Joint UNDP/World Bank Energy Sector Management ...

Joint UNDP/World BankEnergy Sector Management Assistance Program

Activity Completion Report

No. 035/85

Country: THE GAMBIA

Activity: PETROLEtM SUPPLY MANAGEMENT ASSISTANCE

APRIL 1985

Report of the joint ULNDP/Wold Bank Energy Sector Management Assistance ProgramThis document has a restricted distribution. Its contents may not be disclosed withoutauthorization from the Govefinment, the UNDP or the Worla Bank.

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THI GAMBIA

PETRLEUM SUPPLY MANAGEMENT ASSISTANCE

APRIL 1985

ABBnsVIATIuow

APRA Average Freight Rate AssessmentADO Auto Diesel8bls Barrel containing 42 US gallonsC.I.F or c.i.f Cost Insurance and FreightDCF Discounted Cash FlowDWT Dead Weigh. TonnageFIFO First-In First-OutFOB Free on BoardGal U.S. GallonGP General Purpose Class of ShipHDO Heavy Diesel OilK or k 1000km kilometer1 literL/C Letter of CreditLR-l 45-80 KDIT Class of ShipLIBOR London Interbank Offered RateLT Long Ton (2240 pounds)m2 millionm3 square meterm cubic meterMR 25-45 KDWT Class of ShipNT Metric Ton (1000 kilograms)NW megawattsq. square

BP British PetroleumCPA Communit6 Franciere AfricaineESNAP Energy Sector Management Assistance ProgramGOTC Government of The GambiaGPMB Gambia Produce Marketing BoardGPTC Gambia Public Transport CorporationGRTC Gambia River Transport CorporationGUC Gambia Utilities CorporationIMF International MQnetary FundISDB Islamic Development BankMEPID Ministry of Economic Planning and Industrial

DevelopmentMNT Ministry of Finance and TradeNEC National Energy CommissionmPC Nigerian National Petroleum CorporationOPEC Organization of Petroleum Exporting CountriesUNDP United Nations Development ProgramWs Worldsc&le

coavmsxou FACT0Rs

Currency 1/

Currency unit = Dalasi (D)1 = 100 bututsD S.00 = 1.00 UK Pound (t)US$1.32 = 1.00 UW Pound (£)D 3.79 * US$1.00

Energy

1 toe - 10.2 million kilocalories

Product million kcal/MT toe/MT liters/MT liters/too

LPG 10.8 1.059 1730 1634Gasoline 10.5 1.029 1357 1319Kero/Turbo 10.3 1.010 1229 1217Diesel 10.2 1.000 1187 1187Heavy Diesel 10.2 1.000 1165 1165Fuel Oil 10.0 0.980 1050 1071

I/ Exchange rates for November, 1984

This report is based on the findings of a mission comprising Messrs.A. Aruar (Mission Leader), K. Hornby (Consultant) and H. Williams (Con-sultant) which visited The Gambia in July 1984. The report was writtenby Messrs K. Hornby and S. Rivera, and discussed with the Covernmeat inNovember 1984 by a mission comprising Messrs. A. Ferroukbi (MissionLeader), K. Bornby and S. Rivera.

TAILU OF COUTUhM

EXECUTIVE SUMUARY ............,. . . . .i-xiii

I. OPTIMIZATION OF PETROLEUM PRODUCT IMPORTS.................* 1

Recet vie1ommt.....*.. ...... .....*.. *... ~.*e**.... 1Recent Dvlpet Findings and Rec ons . . . o. . 2Cost of Current Supply Arrangemenzs (Alternative A)... 3Review of the Landed Cost Compon ents*................. 3Importing Products at Spot Prices (Alternative B)..... 6Mechanism for Competitive Bidding on Product Imports.. 6Processing Nigerian Crude Through 8*1Refinery in Dakar (Alternative C) 7

Purchasing All Product Requirements ftomUNPC (Alternative D)... 8

Other Supply Arrangements.............................o 9

II. COMPULSORY STOCKS/EMERGENCY ALLOCATION PLAN............... 1

Findings and Recoumendationes............................ 11Present Terminal Operations........................... 11Compulsory Stocks ............. 12Emergenc7 Allocation Plan...................... . * 12

Optimum Use of Tankage at the Shell Storage Depot....... 12Other Product Tankage .............. , 13Determination of Working Inveztories.................... 13Compulsory Stocks.. .........................-...-... 14Emergency Allocation Plans. ...................... 16Implementing an Emergency Allocation Plan............. 18

III. PRICING OP PETROLEUM P2ODUCTS....................e...... 203v........................ r20

Findings and Recomendations..................... ... 20Current Pricing Structure* .........................*. 20Proposed Pricing Structure ................. 20

Current Situation................ 21lmport Cot-***.*-X************- 22Fitancial Charges................ . 24Depreciation and Maintenance Charges.................. 25Terminal Throughput Charges ......... 25Marketing Kargins.......................... ...... 26

Proposed Pricing Structure 27Warehouse Cs .......... ;27Cut'toms Duty and Import Tawes ......................... 28Terminal Throughput Charge............................ 28Marketers' Msrgin............................... 28Dealers' Retail Margin and Deliveryg................... 29

IV. ACCOUNTING SYSTEMS FOR PETROLEUM PRODUCTS................. 30Overview ..... , ,,, , ~~~~30

Current Situation ................................. 30Product Imports ....................................... 30Product Distribution .. 00 ... 0 e0.o..*****............... 31Payments for Imports.................................. 31

Proposed Accounting System for Petroleum Products....... 31Management of the 8ystem.............................. 32

V. RELOCATION OF PETROLEUM STORAGE DEPOT..................... 33Overview ............. e0o0ooo ....oo. o...........o .....ooo 33Findings and Recommendationso........................... 33Current Situationo .***..00000.00....... . .000000000*00000 33New Facilities. ooo...O.o 00000000000 00.........*...*00.... 34Cost Esise ..........................*35Site Sizeeo.ooooo.............. 0000*oo 0*o 00 0oo0o 36Site Selectiono......................... 00040000oo0oo 37

Development of Bund Road Site...............0*.....00. 38Total Cost Estimate...................... *00000000000 39Alternative Considerationo..................... 0000000 39Other Considerationso........................o.o.o0o0o 39

VI. TECHNICAL ASSISTANCE AND TRAINING PROGRAMFOR ENERGY WNT. .......................... 41Overviewo.. o..oooooo...o..o..o.......................... 41Role of the National Energy Commission.................. 41Role of the Energy Unit .000 00.......................... 41Technical Assistance for the Energy Unit ................ 42Training o.oo..oooo.o.o.o..o.oooooo..o......o.....oo 42

ANNEXES

1 Principal Objectives of Assignmentt........................... 462 Petroleum Products P-icing Structure......................... 473 Proposed Petroleum Product Accounting System................. 484 Cost Summary of Relocation of Petroleum Storage Depot........ 495 Current Supply Arrangements Landed Cost Breakdown............ 506 Processing Nigerian Crude through BAR Refinery in Dakar ..... 527 Purchasing Products from Nigeria............................. 568 Other Product Tankage in the Cambiao.......................... 589 Development of Available Days Supply in Present Situation..... 5910 Communication Chart...0 0000.... oe*000*o0oo000o 00000*00040000* 6011 Petroleum Products Supply Accounting Systemo.... o.oo........ 6112 Petroleum Products Financial Accounting System............... 6413 Proposed Role of National Energy Commission................ 0. 6914 Energy Unit Terms of Reference..o.........o................ X 70

Introduetion

1. In April 1984, a World Bank mission visited The Gambia underthe auspices of the Energy Sector Management Assistance Program (ESMAP)to review the progress made since an earlier Energy Assessment took placein August 1983. I/ During this review mission, the Government of TheGambia (GOTM) requested technical assistance under ESMAP to improve themanagement of petroleum supplies in The Gambia. 2/ In response to thatrequest, a technical mission visited the field in July 1984 and madespecific recomiendations in regard to: (a) petroleum supply arrange-ments; (b) compulsory stocks; (c) an emergency allocation plan; (d) pro-duct pricing; (e) product accoun.ing; and (f) terminal relocation. Asummary of these recommendations is presented in Table 1.

Supply Arrangements

2. The Gambia is experiencing petroleum supply problems due mainlyto recurring foreign exchange shortages caused by depressed exportrevenues. Since 1981, the Government has resorted to a number of ad-hocsupply arrangements including an agreement with the Government of Senegalfor direct purchases from the SAR refinery in Dakar. This arrangementwas viewed by the Government as a necessary measu.e to arrest the worsen-ing situation and assure the continuity of supply. Concurrently, withthe above arrangement, the Government established a credit facility underthe Foreign Trade Financing Program of the Islamic Development Bank(IDB) to finance the procurement of diesel required by The CambiaUtility Corporation (GUC). In 1984, the IMF, as part -f a stand-byagreement, recommended that the Government investigate options to reducepetroleum import costs and improve the Government's capabilities tomonitor the petroleum sector.

3. To assist the Government of The Gambia to evaluate alternativearrangements to import petroleum products, the mission has identifiedleast cost petroleum supply options aimed at minimizing foreign exchangerequirements. However, it is important to stress that the proposedalternatives are workable only if the necessary foreign exchange for oilimports is made available regularly and on a timely basis by the

1/ The findings of this Energy Assessment mission are presented inReport No. 4743-GM: The Gambia: Issues & Options in the EnergySector, Nov. 1983.

2/ Terms of reference are presented in Annex 1.

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Government. Additional measures to reduce foreign exchange requirementshave been proposed in the 8nergy Assessmnt Report (November 1983),including energy conservation, interfuel substitution and energy priceregulations.

Table I: SW4ARY OF RECONOATIMS

Task Rei_nndation Comments

1. Supply - Modify current system of Im- - No additional cost. Wil lArrangements porting products. Least cost require Energy Unit to

alternative appears to be sup- lmple_ent. Significant foreignplies from oil companies at exchange savings are expected.competitive quotes. a/

2. Compulsory - Legislate compulsory stock - Product acqulsitlon costsStocks levels as follows: (approximately US$0.7 million)

: WIth Present Terminal - 30 with present terminal.days dlesel/kero - Foreign exchange requirements

: With New or Expanded Torminal increase as new inventory Is- 30-40 days all products added.

3, Emergency - Establish emergency allocation - Marginal administrative costsAllocatlon plan to set up the system. WillPlan require Energ Unit to lmple-

mnt.

4. Product - Modify product pricing struc- - Vill require support of EnergyPricing ture to reflect economic costs Unit for monitoring

better and simplify admlnistra- - No major additional costs en-tion. bl visaged

- Vill require modification ofImport tax legislation a/

5. Product - Establish volumetric/financial - Will require support of EnergyAccounting accounting syste. a/ Unit

- Will require about US$25,000 toset up data processing. c/

6. Terminal - Oue to high cost of relocation, - Engineering Inputs of aboutRelocation assess cost of meeting safety USS65,000-100,000 c/ required

requiremnts at existing ter- - Assessment requires cooperativeminal a/ effort between GOTG, neighbors

and terminal operator.

a/ Top priority - should commence imediately.b/ To be phased In once Import tax legislatlon adjusted and monitoring system

lmplemented.c/ Additional technical assistance needed.

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Continuing Current Supply Arranements (A)

4. The mission has reviewed four alternatives for the procurementof petrolem supplies to The Gambia. One option reviewed by the missionis the continuation of current supply arrangements wherebys (a) gasolineand diesel are supplied from the SAR Refinery in Dakar on small tankers;(b) Kero-turbo is supplied from the Curacao Refinery in the Caribbean onlarge tankers; and (c) GUC receives diesel as per its last import fromAlgeria.

Obtaining Competitive Quotes from Oil Companies :B)

5. Another option would be to solicit competitive c.i.f. quotesfrom the oil companies to supply the entire market. Under this arrange-ment, supplies would be priced at the bulk cargo quotations (spot mar-ket), and products would be transported in large oil company tankers ontheir sultiport discharge voyages to West Africa.

e Negotiations (C)

6. The Government of The Gambia might be able to negotiate anarranSement to purchase crude from a neighboring country, and it mightestablish a processing arrangement in a refinery at another location inthe region. For examplo, Nigerian Light Crude could be purchased andprocessed through the SAR Refinery in Dakar.

Negotiate Direct Purchase of Refined Product (D)

7. The Government of The Gambia might also consider negotiatingthe purchase of refined products directly from a neighboring country onfavorable terms. For example, products might be purchased in this wayfrom the Wigerian National Petroleum Corporation (NNPC).

8. These supply alternatives were evaluated in terms of theirindividual foreign exchange requirements based on current prices, tankerrates and an assessment of present credit arrangements:

Table 2: ANNUAL PETROLEUM IMPORT COSTS- (US$ million)

Supply AlternativeA B - C D

All Products 17.5 13.8 15.3 14.7

Source: Mission estimates based on 1982 product import requirements.

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9. The least cost supply option appears to be Alternative (B),whereby oil companies submit bids to supply products at bulk cargo quota-tions (spot market). If implemented as recommended this alternativecould save, under current oil market conditions about US$3.7 million p.a.to The Gambia. The mission recommends the supply alternative (B) asfirst choice.

10. CUC has obtained a credit facility from the ISDB which is beingused to import diesel oil from Algeria. Under this arrangement the totalc.i.f. cost is slightly lower than could be obtained from the spot mar-ket. lowever, GUC should always endeavor to negotiate better prices withpotential ruppliers and compare them with c.i.f. quotations using theproposed competitive bidding system.

11. The mission recommends that the Government hold exploratorytalks with the Nigerian Government to determine if supplies ut,Ier altern-ative (D) might be arranged at more favorable credit terms than wasassumed or if some of the payment could be made in local currency. Ifeither case was true, this alternative could become the least cost op-tion. Also, Government-to-Government discussions may lead to externalfinancing arrangements which otherwise might not be possible. The mis-sion examined the possibility of. obtaining refined products dieectly fromeither the Mauritania or the Abidjan refinery but found them to beuneconomical.

12. Institutional Framework. The need for security of oil suppliesand the ability to finance such supplies have become so important to TheGambian economy that the Government is considering the option of directstate participation in petroleum operations, including the possibleestablishment of a National Oil Company (NOC). This would not implydirect State participation in exploration, production, refining andtransportation. For the State to be directly involved in these opera-tions, The Gambia: (a) would need to mobilize important human andfinancial resources to undertske further petroleum exploration; and(b) would not justify the existence of a local refinery, given currentwor.dwide excess refining capacity and small local petroleum demand.These considerations make it imperative for The Gambia to rely, for theforeseeable future, on the services of the better endowed InternationalOil Companies (IOC).

13. Regarding the downstream operations (supply, storage, distribu-tion and marketing), the Mission believes that the Government's objec-tives, at this stage, should be to build up its capabilities for super-vising and monitoring the operations of the private oil companies in thecountry. The Energy Unit, which is being established as the "workingarm" of the National Energy Commission (Chapter VI), could undertake thisrole within the following framework:

(a) the Energy Unit would prepare a yearly petroleum productssupply program to meet domestic demand and, in collaboration

with the terminal operator, i.e., Shell, set up a deliveryschedule for the approval of the National Energy Commission;

(b) the Energy Unit would request the three local oil companies tobid on a c.i.f. basis to supply the entire market; and

(c) once bids and credit terms are recorded and analyzed by theenergy unit, the oil company with the most favorable bid wouldbe advised to proceed and it would then be the company'sresponsibility to undertake importation in its name.

This framework, which is described in Chapter I (para. 1.22) should notexclude the possibility for Covernment-to-Government negotiations whichmight result in more favorable petroleum supply conditions and externalfinancing arrangements. In the case of direct negotations, the EnergyUnit, in cooperation with the local oil companies, would design the mostappropriate mechanism to take advantage of the areangemeLt.

Compulsory Stocks/Emergency Allocation Plan

Compulsory Stocks

14. Currently, The Gambia has no minimum compulsory stock require-ment. A minimum level of petroleum inventory is necessary, however, tominimize disruptions to the local economy caused by product shortageswhen supplies are interrupted. The level of these inventories, or com-pulsory stocks, is partially determined by the country's access to alter-nate supply sources and its ability to finance the additional volumesthat would be needed in the case of a supply interruption. For example,France requires 90 days supply based on forward consumption, whereas itsoverseas departments and former French colonies (some of The Gambia'sneighbors) normally have 72 days' supply on hand.

15. Another factor is the availability of storage capacity for anycompulsory stock. Table 3 shows the available tankage capacities at thepresent terminal in terms of the number of days supply at present averageconsumption rates. Kero/turbo has 40 days availabie tankage, and dieselhas 45 days' available for compulsory stocks at average consumptionrates.

16. Obviously, the compulsory stock inventory will be determinedlargely by the amount of foreign exchange required to pay the supplier.Recognizing The Gambia's current foreign exchange shortage, the missionrecommends that the Government consider legislation to gradually estab-lish a 30-day supply of compulsory stocks in both kero/turbo and dieselunder the following conditions: (a) the inventories would be built upgradually over a suitable time period as could be afforded; and (b) thekero/turbo compulsory stock would be allowed to decrease, as needed andwithout penalty, during the tourist season.

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Table 32 AVAILABLE TANM.-E CAPACITIES AT PRESENT TERMINAL(Days supply)

Tankage Available Gasoline Kero/Turbo Dieael

Total, Excluding Working Stocks 42 62 a?Optimum Replenishment 42 42 / 42Net Available for Compulsory Stocks 0 40 - 45

a/ Greater demand of kero/turbo during the tourist season would reducethis number considerably.

Source: Mission estimates.

1I. The foreign exchange required to purchase the recommended 30-day compulsory stock for both products would be about US$700,000. Theoil companies would have to carry this additional volume as part of theirnormal inventory, so an saount to cover the carrying cost of this higherinventory on all products should be considered as a component in theproduct price structure. At current prices this would translate into anadditional cost of about 0.8 bututs/liter.

