Document of

The World Bank HU r5fpFOR OFFICIAL USE ONLY

Report No. 2878-TUN

STAFF APPRAISAL REPORT

TUNISIA

SECOND NATURAL GAS PIPELINE PROJECT

May 1, 1980

Energy Department (Petroleum Projects)Europe, Middle East and North Africa Regional Office

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

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CURRENCY EQUIVALENTS

I Tunisian Dinar (DT) = US$2.51 US Dollar = 0.4 DT

FISCAL YEAR

January 1 to December 31

1c

WEIGHTS AND MEASURES

1 kilometer (km) = 0.62 miles1 metric ton (tonne) = 2,204 lb1 ton(ne) of oil equivalent

(t.o.e. or tep) = 39.7 million British ThermalUnits (Btu)

0

1 tonne crude oil (36 API) = 7.45 barrels1 barrel of oil = 42 US gallons

31 cubic meter (m ) = 35.3 cubic feet1 billion cubic meters/annum = 96,700 cubic feet/day1 million cubic meters

Hassi R' Mel gas = 1000 t.o.e.1 million cubic meters

El Borma gas = 1100 t.o.e.1 Megawatt (MW) = 1000 kilowatts0

API = measure of specific gravity of oil1 US gallon = 3.785 litres1 tonne gasoline = 357 gallonsI tonne fuel oil = 6.62 barrels

Note: All volumes are based on 1 atmosphere pressure and 15 degrees Celsius

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

LNG - Liquified Natural GasLPG - Liquified Petroleum Gas (a mixture of propane and butane)ETAP - Entreprise Tunisienne d'Activites PetrolieresSNDP - Societe Nationale de Distribution PetroliereSTEG - Societe Tunisienne de l'Electricite et du GazSTIR - Societe Tunisienne des Industries de RaffinageSITEI] - Societe Italo-Tunisienne d'Exploitation PetroliereCFTP - Compagnie Franco-Tunisienne des PetrolesSEREEPT - Societe de Recherches et d'Exploitation des Petroles

de TunisieSONATRACH - Societe Nationale pour la Recherche, la Production, le Transport,

la Transformation et la Commercialisation des HydrocarburesSOFREGAZ - Societe Francaise d'Etudes et de Realisations d'Equipements

GaziersTESA - Societe Tunisie Engineering (S.A.)ENI - Ente Nazionale IdrocarburiOTC - Office de Topographie et de Cartographie

FOR OFFICIAL USE ONLY

TUNISIA

NATURAL GAS PIPELINE PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. ENERGY SECTOR ........................................ . I

Energy context .... ........... .1

Energy resources ...... ................ 0........... 1Supply and demand patterns ............................ 3Development prospects ..................... . ........... 4Sectoral organization and structure .................. . 6Sector investments and financial resources ............ 8Sector policies ................................ 8Role of the Bank ... ................................... 10

II. THE PROJECT ............................... i.............. 1

Background: Developments in Algeria and Italy ...... .. 11Institutional framework ............................... 11Gas availability ........................... ........... 12The intercontinental pipeline ........... .. ............ 12Project description - Tunisia's pipeline .............. 13Status of project preparation .................... ..... 14Project implementation .............. .. ................ 15Project costs ........... . .. .... ..* ......... 15Project financing plan ............... .. ............... 16Procurement and disbursement .......................... 16Ecology and safety .................................... 17Project risks ... .................... .................. 18

III. BENEFICIARY ....................................................... 19

Organization and management ........................... 19Recruitment and training .. .......................... 19Accounting, auditing and insurance 20.................. 20

IV. FINANCIAL ASPECTS ........ .. ............... ............. 21

Future Pricing of Natural Gas ............. ............ 21Future Performance: The Natural Gas Accounts

(Algerian Gas) ............ .................................. 22Past Performance: STEG Electricity ................... 23Future Performance: STEG Electricity ..... *........... 23

The staff appraisal report was prepared by Messrs. E. S. Daffern, P. Moulin,and S. A. Moussa, and Miss D. Robert (Energy Department).

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

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Page No.

V. ECONOMIC ASPECTS ................................ ........ 24

Background ........... ...... ...................................... 24The Market * * * * * * * * * * .................. .. ...... . ... ... ....... 24Development and operating costs ........................ 24Value of sales . .. ......................... ............... . 25Project profitability . ..... ........ ....... ........... 25Benefits to the economy ... .. .... ... .. .... ............ 25

VI. RECOMMENDATIONS ..................... a .. . --..... ...... 26

List of Annexes

:1.01 Analysis of demand 1977-78:1.02 Demand and supply for energy 1978-19901.03 Refinery capacity:1.04 Sector investments and financial sources:1.05 Resource development:1.06 Petroleum prices

2.01 Project schedule2.02 Estimated schedule of disbursements

3.01 Present organization chart

4.01 Assumptions4.02 STEG's past performance4.03 Projections - gas division4.04 Projections - electricity division

5.Ol Economic analysis - I5.i02 Economic analysis - I and II

6.01 Documents on project file

Map

IBRD 14849

TUNISIA

I. ENERGY SECTOR

Energy Context

1.01 The energy sector in Tunisia is dominated by use of hydrocarbons,mainly oil which comprises 81% of the commercial energy market, and naturalgas a further 14%; the remainder is met by hydro (1%) and imported coal andcoke (4%). The opportunities for greater use of hydroelectricity and coal arelimited.

1.02 Tunisia is a net exporter of oil (exporting 5 million tons ofcrude oil and products compared with imports of 2 million tons) 1/ and relieson the income from petroleum for more than a quarter of its export earnings.Consumption has been growing at 8% per annum through the 1970's and is now 1.8million tons per year (33,000 barrels/day); domestic production in 1978 was 5million tons. However, production from known reserves will decline throughthe 1980's, and this, when taken with the expected growth in consumption, willresult in a dimunition in export earnings. While recent discoveries have beenpromising in that they have indicated petroleum reserves and promising poten-tial in rocks of a different geological age, the exploitation of these reservesis unlikely before the mid-1980s.

1.03 The construction of the Algeria/Tunisia/Italy pipeline has openedup a new opportunity for Tunisia. Natural gas could potentially meet 50% ofTunisia's energy demand, particularly in electricity generation and heavyindustry. The availability of gas from the Algeria-Italy pipeline in theearly 1980s at an import cost less than imported fuel oil, could slow,but not reverse, the expected reduction in exports. Further quantities areexpected to be available from Algeria in the longer term, and can be supple-mented through development of the Miskar offshore gas field. Transfer ofTunisia's heavy industry and electricity generation to a new energy source(gas) is a major undertaking, requiring development of a national energystrategy and careful appraisal of policy options and project economics.Tunisia has recognized this need and is taking steps to organize itselfaccordingly.

Energy Resources

1.04 Proven oil and gas reserves are concentrated almost entirelyin three fields. El Borma was discovered by AGIP in 1964 and is owned bySITEP 2/, a 50/50 subsidiary of AGIP and the Government. Elf Aquitaine

I/ Tunisian oil is of good quality (low sulphur) and the majority is cur-rently exported at a premium. For operation of the present refinery, thecountry imports lower priced high sulphur crude, thus making a financialgain.

2/ Societe Italo-Tunisienne d'Exploitation Petroliere.

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discovered the two other major fields, Ashtart (1971) and Miskar (1974),offshore in the Gulf of Gabes. Ashtart oil is being produced under a 50/50joint venture with ETAP, 1/ the state oil company, and Miskar is expected tobe majority owned by the Government with Elf Aquitaine having a minor share.

1.05 Indigenous proven reserves are estimated to be:

Proven Reserves as at December 1978

Original Cumulative Remaining 1978in Place Production Recoverable Production

Oil - million tons

El Borma (42 API) 83 33 25 2.3Ashtart (290API) 88 14 35 2.3Others (6) 57 4 9 0.4

228 51 69 5.0

Proven ReservesOriginal Cumulative Remaining 1978in Place Production Recoverable Production

Gas - billion cubic meters

El Borma 30 13 2 0.4Miskar 60 - 30 -Others (6) 12 2 5 0.3

102 15 37 0.7

There is also one oil field in disputed territory near the Libyan border.

1.06 Oil production from the major fields is progressing satisfactorily.Water is being injected at both El Borma and Ashtart to enhance recovery.1979 output is expected to be 12% above that for 1978, at 5.6 million tons,but with a fall to below pre 1978 production levels by 1986. Both fieldsshould produce substantial but declining quantities through the 1980's andinto the 1990's. The other proven oil fields will cease production betweenthe mid-1980's and mid-1990's.

1.07 Commercial gas production is from three fields, of which the signi-ficant one is the El Borma oil field. Following a recommendation by the Bank,STEG 2/ has agreed to purchase gas from the Algerian portion of El Borma.Despite this, the El Borma gas supply is expected to cease by 1986. Asdiscussed subsequently in Chaper II, there are no firm plans to produceMiskar gas in the 1980's. The Bank agrees with this position.

1/ Entreprise Tunisienne d'Activites Petrolieres.2/ Societe Tunisienne de l'Electricite et du Gaz.

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1.08 Other Resources. Hydroelectricity is currently limited to one 25MWplant, with a similar plant under construction. The lignite deposits on CapBon have not been explored but are not believed to be large. Coal requiredfor the steel industry is imported. Because of the climate, crops and farmingmethods and location of population, the possibilities for non-commercialenergy are believed to be small, although possibly significant for isolatedareas.

Supply and Demand Patterns

1.09 Since 1971, commercial energy consumption has increased on averageby 9% per annum from 1.2 million tons oil equivalent (toe) to 2.3 million toein 1978. GDP increased over this period at a similar rate, giving an energy/GDP growth in line with the norm for middle-income countries. During the sameperiod Tunisia's crude oil and gas production has increased by 1.2 milliontons, permitting an increase in net exports.

1.10 The energy supply/demand situation is summarized below:

Thousand tons of oil equivalent

Proportion1971 1975 1978 by Source

Consumption

Oil products 1096 1392 1840 81%Gas 3 231 326 14%Hydro 17 10 10 1%Coal and coke 100 98 100 4%

1216 1731 2276 100%Met by

Domestic production

Oil 4097 4611 5014Gas 3 231 326Hydro 17 10 10

Imports 700 1508 2014

Less Exports & stock changes 3601 4629 5088

1216 1731 2276

1.11 Gas oil demand has been growing at 13% annually, meeting 40% ofpetroleum demand and Tunisia is now dependent on imports for more than 50%of its requirements. Fuel oil, supplying 35% of total petroleum needs, isimported to the extent of 30%, and all jet kerosene is imported. The mainsupplying countries are Greece, Italy and Libya. The growth in gas oildemand and the substitution possibilities for fuel oil are major factors inconsidering future refinery options, and are the dominant factors in refinerydesign.

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1.12 For most of the 1970's, data on the use made of Tunisia's energyis incomplete and is concentrated primarily on power and large scale industry.An energy use analysis for Tunisia as a whole is available for 1977 and 1978.The power and industrial sectors use all of the hydro, gas and coal, 94% ofthe fuel oil and 28% of the gas oil, in total 56% of total energy, a propor-tion which has been growing during the 1970's. Their share of the total isexpected to grow further in the 1980's. Apart from power, the major usersof energy are the construction, chemical and extractive industries. Detailsare in Annex 1.01.

1.13 The refinery (at Bizerte) has a nominal capacity of 1 milliontons/year and has limited catalytic reforming facilities. It has operatedabove the nominal rating throughout the 1970's (see Annex 1.03 for an analysisof output). The refinery was designed for and operates on imported highsulphur Iraqi crudes, allowing virtually the whole of Tunisia's own crudes tobe exported. Tunisia's (El Borma) Zarzaitine crude attracts a quality premium;Ashtart crude is conveniently located for export. Given that the refinery nowmeets only 2/3 of Tunisia's needs, and that product exports are virtually nil,there is no advantage in making modifications to the existing refinery confi-guration. The solution is to design the refinery expansion to reflect futureneeds. The expanded refinery (discussed below) will initially use Tunisiancrude.

Development Prospects

1.14 Despite the availability of a relatively large supply of energycompared to current requirements, the energy sector in Tunisia is at aturning point where decisions made now will affect the long term throughthe end of the century.

For its industrial energy strategy Tunisia could:

(i) continue to base its strategy on oil.

(ii) rely on royalty gas 1/ and imports, both coming from theAlgeria-Italy gas pipeline.

(iii) develop its natural gas resources.

The Government chose option (ii), the use of Algerian supplies.

