Docum_t of

The World Bank

FOR OmCIAL USE ONLY

Repoit No. P-4051-TH

REPORT AND RECOMENDATIOU

OF THE

PRESIDENT OF THE

INTERNATIORAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN 'AN AMOUNT EQUIVALENT TO USt85.O MILLION

TO THE

BANGCHAK PETROLETUM COMPA1Y LTD.

WITH THE GUARANTEE OF THE

KINGDOM OF THAILAND

FOR THE

BANGCHAK OIL REFINERY RESTRUCTURING PROJECT

April 22, 1985

This documentsha a res idedaloulbode and may be wsed by recints only in dhe pIefor=nance ofthi officad duet. Irt co*tesis may ad othrwise be discosed witho Wodd Ba anthsimio_.

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CURBENCY EQUIVALENTS

Currency Unit = Baht (b)$1 B 27.0B -1 $0.037d 1. million = $37,037

FISCAL YEAR

Government of Thailand: October 1 to September 30Bangchak PetroLeum Co., Ltd.: January I to December 31

WEIGHTS AND MEASURES

I barrel (bbl) of crudeoil (0.85 Specificgravityl34° API) = 0.136 metric con (t)

I barrel (bbl) = 0.159 cubic meter (cu m)I British Thermal Unit (BTU) = 0.252 kilocalories (kcal)I cubic foot (cu ft) = 0.028 cubic meter (cu m)1 gallon (US) = 3.785 liters (L)I metric ton of crude oil = 44.4 x 100 3TU (typical)1 standard cubic foot

(SCF) of natural gas = 1,000 BtU (ypical)I ton of oil equivalent (toe) 10.415 x 10 kcal.

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

BCP - Bangchak Petroleum Company Ltd.BOR - Bangchak Oil Refinerybpcd - Barrels per calendar daybpsd - Barrels per stream dayCEF - Consultant Engineering FirmDED - Defense Energy Department, Ministry of DefenseDMR - Department of Mineral ResourcesEGAT - Electricity Generating Authority of ThailandLPG - Liquified Petroleum GasMEA - Metropolitan Electricity AuthorityNEA - National Energy AdministrationNESDB - National Economic and Social Development BoardNPPC - National PetroLeum Policy CommitteePEA - Provincial Electricity AuthorityPTT - Petroleum Authority of ThailandSAL - Structural Adjustment LoanSCFD - Standard cubic feet per daytoe - Ton of oil equivalentTORC - Thai Oil Refinery Companytpy - Tons per year

FOR OFFICIAL USE ONLY

THAILAND

BANGCHAK OIL REFINERY RESTRUCTURING PROJECT

Loan and Project Summary

Borrc-ier: Bang^hak Petroleum Company Ltd. (BCP)

Guarantor: Kingdom of Thailand

Loan Amount: US$85.0 million equivalent

Terms: 15 years including 5 years of grace at standard Bank incerestrate.

Guarantee Fee: lOZ of Bank's standard variable interest rate.

ProjectDescription: The proposed project supports the Government's program to

make the Bangchak Oil Refinery financially viable throughcorporate and financial restructuring and physical rehabili-tation. In order to ensure sound management of the refinery,the Government has established BCP, a fully autonomous andcommercial company, to operate and manage the refinery. TheGovernment appointed a strong board of directors and amanaging director who is BCP's chief operating officer. Inaddition, a management and operations team from Caltex Petro-leum Corporation (US) was appointed for in-line positionsdirectly under the managing director. The proposed projectcovers the physical rehabilitation of the refinery, opera-tions and infrastructure improvement, energy conservation andengineering and management assistance. A study will beundertaken to determiine further modifications required toensure that the product mix of all refineries in Thailandwill be in balance with the projected demand profile forpetroleum products in the country.

Risks: The project does not face any significant risks that wouldimpede its efficient implementation. The technologies thatwill be used are commercially proven. Comprehensive repairand maintenance and staff training programs are provided forin the project. Environmental safeguards have been incorpo-rated in the project through (i) infrastructure improvementsto minimize the oil sludge being dumped into ponds, and(ii) installation of a new sulphur plant to lower dischargeof sulphur oxide. Marketing and distribution systems inThailand are well-coordinated. BCP's corporate and financialstructure is sound, and-adequate meAsures are provided in theproject to maintain the company's satisfactory performance.

This document has a estricted distribution and may be used by recipients only in the performance |

of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Estimated Costs:

Foreign Local /a Total- JUS$ miLlion equivalent -

Refinery rehabilitation 48.1 7.6 55.7Energy conservation 6.7 0.6 7.3infrastructure improvement 5.9 2.6 8.5Training 1.3 0.2 1.5Project engineering and management 12.5 - 12.5Operations and management assistance 4.2 0.9 5.1Techno-economic study 1.6 0.2 1.8

Base Cost 80.3 12.1 92.4

Contiagencies:PhysicaL 8.0 1.2 9.2Price 17.5 2.1 19.6

Total Installed Cost 105.8 15.4 121.2

Interest during construction- Bank-financed 10.0 - 10.0- Other 11.4 1.2 12.6

Total Financing Required 127.2 16.6 143.8

Financing Plan:

US$million z

Long-Term Debt:IBRD 85.0 59.1Suppliers' credit 30.8 21.4Commercial banks 13.0 9.1

Total 128.8 89.6

Equity Contributions:Ministry of Finance 7.5 5.2Krung Thai Bank 7.5 5.2

Total 15.0 10.4

Total Financing 143.8 100.0

/a Including taxes and duties of US$8.0 million.

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Estimated Disbursements (US$ million):

Bank FY 1986 1987 1988 1989 1990

Annual 15.0 23.9 21.8 15.9 8.4Cumulative 15.0 38.9 60.7 76.6 85.0

Economic Rate of Return: 28Z

Staff Appraisal Report: Report 4737-TH, dated April 15, 1985

IBRD Map No. 1735IR

REPORT AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCT-ON AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOANTO THE BANGCHAK PETROLEUL COMEPNY LTD.

FOR THE BANGCHAK oIL REFINERY RESTRUCT-URING PROJECT

1. I submit the foLlowing report and recommendation on a proposed loanto the Bangchak Petroleum Company Ltd. (BCP) with trIe guarantee of the Kingdomof Thailand for the equivalent of $85 million, to help finance the BangchakOil Refinery Restructuring Project. The loan would have a term of 15 years,including 5 years grace, at the standard variable interest rate. BCP will paythe Government a guarantee fee equal to lOZ of the Bank's standard variableinterest rate.

PART I - THE ECONOMY!'

2. An economic report entitled "Coping with Structural Change in aDynamic Economy" (Report No. 3067-TH) was issued on December 23, 1980. Itproposed a mediumrterm strategy to deal with the adjustment problems resultingfrom the two oil price shocks of the 1970s. Subsequently, the Royal ThaiGovernment initiated a program of structural adjustmpnt policies, which theWorld Bank supported with two structural adjustment loans. An economic reportentitled "Managing Public Resources for Structural Adjustment" (ReportNo. 4366-TH) was issued on August 31, 1983. It reviewed progress in theimplementation of structural adjustment policies and proposed directions forfurther action, especially in regard to the mobilization and management ofpublic resources.

Recent Political Developments

3. Since the early 1970s, the political process in Thailand has broad-ened and matured significantly. Initially, this was accompanied by frequentand sometimes abrupt changes in government leadership. Since the 1977 generalelections, however, Thailand has enjoyed a period of greater political stabil-ity and continuity of policy. Cabinet shuffles have continued to take place,reflecting shifts in the makeup of the coalitions of political parties, mili-tary and business leaders, and technocrats, which have governed the comntryfor the past five years. However, only one change in Prime Minister hasoccurred during this period. General Prem Tinsulanonda was appointed as PrimeMinister in March 1980 and has been successful in mobilizing support for amajor program of economic structural adjustment, embodied in the Fifth Five-Year Plan, 1982-86. Senior civil servants supporting this program were given

1/ Parts I and II are substantially unchanged from the President's Report onthe Regional Cities Development Project (No. P-4010-TH), circulated undercover of R-85-84 dated April 4, 1985, and approved by the ExecutiveDirectors on April 23, 1985.

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key positions in the puolic sector. Although there are continuing internaldebates on the details and speed of poLicy implementation, overall, a broadpubLic consensus on national policy priorities has been maintained.

4. National elections were held again on April 18, 1983, in which can-didates from ten parties were elected to ParLiament. No party secured anoutright majority, but Prime Minister Prem succeeded in forming a new four-party coalition which includes two of the three Leading parties and has thebacking of approximately two-thirds of the eLected representatives. As partof a gradual constitucional reform aiming at increased representative govern-ment, transitional arrangements had been in piace for a five-year period topermit serving military, civilian and other non-elected officials to continueto play a stabilizing role in both the legislative and executive branches ofgovernment through their appointment to the powerful senate and to Cabinetposts. These transitional arrangements were allowed to lapse, curtailing thesenate's powers and prohibiting military and civilian officials from partici-pating in the Cabinet. These changes, when combined with the current coali-tion's diversity, and the Prime Minister's lack of an independent poLiticalpower base, have made it hard to achieve a consensus on difficult economicissues since the April 1983 election. However, the Government has endorsedthe Fifth Plan's objectives of improved economic managemenc, structuraladjustment and poverry alleviation and has moved cautiously in continued Planimplementation. Continuation of ongoing policy and institutional reforms istherefore expected.

Past Economic Trends

5. Thailand's economy grew rapidly over the past two decades and devel-oped successfulLy by most standards of international comparison. Its percapita income growth of almost 5Z per annum during 1960-1980 was among thehighest sustained rates among developing countries. The reduction of povertywas substantial for a country still among the lowest third of middle-incomedeveLoping countries, as the overall incidence of poverty dropped from about572 in the early 1960s to about 31Z in the mid-1970s. Despite its continuingreliance on agriculture, Thailand experienced a far-reaching transformation ofits economic and social structure during the past two decades, with a highgrowth in modern industrial and service sector activities, extension of trans-port and communications infrastructure throughout the country, rapid modern-ization, and a significant increase in the openness of the economy to tradeand capital flows, tourism and international labor migration. The rapidgrowth in Thailand's exports played a particularly important role in stimulat-ing aggregate demand and providing the necessary means to finance imports.Moreover, because of this rapid export growth, the Thai debt service burdenremained moderate.

6. However, because of its increased openness, its heavy dependence onimported oil, and an expansionary fiscal stance in the late 1970s, the Thaieconomy was substantially affected by the two oil price shocks and by theensuing international economic upheaval. A relatively high rate of overallgrowth was maintained initially but this was accompanied by acceleratinginflation, large fiscal and external deficits and growing dependence onforeign borrowing. Consumer prices increased by 10% in 1979, by 20% in 1980,

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and by 13Z in 1981. -he Central Government deficit on average exceeded 4Z ofCDP in the period 1979-82- -ovwithstanding continued rapid export growth, thecurrent account deficit amounted to 7.7Z of GDP in 1979, 6.2% in 1980, and6.9Z in 1981; consequencly, there has been a rapid accumlation of Thailand'straditionally Low externaL debt.

7. tiitiaLLy, -he Government was slow in responding to the changingexternal conditions, but. beginning in 1980, policy adjustments were under-taken at a gradually accelerating pace through 1982. They included sharpincreases in prices for most petro'eum products. electricity and ocher publicservices; measures to increase government revenues; a substantial increase inreal interest rates; and the changes in reguLations to increase financialstability and monetary restraint. In October 1981 the Government inauguratedits Fifth Five-Year Plan (1982-86) which made structural adjustment one of itsmajor priorities. In March 1982, the first SAL for Thailand was approved,followed by SAL II in March 1983. Under these loans the Government committeditself to taking steps Loward adjustments in the structure of the economythrough reductions in domestic price controls, export taxes and controls overagricultural exports; deveLoping a program for improved land tenure; takingsteps toward rationalization of the structure of incentives for industrialproduction. exports, and investment; promoting energy conservation andefficienc development of domestic energy resources; and improving the Govern-ment's tax structure and administration, public investment planning, and otherareas of public administration. Progress under both SALs was satisfactory,although implementation of SAL II was at a somewhat slower pace than origi-nally expected, especially in the area of public resource management.

