Docmirnt of

The World Bank

FOR O CAAL USE ONLY

RepMt N. 12255

PROJECT CONPLETION REPORT

SOMALIA DEMOCRATIC REPUBLIC

AFGOY GAS DELINEATION PROJECT(CREDIT 1464-SO)

AUGUST 17, 1993

MICROGRAPHICS

Report No: 12255Type: PCR

Private Sector Development and Economics DivisionTechnical DepartmentAfrica Regional Office

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

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WEIGHTS AND MEASURES

1 cm - centimeter = 0.39 inches1 m - meter = 3.28 feet1 m3 - cubic meter 264 US gallons1 1 - liter = 0.26 US gallons1 bbl - barrel = 42 US gallons1 kg - kilogram = 2.2 pounds1 km - kilometer = 0.62 miles1 km2 - square kilometer = 0.39 square miles1 t - ton = 2,205 pounds1 kW - kilowatt = 1,000 watts1 MW - megawatt = 1,000 kilowatts1 kWh - kilowatthour = 1,000 watthours1 GWh - gigawatthour = 1 million kilowatthours

ABBREVIATIONS

BCF = billion cubic feetBD = barrels per dayBTU = British thermal unitCIF - cost, insurance, freightDMH = Department of Mines and

HydrocarbonsECU = European Currency UnitEIB = European Investment BankENEE = Ente Nazionale Energia

Electrica(the National Power Co.)

LPG = liquid petroleum gasMCF = thousand cubic feetMNCF = million cubic feetMMCFD = million cubic feet per dayMMW = Ministry of Mineral and Water

ResourcesMT = metric tonMW = megawattpsi = pounds per square inchTOE = tons of oil equivalenttpy = tons per year

FOR OFFICIAL USE ONLY

THE WORLD BANKWashington, D.C. 20433

U.S.A

Office of Director-GeneralOperations Evaluation

August 17, 1993

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on SomaliaAgov Gas Delineation Proiect (Credit 1464-SO)

Attached is the "Project Completion Report on Somalia - Afgoy GasDelineation Project (Credit 1464-SO)" prepared by the Africa Regional Office.No Part II was provided by the Borrower.

The project did not achieve its main objective which was to provesufficient commercial 8as reserves in the Af Soy field (the two wells funded underthe loan were dry). The exploration promotion and technical assistancecomponents were more successful as they appear to have contributed to increasedexploration activity by foreign oil companies in other areas; however theirsustainability is unlikely given current country conditions.

Overall, the project is rated unsatisfactory, its institutionalimpact partial and its long-term sustainability unlikely. The Project CompletionReport is reasonably thorough and informative. No immediate audit is planned.

Attachment

This document has a restricted distribution and may be used by recipients only in the performancetheir officiat duties. Its contents may not otheruise be disclosed without World Bank authorization.|

FOR OMCIAL USE ONLY

PROJECT COMPLETION REPORT

SOMALI DEMOCRATICREPUBLIC

AFGOY GAS DELINEATION PROJECTCREDIT 1464-SO

TABLE OF CONTENTS

Pacge No.

PREFACE . . . . . . . . . . . . . . . . . . iEVALUATION SUNMARY ............ ii

PART I: PROJECT REVIEW FROMBANK'S PERSPECTIVE . . . . . . 1

A. Project Identity . . . . . . .. .B. Background . . . . . . . . . . . . 1C. Project Objectives and Description 2

Project Objectives . . . . . . . 2Project Description . . . . . . 2

D. Project Design and Organization . 3E. Implementation of the Project . . 3F. Project Results . . . . . . . . . 4G. Project Sustainability . . . . . . 6H. Bank Performance . . . . . . . . . 6I. Borrower Performance . . . . . . . 8J. Project Relationship . . . . . . . 8K. Consulting and Contracting Services 8

Consulting Services . . . . . . 8Contracting Services . . . . . . 10

L. Project Documentation and Data . . 10

PART II: PROJECT REVIEW FROMBORROWER'S PERSPECTIVE . . . 11

PART III: STAT:STICAL INFORMATION . . . . . 12

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

i

PROJECT COMPETION REPORT

SOXALI DEMOCRATICREPUBLIC

AFGOY GAS DELINEATION PROJECT(CREDIT 1464-SO)

PREFACE

This is the Project Completion Report (PCR) for the AfgoyGas Delineation Project in Somalia, for which Credit 1464-SOin the amount of SDR17,500,000 was approved on May 1, 1984.The project was technically closed on June 30, 1991, threeyears behind schedule. Because of outstanding claims againstthe credit, however, and the continuing civil war in Somalia,the credit account remains open. The credit was 79 percentdisbursr.. and the last disbursement was on November 26, 1990.

The PCR was prepared by the Industry and Energy Divisionof the Africa Region Technical Department. As no recognizedgovernment exists in Somalia at the present time, there willbe no Part II of the PCR.

