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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 6853

PROJECT COMPLETION REPORT

INDIA

HAZIRA FERTILIZER PROJECT(CREDIT 1125-IN)

June 30, 1987

Industry Department

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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TH WORLD BANK FOR OficIALU ONLYWaUshngton. DC 2043)

USA

June 30, 1987

MEMORANUDUM TO THE EXECUTIVE DIRECTORS AND THE PREIDENT

SUBJECT: Project Completion Report on India - Nazira Fertilizer Project(Credit 1125-IN)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on India - Hazira Fertilizer Project (Credit 1125-IN)"prepared by the industry Department. Under the modified system for projectperformance auditing, further evaluation of this project by the OperationsEvaluation Department has not been made.

Attachment

ThS doument ha a mstkied distbutn and may be usd by Isepgnts only i e #pefrmanceof theit .lcAk duti. u coeones msy so otherwife be disclosed without Wor Bank authoritio.

FOR OMCIL US ONLY


INDIA - HAZIRA FERTILIZER PROJECT(CIREDIT 1125-IN)

TABLE OF CONTENTS

Page No.

PREFACE **eeo.e**oeeooe**eee.oeeeoo o 0oe oeee 1

BASIC DATA SHEET *e00e.o0o000.00..00..0e**00.0 *o0o00o0 *e*o.*.00 .i

HIGHLIGHTS ..o.o..oo.oo0.00.. 00.0.........*.0*0.* ..0000 00 * 00.0 iv

I* INTRODUCTION *o.ooeoesoo.oo**toooooo9o@90*eo4000e*O0***O0 1

II. PROJECT BACKGROUND *.--....... s...-,-.o..,.....e.. 2

A. Project Identification, Preparation, Appraisal,.^ proval and Credit Effectiveness ................. 2

B. Project Description and Objectives ........ oo...*,.o 3

III. PROJECT IMPLEMENTATION AND MANAGEMENT .... ............... 3

A. Achievement of Project Objectives ..................* 3B. Project Scope ...................................... 3c. Project Management and Execution .......... *........ 4D. Manpower Development and Training .................. 4E. Performance of Engineering Contractors .............6 5F. Procurement and Performance of Suppliers ........... 5G. Project Implementation Schedule e-ooeo ooovoo***ov 5H. Capital Costs, Financing and Disbursements ......... 6

IV. OPERATING PERFORMANCE .... 00.00.00.......00.00.0..000.000 8

Ao Commissioning and Start-us .... o......o..o.o..o..... 8B. Build-up of Production oo..........o...o......,e..o. 8C. Marketing ......oo.....oo.oooo..oo..o oo. oooooo.o.o 9

V. FINANCIAL PERFORMANC ............................*.*..... 10

A, Pricing Policy ........ ... ,... . .............. 10B. Financial Rate of Return ........................... 10C, Financial Results .......o...oo.....o*...o o*o........... 11

VI. ECONOMIC PERFORMANCE .....0 00.. 0 0000 00.0.0....... ....... 11

A. Economic Rate of Return oooo...........*..o*...*...* 11B. Foreign Exchange Savings .....o.......ooo...ooo..... 12C. Technology Transfer ...... e........ ............. 0.... 12Do Environmental Aspects .....006..... .....*...*....,. 12

This document has a restricted distribution and may be used by recipients only in the perfomeof their oMcial duties. Its contents may not otherwise be disclosed without World Dank authorizaion.

TABLE OF CONTENTS (Cont.'d)

Page No.

VII. IDA ROLE *e**4o ee s*eeooeOo.o.*oe..eeo.,.,e 12

VIII. CONCLUSIONS AND LESSONS LEARNED ......................... 13

ANNEXES

1 Consumption, Production and Imports of Fertilizers ...... 15

3-1 KRIBHCO Organization Chart .............................. 163-2 IDA-Financed Procurement of Goods and Services .......... 173-3 IDA Credit Disbursement Schedule ...................... 18

4 Operating Performance *************,** ** * * * * * * * * * * * * * * * * * 19

5-1 Retention Price Formula ............. 205-2 Retention Price Calculations Schedule ................... 215-3 Assumptions for Econ. & Finan. Rate of Ret' n Jlculations . 225-4 Cost and Benefit Streams for Financial Rate of Return ... 245-5 Projected Balance Sheet .......,.**.*. ..... * * * * * * * ............. . 255-6 Projected Funds Flow Statement ......... ...... *.....* 265-7 Projected Income Statement ............................. 27

6-1 Cost and Benefit Streams for Economic Rate of Return .... 286-2 Foreign Exchange Savings Schedule ....................... 29

ATTACHMENT

Comments Received from the Borrower ............................. 30

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INDIA - HAZIRA FERTILIZER PROJECT(CREDIT 11.25-IN

PREFACE

1. On March 31, 1981, IDA approved, at the request of the Governmentof India (GOI), a credit (Cr. 1125-IN) of SDR 321.5 million (US$400 millionequivalent) to assist in the financing of the Hazira Fertilizer Froject inthe state of Gujarat. The project, originally sponsored by the IndianFarmers Fertilizer Cooperative Ltd. (IFFCO), is owned and operated byKrishak Bharati Cooperative Ltd. (KRIBIICO), a cooperative societyestablished in April 1980. The IDA credit covers approximately 44X of theproject capital costs.

2. The project was appraised by an IDA ,ission which visited Indiain October/November 1979. Re-appraiPal was carried out in November 1980following delays in the Project's in;-tiation. Board approval was grantedon March 31, 1981. The Development Credit Agreement was signed on October28, 1981 and became effective on January 21, 1982.

3. Work on the project started on March 31, 1981. The plant wascommissioned in November 1985 and commercial operations started in March1986. After the start of commercial operations, IND staff visited India inSeptember 1986 for the preparation of the Project Completion Report (PCR)and had discussions with KRIBHCO, in June 1987 IND staff received commentson an earlier draft of the report from the GOI, through its Department ofEconomic Affairs. This report is based on the draft PCR prepared byKRIBHCO, the findings of the mission,comments received and the projectfiles and related documents.

This project has not been audited by the Operations EvaluationDepartment.

- ii -

BASIC DATA SHEET

Key ProJect Data(US$ milliony-

-- as of June 30, 1987- -- ---Cro No. Original Amended Cancelled Disbursed lepaid Outstanding

1125-IN 400 392.la/ 0.86 314.0 - 314,0

A. Cumulative Loan Disbursements

1981 1982 1983 1984 1985 1986 1987(i) Appraisal Estimate 13.0 9.T1 T194. 313.6 392T 400,(ii) Actual - 37.0 135.1 219.6 279.4 304.9 314.0(iii) (li) as X of (i) - 39.7 69.3 70.0 71.3 76.2 78.5

B. Project Schedule

AppraisalEstimate Actual

Board Approval 03/31/81Signing Date 10/28/81Effective Date 01/21/82Zero Date 04/01/81 03/31/81Date of Mechanical Completion 06/01/85 09/01/85Completion Time (months) 48 51Time overrun (months) - 3

C. Project Cost (US$ million)

AppraisalEstimate NCtual Variation ,

Total Installed Cosc 998.6 751.5 -2',Working Capital 160.5 71.7 -55Interest During Construction 117.8 48.1 -59Total Financing Required b/ 1,276.9 836.2 -35Financial Rate of Return T) 9.1 14.3 +57Economic Rate of Return (X) 16.6 15.7 -5

a/ The difference between the original and amended figures is due toUS$/SDR rate fluctuations.

b/ According to GOI estimates, the reduction in capital cost estimate isfrom Rs 10,215 million to Rs 9,000 million resulting in a saving ofonly 12%. The differences arise from the exchange rates used on thedate of the estimates and of fluctuations in exchange rates during theProject period.

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D. Project Scope (tons per day)

Ammonia plant 2,700Urea plant 4,400

MISSION DATA

Month No. of No. ofYear Weeks Persons Report Date

Appraisal 11/79 3 4 11/26/79Re-appraisal 11/80 2 3 03/06/81Supervision 07/82 1 1 07/22/82Supervision 02/83 3 1 03/07/83Supervision 02/84 2 1 04/02/84Supervision 07/84 2 2 09/10/84Supervision 04/85 2 1 04/10/85Supervision 11/85 4 1 01/13/86completion 09/86 2 2 12/10/86

OTHER DATA

Currency Unit Indian RupeeAppraisal Year US$1.0 - Rs 8.0Investment Period US$1.0 - Rs 8.0 - 12.6Completion Year (1986) US$1.0 = Re 12.5

Weights and Measures

1 metric ton (t) - 1,000 Kilograms (kg)1 metric ton (t) 2,204.6 Pounds (lb)1 kilometer (km) - 0.62 miles1 hectare (ha) - 2.47 acresI cubic meter (Ncm) 35.32 cubic feet (cf)

Fiscal Year

Government of India: April 1 to March 31

KRIBHCO: July 1 to June 30

Borrower: Government of India

Beneficiary: KRIBHCO

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PROJECT COMIPTION EEPOFI

INDIA - HAZIRA FERTILIZER P' ,jCT(CREDIT 1125-IN)

HIGHLIGHTS

1. The project forms part of GOI's overall plan to use gas from theBombay High and North and South Bassein offshore oil and gas fields. Theproject also meets the government's agricultural policy objective ofdeveloping the fertilizer sector to help increase agricultural o'itput(para 2.03).

2. Originally, the project was sponsored by IFFCOe It is now ownedand operated by KRIBHCO. The latter is a cooperative society establishedin April 1980 with shareholders including GOI (66%), IFFCO (28%) andseveral local cooperative societies (6%) (para 3.05).

3. The project was designed to produce 2,700 tons per day (tpd) ofammonia and 4,400 tpd of urea. It consists of two gas-based ammonia unitswith a capacity of 1,350 tpd each and four urea units of 1,100 tpd each, aswell as all the necessary auxiliary and off-site facilities, includingthree steam generation plants of 275 tons per hour each; two power units of15 Mr ach; ammonia storage for 20,000 tons; product handling and storagefacilities for 90,000 tons,-workshops, warehousing, gas terminal and watertreatment plants. A total of 1,320 people are currently employed by theproject. This includes 297 executives/officers and 1,023 others (paras2.04, 3.02, 3.05).

