World Bank Document fileTHE WORLD BlANKO WhngtOn. Dt.C. 20433 U.S.A. Okaco Oi 0tw4OuG OWamm_ Iv"ti;n...

Document of

The World Bank

FOR OMCIAL USE ONLY

Report No. 7318

PROJECT COMPLETION REPORT

ISLAMIC REPUBLIC OF PAKISTAN

COAL ENGINEERING PROJECT(CREDIT 1355-PAR)

June 17, 1988

Energy Operations DivisionCountry Department IEurope, Middle East andNorth Africa Regional Office

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

THE WORLD BlANKOWhngtOn. Dt.C. 20433

U.S.A.

Okaco Oi 0tw4OuGOWamm_ Iv"ti;n

June 17, 1988

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECTs Project Completion Report on PaklstanCoal EnRineerins Protect (Credit 1355-PAi)

Attached, for information, is a copy of a report entitled *Project

Completion Report on Pakistan Coal Engineering Project (Credit 1355-PAK)'

prepared by the Europe. Mlddle East and North Africa Regional Office. Further

evaluation of this project by the Operations Evaluation Department has not

been made.

Yves Rovani

by Ram R. Chopra

Attachment

This document has restricted distribution and may be used by recipients only In the pefonnmaceor their officl dudes. Its cotentes may not othewe be dbcised without World Bank abozioon.

FOR OMCIUL USE ONLY


COAL ENGINEERING PROJECT(Credit 1355-PAK)


Tible of Contents

Page No.

Preface ......................................... ..*.............. iBasic Data Sheet . . ..... . .... .. . ..... . iiHighlights .................................................. iv

I. INTRODUCTION .. .............................................. 1

II. PROJECT BACKGROUND ........................ 1.................. Project Origin, Appraisal and Credit Approval ............ 1Project Objectives and Description . . 2Changes in Project Scope .................. . 3

III. PROJECT IMPLEMENTATION ..... . ....... ...... ..... .... . 3Project Costs .................................. *. ..... 3Achievement of Project Objectives ......................... 4Project Management ....................................... 4Performance of Consultants and Contractors............... 4Disbursements ............. ... 4

IV. CONCLUSIONS ....... ...... 5Lessons to be Learned... ........ ...... 5

ANN 1

Project Ccet 8 ....................has a restricted distribution and may e

This document has a festricted distribution and may be used by reciptents only in the pefformanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorzatE


COAL ENGINEERING PROJECT(Credit 1355-PAR)


Preface

Credit 1355-PAK to the Islamic Republic of Pakistan for the CoalEngineering Project in the amount of SDR 6.5 million was signed on May 24,1983 and became effective on June 22, 1984. Since the initial explorationstages of the project did not indicate the existence of coal deposits adequateto support a mine-mouth power plant, the Government agreed with IDA that theproject should be closed. rhe credit was closed on January 19, 1987 with atotal disbursement of SDR 1.3 million and the undisbursed balance of SDR 5.2million was cancelled.

The main objectives of the project weret (a) to explore and evaluatean identified coal bearing area (the Duki area of Baluchistan); (b) to carryout detailed engineering for development of a mine based on these reserves andthus contribute to the expansion of domestic coal supply; and (c) tostrengthen the technical capability of the implementing agency, the Water andPower Development Authority (WAPDA).

This Project Completion Report (PCR) was prepared by the EnergyDivision of the Asia Technical Department and the Energy Division of theEurope, Middle East and North Africa Regional Office based on the Bank'sPresident's Report, supervision reports and other documents in the Bank'sfiles and on a comprebensive PCR prepared by WAPDA.

In accordance with the revised procedures for project 1?erformanceaudit reporting, this PCR was read by the Operations Evaluation Department(OED), but the project was not audited by OED staff.

Following normal procedures, OED sent copies of the draft report tothe Borrower for comments; however, none were received.

