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ASIAN DEVELOPMENT BANK |* 7he uwe of twe Bank.

APPRAISAL

OF TH E

CHITTAGONG UREA FERTILIZER PROJECT

IN THE

PEOPLE'S REPUBLIC OF BANGLADE"

October 1981

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CURRENCY EQUIVALENTS(As of 5 October 1981)

Currency Unit * Taka (Tk)Tk 1.00 = $0.0524$ 1.00 = Tk 19.08

(a) The Taka is officially valued at Tk 37.15 to thePound Sterling as of 26 February 1981. As the Poundfloats relative to the US Dollar, the Tk:US$ rate issubject to change.

(b) For the purpose of calculations in this Report,a rate of US$1.00 . Tk 16.00 has been used. Thishas been the rate generally prevailing during theAppraisal of the Project.

WEIGHTS AND MEASURES

1 metric ton - 2,205 lbs.1 kilometer - 0.62 mileI mile - 1.61 kilometers1 hectare - 2.47 acresI acre - 0.405 hectare1 meter - 3.28 feet1 foot - 0.305 meter1 cubic meter - 35.31 cubic feet1 cubic foot - 0.0284 cubic meter1 kilo calorie - 3.97 BTU1 BTU - 0.252 kilo calorieI MSCF - 1,000 standard cubic feetI MMSCF - 1 million standard cubic feet

NOTES

(i) The Fiscal Year of the Government ends on 30 June.

(ii) In this Report, "ton" refers to metric ton, unlessotherwise specified.

(iii) In this Report, "$" refers to US Dollars.

ABBREVIATIONS

ADFAED - Abu Dhabi Fund for Arab EconomicDevelopment

AFCC - Ashuganj Fertilizer and ChemicalCompany Limited

AS - Ammonium SulphateBADC - Bangladesh Agricultural Development

CorporationBCIC - Bangladesh Chemical Industries

CorporationBGSL - Bakhrabad Gas System LimitedCIDA - Canadian International Development

AgencyCUFL - Chittagong Urea Fertilizer LimitedDAP - Diammonium PhosphateGC - General ContractorHYV - High Yielding VarietyIBRD - International Bank for Reconstruction

and DevelopmentIDA - International Development AssociationIsDB - Islamic Development BankKSS - Krishi Samabaya SamitiMP - Muriate of PotashMt - Metric tonNIAS - New Marketing SystemNPK - Nitrogen, phosphate, potassiumOECF - Overseas Economic Cooperation Fund

of JapanSFD - Saudi Fund for DevelopmentTCCA - Thana Central Cooperative AssociationTGTDC - Titas Gas Transmission and Distribution

CompanyTPD - Ton per dayTPY - Ton per yearTSP - Triple SuperphosphateUSAID - United States Agency for International

Development

PROJECT FOCUS, DESIGN AND RATIONALE

Agriculture is the mainstay of the economy ofBangladesh. In 1979/80 the agricultural sector accountedfor about 55 per cent of gross domestic product, 75 percent of employment and 90 per cent of merchandise exports.At present 59 per cent of the country's land area com-prising 8.5 million hectares is under cultivation. About80 per cent of the cultivated area is devoted to riceproduction -- the staple foodcrop in Bangladesh. Never-theless, Bangladesh is still not self-sufficient in foodproduction, and in 1979/80 about 2.9 million tons offoodgrain had to be imported. Foodgrain imports duringthe past five years had averaged 1.6 million tons per year.

A major objective of the country's SecondFive- Year Plan (1980/81-1984/85) is to achieve self-sufficiency in foodgrain production. Since there is littlescope to increase the area of farmland in the country, theGovernment intends to attain self-sufficiency in foodgrainproduction by increasing the use of fertilizer, expandingirrigation facilities and propagating high yielding varietyseeds. The level of nitrogenous fertilizer applicationper hectare in Bangladesh is low at about half the worldaverage and far below the optimum dosage recomnended bythe Bangladesh Agricultural Research Council. There ismuch scope for greater use of fertilizer in Bangladesh.

Chemical fertilizer was first introduced intoBangladesh in 1951/52. During the past ten years, use ofchemical fertilizer in that country had increased at anaverage annual rate of 11.7 per cent from 281,500 tons toreach 855,300 tons in 1979/80 including 544,500 tons ofurea fertilizer. The average annual rate of increase infertilizer consumption between 1975/76 and 1979/80 was14.5 per cent. Demand for urea fertilizer is expected toincrease at an average annual rate of 13 per cent between1980/81 and 1982/83 and at 10 per cent from 1983/84 onwardsto reach about 1,500,000 tons by 1989/90.

At present two urea fertilizer plants operatein Bangladesh, and a Bank-financed urea fertilizer plantwhich is under construction at Ashuganj is expected tobe on stream by November 1981. These three plants havea combined installed capacity for production of 974,000tons of urea fertilizer per year, and even at full capa-city operation will not be able to meet the country'sprojected demand for urea fertilizer. A considerableamount of urea fertilizer will have to be imported bythe country, unless additional urea fertilizer productioncapacity is installed in the country.

The proposed Project, which aims at establisninga urea fertilizer plant with a rated capacity for productionof about 561,000 tons of urea per year, is designed to helpthe country become self-sufficient in urea fertilizer whenit comes into operation in 1985. A small amount of surp4.usurea fertilizer is expected to be available from the proposedProject for export during the first three years of itsoperation. The Plant will be located close to the city ofChittagong which has easy access to domestic markets andhas adequate port facilities for handling exports ofsurplus urea.

Bangladesh has abundant reserves of natural gas.Proven gas reserves are estimated at 9-10 trillion cubicfeet. T;-ere are good prospects for proving of additionalgas reserves. The natural gas deposits in Bangladesh areof high quality and are suitable for the production ofnitrogenous fertilizer. At present a relatively smallamount of the proven gas reserves (about 120 millon cubicfeet per day) is being used mainly for power generationand for the production of fertilizer. This leaves largequantities of natural gas available for further developmentof the country's chemical and fertilizer industries.

Natural gas from the Bakhrabad gas field willbe used as the basic feedstock and fuel for the proposedProject. The Government has already secured financing fromthe International Development Association (IDA) and othercofinanciers to develop the Bakhrabad gas field and constructa gas transmission system from Bakhrabad to the Chittagongarea to supply gas to the proposed Project and other potentialgas users.

The Executing Agency for the proposed Projectis the Chittagong Urea Fertilizer Limited (CUFL), which isa newly established company fully owned by the BangladeshChemical Industries Corporation (BCIC) on behalf of theGovernment. Provision is included in the proposed Projectto train technical staff of CUFL and to recruit foreignexperts to assist CUFL in the management and operation ofthe Plant for the first three years so as to ensure optimumuse of the installed plant capacity.

The total cost of the Project is estimated at$467.5 million, of which $290 million is foreign exchangecost. It is proposed that a Bank loan of $72 million(including $2 million to be consolidated from Loan No. 282-BAN(SF) approved on 23 November 1976) be provided from theBank's Special Funds resources to finance part of the foreignexchange cost of the Project. The balance of the foreignexchange cost of the Project has been secured by theGovernment of Bangladesh from the following sources: AbuDhabi Fund for Arab Economic Development ($25 million equi-valent); Canadian International Development Agency ($20million equivalent); International Development Association($15 million); Islamic Development Bank ($16 million equi-valent); Overseas Economic Cooperation Fund of Japan ($60million equivalent); and Saudi Fund for Development ($85million equivalent). The Project would be implemented overa period of 53 months.

The Project has an economic internal rate ofreturn (EIRR) of 19.0 per cent and a financial internalrate of return (FIRR) of 11.7 per cent. Sensitivityanalysis of EIRR and FIRR indicate that the Project iseconomically and financially viable even under adverseconditions. The Plant would help Bangladesh achieve netforeign exchange savings and earnings estimated at $114million a year.

The Project would involve operational risksthat are inherent to the chemical industry. These riskswould be minimized by adopting well-proven technologywhich could be supplied by internationally experiencedfirms. Due to its capital-intensive nature, the Project

would incur financial risk if the Plant could not achievefull utilization of installed capacity. In order toavoid such risks, a training program for CUFL personnel,and the provision of management and operational advisorsduring the first three years of plant operations isincluded in the Project. The Government has also assuredthe Bank that key positions within CUFL will be filledonly by senior and experienced executives.

TABLE OF CONTENTS

Page

MAPS (iii) & (iv)

I. INTRODUCTION 1

II. BACKGROUND 4

A. Agriculture Sector 4B. Fertilizer Industry 5C. Fertilizer Consumption 7D. Projection of Demand and Supply

of Urea 10E. Marketing and Distribution 14

III. THE PROJECT 19

A. Project Description 19B. Plant Size and Manufacturing Process 20C. Selection of Plant Site 21D. Raw Material and Plant Facilities 23E. Work Force, Training and Technical

Management 26F. Project Implementation 28G. Capital Costs 34H. Financing Plan 37I. Allocation of Foreign Funds 40J. Environmental Protection 41K. Project Risks 42L. Energy Impact 42

IV. THE EXECUTING AGENCY 44

A. Introduction 44B. Bangladesh Chemical Industries

Corporation (BCIC) 44C. Chittagong Urea Fertilizer Limited

(CUFL) 45

(ii)

Pane

V. FINANCIAL, ECONOMIC AND SOCIAL 49EVALUATION

A. Financial Analysis 49B. Economic and Social Evaluation 54

VI. CONCLUSIONS AND RECOMMENDATIONS 58

APPENDIXES 63

80 E 9 i-

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I. INTRODUCTION

1. In November 1976 the Bank approved a loan of$2.5 million from its Special Funds resources for theChittagong Urea Fertilizer Technical Services Projectin Bangladesh../ This Technical Services Project providedtechnical advisory and consulting services for the pre-paration and subsequent implementation of: (i) an integ-rated ammonia/ureaJ fertilizer plant (the Plant) with acapacity to produce 1,700 metric tons of urea per day atChittagong; and (ii) a related Gas System comprising thedevelopment of gas wells at the Bakhrabad gas field anda gas transmission pipeline for the supply of gas to thePlant and other gas end-users in the Chittagong area.

2. The Bangladesh Chemical Industries Corporation(BCIC), is the Executing Agency for the Technical ServicesProject. In January 3 978 BCIC appointed UNICO InternationalCorporation (UNICO), / a Japanese consulting firm, to under-take the required technical services. The services werecarried out in three phases. Phase I would involve thepreparation of a comprehensive project report, in twodistinct parts -- one for the Plant and the other for theGas System -- covering the feasibility and implementationaspects of the Plant and the Gas System. Phase II wouldinvolve the development of design criteria and bid speci-fications for soliciting proposals from engineering firmsfor the construction of the Plant and the Gas System.Phase III would involve the evaluation of proposals for thegeneral engineering contract and provision of technical andmanagement assistance for the implementation of the Plantonly.

1/ Loan No. 282-BAN(SF) approved on 23 November 1976.2/ A Glossary of Technical Terms is contained in Appendix 1.3/ Under its contract with BCIC, UNICO had been performing

the technical services in association with JGC Corporationof Japan, DeGolyer and MacNaughton of USA, WilliamsBrothersEngineering Company of USA, Technical Consultants & Asso-ciates Ltd. of Bangladesh and Hydrocarbon ConsultantsLtd. of Bangladesh.

3. UNICO started work on Phase I in January 1978.Towards the end of 1978 the Government of Bangladesh askedthe Bank to assist in the mobilization and coordinationof financing for the Plant and the International Develop-ment Association (IDA) of the World Bank Group to providesimilar assistance for the Gas System. The Government,the Bank and IDA closely monitored and reviewed the workof UNICO. Reports under Phase I were submitted for theGas System in October 1979 and for the Plant in February1980.1/

4. A pre-appraisal of the Project (i.e. the Plant)was conducted by a Bank Mission which visited Bangladeshfrom 18 February to 7 March 1980. Based on the resultsof the pre-appraisal, a Project Report was prepared by theBank in cooperation with the Government. At the requestof the Government the Project Report was circulated bythe Bank to interested cofinanciers and a meeting washeld in Manila from 24 to 25 July 1980i for the purposeof mobilizing contributions and coordinating cofinanciers'positions on the Project.

S. Subsequently, an Appraisal Mission visitedBangladesh from 24 October to 15 November 1980. The Missionwas composed of V.A. Groope (Senior Project Engineer) asMission CHief; M. Yoshitomi (Project Economist); R. Kiji(Financia} Analyst); S. Hashimoto (Country Officer);D.C. Amerasinghe (Counsel) and W. Diggelmann (Consultant,Equipment Specialist). Mr. Z. Noorzoy, Deputy Director ofCountry Department also visited Bangladesh from 4 to 7 Novemberto assist the Mission in discussions with the Governmentand other cofinanciers. The Mission was also joinedby separate missions from the Abu Dhabi Fund for ArabEconomic Development (ADFAED), Canadian International

1/ The Gas System project was appraised by IDA in February1980. Financing arrangements for the Gas System projecthave been finalized by GOBwith IDA, OECF and OPEC Fund.

2/ The meeting was convened by the Government of Bangladeshwith the assistance of the Bank. Representatives ofADFAED, IsDB, OECF, SFD, Canada and Italy attended themeeting.

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Development Agency (CIDA), Islamic Development Bank(IsDB) and Overseas Economic Cooperation Fund (OECF) ofJapan. During the appraisal it was confirmed that theProject was economically viable and suitable for financingby the Bank and other cofinanciers. The financing planand implementation arrangements for the Project werefinalized during several discussions between the Govern-ment, the Bank and cofinanciers concerned.1! This reportis based on the findings of the Mission in the field;discussions with relevant Government authorities, BCICand international and bilateral aid agencies concerned;and the feasibility study prepared by UNICO.

1/ The Saudi Fund for Development (SFD) and InternationalDevelopment Association also endorsed the results ofthe appraisal and joined in the financing of the Project.

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II. BACKGROUND

A. Agriculture Sector

6. Agriculture is the mainstay of the economy ofBangladesh. It accounted for about 55 per cent of grossdomestic product (GDP), 75 per cent of employment and90 per cent of merchandise exports in 1979/80. Rice,the most important foodcrop, accounts for about 80 percent of cropped area, while jute (the major export crop)accounts for six per cent. Other crops such as wheat,sugarcane, tea, cotton, pulses and vegetables account forthe remaining 14 per cent.

7. During the past decade foodgrain productionin Bangladesh increased at an annual rate of about 1.5per cent, lagging behind the population growth rate ofabout 2.4 per cent a year. As a consequence, the countrydepends on imported foodgrain. In 1979/80 about 2.9million tons of foodgrain had to be imported.

8. The Government plans to increase production offoodgrain from about 13 million tons in 1979/80 to 20million tons by 1984/85, mainly by increasing the use offertilizer and expanding irrigation and the use of HYVs.There is Ilttle scope to increase the area of new farm-land, but there is much scope for increase of fertilizeruse, considering that the present applications of ferti-lizer are far below the optimum dosage recommended bythe Bangladesh Agricultural Research Council.

9. Irrigation is a vital prerequisite for increasingthe propagation of HYVs. Irrigated areas increased at anannual growth rate of 5.5 per cent from about 1,3 millionacres in 1960/61 to about 3.2 million acres in 1977/78,and are expected to expand at an annual rate of 10.8 percent to about 6.7 million acres by 1984/85. About 60 percent of all fertilizer consumed in Bangladesh is suppliedto HYVs of rice and wheat and an increase in areas underthese HYVs is considered to be one of the key factors forincreasing fertilizer use. The propagation rate of HYVsof rice is expected to increase from 13 per cent in 1976/77to around 30 per cent by 1990/91.

10. The Agriculture Division of the Ministry ofPlanning has projected fertilizer demand in Bangladeshup to the end of the Second Five-Year Plan (1984/85).Total fertilizer demand is projected to grow at an annualaverage rate of about 17 per cent etween 1978/79 and1984/85 and is expected to reach about 1.9 million tonsin 1984/85, with demand for urea growing at an annualrate of about 10 per cent, TSP at about 26 per cent andMP at about 40 per cent.

11. A major objective of the Second Five-Year Plan(1980/81-1984/85) is to achieve self-sufficiency in food-grain production. In order to reach this goal, theGovemnment has launched a number of programs, including:(i) increased adoption of high yielding variety (HYV) seeds;(ii) extensive promotion of increased fertilizer applica-tion; (iii) expansion and improvement of small scale andpump irrigation systems; (iv) more aggressive agriculturalextension services; and (v) an expansion in institutionalagricultural credit. Within the framework of the SecondFive-Year Plan, the Government with the help of IBRD hasprepared a Medium-Term Foodgrain Production Plan, whichplaces special emphasis on irrigation.

B. Fertilizer Industry

12. At present there are four chemical fertilizerplants operating in Bangladesh. These comprise two ureaplants at Fenchuganj and Ghorasal, and two triple super-phosphate (TSP) plants at Chittagong. The Fenchuganj plantalso has production facilities for ammonium sulphate (AS).The plants at Fenchuganj, Ghorasal and Chittagong aredirectly controlled by Bangladesh Chemical IndustriesCorporation (BCIC), a Government corporation under theMinistry of Industries. A urea plant at Ashuganj is underconstruction and is expected to come on stream in November1981. This plant is owned by the Ashuganj Fertilizer andChemical Company Limited (AFCC) whose capital stock isfully subscribed by the Government, Trends in fertilizerproduction in Bangladesh during the period 1967/68-1980/81are shown in Appendix 2. A summary of fertilizer productionin Bangladesh from 1976/77-1980/81 is given in Table 1.

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Table 1: Fertilizer Production in Bangladesh(1976/77-1980/81)

('000 mt)RatedAnnualCapacity 1976/77 1977/78 1978/79 1979/80 1980/81

FenchuganjUrea 106.0 77.4 61.5 55.0 104.6 99.2Ammonium Sul-phate 12.0 9.3 9.0 5.0 9.9 9.9

ChorasalUrea 340.0 208.1 153.0 236.0 256.6 245.5

ChittagongTSP I andTSP II 152.0 45.1 38.2 62.0 71.1 71.2

Source: BCIC

13. The Fenchuganj plant, which was commissionedin 1961, was the first fertilizer manufacturing plant tobe established in the country. It consists of a ureaunit of 106,000 metric tons per year (TPY) and an ammoniumsulphate unit of 12,000 TPY. The Ghorasal plant wascommissioned in 1970 with a designed production capacityof 340,000 TPY ox urea. The two TSP plants, with designedproductio3n capacities of 32,000 and 120,000 TPY of TSP,were estabLished at Chittagong in 1968 and 1970. TheseTSP plants are based on imported phosphate rock and sulphur.The Ashuganj plant, with a designed capacity of 528,000TPY of urea, is expected to start commercial production inNovember 1981. The Ashuganj Fertilizer Project was financedby ten cofinanciers including the Bank.-J The Fenchuganj,Ghorasal and Ashuganj plants use local natural gas asfeedstock.

1/ The Bank approved a loan of $30.0 million on 20 February1975 (Loan No. 217-BAN(SF)) anda Supplementary Loan of$25.0 million on 26 April 1979 (Loan No. 396-BAN(SF)),for the Ashuganj Fertilizer Project.

14. Largely due to inadequate maintenance, thecapacity utilization of the existing urea fertilizerplants in Bangladesh had averaged about 60 per centduring 1976/77 - 1978/79. To improve production theGovernment has taken steps to rehabilitate the existingplants with assistance from Japan, the United Kingdomand IDA. The capacity utilization of the existing TSPplants had also been adversely affected by lack of suffi-cient foreign exchange to import phosphate rock; conse-quently, their average capacity utilization during thesame period was 32 per cent.

15. As a result of the Government's efforts toimprove operation of the existing plants, the average capaci-ty utilization during the last two years (1979/80 - 1980/81)has improved to 79 per cent for urea and 47 per cent forTSP. The rehabilitation measures and the current opera-tional status of the existing plants are described indetail in Appendix 3.

C. Fertilizer Consumption

16. The use of chemical fertilizer in Bangladeshhas increased steadily since its introduction in 1951/52.The establishment of the East Pakistan Agricultural Develop-ment Corporation in 1962, which later became the BangladeshAgricultural Development Corporation (BADC), contributed tothe increase in consumption of fertilizer ln the country.During the past ten years, fertilizer consumption inBangladesh increased at an average annual rate of around11.7 per cent from 281,500 mt in 1969/70 to 855,300 mt in1979/80. The average annual rate of increase in ureafertilizer consumption between 1975/76 and 1979/80 was14.5 per cent.

17. Trends in fertilizer consumption in Bangladeshbetween 1968/69 and 1979/80 are shown in Appendix 4. Asummary of fertilizer consumption in Bangladesh during1973/74 - 1979/80 is given in Table 2.

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Table 2: Past Fertilizer Consumption(1973/74-1979/80)

('000 mt)1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/8U

NitrogenUrea 271.9 177.0 316.9 358.9 485.1 476.4 544.5AmmoniumSulphate,/ - - - - 1.1 - -

PhosphateTriple Super-phosphate 95.3 76.4 111.7 127.6 194.4 177.0 209.5Other Phos-phates - 11.6 6.4 5.5 4.2 43.1 46.2

PotashMuriate ofPotashb/ 18.7 19.1 30.1 28.8 42.5 48.5 55.1

Total 385.9 284.1 465.1 520.8 727.3 745.0 855.3

a/ Excluding ammonium sulphate used for tea estates.b/ Including small quantities of NPK compound fertilizer.

Source: BADC

18. Fertilizer consumption was sharply reduced in1974/75 due to supply shortages caused by the shut-downof the Ghorasal plant following an explosion which damagedits control room. Unprecedented high prices for chemicalfertilizers in the world market following the steep pricehike of crude oil in 1973 and 1974 also resulted in atemporary reduction in the consumption of chemical ferti-lizers. Since 1975/76 fertilizer consumption had grownsteadily in Bangladesh. In 1977/78 an increase in ferti-lizer consumption of about 40 per cent over 1976/77 wasregistered. This increase in consumption was a result of:(i) a higher procurement price for paddy; (ii) improvementsin the distribution system for fertilizer; (iii) expansionof agricultural credit including liberalized credit pro-

cedures; (iv) maintenance of relatively low retail pricesfor fertilizer; (v) development of irrigation facilities;(vi) propagation of HYVs; and (vii) improvements inagricultural extension services.

19. A breakdown of fertilizer consumption by,districtis given in Appendix 5. Of the country's 20districts, the main consumption districts are Comilla,Dacca and Chittagong which in 1979/80 accounted for15.2 per cent, 8.5 per cent and 7.8 per cent of totalfertilizer consumption, respectively. These threedistricts account for about 32 per cent of total fertili-zer consumption in Bangladesh but only 16 per cent of thetotal area planted to rice in the country. This points tosignificant disparities of fertilizer consumption intensityamong districts. The largest application of fertilizer isfor rice (85 per cent) followed by jute (4 per cent) withthe remaining 11 per cent applied to other crops such assugarcane, wheat and vegetables.

20. The major chemical fertilkers used in Bangladeshare urea, triple superphosphate (TSP), muriate of potash(MP), and diammonium phosphate (DAP) which was introducedinto the country in 1978/79. Urea accounted for 64 percent of the total chemical fertilizer used in 1979/80,followed by TSP.4nd DAP (30 per cent) and MP (6 per cent).The average NPKLJ nutrient ratio in Bangladesh is about9:4:1. Heavy use of nitrogenous fertilizer is due to supplyconstraints of phosphatic and potassic fertilizer because oflow domestic output of phosphatic fertilizer and lack offoreign exchange to import phosphate rocks and potassicfertilizer. It is difficult to optimize crop yields withthe present imbalanced NPK ratio, but the Government hasattempted gradually to improve this ratio. The NPK ratioimproved from 24:2;1 to 9:4:1 between 1962/63 and 1979/80,and is expected to improve further. The Government hasagreed to prepare a program of action to achieve a morebalanced nutrient ratio in fertilizer application inBangladesh by the end of 1982. The Bank will be affordedan apportunit D to comment on such program before its im-plementation.

1/ Nitrogen, phosphate and potassium.2/ Loan Agreement, Schedule 6, para. 21.

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21. The fertilizer requirements of Bangladeshexceeded domestic production and the shortfall had to bemet by imports. During the period 1977/78-1979/80, importsaccounted for about 68 per cent of the total amunt offertilizer consumed in the country. All HP requirementswere imported, while TSP and urea imports met about 66per cent and 50 per cent of total requirement, respectively.About 90 per cent of all fertilizer imports were obtainedunder various foreign aid and credit schemes. Appendix 6shows the sources of supply for various types of fertilzer.

D. Projection of Demand and Supply of Urea

22. Demand for urea in Bangladesh is expected togrow steadily in the future. The growth rate will dependon a wide range of interdependent factors including: (i)agronomic requirements to increase crop production; (ii)the development of irrigation facilities and propagationof HYVs of rice and wheat; (iii) economic and organizationalfactors, such as relative prices of fertilizers and crops,agricultural extension services and agricultural creditfacilities; and (iv) the availability of facilities forstorage, transport and distribution of fertilizers.

23. Based on the projection of the Ministry ofPlanning afnd taking into account historical trends ofurea consumption, factors such as the development ofirrigation, propagation of HYVs, together with betterfacilities for storage and transportation of fertilizer,and a prospective gradual decrease in the subsidy forfertilizer, the Mission projected that the demand forurea in Bangladesh would increase from 615,000 mt in1980/81 to 1,531,000 mt by 1989/90 at an annual rate of13 per cent between 1980/81 and 1982/83 and at 10 percent between 1983/84 and 1989/90 (see Table 4 page 13).The Mission's projection is close to the "aggressive"demand projection presented by UNICO in 1978.

24. Future supply of locally produced urea willdepend on the performance of the existing urea plants atFenchuganj and Ghorasal and the timing of comxnissioningof the new urea fertilizer plants at Ashuganj, Chittagongand Polash (near to Ghorasal) (see Appendix 3 for details).