4. KRIBHCO followed acceptable procurement procedures forconstruction, equipment, erection and civil works using internationalcompetitive bidding (ICB) in accordance with IDA guidelines. There weredelays in the scheduled deliveries of both locally manufactured andimported equipment, but the 21-month delay in the supply of gas for firingthe reformer offset all the other delays (paras 3.07-3.09).

5. Total project cost at appraisal was estimated at US$1,276.9million. At project completion the actual cost was US$836.2 million,representing a 35% underrun due to (a) generally lower international pricesfor capital equipment, (b) exchange rate movements, (c) successful use ofICB for local procurement, and (d) savings in the financing charges andhigher production during the trial period than originally envisaged (paras3.10-3.11).

6. Between November 1986 and August 1986, 439,694 tons of ammoniaand 713,850 tons of urea were produced. The average capacity utilizationduring this period was around 65%, a normal situation in the first year ofoperation. The highest rate of capacity utilization achieved on a singleday per stream (up to October 31, 1986) was 106% for the ammonia units and130% for urea. The plant is now performing satisfactorily and should haveno problems achieving a sustained 95% rate of capacity utiLization (para4e03).

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7. The financial rate of return (FRR) for the project is now 14.3%compared to the appraisal estimate of 9.1%. The increase in the FRR ismainly due to the lower capital costs of tkh project. A 15 reduction inthe present retention price will reduce the FRR to about 11% (para 5,04).The economic rate of return (ERR) is now estimated at 15.7%, only slightlylower ttan the appraisal estimate of 16.6%. The average annual foreignexchange saving from the project is estimated to be about US$220 million inconstant 1986 dollars, 8% higher than the appraisal estimate. In addition,the project has resulted in substantial technology transfer to India(para 5.03).

8. Since the initiation of the project, KRIBHCO has had 5 ManagingDirectors. A new Managing Director assumed his duties in November 1986.At appraisal, the agreement was that IFFCO w.uld handle the marketingarrangements for KRIBHCO's urea. However, it was later decided, with IDA'sconditional approval, that logistically KRIBHCO would be better placed tomarket its own urea. The necessary organizational arrangements havegenerally been slow and are still incomplete (paras 3.04 and 4.04).

9. KRIBHCO succeeded in overcoming problems encountered duringproject implementation. Significant savings in project costs were achievedand the plant is operating at satisfactory levels since commissioning.KRIBHCO's performance both during project implementation and operation iscommendable (para 3.04).

10. From the initial stages all through the implementation period ofthe project, IDA played a significant role in helping KRIBHCO to arrangeproject financing, continuously improve project management, organizationand procedures, notably in procurement, and constantly monitor the projectto identify weak points. Apart from minor infrastructural facilities, theproject has been successfully implemented meeting its main objectives ofconverting a natural resource to a strategic, hitherto imported commodity,ensuring its economical and timely supply to farmers, and improving theregion's economic structure (para 7.01).

11. Overall, the project was successful. At the time of itsappraisal, however, IDA had not yet developed a broader approach tosectoral lending and to that extent the project did not deal with sectoralissues. In retrospect, such an approach would have been desirable(para 8.05).


INDIA - HAZIRA FERTILIZER PROJECT(CREDIT 1125-IN)

I. INTRODUCTION

1.01 Agriculture employs over 67% of India's total work force andaccounts for about 40% of the country's GDP. The Government of India's(GOI) agricultural policy aims to ensure increased production. Due to thelimited scope of expanding the area under cultivation, more intensive useof land with continually updated inputs and the improvement of farmingpractices are of paramount importance in India's agricultural development.The objective of further expanding fertilizer use, which has grown at acompound annual rate of 10% since the early 1970s, reaching 8.7 milliontons of nutrient in 1985/86, is an integral part of GOI's agriculturaldevelopment strategy. Five consecutive development plans have givenpriority to the development of an efficient fertilizer industry to ensure asustained supply of fertilizers to consumers and to expedite theachievement of agricultural self-sufficiency.

1.02 In 1985/86 India had a total production of 5.7 million tons peryear of nutrient (tyn), of which 4.3 million tyn was in the form ofnitrogen, making it the fourth largest producer after the Soviet Union, theUnited States and China. In spite of its large production, India's supplygap in 1985/86 amounted to 32% of its fertilizer requirements, or some 2.7million tyn, requiring foreign exchange of some US$650 million (on FOBbasis). The outflow of foreign exchange on account of fertilizer importsover the years has had a considerable negative impact on India's balance ofpayments. GOI has therefore given priority to the installation ofadditional production facilities while increasing the level of capacityutilization at existing plants to increase overall domestic production.The Bank Group has so far participated in the financing of thirteenfertilizer projects in India, making a total contribution of about US$1.4billion towards the substantial capital and infrastructural investmentrequirements associated with these projects.

1.03 Annex 1 shows the pattern of India's production and consumptionof fertilizer since 1952/53. Consumption of all fertilizers in Indiaincreased at an annual growth rate of 14% from 294,000 tyn in 1960/61 to8.7 million tyn in 1985/86. Nitrogenous fertilizers constitute two-thirdsof total fertilizer used. Consumption of the latter increased at a rate ofabout 15% per annum (p.a.) from 212,000 tyn in 1960/61 to 5.8 million tynin 1985/86. The growth of fertilizer consumption is expected to continuedue to (i) GOI's policy to increase agricultural output; and (ii) the widedisparities in fertilizer use among states, providing opportunities forbroadening the fertilizer demand base. 1 / Furthermore, consumption of

1/ The three States of Uttar Pradesh, Punjab and Haryana account for over40% of the total fertilizer consumption in India.

-2-

fertilizer per hectare of arable land in India (42 kg/ha in 1985/86) isstill significantly less than in other developing countries (e.g., China,123 kg/ha and Mexico, 67 kg/ha). GOI has projected fertilizer consumptionto increase at an average of about 7% p.a. or from 8.7 million tyn in1985/86 to 16.6 million tyn by 1994/95. This projected growth, however,appears to be optimistic; a growth rate of about 4% p.a. may be morerealistic.

1.04 Throughout its rapid growth, India's domestic fertilizer industryencountered problems which included low capacity utilization, poortechnology, managerial and administrative inefficiencies, high capitalcosts, relatively long project implementation periods, disruption offeedstock and utilities supplies, distribution and transport bottlenecksand a restrictive regulatory framework. Government policies implemented togenerate the industry's rapid growth protected it from competitiveincencives for cost minimization -4d efficiency gains. As a result, thesector is not internationally competitive. Average domestic productioncosts exceed the landed cost cf imports, and inadequate investment indistribution facilities has led to bottlenecks which in turn reducecapacity utilization in existing production facilities.

1.05 From time to time GOI has taken steps to effect changes in thefertilizer sector, However, the broader sectoral issues of subsidy,production efficiency, pricing, public enterprise management anddistribution need further actions. There is a need to reform the presentpricing policy to bring producer and user prices closer to correspondingeconomic values. Relaxation of regulatory controls on investment, exit anddistribution is also needed to increase the sector's efficiency, achievegrowth at reasonable cost and reduce the central Government's budgetarysubsidy for fertilizer which stood at US$1.6 billion in 1985/86. Thesereforms will, however, necessarily be gradual taking into account sectorallinks in the rest of the economy and the rationalization of existingfacilities and capability, mainly in the public sector.

II. PROJECT BACKGROUND

A. Project Identification, Preparation, Appraisal, Approval and CreditEffectiveness

2.01 Following a request by GOI for IDA financing of the HaziraFertilizer Project to be located at Hazira, about 15 km west of Surat Cityin the State of Gujarat, an IDA mission visited India in October/November1979. The appraisal mission was joined by the representatives of theOverseas Economic Cooperation Fund (Japan) (OECF), Overseas DevelopmentAdministration (U.K.) (ODA) and Industrial Development Bank of India(IDBI), the prospective co-lenders to the project. Because of the delaysin the initiation of the project due to delays in the appointment ofengineering firms, the project was re-appraised in November 1980 by anotherIDA mission.

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2.02 On March 31, 1981 IDA approved a credit of SDR 321.5 millionequivalent (US$400 million) to be made directly to the Government. Theonlending terms were for (a) GOI to relend IDA funds to KRIBHCO at aninterest rate of 11,75% p.a. with a repayment over 15 years including 5years of grace, and (b) GOI to bear the foreign exchange risk. TheDev2lopment Credit Agreement was signed on October 28, 1981 and becameeffective on January 21, 1982.

B. Project Description and Objectives

2.03 The project is part of GOI's overall plan to make economic use ofthe off-shore natural gas deposits discovered in 1974. A major aim of theproject was to produce urea and ammonia by converting a domestic naturalresource. This contributes towards GOI's goal of increasing agriculturalproductivity and output towards the eventual attainment of agriculturalself-sufficiency.

2.04 The project. based on steam reforming of non-associated naturalgas, was designed for 1.45 million tons per year (tpy) of urea for saleprincipally to farmers in Northern and Western India, and a marginalsurplus of 17,820 tpy of ammonia. The complex comprises two single-trainammonia units each with a capacity of 1,350 tpd of ammonia, four urea unitseach of 1,100 tpd capacity. In addition, there are the related utilitiesand offsite facilities including three steam generation plants of 275 tonsper hour each; two power units of 15 Mw each; ammonia storage for 20,000tons; urea bagging facilities and silos for 90,000 tons of bulk storage; atownship with 960 housing units; and a water treatment plant.

III. PROJECT IMPLEMENTATION AND MANAGEMENT

A. Achievement of Project Objectives

3.01 The project has been completed successfully. Reserves of naturalgas are being used to produce fertilizer which is in turn supplied tofarmers, enhancing GOI's objective of increasing productivity towards theintended goal of self-sufficiency in agriculture. The facilities weremechanically completed in November 1985, 51 months from the pro4ect zerodate of April 1, 1981; the total installed cost was 35% lower thanestimated. Overall delay in project completion was 3 months. The plantreached commercial production within 4 months of mechanical completion.

