Document of

The World Bank FILE COPY

FOR OFFICIAL USE ONLY

Report No. P-359 7-PA

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOP]

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$43.0 MILLION

TO THE

SUI NORTHERN GAS PIPELINES LIMITED

WITH THE GUARANTEE OF

THE ISLAMIC REPUBLIC OF PAKISTAN

FOR A

FIFTH SUI NORTHERN GAS PIPELINE PROJECT

May 24, 1983

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$1 = Rs 12.5RS 1 = US$ 0.08

Fisca:l Year

Government of Pakistan and SNGPLJuly 1 - June 30

ACRONYMS AND ABBREVIATIONS

ADB Asian Developmnent BankBCF billion cubic feetBD barrel per dayGOP Government of PakistanKESC Karachi Electric Supply CorporationMCF 1,000 standard cubic feet (SCF) of gasMMCF 1 million SCFMMCFD 1 million SCF dailyOGDC Oil and Gas Development CorporationPOL Pakistan Oilfields Ltd.PPL Pakistan Petroleum Ltd.SGTC Sul Gas Transmission CompanySML Sui Main LimestoneSNGPL Sul Northern Gas Pipelines LimitedSUL Sui Upper LimestoneTCF trillion cubic feetTOE tons of crude oil equivalentTpy ton per yearUSAID United States Agency for International DevelopmentWAPDA Water and Power Development Authority

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FOR OFFICIAL USE ONLY

PAKISTAN

FIFTH SUI NORTHERN GAS PIPELINE PROJECT

Loan and Project Summary

Borrower: Sui Northern Gas Pipelines Limited (SNGPL)

Guarantor: Islamic Republic of Pakistan

Beneficiary: Sui Northern Gas Pipelines Limited (SNGPL)

Amount: US$43.0 million equivalent (including capi-talized front-end fee)

Terms: Repayable in 17 years, including three yearsof grace, at the standard variable interestrate. The Government of Pakistan wouldcharge a guarantee fee which would be no lessthan a 10% mark-up of the Bank's lendingrate.

Project Description: The proposed project, which would support theGovernment's gas development plan designedto increase gas supplies in the country,consists of (i) the expansion of the SuiNorthern Cas Pipeline system to transmit anddistribute an additional 70 MMCFD of gaswhich will become available to SNGPL; and(ii) technical assistance to upgrade themanagement and operations of SNGPL. Theproject involves some risks regarding thetimely availability of additional gas sup-plies; these are addressed under the proposedproject arrangements.

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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Estimated Costs:Local Foreign Total---- -US$ million---- -

Expansion of SNGPL's System 109.4 60.7 170.1Technical Assistance 0.5 1.7 2.2

Base Cost 109.9 62.4 172.3

Physical Contingencies 11.0 6.2 17.2Price Contingencies 5.4 1.8 7.2

Total Project Cost 1/ 126.3 70.4 196.7

Front-End Fee - 0.1 0.1

Total Financing Required 126.3 70.5 196.8Duties and Taxes 39.2 - 39.2

Net Financing Required 87.1 70.5 157.6

Financing Plan:Local Fcreign Total--- … US$ million--------

IBRD - 43.0 43.0Export/Suppliers Credits - 27.5 27.5Local Loans 49.7 - 49.7Contributions From Consumers 15.6 - 15.6SNGPL 61.0 - 61.0

Total 126.3 70.5 196.8

Estimated Disbursements:FY84 FY85 FY86-------US$ million--------

Annual 21.7 17.2 4.1Cumulative 21.7 38.9 43.0

Rate of Return: About 60%

Appraisal Report: No. 4312-PAJ dated March 22, 1983

Maps: IBRD 16906R; IBRD 16907

1/ Estimate does not incltude interest during construction.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT TOTHE EXECUTIVE D)IRECTORS ON A PROPOSED LOAT TO

SUI NORTHERN GAS PIPELINES LIMITEDWITH THE GUARANTEE OF

THE ISLAMIC REPUBLIC OF PAKISTAN FOR AFIFTH SUI NORTHERN GAS PIPELINE PROJECT

1. T submit the following report and recommendation on a proposed Loanto the Sui Northern Gas Pipelines Limited (SNGPL) with the guarantee of theIslamic Republic of Pakistan for the equivalent of US$43.0 million to helpfinance a Fifth Sui Northern Gas Pipeline Project. The loan would have aterm of 17 years, including three years of grace, at the standard variableinterest rate.

PART I - THE ECONOMY 1/

2. The most recent economic report "Pakistan: EconoTnic Developments andProspects" (No. 4215-PAK, dated February 11, 1983) was distributed to theExecutive Directors on February 16, 1983.

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 the

1/ Parts I and II are substantially the same as Parts I and II of thePresident's Report P-3577-PAK (Fifth Agricultural Development Bank Project)dated May 16, 1983.

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Middle East. Various policy changes introduced by the Governiment have alsocontributed significantly to the recovery.

5. In recent years the Government has taken a number of initiatives toimprove agricultural production. Particular attention has 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 timnely basis.

6. The Government has formulated and begun to implement a new agricul-tural policy based on the main recommendations of a UNDP study on irrigatedagriculture w1hich emphasizes the need to improve the efficiency of the waterdelivery system through the rehabilitat:ion 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 five 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 has 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. Major studies have been com-pleted of the management and organization of the public sector, and the

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performance of individual enterprises. In accordance witlh the recomm-jenda-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 Covernment'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. Governmentrevenues, 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% pea.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. The Government'sconservative fiscal and monetary policies have succeeded in dampening therate of inflation despite external pressures and substantial increases in theprices of some consumer goods because of reductions in subsidies; prices roseby about 10% in FY82 (compared with 13% in FY81) and have been rising at anannual rate of around 5% in recent months.

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$991 million or3.3% 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 Tlovember 1980; apositive response from aid donors to the country's improved economic perfor-mance resulting in increased aid commitments and inflows; and an agreement

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with 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 iinproved performanceon both current account and capital account, foreign exchange reservesincreased from US$748 million to US$1,039 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, together with a deterioration in Pakistan's competitiveness result-ing from the linkage of the rupee to the US dollar up to January 1982 (thecurrency is now being managed with reference to a weighted basket of curren-cies), led to a decline in value as compared with the previous year. Becauseof the decline in world petroleum prices and import substitution in some keysectors (most particularly, fertilizers), the volume of inporits of essentialraw materials and capital goods could still grow sufficiently to provide fora real GDP expansion of 6% while the total value of imports expanded by only2%. Owing to the above factors, Pakistan's current account deficit rose fromUS$991 million in FY81 to USS1,530 million in FY82 (the latter being equiv-alent to 4.7% of GNP). Net inflows of official assistance, private capitaland IMF resources were not sufficient to cover the increased deficit andthere was a drawdown of about US$200 million in reserves. At the end ofFY82, reserves were US$840 million, the equivalent of about 1.5 months ofimports.

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 economy's mainstay, accounting directly forroughly a third of GDP, employing about 55% of the labor force and, directlyor indirectly, providing nearly two thirds of total exports. Despite recentimprovements in output and yields, a nurmber of fundamental factors continueto limit agricultural productivity at levels well below the potential implied

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by 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 recognized in the Governmentand a beginning has been made in addressing this problem. Nevertheless,support for programs to strengthen research, extension, water management andother programs in the agricultural and water sectors needs to be intensified,while fertilizer subsidies must be further reduced, accompanied by necessaryadjustments in output and consumer prices.

15. 74anufacturing contributes about 15% of GDP and during much of the1950s and 1960s provided a major stimulus to growth. Growth 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 becarried 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 teclnical, geologicaland other reasons, progress on exploration of new fields as well as thedevelopment of existing fields has been slow and Pakistan's considerablepotential in the oil and gas sector has yet to be realized. The Governmenthas begun to implement a number of reforms relating to such matters as energyplanning, pricing and organization in order to accelerate progress.

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17. While it is clearly vital to sustain rapid growth in the commodity-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, irmprovedhealth 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 FY83 budget, especially for ruralareas.

18. Policies that face the longer-term issues in both the productive and

the social sectors will take time to have an appreciable effect and will haveto be implemented in the context of continued domestic and external resourceconstraints. 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 12% 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 inevitablv 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 exanple, 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 demand

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management 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, have 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 livided by exports ofgoods and factor and non-factor services), which was about 12% in FY82,should rise slowly during the 1980s, even assuming substantial commercialborrowing, reaching 15% in FY85 and remaining in the 15-16% range throughFY90.

PART II - BANK GROUP OPERATIONS IN PAKISTAN

22. The cumulative total of Bank/IDA commitments to Pakistan (exclusiveof Loans and Credits or portions thereof which were disbursed in the formerEast Pakistan) now amounts to approximately US$2.5 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 econoliic 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 of

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essential 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 providirng essential facilities including tubewells, live-stock development and dairy processing. An important purpose of this lendingis to assist the Government's program to increase tlhe 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. As ofMarch 31, 1983, IFC had made investments in 16 Pakistan enterprises for atotal of US$183.1 million, of which US$176.7 million was by way of loans andUS$11.4 million by equity participations (these are shown in Annex II).About US$58.4 million of these investments remained outstanding. Theenterprises assisted by IFC include 3 in the field of pulp and paperproducts, 2 each in textiles, food and food processing, and petrochemicals,and one each in cement, steel, fertilizers, plastics and wood processing.IFC is also a shareholder in PICIC.

26. The focus of Bank Group lending for transport and communications hasshifted increasingly towards assisting Pakistan to better utilize existingcapacity by improving the efficiency of operations and strengthening theinstittutions 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 utnder the IndusBasin Development Program of Mangla and Tarbela Darns.

27. In the oil and gas sector, the two Sui gas transmission companieshave been assisted with five projects, while IDA has financed a petroleumdevelopment project and begun to play an important role in strengthening thePublic Oil and Gas Development Corporation. These efforts are assisting inthe efficient development and utilization of Pakistan's domestic energyresources and in establishing a policy and institutional framework forincreased private investment in the sector. A second water supply project inLahore is currently undler implementation. Five credits for education, total-ing US$62.5 million, have assisted in upgrading primary, post-secondary andhigher technical and agricultural educatiLon, middle-level training of primaryteachers and agricultural extension agents.

