Document of

The World BankFOR OMCIAL USE ONLY

Report No. 6738

PROJECT COMPLETION kEPORT

THAILAND

POTASH ENGINEERING PROJECT

(LOAN 1947-TH)

April 16, 1987

Industry Depsrtmeint

This document has a restricted distribution and may 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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ABBREVIATIONS

DMR - Dep&rtment of Mineral ResourcesK20 - Potassium Oxide Content of Potash Fertilizermtpy - metric tons per year

CURRENCY EQUIVALENTS

Currency Unit - Thai Baht (B)

Bi $ 0.043$1 B 23.05

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet (ft)I cubic meter (cu.m) = 1.307 cubic yards (cu.yd)I metric ton (m0t) 0.98 long ton1 kilometer (km) = 0.621 miles (mi)1 square kilometer (sq km) = 0.386 square miles (sq mi)

GOVERNMENT OF THAILAND

FISCAL YEAR

October 1 - September 30

THE WOtLD BANK FOR om US ONYWashington, D C 20433

U.S.A.

Ofao of Ov.clttm.wwraOpwatmes EWtuNS

April 16, 198T

MiopRAnDuM TO TEE m l DnECTOi AND MR PUIDDT

SUBECT: Project Completion Report: Thailand - Potash egineering Project(LLoan .194.7,-TJ)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report: Thailand - Potash Engineering ProJect (Loan 1947-TH)"prepared by the Industry Department. Under the modified system for projectperformance auditing, further evaluation of this project' by the OperationsEvaluation Department h4s not been made.

Attachment

This document ha a esftfcd dbutse B m1y be mi bY VUI I 11W pN soilbmeaof their official duties. Its conltles mu tot 0haws be Il5i WON Ink aut2tt*.

FOR OFFICIL US ONLY

PROJCT COMPLETION REPORT

THAILAND - POTASH ENGINEERING PROJECT

(LOAN 1947-TH)

TABLE OF CONTENTS

Preface ..... ... *

Basic Data Sheet .......... ii

Highlightsheet............................................... iii

I. PROJECT BACKGROUND, IDENTIFICATIONs PREPARATZON,APPRAISAL, APPROVAL AND LOAN EFFECTIVENSS .............

II. PROJECT OBJECTIVES, SCOPE AND DESCRIPTION ................ 2

III. PROJECT IMPLEMENTATION AND MANAGEMEN .................... 3

IV. PYRFORMANCE OF THE CONTRACTOR AND TECHNICAL ADVISOR ...... 6

V. PERFORMANCE OF THE SPONSOR'S PROJECT TEAM................ 6

VI. PROJECT IMPLEIaUTATIUN SCHEDtULE .......................... 7

VII. CAPITAL COST, FINANCING AND DISBURSE ENT T 7

VIII. LEsSONS LEARNED AND CONCLUSIONS ......................... 8

ANNEX I

Comments Received from the Borrowers 11

This document has a restricted distribution and may be used by recipients only in the pefomacof their official duties. Its contents may not otherwise be disclosed without WorM ank authoriation.

PROJECT COMPLETION REPORT

THAILAND - POTASH ENGINEERING PROJECT

(LOAN 1947-TH)

PREFACE

On January 5, 1981, the Bank approved a loan of US$8.9 millionequivalent to the Kingdom of Thailand to assist the Ministry of Industry'sDepartment of Minerel Resources (DMR) in studying the technical feasibilityand ecnomic viability of a potash operation in rhailand, based on theexploitation of local resources.

By January 1985 it had become apparent that there were severetechnical difficulties in progressing with the project and as a result thetotal project cost, if the project were to be completed, would besubstantially above the original estimates and would require additionalsources of finance. The Bank's view, supported by the external consultants,was that the project had imply demonstrated that there were high technicalrisks and poor economic prospects associated with potash production from theBamnet Narong deposits, and that the project should be closed down. However,the DMR did not endorse this view and reportedly they plan to proceed withfurther investigations.

This report includes retrospective analyses of the project, itsjustification and implementation, and draws conclusions from the experiencegained.

Comments received from the Borrowers have been taken into accountas appropriate in finalizing the report, and are reproduced as Annex I.

This project has not been audited by the Operations EvaluationDepartment.

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TRAILAND - POTASH ENGINEERING PROJECT (LOAN 1947-TH)

PROJECT COMPLETION REPORT

BASIC DATA SHEET

KEY PROJECT DATA(US$ million)

As of February 281987

Original Amended Disbursed Cancelled Repaid Outstanding

Loan No. 1947-TH 8.9 - 8.84 0.06 0.59 11.648/

CUMULATIVE LOAN DISBURSEMENT

1981 1982 1983 1984 1985 1986

(i) Planned 0.8 7.3 8.9 - - -(ii) Amended - - - - -

(iii) Actual 1.6 4.4 6.3 8.9 -

PROGRAM/PROJECT DATA

Original LoanDate Actual

Board Approval 01/28/81 01/28/81Loan Agreement 03/04/81 03/04/81Effective Date 05/31/81 12/29/81Loan Closing 03/31/83 05/30/85Date of Physical Comgletion 10/31/82 01/31/85