1.15 The choice between the three above options, or a combination thereof,involve complex technical, financial, economic and political considerations,and projections on an international basis which must inevitably be speculative.The Government gave lengthy consideration to the choice and decided in favorof relying on Algerian gas for the 1980's, both on economic grounds and inrelation to the longer term energy policy options. Development of Miskar atthis time was seen to pose difficult energy supply problems for the later

1/ Royalties are payable by Italy for the right to transport gas by pipe-line across Tunisia. They may be taken in the form of cash or as gas.

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1980's when production would be declining, and to involve a particularly largefinancial investment in a single resource. In the meantime, the Governmenthas agreed to undertake a study on ways of using offshore associated gas.The study will emphasize the possibility of a floating power plant and willinclude other possible ways of using the gas. The study will be commissionedshortly and wnen completed will be discussed with the Bank.

1.16 The Government's intention is to use natural gas to the maximumpossible extent, and to contract accordingly for large quantities of gas,leaving little safety margin. Consequently, to avoid excessive payments forgas not taken, it is imperative for the energy forecasts to be sufficientlyaccurate since the gas will be purchased on a take or pay basis.

1.17 Apart from STEG's power forecasts, Tunisia has no proven experienceof energy forecasting. This should be remedied through the energy planningwork with Gordian Associates discussed subsequently (paragraph 1.36). TheBank has examined and accepted the forecasts for fuel for power generation.In relation to industrial use, the Bank has examined and accepted forecastsbased on existing consumers (about 30) plus new plants under construction,making no specific allowance for other new plants. This is a conservativeapproach to supply and demand matching. Overall consumption is expected togrow more slowly than in the 1970's, yet in relation to GDP, at a slightlyfaster rate. The Tunisian current (5th) Development Plan is markedly differ-ent from its predecessor in its emphasis on heavy industry. Supply and demandis summarized below. Year by year forecasts of supply and demand are includedin Annex 1.02, together with a breakdown of the sources of supply.

Thousand tons of oil equivalent

Average Annualsupply 1978 1982 1985 1990 Growth

Oil products 1840 2055 1955 2690 4%(of which substi-tutable by gas) (617) (580) (165) (190)

Gas 326 1025 1895 2800 20%Hydro 10 10 20 20 6%Coal & coke 100 100 100 100 _

2276 3190 3970 5610 8%

Demand

Transport 769 965 1175 1640 6%Commercial/household 239 315 390 550 7%Industry 675 1075 1285 1600 7%Power 593 835 1120 1820 10%

2276 3190 3970 5610 8%

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it will be seen that, despite the tremendous increase in the use of gas, theconsumption of oil products is expected to stabilize only through the middle1980's and pick up thereafter. The prospects for further substitution by 1990are small, and are essentially limited to the hotel industry and domesticsupplies. The coal and coke and most of the gas will be imported. By 1985almost all potential substitution of fuel oil and gas oil by natural gas willhave taken place. Less than 7% of potential substitution in power and industrywill remain. Natural gas will then supply 79% of power and industrial demand,coal and hydro together will supply 5%, and 9% will be away from the supplypipelines or otherwise unsuitable for convenient substitution by gas. Gas oiland heating oil, used for trucking, local shipping, agricultural pumps andsmaall scale heating, will form 54% of oil products demand, gasolines andaviation fuel 16%, kerosene and LPG (used for heating, cooking and lighting15% and fuel oil, used for shipping and for consumers away from the gaspipelines, 15% (see Annex 1.02).

1.18 Detailed analysis product by product indicates a potential gassurplus in the years 1986 to 1989, during which some royalty gas would haveto be taken as cash. Should the growth in energy demand for power and indus-try average less than 6% against 10% and 7% used respectively in the forecast,it would not be possible to avoid take or pay. The possibilities will beexamined in the Gordian Associates' studies. During discussion of the studiesthe Bank will pay particular attention to the supply/demand match for thelater 1980's.

1.19 The forecasts take no account of the potential for substitutingcooking and heating fuels for small scale users with natural gas. There isalready a gas distribution system in Tunis supplying 20,000 households. Thequantities involved in domestic supplies are small. As part of the project,the Bank will finance a feasibility study of supplying natural gas to house-holds and small scale industry, to be completed by mid-1982. Agreement wasreached on this at negotiations.

1.20 Following a study by the Foster Wheeler Energy Corporation, theGovernment has decided to proceed with the expansion of its Bizerte refineryto an annual capacity of 4 million tons. The expanded refinery will initiallyuse Tunisian crude, both El Borma (Zarzaitine) and Ashtart blends in roughlyequal proportions, production of which will be sufficient for maximum refineryoutput through 1985 only. Design based on domestic crudes will improve thesecurity of supply, and will result in low sulphur products. The refinery hasbeen planned so as to maximize the production of middle distillates andminimize the quantity of fuel oil. Nevertheless, some imbalances are anti-cipated including significant exports of fuel oil and naphtha. The precisemix of products will depend on the crudes used in practice and, in turn,depend on further discoveries in Tunisia. Refinery product mixes are shown inAnnex 1.03.

Sector Organization and Structure

1.21 Initially the petroleum sector was in the hands of overseas oilcompanies with the state controlling refining, power and gas distribution.The Government has substantially increased its role through the establishment

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of a state oil company, joint operating companies, and the agreed acquisitionof the largest distribution company.

Exploration and Production

1.22 In exploration and production the primary state company is ETAP(Entreprise Tunisienne d'Activites Petrolieres), which is 100% Governmentowned. ETAP has wide coordinating powers for the whole sector. The otherstate companies in this sector are SITEP, SEREPT 1/ and CFTP 2/, each 50%Government owned. SITEP operates the El Borma field and SEREPT the Ashtartfield. Apart from its earnings through royalties and taxes the Governmenttakes approximately 50% participation in Tunisia's oil and gas production. Inaddition to the state companies there are fifteen external groups engaged inexploration (including two major international oil companies, the remainderbeing North American independents and European companies) and there are threeproducers.

Refining

1.23 The provision of all refined products is controlled through twostate industries, STIR (Societe Tunisienne des Industries de Raffinage) andETAP. The Government through STIR owns and operates the country's onlyrefinery. Product imports are controlled by ETAP. The new refinery willalso be wholly-owned by STIR.

Transmission, Distribution and Marketing

1.24 STEG (Societe Tunisienne de l'Electricite et du Gaz) is responsiblefor hydroelectricity and for the generation and distribution of electricity.In relation to gas, STEG has the responsibility for the transmission anddistribution of El Borma gas and Cap Bon gas, and the manufacture and dis-tribution of town gas in Tunis. STEG's activities will be expanded to includethe transmission and distribution of Algerian gas from the intercontinentalpipeline.

1.25 The construction, ownership and operation of the Algeria-Italygas pipeline will not involve STEG and will result in the establishment ofthree companies in Tunisia, whose roles are described in the next chapter.

1.26 Distribution of oil products from the refinery and the terminalof the Bizerte/Tunis products pipeline is the responsibility of the oilcompanies. The Government company, SNDP (Societe Nationale de Distribution dePetrole) has 40% of the market. Together Esso, Shell and Mobil have 35% andeight other companies share the balance.

Government Organization

1.27 The energy sector operates under the Energy Department of theMinistry of Industry, Mines and Energy 3/. The main functions of

1/ Societe de Recherche et d'Exploitation des Petroles de Tunisie.2/ Compagnie Franco-Tunisienne des Petroles.3/ Recently merged with the Ministry of Commerce.

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the Energy Department have been to negotiate exploration and developmentagreements, to set standards for the operation of the sector and to set fuelprices and power tariffs. There was no obvious need during the late 1960'sand 1970's for Tunisia to undertake more than rudimentary energy planning andcoordination. The need for more formalized plan4ng was recognized in 1977and the Government has reorganized accordingly to meet the challenge.

1.28 The Energy Department has recently been remodelled to handle longterm energy planning and the study and review of the economic, financial andlegal aspects of alternative energy development plans. The Department'sfirst priority is to complete the Gordian Associates study on energy pricingand planning as required under the second power loan (IBRD 1355-TUN).

1.29 Apart from its longer term planning and its study of non-conventionalenergy resources, the reorganized Energy Department operates through fourdivisions: (1) exploration and production; (2) refining transmission anddistribution; (3) gas; and (4) power, to correspond with the sector structure.

Control

1.30 The Government controls the oil and gas industry in many ways.For the state companies the Government appoints the president and the board,it controls the provision of long-term finance and it controls prices. Thelong-term development plans of the state companies are an integral part ofTunisia's national plan. Exploration is controlled through the issue ofexploration licenses, which carry with them minimum work obligations. Permitsare valid for three years and can be extended three times with a reductioneach time of 20% in permit area, together with commitment to further workobligations. If a field is developed a production license concession isgranted for 50 years, a substantially longer period than is common in othercountries. The import of petroleum products is channelled through ETAP.The Government controls the retail prices of all petroleum products andtransport charges, but within these limits distribution is handled by thevarious distribution companies.

Sector Investments and Financial Sources

1.31 At the time of adoption of the current national plan, the energysector was expected to absorb 17% of Tunisia's total capital investments overthe five years 1977-81, which is high compared with other countries at asimilar stage of development. The Fifth Plan provided for $1,330 million ofinvestment in primary energy and $500 million for secondary energy. Becauseof the deferral of the Miskar project, actual expenditure will be $500 millionless. Further information is in Annex 1.04.

Sector Policies

Resource Development

1.32 The main energy source so far found in Tunisia is oil and gas.Other resources play a minimal role. The Government's policy in energydevelopment is to increase Tunisia's production of crude oil and oil products,

and to maximize the export of oil products through substituting gas for fueloil in the domestic market. While taxation, licensing and participationpolicies are broadly comparable to those in other countries, there existsin Tunisia a particularly favorable attitude to foreign participation whichencourages a satisfactory level of exploration. Further detail is in Annex1.05.

Pricing

1.33 Retail prices of petroleum products are broadly characterized bytwo distinct pricing tiers: retail prices of lighter products, such as motorfuels, are relatively high, and generally higher than is common in the oilexporting countries; retail prices of middle distillates and fuel oil, on theother hand, have been kept low for many years through subsidies, both in orderto keep down the general price level and to assist Tunisian industry. Over-all, the "reconstituted barrel" for Tunisia realises $32 which is approxi-mately world prices. A comparison of retail prices of principal petroleumproducts in Tunisia with those in other countries is shown in the followingtable:

Regulargasoline Gas oil Fuel oil$/gallon $/gallon $/tonne

Tunisia 1.94 0.71 60Brazil 1.86 1.13 83Egypt 0.35 0.12 11Syria 0.78 0.25 90Thailand 1.41 1.15 153United Kingdom 2.24 1.06 234United States 1.28 1.10 152

1.34 Revenue needed to finance refinery operations and the cost ofimports comes from three sources. Firstly, Tunisia receives oil as royaltieson production; secondly, part of the production of each field has to beoffered to the local market at a discount, and thirdly, revenue is generatedon the sale of LPG, gasolines (part of the profit on gasolines is in the formof taxes earmarked for other needs) and aviation kerosene and the export ofnaphtha. The first two of these are heavily dependent on future productionlevels. The rising proportion of imports has made it impossible for Tunisiato maintain the subsidies and prices of products have increased in recentyears. Nevertheless, domestic prices for the heavier products were somewhatbelow world prices prior to the 1979 price explosion; price adjustments inDecember 1979 were also relatively small. (Annex 1.06 lists the currentretail prices in Tunisia and bulk prices in Italy).

1.35 The Bank has undertaken a preliminary study of the effect of energyprices on Tunisian industrial energy demand, both of power and of oil and gas.Energy was found to form only a small proportion (6%) of the end costs ofproducts, such that adjustment to economic prices would have little effect

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on product prices, and hence demand. In any case, most of the productsexported by Tunisia have little energy input. It was noticed that there hadbeen no discernible impact on demand as a result of major price increases inprevious years.

1.36 As discussed in Chapter IV, on project grounds, it is essential toincrease fuel oil prices in the short and medium term, so as to ensure thatgas prices do not exceed fuel oil prices. An increase in fuel oil priceswill be achieved in steps over the next few years, and discussed more fully inChapter IV. In respect of the other energy prices, parity with internationalprices (or above) is the most appropriate long-term solution, but may take adecade to achieve for low volume socially sensitive products such as keroseneand gas oil (to the extent it is used for fishing and agriculture). TheGordian Associates study, which will pay particular attention to pricing, willbe available during 1980. The Bank will discuss the whole report with theGovernment as part of its supervision of the second power loan and will seekagreement on pricing strategy at that time.

1.37 In the short and medium term, it is important to ensure a suitablerelationship between the prices of industrial fuel substitutes, and to main-tain the financial viability of the institutions concerned, both suppliers ofprimary energy (such as STEG gas) and consumers of primary energy, principallySTEG power. The principal aim for energy pricing within the present projectis to focus on the domestic price of fuel oil and natural gas.