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28. In addition to financing specific highn-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 March 31, 1983, and notes on the execution of ongoing projects. Creditand loan disbursements have been generally satisfactory. Some projects haveexperienced initial delays due to protracted government procedures forproject approval, which have now been streamlined, and to slowness in theprocurement of goods and services. Rapid turnover of managerial and techni-cal staff, in part due to migration to the Middle East, and budgetary con-straints 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 forpower generation, industrial financing, oil and gas development, irrigationand agriculture. Pakistan continues to have domestic resource constraintsfor the reasons set out in Part I. To assist the Government to financeagricultural and other high-priority projects which have a low foreignexchange component, financing of some local expenditures in specific cases isjustified.

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 SECTOR AND GAS SUBSECTOR

A. Energy Sector

32. Inadequate domestic production of energy has become an increasinglyseriouis constraint to economic growth in Pakistan. TWhile recent efforts toexpand domestic energy supplies have led to increases in domestic production,particularly of hydro-electricity, the country remains heavily dependent uponimported petroleum to meet its primnary energy requirements. In 1980/81imports of crude oil and petroleum products totalled US$1.6 billion, equiv-alent to 26% of total imports. The Government has instituted a range ofpolicies to encourage further exploration and development of domestic energyresources and to facilitate greater private participation in the sector, and

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is strengthening its institutional capacity in energy planning, developmentand conservation.

Pakistan-s Energy Supply, Consumption and Resources

33. Commercial energy in Pakistan represents about 58% of total energyconsumption in the country, with non-commercial energy sources such asfirewood, vegetable residues, and dungcake accounting for the remaining 42%.Consumption of commercial energy increased at a rate of about 7.0% p.a.during the past decade. Over this same period, the composition of commercialenergy supply changed substantially, with the share of natural gas andhydro-electricity increasing from 46% to 58% and that of oil (90% of which isimported) dropping from 45% to 37%. On the consumption side, industry andtransportation remained as the major consumers of commercial energy, repre-senting over 50% of energy use.

34. Pakistan has significant reserves of natural gas which currentlysupply about 42% of commercial energy requirements. Recent estimates placeproven recoverable gas reserves at 12.9 trillion cubic feet (TCF). Althoughproduction of gas in FY82 at 323 billion cubic feet (BCF) was over 20% higherthan in FY80, demand has overtaken supply and substantial load shedding hasbeen necessary during the peak winter seasons. To further increase gasproduction, the Government's gas development plan has been designed toachieve a production increase of 30% over present output by 1986. Thissupply increase, however, will be insufficient to meet the country-s energydemand requirements by a wide margin, and steps to accelerate exploration fornew reserves have been initiated.

35. Known domestic oil reserves are modest, with recoverable reservesestimated at about 100 million barrels. Since 1977, when the Governmentintroduced more attractive terms for exploration and production by privateoil companies, exploration activity has increased significantly but so farwith only one small discovery at Khaskeli. Total domestic crude productionin FY82 averaged about 3.9 million barrels representing only 10% of totalcrude oil demand in Pakistan.

36. Hydro-electric power capacity of 1,850 MW accounted for 16% of com-mercial energy requirements and 56% of total power generated in FY81. Thetotal potential for hydro power (mainly on the Indus and Jhelum rivers) isestimated at about 20,000 MW. Investment plans envisage incrementalincreases in hydro capacity totaling about 2,800 MW by 1990 which wouldmaintain the share of hydro in total power generation at its present level.The installed capacity of thermal power plants in FY82 was 2,100 MW. Duringthe next five years, GOP plans to increase installed thermal capacity byabout 2,600 MW.

37. Coal production of 1.6 million tons p.a. (90% of which is used forbrick making) supplied only 5.3% of commercial energy in FY81. The Geologi-cal Survey of Pakistan estimates total recoverable reserves of coal at 640

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million tons, of which only 20% are proven. Most of the proven coal reservesare of poor quality. The Government is now placing greater emphasis on thedevelopment of coal; this strategy would be assisted under a recentlyapproved Bank project to assess possible development of coal supplies in theDuki area of Baluchistan province for power generation. Pakistan has oneoperational nuclear power station which provided 0.2% of commercial energyconsumption in FY81; a second is planned.

Energy Sector Organization

38. Operational responsibility for the various energy sub-sectors inPakistan is divided among several public and private entities. Oil and gasexploration and development is carried out by the state owned Oil and GasDevelopment Corporation (OGDC) and a number of international oil companiesunder joint venture concession agreements with OGDC and GOP. Twopredominantly private companies, Pakistan Petroleum Ltd. (PPL) and PakistanOilfields Ltd. (POL), account for most domestic oil and gas production; POLprodu-ces oil from Meyal and PPL gas from Sui. There are three oil refineriesin Pakistan, two privately owned and one in the public sector. Two of thethree oil distribution and marketing companies are also state-owned. Naturalgas purification, transmission and distribution are largely in the publicsector; the Sui Gas Transmission Company (SGTC) purifies Sui gas and trans-mits it to the south of the country while Sui Northern Gas Pipelines Ltd.(SNGPL) transmits and distributes gas in the north. Responsibility for powergeneration and distribution principally lies with two autonomous governmentorganizations. Coal exploration and development are undertaken mainlythrough leases granted to private mining concerns and by a public sectormining agency.

39. The Ministry of Petroleum and Natural Resources is responsible forplanning and policy making for oil, gas and coal. All matters relating topower generation and distribution are regulated by the Ministry of Water andPower. The role of coordinating energy planning is assigned to the Ministryof Planning and Development. Overall authority for national energy policyformulation and coordination is entrusted to the National Energy PolicyCommittee (NEPC), co-chaired by the Ministers of Finance and Petroleum,Energy pricing decisions are normally approved by the Ministry of Finance;however major decisions are referred to the Economic Coordination Committee(ECC) of the Federal Cabinet.

Energy Strategy

40. Until recently there was considerable optimism in Pakistan thatdomestic supplies of natural gas, together with some expansion inhydro-electric facilities, would meet much of the country's increase inenergy requirements. However, recent data indicate that for the foreseeablefuture proven gas reserves will be inadequate to meet the rapidly growing

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demand and that, in the short and mid-term, supplies will be limited byinadequate investment in field development and transmission facilities. GOPdevelopment policies are being adjusted to this new situation. As discussedbelow, reforms in wellhead and consumer oil and gas pricirng have beeninitiated. In the immediate futuire there is a need to moderate gas demandand to increase the use of alternative fuels in the power sector through theconversion of a number of power stations from gas to fLuel oil. In addition,most new power stations will be based oni fuel oil and other alternative fuelssuch as coal. Work on a comprehensive national energy plan is under way withassistance from international consultanis.

41. Most petroleum products sold domestically are covered by governmentprice controls both at producer and consumer levels. Until recently, duringa long period of excess gas supplies, natural gas prices to consumers werekept at levels far below the value of energy from competing fuels. Thispolicy was designed to help counter inflationary pressures and to encourageconsumption of gas to reduce depenlence on oil imports. As a result gasdemand has grown so rapidly that a serious shortage of gas has developed andvarious forms of quantitative restrictions lhave been adopted. At the begin-ning of 1982, GOP announced a new policy of phased increases in gas consumerprices to help restrain demand ancl to rationalize the price of energy fromvarious sources. Two substantial increases have been implemented in linewith a medium-term target of reaching two-thirds of fuiel oLl parity by FY88(see details in paragraph 55). GOP has assigned an increased role forprivate investment in the energy sector, and incentives to explore for anddevelop new oil discoveries have induced an increased level of activity withprivate participation. Prices for oil from existing fields, previously setat low levels, have been increased, Incentives for exploration and develop-ment of gas have also been improved.

Bank Group Involvement

42. World Bank Group operations in Pakistan in the energy sector haveincluded several power projects; substantial assistance for the extensionof the gas distribution system; a project for domestic oill production at theToot field; a refinery engineering and energy efficiency project; and a coalexploration project. Advances under the Bank's Project Preparation Facility(PPF) have financed a Gas Demand and Supply Study and stu(dies for the Dhodakfield. Further projects in the power, oil and gas and refinery sectors arebeing prepared. In addition, IFC has participated in financing an expansionin capacity at Attock Refinery, the development of the Meval field andrecently in the further development of the Sui Gas field.

43. Be-inniog in 1954, the Bank Group has financed five gas pipelineoperations in Pakistan. The first (Loan 99-PAK) assisted SGTC with its firstgas pipeline. The following four were designed to increa.se the capacity ofSNGPL's gas transmission and distribution system and to strengt:hen its tech-nical and financial capability. The first SNGPL project (Loan 377-PAK) was

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approved in 1964. The most recent, the Fourth SNGPL project (Loan 1107-PAK),approved in May 1975, has now been successfully completed. The main com-ponents of the project were completed on schedule in 1978 with significantcost savings. A number of small related additional items were then under-taken, with the approval of the Bank, using the savings under the Loan; thesewere completed in 1982. A Project Completion Report is now being prepared bythe Borrower. All of the previous projects were also completed satisfac-torily, substantially achieving their objectives. Project Performance AuditReports (PPAR) were prepared for the second and third projects (PPAR No. 478dated June 18, 1974 and PPAR No. 1139 dated April 19, 1976, respectively).One of the main findings of these audits was the important role of the Bankin assisting institution-building and the efficient development of the sec-tor. Pakistan now has one of the most extensive gas grids in the developingworld and SNGPL is a competent technical and commercial entity.

44. The Bank-s economic and sector dialogue with GOP has focused onissues in the energy sector, which is one of the major policy areas beingaddressed under the Structural Adjustment Loan/Credit. This dialogue hasassisted GOP to formulate long-term plans for the sector and has led toagreements under the SAL on important policy changes, including undertakingsto: (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. Through the proposed project the Bank would con-tinue to promote a rational gas development strategy in response to emerginggas shortages. The Government's gas development plan, of which the proposedproject is an integral part, emerged as a direct result of the Gas Supply andDemand Study financed by a project preparation advance under the proposedproject. Through involvement in the proposed project, the Bank would assistin mobilizing private sources of financing for Pakistan's energy development.

B. Natural Gas Sub-Sector

Gas Reserves, Production and Consumption

45. Total original proved gas reserves in Pakistan are estimated at 16.4trillion cubic feet (TCF) and remaining recoverable reserves at 12.9 TCF.Additional possible reserves are estimated at 1.3 TCF, although this could beincreased substantially with further exploration.