18. In the medium-term, if a new terminal is constructed or thepresent terminal expanded, the mission recommends that a compulsory stockrequirement be incorporated in sizing new tankage for all products. Eachlevel of compulsory stock has different associated costs. Based on a1990 petroleum demand forecast, Table 4 shows the costs of increasedtankage and additional inventory at different levels of compulsory stockand the amount to be added to product prices to recoup the investment in10 years with a 201 return,

Table 4: REQUIRED INVESTMENT FOR LONS-TER CO#ULSORY STOCK

Required Investment. UWS miliIonCompulsory Increased Additlonal Investment RecoveryStocks Volume Tankoae inventory Total Component

(Days' Supply) (million (Bututs/l Iter)lIters)

30 9.4 0.35 1.97 2.32 1.960 16.8 0.70 3.94 4.64 3,890 28.2 1.05 5.91 6.96 5.7

Source: Mission estloetes.

19. If foreign exchange pressures subside somewhat in the future,the mission recommends a "middle-of-the-road" compulsory stock level of

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50-60 days supply be maintained in all products for the 1990s. A corres-ponding investment recovery component would be added to the product pricebuild-up.

Emergency Allocation Plan

20. The mission's analysis indicates that in spite of efforts tostreamline petroleum supply arrangements and to establish a minimum com-pulsory stock, the probability of occasional petroleum supply disruptionscannot be ruled out for The Cambia, thus the Government should establishas a national priority an Emergency Allocation Plan that would allocateavailable supplies in the event of product shortages. The NEC should beresponsible for establishing guidelines and, through its responsibleMinister, obtaining Cabinet approval (see Communication Chart). Theseguidelines would set forth the degree of rationing required according tothe severity of supply interruption and the number of days' supply ofeach product available as indicated by specific triggering elements.

21. The Energy Unit, as the working arm of the NEC, should workclosely with the oil industry, the bulk terminal operator, and all theessential-service consumers to assist them in developing individualemergency allocation plans. Each essential-service consumer, in colla-boration with its supplier, would formulate a plan of action. Each indi-vidual allocation plan would then be reviewed and jointly approved by theEnergy Unit and the NEC. The Energy Unit would monitor the progress ofeach plan in operation duriug emergencies. At the same time, the oilindustry and the bulk depot operator would play vital roles in providingnecessary and timely communications, product deliveries, and in control-ling all discretionary consumption. Some of the parastatals and theMinistry of Works and Communication already have systems in place forrationing. However, these must be refined and expanded to equate thenecessary level of rationing with the corresponding triggering element.

Pricing of Petroleum Products

22. The current price structure for petroLeum products is based ona formula proposed by the oil industry to the Government in July, 1973.The original proposal envisaged automatic adjustiuents in prices basedupon variations in the pricing components. However, the mechanism tomonitor these variations was never put in place. Therefore, pricechanges are negotiated periodically at the request of the industry.

23. Except for duties and taxes, the individual components of theproduct price structure bear little relation to the actual costs of therespective components. The financial risks, from delays in settlingforeign liabilities, have now made it very difficult to compute actualcharges for the individual components because of delays in settling

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foreign exchange liabilities. In recent years, the oil industry has beenspending about D 2 million a year to maintain fixed assets-a fact whichsupports the inclusion of the Depreciation and Maintenance component inthe pricing structure. Current price levels have proved sufficient tomaintain plants and equipment and achieve better-than-average profits inFY82 and FY83. However, continuing exchange rate fluctuations and short-ages of products could make it considerably more difficult for marketingcompanies to break even during 1984. Therefore, it is extremelyimportant that the Government monitor variations in cost and settleforeign liabilities as soon as they are incurred (or due). Annex 2 com-pares the existing and the proposed pricing structures.

24. Table 5 highlights some of the distortions in the currentpricing structure.

Table 5: EVALUATION OF CURENT PRICING STRUCTURE

Component Evaluation

c.l.f. prices The Government currently uses "standard" Instead of actual c.l.,fprices. Although simple to compute, this method distorts bothGovernment revenue and cost recovery systems. Actual c.l,f.

should be used as the basis for pricing.

Flnancial charges If the minimum 60-day stock originally envisaged was pertinent,the 8.78 bututs per liter charge would be too high. However, thevalidity of the figure Is difficult to assess because of thefinancial costs associated with delays In settling foreignliabilities, and the resulting Inability to maintain adequateminimum stock levels.

Depreciation and In 1982/83, actual costs were about 80% of the currently allowedMaintenance 2.50 bututs per liter.

Terminal Throughput The 2.20 bututs/liter charge allowed Is generally in lIne wIth theactual cost of this component.

Marketing Margins The current practice of fixed margins does not provide "normalcommercial profits" as originally envisaged when the structure wasdeveloped.

Retail Margins The validIty of these Is difficult to evaluate vithout access todealers' accounts. However, the margins appear low. This shouldbe Investigated further.


COUICATIOC CMART OF EEtERGENCY ALLOCATION PIAN

CABINT

NEC

DEPOT OIL ALL ESSENTIAL-SERVICEOPEnAToR COMPANIES COISUMERS OR PURCUSING

6wml AGENTS:

RETAIL SPCIAL CUCDEALER CUSTOMERS CPN

I.e. Research GRTCInstitute, GPTC

IOpttl * ate. Ministry of VorksSPECIAL e & Comu.nication.ONSUERS . Ministry of Defense

isee, Truckers Ministry of InteriorHauling Cattle, etc. Ministry of Agriculture

25. Althousth the current pricing system is cumbersome, the missiondoes not recommend eliminating price controls because such a move wouldnot reduce the activities required to discharge GOTG's consumer protec-tion and demand management responsibilities. Some type of pricing mech-anism should be retained and rationalized to minimize the fluctuations inretail prices, and to simplify the structure for monitoring and makingroutine adjustments in prices.

26. Table 6 outlines the pricing structure proposed by the mission,which consists of (a) warehouse cost, (b) customs duty and import taxes,(c) a terminal throughput charge, (d) marketers' margin, and (e) dealers'margin and delivery. The actual "Warehouse Cost" should include aStabilization Factor to absorb day-to-day changes resulting from c.i.f.prices and exchange rate fluctuations.

Table 6: PROPOSED PRICING STRUCUFRE

Cmponent Description Coments

1. Warehouse Cost Cost made up of actual c.l.f, + Stabilization factor to be usedharbor dues + wharfage + ter- to cushion variations in actualminal loss allowance + a stabi- c.l.f. and exchange fluctua-lization factor tions. Should be set at 5-10

bututs/liter itltially.

2. Customs Duty & All Government duties and taxes Set at averaie of currentImport Taxes on product Imports should be levels Initlaily. 6y

specific taxes.

3. Terminal throughput Specific charge, Initially at To be based on actual amount ofCharge the current level ol 2.20 last year plus 25% of charge to

bututs per liter, be adjusted upwards each yearby rate of Consumer Price IndexIncrease.

4. iMarketers' Margin Percentage of warehouse cost. Should be established at 1S.6%of warehouse cost,

5. Dealers' Margin & Continue at present level. Set at current level of 9.50Delivery bututs/iltar initially. May be

marginally low,. Will requirefurther investigation.

General: Actual costs should be monitored by the Energy Unit and prices reviewed semi-annually unless there is a currency devaluation; then prices shoid De changed Immedi-ately. The Energy Unit should provide technical support on product pricing to the Ministryof Finance and Trade who will continue to oversee price administration.

a/ GasolIne DIesel Kerosene

Duty 116.00 110.00 103.00Tax 3.50 3.23 3.23

Total (Bututs/liter) 119.50 113.23 106.23

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Accounting System for Petroleum Products

27. Most of the information needed to monitor finaneial and volu-metric transactions in the petroleum sector exists in one form or anotherbut it is not collated or analysed in any systematic way. These trans-actions shoult be monitored on a routine basis, preferably by the EnergyUnit, if COTG is to have effective control over the petroleum sector(Annex 3). The mission recommends two ledger systems for tracking theseactivities-one to monitor the volumetric, or supply and distributiontransactions, and one to monitor financial transactions. The lattercovers the import and distribution of products, and payments to offshoresuppliers.

Relocation of the Petroleum Storago Depot

28. All petroleum products are received and stored at the BulkTerminal located in lanjul. Over the years, residential dwellings, amosque, and a school have been built close to the terminal--some struc-tures right up to the terminal fence. Although the terminal operatorrecently has upgraded the fire protection facilities, many buildings aretoo close to the terminal to meat minimum safe distance standard.. TheGovernment ts concerned, and now wishes to relocate the terminal outsideof the Sanjul city limits.

29. The mission reviewed three possible locations for the terminals(a) along Bund Road, which would a'low continued use of the existing pro-duct reeoiving dock; (b) a site on the Atlantic Coasts and (c) a site onthe bank of the Gambia River near Kandinari Point. Constructing a newterminal along the Bund Road would cost US$4.4-8.3 millton dependingwhere along the Bund Road the terminal is actually sited (Annex 4). Thedepreciation charge that would be required to provide a 20S internal rateof return on the investment over 10 years would be at least 50S higherthen the current 2.50 bututs per liter.

30. The other two locations do not appear practical or economic.Both would require additional costs for offshore mooring facilities andconsiderable undersea pipeline amounting to US$8-10 million. These loca-tions would also suffer from adverse navigational, weather and ecologicalfactors.

31. Comparing the level of investment required to move the depotwith the present Public Sector Investment Program (PIP) and the country'sGDP, it is unlikely that the venture would ever be given a high priorityin the PiP. In addition, it is doubtful that the oil companies wouldagree to fund the venture because of the current uncertainty regardingforeign exchange and the increase in product pricing required to recoupthe investment.

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32. One alternative to relocating the present terminal would be torelocate the housing, school and mosque that have surrounded the ter-minal. In addition to this relocation cost, another US$1.3-2.0 millionwould be needed to cover the cost of building three new tanks at thepresent depot; one tank would replace the existing diesel tank which isleaking and beyond repair, and the others would be built to support 1990volume requirements. Space is available within the existing terdinsl forthese additional tanks. To evaluate the feasibility of the two alterna-tives, the Government should seek technical assist.nce from an engineer-ing firm to: (a) assess the cost of relocating housing and other facili-ties; and (b) evaluate in detail possible sites along the Band Road.

33. Whatever course is chosen, the Government may have to assumeall or part ownership of the new or the re-developed facilities. In sucha case the Government should attempt tot (a) minimize the risks andforeign exchange obligations incurred in any ownership venture; (b) be ina position to monitor the operation effectively; and (c) insure thatadequate compulsory stocks are available for emergencies.

34. Although the Government probably will end up being the largestshareholder, it should seek maximum participation in the terminal owner-ship from the oil industry. After deciding which course of action tofollow the Government should meet with and solicit equity participationfrom the oil industry.

35. Regardless of ownership, the mission recommends that the opera-tions of the bulk terminal continue to be managed by an cil company,which would have the following advantages: (a) knowledge and access toworldwide supply sources and shipping; (b) ability to use its knowledgeand contacts more easily in coordinating, planning and schedulingreplenishment of supplies; (c) expertise in handling product qualityproblem; (d) experience in terminal management; and (e) access to tech-nical and mechanical assistance when needed from affiliated offshorecompanies.

Energy Unit

36. In order to implement the report's recommendations, someinstitutional coordination in petroleum activities in the country isrequired. To this end, the Covernment has agreed to the establishment oftwo entities--a National Energy Commission (NEC), and an Energy Unitwithin the Ministry of Economic Planning and Industrial Development.

37. The Energy Unit is intended to be the "working arm" of theNEC. To perform its monitoring responsibilities and provide thenecessary technical support to the NEC, the mission recommends that:

(a) the Energy Unit be manned as soon as possible with the approvedexpatriate expert and two full-time economists;

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(b) the Energy Unit monitor product pricing and provide thenecessary analytical support for the Ministry of Finance andTrade (MFT) to adjust product prices regularly;

(c) locally available data processing facilities in the CentralStatistics Department be used to enhance the monitoring effortsof the Energy Unit;

(d) a training program (outlined in para. 6.10) be provided to thestaff of the Energy Unit and to the new Economics Graduate inMPT.

I. OPTMZATIO3 OF PIRLEU PRODUCT impoT

Overview

1.1 During the 1960s, petroleum supplies to The Gambia were handledjointly by several international oil companies under the West AfricanReplenishment irogram (WARP). Under WARP, each of the participatingcompanies alternatively delivered products into petroleum storage depotsat ports along the West African coast (including Banjul) every threemonths. The system functioned efficiently and substantially improved thelogistics of supply to the region because it provided the flexibility topurchase products in either Europe, the Mid-Rest, or the Caribbean,depending on prices and the availability of tankers. For countries suchas The Gambia, with market too small to warrant separate deliveries, WARPprovided sigpificant savings in the cost of petroleum imports. Theeffectiveness of WARP was greatly reduced in the mid-1960s however, whennational refineries were established in some of the West Africancountries. By the mid-1970s, the three oil companies decided to abandonWARP altogether and began to receive supplies individually on separatedeliveries.

1.2 The main source of supplies was company-owned refineries in theCaribbean and Europe, depending on available shipping which also suppliedother West African ports of that particular company. By the end of 1980-81, the oil companies operating in The Gambia had accumulated substantialdebts to their offshore suppliers because of the country's irregularremittances of foreign exchange to cover oil import payments. The supplysituation worsened when the oil companies could not arrange offshoresupplies without payment.

Recent Developments

1.3 In March 1983, the Covernment entered into a temporary arrange-ment with the Government of Senegal which permitted oil companies basedin The Cambia to purchase supplies directly from the SAR Refinery inDakar. The Cambia has better access to CPA Francs (through the WestAfrican Monetary Clearinghouse) than to the rapidly appreciating U.S.dollar for settling oil import billst including those costs incurredabroad by oil comanies for insurance and freight. This arrangement ledto significant increases ia the landed cost (c.i,f. Banjul) of productsbecause of the higher freight and ex-refinery prices at the SAR Refin-ery. Originally the arrangement covered only products for non-powerneeds in The Gambia but, since January 1984, also has been used to obtaindiesel oil for power generation by the Gambian Utilities Corporation(GUC). The Government is behind in meeting payments to the oil comr-panies' affiliates in Senegal who are supplying the products from the SARRefinery.

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1.4 Concurrently with the above arrangement, the Government estab-lished a separate facility under the Foreign Trade Financing Program ofthe Islamic Development Bank (I8DB) to finance the procurement of dieseloil required by GUC. Under this arrangement, I8DB provided credit onfavorable terms to The Gambia to purchase three consignments of dieseloil from Algeria. Repayment to the ISDB for each consignment wasstretched over a nine-month period. The Government ran into arrears onthese repayments and I8DB suspended the credit facility in 1983. CUCtherefore resorted to direct purchases from the oil companies in Banjulbeginning in January 1984. The Government has settled its payments withI8DB and now has a new credit facility with I8DB under the same FTFP forUS$1.2 million to meet GUC's diesel requirements. The Government wasunable to negotiate similar credit for all of its petroleum needs.

Findings and Recommendations

1.5 With petroleum imports currently taking up more than 50X of TheCambia's export earnings, the Central Bank has been unable to providesufficient foreign exchange to pay overseas petroleum suppliers on time.Therefore, the immediate priority of the Government is to minimize petro-leum import costs and the need for foreign exchange. In considering areview of supply options as a basis for determining the least costarrangement for The Gambia, it is assumed that payments to overseassuppliers are made when due. The mission reviewed the following productimport alternatives in detail:

(a) continue present supply arrangements;

(b) obtain competitive c.i.f. quotes from the oil companies to sup-ply the entire market, price supplies at bulk cargo quotations(spot market), and transport products in large oil companytankers on their multiport discharge voyages to West Africa;

(c) through government-to-government deals, arrange to:

- purchase crude from a neighboring country, and- develop a processing arrangement in a refinery at another

location;

(d) government negotiates purchase of refined products direct fromneighboring country on favorable terms.

1.6 These supply alternatives have been evaluated in terms of theamount of annual foreign exchange required in each case (the associatedlocal costs are expected to be about the same for each alternative), andcurrent petroleum prices, tanker rates, and an assessment of presentcredit arrangements were used in this analysis.

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1.7 The demand forecast for major petroleum products used in evalu-ating the various supply alternatives is shown in Table 1.1

Table 1. *1: D8MAND FORECAST FOR PETROLEUM PRODUCTS(million Liters)

Product 1982 1985

Turbo Fuel 8.2 10.8Kerosene 0.5 0.6Gasoline 22.2 22.2Auto Diesel, 24.8 28.4GUC Diesela/ 10.2 19.8 c

Total 5 "1I"

a/ Diesel for power generation in Banjul grid only.S/ Based on percent of total power generated (941).c/ Growth between 1982 and 1985 assumed to be totally at Kotu.

Assume heavy diesel can be used.Source: World Bank Report No. 4743-GM: The Gambia: Issues and

-ptions in the Energy Sector.

Cost of Current Supply Arrangements (Alternative A)

1.4 Using actual invoices to represent prices over the past year,the mission estimated the landed cost of importing products (Annex 5).The foreign exchange required to cover this annual volume of imports ifmade at the aforementioned prices would amount to US$17.5 million.Credit actually associated with the imports was taken into account andvalued at 12.1875Z. which represented six month LIBOR notes and wasassumed to be the value of foreign exchange deposits.

Review of the Landed Cost Components

1.9 For illustrative purposes, a breakdown of CUC's actual dieselimport costs last year is shown in Table 1.2.

1.10 The largest component of the landed cost price build-up is theFOB price, which usually makes up 80-85X of the total c.i.f. cost.Optimizing this component is where the greatest savings can be realized.For example, a 5X reduction in current FOB prices would be worth about$650,000 to The Gambia over one year. Product prices vary from officialGovernment Selling Prices (GSP's) to term prices (usually associated withcontractual arrangements) to bulk cargo or spot market quotations(reflecting current effects of supply/demand). There are several centersin the world that quote prices for bulk cargoes. All of the aforemen-tioned prices vary according to the supply/demand balance, with the bulkcargo quotes (spot market) reflecting current market conditions.

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Table 1.2: BREAKOWnN O GUC DIEBEL IMPORT COSTS

Component Cost

(Dalasi/liter)

F.O.B. Price 0.530Ocean Freight 0.053Insurance 0.001Demurrage 0.017Loan Service Charge 0.032Bank Charges 0.004Intransit Ocean Losses 0.002

Total c.i.f. Cost D 0.639/liter

Credit Given m 273 days a/

a/ This I8DB credit is worth D 0.53/liter x 12.1875 z 273 * D0.048/liter. 365

Source: GUC.

