Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 19399

IMPLEMENTATION COMPLETION REPORT

MADAGASCAR

PETROLEUM SECTOR REFORM PROJECT

(Credit No. 2538-MAG)

June 10, 1999

Energy TeamInfrastructure GroupAfrica Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

(Currency Unit = Malagasy Franc (FMG)

Year US$1.00 = FMG

1989 16031990 14941991 18351992 18641993 19141994 30671995 42661996 40611997 50911998 5273

WEIGHTS AND MEASURESMetric System

FISCAL YEAR OF BORROWERJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

AFD Agence Francaise de DeveloppementESMAP Energy Sector Management Assistance ProgramICB International Competitive BiddingLGP Liquefied Petroleum GasMEM Ministry of Energy and MinesOMH Office Malgache des HydrocarburesSOLIMA Solitany Malagasy

Vice President Mr. Callisto MadavoCountry Director Mr. Michael SarrisSector Manager Mr. Mark TomlinsonTeam Leader Mr. Angel Baide

IMPLEMENTATION COMPLETION REPORT

FOR OFFICIAL USE ONLYMADAGASCAR

PETROLEUM SECTOR REFORM PROJECT(Credit No. 2538-MAG)

Table of ContentsPage No.

PrefaceEvaluation Summary ................ - iv

Part I: PROJECT IMPLEMENTATION ASSESSMENT

I. Project Background ............................... 1II. Statement and Evaluation of Objectives ............................... 4III. Achievement of Objectives ............................... 4IV. Major Factors Affecting the Project ............................... 8V. Project Sustainability ............................... 9VI. Bank Performance .... 9..........................9VII. Borrower Performance .............................. 10VIII. Assessment of Outcome .............................. 10IX. Future Operation .............................. 10X. Key Lessons Learned .............................. 10

Part II: STATISTICAL ANNEXES

Table 1 Summary of Assessments .............................. I ITable 2 Related Bank Credits .............................. 13Table 3 Project Timetable .............................. 14Table 4 Credit Disbursements .............................. 14Table 5 Key Indicators for Project Implementation .............................. 15Table 6 Studies Included in Project .............................. 16Table 7A Project Costs .17Table 7B Project Financing .17Table 8 Status of Legal Covenants .18Table 9 Bank Resources: Staff Inputs .21Table 10 Bank Resources: Missions .22

Part im: APPENDICES

A. Aide-Memoire of ICR mission ....................... 23B. Borrower's Contribution ....................... 26

Map: IBRD No. 30305

This document has a restricted distribution and may be used by recipients only in thieperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authiorization.

IMPLEMENTATION COMPLETION REPORT

MADAGASCAR

PETROLEUM SECTOR REFORM PROJECT

(Credit No. 2538-MAG)

Preface

1. This is the Implementation Completion Report (ICR) for Madagascar'sPetroleum Sector Reform Project, for which Credit 2538-MAG in the amount ofSDR 36.7 million was approved on July 29, 1993. An amendment to the Credit andProject Agreements was approved on October 18, 1996, and became effective on October7, 1997. The amendment cancelled SDR 9.4 million, which had been destined to financea rehabilitation of the Borrower's refinery at Toamasina.

2. The credit closed on December 31, 1998, the original closing date. Itdisbursed only SDR 3.3 million or 9 percent of the original credit amount and the lastdisbursement took place on May 21, 1999. No co-financing was involved.

3. This ICR was prepared by Angel Baide (AFTG 1), and reviewed byMichael N. Sarris (AFC08), Patricio Millan (LCC5F), Thuvara S. Nayar (EMTOG), andNoureddine Bouzaher (AFTG1). The Borrower reviewed the draft ICR and, during theICR mission in April 1999, provided oral comments which were taken into account inpreparing the final version. The report was processed by Lily Wong, Team Assistant(AFTG1).

4. The ICR is based on materials in the project files, as well as on the ICRmission's findings. The Borrower contributed its own evaluation of the project's designand execution, which is included as Appendix B to the ICR.

IMPLEMENTATION COMPLETION REPORT

MADAGASCAR

PETROLEUM SECTOR REFORM PROJECT(Credit No. 2538-MAG)

Evaluation Summary

Introduction

1. The concept of the Petroleum Sector Reform Project evolved from the findingsof an ESMAP energy sector assessment published in 1987, and a World Bank study of thepetroleum sector completed in 1989. These studies identified the following petroleum sectorproblems: (a) deteriorated state of installations and equipment; (b) inefficient import andrefining operations; (c) inefficient pricing and taxation of petroleum products; and (d) nontransparent and inefficient procurement of crude oil and refined products. Solitany Malagasy(SOLIMA), the national petroleum company, was in charge of all petroleum operations andinstallations in the country. The government had created SOLIMA to take over the operationsof foreign oil companies when it nationalized the sector in 1976.

2. At the time the project was identified, the government was particularlyinterested in rehabilitating the country's refinery at Toamasina. In 1982, SOLIMA hadcompleted, at a cost of about $20 million, a major reconfiguration of the refinery -- built in1966 as a simple hydro-skimming facility -- by adding a visbreaker, a desulfurization unit, anda bitumen unit. But the new section had been disabled by an explosion shortly aftercommissioning. Moreover, while this extension was being built, the rest of the refinery haddeteriorated rapidly, because the heavy investment program had used up all of SOLIMA'sforeign exchange, leaving little for maintenance needs. As a result, the refinery sufferedfrequent accidents, including fires, which forced it to shut down for months at a time.

3. Although the Bank studies expressed doubts about the feasibility of refineryrehabilitation, mainly because its justification depended on the price differential between crudeand refined products, which was determined by external factors, consultants financed by aproject preparation facility (PPF) showed the rehabilitation to have a very high rate of return.The same consultants also pointed to the serious environmental and safety risks posed byinadequate existing loading-unloading facilities at Toamasina, and by the old, leaky pipelinesconnecting those facilities to the refinery, and recommended building a new maritimepetroleum terminal and replacing the pipelines. The Bank accepted to finance a first stagerehabilitation of the refinery, as well as construction of a new petroleum terminal and pipelinesat Toamasina, as part of a project that would liberalize downstream petroleum sectoroperations, and prepare the way for a possible private participation in the refinery. Followinga recommendation by the Bank, the project also would rehabilitate storage and transportinfrastructure around the country.

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4. Within the framework of the dialogue leading to project approval, thegovernment adopted a series of measures to improve petroleum-product pricing and taxation,as well as the procurement of crude oil and refined products. In 1991, the governmentintroduced pricing based on the concept of import-parity, reflecting actual costs, with monthlyadjustments by SOLIMA. In 1992, SOLIMA adopted international competitive bidding (ICB)as the method to procure crude oil and refined products. In 1993, shortly before creditnegotiations, the government issued Decree 93-002, declaring that the purchase, transportation,storage, transformation, and distribution of all petroleum products were liberalized.

5. The project called for market liberalization and the introduction of competitionin the petroleum sector. For this purpose it advocated separation of the refinery from the restof SOLIMA. After rehabilitation, the refinery would have to compete with imports of refinedproducts. Essential infrastructures would be managed by a joint-venture of SOLIMA andprivate operators under an "open-access" logistic system. SOLIMA would no longer enjoy themonopoly of distribution either, it would have to compete with new private entrants. Inretrospect, this scenario was unrealistic. It was, for example, unlikely that the government,after investing in refinery rehabilitation, would allow the refinery to close in case it could notcompete against imports. Most probably the government would have offered protection to therefiner. This strong possibility, and the presence of state-owned SOLIMA in logistics anddistribution, discouraged private oil companies from entering the sector even after legalliberalization of petroleum activities was completed in 1995.

6. A number of disbursement conditions, making rehabilitation works dependenton progress in the reform component, became a source of delays, especially when, duringproject implementation, the Bank changed its position on reform, and began pressing foroutright privatization of SOLIMA. Agreement on privatization took a very long time tomaterialize. In the meantime, disbursement conditions were not being complied with, andexecution of infrastructure components was therefore blocked. To complicate things further,the project implementation period was a time of great institutional uncertainty as evidenced bythe many government changes the country went through. Between project identification in1989 and credit closing at the end of 1998, there were eight Ministers of Energy and Mines,and SOLIMA's top management team changed twice.

Project Objectives

7. The objectives of the project were: (a) to open up the petroleum sector toprivate participation and create the framework for a competitive environment; (b) to supportbasic infrastructure investments so as to increase operational efficiency and attract privateoperators and investors; and (c) to develop institutional capacity for the efficient regulation ofthe petroleum sector. To achieve these objectives, the project included the followingcomponents: (A) SOLIMA's restructuring and corporatization, including creation of a refiningsubsidiary; establishment of an open-access system for the use of essential infrastructures; and

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capacity building for regulation. (B) Rehabilitation of the refinery and technical assistance forits management. (C) Rehabilitation and expansion of storage and transport infrastructure.Replacement of pipelines. (D) Construction of a new maritime petroleum terminal atToamasina. And (E) An LPG promotion program.

Implementation Experience and Results

8. The project achieved partially its reform objectives. Reform, in the end, wasdeeper than originally proposed, with the full privatization of SOLIMA. The project prepareda draft new legal framework, and also a strategy to privatize SOLIMA. The proposedpetroleum law was adopted by the National Assembly in March 1999, after credit closing. Theregulatory agency is being set up. The privatization of SOLIMA is being implemented,basically following the strategy developed by the project. The project had initially helpedprepare a legal framework for liberalization, based on Decree 93-002, followed in 1995 byDecree 565-95, which introduced modem principles of sector operations. In 1996, thegovernment issued an international invitation to private oil companies to enter Madagascar'sliberalized petroleum sector, but with no results. The international oil companies expressedconcerns about the dominant position SOLIMA would enjoy as a state-owned operator.

9. The project did not achieve its original objectives concerning infrastructure.Refinery rehabilitation was dropped after the government, with some encouragement from theBank, requested an amendment to the Credit and Project Agreements canceling the component.One reason for abandoning refinery rehabilitation was that the facilities had continued todeteriorate, making economic viability increasingly doubtful. Other rehabilitation works couldnot be executed due to the disbursement conditions linking them to the institutionalcomponent, which was progressing very slowly. Also, once the government agreed toprivatize SOLIMA, the idea of public investment to rehabilitate infrastructure lost itsjustification. With the decision to privatize, modernization of installations was left to beimplemented by the new private owners.