Preparation of this PCR was started during the Bank'slast supervision mission in April, 1990 and is based, interalia, on the President's Report, the Credit Agreement,correspondence between the Bank and the Borrower, supervisionreports, personal knowledge and discussions with formermembers of the project team.

ii

PROJECT COMPLETION REPORT

SOMALI DEMOCRATICREPUBLIC

AFGOY GAS DELINEATION PROJECT(CREDIT 1464-S0)

EVALUATION SUMKARY

obiectives

1. Exploration for hydrocarbons has been going on inSomalia since the late 1940s. Some shows of oil and gas havebeen encountered, but all have been deemed to be noncommercial. The Afgoy gas discovery, which is reported tohave flowed natural gas from two zones at a combined rate ofover 13 million cubic feet per day, was found by Sinclair OilCompany in the 1960s approximately 30 km from Mogadishu andwas declared, at that time, noncommercial. In the early1980s, the Government asked the International DevelopmentAssociation to assist them in the development of the Afgoy gasfield so that gas could be made available for generation ofpower for the Mogadishu market.

2. In addition to the development of the Afgoy gasfield, the project also aimed at the strengthening of theMinistry of Mineral and Water Resources (MMWR) by training ofNMWR personnel, construction of a core and sample storage andthe purchase of materials and equipment for the MMWR.Previous to the Afgoy delineation project, the PetroleumExploration Project (PEPP) was designed to promote openacreage to international oil companies and to assist the MMWRin negotiation and monitoring of ongoing explorationactivities. At the closing of the Petroleum ExplorationPromotion Project, the Afgoy Delineation Project was tocontinue on with the acreage promotion, monitoring of oilcompany activities and continued evaluation of hydrocarbonresources of the country.

Imlementation 9xnerenceo

3. A credit for SDR17,500,000 (US$18,000,000equivalent) was approved by IDA in May 1984 to develop the gasresources of the Afgoy gas field. In addition, the EuropeanInvestment Bank approved a loan for ECU7,000, 000 (US$5,700,000equivalent) to assist in financing the project. To accelerate

iii

delineation of gas resources, a PPF advance of about US1.0million was made to finance a detailed seismic survey of theAfgoy area and the drilling of wells. The credit alsofinanced energy studies including a power planning and gasutilization study. The credit also provided for training ofSomali technicians, continued petroleum exploration promotion,construction of a core and sample storage and rehabilitationof the Ministry of Mineral and Water Resources (MMWR)premises. Scheduled closing of the project was June 30, 1988but was postponed three times until June 30, 1991. Theproject; however, was suspended in December 1990 when thegovernment was overthrown during the civil crisis in thecountry.

4. Under World Bank and European Investment Bank (EIB)funding, and in accordance with World Bank Guidelines, theMMWR hired consultants and contractors as outlined below. Onthe basis of interpretations of the detail seismic survey, twodelineation/development wells were drilled on the Afgoystructure. Afgoy No. 2, the first well, was drilled about 3.2km from Afgoy No. 1, the Sinclair well drilled in the 1960sbut encountered no gas. Afgoy No. 3 was drilled only 800 mfrom Afgoy No. 1 and it too encountered no gas. A great dealof thought and discussion was given to the possible drillingof a third delineation well on Afgoy. However afteraddAtional studies ox the Afgoy results were undertaken, therecommendations of the consultants were to abandon the gasdevelopment project in the Afgoy area until substantially morewas known about the accumulation of gas in thie Afgoy area. Are-entry of Afgoy No. 1 was shelved based on the seismicinterpretation which suggested that greater gas reserves couldbe encountered by drilling in a more crestal position on theAfgoy structure.

5. A new geological study and hydrocarbon potentialevaluation of Somalia was made and a personal one-on-onepromotion campaign was undertaken to attract oil companies toSomalia. The project financed negotiation and legal expertiseto assist the Government in attracting several new oilcompanies to Somalia to undertake exploration activities.

6. The Hydrocarbon Unit, which is a part of the MMWR,has been strengthened with additional trained personnel and anew sample storage/files. Personnel are keen about their workand are diligent in their monitoring of oil companyactivities. A rehabilitation of the MMWR was to have beencompleted were it not for the onset of the civil strife. Newmaterials and equipment were to have been procured which wouldhave aided the Unit in the monitoring of explorationactivities and interpretation of data from on-going oilcompany projects.

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7. As a result of the overthrow of the Siad Barregovernment, all disbursements and other activities associatedwith the project were suspended. Two students, who were at auniversity in training financed by the project, for a timewere without financing as the Bank was unable to continue todisburse out of the Credit proceeds. The situationjeopardized the continued education of the students. Qviteapart from the Bank project financing, the Bank has made fundsavailable to the students in order to defuse the situation andallow them to continue their training.

Results and Sustainability

8. The results of the drilling activities in the Afgoyarea were negative in that the gas reported by Sinclair inAfgoy No. 1 was not encountered in the delineation wells.Unt4l more is known about the gas in the area, there willprobably be no more drilling activity. The strengthening ofthe MMWR has gone forward and has resulted in an MMWR which istechnically stronger with a much more useful infrastructure.Unfortunately, the civil crisis terminated the rehabilitationefforts of the MMWR. International oil companies haveresponded to the promotion efforts of the MMWR by taking upseveral new blocks in the country. Increased drillingactivities (until the outbreak of the hostilities) resulted inincreased foreign exchange expenditures by foreign companiesin the country and a rumored petroleum discovery in thenorthern part of Somalia. If this petroleum discovery isconfirmed, then cessation of the military activities is likelyto be followed by a sustained upsurge in the drilling activityin Somalia.