46. Natural gas was first discovered in Pakistan in 1952 at Sui inBaluchistan. The Sui field is the largest field in Pakistan with original

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recoverable reserves of 10.5 TCF. The second largest field, Mari, estimatedto contain original recoverable reserves of 4.5 TCF, was discovered in 1957.During the 1950s several other smaller fields containing rnostly poor qualitygas were discovered, none of which are now producing. In 1977, OGDC made onesignificant, though much smaller, gas discovery at Pirkoh and in 1976 dis-covered a gas condensate field at Dhodak. Associated gas is produced insmall quantities from Meyal and Toot oil fields.

47. During FY82, a total of 323 BCF (885 MMCFD) of gas was consumedequivalent to about 7 million tons of crude oil. The power sector was themain consumer (28%) followed by general industries (26%) and fertilizer(23%). Residential use, while accounting for less than 10% of total gas use,was the most rapidly growing sector over the past decade.

48. Gas demand in Pakistan is highly seasonal, due partly to markedvariations in the hydel generating capacity related to variations in thewater levels of the northern reservoirs. In FY82 there was load shedding inexcess of 100 MMCFD due to a shortage of gas in the peak riontlas.

Gas Supply and Demand Balance

49. Over the next decade the gas industry will undergo major changes. Onthe supply side, there will be a shift from dependence for pipeline gas on asingle field (Sui) to dependence on several fields (Sui, Pirkoh, Khandkhot,Dhodak and others) with differing physical and cost characteristics. On thedemand side, effective load management will be required to even out seasonaldemand peaks and to allocate scarce gas to its highest value uses. This willrequire much more effective and flexible planning systems involvingproducers, transmission companies and users as well as GOP. It will alsorequire policies which provide greater automatic incentive for producers andusers to rationalize their supply and demand decisions.

50. In FY81 supply from all fields in Pakistan averaged 760 MMCFD (Suiequivalent). Following completion of the gas development plan (described inthe next section), production will increase to around 1,000 MM1YCFD by FY86 andstabilize at around 1,100 MMCFD for the remainder of the decade. IJnlessadditional gas supplies are forthcoming, average daily deniand will exceedsupply in every year beyond FY82 and the peak demand deficit will con-tinuously increase, from about 200 MMCFD in FY81 up to about 800 MMCFD inFY91.

51. In view of the constraints on gas supply, GOP has mandated variousmeasures to limit the growth in gas demand. No new thermal power generationis to be gas fired (beyond that previously sanctioned and included in the gasdevelopment plan) and new gas connections are being rationed. As a result ofthese measures and the proposed increases in,gas prices to consumers, con-strained demand (i.e. demand from connected customers) is projected toincrease more gradually to reach, on an average day basis, 1,200 MMCFD bv

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FY91. Even with this rationing, however, peak demand will exceed supply inevery year of the decade.

Gas Development Plan

52. A Gas Supply and Demand Study prepared by consultants in 1981, whileidentifying major emerging gas shortages, confirmed that production fromproven gas fields could be substantially increased over current levels ifappropriate additional investments were made. Acting on the results of thisstudy, GOP has developed a medium-term gas development plan designed toincrease production from proven fields by 264 MMCFD by 1986. The plan willinvolve investments in field development of about US$490 nillion (constant.1981 prices) and associated pipeline investments of about US$250 million.The essential elements of the gas development plan are:

(i) major investments in gas compression facilities at the Sui fieldto sustain the present production rate from the Sui Main Lime-stone reservoir and development of the Sui Upper Limestonereservoir; this is being implemented by PPT. with support fromIFC;

(ii) development of the Pirkoh gas field to a production rate of 70NMCFD to be supplied to SGTC to meet gas shortfalls in thesouthern system; this is being implemented by OGDC with supportfrom ADB;

(iii) expansion of the SGTC system to transmit Pirkoh gas to thesouth; this is being supported by ADB;

(iv) development of the Kandhkot gas field to produce 40 MICFD of gasto be supplied to a newly installed 210 MW Guddu IV steam powerunit; this is being financed by PPL and implementation is under-way;

(v) development of Mari gas field from the present 200 MMCFDcapacity up to 387 MMCFD; financing of this Cevelopment is beingarranged by the new field owners;

(vi) construction of a pipeline from Mari to the Guddu power stationwhere the additional Mari gas would be used; this is to beimplemented by WAPDA with support expected from ADB, USAID andthe Saudi Fund; and

(vii) expansion of the SNGPL system to transmit additional gas avail-

able from Sui which would be supported by the proposed project.

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The gas development plan has been reviewed by Bank staff and is considered tobe achievable and an appropriate short-term response to the emerging gasshortages. All of the items under the plan are at an advanced stage ofpreparation and a number are being implemented.

53. Even when the gas development plan is fully implemented, however,demand will continue to exceed supply for the foreseeable future. It is,therefore, of great importance that GOP takes all possible measures to bothincrease gas supply and to limit the rapid growth in demand. As noted above(paragraph 44), a number of major policy reforms to address this situationhave been agreed by GOP in the context of SAL. The Government intends totake the following additional steps to ameliorate the situation: (a) carryout a feasibility study of the economic viability of developing low qualitygas reservoirs particularly for power generation; (b) carry out a gasutilization study designed to determinei the optimum allocation of unallocatedgas supplies to the highest value users; and (c) prepare and update annuallya medium-term rolling gas development and utilization plan based on are-evaluation of the optimum production potential of gas reserves and anevaluation of the value of gas in alternative uses (Section 3.03 of the draftGuarantee Agreement). In addition, SNGPL would carry out a study of thefeasibility of seasonal peak load shaving (Section 3.02(a) of the draft LoanAgreement).

54. SNGPL had planned to add 50,000 new gas connections per year to the

existing system, of which 47,000 would be residential customers and theremainder industrial and commercial. This policy would add about 25 MMCFDadditional demand each year to a system already sutbject to increasing gasshortages. On present evidence, contirnued investment in residential connec-tions seemas to be economically justified, assuming that the gas will displacehigh value kerosene. The economic benefits from reduced kerosene demand

exceed the cost of investment in new connections plus the cost of additionalfuel oil used in the power sector (because of the shift of gas to theresidential sector). However, in the case of industrial and commercialconnections, the net economic benefit of new connections is unclear.Recently introduced gas allocation policies reflect this and GOP and SNGPLhave agreed that, accordingly, no significant changes in existing allocationsof gas or allocation of newly discovered gas would be made until the resultsof the gas utilization study referred to above are available (Section 3.03(c)of the draft Loan Agreement).

Gas Pricing

55. Consumer Prices. As noted in paragraph 41, until recently GOP fol-lowed a policy of low gas consumer prices based on the assumption that therewould be surplus gas for the foreseeable future. However, as excess demand

has emerged, the need for a major revision of gas consumer prices has becomeincreasingly evident and, in connection with the recent Structural NdjustmentLoan/Credit, GOP has adopted the policy of progressively increasing the

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average gas consumer price to two-thirds of fuel oil parity by 1988; atcurrent fuel oil prices, this implies an increase to about US$2.60/MCF. InJanuary 1982, average gas prices were increased by about 20%, and an addi-tLoinal 25% average increase was announced in January 1983. Allowing for therecent depreciation of the Pakistan rupee, these measures taken togetherrepresent a real price increase of 25% since the end of 1981. The averageconsumer price is now about $1.30/MCF, which is around 30% of the fuel oilequivalent price. Gas consumer prices vary considerably by class of user,from US$0.80/MCF for power, up to $1.76/MCF for commercial users. With theincreased importance of gas demand management, the structure of gas pricesamong users will also need to be reviewed. This issue is being discussedwith GOP in the context of the ongoing SAL dialogue.

56. Producer Prices. Historically gas producer prices in Pakistan havebeen established on a cost plus basis. Sui gas was originally priced on thebasis of a formula designed to recover actual costs plus a guaranteed 15%return on paid-in share capital. In the late seventies, as reservoir pres-sure declined, it became clear that PPL would have to install major compres-sion facilities to maintain field production and that the existing priceformula would not provide adequate incentives to undertake the requiredinvestments or sufficient cash flow to finance them. In 1982, GOP and PPLnegotiated a revised producer price formula for Sui gas which provides PPLthe necessary incentives and financing for the gas compression investments.A revision of the producer price for the Mari gas field will also be neces-sary to provide for the proposed expansion in field production capacity. GOPhas agreed in principle to negotiate a higher price with the field owners inreturn for a commitment to increase production.

57. In fuiture it will be necessary to bring additional gas suppliesonstream from existing discovered fields which will require appropriateproducer pricing incentives. Under the SAL agreement, GOP has undertaken tointroduce a revised producer price formula for additional gas supplies whichdoes not have the drawbacks of a guaranteed rate of return approach; theformula would encourage cost minimization, provide greater incentive toincrease production and provide a link to movements in international energyprices. The Bank has stressed in the context of the SAL dialogue the need tomove rapidly to implement the new approach and the desirability of includingsimilar appropriate provisions in exploration agreements to encourage gasexploration by private petroleum companies.

PART IV - THE PROJECT

58. As a result of the Gas Supply and Demand Study in 1981 (paragraph52), GOP prepared a medium term gas development plan in 1982 and requestedthe Bank to assist in implementing the proposed plan by financing the SNGPLcomponents. Project preparation was completed by SNGPT. in October 1982, and

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the eroposed project was appraised in November 1982. Negotiations took placein Washington from April 28 - May 13, 1983; the delegation from Pakistan was:-eaded by Mr. Muktar Miasood, Secretary, Ministry of Petroleum and Natural1Pkesoulrces. A Staff Appraisal Report entitled "Pakistan: Fifth Sui NorthernGas Pipeline Project" (Report No. 4312.-PAK, dated March 22, 1983) is beingcirculated separately to the Executive Directors. A supplem.entary data sheetis attacLhed as Annex III.