8. Macroeconomic developments in Thailand during the last two years(1982-84) were strongly influenced by a number of external factors. The mostimportant of these were the worldwide recession in 1982, gradual recovery in1983 and 1984, with, however, continuing high interest rates and increasingstrength of the dollar to which the baht was linked. The average growth rateof CDP for 1982-84 was about 5Z per annum. This lower than historical growthperformance was due to a combination of high interest rates at home andabroad, worldwide recession and thus weak export prices and growth. Agricul-tural production which had increased slowly in 1982 and 1983 because of poorweather and low commodity prices, rebounded somewhat in 1984 as weatherimproved permitting paddy rice, maize, and cassava production to reach recordlevels. As a result of weak domestic demand in 1982, lower internationalprices, and an appreciating exchange rate, domestic inflation dropped from 13%in 1981 to less than 7% in 1983 and 2% in 1984.

9. The growth of export value and volume picked up in 1934 after havingdropped in 1983. In 1984, export value increased by 16%, as a result of agood 1983184 crop year, led by a 29.4% volume increase in rice exports.Imports, on the other hand, which had resumed rapid growth in 1983 because ofa revival in domestic demand, slowed down considerably in 1984 increasing onlyby 1.2% in value terms. Given these trade developments, the current accountdeficit, which had averaged 7Z of GDP for 1979-1981 and which reached a highof about 7.5% of GDP in 1983, came down to about 5.3% in 1984. However, eventhis improvement left the current account deficit above sustainable levels andthe Government decided in November 1984 to devalue the baht by 14.8% and to

delink it from the US dollar. The external imbalance also reflected anexcessive public sector investment-savings gap which averaged about 7% of GDPin FY81 and FY82 but improved to about 5Z of GDP in FY83 and FY84. Since thecurrent account and fiscai deficits remain at unsustainable levels, continuedimplementation of the structural adjustment program remains essential andurgent.. Tn particular, action is required to improve the incernationalcompetitiveness of the economy and to further reduce the public sectorinvestment-savings gap. The Government is considering further measures toreduce the pressure on the balance of payments in the context of preparing thenext phase of its structural adjustment program.

DeveLopment Constraints and Prospects

10. During the '980s, many of the positive factors which contributed coThailand's rapid economic growth and reduccion in povercv over the precedingtwo decades will continue to do so, including the reLatively equitable distri-bution of agricultural land, responsiveness of Thai farmers to improved tech-nology, a good network of public infrastructure, and a dynamic private sectorin industry, agriculture and services. Substantial reductions in the rate ofpopulacion growth between the mid-1960s and late 1970s and discovery of domes-tic gas and oil supplies are further positive factors which will support thecontinued rapid development of Thailand.

11. Against these favorabLe factors, however, a number of important con-straints must be recognized and addressed: (a) The rapid growth of Thailand'spublic sector over the last decade, particularly of major state enterprises,without commensurate growth in publc resource mobilization, has posed aserious challenge to improvements in institutional and fiscal management.(b) For the Longer term, the exhaustion of agricultural land reserves couldseverely limit empLoyment growth and exports of the agricultural sector,unless rapid, input-intensive agricultural development proceeds. (c) Furtherindustrial development, exports and employment growth may similarly be limitedunless the incernational competitiveness and diversification of Thai industryare strengthened through correct incentives and support for marketing, financeand technological developments. (d) Despite the promising outlook fordomestic energy resources, their development is costly and will take time, andthus continued efforts in energy conservation are required. (e) The declinein the population growth rate appears to have slowed in recent years; furtherreductions will require innovative policies. (f) Continued long-term develop-ment and poverty alleviation will also depend on continued efforts in humanresource development, including education, technical skill development, andimprovements in health and nutrition. (g) Finally, the pace of developmentwill increasingly be hampered by inefficient metropolitan growth in Bangkok,unless steps are taken co racionalize che city's land use and transport, waterdrainage and sanitation systems; Thailand's secondary cities, too, requirestrengthening of their infrastructure and administrative capabilities toprepare them for the expected future growth in urban population.

12. These long-term economic development concerns have been compoundedby medium-term adjustment problems as a result of the two oil price shocks andthe subsequent world recession accompanied by poor export prospects and highreal interest rates. Economic projections carried out for the 1983 Economic

Report, and subsequentlv, indicate that accelerated implementation of theGovernment's program for structuraL adjustment would be needed to restoreexternal balance for the economy during the Fifth Plan period. Over themedium term, cne slower growth of GDP (5.4% per annum for the remainder of the1980s compared with 7_4% in the Late 1970s), while still better chan that ofmost other developing countries, will make it more difficult co reduce theincidence of povertv ana heightens the need for policies which r0ise laborabsorption, and for continued efforts in the areas of human capical develop-ment and rural development.

13. To help address these constraints, the Government has sought theassistance of the IMF and the Bank. During the past four years, Thailand madepurcnases from the IMF under a compensatory financing facilicy (SDR 186 mil-lion), a buffer stock financing facility (SDR 58 million), and two standbyarrangements (totalling SDR 617 million). Thailand sought assistance from theBank in implementing its structural adjustment program through two structuraladjustment loans and sector work, and in lending to priority sectors. TheGovernment has also expressed its interest in obtaining Bank assistance inpreparing the Sixth Five Year Plan (1987-91). The country economic and sectorwork program for ThaiLand has been structured accordingLy.

Financing Requirements

14. While the Government is making considerable efforts to improve theefficiency and effectiveness of its spending, the implementation of policiesneeded for a satisfactory rate of economic and social progress will requirecontinued growth in tirh absolute level of public expendicures, though they areexpected to drop somewhat in relation to GDP. In order to reduce the publicsector investment-savings gap from its current level of about 5% of GDP tosustainable levels, much greater efforts will be required to mobilize domesticresources than in the past. The Government's domestic revenue, as a percen-tage of GDP (about 15Z in recent years), is low compared to that of otherdeveloping countries at similar levels of development and has not beenincreasing. While the Government has taken steps to revise the tax structureand to improve tax administration and collections, further measures areneeded. In addition, the financial situation of state enterprises, which hasstabilized in the wake of tariff increases since 1980 and cutbacks in overlyambitious investment programs, will need further improvement. The Governmentis currently reviewing appropriate policies to achieve a more efficient andfinancially viable state enterprise sector.

* 15. Despite these policy measures, the demand for external resourceswill increase. Macroeconomic projections indicate that the cu. -nt accountdeficit may well remain above 3% of GDP through most of the 1980s. This willrequire large amounts of external borrowing, totaling about $30 billion overthe period 1984-90, of which about 45% is expected to be in the form of publicand pubLicly guaranteed debt. Assuming a significant level of concessionalassistance, total medium- and long-term debt service payments as a percentageof exports of goods and nonfactor services wiLl rise from 15.4% in 1980 to20-9Z in 1990. The resulting debt burden, projected on the basis of measuresimplemented to date, confirms the need for further adjustment policiescurren-ly under consideration by the Government.

16. Official donors, particularly the Overseas Economic Cooperatian Fundof Japan and the development banks, have been expanding their programs to meeta larger part of Thailand's growing public resource requirements. The resthas been financed mainly through syndicated loans and bond issues. TheGovernment has established a National Loan Policy Committee to coordinate andapprove all borrowing by the public sector. The Bank of Thailand is improvingits procedures for recording private borrowing abroad in order to keep trackof total foreign debt. External agencies, including the Bank Group, have inrecent fears increasingly concentrated on project lending to Thailand in somesectors that have high social benefits but low foreign exchange savings orearnings. To achieve the level of externaL resource transfers that is nowrequired, it is necessary, in selected projects where the foreign exchangecomponent is low, to finance some local currency expenditures.

PART II - BANK GROUP OPERATIONS IN THAILAND

17. Thailand first borrowed from the Bank Group in 1950 for a railwayproject and, as of March 31, 1985, had received 80 IBRD loans (including twothird-window loans) and six IDA credits, totaling (net of cancellations)$3,383 million in loans and $125 million in credits. As of that date,$996 million remained undisbursed on effective loans and credits. No IDAcredits have been extended to Thailand since FY79. Annex II contains asuimary statement of Bank loans, IDA credits, and IFC investments. Bank loansand IDA credits to Thailand, disbursed and outstanding, amounted to$2,084 million as of March 31, 1985 and accounted for 16.7% of Thailand'stotal debt (disbursed and outstanding). The Bank Group's share of Thailand'stotal debt service payments amounted to 10.2Z in 1984. As of March 31, 1985,IFC had made twenty-three commitments totalling $224 million in fourteen projectsin Thailand. IFC's investments have been primarily in industry and in thedevelopment of financial institutions. Prospects for increased IFC operationsin Thailand have been enhanced by expanding private sector investment activityand by increased potential for developing indigenous resources.

18. The sectoral distribution of Bank loans and IDA credits, in percent-age, has been as follows: 29Z for energy; 26% for agriculture and ruraldevelopment; 16% for transportation; 8% for telecommunications; 4Z for urbandevelopment; 5% for education; 2% for industry; 1% for population/health/nutrition; and 9% for structural adjustment lending. Overall implementationof Bank projects in Thailand has improved steadily during the pasc five years.Thailand's disbursement ratio increased from 17.7% in 1977 to 27.1Z in 1984,which compare with 29.6% and 19.4% respectively for Philippines and Morocco in1984.

19. The main objective of Bank Group activities in Thailand is to pro-mote the country's economic growth and development through structural adjust-ment, productive investments in the key sectors of the economy, and povertyalleviation measures. The economic and sector work program is designed toachieve this objective by assisting the Government to formulate appropriateeconomic policies and programs. Major macro and sectoral issues are beingaddressed through SALs as well as project lending. Specifically, current Bank

operations are helping Thailand to improve its public resource management,enhance the efficiency and competiti-veness of productive sectors, and ratio-nalize the poLicies and investments for infrastructure development- TheGovernment has valued the analytical input and technical assistance providedby the Bank ir these areas. especially through our economic work andstructural adjustment lending. However, the level of the Bank's futurelending to Thailand is likely to continue to be affected by stacutory ceilingson public foreign borrowing, reductions in public investment programs, and thecountry's ready access to foreign commercial and concessional sources offinance. The Government has also indicated its preference to seek highlyconcessional aid or to use its own resources for education. heaLth and popula-tion related investments. As a result, the levels of bank lending sought bythe Government are likely to be closer to the historical average over the Lastten years rather than to the peaks achieved in some vears. In cofinancing,the Bank's primary concern will be to identify appropriate sources or conces-sional Funding for technical assistance associated with Bank operations. Theabove factors are being taken into account in determining the level and compo-sition of the Bank's operations program in che following areas.

20. Energy. Energy has been a significant sector for Bank assistance toThailand. In che past, the Bank has helped finance projects for powergeneration and distribution, for lignite mining, and for the development andprocessing oE nvdrocarbon resources. Bank assistance through these projectshas served to strengthen the institutions involved in the sector. Policyanalyses and dialogue through CESW and SALs have addressed issues in energymanagement, planning and the incentive structure. The sector's needs andinvestment programs are likely to remain large, and a number of planning andpricing issues concinue to deserve government attention. The Bank's futureassistance through energy and power projects combined with a CESW programinvolving sector work and public investment programming would help theGovernment to address these issues and to meet the resource requirements forthe relativeLy large investments planned in the sector.