Completion Time / 17 months 37 monthsTime Overrun (%T range - 217%

Date of Start-up of Operations 05/31/81 01/01/82Total Project Cost (US$ million) 10.36 11.23

Cost Overrun - 0.87 (8.4%)

MISSION DATA

No. of No. of ReportMonth/Year Weeks Persons Manweeks Date

Preparation/Appraisal July 1980 2 4 8 08/08/80Supervision July 1982 2 2 4 08/12/82Supervision October 1982 1 2 2 11/01/82Supervision Feb 1983 1 3 3 04/04/83Supervision April 1983 1 1 1 05/05/83Supervision July 1983 1 3 3 08/3^/83Supervision January 1984 1 3 3 04/11/84

a/ Includes US$3.39 million to cover exchange adjustment.From date of effectiveness.

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PROJECT COMPLETION REPORT

THAILAND - POTASH ENGINERING PROJECT(LOAN 1947-T-H)

HIGHLIGHTS

1. Thailand is located in a major potash consuming area thatincludes the ASEAN Region (Thailand, Malaysia, Singapore and Indonesia),India, Japan, Korea, China and Oceania. With the exception of a negligiblepotash production in Qinghai Province in western China, this region of theworld imports all of its potash requirements, mainly from Canada andJordan. Thailand, having substantial potash deposits, would bestrategically located to supply the East Asian markets if its depositscould be economically exploited. On this basis, the Government in early1979 requested Bank financing of a feasibility study to assess thetechnical feasibility and economic viability of a commercial-scale potashoperation, based on the exploitation of the Bamnet Narong potash deposits,the l&rgest so far identified in the country. The Engineering Project wasappraised in July 1980; the loan, in an amount of US$8*9 million, was

approved by the Bank in January 1981. It was signed on March 4, 1981 andbecame effective on December 29, 1981. The Project sponsor was Thailand'sMinistry of Industry's Department of Mineral Resources (DMR).

2. The physical execution of the project was halted in September1984, and the project was terminated in January 1985 (37 months after theLoan Agreement became effective), when sufficient evidence emerged on thetechnical difficulties and risks related to a possible potash operation inThailand and on the consequent discouraging prospects for an economicallyviable project. DMR did not agree with Bank conclusions and felt thatappropriate technical measures could permit to proceed with a full-scaleexploitation of the potash resources. However, Bank staff are confident onthe soundness of their recommendations and believe that the availableevidence should persuade the Government against promoting the much moreexpensive full-scale project. In this respect, the project reached itsmain objective.

PROJECT COMPLETION REPORT

THAILAND - POTASH ENGINEERING PROJECT(LOAN 1947-TH)

I. PROJECT BACKGROUND, IDENTIFICATION, PREPARATION, APPRAISAL, APPROVALAND LOAN EFFECTIVENESS

1. Potassium is an essential element for animal and plant growthand, with nitrogen and phosphorous, is one of the three mainmacronutrients. It is obtained through refining of natural ore or brinedeposits that exist on a commercial scale in only a limited number oflocations in the world. World potash reser!es are estimated at 17 billiontons (K20); more than 80% of these reserves occur in the Union of SovietSocialist Republics (USSR) and Canada, which are the first and second worldproducers, with 13.7 million tons K20 and 10.6 million tons K20,respectively, of installed capacity. Potash is produced in relatively fewother locations buit its extensive use throughout the world entailstransportation over considerable distances, so that location relative tomarket is essential to assessing production sconomics. Potash consumptionin south, central and east Asia and Oceania accounted for about 3.3 milliontons K20 or 12.0% of world consumption in 1985/6. These markets, thenatural outlet of a possible potash production in Thailand, are expected togrow at a faster pace than other regions; overall consumption in this areais expected to increase to 4.7 milliot tons K20 by 1990 and to 5.6 milliontons K20 by 1995, corresponding to 15.0% and 16.'%, respectively, ofprojected world potash consumption. With the exception of a small potashproduction at Qarhan Lake, in the Qinghai province of the People's Republicof China (PRC), the whole region is totally dependent on imports, andcurrently obtains its potash requirements mainly from Canada and Jordan,followed by the Federal Republic of Germany (FRG) and the German DemocraticRepublic (GDR).

2. During the drilling of boreholes for groundwater exploration inthe 1950s, thick beds of rock salt were diacovered by the Thai authoritiesin the Northeast of Thailand. Beginning in 1970, several drillingprograms, with a total of 110 boreholes, were carried out by the Departmentof Mineral Resources (DMR) on the salt deposits. These programsestablished the existence of three salt-bearing beds overlain with andseparated by claystones coverli.6 an area of 50,000 sq. km. in the Khoratand Udon-Nakhon basins. Within this program, reconnaissance drillingscarried out by DMR, consisting of 63 boreholes at 40 to 50 kilometerspacings, showed carnallite as the most abundant potash mineral,intercepted in more than half of the boreholes drilled in the basins. Highgrade carnallite (13-14% K20) was identified at Bamnet Narong and UdonThani. Subsequent development drilling of 33 boreholes in a 30 sq.km. areaat Bamnet Narong established the existence of a significant carnallite bed,in sufficient indicative amounts that could economically justify itsexploitation.