Background and Objectives

59. The proposed project is part cf an integrated program of investmentswithin the Government's Gas DevelopmerLt Plan (paragraph 52) designed toincrease gas supplies to the SNGPL system in order to alleviate increasinglyacute gas shortages in the north of the country. The main features of theprogram are to: (i) supply an extra 19 IMCFD of Sui Upper Limestone (SUL)gas to SNGPL; (ii) increase the Mari field production capacity by 187 2MCFD;(iii) supply the additional Mari gas to the Water and Power DevelopmentAuthority (WAPDA) for the Guddu power station where it will be used in twoexisting and one new unit, releasing 55 IIMCFD of raw Sui gas to SNGPL; and(iv) expand the SNGPL system to transmit and distribute the additional gasfrom SUL (19 MI*CFD) and from Guddu (51 NICFD of purified Sui Gas).

60. Although the proposed project would finance only the fourth componentof the program, successful implementation of the proposed project depends onthe timely implementation of the others. Appropriate conditions to achievethis have been included in the loan and guarantee agreements.

Incremental Gas Supplies

61. PPL, the Sui gas field owner, has already agreed to install wellheadgas compression facilities required tc maintain production f'rom the Sui MainLimestone (SMI) and also to expand production from the SUL reservoir.Fi.nalization of an agreement between E'PL and SNGPL for the supply of addi-tional. Sui gas to the SNGPL system would be a condition of loan effectiveness(Section 7,01(c) of the draft Loan Agreement). Esso Eastern, the originalmalor shareholder of the Mari gas field, has recently agreed. to sell itsinterest in the Mari field to a Pakistani cormpany as part of a' corporate moveto consolidate its world-wide operations. The transfer of f'ield ownershiphas been finalized and field development plans are being prepared by the new Iovwers. The terms of a gas supply contract including the producer pricerem.ain to be negotiated between GOP, WAPDA and the new field owners.Finaliization of an acceptable gas supply contract between the owners of theMari field and WAPDA would be a condit:ion of loan effectiveness (Section, w01(do of the draft Loan Agreement).

62 TWAPDA has completed project preparation for the conversion of Guddus-Cear, units I and II from Sui to Mari gas, the installation of a new combinedcycle gas turbine plant and the construction of the Mari-Gucldu pipeline; GOP

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will ensure that satisfactory arrangements are made for the implemenationof these projects by September 30, 1985 (Section 3.05(b)(ii) of the draftGuarantee Agreement). Finalization of an agreement between PPL and SNGPLfor the supply of 55 lI4CFD raw Sui gas released from Guddu would be a condi-tion of effectiveness (Sections 7.01(c) of the draft Loan Agreement).

Project Description

63. The proposed project includes:

(a) Installation of one 60 MICFD gas purification bank at Sui totreat the additional raw gas allocated to SNGPL;

(b) Construction of about 430 miles of high pressure gas transmis-sion pipelines of different diameters, complete with cathodicprotection of which 350 miles would be new and the remainderwould be uplifted and recovered from existing pipelines;

(c) Installation of one 3800 BHP and four 1100 BHP tur-bine/compressor units in four existing compressor stations;

(d) Development of the distribution system and service lines neededto provide an estimated additional 25,000 new connections to thesystem each year between FY84 and FY86;

(e) Provision of new and upgraded telecommunications facilities forthe SNGPL system; and

(f) Technical assistance to upgrade the management and operation ofSNGPL, including (a) a management information system, (b) afeasibility study for peak-load shaving, and (c) overseas train-ing. The cost of the completed Gas Supply and Demand Studycarried out under the Project Preparation Facility would berefinanced under the proposed project.

The attached map summarizes the proposed expansion of the system.

Project Implementation

64. SNGPL has its own Projects Department which carries out engineeringand construction activities. This department has accumulated considerableexperience in the construction of oil and gas pipelines and the installationof compressor stations; it successfully completed the fourth SNGPL project(Loan No. 1107-PAK) with savings of approximately 20% in construction costsfrom the original estimate, as well as other major works. SNGPL would useits Projects Department for the design, engineering and construction of theproposed project. The project would involve a large amount of small worksscattered throughout the SNGPL system and extending over a distance of

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approximately 800 miles; the majority of the works would involve working withand integrating into a complex pipeline system under operating conditionsrequiring close coordination between construction and operating forces. Tocomplete the first phase of the works in time to use the extra 19 MMCFD ofSui gas when it becomes available in early 1984, construction has to commencein early 1983, which would only be possible if SNGPL carried out the works asproposed. The remaining works to use the Sui gas to be released by WAPDAwould be completed by the end of 1985. In view of the specific characteris-tics of the works and the proven track record of SNGPL's Projects Department,the proposed arrangements are expected to be efficient and economical and areconsidered appropriate.

Cost Estimates and Financing Plan

65. The project is estimated to cost US$196.8 million equivalent, includ-ing the front-end fee, customs duties and taxes. Detailed cost estimates areshown in the Loan and Project Summary. The foreign exchange component isestimated at US$70.5 million (45% of the net project cost). The project costincludes 10% physical contingencies. Costs have been calculated in 1983prices, with price contingencies on foreign costs of 7.5% for 1984 and 7% for1985 and thereafter, and 8% p.a. on local costs. Studies under the project,estimated to cost $500,000, would require approximately 40 man-months ofconsultants estimated at $12,500 per man month, inclusive of foreign traveland subsistance.

66. The proposed Bank loan of US$43.0 million represents 27% of the totalproject cost net of duties and taxes and would cover 61% of foreign expendi-tures. The loan would finance all imported goods and services except for themain linepipe supply contract which would be financed by export/supplierscredit and/or other commercial financing totalling US$27.5 mi:Llion. Theremainder of project costs would be financed from SNGPL's own resources(US$61.0 million), local borrowing (US$49.7 million) and initial connectionpayments by new consumers (US$15.6 million). Local borrow'ing would be fromPakistani commercial banks and finance companies, with maturities of five toeight years and a variable interest rate based on the local Bank rate (about10%) plus 2.5%. The finalization of satisfactory co-financing arrangementsfor the project would be a condition of effectiveness (Section 7.01(b) of thedraft Loan Agreement). The volume of co-financing required for the proposedproject can be accommodated within the ceilings for Pakistan's medium-termexternal borrowing agreed with the IMF under an Extended Fund Facility (EFF)program.

67. The proposed Bank loan would be made to SNGPL with a guarantee fromGOP. The loan would be for 17 years, including three years' grace. Theinterest risk and foreign exchange risk would be borne by SNGPL, which wouldpay a guarantee fee to GOP equivalent to a mark-up of not less than 10% ofthe interest rate on the loan.

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Sui Northern Gas Pipelines Limited

68. SNGPL was incorporated as a limited liability company in 1963 andconverted into a public limited company in 1964. The principal business ofthe comnpany is the transmission, purification and distribution of natural gasfrom the Sui and Meyal fields to industrial, com-mercial and residentialcustomers. In additioin, SNGPL's Projects Department carries out engineeringand construction activities for outside clients; this has been a significantsource of income in recent years. SNGPL has an authorized capital of PRs 400million, of which PRs383 million is issued and paid up. The major stock-holder is GOP, which owns directly or indirectly about 90% of the equity.The stock held by the general public is quoted on the Lahore and KarachiStockl Exchanges. SNGPI. is governed by a Board of 13 Directors, including theManaging Director who is the Chief Executive Officer. The senior managementconsists of competent, well experienced Pakistani nationals.

69. The fourth SNGPL project included general management training andtechnical trahLihig in gas distribution and transmission. While the technicaland managerial capabilities of the staff have been progressively upgraded,there are still deficient areas such as control and planning. The trainingprogram would be continued under the proposed project.

70. Financial Aspects. SNGPL's financial performance and financialposition have been generally satisfactory. The company has a debt/equityratio of 65/35 and current ratio of 1.4.

71. Financial covenants under the fourth SNGPL project required a rate ofreturn of at least 12% on revalued net fixed assets. -While SNGPL hasachieved the required rate of return, assets have only been partiallyrevalued to reflect exchange rate adjustments on foreign loans. Under theproposed project SNGPL has agreed to fully revalue its assets to reflectreplacement cost and earn at least a 10% rate of return on these fullyrevalued assets. This target is reasonable for a gas utility and will resultin a significant improvement in the company's income position compared to theprevious revaluation practice.

72. The gas transmission companies purchase gas at the wellhead at theproducer price established by GO? plus an excise tax (of about US$0.30/MCF)paid to the Provincial Government. The companies are allowed an operatingmargin which is set by GOP to permit theii to recover their operating costsand a fixed return on net assets. The substantial difference between thecost of producing and transmiitting gas and the selling price is captured forthe national budget through a development surcharge.

73. SNGPL would annually prepare and submit to GOP and the Bank for theirreview a five-year corporate plan, including SNGPL's proposed investmentprogram; a forecast of profits, the balance sheet and cash flow; and detailsof pricinLg and financial policies (Section 5.04 of the draft Loan Agreement).

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SNGPL's operating income would be maintained at a level to permit it to (i)make a reasonable contribution towards its investment program from internallygenerated funds and (ii) maintain a 10% rate of return on net fixed assetsrevalued annually in accordance with appropriate valuation principles accept-able to the Bank (Section 5.05 of the draft Loan Agreement). SNGPL'slong-term gas supply contract with PPL for the supply of gas from the Suifield will expire in the year 2000. Financial projections would therefore bebased on established and declining resources and the debt/equity ratio wouldgradually be reduced from 70/30 during the construction period of the projectto 60/40 in FY88, progressively declining in suitable steps annually there-after (Section 5.06 of the draft Loan Agreement).

74. As mentioned previously (paragraph 51), gas demand management andrationing will be necessary into the foreseeable future, with substantialcuts in gas supplies to WAPDA for power generation. Under terms of its gassupply contracts with WAPDA, SNGPL is liable for substantial penalty paymentsfor non-supply of gas. Since curtailment to WAPDA is mandated by Governmentpolicy, the Government would ensure that SNGPL would not be penalized forcurtailment of supply to WAPDA and that future supply contracts would be onan interruptable basis (Section 3.04 of the draft Guarantee Agreement).

Procurement and Disbursement

75. All major items of materials and equipment financed from the proceedsof the Bank loan would be procured through international competitive bidding(ICB) in accordance with Bank guidelines, except for the five compressorunits which, for reasons of standardization, can only be procured from onesupplier; the cost of these units would not exceed US$5.2 million. To com-plete Phase I of the project by early 1984 (paragraph 64), it would be neces-sary for SNGPL to award contracts for valves and fittings, coating and wrap-ping materials, cathodic protection, telecommunication equipment and threegas compressor units during the first half of 1983. Advance contracting inan amount equivalent to US$18.0 million is therefore proposed, together withretroactive financing for the above items in an amount not exceeding US$4.0million for expenditures made after January 1, 1983.

