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JOINT UNDP/WORLD BANK ENERGY SECTOR ASSESSME;NT PROGRAMREPORTS ALREADY ISSUED

Country Date L.unirber

lndonesia November 1981 3543-INDMauritius Decembe r 1981 351O-MASKenya May 1982 3800-KESri Lanka May 1982 3792-CEZimbabwe June 1982 3765-ZIMhlaiti June 1982 3672-HAPapua New Guinea June 1982 3882-PNGBurundi June 1982 3778-BBURv7anda June 1982 3779-RWMa I awi August 1982 3903-MALBangladesh October 1982 3873-BDZambia JanLuary 1983 41.10-ZATurkey February 1983 3877-TUBolivia April 1983 4213-BOFiji June 1983 4462-FIJSolon1on Islands Ju we 1983 4404-SOLSenegal July 1983 4182-SESudan July 1983 451 1-SUlJganda July 1983 4453-UGNigeria August 1983 4440-UNINepal A1ugust 1983 4474-NEPGambia November 1983 4743-GMPeru January 1984 4677-PECosta Rica Jlanuary 1984 4655-CRl,esotho January 1984 4676-LSOSeychelles January 1984 4693-SEYMorocco March 1984 4157-MORPortug,al April 1984 4824-PUNiger May 1984 4642-NIREthiiopia July 1984 4741-E TCape Verde August 1984 5073-CVGuinea Bissac August 1984 5083-GiJBB3otswana September 1984 4998-B1r't. Vincent and

the Grenadines September 1984 5103-STVSt. Lucia September 1984 5111-SLUParaguay October 1984 5145-PAl'anzania November 1984 4969-TA

FOR OFFICIAL USE ONLY

Report No. 4892-YAR

YEMEN ARAB REPUBLIC

ISSUES AND OPTIONS IN THE ENERGY SECTOR

DECEMBER 1984

This is one of a series of reports of the UNDP/WorLd Bank Energy SectorAssessment Program. Funding for this work has been provided, in part, bythe UNDP Energy Account, and the work has been carried out by the WorldBank. This report has a restricted distribution. Its contents may notbe disclosed without authorization from the Government, the UNDP or theWorld Bank.

ABSTRACT

YAR is affected by many of the same energy problems as otherdeveloping countries: inefficient consumption of petroleum, a weakpublic power system that has both reliability and financial problems, anda shrinking supply of fuelwood. But unlike other developing countries,thanks to a massive flow of remittances from Yemenis working in neighbor-ing oil-rich countries, YAR has had a relative abundance of foreignexchange and a buoyant entrepreneurial sector with which to face theseproblems.

The report includes discussion and analysis of: current andprojected energy consumption patterns; price/cost relationships and theefficiency of energy use; energy resource and supply options includingpetroleum products, geothermal, electricity generation, transmission anddistribution, fuelwood, animal waste and crop residues, and solar andwind energy; the macroeconomic effects of projected oil imports andinvestment requirements in the sector; and energy planning andinstitutions.

The recommendations made in the report aim primarily at reduc-ing the inefficient use of highway fuels, correcting the imbalance thathas developed between generating capacity and transmission and distri-bution capacity in the public system and restructuring power tariffs toattract industrial consumers. The report also recommends surveying thecountry's forestry resources and mounting an afforestation project aimednot so much at fuelwood supply as at institutional development, pole andtimber production, and environmental stabilization, while encouraging thecontinued shift from fuelwood to commercial energy as household fuel.

PRSPACE

This report is based on data collected by a UNDP/World Bankmission which visit-ed the Yemen Arab Republic in May/June 1983, and onsubsequent limited updating. The report's findings reflect the state ofknowLedge about the YARP energy sector as of earLy 1984.

Petroleum

In the summer of 1984, evidence emerged of an oil discovery inthe Marib area in the eastern part of the country. At the time ofprinting this report, it is not known with accuracy how significant thisfirst discovery of oil in YAR is, what the expected production volumesare likely to be, and whether significant associated gas is present.

The discovery, if proven to be significant, could have a majorimpact cn the following energy sector considerations:

- the transport of oil and/or gas from Marib and its utilization;

- the configuration and size of pipelines, if any;

- the long-term fuel choice in the industrial and power sectors;and

- the availability and cost of LPG.

The analysis of options is very sensitive to the potentialvolume of oil production from the field:

(a) if the find proves to be relatively small, the report'sfindings and recommendations stand as before;

(b) if the possible production volume is significant enough toconsider as a viable source of crude, but is less than aquantity (to be deternined in cost studies) that would warranta crude pipeline to a port for export, new options should beconsidered. These include trucking, a small topping plant, andprocessing arrangements;

(c) if the sustainable production volume significantly exceeds thequantity discussed, it n%ay be feasible to transport crudethrough a pipeline to an appropriate port, and either export itor refine it.

In the event of inland refining, there would be fuel oilavailable in the Sana 'a area which, depending on volumes, could beutilized by industry or power generation. Similarly, if associated gasis part of the peodLction, a tow-cost fuel would be available inland. Inthis context, a careful Least-cost analysis of future power generatingcapacity will have to be conducted, to compare the economic costs of

capacity expansion with coal-fired, or (possibly) geothermal units asagainst fuel oil and gas.

If there is a possibility of LPG extraction, the future devel-opment of household energy use may be affected. In the switch to commar-cial household fuels, kerosene may lose its economic cost advantage toLPG, and LPG expansion may proceed more rapidly than anticipated.

During 1985, as the nature anrl extent of the oil find becomesclearer, the new information will be iricorporated into the report's a;a-lysis and an updated status report prepared by the UNDP/World Bank.

Fuelwood

The report estimates that about 58% of total energy consumptionin YAR is based on traditional energy sources. This implies that about90% of household energy use is in the form of fuelwood and agriculturalresidues. These estimates are based on per capita fuelwood consumptionderived from sample surveys and studies. On the other hand, however,there is evidence that a strong trend in household energy use towardsfuel substitution exists. At this point in the transition from tradi-tional to commercial household energy, the accurate share of fuelwood inenergy use is difficult to establish, a fact reinforced by the scarcityof data on wood supply and demand. Import data and sample surveysindicate that the use of bottled gas and kerosene is increasing rapidly,and that perhaps up to two-thirds of households use commercial fuels atleast part of the time. In the face of ambiguous evidence, the assess-ment mission's best estimates contained in the report could well be over-estimating the use of fuelwood in YAR households. This view is held bythe Central Planning Organization (CPO). It is clear that furtherresearch is necessary to establish the present and likely future role offuelwood and residues within the framework of household energy use inYAR.

ABBRVIATIONS

CPO - Central Planning Organization- Confederation of Yemeni Development Assofiations

COT - Department of TransportationELC - Electro ConsultFAO - Food and Agriculture Organization of the United NationsFRG - Federal Republic of GermanyGDF - General Directorate of ForestryCDP - Gross Domestic Product("So B - Geological Survey BoardUh c- gigawatt hourHA - Highway AuthorityK & D - Kennedy and DonkinrLDA Local Development AssociationLRMC - Long-run Marginal CostLV - Low VoltageMCS - Managment Consultants ServicesMEW - Minist=y of Electricity and WaterMOA - Ministry of AgricultureMV - Medium VoLtageNRECA - National Rural Electric Cooperative AssociationOT? - Omnium Techniques des Transportes par PipelinesPVC - Photovoltaic CellsPDRY - PeopLe's Democratic RepubLic of YemenSPYP - Second Five-Year PlanSWH - Solar Water HeatingTFYP - Third LFive-Year Plantoe - tonnes of oil equivalentYAR - Yemen Arab RepublicYGEC - Yemen General Electricity CorporationYPC - Yemen Petroleum CompanyYTC - Yemen Transport CorporationUSAID - U.S. Agency for International Development

This report is based on the findings of an energy assessmentmission which visited Yemen Arab Republic in May, 1983. The missioncomprised K. Jechoutek (Mission Chief, Power Economist), H. Kraske(Economist), W. Kupper (Power Consultant), J. Gorse (ForestrySpecialist), W. Floor (Rural Energy SpeciaList), P. Smith (TransportConsultant), R. Vedavalli (Petroleum Economist), and S. Khenissi (CountryEconomist). K. Jechoutek and Ii. Kraske are the main authors of thereport; editorial assistance was provided by Maryellen Buchanan andsecretarial assistance by Beatrice Moses.

CURRENCY EQUIVALENTS

Currency Unit

At the time of writing this report, the exchangerate corresponded to the figures below. However,a devaluation of the Rial took place in mid-1984which resulted in an exchange rate of YR 5.74 tothe US dollar as of September 1984.

1 Yemeni Rial (YR) = US$0.22YR 4.50 = USfl.00YR 1 = 100 fls

CONVERSION FACTORS

(1 toe = 10.2 million kcal)

Ton toe KiloLiters

LPG 1.06 1.24ATF (Aviation Fuel) 1.01 1.35Gasoline 1.03 1.15Kerosene 1.01Fuel Oil 0.965Fuelwood 0.44 (solid)1 CWh 86 (output)Agricultural Residues 0.28

TAILE 0F CONTENTS

Page

Is ENERGY CONSUMPTION AND THE ECONOMY......................, 1The Country and the Economy............................, 1Energy Consumptiou.. . .. . . .a . . ... .. .a . . .a .. . .aa. a . .. , , , 2

ut lo ok .0a000. 0000000000000000000a0000000*0a0. ............... , 0 3',,he 1982 Energy Balance.... ...........o ......o.o .o. *, 3

Sectoral Pattern of Energy Ccnsu spptionn,o*#e........... 5Electricity .......... , ,, ,ooooooooooooe 5Household/Commercial Consumption.sumpt.ion...0.......0. 6Household Energy Expenditure.. 0o*oS 8Household/Commercial Forecasto.........o................ 8Transport Sector Consumption.......................... 10Transport Sector Forecast........ .... ................. 12Industrial Consumption... ....... a. ... .o... .o.... .,, 13Industry Forecast. .. .. .... ......... , , . ., 14Agriculture ............. e.o...o*ooeoaoooo 16Total Petroleum Products Consumption.................. 17The 1991 Energy Balance .............................. 18

II. PRICES, COSTS, AND EFFICIENCY OF ENERGY USE.o .............. 19Petroleum Productso ............... , . .... .. .,. 19

s-ricing ..... , , ..... ,. ~~~19Efficiency of Fuel Use in Road Transport.............. 21Efficiency of Fuel Use in Industry.................... 23Efficiency of Pumps and Tractors**.oo .......... 23

Electricityo............................... ..,.O.....o. 24Tariffs and Economic Costs........................... 24Efficiencyo......eso , , ,oo*ooooo*ooooe* 26

Efficiency of Fuelwood Use............................. 29

fII. ENERGY RESOURCES AND SUPPLY OPTIONS ............ o ... o...o ..... 32Petroleum Products. ......... . .. .. ... .. .oo ,oo. . 32

Resource Potential ................. . 32Supply, Storage and Distribution...................... 33

Geothermal Resource Potential..... ................. 34Electricity.. 35

Existing and Proposed Generating Capacity**,....... 35Transmission Systems.y s toe m s . o.. .. * .a . .o. . a 36

Distribution and Rural Electrification9e#s&........... 38Autoproducers and Private Power Systems................ 38

Fuelwoodo oo.s.o o.o.o.o.o .. o o*..o.o.o.*...... 39Forestry Resources....................... 39

Fuelwood Production. ............ ..... ...... .... 40

Forestry Development ...... .. ..... o..o..... , , , .. 40

Fuelwood Policy ...... .... , , , a , 41Animal Waste and Crop Residues.......................... 43Other Renewable Energy ............... . ......... 43

Papte

Solar Water Heating. ................... 43Photovoltaic Energy . 44Wind Energy ......... .. 45

IV. MACROECONOMIC EFFECTS OF FUTURE ENERGY USE..... ..........e 46OiL Imports ..*.*..*.... 00 ........ 46Investment Requirements-n... ..... 48

V. ENERGY PLANNING AND INSTITUTIONS ....,... .....*.. oo oeo*. 51The Planning Process ...................... 51Power Subsector Institutions.........................., 52The General Directorate of Forestvy.t.... o..,.o...... 54Community Organizations.. . ... 54The Yemen Oil and Mineral Resources Corporation....... 55Research and Training - The University of Sana'aa..... 56

ANNEXES1. Consumption Trends.*n.... o... ........ 572. 1982 Energy Balance.... .................................. 583. Household Cooking 634. Transport Sector ....................................... . 675. Coal Utilization in Cement Plants.......l 726. Cost of Self-Generation ......... 747. Pipeline Economic Analysis ....... ............ ... 768. YAR Forestry Species* ............,............. . ..... 819. Cost of Water Pumping.................... ....... ..... 8210. Recommendations for Technical Assistance..**##**.**.*** 84ll. Bibliography ....Oooo..*..*..00..... 92

MAPSIBRD 17547: Petroleum and Geothermal ResourcesIBRD 17548: Power System

SUMMARY OF ISSU8S AND RECOMMENDATIONS

Background

1. The Yemeni economy has experienced both rapid growth and funda-mental changes in structure over the past ten years. The migration ofover 1.5 million Yemenis to neighboring oil-rich countries has caused anacute shortage of labor, particularly in rural areas, accompanied by veryhigh wage rates. The result has been a distinct shift of economic acti-vity away from agriculture toward services. Remittances from theseworkers, running about 30% of GDP and accruing mainly to families andindividuals rather than to the public sector or large firms, havefinanced an unusually buoyant private entrepreneurial sector in manyarea!; of 'he economy. The Covernment has been unable to keep up withthis growth in the development of physical, social, and administrativeinfrastructure, so the supply of many basic goods and services, particu-larly in rural areas (where over 90% of the population lives), is handledby relatively small private enterprises, largely in the informal sector.

2. The main features of YAR's energy balance can be described interms of three types of energy (fuelwood, oil and electricity) and threecategories of consumers (households, road transport and "others"). Theonly primary energy p.roduced in the country is fuelwood and minor amountsof agricultural residues. Existing sample evidence would indicate thatabout 3,000,000 tons (1,350,000 toe) of wood are cut and used as fueleach year, essentially all of it by households. Only about a quarter ofthis amount grows back each year, and the result has been a significantdepletion of a nominally "renewable" resource. Commercial energy con-sumption is based entirely on imported petroleum products. About 968,000toe were imported in 1982, of which some 534,000 toe were used ..n roadtransporr and about 178,000 toe for electricity generation. Householdsused about 95,000 toe of oil directly in the form of kerosene and LPG.The remaining consuming sectors, led by agriculture and industry, con-sumed about 162,000 toe directly in the form of gasoil, ATF and fueloil. The high share of fuelwood and residues in household energy use isdue to the high proportion of rural population, and is comparable to thatobserved in other countries with similar per capita income. It could,however, be overestimated due to the scarcity of data.

3. The consumption of energy hao expanded rapidly but not alwaysefficiently over the past decade. Commercial energy consumptionincreased by nmore than 20X a year. Traditional energy consumption (prin-cipally fuelwood) has grown much more slowly, if at all, but still con-stitutes about three-fifths of the total. Power generation and transportexpanded greatly, with little emphasis placed on fuel use efficiency ineither subsector. In the power sector, the greater part of power supplyis provided by individual small generating sets, local small-scalesuppliers, and industries' own generation. In the short history of theYAR power sector, scattered isolated generation has been the rule. More

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recently, the growing public supply grid has not yet acquired the confi-dence of p,.tential consuulers, or the capacity to supply them. Further-more, high (sometimes premature) infrastructure investment at low saleslevels is imposing a heavy financial burden on the public utility, YGEC,which is reflected in tariff levels well above long-run marginal cost andabove the cost of industrial autogeneration. The transport sector showssignificant overcapacity in private trucks a'.td taxis, which are beingmaintained by officially-supported allocation systems. The viehlcle fleetis more characteristic of a higher income cour.Lry in that it has anunusally large share of small, mostly gasnline-powered pickups. Becauseof low vehicle use rates, gasoil engines for small vehicles are unlikelyto be cost-effective. ITI the household sector, the significant overcut-ting of fuelwood in the past is forcing a desirable substitution of kero-sene and LPG for fuelwood in cooking. Substitution is attractive from aneconomic point of view (the economic cost of fuelwood in YAR is extremelyhigh because of the scarcity of inputs and the declining forest cover),although a minimum effort in forestry still is necessary to improve poleproduction and environmiental protection, and reduce the burden of oilimports on the balance of payments.

4. The prospect for the next decade is for continued growth, butat a much lower rate. The mission's best estimates are shown in Table l.Because of the decline in fuelwood resources and resulting high prices,the share of commercial energy is expected to increase from less than 40%of total energy consumption in 1982, to over 70% in 1991. Petroleumimports would then comprise more than 20% of total imports, compared to10% at present.

Table 1: STRUCTURE OF FINAL ENERGY CONSUMPTION, 1982 AND 1991

Grow th1982 1991 Rate

('000 toe) (%) ('000 toe) (%) (% p.a)

Petroleum Products 790 36 1,564 68 8.2Fuelwood/Residues 1,350 62 647 28 -7.8Electricity a! 44 2 105 4 10.1

Total b/ 2,184 100 2,316 100 0.8

a/ Including self generation by private/industrial owners ofsmall/mnedium generating sets.

b/ Net of transformation losses of 135,000 toe in 1982, and 318,000 toein 1981.

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Petroleum

5. Efforts to locate comnercially exploitable petroleum resourcesin YAR are underway, and first results appear promising in the Al-Jawf(Marib) basin in the norchea'.t interior, which is currentLy beingexplored by Hunt Oil Company of the US tinder a 1981 production-sharingcontract. Results of drilling in another sedimentary basin, includingonshore and offshore areas on the Red Sea, have been disappointing, butthe Government's current strategy is to reactivate interest in the RedSea Basin for exploration by privatn oil companies. To this end, acomprehensive assessment of past exploration data is being prepared withIDA assistance.

6. Petroleum products are imported through both official and un-official channels. Official imports (70% of the estimated total) arriveby ship in small parcels at the shallow, increasingly congested port ofHodeidah and are transported by road tankers to Sena'a and other parts ofthe country. Unofficial imports, triggered by the price differentialbetween Saudi Arabian and YAR domestic products prices, are brought fromSaudi Arabia by truck. Constructing terminal facilities at the deep-water port of Salif and a pipeline from Salif to Sana'a appears to pro-vide the least cost solution for supplying white petroleum products toSana'a in the volumes forecast for the mid- and late 1980s and is beingconsidered for IDA financing (paras. 3.5-3.8). Transporting LPG throughthe proposed pipeline may not be economic until the mid-nineties, and thefeasibility of partially replacing the present system of bottling inHodeidah with bulk road transport to Sana'a with bottling there should bestudied if inland LPG demand grows as anticipated.

7. The prices of all petroleum products except LPG cover theireconomic costs (c.i.f price plus transport and distribution). Gasoil(diesel) is officially sold at YR 1.5/liter (US$1.26/gallon) and gasolineat YR 2.6/liter (US$2.19/gallon). The differential between these two wasestablished on the grounds that gasoil is used for agriculture in ruralareas. However, while official prices prevail in major cities, the priceof gasoil in smaller cities and rural areas may be as high as YR 2.0/liter t$1.68/gallon), reflecting distribution costs from main storagecenters. On the other hand, the price of gasoline can be as low asYR 1.60 ($1.35/gallon) where there are plentiful unofficial supplies fromSaudi Arabia. The existence of a dual system in the gasoline market(official imports and unofficial imports from Saudi Arabia obtained atwell below world prices) makes it difficult to effectively use officialpricing as a general tool for demand management and interfuel substitu-tion. The mission recommends, however, that taxes on gasoil be raised.This not only may discourage a possible undesirable switch to smallprivate gasoil vehicles in the event that unofficial gasoline importsbecome less available or more expensive, but it also may encouragegreater efficiency in irrigation pumping and the use of tractors, andprovide additional government revenue. Although the scope for raisingtaxes on gasoil may be Limited by the possibility of increased unofficial

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gasoil imports, a higher official gasoil price level would help to eli-minate the artificial gasoline/gasoil price differential in the officialmarket (paras. 2.2 and 2.3).

8. Opportunities exist for substantially reducing petroleum con-sumption through higher use efficiencies in the transportation, power(paras. 12-13) and agricultural sectors. Highway transport accounts fornearly 70% of direct petroleum consumption and has expanded greatly dur-ing the seventies, when the vehicle fleet increased by as much as 26%p.a. However, this expansion was unplanned and uncoordinated. Invest-ment in taxis and trucks by returning Yemeni migrants has led to a com-mercial vehicle fleet about three times what is needed to satisfydemand. Investment in these vehicles has been encouraged by government-supported formal and informal arrangements for allocating freight andpassengers, and by the underutilization of buses in both inter-city andintra-city passenger service. High tariffs for road transport are theresult not only of the difficult mountainous terrain in YAR, but also ofthe high fixed costs resulting from the over-invmAtment in vehicles.

9. Based on the Bank's recent work in the sector, the missionrecommends:

(a) a gradual reduction of the trucking and taxi fleets by relaxingallocation schemes, thereby increasing competition in order toimprove fuel efficiency and vehicle utilization (para. 2.8);

(b) encouragement of inter-city and intra-city bus services,through incentives and training, to reduce fuel costs perpassenger-km (para. 2.8);

(c) designation of an agency (most appropriately the Department ofTransportation 1/ within the Ministry of Communications andTransport) to be responsible for developing a program to raisefuel efficiency in transport (para. 2.5). This agency even-tually would be responsible for setting up a data base on thevehicle fleet and its utilization, cargo and passenger move-ments and road transport fuel consumption in the context of theHighway Master Plan currently being carried out. It alsoshould commission a study of road user charges and road trans-port maintenance facilities and set up standards for yearlyvehicle inspections and for training driving instructors (para.2.7). It also could monitor developments in alternative trans-port fuels (e.g. LPG) so that appropriate infrastructure couldbe provided in time) in case the price of one fuel decreasessignificantly in relation to other fuels (para. 2.9).

1/ Pending the findings of a study on the role of the Department nowbeing prepared.

10. Agricultural uses of petroleum account for at-out 13% A- demand,and raising diesel prices could give an incentive to increase t. e effi-ciency of energy use in both pumps and tractors. Additional measures tolimit overall pump capacity, such as better pu'chase advice to farmers,the pooling of water resources through joint ownership of pumps, as wellas the creation of communiL/ water distribution networks should also bestudied. Major agricuLtural projects, such as the UK-assisted MechanizedAgricultural Scheme, should focus on efficiency and high utilizationrates of tractors and pumps. The mission recommends that such measuresbe iniestigated in the contr't of a technical assistance project(Annex 10).

Electricity

11. All electricity generation in YAR is thermal. While there isno significant hydro potential, the Yemen Highlands show numerous recentvolcanic and several geothermal occurrences. Initial surveys in theDhamar-Rada'a area indicate a good probability of geothermal potentialfor about a 55 MW station. If sufficient steam is found for about a 55MW station, the savings of fuel oil in power generation that such a proj-ect would make possible would yield an economic rate of return of morethan 20%. The mission recommends more intensive exploration in theDhamar-Rada'a area to ascertain the true potential for power generatingcapacity and supports the Government's decision to seek financing forthis. A proposed exploration project is being considered for possiblefuture IDA financing. YGE generating capacity increased from 15 MW in1975 to 121 MW in 1982, representing an average annual increase of about35%, but even so, the public power system serves mostly urban househoLdsand commercial markets and few rural and industrial users. Because thepublic supply does not reach many areas and because it has been unreLi-able, most industrial enterprises produce their own power, and manyvillages have been electrified by private entrepreneurs. The scale ofthese private electricity suppliers and autoproducers is not known pre-cisely, but their total capacity in 1982 probably amounted to at least300 MW, having grown from between 10 and 30 MW it. 1975.

12. Both the public and private power systems comprise isolatedsystems fed by diesel generators and because of this decentralizedpattern of operation, the utilization of capital in generation is low,particularly in thte household/commercial sector in rural areas. YGEC'spresent generating facilities are, by far, the most efficient, and theirthermal efficiency has been improving because of the installation and useof larger diesel units in the main towns. However, YCEC system losses(about 30% of generation) are very high, and a loss reduction programcovering both technical and other losses should be impLemented as soon aspossible. To meet future demand, YGEC is constructing two major oil-fired steam stations at Ras Katenib (165 MW installed) and Al Mukha (160MW installed). The Ras Katenib station is complete, while the contractfor Al Mukha reportedly envisages the first unit being commissioned by

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1986, although a year's delay is likely. No further generation is likelyto be required before the early 1990s. If the geothermal explorationprogram is successful, a geothermal power station could be commissionedby 1992.

13. Thus, YGEC probabLy will have considerable excess capacity forthe rest of the decade and will continue to be able to generate electri-city more cheaply than private producers due to its ability to captureeconomies of scale from central power generation and the fuel cost sav-ings from the Ras Katenib and al-Mukha steam plants. The transmissionnetwork will be adequate for some time to come and it is expected thatindustrial autoproducers within reach of the YGEC grid will take publicsupply, provided suitable tariffs and reliable supply are offered (para.2.14). However, distribution investment was and remains insufficient, asexhibited by the high losses and unmet potential demand. YGEC will notbe able to extend distribution facilities to serve more than a fractionof rural areas in the short-to-medium term. While every effort should bemade to accelerate the construction of the YGEC distribution networkwhere economically justified, cooperation between private suppliers andYGEC/Ministry of Electricity should be improved by standardizing adviceand financial/technical assistance to local networks in areas YGEC is notlikely to serve for some time. The mission recommends that YGEC securefinancing and improve its implementation capability to extend distribu-tion networks into the rural areas where economically justified, so thatthe capacity of Ras Katenib and al-Mukha can be more effectivelyutilized.

14. Urban electricity consumers pay low-voltage rates of YR 1.1/kWh(USC24) and medium-voltage rates of YR 0.75/kWh (US¢0.17) for electricitysupplied from YGEC, while rural consumers pay YR 1.50/kWh (US¢33). Powerfrom privately-owned decentralized generators, if properly operated byindividual households, costs about YR 1.50/kWh. In other cases privatesuppliers charge according to type of end use at effective rates as highas YR 5.5/kAWh (US$1.22). The present average retail tariff of YR 1.1/kWhis almost 40% above the best estimate of YCEC's economic cost of supply.Medium voltage (MV) tariffs are about 1.3-1.5 times the ecor.omic cost,but as noted above YCEC has very few MV consumers. The large lifferencebetween the existing tariffs, based on accounting costs, and economiccost is a result of the temporary excess capacity at Ras Katenib and intransmission (due to the early stage of distribution investmfvnt), as wellas the decision to build the Al Mukha power station in advaice of need(para. 3.14).

15. The mission supports the recent Government decision to imple-ment an industrial MV tariff at the level of YR 0.75/kWh (USC17 --slightly lower than the estimated total cost of autogeneration, but stillabove the economic cost of MV supply from the grid) to attract industrialconsumers. 2/ In other respects, YGEC tariffs shouLd be restructured to

2/ A new, lower tariff will also be appLied to agricultural consumers.

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incorporate distinct tariff categories for reasonably homogeneous con-sumer groups such as households, commercial users, industries andagriculture, differentiated by voltage of supply. The structure ofeconomic cost of supply should be taken into account as much as possible(including a flexible adjustment mechanism for fuel cost), whiLe safe-guarding the financial viability of YGEC in the long run. Recent Banklending operations and sector discussions have addressed this issue, anda financial recovery plan for YCEC as well as appropriate tariff studiesare under way.