10. The project could not complete even the engineering design for the newpetroleum terminal at Toamasina. During project preparation, an engineering firm hadidentified a new site within the harbor, and completed a feasibility study, including anenvironmental analysis. But an environmental expert later hired to verify the conclusions ofthe feasibility study rejected the site due to safety and environmental concerns. A secondengineering consultant tentatively selected a new site located directly in front of the refinery.This minimized the length of pipelines, but the site was on open seas. A bathymetric survey,and wind, current and wave measurements were carried out. A simulation study based onthese measurements showed the new site was also inadequate, because of the rough seaconditions. Concerning LPG promotion, the project financed procurement of 47,000 LPGbottles, but did not execute any of the envisaged investments in expansion and rehabilitation ofstorage and transport facilities, because of disbursement conditions and the decision toprivatize.

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11. During the period of project execution, the Bank kept pushing for liberalizationand for privatization, not only within the framework of the project itself, but also as part of thedialogue for two Structural Adjustment operations and also a private sector development studythat was followed by a private sector development project. When the government finallyagreed to put SOLIMA on the list of public enterprises slated for privatization, the consultantshired by the project to study SOLIMA's restructuring were asked to prepare a privatizationstrategy for the company. The financial advisor and other assistance required for theprivatization is being financed by the Private Sector Development and Capacity BuildingProject (Cr. 2956-MAG). SOLIMA was split into several companies which were awarded toprivate bidders in April 1999. The privatization is expected to be completed by end of July1999.

Summary of findings, future TA and training, and key lessons learned

12. The project was one of the vehicles the Bank used to press a reluctantgovernment to open the sector to private participation and to divest from SOLIMA'sinstallations and operations. This process involved a difficult struggle, particularly since theBank de facto changed the scope of reform. The reform program as defined in the CreditAgreement did not include the privatization of SOLIMA. Political instability in the countrymade things more difficult. Progress was very slow, because the government was notinterested in privatization. Cancellation of refinery rehabilitation reduced the interest of theproject for SOLIMA and the government. The infrastructure components were blocked bydisbursement conditions.

13. The lesson that can be drawn from this experience is that the Bank should haveeither stuck to the original project objectives, showing more patience, or, once it decided to gofor privatization, should have drawn the full consequences and proposed a radical restructuringof the project. Following the decision to privatize, most of the investment components shouldhave been cancelled. The project could have instead supported investments required as part ofthe privatization process, such as environmental cleanup operations. Investments ininfrastructure would have been left to the private sector.

IMPLEMENTATION COMPLETION REPORT

MADAGASCAR

PETROLEUM SECTOR REFORM PROJECT(Credit No. 2538-MAG)

PART 1: IMPLEMENTATION ASSESSMENT

L. PROJECT BACKGROUND

1. The project concept evolved from the findings of two studies done between 1984 and1989: an ESMAP energy sector assessment, and a report on the petroleum sector'. Thesituation found was: (a) substantial deterioration of most petroleum installations andequipment; (b) inefficient import and refining operations; (c) inefficient pricing and taxation2

of petroleum products; and (d) non transparent and inefficient procurement of crude oil andrefined products. Both reports paid much attention to the refinery at Toamasina. Therefinery has continued to be at the center of the debate and at the center of the difficulties toimplement sector reform, even now, at the beginning of 1999, when the state-ownedpetroleum company SOLIMA is being privatized. This reflects the government's reluctanceto give up control of petroleum imports, explained as a concern to guarantee security ofsupply.

2. The refinery, commissioned in 1966, is a simple hydroskimming facility, with aprocessing capacity of 450,000 tons per year, which was increased in 1972 to 750,000 tonsper year3. Until 1976, the refinery was owned by a group of foreign oil companies andoperated by one of them, the French company Elf. Since nationalization in 1976, the refineryhas been operated by SOLIMA. In 1982, SOLIMA undertook, at a cost of about $20 million,a major reconfiguration by adding a visbreaking unit, a gas-oil desulfurization unit, and abitumen unit. Shortly after commissioning, this extension was disabled by an explosion. Atthe same time, the rest of the installations had deteriorated considerably due to inadequatemaintenance, as a result of the strain the heavy investment program had put on SOLIMA'slimited foreign exchange. There was a succession of shutdowns caused by operation andmaintenance related problems, several involving fires.

3. Because of the large investment that had just been made, the reaction was to identifywhat additional investments were required in order to solve all the problems. In 1984, theFrench CCCE (now AFD) financed repairs, and also a feasibility study for the refinery'scomplete rehabilitation and upgrading. The study, updated in 1986, showed rehabilitation to

ESMAP, Jan. 1987, Madagascar: Issues and Options in the Energy Sector, Report No. 5700 MAG.World Bank, July 1989, Madagascar - Petroleum Sector Report, Report No. 7986 MAG.

2 SOLIMA negotiated every year, ex-post, the amount to be paid in taxes to the State. This wasnecessary to ensure SOLIMA's financial equilibrium, given that the government kept prices too low.

3 Despite this expansion, the refinery's production has never exceeded 450,000 tons per year.

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be technically and economically feasible, but also that the rate of return depended on aparameter determined by the international market: the "refining margin", or price differentialbetween crude oil and the products obtained from it. This parameter was influencedparticularly by large, efficient, export-oriented refineries in the gulf region, and wasuncertain. The margin was small, of the order of 5 percent of the cost of feedstock, and thisresulted in an extreme sensitivity of the rehabilitation's rate of return to variations in therelative prices of crude oil and refined products.

4. This study, as well as the Bank studies, also noted that in addition to rehabilitation,efficient management was a necessary condition of the refinery's viability. The refineryneeded quick reaction capabilities in the procurement of feedstock to take advantage ofopportunities in the international oil market, a sizable foreign exchange fund, improvedoperation and maintenance, etc.. The recommendations were to invest in rehabilitating andprovide money for spare parts, to improve operations planning, to train personnel, and toprovide technical assistance. There was no mention of the unlikelihood that an efficientperformance could be sustained by a state-owned enterprise. The studies on the refinerysought to find the least cost method to supply the country. The underlying assumption wasthat, in case rehabilitation failed to make the refinery competitive, the consequence would bea higher cost for the country's fuel supplies, not bankruptcy and closure for the refiningcompany. It is very doubtful, in any case, that the government would have let the refineryclose after having invested in its rehabilitation.

5. The ESMAP and Petroleum Sector studies recommended more detailed study ofrehabilitation feasibility. After the ESMAP study, the Bank informed the government itwould not finance refinery rehabilitation, but would not oppose it either. After the petroleumsector study, however, the Bank agreed to finance from a PPF the more complete study thathad been recommended. This study showed rehabilitation to have a very high rate of return.The consultants also recommended building a new petroleum terminal at Toamasina, andreplacing old, leaky pipelines running between the port and the refinery. Indeed, continuedoperation of the current installations presents serious public-safety and environmental risks.

6. The Bank agreed to finance a first stage of refinery rehabilitation, as well as theconstruction of a new petroleum terminal and associated pipelines at Toamasina, subject tothe government's agreement to liberalize petroleum-product imports and distribution, as wellas some form of private participation in the refinery at a later unspecified date. The projectalso would finance technical assistance for SOLIMA, particularly a management contract forthe refinery to be run by a professional operator for a three-year period during and afterrehabilitation. Finally, following a recommendation by the Bank, the project would financerehabilitation of transport and storage infrastructure around the country.

7. During project preparation, and within the framework of the dialogue with the Bank,the government introduced adequate petroleum-product pricing in 1991, based on the conceptof import parity and reflecting actual costs, with automatic adjustments by SOLIMA. Thegovernment also rationalized taxation, increasing rates and eliminating differences betweenproducts. Tax revenue increased dramatically as a result of these changes. Also, in 1992,

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SOLIMA adopted ICB as the method to procure crude oil and petroleum products. However,there were from time to time interruptions in the application of price adjustments, in one casefollowing public demonstrations by taxi and truck drivers. Procurement based on ICB hasbeen suspended since mid- 1996, because of the uncertainty of SOLIMA's remaining lifefollowing the decision to privatize. Since then, SOLIMA has signed successive addenda tothe last contract awarded on the basis of ICB.

8. The project was to be a vehicle to open the downstream petroleum sub-sector toprivate participation and competition, but it proposed at the same time to maintain andstrengthen the state-owned SOLIMA as refiner and distributor. Although liberalizationwould include freedom to import, the project would finance the rehabilitation of SOLIMA'srefinery, thus creating pressures to give the refiner control of imports. To level the playingfield, all "essential infrastructures", meaning loading-unloading facilities, large storagefacilities, and bulk transport, would be operated under an "open-access system", bySOLIMA, in ajoint-venture with the future private distributors. To help ensure SOLIMA'scompetitiveness vis-a-vis private distributors, the project would support the company'srestructuring and modernization. This model of sector reform proved to be unrealistic. Thestrong state presence discouraged private oil companies from entering the sector after legalliberalization was completed in 1995.

9. The project included a number of disbursement conditions making rehabilitationworks dependent on progress on the reform component. These conditions became a source ofdelays because after effectiveness the Bank began pressing for outright privatization ofSOLIMA. This represented an important change in the Bank's position on reform. The onlymention of privatization in the Credit Agreement is of an "eventual private sectorparticipation in the capital" of SOLIMA, an approach chosen after extensive internal debateat the Bank during project preparation. Despite its change of position, the Bank took noaction to amend the Credit Agreement on this point. The discussion on privatization wasdifficult. The government began taking concrete steps to privatize SOLIMA only in 1997.In the meantime, disbursement conditions were not being met, and execution of infrastructurecomponents was therefore blocked.

10. The Board approved the project in July 1993, just before a major political changeafter the country's first presidential elections in 20 years. The credit became effective only inSeptember 1994, after several extensions of the deadline. Delays were partly the result of thegovernment change, which entailed replacement of staff at the Ministry and SOLIMA. Butalso, the 90-day period allowed was too short for one of the conditions, later waived: thecompletion of bidding documents for the rehabilitation of the refinery. At the beginning of1994, the new government expressed doubts about the project, particularly about refineryrehabilitation. Indeed, the idling parts of the refinery had continued to deteriorate, and theinstallations had been severely damaged by cyclone Geralda in February of that year. TheBank took advantage of the concerns expressed by the government to propose, even beforethe credit became effective, the cancellation of the refinery component.