Role of the Bank

1.38 The Bank has had a long standing involvement with STEG both inthe power sector and in the financing of the El Borma to Gabes gas pipeline,and has made three loans totalling $34 million. All three projects have beensucciessful, although the most recent currently has problems in respect ofspare parts for gas turbines. In that time STEG has developed into one ofthe most important companies in Tunisia, setting an example in efficiency andmanagement.

1.39 The need for a study on tariffs was identified as a result of thesecond power loan. As a result of further discussion with the Bank the studyhas been widened and is now an energy master plan study including pricingpolicy and is being undertaken by Gordian Associates. The Bank will reviewthe findings with the Government. To the extent necessary to ensure thefinancial viability of the gas entity within STEG, fuel and gas prices willbe increased in association with this project.

1.40 The Bank has been actively involved in the Tunisian gas sectorfor the last four years, initially with the Miskar project (see Chapter II)and the general strategy in relation to the provision of gas for Tunisianindustry. The strategy led to the present project. In relation to theproject, the Bank has assisted in the choice of pipeline routes, their sizingand timing. The Bank will assist with a number of related studies which willconcentrate on supplies to households and small scale users.

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II. THE PROJECT

Background: Developments in Algeria and Italy

2.01 The possibility of importing gas from Algeria has been an issuesince the signature of the Algeria/Italy gas supply contract in 1973 andthe corresponding transit agreement for a pipeline from Algeria acrossTunisia to Italy. The steep increase in oil prices in late 1973 and thetrend towards national control of resources led to renegotiation of thecontract to an LNG-based operation. In 1977 the terms of a transit agree-ment were agreed between Tunisia and ENI, the Italian state oil company, andthe gas supply was switched back to the original pipeline proposal.

2.02 In 1974 the Miskar structure was discovered, and was delineatedsteadily between then and 1978. During the appraisal of the Miskar projectin 1977 the Bank suggested investigation of purchasing gas from Algeria asan alternative to investing $600 million in a single gas field. Negotia-tions for Algerian gas and delineation of Miskar proceeded simultaneously,providing Tunisia with two real alternatives. Provisional agreement onpurchase terms at the same time as determination of the overall Miskarreserves (at a lower level than that hoped for), when taken together withrisk and strategic considerations, led to a Government decision to proceedwith the gas purchase.

2.03 A Bank appraisal mission in October 1979 found that, althoughplanning for the onshore gas pipeline project was well advanced, it wassuitable for Bank financing and was a project into which the Bank could makea worthwhile input. During and since that mission the project changed substan-tially, the capital expenditure planned for the 1980's has been reduced, andthe gas purchase contract was clarified. Construction of the project isscheduled from the summer of 1980, and contracts for most of the materials andequipment had to be let between the dates of appraisal and Board presentation.

Institutional Framework

2.04 The institutional framework for the intercontinental pipeline iscomplex, the arrangements differing in Algeria, Tunisia, the Sicily Channeland Italy. The Algerian state company Sonatrach will construct, own andoperate the pipeline from Hassi R'Mel (Algeria) up to its frontier. Inrelation to Tunisia, there will be three companies established in Tunisia,whose roles in relation to the pipeline in Tunisian territory will be:(1) to construct the intercontinental pipeline; (2) to own the pipeline fromcommissioning; and (3) to operate the pipeline. A fourth company will own theoffshore portion including that part in Tunisian waters and a fifth will ownthe onshore pipeline prior to commissioning. The first of these will bea subsidiary of ENI, the second Tunisian, and the third joint Italo-Tunisianwith Tunisia having the majority share after five years. The fourth and fifthcompanies are not Tunisian. Tunisia will pay 1% of the pipeline cost to takepossession, but Italy will retain ownership of the carrying capacity. Inrespect of the operations, responsibility will transfer to Tunisia after five

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years. Algerian interest in the overall venture takes the form of ownershipof the pipeline within Algeria, and of a share in the cost of the SicilyChannel crossing. As already noted, distribution within Tunisia is theresponsibility of STEG.

Gas Availability

2.05 The Hassi R'Mel gas field in Algeria (discovered in 1956), which isone of the largest gas fields in the world, is the source of gas for a numberof on-going major gas supply contracts and will supply Italy through theintercontinental pipeline with at least 12 billion cubic meters of gas ayear for 25 years, plus about 2 billion cubic meters for Tunisia. There isa possibility of increasing the pipeline throughput to a total of 20 billioncubic meters. Supplies to Italy are expected to commence in October 1981.Discussion has already begun on the possibility of a second gas pipeline forsupplying France, Switzerland and Germany. Algeria has vast gas reservesand is actively seeking to promote sales by pipeline.

2.06 The Tunisian Government is entitled to royalties on gas transittingto Italy, either in cash or in kind at the discretion of the Tunisian govern-ment. The arrangement allows maximum flexibility in Tunisia's gas supplies.In addition to the royalties, STEG will purchase from SONATRACH 700 millioncubic meters a year of gas from 1982 rising to 1,200 million cubic meters on a20 year contract. STEG has requested a further 800 million cubic meters ayear (starting with 400 million in 1986) in association with Algerian plans toincrease overall capacity of the pipeline to 20 billion cubic meters but hasso far had no response. Purchased gas is subject to take or pay. Total gasavailable to Tunisia from the pipeline is below, expressed in tons of oilequivalent (one thousand cubic meters of Algerian gas are equivalent to a tonof oil).

Thousands Tonsoil equivalent 1982 1983 1984 1985 1986 1987

Royalty gas 200 370 525 620 800 800Gas contract 635 490 620 1175 1200 1200Purchase Request - - _ - 400 800

835 860 1145 1795 2400 2800

These figures exclude royalty gas on a second gas pipeline, tentativelyplanned for the mid-1980s.

2.07 The gas is purchased at the Algerian frontier. Its cost (because oflags in price adjustments) fluctuates in the range 60-70% of the presentinternational price for fuel oil. It has to be taken at approximately anequal hourly rate throughout the year, which optimizes the intercontinentalpipeline system but causes some extra distribution costs in Tunisia and, inthe absence of gas storage, limits the extent to which the gas can substitutefor oil. STEG will use its power plants, particularly that at Sousse, toequalize the hourly take.

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The Intercontinental Pipeline

2.08 The gas pipeline from Algeria to Italy (Hassi R'Mel to Bologna)will be 2500 km in length, of which 920 km are in North Africa, 160 km inthe Sicily Che-'nel and 1420 km in Italy. The pipeline will be 48" in diameterin Algeria, Tunisia, Sicily and the greater part of its route through Italy,while decreasing gradually on the last section connecting it to the NorthernItalian Network. The Sicily Channel has three 20" lines plus a 20" spare,the Messina Straits have three 20" lines and a 10" spare. Over the wholelength of the pipeline there will be 11 compressor stations totalling500,000 horsepower.

2.09 Tunisia has the right to use the intercontinental pipeline totransmit gas from the Algerian border through to various places in Tunisia,for which it will pay a charge of $1 to $4 per toe based on estimated totalthroughput and distance. It also has the right to add additional offtakes.Construction of the intercontinental pipeline is ahead of schedule and nodifficulty is expected in achieving the October 1981 commissioning date.Tunisia will endeavor to take royalty gas from this date. The area ofgreatest risk--the Sicily Channel crossing--is progressing satisfactorily.Regardless of the progress offshore, the Algerian and Tunisian portions ofthe pipeline can operate independently.

Project Description - Tunisia's Pipeline

2.10 Tunisia's own pipeline system will be built in stages, the firsttwo being within the next four years. The final stage, which is essentiallyfor security and flexibility and/or to transmit Miskar gas onshore, is notexpected before 1990. The project financed by the proposed loan, namelyStage I, constitutes the initial phase in distributing gas from the Algeria-Italy pipeline to consumers in Tunisia. This stage is for pipelines toTunis, Sousse, Gafsa and Tadjerouine (Map No. 14849). Stage II for whichthe Bank will finance the optimization studies, will extend the system fromGafsa to Gabes and from Tunis to Bizerte. Pipe diameters have been deter-mined on the basis of potential 1990 demand, on the avoidance of the needfor installing compressors in the first two stages, and on the basis of aneventual loop connecting Sousse southwards to Gabes. Operating pressurewill be about 70 atmospheres. Should the additional gas purchase (paragraph2.06) not be obtained, it will be necessary to reassess the need and timingfor the extension to Bizerte.

2.11 The first stage of the project includes the items listed below:

(a) a 20" buried pipeline running from the intercontinentalpipeline in the coastal region 70 km north to Tunis and70 km south to Sousse. There will be provision forcompressors to be added at a later stage.

(b) an 18" buried pipeline running from a point near theAlgerian border 60 km south to Gafsa.

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(c) a 90 km 8" buried pipeline from the intercontinentalpipeline to Kasserine and Tadjerouine.

(d) 170 km of laterals connecting the transmission lines tocustomers. 80% of the laterals are for the Gafsa area.

(e) a cathodic protection system to prevent chemical orelectro-chemical corrosion.

(f) three injection terminals, including filtration and metering,at the connections with the intercontinental pipeline; blockvalves approximately every 20 km and at the branching pointfor each consumer's delivery pipe; scraper trap assembliesat both ends of each section of the network; and about 18(stage 1) delivery terminals for pressure reduction, strainingand metering.

(g) Conversion of customers oil-using plant and equipmentto dual firing (oil and gas).

(h) consultancy services for right of way, engineering, procurement,project management, construction supervision, start-up and com-missioning.

(i) other consultancy services for studies on supplies to householdsand small-scale industrial users and optimization of the stageII system.

I(j) training of STEG employees both in Tunisia and abroad.

2.12 STEG has recommended to the Government that Stage I should alsoinclude an extension from Sousse to Djemmal. The extension would not beeconomic and has been omitted from the project description and cost estimatesand from the proposed Bank loan. At $5 million, its construction by STEGwould make little difference to the aggregate economic and financial forecasts.It is expected that the two stage II pipelines will be built in 1984. Finaldecisions have not yet been taken on the routing of the Gabes pipeline or onthe sizing of the Bizerte pipeline. Present plans are for an 18" pipelineconnecting Gafsa to Gabes, and for an 18" pipeline from Tunis to Bizerte.

Status of Project Preparation

2.13 The major part of the project preparation activities has beencompleted. SOFREGAZ (engineering consultants, France) have undertaken routesurveys, market studies and optimization studies. In association with aTunisian company, TESA, they have completed most of the detailed design.The results of the SOFREGAZ studies are contained in a series of 14 reportsissued between 1974 and 1979. Contracts have been signed with SOFREGAZ/TESAand OTC for the consultancy services. Copies of all SOFREGAZ reports will beforwarded to the Bank. STEG has agreed to forward quarterly progress reportson the pipeline construction.

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2.14 ETAP will arrange the rights of way. As a national project landcan be acquired compulsorily to meet requirements, subject to compensation inaccordance with a national formula. All land should be acquired by September30, 1980.

Project Implementation.

2.15 STEG has overall responsibility and control of the project andwill carry out the physical works and studies through the gas directorate.SOFREGAZ/TESA have been engaged to supervise the project and to assist STEGstaff in training and in all project aspects. SOFREGAZ is an experiencedconsulting organization with a proven track record in managing gas pipelineconstruction. In conjunction with STEG, SOFREGAZ has prepared a detailedPERT analysis of the project, which is summarized in Annex 2.01.

2.16 The start-up date for supplies to Tunisia has not been finalized butis expected to be 1st November 1981 for the main part of the system. It isexpected that there will be a six month period before take or pay applies.There is sufficient time to achieve completion on the scheduled date. Thecost of gas, which is subject to take or pay, will be equivalent to about$200,000 per day.

Project Costs

2.17 The Project is estimated to cost $88 million, of which $55 millionor 63Z represents the foreign exchange component. A physical contingency of6% was applied to all costs and reflects the thoroughness of the preparatorywork. The basic project cost estimate is in 1980 prices. Price escalationhas been allowed at lOZ for 1980 and 9% for 1981, except for linepipe alreadycontracted for at a fixed price. Project engineering, management and construc-tion supervision are expected to require 420 man months, and are expected tocost $12,000 per month for expatriates and $6,000 per man month for Tunisians,Including all costs. Interest during construction is estimated at $4 million.The following table gives a breakdown of the cost.