Fuetwood

16. Although YAR's forestry resources have been depleted by cen-turies of overuse, it is estimated that fuelwood still supplies over 90%of household energy. Closed forests or woodlands are practically non-existent, and fuelwood resources are mainly woody vegetation andsiattered trees and shrubs. FueLwood consumption, estimated at S millionm , is four times che me n annual increment of YAR's forest cover, esti-mated at 1.25 million m , i.e. an annual overcutting of standing stockequivalent to 3.75 million mi. Theoretically, this would lead to totaldestruction of YAR's forestry resources before the end of the century.

17. Efforts to deal with this situation by increasing forest areasand yields are limited by a lack of government commitment to forestry,the widespread perception that fuelwood is still plentiful, and lack offinancial and manpower resources. Given these constraints on forestrydevelopment and the high cost of fuelwood development relative to com-mercial fuels, it would be unrealistic to try to reverse the presentsituation entirely. Even a modest forestry effort will require signi-ficant institutional strengthening. In the next 10-15 years, YAR'sfuelwood strategy should aim at encouraging the substitution of LPG andkerosene for cooking and baking, but without negLecting new forestryefforts. An appropriate medium-term goal would be to maintain, as animportant by-product of forestry development, at least the current meanannual increment of fuelwood to limit the burden on the balance of pay-ments. By achieving this target, YAR would be able to save up to $30million (1982 prices) on oil imports by the year 2000, and restrictgreater burning of plant residues which are currently used as fodder.Not only is afforestation beneficial from an energy point of view, butthe environmental benefits in terms of water retention, erosion andagricultural productivity are high. The mission recommends:

(a) a $15-20 million forestry project to be implemented over fiveyears. The project should include components for institutionaLstrengthening (para. 5.17), establishing pilot plantations andencouraging the development of LDA-managed mini-nurseries fromwhich farmers can obtain their seedlings. Moving from selectedtree planting to woodlot development, a target of 2 milliontree seedlings per year after five years, seems realistic.Species selection in pilot plantations will be an importantcatalyst for private and LDA involvement (para. 3.27);

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(b) in preparation for this project, a survey should be carried outby the Forestry Department (and/or CPO) aimed at assessing thecountry's forestry resources, fuelwood demand, people's com-mittment to forestry, and species and locations for afforesta-tion projects.

18. Animal waste and crop residues currently play only a minor role(about 1-2%) in meeting household energy requirements in YAR. However,with the expected future depletion of fuelwood resources, crop residuesmight have to be used for a somewhat greater share of household energyneeds, especially in the rural areas. Because of its negative effects onagriculture, this trend should be discouraged through greater affores-tation efforts and the importation of commercial cooking and baking fuels(para. 3.27).

19. Due to the extreme and still increasing scarcity of fuelwood,prices have risen significantly over the past decade and have recentlyaveraged between YR 2.5 and YR 5.0 per kg (US$.56-1.11). Despite itshigh cost, fuelwood is still the most important single source of energyfor households and is still used mainly for baking bread. The tradi-tional stove ("tannur") is only about 10% efficient. Analysis based oncurrent fuel prices indicates that kerosene in rural areas and LPG inurban areas are the cheapest cooking fuels available to households. Thecost per useful kWh for cooking is about YR 0.30 for kerosene, YR 0.37(urban) and YR 0.58 (rural) for LPG, YR 1.19 (urban) and YR 2.06 (rural)for electricity, and YR 5-10 for fuelwood and charcoal. Since there islittle scope for improving the efficiency of the wood-fueled tannur, themission recommends:

(a) that Government support and encourage the switch already under-way to LPC in urban areas and kerosene i. urban and ruralareas, through the provision of more efficient import, hand-ling, and transport facilities for both products (para. 3.27).

(b) the development of more efficient LPG-fired tannurs (para.2.20);

(c) the use of modern commercial fuel oil-fired bakeries producinglocal-type bread be investigated. The lessons from recentunsuccessful experiences with modern bakeries can be used todesign a project for producing bread which is more acceptableto the public;

(d) the economic feasibility of importing charcoal should be inves-tigated.

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Other Renewables

20. Solar water heating (SWH) is commercially attractive in com-parison to electric water heating, and the private sector is already tak-ing initiatives in marketing solar water heaters. If the market proveslucrative, moves toward assembling and/or producing collectors in YARwill be made quickly. However, caution should be taken to avoid tech-nical and operational problems already encountered in other countries.

.The mission recommends that the Government encourage, by issuing appro-priate guidelines, the installation of SWH in government buildings andpromote the replacement of existing electric water heaters in hotels, newand old houses by means of information campaigns and demonstration.

21. The use of photovoltaic energy appears to be economicallyattractive for liaited applications in selected locations such as pumpeddrinking water, telecommunications, energizing television sets and re-charging batter.Is. Comparisons of the cost of irrigatiou by windmillsin Wadi Rasiyan in the Tihama vis-a-vis diesel pumping shows it to becompetitive. The mission recommends that technical assistance along thelines outlined in Annex XI be made available to the Government for sys-tematic collection of further data on windspeeds in the Tihama, and apilot project in Wadi Rasiyan be undertaken to establish the technicaland economic feasibility of wind pumps there. Moreover, monitoring,evaluationp and pilot programs of photovoltaic use in appropriate appli-cations should be encouraged, possibly with the help of the University ofSana'a where expertise already exists.

Energy Planning

22. As in many developing countries, the extreme scarcity of quali-fied manpower in YAR is a major constraint to planning and implementa-tion, both at the subsector level and for the energy sector as a whole.The Central Planning Organization (CPO) suffers from structural weakness(organization, staffing, etc.) and inefficiency. Attempts are alreadyunderway to restructure and strengthen CPO, both in pLanning, coordina-tion, project implementation and monitoring, and in data collection andanalysis.

23. Planning capabilities are also generally very weak at the sub-sectoral level. In power, YCEC suffers from highly fragmented opera-tions, lack of technicaL staff, and weak administrative and planningcapabilities. The General Directorate of Forestry (CDF) in the Ministryof Agriculture is still relatively new, understaffed and very weak. Inaddition to meager budgetary allocations of funds, material and operatingsupplies, there is practically no planning, research or inventorycontrol. The recently approved forestry policy and proposed forestrylegislation provide a general framework, but their impLementation willrequire funds and considerable effort to strengthen GDP. In the petro-

leum sector, lack of adequately qualified staff lies at the center ofYOMINCO's problems. However, under the existirg IDA-financed PetroleumPromotion Project, aome traLi-ing for rOMINCO staj'f is provided for. TheUniversity of Sana'a, which is the only center for higher education.inYAR, at present plays a limited role in the energy sector. It could beinvolved in training, data collection, research and monitoring, especi-ally in the area of solar energy.

24. The mission recommends:

(a) the creation of planning units as counterparts to CPO in sectorministries, incLuding energy consuming sectors such astransport and electricity (at present only YOMINCO has made abeginning in establishing sdch a unit);

(b) the improvement of coordination between ministries, perhapsthrough the establishment of an interministerial working groupfor energy (with a permanent secretariat) consisting of offi-cials from the various ministries concerned and other institu-tions, which will meet regularly to review issues and progressin the energy sector and coordinate activities;

(c) in the power subsector, the following major improvements shouldbe considered by YGEC and its consultants and of these measuresbeing addressed now in the framework of Bank Lending andsubsector dialogue are:

- management functions in YGEC and the Ministry ofElectricity and Water should be clearly defined andseparated, and decision making made more efficient;

- a legal document to define regulations dealing with con-sumers and connection policy should be prepared;

- YGEC's fledgling drafting unit should be strengthened tohelp standardize distribution design;

- a central workshop for repairing equipment that was dis-mantled because of system expansion should be recreated;

- loss reduction should include better consumer supervision,and selected improvements in connection design and meterlocation; and

- the terms of YGEC assistance to private power supplysystems should be standardized on a contract basis.

(d) in the forestry subsector, the mission recommends:

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- recruitment and training of appropriate additionalforestry staff within the next 5-10 years and a provisionthat a Large component of any future forestry projects bedevoted to institutional strengthering;

- direct involvement of the Local Development Associations(LDA's) in any forestry strategy. VilLage operated nur-series from which farmers can obtain their seedlings willbe at the center of any afforestation programs to becarried out, supplementing present efforts to use localand national organizations for tree planting;

(e) establishment of an Energy Unit at the University of Sana'a,which would be involved in developing and sustaining the moni-toring and evaluation of renewabLe energy schemes, and otherappropriate energy research activities, and could be availablefor carrying out research assignments for various concernedministries such as CPO, Agriculture, etc.

25. tn addition to ongoing technical assistance (including thatprovided under IDA-assisted projects), the mission recommends thatfurther technicaL assistance be made available (Annex 10).

Summary of Recommendations

26. Among the many recommendations made in this report, the missionregards the following as deserving highest priority.

Institutional

- improve policy coordination between energy sectorministries and institutions, supplemented by planningunits in individual ministries and authorities to functionas permanent Central Planning Organization (CPO)counterparts;

- define and streamline management functions in the YemenGeneral Electricity Corporation (YGEC) and the Ministry ofElectricity and Water (MEW);

- pursue increased productivity in YGEC to reduce the growthof skilled manpower requirements relative to expandingoperations;

- draft specific conditions of supply of electricity by YCECto reg'4late consumer relations;

- charge one agency, prefera4lly the Department of Transport(DOT) in the Ministry of Communications, with the

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responsibility for improving fuel efficiency in thetransport sector;

strengthen the Directorate of Forestry (DF) in theMinistry of Agriculture (and the forestry sector ingeneral) by training additional forestry staff, andproviding adequate operating funds;

Pricing

- bring the domestic prices of gasoil and gasoline closertogether in order to eliminate the distortion in relativeprices;

- restructure YGEC electricity supply tariffs to encourageindustries to connect to the grid, reflect different costsof supply to different consumer categories, andaccommodate tariff adjustments resulting from fuel costchanges;

- prepare a financial recovery plan for YGEC;

Efficiency

- accelerate the switch from fuelwood to kerosene and LPG byinvesting in distribution facilities that will reduce thecost of commercial fuels (pipeline, storage, andbottling);

- deiign and implement, in addition to the network rehabili-tation projects, an effective loss reduction program inthe YGEC power supply system;

- encourage the reduction of excess supply of trucks andtaxis, using commercial vehicle taxation, licensing, andincentives for bus operators;

SuppLy

- start exploration for the geothermal potential in theDhamar area to confirm the possibility of powergeneration;

- improve and update the recent (1982) power generationexpansion plan, and integrate it with appropriatetransmission and distdibution planning to arrive at anoptimized system development plan;

- accelerate YGEC distribution grid expansion by mobilizingfinance and boosting implementation capability, to utilizeanticipated excess generating capacity;

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- impLement a forestry strengthening project whichemphasizes mainly timber and poles production, fuelwoodbeing a by-product sufficient to help maintain the currentsustainable annual yield;

- encourage the installation of solar water heaters.

27. Implementation of the recommen.ations requiring a significantinput or development of skilled manpower will be difficult, given theprevailing shortage of qualified labor in Yemen. In particular, emplc-l-ment terms for professionals in the public sector will have to bereviewed, as many functions as possible will have to be delegated to theprivate sector, and reliance on expatriates may be necessary for sometime until adequate staffing is achieved.

I* ENERGY CONSUMPTION AND THE ECONOMY

The Country and the Economy

1.1 The Yemen Arab Republic (YAR), situated in the southwesterncorner of the Arabian peninsula, is made up of three distinct physicalregions: the coastal Tihama region in the west, the mountainous high-lands in the center, and the desert in the east. The Tihama region facesthe Red Sea ard has a tropical climate; the highlands have a temperateclimate and good agricultural production, mainly from terraced mountain-sides; the desert is part of the extensive Arabian desert. For manycenturies, the country's population subsisted on agricultural productionand operated in isolation from its neighbors. However, in the early1960s the agricultural and economic foundations of the economy underwenta radical change. The 1'62 Revol cion and the ensuing civil war thatlasted eight years, the seven-year drought that began in 1967, and themigration of large numbers of Yemeni workers to neighboring oil-rich Arabstates all contributed to the transformation of the economy. The supplyof labor declined, raising wage rates and agricultural imports financedby the remittances of Yemeni migrants, and the economy transformed itselffrom a self-sufficient subsistence agricultural system to a free market-oriented service economy.

1.2 Increasing remittances from Yemeni workers in oil producingcountries led to the rise of a monetized economy in the rural areas,where most of the migrania came from. These remittances increased from$40 million in 1970, to $500 maillion in 1976, and about $1-1.2 billion inrecent years (about 30% of GDP). Official CDP growth rates reached ahigh of about 12% in the mid-seventies, although they have declined sincethen to about 4% in recent years; GDP in 1982 was $3.25 billion. Theshare of agriculture in CDP fell from 44% in 1975 to the current 29%,while services grew from 48% to 58%. Per capita GNP has increased toabout $500 in 1982, and the population has gi,wn at a rate of 2.4% ayear, reaching 7.2 million in 1982.

1.3 Recent economic achievements should not detract from the factthat, even by developing countries' standards, Yemen still seriouslylacks physical, social and administrative infrastructure. Social indi-cators are among the lowest in the world: life expectancy barely exceeds43 years, less than 10% of the population has access to safe water, andthe adult literacy rate is only about 22%. Although the Governmentrecently has focused on constructing the physical infrastructure andproviding social services, its efforts have been seriously constrained bythe limited implementation capacity of the various governmental agencies.Public expenditures began to exceed revenues and official grants in1978/79, which has given rise to a chronic and growing deficit that hasbeen financed mainly through borrowing from the banking system. Thecurrent deficit is estimated to be 36% of official GDP.

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Energy Consumption

1.4 TotaL energy consumption in YAR for 1982 is estimated to be2.32 milLion tons of oil equivalent (toe). Fourty-two percent or 968,000toe of this amount is in the form of imported petroleum products, and58X, or 1,350,000 toe, is mainly fuelwood plus small quantities of animalwaote and plant residues. With a population of 7.2 million in 1962, thecurrent per capita consumption of total energy is approximately 322 kgoea year, while per capita consumption of commercial energy is about 134kgoe. This compares with a per capita consumption of commercial energyof 25 kgoe in neighboring Ethiopia, 67 kgoe in low-income developingcountries (excluding India and China), 317 kgoe in lower middle-it.comecountries of which YAR is a member, 738 kgoe for oil-importing middleincome countries, and 918 kgoe in Jordan. The 90% share of traditionalfuel in total household energy use appea;-s high, and could beoverestimated, given the scarcity of data. However, countries withsimilar GNP per capita show a similar strucutre (Peru 86%, Zimbabwe andZambia, 85%).

1.5 Annex 1 shows consumption trends in YAR over the period 1973-82. GDP in 1982 prices grew from YR 8,289 million in 1973/74, to anestimated YR 10,257 million in 1975-76 (11.2% p.a.), and YR 14,637 mil-lion in 1982 (6% p.a.), yielding an average growth rate of 7% over theperiod. This high growth rate is due to the growth of remittances ofYemenis working abroad, mainly in Saudi Arabia and the Gulf States.Annual growth rates of comnercial energy consumption were much higher,reaching 24.3% during 1973-77 and 18.7% during 1977-82, and averagingabout 22% during 1973-82. This compares to a growth rate of 6.3% for alloil importing developing countries during the seventies. Although stillrelatively low, the increasing intensity of commercial energy use, from.02 toe per thousand YR in 1973 to .07 toe per thousand YR in 1982,reflects an increase in the consumption of petroleum products such askerosene and LPG in households and commerce, and fuel for electricity,transport, industry and water pumping.

1.6 While the proportion of fuelwood in total energy consumptiondeclined over the period, fuelwood still accounted for about 60% of thetotal in 1982, compared to 86% in 1973 and 70% in 1977. For lack of anyconcrete data, fuelwood consumption in absolute terms is assumed to havegrown at the rate of general population growth (2.4Z) up to 1977, assum-ing a consumption rate of one cubic meter per capita. 1/ The greateravaiLability of kerosene and LPG is assumed to have reduced per capitaconsumption of fuelwood to an estimated 0.70 cubic meters in 1982. Thus,the rate of growth in total fuetwood consumption declined to 1.7% a yearduring 1977-82.

1,' Based on discussions of per capita fuetwood consumption presented inthe "Household Energy and Tree Seedling Demand Survey" by NasserAulaqi, June 1982, page 43.

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1.7 The growing consumption of imported petroleum products over theperiod reflects an increasing dependence on oil imports. Consumption ofthese products increased from a low of 14% of total energy consumption in1973, to 23% in 1977, and 42% in 1982, prompted by the dramatic rise inincomes of YKA's citizens from increased remittances. Total imports ofofficial and unofficial petroleum products increased from 160,000 toe in1973 to 968,000 toe in 1982, reflecting a growth rate of 22% perannum. 2/ The consumption of individual petroleum products also showedan increase during the same period. Gasoline imports increased by 25%p.a., from 40,000 toe to 385,000 toe; gasoil (40% of which is used forprivate and public power generation) increased by 18%, from 80,000 toe to440,000 toe, and kerosene grew by by 10%, from 29,000 toe to 70,000 toe.Yemen began to import LPG in large commercial quantities in 1980; by1982, LPG imports amounted to 28,600 toe.

Outlook

1.8 The eighties will not exhibit the high rates of growth in theeconomy or in energy consumption experienced during the seventias. Whilethe GDP growth rate averaged about 6% a year during the past decade, itis expected to grow by only 4% during the eighties. The consumption ofoil products, which grew by more than 20% in the second half of theseventies, is expected to slow down considerably and average about 8-9% ayear during the remainder of this decade. In most energy consumingsectors such as private power generation and transport, greater effortsshould be placed on maintenance and replacement rather than on substitu-tion. The time horizon used in the mission's energy forecasts stretchesto 1986 and 1991, coinciding with the end of the Second and Third Planperiods. Beyond 1991, the energy situation becomes uncertain because ofthe possibilities of developing geothermal and oil resources which aredependent on further exploration activities to be carried out in the nextfew years (paras. 3.2-3.10).

The 1982 Energy Balance

1.9 The 1982 energy balance is discussed in Annex IT and is summar-ized in Table 1.1.

2/ Unofficial imports, primarily of gasoline, from Saudi Arabia startedflooding the market in 1980 (230,000 tons) and efforts to curb themin 1981 (100,000 tons) could not be sustained because of internalconditions in YAR. Current estimates of unofficial imports rangefrom 200,000-250,000 tons.

Table 1.1: YAR ENERGY 8ALAN(E - 1982('000 toe)

Petroleum Products Total Fuelwood & TotalLPG ATF Gasoline Gasoil Kerosene Fuel Oil Petroleum Electricity Residues Energy

Imports 28.6 25.0 385.0 438.8 69.7 22.2 968.0 - - 968Indigenous - - - - - - - 1,350 1,350

Total 28.6 23 0 385.0 438.0 69.7 22.2 968.0 - 1,350 2,318

TransformationYGEC Generation - - - -65.3 - - -65.3 24 - -T & D Losses - - - - - - - -7

industrial Auto-generation - - - -36.7 - - -36.7 10T & D Losses - - - - - - -I - -

Household/Commercial - - -3.2 -72.4 -1 - -76.6 21 - -T & D Losses - - - - - - -3 - -

Total Generation - - -3.2 -174.4 - - -178.6 55 - -Total T & D Losses - - - - - - - -11 - -Net Generation - - -3.2 -174,4 - - -178.6 44 - -Transform. Losses - - - - - - - - -135

Total Available forConsumption 28.6 25 381 265.0 68.7 22.2 790 44 1,350 2,183

Households 28.6 - - - 66.7 - 95.: 20 1,350 1,465

Commercial - - - - - 7 - 7Transport - - - -

Road - - 370 164 - - 534 - - 534Air - 25 - - - - 25 - - 25

Industry - - - 14.3 - 22.2 36.5 15 - 51AgriculturePumping - - - 30.6 - - 30.6 1 - 31Tractors - - 11.5 56.1 2 69.6 - - 70

Street Lighting - - - - - I - 1

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Sectoral Pattern of Energy Consumption

Electricity

1.10 Yemen General Electric Corporation (YCEC). Table 1.2 shows theoverall growth ia the YCGC system since 1975, and Table 1.3 illustratesthe present sales breakdown by consumer category. The three years ofgrowth (1978-1980) in excess of 30% were caused by the addition oL largetowns on the relatively low generation base of the larger cities (Sana'a,Hodeida, Taiz) -- a phenomenon that will not be repeated except in theTable 1.1: YAEt Energy 3alance event of large bulk supplies to cementplants. Any town to be connected in the future will require smalleramounts of generation relative to the present base. Therefore, "normal"growth appears to have been, on average, below 30%, and the trend hasbeen declining since 1979. A continuing normal growth of about 25%during the next few years appears reasonable, considering physical andfinancial constraints.

Table 1.2: YGEC GROWTH IN GROSS GENERATION

Year 1975 1976 1977 1978 1979 1980 1981 1982

Generation GWh 43.3 55.0 70.8 97.8 141.5 188,0 228.0 283.1

Growth % 21,3 27.0 28,7 38.1 44.7 32.9 21.3 25.1

1.11 The 1982 YGEC forecast was prepared by consultants to justifythe expansion program in generating facilities up to the year 2000. Itappears to be unrealistically high in view of existing constraints,recent demographic and economic changes, and probable overestimates inindustrial demand. A revised forecast derived in the Power SubsectorReview (June 23, 83) is summarized in Table 1.3 below; the only differ-ence is that the forecast of demand at the cement plants is reviseddownward somewhat. High growth rates are expected up to 1986 due to theprobable expansion of the Bajil cement plant (up to 350,000 tons/a),connection in 1984 of the recently commissioned Amran cement plant(500,000 tons/a), and the connection in 1986 of the cement plant to beconstructed at Mafraq (500,000 tons/a). A relatively strong growth canbe expected because o.f a more reliable supply from the interconnectedsystem which will becorne operational between 1984 and 1985. The presentisolated operation of power stations causes innumerable forced outages,law voltage and low frequency.

1.12 Between 1986 and 1991, the growth rate would steadily declinefrom 15.2X in 1987 to 9.4% in 1991, averaging 112 GWh/a. This appearsreasonable, as the pace of ne-d electrification, which at first still

would include relatively large villages, would progressively decrease.Until 1991, existing diesel plant would provide peaking services toassure least cost operation, but then would reach the end of their usefullife. (After 1991, one 55-MW geothermal unit could be operational in1992, and a second 55 MW-unit in 1996 (para 3.10). As an alternative,some combustion turbine capacity could be installed by 1992.

1.13 Gasoil consumption in power generation would decline until1986, and again gradually would grow until about the end of the decade;after that it wsuld fall steadily because it would be required only forpeaking operations and in isolated rural systems. Starting in 1983, fueloil 3/ firing wouLd quickly replace diesel oil firing with the gradualcompletion of the interconnected system. Fuel oil firing would grow atan average of about 10% a year from 1986 to 1991. If the first 55-MWgeothermal unit becomes operational in 1992, it would generate 315 GWh(plant factor 0.65) and substitute for about 88,000 tons of fuel oil, orabout 23% of total YGEC requirements for oil. If a second unit becomesoperational by 1996, geothermal energy could replace about one-third of~.otal YGEC fuel requirements.

Household/Commercial Consumption

1.14 Households in YAR consume about 1.47 million toe a year, or 67%of the energy available for final consumption. )f this amount, 92% or1.35 million toe is fuelwood and residues, 5% or 67,000 toe kerosene, 1Zor 20,000 toe electricity, and 2% or 28,600 toe LPG. A detailed analysisof household cooking fuels appears in Annex 3 and the results aresummarized in Table 1.4. The little data available on fuelwood consump-tion in YAR is rough at best. However, after reviewing a number ofsurveys by donor agencies and other researchers, and after conductingsample field visits, the mission's estimates about national yearly fuel-wood consumption (inv.luding charcoal) are as follows: (a) 0.50 m , or300 kg of dried wood per capit , is consumed in urban areas (7% of thepopulation in 1982); (b) 0.75 mg, or 450 kg of dried wood per capita, isconsumed in rural areas (93% of the population in 1982). This averages0 70 m ,. or 420 kg of dried wood per capita for the total population(compared to 1.1 m3 in Ethiopia). The total annual consumption thenwould be about 5 million m or 3 million tons of fu.elwood in 1981. 4/

3/ Medium fuel oil at Ras Katenbib and heavy fuel oil at Mukha.

4/ Although these figures were obtained for 1981, they have been main-tained for 1982 in spite of population growth to indicate consump-tion levels because of the ever-increasing uses of substitutes suchas LPG, kerosene and electricity.

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Table 1.3: YGEC GENERATION, SALES & FUEL CONSUMPTION, 1982-91

1982 1986 1991

Generation (GWh)Steam - 643 1,148Diesel 283 96 152

Total 283 739 1,300

Losses a/ (GWh) -79 (28%) -163 (22%) -273 (21%)

Sales bf (GWh) 204 576 1,027

Fuel Consumption ('000 toe)Gasoil 64 24 40Fuel oil 196 321

Total 64 220 361

Sectoral. Distribution of Electricity Sales(Percent)

Domestic/Commercial 57 44 51Industry 32 50 44Others (Govt., lighting,etc.) 11 6 5

Total 100 100 100

(GWh)Domestic/Commercial 117 253 524Industry 65 288 452Other 22 35 51

Total 204 576 1,027

a/ Based on Power Subsector Review, Table 5.5.a/ Based on Power Subsector Review, Table 5.4.

1.15 Household consumption of commercial fuels has been increasir,very rapidly. Between 1973 and 1982, kerosene imports increased fz a29,000 tons to 69,000 tons, i.e. showing an annual growth rate of in.LPG imports commenced in large commercial quantities only in 1980 andincreased from 6,000 tons to 27,000 tons. Electricity in rural areas isused mainly for lighting and TV, while in urban areas video recorders,washing machines, refrigerators, freezers and water heaters also areincreasingly used. Electric cookers are still few in number. Estimatinghousehold electricity consumption is difficult because of the prolife-ration of small generators in most rural homes and communities, estimatedat anywhere from 200-600 MW. Electricity sales by YGEC to households and

commercial establishments in 1982 amounted to 117 GWh. 51 However, ttisis probably only about 33% of total electricity consumed in YAR house-holds; the rest (242 GWh) is produced by private generators (Table 1.5and Annex 2). Energy consumption in the commercial subsector consistsmainly of electricity consumption in hotels and little shops around thecountry. In 1982, private auto-producers of electricity probably usedabout 75,000 tons of oil products for this purpose.

Household Energy Expenditure

1.16 Preliminary results of the household expenditures surveycarried out in November 1981 indicate that expenditures on energy re-present only 5Z of the household budget. The results suggest that thereis little difference between rural and urban areas in the amount spent onenergy; all households appear to have access to, and use a great varietyof, fuels for their needs. Fuelwood is still the Largest single expen-diture of each household, representing about 50% of the energy expendi-ture per household or about 2-3% of the total expenditure per house-hold. Total fuelwood consumption is higher than the data indicate,because fuelwood and other biomass is freely collected, especially inthe rural areas. Electricity plays a more important role in urban house-holds than in rural areas. The same is true for LPG, which is replacedby kerosene in rural areas as the dominant form of commercial energy.