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II. STATEMENT AND EVALUATION OF OBJECTIVES

11. The project had the following objectives: (a) to open up the petroleum sector toprivate participation and create an appropriate framework for a competitive environment;(b) to support the basic infrastructure investments required to increase operational efficiencyand to attract private operators and investors; and (c) to develop institutional capacity for theefficient regulation of the petroleum sector.

12. In order to achieve its objectives the project included the following components:

Part A Sector reform, comprising the following: (i) restructuring and corporatizationof SOLIMA, and eventual private sector participation in its capital, including constitution ofa subsidiary for the refinery; (ii) establishment of an open access system to key infrastructure;and (iii) establishment of a national regulatory authority to oversee the sector.

Part B Rehabilitation of SOLIMA's refinery, and management assistance toSOLIMA's refining subsidiary.

Part C Improvement of storage and transport infrastructure comprising:(i) acquisition of 18 rail tankers; (ii) rehabilitation of existing storage tanks and constructionof new tanks; (iii) replacement of pipelines from the port of Toamasina to the refinery;(iv) improvement of unloading facilities at Mahajanga and Manakara; and (v) improvementof petroleum unloading operations and of transport and distribution.

Part D Construction of a new maritime petroleum terminal at Toamasina.

Part E LPG promotion program, including the acquisition of bottles, construction ofstorage tanks, rehabilitation of filling stations, and acquisition of transport equipment.

13. Although the objectives were clear and adapted to Madagascar's needs, they wereundermined by the project components, in the sense that those components would havehelped the State to maintain an overbearing presence in the sector. The investment inrefinery rehabilitation, for example, would create strong pressures for the government toprotect it against competition, thus giving de-facto control of imports to state-ownedSOLIMA, and undermining liberalization.

111. ACHIEVEMENT OF OBJECTIVES

14. The project achieved partially the objective of opening the sector to privateparticipation through preparation of a new legal framework. It did not achieve the objectiveof improving basic infrastructure. Investments to improve infrastructure, however, will becarried out by the new private owners. The project could not contribute to capacity buildingfor regulation, as the regulatory agency could not be set up before credit closing.

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Part A. Sector reform

15. During project preparation, the government had issued Decree N° 91-43 1, introducingimport-parity pricing and automatic adjustment formulas, and Decree 93-002, declaring thatthe purchase, transportation, storage, transformation and distribution of all petroleumproducts were liberalized. Decree 93-002 indicated that detailed application rules would bedefined by future decrees.

16. In August 1995, a local Working Group, assisted by a World Bank mission includinga legal expert, identified the elements required in a new legal framework to implement thedecision to liberalize. The group produced a draft decree that was issued as GovernmentDecree 565/95 on August 29, 1995. This important decree introduced modem principles ofpetroleum sector operations: (a) entry would be regulated through a system of operationlicenses and -- for the case of new petroleum installations -- construction permits;(b) petroleum installations and petroleum operations would have to comply with internationalindustry norms and standards; (c) installations and operations also would have to complywith applicable environmental regulations; (d) prices would be set by supply and demand;(e) the Administration and the supervisory agency had clearly defined roles; (f) owners ofunused storage capacities could not refuse access, even to competitors, in exchange for a fairnegotiated fee.

17. Decree 565/95 listed a number of complementary technical regulations that had to beissued in the forn of Ministerial decrees. These were indeed issued in quick succession inthe following months. Decree 565/95 established certain measures that were to be appliedonly during an initial transitional period, until competition would materialize. During thatperiod, all "essential infrastructures" would be shared by all players under an open accesssystem, and the supervisory agency would set price caps for a number of products.

18. In September 1996, the government distributed internationally, a booklet containingthe legal texts liberalizing the sector and invited international oil companies to come toMadagascar. The Government also indicated it was seeking partners to take either a minorityor majority share in the refinery. Private oil companies, however, were skeptical, and theirresponse to the invitation lukewarm. They expressed concerns about depending on SOLIMAfor their supplies of products. They felt they would be exposed to unfair competition on thepart of SOLIMA. Also, the government at the time was not complying with all theprovisions of the legal framework, particularly concerning automatic price-cap adjustments,raising doubts about the reliability of the new rules.

19. After many problems and delays, MEM hired a consulting firm in November 1996 toassist with the three elements of this component: SOLIMA's restructuring, detaileddefinition of the free access system, and setting up of a regulatory agency. The contractincluded the option for the consultant to act as financial advisor for the privatization ofSOLIMA, against a success fee, should the government decide to divest. The consultants didan assessment of SOLIMA's situation and operations, and carried out an inventory of itsinstallations and an estimate of investment needs. By then, the government, under pressure

from the Bank within the framework of the first structural adjustment credit (SAC 1), hadalready agreed to privatize SOLIMA. The government asked the consultant to assist indefining a privatization strategy. The consultant prepared a strategy proposal that was thebasis for the privatization strategy eventually adopted by the government.

20. The consultant also produced a draft decree to create the regulatory agency thatshould oversee the sector. In February 1998, the government issued Decree 150/98, amodified version of the draft produced by the consultant, creating the Office Malgache desHydrocarbures (OMH). In October 1997, the Government informed the consultant that itwould not require its services for the privatization phase. In November 1997, the governmentand the Bank agreed that the technical assistance required for SOLIMA's privatization wouldbe financed from the Private Sector Development and Capacity Building Project(Cr. 2956-MAG), approved by the Board in May of that year. The Petroleum Project wouldconcentrate on finalizing the new sector legal framework.

21. In view of the decision to privatize, the government and the Bank agreed that acomplete revision of the legal framework should be carried out. In October 1998, aconsultant financed by the project completed a draft law and a set of complementaryregulations to be issued as decrees. The law, which incorporates all the basic principles thathad been introduced by Decree 565-95, was approved by the National Assembly in March1999.

Part B. Rehabilitation of the refinery

22. During project preparation, a consultant had shown the proposed rehabilitation tohave a payback period of less than three years. However, even before effectiveness, the Bankwas having doubts about the rehabilitation. So, when the new government also expresseddoubts at the beginning of 1994, the Bank proposed to seek a second opinion. In mid-1994, anew consultant, financed by a trust fund, found the rehabilitation to be a loss-makingproposition, and recommended converting the refinery into a storage depot. One factor thathelps explain the different conclusion was that, in the intervening years, the physicalcondition of the idling facilities, exposed to a corrosive saline atmosphere, had continued todeteriorate rendering cost estimates obsolete. Cyclone Geralda, which caused heavy damagesin February 1994, represented a final blow.

23. SOLIMA responded to the new recommendations by doing a study of its own, whichagain demonstrated the rehabilitation had a very high rate of return. With some help from theSAC 1 team, the Bank finally obtained in mid-1995 the government's official request tocancel Part B of the project. Draft amended credit and project agreements were prepared bythe Bank and sent to the government in December 1995. The agreements were approved bythe government in June 1996 and by the Board in October 1996. The amended agreementswere signed in January 1997, and became effective in October 1997, after ratification by theNational Assembly. US$13 million of the credit were cancelled.

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Part C. Storage and transport infrastructure

24. To assist with Parts C and D, SOLIMA recruited an engineering firm in December1995. Disbursements for works corresponding to Part C were subject to the establishment ofthe regulatory agency. One of the sub-components, the acquisition of 18 rail tankers did notinvolve works and could have gone ahead. SOLIMA prepared the necessary biddingdocuments, but these were never issued. The reason was that the railroad had sufferedextensive cyclone damages in early 1994, and its survival is still today far from assured.SOLIMA, assisted by the engineering firm, also carried out an assessment of rehabilitationneeds in a number of storage depots and prepared technical specifications and biddingdocuments for rehabilitation works, but the bid documents were not issued, because of thelack of progress on the institutional side and the related disbursement conditions.

25. The replacement of pipelines depended on the siting of Toamasina's new petroleumterminal under Part D. SOLIMA's engineer completed the design of shorter pipelinescorresponding to the new site proposed for the terminal, but this site could not be confirmedbefore credit closing. Improvement of unloading facilities at Manakara was discarded, afterpreliminary investigations showed that it would be very expensive and environmentallysensitive due to large coral barriers. The improvement of unloading facilities at Mahajangawas prepared together with the engineering for the Toamasina petroleum terminal underPart D. Engineering was not yet completed when the credit closed.

26. Nothing was done concerning the envisaged provision of software and technicalassistance for improving petroleum unloading operations, as well as product transport anddistribution. This was to be a complement to the construction of the new petroleum terminalsand rehabilitation of depots, which were never implemented.

Part D. Construction of a new maritime petroleum terminal at Toamasina

27. During project preparation, the PPF financed a feasibility study of the relocation ofToamasina's petroleum terminal. The consultant studied several sites, and selected onelocated within the protected harbor. The study included an assessment of environmentalimpact which stressed the reduction of risks with respect to the current location. However,shortly after the project was approved by the Board in mid 1993, at the urging of the AfricaRegion's Environmental Division, an individual expert was recruited to review the case.He concluded that the proposed site was unsuitable from the environmental and safetystandpoints. A new site, therefore, had to be found. The recruitment of a new engineeringconsultant was completed only at the end of 1995.

28. The consulting engineer studied possible new sites and prepared preliminary designsboth for Toamasina and for Mahajanga. The tentative Toamasina site was now facing therefinery, which would eliminate the need for long pipelines, and was in a less sensitive areafrom the environmental point of view, but it was on the other hand exposed to cyclones. Theproject financed a bathymetric survey of the sites, and an investigation of winds, waves, andsea-currents. Based on the latter, the consulting engineer completed in December 1998 a

simulation study which again raises doubts about the feasibility of the proposed site forToamasina due to the rougher sea conditions. So, the project could not finalize theengineering for the new terminals. After confirmation of the site, the project would havefinanced a geo-technical survey and an environmental impact assessment. The engineercompleted draft bidding documents including technical specifications, but the foundationdesign was not finalized, as it required the results of the geo-technical survey.

Part E. LPG promotion program

29. The project financed the procurement of 47,000 LPG bottles of three different sizes,which were immediately put in circulation when received in mid-1998. SOLIMA, assistedby the consulting engineer, began preparing specifications for gas storage installations to befinanced by the project. This work was interrupted after the government agreed to privatize.

