Document of

The World Bank FILE COPYFOR OFFICIAL USE ONLY

Reert No. P-2871-EGT

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

EGYPTIAN GENERAL PETROLEUM CORPORATION

WITH THE GUARANTEE OF THE ARAB REPUBLIC OF EGYPT

FOR A

WESTERN DESERT EXPLORATION PROJECT

November 17, 1980

This document bs4 a restricted distribution and may be used by recipients only In the perforrmnce oftheir officil duties. Its contents may not otherwise he disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

l Egyptian Pound (LE) = US$1.4

1 US Dollar - LE 0.69

FISCAL YEAR

July 1 to June 30

LIST OF ABBREVIATIONS

Mcf - Thousand Cubic FeetMMcf - Million Cubic Feettcf - Trillion Cubic FeetARE - Arab Republic of EgyptEGPC - Egyptian General Petroleum CorporationGPC - General Petroleum CompanyPetrogas - Petroleum Gas CompanyGUPCO - Gulf of Suez Petroleum CompanyEDC - Egyptian Drilling CompanyLPG - Liquified Petroleum GasCNG - Compressed Natural GasAPI - American Petroleum Institute

FOR OFFICIAL USE ONLY

ARAB REPUBLIC OF EGYPT

Western Desert Exploration Project

Loan Summary

Borrower: Egyptian General Petroleum Corporation (EGPC)

Guarantor: Arab Republic of Egypt

Amount: $25 million

Terms: 20 years including 4 1/2 years of grace at 9.25% per annum.

Relending Terms: EGPC would onlend $23.5 million out of the proceeds of theloan to the General Petroleum Company for 20 years includ-ing 4 1/2 years of grace at 9.25% per annum.

Project The project would assist Egypt's exploration effortsDescription: in discovering oil and/or natural gas required to meet

rapidly increasing domestic demand. As part of theGulf of Suez project (Loan 1732 - EGT) the Bank financedan exploration study which analyzed petroleum prospectsin a 2,000 square kilometer area in the Western Desertadjoining the Abu Gharadig gas fields. Twenty-fiveprospects, eight highly promising, were identified.The proposed project comprises the following principalelements:

(i) Seismic surveys: reprocessing trials in selectedareas, shooting about 170 km lines on structuresto be drilled and shooting a regional grid ofabout 900 km lines;

(ii) Drilling: up to 9 exploration and appraisalwells, the actual split to be determined asdrilling progresses and data is analyzed;

(iii) Testing and data processing;

(iv) Technical assistance; and

(v) In addition, the project will include a componentto evaluate the feasibility of converting gasolineand subsequently diesel-powered automotive vehiclesto compressed natural gas (CNG), including a pilotscale conversion project.

Benefits and The proposed project could play a key role in developingRisks: petroleum (natural gas and possibly oil) resources for

Egypt. Based on present evidence, there are promisingprospects for finding commercial hydrocarbon deposits(most likely gas) in the project area. Technical andstatistical analysis of available geological, geophysical,and well data, predicts a potential recoverable gas reserveof 3.7 trillion cubic feet (tcf). However, even a smallcommercial discovery would prove worthwhile since the

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

- ii -

necessary infrastructure, including pipeline, alreadyexists. A gas discovery producing up to 120 Millioncubic feet per day (MMcfd) could be delivered to Cairowith marginal expenditure. Oil, if discovered, andcondensates could also be transported to El Hamra onthe Mediterranean Sea, through an existing pipeline.Although risk is inherent in any exploration drilling, theproposed project is judged to have a good chance ofsuccess. The use of compressed natural gas as a vehiclefuel has been proven elsewhere to be technically feasible.The purpose of the study and pilot project is to assessinvestment costs and public acceptance under Egyptianconditions. If successful, this would reduce demand forgasoline and diesel fuel, releasing these high valuehydrocarbons for exports. The compressed natural gasautomotive study and pilot project holds promise forupgrading the use of natural gas by substituting it forgasoline and diesel.

Cost Estimate: ---- (US$ Million) Local Foreign Total

Site preparation and water wells 0.7 2.2 2.9Drilling rig 2.3 10.0 12.3Materials and equipment 0.1 5.7 5.8Well services 2.6 3.7 6.3Seismic surveys 0.5 3.0 3.5Technical assistance - 1.2 1.2Basic cost estimate 6.2 25.8 32.0Physical contingency 0.6 3.4 4.0Price contingency 0.2 1.3 1.5Total estimated exploration cost 7.0 30.5 37.5Compressed natural gas pilotproject 1.0 1.5 2.5

Total estimated project cost 8.0 32.0 40.0

Financing Plan:

Bank Loan - 25.0 25.0Government/EGPC/GPC 8.0 7.0 15.0

8.0 32.0 40.0

EstimatedDisbursements: -- (US$ Million) --

Bank FY 81 82 83

Annual 8.0 12.0 5.0Cumulative 8.0 20.0 25.0

Rate of Return: Not applicable.

Appraisal Report: No separate report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THEINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORSON A PROPOSED LOAN TO THE

EGYPTIAN GENERAL PETROLEUM CORPORATIONFOR A WESTERN DESERT GAS EXPLORATION PROJECT

o 1. I submit the following report and recommendation on a proposedloan to the Egyptian General Petroleum Corporation (EGPC) with the guaranteeof the Arab Republic of Egypt for the equivalent of $25 million to helpfinance part of the foreign exchange cost of the Western Desert Gas Explora-tion Project. The loan would have a term of 20 years, including 4-1/2 yearsgrace, with interest at 9.25 percent per annum. EGPC would onlend $23.5million out of the proceeds of the loan to the General Petroleum Company(GPC) on the same terms and conditions as those of the loan and make up to$1.5 million available to the Petroleum Gas Company (Petrogas).

PART I - THE ECONOMY 1/

2. A report on "Recent Economic Developments and External CapitalRequirements" (see M79-839) was distributed to the Executive Directors onNovember 28, 1979. A special economic mission subsequently visited Egyptduring March/April 1980. The findings of the mission are incorporatedin the following discussion. Country data sheets reflecting the recentlyupdated and revised national accounts are attached.

The "Open-Door" Strategy

3. After more than a decade of inward-looking and centralist economicpolicies, economic trends in Egypt have been influenced strongly sincethe mid-1970's by the "open-door" strategy enunciated by President Sadatin October 1973 and approved in a national referendum in May 1974. Thedeclared aim of this strategy has been to accelerate economic developmentthrough the adoption of more outward-looking policies and greater emphasison the role of private investment. Specifically, the strategy envisages(i) a gradual dismantling of government regulations and restrictions onprivate economic activity; (ii) greater decentralization of decision-makingin state-owned enterprises; (iii) the attraction on foreign capital; and(iv) expanded economic cooperation with other countries. Substantial inflowsof external assistance are considered essential to support the strategy.

1/ Part I is substantially unchanged from Part I of the recent President-sReport for the Third Education Project, (P-2897-EGT) approved by theExecutive Directors on October 7, 1980.

-2-

4s. To implement the "open-door strategy" the Government has taken anumber of specific policy actions. Among the more important ones were thegradual devaluation of the Egyptian pound, and the concurrent liberaliza-tion of foreign exchange regulations. Starting in 1973 when the parallelmarket rate was introduced, Egypt's currency has been effectively devaluedby 44 percent from US$2.56 to US$1.43 per pound at present. Exchangerestrictions were eased, specific import allocations were replaced bygeneral import quotas, and more foreign exchange was made available toboth the public and private sector. A new investment law (1974, amendedin 1977) offered attractive incentives to foreign firms. Trade agreements,especially with the EEC, opened new markets for export products; at thesame time, bilateral trade with COMECON countries was much reduced. A debtmanagement unit, which was established in the Central Bank, became opera-tive in mid-1978.

5. In accordance with the objective of greater decentralization, theautonomy of public enterprises has been somewhat strengthened, especiallyby a new law issued in 1978 which grants greater flexibility to individualenterprises in (i) setting up organizational structures; (ii) introducingmaterial incentives; (iii) establishing productivity related wage scales;(iv) adjusting the work force to production requirements; and (v) undertak-ing some investments from their own resources. Interest rates have beenraised several times and now stand at 11 to 13 percent for lending (to thenon-government sector) and 6 to 9 percent for term deposits. Provincialauthority to undertake regional development programs has also been ex-panded. Central bureaucratic control remains strong, however, over mostinvestment and pricing decisions. Effective decentralization can only beachieved within the framework of a relative price system reflecting eco-nomic costs of production. The slow pace of price reform constitutes amajor obstacle to greater decentralization.

Impact of the "Open-Door" Strategy

6. The open-door strategy and subsequent policy actions, combinedwith a favorable external environment and the growth of domestic petroleumproduction, have yielded impressive results. Above all, they have led toa rapid increase in Egypt's foreign exchange earnings which rose from $1.4billion in 1973 to $6.7 billion in 1979. During this period, oil exports,workers' remittances, the Suez Canal and tourism emerged as major newsources of foreign exchange. This was accompanied by a major shift ofagricultural and industrial exports from COMECON countries to the hardcurrency area. In addition, the Government managed to attract largeamounts of foreign assistance. Gross inflows of medium and long-termcapital averaged 3.3 billion per annum during 1975-79, compared with anaverage of only $0.6 billion during 1967-72. The bulk of these aid flowscame from Arab and western donors and were provided at highly concessionalterms.

7. Increased foreign exchange earnings and foreign aid inflows haveresulted in a consolidation of Egypt's external debt and have strengthenedthe country's creditworthiness. While short-term credits owed by the

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Government to commercial banks peaked at $1.4 billion at the end of 1976,they were reduced to $443 million at the end of 1978, largely with the helpof long-term loans granted by the Gulf Organization for the Development ofEgypt (GODE). During the same period substantial arrears in debt payments,which had built up in previous years, were cleared. These changes havesolved the pressing liquidity problems that threatened Egypt's financialposition in 1975 and 1976. Favorable terms of new borrowings have alsoeased the burden of the country's medium and long-term debt. AlthoughEgypt's total medium and long-term public debt increased sharply duringrecent years--from $2.1 billion at the end of 1973 to an estimated $11.0billion at the end of 1979--the debt service ratio declined from 33 percentto about 20 percent during the same period. This reflects not only morefavorable credit terms--i.e., lower interest rates and longer maturities--but also the rapid increase in foreign exchange earnings.

8. The increased availability of foreign exchange from Egypt's ownexports of goods and seryices and from external assistance has allowed muchhigher levels of imports. This in turn paved the way for a rapid increaseof investment, larger domestic consumption, and a better utilization ofexisting production capacities. Imports of goods and services (excludinginterest payments) rose from about $2.0 billion in 1973 to $7.9 billion in1979; imports of capital goods increased at an even faster rate. Increasedavailability of foreign exchange enabled greater imports of raw materials,intermediate goods--including fertilizer and pesticides--and spare parts,thus breaking crucial bottlenecks that had constrained local production.Together with investments in new capacities and the vigorous expansion ofservices such as trade, tourism and shipping, these developments sharplyaccelerated the rate of economic growth.

9. The Ministry of Planning estimates that GDP at constant pricesrose at an average rate of close to eight percent per annum during 1974-1979.Much of the growth was concentrated in petroleum, construction, manufactur-ing, transport and public utilities. Agricultural production increased slowly(about 1.5 percent per annum). The growth rate of GNP was even higher, about8.6 percent per annum, because of the massive growth in workers' remittancesfrom $189 million in 1974 to $2.1 billion in 1979. The higher level ofeconomic activity together with large-scale labor migration to neighboring oilexporting countries has absorbed much of the excess labor force that existedin the early 1970's. In fact, labor shortages have occurred in a number ofoccupations, especially in the construction sector.

10. Egypt's investment rate (investment/GNP) increased from about18 percent in 1974 to about 30 percent on average in the 1976-79 period.This increase was made possible by the substantial contribution of foreignsavings as well as the rapid growth in national savings. The latterincreased from seven percent of GNP in 1974 to more than 19 percent in 1979,largely reflecting the rise in remittance income. The domestic savingsrate, however, while showing some growth since 1974, financed less thana quarter of investment in the 1974-79 period. A major cause for thisinadequate level of domestic savings was the continuously low and often

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negative savings generated by the consolidated government budget. During1974-79, the current budget showed a small surplus in only two out of sixyears. This was the result of high defense and security expenditures,large consumer subsidies, fast growing interest payments and low financialrates of return generated by public enterprises excluding the Suez CanalAuthority and the Petroleum Corporation. The result has been a continuousshortage of domestic savings which has slowed down the implementation ofinvestment projects and led to inflationary financing practices in thepublic sector.

Recent Economic Developments

11. The last two years mark the emergence of the petroleum sector asthe dominant sector in the Egyptian economy. Production of crude oil isat present averaging close to 550,000 barrels a day. After the 1979 roundof increases in the world price of oil, Egyptian oil exports doubled invalue. In 1980 export revenues from crude petroleum and refined productswill be close to $2.5 billion compared to $800 million in 1978. The shareof the petroleum sector in GDP has risen from less than three percent in theearly 1970's to eight percent in 1978 and is estimated at 22 percent in 1980.Moreover, profit transfers and other taxes from the petroleum sector willprovide an estimated 30 percent of government revenue in 1980. It must bestressed, however, that present production levels reflect very high produc-tion to reserve ratios and that maintenance of these production levels afterthe mid-1980's would require more new discoveries. Domestic consumption isgrowing very rapidly so that the size of the exportable surplus may be diffi-cult to maintain. It is hoped that recently discovered national gas fieldsprove to be large enough and can be developed rapidly enough to releasesufficient quantities of petroleum for export. It is also very important thatefforts to increase production of energy are complemented by measures designedto achieve more efficient domestic use of energy. In this context moreappropriate energy pricing is of crucial importance. Bank financed studieson petroleum product pricing and natural gas use are currently underway andshould form the basis for a comprehensive reform of energy use and pricingpolicies.

12. Reflecting the sharp increase in petroleum revenues and also thehigher tariffs for Suez Canal traffic, Egypt's foreign exchange earningscontinued to grow rapidly in 1979 and 1980. At $1.5 billion, the currentaccount deficit in 1979 was lower in relation to GDP (8.7 percent) thanin any year since 1973. Medium and long-term capital inflows declinedsomewhat when compared to the level realized in 1978 ($3.1 billion comparedto $3.4 billion) reflecting the cessation of cash inflows from GODE ($500million in 1978) and a drastic decline in bilateral disbursements from Arabsources (about $70 million in 1979 compared to about $300 million in 1978).This reduction was partly compensated for by a significant increase indirect foreign investment ($710 million in 1979 compared to $439 million in1978) and an increase in non-Arab bilateral and multilateral aid flows.

5

As a result, the basic balance (current account plus net MLT capital flows)showed a surplus ($598 million) and there has been a significant increase inthe level of foreign exchange reserves. Preliminary estimates for 1980indicate another surplus year for the basic balance, with petroleum revenuesat about $2.5 billion, Suez Canal earnings close to $850 million and gross MLTcapital flows reaching $3.7 billion, significantly higher than in 1979.

13. Reforms in exchange rate and investment incentive policies have con-tributed significantly to the recent improvements in the balance of payments.The current account and the trade balance remain weak, however, and in themid-1980's Egypt will have to deal with substantial debt-service payments.Longer-term prospects depend on Egypt's ability to improve her trade balance.In the absence of major new petroleum discoveries, this will require moreefficient use of domestic energy resources, growth in manufactured exports anda moderation in import growth. Continued care must be taken, therefore, tokeep incentives appropriate and to choose investment projects taking accountof their long-term impact on the balance of payments.

14. The domestic fiscal situation and the inflationary pressures it hasgenerated remain an area of major concern. After 1978, inflation, reaching 20percent for the first time in decades, has created considerable social tension.In the summer of 1980 a major reorganization of the government was announcedby President Sadat, including wide ranging economic measures to redress adeteriorating social climate. Most of these measures mark a pause in theprocess of liberalization and rationalization of the price system. The pricesof some commodities and services supplied by the public sector have actuallybeen reduced, subsidies have been increased and there has been an across theboard increase in wages and salaries. Import duties have been lowered on awide range of producer and consumer goods. The recent increases in the fiscalcontribution of the petroleum sector as well as increased revenues from theenlarged Suez Canal, may momentarily balance these increased subsidies andpublic expenditures. But the underlying public sector resource equilibriumremains precarious. A better system for targeting subsidies and a sweepingrationalization of public sector pricing policies are preconditions for anylong-term improvement in the fiscal situation. Moreover, without such animprovement, it will not be possible to control inflationary pressures andresulting social problems. Recognizing the challenge posed by future trends,the government has announced plans for tax reform and a reform of publicsector financing practices. A new National Investment Bank is to superviseand finance all public sector investment projects with the objective ofeconomizing resources and speeding up the implementation of projects. It hasalso been announced that a new expenditure tax will attempt to compensate forthe very low level of revenues from direct income taxes.

- 6-

Development Potential and Constraints

15. Egypt has considerable potential for continued rapid development.The reasons for this are, in brief: a large domestic market, a relativelyskilled and literate population, an agricultural resource base not yetfully developed, varied raw materials (including oil and gas), and a keygeographical location. Future economic growth may come less easily, how-ever, than during the past years. The gradual need to substitute domesticfor foreign savings will become more pressing as net foreign contributionsdecline in relation to GNP. Capacities are now strained in a number ofsectors, including infrastructure. The expansion of new capacities hasbeen slowed down by administrative inefficiency, inadequate fiscal resourcesand weakness in national coordination and sector programming. Managerialeffectiveness in public enterprises and financial incentives for productionare often inadequate. Higher levels of economic activity together with laboremigration have led to shortages in critical professional and technicalskills. Educational facilities in Egypt still reflect a non-technical biasand their quality needs to be upgraded.

16. Another key issue is population. Already very large for Egypt'slimited living space--about 41 million in 1979 with an average densityexceeding 1,300 per square kilometer of agricultural land--the populationhas grown at a rate of about 2.5 percent per annum in the 1970's, addingalmost one million people every year. Moreover, almost half of this increaseis concentrated in the greater Cairo area alone. This continues to creategreat pressures on resources for consumption and investment and aggravatesthe employment problem in the longer run. In the past years the Governmenthas made a new commitment to direct action on population matters. While ithas already initiated a more aggressive program (e.g., by introducing anintensified home visiting program under the second IDA financed populationproject), it will take considerable time to achieve measurable results infertility reduction.

17. A serious side effect of recent inflation appears to have beena deterioration in the relative distribution of income and a growing dis-parity in consumption levels. Although inequality and the incidence ofabsolute poverty is no worse in Egypt than in most economies at similarincome levels, continued inflation and lack of progress in more effectivetaxation of high income groups could lead to serious social problems.

18. To maintain the momentum of development and to meet the challengesof the future, major efforts are required to overcome the structural con-straints cited above. Specifically, action is needed to (i) increase theefficiency of government administration through organization and proceduralmodifications and selective changes in salary structures; (ii) increasereal domestic savings through an effective mobilization of domesticresources and fiscal reform; (iii) pursue a vigorous and balanced programto upgrade the country's physical infrastructure; (iv) adopt urban andrural strategies aimed at decentralizing urban growth and economic oppor-tunities; (v) develop a coordinated export promotion policy and finally

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(vi) strengthen the general use of prices as meaningful indicators ofrelative scarcitles. There is an ongoing dialogue on all these importantissues between the Egyptian authorities and the Bank. They have also beenthe focus of discussions among the members of the Consultative Group forEgypt.

External Debt and Creditworthiness

19. Egypt's non-military medium and long-term public debt outstandingand disbursed as of December 31, 1979 was estimated at about $11.2 billion.Bilateral loans comprised about 6.9 billion or about 62 percent of the debtoutstanding while the shares of multilateral credit and suppliers' creditwere about 23.0 and 9 percent respectively, with the remainder being heldby financial institutions. Major creditors were the GODE and USA, followedby Saudi Arabia, Kuwait, and the Federal Republic of Germany. IBRD/IDA debtcomprised about 5 percent of the total disbursed debt. Debt service onmedium and long-term debt was estimated at $1.3 billion in 1979 giving adebt service ratio of about 20 percent.

