world bank document hazira-bijapur-jagdishpur j-exim export-import bank of japan adb asian...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 18463

IMPLEMENTATION COMPLETION REPORT

INDIA

GAS FLARING REDUCTION PROJECT(Loan 3364-IN)

October 6, 1998

South Asia Energy Sector

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTSCurrency Unit = Rupee (Rs)

The following were the exchange rates between the Rupee (Rs) and the US dollar (US$) during theproject's implementation period.

Year Rs/US$1991/92 24.51992/93 28.91993/94 31.41994/95 33.01995/96 34.01996/97 36.01997/98 38.7

FISCAL YEAR OF BORROWERApril 1 - March 31

WEIGHTS AND MEASURESI cubic meter (cm) = 35.3 cubic feet (cf)

1 thousand cubic meters (mcm) = 35.3 mcf1 million cubic meters (mmcm) = 35.3 mmcf

1 billion cubic meters (bcm) = 35.3 bcfI thousand cubic meters of natural gas 9.31 kilocalories

1 ton of oil equivalent (toe) = 10.2 million kilocalories1 barrel (bbl) 0.85 SG crude oil = 0.135 ton

0.159 cu. meter42 US gallons

1 metric ton of oil (33 0 API) 7.36 barrels (bbl)I metric ton heavy oil (17.0° API) = 6.60 barrels (bbl)

I normal cubic meter (Ncm) 37.32 standard cubic feet (scf)

ABBREVIATIONS AND ACRONYMS

GOI Govemment of IndiaONGC Oil and Natural Gas Corporation LimitedGAIL Gas Authority India LimitedIOC Indian Oil CorporationNTPC National Thermal Power CompanyOPRCA Oil Pollution Response Cooperation AgreementGFRP Gas Flaring Reduction ProjectHBJ Hazira-Bijapur-JagdishpurJ-Exim Export-Import Bank of JapanADB Asian Development BankHUT Heera-Uran Trunk PipelineSBHT South Bassein-Hazira Trunk PipelineBPA, BPD South Bassein Production Platformns A and DGOR Gas Oil Ratio

Vice President: : Mieko NishimizuDirector: : Edwin LimSector Manager: : Alastair J. McKechnieTask Leader: : Hannachi Morsli

FOR OFFICIAL USE ONLY


INDIA

GAS FLARING REDUCTION PROJECTLoan 3364-IN

Table of Contents

Page No.

PrefaceEvaluation Summary

PART 1: PROJECT IMPLEMENTATION ASSESSMENT

Background ....................... .. 1Objectives and Implementation ..........................Achievement of Objectives ......................... 5Major Factors Affecting the Project ......................... 7Project Sustainability ......................... 8Bank Performance ......................... 9Borrower Performance ......................... 9Assessment of Outcome ........................ 10Future Operations ......................... 1 IKey Lessons Learned ........................ 1 I

PART II: STATISTICAL TABLES

Table 1: Summary of Assessments .14Table 2: Related IDA Credits .15Table 3: Project Timetable .16Table 4: Cumulative Estimate and Actual Credit Disbursements .16Table 5: Key Indicators for Project Implementation ................................... 16Table 6: Key Indicators for Project Operation .17Table 7: Studies Included in Project .17Table 8A: Project Costs .18Table 8B: Project Financing .19Table 9: Economic Costs and Benefits .19Table 10 Compliance with Operational Manual Statements .19Table 11: Status of Legal Covenants .20Table 12: Use of Bank Resources: Staff Inputs .21Table 13: Use of Bank Resources: Major Project Missions .21

APPENDICES

Appendix A: ONGC Operational Plan .............................................. 22Appendix B: Borrower's Evaluation .............................................. 24Appendix C: Project Area Overall Production and Supply Profile .............................................. 36

MAP - IBRD 22892

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.


INDIA


Preface

This is the Implementation Completion Report (ICR) for the Gas FlaringReduction Project (GFRP) in India, for which Loan 3364-IN -- in the amount of US$450million equivalent to the petroleum company Oil and Natural Gas Corporation Ltd.(ONGC) -- was approved on June 25, 1991 and made effective on July 12, 1991. ONGCwas the borrower and the implementing agency, and the Government of India (GOI) wasthe guarantor.

The Loan closed on December 31, 1997, after three extensions to the originalclosing date of December 31, 1995, consisting of a first 6 month-period to June 1996, asecond one year period to June 30, 1997, and a third 6 month-period to December 1997.The loan has been fully disbursed, with the last disbursement made on March 3, 1998.The project was co-financed by the Asian Development Bank (ADB), Loan 1222-IND, inthe amount of US$241 million, and the J-Exim, in the amount of US$51.1 million. TheJ-Exim's loan was administered by the Bank. It closed on June 30, 1998.

This ICR was prepared by H. Morsli, Principal Petroleum Engineer, Energy,Mining and Telecommunications Department, Oil and Gas Unit (EMTOG), Team Leaderof the project during the period of 1995-97. It was reviewed by Mr. Vijay Iyer, ActingSector Manager, South Asia Energy Sector Unit.

Preparation of this ICR was based on material in the project files. The Borrowercontributed to the preparation of the ICR by preparing its own project evaluation(Appendix B). Draft copies of the ICR were sent to the government, ONGC, GAIL, J-Exim and ADB. As of September 3, 1998, comments were received only from GAIL,while J-Exim indicated that they had no comments.


INDIA


Evaluation Summary

Introduction

i. In 1990, the government requested Bank support in a project aimed at eliminatingthe flaring of associated natural gas (gas that occurs with oil, either as free or in solutionwith oil) in the Bombay High oilfield and use that gas to reduce the country's growingenergy shortage. At the time of project appraisal in 1991, more than 12 million cubicmeters (mmcm) per day of associated gas was flared in the Bombay High oilfield. At thesame time, India was facing increasing energy shortages and experiencing a large gapbetween petroleum demand and domestic supply. Forecasts then showed a doubling ofpetroleum demand, from approximately 45 million tons (mmt) in 1990-91 to about 90nmt in 2000, while output from the Bombay High oilfield, which supplied about 60percent of the country's domestic oil production, was expected to decline rapidly. Inaddition, an increase in crude oil prices due to the Gulf crisis raised the country's oilimport bill by about $1,200 million, causing severe macro-economic imbalances, with theforeign exchange reserves reaching an all time low (covering about two to three weeks ofimports). As part of its strategy to deal with these economic pressures, the governmentgave high priority to efforts that would lead to the utilization of natural gas that wasflared in the Bombay High oilfield. The main obstacle, however, was the lack of gasproduction and transmission infrastructure for the recovery of flared gas. The Bank wasin a unique position to assist the government in this effort, since it had accumulatedconsiderable experience with India's petroleum sector as a result of its support for sixpetroleum projects during the 1981-1990 period. The project built on the lessons thatwere learnt from these projects and led to an intensive dialogue with the government onoptions and strategy for the long-term development of the gas sector.

Objectives and Design

ii. The project's objectives were to (a) reduce the country's energy shortages byrecovering the associated gas that was flared in the Bombay High oilfield and supplyingit to the densely populated northwestern region, (b) optimize the Bombay High oilfield'sdevelopment and production, (c) improve energy use efficiency in the northwesternregion, and (d) promote greater involvement of the private sector in the oil and gasindustry. In addition, two other objectives were implied but not explicitly stated in the

SAR. These were to assist the government in (i) eliminating the damage to the globalenvironment due to the flaring of natural gas with a high content of methane, which is animportant greenhouse gas, and (ii) formulating appropriate policies that would foster t]hedevelopment of efficient gas markets in India.

iii. To meet these objectives, the project's main components consisted of (a)construction of two offshore process platforms in the Bombay High oilfield, (b)modification of 18 existing old process platforms, (c) construction of two offshore trunkgas pipelines, one from the Bombay High oilfield to the Heera-Uran gas trunk pipeline tosupply gas to the Bombay area and the other from the South Bassein gas field to theonshore Hazira gas processing terminal to supply gas to the northwestern region, (d)expansion of the existing onshore Hazira gas processing terminal, (e) optimization of t]heBombay High oilfield's reservoir management, (f) development of an appropriate safetyand environrnent policy, (g) promotion of private sector participation, and (h) training andtechnical assistance.

Implementation Experience and Results

iv. The project's implementation originally was to span from mid-1991 to December1995. However, due to lengthy negotiations, the co-financing agreement between thegovernment and J-Exim was signed in July 1993, two years later than the original plan.As a result, implementation of the J-Exim financed component -- the expansion of theHazira gas terminal -- was carried out two years behind schedule. Because of a muchfaster than predicted response from the Bombay High oilfield reservoir pressuremaintenance, the field's gas-oil-ratio decreased much more rapidly than projected,resulting in a downward revision of the field's total gas production. To meet the project'sgas supply commitment, the production of the South Bassein gasfield had to be increased.In addition, two small size gas structures in the Bombay offshore area had to bedeveloped. Furthermore, the Hazira gas terminal expansion program had to be adjustedfor more sour gas capacity than originally planned.

v. The new production increase and the additional capacity expansion at the Haziragas terminal required redesigning of some of the components to include additional works,which remained within the project scope. In spite of these changes, implementation ofthe project's physical components was highly satisfactory. The project was completed asscheduled, by mid-1995 for the World Bank financed components and December 1997for the J-Exim financed components. Bombay High's gas flaring was completelyeliminated by 1993-94 and the field's reservoir management significantly improved. Theproject increased the gas supply to the northwestern region from about 19 mmcm/d to 38mmcm/d and to the Bombay area from 11.5 mmcm/d to about 15 mmcm/d. In addition,the project has increased India's oil production by about 4.5 mmt per year. Furthermore,it has provided the oil and gas sector with complete safety and environment standards andadequate oil spill response and control capability.

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vi. Significant progress was made in the development of key sector policies andimprovements in the efficiency of major institutions of the sector. Most of thesedevelopments took place during the last three years of project implementation. InSeptember 1997, the government increased gas prices and decided to dismantle theadministered price formula, replacing it with a market determined price mechanism. Gasprices were fixed at about 55% of the international FOB price of a basket of fuel oils. Toattract the private sector, new petroleum exploration and development incentives wereintroduced in 1997. Decisions were also taken by the government in early 1998 for theliberalization of the downstream sector, particularly the import of petroleum productsand crude oil. ONGC's legal status was changed from a government agency to a publiccompany. The corporatization of the company, however, has been slow. Thegovernment's disinvestment program, which was initiated in 1994, was still in its startupphase in December 1997.