Household/Commercial Forecast

1.17 Projections on population growth and fuelwood consumptionsuggest the possibility that the remaining small natural forest coverwill be destroyed by the early- or mid-1990s if fuelwood consumptiongrows un.¢hecked. Based on a npopulation growth rate of 2.4% a year andper capita consumpion of 0.7 m , the fuelwood needs If Yemeni householdswill reach 6.3 million mn by 1991 and 8.5 million m by the year 2000.Further degradation of the natural forest cover couLd be slowed, and theestimated current level of sustainable yield maintained, through a combi-nation of forestry strengthening, commercial bakeries, and promotion ofkerosene and LPG (Chapter III). It is clear that, if present substitu-tion trends continue their economically favorable pattern, fuelwood inthe long run will be largely replaced by commercial fuels, particularlykerosene.

1.18 Table 1.4 summarizes the forecasts of household/commercialcooking and baking needs. As attempts at protection and afforestationwill yield results only in the long-run, the situation is not expected tochange significantLy by 1991. However, because of the expected high costand reduced availability of fuelwood by 1991, it wouLd satisfy less thantwo-thirds of household energy requirements, compared to more than 90% atpresent. If no action is taken to arrest deforestation or check demand,

5/ 86 GWh to households and 31 GCWh to commerce.

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fuelwood supplies theoretically will have disappeared completely by theyear 2000, resulting in greater imports of LPG and kerosene and greaterreliance on crop residues to satisfy household/conmerciaL needs. If therecommended forestry strengthening and substitution discussed in ChapterIII is undert ken, fuelwood still might be available at a maximum rate of1.3 million m /a by the year 2000. Imports of kerosene and LPG, in thebest case, could be significantly lower than if no forestry improvementtakes place, resulting in gross savings of up to $30 million (1982prices) a year in foreign exchange (para. 4.5). It should, however, beborne in mind that an exclusive focuz; on fuelwood production in forestryis not desirable, as other benefits such as timber production andenvironmental protection are likely to outweigh fuelwood benefits. Themaintenance of a reasonabLe yield shouLd be a by-product of morecomprehensive forestry efforts.

Table 1.4: ANALYSIS OF HOUSEHOLD COOKING AND BAKING FUEL NEEDS

Fuel Consumption 1973 1982 1991

('000 toe) (W) ('000 toe) (W) ('000 toe) (%)

Fuelwood 1,138 98 1,335 b/ 92 647 63Residues - - 15 b/ 1 163 16LPG - - 28.6 2 42 4Kerosene 29 2 67 5 180 17Total 1,167 100 1,445.6 100 1,032 100

Population (million) 4,3 7.2 9.3 a/Per capita consumption (toe) 0.27 0.201 0.132

Useful Energy Consumption

Fuelwood (efficiency 10%) 144 88 132 73 65 33Residues (efficiency 10%) - - 2 1 16 8LPG (efficiency 60%) - - 14 8 25 13Kerosene (efficiency 50%) 15 12 34 18 90 46Total 159 100 182 100 196 10C

Per capita consumption (toe) 0.037 0.025 0.025

a/ Of which 1.5 million are estimated to be employed abroad,b/ Fuelwood and residues consumption, shown as one item in the 1982 Energy

Balance (Table 1.1), is shown separately here.

1.19 Because of the large potential demand, it appears necessary toassume a continued growth for household and commercial self-producers ofelectricity until L986, although by then saturation may be approached.In 5 of the 11 provinces in YAR statistically surveyed by the Ministry ofAgriculture and Fisheries, of the 187,961 total holdings in the area,109,847 use electricity itl the house, i.e. a surprising total of 58% haveaccess to some form of electricity. Also, taking into account the con-tinuing economic downturn, it appears reasonable that a replacement of

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existing generating facilities rather than strong growth will take pLaceuntil 1986/87. Therefore, a 10% growth rate is assumed for 1983, whichfalls to 5% in 1984, 3% in 1985, and 1% in 1986. By 1987, YGEC's ruralelectrification is expected to have accelerated, so an annual reductionin private generation is assumed from then on, as Less private sets wilLbe replaced. Table 1.5 shows the result of this estimate, together withthe related gasoil, gasoline and kerosene consumption in households andcommercial establishments.

Table 1.5: FORECAST OF ELECTRICITY USE,GENERATION, AND FUEL C0NSUMPTION BY HOUSEHOLD AND COMMERCIAL USERS

1982 (Actual) 1986 1991

From YGEC (GWh) 117 253 524

Household/CommercialSelf Producers

Generation (GWh) 242 291 225Losses (15%) 37 44 34Soil Consumption

('000 tons) at320 ttGWh (95%) 71 86 66

GasoL ine/KeroseneConsumption ('000 tons)at 320 t /GWh (5%) 4 5 4

Total (CWh consumed) 322 500 715

Transport Sector Consumption

1.20 Most of the present asphalted arterial road network was com-pleted between 1973 and 1981. By the end of 1981, there were 31,600kilometers of roads -- about 1,500 kilometers of primary roads, 21,000kilometers of secondary roads, and 1,000 kilometers of branch roads.While the road system was developing, the road transport fleet expandedrapidly. During the First Five Year Plan period (1976-81), annual in-creases of 27% were registered in traffic on main roads. GUP during thesame period grew at about 6% a year. Gasoline consumption has recentlybeen growing faster than gasoil consumption in transport, although theexistence of unofficia' imports makes it difficuLt to verify the exactrate. The high growth rate of gasoLine consumption was achieved in spiteof its significantly higher official retail price. UnofficiaL gasolineimports are sold at discount prices (para. 2.1). The high growth ofgasoLine consumption can be attributed to the combined effect of a real

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retail price (average of official and unofficial) for gasoline which sonly slightly higher than the price of diesel and the availability ofinexpensive second-hand gasoline vehicles in Saudi Arabia that areroutinely introduced unofficially into the country. Table 1.6 shows theannual growth of road traffic and fuel consumption during 1971-82.

Table 1.6: AVERAGE ANNUAL GROWTH OF ROAD TRAFFICAND FUEL CONSUMPTION, 1971-1982

1971-76 1976-80 1980-81 1981-82

Growth Rates (%)

Light Vehicles 23 26 11 15Heavy Vehicles 11 32 8 12All Vehicles 20 27 10 14

1971 1976 1980 1982

Fuel Consumption ('000 tons) A'

Gasoline 39 l1 276 353Gasoil 26 44 133 161

Total 65 154 409 514Annual Growth Rate (Z) 19 28 12

a/ For 1982, directly estimated. For other years, using growth ratesfor traffic as shown above since it can be expected that there was aclose correlation between the growth in both traffic and transportfuel consumption.

Source: Traffic counts at selected counting stations on main highwaysreported in Fifth Highway Appraisal.

1.21 Unlike the experience of other developing countries in whichhigher fuel prices led to a reduction in fuel consumption, in YAR theemphasis was on expansion -- of the road network, the vehicle fleet, andfuel consumption in transport. Many Yemeni workers returning fromemployment in Saudi Arabia invested their savings in trucks, giving riseto a commercial vehicle fleet three times what is needed to satisfydemand. Little or no officiaL attention has been given to fuel economyin the sector, and vehicles are not properly maintained. Road transportis a new industry in YAR, and management skills in road transport enter-prises are not yet well developed. Most commercial transport takes placeon a one-man one-truck basis, and there are only two road transportcompanies in the country: YOMINCO, which owns petroleum tank trucks, andthe Yemen Transport Corporation (YTC), which operates inter-city buses.

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1.22 Thee most visible feature of the existing fleet is the excesssupply of trucks and taxis. Associations of truck and taxi operators,with Government support, have instituted a scheme to allocate freight andpassengers. Delays of ten days waiting in line for freight are quitecommon. High tariffs for road freight reflect not only the high runningcosts to be expected in a country with so much mountainous terrain, buLalso high fixed costs per vehicle-ton-kilometer resulting from the Lowutilization of freight vehicles. Petroleum products currently are dis-tributed by 2- and 3-axle tank trucks at high cost. Trucks in therelatively small YOMINCO fleet have high overhead costs; private tanktrucks have a very low use rate and therefore high fixed costs. Thepresent cost for carrying petroleum products from Hodeida to Sana'a isabout US$0.15-0.18 per ton-kilometer, which is high even for the terrain.Some reduction in unit transport costs can be expected from improvementsplanned for the arterial road network and after the construction andimprovement of roads to outlying areas. The road construction andmaintenance program contained in the Second Five-Year Plan (SFYP 1982-86), which includes strengthening the Sana'a-Taiz road and constructingthe alternative Hodeida-Sana'a route, will reduce the distance and fuelconsumption to areas like Dhamar. Projects to upgrade road surfaces andimprove road maintenance also can be expected to reduce unit fuel con-sumption.

1.23 The road vehicle fleet probably consists of close to 210,000vehicles (excluding tractors), the largest single vehicle type beinggasoline powered pickups. Gasoline vehicles account for 90% of thefleet. Total road transport fuel consumption in 1982 is estimated at534,000 toe (514,000 tons). Of this amount, 353,000 tons were gasoline,70% of which was imported unofficially. Jet fuel imports were about25,000 tre in 1982. There is no bunkering of ships carried out at thecountry's ports. Data on fuel consumption in the transport sector andthe size of the vehicle fleet are given in detail in Annex IV andsummarized in Table 1.7.

Transport Sector Forecast

1.24 Under the 4% average GDP growth rate expected for YAR over thenext decade (para. 4.2), transport fuel consumption could be expected togrow by about 6% a year. This assumes a GDP elasticity for transportfuel consumption of 1.5, and a neutral pricing policy. The forecast alsoassumes that unofficial imports of gasoline will decline by 5% a yearuntil 1991 and disappear completely by the year 2000. 6/ As the stock ofgasoline vehicles approaches saturation leveL, total gasoline consumptionis expected to grow at 6% per year to 1986, and 3% thereafter. Becauseof the higher growth from a low base in the number of diesel vehicles,

6/ Evidence suggests that unofficial importers have to go fartherafield in search of gasoline supplies, reducing their profit margin(Annex 7).

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gasoil consumption will grow at 10% throughout the period. 7/ The over-all rate of growth for road transport fuel will be about 7% until 1986,and 6% thereafter. Yemenia Airlines anticipates a growth of 10% per yearfor its total passenger traffic over the forecast period. For purposesof projecting aviation fuel requirements, a flat growth rate of sixpercent a year has been used. This assumes a healthy rate of growth inpassenger traffic, combined with some improvements in fusel efficiencyresulting from the introduction of wide bodied aircraft into the Yemeniafleet, and some increase in the cabin factor. Forecasts of total trans-port secto- fuel requirements are shown in Table 1.7.

Table 1.7: TRANSPORT SECTOR FUSL REQUIREMENTS TO 1991('000 tons)

Average Annual Crowthgpercent)

1982 1986 1991 1982-86 1986-91 1982-91

Gasoline 353 446 517 6.0 3.0 4.3Gasoil 161 236 380 10.0 10.0 10.0ATF 25 32 42 6.0 6.0 6.0

Total 539 714 939 7.3 5.6 6.4

Industrial Consumption

1.25 The contribution of manufacturing activity to employment andCDP in YAR remains relatively small, i.e. 5% of the labor force and 5% ofvalue added to GDP. Industry uses energy for heat generation and in theform of electricity. The cost of fuels and other inputs represented only7% of the cost structure of firms in the food processing industry, and15% of that of the building materials industry (for cement alone, it canreach up to 50%). Electricity is either purchased from the publicutility YGEC or produced by the industriaL firms themselves. The propor-tion of YGEC-generated electricity sold to industry has been relativelylow because, until recently, public electricity supply was unreliable andtariffs charged by YGEC were higher than the financial cost of industrialauto-generation. Industrial customers of YGEC represented only 3.6% ofall customers, but they consumed 32%, or 65 CWh, of total sales.

1.26 Industrial auto-producers, on the other hand, generated 115GWh, for which they required 36,000 tons of gasoil. 8/ Assuming 10%

7/ If there is a slower than expected dieselization of the vehiclefleet, gasoline consumption wouLd grow faster and diesel consumptionslower tha.n shown in the forecasts.

8/ At thermal efficiency significantly less than that of YGEC (para.2.17).

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losses, the net consumption of electricity by industry from its own gen-eration is 105 GWh. Therefore, total electricity consumed in the indus-trial sector is about 170 GWh, equivalent to 15,000 toe. Added to thisis an estimated 14,000 toe of gasoil and 22,200 toe 9/ of fuel oilrequired for heat purposes in the cement,, soap and brick factories.Thus, actual consumption of petroleum products (including fuel for selfgeneration of electricity but excluding YCEC supply) in the industrialsector is estimated to be 60,000 toe, and total products purchased 72,000toe.

Industry Forecast

1.27 When YGEC's interconnected system becomes operational, most ofthe industrial auto-producers will be connected to the system. However,this may take five to ten years to implement because new factories withprivate power supply are still being constructed, and entrepreneurs mighthesitate to switch to public supply, particuLarly if a high connectioncharge is to be paid as is the case at present. 10/ To overcome this,the perceived reliability of supply would have to be improved through asubstantial reduction in outages during the next 2-3 years. As thisimprovement is taking place now, it is reasonable to assume that by 1990aLl major auto-producers will have been connected to YGEC. It isassumed, therefore, that growth will continue until 1985, anid decline insubsequent years until 1990 when auto-generation decreases linearly to1.0% of the present supply (some plants may, for process reasons, have tocontinue to rely on auto-generation). Because the most inefficient plantwould tend to be deactivated first, efficiency would improve gradually,resulting in the forecast shown in Table 1.8.

1.28 The future consumption of fuel oil for heat purposes isexpected to be largely independent of electricity needed by industry.The historic growth in gasoil use for heat has not been recorded; theconsumption of fuel oil has been steady at about 10,000 tons a year.Gasoil and fuel oil are expected to be u3ed increasingly for heat, and aconservative growth rate of 10% is assumed for all industry exceptcement. There is an almost linear relation between cement production andrequirements for heat and electricity (the latter to be supplied by YGECin the future, except for emergencies and test runs). Table 1.8 showsthe calculations of gasoil and fuel oil that are expected to be consumedby cement and other industries. Heat requirements are assumed to be met25% by gas oil and 75% by fuel oil. The bulk of heat requirements would

9/ 10,000 toe consumed, and 12,000 toe stocked at the new Amran cementplant.

10/ The third IDA project includes a component earmarked for connectionof industrial consumers, which would allow for reduced connectioncharges.

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be in the cement industry. As to the possibility of using coal for heatgeneration in cement plants. preliminary analysis (Annex 5) suggests thatsuch an option is at best marginal at this time considering the relative-ly expensive coal from conventional sources such as the U.S. orAustralia, 11/ the small quantities required (about 135,000 tons peryear), the very high transport costs in small vessels, the noneconomicutilization of coal facilities which would be built to receive coalshipments about twice a year on larger vessels, and the high inlandtransport and handling costs involved in delivering the coal to thecement plants. This option should be given serious consideration in caselarger shipments of coal are required for future power generation, whereeconomies of scale contribute to drastically reduced shipping rates perton, and where the port infrastruccure for receiving and handling coalwould have to be installed.

Table 1.8: FORECAST OF INDUSTRIAL GASOIL AND FUEL OILCONSUMPTION('000 tons)

1982 (Actual) 1986 199.

HeatCasoil 14 38 56Fuel Oil 10 81 109

24 719I _65

Z of Total Consumed by:Cement 52 84 82Other Industry 48 16 18

iOO o00 -F 00

PowerCasoil 36 38 1

Total Heat and Power 60 157 166

1.29 Cement consumption is estimated to have increased from about116,000 tons in 1975176 to 700,000-900,000 tons in 1980. As the extentof unofficial imports is not known, the available data cannot be con-sidered very accurate. The Bajil cement plant ha J( n producing only80,000 tons (10%); the rest are imports. With the expansioa of plant

ll/ Coal supplies might be availabl* from East African co.ntri X atlower prices and possibly, lower transporc costs for whic'- specialarrangements would have to be made.

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capacity in Bajil from l00,000 tons to 350,000 tons (dry process) and therecently completed dry process plant at Amran which has a capacity of500,000 tons per year, the production capacity would be roughly equal tothe present level of consumption. Thus, there is scope for additionalcement capacity to supply incremental demand, and a feasibility study fora 500,000 tpa plant in Mafraq already has been carried out by the FrenchFirm BCEOM. A recent preliminary analysis of expansion capacity con-cluded that a plant of 500,000 to 750,000 tons a year coming on stream by1986 is a good approximation of the best attainable investment pattern.However, lower growth rates for the economy in general, and cement con-sumption in particular, indicate a delay of three years in constructingthe plant. For the purposes of estimating fuel consumption for cement,the mission's projections assume that Mafraq will come on stream ini-tially in 1986 and expand to reach peak production by 1988.

Agriculture

1.30 The use of commercial energy in agriculture is still limited bythe traditionaL agricultural methods used in YAR. However, modernagricultural practices are being used, such as irrigation by pump setsand mechanized preparation of the soil. All these activities requireenergy inputs in the form of oil products. Only a few farms use elec-tricity for agricultural purposes. For example, only 2.3% of the agri-cultural holdings in the governorates of Sa'adah, al Bayda, Sana'a, alJawf and Ka'rib use electricity in their operations. Of the total 1.5million hectares (ha) of land under cultivation, only 250,000 ha areirrigated; of them, only about half are irrigated by pumps, which use30,000 tons of gasoil and 11,000 tons of gasoline (Annex 2 4 (g)). About85% of agricultural holdings use animal power for land preparation; 40%use both animal power and tractors. About 20,000 tractors which useabout 55,000 tons of gasoil are used in agriculture (Annex 2, 4 (e)). 12/Mechanical failures, field sizes and terracing reduce the efficiency ofthe tractors.

1.31 Available data do not allow any precise estimate of the numberof gasoil-driven pumps that would be converted to electric supply. If itis assumed that within 10 years 1,500 million m3 of water will be liftejeach year at twice the present depth, rather than the 1,000 million mlifted presently, gasoil consumption would about triple to 100,000 tons ayear -- a growth of 11.6% a year. Conversion to electric drive 131 wouldpartly offset gasoil consumption. Therefore, a growth rate of 10% a yearis assumed for the next 10 years, and 5% thereafter. A simple 7% yearlyincrease in the number and consumption of tractors is assumed, indicatinga doubling in 10 years. This reflects a gradual improvement in the effi-ciency of farming methods (Table 1.9).

12/ Source: Summary of the final results of the agriculture census inI1 provinces; Ministry of Agriculture and Fisheries, April, 83.

13/ This is economically desirable when close to the grid.

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Table 1.9: FUEL CONSUMPTION FOR PUMPS AND TRACTORS1982-1991('000 tons)

1982 1986 1991

PumpingCPqlnEh (X) 10 10Gasoil Consumption 30 44 71

TractorsGrowthi W) - 7 7Gasoil Consumption 55 72 101Gasoline Consumption 11 14 20

Total Petroleum Products Consumption

1.32 Based on the above analysis, Table 1.10 estimates the presentand future consumption of (all imported) petroleum products to 1991.Total imports are expected to increase from the 1982 level of 942,000tons to 1.45 million tons in 1986 and almost 2 million tons by 1991.

Table 1.10: PETROLEUM PRODUCTS CONSUMPTION IN1982, 1986 and 1991

('000 tons)

Annual Growth Rates (%)1982 1986 1991 1982-86 1982-91

Gasoline 367 463 540 6.0 4.4Official (117) (258) (382) 21.9 14.1Unofficial (250) (205) (158) -5 -5

Casoil 431 b/ 541 715 5.9 5.8Kerosene 69 - 106 179 11.3 11.3ATF 25 32 42 6 6Fuel Oil 23 5c/ 277 441 86 39LPG 27 32 40 4.5 4.5

Total 942 i,451 1,957 13.8 8.2Total, lessunofficial imports 692 1,246 1,799 15.8 11.1

a/ If total uncficial imports are assumed to remain at the samelevel in 1991 as they were in 1982 i.e. at 250,000 tons, therate of growth of official gasoline imports would be 10.6%(i.e. from 117,000 tons to 290,000 tons).

b/ Includes small quantities of unofficial imports.c/ Including 13,000 tons stocked at Amran.

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The 1991 Energy Balance

1.33 Based on the above discussion, Table 1.11 presents the 1991energy balance. Between 1982 and 1991, oil consumption in YAR isexpected to increase at an annual rate of about 8-9% (compared to 22%during 1973-82), and total generation of electricity will grow at anannuaL rate of 10%, from 640 GWh in 1982 to 1530 GWh in 1991.

Table 1.11: FORECAST 1991 ENERGY BALANCE('000 toe)

TotalGaso- Kero- Fuel Petroleum Electri- Fuel- Total

LPG AFT line Gasoll sene Oil Products city wood Energy

Indigenous - - - - - - - - 647 647

Imported 42 42 567 729 181 426 1987 - - 1987Total 42 42 567 729 181 426 1987 - 647 2634

ElectricityTransformation

YGEC - - - -41 - -310 -351 112 - -Losses (21%) - - - -23

IndustrialSelf-Producers - - - -1 - - -1 - - -

Household/Commercial - - -3 -67 -1 -71 19 - -Losses (15%) - - - - - - - -3 - -

Total Generation - - -3 -109 -1 -310 -423 131Total Losses - - - - - - - -26 - -

Net Generation - - -3 -109 -1 -310 -423 105 - -Transformation

Losses - - - - - - - - - -318

Total availablefor consumption 42 42 564 620 180 116 1564 105 647 2316

Households/Commercial 42 - - - 180 11 233 61 647 941

TransportRoad - - 543 388 - - 931 - - 931

Air - 42 - - - - 42 - - 42IndustryElectricity - - - - - - - 40 - 40

Heat - - - 57 - 105 162 - - 162AgriculturePumping - - - 72 - - 72 - - 72Tractors - - 21 103 - - 124 - - 124

Streetlightlng &Others - - - - - 4 - 4

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II. PRICES, COSTS, AND EFFIGIENCY OF ENERGY USE

PetroLeum Products

Pricing

2.1 Petroleum products generally are priced on a cost plus basis.The main components of the basic price per unit of each product incLude:(a) the c.i.f. price; (b) handling, administrative, and evaporationcosts; (c) local transport costs (estimated at about 15% of c.i.f. importcost); (d) import dutie!; and (e) excise and other taxes. The YemenPetroleum Company (YPC) after computing these elements submits theseprices to the Cabinet for approval through the Chairman of YOMINCO. Table2.1 shows the cost structure for petroleuim products in YAR as of May,1983. In major cities there is a differential between the official priceof gasoline (YR 2.60/Liter) and gasoil (YR 1.50/liter). In rural areas,the price of gasoil may be as high as YR 2/liter, reflecting the distri-bution cost; the price of gasoline can be as low as YR 1.60/liter inrural areas where there is a supply of unofficial imports from SaudiArabia.

Table 2.1: COSTS AND PRICES OF PETROLEUM PRODUCTS, MAY 1983

(YR/liter)

LiquIfleJ Petroleum Gas

Gaso- Aviation Fuel Kero- Imported lnported in

Cost Item line Fuel Oil Gasoll sene In bottles Small ships

(YR/ton)

c.l.f. Import cost 1.01 1.14 0.78 1.08 1.14 2,160 a/ 2,1601 a/

Overheads 0.11 0.13 0.09 0.12 0.13 216 216

Bottling - - - - - - 250

Local transport 0.15 0.17 0.12 0.16 0.17 540 b/ 540 b/

Total econ. cost

- urban 1.27 1.44 0.99 1.36 1.44 2,916 3,166

- rural 1.27 1.44 0.99 1.36 1.44 3,900-4,900 4,10U-9,1100

Dom. sales price c/- urban 2.60 2.29 1.50 1.50 2.06 2,640 2,640

- rural 1.60-2.60 - - 1.50-2.00 2.06 2,640-4,400 2,640-4,400

a/ Approximately same c.i.f. cost assumed because of small bulk quantities.

b/ Average for distribution to urban centers. Rural distribution adds about YR

1 ,000-2,000/ton.

ct Includes import duties, excise and other taxes on all products except LPG.

Source: YOMIINCO and mission estimates

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2.2 The domestic sales prices of all petroleum products are wellabove their import cost. However, the sales price for LPG does not re-flect the economic cost of the fuel (c.i.f. price plus handLing, trans-port and distribution), as the government encourages the use of LPG as asubstitute for flieLwood. Although there is no economic subsidization ofgasoil at present, there is a small financial subsidy, as import dutiesand taxes are not fully recovered by YOMINCO. In 1982, the total subsidyon gasoil and LPG was estimated to be about US$25 milLion, covered mainlyby higher taxation on other petroleum products, mainly gasoline. A,gradual increase in diesel oil prices to bring them closer to the leveLof gasoline prices is warranted for the following reasons:

(a) no clear equity objective is served by a gasoLine/dieseL pricedifferential, pe-ticularly considering that kerosene is notsubsidized, so the financial cross-subsidy should be removed;

(b) given the low utilization rates of smalL road vehicles, adieselization of the fleet should not be encouraged by arti-ficial price differentials;

(c) the waste of diesel fuel in irrigation pumping and underutili-zation of tractors could be reduced;

(d) the oversizing of diesel engines driving small private electri-city generators could be discouraged;

(e) the cost of road damage by heavy diesel vehicles could berecovered;

(f) it may serve as an inducement for YCEC to accelerate distribu-tion expansion to replace its local diesel generation by gridsupply from fuel oil-fired coastal power plants.

2.3 One uncertainty remains: a significant increase in the offi-cial sale price of diesel may give rise to higher unofficiaL dieselimports at lower cost from Saudi Arabia. (However, the goal of lowerofficial diesel imports would be achieved, and with it an improvement inthe balance of payments, as unofficial imports often are purchased withYemeni Rials). Any fuel price adjustment, therefore, would have to bedesigned carefully, taking into account politicaL realities and fiscalneeds.

2.4 Petroleum products are imported in small tankers of 15,000 dwtand transported by road tankers. The cost of importing, transporting anddistributing petroleum products is exceptionally high because of theinability of existing infrastructure to receive Larger vessels and store,transport, and distribute petroleum products. A project under prepara-tion (paras. 3.5-3.8) to install a pipeline and the associated infra-structure for the supply, storage and transportation of white petroleumproducts is expected to reduce their handling costs. With regard to LPG,its high cost is due to higher freight rates paid to ship LPG in small

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pressurized tankers 14/ and the fact that large amounts of bottled LPGare imported directly from Saudi Arabia and Aden. The Government alreadyhas taken steps to reduce costs by planning to increase the storage andfilling capacity of LPG. When these facilities are compLeted (May l984),YOMINCO will be able to take advantage of the lower price of Larger ship-ments (a possible reduction of about $100/ton), and to cut about 50% offits LPG bottling cost. This would allow the Government to eliminate thesubsidy on LPC. 15/ If future demand for LPG picks up significantly inurban and rural areas, importing LPG in large refrigerated vessels toSalif and pumping it to Sana'a via the proposed pipeline might be done atlittle additional cost, further reducing the present transport costs toand within YAR. However, at least 50,000-100,000 tons per year would berequired for economical operation; these volumes are unlikely to bereached before the mid-nineties (para 3.7).