3. With the assistance of foreign consultants and on the basis ofthe development drilling work carried out at Bamnet Narong, DMR establishedthat the amount of 'drilled indicated" potash mineral in the form ofcarnallite was at least 230 million metric tons (mt) of carnallite at anaverage 13.6% K20. Mineable reserves were estimated at 135 million mt ofcarnallite. This amount of material could be capable of sustaining a

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commercial-scale potash fertilizer operation of 1.0 million tons per year(tpy) of potassium chloride (KCl) at 60% K20 for about 15 years.Additional potential reserves appeared to exist in the project area. Giventhe important size of these deposits, coupled with the favorable prospectsfor potash marketing in the region, the Government decided to proceed witha detailed feasibility study, including engineering design work, and in1979 approached the Bank for possible financing. The project was appraisedin July 1980. The Board approved a loan of US$8.9 million for 20 years,including 5 years of grace at the Bank's prevailing standard rate, to theKingdom or Thailand in January 1981 to assist in financing the detailedfeasibility work. The loan was signed in March 1981 but only becameeffective in December 1981, due to delays in finalizing the contract withthe selected engineering firm.

II. PROJECT OBJECTIVES, SCOPE AND DESCRIPTION

4. The objectives of the project were to determine the technical,economic and financial viability of a potash project in Thailand based onthe carnallite deposits already known at Bamnet Narong, and to provide acomprehensive information base which could be presented to potential equityparticipants and sources of financing. Such a document would also includean appropriate plan of exploitation and production, with engineeringdesign, equipment lists, and manpower levels to a degree of detailsufficient for an accurate prediction of operat.ing levels, cost andbenefits, and recommended measures to ensure a rational, long-termdevelopment of the sector.

5. The Project consisted of (a) the execution of a feasibilitystudy, including trial mining operations; (b) provision of financial andlegal services to assist the Government in negotiations with privateinvestors to carry out the full-scale project if the feasibility studyestablished such a project to be viable; and (c) assistance to theGovernment in the formulation of broad potash development policies. Thefeasibility study was designed to be executed in phases to ensure that thecostlier parts of the study were carried out only after previous work hasestablished the desirability of proceeding further. The first phaWecomprised the determination of the availability of raw materials, sinkingof an exploration shaft and initiation of trial mining operations,execution of potash refinery tests, and preliminary review of infrastruct-ure, utility and environmental requirements. Several interim reviews atkey stages were built into this first phase to determine courses of futureaction to eusure the achievement of the objectives of the studies. Thesecond phase of the study was extended to include the execution of mirketstudies, completion of trial mining investigations, development ofappropriate mining methods, execution of preliminary design and engineeringfor the mine and refinery, preparation of detailed capital cost estimatesfor the plant, infrastructure and utility facilities, studies onoperational and marketing arrangements and execution of economic andfinancial analyses. The second phase of the project was to proceed only ifjustified by the results of the first phase,

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III. PROJECT IMPLICMENTATION AND MANAGEMENT

6. With the Bank's agreement, DMR selected in April 1981 tworeputable firms one from the Federal Republic of Germany (PRG) as technicaladvisor (the T.A.) and the other from the United States (USA) as financialand legal advisors. A consortium of firms (the Consortium) from France, UKand FRG was selected shortly thereafter by DMR, with T.A. assistance andthe Bank's agreement, for the execution of the feasibility study.Negotiations were quite lengthy mainly because of difficulties intranslating into a contractual agreement the complex technical aspects ofthe trial mining operation. The Government was very keen to exploit notonly the carnallite but also the overlying salt strata, to provide adequatefeedstock for a soda ash project then being considered to be installed inThailand to be financed by the ASEAN community. It was therefore decidedthat instead of a shaft, a decline should be excavated, not only because ofits estimated lower cost, but also because of the possibility of using itfor initial small scale mining of salt and carnallite.

7. The contract was finally signed on Docember 14, 1981. Theoverall work was expected to take 17 months, of which 10 months were forPhase I and 7 months for Phase II. (Some wo,k on geophysical surveys anddrilling took place prior to the start of Phase I.) The agreed contractvalue was US$7.7 million, of which US$4.6 million was for the execution ofthe decline and underground works. A key clause of the contract providedthat, if the Consortium encountered underground conditions which could notreasonably have been expected, DMR would discuss and agree with theConsortium the measures required to correct the conditions so encounteredand would negotiate a reasonable payment to the Consortium. This clause,although typical of these types of agreements, would later give rise toprolonged discussions between the client and the contractor.