Pindinas and Lessons Learned

9. In retrospect, it would have been more prudent tofirst prove the existence of the gas reservoir in Afgoy No. 1with a careful re-entry program before drilling additionalwells. This was considered during the initial phases of theproject, but was rejected at the time the seismicinterpretations were made, as too dangerous due to thepresence of unknown foreign material in the hole, or ignoranceof the method of plugging. As the perception at the time wasthat the seismic interpretation removed much of the risk offailure, the risk of re-entry therefore was greater than therisk of non-discovery of gas. Now that the drillings arecompleted, there is doubt as to the amount of gas at Afgoy.

10. In projects where students are funded to attend auniversity or other institution of higher learning, it shouldbe possible to disburse sufficient funds fox the term of thetraining instead of term by term. Thus, credit funds would be

v

disbursed to another agency (university, consulting firm, orNGO) to cover all of the education expenses insteae. ofindividual semesters or quarters, as well as to control thestudent's performance.

11. A midterm implementation review should have beenconducted to assess the validity of the project underimplementation and allow design modification if necessary aswould have been the case with Afgoy. The Africa Region is nowrequiring mid-term reviews during implementation of all newlyanproved projects.

PROJECT COMPLETIOUEPORT

SOMALI DEMOCRATICREPUBLIC

AFGOY GAS DELINEATION PROJECT(CREDIT 1464-SO)

PART 1: PROJECT REVIEW FR0M BANK'S PERSPECTIVE

A. Projeit IdXAntly

Name : Afgoy Gas Delineation ProjectCredit Number : Cr 1464-SORVP Unit : Africa RegionCountry : SomaliaSector : EnergySubsector : Petroleum

B. BackQround

1. Somalia Is energy resources are considered modest, atbest, consisting of fuel wood derived from a depleting forestbase and a small hydro generating capacity. Althoughpetroleum companies have been prospecting in Somalia since the1950s, no commercial scale hydrocarbon accumulations have beenidentified. Petroleum imports accounted for only 17 percentof the energy consumption in 1982 although commercial energyconsumption has grown 14 percent per year throughout the 1970sand early 1980s. The remainder, 86 percent approximately, ofthe energy consumption is supplied by fuel wood. Electricityis supplied through isolated systems to Mogadishu and othercenters of population and is based entirely on fuel oil anddiesel-fired generation. Total installed capacity in 1982 wasestimated at about 60 MW and consumption at less than 90 GWh(22 Kwh per capita), one of the lowest consumption levels insub-saharan Africa.

2. The responsibility for the energy sector at the timeof implementation, was divided among a number of Governmentinstitutions. The Ministry of Minerals and Water Resources(MMWR) was in charge of developing mineral fuels, includingpetroleum as well as hydrological resources. The NationalPetroleum Agency was responsible for importation,transportation and distribution of petroleum products, theMinistry of Public Works supervised the power utility, EnteNazionale Energia Electrica (ENEE), and the EconomicCommission of the Presidency was instrumental in settingenergy prices and in approving energy sector investment.

3. During the 1960s, the Sinclair Oil Company exploreda portion of Somalia for petroleum. Among those wells drilledby Sinclair was Afgoy No. 1, located some 30 km fromMogadishu, which was drilled in 1965 and encountered gas in

2

the Sagalah formation, a sandstone of Cretaceous age. Gastested was 6.4 MMSCF (12710-12720 foot interval) and 7 MMSCF(12,540-12544 foot interval) both with a small amount ofcondensate. Preliminary estimates by Sinclair of possible gasin place were approximately 50 MMMSCF. The well was abandonedby Sinclair as being non-commercial at that time. The QorioleNo. 1 well drilled later by Sinclair also showed non-commercial quantities of oil and gas and was abandoned.

4. A seismic survey of the Afgoy-Qoriole areas wasfinanced under the Petroleum Exploration Promotion Project,Credit 1043-SO. The objective of this project was to preparea geological evaluation of the country with the aim ofinteresting foreign oil companies in coming to Somalia toexplore for petroleum. The project identified sqveralinteresting features and suggested that the Afgoy No. 1 wellwas located on the flank of a promising structure. Theresults of a follow-up detailed seismic survey, financed by aPPF were favorable. However no oil companies were int_restedin developing the gas potential of Afgoy because of the lackof export potential. Hence, the Bank undertook to develop theAfgoy gas resource.

C. Prolect Oblegtive. a_d Deuoription

5. Project ObJectives: The objectives of the projectwere: ti) to delineate sufficient gas reserves for theproduction of the Afgoy gas resource, thereby developing adomestic energy source close to Mogadishu; (ii) to develop anappropriate local gas authority; and (iii) to continue tostrengthen the Borrower's national petroleum administrationand to support its petroleum exploration promotion efforts.

6. ProJect Desgrit ion: The project consisted of thefollowing parts:

Part A: Preparation and management ofthe drilling operations.