Efficiency of Fuel Use in Road Transport

2.5 An immediate priority for the Government is to designate oneagency to be responsible for fuel efficiency in transport. The mostappropriate choice would be the Department of Transportation (DOT) withinthe Ministry of Communications and Transport. 16/ This is urgent becausethere are a number of measures that should be initiated now and whichrequire coordination with other ministries, The first task wouLd be tostrengthen DOT as an institution. A second priority would be to set up adata base which would include information on the vehicle fleet and itsutilization, cargo and passenger movements, and road transport fuel con-sumption which is essential to understanding the magnitude of the problemand monitoring the success of individual programs. The Government thenwill be in a better position to effectively levy taxes on fuel andvehictes and thereby secure payment of road user charges.

2.6 DOT should comiission a study of appropriate road user charges,which would include the identification of highway system costs andschemes to recover these from users in proportion to the costs incurredby each category of vehicle. Heavy vehicles, which are responsible formost road wear and tear, should pay their full share. The recommenda-tions emerging from such a study should include schemes to recover

14/ Only parcels of 400 tons can be accepted at: Hodeidah (para. 3.7).

15/ Assuming a $100 reduction in the c.i.f. price per ton, and areduction of bottling cost from the preser.t YR 250/t to about YR130/t, the total economic cost of LPG delivered in urban centerswould fall to about x2 2.550/t, i.e., below the present domesticsales price.

16/ Pending the outcome of a study of the role of the Department nowbeing prepared.

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costs for various scenarios of the mix of official and unofficial importsof both fuel and vehicles. The findings of the study should be examinedfor the possibility of practical implementation, and the politicalaspects of the measures.

2.7 The agency also should commission a survey of road transportmaintenance facilities to determine the need for new maintenance work-shops and to train mechanics and implement the recommendations. Expa-triate experts should be hired for a period of 6 to 9 man-months toconduct the survey. Expatriate experts also should be secured for about6 man-months each to set up standards for vehicle inspection and design,to put into place a vehicle inspection program, and to train drivinginstructors. A yearly inspection of vehicles designed to identify fuelinefficient vehicles should be made. Owners should be required to makenecessary adjustments before licences are renewed. Similarly, drivinginstruction shouLd emphasize driving habits that promote fuel effici-ency. Professional drivers should be subject to periodic testing. TheseDOT activities only will be possible after a significant strengthening ofthe agency.

2.8 The oversupply of trucks and taxis is perpetuated by Govern-ment-supported schemes that allocate traffic and maintain high freightrates (para. 1.22). More than 100 taxis a day with an average occupancyof seven or eight people operate in each direction between Sana'a andHodeida. Bus services should be used to absorb some of this traffic anda great deal of new traffic. About 40% of the Yemen Transport Corpora-tion (YTC) fleet is idle at any given time in the Sana'a terminal. Forthese reasons, regulations restricting competition on road transportshould be relaxed. Thde mnost effective way of doing this is to withdrawthe freight and passenger allocation schemes; this should be done gradu-ally, considering the political realities in YAR. Careful considerationshould be given to the obstacles inhibiting the enforcement of suchregulatory changes in ruraL areas. In the long run, the reduced earningsof Yemeni nationals in Saudi Arabia should slow down the growth in thenumber of new trucks and taxis. Intracity and intercity bus servicesshould be encouraged by providing incentives to individual owners to com-bine to form companies, and DOT should arrange training courses designedto help operators manage bus companies. The Government is aware of thisproblem, and studies on this subject are to be carried out as part of thetransport organization and policy study under IDA's Fourth Highway Proj-ect. These studies should help to define the necesrary organizationaland policy changes with a view to stimulating greater competition.

2.9 In cooperation with YOMINCO, the agency should monitor develop-ments in alternative transport fuels so that the necessary infrastructureis provided in time. In particular, LPG may become attractive as atransport fuel if its price falls substantialLy in relation to otherfuels. The agency also should monitor the introduction of dieselvehicles in the smaller size ranges and, if necessary, make recommenda-tions to the Ministry of Finance for changes in vehicle taxation tocompensate for the artificial attractiveness of small diesel vehicles if

- 23 -

diesel prices stay Low. The agency might consider, in parallel withdiesel price increases (para 2.2), a tax on diesel vehicles similar tothat introduced in Portugal, which would make diesel vehicles more econo-mical than gasoline vehicl only if the owner drives the vehicle morethan a certain number of kilometers.

Efficiency of Fuel Use in Industry

2.10 The scope for increasing industrial process efficiency in YARappears to be limited, as new and expanded cement plants are being in-stalled using dry process production, and other industries are not majorenergy consumers. Nevertheless, energy audits of major enterprisesshould be conducted over time to ascertain the extent of possible energysavings.

Efficiency of Pumps and Tractors

2.11 Irrigation pump sets are not used efficiently. Most individualfarmers' pumps are 20-23hp, and water in excess of agricultural needs ispumped and allowed to run off. In most cases, individual farmers' needscould be supplied more efficiently with smaller pumps or shorter operat-ing periods. 17/ Moreover, the engines that drive these pumps are alsooversized. In some areas, the water table is sinking at the alarmingrate of 5 meters per year, which requires an increasing amount of pumpingenergy. The Government will have to take action to reduce the prolifera-tion of large pumps and engines through a program of information andextension within existing agricultural development projects.

2.12 As with road transport, the use of tractors is characterized byovercapacity and underutilization. Furthermore, tractors are not usedeconomically in competition with animal power and are often acquired as asymboL of elevated status. The cost of land preparation and planting isroughly the same using either animal power or tractors -- estimated to beYR700-1,300/ha. The estimated average time of tractor use is approxi-mately 500 hours per year, which is very low. A better matching of thenumber ane size of tractors to their need and application should be en-couraged to reduce the no-load operation time. This could be tackled inthe context of the British-assisted mechanized agricultural scheme. Themission felt that it could not offer concrete and practical recommenda-tions on increasing the efficiency of fuel consumption in pumps and trac-tors; therefore, techrical assistance is recommended for carrying out astudy to do so (Annex 10).

17/ With associated investment in piped rather than open channeldistribution and in improved terracing to restrict wasteful waterrunoff.

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Electricity

Tariffs and Economic Costs

2.13 Urban consumers pay a uniform rate of YR 1.1 per kWh and ruralconsumers pay YR 1.50/kWh for electricity supplied from YGEC. Rural con-sumers who are supplied from privately-owned decentralized generator setspay per type of ena use at varying rates. As much as YR 20 per month (6hours per day) is p.aid per electric bulb of 20 W, whiLe the rate for atelevision set is about YR 50 per month. This results in a rate of YR5.5 per kWh which is extremely high in comparison to YGEC tariffs.

2.14 Table 2.2 compares existing tariff levels to the best presentestimate of the economic cost of supply. 181 The present average retailtariff of YR 1.1/kWh is almost 40% above YGEC's economic cost of supply.When applied to medium voltage (MV) consumers, it is 1.3 to 1.5 times theeconomic cost. However, YGEC supplies c-ery few MV consumers, partlybecause of the past unreliability of supply and partly because privategeneration has been financially cheaper than pubLic supply. The tariffis 1.3 times the LRMC of supplying urban households and shops, and 1.9times the cost of supplying workshops. Rural consumers probably are pay-ing close to the economic cost of grid supply. The gap between tarifflevels needed to satisfy financial requirements and the economic cost ofsupply should gradually narrow as the system approaches equilibriumbetween demand and supply. The large difference between existing tariffsbased on accounting costs and economic cost results from temporary excesscapacity at the new generating plant at Ras Katenib and in 132-kV trans-mission 19/ and the decision to build the Al Mukha power station inadvance of need (para. 3.14). Tariffs are also high because of the highcost of expatriate labor to run the utility and the high cost of gasoilfuel delivered to YGEC power stations. Although tariffs exceeded eco-nomic cost, YGEC still reported losses in fiscal 1980 and in the sixmonths to December 1981. Average costs are likely to remain high in thefuture because underutilized plant will resuLt in high fixed costs, YGECwill continue to rely on expatriates, fuel prices are likely to rise inthe medium term, and debt servicing costs are likely to rise when graceperiods on existing loans expire.

18/ Long run marginal cost (LRMC> based on WASP model calculations pre-pared by World Bank Staff, August 1984. The LRNC is determined bycalculating the incremental system costs of a sustained marginal in-crease in demand for capacity and energy. A detailed pricing studyis under preparation by the Bank.

19/ Due to the early stage of distribution investment.

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Table 2.2: MARGINAL COSTS OF SUPPLY AND EXISTING TARIFFS BY

CONSUMER GROUPS

Economic Cost Existing Tariff

Off- % of

Consumer Groups Peak Peak Weighted Average Existing Tariffs Economic Cost

(YR/kWh) (YR/kWh) (YR/kWh) (USf/kWh) (YR/kWh) (USf/kWh)

Bulk Supply

Cement Plants 0.79 0.45 0.56 11.0 0.75 14.7 134

MV Supply

Industrlal Hotels/

Large 0.88 0.43 0.58 11.4 0,75 14.7 129

Commercial 0.90 0.42 0,59 11.6 0,75 14.7 127

Water Pumping 0.84 0.41 0.62 12.2 0.97 17,9 156

LV Supply

Households

(a) Urban 1.30 0.63 0.85 16.7 1.10 21.6 129

(b) Rural 0.85 1.13 1.38 27.1 1.50 29.4 109

Streetlighting 2,07 0.65 1,07 21.0 1.10 21.6 103

Small industry/

W'orkshops 1.02 0.49 0,59 11.6 1.10 21.6 186

Commerce 1.55 0.60 0.88 17.3 1.10 21.6 125

Government Offices 0.55 0.49 0.70 13.7 1.10 21.6 157

Weighted Average 0.76 14.9 1,05 20.4 138

Source: World Bank estimates, 1984.

2.15 The previous YGEC tariff was significantly higher than thecosts of private industrial generation, which are about YR 0.9/kWh(US19.4/kWh) for a 250-500 kW diesel installation. This is typical foran enterprise with good maintenance practices, but the economic costs interms of national resources are almost identical (Annex 6). An existingor potential autoproducer had little incentive to choose public supply,the more so if his perceived cost (regarding capitaL expenditure as sunkcost) is only the recurrent cost of about 0.7 YR/kWh. However, the eco-nomic cost of NV autoproduction is almost twice the economic cost ofpublic supply. Therefore, from a resource allocation viewpoint, reliablepublic supply is more economic and represents the least cost option formeeting the future demand of potential MV consumers. The Governmenttherefore has recently moved to restrict the use of autogenerators in

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areas where YGEC supply is available, by restructuring the YGEC MVtariff. 20/ This involved creating an industrial tariff category, pricednear the perceived costs of autogeneration. If industrialists were com-puting their total cost properly (as they will be when present dieselplant reaches the end of its useful life), a tariff level of YR 0.85/kWheventually should be sufficient to attract industrial connections. Gov-ernment action also may involve limiting licences for auto-generation tocases where this is clearly in the interests of the national economy andthe firm, for example, where YGEC distribution facilities are inadequateor distant, when the firm requires a high standard of supply reliability,or combined heat and power. The low level of reliability dictates thatthis tool be used sparingly at present. Therefore, it will be importantto demonstrate better YGEC reliability at an attractive tariff. Theeconomic cost of small residential generation (5-10 kW sets), if operatedproperly, ranges from YR 1.1/kWh to YR 1.6/kWh (Annex 6). This cost isalmost equivalent to the cost of YGEC grid supply in rural areas, sug-gesting that a continuation of private household/ commercial generationin areas not yet reached by the grid can be economically justified.

2.16 Encouraging peak load to shift to off-peak is not an urgentpriority at present because. of excess generating and transmission capa-city and the lack of distribution facilities. As excess capacity dim-inishes, economic costs will rise and tariffs should induce MV consumersto move to off-peak consumption. However, in other respects the tariffsneed to be restructured to reflect the relative costs of supply to dif-ferent consumer categories. Following the recommendations in the PowerSubsector Review, tariff studies already are underway to determine thenature and pace of restructuring YGEC tariffs to differentiate moreprecisely among consumer categories.

Efficiency

2.17 Because of the decentralized operation of numerous power plantsand generators, the utilization of capital goods in generation is low.This is most striking in the domestic/commercial sector, particularly inrural areas (Table 2.3). Depending on the capacity of the engine inrelation to the alternator, the capital cost of small installed genera-tion units may range from US$500 to US$1,000 per kW, ($l,000/kW forYGEC). However, the generation units still are underutilized by a factorof about 3 (plant factor of 11f, compared with 28% of YGEC). No substan-tial improvement can be expected in the short-to-medium term, even withthe completion of the interconnected system. Although Ras Katenib (5 X33 MW) will take over public supply in the grid, existing stations cannotbe expected to be dismantLed (and suitable units transferred elsewhere inisolated systems), and factories would not dismantle their sets beforethe interconnected system proves its reliability. Similarly, YGEC's

20/ The new tariffs are YR 0.75/kWh for industrial and commercial MVconsumers, and YR 0.97/kWh for MV supply to water prumping.

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expansion of the grid, which would make redundant thousands of privategenerating units, is seriously constrained by a lack of funds andmanpower.

Table 2.3: UTILIZATION OF GENERATING FACILITIES

Annual ProductionInstalled per kW of Installed Plant

Generation Capacity Capacity FactorA B C a- b/

(GWh) (MW) (kWh) (%)

YGEC 283 114 2,482 28Industrial

Self-producers 115 73 1,575 18Domestic/Commercial

Self-producers 242 250 970 11Total or Average 640 437 1,465 17

a/ C = 1,000 A/B.b/ D = 100C/8760 (hours per year).

Source! Mission estimates.

2.18 TabLe 2.4 presents oil consumption per GWh and thermal effi-ciency based on fuel consumption and power generation. YGEC's generatingfacilities at about 38% are by far the most efficient. Its efficiency,which has grown from about 31% in 1975, to 36% in 9l81, peaking at 38% in1982, results from the installation and use of larger diesel units in themain towns. In 1983, the interconnected system will begin operation withthe Ras Katenib steam-electric station as che main supplier. Because ofthe telatively small unit size (33 MW), average consumption at this sta-tion will probably be about 12,000 Btu/kWh (or 3024 kcal/kWh) of mediumresidual oil, implying a decline in thermaL efficiency to 28%. However,the price of this fuel is expected to be considerably lower (about 60% ofthe price of gasoil at US$330/ton). Savings of 20% per unit generatedcould be realized from the substitution (about US$75,000/GWh presently,compared to about US$60,000/GWh at Ras Katenib). Therefore, grid expan-sion in general will reduce economic costs through lower fuel cost.

2.19 BuiLding on the efforts initiated by IDA Credit 1361-YAR,furthee improvements in the standard of private networks which generaLlyoperate at LV would reduce losses and prolong their physical life. Sav-ings could be achieved if private LV networks could be ultimately con-nected to the YGEC MV distribution system without having to be rebuilt orrehabilitated. The Ministry of Electricity and Water (MEW) should drawup standard terms for YGEC in purchasing private networks, and link com-pensation to the condition, age and design of the network. YCEC will

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continue to be the major institution in the power subsector; it will beable to produce cheaper energy than many private producers becanise of itsability to capture economies of scale from central power generation andthe fuel cost savings from steam plant.

Table 2.4; FUEL-USE EFFICIENCIES

Oil Products Genera- Consump- ThermalTyoe of Fuel Consumption tion tlion Efficiency

('000 tons) (GWh) (t/GWh) (%)

YGEC gasoil 64 283 226 37.7Industrial Self Producers gasoll 36 115 313 27.2Domestic/Conierclal gasoll 71 230 309 27.6

gasoline/kerosene 4 12 300 25.3Total, average 175 640 273 31.1

Source: Mission estimates,

Fuelwood

2.20 Due to the extreme and growing scarcity of fuelwood, priceshave risen tremendously over the past decade. The price of fuelwood inYAR is almost ten times the price of fuelwood in the Sahelian countriesin West Africa where fuelwood is also very scarce, i.e., US$0.45-0.55/kg,compared to US$.05fkg. 21/ Forest products from the natural forest coverin YAR are considered "free goods", and no taxes or permits are requiredto sell them. However, many factors go into the pricing of fuetwood,including distance, mode of transportation, intermediaries, the season,quality, type, preparation of wood, and profits. These factors, togetherwith the method of wood sale where fuelwood is sold by bundles or bypiles instead of by weight or standard volume, resuLt in a considerablespread in the price of fuelwood per kg. Thus, depending on which of thefactors is the most important, the price per kg varies between YR 2.5 andYR 5. This compares to an estimated economic cost of supply of about

21/ The purchasing power in Sahelian countries is considerably less thanthat in YAR.

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YR 9.52-2.5/kg. 22/ The depletion premium for fueLwood under the presentcircumstances of overcutting therefore would amount to about YR 0.5-2.5/kg if the remainder of the sales price is taken as proxy. Thisappears more than adequate in view of the cost of forestry improvement.

Efficiency of Fuelwood Use

2.21 Despite its high cost, fuelwood is stilL the mosc importantsingle source of cooking fuel in the YAR, used mainly for baking bread.For this purpose the traditional stove or tannur is used, which is cylin-drical, made of clay, and open at the top. The top of the tannur is onllycovered during the 30-minute heating up period. During the bakingitself, the top is open and most of the heat escapes into the open air.This means that bread baking is highly inefficient and cost.Ly, sinceabout 90% of the heat is Lost. Efforts to improve the efficiency of thetraditional tannur have not met with any degree of success. However,there are some LPG-fired metal tanriurs in use, although these have notyet been accepted by consumers on a large scale. The LPG-fired tannurprobably is more energy efficient because it has a shorter heating upperiod so less energy is needed for the same output.

2.22 Some savings in fuelwood consumption may be expected from theproper use of modern bakeries producing machine-made bread. In the past,the bread produced in the bakeries did not meet peoples' tastes, and thebakeries were not expected to compete in the open market. A change inthe type of bread produced by these bakeries may make their productacceptable to urban consumers, if the success of army-installed bakerieswhich produce local bread is any indication. There are also a few arti-sanal oil-fired bakeries which cater to the needs of the general public.It is therefore recommended that the Yemeni General Grain Corporationtake action to investigate the possibiLity of adapting the machinery inthe public bakeries to produce bread that meets the public demand. Inaddition, it is recommended that the Government commission a study of theactual performance of LPG-fired tannurs to estimate their fuel efficiencyand a possible wider dissemination in the YAR, taking into account theexperience gained there and elsewhere in the Middle East. The study alsoshould focus on the feasibility of producing such tannurs in YAR if thisis found to be a viable option (Annex 10).

2.23 Table 2.5 compares the economic costs of alternative householdfuels. It is clear from the calculations that, at present economicprices, kerosene is by far the cheapest fuel for Yemeni households,followed by LPG. lioreover, handling and distribution of kerosene is far

22/ Assuming an average labor cost of YR 100/day, collection time6 of 4-5 hours for a 25 kg bundLe, and 3 man-days for a 900-kg pickup load,self-collection results in a cost of YR 2.5/kg, and commercial sup-pLy operations (including collecting, cransport, handling, splittingand stocking) in a cost of YR 2.0/kg at the urban delivery point.

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less costly than LPG. The costs of importing, handling and distributingLPC and kerosene may fall. as a result of investments in transporting,handling, and bottling facilities (para. 3.8). Kerosene already is beingused in nost households in YAR (Annex 3, Table 1); however, there is somepreference for LPG because it is more convenient. in view of the need toreplace fuelwood, especially for bread-baking purposes, the:e is Likelyto be a significant increase in the demand for LPG and kerosene (para.1.18).

Table 2.5: RETAIL PRICES AND E0WtMIC a STSOF ALTERNATIVE 1OUSEIOLD DOKING FUELS PER USEFUL kWhSANA'A, MAY 1983

Average Economtc Economtc Average Price perFuel Retail Price Prtce Energy Value Gross kWh/kq cl Prtce Per Gross Efficlency Useful kWh

(YR/kg) (YR/kg, (Kcal/kg) kWh (YR) (%) (YR)

Fuelwood 2,5 2.5 a/ 4,250 4.94 0.5 10 5.05.0 5.0 a/ 4,250 4.94 1.01 10 10.10

Charcoal 4.0 4.0 6,900 8.02 0.5 20 10.00Kerosene

(I I = 0.8 Kg/2.06 YR)2.58 1.80 b/ 10,300 11.98 0.15 50 0.30

LPG

Urban 2.6 3.0 b/ 10,710 12.45 0.24 60 0.40(30 YR/11.4 kg)

Rural(50 YR/11.4 kg) 4.4 4.4 b/ 10,710 12.45 0.35 60 0.58

Electricity (YR/kWh)

Urban 1.1 0.83 70 1.19Rural 1.5 1.44 70 2.06

a/ Market price has been reta'ned as Indicative of the economic prtce (para).b/ Table 2.1 (average for LPG).

c/ Thermal kWh.

Sources: Rada'a Urban Deveiopment Project, OHV Consultinq Enqlneers,April 1983; and Test Results on Kerosene and Other Stoves, World Bank,September 1983.

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III. ENERGY RESOURCES AND SUPPLY OPTIONS

3.1 Except for firewood and organic wastes, YAR prcduces none ofits own fuel supplies. There are no known commercial deposits of coal ofany grade. Hydropower is not easily harnessed at any scale because ofthe intermittent nature of most rivers (wadis) and the intensive irri-gation use of river water. There are potential areas for oil, gas, andgeothermal discoveries which have not yet been adequately surveyed.Forestry resources have shrunk considerably over the past decade. Se.mepotential exists for developing solar and wind energy. 23/

Petroleum Products

Resource Potential

3.2 Two main sedimentary basins with petroleum potential have beenidentified. The Al-Jawf (Marib) basin in the northeast is currentlybeing explored by Hunt Oil Company (the only oil company active in YAR)under a 1981 contract with 30% cost recovery and 70-30 after tax produc-tion sharing. The basin extends over 12,600 square km in the easternarea and covers almost all of the prospective zone. The Hunt Oil programcomprises two years of seismic surveys to be followed by a drilLing pro-gram for several wells during the next three to four years if the seismicresults are encouraging. The results of the seismic survey operationwere interesting enough to warrant further exploration activity which isyielding first promising results. The other sedimentary basin of the RedSea occupies a prospective onshore and offshore area of about 156,000square km.

3.3 Past exploration activity in the Red Sea basin consisted ofabout 8,000 line km of seismic surveys (7,000 km offshore of fair to goodquality shows and 1,000 km onshore of poor to fair quality shows). Eightwells also have been drilled, five by an independent US oil company, andthree by Shell Oil Company. With the exception of very small amounts ofgas and oil detected in the last Shell onshore well, drilling results sofar have been disappointing, and Shell terminated its activity in thearea in July 1981; this brought exploration to a s6tandstill in the RedSea Basin.

3.4 The Government's current strategy is to reactivate the Red Seabasin for exploration by private oil companies. To this end, a compre-hensive assessment of past exploration data is being carried out with IDA

23/ Some of the issues in this chapter have been covered by the PowerSubsector Review and some are being addressed in the context of theproposed Petroleum Supply and Storage Project and the GeothermalExploration Project.

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assistance under the Petroleum and Geothermal Exploration Promotion Pro-ject. The project aims at providing technical and financial assistanceto YAR to reevaluate the petroleum potential in the western area andpromote the area to interested oil companies for further exploration.

Supply, Storage and Distribution

3.5 YAR's present system of supplying and distributing petroleumproducts is expensive. Products are imported at Hodeidah and transportedby road tankers to various parts of the country. 24/ As imports ofpetroleum products are expected to exceed 1.0 million tons by 1986 (para.1.32), the costs of receiving such volumes in the congested and shallowport of Hodeidah and transporting them by road to Sana'a wilL becomeprogressively higher. Other possible transportation arrangements such asimporting a large volume of products over land either by road from SaudiArabia or from the Aden Refinery in PDRY would involve considerablyhigher transportation costs.

3.6 The IDA-financed Petroleum and Geothermal Exploration Projectof February 1982 provided technical assistance to promote petroleum andgeothermal exploration to private investors, and financing for a feasi-bility study to construct an economically viable system of petroleumproducts supply, storage, and transportation. The French consultingfirm, Omnium Technique des Transportes par Pipelines (OTP), undertook thestudy to examine the feasibility of such an infrastructure system untilthe year 2005. The study concluded that constructing terminal facilitiesat the deep-water port of Salif with a white product (gasoline, gasoil,kerosene, jet fuel) pipeLine from Salif to Sana'a is economically feas-ible and provides the least cost solution for importing and transportingwhite petroleum products to Sana a. The mission's preliminary update andrevision of the study confirms this conclusion. A supply, storage anddistribution project for petroleum products is being prepared, which,when implemented, will reduce the import and internal transport costs ofpetroleum products. Annex 7 summarizes the economic analysis underlyingthe proposed project.

3.7 The present facilities for handling LPG are limited; they con-sist of storage capacity for 400 tons in the Hodeidah port area, and abottling plant capable of filling about 15,000 cylinders of 25 lb. eachper day. The bottling capacity is underutilized because of limited stor-age, shortages of empty cylinders, and because significant amounts offilled LPG cyLinders are imported directly from Saudi Arabia for distri-bution. A maximum of 120,000 cylinders at present are filled each month,although capacity is about 450,000. The exact supply of LPG is difficultto ascertain because some cylinders are imported unofficially. However,these are not many, and the officiaL imports of 27,000 tons per year have

24/ Sixty road tankers a day operate between Hodeidah and Sana'a -- adistance of 240 kms.

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been assumed to indicate the magnitude of total supply. From Hodeidah(and, to some extent, Aden), LPG cylinders are transported in privatetrucks to major inland YOMINCO distribution centers where private deaLerstake over further distribution. At present, only smaLl expensive ship-ments of bulk LPG can be received for lack of storage.

3.8 To alleviate the bottleneck, a new handling facility atHodeidah will be constructed by about 1985. It wiLl consist of two1,500-ton storage tanks and a bottling plant with a capacity of 24,000cylinders per day. After the new filling plant is completed, the oldplant is expected to be mothballed until demand picks up, and thecylinder-import contracts with Saudi Arabia and PDRY will be termi-nated. Tanker loads of up to 3,000 tons wilL be received in Hodeidah(compared to parcels of 400 tons now), resulting in significant freightand demurrage savings. Further expansion in the future will depend onthe pace of growth in LPG consumption. The option of moving the receiv-ing and storage operations to Salif to take advantage of the proposedwhite products pipeline would become feasible when shipments to Sana'areach a level of about 50,000-100,000 tons per year. At that level, acomparatively small additional storage investment of about $10 millionwould yield the benefits of lower freight rates for larger shipments, anda lower inland transport cost. However, even with sustained growth inLPG consumption, the shipment of 5,000-10,000 ton parcels one at a timeto Sana'a is onLy likely in the more distant future. In the meantime,transporting LPG in bulk road tankers to a new bottling plant in Sana'acould be considered.

Geothermal Resource Potential

3.9 The YAR highlands show numerous recent volcanoes and severalgeothermal occurrences (steam, sulphur deposits, hot water). On thebasis of reconnaissance geologic mapping, the Dhamar-Radaa geothermalprospect offers encouraging geologic indications for geothermal energyand is also within easy reach of the planned power transmission network.Exploration surveys within this prospective area were begun in January1981 by Electroconsult (ELC), which already has completed geoLogic, geo-chemical and electrical resistivity surveys. The resistivity surveyresults are encouraging and justify further explo-ation to confirm thefeasibility of developing the geothermal potential. 25/ IDA's Petroleumand Exploration Promotion Project provided technical assistance to inte-grate the available data on YAR's geothermal prospects and prepared apromotional report to attract potentiaL private foreign investors.Intensive efforts to interest such investors failed. However, because ofthe prospect of substituting geothermal energy for imported oil in powergeneration, further expLoration is warranted.