Sustainability of Project Achievements

vii. The elimination of gas flaring and the subsequent environmental benefits derivedfrom it in the Bombay High oilfield will be fully sustainable throughout the remaininglife of the project. Enough gas reserves were proven to ensure that the level of gas supplyfor the northwestern region and the Bombay area could be sustained at least through2010, provided that additional field developments are undertaken in the near future. Thegovernment's decision to rationalize gas pricing will lead to further consolidation of thepolicy and institutional achievements made during the last three years of the project. It is,however, the result of ongoing petroleum exploration and development activities that willdetermine the sustainability of the private sector's involvement.

Summary of Findings and Key Lessons Learned

viii. The project yielded several valuable insights. Among the more importantfindings are: (a) a project that has the full support of all stakeholders will most likely beimplemented on time (the project provided, indirectly through the introduction ofappropriate reservoir management measures, considerable assistance for the increase inoil output from the Bombay High oilfield. This moved the project into focus of attentionof the highest government officials in the country), (b) in an energy supply constrainedcountry, eliminating gas flaring is highly beneficial to the country's energy balance aswell as to the local and global environment. India is still flaring a substantial quantity ofassociated gas in Assam. That gas can be either used locally for power generation or re-injected for storage, (c) contracting specialized field service companies with properlydesigned work program improves the quality and cost effectiveness of field operations,(d) complex co-financing arrangements and resulting delays can defeat the project'seconomic viability, (e) well integrated technical assistance for onsite managerial andoperational expertise improves the project's performance, (f) to effectively develop thegas market and achieve more economic resource allocation, suppliers should be allowedto divert gas to high-value consumption, (g) achieving policy and institutional objectivesshould be viewed as a long-term process for which, in the case of India, setting up of an

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independent regulatory agency and obtaining a clearly stated government commitment tothe changes should be the first priority, and (h) improving the legal and fiscal frameworkto promote private sector participation without streamlining the negotiation process doesnot enhance private sector participation.

ix. In addition, it became clear that Bombay High oilfield is much more complexthan anticipated, and is yet to be fully developed. Based on the reservoir managementstudy and recent production data, in order to minimize the risk of another rapidproduction decline, the field requires additional development, particularly infill drilling toreduce well spacing. The ongoing water injection for pressure maintenance would notsustain the current level of production as it was intended and could rather damage thefield's reservoir (water breakthroughs). The timing of additional development is highlycritical to the ultimate oil and gas recovery from the field. The gas market in India hasbeen slow to develop in spite of a huge gas demand potential (India's only major gaspipeline, the 1,700-km Hazira-Bijapur-Jagdishpur pipeline, was operated below itscapacity from the time of its construction, in 1987, until completion of the GFRP's majorcomponents in 1995-96). A safety and environmental protection legislation and anindependent agency to enforce it are urgently required given the magnitude of oil and gasactivities in India, both offshore and onshore.


INDIA


PART I - PROJECT IMPLEMENTATION ASSESSMENT

Background

1. India's petroleum consumption growth has been one of the highest in the AsiaPacific Region over the recent years. It increased from 6 to 6.5% during the 1960-91period, 6.5 to 9.3% during 1992-94, after which it came down to about 8% in 1995-96before resuming its growth since then. With a modest increase in its proved oil reserves,from 3.5 billion barrels (bbls) in the mid-70s when it discovered the Bombay Highoilfield, to about 4.3 billion bbls in 1997, India had been a net importer of oil and wouldremain so for the foreseeable future. With a growing demand, which reached about 1.7million bbl/d in 1996, and no significant increase in domestic production (about 790,000bblld-37 mmt/y in 1997) for the last ten years, India's oil imports will continue toincrease in order to meet its consumption, which, although constrained, has reached about1.7 million bbl/d-83 mmt/y in 1997. With an oil reserve-to-production ratio of about 15.5years and a growing oil import bill, the government decided to focus equally on naturalgas, of which the country's proved reserves increased from about 100 billion cubic meters(bcm) in the mid-70s to about 500 bcm in 1991. However, India, which was flaring asubstantial quantity of associated gas, particularly in the Bombay High oilfield, had alimited gas infrastructure, except the Hazira-Bijapur-Jagdishpur (HBJ) gas pipeline whichwas commissioned in 1987, but operated at less capacity due to limited gas productioncapacity. In view of the large investment requirements, the government requested Banksupport in a project, the Gas Flaring Reduction Project (GFRP), which was intended toassist India in the development of its natural gas sector.

Objectives and Implementation

2. Objectives. The project's objectives, as stated in the Staff Appraisal Report(SAR), were to (a) recover a significant quantity, about 12 million cubic meters per day(mmcm/d), of associated gas flared in the Bombay High oilfield and supply that gas tothe country's western region market, (b) improve the Bombay High oilfield's reservoirmanagement in order to reduce and contain a significant decline in oil production andoptimize the ultimate hydrocarbon recovery, (c) reduce energy shortages and improveenergy use efficiency in India's western region, and (d) promote greater private sectorinvolvement in India's oil and gas industry. In addition, two other objectives wereimplied but not explicitly stated in the SAR. These were to assist the government in (i)

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formulating EL gas sector policy and restructuring the sector's entities to sustain gasindustry growth in India, and (ii) reducing the effect of gas flaring on the environment,particularly with regard to global warming.

3. Physical Components and Related Changes. To meet these objectives, theproject's main components consisted of (a) construction of two new offshore processplatforms in the Bombay High oilfield, one in the northern part to process 60,000 bbl/d ofoil, 7 mmcm/d of associated gas and 90,000 bbl/d of formation water and the other in thesouthern part to process 100,000 bbl/d of oil, 15 mmcm/d of associated gas and 140,000bbl/d of formLation water. The platform construction included two interconnecting gaspipelines, one being an 18-inch diameter, 30-km pipeline from the northern platformL tothe Uran gas trunk pipeline, and the other a 28-inch diameter, 78-km pipeline from thesouthern platform to the South-Bassein gas field, (b) modification and capacity expansionof 18 existing old process platforms in order to recover associated gas previously flared,(c) construction of two offshore trunk gas pipelines, one being a 30-inch diameter, 142-km pipeline from the southern part of the Bombay High oilfield to the Heera-Uran gastrunk pipeline to supply the Bombay area, and the other a 42-inch diameter, 242-kmpipeline from the South Bassein offshore gasfield to the onshore Hazira gas processingterminal to supply the northwestern region, (d) expansion of the existing onshore Haziragas processing terminal in order to process part of the gas previously flared in theBombay High oilfield, as well as the substantial increase in sour gas production from theSouth Bassein gasfield, (e) optimization of Bombay High oilfield reservoir management,(f) development of an appropriate safety and environment safety policy, (g) promotion ofprivate sector participation, and (h) training and technical assistance.

4. The irnplementation of the project, including the Hazira gas terminal expansion,originally was to span four and half years, from mid-1991 to December 1995. However,due to lengthy negotiations, the co-financing agreement between the Government of Indiaand J-Exim was not signed until July 1993, two years later than planned. Similarly, theexpansion work on the Hazira gas terminal started during the second part of 1993, twoyears later than planned. Since the terminal expansion was essential for processing thegas to be produced from the project, project completion could not be achieved asoriginally planned in 1995, but in 1997, two years later.

5. Based on a number of independent studies carried out by specialized foreignfirms, the Bombay High oilfield was to produce about 24 mmcm/d of associated gas, ofwhich about half was committed to supply the Bombay area and the other half tosupplement tlhe South Bassein gasfield's production, which has been dedicated to thenorthwestern markets, in Madhya Pradesh, Rajasthan, Uttar Pradesh and the Delhi's area,along the 1,700-km HBJ pipeline. A total of about 40 mmcm/d of gas was committed tobe supplied to the northwestern markets. During the project's first two years, however,because of a much faster than predicted response from the Bombay High oilfield'sreservoir pressure maintenance program and other field improvement operations, BombayHigh's gas-oil-ratio decreased much more rapidly than projected, resulting in a downwardrevision of the field's total gas production. New gas deliverability studies confirmed that

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no associated gas would be available from Bombay High to the northwestern regionmarket. The 12 mmcm/d of associated gas supply shortfall had to be compensated byother sources, essentially of non-associated gas.

6. To meet the quantities of gas committed to the northwestern region, ONGC had to(a) bring the production of the South Bassein gasfield to its maximum capacity throughadditional development, and (b) initiate the development of the two nearby small gasstructures. Since the gas produced in the South Bassein field contains hydrogen sulfide(H2S), a toxic gas that requires special treatment, the process capacity of the Hazira gasterminal, which supplies the northwestern region, had to be increased from 22 to 28mmcm/d. The terminal expansion program design, therefore, had to be modified.

7. Implementation of Physical Components. Because of the unforeseen associatedgas production shortfall in the Bombay High oilfield, changes made in the project's scopecaused a delay of about one year in project implementation. However, due to effectivefield work organization, ONGC succeeded in making up the delay and commissioned allof the project's major facilities as per their original schedule, by mid-1995 for the WorldBank financed components and December 1997 for the J-Exim financed components.Implementation of all of the physical components was carried out satisfactorily. Theconstruction of the two new offshore process platforms and the rehabilitation andmodernization of 19 existing offshore process platforms, in the Bombay High oilfield,were completed in May 1994 and June 1995 respectively. The construction of theseplatforms, along with some improvements achieved in the field's reservoir management,allowed ONGC to completely eliminate the flaring of associated gas, which was about 12mmcm/d at the beginning of the project, in 1990-91 in the Bombay High Oilfield. Theconstruction of the two main gas pipelines, from the Bombay High oilfield to the Heera-Uran gas trunk pipeline and from the South Bassin gasfield to Hazira, was completed inJuly 1995.