B. Project Scope

3.02 There was one significant modification in the project scope withIDA's approval. This involved a changeover from coal-fired boilers togas-fired boilers as it became evident that sufficient gas would beavailable to enable KRIBHCO to replace coal with gas in firing theboilers. Although the project was conceived on the basis of South Basseingas, it is operating on associated gas from the Bombay High field. Thesemodifications had no significant impact on the efficiency or safety of theplant.

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C, Project Management and Execution

3.03 At the time of implementation, the project owner, KRIBHCO, hadonly been recently formed. IFFCO and GOI agreed that the former wouldassume responsibility for project preparation and for ensuring that KRIBHCOis suitably staffed and organized for the project implementation period.Accordingly, IFFCO transferred to KRWBHCO about 50 professional staffconstituting the major part of the project team that worked on the Phulpur,Kalol, and Kandla orojects. T.,e selected team thus had considerableexperience in project implementation and operation. The Executive Directorand Project Manager of KRIBHCO worked in those capacities on the Kalol andPhulpur projects where they performed well.

3.04 KRIBHCO however experienced a high turnover of top-levelmanagement due to ill health, retirement and incompatibility problems. Inthe six years since its inception, KRIBHCO has had five ManagingDirectors. A ner Managing Director has recently been confirmed and assumedhis duties in November 1986. Management problems were also experienced onthe marketing side. In 1983, KRIBHCO decided to market its own urea thuschanging the original arrangement whereby IFFCO would be responsible formarketing KRIBHCO's urea in addition to its own urea (para 4.04). However,IDA requested further strengthening of marketing arrangements by theappointment of a Marketing Director and Transport Advisor. These positionsare still vacant. A General Manager (Marketing) was appointed in 1984 andmost of the middle-level positions at Head Office and many of the fieldpositions have been filled. Several IDA missions urged KRIBHCO and GOI torecruit and expedite the appointment of personnel to fill these vacantpositions as these are crucial to KRIBHCO's successful operation. AlthoughKRIBHCO responded to IDA's recommendations, progress on this issue,particularly top level appointments, has been generally slow partly due tothe slow, cumbersome and inefficient government employment procedures thathave to be followed.

D. Manpower Development and Training

3.05 KRIBHCG's organizational chart is shown in Annex 3-1. Atappraisal, the project was expected to employ about 5,000 persons duringconstruction and 1,400 persons permanently at full operation. Havingemployed up to 3,800 people at the peak of construction activity,the project now has a staff complement of 1,320 comprising 297executives/officers and 1,023 others. Most of the senior managers andother key operations personnel were assigned by IFFCO, while trainees wererecruited by KRIBHCO. The trainees were recruited mostly from the projectexecution areas of IFFCO's operating plants. This ensured that skilledoperators and maintenance technicians with at least 12 months' trainingwere made available for the project. By June 1982, KRIBHCO had developed agood training and tecruitment plan for its operating staff, with trainingfor semi-skilled and unskilled staff provided at the project site beforeproject completion. A Graduate Engineer/Commercial Trainee program wasestablished in 1984. This program prepares candidates for junior engineerand middle-level management positions.

E. Performance of Engineering Contractors

3.06 Project execution was supervised by KRIBHCO's Director ofOperations who was responsible for the project budget and implementationschedule. He was assisted by Consultants specializing in ammonia, urea andpower unit installations, and project engineers -ho were responsible forday-to-day coordination of implementation. Cne engineering firm from theUnited States and another from Italy took the responsibilities of providinglicenses, basic engineering, erection, pre-operatton and start-upsupervision for the ammonia and urea units, respectively. Three Indianengineering companies undertook the execution of detailed engineering ofthe ammonia and urea units and ancillary facilities, under the supervisionof the respective process licensors. KRIBHCO was satisfied with theservices provided by the contractors. Quick remedial action was takenwhenever problems occurred during implementation.

F. Procurement and Performance of Suppliers

3.07 KRIBRCO observed acceptable contracting and procurementprocedures in implementing the project. International competitive bidding(ICB) procedures were used in accordance with IDA guidelines for procuringforeign equipment and materials with IDA credit. Among foreign suppliers,the largest share of contracts financed by IDA (16%) was won by Japan, withItaly and the United States in second place (101 each) (Annex 3-2).Locally supplied equipment and services amounted to 54% of the total shareof contracts financed by IDA.

3.08 During appraisal, it was estimated that 40% of the IDA creditwould be used to finance imported equipment, 481 for local equipmentprocured by ICB and the rest for foreign and local engineering andother services. The actual results are close to the estimates at 54%local through ICB and 46% foreign. Although the performance of thesuppliers was in general satisfactory, there were delays in deliveries byboth foreign and local suppliers. However, KRIBHCO took measures toshorten delays by air freighting some of the equipment and organizing localmanufacturers to complete final welds at site. No problems were fa~ed inobtaining suppliers' cooperation and assistance in carrying out therequired repairs/modifications related to the problems encountered duringcommissioning and initial operation.

G. Project Implementation Schedule

3.09 The mechanical completion and commissioning dates of the unitsare given below:

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Appraisal Estimate ActualFacilit:y Completion Date Completion Date Start-up Date

Ammonia/UreaUnits (phase 1) July 1984 July 1985 November 1985

Ammonia/UreaUnits (phase 2) July 1985 September 1985 December 1985

Utilities July 1984 January 1985 October 1985

The entire project was mechanically completed in September 1985, 3 monthsbehind the appraisal schedule. The delay was mainly due to the delay inthe availability of gas. Other factors included delays In the (i) deliveryof equipment, (ii) completion of engineering work by the prime contractors,(iii) placement of orders resulting from the delay in approvals bystatutory authorities, and (iv) certification of import lists. The projectmanagement team successfully overlapped the testing and commissioning withthe final stages of the construction activities to reduce delays. Minorinfrastructural facilities are still under implementation and IDA is stillcommitting expenditure under the credit (para 3.11).

H. Capital Costs, Financing and Disbursements

3.10 The project's capital costs are summarized in the table below.

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Hazira - mr of koect CaCtal o(US$ M)IWS

Apprasal Estimate Actuallocal arei Total Local F* T al

Equipunt & spares 125.8 276e9 402.7 38.1 308.4 346.5 - 14Freight, duties & taxw 104.4 23.8 128.2 104,9 19.9 124*8 - 3

ineerizv6 srvices 35.5 35.7 71.2 1.6 42.0 43.6 - 39Project m1awemet &

imwrarsce 20.4 0.9 21.3 33.7 - 33.7 + 58Erectimi & lnstallatinn 26.1 1.9 28.0 0.4 38,3 38,7 + 38Civil works & land 56.4 3.5 59.9 34.5 55,7 90.2 + 51cmuuissicxiig adurges 5,6 - 5.6 28.0 - 28.0 +400oimship 9.8 0.6 10.4 17.4 - 17.4 + 67Rail spur 20.0 1.3 21.3 26.3 - 26.3 + 23Base Cost Estimte WU 34.66 78 2 4 3 .9T -

Physical c*xtiilendas 40.4 34.5 74.9 - - -

Price escalatim 104.8 70.3 175.1 - 2.3 2.3Total InstsllPt Cost 54W.2 449.4 998.6 -. 9 WX IMIX - 25

Working capital 136.6 23.9 160.5 36.6 35.1 71.7 - 55

Interest duringzccmtr4ction 115.4 2.4 117.8 48.1 - 48.1 - 59

Total Finaniwng RequIred 801.2 4Y5Mi7 i1276.9b W 6 FM 7T3 WN - 35

a/ Averae US$/Ras exclung rates 1980-1986.1980/81 - 7.89 1983/84 - 10.311981/82 - 8.92 1984/85 - 11.881982/83 - 9.62 1985/86 - 12.55

b/ Other finang ws provided by the Coenment of India, MM(, otwr coopeativesocietes, UKW and other financial institutins.

Total actual project cost was US$836.2 million, 35% lower than thetappraisal estimate of US$1,276.9 million. The decrease in capital cost wasmainly due to (i) use of ICB for local procurement; (ii) lowerinternational prices for capital equipment due to 8 rplus marketconditions; (iii) exchange rate movements resulting in lower local dollarcosts; and (iv) savings in the financing charges and higher productionduring the trial run period than originally envisags4.

3.11 IDA credit has financed about 441 of the project's totalfinancing needs. The cofinancing arrangements under the project weresuccessful. Of the total IDA credit of SDR 321.5 million (US$400 million),the actual utilization as of June 30, 1987 was US$314.0 million. (Theamended credit amount as of June 30, 1987 was US$392.1 million due toSDR/US$ rate fluctuation.) Credit worth US$0.86 million was cancelled dueto disagreement between IDA and KRIBHCO over procurement procedures. Thecumulative disbursement pattern for the IDA credit as estimated at the timeofhappraisal and the actual pattern is given in Annex 3-3 and is summarizedbelow:

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Cumulative IDA Credit Disbursement(US$ million)

1981 1982 1983 1984 1985 1986 1987

Appraisal Estimate 13.0 93.1 194.9 313.6 392.1 400.0Actual - 37.0 135.1 219.6 279.4 304.4a/ 314.0Actual as X ofEstimate - 39.7 69.3 70,0 71.3 76.2 78.5

a/ June 30, 1986

KRIBHCO hopes it will have utilized the remaining balAnce (SDR 23e9 millionor about US$31 million) by June 30, 1988, the new closing date of thecredit. The remaining credit will be used mainly for lnfrastructuralfacilities which are not directly related to production, like thedevelopment of an alternate source of water supply. Approximately US$17million has been earmarked to these facilities. However, it is possiblethat KRIBHCO may be unable to use the entire balance of credit,necessitating cancellation of unused credit of about US$4 million.

IV. OPERATING PERFORMANCE

A. Commissioning and Start-up

4.01 As mentioned earlier (para 3.09) the supply of gas to the projectdelayed the plant start-up. Initially, the gas was expected to be suppliedin January 1984 when pre-commissioning was to start. However, low pressuregas for the boilers was made available only in August 1984 and highpressure gas for feedstock was available in September 1985 for Phase 1, andin November 1985 for Phase 2. After the cutting in of feedstock, ammoniaproduction was realized on November 14, 1985 for Phase 1 and November 30,1985 for Phase 2. The first urea was realized on November 26, 1985. Bymid-December 1985, all four urea streams were running.