1.11 Today, there is a surplus of crude and products, in theinternational petroleum market, and spot prices are the most favorable.In today's long supply situation, prices of both crude and products arebeing discounted from official GSP's. Both Arab Light and Nigerian Lightspot crude cargoes are selling at $1.60 per barrel below their GSP.Products are selling for $1-3 per barrel below their GSP's depending onthe product and its location in the world. A reduction of $1 per barrelin product prices is worth $415,000 to The Gambia over one-year.

1.12 The general outlook is for long supplies and relatively steadyprices, at today's levels, through 1985 and perhaps longer. Of course,there will always be seasonal adjustments to prices. The long supply/steady price outlook is based on the fact that (a) the industrial struc-ture of the major consuming countries is changing, with a larger rolebeing played by alternate energy sources such as coal, solar and nuclear,together with continued conservation efforts; (b) non-OPEC producingcountries will continue to increase their production. Between 1986 and1990, prices are expected to increase gradually in line with inflation,meaning that supplies are only expected to tighten slightly. 3/ Otherfactors that would change the present long supply outlook are the possi-bility of a global conflict or a major escalation of the Iran/Iraq War.

3/ World Bank "Primary Commodity Price Forecasts", July 13, 1984.

1.13 Direct government-to-government negotiations often result inmaking petroleum supplies available at prices below international levels.Many factors affect the success of such negotiations. In the case of TheGambia, membership in common confederations or organizations can be mosthelpful. 4/ Also, negotiations can involve barter arrangementst use ofsoft currencies for payment, and extended credit. Government-to-govern-ment discussions could lead to external financing arrangements whichotherwise might not be possible. It is recommended that the Governmentof The Gambia include a petroleum supply economist as its technicaladvisor in any governm"nt-to-government meetings where petroleum sup-plies, prices, shipping, credit, forms of payment, external financing,etc. are discussed.

1.14 The next largest component of the laaded cost price build-up isthe cost of freight. It is important to maximize the size of the ship-ment in order to minimixe the frequency of delivery. The storage depottherefore must be managed efficiently to insure that the largest ship-ments possible are being scheduled. The port of Banjul enjoys sufficientdraft (28 feet) and berthing facilities to handle tankers up to 35,000DWT (light loaded). Therefore, large ships should be used wheneverpossible. However, it is essential that dead freight costs be minimized;this can be accomplished by sharing the tanker with other West African.ports requiring replenishment at the same time. All the oil companieshave tankers making multiport discharges down the West African Coast.

1.15 The insurance charge is small, usually US$.07-.09 per $100value of cargo. Of course, this cost must be incurred to protect againstdamage and loss.

1.16 Demurrage is charged if the ship is delayed for any reasonoutside the ship's direct control in either the loading port or the dis-charge port. Normally, 72 hours are allowed for the complete load anddischarge. If the delay occurs at the loading port, the buyer usuallyhas recourse to claim against the seller. Good replenishment schedulingcan prevent the ship from arriving when the dock is busy with othershipping.

1.17 The credit given in this particular cargo was worth D 0.048/liter, as shown. Every 10 days of additional credit that can be obtainedby The Gambia from petroleum suppliers is worth D 175,000 over a periodof one year (using the 12.1875% interest rate).

1.18 Because the Government has been in arrears on remittances offoreign exchange to its offshore suppliers, ic is expected that allfuture suppliers will require a confirmed irrevocable Letter of Credit(LIC) before loading. The cost of an L/C varies but could amount to 2Z

4/ The Gambia is a member of West African Monetary Clearing House, theIslamic Development Bank, and other West African Confederations.

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of the total value, which would cost The Gambia Ub$280,000/year. How-ever, once The Gambia reestablishes a good, reliable credit record, pay-ment terms could become more favorable and the L/C requirement bedropped.

Imoorting Products at Spot Prices (Alternative B)

1.19 As mentioned in Paragraph 1.11, purchases made on the spotmarket today are most favorable. If The Gambia received all its suppliesat a Mediterranean bulk FOB quote from the oil companies orJuly 20, 1984, the c.i.f. costs would be as shown in Table 1.3.

Table 1.3: C.I.FP PRICS BUILD-UP FROM SPOT MARKET QUOTE

Gasoline Kerosene Diesel(Dalasi/liter)

FOB Price, July 20 Med. bulk .694 .803 .720Freight and Associated Premium Chargeby oil companies .056 .062 .064

Intransit Loss .004 .004 .004

Total c.i.f. Cost .754 .869 .788


1.20 The oil companies would have used their own tankers and replen-ishment would have been made in conjunction with other West Africanrequirements. The ability to be a part of the oil companies' voyage pat-terns ix a great benefit and usually will provide the most economicalfreight cost.

1.21 The total annual foreign exchange requirement associated withSupply Alternative B is shown in Table 1.4.

Mechanism for Competitive Bidding on Product Imports

1.22 As the PC) price is the largest component in the landed costand hence the item where the largest possible savings can be made, theGovernment should consider becoming more involved in deciding who shouldbe importing and at what price. The Government's involvement should takethe following form:

(a) The Energy Unit would prepare a yearly petroleum productssupply program to meet domestic demand and, in collaborationwith the terminal operator, set up a delivery schedule ortimetable for the approval of the N.E.C.

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(b) The Energy i'nit would -'equest the three local oil companies totender bids on a c.i.f. basis in order to take advantage oftheir shipping.

(C) Once bids and credit terms are received and analysed by theEnergy Unit, the oil compazsy with the most favorable bid wouldbe advised to proceed and it would then be the company'sresponsibility to undertake importation in its name.

By following this procedure, the Government does not get directlyinvolved in importing nor does it hold title to the products. Instead,it acts as a moderator in one step of the process of replenishingsupplies. Because of the importance of minimizing foreign exchangeobligations, such a role by the Government can be justified. The Missionbelieves that the oil companies would he willing to include this Govern-ment involvement voluntarily without the need for any formal legisla-tion. Compared to the present method of supply, this supply alternativesaves $3.7 million/year.

Table 1.4: FOREIGN EXCHANGE REQUIREMENTS FOR ALTERNATIVE B

Fuel Foreign Exchange Cost

(US$ million)

Gasolines 22.2 million liters x $.1988/liter 4.413Kerosene: 8.7 million liters x $.2294/liter 1.996Diesels 35.0 million liters x $.2078/liter 7.273Value of Credit: 30 days x 12.18752 x $13.682 K (.137)

365 daysCost of L/Cs say 22 x $13.682 M .274Total 8nnuai foreign exchange requirements $13.819

Sources Mission estimates.

1.23 The mission believes that the Government can accomplish itsgoal of ensuring the most favorable impo- t prices by the above methodrather than by becoming directly involved in handling all the supplyarrangements with the offshore Trading Offices of the oil companies andhaving to take title to the products. Also, it does not appear advan-tageous to include any other international oil companies in the biddingprocess because: (a) Gambia volumes are small; (b) the companies operat-ing in The Cambia have their own interests in maintaining supplies; and(c) all three companies make routine shipments to West African ports.

Processing Niserian Crude Through SAR RefinerZ in Dakar (Alternative C)

1.24 Whether or not there are advantages to entering into processingarrangements usually depends on the international price relationship

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between crude oil and finished products. An analysis for 1981-83 indi-cates that hydroskimming refineries in the main world centers have suf-fered a $2-3/bbl negative margin St based on official crude prices andspot product prices. Adding operating costs except for energy (at least$1/bbl), these refineries incurred operating losses on the order of $3-4/bbl. This situation is expected to continue as long as there is a sur-plus of crude and product supplies. Another factor that would make aprocessing arrangement somewhat more expensive for The Gambia is that itsdemand is made up entirely of clean products and, therefore, is notrepresentative of a normal yield from crude processing. However, pro-ducts usually can be interchanged on a value basis in a processingarrangement, but this tends to be expensive wken trading 1.5 bbls of fueloil for one barrel of gasoline.

1.25 In Supply Alternative C, it is assumed that a government-to-government agreement could be reached. for supplying Nigerian Light Crudeat the Official Government Selling Price with 90 days credit. Nigeriahas given 90 days credit to several purchasing governments (among themSenegal and Jamaica). Whether a price discount would be possible ispurely speculative; it, would have to be discussed in the negotiations.Also, it may be possible at least to obtain a partial payment in Dalasis,thereby reducing the foreign exchange requirement. Annex 6 presents theassumptions used in the supply alternative and the mechanics of this pro-cessing alternative.

1.26 The average cost of products delivered into Banjul using thissupply alternative would be D 0.908/liter, which is more expensive thansome of the other methods studied. In fact, it is $4.73/Bbl more costlythan importing products at market prices. This confirms that, withtoday's crude/product price relationship, crude processing is not aneconomical alternative, as the ;otal foreign exchange requirements ofthis case amount to $15.303 million, which is also more costly.

Purchasing All Product Requirements from NNPC (Alternative D)

1.27 Nigeria is short of refining capacity and is importing some 20million barrels/year of refined products. These imports are produced forUNPC from Nigerian crude under offshore processing arrangements. The netcost of offshore processing for MNPC as of August 1983 was about$6.00/bbl. 6/ This cost depends on crude tanker rates, product tankerrate.e refinery processing costs, and revenues obtained from the sale ofsurplus products. In 1982, the price of crude oil transferred to NmPCfor processing was $13.80/bbl, which undoubtedly covered its total cost.

5/ This is the difference between the crude price and the compositeproduct realization price.

6/ World Bank Report No. 4440-UNI Nigeria: Issues and Options in theEner Sector, August 1983.

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Consequently, sales of products at current prices would yield about$27.19/bbl from Nigerian Light Crude 7/, resulting in a profit of only$7.39/bbl to Nigeria. It is not known if this level of profit is accept-able to NNPC, nor is it known if Nigeria would be willing to providepetroleum supplies to The Gambia given its own limited refining capacity.However, NNPC is willing to supply CUC's requirements and, likewise, maybe willing to undertake the total supply commitment.

1.28 The basis for product pricing ex-refinery in Nigeria is theRotterdam parity price using the average Rotterdam bulk prices and cur-rent tanker rates. A price build-up for this supply alternative and itstotal foreign exchange cost ($14.7 million) is shown in Annex 7. Al-though the costs of this alternative are much less than the cost ofsupplying The Gambia via the current arrangement ex-Dakar, prices arestill D.03-.07/liter higher than they would be by obtaining suppliesthrough competitive bidditg from the oil companies. If additional creditcould be obtained from Nigeria either through direct government-to-government negotiation or indirectly through financing of the IslamicDevelopment Bank, this supply alternative could be improved somewhat.Also, if a portion of the purchase price could be made in Dalasis, thisalternative could become least cost.

Other Supply Arrangements

1.29 There are a number of other supply possibilities but each canbe analyzed through discussion and therefore do not warrant a fulldetailed analysis. Some of the more important possibilities are dis-cussed below.

1.30 Purchasins Products from the Abidjan Refinery in the IvoryCoast The Abidjan Refinery, In part privately owned, has high operatingcosts. Altbough the ox-refinery prices are currently on parity withEuropean spot prices (c.i.f. basis similar to Nigeria), the refinery'sprofitability is such that the es-refinery prices may have to beincreased. Consequently, this raises the question of stability in thees-refinery pricing system at Abidjan.

1.31 Abidjan Refinery would have about a D 0.03/liter freight advan-tage over Nigerian supplies if such an ex-refinery price were guaranteedto continue. This D0.03/liter difference is rquivalent to the value of115 days credit and would be partially offset if supplies from Nigeriacould be obtained on a 90-day credit basis. The Abidjan Refinery wouldmost likely offer 15-30 days credit.

1.32 A processing arrangement with the Abidjan Refinery would not beeconomical at today's crude/product price relationship. Economically

I/ Realization Value of Crudes from fydroskiming Refinery inRotterdam, Platt's Oilgram, July 16, 1984.

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priced surplus products might be available from time to time. It wouldbe worthwhile to establish communications with Abidjan to be advised whenand if such products might become available. Other considerations suchas extended credit or favorable payment arrangements are not likely to begiven due to the terms of refinery ownership.

1.33 Purchasing Products from the Mauritania Refinery: Currently,the Mauritania refinery is not operating. BesidAs, this refinery'sminimum operable throughput far exceeds Mauritania's domestic consumptionneede. Adding The Gambia's relatively small demand still would not allowthe refinery to achieve its minimum turndown throughput rate. Nor wouldit be practical to rely on export market sales to increase throughputgiven the worldwide refining over-capacity that exists today. Efficientrefineries operate at negative margins under today's depressed productprices. Under present pricing conditions, it is about $11.00/bbl cheaperto import products into Mauritania than to produce them from processedcrude. Therefore, this is not a viable supply alternative.

1.34 Processing Arab Light or Nigerian crude in Caribbean Refin-e.des: Processing agreements for The Gambia cannot be considered viabletoday due to: (a) the unfavorable crude/product pricing relationship(para. 1.27); and (b) the cost of holding large crude/product inventoriesfor so long because of The Gambia's relatively small demand. The proces-sing alternative discussed in paragraph 1.26 shows that the deliveredproduct costs into Banjul are higher by an average of D .0225/liter($4.73/bbl) than competitive bidding or using the spot price supplyalternative. Using the Caribbean refineries for processing would requiremanaging large inventories because shipping from either Nigeria or SaudiArabia to these refineries normally is done in super tankers of 300,000DWT which would be equivalent to four years of The Cambia's totalrequiremants (based on 1985 forecast volumes). If 50,000 DVT tankerswere used for crude transportation as in Alternative C, the longer haulto the Caribbean plus the longer backhaul of product on more expensiveclean shipping would add about $1.85/bbl to the cost of processing in theCaribbean over the SAR Refinery in Dakar. Therefore, this supplyalternative is not economically feasible.

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II. CmPULsmRY SToCrB/EnERnEICY ALLoCC21O PLAN

Overview

2.1 The Gambia currently has no minimum compulsory stock require-ment, and there is no active plan for managing supplies in an emer-gency. However, the mission learned that the National Economic AdvisoryCommittee has put forth some recommendations on the rationing of productssuch as service station closings, etc.

2.2 When inventories get down to about 30 days' supply, the oilcompanies advise the Ministry of Finance and Trade (their regulatory min-istry) of the impending shortage and request guidance. Without specificadvice from the Ministry, which is usually the case, the oil companiesarbitrarily begin to restrict supplies and the major or essential serviceconsumers do not become aware of a shortage until they are given reducedvolumes or are denied replenishment altogether. This lack of notifica-tion to essential service consumers prevents them from implementing theirown controls at an early stage. For example, The Gambia Public TransportCorporation (GPTC) has a three-step contingency plan that it could imple-ment if it were given advanced notice.

2.3 The severe foreign exchange shortages and the Central Bank'sarrears in remitting obligations of the oil companies to their offshoresuppliers have created a situation in which only small parcels of pro-ducts are being imported to The Gambia. Consequently, not enoughproducts are available to consumers over extended periods to allow themto build normal inventories.


Present Terminal Operations

2.4 The present method of importing products is inefficient in thateach marketer imports into the tankage space assigned to him. It isrecommended that total tankage in the terminal be used for each import tominimize freight costs.

2.5 There is an extra tank in the terminal that is used as a swingtank when repairs are made to the other tanks. It is recommended thatthis tank be used to hold heavy diesel for the Gambia UtilitiesCorporation (CUC) to allow it to take advantage of the small savings inproduct price.

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Compulsory Stocks

2.6 Working inventories were determined for each product and asuggested allowance for unforeseen shipping and scheduling deviations wascalculated. It is recommended that a 23-day supply (see 3,18) of safetystock be considered when arranging imports.

2.7 The limited tankage at the Shell Terminal would only accomodatecompulsory stocks in kero/turbo and diesel. Therefore, it is recommendedthat a 30-day compulsory stock gradually be established for diesel andkero/turbo.

2.8 When additional tankage is constructed at the existing terminalor a new terminal is provided, the new tank sizes should take intoaccount the need for compulsory stock volume. Based on practices inother countries and The Gambia's own particular situation and location,it is recommended that a "middle-of-the-road" compulsory stock level of50-60 days be consid3red.

Emergency Allocation Plan

2.9 The Energy Unit should develop guidelines for an EmergencyAllocation Plan and, through the National Energy Commission (NEC),present it to Cabinet for approval as part of the Government's nationalpolicy.

2.10 The parastatals, Ministries of Works & Comnunication, Defense,Agriculture, and Interior, the oil companies, and all other essentialservice consumers must prepare their own detailed Emergency AllocationPlans with assistance from the Energy Unit. If developed according tothe appropriate guidelines, these Plans would help to determine thedegree of rationing required at various levels of available inventory.

Optimum Use of Tankass at the Shell Storage Depot

2.11 The current method of mnaging inventories and storage space atthe Shell Terminal is too inefficient to use as a basis for rationingavailable supplies. A portion of each tank is allocated to each marketer(CUC should also be assigned some space for diesel) -- a practice whichcontributes to higher freight rates because replenishment parcels aresmall (to fit into allocated space) since total tank capacities are notutilized. The total unused tank space (ullage) must be utilized indetermining the size of each product import.

2.12 The present storage depot has an extra tank that could be usedfor storing a heavier diesel for GUC during those periods when the extratank is not needed to cover for tanks being serviced. HRevy diesel couldbe used by GUC without any investment in either tankage or heating equip-ment. This product could be combined with normal diesel stocks at Kotu.

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The savings would only amount to about $5/HT ($60,000/year) but theycould be obtained at no cost by simply employing proper ordering andscheduling practices. Depending on the spot market, the savings could betwice this amount during certain times of the year.

2.13 Based on the high investment cost of installing a segregatedblack product system plus the heating facilities that would be requiredif GUC converted to fuel oil, such a conversion at this time would not beappropriate. 8/ There are constraints to raising the necessary financ-ing, and the conversion would fit better into GUC's plans after the baseload on the Banjul system exceeded 10-12 MW.

Other Product Tankage

2.14 The total available tankage in the country must be identifiedto ascertain how much capacity can be set aside for compulsory stocks.In addition to the main storage depot, other tankage that will be takeninto account in determining available inventories in the country is shownin Annex 8. GUC also has two tanks each with a capacity of 750,000liters located at its Rotu plant. When calculating the capacityavailable in these miscellaneous tanks it was assumed that only 50%ullage would be available.