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The Government and a group of foreign investors, togetherwith the International Finance Corporation (IFC) of theWorld Bank Group, have been examining a proposed projectto establish an entirely export-oriented urea plant atChittagong under the ownership of a new joint venturecompany, the Karnaphuli Fertilizer Company Limited (KAFCO).The Government intention for establishing the export-orientedt'rea plant is to earn foreign exchange and improve thecountry's balance of payments. Since technical studiesregarding scope, cost estimates and financing arrangementsare still being negotiated by the Government and the foreignsponsors, the urea supply from such proposed plant has notbeen taken into account in projecting urea production inthe country. The Government has given an assurance thatthe Bank will be kept informed of any proposal for theconstruction of additional fertilizer plants and will ensurein the event of the Government deciding to proceed with anysuch proposal the viabil1ty and implementation of the Projectwill not be prejudiced.A! For the purpose of the supplyprojection it is assumed that: (i) production of theFenchuganj plant will gradually decrease from a peak of99,200 tons of urea in 1980/81 to 45,000 tons of urea by1989/90; (ii) production of the Ghorasal plant will reacha peak of 250,000 tons of urea in 1982/83 after the comple-tion of rehabilitation works; (iii) the Ashuganj plant willbegin production in 1981/82 and will achieve 90 per centcapacity utilization to produce about 475,000 tons of ureaper year by 1984/85; (iv) the proposed Chittagong plantwill begin production in 1985/86 and will achieve 90 percent capacity utilization to produce about 505,000 tons ofurea per year by 1988/89; and (v) the proposed Polash plant,which will be constructed with assistance from the People'sRepublic of China, will begin production in 1984/85 with70,000 tons of urea and will increase production to 95,000 tonsof urea per year by 1986/87. Projected production of ureaby the various plants for the period 1981/82 to 1989/90 isgiven in Table 3.

1/ Loan Agreement, Schedule 6, para. 22.

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Table 3: Projected Production of Urea(1981/82-1989/90)

('000 mt)Fenchugani Ghorasal Ashugani Polash Chittagong Total

1981/82 75 230 220 - - 525

1982/83 75 250 374 - - 699

1983/84 75 250 462 - - 787

1984/85 70 250 475 70 - 865

1985/86 65 250 475 80 187 1,057

1986/87 60 250 475 95 374 1,254

1987/88 55 240 475 95 477 1,342

1988/89 50 235 475 95 505 1,360

1989/90 45 230 475 95 505 1,350

Source: Mission's projection based on information obtained from BCIC.

25. The projected urea demnd-supply balance inBangladesh is given in Table 4.1J Based on the projectionsfor domestic demand and supply of urea fertilizer, it isforecast that Bangladesh will have surplus urea for exportbetween 1985/86 and 1987/88. Future imports of DAP andother forms of compound fertilizer may increase the avail-ability of surplus urea from the proposed Chittagong plantfor export. Taking into account the world urea fertilizer

i/ In October 1980, BCIC concluded contracts to export20,000 mt of urea each to Pakistan and Sri Lanka duringNovember 1980 and January 1981. Although Bangladeshstill needed to import urea in 1980/81, fertilizer storagefacilities in the country were almost full in July 1980,because fertilizer was not consumed as much as expected in1979/80 due to drought. As a result, the Governmentapproved the proposed export of urea.

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Table 4: Proiected Urea Demand-SuP2ly Balance

('000 Mt)Balance (B-A)

Demand Production Surplus (+)

(A) (B) Deficit (-)

1980/81 615 345 -2701981/82 695 525 -1701982/83 785 699 - 861983/84 864 787 - 771984,85 950 865 - 851985/86 1,045 1,057 + 121986/87 1,150 1,254 +1041987/88 1,265 1,342 + 77

1988/89 1,392 1,360 - 321989/90 1,531 1,350 -181

Source: Demand is projected by the Mission based onthe information provided by the Ministry ofPlanning of Bangladesh.

situationl/ and the geographical position of Bangladesh,there are good prospects for Bangladesh to export itssurplus urea production to nitrogen fertilizer deficitcountries in Asia.

26. Future exports of urea fertilizer will likelybe conducted under the supervision of BCIC, the holdingcompany of the Executing Agency of the proposed Project.BCIC has acquired considerable experience in conductingexport business through handling the export of productsof its subsidiary enterprises (such as newsprint, paperand cellophane to India, Pakistan and Nepal) and wouldbe capable of handling the export of surplus urea from thecountry.

1/ See Appendix 7, World Nitrogen FertilizerSituation and Export Possibility of Urea fromBjanglde sh~.

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E. Marketing and Distribution

27. BADC is sole'L respornsible for the procurement,distribution and marketi ng of locally producoe and importedfertilizer in Bangladesh, At presernt, 3ADC rceives fer-ti'lizer from. the local plants and from, imports through theports of Chittagong and Chalna. and distributes it tointermediate godowns and thanal! level godo~ m, Finaldistribution of fertilizer to falers i:s mainl'y carriedout by about 32,000 private dealers appointe6 by BADCMA small amount of fertilizer is channeled thr%-ough theThana Central Cocperatives Associations (TCCA" and KrishiSamabaya Samities (KSS) which are cooperative societiesat the thana and village levels respectively,

28. To improve the availability of fertilizer tofarmers on a timely basis and to reduce marketing anddistribution costs, BADC introdueed the 'New MarketingSystem" (NMS) in 1978 to the Cahittagong Division in orderto involve greater participation by the pritVate sector.Under NIS,, BADC sells fertilizer to wholesale dealers atprimary distribution points which are generally locatedin major towns. The wholesale dealers in turn distributethe fertilizer to retail dealers and farmers, Comparedwith the earlier system, NMS provides for inc--reased dealermargins and permILs farmers to buy fertilizer from anydealer. is a resul t of the successful starr of NNS in theChittagoty Dvs i-on, NMS has since been intrduced through-out the country by July 19800

29. Of the total amovement of fertilizer in Bangladeshin 1977/78, railroad transport accounted for 35 per cent,inland water transport 33 per cent and road transport 32per cent. Transport of fertilizer is mainly onducted byprivate contractors for BADCO Although fer:lizer accountsfor a small part of the country's total freiLgnt mcve-ment (about 3 per cent at ports, 8 per cent of railfreigh,t and 8 per cent of £ inland water cargo', there hadbeen severe constra:ints on fertilizer transport because ofthe overall inadequate transport system and the higherprior i ty assigned by the Governmente to the -ement of food.

I/ For administrative purposes, Bangladesh Ls divided into4 divI sions, 20 di stricts, 64 subdivisrn-s D about 460thanas, 41 000 unions and 65,,000 villa&as,

In the 1 giht of a fert-ixzer dis $.bltion study withassistance froM ITDal and -S3AIDl > 4C has preparedprograms to improve fertilizer transport by rationalizingBADC 9s current distribution system so as cC remove majorphysical bottlenecks. 2hie Go'verient tas agreed to im-plement a program for improving overal1l acilities forthe transportati1on and distribution of fertilizer beforethe Project is completed, and the Bank will 3 e keptinformed of steps takern in tnis conrcti__

3G. Transportation facilities required for thedelivery of urea from the Chittagong Plant to consumingareas are estimated in AppedLx. 8. It is assumed that:(i) urea required by Chittagong Divisicr, ChittagongHill Tracts and Noakhali Districts (areas adjacent to thePlant) will be distributed from the proposd ChittagongPlant by 5-ton trucks; and (ii) ure. required by the KhulnaDivision (in the Southwest) and the Rlashahi Division'in the Northwest) will be transported from Chittagong toKhulna by 700-ton barges. Surplus urea will be exportedfrom Chittagong by oceango-Lng ships. The number of trucksand barges required between 1985/86 and 1989/90 for deli-very of urea from the Chittagong Piant for dcmestic con-sumption are estimated as shown in Table 5 below:

Table 5: Transportation Fac ilties for UreaMovement from the Ch ittagong UreaPlant for Domistic Consuto

19886 1986/7 19$J/8 I9f$, 199_

Trucks (5-ten) 157 173 3 209 230

Barges (700-ton) 5 12 22 29 28

For the purposes of thAe Prcject, the G ¢vrn;mxent has agreedto provide adequate transport incudins imciu1ing coasters,barges, rail transport and trucks f-or collecting urea from

1/ Under Part A of -e.3UIS r .o e IW of S25 millionin 1979 and Bangladesh f Tr. ins-ortR. Project in1 980 by IDA,

2/ Under a technical a si g;ac. . aiJio for aertilizer market-4n rni` diL,inssa ~Tq~oeet

s tudy approved ay i r My 7 j3/ Loarn Agreement, Scihdula 6. pia-a. I7

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the Project site and transporting the urea to consumingareas._

31. Adequate storage facilities are essential forthe efficient distribution of fertilizer. In 1979/80fertilizer storage facilities in Bangladesh totalled505,000 tons; of this amount,BADC's storage was 404,000tons and factory storage was 101,000 tons. BADC operates9 transit, 62 intermediate and 1,064 thana godowns; about50 per cent of the godown capacity is rented by BADC andthe rest is owned by it. To ensure that fertilizer isavailable to farmers on a timely basis, storage for aboutfive months requirements is necessary under the currentinternal transportation and local production system.Taking into account the actual storage capacity of exist-ing facilities and the poor condition of rented ones,current fertilizer storage facilities are considered tobe inadequate. Prior to the completion of the Project, theGovernment wlll prepare and implement a program satisfactoryto the Bank for expanding and improving the existing net-work of storage facilities.i/

32. Present construction programs for increasingfertilizer storage capacities include: (i) storagefacilities of 150,000 tons to be constructed by BADC withthe assistaace of USAIDI/ and the Bank;4! and (ii) plannedfactory st.c--ages at Ashuganj (48,000 tons), Chittagong(102,000 '.ons) and Polash (32',000 tons). By 1985/86 totalfertilizer storage capacity in Bangladesh will increase toabout 837,000 tons, after the completion of these additionalstorage facilities. This is equivalent to about 4.8 monthsof annual consumption and should be adequate to meet re-quirements at that time.

1/ Loan Agreement, Schedule 6, para. 16(b)2/ Loan Agreement, Schedule 6, para. 173/ USAID is assisting the construction of fertilizer storage

(143,000 tons) and bulk handling facilities, under agrant of $26.5 million approved in May 1978.

4/ AL3 is assisting the construction of fertilizer storagefacilities with a capacity of about 10,000 mt under theCrop Intensification Program (Loan No. 431-BAN(SF), approve(on 29 November 1979, and 4,000 mt under the ChittagongHill Tracts Development Project (Loan No. 404-BAN(SF)),approved on 28 June 1979, and 10,000 mt under the SecondCrop Intensification Program (Loan No. 524-BAN(SF))approved on 22 September 1981.

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1. Pricing

33. The retail and ex-factory prices of fertilizerin Bangladesh are set by the Government. The objectivesof the Government's pricing policy for fertilizer are toset retail prices at levels which will encourage its wideuse by farmers, and ex-factoryprices at levels which willallow fertilizer plants to earn reasonable profits.Table 6 shows current retail, ex-factory and cif importprices of fertilizer in Bangladesh. The retail prices(urea $184/ton, TSP $151/ton and MP $117/ton) are con-siderably lower than the cif import prices (urea $250/ton,TSP $300/ton and MP $190/ton). Since May 1981 the ex-factory price of urea has been fixed at Tk 2,400 per ton($150 equivalent). The ex-factory price of TSP has remained atTk 4,350 ($272 equivalent) since July 1980. The currentdomestic ex-factory price of $150/ton for urea is only 60per centof the cif import price of about $250/ton.

Table 6: Retail, Ex-factory and cif ImportPrices of Fertilizer

($ per mt as of November 1980)

Retail Price Ex-Factory Price Import Price

Urea 184 150 250TSP 151 272 300MP 117 - 190

Source: BADC

34. BADC, which procures and distributes fertilizerto farmers, receives a subsidy from the Government to coverthe difference between its procurement and distribution costsand its sales revenue. Budgetary allocation for fertilizersubsidy increased from Tk 150 million in 1974/75 toTk 1.25 billion in 1979/80. It is the Gornment's policygradually to reduce the fertilizer subsidy_/ by increasing

j Net fertilizer subsidy during FY78-FY81 were as follows:FY78 F FY80 FY81 (pro,ected)

Total subsidy (Tk million) 1.20 1.44 1.25 1.50Average Unit Subsidy (%) 50 50 40 36Significant progress has been made in reducing the unitsubsidy in the recent past.

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the retail price of fertilizer and maintaining procurementprices for crops at levels which would encourage fertilizeruse. The draft Second Five-Year Plan proposes to reducethe average fertilizer subsidy from 40 per cent in 1979/80to 25 per cent by 1984/85. It is the stated policy of theGovernment that the subsidies on fertilizers will be keptunder constant review with a view to reducing the levelof subsidy and ultimately phasing them out as early aspossible. The Government will keep the Bank informed ofsuch reviews and will be given an opportunity to commenton any changes in the Government's pricing and subsidypolicies ./

2. Credit and Extension Services

35. An effective system of agricultural credit isessential to promote increased fertilizer consumption byfarmers. Although institutional agricultural creditprovides only about 20 to 25 per cent of the total agri-cultural credit needs of farmers in Bangladesh, thissource of credit increased at an average annual growthrate of 37 per cent from Tk 324 million in 1973/74 toTk 1,672 million in 1978/79. It is expected that thefigure is likely to exceed Tk 2,000 million in 1980/81under the ipecial Agricultural Credit Program which hasbeen starzsed by the Government in 1977/78. This Program,with libei:al and simplified procedures, has enabled smallscale farmers to benefit from it. Also, institutionalagricultural credit has increased significantly as aresult of che Program.

36. Agricultural extension services are conductedby the Bangladesh Directorate of Agricultural Extensionand Management under the Ministry of Agriculture. Inaddition to the Directorate's staff, BADC's thana inspectorsare also involved in the promotion of fertilizer consumption.Due to a shortage of extension workers, guidance to farmershas noc been provided effectively. Therefore, the Governmentplans to increase substantially the number of extensionworkers by developing training facilities for extensionworkers with the assistance of IDA.-'

1i Loan Agreement, Schedule 6, para. 18(b)2/ IDA's Extension and Research Project in Bangladesh

approved in June 1977.

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III. THE PROJECT

A. Proiect DescriDtion

37. The proposed Project is to establish an integratedammonia/urea fertilizer plant (the Plant) with a designcapacity of about 1,000 mt per day (TPD) of ammonia to beconverted into about 1,700 TPD of prilled urea based onindigenous natural gas as feedstock and fuel. On the basisof 330 on-stream days per year, the Plant will have a ratedannual output of about 561,000 mt of urea. The objectivesof the proposed Project are to increase the country's ureafertilizer production capacity principally to meet localdemand. The Executing Agency will be the Chittagong UreaFertilizer Limited (CUFL), which is a newly created companyowned by the Government.

38. The proposed Project will include the followingmajor components:

(i) acquisition and preparation of the sitefor the Plant;

(ii) design, engineering and construction of:

(a) a 1,000 TPD ammonia unit;

(b) a 1,700 TPD urea unit; and

(c) utilities, off-sites and ancillaryfacilities for the ammonia and ureaunits;

(iii) construction of office and plant buildingsand a staff housing colony, includingcommunity facilities for persons to beemployed in the management and operationof the Plant;

(iv) supply of equipment for the constructionof the Plant;

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(v) continuation of the employment of UNICOas Technical Advisor to assist andadvise CUFL on the design, constructionand start-up of the Plant;

(vi) employment of a Management Advisory andOperational Services Team to assist CUFLto manage, operate and maintain the Plantduring the initial three years aftercommissioning of the Plant; and

(vii) training for selected CUFL personnelin fertilizer plants similar to theProject in Bangladesh and abroad.

B. Plant Size and Manufacturing Process

39. The proposed plant sizes of an intermediate ammoniaunit of about 1,000 TPD and a urea unit of about 1,700 TPDare considered to be the maximum sizes for which appreciablebenefits of scale can be achieved from single train units.Ammonia and urea units of such standard maximum size capa-cities have been well proven in the region and are known tobe highly reliable and efficient in continuous operation.To go beyond such capacity limits would involve the adoptionof double train urea units, which would offset most of theadvantages of scale.

40. The proposed Plant would adopt modern technologyfor manufacturing ammonia, and would use centrifugalcompressors with an improved waste heat recovery system.The production of urea would be based on a total recyclingprocess, and a single train reactor incorporating the latesttechnology would be used to convert all ammonia to urea.The plant s ize and technology proposed for the Plant areconsidered to be in accordance with latest proven commercialdevelopments. A description of the plant size and productionprocesses is given in Appendix 9. More than half of theestimated daily gas requirement of the Plant would be con-sumed for generation of electricity and steam for the Plant.The proposed Plant will incorporate the latest proven tech-nology improvements for minimizing energy consumptionconsistent with overall requirements for ensuring reliabi-lity and economy of operations of the Plant.

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C. Selection of Plant Site

41. A site at Chittagong situated south of the MarineAcademy, on the east bank of the Karnaphuli river (see maps,pagesiii & i') has been selected by the Government andUNICO as the most suitable location for the Plant. Earlier,a number of possible alternative locations at Chandpur,Ishurdi, Ghorasal, Daudkandi, Shatnol, Ashuganj andChittagong were considered by the Government for the Plantsite. Following preliminary investigations by the Bankand IBRD, the first four locations were ruled out. The siteat Chandpur was considered risky because of possible heavyerosion by the lower Meghna river. Ishurdi on the bank ofthe Padma river in the northwest region of Bangladesh waseliminated because investment in a pipeline to bring gasto Ishurdi would be prohibitive. Ghorasal on the Sitalakhayariver and Daudkandi on the Gumti river were consideredunsuitable locations for the establishment of any largefertilizer plant because of the shallow drafts of the rivers.

42. Of the remaining three potential sites selected forfurther detailed analysis, Shatnol was ruled out because ofa relatively lower economic rate of return. This leftAshuganj and Chittagong as the only two alternative locationsfor setting up the proposed Plant. A urea plant is now underconstruction at Ashuganj. If some of the facilities of thatplant could be shared with a second plant at Ashuganj then thetotal cost of the latter would be marginally lower than thatof a similar size plant at Chittagong. In practice, sharingof the facilities would be difficult especially when none ofthe facilities of the plant under construction are designedwith sufficient excess capacity to support the operation ofa second large fertilizer plant at Ashuganj. The Mission alsoconsidered that siting a second large urea plant at Ashuganjcould interfere with the operation of the plant now underconstruction. Siting of the proposed plant at Chittagong,on the other hand, would enable the Government convenientlyto export any surplus urea through the port of Chittagong,and would support the Government's policy to disperse futuregas-based industries away from the northeastern region ofBangladesh where all the country's existing gas-basedfertilizer plants are concentrated. In view of the above, theMission considers the Chittagong area to be an appropriate

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location for the establishment of the proposed urea Plant.The selected site is located in a relatively undevelopedregion in the Chittagong district and is consistent withthe Government's policy to give priority to the developmentof the less developed areas and regions in the country.

43. The proposed site at Chittagong south of theMarine Academy on the opposite side of the Chittagong portwas selected after an extensive evaluation of three otheralternative sites in and around the Chittagong area. Thesite was selected for the following reasons (see map onpage iv):

(i) establishment of the Plant on the sitewill not interfere with, or prejudiceany plans to expand Chittagong airportand the port, nor will it increase thehazards to their use;

(ii) the site has sufficient suitable landfor the constrution of the proposedPlant and for future expansion, ifrequired;

(iii) the site is convenient for handling theanticipated volume of urea output of theproposed Plant from the point of view ofboth domestic and export shipping; and

(iv) the site will promote the increased useof urea in the important district ofChittagong and the surrounding areas.

44. The site is easily accessible with regard to thedomestic fertilizer markets. By waterways, the urea outputof the proposed Plant can be transported to the westerndistrict such as Noakhali, Barisal and Patuakhali and tothe ports of Khulna and Chalna for distribution to the south-west and northwest regions of Bangladedi. The constructionof a 5-km road to link the Project site with the Patiya-Anwaro road (now under construction) will enable urea to betransported by road to the consuming areas in the Chittagongdistrict. The Government will construct both roads out of

- 2 23

its own resources and the Governrant has assured Fhe Bankthat these roads wil' be coaipet by June 1985. UProvision has been made in tae cost e9timtes for theconstruction of a jetty for Loading the urea produced bythe Plant to either one ocean-going ship of 8,500 dwtcapacity or to two coasters of 1,000 dwt capacity each atone time. Construction of the jetty and the completionof the roads would be adequate for transporting the ureafrom the Plant to its markets.

45. The proposed site is situated in a minor earth-quake zone, but the effects of possible earthquakes wouldnot be serious. The foundations for the Plant would includepiled support for heavy strusctxZes and spread footingsupport for light structures. To protect the site againstfloods and high tides, the Size would have to be elevated20 feet above mean sea level. Stuitable filling materialin sufficient quantity is available from a river beddeposit located about 1,500 maters southwest of the proposedsite.

46. The Government has already surveyed and demarcatedthe areas for the Plant, the housi-ng colony and the jetty.Acquisition of all the necessary land is under processing bythe Government for transfer to CUFL. Of the 294 acres ofland, 100 acres will be occupied by the Plant, 65 acres willbe used for housing and the rest will be for roads, right-of-ways for water pipeline for the Project and the jetty.It will be a condition of loan effectiveness that CUFL shouldhave acquired all land, as may be required to enable CUFL tundertake the construction of tne Plant.yl/

D. Raw Material and I ilfiFA 'e

47. The main raw mazerial reciuirement of the Plantwill be natural gas from the Bakhrabad gas field. The gasis to be used both as feedstock and as fuel for the Plant.The maximum dq ily gas requirement for the Plant is estimatedat 55 MMSCF.3 & The gas -from the Bakhrabad gas field contains

LI Loan Agreement, Schedu le 6. parE 1 S.j/ Loani Agreement, Sec? tcD 61'('d).i/ The amount of gas expres2ed as vaultiples of a million

standard cubi c feet.

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about 94 per cent methane with very negligible amount ofsulphur and is suitable for urea production. A gas analysisof the Bakhrabad gas field is given on page 8 of Appendix 10.

48. The Bakhrabad gas field comprises four culminationsdesignated as A-1, A-2, B-1 and B-2. The total gas reserves(proven and possible) of the B-1 and B-2 culminations wereestimated by M/S DeGolyer and MacNaughton of USA, the gasconsultant for the related Gas System Project, at 3.1 trillioncubic feet, of which the proven reserves have been assessed at1.1 trillion cubic feet. Other gas reserves can only be deter-mined by drilling additional wells. The current estimatedreserves indicate that the Bakhrabad gas field is the largestof its kind in Bangladesh. Based on gas demand projectionsprepared by Petrobangla and agreed to by a joint IDA/BankMission in May 1979, the total estimated off-take from theBakhrabad gas field by the Plant and other potential gasconsumers in and around the Chittagong area up to the year2000 is 1.0 trillion SCF. Thus, the total proven gas reservesat Bakhrabad would be sufficient to support the projectedtotal gas requirements of the Plant and other gas end-usersat least until the year 2000. Gas demard projections for theBakhrabad gas field are given in Appendix 11.

49. From Bakhrabad, the gas will be delivered via a161-km long, 23-inch diameter transmission pipeline to theChittagong City Gate Terminal, from where gas will be distri-buted to the Plant and other gas end-users in the Chittagongarea. From the terminal point, the gas will be piped to thePlant by a 20-inch cum 16-inch diameter distribution system,which would also supply gas to other major gas consumers.These pipeline systems and the development of the Bakhrabadgas field comprise the Gas Systems Project which Petrobanglawill develop as a separate project to bring gas from theBakhrabad gas field to the Chittagong area (see Appendix 10for further details). The funding of the Gas System Projectwill be provided by other cofinanciers coordinated by IDA.The Gas System Project was approved by IDA in December 1980and is expected to be completed by 30 June 1984.

50. The Government has already dedicated 360 billion SCFof gas from the Bakhrabad gas field to be made available tothe Plant over a period of 20 years. This quantity of gas

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will be sufficient to meet the projected gas requirements ofthe Plant. CUFL will enter into a long-term gas supplycontract with Bakhrabad Gas System, Ltd. (BGSL) on termsand conditions satisfactory to the Bank. The contract willobligate BGSL to complete the related Gas System Projectwell before the completion of the Plant.L/ The finalizationof this contract will be a condition of loan effectiveness.ZI

51. Other major plant facilities required for the Plantare steam, power and water. Production of ammnnia by a steamreforming process will generate sufficient steam internallyfrom the recovery of waste heat. Steam requirements for theurea unit and for other purposes such as plant start-up willbe supplied by gas-fired packaged boilers.

52. The Plant will require about 14.7 megawatts (MW)of electric power. Provision has been made in the proposedProject for equipping the Plant with two 12 MW generatorsto provide it with its own captive power. Additionally,the Plant will also be connected to the national grid forstandby use. D53. The Plant and the housing colony will require about1,050 cubic meters of water per hour. Extensive investiga-tions carried out by the Technical Advisor in the vicinityof the selected plant site indicate that the nearest reliablesource of water of acceptable quality would be at the con-fluence of the Karnaphuli and the Helda rivers located nearthe Kalurghat bridge about 25 km north of the selected site.The results of an analysis of the water at the proposed intakepoint are given in Appendix 12. A tentative pipeline routehas been selected, and the Government is in the process offinalizing the acquisition of the right-of-way for laying thepipeline.

54. With the development of the plant facilities andthe related Gas System, the supply of raw materials andutilities for the Plant will be assured. A full descriptionof these facilities is given in Appendix 10.

1 Loan Agreement, Schedule 6, para. 8.2J Loan Agreement, Section 6.01(c).3J Loan Agreement, Schedule 6, para. 9.

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E. Work Force, Training and Technical MAnagement

55. The Project will require the services of about1,300 persons. About 240 persons would be managerial andadministrative staff, and the rest would be plant personneland other supporting staff. Plant personnel would comprisetechnical, maintenance and operational personnel for ammoniaproduction, urea production, urea handling and dispatch,plant maintenance and laboratory work. The tentative orga-nizational chart of CUFL for the operational phase of theProject is shown in Appendix 13. More than half of the plantpersonnel would be technologists, technicians and skilledworkers such as engineers, chemists, fitters, mechanics,welders and electricians. The rest would be semi-skilled andunskilled laborers needed for tasks such as materials handlingand bagging. Some of the key personnel will be drawn fromwithin the BCIC enterprises, particularly the existing ferti-lizer plants and the new urea plant now under construction atAshuganj. Others will have to be recruited from other sourceswithin Bangladesh. As such other staff would have little orno prior industrial experience, they would have to be trainedfor meeting the specific requirements of the Project.

56. CUFL wouid recruit all the key technical staffduring the construction phase of the Project, and would pro-vide such sz;aff with the necessary training prior to thestart-up o. the Plant. Training programs would be drawn upby CUFL's General Contractor in close cooperation with theTechnical Advisor for the Project. The programs will mainlybe carried out in tne Ashuganj fertilizer training center butwill also include intensive training abroad for selected staffin fertilizer plants similar to the proposed Plant. Arrange-ments for this training would be made by the General Contractoras part of his contractual responsibility. In addition, theGeneral Contractor, in consultation with the Technical Advisor,would be required to organize on-the-job training for CUFLstaff during construction and initial operation of the Plant.The training program would be submitted to the Bank forapproval before it is implemented.l/

I/ Loan Agreement, Schedule 6, para. 7.