8. An integrated reservoir management study allowed further understanding ofBombay High's geology, leading to development of an appropriate reservoir managementpolicy. New field production and maintenance techniques, such as extended reachdirectional drilling and side-tracking of old wells, were successfully introduced. Todeepen the understand of the field's geology and optimize the production operations, a 3-D seismic survey was initiated during the last year of the project and was still underwaywhen the project's loan closed in December 1997. The survey is expected to generateadditional field development programs, which will be essential to further sustain thefield's oil and gas production.

9. Safety and environment was an important focus of the project, embedded in allproject components from the design stage to construction and then operations. Detailedrisk analyses and thorough safety audits were carried out on key offshore facilities bywell known specialized foreign agencies. Since then, ONGC's operational safetyprocedures have been upgraded and kept continuously up-to-date. A safety managementsystem, using international safety ratings recognized the world over by the oil and gas

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industry, was developed and put into operation. A group of twenty engineers experiencedin various oil and gas activities was specifically trained to operate the system. ONGC'ssafety and environment management department, which was based at the company'sheadquarters in Dehra Dun, far from the operating areas, was decentralized and relocatednear the operations. An international consultant carried out an oil spill responsecapability study on the basis of which the government decided the construction of two oilspill response centers with a clean up capacity of 5,000 tons of oil each. The centers weredesigned to meet the 1990 UN-sponsored Oil Pollution Response Cooperation Agreement(OPRCA). Their construction, one for the Bombay offshore area and the other on theeast coast, began in 1996 and is scheduled to be completed by the end of 1998.

10. Policy and Institutional Components. In addition to eliminating flaring ofassociated gas in the Bombay High oilfield and meeting physical production targets, theproject intended to assist the governnent in (a) attracting more private participation in theoil and gas sector, and (b) developing a gas pricing mechanism, which reflects the realvalue of gas. With regard to institutional aspects, the project intended to provide ONGCwith greater operational efficiency by streamlining policies and procedures, divestingnon-core businesses, and improving the management information system and personneltraining.

11. Imple,nentation of Policy and Institutional Components. Overall implementationperformance of the project's policy and institutional components has been lesssatisfactory than that of the physical components. However, significant progress wasmade during the last three years of the project in key sector development policies andsector entity institutional building. In September 1997, the government increased gasprices, which were due for revision in January 1996. More importantly, the governmentdecided to dismantle the administered price formula and replace it with a marketdetermined price mechanism, which will bring transparency in gas prices and helprationalize gas use nationwide. Gas prices at wellhead for onshore production, andlandfall points for offshore production, were fixed at about 55% of the international FOBprice of a basket of fuel oils. However, the dismantling of the administered prices will becarried out over a period of four years.

12. Private petroleum upstream sector participation was significantly encouraged withnew, more liberal, contractual terms, applicable since 1997. The new terms will include(a) a seven-year tax holiday for exploration and production, (b) no preferential treatmentfor national oil and gas companies, (c) no compulsory state participation, (d)opportunities for wholly owned foreign subsidiaries to own and operate small size oil andgas fields, (e) for medium to large size fields, permission for foreign companies to have60% stake in incorporated joint ventures and 51% stake in unincorporated joint ventures,(f) year-round continual open bidding instead of the previous six-month rounds, and (g)royalty payments of 12.5% for onshore oil and 10% for gas and offshore oil with furtherreduced royalties for deep water exploration. Additional incentives were provided forexploring higher risk areas that are geologically complex or in deep offshore waters.Other aspects of new contractual terms include (i) removal of regulations that required

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foreign investors to join with a local partner, most often the state-owned oil and gascompanies; and (ii) simplification of the administrative procedures by which any investorhad to go through a lengthy multi-layered decision process. The monopoly the state-owned oil and gas companies had on some of the exploration areas, often the mostprospective ones, was also completely removed. These state-owned companies are nolonger awarded petroleum exploration and development licenses without bidding, butmust compete with private Indian and foreign companies for any licensing.

13. The government converted ONGC from a government agency to a public limitedcompany and decided to divest twenty percent of the company's shares. Two percent ofONGC's shares were distributed to the company's personnel as employee share-holdingand another two percent were sold to Indian financial institutions. The remainingeighteen percent were offered on the international market, but did not attract any majorbuyers. One reason could be that ONGC is still selling its oil and gas at less thaninternational market prices since the administered price mechanism is not yet completelydismantled.

14. The changes made in ONGC's legal status are providing the company with moreautonomy and the opportunity to become commercially focused. Specific actions weretaken by the government to delegate greater powers to ONGC for decision-making inproduction management policies, finance and investment operations, project developmentand implementation, personnel management, wages and salaries, and any other activitythat would make the company more customer focused. ONGC was exempted from anumber of government approval processes, including submitting projects to the PublicInvestment Board for review and clearance.

15. International consultants provided ONGC with recommendations on corporateand business restructuring, on the basis of which three pilot projects were initiated in theBombay offshore area. The pilot projects were to serve as test sites for specific changesin managerial and operational procedures. A financial management information system,consistent with international oil and gas industry standards and practices, was introducedduring the last year of project implementation. The company's procurement procedureswere also reviewed by an international consultant and a number of correctives measureswere introduced.

Achievement of Objectives

16. Elimination of Gas Flaring Bombay High oilfield's gas flaring, which was 12mmcm/d in 1990-91, was completely eliminated in 1993-94, a year earlier than originallyanticipated. There will be no more gas flaring in the Bombay High oilfield except fortechnical reasons (such as low pressure tail gas recovered within the field's variousproduction facilities) or in remote marginal sub-units where gas recovery is noteconomical. Flaring was first reduced by the closing of selected high gas-oil ratio wellsand then completely eliminated by the project's gas recovery facilities. Besides theeconomic benefits, the elimination of gas flaring in the Bombay High oilfield has reduced

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some 4 mmt per year of carbon dioxide emissions (about 80 mmt over the project'slifetime) that contribute to greenhouse gases and global warming.

17. Improvement of Bombay High Oifield Reservoir Management. Management ofBombay High reservoir was significantly improved. Well productivity increased, and thefield's overall production decline was reduced from about 15% in 1991-92 to about 8% in1993. Substantial improvements in the field's well rehabilitation program were achieved.A backlog of more than 100 wells needing repairs at any time was reduced by more thanhalf.

18. Reduction of Energy Shortages. The project contributed significantly to thereduction of energy shortage in India's northwestern region and the Bombay area. Gassupply to the morthwestern region was increased from about 19 mmcm/d in 1992-93 to 34mmcm/d in 1997 following the expansion of the Hazira gas terminal and construction ofthe pipeline from the South Bassein gasfield to the Hazira terminal. Similarly, gas supplyto the Bombay area was increased from 11.5 mmcm/d in 1991-92 to about 15 mmcm/d in1995 following the construction of the gas pipeline from the Bombay High oilfield to theHeera-Uran gas trunk pipeline. The gas supply to the northwestern region is expected toincrease progressively more than 38 mmcm/d in 2001, after which it will decline to about28 mmcm/d in 2010. The gas supply to the Bombay area will be maintained at 14mmcm/d until 2002 after which it will decline to 5 mmcm/d in 2010. The project's totalgas contribution to the year 2010 has been estimated at 114 billion cubic meters. Inaddition, the project has increased India's oil production by about 4.5 million tons peryear since mid 1994.

19. Safety and Environment. A number of important corrective measures in safety andenvironment were taken. A safety and environment engineering capability wasdeveloped and given the necessary resources to effectively interact with the fieldtechnical and operation engineering at all levels. As a result, potential hazards onoffshore facilities were identified and given special focus to ensure that both thelikelihood of failures and the consequences of such failures are minimized. High pressuregas risers were relocated away from personnel accommodation quarters. ONGC'scapability to search and recover personnel from waters was considerably strengthened bythe provision of fast rescue craft. The company was also given the necessary resources tobuild an oil spill response capability commensurate with its activities.

20. Policy and Institutional Components. The project's progress during the last threeyears, in sector development policies and institutional building has led to major reformsin India's heavily regulated oil and gas sector. The new more liberal petroleumexploration and development contractual terms have made India's petroleum upstream asattractive to private participation as that of any other country in Asia. In 1997, Indian andforeign private companies committed some $1.8 billion to India's upstream oil and gassector, and in some cases have already begun producing. In addition, a number of largeoil companies have expressed interest in India's deep water petroleum exploration anddevelopment.

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21. By deciding to dismantle the administered price formula and replace it with amarket determined price mechanism over a period of four years (1998-2001) thegovernment opted for a gradual deregulation to ensure that suitable structures andsystems are in place to minimize jeopardizing the interest of the consumers. During thetransition period, the government intends to (i) make more gas available, probablythrough imports, (ii) modify the tariff structure so that the domestic prices are in line withthe international standards, and (iii) form a gas regulatory body with statutory powers tomonitor the functioning of the market. While a transition period is necessary, at least forthe set-up of a regulatory agency, the four-year period would delay the advantages thatwould have accrued from a faster deregulation, particularly in the resource mobilization,that is critical to sector development. However, the 1997 gas price increases allowedONGC, the gas producing company, and GAIL, the gas transmission company, to recovertheir costs. Because of the gas price increases and the government's decision to support atotal price deregulation, a number of consumers made known their intention to considerinter-fuel substitution, which would rationalize gas utilization and shift gas sales fromlow to high value use.

22. With regard to institutional achievement, there was a beginning of demarcation offunctions between the government, the various government agencies and the gas sector'sentities. Even though there is still excessive reliance on administrative and politicalcontrol, the government decided to restructure the sector entities, particularly ONGC andGAIL. Commercial terms were initiated and progressively introduced in inter-sectorentity relations, which were still largely governed by administrative orders. Targets forefficiency, quality and sustainability of outputs were also introduced and added to sectordevelopment plans.

23. Although the Bank financed physical components were completed as per theoriginal implementation schedule, the Bank extended the loan's closing date fromDecember 1995 to December 1997 so the Bank could follow up on the implementation ofthe policy and institutional components, supervise implementation of the J-Exim financedcomponents and coordinate with ADB to ensure that the project reached its objectives.The Bank also administered the J-Exim loan.

