The World Bank has agreed to provide $200 million to Sui Southern Gas Company (SSGC) for ''Natural Gas Efficiency Project'' to replace pipeline, metering equipment for consumers and rehabilitation works in a bid to reduce ''Unaccounted for Gas'' (UFG).
SSGC has prepared a $272 million project, and $200 million financing was being sought from the World Bank. A World Bank mission visited Islamabad and Karachi on December 8-18, 2010, to work with government of Pakistan counterparts and implementing agencies to execute the proposed ''Natural Gas Efficiency Project''.
"The mission agreed with the government and SSGC on a list of project issues which require finalisation by SSGC," sources said. Training and capacity building will be included, as will be financing of an ''Owner''s Engineer'' and a ''Lender''s Engineer''.
The SSGC has a substantial debt burden which currently, in part, is serviced by rolling over loans. SSGC has agreed with World Bank to control and target its capital expenditure as a prime measure for managing its debt burden, so that a satisfactory debt service ratio (debt service requirements vs. free cash flow) can be maintained within the project period. The company will provide the Bank with a plan to that effect.
The project shows healthy economic and financial rates of return of more than 30 percent based on conservative assumptions, reducing UFG by about 21 billion cubic feet per year. SSGC and the mission agreed on the assumptions to be used for the analyses. SSGC will utilise an Owner''s Engineer (a firm) to assist with implementing the project and to help ensure the company access to latest technological developments. The procurement of the Owner''s Engineer shall be well under way when the project is sent to the Bank''s Board. Furthermore, SSGC will have a full-time Project Manager, supported by a small team and with project services provided by dedicated persons within the company''s departments (such as for various field operations, procurement, financial management, safeguards, etc).
The Project will include a Technical Assistance (TA) component that will seek to enhance SSGC''s competence level notably in areas related to the project activities, which will be the company''s focus in a five-year project period and beyond. SSGC has a Gas Training Institute that requires upgrade and funding, and SSGC will make a proposal to the Bank for TA (and other) in support of the institute.
SSGC, assisted by a consultant, has developed an Environmental and Social Management Framework (ESMF) that describes the (benign) environmental and social impacts of the Project. The ESMF includes an Environmental and Social Management Plan as guidance for the upcoming operational work. Following a minor revision, SSGC will upload the ESMF to its website and make it available at the Sindh/Balochistan libraries in project-impacted districts. The Executive Summary shall be made available in Urdu and Sindhi. This work should be urgently undertaken since the Bank requires a notification from SSGC that the document distribution has been undertaken before the Bank can declare the Project appraised and move to negotiations.
The mission discussed the various elements of the comprehensive procurement plan that has been drafted. SSGC will undertake a final review, notably of phasing of procurement activities before resending to the Bank for clearance. The agreed Procurement Plan will be attached to the Minutes of Negotiations.
SSGC agreed with the mission on indicators, to monitor progress and fulfilment of objectives. SSGC will complete draft, notably concerning annual goals and incomplete information relating to indicators for technical assistance. It was agreed to add a new governance indicator relating to more detailed UFG reporting to Ogra.
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