IV. MAJOR FACTORS AFFECTING THE PROJECT

30. Three major factors affected project execution. First, the change of mind aboutrefinery rehabilitation. Second, the Bank's decision to press a reluctant government for fullprivatization of SOLIMA. Third, the many political changes the country went throughbetween 1989, the year the project was identified, and 1998, when the credit closed.

31. Even before credit effectiveness, the Bank came to the conclusion that therehabilitation of the refinery did not make sense. It managed to obtain, with some help fromSAC discussions, a Government request for the cancellation of this component. This changereduced the Government's interest in the project. Also, it required a new presentation to theBoard, and ratification by the National Assembly. The whole process took two years tocomplete and slowed down project activities from 1995 to 1997. Several extensions ofdeadlines were again necessary.

32. The design of the reform component had been extensively discussed within the Bankand with Malagasy authorities at the project preparation stage. The decision was to liberalizeand introduce competition, without necessarily privatizing SOLIMA, although privatizationwas kept as an option that might be exercised at a later unspecified date. There wereexamples, particularly in South America, of countries where public companies competedwith private companies.

33. However, by the time the credit became effective in 1994, the Bank was activelydiscussing adjustment support (SAC 1) for an economic liberalization agenda to achieveaccelerated growth in Madagascar. Also, a private sector assessment4 done in 1993-94, hadled to preparation of a "Private sector development and capacity building project". Thestrategy that emerged from this dialogue called for the Government to disengage fromproductive activities better left to the private sector. Because the petroleum project wasongoing, the Bank's macroeconomic and private sector teams saw it as a vehicle to

4 Report No. 14385-MAG, Madagascar New Horizons - Building a Strategy for Private-Sector,Export-Led Growth, A private Sector Assessment. May 31, 1995.

- 9 -

implement divestiture in the petroleum sector. A new sectoral team that had taken oversupervision of the petroleum project agreed, and this led to a change in the Bank's positionconcerning the future of SOLIMA. This change was reinforced by the fact that liberalizationwas not producing tangible results. The change of Bank position slowed down progress onthe reform component, because the government was reluctant to accept full privatization. Inthe meantime, disbursement conditions remained unfulfilled and blocked execution of theinfrastructure components.

34. There were many political changes in the country between 1989, the time of projectidentification, and 1998, when the credit closed. There were, in all eight different Ministersof Energy and Mines, and seven different Directors of Energy. SOLIMA's managementteam changed twice. These changes interfered with smooth project execution.

V. PROJECT SUSTAINABILITY

35. Sustainability of the project achievements in terms of legal reform is uncertain at thistime, because the process is still ongoing. The Bank, however, has offered to support thereform program during the first critical years after privatization. This would be done byincorporating a number of activities, as described below, into the ongoing Energy SectorDevelopment Project (Cr. 2844-MAG), which presently includes activities in the power andwoodfuels sub-sectors. With this support, petroleum sub-sector reform should besustainable, since privatization already brings about a radical transformation.

36. The following activities would be supported by the Energy Sector DevelopmentProject: (a) technical assistance and training for the OMH; (b) an environmental audit ofmajor petroleum installations to identify cleanup works; and (c) completion of engineeringdesign and environmental impact assessment for new maritime petroleum terminals atToamasina and Mahajanga. Assistance to the OMH will include support in the followingtasks: discussion with private operators of a contingency plan to deal with oil spills and otheraccidents; calculation of price caps for different products; adoption of technical standards;creation of an information system on hydrocarbons; managing of the licensing system; andcombating anti-competitive practices.

VI. BANK PERFORMANCE

37. Supervision was not very active between mid-1995 and mid-1997, while amendmentsto the credit and project agreements to cancel refinery rehabilitation were being processed.During this period, the dialogue on sector reform and privatization was carried out mostlywithin the framework of SAC and private sector development discussions, and resulted, asexplained before, in a change of the Bank's position concerning SOLIMA sometime in 1996.Once the Bank had obtained the Government's decision to include SOLIMA in the list ofenterprises to be privatized, decisive action was required to agree on a new and deeperrestructuring of the petroleum project. This was not done, maybe in part because of theembarrassment of launching a new restructuring when the previous one was still beingprocessed. The amendment to the credit agreement approved by the Board in October 1996

- 10-

was insufficient. A deeper revision of project design was needed, reflecting the decision toprivatize. The revision also should have extended the credit's closing date.

Vl. BORROWER PERFORMANCE

38. Government performance was very good in the initial creation of a legal basis toliberalize the sector, with the quick promulgation of Decree 565/95 and a large number ofcomplementary decrees following in rapid succession in 1995.

39. Borrower performance was negatively affected by political instability. The manygovernment changes in the period from project identification to credit closing were a majorcause of delays, first in fulfilling the conditions of credit effectiveness, then also on fulfillingthe conditions for effectiveness of the amendment to the Credit Agreement that eliminatedPart B, the rehabilitation of the refinery. Preparation of physical components alsoexperienced many delays as a result of the changes in SOLIMA's management as aconsequence of political changes. Slow preparation was also the result of awareness bySOLIMA that disbursement conditions would block execution anyway.

ViII. ASSESSMENT OF OUTCOME

40. The project outcome is unsatisfactory. Although the project left a draft new legalframework for a privatized sector, this was not the original aim of the project. The projectdid not achieve what it set out to do, but contributed to lay the foundations for deep andrealistic reform. The Bank de facto unilaterally changed the project's scope in terms ofreform and pressed the government for more radical transformations. Consultants financedby the project assisted in defining a strategy for privatization and in preparing thetransactions. In this sense, the project did contribute to opening and modernization in thedownstream petroleum sector.

IX. FUTURE OPERATION

41. The new legal framework will be tested soon, when the new private owners takepossession of petroleum installations. Support for the OMH will contribute to a proper rolein terms of surveillance and regulation. Future operation of physical facilities is notapplicable, as none were built.

X. KEY LESSONS LEARNED

42. The main lesson that can be learned from this experience is that the Bank should haveeither maintained the original objectives promoting the project with patience, or acted moredecisively to restructure the project once it changed its position on reform. Drawing the fullconsequences of the decision to privatize would have entailed the cancellation of infrastruc-ture components. The project could have instead supported investments for which publicfinancing was justified in support of the privatization process, for example, environmentalcleanup operations.

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PART II: STATISTICAL ANNEXES

Table 1: Summary of Assessments

A. Achievement of Objectives Substantial Partial Negligible Not applicable

Macro Policies l El ElSector Policies El El [JFinancial Objectives El I] 0E

Institutional Development F7 El 0 0

Physical Objectives l 0 E 0

Poverty Reduction l E E lGender Issues l El [l

Other Social Objectives n El ElEnvironmental Objectives n aI E EPublic Sector Management nl [l E FlPrivate Sector Development El E El1Other (specify) E E [ ]

(Continued)

B. Project Sustainabilit Likely Unlikely Uncertain

(1) (1) (/)

El Ela

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C. Bank Performance Satisfactory Satisfactory Deficient(1) (/) (1)

Identification a: x Preparation Assistance [ Ix]

Appraisal a [ 1

Supervision [ []

HighlyD. Borrower Performance Satisfactory Satisfactory Deficient

(v') (1) (1)

Preparation v ixiImplementation Cl E

Covenant Compliance E El

Operation (Not applicable) C El

Highly ~~~~~~~~~HighyE. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory unsatisfactory

(if) (if) (if) (if)

Ol al E

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Table 2: Related Bank Credits

Loan/credit title Purpose Year of approval Status

Preceding operations

1. Andekaleka To assist the Govermnent FY77 ClosedHydropower Project in constructing a dam, a(Cr. 817-MAG) power plant with two 29

MW generating units and a138 KV transmission lineto Antananarivo.

2. Petroleum To help the Government FY81 ClosedExploration establish the legal andPromotion Credit fiscal framework for(Cr. 101 6-MAG) petroleum promotion and

exploration.3. Tsimiroro Heavy To finance the exploration FY82 ClosedOil Exploration of Tsimiroro heavy oilProject field, and to promote a(Cr. 1298-MAG) second exploration

campaign.

4. Energy I Project To finance the FY87 Closed(Cr. 1787-MAG) rehabilitation of the power

system of JIRAMA and toprovide technicalassistance and training tothe Ministry of Energy onenergy planning andhousehold energy issues.

Following operations

1. Energy Sector To ensure adequate supply FY96 OngoingDevelopment Project of electricity and increase(Cr. 2844-MAG) access of peri-urban and

rural populations, toincrease economic andmanagement efficiency inthe power sub-sector, andto promote greater energyefficiency.

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Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual/Latest Estimate

Identification (FEPS) September 1989

Preparation October 1989 to May1991

Appraisal June 1991 June 1991

Negotiations May 1993 May 1993

Letter of Development Policy (if applicable) June 30, 1993

Board Presentation June 1992 July 29, 1993

Signing August 25, 1993

Effectiveness November 1993 September 20, 1994

Project Completion June 30, 1998 June 30, 1998

Credit Closing December 31, 1998 December 31, 1998

Table 4: Credit Disbursements: Cumulative Estimated and Actual(US$ millions)

__ - - -__.

FY94 FY95 FY96 FY97 FY98 FY99

Appraisal 2.5 11.6 25.0 37.5 47.6 51.9Estimate

Actual 0 1.19 1.56 2.01 2.90 4.64

Actual as % of 0 10.26 6.24 5.36 6.09 8.94Estimate

Date of Final May 21, 1999Disbursement

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Table 5: Key Indicators for Project ImplementationKey ImplementationIndicators in President's Estimated ActualReport

1. Appropriate pricing New legal frameworkpolicies. Adoption of introduces national price-measures for regional price caps applicable only withindifferentiation. 15 km of regional depots.

Open access system to key Included in new legalinfrastructure facilities framework.established.

Private sector owns and Privatization processoperates petroleum ongoing at time of creditdistribution stations. closing.

Refinery is separated from Separated on paper inSOLIMA and established as preparation for sale.a joint-stock company.

SOLIMA is restructured and Done in paper inseparate companies are preparation for sale.established as joint-stockcompanies.

Shares of the refinery and of Ongoing at time of creditother companies born out of closing.the restructuring ofSOLIMA are offered to theprivate sector.2. Days of availability of the 310 days per year. 330 days in 1998refinery (including the vis- (no vis-breaker).breaker):

Volume of Crude Oil 12,000 bpd. 10,500 bpd (1998).refined.