Major Factors Affecting the Project

24. There were two factors, both outside the control of ONGC, that affected theproject. The first was the downward revision of the original projection of associatedsweet gas production in the Bombay High oilfield due to an unforeseen development infield reservoir conditions (much less oil-gas ratio than predicted). This affected thequantity of committed gas supply and, therefore, had to be compensated by a substantialincrease in non-associated gas production, partly from South Bassein gasfield and partlyfrom marginal fields. Two marginal fields that were not part of the project had, therefore,to be developed. Like the South Bassein gasfield, the two marginal fields produce sourgas requiring a substantial increase in the expansion of the Hazira gas terminal. To

8

maintain its gas delivery schedule for December 1997, ONGC had to carry out most ofthe 1997 Hazira gas terminal expansion work using three eight-hour working shifts perday. The second factor was the review, as required by existing Indian regulations, of theoil spill response equipment and facility specifications by the Indian Coast Guard. Thereview process resulted in lengthy discussions that delayed the implementation of thesafety and environment component by almost a year.

25. On the sector policy side, despite the new well defined regulations, thenegotiation process for private petroleum upstream participation remained somewhatcumbersome and time consuming. Because of the lengthy negotiation process, theprivate sector in general, and the international oil companies in particular, still have theperception thaLt it is difficult for them to work in India. Current sector planning does notprovide potential investors with reliable estimates of gas demand, on the basis of whichthe required irnvestment would be defined.

26. An issue that impeded the project's sector policy and institutional developmentobjectives was the growing deficit of the oil pool account. The pool account was createdin the 1970s as a government account to compensate for the differences betweeninternational prices and subsidized domestic prices. Until the late 1980s, the oil poolaccount was operated satisfactorily, even generating some surplus that was used againstinternational 1price fluctuations. Since then, however, due to (i) decline in domestic oilproduction, (ii) high demand growth with a subsequent increase in imports, (iii) increasein subsidy, and (iv) depreciation of the Rupee, the oil pool account generated a largedeficit that kept increasing, reaching some Rs.190 billion ($5 billion) as of end-1997.The deficit hampered the financial performance of oil and gas companies, in both up anddownstream. Most of the companies have to maintain high debt:equity ratios since theyhave to use initernational capital markets to meet the foreign exchange requirements fortheir development projects. India's largest refining company, Indian Oil Corporation(IOC), almost reached its external borrowing limit of $3.5 billion to finance crude oil andproduct imports. Without the recent price increase and removal of subsidies onpetroleum products, IOC would have been without financing by November 1997. Thepool account deficit also slowed restructuring of the gas sector's entities, particularly withregard to disinvestment.

Project Sustainability

27. The elimination of gas flaring in the Bombay High oilfield and the environmentalbenefits derived from it, will be fully sustainable throughout the remaining life of theproject. Even if the field's oil and gas production were to increase substantially, theproject has provided a gas recovery capacity large enough to ensure that there will be nomore flaring. Enough gas reserves were proven and developed to ensure that the level ofsupply for the northwestern region and the Bombay area will be sustained at least through2010. The government's decision to dismantle the administered price formula andreplace it by a market determined price mechanism will lead to further consolidation ofthe policy and institutional achievements made during the last three years of the project.

9

With regard to the private sector's participation, while the new contractual terms forpetroleum exploration and development and the government's move toward marketdefined gas pricing and allocation should make India more attractive, the long-termsustainability of the private sector's involvement will depend on the results of petroleumexploration and development activities now underway.

Bank Performance

28. The project's preparation, appraisal and negotiations were carried outexpeditiously, over a period of six months compared to one to one and half years for theprevious petroleum projects. The Bank's performance in assisting the Borrower toidentify, prepare and appraise the project was highly satisfactory. The SAR wasthorough, with considerable attention to linking sector strategy to the various projectcomponents. It also took sufficient account of factors to minimize risks that couldimpede the achievement of the project's objectives. A matrix of policy issues was jointlyprepared by the Bank and the Borrower, with actions to be taken clearly defined. Bankstaff made considerable efforts to coordinate appraisal of ADB and J-Exim financedcomponents.

29. During project implementation, the Bank's performance was also highlysatisfactory. Bank staff advised and assisted ONGC in its efforts to implement theproject and the successful resolution of the gas shortage problem owes much to theirclose collaboration and concerted efforts. In 1993-94, when Bombay High's associatedgas production was revised downward, it was difficult for ONGC to develop additionalgas reserves while prevailing gas prices did not permit recovery of production costs. Toensure that the project meets the committed gas supply, the Bank has urged thegovernment to take all necessary actions to implement the gas pricing policy agreedunder the project. Most of these actions are included in the project's future operationsplan.

Borrower Performance

30. ONGC's performance during project preparation, appraisal and negotiations washighly satisfactory, particularly in its assessment of the technical, financial, institutionaland environmental requirements of the project. Its commitment to the project cannot beunderestimated since it had already initiated most of engineering studies related to the gasrecovery facilities. While it became evident during project implementation that theBombay High's associated gas production projection could not be met, it also becameclear that the problem stemmed from the field's geological complexity, and, therefore,could not have been predicted during project preparation.

31. During project implementation, ONGC's performance was also highlysatisfactory. Procurement problems, which had delayed most of the previous petroleumprojects, were identified during tender preparation and timely corrected. As a result, theGFRP is the first petroleum project with which we had no procurement problem. To

10

make up the delays caused by the need to develop additional gas reserves and increaseexpansion work on the Hazira gas processing terminal, ONGC successfully carried outmost of the Hazira terminal's work program round-the-clock, through three eight-hourshifts per day. ONGC also complied with all of its covenants.

32. The performance of the government, however, was not fully satisfactory, becauseof (a) interference in project management and decision making, and (b) a 3-year delay incomplying with the covenants in the Loan Agreement related to sector policy, particularlygas allocation and regular reporting on gas development planning. The government'spolicy objectives and related actions were well conceived and spelled out. However,implementation of the policy actions was delayed by almost three years, and most of theannounced targelt dates experienced slippages.

Assessment of Outcome

33. The overall outcome of the project, particularly with regard to the physicalcomponents, was satisfactory. The project has achieved most of its major physicalobjectives and is likely to maintain satisfactory results. The gas supply derived from theproject helped GAIL to alleviate the country's energy shortage and allowed it to operatethe 1,700-km HBJ pipeline at near capacity. The project has also considerably improvedthe environment of the Bombay and Delhi areas through increased gas consumption. Inaddition, following the sector policy and institutional development measures taken by thegovernment since 1996, the project proved to be instrumental in fostering thedevelopment of natural gas in India. However, because of existing gas consumer pricedistortions, the ]:ndian gas market continued to develop more slowly than projected inspite of the huge demand potential. The government's decision to phase out thesedistortions over a period of four years has slowed diversion of gas to high-valueconsumption to achieve the more economic allocation of resources intended by one of theproject's policy objectives.

34. While the project contributed to the reduction of India's energy shortage, thecountry's huge energy demand is far from being met. Given the level of oil and gasreserves and the large part of the proved gas reserves that consist of Bombay High's gascap gas (which cannot be produced until the field is completely depleted), India's energydeficit will continue to increase. To avoid jeopardizing its economic growth, India willcontinue to import crude oil and petroleum products. However, based on costcomparison, natural gas -- whether landed as pipelined gas or as LNG -- is expected tocompete with miost of the products being imported, such as kerosene and LPG in thedomestic and commercial sector, naphtha in existing fertilizer production, fuel oil anddiesel in combined cycle power generation, and coal in non-pithead base-load powergeneration. Further market analysis, particularly with regard to demand pattern andgeographical demand location, needs to be undertaken.

11

Future Operation

35. To deliver the gas quantities committed to the northwestern region under theproject, ONGC agreed to complete the development program initiated during theproject's implementation for the South Bassein gasfield and the B-55 gas structure. Theprogram consists of the following dated actions: (a) in South Bassein, ONGC will (i)complete in 1998 the interpretation of the 3-D seismic survey data acquired in 1997, (ii)make in 1998 a new field resernoir map incorporating the 3-D seismic data with theobjective of assessing the possibility of additional development, including infill drilling,and (iii) implement as scheduled for completion in the year 2002 the gas compressionprogram (US$360 million), which was to be initiated in 1998; and (b) in the B-55structure, complete in 1998 the construction and installation of the 12-well platform andthe drilling of 12 production wells (US$106 million).

36. On sector policy and institutional development, the government decided in 1997to rationalize the gas prices and allocations by dismantling progressively over a four-yearperiod the administered gas pricing and allocation mechanism and replacing it with amarket determined formula. By the year 2001, gas prices would be completelyderegulated. Because of the new contractual incentives in petroleum exploration anddevelopment private participation, foreign and local companies are already producingsome 4 mmcm/d of gas and 20,000 bbls/d of oil. The level of oil and gas production bythe private sector is expected to double by the year 2000. Studies were initiated beforethe loan's closing date and are underway to restructure the sector entities into commercialcompanies with the objective of making them competitive with the private sector. GOIhas taken the necessary measures to complete the restructuring of the sector's entities bythe year 2000.

Key Lessons Learned

37. The key lessons learned are the following:

* Eliminating gas flaring was highly beneficial to the country's energy supply even ifundertaken late in the field's production life. The project would have yielded evenhigher benefits if it had been undertaken earlier, during the second part of the 1980s,when gas flaring in the Bombay High oilfield became significant. The experiencegained in the Bombay High oilfield ought to be extended to Assam, where substantialquantities of associated natural are still flared.

* Contracting specialized field service companies to perform some of the key fieldmaintenance operations, particularly in areas where the borrower does not have acomparative technical advantage, can improve both the quality of operations and theircost effectiveness. Similarly, using modern field technologies, such as 3-D seismic

12

survey, horizontal drilling and "side tracking" old wells, can greatly enhance fieldproductivity.

* Delaying co-financing agreements, even though co-financing is advantageous to boththe Borrower and the Bank, can affect the project's economic viability and constrainproject implementation performance.

l Using technical assistance for onsite managerial and operational expertise can beextremely beneficial to project performance. Technical assistance helped ONGCstreamline its procurement procedures and its management and financial informationsystems and improve its operational performance, especially in the area of complexreservoir geo:logy. Technical assistance also helped ONGC make up one year delayexperienced in the Hazira gas terminal expansion work program.

e Developing safety and environmental protection legislation and setting up anindependent agency to enforce it, particularly for offshore activities, can facilitatedevelopment of offshore oil and gas reserves. Self regulation, as has been done so farby ONGC, has its limitations and could lead to serious problems, particularly sincethe sector has been opened to private participation.

e Gas price distortions, even if they are being phased out, divert gas from high-valueconsumption and, therefore, from achieving a more economic allocation of resources.As a resuit, as long as these distortions still exist, the gas sector would not develop asit should.