21. Agriculture/Rural Development. The importance of the agriculturesector to the economy, and the potential for intensive farming and crop diver-sification, suggest that it should normally cmntinue to be a major focus ofBank operations. Past Bank assistance through projects has emphasized devel-opment of the irrigation infrastructure, uplifting of backward areas, improve-ments in land tenure, programs for rubber replanting, and strengthening of thedelivery systems for extension, research and credit. A number of policyreforms in the areas of institutional coordination, poverty alleviation, landreclassification, and reduced export taxation have been implemented with sup-port from the Bank's CESW program and via SALs. Future operations are expec-ted co continue these efforts and further concentrate on poverty aLleviation,agricultural marketing and pricing and maintenance of existing infrastructure.However, weaknesses in the provision of support services by Government depart-ments and some outstanding issues in rural credit and mobilization of savingsmay limit future Bank assistance in these areas.

22. Urban and Water Supply. The Government intends to devote increasingattention to the continued expansion and pressures of urban areas in thecountry, especially Bangkok. Urban and water supply sectors provide consider-

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able investment opportunities, but they also involve institutional and costsharing issues. Ongoing sector work for Bangkok as well as the preparatorywork for urban projects financed or under consideration by the Bank are pro-viding a good basis for assistance in this sector. Future Bank assistance islikely to concentrate on providing essential urban infrastructure and shelterfor low-income families in Bangkok and in regional cicies.

23. Transport. Thailand's transport sector, dominated by road trans-portation, is generally well developed. The Bank has contributed to develop-ing transport infrastructure through project lending for roads, railways,inland waterways and ports. Future Bank role would focus on investments ininfrastructure maintenance, operational efficiency, and selected constructionas well as on issues in institutional development, investment planning, andstate enterprise finances.

24. Education. Past Bank involvement in the education sector indicatespotential for improvement in most areas of the education and training sys-tem. In view of the Govern'!nent's current policy to finance social sectorsfrom its own budget without recourse to external sources, the Bank's futurerole may be limited in the near term. Nonetheless we intend to keep currentwith sector developments to assist in strengthening higher and technicaleducation particularly where critical for development in other sectors.Technical manpower development is a priority area for which Government mayseek Bank assistance in future.

25. Industry. The Government evolving role, beyond policy setting, islikely to incLude investments for export promotion, energy efficiency, andtechnological change in engineering and agro-industrial subsectors. The Bankhas so far played a limited role in industrial development, primarily throughthe Industrial Finance Corporation of Thailand. Major policy reforms havebeen supported through SALs in the areas of trade policy, investment incen-tives, and planning for large scale industrial investments. Future Bankoperations are likely to focus on further rationalization of the trade regimetogether with additional measures for export development, and could becomplemented by credit facilities should Government seek resources from theBank for these purposes.

26. Telecommunications. The Bank has been closely associated with thedeveLopment of the domestic telephone network, and the Bank's first B loan wasmade in connection with the third and fourth telecommunications projects.Hovever, the Government's plan for rapid network expansion is straining theinstitituonal/managerial capacity and finances of the implementing agency, theTelephone Organization of Thailand (TOT). It may thus take TOT sometime toconsolidate its operations before launching the n1ext phase of expansion.Meanwhile, Bank involvement would continue through supervision of the ongoingproject and as part of our dialogue on state enterprise performance anddevelopment.

9

PART III - THE ENERGY SECTOR

Background

27. The efficient development of Thailand's indigenous energy resourcesis of primary importance to reducing the country's import dependence andpromoting its industrial development. Over the last two decades, commercialenergy consumption increased at an average rate of 10% p.a. from 1.6 milliontons of oil equivalent (toe) in 1960 to 14.3 million toe in 1983. The rapidincrease in energy consumption was mainLy due to growth and structuraL changein the economy that expanded industrial and service sectors as well ascommercialized agriculture. Commercial energy consumption in Thailand hasbeen dominated by petroleum, either imported petroleum products or productsrefined locally from imported crude. In 1983, imported petroleum accountedfor about 74% of the country's total energy requirements; hydroelectricityprovided 8Z, coal/lignite 4%, and indigenous oil and natural gas 14Z_Commercial fuels contributed 54% of total fuel supplies in 1983, non-traditional fuels the remaining 46% (fuelwood 40%, bagasse 5Z, and residueslZ). The import bill for petroleum in that year amounted to $2.5 bilLion,representing 25% of total imports and absorbing 39% of the economy's exportearnings.

28. In response to the rapidly escalating oil prices in the 1970s, theGovernment's Fifth Five-Year National Economic and Social Development Plan(1982-1986) accorded the energy sector high priority, addressing four inter-related basic energy sector issues: (i) development of indigenous energyresources, such as oil and natural gas, lignite and hydro; (ii) establishmentof rational energy pricing policies; (iii) promotion of energy conservationprograms, and (iv) improvement of energy sector management, coordination ofpolicies and investments. These, developed into detailed policies, plans andprograms, will be an important part of the Sixth Five-Year Plan, for which theBank is giving substantial assistance through the energy assessment program(para. 31).

29. Prospects for meeting the :lan's energy sector objectives in the1980s are good. The growth of total energy consumption has been sharplyreduced from an average 8.8% p.a. in the 1970s to about 2.8X p.a. since 1979,in response to the global recession which slowed Thailand's economic growth,and to energy prices. Thailand's energy consumption will undergo a structuralshift in composition as a result of the development of indigenous oil, naturalgas and lignite resources and the continued expansion of hydro capacity, aswell as conservation and curtailed energy demand. The shara of imports in itsoverall energy consumption could be reduced from some 80% in 1982 to 50% by1990. The share of petroleum products in commercial energy consumption isexpected to decrease from 87% in 1981 to 57% in 1990. By the end of thisdecade, indigenous natural gas is projected to account for 24% of thecommercial energy requirements, with hydroelectricity and lignite providingfor some 7% and 11% respectively.

30. However, notwithstanding the encouraging prognosis over the mediumterm, the level of energy imports will nevertheless remain high. In addition,further sustained economic growth and transformation in Thailand will continue

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to increase the demand for energy and by the mid-l990s, import dependencecould again increase, even allowing for continual successful development ofindigenous resources, with an important effect on the balance of payments. Itshould be noted that while recent discoveries of oil and gas in Thailand havebeen significant, the fields are expected to be relatively short-lived asindicated by the production experience. In the absence of significant futurediscoveries and the timely conclusion of supply contracts after commercialdiscovery, the production of oil and gas could decline rapidly in the 1990s,thereby aggravating the problem of rising energy consumption and leading tocurtailment of gas-based industries. As a result, it is of high priority forthe country to maintain the momentum for petroleum exploration and developmentand rationalize refining operations.

31. The Bank has taken an active role in support of the Government'senergy development objectives and program of policy reform in the Fifth Planthrough structural adjustment loans (SALs I and II in 1982 and 1983,respectively) and through loans for development of indigenous energyresources. A broad range of energy issues is being addressed, particularly inrelation to pricing, conservation, strategy options, planning and assessmentof several proposed major energy investments. A number of these issues needfurther work, and ongoing discussions are being held on pricing and strategythrough the structural adjustment process. The Bank is currently drawingtogether and building on the many studies completed to date in an ongoingenergy assessment aimed at developing a comprehensive and coherent energystrategy for Thailand. The energy assessment will be an importantcontribution to Sixth Plan preparation.

Energy Resources

32. Proven and probable economically recoverable natural gas reserves inThailand are currently indicated to be about 5.5 trillion cubic feet (tcf), ofwhich about 3 tcf are proven and under development. These estimates have beenrevised downward from those made previously, as field performance now indi-cates that the recoverable fraction of in-place reserves will be far lowerthan originally expected, and, in fact, lower than that for most gas fields inother countries. Latest data suggest that the ultimate economically recover-able reserves (including those yet to be discovered) could be in the range of12-24 tcf. By the end of this decade, natural gas production is expected toreach some 550 million cubic feet per day (MMCFD), equivalent to some 6million toe per annum. About 40% of the projected total power generationcould be thermal stations using natural gas, thereby reducing substantiallyfuel oiL demand.

33. Exploration in Thailand has recently led to expectations of domesticproduction of oil and natural gas liquids beyond what was thought possiblewhen the Fifth Plan was prepared. Proven economically recoverable reserves ofpetroleum liquids (oil and gas condensate) are currently estimated at about140 million barrels (bbls). Current production is about 30,000 barrels perday (bpd). Subject to continued exploration efforts and timely development offuture discoveries, production in 1990 is expected to range between 30,000-45,000 bpd. The ultimate liquid resource, including that yet to bediscovered, could be in the range of 0.7-1.5 billion bbls based on present

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information. Oil is also present in oil shale deposits in Tak province andthese are under feasibility study by the Department of Mineral Resources(DMR), with the assistance of the Federal Republic of Germany. However,development is unlikely to be economically viable without substantial priceincreases .

34. Substantial increases in Thailand's lignite deposits have beenindicated by recent drilling. Present known reserves are 859 million tons, ofwhich 814 million tons are at Mae Koh. Mae Moh's reserves are sufficient tosustain 1,725 MW in power generacing capacity for at least 30 years; it isexpected that by 1990 about 25Z of total power generation by the ElectricityGenerating Authority of Thailand (EGAT) could be from lignite-fired thermalstations.

35. The total hydro potential of Thailand's rivers is estimated at about9,300 MW, not including the potential of 25,000 MW from the internationalrivers (Mekong and Salween), whose development is at present unlikely due tomajor political, environmental and social obstacles. About 1,380 MW of hydro-power capacity are now in operation, 2,100 MW are under construction, andabout 2,500 MW in 25 projects are in various stages of identification orfeasibility study. Mini-hydro potential, estimated at about 3,290 Mg, existsat over 100 sites. According to current plans, hydropower production willincrease at an average annual rate of about 7Z from 1985 onwards and isexpected to supply about 35Z of electricity generation in 1990.

36. Thailand's other energy resources include fuelwood and possiblygeothermal energy. Fuelwood resources, once plentiful, are rapidly depletingas a consequence of the expansion of agriculture. Geothermal exploration isbeing carried out by EGAT in the northern part of Thailand near Chiang Mai.

Public Sector Investment and Coordination

37. Energy is now the single most important sector of public spending.For the Fifth Plan period, the National Economic and Social Development Board(NESDB) projected that the energy sector will account for about 26% of totalgovernmental spending, up from the average of 18% during the Fourth Planperiod. The energy sector is expected to continue to account for more than50% of state enterprise investment throughout the Fifth Plan period. EGAT isexpected to retain its large share (55-75%) in energy spending for the FifthPlan period, with the Petroleum Authority of Thailand (PTT) becoming thesecond largest as it increases its involvement in gas and oil development andutilization projects.

38. Energy sector policy and planning functions involve the Cabinet,NESDB and the National Energy Administration (NEA). In principle, NEA, whichis under the Ministry of Science, Technology and Energy, is responsible forsector planning and coordination. In practice, energy sector decisions areoften taken ad hoc by various Cabinet committees and subcommittees. As partof the Government's continuing structural adjustment program, an energy sectorstrategy study has been initiated to provide the basis for determining anappropriate approach to energy sector planning, particularly addressing ways_ taking account of the particular uncertainty in Thailand's energy picture(e.g., the wide range of gas reserve estimates).

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Energy Pricing Policy

39. Until 1978, Thailand's domestic energy price adjustments wererestrained in order to encourage economic development. Since then, however,the Government has increased domestic energy prices (by 160-180Z between1978-82) to reflect international price developments. Electricity tariffshave also been raised and broadly reflect the marginal cost of powergeneration, being set at levels that generate a financial rate of return ofabout 8% on revalued assets.

40. Thailand has established the price levels for its comnercial fuel onan indi-vidual basis and the pricing system is not fullv coordinated across theenergy sector. The introduction of natural gas on a large scale, the develop-ment of a major lignite mine and changes in petroleum product prices areleading to substantial changes in energy consumption and investment patterns.The Government, with the assistance of consultants, has recently completed twoclosely coordinated energy pricing studies to rationalize the pricing policiesacross the whoLe energy sector and to provide for the efficient utilization ofthe energy resources. The final reports and policy implementation willshortly be reviewed between the Bank and the Government.