4.02 The production levels and rates of capacity utilization achievedduring 1985-86 are given in Annex 4. The overall capacity utilizationduring the commissioning period averaged 52Z. Between March and August of1986, the average capacity utilization increased to 65% as forecast atappraisal. The plants have since achieved 100% utilization rates. Thehighest rate of capacity utilization achieved on a single day per streamhas been 106% for the ammonia units and 130% for urea.

B. Build-up of Production

4.03 It is estimated that the plants will produce 773,000 tons ofammonia and 1.2 million tons of urea in the year 1986/87. This corresponds

- 9 -

to 87% and 82% capacity utilization respectively. Thereafter, the plantsare capable of mairtaining a sustained 95% capacity utilization.

Planned Production('000 tons)

1985/86a/ 1986/87 1987/88 1988/89 1989/90Amount Amount % Amount % Amount % Amount %

Ammonia 316 61 773 87 802 90 802 90 802 90Urea 497 60 1,197 82 1,307 90 3,307 90 1,307 90

a/ Actual.

C. Marketing

4.04 At inception of the project, it was envisaged that IFFCO wouldassume all marketing responsibilities for urea on behalf of KRIBHCO. By1985 however, KRIBHCO decided to market its own urea. This decision wasmade because it was felt that for logistic reasons, KRIBHCO would be betterplaced to market its own urea thaa IFFCO, since the latter would also bemarketing large volumes of its own urea and other products. IDA agreed tothis arrangemeat but required that KRIBHCO take steps to strengthen theirmarketing organization and prepare a well defined marketing plan beforeassuming full responsibility for the marketing of urea. KRIBHCO undertookto appoint a Marketing Director and a Transport Advisor. A General Manager(Marketing) has been appointed, and most of the middle-level positions atHead Office have been filled. The positions of Marketing Director andTransport Advisor are still vacant however, as are some of the fieldpositions. Progress in this regard has been slow (para 3.04). This aspectneeds further strengthening as it is critical to KRIBHCO's operations.2/

4.05 KRIBHCO expects to market a major portion of its urea in theStates of Punjab, Uttar Pradesh, Haryana and Gujarat. In this regard, moresale points are being established, and regional offices strengthened togive momentum to the marketing effort. However, KRIBHCO, like othercooperative manufacturers, are constrained by regulations specifyingmarketing channels for individual producers, specified distribution areasand fixed retail margins. The utilization of a multi-channel approach bycooperatives to fertilizer distribution, as is the case for both privateand public sector plants, is necessary to enhance competition, while theestablishment of nodal points and bulk handling facilities is necessary toenhance distribution efficiency.

2/ Subsequent to the preparation of the completion report, KRIBHCO hastaken steps to strengthen the marketing organization in the field aswell as at Headquarters with regard to marketing staff.

- 10 -

V. FINANCIAL PERFORMANCE

A. Pricing Policy

5.01 Ex-factory and farmgate prices of fertilizers are set by theGovernment. Prices to the farmer are uniform throughout India, but theex-factory prices are set on a plant-by-plant Jasis using a "retentionprice formula" and are administered by the Fertilizer Industry CoordinationCommittee (FICC). The retention price formula is given in Annex 5-1 andretention prices for the Hazira project are given in Annex 5-2. Theretention price formula, introduced in 1977, ensures the general financialviability of producers by allowing an individual unit, when operatingefficiently at 80% capacity and at certain agreed input consumption norms,a 24% pre-tax rate of return. The formula does not encourage inter-plantcompetition and is not linked with economic efficiency and thereforedisregards the opportunity cost of importing fertilizer. The formula failsto discourage investmenL in high-cost new plants which would haveguaranteed profitability as long as they achieve 80% capacity utilizationirrespective of their economic viability. Furthermore, the retention priceformula, as it now operates, provides exit signals only for financialinefficiency and not for economic or technological inefficiency.

5.02 GOI's review of the retention price system now underway is partof a broader program instituted in recognition of the need for reforms,The reform program should be designed to stimulate internal competition andefficiency, induce long-term international competitiveness and help reducethe fertilizer subsidy. This program should include pricing reforms,rehabilitation, closure of some plants, management and organizationalchanges, and regulatory reforms on new investment and distribution. IDA'spresent dialogue with GOI is focusing on these issues.

B. Financial Rate of Return (FRR)

5.03 The assumptions used in the calculation of the FRR and ERR aregiven in Annex 5-3, The financial rate of return has been calculated usingprices adjusted to July 1986 constant dollars. The operating costs andrevenues are given in Annex 5-4. The FRR for the project is now estimatedat 14.3%, compared to the appraisal estimate of 9.1%. The difference isdue mainly to lower capital costs for the project (para 3.10). The FRR isbased on the present retention price formula which may be changed.

504 One of the policy options for fertilizer pricing being consideredis the adjustment of the retention prices for capacity utilization norm,debt-equity ratio and return on net worth, starting in March 1987. Inaddition, an import parity price linked ceiling may be put on the maximumretention price. After 1990/91, a single uniform price equal to tariffadjusted import parity price for all plants is being considered. If thiswere implemented, the FRR for Hazira project would drop to about 11% forurea price of US$140/ton FOB.

- 11 -

C. Financial Results

5.05 Income statements, balance sheets, and funds flow statements forthe project are presented in Annexes 5-5, 5-6 and 5-7. KRIBHCO is in comr-pliance with IDA's financial covenants. Increases in production costs dueto inflation tend to increase the retention price. The formula providesthe company a large cash flow during the initial years of operations, a8 isillustrated by the pattern of current assets on the schedule of selectedfinancial data for Hazira presented below.

Hazira: Selected Financial Data(Rupees - million)

1985/86 a/ 1986/87 1987/88 1988/89 1989/90

Net Sales 1,120.4 4,295.8 4,858.2 5,264.9 5,264.9Net Income 141.6 552.2 736,2 1,166.3 1,240.7Depreciation 214.5 790.0 790.0 795.0 800.0Internal CashGeneration 1,170.0 1,342.2 1,526.2 1,961,3 1,688.1

Current Assets 1,237.0 2,777.4 4,159.7 5,122.1 6,041.3Total Assets 10,941.3 10,908.6 11,819.1 12,255.2 12,621.3Current Liabilities 582.2 771.3 1,094.7 1,313.4 1,510.3Long-Term Debt 5,717.0 4,443.3 4,294.4 4,115.5 3,846.6Equity 4,500.0 4,500.0 4,500.0 4,500.0 4,500.0

'Debt/Equity 56:44 50:50 49:51 48:52 46:54Current Ratio 2.4 3.6 3,8 3.9 4.0Debt ServiceCoverage Ratio 0.7 1.7 2.5 2.9 3.0

a/ Actual.

VI. ECONOMIC PERFORMANCE

A. Economic Rate of Return

6.01 For economic analysis, tradeable items have been priced on thebasis of projected international prices allowing for transportation andhandling charges. Prices for non-tradeable items have been assumed to bethe same as domestic financial prices adjusted to reflect the economicprices of their internationally traded components. The economic price ofnon-associated natural gas has been calculated on the basis of its calo-rific value equivalent of fuel oil. Economic prices of urea were based onprojected international prices of urea. The price of urea is expected torise from the 1986 level of US$102/ton to US$116/ton in 1988, US$182/tonin 1990 and US$167/ton in 1995--all in constant 1985 dollars,

- 12 -

6.02 Project costs and benefit streams for ERR are shown in Aanex6-1, The ERR is estimated at 15.7%, slightly lower than the appraisalestimate of 16.6%. The difference is due mainly to lower urea prices thanprojected at appraisal, which more than offset the gain from lower energyand capital costs.

B. Foreign Exchange Savings

6.03 The net foreign exchange savings over 15 years, after deductionof principal and interest payments on the foreign loans and deductingforeign exchange components of operating costs in constant 1986 dollars,are estimated at around US$220 million p.a., and in 1996/97, the cumulativesavings amount to US$3,740 million, about 8% more than the appraisal esti-mate, Most of the materials including feedstock, fuel and services used inthe project are obtained locally. Annex 6-2 shows the foreign exchangesavings over a 15 year period.

C. Technology Transfer

6.04 The project was implemented with a substantial involvement ofIndian firms. About 54% of the equipment for the project was supplied bylocal manufacturers, thus creating significant backward linkages with theindustrial sector. Using know-how and basic design obtained from processlicensors, the detailed engineering and civil contracts were executed bylocal firms. The engineering firms and project staff absorbed the technol-ogy thus transferred and now possess significant capabilities in carryingout similar projects.

D. Environmental Aspects

6.05 The project facilities were designed to conform with environmen-tal regulations and norms agreed to at appraisal. The urea plants containa hydrolyser section where urea is decomposed and recycled. A separatetreatment section was set up for urea upset conditions. Effluents from thewater treatment plant, cooling towers and other waste streams are treatedand neutralized in treatment ponds prior to discharge. This conforms withState and local water pollution standards. A water scrubbing system todedust urea from air leaving the prill tower was installed in conformancewith World realth Authority and United States air pollution standards.

VII. IDA ROLE

7.01 IDA's major objectives in this and other projects until recentlyin this subsector in India have been to support GOI's strategy for increas-ing domestic production of fertilizers. Emphasis was therefore placed onimproving project organization and efficiency, selection of projects,expanding production facilities and improving capacity utilization. Morerecently however, IDA has recognized that achievement of project objectivesalone is not enough to ensure an economically efficient fertilizer sector--policy changes are also needed. As a result, IDA's focus has recently

- 13 -

moved to include policy dialogue or. broader sectoral issues. The objectiveis to improve efficiency of the sector through reform of pricing policies,relaxation of regulatory environment, improvements in rationalization/restructuring or closure of existing inefficient plants. Although theproject was successful in meeting its objectives, IDA should have adopted abroader sectoral approach and considered pricing issues, economicefficiency of the sector, multichannel approach to marketing and therestrictive regulatory framework at the early stages of project appraisal.