- li -

ISLAWIIC REPUBLIC OF PAKISTAN


PROJFCT COMPLETION REPORT

BASIC DATA SHEET(US$ m)

Credit PositionOriginal Disbursed Cancelled

Credit 1355-PAK 7.00 1.38 5.62Cumulative Credit Disbursement

FY84 FY85 FY86 FY87

(i) Planned 1.50 4.50 6.50 7.00(ii) Actual 0.00 0.58 0.80 1.38(iii) (ii) as Z of (i) -- 112 12Z 201

OTHER PROJECT DATA

Original Actual

Board Approval 05/03/83 05/03/83Development Credit Agreement 05/14/83 05/24183Effectiveness 08/24/83 06/22/84Credit Closing 06130/87 06/30/87Total Project Cost (USS m) 8.8 1.7Completion of physical components 06/30/86 06/30/86Financial Rate of Return (Z) Not applicable --

Economic Rate of Return (1) Not applicable

- iii -

MISSION DATA

No. of No. of Staff Date ofMission Month/Year weeks Dersons week relorts

Identification 06/81 2 2 4 07/29/81Preappraisal 02/82 1 2 2 03/30/82Appraisal 05/82 1 2 2 07/09/82Supervision I 06/83 1 1 1 07/15/83Supervision II 01/84 1 1 1 02/15/84Supervision III 05/85 1 1 1 05/22/85Supervision IV 08/86 1 1 1 09/17/86

12

STAFF INPUT(Staffweeks)

FY80 FY31 FY82 FY83 FY84 FY85 FY86 FY87 FY88 Total

Preappraisal 0.09 - 21.62 - - - - - - 21.71Appraisal - 6.70 13.18 Z0.22 - - - - - 40.10Negotiations - - - 5.67 - - - - - 5.67Supervision - - - 2.20 8.78 3.92 3.36 3.82 - 22.08Other - - - 3.78 0.34 - - 0.07 0.27 4.46

Total 94.02

OTHER DATA

Borrower Islamic Republic of PakistanExecuting Agency Water and Power Development AuthorityFiscal Year of Borrower July 1 to June 30

- iv -




Highlithts

0 The technical assistance coal engineering project was designed tosupport the Government of Pakistan in its effort to develop indigenous energyresources to reduce its dependence on hydrocarbon and conserve indigenousnatural gas and to lighten the burden on the balance of payments. The projecrwas appraised in May 1982 and approved by the Board in May 1983. Its objec-tives were to: (a) identify and assess the economic viability of an area ofcoal reserves and thus contribute to the evaluation of indigenous energyresources; (b) provide technical input on the optimml use of these resources;and (c) provide appropriate technical assistance to the involved governmentagencies (para. 5).

1 Despite the failure to locate an economically viable coal depositmany technical objectives of the project were largely achieved. By projectcompletion a large area previously considered to have potential for large-scale coal development had been evaluated and in addition a number of geolo-gists and drilling personnel had been trained both in project management andthe technical aspects of coal exploration (para. 9).

2 During project appraisal, it had been anticipated that the explora-tion program in the Duki area would locate a coal reserve that would warrantdetailed drilling and the preparation of subsequent feasibility studies.However as the initial exploration progressed it became apparent that theprospects for the discovery of coal deposits of economic and financialviability-were less than had originally been hoped. Consequently it wasdecided that the detailed exploration and feasibility phases of the projectwere not justified based on the initial geological exploration and onlySDR 1.3 million was disbursed--the balance of SDR 5.2 million was cancelled(para. 7).

3 Overall the project succeeded in (a) achieving an accurate andcomprehensive assessment of the coal resources of the Duki Basin (5,000 squarekilometers) and (b) significantly improving the exploratory operating stan-dards of WAPDA and associated agencies. An important lesson to be learnedfrom this project is the confirmation of the wisdom of the staged approachtowards expenditures on mineral exploration which in this case evaluated alarge coat basin with minimal expenditures and large savings of the creditproceeds (paras. 14-15).