8. While certain components of the project (e.g. market andmarketing analyses, ore processing tests etc.) proceeded satisfactorily,serious delays occurred in 1982/83 due to (i) difficulties in obtainingcustoms clearance for the equipment imported for mining operations; (ii)contractual problems with local firms hired to recruit miners; and (iii)most worrying of all, serious difficulties in the excavation of the declinedue to weak and unstable formations in the clay beds in the deposit area.The first two problems were eventually resolved with the activeintervention of Bank staff, but the third cnntinued to cause anxiety asprogress fell further and further behind schedule. By April 1983 thetunnelling operation was five months behind schedule with only one third(240 metres (m) out of 720m) of the decline having been completed; thedecline face was at 45m from the surface, while the carnallite mininghorizon was at 130m depth. Also, controversy had arisen concerning theexcavating techniques being used by the Consortium and the safety measuresbeing adopted.

9. A major reason for the extra delay was an in-rush of water,exceeding 200 litres per minute, from a borehole previously drilled aheadof the tunnel; this led to an increase of water level in the decline.

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Additional pumping capacity was quickly installed and the situation wasbrought under control, but tunnelling work had to be halted.

10. It was apparent at this stage that additional costs would beincurred in continuing with the decline, grouting through adverse ground,and pumping out the brine. The Consortium and DMR agreed that, beforeembarking on discussions as to who should bear these costs (as well asthose arising from earlier delays), a program to drill additional boreholesand carry out pumping tests should be implemented in order to assess thepresence of cavities, identify the location and cl.aracteristics of waterhorizons, and evaluate the magnitude of the grouting work and the costsinvolved. This program was carried out in May to July 1983 with theparticipation of the T.A. and in the presence of a Bank consultant. Datacollected included core logging, geophysical logs (including resistivity),gamma ray and neutron readings, in-situ hydrogeological tests and pumpingand recovery tests. Unfortunately, the collaboration between the partiesinvolved in the collection and interpretation of these data left much to bedesired, with a very limited exchange of views, results and basic data.Indeed the first joint detailed discussion among all the parties only tookplace during the subsequent Bank mission in July 1983.

11. After examining the data obtained in the emergency explorationand research program, the Consortium expressed the opinion that it would beunwise to proceed with the construction of the decline, even as a temporarymeasure with the decline lasting only for the duration of pilot mine testsand the preparation of the feasibility study. In support of this view theconsortium adduced the following arguments (i) any methods for dealing withthe water problems, including grouting and satisfactory support, or evenfreezing, were likely to give dubious results; (ii) water seepage from thedecline would have adverse effects in weakening the lower salt stratalocated ovei the carnallite ores and in leaching these, thus spoiling thechemical quality of the deposits and creating dangerous working condition;(iii) there would be difficulties in handling the very large and heavystructural components now required for roof support; and (iv) it would beimpossible to establish a decline vith adequate seal lining to achieve acondition of absolutely no leakage. The Consortium therefore recommendedabandoning the decline, and establishing a shaft using freezing techniquesthrough the water bearing strata. The Consortium's preliminary estimatefor the cost of such a shaft.was about US$16 million.

12. In retrospect all parties agreed that a shaft, as originallyenvisaged at appraisal, would have been a better approach to overcome thedifficulties now encountered. However, it was also difficult to finallyconclude that the decline should be abandoned, since detailed technicalstudies and analyses had yet to be executed, particularly in geology,hydrogeology, support, and grouting. The Consortium therefore agreed toexecute further studies in order to determine the technical viability ofexcavating the decline, focussing particularly on geology, supporthtdrogeology, and grouting. These studies would facilitate a decision ast> whether to continue or abandon the excavation of the decline.

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13. The desk studies and laboratory tests made by the Consortium,consisting of geological and hydrogeological interpretations and oflaboratory grouting studies, were presented in September 1983; theConsortium outlined alternatives for establishing access to the areaselected for trial mining. However, it was decided to adopt a prudentapprc'ch consisting of field trial tests and drilling up to a maximum ofabout 2900 mt to be executed over a period of three months at a cost belowUS$0.15 million, starting by mid-October 1983, prior to reaching a finaldecisiorn on future mine access works. Execution of this field trial phaseunder the supervision of the Consortium was considered essential toeliminate uncertainties in respect of actual grouting performance, and toobtain specific confirmation of correlated geological trends along theproposed courses of decline ex2avation.

14. The report on the findings of these field tests was presented inJanuary 1984. Specialists from the T.A. and the Consortium andrepresentatives of DMR and the Bank participated. *fhree differentapproaches were considered: (a) grouting from the surface, (b) groutingfrom a gallery, and (c) grouting from the decline; however, none of theseapproaches appeared to provide a safe solution to the problem. Havingreceived and considered the advice from all experts, DMR, supported by Bankstaff, informed the meeting that any plan for a continuation of the declinecould not be accepted as a viable proposition. DMR therefore proposed togive priority attention to a shaft access to the trial mining area, and itwas agreed that a pilot hole would be drilled to assess ground conditionsin the location selected for the shaft sinking.