* Achieving policy objectives should be viewed as a long-term process. In this regard,regular consultations between GOI and the Bank could have (i) helped thegovemment understand better the Bank's viewpoint on sector policy development andhelped implernent its policy actions with fewer delays than actually happened; and (ii)enhanced the Bank's perception of the sector's imperatives. Sector policy andinstitutional development components should be rigorously analyzed, focusing --especially in the case of India -- on (i) the government's micromanagement of thesector, (ii) the organizational inertia of the sector entities, and (iii) the lack ofcoordination between the various energy entities, such as ONGC, GAIL and theNational Thermal Power Company (NTPC).

* Restructuring the sector entities requires a clear commitment from the government totransform them into commercial companies with complete operational and financialautonomy, so they can operate on market principles. The companies should be freefrom government supervision and micromanagement (currently sector entitymanagement spends more than one third of its time responding to issues raised byvarious government officials, including Parliament members and other governmentcommittee members). The companies should operate on commercial principles and

13

be responsive to the market's needs, particularly the consumers', while thegovernment's ownership can be controlled through independent yearly audits.

* Achieving institutional development objectives also requires the setting up of a gasregulatory agency to promote gas sector development, regulate the gas transmissionactivity -- which is a natural monopoly -- and protect the consumers. To regulate thegas transmission activity, existing major pipelines -- such as the HBJ pipeline --should be converted into common carriers, just like the power grid.

* Improving the legal and fiscal framework to promote private sector participation inpetroleum exploration and development may not be enough. The negotiation processalso needs to be streamlined.

14

Part II - Statistical Tables

A. Achievements of Objectives Substantial Partial Negligible NotApplicab!e

Macroeconomic Policies * L LI LISector Policies L * L LFinancial Objectives * I I 0LInstitutional Objectives * L LiPhysical Objectives * L L 0Poverty Reduction l El L Gender Concerns I L LI E

Other Social Objectives LI L L Public Sector Management * L FlPrivate Sector Development * FL FLEnvironmental Objectives * 3L II

B. Project Sustainability Likely Unlikely Uncertain

* OL OI

C. Bank Performance Highly Satisfactory DeficientSatisfactory

Identification U LI oLAppraisal * LI FlSupervision * I FL

D. Overall BorrowerPerformance

Preparation * OImplementation * O OCovenant Compliance LI E lOperation * O L:

E. Assessment of Outcome Highly Satisfactory Unsatisfactory HighlySatisfactory Unsatisfactory

* Sorc:Lansaf LI L I

Source: Bank staff estimates.

15

Tabl 2: elafd Bak Lons/reditsYear of

Loan/Credit Title Purpose Approval Status

Preceding Operations

1. First Bombay High Offshore Development of Bombay 1977 CompletedDevelopment Project High Oilfield(LN 1473-IN)

2. Second Bombay High Offshore Development of Bombay 1981 CompletedDevelopment Project High Oilfield(LN 1925-IN)

3. Krishna-Godavari Petroleum Exploration and appraisal 1983 CompletedExploration Project of petroleum accumulations(LN 2205-IN) in selected areas

4. South Bassein Gas Development Development of South 1983 CompletedProject Bassein Gasfield(LN 2241-IN)

5. Cambay Basin Petroleum Project Development of the Cambay 1984 Completed(LN 2403-IN) Basin Petroleum Reserves

6. Western Gas Development Project Development of gas 1988 Completed(LN 2904-IN) infrastructure in Gujarat State

7. Petroleum Transport Project Construction of petroleum 1989 Partially(LN 3364-IN) product pipeline Canceled

andCompleted

Following Operations.

8. Oil and Gas Development Loan Financing Crude Oil Imports 1991 Completed(LN 3391-IN)

Source: Bank Records

16

Steps in Project Cycle Date Planned Actual Date

Identification NR 3/20/91

Appraisal NR 5/31/91

Negotiations NR 6/1-5/91

Board Presentation NR 6/25/91

Signing NR 7/11/91

Effectiveness NR 7/12/91

Project completion 6/30/95 12/31/97

Loan closing 12/31/95 12/31/97

NR = Not Reported

Source: Project files

FY92 FY93 FY94 FY95 FY96 FY97 FY98

Appraisal Estimate 111.1 139.4 135.0 61.0 3.5

Actual 90.0 125.6 189.8 15.6 0.0 6.5 22.7

Actual as % of Estijmate 81 90 141 26.0 0.0 --- ---

Date of Final Disbursement: March 3, 1998Source: Bank Loan Department

Key Implementation Estimated ActualIndicators

1. Elimination of gas flaring in By 1995 1995Bombay High Oilfield

2. Sale of gas to GAIL at Uran 1995 1995 for Uran terminal and 1997

17

and Hazira gas terminals for Hazira terminal

The SAR had no provision for implementation indicators.Source: Bank Staff Estimates

I. Key project operations Key Indicators

Investment Operation

1) South Bassein 3-D Seismic Coverage 1) Seismic Coverage to be Completed in 19982) South Bassein New Reservoir Map 2) Reservoir Map to be Completed in 19983) South Bassein Gas Compression 3) Gas Compression to be Completed in 20024) B-55 Structure Development 4) B-55 Development to be Completed in 1998

Sector Policy & Institutional Development

5) Gas Pricing Deregulation 5) Pricing Deregulation to be Completed in 20016) Commercialization of Sector Entities 6) Commercialization to be Completed in 20007) Private Sector Participation 7) Private Sector to Double its Production in 2000

Source: Project Files

E_ _ _ _ _ _ _ _ _ ~ ; $ . ' .0 X t.,Studies Purpose as defined at Status Impact of Study

appraisalAssessment of ONGC's Not included in SAR Completed Helped ONGC to defineOil Spill Response its requirementsCapability

Bombay High Reservoir Improve Bombay High Completed Helped to substantiallyManagement Oilfield Management reduce the field's

production decline andimprove productivity

Development of Not included in SAR Completed Used to address Bombaymarginal fields High associated gas

production shortfall

Review of Procurement Improve Project Completed Used to avoidProcedures Procurement procurement problems

experienced in previousprojects

18

Source: Project Files.

Appraisal Estimate Actual

Local Foreign Local ForeignProject Components Costs Costs Total Costs Costs Total

Process platform, NQP 50.2 209.0 259.2 0.0 305.5 305.5

| ompressors, SHG 30.0 125.0 155.0 0.0 246.1 246.1

Processplatform,SHG 55.2 230.0 285.2 0.0 401.8 401.8

I Linepipe, SHG-BPB 17.4 58.0 75.4 29.1 0.0 29.1

1 Laying, coating and 6.1 15.7 21.8 8.2 0.0 8.21 wTapping, SHG-BPBI Platformmodifications 15.2 63.3 78.5 31.6 72.3 103.9

Linepipe, ICP-Heera 21.0 70.0 91.0 19.7 32.0 51.7

Laying, coating and 23.3 97.0 120.3 0.0 71.6 71.6wrapping, BPB-Heera

Linepipe, BPB-Hazira 66.0 220.0 286.0 5.2 132.4 137.6

Laying, coating and 31.0 129.3 160.3 0.0 277.7 277.7wrapping, BPB-Hazira

ExpansionHaziragas 217.8 275.3 493.1 103.4 61.2 164.6terminal

Reservoir management, 61.7 67.4 129.1 0.0 86.3 86.3services and equipment

Engineering and project 22.5 7.5 30.0 0.0 1.0 1.0management

Studies and training 0.6 2.0 2.6 0.1 0.6 0.7I Environmental component 9.8 14.7 24.5 0.0 14.0 14.0

Be Well Platform* 0.0 65.9 65.9Drilling of 9 wells in 20.7 14.3 35.0

f South Bassein*

Base Cost (1991 prices) 627.8 1,584.2 2,212.0 218.0 1,782.7 2,000.7Physical contingencies. 62.8 158.4 221.2 0.0 0.0 0.0Price contingencies 205.8 239.5 445.3 0.0 0.0 0.0

Total project cost 896.4 1,982.1 2,878.5 218.0 1,782.7 2,000.7

interest during 101.8 204.1 305.9 0.0 98.2 98.2I construction

Grand Total 998.2 2,186.2 3,184.4 218.0 1,880.9 2,098.9

*Not Included in AppraisalSource: SAR and ONGC Finance Department

19

N - TRbk Wm m ; .f6ef%acn WS$mnO 7 = Appraisal Estimate Actual

Local Foreign Local ForeignSource of Financing Costs Costs Total Costs Costs Total

World Bank 0.0 450.0 450.0 72.3 377.7 450.0Asian Development Bank 0.0 300.0 300.0 14.4 226.6 241.0Export-Import Bank of 0.0 350.0 350.0 0.0 55.1 55.1JapanExport/supplier credits 0.0 745.6 745.6 0.0 574.3 574.3ONGC 998.1 340.6 1,388.7 131.3 647.2 778.5

Total 998.1 2,186.2 3,184.3 218.0 1880.9 2,098.9

Source: SAR and ONGC Finance Department

SAR ICR Re-estimateProduction

Gas (bom) 64.0 114.0Oil (mmt) 60.0 79.0Net Benefits (US$ billion) 13.2 14.5

Major Costs (Gas at Rs. 1,500/1,000 cm & oil at (Gas at Rs. 2,150 in 97, Rs. 2,540 in 98,$20/bbl) Rs. 2,930 in 99, Rs. 3,320 in 2000 & p

Rs. 3,900 in 2001 onward. Total gasfinancial valuea for ONGC $1 1.3 billion,

Oil at $12/bbl = $6.9 billion)

Capital Costs ($ million) 1,985.3 1,505.1Operating Costs ($ million) 661.9 667.9

Economic Rate of Return (%) 41.7-Natural Gas + Associated Oil 48-Natural Gas 30.3 26Source: Project Files

Statement number and title | Describe and cornment on lack of complianlce

There has been no lack of compliance with applicable Bank Policies and Procedures.