20. If progress towards overcoming structural constraints can beachieved and the country's foreign exchange earning potential realized, thedeficit on the current account can be kept at about 12 percent of GDP onaverage. The required capital Inflows are large--but If they continue tobe available on concessional terms, Egypt would have the debt servicingcapacity to borrow the amounts envisaged, including a limited amount onharder terms. The burden of servicing medium and long-term debt as apercentage of total foreign exchange earnings is estimated to fluctuatebetween 20 and 25 percent over the next 5 years.

PART II - BANK GROUP OPERATIONS IN EGYPT I/

21. The proposed loan would be the World Bank's fifty-third lendingoperation. It would bring Bank and IDA commitments made since 1970 to$1916.5 million. Through these operations, the Bank Group has assisted inthe development of the agriculture, industry, power and energy, population,transportation, telecommunications, tourism, urban and education sectors.Annex II contains a Summary of Bank loans and IDA credits as of September 30,1980 and notes on the execution of ongoing projects.

22. The Bank has tailored its response to Egypt's basic structuralproblems in a very broad fashion and In close cooperation with otherdonors. Its strategy involves entry into the spectrum of sectors inorder to provide not only direct finance with its relatively limited

1/ This section is substantially unchanged from the corresponding part ofthe President's Report for the Third Education Project (P-2897-EGT),approved by the Executive Directors on October 7, 1980.

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resources but, equally, to act as a catalyst for other bilateral and multi-lateral agencies, and as a spur for initiating discussion and positive actiononi a coherent framework of policies and investment proposals which can tacklethe substantive issues. The approach also includes delivery of technicalassistance not only for adequate implementation of specific investment programsbut for developing the domestic institutional capability to articulate andimplement future policies and investment programs. The Bank's deliberatelybroad multisectoral intervention has been differentiated by sectors andtailored to the pace at which the Egyptian authorities can reasonably beexpected to address these issues and implement the programs.

23. Industry, which has been over the past five years the sectorreceiving the largest portion of Bank resources and significant attention,illustrates the nature and scope of the Bank's intervention. The Govern-ment looks upon rapid industrialization as a means to stimulate growth ofthe economy, create productive employment, cater to basic consumer needs,and generate an "export surplus". However, this sector is beset by complexproblems which stem largely from the rigidity of centralized control andlack of management autonomy, distorted pricing, and the lack of incentivesfor more efficient production. Efforts under Bank-financed projects havegone beyond tbe immediate objective of improving capacity utilization(Imports loans and credits Nos. Cr. 524, Ln. 1062 and Ln. 1456) and in-creasing production capacity and supply of essential commodities inresource-based industries (cotton ginning, textiles, cement and fertilizerprojects). The more fundamental effort has been directed at introducingpolicy and structural improvements. Towards this end, the Bank is assist-ing the Government in reviewing the planning apparatus and strengtheningsectoral planning and project preparation and implementation capabilitieswith the objective of formulating an industrial strategy and plan for the1980's. It has also financed six subsector studies in textiles, buildingmaterials, pulp and paper, food processing, metallurgy, and engineeringindustries, in order to assist the Government in formulating a package ofpolicy and investment proposals, which are also embodied in our projects.Two subsectors, textiles and steel, are planned for further study with aview to developing specific recommendations about some of the major issuesfacing public enterprises in Egypt, such as those relating to employment,wages, prices, profit retention and the relationship to the privatesector. To complement these efforts the Bank has also carried out a studyon small-scale industries which we hope would form a basis for joint Bank/Egyptian efforts in this area. Finally, the Bank is assisting the Governmentin a comprehensive study of the construction/contracting industry, whichis one of the major bottlenecks facing Egyptian industry today, as well as ininitiating studies to develop a brick master plan and cement distributionmaster plan.

24. The illustrative sketch provided above of the scope and breadth ofthe Bank-s intervention in one sector is representative of the multifacetedapproach that it has adopted in varying degrees in the entire spectrum of theEgyptian economy. It is a role that is in harmony not only with the EgyptianGovernment's wishes but is welcomed by the various bilateral and multilateraldonors as an appropriate function for the Bank as the Chairman of the Consul-tative Group. Preparation of projects for future lending follows this strategy,

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and the pipeline includes projects in education, power, gas development, rural

and urban development, population and nutrition, transportation, water supply,

agriculture (including drainage), development finance and industry.

25. Bank Group disbursements in 1979 represent about 8 percent of

Egypt's medium and long-term capital inflow. The Bank and IDA shares of

total external debt outstanding and disbursed were about 2.1 percent and 2.9

percent, respectively, as of December 31, 1979. For the future, the Bank and

IDA shares of total external debt outstanding and disbursed (excluding military

debts) are estimated to reach about 5.5 and 3.5 percent respectively in 1981.

It is estimated that in 1981, debt service payments due to the Bank and IDA

will represent about 2.3 percent and 0.2 percent, respectively, of service

payments due on Egypt's external debt.

26. IFC participation and lending for projects in Egypt now total about

$69 million and include: a ceramics project (approved in 1976); a ready-made

garment project (1977); a project for an agricultural complex primarily for

sugar beet (1978); a poultry project (1978); a fish farming project (1979);

and a building materials project (1980). IFC is discussing several other

private sector and joint venture projects.

PART III - OIL AND GAS SECTOR

Introduction

27. Egypt½s energy outlook has continuously improved over the last

decade. With the commissioning of the Aswan High Dam, Egypt developed its

largest hydroelectric resource. Increases in oil production have made Egypt

first self-sufficient and, more recently, an exporter of oil. In 1980, petro-

leum exports are expected to account for 60 percent of its foreign trade

receipts. Gas finds have further strengthened the energy base and increased

export possibilities of oil. These positive developments notwithstanding, the

medium and long term outlook is not as clear. Much of Egypt-s current economic

and industrial planning is predicated upon ample and continued availability of

low cost energy and a significant increase in oil exports. However, it is not

certain that this will necessarily come about. A fast growing domestic demand

for oil stimulated by prices well below the international level, declining

production from some of Egypt's existing major oil fields, the need for

increased efforts in exploration and in developing oil and natural gas, are

the areas of principal concern.

Resource Endowment

28. The main sources of primary commercial energy in Egypt are hydro

power and petroleum. Coal deposits have been discovered in the WesternDesert and Sinai peninsula, and are estimated at around 100 million tons. A

pre-feasibility study for a coal-fired power plant in Sinai is presently under

preparation. As in other developing economies, non-commercial fuels in the

form of crop residues and animal waste are in extensive use and are estimated

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to represent about one quarter of the energy used. Hydro power for Egypt isan important source and in 1978 accounted for 17 percent of primary commercialenergy. By equipping the Aswan Dam with turbine generators having a totalcapacity of 345 MW, the first step was taken in 1960 to tap the hydro powerpotential of the river Nile. With the completion of the Aswan High Dam in1970, having an installed capacity of 2100 MW, 80 percent of the Nile's hydropower potential has been harnessed. Under Credit 1052-EGT and Loan No.1886-EGT, the Bank is financing the installation of four turbine generatorswhich would increase the generating capacity of the old Aswan Dam by 270 MW.The remaining 60 meter drop between Aswan and Cairo and the mini-hydro sitesalong irrigated canals connected to the Nile represent a generating potentialof 460 MW which, subject to the establishment of economic viability, could beexploited.

Oil and Gas

29. Hydrocarbons are a major source of commercial energy in Egypt and onaccount of limited hydro potential, are likely to be relied upon increasinglyfor meeting Egypt-s incremental demand for energy. Although the first oil wellin Egypt was drilled in 1886, oil exploration was not taken up on a systematicbasis until the turn of the century. Commercial production commenced in 1913,but it was only after 1968 that oil production exceeded 10 million tons. Thecurrent production level is around 550,000 barrels a day (27.5 million tonsper annum) of which about 25 percent represents the share of foreign partners,45 percent is consumed domestically and the balance is exported. Recoverablereserves are estimated at around 2.5 billion barrels (350 million tons).

30. Besides oil, Egypt has significant gas resources in both associatedand non-associated form. Most of the associated gas comes from the oil fieldsin the Gulf of Suez. Recent oil discoveries have added further to the avail-ability of gas and the recoverable reserves of associated gas are currentlyestimated at 1.2 1/ trillion cubic feet (tcf). The Bank, through Loan 1732-EGT,is financing a project which will gather, process, and transport this gas toSuez and Cairo. In addition, non-associated gas in commercial quantitieshas been discovered at Abu Gharadig, Abu Madi, Abu Qir, Abu Qir North, and theAmal fields 2/, and the recoverable reserves are estimated at 4.9 tcf. Thus,Egypt-s currently known gas reserves (associated and non-associated) areestimated at about 6 tcf, equivalent to 150 million tons of oil, i.e., almosthalf of Egypt's presently-established recoverable oil reserves. Estimates ofreserves, level of production and anticipated production, in respect of eachfield, on full development is indicated below:

1/ One trillion cubic feet of gas, in terms of thermal value, is equivalentto 24 million tons of oil.

2/ See map IBRD No. 15212.

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Recoverable ------- In MMcf/d ------------------Reserves Actual Estimated Projected

Area (Trillion cft) 1977 1978 1979 1980 1985

Associated Gas

Gulf of Suez 1.2 Flared Flared Flared Flared 80 1/

Non-Associated Gas

Abu Madi 1.0 16 19 30 50 110Abu Gharadig 0.6 32 55 60 100 100Abu Qir 1.8 - - 22 55 200 3/Abu Qir North 1.0 - - - Under delineationAmal 2/ 0.5 - - -

6.1 48 74 112 205 490

Exploration Policy

31. For exploration, development and production of oil, Egypt hasconsistently followed an "open-door policy and almost all exploration andproduction work undertaken within the country has been through foreign oilcompanies. The exploration policy, as pursued by Egypt, has served well theGovernment's objective of maximizing oil production, without bearing any riskof exploration. Of the present level of production of 550,000 barrels perday, as much as 530,000 barrels are produced from these concessions. Since1973, about 60 exploration and production agreements have been entered intowith foreign companies, for an area covering more than 200,000 sq. kms. Atpresent these production sharing agreements provide on average for a split ofoil in the ratio of 1:3 between the foreign contractors and the national oilcompany.

32. So far, Egypt has not been successful in eliciting interest of theforeign oil companies to explore in areas known to hold potential, largelyfor gas. In fact, whenever a foreign company in search of oil discovered gasin commercial quantities, the concession was relinquished and the gas fieldwas developed by EGPC, the national oil company. This was on account of thefact that export of gas through liquification was not attractive except forvery large gas fields and the domestic market was neither well developed nor

1/ A flow rate of 100 MMcfd is equivalent to about 1 million tons of fueloil per annum.

2/ Production planned only on the contingency that associated gas for theGulf of Suez project falls below 80 MMcfd.

3/ It being assumed that EGPC will fully develop this field by 1985. Itspresent production potential is 100 MMcfd.

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financially attractive. Rapidly rising prices of liquid hydrocarbons over thepast few years have made the export of gas a more remunerative proposition.In order to attract foreign oil companies to explore for gas, EGPC is currentlyconsidering permitting export of gas, once the national reserve requirementsof 12 trillion cubic feet are established. In the meantime, foreign oilcompanies which help in the build-up of national reserves, from the presentlyestablished 6 tcf to the targeted 12 tcf, would depending upon the size of thediscovery, besides being reimbursed for exploration costs, also receive cashincentives. It is hoped that these incentives would provide the requiredstimulus to exploration in gas prone areas.

Current and Anticipated Level of Oil Production

33. There has been an impressive recovery in the production of oil inEgypt, which increased from 11.5 million tons in 1974 to 20.9 million tons in1977, a level which had earlier been attained in 1969. Oil production slowedthereafter with output growing by 17% (24.3 million tons) in 1978, 3% (25.1million tons) in 1979, and an estimated 10% (27.5 million tons) for 1980,against an average annual growth of 40% in the previous three years. Theslowdown in oil production reflects the lack of any major new discovery, andthe fact that oil fields in the Gulf of Suez, which currently account for80% of Egypt's oil production, are peaking. Petroleum production is expectedto fall short of the official target of 47 million tons in 1983 by a signifi-cant margin. Present assessment is that oil production, inclusive of naturalgas, is unlikely to exceed 31 million tons in 1983 and 35 million tons in1985. Furthermore, unless major discoveries are made in the meantime, Egyptcould be faced with the prospects of a rapid decline in oil production after1985. In this context, it would be useful if GPC carried out a study toevaluate the technical and economic feasibility of initiating an enhanced/secondary recovery program. Therefore, GPC agreed to undertake and completeby June 30, 1981 such a study, for selected oil fields, with the help ofconsultants. On completion of the study GPC will, in consultation with theBank, prepare a program of enhanced/ secondary recovery, if the results ofthe study so warrant (Project Agreement, Section 2.08).

Consumption Pattern

34. The consumption of petroleum products (including natural gas) hasbeen rising sharply, increasing from 6.7 million tons in 1974 to 9.1 milliontons in 1977 and to an estimated 11.7 million tons in 1979. The overallannual growth rate has been in the order of 11.8 percent and over the nexttwo years EGPC anticipates a 12.5 percent growth in consumption. Furthermore,in the absence of demand management and/or significant increase in the pricelevels, this growth rate is likely to be maintained through 1985, when theconsumption is anticipated to reach 20 million tons. This relatively highgrowth rate is attributable, in part, to a quantum jump in terms of. powergeneration which is projected to rise from 17 billion kWh in 1980 to 28billion kWh in 1985, leading to an increase in the consumption of fuel oiland/or natural gas from 6 million tons to about 13 million tons. To the

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extent additional quantities of natural gas become available, draft on fueloil would be reduced and it would be released for exports. The growth ratebeyond 1985 would depend, in part, on the introduction of coal (essentiallyimported) fired and nuclear power plants. After 1990 Egypt hopes to commis-sion a nuclear plant having a capacity of 600 MW. Delays in commissioningthe proposed plants would result in a greater reliance on fuel oil for powergeneration. A summary of Egypt's energy balance is included at Annex III.

Energy Sector Issues and Bank Lending Strategy

35. Whereas Egypt is currently a net exporter of energy, its longerterm capability to continue as a net exporter of energy is not assured.Hydropower has been harnessed to the extent of about 80%. Coal depositsexist, but when developed would only have a marginal impact on Egypt's resourcebase. Hydrocarbons appear to be the only source which can sustain Egypt'sincremental demand for energy. Sharply rising domestic consumption, coupledwith prospects of reduced productivity from existing oil fields, could rapidlyerode the country's exportable surplus of oil. Egypt's energy strategy duringthe 1980's must therefore address itself to three important policy issues:firstly, the formulation of adequate demand management policies, especiallyin regard to pricing, to curtail the sharp growth in internal consumption;secondly, rapid development of its oil and natural gas resources, specificallyby stimulating both exploratory efforts in structures which are believed tohold potential for gas, and accelerating the development of known gas fields;and finally, diversifying and upgrading the use of natural gas within theeconomy, so that it could release relatively high value liquid hydrocarbonsfor export. Egypt's status as an exporter of oil during the eighties would,in large measure, depend upon the success of these policies. The objectiveof the Bank's technical and financial assistance to the sector has been toprovide critical inputs on these issues.

36. The price system in Egypt is still characterized by extensive central-ized control and involves substantial explicit or implicit subsidies on manygoods and services. The domestic prices of petroleum products in Egypt are,on average, less than one-fourth of their opportunity cost (i.e., internationalequivalent) to the economy (Annex IV). Besides depriving the government ofan opportunity to mobilize resources, the low prices for energy continue tohinder the ability of the entities in the power sector to generate sufficientrevenues to finance the capital investment necessary to meet future needs.In addition, the prevailing pricing structure does not reflect the relativescarcity of energy, and is leading to its use in a non-optimal combination.Increasing the domestic prices of energy resources to approximate the inter-national level should be the goal of the national energy pricing policy.However, this is a long-term objective which is primarily determined by theability of the Egyptian economy to structurally adjust and absorb the newhigher prices. This adjustment is particularly difficult in the Egyptianeconomy with its extensive system of subsidies, price controls, and quantityrationing where the impact of increases in the price of energy requirescareful analysis. To provide the foundation for specific pricing recommenda-tions in the petroleum and power sub-sectors, the Bank is financing a major

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pricing study for petroleum products (through Loan 1732-EGT) and an electricitytariff study (through Loan 1453-EGT). The studies are in progress and theBank is closely involved in monitoring them. Under existing agreements, theGovernment of Egypt and the implementing agencies will review the studies'recommendations with the Bank and agree upon a course of action. It isanticipated that the petroleum pricing study will be completed by October 31,1981.

37. Pending the outcome of the above studies, the Bank intends to con-tinue its dialogue with the Government, aimed at bringing about improvementsin energy pricing policy affecting key petroleum products and electricitytariffs. In this regard, the Government has indicated its intention to bringabout, over the next few years, a gradual real increase in average energyprices, so as to significantly reduce this gap in nominal terms. Where energyis used by public sector economic enterprises, the Government intends to passthe additional costs on to final consumers, except in a limited number ofidentified cases (e.g., mass transportation) where conservation goals dictatea different policy. Efforts to secure more realistic prices in the energysector have so far yielded mixed results. In January 1980, the Government ofEgypt increased the prices of petroleum products, with the exception of LPGand fuel oil, by about 20%. Under the Cairo Gas Distribution project, theGovernment agreed to increase the price of natural gas substantially abovethe current price of city gas and Liquified Petroleum Gas (LPG). In theelectricity sector, the tariff structure for domestic consumers has beenimproved substantially by changing from a declining block structure (loweraverage bills for higher consumption) to an increasing block structure (higheraverage bills for higher consumption). Also, rates for irrigation consumershave been increased. On the other hand, tariffs for industrial consumers,especially heavy industry, have not been increased. This issue will beaddressed in the electricity tariff and petroleum product pricing studiesreferred to above.

38. In addition to addressing the issue of an appropriate pricingpolicy, the Bank's lending strategy in the sector has been to help Egyptdevelop its hydrocarbon resource base and upgrade the use of natural gas.The objective of the first loan in the oil and gas sector was to retrieve andutilize natural gas which was being flared in the Gulf of Suez. In order toassist Egypt in its exploratory efforts, the Bank also financed an explorationstudy and the first results of this study appear to confirm the existence ofwhat could be a large hydrocarbon resource in the area adjoining the existingAbu Gharadig gas and oil fields, in the Western Desert. Exploration study forthe rest of the Western Desert is continuing. Separately, the Bank financedconsultants to re-interpret the existing geological drilling and productiondata of the Abu Qir gas field. This has resulted in the identification ofadditional gas reserves. Production from this gas field, after drilling nineto twelve offshore development wells, could be increased from 100 MMcfd to200 MMcfd. This would enable Egypt to meet the rapidly growing demand ofAlexandria. The results of these studies have prompted the Egyptian Govern-ment to seek the Bank's assistance for the development of the Abu Qir gas

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field and for exploration under the proposed project in the Western Desert.Besides identifying new gas resources, Egypt would need to upgrade the useof gas. Presently, 90% of the gas is being utilized to substitute relativelylow value fuel oil. The Bank is currently financing a gas utilization studywhich will prepare a gas development plan to optimize its use. Even now,before the study is completed, there are known areas where gas may be usedas a substitute for higher value liquid fuels such as LPG, kerosene, motorgasoline and diesel. The Cairo Gas Distribution Project aimed at upgradingits use to replace LPG, kerosene and diesel oil. The proposed project con-tains a provision for a pilot project which would aim at using natural gasto replace gasoline and diesel oil as automotive fuels.

Bank Group Participation in the Energy Sector

39. The Bank Group is supporting three projects in Egypt's powersector. A loan (1453-EGT) of $48 million was made in 1977 for regionalelectrification providing for rehabilitation and extension of electric powerfacilities serving a regional population in urban zones and rural centersoutside Cairo and Alexandria. Progress on the project is satisfactory andthe project is expected to be completed on schedule by the end of 1980.In June 1979 an IDA credit of $37 million, a Bank loan of $102 million,and an EEC Special Action credit of $35 million (Loan 1733-EGT et al.) wereapproved to help finance part of the foreign cost of the first stage (600 MW)of a 900 MW thermal power station at Shoubrah El Kheima. Bidding documentsfor civil works and electro-mechanical equipment are expected to be issuedin late 1980. In June 1980, an IDA credit of $120 million and a Bank loanof $7 million (Credit 1052-EGT and Loan 1886-EGT) were approved to helpfinance a third power project which includes the expansion of the Shoubrah ElKheima power station together with the installation of additional hydropowergeneration facilities at Aswan and a regional electrification component. Inthe oil and gas sector, the Bank made a first loan of $75 million to theEgyptian General Petroleum Corporation (EGPC) for the Gulf of Suez Gas Project(Loan 1732-EGT) in June 1979. The project also includes financing for severalimportant sector studies covering energy pricing, oil/gas reserve assessmentand optimal utilization of gas as mentioned above. An IDA Credit of $50million (Credit 1024-EGT) was made in May 1980 to support a domestic gasdistribution project in four Cairo suburbs. Implementation of both theseprojects is progressing satisfactorily.