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57. It would also be necessary for CUFL to engage aManagement Advisory and Operational Services Team withexperience in the technical management of urea fertilizerplants to assist CUFL in managing and operating tie Plantfor at least the first three years of operation.1J In theevaluation of the requirements of the Management Advisoryand Operational Services Team, consideration has beengiven to the expected improvement of skilled manpower inBangladesh by the time the Project organization has to bestaffed. It is envisaged that a small but strong group ofexpatriate management and operational advisors would berequired to assist CUFL to achieve, as quickly as possible,and maintain the production rate of the Plant at about 90per cent of rated capacity. An input of up to 288 man-months by the team of expatriate experts would be requiredfor assisting CUFL in the efficient operation and maintenanceof the Plant and for providing on-the-job training for CUFL'smanagerial and technical staff. Details of the tentativeexpatriate team are given in Appendix 14. The peak require-ment of expatriate management and operational advisors isassessed to be a minimum of 12 persons for the first year.The requirements of expatriate experts for the second andthird years are foreseen to be 8 and 4 persons, respectively.The key experts would cover the start-up, the first majoroverhaul and subsequent stable operation of the Plant.

58. Before any scheduled reductions of the expatriatemanagement personnel take place, an evaluation of the Plant'sperformance and the operating and maintenance skill of CUFLpersonnel would have to be carried out by the Government.Actual reductions in expatriate managemeqt personnel will besubject to the concurrence of the Bank.>d An amount of $3.0million in foreign exchange to cover the costs of the Manage-ment Advisory and Operational Services Team has been includedin the Project cost estimates. In the event that additionalmanagement and operational services are required by CUFL, theadditional cost will be financed by CUFL out of its ownresources.

1/ Loan Agreement, Schedule 6, para. 6.2/ Loan Agreement, Schedule 6, para. 6.

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F. Prolect Implementation

1. Technical Advisor

59. In November 1976 th /Bank approved a technicalservices loan of $2.5 million to the Government of Bang-ladesh for the purpose of financing the services of aTechnical Advisor to help establish the proposed Plant.With the approval of the Bank and following the Bank'sGuidelines on the Use of Consultants, BCIC appointed UNICOas its Technical Advisor for the Project. The TechnicalAdvisor has since completed the feasibility report forthe Plant, and the Government intends to retain UNICO asthe Technical Advisor for the implementation of the Projectunder a contract with CUFL. The subsequent work of UNICOwill be to assist CUFL in the preparation of processspecifications and bidding documents for the general con-tract, prequalification of contractors and selection of theGeneral Contractor. Following this, UNICO will providemanagement witii technical advisory services to CUFL duringthe implementation phase of the Project.

60. UNICO's work to-date has been satisfactory. Owingto a scarcity of experienced and qualified personnel inBangLadesh, strong participation from UNICO will be necessarydurivig the -ngineering and construction phases of the Project.For successiul Project implementation, the team of technicaladvisors, a;< proposed in IJNICO's existing contract with BCIC,would neeQ to be strengthened, particularly those key tech-nical personnel of the team including the Project Manager.The expatriate man-months needed would have to be increasedfrom 238 to 274. The details of arrangements for improvingthe Technical Advisory services as agreed to with the Govern-ment are described in Appendix 15.

2. General Contractor and Urea Contractor

61. CUFL will engage a General Contractor (GC) 2 J forthe services required to complete the Plant. Such serviceswill include:

1/ Loan No. 282-BAN(SF) approved on 23 November 1976.2! Loan Agreement, Schedule 6, para. 4.

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(i) provision of process licenses, and basicand detailed designs of the ammonia unitand of all off-sites and ancillaryfacilities;

(ii) management of procurement for all materialsand equipment for the ammonia unit and forall off-sites and ancillary facilities;

(iii) supervision of erection and constructionof the entire integrated Plant, includingthe urea unit, and civil works;

(iv) testing, start-up and the commissioningof the entire integrated Plant, includingthe urea unit; and

(v) training of CUFL personnel.

62. The GC will be paid on a fixed fee plus reim-bursable cost basis for its services. Equipment and materialswill be procured by the GC on behalf of CUFL in accordancewith the procurement procedures of the respective financiers,with CUFL directly arranging payment to the relevant suppliers.Civil works, construction and erection works contracts for theProject will be awarded by CUFL under separate contracts. TheOC will supervise such works and will have overall responsi-bility for the construction and commissioning of the Project.

63. To meet OECF requirements for its funds to beutilized for financing the urea unit on a lump sum basis,CUFL will engage a contractor who will be responsible forproviding the process licenses and basic and detailed engineer-ing designs, for the supply of equipment and for providingtechnical supervision for the erection of the urea unit underthe overall coordination and supervision of the GC.

64. As the GC will be required to guarantee the overallperformance of the Plant, it is essential that he be givenan opportunity to associate with a urea contractor whom hehas confidence in. Therefore, CUFL will invite bids for thegeneral contract and the urea contract simultaneously. Theprospective GC will be required to submit a bid for the generalcontract on a fixed fee plus reimbursable cost basis, and to

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submit a bid for the urea unit on a lump sum basis at thesame time. The prospective GC may bid for the urea unithimself or in association with another contractor. If theprospective GC should bid in association with anothercontractor it will be required that working arrangements,sharing of responsibilities, adequate guarantees of per-formance of the urea unit, and of standards of materialsand construction to be used in the urea unit are clearlydefined and agreed upon between the prospective GC and theassociated contractor. The general contract and the ureacontract will be awarded to the bidder who has beenevaluated to have submitted the lowest combined bid forboth items.

65. This arrangement has been worked out afterthorough discussions with the Government, with all co-financiers -- and OECF in particular -- and is acceptableto all parties concerned. The notice for prequ lificationof GC was published by CUFL in June this year,i1 and res-ponses were received from 13 applicants from Austria,Belgium, Canada, France, India, Italy, Japan, Korea,Federal Republic of Germany, UK and USA. Bid documentsfor the GC are being prepared and are expected to becompleted by end of November 1981.

66. Careful and close monitoring of the GC by theExecuting Agency would be required, particularly during thedesign and procurement phase of the Project. To ensure thatthe Executing Agency is not handicapped in the performanceof this task, a competent technical advisory team (organizedalong the lines described in paragraph 60) would be neededto assist CUFL in monitoring GC's work. The proposedorganizational set-up for the implementation phase of theProject is shown in Appendix 16. To ensure that there wouldbe a strong and competent team to implement the Project, theGovernment would fill all the key positions, particularlythose of the Managing Director, the Project Director andFinance Director with suitably qualified and experiencedcandidates satisfactory to the Bank,/ Provided that: (i) theabove recommended type of contract is adopted to implement theProject; (ii) the technical advisory team is strengthenedalong the lines discussed in paragraph 60; and (iii) keypositions of CUFL's proposed construction organization are

1/ See Board Paper R62-812/ Loan Agreement, Schedule 6, para. l(c) and (d).

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staffed with suitably qualified and experienced personnel,then the arrangements for Project management during theimplementation phase of the Project can be considered tobe satisfactory.

3. Coordination Among Cofinanciers

67. In accordance with the request of the Government,during the appraisal of the Project it was agreed upon betweenthe Government and the cofinanciers that the Bank, withoutliability to the other cofinanciers, would undertake the roleof coordinator among the cofinanciers. In particular, theBank will monitor and channel information regarding theProject and its progress, as well as organize and arrangereview missions of cofinanciers on a regular basis. In thecourse of these review missions, the status of compliancewiLh the loan covenants, latest budgetary cost estimates,status of implementation schedule, performance activities,and projected disbursements of the Project will be reviewed.The Bank will also arrange joint meetings among cofinanciersas and when necessary for taking steps jointly to resolvePny problems which may arise during Project implementationand for coordinating procurement activities.

68. It was agreed that the cofinanciers would keep eachother informed of: (i) the status of the fulfillment of theconditions of their respective agreements with the Governmentof Bangladesh; (ii) amounts committed and disbursed; and(iii) any event which may prevent making disbursements. Co-financiers will consult with each other to the extent possiblebefore taking action to suspend, terminate or amend theirrespective agreements with the Government.

69. Prior to agreeing to any changes in the specifi-cations, cost and nature of construction works, and workschedules as compared with those originally envisaged andagreed upon, cofinanciers will consult with each other witha view to finding jointly acceptable course of action. Thesematters have been incorporated in a Memorandum of Agreementi'among cofinanciers regarding coordination in Project execution,

AJ The draft Memorandum of Agreement among cofinanciers hasbeen reviewed and found to be generally acceptable by allcofinanciers. It will be concluded after approval ofthis loan.

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procurement and use of funds which has been drawn up for theapproval of the respective approving authorities. The Govern-ment will cause the Project to be carried out in accordancewith these arrangements for coordination among cofinanciers.j/

4. Procurement

70. The procurement of goods and services to befinanced under the Loan will be in,iccordance with theBank's Guidelines for Procurement,.6J Contracts for theprocurement of goods and services estimated to cost theequivalent of $200,000 or more will be awarded on the basisof international competitive bidding. Bidders for civilworks contracts, construction and erection contracts and forthe contract for the services of the General Contractor willbe prequalified before bidling in accordance with proceduressatisfactory to the Bank.zU Contracts for the procurement ofgoods and services estimated to cost less than the equivalentof $200,000 will be awarded on the basis of internationalshopping. The mode of procurement of goods and services tobe financed from the proceeds of the proposed loan from theBank is given in Appendix 17.

5. Consultants

71. Consultant services required under the Projectare those c; the Technical Advisor and the Management Advisoryand Operaticnal Services Team. The services of the TechnicalAdvisor, who has already been engaged in accordance with theBank's Guidelines on the Use of Consultants under the techni-cal services loan,4/ will be continued under a contract withCUFL. The Management Advisory and Operational Services Teamwill be engaged by CUFL in accordance with the Bank's Guide-lines on the Use of Consultants.,!

1/ Loan Agreement, Schedule 6, para. 20.2/ Loan Agreement, Schedule 4.AI For prequalification of the GC, and advance procurement

action taken with regard to a dredging contract, seeBoard Paper R62-81.

4/ See paragraph 60.5/ Loan Agreement, Schedule 5.

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6. Government Obligations

a. National Coordinating Committee

72. In March 1980 the Government established a NationalCoordinating Committee composed of a Member of the PlanningCommission as Chairman and three Secretaries, those of theMinistry of Industries, Ministry of Petroleum and MineralResources and Ministry of Finance (External ResourcesDivision), for the purpose of coordinating the implementationof the Urea Plant Project and the Gas System Project. ThePlant is dependent upon the Gas System for the supply ofgas as feedstock and as fuel. The Gas System, in turn,would depend upon the Plant as a major consumer of gas.The establishment of the Plant would ensure the economicviability of the Gas System especially during the initialyears of its economic life. This National CoordinatingCommittee would continue to functiqn until both projectshave been successfully completed.T

b. Customs Duties and Clearances

73. For prompt implementation of the Project, it isessential that all goods and equipment arriving at the portof Chittagong be cleared through customs as quickly aspossible. The Government would have to provide importlicenses without delay and make arrangements to enable allimported equipment and materials to be delivered directly tothe site and all customs duties to be assessed an madepayable upon presentation of shipping documents.J2 Customsduties on project goods and equipment (inc uding spare parts)would be levied at the preferential rate-,j in compliancewith the Government's policy to promote new industry locatedin relatively undeveloped areas and the use of local rawmaterials as a major production input.

c. Local Materials

74. The Government has agreed to give all necessaryassistance to the Executing Agency to arrange the timely

1/ Loan Agreement, Schedule 6, para. 2.1/ Loan Agreement, Schedule 6, para. 12.ZJ Loan Agreement, Schedule 6, para. 13(a).

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transport of such local materials as may be required for theconstruction of the Plant. In the event that the supply oflocal materials is limited, the Government would give pre-ference to the Plant for scarce materials and would giveevery assistance to the Executing Agency to import nukmaterials, if necessary to make up for any shortages. ,

d. Review and ARproval of Contlact Awrd

75. To ensure prompt implementation of the Project,the Government would establish a time-saving review procedurefor contract approvals. The Executing Agency would be per-mitted to approve contracts valued at up to Tk 40 millionequivalent, without reference to any other authority of theBorrower. Under existing Government procedures, contractsvalued at Tk 40 million or more would have to be approvedby the relevant authority of the Government and the Govern-ment has agreed to make appropriate arrangements to ensureexpeditious approvals of uch contracts as may be awardedby CUFL for the Project.f_iu

e. Reports

76. The Executing Agency, with the assistance of theTechnical Advisor, will prepare monthly progress reports onthe execution,operation and management of the Project andsubmit these reports for review by the parties concernedwithin 14 days of the end of the month to which suchreports relate. These reports will indicate, among otherthings: (i) funds committed and the outstanding balanceof funds; (ii) progress made and problems encounteredduring the month under review; (iii) steps taken or pro-posed to be taken to remedy such problems; and (iv) a pro-posed program of activities to complete the Project. Inaddidon to these monthly reports, CUFL shall furnish tothe Bank within 45 days of the end of each year an AnnualProgress Report prepared by CUFL and certified by itsManaging Director. This annual report will review CUFL'soperations and activities during the year under review.Particular emphasis will be placed in this annual reporton financial status and developments with respect to the

1/ Loan Agreement, Schedule 6, para. 10.O/ Loan Agreement, Schedule 6, para. 11.

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Project, including construction of physical facilities,estimated date of completion, a,nd the proposed program ofactivities for the next year.1/

G. Capital Costs

77. The total Project cost is estimated at $467,54million, of which the foreign exchange cost is $289.98million and the local currency cost is $177.56 millionequivalent. Details of the capital cost estimates areshown in Appendix 18. A summary is shown in Table 7.A balance of $2.0 million is available under the technicalservices Bank loan (Loan No. 282-BAN(SF) of $2.5 million)for financing the services of the Technical Advisor for theimplementation phase of the Project. After deduction ofthis balance, the total foreign exchange financing requiredfor the Project would be $287.98 million.

78. The cost estimates were prepared by the TechnicalAdvisor. Account has been taken of recent prices ofequipment and machinery from major supplying countries andworldwide rates of inflation in the preparation of suchestimates. Physical contingencies provided are 7.7 per centand 12.1 per cent of the foreign exchange and local currencybase cost estimates respectively, and are based on thedetailed contingency schedule shown on page 5 of Appendix 18.The base cost estimates of the Project shown in Appendix 18and summarized in Table 7 are expressed in April 1981 values.Price escalation provided is 20.9 per cent and 28.0 per centof the foreign exchange and local currency base cost esti-mates and physical contingencies. Escalation rates for theforeign exchange costs have been taken at 9.0 per cent for1981, 8.5 per cent for 1982, and 7.5 per cent for 1983/85.Escalation rates for the local currency costs have beentaken at 12 per cent for 1981 and 10 per cent for 1982onwards. The above provision for price escalation is con-sidered realistic as the base cost estimates already includeprice escalation components due to scarcity factors. T4eseestimates are based on a Project implementation period J

1/ Project Agreement, Section 2.08(b) and Section 2.08(c).2/ See Appendix 19 for detailed project implementation

schedule.

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Table 7: Samuary of Capital Costs(April 1981 Values)

(Tn Mi1lin1c)In US Dollars

Local Currency Foreign Currency TotalCoponant Coupouent

I. Fixed Capital

1. Land Acquisition 0.53 0.532. Site Preparation 8.70 9.67 18.373. Process Equipment - 58.92 58.924. Catalyst, Chemicals and

Spare Parts - 9.84 9.845. Utility and Offsite

Facilities 0.99 37.23 38.226. Materials Handling

Equipment - 12.57 12.577. Construction Equipment - 14.95 14.958. Buildings and Structures 16.09 11.37 27.469. Construction and Erection 12.37 2.77 15.1410. Freight, Insurance and

Customs Duty 4.74 15.73 20.4711. Professional Services 2.46 42.32 44.7812. Pre-Operating Expenses

(including-staff trainingexpenses) 4.69 3.22 7.91

Base Cost Estimates (BCE) 50.57 218.59 269.16Physical Contingency 6.05 16.83 22.88Price Escalation 15.85 49.28 65.13

Total Fixed Capital 72.47 284.70 357.17

II. Working Capital 29.80 5.28 35.08

III. Interest During Construction 75.29 7 7R.±.2

Total Capital Outlay 177.56 289.98 4^7.s/

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of 53 months starting from the time of issuing of pre-qualification documentation for the general contract tothe time of commercial operation of the plant.

79, The initial working capital requirements toprovide adequate levels of inventories, receivables and cashis estimated at $35.08 million equivalent, with a foreignexchange component of $5.28 million. The foreign exchangecomponent of the working capital requirements is included aspart of the total foreign exchange cost of the Project forfinancing by the cofinanciers while the local currency com-ponent will be financed by the Government from its own.esources as part of its equity contribution to CUFL.

80. The interest payment during construction of theProject is estimated at $75.29 million equivalent. Thisis based on the disbursement schedule shown in Appendix20 and a 12 per cent interest rate to CUFL on all foreignloans, which the Government will relend to CUFL for theProject.

H. Financing Plan

81. The Government plans to finance the foreignexchange cost of the Project from foreign sources. Againstthe total foreign exchange financing requirements of $290million, firm commitments for $293 million have beenreceived, as given in Table 8.

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Table 8: Financing Plan for the ForeignExchange Cost of the Project

In US$ Equivalent(At Current Terms and

Cofinanciers Actual Amount Exchange Rate) Conditions--

Asian Development Loan (1%, 40(10)Bank (ADB) $72 millio n $72 million years)

Abu Dhabi Fund forArab Economic Dev. Dinars Loan (Terms not(ADFAED) (equivalent) $25 million yet fixed)

Canadian Interna-tional Dev. Agency(CIDA) C$25 million $20 million Grant

InternationalDevelopment Loan (0.75%, 50(10)Association (IDA) SDR (equivalent) $15 million years)

Islamic Develop- Lease (9%, 13(3)ment Bank (IsDB) ID12.76 million $16 million years)

Overseas EconomicCooperation Fund Yern Loan (1.25%, 30(10)of Japan (OECF) (equivalent) $60 million years)

Saudi Fund for Saudi Riyals Loan (2.0%, 25(5)Development 283.5 million $85 million years)

$293 million

a/ The percentage figures relate to interest rate, service charge and leasefee. Years relate to repayment periods inclusive of grace periods shownin parencheses. Procurement is generally untied except for CIDA grantwhch is tied to procurement in Canada.

b/ Including a balance of $2 million from the technical services loanprovided earlier from Special Funds resources from Bank,

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82. The Government will make equity contributionsfrom its Annual Development Plan Budget to CUFL forfinancing all local currency expenditures of the Projectincluding working capital and interest during construction.The Government has assured the Bank that it would provideequity fun4s to CUFL for financing the Project in time asrequired.V Equity financing of the Project will be about38 per cent of total Project cost, and debt financing willb)e about 62 per cent of total Project cost. This capita-lization ratio can be considered to be reasonable.

83. The proposed loan from the Bank will be made tothe Government from the Bank's Special Funds resources.The proceeds of the proposed Bank loan together with otherfunds made available to the Government for the Project byother cofinanciers,2/ will be relent by the Government toCUFL under a Financing Agrqement upon terms and conditionssatisfactory to the Bank.I The proposed relending to CUFLwill be for a term of 15 years including a grace period offive years at an interest rate of 12 per cent taking into consi-deration the current Government regulation regarding relendingterms of foreign loans/grants to autonomous or semi-autonomousorganizations. The foreign exchange risk will be borne byCUFL. The total loan amount for the Chittagong Urea Ferti-lizer Technical Services Project Loan No. 282-BAN(SF) is$2.5 million, but only $0.5 million of this is expected tobe utilized until the proposed Bank loan for the Projectbecomes effective. Consistent with Section 2.09 of the LoanAgreement for Loan No. 282-BAN(SF), it is proposed to incor-porate and consolidate $2.0 million from Loan No. 282-BAN(SF)into the proposed Project loan. The unwithdrawn portion ofthe Loan No. 282-BAN(SF) will be cancelled when the proposedloan becomes effective,4J and any outstanding payment stillto be made under Loan No. 282-BAN(SF) after loan effectivenesswill be made from the proposed loan.

1/ Loan Agreement, Section 3.01 and Schedule 6, para. 3.2/ IsDB contribution will be made available to CUFL directly

and will be on a lease basis (see Appendix 26, page 7for details).

3/ Loan Agreement, Section 3.01(a).4J Loan Agreement, Section 3.02.

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I. Allocation of Foreign Funds

84. During the joint appraisal of the ProJeect followedby consultation among the Government and the various co-financiers it became evident that the cofinanciers preferredpreallocation of Project components to be financed out oftheir respective funds instead of consolidating the fundsinto a pool and have them available for joint financing ofall the components of the Project. Therefore, preallocationof Project components to the respective funds available forthe Project were worked out and agreed upon a=ong the co-financiers and the Government, as summarized in Table 9below. (See Appendix 21 for details).

Table 9: Allocation of Foreign Funds

Cofinanciers Allocation

ADB Service fees for General Contractor,Technical Advisors, and OperationalManagement Advisory Team, civil works,some offsites facilities and administra-tion buiLding, catalysts and chemicals,working capital and freight.

ADFAED Water treatment plant, water intake pipe,construction equipment, spares and freight.

CIDA : Steam generation facilities, ammoniastorage and refrigeration facilities,maintenance equipment, spares and freight.

IDA Site preparation, construction equipmentand freight.

IsDB Power generation and distributionfacilities, air and inert gasfacilities, spares and freight

OECF Urea unit including services (lump-sumbasis), material handling equipment,spares and freight.

SFD Ammonia plant, jetty, buildings andstructures, spares and freight.

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85. The only tied funds made available to theProject are those from CIDA.'s grant contribution. Itshould be noted that the Appraisal Mission, in full agree-ment with CIDA, paid due consideration to Canada's generalcompetitiveness in the selection of Project components tobe financed out of CIDA's funds.

86. The Bank loan is mainly proposed to be usedto finance expert services needed for the Project. TheBank's preference for financing these services stems fromthe request of the Government and the other cofinanciersthat the Bank act as Project coordinator for the Project.In this connection, it is important that the Bank financethe expert services portion of the Project which is ofcritical importance to Project implementation. Byfinancing the expert services, the Bank would be in abetter position to closely monitor the progress of theProject.

J. Environmental Protection

87. Statutory regulations for industrial pollutioncontrol in Bangladesh are in the process of being enacted.Their standards are expected closely to follow those adoptedin developed countries. The Project would be designed inaccordance with the standards set by the local anti-pollutionauthority, where applicable. Otherwise, the Plant will bedesigned in accordance with standards in developed countrieswith respect to solid, liquid and gaseous emissions.Y)In any case, since natural gas from the Bakhrabad gas fieldis virtually sulphur free, atmospheric pollution is expectedto be minimal. Solid emissions from the prilling of ureawill be minimized through the installation of cyclones.Liquid effluent from the Plant will be treated in wastewater treatment units before being discharged into theKarnaphuli river. Under these circumstances, the adverseeffect of the Project on the environment can be expectedto be negligible.

j/ Loan Agreement, Schedule 6, para. 14.

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K. Project Risks

88. Chemical fertilizer projects face operationalrisks which are inherent in the chemical industry. TheProject also faces risks which may arise from delay inproject implementation and possible cost overrun. Suchrisks are discussed below.

89. Technical risks to the Project will be minimalthrough the adoption of technology which has been developedand commercially proven by internationally experiencedfirms. However, sustained performance with regard tocapacity utilization at the projected level will dependto a large degree on the availability of an adequate andcompetent management and trained work force. The Projectwill be protected from this risk by inclusion of provisionsfor: (i) a training program for CUFL staff;./ and (ii)employment of expatriate management and ope ational advisorsduring the first three years of operation._/ Assurancehas been given by the Government that adequately qualifiedand experienced executives will be appointed to the keypositions within CUFL.3/

90. The Project is further subject to risks comnto projects of such size and complexity, namely, delaysin project implementation and cost overrun. Measures tominimize these risks have been taken, particularly in theproposed contractual arrangement with the General Contractor.-

L. Energy Impact

91. Natural gas will be consumed as raw materialfor the production of ammonia/urea and also as fuel forthe generation of steam and power. Fertilizer plantssimilar to the proposed Chittagong Urea Plant in developingcountries are normally provided with captive power plants.This is done to ensure reliable power supply because a

1/ Loan Agreement, Schedule 6, para. 7.2/ Loan Agreement, Schedule 6, para. 6.3/ Loan Agreement, Schedule 6, para. 1.i/ Loan Agreement, Schedule 6, para. 4.

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brief interruption of power supply or brief voltagefluctuation can cause total shutdown of the ammnoniaand urea plants. The recovery to full production of aammonia/urea plant after shutdown takes more than onefull day. Plant shutdown caused by an unexpected powerfailure can also cause serious damage to the catalystand refractory lining in the high temperature sectionof the plant.

92. Based on the calorific value of about 1,022 BTUper SCF for the natural gas from the Bakhrabad gas field,the energy requirement for the production of urea isestimated at about 31 million BTU per ton of urea. Morethan half of this gas requirement will be consumed togenerate steam and power for the plant. Therefore, theproposed Plant will incorporate the latest proven tech-nology improvements for minimizing energy consumptionconsistent with overall requirements for ensuring relia-bility and economy of operations of the Plant.

93. All the required electricity for the fertilizerplant, water intake station and housing colony will begenerated in and distributed from the plant. Only smallamounts of fuel and diesel oil to be used for an emergencystandby generator and the feed water pump drive will beprocured from external supplier. As to the diesel enginefor the start-up generator, dual fuel system (oil forstart-up and gas for normal running) is envisaged. Inview that the feedstock as well as fuel requirement forthe plant is based on indigenous natural gas, no problemis envisaged in meeting the energy requirement of theProject.

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IV. THE EXECUTING AGENCY

A. Introduction

94. BCIC has been acting as the Executing Agencyfor the Chittagong Urea Fertilizer Technical ServicesProject for which the Bank approved a loan of $2.5 millionfrom Special Funds resources in November 1976. BCIC em-ployed UNICO of Japan in January 1978 to undertake theTechnical Services Project. UNICO completed the prepara-tion of a comprehensive project report for the proposedChittagong Urea Fertilizer Plant in February 1980. Afteracceptance of that report by the Government and the Bank,the Government decided to establish a new company under thesupervision of BCIC to implement and operate the proposedProject. The new company, the Chittagong Urea FertilizerLimited (CUFL) was established in November 1980 in accord-ance with the Government's decision.

B. Bangladesh Chemical Industries Corporation

95. BCIC is a statutory autonomous corporationestablished in July 1976 under the Bangladesh IndustrialEnterprises (nationalization) Order of 1972. BCIC wasformed by the merger of Bangladesh Fertilizer, Chemicaland Pharmaceutical Corporation, Bangladesh Paper and BoardCorporation, and Bangladesh Tanneries Corporation. Themain functions of BCIC are to control, supervise and coor-dinate the activities, busines es and affairs of 30 nation-alized industrial enterprises-1 including the existingfertilizer plants at Fenchuganj, Ghorasal and Chittagong.BCIC acts as a holding corporation and its income isderived from management fees that it charges to its sub-sidiary enterprises for the provision of supervisoryservices.

