Document of V

The World Bank

FOR OFFICIAL USE ONLY

Report No.P-3342-TH

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

PETROLEUM AUTHORITY OF THAILAND

WITH THE GUARANTEE OF THE KINGDOM OF THAILAND

FOR A

LIQUIFIED PETROLEUM GAS PROJECT

May 27, 1982

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

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CURRENCY EQUIVALENTS 11

Currency Unit = Baht (B)$1.00 = B 23B I = $0.04

B 1 million = $43,478

WEIGHTS AND MEASURES

Metric, unless otherwise stated

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

CDC = Commonwealth Development CorporationEGAT = Electricity Generating Authority of ThailandLNG = Liquified natural gasLPG = Liquified petroleum gasMKT = Marketing (Oil Distribution and Supply) Unit within PTTMMSCFD = Million standard cubic feet per dayNEA = National Energy AdministrationOECF = Overseas Economic Cooperation Fund (Japan)ONG = Natural Gas Operations Unit within PTTOPEC = Organization of Petroleum Exporting CountriesPTT = Petroleum Authority of ThailandTORC = Thailand Oil Refining Company

THAI FISCAL YEAR

October 1 to September 30

/1 As of July 1981.

FOR OFFICIAL USE ONLY

THAILAND

LIQUIFIED PETROLEUM GAS PROJECT

Loan and Project Summary

Borrower: Petroleum Authority of Thailand (PTT)

Guarantor: Kingdom of Thailand

Amount: $90 million equivalent, including capitalized front-endfee

Terms: 20 years including 5 years of grace, with interest at11.6% per annum.

ProjectDescription: The project would help to upgrade the use of natural gas

discovered in the Gulf of Thailand; it would financethree components: (a) the construction of a gas separa--tion plant of 350 million standard cubic feet per day(MMSCFD) capacity, transfer pipelines and a marine ter-minal; (b) construction of bulk storage distributionfacilities for marketing of liquified petroleum gas(LPG), and (c) technical assistance for engineering andsupervision of the project, training of PTT's staff inoperation and maintenance of the gas plant and instorage and distribution, and prefeasibility studies forPTT's investment programs and for formulation of energypolicies. The primary benefits of the project wouldcome from import substitution of LPG and diesel, fromexports of LPG and from development of the basic feed-stock for the petrochemical industry. The major physi-cal risks involve accidental damage to the offshorepipeline or to the key offshore platform. The pipelinecould be repaired within a fairly short period butrepairs of the platform would need more time to becompleted and could interrupt supply of gas to the plantuntil an additional contract becomes operational inmid-1985. While a decline in world prices for LPG wouldmake the proposed investment in the gas separation plantless attractive, this is considered unlikely sincepresent LPG prices are already unusually low. In anyevent, risk that a decline in LPG prices would adverselyaffect the economic justification of the plantdisappears after 1990 as Thailand would have built up asubstantial gas surplus by that time.

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

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Estimated Cost:Local Foreign Total…---- ($ million) ------

Gas plant 116.8 146.2 263.0LPG storage/distribution (PTT) 40.5 46.0 86.5LPG distribution (private) 41.7 57.8 99.5Studies 1.8 7.7 9.5ContingenciesPhysical 17.6 38.0 55.6Price 15.0 18.6 33.6

Total Project Cost 233.4 314.3 547.7 /a

Interest during construction- Bank financed - 5.0 5.0- Other 20.5 25.8 46.0

Front-end fee on Bank loan - 1.3 1.3

Total Financing Required 253.6 346.4 600.0

Financing Plan: Local Foreign Total--- ($ million) ------

IBRD 90.0 90.0OF.CF - 65.0 65.0CDC 25.0 - 25.0OPEC Special Fund - 20.0 20.0Export Credits 12.0 68.0 80.0Commercial bank loans 111.6 18.4 130.0Government 35.0 - 35.0PTT cash generation 10.0 - 10.0Private LPG distributors 60.0 85.0 145.0

Total 253.6 346.4 600.0

Estimated Disbursementsfrom Bank Loan

Bank FY 1983 1984 1985 1986--------- ($ million) --------

Annual 18.6 41.5 23.0 6.9Cumulative 18.6 60.1 83.1 90.0

Rate of Return: 29%

Appraisal Report. No. 3868-TH, dated May 24, 1982

/a Of which taxes and duties amount to about $48 million.

REPORT AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORSON A PROPOSED LOAN TO THE PETROLEUM

AUTHORITY OF THAILANDWITH THE GUARANTEE OF THE KINGDOM OF THAILAND

FOR A LIQUIFIED PETROLEUM GAS PROJECT

1. I submit the following report and recommendation on a proposedloan to the Petroleum Authority of Thailand (PTT) with the guarantee of theKingdom of Thailand, for the equivalent of $90 million to help finance aLiquified Petroleum Gas Project. The loan would have a term of 20 years,including five years' grace, with interest at 11.6% per annum. Tentativearrangements have been worked out for the participation of five cofinanciers:Overseas Economic Cooperation Fund (OECF, Japan) with a loan of $65 millionequivalent; the Commonwealth Development Corporation (CDC, U.K.) with a loanof about $25 million equivalent; OPEC Special Fund with a loan of $20million equivalent; export credits totalling about $80 million equivalent;and commercial bank loans totalling about $130 million equivalent.

PART I - THE ECONOMY /1

2. A Basic Economic Report entitled "Thailand: Toward a DevelopmentStrategy of Full Participation" (Report No. 2059-TH) was issued on September18, 1978. Subsequently Thailand's economic situation deteriorated, and aneconomic report entitle "Coping with Structural Change in a Dynamic Economy"(Report No. 3067a-TH), which proposed a medium-term strategy to deal withthe problems was discussed with the Royal Thai Government in September 1980and issued on January 8, 1981. Country data are given in Annex I.

Recent Political Developments

3. Frequent changes at the top levels of government have character-ized recent political developments in Thailand. General Kriangsak Chomananwas Prime Minister-from November 1977 to February 1980. His third cabinetresigned following increasing public and parliamentary criticism of itseconomic policies. General Prem Tinsulanonda was elected by the NationalAssembly as Prime Minister after receiving the support of nearly all majorpolitical parties. General Prem's government, formed in March 1980,

/1 Part I is essentially the same as that included in the President'sReport (P-3175-TH) dated April 12, 1982 for the Fourth Telecommuni-cation Project (Loan 2143-TH) approved by the Executive Directors onMay 13, 1982.

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included leaders from the political parties which supported him. General Premsoon announced his government's policies on a number of issues includingeconomic and social development. These policies place high and immediatepriority on accelerating rural development, raising rural incomes andimproving health and education. Particular emphasis was given to generatingmore jobs, and a rural public works program, similar to the 1975/76 TambonProgram, was included as a major element in the strategy. The Government alsocommitted itself to contain inflation, although it recognized the need for asubstantial adjustment of energy prices and most public enterprise tariffs.Furthermore, it decided to institute reforms in monetary and fiscal policy andto reduce the trade deficit through improved export performance anddevelopment of domestic energy resources.

4. After a period of political consolidation, during which an attempt

was also made to inform the public better about the need to take correctivemeasures, the Government began to take steps to implement these policies inthe fall of 1980. In March 1981, however, the Social Action Party and othercoalition parties withdrew from the cabinet on an issue of handling fuel oilcontracts and a new cabinet was formed comprising members of the United,Chart Thai, and Democrat parties as well as a number of technocrats. Shortlythereafter there was an attempted coup by a group of military officers which,however, failed. During much of the summer of 1981, the political positionof the second Prem cabinet appeared to be weak, particularly in the wake ofthe devaluation of the baht against the dollar in July, which resulted inmuch public criticism. Since then, however, the Prime Minister's positionstrengthened, not least because of the relatively favorable economicdevelopments, especially in the agricultural sector. Parliament passed theFY82 budget nearly unanimously. In December 1981, the Government's parlia-mentary basis was broadened significantly when the Social Action Partyrejoined the cabinet.

Past Economic Trqnds and Recent Changes

5. The 1960s and early 1970s were a period of unprecedented economicdevelopment in Thailand, with GDP growth averaging 7-8% per year (or 4 to 5%per capita). Real agricultural growth of nearly 5% per year, based largelyon an expansion in cultivated area and development of new crops in responseto export opportunities, was a major factor contributing to these develop-ments as well as to a sustained growth of-exports. An increase in theinvestment level from about 20% to 27% of GDP contributed to rapid indus-trial growth. Investments were largely financed by domestic savings, keep-ing the debt service ratio quite low. The incidence of poverty was reducedsubstantially, from about 57% in 1962/63 to about 31% by 1975/76. However,poverty still remains a problem, and significant regional disparities exist,with the Central Region, including Bangkok, not only having the highest percapita income, but also being much better served by roads, telecommunica--tions, schools, public health and other services than the other three regions,the North, the Northeast and the South. Considerable variations also remainwithin regions: farmers who have diversified into the new cash crops havein many cases succeeded in crossing the poverty line, while the incomes of

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those unable to shift out of suosistence rice culture have stagnated. Bythe mid-1970s it became apparent that Thailand was facing increasinglydifficult problems of development, including the lack of new arable land tocontinue to absorb the rapidly growing labor force, and an emerging balanceof payments constraint as a result of deteriorating terms of trade. Inorder to deal with such problems the country needed to shift its pattern ofgrowth from one based on the extension of land under cultivation and onimport substituting industries to one based on increasingly intensive use ofland and on industries producing for domestic and export markets undercompetitive conditions.

6. In the past three years Thailand's development problems have beencompounded by adverse external factors including oil price increases, aresurgence of inflation and slow growth in developed countries. A relativelyhigh rate of overall growth was maintained (8.7% per annum between 1975 and1978, 6.0% in 1979 and 6.3% in 1980) but this was accompanied by acceleratinginflation, large fiscal and external deficits and growing dependence onforeign borrowing. Consumer prices increased by 8% in 1977 and 1978, by 10%in 1979 and by 20% in 1980. The overall Central Government deficit reached4.4% of GDP in 1980. Notwithstanding continued rapid export growth, thecurrent account deficit came close to 5% of GDP in 1977 and 1978, but it roseto 7.5% of GDP in 1979 and 7.2% of GDP in 1980; consequently there has been arapid accumulation of Thailand's initially low external debt. -

7. Over the years 1975-78 the Government was slow in responding to thechanging internal and external conditions, but, beginning in 1979, policyadjustments were undertaken at a gradually accelerating pace. They includedsharp increases in prices for most petroleum products and electricity;measures to increase government revenues; amendments to the usury laws, whichpermitted an increase in interest rates; and the introduction of regulationsto increase financial stability and exercise more monetary restraint. In thesecond half of 1980, the Government began to give serious attention todeveloping a longer-term comprehensive program for the economy, and continuedto implement necessary, but politically contentious, economic decisions. InOctober 1980 price controls were lifted on 29 of 36 goods. In the same monththe Government started on a reform of the tariff structure, reducing importduties on 10 categories of electrical goods by between 10% and 60%. InNovember, retail prices of sugar, which had fallen out of line with inter-national prices, causing domestic shortages, were increased by 60%. In anumber of successive steps, electricity and petroleum prices were increasedfurther, and by mid-1981 they were nearly two-and-a-half times as high as atthe start of 1979. During the first half of 1981, charges for other publicservices (water, transport, communications) were increased substantially(mostly by at least 50%). During this period, the Government also introducedvarious fiscal measures designed to limit the central government deficit.

8. Despite the effect that these measures inevitably had on the pricelevel and on effective demand, economic performance in most areas appears tohave been good during the first nine months of 1981. Agricultural productionand incomes increased rapidly, due to favorable weather and, until recently,

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agricultural export prices (which a domestic rice price support programhelped to reflect in farmgate prices). The demand and interindustry effectsof a buoyant agricultural sector are stimulating the other sectors of theeconomy, largely compensating for the reduced stimulus from the publicsector. Thus, while some sectors of the economy, notably construction, areweak, the authorities do not foresee a general recession. At the same time,price pressures have lessened considerably; on a June to June basis, theincrease in the Consumer Price Index of 24% for 1979/80 was reduced to 12%for 1980/81. Because of reduced inflation and increased nominal interestrates, real interest rates on 1-2 year time deposits have now becomepositive, and private commercial borrowing entails a substantial real cost.

9. The one area in which the situation did not improve in the firsthalf of 1981, was the balance of payments. The trade deficit in that periodwas $1.6 billion, about $0.5 billion more than in the first half of 1980.Some deterioration was to be expected, as the deficit in 1980 had been belowtrend as a result of a bulge in imports of nonoil intermediates in 1979,which led to a below-normal level of such imports in 1980. In addition,exports in the first quarter of 1981 fell below the trend, while the capitalaccount was negatively influenced by high interest rates abroad. In July,the pressure on the balance of payments became so strong that the Governmentdecided to break the longstanding link of the baht to the (then rapidlyappreciating) dollar, decreasing the dollar value of the baht by about 9%,but keeping the trade-weighted exchange rate of the baht approximately atthe level of the preceding year. Subsequently, the trade deficit hasstarted to decrease, but for the year 1981 as a whole, it is still likelythat the current account deficit tjill be somewhat higher than the 1980deficit in absolute amount, although it may be slightly lower (6-7% of GDP)in relative terms.