3. Reserves of refined Minimum of 1 week of 7 days average during 1998.products stored in consumption.Antananarivo.

LPG consumption. 1995: 3,400 tons. 4,370 tons in 1998.2000: 6,000 tons.

- 16-

Table 6: Studies Included in Project

Study Purpose Status Impact

1. Feasibility of Define refinery Done. None.refinery rehabilitation rehabilitation and showby KBC. economic justification.

2. Feasibility of Obtain a second opinion on Done. Showed rehabilitation was notrefinery rehabilitation refinery rehabilitation. economically feasible.by Cuneo Associati. Rehabilitation later cancelled.

3. Assistance for Restructure, strengthen Done. Defined privatization strategy.petroleum sector SOLIMA; create areform, by Price regulatory agency; define Defined organization andWaterhouse. free access system. functions of regulatory agency.

Produced draft rules for freeaccess system.

4. Feasibility of Propose a solution to Done. Recommended solution laterrelocating the petroleum replace inadequate existing discarded due to environmentalterminal at Toamasima terminal. impact.by BCEOM.

5. Engineering services Engineering for ports, Ongoing for Uncertain.by TECHNIP. storage rehabilitation. port

engineering.

6. Review and Adapt and complete legal Done. New law adopted by Nationalcompletion of legal framework in view of Assembly in March 1999.framework by HBC. decision to privatize Complementary regulations

SOLIMA. approved by Government.

L

- 17 -

Table 7A: Project Costs

Appraisal Estimate (US$M) Actual (US$M)(including physical and

price contingencies)

Local Foreign Total Local Foreign TotalItem Costs Costs Costs Costs

1. Liberalization and 0.40 5.4 5.8 N.A. 1.306 1.306Privafization

2. Infrastructure 2.8 35.0 37.8 0.456 2.142 2.598Improvements

3. Project Preparation - 2.6 2.6 0.950 1.192 2.142and Coordination

TOTAL COST 3.9 51.4 55.3 1.406 4.640 6.046

Table 7B: Project Financing

Appraisal Estimate (US$M) Actual (US$M)

Local Foreign Total Local Foreign TotalSource Costs Costs Costs Costs

IDA 0.5 51.4 51.9 N.A. 4.319 4.319

SOLIMA 1.8 - 1.8 1.406 1.406 -

Government 1.6 - 1.6

Private Sector 1.2 22.7 23.9(Phase II) IlI_I _ I _ _

1 .1 74.1 1 79.2 1 .

TOTAL J 5.1 j74.1 79.2__J 1.406 4.319 | 5.725

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Table 8: Status of Legal Covenants

Agreement Section Covenant Present Original Revised Description of Commentstype Status fulfillment fulfillment Covenant

date date l

DCA 3.01 (c) 3 C 8/17/84 The Borrower and SOLIMA to(i) enter a Subsidiary Loan

Agreement to: (A) re-lend toSOLIMA a portion of theproceeds of the Credit allocated toCategories (2)(a) & (b), (3) and(4) ; and (B) make available toSOLIMA, on a grant basis, theportion of the Credit allocated toCategory 2(c).

DCA 3.01 (c) 3 N.A. When SOLIMA subsidiary Not applicable after(ii) established, Loan Agreement to cancellation of Part B.

be amended with respect to theportion of the proceeds allocatedfor part B of the Project and to beassigned to SOLIMA Subsidiaryupon its legal establishment.

DCA 3.04 10 N.A. The Borrower shall take all steps Not applicable afternecessary to ensure that, upon cancellation of Part B.completion of Part 1B (a) of theProject, all assets and liabilitiesrelating thereto shall have beentransferred to SOLIMASubsidiary.

DCA 4.01 (b) 01 C Provide to the Association, as(ii) soon as available, but in any case

not later than six months after theend of each such year, a certifiedcopy of the report of such audit bysaid auditors, of such scope and insuch detail as the Associationshall have reasonably requested.

DCA 4.02 2 CP The Borrower shall: (a) not later A new pricing system will bethan November 30, 1993, and introduced by new legalthereafter not later than framework simultaneouslySeptember 30 of each year, until with privatization ofthe completion of the Project, SOLIMA.exchange views with theAssociation with regard topetroleum products prices andtaxes; and (b) establish andmaintain said prices and taxes,taking into account the results ofsuch exchange of views.

DCA 2.06 5 NA SOLIMA to ensure that, upon Not applicable aftercompletion of Part B (a) of the cancellation of Part B.Project, the facilities included inpart B (a) of the Project and allassets and liabilities relatingthereto shall have been transferredto SOLIMA Subsidiary.

- 19-

Table 8: Status of Legal Covenants (Page 2)

DCA 2.07 3 NA SOLIMA to enter into a Not applicable because ofconvention with SEPT (the privatization.SOLIMA-SEPT Convention), forthe purposes of defining themodalities of execution of worksand use by all distributors ofpetroleum products with respectto the petroleumloading/unloading facility atToamasina.

DCA 3.01 (b) 5 NA SOLIMA shall follow competitive No longer applicable in viewbidding procedures acceptable to of upcoming privatization.the Association in theprocurement of crude oil and shallfurnish the association, for itsreview, bidding documentsrelated thereto; in addition,SOLIMA shall furnish to theAssociation a copy of bidevaluation reports.

DCA 3.03 5 C SOLIMA to take out and maintainwith responsible insurers, or makeprovision satisfactory to theAssociation for, insurance againstsuch risks and in such amounts asshall be consistent withappropriate practice.

PA 4.01 (b) I C SOLIMA to have its Special(i) Account for each fiscal year

audited, in accordance withappropriate auditing principlesconsistently applied, byindependent auditors acceptableto the Association.

PA 4.01 (b) I NA SOLIMA to furnish to the(ii) Association as soon as available,

but in any case not later than sixmonths after the end of each year,(A) certified copies of its financialstatements for such year as soaudited, and (B) the report of suchaudit by said auditors.

PA 4.01 (d) I NA SOLIMA to cause SOLIMA Not applicable after(ii) Subsidiary to furnish to the cancellation of Part B.

Association as soon as possible,but in any case not later than sixmonths after the end of each suchyear, (A) certified copies of itsfinancial statements for such yearas so audited, and (B) the reportof such audit by said auditors.

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Table 8: Status of Legal Covenants (Page 3)

PA 4.02 (a) 2 C Except as the Association shallotherwise agree, SOLIMA andSOLIMA Subsidiary shall not,respectively, incur any debt unlessnet revenues are, for fiscal year1995, at least 1.0 times and,thereafter, 1.5 times the estimateddebt service requirements ofSOLIMA and SOLIMASubsidiary in such year.

PA 4.03 2 C Until the completion of the SOLIMA is in compliance.Project, SOLIMA and SOLIMA Covenant not applicable tcSubsidiary, respectively, shall not, "SOLIMA Subsidiary" incommit themselves to any new view of project restructuring.investment, (other than theinvestments agreed upon betweenSOLIMA, SOLIMA Subsidiaryand the Association) which wouldexceed the equivalent of twomillion dollars ($2,000,000).

Covenant types:

I. = Accounts/audits2. = Financial performance/revenue generation from 8. = Indigenous people

beneficiaries 9. = Monitoring, review, and reporting3. = Flow and utilization of project funds 10. = Project implementation not covered by categories 1-94. = Counterpart funding 11. = Sectoral or cross-sectoral budgetary or other resource5. = Management aspects of the project or executing allocation

agency 12. = Sectoral or cross-sectoral policy/6. = Environmental covenants regulatorylinstitutional action7. = Involuntary resettlement 13. = Other

Present Status:

C = covenant complied withCD = complied with after delayCP = complied with partiallyNC = not complied with

- 21 -

Table 9: Bank Resources: Staff Inputs

Stage of Planned Actual

Project Cycle Weeks USS Weeks US$(thousands) (thousands)

Preparation to Appraisal 28.90 49.80

Appraisal to Board 95.50 263.80

Negotiations through Board 4.80 12.80Approval

Supervision 110.00 288.56 63.70 329.81

Completion 8.00 14.75 10.00 26.39

TOTAL 118.00 303.31 202.90 682.60

- 22 -

Table 10: Bank Resources: Missions

Performance Rating

Number Specialized Implemen- Develop-Stage of Month/ Of Days in Staff Skills tation ment Types of

Project Cycle Year Persons Field Represented Status Objectives Problems

Through 4/90 2 15 E, PS _ _Appraisal 11/90 3 15 E, FA, ESAppraisalthrough Board 6/91 6 15 SE, FA,E E _ _Approval

Supervision 12/94 1 10 E U U PM

4/95 1 7 E U U PM

7/95 1 10 E U U PM

8/95 2 12 E, E U U PM

11/96 2 5 E, PE U U PM

7/97 1 14 E S S

10/97 2 8 PE, FA U U PM

6/98 2 27 PE, SE U U PM, P

10/98 2 10 PE, SE U U PM, P

Completion 4/99 1 7 PE U U PM, P

C = ConsultantPM = Project Management E = EconomistP = Procurement ES = Energy SpecialistS = Satisfactory FA = Financial AnalystIJ = Unsatisfactory PE = Principal Economist

PS = Petroleum SpecialistSE = Senior Economist

- 23 -

PART III: APPENDICES

A. AIDE MEMOIRE

(Mission de cl6ture du projet, du 20 au 30 avril 1999)

REPUBLIQUE DE MADAGASCAR

PROJET DE REFORME DU SECTEUR PETROLIER(Credit No. 2538-MAG)

1. Une mission de la Banque Mondiale composee de M. Angel Baide, Chef deProjet, a sejoumr a Madagascar du 19 au 30 avril 1999 pour faire conjointement avec leMinistere de 1'energie et des mines (MEM) et la SOLIMA une evaluation de la maniere dontle projet de Reforme du secteur petrolier a ete execute, et de la mesure dans laquelle le projeta atteint ses objectifs de d6veloppement. Pendant la mission, la Banque a distribue un projetde Rapport de ClOture pour examen par la partie malgache, et a recu des commentaires aucours d'une reunion a la fin de la mission. La Banque a egalement recu du Coordonnateur duprojet a la SOLIMA un premier jet du rapport d'evaluation du projet par l'Emprunteur, lequeldoit etre soumis a la Banque pour inclusion comme une annexe dans le Rapport de Cloturefinal. La mission tient a remercier le MEM et la SOLIMA pour leur collaboration.