15. The drilling of a shaft pilot hole was executed in February 1984,and an additional and very serious cause for concern emerged: the drillingindicated that the carnallite ore body contains considerable volumes ofinflammable and explosive gas, containing about 30% hydrogen. Thesubsequent reexamination of carnallite cores from other drill holes in thearea under consideration indicated that the carnallite deposit in generalseemed to be gas-bearing. In the experience of the T.A., cuttingtechniques during mining of potash ore under gas pressure could not be usedfor safety reasons, since outbursts of rock of considerable volume werelikely to occur; in three of the T.A.'s potash mines in FRG no less than310 C02 gas outbursts occurred between 1979 and 1982; 197 of these involvedrock blowouts. The situation of Bamnet Narong appeared to be even moredangerous because of the presence of hydrogen; only in very few mines(Sclikai;qk and Beresniki in the USSR) is potaa extracted under suchconditions. The T.A. recommended that it would be mandatory to resolve theproblem of gas outbursts and explosions before undertaking undergroundoperations; a special mining technology would have to be studied anddeveloped, for Which very little technical expertise is availableworldwide. The T.A. carried out a preliminary re-evaluation of the projectviability under the new conditions. This yielded an estimated ERR of about15%; however, it was recognized that the assumptions relating to theincrease in investment and operating costs, due to the overall combinedeffect of water in-rush, adverse ground conditions and presence ofinflammable and explosive gases, were extremely tentative, and that a very

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detailed study would be necessary before any conclusions could be reachedon the overall project viability.

16. Bank scaff after lengthy internal discussions recommended to theGovernment in August 1984 to halt the engineering project. The principalreasons for this decision were: (i) the whole of the loan proceeds weredisbursed and significant additional funds would be required to proceedwith further investigations; (ii) no satisfactory method of dealing withthe water problem had as yet been found; (iii) the problem of inflammablegas would have to be solved to safeguard men and equipment in any futureunderground operations. Not only would such a solution, if it existed, belikely to be expensive, but the current consultant had no experience ofdealing with such conditions; (iv) international prices for potash weresignificantly lower than had been estimated at the time of appraisal(currently US$85/ton kCl FOS Vancouver compared with an appraisal estimateof US$115/ton).

17. In the Bank view, the prospect of having a technically andeconomically viable project appeared to be more and more discouraging andthere was little justification for additional costs and investigations.The project was officially terminated at the end of January 1A5 and theloan closed on May 30, 1985. DMR did not endorse the decision to halt theproject.

IV. PERFORMANCE OF THE CONTRACTOR AND THE TECHNICAL ADVISOR

18, Overall, the performance of the Consortium is difficult to judge,given the negative results of the trial mining operations, the relativeinexperience of the DMR team and the decision to undertake a developmentactivity under a fixed price contract without adequate provision ofhandling unforeseen events. In retrospect it appears that the risk andrelated costs of the trial mining operations, especially for excavation inclay, were underestimated. When the extensive problems arose as describedin paras. 8-15, there was no effective mechanism to achieve a high level ofcooperation between DMR and the Consortium to define the problems anddevelop satisfactory solutions. Given the severe, unforeseen technicalproblems that occupied all concerned staff, the training component receivedless attention than originally envisaged.

19. The performance of the T.A., was fully satisfactory; the T.A.played a fundamental role In assisting DMH to monitor properly theimplementation of the project, promptly providing, when required, expertsof various disciplines to support DMR staff.

V. PERFORMANCE OF THE SPONSOR'S PROJECT TEAM

20. With the exception of the project manager, the members of thesponsor's project team were young and professionally inexperienced;although they should be praised for their enthusiasm, dedication andmotivation. Thus, the DMR project teams relied extenaLvely on theassistance of the T.A. to monitor the Implementation of the trial miningoperations. Difficulties were initially experienced within DMR, in

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particular with regard to information flow between the DMR Project Team andother units, These problems, however, were largely overcome towards theend of the project, partly as a result of the catalytic role played by theTeA.

VI. PR&JECT IMPLEMENTATION SCHEDULE

21. An overall implementation time of 17 months was estinated at thetime of the project's appraisal. In retrospect, the appraisal estimateappears somewhat unrealistic, even if the project would have movedsmoothly. Adverse ground conditions encountered during the execution ofthe trial mining operations were the main cause of the overall projectschedule slippage. Significant delays, however, originated from the timeneeded for the loan to become effective due to the lengthy contractnegotiations with the Consortium and, later, from customs clearancedifficulties for the mining equipment imported by the Consortium. In theevent, the project was halted at the end of January 1985, 44 months afterthe date when it was originally envisaged that the loan would becomeeffective.

VII. CAPITAL COST, FINANCING AND DISBURSEMENT

22. The final project disbursement, by category, is compared to theappraisal estimate in the following table.

THAILAND - Potash Engineerlng Project'900 US equivalent

oApraisal Final DisbursementLocal Foreign Total Local Foreign Total

Contractor's servicesunder turn-key contract 320 3,200 3,520 400 3,803 4,203

Equipment and civil worksunder turn-key contract 100 4,100 4,200 - 3,802 3,802

Refining tests andsurveys 912 300 1,212 1,317 99 1,416

Equipment for under-ground monitoring, rockmechanics and laboratory 74 770 844 611 755 1,366

Technical AdvisoryServices 54 530 584 - 378 378

1,460 8,900 10,360 2,328 8,837 11,165Cancellation - - - - 63 63

Total 1,460 8,900 10,360 2,328 8,900 11,228~so- -_

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The foreign exchange component of the project cost was totally financedthrough the US$8.9 million IBRD Loan. The Government financed the localcomponent. The local expenditure was 60% higher than the appraisalestimated, due principally to the difficulties associated with mining, themuch longer time to complete than had been estimated at appraisal, and agreater load of geological testing than had originally been envisaged.