Development Prospects and Constraints

10. In the coming decade, many of the positive features which contri-buted to Thailand's rapid socioeconomic development over the past twodecades will continue to do so. These factors include a relativelyequitable distribution of rural land, responsiveness of Thai farmers toeconomic incentives and improved technology, provision of infrastructure bythe Government, and-the dynamism of the private sector in both industry andagriculture. Also, major gains have been made in family planning in recentyears, slowing the annual rate of population growth from about 3% during the1960s to an estimated 2.2% in 1979 (but only affecting labor force growthtwo decades later). A new favorable factor is that the first phase of theinfrastructure to tap the substantial natural gas reserves in the Gulf ofThailand was completed in September 1981, enabling a gradual but significantreduction in Thailand's dependence on foreign oil.

11. Against these favorable factors, however, three major negativeones must be recognized. Firstly, partly as a result of external influences,Thailand's current account deficits reached, over the years 1979-81, levels

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which are unsustainable in the medium term and therefore must be reduced.Secondly, the outlook for the world economy is not favorable, and tendenciestoward protectionism are increasing, thus limiting the opportunity toincrease exports (unless offset by effective domestic policies). Thirdly,the exhaustion of land reserves threatens to severely constrain the growthin agricultural production, exports and absorption of labor.

12. In response to the challenges posed by the general economic out-look for Thailand, the Government has searched intensively for policyalternatives which would correct the fiscal and external imbalances withoutundue consequences for the growth of incomes and employment, especially forthe poor. Its efforts are reflected in the Fifth Five-Year Plan, whichcovers the period October 1981 to September 1986. The major (and inter-related) objectives are equity, financial stability, and national security(growth is seen as a derived, rather than a primary objective). TheGovernment aims at reconciling these objectives over the five-year period ofthe Plan, partly through a reduction in lower-priority expenditures, whichis already being implemented, but mainly through medium-term structuraladjustments which improve production incentives and increase the efficiencyof the economy, and improve its competitiveness, both in the external anddomestic markets.

13. To assist it in realizing these objectives, the Government hassought the assistance of the IMF and the Bank. Agreement was reached withthe Fund on a major standby program, which covers a two-year period startingin April 1981, and amounts to SDR 814.5 million. In addition, the Fund inJuly 1981 provided Thailand with SDR 186 million under its CompensatoryFinancing Facility. With regard to the Bank, the Government has requestedassistance in further developing and implementing the structural adjustmentprogram, incorporated in the Fifth Plan, through a series of structuraladjustment loans. An appraisal mission for the first such loan visitedThailand in August/September and the loan was approved by the ExecutiveDirectors on March 2, 1982.

Financing Requirements

14 While the Government is making considerable efforts to improvethe efficiency and effectiveness of its spending, the implementation ofpolicies needed for a satisfactory rate of economic and social progresswill require continued growth in the absolute level of public expenditures,though they are expected to remain constant relative to GDP. Much greaterefforts will be required to mobilize both domestic and external resourcesthan in the past. The Government's domestic revenue, as a percent of GDP(about 14% for 1978 to 1980), is low compared to other developing countriesat similar levels of development. Recently the Government has taken stepsto revise the tax structure and to improve collections. Further taxmeasures are planned, particularly in the area of improved tax administra-tion and structure. The goal is to increase Central Government revenuesto about 18% of GDP by 1986, thus substantially reducing the budgetary

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deficits and thereby limiting the reliance on foreign financing. Inaddition, the financial situation of state enterprises, which has alreadyimproved substantially in the wake of recent tariff increases, is expectedto continue improving as a result of appropriate pricing policies.

15. Despite these fiscal policy measures and the ambitious structuraladjustment policies to be implemented in the agriculture, industry and energysectors, the demand for external resources will increase. Macroeconomicprojections indicate that the current account deficit will remain at levelsover $2 billion per annum, but will decline as a share of GDP to about 4% in1987. Even the realization of this target will require large amounts ofexternal borrowing, totalling about $25 billion over the period 1982-87, ofwhich about half is expected to be in the form of public and publiclyguaranteed debt. Assuming a significant level of concessional assistance,total debt service payments as a percent of exports of goods and non-factorservices will rise from 11.6% in 1980 to 17.9% in 1987. Given the diversi-fication of Thai commodity exports and the continued expansion of agricul-tural and manufactured exports expected as a result of appropriatestructural adjustment policies, these debt service requirements should besustainable.

16. Official donors, particularly Japan and the development banks,have been expanding their programs to meet a larger part of Thailand'sgrowing resource requirements. The rest has been financed through syndicatedloans and bond issues. The Government has established a Foreign Loan PolicyCommittee to coordinate and approve all foreign borrowing by the publicsector. The Bank of Thailand is improving its procedures for recordingprivate borrowing abroad in order to keep track of total foreign debt.External agencies, including the Bank Group, have in recent years increasing-ly concentrated on project lending to Thailand in some sectors that havehigh social benefits, but low foreign exchange savings or earnings. Toachieve the level of external resource transfer that is now required, it isnecessary, in selected projects where the foreign exchange component is low,to finance some local currency expenditures.

PART II - BANK GROUP OPERATIONS IN THAILAND

17. Thailand first borrowed from the Bank Group in 1950 for a railwayproject and, as of March 31, 1982, had received 69 IBRD loans (includingtwo third window loans) and six IDA credits, totalling (net of cancellations)$2,558 million in loans and $125 million in credits. As of that date,$1,337.3 million remained undisbursed on effective loans and credits. No IDAcredits have been extended to Thailand since FY79. Annex II contains asummary statem.nt of Bank loans, IDA credits, and IFC investments as well asthe status of Bank Group projects under implementation.

18. The sectoral distribution of Bank loans and IDA credits, in dollarterms, has been as follows: 30% for energy; 28% for agriculture and ruraldeelopment; 17% for transportation; 6% for telecommunications; 5% for urban

development; 4% for education; 1% for industry; 2% for population/health!nutrition; and 6% for structural adjustment lending. Overall implementa-tion of Bank projects in Thailand has improved steadily during the past fiveyears. Thailand's disbursement ratio increased from 17.7% in 1977 to 24.9%in 1980. These rates are better than the Bankwide average and the rates forother countries in the region. In 1981, the Bankwide average was 21.5%while the ratios for two comparator countries, the Philippines and Morocco,were 17.9% and 11.7%, respectively.

19. Over the past six years, the Bank has shifted its lending inThailand from a program dominated by investments in traditional infrastruc-ture projects (accounting for over 80% of the lending through FY75) to aprogram which places increasing emphasis on assisting the Government'sefforts to reach the poorer segments of its population more directly. SinceFY76, investments in transportation, power, water supply, telecommunicationsand industry have accounted for about 60% of Bank Group lending and abouthalf of these, in dollar terms, were for projects specifically designed tobenefit the rural population. The proportion of Bank lending to theagricultural/rural development sector has trebled, accounting for about 30%of lending operations since FY76. The design of projects in this sectorhas also changed, from exclusively large irrigation projects to a more bal-anced program covering irrigation (including land development and supportservices to the farmer) and a variety of innovative projects to assist farm-ers outside the central flood plain (rubber replanting, livestock, agricul-tural extension, research and credit, and rural development). Projects inthe social sectors which, prior to FY76, were limited to three in education,accounting for 6% of the program, have both diversified and grown. In recentyears education, population and low-income housing projects have accounted forabout 10% of the program.

20. For the future, the Bank's assistance objectives are to support theGovernment's development efforts, as articulated in its Fifth Five-Year Planfor the period 1982-1986, to address: (a) the long-term issues of povertyalleviation, promotion of employment, and reduction of income disparities; and(b) the medium-term issue of restructuring the Thai economy through the inten-sification of agriculture efficient development of the industrial sector,promotion of domestic energy conservation and development, increased publicresource mobilization, and improved institutional capacity in the publicsector. In addition to these two broad objectives, Bank assistance inThailand also aims at moving from project-specific to sectoral lending,especially in agriculture, industry, energy, and education, and at strengthen-ing the local Thai capacity for policy analysis and formulation.

21. In implementing this strategy, projects in the areas of agricultureand rural development will seek to generate employment and income growth-particularly among the poorer farm households in the rainfed areas of thecountry and will support the structural adjustment process by aiming atcontinued growth of agricultural production and exports through intensi-fication. Lending for transport and communications will increasingly aim atexpanding the rural road system and thus be in support of agricultural and

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rural development for the medium and longer term. In the urban developmentand human resources sectors, Bank lending will be geared to strengtheningthe long-term capacity of Thailand to transform itself efficiently from aprimarily agricultural and rural economy to a relatively more industrial andurban economy, while also supporting the Government's goal to address basichuman needs in the more disadvantaged rural and urban areas of the country.Lending in the energy and industry sectors will be designed to supportstructural adjustment and growth through the efficient development andutilization of domestic energy resources and the strengthening of thefinancial infrastructure. Finally, structural adjustment lending willstrengthen the Government's structural adjustment program through studies,development of action programs, and policy actions in the areas of agri-culture, industry, energy, fiscal policy, and institutional development.

22. Bank loans and IDA credits to Thailand, disbursed and outstanding,amounted to $1,063.2 million as of March 31, 1982. As of December 31, 1980,Bank and IDA debt disbursed and outstanding accounted for 11.7% of totaldebt (disbursed and outstanding), while the Bank Group's share of total debtservice payments amounted to 8.3% in 1980. This is not excessive in view ofThailand's modest overall external debt (18% of GDP in 1980) and thedeclining shares of Bank debt in total debt, and of Bank debt service intotal debt service.

23. As of March 31, 1982, IFC had made commitments totalling $110.6million in nine projects in Thailand. IFC's investments have been primarilyin industry and in the development of financial institutions aimed atmobilizing domestic resources and providing financing to smaller enter-prises. Prospects for increased IFC operations in Thailand have beenenhanced by expanding private sector investment activity, and consultationswith the Government have identified several areas where IFC's assistance maybe needed. These areas include very large and complex projects such as aproposed soda ash project to serve the ASEAN community, projects in thepetroleum and downstream petrochemical sector, and projects in the agricul-tural sector. A tantalum processing project and a shrimp farming ventureare being considered by IFC management.

PART III - THE ENERGY SECTOR

Energy Consumption

24. Total commercial energy consumption in Thailand has increased from1.1 million tons of oil equivalent in 1960 to over 11.0 million tons of oilequivalent in 1980, an average annual growth rate of 12%. In 1980, petroleumproducts accounted for 73% of total energy and the rest comprising ofindigenous sources of energy. Indigenous resources have accounted for 25 to30% of total energy consumption during the second half of the 1970s, withfuelwood/charcoal, hydro, bagasse and lignite typically forming 13%, 7%, 7%and 3% shares, respectively. The price of crude oil has increased almosttwelve-fold since 1972 and has become a heavy burden on the Thai economy.In 1980, oil imports, which were about $2,560 million in value, absorbed 44%

of export earnings, leaving Thailand with a substantial current accountdeficit. Utilization of natural gas from the Gulf of Thailand, which beganin September 1981, has however improved the economic outlook. Developmentof gas and other indigenous resources noted below would enable Thailand tohold its oil imports at around 10 million tons per annum throughout the1980s, despite a projected 7% annual increase in consumption.

Potential Energy Resources

25. Natural Gas. Fourteen promising gas fields have been discoveredto date by the two overseas firms, Union Oil and Texas Pacific, operating inthe Gulf of Thailand. The total proven and probable offshore gas reservesis about 20 trillion cubic feet. In addition, Esso has discovered more than1 trillion cubic feet of gas onshore in Northeast Thailand. Possibleproduction from already identified reserves is 3,000 million standard cubicfeet per day (MMSCFD), equivalent to 27 million tons of oil annually for20 years. The Petroleum Authority of Thailand (PTT) has been obtaining gasoffshore at Union Oil's Erawan field since September 1981. Deliveries underthe first Union Oil contract (Erawan) will increase to 250 MMSCFD by end1982, and an additional 300-400 MMSCFD will be available from other fieldsin 1985.

26. Hydro Potential and Lignite Reserves. Thailand's domestichydroelectric potential is about 8,010 MW, of which about 1,341 MW are inoperation and another 1,966 MW will be installed by 1991. The ElectricityGenerating Authority of Thailand (EGAT) estimates that hydropower willrepresent about 20% of its generating capacity bv 1990 ? c'-r-ed withabout 17/ in 1982.

27. Recent drillings have indicated substantial increases in Thailand'slignite (low grade coal) deposits. Lignite reserves total 770 million tons.Of the reserves at Mae Moh, 350 million tons are proven reserves, sufficientto sustain a total generating capacity of about 1,725 MW for about 25 years.

28. Other Energy Resources. Other energy resources include oil, oilshale, fuelwood and possibly geothermal. The three small oil fields in theFang area of northern Thailand yield about 15,000 tons of oil per year, anda 1981 Shell discovery in northern Thailand could possibly yield about0.3 million to 0.5 million tons per annum. Oil shale reserves at Mae Sot areestimated at 2,500 million tons but are uneconomical to develop at presentprices. Fuelwood resources, once plentiful, are rapidly being depleted anddeforestation is becoming a serious problem. Geothermal exploration isbeing carried out by EGAT in the northern part of Thailand near Chiangmai.

LPG Supply and Sales

29. Refining expansion would increase refinery LPG supplies from thepresent 130,000 tons to 190,000 tons by 1985, at which time the proposed gasseparation plant is expected to produce about 460,000 tons of propane andLPG.