Sector Institution and Beneficiaries

40. The Egyptian General Petroleum Corporation (EGPC) would be theborrower of the proposed loan. It was created in 1956; it functions as aholding company and by virtue of its statutes oversees the entire spectrumof oil and oil-related operations within the Egyptian economy. Its activitiesrange from exploration to downstream operations like marketing and refining.However, except for foreign trade in crude oil and refined products, EGPCworks through fully owned subsidiaries for refining, transportation, andmarketing, and through foreign partners for exploration. As the project

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consists of two distinct components, to be implemented by two separate sub-sidiaries of EGPC, it was considered operationally advisable to make theloan to EGPC, which in turn would make it available to the relevant subsi-diaries (para. 52). All EGPC's subsidiaries operate essentially on a "costplus" basis and charge EGPC a fee for processing crude oil and marketing anddistributing petroleum products.

41. The only exception to the above is the General Petroleum Company(GPC), a fully owned subsidiary of EGPC and the principal beneficiary ofthe proposed loan, which explores for, produces, and trades, in crude oil.GPC was established on June 1, 1957, with a paid-up capital of LE1 million.Its present equity, including reserves, stands at LE62 million. Currentlyit owns and operates eight producing fields in the Eastern Desert and threeproducing fields in the Sinai. Production from these fields, in 1979, was alittle over one million tons. Its current exploration activities extend tothe Eastern and Western Deserts and the Sinai Peninsula. Most of the oilproduced by GPC is of relatively poor quality with an average specific gravityof 230 AP1. Furthermore, as the oil fields it operates have peaked, theproduction level over the past five years has been declining. Nonetheless,these factors have been more than offset by a sharp increase in the price ofoil over the same period and the company is financially sound. Over thecoming years, the company will be called upon to make larger investmentsin exploration, enhanced recovery, and production from marginal pay zones.Presently it exports most of its production, although part of it is solddomestically or transferred to EGPC as royalty.

42. Petrogas, another fully owned subsidiary of EGPC, would be respon-sible for undertaking the feasibility study and pilot project relating to theconversion of automobiles to natural gas. Petrogas was created in September1978 and is responsible for the storage, distribution, and marketing of LPGin Egypt. However, the primary objective of its creation was to promote andimplement a natural gas distribution network in Cairo and upon its completionto function as a gas utility. As this company is responsible for the distri-bution of bottled gas (LPG), and is presently establishing a gas distributionnetwork in Cairo, it is best suited to undertake the proposed pilot project.Petrogas is the beneficiary of IDA Credit No. 1024-EGT, which provides finan-cial assistance for this distribution network.

PART IV - THE PROJECT

Introduction

43. The exploration study financed under the Gulf of Suez project, aimedat collating and reinterpreting existing geological, seismic, and drillingdata. As a part of this study, an area covering about 3,500 square kilometersin the Western Desert and adjoining the Abu Gharadig gas fields (see map) wasselected for detailed geophysical, stratigraphical, and reservoir analysis.Consultants were appointed in October 1979 and their report became available

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in April 1980. Twenty five hydrocarbon prospects were identified, of whicheight were considered extremely promising, warranting early drilling. Theproposed project was identified in April 1980 and appraised in July 1980.Loan negotiations were held in Washington on October 27-31, 1980. The Govern-ment of Egypt was represented by Mr. A. M. El-Gammal, Acting Director General,Ministry of Economy; EGPC was represented by Messrs. Abdel-Aziz and El NabiAsal, Deputy Chairmen, GPC by Mr. M. Wasfi, Chairman, and Petrogas by Mr. AbuBakr, Chairman. The loan and project summary appears at the beginning of thisReport. There is no separate Staff Appraisal Report.

Hydrocarbon-related Geology and Stratigraphy

44. Stratigraphic sequences in the area under study range from pre-Jurassic to Recent. The prospective formations known so far are sands inthe Abu Roash and Bahariya (Middle and early Upper Cretaceous age) which areseparated from the overlying Khoman formation of late Upper Cretaceous ageby a major unconformity. The stratigraphic and sedimentological studies ofthese sands suggest deposition in a restricted, shallow marine shelf environ-ment. Individual sand bodies may be of limited extent, within an overallsandy trend. However, the isopach and lithofacies maps of these formationspoint to the existence of such sands, at least in part, over the area understudy. The Abu Roash (Zone "G") and Bahariya show the best possibilitiesof a good lateral continuity throughout the area. The reservoir porosities/permeability are generally fair, though the permeability will depend to alarge extent on the shale content of the sand horizon. Most of the struc-tures are related to a fault system which generally follows an east westMediterranean trend, although a significant number of different trends arealso present. The prospective structures are complex and most structuralclosures result from the fault system. The quality of the seismic records isfair to good and the present seismic map reflects the structures with a goodaccuracy, although more detailed survey will be needed to locate the wells.(See Annex V for a fuller discussion.)

Exploration History

45. Within the study area (see map), two prospective areas were recog-nized by the Gulf of Suez Petroleum Company (GUPCO) and Braspetro, 1/ about 18and 30 kilometers respectively to the south east and south west of the AbuGharadig fields. GUPCO drilled the south eastern part of the area (Abu Sennan1), encountered gas shows at several intervals and tested gas from a sandstonein the Abu Roash formation. Two wells were drilled by Braspetro in the southwestern part of the area. One well was abandoned dry, but the other (BRE23-2), tested gas, at a rate of 15 MMcfd, with condensates from a sandstoneinterval reported to be in the Bahariya zone. Several other wells weredrilled near the study area; some of these detected hydrocarbon shows,the most important being WD5-1, which tested gas from the Abu Roash and theBahariya formation. Drilling data from 12 such wells were used by the consult-ant for evaluating the hydrocarbon prospects of the area. In the adjoiningAbu Gharadig fields, oil is being produced from the Abu Roash zone and gasfrom the Bahariya sands.

1/ Exploration subsidiary of the Brazilian National Oil Company (Petrobras).

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Hydrocarbon Prospects

46. The main conclusion from the past exploration record is that thearea has a high potential for hydrocarbon accumulations, possibly oil butmainly gas. Although no geochemical source rock study has been undertaken,the evidence of hydrocarbon generation comes from the abundance of shows inthe earlier wells. Reservoirs of fair quality are present at several levelsin the Abu Roash and Bahariya formations, the lowest horizons showing bettercharacteristics, thickness, and continuity. A large number of structures arealready known, some of large size. More can probably be found with comple-mentary seismic surveys which will be carried out as a part of the project.Of the 14 exploratory wells drilled in the late 60's and early 70's, fiveof these had gas production capability. However, foreign oil companieshad little interest in developing the gas potential at prices of petroleumproducts prevailing at that time and for this reason no further drilling wasundertaken.

47. After the study of all the relevant geological, seismic, and drill-ing data, the exploration study has concluded that the main prospects forhydrocarbon discovery are in sands within the Abu Roash and Bahariya forma-tions. On the basis of reflection seismic surveys, some 25 structures havebeen mapped on the top of the Abu Roash reflecting horizon, of which eight areconsidered as potential drilling prospects. The methodology followed by theconsultants and the evidence on which they based their conclusions has beenreviewed by EGPC, GPC, and the Bank staff, and found to be acceptable. Thestatistically determined quantity of gas in place is 5.7 tcf. Assuminga recovery factor of 65%, recoverable reserves would be of the order of 3.7tcf. Until more wells have been drilled, this figure should be taken only asa general indication of the prospectiveness of the area and that these prob-ability estimates are subject to considerable variation and will be reassessedafter each well.

48. According to consultants, five of these prospects are drill-able with presently available information and three are considered drillable,if the recommended seismic program confirms the structure as presently mapped.However, for optimum location of exploration wells, it was considered prudentto shoot additional seismic lines over all structures excepting Abu SennanFor each structure, a "ranking index" was calculated which takes into accountthe average success ratio in the area, a confidence factor related to thegeological and geophysical characteristics of the structure, and the probabilitythat each structure as mapped is, in fact, present, and will prove to be hydro-carbon bearing. The "ranking index" as evolved by consultants would need tobe reevaluated as data from successive exploratory wells, drilled under theproposed project, become available. (Details in regard to gas prospects andmethodology adopted for evolving the "ranking index" is at Annex V).

Project Objective

49. Over the past few years, Egypt has made significant efforts toutilize natural gas discovered in the course of exploration for oil. Pre-sently, the supply potential of natural gas (300 MMcfd) is greater than

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the cumulative demand for gas (205 MMcfd). The situation is anticipated toreverse itself rapidly and by 1985 potential gas demand in Egypt is forecastto exceed the presently established gas supply potential by almost 500 MMcfd.This shortfall would result in the diversion of liquid hydrocarbons (aboutfive million tons) from the export market to the domestic market. Insofar asCairo is concerned, gas demand would exceed the available gas supply potentialof 100 MMcfd, by a substantial margin, as early as 1981. Therefore, theobjective of the proposed project, is to explore and, if successful, undertakeappraisal drilling in the Abu Gharadig region of the Western Desert. Gas, ifdiscovered in commercial quantities, would rapidly augment the gas supplies toCairo, since the capacity of the existing processing and pipeline facilitiescould be doubled (220 MMcfd) with marginal expenditure. Under the proposedproject, a study is also included to review the feasibility of upgrading theuse of gas by using it in place of gasoline, and subsequently diesel oil, inmotor vehicles, and sponsor such conversion of vehicles on a pilot scale.Depending upon the success of the pilot project, such conversions, if under-taken on an extensive basis, would release these high value liquid hydrocarbonsfor export.

Project Description

50. (a) Seismic

(i) Reprocessing existing seismic records in selected areasto obtain clearer definition of the Abu Roash zonesand some more complexly faulted areas;

(ii) Shooting seismic profiles across the structures H, L,T, P, A, W, G, and Z, amounting to about 170 line-kilo-meters, to assist in locating the wells;

(iii) Shooting a regional grid of about 900 line-kilo-meters. This survey is intended to explore forpossible structural closures in areas of poor seismiccontrol and delineate further some 17 mapped structureswhich are not yet considered drillable. Dependingupon the results of the survey, the need for under-taking additional seismic work would be considered.

(b) Exploratory and Appraisal Drilling

Drilling about nine exploratory and appraisal wells oneight identified structures, the structure and location, exceptfor Abu Senan (X), to be determined on the basis of seismicsurvey undertaken at (a) (ii) above. In the event the exploratorydrilling is successful in any of the structures, appraisaldrilling would be undertaken to delineate the extent of theaccumulation. A tentative provision for six exploratory wellsand three appraisal wells has been made, with the understandingthat the present configuration could be altered after theresults of the initial exploratory drilling become available.

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(c) Testing and Data Processing

Extensive coring of exploratory wells will be requiredin order to secure a basis for calibration of log data andwell test data and to aid in making reserve estimates. Othertests would, inter alia, include bottom hole sampling ofhydrocarbon fluids and formation water, drill stem tests,repeat formation tests, etc.

(d) Technical Assistance

Consultant services will be required to provide GPCwith the entire spectrum of technical services from seismicinterpretation to well completion.

(e) Study-cum-Pilot Project for the Conversion ofAutomotive Vehicles to Compressed Natural Gas

This component would evaluate the feasibility ofconverting gasoline, and subsequently diesel-fueledvehicles, to compressed natural gas (CNG). The proposedstudy-cum-pilot project would include consulting andtechnical services on the state-of-the-art and itsadaptation to Egyptian conditions, selection of targetgroups and procurement of appropriate hardware to convertvehicles to CNG on a pilot scale, and establishment of CNGfueling stations. For fuller discussion on natural gaspowered vehicles refer to Annex VI.

Project Cost and Financing

51. The total cost of the project, net of taxes and duties, is estimatedat US$40 million. The foreign exchange component of the project is estimatedat US$32 million. In estimating drilling costs, seven dry holes and twoproducers, ranging in depth from 7,500 feet to 10,000 feet, have been assumed.The cost of mobilization, the contract rate for the drilling rig, and theexpenditures on seismic survey, are all based on lowest-evaluated bids acceptedby GPC. Cost estimates of well services 1/ are based on the prevailing ratesbeing paid by GPC and other operating companies and are considered reasonable.Technical services for the exploration program have been estimated at anaverage of US$12,000 per man month, including travel, subsistence, and over-heads, and cost estimates made on 100 man months of work. Consulting servicesfor the CNG study-cum-pilot project are estimated at an average of US$10,000per man month based on 50 man months of work. Given the inherent uncertaintiesinvolved in drilling operations, physical contingencies have been assumed at15% of the drilling costs, price contingencies of 9% and 8% on the foreignexchange component, and 15% and 12% on local expenditure, have been assumedfor 1981 and 1982 respectively. However, these have not been applied to rig

1/ Electric logs, cementing and perforating casing, and other servicesnormally performed by specialized contractors.

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hire and seismic work, which are covered by existing fixed rate contract.(Detailed cost breakdown is at Annex VII).

52. The proposed Bank loan of $25 million would finance 62% of the totalor 78% of the foreign exchange costs of the project. The remaining costsincluding cost overruns, if any, would be financed by EGPC and GPC, from theirown resources. The loan would be made to EGPC with the guarantee of the ArabRepublic of Egypt, on standard country terms, i.e., for a period of 20years including a grace period of 4-1/2 years. EGPC will onlend $23.5 millionto GPC on the same terms and conditions. Furthermore, EGPC would make avail-able to Petrogas the balance of $1.5 million for undertaking the study-cum-pilot project for CNG-powered vehicles. If the study should confirm thefeasibility of converting gasoline and subsequently diesel-powered automotivevehicles to CNG, the assets created under this component of the loan will betransferred by EGPC to Petrogas as equity. A condition of effectiveness wouldbe that a subsidiary Loan Agreement between EGPC and GPC has been executed,(Loan Agreement, Section 7.01(a)).

Procurement and Disbursement

53. Drilling materials and equipment would be procured through interna-tional competitive bidding, in accordance with Bank's procurement guidelines.GPC would draw upon its stocks for long lead items such as casing, drillpipes, bits, etc., to meet its initial requirements. These items would bereplenished with materials procured in accordance with Bank guidelines.Further, within the total estimated cost of such equipment, parts, materials,and consumables, small purchases of up to $100,000 may be procured on thebasis of local procedures, which are acceptable to the Bank, provided thattheir aggregate amount does not exceed $1.5 million. The Government of Egyptwas anxious to start drilling in the identified structures as of August, 1980,for as of next year a severe shortage of natural gas is anticipated to startdeveloping in Cairo. In order to adhere to this drilling schedule it wasnecessary to contract for the drilling rig and seismic work before the proposedloan had been submitted to the Board of Executive Directors. In both cases,bids were secured through limited international tenders, and awarded to thelowest-evaluated bidder. The need for advanced contracting and the procurementprocedures followed by the borrower were reviewed by the Bank, and found to beacceptable. Executive Directors were advised of the possibility of advancedcontracting, through the Monthly Operational Summary. The first well wasspudded on August 15, 1980. The value of advanced contracting for seismicwork and drilling rig is not anticipated to exceed $6.5 million. As wellservices will not be financed by the Bank, they will be procured in accordancewith GPC's procedures.

54. Disbursement would be made against: (i) 100% of the foreign exchangeexpenditures for directly imported goods and equipment and 90% of the cost ofthose procured locally; (ii) 90% of the expenditures pertaining to seismicsurveys and the drilling rig; and (iii) 100% of the foreign expenditures fortechnical assistance and consultants services along with goods and equipmentneeded for the CNG component of the project. Retroactive financing of US$2.5million is recommended to cover drilling and seismic survey expenditures byGPC as of July 1, 1980. Services relating to drilling works will be eligible

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for financing after Bank approval. Such approval will be given by the Bank inthe light of adequate documentation provided by GPC on the nature and condi-tions of the drilling works concerned (Loan Agreement, Schedule I, Paragraph4). The loan is expected to be fully disbursed by June 30, 1983.

Implementation & Technical Assistance

Exploration

55. GPC has been engaging in exploration and production for over twentyyears. It has a cadre of trained geologists and production engineers andtherefore is capable of implementing the proposed project satisfactorily. GPCformerly used to undertake exploration with its own rigs, but it is nowincreasingly relying on the services of specialized drilling contrac-tors, as is usual in the oil industry. For the purpose of this project, GPChas hired the Egyptian Drilling Company (EDC), a joint venture betweenA.P. Moeller Ltd. (Denmark) and GPC. EDC, which was established in 1976, iscurrently operating three offshore rigs and four land rigs in Egypt. Over thepast three years it has satisfactorily drilled more than 60 wells, onshore andoffshore, for a host of international oil companies operating in Egypt. Itis anticipated that EDC will be able to fulfill its contractual obligationsin terms of exploratory drilling. For purposes of specialized well servicessuch as mud control, cementation, logging, and well completion, GPC would hireinternational service companies at its own expense. In order to support andsupplement GPC-s exploration management capabilities, GPC has concurred withthe Bank that external technical assistance, for which financing has beenincluded under the Loan, would be of considerable advantage. This technicalassistance would relate to seismic field testing at the beginning of thesurvey, definition of the survey data processing techniques, location of thewells, drawing up drilling programs, especially coring, testing, and logging,assistance in the interpretation of well data and conclusion regarding reser-voirs and their possible hydrocarbon content, geological structure inter-pretation, etc., as well as complementary laboratory studies relating tostratigraphy, sedimentology, and petrophysics. Appointment of consultants onterms and conditions satisfactory to the Bank would be a condition of loaneffectiveness (Loan Agreement, Section 7.01(b)).

56. The proposed project envisages the drilling of up to nine exploratoryand appraisal wells. This program is expected to be carried out in two years.Based on the existing seismic and drilling data, the site location of thefirst exploratory well (Abu Senan), has been agreed to with GPC. The locationof subsequent wells will be determined by GPC and their consultants on thebasis of additional seismic lines and the results of the previous wells.It is GPC's intention to submit its recommendations, for siting exploratorywells, to a high level exploration committee which will review the data andapprove the locations. GPC has agreed that, in order to enable the Bank todeclare the services relating to drilling eligible for financing out of theproceeds of the loan, it will submit to the Bank documentation specific to thewell in question, consisting of: (a) the final report on the immediately pre-ceding well drilled in the project area, and (b) a pre-location report on thewell proposed to be drilled. Furthermore, after drilling four exploratorywells GPC has agreed to review with the Bank the results of such drilling and

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prepare on the basis of such results and in agreement with the Bank, a furtherexploratory program (Loan Agreement, Schedule 2, Part A, Section II). Incase a discovery is made, the project provides for appraisal wells to bedrilled. Prior to undertaking appraisal drilling, GPC will submit to theBank, for its review and approval, a study justifying the number and locationof the appraisal wells. This study would, inter alia, include the wellhistory and logs, test results, and the justification for the location ofthe proposed appraisal wells. If appraisal drilling establishes that the

discovery is commercial, GPC will review with the Bank its plan for thedevelopment of the discovery. Furthermore, promptly after the completion of

the project, GPC and their consultants will submit to the Bank a completion

report which will critically evaluate all the data secured under the projectand its implication for future exploratory efforts in the Western Desert(Project Agreement, Section 2.06(c)).

57. GPC, as the concessionaire of the project area, would be the owner

of any oil or gas accumulation discovered as a result of this exploration. In

the event of a gas discovery having a gas supply potential of up to 120 MMcfd,gas will be piped to the existing processing facilities at Abu Gharadig where

the condensates would be removed, the gas dehydrated, and the dry gas trans-ported, through an existing 24" pipeline, to a receiving station at Dashourin Cairo. At this point, butane and propane would be removed to constitute

LPG and the stripped gas would be sold to various industrial, commercial, and

domestic consumers in Cairo. Condensates removed at Abu Gharadig would betransported to El Hamra on the Mediterranean Sea, through an existing crude

oil pipeline. If gas discoveries are of a higher magnitude, then the existingprocessing and pipeline facilities would need to be supplemented throughlooping, compression, etc. GPC will sell the discovered gas to EGPC atAbu Gharadig. The present processing and pipeline facilities are owned byEGPC and operated by GUPCO. Oil, if discovered, would be marketed by GPC. Ifthe discovery is modest, GPC will use the existing oil pipeline, also operatedby GUPCO, from Abu Gharadig to El Hamra.