76. Disbursements from the proposed Bank loan will be made for the capi-talized front-end fee and against 100% of (a) foreign expenditures formaterials and equipment required for the expansion of SNGPL's system (exceptthe linepipe), (b) expenditures for technical assistance and overseas train-

ing, and (c) the refunding of the Project Preparation advance. For locallymanufactured equipment, disbursements will be made against 100% of ex-factorycost. All disbursements would be fully documented and the training costswould be under prior approved training programs. Disbursement of the Bankloan is expected to be completed by December 31, 1986.

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Ecology and Safety

77. The proposed project is an expansion of an existing gas transmissionand distribution system. The main transmission pipelines are in a right ofway owned by SNGPL. In areas where the pipeline could be exposed to damage,continuous supervision is maintained. The distribution network, extendinginto cities and towns, is buried and protected against corrosion. SNGPL hasa 24-hour maintenance service and previous records confirn that the system isoperating satisfactorily with a low risk of major accidents.

78. Hydrogen sulphide which is emitted from the purification plant isburnt in a high flare stack away from the process units. The fenced plant islocated away from any residential area with-no significant concentration ofgases at ground level. The project would have certain environmental benefitsin that the increased use of natural gas, a clean burning fuel, would reducethe use of more polluting fuels such as distillates and fuel oil.

Benefits and Risks

79. The projected growth in energy consumption in Pakistan will result inincreasing oil imports unless domestic energy production is further expanded.The proposed project would assist GOP to implement a rational medium-term gasdevelopment plan and policy initiatives designed to ensure its timelyimplementation. In the course of project preparation there have been impor-tant changes in GOP policy with regard to development, allocation and pricingof natural gas.

80. The project is one component of a set of investments which wouldreduce gas shortages in the north of the country by expanding production andtransmission capacity. Domestic gas supply would increase under the totalprogram by the equivalent of 155 MMCFD of Sui quality gas, generating grossforeign exchange savings of approximately US$240 million per annum. Thisadditional gas would only partially alleviate current gas shortages; therewould therefore be no problem with marketing the gas. The economic rate ofreturn on the project is estimated at 60%. On the most conservative assump-tion, where the cost of the marginal fuel substitute is reduced by 40%, thereturn would still exceed 35%.

81. The project would depend crucially on the timely availability ofadditional gas from the Sui and Mari fields. Recent reservoir studies con-firm with a high degree of confidence the producibility of the required gas.Although there is always some reserves risk in petroleum projects, theserisks are acceptable. The economic analysis indicates that, even if produc-tion were 25% less than planned, the economic rate of return would stillexceed 44%. The risk that construction of the Mari-Guddu pipeline and con-version of the Guddu power station to alternative fuel might not be completedin time to release Sui gas to SNGPL would be minimized by requiring, asconditions of loan effectiveness, that satisfactory contractual arrangements

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be finalized among the concerned parties. The economic analysis indicatesthat, if gas deliveries were delayed for one year, the economiic rate ofreturn would still exceed 40%.

PART V - LEGAL INSTRIMENTS AND AUTHORITY

82. The draft Loan Agreement between the Bank and Sui Northern GasPipelines Limited, the draft Guarantee Agreement between the Islamic Republicof Pakistan and the Bank and the Recommendation of the Committee provided forin Article III, Section 4(iii) of the Articles of Agreement, are being dis-tributed to the Executive Directors separately. The following would beadditional conditions of effectiveness: that (a) complementary co-financingfor the project, satisfactory to the Bank, has been finalized; (b) a gassupply contract between the owners of t:he Mari field and WAPDA has beenexecuted; (c) an agreemernt between PPL and SNGPL for the supply of Sui gasreleased from Guddu by mid-1985 has been executed; and (d) a supply contractbetween PPL and SNGPL for additional Sui gas has been executed. Other Spe-cial conditions of the project are listed in Section III of Annex III.

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

PART VI - RECOMMENDATION

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

A.W. ClausenPresident

By E. Stern

Attachments

May 24, 1983Washington, D.C.

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Page 1TABLE 3A

PAKISTAN - SOCIAL INDICATORS DATA SHEET

PAKISTAN REFERENCE GROUPS (WEIGHTED AVERAGESAREA (THOUSAND SQ. EM.) P- MOST RECENT ESTIMATE)-a

TOTAL 803.9 MOST RECENT LOW INCOME MIDDLE INCOMEAGRICULTURAL 249.9 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & 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

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

POPULATION DENSITYPER SQ. KM. 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. 43.8 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 REPRODUICTION RATE 3.7 3.5 3.0 2.0 2.0FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 1908.1 2085.0/cUSERS (PERCENT OF MARRIED WOMEN) .. .. 6.07o 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 19.97W 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 PHYSICLAN 5396.8 4299.1/f 3775.1/e.f 3297.8 8540.4POPULATION PER NURSING PERSON 16961.8 13306.07f 10030.3/e.f 4929.3 4829.4POPULATION PER HOSPITAL BED

TOTAL 1794.5 1860.1 1903.4/e f 1100.4 1047.5URBAN 506.8 648.1 7 1 2 . 9 7t! 301.3 651.6RURAL .. 12478.5 11870.l7; 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 2.8 .

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. 17.9 ..URBAN

5 4.4/S '

RURAL 4.

9/1

-26- ANEX I

Page 2TABLE 3A

PAKISTRrfl:CIAL INDICATORS DATA SHEET

PAKISTAN REFERENCE GROUPS (WEIGHTED A 9 AGES- MOST RECENT ESTIATEJ

MOST RECENT LOW INCOME MIDDLE INCORE1960 /b 1970 lb ESTIMATE tb 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 20.7/1 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 3.0yj 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 45.37T 41.8LOWEST 20 PERCENT OF HOUSEHOLDS 6.47T 8.0LOWEST 40 PERCENT OF HOUSEHOLDS 17.57k 20.2

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

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

41

ESTLMSATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. 34.0/i 88.0 .. 178.2RURAL .. 22.07? 58.0 .. 164.9

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME 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.

tc 1975; /d 1977; /e 1976; 1f Registered, not all practicing in the country; Ig 1973;/h 1962; /i 1972; /j 1968; /k 1964.

May, 1982

-27- ANNEX IPage 3

DzvMmrus OF iSMI.L nICATOS

oi:Although the dat e rw from -n e genraly judged the mess uthriaiv ad reliable, it should also be noted tht they may no he inte-atioalyro.Wnrlbl becaus of the lack of standardised dfginition an tosrPts needby differet -tetino in colleting the data. The data ar. nsthaee- osfo1l.t dnclheb orders of egnitode. indicat teodo. end thAracteios certin ajor differnocesM... ..te .ocontrios

The r:fecro- groops are (I) the as coni ecp of the nubjeot -otry and (2) a .tooty grop with toneht high- arerago incm than the coastry groopof thesbjct coo.tryi. (cpt tar Hig.h intone Oil is poeto" gr-P whm"Middle Iscone North Melon and Middle E.ni' In choon horao of stronger

oic-...toral affinitis.It_herfeenegro dar the avrge .r popoltiot enighted arithetio set fnc each indi-- and shee tly shotnajority at the... c tnirie to a op da dat for that idcao. i- rho coverge of co-trie- amog the isdicotore deprtda on the avaisbility of datanod is rot cm r., conio _s he %onroted in lltriteg avergs of on indicator to another. Th.a.. ergn oe lny osefo1 in copaing the tae of

one indiot-ra in ho .. cntry end referenc grops.

AREA (thoonnd sq.ke.) P.P.4ftio j- Hospital Bed - tota.1 arbs, and -1te - Population (total.Total - Tota -orioetse coprising lord teen and inad wanor; 1979 data. eban, nod enrol dividedby their repective snb. of hospital bedsAgoicolto-l -E.stiat f-oro arlae noed t.mporaily orperentip sA_lbl In pb,l and Private geo.a and oponia1ied hospitl1 andfee

orl crops. patre, ka t and hitches ga-d- or tc lie falo;1979 data. hbhilitatiancsos Hospitals ace establishmets pemaetly staffedby at Ist .. so.. physi-o ~tatblishest providing peintiPo11cota

ts pg AITA (1US$) - IN per capita estiates at -eret markt prices.. ca- dWlcaeamtt ic1nded. ttlhsiaa oee,ionohatcatdby noe onerin .erod an Wol1d bob Atlas (1978-8i basis); 1960. and medical.. ceters net permnetly etffed by a physinio (bnt by A

190 o 90dta. medica-1 aat noemidwife, et.) which offer is-potiont snoodasion and proid a limited rage of msdioal farilitio. Poe stasis-

iNERCt CONSUMPTION Pit CAPITA - A-ona cosonPtins of o-ria enerY (neal tiosi psepo.... .eba hospitals Include w SIlopioipa1/gee-r1 haspitals.end lignite. perroilta. ntorl1 gas and hydon-, -ne- nod geotherma slot- and meal hopitola. ma-a or -ea hospitals and medical sod materityltriity) In kilg-ams of coal qoiv-i-t Per caPita; 1960. 1979,. ad 1979cntrs Sper Ioio-d hoopitalo ace lindad osly ade statl.

data. ~~~~~~~~~~~~~Adeinniom pe" HoIal led - Total seber of ada.Losa to or dischagesiro hospitalsdivided by the nashe of beds.