VIII. CONCLUSIONS AND LESSONS LEARNED

8.01 Apart from the 3-month delay in project completion, the projectwas successful in: (i) keeping the Project costs under control; (ii)achieving a short commissioning and start-up period; (lii) achieving thedesign figures of individual units in guarantee test runs; and (iv)obtaining a satisfactory level of operating performance for the periodsince start up. Once the initial delays in the supply of equipment andnatural gas were overcome, the responsible team implemented the Projectefficiently.

8.02 The delays due to unavailability of gas emphasize that importantconsideration should be given to the availability of downstream supply.The Project however was completed successfully due to the appropriatetraining and experience of KRIBHCO's project team which executed the workwith enthusiasm and dedication. The project team made use of expatriateexpertise to enhance their own operation and ensure an effective transferof technology. KRIBHCO's performance has been commendable.

8.03 The shortcomings in marketing procedures highlight the need forfirm action by IDA in putting in place the requisite organizationalarrangements. Furthermore, such arrangements should be in place at theearly stages of project implementation.

8.04 The financial performance of the project is slightly above theappraisal estimates due to substantially lower project capital costs as aresult of lower prices for equipment, exchange rate movements and use ofICB. The low financial rate of return compared to the economic rate ofreturn is due to retention price formula under which the urea ex-factoryprice decreases over time. The project however makes a significantcontribution to India's economy given its economic rate of return of15.62. The project contributes to the development of the Gujarat State andconverts economically a natural resource into a such needed fertilizer andsaves India foreign exchange.

8.05 Overall, the project has met its main objectives. The projectillustrates that capable, experienced and dedicated project management andthe involvement of an operating company with experienced staff during theinitial stages of operation, can have a significant impact on the successof project implementation. The issue of management emphasizes the need fortimely action throughout all stages of a project's implementation. Policy

- 14 -

and subsectoral issues should be given an important place in developing afruitful dialogue with GO! on the further development of this subsector.

Industry DepartmentDecember 1986Revised June 1987

I

HAZIRA FERtTILIZER PROJECT (CR. 1125-iN)


Consumption, Productiou and imports of Fertilizers. 1952-1985 a/(in '000 tons of nutrient)

Nitrogen Phosphate potash All Nutrients

Year CoDsuMption Production Imports Consumption Production lmports Consumption lmports Consu=ption Production Imports

1952/53 58 53 44 5 7 - 3 - 3 66 60 471953/54 89 53 19 8 14 - 8 7 105 67 261954/55 95 68 20 15 14 - 11 11 t21 82 311955156 107 77 53 13 12 - 10 10 131 89 631956/57 123 79 57 16 17 - 15 15 154 106 721957/58 149 81 110 22 26 - 13 13 184 107 1231958/59 172 81 97 29 31 - 22 22 224 112 1191959/60 229 84 142 54 51 4 21 33 305 135 1791960/61 212 112 399 53 54 - 29 20 294 166 4191961/62 250 154 307 60 65 _ 28 75 338 219 3821962/63 333 194 244 83 88 10 36 41 452 282 2951963/64 377 219 228 116 108 13 50 40 544 327 2811964/65 555 243 232 149 131 12 69 57 773 374 3011965/66 575 238 *26 132 119 14 77 73 785 357 413 t1966167 738 309 632 248 146 148 114 118 1,101 455 898 F1967/68 1,034 402 867 335 207 349 170 270 1,539 609 1,486 \n1968/69 1,209 563 844 382 213 138 170 213 1,761 776 1,195 11969/70 1,356 730 667 416 224 94 210 120 1,982 954 d811970/71 1,479 832 477 541 228 32 236 120 2,256 1,060 6291971/72 1,798 949 481 558 290 248 300 268 2,657 1,239 9971972/73 1,839 1,054 665 582 330 204 347 325 2,768 1,384 1,1941973/74 1,829 1,050 659 650 324 213 360 370 2.839 1,374 1,2421974/75 1,766 1,186 884 471 331 286 336 437 2,573 1,517 1,6071975/76 2,149 1,535 996 467 320 361 278 278 2,894 1.855 1,6351976/77 2,457 1,857 750 635 478 23 319 278 3,411 2,335 1,0511977!78 2,913 2.000 758 867 670 164 506 599 4,286 2,670 1,5211978/79 3,419 2,169 1,228 1,106 776 243 592 517 5,117 2,945 1,9881979W80 3,498 2,226 1,295 1,151 763 237 606 473 5.255 2,989 2,0051980/81 3,678 2,164 1,510 1,214 842 452 624 797 5,516 3.006 2.7591981/82 4,069 3,143 1,055 1,322 950 343 676 644 6,067 4,093 2,0421982/83 4,263 3,434 425 1,420 984 65 735 644 6,418 4,418 1,1331983/84 5.236 3,487 656 1,757 1,057 143 799 556 7,792 4.544 1,3551984/85 5,486 3,917 3,799 1,886 1,318 1,620 839 1,457 8,211 5,235 3,0001985/86 5,800 4,323 n.a 2,063 n.a. u.a. 847 n.a. 8.700 5.753 2,700

a/ Statistical consumption years run from February I to January 31. Statistical production years run from April I to March 31. Figures representofftake from plants and importers.

Source: The Fertilizer Association of India. Iindustry DepartmentOctober 1986

-16-ANNEX 3-1

ZIRU FELRTLIZER PROJCT (CR. 1123-Il)

PROJC Ca LEION REPORT

KEIBLCO ORGNIAION CUAT

ANDBOARD OF DIRECTORS

[MANAGINGDIRECTOR T

FINAIICIS ( AREING) ADVISORDIRECTOR (VACANT) (VACANT) (OPERATIONS)

GENER GENERAL GENERAL GENERAL GENeRL GENEALMANAGER MNAGER MANAER ANlAGER MANAE MANAGER(PMA) (TECHNICAL) (MARKETING) (CONSTRUCTION) (TECHNICAL) (PRODUCTION)

(H*Q. ) ~~~~~~~~~(SITe)

1SEN. GR(1) -ONAL MR1* -. EN. MGR. -- SEN. NOR. (2) -1R. (PROD.) (2)i | J ~~~~~~~~~~~~(MATERIALS)

GENERAL1 | | GENERAL E 2N. NOR (2) NOR. (ADMIN.) _SUFTD.IMeANAGER M I I -ANAGERA8T. UPTD. LSUPDT.

(FINANCE) (FINANce) AST. SUPt DEP. NGOR (6) -SR. OFFICERS (UUI(HQ) (SITE) -SENIOR EG4) (UQI.)

IENIOR ENG AS. NOR. (OPFSITES)I ~~~~~(4) -RA A8ST. (POIMR)

r [email protected] ZUBLICITYENG. OFFICERS _A8. E 0 80O

IF.M.I IP.M.I FP.M.| HP

| ACC. | MT R .| IN.|DeP.Xca.|DP. 141. EP Q. NOR.

.J. MOR. | .w01. |. MGR.

ASS. MNR* ASS. OR. ASS. NMR.

Total Staff: 1,320

Adustry Depattsentctober 1986

- 17 -

ANNEX 3-2

HAZIRA FERTILIZER PROJECT (CR. 1125-IN)


IDA Financed Procurement of Goods and Servicis

Amount(Re million) (5$ i,llion) Percentmge

Equipment, material, SparesEninering & Other Services 3,379 346 100X

India 1,827 206 542

Japan 556 49 16%

Italy 345 31 102

United States 316 28 102

West Germany 104 9 32

U.K* 98 9 32

France 48 4 12

Others 85 10 32

Industry DepartmentOctober 1986

INDIA - HAZIRA FERTILIZER PROJECT (CR. 1125IN)


IDA Credit Disbursement Schedule

Year Calendar Appraisal Standard Actual/ Actual/ SAR Est./ Arctual/No. Year Quarter Estimate Profile Actual Profile Credit Z Credit % SAR Est.

z

1 1981 3 5.0 4.0 0.0 0.0 0.0 1.3 0.04 13.0 8.0 0.0 0.0 0.0 3.3 0.0

1982 1 27.0 22.0 10.9 49.6 2.7 6.8 40.42 47.0 36.0 16.7 46.3 4.2 11.8 35.5

2 3 69.9 56.0 28.3 50.5 7.1 17.5 40.54 93.1 76.0 33.7 44.3 8.4 23.3 36.1

1983 1 116.5 100.0 51.2 51.2 12.8 29.1 44.0 a2 140.2 124.0 79.7 64.3 19.9 35.1 56*9

3 3 165.2 152.0 109.8 72.2 27.-. 41.3 66.44 194.9 180.0 125.8 69.9 31.5' 48.7 64.6

1984 1 227e9 208.0 165.8 79.7 41.4 57.0 72.72 259.0 236.0 192.7 81.6 48.2 64.8 74.4

4 3 286.6 262.0 202.8 77.4 50.7 71.7 70.84 313.6 288.0 207.0 71.9 51.7 78.4 66.0

1985 1 338.8 308.0 242.9 78.8 60.7 84.7 71.72 361.7 328.0 256.9 78*3 64.2 90.4 71.0

5 3 378.0 344.0 275.0 79.9 68.8 94.5 72.84 392.1 360.0 294.3 81.8 73.6 98.0 7541

1986 1 396.7 370.0 308.0 83.2 78.5 99.2 77.62 400.0 380*0 331.7 87.2 84.6 100.0 86.6

6 3 388.0 346.5 89.3 88.3 86.64 396.0 350.Oa/ 88.0 89.3

1987 1 398.0 360.Oa/ 91.0 91.82 400.0 370.0a/ 93.0 94.4

at Estimate.

industry DepartmentOctober 1986

- 19 -

ANNEX 4

INDIA - HAZIRA FERTILIZER PROJECT (CR. 1125-IN)


Operating Performance

Month& Capacity Capacity

Year Ammonia Utilization Urea Utilization(tons) U) (to-n) (X)

November 1985 6,697 2,851December 1985 51,963 69 75,393 69January 1986 29,450 39 52,201 42February 1986 34,145 50 58,328 52March 1986 60,740 80 86,736 70April 1986 22,768 31 44,787 38May 1986 60,822 80 91,906 75June 1986 48,950 67 85,028 71July 1986 57,654 76 102,396 83August 1986 66,505 88 114,224 93September 1986 57,725 71 97,622 74October 1986 80,056 99 131,506 100

Highest Production in a day (Streamwise) (as of 8/30/86)

Highest DailyPlant Stream Capacity Achieved Date

Ammonia 1 104 5/7/862 107 7/25/86

Urea 1 126 8/9/862 *19 3/21/863 120 6/12/864 130 3/21/86

Industry DepartmentOctober 198,6

- 20 - ANNEX 5-1


Project Completion Report

Retention Price Formula

1. The urea retention price for the Hazira Fertilizer Project iscalculated according to the formula provided by the Marathe Committee in1977. The calculations are made for pricing periods of 3 years as follows:

(a) Share capital used in urea production. In each successivepricing period, share capital is equal to that prevailing atthe beginning of the period.