96. The general authority to direct and administerthe affairs and business of BCIC is vested in a Board ofDirectors appointed by the Government which has overall

1/ See Appendix 22.

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superintendence and control of the Board. The Boardconsists of a Chairman, who is the Chief Executive ofBCIC, and five Directors. Each Board member, includingthe Chairman, is an operating director for a group ofenterprises as well as a staff director for major corpo-rate functions such as finance, planning, commerce,engineering and production.

97. As a Government supervising organ of the ferti-lizer industry in Bangladesh, BCIC has been playing animportant role in the establishment of CUFL and, usingits experienced technical and managerial staff, BCIC willcontinue to assist CUFL in the implementation as well asthe operation stage of the Project. Judging from the roleand experience of BCIC in respect of fertilizer and otherchemical related industries in Bangladesh, the Missionconsiders that BCIC can support the newly incorporatedCUFL effectively.

C. Chittagong Urea Fertilizer Limited (CUFL)

1. Institutional Set-Up

98. The Government has established a new companycalled the Chittagong Urea Fertilizer Limited (CUFL),which will act as the Executing Agency solely for implement-ing and operating the Project. The Memorandum and Articlesof Association of CUFL were approved by the Government inOctober 1980, and CUFL was incorporated in November 1980as a limited liability company under the Companies Act of1913. The authorized capital of CUFL is Tk 3,000 million($187.5 million). The shares of CUFL will be subscribedby the Government or by BCIC on behalf of the Government.Payment will be made, when capital is required to pay localcurrency expenditures on the Project. It was agreed thatthere would be no change in the shareholding or in thq capitalstructure of CUFL except in agreement with the Bank.17

2. Management and Staff

99. The Board of Directors of CUFL shall be thepolicy making body and shall be responsible for achieving

VJ Loan Agreement, Schedule 6, para. l(b).

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the objective for which CUFL was established. CUFL willhave at least five but not more than eight directors in-cluding the Chairman of the Board of Directors. All theDirectors will be appointed by the Government. The Govern-ment has informed the Bank that it has decided to make theBoard of Directors of CUFL a high powered one in orderto expedite decision making by CUFL as well as by theGovernment in the course of Project implementation. TheBoard will consist of the following members: (1) Secretary,Ministry of Industries - Chairman, (2) Member (Industries) -Planning Commission, (3) Secretary, ERD of Ministry ofFinance, (4) Secretary, Finance Division of Ministry ofFinance, (5) Chairman, BCIC, (6) Managing Director, CUFL,(7) Project Director, CUFL, and (8) Finance Director, CUFL.This arrangement is the same as those for AFCC with theonly difference that in case of CUFL, the Chairman of BCICwill also be included in the Board. The Mission considersthe composition of the Board of Directors of CUFL to besatisfactory as it provides necessary coordination andassistance from BCIC and also it assures expeditiousdecision making as proven in the case of AFCC.

100. The proposed organization chart of CUFL is givenin Appendix 13. The Managing Director shall be the ChiefExecutive of the company and shall be responsible forconducting the day-to-day business of the company. Theappointments of the Managing Director, Project Directorand Finance Director of CUFL and any changes in thesepositions will be made in consultation with the Bank.'CUFL will have about 1,300 employees by the time it reachesthe stage of commercial operation.

101. In order to strengthen the management and staffof CUFL, particularly in the technical field:

(i) CUFL will retain tie services of theTechnical Advisor2 to assist it;

(ii) Management Advisors will be appointedto assist CUFL in the initial manage-ment and organization of operations ofthe Project; and

1/ Loan Agreement, Schedule 6, para. l(d).2/ BCIC has already a Technical Advisor contract with

UNICO (see para. 59).

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(iii) CUFL's technical staff will undergoa comprehensive technical trainingprogram to be arranged and supervisedby the General Contractor.

102. CUFL plans to draw technical and managerialsupport from BCIC and other fertilizer companies in Bangla-desh. In this regard, the Government assured the Bankthat CUFL would be adequately sta fed for the managementand organization of the Project.1y

3. Accounting and Audit

103. The Memorandum and Articles of Association ofCUFL require its Directors each year to prepare an annualbudget together with financial projections for the follow-ing year. Accounts of CUFL will be audited by independentauditors to be appointed at the Annual General Meeting.The general meeting of CUFL will decide on matters relatingto appropriation of profits. Dividends will be paid tothe shareholders only out of the net profits of the yearor any other undistributed profits upon the recommendationby the Directors. The Mission has reviewed the Memorandumand Articles of Association of CUFL and is satisfied thatCUFL will be able to perform its duties within the currentinstitutional framework in Bangladesh.

104. It was agreed that CUFL would furnish to theBank within 45 days after the close of each qf the firstthree quarters of each fiscal year of CUFL:2

(i) an unaudited quarterly financialstatement; and

(ii) a written statement by an authorizedfinancial officer of CUFL settingout the status of compliance with thefinancial covenants agreed upon bet-ween CUFL and the Bank.

1/ Loan Agreement, Schedule 6, para. l(c).2/ Project Agreement, Section 2.09(b).

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It was also agreed that CUFL will furnish to the Bankwithin s d months after the close of each fiscal yearof CUFL:_

(i) audited financial statements; and

(ii) a certificate by an independentauditor acceptable to the Banksetting out the status of com-pliance with the financialcovenants agreed upon betweenCUFL and the Bank.

1/ Project Agreement, Section 2.09(a).

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V. FINANCIAL. ECONOMIC AND SOCIAL EAIMION

A. Financial Analysis

1. Financial Projection

105. Projected financial statements for the Projectare shown in Appendixes 23, 24 and 25. Key figures aresunmarized in Table 10.

Table 10: Si=mary of Financial Projections

($ million21986 1987 1988 1990 1993

Income StatementSales Volume ('000 tons) 261.7 434.9 504.9 504.9 504.9Average selling price

($ per ton) 287.6 291.5 283.7 280.0 280.0Sales Revenue 75.3 126.8 143.2 141.4 141.4Operating Profit 12.3 46.8 57.8 55.9 55.9Net Profit (Loss)Before Tax (21.5) 13.3 26.2 28.9 39.0

Net Profit (Loss)After Tax (21.5} 13.3 26.2 28,9 17.5

Net Profit (Loss) onSales (7%) C28.6) 10.5 18.3 20,4 12.4

Rate of Returns onEquity (%) (14.1) 8.0 13,6 13.6 8,5

Dividend Payment - - 17.8 17.8Dividend Payment onShare Equity (%) - - - 10 10

Debt Service Cost 38.9 51.9 51.9 51.9 48.6

Debt Service Ratio(times) 1.2 1.5 1.8 1.7 1.4

Balance SheetCurrent Assets 60.2 88.3 127.4 166.3 170.2Net Fixed Assets 382.2 349.0 315.8 249.5 149.9Total Assets 442.4 437.3 443.2 415.8 320.1Current Liabilities 22.5 24.4 26.6 31.7 39.6Long-Term Debt 266.7 246.4 224.0 171.7 74.0Equity 153.2 166.5 192.6 212.4 206.5

Current Ratio 2.7 3.6 4.8 5.3 4.3Debt/Equity Ratio 64/36 60/40 54/46 45/55 26/74

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Major assumptions for the financia projections are:

(i) an econowic life of the P'oject of 12 years;

(ii) a capacity -utiliat;iam rate of 30 peor centfor the first twve rnth (N er 1985-October 1 986), 75 paz cet for the )m.ttwelve months (ftviu*r 1986-0ctober 1987)and 90 per cent from Nov er 1987 moards;

(iii) a urea enport piofile of 39,700 at in 1986,99,900 mt in 1987 ad 36,900 mt i& 1988;

(iv) an ex-factory ptic@ of urea of $280 per mtfo'r the domestic zk-&t and $330 per at forthe export market, Tespectivelye

(v) a price of natural gas at T 16.900 ($1.00)per MSCF, taking inite consideration thecomnitments made by the Govenment to IBRDregarding gas pricing in connection withthe negotiations for a loan for BGSL, andalso discussions with the Planning Commissionand other Goverrnent agencies cncerned; and

(vi) 1income taw exemption for the first five years.-

All prices and costs are expressed iUn mid1985 constantvalues. Detailed assumptions are given iri Appendix 26.

106. The following fiianncial ccvenauts weze agreed toby CUFL in order to ensure sousynd financial operations ofthe Project, namely; (i) a current ratio of not less than1.5, (ii) a debt/equity ratio not 4higher than 60:40 and 2/(iii) a debt service coverage ratio of not I1eas than 1.5.-It would not be possible for tLhe Proiect - which has tobear high depreciation and debF ase_ice bcrde - to befinancially viable based on the present ezfactory priceof urea of $150 per mt fixed by tihe Go,vsrrzLn wthich is

17 Loan Agreement, Schedule 6, pazr. 13.2/ Project Agreement, Section 24 16ti).

- 51 -

below the projected production cost of $169 per mt). It is estimated that an ex-factory price of $280 per tonwould be required to satisfy these financial covenants.

107. Based on an ex-factory price of $280 per mt thefinancial evaluation of the Project indicates that thefinancial position of CUFL will be satisfactory and willallow the Project to bear an interest rate on long-termdebt of 12 per cent and also to pay a 10 per cent dividendon share capital from the fourth year of operation of theProject. The Project may incur a net loss during itsinitial stage of operation because of the assumed capacityutilization of 50 per cent. This loss will not occur ifcapacity utilization reaches 71 per cent. During the restof the life of the Project, CUFL will be able to maintaina ratio of 15 per cent for average net profit (after tax)to sales.

108. In order to further ensure sound financial opera-tions of the Project, the following financial covenantswere agreed upon in a dition to the financial covenantsstated in para. 106.2-

(i) CUFL will not, after the commercial opera-tion date, incur or have any outstandinglong-term debt, if after such incurrence:

(a) the debt equity ratio exceeds 60:40;(b) the debt service ratio becomes less

than 1.5 times;

(ii) CUFL will not, prior to the commercialoperation date, make expenditures orcommitments for expenditures for capitaladditions except expenditures required forthe Project;

(iii) CUFL will not, for the three-year periodfollowing the commercial operation date,

1/ Inclusive of depreciation charges ($66 per mt) butexclusive of interest expenses.

2/ Project Agreement, Section 2.16(a), (b), (c), (e) and (f).

5- 5 -

make any expenditures or c iitments except:

(a), expenditures required for operationof the Plant;

(b) investment in shortter mamtetablesecurities solely for the purpose oftemporarily employing funds at thetime not required to be held as cash;and

(c) other expenditures or commitments forthe expenditures, not exceeding (in theaggregate) the equivalent of $3 millionin any fiscal year.

(iv) CUFL will not pay any dividend or make anyother distribution with respect to its sharecapital if, after giving effect to suchaction, the current ratio would be less than 1.5.

(v) CUFL will take necessary action from thecommercial operation date, in order to meetout of its sales revenue in each fiscal yearits full operating, administrative and distri-bution expenses including adequate provisionfor maintenance, depreciation, taxes, surchargeand other levies and interest on debt and toearn a reasonable rate of return, after taxes,on its equity.

2. Production Costs and Break-Even Analysis

109. The production cost structure of urea is capitalintensive; capital-related costs (i.e. depreciation andinterest expenses) will account for 55 per cent of thetotal production cost of $232 per mt in 1988. The costof feedstock, i.e. natural gas, is estimated at $31 per mtof urea or about 13 per cent of the total production cost.

110. Based on an ex-factory price for urea of $280 permt for the domestic market and $330 per mt for the exportmarket, the profit break-even point of the Project is

- 53 -

estimated at 71 per cent of rated capacity for the firstyear of operation, but will gradually decrease to 46 percent of rated capacity by 1996, as interest paymentdecreases. The cash break-even point, which excludesdepreciation from fixed costs but includes principalrepayment cost, is estimated at 57 per cent of ratedcapacity. A break-even analysis for the Project ispresented in Appendix 27.

3. Financial Internal Rate of Return andSensitivity AnalySis

111. Based on an ex-factory price for urea of $280 permt for the domestic market and $330 per mt fqr the exportmarket, the financial rate of return (FIRR)l/of theProject is estimated at 9.9 per cent (after tax) and 11.7per cent (before tax), which is considered satisfactory.

112. Table 11 shows the results of sensitivity testscarried out under various assumptions and an examinationof key factors is given in Appendix 29.

113. The FIRR was found to be most sensitive to thechange in the domestic market price of urea; a 10 per centdecrease would bring down the FIRR before tax from 11.7per cent to 9.2 per cent. However, the adverse effect ofthe decrease is safeguarded in the sense that the Governmentand CUFL will ensure that the price of urea will be reviewedfrom time to time in qrder for the Project to comply withfinancial covenants.2 /

114. The FIRR was also found to be very sensitive to areduction in capacity utilization and, when it occurs incombination with delay in construction and cost overrun, thecombined effect on FIRR is very significant. In such even-tuality, FIRR before tax would be as low as 6.2 per centand the ex-factory urea price would have to be increasedfrom $280 per mt to $330 per mt to ensure compliance withthe financial covenants.

1/ See Appendix 28.2/ Loan Agreement,-Schedule 6, para. 18.

- 54 *

Table 11: Sensitivity Analysis on FIRR Before Tax

FIRR Sensitivity(,%) Indicatora/

Base Case 11.7(1) 10 per cent decrease in urea

price for the domestic market 9.2 + 2.14(2) 10 per cent decrease in urea

price for the export market 11.5 + 0.17(3) 10 per cent decrease in sales

volume for export 11.6 + 0.09(4) 50 per cent increase in

natural gas price 10.3 - 1.20(5) Slower capacity build-up and

lower capacity utilizationrate at steady stateb/ 8.7 not applicable

(6) 10 per cent increase inProject cost 10.2 - 1.28

(7) One year delay in construction 10.0 not applicable(8) Combination of (5), (6) and (7) 6.2 not applicable

a/ The sensitivity indicator (SI) is calculated as follows:

SI = Percentage change in FIRRPercentage change in the variable tested

b/ 40-50-65-80 per cent capacity build-up and 80 per cent capacityutilization rate at steady state operation.

115. The results of the sensitivity analysis indicatethat sound management of the Project during both the imple-mentation ana operation period is vital for ensuring thefinancial viability of the Project. In this regard, CUFLwill be strengthened and assisted by advisers and receivemanagement assistance for the implementation, initial manage-ment and operation of the Project.l/

B. Economic and Social Evaluation

L. Economic Price of Urea and Natural Gas

116. The current fob prices of imported urea range from$230 to $250 per mt depending on the origin of supply.

1/ Loan Agreement, Schedule 6, paras. 6 and 7.

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To determine the economic price of urea, internationalmarket prices were analyzed. In projecting the inter-national market price of urea, it is assumed that aslight excess of supply over demand would continue inthe international market through the early 1980s, andtherefore that the international market price of ureawould be mainly determined by the selling price of naturalgas-based urea fertilizer plants which account for about

?5 ner cent of total production capacity of urea in theworld. According to an IBRD forecast,1/the price of ureawill be around $367 per mt (fob) in 1985, which is estimatedon the basis that the average long-term price of ureawould be at a level which would ensure a reasonable returnon a new investment. In order to be conservative, an fobprice of urea of $330 per mt in 1985 has been assumed.Allowing a freight cost of $25 per mt and local handlingcharges of $5 per mt, an economic price of urea at $360per mt (cif price) for domestically consumed urea and $330per mt (fob price) for exported urea has been assumed.

117. For the valuation of the economic cost of naturalgas, the shadow price of natural gas was estimated; thiscomprises the economic value of natural gas under theground, development cost of the Bakhrabad gas field andtransmission cost to consumption areas. The economic valueof natural gas under the ground is defined as the cost ofreplacing the natural gas by the next best alternativesource (crude oil is assumed) when the natural gas isexhausted. Based on these assumptions, the economic priceof natural gas in Bangladesh is valued at $1.44 per MSCF in1985 (see Appendix 30 for details).

2. Economic Internal Rate of Return and SensitivityAnalysis

118. Financial costs excluding transfer expenses suchas taxes and duties are used for economic evaluation. Theexchange rate of Tk 16.00 per US dollar is used for currencyconversion and no shadow wage rate is adopted. Details ofthe assumptions used in the economic analysis of the Projectare given in Appendix 30. Assuming the economic price of

I/ 'Trice Prospects for Major Primary Commodities" byIBRD, January 1980.

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urea for the domestic market and the export market to be$360 per mt and $330 per mt, rT,pectively, the economicinternal rate of return (EIRR)- on the Project is estimatedat 19.0 per cent.

119. Table 12 shows the results of sensitivity testscarried out under the same assumptions which are used forthe financial analysis.

Table 12: Sensitivity Analysis on EIRR

EIRR Sensitivity(%) Indicator

Base Case 19.0(1) 10% decrease in fob price

of urea 17.1 + 1.00(2) 10% decrease in sales

volume for export 18.6 + 0.21(3) 50% increase in natural

gas price 18.0 0.53(4) Slower capacity build-up

and lower capacity utili-zation rate at steadystatea/ 11.4 not applicable

(5) 10% increase in Projectcost 17.3 0.89

(6) One-year delay inconstruction 16.4 not applicable

(7) Combination of (4), (5)and (6) 8.7 not applicable

a/ 40-50-65-80 per cent capacity build-up and 80 per centcapacity utilization rate at steady state of operation.

1/ See Appendix 31.

- 57 -

120. The EIRR was found to be most sensitive todelay in construction, and also very sensitive todecrease in urea price. However, EIRRs of these casesare 16.4 per cent and 17.1 per cent, respectively whichindicate the viability of the Project. The sensitivitytests indicate a marginal EIRR of 11.4 per cent in thecase of a reduction in capacity utilization; when thisoccurs in combination with delay in construction and costoverrun, the combined adverse effect on EIRR is as signi-ficant as in the financial analysis (see para. 113).

3. Other Benefits

121. The proposed Project would help bangladeshachieve self-sufficiency in urea supply and earn foreignexchange through the export of surplus urea. Averageannual gross foreign exchange savings and earnings whichwould be generated by the Project are estimated at $170.8million, assuming cif and fob prices of urea at $360 and$330 per mt. After deducting foreign exchange componentsof capital charges and operating costs, the net foreignexchange savings which will be gener7ted by the Project isestimated at $113.6 million a year.1

122. The Project will directly employ about 1,300persons, more than half of whom would be skilled workerswho will receive extensive technical training. In addition,the Project is also expected to create substantial indirectemployment opportunities for rural workers in such areasas fertilizer transportation, storage and distribution.

1/ See Appendix 32.

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VI. CONCLUSIONS AND RECOMMENDATIONS

123. Bangladesh has sizeable reserves of naturalgas suitable for the economic production of nitrogenousfertilizer. The Project will not only help Bangladeshachieve self-sufficiency in urea fertilizer, and supportthe Government's policy to become self-sufficient infood and increase agricultural output and exports, butwill also help the country earn foreign exchange throughthe export of surplus urea fertilizer. The Plant wouldhelp Bangladesh achieve net foreign exchange savingsand earnings estimated at about $114 million per year.

124. The total cost of the Project is estimatedat $467.5 million equivalent, of which about $290 millionwould be in foreign exchange. The Government intends tofinance the foreign exchange cost of the Project fromloans, leases and grants from external aid agencies.The local currency cost of the Project would be financedby the Government from its own resources.

125. The Project is considered to be suitable fora loan of $72 million!.! from the Special Funds resourcesof the Bank. The Government will be the Borrower of theBank loan and will relend the proceeds of the Bank loanto CUFL, the Project Executing Agency, for a term of 15years including a grace period of 5 years at an annualinterest rate of 12 per cent. Satisfactory arrangementshave been made with the Government and CUFL for ensuringefficient implementation of the Project.

126. In addition to the standard provisions andrequirements embodied in the Bank's loan documentsspecific assurances have been received from the Govern-ment and CUFL in respect of the following:

(i) All local currency costs for theProject will be provided by theGovernment to CUFL by way of equityparticipation under the terms of a

Sj Including $2 million incorporated from Loan No. 282-BAN(SF).

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Financing Agreement satisfactoryto the Bank. (See Loan Agreement,Section 3.01).

(ii) The Government will relend to CUFLthe proceeds of the Bank loan (togetherwith the funds made available to theGovernment by other cofinanciers)under a Financing Agreement on termsand conditions satisfactory to theBank. (See Loan Agreement, Section3.01).

(iii) CUFL will at all times be adequatelystaffed for the efficient managementand implementation of the Project;the appointment of the ManagingDirector, Project Director andFinance Director of CUFL and anychanges in these positions will bemade in consultation with the Bank.(See Loan Agreement, Schedule 6, para. 1).

(iv) The Technical Advisor's team for assist-ing CUFL in Project implementation willbe satisfactorily strengthened with theexpertise necessary for carrying outsuch functions. (See Loan Agreement,Schedule 6, para. 5).

(v) A team of expatriate advisors willbe engaged by CUFL to assist it in theoperation and maintenance of the Plantduring the initial years of operation.(See Loan Agreement, Schedule 5, paras.1 and 3 and Schedule 6, para. 6).

(vi) A General Contractor with overallresponsibility for the construction ofthe Plant will be engaged by CUFL.The procedures for prequalification offirms, selection of the General Con-

- 60 -

tractor and the terms and conditionsof contract will be in accordancewith the Bank's Guidelines forProcurement and will be subject tothe prior approval of the Bank.(See Loan Agreement, Schedule 4,para. 4 and Schedule 6, para. 4).

(vii) For ensuring expeditious implementationof the Project, the Government willestablish a time-saving review pro-cedure for approving contracts thatmay be awarded by CUFL for the Project.(See Loan Agreement, Schedule 6, para.11).

(viii) The Government will introduceadequate measures to ensure thatimport licenses and customs clearancesfor Project goods are provided withoutdelay. A preferential rate of customsduty will also be levied on equipmentand goods (including spare parts)imported for the Project. (See LoanAgreement, Schedule 6, paras. 12 and13).

(ix) The Government will ensure that thegas pipeline system from the Bakhrabadgas field to the Project site is con-structed on a timely basis, and thatsufficient gas is made available to theProject on time. CUFL will negotiateand conclude a contract with BGSL forthis purpose on terms and conditionssatisfactory to the Bank. (See LoanAgreement, Schedule 6, para. 8 andSection 6.01(c).

(x) In addition to the captive power to beprovided under the Project, the Plantwill also be connected to the Government's

- 61 -

national grid for appropriatestandby use. Such connection willbe provided on a timely basis.(See Loan Agreement, Schedule 6,para. 9).

(xi) The Government will ensure theprovision of adequate transportationfacilities for the movement ofProject materials including theurea output of the Plant. (SeeLoan Agreement, Schedule 6, paras. 10and 16).

(xii) The Government will, prior to comple-tion of the Project, prepare andimplement a program for improvingand expanding the existing internalnetwork of facilities for storageof fertilizer and distribution tofarmers. The Bank shall be keptinformed of steps taken in thisconnection (Loan Agreement, Schedule6, para. 17).

(xiii) The Government will construct a 5 kmroad to link the project site withthe main Patiya-Anwaro road (now underconstruction) out of its own resourcesand will ensure that these roads willbe completed by June 1985.

(xiv) The Government will before the end of1982 prepare a program of action towardsachieving a more balanced nutrient ratioin fertilizer application. The Govern-ment will afford the Bank an opportunityto comment on such program prior to itsimplementation. (Loan Agreement, Schedule6, para. 21).

(xv) The Government will, in consultation withCUFL, from time to time review the ex-

- 62 -

factory price of urea for CUFLand make adjustments thereto asmay be necessary to enable CUFLto comply with the financial cove-nants as stated under (xvii) below.(See Loan Agreement, Schedule 6,para. 18(a).

(xvi) The Government will keep underconstant review its pricing policyin regard to fertilizer as well asin regard to farm produce, with aview towards gradually reducinglevels of subsidy and phasing outsubsidization while at the same timeproviding incentives to farmers tomaintain adequate production. TheBank will be kept informed of stepstaken in this connection, and willbe afforded an opportunity to commenton any changes in the Governments'pricing and subsidy policies inrespect of fertilizer. (See LoanAgreement, Schedule 6, para. 18(b).

(xvii) CUFL will comply with the followingfinancial covenants; a debt/equityratio of 60:40, a debt service ratioof 1.5:1. (See Project Agreement,Section 2.16)

- 6-

LIST OF APPENDIXES

Appendix No. °

1 Glossary of Technical Terms 66

2 Trends in Fertilizer Production 70(1967/68-1978/79)

3 Existing and Future Fertilizer 71Plants in Bangladesh

4 Consumption of Fertilizers by 80Product Type and Nutrient

5 Districtwise Consumption of 81Fertilizers (1976/77-1978/79)

6 Sources of Fertilizer Supply 82

7 World Nitrogen Fertilizer Situation 83and Export Possibility of Urea fromBa ngladesh

8 Transportation Facilities Required 85for Urea Movements from ChittagongUrea Plant for the Domestic Market

9 Plant Size and Production Processes 88

10 Raw Material and Plant Facilities 94

11 Gas Demand Projection for the 102Bakhrabad-Chittagong Gas SystemProject

12 Typical Water Quality of Kalurghat 103Point

-64 -

Appendix No. Page

13 Organizational Chart of CUFL 104(Proposed)Operational Phase

14 Management Advisory and Operational 105Services Team (Tentative)

15 Services of the Technical Advisor 106

16 Organization Chart of CUFL (Proposed) 111Construction Phase

17 Mode of Procurement 112

18 Capital Cost of Project 113

19 Project Schedule 118

20 Disbursement and Financing Schedule 119

21 Possible Allocations of Components 120

22 List of Subsidiary Enterprises 121of BCIC

23 Projected Income Statement 122

24 Projected Cash Flow Statement 123

25 Projected Balance Sheet 124

26 Major Assumptions for Financial 125Analysis

27 Break -even Analysis 135

28 Financial Internal Rate of Return 136

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Appendix No. Rae

29 Examination of Key Factors of 137Sensitivity Analysis

30 Ba8is for Economic Analysis 140

31 Economic Internal Rate of Return 143

32 Foreign Exchange Savings 144

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ADpendix 1Page 1

Glossary of Technical Terms

1 Ammonia (Anhydrous (NH3)). A gas containingapproximately 82 per cent nitrogen. Under pressure,ammonia gas is changed to a liquid and is usually storedand transported in this form. Anhydrous ammonia is usedto make most of the solid forms of nitrogenous fertilizersand also used for direct application to soil either as agas or in the form of aqua ammonia.