STAGE I

Local Foreign Total Local Foreign Total--In Millions D.T.- ---In Millions US$--

Studies 0.9 0.8 1.7 2.2 2.0 4.2Linepipe 0.2 4.7 4.9 0.5 11.7 12.2Pipelaying/cathodic protection 7.4 6.4 13.8 18.4 16.0 34.4Valves and fittings 0.1 1.4 1.5 0.2 3.6 3.8Land and right of way 0.2 - 0.2 0.5 - 0.5Conversion 1.1 2.0 3.1 2.9 4.9 7.8Metering (main offtakes) 0.8 3.0 3.8 2.1 7.5 9.6

10.7 18.3 29.0 26.8 45.7 72.5

Physical contingencies 0.6 1.1 1.7 1.6 2.7 4.3Price contingencies 1.7 2.8 4.5 4.1 7.1 11.2

TOTAL 13.0 22.2 35.2 32.5 55.5 88.0

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2.18 A firm estimate cannot be made for the next stage of developmentuntil decisions are made on the outstanding items, i.e. the routing of theGabes pipeline and the sizing of the Bizerte pipeline. (The Bank will financethe studies on these options, which will be completed in 1982.) For thepresent, it is estimated that the cost will be approximately US$61 million atcurrent prices based on the assumptions outlined in paragraph 2.17. The costof compressors, storage and a central dispatch system will form part of asubsiequent stage and are scheduled for the later 1980's.

Project Financing Plan

2.19 The total financing required is $92 million, including $4 millionof interest during construction. Financing proposed is:

IBRD $37 millionExport credits $12 millionEquity $25 millionOther borrowings $18 million

Details of the allocation of the proposed Bank loan are in paragraph 2.23below. The proposed Bank loan of US$37 million would be made to STEG with theGovernment guarantee at the current lending rate for 17 years including 4 yearsof grace. Including payments to the Government, the effective interest rateon the Bank loan will be 10%. The loan would be equal to 40% of the totalcost of stage 1 and to 63% of its foreign exchange component. Export creditshave been arranged for $5 million and no difficulty is expected in arranging afurther $7 million for the second contract for linepipe by October 31, 1980.The initial $5 million is a condition of effectiveness. The terms expectedare 5 years including grace and an interest rate of 8.5 to 10%.

2.20 The balance of the financing is to be $25 million in equity fromthe Government, provided as $10 million in 1980 and $15 million in 1981, and$18 million in commercial loans, to be drawn in amounts of $10 million and$8 million in 1981 and 1982 respectively. Loan terms available in Tunisiaare currently 8% interest and a minimum repayment period of 7 years, whichare compatible with the needs of the project. No funds are to be providedby STEG.

Procurement and Disbursement

2.21 The borrower has decided that all goods and services will be procuredthrough international competitive bidding. This practice has been followed inall procurement activities so far. To avoid delay in completion of theproject, orders will be placed during the first five months of 1980 for pur-chases of linepipe, valves and fittings. Including the Stage I engineering,orders placed total US$24 million (27% of project costs).

2.22 Potential bidders for the pipelaying are subject to prequalificationand the selection will be agreed by the Bank. The bid documents will permitthe work to be let as four contracts or in combination. Bidders could win

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part or all of the work. Bids will be obtained from contractors in accordancewith Bank guidelines. It is expected that some bidders will seek local firmsto participate in undertaking the work. Contract award for pipelaying (US$39million including contingencies) is expected in June, shortly after Boardpresentation. Retroactive financing will be required only for valves andfittings ($600,000).

2.23 The proposed Bank loan would meet the foreign exchange cost ofpipelaying, cathodic protection and the acquisition and installation ofvalves and pipe fittings, supervision of conversion, power plant conversion,metering, studies and the optimization for Stage II, as below, including theforeign cost element of local contracts.

Amount AllocatedUS$ million

(1) Pipelaying and cathodic protection 17.3(2) Valves and fittings 3.8(3) Conversion (supervision and for power) 2.2(4) Metering 8.1(5) Studies (urban supplies) 0.5(6) Optimization for Stage II 0.1(7) Unallocated 5.0

37.0

The loan should be fully disbursed by the second quarter of 1983. The closingdate would be December 31, 1983. Annex 2.02 gives the estimated disbursement

schedule.

Ecology and Safety

2.24 The proposed gas project does not pose serious ecological problems.The route survey took care to avoid, where possible, damage to the country-side, and once the pipelines are constructed the ecological disturbance willbe virtually nil. The project will improve the air quality in Tunisia'smajor cities by making available a clean burning sulphur free fuel. Theexpanded refinery is planned to produce low sulphur fuel oil. The gas projectwill lead to elimination of the sulphur content and the sooting effects asso-ciated with fuel oil. It will also lead to reduction in the transportation ofoil products by road.

2.25 Gas pipelines have a good safety record, and STEG's experience inmore than 20 years of operating a high pressure system has been good. TheTunisian pipelines will be buried to a depth of about three feet to minimizeaccidental damage, and they will be located for the most part away fromcenters of population. STEG is arranging for a satisfactory maintenancesystem and proper operator training both to ensure efficiency and safety.

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Full efficiency and control will be achieved through a central dispatch andcommuntications system, scheduled for the late 1980's, and will be necessaryonce a compressor is installed.

Project Risks

2.26 The Tunisian pipeline project faces no special project risks. Thereis suifficient lead time to construct the pipeline, an experienced consultanthas been engaged, and the pipeline should be ready in good time.

2.27 The physical risk associated with the project is downstream on theintercontinental pipeline, for which the Sicily Channel crossing requires newtechnology. However, delays offshore should have no effect on supplies toTunisia. There is also the risk resulting from 50% of Tunisia's energy supplycoming through a single pipeline. This is not a significant factor as themajor energy consumers will have dual-fired installations and will retainpresent oil storage tanks. Fuel oil is usually easy to obtain even when otheroil products are in short supply.

2.28 There is a financial risk in that part of the gas to be deliveredthrough the system is subject to take or pay provisions. No difficulty isexpected in being ready before take or pay applies. The excess of demandover supply in the later eighties is adequate but is not large and a majordownturn in the economy could present some difficulty in absorbing the minimumquantities of gas. The plans of the Government to ensure its ability to useadditional gas will require careful review in the light of the growth indemand and actual progress with energy-using projects.

2.29 There is an economic risk in that the whole economic advantage ofthe project relies on the differential between the cost of gas and the pricerealizable by Tunisia when selling large quantities of fuel oil. The bestadvice available is that, on the basis of the present contract, the marginshould be adequate at all times and there should be no prolonged difficulty insellinlg the fuel oil.

2.30 The final risk is political in that a major portion of Tunisia'senergy would be supplied by a single foreign country. It is worth notingthat Tunisian territory and ports are used for transporting Algerian oil,and that in respect of this project, Tunisia is a minority partner in whatis essentially a major gas supply to Italy.

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III. BENEFICIARY

Organization and Management

3.01 STEG was created by a decree law in 1962 to take over the operationof seven private utility companies upon their nationalization. During its

early years, STEG's efforts were concentrated on physically integrating theseven separate systems. After 1970, STEG was able to start on a systematicexpansion of the integrated national power system and turn its attention tomatters of organization, management and finance.

3.02 In most respects, STEG operates as an autonomous company, and hasbecome one of the most competent and effective in Tunisia, employing morethan 4,000 people. It enjoys operational freedom in the conduct of its dayto day business. The limitations on its freedom are in respect of its annual

capital and operating budgets, its rate schedules, and its salary scales.The latter have not proved a major problem in practice but are now less

attractive than they were a few years ago.

3.03 STEG is governed by a board of eight members headed by a PresidentDirector General (PDG) all appointed by the President of the Republic. Thetop management consists of the PDG, his deputy, a Manager of Development

and Coordination and a Manager of Administration and a number of functionaldirectors, including one for gas. The PDG assumed his appointment on February

1st, 1980 and is reviewing the need for a simpler organization with clearerresponsibilities. STEG has agreed to discuss any necessary restructuring with

the Bank before implementation.

3.04 The gas directorate will have four departments covering studies,equipment, transportation and distribution. The operations will be orga-

nized geographically, a Northern Division covering the Sousse/Tunis area,a Southern Division for the pipelines in the interior and the south. Whenintroduced, the central despatch center and the compressors will both be

centralized operations.

Recruitment and Training

3.05 A recruitment and training program for operational personnel isnow being studied. The plan is for the gas directorate to absorb existingstaff employed at the Tunis gas works and their Borma pipeline and thoseworking on the supervision and control of the construction of the pipelines.

It is expected to have 130 staff, of whom almost 90% would be operators.The Bank has discussed the staffing program with STEG and has agreed on a

suitable program.

3.06 The training of personnel will cover a broad spectrum of the gasindustry and will be undertaken both in Tunisia and in Algeria, France andItaly. Gaz de France facilities will be used both for preliminary training

in respect of construction work and for maintenance, operations and commercial

aspects. Suppliers of equipment will be expected to arrange specialized

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training. Complementary to the above, STEG staff will receive trainingduring work supervision and in the commissioning of the first phase of thenetwork. The arrangements are satisfactory and training outside Tunisia willbe completed before the pipeline becomes operational.

Accotnting, Auditing and Insurance

3.07 STEG has an accounting and management information system which inmost respects is efficient. The majority of its records are computerized.Its clefects are in relation to the separation between its gas operations andits power operations. Assets are not revalued. The financial accounts forthe Tunis town gas system and natural gas system are integrated with thepower accounts. Under Loan IBRD 724 TUN, STEG agreed to maintain separate(non-statutory) accounts for El Borma, and has done so although the accountsare not fully separate in items such as cash and are not always producedpromptly. Commensurate with STEG providing no funds toward the proposedproject it is recommended (1) that the annual accounts for Algerian gas beseparated from the other activities (including separate cash accounts) on anon-statutory basis, (2) that the local Tunis gas activities be separated fromthe power accounts when Tunis is supplied with Algerian gas and at thatstage! should be included with the Algerian gas accounts, and (3) that, in viewof its short-term nature (to 1986) there be no basic change in respect of ElBorma, although it is hoped that the accounts can be produced more quickly.The present financial covenants under loan IBRD 1355-TUN would continue toapply for STEG's power operations (including, as at present, El Borma gas, CapBon gas and the Tunis town gas supplies). STEG has agreed to this basis.STEG will be asked to provide detailed plans for the accounting arrangementsby 1 July 1981.

3.08 STEG's accounts are audited by Nawar & Co., an Egyptian firm ofChartered Accountants, who are satisfactory to the Bank. STEG will be re-quired at negotiations to continue to have its accounts audited independently,and to submit the audited accounts for STEG as a whole to the Bank within sixmonths of the end of each fiscal year. In respect of its Algerian gas accounts,STEG will arrange a similar (but non-statutory) audit and submit such accountsto the Bank within nine months of the end of each fiscal year.

3.09 Injuries to third parties and accidents to personnel will be insuredinternationally. STEG will provide other insurance coverage through a nation-alized company. In line with normal practice in the industry, damage topipelines as a result of explosion will not be insured. STEG has a number ofyears experience of arranging insurance and its general practice is acceptable.The arrangements will be kept under review during supervision.

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IV. FINANCIAL ASPECTS

Future Pricing of Natural Gas

4.01 The major energy pricing problem in Tunisia is the pricing of fueloil. Its current price at $60/ton is one-third of the price prevailing on theItalian spot market. By contrast, in 1980 prices the delivered cost of gas tobe purchased from Algeria is $120/toe. Fuel oil represents 44% of oil productsused in Tunisia and it receives 68% of subsidies on oil products. Both fromthe point of view of the national budget and also the need for the price ofgas to be competitive with fuel oil, major increases are necessary in fueloil prices and/or substantial subsidies are needed for natural gas. It isessential for the success of the project that industry and power have someencouragement to use natural gas. Gas has advantages over fuel oil, itsimmediate competitor, in its lack of sulphur compared with the fuel oilavailable in Tunisia, and in a number of other respects. It also has somedisadvantages when used in equipment initially designed to burn oil.Current practice has been to charge for natural gas and fuel oil at thesame price per Btu. The Government accepts the need to maintain thecompetitiveness of natural gas into the future.

4.02 The Government is also concerned to preserve the commercial natureof STEG and for it to operate as an efficient business guided by financialas well as other criteria. The uncertainties of international energy pricesare such that, whilst the Government does not, in principle, wish to make anysubsidies to STEG, it may have to provide such subsities, both in the formof cash and/or royalty gas, during the first two years of operation. From1982 onwards, the Government will gradually increase the price of royalty gascharged to STEG, so that by the end of 1986, full import prices will becharged for all Algerian gas sold in Tunisia.

4.03 The price of gas under the purchase contract will be reviewed twiceyearly in the light of changes in cost, and adjustments will be made if neces-sary. Apart from wider considerations, limitations on the funds availablefor subsidies make it desirable to review and adjust gas prices in Tunisiaeach time prices are adjusted under the purchase contract.