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30. LPG consumption in Thailand has increased on the average by 14.2%annually, and the demand rose from less than 50,000 tons in 1970 to over200,000 tons in 1980. LPG is primarily used for cooking fuel, mainly inurban households and commercial establishments, and in the industrial andtransport sectors. LPG consumption in the residential sector expanded from53,000 tons in 1971 to 156,000 tons in 1980 and then decreased to 131,000tons in 1981 because of a shortage of supplies. By 1980 the industrial andtransport sectors each accounted for 13% of total LPG consumption. In 1981the transport sector share rose sharply to 24% of total LPG consumption withnearly 50% of the increase due to the taxi fleet shifting to LPG. Totaldemand is expected to increase from 230,000 tons in 1981 to 465,000 tons in1985 and 800,000 tons in 1990, an increase of 14% per annum. By 1990 LPGuse is expected to substitute for gasoline and diesel in about 35% ofpick-ups and about 80% of the mass transport authority bus fleet and inter-city bus fleet, for a total transport LPG consumption of almost 390,000 tons.

31. Two marketing companies, Shell and Esso, supplied more than 86%of the LPG market in 1980; PTT's share was very small (8%) in that year, butit is growing rapidly, reaching almost 10% of the larger 1981 market. PTT isexpected to capture a bigger share of the market through provincial effortsand public sector sales, particularly for buses. Although private companies'aggregate sales will continue to increase, their relative share is expectedto decline to about 64% of the market with the balance captured by PTT bythe end of the decade.

Utilization of Ethane and Propane for Petrochemicals

32. Gas utilization studies by Davy McKee and Chem Systems (UK and US)have identified economic uses for 300-350,000 tons p.a. of ethane and up to100,000 tons of propane from a gas separation plant in the production ofethylene and propylene known as olefins. The main derivatives of olefins,such as low and high density polyethylenes, polypropylene, and ethyleneglycol, would be the nucleus of potential petrochemical industries thatwould improve the economic value of the gas plant products. The Governmenthas initiated a study of the petrochemical complex which is expected to becompleted by June 30, 1982. PTT has agreed that a detailed feasibilitystudy for construction of an ethylene plant would be completed by June 30,1983 (Section 3.07 and paragraph 11 of Schedule 5 of draft Loan Agreement).

Energy Pricing and Conservation Policy

33. An Oil Stabilization Fund was set up in 1974 when the Governmentcollected the oil companies windfall profits arising from higher retailprices of the "old cost" oil stock, and payment into this Fund is levied onretail sales of petroleum products. In 1975, the Government began tocollect money for the Oil Stabilization Fund from oil users by adding it asa positive or negative tax on the retail price, with a view to using theFund as a price stabilization mechanism. However, the subsidization ofretail prices of petroleum products other than gasoline and diesel has

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created inefficiencies and distortions in the market, with the relativeprice structure of petroleum products encouraging subsitution of gasolinewith imported LPG in cars and pickups and with diesel in small trucks. Thisin turn has put financial pressure on the Oil Stabilization Fund which wasdepleted rapidly during 1980 and 1981. The Fund is now more than $125million in debt, principally to PTT. As a shortterm solution the Governmenthas caused PTT to borrow on its behalf $125 million to pay off the Fund'sdebts (para. 60). Current Thai retail prices are shown below:

Petroleum Product Prices in Thailand(Unit $/gallon)

Import Marketingprice margin Total Retail

Petroleum Product (Nov. 81) cost delivered price

LPG 0.84 0.16 1.00 0.89Gasoline 1.00 0.08 1.08 1.88Kerosene 1.10 0.07 1.17 1.01Diesel 1.07 0.07 1.14 1.22Fuel Oil 0.74 0.02 0.76 0.72

34. The Government has already taken a number of steps to reduce energyconsumption directly, especially during peak hours. Agencies concerned arepreparing policy and program proposals to induce energy conservation intransport, industry and households. A program of public education is beingdeveloped to encourage households to save energy. To correct the presentdistortions both at ex-refinery and retail levels, and to strengthen theconservation efforts, the Government has agreed under the Structural Adjust-ment Loan (Loan 2097-TH), to undertake studies in these areas and to initiateappropriate changes in the price structure and conservation measures in 1982.As part of this effort, the Government will carry out a gas pricing studywhich would develop the methods and mechanisms for determining the pricelevels of gas in Thailand. The Government has agreed that the recommenda-tions of the gas pricing study would be provided to the Bank for comment byMarch 31, 1983 and that all such recommendations as are acceptable to theGovernment, PTT and the Bank would be implemented promptly (Section 3.04 ofdraft Guarantee Agreement).

The Five-Year Energy Plan

35. The Government attaches high priority to formulating an integratedand consistent strategy for energy development in Thailand. The major goals

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of the fifth development plan emphasize the need to reduce petroleum imports,both through demand management and conservation measures, and to augmentdomestic production of natural gas, lignite, and hydro power. The Governmenthas carried out studies for identification and development of these energyresources and the proposed project would finance additional studies in thisfield (para. 46). The Five-Year Plan envisages Government's support forresearch and development in new domestic energy resources, especially renew-able resources. The annual cost of the energy investment program will be inexcess of $300 million for oil and gas, including LPG gas separation plants,$100 million for refineries and $50 million for lignite development. For thepower subsector, capital expenditure to meet increased demand is estimated at$1,500 million annually.

Energy Sector Administration

36. The National Economic and Social Development Board and the NationalEnergy Administration (NEA) are responsible for overall planning and invest-ment decisions in the energy sector. The Department of Mineral Resources ofthe Ministry of Industry handles technical and legal aspects ofexploration and exploitation licensing arrangements for minerals,includingoil and gas, and is also responsible for nonpower lignite mining. TheMinistry of Industry is responsible for PTT and for setting ex-refinery pricesand taxation policy. PTT's primary function is to purchase, refine and selloil and gas. The Ministry of Commerce sets margins between ex-refinery andretail prices. The Ministry of Defense has its own energy department and itsenergy activities include management of small oil fields and a small refineryat Fang and ownership and operation of the Bangchak refinery. The PrimeMinister's office and the Cabinet are involved in determining retail prices ofpetroleum products. Their responsibility covers EGAT, the largest state-ownedenterprise. EGAT is responsible for exploration and development of lignitefor use in power plants, in addition to power generation. The Ministry ofInterior controls the retail distribution of electricity under theMetropolitan Electricity Authority and the Provincial Electricity Authority.

37. The Government is determined to improve coordination among thenumerous agencies working in this field and has designated NEA to overseeenergy policy and sectoral planning. NEA has commissioned a number of studiesand is about to complete an Energy Master Plan Study for meeting Thailand'senergy requirements up to the year 2000, and it expects to prepare a medium-term energy strategy by September 1982. To strengthen its policy formulationcapabilities, the Government appointed a National Petroleum Policy Committeein March 1981 to set policies and targets for the development of the petroleumindustry and the pricing of petroleum products.

38. Overall, the Government is playing a modest but an increasinglyimportant role in oil and gas sector operations. Although virtually allexploration and production remain in the private sector with eight foreigncompanies presently active in Thailand, the Government, through PTT and theMinistry of Defense, owns about half the refining capacity in Thailand andabout 20% of the marketing infrastructure.

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Bank Participation in the Sector

39. The Bank has made eleven loans to EGAT and its predecessor totalling$542 million to help finance power plants and transmission facilities and twoloans totalling $100 million to the Provincial Electricity Authority tofinance rural electrification projects. The first seven EGAT projects havebeen completed satisfactorily. Progress on the ongoing projects is alsosatisfactory. A further loan was made to EGAT in June 1980 for ligniteproduction.

40. The Bank has become involved in Thailand's program to exploit thenatural gas discoveries in the Gulf of Thailand during the last few years. Anengineering loan (S-1OTH), approved in July 1978, financed the preparationof the gas pipeline for appraisal and a $107 million loan (1773-TH),approved in December 1979 funded the actual pipeline construction. PTT,through its Natural Gas Operations Unit (ONG), completed the construction ofthe pipeline on schedule and within appraisal cost estimates. At the sametime the Bank has helped the Government in formulating sectoral prioritiesand in identifying investment programs by undertaking a review of the energysector and by financing a gas utilization study and a study to assess theimplication of natural gas on the refinery expansion program.

PART IV - THE PROJECT

Project History

41. Prpparation of the proposed project began under the Natural GasPipeline Project (Loan 1773-TH) which included a component to study the usesof gas. The study confirmed the economic viability of LPG (propane andbutane) extraction, petrochemicals and fertilizers. Early in 1980, PTTrequested the Bank to finance the construction of a gas plant to extract LPGand ethane, and feasibility studies for the proposed project were completed inmid-1980. Bank staff participated in all the preparation phases of the pro-posed project. The project was appraised first in March 1981 and postappraised in November 1981. Negotiations were held in Bangkok from April 21to 23, 1982. The Thai delegations were headed by Mr. Kraisri Chatikavanij,Ministry of Finance and Dr. Tongchat Hongladaromp, Governor of PTT.A staff appraisal report entitled "Liquified Petroleum Gas Project" (No.3868-TH), dated May 24, 1982, is being distributed separately.Supplementary project data are provided in Annex III.

Project Objectives

42. The main objective of the project is to maximize the benefits fromutilization of natural gas. The gas plant will allow import substitution ofLPG and diesel, will provide LPG for export, thereby improving the nation'sbalance of payments, and will provide the basic feedstock for a petrochemicalindustry.

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Project Description

43. The project will finance the following three components:

(a) construction of a gas plant (to recover heavier hydrocarbons,ethane, propane, LPG and natural gasoline), transfer pipelines anda marine terminal including storage and loading facilities, jettyand related utilities;

(b) construction of bulk storage and distribution facilities neededto market the LPG to be produced in the gas plant including storageand rail tank wagon loading facilities; and

(c) technical assistance for engineering and supervision of construc-tion of the abovementioned components, strengthening of PTT'smanagement, training of PTT's staff in the operation and mainte-nance of the gas plant and storage and distribution facilities,and preparation of studies for formulation of energy policies andof PTT's investment program.

The Gas Plant

44. The gas separation plant will be constructed at Rayong, on theEastern Seaboard, with a capacity to process 350 MMCSFD of natural gas. Gasfrom Union Oil's fields will be transported to shore in a 34" submarinepipeline financed by the Bank under Loan 1773-TH. The current contract withUnion Oil stipulates provision of an average of 250 MMCSFD of natural gas toPTT. Ratification of a second contract for provision of additional naturalgas to ensure full utilization of the proposed gas plant is a condition ofloan effectiveness (Section 7.02 of Loan Agreement). The gas reaching theshore will be treated at the plant to remove condensate. Feed gas will befurther treated to remove carbon dioxide and the gas would be separated, atthis stage, into methane, ethane, propane and LPG (propane/butane), andnatural gasoline. The latter three products will be pumped in three separatepipelines to a distribution terminal to be built at Laem Chabang, 60 km northof Rayong. The Laem Chabang terminal would have storage facilities and ajetty for exporting propane and LPG in refrigerated tankers. The jetty canalso accommodate small product tankers (5,000 DWT) and barges for domestic,,products transfer.

Storage and Distribution

45. The project will finance the construction of five regional bulkstorage installations plus those at Laem Chabang, Rayong and Bangkok tofacilitate marketing of the output from the gas separation plant throughout

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Thailand. PTT and private sector marketing companies will provide operationalstorage, cylinder filling and transport facilities for distribution of LPGto private consumers, filling stations for vehicles, and facilities forindustrial users. To promote LPG usage throughout Thailand, all themarketing firms would be informed that LPG would be available to them onequal terms to enable the firms to make the necessary plans for investing inequipment and facilities for this purpose. Notification of firms to thiseffect is a condition of loan effectiveness (Section 7.01(ii) of the draftLoan Agreement). PTT has agreed that the marketing firms would be advisedby, February 1, 1983, of the precise location of each storage anddistribution facility to enable them to firm up their individual investmentprograms (Section 3.10 of the draft Loan Agreement). PTT plans to discusswith the major distributors their investment programs to facilitate theirparticipation in the distribution of LPG produced under the project.

Studies and Technical Assistance

46. The project would finance engineering services for construction ofthe gas plant and storage and distribution facilities, training for theoperation and maintenance of the plant and distribution centers, studies tohelp with formulation of energy policies for the oil and gas subsector, andconsultant services to help PTT with management and to carry outprefeasibility studies.

47. The four energy policy studies are. (a) an oil and gas reserve studywhich would help to assess the hydrocarbon potential of existing reservoirsand review production levels, the findings of which would be used to plan for4-r'el.oping gas-based industries in Thailand; (b) a small-scale gas use studywriich would assess the technical, economic and financial feasibility ofsupplying natural gas by pipeline to small-scale users in selected parts ofthe Thailand; (c) a liquified natural gas (LNG) study which would assess thefeasibility of exporting LNG, given the likely excess of domestic supply overdemand; and (d) a gas purchasing strategy study which, together with the LNGstudy, would help formulate an overall gas purchasing strategy for PTT. Inaddition to these policy studies, two prefeasibility studies have been identi-fied. First, in view of the large quantities of crude oil consumed annuallyin Thailand (200,000-210,000 barrels per day), PTT will undertake a crudeimport and port facilities study to determine the feasibility of importingcrude in very large carriers to save on transportation costs. Second, PTTwill undertake a white products pipeline transport study to determinepossible alternative means of transport of output from the two refineries inLaem Chabang, now being shipped by barges and trucks. Terms of reference forall six studies would be agreed with the Bank.