2. Ammonium Carbamate (NH C02NH ). An intermediatechemical formed from carbon dioxide an3 amnonia in solutionduring the synthesis of urea. On reduction in pressure itdecomposes into urea with the formation of by-product water.Ammonnium carbamate is a highly corrosive material andrequires the use of special materials and equipment tohandle it.

3. Ammonium Sulfate (NH4)2 SO4. Ammonium sulfateis chiefly the ammonium salt of sulfuric acid. It containsnot less than 20.5 per cent of nitrogen.

4. Biuret. An impurity, NH(CONH )2, found in commer-cial urea brought about by the partial 3ecomposition of ureato biuret ard ammonia. For certain applications, particu-larly when the urea is ultimately sprayed on citrus trees,the biuret content should be kept as low as possible, inthe range 0.1 to 0.3 wt. per cent.

5. Bulk Fertilizer. Commercial fertilizer deliveredto the purchaser, either in the solid or liquid state, ina non-packaged form.

6. Calorific Value. A measure of the quantity ofheat given out in the combustion of a fuel. Usually expressedas BTIJ/standard cubic foot in the case of a pipeline gas,where -he standard cubic foot of gas is measured at 14.7 lb./sq. in. absolute pressure and 60°F temperature and in the drystate. A BTU is the amount of heat required to raise thetemperature of 1 lb. of water through 1 fahrenheit degree at 600F.

Reference in text: para. 1 (footnote 2), page 1.

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Appendix 1Page 2

7. Fertilizer. Any natural or manufactured materialadded to the soil in order to supply one or more plantnutrients.

8. Granular Urea. Several granulation processeshave been developed for the production of granular urea,which is produced in the form of spherical particles. Inone of the processes, granular urea is prepared by sprayinga hot concentrated solution of urea into a cascading bed ofrecycled fines in a pan granulator.

9. Nitrogen (N2). A colorless, inert gas that makesup about four-fifths of the atmosphere. Nitrogen for commer-cial purposes can be "fixed" synthetically from the air byseveral processes.

10. Nutrient (Plant). Any element taken in by aplant to facilitate its growth.

11. Ordinary Superphosphate. A product that contains16 to 20 per cent available phosphoric acid and is producedby treating phosphate with sulfuric acid.

12. Phosphate Rock. Phosphate-bearing ore composedlargely of tricalcium phosphate. Phosphate rock can betreated with strong acids or heat to make water solubleforms of phosphate. Finely ground rock phosphate is some-times used in long-term fertility programs.

13. Phosphoric Acid (H P04). An inorganic acid usedin the manufacture of concen&rated calcium phosphates,ammonium phosphates and sometimes for direct applicationas fertilizer through irrigation water. Although in fer-tilizer terminology the term has been used practicallyfrom the inception of the fertilizer industry to denote thewater soluble phosphate (P205) equivalent of a fertilizer,this usage is not strictly correct and has become particularly

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Appendix IPage 3

confusing in recent years since phosphoric acid (H3P04) isbeing used as such in the manufacture of fertilizer.

14. Potash. A term used to denote the potassiumoxide (K20) equivalent of materials containing potassium.Actually, K20 as such is never found in fertilizer, buthistorically the potassium in fertilizer has been thusexpressed.

15. PPM (parts per million). The concentration ofa substance expressed as the number of units of thatsubstance per total million units.

16. Prills. Spherical particles prepared by sprayingmolten material downward through a countercurrent steam ofcooling air; this operation is performed in a prillingtower. The particles obtained have excellent storage andhandling properties in that they are hard and have lesssurface area than crystals.

17. Primary Elements or Fertilizer Nutrients. Theprimary plant food elements are nitrogen, phosphorus andpotassium. They are called primary, or major elementsbecause of the relatively large quantities needed for healthyplant growt&;, and are the most common constituents of commer-cial fertilizer. While the plant food elements as such arephosphorus and potassium, in fertilizer terminology quantitiesare expressed in terms of their oxide equivalents -- watersoluble phosphate, P205 and potash, K20. Ratio the nume-rical ratio among the concentrations of the primary plantfoods in a fertilizer. For example, a 5-10-15 grade wouldhave a 1:2:3 ratio.

18. Superphosphate. Made by reacting sulfuric acidand phosphate rock. The principal source of available phos-phate (P205) in fertilizer. There are two principal kinds --normal superphosphate and concentrated superphosphate (alsocalled triple or treble).

19. Sulphuric Acid. (H2S04; Oil of Vitriol). Thisstrong acid is made from various sulphur materials.

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Appendix 1Page 4

Sulphuric acid is a common acid, and is used in the manu-facture of fertilizers such as ammonium sulphate and super-phosphate.

20. Triple Superphosphate. Made by reacting phosphoricacid and phosphate rock. A product that contains 40 to 50per cent available phosphoric acid. Triple superphosphatediffers from ordinary superphosphate in that it contains verylittle calcium sulfate. In the fertilizer trade, the productis also called the treble superphosphate, double superphosphate,and multiple superphosphate.

21. Urea (CO(NH2)2). A white crystalline materialproduced synthetically from ammonia (NH3) and carbon dioxide(C02) under high pressure. Comercial urea contains 45 to46 per cent nitrogen. Urea is completely water-soluble butchemically classed as a synthetic organic nitrogen.

Trends in Fertilizer Production

(1967/68-1980/81)

RatedCapacity 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976!77 1977/78 1978/79 1979/80 1980!81

x Production ('000 m.t.)P en ch uganjil/

(9 Urea 106.0 111.0 88.0 95.0 56.0 47.1 39.2 60.7 58.4 53.3 77.4 61.5 55.0 104.6 99.2

a AAmmoniuw Sulphate 12.0 - - 4.7 6.2 3.1 6.0 10.0 4.9 6.2 9.3 9.0 5.0 9.9 9.9

V Ghorasal5 Urea 340.0 - - - 45.0 - 175.0 217.0 10.7 228.9 208.1 15d.0 236.0 256.6 245.5

n Chittagong

X TSP (1 6 I)b/ 152.0 - _ - - - - 26.0 39.2 45.1 38.2 62.0 71.1 71.2

Capacity Utiliza-. tion Rate (1)'9 Fenchuganj'9 Urea 105 83 90 53 44 37 57 55 50 73 58 52 99 94

Amnoniun Sulphate - - 39 52 26 50 84 41 52 78 75 42 83 83

- GhorasalUrea - - - 13 - 51 64 3 67 61 45 69 75 72

'9Vs Ch ittago

TSP I & 11 _ _ _ _ _ _ 17 26 30 25 41 47 47

a/ Commercial operation started in July 1962.b/ Though mechanically completed in 1970, coinercial operation of the plant was delayed till 1974 mainly because of unavailability of

suitable phosphate rocks which had to be imported, x

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A2pendix 3Page 1

Existing and Future Fertilizer Plantsin Bangladesh

A. Existing and Future Fertilizer Plants

1. At present there are four chemical fertilizerplants in operation in Bangladesh. These are a urea andammonium sulphate plant at Fenchuganj, a urea plant atGhorasal and two triple superphosphate (TSP) plants atChittagong. A urea plant is now under construction atAshuganj and another is planned to be constructed atGhorasal in addition to the proposed Plant at Chittagong.

B. The Fenchugani Ammonium Sulphate/Urea Plant

20 The urea plant at Fenchuganj was established in1961 and commercial production began in 1962. The basicprocess design was prepared by Chemical Construction Corpo-ration of USA and the plant was constructed on a turn-keybasis by Kobe-Steel of Japan. The plant has a rated outputof 106,000 TPY of urea based on natural gas from the Haripurgas field in Sylhet for feedstock and fuel. The ammoniaplant is based on conventional reciprocating compressortechnology. Its rated capacity is 66,000 TPY and theammonia is produced in two trains. The urea plant employsa partial recycling process and the urea is produced inthree trains.

3. The plant operated satisfactorily from 1962 to1970 with an annual output averaging 87 per cent of therated capacity. It was shutdown during the civil war in1971 and although it was reported to have suffered nodamage during that period, the plant upon restarting in1972 failed to achieve its previous production levels.Its production level in 1972/73 was only 37 per cent ofthe rated capacity. The first overhaul of the plant wascarried out only in 1974 thirteen years after commissioning.After the overhaul, production in 1974/75 improved to about55 per cent of rated capacity. From 1975/76 to 1978/79,production averaged about 58 per cent of rated capacity.

4. A major rehabilitation of the plant coveringrepairs and replacement of major items of equipment in both

Reference in text: para. 15, page 7 .

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A2pendix 3

Page 2

the urea and ammonia units at a total cost of Tk 251 million($16.7 million equivalent) was undertaken in 1978/79 withJapanese commodity aid. After the rehabilitation and up toJuly 1981, the plant operated at about 90 per cent ofrated capacity.

5. The plant is now 19 years old. Despite theconsiderable repairs and replacement of equipment carriedout during the major rehabilitation in 1978/79, it canbe expected that increasingly costly maintenance would berequired to maintain production of the plant at highthroughputs. Some major works for the future could includereplacement of the original primary reformer tubes, catalystsand water and process piping. Most of the old machines arefast approaching the end of their economic life and theirdeterioration has reached the stage where they could soonseriously limit production efficiencies and throughputs.Some of the potential production bottlenecks which have beenidentified would be alleviated by another rehabilitationprogram planned for 1980/81 at a foreign exchange cost of$3.04 million to be financed by a $29 million loan fromthe International Development Association to Bangladeshfor the rehiabilitation of existing fertilizer plants.1/Considering these factors and known deterioration ratesof similar plants elsewhere, production from the Fenchuganjplant cou. decline to uneconomic production levels towardsthe end oC- the decade. (See projected production for theFenchuganj plant in Table 3, at page 12).

6. The ammonium sulphate plant was erected in1969, and commercial production began in 1970. The plantequipment was supplied by Lurgi-Mitsubishi and includes asulphuric acid plant. Ammonia is supplied by the ammonia/urea complex at Fenchuganj. The plant has an annual ratedcapacity of 12,000 TPY of aumxnium sulphate. The ammoniumsulphate is produced mainly for consumption in the teaestates in the districts of Sylhet and Chittagong.

7. Production averaged about 55 per cent of ratedcapacity for the period 1970/71 to 1978/79, with the highestproduction of 84 per cent rated capacity recorded in 1973/74.

1/ The IDA loan also include provisions for training of staffand for purchase of essentialspares, catalysts and chemicalsfor the existing operating plants.

- 3 -

Appendix 3Page 3

Production in 1980/81 reached 9,900 mt or 83 per centof rated capacity. The basic plant design is satisfactory.Given normal maintenance on the plant, it should be capableof maintaining production at about 75 per cent of ratedcapacity for the rest of the decade.

8. The plant is operated as part of the Fenchuganjintegrated fertilizer complex which employs a total of1,490 people and is under the control of a General Managerwho directly supervises the entire works organization whichconsists of seven departments, namely; Production, Main-tenance, Civil Engineering; Electrical/Instruments/Power,Accounts, Administration and Commercial.

C. The Ghorasal Urea Plant

9. The urea fertilizer plant at Ghorasal wasconstructed in 1969/70 by Toyo Engineering Corporation ofJapan under a turn-key contract. The plant has a ratedcapacity of 200,000 TPY of ammonia and 340,000 TPY of ureabased on natural gas from the Titas field as feedstockand fuel. Commercial operations started in September 1970.The plant is based on total energy recovery centrifugalcompressor type ammonia technology and is made up of asingle train ammonia unit based on Power Gas'es Methane/Steam reforming process and Toyo's own ammonia synthesisloop design. Carbon dioxide removal from the reformedgas stream is by the Giammarco Vetrocoke system but addi-tional carbon dioxide (as needed for urea synthesis) isrecovered from flue gases using monoethanolamine solution.The urea unit is based on Toyo's own total recycle processand is basically a single train unit although two ureareactors, two carbamate pumping streams and two crystallizerunits are installed.

10. The plant employs about 1,290 people. Another50 contract workers are employed for materials handling.The plant is under the control of a General Manager whodirectly supervises the entire works organization whichconsists of five departments, namely: Operations, Engi-neering, Accounts, Administration and Comuercial.

- 74 -

Appendix 3Page 4

11. The plant has a chequered history of operation.Shortly after it began commercial operation in September1970, civil war broke out and the plant was shutdown forthe duration of the war. After the war, the plant wasreconditioned and started production again in 1972 but wasagain shutdown in 1974/75 for one year because of anexplosion which damaged the control room. The controlroom was rebuilt with funds provided by the United Nationsunder its Relief and Emergency Operation Program inBangladesh.

12. Production from 1970/71 to 1973/74 averagedless than 50 per cent of rated capacity, although in theperiod immediately before the latest shutdown the plantwas producing urea at about 78 per cent of rated capacity.Production from 1975/76 to 1978/79 averaged just over 60per cent of rated capacity. Production for190/8Olws 245,500 mt or 74 per cent of rated capacity.The plant should be able to run at this higher throughputas it just had an overhaul in the early part of FY 1979/80.

13. As part of a wider rehabilitation plan to increasefertilizer production from its existing plants, BCIC in1977/79, commissioned a study of all the fertilizer plantsin Bangladesh including the Ghorasal plant under the Ferti-lizer Works Operation Improvement Program. The study wasfinanced by a technical assistance credit from IDA; Breslerand Associates was appointed as the consultant for the study.According to the findings of the consultant, the reasons forlow rate of capacity utilization for the Ghorasal plant areas follows:

(i) Equipment Bottlenecks - The main areasof bottlenecks are the water coolingsystem, the steam system in the ammoniaplant, the air compression system andlack of spare parts;

(ii) Maintenance Shortcomings - Poor mainte-nance of machinery, equipment and instru-ments led to unplanned shutdowns whichresulted in substantial loss of production;

- 75 -

Appendix 3Page 5

(iii) High Turnover of Experienced Staff -High turnover of experienced staffled to operational problems. Thestaff loss is normally in the mostskillful and experienced category.

14. The equipment bottlenecks of the Ghorasal Plantwere further examined by Toyo Engineering Corporation ofJapan, the original turn-key contractor for the plant.Resulting directly from this and the Bresler and Associatesstudy, a major rehabilitation of the plant covering majorrepairs and replacement of equipment is scheduled for 1982.The cost ($11.65 million) will be financed by IDA out ofits $29 million credit allocated for rehabilitation of theexisting fertilizer plants in Bangladesh.

15. With regard to overcoming problems of maintenanceand shortage of skilled manpower, BCIC has engaged a team ofexperts from UNICO International Corporation of Japan toexamine these problems. UNICO's team of experts are to giveadvice and guidance in the operation and maintenance of theGhorasal plant and to establish a managerial and technicaltraining program for the personnel of Ghorasal. The costof UNICO's consulting services would be financed by UNDP aspart of its technical assistance of $1.7 million to Bangladeshfor improvements in the operation and management of theexisting fertilizer plants in the country.

16. Following the rehabilitation planned for 1982and the expected improvements in the operation and main-tenance of the plant resulting from UNICO's input, it isanticipated that the Ghorasal plant should be capable ofrunning at 74 per cent of the rated capacity at leastduring the first five years after the rehabilitation givenfurther normal maintenance input. Moderate productiondecline beyond the fifth year could be expected given theage of the plant by that time.

C. The Chittagong Triple Superphosphate Units

17. The triple superphosphate (TSP) complex atChittagong is located about 2 miles south of ChittagongCity on the same side as Chittagong Port. The complex

- 76 -

App§ndix 3Page 6

consists of two TSP units known as TSP-I and TSP-II.

18. TSP-I comprises a 100 TPD 98 per cent sulphuricacid unit, a 32 TPD P205 phosphoric acid unit and a 106TPD TSP unit. The plant was designed based on eitherMoroccan or Florida rock material of low chloride, flourideand silicate content. The process design was prepared bya company known as Pan American and the plant was constructedin 1968 by a joint-venture French-US company known asTechnique Chemie with Technical Enterprises supplying allof the equipment.

19. TSP-II consists of a 400 TPD 98 per cent sulphuricacid unit, a 133 TPD P205 phosphoric acid unit and a 430TPD TSP unit. The phosphoric acid plant design was alsobased on a phosphate rock raw material of low chloride,flouride and silicate content. This plant was completed inNovember 1970 by Hitachi of Japan on a turn-key basis financedby Japanese supplier's credit.

20. TSP-I suffered severe corrosion when the plant wasstarted in 1969 using Jordanian phosphate rock which has ahigh chloride content. The corroded equipment was replacedoy the end of- 1973 but the plant remained shutdown untilApril 1977 b_cause of a subsequent legal dispute betweenthe equipmer-: supplier and BCIC on contractual liability.TSP-I was slightly damaged during the civil war in 1971 butwas repaired and reconditioned by 1973 and started up shortlyafter the receipt of a consignment or Moroccan rock. Pro-duction from 1974/75 to 1980/81 from both plants averagedonly 36 per cent of rated capacity, with the highest pro-duction of 47 per cent recorded for 1980/81.

2L. The problem of low utilization of plant capacitieswas studied by Bresler and Associates in 1977/78 as part ofan overall study financed by IDA out of its technicalassistance credit to Bangladesh under BCIC's Fertilizerwiorks Operation Improvement Program. The study identifiedn.e reasons for low production as poor maintenance of theplants, lack of spare parts, unreliable sources of powerand water supply, dust pollution problems, shortage of rawmaterials and lack of training of personnel. As a result

- 77 -A22sndig 3Page 7

of the study, BCIC fielded a team of experts from UNICOfinanced by UNDP as part of its technical assistance of$1.7 million to Bangladesh for improvement in the operationand management of all fertilizer plants in the country.Another study was prepared by Cremer and Warner Ltd. of UKfor the Ministry of Overseas Development of UK in early1978 on the feasibility of granular TSP production at theChittagong complex. Arising out of these studies, a majorrehabilitation of the TSP complex covering the replacementand repair of equipment and machinery and the installationof granular production facilities is now scheduled for1980/81. The cost of equipment replacement and repairs($5.08 million) will be financed by IDA out of its $29million credit allocated to Bangladesh for rehabilitationof the existing fertilizer plants in Bangladesh. Thegranulation production facilities will be financed out of$5.15 million contributed by the Government of the Nether-lands for the improvement of the TSP-complex. The rehabi-litation, together with the implementation of a trainingprogram to be prepared by UNIDO, would enable the plant tooperate at least at 60 per cent of rated capacity. Higherthroughputs may be possible if the problems of power andwater supplies are overcome. On raw materials, it was re-ported that arrangements have been made for rock suppliesto be shipped from Morocco and Jordan on a regular basis.

D. The Urea Plant at Ashuaani

22. The construction of the urea plant at Ashuganjis already considerably behind schedule. The plant designincludes an ammonia unit of 925 TPD and a urea unit of1,600 TPD. Based on 330 operating days per year, the ratedcapacity of the plant is 528,000 TPY. The raw material forthe plant is natural gas from the Titas field. Shortlyafter the start of the project implementation in early1974, the need for compaction of the site became a majorissue which took about 12 months to resolve. In additionto the site problem, the Executing Agency has been con-fronted by other technical problems as well as poor commu-nications facilities at the site, lack of a suitablearrangement by the General Contractor in expeditingdelivery of equipment and low productivity of expatriateand local staff.

- 78 -

&Poegndix3Page 8

23. The project is, as of October 1981, about virtuallycompleted; mechanical completion was finalized in July 1981.Commissioning and start-up preparations started immediatelythereafter. CommeErcial operation of the plant is set forNovember 1981.

E. The Polash Urea Plant at Ghorasal

24. The Government is planning to establish anotherurea plant at Ghorasal with aid from the People's Republicof China (PRC). The plant will be designed and constructedby the PRC with all process equipment coming from thatcountry. The plant, which will have a designed capacityof 100,000 TPY of urea,lJ will be established on the sitenext to the existing urea plant at Ghorasal. A constructioncompany will be set up for implementation of the project,and after its completion the plant will come under the directcontrol of the organization which manages the existingGhorasal urea plant. Given that the plant would be designedwith excess capacity and considering that the reliability ofthe external source of power supply for the plant has yetto be proven, a 95 per cent utilization rate at stableoperation has been assumed for projection of urea productionfrom this p.ant, which is tentatively scheduled to come onstream in 1984/85.

F. Propgseu Frivately Financed Urea Plant at ChIJ&ago

25. The Government of Bangladesh has examined andaccepted in principle the proposal offered by private Europeaninvestors and the International Finance Corporation (IFC) ofthe World Bank group, to set up a platform-based ready-to-operate ammonia/urea plant at Chittagong or Ashuganj. Thesize of the plant would be similar to the proposed Bank-financed Project. The total cost is estimated at $450 million.

26. The Government also stated that the capital structureof the new company to be set up would be 70:30 debt/equityratio. Accordingly the equity of the new company should be

1/ It appears that the design philcsophy of the Chinese isdifferent from that of the West in the respect that theplant will be over-designed in capacity so that it can beoperated continuously at the level of the designed capacity.

- 79 -

Appnrix2 3Page 9

in the order of $130 million out of which the Government,through BCIC, would take up 30 per cent. A similar equityparticipation in the new company is expected to besubscribed by the private investment group. The remainingequity may come from OPEC countries and IFC. The foreignloans required is expected to be met partly by supplier'scredit and the remainder would be arranged by IFC throughan IFC loan syndicate.

27. It was stressed by the Government that the proposedprivate financed plant is 100 per cent for export. TheGovernment firmly assured that the new plant would not be inconflict with the objectives, scope, viability and implemen-tation of the Bank-supported project.

28. The Mission was informed by the Government that adetailed feasibility study will be undertaken by the foreignsponsors. It may well take until the latter half of 1981before a final decision is taken on whether or not to proceedwith the project.

Consumption of Fer-tilizers by Product Tm d Nutrient

('000 n.t.)

19689 0101 1971/72 12 16 1976 1 178/ 980

fD ~~~ProdtuctsF Uret 162.5 199.6 215.7 172.5 281.0 271.9 177.0 316.9 358.9 485.1 476.4 544.5

m Spate ()i - - - - - - - - - 1.1 - -

Plriple Super 6.Ph-.osphate (TSP) 53.8 66.6 76.1 61.l 90.3 95.3 76.4 111.7 127.6 194.4 177.0 209.5

SLn1ge Super Pho_-phAt (3P) - - - -- - 2.0 1.4 0.9 0.4 0.1

pyparpboegplate (HP) - - - - - - 11.6 4.4 4.1 3.5 3.7 3.2

X%uriite of Po'aaLh

(MP) 12.6 15.3 17-4 14.2 18.8 18.7 17.a 22.5 22.7 41.7 44.7 47.0

CD 2 p K - -_ _ _ 1.3 7.o 6.1 0.8 3.8 8.1

x Diamoulua Phoapbatert (Da) _- - - 38.2 42.7

Triphoso (wP) - - - - - 0.8 0.2 O

T o t a 1 228.9 281.5 309.2 247.8 390.1 385.9 284.1 465.1 520.8 7277.3 745.0 855.3 0

Nutriante

Iitroin (N). 75 92 99 79 129 125 82 147 166 223 227 260pDPoapbate(Pp02,) 25 31 35 28 42 44 39 54 61 91 101 118

* Petaaa±ua(r0jO 8 9 10 9 11 11 11 15 15 25 27 30

1 PT o t a I 108 132 144 116 182 180 132 216 242 339 355 408

- lNutri ot ! A -

8 9 10 10 9 12 11 7 10 11 9 a 9

0D P 3 3 4 3 4 4 4 4 4 4 4 4

OQ K ~ ~ 1 1 1 , , 1 1 , 1 1 1 1

i -Exing amcoulun mlphatB used pri2arily by tea eettata.Sources BLD

IM

P-1

X

4.

- 81 -

Appendix 5

Districtwise Consumption of Fertilizers (1976/77-1979/80)

(per cent)District 1976/77 1917/78 1978/79 1979180

Dacca Division

Dacca 10.7 9.1 9.4 8.5Kishoreganj 5.9 5.7 5.6 5.3Mymensingh 5.8 7.1 6.7 6.1Tangail 3.1 3.1 3.7 3.5Faridpur 1.7 1.8 2.0 2.3

Chittagong Division

Chittagong 11.4 9.6 9.9 7.8ChittagongHill Tracts 0.5 0.4 0.4 0.4

Noakhali 5.3 4.6 4.2 4.3Comilla 13.5 13.7 15.5 15.2SyIhet 3.2 3.3 2.7 3.2

Raishahi Division

Rajshahi 5.4 5.8 5.6 6.8Dinajpur 4.7 4.9 4.8 5.2Rangpur 5.3 5.4 5.6 5.2BoBra 6.6 6.0 6.4 6.9Pabna 3.6 4.4 3.9 3.8

Khulna Division

Khulna 1.6 1.7 1.3 1.5Barisal 2.6 3.5 3.1 3.0Patuskhali 0.7 1.0 1.0 1.0Jessore 4.2 4.6 4.4 4.8Kushtia 4.2 4.3 3.8 5.2

T o t a 1 100.0 100.0 100.0 100.0

Source: BADC

Reference in text: para. 19 page 9

Sources of Fertilizer Supply

('000 mt)1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80

m Domestic Production

m Urea 278 69 282 286 215 291 361

AS 10 5 6 9 9 5 10

rt TSP - 24 40 32 92 62 71

Sub-Total 288 98 328 327 316 358 442

Imports

GoUrea - 140 71 11 256 343 282

FH . I

TSP 96 47 219 20 102 163 171

Xv NP 41 7 37 10 37 76 59

- SP, HP, NPK, DAP - 13 14 11 - 32 52

Sub-Total 137 207 341 52 395 614 564

T o t a 1425 305 669 379 711 972 1,006

Source: BADC c

- 83 -

Appendix 7Page 1

World Nitrogen Fertilizer Situation and I/Export Possibility of Urea from Bangladesh-

i. Total consumption of world nitrogen fertilizernutrient which comprises mainly urea, a mmnium nitrateand ammonium sulphate, increased from 16.4 million to47.7 million tons at an average annual rate of 8.6 percent during the period 1964/65 - 1977/78. It is expectedto increase at around 6 per cent a year during the period1979/80 - 1989/90. Table 1 shows the projected supply,demand and balances of world nitrogen fertilizer during1977/78 - 1984/85, which forecasts that worldwide surplusof nitrogen fertilizer nutrient will increase from0.1 million tons in 1977/78 to 4.3 million tons in 1981/82;afterwards, the surplus will decrease and a balanced situa-tion is expected to be reached in the mid-1980s.

Table 1: World Nitrogen Fertilizer Supply,Demand and Balances

(million of mt of nitrogen)Potential Supply Demand Balance

1977/78 47.8 47.7 0.11978/79 52.7 51.1 1.61979/80 56.5 54.2 2.31980/81 60.7 57.4 3.31981/82 65.0 60.7 4.31982/83 67.7 64.1 3.61983/84 71.6 67.9 3.71984/85 73.0 71.9 1.1

Source: World Fertilizer Review and Fertilizer Requirementsof Developing Countries 1979 by IBRD.