I. INTRODUCTION

1. Commercial energy supply in Pakistan increased at an average annualrate of 7.72 during the period 1972-81; however during the same period theannual growth rate for coal was only 2.62--substantially below that for otherenergy resources. Despite the growth in total energy supply, consumption hadin recent years increased even more rapidly, requiring additional oil importsand at times resulting in power and gas shortages. To alleviate the situa-tion, the Government aimed at: (a) limiting the demand for imported fuels, and(b) developing domestic energy resources that could substitute for importedenergy.

2. Pakistan's coal resources are estimated at about 1,250 million tonnesof which about 1,000 million tonnes are located in Sind. The coal is of poorquality and generally only recoverable by underground mining. The lack ofbasic geological informatioa has prevented proper evaluation of the potentialof the sector. In order to assist the Government in overcoming this problem,an IDA credit in the amount of SDR 6.5 million for a coal engineering projectwas extended to the Government in May 1983, to finance consultant services,drilling contracts, training programs and the procurement of equipment for abasic geological survey and feasibility studies in the Duki area of theprovince of Baluchistan.

II. PROJECT BACKGROUND

Proiect Origin, ApRraisal and Credit Approval

3. In accordance with the Government's policy of increasing the use ofindigenous coal resources, IDA was approached in early 1981 by WAPDA forassistance in evaluating the coal resources of Baluchistan. The objective wasto identify a coal reserve that would serve as a source of fuel for a coal-fired power plant, thereby conserving indigenous natural gas and minimizingthe use of imported petroleum fuels. An IDA mission visited Pakistan in June1981 to review with WAPDA the scope of the proposed project and possibleproject sites.

4. Historically the coal developments in Pakistan had been located closeto existing infrastructure in geologically difficult conditions. It wasagreed that it was desirable to locate the project in an area where the geolo-gical structure was apparently less complex, and the potential existed for atlea.t a minimum amount of mechanization in coal production and where securityof coal supply for the life of the power plant could be established. Follow-ing a careful review of all available data with WAPDA, the Geological Surveyof Pakistan (GSP) and the Pakistan Mineral Development Corporation (PMDC), theDuki area of eastern Baluchistan was selected as the project site. The

-2-

Project was prepared by WAPDA and appraised in May 1982. A credit of SDR 6.5million was approved on May 3, 1983 and became effective on June 22, 1984after fulfillment of the three effectiveness conditions ramely, ap-proval ofthe Executive Committee of the National Economic Council, the appointment ofconsultants and the appointment of a suitable Pakistani project leader.

Project Objectives and Description

5. The project's objectives were to: (a) identify, explore, and assessthe economic viability of an area of coal reserves and thus contribute to theevaluation of indigenous energy resources; (b) provide technical input on theoptimal use of these resources; and (c) provide appropriate technical assis-tance to the involved government agencies. It was hoped that the projectwould prove sufficient coal reserves to produce 0.3-1.0 million tonnes peryear of coal to supply a 100 - 250 MW power plant. Such new generating capa-city would have provided an energy base for the Government's planned indus-trial expansion of Baluchistan and at the same time would have supported theextension of WAPDA's electricity grid to Baluchistan.

6. The project was thuo designed to consist of four components: (a) anexploration program; (b) a mine feasibility study; (c) a ieview of currenttechnology for use of high sulphur coal and thermal power generation in areasof limited water supply; and (d) a training program. The exploration programwas designed to evaluate the economic potential of the coal resources of theDuki area and was to be followed by the second component--the mine feasibilitystudy for the identified reserves. The third and fourth components weredesigned to strengthen the technical capabilities of WAPDA in all aspects ofcoal assessment;and utilization. A description of the components follows:

(i) The coal exploration was to be implemented in three phases in orderto ensure that the proposed studies and initial exploratory program would becarried out only after previous results had been evaluated and the desirabi-lity of proceeding further had beet, established. The first phase wouldconsist of researching and interpreting the available geological data base,photogeological studies utilizing satellite imagery as appropriate and initialgeological field work. Existing geological data would be compiled from allavailable sources within the federal and provincial governments. There wasalso some data available from records of existing artisanal mining in the areaand some preliminary geological mapping at scales of ls250,000 and 150,000for a portion of the area. The incorporation of this available data ongeology and coal resources into a new preliminary geological interpretation ofthe area would be supplemented by specialist photogeological mapping. Thisnew geological evaluation would assist in the identification of priority areasand in the rejection of areas clearly indicated to be non-prospective. Thegeological fieldwork would determine the stratigraphy and structure of theknown coal measures and extend this data into new areas so as to identifyexploration targets. The fieldwork would consist of geological traversing;the drilling of an initial ten test drill holes; the measurement of thestratigraphic section in coal-bearing sediments; the determination of thegeological structure; the opening up, describing, measuring and sampling ofcoal zones; and the completion of a preliminary geological evaluation of allareas of coal-bearing sediments. An evaluation of this preliminary data wouldpermit the selection of areas which warrant a further reconnaissance drilling

-3-

program based on the assessed potential of the area for mine development. Thesecond phase would consist of reconnaissance drilling with approximately 30widely spaced test holes in the areas selected in the first phase, to verifythe stratigraphy and structure of the coal-bearing sediments as suggested bythe initial mapping program. Additionally, reliable information would beobtained on coal quality based on the analysis and petrographic study ofunweathered coal cores recovered from the drill-holes. Data would also beobtained on the physical characteristics of the associated floor and roof rockstrata which would be important for mine development planning. In the thirdphase, those areas which, followi:ag reconnaissance drilling, show good poten-tial, would be further assessed. A more detailed exploration of one or moreselected areas would be undertaken so as to obtain all the data required for afeasibility study. During this third phase, the program would includedrillin0 and evaluation of about 70 drill holes with an accumulated depth ofabout 20,000 m. Additional geological mapping, topographic mapping, test-pitting, bulk sampling and underground driveage, would also be carried out.

(ii) The mine feasibility study would determine the economic, financialand technical mining viability of tne most favorable areas located by theexploration program. The feasibility study would determine the alternativemining systems that might be used to recover the coal and assess the infra-structure requirements for the development of one or several coal mines tosupply a nearby thermal power plant. In particular, the feasibility studywould consider the optimum mine location in view of the information availableon the most likely power plant location.

(iii) The technoloRv investigation component would research the latestavailable technical methods in the field of coal-fired thermal power plantswith specific reference to minimum water usage and the burning of high sulphurcoal with minimum environmental impact.

(iv) The training component was designed to strengthen the technicalskills of the staff of WAPDA and other participating agencies such as PMDC andGSP in malagement and execution of field exploration and coal related feasibi-lity studies. Technical assistance (inc-iding training) would be providedthroughout the exploration program and for the feasibility studies.

Changes in Proiect Scope

7. As a result of unfavorable geological findings, the project scope wasseverely curtailed. Two of the four project components, namely the MineFeasibility Study end the Technology Investigation, were cancelled altogether,and only about one-fifth of a third component, namely the Exploration Program,was carried out with the result that only SDR 1.3 million was disbursed (20X)as against the appraisal estimate of SDR 6.5 million.

III. PROJECT IMPLEMENTATION

Project Costs

8. Annex 1 gives a comparison of the actual project costs versus theappraisal estimate. The actual costs were only about 19? of the appraisalestimate. mainly because of the reduced project scope (para. 7).

-4-

Achievement of Proiect Obiectives

9. The credit was signed in May 1983 but it took until June 1984 to-become effective because of delays in ft:lfilling the conditions of effective-ness. Subsequent to the appointment of the consultants ar.d the selection of adrilling contractor the project proceeded smoothly. By October 1985 the firstand second phases (para. 6) of the exploration component, consisting of 28drill holes, were finished and the preliminary geological evaluation of thecoal potential of the Duki area was completed. While the exploration programfailad to locate any coal reserves which merited detailed exploration, thecomprehensive evaluation of the Duki coa' area of eastern Baluchistan wascompleted. In addition minor coal deposits suited only to very small-scalemining by traditional methods were located and are indeed today beingexploited by the local people. Personnel of WAPDA, PMDC and the GSP gainedvaluable experience in the regional evaluation of coal resources from aneconomic standpoint.