(b) + Retained earnings

(c) - Capital employed outside the business, and accumulatedsurplus cash.

(d) - ;Capital employed in the business. A lower limit has beenset for this capital employed and it cannot decrease belowshare capital.

(e) x 24X return on capital employed.

(f) + Variable and fixed production costs at 80% capacityutilization related to urea production, with depreciation asprovided in the company balance sheet.

(g) Ex-factory revenue to producer.

(h) - Production volume of urea derived from entire 80% ammoniautilization.

() Urea Retention Price allowed.


DIA - ZIu ftTLIIS FIOJECT (CR- 1125-IN

pWI CO"IOlt UaRO

Ratention price Celculatios Schedule

1. fticqet Period 1986-89 II. Priclim Period 1990-43 Ill. priciag Period 1994-97 IV. Pricia Period 1997-2000~sia Urea Tatar esia ure Total atrea Total Asis Ure ota l

PMDStZO Lem S sox (toss) 7,12.800 12,24,960 ,712,800 11,8u,00 ,12.800 11,8s,OOO 7.12,800 11.88.000cmt of ODUC,"cn (13 Dili1)

I. Rau Naterial

(a) a" Fed 870 87.08 86713 86.13 86.13 86.13 86.13 86.13(b) Gs f1i 32.0S 32.09 29.94 29.94 29.94 29.94 29.94 29.94

2. Utilities

(a) Ga for Stem & Coptive Per 1.00 11.85 12.85 1.06 25.03 26.09 1.06 25.03 26.09 1.06 25.03 26.09(b) Wster 0.02 0.02 0.04 0.06 0-04 0.10 0.06 0.4 0.10 0.06 0.04 0.10(c) Parcbasd Uectrlctty 1.25 0.79 2.04 0.67 0.26 0.93 0.67 0.26 0.93 0.67 0.26 0.93

3. CSeraio Csats ts

(a) Salaries _as 2.80 2.50 5.30 3.70 3.30 7.00 4.96 4.39 9.35 p(b) Cbicals Stores 3-25 2.15 5.40 3.2S 2.1S S.40 3.24 2.16 5.40 1c) atalysts 5-30 0.20 SS.0 5.30 0.20 5.50 5.28 0.22 5.50d) Sor & Mateasce 6.30 4.90 13.20 9.1S 5.35 14.50 12.16 7 14 19.30(e) factory Overb_as 1.40 0.90 2.30 1.80 1.20 3.00 2.40 1.60 4.00U) Isursee, 3.70 2.50 6.20 4.80 3.20 8.40 5.88 3.92 9.80(5) H-0. aps. 4*33 2.90 7.23 5.10 3.40 8.50 5.55 3.70 9.25

Total Ccavertion Cost 33.26 14.74 48.00 29.03 16-00 45.03 33.10 18.60 51.90 39.47 23.13 62-60

4. Trsafer Cost (1*2+3) 154.70 43.10 197.8 146.94 56.58 203.52 150.96 59.33 210.29 157.33 63.66 220.99

S. osprecitao 42.38 35.27 71.65 43.90 35.94 79.84 44.30 36.20 80.50 45.84 37.S1 83.3S

6. Selltes Bpee*c - 6.27 6.27 - 16.99 16.99 - 16.99 16." - 16.99 16-997. latal Coot (4+Ss6) 197.08 84.64 281.72 190.84 109.51 300.35 195.26 112.52 307.78 203.17 118.16 321.33

Coat Per To 2,658 691 2,677 922 2.739 947 2.850 995Sbare of Amosia 1,528 1,606 1.644 1.710

tstereet as Waroeuts 25.90 33.73 59.63

(a) Long Ters Dbbt 25.90 33.73 59.63 24.12 29.50 53.62 20.11 24.58 44.69 12.57 15.36 27.93(b) Sbort Tore Debt - - - - - -

cost per Wu 342 266 338 248 282 206 176 129Sbare of AMaia 197 203 169 106ctwr onoNot Wortb 61 49 109 59 49 108 59 49 108 59 49 108Cost per Tbs 801 438 830 411 830 411 830 411Share of Ure 460 498 498 498

Istestioa Price p&Atom 3.810 3.580 3.84S 3,890 3.850 3.875 3.855 3.850

lodustry DSpMtu'antOctober 1986

- 22 - ANNEX 5-3Page 1 of 2

INDIA - HAZIRA FERTILIZER PROJECT (CRe 1125-IN)


Assumptions for Economic and FinancialRate of Return Calculations

1. The economic price of natural gas is assumed to be equal to itsfuel oil equivalent value based on calorific value. The fuel oil price isprojected based on the projection of crude oil prices as well as theestimate of fuel oil crude oil price ratio of 0.78.

2. For shadow pricing, local components of capital cost and otherinputs and services are adjusted by using standard conversion factor of 0.8for India.

3. Local operating cost items, utilities and fixed costs are con-verted to July 1986 constant dollars, and assumed to remain constant in US$terms.

4. It is assumed that ammonia and bulk urea prices will retain1:1.14 relation at international market. For bagging, US$15 is added tobulk urea prices.

5. The economic working capital requirements of the HaziraFertilizer Project are based on the raw materials and work in processinventories only. Finished products inventory has been omitted, since inthe case of import substitution, the inventory of products produced by theHazira project would substitute for that of imported products and thus doesnot increase the country's total inventory. Accounts receivable and pay-able have also been omitted as tIey do not represent costs incurred by theeconomy, but are considered instruments of 'transfer of obligation." Theseare the major reasons why the economic working capital requirements(US$15.8 million) are less than financial ones (US$36.6 million in 1986prices).

6. Economic prices of urea were based on the projected internationalprices of urea. In summary, the FOB price of urea (bagged, Europe) isprojected to change from the 1985/86 cost of US$102/ton to US$182/ton in1990/91 and US$167/ton in 1995/96. The price proj "tion reflects futureglobal demand and supply balance of urea as well as the projected energysituation. Added to the FOB price are sea freight and insurance to India(US$30/ton), port handling and losses (US$12/ton) and inland transportationcost (US$28/ton) to the projected market for the Rasira project's output.The economic price of urea is thus calculated at US$252/ton for 1990/91 andUS$237/ton for 1995/96.

ANNEX 5-3- 23 - Page 2 of 2

7. Based on an assumed 330 operating days per year, production isassumed to achieve 80% capacity utilization in 1986/87 and a conservativeutilization rate of 90% is assumed thereafter.


ANNEX 5-4

RAZIRA FERTILIZER PROJECT (CR. 1125-IN)


Cost and Benefit Streea for Financial Rate of Return

(in constant 1986 Rupees Million)

Year Capital Coat Operating Cost Benefits Net Benefit

1980-81 486.4 (486.4)1981-82 913.9 (913.9)1982-83 1,777.5 (1,777.5)1983-84 2,019.5 (2,019.5)1984-85 1,281.3 (1,281.3)1985-86 1,160.8 725.6 19120.4 (766.0)1986-87 757.6 3,019.9 4*362.1 584.61987-88 3,313.4 4,839.6 1,526.21988-89 3,231.4 5,192.7 1,961.31989-90 3s225.4 5,266.1 2,040.71990-91 3,218.8 5,263.6 2,044.81991-92 3,203.9 5,245.9 2,042.01992-93 3,190.3 5,249.6 2,059.31993-94 3,173.2 5,247.3 2,074.11994-95 3,170.9 5,218.9 2,048.01995-96 3,181.2 5,219.6 2,038.41996-97 3,195.5 5,218.8 29023.31997-98 3,197.8 5,217.8 2,020.01998-99 3,199.0 5,217.0 2,019.8

Financial Rate of Return - 14.3%


INIA - IUIIIA EtRt_.IZ IPROCt (Clt- 1125l-lt)

FJL5C!r COWLEMO IIEPORT

Projected bln. Shet as of Jun 30-~~~U R ttion)-

ASSETS 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1 1996 1997A. ROS8 FIXIED ASSM 5,258.10 7,236.20 7,236.20 8,436.20 8,436.20 8,486.20 8,536-20 8,586.20 8,686.20 8,786.20 8,886.20 8,986.20 9.086.20

Additloas during the yest m9.28 - 1.200.00 - 50.00 50.00 50.00 100.00 100.00 100.00 100.00 100.00 0.00Totahl 6,249.38 7,236.20 8,436.20 8,436.20 8,486.20 8,436.20 8,586.20 8,686.20 8,786.20 8.886.20 8,986.20 9,086.20 9.186.20West loprecation 21.00 214.50 1,004.50 1,794.J0 2.S89.50 3-389.50 4,194.50 S,009.00 5.833.00 6.666.50 7.509.50 8.362.00 9.186.20

Mt Visd bAsts 6,228.3l 7,021.70 7,431.70 6,641.70 5,896.70 5,146.70 4.391.70 3,677.20 2,953.20 2.219.70 1,476.70 724.00 -S. CaUNT ASSES

inlabed ooede Stock 188.44 374.10 440.40 421.80 349.60 350.80 349.50 349J0 353.80 355.50 361.20 367.60 373.20Reeivables(a) From 01-Subsidy - 136.60 207.00 224.90 275.50 275.50 275.50 273.00 "i3.00 273.00 268.90 268.90 268.90(b) From Piedrations 151.63 190.30 402.60 477.40 477.40 477.40 477.40 477.40 477.40 477.40 477.0 477.40 477-40