1/ The following discussion is mainly based on (i) WorldFertilizer Review and Fertilizer Requirements of Develop-ing Countries by IBRD; (ii) A Survey of the FertilizerSector in India by IBRD; and (iii) Report on ChittagongUrea Fertilizer Project by UNICO International Corporation.

Reference in text: para. 25, page 13.

-84 -

Appendix 7Page 2

2. About 8.8 million tons of nitrogen fertilizerwere traded in the world market in 1976/77. Table 2 showsthe contribution by regions to the world trade of nitrogenduring the period from 1973/74 to 1976/77. According toTable 2, Asia (Far East, Nea; East and Asian centrallyplanned economic countries)UJ is one of the biggest importingregions. Therefore, taking into account the geographicalposition of Bangladesh, it would be advantageous for Bangla-desh to give first priority in terms of probable marketsfor its surplus urea production to deficit countries inAsia, such as India, Pakistan, Afghanistan and Nepal,which are forecast to be importers of nitrogen fertilizersin the 1980s.

Table 2: Contribution by Regions to World Trade

(Import Basis) of Nitrogen Fertilizer

(per cent)1973/74 1974/75 1975/76 1976/77

Developed Market Economy_J

N. America 12.2 13.8 14.2 19.9W. Europe 18.0 14.9 21.6 22.7Oceania 0.5 0.2 0.2 0.3Other Developed 0.6 0.6 0.7 0.7

Developing M.arket EconomyAfrica 3.3 3.8 3.8 4.4Latin America 13.4 14.1 11.8 12.7Near East 11.9 7.9 9.7 12.4Far East 17.7 26.6 17.5 13.8Other Developing 0.1 0.2 0.1 0.2

Centrally Planned EconomyAsian CPE 16.7 12.9 '17.0 11.0E. Europe + USSR 5.6 5.0 3.4 1.9

T 0 T A L 100.0 100.0 100.0 100.0

a/ This is a classification by FAO. India is included in Far East.

Source: FAO Annual Fertilizer Review 1977.

1/ Classification by FAO. Refer to Table 2 in thisAppendix.

- 85 -

Ap[?endix 8Page 1

Transportation Facilities Required for Urea Movements

from Chittagon& Urea Plant for the Domestic Market

ASSUMPTIONS

1. Urea required in the Chittagong, ChittagongHill Tract and Noakhali districts -- which are assumed toaccount for 12 per cent of total urea consumption inBangladesh -- will be provided only by the Chittagongplant by trucks.

2. Urea required in the Khulna Division (in theSouthwest) and the Rajshahi Division (in the Northwest)will be transported by barges. The movement of ureafertilizer from Khulna to the Northwest will be by rail-road and water transport.

3. Monthly movements during the peak consumptionmonth is estimated to be 15 per cent of the annual con-sumption in the districts served by trucks and to be 12per cent for the districts served by water transport.

4. All urea exports from Bangladesh would be byocean-going ships.

5. The capacity of a truck is assumed to be 5 tons,and average turn-around time is one day. A truck works24 days per month.

6. The capacity of a barge from Chittagong toKhulna port is assumed to be 700 tons. An average turn-around time is assumed to be 14 days and a monthly turn-around is two times. Table 1 of this Appendix lists thenumber of trucks and barges required for delivery of ureafrom the Plant for the domestic market.

Reference in text: para. 30 page 15.

- 86 -

ABModix 8

Table 1: Transportation Facilities Required for Urea

Movements from Chittagong Urea PI*Lt for theDomestic Market

1518 1818

1. Annual Production bythe Chittagong UreaPlant (tons) 187,000 373,000 477,000 505,000 505,000

2. Annual movement toChittagong, ChittagongHill Tract and Noakhalidistricts (less than

12% of total urea con-sumption in Bangladesh) 125,000 138,000 152,000 167,000 184,000(tons)

3. Annaal movement fromChittagong to D mlnaport (tons) 50,000 131,000 248,000 338,000 321,000

4. Annual export (tons) 12,000 104,000 77,000 - -

A. Movement to Chittagong,Chittagong Hill Tractand Noakhali districtsbY Truok

5. Monthly movement in theeak consumption month(15% of annual con-sumpi±on) (tons) 18,750 20,700 22,800 25,050 279600

6. Average daily movement(24 working days permonth) (tons) 782 863 950 1,044 1,150

7. Number of trucksrequired (5 tonscapacity per truck,one delivery a day bya truck) 157 173 190 209 230

_ 87 -

Appendix 8Page 3

v~i. McVuawits fromChittagong toKhu na port b3barP;en

8. Monthly movementin the peak month(12 % of annualconsumption) (tons) 6,000 15,720 29,760 40,560 38,520

9. Number of barges re-quired by (700 tons ofa capacity per barge,two times of monthlyturn around) 5 12 22 29 28

88

Appendix 9Page 1

Plant Size and Production Processes

A. Plant Sixe

1. A plant size of 1,700 TPD of urea has beenselected with intermdiate a_wnia facilities being sizedfor total conversion of amnaia to urea. This is themaxiim size limit to which appreciable benefits of scalecan be achieved from single train units. To go beyond thissize would almost certainly involve adoption of doubletrain urea units which will offset most of the advantagesof scale. The capacity of the ammonia unit sized for totalconversion of aonia to urea is 1,000 TPD of ania. Suchamnia and urea units are standard size capacities whichhave been well proven to be capable of achieving high relia-bility and efficiency in continuous operation.

2. There would not be any real benefit in goingbeyond the proposed size limit in order to satisfy futuremarket requirments. If Bangladesh is to becom self-sufficient in food production and achieve maximu product-ion of cash crops, it will require at least onemore such plant within the next ten years. The aim, there-fore, at this stage is to select a standard size plant whichcan conveniently and economically be duplicated in the fu-ture. It is therefore considered that a 1,700 TPD ureaplant size, based on total conversion of amonia, representsthe optimim choice for Bangladesh from the aspects of economy,reliability and future planning.

B. Production Processes

3. The production of urea from natural gas using thelatest urea and amonia technology consists essentially ofthree major steps: steam reforming of natural gas, aooniasynthesis and urea synthesis. Typical amonia and ureaproduction processes are shown on pages 5 and 6 of this

Reference in text: para. 40, page 20.

Appendix 9Page 2

Appendix.. A brief description of these processes isgiven as follows:

(a) Steam Reforming of Natural Gas

4. Natural gas from the Bakihabad gas field isfirst desulphurized to ensure that the sulphur in the gasis below a level that would not adversely affect the cata-l.ysts used In subsequent processes. Next, the desulphu-rized gas is combined with superheated steam in an amountapproximately equal to a 3 to 1 steam/carbon ratio andsubjected to a pressure of 30 to 35 kg/cmB and a tempe-rature of 810-850 0 C in the presence of a nickel catalystin the primary reformer. Here the gas, mostly methane,is partly converted to carbon oxides and hydrogen. Somehydrocarbons remained unconverted. The partially reformedgas from the primary reformer is then mixed with a con-trolled amount of air in such a way that the oxidationof the unconverted hydrocarbons will produce the requiredamounts of nitrogen and hydrogen for mmnia synthesis.This partial oxidation is carried out in the presence ofa nickel-based catalyst in a secondary reformer. The me-thane cont-ent of the gas, after the secondary reformingstage, will be reduced to about 0.2 per cent. The nextstage of the reforming process is the conversion of thecarbon monoxide to carbon dioxide by means of a high tem-perature and a low temperature shift conversion processwhich involves reaction of carbon monoxide with steam. Thecarbon monoxide content of the gas after the completion ofthe shift reaction will be reduced to about 0.3 per cent.

5. The gas now contains essentially hydrogen, nit-rogen, trace amounts of hydrocarbons, carbon dioxide andcarbon monoxide. Since carbon dioxide is harmful to theaonia synthesis, it has to be removed. This is done byabsorption by a number of liquid processes. Subsequentregeneration of the rich liquid absorbent releases thecarbon dioxide for use in the production of urea in theurea plant. Any remaining carbon dioxide have to be removeddown to a 10 ppa level by reaction with hydrogen over a ca-talyst to form methane.. The purified gas,

- 90 -

Appendix 9Page 3

called synthesis gas, now contains hydrogen and nitrogenin the desired volumetric ratio of 3:1 for the product-ion of amonia.

(b) A onia Synthesis

6. In the azmonia synthesis process, the nitrogenhydrogen mixture is compressed by a centrlfugal com-pressor to a pressure of 150 to 300 kg/cm and passedover an iron-based catalyst for conversion into a mmonia.Unconverted synthesis gas is separated from the convertedammonia by cooling the exit gas to 0°C by a cryogenicseparation system. Unconverted synthesis gas is recycledto the ammonia converter. Other gases, such asmethane and argon, which are also brought into the systemhave to be removed to prevent any build up of such gasesin the synthesis loop. Any accumulated methane and argonare removed by purging. The purged gases are then ref-rigerated at minus 10 C, sent through a knock out drum toremove any condensed aonia and then routed to the re-forming or boiler area for use as a fuel. Liquid ammoniafrom the cryogenic system is collected and flashed toremove any impurity. The purified liquid aonia producedin the process is stored in a low temperature tank or feddirectly to the urea unit.

(c) Urea Synthesis

7. In the production of urea, amonia and carbondioxide in appropriate quantities ire fed into a reactorand at a pressure of 150-250 kg/cm and a temperature of180-2200C, they are converted to amonium carbamate. Thisintermediate product is subsequently dehydrated to formurea. The reaction of carbon dioxide and aumnia to anniumcarbamate and the dehydration of aonium carbamate to ureawill not proceed to full completion in single steps. As aresult, the product, urea, contains non-converted carbamateand the original reaction gases, both of which have to beseparated from urea for recycling back to the reactor.Various processes are comercially available for doing this.Depending on the degree of the recycling of the unconverted

- 91 -

Appendix 9Page 4

ammonia and carbon dioxide, the processes offered can bebroadly classified into three types: (a) once through;(b) partial recycle; and (c) total recycle. in the firsttwo processes, unconverted ammonia is used for the pro-duction of other fertilizers, such as amonium sulphateand nitrate. In the total recycle process, all uncon-verted ammonia and carbon dioxide are recycled back tothe reactor and thus a more efficient conversion ofammonia and carbon dioxide to urea can take place. TheProject will employ a total recycle process, but theselection of a specific process will be made based onthe merits of the bid proposals to be submitted by theGeneral Contractor.

8. To ensure that any surplus product can be soldin the world market, the Project will produce urea witha maximum moisture content of 0.4 per cent and a maximubiuret content of 0.8 per cent.

9. With regard to the type of finished urea pro-duct for the Plant, an evaluation carried out by theTechnical Advisor and the Government indicated thatprilled urea rather than granular urea would be the pre-ferred product as this would minimize investment andoperating costs. The production of granular urea at aproduction rate of 1,700 TPD would require the setting upof several granular units at an additional capital costof about $14 million. Also the production costs will behigher by about $2.5 per mt of urea. However, therewill be some possible savings in handling and shippingcosts through a 6 pet cent reduction in bulk in the caseof granular urea but these would not be significant enoughto justify the higher investment and production costs ofproducing granular urea in Bangladesh. Also, it has yetto be proven that granular urea is agronomically moreeffective than prilled urea. In view of these considera-tions, the production of prilled urea for the Plant isfavoured.

BANGLADESH: CHITTAGONG UREA FERTILIZER PROJECTTYPICAL AMMONIA PROCESS

NATURAL AIRGAS (NG) STEAM

NG _ N

R , D_.i Water .z

Carbont \ Scondary

Urea Alant R _generator hA _ or ||ReformerSE.

Oeoulphur ( r 0 2 )5_

As Fuel ._. I _ _

2 0 1 X ; 5" 1 W 0 v | | LllH g U 11 3 Converte

C rbon | 0) t .. _ _ .SYnJasCon r

Ur Plant R pnsrator AbsorbrJr ; |~~Methnato

BANGLADESH: CHITTAGONG UREA FERTILIZER PROJ ECTTYPICAL UREA PROCESS

VENTI Ammonia

HP Carbonate MP Carbonate LP Carbonate Finai Carbonate | bcovry

Stripper stripper stripper stripper Ab r

STEA I EASTEAM

Xl R*&ctor ntri LIg

-4 ~~~~~~~~~~~~~~~~~~~~~~~~~Tower

I IL

co f"~~Cmpesor I

from Ammonia Unit monla Condenser LP Carbonate

HP Carbonate absorber Condenser 'i 2

N H s AIR 'R L L D pbsorver A l Ft P I D

From Ammonia Unit A_EA

..

- 94 -

Apendix 10Page 1

Raw Material and Plant Facilities

A. Raw Material

1. Raw material for the Plant will be gas from theBakhrabad gas field. The gas will be used both as afeedstock and as fuel for the Plant. The gas will be 1/delivered to the plant at a pressure of around 220 psig.-Further boosting of the gas pressure to the required levelfor direct steam forming will be carried out at the Plant.The gas contains approximately 94 per cent methane withvery negligible aunts of sulphur. It is, therefore,very suitable for urea production. A gas analysis ofthe Bakhrabad field is given on page 8 of this Appendix.

2. The Bakhrabad gas field consists of four culmi-nations named A-1, A-2, B-1 and B-2. In 1968/69, thethen Bangladesh Shell Oil Company Limited drilled andtested one well, named BK-l, in the B-1 culmination. Thiswell tested the gas in two zones; several additional zones,although not tested, apparently also contained gas,according to electrical log interpretation. Based on datacollected at the B3-1 well and other geological and seismicinformation on the BAkbrabad field, DeGolyer and MacNaughton(DAM) of USA, the gas consultant for the Gas System Project(see para. 3), estimated the prqven gas reserves in the B-1culmination at 1.1 trillion (1012) SCP. Total additionalgas reserves in the B-1 and B-2 culminations classified aspossible reserves by DAM are estimated at 2.0 trillion SCF.Other gas volumes can be determined only by drilling add-itiRnal wells. The Plant would require about 360 billion(10 ) SCF of gas from the Bakhrabad field over a period of20 years. Based on the gas demand schedule (prepared byPetrobangla and agreed to by both IDA and ADB in May 1979)

1/ Pounds per square inch gauge.

Reference in text: para. 47, page 24.para. 54,. page 25.

95-

Appendix 10Page 2

for all potential gas consumers (including the Plant) inand around the Chittagong area, the total estimated gasofftakes from the Bakhrabad field up to the year AD 2000is 1.0 trillion SCF. Thus, the current total proven andpossible gas reserves at the Bakhrabad field are suffi-cient to support the estimated gas offtakes. The gasdemand projections for the Bakhrabad gas field are shownin Appendix 11.

3. The feasibility of development of the gas fieldsat Bakhrabad, the transmission of gas to Chittagong andthe distribution of gas to the urea Plant and other majorgas consumers of the Bakhrabad gas field was studied under theADB Technical Services Loan (Loan No. 282: BAN(SF) of$2.5 million) to Bangladesh as a related Gas System Project.The feasibility study recommended (i) the development of acluster of 5 wells at the B-1 culmination and subsequentlyanother 3 wells at the B-2 culmination to support the gasdemand projections up to the year AD 2000; (ii) the cons-truction of a 161 km. long, 24 in. diameter transmissionline to deliver gas from Bakhrabad to a terminal point atChittagong (the Chittagong City Gate Terminal) for subse-quent distribution to gas consumers; and (iii) a pipelinedistribution system consisting of a 20 in. cum. 16 in.diameter line for supply of gas to the Eastern Refinery,the Steel Mill, the Urea Plant and the WAPDA Power Stationtogether with a 10 in. diameter spur line from this maindistribution line for supply of gas to the KarnaphuliPaper Mill.

4. These recommendations for the Gas System havebeen accepted by Petrobangla for development as a separateProject. The funding of this Gas System Project would beprovided by other lenders co-ordinated by IDA of the WorldBank group. The appraisal of th;,s Project was completedby IDA in January/February 1980 ;2 this Project is scheduledfor completion by 1983.

I/ The Bakhrabad Gas Development Project was approved on24 December 1980 by IDA.

- 96 -

ADDLPage 3

B. Plant Facilities

1. Land

5/. The estimated area of land required for theconstruction of the Plant and all its ancillary facilities,including that of the housing colony, is 294 acres. TheGovernment is in the process of acquiring all of the re-quired land area at the selected site at Chittagpng. It isestimated that 100 acres will be occupied by the Plant and81 acres by the jetty, bagging facilities and the accessroad from the jetty to the plant site. Another 65 acreswill be allocated for the construction of the housingcolony and the rest for the right-of-way of the water pipe-line.

2. Site Preparation

6. To protect the site against floods and hightides, the areas to be occupied by the Plant, the accessroad, bagging facilities and the jetty would have to befilled to a final elevation of 20 feet above mean sealevel. The height of fill would include an allowance forsoil settlement over a period of time. The site would befurther protected by an embankment to be raised to a heightof 24 feet above mean sea level. Sufficient suitablematerial for filling the site is available either from anadjacent tertiary hill or from a river bed deposit locatedat a distance of 1,500 meters southwest of the site. Inorder to start the dredging work in the dry 1981/82 seasoncertain ster, have been taken to recruit a suitable dredgingcontractor. The Government is considering adoption ofdredged filling of the site, as its own studies have indi-cated this method to be a more suitable method for sitepreparation.

7. The site is situated in a minor earthquake zonein Bangladesh and liquefaction potential of the soil can

1/ See Board Paper R62-81.

97 -

Appendix 10Page 4

be considered minimal. To avoid any liquefaction problems,the foundations of the Plant will be designed to safeguardagainst the maximum level of earthquake intensity likelyto be experienced at the site. The heavy structures of thePlant would have to be supported on piled foundationswhereas the light structures would have to be supported byspread footing foundations. Preparation of these found-ations would begin after the completion of the site filland after the elapse of a reasonable period of time forsettlement of the site fill.

3. Facilities for Urea Distribution

8. A jetty designed for loading the output of thePlant on to coasters and barges for domestic distributionand to ocean tankers for export will be constructed atthe plant site upstream of the Chittagong port lashmoorings. The jetty will be designed to accommodate twocoasters simultaneously or one ocean-going ship. Thecapacity of the coasters is about 1,000 dwt drawing adraft of 12 feet when fully loaded. The maximum size ofthe ocean-going ship for which the jetty will be designedwould be 8,500 dwt. It will have a draft of 25 feet whenfully loaded. The minimum water depth at the jetty is 26feet and the average height of tide in the Chittagong areais 14) feet. The restriction for movement of shippingbetween the anchorage area near the mouth of the Karnaphuliriver and the plant jetty is a shallow area with a minimumwater depth of 15 feet just outside the mouth of theKarnaphuli river. The coasters can have access to the jettyat all times. The ocean going ship when fully loaded can onlyleave the jetty at high tide. During cyclonic weather, nojetty operations will be allowed. Based on past data ofcyclonic weather prevailing at Chittagong, it is assessedthat the annual disruption of jetty operations due tocyclonic weather will reduce jetty availability time byabout 12 per cent. The plant is designed with sufficienturea storage and adequate loading facilities at the Jettyto overcome such disruption of shipment of urea from thePlant during periods of prolonged adverse weather.

- 98 -

Appendix 10Page 5

9. It is anticipated that up to 19 per cent of theoutput of the Plant will be exported during the first 3years of operation. The remainingoutput will be for domestic consumption. Sowe 58 per centof this will be delivered by coasters and barges to thewestern districts such as Noakhali, Barisal and Patuakhalifor consumption in the main agricultural areas there andto the ports of Khulna and Chaln for distribution else-where. Bangladesh Inland Water Transport Corporation willacquire the required number of coasters and barges for thispurpose. The remaining 42 per cent will be consumed in theagricultural areas in and around the Chittagong district.Urea will have to be distributed by road to these areas.For the distribution of urea to these areas, a 5-km. roadwill be constructed by the Government with its own resourcesto link the plant site to the Patiya-Anwaro road, now underconstruction. With the completion of the linkroad and jettyfacilities, there will be two available modes of transport-ation for the distribution of urea output from the proposedplant and this is considered adequate.

4. Water SupPly

10. The estimated total water requirement for thePlant and the housing colony is 1,050 cubic meters perhour. The water will be taken at the confluence of theKarnaphuli and the Helda rivers near the Kalurghat bridgelocated about 25 km. north of the plant site. Extensiveinvestigations carried out by the Technical Advisor inthe vicinity of the site and elsewhere indicated this asthe nearest reliable source of raw water supply of lowsalinity for the Plant. Analysis of water quality atthis point is shown in Appendix 12. The Government is inthe process of acquiring the right-of-way for laying apipeline to deliver water to the site, where the raw waterwill be treated to potable quality standards for drinkingand for other uses. The water treatment facilities willconsist of clarifiers, sand filters, chlorinators, desine-ralizers, etc. These are standard water treatment facilities.A suitable equipment package will be selected after bid pro-posals have been evaluated.

- 99 -

Appendix 10Page 6

5. Captive Power

11. The entire works will require about 14.7 mega-watts (MW) of electric power. The nearest source ofpower supply from the Power Development Board is about10 km. away. The Government is considering the powersupply to the Plant fromthis source. In case no suitablearrangements can be made to secure reliable power supplyfrom this source, the Plant must then be installed withits own captive power plant. Provision has been madetentatively for equipping the Plant with two 12 MW gene-rators to provide its own captive power.

6. Steam

12. Steam requirements for the entire Plant includehigh pressure, medium pressure and low pressure steam.Sufficient high and low pressure steam for the ammoniaunit will be generated internally from the production ofammonia by the steam reforming process from the recoveryof waste heat. Steam requirements for the urea unit andfor other purposes such as plant start-up will be suppliedby gas-fired packaged boilers.

7. Other Facilities

13. Other supporting facilities for the Plant willinclude a fully equipped maintenance workshop, firestation, laboratory, first aid station and adequate ware-houses for the storage of spare parts and other equipment.

14. Urea from the plant will be conveyed via a 2 km.long conveyor belt system having a capacity of 200 tons/hr.from the urea bulk store at the plant site to the ureabagging facilities at the jetty. The urea bulk store isdesigned to have a total capacity of 85,000 tons, equivalentto 50 days production. This storage capacity is sufficientto service the Plant at full production during the monsoon

- 100 -

Appendix 10Page 7

seasons when shipping could be affected by adverseweather. The urea bagged store will be designed to havea capacity of 17,000 tons, equivalent to 10 days pro-duction.

15. In addition to all of these facilities, thePlant will have a polyethylene bag manufacturing plantfor the production of polyethylene liners for the jutebags to be used for bagging the urea output.

Reserves and Analysis of Natural. Gas in Bangladesh

BES-1Fields Rasidpur Kailas Tila Titas Habiganj Bakhrabad ' Sylhet Chhatak Total

RESERVES (10 SCF)(as at 1.7.1978)

Proven 490 380 950 1,000 1,100 280 20 _

Discounted Probable (50%) 380 150 900 190 d - -

Discounted Possible (25%) 190 70 400 90 2,000-/ - - -

Total b/ 1,060 600 2,250 1,280 3,100 280 20 8,590

Cumulative Production- 0 0 129 30 0 72 14 245

Reserves as at 1.7.78 1,060 600 2,121 1,250 3,100 208 6 8,345

GAS ANALYSIS, % vol.

Methane 98.2 95.7 96.8 97.8 94.3 95.4 99.05

Ethane 1.2 2.6 1.7 1.5 3.4 2.67 0.24

Propane 0.2 0.9 0.4 0 0.8 0.3 0 O

Butane & higher 0.1 0.4 0.5 0 0.6 0.78 0 F

Nitrogen 0.25 0.2 0.3 0.7 0.4 0.37 0.67

Carbon Dioxide 0.05 0.2 0.3 0 0.5 0.48 0.04

Mercaptan Sulphur 0 0 0 0 0 0.29 0

CALORIFIC VALUE

(Gross), BTU/cu. ft. 1,014 1,050 1,036 1,020 1,022 1,052 1,007

CONDENSATE RECOVERY

BBL/106 SCF 0.3 10.0 1.5 0.03 2.0 3.4 Trace

a/ Bangladesh Energy Study (19 75-76)

b/ Figures supplied by Petrobangla. X

c/ Reserves estimated by DeGolyer and NacNaughton of U.S.A. based on a recovery factor of 0.75. 1 d/ Possible reserves estimated by DeGolyer and MacNaughton of U.S.A. based on a recovery factor of o.75. x a

o

Gas Demand Projections for the Bakhrabad-Chitta4onr Gas Svstem Project a

Million Standard Cubic Feet Per Day (MMSCFD)

Po Consumers 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000m{0 Commercial/Domestic Consumers 0.1 0.5 0.8 1.3 2.0 2.8 3.5 4.5 5.3 6.2 6.8 7.2 7.3 7.4 7.5 7.9 7.9 7.9 7.9

(D Existing Steel Industries 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

C) Future Steel Ineustries - - - - - - 1.5 3.6 7.1 8.8 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

P-. Existing Power Plants 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.t

* Future Power Plants - * - - - - - 25. 0 29.0 34.0 39.0 45.0 53.0 61.0 70.0

mX Karnaphuli Paper Hill 8.0 8.8 9.2 10.6 11.7 12.9 14.2 15.6 17.1 18.9 19.8 19.8 19.8 19.8 19.8 19.8 19.8 19.8 19.8rt

Eastern Refinery Ltd. 3.0 4.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 .5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 o

p0 Chittagong Fertilizer Plant-t/ - - - 5.0 30.0 45.0 55.0 55.0 55.0 55.0 55.0 55.0 -55.0 55.0 55.0 55.0 55.0 55.0 55.0 1

p Carbon Black Plant - 1.8 4.3 7.9 13.4 15.9 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0

41 Sponge Iron Plant - - - - - 3.8 8.0 17.8 22.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0

00D Other Industries 7.0 8.0 9.0 10.0 11.0 13.0 15.0 16.0 18.0 21.0 23.0 26.0 29.0 33.0 37.0 42.0 47.0 53.0 60.0

S Sub-total 42.8 46.0 48.7 56.6 84.4 103.4 124.5 136.7 157.9 175.0 185.2 215.7 222.8 231.9 241.0 252.4 265.4 279.4 295.4

W Add: 202 Uhforeseen 8.6 9.2 9.7 11.3 16.9 20.7 24.9 27.3 31.6 35.0 37.0 43.1 44.6 46.4 48.2 50,5 53.1 55.9 59.1

Peak Deomnd Forecast 51.4 55.2 58.4 67.9 101.3 124.1 149.4 164.0 189.5 210.0 222.2 258.6 267.4 276:3 289.2 302.9 318.5 335.3 354.5

Gl Cas Denand Projections prepared by Petrobangla and agreed to by a joint ADB/IDA iLssion in May, 1979.b/ Gas requirements for the Chittagaug rea plant reviLed in aceerdance with project schedule shown in Appendix 19.*

*.a

- 103 -

Appendix 12

Typical Water Quality at Kalurghat Point

Depth Surface Bottom

Turbidity units 15 10

pH 7.4 7.2

Conductivity - micro-mhos/cm 80 66

Alkalinity as CaCO3 - ppm 64 55

Suspended solids - pPm 12 4

Total dissolved solids - ppm 60 77

Total hardness as CaCO3 - ppm 40 75

Calcium (Ca ++) - ppm 4 10

Magnesium (Mg 4 ) - ppm 7 12

Manganese (Mn ) - ppm Nil 0.2

Total Iron - ppm 0.5 0.7

Chloride (Cl ) - ppm 3.7 6.0

Sulphate ($04 ) - ppm 0.8 Trace

Silica - ppm 237 146

Chemical OxygenDemand (COD) - ppm 69 46

Reference in text: paragraph 53, page 25.