2. Le projet avait pour objectifs: (a) d'ouvrir le secteur petrolier aval a laparticipation du secteur prive et de creer un cadre legal approprie pour un environnementconcurrentiel; (b) d'apporter un appui aux investissements d'infrastructure necessaires pouraccroitre l'efficacite des operations et pour attirer des operateurs et des investisseurs prives;et (c) de developper la capacite institutionnelle pour une regulation efficace du secteurpetrolier. Le Credit a ete cloture le 31 decembre 1998. Le montant initial du credit,approuve par le Conseil d'administration de la Banque mondiale le 29 juillet 1993, etait de36,7 millions de DTS, equivalent a 52 millions de dollars des 6tats unis. Un amendement desAccords de Credit et de Projet a ete approuve par la Banque mondiale le 18 octobre 1996,eliminant la rehabilitation de la raffinerie et annulant 9,4 millions de DTS du credit. Leprojet a decaisse au total seulement 3,3 millions de DTS, soit 9 pour cent du montant ducredit initial.

3. Le projet a partiellement atteint ses objectifs de reforme et de liberalisation dusecteur p6trolier aval, par 'elaboration des textes definissant le nouveau cadre legal etreglementaire, comprenant le d6cret de creation d'une agence de surveillance et de regulation,

- 24 -

et par la preparation d'une strategie de privatisation de la SOLIMA. Le Decret 150-98,creant l'Office Malgache des Hydrocarbures (OMH) a ete emis par le Gouvemement enfevrier 1998. La Loi portant reforme du secteur (Loi N° 99-010) a ete adoptee parI'Assemblee Nationale au mois de mars 1999, apres la cloture du credit. Le decretd'application de la Loi a ete adopte par le Conseil du Gouvernement en avril 1999(Decret N° 99-279). Pendant la mission, le Gouvernement a nomme le Directeur Gn&ral del'OMH, qui est actuellement en train de mettre en place son equipe technique. Laprivatisation de la SOLIMA est en cours, suivant, avec peu de modifications, la strategie debase elaboree dans le cadre du projet. (Le Conseiller Financier pour la privatisation, ainsique les autres services de consultants necessaires sont finances par le Projet d'AppuiTechnique au Developpement du Secteur Prive, Credit 2956 MAG.). L'objectif ded6velopper la capacite pour la surveillance et r6gulation du secteur n'a pu etre realise du faitdu retard pour la mise en place de I'OMH.

4. Le projet n'a pas r6alise non plus son objectif d'appui aux investissementsd'infrastructure, sauf pour l'achat de 47.000 bouteilles A gaz pour la distribution de GPL. Larehabilitation de la raffinerie a e eliminee moyennant l'amendement aux Accords de creditet de Projet approuve par la Banque mondiale en octobre 1996. Les autres composantesn'ont pu 8tre executees en cons6quence, d'une part, du retard considerable dans la mise enoeuvre de la composante reforme institutionnelle, et d'autre part, de la decision duGouvemement de privatiser la SOLIMA. En effet les decaissements pour les composantesinfrastructure 6taient conditionnes A I'avancement de la composante r6forme qui a souffertdes forts delais; et la decision de privatisation a enleve la justification du financement avecdes fonds publics d'installations destinees a etre cedees a des operateurs prives. Lacomposante reforme telle que presentee dans l'Accord de credit n'envisageait pas laprivatisation, mais la restructuration et le renforcement de la SOLIMA, en parallele avecl'ouverture du secteur a des op6rateurs prives.

5. Pour aider dans les discussions sur le projet, la SOLIMA avait prepare unechronologie detaillee des etapes du projet depuis la mission d'identification au debut de1989, jusqu'A la cloture du credit A la fin de 1998. Cette chronologie a ete tres utile pourl'analyse de la conception du projet et de son evolution. La mission a pu egalement consulterdans les archives de la Direction de realisation de projets de la SOLIMA les divers rapportsde consultants 6labor6s pendant l'etape de preparation du projet, ayant servi A la definitiondes composantes infrastructure, ainsi que les divers rapports et dossiers produits pendant laperiode d'ex6cution du projet.

6. Les principaux commentaires de nature generale de la partie malgache sur leprojet sont resumes ci-apres. La description detaillee des activites realisees dans le cadre dechacune des composantes se trouve dans les projets de rapport de cloture, tant de la Banquemondiale que de l'Emprunteur, discutes pendant la mission. La composante reforme asouffert du fait que l'on n'a pu s'accorder sur une strategie bien definie et voulue par toutesles parties. Le MEM a souligne A ce sujet l'impact des discontinuites dans les equipes deprojet, surtout du cote malgache, mais egalement du cote de la Banque mondiale, qui ontrendu difficile le maintien d'un accord clair et stable sur la definition du programme de

- 25 -

reforme. 11 y a eu, entre l'identification du projet en 1989 et l'approbation du projet par laBanque mondiale en juillet 1993, trois differents Ministres de 1'6nergie et des mines.L'approbation du projet par la Banque mondiale a coincide avec un changement degouvemement a Madagascar, ce qui a entrame des changements dans les equipes qui avaient6t6 impliquees dans la conception et preparation du projet. Le Chef de projet A la Banquemondiale a egalement change apres I'approbation du projet. Entre l'approbation du projet etla date de cloture du credit, cinq autres Ministres de l'energie et des mines se sont succedes ala tete du MEM.

7. Le MEM a insiste qu'il n'y avait pas eu une opposition systematique dugouvernement A la privatisation, mais que I'Accord de Credit prevoyait le renforcement etrestructuration prealables de la SOLIMA. La restructuration comprenait la filialisation paractivites, avec entre autres, l'objectif de separer l'activite raffinage pour eliminer lasubvention du processing par la distribution. C'est la Banque mondiale qui a propose, justeapres la mise en vigueur du credit, de passer directement a la privatisation. Ce changementd'approche a entrain6 beaucoup de retards. Le MEM a exprime l'opinion que le processusqui s'est ensuivi pour la privatisation de la SOLIMA a e domine par les equipes macro-dconomiques et de privatisation, et que les equipes sectorielles n'ont pas eu le tempsnecessaire pour mener une reflexion en profondeur sur la reforme du secteur.

8. Pour la SOLIMA, ce projet etait sa premiere experience de travail avec laBanque mondiale. La SOLIMA avec l'appui de l'Ingenieur Conseil finance par le projet, aprepare un bon nombre de dossiers d'appels d'offres pour la foumiture de matdriels et pourl'execution de travaux de rehabilitation et de construction de nouvelles installations. Cesdossiers n'ont pu etre utilises pour les raisons dejA exposees. La SOLIMA pense que lestermes de refdrence de l'Ingenieur Conseil ont et6 trop dtendus. La SOLIMA elle meme aprepar6 une bonne partie des specifications techniques utilisees par l'Ingenieur dans lesdossiers d'appels d'offres qu'il devait preparer. Les termes de reference auraient dui selimiter aux travaux specialises ne pouvant pas etre realises par la SOLIMA.

9. Le probleme important du remplacement du terminal petrolier de Toamasinareste encore A resoudre. Une etude de simulation complete par l'Ingenieur Conseil vers lafin du projet indique que le site en face de la raffinerie n'est pas utilisable du fait desconditions meteorologiques peu favorables. L'une des solutions alternatives proposees parl'Ingenieur est de construire les ouvrages dans un endroit mieux abrite, par exemple sur lesite qui avait e propose initialement pres du grand recif. Ce site avait ete rejete a cause desrisques pour 1'environnement marin. Cependant, ces risques seraient fortement reduits si laraffinerie venait A etre cl6turee suite A sa privatisation, de maniere que le terminal n'ait pasbesoin de manipuler du petrole brut.

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B. Borrower's Contribution

REPUBLIQUE DE MADAGASCAR

PROJET DE REtFORME DU SECTEUR PETROLIER(Credit No. 2538-MAG)

Rapport de fin d'execution

I. Introduction

1. Le present document constitue le rapport de fin d'execution du Projet deRPfornne du Secteur Petrolier dont l'Accord de Credit entre la Republique de Madagascar etl'Association Internationale de Developpement (IDA) d'une part et d'autre part I'Accord deProjet entre l'Association Internationale de Developpement et la Solitany Malagasy ont et6signes le 25 aofit 1993. Initialement, le montant du Credit s'est eleve a SDR 37.600.000,mais apres la remise en question de l'opportunite de la rehabilitation de la Raffinerie, leCredit a &6 ramene a. SDR 27.325.000 par l'Amendement en date du 30 janvier 1997. Cerapport a ete etabli conjointement par Madame RANAIVOSON Hanjasoa Suzie du Ministerede l'Energie et des Mines et de M. RATSIMIALA RAMONTA Manitrisa de la SOLIMA.

II. Rerospective

2. La politique petroliere du Gouvemement de Madagascar, est basee sur lesprincipes suivants: (i) la politique energetique est etablie dans le cadre global de la politiquemacro-economique du pays et met l'accent sur la necessite d'une economie ouverte oui laliberalisation de prix, la concurrence entre les acteurs du secteur prive joueront un r6leessentiel; (ii) etant donne les contraintes qui pesent sur les ressources publiques, le secteurprive aura un r6le determinant sur 1'ensemble du secteur petrolier; (iii) pour promouvoir]'efficacite dans l'allocation des ressources, les prix des produits petroliers refleteront leurcout economique; et (iv) une politique de prix et d'autres mesures seront necessaires pour lapromotion de l'efficacite, des 6conomies d'energie et de la protection de 1Penvironnement.

3. En accord avec cette politique sectorielle, le Gouvernement de Madagascar,represente par le Ministere de l'Energie et des Mines, conjointement avec la SolitanyMalagasy (SOLIMA), s'est propose d'executer un programme, avec I'appui de l'AssociationInternationale de Developpement (IDA), pour la restructuration et la privatisation du secteurpetrolier ainsi que la mise en place d'un environnement adequat pour la participation du

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secteur prive.

III. Objectifs du projet et description du projet

4. Les objectifs du Projet ont et6: (i) d'ouvrir le secteur petrolier a la participationdu secteur prive et de creer un cadre propice a un environnement concurrentiel; (ii) d'apporterun appui aux investissements d'infrastructure de base necessaires pour accroitre l'efficacitedes operations et attirer des exploitants et investissements prives; et(iii) de developper la capacite institutionnelle pour superviser et contr6ler le secteur petrolierde maniere efficace.