4.04 The result of these factors is that the price of natural gas inTunisia will progressively increase such that, by the beginning of 1987, atthe latest, the gas will be sold at not less than import parity (including alltransportation costs). Fuel oil, currently selling at one-third of itsinternational price, will at least double in price in real terms and keep pacewith future increases, by the same date. Achievement of the above will be amajor step toward international prices and will be important factors towardensuring the economic and financial viability of the project.

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Future Performance: The Natural Gas Accounts (Algerian Gas)

4.05 The finances of STEG's gas division reflect problems commonlyencountered with a new entity. As discussed in Chapter [II, power financeswill be separate. Salient features of the financial projections for Algeriangas based on an average inflation rate of 8%, and a rate of return on revaluedassets also of 8% from 1982 are summarized below. Detailed projections forgas finances are in Annex 4.03. The forecasts are based on use of the inter-continental pipeline at a fee of about $3 per t.o.e., and the project cost,financing plan, and contract quantities and costs as outlined in Chapter II.

US$ Millions 1983 1985 1987 1990

Gas sales income 95 286 554 797Purchase cost of gas 78 253 512 753Depreciation 6 13 15 18Other expenses 3 7 12 14Total Costs 87 273 539 785Net income before interest 8 13 15 12Interest 7 9 10 4Net profit 1 4 5 8Current ratio 0.48 0.70 0.91 1.34Debt service coverage 1.51 1.40 1.08 1.74Debt/equity ratio 63/37 62/38 47/53 22/78

4.06 The purchase cost of gas (including the equivalent for royalty gas)forms over 90% of the total STEG costs for its gas activities, and is exempli-fied by an operating ratio in the range 96-98%. STEG's financial condition istherefore dictated by its day to day operations, in particular the need toensure that: (i) all gas purchased is sold; (ii) that the average sellingprice for gas exceeds its average purchase cost by an adequate margin and(iii) the need to match its receipts and payments throughout the year. Thiswill be achieved through the strategy of using power plants for balancing thedemand of the natural gas network, through half yearly reviews of gas pricesin the light of the latest information on gas purchase costs, and throughinstituting a billing system in which the terms for receivables parallel theterms for payables. Funds generated will be used in priority for gas expendi-tures. In addition to the above STEG will establish tariffs sufficient toearn a rate of return of 8% on revalued assets (revalued annually) includingsubsidies for 1982 and 1983, and will ensure that its internally generatedfunds are at all times sufficient for debt service needs, to provide adequateworking capital, to meet reasonable contingencies, and to finance renewals andreplacements and, as necessary, a proportion of capital expenditures. Forecastsof STEG's finances will be sent to the Bank on a regular basis.

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4.07 The gas division's debt/equity ratio over the period 1982-90 isexpected to be high initially but will become satisfactory by 1987. The debtservice coverage is tight in the years up to 1987 and requires careful supervi-sion. Debt service coverage is expected to be satisfactory from 1988 and inthe absence of further major investments, would rise to 1.75 times by 1990. Astage III investment program will bring down the debt service coverage substan-tially, and STEG will be asked to restrict its borrowings for its gas operationsso that not in any year after 1986 will the debt service for gas fall below1.2 times. Agreement on the main features of paragraphs 4.06 and 4.07 wasreached at negotiations.

Past Performance: STEG Electricity

4.08 STEG's revenue accounts, balance sheets and cash flow statementsfor the fiscal years ending December 31, 1977 and 1978 are as shown in Annex4.02. During these two fiscal years, STEG has almost but not fully met theearnings covenant associated with the Bank loan 1355-TUN; 50% of the profitsresult from the El Borma gas operations. The results for 1979 are expected tobe less satisfactory but are not yet to hand.

4.09 STEG's accounts receivable for electricity supply were still ata high level (174 days' revenues) in 1978, principally as a result of slowpayment by local authorities and Government departments. Accounts payableare also high and reflect a deliberate policy of not making payments tomunicipalities unless first they pay their power bills. The current ratiois unsatisfactory and continues to receive attention.

4.10 Gas recovered from STEG's El Borma gas operations is charged toelectricity operations at the same price as fuel oil. The income statement,however, is consolidated. Consequently, gas "profits" subsidize power opera-tions. This will not apply to, and will not be affected by, the new suppliesfrom Algeria. No action is proposed as El Borma supplies will cease in 1986.

Future Performance: STEG Electricity

4.11 STEG has agreed to separate its new gas activities from its poweroperations. However, forecast income statements, balance sheets and cashflow statements have been prepared for power to demonstrate the feasibilityof the proposals for the gas project (see Annex 4.03). STEG expects to spend$1100 million during 1979-86 on new power plants and expansion of its system.Thirty nine percent of STEG's requirements are expected to be met from in-ternally generated funds, including customer contributions, 1% from increasesin capital and 60% from borrowing; 80% from new borrowing and 20% from thedrawdown of existing loans. The Bank is currently considering a loan of aboutUS$20 million (FY82) to STEG.

4.12 Based on the expected load growth and the level of future expenses,STEG is expected to meet the rate of return covenant (8% on average net fixedassets) by increasing yearly its electricity tariffs in line with the rate ofinflation.

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V. ECONOMIC ASPECTS

Background

5.01 The alternative sources of industrial energy available to Tunisiaare the Algerian natural gas, fuel oil and Tunisia's own gas reserves. Devel-opment of the latter has been rejected by the Government for the time being(at least to meet short-term needs) on the grounds of their relatively smallsize, the high capital cost, the risks involved and the difficulty of blendingdomestic gas production at this time into a longer term gas supply strategy.The economic analysis concentrates on the remaining choice, between importingAlgerian gas and using fuel oil.

5.02 Algeria will be responsible for all costs associated with the fur-ther development of the Hassi R'Mel field and the pipeline up to the Algeria/Tunisia frontier, and Italy will be responsible for the construction costsof the intercontinental pipeline within Tunisia. Tunisia's responsibilityis therefore limited to paying for the gas at the frontier, paying 1% of thecapital cost to purchase the pipeline, and paying its share of the capitalcharges and operating costs for that part of the trans-Tunisia pipeline ituses.,

5.03 The royalties Tunisia will receive on the transit of gas to Italyare in substitution for import duties, transit fees and taxes on the con-struction and operation of the pipeline and are payable in cash or in kindat the option of the Tunisian Government. As these royalties are receivableby Tunisia regardless of whether or not Tunisia has a gas system of its own,when taken as gas they are treated in the economic analysis as having a costequivalent to the cash which could be taken in lieu.

5.04 The gas purchase contract and royalties were discussed in ChapterII. Where royalties are taken in cash, Italy pays for the royalties at thesame Algerian border price as is payable by Italy for its purchased gas. TheItalians would then be fully responsible for transport costs.

The Market

5.05 Between 1986 and 1989 the industrial energy market is unlikely tobe able to absorb the whole of the purchased gas and the royalty gas, and upto half of the royalty gas is expected to be taken as cash. On present plansall the purchased gas and the remainder of the royalty gas will be sold inthe Tunisian market (see Annex 1.02).

Development and Operating Costs

5.06 The capital cost of the project is US$68 million (excluding taxesand duties), Stage II is expected to cost a further US$40 million, both atconstant prices. Annual operating costs are US$500,000 rising to US$1.8milliLon with Stage II. Transportation costs for the intercontinental pipelinewill be US$1 to 4 per T.o.e. according to distance.

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Value of Sales

5.07 Gas sales within Tunisia are valued at US$180 per tonne (US$4.50per million BTU) which is the January 1980 price of (high sulphur) fuel oilon the international markets. Initially the gas availability will reduce fueloil (high sulphur) and gas oil imports; after the expansion of the refinerythe use of gas will promote gas oil exports and will result in large fuel oilexports (low sulphur) even in the 1986-89 period when a temporary surplus ofgas is expected. No attempt has been made in the economic analysis to quantifythe proportion of higher-value fuels which will also be displaced. Despitethe large increase in prices during 1979, no permanent reduction is foreseenin the international fuel oil prices and a value of US$180 is felt to beconservative.

Project Profitability

(a) Economic Rate of Return

5.08 Based on the considerations outlined above the economic rate ofreturn on Stages I and II of the project are comparable at about 50% (Annex5.01 and 5.02). The rate of return reflects the high added value fromreplacing use of fuel oil with gas which is available at advantageous terms,and acknowledges the low capital intensivity of the project. Should thecontract be renegotiated such that the only saving was the differential intransmission costs to Italy and Tunisia, (which is seen as the minimum benefitin the long term), the rate of return would be 28%.

(b) Pay-Back Period

5.09 On a discounted basis at 10% the pay-back period after start-up is3 years which is unusually good for a pipeline project.

(c) Net Present Value

5.10 Using a 10% discount rate and the 20 year life of the contract,the net present value of the project is US$700 million. Approximately 80%is from Stage I and 20% from Stage II.

(d) Unit Cost Comparison

5.11 Taking the expected transit charge for the intercontinental pipeline,the cost of transportation through STEG's system and the gas purchase pricefor first half 1980, the delivered cost of gas is US$120 per t.o.e. Thesecond half is expected to be US$140. The equivalent fuel oil price (January1980) is US$180 per tonne.

Benefits to the Economy

5.12 Apart from the project profitability the main benefit from theproject is the foreign exchange saving. Taking account of an annual foreignexchange cost for debt charges of US$10 million, the substitution of gas

- 26 -

for fuel oil will give a net annual benefit at full throughput of not lessthan US$120 million (1979 price levels) which is equal to 7% of Tunisia'sexports.

5.13 The training under the project will lead to a significant transferof technology for STEG staff. The pipeline system will be operated byTunisians. A total staff complement of 130 is planned. In addition, thepipelaying will provide temporary employment for local labor.

5.14 The natural gas is free of sulphur and consequently will have afavorable impact on the atmospheric pollution in Tunis and other cities.The lack of sulphur will reduce STEG's operating costs for its power plants,by about $2 per tonne.

VI. RECOMMENDATIONS

6.01 During negotiations assurance was obtained from the Borrowers onthe following:

(i) consultants will be retained for supervision of the project.Copies of their reports and quarterly progress reports willbe sent to the Bank (paragraphs 2.13 and 2.15);

(ii) consultants will be engaged to undertake a feasibilitystudy of supplying gas to households and small scaleindustry in Tunisia's major cities, on terms of referenceto be agreed with the Bank (paragraph 1.19);

(iLi) export credits of $7 million approximately will bearranged by October 31, 1980 (in addition to those requiredfor loan effectiveness (paragraph 2.19);

(iv) commercial loans of $18 million will be arranged (paragraph2.20);

(v) that any restructuring substantially affecting the organizationfor STEG will be discussed with the Bank before implementation(paragraphs 3.03/3.04);

(vi) STEG will maintain separate accounts and balancesheets (including separation of funds) for its Algeriangas activities on a non-statutory basis, and will incorporateTunis gas activities when supplied with Algerian gas.Detailed plans will be provided to the Bank by July 1st,1981 (paragraph 3.07);

- 27 -

(vii) the financial covenants under loan IBRD 1355-TUN willcontinue to apply to STEG's power activities (includingEl Borma gas and, temporarily, Cap Bon gas and localTunis supplies) (paragraph 3.07);

(viii) STEG will continue to have its statutory accounts auditedby independent auditors and will submit the accounts tothe Bank within six months of the end of each fiscalyear; STEG will have its Algerian gas accounts audited byindependent auditors on a non-statutory basis, and will submitsuch accounts to the Bank within nine months of the end of eachfiscal year (paragraph 3.08);

(ix) the system of accounts receivable from STEG's customers thatuse imported gas will be compatible with STEG's overall paymentobligations to all suppliers (paragraph 4.06);

(x) funds generated from gas operations will not be used forother purposes without first ensuring that requirementsfor maintenance, debt service and capital expenditures,have been met (paragraph 4.06);

(xi) the selling price of gas will cover cost, (generating an8% rate of return on revalued assets), will be sufficientfor cash and other needs, and prices will be reviewed ona semi-annual basis. Subsidies will be restricted asdiscussed in the report (paragraph 4.06);

(xii) borrowings will be restricted so that, beginning 1988, inno year will the debt service ratio fall below 1.3(paragraph 4.07);

(xiii) the staffing and training programs (paragraphs 3.05, 3.06);and

(xiv) the timing of land acquisition (paragraph 2.14).

6.02 Assurances from the Government were obtained during negotiationson the following:

(i) the provision by the Government of $25 million equity over theyears 1980 and 1981 (paragraph 2.20); and

(ii) the pricing policy for fuel oil and natural gas and therelated finances of STEG (paragraphs 4.01 to 4.04).

6.03 Firm arrangement of export credits of not less than $5 million onawarded contracts will be a condition of effectiveness (paragraph 2.19), aswell as a legal opinion certifying the effectiveness and a enforceability ofthe royalty and gas purchase contracts (paragraph 2.06 and 2.07).