Stores 4 Spares 526.30 526.30 526.30 526.30 526.30 526.30 526.30 526-30 526.30 526.30 526.30 526.30 526.30Others - llsg- 1.45 10-00 15.00 15.50 15.50 IS.50 15.50 15.50 15.50 15.50 15.50 15.50 15.50

867.82 1,237.30 1,591.30 1,665.90 1,644.30 1,645.50 1,644.20 1,642.00 1,646.00 1,647.70 1,649.30 1,655.70 1,661.30Cash 4 Booik 8Rales 102.00 2.682.30 1.885.60 3.511.50 4.714.20 5,829.10 6,723.60 7,575.90 8.341.90 9.162.60 9.932.60 10.768.90 11,645.70 1Ibtel (A+M) 7,298.20 10,941.30 10,90860 11,819.10 12,25S.20 12,621.30 12,759.50 12,895-10 12,941.10 13,030.00 13,058.60 13,148-60 13,307.00 \fl

LIAMITUS I

Share Capital 4,500.00 4,500.00 4,500.OO 4,500.00 4,500.00 4,500.00 4,500.00 4,500.00 4,500.00 4,500.00 4,500.00 4,500.00 4,500.00Reserves & Surplus - 141.60 693.80 1,430.00 2,326.30 l,?64.40 3,068.40 3,336.70 3,586.60 3,819.30 4,009.70 4,027.70 4,036.20Tars loan 2,309.00 5,717,50 4,443.30 4,294.40 4,115.50 3,846.60 3,467.70 3,037-80 2,617.90 2,179.50 1,837.50 1.495.50 1,153.50Short Tars Loanfrom Baks - - 500.00 500.00 - - - - - - - - -Current Liabilities 498.20 582.20 771.50 1.094.70 1.313.40 1.510.30 1.723.40 2,020.60 2,236.60 2,531.20 2,711.40 3,125-40 3,617.30

Totel 7,298.20 10,941.30 10,906.60 11,819.tO 12,255.20 12,621.30 12,759.50 12,895.10 12,941.10 13,030.00 13,058.60 13,148.60 13,307.00Current RAtio (Tiues) 1.9 2.4 3.6 3.8 3.9 4.0 3.9 3.6 3.5 3.3 3.3 3.0 2.7Oebt/tquity Ratio S1/49 56144 50/50 49151 48/52 46/54 44/56 40/60 37/63 33/67 29/71 25/75 20/20

ndustry Depert s tOctober 1986


PROJECT COMPLTON REPORT

Projected Funds Flow Statemat(Rs millions)

1986 1987 1988 199 1990 1991 1992 1993 1994 1995 1996 1997SOURCES OF FUNDS

Profit After Tax 141.60 552.20 736.20 1,166.30 888.10 754.00 718.30 699.90 682.70 640.40 468.00 458.50Deprecilation 214.50 790.00 790.00 795.00 800.00 805.00 814.50 824.00 833.50 843.00 852.50 824.20Increase in Term Loans 3,717.30 - - - - - - - - - - -Equity Contribution 4,500.00 --Short Tern Loan from Banks 500.00

10,573.60 1,842.20 1,526.20 1,961.30 1,688.10 1,559.00 1.532.80 1,523.90 1,516.20 1,483.40 1,320.50 1,282.70UTILIZATION OF FUNDS

Decrease in Term Loan - 1,274.20 148.90 178.90 268.90 378.90 429.90 419.90 438.40 342.00 342.00 342.00Decrease ln Short Term Loan - - - 500.00 - - - - - - - -Capital Expenditure 7,236.20 1,200.00 - 50.00 50.00 50.00 100.00 100.00 100.00 100.00 100.00 100.00Increase in Working Capital 3,337.40 (632.00) 1,377.30 962.40 919.20 680.10) 332.90 554.00 327.80 591.40 428.50 390.70 1Dividend - - - 270.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.0010,573.60 1,842.20 1,526.20 1,961.30 1,688.10 1,559.00 1.532.80 1,523.90 1,516-20 1,483.40 1.3--.5O 1.282.70 0%Debt Service Coverage Ratio 0.7a/ 1.7 2.5 2.9 3.0 2.9 2.7 2.8 2.0 2.5 2.6 2.5 1

al The 1985/86 ratio is based on a 5-month year. Annualized, the figure would be about 1.2.The ratio of 0.7 ts therefore not tn contravention of the covenant which requires the debtservlce coverage ratio to be above I at all times.

industry DepartmentOctober 1986

Ir

IND1A - RAZIRA FERTILIZER PROJECT (CR. 1125-IN)

?IOJCT CONI' ON U?OK

projected Income Statement

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

1. Capacity Utilisatlon (Z) 59 82 90 90 90 90 90 90 90 90 90 90

2. Produaction ('000 tons)1) Ro3eanla ~ -1.93 7.73 8.31 8.31 8.31 8.31 8.31 8.31 8.31 8.31 8.31 8.3111) Urea 3.08 11.97 13.07 13.07 13.07 13.07 13.07 13.07 13.07 13.07 13.07 13.07

3. sales ('000 tons) - 0.48 0.47 0.47 0.47 0.47 0.47 0.47 0.47 0.47 0.47 0.471) Asmonall) Urea 1.73 11.13 13.07 13.07 13.07 13.07 13.01 13.07 13.07 13.07 13.07 13.07

4. stock VOOO tons)1) Ute at Silte 0.43 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34ii) Urea at Warehouse 0.92 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85 1.85iLL) RDonia at U.U. 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15

5. Product Price (Rslton)i) As2onia 3,810 3,810 3,810 3,845 3,845 3,845 3,850 3,850 3.850 1,855 3,855 3,855Li) urea 3,580 3,580 3,S80 3,890 3,890 3,890 3,875 3,875 3,875 3,850 3,850 3,850

6. Revenue (no d lllon)IIL) A=kovxa - 182.90 179.10 180.70 180.70 180.70 181.00 181.00 181.00 181.20 181.20 181.2011) Urea 380.60 2,446.80 2,875.40 2,875.40 2,875.40 2,.75.40 2,875.40 2,875.40 2,875.40 2,875.40 2,875.40 2,875.40Ill) Subsidy 365.70 1,664.30 1,803.70 2,208.80 2,208.80 2,208.80 2,189.20 2,189.20 2,189.20 2,156.60 2,156.60 2,156.60lv) lcrease/Decreae

in stock 374.10 66.30 (18.60) (72.20) 1.20 (1.30) 0.30 4.00 1.70 5.70 6.40 5.60

TOTAL 1.120.40 4,362.10 4,839.60 5,192.70 5,266.10 5,263.60 5.245.90 5,249.60 5,247.30 5,218.90 5,219.60 5,218.80- - .. _ -...--w ___

Return on Equity (1) 3.0 12.3 16.4 25.9 19.7 16 16.0 15.6 15.2 14.2 10.4 10.2Return oan Ttal Assets (S) 1.3 S.1 6.2 9.5 7.0 S.P 5.6 5.4 5.2 4.9 3.6 3.4


- 28 -

ANNEX 6-1

HAZIRA FERTILIZER PROJECT (CR. 1125-IN)


Cost and Benefit Stream for Economic Rate of Return(in constant 1986 US$ Million)

Year Capital Cost Operating Cost Benefit Net Benefit

1980-81 44.4 (44.2)1981-82 88.0 (88.0)1982-83 186.5 .(186.5)1983-84 251.4 (251.4)1984-85 154.9 (154.9)1985-86 105.5 61.9 112.6 (54.8)1986-87 68.8 188.5 212.0 (45.3)1987-88 209.5 407.9 198.41988-89 204.7 459.6 254.91989-90 204.6 469.8 265.21990-91 204.6 470.4 265.81991-92 204.2 469.6 265.41992-93 203.9 471.6 267.71993-94 102.5 372.1 269.61994-95 212.7 478.9 266.21995-96 213.9 478.9 265.01996-97 213.1 476.1 263.01997-98 213.3 475.8 262.51998-99 213.2 475.2 262.0

Economic Rate of Return m 15.7Z


INDIA - HAZA1A FERTlLIZER PROJECT (CR. 1125-IN)(in U$ million)


Foreign Exchange Savings(In 1986 constant USs dillion)

In low, Savings OutflowF.E. Savings by F.E. Component F.E. CompoaentProducing Urea of of tebt met Cumulative

Year LOans & Ahnia Total Capital Costs Operating Costs Service Total Savings Savings

1980181 26.01 - 26*01 18.53 - 18.53 7.48 7.481981/82 37.93 - 37*93 24.79 - 24.79 13.14 20.62 \01921/83 96.92 - 96.92 56.50 56.50 40.42 61 .041983/84 126*58 - 126.58 69.44 - 69.44 57.14 118.181964185 66.96 - 66.96 32.38 - 32.38 34*58 152.761985/86 27.96 31.14 59.10 12.57 0.79 13.36 45.74 198.50198678 56.38 207*47 263.85 25.48 3*07 28.55 235.30 433.801987/88 - 242*24 242.24 - 3438 3.38 238.86 672.661988189 - 242.24 242.24 - 3.38 3.38 238.86 911.521989,90 - 371.77 371.77 - 3 #8 2.9 6.28 365.49 1,277.011990/91 - 371.77 371.77 - 3.72 2.9 6.62 365.15 1,642.161991/92 - 371*77 371.77 - 4.33 2.9 7.23 364.54 2,006.701992/93 - 371.77 371*77 - 4*50 2.9 7.40 364.37 2,371.071993/94 - 371.77 371.77 - 4.95 2.9 7.85 363.92 2,734.991994/95 - 347.49 347*49 - 5*43 2.9 8.33 339.16 3,074.151995/96 - 347*49 347.49 - 5.97 2.9 8.87 338.62 3,412.771996/97 - 347.49 347.49 - 6.55 14.1 20.65 326.64 3,739.61


ATTACHMENT

-30- Page I of T

COMMENTS RECEIVED FROM THE BORROWEIR

COM14irNTS ON DRAFT PROJECT CCt4PLETION REPORT ON INIDIA

HAZIRA FERTILIZE. PROJECT (CREDIT 1125 IN) BY INDUSflY

DEPAR'DIENT OF WCRLD BAN

, O GE;IERAI, CCM;11ENTS

1 Pa2e iv and 'i~e 7 Pra 3. 1 ii re ardin2 cumnul -ative

loan

Actual loan amount has bcon i,.dicated as disbtirsed

US 1? 346.5 million as against the appraisal estimate

of US $ 400/- million. It 11as also b2en indicated

that the amended loan amount is US $ 392,1 million,

,nho rzevised loan amount of US $ 392.1 million has

been) .;oiked out based on the rate of 1 SDR = US $ 1.22.