25/ There is a 60% probability of finding eAploitable quantities ofsteam.

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3.10 The available data indicate the geothermal option in powergeneration to be favorable. Fuel savings are the most significant bene-fit arising from a geothermal project, as the cost of generating geother-mal power is only $145 per ton of fuel oil equivalent, compared to acurrent fuel oil import cost of about $186 a ton in YAR. The investmentcost to construct a geothermal generating station would consist of thecost of the power component (approximately the same as a thermal powerplant of equivalent capacity 26/ and the cost of steam development -- atotal of about $150 - 200 million for a 55 MW plant. A preliminaryeconomic analysis of a 55 MW station using fuel oil yields an economicrate of return of more than 20%, provided sufficient geothermal steam isdiscovered. Taking large exploration risks into account, the expectedrate of return could fall to just above 10%. A full risk analysis needsto be conducted to substantiate the results. Geothermal power also wouldbe justified if imported coal became the majo-- fuel for power sts.tions inthe 1990s and would be delivered at slightly more than half the price ofoil on an equivalent heat basis.

Electricity

Existing and Proposed Generating Capacity

3.11 All the electricity generated in YAR is from thermal energy(mainly diesel until 1984). 27/ The growth of total installed capacitybefore 1975 is not known accurately because detailed data on privatesupptiers and autoproducers are not readily available. YCEC generatingcapacity increased from 15 MW in 1975 to 121 MW in 1982, representing anaverage annual increase of about 35%. The growth of installed capacitymaintained by private suppliers and autoproducers cannot be determinedexactly, but the total capacity in 1982 probably amounted to at least 300MW (Annex Ir, (4c)), up from 10-30 MW in 1975. Both the public and pri-vate power systems comprise isoLated systems fed by diesel generators.YGEC is a relatively new utility which was formed in 1975 initially tosatisfy demand in the main cities. The private power subsector is stilllarger than YGEC because of the many constraints on YGEC which preventedit from keeping abreast of demand and because of the physically scatterednature of demand.

3,12 Up until the late 1970s, demand in YGEC's systems was con-strained by shortage!s of generating capacity. From 1979 onward, thequality of supply improved with the installation of diesel units at

26/ Savings in boiler construction costs are balanced by the cost ofsteam gathering lines, particle separators and gas ejectors.

27/ Material on YGEC is consistert with the Power Subsector Review,1983, which has covered most of the pertinent areas related to YCECoperations.

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Sana'a, Hodeidah and Taiz. Installing the units was an interim measureuntil the new steam plant at Ras Katenib was commissioned in 1983.However, the reinforcement and expansion of distribution did not keeppace with increases in generating capacity. As a result, some dieselpower plants are underutilized, particularly those in Hodeidah and Taiz.As the YGEC grid expands and steam stations come on stream, the largediesel units could be used for standby and to provide reserve on theinterconnected system. The smaller pLant (500-1,200 kVA) would beavailable for use in remote systems, where fully depreciated privategenerating plant may not be replaced or where grid electricity will notbe availabLe for some time.

3.13 YGEC is committed to two major generation projects: an oil-fired steam station at Ras Katenib (165 MW) and another at Al Mukha (160MW). The Ras Katenib station is completed. The contract for Al Mukhareportedly envisages the first unit being commissioned by 1986, but atleast a year's delay is expected. In considering future system demand,it appears that no further generation is required until 1992. The geo-thermal exploration program, if successful, offers an economic substitutefor imported oil. In this connection, a geothermal p4ower station couldbe commissioned in the early 1990s. In 1984, after Ras Katenib is com-missioned, 60% of YGEC's installed capacity will be steam. This figurewill rise to 74% in 1988 after Al Mukha is completed and some dieselunits are retired (Table 3.1).

3.14 YGEC is likely to have considerable excess capacity for therest of the decade. After allowing for scheduled maintenance and forcedoutage, the margin of spare capacity will be greater than 10% in everyyear and as high as 40% when Ras Katenib and Al Mukha are brought intocommercial operation. This is a result of several factors: che lumpi-ness of unit sizes needed to capture econonies of scale, a downwardrevision of forecasts, and ordering units in advance of need. YCECshouLd make use of an expansion study prepared by consultants 28/ andimmediately begin to design an optimum power planning procedure, leadingto a least-cost system expansion plan to avoid ad-hoc investmentdecisions in the 1990s.

Transmission Systems

3.15 Transmission lines have been constructed f-om Ras Katenib toHodeidah, Sana'a, Taiz, and Amran. The lines to Hodeidah and Sana'a willbe brought into service in 1983 and the Taiz and Amran lines in 1984.Delays in completing the 132/33 kV substations and the 33/11 kV distri-bution substations have delayed the commissioning of the interconnectedsystem.

28/ "Power Development Program to the Year 2000", K & D, December 1982.

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Table 3.1: BALANCE OF SUPPLY AND DEMAND, YGEC(MW)

1982 1986 1988 1991

Interconnected Systems

Installed CapacitySteamRas Katenib - 165 165 165Al l4ukha - - 160 160Total - 165 325 325

Diesel. - 72 67 67OtherTotal - 237 392 392

Available CapacitySteam ~ - 112 224 242Diesel & Other - 50 47 47Total - 162 271 289

Maximum Demand 147 194 265

Reserve margin (% demand) 10 40 9

Isolated SYstemsInstahled capacity (diesel) 121 37 49 49Estimated available capacity 87 28 36 36

Sum of individual maximum demands 67.2 3.8 8.3 6.9

3.16 YGEC is committed to building another 132 kV line to connect AlMukba to Taiz. A branch from this line at Al Barh has been proposed tocross the Tihams to Bajil. The Tihama line is intended to supply Zabidand other towns in the region. It will also improve the security ofsupply when demand grows in Sana'a and other highland load centers.Other 132 kV lines are planned to Hajjah and Sa'ada. It is unlikely thatthe 132 kV Lines to Zabid, Hajjah and Sa'ada are economically justifiedat present, especially when YGEC will have surplus diesel capacityavailable for local generation. The Tihama line might be deLayed untilit could be justified on the grounds of system power flows and security.Hajjah couLd be connected using the transmission line from a possiblefuture steam station located at Salif, although such a station is unlike-ly before the early 1990s and then only if the geothermal option fails tomaterialize. The planning of transmission should be strengthened toplace a greater emphasis on economic as well as technical issues. YGECshould prepare terms of reference for future transmission studies thatensure a thorough examination of all the alternatives. These studiesshould be linked to an optimum generation expansion plan.

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Distribution and Rural Electrification

3.17 In 1975, YGEC inherited distribution networks with high lossesand voltage problems, after which it initiated a program of distributionrehabilitation and reinforcement with assistance from the Arab Fund, IDA,and bilateral donors. With IDA assistance, YGEC carried out a nationwidestudy of rural electrification which proposed a program of developmentand established technical standards. YGEC managed to make steady pro-gress in improving its distribution systems, instalLing 180 km of MVline, 194 km of LV Line and about 230 km of underground cable. Despitethis progress, distribution investment was insufficient, as indicated bythe high system losses in 1981 (30%), and lagged behind potentiaLdemand. An intensive loss reduction program should be initiated (para.5.10).

3.18 YGEC plans to further reinforce and extend its urban distribu-tion networks and to expand distribution facilities into rural areas.Between 1982 and 1986, it plans to complete 830 km of overhead MV line,90 km of LV line, 220 kn of MV cables and 78 km of LV cables. The planfocuses on MV distribution which should lead to Lower losses. YGEC'sgeneral problems involving shortages of manpower, financial constraintsand difficulties in project implementation have had the greatest impacton di3tribution. The extension of distribution networks in both urbanand rural areas has falLen behind schedule and has not developed in stepwith generation. Shortages of finance or contractual problems havedelayed the commissioning of major projects. YGEC has found financingfor generation and transmission projects more readily available than fordistribution. Distribution investment has lagged behind generationinvestment to the extent that only about 40% of the output of the RasKatenib power station can be delivered when the station is commissioned.As the syster develops, there is clearly a need to plan urban and ruraldistribution together with generation and transmission, to arrive at anintegrated progran for YGEC.

Autoproducers and Private Power Systems

3.19 The demand which YC - could not satisfy in the past has beenmet by private suppliers and -itoproducers. Trade statistics and sampleevidence suggest that most small-scale private generating plant is lessthan five years old. Most of this consists of units with capacities of 5to 10 kVA. At a l_kely domestic/commerciaL utilization rate of about1,000 kWh/kW, small private generating capacity (derived from fuel con-sumption statistics) would amount to about 250 MW, generating 242 GWh in1982. Engine capacity driving the alternators, however, would amount to350-460 MW. Industrial fuel consumption suggests an installed capacityof autoproducing industries of about 73 MW.

3.20 Most major industrial autoproducers within reach of the YCECgrid are likely to take public supply, if reliability can be assured andsuitable tariffs are offered by YGEC (para. 2.14). New industries arealso likely to take YGEC supply unless they are located in remote areas

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where connection to the grid is not economic. Existing generating plantpresumably will be retained for standby when YGEC supply fails. Afteradequate evaluation, some of the larger installations could be used inthe future for peak lopping, or even to provide power to YGEC. Smallunits to suppLy households, shops, and workshops will remain a predomi-nant feature of electricity supply for some time to come. As the YGECgrid slowly expands, autogeneration will continue to play a anajor role,although units will have to be replaced and private distribution systemswill require rehabilitation. In the medium term, continuing small ruralautogeneration is not detrimental in terms of economic cost and satisfiesexisting demand reasonably well (para. 2.14).

Fuelwood

Forestry Resources

3.21 The forest resources of YAR have been seriously depleted bycenturies of overuse and clearance for agriculture. During the lasttwenty years, the national forest cover has been under increasing pres-sure from exponential population growth, improvement of the road/tracknetwork and the increase in the vehicle fleet to transport the wood.Even so, woodland areas, scattered trees and shrubs still contributesignificantly to the national economy. They are used for grazing andbrowsing by free ranging domesticated stock and are a source of cutanimal fodder in the dry seasons. Even now they still constitute themain source of household energy, particularly in rural areas. Althoughfuelwood traditionally provided part of the building poles and smalltimber needed for construction, local building pole sources are by nowalmost totaLly depleted, and more and more building poles are importedfrom Ethiopia and Kenya. There are no sawmills or any similar forestindustry, and most sawn wood and other forest products are imported fromSingapore, M!alaysia and South Korea.

3.22 No systematic inventory of forest cover has been undertaken sofar, although CPO estimates it to be about 1.6 million ha, compared to3.5 million ha of agricultural lands. Closed forests or woodlands arepractically nonexistent; however, some areas carry woody vegetation,mainly as open woodlands and scattered trees and shrubs (Annex 8).Porestry resources also exist on the edges of terraced areas, wadis andirrigation channels on agricultural lands. The distrXbuticn if naturalforest cover in YAR is heavily dependent on rainfall, w.lich .a closelyrelated to elevation, with increasing gradients from north to aouth andfrom west to east. Although sparsely vegetated, the western and centralranges in YAR spanning 7 million ha offer a significant potential forfuelwood and building poles. In the eastern driest part of YAR, treesand shrubs grow in the uncultivated zones of the Wadis, including theWadi Jawf which has a scrub vegetacion over several thousand hectares.

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Fuelwood Production

3.23 Growing two trees/shrubs per ha on all agricultural lands andten trees/shrubs per ha in the western and central ranges would provideabout 80 million exploitable trees/shrubs in YAR. These would yield atotal stumpage volume of 25 million m3. Under such an assumption, themean annual in rement of the natural forest cover would amount to about1.25 million m per year (750,000 tons). Except for very remote woodedravines, all these resources are accessible. High population growth andthe resulting increased demand for fuelwood (about four times the meanannual increment in 1982) would totally destroy the fragile and low grow-ing natural forest cover in YAR over the next twenty years if nocountervailing measures are taken. The Yemenis are increasingly consci-ous of the extreme scarcity of fuelwood and use mainly dead trees andshrubs carefully Lopped/pollarded by farmers. In certain parts of YAR,traditional rules forbid any Live woodcutting. Nevertheless, a signifi-cant portion of the wood brought to coLlection points comes from livetrees, and many areas which used to be freely accessible for fuelwoodcollectors (open areas) are being claimed as private property, reducingthe areas open for fuelwood collection.

3.24 Forest lands are said to be state-owned, but there are nolegislative rules or any kind of records to confirm this. The delinea-tion and registration of forest lands proposed in the forest legislationunder consideration is likely to give rise to many ownership claims byindividuals, villages, and religious foundations. Most of the scatteredtrees, thickets or groves of trees and shrubs in the cultivated areas areindividually owned and are periodically pollarded by farmers for fuelwoodand fodder. No Government permission, tax or permit is required forextracting forest products from the natural forest cover, and there is nospecific organization in charge of wood extraction in YAR. Fuelwood isusually harvested either by farmers from their privately-owned agricul-tural lands or by farmers/harvesters/loggers from the open areas wherewood products are generally considered free goods. In fact, due to theever increasing demand for wood from the cities, most of the marketedfuelwood is now coming from remote open areas.

Forestry Development

3.25 The main constraints to forestry development in YAR are:(a) the advanced stage of deterioration of the natural forest cover;(b) the difficulty of obtaining full and sustained popular participationand government committment; (c) an extreme scarcity of land (even toestablish nurseries), resulting in severe competition with agricultureand livestock; (d) very harsh climatic conditions, including inadequaterainfall and very cold temperatures; (e) the scarcity and high cost oflabor which has contributed to the decline of agriculture in general overthe past few years; (f) very weak forestry institutions; and (g) a lackof well adapted forestry technical packages for marginal lands in aridand semi arid zones. Civen these constraints on forestry activities andthe high economic cost of fuelwood, it would be unrealistic and

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uneconomic to attempt to meet the increased potential demand for fuelwoodin the future by completely reversing these trends (Table 2.5). Instead,YAR's fuelwood strategy over the next 10-15 years should aim to maintainthe current mean annual increment through afforestation, more efficientexploitation of the fragile remaining natural forest cover, increasingthe importation of building poles, and relying more on substitutes suchas kerosene and LPG. A sustainable level of fuelwood production would bean integral part, but not the main focus of, a comprehensive forestrystrategy. Importing charcoal also should be examined with regPrd to itsavailability, cost, transport and marketing.

3,26 The recent cooperation among the General Directorate ofForestry and LDAs, I9/ school children, the army, and individuals inafforesting townships, roadsides, schools, administrative compounds, andmilitary camps suggests that the public is becoming conscious of the needfor reafforestation. Farmers are even willing to pay 1-5 YR for forestrytree seedlings, and it is not unusual to have some farmers sellingforestry tree seedlings in the markets. The total production of treenurseries in 1983 could amount to about 800,000, but the distribution ofthese seedlings could suffer from inadequate means and funds from theGteneral Directorate of Forestry (GDF). The mission supports currentefforts to intensify forestry activities in YAR. The second five-yearplan (1982-1986) includes a forestry component which takes into accountforestry programs of the Ministry of Agriculture and of international andbilateral aid agencies already approved.

Fuelwood Policy

2.27 The Government policy for fuelwood should focus on the follow-ing:

(a) encouraging a greater switch by households to kerosene in ruralareas and LPG in urban areas;

(b) making it possible for larger tankers of 2,000 dwt and 4,000dwt to call on Hodeidah. This would reduce transport costs perton of LPG and therefore reduce the c.i.f. price;

(c) encouraging a switch from fuelwood to oil- or gas-firedbakeries. Although recent experience with such bakeries underIDA's Foodgrain Storage Project has not been successful, such aproject could succeed if carefully designed;

(d) promoting and providing assistance to rural/family forestryprograms through profitable building poles production (under 3-5 years coppicing cycle) from a widespread LDA-assisted networkof mini-nurseries based on state-managed central nurseries;

29/ Local Development Associations.

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Such a program should focus initially on shade trees, livefenicing and wind breaks and then on groves, thickets and wood-lots. Present nurseries are few in number and are located farfrom farmers. This poses significant transport and distribu-tion problems. Moreover, tree nurseries established andmanaged under rural development projects are oriented mAinly toproducing fruit trees and succulent seedlings unable to dealwith the harsh concitions prevailing in YAR at planting time.There is a need to produce stronger seedlings and therefore toshift to more rustic nurseries (except for the non-frost-tolerant plants in ttie highlands). The mini-nurseries would bemanaged by farmers within the framework of their LDAactivities, and related extension services would be provided byCYDA/GDF. A first objective to plant two million forestry treeseedlings a year after a five-year implementation period wouldbe realistic (that is 2,000 equivalent hectares per year). Toachieve this, it is necessary to establish pilot/demonstrationGDF-managed tree plantations based on exotic and local specieson different sites for different purposes, including industrialtree plantations, watershed management, sand dune stabiliza-tion, and rehabilitation of abandoned agricultural Lands andterraces. This would require preliminary surveys on possibleplantation sites and the availability of labor. A firstobjective could be 300 equivalent hectares per year after afive-year implementation period. The total cost of a project toachieve these objectives would amount to about US$17 millionover five years and should consist of institutional strengthen-ing and infrastructure provision, LDA-based rural forestry,GDF-managed central forestry, and complementary studies;

(e) accumulating better knowledge of the forestry subsector by con-ducting a national survey with three essential objectives: todetermine the remaining forest resources; to determine theneeds for forestry products- and to test peoples' commitment torural forestry. The lack of accurate data on forestry wouldmake these surveys a prerequisite to any medium/large scalenational forestry development project in YAR;

(f) investigating new forestry technical packages which are welladapted to marginal lands in arid and semi arid zones in Yemenfocussing on local species. The first achievements with mostof the recently introduced exotic growing species have beendisappointing. It would be interesting to try to activate thegrowth of some local species such as ACACIA, ZIZIPHUS,BALANITES, and CORDIA which are very well adapted to the harshconditions prevailing in YAR.

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Animal Waste and Crop Residues

3.28 It appears that only 5-10% of the cow dung produced in YAR(about one miLlion tons) is used as fuel, 76% of it as fertilizer and therest wasted (Annex 3). Furthermore, the cost of family-size biogasplants is high, technical and social difficulties are still being en-countered in countries with vast experience in this field such as Chinaand India, and most of the population in YAR lives at high altitudes withcool winters where the efficiency of potential biogas digestors is verylow. Therefore, biogas digesters are not likely to play a significantrole in meeting YAR's household energy needs. Crop residues are usedmainly as fodder. With a further depletion of fuelwood resources, cropresidues may come to satisfy a somewhat greater share of household energyneeds, especially in the rural areas.

Other Renewable Energy

3.29 YAR is richly endowed with solar energy, which is the singlemost abundant renewable energy resource. According to data collected andanalyzed at Sana'a university, the annual average of solar energy thatfalls on 1 m2 is 2,150 kWh. There is some potential to use wind energy,particularly for pumping.

Solar Water Heating

3.30 The only solar technology sold con-..-:ially in YAR is flatplate solar thermal collectors for solar water heati,ig (SWH). Because ofthe high and growir- number of 2,500 W electric wo.er heaters in urbanareas, the more economical option of using SWH appears to be justified.Assuming an annual solar radiation of 2,000 kWh/m , a solar collector (at50% efficiency) eplaces about 1,000 kWh of energy per m2 per year.Compared to elictric water heaters, the gross financial savings amount toYR 1,100 per m /year. Economic savings amount to YR 830 in urban areas,and YR 1,400 in rural areas.

3.31 At present, the private sector sells collectors in S na'a forbetween YR 7,000 (160 liter-3 m2) and YR 8,000 (160 liter-4 i ). Morethan 250 were sold during the first six months of introducing this tech-nology in 1983. The paiback period for a 3m2 collector is 2.5 years; thepayback period for a 4m collector is a little shorter, at 2 years. Pay-back times could be reduced by dropping the price or bringing efficiencyto levels obtained in the United States, Europe and Japan. The case isless attractive economically when the solar water heaters replace LPGinstead of electricity. LPG is much cheaper than electricity (Table2.5), so that the financial payback deriod wouLd be close to 10 years.

3.32 If the market for SWH proves to be lucrative, there will bemoves toward assembling and/or producing collectors in YAR. Caution

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shouLd be taken to avoid problems encountered in other countries, andquality standards should be maintained. Experience in SWH techniques andmanufacturing should be thoroughly studied, especially in countries ofsimilar climate such as Jordan. Technical assistance should be sought,for example, from the University of Jordan and the Royal ScientificSociety in Amman, to minimize duplication of similar research and gainfrom the Jordanian experience in this field. In addition, the missionrecommends that:

(a) the Government encourage the installation of SWH in governmentbuildings and new houses, and promote SWH for existing houseswhich use electricity for heating water;

(b) the Government, possibly with the help of YGEC and Sana'aUniversity, monitor the introduction of SWH being installed,and compile appropriate data on the extent, type, price, andsize of heaters being used;

(c) the Government encourages, perhaps through the IndustrialEstate Development Authority, the private sector to become theprimary engine of SWH produtction and marketing.

Photovoltaic_ Energy

3.33 At present, domestic drinking water is obtained from open hand-dug wells and from tubewells. The cost of drinking water obtained bdiesel pumps, excluding the cost of the welL, is about YR 0.80-1.20/m(Annex IX). According to the findings of the UNDP's solar pump testingprogram, 301 the delivered costs of solar pumped wtter for village andlivestock supply is around US$0.20/m or YR. 0.90/mr (up to 30 m head),which makes the cost of solar pumping comparable to diesel pumping. Iflower solar system capital costs of US$9/Watt were achieved within thenext five years, solar pumping costs for drinking water could fall to US$0.07 - 0.14 for heads up to 30 meters. The mission therefore recommendsthat the Government start a monitoring and evaluation program of photo-voltaic (PV) solar driven water pumps for selected villages, in collabor-ation with donor agencies which already have such systems installed (FAOin Taiz or the intended USAID/Tihama Project).

3.34 Photovoltaic energy also has potential applications in theteLecommunications industry. Less than 20% of the population in YAR hasaccess to telecommunications. With a density of about 0.2 telephonelines per 100 inhabitants, the YAR has about one half of the average forAsian developing countries. Facilities are concentrated in 11. cities,and only about 200 villages have public telephones. The planned expan-sion of facilities will not substantially improve access in rural

30/ Small-Scale Solar-Powered Pumping Systems: The Technology, Its Eco-nomics and Advancement, June 1983. UNVP/Project CLO-80-003.

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areas. As high personnel operating costs make manual exchangesuneconomical in the long run, the YAR might consider using automaticequipment for rural services. The basic requirements for such rural sys-tems are that they must have low power consumption, high reliability,unattended operation and no periodic maintenance. Of the various powersupply techniques available, photovoltaic cells offer the cheapest solu-tion for YAR. For the more remote areas, solar cells are more economicthan thermal or wind generation for power ranges between 10 - 300 W con-tinuous load. 31/ Therefore, the use of solar powered PV cells for4.eLecomaiunications should be investigated, possibly by the Ministry ofTeLecommunications.

3.35 Civen the proliferation of electrical equipment in villages,and the cost of electricity supply in rural areas, the use of PV cellsfor energizinb televisions and recharging batteries might prove to bevery attractive. The Government should collaborate with the Universityof Sana'a staff, experienced in solar systemst to begin a pilot projectfor monitoring and evaluating a PV system for energizing televisions andrecharging batteries.

Wind Energy

3.36 Practical experience with wind energy utilization in YAR hasbeen very limited and not very successful. The few windmills installedin the early seventies around Taiz and in other isolated areas all brokedown. Based on available data, average wind speeds in the Tihama and onthe large open montane plains are around 3 - 3.5 m/s. Averages of about4 mIs have been observed along a narrow coast belt of about 20-40 km.Only at Wadi Rasiyan/(Tihama) have data shown a satisfactory annual aver-age wind spied of 4.5 m/s. A seven meter diameter windmill can pumpabout 150 m /day, which is more than enough to irrigate 1.5 to 2 hec-tares. This means that irrigation by windmills in Wadi Rasiyan could bea viable option, if costs can be hqld below those of diesel pumping,currently about YR 0.18/m3 (US¢4/m ). The mission recommends thatfurther systematic data on wind energy in YAR be collected to verify itspotential. The mission also recommends a pilot project to investigatethe technicaL and economic feasibility of wind pumps in the Wadi Rasiyanarea which, if proven, could Lead to wider application (Annex 11).

31/ Appropriate Modern Telecommunications, Technology for IntegratedRural Development in Africa, Geneva, Nov. 1981.

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IV. MACROECONOMIC EFFECTS OF FUTURE ENERGY USE

4.1 Meaningful long-term forecasts of energy consumption in YAR areelusive, as there is little historical data. Uncertainties about thefuture macroeconomic situation and Government policy also reduce thepredictive power of forecasts. For example, GNP growth and the avail-ability of foreign exchange greatly affect energy consumption, and thesedepend on future grants and net migration and workers' remittances whichin turn depend on political factors, the exchange rate, and the competi-tiveness of Yemeni workers with other migrants. Government importpolicy, its investment program, and its attitude toward unofficial im-ports and private electricity generation are all important variables indetermining energy consumption.

Oil Imports

4.2 An attempt has been made to correlate the Level of oiL importsderived in Chapter I (para. 1.32) with the anticipated macroeconomicsituation. The correlation assumes that (a) the Government will continueits policy of minimum interference with market forces: the exchange ratewill be allowed to find its appropriate level, import restrictions willcontinue to be minimal, and the Government will succeed in bringing itsbudget deficit to an acceptable level by 1986; (b) GDP growth will aver-age about 4% a year during the 1980s; (c) net remittances and grantswill decline in 1983 and 1984, and increase by 3% a year until 1986 andby 5% later on; imports will decline in 1983-84, and increase after 1986by 4% a year; the projected behavior of remittances and imports assumesthat the exchange rate wiLl not unduly discourage remittances and encour-age imports; YAR will have to increase medium- and long-term borrowingby 7% a year; (d) oil and product prices (in 1982 real terms) whichdeclined significantly in 1983 will begin to increase at a rate of 3% ayear again in 1986. On the supply side, it is assumed that no major oilor gas discoveries will take place to modify the energy picture by 1991.The outcome of these assumptions and the projection of oil importsalready outlined (Table 1.10) is given in Table 4.1.

4.3 Between 1982 and 1986, total oil imports (excluding unofficialimports at the declining rate of 5% p.a.) will grow at an annual rate of16%, while the import bill will grow at 9%. If unofficial imports remainat the 1982 level, official petroleum imports will increase at a rate of15%, and their value will increase at 10%. In either case, averageprices in 1982 terms will fall by about 6% until 1986. As real oilprices are expected to fall by a maximum of 5% a year over the period,the difference represents the effect of a shift from expensive gasoiL tofuel oil in power generation (Ras Katenib and Al-Mukha) and heat pro-duction in industry (mainly cement). The substitution is expected tosave the country about $15 million (in 1982 prices) in 1986, i.e. about1% of the country's total imports, or 15% of the country's $95 millionprojected foreign exchange reserves. The shift effect is expected todisappear during the Third Plan Period (1987-91) as the composition oioil imports stabilizes.