PTT - The Borrower

48. PTT was established under the Ministry of Industry in December 1978by the Petroleum Authority of Thailand Act, and became operational in July1979. During 1979 it absorbed the Natural Gas Organization of Thailand and

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the Oil Fuel Organization. PTT has about 3,000 employees. PTT's Board ofDirectors is appointed by the Council of Ministers. The Board comprises achairman (the Prime Minister) and 11 other directors - the Governor of PTT,one each appointed from the Ministries of Defense, Finance, Commerce,Industry and the Juridicial Council, and five from other sources. PTT'sexecutive committee is chaired by a minister in the Prime Minister's office,and is empowered to take decisions on investments, contracts, staffing andoperational matters. In view of the rapid growth in its activities PTT wasreorganized in mid-1981 in order to be able to carry out its activities moreefficiently.

49. PTT has a competent management, but it needs additional experiencewith gas/petroleum operations. Training in natural gas operations, account-ing and finance was provided under the Natural Gas Development Project(1773-TH). In order to further strengthen PTT-s overall management andplanning capabilities the project would finance consultants to help PTT tocarry out studies for introducing a management information system and amanpower planning program.

50. PTT has three major operational units to handle its business:(a) gas pipeline; (b) marketing; and (c) refining, all of which, as mentionedabove, were absorbed from other state enterprises and have since beenintegrated into the organization. The Natural Gas Operations Unit (ONG) isresponsible for the gas pipeline operations and it would manage under theproposed project the construction of the gas plant -- the first for PTT. ONGstaff of about 200 performed well during the construction of the gas pipelineand arrangements have been made for their training in the operations andmaintenance of the gas plant to ensure satisfactory project implementation(para. 55).

51. The Marketing (Oil Distribution and Supply) Unit (MKT) is respon-sible for bulk distribution and storage of LPG and for managing PTT-s LPGsales as well as oil marketing activities. Although PTT has limited expe-rience in marketing LPG, MKT has managed this side of PTT's operationssatisfactorily last year with about 50 employees. MKT will add new staff inline with its expanding marketing responsibilities envisaged under theproject. In order to help MKT to develop a marketing strategy for LPG, theproject would finance pilot marketing demonstrations in semi-urban and ruralareas to determine cost of installation, cylinder sizes, and methods ofpayment for the equipment and appliances required for use of LPG. Themarketing studies would be conducted by consultants over a period of threeyears. Furthermore, in order to accelerate replacement of diesel-fueledbuses and trucks by LPG-fueled vehicles, the project would finance thepurchase of one LPG-fueled truck and five LPG-fueled metrobuses, includingspare parts, and technical assistance to advise on the safety requirementsand operating and maintenance facilities. This is intended to demonstratethe benefits of using LPG in the transport sector. Taken together with theabovementioned marketing studies and on-the-job training from contractorsand consultants (para. 55), MKT is expected to perform satisfactorily in bulkLPG distribution and storage, as well as in retail marketing.

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52. PTT's third major activity is refining through the Bangchak andthe Thailand Oil Refinery Company (TORC) refineries. The Bangchak refinerywas formerly leased to the Summit Corporation and was repossesed by theGovernment early in 1981. Under existing arrangements, the Ministry ofDefense will continue to manage and operate Bangchak with assistance fromconsultants until 1985. PTT would continue to provide the financing andlogistics, and marketing support. These arrangements are inadequate as PTThas no actual management control over Bangchak operations. The Governmentand PTT are keen on finding a satisfactory solution to this organizationproblem and PTT has agreed to prepare proposals including an action plan forsubmission to Government and the Bank by June 30, 1983. In the interim, theGovernment will monitor closely the operations of this refinery and ifnecessary it has agreed to ensure that PTT would take actions to resolve anyproblems which may arise in accordance with sound business and financialpractices (Section 3.12 of draft Loan Agreement and Section 2.03 (c) ofdraft Guarantee Agreement). TORC reverted to the Government in 1981 and anexpansion program for TORC is under preparation as part of a joint venturebetween TORC and PTT. In addition to the above, PTT has a small explorationdepartment which continues to seek exploration concessions from theDepartment of Mineral Resources.

Project Implementation

53. Gas Plant. The gas plant, including the distribution pipeline andexport facilities, would be constructed on a lump-sum turnkey basis. LindeAG. of West Germany was selected in early 1981, with Bank concurrence, toprepare the technical specifications and tender documents in order that bidscould be so_ght f;. the gas plant prior to finalizing coot estimates. PhaseII of Linde's contract covers the project management including designreviews, supervision of construction, training and takeover until commission-ing. Seven experienced contractors from five countries submitted bids andall are capable of completing the work on time. Contract award is plannedfor August 1982. Acquisition of land for the plant has already been completedand land provisions have been made for two subsequent gas separation plants.ONG and MKT will have overall responsibility for the construction of the gasplant and the storage and distribution, respectively. Mechanical completionof the gas separation plant is expected in August 1984 with start-up andcommissioning by November 1984.

54. LPG Storage and Distribution. PTT will appoint consultants to pre-pare the conceptual designs for the new bulk storage and distribution centers,and to help with management and supervision of this component. Appointment ofconsultants is expected in early August 1982 and the basic design should becompleted by November 1982. Appointment of these consultants (issuance ofletter of intent) is a condition of loan effectiveness (Section 7.01(iii) ofdraft Loan Agreement). Commencement of the LPG storage and distributioncomponent operation will coincide with that of the gas plant in late 1984.

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55. In addition, consultants would be appointed to train ONG and MKTstaff in the operational maintenance of the gas plant and storage anddistribution centers for LPG. The consultants would prepare a trainingprogram for this purpose by January 1983 and training is scheduled to begin byJuly 1983. Manufacturers of major equipment to be used in the plant willtrain maintenance personnel during fabrication and shop testing. Suppliers ofmaterials and equipment will extend their services beyond the guarantee periodas necessary to complete the on-the-job training.

Project Cost and Financing

56. Project Cost. Total project cost including financing is estimatedat about $600 million including $48 million in taxes and $52 million in cap -

talized interest and fees, with a foreign exchange component of about $346million (58%). About $145 million will be invested by private companies inthe storage and distribution of LPG and $455 million by PTT. The PTT portion,which includes financing costs (interest during construction and Bank's front-end fee) of $38 million, has a total foreign exchange component of $268 mil-lion. The cost estimates are based on the major contract for the gas plantbeing awarded in August 1982 and that for the LPG bulk storage and distribu-tion in mid-1983. Total contingencies amount to $89 million includingphysical contingencies for the gas plant at 10% and for LPG storage/distribu-tion at 15%. Costs for the gas plant are based on fixed price bids now beingevaluated. For other items cost estimates are based on April 1982 prices;price contingencies are based on inflation of 8% for 1982 and 1983, 7.5% for1984 and 7% for 1985 in respect of foreign costs, and local cost inflation of12% in 1982/83, 10% in 1984 and 9% in 1985. In respect of the gas plant,project engineering, management, construction supervision and start-uptechnical assistance, costs are estimated at $12 million which is in thenormal range of costs for this type of project and is based on 840 man-monthsat $11,900 per month, inclusive of direct overheads, all for expatriatepersonnel. The technical assistance component for carrying out the variousstudies is estimated to cost a total of $9.5 million, excluding contingen-cies. This provides for an estimated 600 man-months of expatriate consult-ants services at an average cost of about $12,000 per man-month includingtravel and subsistence, and 400 man-months of local consultants at $500 perman-month.

57. Financing Plan. In view of PTT's lack of significant income gener-ating operations, the Government's budgetary constraints and the securityprovided by PTT's sales agreements, virtually the whole cost of PTT's portionof the project will be financed from foreign loans. The proposed Bank loan of$90 million (including front end fee of $1.3 million) would represent 15% oftotal project financing requirements (16% net of taxes and duties) and wouldbe used to finance 25% of the total foreign exchange component, including$5 million in interest on the Bank loan during construction in order to helpalleviate PTT's short-term liquidity problem. Tentative arrangements havebeen made for cofinancing from OECF, $65 million; CDC, $25 million; OPECSpecial Fund, $20 million; export credits, $80 million; and commercial bank

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loans, $130 million. The Government would contribute about $35 million toPTT in the form of equity (Section 2.02(b) of draft Guarantee Agreement).PTT will bear the foreign exchange risk.

58. A draft proposal of the financing plan for the gas plant has beendiscussed with the prospective lenders; while only the OECF funds have so farbeen committed, no difficulty is expected in obtaining the additional financ-ing in a timely manner. All seven prequalified bidders for construction ofthe gas plant are from countries with strong export credit facilities and theyhave confirmed the availability of $80 million in export credits. The effec-tiveness of the OECF and CDC loans, the export credits, and the first year'srequirements for commercial bank loans ($60 million) are conditions of effec-tiveness of the Bank loan (Section 7.01(i) and (v) of draft Loan Agreement).Assurances have been obtained that the OPEC Fund loan and the remainingcommercial bank financing would be obtained in accordance with a timetableconsistent with PTT's need for these funds (Section 3.13 of draft LoanAgreement).

PTT's Financial Position - Present Situation

59. During FY81 PTT suffered an estimated net loss of $43 million. Themajor problem in FY81 was liquidity, due primarily to delayed payments by EGATand the Government's Oil Stabilization Fund. This in turn led to heavyborrowing by PTT and high interest expenses, which turned an operating profitinto a net financial loss. EGAT has now begun to make timely payments to PTTfor fuel oil supplies.

60. The Government has appointed a high level subcommittee to lookfor a way to put PTT back on a sound financial footing. Following intensivedeliberation, the subcommittee recommended - and the Cabinet has approved -a two-pronged action plan: (a) authorizing PTT to borrow $200 million, onbehalf of the Government, of which it would retain $125 million overdue fromthe Oil Stabilization Fund, and keep $75 million in equity; and (b) reducingthe oil inventory of MKT and Bangchak refinery through consolidation oftheir stocks. PTT has negotiated a loan of $200 million with a group ofbanks headed by Citibank and it expects to sign the loan agreement in May1982. Receipt by PTT of these funds is a condition of loan effectiveness(Section 7.01(iv) of draft Loan Agreement). The Government has agreed tothese financing arrangements. Also, assurances were obtained to allow PTTto retain 90% of its net income in order to build up PTT's equity base tocushion itself against unexpected losses, subject to a maximum retention of30% of its future capital investment needs (Section 2.03(a) and (b) of draftGuarantee Agreement).

The Financial Outlook

61. PTT's overall profitability is expected to improve during 1983.The quantity of gas passing through the natural gas pipeline will increaseas Union Oil brings the gas fields into full production. The key to ONG

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profitability and satisfactory cash generation is a sufficient marginbetween the price at which PIT purchases the gas and that at which it sellsthe gas to EGAT and Siam Cement. Satisfactory gas sales contracts have beenconcluded with both customers, providing suitable margins and appropriatesafety features whereby obligations in the purchase contract are passed onto the customers. The Bank has reviewed the contracts and finds themacceptable. Both contracts are priced to reflect cost of supply plus asuitable profit margin. The contracts include an escalation provision withlinkages both to cost increases and to the Singapore fuel oil price.Pricing aspects of these contracts are, however, short-term compared with the20 year approximate duration of the Union supply contract. The Governmenthas agreed to require PTT/EGAT to renew the pricing terms of their contracton terms comparable to the one now in effect not later than October 1, 1984(Section 3.02(a) and (b) of draft Guarantee Agreement). ONG will continueto generate sound and increasing profits tor PTT throughout the decade andbeyond provided careful interrelationshLps are maintained between contractterms for gas purchase and sale, including LPG. The gas plant is projectedto yield a tinancial rate of return of 30% in real terms. The operatingratio of ONG is forecast to be about 0.8, reflecting the composite operating

efficiency of gas pipelines and gas plants. ONG's annual return on revaluednet fixed assets is expected to increase from 14% in FY82 to about 19% inFY90, depending on the timing of the next major gas pipeline.

62. As a result of the actions mentioned (para. 60), PTT will be ableto reduce the overall level of its short-term borrowing. Long-term debtwill be restricted through an agreement whereby no long-term debt will beincurred unless debt service coverage is at least 1.2 times from FY82 and1.5 times from FY85. Further strengthening of PTT would be achieved throughequity injection, refinancing of short-term debt leading to a current ratioof not less than 1.0 and a total liabilities to equity ratio of at most90/10 for FY83 and FY84; 85/15 for FY85 and FY86; and 70/3U after FY86, andefficent allocation of surplus funds among PTT-s units. Assurancesregarding these financial performance ratios have been obtained (Sections5.04, 5.05. 5.06 and 5.08 of draft Loan Agreement). As a consequence of theseundertakings, minor amendments will be made in Sections 5.04 and 5.05 of theprevious Loan Agreement (No. 1773-TH) to make them consistent with the corre-sponding sections in the proposed loan (Section 5.09 of dratt Loan Agreement).