Determination of Working Inventories

2.15 Working inventories can be defined as the tankage space notnormally utilized (i.e., non-pumpable tank bottoms, unusable areas in thetop of tanks and a safety stock allowed to handle normal replenishmentscheduling and shipping deviations). Horizontal tanks or tanks with conebottoms have pumpable bottoms. However, horizontal tanks do not haveunusable areas in their tops. Consequently, only tankage in the Shellstorage depot and the CUC tanks at Kotu will be considered as having non-pumpable or unusable space. As a rule-of-thumb, this space usuallyamounts to about 101 of the rated capacity of the tank.

2.16 Scheduling and shipping deviations are normally calculated innumber of days supply; hence, the total Gambia demand must be determinedin terms of average daily consumption. This will vary somewhat duringthe year according to the seasonality of demand for each product. Inscheduling replenishment cargoes, the supplier usually is given a loadingrange to satisfy the routine variation experienced in ship scheduling andoperation plus possible congestion at the loading berth. This loading

8/ World Bank Report No. 4743-CM: The Gambia: Issues and Options inthe Energy Sector, p.20.

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range is commonly designated as 10 days "in the 'industry unless certaincircumstances and/or experience will allow less time. Even the mostroutine voyages where shipping is readily available and full cs-oes aresent out, five-day loading ranges are still required. In the case of TheGambia, where the most economical supply alternative involves thesupplier scheduling other parcels for other destinations on the sameship, a 15-day loading range should be considered. This means that theship could be expected to arrive up to 15 days later than its earliestcalculated arrival date.

2.17 In addition to scheduling deviations, the ship, once loaded,can be expected to experience delays due to weather, congestion in dis-charge ports prior to Banjul, and the possibility that another ship willbe in its berth on arrival in Banjul. Such ship delays commonly take upto five days. In the case of The Gambia where the most economical supplyalternative involves a multiport discharge voyage, five days should beallowed for a possible late arrival.

2.18 The supplier is normally required to meet a volume tolerance ofplus or minus 5X. If cargoes are scheduled about every 42 days, thisvolume tolerance would amount to 3 days' supply. This factor onlyaffects working inventories if the ship arrives early with additionalproduct. Therefore, the total number of days to be considered in deter-mining safety stock for scheduling and shipping deviations can be sum-marized as follows:

Days' Supply

Scheduling Deviation 15Ship Delays 5Volume Tolerance 3

Total Days' Supply 23

Compulsory Stocks

2.19 Many countries have legislated that a certain level of inven-tory be maintained to minimize product shortages caused by supply inter-ruptions. Two criteria used to set the compulsory stock level areremoteness from alternate supply sources and the ability to finance theadditional volumes in the case of a supply interruption. Such an inven-tory, or "compulsory stock", does not exist in The Gambia.

2.20 The development of available days supply for optimum replenish-ment scheduling is shown in Annex 9 using 1982 demand. According tothis, replenishment should be scheduled every 42 days to take advantageof importing parcels of at least 6000 MT. However, accepting shipmentsof this size would allow no additional tankage capacity for compulsorystocks of gasoline. Nevertheless, on an average basis, there are 40, 31and 78 additional days supply available for kero/turbo, light diesel and

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heavy diesel, respectively. During the peak tourist season, the addi-tional days supply of kero-turbo would be reduced considerably. If heavydiesel cannot be imported for GUC regularly, then Tank No. 3 could be putinto light diesel service, making 45 days' supply of capacity availablefor compulsory stock of light diesel at average consumption rates. Thisis shown in Table 2.1.

Table 2.1 AVAILABLE TANKAGE CAPACITIES AT PRESENT TERMINAL(Days' Supply)

Total, Excl. Optimum Net Available forWorking Stocks Replenishment Compulsory Stock

Gasoline 42 42 0Kero/Turbo 82 42 40 a/Light Diesel 87 42 45

a/ Heavy demand for kero/turbo during the tourist season would reducethis availability considerably.


2.21 Since foreign exchange availability will dictate the level ofcompulsory stock, the mission recommends that the Government considerlegislation to gradually establish a 30 days' supply of compulsory stocksin both kero/turbo and diesel under the following conditions:

- The inventories would be built up gradually over a suitabletime period as can be afforded; and

- The kero/turbo compulsory stock level be allowed to decrease,as needed and without penalty, during the tourist season.

About $700,000 would be needed in foreign exchange to purchase the entirerecomended 30 days' compulsory stock. The oil companies would have tocarry this additional volume as part of their normal inventories. How-ever, an amount to cover the carrying cost of this higher inventoryshould be considered as a component in the product price structure (about0.8 bututs/liter).

2.22 In the near term, if the present terminal is expanded or a newterminal is constructed, the mission recommends that a compulsory stockrequirement in all products be incorporated in the sizing of new tank-age. Using the 1990 demand forecast, Table 2.2 shows the costs ofincreased tankage and additional inventory at different levels of compul-sory stock and the amount which should be added to product prices torecoup the investment in 10 years and allow a 20X return. The cost oftankage construction used in Table 2 was assumed to be $6/bbl, which is

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the current estimate for 40,000-70,000 bbl tanks. Also, the value of theadditional inventory was based on a cost of $0.21/liter c.i.f. which isrepresentative of today's spot market. Af foreign exchange pressuresease up in the long run, the mission recommends maintaining a "middle-of-the-road" compulsory stock level of 50-60 days in all products for the1990 period. A corresponding investment recovery component would beadded to the product price build-up.

Table 2.2: REQUIRED INVESTMENT FOR LONG TEFiN COOULSORY STOCK

Compulsory Volume, Required Investment, S m i lIon InvestmentStocks, million Increased Additional Recovery Components

Days Supply liters Tankage Inventory Total Bututs/LIter

30 9.4 0.35 1.97 2.32 1.960 18.8 0.70 3.94 4.64 3.890 28.2 1.05 5.91 6.96 5.7

Source: Mission estimates,

Emergency Allocation Plans

2.23 The various ministries of the Government and each of the para-statals (except GUC) receive their petroleum supplies through competitivebidding from the oil companies. Government fuel purchases are made bythe Ministry of Interior (fuel for fire & police), Ministry of Works andCommunication, Ministry of Defense, Ministry of Agriculture, and Ministryof Information (Radio Gambia). A priority program must be developed forthe Ministries of Defense, Agriculture and Information to identify theiressential service consumers.

2.24 Besides purchasing for its own ministry needs, the Ministry ofWorks and Communication, also purchases for the following departments/ministries: the President's Office (includes security), Legislature,Office of the Auditor General, Ministry of Information and Tourism,Ministry of External Affairs, Ministry of Justice, Ministry of Financeand Trade, Ministry of Locat Government and Lands, Ministry of WaterResources and the Environment, Ministry of Economic Planning and Indus-trial Development, Ministry of Education, Youth Sports and Culture, andMinistry of Health, Labor, Social Welfare. The Supplies Officer of theMinistry of Works and Communications has a priority list of essentialservices that includes but is not limited to: the President and Secur-ity; Ambulances/Hospital; Civil Aviation (airport) - excluding fuel foraircraft; and Postal Services.

2.25 The CPTC consumes 3,000 liters/day of diesel in transportingsome 20,000 passengers. This is an essential service. The demand is

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expected to increase to 4,000-4,500 liters/day later this year after thearrival of 22 new buses which will extend the bus service. There is a101 variation in demand between the summer months and the peak demandperiod associated with the tourist season. The CPTC already has anemergency plan and is prepared to cut back on consumption by variousdegraes of rationing, as follows:

Level I: All the old buses would be taken off the line, leaving justthe mote efficient, newer ones;

Level II: Operation would be restricted to peak hours (between 7-10am and 3-6 pm); and

Level III: Diesel would be imported by tank-wagon from Dakar Refinery.However, this is an expensive alternative and would only beenvisioned as a last resort.

2.26 Fuel purchased by The Gambia Product Marketing Board (GPMB) isused for the transportation of produce (mostly groundnuts). What littlefuel is required by farmers for planting and harvesting is purchaseddirectly from retail service stations. The transportation of groundnutsfrom eight field storage depots to either the oil processing mill or todockside for export takes place between December and July/August. Theoil mill maintains self-sufficiency in fuel through the burning ofgroundnut shells. The transportation of groundnuts is an essentialservice and, if an emergency allocation program was implemented, the CPMBhas stated that it would be able to limit consumption to meet onlyscheduled shipping and production requirements. If it is assumed thatthe GPMB fuel storage tanks (100,000 liters of diesel) are half full onaverage, there would always be about 12 days' supply available at normalconsumption rates during the transportation season.

2.27 The fuel requirements of the Cambia River Transport Corporation(CRTC) are handled by and stored in tanks owned by CPMB. The CPMB couldalso control GRTC's consumption during critical supply periods. Continu-ation of fery operation is an essential service.

2.28 Another essential-service is the road transportation of cattleto market for slaughter (35/day) or export. The cattle is transported bythe Livestock Marketing Board and fuel is provided from retail servicestations.

2.29 Except for the past eight months, CUC has purchased its dieselrequirements independently from offshore sources through special arrange-ments. GUC has the ability to control its output and supply power to itslist of essential consumers, which includes: hospitals, coimunications,continuation of water supplies, Seagull cold storage, and bakeries.

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2.30 The oil companies supply fuel directly to several essential-service consumers such as a local research institute, and certain commu-nications installations. The oil companies can control overall distribu-tion (excluding GUC) and are in a position to implement any approvedallocation program.

Implementing an Emergency Allocation Plan

2.31 Any Emergency Allocation Plan that is developed for The Gambiamust be formally outlined and established as Government policy. TheNational Energy Commission (NEC) should be responsible for establishingthe proposed guidelines and, through its responsible Minister, obtainingCabinet approval. The guidelines would set forth the degree of rationingrequired depending upon the severity of shortage and the number of dayssupply of each product on hand as determined by specific triggering ele-ments. The Inergy Unit, as the working arm of the NEC, should workclosely with the oil companies, the bulk terminal operator and all theessential-service consumers to assist them in developing individualEmergency Allocation Plans. Each individual allocation plan should bereviewed and jointly approved by the Energy Unit and the NEC. The essen-tial-service consumers, in collaboration with their suppliers, will beresponsible for formulating their individual plans of action settingforth the controls needed to meet any reduced level of consumption. TheEnergy Unit will be responsible for monitoring the progress of theoverall Emergency Allocation Plan in operation during emergencies andinsuring that all responsible parties are adhering to the requiredconsumption levels. The Energy Unit will keep the NEC informed throughregular reports. (See the Communication Chart in Annex 10).

2.32 The petroleum products storage depot operator should be respon-sible for determining the average daily consumption of each product basedon the previous 1-2 months average offtake of that product; knowing therequired replenishment schedule or if there is any problem associatedwith obtaining supplies, he is in a position to calculate the days ofsupply available of each product from the daily inventory taken at thedepot. The operator must be informed regularly of the inventory avail-able at Kotu. When the total inventory falls below the sum of requiredworking levels, required Safety Stock (23 days), and the Compulsory Stock(whatever day's supply level is established), the depot operator mustadvise the Ministry of Finance and Trade, MEPID, the Energy Unit inMEPID, all the oil companies, and GUC. The oil companies in turn willthen advise their major consumers such as the GMPB, GPTC, GRTC, Minis-tries of Works and Communications, Defense, Agriculture and Interior, andtheir own dealers. Depending on the severity of the supply problem,sales by the oil companies would be cut back to some percentage of normalconsumption and all parties so advised. The major consumers would con-tinue to receive required supplies as set out in their own allocationplans after receiving advice as to the severity and required level ofrationing. The oil companies would stop altogether or reduce discre-tionary sales such as ship's bunkers, sales to service station dealers,etc. Service station dealers would be advised to reduce their opening

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hours according to the severity of the problem but priority sales wouldbe allowed to essential-consumers who normally obtain their suppliesthrough service stations. As product shortages become more severe (forexample, fall to one half of the compulsory stock) and the outlook forcorrecting the supply problem is uncertain, a further reduction to, say,50 of normal consumption might be undertaken. The Emergency AllocationPlan should define these triggering elements and dictate the percentagereduction in consumption to impose at various levels of availablecompulsory stock. It is extremely important that daily communication beestablished between all the aforementioned parties to insure that all ofthe steps are followed at each consuming level.

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III. PMICID Of P3?KOUL PRODUCTS

Overview

3.1 The prices of petroleum products are controlled by the Ministryof Finance and Trade (MFT). The pricing formula in use is based upon anumber of components: (a) c.i.f. costs, (b) Covernment taxes and duties,(c) financial charges, (d) terminal and storage depot charges; (e) mar-keters' margins, and (f) retailers' margin. These components have beenadjusted over the years, primarily by means of negotiations initiated bythe oil companies. However, the Government of The Gambia (GOTG) isanxious to put a mechanism in place which allows automatict rather thanad hoc, adjustments in prices. To develop such a mechanism based onrational criteria GOTG will require an evaluation of the existing system.


Current Pricing Structure

3.2 The individual components in the current product price build-upbear little direct relationship to actual costs. It appears that, whilethey may have initially borne some relation to costs, various occur-rences, such as delays in settling foreign liabilities, have shifted thebasis for the various components. The result is that the oil companiesappear to have been bargaining more in ar effort to cover their costs andpreserve net profits than to preserve the level of any specific compo-nent.

3.3 The oil companies have been spending in excess of D 2.3 millionon fixed assets each year and have apparently been adintaining theirrespective plants. However, it appears that while the pricing structurehas generally resulted in better-than-average profits in FY82 and FY83,foreign exchange losses and product shortages will cause one or more ofthe oil companies to incur losses in FY84. Therefore, any existing orproposed pricing structure will only function effectively if imports areordered and paid for on time.

Proposed Pricing Structure

3.4 To simplify the nature of the existing system, a modifiedproduct pricing structure is recommended. The new structure should faci-litate better management of pricing, provided foreign exchange is avail-able. The features of the proposed pricing structure are shown inTable 3.1.

21 -

Table 3.1: PROPOSED PRODUCT PRICING STRUCTURE

Component Description

Warehouse Cost Comprised of actual c.i.f. + har-bor dues + wharfage + terminalloss allowance + a stabilizationfactor (of 5-10 bututs/liter) ini-tially to cushion variations inactual c.i.f.

Customs Duty & Import Taxes Duty as at present, plus a speci-fic import tax, rather than on anad valorem basis.

Terminal Throughput Charge Specific charge, initially at thecurrent level of 2.20 bututs perliter.

Marketers' Margin Percentage of warehouse cost, pro-posed at 15.6X initially.

Dealers' Margin & Delivery Set at specific level initially,but requires further investiga-tion.


It is recommended that the level of each comv-'ent be monitored on anongoing basis by the fnergy Unit. Prices should then be formallyreviewed, say, on a semi-annual basis, except in the event of currencydevaluations/revaluations, in which case prices should be adjustedimmediately. The basis for computing dealers' margins should also beexamined in detail to determine its adequacy.

Current Situation

3.5 Petroleum product prices in The Gambia are controlled by theGovernment through the Ministry of Finance and Trade (MFT). Although itapparently has never been officially accepted by the Covernment, theprice structure in use is based upon a joint submission to the Governmentin July 1973 by the four petroleum companies operating in The Gambia atthat time: BP (West Africa) Limited, Mobil Oil Limited, Shell Company ofWest Africa Limited, and Texaco Africa Limited. It was envisaged thenthat periodic adjustments would be made to the prices based upon move-ments in any of the various components of the pricing structure.

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However, the mechanism for monitoring these movements has never been putin place. As a result, reviews of product pricing still continue to bebased essentially upon studies and requests which are first initiated bythe petroleum companies. A Government monitoring system therefore shouldbe instituted to allow greater control over price determiniation.

3.6 The current pricing structure is based on the c.i.f. price ofthe product, to which is added port charges, customs duty and import tax,terminal charges and various marketing and dealer related charges. Thecurrent product price build-up is shown in Table 3.2.

Table 3.2: CURRENT PRICING STRUCTURE

Premium DieselProduct Price Component Gasoline Oil Kerosene

C.i.f. (ex SAR Refinery) 100.00 92.39 92.18Harbor Dues & Wharfage a/ 1.20 1.20 1.20Customs Duty 116.00 110.00 103.00Import Tax 3.50 3.23 3.23Terminal Throughput 2.20 2.20 2.20Terminal Leakage 1.010 0.70Ex Terminal Cost 223.91 209.72 202.51Depreciation & Maintenance 2.50 2.50 2.50Financial Charges 8.78 8.78 8.78Ceneral Overhead 2.50 2.50 2.50Marketers' Profit 2.50 1.20 2.50Ix Depot Price 240.19 224.70 218.79Road Delivery 2.00 2.00 2.00Dealers' Margin 7.50 7.50 7.50

Total 249.69 234.20 228.29

Pump Price (Bututs/liter) 250.00 234.00 228.00

a/ 850 bututs/metric tonb/ 3.5S of c.i.f.

Sources MFT.

Import Costs

3.7 The c.i.f. cost of petroleum products is usually the firstknown of the major components of price, and it forms the basis from whichfinal selling prices are established. In The Gambia, the c.i.f. costsused for pricing are not "actual" costs but are typically based upon asampling of import prices. This "standard" c.i.f. price is subject toratification by MFT after consultation with representatives of the oil

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companies. Once agreed upon, the "standard" c.i.f. prices are utilizedin the monthly calculations of import taxes and as the basis for approvedproduct prices.

3.8 C.i.f. costs normally vary from shipment to shipment dependingon the supplier, the source of the petroleum product supplies, and theparticular shipping arrangements. Accordingly, while the use of "stan-dard" c.i.f. costs tends to simplify the computation of import taxes onproduct drawn from the bonded storage depot each month, it usuallyresults in import taxes being paid on c.i.f. values which differ from theactual cost of the imports. This difference is highlighted in Table 3.3,which includes data on two of the most recent shipments.

Table 3.3: DIFFERENCES BETWEEN ACTUAL AND "STANDARD" C.I.F. COSTS

Actual "Standard" VolumeProduct c.i.f. a/ c.i.f. at Difference a/ (liters)

ADO 93.50 92.39 1.11 2,488,000Gasoline 101.47 100.00 1.47 527,000

aI bututs/liter

In this case, the use of the "standard" c.i.f. was disadvantageous toboth the Government and the oil companies. About D 35,000 in importtaxes were not charged, and the full c.i.f. cost, which has to be paid bythe companies, was not recovered in the sale of the product.