Bank ParEicipation in the Energy Sector

41. The Bank has taken an active role in support of the Government'sdevelopment objectives and policy reform in the energy sector through loansfor development of indigenous energy resources and structural adjustment. Thefirst Loan to the oil and gas sub-sector (S 10-TH) was made in July 1978 forthe preparation and engineering of a gas pipeline project. This was followedby a $107 million loan (1773-TH) in December 1979 for the pipeline construc-tion, a project successfully completed on time and within budget. A subse-quent loan of $90 million (2184-TH) was approved in June 1982 to help financethe construction of a gas separation plant and associated facilities for themarketing and distribution of LPG. The LPG plant is now operating at nearcapacity and the physical aspects of the remainder of the project (LPG distri-bution) will be completed during 1985. The project also included a largetechnical assistance component covering training for PTT's staff, strengthen-ing PTT's institutional capabilities, and various studies for PTT's investmentprograms and energy policy formulation. In addition, a $33 million loan toPTT for the development, jointly with Thai Shell, of oil fields in northernThailand is in an advanced stage of preparation.

42. In the power and lignite subsector, the Bank has made eleven loansto EGAT and its predecessor totalling $542 million to help finance powerplants and transmission facilities and three loans totalling $130 million tothe Provincial Electricity Authority (PEA) to finance accelerated rural elec-trification projects and a provincial power distribution project. The firstseven EGAT projects have been completed satisfactorily. Good progress isbeing made with the other EGAT and PEA loans. A first loan to EGAT (1852-TH)for lignite production was approved in Hay 1980. The Bank approved in April1984 a further loan of $59 million (2407-TH) for a second lignite project. Inrelation to overall policy reform in the energy sector, the Bank has supportedvarious technical assistance programs, including an extensive energy pricing

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study and energy conservation measures through two structural adjustmentloans. In addition. the Bank is working closely with NESDB and NEA on energypricing and strategy formulation *which would form the basis for the energycomponent of the Sixth Five-Year Plan.

The Petroleum Products Subsector

43. The exploration and production of petroleum in Thailand is under-taken by both the Government and the private sector. Exploration, both inlandand offshore, is done primarily by private concessionaires. Explorationactivities are monitored by DMR. The Ministry of Defense currently producescrude oil at a rate of 400 bpd from 17 wells at Amphur Fang in Chiang MaiProvince.

44. Thailand has a total refining capacity of 9.8 million tons per year(tpy) which is distributed among the Bangchak Oil Refinery (BOR - 3.25 milliontpy), Thai Oil Refinery Company (TORC - 3.25 million tpy), Esso Standard (3.25million tpy), and Fang (0.05 million tpy). BOR, which used to be operatedjointly by the Ministry of Defense and PTT, has recently been restructured andturned into a fuLly autonomous and commercial company in line with the corpo-rate and financial restructuring work undertaken by che Government and theBank in preparation for the proposed project (para. 49). TORC is a jointventure between PTT and the private sector, each of which owns 49% of TORC'sequity; the Crown Property Bureau holds the remaining 2%. Shell Company ofThailand, Ltd., and Caltex Oil (Thailand), Ltd., are among the private share-holders. The Esso refinery is fully owned by Esso Eastern, Inc., a subsidiaryof Exxon (US), while the Fang refinery, which is operated by the Kinistry ofDefense as a pilot plant, is owned by the Covernment.

45. Future consumption of petroleum products is projected to increase ata slower pace as a result of more extensive substitution of natural gas andlignite for fuel oil, particularly in industry and power generation, andhigher efficiency in energy use across the sectors. Total consumption isprojected to increase by 3% p.a. during 1985-90 and 2% p.a. during 1990-95.Tne growth rates registered in the past were 11% p.a. (1970-75) and 8% p.a.(1975-80). Gasoline consumption is projected to decline by 4% p.a. through1985 as the trend for substituting gasoline with LPG in motor cars continuesand additional energy efficiency measures in the transport sector are imple-mented. Mid-distillate consumption, on the other hand, is expected to main-tain its rapid growth at a rate of about 8% p.a. through 1985 and then leveloff at 4% p.a. thereafter. By 1990, about 0.6 million tpy of diesel oil usedby EGAT for power generation is expected to be replaced with natural gas, andanother 0.2 million tpy by LPG in the transport sector. As for fuel oil, itsconsumption is expected to decline sharply at a rate of about 9Z p.a. during1985-90 due to increased substitution by natural gas. By 1990, nearly5 million tpy of fuel oil is expected to be replaced by natural gas. Largeimbalances between petroleum product supply and demand will therefore develop,with substantial deficits in mid-distillate products and surpluses of fueloil. With crudes expected to get heavier in the early 1990s and onward, thenet yield of mid-distillates will decline further with corresponding increasesin fuel oil. The technical options available to Thailand to balance demandand supply in the long run are to: (a) increase crude distillation capacity;

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(b) install secondary conversion facilities to convert the surplus low-valuefuel oil into premium value mid-disrillates; or (c) import deficit productsand export surplus fuel oil. The proposed project witl provide financing tohelp the Government evaluate these opCions and determine the one mosteconomically advantageous to Thailand.

Petroleum Product Pricing

46. Petroleum product prices are fixed by the Go-erment at the ex-refinerylevel through the Ministry of Industry and at the retail level through theNational Petroleum Policy Committee (NPPC). Ex-refinery prices are set on thebasis of Singapore posted prices adjusted for freight. Singapore prices areconverted into baht and are reviewed monthly. No material distortions orproblems are arising in respect of ex-refinery prices other than those facedby refiners worldwide. In connection with the proposed project, agreement hasbeen reached with the Government that it will continue to set ex-refineryprices which would (a) allow the refineries, operating efficiently, to meettheir expenses, service their debts, and earn a reasonable rate of return oncapital employed; and (b) be reasonably competitive internationally (Section3.02 of the draft Guarantee Agreement). Excise and municipal taxes are leviedon retail petroleum products. These are determined by legislation. A flexi-ble instrument is the Oil Stabilization Fund which was established by theGovernment in 1974 as a mechanism to stablilize retail petroleum productprices in the face of fluctuating international prices. Oil Fund Levies actas an additional (positive or negative) tax, there are no formal limits on theextent of Oil Fund surpluses and deficits, and there is no establishedmechanism for dealing with these balances.

47. When the baht was devalued by about 15% (relative to the US dollar)in November 1984, the distributors' margins and retail prices of petroleumproducts in Thailand were left unchanged. While most retail petroleum productprices continue to exceed border prices, the Oil Fund has been running adeficit since the baht devaluation. Through the proposed project, understand-ings have been reached with the Government that it would not allow the OilFund to incur sustained deficits, and consequently price increases are likelyto be required soon.

48. Domestic retail prices of the principal petroleum products are, onaverage, higher than international prices. However, significant distortionsstill exist in the relative price structures, particularly between gasolineand diesel. Progress has been made in narrowing the difference in prices.Nevertheless, the domestic price ratio for regular gasoline and diesel is 1.6while the international price ratio is about 1.0. Distortions also existbetween gasoline and LPG and between diesel and kerosene. Relative pricedistortions may, over time, encourage uneconomic decisions for energy invest-ments and inter-fuel substitution. Under SALs I and II, petroleum productprices were reviewed and adjustments were recommended to reflect more accu-rately the structure of international prices and domestic refining costs.Discussions with the Government on this issue are continuing and are likely toresult in steps being taken during 1985 to reduce or remove remaining pricedistortions.

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The Borrower

49. Following the Cabinet resolution dated June 19, 1984, the BangehakPetroleum Co., Ltd., (BCP) was established as a commercial company to manageand operate the Bangchak refinery. The decision to establish BCP was based onan in-depth evaluation made by the Bank of the corporate, financial andmanagement situation of the Bangchak refinery, which concluded that the reha-bilitation of the refinery had to be accompanied by a major corporate restruc-turing. BCP is fully autonomous and would be operated along commercial lines.It is administered by a managing director who is its chief executive andoperating director. The managing director reports to the board of directorswhich formulates the company's policies and oversees its operations. As partof the arrangements for establishing BCP, the assets, liabilities and staff ofthe refinery, which were then administered jointly by PTT and the Ministry ofDefense, were transferred -o PTT and then to BCP. Although PTT is representedon BCP's Board, the only remaining operations which link the two enticies arerelated to the procurement of crude oil and the sale of refined products whichis covered by supply agreements signed in April 1985 between PTT and BCP.PTT, however, will handle purchase of crude oil for BCP only until such timethat BCP has acquired staff and skills to procure crude oil on the inter-national markets on its own. In addition, to facilitate the Bank's continua-tion of its assistance in strengthening the refinery's corporate and financialframework, BCP will inform the Bank of changes in its statutes which mayimpair the company's operations or financial viability.

50. The Government has paid off the accumulated past losses of therefinery amounting to $145 million which had been financed by PTT. In addi-tion, the Government has obtained for BCP's account a revolving credit line of$120 million for working capital purposes. Equity investments have beenprovided by PTT ($36 million), Krung Thai Bank, a Government-owned commercialbank ($7.5 million), and the Government ($7.5 million plus $75 million inrefinery assets). As part of its efforts to mobilize financing for BCP, theGovernment tried to interest private investors to participate with equity inthe new company. Private investors declined, but it is anticipated that theresponse will be more positive once the refinery has been rehabilitated andBCP has established its profitability. The private sector is expected toparticipate in a subsequent project involving the installation of secondaryconversion facilities. A feasibility study to determine the most economicconversion configuration is included in the proposed project (para. 61).

51. Sound management of BCP is centrat to the financial viability of therefinery under its new corporate structure. BCP has therefore appointed astrong Board of Directors and Managing Director, supported by a management andoperations team from Caltex Petroleum Corporation (US) for line functions inthe refinery. The team is comprised of the Refinery Manager and eighttechnical specialists who are directly under the Managing Director. The teamwill also prepare a detailed training program for refinery personnel forreview and approval of the Bank, and provide the services of a TrainingManager to implement and monitor such training program. This program willcomprise both formal and informal instruction. A training center will beestablished for formai classroom instructions provide for junior staff. Theformal instruction for both senior and junior staff will be combined withon-the-job training to be provided by the technical assistance personnel.

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PART IV - THE PROJECT

Rationale for Bank Participation in the Project

52. The project is an important element of the Bank's assistance in thedevelopment of Thailand's energy sector. Through extensive preparation workfor the project, the Bank has been instrumental in assisting the Government informulating and impLementing an appropriate institutional, Legal, managementand financial framework for che Bangchak refinery. The Bank's participationhas ensured that refinery operacions are carried out on an auconomous andcommercial basis and that specific operating and financial accountabilitiesare established within the refinery. These institutional improvements, aswell as the higher operating and financial efficiency to be achieved under theproject, would make the refinerv attractive for private investment in thefuture. With improved management and operations, the refinery should be ableto fulfill its share of the responsibility for the development of the refiningsubsector in Thailand. The Government also regards the restructuring of therefinery into an au.onomous commercial company as a model for future restruc-turing of other state economic enterprises in Thailand. Participation in thisproject will, moreover, put che Bank in an excellent position to be intimatelyinvolved with the Governmeat in rationalizing the demand for and supply ofpetroleum fuels in Thailand. From the viewpoint of financial management, theBank can play an important role in turning the Bangchak refinery into a finan-cially viable enterprise. Furthermore, the Bank is in a good position toadvise BCP on acquiring suitable modern technoLogy which the refinery needsbadly. Finally, the Bank can ensure, through an appropriate technical assis-tance and training package included in the project, that the refinery will bemanaged and operated efficiently.

53. The proposed project was identified by a Bank mission to Thailand inSeptember 1982. It was prepared by the Ministry of Finance and BCP with theassistance, at various stages, of Lummus Operating Associates (US), ChiyodaChemical Construction Co. of Japan and Mitsubishi Oil Co. of Japan. Theproject was appraised in November-December 1982; appraisal follow-up missionsvisited Thailand in 1983 and 1984 to finalize the institutional and projectimplementation arrangements. The project was negotiated in November 1984.The Thai delegation was led by Mr. Kasem Kasemsri, Ambassador to the U.S. TheStaff Appraisal Report (Report No. 4727-TH dated April 15, 1985) is being cir-culated separately. The supplementary project data are provided in Annex III.