POPULIATION AND VITAL. STATISTICSTotal Popalatios, Mid-Ton (thonsada) - do of Jnly 1; 1960. 1970, and 198f HouiJONS

daa Avrg lo f Hoehod ionn e hocahold) - toto. nehe, and -.oI-ira oelo (coronet of total) - toti of arba to totl. popalarion; A-hooodcnit fa rn fidvdonsh he iigqatr

dfferen dfisitioo of rhan -a may affect com parbility of data and their main meals. A bearda r- lodger may orma net ho iladd it_logconrioo 19601, 170, nod 19Sf data. t he.. boshold forsatsiclporpowes

Pooainiv year 2OOt - Ceret popoltios proJections ar based e 19ff her o -.f prnspe ro I all orha,tnodcoaoopedonntoltotl1 popo1ation by ago and nc nod their matality and fertility rates. dwIlltgs. repertively. Dwellingeen-1ode tn-permaset trnt-ne andPco)eti-o parmeer foe mortality -- e comprise of threlelsno- om oid prsing life enpectacy at birth incre.oilg with cssy pe c-pti incm cest lcrcty(aet fdelns -ttl ra,admaleve. and felo life nes--ny stahiliniog st 77.0 5yearn The porn C--erti-Ia dwellings th electricity it ljivig qoater o ecetgmetre for ferility ltar also have thre Ine- aasin doclier in ci toa. t o1rhan,. od o-I dwellings repectively.icrtilityonceeldlng to Incom 1-vo nod past fosIly pleaning performnc.

ech coontry is iboc assigned on ofthese nIne -ob=i.aon of morftaiY EDUCATIONend fetlity trends for projection p-rpose. Adjonted tEn..mes- Rotion

Stati_nrypoolrln- I. totionar population there is so.growh sis.o Priney school - total, sale and femal - iron total, male and femlo.i'the hieth rote is qo to rho deeth rote, and also the ego strctore r--onl-en of all ages as the primary -o an percentges of resPecivnaioo cean.This is achievd only after foninliYrae decline to primary shool-age ppylatios.s; sosaly itt1odas children aged 6-1ltho repl-onent leve c, toittset oprodootico rats, when each eso-tiosyer hat.b adjonted f or differet lengths of primary edaction; forof. n roplace iite I nacly . The starineary population oto wa _ontis with an-l-osa edactio enrllen nay naced 1ff pocetrntimotrd on the hasio of the projctd characteristics cf the populationsince non popil are hbow or above rho official cho1 Eg.In heyear 20ff. and rho rate fdecline of ferttility rate to repIlet- Oreonday schol - trtol, male nd femal - oMpnrd as abov; secon dar

senleel ndctioereqlreet leas.t fEat yese of sprov-d primary ita -te o;Trar tcticanry popolation in coahed - Th. yea whe stotienary popalatirn provides geeal octonl or=tace trnin itg lootroion for pnpi1s

sian 11 heeco-hd. asealy of 12 to 17 pFars of age;toneepondeoc.. .eco ore generallyPopalation nenniry enc~~~~~loded.

Poe s. Ms id-year popootion Per aqos Ailosere (1ff hoctrs) of Vocational enrelseo-t (reroent ofVattdr) -VcaionlInttoi_tonlcr0 19ff, 1970 ned 1979 data. isolade techirol, tadoetriel, or other program which operate dpend-

Poe n. be. aniatrimd - Compted as abov f.olarialorl ad ettly er an dapeetnts of eoccndny inotitotti-n..ony; 90 90ad17 data Ppil-reaherrorio i- rei re ndstodary - Toti -tdat -nr-lo i

Pocoa.tlco Ace Olltroor (percent) - Childre (0-i4 yeses.). ecekin-aSe (tOpimary and secodary 1eoe diided by ta _r of teacher is the64 Years), and retired (65 Yanes andoe)a p-enetages of aid-y-n popo- -- repsding 1-vin.lotion; 1960. 1970, and 19ff dete. ~Adltaliteracy rate iper...n) - Literte adIne (able to read and write)%-Poott- Gleoth tote (per...ct) total A-Ana growh eate of ltota aId- naecnaeo iio tpptto gd1 ec n vr

yoerp ipno I_o for 15-6 _ 19070, ned 1970-ff.Pnpolltior, io-rh Rtot (pecet) - trbs An--a growh eaten of nehes .pop- CONStPTION

lati_s Ie 1950-60, 1960-70, otd 1970-B0. Passen:ger or (per theotnod popultion) - Pssegsr one compris motorConda north Mtot (per thac__d) _A- Ana live hiths per th.....d of mid-yea cas _eaIn .ls than eight persns tooIda- nabsace., he-re nod

poplto;1960, 1970, od100date, m~ill tory vehicle..Clnd Deeth tote (poe thonsand) - Aneva1 deaths per thoneatd of aid-year Hdi. RHo.ei... (Per ibonsand pp to)-All types of tenivees for radioCpopoloti-o; 19ff, 1970, and 1900 dora. hbc-d-ets to genra pabl pe thoa_ad of pepoIlains; enldnean

frosa topoodntionRt H o- Arrge sombre of danghtors o oa ill bea in licenoed _clesre is _otnrio and In year when. gitero f radioher -1ma reprodotive perio if oh. -op-ricet .re.ost ago-specifito fe- sets,asI effctdta for recet yearn may nor be comparable slat

tliy on; .... nlly fiv-y-o average ending is 1960, 1970, and 19ff. motr -tinaelbed~ licnigPonilbyiPloenlog - Acceptors, Annea (than-asd)t- Anna sas- facetr TV R-civrs(,errthoso ooeln TVroeva for broado.s tot

ci irt-cotec dece drnptsfosIoo famIly plning. prga. oea phi prtooadppoois eone oslcansd TV reelerPselyPlsnig Ins(entan of nariod wmn Prcestage. of marndI tcasies and in Yrre_ he feitoinn TV eswsI ffiect

woma of childherIg age(15-44 yearo) uhnon bhiro-coteol devices to eespape Ciroa.lato (Pertnat rpltion - tnws the aveag oe-all mariedi wome 10 on ogogr-p. -oloIon of "dailygenerl Intres newpaper", defined anaperiodica

Ptobioino evte pesm-tily to re-ndingig-sa sees. ft io ..ossidardPOOD AHD NUTRITION tohb diy fitapasa es ft ie ek

aden of rood.Pndortion co -tops (969-71-190) - InAne of per caita -sIa Cinem A..1na A-ed-o roe Caito per fear - Hosed on the s,t- efprodoction of all fond -onodiie- Pe-d-oios. .... roes mad. .. od and tichors sold dnr iog the pear, incldiog adIssions. to driv-In cionmaIs on aledar yea basIn. C-nditics cove pri-oy goods(e.g.f magate and eb ilo omits..inte. of negne whith ar sdible nod contain notrista (e.g. coffee andten are_ noldsd). Aggoegn- poodnotin of eah -osoty is b-ase onLABsR PORCE.ationl averag prod...r pric weights; 1961-65. 1970. and 19ff dota. Total LAbor Porte (the...ode) - Ecosonlcolly active perone. In1iding

Prcytspply of celo_lee (percet o enrnn Compoted f eon need forces. on anelysd hot. -1cdiegh ..aotvs,atdets.ec.enegyoqivlet f se food eappl iesaf_iobl is nootry Per caita co Eieppatonfalags DfItos In_ vas cooi_tsne

per day. OA-ilbhlr sappliesoprs domestic prod_tion, imparts le sot comporble; 1960. 1970 and 19ff dato.c_po_t. and lb-,g, in scoch. INs spplies entlde anima food, neds, PemIn (poret) - creat labor forc as percetage of toa labo force.q_cosities o_ed In food p-oceeing, and losses in diotribotis. Reqnice- AgricIlgr (pecant) - Lahr fo infr ing f-retry. hosting andseers. wereestimated by PAD based on hbyeiolgi-ol seds f. ornoma nt- fishng a pretafo of total lborfrte 1960. 1970 and 1900 ds.-

* cIt an _ eolth ce-odoriog onvico-ecl te-peotrs body weights, age Iodnatry (percen.t) -"lbor forc In w.inig. esrrin natrsnod se distelbotis ti popltno s llowio I0 percent fo waste 05ad electricity,etrad gtspreonoo oa l rfrebosochold level; 1961 -65, 1070 and 1977 data. 19ff, 1970 and 19Sf data.

Per capito n_rply fi PMosin (I -wpr day) P -tncnent of pe onpita Potloiiption tot (proco -. total, male, and femal - Participation oros spply nf feod pel a.(NtsopY Lo rdI defind a aboe. to- activity rates ore pted as total, mole, nod female labor forten

qolroos0o iltft 1 -ooctesl eatobinhed'byfUSDA provide for eli'i pe-cetgfe nf total, m1lr nod femal popletien of all ages -oprtivoly;ollowat..t of 60 groa of ltos1 perseIn pee dy nd 20 gees of animal td 1960, 1970,..sd 19Sf data. These ao banod on ILOn porticipation care

pos tI.l of hich 10 gSto she1d he onima l prtein. These stood-rfetn agnn eteotne of ehe population, and 1eg time tred. Aordo r lowert1 theobe o f 75 iros of to tal proteIn asd 23 S-am f few etimatsoe iro notional-,oranatal pootel on n voo for the eed,proosd by FAO in the Third tonmo eedenc y Hoti - Hotin fppltinadee 15 end 65 andoe.ond Pood Sorcy; 6191-6, 1970 od .197da11:to. to the tota labor forte.

PrcptprteI sopp." Peo anmal ndpIs. Protnie snpply of food de-rove f1 ro s l end pulses In groa per doy; 1961-65. 0970 ned 1977 data. INCOME DISTRIBUTION

Child (anes 1-i)_tooth Rtote(per theomand) - Annea deahs per tbhoaod in ceag fPiat noe(borb It cooh and kInd - Received by richoetngc geon I- yas.schildno It tbis age grop; for -s develping co- 1pretrichest P 2 ..prcet. pooroot 20 Pe-nt, ad poorest 40 portentcries dota do-i-ed -io if tsblee; 1960, 1970 and 1980 dera. of ho...oho1ds.