Part B: Drilling of two wells on theAfgoy gas structure, followed(if necessary) by the re-entryand completion of the Afgoy No.1 well as a back-up producer.

Part C Preparation and detailedengineering for a subsequentgas development project.

Part D: An electric power planning andgas utilization study.

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Part E: (1). Strengthening MNWRthrough:

i. Assistance in drilling ope-ations and sectormanagement;

ii. Provision of office and technical equipment,vehicles, construction of a core and samplestorage and other buildings;

iii. Overseas and on-the-job training and studytours.

(2). Assisting MMWR in the audit ofthe drilling operations by aqualified international auditingcompany.

D. Proiect Degign and Organization

7. The development of the Afgoy gas resource was tohave been undertaken in two phases, (a) a delineation phaseand (b) a development phase. This project, Cr 1464-SO, wasdesigned to be the delineation phase and would finance thedrilling of two Afgoy delineation wells and the re-entry ofthe old Afgoy No. 1 hole. The productive capacity anddeliverability of these wells were to have been confirmedthrough production testing. Assuming that suff3cient gaswould have been proven, the development phase or follow-onproject would have consisted of the installation of surfacefacilities at Afgoy, including a pipeline to Mogadishu andretrofitting investments to convert major potential customersto natural gas.

S. The project was set up to be supervised by the MMWR.A drilling management firm with a drilling manager resident inMogadishu had full control over the drilling operations andthe ordering of drilling supplies and material. Supplierswere under subcontract to the Government but administered bythe drilling manaaement firm. Exploration consultants had theresponsibility for all of the geological, geophysical andengineering results and evaluations of the potentialreservoirs.

9. The project concept - to delineate the gasaccumulation for eventual production to be used for powergeneration and some domestic use of LPG and other power orenergy requirements in Mogadishu - was sound. The cost of theimported petroleum fuel which would be substituted formed thebasis for the economic justification of the project.

10. At the time of project design, it was anticipatedthat this project would also continue with the petroleumpromotion aspects of Credit 1043-SO, improving theinfrastructure of the MMWR, training of its technicalpersonnel and monitoring of the increasing oil companyactivities.

4

E. XMJlem_ntatipm of the Projoct

11. As a result of the interpretation of the detailedseismic work, Afgoy No. 2 was drilled approximately 3.2 kmeast of Afgoy No. 1. The interpretation suggested that thegas-bearing horizon would be encountered some 250 ft higherthan at Afgoy No. 1, a much more favorable position on thestructure. When Afgoy No. 2 proved to be non productive, areinterpretation of the detailed seismic data was undertakenby the exploration consultants. In meetings with theconsultants, MMWR and the World Bank, a location for Afgoy No.3 was chosen close to Afgoy No. 1 in an effort to maximize thepossibiiity for a productive gas well. When this locationalso proved to be noncommercial, the emphasis in the projectwas redirected toward exploration promotion, technicalassistance, construction of a core and sample storage andrehabilitation of the MMWR offices. The explorationconsultants were instructed to prepare a re-evaluation of thedata to explain the results of the delineation and to proposeproject activities to follow.

12. For the project to finance the bulk of the localcosts involved in the construction of the core and samplestorage and the rehabilitation of the buildings of the MMWR,the Development Credit Agreement was modified to allow forpayment of 80 percent of the local costs incurred undercategory 1. At the time of the closing of the project, thecore and sample storage building had been completed and inuse. The rehabilitation of the MMWR building had just startedwhen civil unrest halted the activities.

13. In May, 1990, the MMWR and its consultants visitedthe USA and the UK to talk with 17 international oil companiesabout exploration in Somalia. All appeared enthusiastic aboutthe oil company reception, however, any possible follow-upactions on the part of the companies were preempted by thecivil unrest which started in December, 1990. Since December,1990, a number of oil companies have continued to visit theconsultants' offices near Denver to view available geologicaldata and discuss legal aspects. This activity suggestscontinuing interest in the country by the internationalpetroleum community.

14. The Government was also interested in exploringgeothermal possibilities in the NE part of Somalia. IDA andthe Government failed to agree on what a geothermal componentwould entail; however, IDA and MKWR agreed that a geothermalconsultant would be contacted to prepare terms of referencefor a geothermal study which would then have formed the basisby which the Credit Agreement would be modified to allow for

5

geothermal studies. Due to continued military activities inthe northern portion of Somalia, consultants were unable to goto the geothermal manifestations located thtere. Consequently,no follow up action was possible on the possible geothermalcomponent.

F. Project Results

15. The detailed seismic survey suggested that Afgoy No.1 was drilled on a rather large structure which lay more tothe south and east of the Afgoy No.1 location. Based uponthis rather optimistic interpretation, it was decided thatAfgoy No. 2 would be drilled approximately three kilometerssoutheast of Afgoy No. 1 in order to test, what seemed to be,a relatively large structure. When this well proved to be nonproductive, a second well, Afgoy No. 3 was drilled about 800m north of Afgoy No. 1. It was considered at the time, thatthis well would be close enough to Afgoy No. 1 to encounterthe gas-bearing formation found in Afgoy No. 1. Again, AfgoyNo. 3 proved to be non productive with no indication of thegas bearing strata encountered in Afgoy No. 1. Currentopinion is that Afgoy No. 1 and Afgoy 2 and 3 are separated bya system of faulting and/or disconformity. The mostoptimistic interpretation of the results would suggest a verysmall restricted gas reservoir with something less than 4MMISCF of total reserves which is too small to be ofcommercial interest for power generation.