3.9 Recently, significant changes in the relative values of curren-ey have also been reflected in corresponding changes in the c.i.f. costsof petroleum products. For example, the normal business practice ofdenominating offshore petroleum prices in US currency, the 25% devalua-tion of the Dalasi in February 1984, as well as the continued strengthen-ing of the US dollar against the pound sterling, have all put severeupward pressure on the c.i.f. costs of petroleum products being importedinto The Gambia.

3.10 While the foregoing strongly suggests a need for the Covernmentto monitor price trends on an ongoing basis, it also implies that themonitoring unit should be well versed in current international pricing inorder to give guidance regarding supply alternatives. Civen the imprac-ticality of varying prices with each new shipment of product, however,there is also a need for some mechanism to stabilize c.i.f. prices in theproduct price build-up.

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Financial Charges

3.11 Unless payment for supplies can be made on a "when due" basis,it will be difficult for the Covernment to control or establish reason-able levels for this component. Financial charges initially wereincluded to represent the charges which the petroleum companies had toincur to maintain a permanent stock of two months' supply in the depot,and to provide credit facilities and other conditions of payment toservice station dealers and other clients. However, recent difficultiesin settling liabilities and the resulting irregularity of supply havenegated the first reason. Purthermore, increased demand does not alwaysallow a 60 days' supply to be maintained while importing products inreasonable and economic parcel sizes.

3.12 The financial charges component of the petroleum price build-uphas risen sharply in recent years and is currently at the level of 8.78bututs per liter. If it is assumed that two months' minimum stock couldbe maintained, and using last years actual sales volume of 55 millionliters, the carrying cost would be about 3.3 bututs per liter. This hasbeen calculated by assuming a nominal interest rate of 202 (thecommercial bank interest rate is currently 172 in Banjul).

3.13 Financial charges for maintaining inventories is a generallyaccepted component of pricing in most of the neighboring francophonecountries. However, it is difficult to justify the singling out offinancial charges to cover credit extended by the oil companies. This isso because each company extends a varying amount of credit to differentretailers and to different industrial accounts. This is one of the vari-ables where competition develops and helps to keep prices down. Theinclusion of a specific factor to cover credit costs could provide incen-tives for individual companies to disrupt the normal terms of trade.Using the typical level of receivables over the last two years, thecarrying costs for those receivables would be on the order of 1 butut perliter. On that basis the financial charge component of the price shouldhave been about 4.3 bututs per liter.

3.14 However, this does not take into account the costs associatedwith the funding of supplies being provided by the respective companies.The level of the charge therefore appears to have been negotiated, pos-sibly, to cover the costs of credit from associated offshore companiesand the risks associated with not being paid on time. The basis of thecharge actually negotiated could not be ascertained by the Mission.

3.15 If remittance payments are to be made on a sporadic basis, thepossible variations in carrying periods would make it impossible to quan-tify the relevent carrying costs to be included in the price build-up. Amuch more workable solution would be for payments to be made on a proper"pay when due" schedule. In this case, the financial charge componentfor remittances could then be directly related to the cost of providingfor and carrying a snecific volume of compulsory storage. It is recom-mended that carryin, charges for normal inventories and credit not be

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continued in the price formula since these "costs" relate to "the cost ofdoing business" and can vary considerably.

3.16 Because of the diversity of risks associated with delays inpayments for supplies it is difficult to effectively quantify what thefinancial charges should be in respect of those risks. This assumes thatthis component in the pricing structure should also be the mechanism forthe oil companies to cover (a) their cost of deposits in the "pipeline"while waiting for late foreign exchange remittances, and (b) any lossesthat could occur due to devaluation while their deposits are being heldfor foriign exchange. In the latter situation, in several countriesagreements have been made between the governments (usually through theCentral Bank) and operating companies that require foreign exchange, toprotect companies from devaluation, as follows:

(a) The Government is responsible for making up 1001 of the devalu-ation losses if it has the request for remittance and necessarydeposit in its possession when the devaluation occurs.

(b) The Government and the company share equally the devaluationloss if the devaluation occurs between the time of loading theproduct at the offshore supplier (point where obligationoccurs) and when the remittance request and deposit for foreignexchange is made.

Depreciation and Maintenance Charges

3.17 The 2.50 bututs per liter currently allowed for these chargesis somewhat higher than the actual cost, at least in 1982 and 1983.These charges are self-explanatory in that they are intended to cover thecosts of depreciation and maintenance of the physical assets of the oilcompanies. Actual depreciation and maintenance expenses for the last twoyears were D 952,000 and D 823,000 for 1982 and 1983. Based on thevolume of product sold by the oil companies, these equate to approxi-mately 2.00 bututs per liter.

Tminl ThrouhutChars

3.18 The terminal throughput charge is nearly in line with actualcosts. These charges are intended to reimburse Shell for handling pro-duct at its depot on behalf of the other companies. The current level ofthis charge is 2.20 bututs per liter which represents a 51X increase overthe 1.46 bututs per liter which prevailed between September 1981 andApril 1984. According to figures presented by Shell, the cost of operat-ing the terminal in fiscal years 1982 and 1983 averaged D 1,086,353 peryear. Assuming handling costs are similar for each product, with 51.9million liters sold by the oil companies in fiscal year 1983, this costwould average 2.09 bututs per liter, or slightly below the charge allowedin the price build-up.

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Marketing Margins

3.19 It is evident that the current marketers' profit level bears nodirect relationship to actual profits, and the companies are presumablybargaining for changes in them wherever these can be obtained to covertheir total costs and keep the net results up. Notwithstanding this,while Texaco's and Shell's (who is out of direct retailing) returns oneither total assets and/or average net worth exceeded the normal 20-25Sin the past two years, in fiscal year 1983, at least, BP was only able tomake a minimal return.

3.20 Marketers' profits were at least adequate in 1982/1983. Theprofit component was intended to provide the companies with the "profitwhich all commercial enterprises must make in order to renumerate thecapital to shareholders and to auto-finance a part of the new invest-ments." The marketers profit component for gasoline has risen from 2.20bututs per liter in September 1981 to 2.50 bututs per liter in April1984.

3.21 Using the 1982 and 1983 sales volumes, the marketers' profitcomponent generated D 1,362,093 and D 1,298,362 per annum, respectively.The after-tax profits for the companies as a group approximated D 1.4 and2.1 million, respectively, for the same years. Therefore, there was anover-recovery of D 800,000 in 1983.

3.22 In addition to the marketers' profit element, there also isallowed a "general overhead" component of 2.50 bututs per liter. This isdesigned to cover the general expenses of the local companies which havenot been covered in any of the previous components--primarily adminis-trative expenses. For fiscal years 1982 and 1983, these expenses were inexcess of $2 million for the companies as a group. Based upon sales vol-umes in these years, therefore, some D 700,000/year were under-recovered.

3.23 In the case of dealers' margins, it was difficult to findinformation with which to evaluate the dealer margin of 7.50 bututs perliter. This is so because some dealers are involved in sales other thanpetroleum products. However, it appears that a very high percentage(over 40Z) of the dealers have only a marginal financial operation.Their financial positions will be further eroded if the proposed increasein property taxes 9/ on service stations is not rescinded. It isbelieved that the current allowed margin will probably force some dealersout of business since many are out of product for extended periods. GOTCwill have to weigh the cost of driving marginal dealers out of businessagainst its supply objectives.

9/ From D 350 to D 5,000 per annum.

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Proposed Pricing Structure

3.24 In addition to promoting efficient resource allocation byproducers and consumers, a pricing structure should achieve twoobjectives, that ist (a) minimize price fluctuations; and (b) facilitatethe monitoring and implementing adjustments.

3.25 Alternatives for a new pricing structure can be summarized asfollows: (a) continue the existing multi-component structure and theapproaches currently used to adjust it; (b) continue the existing multi-component structure but utilize better bases for adjusting the value ofany component; (c) simplify the structure by reducing the number of com-ponents and, as in (b), adjusting the values according to actual changesin the components; (d) as in (c), but give the marketers a percentage orunit mark-up within which to operate; and (e) set the final price foreach product, net of duties and taxes, and have the marketers operatewithin that limit.

3.26 Alternative (a) can be ruled out because the variations in eachcomponent are not fully defensible and, as at present, would be extremelydifficult to monitor accurately. Alternative (b) is not recommendedbecause it contains too many components and would require considerabledetail to evaluate and adjust each variation. Alternative (e) would makethe marketers operate where they incur all risks not under their controland, if price adjustments were not made correctly, a non-defensible situ-ation could develop. Also, it would be the most difficult alternative tomonitor effectively. Therefore, alternatives (c) and (d) appear to bemost advisable for meeting the objective. A combination of alternatives(c) and (d) would result in a pricing structure consisting of: (1) Ware-house Cost, (2) Customs Duty and Import Taxes, (3) Terminal ThroughputCharge, (4) Marketers Margin, and (5) Dealers Margin and Delivery.

Warehouse Cost

3.27 This component would be made up of actual c.i.f. cost, harbordues, wharfage, terminal loss allowance, stabilization factor.

3.28 In the first instance, some mechanism needs to be put in placeto cope with variations in the c.i.f. price from import to import andfrom minor currency fluctuations. This could be handled through aStabilization Fund. This is a common practice in many countries, and theFund could be monitored by the Energy Unit with the Ministry of Financeand Trade having the overall administrative responsibility. It isusually advisable to initially set this component at a high enough levelto establish the fund and ensure that any changes in the ultimate con-sumer price are made infrequently. The stabilization factor should beset at a level which would normally allow the warehouse cost to be keptat a standard level for six-month periods. Recent experience suggeststhat the factor should be in the range of 5-10 bututs/liter.

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Customs Duty and Import Taxes

3.29 At present, while customs duty is a specific tax, import taxesare levied on the basis of a percentage of c.i.f. (an ad valorem tax).Since the proposed structure involves use of actual c.i.f., variationswould therefore result. To minimize these variations, it is recommendedthat import taxes also be made on a specific tax for petroleum products.The levels of both duties and taxes would then be constant but theirlevel should be reviewed at least semi-annually. The tax could commenceat the level shown in Table 3.2.

Terminal Throughput Charge

3.30 The Terminal Throughput Charge should be based on the actualoperating costs of the terminal plus a reasonable after tax profit (20X)based on investment or net capital employed. The actual terminal productlosses which are shown on the Monthly Summary Sheets would be included inthe Warehouse Cost component and, therefores, be excluded as an item inthe terminal operating cost. To facilitate monitoring the TerminalThroughput Charge component, some minor changes should be made in Shell'saccounting system to identify and separate "terminal" costs from "admin-istrative" costs. This component in the pricing structure would be seteach year according to the actual "terminal" costs from the previous yeartaken from the terminal operator's financial statements. Because thefollowing year's component level is taken from last year's data, there isa one year lag in adjustment. Consequently, it is suggested that 25X oflast year's costs be increased by the amount of increase experienced inthe Consumer Price Index. This would compensate for anticipatedincreases in cost. If such an amount actually provided surpluses ordeficits to cover actual costs, corresponding adjustments could be madeeach year.

Marketers' Margin

3.31 This component should be set at a level that would allow anefficient marketer to make a "reasonable" after tax profit. The currentprice structure allows 16.28 bututs per liter on gasoline and keroseneand 14.98 bututs per liter on diesel to cover their depreciation, main-tenance, financial costs, general overhead and profit. If the companies'risks associated with exchange rate losses are handled through someagreement with the Central Bank, the current total margin should beadequate to provide the marketers with sufficient funds to cover theircosts and obtain a reasonable after tax profit as was the case in1982/83. In order to avoid the many tedious and inaccurate reconcil-iations of each of the elements making up this component, it isrecommended that this total figure be established as a percent of theWarehouse Cost component. Currently, that amounts to about 15.61 ongasoline, 16.91 on kerosene and 15.5S on diesel. Based on currentvolumes, it is recommended that 15.61 be used for all products.

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Dealers' Retail Margin and Delivery

3.32 This component ia self-explanatory. As previously mentioned,the current figure appears to be relatively low because of low through-puts and the forecast demand outlook for retail sales. This should befurther investigated by the ne rgy Unit and a new level set.

3.33 The proposed product pricing structure is shown in Table 3.4.

Table 3.4: PROPOSED PRODUCT PRICING STRUCTURE(Bututs/liter)

Premium DieselGasoline Oil Kerosene

Varehouse Cost 108.00 100.00 99.00Customs Duty and Import Tax 119.50 113.23 106.23Terminal Throughput Charge 2.20 2.20 2.20Marketers' Margin (15.61) 16.85 15.60 1S.44Dealers' Margin & Delivery 9.50 9.SO

Total 256.05 240.53 232.37

Proposed Pump Price 256.00 240.00 232.00

Stabilisation Factor k/ includedin Warehouse Cost 5.76 5.71 4,92

a/ To be reviewed semi-annually or immediately if there is a currencydevaluation.

b/ To be managed by MFT.


3.34 Other Possible Price Components. In the event that a specificvolume of compulsory stocks is established and depending on the magsi-tude, a component will have to be added to the product pricing structureto cover either or both the carrying cost of the additional inventory andthe amortized cost of purchasing the additional volume. Also, if theexisting terminal is expanded or a new terminal is built, the productprice structure will have to include a component to recover the invest-ment over the period and interest rate of the loan.

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IV. AOUNTING SYSTUW FMO PTROLEUM PRODUCTS

Overview

4.1 Much of the information which is required to monitor movementsin the financial and volumetric aspects of petroleum product transactionsexists in one form or another. However, this information does not appearto be collated or analysed in any systematic way and, as a result:

(a) the full extent of the country's liabilities for imports ofpetroleum products is not routinely determined;

(b) the absence of the data mentioned in (a) makes it difficult toplan for the settlement of foreign exchange-related liabil-ities;

(c) apart from that being done by the petroleum marketing companiesthemselves, there is little, if any, routine monitoring of thedistribution of petroleum products;

(d) there are virtually no Government initiatives toward managingthe inventory of petroleum products.

4.2 Ideally, an information system should be set up to allow peri-odical reporting of (a) total foreign exchange liabilities; (b) theagreed settlement date(s) for these liabilities; (c) stock levels byproduct, and the estimated deadlines for product reordering; and (d) as asequel to (c), number of days supply available of each product.

4.3 The monitoring of these levels is critical, particularly giventhe high percentage of The Gambia's foreign exchange earnings taken up bypetroleum imports. Accordingly, two systems are recommended: a PetroleumSupply Accounting System, and a Petroleum Financial Accounting System.

Current Situation

Product Imports

4.4 These occur through the Port of Banjul, and all products arestored initially in tanks at the Shell terminal. The volume of thevarious product receipts is determined by dipping the terminal tanksbefore and after the tankers are off-loaded, and these dips are witnessedby representatives from Shell, the owner of the product if other thanShell, and the Customs and Excise Department. Following this, an "Entryfor Warehousing" document is prepared by the owner of the product, andthe document is then presented to Customs for certification. The. docu-ment contains information on the volume of the product received, thecountry of origin of the product, and the standard c.i.f. value (not

- 31 -

necessarily the actual c.i.f.) for Custom8 purposes. After certificationby Customs, copies of the document are sent to the owners, to the CentralStatistical Department, and to the Trade Division of the Ministry ofFinance and Trade, with Customs retaining two copies for its files.

Product Distribution

4.5 Liftings of product from the Shell terminal are done primarilyby tank wagons under the supervision of a Customs Officer. A dailyrecord of each lifting is maintained by both the operator of the terminal(SHELL) and by Customs. The records are summarized at the end of eachmonth by Shell personnel and the monthly summary is then approved by theCustoms Officer. Following that, a monthly summary of receipts anddeliveries is sent to each of the other petroleum marketers, and thatdata forms the basis for the preparation of an "Entry Ex-Warehouse"document. These documents are prepared for each product; the type ofdocument depends on whether or not products are supplied and sold on adutiable basis. If supplied on a non-dutiable basis, the document issub-titled "Free of Charge". If supplied on a dutiable basis, the dutyis computed on the relevant document by the marketing company, the formsare sent to Customs for their certification, and a check is then drawn bythe company to cover the duty liability. In the case of all liftings, anadditional copy of the Ex-Warehouse document is prepared for the Accoun-tant General.

Payments for Imports

4.6 Payment for the local charges associated with imports, namelyport charges and harbor dues, i9 made by the respective companies follow-ing receipt of the relevant invoices from the Port Authority and/or theagent of the shipping line. In the case of overseas payments, some timeafter receiving the product, the respective companies are sent anofficial invoice by the petroleum products supplier for the c.i.f. valueof the products. The companies retain these for varying periods depend-ing upon payment terms. When these invoices are due, the companies sub-mit them to their respective commercial bank with a request for settle-ment. In turn, the commercial bank then requests foreign exchange fromthe Central Bank to settle those liabilities, and these requests areaccompanied by an advance to cover the cost of the foreign exchange. Themain need therefore is to routinely accumulate and analyze this informa-tion, preferably on a centralized basis. The results of the analysesshould provide the guidelines for Government decisions on pricing, pay-ment cycles and the like.

Proposed Accounting S'stem for Petroleum Products

4.7 In light of the foregoing, a petroleum products supply andfinancial accounting and reporting system is proposed for The Gambia.The main components of this system are as follows:

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(a) A Petroleum Supply Accounting System, which will allow themonitoring of movements of the various products into The Gambiaas well as through the main distribution channols (Annex 11);

(b) A Petroleum Financial Accounting System, which will facilitatemonitoring of some financial aspects of product-related trans-actions (Annex 12);

(c) A Petroleum Products Summary Reporting System, which will pro-vide summary information from the above two systems on a peri-odic basis.

4.8 As with any new system, the systems presented in Annexes 13 and14 should be tested in actual use, evaluated and then modified ifrequired. Following that, the final draft of the systems manual shouldbe prepared.

Manaem ent of the SXstem

4.9 The proposed accounting system ideally should be managed by onegroup. This would facilitate better coordination of the activity andallow a core of expertise to be developed within the Government. Accord-ingly, the Energy Unit, which is to be a section of the Ministry ofEconomic Planning and Industrial Development (MRPID), would appear to bethe group best suited to undertake that responsibility.