Procurement

63. The gas plant contract includes tacilities for gas treating, ethaneand heavier hydrocarbon recovery, transfer pipelines and an export terminal.The detailed engineering, equipment and materials and the construction of theplant will be done through a single lump-sum turnkey contract to ensure timelyimplementation. The Bank would review the proposed gas plant contract and therelevant documents. One or more turnkey contracts would be let forengineering, procurement, and construction and installation of (a) the bulkstorage and related facilities; and (b) storage and rail tank wagon loadingfacilities.

64. All works and goods financed from the proceeds of the proposed loanwill be procured through international competitive bidding in accordance withthe Bank's guidelines, except for local procurement of miscellaneous equipment

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and supplies up to a limit of $2.0 million. PTT will furnish the Bank withall the documents required prior to the application for withdrawal of funds toverify their consistency with Bank guidelines. Consulting and trainingservices would be engaged in accordance with the Bank guidelines for use ofconsultants.

Disbursements

65. Disbursement trom the Bank loan would be made as follows: (a) 100%of foreign expenditures tor (i) engineering and project management services,(ii) initial payments for the construction of the gas separation plant and theremaining payments under the gas plant contract once export credits and OECFfunds have been exhausted, (iii) the contract(s) for construction of PTT's LPGstorage and distribution facilities; and (iv) training; (b) 100% of the costof studies and technical assistance not financed from other sources; (c) 100%of foreign costs, 100% ot ex-factory costs or 7J% of total costs (representingthe estimated foreign exchange component) of miscellaneous equipment andmaterials; (d) amount due against interest and other charges on the loanaccrued on or before July 31, 1984; and (e) the front-end fee. Disbursementsby the Bank are expected to be completed by December 31, 1986. The employmentof consultants in early 1981 was agreed in order to obtain firm project costestimates and to avoid delay in completion of the project. It is proposedthat the payments made for consultancy services after March 1, 1981, notexceeding $4.0 million, be retroactively financed from the loan (Schedule 1,para. 4 of draft Loan Agreement).

Benefits

66. The primary benefits of the project would come from import substi-tution and exports of LPG and from development of the basic feedstock tor thepetrochemical industry. Thailandcs foreign exchange position will be enhancedand the benefits of the gas will become more widely available. The proposedproject will enable Thailand to extract from the gas stream more valuableproducts such as ethane, propane and butane, the latter two forming LPG. Thethird stage for Thailand to obtain the benefits of natural gas will be thedevelopment of the petrochemical complexes.

67. LPG produced trom the gas plant will cost less than LPG importsfrom the Arabian Gulf even at the depressed prices prevailing in the market atthe moment. Apart from LPG import substitution, the LPG will replace dieseland gasoline and will also benefit the rural population by providing analternative to wood and charcoal. The economic rate of return of the projectis estimated at 29% and is not very sensitive to most of the major variables.The net present value of the project is $4U9 million at 12% discount rate,yielding an average annual saving of $58 million. The pay-back period on adiscounted basis is five years, which is satisfactory.

68. Risks. The major physical risks associated with the project arethe possibilities of a break in the offshore pipeline, and damage to the keyoffshore platform. The former could be repaired within a fairly short

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perioa but the latter would be a serious blow until the second natural gascontract comes onstream in mid 1985. The most important economic risk isthat there may be a further decline in world prices for LPG, which would makethe proposed investment in the gas plant less attractive. This is notexpected to happen as present LPG prices are already unusually low. The riskto the economic justification of the plant would disappear after 1990 asThailand would have built up a substantial gas surplus which wouldconsequently reduce the economic value of Thailand's natural gas for otheruses.

69. Ecology and Safety. The proposed project does not pose signifi-cant ecological problems. Flue gases from boilers and flare stacks are freeof sulphur and the only undesirable effluent is carbon dioxide which is dis-posed of into the atmosphere in controlled volumes and at an altitude whichallows the concentration at ground level to be controlled within acceptablelimits. Furthermore, the project will improve the air quality, particularlyin Bangkok, where the use of LPG instead of gasoline and diesel will bring asubstantial improvement. In the up-country areas use of LPG instead of fuelwood will reduce deforestation.

70. As in many industrial plants, gas processing is potentiallyhazardous and strict rules and regulations will be implemented to avoid unduerisks. The worldwide safety record is good and no particular danger isforeseen. PTT personnel will be trained to ensure that they are aware of allpossible risk and dangers. A supervisory control system will monitoroperation conditions and provide adequate advance warning in case of problems.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

71. The draft Loan Agreement between the Bank and the PetroleumAuthority of Thailand, the draft Guarantee Agreement between the Kingdom ofThailand and the Bank, and the Report of the Committee provided for in ArticleIII, Section 4(iii) of the Articles of Agreement of the Bank, are beingdistributed to the Executive Directors separately. Special conditions of theproject are listed in Section III of Annex III.

72. I am satisfied that the proposed loan complies with the Articles ofAgreement of the Bank.

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PART VI - RECOMMENDATION

73. I recommend that the Executive Directors approve the proposed loan.

A. W. ClausenPresident

AttachmentsWashington, D.C.

May 27, 1982

ANNEX I- 24 - Page 1 of 5

THAILAND - SOCIAL INDICATORS DATA SHEET

THAILAND REFERENCE GROUPS (WEIGHTED AVE GESLAND AREA (THOUSAND SQ. KM.) - ItOST RECENT ESTIMATE)

TUTAL 514.0 MOST RECENT MIDDLE INCOME MIDDLE INCOMEAGRICULTURAL 178.1 1960 /b 1970 Lb ESTIMATE Lb ASIA & PACIFIC LATIN AMERICA & CARIBBEAN

GNP PER CAPITA (US§) 100.0 210.0 590.0 1136.1 1616.2

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 62.5 204.3 376.3 1150.6 1324.1

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (THOUSANDS) 27229.0 36499.0 45475.0URBAN POPULATION (PERCENT OF TOTAL) 12.5 13.2 14.2 40.8 64.2

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 68.2STATIONARY POPULATION (MILLIONS) 103.0YEAR STATIONARY POPULATION IS REACHED 2070

POPULATIuN DENSITYPER SQ. KM. 53.0 71.0 88.5 373.1 34.3PER SQ. KM. AGRICULTURAL LAND 210.3 247.5 250.0 2382.8 94.5

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 44.7 46.2 42.4 39.8 40.7

15-64 YRS. 52.6 50.8 54.5 56.7 55.365 YRS. AND ABOVE 2.7 3.0 3.1 3.5 4.0

POPULATION GRUWTH RATE (PERCENT)TUTAL 2.6 2.9 2.4 2.3 2.4URBAN 4.4 3.5 3.2 3.8 3.7

LRUDE BIRTH RATE (PER THOUSAND) 44.0 39.5 30.9 29.7 31.4CRUDE DEATH RATE (PER THOUSAND) 15.8 11.3 7.9 7.5 8.4CROSS REPRODUCTION RATE 3.2 2.9 2.1 1.9 2.3FAMILY PLANN ING

ACCEPTORS, ANNUAL (THOUSANDS) .. 202.9Lk 761.0USERS (PERCENT OF MARRIED WOMEN) .. 7.6 39.0 44.1

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 92.0 100.0 124.0 123.7 108.3

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 96.0 103.0 105.0 112.6 107.6PROTEINS (GRAMS PER DAY) 43.0 50.0 49.0 62.5 65.8OF WHICH ANIMAL AND PULSE 10.0 15.0 14.0 19.7 34.0

CHILD (AGES 1-4) MORTALITY RATE 15.6 9.6 5.9 4.8 7.6

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 50.8 57.1 62.0 64.0 64.1INFANT MORTALITY RATE (PERTHOUSANU) .. 86.0/d 68.0 50.2 70.9

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TUTAL .. 17.0 22.0 45.9 65.7URBAN .. 60.0 49.0 68.0 79.7RURAL .. 10.0 12.0 34.4 43.9

ACCESS To EXCRETA DISPOSAL (PERCENTOF PUPULATION)

TOTAL *- 17.0 40.0 53.4 59.9URBAN .. 65.0 58.0 71.0 75.7RURAL .. 8.0 36.0 42.4 30.4

POPULATION PER PHYSICIAN 8003.8 8462.6 8154.1 4428.7 1728.2POPULATION PER NURSING PERSON 4900.0 7058.4 3542.0 2229.7 1288.2POPULATIUN PER HOSPITAL BEDTOTAL 1351.0/e 897.8 814.2 588.5 471.2URBAN .. 176.3 519.5 579.6 558.0RURAL .. 13910.7 1268.5 1138.5

ADMISSIONS PER HOSPITAL BED .. 31.0 44.8 36.7

hOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.5/e 5.8 5.5URBAN 5.3/e 5.8 5.5RURAL 5.6Ie 5.8 5.5

AVERAGE NUMBER OP PERSONS PER ROOMTOTAL .. .. 2.4URBAN .. .. 2.2RURAL .. .. 2.4

ACCESS TO ELECTRICITY (PERCENTUF DWELLINGS)TOTAL .. 18.9URBAN .. 86.1 ..RURAL .. 9.0 .. ..

ANNEX I- 25 - Page 2 of 5

THAILAND - SOCIAL INDICATORS DATA SHEET

THAILAND REFERENCE GROUPS (WEIGHTED AVE aGES- MOST RECENT ESTIMATE)-t

MOST RECENT MIDDLE INcoMI MIDDLE INCOME1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC LATIN AMERICA i CARIBBEAN

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 83.0 81.0 82.0 99.8 101.7MALE 88.0 85.0 85.0 100.6 103.0FEMALE 79.0 77.0 78.0 98.8 101.5

SECONDARY: TOTAL 13.0 17.0 28.0 53.5 35.3MALE 16.0 20.0 29.0 58.4 34.9FEMALE 10.0 14.0 27.0 48.6 35.6

VOCATIONAL ENROL. (% OF SECONDARY) 19.0 24.0 17.0 21.1 30.1

PUPIL-TEAChER RATIOPRIMARY 36.0 22.0 28.0 34.2 29.6SECONDARY 20.0 16.0 27.0 31.7 15.7

ADULT LITERACY RATE (PERCENT) 68.0 78.6 84.0 86.5 80.0

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 2.0 5.1 6.4 12.7 42.6RADIO RECEIVERS PER THOUSAND

POPULATION 6.0 76.0 131.0 174.1 215.0TV RECEIVERS PER THOUSAND

POPULATION 2.2 6.6 17.6 50.6 89.0NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 11.0 20.5 .. 106. 8 62. 8CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. 1.7 4.3 3.2

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 13958.0 17010.0 21547.7

FEMALE (PERCENT) 48.3 47.3 46.5 37.4 22.6AGRICULTURE (PERCENT) 83.7 79.9 76.6 50.2 35.0INDUSTRY (PERCENT) 4.4 6.0 8.7 21.9 23.2

PARTICIPATION RATE (PERCENT)TOTAL 51.3 46.6 47.4 40.2 31.8MALE 52.7 49.3 50.9 49.S 49.0FEMALE 49.8 43.9 43.9 7 14.6

ECONOMIC DEPENDENCY RATIO 0.9 1.1 1.0 1.1 1.4

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS 21.8/f 23.8/R 14.0/hHIGHEST 20 PERCENT OF HOUSEHOLDS 50.971 49. 77& 42.27*hLOWEST 20 PERCENT OF HOUSEHOLDS 6.2/f 6.1/S 7.67i*LOWEST 40 PERCENT OF HOUSEHOLDS 14.9/f 15.9/g 19.17i.

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 159.0 248.6RURAL .. .. 106.0 li 193.7 187.6

ESTIMATEU RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 115.0 L 249.8 513.9RURAL .. .. 110.0 /. 234.3 362.2

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. 15.0 21.2RURAL .. .. 34.0 32.2

Not availableNot applicable.

NOTES

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countriesamong the indicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1976 and 1979.

/c Government program only; /d 1964-65; /e 1962; /f 1962-63; /g 1968; /h Preliminary data for 1975-76;due to lack of data on national basis, the methodology for aggregating the available regional dataoverstates incomes of low income groups and understates incomes of higher income groups. Thus, thisdata is not suitable for any analytical comparisons.

/i Estimates for 1977.