16. Confronted with these rather dismal results indrilling tests which were initially thought to be a low-riskoperation, interest in drilling further wells in the areadisappeared. In fact, no consideration was given to the re-entry of Afgoy No. 1. A final report by the explorationconsultants recommended that no further drilling be conductedat Afgoy. A study of the Afgoy area by the promotionconsultants supported this recommendation. At this point,approximately one year into the project and after anexpenditure of over US$10.0 million, the delineation of theAfgoy Field was abandoned and the orientation of the projectchanged to that of promotion.

17. Given the project's changed focus to promotion, anew consulting firm was hired to provide specialist advice.Its terms of reference included, initially, a second opinionon the results of the drilling at Afgoy and then to continuewith a new geological study and promotion report of thesedimentary areas of Somalia. This restudy of the geology wasconsidered necessary as the report made by the consultantsunder Cr 1043-SO was considered to be inadequate. TheGovernment also contributed by helping to finance a study ofthe Source Rock Potential of East Africa undertaken by anotherconsulting firm. The promotional efforts by the consultantswere successful in that several new companies entered intoproduction sharing agreements with the Government. Indeed,

6

even with the political situation in disarray, internationaloil companies are continuing to examine the exploration datawhich are presently being held by the exploration consultants.One of the unexpected benefits of the project has been thesafe keeping of the exploration data, including maps, tapesetc., out of the country, which certainly would have beendestroyed had they been in Mogadishu.

18. At the onset of the political unrest in the country,and the start of the hiatus in the project implementation, itwas unofficially reported that one of the international oilcompanies operating in Somalia had discovered petroleum inunspecified quantities in one of their first explorationwells. Most importantly, the recent results of explorationdrilling in the country have substantiated the theory thatMesozoic rift systems underlie flat-lying Tertiary sedimentsin the northern half of the country. This augers well forcontinued high levels of oil company exploration in Somaliaonce hostilities are terminated.

G. Project Sustainability

19. Under the Afgoy gas delineation part of the project,there appears to be few lasting benefits to be realized asidefrom the manpower training as well as the geological andpetroleum exploration data. The Petroleum section of the MMWRhas received a great deal of training which has already provedto be helpful in dealing with oil companies wishing toundertake exploration programs in the country. There stillremains the remote possibility that a reinterpretation of theAfgoy data could lead the way to eventual development of thegas resource.

20. The construction of the sample and core storagebuilding for the MMWR was to house and store cores anddrilling samples from all of the wells drilled in the countryby all of the operators. These samples, before theconstruction of the storage, were left piled in the yardwithout any supervision or cataloguing. Construction of thestorage was completed within the budget and time frame.Access to carefully stored samples is necessary if companiesare expected to make informed evaluations of the country'sgeological data.

21. Each of the international oil companies who madeagreements with the MMWR for petroleum exploration will spendseveral million dollars of which an estimated thirty percentwill be spent in Somalia on goods and services. This inflowof hard currency demonstrates the positive impact of theproject even without the discovery of petroleum.

22. As mentioned above, had the data from pastexploration efforts in the country, including wellinformation, geological and geophysical reports and original

7

seismic data not been in the hands of the promotionalconsultants at the time of the civil unrest, it probably wouldhave been irretrievably lost. This, of course, would have setback by several years, future petroleum exploration efforts inSomalia.

H. Bank Performance

23. Throughout the project, the Bank has been supportiveof MMWR's efforts to delineate the gas at Afgoy, attractinternational petroleum companies to Somalia to explore forpetroleum and to improve and upgrade the storage of cores andsamples in the country as well as the infrastructure of theMMWR. The Bank also played a strong constructive role ininsisting on a re-evaluation of the drilling location afterAfgoy 2 and a total re-evaluation of the project after Afgoy3.

24. Cross-effectiveness clauses in the agreementsbetween the European Investment Bank (EIB) and IDA causedsignificant delays in the startup of the project at a timewhen delays were most expensive i.e. during the arrival ofocean shipments. Although IDA was prepared to go ahead withthe project, the EIB, because Somalia was in arrears in anEIB-financed dairy project, suspended all disbursements to thecountry. In addition to delays caused by the suspension,there was an increase in costs amounting to about US$200,000caused by demurrage and vessel delays.

25. Because of the civil unrest in Somalia and thecollapse of the government which signed the Credit Agreement,IDA determined that December 30, 1990 would be the last daythat withdrawal applications would be honored. Consultantswho continued their dialogue with international oil companiesand stored valuable data thus had no recourse to funding.Students who were in long-term training overseas were leftwithout any source of funding. Fortunately, after some delay,the plight of the students has received compassionateconsideration from IDA and their education is being fundedfrom the World Bank's interest earnings, under the assumptionthat the World Bank will be reimbursed by the Government oncethe situation returns to normal in Somalia.

