclear 0.3 0.2 Agriculture 7.6 5.3L.P.G. 0.1 0.3 Fertilizer (exc.

feedstock) 2.6 4.1100.0 100.0 Commercial 2.0 3.2

- - Government andother 10.6 6.2

100.0 100.0

Source: Directorate General of Energy Resources (DGER), MPNR.

-42-

Annex V

PAKISTAN - REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

PAKISTAN - HISTORICAL CONSUMPTION FOR PETROLEUM PRODUCTS a/('000 metric tons)

Average1972 1976 1977 1978 1979 1980 1981 Annual

% Change

High Octane BlendingComponent (HOBC) 53 74 84 101 115 116 115 9.0Gasoline Regular 261 278 290 344 391 426 474 6.9High Speed l)4pel 827 1,197 1,239 1,349 1,579 1,775 1,966 10.0Aviation Fuel 189 240 260 290 335 346 316 5.9Kerosene 422 516 593 646 694 637 529 2.5Light Diesel Oil 297 268 261 286 246 263 192 -5.0Furnace Oil 734 668 660 584 532 588 729 -0.1

Total 2,783 3,241 3,387 3,600 3,892 4,151 4,321 5.0= = =~ ~~~~~~~= _=

Source: DGER.

a/ Excludes bunkering sales to foreign airlines and ships, data for whichare not available for earlier years. Bunkering sales data for 1981are presented in Annex VII.

-43-

Annex VI

PAKISTAN - REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

PAKISTAN - REFINED PRODUCTS SUPPLY AND DEMAND BALANCES a/('000 MT)

Average1980/81 1988/89 Annual

Produc- Consump- Produc- % GrowthProduct tion tion Balance b/ tion C/Demand Balance b/ in DemandMotorGasoline 470 474 (4) 624 642 (18) 3.9

AviationFuel 533 531 2 812 812 0 5.5

SuperiorKerosene 177 529 (352) 51 911 (860) 7.0

High-speedDiesel 960 1,966 (1,006) 1,200 2,829 (1,629) 4.7

Light DieselOil 172 192 (20) 306 333 (27) 7.1

High OctaneElendingComponent 35 115 (80) 51 207 (156) 7.6

Fuel Oil d/ 1,467 832 635 1,557 1,543 14 8.0

TOTALS 3,814 4,639 (825) 4,601 7,277 (2,676) 5.8

Source: Actual figures for 1981, DGER; forecast for 1988/89, ENAR.

a/ Includes bunkering services for foreign aircrafts and ships, which werenot identified separately in forecasts.

b/ Surplus (Deficit).

c/ Based on processing 5.5 million tpy crude with the existing facilitiesincluding the NRL expansion.

d/ Fuel oil demand in 1989 for power generation has been estimated at 0.92million tpy based on recent studies for natural gas supply and demand.

-44-

Annex VII

PAKISTAN - REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

PAKISTAN - REFINED PRODUCT PRICES(March 1982, US$/gallon)

AnnualConsumer

Ex Refinery Price Import Cost Consumer PriceProduct ARL NRL/PRL C&F Karachi Price Increase % d/

Gasoline _ N/A 1.90 1.30 2.40 15Kerosene 0.19 0.91 1.10 1.04 10Diesel 0.19 0.94 1.18 1.19 24Fuel Oil b/ 40.5 112.5 169.5C/ 135.0 18

a/ High octane gasoline, comparable to imports, is not produced by ARL.

b/ Prices in US$/ton.

c/ FOB export price.

d/ Average since January 1979.

-45-

Annex VIII

PAKISTAN - REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

PERAC - REVENUE SOURCES(US$'000)

…---------------1980/81 … …1979/80NRL NPC ENAR Petrotech Other Total Total

Dividends 628 500 - - 1,128 534

Interest 466 11 13 89 579 503

Fees 274 50 10 - 334 399

Other - - - 140 140 3

Total 1,368 561 23 229 2,181 1,439= _ = v =_

1979-80

Total 1,025 269 3Y 114 1,439

Source: PERAC Annual Report 1980-81. Historical data converted at thenprevailing rate of Rs 10: US$1.00.

-46-

Annex IX

PAKISTAN - REFINERY ENGINEERING AND ENERGY EFFICIENCY PROJECT

PAKISTAN - HYDROCRACKER PROJECT DESIGN OUTPUT('000 tpy)

Product Output % Increase (Decrease)in Domestic Capacity

High Speed Diesel 363 30Aviation/Superior Kerosene 222 27HOBC 152 224Fuel Oil (Cracked) 504 (43)Liquified Petroleum Gas 30 32Sulfur 21 . NA

Total 1,292

IBRD 16248

64 68- !72 U. S. SR MARCH 1982

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