4.10 Although initially the systems probably would be carried outmanually, plans should be made for them to be computerized at some timein the future. This would simplify the whole process of gathering andaccessing information, as well as broaden the range of available informration. Given the power of the newer personal computers, this may be onedirection to explore. On the other hand, with a vastly under-utilize4Wang VS 80 computer already operational in the Central Statistics Depart-ment, there is another option. One advantage of using the Wang VS 80would be that The Gambia would not require support for another type ofcomputer. However, the alternatives should be fully evaluated before afinal decision is made.

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V- REWCATIOI OF PSUOLIU 81OMGBE DEPOT

overview

5.1 All petroleum products consumed in The Gambia are received andstored in the Shell Terminal located in Banjul. Over the years, residen-tial dwellings, a mosque and a school have been built close to the ter-minal--some structures right up to the terminal fence. Although Shellhas recently updated the fire protection facilities at the terminal, manyof the surrounding buildings are too close to the terminal to meet mini-mum safe-distance standards and therefore pose a safety risk. TheGovernment of The Gambia (GOTG) is concerned and now wishes to relocatethe terminal outside of the Banjul city limits.


5.2 Of the three possible new locations investigated, the only onethat appears practical is a site along the Bund Road. Preliminary esti-mates place the cost of a new terminal along that road at US$4.4-8.3 mil-lion, depending upon the precise location. Current indications are thatsuch an investment could not gain a top priority in GOTG's investmentprogram, and it is very unlikely that the oil companies would committhemselves totally to such a venture. As an alternative, GOTG shouldinvestigate the costs of creating a safety zone around the existing ter-minal by relocating the individuals and entities which have encroachedupon the terminal limits. It should be noted, however, that a decisionto remain at the present location will also require expenditures ofUS$1.3-2.0 million to cover the cost of building three new tanks to allowthe terminal to meet 1990 needs. Space is available within the existingterminal for this expansion.

Current Situation

5.3 Bulk storage for petroleum products is currently provided at aninstallation located in Southern Banjul. The installation was con-structed by the British Government in the late 19409 but the facilitieswere subsequently passed to, and are now owned and operated by, the ShellCompany of West Africa Limited. The land on which the terminal sits isunder the terms of a 99-year lease with The Gambi&n Government. Themission was unable to locate the lease document to ascertain the numberof years left on the lease.

5.4 Petroleum products are imported into The Gambia on tankerswhich dock at the Banjul port facilities and discharge through an 8-inchpipeline to the terminal. The terminal is maintained as a customs bonded

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warehouse, with customs duties and import taxes being paid based upon themonthly withdrawals from the terminal by the various petroleum marketingcompanies. In addition to customs duties and import taxes on deliveries,the two marketing companies that are non-operators of the terminal andGUC pay throughput charges to Shell for the storing and handling of theirproducts at the terminal.

5.5 The existing facilities consist of five product tanks, the naw-est of which was constructed in 1977-78, a loading rack system, a newfire-fighting system (installe! in 1982 to 1984), and associated officeand warehouse facilities. The product storage capacity at the terminaltotals 100,600 barrels (16 millon liters). When first constructed,apparently there was some open land reserved around the terminal forsafety reasons. Although petroleum companies such as Shell have stan-dards for minimum clearances between petroleum storage and relatedfacilities, uncontrolled encroachment of housing and other buildingsright up to the terminal fence has now caused a breach of safetystandards. Accordingly, the Government of The Gambia is rightly con-cerned about the risk of fire and other associated safety problems. Adecision therefore has been taken to relocate the petroleum storage faci-lities to a location outside the immediate city limits, despite therecent installation of an automatic fire protection system.

5.6 Three possible locations for the terminal have been discussed:(a) along the Bund Road, which would allow the use of the existing dockreceiving facilities; (b) on the Atlantic coast, and (c) on the bank ofthe River Gambia near Mandinari Point. Ihe last two would involve theconstruction of new docking facilities. In all three situations, theoption of constructing completely new facilities, as opposed to salvagingsome equipment from the existing terminal, needs to be considered.

New Facilities

5.7 New terminal facilities should be based on a "middle-of-the-road" approach of maintaining a compulsory stock of 50-60 days supply in1990. With imports on 50-day cycles, cargoes would be approximately100,000 barrels each, based on estimated 1990 demand levels. Requiredtankage would have to be as shown in Table 5.1. The figures for reservestock include compulsory stock, unusable amounts for the tops and bottomsin each tank, and the 1.5 million liters of HDO tankage at CUC. Theswing tank allows scheduled preventative maintenance (including cleaning)of all tanks. The five required tanks would include one 36,000 bbl tankfor kero/turbo, two 56,000 bbl tanks for HDO and a swingtank, a 67,000bbl tank for gasoline, and an 80,000 bbl tank for ADO. The main gasolinetank is expected to have a floating roof to minimize evaporation losses.

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Table S.l: TANWAGE REQUIRED FOR NEW TERMINAL

Product Imports Reserve Stock New Tank Capacities

(M liters) -/ (M liters) (M liters) ('000 bbls)

Gasoline 3.98 6.67 10.65 67Kero/Turbo 2.36 3.36 5.72 36ADO 5.36 7.36 12.72 80HDO 4.26 4.64 8.90 56Swing Tank - - 8.90 56

a/ M N millionSource: Mission estimates.

5.8 In general, experience has proven that, once tankage and otherfacilities have been put in place, it is difficult to justify salvagingany equipment or tanks for relocation other than those facilities whichcan be easily lifted and reassembled. This applies particularly insituations where good welders are in extremely short supply as is thecase in The Gambia. Visits to the existing terminal suggest that theonly items for which salvaging could be justified are (a) the loadingrack and associated pumps, (b) possibly, the fire water tank, and (c)assorted piping, valves, furniture and fixtures.

Cost Estimxces

5.9 Tankage. The cost of tankage would depend upon sources ofsteel and of contracting and other related services. The cost of com-pleted tanka8e in the sizes required is shown in Table 5.2 and the totalcost is estimated to be around $2.2-3.6 million, as follows:

Table 5.2: COST OF REQUIRED NEW TANKAGE

Product Tank Unit Cost Cost(US$/bbl. a/) (US$'000)

Kero/Turbo 6.50 - 10.40 234 - 375Gasoline (floating roof) 6.50 - 10.40 435 - 697HDO 5.85 - 10.40 328 - 582Swing Tank 5.58 - 10.40 328 - 582ADO 5.20 - 7.80 416 - 624

Subtotal 1,741 - 2,860

Painting, strapping,water testing, etc.based on 25X add-on 435 - 715

Total $2,176 - 3,575

a/ Based upon a survey of petroleum companies.


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5.10 These costs do not include foundation costs which are treatedseparately below. All tanks are envisaged as being 12 meters high withdiameters between 24 and 36 meters. The total weight of filled tankswould range from 4,700 to 10,900 metric tons each, and this will be takeninto consideration when addressing the foundation requirements.

5.11 In the case of the fire water system, the tank requirementswould be on the order of 4,000 to 5,000 barrels. The current cost ofsuch a Lank is estimated to be in the (lower) range of $58,000 to 65,000or (upper) $72,000 to 85,000, both cases without considering foundations.Accordingly, removing the existing fire water tank and relocating it to anew site would have to cost less than these amounts to justify salvaging.Since this cost would represent a relatively small pertion of the totalcost of tankage, the figures mentioned will form the basis of the costestimate.

5.12 Buildings. The following buildings would be required: (a) anoffice building of around 200 sq. meters; (b) a maintenance building andwarehouse of about 150 sq. meters; (c) a customs building of 20 sq.meters; and (d) a gate house of about 10 sq. meters.

5.13 Discussions with consultants and foreign contractors nowoperating in Th; Gambia suggest that the office building could cost from$325 to 390/sq. meter. The 380 sq. meters of buildings listed abovetherefore could cost $124,000-l50,000. An addition of say 301 to coverair conditioning, furniture and fixtures would bring these costs toapproximately $161,000 to $195,000. Other items in the cost estimatewould relate to roadway, parking area, turning circle and general site.

5.14 It is assumed that the loading rack can be salvaged from theexisting site. An arbitrary figure of $65,000 is included for relocatingthe rack plus the loading pumps, fittings, etc.

site Size

5.15 Assuming that fire walls are 1.5 meters high and that theyshould be able to contain approximately 50X of a full tank, the area ofthe tank farm would be some 11,800 sq. meters, as shown in Table 5.3.

5.16 Safety reasons and other space requirements dictate that aterminal should be at least 2.5 to 3 times the area required for the tankfarm. This would make the total site requirements about 30,000 - 35,000sq. meters. In addition, there is a normal minimum safety requirementfor an empty zone of 100 feet from the battery limits of the terminal.All of this will enter into determining the size of the site required fordeveloping new terminal facilities.

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Table 5.3s CALCULATION OF TANK FARM ARIA

Tank Base Fire-WallProduct Tank Capacity 502 Volume Area Area

('000 liters) (m3) (X2) (I 2 )

Kero/Turbo 5,724 2,862 467 1,441Gasoline 10,653 5,326 883 2,6675Db 8,904 4,452 730 2,238Swing Tank 8,904 4,452 730 2,238ADO 12,720 6,360 1,050 3,256

11,840

source: mission estimates.

site Selection

5.17 The mission learned that no definitive work has been done onchoosing the three sites. The preliminary selection therefore has beenbased on factors which pertain to the general rea of the three sitesunder consideration and discussions with the Harbor Section of the PortAuthority.

5.18 Prom all indications, neither the tandinari nor the Atlanticsites can be recommended for a new terminal. In the case of andin,ri,the area close in to land consists of extensive mud flats and would betoo shallow for siting port facilities to support the terminal. Dredginga channel and turning the basin into a port facility site is out of thequestion from a cost standpoint and also because it would qu.ckly fillwith silt again since it is out of the self-scouring main channel. Thereare also ecological concerns because the area is one of the main prawnbreeding grounds. In order to obtain the miuimm 10 meter depth requiredby tankers, a single-point mooring would have to be located some ¶.Jmiles offshore. This would put the mooring directly in the main char 81of the Gambia River which clearly could not be permitted. Ft-' '.4r e,the cost of building a new mooring, as well as laying some .5 or . ofmarine pipeline would be prohibitive. On the other hand, if , of thissite was considered along with the existing dock, some 4 to 5 miles ofmarine pipeline would be required, which would make it even more expen-sive.

5.19 The Atlantic Coast site is also ruled out for several reasons,as follows: (a) the area close to shore is very shallow with many shoalsand rocks; (b) the requirement of a minimum 10 meter depth would only beobtained at a minimum of 6 and up to 15 miles from shore; (c) the cost ofoffshore mooring and marine piping from such distances would make the

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terminal prohibitively expensive; (d) operating a mooring point from suchlong distances offshore would be a difficult exercise, particularly giventhe possibility of not being able to moor in certain weather; (e) some ofthe main fishing grounds and beaches might be damaged through pollution.

5.20 For information purposes, discussions with a US-based petroleumcompany indicated that huying an offshore, single-point mooring and in-stalling it in the United States or Caribbean coastal waters could costaround US$5-6 million. In addition, mobilizing a barge to lay a marinepipeline could cost somewhere around US$1.5 million, plus the additionalcost of piping and laying. Given the cost of barge mobilization, and itscurrent operating costs, the installed cost of 8-10 inch marine pipelineis estimated at about US$700,000/mile, compared to 40-SOX of that figurefor pipeline on land. Based on these estimates, a marine pipeline and amooring point six miles offshore would then cost US$9.2-10.2 million.These costs amount to some five times the cost of tankage alone. Even ifthe marine pipeline was reduced to three or four miles, the cost wouldstill be prohibitive.

5.21 In light of the foregoing, it would appear that since a sitealong the Bund Road would allow use of the existing port facilities andnot require any additional mooring installation costs, it is the only oneof the three possibilities worthy of further consideration. It is alsouseful to note that the Ministry of Local Government made a similarrecommendation in a letter to the Secretary General dated May 10, 1984.

Development of Bund Road Site

5.22 The area along the Bund Road varies from open water, apparentlyto a depth of three to four meters, to swampy terrain, to reasonablysolid ground. Unfortunately, the three to four meters of open water arein the area closest to the port. Selection of an actual site along thisroad will require detailed engineering and soil bearing strength investi-gations. The advantage of the waterlogged area would be that encroach-ment on the site would be impossible on three sides, while such aneventuality could occur on firmer ground. Based upon reclamation typework done on the current port development project, it is estimated thatsome four to five meters of fill would be required at the worst possiblesite and a masimum of 0 to 0.5 meters for tankage foundations on firmerground. In 1982, the cost of firm sandfill was approximately $5.20 percubic meter delivered and levelled on site at the port. Using theconsumer price index to inflate that figure, the cost of fill would beapproximately $7.30 per cubic meter in 1984. Reclamation and preparationof a 35,000 m site under the worst conditions therefore could cost about$1,275,000. If only 0.5 meters of fill were required, this figure wouldbe reduced to $127,000.

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5.23 Piling would also be required' to support the tanks. Currentexperience on the port development project indicates that the cost ofpiling in that area to support 200 to 250 metric tons was about $1,560per pile in mid-1982. The total weight of tankage and products of some40,000 metric tons suggests that 160 to 200 piles would be required tosupport tankage alone. Including buildings and other facilities couldadd another 10 to 20 piles to that requirement. Inflating the mid-1982cost per pile to mid-1984 prices would bring the total cost of piling to$392,000 to 476,000.

5.24 As a result of the above, the prepared site could cost about$519,000 to 1,751,000 in mid-1984. To this would have to be added thecost of engineering studies. Studies associated with site investigationand soil tests would cost about $40,000 to $65,000. No cost has beenincluded to cover the purchase or lease of the land where the site willbe.

Total Cost Estimate

5.25 The estimates for developing the Bund Road Site are designed toprovide only a rough indication of costs. A detailed engineering studywould be required to obtain more precise estimates. The total cost ofall components is in the range of $4.4-8.3 million (summarized in Annex4). At current conversion rates, the estimates indicate a total cost ofD 17-32 million to relocate the terminal.

Alternative Consideration

5.26 At this investment level, the proposed terminal would be amajor outlay. To put it into some perspective, the revenue and expendi-ture estimates for The Gambia for FY84/85 are D 150 and D 181 millionrespectively, and the Covernment's capital expenditure for PY82/83 wasonly D 2.3 million, compared to the D 4.2 million budgeted. In addition,at a level of up to 8X of the estimated GDP for FY83/84, it is veryunlikely that this venture would become a top priority in the publicinvestment program, at least in the short term. The Government thereforeshould consider evaluating the cost of creating a safety zone around theexisting terminal. This would involve relocating all encroachers within75-100 feet of the terminal limits. Such a decision also would involvethe cost of building three new tanks in the present depot. One of thesewould be required to replace the exIsting diesel tank, which is old andleaking, and the other two would meet 1990 volumetric requirements. Thecost of the 3 new tanks is estimated to be $1.3-2.0 million.

Other Considerations

5.27 Notwithstanding the foregoing, in practical terms, the range ofthe estimates for the new terminal is too wide to provide a solid basefor an investment decision. Therefore, when an investment decision isimminent, the Government should seek technical assistance, not only for amore definitive site evaluation and selection exercise, but also to

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develop a firmer capital estimate for the proposed project. This shouldresult in the identification of a specific site, preliminary drawings anddetailed costings for the new terminal.

5.28 It is possible that such a venture could be financed on astrictly commercial basis. For example, using the estimated 1990 con-sumption level of 113 million liters of producta per year, a charge of3.5-6.6 bututs/liter would be required to achieve a 202 DCV internal rateof return (without considering operating costs or taxes) on the totalinvestent to recover it in 10 years. The current rate allowed on salesof petroleum products to cover depreciation costs, and maintenance is 2.5bututs/liter. 10/ However, with today's uncertain foreign exchange, itis very unlikely that the oil companies could be encouraged to undertakethe investment, or that GOTM could make foreign exchange of its ownavailable for this purpose.

5.29 If it is possible for the Government to obtain soft loanfinancing (say, 82 for 20 years), prices would only have tc be increased1.5-2.8 bututs/liter to generate sufficient funds, based on 1990 esti-mated volumes. In either case, the generation of local funds does notseem to be a significant problem. The burden will be allocating foreignexchange amounts (US$0.9 to 1.7 million per year with a 152, 10-yearcomercial loan or US$450,000-$830,000 per year for an 82, 20-yearGovernment loan). For that reason, the longer term, lower interest rateloan will best suit the needs of The Gambia.

5.30 gven if concessionary funds can be obtained, certain issueswill have to be addressed before a decision is made to go forward withthe investment. These issues relate toS (a) ownership and management ofthe new facilitiest (b) operation and management of the new facilities;and (c) phasing out of existing facilities and phasing in new ones.

10/ This charge is based on the current volumes which are relativelysmall.

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VI * TECHNICAL ASSISTANCE AND TRAINING PROGRAM POB TIM ENERGY UNIT

Overview

6.1 Many Government ministries, departments and agencies areinvolved in petroleum activities in one way or another. The Ministry ofFinance and Trade (MFT) is in charge of product pricing. The Ministry ofEconomic Planning and Industrial Development (MEPID) monitors the energysector. The Ministry for Local Government and Lands handles the sitingof facilities. The Customs and Excise Department is responsible forcustoms duties and import taxes on products. The Central Bank of TheGambia settles foreign liabilities for product imports; and the CentralStatistics Department collects petroleum cost/volume and oil companyoperating data for national statistics.

6.2 Recognizing the need for some central coordination in petroleumactivities, the Government has agreed to the establishment of two enti-ties--a National Energy Commission (NEC), and an Energy Unit within theMinistry of Economic Planning and Industrial Development.

Role of the National Enetgy Commission

6.3 The NEC would provide an appropriate forum for discussingissues in the oil industry prior to policy formulation, with the EnergyUnit, as technical support, serving the role of information gatherers andsecretariat to the Commission. The Commission would be made up of seniorrepresentatives from relevant Government entities and the oil companieswho would meet periodically to review problems and trends in the oilindustry, and through an Executive Committee of that Commission, proposeplanning and policy directives and guidelines. This Executive Committeealso would be responsible for submitting energy policies and programs toCabinet for approval. The role proposed for the NEC in petroleum supplymanagement is presented in Annex 13.

Role of the Energy Unit

6.4 The Energy Unit is intended to support the NEC at the workinglevel and to collect and analyze data on petroleum supply and distribu-tion. The role proposed for the Energy Unit in petroleum supplymanagement is presented in Annex 14.