5. En vue d'atteindre lesdits objectifs, le Projet comprenait les Parties suivantes:

Parties A: Libiralisation etAppui a la Privatisation du Secteur Pitrolier

(a) Restructuration de la SOLIMA, par constitution de societes par actions et participationeventuelle du secteur prive a leur capital, la premiere etape etant l'etablissement de lafiliale de la SOLIMA pour la raffinerie de Toamasina, en tant qu'entit6 juridique distinctefonctionnant selon les regles commerciales pertinentes de l'Emprunteur.

(b) Mise en place et fonctionnement d'un systeme, dote de regles claires et transparentes,pernettant a tous les exploitants d'acceder aux infrastructures cles pour le chargement,l'entreposage et le transport des produits petroliers, et execution d'un programme deformation y afferent.

(c) Mise en place et fonctionnement d'un organisme national de supervision et de contr6lepour assurer le libre jeu de la concurrence et de bon fonctionnement du secteur petrolieret 1f6tablissement de normnes minima techniques, de securite et de protection del'environnement applicables a tous les exploitants, et execution d'un programme deformation y afferent.

Parties B: Raffinerie de la SOLIMA

(a) Execution de la premiere phase de la rehabilitation de la raffinerie de la SOLIMA par laremise en service du complexe de viscoreduction, la rehabilitation du systeme electriqueet l'amelioration de 1'efficacite et de la fiabilit6 globale de ses operations, y compris desprestations de service d'ingenierie.

(b) Appui a la filiale de la SOLIMA pour la gestion de ses operations.

Parties C: Infrastructure pour l'Entreposage et le Transport d'Hydrocarbures

Accroissement de 1'efficacit6 et de la fiabilite de I'approvisionnement en hydrocarbures aumoyen des operations suivantes:

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(a) Acquisition d'environ 18 wagons-citernes et autre petit materiel.

(b) Reparation des citernes de stockage existantes pour le petrole brut et les produitspetroliers a Toamasina.

(c) Remplacement des pipelines du port de Toamasina aux installations d'entreposage.

(d) Amelioration des installations de d6chargement des hydrocarbures, y compris laconstruction d'un ponton a Mahajanga et construction d'un pipeline a Manakara. Et

(e) Realisation d'etudes pour identifier des methodes plus rapides et plus sOres dedechargement des produits petroliers et acquisition de logiciels pour ameliorer laplanification du transport et de la distribution.

Partie D: Installation de Chargement I Dechargement du Peitrole ta Toamasina

Construction d'une installation de chargement / dechargement du petrole au port deToamasina, comprenant un duc d'albe d'amarrage et les pipelines y aff6rents.

Partie E: Programme de Promotion du Gaz de P6trole Liquefie (GPL)

Execution d'un programme de promotion pour la vente de gaz butane (GPL) comme sourceenergetique pour la cuisson des aliments en milieu urbain, y compris I'achat de bouteilles, laconstruction de capacite de stockage additionnel, la r6habilitation des usines de remplissageexistantes et I'acquisition d'equipement de transport.

IV. Execution du projet

6. La Direction de l'Energie (MEM) a ete chargee de l'administration del'ensemble du projet: a cette fin, et pour executer la partie A du projet, le Ministre del'Energie et des Mines a nomme un Coordonnateur, assiste par des Consultants.

7. Aux fins de l'execution des Parties B, C, D et E du projet, la SOLIMA aemploye a tout moment une equipe d'Experts, parmi le personnel de la SOLIMA, compos6ed'un Directeur de Projet, d'un Ingenieur Mecanicien et d'un Agent Comptable, assist6e par unConsultant en Ingenierie.

V. Evaluation de l'execution technique et financiere

8. La mise en vigueur du Credit initial a dte prononcee le 20 septembre 1994,apres l'annulation des conditions sur le recrutement du Consultant en Ing6nierie charged'assister la SOLIMA et l'etablissement des documents d'appels d'offres pour les marchesdes travaux vises a la partie B(a) du projet. Les Amendements aux Accords de Credit et deProjets, signes le 30 janvier 1997, ont e mis en vigueur le 7 octobre 1997, apres une

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demande de prorogation effectuee en juin 1997.

PARTIE A : LIBERALISATION ET APPUI A LA PRIVATISATION DU SECTEUR PETROLIER

9. L'appel d'offres relatif A la partie A du projet A savoir: la restructuration de laSOLIMA, la mise en place et fonctionnement d'un systeme dote de regles claires ettransparentes permettant A tous les operateurs d'acceder aux infrastructures cles et la mise enplace et fonctionnement d'un organisme national de supervision et de controle a ete lance enseptembre 1994 mais le seul soumissionnaire retenu a d6sist6 au moment de la n6gociation.

10. Etant donn6 l'engagement du Gouvemement de lib6raliser l'importation desproduits petroliers raffines avant la fin d'aouat 1995, une nouvelle consultation n'etait pluspossible plus particulierement pour la formulation d'un cadre legal et reglementaire. De cefait, un consultant individuel appuye par un membre du personnel de la Banque Mondiale encollaboration avec le Ministere de l'Energie et des Mines, la SOLIMA et le SecretariatTechnique de l'Ajustement ont elabore le Decret N° 95-565 portant liberalisation du marchepetrolier qui regroupe les principes de la politique sectorielle actuelle.

11. Le Cabinet Price Waterhouse a ete charge d'assister le Ministere de l'Energieet des Mines pour l'execution de la partie A du projet selon le contrat signe le 26 novembre1996 pour un montant de 6.410.000 FRF. Et ce, suite A la relance de la consultation enfevrier 1996.

12. Concernant la restructuration de la SOLIMA, l'objectif est de creer plusieurssocietes anonymes pour remplacer la Societe d'Etat existante. A cette epoque, il etait dejAprevu que les actions issues de la scission de la SOLIMA seraient vendues A des operateursprives. Mais suite A la decision de proceder immediatement a la privatisation des activit6sexercees par la SOLIMA, la restructuration proprement dite n'a pas pu etre execut6e.N6anmoins, les rapports produits par le Cabinet Price ont servi de base A l'elaboration duDossier d'Appel d'Offres sur la privatisation de la SOLIMA.

13. L'6tude sur la mise en place et fonctionnement d'un organe de supervision etde contr6le a abouti a I'adoption du Decret N° 98-150 portant cr6ation de l'Office Malgachedes Hydrocarbures.

14. Le cadre legal de base a et mis en vigueur depuis 1999, A savoir l'OrdonnanceN° 93/002 du 8 janvier 1993 et le Decret N° 95-565 du 29 aofit 1995 ayant liberalise lesecteur et defini les grandes lignes de sa nouvelle structure. Cependant, il a et constate quece cadre general a besoin d'etre complete par un nombre de textes reglementaires etcontractuels dont quelques un devaient etre disponibles prealablement A la privatisation. Enjuillet 1998, le Ministere de l'Energie a d6cide de recruter le Cabinet Houston Internationalpour faire un examen detaille du cadre legal existant afin d'identifier les eventuelscomplements ou modifications A apporter et pour rediger les textes necessaires. Le montantde ce contrat s'61&ve A 89.680 USD en devises et 12.069.728 FMG en monnaie locale.

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15. Une mission suppl6mentaire d'un montant de 70.520 USD et 8.229.360 FMGa e effectuee par le Cabinet Houston International et qui a pour objet de presenter le projetfinal du cadre legal et de lancer des travaux d'operationalisation de ce cadre. Les resultats deces etudes ont abouti a la promulgation de la Loi N° 99-010 du 17 avril 1999 regissant lesactivit6s du secteur petrolier aval et le Decret N° 99-279 du 21 Avril 1999 portant applicationde la loi.

PARTIE B: RAFFINERIE DE LA SOLIMA

16. Apres le passage du cyclone Geralda en fevrier 1994, la Raffinerie a etgravement endommagee, entrainant un arret de plus de six mois pour la reparation. Entretemps, une mission de Consultants (Cuneo), en juin 1994, a effectue une etude de rentabilitede la raffinerie, entrainant la remise en question de l'opportunite de la poursuite des travauxde rehabilitation et aboutissant a la restructuration du Credit par l'annulation d'un montant del'ordre de US$13.000.000.

PARTIE C : INFRASTRUCTURE POUR L'ENTREPOSAGE ET LE TRANSPORT DESHYDROCARBURES

17. Pour l'ex6cution des parties C, D et E, la SOLIMA a et assistee parTECHNIP (France) - Consultant en Ingenierie, selon le contrat conclu le 29 decembre 1995pour un montant de FRF 5.454.388 pour la partie en devises et de FMG 450.200.000 pour lapartie en monnaie locale. Compte tenu de l1'volution du projet, ce contrat a ete revise par unamendement en date du 6 novembre 1998 et les montants ont ete ramenes a FRF 3.370.234pour la partie en devises et FMG 45.000.000 pour la partie en monnaie locale. Le montanttotal des prestations et des depenses remboursables s'eleve a US$554.397,18 au 31 decembre1998.

18. Le dossier d'appel d'offres, prepare par l'equipe de la SOLIMA, a ete deja.tabli en decembre 1997 pour 1'acquisition d'environ 18 wagons-citernes, une composante de

cette partie, mais garde en instance au vu de la situation de la Societe Nationale de cheminde fer. De meme le dossier d'appel d'offres pour la reparation des citernes de stockageexistantes pour le petrole brut et les produits petroliers a Toamasina, etabli en juin 1998 par1'6quipe de la SOLIMA 6galement, n'a pas et6 lanc6 par suite de l'imminence de laprivatisation. Quant au remplacement des pipelines du port de Toamasina aux installationsd'entreposage, les etudes seront fonction du nouveau site choisi pour le terminal petrolier quidependra des resultats des etudes maritimes.

19. Concernant l'amelioration des installations de dechargement deshydrocarbures a Mahajanga, les etudes hydrographiques complementaires ont ete combin6esavec celles du terminal de Toamasina. Apres une mission effectu&e par 1'6quipeSOLIMA/TECHNIP a Manakara, il en est ressorti la decision de faire une etude approfondiepour trouver une solution adaptee aux problemes d'amarrage des tankers, ainsi que lesysteme de dechargement.