6.04 Subject to satisfactory agreement on the above, the proposed projectis suitable for a Bank loan of US$37 million.

- 28 -

ANNEX 1. 01

TunisiaAnalysis of Demand

DistributorsAgriculture Transport Industry Power and other Total

LPG1977 - - - 60 601978 - - - 72 72

Gasoline1977 2 - 6 10 132 1501978 1 - 5 10 138 154

Jet Kerosene1977 - 108 - - - 1081978 - 114 - - - 114

Kerosene1977 1 - 2 - 94 971978 1 - 2 - 102 105

Gas Oil1977 41 118 116 26 349 6501978 35 127 140 72 372 746

Fuel Oil

1977 1 58 336 266 1 6621978 - 39 354 256 - 649

Total oil Products

1977 45 284 462 304 636 17311978 37 280 501 338 684 1840

Natural Gas

1977 - - 46 204 - 2501978 - - 79 247 - 326

Hydro1977 - - - 10 - 101978 - - - 10 - 10

Coal1977 - - 100 - - 1001978 - - 100 - - 100

TOTAL ENERGY1977 45 284 606 516 636 20871978 37 280 680 595 684 2276

ANNEX 1.02

TUNISIA

DEtUMND AND SUPPLY FOR ENERGY 1978 - 1990000 tons

Energy demands 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Oil products

LPG 72 80 85 95 105 115 130 140 155 170 185 2 22

Gasolines 154 160 170 175 18C 190 195 205 215 225 235 245 2H8

Jet Kerosene 114 110 110 110 110 110 110 110 110 110 110 110 ilO

Kerosene 105 110 115 120 125 135 140 145 155 160 170 180 190

Gas Oil 746 870 825 870 840 910 990 1050 1135 1220 1320 1425 1535

Fuel Oil 649 750 1040 1210 695 820 745 305 145 155 170 175 370Total products 1840 2080 2345 T580 2055 2280 2310 1955 1915 2040 2190 2340 2690

Natural gas 326 385 330 220 1025 1025 1300 1895 2210 2400 2630 2790 2800

Coal 100 100 100 100 100 100 100 100 100 100 100 100 100

Hydro 10 10 10 10 10 20 20 20 20 20 20 20 20

Total demand 2276 2575 2785 2910 3190 3425 3730 3970 4245 4560 4940 5250 5610

Energy supply

OilDom.estic pro-

duction 5014 5640 6700 6100 5600 5080 4560 4140 3920 3700 3380 3140 2940

Imports crude 1146 1125 1125 1125 1125 1125 205 425 745 985 1185

Exports crude -5032 -5640 -6700 -6100 -5600 -5080 -1560 -15Imports products 768 1000 1265 1500 975 1200 205 50 60 75 90 110 185

Exports products-5 6 -45 45 -45 -45 -45 -895 -2220 -2270 -2160 -2025 -1895 -1620

Oil consumed 1840 2080 2345 2580 2055 2280 2310 1955 1915 2040 2190 2340 2690

Natural gasDomestic pro-duction 326 385 330 220 190 165 155 100 50

Royalty gas 200 370 525 620 560* 400* 630* 790* 800

Imports 635 490 620 1175 1600 2000 2000 2000 2000

Gas consumed 1025 1025 1300 1895 2210 2400 2630 2790 2800

Coal imports 100 100 100 100 100 100 100 100 100 100 100 100 100

Hydro product-. on 10 10 10 10 10 20 2 20 20 20 20 20 20

Total supply 2276 2575 27v,. 2910 3190 3425 3730 3970 4245 4560 4940 5250 5610

* royalty gas available is 800 (000) t.o.e. - the balance is taken as cash

Note: Imports/exports include stock changes

- 30 -

ANNEX 1.03

Tunisia

Refinery Output

000 tons 1978 (%) 1985 (%)

LPG 28 (2.5) 92 (2.2)

Gasoline 160 (14.2) 332 (8.0)

Kerosene 112 (9.9) 424 (10.3)

Gas Oil 312 (27.7) 1481 (35.9)

Fuel Oil 473 (41.9) 1100 (26.7)

Naphtha 43 (3.8) 695 (16.9)

1128 4124

- 31 -

ANNEX 1.04

SECTOR INVESTMENTS AND FINANCIAL SOURCES

1. The basic investment and financial forecasts are in Tunisia'sFifth Plan, and totalled US$1330 million. Provision for exploration, which ofnecessity must be tentative, was budgeted at $260 million, to be financedalmost entirely by the foreign oil companies. US$125 million has been spentin the first two years and the expenditure over the five years is more likelyto reach $400 million. The Plan provided for $290 million for a program ofwater injection at El Borma (in which the State has a 50% share) and thedevelopment of the small Isis offshore oil field, mainly to be financed fromprofits. SITEP, the operator at El Borma, has recently raised two $20 millionloans towards its development.

2. The Fifth plan included provision for a $160 million (1977) expan-sion of the state refinery at Bizerte, to be financed 65% from foreign sources.The prime purpose of the refinery is to reduce the rapidly growing burden ofimported petroleum products, particularly light and middle distillates. Norevised cost estimate is available but no major change is anticipated.

3. The largest investment included in the Fifth Plan was the develop-ment of the Miskar offshore gas field together with an onshore distributionsystem. The Miskar development ($500 million) has been deferred indefinitely.The gas distribution system now estimated at $140 million, is the subject ofthis report.

4. The electricity industry is planned to absorb $500 million, beingfinanced from three main sources: foreign loans, customer contributionsand internal cash generation. STEG plans to maintain the growth rate ofrecent years. At the same time a substantial part of the investment will befor the self-generation of electricity.

- 32 -

ANNEX 1.05

RESOURCE DEVELOPMENT

1. The Government seeks to encourage foreign oil companies to explorefor oil and gas and over 85% of the prospective area is licensed to overseascompanies. Overall the level of exploration activity has been satisfactoryalthough rather uneven. The Energy Directorate is aware of the situation,which is being carefully watched. The Government's policy is to negotiateeach concession on an ad hoc basis to allow for different techno-economicfactors. In recent agreements 20% of the crude has to be offered to Tunisiaat 10% below international prices and the Government has taken the right toacquire through ETAP a 50% share in any field. Discoveries have been broughtonstream quickly to help the country's growth and there is as yet no explicitconservation policy for oil or gas, although the production plateau can bemaintained only for a further 6 years.

- 33 -

ANNEX 1.06

ENERGY PRICES

Tunisian Retail Prices Italian Prices 2/TD $ per tonne $ per tonne

LPG 143/tonne 358 260

Premium Gasoline 2.2/liter 743 406

Regular Gasoline 2.05/liter 693 396

Kerosene 0.5/liter 153 375 1/

Gas oil 0.75/liter 216 )

Heating oil 63.3/tonne 158 ) 365

Medium oil 42.3/tonne 106 )

Fuel oil 24/tonne 60 182

1/ Estimated.

2/ January 1980 spot market prices.

- 34 - ANNEX 2.01

TUNISIANATURAL GAS DISTRIBUTION PROJECT

CONSTRUCTION PROGRAM

1980 1981 1982

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 03 04

ORDER DELIVERYMATERIALS AND

EQU IPI ENT

DELI VERY 1 DELIVERY 2

LINEPIPE| BID ANALYSISTENDER FOR CONTRACT

CONSTRUCTION NEGOTIATION

PIPELAYING

OFFERS CONTRACTOR'S SOUSSE TUNISMOB ILlIZATION 1

(1) TUNIS/SOUSSE

TADJEROUINE|

(2) TADJEROUINE _

GAFSA

(31 GAFSAF-AI-

T'AKEOVER

World Bank - 21507

- 35 -

ANNEX 2.02

TUNISA

NATURAL GAS DISTRIBUTION PROJECT

ESTIMATED SCHEDULE OF DISBURSEMENTS

Cumulative disbursementat end of quarter

1980/81 US$000

September 30, 1980 4,000December 31, 1980 10,000March 31, 1981 15,000June 30,1981 20,000

1981/82

September 30, 1981 23,000December 31, 1981 28,000March 31, 1982 32,000June 30, 1982 34,000

1982/83

September 30, 1982 35,000December 31, 1982 36,000March 31, 1983 36,500June 30, 1983 37,000

ANNEX 3.01

- 36 -

"FOCIETE TUNISIENNE DE L'ELECTRICITE ET DU GAZ (STEG)ORGANISATION CHART

BOARD

…-~~.I

r ________________ I

PRESIDENT, DIRECTOR GENERAL

PUBLIC RELATIONS DEPUTY DIRECTOR GENERAL STEG SUBSIDIARIES]

MANAGER DEVELOPMENT AND COORDINATION

MANAGER ADMINISTRATION AND FINANCE

GENERAL MANAGER STAFF

GAS DIRECTORATE POWER DIRECTORATE

STUDIES ADM NISTRATION CONSTRUCTION &

EQUIPMENT FINANCE PRODUCTION CENTRAL GENERATING

TRANSPORTATION GENERAL AFFAIRS TRANSMISSION

DISTRIBUTION DATA PROCESSING DISTRIBUTION

F~~~~~~SOUTHERN NORTHERN NABEUL SOUSSEDIVISION DIVISION

BIZERTE _ _ SFAXKASSERINE/ TUNISTADJEROUINE SOUSSEGAFSA (DJEMMAL) BEJAGABES

KAIROUAN B 21461

| REGION ):F TUN~IS|

World Bank 21461

- 37 -

ANNEX 4.01Page 1 of 2 page-

NOTES AND ASSUMPTIONS ON FINANCIAL STATEMENTS

I. General

1.01 The Tunisian accounting system has developed from the French.STEG's accounts show two further special features:

- STEG has a system for interest capitalization which almosthas a net nil effect. The system is complicated and isunder review with a view to its abolition. Accordinglyit has been ignored in the projections.

- Income taxes are recorded as charges and liabilitiesuntil formal exemption is given, usually the followingyear.

In the financial projections income taxes have been eliminated since they areinvariably waived and interest during construction has not been capitalized.The statements are presented according to American formats.

1.02 For financial purposes, STEG is assumed to be separated into twodivisions: the electricity division and the gas division. However, sincethe El Borma and Cap Bon fields are expected to be depleted shortly theirrelated income and expenses will continue to be consolidated with those ofthe electricity division.

1.03 In accordance with STEG's experience and Tunisian conditions,general inflation has been taken at 8% for all aspects (other than capitalcosts).

II. Gas Division

2.01 Income Statements

(a) The Algerian gas purchase quantities are those in the Algerian-Tunisian contract and contract request. Quantities of royalties are derivedfrom the Algeria/Italy contract and Tunisia/Italy accord. Royalty gas isassumed to be bought and sold by STEG at the same prices as purchased gas from1987, and subsidized in earlier years. The purchase price is assumed toincrease by 8% per annum.

(b) Annual operating costs were provided by STEG as well as the esti-mate of the transportation cost through the intercontinental pipeline.

(c) Depreciation was computed on the basis of net revalued fixedassets used during the period. Replacement cost is based on 8% inflation.

- 38 -ANNEX 4.01Page 2 of 2 pages

(d) The selling price of Algerian gas is equal to the price of fuel oil.

i(e) It was assumed that royalty gas would be subsidized in all yearto 19986 in a way which would result in a progressive increase in natural gasprices. Forecasts for 1982 are indeterminate and sales income figures includedirect subsidy. It was assumed that no direct subsidy was needed in 1983.

2.02 Balance Sheets

(a) Gross assets were revalued at 8% per annum.

(b) Operating inventory is estimated to be 1% of the investmentin linepipes and valves, fittings, etc.

(c) The minimum cash balance is equivalent to two months ofoperating expenses and transportation cost.

(d) Accounts payable represent three months on capital works.

(e) Accounts receivable equal two months sales.

(f) The other liabilities and the capital reflect the projectfinancing plan as outlined in paras 2.19/2.20)

(g) Interest has been based on 10% for the $37 million IBRD loan,9.5% on export credits, and 8% on commercial loans.

III. Electricity Division

3.01 The projections are based on STEG's 1978 audited statements andSTEG's own projections for 1980-1986. Fuel costs were assumed to be asexplained above and electricity tariffs to be set so that STEG's powerdivision earns 8% on the average net fixed assets (minus customers contri-butions) used during the period in accordance with present practice.