TaDle 4.1: QUANTITIES ANi) COST Of IMPORTS OF PETROLEUM PRODUCTS, 1982, 1986, and 1991

Annua, Growth

1982 Actual 1986 1991 Rate of Import Biii (S)Quantity Price Import Bill Quantity Price Import Bill Quantity Price Import Bill 1982-1986 1986-1991 1982-1991

('000 tons) ($S/ton) (S million) ('000 tons) (1982 (1982 S ('000 tons) (1982 (1982 $$/ton) million) $S/ton) miilion)

GJl,I Ile d/ 367 - - 463 - - 540 - - - - -

OtticidI b/ (117) 390 45.6 (258) 322 83 (382) 572 142 16 11 13tlikttICidi d/ (250) - - (205) - - (158) - - - - -

G.j>j'OI I431 324 139.6 541 268 145 715 309 221 1 9 5

Kul uSOWltrn 69 341.5 23.6 106 282 30 179 325 58 5 15 11

All 25 390 9.8 32 322 10 42 372 16 - 9 5

O 23 247 5.7 277 204 57 441 236 104 77 13 38 I

I 1-6 27 480 13.0 32 396 13 40 457 18 - 6.7 4

lutdl Excluding

.iotticidl 692 237.3 1,246 338 1,799 559 9.3 10.6 10I mpor t

Unofi,cial a! 250 205 158

'Tt.5i tpol-ts d! 942 1,451 1,957

T, rhe price of unofficial imports varies. Saudi domestic retail or wholesale prices are paid by unofficial importers mostly in

Yemeni Rials.

D/ if unofficidl imports in 1986 and 1991 remain at the 1982 level, i.e. 250,000 tons, the official import of gasoline would only

cost $69 million and S108 million, and the rate of growth of total import bill of petroleum would decline to 9% ana 10%,

resoectivel y.

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4.4 Despite the shift from expensive gasoil to cheaper fuel oil,the expected rate of growth of the oil bill is rather high, though sig-nificantly smatler than its historical level. If non-oil imports result-ing from a foreign exchange shortage and improved agricultural productionare assumed to fall by 5% a year to 1986 and then increase at 2.5% to1991, the share of official petroleum product imports in total imports(10Z in 1982) would rise from 17% in 1986 to 23% in 1991, assuming adeclining share of unofficial gasoline imports, This compares to 15% and21% in 1986 and 1991, assuming a constant level of unofficial importsduring the eighties. These comparative growth rates and shares reflectthe fact that demand for oil products appears to be relatively lessprice-elastic and less responsive to income growth fluctuations in comingyears than the demand for other imported goods. They also reflect theassumption that agriculture will revive and compete more successfullywith imports as a result of past Government efforts in that sector, amarket-oriented exchange rate, and increased availability of labor. Onthe whole, this scenario looks feasibLe, although the oil bill becomesrather expensive by 1991. If potential resources are confirmed, theexploitation of domestic geothermal resources (and perhaps oil) couldbegin in the early nineties to keep the oil import bill manageable.

4.5 By the year 2000, the effects of an integrated forestry stra-tegy may be visible. In terms of energy, if forestry policy and consumerbehavior emphasize fuelwood production within the framework of a streng-thened forestry subsector, a maximum of 58,000 tons of kerosene and14,000 tons of LPG could be saved each year, representing gross importsavings of about $30 million per year. In view of the relatively lowforestry investment requirements, this would be a desirable outcome.However, it should be noted that the required amount of fuelwood willonly be available under the most optimistic case of fueLwood development,i.e. an almost exclusive focus on fuelwood in forestry development. Thisis unlikely to be the optimum path of forestry strategy in YAR, as other,more important forestry goals would conflict with the maximizing of fuel-wood production. Actual cost savings in imports of petroleum productstherefore are likely to be lower.

Investment Requirements

4.6 The original document of the Second Plan Period (SFYP 1982-86)provided for a total energy sector investment of YR 1,854 million (US$412million) in 1981 prices. This represents about 6.6% of the total plannedgross fixed capital formation, or about 10% of the five year publicinvestment program. Updating the estimated costs of the major projectsincluded in the SFYP and estimating the cost of projects recommended bythe mission significantly increase energy sector investments in the on-going and Third Plan Period (TFYP). The desirable investment level forthe SFYP is about twice as much as the original plan (YR 3,700 million orUS$822 million) and likely requirements for the TFYP (1987-91) are evenhigher, at about YR 4,200 million (US$940 million) (Table 4.2). As the

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non-energy components also may be underestimated, the share of totaldesirable gross fixed capital formation under the new estimates may notbe significantly higher than the original.

Table 4.2: ENERGY INVESTMENT REQUIREMENTS(YR million, 1982 prices)

Second Plan Period Third PLan Period(1982-86) (1987-91)

YOMINCOOil Exploration - North 72

- West 14Geothermal Exploration 74 30Geothermal Development - 500Pipeline & Oil Storage 788 300LPG Storage & Distribution 107 100Other 50 150Subtotal 1,105 1,080

YGECGeneration - Ras Katenib 550 -

- Al Mukha 600 1,000- Geothermal a! - 250

Transmission 125 500Distribution 1,000 1,200Subtotal 2,275 2,950

Private Power Generation 250 50Forestry

Ongoing Projects 30 60Improvement Program 40 40Subtotal 70 100

Other Energy - 50Total 3,700 4,230

a/ Part of 55 MW plart investment.

Source: Mission estimates based on investments included in the SecondFive-Year Plan.

4.7 The oil exploration project in the north is expected to becarried out by the private sector, and the project in the west mainlyinvolves review and promotion. Exploring for geothermal potential wouldcost about YR 74 million during the SFYP, and actual field developmentarid associated power plant investment would begin in the TFYP to providegeneration capacity in the early 1990s. Exploration for resources would

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continue to a limited extent in the TFYP. The bulk of the pipeline andstorage project cost will be incurred during the SFYP, and follow-upinvestment in pumping and storage should take place during the followingyears. After the expansion of the ongoing LPG handling facility, furtherexpansion will be necessary in the TFYP to accommodate the additionaldemand rasulting from the substitution of LPG for fuelwood. Similarly,kerosene distribution facilities will have to be strengthened as ruralcooking switches over to commercial fuel. Possible implementation delaysand other institutional and financial constraints faced by YOMINCO mayreduce the desirable expenditure during the TFYP significantly, particu-larly in geothermal development and further storage capacity. If geo-thermal development lags, the next YGEC generating capacity investmentmay have to consist of orthodox thermal plant.

4.8 With the completion of Ras Katenib, YCEC generation investmentwill concentrate on the Al Mukha plant and, later in the decade, on geo-thermal capacity. Investment for the transmission system should bebalanced by accelerating the distribution network development, whichrequires large amounts of finance. Because of YGEC's implementation andfinancial constraints, the desired distribution investment level in theSFYP may not be achieved. The most likely YGEC investment would be aboutYR 1,800 million. Investment for private power generating capacity con-sisting of some growth and significant replacement therefore still willbe large in the SFYP but may taper off during the TFYP as YCEC distri-bution expansion accelerates.

4.9 The forestry/fuelwood strengthening project recommended by themission would add about YR 80 million to the forestry investment program,distributed over both plans. Other renewable energy development costs,such as those for solar and wind energy applications, would mainly beincurred by the private sector and are not likely to become significantbefore the TFYP. The sums involved in developing renewable energies arecomparatively small and can be accommodated fairly easily in the overallenergy investment program.

4.10 Serious financial constraints called for a general review ofthe public investment program which is now being carried out by theGovernment with Bank assistance. The review may result in a significantcurtailment of the country's overall investment plan, with the resultingeffect on energy sector investments. The main area where slirpage couldbe tolerated is in power generating investment, as further capacity can-not be fully utilized before distribution investment has progressedfurther. Other energy sector investments are of high priority for eco-nomic and balance-of-payments reasons and should not be delayed.

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V. ENERGY PLANNING AND INSTITUTIONS

The Planning Process

5.1 The role of the investment and policy planning process in YARis well defined in theory but not efficiently implemented. The overallobjectives pursued by the Government in formulating economic plans andpolicies are based on rather narrowly defined targets. These includeincreasing production and income, improving the balance of payments, andassuring equity in the distribution of investment. Changes in the pri-ority given to different economic sectors and shifts of emphasis arereflected at this target setting stage.

5.2 The Central Planning Organization (CPO) is the planning andcoordinating arm of the Government and is headed by its Chairman, theMinister of Development. It combines the functions of planniing and pro-gramming, research, statistics, project coordination and monitoring,external assistance mobilization, and capital budgeting. CPO's role issupplemented by the sectoral line ministries, which have responsibilityfor detailed planning, implementation and moniroring within theirjurisdictions. The investment planning process invoives the interactionbetween the CPO and sector authorities to arrive at agreed long- andshort-run priorities and investment levels. Apart from CPO, the mainparties in this process are the Ministry of Electricity and Water (MEW),YGEC and YOMINCO.

5.3 The planning system has two major short imings: in institu-tional structure and functional efficiency. With respect to the struc-ture of the institutions involved, a streamlininf and restructuring ofCPO is now under consideration, and involves the following measures:(a) the jurisdiction and programming function of the planning departmentin CPO will be expanded, and competent counterpart uni.s in sector autho-rities will be created to provide direct and permanent access to infor-mation; (b) the policy planning and coordination function of CPO will bestrengthened; (c) the implementation, monitoring, and follow-up capabi-Lity within CPO will be improved and expanded; Cd) the data oase in CPOwill be consolidated to make information more accessible to decisionmakers; (') statistical methods and data collection by CPO are to beimproved, with greater emphasis on the analysis of balance oi payments.

5.4 Strengthening CPO alone will not be sufficient; much needs tobe done to create and staff efficient planning units as counterparts inthe implementing subsector organizations. So far, only YOMINCO hasestablished such a unit. Other ministries and organizations are laggingor have not staffed existing units adequately. The staff of these plan-ning units, together with CPO representatives, could eventually form theworking-level basis of an urgently needed interministerial coordinationfor the energy sector. A working group to achieve this coordinationcould consist of high-level officials of the ministries of development,electricity and water, YOMINCO, agriculture/forestry, transport, indus-try, CYDA, the University of Sana'a and other relevant institutions.

- 52 -

Power Subsector Institutions

5.5 In 1931, the Ministry of Electricity and Water (MEW) wascreated to execute the Government's policies for electricity and waterdevelopment throughout the country. The Yemen General ElectricityOorporation (YGEC), created in 1975, is managed by a Government appointedBoard of Directors, whose Chairman is the Minister, and whose ViceChairman is the Deputy Minister, of MEW. A definition and streamliningof management functions in YGEC and MEW is of high priority. YGi3Coperates through 6 decentralized regions and 27 branch offices. Opera-tions are highly fragmented and each region has its own technical,administrative, accounting, billing and purchasing departments. Giventhis organizational structure and the lack of experienced staff, the paceof YGEC's planned development far exceeds its present technical andadministrative capabilities. If these capabilities are not strengthenedat an exponential rate, many of the facilities constructed in recentyears and those still in progress will begin to deteriorate and e-adangerYGEC's financial viability. On the other hand, increased productivity inYGEC will reduce its requirements for skilled manpower.

5.6 YGEC incurs extra costs for expatriate and consultant assis-tance in executing its tasks. About 50 now operate in YCEC and arelikely to remain until YGEC overcomes its problems in recruiting engin-eers, accountants, technicians, skilled office workers and semi-skilledworkers. Although many higher-level staff are being trained abroad andsome training is provided by a local training center, on-the-job trainingon a large, well organized scale is required to solve basic problems suchas consumer supervision, consumer administration, clerical tasks, etc.

5.7 The Power Subsector Review identifies most of the issues facingYGEC and makes some recommendations for improving its performance in allrespects. The recently approved, IDA-financed Third Power Project plansto engage Management Consultants' Services (MCS) to study YGEC's prob-lems, prepare recommendations and assist YGEC in implementing them. How-ever, immediate steps can be taken even before this study takes place.These are outlined in the following paragraphs and may be used by MCS indesigning its study.

Management, Organization and Planning

5.8 As a result of MCS advice on all aspects of YCEC operations,management and organization should be streamlined to allow simple linesof decision making and well defined areas of responsibility. The missionrecommends that MCS prepare a legal Government instrument in the form ofcomprehensive regulations i.e. "General Conditions for Supply ofElectricity" to define regulations, dealings with consumers, andconnection policy. This should be published as a Government decree wichhigh priority. YGEC's forecast investment program shows a healthydivision between generation, transmission and distribution, with 50% oftotal required funds earmarked for distribution. Although new proposalsin this respect should await the recommendations of the MCS, a

- 53 -

preliminary investment program should be given highest priority in orderto mobilize funds and execute projects in a well-defined sequence.

Technical

5.9 Although new distribution networks under IDA projects areexecuted in accordance with sound practices, other YGEC networks have notbeen standardized, and inexpensive, poor quality equipment has beenused. It is therefore recommended that technical assistance beidentified to finance the preparation by YGEC's consultants of a compLeteset of detailed network construction drawings, item drawings, codifiedmaterial and equipment lists, and construction instructions. YGECIsexisting drafting unit should be strengthened so that it initiaLly can beresponsible for basic distribution design (33 kV and below) and graduallyhandle network design for villages to be electrified (including "asbuilt" drawings). The mission also recommends the creation of a well-organized, central workshop. A lot of material and equipment is removedfrom networks during renovations that can be repaired, reconstituted andused again in rural areas. One of the earliest tasks of the MCS shouldbe to organize the management, organization and administration of stocksin the cities and the regions.

Losses

5.10 Present losses of almost 30% (79 GWh in 1982) are excessive asthe condition of the networks does not appear to justify losses above20%. The design and implementation of an effective loss reduction pro-gram in the YGEC power supply system is of high priority. The followingstages are suggested for implementing these proposals soon after MCSbegins its work. Network renovations have begun in Sana'a, Hodeidah andTaiz under IDA's first project, and new transformer regions are now beingcreated. Any such region, therefore, is well defined electrically.Immediately upon engagement, MSC should assign an expert assisted by YCECstaff to initiate consumer supervision of a single new transformerregion. Each meter, its mouniting, and the house connection, would berecorded and evaluated technically. This should be followed by physicalimprovements of the connection and meter. The practice of installingmeters indoors should be abandoned for new connections because it impedesproper meter reading and may be the cause of many errors. Discussionsbetween the Bank and YGEC on this issue are already underway, and shouldbe continued as a matter of priority (Annex 10)~

Rural Electrification

5.11 The Power Subsector Review makes sound suggestions forimproving rural electrification, including a division in YtEC and fieldassistants for load promotion and community assistance. To ensure smoothimplementation of these improvements, YGEC should focus on (a) stream-lining the assistance given to isolated private/commerical supply systemsby standardizing an assistance or takeover contract; and (b) increasingits data base for asse3sing potential load development by conducting

- 54 -

preelectrification surveys of existing alternative energy sources andappliances in villages about to be connected to the grid. These andother issues relating to rural electrification are being addressed withinthe framework of IDA power lending operations in YAR.

The General Directorate of Forestry

5.12 The forestry department, which in 1980 was raised to the statusof General Directorate of Forestry (GDF) in the Ministry of Agriculture(MOA), is very weak. It comprises the General Director and his assis-tant, both at headquarters in Sana'a, and some agricultural or forestrytechnicians (some of whom are expatriates) who manage CDF tree nurseriesor are seconded to ongoing forestry or rural development projects. GDFis understaffed and thus unable to fulfill any demanding action program.

5.13 Several important developments occurred during the past fewyears which point to an improvement in forestry organization and opera-tions in YAR. Draft legislation and a forest policy have been preparedby a FAO/UNDP/IBRD forestry adviser and both have MOA approval. Thepolicy is now regarded as operational, and the draft legislation is stillunder consideration. The forestry policy is a conventional generalpolicy document that deals mainly with conservation guidelines and there-fore should not be difficult to implement. The corresponding proposedforestry legislation is a comprehensive and sophisticated document. How-ever, there is no doubt that enforcing the law in order to regulatefuelwood cutting under present circumstances in YAR will present diffi-culties, as wood products from the national forest cover are consideredas "free goods". Even with a substantial strengthening of CDF, theproposed legislation would require a decade or more to implement fully.

5.14 Strengthening the institutional basis of the forestry sector tocope with the recommended improvement strategy (including ensuring theavailability of fuelwood) would require the following:

(a) recruitment and training of enough forestry officers and tech-nicians to bring GDF and extension staff to a more adequatelevel. Recruitment and training could take place over a periodof about five years concurrently with the creation of a networkof local nurseries. This recuitment program would 1- an inte-gral part of any forestry project;

(b) establishment of a planning, studies, and monitoring unitwithin GDF to provide needed coordination of activities andpolicy guidance.

Community Organizations

5.15 The Central government, with its relatively new institutions,still concentrates its efforts along the perimeter of the Sana'a-Taiz-Hodeidah triangle, and it will be a long time before such efforts reach

- 55 -

the heart of the country's rural areas. However, the Local DeveLopmentAssociation (LDA) movement which emerged in 1963 began to fill the gap inrural administration by providing basic services to the communities. TheLDA's are community organizations based on local village resource mobili-zation efforts and are not government related. In 1973, the Confedera-tion of Yemeni Development Associations (CYDA) was formed to organize thevarious LDA's in villages and secure greater support and participation.

5.16 Energy sector involvement has not been a major activity ofLDAs. Only three to five LDA's are believed to have purchasedcooperative village generators, and relations between LDA's and YGEC arenonexistent. However, in the area of tree planting, CYDA had a budget ofYR 700,000 (US$150,000) in 1983 earmarked for nurseries to sell fruittree seedlings to farmers. Within the CYDA organizational structure,there is a committee which oversees a nurseries division and an affores-tation and gardening division. For any afforestation program in YAR tosucceed, it would have to have local committment and participation. Theestablishment of LDA-sponsored village nurseries from which farmers canobtain their seedlings, with extension provided by the Forestry Depart-ment, is the only way to ensure a good measure of success to any suchprograms.

The Yemen Oil and Mineral Resources Corporation

5.17 The Yemen Oil and Mineral Resources Corporation (YOMINCO) is astate enterprise which was formed in 1978 by a merger of three existingentities: the Yemen Petroleum Company (YPC), the Salt Mining Company,and the Geological Survey Board (GS3). The two units within YOMINCOinvolved in the energy sector are the GSB and YPC. GSB has about 160employees, 40 of them professionals. Its principal activities cover thesupply of basic geological surveys, and prospection and exploration forall types of minerals, oil, hydrological and geothermal resources. YPC,with about 1,120 employees and 50 professionals, is primarily responsiblefor the importation and distribution of petroleum products in YAR.YOMINCO is headed by a Chairman, who is the Chief Executive Officer andalso the Minister of State. The present organizational structure issatisfactory.

5.18 Manpower planning and training in the petroleum and geothermalsubsectors in YAR face the common problems of identifying manpowerrequirements, recruiting adequately qualified staff, training andretaining trained staff. IDA's Petroleum Exploration Promotion Projectalready is providing some training for GSB staff in managing petroleumexploration activities. Proposed forthcoming IDA projects wilt providetechnical assistance to YOMINCO for qualified and experienced contrac-tors/consultants to manage and execute the projects and prepare a train-ing program for YOMINCO, CSB and YPC operating staff. If the petroleumsupply project, involving the Salif port facilities and a pipeline isimplemented by YOMINCO, a separate project unit should be set up under aproject manager in YPC. Similarly, given the shortages of quaLifiedmanpower, YPC should refrain from implementing parallel projects that

- 56 -

would require reassignment of staff from the project unit while theport/pipeline project is being completed.

5.19 YPC is responsible for the import, transport, storage andmarketing of petroleum products in YAR. It is directly responsible forthe implementation of the investment program. It has about 50 profes-sional staff, of which ten are technical. As Y?C has mainly been engagedin the trading of petroleum products, it lacks the experience in imple-menting and operating the proposed project. In the light of the above,the provision of technical assistance to IOMINCO is necessary, underwhich qualified and experienced consultants woulrd carry out the projectmanagement, assist in initial pipeline operatioii as well as training ofYOMINCO staff. Details concerning necessary technical assistance are setout in Annex 10.

Research and Training

The University of Sana'a

5.20 The University of Sana'a, with an enrollment of about 4,500students, is the only institution of higher education in YAR. TheFaculty of Commerce has the largest enrollment because of employmentprospects in YAR and neighboring Arab countries, and the Faculty ofScience has the smallest. Recent efforts by the University to increasethe number of admissions to the Faculty of Science have been fairlysuccessful. However, trained manpower in YAR is very scarce. A MOAproposal for an overseas post-graduate program to train 38 civil engin-eers during 1976-80 did not materialize because no suitable Yemeni can-didates were available. The YGEC, which expected to recruit 76 engineersduring 1979-83, has only been able to recruit an average of two univer-sity graduates per year during that period.

5.21 It is clear that the University of Sana'a needs to play agreater role in training, data collection, research and monitoring,particularly in the area of solar energy. It also should participatemore in research projects for various ministries such as MOA and CPO.University officials are interested in getting involved in the country'sdevelopment efforts. Because of the scarcity of research facilities andpersonnel, and to enable the YAR to implement the renewable energiesrecommendations, the mission recommends that the University establish anEnergy Unit with the support of expatriate experts to develop and sustainthe monitoring and evaluation procedures of the renewables program. Ifsome renewable energy sources prove to be cost effective9 the Unit alsocould train public and private sector personnel including LDA representa-tives involved in introducing, maintaining and disseminating informationon solar energy systems. It also could develop a teaching program to beincluded in the university curriculum, as well as a teaching program forenergy managers and engineers in tb!e industrial and commercial sectors tointroduce them to techniques of energy utilization and conservation.

- 57 - Annex 1

CONSUMPTION TRENDSPRIMARY ENERGY CONSUMPTION, 1973-1982

1973 1977 1982

Consumption ('000 toe)Commercial 160 382 968Noncommercial 1,138 a/ 1,244 b/ 1,350

Total 1,298 1,626 2,318

Percentage ShareCommercial 14 23 42Noncommercial 86 77 58

100 100 100

Energy Intensit c/ d/Total EnergyIGDP .16 .16 .16Commercial Energy/GDP d/ .02 .04 .07

1973-77 1977-82 1973-82Average Growth (X)Commercial 24.3 18.7 22.14Noncommercial (fuelwood) 2.4 1.7 1.92Total 5.8 6.7 6.7

a/ Commercial energy refers to imported petroleum products, while non-commercial energy refers mainly to fuelwood but also includes cropand animal residues.

b/ Based on an estimated population of 4.5 million in 1975, a popula-tion growth rate of 2.4%, and fuelwood consumption of I cubic meterper capita per annum.

c/ Energy intensity is the ratio of energy consumption in TOE to CDP inthousand 1982 YR. GDP estimates in 1982 prices are: YR 8,289million in 1973/74; YR 10,257 million in 1975/76, and YR 14,637million in 1982.

d/ Translated into toe consumption per million dollar GDP results inenergy intensities of 86 (1973), 166 (1977), and 278 (1982). Thiscompares with commercial energy consumption of 128 toe per milliondollars of GDP in 1980 for Ethiopia, 192 toe for Sudan and 340 toefor Kenya.

Annex 2- 58 - Pa9e 1 Of 5

YAR ENERGY BALANCE, 1982(Original laLts)

Petroleum Products ('000 tons-LPG ATF GesolIne Gasoli Kerosene Fuel Ol Electricity Fuelwood

(GWh) (10 tons)

Imports 27 25 367 a/ 431 69 23 -

Fuelwood - - - - - - 3

Transformation - - - - - -

YGEC Generatlon - - - -64 - 283 -Losses - - - - - - -79 (28%)

Industrlal Auto-generation - - - -36 - - 115 -Losses - - - - - - -11 (10%)

I-busehold/Commerclal - - -3 -71 -1 - 242Losses - - - -37 (15c ) -

Tetal - - -3 -171 -1 - 513 -

Total FinalConsumption 27 25 364 260 68 23 513 3

Hbuseholds 27 - - 66 - 230 3Commerctal - - - - - - 83 -Transport - - - . _ _ - _

Road - - 353 11 -IAir - 25 - - - - -

Industry - - - 14 - 23 169Agrlculture

Pumpl;.g " - 30 - - 15Tractors - - 11 55 2 - -

Streetlighting - - - - - - 16

a/ Including 250,000 tons unofflcial Imports

- 59 _ Annex 2Page 2 of 5

EXPLANATORY NOTES ON ENERCY BALANCE, 1982

Petroleum Products

1. LPG: 27,000 tons -- official import figure from YOMINCO.

2. ATF: 25,000 :ons -- official import figure from YOMINCO.

3. Gasolines 367,000 tons. The official import figure fromYC,MINCO is 115,000 tons. YOMINCO estimates unofficial importP in 1982 tobe about 250,000 tons. This fits closely with mission estimates of thegasoline-powered vehicle fleet, annual kiLometers/vehicle, total vehiclekms, and consumption per vehicle km (Annex 2, Table 3). Add to this11,000 tons used by gasoline-fueled tractors (representing 20X of totaltractor fleet in YAR) and 3,000 tons used to fueL small generators.These are used in rural areas, particularly in shops with refrigeratorsand coolers or for reloading batteries for TV sets. Assuming a ratherhigh operating regime, equivalent to 500 kWh/kW per annum (half theproduction of 1,000 kWh/kW per annum of diesel fueled generating units),and a consumption of 0.320 kg/kWh for these small sets -- generallyranging frorn 0.5 kW to 1.5 kW, consumption would be 160 kg/kW perannum. A total consumption of 11,000-14,000 tons of gasoline a year,which has beein estimated in previous reports, therefore would representan installed capacity of 69-88 MW. Taking account of an average unitsize of 1 kW, up to 100,000 of these small units would be in operation.This contradicts importers' information that, although many thousands ofunits have been sold in tVhe last five years, sales decreased rapidly oncethe operational and maintenance difficulties and the short useful lifebecame apparent. For this reason, the consumption of gasoline andkerosene combined for electricity generation may not even have surpassedsome 5,000 tons in 1982. This would still be equivalent to a rather highinstalled (or useful) capacity of some 30 tW. A total 1982 consumptionof 4,000 tons (3,000 tons of gasoline, 1,000 tons of kerosene) isassumed, generating 12 GWh.

4. Casoil: 440,000 tons. The official import figure from YOMINCOis 420,000 tons. Although no unofficial imports are on record, icappears extremely unlikely that gasoil would not also have been importedunofficially, especially in the northern and eastern districts ofYemen. A modest 5X of the total was assumed, increasing total imports to440,000:

(a) YCEC consumption of 64,000 tons is based on billed quantities,generating a total of 283 CWh in 1982.

(b) industrial autogeneration consumed 36,000 tons. Although notrecorded, a reasonable estimate can be made on the basis of theindustrial self producers, estimated at 70 MW excluding 3 MW atBajil Cement Plant. At an assumed load Factor of 0.8, theenergy generated by the above capacity (70 MW) would have

- 60 - Annex 2Page 3 of 5

amounted to 105 GWh, consuming 33,000 tons of gasoil at anestimated efficiency of 0.320 kg/kWh. The latter conservativeassumption was made because most diesels are small and may beloaded far below capacity, particularly during off-productionand slack hours. Cement (Bajit) was calculated separately (10GWh was generated in 1982 at a gasoil consumption of 3,000tons) on the basis of data provided by the company.Consequently, total 1982 production of electricity by industrywould have amounted to 115 CWh, for which 36,000 tons of gasoilwas consumed.