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20. II a ete prevu que la realisation d'etudes pour identifier des methodes plusrapides et plus sfires de dechargement des produits petroliers ne se fera qu'apres 1'adoptiondu site et du type d'ouvrages A construire dans les ports de Toamasina et Mahajanga, aussi ala cl6ture du projet aucune suite n'a e donnre, de meme pour 1' acquisition de logiciels pourameliorer la planification du transport et de la distribution.

PARTIE D: INSTALLATION DE CHARGEMENT / DECHARGEMENT DU PETROLE ATOAMASINA

ETUDES MARITIMES

21. Un certain nombre de sites ont ete envisages dans une etude faite par BCEOMen juillet 1992. Apres la mission sur site effectuee par I'equipe SOLIMA/TECHNIP en avri'1996, la solution retenue est la construction d'un ouvrage fixe dans la baie d'Ivondro situ6een face de la Raffinerie et en mer ouverte. L'endroit est facile d'acces et presente l'espacenecessaire A la manmuvre des petroliers ainsi qu'une hauteur d'eau largement suffisante.Cependant, des etudes compl6mentaires ont e necessaires pour confirmer les relevesbathymetriques indiques sur les cartes marines disponibles, determiner les donneesenvironnementales (vents, houles et courant) et effectuer une campagne de reconnaissancegeotechnique aux endroits prevus de la localisation des sites.

22. Pour chacune des series des campagnes de mesures (Bathymetriques,Meteorologiques et Geotechniques), TECHNIP a etabli les specifications detaillees desdonnees et informations requises ainsi que les dossiers d'appels d'offres. En juillet 1996,TECHNIP a lance les appels d'offres pour la campagne de mesures bathymetrique et lacampagne de determination des donnees environnementales, sans l'avis de non objection dela Banque mondiale, ni l'avis de SOLIMA, aupres d'entreprises et organismes reconnuscompetents et experimentes. Finalement, ces deux appels d'offres ont e relances en janvier1997 en suivant la procedure normale.

23. Le marche de la Campagne de mesures bathym6triques a ete attribu6 A laSociete CREOCEAN - France et signe le 8 octobre 1997 pour un montant de FRF 880.000.Les campagnes de mesures sur les sites de Toamasina et Mahajanga ont et effectuees endecembre 1997. Les resultats de ces mesures sont consignes dans le Rapport preliminaire,remis en fevrier 1998 A la SOLIMA et A TECHNIP, tandis que le Rapport final a ete recu enmars 1998. La Societe METEOMER- France a realise les Campagnes de Determination dedonnees environnementales sur les deux sites en mars / avril 1998 pour la periode d'ete et enjuillet / aofit 1998 pour la periode d'hiver, selon le contrat sign6 le 20 janvier 1998 pour unmontant de FRF 1.079.400. Le rapport final de ces campagnes a ete recu en octobre 1998.

24. Apres la reception des rapports sur les campagnes de mesures effectuees parCREOCEAN et METEOMER, TECHNIP a procede A l'analyse detaillee de I'amarrage despetroliers A Toamasina et Mahajanga. I1 en ressort que le terminal pr6vu A Mahajangapermettra de r6pondre aux besoins de la Region, alors que celui de Toamasina depasse leseuil de saturation. De ce fait, pour resoudre le probleme de saturation, TECHNIP a propose

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les recommandations suivantes: (a) separation des postes de chargement et de dechargement,A savoir la construction d'un poste en mer ouverte uniquement pour les grands navires, etamenagement d'un autre poste abrite pour les caboteurs; (b) construction de l'ouvrage telque prevu sur un site mieux abrite (pres du grand recif).

25. Entre temps, la SOLIMA a pr6pare le Dossier d'appels d'offres, avecI'assistance de TECHNIP, pour la Campagne de reconnaissance geotechnique. L'appeld'offres a ete lance le 3 aofit 1998 pour etre recu le 29 septembre 1998, mais par faute deconcurrence il a ete relanc6 le 16 novembre 1998. Comme la date de cl6ture du projet a etemaintenue au 31 decembre 1998, 1'evaluation des offres re,ue le 12 janvier 1999 n'a pas eterealisee. De meme, une demande de proposition pour l'dtablissement du dossier d'appelsd'offres pour la campagne d'6tude d'impact environnemental a et6 transmise a la Banquemondiale en aofit 1998.

ETUDES TECHNIQUES

26. Les bases de conception des structures marines, ainsi que celles des conduitessous-marines ont 6t6 e1aborees par TECHNIP. Apres 1'etablissement d'un avant projet, il nereste plus que la finalisation des specifications techniques des appontements et des divers6quipements, en integrant les resultats des etudes maritimes effectuees, en vue del1'tablissement du dossier d'appels d'offres pour la construction des ouvrages. Comme il aete prevu de faire une pres6lection pour le choix des entreprises de construction, l'appeld'offres a ete lance le 16 octobre 1998. Neuf (9) offres, re,ues le 16 decembre 1998, sonttoutes acceptables, toutefois une evaluation approfondie sera necessaire.

PARTIE E: PROGRAMME DE PROMOTION DU GAZ DE PETROLE LIQUEFIE

27. Concemant l'achat de bouteilles A gaz, A la suite de I'appel d'offres lance enjanvier 1997, les marches de fournitures ont ete attribues respectivement: (a) A M.G.International (France) - 10.000 bouteilles de 3 kg dont le cofit total, y compris les fraisfinanciers, est de US$117.628,85 pour un montant du marche de FRF 700.000;(b) A Services & Trading International (Belgique) - 35.000 bouteilles de 13 kg dont le cofittotal, y compris les frais financiers et les frais d'inspection, est de US$895.300,79 pour unmontant du marche de US$876.750; et (c) Ocean Trade C° (Madagascar) - 1.966 bouteillesde 39 kg dont le cofit total est de US$117.399,55 pour un montant du marche deUS$117.370,20. Ces bouteilles ont ete recues pendant les mois de juin etjuillet 1998.

28. Le dossier d'appels d'offres pour la construction de deux spheres de stockaged'une capacite de 500 tonnes chacune a ete dejA etabli et transmis A la Banque en avril 1998,ainsi que celui de l'acquisition de deux (2) camions citemes de 5 tonnes. Quant A larehabilitation des usines de remplissage existantes, les besoins en mat6riel et equipement ontete identifies et indiques dans le document des bases de conception du projet.

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VI. RECOMMANDATIONS / CONCLUSIONS

29. En reduisant les delais des differentes etapes dans la procedure de passation demarches des consultants, le recrutement du Consultant en Ingenierie devrait se faire auminimum en 90 jours. Comme l'etablissement des documents d'appels d'offres figurentparmi les taches du consultant, la realisation des deux conditions de mise en vigueursuivantes: (i) le recrutement du Consultant en Ingenierie, et (ii) l'etablissement desdocuments d'appels d'offres definitifs pour les marches de travaux vises a la partie B (a) duprojet sont pratiquement irrealisables dans le dMlai imparti. Ainsi a l'avenir, leGouvemement et la Banque devront s'entendre sur des conditions de mise en vigueur et dedecaissements plus coherentes, en tenant compte des realites locales et de la conjoncturepolitique et economique du pays, surtout dans un secteur oui l'execution du projet estetroitement liee a la situation macro-economique.

30. Au cours de l'execution du projet, il est a noter que le Consultant en ingenieriea fourni les specifications techniques en vue de l'etablissement des dossiers d'appels d'offresdes etudes et travaux de nature complexe (terminaux petroliers - spheres de stockage de gaz)ou de specificite particuliere (etudes maritimes), les documentations techniques des materielset l'assistance dans l'evaluation des offres des etudes maritimes. Toutefois, il existe destaches pour lesquelles la competence locale est satisfaisante et ne necessite pas l'assistance duconsultant. Aussi les termes de references pour le recrutement des consultants ne doiventcontenir que les taches complexes afin de ne pas trop augmenter la part des frais desconsultants dans l'ensemble du budget.

31. Lors des missions de suivi effectuees par la banque, les mesures a prendredevront etre conjointement prises par les deux parties pour que les recommandations puissent8tre suivies convenablement et appliquees selon un planning realisable.

MAP SECTION

IBRD 30305

42' AA 4'6' '48' 510

MADAGASCAR ANTSRNANA

PETROLEUM- PRODUCT DEOT GET 5501 1932ET 1,424 7,002Ph 1.054 1,889

DEPOT NSBEGO -1,961 49,996.

Producd Quantities, ex(pressed in tons for LPG NOSd. BE.it .112' and in m3 for other products, represent Gus 8 116 12'

storage capacities available ond output JET 1,429 12 27 ntsironanaquantities during 1 998. ET 1,589 5,213

PL 715 2,615 tVOHEMAR'Gas Gas GO 4,729 19,274 6 Prodoc CoPociY OowpotEA Essence Avia.-Gasoline, aviation I JET 80 422JET Jet Fuel ANTSAHAPANO Er 235 2,822ES Essence Super-Gasoline, super Prodoc soi'OdpP~ Ph 137 2,196ET Essence Tourisme-Gasoline,reua ET 119"l 1,"70p2' An~bil~

6GO 544 6,138

PL P6trole Lampont-Kerosene GO 90 221,368ro"GO Gas Oil-DieselGO 20321VhnoFO Fuel Oil

Notes': JT 5 114 *Depots in the Antonanarivo region are supplied ET 11 131cATCoAciAHAopo

mostly by road (private trucksl, 43 AJQ P 176 317 46ETOOP 25) 597*Voh6nor-clepot built in 1987, locaited 110k .P- 284- PL 388Bolno,

from Tomatave (Toamasina), JEIT 2,356 1,356 G 5 ,8*Fianarantsoa-dlepot is also supplied by rood, E ,5 ,7from Manakara. GO 10,6734 610,7

PL 100 629 ~ ~ ~ , A GO 1000 3,140'GO 967 5,182 Morslenobe5 623

22' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~Z

+ AIRPORTS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~s..MRATER

r nor~~~~~~~~~~~~ , IT 4

--- '--~~~~~- RAILROADSNTRA~T1.71q' r ctCooctyOtpt IaMooiag,,'o- 5

Tsl90s P 6 ,7 ET 78G ,60682 - (3*tnssv

PL 100 '6 GO I 100~~~~~~~~~~~~~~~~~~~~~~~JN 31999