HEALTH POVERTY TARGtI GROUPSLife Eoocta...y -ci leth Inyors) - Average osher of ynara of life re-iion The fo11oelogesias amvey apprtimato - -ne of povety levels

osbirth; 1960. 1970 and 1900 dote. and sh.ald he istoeprotod with -oeide-ohi cannon

aces tntoeW-o (P.cea ef possis otl hntn srl-na n tiesolly adeqomn diet pin essen..tial ee-fned reqoicemests In ensho .iPeopl (ltotl. sbo, ned r..-I) with rescahs ccsssosfe afiordebls

wter ..,PpIy "todntraedeefr waeso ntetdht neetanioted Ecimated Relative l'ovty Inom lael (U0$ percaita) - echos sad enrl1wato-.-has that icon pentsrtd bsholn, springs. and sanisery wel) as nRol relaive povety InoelvlI n-thir of avege pee o-pit.

pscnae f thiae. repective peptlti-ns Is an oban area apb111` peros inom of the e-atry. tr= leve Is derived fro the -1tefowetoino stadpost 1ooted set mor than 2ff masses form e hao maY be leve with udjomimet Per higher cost of living In ehan ara..ons ided no bend-ti -rneAble no-n of that h..-e. In cosice etimatsd P.p.lnetes selo slnePvrytemlvlipea)-ahs

teanoaim acns osl ily that the h-noif. rmtrso h homheld and Pal -Pecet of poultia (urba a oa)seseaaldo mat hov t spod a disp-peeti-nte pet of the day le fetehiog the

hArass sfaEesaWDiopoei eecntofennlti) - total. oran sdtes] eseof pepe stol urban, an mclsevd by en-ta disposal as

ps-etage of their esptie-v popaiet s. herto disposal may -Inidthe nl_mta andidisposa, with or winhat ssis f ban -at

no twns-ete- by utscr-hn nynt-m se the -n ef Pit prtiss- ad sii-

PeneiserPhsiofan - P.p.Latisa divided by sober f p-atiatg physi- Eema-ia sad Racia Hots DSivimiolasa .-eafifd fro a mdical aheo1 an ni-erity len. f.oNomi Analysis an Peejatios DepartetPoelaio Fe Nueis see - PpoLisco dieidsd by ."C of pratisiag lay lINlmis sad femal gette P.aa.aastn noe,praitol oe nearaing asai.i-rs

--28-

ANNEX IPage 4

ECONOMIC DEVELOPMENT DATA

GROSS NATIONAL PRODUCT IN 1981/82 ANNUAL RATE OF GROWTH (%, constant prices)

US$ billion % 1969/70-1974/75 1975/76-1980/81 1981/82

GNP at Market Prices 31.68 100.0 3.5 6.3 5.0Gross Domestic Investment 5.14 16.2 -5.5 5.4 11.9Gross National Saving 3.70 11.7 -2.1 8.2 8.0Current Account Balance -1.53 -4.8Resource Gap -3.48 -11.0

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1980/81 /a

Value Added Labor Force V.A. Per WorkerUS$ million x US$ million x US$ million %

Agriculture 7,825 29 13.5 51 580 58Industry 6,827 26 5.2 20 1,313 131Services 12,053 45 7.9 29 1,526 152Total/Average 26,705 100 26.6 100 1,004 100

GOVERNMENT FINANCEGeneral Goverment Central Government

(Rs billion) I of GDP (Rs billion) % of GDP1981/82 1981/82 1977/78-1981-82 1981/82 1981/82 1977/78-1981/82

Current Recepts 51.2 15.9 15.8 39.0 12.1 12.4Current Expenditures 44.4 13.8 14.1 34.1 10.6 10.6Current Surplus/Deficit 6.8 2.1 1.7 4.9 1.5 1.8Capital Expendtures 27.0 8.4 9.3 21.2 6.6 7.4External Assistance (net) 6.3 2.0 2.8 6.3 2.0 2.8

MONEY, CREDIT AND PRICES

1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 b/

Money and Quasi Money 33.1 41.6 51.7 63.7 76.5 90.7 103.5 114.4Bank Credit to Public Sector (net) 17.5 22.7 29.5 34.3 43.1 48.1 54.1 59.9Bank Credit to Private Sector (gross) 19.7 23.1 30.1 35.7 42.7 50.6 58.7 70.7

Money and Quasi Money as 1 GDP 29.5 31.5 34.6 36.7 39.0 38.3 37.0 35.5Wholesale Price Index (1969/70=100) 211.3 229.4 255.3 271.4 289.7 316.7 358.8 398.6

Annual Percentage Change in:Wholesale Price Index 23.6 8.6 11.3 6.3 6.7 9.3 13.3 11.1Bank Credit to Public Sector (net) 21.2 29.4 18.8 16.6 25.6 11.6 12.5 10.7Bank Credit to Private Sector (gross) 26.3 17.3 30.3 18.6 19.6 18.5 16.0 20.4

/a Labor force data are official figures of the Ministry of Finance and Planning.Serious underenumeration may exist, especially of women.

/b ProvisionalFebruary 1983

-29-

Page 5

,ALAEcE 5P P7 *RkTS

(U llion) NESRC ADISE EXPORTS (AVERAGING 1978/79-1981/82)

1976/77 1977/73 l979/7y 1979/G0 1980/61 la 1981/82 US$ million J

Exports of Goode, IPfS 1,406 1,6J. 2410, 2,955 3,461 2,966 Raw Cotton 260.5 11.5Imports of Cooda, NFl _2,87 3,297 _4 PS 709 466 6,613 Cotton Yarn 181.3 8.0

Cotton Clothn 230.4 10.2Resource Gap (deficit -) -1,473 -1,646 -2,378 -2,754 -3,005 -3,847 Rice 382.7 17.4

All Other Commodities 1,196.9 52.9Intereet Paymnts -172 -163 -261 -285 -357 -453 Total 2,261.8 100.0Workere' Resittanceo 578 1,166 1,395 1,748 2,097 2,225Other Factor Payments (net) 15 62 134 151 274 345 EXTERNAL DEBT, DECEMBER 31, 1981Net Transfers .-_ .. ..

US$ millionBalance on Current Account -1,052 -601 -1,110 -1,140 -991 -1 ,530

Public Debt, Including Guaranteed 8,813.9Direct Foreign Inveztment , . . .. .. - .. Non-guaranteed Private Debt /e .Net MLT Borrouing

Disbursements 961 841 813 1,134 956 1,102 Total Outstanding and Disbursed 8,813.9Amortization -175 -122 -235 -310 -516 -492

DEBT SERVICE RATIO FOR 1981/82 IfSub-Tatal 786 719 57i 324 440 610 Percentge

Trensactionz uith IMFNL 44 41 -14 78 315 358

Public Debt, Including Guaranteed 12.2Other Items n.el. /c 24 163 238 600 527 364 Non-guaranteed Private DebtIncrease ir. Reserves (-) 198 -322 308 -362 -291 198 Total 12.2

GroeS ReServes (yeaTr and)d 372 694 386 748 3 ,039 841 l:NDIDA LENDING (DECEMBER 1961) (US$ million)IBRD IDA

Official Gold (year end;million ounces) 1.6 1.7 1.8 1.8 1.8 1.8 Outstanding and Diabursed 310.1 903.8

Undisbureed 32.1 505r3Outstaniding, Including Undisbursed 342.2 1,414.1

Fuel and Related Naterials

Petroleum Imports 413 497 539 1,237 1,602 1,683Petroleum Exports 27 63 61 178 160 185

Rate of Exchange

Thlrough Nay 11, 1972 Iay 11, 1972-Feb. 15, 1973 a , n 7, 1982 January 8-Aug. 31, 1982 Average

U0$ - As 4.7619 US5 = Rs 11.00 056 Re 9.90 'JS$ - Rs 11.46Rol - US$O0.2100 Rel = 0S$0.0909 REel - IS$0.1010 Rs = 0.087

/a Governaent estimate.77; Including Truat F;nd.77 Including net short-term borrouing and errors end omila->sT7 Foreign exchange amd SDR holdings of the State Bank.71i Private debt is negligible.7f Ratio of debt service to exports of goods, non-factor services ang gorker's reaittencee;

not including stort-term or IEF changea.ise January 8, 1932, value of rupee le being maugesgd wfth refsr:nce to a

nIted basee-t of currenciao.

-30-

ANNEX IIPage 1

STATUS OF BANK GROUP OPERATIONS IN PAKISTAN

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1983)

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

Eighty-eight loans and credits fully disbursed /a 686.7 32.0 851.3/e

620 1976 Seed Project -- 23.0 6.2630 1976 Second Lahore Water Supply -- 26.6 3.3648 1976 Irrigation & Drainage (Khairpur) -- 14.0 6.71366T 1977 Punjab Livestock Development -- 10.0 -- 8.11372) 1977 Railways 35.0 -- 0.4684 ) 1977 Railways -- 25.0 0.2678 1977 Third Education -- 15.0 5.8751 1977 Hill Farming Tech. Development -- 3.0 1.2

754 1978 Salinity Control & Reclamation -- 70.0 68.4755 1978 Hazara Forestry -- 1.7 1.4813 1978 Punjab Ext. & Agric. Dev. -- 12.5 6.9867 1979 Toot Oil & Gas Development -- 30.0 0.2877 1979 Salinity Control & Redl. (Mardan) -- 60.0 57.9892 1979 Primary Education -- 10.0 7.6922 1979 Sind Agricultural Extension -- 9.0 9.0957 1979 Agricultural Development (ADBP IV) -- 30.0 3.7968 1980 Third WAPDA Power -- 45.0 30.5974 1980 Third Highway -- 50.0 35.81019 1980 PICIC Industrial Development -- 40.0 10.11109/d 1981 Vocational Training -- 25.0 24.61113/d 1981 Small Industries -- 30.0 29.211577w 1981 Grain Storage -- 32.0 31.71158/d 1981 Agricultural Research -- 24.0 24.01163/d 1981 On-Farm Water Management -- 41.0 36.21186/d 1982 Industrial Development (IDBP II) -- 30.0 27.52122 1982 Fourth Telecommunication 40.0 -- 40.02166 1982 Structural Adjustment 60.0 -- 2.12172 1982 Fertilizer Industry Rehabilitation 38.5 -- 37.71239/b /d 1932 Irrigation Systems Rehabilitation -- 40.0 40.01243/b /d 1982 Baluchistan Minor Irrig. & Agr. -- 14.0 14.01256Jd 1982 Technical Assistance -- 7.0 6.41278/d 1982 Eleventh Railway Project -- 50.0 49.92218/b 1983 Refinery Engineering Project 12.0 -- 12.0Total7 872.2 42.0 1,609.1 638.7

of which has been repaid 461.8 0.6 32.8Total now outstanding 410.4 41.4 1,576.3Amount sold 23.9of which has been repaid 23.9 -- -- -- --

Total now held by Bank and IDA/c 410.4 41.4 1,576.3

Total undisbursed 92.3 8.1 538.3 638.7

/a Excludes the disbursed portion of loans and credits wholly or partly for

projects in the former East Pakistan which have now been taken over byBangladesh.