May, 1981

CC C- CC- ICR- CCII BI ICI II ICI-

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IC-C CC-C-C-C,-- -C-CC-C-CC---C CCCC--CCCCCC IC-H 'CC-C-CC- C- CCBCC-C CCCC-CC CO-CCCC CCCC-CCC-C-' CH CCC-C- CC-C- C-CC-ICC C-C-C-C-C-- C-'AC CK~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O

C-CC ICCCC-C CCC HCCCCC CCC-CCC CCC C CCC- CC-C-CCCCCCCCCC-HC-HCHC- -CC HCCCCHC C C'CCC C-CCH C CC- C--C- C C- C- CC-CCC'C ACI

[C[ . CC'~~~~~I. BCC CC--CCCC-CC- C -CC CCC- -C--CC CC-C CC-CCC C-CC-C-C-CC-C-CC- C.C -C'IC-C.CCC CCCC C CHC - CC C C-O C C C CC-CSC

C H C '-C CC-C-C-C-C-C CHCCC-C-C- C-CCC C- CC-CC H ICCCC-CCC-C C-C- I -CC C-CC CC--C-ClC-CCC C C-C-C-H CCC C- - ~ CC0

C0

. CCBg' CHCCC 'B ~ C CCC-C C- C--H C CC-CCC C I C CCC' C--C--C' C-H -CC - -CC-C- -CCC CC CCC C-C CCCC- CC-

C-CC C-C CCC- C-C-CC-C -C-CCC-CC-C- C CC-C-CC-C-C-CC- C-C-C--C- CC-C-CC-C--C---HCC-C-'CCC-C- C-C-CCC-C-C-R-- C-HCS-1C-CE

C-CC-BC-CC C'CBC-C-CCCC C - CCC C-C CC-C-CC-C-CC-HB -'C-C-C- CII C-C- I- IC-C-C-CCCCC C- C-C-C CC-C-H C- CCCH C IC C-C- C CC-C HCCHC BQC-CC-C-C-CC CCC- CCCCCCC C-C- C-CC-CC-CC "C CC -'C CCC- C- C C CCC-C-CCC B CCCC-C C-C-CC-CC-I CC CC C-C-C C-CC- C CCCC-C-C-C C-C- CCC- I C CC- CCCCC-C B C

F~~~~~~~~~~~~~~~~~~~~~~~~C - CCC

CCCC- -CBC-C C CC -CHC C-C-C-C-C-C-- CC C C C-C-CC C CC-C- HC CCC-C CCCC-CC--CC-CC H-C-C- C- CHCHC-CCC CC-C C-H C C C CC' CCC CC C-

- 27 -ANNEX IPage 4 of 5

Population 46,sno (mid-198O, thousands)GNP per Canita US$670 (19t0)

TIIAILANO - RCONOMIC INDICATORS

Amount(million fIsi at Average annual Increase (%) Share of GDP at market prices (X)current prices) (at constant prtces) (at current prices)

Indicator 198n /a 19hO-74 1970-7 1475-80 1980-R5/b 1985-90/b 1960 1970 1975 1980/a

NATIONAL ACCOUNTSGross domestic Product 12,865 8.4 6.3 7.7 6.8 7.3 100.0 100.0 100.0 100.0

Agriculture 8,572 5.5 5.3 3.5 4.2 3.8 39.8 28.3 31.5 26.2Industry 7,499 11.5 7.8 11.7 8.6 9.0 18.7 25.3 24.8 27.5Services 13,326 9.0 7.1 7.8 7.5 8.3 41.5 46.4 43.7 46.3

Consumption 25,716 7.3 7.0 7.7 4.9 6.2 85.7 78.7 79.3 77.6Gross investment 9,166 15.8 3.8 8.9 7.0 6.7 15.7 26.2 25.4 27.9Exports of GNFS 8,211 10.5 3.6 14.1 9.9 9.1 17.4 16.7 19.1 25.0Imports of GNFS 10,228 13.9 3.7 10.5 4.9 5.6 18.9 21.5 23.7 31.1

Gross national savings 6,995 13.7 4.1 6.8 9.9 8.4 14.1 21.5 20.7 20.7

Composition of merchandise trade (X)(at current prices)

1060 1970 1975 1980/a 1985/b 1990/bEXTERNAL TRADE

Merchandise exports 6,657 5.5 9.0 14.7 10.2 9.3 10n.0 loo.n 100.n l10.0 100.0 100.0Primary , 785 4.2 6.6 10.8 6.1 5.0 97.8 80.5 77.3 6n.2 46.6 37.4Manufactures 2,872 29.2 20.9 25.n 14.6 12.7 2.2 19.5 22.7 39.8 53.4 62.6

Merchandise imports 8,987 11.5 3.3 10.1 5.2 6.0 lon.0 100.0 100.0 100.0 ino.o 100.0Food 303 4.3 -2.7 11.2 5.0 6.n 9.6 5.4 4.4 3.4 3.2 3.1Petroleum 2,824 11.8 5.0 8.6 -1.0 3.4 10.9 8.8 22.1 31.4 26.9 26.5Machinery & equipment 2,110 16.1 5.9 4.4 7.8 7.0 25.3 36.1 35.8 23.5 25.2 25.4Others 1,750 10.1 1.0 IR.7 7.8 7.0 54.2 49.7 37.7 41.7 44.7 45.0

1975 1976 1977 1978 1979 1980/aPRICES

GDP deflator 100.0 103.3 112.1 121.8 135.0 154.0Exchange rate 20.4 20.4 20.4 2n.3 2n.3 20.5Export price index 100.0 97.3 49.4 107.4 128.3 151.0Import price index 100.0 105.5 113.4 122.3 141.4 176.0Terms of trade index 100.0 92.2 87.6 87.8 90.8 86.0

As X of GOP1960 1970 1975 1

980/a

PUBLIC FINANCE /cCurrent revenues 13 .6 13.q 13.2 14.5Current expenditures 10.6 12.6 11.7 14.1Surplus (+) or deficit (-) +3.0 +1.2 +1.5 +0.4Capital expenditure 4.3 5.8 3.4 3.9Foreign financing n.2 0.05 n.06 0.2

1960-70 1970-75 1975-R0 1980-85/b t985-90/bOTHER INDICATORS

CNP growth rate (2) 8.4 6.2 6.9 6.7 7.5GNP ner capita growth rate (2) 5.2 3.4 4.4 4.4 5.4

ICOR 2.8 4.0 3.4 4.1 3.8Marginal savings rate 0.29 0.23 0.21 0.34 n.3Import elasticity 1.7 0.6 1.3 0.64 n.77

/a Preliminary.

/b Projected.

/c Central government only.

December 14, 1981

ANNEX IPage 5 of 5

Population : 46,500 (mid-1980, thousands)GNP per Capita: US$670 (1980) - 28 -

THAILAND - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT(Millions US$ at current prices)

Actoal ProjectedIndicator 1970 1975 1976 1977 1978 1979 198n/d 1981 Iq82 1993 1984 1985 1986 1987 1991

BALANCE OF PAYMENTSEIports of goods and nonfactor

services 1,108 2,796 3,4q9 4,0)29 4,976 6,494 8,211 9,061 10,562 12,7R3 15,236 18,251 21,794 2S,884 51,414Of whIch: Merchandise f.o.b. 686 2,178 2,959 3,456 4,041 5,233 6,697 7,333 8,573 10,397 12,491 14,961 17,832 71,221 42,574

Imports of goods and nonfactorservices -1,430 -3,497 -3,892 -5,066 -5,905 -9,170 -15,228 -15,022 -12,319 -14,384 -16,833 -19,706 -23,115 -27,186 -52,147Of which: Merchandise f.o.b. -1,148 -2,839 -3,146 -4,244 -4,909 -6,822 -8,987 -9,704 -In,929 -12, 909 -15,048 -17,679 -20,808 -24,557 -47,911

Net factor income free abroad 23 4 -63 -97 -261 -477 -703 -742 -932 -1,152 -1,435 -1,773 -2,183 -2,644 -5,122Net transfers 49 S1 24 40 41 61 353 142 347 373 402 423 467 505 697Current account balance -250 -606 -441 -1,094 -1,149 -2,092 -2,367 -2,359 -2,343 -2,180 -2,630 -2,795 -3,237 -3,443 -5,359

Private direct investment 43 86 80 106 Si 53 55 60 65 70 75 80 90 100 140MLT loans (net) 32 Ill 198 205 644 995 2,093 1,732 1,q16 2,273 2,515 2,005 3,238 3,412 4,019

Official 21 93 109 212 285 419 460 639 808 919 955 1,516 1,0(91 1,169 1,599Private Ia 10 19 89 -7 360 557 1,633 1,093 1,108 1,354 1,560 1,989 2,157 2,243 3,321

Other capital /h 93 356 242 792 490 1,036 223 867 762 437 440 160 159 381 799Change in reserves 82 52 -79 -9 -36 8 - 300 400 400 400 450 450 45n 500

International reserves 006 2,007 2,113 2,208 2,558 3,102 3,026 3,526 3,929 4,326 4,726 5,176 5,626 6,076 6,076Reserves as months imports 8 7 7 5 5 5 4 4 4 4 3 3 3 3 2

EXTERNAL CAPITAL AND DEBTGross Dishursements

Concessional loans 11 43 52 90 153 233 222 311 412 475 466 488 518 558 960flAC 11 40 45 53 84 167 158 269 340 177 359 377 405 429 589IDA - 3 7 9 5 4 4 9 14 18 19 15 10 5 0Other - - - 19 68 62 60 34 55 80 88 84 103 112 371

Noecoacessiosal loans 198 493 556 558 1,160 1,792 2,395 1,930 2,000 2,S 3 3,0263 3,986 4,563 5,229 9,373Official esport credits 7 - - 54 44 127 169 ISO 138 96 89 88 95 113 195I3RD 19 41 43 65 103 139 143 250 346 442 524 584 645 718 970Other meltilateral 2 37 46 33 46 36 93 77 107 149 486 225 265 302 470Private publicly guaranteed 17 29 io0 57 396 691 712 597 455 435 462 449 440 500 500Private non-garanteed 143 3R6 367 349 571 799 1,288 856 954 1,591 2,008 2,640 3,119 3,596 6,129

Total gross dish-rsements 19q 536 659 638 1,113 2,025 2,617 2,241 2,410 3,160 3,735 4,474 5,091 5,797 5,231

External Debt (fised-term)Public debt outstand;ng &disbursed 328 622 923 1,n94 1,816 2,81q 4,063 4,926 6,072 7,216 9,288 9,250 10,425 11,599 na.

Official 291 549 666 917 1,275 1,638 2,095 2,717 3,545 4,464 5,419 6,435 7,515 8,685 14,440Private 37 68 156 151 520 1,064 1,694 2,199 2,527 2,792 2,869 2,915 2,910 2,Q14 na.

Private nonguaranteed debtoutstonding and disbursed 382 730 795 980 939 1,243 1,922 2,845 3,615 4,741 6,187 8,229 10,292 12,530 ma.

Total debt outstanding anddisbursed 710 1,352 1,613 1,974 2,755 4,062 5,985 7,771 9,687 11,959 14,475 17,479 20,717 24,129 41,571

Undisbursed debt 118 666 840 1,401 1,902 2,358 3,204 3,066 3,386 3,734 4,087 4,514 5,021 5,459 7,710

Debt ServiceTotal service payments 162 378 399 443 708 954 1,250 1,149 1,325 1,913 2,480 3,013 3,733 4,647 9,614

Interest 16 35 44 126 198 325 461 640 831 1,019 1,260 1,544 1,890 2,272 4,200Paymento as 0 emnorts of goods and 14.6 13.5 11.4 I.0 14.2 14.7 15.2 12.7 12.5 15.0 16.3 16.5 17.1 17.9 16.8

noofactor services

Average interest rate on ne- loans(2) /c 6-.8 7.5 7.8 7.0 6.7 7.3 11.5 10.5 10.7 11.3 11.6 11.9 12.1 12.3 12.4

Official 6.P 7.4 7.7 6.2 5.3 5.3 - - - - - - - - -

Private 6.0 8.5 9.1 9.2 9.9 9.6 - - - - - - - - -Average maturity of new loans(Years) /c 1R.9 22.9 17.4 14.8 17.3 17.1 14.1 15.6 15.9 14.8 14.2 13.7 13.5 13.1 12.9

Official 9.4 24.2 20.7 19. 22.3 22.6 - - -

Private 11.2 7.0 7.3 8.1 9.4 10.6 - - -

Bank Group Exposure ('8)IBRD DOS/total DOD 22.6 20.0 18.5 17.5 15.9 13.7 11.1IBRD disbursementsitotal gro.s

disbursements 9.5 7.7 7.1 10.2 7.9 6.9 5.5IBRD debt service/total debt

service 11.1 9.5 9.0 10.0 7.9 7.0 6.3IDA DOD/total DOD - 0.3 0.7 I.0 0.9 0.7 0.5IDA disbursements/total gross

disbursements - 0.5 1.1 1.4 0.4 0.2 0.2IDA debt service/total deht

service - 0.0 0.0 0.0 0.0 0.0 0.0

As " of debt outstandingat end of 1979

Maturity structure of debt outstandiog0

rincipal due within 5 years 28.4Priscipal due within 10 years 61.3

Interest strct-rn of debt oatstandinaInterest doe within first year 4.6

Ia DUe to chenge in c]assification, projected data for private MLT loans' include some of the category "other capital"./b "Other capital" includes net use of IMF finds and met flow of short-term capital.Ic Historical data dons not inclade ma-guaranteed private debt./d Preliminary.