Proiect Management

10. The project was implemented by WAPDA through a Project ManagementTeam which was strengthened by the addition of senior experienced geologistsfrom both PMDC and the GSP. An expatriate consulting firm provided technicalc3sistance and the drilling program was also executed by a foreign drillingcontractor from a developing country.

Performance of Consultants and Contractors

11. The supervision of the exploration program and the technical trainingwas implemented by consultants. Despite the reduced scope of the project, theconsultants made a major contribution to increasing the technical skills notonly of WAPDA but also of personnel from both PMDC and GSP.

12. The drilling contractors from a developing country performedadmirably and have in fact continued to operate in Pakistan as ir.dependentforeign contractors following their introduction into the country under ICBbidding procedures.

Disbursements

13. Disbursements were made against 10O of foreign expenditures ofcontracts awarded for equipment, drilling services and consultants' services.Disbursement proceeded smoothly though at a much smaller scale than had origi-nally been planned due to: (a) reduced project scope, (b) significantly lowerbid for the drilling contract--the major procurement item under thecredit--than had been provided for in the project cost estimates, and (c) thedecision of WAPDA not to use IDA funds for the procurement of vehicles. Outof a credit amount of SDR 6.5 million, only SDR 1.3 million was disbursed ascomponents of the project were cancelled as a result of unfavorable geologicalfindings. In addition, ICB for the drilling contract resulted in a bid lowerthan 502 of the estimated cost.l/

l/ US$1.96 million bid versus US$3.3 million budgeted for the conceptualcomplete drill program.

IV. CONCLUSIONS

14. The success of the project should be measured not by whether or notit located a coal deposit which could lead to an economically viable projectin the current economic environment, but by whether prospects were accuratelyevaluated and tecimical standards raised. As most exploration efforts do notresult in new mine development, particularly in the short-term. the lack ofnew nine development, as a result of the project, does not indicate that theproject failed to achieve its purpose. Indeed, since it is at least possiblethat the project itself may have prevented a premature rush to initiating minedevelopment based on inadequate exploration data, the project may have savedmany times its cost through avoidance of wasteful expenditure. The projectdid indeed evaluate the coal deposits of the Duki area and it did significant-ly raise the operating standards of WAPDA with regard to coal development.

Lessons to be Learned

15. There are two main lessons to be learned from this lending operation.They are:

(a) a great deal of time and effort would have been saved for theGovernment and WAPDA on the one hand and the Association on theother, if instead of preparing and implementing a full-fledgedproject, the Project Preparation Facility had been used to fund theinitial exploratory stages before launching the project; and

(b) in an exploratory project of this type, the borrower and theAssociation should be alert to the need for immediate cancellation ofsubsequent stages of the project should they prove unnecessary,reducing commitment charges, as was done in the subject project.

ANNEX 1-6-




Proiect Costs(US$ x 10)

Estimated /a ActualLocal Foreign Total Local Foreign Total

(a) Exploration Program 924 4,836 5,760 280 1,200 1,480

(b) Mine Feasibility Study 339 482 821 0 0 0

tc) Technology Investigation 63 100 163 0 0 0

td) Training and Tech. Assistance 100 80 180 0 180 180

Total Base Cost 1.426 5.498 6,924 280 1,380 1,660

Physical Contingencies 142 550 692Price Contingencies 198 952 1,150

Total 1,766 7,000 8,766 280 1.380 1,660

/a President's Report.

World Bank Document fileTHE WORLD BlANKO WhngtOn. Dt.C. 20433 U.S.A. Okaco Oi 0tw4OuG OWamm_ Iv"ti;n...

Documents

Transcript of World Bank Document fileTHE WORLD BlANKO WhngtOn. Dt.C. 20433 U.S.A. Okaco Oi 0tw4OuG OWamm_ Iv"ti;n...