Natural Gas Powered Motor Vehicles

58. Natural gas fueled vehicles have been in extensive use in northernItaly and southern France for the last three decades. It is relativelystraightforward to convert a gasoline motor vehicle to a dual-fuel vehicle,which uses CNG as an alternate fuel. No internal change to the engine isrequired. Natural gas storage cylinders (two to three) are mounted in thecar trunk and a specially designed gas-air mixer is attached to the existingcarburetor. The vehicle can switch from gasoline to natural gas or vice versawith the selector mounted on the dashboard, and a range of 200-300 km canbe secured between gas fuelings. The present cost of conversion is about$600 per vehicle. This is in addition to the cost of compression, which is$0.13/100 standard cubic feet of gas (equivalent to one US gallon of gasoline).Diesel engines can also be converted to burn natural gas, but the necessarytechnology relating to automotive engines has not been developed to the samelevel. Although technically feasible, CNG has not seriously been consideredan option on account of the capital expenses involved in converting vehicles,setting up gas distribution networks, compression stations, etc., and becauseof the inherent convenience of gasoline/diesel as an automotive fuel. How-ever, with sharply escalating prices of gasoline and diesel oil, CNG offers

- 24 -

an attractive alternative with a high rate of return not only for Egypt, butalso for a large number of developing countries which have a relative surplusof natural gas, yet have to import liquid hydrocarbons for the transportationsector (Thailand, Bangladesh, Pakistan, etc.).

59. Petrogas, the beneficiary under IDA Credit No. 1024-EGT, would beresponsible for undertaking the study-cum-pilot project on the use of naturalgas as an automotive fuel. The study will be carried out by qualified con-sultants on terms and conditions satisfactory to the Bank. The consultantswould, inter alia, be required to evaluate the costs relating to conversionof vehicles and compression of natural gas in Egypt and recommend necessarymodifications in technology. The study would propose a price differentialbetween natural gas and gasoline, so as to provide an adequate incentive forconversion, identify target groups, and assess the extent to which CNG pene-tration is feasible in Egypt. It would also draw up a program of action, fora period of five years, relating to vehicle conversion including the number,location, and size, of gas compression stations and recommend methods ofrecovering costs on this investment. As, initially, a gas network would beavailable only in four districts of Cairo, the consultants would studythe logistics and economic feasibility of setting up "satellite stations"in other districts, which would secure bottled CNG from compression stationslocated on the high pressure transmission pipeline. Simultaneously, Petrogaswould undertake a pilot project for converting about a thousand cars to CNG.The results of this project would be an important input in drawing up theplan of action. The Government of Egypt agreed to cause Nasr AutomotiveCompany (a fully government-owned undertaking) to assist Petrogas in under-taking the CNG study-cum-pilot project (Guarantee Agreement, Section 3.02).

Financial Aspects, Accounts and Audit

60. In consonance with its role in Egypt's petroleum sector, EGPCreceives the Government-s share of profit oil from foreign oil companiesand derives its income almost exclusively from the sale of this oil in thedomestic and export markets. Steep increases in profits (from aboutLE4 million in 1973 to about LE218 million in 1978) have characterized itsfinancial position in the last few years, resulting from rising levels ofproduction, consequent increases in export surpluses, and sharp increasesin the international price for oil. Present income levels should growfurther over the next few years and the prospects for EGPC retaining a morethan adequate level of income are good. Nevertheless, since the major shareof its profits is generally appropriated by the Government, EGPC is expectedto continue to supplement its internal resources with domestic loans andforeign borrowings to finance its extensive future investments. As thebeneficiary of a Bank loan under the Gulf of Suez Project, it has accordinglyagreed to review its finances, and those of its subsidiaries, annually,with the view to ensuring adequate debt-servicing capacity, over the longerterm (Loan 1732-EGT). It has also agreed to appoint consultants financedunder Loan 1732-EGT to: (i) review the accounting systems and financial prac-tices of EGPC and its subsidiaries and their financial relationship withthe Government, (ii) recommend suitable changes in financial policies andpractices, (iii) assist EGPC and its subsidiaries in instituting a system ofmedium term planning, and (iv) review and advise on future institutional andfinancial arrangements in the gas subsector. This diagnostic study is now

- 25 -

scheduled for completion by end April 1981. EGPC will then consult with theBank on its findings and commence the implementation of a time-phased planof action by end July, 1981.

61. GPC's major activity has been confined until now to the productionof crude oil. The Company has maintained a sound financial position throughthe export of crude. Net income increased from LE29 million in FY76 toLE86 million in FY79. As of the end of 1979, 99% of the net assets of LE63million were represented by EGPC equity. Over the past four years, the levelof GPC's retained reserves has allowed the Company to cover a modest programof capital expenditure for drilling and field renovation, as well as increasesin financial investments without any external influx of funds. Even thoughGPC's oil production is currently depleting at a rate of 10% per year, likelyincreases in the international oil prices and even modest success in thepresently planned exploration efforts for oil and gas, would allow GPC toremain financially sound (See Annex VIII).

62. Like EGPC, GPC is required by law to prepare full accounts of itsfinancial position and results of its operations. Financial statements ofthe past years have been satisfactorily prepared. As other public sectorcompanies, this company follows the "Unified Accounting System" established bya Presidential Decree in 1966. In addition, it has adopted the cost-accountingsystem developed by EGPC which is in conformity with the Unified System. Forinternal control purposes, it undertakes internal auditing through its ownaudit staff. Both EGPC's and GPC's accounts are subject to an annual externalaudit by the Central Accounting Authority. The auditors' reports are submittedto the concerned Ministry of the Government within specified periods after theend of the fiscal year. GPC and EGPC (for the CNG component) have agreed tosupply the Bank with the copies of project accounts semi-annually, and indepen-dently audited financial statements of their overall accounts, no later thannine months after the end of each fiscal year (Loan Agreement, Section 5.01(b)and 5.02, Project Agreement, Section 4.01(b) and 4.02).

Environmental Impact

63. Seismic explosive shooting, preparation of drilling sites, anddisposal of drilling residues, would cause some temporary disturbance to theenvironment. However, no permanent damage is anticipated. Furthermore, thesetemporary disturbances would occur in the Western Desert, which is bereft ofhuman habitation. The drilling contractor is required to equip the rig withproper safety equipment, including blow-out preventers to avoid damage oraccidental spills. GPC agreed to make adequate safety provision, includingimmediate allocation of funds for securing specialized international servicesin the event of blow-out, fire, spill, etc. (Project Agreement, Section 3.05).

Schedule and Reporting

64. Drilling and seismic surveys are under way. The seismic surveyswill be completed in approximately one year. It is expected that four wellscan be drilled per year. On this basis, it is expected that the drillingprogram will be completed in December 1982. The compressed natural gas study

- 26 -

and pilot project is scheduled to be completed by end June 1983. Agreementwas reached with GPC and Petrogas in regard to the submission of well-prognosisand completion reports, and monthly progress reports, for each component ofthe project.

Project Benefit & Risk

65. The proposed exploration project in the Western Desert will playa key role in Egypt's current efforts to prove and develop its hydrocarbonresources. Although it is not possible to predict the outcome of any explor-atory drilling with certainty, the project area appears, on present evidence,to be highly prospective. Oil, if discovered, would augment Egypt's exports.Natural gas, if discovered (as is more probable), would be used domesticallyto replace liquid hydrocarbon. Technical and statistical review of theavailable geological, geophysical, and drilling data, places the expectedvalue of gas in place at 5.6 tcf, of which 3.7 tcf should be recoverable.Based on certain a priori assumptions, the cost of producing gas from thisarea would be about $0.45/Mcf, with exploration costs accounting for $0.05/Mcf,field development for $0.20/Mcf and transportation for $0.20/Mcf. This iscompared to the economic value of the delivered gas which, on the basis of itsopportunity cost as fuel oil replacement, is presently of the order of $4/Mcf.In addition, this project would represent the first exploratory drillingventure in the country, directed primarily to a gas-prone area. It would alsobe the first significant national investment in exploration and, as such,would reinforce the technical capability of GPC to participate as an experi-enced national operator in further petroleum exploration in the country. Theproject could also result in a major unquantifiable benefit, should it leadthrough the provision of the much needed information, to reactivation offoreign oil companies' interest in the large, and still unexplored, areas ofthe Western Desert.

66. Although the proposed project is considered to offer a high pro-bability of success, it is not risk-free. The geological structures and welllocation have been or will be selected with great care and on the basis of asubstantial body of geological data and actual hydrocarbon shows, but thereis no way of being sure that gas in commercial quantities will, in fact,become available. There are also minimal, but operationally serious risks inthe form of "blowout" or other drilling complications. These risks are,however, inherent in any exploratory drilling program, and industry over aperiod of time, has evolved a series of techniques to reduce these risks toan acceptable level. While the technical feasibility of converting auto-mobiles to CNG has been firmly established, there is a risk that it wouldnot find public acceptability. The proposed pilot project would, inter alia,attempt to assess the implications of this risk.

- 27 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

67. The draft Loan Agreement between the Bank and the Egyptian GeneralPetroleum Corporation (EGPC), the draft Project Agreement among the Bank andthe General Petroleum Company (GPC) and the Petroleum Gas Company and thedraft Guarantee Agreement between the Arab Republic of Egypt and the Bank, andthe Report of the Committee provided for in Article III, Section 4 (iii) ofthe Articles of Agreement of the Bank, are being distributed to the ExecutiveDirectors separately.

68. Features of the Loan, Project and Guarantee Agreements of specialinterest are referred to in Section III of Annex IX.

69. Special conditions of effectiveness of the loan are: execution ofa subsidiary loan agreement between EGPC and GPC (Loan Agreement, Section7.01(a)) and the employment by GPC of consultants specialized in well services(Loan Agreement, Section 7.01(b)). A special condition of disbursementrelating to the drilling works under Part A of the project is contained inpara. 4 of Schedule 1 to the Loan Agreement.

70. I am satisfied that the proposed Loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOMMENDATION

71. I recommend that the Executive Directors approve the proposed Loan.

Robert S. McNamaraPresident

Attachments

November 17, 1980Washington, D.C.

-28- ANNEX I

Page 1 of 6EGYPT - SOCIAL INDICATORS DATA SHEET

EGYPT REFERFJCE GROUPS (VEIGHED AVERASLAND AREA (THOUSAND SO. KM.) - NOST RECENT ESTIMTE)

TOTAL 1001.4 MIDDLE INCOMEAGRICULTURAL 29.6 MOST RECENT NORTH ARICA & MIDDLE INCOME

1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA & CARIBBEAN

GNP PER CAPITA (US$) 90.0 150.0 390.0 698.2 1384.1

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 298.0 275.0 463.0 545.0 1055.9

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (MILLIONS) 25.9 33.3 39.9URBAN POPULATION (PERCENT OF TOTAL) 37.9 42.2 44.0 45.7 63.4

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 62.0STATIONARY POPULATION (MILLIONS) .. 101.0YEAR STATIONARY POPULATION IS REACHED 2105

POPULATION DENSITYPER SQ. 1M. 26.0 33.0 40.0 40.7 28.1PER SQ. 04. AGRICULTURAL LAND 982.0 1125.0 1343.0 598.6 81.7

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 42.0 42.1 40.2 44.0 41.4

15-64 YRS. 55.0 54.7 56.3 52.5 54.765 YRS. AND ABOVE 3.0 3.2 3.5 3.5 3.9

POPULATION GROWTH RATE (PERCENT)TOTAL 2.4 2.5 2.2 2.6 2.7URBAN 6.0 3.6 3.0 4.5 4.1

CRUDE BIRTH RATE (PER THOUSAND) 45.0 39.0 37.0 41.6 34.8CRUDE DEATH RATE (PER THOUSAND) 19.0 15.0 13.0 13.7 8.9GROSS REPRODUCTION RATE 2.8/c 3.0 2.3 2.9 2.5PAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 206.0 187.0USERS (PERCENT OF MARRIED WOMEN) .. 9.0 21.1 16.2

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 96.0 99.0 91.0 93.5 106.9

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 102.0 104.0 109.0 103.6 107.4PROTEINS (GRAMS PER DAY) 73.0 71.0 75.0 69.8 65.6

OF WHICH ANIMAL AND PULSE 17.0 17.0 19.0 17.5 33.7

CHILD (AGES 1-4) MORTALITY RATE 31.0 23.0 18.0 17.5 8.4

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 46.0 51.0 54.0 54.4 63.1INFANT MORTALITY RATE (PERTHOUSAND) .. .. 108.0 .. 66.5

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL .. .. 66.0 62.5 65.9URBAN .. .. 88.0 82.9 80.4

RURAL .. .. 50.0 45.1 44.0

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. .. .. .. 62.3URBAN .. .. .. ,, 79.4

RURAL .. .. .. .. 29.6

POPULATION PER PHYSICIAN 2600.0 1910.0 1065.OLd 4688.7 1849.2POPULATION PER NURSING PERSON 2730.0/d 1640.0/d 1150.0/d 1751.5 1227.5POPULATION PER HOSPITAL BED

TOTAL 460.0 462.0 470.0 635.5 480.3URBAN .. 290.0 250.0RURAL .. 2110.0 2090.0

ADMISSIONS PER HOSPITAL BED .. ..

HOUSINGAVERACE SIZE OF HOUSEHOLD

TOTAL .. .. 5.2URBAN 4.8 ..RURAL .. ..

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. .. 1.8URBAN 1.6 ..RURAL .. ..

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL *- *- 45.7URBAN 37.8 .. 77.0RURAL .. .. 19.0

- 29 -ANNEX IPage 2 of 6

TABLE 3AEOGYT - SOCIlL INDICATORS DATA SKZET

EGPT REPEUNCI GROUPS (tCZHSZD AYVA- HOST RECENS ZSTIISmS)

MIDDLE INCOMMOST RECENT N1TB APRCA * INDDLI IUCC(

1960 A 1970 A ESTIMATE A MIDDLE EAST LATIN AHUICA & CARItD8AN

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 66.0 69.0 72.0 76.4 99.7MALE 80.0 84.0 87.0 92.2 101.0FEMALE 52.0 53.0 56.0 59.9 99.4

SECONDARY: TOTAL 16.0 32.0 46.0 33.3 34.4MALU 23.0 44.0 57.0 41.9 33.5FEMALE 9.0 21.0 34.0 24.2 34.7

VOCATIONAL ENROL. ( OF SECONDARY) 22.0 19.0 18.0 9.8 38.2

PUPIL-TEACHRm RATIOPRIMARY 39.0 38.0 40.0 39.2 30.5SECONDARY 16.0 25.0 29.0 25.1 14.5

ADULT LITERACY RATE (PERCENT) 26.0 .. 43.5 39.7 76.3

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 3.0 4.0 7.5 15.3 43.0RADIO RECEIVElRS PER TROUSAND

POPULATION 58.0 132.0 137.0 139.0 245.3TV RECEIVERS PER THOUSAND

POPULATION 1.9 16.0 17.0 29.0 84.2NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION .. 22.0 21.0 22.2 63.3CINEMA ANNUAL ATTENDANCE PER CAPITA 3.0 2.0 .. 2.8

LABOR FORCETOTAL LABOR FPRCE (THOUSANDS) 7481.4 9318.2 11124.7

FEMALE (PERCENT) 7.3 7.2 8.0 9.6 22.2AGRICULTURE (PERCENT) 58.4 54.4 51.0 47.0 37.1INDUSTRY (PERCENT) 12.2 18.8 26.0 23.8 23.5

PARTICIPATION RATE (PERCENT)TOTAL 28.9 28.0 28.0 26.1 31.5MALE 53.2 51.5 51.3 47.4 4U.9FEMALE 4.2 4.1 4.3 4.7 14.0

ECONOMIC DEPENDENCY RATIO 1.6 1.6 1.6 1.9 1.4

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS 17.5/e 17.4/e f 22.0/aHIGHEST 20 PERCENT OF HOUSEHOLDS 44. 4e 42.

8/e 49.2/.

LOWEST 20 PERCENT OF HOUSEHOLDS 6.6/e 7.0/e.f 5.1/-LOWEST 40 PERCENT OF HOUSEHOLDS 17.5Le 18. fLs4 14. 8&.

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

URBAN .. .. 120.0 262.5RURAL .. .. 86.0 140.4 190.8

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US PER CAPITA)

URBAN .. .. 163.0 202.1 474.0RURAL .. .. 72.0 122.2 332.5

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. 21.0 22.1RURAL .. .. 25.0 33.1

Not availableNot applicable.

NOTES

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

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970 between 1969and 1971; and for Most Recent Estimate, between 1974 and 1978.

/c 1950-55; /d Registered, not all practing in the country; /e Rural expenditures; /f 1964-65; a National.1974-75.

April, 1980

- 30-

DIII OPl SOCIAL INDICATORS Page 3 of 6fttea- Although the dat ore drow to.- -r..c. ganeally jodsd rho -at oothoritetis aod -Ioleie Ir ahoold also ho nord that th.y nay oot ha into-nationaly C~orpa..le hoeaao of the look of otAuderdxed do.t ioitooo n concepts -aod hy diffacort orutrio to rollootiog tho data, The data or., coo-tholoos, goefil to doocrihe ocier of a irsojdicoto trend., and charac.terisa ctain najor diffnroo.... horn...coct.-

The rf'aeform.gro sor. (l) theso n e oafry poe; of rho eohJoor Country ad (2) a country group vith eomalht higher averag toe. than rho c.-try tropof the sehjoct cooatry (Ceoept E.

0tCfpnal lerpla. Oil Rportr.'0 Soop A.6. "Sidle I-om Narth Africa and Niddlo foot' is choo. hecoe of otroner

so1-ctolonrel offilutia). In th. raeflorm gro.p iota the evargoa am pepelaton weightod orith.tir anaan foe inch Ledi--ooorad ehs only whao atlaser half of the cea~telee la a p0w" h"e data f or thot tedlcotoc. §lmne the coverogo of cooerrto aama rho todiont.ro dpopedo or oh. ovet"Lolity of

ots mi Io ant malfoon, ooooiat moov he aeosadcl. in celerirg owecge of one Cdi.toto to another. Thee.. gee CS ocr only ..eofal In co ort.S ths vol..of-on indicatrr at ela tm eg rho toantry sod roformno. groapo.

MEAM(thooai puke.) Pottonro Yhveiciot - Popcootlo dlirdad bi c-ne 00 p-otit1in pry-Akffl - Toto1 sorface orso orrit od ore aed inlae Nwstr. eiaaqoelifid -o #amdical e-hoo1 or 1-cro 1yee.Aaoicalorl - torltor of oariooltrorl ar- seed tanpocrly or penmoontly Paneloti onre "aob ero - Popalatto. div1ded hy toeho of practiciog

fo rp,poatroro, earht sad hirtha gardneo or to Ito follow; 1977 data, alean foal 0 grodee noces pur tca oco, -oo aooiaton ort oPanLoIoto Vot Boaite1 bod -trtrl. orho a - Pop.Itloioo (total,

WP PER CAPITA 1069) - GNP pee Caplto eat-tao at torrenat arhor pritos, ol- orha, end cora) dioidod by thoic coopo-tit -abr of hospital hodrnolatod hy aam orneooethod -a World oak AtLaa (1976-78 heels); 1960, -viloblo In pohIll sod private gnarol ard epao.ltoed hoeptool endr-9T0, sod 178 data hbhilitstioI.r..catrco. H-eprtojo ore oartblinhats poenseenItly staffed

hy et 1at on phyairioa. zorthli.ohmto prowidreg prinoipolly castdi.1Eiswiy C T=_IPU CAPTA I--ase oe tion of coocial -nscY (coal coea t a corloded I..oro Magpicals, honwor taclado heith atd mdirl1ad lignto. psrols.,natoos moo sad hydra-, nool-a and geotheonl eloc- centers not penonsorly ocaffed by o physlicia (hot hy a me~dical anelotat.

triciry) to hibosoms of coal eqoivaloat paf -apit.; 1960, 1970. and 1978 oct00. N1dni a, etc.) whioh offor i-ptrant sc-oedotian oad provide data. hajttd -sog of Wodlol faoilitieo. ror totoiertosl pupoeoa hoopl-

'on ~~~~~~~~ ~~~~ rs~~~tln iorlodo W100 priocipa1 S.anon ad opaciolined hospitals, ad rotalPOPUL11,11M La., 11 L b..~~~~~~~~~~hopitals loa or. total. hoopilrsi ad aedicol ad rNmot-y, cantor..Ito)- A. of JolY 1; 1960, 1970, end 1978 A loit00orislad-Total e.tso of aoain to or diochargsdsta. fro hospta. dtte ythe tker of hede.