- 29 -

ANNEX IIPage 1 of 12

THE STATUS OF BANK GROUP OPERATIONS IN THAILAND

A. STATEMENT OF BANK LOANS AND IDA CREDITS(As of March 31, 1982)

Loan or Amount ($ million)Credit Less CancellationsNumber Year Borrower Purpose Bank IDA Undisbursed

Thirty three loans and three credits fully disbursed 639.20 31.74 -1149 1975 Kingdom of Thailand Irrigation 95.00 - 39.511198T 1976 Kingdom of Thailand Rural Dev. 21.00(TW) - 3.011199T 1976 Kingdom of Thailand Livestock 5.00(TW) - 0.541243 1976 Kingdom of Thailand Rubber 50.00 - 4.831271 1976 Kingdom of Thailand Education 31.00 - 8.291327 1976 Industrial Finance Corporation of

Thailand Industry 25.00 - 0.031393 1977 Kingdom of Thailand Agriculture 28.00 - 3.101468 1977 Kingdom of Thailand Irrigation 55.00 - 18.531485 1977 Electricity Generating Authority

of Thailand Power 50.00 - 6.90767 1978 Kingdom of Thailand PoDulation - 33.10/a 16.00i519 1978 Kingdom ot Thailand Highways 110.00 - 26.031527 1978 Provincial Electricity Authority Rural Elect. 25.00 - 4.791556 1978 Kingdom of Thailand Housing 8.60 - 6.031620 1978 Telephone Organization of Thailand Telecom 90.00 - 80.751630 1978 Kingdom of Thailand Irrigation 17.50 - 14.211638 1979 Kingdom of Thailand Urban Trans. 16.00 - 12.671662 1979 State Railway of Thailand Railways 16.70 - 9.101690 1979 Electricity. Generating Authority

of Thailand Power 80.00 - 43.79913 1979 Kingdom of Thailand Education - 35.00 29.00929 1979 Kingdom of Thailand Agriculture - 25.00 21.231752 1979 Kingdom of Thailand Ag. Extension 40.00 - 34.131770 1980 Electricity Generating Authority

of Thailand Power 80.00 - 42.171773 1980 Petroleum Authority of Natural Gas

Thailand Pipeline 107.00/b - 10.551787 1980 Kingdom of Thailand Irrigation 80.00 - 73.591816 1980 Kingdom of Thailand Ag. Credit 19.00 - 12.41

- 30 -

ANNEX IIPage 2 of 12

Loan or Amount ($ million)Credit Less CancellationsNumber Year Borrower Purpose Bank IDA Undisbursed

1852 1980 Electricity GeneratingAuthority of Thailand Power 72.00 - 45.08

1863 1980 Provincial WaterworksAuthority Water Supply 40.00 - 39.71

1870 1980 Kingdom of Thailand Housing 29.00 - 28.461871 1980 Provincial Electricity Rural Elec-

Authority trification 75.00 - 72.571889 1980 Kingdom of Thailand Inland Waterways 53.00 - 52.621918 1980 Kingdom of Thailand Ports 47.00 - 47.001922 1980 Kingdom of Thailand Ag. Research 30.00 - 29.951947 1981 Kingdom of Thailand Potash Engineering 8.90 - 7.731956 1981 Industrial Finance Corp.

of Thailand Industry 30.00 - 10.182000 1981 Electricity Generating

Authority of Thailand Power 100.00 - 100.002022 1981 Kingdom of Thailand Irrigation 57.00 - 56.502035 1981 Kingdom of Thailand Provincial Roads 35.00 - 34.272078 1982 Kingdom of Thailand /c Tree crops 142.00 - 142.002097 1982 Kingdom of Thailand T7 Structural

adjustment 150.00 - 150.00

Total 2,557.90 124.84 1,337.26of which has been repaid 279.36 2.85

Total now outstanding 2,278.54 121.99

Amount sold /d 68.63of which has been repaid 50.88 17.75

Total now held by Bank and IDA 1,968.78 121.99

Total undisbursed 1,271.03 66.23

/a Of which $3.1 million is Norwegian grant participation.T Includes refinancing of Loan S-10-TH ($4.9 million).Tc Not yet effective./d Of which $43.3 million sold to the Bank of Thailand.

- 31 - ANNEX IIPage 3 of 12

B. STATEMENT OF IFC INVESTMENTS(As of March 31, 1982)

Amounts ($ million)Year Company Type of Business Loan Equity Total

1959 Concrete Products and Cement and ConstructionAggregate Co., Ltd. Materials 0.30 - 0.30

1964/ Industrial Development - 0.39 0.391970 Finance Corporation Finance Company

of Thailand (IFCT)

1969/ Siam Cement Group Cement and1975/ Construction1978/1979 Materials 28.33 4.24 32.57

1977 Mutual Fund Company Money and CapitalLimited Market - 0.29 0.29

1977 United Sugar Terminal Food and FoodLimited Processing 2.50 0.20 2.70

1978 Siam Commercial Bank Small and MediumScale Industries 2.00 - 2.00

1979/ Bangkok Glass Industry1980 Company, Limited Glass Containers 4.85 0.34 5.19

1979/ Siam City Cement Cement and Construc-1981 Co. Ltd. tion Materials 63.00 4.00 67.00

1979 Thai Orient LeasingCo. Ltd. Capital Market - 0.15 0.15

Total gross commitments 100.98 9.61 110.59

Less cancellations, terminations,repayments and sales 65.71 2.71 68.42

Net held by the Corporation 35.27 6.90 42.17

Total undisbursed 25.00 - 25.00

-32 - ANNEX IIPage 4 of 12

C. STATUS OF PROJECTS IN EXECUTION /1(As of March 31, 1982)

Cred-L No. 929 Northern Agricultural Development Project; $25 MillionCredit of June 28, 1979; Effective Date: October 12, 1979;Closing Date: December 31, 1985

In general, reasonable progress has been achieved to date, butthe completion of major work programs planned for this year will beimportant to the project's success. Actions are being taken to resolvedifficulties relating particularly to management, staffing, contracting andbudgeting. IDA staff are giving close attention to these problems in aneffort to help resolve them.

Loan No. 1149 Phitsanulok Irrigation Project; $95 Million Loan of July 25,1975; Effective Date: October 31, 1975; Closing Date:June 30, 1985

Project completion is now expected by mid-1985, two years behindschedule, due to slow progress in on-farm works. Construction work on thediversion dam is complete and works on the distribution systems are proceedingwell. All studies financed under the project are proceeding satisfactorily.

Loan No. 1468 Second Chao Phya Irrigation Improvement Project; $55 MillionLoan of September 23, 1977; Effective Date: December 23, 1977;Closing Date: June 30, 1983

Equipment procurement is almost complete. Rehabilitation and on-farm development works for Part A of the project on about 13,000 ha werecompleted in 1981 bringing the total area developed to 48,000 ha, comparedto 51,000 in the appraisal schedule. Under Part B, rehabilitation worksare progressing satisfactorily. Under Part C, 65 km of service roads arebeing constructed. All physical works are expected to be completed in 1982in accordance with the appraisal schedule. Under Part D, a feasibilitystudy for about 175,000 ha in the Stage II area of Maeklong was completed inMarch 1980 and a study for a possible Third Stage Chao Phya IrrigationImprovement Project was completed in December 1980.

/1 These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report any prob-lems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understandingthat they do not purport to present a balanced evaluation of strengthsand weaknesses in project implementation.

- 33 - ANNEX IIPage 5 of 12

Loan No. 1630 Second Northeast Thailand Irrigation Improvement Project:$17.5 Million of December 4, 1978; Effective Date:April 25, 1979; Closing Date: September 30, 1985

Project implementation is about one year behind schedule due toinitial delays in procurement of equipment and supplies. Procurement ofequipment is now proceeding smoothly. Construction of main and secondarycanals is progressing satisfactorily but on-farm works are well behindschedule. Two new diversion dams have been built in the Lam Takhong projectarea, and work on canal rehabilitation is progressing satisfactorily.

Loan No. 1787 Eleventh Irrigation Project; $80 Million Loan ofJanuary 17, 1980; Effective Date: April 2, 1980;Closing Date: June 30, 1986

The project is about one year behind schedule due to delays in theappointment of consultants. Satisfactory progress is now being made inprocuring equipment and vehicles. Canal rehabilitation work is progressingsatisfactorily, but on-farm works are behind schedule due to delays indesign work.

Loan No. 2022-TH Twelfth Irrigation Project; $57 Million Loan ofAugust 13, 1981; Effective Date: November 11, 1981;Closing Date: June 30, 1987

Consultants were appointe', in September 1981. Surveys and mappinghave been compleLtd for 10,OOu na, anid b km of main and lateral canals havebeen constructed. A contract for construction of about 60 km of main andlateral canals is due to be awarded in 1982. Good progress is being madein developing a Plan of Action for strengthening the Royal IrrigationDepartment.

Loan No. 1198T Northeast Thailand Rural Development Project; $21 MillionLoan of Februar} 27, 1976; Effective Date: June 28, 1976;Closing Date: September 30, 1982

Construction of almost 600 km of village access roads is completeand is under way on the remaining 700 km. The road maintenance program isbeing carried out at an acceptable rate with good quality work usingequipment procured under the project. The village water supply componenthas provided 2,600 freshwater wells. The agricultural extension componentwas completed in 1978 and subsumed into the National Extension Project (Loan1393). The upland crops component is being satisfactorily completed andresearch work is being continued by the National Agricultural ResearchProject (Loan 1922). The village electrification component has beencompleted with electrification of about 475 villages. The land settlementcomponent is essentially complete; cash incomes of pilot cooperating farmerswere roughly doubled in the project period, and settlement cooperativeplaced on a sound footing.

- 34 - ANNEX IIPage 6 of 12

Loan No. 1199T Livestock Development Project; $5.0 Million Loan ofFebruary 27, 1976; Effective Date: May 25, 1976;Closing Date: June 30, 1982

The project continues to make fairly good progress particularlywith legume seed production, artificial insemination and private pasturedevelopment. However, disbursement remains behind schedule and the originalloan closing date of June 30, 1981 was extended by 12 months to June 30,1982. The Department of Livestock Development is developing plans fortransferring project activities into the work programs of the regular divi-sions of the Department, and these transfers should be completed beforeJune 30, 1982 as part of a departmental reorganization plan.

Loan No. 1243 Rubber Replanting Project; $50 Million Loan of September 13,1976; Effective Date: January 14, 1977; Closing Date:June 30, 1982

The project is one year behind schedule due to procurement diffi-culties and initial delay in loan signing as well as in agreeing on theformula of fertilizers to be procured through ICB. The r.planting rate overthe project period has been slower than that envisioned at appraisal, but for1981 about 65,000 ha were replanted - 30% above the target of 50,000 ha.Management and the general level of staff efficiency at the Office of theRubber Replanting Aid Fund is satisfactory. Bank disbursements for theproject are expected to be completed before June 30, 1982.

Loan No. 1393 National Agricultural Extension Project; $28 Million Loanof May 17, 1977; Effective Date: September 1, 1977;Closing Date: December 31, 1982

Delays in staff recruitment experienced in the early days of theproject have now been overcome and the "T and V" system is operatingreasonably satisfactorily. Vehicles, including motorbikes for village-levelextension workers, remain in short supply. Shortages of audio-visual aidsand counterpart funds for day-to-day operations are also adversely affectingprogress. Subject matter specialist training is being given priority atten-tion. Civil works construction is nearing completion and disbursement hasimproved considerably in recent months.

Loan No. 1752 Second National Agricultural Extension Project; $40 MillionLoan of September 18, 1979; Effective Date: December 18, 1979;Closing Date: December 31, 1985

Project implementation is off to a reasonable start in sevenprovinces and disbursements are ahead of appraisal estimates. Subjectmatter specialist training is being given priority attention, as also is therelevance of the information being disseminated to farmers through the "T andV" system.

- 35 - ANNEX IIPage 7 of 12

Loan No. 1816 Agricultural Credit Project; $19 Million Loan ofApril 30, 1980; Effective Date: August 29, 1980; ClosingDate: December 31, 1984

Overall Bank disbursements for the project are ahead of schedule.The Bank for Agriculture and Agricultural Cooperatives' (BAAC) ongoing termlending in the North and Northeast, to be financed under the project, isprogressing well. Implementation of works under the specified lendingcomponent, however, has been slow. The most critical factor affecting thefinancial viability of BAAC is the interest rate levels for agriculture.Satisfactory progress has been made by the Cooperative Promotion Departmentand the Cooperative Auditing Department in their training activities and inthe construction of regional and provincial staff housing.

Loan No. 1922 National Agricultural Research Project; $30 Million Loan ofDecember 19, 1980; Effective Date March 20, 1981; ClosingDate: June 30, 1989

The loan became effective in March 1981, but a budget deficiencyin the first six months, which coincided with the last six months of theGovernment fiscal year, seriously affected project implementation, which wasnegligible, although much useful preliminary planning was accomplished. Therecent approval of a project budget for FY82 and the pending approval byCabinet of the reorganization plan for the Department of Agriculture shouldenable implementation to proceed satisfactorily in the latter part of FY82after allowing for a delay of about nine months from the appraisal reportschedule.

Loan No. 2078 Second Tree Crops Project; $142 million Loan ofJanuary 29, 1982; Closing Date: March 31, 1987

The loan has not yet been declared effective.

Loan No. 1271 Fourth Education Project; $31 Million Loan of September 13,1976; Effective Date: February 9, 1977; Closing Date:June 30, 1982

Progress in project implementation is satisfactory and is expectedto be completed by the original Closing Date. All civil work contracts havebeen awarded and nearly completed. Equipment and furniture is underprocurement. Nearly all fellowships have been awarded. Staff trainingprograms are on schedule but need to be improved, as does supervision by theMinistry of Education of its nonformal education programs.

Credit No. 913 Fifth Education Project; $35 Million Credit of June 28,1979; Effective Date: October 12, 1979; Closing Date:June 30, 1985

The project is being implemented in three phases. Acquisitions ofsites and design work has been completed. Construction of workshopsincluded in phase one has been completed, and equipment contracts have been

- 36 - ANNEX IIPage 8 of 12

awarded. Phases two and three will be completed mid-1982 and mid-1983,respecti ely. Project staff has been appointed or designated. Curriculaare beinL developed. Technical assistance agencies have been contracted andstaff training programs are being conducted as scheduled. The studies underthe project are progressing satisfactorily.