Project Objectives and Scope

54. The project will assist the Government in improving the operationsof the Bangchak refinery through a program of corporate restructuring andphysical rehabilitation. The project will also help reduce the cost ofmeeting the petroleum requirements of Thailand in the short- to medium-term,and determine the modifications and/or expansion required in Thailand'srefinery subsector to balance national demand and supply for petroleumproducts in the.long run. These objectives will be achieved through thefollowing project components: (i) physical rehabilitation of the Bangchakrefinery to increase capacity utilization to design levels and improve its

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operations; (ii) implementacion of energy conservation measures to optimizeprocess unit operations; (iii) improvement of the refinery infrastructure,including provision for flood protection; (iv) environmental improvements,including installation of a sulphur plant; (v) project engineering, supervi-sion and management assistance to help BCP in the implementation of therehabilitation, energy conservation and infrastructure uDgrading programs;(vi) training to improve the technical and managerial capabilities of therefinery staff; and (vii) carrying out of a techno-economic study to determinefurther modifications required to ensure that the yieid pattern of refineriesin Thailand will be in balance with the demand profile for peEroleum productsin the country.

55. Refinery Rehabilitation. This component will support investments toincrease capacity utiLization of the refinery and improve product yield.Worn-out equipment will be repaired or replaced and additionai pumps and heatexchangers will be installed. In addition, the existing thermal cracker andvisbreaker units will be restored to their design integrity to increase pro-duction of high quality distillates. Tank instrumentation will also beupgraded while storage tanks will be painted for weather protection. Thegeneration and supply of utilities will undergo extensive rehabilitation underthe project to balance steam and electricity generation and consumption.Steam turbines that could be driven with high and medium pressure steam fromwaste-heat boilers will also be installed to eliminate 1.5 SW of purchasedelectricity. Treatment of cooling water will be incorporated to ensure thatthe water is of acceptable quality and would not cause fouling and plugging ofheat exchanger tubes. After completion of the rehabilitation works, therefinery is expected to increase its capacity utilization from 70Z to 95%.

56. Energy Conservation. Energy consumption and processing losses inthe refinery have ranged from 5 to 6 volume Z of crude oil processed, as com-pared to about 3.5 to 4.0% norm for a similar but energy-efficient refinery.The current average efficiency for the process heaters at BCP is about 65Zcompared to about 90% industry norm for similar equipment. There is no heatrecovery equipment such as air preheaters and waste-heat boilers. Flaring ofrefinery gases is excessive-about 1.26% compared to less than l.0% in energy-efficient facilities. Under the proposed project, utility consumption and gaslosses will be reduced by instalLing proper instrumentation to obtain reliablematerial balances and monitor gas flow in flare lines, installing heat recov-ery equipment, and proper maintenance of safety relief valves. In addition,steamlines insulation will be replaced, saving about 25% of the steamconsumed.

57. Infrastructure Improvement. The refinery location is virtually anisland plateau surrounded by a network of connected water courses. This, com-bined with the low permeability of the soil, necessitates almost the entiretyof the rain water falling within the refinery catchment area to be liftedout. In addition, the current location of the staff housing facilities insidethe refinery perimeter fence is inappropriate, posing security and safetyhazards to both the refinery and the residents. A program tc improve therefinery infrastructure is included in the project. This includes: (i) landdrainage, sewer rehabilitation, and floodwater control; (ii) rehabilitation of

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internal roads and street Lighting; and (iii) relocation of the staff housingfacilities into an area owned by BCP located south of the battery limits.

58. Environmental Improvement. While the refinery does not appear to bedischarging any liquid or solid wastes harmful to the environment, oil sludge,some of which contain lead from the gasoline tanks, is nevertheless beingdumped into ponds within the refinery battery limits. A new sulphur plantwill be installed to arrest the discharge of substantial quantities of sulphuroxides into the atmosphere. The project includes improvements in refineryinfrastructure, such as cleaning of the ponds, as part of the rehabilitationprogram. The refinery modification feasibility study will also identify addi-tional measures required to ensure that the refinery conforms to acceptableenvironment protection standards and further improve the quality of gaseousand other effluents.

59. Project Engineering, and Yanagement and Operations Assistance. Themanagement and operations team (para_ 51) will help BCP select a ConsultingEngineering Firm (CEF), which will be appointed under the project to providethe design and engineering required for the refinery rehabilitation and energyconservation components. as well as the design basis for all civil works andequipment and materials to be purchased. In addition, the CEF will preparethe terms of reference for the General Contractor (GC) for the installation ofequipment and start-up of instaLled equipment or facilities, assist BCP in theselection of and contract negotiations with GC, and supervise the work of theCC. The CEF will also assist BCP in the procurement of equipment andmaterials and provide on-the-job training to local personnel. About 670 man-months of CEF services will be required. All consultants to be engaged underthe project will be hired following World Bank guidelines on use ofconsultants.

60. Training. The management and operations team from Caltex willprepare a training program and provide the services of a Training Manager.This program will comprise both formal and informal instruction. Under theformer, it is intended for up to 25 senior technical and managerial staff tobe sent abroad to attend seminars/courses (over six-month periods) and visitrefineries in other countries to improve their knowledge of modern techniquesof refinery operations and management. The formal instruction for both seniorand junior staff will be combined with on-the-job training to be provided bythe technical assistance personnel; it is therefore expected that the majorityof the instructors will be from the Caltex team and CEF, who will perform thetraining function as part of their regular schedule. The refinery trainingwill be carried out in accordance with a program reviewed and approved by theBank (Section 3.01(b) of and Part A.3 of Schedule 5 to the draft LoanAgreement).

61. Feasibility Study. This component will finance a study to determinethe modifications in configuration and/or expansion required in the refinerysubsector to balance national demand and supply of petroleum products. Thefeasibility study will be carried out in two phases: Phase I will review thecurrent and projected demand for oil products, the installed and plannedrefining facilities, the utilization of natural gas and other indigenousenergy sources and the extent to which these will affect demand for liquid

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petroleum fuels, and the availabiLity of crude oils to Thailand. Phase I willalso include process design configuration for Likely secondary conversionoptions, cost estimates, and financiaL and economic evaluations of theseoptions. Phase II of the study will commence only if Phase I identifies aprocess configuration which will be economically justified and provided thatPhase I establishes that the necessarv conversion facilities should be locatedat the Bangchak refinery. Phase _I will carry out further work on theselected modification option including basic engineering, more detailedcapital and operating cost estimates, complece financial and economic evalua-tion, and preparation of bidding documencs. The feasibility study will becarried out in accordance with terms of reference agreed with the Bank. TheNational Petroleum Policy Committee will establish a paneL composed ofrelevant Government departments, agencies and enterprises co review Phase I ofthe study. By December 31, 1986, BCP will submit Phase I of the study to theBank for its review along with the coments of the panel (Section 3.06 of thedraft Loan Agreement; Section 3.04 of the draft Guarantee Agreement). Thetotal study will require about 245 man-months of technical assistance.

Project Execution and Schedule

62. BCP wiLl be responsible for implementing the project with the assis-tance of the management and operations team from Caltex and the CEF. Theproject will be implemented over a period of four years. The management andoperations team from Caltex will be in place by June 1985. BCP is currentlyreviewing proposals for the engineering services required for the rehabilita-tion, energy conservation and infrastructure improvement components of theproject. Appointment of the CEF is planned for August 1985 and would be acondition of effectiveness of the loan (Section 7.01 of the draft Loan Agree-ment). The general and civil works contractors will be appointed within thenext six months following the appointment of the CEF. Civil works, construc-tion and erection far the above project components will require 17-22 months.As for the refinery modification feasibility study, Phase I will be completedin about 6 months, while Phase II will require 9 months.

Cost Estimates and Financing Plan

63. The project will require total financing, including physical contin-gencies, price escalation and interest during construction, of $143.8 million,of which $127.2 million is in foreign exchange. Local costs of $16.6 millioninclude identified import duties and applicable local taxes of about $8 mil-lion. Base cost estimates are expressed in December 1984 prices and werederived from: (i) the BOR Refinery Rphabilitation Study developed in July1982 by BOR along with Lummus Operating Associates (US); (ii) the evaluationprepared by Chiyoda Chemical Engineering and Construction Co. Ltd. (Japan) inDecember 1982 based on the refinery inspection conducted in November 1982;(iii) the review of (ii) by Mitsubishi Oil Co. (Japan) in September 1984; and(iv) the study conducted in December 1982 by Bank consultants on therefinery's infrastructure requirements. The capital cost estimates include:(i) '0% physical contingencies on base costs; and (ii) price escalation basedon expected increases in international and local prices of 8% in 1985, 9% in1986, 1987 and 1988, 7.5% in 1989 and 6% thereafter for foreign costs, and 8Zin 1985 and 7Z thereafter for local costs. Cost estimates are indicated inthe loan and project summary.

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64. Foreign costs will be financed by (i) the proposed Bank loan of $85million, which will cover 67% of foreign and 59% of total financing require-ments; (ii) suppliers' credits of $30.8 million; and (iii) commercial termloans of $11.4 million. Local costs will be financed by (i) equitycontributions from the Government of $15 million, and (ii) commercial termloans of $1.6 million. Retroactive Bank financing of up to $1 million tocover mobilization and other payments after January 1, 1985 to the managementand operations team (para. 51) is proposed.

Procurement and Disbursement

65. Procurement arrangements are summarized in the table below:

(US$ million)

Procurement methodProject Element ICB LCB Other Total Cost

Equipment, materials and 48.8 - 2.0 50.8spare parts (18.0) - (1.9) (19.9)

Works 33.1 9.9 43.0(20.8) (8.8) - (29.6)

Operations and manage- 5.5 - 1.2 6.7ment assistance (5.5) - - (5.5)

Project engineering 16.2 0.2 - 16.4and management (16.2) - - (16.2)

Training 1.6 0.4 - 2.0(1.6) - (1.6)

FeasibiLity Study 2.2 0.1 2.3(2.2) - _ (2.2)

Total 107.4 10.6 3.2 121.2(64.3) (8.8) (1.9) (75.0)

Note: Figures in parentheses are the respective amounts financed by theBank.

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66. All equipment and materials contracts to be financed by the Bankwill be procured in accordance with Bank procurement guidelines. ICB will beused for procurement of individual items costing over $200,000, representingabout 70% of the total contracts for equipment and materials. For purposes ofevaluation and comparison of bids for the supply of goods under ICB, qualifieddomestic suppliers will be allowed a preference of 15% of the CIF price or theapplicable import duty, whichever is lower. Small items costing less than$200,000 per contract up to an aggregate amount of S3.2 million will beproc red through limited international tendering. Equipment proprietary tothe process design will be procured on the basis of prices negotiated withoriginal equipment suppliers. Civil works contracts for construction oftraining facilities, workshops and infrastructure improvement will be awardedafter local competitive bidding. None of these contracts will exceed $2.0miLlion and are not Likely to attract interest from foreign bidders. Biddingpackages for works and goods over $300,000 will be subject to the Bank's priorreview of procurement documentation. Local compecicive bidding procedures aresatisfactory. Arrangsments for Local contracting are satisfactorv and thecontractors' capabil ties are considered reasonabLe for the timely andefficient compLetion of these works. Consulting services (engineering,management and studies) will be awarded in accordance with Bank guideLines onthe use of consultants.

67. The proposed Bank loan would be disbursed against 1OOZ of foreignexpenditures, 100% of local expenditures (ex-factory) and 65% of other localexpenditures for equipment; 10OZ of foreign expenditures and 65% of localexpenditures for works, 100% of expenditures for consultancy services andinterest during construction in respect of the Bank loan. Disbursements oncontracts for equipment, overseas training, and works costing less than$100,000, will be made against statement of expenditures. A special accountto assist BCP in meeting expenditures in a timely manner will be opened onterms and conditions satisfactory to the Bank with an initial deposit of up to$4,000,000.