Irhn Pwaetim fsrantof otl~ OtIo of orha to total Ppapletian;differntdeflaitioe of aha er-a,ay affort oomp-boillty of dora HUSII

aRs ooottrio; 1960, 1970. ad 1978 deto. An.rane Sire of Sto.sohold (onreon ono h-soeh1d) - totel. orhan. ad twoo-?ost4siios2.rCoisofpllt- . b..d I 1t0 A h.oarh1l conetro of a *ronp of Widiidoale who shors 1ivio qooct.r.

totol popoletton by ago ad ns and Coalr a-tolity and fortiuity rerse. the Chaoshor for.-. Attoio poCdrp-onods.C- -y- -l IProjotion paranotece for aoroality ratee oompriss of thran level OO ~ Avesrne feroocrco os.ohn drrl-Aosootog life oajnotony ar birth iroCea1r with oooctry'o per oopita Ioans hrr of pareon poet c in all -orh, and rCol ocop od oentional

leo. ad fenelolife eepoctoocy etobiloinig at 77.5 y-ac. The par- dwollfas. reopecirly. Deellitr$ eac1odo orptoete .tr oreao.datocs for Isrtii ty rta oIec hove th... lovel oeo.-fa decIne; ie cccpo.oo oattt..

orttioyC _ocodtos to coca lavo od poor fanily ploanio prfosco Aco.rs to Electricity booccot of doellipas) - totol. orha. ad roral -tEach co_ory io than aoigned one of thsao tine oobahietonsof eocol=ty C.ootanriol dollirga with electricity In 1tvitt qactrre an p-rcatrgaand fertility trads foC projection Po..".. of torol. orhao, ad roral dnaliltocarsoctic-1y.

Otariaoo raait- oaaeior pou pula.tion trhor Is to growth circathe hItch rota ia nqo1 to the doath rote, ad alra rho ago rtrortero- CoUCTenooatoo Co...ract. Thin in achieved only oft.r tactility roars doclira to Adltd toolotttiverof r rlooesaot levelf ait sac reprndootianar coo. wh. aoh eanroroc Pc-so rohoel - otl aeet...oic total, ale Id foals

ofn ba rpacnitoof tnal.I Chd otinyppuaIon chsa wee.t aero1lnot of 1 oSl age t th1r-sy 1se as p-tcattao of rosptctivsnetinated O0 rho ai fcopoatdc sooito ftepplto priasry ochool -egn popolotiono; torna1y totlodos Childca aged h-lIo tho y-a 2000,-sd the rate ofjdoclino of fertility coca rerpts.ar c dotdfrdffrw eoh fptsyaooin for

aor lorsI. cocoirlee with~~~~~~~~~~~~~~~. covasa ..actioo otrol11at say ..... ed 100 parc...ttYear statiotor prolotiot 1. ranched - The Yea whe. -ttion-y populari-c ai... 000 .ppila ar %blot or aosroofca ncoo ag..oiae has heen reached. Se-cdr scol-rtot., nab an fal - Compared as ahoo; ... oodory

Poosrionk. Man idyoo odocra-.kl t. 10 .tC.)o .tiot reqc1irao at lw-a SoCr ysers of epprorad prioary isocitParoo.ho.- td-yac opoerin ar qooo ilontsr(10 hntars)cO rovdoogoornl protital o toochobr traioio otoci for popiktotol no...Ial of 12 to 17 years of tgn; .rorspood.oc .. o...rse eon ge-or11yPor so h. !aioo al ld - Compotd a- chc for agri-alrral1d .oO.clodod.

P'...lsrtocAs Stotr a n)- Children (0-14 yoara), -krio5-oge (11- Vold ehia, octil rote rgoIochooooidr6yer)adCeord 6 years ad ovool os poocstagoaof sid-yoar pop..- dorl c a dporteat- f.s.coodory icntrttotI_o

lotion; 196, 1970, ao il at.pol-reochor ratio - orisary. ad saoodory - Total stoderts onrcld icP. oltion Groth Note (onroent) - total - Ao1o growh retee of total nid- ptoaary ad r-condry 1-vcl divided hy nahere of toachers- Ir rhoysar1 poolci 1= for 195060 190-0,ed 1970-718. corspcnding I-ol..Poooiontiroo tar (erantc)-ora- Aes-a orcnh rot no of orhor popo- Ada1b lit eraY roro (o-r...r) - Lt.ioror nd.tl (ahlo to rood sod -iot.)lat ioa f 00 1950-60, 1960-70. ad 197G-70. paepr-atage of totol adolt pcpolatIIo aged 15 years ard avar.

Crodo Birth Bter (oar hlC ai- Aaooo IL-v hirth. par thooood of nld-yoarpopula.ior; 190. 1970, a 1978 data.. OSM

CroSs Deat tate (onrtheteand)- Aoo1 doarhe pnr th-oaod of old-por Ptas*noR Cora (cer tonsod orlto)-Psegrcr opisaopopolario; 1960, Ott, ad 797 dane.crrsaoteshcnit .!C_ paroooe; woroda ... h. lseora. hep'arsee.iros arodttin at A-Aaao rtahor of daoshtera a soc nill bse It niteyvticin'e.Wo...ao.. ...

her oona rrpodootre ori C ifoRaprscepeen j-pcfcfo adi ocenc loor thoosac popoeltior) - All typos of rsca.irars for antilty roa.o; -sly fin-ya avrago adiog In 1960, 1970. ad 1977. hrodassto ceweral. pohlir partooc.fpplto;rtuo oi

PoMNiFlo boit - Accooo-s A--'a (tooa -hoo~al e.aor of sacaptore renoad rcc occorrs o inhyore whof pogisteto ofd. radio oofbhtrh-coetrol dariow; -dno a-npi... of netionl faoily plaiog _rgrn. on it af.c. data for .- riro dt yoaro n eat h cog.ptrstl.ofsnc edoet

Panily Ploatwo - Uoore (oorcot of acriad nno Porcoar&ge of oarried -oaoIaroholahad.t firet--og..C y- .o . l -woe of hild-hoariag ago (15-4 yaaoo) who to ihrth-ootrrcl d-vicos to IV stavor (or ho pod or tion - TV rc-ivore for hroodcaot toalerne aoe in am at g.o.P. aoro pohli o pr th .osend ppolotion; ettladro or1icened TY reco.ivrar

PFO IOD ANeNTRITION -rcotirs and In yearn whe. r-gitr-tia of TVYot wo to I ff-Ct.(Sanoaos CictleIonIe thoead 4 r Lotl - Sho- rho arer.ctrooIndan of Pn Prdrin s = ifta (1969-,71-100) - Indro of per capita -eoa on of- Idail'y gnea _Ritotre eoae" e eda ei lphPr,dotiot of all faod r iis Pr_otiot nclcdee reed end fosad ad lcotioe dortsd preaIy toccodngt 1a wow. It is -osidoredis ot coledor year baaI. CCa-ditioscverprimary, goods (a... sooca ch daily" tf pr apersl at lean footisa. eh

_anofs..sr) which ora ediblr adonat tootoors. (..o. :off 0 oad Coei oa- a Att,oIdo, o apbita too Y,eer.- s-d oo the oohb oftea oro seldod). Asor-agt. prodotiot of ... oh .Coty is I ane eni.= oat-oeal avaag prodo...r price erIghtn; 1961-t, 1970, otd 197t data. tit-itosld d-iot tey..ioldo dirir cdtv-tctPor carita soolv of calories ieroaot of -eoiroaants) - Ctnpotod f ronrdnhieot

oorgyaqoov-lat of eet faod soppline evilabic In c--try par capita LABOR FORCEpor day . A-1ilehl soppliA cmpia domestic prod-ctiot. imports leer Tcte1 LabhrvP..c. (thccoodo) - EcooetcL-1y rri-o perrcoe, i-clodiocportn,so h.-gs..I tn r ko. Nst oqppIioe soldo -iaoil food, eocdn. ernd forros eod oa bicodht et.1oding hoonc, t ra tc.qooi n odIt. food proosasis oad lose It dietrihatieo. Dooio- lfiiti...ons iti .a..o ..c .triswsronr.Coneol;1h,17.nooe tre eatlated hy PiA hosed an phyeiolgirsl ceada for _tornallati 1975 darn.

ciy dhelith ConII deringaotoar taloopsraCrC.I hoSdy woihtr, 00 waelecn)-Pna.lhrfrea ocotg ftt lhrfrrsod ... diorbtihoio of popolation, sod7a11wio 10 prc-to fcrworo Arcltr becn) ,.hr force .o pare..cg1, t Iretry ota og cod -.

Icet.old , fvet;1961-5. 190, ar 1977dora fiehina 00 yer-ettag cf total lhor foc;160 1970 and 1970 dtacerocyply, If food pa Nsy ot etpply of faod isdefitod .. b- B-00-l P15t).L1:fr ahove. Ic-

qireeate fcr all cP' re selihdb Yt poiofrmmc oaottity, ester and ssoportnte f total leh- frrrc; 1960.ollorace c 6 graaaof totl. protlin erday enDA 11id fora ciaoaa c 1970 nod 1Olt Attn.cf ohich If pran t hio har daynoa 2 prcte of he aotoo d- Patticipatiot Reco (prorcet) - totsl. ls., and faeal - Psrtiriprtion -rpcloc p h r_ h.d .do- rotein, otc- .tjivtyrCcataar -oPctda oa,ae t aa lhrfres

ards are 1oor tsa thoss of 75 SrCm of total proroic and 23 tree of IC . td-tt1 1,., -. Ib .ecelrtit so sc veage for Chs -ocd, propose.d by FAl Io rho Third p1;Orcne of tcrl eaeodtooppltio ip ofal tea roaocivt yPonId PccdtSorvoy; 1961-65. 1970 and 1977 data. 190 97,ad 1975 dote. Th.. or. IL0' otrrtoraeroocoP.r csrlta oroten raorlv from oimsl ad oolaa -Protoic ecpply cof cdo- 0.satr_ctro9 'O ho pop.latiot.n. oe i ro. o ei

'r `icet,o enieale ad1 pICse Iatg~aepo dey; 161-hI _ 97 f od97 data. Daw re fr=nntiotl .t.rro...Cild I8. IC-4 tto dlr pt1te (oa Srhaadl p -dayoa d961 th5 per0 thoora7d i cencDoee tati - Rtiori cf ppolotico ndor 15 ocd 65 acd cver

Chilq(..!! 1:) Mia" C R. 2 Eth... W - A... d..h. pr Ch - 1. to the total lahor treego Sroap 1-4 yarn,to C hildren it thi.s ag orop; for ant develcit.p ccctrioo date derived fro lif. tahlss; 1960, 197i aod 1977 dor.t INCOME tISTRIBUJTION

tram t'erconraa cf Privato locono ~~~~~~~=.(h,,h I coah end hind) - tacrirod hy richrtLitfe tEcoratr a.Yt Birth (oo'- Av'ace, cb,,hr of yearn of lifo re-itio of pac.... rihsh0 err,por1d0potn,so ore A.orc

at; hirth; .I190, 1970 end 1978 da. c oteoleInot _orrlitv not (por thea..ad) - hAnt1 deatho If itfo.tt ader -o y-cr POVRTYn TARGT GtOUTPSoCf og.Per th-oorod live hirths. Etiattatd Ahacloto Povrty Iocv- Level (U11$ coo trIt:j -orhaoadccrs.. I-

Ihe of people (ttl ro,a oo)tihrooalace cof. ccrricolyreorede.p. reots o-fcod raqo1r-ota to tIcatr nopply (loc1odna treated norfacaw-otorcr ont ... ted hot coosiore ffodeha.~lydq .d. p .... t. .osrer eth as that frco protected boreholo, pritgs., so soot:' toytel) n tioatd Ralativo Pov-ry loon Level (it) Cor recita - arhe adrro -percetagso hi eeecv ooaIoe toa orscre brhic O ralrotv- pcvorry I..oec 1ev1 to one-third of -eroe aper capit.cotior adpost loca.ted nor ar than 2It aotom fron a h-vtnyh osclice -t tIe lb. crry. Ulrhoc leve Io derivs tro phrtrocoto idorod so herog oithio reoaonahlo Icoc f tht hots...1 nroro1 oroor-oooahleo r Icod ieply that the hocortoc noho.ro of rhc hocacthcd .ee ..t dcroc c ihrcor iigi cr1 ara.. !tfn

dvoc hove to opada dispreportioo..te part of the day It fotrhiog the atorodrooloiotlo I_"ahetliote Poverty loces oya (Coret - orh

orall - toole of.. pepo(ca,ohc odca)nre yorr

dl:ispl so, percenrogee of thair repertic. pcpcloricce. EiCcrr dit- VcoiodOcelIot D tiycs nay ioclod tha olsocoad diep..a. ciccitot cotor,Vccoi Aeyc an _rletio srrecvfh..a ...crrtoen-dnsoosel're.ure Yncr - r th.eoc April. 1980cit pvi..dt nini1aC i.tote1laite

Populatlon 41 mIllion (rid-1979) 31 -GNP Per Capita - US$460 3R1 4 of 6

EGYPT - ECONOMIC INDICATORS

Amounte,,1ilion US$ ACTUAL ANNUAL GROWTH RATE (at constant 1975 pri es)

(at current prices)1979 1975 1976 1977 1978 1979 198UU/

NATI0NAL ACCOUNTSGro55 D-oestic Product/e 17307.0 8.4 11.3 6.1 9.0 U.S 7.0

Agricultore 3844-O 3.5 1.5 -2.9 5.6 3.9 2.5Industry i Petrolueu 5696.0 19.4 20.0 10.1 9.2 8.4 10.4Sertlcs 7264.0 5.8 12.5 8.8 10.8 9.8 6.0

Con5umptl-o 14093.0 0.4 3.1 6.3 4.5 14.0 9.3Gros5 Invest-ert 4988.0 65.0 4.3 -2.2 28.0 1.3 8.0Euports of GNFS 5315.0 19.4 23.4 10.9 -3.5 -5.2 9.3twports of GNFS 7809.0 23.7 -3.9 3.2 4.2 7.1 I1.0

Gross N.tional SavIng 3482.0 76.3 102.0 0.2 20.7 4.9

PRI CESGOP G.flator 6l 100.0 105.4 109.] 924.0 104.7 121.5E.change Rate 2.15 1.97 .75 1.54 1.43 1.43

Share of GDP at garket Prices (%) A--erau Annual Increase (7) at corstan-t riCe-(at current erlces 1 19o' Prfl!.es 197S Pr.jses

1960 1970 1975 1980 19 0-170 1970-197S 1975-1980

Gross Domestic Product- AgrIcultr- 27.9 25.3 28.0 21.3 4.7 5.9 2.1- Industry i Petrol .u 23.7 26.1 25.4 34.7 3.0 2.6 11.4- Seroices 42.9 40.8 42.8 39.5 6.3 4.4 9.7

Consumption 87.3 90.6 90.4 88.8 4.4 8.0 7.4Gross It"estment 13.3 13.9 32.3 29.5 5.8 4.2 7.4Etport of GNFS 19.5 14.2 21.5 43.9 4.9 22.0 6.5Import of GNFS 20.1 18.8 44.1 62.1 1.1 13.5 5.0

Gro.s National Svinq 12.9 7.7 90.9 17.3 7.2 7.2 23.3As 4f GDP _

1960 9970 = 1975 980

PUBLIC FINANCECurrent revenue 18.5 21.3 34.1 30.0Current -op-ndit-re 21.5 22.0 39.9 34.9Surplus (l) or deficit (-) -3.0 -0.7 -5.8 -4.9Capital eop-nditure 11.8 11.1 16.6 29.5Foreign fin nelng - 0.0 16.0 9.2

1960-70 1970-75 1975-80 1980-85 1985-90

OTHER INDICATORSGNP grooth rat (.) 4.5 5.0 8.6GNP per capita grostth rate (Y 1.9 2.7 6.3Energy consueption growth rae (Y) 14.9(1) 14.9(1) 13.2(1)

ICOR - - 3.6Rmrgina savings rate - - 0.46Inport I-sticltu 0.9 1.7 0.9

7a At mairkt prices; co.pon-nts -re tpressed at iactor cost and oill not add due to -clusion of -tindirect tanes and subsidies.

/b Effecti- rate computed aS * igchted averae of the official and parallel market rates.Lo Estimat_s

(I) Elootricity o-ly. Juy 31, 1560

- 32 -ANNEX IPage 5 of 6

Amount (millionUS$ at current Annual Growth Rates At Constant 1978 Prices

prices1979 1975 1976 1977 1978 1979 1980 e/

EXTERNAL TRADE

Merchandise Exports 3835 17.4 7.1 3.0 - 1.1 0.4 6.0

- Primary 3245 12.0 25.4 17.1 - 2.4 12.4 9.0

- Manufactures 590 24.5 -14.1 -20.9 2.2 -28.9 -5.1

Merchandise Imports 6919 22.5 - 3.5 - 4.6 5.8 10.9

- Food 1740 29.5 19.2 -29.8 22.4 15.1 9.8

- Petroleum 243 -34.4 -23.7 -53.1 2.8 16.8 -

- Machinery and 2801 62.6 24.8 14.8 1.8 27.4 10.0Equipment

- Others 2135 20.2 -26.2 6.1 1.2 - 7.8 4.9

PRICES

Export Price Index 81.4 88.0 94.7 100.0 152.0 190.0

Import Price Index 81.8 85.7 92.4 100.0 113.7 128.5

Terms of Trade Index 99.5 102.7 102.5 100.0 133.7 147.9

Composition of Merchandise Trade Average Annual Increase(% at current prices) at constant 1978 prices

1975 1980 1975-1980

Exports 100.0 100.0 3.2

Primary 53.3 88.0 12.0

Manufactures 46.7 12.0 - 6.4

Imports 100.0 100.0 4.5

Food 23.6 26.2 5.5

Petroleum 6.9 4.2 - 28.8

Machinery and 23.7 35.7 29.8Equipment

Others 45.8 33.9 - 4.2

July 31, 1980

- 33 -

ANNEX IPage 6 of 6

EGYPT - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT(millions US$ at current prices)

1974 1975 1976 1977 1978 1979 1980 e!

BALANCE OF PAYMENTS

Export of Goods and Non Factor Services 2251 2503 3319 3949 4053 5315 6780- of which merchandise f.o.b. 1818 1875 2169 2404 2512 3835 sn80

Imports of Goods and Non Factor Services 3959 5141 5182 5765 6492 7889 4600- of which merchandise c.i.f. 3618 4608 4659 4792 5434 6919 840o

Net Factor Income 70 122 413 470 1008 1067 785

Current Account Balance -1638 -2516 -145n -1346 -1289 -1507 -2039

Private Direct Investment 87 225 444 477 439 710 000

MLT Loans (Net) 1725 2985 1680 2660 2n78 142n 1625

- official 1515 2881 1556 2580 1957 1125 13n0- private 210 104 124 80 121 295 320

Other Capital (Net) - 97 - 752 - 628 -1600 -1113 - 586 - 490

Changes in Reserves 10 58 - 46 -141 - 63 - 37

International Reserves 355 296 342 533 596 633- of which gold 103 103 103 103 102 107

Reserves as Months Imports 1.1 0.7 0.8 1.1 1.1 1.0

EXTERNAL CAPITAL AND DEBT

Gross Disbursements 2227 3612 2305 3349 2812 1985 2350

Offical Grants 1303 1076 792 445 345Concessional Loans 120 1444 668 1855 1600

- DAC 55 199 421 541 799- OPEC 3 1142 171 137 03- IDA 12 49 42 42 45- Others 50 54 34 1n85 663

Non Concessional Loans 804 1092 845 1049 867

- official export credits 379 639 214 24 44- IBRD - 14 36 37 57- Other multilateral - 6 - 256 18- Private 425 433 595 732 748

External Debt

Debt outstanding and disbursed 2810 4793 5724 8051 9879 11000

- official 1963 3852 4674 6761 8455 0450- private 847 941 1050 129n 1424 1550

Undisbursed Debt 1575 2370 2964 4434 4248 45n0

Debt Service

Total Service Payment 516 594 664 1095 1207 1370 1840- Interest 7n 114 110 339 386 4nn 615

Debt Service Ratio 2/ 21.0 21.4 16.8 23.5 22.0 20.2 22.6

Average Interest Rate on New Loans 6.3 4.7 5.1 5.1 4.6 n.a.