It apj;ears that t:his rate was prevailing in September

1986 and which has been adopted for consideration

of the loan amount in US $. on the basis of actual

disbursement of loan by World Bank it has been found

that the average rate comes to 1 SDR = US $ 1.08.

In view of this the loan amount indicated in US $

as 392.1 million is very high and considering the

average SR-US $ parity during the execution of the

Project the loan amount should be around US $ 347/-

million instead of US $ 392.1 million as indicated.

On this basis the atual utilisation shown as US $

346,5 million also appears to be high and unutilised

amount will also undergo a change.

2, Page iv para C and page 6 para 3.10 regarding Project

Cost and Financing :

The appraisal Project Cost Estimate of US $ 1276.9

million has been compared with the actual Cost

Estimate of US $ 836.2 million and has been indicated

that the cost estimate has been lcwer by 35%. This

statement is not correct due t'o the following reasons:

ATTlACHMENT

- 31 - Page 2 of

a) Comparison has been done in US $t whiclh wasworked out based on tiu uxchange rate t,xv.tlingat the tine of re *sbility Report viz 1 tl q a i;s.8/-

However, based on the actual ex.chanje rat;es pre-vailing during the project execution viz, from1980 to 19t6, the average exchange rate has beenaround 1 US $ = P4 10*76. The wide vari"ti.on inthe Capital Cost Estimate is mainly on accountof kxchawLje rate flucL.ations uuriraj tha 2:'ojectperiod. In case com>,ln,;ison of the equival.ntamiaunt in rupees is made, the reduction in cap-it.!l Cost Estimate will be from zs lt,),215/- ::iilAionto is 9*ooo/- million resulting in a sav±nig ofonly 12%, and noL 35%. indicdited in the draft PCR.

b) Even the saving in terms of rupees indicated aboveas 12°% does not correctly reflect the position,f since

in the %ppraisal Re:ortp working ca.,iital was providedas ib 1284/- million -ehich includes other s6hort termdebts also while in the actual Cost Estimates theWorking Capital margin of Rs 403/- million has been

indicated. In case, comparison of the Cost Estimateis made without taking into account the WorkingCapital, the reduction in the cost Estimatte ccaiesto only 4%. A more meaningful comparison would beto consider the working capital margin bLcth in theAppraisal Coat Estimate as well as in the actual costEstimate to avoid Sny distortions as inciicated above.

c mhe total financing of the Project has not beenindicated anywhere and it is sug.jested that the over.all financing of the Project may be in6icated titJhthe amount being invested by Goverrnent of Innia andIFTCO and other Cooperative Societies, IDBI and otherfinancial institutions.

5he financing pattern may be indicated in iRu?eesaswell as in US e and an average rate of US $ maybe cdnsidered.

-32- f

B SPSCIPZC C(mizN

1 PAge jUJ paa 3 t

mne first sentence should bi changed to "The zero

Date of the project was March 310 1981.

2 Poan Disb e

The actual loan disbursesnent inciicated for the years

1982 , 1983 and 1984 is US $ 33.7 inillion, 125.8

million and 207/- million respectivcly are the actual

disbursements of SDRa million and not Us $ million.

ibis needs a correction.

3 eg iv-Para B-Proectchedule:

The actual Zero Date should be changed to I-larch 31, 1981

4. Page vi - Para 6 -ih hs

In the first sentence the period between M4arch 1986 and

August 1986 should be changed to November 1985 rid Asiguet

1986 since the production and capacity utilisation ment±onv'd

is for this period.

So ae3 ra 2,02 - I te o f interest

The interest rate of loo1075 per annun ias buen indicated wiliactu&l rate of interest is 11.75% per annun. This may becorrected.

It has been indicated that the I D A Credit covers app-

roximately 44% of the Project's Financing requiteements.

This is not correct as the loan amount and the Cost Estimate

may change if different rate of exchange is adopted for

Rupee to $. In view of thkis thea abuve -x:rcQnt;&ga necds

change, It may also be indicated that the rate of intiOrest

on loans drawn from IDDI and other financial institutions

is applicable at 14% per annum.

6, a3a 3.01 - chievement of Pro ect 2b

Reduction In the Cost Estimate has been indicated at 35%

l0wer than the estiMated. This is not correct and needs

a change..

- 33 - Po of T

7. P e 6 & 7 - Para .3. 0 CadLA.i Cost..C. &ci~c nDUsbursement

The savinj in the Capital Cost Estimate stas ilso due toclose monitoring of the Project mnd saving in the tiaaracingcharges and higher )roduction during the trial run periodthan originally envisaged.

8 Page7-Para3.11 2

IDA Credit has financed about 44% of the Projects totalfunds needs is nvt a correct statement and needs a revisionThe amounts indicated in US , *or the ictual utilizationupto September 1986 as US S 346.5 t.iillion ano the ateendedcredit amount of US $ 392.1 *nii ",%r I'. is M correct ad needsa correction,

9 Pa1e 8 - Cuative I D A Credit _j.sbUrThe actuai _5ilisation in US $ million indicated as 346.5million is not coaet. The amount unutilised indicatedis also not coarect.

10 Pale B -PEara 4.01 - CornissIoni!M, ad Start-up :

in the fourth line, October 84 should be corrected toAugust 84

11 Lane 9 - Para 4.03

"Th table of Planned Production should be replaced asgiven below : This is essential since the amount Ofproduction indicated for the year 1987-88, 1988-89 ad1989-90 corresponds to 90Z capacity Utilisation, Alsothe capacity utilisation for the year 85-86 needs to becorrected -

Planned Prod uctlon

198f6=7 17a- 22

u I kuount % Amount % Amount % Amount %

1euornia 316 61 773 87 802 90 802 90 802 90

^ea 497 60 1197 82 1307 90 1307 90 1307 90

a/ Actdat.

ATTACiKENT-34 - Page 5 of T

12. Page9 -_para 404 - Marketi34

subsequent to the visit of IDA team, )(RII33!-CO hastaken steps to strengthen the marketing organisation

in the field as well as at Head quarters wzith regard

to the Marketing St,£.ffe KRIB.iCC has filled the pos-

ition of State Marketing Managers f .r difEerent States

alongwith su._o ortinq staff. Ten Area Offices have

also been ooened anrid the jrea Managers and Assistant

mdnagers have jfiAned irn the field. Additional Field

Representatives are likely to join during the month

of Mlayl987, At the .ieadciuarters also, Joint General

manager (Logistics and Planning) has joined and the

action has been initiated to fill som- other managerial

positions) .

13. Page 9 - Para 4.05 - marketing s

KRIBHC0 has adopted the multi channel approach for

distribution of its 2ertilis.ers, Iii a,,o.ti,n to

marketing fertilisers throught the coo?eratives system

KRILHICO is also selling its fertilisers to other ins-

titutional agencies like Agro AIdjstries Cor-oration

etc.

14. Pae 10 - Para 5.01 - PricingPolici :

It has been indicated in loth line that 25°'. pre-cax

rate of return is allowed by FICC wihich is not

co-Litct. mhe pre-tax raite of r.2turn is 24,'.

1S WX' !'CzedltDisbursement scheduJ]..

It ap,ears that the fijiires are in -nillion US $. As

indicated above the disburs,-mAnts in Us * need a

change and accordir:gly, this schedule will also change.

ATTACHMENTPa-ge 6 of 7

- 35 -

16 &.MX4 .- MrAtin_q_erfotmanoe

Thie charnjes are requirc', to be made in the capacity

utilisation fuir the m..nth of september'86 and October

1986. Also the dates of hi-ghest production in a

day streani wise as of 30th August 1936 is to be changed

in case of Ammonia-I and Urea 1. TIh,e mf rhod of cal-

culations of ca< acity ut; I i,:atiun so'& 'i t

1x *iJ-,iticne n*C :*.'.;f i ' ' 1ott't.'il t..'.:it. ,': }|ta_

revi s::d 74'pnexure is atc¢.ched.

17 AIeX 5.1 - Retention Price Formula

Under Clause 'e' it has been indicated that 25 .2°,

return on Capital em,Joyed but it shculd be 24% returrn

on caoital e,mployed.Under Clause (h) production volume of urea at 80%

has been indi.cated. It is not correct as the prod-

uction volume for fixation of retention )rice is

arrived at by converting entire SO",'3 A,iimonia into

urea and not on the basis of 80P/!3 capacity of Urea,

subject to availability of CcO2 etc.

18 ANNEX 5:2 - Retention Price Calculation schedule

The cost of bagging material has been anitted in

this annexure (although considered in the total cost)

and for each yeai it should be as undur:

Pricing Period Cost of p2acking, material

(Rs./millions)

1986-89 15.70

1 990-93 15.20

1994-97 15e20

1997-2000 15. "G0

ATTACHMENT

- 36 - Page 7 of 7

An amount of Rs 197.88 million has been inidicatedunder Transfer Cost for the pricing period 1986-89while it should be ;s 197,80 million, This apHea.;

to be a typographical error and needs to be corrected.

19 ANNEX 5,5_- Projected Balance Sheet and ANNEX 5.6

Prjetd F ns FlowStatement

There are same discrepancies in thhe pzojecteu fund

flow and projected balance-sheet for the year 1986&

1987* It appears that there are somie deviaticns fromthe figures subnitted by the Society which need to bereviewed and suitable corrections, in.corxrated if requi-red.

20 Audited Balance-sheet for Cooperative Year 1985-86

is available and if required, the figures may be

incorporated.

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