ORGANIZATIONAL CHART (PROPOSED) OF CUFLOPERATIONAL PHASE

rS { ~~~~~~~~~~~~~~~~~~~~~~~~~~Executive Directof e .

Lit

VI[ Mdinhsnnce O peration Manowr & "||CommrwciW Finatnce | |Administrative|ID"

9Sor~~~~~~~~~~~~~~~~~~~~~~~~aaa Diatrfme

lb

*1

.Swior~~~~~~~ Enil.n

- ~~~~ C 2n L

19i l 1 1 1 2 2 2c -j l .t

Total 1,311 11311~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2

SOtir EpSntaf19 I 1I 1 2 2 2 11 1-1 1 1 1 - - - -

En,imw >

o0 4 4 3 2 1 5 5 9 1 2 2 4 211 11-61 1717 15

Supervisors161 12 10 12 5 4 20 20 17 11 I11 3 4 4 4 3 7 2 2 2 3 3

Operutori2490 75 45 45 50 1s so W 66 48 18 2 3-

Other Staff210 5 5 5 3 5 5 5 7 1 0 5 5 5 9 10 9 13 1 1 1 1 1 1 52 57 7 1 5

Contraat Labor310 20 20 20 15 - - - 5 200 - - - - - 10 - - - - 20 - - -

- 105-

Appendix 14

Management Advisory and Operational Services Team(Tentative)

1st Year 2nd Year 3rd Year

1. Chief Operation Advisor toManaging Director x x x

2. Production Manager x x x

3. Maintenance Manager x x x

4. Technical Manager x x x

5. Ammonia Superintendent x x

6. Urea Superintendent x x

7. Utilities Superinten-dent x x

8. Maintenance Scheduler x x

9. Mechanical Engineer x

10. Instrument/ElectricalEngineer x

11. Finance Controller x

12. Spare Parts Controller x

Man-months 144 96 48

Reference in text: para. 57 page 27.

- 106 -

ARpendix 15Page 1

Services of the Technical Advisor

1. In November 1976 ADB approved a TechnicalServices Loan (Loan No. 282-BAN(SF)) of $2.5 million toBangladesh to finance the cost of advisory and consultantservices for the establishment of the urea Plant and thedevelopment of the related Gas System Project. FollowingADB's Guidelines on the Uses of Consultants and withthe approval of ADB, Bangladesh Chemical IndustriesCorporation (BCIC), the Executing Agency, appointed UNICOInternational Corporation of Japan as its consultant forperforming the technical services. Under the terms of thecontract agreement between UNICO and BCIC, the technicalservices are to be carried out in the following threephases:

Phase I: Preparation of a comprehensive report,in two distinct parts, one for theurea Plant and the other for the GasSystem covering the feasibility andimplementation aspects of theestablishment of the Plant and thedevelopment of the Gas System.

Phase II: Preparation of documents coveringdesign criteria and equipmentspecifications in sufficient detailfor soliciting proposals fromengineering firm for the constructionof the Plant and the Gas System.

Phase III: Evaluation of proposals for thegeneral engineering contract, selectionof the general contractor and provisionof management and technical assistancefor the implementation of the Plantonly.

Reference in text: para. 60, page 28.

-107 -

Appendix 15Page 2

UNIhO's Phase I work had since been completed. ADDhad preappraised the Plant in February 1980 and was requestedby the Government to coordinate the financing of tis Plant.IDA, which appraised the Gas System Project in January/February 1980, would coordinate the financing of the GasSvstem Project. IDA would also provide funds from itsteclnical assistance credit to Bangladesh for financingthe technical services work of the Gas System from Phase IIonwards. With this arrangement, UNICO's subsequent work willonly be confined to Phass II and III for the Plant only.A balance of $2 sillion from the technical services loanis available for financing the work of tho TechnicalAdvisor on Phases II and III of the Plant.

2. UNICO's work to-date has been satisfactory. Toensure success in the implementation phase of the Project,strong participation from UNICO as the Technical Advisorto CUFL would be needed especially when there is a shortageof experienced and qualified local personnel to staff theconstruction organizatiom of CUFL. An evaluation of theproposed Technical Advisor's team for Phase III workindicated that it would be necessary for the team to bestrengthened by:

(i) increasing its expatriate man-monthsinput for Phase III from 238 to 274; and

(ii) making some changes to UNICO's proposedmanning schedule in relation to (i) above.

3. UNICO's proposed expatriate advisory team forPhase III work is shown on page 5 of this Appendix. Theproposed team's set-up shows only very limited involvementof the Project Manager (PM) during the design and procure-ment phase of the Project. Whilst it may be argued thatsome of the duties of the PM would have already beencovered by other key personnel as proposed in the TechnicalAdvisor team such as the Senior Advisor, the AssistantProject Manager and the Project Engineer in the GC's office,

- 108 _

Appendix 15Page 3

it is considered that for proper implementation of theProject, the PM should be in the GC's office from the timeof the award of the GC's contract to the completion ofprocurement of the majority of equipment and materials inorder that the work of the Technical Advisor's tam andthat of CUFL can be coordinated and that of the GC can berealistically monitored. The design and procurementperiod will last about 18 months and the services of the PMin the GC's office during this period is most crucial inorder to ensure that there are no design deficiencies andthat only equipment and machinery which fully meet thedesign specifications are procured for the Project. Itwould be necessary, therefore, for the an-months of thePM outside Bangladesh to be increased by 171. The PM shouldhave the services of the Assistant Project Manager (APM),and the Project Engineer for the entire duration of thePM's tim in the GC's office. This would require APM'sand PE's inputs to be increased by 6 and 5 mn-manths,respectively. Also a cost control engineer (none proposedin the Technical Advisor team) should be included in theadvisory team in the GC's office for the entire 18 monthsduration to enable proper monitoring of the cost controlof the Project. Other supplementary specialist servicesfrom the Technical Advisor as proposed by UNICO forshorter periods as and when required appear satisfactory.Thus, an additional input of 46h man-months by the TechnicalAdvisor appears necessary in order to realistically monitorthe work of the GC during the design and procurement phaseof the Project.

4. During the construction phase of the Project,the Technical Advisor proposes to have a site Manager for28 months,starting with his arrival on site four monthsbefore the site is ready for construction. This issatisfactory except that if the construction schedule wereto follow that envisaged for the Project and as shown inAppendix 18, the Site Manager would be leaving the site2 months before the completion of plant erection. Inall probability, the Site Manager's services would beneeded until after the completion of all plant testing.

- 109 -

Appendix 15Page 4

To ensure that the Site Manager is available until thattime, an additional input of 4 man-months by the SiteManager would be necessary. Other specialist inputs asproposed by the Technical Advisor as, and when, requiredduring the construction and erection phase of the Projectappear to be satisfactory.

5. During the pre-commissioning and start-up phaseof the Project, it is envisaged that the PM would againhave to be closely involved in the Project. This periodwould last about 9 months from the start of the pre-commissioning period to the beginning of commercialoperation of the plant. About 9 man-months out of the11.5 man-months of the PM's time in Bangladesh should beallocated for this work. No other changes are considerednecessary.

6. UNICO's home office input of 108 man-monthsappears excessive after the proposed increase of theTechnical Advisor's input in the GC's office and at thesite. The home office input by UNICO, especially theinput of the specialist engineers, could be reduced byabout 15 man-months without affecting the overallperformance of the Technical Advisor.

7. The proposed total increase of the TechnicalAdvisor's manpower input as envisaged above is 50½ man-months. If this is followed by a reduction of 15 man-months in UNICO's home office input, the net increase isan additional 354 (say 36) man-months of the TechnicalAdvisor's input. There is provision in the project costestimates to absorb this cost of additional input. Theneed for an increase in the Technical Advisor's inputand the reallocation of the Technical Advisor's proposedmanning schedule has been discussed with and agreed toby the Government.

- 110 -

Appendix 15Page 5

Table 1

Technical Advisor - Phase III Work

Field WorkUNICO's In Outside a/

Hose Office Bangladesh Bangladesh- Total

Project Manager 4 11.5 0.5 16

Senior Advisor 5 3 2 10

Assistant Project Manager - 7 12 19

Site Manager - 28 - 28

Project Engineer 13 - 13 26

Procurement Advisor 8 2 6 16

Process Engineer 1 2 3 2 7

Process Engineer 2 3 - - 3

Offsite Engineer 5 3 2 10

Mechanical Engineer 4 - 3 7

Civil Engineer 4 3 7

Instrument Engineer 3 2 5

Electrical Engineer 3 - 2 5

Legal Advisor 6 3 3 12

Inspection Engineer 2 2 2 6

Erection Supervisor 0 15 0 15

Accountant 46 - - 46

108 77.5 52.5 238

a/ The major portion of the work outside Bangladesh would be in the GC's office.

ORGANIZATION CHART ( PROPOSED V CONSTRUCTION PHASE

MANAGINGDIRECTOR

61 T.A. REPRESENTATIVE T.A. PROJECT PROJECT FINANCE'9i IN G C OFFICE MANAGER DIRECTOR DIRECTOR

OL

tDI I

I 1--- … …

oX x X n .E

o I I I I I I I

* - > mI -

rTA. SITE ONTRUp CTION I T.A PROCESS i.... TECHNICAL TRAINING COMRCA ACOUT jMINISrRAlVoIMANAGER I MANAGER IADVISORS j MANAGER MANAGER MANAGER MANAGER iMANAGER I

>C 0 c C - 0 En 0 0-n~~~~~~~~~~~~~~~~~~~I-

m m ~H22 H z

Mode of ?rocurent

I to=S Do.cript±on Prooeds of loar. Tootal contrtoto ICB/ISntICBfiS1

I. Civil Worts Site fill, dredging 2.28 2.28 ICB

Fuomdation. piling, oth*rs 2.27 5.85 ICB

Ni.oolnwoum works, drains, dylc 1M 'CB/IS

5 | ~~~~~~~~~~~~Sub-otal 6.09 9.67

II. _nt t Ml aterWyl S e l td tfut troeaot 0,52 0.y ICB

IEboratox- 0.29 0.29 ICJ,tIS

P ~~~~~~~~~~~pi" 8sttion 0.16 0,16 is

p ~~~~~~~~~~~dioristrltin 1uiding 0.4d Q- ICB

.5ISb-otal 1.43 1.43

; III. Cotant an Cbenale Catelyst and Choeicals 5.53 3-53 ICB/IS

* ~~~IV. Serioog Geva contct 23.52 23.52 ICB

j ~~~~~~~~~~~~oobucl AdvLor 2.63 2.8g3PTaWkor Barvice 1.86 1.86 Propietory Item

3 a1e._t and Advisory Or tionaln A;viors 3.1C 3,10 Consultants Olddu r .

a. Bab-%Wa 31.31 U31.3

-A_ 4 V. _ FVVWt In-.5.01 15.73 ICn

V. Sf Staff Trainin 1.86 1.e6

8 , SII. *2t lMjjspjL copaw OEeai end Geneal E3,en.. 0.31 0.31nlnt Start-up 2zpe.p 10 S

9tbS.toW 1.Y 1.36

V III. W evtc CaitiL1 Pletbtlme1 Xllets sud. CanmIle , s.25.

Sub-fatal 55.87lnalooted 16.15

Total 72.00

Tf horo oontr actr ;&oh do not invol1e Bank loan are *clud*d fro this t0li.;

b' International Competitive Pidding/Intern.tional Shoppirr. _

- 113 -

Appendix 18Page 1

Capital Cost of Project(April 1981 Values)

(In Millions)

Local ForeignCurrency Cost Currency Cost Total Cost

Items (In Tk ) (In$) (In$) (In Tk ) (In$)

. Fixed Capital

1. Land AcquisitionPlant, HousingColony & Jetty 6.33 0.40 - 6.33 0.40

Water pipeline -right-of-way 2.01 0.13 - 2.01 0.13Sub-Total 8.34 0.53 - 8.34 0.53

2. Site PreparationSite Fill: Plant

site 30.90 1.93 0.83 44.16 2.76Jetty/Bag-ging 25.96 1.62 1.45 49.12 3.07area

Foundation:Piling 24.10 1.51 2.38 62.24 3.89others 35.07 2.19 3.47 90.56 5.66

Miscellaneous WorksRoads, Drains,Dykes, etc. 23.18 1.45 1.54 47.84 2.99Sub-Total 139.21 8.70 9.67 293.92 18.37

3. Process EquipmentAmmonia battery

unit - - 40.23 643.68 40.23Urea battery unit - - 18.69 299.04 18.69Sub-Total - 58.92 942.72 58.92

Reference in text: para. 77, page 34.para. 78, page 36.

_ 114 _Apendix is

Page

Local ForeignCurrency Cost Currency Cost Total Cost

Items (In Tk ) (In $) (In $) (In Tk ) (In)

4. Catalyst, Chemicals& pare PartsInitial charge ofcatalyst & .6chemicals - - 1.46 23.36 1.46

Spare set of cata-lyst & chemicals - - 2.07 33;12 2-.07Spare Parts - - 6.31 100.96 6.31Sub-Total - - 9.84 157.44 19.84

5. Utility and OffsiteFacilitiesPower Generation &Distribution - - 10.01 160.16 10.01Steam Generation - - 8.91 142.56 8.91Air & inert Gas - - 0.84 13.44 0.84Water-Intake andPipeline - - 1.93 30.88 1.93

Water Treatment,Cooling andDistribution 7.05 112.80 7.05Ammonia Storage andRefrigeration - - 1.81 28.96 1.81

Sewerage & EffluentTreatment - - 0.52 8.32 0.52Jetty 15.91 0.99 4.27 84.16 5.26Maintenance Machine-ry - - 1.42 22.72 1.42Laboratory - - 0.29 4,64 0.29Fire-Station andServices - - 0.18 2.88 0.18Sub-Total 15.91 0.99 37.23 611.52 38.22

6. Materials HandlingEquipmentConveyor System - - 4.99 79.84 4.99Bagging and UreaHandling Facilities - - 3.39 54.24 3.39Ship Loaders - - 3.08 49.28 3.08Transportation - - 1.11 17.76 1.11Sub-Total - - 12.57 201.12 12.57

-115 -

Appendix18

Local ForeignCurrent Cost Currency Cost Total Cost

Items (In Tk ) (in $) (In $) (In Tk ) (In $)

7. Construction Equip-ment - 14.95 239.20 14.95Sub-Total - 14.95 239.20 14.95

8. Buildings & StructuresProduct Storage 30.75 1.92 5.76 122.88 7.68Control & CompressorBuildings 10.20 0.64 1.53 34.72 2.17Administration Bldgs. 2.63 0.16 0.44 9.60 0.60Housing Colony 199.61 12.48 1.24 219.52 13.72Other Buildings 14.21 0.89 2.40 52.64 3.29(Maintenance, FireStation, Laboratory,etc.)

Sub-Total 257.40 16.09 11.37 439.36 27.46

9. Construction andErectionDirect Labor 82.97 5.19 _ 82.97 5.19Direct Labor Overhead 20.70 1.29 - 20.70 1.29Local Supervision 20.39 1.27 - 20.39 1.27Other Field Expenses 73.85 4.62 2.22 109.44 6.84Field Office Equipment - - 0.55 8.80 0.55Sub-Total 197.91 12.37 2.77 242.30 15.14

10. Freight, Insurance &Customs DutyOcean Freight - - 14.85 237.60 14.85Marine Insurance - - 0.88 14.08 0.88Local Freight 17.92 1.12 - 17.92 1.12Customs Duty 57.92 3.62 - 57.92 3.62Sub-Total 75.84 4.74 15.73 327.52 20.47

- 116- Appendix18

Page 4

Local ForeignCurrency Cost Currency Cost Total Cost

Items (In Tk ) (In $) (In $) (In Tk ) (In )

11. Professional ServicesGeneral Contractor's(GC) Fixed Fee - - 24.13 386.08 24.13

General Contractor's 10.40 166.40 10.40Reimbursables - -

Technical Advisor (TA) - - 2.83 45.28 2.83GC & TA Local Costs 30.28 1,89 - 30.28 1,89Vendor Servicemen 4.94 0.31 1.86 34.72 2.17Management Advisory& OperatingServices Contract 4.17 0.26 3.10 53.76 3.36Sub-Total 39.39 2.46 42.32 716.52 44.78

12. Pre-Operating ExpensesCompany Overhead andGeneral Expenses 32.29 2.02 0.31 37.30 2.33

Staff Training 11.90 0.74 1.86 41.60 2.60Start-up Expenses 30.90 1.93 1.05 47.70 2.98Sub-Total 75.09 4.69 3.22 126.60 7.91

Total Base Cost 809.09 50.57 218.59 4,306.56 269.16

Physical Contingency 96.81 6.05 16.83 366.08 22.88

Price Escalation 253.62 15.85 49.28 1,042.08 65.13

Total Fixed Capital 1,159.52 72.47 284.70 5,714.72 357.17

II. Working Capital 476.80 29.80 5.28 561.28 35.08

III. Interest DuringConstruction 1,204.64 75.29 - 1,204.64 75.29

Total Capital Outlay 2,840.96 177.56 289.98 7,480.64 467,-4

-117 - Avp*dix 18

Physical Contingency Schedule

($ million)Foreign Local

Currency Cost Currency Cost Total

1. Land Acquisition (7-½%) - 0.0 0.04.2. Site Preparation (7-½%) 0.73 0.64 1.373. Process Equipment (7-½%) 4.42 - 4.424. Catalyst Chemicals/Spare Parts

(7-k%) 0.74 - 0.745. Utilities/Offsites Equipment

(7-%%) 2.79 0.07 2.866. Materials Handling Equipment

(7-k%) 0.93 - 0.937. Construction Equipment (107e) 1.50 _ 1.508. Buildings and Structures

(7-4%) 0.84 1.21 2.059. Construction and Erection

(25%) 0.70 3.10 3.8010. Ocean Freight, Marine Insurance,

Local Freight/Customs Duty(10%) 1.58 0.39 1.97

11. Professional ServicesGC (5%) 1.73 0.09 1.82TA (5%) 0.14 - 0.14Vendor Servicemen (5%) 0.09 0.02 0.11Management Advisory and

Operational Services Con-tract (10%) 0.31 0.03 0.34

12. Pre-operating Expenses (10%) 0.33 0.46 0.79

Total 16.83 6.05 22.88

Project Sctduk

PROJECT ACTIVITIES J,J1 2 o I j ! i SOO.Ijr 5Jr

MO,.lr,'.o.oI.,l II ) 4 S & 7 a 6 10 II 1 s1.13 lbI 14 17 16 190*1 22 231444 .j?'IGS*t JR303 32 33 N~35 Jhs 4! A2 ag, ATSOI 3$34$''~$

GENERAL CONTRACT AND UREA CONTRACT I | 7I l0fonl Arwlism,n,'er

2. PrtHldobion ot Seddws j i 3. pmtion of tnfimiton to 5id

4. Ledrs AppWrml of 2 & 3 i I

S. h.me of DIrmhbon to id

* . P,wfl of 3Id pPepoml ,|

7. Cmnptiion m. Eeduation of Bid poporl I II Lw*n Appfowsl of Pr.poo. Conotxot r- AAROI IN uoltiations n.d awd of Coolsocs . I GENER AL CONNTRACT

DESIGN AND PROCUREMrENT I Ij£ I tl K Eqmw.mg Da,_p2t Dooil Eq.oinrin DUnio n iI I.. 1mnwd vm Alnn - t o _ r; ! t

*. COwif.ictiw of Procuru. Prns hecdw - :|

6.wt E_ rl ConFKlo nd L ndinr S

tr E r_ wion of V*ndurs an Crtiro lt hn4,m

C. LodmApprlval of P im_el.fied V n -

Pe7 u Psumm.ot of Critkal hems , II

I L t'ocuimmit of EQu jtml NWt ad M_wos _i

9. DomOr ot Equipmrmtrt and Mabwualo s ,

CONSTEUCT ION AND ERECTION I I j*.0 1Pilig m. Fe tio n __|

. 2. Nou" Cofossy3. Cnit Con,-rucimn

4. Pmnt ErsKt1" 4 -

CONMISSIONING AND START. UP I ; .

1 Tmning I

2. PI.c.mmiui.nr.

1. Plant Teottn.4. heNr9,rne. Tegmir-

S. ftmnAmaptom..IiM Amo y _d Oeowmiso Sier oC t ,_

T. T.m Al linso

Diabursment and Firiancina Schedule

1981 1982 1993 Toa4 1965 Cot Killionl) -Ot lm Foreien local Total Foreigrn Local Total Foreign Local Total Yore c local Tc Forei&n Local Tota oreign Local 'o:al

Estimated Base Cost Inclu-a ding Physical Contingency 2.35 3.07 5.42 52.34 9.83 62.17 100.30 19.86 120.16 65.09 18.70 83.7' 15.34 5.16 20.50 235.42 56.62 292.04

Price Contingency 0.05 0.09 0.14 5.71 1.31 7.02 19.36 4.89 24.25 15.34 6.94 25.30 5.6,c 2.62 8.42 49.28 15.85 65.13rt Total Project Cost 2.40 3.16 5.56 58.05 11.14 69.19 119.66 24.75 144.41 83.45 25.64 109.09 21.14 7.76 28.92 284.7C -2.47 357.17X Working Capital - - - - - - - 5.25 2 .80 35.08 5.2_ 29.tO 35.Ob

Interest Durir4r Construction - 0.02 0.02 - 3.77 3.77 - 14.75 14.75 - 27.63 27.63 - 29.12 29.12 - '5.1 ~~ Total Canital Outlay 2.40 3.18 5.58 ~~~~~~ 58.05 14.91 72.96 119.66 39.50 159.16 6 5.45 53.27 136.72 26.42 64.70 93.12 289.9E 4 67.

o Financint Sources

Lon&-'ern loans 2.40 - 2.40 58.05 - 56.05 117.26 - 117.26 75.45 - 75.4' 20.S_ - 20.82 273.9- - 273.9

: 'ease - _ _ - - - 2.4C - 2.4C 5.00 - 8.0 5. - 5.60 16.02 _ 14.C0a Eqaity - 3.18 3.18 - 14.91 14.91 - 39.50 39.50 - 53.27 53.27 - 56.70 66.70 - :77.5c 17^.56

Toa20 315.0 4059.16 8 53.27 136.72 26.42 66.70 93.12 269.9 7.56 467.

Possible AllocaUons of COMn,Qntz*/

ADB SFD ADFAED 1sDB OECF % Alocat*3W Tota

Component1. Ste orearation 7.61 4.47 12.082. Process LauLoment

(a) Ammonia - 52.01 1 - - 52.01

(t) Urea - - 24.17 24.173. UtilizaUon Offsits facliUties

CD (a) Power Generation and DistribuUon - - 12.95 - 12.95

i (a) Steam Generation - _- - 1.53 1 .53

D (c) Air and Inert Gas - - 1.09 - - - 1.09

(d) Water Intakq and Pipelilne - - 2.48 - - _ _ 2.48

(a) Water Treatment Coaling and Distributions - - 9.13 - - 9.13

O) Ammonia Storage and Refrigeration - - - - 2.41 2.41

(g) Sewage and Effluent Treatment 0.67 - - 0.67

(h)j .etty s 4 1 S - 5.44

Oi) Maintanance Machinery - 1.93 1.93

Cj) Laboratory 0.40 - - - - - 0.24

'4 0c) Fire StaUon 0.244. Material Handlina

(a) Conveyor System 6.54 - 6.54

0O) Bagging and Urea HandUng Facilities - - - 4.44 - _ 4.44

(c) Shiploaders --- 3.92 - -3.92

Po (d) Transportation - 1.44 - - 1.

S. Catalyst. Cemlicals Soar Parts 5.04 3.49 0.70 0.98 1.75 0.91 _ 12.87

0 6. Construction Eeuimremt - - 11.46 - - - 7.20 18.66

* ~~7. Buitdinas and StUVture(a) Products Storage 7.51 -- - 7.51

00 tb) Control and Compressor Buildings - 1.99 - - - - - 1.99

w, (c) Administration Building 0.56 - - - _ 0.56

(d) Housing Colony - 1.62 - - I-.2

(a) Other Buildlngs 3.15 - - - - - 3.1S

8. Construction and Erection - 4.27 - - - - - 4.27

° 9 g 6.60 5.52 1.23 0.98 2.87 3.22 0.31 20.73

10. SarvtsO (a)FixedFee 21.37 - - - - - 31.24

o /b) Reimbursable 9.21 - - - 14.33 13.67

* (c) Technical Adviser 3.S6 - - - - - - 3.56

(d) Vendor Services 2.05 - - - 0.54 - - 2.59

(O) Management Adviser 4.70. - - - - - - 4.70

11. Pre-Ooerational Expenges 4.71 - - - - 4.71

12. Workinv CaRtlS S*29 -Z-_- _ _.2e

Total 720000 0 60.00 20.00 1149Q

A/ Cost estlmates for all Items pesented in this table includes physical and price continWncy provisions.

kf Proposed to be fnanced by IDA1.

- 121 -

Appendix 22

List of Subsidiary Enterprises of ICIC

1. Natural Gas and Fertilizer Factory Ltd. Fenchuganj2. Urea Fertilizer Factory Chorasal3. Chittagong TSP Complex4. Karnaphuli Paper Mills Ltd.5. Sylhet Pulp & Paper Mills6. North Bengal Paper Mills7. Bangladesh Paper Products Ltd.8. Khulna Newsprint Mills Ltd.9. Karnaphuli Rayon & Chemicals Ltd.10. Usmania Glass Sheet Factory Ltd.11. Karim Rubber Industries Ltd.12. Kohinoor Chemical Co., Ltd.13. Agro-Chemicals Ltd.14. Chemical Industries of Bangladesh Ltd.15. Farook Chemical Industries Ltd.16. Dacca Match Factory Ltd.17. Habib Industries (Match) Ltd.18. Ujala Match Factory19. Dada Match Works Ltd.20. Khulna Hard Board Mills Ltd.21. Star Particle Board Mills Ltd.22. Eagle Box & Carton Mfg. Co., Ltd.23. Kohinoor Battery Mfg. Co., Ltd.24. Detergent Plant25. DDT Factory26. Bengal Belting Corporation Ltd.27. Lira Industrial Enterprise Ltd.28. Albert David (Bangladesh) Ltd.29. Crescent Industries Ltd.30. Bella Artifitex Industries

Reference in text: para.95, page 44.