Average Maturity of New Loans 17.2 18.5 23.3 18.7 27.9 n.a.

e/ Estimate

1/ Total amount of concessional and non-concessional loans is US$1875 million. No furtherbreakdown is available.

2/ Total debt service payment/exports of goods and services excluding exports by foreignoil companies.

3/ Includes service payment due on Arab loans

July 31, 1980

-34.- ANNEX IIPage 1 of 10

THE STATUS OF BANK GROUP OPERATIONS IN EGYPT

STATEMENT OF BANK LOANS AND IDA CREDITS

(September 30, 1980)

AmolIt in million US dollarsLoan/Credit Approved less cancellationsNumbers FY Borrower Purpose Bank IDA Undisbur8ed

Ln 243-U.AR 60 SCA Suez Canal Expansion 56.5 -- --

Cr 181-UAR 70 UAR Nile Delta Drainage -- 26.0 1.8Cr 284-UAR 72 ARE Railways I -- 30.0 --Cr 393-UAR 73 ARE Upper Egypt Drainage -- 36.0 2.7Cr 412-UAR 73 ARE Development Industrial Bank 1/ -- 15.0 --Cr 423-UAR 74 ARE Cotton Ginning Rehabilitation -- 18.5 2.8Cr 437-UAR 74 ARE Population I -- 5.0 --Cr 484-CAR 74 ARE Talkha Fertilizer -- 20.0 --Cr 524-EGT 75 ARE Ag/Ind. Imports -- 35.0 0.3Ln 1062-EGT 75 ARE Ag/Ind. Imports 35.0 -- 0.4Ln 1064-EGT 75 SCA Suez Canal Rehabilitation 50.0 -- 17.1Ln 1085-EGT 75 ARE Tourah Cement 40.0 -- 2.7Ln 1098-EGT 75 ER Railways II 37.0 -- 8.2Cr 548-EGT 75 ARE Telecommunications I -- 30.0 0.9Cr 576-EGT 76 ARE Development Industrial Bank II 1/ -- 25.0 0.3Ln 1239-EGT 76 APA Alexandria Port 45.0 -- 28.5Ln 1276-T-EGT 2/ 76 ARE Fruit and Vegetable Dev. 50.0 -- 34.9Cr 637-EGT 76 ARE Upper Egypt Drainage II -- 40.0 19.2Ln 1285-EGT 76 ARE Upper Egypt Drainage II 10.0 -- 10.0Ln 1292-EGT 76 ARE Textile Rehabilitation 52.0 -- 23.4Ln 1369-EGT 77 AWA Alexandria Water Supply 56.0 -- 37.7Cr 681-EGT 77 ARE Education I -- 25.0 4.5Cr 719-EGT 77 ARE Nile Delta Drainage II -- 27.0 9.1Ln 1439-EGT 77 ARE Nile Delta Drainage II 27.0 -- 27.0Ln 1440-T-EGT 2/ 77 ARE Nile Delta Drainage II 12.0 __ 12.0Ln 1453-EGT 77 EEA Regional Electrification 48.0 -- 20.9Ln 1456-EGT 77 ARE Industrial Imports 70.0 -- 29.6Ln S-005-EGT 77 ARE Iron Ore Beneficiation and Eng. 2.5 __ 0.8Ln 1482-EGT 78 SCA Suez Canal Expansion 100.0 -- 33.3Cr S-20-EGT 78 ARE Water Supply Engineering -- 2.0 --

Cr 774-EGT 78 ARE Telecommunications II -- 53.0 52.3Ln 1533-EGT 78 DIB Development Industrial Bank III 40.0 -- 20.5Cr 830-EGT 78 ARE Agricultural Development -- 32.0 30.0Cr 831-EGT 78 ARE Urban Development -- 14.0 13.7Cr 850-EGT 79 ARE Population II -- 25.0 23.8Cr 868-EtT 79 ARE Education II -- 40.0 37.4Ln S-14-EGT 79 ARE New Valley Phosphate Engineering

and Technical Assistance 11.0 -- 3.5Cr 909-EGT 79 ARE Tourism -- 32.5 32.4Ln 1732-EGT 79 ARE Gulf of Suez Gas 75.0 -- 61.6Cr 935-EGT 79 ARE Shoubrah El Kheima Thermal Power -- 37.0 37.0Ln 1733-EGT 79 EEA Shoubrah El Kheima Thermal Power 4/102.0 -- 102.0CI 988-EGT 80 ARE Agroindustries -- 45.0 45.0In 1804-EtT 80 DIB Development Industrial Bank IV 50.0 -- 50.0Ln 1837-EGT 80 ARE Textiles II 69.0 -- 69.0Ln 1842-EGT 80 ARE MIDB 30.0 -- 30.0Cr 1024-EGT 80 ARE Cairo Gas Distribution -- 50.0 50.0Ln 1849-EGT 80 ARE Pulp and Paper 50.0 -- 50.0Ln 1886-EGT 80 EEA Power III 3/ 7.0 -- 7.0Cr 1052-EGT 80 EEA Power III 3/ -- 120.0 120.0Cr 1069-EGT 81 ARE Education TII3/ 40.1 40.1

Totals 1125.0 o23.1 978.2Of which has been repaid 62.3 .4Total now outstanding 1062.7 822.7Amount sold 7.5Of which has been repaid 7.4 0.1Total now held by Bank and IDA 1062.6 783.2

l_/ Formerly Bank of Alexandria2/ Third Window Loan3/ Signed on November 7, 1980.4/ Not included is EEC Special Action Credit 20 of $35.0

-35 ANNEX II

Page 2 of 10

THE STATUS OF RAM GROUP OPERATIONS IN EGYPT

STATEDMNT OF IFC INVESTMENTS(July 31, 1980)

(Amount in US$ million)Year Obliaer Type of business Loan Equity Total

1976 Arab Curasic Company Ceramic Industry 4.80 .835 5.635

1977 Nile Clothing Company Ra-dy-Hade Garment Industry 0.43 0.16 0.59

1978 Delta Sugar Company Agricultural Production, mainlysugar 20.0 3.00 23.0

1979 Iamailia Misr Poultry Food and Food Processing 5.97 1.52 7.49Company

1979 Ismailia Fish Farming Food and Food Processing 1.93 .55 2.48Company

1980 Suez Cement Company Building Materials 30.0 - 30.0

1980 Crocodile Tourist Crocodile Tourist ProjectProject Company 4.41 .857 5.267

67.51 6.962 74.472

- 36 - ANNEX IIPage 3 of 10

C. PROJECTS IN EXECUTION 1/

Cr. No. 181-UAR - Nile Delta Drainage I Project; US$26 million Creditof April 17, 1970; Effectiveness Date: December 22, 1970; Closing Date:December 31, 1980

The only outstanding activity on this project is installation of

field drainage, which remains to be accomplished on about 5 percent of theproject area of 950,000 feddans. This work has been delayed, in part,because of a shortage of cement. Work is complete on other majorcomponents including some 1,700 km surface drains and eleven pumpingstations.

Cr. No. 393-UAR - Upper Egypt Drainage I Project; US$36 million Credit ofJune 8, 1973; Erfectiveness Date: November 28, 1973; Closing Date: July 31,

1981.

Work is virtually completed on some 1,640 km surface drains in300,000 feddan project area. Of the four pumping stations, two arecomplete and progress is being made on the other two. Installation of tiledrains is about two-thirds complete. Progress on this activity has beenslow because of inadequate management by contractors and recently theshortage of cement. Bilharzia Control Program is proceeding as scheduled.Progress on procurement is satisfactory.

Cr. No. 423-UAR - Cotton Ginning Rehabilitation Project; US$18.5 millionCredit of July 30, 1973; Effectiveness Date; February 15, 1974; ClosingDate: December 31, 1982

The project is estimated to be completed in 1982. Previoussubstantial delays, primarily due to lack of adequate local funds, havebeen overcome.

Cr. No. 524-EGT and Ln. No. 1062-EGT - Agricultural and Industrial ImportsProJect; US$35 million Credit and US$35 million Loan of December 20, 1974;

Effectiveness Date: March 19, 1975; Closing Date: December 31, 1980

The bulk of the procurement actions has been completed and onlyabout $0.3 million and $0.4 million remain to be disbursed under the creditand loan, respectively. Any uncommitted funds will be cancelled by theclosing date.

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

-37- ANNEX IIPage 4 of 10

Ln. No. 1064-EGT - Suez Canal Rehabilitation Project; US$50 million Loan ofDecember 20, 1974; Effectiveness Date; April 21, 1975; Closing Date:December 31, 1980

Project execution is generally satisfactory although some itemsare lagging behind appraisal schedule. Contracts for most items in theproject have been awarded-and the cost of Bank-Financed items is expectedto exceed appraisal estimates slightly.

Ln. No. 1085-EGT - Tourah Cement Expansion Project; US$40 million Loan ofFebruary 10, 1975; Effectiveness Date; June 9, 1975; Closing Date; December31, 1982

Procurement of machinery and equipment is completed. Most itemsare already on site being erected. Slow civil works execution has furtherdelayed project execution. Thus start-up of commercial operations isexpected to be only towards early 1981.

Ln. No. 1098-EGT - Railways II Project; US$37 million Loan of April 2,1975; Effectiveness Date; August 20, 1975; Closing Date; June 30, 1981

Investment in mobile assets has been satisfactory but progress onfixed installations is slow. The Egyptian Railways' (ER) operations andmaintenance situation remains very poor with low availability oflocomotives and rolling stock. The track renewal and repair program isalso behind schedule. Efforts are now being made to improve rolling stockmaintenance with the help of consultants and ER plans to set up separatecompanies with overseas technical assistance to upgrade track conditions.The 1980-84 draft investment program contains many large investmentsincluding new lines for which no economic justification has beendemonstrated. The financial situation is poor and a deficit of LE 38million was recorded for 1979. After many years without tariff increases,substantial increases in freight tariffs were made in 1979, and passengerfare increases are promised for 1980. A draft decree which would establisha National Railway authority and aims to give the railways inter aliaconsiderably more autonomy in relation to tariffs and staff salaries isunder discussion.

Cr. No. 548-ECT - Telecommunications Project; US$30 million Credit of May16, 1975; Effectiveness Date: August 14, 1975; Closing Date: December 31,1980

Procurement has now been completed and the IDA credit has beenfully committed. Procurement of the telex exchanges was transferred to theTelecommunications II project. Physical installations have been about twoyears behind the appraisal schedule mainly because of initial delays inprocurement and in building construction.

-38 - ANNEX IIPage 5 of 10

Cr. No. 576-EGT - Second Development Industrial Bank (formerly Bank ofAlexandria) Project; US$25 million Credit of July 30, 1975; EffectivenessDate: February 19, 1976; Closing Date: April 30, 1981

The credit is now fully committed and $24.5 million has beendisbursed as of October 31, 1980.

Ln. No. 1239-EGT - Alexandria Port Project; US$45 million Loan of April 19,1976; Effectiveness Date: August 30, 1976; Closing Date: December 31, 1980

Progress on the execution of the main civil works and dredgingcontract is proceeding reasonably well although other civil works arebehind schedule. Procurement of most equipment is progressingsatisfactorily although the evaluation of bids for radar equipment isbehind schedule. Estimated final cost remains within appraisal estimates.Because of the delayed start of the main civil works, the project is nowexpected to be completed only by June 1982; the closing date of the loanwill, therefore, have to be extended.

Ln. No. 1276-EGT - Fruit and Vegetable Development Project; US$50 millionThird Window Loan of June 11, 1976; Effectiveness Date: December 20, 1976;Closing Date: December 31, 1982

The project is now over two years behind schedule but is makingprogress. Work on the drainage and irrigation components of the project isproceeding and a large contract has recently been awarded. The seedcomponent has major problems, which the Bank has been discussing withEgyptian officials to agree on revised modes of management. TheAgricultural Development Lending Unit in Bank Misr is attempting, withassistance from the World Bank, to ensure that the various sub-borrowersproceed with their respective investments, and to identify additionalsub-borrowers. The project scope has been expanded to allow financing ofagroindustries subprojects, and terms of financing liberalized.

Ln. No. 1285-EGT and Cr. 637-EGT - Upper Egypt Drainage II Project; US$10million Loan and US$40 million Credit, both of June 11, 1976.Effectiveness Date: January 31, 1977; Closing Date; June 30, 1983

Work is progressing in accordance with the revised schedule onsome 1,602 km of surface drains in 500,000 feddans. Overall progress isabout 55 percent. As compared to appraisal target of 240,000 feddans,field drainage is complete on only about 24,000 feddans. This shortfallhas resulted from a delay of almost two years with supply and erection ofUSAID financed equipment for three PVC pipe-making factories. Two of thesefactories are now in production and the third is almost ready; this shouldaccelerate the installation of tile drains. Contracts for these drainshave already been awarded covering the entire project area.

- 39 - ANNEX IIPage 6 of 10

Ln. No. 1292-EGT - Textile Project; US$52 million Loan of September 20,1976. Effectiveness Date: February 16, 1977; Closing Date: March 31, 1982

The project is proceeding with a delay of more than two yearscaused by a later and slower than anticipated start of the civil works,shortage of steel and cement, and a recent fire on the construction site ofone of the two beneficiary companies. The project is now estimated to costabout US$20 million equivalent (all in local currency) more than appraised,due to increased scope of civil works and increase in cost of constructionmaterials beyond what was expected at appraisal. No difficulties areforeseen in financing this, although some government equity contributionwould be required in the next two years to supplement the companies'internal cash generation in order to adhere to the financial covenants aswell as project costs. Early management problems have now been overcomeand both companies have developed effective project implementation units.Disbursements are slower than anticipated reflecting initial delays inprocurement. However, about 90 percent of the contracts for machinery andequipment have now been awarded and the balance is expected to be awardedin the near future.

Ln. No. 1369-EGT - Alexandria Water Supply Project; US$56 million Loan ofMarch 7, 1977; Effectiveness Date: July 6, 1977; Closing Date: June 30, 1982

Bidding for all equipment has been completed and orders placed.Management studies were completed in the Authority and AWA is implementingsome of the recommendations. AWA has called for bid proposals for new dataprocessing equipment. The award has been made for the civil worksconstruction of the Bank financed water treatment plant extensions and workis expected to start shortly. Local bidding for 65 km pipeline contractshave been completed and awards made to four contractors; these contractsare now being financed with local funds. Satisfactory progress is beingmade on meter replacement and reduction of waste and AWA's regularlysubmitted reports reflect good general progress. An application for ageneral tariff increase is with the Governor for consideration by theAlexandria Local Council but approval is still pending.

Cr. No. 681-EGT - Education Project; US$25 million Credit of March 7, 1977;Effectiveness Date: August 19, 1977; Closing Date: December 31, 1980

Project implementation, since the transfer of two MOHE institutesto Credit 868, is proceeding satisfactorily. Virtually all technicalassistance has been completed. About 90 percent of all equipment has beenprocured and nearly all has been installed. Of the 23 institutions to beconstructed 17 are completed and are operational, and the remainder will beoperational by December 1980. All of the existing institutions beingre-equipped are operational. About 82 percent of Credit amount has beendisbursed and nearly all of the remainder has been committed.

- 40 - ANNEX IIPage 7 of 10

Cr. No. 719-EGT, Ln. No. i439-EGT and Ln. No. 1440-EGT - Nile DeltaDrainage II Project; US$27 million Credit, US$27 million Loan and US$12million Third Window Loan of July 15, 1977; Effectiveness Date; April 17,1978; Closing Date; December 31, 1983

Progress on surface drains is satisfactory with completionachieved on some 264,000 feddans out of a total area of 815,000 feddans.For construction of four new and renovation of two existing pumpingstations, the contractors have started civil works and procurement ofequipment following award of contracts in December 1979. The Bank hascleared the award of four contracts for installation of field drainagecovering 75 percent of the project area of 400,000 feddans. Theestablishment of a KfW financed PVC pipe making factory has been delayedand this could further delay the project.

Ln. No. 1453-EGT -Regional Electrification Project; US$48 million Loan ofJuly 15, 1977; Effectiveness Date; February 6, 1978; Closing Date: December31, 1981

Physical progress is good. A six month delay in completion ofconstruction is expected, however. Consultants for the extension of theUNDP Power Sector Survey have completed their work. Consultants for thedistribution companies are in place. All contracts for equipment,materials and technical assistance have been awarded.

Ln. No. 1456-EGT - Industrial Imports Project;US$70 million Loan of July15, 1977; Effectiveness Date: November 7, 1977; Closing Date; June 30, 1982

As of September 30, 1980, about $40.0 million has been disbursedand about $50.7 million committed, representing some 55 percent of thetotal loan. Utilization of the loan proceeds has been slow mainly becauseof delays in procurement of equipment for public sector firms.

Ln. No. S-5 EGT - Iron Ore Engineering and Beneficiation Project; US$2.5million Loan of July 15, 1977. Effectiveness Date: February 2, 1978;Closing Date; December 31, 1981

Consultants preparing both iron ore beneficiation and diagnosticstudies have submitted the final feasibility studies. The closing date wasextended to help finance consulting services to help prepare arehabilitation and balancing project for Egyptian Iron and Steel Company.

Ln. No. 1482-EGT - Suez Canal Expansion Project; US$100 million Loan ofSeptember 28, 1977; Effectiveness Date: February 8, 1978; Closing Date:December 31, 1981

Progress in the execution of the project is close to appraisalestimates although in some areas, such as procurement of tugs there hasbeen some delay because of delayed decisions on design which have now beentaken. The financial situation of the borrower is sound, total canaltraffic continues at levels close to appraisal forecasts and revenue is

higher than appraisal estimates.

- 41 - ANNEX IIPage 8 of 10

Ln. No. 1533-EGT - Development Industrial Bank III; US$40 million Loan ofApril 12, 1978; Effectiveness Date: July 18, 1978; Closing Date: December31, 1982

Commitments and disbursements are progressing satisfactorily. Asof October 31, 1980, $19.5 million had been disbursed and the loan had beenfully committed.

Cr. No. 774-EGT - Second Telecommunications Project; US$53 million Creditof March 21, 1978; Effectiveness Date; September 19, 1978; Closing Date;December 31, 1981

Bid documents for a substantial part of the equipment andmaterials to be financed under the Credit have been processed.

Cr. No. 830-EGT - Agricultural Development Project; US$32 million Credit ofJuly 24, 1978; Effectiveness Date; February 20, 1979; Closing Date;December 31, 1983

Implementation is about a year behind appraisal schedule.Satisfactory progress has now been made in the procurement of tractors,project-related training, monitoring and evaluation, and field preparationfor implementation.

Cr. No. 831-EGT - Egypt Urban Development Project; US$14 million Credit ofAugust 30, 1978; Effectiveness Date; April 30, 1979; Closing Date: December31, 1982

There has been significant progress in the staffing of the projectunit. Implementation of the shelter components is, however, seriouslybehind schedule, partly due to lack of understanding regarding the projectand partly due to lack of local design capability. IDA supervisionmissions are being intensified to help improve progress.

Cr. No. 850-EGT - Second Population Project; US$25 million Credit ofOctober 30, 1978; Effectiveness Date: May 1, 1979; Closing Date: December31, 1983

Civil works and procurement of furniture, equipment and vehiclesare proceeding satisfactorily. All sites have been selected andconstruction on over 50 (of 153 sites) is underway. Implementation of thetraining program has started, while IEC implementation has had a slowstart-up, and about 40% of the home visiting program has been implemented.