23. The actual disbursement schedule is compared to the disbursementestimate made at appraisal in the fol'lowing table.

THAILAND - Comparison Between Actual Disbursement and AppraisalEstimate Disbursetnnt

--- US$ million--- - -Bank FY 1981 1982 1983 1984 1985

Annual Appraisal 0.8 6.5 1.6 - -Actual - 1.6 2.8 1.9 2.6

Cumulative Appraisal 0.8 7.3 8.9 - -Actual - 1.6 4.4 6.3 8.9

VIII. LESSONS LEARNED AND CONCLUSIONS

24. This project has been one of the more complex technical studiesrecently financed by the Bank. It required the involvement of some of theworld's top experts in potash operations, and needed an extremely intensivesupervision effort by Bank staff (in eighteen months, four supervisionmissions plus three technical meetings were carried out).

25. As previously discussed, the project was halted due to technicalproblems during the execution of trial mining operations. These problemshave received exhaustive in-depth analysis; consequently Bank staff areconfident that the recommendat-:on to the Government to halt operations atBamnet Narong was the only reasonable solution to minimize costs andrisks. However, although the project was not completed, it fully reachedits primary objective of providing conclusive (if negative) evidence on theoverall feasibility of a potash operation in Thailand; the work carried outat Bamnet Narong zlearly indicated that a full-scale exploitation of thecarnallite deposits would be technically difficult and would poseconsiderable safety risks; in theory the adoption of measures to overcomesuch problems might be possible, but with a heavy impact on investment andoperating costs, thus affecting the economic viability of a full-scaleproject. A preliminary economic assessment made on this basis showed anERR of about 4%.

In retrospect, the following conclusions can be drawn:

(i) Origital Project Justification

The main rationale for exploring the feasibility of a potashproject in Thailand, i.e. its location in the middle of a major

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potash consuming area with no other significant local source ofsupply, is still valid. Potash consumption growth in the regionhas been substantially in line with projections made at the timeof project appraisal. Evolution of international potash prices,however, has been significantly lower than estimated. At thetime of project appraisal it was estimated that potash priceswould remain in real terms at the levels prevailing at that time,(US$115/ton KC1 FOB Vancouver) compared to the currentUS$85/ton. This is another reason affecting the economics of theproject at Bamnet Narong, compounding the negative impact of thelikely heavy increases in investment and operating costs derivingfrom the peculiar characteristics of the deposits.

(ii) Initial Availability of Data

At the time of project appraisal, the exploration section of DMRhad collected a significant amount of data concerning the BamnetNarong deposit. During project implementation, geological andgeochemical data provided by DMR were cross-checked and someinconsistencies were found, mainly due to sometimes imperfectprocedures of collecting and logging samples. It was particular-ly unfortunate that no early indications of gas-bearing potashstrata were available when the project started. While the amountof information to support a feasibility study appeared at firstsight to be sufficient, it turned out that it was not adequate topredict the adverse conditions later encountered; the difficul-ties experienced during the excavations of the decline exceededby far any reasonable expectation.

(iii) Change in Project Scope

During contract negotiations, the change in scope from shaftsinking to decline excavation (decided for budgetary reasons),had a major impact on the problems later encountered during thetrial mining operations. In retrospect, it appears that, al-though the outcome and conclusions of the project would not havechanged, the shaft sinking option would have proven technicallymore compatible with the peculiar soil characteristics at BamnetNarong. The technical implications of such a change in scopeshould have been fully assessed before its implementation.

(iv) Project Contribution to InstitutiotrBuilding and Human ResourcesImprovemett

Overall, the project has resulted in valuable training experiencefor DMR and has stimulated improvements in the Department'sinternal work organization and coordination. The projectpromoted the setting-up of laboratory test procedures andfacilities, including computerization, useful for future generalresearch work. The project has also facilitated bringing intoDMR a considerable amount of external information and expertise;

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this, together with the practical lessons learned during thetrial mining operation at Bamnet Narong, has greatly contributedto improving the professional level of DMR's staff.

26. Considering the large investment related to a full scale potashproject (in the range of US$300 to 400 million), this engineering pro-actremains a relatively low cost way of minimizing the risks of a wronginvestment decision. Although these types of feasibility study areexpensive, bearing in mind the limited resources of countries such asThailand, they are essential elements in the development process. Suchprojects not only exploit the national resources of a developing countrybut also provide externalities through employment and infrastructuredevelopment. The essential need is for adequate research, and geologicaland geotectonic assessment to be completed before shaft drilling takesplace; water problems in potash mining are often encountered and in manycases precautionary measures can be taken before the problems arise in fullscale shaft drilling.