Financial Forecasts

68. The implementation of the proposed project is expected to have asignificant positive impact on the financial position of BCP. In 1990, thefirst year when full benefits from the project will be earned, net sales areexpected to reach $1,119 million. The increase in net income over the yearsup to about 1990, when interest payments on Bank loan and suppliers' creditsare most onerous, will be modest but steady. Net income is projected toincrease from $12 million in 1990 to $33 million in 1995. Coverage or annualdebt service requirements is expected to be sufficient. With improvedoperations, the fund generation capability of the refinery will be signifi-cantly enhanced. These favorable results are predicated on a pricing system,such as that in Singapore, which rewards efficient operations through fullcoverage of costs and allowance of a reasonable return on capital. As notedearlier, the Government already sets ex-refinery prices for petroleum productson the basis of Singapore prices to reflect the level of international pricesin the domestic market. Agreement has been reached with the Government thatit will continue to implement such a pricing policy (para. 46).

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69. To ensure the sound financial position of BCP, agreement was reachedwith BCP that it will: (i) maintain a current ratio of no less than 1.1 uncilDecember 31, 1988, and 1.2 thereafter; (ii) not incur any long-term debt if,after incurring such debt, the debt/equity ratio of BCP will exceed 60140;(iii) not incur additional debt if, by so doing, the projected debt servicecoverage wuill fall below 1.2 times until December 31, 1988, and 1.3 there-after; (iv) not make any repayment in advance of maturity in respect of any ofits outstanding loans which would materially and adversely affect its abilityto meet its financial obligations; and (v) not, without prior Bank consent,make any expenditures for capital additions in any fiscal year prior to thecompletion of the project in excess of $5 million other than expendituresrelated to the implementation of the project and other ongoing projects andfor normal maintenance (Sections 5.04 and 5.05 of draft Loan Agreement). Inaddition, since the majority of BCP's customers are scate agencies, and BCP'sliquidity position is substantially affected by payment practices of theseagencies, assurances were obtained from the Government that it will furnish tothe Bank. by November 1, 1935, proposaLs for improvements and carry them outtaking into account the Bank's comments thereon (Section 3.03 of the draftGuarantee Agreement). BCP will be required to submit to the Bank annualfinancial statements and reports examined by independent auditors acceptableto the Bank within six months oE the end of the accounting year.

Financial Rate of Return

70. The incremental financial rate of return of the project is satisfac-tory at 21Z after taxes. Sensitivity tests indicate that variations incapital costs, capacity utilization and implementation period will not signi-ficantly affect the financial returns of the project. Even under the Wofstcase of 20% increase in capital costs and attainment of 20% less capacityutilization than assumed, the project financial rate of return is still satis-factory at 14%. Sensitivity tests on crude and product prices were carriedout; with crude oil representing at least 952 of total costs, the likelihoodoL crude price changes not accompanied by corresponding product price changes,and vice versa, is small. The financial rate of return is about 71 lower thanthe economic rate of return, which is calculated ac 28%. The difference liesprimarily in the additional expenditures in import duties and taxes that BCPwould have to pay to the Government for the importation of goods required forthe project. In any case, the financial return from the project is expectedto lead to adequate cash flow for BCP _a order to meet its financialobligations and maintain a healthy financial position.

Economic Benefits and Risks

71. The economic benefits that will be derived from the proposed projectwill come from increased production of refined products resulting from highercapacity utilization, and savings from lower energy consumption. The rehabil-itation and debottlenecking component will help arrest further mechanicaldeterioration of the facilities. It will also increase to and stabilizecapacity utilization at about 952. Without the project, capacity utilizationis expected to drop from the present 70% to about 60% by 1988 and 55% by1990. By 1990, the project is expected to allow additional production of morethan 7 million bbl per year of refined products and will save Thailand an

- 23 -

estimated annual gross import cost of $214 =4llion in real terms. Met ofcrude, imported materials and spares and foreign debt service, the projectwill generate over its i.5-year economic life net foreign exchange savings ofabout $480 million in March 1985 prices (or about $30 million per year). Theproject has a satisfactory economic rate of return of 28Z in real terms.

72. The project does not face any significant risks that would impedeits efficient implementation. The technologies that will be used are commer-cially proven and will be supported by qualified and experienced engineeringfirms. Comprehensive repair and maintenance and staff training programs areprovided for in the project to ensure that the refinery is operated satisfac-torily in the future. Environmental safeguards have been incorporated in theproject through (i) infrastructure improvements to minimize the oii sludgebeing dumped into ponds; and (ii) installation of a new sulphur plant to lowerdischarge of sulphur oxide. Marketing and distribution systems in Thailandare well-coordinated. BCP's corporate and financial structure is sound andadequate measures are provided for in the project to maintain such soundness.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

73. The draft Loan Agreement between the Bank and the Bangchak PetroleumCompany, Ltd., the draft Guarantee Agreement between the Kingdom of Thailandand the Bank, and the Report of the Coimittee provided for in Article III,Section 4(iii) of the ArticLes of Agreement of the Bank, are being distributedto the Executive Directors separately. Features of the Loan Agreement whichare referred to in the text are Listed in Section III of Annex III. An addi-tional condition of effectiveness would be the appointment of a consultingengineering firm satisfactory to the Bank (para. 62).

74. I am satisfied that the proposed loan complies with the Articles ofAgreement of the Bank.

PART VI - RECOMMENDATIONS

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

A.W. ClausenPresident

Attachments

April 22, 1985Washington, D.C.

AIMU I-24 - Page 1 of 5

umAnD - SOCIAL InDCRTS DTA TTEAILAND REFERENE CU1S CEIz MECXR) D

8051 Q115ICO NoA cs /b=

I%aLb 97QLb siiw- ~ AM A,PACIFIC LAT. 4M1C&ACa

AMa CEMNInM1a SQ. noTOTAL st5-0 514.0 5L40AIICRLTUIJAL 128.1 141.2 186_1

___ Pu WITh CM) 100. 230.0 790.0 1OSLE 21Z06.

XIC CUNOPMIm(KILOCRAIS OF OIL EQUAEirr) 44.0 150.0 234.0 567.3 995.5

rOFUIATTM AMD VEFA SKTATICSTPOPUIATION,MD-TEAR. CTOUSAD) 26867.0 36370.0 *4531.0 -Ul38 POPMATIOI C_ OF TOTAL) 12.5 13.2 16.6 34.7 66.5

PoPrATxON PRJECIONSPOPULATXOK IS TEAR2000 (OILL) 67.9 .STATIORRTM POPULATON ChI.L) l11.3POPULATION !O0ETR 1.8

POPULATION DESnsYPER SQ. U.1 52.3 70.8 92.4 261.9 35.7PER SQ. IX. ACII_ LAND 209.8 257.7 255.2 1735.1 92.4

PC-ULATION ACE STRCURE C)014 VMS 44.7 46.2 40.4 39_0 39.9

15-4 'RS 52.6 50.8 56.3 57.6 56.065 AND AOUVE L7 3.0 3.1 3.3 4.1

POPULATION CRMlT RATE (I)TOTAL Z.8 3.0 2.4 2.3 2.4URS 4.6 3.S 4.3 4.3 3.6

OttME BIRH RATZE (PER TiNIS) 43.9 38.5 28.0 30.1 31.3CUDE DEATH RATE (PER TII0O) 14.7 10.4 7.6 9.5 8.1CROSS REPIOOUCTIOS AE 3.2 2.7 1.9 2.0 Z.0

-AMT!. PLANSIACCEPTORS, A110L C1 ) -- 202.9 le 1063.3USERS C. OF 18F3IED ViWE1) . 15.0 59.0 52.7 40.3

FOOD AND MUMMITIODEINDEX OF FOOD PROD. PERt CAPITA(1969-71-100) 9Z.0 100.0 138.0 123.0 114.3

PER CAPITA SU?. OFCALRIES (C OF REqUEREMHETS) 100.0 103.0 105.0 1144 110.6PROTEINS (CRAK( Pu DAY) 45.0 50-0 47.0 57.0 67.3

OF 11ICH ANMAL AND PULSE 11.0 15D 15.0 Id 1l4 34.1

ilLD (AGES 1-4) DEATH RATE 13.3 7.9 4.0 7.2 5.7

LIFE BEPEC;. AT I5I1N (TEARS) 5Z.3 58.2 62.7 60.4 64.7LNFANT hRT. hE (PE TOS) 103.0 74.6 51.4 66.3 60.6

ACCSS TO SAFE 11TER4 (MPOP)TOTAL .. 17.0 22.0 /a 37.0 65.4URSJ .. 60.0 49.0 1. 54.8 78.1RURAL 10.0 12.0 7J 26.4 46.2

ACCESS TO EXCRETA DISPOSALCT OF POPULATION)

TOTAL .. 7.0 40.0 itf 413 52.9URAN .. 65.0 5e.0 If 47.4 67.0RURAL - 8.0 36.0 7 33.3 24.5

POPULATION PER PMSICN 7900.0 430-0 710

0.0 J 7769.4 1917.7

POP. PER NURSNG PERSON 4830.0 /b 7030.0 2400.0 2460.4 615.8POP- PE HOSPITAL BED

TOrAL 1380.0 890.0 820.0 k. 10642 367.2URA 260.0 /b 180.0 530.07; 651.2 411.5RURAL 21420.0 7 13660.00 1280.0 7- 2594.6 2636.3

ADIBSSIS PER NOSPITAL RED . 31.0 44.8 in 27.0 27.3

AVERAGE SXZE OF HOUSEHOLTOTAL 5.5 /b 5.8 5.5 leURDU 5.3 7r 5.8 55 7;rRURAL 5.675 5.8 5. 5 -re

AVERAGE 80. OF rPERSOMS/ROMTOTAL . .. 2.4/ lURinAX - 2.2 7- -RURAL .. .. 2.47

ACeSS TO EZLECT. ( OF IDL31CS)TOTAL .. 18.9URBAN . 86.1RMA . 9.0

AME I-25- Page 2 of 5

1~~1AU ~ - UC?AL - lTA 26*116W 131 ~~~G0p CU1DGE AVUMGE5 .LS

mmsRr ECENTmD rb

= 1a~zL AM A P AWCzn TAT. AMc a

PADLW33 L. M.G. 96.0 10 105.4KALZ a.0 *a.0 99.0 205.9 106.3-uI 79.0 79.0 93.0 96. 10.3

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ADUL? LIXEUICT 3*Z (1) 67.7 75.6 66.0 7mg 7.5

7*S~ C*86IC _ D 10? L.6 5.1 6.3 I 10.1 66.0RADI0 M/ 6.1 76.3 127.2 113.6 223.6TV 35Z10ima POP 2.2 6.6 17.4 50.1 107.2

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IGIAL L3= ram CMOs) 1372.0 16956.0 23356.0?lz (133033) 66.4 66.6 65.8 33.5 23.2*AMZL1U3 (133Wr) 66.0 M0.O 76.0 32.2 31.5

i305U C1?) 4.0 6.0 9.0 L7.9 23.9

lhmUCI?ATI0 USE (IDODI?)TODL 51.3 666 461 36.7 32.2

52.7 69.3 51.9 50.9 49.3115Ut 49.8 43.9 6.3 26.1 12

ECONCI1C PMIICT 3*11 0.9 1.1 0.9 1.1 1.4

1ncl? OF PR13*IT13Iowa

NICKEST 50 or IIWS 21.8 lb 23.611 23.0 la 22.25 20u or US 50.9 47T9.T 69.8 74 6.0

tL3T 203 or i 6.2 6.1 ' 5.6 7 6.4LOWEST 60? OF L4.9 LS 15.2 . 15.2 1.3

STAG 35

LEVEL CUSS rim C =)11*1 .. .. 159.0 /k t.6 2U.2

AL .. .. 106.0 7W 152.0 164.0

ESTZ*32 S3EATIVZ roVER TLL (Can 3n CUM)

031 11.. .. tl5.0 /k 177.9 522.DAL 1... .. 110.0 7 164.6 372.4

4 261116235 10T. 3P O A635OmIMPOZ3T3 iICSI LEr L CZ)

mn .. .. 15.0 k 23.4L .. .. 34.0 W 37.7

Mr? AVAILAU*

/a he group wvraps for swck inic.tor arpul t-'c- el'hteg agtlUtlc _su. C,ar. of cunltrs au thE1nd1aton depmiaon eYallahll±y of dats ad le not V.1f0rA.

lb n.1.. otber-L noted. 'bkA for 1960' refor co ay year betua15 1959 end 161; -Oaca for 1970r betw.._ l969 and1971; and drat fur 'Met Begat bzt."t ' baw... 1930 ain 19e2.