Source: Project Files

RevisedAgreement - Section Type Status Date date Description of CovenantGuarantee AgreementGA 3.01 02 C GOI to implement a market based gas pricing policy.GA 3.02 05 CP GOI to establish an agency to monitor oil and gas field development.G-A 3.03 09 Ip 06,/30/92 GO0 to repoit on gas allocationGA 3.04 13 C GOI to sign a guarantee fee with ONGC.Loan AgreementLA 2.02 (b) 13 C 12/31/92 ONGC to open a Special Account.LA 3.03 06 C 03/31/92 ONGC to carry out a safety and environment audit.LA 4.03 13 C ONGC to take out and maintain insurance.LA 4.04 02 C ONGC to contract a financial advisor.LA 4.05 05 C ONGC to establish a Project Implementation UnitLA 4.06 05 C 12/31/91 ONGC to review its procurement procedures.LA 5.01 (b) (ii) 01 C 12/31/92 Audited annual accounts.LA 5.02 01 C 12/31/92 Debt service coverage ratio.LA 5.03 (a) 01 C 12/31/92 Yearly financial forecast.LA 5.04 02 C 03/31/94 ONGC exchanging views with the Bank.SAR AgreementSAR 3.08 05 C GOI to promote private petroleum exploration and development.SAR 4.13 06 C ONGC to comply with safety and environment regulations.

Covenant types: Present status:

I = Accounts/Audits 8 = Indigenous People C = covenant complied with2 = Financial performance/revenue 9 = Monitoring, review, and reporting CD = complied with after delay

generation from beneficiaries 10 = Project implementation not CP = complied with partially3 = Flow and utilization of project covered by categories 1-9 NC = not complied with

funds 11 = Sectoral or cross-sectoral4 = Counterpart funding budgetary or other resource5 = Management aspects of the allocation

project or executing agency 12 = Sectoral or cross-sectoral policy/6 = Environmental covenants regulatory/institutional action7 = Involuntary resettlement 13 = other

21

Stage of Planned Revised ActualProject Cycle Weeks US$ Weeks US$ Weeks US$

Through appraisal NR NR NR NR 103.3 259.3Board-effectiveness NR NR NR NR 29.9 75.8

Supervision NR NR NR NR 214.0 775.6Completion NR NR NR NR 9.0 38.7

Total NR NR NR NR 3 356.2 1149.4NR = Not ReportedSource: Bank MIS

Performance RatingStage of Month/ Number of Days in Specialized Staff Implementation Development

Project Cycle Year Persons Field Skills Represented Status Impact

Through 10/90 3 10 TM, G, PE NA NAAppraisal 2/91 5 8 TM, G,PE, PR, EC NA NA

4/91 6 10 TM, PE, EC, FA, PR, NA NAEN

Supervision 2/92 4 12 TM, PE, EC, G S S12/92 3 8 TM, PE, PR S S6/93 2 10 TM, G S S10/93 4 10 TM, PE, PC, PR S S11/94 2 7 PE, PC S S3/95 3 7 PE, PC, PR S S10/95 4 10 TM, PR, PC S S6/96 2 10 TM, EC S S2/97 2 10 TM, PC S S12/97 2 10 TM, PC S S

Special Staff Skills:TM Task Manager EC Economist PE Petroleum EngineerG Geologist EN Environment Specialist FA Financial AnalystPR Procurement Specialist PC Process Engineer

Performance Rating: S - SatisfactorySource: Project Files

22

Appendix APage 1 of 2


INDIA


Project Future Operation

PROJECT OPERATIONS AND CURRENT ARRANGEMENTS

Gas Production. To deliver the gas quantities committed to the northwestern regionunder the project, ONGC agreed to complete the development program initiated duringthe project's ilmplementation for the South Bassein gasfield and B-55 gas structure. Theprogram consist of the following dated actions:

For South Bassein:

(i) A 3-D seismic survey (900 sq.km.- 29,000 l.km) was carried out in 1997, for whichthe data acquired was still being processed on December 1997. ONGC agreed tocomplete the seismic date processing and interpretation in 1998.

(ii) A new field reservoir map incorporating the 3-D seismic data will be completed in1998 with the objective of assessing the possibility of additional development,including infill drilling.

(iii) the gas compression program (US$360 million), which was to be initiated in 1998will be implemented as scheduled in order to be completed by the year 2002.

For B-55 Structure:

Construction and installation of a 12-well program with the drilling of 12 productionwells (US$1065 million) to be completed in 1999.

Sector Policy and Institutional Development. In September 1997, GOI increased the gasprices from an average of Rs2,150/1,000 m3 to Rs2,850/1,000 m3 (55% of internationalFOB price of a basket of fuel oils) excluding royalty, taxes and transmission charges.

23

Appendix APage 2 of 2

GOI's new pricing decision provides for another price adjustment by September 1999,bringing the gas price to 75% international FOB price. Although not explicitly stated,GOI's recent price increase has been formulated with the objective to dismantle theadministered pricing formula and replace it with a market determined pricing mechanismover a 4-year period, as follows:

1998: increase the gas price from 55% to 65% of international FOB priceof a basket of fuel oils.

1999: increase the gas price from 65% to 75% of international FOB price of abasket of fuel oils.



The price increases would be implemented quarterly.

24

Appendix BPage 1 of 12


INDIA


Borrower Contribution to the ICR(Original Provided by ONGC)

1. INTRODUCTION

Bombay High oil field is India's largest source of oil and associated field. In the 1980'sit produced oil at the rate of about 20 MMTPA and associated gas at the rate of about 25-30 MMSCM]D. The significant increase in oil production from Bombay High field in the1980's without a corresponding increase in development of gas trunk pipelineinfrastructure led to flaring of about one third of gas produced from the reservoir. Theincrease in gas production was a combined result of higher oil production; an inadequateevacuation network and some reservoir related problems. In the late 1980's Oil andNatural Gas Corporation Ltd. decided to implement a program that would further increaseoil and gas production from Bombay High field and simultaneously eliminate the flaringof gas. Under this program ONGC envisaged additional oil production from L-[IIreservoir in BH South through in-fill drilling. The program also included similarinvestment to develop the L-II reservoir in Bombay High North. These projectsenvisaged the drilling of production and water injection wells, installing new well headplatforms, process platforms and intra-field pipelines etc. The gas flaring reductioncomponent of the project included facilities for Bombay High primarily required forrecovery and transmission of gas that would otherwise have been flared. The basicdesign and sizing of the oil/gas production and recovery facilities of the project werecarried out Engineers India Ltd. (EIL).

The project consisted of the following components:

i) Drilling of 78 wells (production and water injection) in L-III reservoir of BHSouth through eight well head platforms with intra-field oil, water injection andgas lift pipelines.

ii) Construction of a process platform SHG in BH South with processing capacity of100,000 BOPD, 5 MMSCMD of gas compression/dehydration and handling of140,000 BWPD of produced water.

25


iii) A 78 Kms pipeline of 28" diameter from SHG platform in Bombay High South toBPB platform in South Bassein to evacuate surplus BH gas to Hazira throughSouth Bassein field.

iv) Drilling of 42 wells (production and water injection) in L-II reservoir of BH Norththrough five well head platforms with intra-field oil, water injection and gas liftpipelines.

v) Construction of a process platform NQP in BH North with processing capacity of60,000 BOPD, 6.8 MMSCMD of gas compression/dehydration and handling of90,000 BWPD of produced water.

vi) Laying of an 18" diameter x 30 Kms long pipeline from NQ complex in BH Northto lateral point on BH-Uran gas trunk pipeline for evacuation of additional gas.

vii) Modification of existing platforms in Bombay High North and Bombay HighSouth to handle and process changed well fluid quantities and compositions.

viii) Construction of a 30" diameter x 142 Kms long gas trunk pipeline from existingICP process platform in BH South to Heera process complex for its onwardlinkage to Heera-Uran pipeline. This was also required to ensure availability of16 MMSCMD of gas at URAN.

ix) Construction of a 42" diameter x 242 Kms long gas trunk pipeline from existingBPB process platform in South Bassein field to Hazira for evacuation of up to 30MMSCMD of sour gas.

x) Installation of a nine slot well head platform in South Bassein Field to produce 5MMSCMD of gas.

xi) Upgrading the gas handling and processing facilities at BPA and BPB processplatforms in South Bassein field to process up to 12.5 MMSCMD gas at eachcomplex.

xii) Expansion of Hazira Gas Processing Complex to receive and process additional 5MMSCMD of sour gas and 16 MMSCMD of sweet gas.

xiii) Engineering project management and other implementation services.

xiv) Implementation of package measures in Bombay High field for proper reservoirmanagement practices.

26


xv) Reservoir performance and management studies.

xvi) Training of ONGC engineers and scientists in different aspects of oil industrypractices.

xvii) Implementation of a package of measures to reduce the environmental risks and toenhance the safety of offshore operations.

2. OBJECTIVES OF THE PROJECT

The main objectives of the project were as follows:

a) to eliminate the flaring of associated gas in the Bombay High field to improve themanagement of the reservoir in order to arrest the decline of oil production andoptimize recovery of hydrocarbons.

b) to reduce energy shortages and improve efficiency of energy use in India'sWestem Region.

c) to enable additional gas supply from the South Bassein field and othersurrounding satellite fields to be brought ashore.

d) to bring a gas supply to displace liquid petroleum products used by industries tohelp reduce costly oil imports and to substitute coal used for power generation soas to improve the environment and increase the efficiency of energy.

e) to promote a greater involvement of the private sector in oil and gas industry inIndia.