July 1986

Revised: January 1987Revised: April 1987

Page I of

__~~M -

WI"9S4FOR t -R. 0T10-NAISSo DIVISION CHIEFP. IDUBIRY ..

AND POLICY REVIEW OPERATIONS E9VAUAIIONDEPARti "EMT

RE I PROJECI COMPLETION REPORT 0 T!HAILAND-POIASHENOINEERINO PROJECT ¢LOAN 1974 TN)

WE IAHAK YOU FOR YOUR LETTER OF OCTOBER 10, 1986 TO H.E.PRAfUAL SADHAAVAUP flINISER OF INDUSTRY. I HAYE SEEN ASKED TORESPOND TO YOUR BOVE LETTER. WE HAVE REVIEWED YOUR PROJECTZOMPLETYIN REPORT ON THAILAND-PUTASH ENGINEERIXN PROJECT AND WE HAVETHE FVOLLOWING COMMENTS AND ONSERVATIONS.

It. DURING THE PAST 1 YEARS THE GOVERNMNT OF THAILAND NABSCAkRiED OUT EX1ENSI1E EXPJORATORY WORK IN ORDER TO DELINEATE THEPOTASH RESOURCES IN THE NORTHEAStERN PARt OF THAILAND. rENTATIVEESTIMATES OF CARNALLIrE RESOURCES INDICATED A MINIMUN OF 2709000MILLION 'ON OF K 0. CARNALLITE DEPOSITS AT DAM#ET NAONO ARE

2V.ALUAlED 10 OE SUFFICIENT FOR A COMMERCIAL PROJECT VITH AN ANNUAL.CAPACITY OF I MILLION TONNES OF KCL AND A PROJECT LIFE OF AT LEAST 30

YEARS.

2. THAI POTASH DEPOSII EA$ A CENTRAL LOCATI#N Xi A OROWINOMARKET, WHICH UP TO NOW IS BEINN SERVED DY NORTH AMlERICAN AINDE.UROPEAN PRODUCERS TlHERE ARE NO OTHER POTASH DEPOSITS SUITABLE FOREXPLOITATION IN THE REOION IN THE FORESEEABLE FUTURE* CONSUMPTION IN

THIS RESION 1i EXPECIED TO INCREASE TO NHINE ILLION TON OF KCL 3Y195e. THAI POTASH PROJECT HAS VERY GOOD POTENtIAL TO SUPPLY THISRE6I0Ne

3. THE l0EC-TIVES OF BlAMN&T WIARONB POTASH PROJECT WERE TODErERMNIE rHE TECHNMICAL ECONOMIC AND FINANCIAL' VTBIAITY OF THECARNALL1IE lifrPQSITSu WHICH WILL BE THE BASIS FOR FUIURE POTASIDEVELOPMENT IN THAILAND#

4#. *THE RNMMENIDATUIN BY THf WORLD DANK 10 HALT THE PROJECTWITHOUT HAVING FIt$;T PROVED THE TECHMNICAL AND ECOMNOIC VIABILITY OF.THE P(JRJFCT HAS CAUbFP A SEkIOUS DELAY TO THE DEVELOPMENT OF POTASHPROJETI' IN THAILAND# WORLD BANK OPINXONS ON GAS PROBLEMS VERE BASEDONLY ON BANK STAFF AND SANK'S CONSUL-TANIS WHO HAD NO EXPERIENCE -O.SUJCH GAS FOUND At DAMNET NAROoNG IT 18 UNFORTUNATE THAT NO WORK WASDONE AT SANNET NMAkHON 10 DETERMINE THE EXISTENCE AND THE NATURE OFGAS IN THE ORE- BODY, THE DECISXON tO HALT THE PROJECT WAS BASED ON-ONLY ONE C:ORE SAMPlE WHICH BAVF 70 CU CM OF OAS PER 1,000 CU CH OF.OREo

-12- ANNEX IPage 2 of 5

5* IN RESPONSE. TO ITrEH 16 OF YOUR RkPORT#. THE FOLLOWINGCONMENTS WERE MADE JOINTLY BETWEEN KALI IIND SALZ (K/S) AND PMT JOINT

.VENTUREF

5.1 STRATA FLUID

THE SHAFI CENTRE BOREHOLE SHOWEJD IE PRESENCE OF ASTRATlA FLUID AT 2 HtORIZ*NS

A. IN 'IHE SUPERElCIALS

9*. IXN THE MIDDLE ANIHYDRITE .

.NO OTHER WTKA1A FLUID WAS RECORDED IN THE BOREHOLE TOTHE FINAL DEPTH. rHE STRATA FLUID CONTAINED IN THESUPERFICIALS.WILL BEF OVERCOME BY DEWATERING AND- FINALGRUJTING BEHIND THE CONCRETE LININo. THIS IS EXPECTED TOBE AN ENTIRELY 6UJCCESSFUl. OPERATIONf , AND PfT HAS GUJARANTEED

THAT RESIDUAL WATER FROM tHIS AREA WILL NOT EXCEED 10L/MXINi WHICH 1S ACCEPTA EE.