(c) Household/Commercial generation consumed 71,000 tons of gas oilwhich is a residual figure i.e., total imports less consumptionfor all other purposes. Most smaller generating sets, particu-larly in rural areas, operate on gas oil and comprise a singlecylinder diesel engine and a belt driven alternator of 5-10kVA. The diesel engine capacity generally is 1.5 to 2 times aslarge as the alternator, for example, a 10 kVA (8kW) alternatoris driven by a 16-22 HP diesel engine, equivalent to 12-16kW. Operating time on average does not exceed 6 hours and theload factor probably does not exceed 0.5 because in rural areaspeople retire early, refrigerators have cooled again in 2-3hours, TV's have been switched off, etc. Calculating per kW ofinstalled capacity and assuming 365 d/a of operation, annualproduction would be about 1,000 kWh/kW. The single cylinder,medium-speed (500-800 rpm) engines are relatively efficient andhave flat efficiency characteristics. Assuming an averageefficiency of 0.31 kg/kWh, annual consumption would be 310kg/kW. If 71,000 tons of gas oil were used for generatingelectricity, installed generating capacity would be 229,032 kvi(i.e. 71 x 10°kg divided by 310 kg/kW), or about 230 MW. ThePower Subsector Review Report estimates on the basis of variousstudies that total 1981 capacity of Domestic/Commercial SelfProducers ranged from 200-600 MW, i.e., the total consumptionof 71,000 tons would represent a capacity approaching the lowerLimit of this range. However, because engines, as statedabove, may be 1.5-2 times as large as the alternators, theengine installed capacity could range from 345 MW to 460 MW.At 1000 kWh/kW of installed capacity, total seLf generationwould have amounted to 230 GWh in 1982. About I million house-holds are not connected to YGEC and, assuming 5.5-6 persons perhousehold, per capita self generation would amount to about 40kWh, compared with 90-100 kWh for the country as a whole. Thisappears reasonable - if somewhat high - because in rural areasthe use of electricity is generally limited to some 6 h/d.Should total installed capacity of industrial and domestic/commercial self producers be as high as 600 MW, subtractingestimated industrial capacity (73 MW, see b above) wouldindicate some 530 MW for the household/commercial self pro-ducers consuming 71,000 tons. Under the previous assumptionsof 6 hours a day of operating time at a specific consumption of

-61- Annex 2Page 4 of S

0.310 kg/kWh, this would result in a load factor of about 0.2which would be extremely low. This appears unlikely and forthis reason either the instalLed capacity viould have to belower than 530 MW or consumption considerably higher than71,000 tons, or both. The latter appears possible becauseunofficial imports of diesel oil, though not recorded, may havebeen large. However, there is no way of substantiating this.

(d) The road transport sector consumed about 160,000 - 165,000 tonsof gasoil. This is based on the mission's estimate of thediesel-fueled vehicle fleet, annual kilometers and consumptionper vehicLe kilometer, etc.

(e) The amount of of gasoiL consumed by tractors would be sizeablebecause of the number of tractors operating in the country --about 20,000, 20% of which may be small gasoline-fueled trac-tors. The use of tractors in agricultural areas appears lowand, assuming an average operating time of 500 h/a at a con-sumption of 8 1/h (4,000 1/a or 3.4 t/a), total consumption ofgas oil would amount to 55,000 tons per annum.

(f) Industrial Gas Oil Requirements for Heat Purposes were met by14,000 tons of gas oil. Of this amount, the Bajil cementfactory, which produced about 90,000 tons of cement in 1982,consumed 6,000 tons. The remaining 8,000 tonis of gasoil heatmust have been consumed for heating/drying purposes by allother e rge industrial producers, such as soap factories andbrick f..ctories, hoteLs and, possibLy, by the new Amran CementFactory (capacity about 500,000 tJa).

(g) Gasoil Consumption for Pumping (30,000 tons). The informationon the number and size of pumps operating in the country is asconflicting as that on generating sets. A recent survey 1/lists, for 4 of the 11 provinces in YAR, 202,061 as the numberof "holdings" (which can comprise more than one parcel of land)owning pumps, 2,228 holding renting pumps and 17,942 holdingshaving other possibilities of having a pump available. Becausea holding may use more than one pump and "other" is not ex-plained, the actual number of pumps may welL range from 20,000to 40,000 in the provinces surveyed and between 50,000 and100,000 in the country. Import statistics suggest that 55,000pumps were imported in 1979 and 45,000 in 1980 alone - thiswould increase the number of pumps, taking account of existingpumps, beyond the 100,000 mark. Tn order to estimate gasoilconsumed by pumps, more realistic quantities have to be in-ferred. As for the small generating units, the engine is

1/ Summary of the final results of the agricultural census in elevenprovinces; Ministry of Agriculture and Fisheries, April 1983.


generally larger than the pump. An idea of the gasoil requiredto run a minimum of 20,000 pumps in operation (or 60,000 pumpsoperating one third of the operating time of 20,000 pumps) canbe obtained by assuming an average pumping depth in a drilledwell of 20m, which would require a pump of 4.4 HP (3.3 kW) tosupply 10 liters/second (158 gal/'min). Assuming a 10% Loss inthe driving mechanism (usually a belt), and a modest 3,000hours/annum of operations, the required 3.7 kW (4.9 HP) enginewould consume about 3,500 kg (3.5t) of gas oil at an efficiencyof 0.32 kg equivalent kWh. Total gasoi' consumption of the20,000 pumps woulj be 70,000 t/a. These pumps, at 10 Uls,would lift 200 m /s in total during 3,000 h or about 2.2billion m3 per year. The AID study 1/ estimates that pumpedwater is used on about haLf of the irrigated area (250,000 ha)of the country. IDA projects suggest that pumped water use isaVout 11,000 - 12,000 m Jha/a, with a maximum of 1,500-2000m /ha during the peak month. Using ttie average, about 1.5billion m'/year would be required to irrigate 125,000 ha. Inview of the relative inefficiencies to be expected in otherareas which probably constitute two thirds of the country, itis assumed - as a reasonable approximation - that presently onebillion m /year was pumped, consuming about 30,000 tons of gasoil.

5. Kerosene: 69,000 tons. Official import figure from YOMINCO.Kerosene is used mainly for cooking by heuseholds, especially in therural areas. A very small portion is used for electricity generation(para 3 on gasoline) and about 2,000 tons may be used for tractors.

6. Fuel Oil: 23,000 tonnes. Official Import figure fromYOMINCO. Consumption of fuel was steady at about l0,000-ll,000 tons/annum, dropped to 6,000 tons in 1981 and rose to 23,000 tons in 1982.Because the Bajil cement plant uses about 6,000-7,000 tons/annum for heatpurposes, it appears that other industries such as large textile fac-tories and hotels consume about 4,000-5,000 tons/annum. The high 1982quantity of 23,000 tons probably originates in the stocking of fuel oil(some 12,000 -13,000 tons) by the Ainran cement plant, which started testruns in 1982.

7. Electricity: Total electricity generated in 1982 is estimatedat 640 GWh, of which 127 CWh is estimated as losses. Almost alL eLectri-city in 1982 is generated from gasoil as discussed under para. 4; verylittle is generated from gasoline (para. 3).

8. Fuelwood: 5 million m3, or 3 million tons of dried wood. Thi is based on an average annual fuelwood consumption per capita of 0.5 mof driyd wood in urban areas (7% of population of about 7 million) and0.75 T in rural areas. This amounts to a national consumption of about0.7 m of dried wood per capita per year (420 kg).

1/ Agricultural Sector Review 1982 (Draft).

-63 - Annex 3Page 1 of 4

PRESENT USE OF HOUSEHOLD COOKING FUELS

1. Biomass, kerosene and LPG are used for cooking purposes in LhGhousehold. As shown in Table 1, people use more than one type of stovefor cooking. The kerosene primus takes second place in households to thefuelwood stove (tannur), and LPG takes a third but increasing place ofimportance among the three. So far, electricity is not used much forcooking purposes.

Table 1: TYPES OF COOKING STOVES USED IN HOUSEHOLDS

Type of Stove Ibb Governorate Ta'iz Governorate

(%) (Z)

tannur only 19 23tannur + kerosene primus 52 69tannur + LPG stove 17 4all three 12 4

190 1GG

Source: Aulaqi, Household Energy and Seedling Demiand in theYAR, 1982.

2. Firewood Firewood is still the most important single source ofcooking fuel. In Ibb and Ta'iz Governorate, 68% of household fuel re-quirements are satisfied by firewood. This also holds for other parts ofthe country. Firewood is used mainly for baking bread. For this purposethe traditional stove or tannur is used. For heating water o, preparinglight meals people traditionally have used the open fire "mawgad". How-ever, this role is being taken over by kerosene and LPG.

3. Fuelwood is either bought in the local market or gathered locally.In the governorates of Ibb and Ta'iz, about 48% of the fuelwood wasobtained from people's own land. Off-farm collection accounted forapproximately 25% of fuelwood consumption. The collection of firewood(and other biomass) is the responsibility of the women. Very little out-side labor is employed for this purpose. The collection of firewood is avery time consuming activity. In Ibb and Ta'iz an average of about fivehours a day in travel is spent for gathering fuelwood. Although mainlydead material is gathered, people also have started to cut live branchesand trees.

Dung

4. Although YAR has a livestock population of 4.8 million, onlythe cattle population of roughly 950,000 is taken into consideration


where the production of dung is concerned. Cattle are mainly, if notcompletely, handfed and more or less permanently kept near the house.The other livestock such as sheep, goats, donkeys, and camels roam aroundthe rangeland. Taking annual dung production of 1 ton Per head ofcattle, the total "useful" dung production is about 950,00o tons peryear. However, due to the extensive use of dung as a fertilizer (by asmany as 76% of all agricultural holdings), dung burned for cooking fuelonly represents a small fraction of this figure. Even in an area likeDhamar-Rada'a where traditionally dung often was used as a fuel, the useof cow dung for that purpose has fallen off substantially. A samplesurvey in the Radaa area shows that dung use for cooking only representsabout 4% of the total energy requirements for cooking.

Crop Residues

5. There is a high demand for fodder in Yemen, and crop residuesfind willing buyers. Many cereals such as sorghum, millet and maize areselected not only for their grain yield, but also for their complementaryuse as fodder. In case of crop failure, the yield still can be harvestedfor use as fodder. If crop prospects look favorable, the leaves of thegrowing maize and sorghum plants are stripped (except the top ones) andfed to the livestock,, either green or dried. After the harvest theentire upper stalk is cut to be used as forage. The remaining straw ofwheat and barley, after harvesting, is used as fodder and usually obtainshigher prices than the grain itself. The residue of threshed pulses arealso used as fodder, but when used as fodder they include potatoes, tiletops of many vegetable crops and residues of oil seed, sugar cane andsesame. Apart from residues, forage crops such as alfalfa, Sudan grassand silage type maize and sorghum varieties are especially cultivated tobe used as fodder.

6. It is very difficult to estimate the level of production ofcrop residues (used as fuel) because fodder is not available throughoutthe year. Furthermore, the production of dry matter per ha. can varyconsiderably, from 100 to 2,000 kg, depending on local conditions andmanagement. However, an attempt is made to quantify the needs of theanimal population in Table 2 below.

7. The main yields of the rangelands are the trees and shrubs ofwhich the leaves, lopping, and some pods are eaten by the animals. Thepressure by the animals on the rangeLand is heavy and overgrazing can beobserved. The yield of the rangeland may be roughly estimated as 500,000tons of dry matter per year.

8. Production from the rangelands is not sufficient to feed thelivestock population, especialLy because onLy 50% of that yield is avail-able as feed. It is clear that the balance of that amount of dry matterwill have to come from crop residues. As shown in Table 3, the produc-tion of crop residues is about 2 million tons per year (including resi-dues from potatoes and vegetables). If we assume 25% losses, the avail-able residues will amount to 1,493,812 tons. This results in a total


available fodder amount of 1,748,062 tons per year (1,493,812 + 50% of508,500). This tallies with the fodder needs of the livestock populationas shown in Table 2, especially because we have not included in thesedata the yields of the forage crops such as alfalfa, which had a produc-tion of 45,000 tons in 1981 yielding a dry weight amount of 9,000 tons.Moreover, liveotock gets less fodder than the amounts indicated in Table2. We may therefore conclude that crop residues only play a minor rolein the energy balance of the households and that there is Little scopefor using them as fuel.

Table 2: ESTIMATED FODDER NEEDS OF THE LIVESTOCK POPULATION

Units of Conversion ofLive 500 kg 3,330 kg dry

Average weight Live matter per unit ofLivestock Number Live wei3ht total Weight 500 kg live weight

(kg) (kg) (number) (tons)

Camels 90,200 200 18,000,000 36,000 120,000Sheep 3,000,000 15 45,000,000 90,000 300,000Goats 1,985,000 15 30,000,000 60,000 198,000Cattle 976,000 130 126,000,000 253,500 845,000Donkeys 455,000 110 50,000,000 100,000 333,000

Total 6,506,200 1,796,000

Note: All figures rounded.

Table 3: PRODUCTION OF CROP RESIDUES

Residue: ResidueCrop Production grain ratio Production

(tons)

Wheat 70,000 1.75:i 122,500Maize 53,000 2.50:1 132,500Sorghum/millet 635,000 2.50:1 1,587,500Barley 54,000 1.75:1 94,500Sesame 5,000 1.75:1 8,750Total 1,945,750

Charcoal

9. The use of charcoal is limited to smaLl quantities in artisanaluses and for the waterpipe. Part of the charcoal for this last purpose

- 66 Annex 3Page 4 of 4

is obtained from the charcoal left in the tannur after baking. P. icesfor charcoal are very high (one bag of 20-22 kg costs YR 80, or YR 4 perkg), in spite of the fact that it often is not properly carbonized.

Commercial Fuels

10. The traditional method for heating water or preparing tea or coffeeis the open fire. However, this is being replaced by the kerosene stove,mainly the primus. There are three brands of primus in use (a Russian,East German, and a Swedish one) all. of which have varying degrees ofefficiency (Table 4). The wick stoves (three Chinese types are on themarket) are much less used than the primus. Both the kerosene stove,which is used especially in the rural areas, and the LPG stove are mainlyused to cook rice, meat, and vegetables. Most people have mnore than onestove, each being used for a different purpose. The LPG stove isbecoming ircreasingly popular in the rural areas.

Table 4: EFFICIENCY OF SELECTED) KEROSENE STOVES

Stove Capacity Efficiency

(percent)

Primu.s 1.5 - 2 kW 50-55

Wick Stove 1 - 1.8 kW 41-46

11. Electricity consumption in households was discussed in ChaptersI and II. The use of electric cookers in the absence of an efficientdistribution system does not seem attractive. Furthermore, it wouldgreatly increase electricity consumption. If all one milLion householdswere to start using a 1 kW cooker, this would add at least 1,000 MW ininstalled capacity needed to satisfy demand, at a cost of $1,500 - $2,000per installed kW i.e., $150 - $200 million. Per cooker, this wouldamount to an annual capital cost (at 8% discount/year) of $120 - $160.Moreover, the economic cost of electricity is much higher than that ofkerosene or LPG, all of which argues against electric cooking.


THE TRANSPORT SECTOR

Road Transport

1, Road transport is by far the most important consumer of energywithin the transport sector and the economy as a whole. In order toestimate fuel consumption, estimates were made of the size of the vehiclefleet, of its annual utilization, and its efficiency. Much of this"data" is somewhat speculative, based on a very limited sample of opera-tors and others interviewed at random. 1/

2. There are various sources of partial information from which thesize and composition of the road transport fleet may be deduced. Theseinclude data on annual vehicle tax payment to the Ministry of Finance,the distribution of new vehicle plates by the Traffic Office of theMinistry of the Interior, import statistics of vehicles and fuel fromcustoms and road traffic counts. None of these sources alone, even ifthe data is correct, provide enough information to accurately establishthe size of the fleet. However, vehicle taxation statistics are probablythe most complete, as drivers of vehicles who do not display a stickerindicating that their naxes have been paid may have difficulty passingroad check points and could be apprehended in cities. 2/

3. If it is assumed that 1982 vehicle tax returns for the truck,bus, taxi and private car categories represent existing vehicles on theroad with an aLlowance of 20% for private cars and pickups which avoidpaying taxes (the consensus of people interviewed), that the truck fleetconsists of about 10,000 vehicles of less than 10 tons payload, thatthere are an additional 10,000 trucks each with a payload capacitygreater than 10 tons (also based on consensus of opinion, corroborated bytraffic count data), and making a judgement for motorcycles, it wouldappear that the fleet consists of about 210,000 vehicles. Table 1 showsthe breakdown by vehicle type and Table 2 shows the number of roadvehicles that paid taxes in 1981 and 1982 and imports for 1981. 31

1/ For example bus, truck and taxi drivers were asked about theiroperations, and sales agents for road vehicles were asked theiropinion about vehicle utilization, performance, etc.

2/ It is likely that all vehicles used for commercial purposes payannual taxes. Most motorcycles do not pay taxes. Import data in1981 showed over 7,000 motorcycles entering the country. In 1982taxes were paid on only 1,419 motorcycles.

3/ The large increase in passenger cars paying taxes in 1982 probablyis due to a greater proportion of car owners paying taxes, sometaxis changing to private car status, and fleet growth.


4. Based on reported experience by operators, estimates of averagefuel consumption per kilometer have been made for each of the majorvehicle types. Using these, calculations have been made of total fuelconsumption. The resuLts are shown in Table 3. It can be seen that interms of tons of oil equivalent (toe), gasoline accounts for about 69% ofroad transport fuel consumption. Pickups and small trucks in YAR --almost entirely gasoline-powered (in other parts of the world they arepredominantly diesel vehicles) -- account for about 50% of the fuel usedin the subsector. Medium size and large trucks appear to consume about31% of the fuel used in road transport. Compared to the experience inother countries, fuel consumption (and utilization) by private passengercars and public buses is small in relation to the total for allvehicles. The combined consumption of pickups and trucks is moreimportant in YAR than in many other countries (Table 4). Pickupsparticularly play an extremely important transport role, being suitablefor low grade rural roads as well as fulfilling the role of generalutility vehicle and private car. The overall motorization rate(excluding motorcycles and tractors) of 22.4 vehicles per thousandresidents in YAR (Table 5), is high compared, for example, to developingcountries in Asia, particularly in relation to its official per capitaGNP.

Table 1: ROAD VEHICLE FLEET, 1982 al('000)

Paying Not PayingTaxes Taxes Total

Gasoline PoweredPassenger Cars 17 3 20Taxis 33 - 33mini Buses 1 - 1Small Pickups 40 8 48Large Pickups/Small Trucks 37 7 44Motocycles 1 40 41

Total 129 58 187

Diesel PoweredMedium Trucks 10 b/ 10Large Trucks 10 b/ 10Large Buses - b/ b/

Total 20 3 23

Grand Total 149 61 210

a/ Excluding tractors.b/ Less than 100 vehicles.

Source: Mission estimates based on taxation and import statistics.


Table 2: ROAD VEHICLES PAYING TAXES AND OFFICIAL VEHICLE IMPORTS(Number of vehicles)

Paying Taxes Increase Imports al1981 1982 1981-1982 1981

Trucks, Vans, Pickups 85,160 97,44 + 12,287 9,508Taxis and Buses 33,940 32,816 - 1,124 5,181Passenger cars, Jeeps etc. 10,450 16,980 + 6,530Total 129,550 147,243 + 17,693 14,689

Motocycles N. A. 1,419 N. A. 7,541

a/ The number of imported vehicles is not reported for all types. Theaverage unit value has been used to estimate quantity in cases whereonly value is reported.

b/ Passenger cars and taxis: 5085, buses: 96.

Source: Verbal communication with Ministry of Finance, and C.P.O.Foreign Trade Computer Printouts.

Annex 4

Page 4 of 5

Table 3: FUEL CONSUMPTION, 1982

AnnualNo. of Vehicle Total Consumption/Vehicles Kilometers (Vkms) Vkms Fuel Consumption

(liters/ (liters/ tons toe('000) ('000) ('000,000) kilometer) '000,000) ('O00) ('00D)

GasolineCars, Jeeps, etc. 20 15 300 0.13 39 29 30Tax is 33 20 660 0.13 86 64 67Small Pickups 48 25 1,200 0.13 156 115 121Large Pickups, Small Trucks 44 25 1,100 O.i 187 138 145Small Buses 0.6 25 15 0.20 3 2 2Motorcycles 41 5 205 0.03 6 5 5

Total 187 3,480 477 353 370

GasoilTrucks, less than 10 ton capacity 10 18 180 0.35 63 55 56Trucks, more than 10 ton capacity 10 20 200 0.60 120 105 107Buses 0.1 35 3.5 0.40 1 1 1

Total 20 384 184 161 164

3 ton payload and under: -

Conversion Factors

ton toe '000 liters

Gasoline 1.03 1.35Gasoi 1 1.02 1.15

Source: Mission estimates.


Table 4: COMPARISON OF FUEL CONSUMPTION BY VEHICLE TYPE a/(percent)

PrivatePickups, Cars,

Country Year Trucks Vans Taxis Buses Total

YAR b/ 1982 30.8 50.3 18.3 0.6 100.0

Philippines 1980 47.0 13.8 21.5 17.7 100.0

Indonesia 1980 42.0 17.5 23.0 17.5 100.0

Bangladesh 1979 ------47.9 ------ 19.5 32.6 100.0

a/ Exluding motorcycLes.b/ Includes small (less than 3 tons) trucks.

Source: Consultant and Asian Development Bank, Regional Study on Energyin Transport, Draft Report, May, 1983.

Table 5: COMPARISON OF MOTORIZATION RATES5Vhicles per thousand residents)

Trucks, PrivateVans, Cars & 1981 GNP

Country Year Pickups Taxis Buses Total per Capita

(US$)

YAR 1982 15.1 7.2 0.1 22.4 460Philippines 1980 6.3 9.4 2.2 17.9 790Indonesia 1980 3.2 5.0 0.6 8.8 530Bangladesh 1979 0.2 0.3 0.1 0.6 140Thailand 1978 7.3 7.0 2.3 16.6 770India 1977/78 0.6 1.3 0.2 2.1 260Sri Lanka 1978 3.4 7.6 1.1 12.1 300Korea 1981 6.0 6.5 1.1 13.6 1,700

Source: National Statistical Yearbooks.

- 72 -Annex 5Page 1 of 2

PRELIMINARY ESTIMATES OF COAL UTILIZATION IN CEMENT PLANTS

1. Because of the price advantage coal has over oil, cement plantsworldwide are being converted from oil to coal. The capital costs in-volved in the conversion range from $1.5-3 million for direct firing,$2-4 million for semi-direct firing and $3-6 million for indirect fir-ing,, The more oubstantial. expenses occur in connection with the instal-lation of suitable stockpiling/reclaiming facilities, transporting,unloading and storage. It is estimated that the cost of port loading,handling and storage facilities could amount to around $15 million fordeep sea vessels, depending on the country and port conditions. It isalso generally agreed that, given port and handling facilities and mini-mal inland transport costs, oil to coal con-rersions can yield acceptablerates of return, even at low price differentials (between $30 and$40/toe). Such rates increase with the capacity of the kiln.

2. In the case of YAR, cement produ':tion after the construction ofthe Mafraq plant is expected to reach 1.35 million tons (350,000 tons atBajil, 500,000 tons at Amran, and 500,000 tons at Mafraq). Coal forAmran is not considered because of the difficulty of access and hightransport costs from the coast up the mountains. Therefore, the produc-tion of 850,000 tons of cement is being considered. This would requireapproximately 85,000 tons of oil for heat.

3. 1983 c.i.f Hodeidah fuel oil prices are $186/ton, which leadsto a total cost of $15.8 million for heat gelmeration. If only 75% offuel requirements are supplied by fuel oil and the rest by gasoil, as hasbeen assumed in the report, the cost would be $17.6 million (based on a1983 c.i.f Hodeidah gasoil price of $272/ton).

4. Translating the oil requirements to coal would yield a.i averagedemand for about 135,000 tons of coal, depending on the calorific contentof the coal, which would range from 6,006 kcal/kg - 6,400 kcal/kg. Thisis a relatively small amount, and port faciiities to be constructed atSalif for receiving coal would only be used twice a year for 65,000 dwtvessels. U.S. coal shipped in large 65,000 dwt vessels to Salif wouldcost roughly $82/ton (based on f.o.b price of $55/ton, freight $20/ton,amortization of new port coal receiving and h&ndling facilities $6/ton,and $1/ton for unloading). Similar calculations for Australian coalyield a cost of about US$92/ton. Therefore, the c.i.f. Salif cost of thecoal requirements for the cement plants at Bajil and Mafraq range from$11-12.4 million, compared to the 15.8-17.6 million liquid fuel costdiscussed earlier, implying a savings of $4.8-5.2 million. If coal isshipped from the U.S. in smaller, 12,000 dwt vessels to Hodeidah, thetransport cost per ton would increase from $20/ton to as much as $57/ton,wiping out the cost advantage. Another factor to consider is the invest-ment in and maintenance of the trucks to transport the coal to the cementplants -- estimated at $2 million a year (based on an estimated US15¢ perton kilometer per annum, 60,000 tons destined to Bajil, 75,000 tons toMafraq and distances of 100 and 200 kms to the plants consecutively).

- 73 -Annex 5Page 2 of 2

Added to this is the cost of loading and unloading the coaL, tied workingcapital in stocks, storage of these stocks and, in the case of Bajil, theactual conversion of the plant, which would further erode any priceadvantage. Additional disadvantages of the coaL option are the unfami-Liarity of the Yemenis with coal handling, the proximity to Saudi Arabia,the availability of liquid fuel road tankers that will be redundant whenithe pipeline comes on stream and which can be used for transporting fueloil, and the prospects for declining fuel oil prices relative to risingcoal prices. ALl these considerations lead to the conclusion that anyadvantage of coal utilization for cement in YAR at present is marginal.In the long run, conversion should be seriously considered if the infra-structure for receiving and handling large shipments of coal for powergeneration could be built and if prospects for converting cement planitsto coal seemed economic at the time.

- 74 -Annex 6Page i of 2

COST OF ELECTRICITY SELF-GENERATION

1. The cost of medium speed diesels properly instalLed in powerstations for public supply with larger engines (500-1000 kW) rangesbetween US$500-800/kW. An industry requiring reliable self generationwould have the same cost, which includes all costs for ampLe spares,civiL works including building, the cost of the cooling system (radiatortype should be used in Yemen to take account of dust and silica in thewater) and all electrical facilities and overhead costs.

Attachment 1 shows the calculations (and assumptions) for theoperaticnal cost of diesel sets, ranging from the type usually installedin open air in the rural areas (the engine is generally oversized com-pared with the alternator), the high speed diesels used for communities(and installed in a shack) and the low speed, well installed units aswould be used by industry requiring reliability. The useful life wouldrange from 7 to 12 years but could be as low as 3-4 years for the smallunits and as b.igh as 15 years in industry (in the large Sana'a textilefactory, well maintained diesel sets are already operating 17 years).