3. FUND REQUIREMENT OF GAS FLARING REDUCTION PROJECT

Oil and Natural Gas Corporation Ltd.. has requested the World Bank to considerproviding assistance for its Gas Flaring Reduction Project to avoid flaring of gas fromBombay high field and also to supplement its gas evacuation network in the WesternOffshore Region. Details of the project along-with copies of the relevant feasibilityreports were submitted to the World Bank in early 1991. The World Bank's fact findingMission visited India in early 1991 and submitted a Staff Appraisal Report in May 1991based on whiclh the World Bank approved a loan of US$ 450 Million for funding the GasFlaring Reduction Project (GFRP). Since, the total fund requirement for the Gas FlaringReduction Project was more than US$ 450 Million, the World Bank agreed to arrangepart of the remaining funding through Asian Development Bank and Japan Export Import

27


Bank. ONGC has separately negotiated a loan of US$ 300 Million to fully fund theconstruction of a 42" dia x 242 Kms long Second Bassein Hazira gas trunk pipeline andto partly finance the construction of ICP-Heera gas trunk pipeline. In addition ONGC hasnegotiated a loan of US$ 55.1 Million from the Export/Import Bank of Japan and availedsupplier's credit of US$ 574.27 Million for financing various other components of theproject. The balance foreign exchange requirement and local currency requirement forthe project was met by ONGC from its internal resources.

4. REVISION IN THE SCOPE OF PROJECT

During the first two years of project implementation, following recommendations of aBombay High Review Committee set up by the government, ONGC had to (i) cut downon production through closure of high GOR wells; and (ii) increase water injection intothe field's reservoir. As a result, the Long Term Oil and Gas Profiles for WesternOffshore Region were recast. These were made in the form of Long Term Gas Profiles1993. From these profiles it was observed that gas production from the Bombay Highfield had declined by about 8 MMSCMD as a result of implementing BHRCrecommendations. This affected the availability of surplus Bombay High gas fordiversion towards Hazira as most of the gas produced from Bombay High was requiredfor meeting the Uran and internal gas consumption at Offshore. In order to meet gassupply commitments at Hazira also, ONGC decided to increase gas production from theSouth Bassein field by 5 MMSCMD and at the same time considered advancing the freegas production from satellite and marginal fields. Since South Bassein gas and gas frommost of the marginal and satellite fields are sour, creation of additional gas sweeteningfacilities at Hazira and drilling of additional free gas wells in the South Bassein field wererequired.

The inclusion of additional work under the Gas Flaring Reduction Project shifted itscompletion schedule to the third quarter of 1997.

The additional facilities identified under the Gas Flaring Reduction Project were asfollows:

i) Drilling of 4 additional wells in South Bassein field to sustain 30 MMSCMD offree gas.

ii) Upgrading gas handling and processing facilities at BPA and BPB processcomplexes in South Bassein Field to process 15 MMSCMD gas at eachcomplex.

28


iii) Installation of two additional gas sweetening trains of 6.5 MMSCMD each atHazira to sweeten a total of 41 MMSCMD gas.

5. ACH[EVEMENT OF PROJECT OBJECTIVES

As indicated above, the main objectives of the project were:

a) to elirninate the flaring of associated gas in the Bombay High field.

b) to improve Bombay High oil field reservoir management in order to arrest thedecline of production and optimize the ultimate recovery of hydrocarbon.

c) to reduce energy shortages.

d) to promote involvement of the private sector in oil and gas industry in India.

e) to develop environmental and safety standards consistent with the international oilindust:ry.

f) to implement an adequate gas pricing policy.

The point-wise achievement of Gas Flaring Reduction Project's objective is as follows:

Elimination of Gas Flaring in Bombay High

All the facilities envisaged for the project under the World Bank loan have beencompleted w'ithin the schedules indicated except for a delay of about 12 months in thecompletion of the Bombay High Modification Project. However, the delay in completionof this component of the project did not affect ONGC's oil and gas production as most ofthe balance works were not critical since they pertained to the handling of additionalliquid/well fluid expected to be produced during the later stages of field operation. Therewas some delay in the completion of the ICP-Heera gas trunk pipeline (May 1995 asagainst Mar 1994) and Second Bassein Hazira gas trunk pipeline (Jan 1996 as againstDec 1994) compared to the schedules indicated in the SAR. However, the delay in thecompletion of the ICP-Heera pipeline did not affect the gas supply at Uran as the shortfallin availability was met from higher than expected gas production from Neelam andHeera.

ONGC did not let the delay in completion of the Second Bassein Hazira Gas trunkpipeline affect its gas supply commitments to Hazira. The gas supply commitments weremet partly by diverting additional sweet gas from Bombay high and partly by operating

29


the existing Bassein Hazira gas trunk pipeline at lower arrival pressure to push moreoffshore gas to Hazira. As a result of completing the Gas Flaring Reduction Project,ONGC has eliminated the flaring of associated gas from Bombay High, which at one timehad reached about 12 MMSCMD in late 1980's. The only gas being flared offshore nowis technical flaring which is required to maintain some purge in the flare stacks or whichis very low pressure tail gas from the system whose recovery is not economical. Thereduction in gas flaring was achieved initially with the shutting down of high GOR wellsas per BHRC recommendations and subsequent availability of gas compression andevacuation facilities created under the project. The Gas Flaring Reduction Project haseliminated the flaring of gas, which has not only provided economic benefits to ONGCbut has also resulted in reduced carbon di-oxide emissions.

Improvement of Bombay High Reservoir Management

Under the project ONGC had allocated a very significant component of the loan towardsBombay High Reservoir studies and management. This has resulted in significantimprovement of reservoir management. The major works undertaken were:

- detailed reservoir management study through an independent consultant.

* procurement of software packages and a work station to improve ONGC'scapabilities for reservoir study.

3 procurement of sub-surface gauges to study reservoir pressures.

e hiring of services to take up drilling of side tracked wells.

In addition ONGC has taken up work on reservoir pressure maintenance through re-distribution of injection water in the reservoir. Reservoir pressure maintenanceoperations initiated from 1992 onwards, particularly the water injection programcombined with the additional development of L-III and L-II reservoirs and actions takenin conjunction with an integrated reservoir management study, enabled ONGC to arrestthe production decline from about 15% per year to about 8% per year from 1993onwards. The availability of additional wells under L-II and L-III Projects increasedONGC's oil production from Bombay High field by about 3 MMTPA. The production ofassociated gas has also been optimized to ensure efficient oil recovery.

30


Reduction in Energy Shortages

Construction of the two main gas pipelines from Bombay High field to Heera and fromSouth Bassein field to Hazira along with expansion of Hazira Gas Terminal is allowinlgONGC to supply about 16 MMSCMD of gas to the Bombay area through Uran and about35 MMSCMD of gas from South Bassein and Tapti/Panna fields to the area along HBJpipeline, which stretches from Hazira in Gujarat state to New Delhi and Uttar Pradesh.Although India's gas demand remains huge, this new delivery capacity is a significantcontribution to reducing the energy shortages and improving the overall environmentalprotection. The project's facilities will also have an important impact on the pace ofIndia's gas development program and will substantially increase the present 8% share ofnatural gas in the country's primary energy consumption.

Promoting Private Sector Participation In Oil/Gas Sector

Since the opening up of the country's economy in 1991 to foreign and domestic privatesectors in the petroleum upstream sector, the Government has held many rounds ofexploration and development bidding offering both offshore and onshore blocks/fields. Anumber of snmall to medium sized undeveloped oil and gas fields were offered to theprivate sector for development with or without the participation of national oilcompanies. The results are quite encouraging as a number of undeveloped oil and gasfields have been put in operation. Government has also stopped preferential allotment ofexploration blocks to national oil companies. The national oil companies are nowrequired to submit bids for exploration blocks along with private companies.

Development Of Environment And Safety Standards

In the absence of a regulatory body specifically for monitoring offshore operations,ONGC was thus far self regulated in Safety and Environment Management. ONGC has avery good record with safety and the environment. ONGC has an oil spill controlcapability. H-owever, under the loan, ONGC has taken up the task of addressing its safetyand enviromnent shortcomings as well as the modernization of its capabilities. The majorareas addressed under the loan were:

Oil Spill Response Capability

ONGC has engaged CFP Total, France to study the requirement of an Oil Spill ResponseCenters along with a stockpile of equipment. The Indian Coast Guards subsequentlyreviewed the total requirement. The newly formed regulatory body i.e. Director Generalof Hydrocarbon has also formulated a National Oil Spill Contingency Plan. ONGC isnow setting up two oil spill response centers along with a stockpile of equipment.

31


Fast Rescue Crafts

ONGC has decided to acquire fast rescue crafts to be provided to the Offshore SupportVessels to reduce their response time in reaching an accident site. This will significantlyimprove the safety of personnel working on offshore installations and services.

Diving Safety

Under this ONGC has hired the services of a specialist to review ONGC's Divingregulations and its implementation/compliance by the diving contractors. The specialistalso identified ONGC's training needs as well as identifying the agencies for suchtraining. ONGC's diving regulations are being modified in line with therecommendations of the consultant. The first batch of ONGC engineers have alreadybeen trained.

SMS Audit and Implementation

ONGC has engaged DNVI, Norway to audit ONGC's operations based on theInternational Safety Rating System. DNVI carried out an audit of typical offshorefacilities such as a process platform, a construction barge and a drilling rig etc. Based onthe report of this study, ONGC management decided to develop a Safety ManagementSystem in line with International Safety Rating System (ISRS). 20 ONGC engineershave also been trained by DNVI in ISRS.

6. IMPLEMENTATION OF GAS PRICING POLICY

Implementation of this objective rests with the Government of India. However,significant improvements have also taken place in this direction during last few years.The gas price has been revised few times in last few years. The Government has alsolinked the gas price with the imported fuel oil prices. At present it is about 55% of thefuel oil price and this gap will be narrowed down over the years.

7. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTINGTHE PROJECT

As indicated above, most of the project components were completed in the time indicatedin the SAR of the World Bank except for some delays in the completion of:

* Bombay High Modification Project (BHMP).

* ICP-Heera Pipeline.

32


* Second B3assein - Hazira Trunk (SBHT) Pipeline, and

* Hazira Terminal Expansion.

The delay in completion of BHMP was mainly because of the following reasons:

* Limited experience of the Contractor to execute such a job.

* Failure of the Contractor's barge.

* Delay in the finalization of sub-contractors by the main contractor.

- Additional work of repairing corroded separator shells discovered after opening.

The delay in completion of ICP-Heera Pipeline was because of the following reasons:

* Delay in Government approval of the project.

* Review of the project's requirement by ONGC as well as by the Government due tothe revision of associated gas profiles of Bombay High.