39 - ANNEX 4.02

Page 1 of 3 pages

STEG

INCOME STATEMENT (000 Dinars)

1977 1978

Income

Sales Electricity 30,734 38,376

Sales Gas 1,695 2,103

Other Revenues 4,884 5,308

37,313 45,787

Expenses

Manufacturing Expenses 16,921 20,330

Salaries 8,473 10,199

Maintenance 506 460

Depreciation 9,325 11,185

Other Expenses 4,198 4,380

Capitalized Expenses (8,585) (8,677)

30,838 37,877

Operating Income 6,475 7,910

Other Income 2,383 2,672

- -Provisions (492) (577)

-Interest (3,506) (4,361)

Net Income before Taxes 4,860 5,644

Income Taxes 2,485 3,099

Net Income after Taxes 2,374 2,545

Rate of Return on Assets 7.9% 7.4%

ANNEX 4.02

Page 2 of 3 pagesSTEG

BALANCE SHEET (000 Dinars) I

1977 1978 1977 1978

Assets Liabilities and Equity

Gross Assets 183,087 222,610 EquityLess Acc. Depreciation (64,002) (74,367) Caial 10,237 10,491Net Assets 119,085 148,243Cail1027049Work in Progress 41,885 30,035 Legal Reserve 235 235Total long-term Assets 160,970 178,278 Customerso contributions 24,597 28,976

Accrued taxes 11,886 16,539Short-term Investments 2,490 2,399 Retained earnings 13,903 16,448Other Receivables 1,541 1,690 Other Reserves 33,731 34,324Other Assets 1,090 698 Total Equity 94,589 107,013

Sub-Total 5,121 4,787 Long-term debt 58,806 60,338Other Long-tern liabilities 4,537 4,739

Inventory 12,340 12,138 Sub-total 63,343 65,077Accounts Receivable 25,398 31,197 Accounts psyble 31,169 32,893Cash 3,328 969 Retention monies 4,201 5,198

Total Current Assets 41,066..- 44,304 Short-tern loans 7,813 9,908Other current liabilities 6,042 7.280

Total current liabilities 49,225 55,279Total liabilities 112,568 120,356

Total Assets 207,157 227,369 Total Liabilities and Equity 207,157 227,369

Debt/Equity 40/60 38/62

- 41 -

ANNEX 4.02

Page 3 of 3 pages

STEG

SOURCES AND USES OF FUNDS (000 Dinars)

1977 1978

Sources of Funds

Operating income 6,523 7,972Depreciation and provisions 9,325 11,185

Internal cash generation 15,848 19,157

Increase in long-term debt 19,714 8,492Subsidies 8,454 9,033Increase in reserves and capital 178 270Increase in other provisions (500) 577Sale of assets (86) 4Other income (508) (431)

Sub-total 27,252 17,945

Total sources of funds 43,100 37,102

Use of Funds

Investments (capital expenditure) 38,015 29,353Incr. (decr.) in working capital (1,187) (1,829)Other uses (797) (605)

Repayment of principal 3,514 5,761Interest 3,555 4,422

Debt service 7,069 10,183Total uses 43,100 37,102

Debt service coverage 2.24 1.88

ANNEX 4.03Page 1 of 3

STEG : GASINCOME STATEMENT

IN THOUSANDS OF DINARS

1982 1983 1984 1985 1986 1987 1988 1989 1990

RATE OF INFLATION LOCAL 1.08 1.08 1.08 ;.08 1.08 1.08 1.08 1.08 1.08

RATE OF INFLATION: FOREIGN 1.0850 1.0750 1.0700 1.0700 1.0650 1.0600 1.0600 1.0600 1.0600

SALES OF GAS: 1000 TEPS 835 860 1,145 1,795 2s,160 2,400 2,630 2,790 2,800

rURCHASES OF GAS: 1000 TEPS 635 490 782 1,38L 1,897 2,400 2,630 2,790 2,800

SELLING PRICE SEMESTER 1 35.22 43.31 52.06 62.67 75.45 90.70 96.91 103.89 111.80

SELLING PRICE SEMESTER 2 37.22 44.68 53.85 64,84 78.12 93,98 100.46 107.72 115.94

SUBSIDY SEMESTER 1 16,30 - - - - - - -

SUBSIDY SEMESTER 2 16.00 - - - - - - - -

PURCHASE PRICE SEMESTER 1 56.95 61.49 66.42 71.73 77.47 83.67 90.36 97.59 105.40

PURCHASE PRICE SEMESTER 2 59.18 63.91 69,03 74.55 80.51 86.95 93.91 101*42 109.54

REVENUES

SALES TO CUSTOMERS 17,712 23,757 31,138 62,034 84P080 95,110 105,593 119,560 115,009

SALES TO STEG 12,532 149078 29,496 52,407 81,776 126,506 153,949 175,636 203,827

OTAL SUBSIDY 13,485 - - - - - - -

SALES REVENUES 43,729 37,836 60,633 114,440 165r856 221,616 259P542 295P196 318,836

EXFENSES

GAS PURCHASE COST 36,871 30,723 52Y961 101,006 149,844 204,744 242,315 277Y619 300,916

REVALUED DEPRECIATION 2,533 2,723 2,913 5,137 5,792 6,139 6,508 6,898 7,312

OPERATING EXPENSES 262 283 306 545 1,248 1,347 1w455 1,572 1,697

TRANSFORTATION COST 1,033 1,074 1,445 2P292 3,102 3,666 3,716 3,770 3,830

OTAL OPERATING EXPENSES 40,699 34,803 57P625 10S,980 159,986 215,896 253,994 289,859 313,755

INCOME BEFORE INIEREST 3,030 3,033 3,008 5P460 5,870 5,720 5P548 5,337 So08l

INTEREST EXPENSE 2,079 2,588 3,242 3.858 3,918 3,544 2,920 2Y352 1,819

NET INCOME AFTER INTEREST 951 445 (234) 1.602 1,952 2,176 2,628 2,985 3,262

RETURN ON NET REVALUED FIXED ASSETS 8.01 8.00 7.99 8.01 8.00 7.99 7.99 8.00 8.02

ANX4.03Pae 2 of 3

STEG:GASBALANCE SHEET

IN THOUSANDS OF DINARS

1979 1980 i981 1982 1983 1984 1985 1986 1987 1988 1989 1990

ASSETS

FIXED ASSETS

GROSS FIXED ASSETS 39,072 42,002 44Y942 80,082 91,687 97P188 103,020 1099202 1lSP754LESS ACCUMULATED DEPRECIATION - - - 2,533 5,446 8,740 14,489 21,223 28,636 36,863 45,973 56P043

____ ------- ------- ------- ------- -- ----- - ------ -- -- - ------- -- - -_-- - - - - -

NET FIXED ASSETS - - 36,539 36,556 36,202 65,593 70,464 68,552 66P157 639229 59p7l1

WORK IN PROGRESS 200 11,395 32,952 1,785 9?278 25 228 - - - _____ ------- ------- ------- - ------ ------- -- -- - -- - -- - -- - - - -- -- - - -- -

TOTAL NET FIXED ASSETS 200 11,395 32.952 38,324 45,834 61,430 65,593 70,464 68S552 669157 63t229 59,711

CURRENT ASSETS

lNVENTORY - 80 86 94 331 358 387 418 451 487 527 569ACCOUNTS RECEIVABLE - - - 2,S90 3,202 5,138 9,699 14,062 18,796 22,017 25,045 27,053CASH 100 943 955 855 468 698 1,086 1,637 2,494 5,368 8,884 14,09i1

_ _ _ _ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _ _ _ _ _ _ _ _ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

TOTAL CURRENT ASSETS 100 1Y023 1,041 3Y539 4,001 6,194 11P172 16P117 21,741 27,872 34,456 41,713

____ -------- ------- ------- ------- ------ -- -- - -- - -- -- - -- - -- -- - -- -

TOTAL ASSETS 300 12,418 33,993 41,863 49,835 67,624 76,765 86,581 90,293 94,029 97,685 101,424

LIABILITIES AND EQUITY

EQUITY

CAPITAL 100 4,100 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10000REVALUATION RESERVE - 23 1w;34 3,935 6,809 10,017 14,317 18,580 22,807 26,920 30,890 34,684RETAINED EARNINGS - (305) (1,441) (490) (45) (279) 1F323 3,275 5,451 8,079 11,064 14,326

____ ------- ------- ------- ------- -- - -_-- - -_-- -- - - -- _--- - - -- -_-- - -

TOTAL EQUITY 100 3S818 9,693 13,445 16,764 19,738 25,640 31,855 38,258 44,999 51,954 59,010

LIABILITIES

LONG TERM DEBT - 3,600 16,800 21P831 24,793 35,705 35,240 34,339 28,138 21,837 16,536 11,255

ACCOUNTS PAYABLE 200 5,000 5,900 3,418 4,540 8,443 8,770 12,986 17,696 20,892 23,894 25,878CURRENT PORTION

LONG TERM DEBT - - 1,600 3,169 3,738 3,738 7,115 7,401 6P201 6,301 5,301 5,281____ ------- ------- ------- ------- ------- - - - - -- - -- - -- -_____ -- - - - -- -

TOTAL CURRENT LIABILITIES 200 5,000 7,500 6,587 8,278 12,181 15,885 20,387 23,897 27,193 29,195 31,159

_ _ _ _ - - - - - - - - - - - - -- -- - - - -- _ - - - - - -- - - - - --- - - - - - - - - - - - - -_ _ _ _ _ - - - - - - - -

TOTAL LIABILITIES AND EQUITY $300 $12,418 $33,993 S41,863 $49,835 $67,624 $76,765 $86,581 $90,293 $94,029 $97,685 $101,424

DEBT/EQUITY RATIO % - 48.53 65.50 65.03 62.99 66.65 62.29 56.72 47.30 38.47 29.59 21.89

STEG : GAS ANNEX 4.03CASH FLOW STATEMENT Page 3 of 3

IN THOUSANDS OF DINARS

1979 1980 i981 1982 1983 1984 1985 1986 1987 1988 1989 1990

SOURCES OF FUNDS

NET INCOME BEFORE INTEREST - - 3,030 3,033 3,008 5,460 5,870 5,720 5,548 5,337 5,081DEPRECIATION - - _ 2,533 2,723 2,913 5,137 5,792 6,139 6,508 6,898 7,312

…__ _ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -INTERNAL CASH GENERATION - - - 5,563 5P756 5,921 10P597 11,662 11,859 12,056 12,235 12,393

LONG TERM DEBT DRAWDOWN - 3,600 14,800 8,200 6,700 14,650 6,650 6,500 - - -

INCREASE IN ACCOUNTS PAYABLE 200 4,800 900 (2p482) 1,122 3,903 327 4,216 4,710 3,196 3,002 1,984INCREASE IN CAPITAL 100 4P000 5,900 - - - - - - - - -

TOTAL SOURCES 300 12P400 2i,600 11,281 13PJ78 24,474 17,574 22P378 16,569 15P252 15,237 14,377

USES OF FIJNDS

CAPITAL EXPENDITURES 200 11,172 20,446 5,104 7,359 15Y301 5,000 6,400 - - - -

INCREASE IN INVENTORY - 80 6 8 237 27 29 31 33 36 40 42INCREASE IN ACCOUNTS RECEIVABLE - - - 2,590 612 1,936 4,561 4,363 4,734 3,221 3,028 2,008INCREASE IN CASH 100 843 12 (100) (387) 230 388 551 857 2,874 3,516 5,207

INCREASE IN CURRENT ASSETS 100 923 18 2,498 462 2,193 4,978 4,945 5,624 .6t131 6,584 7,257

INTEREST LONG TERM DEBT - 305 1,136 2,079 2,588 3,242 3,858 3P918 3Y544 2P920 2.352 1,819REIMBURSEMENT LONG TERM DEBT - - i1600 3,169 3,738 3,738 7,115 7,401 6P201 6,301 5,301

DEBT SERVICE - 305 1,136 3,679 5,757 6V980 7,596 11,O33 10Y945 9,121 8,653 7,i20

TOTAL USES 300 12,400 2i,600 11.281 13v378 24,474 17,574 22,378 16,569 15,252 15Y237 14,377

DEBT SERVICE COVERAGE - _ - 1.51 i.00 0.85 1.40 1.06 1.08 1.32 1.41 1.74

- 45 - AN! 4.04

Page 1 of 3

STEG : ELECTRICITYINCOME STATEMENT

IN THOUSANDS OF DINARS

1979 1980 1981 1982 1983 1984 1985 1986

RATE OF INFLATION: LOCAL 1.08 1.08 1.08 1.08 i.08 1.08 1.08 1.08RATE OF INFLATION: FOREIGN - 1.1125 1.0975 1.0850 1.0750 1.0700 1.0700 1.0650

AVERAGE PRICE KWH $ 0.0280 0.0282 0.0310 0.0333 0.0348 0.0371 0.0397 0.0423

REVENUES

SALES TO CUSTOMERS

SALES ELECTRICITY 50w300 58,004 720728 88,057 104,956 127Y313 154,010 186,405SALES EL BORMA GAS 1,848 3,048 4P237 5,179 5,808 5,826 4,910 4,223SALES MANUF GAS 1,109 1,371 1,469 1P713 1,349 715 - -OTHER INCOME 6Y600 6,700 7,600 8,300 S6700 9,500 10,600 11,400