26. Because of the experience in the project, thefollowing lessons, albeit in retrospect, may be learnt fromthe project:

i. The Afgoy gas delineation project was based on thereported occurrence of natural gas in Afgoy No.1.The substantiation of the presence of the gas, aswell as the quantities and the composition of it,were to be accomplished by re-entry of Afgoy No. 1.Fueled by an optimistic structural interpretationand a general perception that a large gas

8

accumulation was present, this objective graduallygave way to delineation drilling. Without re-entryinto Afgoy No. 1, there is no sure way to determinewhether substantial gas exists at Afgoy. If, as isfeared, the reservoir at Afgoy No. 1 is laterallyrestricted, a controlled test of the gas flow fromAfgoy No. 1 might have shown rapid depletion, andthus not a viable reservoir. The original projectconcept should have been followed as much aspossible. Any material deviation, such as not re-entering Afgoy No. 1, should have been decided onlyafter a great deal of deliberation.

ii. In future projects involving cofinancing by otherinstitutions, some thought should be given tomitigating the consequences of a sudden andunexpected cessation of disbursement by onefinancier. Moreover, projects where drilling is apart of the implementation should be exempted fromcross-effectiveness responsibilities because of thegreat expense (and danger) which could be caused bya temporary, unexpected shutdown.

iii. Disbursement rules of IDA should be adjusted toallow for disbursement of sufficient tuition andsubsistence payments so that students in trainingmay complete their curriculum. This would entailchanging disbursement rules so that training fees,or tuition, could be disbursed on a yearly ratherthan semester basis. Ideally, these disbursementsshould be made either to the training institution,consultants, or NGOs who would effect the paymentsto the institutions when required and supervisestudent performance.

iv. A midterm implementation review should be anintegral part of projects where the continuationand progress of the project is contingent on thesuccess or failure of early project components.

I. BorroWer Perormance

27. Except for some delays in preparation and submittalof the annual audit, all covenants in the Credit Agreementwere met, as outlined in Table 8. The Project ImplementationUnit, set up under Cr 1043-SO, remained in place for thisproject and has continued to be active in negotiations withoil companies. The MKWR was quick to compensate landownersfor the damages created by the project activity.

9

28. During the promotional part of the project, the MMWRwas very active in its negotiations with oil companies. Oncecompanies had set up their offices, the NMWR was prompt torender assistance when needed by the companies in theirrelations with the Government.

J. Proiect Relationshig

29. Bank relationship with Government and the MTWR onthe project has been good although Government had difficultybelieving that the gas delineation scheme had failed to findthe gas.

K. Congulting and Contracting Seryices

30. Consultina Services: During the course of theproject, a number of consultants were hired. Each wasselected using the IDA guidelines regardless of the source offunding. The following consulting services were used duringthe project:

i. ExDloration Consultants: These consultants werehired by the NMMWR to interpret the seismic dataprior and subsequent to the drilling and to makegeological interpretations of the drilling data asthey became available. Their work was consideredgenerally satisfactory but sometimes deficient insubstance.

ii. Promotion Consultants: These consultants were notthe same as those on Cr 1043-SO. They were hiredby the NMWR after completion of the drilling atAfgoy. Their task was to reinterpret the geologyof Somalia and prepare a promotion rackage forpresentation to the oil industry. Their work wasconsidered above average and was much appreciatedby the MMWR.

iii. Legal Consultants: The legal work was consideredto be expensive but good. Government used theconsultant in all negotiations sessions with oilcompanies.

iv. DriJliDg_Ma-r j.ment Firm: The firm was responsiblefor the su' -vision of drilling and the orderingand storag- of supplies and materials used fordrilling. Generally the firm did a credible job,but fuiled, in one instance, to recognize the needfor special equipment needed during the programwhich materially delayed the drilling and increasedcosts.

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v. Power Planning Consultants: These consultants,selected according to IDA guidelines, undertook thepower planning studies in a satisfactory manner.

vi. Financial Consultants: These consultants wereresponsible for the setting up of the accountingsystem for oil companies as well as furnishingaudit reports for the project accounts. Their workwas done in a speedy, workmanlike fashion.

31. Contractina Services: All contracting services wereobtained under IDA's procurement guidelines. Selectioncombkittees were composed of MMWR and the drilling managementteam. The contracting services which were hired are asfollows:

i. Seismic Acquisition and Processing Contractor: Thecontractor was the same as that used for Cr 1043-SO. Government was quite pleased with theirperformance.

ii. Drilling Contractor: The drilling contractoralready had equipment and personnel in Somalia foranother oil company and could deliver the equipmentwith little or no mobilization costs, hence at areduced overall cost, therefore the normal biddingexercise was eliminated. The contractor did a goodjob in all respects.

iii. Drilling Service Contractors: These contracts suchas, logging services, mud logging services, supplyof drilling mud, well cementing etc., were givenon the basis of competitive bidding. Funding, forthe most part, was from the EIB. All servicecontractors did a good job.

iv. Construction Contractor: This contractor waschosen on the basis of competitive bidding and wasresponsible for the construction of the core andsample storage building and the start up of therehabilitation of the NMWR's premises

La Project Documentation and Data

32. The Credit Agreement was adequate for achievingproject objectives although it could have been more explicitin requiring periodic reports from the MMWR. The MMWR seemedto depend rather heavily on the consultants to keep IDAinformed on to the progress of the project. At best,communications directly with the MMWR were poor, dueprincipally to technical problems such as lack of functioningtelephones and telex equipment.