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

principal is shown in US$ equivalent at the tine of negotiation.Disbursed amounts are computed at the market rate on dates ofdisbursements.

|e By using the market rate on dates of disbursements, the current principalfor Credit 1066-PAK and Credit 1255-PAY (both fully disbursed) is$42.5 and $77.5, respectively.

-31-

ANNEX II

Page 2

B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1983)

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

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

1959 Adamjee IndustriesLtd. Textiles 0.75 -- 0.75

1962- Gharibwal Cement1965 Industries Ltd. Cement 5.25 0.42 5.671963- PICIC Development1969- Financing -- 0.52 0.5219751965 Crescent Jute

Products Textiles 1.84 0.11 1.951965-1980 Packages Ltd. Paper Products 19.58 0.84 20.421967- Pakistan Paper1976 Corp Ltd. Paper 5.38 2.02 7.401969 Dawood Hercules

Chemicals Ltd. Fertilizers 1.00 2.92 3.921969 Karnaphuli Paper

Mills Ltd. Pulp and Paper 5.60 0.63 6.231979 Milkpak Ltd. Food and Food

Processing 2.40 0.38 2.781979 Pakistan Oilfields

Ltd. and Attock Chemicals andRefinery Ltd. Petrochemicals 29.00 1.82 30.82

19<30 Fauji Foundation Woven Polypropy-lene bags 1.78 -- 1.78

1980 Premier BoardMills Ltd. Particle Board 2.70 -- 2.70

1981 Habib Arkady Food and FoodProcessing 3.15 0.17 3.32

1982 Asbestos Cement 4.05 4.051983 Pakistan Petroleum Chemical and

Ltd. Petrochemicals 88.65 1.55 90.20

Total Gross Commitments 171.76 11.38 183.14

Less: Cancellations, Terminations,Repayments and Sales 123.72 1.02 124.74

Total Commitments Now lleld by IFC 48.04 10.36 58.40

lTndisbursed (includini participants) 103.43 0.34 103.77

-32-

ANNEX II

Page 3

C. PROJECTS IN EXECUTION 1/

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; construction oE a second power plantwith four units is in progress. All Credit proceeds have been disbursed;the Bank continues to adminlister the Tarbela Development Fund.

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

Of the four processing plants in the project, oi- has been completed,one should be operational within a few months, and the remaining two requirereconstruction of defective portions of buildings before equipment can beinstalled. Field activities have been satisfactory in the Punjab but slow inSind.

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, 1983

All major works have been contracted but construction hold-ups havecaused delays in project completion. Detailed action plans to improveoperational and financial performance have recently been agreed.

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, andl 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-

ANNEX IIPage 4

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 collector and lateral draininstallation.

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

Following reformulation of the project in June 1982, project progress

is now encouraging. Work on remodeling and expanding the Lahore Milk Plantis now on schedule aad the contractor's site engisneer expects to commissionthe plant by September 1983. Construction and equipping the Punjab LivestockDevelopment Board (PLDB) training center is coiaplete; teaching staff are inplace and training courses for Village Livestock Association members and PLDBextension staff are scheduled to start soon.

Credit No. 678 Third Education: US$15 Million Credit of February 18,1977; Effectiv7e Date: July 6, 1977; Closing Date:December 31, 1983

The project is generally making good progress. Curriculumimprovements have been satisfactorily carried out, the revised staffdevelopment and expert services programs are nearly completed and almost allcivil works and equipment procurement have been completed. Construction ofagricultural training institutes at Quetta and Rahim Yar Khan is nowprogressing in full swing. At Sind Agricultural University, construction isbehind by about one year due to initial delays in appointment of projectimplementation staff. However, no problems are foreseen in completing allcivil works before the closing date.

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 the lack of a decision on upgrading fieldassistants have caused implementation problems. While the vegetableseed, maize production, service laboratory, training and apple productioncomponents are proceeding satisfactorily, there has been little progresswith the fodder/forage component.

-34-

ANNEX IIPage 5

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. Contracts have beenawarded for construction of main canals anad for supply of electrificationequipment for transmission lines.

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 development of aneconomically sized pulp mill had to be ruled out.

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 recent progress in staffrecruitment, acquisition of building sites and construction work.Implementation of the T&V system and the research-extension linkages havebeen strengthened and are proceeding well. The project staff has been givena special allowance, and steps are being taken to recruit consultants.

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 assistingWAPDA 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.

-35-

ANNEX IIPage 6

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 completedshortly.

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 senior staff has been recruited, implementation of the T&Vextension system started, and consultants have been appointed to assist inqualitative improvement of field extension and adaptive research.

Credit No. 957 Fourth Agricultural Development Bank: US$30 MillionCredit of December 7, 1979; Effective Date: June 5,1980; Closing Date: June 30, 1983

Funds for farm mechanization are fully disbursed, and the funds fordiversified lending should be fully disbursed by June 30, 1983.Implementation of the agricultural engineering training component in theprovinces of the Punjab and NWFP, funded solely by IFAD, has started but isabout 18 months behind schedule. For this component, the IFAD closing datehas been extended to June 30, 1985.

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

Due to some initial delays, mainly in land acquisition, execution of

the project is one year behind schedule. Procurement and constructiontargets for substations and transmission lines are progressing at a goodpace.

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, one

has 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 tlpmrove road maintenance.

-36-

ANNEX IIPage 7

Credit No. 1019 PICIC Industrial Development: US$40 M4illion Credit ofMay 30, 1980; Effective Date: October 29, 1980;Closing Date: March 31, 1984

As of April 1983 US$37 million had been authorized Eor 29sub-projects, with US$30 million disbursed. PICIC's p,rtfolio problemscontinue although rescheduling efforts are underway and collections during1982 exceeded anticipated targets.

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 good progress in equipment procurement, finaldesigns for rehabilitation of existing centers and construction of newcenters, especially in the Punjab. A large-scale instructor trainingprogram is underway and skill standards for a number of trades have beenapproved by the National Training Board. The National Training Board Fund,the Provincial Training Boards and the National Training DevelopmentInstitute have been established, although staff appointments have been slow.

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

To date, some 20% of the Credit has been committed and about 5%disbursed. Construction of the service centers is aearing completion, withexpected operation in May/June 1983.

Credit No. 1157 Grain Storage: SDR 26.1 Million Credit (US$32 Millionequivalent) of October 21, 1981; Effectiv,e 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 19.7 ltillion Credit(US$24 Million equivalent) of August 19, :[981;Effective Date: April 29, 1982; Closing lDate:December 31, 1986

The construction of an office/laboratory block and a hostel at theNatiLonal Agricultural Research Centre is scheduled for completion in July1983. Designs for the provincial headquarters building have been prepared.The contract for training and technical assistance has been negotiated withFAO but not finalized. New research programs have now been started underthe project.

-37-

ANNEX IIPage 8

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

The project is basically on schedule, with physical achievementsgenerally in line with appraisal targets.

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:June 14, 1982; Closing Date: June 30, 1985

Utilization of funds is progressing satisfactorily. To date, a totalof 47% of the proceeds have been committed and just under 10% disbursed.

Loan No. 2122 Fourth Telecommunications: US$40 Million Loan ofApril 14, 1982; Effective Date: June 9, 1982;Closing Date: June 30, 1987

All cofinancing arrangements have been finalized. The ADB loan wasdeclared effective in March 1983 and the KfW loan should be signed shortly.Procurement actions are underway.

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

This Loan is almost fully disbursed.

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

Progress on most components has been satisfactory. Hiring ofconsultants and procurement is generally on schedule. The Multanrehabilitation component has suffered some delay because of technicaldifficulties.

Credit No. 1239 Irrigation Systems Rehabilitation: SDR 33.5 MillionCredit (US$40 Million equivalent) of June 3, 1982;Effective Date: May 15, 1983; Closing Date:December 31, 1985

This Credit is not yet effective.

-38-

ANNEX IIPage 9

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, 1983; Closing Date:December 31, 1988

Four minor irrigation schemes have been prepared to detailedengineering level and actions are being expedited to tenider works andinitiate construction activities. The remaining schemes areslightly behind schedule. After some initial delays, project staff andconsultants are being mobilized. Procurement of vehicles and equipment isalso underway.

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

Disbursements are proceeding satisfactorily.

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

Physical implementation of the project has started and is proceedingsatisfactorily.

Loan No. 2218 Refinery Engineering and Energy Efficiency Project:US$12 Million Loan of January 17, 1983; EffectiveDate: April 17, 1983; Closing Date: June 30, 1985.

This Loan is not yet effective.

39 ANNEX III

Page 1 of 2

PAKISTAN

FIFTH SUI NORTHERN GAS PIPELINE PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare project:

Two years

(b) Agency which prepared project:

Sui Northern Gas Pipelines Limited

(c) Date of first presentation to the Bank, and date of firstmission to consider project:

August 1980; January 1981

(d) Date of departure of appraisal mission:

November 1, 1982

(e) Date of completion of negotiations:

May 13, 1983

(f) Planned date of effectiveness:

September 30, 1983

Section II: Special Bank Imiplementation Actions

X None

-40-ANNEX IIIPage 2 of 2

Section III: Special Conditions

(a) Government to prepare and update annually a medium termrolling gas development and utilization plan (paragraph53);

(b) SNGPL will not make significant changes in existingallocation of gas or allocate newly *liscovered gas untilthe results of the study to determine the optimumallocation of gas to the highest value users becomesavailable (paragraph 54);

(c) Government to ensure that suitable arrangements are madefor the conversion of Guddu I and II units and theconstrulction of the Mari-Guddu pipeline (paragraph 62);and

(d) SNGPL to prepare and update annually a medium termrolling investment plan (paragraph 73).

The following would be additional conditions of effective-ness:

(i) a supply contract between PPL and SNGPL for additionalSui gas has been executed (paragraph 61);

(ii) a gas supply contract between the owners of Mari andWAPDA has been executied (paragraph 61);

(iii) an agreement between PPL and SNGPL for the supply ofSui gas released from Guddu has been executed (paragraph62); and

(iv) complementary co-financing for the project has beenfinalized (paragraph 66).

IBRO 16906R

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