,uTAL SALES CUSTOMERS 59,857 69,123 86,054 1039249 120813 143Y354 169,520 202,028

lNTERNAL SAL-ES

SALES EL BORMA STEG 6,237 4,872 2,838 1,594 1,432 2,330 1,466 -

TOTiTL SALES 66,094 73,995 88,892 104,843 122,265 145P684 170,986 202,028

1E-XPENSES

TRANSFERS FROM STEG GAS - - 12,532 14,078 29,496 52,407 81,776INTERNAL SALES EL BORMA 6,237 4,872 2F83a 1,594 1.452 2,330 1,466 -COST GAS OIL 10,199 3,993 1,896 792 2,176 2,926 5,417 2,403COST FUEL OIL 6,090 12Y480 18.608 14,379 24,197 24,518 20,402 12,055iURCH COST EL BORMA ALGERIA 200 200 200 200 200 100 100 100.iTHER PURCHASES 11,600 15P200 18,500 19,300 1S8200 18,600 19,200 20,000

'TTAL PURCH COST 34,326 36,745 42,042 48,797 60,303 77,970 989992 116,334

TOTAL PROD COST EL BORMA 2Y195 1S881 1F254 1,066 941 878 570 314OTHER EXPENSES 5,805 7,319 9,246 10,834 12,559 14,422 16,430 19,186SALARIES 11,300 12,700 14,400 16,300 18200 20,600 22,900 26,000

TOTAL PRODUCTION COST 19,300 21,900 24,900 28,200 31,700 35,900 39,900 45,500

DEPRECIATION 12,500 15,100 20,200 22P800 24,700 27,000 27,500 32,700LESS CAPITALIZED EXPENSES 9,100 11,600 13,900 14,500 13,700 14,000 l4v400 15,000

TOTAi. EXPENSES 57,026 62,145 73,242 85,297 103,003 126,870 151,992 179,534

INOCiNE BEFORE INTEREST 9,068 llv850 15,650 19v546 19,262 18,814 18,994 22,494

INTEREST EXPENSE 4,425 7,015 9,160 8,887 10,194 12,897 16.361 I8S855

NET INCOME 4P643 4,835 6F490 1O0659 9,068 5,917 2,633 3,639

RETURN ON NET FIXED ASSETSLESS CUSTOMER CONTRIBUTIONS 6.76 8.00 8.00 8.00 8.00 8.00 8.00 8.00

- 46 -

STEG ELECTRICITY A 4.04BALANCE SHEET Page ̂2o3

IN THOUSANDS OF DINARS

1979 1980 1991 1982 1983 1984 1985 1986

ESSETS

F;IXED ASSETS

uGOSS FIXED ASSETS $261,300 $290t500 $408,100 $452,000 $4689OO $511,100 $546,700 $678,300LESS ACCUMULATED DEPRECIATION 86,867 101,967 122,167 144,967 169,667 196,667 224,167 256,867

NET FIXED ASSIETS 174,433 188,533 285,933 307 033 299,233 314,433 322,533 421,433

WORK IN PROGRESS 54100 80,100 - 1,000 36,900 69,200 100,300 32,200OTHER FIXED ASSETS 5,788 6,788 7P788 8P488 9,188 9,988 100888 11,088

TOTAL NET FIXED ASSETS $234,321 $275,421 $293,721 $316,521 $345,321 $393,621 $433,721 $465521

CURRENT ASSETS

INVENTORY $ 12,100 $ 12,100 $ 13,100 $ 13,800 $ 14,700 $ 15P600 $ 16P500 $ 17,500ACCOUNTS RECEIVABLE 23,600 34,700 34,700 34,300 33,900 33,500 34v200 32,700CAsSH lfll 1P046 1,036 2,030 2,011 2,083 2,028 2P036

OTAL CURRENT ASSETS $ 37,21l $ 47P846 $ 48,836 $ 50,130 $ 50,611 $ 51,183 $ 52,728 $ 52,236

OTAL ASSETS $271,532 $323,267 $342,557 $366,651 $395,932 $444,804 $486,449 $517,757

LIABILITIES AND EQUITY

EQUITY

CAPITAL 12,991 15,491 159491 15,491 15,491 15,491 15,491 15,491PROVISIONS 51,098 51,098 51,098 51,098 51,O98 51,098 51,098 51,098CUSTOuiER CONTRIBUTIONS 35,900 43,400 54,400 66,200 76,200 86,300 96,700 107,700RETAINED EARNINGS 21,091 25,926 32,416 43,075 52,143 58,060 60,693 649332

TOTAL EQUITY $121,080 $135Y915 $153,405 $175,864 $194,932 $210,949 $223,982 $238r621

LIABILITIES

LONG TERM DEBT $ 90,700 $125,400 $122,835 $121,348 $129,503 $158,615 $181,784 $191,597

ACCOUNTS PAYABLE $ 40,173 $ 40,173 * 400173 $ 40,173 $ 40,173 $ 40,173 $ 40,173 $ 40,173CUSTOMER DEPOSITS 6,198 7,298 8,298 9,598 10,598 12,198 13,498 15,398CURRENT PORTION

LONG TERM DEBT 8,000 9,100 12F465 14,287 15,345 17,488 21,631 26,587OTHER LIABILITIES 5,381 5,381 5v381 5,381 5,381 5.381 5,381 5,381

TOTAL CURRENT LIABILITIES $ 59,752 S 619952 $ 66P317 $ 69,439 $ 71,497 $ 75,240 $ 80,683 $ 87,539

TOTAL LIAVILITIES AND EQUITY $271,532 $323,267 $342,557 $366,651 $395,932 $444,804 $486,449 $517,757

DEBT/EQUITY RAlTIO X 42.83 47.99 44,47 40,83 39.92 42.92 44.80 44.53

ANNEX 4.04STEG : ELECTRICITY Page 3 of 3

CASH FLOW STATEMENTIN DINARS

1979 1980 1981 1982 1983 1984 1985 1986

SOURCES OF CASH

NET INCOME BEFORE INTEREST $ 9,068 $11,850 S15,650 $19,546 $19,262 $ 18,814 $ i8,994 $ 22,494DEPRECIATION 12,500 15,100 20.200 22,800 24,700 27,000 27,500 32,700

INTERNAL CASH GENERATION $21,568 $26,950 $35,850 $42,346 $43,962 $ 45,814 $ 46,494 $ 55,194

EXISTING DEBT DRAWDOWNS 29,000 22,100 2,700 500 - - -

NEW BORROWINGS 5,800 21,700 7,200 12,300 23,500 46,600 44,800 36,400

TOTAL BORROWINGS $34,800 $43,800 $ 9,900 $12,800 $23,500 $ 46,600 $ 44,800 $ 36,400

CUSTOMER DEPOSITS 1,000 1,100 1,000 1,300 1,000 1,600 1,300 1,900LNCREASE IN CAPITAL 2,500 2,500 - - - - -

CUSTOiMER CONTRIBUTIONS 6,900 7,500 11,000 11,800 10,000 10,100 10,400 11,000

TOTAL SOURCES $66,768 $81,850 $57,750 $68,246 $78,462 $104,114 $102,994 $104,494

USES OF CASH____________

CAPITAL EXPENDITURES 62,800 55,200 37,500 44,900 52,800 74,500 66,700 63,500

±NCREASE ACCOUNTS RECEIVABLE (7,600) 11,100 - (400) (400) (400) 700 (1,500)INCREASE IN INVENTORY - - 1,000 700 900 900 900 1,000.LNCREASE IN CASH 543 (465) (10) 994 (19) 72 (55) 8iNCREASE IN OTHER ASSETS 1,000 1,000 1,000 700 700 800 900 1,000

INTEREST LONG TERM DEBT $ 4,425 $ 7,015 $ 9,160 $ 8,887 $10,194 $ 12,897 $ 16,361 $ 18,855REI?iBURSEMENT, LONG TERM DEBT 5,600 8,000 9,100 12P465 14,287 15,345 17,488 21,631

DEBT SERVICE $10,025 $15,015 $18,260 $21,352 $24,481 $ 28,242 $ 33,849 $ 40,486

TOTAL USES $66,768 $81,850 $57,750 $68,246 $78,462 $104,114 $102,994 $104,494

DEBT SERVICE COVERAGE 2,15 1.79 1.96 1.98 1.80 1.62 1.37 1.36

ANNEX 5.01

STEGECONOMIC ANALYSIS: FIRST PHASE

IN DINARS

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 - 2001

SALES REVENUE - - - 59,472 6i1920 82,584 12B8952 144,000 i44,000 144,000 144,000 144w000

EXPENSES

PURCHnSE COST - - - 41,390 42,527 56,719 86S812 98,900 98,900 98,900 98,900 98S900OPERATING EXPENSE - - - 216 216 2;o 216 216 216 216 216 216 >TRANSP. COST - - - 1,172 i1204 1,oO6 2,514 2,800 2,800 2,800 2P,00 2,800 @FUEL STORAGE - - - -P875INVESTMENT PAYMENTS - 7,543 20,834 9,554 - - - - - - - -

TOTAL EXPENSES - 7,543 20,834 61,207 43,947 58,541 91,542 101,916 101,916 101,916 101,916 101V916

NET CASH FLOW (7,543) (20,834) (1,735) 17,973 24,043 37,410 42,084 42,084 42S084 42,084 42,084

RETURN ON INVESTMENT = 55.018%

STEG 5.02ECONOMIC ANALYSIS: FIRST AND SECOND PHASES

IN DINARS

1979 1980 1961 1982 1983 1984 1985 1986 1987 1988 1989 1990 - 2001

SALES

3`-LES REVENUE - - - 60P120 61P920 82P440 129,240 155,520 172,800 189,360 200P880 201,600

i--Xi>ENSES

PURCHASE COST 41,291 42,527 56,620 88,763 106,812 118,680 130,054 137,966 138,460OPERATING EXPENSE - - 216 216 216 356 756 756 756 756 756TRANSP. COST - - - 1,169 1,204 1,603 2,513 3,024 3,360 3,682 3,906 3P920FUEL STORAGE - - - 8,875 - -

INVESTMENT PAYMENTS - 7,543 20,834 11 139 5,959 13,076 8,825 6,400 - - - _

TOTAL EXPENSES - 7,543 20,834 62P690 49,906 71P5;1 100t457 116,992 1220796 134,492 142,628 143P136

NET CASH FLOW - (7,543) (20,834) (2,570) 12014 107 25 28,783 38,528 50P004 54P868 58,252 58P464

RETURN ON INVESTMENT = 49.904%

- 50 -

ANNEX 6.01

SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE

STEG Market studiesTariff conditionsPurchasing procedures for materialsFinancial accounts

ETAP Annual reports on petroleum sectorReport and accounts

SOFREGAZ Reports on the market, optimizationand engineering of project

Gordian Terms of reference of study

Williams Brothers Reserves deliverability study forM-,kar gas

Groupe Etude Miskar Studies on Miskar field development

14th World Conference, Toronto Developments in the natural gasindustry of Algeria

ENI The new frontier pipelines: conceptsand innovations

Boykiw & Company The Miskar offshore gas project andthe Tunisian energy market

BRD 14849ai92 loo zr FEBRUARY 1980

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_ ~~IZERTEJC'&-' c% ~~~~CA P BONv

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*~~ ~ ~ ~~~~~~ ( 0 Beia _ / /

'O _ !Nabeul

/ Hammuimet

( oEI Kef // j /

36° tl Tadjerouine 2/ SOUSSE0 0

0 KairouanDlermtal

) Gr;t Sd, o,H-

A L G E R I A El/ E Dlem0

/ /asserine

Oe vt OMoubres Gafsa / t

-34'-J-

fiT.zeurO . , :,t.d G B S Houm Souk

{ ~ TU S1 I S IA KMedenine - A

TUNISIA~~~~~~ ILAD

FRNCE -> <tG.AI. NATURAL GAS TRANSPORTATION NETWORK ----

1 _ C . :~ SlT Lakesres

33'

ITA, ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~S

) -< - -- - S,t,'r ,dIna ond res.

KR' I =A LU _wK Phase I Pipeline _Longer term possibilities

Snodonro, ~~~~~~~ 0 ~Future Compressor Station

nz0,TOdhnn;nn, ~~~~~~~ - - ~Pipeline under construction

.1 PortsSalt Lakes

® Ncational CapitalItrtinlBoundaries

L I-- A I1R-11 b-dan ar,nr nrredrsrrerrKILOMEE5 I