6.5 The Energy Unit has not been manned yet except for a part-timeSenior Planner in MEPID. The newly established Statistics Group of MFTalso has not been manned as yet. The mission understands that twoEconomics Graduates are being sought to fill the two approved positions -one in each ministry. To function properly, the Energy Unit also willrequire an expatriate Resident Energy Economist/Planner for 18-24 months

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to supervise the Energy Unit and train the Economics Graduates and theSenior Planner. The mission believes there is sufficient monitoring,analysis and coordination work in the petroleum sector to justify asecond full-time Economics Graduate position in the Energy Unit.

6.6 The Ministry of Finance and Trade currently is responsible forpetroleum product pricing. The mission recommends that the Erergy Unitprovide the necessary analytical support to MFT to regularly adjustproduct prices. In addition to following international product pricesand freight rates, the Energy Unit will monitor the various costs of themarketing companies and systematically review both marketer and dealermargins.

6.7 The types of data which the Energy Unit would have to monitorregularly cover supply and demand, the various components of domesticprices, domestic inventories and distribution. This activity would begreatly enhanced by the availability of data processing facilities. Atpresent, ti.e Central Statistics Department has a Wang VS 80 computer; itwould be relatively simple for data processing programs to be developedto provide the data base required by the Energy Unit.

6.8 Although six work stations are installed and three more are tobe supplied soon, the Central Statistics Department has only found fundsto employ two semi-trained, and one operator to man these stations. Thebudget for the Energy Unit therefore would have to include amounts tocover the cost of data processing services as follows: (a) SystemsAnalysis/Programing: two to three man-months for initial set up, oper-ator training and one day per month thereafter for program maintenance;and (b) Computer time: two to four days per month for data input/output.

Technical Assistance for the Energy Unit

6.9 The technical assistance envisioned to get the Energy Unit setup would involve: (a) a Resident Energy Economist/Planner (alreadyapproved) to head the Energy Unit and train the Energy Unit staff (18-24months), estimated cost US$180,000-240,000; and (b) a Systems Programmerto program the Wang VS 80 computer in the Central Statistics Departmentto handle the routine reporting requirements for the Energy Unit(two-three man-months), estimated cost US$20,000-30,000.

Training

6.10 To discharge its responsibilities in monitoring the petroleumsector effectively, the Energy Unit staff will require intensive train-ing. Most of the local training will be provided by the proposed expa-triate expert.

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6.11 On-the-Job Training. The Resident Energy Economist/Plannerwill undertake the following activities with the assistance of the EnergyUnit staff:

(a) Establish and discuss monthly forecasts of foreign currencyobligations with Central Bank and oil companies. These couldbe compared to petroleum product imports to plan effectivelyfor foreign exchange requirements.

(b) Provide the necessary input to MFT on a cargo-by-cargo importbasis for changes needed in the product price build-up.Adjustments in the proposed Stabilization Factor and theadministration of' that Fund will be the responsibility of MFT.

(c) Initiate individual meetings with all the parastatals to reviewand assist them in preparing and updating their ContingencyAllocation Plans. Meetings should be held for the same purposewith the Ministries of Works and Communications, Defense, andInterior.

(d) Initiate meetings with the oil companies, ministries and para-statals, to review and agree on an acceptable rationing system.This will allow a comprehensive Contingency Allocation Plan tobe defined for the NEC and subsequent Cabinet approval.

(e) Initiate meetings with the oil companies, Customs and the Cen-tral Statistics Department to ensure that the necessary report-ing documents are being prepared according to the Unit'srequirements. This would also involve obtaining petroleumconsumption data by product and consumption category from themajor consumers and oil companies on a regular basis. TheUnit's own reporting requirements to the NEC, MEPID, CentralBank, MFT, oil companies, etc., must be developed and carriedout.

(f) Teach Energy Unit personnel how to make simple adjustments tothe proposed computer program to handle much of the routinereporting.

(g) Analyze the effects of product pricing on factors such as ex-ports of products and incentives to artificially restrictsupply.

(h) Systematically review all aspects of energy use to determineways to conserve fuel.

(i) Review possible investment proposals that may arise in theenergy sector.

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(j) Study the marketplace to determine if changes in product qua-lity could reduce the total foreign exchange requirement forpetroleum products. for example, many countries that wereimporting two grades of gasoline before the energy crisis beganto import only one about six years ago and continue thatpractice today. The mission estimated that The Gambia couldsave US$117,000-140,000 a year in foreign exchange requirementsby switching from a 93 octane gasoline to a 90 octane gasoline.

6.12 Other Training. In addition to the on-the-job training thefollowing formal training is proposed:

(a) The Resident Energy Economist/Planner would present a formalweekly training in which all aspects of the petroleum industrycould be covered over a nine-month period. This may representabout 150-200 hours of instruction in problem-solving as wellas a considerable amount of reading material. The topics couldcover, but not be limited to:

(i) Crude types and quality, treating requirements;

(ii) Refining: Simple, Complex, Costs, Product Quality;

(iii) Transportation: Clean, Black, Cost, Freight Rate Determina-tion, Worldscale, APRA, Spot Market;

(iv) Worldwide Crude Production, Demands, Stockpiling;

(v) Current Crude Situation: OPEC, GSP's, Spot Market, Price andSupply Controls;

(vi) Current Product Situation and Outlook: Spot Market, ProductSeasonality and Price Relationship, Effect of ShiftingDemands, Fuel Oil for Feedstock, etc.;

(vii) Role of Solar, Biomass;

(viii) Longer Range Price Outlook for Crude and Products;

(ix) Value of Credit.

Considerable material could be developed on how these factorsaffect the availability, cost, transportation, quality, credit,and end use of products being imported into The Gambia.

(b) Outline and discuss each aspect of the Energy Unit's Areas ofResponsibility. This might include a "how to" approach forcertain assignments such as the proposed ongoing review forrecommending routine changes in the petroleum product pricingstructure.

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(c) Tours should be arrangted with the oil companies to witness thetanker discharges, storage depot loadings, and storage tankmeasurement operations. Tours through other industries shouldalso be arranged.

(d) After about nine months of on-the-job training and dailyinstruction, both Economics Craduates would receive about two-three months of offshore training on a rotational basis,preferably with a Government or national oil company. Thislength of stay. would allow each trainee to observe andparticipate in several aspects of petroleum industryoperations, as the oil companies are usually involved in explo-ration, production, refining, transportation, domestic market-ing and offshore sales of crude and/or products. This type oftraining could be easily arranged on a government-to-governmentcontact basis, possibly with Nigeria or Trinidad.

6.13 The Resident Energy Economist/Planner should establish alibrary specifically for the Energy Unit and stock it with basic refer-ence books and one or two petroleum industry periodicals. Included inthe periodical subscriptions should be "Platt's Oilgra%, "PetroleumIntelligence Weekly", and copies of the Training Seminar on PetroleumSupply/Distribution Operations provided by the mission to Governmentofficials in November 1984.

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Annez 1

PRINCIPAL OBJECTIVES OF ASSIGNMENT

The principal objectives of this assignment are to assist theGovernment of The Gambia:

(a) in evaluating alternative arrangements for importing petroleumproducts to minimize expenditure of foreign exchange;

(b) in rationalizing procedures used for monitoring internal petro-leum distribution;

(c) in developing a contingency plan for mandatory allocation ofpetroleum stocks so as to minimize economic disruptions in theevent of shortages or supply interruptions;

(d) in reviewing the current pricing system and developing newguidelines for periodically reviewing and adjusting petroleumprices;

(e) in developing a least cost strategy for implementing theGovernment's decision to relocate the central petroleum storagedepot (for safety reasons) to an area outside Banjul;

(f) in defining steps that could be taken to rationalize operations(importation, storage, and distribution of products) in thesector; and

(g) in defining medium-term technical assistance and trainingrequirements to enable agencies of the Government to effec-tively execute day-to-day responsibilities pertaining to thesupervision and monitoring of oil company operations.

The proposed technical assistance will also cover a shorttraining seminar to familiarize officials/administrators of Governmentministries and public agencies with the general commercial principles andoperating arrangements used in the oil industry (downstream of the pro-duction and disposal of crude oil) both on a worldwide basis, and withparticular reference to the situation and requirements of The Gambia.

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Annex 2

CURRENT PRICING STRUCTURE FOR PETROLEUM PRODUCTS(Bututs per liter)


C.i.f. (ex SAR Refinery) 100.00 92.39 92.18Harbor Dues and Wharfage 1.20 1.20 1.20Customs Duty 116.00 110.00 103.00Import Tax 3.50 3.23 3.23Terminal Throughput 2.20 2.20 2.20Terminal Leakage 1.01 0.70 0.70Cost ex Terminal 223.91 209.72 202.51Depreciation and Maintenance 2.50 2.50 2.50Financial Charges 8.78 8.78 8.78General Overhead 2.50 2.50 2.50Marketers' Profit 2.50 1.20 2.50Price ox Depot 240.19 224.70 218.79Delivery and Dealers' Margin 9.50 9.50 9.50

Total 249.69 234.20 228.29Pump Price 250.00 234.00 228.00

Sources MFT.

PROPOSED PRICING STRUCTURE FOR PETROLEUM PRODUCTS


Warehouse Cost a/ 108.00 100.00 99.00Customs Duty and Import Tax 119.50 113.23 106.23Terminal Throughput Charge 2.20 2.20 2.20Marketers' Margin (15.6%) 16.85 15.60 15.44Dealers' Margin and Delivery 9.50 9.50 9.50

Total 256.05 240.53 232.37Stabilization Factor a/ includedin Warehouse Cost 5.79 5.71 4.92

Proposed pump price 256.00 240.00 232.00

a/ To be managed by MFT and reviewed semi-annually*

Source: Mission proposals.

- 48 -

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- 49 -

Annex 4

COST ESTIMATE SUMMARY

FOR BUND ROAD SITE

Land (without its purchase price) US$'ite investigation studies 40,000 - 65,000Fill and foundations 519,000 - 1,751.000

Subtotal. 559,000 - 1,816,000

TankagsProduct (including lines) 2,176,000 - 3,57S,000Fire-water 58,000 - 65,000Relocating pumps andfittings 40,000

Relocating loading rack 269000

Subtotal 2,300,000 - 3,726,000

PipelineEx port (1-2 miles) 325,000 - 650,000

Buildings 161,000 - 195,000

Fencins (700 meters x 2 meters) 14,000

Slectrical 130,000

Total 3,489,000 - 6,531,000

Architecture & Engineerinp FeeseQ6 - 8U, use 7I 244,000 - 458,000

Continsency at 202 698,000 - 1,306,000

Grand Total 4,431,000 - 8,295,000

Sources Mission estimates.

Annex SPage 1 of 2

CURRENT SUPPLY ARRANGEMENTSLANDED COST BREAKDOWN(Dalasis per liter)

Importer: BP Texaco shell Guc

Date of Import: 4184 12/83 12183 6/84 6/84 8183

Product Gasoline Diesel Gasoline Diesel Turbo Fuel Diesel Diesel

FOB Price 0.841 0.802 0.530

O:ean Preight 0.790 N/A 0.711 0.883 0.155 0.160 0.053

Insurance 0.001 0.001 0.001

Demurrage 0.017

Loan Service Charge cl 0.032

Bank Charges 0.004

Intransit OceanLosses dl 0.004 0.004 0.003 - - 0.002

Total c.i.f. Cost#D/liter e/ 0.794 0.715 0.886 0.997 a/ 0.963 a/ 0.639

Credit Given, days 60 b/ 60 60 15 15 273 c/

al The divisor used in developing the unit cost is the discharged volume, hence, the cost of the ocean

in-transit losses is included.b/ BP said they get 30 days but could be extended. Therefore, assume it could be extended to 60 days

similar to Texaco's credit.c/ Obtained through a loan from the Islamic Development Bank.dl Calculated at 0.51 for gasoline and 0.35Z for diesel.el A 251 devaluation of the Dalasi occurred in February 1984.

Source: Actual invoices seen by the mission and adjusted as noted.

- 51 -

Annex 5Page 2 of 2

Foreigp Exchan8e Requirements (Current Volumes)

(Assumes BP and Texaco each import 50S of the gasoline and all ofGUC's requirements were imported by CUC at last year's price)

Avg. Gas Prices (*794D/I x 5.2846/0) .5 (.7150/1 x S.3588/D) 5- .2412S/I

S Mlillon

BP/Tex* Gas a 22.2 million llteis x .2412 S/I a 5.355Shell Kero/rurbo a 8.7 mlIlIon liters x .9970/1 x S.2694/D a 2.337Tex. Diesel *24.8 million I x .886 O/I x S.3588/D * 7.883GUC Diesel * 10.2 mllilon I x .639 0/D x S.376/D a 2.450

Value of Credit:

BP A Tex,: 60 days x 12.1875S x $13.238 million a (.265)365 days

Shel I 15 days x 12.1875% x 52.337 mIIIIon a (.012)365 days

GUC£ : 273 days x 12.1875% x S2.450 million * (.223)365 days

Total Foreign Exchange Requirements a 517.525

- 52 -

Annex 6Page 1 of 4

PROCFSSING NIGERIAN CRUDE THROUGH SAR REFINERY IN DAKAR

Assumptions used in this supply alternatives

(a) Nigerian light crude would be lifted in 50,000 DWT tankers andwould incur a 0.5X in-transit loss.

(b) Processing fee of $1.25/bbl but payable when product lifted(this would require negotiation).

Cc) 952 saleable product yield (based on 1981 energy balanceprovided by the SAR Refinery).

Id) Product imbalances (production from crude versus the productmake-up required by The Gambia) would be adjusted with productsbeing exchanged on a value basis (SAR Refinery Price List ofSeptember 1983 used).

(e) Products lifted regularly from SAR Refinery on the small shipthat operates out of Dakar. Parcel sixe to be 6,100 MT (7.5million liters) with deliveries every 42 days.

(f) Product in-transit losses: gasoline and kero/turbo at 0.52 andboth grades of diesel at 0.35.

(g) Freight from Dakar to Banjul was estimated to be $2.00/MT.

(h) The total cost of financing through this arrangement will beadded to the C.I.F. value.

ti) Products imported into Banjul will be sold to the oil companiesat cost utilizing the current price spread between products andwith 15 days credit.

(j) Crude cargo: 50,000 LT x 7.68 bbls/LT = 384,000 bbls.

- 53 -

Annex 6Pago 2Iof 4

Crud. Purchase384,000 bbls x 530.00/bbl a $11,520,000

Crude Transportaflon (VS Flat Sonny/Dakar a $5.67/LTt July AFRA U-l * 74.6)50,000 LT x 55.67/IT x .748 n 5212,050

Crude Insurance Cost (S.08/5100 value of FOB + freight)(511,520,000 + $212,058) x .0008 a S9,386

Crude Recelwd by DuOlar (0,5% Intransit lois)384,000 bbls x 0.995 a 382,080 bbls.

Crude Processing Fee (Assume $1.25Ibbl)382,080 bbis x S1.25/bbl a 5477,600

Obtain agrement to pay for processing when product lifted.

Production from Crude at SAR Refinery (382,000 bbis. processed)

Product Sal blieldsL S Volume, bbls. Volume. 000's llters

C3/C4 5.8 22,161 3,524GasolIne 25.4 97,048 15,431Kero/Turbo 19.6 74,888 11,907Auto Diesel 14.9 56,930 9,052Heavy Diesel 4.3 16,429 2,612Fuel Oil 2 f 95.520 15.1B8

Total 95.0 362*976 57,714

P product Exchange by Refinry Price (SAR Price List of Septo 1, 1983)

- C3/C4: 3,524 k liters x I 14/1730 liters a 2037 MT

Value a 2037 Mr x Ave C3/C4 price 131,600 CFAdfT f 268,069 KCFAConvert to equal value of go pline:

268,069 KCFA/109,050 CFA/. a 2,458 03 or 2456 k liters of gasollne

- Fuel Oil: 15,188 k liters x I NT/1050 liters a 14,465 MTValue * 14,465 WT x 72,400 CFA/NT a 1,047,266 KCAConvert to equal value of auto 3dieel:1,047,266 KCFA/103,200 CFAA/ a 10,148 m3 or 10,148 k litersof auto'§lesel

- 54 -

Annex 6Page 3 of 4

Volumes Now Available:

Desired Total ResultantProduct From crude, Exchanged, Avallable ProductBalance. 5 000s liters Owl0s liters 000's liters Balance S

Gbsoline 34 15.431 2,458 17,889 34Kero/Turbo 13 11,907 - 11,907 23Auto Dlesel 36 9,052 10,148 19,200 38Heavy Diesel 15 2,612 - 2,612 5

100 51,608 100

It Is necessary to convert some kero/turbo to heavy diesel:

Kero/Turbo: 5100 k liters x 105,320 CFA/m_ a 5166 k liters heavy dieselINT/1165 liters x 121,138 CFA/MT

Volumes Now Available:

Total Products Available ResultantDesired Product from Crude & Exchange Product-slance, 5 000's liters Balance, S

Gasoline 34 17,889 34Kero/Turbo 13 6,807 13Auto Diesel 38 19,200 38Heavy Diesel 15 ?.778 is

100 51,674 - 100

The processing fee would amount to: 5477,600/51,674,000 liters u $0.0092/liter

Product Reclved In Banjul after Ocean Intransit Losses

Gasoline: 17,889 k liters x .99S a 17,800 k litersKero/Turbo: 6,807 k liters x .995 a 6,775 k litersAuto Diesel: 19,200 k liters x .9965 a 19,133 k litersHeavy Diesel: 7,778 k liters x .9965 a 7,7M1 1 liters

Total 51,459 k liters

These supplies would be sufficient for an average of 285 days.

- 55 -

Annex 6Page 4 of 4

* Product Transportation Costs - Dilakr to BanLul

7,500 OWT capo ship x 1.0163 MTLT x 52.OO0MT a 515,244/voyage285 days - 6.8 voyaews x 515,24/voyage a S103,659

42 days

* Product Insurance Costs - Dakar to BanJul

Total value of Products for Insurance Purpose:

Crude Cost 511,520,000Crude Freight and Insurance 221,444Processing Fee 477,600Product Freight 103.659

Total Value for Insurance Purposes $ 512,322,703

Insurance * .09$ x 512,322,703 * S11,090

Average Cost of delivered products (excluding credit benefits)

512,333,793 u 5.2397/11ter or .906 O/liter51,437,000 liters

This Is owe expensive than the other supply alternatives.