11

PROJECT COMPLETION REPORT

SOMALI DEMOCRATICREPUBLIC

AFGOY GAS DELINEATION PROJECT(CREDIT 1464-SO)

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTVE

1. Because at the time of writing of this PCR there is norecognized government in the country, Part 2 will not beprepared.

12

PROJECT COMPLETION REPOER

SOMALI DEMOCRATICREPUBLIC

AFGOY GAS DELINEATION PROJECT(CREDIT 1414-Se

PART III: STATISTICAL INFORMATION

1. * eleted sank Credits

credit Title Purol Yea of Uu

Cr 1043-SO Attract oil Companies 1980 Completed andPetroleum to explore for closed in

xploration Petrolem in Somalia. 1984.Promotion

Cr 1850-80 Power Improve efficiency and 1987 90% ofReLailtation and reliability of power obj.ctivesEnergy Project supply. Disseminate met prior to

improved cooking suspension instoves. late 1990.

Cr 1850-SO was =uspended in Deceber 1990 because of c_vilesr fe andlack of recognised government.

2. Proiect Timetable

litn Date Date DatePlaEmed Rvisedu Atal,

identification IPS 11/82

Preparation 4/83 6/63

Appraisal Mission 5/83 9/83

issues Paper 10/83

Credit Negotiations 1/84 2/84

Board Approval 2/84 5/1/84

credit signature 2/84 6/27/84

Credit Effectiveness 3/84 9/12/84

Credit Closing 2/88 6/91

13

3. gnKU RAmusamt

Bank Fiscal Yout Disburgemo (in OM LIllion)and Quarter

Sgt. cu Mt. Cum Act % of Est

1985 1 3.40 2.52 74.12

2 6.81 3.87 56.83

3 10.21 6.73 65.92

4 13.62 9.01 66.15

1986 1 14.47 10.20 70.49

2 15.32 10.68 60.71

3 16.17 10.90 67.41

4 17.02 11.21 65.86

1987 1 17.14 11.26 65.69

2 17.27 11.50 66.59

3 17.39 11.80 67.86

4 17.50 12.02 68.69

1988 1 17.50 12.27 70.11

2 17.50 12.39 70-80

3 17.50 12.41 70.91

4 17.50 12.72 72.69

1989 1 17.50 12.83 73.31

2 17.50 12.95 74.00

3 17.50 13.13 75.03

4 17.50 13.13 75.03

1990 1 17.50 13.30 76.00

2 17.50 13.34 76.23

3 17.50 13.41 76.63

4 17.50 13.52 77.26

1991 1 17.50 13.68 78.17

2 17.50 13.90 79.43

Decause no gas was encountered, tere was little expense for roservoirtesting and equipping of wells for production.

14

4. Project SanlemantatipA

indisatcr-O Apprailal Actual orgjinmat,e PCR Efltimate

Spudding of Afgoy #2 9/15/84 12/1/84

Drilling Management 3/84 3/84

Petroleum Technical 3/84 3/84Consultants

Preparatory Studies/detailed 6/85 N/Aengineering for subsequent gasdevelopment

Power Planning and Gas 1/85 11/85Utilization Study

S. Status of Covenants

Covenant Aaremmnt compliance Bmarksafi ection

Maintain separate Project DCA 3.02 yes PIU wasImplementation Unit within quitethe MMNR. effective.

Hire Consultants as needed. DCA 3.03 (a) yes Consultantswere hiredas perguidelines.

Hire Drilling Management Firm DCA 3.03 (b) yea Managementfirm hiredearly on.

Goods & Services financed out DCA 3.04 (b) yes Someof the Project to be used instancesexclusively for the Project. of vehicles

being usedoutside ofthe Project

Establish gas agency in case DCA 3.06 no Notof gas Production, Required

Furnish audited account DCA 4.01 (b) yes but No reportwithin 6 months of the end of late for the endthe Fiscal Year. of the

project.

15

6. Prolect Costa and Financina

A. Proiect Financina

IDA oricin_l _Et. USS Final Est. USSCatecorv Egivaelent piAburgement

Goods, works and 17,000,000 13,760,059.68Consultants' services

Refunding of PPF 1,000,000 1,009,632.73

Canceled 3,230,307.59

TOTAL IDA 18.000,000.00 18.000.000.00

-/ 2/

Co-Financing with EIB

Well Services 3,200,000.00Logging & Perforating 1,768,667.00Cementing & Stimul. 293,186.00Mud Logging Services 295,252.00Well Testing & Compl. 626,040.00

Materials 1,500,000.00 1,677,051.00

Tech. Assistance Contract 1,000,000.00 461,187.00

TOTAL EIB 5.7Q0.000.00 5.121.383.00

2/

Government Local Currency So. Sh., So. Sh.Contribution 17,500,000.00 19,142,393.00

TOTAL FOREIGN EXCHANGE 23.700.Q00.Q0 23.700.000.00

1/ Equivalent to SDR 17.5 million at appraisal

/ or USS equivalent to SDR 17.5 million

I/Equivalent to ECU 7 0 million at appraisal

4/Equivalent to ECU - ( million at disbursement time.