Cr. No. 868-ECT - Second Education Project; US$40.0 million Credit ofJanuary 26, 1979; Effectiveness Date; July 18, 1979; Closing Date; March31, 1984

Project implementation is proceeding very well. Of the 23institutions to be constructed, two are completed, eight will be completedby mid-1981, 10 will be completed in late 1981 and the three MOHE

- 42 - ANNEX IIPage 9 of 10

institutes are expected to be completed on schedule by late 1983. Allequipment is under procurement with contracts already signed for about 50percent. All technical assistance has been contracted and implementationis about 9 months ahead of schedule.

Ln. No.S-14-EGT - New Valley Phosphate Engineering and Technical AssistanceProject; US$11 million Loan of May 25, 1979; Effectiveness Date: October19, 1979; Closing Date: June 30, 1982

Procurement and delivery of mining equipment is underway anderection has started at mine site; laboratory texts of phosphate rock arebeing carried out.

Cr. No. 909-EGT - Tourism Project; US$32.5 million Credit of June 13, 1979;Effectiveness Date; March 26, 1980; Closing Date; December 31, 1985

Project implementation has started.

Ln. No. 1732-EGT - Gulf of Suez Gas Project; US$75 million Loan of June_29,1979; Effectiveness Date; January 29, 1980; Closing Date: September 30, 1982

Project implementation is in progress. The onshore contract hasbeen signed and the contractor has started work in the field.

Ln. No. 1733-EGT - US$102 million, Cr. No. 935-EGT - US$37 million andSpecial Action Cr. No. 20-EGT - US$35 million - Shoubrah El Kheima ThermalPower Project of September 6, 1979; Effectiveness Date: April 8, 1980;Closing Date; June 30, 1986

Bidding documents for electro-mechanical equipment are underpreparation and likely to be issued by late 1980.

Cr. No. 988-EGT - Agroindustries Project; US$45 million Credit of May 1,1980; Effectiveness Date; (Not yet effective); Closing Date: December 31,1985

Action on effectiveness is underway.

Ln. No. 1804-ECT - Fourth Development Industrial Bank Project; US$50million Loan of May 1, 1980; Effectiveness Date: August 8, 1980; ClosingDate; December 31, 1984

Commitments under the loan which have just begun had reached about$9.0 million as of September 1980; no disbursements have yet taken place.

Ln. No. 1837-EGT - Textile II Project; US$69 million Loan of June 4, 1980;Effectiveness Date: (Not yet effective); Closing Date: September 30, 1984

Effectiveness action underway.

- 43 - ANNEX II

Page 10 of 10

Ln. No. 1842-EGT - Misr Iran Development Bank Project; US$30 million Loan

of June 4, 1980; Effectiveness Date: (Not yet effective); Closing Date:June 30, 1985

Action on effectiveness is underway.

Ln. No. 1849-EGT - Pulp and Paper Project; US$50 million Loan of June 4,1980; Effectiveness Date: (Not yet effective); Closing Date: December 31,1984

Action on effectiveness is underway.

Cr. No. 1024-EGT - Cairo Gas Distribution Project; US$50 million Credit of

June 4, 1980; Effectiveness Date: (Not yet effective); Closing Date:December 31, 1985

Effectiveness action underway. Contractor has mobilized. Fifteenkm out of the 55 km high pressure pipeline has been laid.

Cr. No. 1069-EGT - Third Education Project; SDR 30.3 million (US$40.1million equivalent) Credit of November 7, 1980; Effectiveness Date: (notyet effective); Closing Date: June 30, 1985

Action on effectiveness is underway.

Ln. No. 1886-EGT, US$7 million, Cr. No. 1052-EGT, US$120 million - ThirdPower Project of November 7, 1980; Effectiveness date: (not yet effective);Closing Date: June 30, 1987.

Action on effectiveness is underway.

- 44 - ~~~~ANNEX III- 44 -Il

ARAB REPUBLIC OF EGYPT

WESTERN DESERT

ENERGY BALANCE 1978

(thousand tons oil equivalent)

Production Consumption

Crude / 2/Crude Oil1' 24,400 Coal:- 850Hydroelectricity 2,860 Refinery Losses 580Natural Gas 670 Petroleum Products 10,100

Hydroelectricity 3/ 2,860Total Availability 27,930 Natural Gas 4/ 670

Total DomesticConsumption 15,060

Exports (Net of Imports) 5/

Coal (850)Crude Oil 6/ 12,260Petroleum Products 1,460

12,870

1/ Consisting of Egypt's share of production of 17.1 million tons andforeign partners share of 7.3 million tons.

2/ Estimated. Used largely to meet metallurgical requirements.

3/ Conversion factor 1000 kWh = 0.286 tons of oil (assuming 30% efficiency).

4/ 55,000 tons of gas purchased from partners.

5/ Includes stock change.

6/ Consists of 5.06 million tons (net) of exports by Egypt and 7.20 milliontons of exports by foreign partners.

- 45 -

ANNEX IV

ARAB REPUBLIC OF EGYPT

WESTERN DESERT EXPLORATION PROJECT

Petroleum Product Prices(US$/ton)

Product Domestic Prices World Prices 1/(FOB Italy)August 11, 1980

LPG 1/ 75 260Premium Gasoline 261 296Regular Gasoline 220 286Kerosene 56 325Gas Oil 52 261Diesel Oil 44 261Fuel Oil 11 160

Natural Gas: Over 90% is sold at $0.28/Mcf which is at par, in terms ofBTU, with the domestic fuel oil price. A small percentage will be soldto domestic consumers under the Cairo Gas Distribution Project at $4.3/Mcf,which is marginally above the gas current opportunity cost as a fuel oilreplacement (about 4.0/Mcf).

1/ Essentially the same as the Egyptian border price with the exceptionof LPG for which recent border price is over $400/ton due to substantialtransport cost.

- 46 -ANNEX VPage 1 of 6

ARAB REPUBLIC OF EGYPT

WESTERN DESERT EXPLORATION PROJECT

Petroleum Geology of the Abu Gharadig Area

Introduction

1. The Abu Gharadig block is located in the Western Desert of Egypt,175 miles west of Cairo and 100 miles south of the Mediterranean coast. Itcovers an area of some 800 square miles around the Abu Gharadig oilfieldconcession (See Map IBRD No. 15212). The field was discovered in 1969 andis now producing around 8,000 barrels of oil per day. The surrounding areahas been partially explored by two oil companies, GUPCO and Braspetro, andthere are four abandoned exploratory wells on the block itself, togetherwith nine more close to its boundaries, in addition to nineteen wells in theAbu Gharadig field. The geology of the block is comparatively well known,and the area is more or less covered by seismic surveys. Further explorationwork therefore consists mainly of detailed seismic work, infill lines onstructures which have already been discovered, and exploratory wells.

Stratigraphy

2. The sedimentary section in the area is largely in excess of 15,000feet thick; the deepest well in the area was the WD5-1 which is located justoff the north-west corner of the block and reached a total depth of 14,469feet (4,410.2 meters) at which point it was in rocks of Lower Cretaceous age.The sedimentary section found in wells drilled in the study area ranges frompre-Jurassic to Recent and the following major stratigraphic units arerecognised:

- Recent: thin cover- Mogra: Oligocene - Lower Miocene- Daba: Upper Eocene - Oligocene- Apollonia: Palaeocene - Middle Eocene- -----------Unconformity--------------- Khoman: Santonian - Maastrichtian- --------Major Unconformity------------ Abu Roash: Cenomanian - Turonian- Bahariya: Aptian - Cenomanian- Burg el Arab: Aptian - Cenomanian- Jurassic- Pre-Jurassic

3. The Abu Roash formation is subdivided into seven zones designatedby the letters A through G, the latter being the lowest, and together withthe underlying Bahariya formation, forms the most interesting explorationobjective in the study area. The Abu Roash formation consists mainly of

- 47 -ANNEX VPage 2 of 6

a sequence of shallow marine limestones and shales, with occasional sandyzones. The sandy zones occur in the C, E and G subunits and in all of thewells so far drilled oil and gas production is related to these sandy zones.The Bahariya is a sequence of shallow marine sands interbedded with shales andsiltstones, and forms the main gas producing reservoir at Abu Gharadig field.

4. Most of the wells have been drilled through the Bahariya sectionin the underlying formations without finding significant hydrocarbonindications. The Burg el Arab is mainly composed of sandstones and shales,with a tight dolomite sequence, known as the Alamein Member, which formsa good seismic reflecting horizon in the southern part of the area. Onlythree of the wells, Agnes-l, Misawag-l and S.W. Mubarak, all located inthe southern part of the area, have penetrated the pre-Cretaceous section.These found continental varicoloured shales, siltstones and sandstones ofthe Jurassic Eghei Group below the Cretaceous. While the sands appear tobe good potential reservoirs, no hydrocarbon shows were reported from them,and the shales do not appear to be potential source rocks.

5. Regional dip is northwards towards the coast and most lithologicunits thicken in this direction. A generalized stratigraphic section isgiven in Table 1, which shows that the sequence is an alternation of lime-stone, sandstone and shale. In general, the sandstones form the mostprospective petroleum reservoirs. As a result of the considerable variationsin formation thickness, which result from erosional unconformities or discon-tinuities in sedimentation, the depth to main prospective oil and gas reservoirvaries widely across the area. From a purely stratigraphic point of view theoptimum area for drilling would appear to be immediately south of the GUPCOAbu Gharadig concession block where several structures are proposed fordrilling and on either side of it where a complementary seismic program isproposed. The southern third of the block seems the least prospective fromthe stratigraphic point of view.

6. As the analysis of the geological, geophysical, and engineeringdata provided indicates that the Abu Roash and Bahariya are of mostimmediate prospective interest, further geological study is recommendedon those formations: firstly, sedimentation studies of the Abu Roash andBahariya formations to determine depositional trends and lateral continuityof the reservoirs; secondly, geochemical studies of shales and limestonesdesigned to identify potential hydrocarbon source rocks. Wells drilled underthe Bank-financed program should core potential reservoir and source-rockhorizons to obtain the basic material for these studies. A complete testingprogram should also provide informations on the fluid contents and pressure(hydrocarbons and formation waters).

Structure

7. The regional geological structure is that of a gentle monoclinaldip northwards towards the Mediterranean. In the northern part of the blockthe dip steepens appreciably, forming a "hinge-line" on which the Abu Gharadig

- 48 -ANNEX VPage 3 of 6

field appears to be located. The area is broken by numerous faults withthrows varying from tens of feet to as much as 2,000 feet. Most of thefaults trerd approximately east-west with a swing to north-east south-westin the eastern part of the block and to north-west south-east in the westernportion. The overall effect is to give a shallow arcuate fault patternconcave to the basin. The predominant direction of fault throw is down to thenorth, i.e., towards the basin. There are a number of minor faults which aredownthrown to the south, and the southern boundary of the Abu Gharadig fieldappears to be formed by such a fault. The seismic interpretation produced bythe consultants to EGPC, Robertson Research, shows twenty-five structuralclosures bounded by faults in most cases, some of which are downthrown tothe north, and a few downthrown to the south.

Oil and Gas Indications

8. The Abu Gharadig field was discovered in 1969 and has so farproduced around 18 million barrels of light crude oil of 36 API gravity,together with associated gas. The field is producing essentially fromthree blocks separated by a complicated fault pattern. Oil is producedfrom Abu Roash C, D and E from sand lenses interbedded with shales andacting as independent stratigraphic traps. Gas has been produced fromBahariya sands in blocks A and B at a rate of 30/40 MMcfd (and 3,000 bbl/daycondensate) from four wells. This rate should be increased in 1981 to125 Mmcfd with the drilling of two more wells, reperforation of producingwells and completion of processing and transportation facilities. The wellson block C have been tested as possible gas producers, but are presentlyproducing only oil. Recoverable gas reserves are estimated at 0.5/0.6 tcf.The production is obtained by depletion, without noticeable water drive.The three blocks show the same gas/water contact but different reservoirpressures which prove that the faults are sealing. The well Abu Gharadig 2,drilled to the south-west of this field on a separate fault closure testednon-commercial gas from Abu Roash G and Bahariya.

9. Of the 13 non-producing wells drilled on or near the project block,and outside the field itself, 8 tested oil or gas, or both, but in quantitieswhich at the time of discovery were regarded as non-commercial. These areindications that some of these accumulations were in the thinner sands andmay have been due to pinch-out of the sands as well as to structural causes,and that the structural closure is small. These factors and the fact thatthe most promising formations appeared as gas prone must have persuaded thecompanies to relinquish their concessions. However, the new seismic map asproduced by the consultant shows structures of reasonable size and closure.The possibility of making discoveries of oil and/or gas in the area seemsto be fairly good.

- 49 -

ANNEX VPage 4 of 6

Risk-Analysis of the Prospects

10. The gas actually present in the project area in the Abu RoashG and Bahariya zones can vary between two extremes, from an insignificantsmall amount if both these reservoirs are dry (or absent) in all the 25seismically mapped structures, to a quantifiable maximum if the followingconditions are fulfilled: (i) that gas has been sourced throughout the areaand has migrated to the two reservoirs; (ii) that the structures are gasfilled; (iii) that the structures are as mapped; (iv) that the reservoirshave fair characteristics of porosity, saturation, etc. throughout the area;and (v) that in fault-closed structures, the faults are sealing.

11. A statistical study of the project area was conducted by RobertsonResearch International to estimate the likely values of gas-in-place and thechances of discovering such gas in each of the 25 seismically mapped closures,and to rank the eight best identified structures in a preferred order ofdrilling. The study is based on a two-step analysis which consists of:

(a) in a first step, establishing, on the assumption that thestructures are present as mapped and are filled to theirspill-points, a probability distribution (with mean u andstandard deviation s) for gas-in-place in each prospecton the basis of a range of probable values of net pay andother rock and fluid properties; and

(b) in a second step, estimating for each prospect a reliabilityfactor RI which reflects the probability that a gas poolwill be present, on the basis of the estimated confidencerating that the structure as mapped will indeed be presentand that it will be hydrocarbon bearing.

The estimates obtained from each step are then combined to give for everyprospect (i) a risk-weighted mean value of gas-in-place & equal to the

product of RI X u; and (ii) a rank equal to RI x u /s.

12. If all 25 closures are gas filled, the total mean value of gas-in-place as given by this study, would be of the order of 28 tcf. For theeight drillable structures, the mean value of gas-in-place, if all are presentand are gas filled, would be 27 tcf. Adjusting the latter result by theestimated indices of reliability gives a total risk-weighted mean value ofgas-in-place in the eight structures of 5.7 tcf. If an average recoveryfactor of 64 percent is applied, the risk-weighted mean value of recoverablereserves would be 3.7 tef. The results for each of the eight structurestogether with their ranking in a suggested order of priority for drillingis given below. These results do not take account of the possibility thatgas is present in reservoirs other than the Abu Roash G and Bahariya, norof the possibility that oil can be present in the reservoirs.

- 50 -

ANNEX VPage 5 of 6

Rank 1/ Prospect u 2/ u 3/

1 X 4/ 1.27 0.6972 H 6.52 1.4673 L 8.36 1.8814 T 1.62 0.2435 P 3.04 0.5656 A 1.59 0.2817 w 2.83 0.2128 G 1.82 0.344

27.05 5.690

1/ Rank in order of priority for drilling.2/ Mean value of gas-in-place if prospect is gas filled.3/ Risk-weighted mean value of gas-in-place.4/ Prospect X has been overestimated because of a mis-

location of the well, Abu Sennan I, drilled by Amoco.However, it is kept as No. 1 because of the provenpresence of gas in Abu Sennan.

13. It must be stressed that the above results are of necessitybased on the current interpretation of the geology of the project area(as presented in the first part of this annex) and on a largely subjectiveassessment of certainty and risk. For this reason, the project providesfor a review of parameters and of the order of drilling after each welland for an overall review of the geology and of drilling strategy aftercompletion of the first four wells.

- 51 -

Table ANNEX VGeneralized StratiRraphic section in the Abu Gharadig Area

Western Desert, Egypt Page 6 of 6

Geological Formation Thickness Lithology PetroleumAge Name (Feet) Indications

Recent - Thin

Lower Miocene Mor Sandstone, grey --Oligocen gra shale, limestone

Oligoceme Daba Shale, light Potential sourceUpper Eocene grey & green rock.

S Middle Eocene Apollonia Limestone, fine- Oil stain reported.Paleocene P grain light colored, Poor reservoir rock.

with some shale

Unconformity

Upper Cretaceous Khoman A Chalk(Santonian- )(Maestrichtian) Khoman B Limestone and Shale is potencial

shale source rock.

Erosional Unconformity

Upper Cretaceous Abu Roash A 0-1000 Limestone & shale, One reported gas(Cenomanian-) i--- rare sandstone show.(Turonican )

Abu Roash 8 0- 700 Fine grained lime- None. Poor reser-stone with some voir and sourceshale rock.

Abu Roash C 0- 300 Shale, siltstone, Sands ptoduce oil insandstone, some Abu Gharadig field,limestone gas in Abu Sennan-l

well.

Abu Roash D 0- 500 Limestone & shale Poor reservoir andsource rock. Oilshow in hWD5-l well.

Upper Cretaceous Abu Roash E 200-800 Limestone,shale Sands otl-bearing in(Turonian) siltstone, sand- Abu Gharadig field.

stone

Abu Roash F 200-400 Dark shaly lime- Good source rock.stone & shales Some limestone has

reservoir properties.Reported show inBRE-23-1 well.

Abu Roash G 300-1000 Dark shale with Total gas at 15 mil.white sandstone & cubic ft. per day insome limestone BRE-23-2 well. Gas

shows in other wella.

Upper Cretaceous Bahariya 0-1800 Interbedded sand- Moderatclv good re-(Iptian-Cenomanian) stone, siltstone, servoir sands.

shale w/occasional Principal gas re-thin coal beds servoir in Abu

Gharadig field.

Upper Cretaceous Burg-el-Arab Sandstones & shales.(Aptian- Contains AlameinCenouanian) Carbonate series near

the base which is aseismic reflectinghorizon.

Lower Cretaceous Betty(Hauterivian-Aptian)

Jurassic Eghei Varicolored sandsshales, siltstones

- 52 -

ANNEX VIPage i of 5

ARAB REPUBLIC OF EGYPT

WESTERN DESERT EXPLORATION PROJECT

Natural Gas Powered Motor Vehicles

Historical Development

1. The early development of the internal combustion engine was basedlargely on gaseous fuels. Beginning around 1800 coal gas, originally producedfor lighting, began to be used in engines. During the first three-quarters ofthe 19th century, a series of major advances in gas engine design were made,culminating in Nicolaus Otto's invention of the four cycle Deutz "A" engine of1877. Liquid fuels, developed at about the same time, however, proved to beeasier to distribute and store and to have a higher energy content. Wide-spread acceptance of gasoline and diesel fueled engines for the infant auto-mobile industry soon followed.

2. From the turn of the century to 1950, gas fueled engine technologyfound application primarily in the stationary engine market. The popularityof gas for water pumping, power generation, and other industrial uses was dueto its low cost, clean burning characteristics, and increased engine life.Only in recent years, spurred initially by air quality concerns and shortlythereafter by energy supply concerns, have gas fueled vehicles appeared on acommercial basis. An estimated 400,000 automobiles were operating on variousgas fuels worldwide in 1978, and the numbers have been growing ever since.This fact has remained obscure to the general public, as the utilization todate, except for Italy and France, has largely been limited to private commer-cial fleets, and more recently a few municipal fleets.

Status of Technology

3. CNG and Gasoline Engines. Virtually all of the gaseous fuel used topower transportation is in gasoline engines which have been retrofitted withdual-fuel apparatus allowing them to burn either gasoline or gas. CompressedNatural Gas (CNG) has been used extensively as an automotive fuel in Italysince the late 1930s. Currently nearly 250,000 vehicles, mainly private, arerunning on CNG in the central and nothern part of the country. A small numberof other countries are using CNG as an automotive fuel, although on a far morelimited scale. In France there are about 20,000 vehicles operating on CNG andin U.S.A. more than 200 million miles have been logged by CNG powered vehicles(owned largely by fleet operators) over the last ten years. Conversion tonatural gas occurred where (a) natural gas was abundant and relatively cheapin relation to other fuels; (b) an extensive distribution network existed; and(c) prices of gasoline on account of taxes etc. were high enough to justifyexpenditures on conversion. However, in the U.S.A. conversion was motivatedeither by a concern over the pollution levels or because captive gas wasavailable to some companies. In either case, conversion to CNG took place in

- 53 -ANNEX VIPage 2 of 5

a sporadic fashion and was a result of individual initiative. However, withsharply rising prices of gasoline and consequent higher import burden, CNGbecomes an attractive alternative for countries which are well endowed innatural gas. New Zealand which has a large natural gas resource, but has toimport liquid hydrocarbons, is sponsoring conversion of about 200,000 motorvehicles over the next few years.