* Foreign Exchange Requirements (Annual Basis)

S MiillionCrude cost 3 511,520,000 x 365/285 * 14.754Crude Freight and Ins. a S221,444 x 365/285 - .284Processing Fee - Si47,600 x 365/265 a .573Produef Freight and Ins. 5 S114,749 x 368/285 * .147Credit for Crude: 90 days x 12.1875% x 514.754 MiIIIon * (.443)

365 daysCredit on Freight and Ins: 30 dans x 12.1875% x 5.431 Million * (.004)

365 daysCredit on Process Fee: 42 days x 12.1875% x S.573 Million * (.006)

365 daysTotal Foreign Exchange Requirement S S15.303

- 56 -

Annex 7ne 1 of 2

PURCHASING PRODUCTS FROM NIGERIA

Price of Products O1livered from Nlasria1. Rotterdam average bulk price (Plaitt's July 20):

sm Milter

Premlum Gasoline 266.50 0.1964Kaeo/turbo 251.50 0.2046Dlesel 225.50 0.1900

2. Freight from Rotterdam to Port Harcourt: (Worldacale Flats RotterdsmwPort HarcourtS11.75AT)

$/I Iter

GasolIne a 11.97 S/LT x 1.161 (MR Clean AFRA) * 0.00991.0163 MT/LT x 1357 liters M

Kero/turbo a 11.75 S/LT x 3.161 tlR Clean AFRA) * 0.01091.0163 Mi/LT x 1229 IltersMif

Diesel a 11. SALT x 1.161 (MR Clean AFRA) a 0.01131.0163 MT/LT x 1107 lltersiMt

3. Freight from Port Haroourt to banjul: (Worldseale Flat: Port Harcourt/BanJul Est. at55.624LT) using light loaded General Purpose veseIs.

S/titerGasol Ine a 5.625/AT x .69SffClean AFRA) x19.680M a 0.0223

1.*0163 NTALi x 1337 1litersMT x 6,100 MW

Kero/rurbo a 5.62 SALT x 1.695 (W Clean AFRA) x 19.66 MT a 0.02461 .0163 NTAT x 1229 liters'Mixa6.100 W

Diesel * 5.62 SAT x 1.695 COP Clean AFRA) x 19.680 MT a 0.02551.0163 MT/LT x 1167 litersMT x 6,100 MW

365/42 days supply a 0.7 cargos pr year

57 -

An-nex 7Page 2 of 2

4. Delivered price in BanJul:

*/J I terGasolIne Turbo Diesel

FOB, Port Harcourt 0.2063 0.2155 0.2013Ocean Freight 0.0223 0.0246 0.0295Insurance at 0.09S 0.0002 0.0002 0.0002Intransit loss O.OOtl 00012 0-0008Total c,l.f, cost, 1/1lIter 0.2299 02415 0.2278

0/lIter 0.871 0.915 0.863

5. Credit: The amount of credit allowed by Nigeria Is not known. However, Nigeria doesgive 90 days for crude sales. Therefore, 90 days Is also assumed for refinery productsales. Assume transportatilo and Insurance payable in 30 days.

6. Foreign Exchange Requirements (Current Volumes):

S Million

Gasoline a 22.2 million liters.x .2063/Jliter * 4.603.99f (loss)

Keroa/urbo a 8.7 million liters x .2155 SlIter a 1,084.995 (lIos)

Dlesel a 35,0 million llterp x o2013 S/Iter a 7,070.9965 (Ioss)

Total FOB * 13,357

Value of 90 days credit x 12.1875S x S13.557 million a (.40?)365 days

Total Freight a 65.9 milion liters x .0243 S/liter a 1.601Insurance - .09% x 515.156 million a .014Value of 30 days credlt x 12.1875% x Sl.615 million

365 days a (.016)

Total Forelgn Exchange Requirements (Current Vol.) S14.749

- 58

Annex 8

OTHER PAoWUCT TANKAGE IN THE GAMIA(EXCLUDING THE MAIN PRODUCT TERMINAL AND KOTM)

('000 liters)

Motor Kero-Gasoline Turbo DiOesel

GPTC - - 25 !Seagull Cold Storage - - 10PolIce 5 - -

Pubic Works -BanJul 20 - 20- Interior - - 30

Brewery - - 10Coca Cola - - SU.S. Embassy - - 15GUC - Ex Kotu, EstId -' - - 10Airport Storage - 720 -

GP#B - BanJul 5 - 20- Interior - - s0

Est'd. Tkge at Serv. Stations c 300 _ 700

Totals 330 720 1,093

a/ Texaco expected to Install 15,000 liters of additional tankage In the near term.b/ Estimated at 20,000 lIters at each of the nine Interior locations,c/ Total estimate from OROATEC Report, "Energy Survey and Master Plan".


Anne 9

DEVELOPMENT OF AVAILABLE DAYS SUPPtY IN PAISENT SITUATION

Shell Dpot 6UC Vorking InventorIes Other Total Additional1982 Ouand Tonk Tankae Teakage Unusable Safety Avail. Avail. Days AvailableProduct (liters) usage No. Capacity Capacity Tops/at"s a/ Stock b/ Tanks c/ Storage Supply Caacity

('0000

(millIon) per day) ('000 liters) ('000 liters) ('000 liters) ('OO liters) ('000 lIters) ('000 liters) (days)

Gasoline 22.2 60.8 $l/IS 4,180 - (418) (1,398) 165 2,529 42 - -KerofTurbo 8.7 23.8 J2 2,370 - (237) (547) 360 1,946 82 40 1Light Diesel 24.8 67.9 J4 6,650 (665) (1,562) 547 4,971 73 31Heavy Diesel d/ 10.2 27.9 f3 2,930 I1,O0 (443) (642) - 3,345 120 78rotal 65.9 180.4

Ship Replenishments Scheduled Every 42 DaysParcel Size a 42 days x .1804 mlil ion lIter/day a 7.577 milion liters or 6,100 UT

a/ Unusable tank capacity based on 10J of rated capacity.b/ Safety stock for scheduling and shipping amounts to 23 days supply.cl Based on 50% of other available tankage shown in Annex 10.

F/ for GUC use only.


-60-

Annex 10

COIIhCATION CEAT OF 1m O PL

CABINET

NBC

y UNWIT

\

.DEPOT OIL ALL ESSETAL-SERVICROPERATOR COMPANIES CONlUES Ol PURCHtIIsG

RETAIL SPECIAL XCDEA1a18 CUSTONlS GcU

i.e. Reseauch GRTCI 2nstteuee, CPTC

. . baspitels, etc. ministry of VorksSPECIAL G& coeuunications

OOllUtlEt llinittry of Defensei.e*, Truckers MinLstry of Interior

Hauling Cattle, etc. .Ministry of Agriculture

_4

- 61 -

Annex llPage 1 of 3

ACCOUNTING SYSTEM POR PETROLEUM PRODUCTS SUPPLY

The purpose of this system is to keep track of the supply ofpetroleum products into The Gambia, the levels of stock on hand and thepattern of distribution of the various products. At present, dailyrecords are maintained of stock levels and of distribution by product andby company, and mnthly swsmaries are made of receipts and liftings byproduct and by company. What is required, tbirefore, is to design ledgersheets on which to record and access this intormation. The source docu-ments for this information would be the records of Shell and Customs atthe existing terminal.

The main gaps in summary information relate to the followings

(a) transfers to GUC-Kotu;

(b) deliveries by product type to retail stations by zone.

The first item can be obtained from GUC. However, this wouldrequire an estimated three or four man-days per month to collate endanalyze delivery data to obtain the second item. The Mission suggeststhat, apart from CUC-Kotu transfers, the retail station data be dispensedwith initially. The computer program could be written to include codingand subsequenz analyses of deliveries to make that informationavailable. Alternatively, if spare clerical assistance were madeavailable to the Energy Unit, requests could be made to Shell to havecopies of Dispatch Notes available for, say, weekly analyses.

An exemple of a proposed ledger sheet required for recordingthe data is presented on page two of this Annex. Explanatory notes forthe proposed ledger sheet are shown on page three of this Annex. Again,this ledger sheet should be summarized and analysed on a monthly basis inthe first instance and the resulting data entered on the monthly reportto the National Energy Commission.

Annex U1Page 2of 3

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- 63 -

Annex 11Page 3 of 3

Notes on the Proposed Petroleum Supply Accounting Ledger

1. a Product Receipts from overseas suppliers and total closingstocks; from monthly Customs Summary.

2. * Product Deliveries, summarized primarily by Government, GUC-Kotu (two 8rades of dieselt if appropriate)* and broad zones;From monthly Shell ._mmries. Broader zone summaries to beavailable followinli vomputerization.

3. * Closing Stocks by product. If required, details by company areavailable from monthly Customs Summary.

-64-

Annex 12Page I of 5

FINANCIAL ACCOUNTING SYSTEM FOR PETROLEUM PRODUCTS

The purpose of this system is to track the liabilities incurredfor imports and sales of petroleum products as well as the settlement ofthese liabilities.

Source Documents

The prime source documents for these transactions shouldincludet

(a) official invoices from suppliers;

(b) documents requesting comercial banks to settle liabilities forimports;

(c) requests by commercial banks to the Central Bank for foreignexchange to settle liabilities;

(d) Central Bank documents advising various external agencies tosettle liabilities;

(e) certified copies of the monthly computations of import taxesand customs duties by the petroleum marketing companies.

Procedures

The monitoring of liabilities incurred for imports of petroleumproducts and of the settlement of these will require what is, in effect,a type of accounts payable system. Therefore, it will be necessary tomaintain an overall control account to indicate the total liabilities bycompany at any point in time. In this case, however, the subsidiaryaccounts will primarily show details by debtor instead of by creditor.Because of the indirect nature of the mechanism for settling foreignliabilities, the control account will have to be twofold, namely onecontrolling receipts from the local commercial banks and remittances tosuppliers, in both instances by the Central Bank, and the othercontrolling liabilities incurred by the ct^panies for product receipts,duties and taxes, and either direct settlements, in the case of dutiesand taxes, or advances made by commercial banks to the Central Bank, inthe case of foreign settlements. The format of the propo4ed ledger sheetis shown on page four of this Annex, and explanatory notes are shown onpage five. A master sheet would be maintained for overall control with asubsidiary sheet for each company.

65-

Annex 12Page 2 of 5

The procedures for making entries on the sheets are as followss

(a) determine the starting period for the data, e.g. October 1,1984.

(b) carry out a survey at the Central Bank, and at the petroleummarketing companies, GUC and the commercial banks in order toestablish the opening data for the control and subsidiaryledger cards, as well as to establish the mechanism forobtaining information on an ongoing basis.

(c) in the case of the petroleum marketing companies and GUC,whenever supplies are received from overseas, the date ofreceipt should be placed on the ledger card for the relevantvompany and the volume of product received, as certified by;jstoms, and the type of product entered under the particularssection on the receipt (local) side of the ledger. When theofficial invoice is received by the company, the total of theinvoice should be converted to local currency at the prevailingexchange rate and the amount entered under the credit columnand in the same line as the previous information on thereceipt. That is, liabilities will always be documented inlocal currency with exchange losses or gains being booked attime of settlement. As noted, invoices should be broken downto show product cost separately from insurance and freight.

(d) whenever requests are made by the companies for settlement oftheir respective liabilities, and advances then made to theCentral Bank, the information relevant to the request should beentered on both sides of the ledger. That is, the amount ofthe advance should be entered in local currency under thecredit column of the foreign transaction section, as well asunder the debit column of the local transaction section.

(e) the memo column on the section of the ledger cards whichinvolve foreign currency transactions should be used, whereapplic*Wet, to record (in pencil) the position regarding theIslamic_, Development Bank facility.

(f) whenever remittances are made by the Central Bank to settle aforeign liability, these will be entered on the debit side ofthat section of the ledger as followvs

(i) the account settled in foreign currency and other parti-culars of the remittance should be entered under the par-ticulars column, and the total cost of the transaction

-66-

Annex 12Page 3 of 5

in local currency entered under the debit column. Differ-ences due to losses/gains on exchange, if any, should bejournalized at this time so as to bring the ledger inbalance.

(g) amounts computed for import taxes and customs duties should betreated as follows:

(i) amounts due entered as credits under local transactions;

(ii) amounts paid entered as debits under local transactions.

Reportins

At the end of each month, in the first instance, the variousledger sheets should be summarized and analyzed to show the followings

(a) total balances outstanding on foreign accounts (21-4-5);

(b) liabilities accepted during the month (net of 21);

Sc) c.i.f. values of products received during the month (21 and 23);

(d) requests made to the Central Bank for settlement of liabilities(10 + 11);

(e) remittances made in respect of foreign liabilities (4.5);

(f) status of Islamic Development Bank facility (6 and 12);

(g) unsettled foreign liabilities (10 + 11 - 4 - 5);

(h) amounts paid for duties and taxe' (net of 17).

The above information will form a part of the monthly reportsubmitted by the Energy Group to the Mat'onal Energy Commission.

A flow chart depicting the flows of information from sourcedocuments through to monthly report is presented in Annex 1. After, say,the first six months, the timing of the analyses should be examined anddecisions made regarding whether the period should be varied.

- 67 -

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68 -

Annex 12Page 5 of S

Notes on Petroleum Financial Accounting Ledger

1 - remittances by Central Bank to 3ettle foreign liabilities2 - particulars of remittance, e.g. Texaco Dakar invoice xxx3 * reference no. of remittance document, e.g. CB aaa4 = product cost liability being settled, e.g. 5,002,1515 a insurance and freight liability being settled, e.g. 27,2136 any memo item, e.g. settlement of I8)B liability7 X advances received by Central Bank in respect of foreign

liabilities8 a particulars of advance9 a reference no. of advance document10 &11 a as in 4 & 512 = similar to 613 a advances by local companies14 particulars of advance, e.g. import duties May 198415 X reference no. of remittance, e.g. Voucher 77716 = amounts advanced for settlement of c.i.f. liabilities17 * amounts advanced for settlement of duty and tax liabilities18 X liabilities incurred by local companies19 = particulars of liability, e.g. imports m/v 444420 a reference no. of liability, e.g. Invoice No.21 amount of liability, if for c.i.f. of products22 = amount of liability, if for duties and taxes23 * any memo item, e.g. unit c.i.f. for product received

- 69 -

Annex 13

THE NATIONAL ENERGY COMMISSION

Proposed Role in Petroleum Supply Management

The National Energy Commission has been formed to provide aforum for reviewing and discussing all matters pertaining to the energysector in The Gambia and, through its Executive -Committee, to providepolicy guidelines and directives regarding the petroleum productsindustry. The Commission is appointed by the Ministry of EconomicPlanning and Industrial Development (Minister of MEPID is chairman ofNBC). The Commission is responsible to the Ministry for the effectivedischarge of its functions. In particular, the Commission willcontinually keep under its purview the following:

(a) sources of supply of petroleum products and the relevant pricesthereof;

(b) shipping arrangements;

(c) facilities required for off-loading and storing products;

(d) tariffs and port charges;

(e) distribution and retailing of petroleum products;

(f) supply/demand considerations, including:

- foreign exchange implications- consumption patterns- product aLlocations- stock levels;

(g) safety aspects;

(h) training and other resource requirements.

The Executive Committee of the Commission will advise theMinister, particularly in respect of Government regulations, on:

(a) management of compulsory stocks;

(b) allocation of products in emergency situations.

- 70 -

Annex 14

ENERGY UNIT

Proposed Terms of Reference

The Energy Unit would be an adjunct to the National EnergyCommission. Its prime functions would be to to support the NationalEnergy Commission at the itorking level as well as routinely collect andanalyze data relevant to the supply and distribution of petroleumproducts. The Unit would fulfill the role of secretariat to theCommission. The Unit would also provide analytical support to theMinistry of Finance and Trade regarding changes to components in theproduct price build-up. With regard to petroleum data, the Energy Unitwould maintain, analyze and draw conclusions on information with respectto:

(a) sources of supply of petroleum products;

(b) tanker availability and costs;

(c) stock levels;

(d) consumption pattern3;

(e) customs duties and import taxes;

(f) foreign exchange liabilities;

(g) costs of the various components in the price build-up;

(h) implementation and functioning of the Contingency AllocationPlan.

The Energy Unit would issue periodical Reports and an AnnualReview, and these will be circulated to members of the National EnergyCommission.

ENERGY SECTOR MANAGEMET ASSISTANCE PROGRAK

Activities Completed

T2tej.CompletedEnergy Assessment Status Report

Papua New Guinea July, 1983Mauritius October, 1983Sri Lanka January, 1984Malawi January, 1984Burundi February, 1984Bangladesh April, 1984Kenya May, 1984Rwanda May, 1984Zimbabwe August, 1984Uganda August, 1984Indonesia September, 1984Senegal October, 1984Sudan - November, 1984Nepal January, 1985

Project Formulation and Justification

Panama Power Loss Reduction Study June, 1983Zimbabwe Power Loss Reduction Study June, 1983Sri Lanka Power Loss Reduction Study July, 1983Malawi T--hnical Assistance to Improve

the Efficiency of FuelwoodUse in Tobacco Industry-, November, 1983

Kenya Power Loss Reduction Study Marcui, 1984Sudan Power Loss Reduction Study June, 1984Seychelles Power Loss Reduction Study August, 1984The Gambia Solar Water Heating Retrofit Project February, 1985Bangladesh Power System Efficiency Study February, 1985The Gambia Solar Photovoltaic Applications March, 1985

Institutional and Policy Support

Sudan Management Assistance to theMinistry of Energy & Mining May, 1983

Burundi Petroleum Supply Management Study December, 1983PRapua New Proposals for Strengthening theGuinea Department of Minerals ond Energy October, 1984

Papua NewGuinea Power Tariff Study October, 1984

Costa Rica Recommended Tech. Asst. Projects November, 1984Uganda Institutional Strengthening in the

Energy Sector January, 1985Guinea- Recommended Teclnical Assistance'Bissau Projects April, 1985Zimbabwe Power Se,tor Man#gement April, 1985

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Joint UNDP/World Bank Energy Sector Management ...

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