Credit No. 767 Population Project; $33.1 Million Credit of February 27,1978; Effective Date: July 6, 1978; Closing Date:December 31, 1983

Under new management, the project is moving ahead smoothly andrapidly, and disbursements have improved considerably over the past year.Project implementation is now running, on the average, about 12 monthsbehind the appraisal schedule. Six of the ten national level trainingfacilities have been completed. Of the 430 rural health facilities, 374have been completed, 33 are under construction and 23 had to be deleted.The final round of procurement of equipment and furniture is currentlyunderway. Most training, information/education/communication, andpopulation-related research and evaluation activities have been completed onschedule. The Innovative Village Nutrition Activity has been successfullylaunched and Government is about to approve the use of most of the remainingfunds for Innovative Activities for testing new ideas in continuingeducation and the role of mass communication in health education are aboutto be approved by the Government.

Loan No. 1556 Bangkok Sites and Services Project; $8.6 Million Loan ofJune 15, 1978; Effective Date: September 22, 1978;Closing Date: December 31, 1983

Project implementation is about eighteen months behind schedulebecause of difficulties encountered with the largest contract. The NationalHousing Authority (NHA) has terminated the existing contract and steps areunderway to hire a new contractor to complete the work. Good progress,however, has been made on the various policy concepts on which the projectis based, and NHA's financial management has been strengthened throughtechnical assistance.

Loan No. 1638 Bangkok Traffic Management Project; $16 Million Loan ofJanuary 25, 1979; Effective Date: April 25, 1979; ClosingDate: September 30, 1982

There has been a significant improvement in all aspects of theproject. While no action seems probable on area road pricing, progress hasbeen made in implementation of the bus lane system, parkingrestrictions/charges, experimentation of staggered work hour system andnoise abatement. Construction is now underway on several trafficimprovement schemes. Since November 1981, contracts worth $6.3 million havebeen awarded; further contracts for $10.3 million equivalent are to beawarded in the next 3-6 months.

- 37 - ANNEX IIPage 9 of 12

Loan No. 1870 National Sites and Services Project; $29 Million Loan ofAugust 8, 1980; Effective Date: January 7, 1981; ClosingDate: December 31, 1984

This project expands the National Housing Authority (NHA) programsinitiated in Bangkok under the Bangkok Sites and Services and SlumImprovement Project (Loan 1556-TH) and extends the sites and servicesprogram to five regional cities. Design and procurement are proceedingsatisfactorily. Construction has commenced in Bangkok and the regionalcities.

Loan No. 1863 Provincial Water Supply Project; $40 Million Loan ofNovember 25, 1980; Effective Date: January 4, 1982;Closing Date: April 3, 1986

Engineering consultants were appointed in January 1982, about oneyear later than originally expected due to the Borrower's inexperience inhiring outside consultants. A UNDP-financed adviser has been appointedto assist the borrower in these and related matters.

Loan No. 1485 Pattani Hydroelectric Project; $50 Million Loan ofSeptember 23, 1977; Effective Date: December 20, 1977;Closing Date: December 31, 1982

The project has been completed on schedule. The three units ofturbine generators are operating satisfactorily. Good progress is beingmade under the transmission line and substation components associated withtha pr>nirt.

Loan No. 1527 Accelerated Rural Electrification Project; $25 MillionLoan of March 9, 1978; Effective Date: June 7, 1978;Closing Date: June 30, 1983.

Work has been started on 3,480 villages, out of which 2,100villages have already been electrified. The load promotion program startedin April 1981. Disbursements have accelerated and are very close to initialappraisal estimates.

Loan No. 1690 Bang Pakong Thermal Power Project; $80 Million Loan ofAugust 9, 1979; Effective Date: May 23, 1980.Closing Date: June 30, 1984

The project is about two months behind schedule because of poorsoil conditions encountered during foundation piling. Field works are nowproceeding satisfactorily, and project execution is expected to catch upwith the original schedule. The first unit is targeted for commissioning inJuly 1983, as scheduled.

- 38 - ANNEX IIPage 10 of 12

Loan io. 1-770 Kh-c Laem H:droelectric Project; $80 Million loan ofJune 17, 1980; Effective Date: September 17, 1980;Closing Date: February 28, 1985

The project is about one year behind schedule because of unexpec.-edly poor rock foundation, but works are now underway satisfactorily.Disbursements are close to appraisal estimates. Construction of theresettlement program started at all five sites.

Loan No. 1871 Second Accelerated Rural Electrification Project; $75 MillionLoan of November 14, 1980; Effective Date: August 20, 1981;Closing Date: June 30, 1986

Construction started in 262 villages for the first nine provinces.Seventeen villages have been electrified. Procurement is proceedingsatisfactorily.

Loan No. 2000-TH Power Subsector Project; $100 Million Loan of July 8,1981; Effective Date: October 26, 1981; Closing Date:June 30, 1985

Bids for the diversion tunnel will be issued in July 1982, andmain civil works in May 1983 for the Chiew Larn Hydroelectric component ofthe project.

Loan No. 1773 Second Natural Gas Pipeline Project; $107 Million Loan ofFebruary 15, 1980; Effective Date: May 27, 1981;Closing Date: December 31, 1983

Good progress was made with the overall physical works and majorproject components, including the offshore pipeline and onshore main linewhich have been completed on schedule. The pipeline started operationsin September 1981, and all physical works should be completed by mid-1982.The project is being completed on schedule and below the original costestimate.

Loan No. 1852 Mae Moh Lignite Project; $72 Million Loan of June 17, 1980;Effective Date: September 17, 1980; Closing Date:December 31, 1984

Procurement of equipment is proceeding satisfactorily. However,the borrower, in its last progress report dated January 1982, indicatedlittle progress in civil works.

Loan No. 1327 Third IFCT Project; $25 Million Loan of December 8, 1976;Effective Date: March 14, 1977; Closing Date: June 30, 1982

The loan is almost fully disbursed. Only $29,000 remain againstan outstanding letter of credit.

- 39 - ANNEX IIPage 11 of 12

Loan No. 1956 Fourth IFCT Project; $30.0 Million Loan of April 15, 1981;Effective Date: June 18, 1981; Closing Date: December 31,1984

The project is proceeding well. By the end of March 31, 1982, anamount of $23.2 million has been committed and $19.8 million disbursed,considerably faster than originally estimated.

Loan No. 1947-TH Potash Engineering Project; $8.9 Million Loan ofMarch 4, 1981; Effective Date: December 29, 1981:Closing Date: March 31, 1983

The loan became effective on December 29, 1981 and is proceedingwell.

Loan No. 1519 Sixth Highway (Provincial Roads) Project: $110 MillionLoan of March 23, 1978; Effective Date: June 22, 1978;Closing Date: December 31, 1982

All construction contracts have been awarded and work is over 80%completed. However, for three of the roads the bidding and awards weredelayed about 10 months to synchronize with bidding and award of contracts inMarch 1979 on a link road financed wholly by the Government. Completion ofthe project may thus be delayed about twelve months. The maintenance equip-ment has been procured and with recently increased budgetary allocations,progress with the road maintenance program is improving. The studies arenearing completion. Detailed engineering of roads for construction under theProvincial Roads Project (Loan 2035-TH) has been completed and is underway onroads for future projects.

Loan No. 2035-TH Provincial Roads Project; $35 Million Loan ofAugust 13, 1981; Effective Date: December 1, 1981;Closing Date December 31, 1985

Contracts have been awarded on 19 roads, and are expected to beawarded shortly on the remaining four. Proposals have been obtained for aTransport Study.

Loan No. 1662 Fifth Railway Project; $16.7 Million Loan of April 23, 1979;Effective Date: August 22, 1979; Closing Date: June 30,1982

Mainly due to slow progress in procurement of equipment andmaterial, project execution is behind schedule. Contracts are placed or beingplaced for all originally agreed Bank financed items, and most of the -

contracted equipment and material has been delivered. An amount of about

-40 - ANNEX IIPage 12 of 12

US$2.9 million remains unallocated. Disbursements are about two years behindschedule and an extension of the Closing Date to June 30, 1983 is beingconsidered. Operational efficiency is in general good; however, availabilityof passenger and freight cars was below appraisal target. The financialposition of SRT remains unsatisfactory despite the 35% and 73% tariffincreases for passengers and freight respectively in June 1981, mainly becauseof a subsequent severe decline in freight traffic.

Loan No. 1889 Inland Waterways and Coastal Ports Project; $53 Million Loanof August 27, 1980; Effective Date: December 10, 1980;Closing Date: June 30, 1984

The construction contract for improvements to the Chao PhrayaRiver has been awarded and the contractor is in the process of mobilizing.Consultants have been appointed for design and construction supervision ofthe various project components and work is underway. Acquisition of land forport sites is still incomplete.

Loan No. 1918 Bangkok and Sattahip Ports Project; $47 Million Loan ofDecember 19, 1980; Effective Date: August 12, 1981Closing Date: December 31, 1984

.Implementation of project components concerned with the Port ofBangkok are progressing satisfactorily with construction work underway andselection of consultants to provide technical assistance to the PortAuthority of Thailand in process. Work at the Port of Sattahip is temporarilyin abeyance pending completion of the Master Plan ReDort row bei"- prepareA'.y 1msu::z far.anced throuri 1ii Cd aiu kAus ralia;. The appointment ofconsultants for the design of the Bang Su Container Freigl- Terminal has beenlong delayed. With Bank concurrence, consultants were selected and contractnegotiations completed by the State Railway of Thailand but approval fromhigher authority is not yet forthcoming, causing serious delays in theimplementation of this project component.

Loan No. 1620 Third Telecommunications Project; $90 Million Loan ofOctober 4, 1978; Effective Date: January 3, 1979;Closing Date: September 30, 1983

Due to a delay in the borrower's decision on standardization ofswitching equipment and subsequent delays in issue of bid invitation and inevaluation of bids, the project is currently about 18 months behind schedule.Recent progress has been satisfactory, with TOT awarding contracts for most ofthe Bank financed items. The financial condition of the borrower continues tobe satisfactory.

Loan No. 2097 Structural Adjustment Lending; $150 million Loan ofMarch 15, 1982; Closing Date: March 31, 1983

The Loan has not yet been declared effective.

- 41 -

ANNEX IIIPage 1

THAILAND

PETROLEUM LIQUIFIED GAS PROJECT

Supplementary Project Data Sheet

Section I - Timetable of Key Events

(a) Time taken by the country to prepare the project: 2 years

(b) Agency which prepared the project : PTT & Consultants

(c) First presentation to the Bank : July 1980

(d) Date of Departure of the Appraisal Mission : November 5, 1981

(e) Completion of negotiations April 23, 1982

(f) Planned date of effectiveness : August 1982

Section II - Special Bank Implementation Actions: None.

Section III - Special Conditions

(a) The Government has agreed to:

(i) provide the gas pricing study to the Bank for comment byMarch 31, 1983, and implement promptly those recommendationsacceptable to Government, PTT and the Bank (para. 34);

(ii) cause PTT to find a satisfactory solution should it experi-ence losses from the Bangchak refinery (para. 52);

(iii) provide $35 million to PTT for project costs in the form ofequity (para. 57);

(iv) provide PTT $200 million and permit it to retain 90% of itsnet income subject to a maximum retention of 30% of itsfuture capital investment needs (para. 60); and

(v) require PTT/EGAT to renew the gas contract not later thanOctober 1, 1984 (para. 61).

- 42 -ANNEX IIIPage 2

(b) PTT has agreed to:

(i) carry out a feasibility study for an ethylene plant byJune 30, 1983 (para. 32);

(ii) notify LPG distributors about locations of storage and dis-tribution facilities (para. 45);

(iii) prepare an action plan to prevent adverse effects on itsfinancial condition as a consequence of Bangchak refineryoperations (para. 52);

(iv) obtain funds required to finance the project in a timelymanner (para. 58); and

(v) adhere to the debt service and short-term debt ratios toensure efficient allocation of funds and amend the previousLoan Agreement (No-173TH) (para. 62);

(c) Additional conditions of effectiveness are:

(i) ratification of second Union Oil contract (para. 44);

(ii) notifications to distributors about LPG's availability onequal terms (para. 45);

(iii) appointment of consultants for designing storage and distri-bution centers (para. 54);

(iv) effectiveness of OECF and CDC loan agreements, of the exportcredit arrangements and of $60 million in commercial bankloans (para. 58); and

(v) provision of $200 million to PTT by Government (para. 60).

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International Bank for Reconstruction and DevelopmentFOR OFFICIAL USE ONLY

FOREXECUTIVE ~~~~~~~~~~For consideration onEXECUTIVE June 17, 1982

DIRECTORS' I_______

MEETINGI

R82-179/1

FROM: Vice President and Secretary June 11, 1982

THAILAND: Liquified Petroleum Gas Project

Corrigendum

The attached map (IBRD 16244) replaces the map (IBRD 13476R1)

included in the President's Report and Recommendation on Thailand:

Liquified Petroleum Gas Project (R82-179) distributed on June 1, 1982.

Distribution:

Executive Directors and AlternatesPresidentSenior Vice PresidentsSenior Management CouncilVice Presidents, IFCDirectors and Department Heads, Bank and IFC

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

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