/c CoYer.t program omy; Id n7; / 1976; If 1975; L 1979; A 1962; A 172; nL 1966; k 1970.

JmlE. 1984

AqNNEX I-26- Page 3 of 5

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_~~~~~~~~~! M_ __ r , b M-_tl_ _ . _, _ t5 2 _! 2 _2 AIM _ 211212.1 AM 35 _1

*R_ z _ t_ _. _e p2--0d25.327 MMIAM) r_ 1512tw. _ 2 2,2 _2212 _ rop"Mci- 2

35.2M 2._ 2252 222.22c 2522232 m 2t2.1 3222,5.3 -212 Me22232_- 1. -- _ -- M. _ _U _tw t_a t_s *rL_522 M. tf5.12 _U. M., I.- M5." M _I21.W.515. AM 12121C. *V. tOd M. r_ f_X. _r_

PM- Mcl Ml o... 2..1 .52.. AM .5252)- ... 4 y.sc 42212

r_ rUrrt_ _g-. M d Mr 1M dr_t ft Mr,e _e-MM_usim _r 5 . .1_ q _ r 5 2221.4.AM22..2 A 2p.1 31 132. 5m.. 222

ANNEX I

-27- Page 4 of 5PopuL*tlm 49.-00 (aid1-HUt th-s)cm pr cate 010SS0 (1S2

D-bC e

COS minim at MEMO of CW_ _t~~~~~~~~~~xmm Pelves ~) Osm i teC i_ t _t In t 7 r_e-

Ceam iomastl pec 36.707 6.4 6.3 7.6 5.7 5.4 100.0 101.0 10t.0 100.0 100.0uu.204 5.5 5.3 3.2 3.6 2. 39.8 -. 3 31.S 26.2 20.3

Indeatry 10.303 11.S 7.3 11.4 5.4 6.1 IB.7 25.3 24.8 27.5 23.0Service. S.230 1.0 7.1 7.9 6. 6.0 51.5 44 43.7 46.3 51.7

cG ctlea 25.939 7.3 7.0 7_5 4.7 5.3 85.7 75.7 7953 78.3 78.1Gross invintot 7.729 15.8 3.8 a.2 7t 5.3 15.7 26.2 25.4 27.9 22.9Supotra of E G .18 105 3.6 10.4 10.1 5.1 17.4 16.7 19.1 25.0 26.2Iempo tf QIPS 9.203 13.9 3.7 10.5 1.3 4.7 13.9 21.5 23.7 31.1 27.2

Gross 1ntiona uaviq 6.723 13.7 4.1 5.5 LI 7.4 14.1 2L.5 20.7 20.7 18.3

G _.it1o ofumrabane tr" ( at curt Prim)

1960 1970 1975 190 5/b 1/

mc mlM=*mmalS expects <.85 J.5 9.0 16.4 4.4 6.2 1D0O 100M.0 100.0 100.0 100.0 100.0

f_i5ry 4.6ff 4.2 6.6 10.0 0.1 3.7 97.8 80.5 77.3 60.2 54.9 50.3=buafactarer 2.186 29.2 20.9 25.1 3.9 9.2 2.2 19.3 227 39.8 45.1 49.7

1hgcdi_e i*port B.&" 11.5 3.3 10.8 1.2 4.6 IO. 100.0 100.0 100.0 10. 100.0Food 245 4.3 -2. 11.9 5.J 6.5 9.6 5.4 4.4 3.4 3.2 3.4Uburulel 2.662 11.8 5.0 .7 -4.7 .6 10.9 3.8 22.1 31.4 21.3 19.6macbir & _qai_.e 2.412 1.1 5. 7.4 3.8 5.3 25.3 36.1 35.8 23.5 35.2 35.SOtbare 3.107 10.1 1.0 9.3 4.7 4.9 54.2 49.7 37.7 41.7 40.3 41.2

975 19G 1977 197 19 190 1981 1982 193/a

cU? ditlacor 100.0 103.3 1121 121.8 136.9 139.3 172.1 17T.9 134.51s1b_p cam 20.4 20.4 20. 20.3 20.3 20.5 ZIA2 23.0 23.0Epert prim inde 100.0 97.3 9. 207.4 123.3 151.7 156.2 145.Z 147.3Import prim Index 100.0 105.5 113_.4 122.3 141 175.6 207.5 212.7 200.3Ver,= of mci idm IOWA 92.2 67.6 57.3 90.5 36.4 75.3 613 73.4

to 7 of CW190 1970 1975 1910 191

FUELIC ?1nhA ICCurra rcavemen; 13.6 13.8 13.2 14.0 14.9trrext etmanditeur 10.4 12.6 11.8 13.5 15.0

4 Srplus (4+) or defldct C-) 43.0 +1.2 41.4 40.5 -0.1Qaptal eeIture 4.3 5.8 3.4 3.9 3.9loreign fluncin 0.2 .1 0.1 o.z 0.9

19070 1970-75 1975-0 19S0-851b 1985-90b

GNP growb rate (2) 8.4 6.2 6°9 5.4 5.7COP per capita groutb rate (C) 5.2 3.4 4.4 3.5 4.2

L=t 2.S 4.0 3.4 4.2 4.1hrgil eang ra 0.29 0.23 0.21 0.16 0.29

Import elasticty 1.7 0.6 1.3 0.2 0.9

la Preliainezy.

/b Projecte.

ic atrail goweresmo _ aly.

bury . 1965

ANNEX I1.p,Uta. s 49.500 (.3-192. thsd - 28 - Page 5 of 5OW per capta. V180W (192)

euZuu - .AuM Or PAM==. CEL CAPTL D AMDonCUM UlLUM at cortc Pie

Actua got. rleeludte.tor 1<O vrX 970 1976 19760 1S96 13 iiar 1"O 16 193 6 n 9

UAIc ar P4UUZe oru of _ e d a rosctor

.. r,iwe L.108 3.490 4e029 4.976 4.433 8.191 8.971 9.137 9.000 10.222 1142 12.3 134.6,44 21.379Ofo.icbt I rcbedue Fe.b. 468 2.959 3.454 4*045 S.234 6.449 4.54 4.835 0.306 7.320 7.947 9.064 10.73 14.41

Iopt * of *geds and enfactorsercce -1.430 -3.892 -s.068 -S.694 8.123 -9.99 -10.71 -9.269 -It.117 -11.271 -11.6 '-127637 -14.394 -21.422

C.t1hi Ymmtdil ta.fob. -1.112 2.143S -. 267 -4,913 -4.787 4.352 .930 -. 40 7 -10.206 -10,36 -I1.753 '13.592 -49.701Hoet faetor Lac from abrod 23 -a2 - -263 -4u -410 -9 -1.087 -1.03 -1.254 -1.333 -1.717 -I.10 -2.365met transfers 49 23 40 40 40 165 132 183 277 171 170 270 170 170C.rut account bealme -250 -40 -1.09? -1.132 -2.06 -2.223 -2.506 -1.006 -2.873 -2.132 -1.809 -1.833 -1.964 -2.42

Private direct lease t 4 79 106 so 31 137 292 169 348 40 296 304 213 342N1M ose (me) 32 24 34 570 1.416 1.645 1.S31 1.327 1.258 1.641 1.922 3.572 2.211 2.n75

Offitals 21 109 t8t 290 488 S4 521 460 Ml 725 777 76 752 577private 1 10 139 164 260 930 t.096 1.010 647 417 913 1.3 4 1.064 1.439 1.99

Otih r capim lb 93 219 740 782 1.14O -3 1.236 360 448 41S -307 -107 -n9 -42Coauo in removr..

(- ledlcate luoe..) 82 -94 -93 -349 -543 I44 -- 0l -12 839 -331 -102 -216 -349 -434uteratsloal rs90 1.90 1.837 2.553 3.147 3.045 2.674 2.652 2.355 Z.W6 2.988 1.204 3.5S4 4.714

*.eroe.aseotb- of eort 5 4 5 5 3 3 1 3 3 1 3 2

3MEIAL CAPTrAL MM O3TCren- Dllmbucu...t.

C.oCetInL laee 11 52 73 133 z24 230 Z23 214 z2 34 443 s31 st1 475DAC 1 43 30 86 176 174 169 153 206 287 372 449 641 474[0* - 7 9 5 4 3 21 19 17 12 9 S 4 1Otber - - 1s 62 s 0 49 13 44 27 65 61 Al 16 1

Ibe_oeceselo.al loea. Los 467 583s 1.13 1.614 2.154 2.028 1.*10 2.03 2.390 2.697 2.6 3.401 3.195OfficIa expect credlts 7 - 32 - - 3 so 93 216 175 173 162 174 225IUD 19 43 bS 103 139 143 239 370 423 237 318 324 544 342Obear ntllaceral 2 46 33 U6 34 83 64 102 106 95 111 348 172 208PrivSt. P_ILCZt a careuteed 17 101 106 431 642 6S 60 635 322 139 527 533 593 732private _..a _rnta.d 143 277 349 73 79" I.027 790 688 94 1.395 1.73 1.599 2.119 3.60

7ntl 1roe d Sebsrmet- I9 319 663 1.266 2.038 2.314 2.251 2.125 2.233 2.954 3.3e0 3.323 3.912 5.671

Rou_el Dbt (fSd. tam)-_ he "e _Sca.ift a*_di_er_. 325 823 1.1t9 1.63 2.832 4.*1 S. 1s6 4.138 7.001 3.04 3.977 9.5l 10,392 13.869Orricsal 291 672 895 1.256 1.671 2.235 2.43 2.450 4.268 4.993 5.770 6.556 7.310 9.134Prieste 37 133 224 S64 1.161 1.013 2.326 2."7 2.733 3.051 3.207 3.393 3.532 4.762

trivet _ ue.wareato-d debteateodl aud disbursed 382 785 an 931 1.243 1.703 2.09 2.296 Z.655 3.234 4.243 5.141 6.411 30.691

Total debt .taraodia _udlebureed 710 1.606 1.99 2.751 4.075 3.631 7.268 s4.34 9.657 11.29D 13.220 15.092 17.303 24.337

Vadleb..red debt 11t 840 1.364 1.599 2.341 3e.004 3.061 .392 3.445 3.125 3.144 3.037 2.94 3.314

Debt Sr1ec,otel sdvice palmate 262 373 44 612 96 2 1.224 1.325 1.495 1.768 2.162 2.43 2.643 3.049 5.065Interest 36 107 126 191 322 50 686 697 743 649 1.025 1.192 1,349 1.959

Peyueets me 2 etorts of goodsand .onfactor eervices 14.6 10.6 11.0 14.3 16.9 13.4 13.6 35.9 19.Z 20.7 23.5 20.6 20.4 2M.