I/ Equivalent to US$ I 0 million at appraisal.

16

B. Proiset Costa

DESGBRPIPTN IDA EISDisbursed Disbursed

UL8 S AMONT U8 5 AMT

DRILLING 2,37S,608.42 1,677,051.00MATERIALS

ANCILLARY 368,963.37 2,983,14S.00SERVICES

MISCELLANEOUS 85,428.52SERVICES

DRILLING 4,945,850.34CONTRACTOR

DRILLING 1,657,340.60MANAGEMNT

EXPLORATION 860,324.59 461,187.00CONSULTANTS

PROMOTION 1,739,536.47CONSULTANTS

LEGAL 713,577.65CONSULTANTS

FINANCIAL 95,918.77CONSULTANTS

POWER 489,231.45CONSULTANTS

CONSTRUCTION 376,140.00CONTRACTOR

SOURCE ROCK 62,000.00STUDY

PROJECT 1,009,632.73PREPARATIONFACILITY

TOTAL 144779.552.91 5.121.383.00§/

USS 1.0 million for PPF was used for detail seismic survey andconsultant services.Funds used for training are included in consultants' disbursements asthey were treated as reimbursable items.

O/US$ equivalent to ECU 7.0 million

17

7. 1

Purpose as Defiaed 8tAtUl IaMst of Scudtat AnDrKi&&U

Power Planning and Demand projections, incomplete Study notGas Utilization economic uses, req. completed duestudy invoestents & mktg to civil unrest

strategy for gas and projectdevelopment. suspension.

Reserves & Determl.u mazimum complete Laid groundworkFeasibility Study of gas and fluid for future dev.Afsoy Field reserves & number strategy for

of dev. wells Afgoy Field.necessary for prod.

Source Rock Identify and complete IdentifiedPotential of Soaalia Evaluate the Source potential

Rock Potential of source rocks.East Africa ingeneral and Somaliain particular

Afgoy Geological & Not defined at complete VerifiedGeophysical Review appraisal. To previous

review & integrate conclusion forgeology, geophysics no moreand results of drilling atAfgoy 1, 2, and 3. Afgoy

Oil & Gas Potential Not defined at complete Added toof Somalia appraisal. To re- geological

evaluate the oil & knowledge ofgas potential of Somalia andSomalia. attracted oil

companies tocountry.

18

8. Use of Bank Resources

A. Missions

Stairs of Proiecl Cycle htg/ Lgf Dan in Soecialis PerfonmtaXw uoMu Ftd Rseod WOnt

Identification 1/83 4 7 Gcol,FA, ccon, coin

Prepartnion 6/83 3 5 Geol. FA, cons

PrepartIon 8/U3 3 2 Geol. Geoph. FA

prepalation 9183 1 1 FA

Appaisal 9/83 5 8 Geol, FA, Cons. E.g.

Podt Appaisal 11/83 2 2 Geol. FA

Pot Apprisa' 12/83 2 6 Gcol. FA

PonAppraisal 12/83 2 8 CoI. FA

Pot Appraisal 1/84 3 6 ood. FA, En.

Poe Appraia 2/84 1 1 GVo.

Negoiations VS4 1 I FA

Suptrvisio 4/84 2 3 Geol. En.. 1

Sup>rvidon 5/84 2 2 Eng,FA 1

Supervision Sf84 3 4 Gcol. Eng. FA 1

Supervision 6/84 2 3 Eng. FA I

Supervision 8/84 2 5 Eng. FA 1

Supervision 11/84 3 7 Eng. Geol. FA I

Supervision V85 4 7 Geol. Eng. FA Cons

Supervision 2/85 I 7 Eng. 1

Supeision 3/8S 2 5 Geol. Geoph I

Suprvion 4/V5 1 7 FA I

Supervision 6/85 1 7 Eng 1

Supervision 7/8S 3 1 20eol,FA I

Supervisio 8/5 3 S Geol. Eng. FA I

Superviion 1/86 2 5 Gaol. FA I

Supermvision 1186 1 S Gaol I

Supervision 3/87 1 3 FA I

Suevision 9/87 2 3 FA, Geoph. 1

.Supervision 5/88 1 6 Geoph

Supevidoso 11/88 1 5 Geoph 1

Supervision 3/90 1 7 Gcoph 1

Supervisioa 9/90 1 1 Geopb 1

19

B. Total Staff Wek

aivity 1i D £ II Al Xi i ii E

&M.^ 3.2 34.6 153

mm 38.5

&9g. 11.4

ae, e.1 9.0 24.0 14.9 83 4.2 4.3 5.0 4.4 2.3

EL 5.0(ot)

TALS 3.2 34.7 74.2 24.0 14.9 83 4.2 4.3 5.0 4.4 7.3