Wihile the reasons for delay in completion of SBHT Pipeline were as follows:

* Court case against ONGC's tender evaluation.

* Delay in placement of the supply order for line pipe procurement.

* Delay in finalization of sub-contractors by the main contractor.

* Plague epidemic in Surat.

* Delay in testing/de-watering/drying of the pipeline by contractor.

The completion of Hazira Terminal facilities to handle/process additional gas wasdelayed due to following reasons:

* Delay in the approval of the project by Government.

* Delay in the firming up of J-Exim loan.

* Revision of the project scope due to revision in the associated gas profile of BH field.

33


Seeking the Government approval for creating additional gas handling/processingfacilities.

8. PROJECT SUSTAINABILITY

The main objective of the project was to eliminate the flaring of associated gas and theproject has achieved that. Under the Gas Flaring Reduction Project, ONGC has nowcreated facilities for gas processing offshore, gas evacuation to shore and its processingon shore and its processing at Hazira onshore terminal. Availability of these facilitieswill not only help ONGC in producing and transporting a wide range of sweet and sourgas offshore which never existed in the past, but will also help ONGC to develop manysmall and marginal fields lying undeveloped due to non-availability of adequateprocessing and evacuation facilities. ONGC has already put one such gas field, namely,B-121/119, on production since April 1997 and another field (B-55) is likely to startproduction in mid 1998. Plans for many other fields such as B-157, BS-12, BS-13 and B-149 etc. are under preparation to be economically developed utilizing GFRP facilities.The project is sustainable economically. The approval of the project was grantedconsidering higher associated gas availability, which has undergone revision due to theBHRC implementation. However, availability of additional South Bassein gas andONGC's plans to develop small and marginal gas fields has compensated for thisshortfall to a greater extent, thus avoiding reduction in project viability. The recentrevisions in gas price have further improved the project sustainability.

9. BANK'S PERFORMANCE

The Bank's performance has been highly satisfactory during the entire duration of theproject i.e. from identification of project to appraisal and supervision to its satisfactorycompletion. ONGC's project identification has brought out limited benefits of the projectto the Organization alone while the World Bank Appraisal has widened the scope of theappraisal to cover the benefit right up to the ultimate consumer. This has brought theGovernment to give natural gas the type of attention it deserved. This also caused theGovernment to frame a Natural Gas Pricing Policy, paving the way for developing manysmall and isolated natural gas structures lying undeveloped.

During various phases of project execution, the Bank provided very useful advice andguidance. The openness of the World Bank missions helped in avoiding many potentialproblems. The concerned World Bank Officers were always available to provide quickand timely approvals and in many cases on the spot approvals.

World Bank missions during their visits identified the need to make up for the shortfall inavailability of associated gas by augmenting production from other sources. This helped

34


in focusing ONGC management's as well as the Government's attention to speedyclearance of development plans for additional gas production from existing fields andmarginal gas fields.

10. BORROWERS PERFORMANCE

The World Bank Missions or some third party can evaluate performance inimplementation of the project. However, the self-appraisal of ONGC on this projectexecution leaves it quite satisfied with its performance. This is mainly because, in spiteof working with so many Government and statutory procedures and regulations, mostcomponents of the project were completed as per the schedules indicated in the SAR.The slight delay in completion of ICP-Heera pipeline was mainly because of ONGC'sdecision to review the project afresh. While the delay in completion of the SecondBassein-Hazira pipeline was due to some last minute court cases, delay in getting right-of-way for onshore pipeline, heavy rains during onshore laying season, plague epidemicin Surat and delay in dewatering/testing/drying of pipeline by the Contractor. However,in spite of all these problems, ONGC did meet all its gas supply commitments to theconsumers. Further, the additional scope of work, identified during early 1994 to augmentSouth Bassein free gas production and processing as well as creation of additional gassweetening facilities at Hazira, was completed in less than three years of itsapproval/identification. All these achievements give reasonable confidence to theborrower about its satisfactory performance on the project.

11. ASSESSMENT OF OUTCOME

As already indicated above under "Achievement of Objectives", the project hassatisfactorily met all its objectives. Further, as indicated under the paragraph on "ProjectSustainabilily", the project is highly sustainable even under the revised scenario of gasavailability. The revised gas price and subsequent revisions indicated by Government ofIndia will further improve the project viability.

12. FUT'URE OPERATION

The future operation of project has no uncertainties as gas availability from most of theidentified sources is well assured. The gas evacuation pipelines and gas processingterminals have built in capabilities to handle wide ranges of sweet and sour gas ranges.This will allow ONGC to evacuate and process any mix of gas ensuring full utilization offacilities. Further, ONGC's gas evacuation pipelines are criss-crossing most of thewestern offshore area making it possible to connect future discoveries also with theexisting network.

35


13. KEY LESSONS LEARNED

The main lesson learned during the execution of the project has been a need to closelymonitor interfacing between various components of the project. The GFRP has manycomponents which are inter-linked with each other. Delay in completion of onecomponent affects the usability of other completed components. The main example ofthis has been a mismatch in completion of the Hazira Gas Sweetening facilities andcompletion of the Second Bassein-Hazira Trunk Pipeline. As indicated above, the SBHTpipeline was completed by January 1996 while the Phase-III and Phase-IIIA GasSweetening facilities were completed in Sept. 1996 and October 1997 respectivelyaffecting the utilization potential of SBHT line. Similarly, the upgrading of GasProcessing at BPA and BPB was completed by the end of 1996 while facilities to process30 MMSCMD at Hazira became available only by October 1997. Some of theseinterfaces cannot be avoided on projects of such a magnitude due to the involvement ofso many contractors/suppliers working under diverse conditions. Some interfacingproblems cropped up due to the change in the gas availability scenario in the middle ofproject execution phase. Nonetheless, proper interfacing is a key lesson learned byONGC during the execution of the project.

36

Appendix CPage 1 of 1


INDIA


PROJECT AREA OVERALL PRODUCTION AND SUPPLY PROFILE(Gas in million cubic meters per day - Oil in million tons per year)

Bbay High Gas Produc., Flar.& Supply Sth Bass. Produc.& SupplyProduc. Fld Use Flaring Supply to Produc. Field To Total Total Proj.Cont.

Bbay Hazira Use Hazira Hazira Supl. Gas Oilt/y

1990-91 28.0 3.0 12.0 11.5 1.5 10.0 0.8 9.2 11.3 24.2 0.0 0.01991-92 24.0 3.0 9.5 11.5 0.0 14.0 0.8 13.2 13.2 24.7 0.0 0.01992-93 16.0 3.0 1.5 11.5 20.0 0.8 19.2 19.2 30.7 0.0 0.01993-94 15.0 3.0 1.5 10.5 20.0 0.8 19.2 19.2 29.7 0.0' 0.01994-95 17.7 3.0 1.5 13.2 20.0 0.8 19.2 19.2 32.4 1.7' 4.01995-96 21.2 4.0 1.5 15.7 24.1 1.0 23.1 23.1 38.8 8.6 4.51996-97 20.4 4.0 1.5 14.9 25.6 1.0 24.6 24.6 39.5 12.0 4.5

1997-98 19.0 4.0 1.5 13.5 35.7 1.5 34.2 34.2 47.7 19.7 4.51998-99 19.8 4.0 1.5 14.3 37.8 1.5 36.3 36.3 50.6 22.6 4.51999-00 19.1 4.0 1.5 13.6 39.7 1.5 38.2 38.2 51.8 25.8 4.52000-01 20.4 4.0 1.5 14.9 39.9 1.5 38.4 38.4 53.3 26.3 5.02001-02 19.8 4.0 1.5 14.3 37.5 1.5 36.0 36.0 50.3 263 5.02002-03 17.2 4.0 1.5 11.7 32.9 1.5 31.4 31.4 43.1 26.3 5.02003-04 15.8 3.5 1.5 10.8 33.7 1.5 32.2 32.2 43.0 26.0 5.02004-05 14.5 3.5 1.5 9.5 32.4 1.5 30.9 30.9 40.4 23.5 4.82005-06 13.9 3.5 1.5 8.9 32.0 1.5 30.5 30.5 39.4 21.0 4.32006-07 12.3 3.0 1.0 8.3 30.9 1.5 29.4 29.4 37.7 18.5 4.32007-08 11.0 3.0 1.0 7.0 29.9 1.5 28.4 28.4 35.4 16.0 4.22008-09 9.6 2.5 1.0 6.1 29.3 1.5 27.8 27.8 33.9 13.5 3.82009-10 8.1 2.0 1.0 5.1 29.3 1.5 27.8 27.8 32.9 10.8 4.22010-11 6.8 2.0 1.0 3.8 28.0 1.5 26.5 26.5 30.3 8.0 3.62011-12 5.4 2.0 1.0 2.4 27.1 1.5 25.6 25.6 28.0 6.4 3.0

- Production given under Bombay High include satellite fields and other structures.- Gas being flared from 1993 onward is for technical and safety reasons (i.e., low pressure tail gas

within the process facilities and in remote satellite fields where recovery is not economical).- The overall gas supply does not include other marginal fields (B-157, 149, S12, S13, 46, 48, 59 and

127) for which ONGC is presently assessing the viability of their development.

IBRD 22892

72° 730-

INDIAGAS FLARING GUJARAT

REDUCTION PROJECT 0 Baroda 220-22r

PROJECT COMPONENTS:

3 PROCESS PLATFORMS

TERMINAL EXPANSION GUJARAT DAHEJ Broach

GAS PIPELINES

EXISTING COMPONENTS:

* PROCESS PLATFORMS

A TERMINAL4o OFFSHORE LOADING POINTS MAOSAMBA

GAS PIPELINES ,

IIL FERTILIZER PLANTSDISTRIBUTION LINES

SuratPRINCIPAL FIELDS: KRIEHCO

POTENTIAL OIL AND/OR GAS RESERVES Haz /

@ZZ~ PROVEN OIL RESERVES (AND ASSOCIATED GAS) 210 _jO 210

PROVEN NATURAL GAS RESERVES

- - FAULT LINES CENTRALr-

ISOBATHS IN FATHOMS

0) STATE CAPITAL

- STATE AN D UNION TERRITORY BOUNDARIES

INTERNATIONAL BOUNDARIES 74

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