Table 1: DIESEL-ELECTRIC OPERATING COST

KW Rpm Life Capital Fuel Lub Oil Labor Maintenance Total

- Years - - - - - - - - - - YR/kWh- - - - - - - - - - -

5 850 7 0.898 0.594 0.052 - 0.030 1,57410 850 7 0.478 0.576 0.044 - 0.029 1.127

250 750 10 0.233 0.540 0.044 0.071 0.027 0.915500 500 12 0.263 0.522 0.035 0.043 0.026 0.889

Total operating costs for the smaller units range between the YGEC ratefor urban consumers (YR 1.1/kWh) and the YGEC rate for rural consumers(YR 1.5/kWh), not considering the cost of forced outages--such as therequirement to have available a small gasoline unit for emergency pur-poses to avoid spoilage. For industry, using dependable machines andapplying good maintenance, they would average about YR 0.9/kWh. Exclud-ing capital costs, which may be perceived as a sunk cost, operationalcosts would be about YR 0.7/kWh, with a probable range of YR 0.7-0.8/kWh(as appears to be perceived by some managers during interviews).

7 5 -Annex 6Page 2 of 2

YEMEN ARAB REPUBLICOCtRATIONAL COST OF DIESEL-ELECTRIC SETS AND SMALL POWER STATIONS

… - - - - - - - -Unit Size (kW) - - - - - - -5 10 25 100 250 500

Revolutions per minute rpm 1,800 1,800 1 500 1,500 750 500Installed cost per kW YR/kW 3,500 2,800 2,700 1,500 - 2,000 2,500

Useful life a 7 7 7 7 10 12Annuity factor at 10% 0.205 0.205 0.205 0.205 0.163 0.147

Annuity YR/a.kW 718 574 554 308 326 368

Fuel Consumption kg/kWh 0.330 0.320 0.310 0.310 0.300 0.290

Gas oil price YR/kg 1.8 1.8 1.8 1.8 1.8 1.8

Lub oil consumption kg/kWh 0.006 0.005 0.005 0.005 .0.005 0.004Lub oil price YR/kg 8.72 8.72 8.72 8.72 S.72 8.72Labor per year YR/a - - 5,000 I0,000 25,000 30,000

Labor per kW YR/kW.a - 200 100 100 60

Maintenance % of fuel cost 5 5 7 7 5 5

Generation kWh/kW.a 800 1,200 1,300 1,400 1,400 1,400

Cost per kWh YR/kwh

Capital 0.898 0.478 0.426 0.220 0.233 0.263

Fuel 0.594 0.576 0.550 0.550 0.540 0.522

Lub Oi! 0.052 0.044 0.044 0.044 0.044 0.035Labor - - 0.154 0.071 0.071 0.043

Maintenance 0.030 0.029 0.04,# 0.044 0.027 0.026

Total 1.574 1.127 1.218 .929 0.915 0.889

- 76 -

Annex 7Page 1 of 5

ECONOMIC ANALYSIS OF PROPOSED PETROLEUM PRODUCTS SUPPLY, STORAGE ANDDIF .RIEUTION SYSTEM

Background

1. The quantifiable benefits of the project are derived from thecosts which would otherwise have to be incurred for importing petroleumproducts through Hodeidah port and transporting white products by road.ai,!ers from Hodeidah to the Sana'a area. These avoidable costs include:

Avoidable Freight Costs at Hodeidah Port

2. UntiL recently, petroleum products were imported in 5,000 dwttankers because of the draught limitations of Hodeidah port. After thecompLetion of the recent dredging operations, the oil terminal now canaccomodate 15,000 dwt tankers. Even with this draught improvement, YAR'-ontinues to incur higher freight charges for small tankers of 15,000 dwtand/or incur high lightering oerations cost and ray heavy demurrage tolarge tankers up to 60,000 dwt. When the proposed project is implementedYAR could import products to Salif in 60,000 dwt and thereby avoid costsfor chartering the shuttle tankers a-r demurrage paid to the largeta..Kers for waiting time.

Av'. "able Investments at Hodeidah

3. With.- the proposed proiect, substantial investments will beneeded to de. op the H-deidah h. oor to meet the increasing futuredeniand. Prov. ion for Ided sto. 2 volumes, transport pipelines andfilling facilir- 2s wi' o(- required a site approximately 5 kms fromthe existing r Jr rm:nal as odeidah Port is already heavilycolige 3ted.

Road Trai.spcrt Savings

4. Trans ort ot hite petroleum products by a pireline system willresult Ln a ,idable c( 's of road transp,.rt estimated at $0.16/ton km.The nomic analysis road tan!kers ar± derived f'.om the followingassurnL--,;

- av'er. roa, a . capaci,. 20 tons;- tle economic 1 of vehic. s is 7 years, with an average

mileage of 45,200 krns per ye -.

The avoidable costs include:

(a) capital investment for rep acement and increased number of roadtankers;

(b) operating costs of road tankers;(c) road maintenance costs evaluated at US$22.5 per km/year/ daily

truck; and(d) gasoline evaporation loss at 1%.

_ 77 -

Annex 7Pa.-e 2 of 5

5. Alternative routes for transporting white products to Sana'awould be by road via the new road now under construction from Hodeidah toMa'abar and Sana'a or by road from Saudi Arebia. Although the new roadHodeidah/Sana'a will have gentler slopes than the present road link andwill relieve some of the congestion on the ole road, it is 56 km longer.Road tanker transport via the new road, or a less congested old road, isnot likely to reduce the operating costs significantly as they are calcu-lated on a YAR average for tanker trucks already. In the case of directSaudi Arabian imports, the large distances that will have to be coveredin future as the supply availability for Yemeni private importers in thewestern region of Saudi Arabia declines will lead to a prohibitively higheconomic cost of petroleum products delivered in Sana'a. Assuming anaverage round trip of 3,000 km at about $0.15/ton/km, 1/ the totaLeconomic cost of Saudi gasoline ir Sana'a would reach about YR 2.58/liter(YR 1.08/liter f.o.b. price plus YR 1.50/liter transpnrt cost), comparedto the present economic cost of YR 1.27/liter. Only if transport costswere a fraction of their estimated value (much higher truck utilizationor much smaller distances) wouLd overland imports be economic.

Volume

6. The volume of white products supplied through the pipeline isestimated as the bulk of total official white product imports (Table1.10). Some products would be taken off at AL Turbah to suppLy Hodeidah,some in the Ma'abar area to supply Taiz/Ibb/Dhamar, and the remainder(about 40% of official white product imports) would be transported allthe way to Sana'a. The pipeline is not designed for transporting fueloil. Supplies of fueL oil to the cement factories will continue to bedelivered by tanker truck. The anticipated volumes of inland fuel oilconsumption do not warrant a pipeline investment. If LPG demand growssubstantialLy in the long run, investment to accommodate LPG transport inthe pipeline may be justified.

Project Costs

7. For the purpose of calculating economic return, the coststreams include capital expenditures (about US$169 million, 90% of totalproject costs), operating costs and personnel costs. Capital expendi-tures include the marine terminal at Salif, a pipeline to Sana'a andrelated storage, truck loading and pumping facilities. Operating costsand maintenance have been estimated at about 3% of capital costs. Per-sonnel costs are expected to be higher in the first two years of opera-tions, re'lecting the services of expatriate consultants, and the totalpersonnel costs have been estimated at $6 million in 1987, $5 million in1988, $4 million in 1989 and thereafter. The costs of transportingproducts from the take off points at Al-Turbah and Ma'abar to Hodeidahand Taiz by road tankers have been taken into account.

1/ Assuming reasonably efficient utilization of trucks which is not thecase at present.

- 78 -

Annex 7Page 3 of 5

Project Profitability

8. (a) Economic Rate of Return: Based on the above assumptions, theeconomic rate of return is 19% and the net present value at a 10% dis-count rate is estimated to be $93 million over the twenty year life ofthe project. (Attachment I).

(b) Sensitivity Analysis: Several tests of the sensitivity of theeconomic rate of return to changes in the key variables were undertaken.The results of sensitivity analysis performed are summarized as follows:

Economic Rate NPVof return (Z) ($million)

Base Case 19 93Case 1 Volume of consumption

decreased by 20% 16 57Case 2 Avoidable cost for

Hodeidah Port less 20% 17 73Case 3 Avoidable cost for road

transport, decreased by 20% 17 70

9. The pipeline investment is phased to provide additiona boosterstations to increase capacity from 143 m3/hour in 1987 to 267 ml/hour in2004 as demand increases. The earliest commissioning to be economicallyjustified would be in 1986/87.

Annex 7Page 4 of 5

PETROLEUM PRODUCTS SUPPLY AND DISTRIBUTION PROJECT

ECONOMIC ANALYSIS

(USS million, 1983)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Benetits

Avoidable Costs:

A. Road Tanker - - - - 13.13 14.13 15.23 16.41 21.54 19.01 20.25 21.56 22.94

B. Road Maintenance - - - - 0.70 0.80 0.80 0.90 1.00 1.00 1.10 1.20 1.30

C. Gasoline Transport

Loss (l%) - - - - 0.30 0.33 0,37 0.40 0.86 0.50 0,54 0.59 0.630. Hodeidah Port 0.10 0.10 0.10 7.60 0.20 7.40 0.40 0.40 11.50

E. Import Freight - _ 9.98 10.92 11.90 13.01 15.96 14.50 15.22 15.97 16.76

Totdi Benefits - - - - 24.21 26.28 28.40 38.52 39.56 42.41 37.51 39.72 53.13

CostsCapital Expenditure - 12.80 64.00 51.20 - - - 2.00 - - - - 4.00

Operating Costs - 10.50 9.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50

Total Costs - 12.80 64.00 51.20 10.50 9,50 8.50 10.50 8.50 8.50 8.50 8.50 12.50

Net Benefits - (12.80) (64.00) (51.20) 13.71 16.78 19.90 28.02 31.06 33.91 29.01 31,22 40.63

Net Present Value - (9.62) (43.71) (31.79) 7.74 8.61 9.28 11.88 11,97 11,89 9.24 9.04 10.70

ACC NPV (9.62) (53.33) (85.12) (77.38) (68.77) (59.49) (47.61) (35.64) (23.75) (14.51) (5.47) 5.23

Return on Investment = 18,919%

Annex 7

Page 5 of 5

PETROLEUM PRODUCTS SUPPLY AND DISTRIBUTION PROJECT

ECONOMIC ANALYSIS

(US$ million, 1983)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Benetits

Avoidable Costs:

A. Road Tanker 24.39 25.93 27.56 29.27 31.08 32.98 34.99 37.12 39.37 41.75 44.75

3, Road Maintenance 1.40 1.40 1.50 1.10 1.80 1.90 2.10 2.30 2.50 2.60 2.80

C. Gasoline TransportLoss (1%) 0.68 0.72 0.78 0.83 0,88 0.94 1.00 1.07 1.13 1.20 1.27

D. Hodeidah Port 0.80 0.80 0.80 0.80 16.50 1.20 1.20 1.20 1.20 23.60 1.90

E. Import Freight 17.60 18.48 19.41 20.40 21.44 22.53 23.69 24.91 26.20 27.57 29.01

Total Benefits 44.87 47.33 50.05 53.00 71.70 59.55 62.98 66.60 70.40 96.72 79.23

Costs

Capital Expenditure - - - - - - - - - - -

Operating Costs 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50Total Costs 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50

Net Benefits 36.37 38.83 41.55 44.50 63.20 51.05 54.48 58.10 61.90 88.22 70.73

Net Present Value 8.71 8.45 8.22 8.00 10.33 7.59 7.36 7.14 6.91 8.96 6.53

ACC NPV 13.94 22.39 30.61 38.61 48,94 56.53 63.89 71.03 77.94 86.90 94.43

- 81 - Annex 8

TYPES OF TREES IN YEMEN'S NATURAL FOREST COVER

1. Mangrove forests which occur in the salin coastal. marshes ofthe Red Sea, north of HODEIDAHi with AVICENNIA OFFICINALIS & BRUGUIERIAGYMNORRHIZA as dominant species.

2. Savannah woodlands of the TIHAMA which occupy a belt of 10 to20 km wide along the coastal foothills, with ACACIA sp, ZIZIPHUS SPINACHRISTI, BALANITES AEGYPTIACA & COMNIPHORA GLOMUBALSAMA as dominantspecies.

3. Wadi deposit woodlands of the TIHAMA foothills occur in broad-Lands within the larger valleys as scattered trees or open lands, withDOBERA ROXBURCHII, BALANITES AEGYPTIACA, DELONIX ELATA, SALVADORA PERSICA& ADENIUM ABESUM as dominant species.

4. Acacia scrub of the midlands and highlands extends over largeareas of the western and northern slopes of the central mountain range,with ACACIA sp. & ZIZIPHUS, SPINA CHRISTI (in cultivated areas) asdominant species.

5. Wadi bottom associations in the TIHAMA with HYPHAENE THEBAICA,ACACIA species and TAMARIX CALLICA, as dominant species as well as in theMidlands and Highlands with TAMARIX ORIENTALIS and ACACIA SP. as dominantspecies.

- 82 -

Annex 9Page 1 of 2

COST OF WATER PUMPING

A. Cost of Irrigation Water from WindmilL

- The Cost of a 7.6 meter diameter windmill with 12.2 towerincluding transport and installation is approximatellYR 42,000 (US$9v240).

- Storage cost for 15 m3 daily requirement (low-cost surfacestorage) at YR100/m amounts to YR15,000.

- Lifetime is 30 years.

- Pumping head is 20 m and wind regime is on average 4.5 m/s.

- Useful water output is 56,210 m3 per year.

- Operation and maintenance and repairs are assumed to cost2100 YR (5X of windmill investment).

The cost of irrigaiion water from the windmills (excluding cost of thewell) is 0.14 YR/m at a discount rate of 10X.

B. Cost of Irrigation Water from Diesel Pump-set

- The cost of a 23 HP dieseL engine plus deepwell pump is YR30,000 including installation.

- The lifetime is 7 years at 12 pumping hours per day, 250days a year at a rate of 10 1/s.

- Pumping head is 20 m.

- Fuel to lift energy efficiency lOX.

- Fuel energy content 10 kWh/liter.

- Operation... maintenance and repairs 3,000 per year.

- Economic EXiel cost = YR 1.36 per Liter.

- Yearly output = 12 x 250 x 3600 x 10 - 2 108,000m3/year.

- Net lift energy = 108 x 106 x10 x 20 = 216 x 108J/year = 6,000 kWh

- Required fuel energy = 60,000 kWh

- Fuel Consumption 6,000 liter/year.

- 83 -

Annex 9Page 2 of 2

The cost of tkhe irrigation watcr from the diesel pumpset (excluding thecost of the well) is YR 0.16/m at a discount rate of 10.

C. Cost of Drinking Water from Diesel Pump

- Investment cost: YR 30,000 (pump, as under B)YR 36,000 (storage for one da3's

requirement of 36m at highercost of YR 1,000/m3)

YR 66,000

- Life: 15 years (low utilization)

- 0 & M: YR 1,000/year

- Annual Output: 13,000 m3/year

- Fuel Consumption: 770 1/year

- Other assumptions as under (B).

The cost of drinking water from the diesel pumpset (excluding well,including storage) is about YR 0.82/m with a 15-year lifetime, or YR1.20/m with a 7-year life of the pump.


SCOPE FOR TECHNICAL ASSISTANCE IN THE ENERGY SECTOR 1/

In addition to all the technical assistance being providedunder many ongoing projects (e.g. second and third power projects) andproposed projects (e.g. the petroleum products supply storage and dis-tribution project), there is still scope for future technical assistancein the development and utilization of energy resources in YAR.

Energy Research and Demand Management Program

Scope of the project: to provide technical assistance to theUniversity of Sana'a to:

1. establish an energy research and demand management unit incollaboration with the Science and Economics Faculty with aview to developing skills in energy economics and renewableforms of energy;

2. develop a training program for energy managers and engineers inthe industrial and commerciaL sectors covering such topics asenergy accounting and auditing, conservation projects, andenergy system efficiency;

3. develop energy courses within the curricuLum of the saidfaculties;

4. develop a training program for the application of solar andwind energy in the YAR;

5. enable the energy unit to participate in data collection acti-vities and to be engaged in applied research activities in thefield of solar, wind, and stove technology.

Total Cost Estimates US$

Consultant Services 2/ 2 years 250,000Training Program 40,000Hardware 60,000Travel and miscellaneous 25,000

375,000

1/ These proposaLs for technical assistance will be discussed with theCovernment and finalized before this report is printed.

2/ These do not include the services of the soLar, wind, and stovesconsultants who also participate in developing the activities of theenergy unit.


Commercial Solar Water Heater Project

Scope of the project:

1. assist in selecting the best type(s) of SWH for domestic, com-mercial and industrial uses taking into account experience inYemen and elsewhere, especially in the Middle East;

2. assisc in preparing and implementing an information and train-ing program for consumers and suppliers;

3. assist in the preparation and implementation of a monitoringprogram of existing installations;

4. assisc in preparing and implementing a survey of the size ofthe domestic SWH market.


Consultant services 6 man-months 90,000Travel to Middle Eastern countries

(Cyprus, Jordan) 10,000Hardware cost for 5 systems 10,000Training Program 20,000Travel and miscellaneous 20,000

150,000

Photovoltaic Drinking Water Project


1. assist the Covernment of Yemen in establishing the feasibilityof PV-powered water pumps for drinking water purposes. Thisproject should be carried out in coLlaboration with and withinthe context of an existing rural water drinking supply project;

2. assist in preparing specifications and bid documentation forprocurement;

3. assist in receiving the proposals on selection of suppLiers;

4. assist in selecting site locations;

5. assist in preparing and implementing a monitoring program ofsite installations;

6. assist in preparing information and training proS,rams forfuture suppliers, installers and consumers.

86 - Annex lOPage 3 of 8

Total Cost Estimates USS

Consultant services: 4 man-months over12 month period 60,000

Hardware Costs for 2 systems 40,000Travel and miscellaneous 20,000Training 20,000

140,000

Photovoltaic Rural Electrification Program

Scope of project:

1. assist the Government of Yemen establish the feasibility of thePV-powered system for energizing TV sets and for rechargingsecondary batteries to be used for this purpose;

2. assist in preparation of specifications and bid documentationsfor procurement;

3. assist in receiving the proposals on selection of suppliers;

4. assist in seLection of site locations;

5. assist in the preparation and implementation of a monitoringprogram of site installations;

6. assist in the preparation of information and training programfor future suppliers, installers and consumers.



Hardware costs for 2 systems 50,000Travel and miscellaneous 20,000Training 20,0Q0

130,000

PV Powered Rural Communications System


1. assist in reviewing the scope of a rural communications programusing PV powered systems;

2. assist in preparation of specifications and bid documents forprocurement;


3. assist in reviewing the proposals and in selecting suppliers;

4. assist in preparing and implementing a training program.


Consultant services 4 man-months 60,000Training program 20,000Hardware cost 100,000Travel and miscellaneous 20,0O0

200,000

Wind Pumping Feasibility Project

Scope of the project: to provide technical services to estab-lish the technical and economic feasibility of wind pumps in the WadiRasiyan area as well as to assess the wind energy potential of the YAR.This includes:

1. seLection of windmills;

2. selection of the site locations;

3. monitoring of the site installations;

4. assistance in the preparation and implementation of an O&Mtraining program;

5. assessment of the wind energy potential of the YAR in areasother than Wadi Rasiyam.

6. survey of the size of the domestic market and review of thepossibility of local production of wind mills.



Hardware cost for 2 wind mills; measuringequipment 25,000

Training program 20,000Travel and miscellaneous 20,000

185,000

-88- Annex 10Page 5 of 8

LPG-Fired Ovens Feasibility Project


1. to establish the energy efficiency of LPG-fired ovens and theiradvantage over traditional tannurn;

2. to review the possibility of locally producing LPG ovens;

3. to prepare specifications for manufacturers and suppliers;

4. to assist in the preparation and implementation of manufac-turers/supJ1ier training program.

Total Cost Estimates


Hardware cost 20,000Training program 20,000Travel and miscellaneous 20,3000

150,000

Public and Artisanal Bakery Program


i. survey the size of the market for types of bread;

2. assess the type of changes required in the machinery used atpresent in public bakeries;

3. assess the appropriate type of ovens to be used by artisanalbakeries.

Total Cost Estimates USM

Consultant services: 8 man-months ina 12-month period 120,000

Travel and miscellaneous 20,000140,000


Forestry Subsector Data Collecti'n


.. make a detailed survey of the remaining forest resources inYAR;

2. make a survey of the needs for fc-estry products (includingminor ones);

3. make an assessment of the rural people's committment to ruralforestry;

4. assist the Forestry Department in (lesigning, implementing, andanalyzing the various surveys.

Total Cost Surveys US$

Consultant services (6 man-months) 260,000Training program 10,000Surveying cost 800,000Miscellaneous 10,000

l,080,000

Farm Mechanization Study

Scope of che project:

1. review existing information and experience on the use of trac-tors in YAR;

2. survey the present number and use of tractors in relation toagricultural practices, end-use, fuel efficiency, load factor,0 & M and repairs, lifetime and in comparison with animaltraction;

3. survey present extension efforts with regard to the use oftractors and the role of the private and public sector;

4. make recommendations with regard to research, training andextension, the appropriate role of government, donor agencies,and the private sector.


Consultant (6 man-months) 60,000Travel, misc. 10,000

70,000

-90- Annex 10Page 7 of 3

Irrigation Pumps Improvemetr Study


1. review existing information and experience on the use ofirrigation pumps in YAR;

2. review current irrigation practices in YAR;

3. analyze the current irrigation ?ump market and distributionchannels;

4. review present extension et'Corts with regard to irrigationpractices and the use of irrigation pumps;

5. analyze the energy use, energy efficiency, lifetime, O&M andrepair facilities of irrigation pumps in YAR;

6. make recommendations as to what should and could be done inYemen to improve the energy efficiency of irrigation pumps interms of research, training and extension, user instructionsi,and the role of the private and public sectors.

Total Cost Estimates US$_

ConsuLtant (6 man-months) 60,000TraveL, misc. 10,000

70,000

Training in the Power Sector

Training of technical personnel on the generation and trans-mission side of YCEC is being provided under ongoing Bank projects Thereis, however, a need for further traiing on the expanding distributionside. Patterned on the ongoing activities, existing and prospective YGECdistribution personnel should receive appropriate training in YAR andabroad.

Loss Reduction in the Power Sector

Scope of the Project:

1. technical loss reduction, focusing on evaluation and monitoringof meters and distribution networks;

2. non-technical Loss reduction, concentrating on consumer super-vision, and papropriate meter reading and billing procedures.


Training and Technical Assistance to YOMINCO

Technical assistance and training to be financed to strengthenYOMINCO and upgrade management and operation personnel:

1. Construction Management

Consulting services of about 360 manmonths to review andsupervise detailed design and engineering, procurement,construction, inspection and quality control, testing andinitial acceptance, cost control and training.

2. Service Agreements

Service agreements covering 'i) single buoy mooring; (ii) pump-ing units with prime movers; (iii) turbine driven generatingsets; (iv) control instruments; (iv) control instruments;(v) telecommunication and telemetry; and (vi) cathodic pro-tection. These agreements should be effective through theguarantee period and beyond until local personnel are trained.Such services will require 150 mnanmonths.

3. Training

Consulting services to prepare a manpower planning and trainingprogram for YPC staff to be recruited to provide overseas andon-the-job training for project implementation and subsequentoperation of Salif port and storage facilities andthe pipeline.

4. Initial Operating Services

In view of YPC's lack of experience in operating the port andpipeline facilities, following completion of construction, YPCwill require technical assistance services of an operatingcompany qualified to manage and operate the facilities. Re-current costs of such an operating company for a period of twoyears would amount to 560 manmonths. The services wouldinclude preparation of operation and maintenance manuals, stockmanagement and inventory control, administration procedures andpersonnel development through training.

5. Accounting and Management Information System

The proposed technical assistance would provide for the designof a management information system covering the entire scope ofcongolidated YOMINCO activities, computerization and therelated staff training.

- 92 -

Annex 11Page 1 of 2

SELECTED BIBLIOGRAPHY

General

IBRD, Yemen Arab Republic, Development of a Traditional Economy,January, 1975.

IBRD, Yemen Arab Republic, Local Development Associations: A NewApproach to Rural Development, March 2, 1981 (No. 2963 YAR)

Government of YAR, CPO, selected Statistical Yearbooks.

Agriculture

Cornell University, Inventory of Agricultural Land Use for the YAR,draft report, E. E. Hardy and R. S. Senykof. Resource InformationLaboratory, December, 1982.

USAID, Agricultural Sector Assessment, Yemen Arab Republic,Washington, 1982.

Agrar & Hydrotechnik, Development of radi Jawf and its Tributaries,November, 1980.

Forestry

Dhamar Agricultural Improvement Center: Final and Quarterly reportsof the Dhamar Agricultural and Forestry Research and DevelopmentProject, UK ODA-YAR Ministry of Agriculture (October 1980 -September 1982)

Weber, Fred. Forestry Conservation and Potential: MahweitProvince, the YAR. American Save the Children/Yemen, December,1980.

GTZ, Collection of Available Information on Forestry in the YAR.,Eschborn 1981.

Jalkamper, W. H{affner, H. E. Matter, 0. R. Weise, M. Weiter:Erosion Control and Afforestation in Haraz, YAR. TropenInstitute, Gressen 1979.

Mahmoud al Junaydi: Forestry in the YAR, Ministry of Agriculture,Sana'a, July 1980.

FAO/RNEA: Forestry for Local Community Development in the YAR andSomalia. Mission Report MUSNAD, H. A. and Dr. M.A.E.C. RASHEED.Cairo - NN/Dec. 1977.

- 93 -

Annex 11Page 2 of 2

DHAMAR Agricultural Improvement Center: Preliminary Observations onForest Nursery Practice and Species Evaluation at the DHAMARcenter. R. Murtland and A. S. Zabady - 1982.

UNIVERSITY OF ARIZONA: Environmental report on Yemen (YAR) AridLand Information Center. Office of Arid Lands Studies. NationalPark Service contract No. CX 0001-0-003 with USMAB secretariat.Deparv'nent of State, Washington DC, 1980.

Industry

IBRD, Yemen Arab Republic, Manufacturing Industry: Performance,Policies and Prospects, November 12, 1982 (No. 3651 YAR).

Power

IBRD, Yemen Arab RepubLic Power Subsector Review, June 23, 1983 (No.4314 YAR)

Oil

OTP, Yominco Products Pipelines System, March, 1982.

Household Energy Use

DHV Consulting Engineers, Rada'a Urban Development Project, Vol. 2.Social and Economic Aspects, April, 1983.

Nasser Aulaqi: Household Energy and Tree Seedling Demand Survey inthe Southern Uplands of the YAR, Sana'a University, June, 1982.

Wind Energy

W.A.M. Jansen, Feasibility Study of Windmills For Water Supply inthe YAR, Steering Group Wind Energy for Developing Countries,March, 1980.

Geothermal Enerl

Geothermex Inc. Status of Geothermal Energy Exploration in the YAR,October, 1981.

Transport Sector

Rendel Palmer 6 Tritton, Transport Sector Review, January, 1982.

SWECO, Construction Industry Sector Study, February, 1982.

IBRD, Staff Appraisal Report, Fifth Highway Project, April 15, 1983.

Telecomnmunications

IBRD, Yemen Arab Republic, TeLecommunications Sector Memorandum,November 17, 1981 (No. 3696 YAR).

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