Avurae Intarost late on 1ie va.M. I t 0 611 7.3 7.0 3.6 7.6 9.3 102 6.2 3. 11.3 30.0 10.0 9.m 1W.2OffIcial 3.8 7 U .1 5b 5 .4 648 7.4 5.7 .11 - - - - -Private 6.0 7.3 8.I 8.9 10.3 13.3 13.6 30.3 8.9 - - - - -

averae. maturity ao 1m Loan.(yer" IC 183.9 17.3 14.5 17.1 17.0 16.6 16_7 19.3 2n.) 13.8 12.4 12.4 123.1 11.2OffIecIa 19.4 20.6 19.6 21.1 2Z2. 21.1 22.4 21.6 22.8 - - - - -private 11.2 7.3 79 9.4 1i0.) 8.6 9.3 13.8 13.7 - - - - -

to 000 22.U 13. 17.1 1S. 33.8 33.4 12.9 1S.1 17.1 13.7 t 14. 9.4 I4.7 33.32330 dlaburnevuue/rtat.1 S"o..

dl-bor_ento 9.5 3.1 In.0 .4 7.0n .31 31.0 11.4 39 9.7 e. In.& R.4 40.0753 debt -ervIc:/total debt

mrWiCe 11.1 n.4 M. *4 . .3 5.1 3.9 31.3 1.? OZ. 12.1 I3-.IDA 000/totel DOD - 0.7 1.0 n.t p.7 n0. 0.7 n.3 n09 n,9 *.,I ".. 13.7 n.n10D disburmewteltcotl grose

dl-ebo_.nt- - 1.1 1.1 0.4 0.2 0.Z 0.9 0.9 42.1 0.4 ft.3 0.2 0.1 0.0IDL debt s-rvie/tot.l debt

eereice - 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.0 0.0 0.0 o.n 0.0 0.0

As 2 of debt outatandLa& at end of 1983

IbturLty *tructure of debt oatstesilugPritcipal due "itbin 3 year. 60.7Pr,scipVl dOK 'Sthbt 10 7RS 94.2

7nterut streetur of debt outstandigInterot due within ftrat yuar 86.

/a Dme to cbhege In claesificotloe. projected dut- for 'prvate IL.t loaue Include so_ of the category otber capltl.'7 'Otber capita l' Lcl.dev et _ of DI? ftuds gw et flow ot sbort-tr. captal.7; El-torical data do not Incl1de eo_.mereted private debt.

Nebrsry 26. 1956

ANNEX IIPage 1 of 3

-29-

THE STATUS OF BliNK GROUP OPERATIONS IN THAILAND

A. STATEMENT OF BANK LOANS AND IDA CREDITS /a(As of March 31, 1985)

Amount ($ million)Loan or les eancellationscredit Bank IDA r.-lis-number Year Borrower Purpose 'ursed

Forty-seven loans and three credits fully disbursed 1,480.35 31.74

1149 1975 Kingdom of Thailand Irrigation 95.00 - 10.90767 1978 Kingdom of Thailand Population 33.10 /b 3.17

1620 1978 Telepbone Organization Telecom. 90.00 - 10.88of Thailand

1630 1978 Kingdom of Thailand Irrigation 17.50 - 3.881638 1979 Kingdom of Thailand Urban Trans. 16.00 - 2.521690 1979 Electricity Generating Power 69.00 - 8.68

Authority of Thailand913 1979 Kingdom of Thailand Education - 35.00 7.07929 1979 Kingdom of Thailand Agriculture - 25.00 12.23

1752 1979 Kingdom of Thailand Ag. Extension 40.00 - 14.901770 1980 Electricity Generating Power 80.00 - 0.10

Authority of Thailand1787 1980 Kingdom of Thailand Irrigation 80.00 - 53.281816 1980 Kingdom of Thailand Ag. Credit 19.00 - 0.971852 1980 Electricity Generating Power 72.00 - 9.05

Authority of Thailand1863 1980 Provincial Waterworks Water Supply 40.00 - 30.43

Authority1870 1980 Kingdom of Thailand Housing 29.00 - 16.171871 1980 Provincial Electricity Rural Electri- 75.00 - 26.89

Authority fication1889 1980 Kingdom of Thailand Inland Waterways 53.00 - 39.971918 1980 Kingdom of Thailand Ports 47.00 - 45.181922 1980 Kingdom of Thailand Ag. Research 30.00 - 27.641947 1981 Kingdom of Thailand Potash 8.90 - 0.07

Engineering1956 1981 Industrial Finance Corp. Industry 30.00 - 0.11

of Thailand

ANNEX 1IPage 2 of 3

-30 -

Amount ($ million)Loan or less cancellattonscredit Bank IDA Undis-number Year Borrower Purpose bursed

2000 1981 Electricity Generating Power 100.00 - 59.42Authority of Thailand

2022 1981 Kingdom of Thailand Irrigation 57.00 - 46.922035 1981 Kingdom of Thailand Provincial Roads 35.00 - 10.882078 1982 Kingdom of Thailand Tree Crops 142.00 - 59.762143 1982 Telephone Organization Telecommuni- 142.10 - 74.91

of Thailand cations2178 1982 Kingdom of Thailand Education 75.00 - 64.272184 1982 Petroleum Authority of Liquified Petro- 90.00 - 61.40

Thailand leum Gas2198 1982 Kingdom of Thailand Agriculture 17.00 - 16.322310 1983 Bank for Agriculture & Agriculture 70.00 - 18.01

Cooperatives2311 1983 Kingdom of Thailand Prov. Roads 100.00 - 94.802312 1983 Provincial Electricity Rural Elec- 30.60 - 26.01

Authority trificationB-001 1983 Telephone Organization

of Thailand Telecom. 8.50 - 0.202402 1984 Kingdom of Thailand Rural Dev. 50.00 - 44.832407 1984 Electricity Generating

Authority of Thailand Mining 59.10 - 58.952440 1984 Kingdom of Thailand Agriculture 35.00 - 34.91

Total 3.383.05 124.84 995.68of vhich has been repaid 424.11 3.42

Total Now Outstanding 2,958.94 121.42

Amount sold /c 68.63of which has been repaid 60.39 8.24

Total Now Held by Bank and IDA 2,950.70 121.42

Total tndisbursed 973.21 22.47 995.68

/a The status of the projects listed in Part A is described in a separate report onall Bank/IDA financed projects in execution, which is updated twice yearly and cir-culated to the Executive Directors on April 30 and October 31.

/b Of which $3.1 million is Norwegian grant participation.Tc Of which $43.3 million sold to the Bank of Thailand.

ANNE II31 - Page 3 of 3

B. STATEMENT OF IFC INVESTMENT(As of March 31, 1985)

Amounts ($ million)Year Company Type of business Loan Equity Total

1959 Concrete Products and Cement and Construc-Aggregate Co., Ltd. tion Naterials 0.3 - 0.3

196411971 Industrial Development FinanceFinnce Corporation of Company - 0.4 0.4

Thailand (IFCT)

1969/1 976 Siam Cement Group Cement and Construc-1978hlo"-.L985 tion Naterials 28.3 4.4 32.7

1977 Mutual Fund Company TLimted Money and Capitzl Market - 0.3 0.3

1977 United Sugar Terminal Limited Food and FoodProcessing 2.5 0.2 2.7

1978 Siam Commercial Bank Small and Medium ScaleIndustries 2.0 - 2.0

1979/1980 Bangkok Glass Industry Co. Ltd. Glass Containers 9.9 0.4 10.;19831979/1981 Siam City Cement Co. Ltd. Cement and Construc-1985 tion materials 108.9 4.7 113.6

1979 Thai Orient Leasing Co. Ltd. Capital Market - 0.1 0.1

1983 Sea Minerals Limited Mining - 0.6 0.6

1983 National Petrochemical Corp. Chemicals & petro-chemical - 0.2 0.2

1983 Thailand Tantalum Mining 53.5 3.3 56.8

1984 World Aquaculture Food and FoodProcessing 2.3 0.6 2.9

1984 Southeast Asia Venture Money & Capital Market - 1.0 1.0Investment (Seavi)

Total Gross Commitments 207.7 16.2 223.S

Less cancellations, termi-nations, repayments and sales 151.6 3.5 155.1

Net held by the corporation 56.1 12.7 68.8

Total Undisbursed 101.3 5.4 106.7

ANNEX III

- 32 -

SUPPLEMENTARY PROJECT DATA SHEET

r. Timetable of Key Events

(a) Tims taken to prerare project Approximately 21 months (fromSeptember 1982 to June 1984)

(b) Project prepared by Ministry of Finance, BangchakOil Refinery, Lummus Operat-ing Associates (US), ChiyodaChemical Construction (Japan)and Mitsubishi Oil Company(Japan)

(c) First Presentation to the Bank : September 1982

(d) Departure of Appraisal Mission November 1982

Ce) Completion of Negotiations : November 1984

Cf) Planned date of effectiveness August 1985

II. Special Bank Implementation Action

None

III. Special Condition

Agreements were reached with the Government:

(a) that it will continue to set ex-refinery prices which wouldCi) allow the refineries, operating efficiently, to meet theirexpenses, service their debts and earn a reasonable rate of returnon capital employed; and (ii) be reasonably competitiveinternationally (para. 46); and

(b) that it will furnish to the Bank by November 1, 1985, proposals forimprovements in payment practices by state agencies and implementsuch proposals taking into account Bank's comments thereon(para. 69).

Agreement was reached with the Borrower that it will carry out arefinery modification study in accordance with terms of referencesatisfactory to the Bank; by December 1, 1986, it will furnish to theBank a copy of Phase I of the study and, based on its findings, carryout Phase II of the study under arrangements acceptable to the Bank(para. 61).

98 ,-,. ,d4. C 1 .HINA

lx~~~~~~~~~~~~~~. ~~~~~~~~BURMA

THAILAND

LAO PEOPLE'S DEM. REP. ,/iA

os . . . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~J 4f\a @

AI.A. . . ..

I,. ~ ~ ~~tOO I' j ~~~~~~ hra.I..%l¼...A 3 ~~~~~~~~~ INDOIJESIA *~~~~~~~~)SINOAPSNOAOBE

ThE imp has bas gfp.upedTh ,analn .zbys

f.M' WA,nJ aiks stl,a Ion Malo

- / ~~~~~Udn t.lIn ~ 1 ol a nd tINOA. Nnh&Wua Fiwe

uased sI Oma haaaidWw shew%

"IN u~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~orohnMsh map do rat hi*, an Mae

ha, hu ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~sInfemoaii Financ Copwatun

Li la s~~~~~~~~~~~~~~~~~~~~~~~~~~~~// \Ia ny pjaa l rMn ft NmieW1 SuabA

Y m~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ash boaa'WM,iU

B U RMA Ifi.~,(

Ple,a lob ~~~~~~~ A,)atlhav bias pu kloo

14 ~~ncho,obnr' i!h~~~~.o- u

~~~~~G Nma

twmKmhar4'1Igr~DEMOCRATIC KAMPUCHEA

12' ~ ~ '4 ( \ GO,<S *,. k\,1 W " ,

.1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2n < ;"} \ /Pr,Ki,,,a,ji(Gulf of 7hoa/lond hoYe

ANDAMAN SEA S Scp.n

hiimpIio~~~ THAILAND)H ~BANGCHAK OIL REFINERY RESTRUCTURING PROJECT 7 VIET NAM

IC 1f LangIvan * REFINERIES-SANOCHAol,tORO.ESSO.FANO

/* I0 - NATIONAL HIOHWAYS JOr

/ PROVClkI. ROADO.

e ~~~~~~~~~~~~PAVE'D$.P t \ 5ci 7 -- ~~UNiAVED

,.--.*-'- RAILWAYS

RIVERS

0 NATIONAL CAPITAL __ ___ _ .

, w <!,,)J 1\ 2,.gSa \j6@ PROVINCIAL CAPITALS b CHN SEA 1016wAIa<$I ibEh51Ivamrra 0 OTHER TOWNS SOUTH CHINA SEA

,>p7 l%a -, -PciPh t ---- PROVINCIAL SOUNDARIES

,...~ $REGIONAL BOUNDAREIS

'. 44 } tINTERNATIONAL SOUNOARIES

MvAil ~ ~ a \a Ei ~

A T ,< )\ TOR

,a. IG?. MALAYSiAi~, Iq4_ 1'4w Os