-THE STRAIA FL:UID IN TrHE MIDDLE ANHYDRIlE WILL B.TREATfED BY DRI3LLING FROM A C(ONCRETE PLUG CAST rNTO THESHAFI ABOVE THE ANHYJ*RITE BUl ELOW1 14E SUPERFICIALSt S0THAT NO INTERCONNECTION OF AQUIFERS IS CREATED, AND GROUTIED

WIlH MAONFSIUM E'XY-GHtORIX* CFMFNI AS PROVED lTO BE SUITABLE

IN THE T;KOlIlX rESTS CARRIED OUr UJNDER VARIATION ORDER 3.SUFFICIENT HOL.FS.TO ENSURE: A IHORLIUGH SPREAD OF BROUT WILL'

BE DRXIIJ.Et AND THXI; OPE:RArxoN 'x s EXPECTED rT BE SUCCESSFUL.:PMT HAS 6iUAkANIFE)) THAT NOI MORE IHAN 10 L/MIN OF FLUIDWILL D3E THE RESIDUAL MAKE, AM)) THIS IS ACCEPTABLE,

TO ENSUlRE. THAI NO 'WATFR/BRINE. WXLL MX6RATE io THESALIFEROUS STRAY'A D)EHXNI) THE: C'ONCRCTE LINtNG OURING THELIFF ('F IHF SHAFT, A CHFMICtAl. SEAL FLIEMENT (DOWELL SEALR[NQ) WIL.L NE INS tALI..E) IMMEDIATELY 9EL.OW THE BRINE-DEARING

MI1W'LF ANHYDRTTF Shtl:TtIU,

5.2 WY1H RFGAR1I TO* OAS IN THE CtRE Bt.)Yt K/S AND PMT 4AVEMADE EX:ENS(XE ENt111IRXES TO USUPPL.EMENT rHEIR OWN EXPERIENCE

IN THEIR MiNFSt AN): HAVF Ah6RFED ON TAKINO PROVENPRECAUTIONS, INCl'.UDX.NG TE8rXNG AND MONITORING THEATMOSPHFRE lUNDFRGROUNl, PROHI)X1 XNG I HE USE OF THEHF.LXMINER To clJr SAL.TY )RXIl.AINO 1Y ROArRY MEANS INSTEAD OFPERIJUSSIVY AN11 BI.ASTINO WITH ALL. MEN DON SURFACIE. IHEYCONSIDER THIS A SAFE MEANS OF ENTERING VHE ORE1 BODY.

-13- ANlAX IPage 3 of 5

6, K/S HAf8 kFCOMIMEN)DEb THAT 1HE THlAi (60YERN1ENT SHOULDCONTXNWE WITH THE POIT'AH TRIAL MINE AF AMNNET NARONG.

WITH PEST kFGAHR1',,

SIVAVONi3 ('HANliKfAS lRIDIkF(.;TOR-CFNFRAl'CHAIRMPAN llF IHE POfASH COiMMITTEE

8476;^ IIFPMJRF THMMMMM10:3491 0)72/ 0/)11860I?17i 71 9'i4

sL0 R701RM24

ALT r w1 F RVIH .F3tl

ANNEX I- 14 - Page 4 of 5

COM=8 RECEIVED FROM THE MINSTRY OF FINANCE

RCA4 /46248423 WORLDNANK

18 NOVEMBER 198682823 FISPOl..O TH

fMR* Ort t ALSEDIVISlON CHIEFINOUSTRY ANO POL.CY REVIEWOPERATION FVALUAIION DEPARTMENTSTHE WORl D BANK, tl.8*A.

WE HAVE NO COMMENT ON THE PROJECT COMPLETION REPORT ONTHAILAND-POTAS3H ENOINNEERING PwROJECT (LOAN 1V14-TH).

REGARDS?TAWE*E NOONPUK DEEAUlIITOR GENFRAL

248423 WOXLDBANK82V23 FISPOIO TH...e

t11100424

=1I S 80827

ALT RTO FROMSt)t2M

NNNN

-15- ANNEX IPage 5 of 5

National Economic and Social

Development Board,

962 Krung Kasem Road,

Bangkok 10100, Thailand

COMMENTS RECEIVED FROMTHE NATIONAL ECONOMIC AND SOCIAL DEVELOPMENT BOARD

26 November 1986

Mr. Otto Maiss,

Division Chief,

Industry and Policy Review,

Operation Evaluation Department,

The World Bank,

181 H Street, N.W.,

Washinqton, D. C.,

U. S. A.

Dear Sir,

Reference is made to your letter dated 10 October 1986,

we acknowledge with thanks the receipt of an analytical report on the

ootash operation in Thailand. We have looked thoroughly at the report

and benefited from many useful findings. For the time beinq, we have

no further comment.

With best reqards,

Sincerely yours,

(Kosit Panpiemras)

Deputy Secretary General