4. Adapting a gasoline powered motor vehicle to a dual-fuel poweredvehicle using natural gas as the alternate fuel is relatively simple. Nointernal changes to the engine, its cooling, lubrication or ignition systemare necessary. The conversion kit consists of a two-stage pressure reducingassembly, an air-gas carburation unit, solenoid valves for the CNG and gasol-ine supply lines, and high pressure tubing and fittings. The CNG is storedin cylinders, normally two or three, located usually in the trunk of theautomobile or in the case of vans and trucks on the bed of the vehicle. Asafety requirement is that the passenger space of the vehicle must be her-metically sealed off from the cylinders if they are located in an enclosedportion of the vehicle such as the trunk. Furthermore, the cylinder spacemust be vented to the atmosphere. The pressure regulating assembly is nor-mally jacketed to allow the circulation of hot water from the radiator inorder to prevent freeze-up. A selector switch, generally mounted on thedashboard, allows the drive to select the desired fuel by actuating thesolenoid valves in the supply lines to the appropriate off-on position. Thereare five known manufacturers of CNG conversion systems in Italy supplying notonly the Italian but a substantial export market. In the USA there is onemanufacturer engaged in this work on a fairly active scale. Italy is alsothe leading supplier of CNG cylinders. There are five manufacturers, eachusing its own process, to fabricate seamless cylinders from mild alloy steel(chrome-moly or nickel-chrome-moly) billets or tubing. The cylinders aredesigned for an operating pressure of 200 atmospheres and are hydrostaticallytested at 300 atmospheres. Cost of conversion kit varies between $125 to $150and a pair of cylinders $300. Including labour, the cost of conversion pervehicle would be of the order of $550.

5. CNG and Diesel Engine. A considerable amount of development workhas been carried out by several groups in Italy on the conversion of dieselengines to CNG. The basic approach has been to retain the diesel cycle,inject diesel fuel by the usual direct injection pump in limited quantitiesand aspirate CNG in the induction manifold. No sparking device is added tothe engine, and diesel oil acts as a pilot fuel and sparks the CNG. In suchconversions, proportion of CNG can vary from 0 to 75% without affecting theperformance of the vehicle. The impetus for this work came from the desireto reduce pollution, but the price differential between diesel fuel and CNGwas too small to make conversion attractive. Some research and developmenthas also been carried out in the U.S.A. A bus has been converted, and suc-cessfully operated over a long period, to run on 100% CNG by altering theengine to spark ignition. Work has also been done on converting dieselengines to dual-fuel systems with up to 90% CNG and 10% diesel. From thedevelopment works carried out so far, it would appear that conversion of

- 54 -ANNEX VIPage 3 of 5

diesel vehicles to dual-fuel (diesel and CNG) is technically feasible.However, range would be an inhibiting factor limiting its use essentially tourban transport.

6. Fueling Stations. Refueling is one area in which gas burning carsdiffer markedly from gasoline fueled vehicles. For compressing gas to 200atmosphere pressure special equipment is required to recharge the vehicle.A typical compression station comprises electric or gas engine driven com-pressors, storage cylinder to provide surge capacity, and flow and pressuremeasuring and recording facilities. For vehicle refueling there are normallyat least five bays, each equipped with a hose which is coupled to the vehiclesfilling connection. Two options are available on refueling stations: locatingthe stations so that natural gas be compressed directly from a pipeline orsupplying a station with mobile tanks or cylinders which are refilled at amother compression station on a pipeline. Usually it is a combination of thetwo; with a mother compression station operating off a high pressure transmis-sion pipeline and feeding 5 to 20 satellite stations therefrom. One of themost critical factors in selecting the site of a compression station is thepressure in the natural gas supply pipeline. The capital cost of compressioncan vary by a factor of six between operating at an inlet pressure of 20atmospheres compared to one atmosphere. Operating costs, especially compres-sion energy, are also significantly affected. The mother - satellite combin-ation permits the use of high pressure, if available, in the transmissionpipeline. On account of these considerations, cost of compression can varywidely. On the basis of preliminary computation, cost of compression in Egyptwould not be in excess of US$0.05/litre.

7. Economy and Performance. Improvements in engine efficiency of 5 to40 percent have been observed in vehicles operating on CNG, with a figure of14 percent for an average. In a gasoline engine a portion of the total amountof fuel consumed by the vehicle is required to operate a device known as anaccelerator pump; a gas powered vehicle does not use such a pump, resultingin an immediate saving in fuel. In addition, gaseous fuels mix readily andcompletely with air and do not later separate or condense out; methane inparticular can burn over a wide range of air-fuel ratios. The result ismore complete combustion with increased energy efficiency and reduced pollu-tion. The degree of improvement in efficiency depends on the type of usage:(a) improvements on the order of 10 percent have been obtained under highwayconditions, while (b) improvements of up to 40 percent have been obtainedunder city stop-and-go driving conditions. Vehicle age and size do not appearto affect relative engine efficiency.

8. It is this very efficiency in energy usage which is, in part, res-ponsible for the engine power loss suffered by CNG fueled vehicles relativeto gasoline fueled ones. The extent of the power loss varies with the vehicleand driving situation, and is generally noticeable only when accelerating,climbing a hill, or carrying a heavy load. Averaged power losses experiencedwith CNG operation have been on the order of 10-20 percent, although thedrop-off can be substantial for vehicles in low throttle settings and higherRPM ranges and for heavily laden vehicles. Advancing spark timing within

- 55 -ANNEX VIPage 4 of 5

rather strict limits may reduce the power loss. At the same time, by virtueof the gaseous state, natural gas offers easy starting, reliable idling, andstumble free acceleration.

9. Natural gas has an octane rating of 130, and therefore, does notneed the addition of lead--a substance harmful to both people and engines.

Moreover, although day-to-day maintenance costs may be higher initially until

experience is gained, use of natural gas can result in considerable savingson routine preventative maintenance. Actual use has shown for example, thata CNG powered car can be driven up to 36,000 miles between oil changes and

40,000 miles between spark plug replacements. Engine life is also enhancedsubstantially. These advantages have to be measured against a loss in cargospace (30%) to CNG cylinders and limitations of range imposed on the auto-

mobile. Two cylinders of gas, would on average carry CNG equivalent to20 litres of gasoline, giving an average Egyptian vehicle a range between150 and 200 kilometers; after which it would either need to be refueled or

switch over to gasoline. Again, not only will refueling be required twiceas often but it will also be more time consuming. Refueling natural gaswould take about ten minutes against three to five minutes for gasoline.Despite these disadvantages there are reasons to believe that consumers wouldbe willing to convert, provided adequate fiscal incentives are provided.However, the major benefactor of the conversion would be the economy andin the case of Egypt, a modest conversion program (10,000 vehicles), wouldsecure a rate of return in excess of 80%.

10. Safety and Environment. CNG is as safe, if not a safer motor fuel,than gasoline. It is lighter than air, and unlike gasoline, quickly dissipateswhen released to the atmosphere. Moreover, because of its high pressure itmust be contained in very strong cylinders which have an extremely low prob-ability of bursting from excessive heat or mechanical damage. During 30 yearsof operation in Italy, which has the most extensive experience with CNG andwhere it is compulsory to report all accident damage involving gas cylinders,there is no recorded accident resulting from a faulty CNG system. AlthoughCNG vehicles have been involved in their fair share of accidents, none wereattributable to CNG components. Component failure has rarely resulted froman accident, and there have been no injuries or deaths attributable to CNG inan accident. In USA in over 175 million miles logged by CNG vehicles, therewas no death and only one injury attributable to CNG in about 1,360 collisions,of which more than 800 were rear-end collisions. This excellent safety record,of course, does not mean that strict regulations and their enforcement, regard-ing the manufacture, installation, and inspection are unnecessary. To ensure ahigh level of safety, manufacturing quality and performance must be monitoredand installations checked and approved annually. Cylinders must be checkedand recertified at 5-year intervals. Particular attention must be paid in therouting and secure fastening of all high pressure piping and in reducing thenumber of connections and joints to a minimum. Cylinders involved in accidentsmust be recertified and those found mechanically defective or thermally over-stressed must be destroyed. A natural gas supply free of moisture and sulphurimpurities is an essential safety requirement.

- 56 -ANNEX VIPage 5 of 5

11. Natural gas is non-toxic and non-reactive in the atmosphere; thatis, it does not form smog. Moreover, it burns cleanly in a world in whichexhaust emissions from motor vehicles are a major source of air pollution,particularly in urban areas. A vehicle powered by natural gas releases airemissions totaling only 10-20 percent as much as discharged by a gasolinepowered vehicle. Composite emission comparisons in a series of tests inSouthern California showed an 83 percent reduction in carbon monoxide, a 72percent reduction in hydrocarbons, and a 97 percent reduction in oxides ofnitrogen when operating on CNG compared to stock gasoline. On a total energycycle basis (i.e., from extraction to end-use), fueling a vehicle with naturalgas would result in total air emissions of only 10-40 percent of the totalwhich would result from using present-day gasoline.

12. Potential for Use. Given the present price differential betweengasoline/diesel and indigenously available natural gas, conversion of vehiclesto CNG offers substantial economic advantage. At the same time, natural gasis more economical in terms of engine efficiency and maintenance, and moreenvironmentally sound in terms of both safety and pollution. Nevertheless,the increased use of natural gas faces several constraints--capital costs ofconversion, development of refueling stations and gas distribution, reducedvehicle range, and loss of engine power. Several of these constraints suggestthe urban environment with the existing infrastructure (pipelines, etc.) and,initially, commercial and governmental fleets as the principal market fornatural gas powered vehicles. In addition to clear identification of thepotential savings to the consumers in using natural gas rather than gasoline,conveniently located refuelling stations, adequate conversion facilities,financial assistance for undertaking conversion, introduction of investmenttax credits, accelerated depreciation schedules, road tax credits, and otherfinancial incentives may be necessary to encourage greater conversion ofvehicles. Important policies pertaining to standards, jurisdiction and fiscalincentives defined and established. Finally, caution must be exercised inattempting to introduce CNG powered motor vehicles in other countries, astechnical feasibility, financial and economic viability, and social accept-ability will differ from country to country. Conversion to CNG on an exten-sive scale should therefore be considered only after its economic feasibilityhas been studied in depth and its acceptability verified through a pilotproject.

- 57 -ANNEX VIIPage 1 of 3

ARAB REPUBLIC OF EGYPT

WESTERN DESERT EXPLORATION PROJECT

Summary of Project Costs

Local F. E. Total Local F. E. Total

*(In L.E. Millions) (In US$ Millions)

Site Preparation andWater Wells 0.5 1.5 2.0 0.7 2.2 2.9

Drilling Rig 1.6 6.9 8.5 2.3 10.0 12.3

Materials 0.1 4.0 4.1 0.1 5.7 5.8

Well Services 1.8 2.6 4.4 2.6 3.7 6.3

Seismic Surveys 0.4 2.0 2.4 0.5 3.0 3.5

Technical Assistance - 0.8 0.8 - 1.2 1.2

Basic Cost Estimate 1/ 4.4 17.8 22.2 6.2 25.8 32.0

Physical Contingency 0.4 2.4 2.8 0.6 3.4 4.0

Price Contingency 2/ 0.3 0.9 1.2 0.2 1.3 1.5

Total Estimated Explora-tion Cost 5.1 21.1 26.2 7.0 30.5 37.5

Compressed Natural GasPilot Project 0.7 1.1 1.8 1.0 1.5 2.5

Total Estimated ProjectCost 5.8 22.2 28.0 8.0 32.0 40.0

1/ Based on 7 dry holes and 2 producers - see Annex VII pages 2 and 3 for

breakdown of costs.

2/ Based on 15% and 12% escalation of local costs in 1981 and 1982 respec-

tively and 9% and 8% over the corresponding period for foreign costs.Not applied to rig and seismic work covered by fixed contract.

- 58 -

ANNEX VIIPage 2 of 3

ARAB REPUBLIC OF EGYPT

WESTERN DESERT EXPLORATION PROJECT

Estimated Cost of One Exploration Well - Dry Hole

Local F. E. Total Local F. E. Total(In L. E. Millions) (In US$ millions)

1. Equipment and Materials

Casing - 0.161 0.161 - 0.234 0.234Cement - 0.030 0.030 _ 0.043 0.043Casing Accessories - 0.016 0.016 - 0.023 0.023Bits and Nozzles - 0.101 0.101 - 0.147 0.147Mud 0.007 0.062 0.069 0.010 0.090 0.100

Sub-Total 0.007 0.370 0.377 0.010 0.537 0.547

2. Services

Drilling Rig, Fueland Water 0.166 0.768 0.934 0.240 1.110 1.350

Cementing - 0.100 0.100 - 0.140 0.140Logging - 0.124 0.124 - 0.180 0.180Gas Unit - 0.031 0.031 - 0.045 0.045Transportation:Equipment andMaterials 0.104 - 0.104 0.150 - 0.150

Rig 0.110 0.042 0.152 0.160 0.060 0.220Sub-Total 0.380 1.065 1.445 0.550 1,535 2.085

3. Water Wells 0.041 0.166 0.207 0.060 0.240 0.300

4. Well Site Preparation 0.014 - 0.014 0.020 - 0.020

Basic Cost Estimate 0.442 1.601 2.043 0.64 2.312 2.952

- 59 -

ANNEX VIIPage 3 of 3

EGYPT

WESTERN DESERT EXPLORATION PROJECT

Estimated Cost of One Well Completed As A Producer

Local F. E. Total Local F. E. Total(In L. E. Million) (In US$ Millions)

1. Equipment and Materials

Casing - 0.248 0.248 - 0.359 0.359Cement - 0.030 0.030 - 0.043 0.043Casing Accessories - 0.021 0.021 - 0.030 0.030Bits and Nozzles - 0.101 0.101 - 0.147 0.147Tubing - o.o48 o.o48 - 0.070 0.070Well Head - 0.021 0.021 - 0.030 0.030Mud 0.007 0.062 0.069 0.010 0.090 0.100Completion Testing - 0.035 0.035 - 0.050 0.050

Sub-Total 0.007 0.566 0.573 0.010 0.819 0.829

2. Services

Drilling Rig,Fuel and Water 0.166 0.768 0.934 0.240 1.110 1.350

Cementing - 0.097 0.097 - 0.140 0.140Logging andPerforation - 0.124 0.124 - 0.180 0.180

Gas Unit - 0.030 0.030 - 0.045 0.045Transport:Equipment and

Materials 0.104 - 0.104 0.150 - 0.150Rig 0.028 0.041 0.069 0.040 0.060 0.100

Sub-Total 0.298 1.060 1.358 0.430 1.535 1.965

3. Water Wells 0.041 0.166 0.207 0.060 0.240 0.300

4. Well Site Preparation 0.014 - 0.014 0.020 - 0.020

Basic Cost Estimate 0.360 1.792 2.152 0.520 2.594 3.114

- 60 -ANNEX VIIIPage 1 of 3

ARAB REPUBLIC OF EGYPT

WESTERN DESERT EXPLORATION PROJECT

FINANCIAL ASPECTS OF GPC

Present Financial Position

GPC's major activity has been confined, until now, to the productionof crude oil. As of the end of 1979, the Company's net assets of LE63 mil-lion consisted of LE28 million (44%) of oil production investments, LE23million (37%) of working capital, and LE12 million (19%) of investments inits drilling subsidiary and Government bonds. Ninety-nine percent of the netassets were represented by EGPC equity. GPC-s relatively minor long-termdebt represented the balance due on suppliers credits from the USSR whichwill be repaid within the next five years.

Throughout the past years, crude exports have allowed GPC to main-tain a sound financial position. In the period 1976-79, total oil productionaveraged about 26,000 B/D. Of this amount, about 95% was exported. As aresult of the increases in the international oil price, GPC's total revenuesrose from LE40 million in 1976 to LE109 million in 1979, and net incomefrom LE29 million in 1976 to LE86 million in 1979. Despite a statutoryrequirement that nearly 85% of net income be allocated for distribution toEGPC and the Government, the level of GPC-s retained reserves have permittedthe Company to cover between 1976 and 1979 a modest program of capital expen-diture for drilling and field renovation, and to increase its working capitaland financial investments without any external influx of funds.

- 61 -

ANNEX VIIIPage 2 of 3

General Petroleum Company

Summary Financial Statements

(In Million LE)

Actual Projected

For Year Ending December 31: 1979 1980 1981 1982 1983

INCOME STATEMENTS

Revenue 109 120 123 120 118

Expense 15 21 24 27 27

Income Before Interestand Taxes 94 99 99 93 91

Less: Interest - - (1) (1) (2)

Taxes (8) (8) (8) (8) (8)

NET INCOME 86 91 90 84 81

SOURCES AND USES OF FUNDS STATEMENTS

SOURCES

Net Income 86 91 90 84 81

Less: Distribution (73) (77) (76) (71) (68)

Retained Reserves 13 14 14 13 13

Add: Non-Cash Expense and Interest 12 12 18 17 15

Net Internal Cash Generation 25 26 32 30 28

IBRD Loan - - 6 7 3

EGPC Equity - - - - 20

TOTAL SOURCES 25 26 38 37 51

USES

Western Desert Project - 6 14 5 -

Further Western Desert Investments - - - 26 37

other Investments 15 13 19 11 8

Total Capital Expenditures 15 19 33 42 45

Long-Term Investment 5 4 4 4 4

Debt Service - - 1 1 2

Change in Working Capital 5 3 - (10) _

TOTAL USES 25 26 38 37 51

- 62 -

ANNEX VIIIPage 3 of 3

Future Finances

Even though the level of GPC's oil production is rurrently depletingat a rate of about 10% per year, for as long as the predominant share of itsoil is allocated to exports, likely increases in the international oil pricesand presently planned development efforts would allow GPC to maintain arelatively high level of net income at least through this present decade.This level of income would ensure GPC's ability to service the debt on theproposed Bank loan. It should also be sufficient to ensure GPC's abilityto cover, through internally generated funds, local project costs, a modestextension of the proposed project, and certain investment for development,at least through 1982. Additional financing for development from EGPC and/orexternal borrowing may be required as early as 1983 in the event that theexploration in the project area proves to be successful, however, this wouldnot present a problem.

GPC's longer term future finances will depend on the measure ofits success in generating new assets that will remain commercially productivebeyond this decade. It is in a position to benefit appreciably from anysuccess attained by its present foreign partners in exploration. In anyevent, given the prospectiveness of the project area, even modest successin its exploration, together with appropriate financing and gas pricingplans, will help ensure that GPC's financial position will remain sound.

- 63 -ANNEX IX

ARAB REPUBLIC OF EGYPT

WESTERN DESERT EXPLORATION PROJECT

Supplementary Project Data Sheet

Section I - Timetable of Key Events

(a) Time taken by the country toprepare the project: 11 months

(b) Agencies preparing the project: (i) General Petroleum Co.(ii) Petroleum Gas Company

(c) Project first presented to the Bank: July 1979

(d) First Bank mission to consider the project: May 1980

(e) Date of departure of appraisal mission: June 21, 1980

(f) Date of completion of negotiations: October 31, 1980

(g) Planned date of effectiveness: May 1981

Section II - Special Bank Implementation Action:

None.

Section III - Special Conditions

1. Special conditions of effectiveness are:

(i) Execution of a subsidiary loan agreement between EGPC andGPC (para. 52) and

(ii) Employment by GPC of consultants specialised in wellcompletion services (para. 55).

2. A condition of disbursements for services relating to drilling worksunder Part A of the Project is that the Bank has declared such serviceseligible for financing on adequate documentation to be submitted by GPC(para. 54).

3. Another special condition is:

the preparation by June 30, 1981 of a study on the prospects of enhancedsecondary oil recovery in selected oil fields (para. 33).

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