Protected Income Statement

(s Million)

(2 months) 1986 1987 l988 1989 1990 1991 1992 1993 1994 1995 1996 10O months)

Jan-Oct Nov-Dee Jan-Oct Nov-Dec

Capacity Utilization 50 50 75 75 90 90 90 90 90 90 90 90 90 90 90

Urea output ('000 m.t.) 46.8 303-8 434.9 504.9 504.9 504.9 504.9 504.9 504.9 504.9 504.9 504.9 420.7

Sales Amount ('000 m.t.) 466. 261.7 434.9 504.9 504.9 504.9 504.9 504.9 504.9 504.9 504.9 504.9 420-7

Domestic 4 .3 222.0 335.0 4c8.0 504.9 504.9 504.9 504.9 504.9 504.9 504.9 504.9 420.7

Export - 39.7 99.9 36.9 - - - - - - - - -

Sales Price (S per m.t.)fDomestic (Ex-factory) 280 280 280 280 280 280 280 280 280 280 280 280 280

* Export (Ex-factory) 330 330 330 330 330 330 330 330 330 330 330 330 330

' Sales Revenue 13.10 75.26 126.?7 143.22 141.37 141.37 141.37 141.37 141.37 141.37 141.37 141 57 117.80

Domestic 13.10 62.16 93.80 131.04 141.37 141.37 141.37 141.37 141.37 141.37 141.37 14I 37 117.80

a Export - 13.10 32.97 12.18 - - - - -

Cost of Sales 10.46 62.93 79.96 85.46 85.46 85.46 B5.46 85.46 85.46 85.4S 85.46 85.46 71.20

(1) Variable Cost 3.S5 22.94 32.85 8.14 38.14 8.14 .14 .1 .14 .1 .14 .1 1.8

g a. Nlatural Gas 1.43 9.29 13.30 15-44 15.44 15.44 15.44 15.44 15.44 15.44 15.44 15.44 12.87

b. Bagging Materials 1.87 12.15 17.40 20.20 20.20 20.20 20.20 20.20 20.20 20.20 20.20 20.20 16.83

rt c. Catalyst & Chemicals 0.23 1.50 2.15 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.08

(2) Semi-Variable Cost - - - 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.17

.e d. Proluction Bonus - - - 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.17

(3) Fixed Cost 7.86 47.11 47.11 47.11 47.11 411 1 471I1 47.11 411 1 47,11 47.11 47.11 39.25 N

> e. Labor Cost 0.21 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.25 .25 1.25 1.04

f. Fringe Benefits 0.12 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.59

g. Maintenance Cost 1.65 9.90 9.90 9.90 9.90 9.90 9.90 9.90 9.90 9.90 9.90 9.90 8.25ij h. Insurance 0.20 1.18 1.18 1.18 1.18 1.18 1.18 1.18 1.18 1.16 1.18 1.18 0.98

i. Overhead 0.15 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.74

X j. Depreciation 5.53 33.18 33.18 33.18 33.18 33.18 33.18 33.18 33.18 33.18 33.18 33.18 27.65

J Total Production Cost 11.39 70.05 79.96 85.46 85.46 85.46 85.46 85.46 85.46 85.46 85.46 85.46 71.20

zInventory Adjustment 0.93 7.12 - - - - - - - - - - -

P OPerating ProJect (Loss) 2.64 12.33 46.81 57.76 55.91 55.91 55.91 55.91 55.91 55.91 55.91 55.91 46.60

Interest Expenses 5.48 33-86 33.53 31.61 29.45 27.05 24.35 21.32 16.94 13.14 8.88 6.08 _

Profit (Loss) Before Tax ( 2.84) ( 21.53) 13.28 26.15 26.46 28.86 31.56 5. 21.343 23.5 458 i2.60

Income tax - - -_ 17.36 19.02 5 .41 53

Profit (Loss) After Tax ( 2.84) ( 21.53) 13.28 26.15 26.46 28.86 14.20 15.57 1754 19.25 2116 22.42 20.97

Proposed Dividend _ _ _ _ 17.76 17.76 17.76 17-76 17.76 1776 17.76 I7.76 11.76

Retained Earrnings ( 2.84) ( 24-37) ( 11.09) 15.06 23.76 34.86 31.30 29.11 28.89 30.38 33.78 38.44 41.65

RatiosNet Profit (Loss) on Sales

(%0) (21-7) ( 28.6) 10.5 18.3 18.7 20.4 10.0 11.0 12.4 13.6 15.0 15.9 17.8

Rate of Return onEquity (0) ( 1.6) ( 14.1) 8.0 13.6 13.1 13.6 6.8 7.5 8.5 9.3 10.0 10.4 9.6

Dividend Ratio on ShareZquity (5%) - - - - 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Dividend Payment Ratio (,) - - - - 67.1 61.5 125.1 114.1 101.3 92.3 83.9 79.2 84.7

Projected Caah Flov Statement

| (S l-;~~~~~~~~~~~~~~~~~~~~~~~~~~~~illion)_

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Source of FundsNet Inoome (10ss) After Tax (2.84) (21.53) 13.28 26.15 26.46 28.86 14.20 15.57 17.54 19.25 21.16 22.42 20.97

n Add Back: Depreciation 5.53 33.18 33.18 33.18 33.18 33-18 33.18 33.18 33.18 33.18 33.18 33.18 27.65Interest 2xperses 5.48 33.86 33.53 31.61 29.45 27.05 24.35 21.32 16.94 13.14 8.88 6.08 -

z Internal Cash Flow - 8.17 45.51 79.99 90.94 89.09 89.09 71.73 70.07 67.66 65.57 63,22 61.68 48.62

Application of Funds8 Debt Service Cost 5.48 38.85 51.6 51.86 51.86- 51.86 51.86 51.86 48.5 48.S9 49 40.41 -

Repayment of Loan Principal z 4.99 18.33 20,25 22.41 24.81 27.51 30.54 31. 445 8. 34.33 -

* - Interest Expenses 5.48 33.86 33.53 31.61 29.45 27.05 24.35 21.32 16.94 13.14 8.88 6.08 -

Dividend Payment - - - 17.76 17.76 17.76 17.76 17276 17.76 17.76 17.76 17.76

Total Caah Outflow 5.48 38.85 51.86 51.86 69.62 69.62 69.62 69.62 66.35 66.35 66.35 58.17 17.76

Net Cash Flow 2.69 6.66 28,15 39.08 19.47 19,47 2.11 0.45 1.31 ( 0.78) 3 3.13) 3.51 30.86

'1 Cash Balance

Begirming 35.08 18.34 7.42 35.55 74.63 94.10 113.57 115.68 116.13 117.44 116.66 113.53 117.04 N)

liet Cash Flow 2.69 6.66 28.13 39.08 19.47 19.47 2.11 0.45 1.31 ( 0.78) ( 3.13) 3.51 30.86Add: Increase in Accounts

Payable 4.18Less: Increase in Acounts

IReceivable 13.10 10.46

Increase in Raw Materials 9.58Increase in In-Process 0.93Increase in Finished

Goods - 7.12

Endlng 18.34 7.42 35.55 74.63 94.10 113.57 115.68 116.13 117.44 116.66 113.53 117.04 147.90

Debt Service Ratio 1.49 1.17 1.54 1.75 1.72 1.72 1.38 1.35 1.39 1.35 1.30 1.53 -

ProAeoted Waxw* Shoot

(I Million).-.-

1985/10 1985/12 1986/12 1987/12 1988/12 1989/12 1990/12 1991/12 1992/12 1993/12 1994/12 1995/2 1996/12 1997/10

Assets

Current Assets 46.65 53.52 60.18 88.31 127.39 146.86 166.33 168.44 168.89 170.20 169.42 166.29 169.80 200.66

Cash 35.08 18.34 7.42 35.55 74.63 94.10 113.57 115.68 116.13 117.44 116.66 113.53 117.04 147.90

Accounts Receivables - 13.10 23.56 23.56 23.56 23.56 23.56 23.56 23.56 23.56 23.56 23.56 23.56 23.56

Inventory 11.57 22.08 29.20 29.20 29.20 29.20 29.20 29.20 29.20 29.20 29.20 29.20 29.20 29.20

P a) Raw Materials 2.85 12.43 12.43 12.43 12.43 12.43 12.43 12.43 12.43 12.43 12.43 12.43 12.43 12.43

" b) Finished Coede - - 7.12 7.12 7.12 7.12 7.12 7.12 7.12 7.12 7.12 7.12 7.12 7.12

c In-Process - 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93

Sdi 8pare Parts 8.72 8.72 8.72 8.72 8.72 8.72 8.72 8.72 8.72 8.72 8.72 8.72 8.72 8.72

Gross Fixed Assets 420.89 420.89 420.89 420.89 420.89 420.89 420.89 420.89 420.89 420.89 420.89 420.89 420.89 420.89

Aconualated Depreciation - 5.53 38.71 71.89 105.07 138.25 171.43 204.61 237.79 270.97 304.15 337.33 370.51 398.16

Net Fixed Assets 420.89 415.36 382.18 349.00 315.82 282.64 249.46 216.28 183.10 149.92 116.74 83.56 50.38 22.73

Total Assets 467.54 468.88 442.36 437.31 443.21 429.0 5.79 384.72 3S1.99 320.12 286.16 249.85 220.18 223.39 t

Liabilities & Eoity

Current Liabilities 4.99 9.17 22.51 24.43 26.59 28.99 31.69 34.72 5S.S3 39.63 43.89 38.51 4.18 4.18

F Acoounts Payable - 4.18 4.18 4.18 4.18 4.'8 4.18 4.18 4.18 4.18 4.18 4.18 4.18 4.18

o Current Portion of LongTerm Debt 4.99 4.99 18.33 20.25 22.41 24.81 27.51 30-54 31.65 35.45 39.71 34-33 - -

L 1ono-Term Debt 284.99 284.99 266.66 246.41 224.00 199.19 171.68 141.14 109.49 74.04 34,33 - - -

o* Totl Llabilitieo 289.48 294.16 289.17 270.84 250.59 228.18 203.37 175.86 145.32 113.67 78.22 38.51 4.18 4.16

EIEis 177.56 174.72 153.19 166.47 192.62 201.32 212.42 208.86 206.67 206.45 207.94 211.34 216.00 219.21

ContribeLted Capital 177.56 177.56 177.56 177.56 177.56 177.56 177.56 177.56 177.56 177.56 177.56 177.56 177.56 177.56

Retained FarningB - ( 2.84) ( 24.37) ( 11.09) 15.06 23.76 34.86 31.30 29.11 28.89 30.38 33.78 38.44 41.65

Total Lilities & acuity 467.54 468.88 442.36 437.31 443.21 429.50 415.79 384.72 351.99 320.12 286.16 249.85 220.18 223.39

Ratios

Current Ratio 9.35 5.84 2.67 3.61 4.79 5.07 5.25 4.85 4.71 4.29 3.86 4.32 40.62 48.00

Lone-Term Debt Equity Ratio 62/38 62/38 64/36 60/40 54/46 50/50 45/55 40/60 35/65 26/74 14/86 o/oo o/oo OOO/

- 125 -Appendix 26

Maior Assumptions for Financial Analysis

A. General

1. Economic life of the Project is assumed to be 12 years --from November 1985 to October 1997.

2. Rated production capacity of the plant is 561,000 tonsa year based on a daily production capacity of 1,700 tonsfor 330 working days.

3. Build-up capacity utilization rate is assumed as follows:

50 per cent for the first 12 months (Nov. 1985-Oct. 1986),

75 per cent for next 12 months (Nov. 1986-Oct. 1987),

90 per cent for next 12 months (Nov. 1987-Oct. 1988)and onwards.

4. Disbursement Schedule of the Project is shown in Appen-dix 20.

5. All prices and costs are expressed in mid-1985 constantvalues.

B. Sales

6. Sales volumes for the domestic market and the exportmarket are shown in Table 1.

Reference in text: para. 105, page 50.

- 126 -

Appendix 26Page 2

Table 1: Projected Sales Volume

('000 mt)Projected Demand Supply Situation in Bangladeeh

Sales Volume (l)-(3)-(2) (2) (3)-(4)+(5) (4) (5)Export Domestic Total Balance Demand Supply the Projac-t OtherS.

1985 - 46.8 46.8 C. 84.2) 998.0 913.8 46.8 867.01986 39.7 222.0 261.7- 39.7 1,097.0 1,136.7 21.7 875.01987 99.9 335.0 434.9 99.9 1,208.0 1,307.9 434.9 873.01988 36.9 468.0 504.9 36.9 1,308.0 1,364.9 504.9 860.01989 - 504.9 504.9 (107.1) 1,462.0 1,354.9 504.9 850.0

a! Production Volume 303.8 - one month stock 42.1.

7. The ex-factory price of urea for export is assumed tobe $330 per mt. It is estimated that an ex-factoryprice of urea for the domestic market of $280 per mtwould be required to satisfy stipulated financial cove-nants; namely, a current ratio of not less than 1.5, adebt equity ratio of not higher than 60:40, and a debtservice coverage ratio of not less than 1.5.

C. Production Cost

8. Details of the production cost estimate are explainedas follows and the estimate is presented in Table 2.

- 127 -Appendix 26Page 3

Table 2: Production Cost Estimate(at 90 per cent of capacity

utilization)

(I million)Foreign Local Total $ per mt

Variable Cost 6.88 31.26 38.14 75.61. Natural Gas - 15.44 15-44 30.62. Catalyst and Chemicals 1.63 0.87 2.50 5.03. Bagging Materials 5.25 14.95 20.20 40.0

B. Semi-Variable Cost - 0.21 0.21 0.44. Production Bonus - 0.21 0.21 0.4

C. Fixed Cost 7.74 39.37 47.11 23.35. Labor Cost - 1.25 1.25 2.56. Fringe Benefits - 0.71 0.71 1.47. Maintenance Cost 7.74 2.16 9.90 19.68. Insurance - 1.18 1.18 2.39. Overhead - 0.89 0.89 1.710. Depreciation - 33.18 33.18 65.8

D. Total Production Cost 14.62 70.84 85.46 169.3

1. Natural Gas

9. The present selling price of natural gas for the ferti-lizer industry is Tk 7.75 ($0.48)/MSCF. However, inconnection with the negotiations for loan for BGSL withIBRD, the Government made the following commitmentsregarding gas pricing:

(i) the national average gas price to consumers shallbe increased by at least 20 per cent over theexisting price by June 1981 and it shall continueto be increased in order to keep up with inflationand other factors.

(ii) the gas prices, net of excise duty, are to be setat such levels as would provide a rate of returnon the revalued assets of BGSL prior to depreciationof at least 5 per cent in 1985 and 10 per cent ineach year thereafter.

- 128 -

Appendix 26Page 4

Table 3 indicates the projected gas price level from 1985to 1990, based on the above tariff covenants.

Table 3: Prito of Ga of bahabad Gas System

Averag Pricwof Ga Price for the Fertilizer Irust/GsA (Curent tera) Current Tn Mid 1985 oost;t pricas/

(TKM~CF) (TK/,TTISTC) sMSCF)

1985 13.73 9.61 0.60 0.601986 18.56 12.99 0.81 0.741987 24.33 17.03 1.06 0.88'1988 26.45 18.52 1.16 0.871989 28.69 20.08 1.26 0.861990 30.50 21.35 1.33 0.83

a/ including excise duty of ¶k 5 Per MC?', Source: GOB internal documen~t.bi 70 per oent of m averap price of gas has been assumed.-t 10 per cent of escalation factor has been asumed.

Taking into consideration the above projected gas prices andalso discussions with the Planning Commission and other con-cerned government agencies, the Mission has estimated theprice of natural gas for the Plant to be Tk 16.00 ($1.00)/MSCFin mid-1985 constant values. Natural gas consumption of30,590 standard cubic feet, which includes gas consumptionfor the in-house power station, will be required for theproduction of one ton of urea.

2. Catalyst and Chemicals

10. The annual consumption of catalyst and chemicals isestimated to cost $1.63 million (cif). Local handlingand internal freight cost (3 per cent on cif value)and import duty (50 per cent on cif value) were takeninto account in the calculation of overall annual cost.

3. Bags

11. Polyethylene pellets cost about $4,160 per ton (cif);eight bags (50 kg bag) can be made from one kg ofpolyethylene pellets. Import duty (100 per cent of

- 129 -Appendix 26Page 5

cif value) and internal freight and local handlingcosts (3 per cent of cif value) are taken into accountin arriving at the estimate of polyethylene liningcost of Tk 16.88 per bag. Jute bag with a capacityof 50 kg costs Tk 15.15 per bag.

4. Labor Cost

12. a. officers and Staff: 511 workers with Tk 1,850monthly salary;

b. Technicians and skilled workers: 490 workerswith Tk 970 monthly salary;

c. Contract workers: 310 workers with Tk 775 monthlysalary;

d. Fringe Benefits: 72 per cent of (a) and 59 percent of (b).

13. Production bonus is assumed at one month's salaryequivalent at 80 per cent capacity utilization rateand two months salary equivalent at 90 per cent.

5. Maintenance Materials

14. Process, auxiliary materials handling andmiscellaneous equipment (fob) $ 140.78 million

a. Maintenance materials: 5 per centof equipment cost $ 7,039,000

b. Shipping and marine insurance:10 per cent of (a) $ 703,900

c. Import duty: 25 per cent of (a+b) $ 1,935,725

d. Internal freight and local hand-ling cost: 3 per cent of (a+b) $ 232,287

Total $ 9,910,912

- 130 -Appendix 26Page 6

6. Depreciation Schedule

15. Depreciation is assumed to be over 12 years on astraight line depreciation method.

($ million)

Total Project Cost ExcludingNet Working Capital 432.46

Less: a. Land acquisition 0.59b. Site preparation 22.14c. Catalyst and Chemicals

and Spare Parts 11.57

Total Depreciable Assets 398.16

Annual Depreciation 33.18

7. Other Expenses

16. a. Insurance: 0.33 per cent of erected cost of thePlant.

b. Overhead : 50 per cent of the labor cost excludingcost for contract workers.

D. Relending Terms

17. Relending terms for all foreign currency loans areassumed to be as follows:

a. Relending rate : 12 per cent per annum

b. Repayment period : 15 years including 5 yearsgrace period

c. Semi-annual equal installments of principal andinterest.

- 131 -Appendix 26Page 7

E. Lease

18. Conditions for lease are assumed to be as follows:

a. rate of lease charge : 9 per cent per annum onthe base of internalrate of return (IRR)calculation

b. lease period : 10 years including 3 yearsgrace period

c. annual equal installments of principal and leasecharge

d. the ownership of equipment will be transferredfrom IsDB to CUFL at the time of lease up withoutany costs.

19. Lease has been treated as loan in the financial analysis,taking into consideration the present accountingpractise regarding lease transaction with IsDB inBangladesh.

F. Income Tax

20. Provision for income tax has been assumed to be 55 percent of taxable income, according to the Finance Act,1980.

21. Notifications dated 26 and 30 September 1975 in pur-suance of Section 14A of the Income Tax Act stipulatesthat a new industrial undertaking will be exemptedfrom income tax and for a period of 5/7/9 years accord-ing to its location beginning with the month in whichcommercial production of the undertaking started.Since the Project is located in an area which the aboveexemption can be applied for, tax exemption for thefirst five years is assumed.

- 132 -Appendix 26Page 8

G. Working CapitaL,/

($ million)Foreign LocalExchange Currency Total

1. Cash in hand - 1.16 1.162. Receivables - 23.56 23.563. Inventory 16.25 12.95 29.20

(1) Raw Materials 6.64 5.79 12.43a. Catalyst & Chemical 2.70 0.15 2.85b. Polyethylene Pellets 3.94 4.05 7.99c. Jute Bags - 1.59 1.59

(2) Work in Process 0.12 0.81 0.93(3) Finished Goods 1.22 5.90 7.12(4) Spare Parts 8.27 0.45 8.72

Total: Gross Working Capital 16.25 37.67 53.92

Less:

4. Accounts Payable - 4.18 4.185. Working Capital Portion

included in the Capital CostEstimate 10.97 0.60 11.57

(1) Spare Parts 8.27 0.45 8.72(2) Catalyst & Chemicals 2.70 0.15 2.85

6. Non-Cash Expenses includedin inventories - 3.09 3.09

7. Sub-Total 10.97 7.87 18.84

Net Working Capital 5.28 29.80 35.08

a/ Based on 90 per cent capacity utilization.

- 133 -Appendix 26Page 9

Basis of Working Capital Estimate

1. Cash in hand : One month of fixed productioncost excluding depreciation

2. Receivables : Two months of Sales

3. Raw Materials Inventory(1) Catalyst & Chemicals: one spare set of catalyst and

one year consumption requirementof chemicals

(2) Polyethylene Pellets: 9 months stock

(3) Jute bags : 2 months stock

4. Work in Process!/ : 5 operating days ammonia output

5. Finished Goods Inventory: one month stock

6. Spare Parts Inventory : 2 years stock

7. Account Payables : one month of production costexcluding labor cost anddepreciation

8. Non-Cash Expensesincluded in Inventories: Depreciation

$0.33 for Work in Process + $2.76 for Finished Goods

a/ The ratio of the ammonia unit capital costs to thecapital costs of both the aimonia and the urea unitsis 68 per cent. Hence 68 per cent of the annualfixed production cost is allocated to the a moniaproduction. The variable cost per ton of ammoniais calculated as follows:

The viable cost per ton of ammonia - (variable costper ton of urea - bagging cost) x 1,700 - 1,000

- 134 -

Appendix 26Page 10

H. Interest During Construction

Total Debt excluding lease: $273.98

Interest Rate: 12 per cent per year

Disbursement: per cent $ iuifl

At end of year 1 (1981) 0.88 2.40

At end of year 2 21.18 58.05

At end of year 3 42.80 117.26

At end of year 4 27.54 75.45

At end of year 5 7.60 20.±1

100.00 273.98

At end of year(2-month) (10-month)

1st 2nd 3rd 4th 5th 3Ta

1. Already drawn 0 2.40 60.45 177.71 253.1.6

2. Previous year's interest 0 0.02 3.77 14.75 27.63

3. Opening debt (1+2) 0 2.42 64.22 192.46 280.79

4. Interest on opening debt(1 %) 0 0.29 7.71 23-10 28.08

5. Drawn during year 2.40 58.05 117.26 75.45 20.82

6. Interest on Currentdrawings (5%) 0.02 3.48 7.04 4.53 1.04

7. Total interest for year(4+6) 0.02 3.77 14.75 27.63 29.12 75.29

-135 - Appendix 27

Break-even Analv is

L. Calculatign Fgrm is

Profit Break-Even Point _ Fixed Coat(Volume) Sales Price Per Unit - Variable Cost Per Unit

Cash Break-Even Point :Fed Cast Daggscition Dn(Volume) Sales Price Per Unit - Variable Coat Per Unit

2. Break-Even Point

Profit Break-Even Point Cash Break-en PointVolum per cent Volum per cent of

Y-er (000 ton.) of capacity (000 tons) _ORMU

1986 396.1 70,6 258.2 46.0-1987 394.5 70.3 321.2 57.31988 385.1 68.7 321.2 57.31989 374.6 66.8 321.2 57.31990 362.8 64.7 321.2 57.31991 349.6 62.3 321.2 57.31992 334.8 59.7 321.2 57.31993 313.4 55.9 305.9 54.51994 294.8 52.6 305.9 54.51995 273.9 48.8 305.9 54.51996 260.2 46.4 265.9 47.4

Reference in text: para 110, page 53.

Financial ITntern.1 Rate of Return

($ M[llion)

Before Tax After' Project Canh Net DCsoa*td Cah let Discomn atCost Gmeration Cash Flow 11% 126 GCoration C^eh Flow 9% 16

1981 7.86 ( 7.86) ( 7.86) ( 7.86) ( 7.86) ( 7.86) ( 7.86)

1982 86.95 ( 86.95) ( 78.33) ( 77.64) ( 86.95) ( 79.77) ( 79.05)

1983 168.23 (168.23) (136.54) (134.11) (168.23) (141.60) (139.03)

o 1984 117.91 (117.91) ( 86.22) ( 83.93) (117.91) ( 91.05) ( 8-59)1985 64.00 8.17 (55.83) ( 36.78) ( 35.48) 8.17 ( 55.83) ( 39.55) ( 36.13)

1986 45.51 45.51 27.01 25.82 45.51 45.51 29.58 26.26

p 1987 79.99 79.99 42.76 40.52 79.99 79.99 47.70 45.15

1988 90.94 90.94 43.81 41.13 90.94 90.94 49.74 46.67

1989 89.09 89.09 89.09 89.09 44-71 41.56

1990 89.09 89.09 89.09 89.09 41.02 37-78

1991 89.09 89.09 71.75 71.75 30.30 27.65

1992 89.09 89.09 220.82 200.20 70.07 70.07 27.15 24.56

1993 89.09 89.09 67.66 67.66 24.06 21.56

1994 89.09 89.09 65-57 65.57 21.39 18."9

1995 89.09 89.09 63.22 63.22 18.92 16.65

1996 89.09 89.09 61.68 61.68 16.93 14.77

1997 ( 6 9 .3 8* 74.25 143.65 27.05 234 48.62 118.00 22.72 25.68

15.72 ( 3.) 21

F I R R * 11.7% F I R B 9.9%

Cao ped of net verking capital (35.08), working oapital portion included in a capital cost e tinte(11.57), land acquiaition (0.59) and site preparation (22.14).

- 137 -

Appendix 29Page 1

Examination of Key Factors of Sensitivity Analysis

1. Table 1 shows values and quantities of keyfactors used in the calculation of FIRRs for the basecase and those chosen for the sensitivity analysis.

Table 1: Values and Quantities of Key Factors Usedfor Base Case and Sensitivity Analysis

ForFor Base Sensitivity PercentageCase Analysis Change

(1) Urea priceiafor thedomestic market $280/mt $252/mt -10

(2) Urea price!a/forexport market $330/mt $297/mt -10

(3) Sales volume forthe export market -10

(4) Price of naturalgas $1.00/MSCF $1.50/MSCF +50

(5) Capacity utili- 50-75-90 40-50-65-80zation rate

(6) Capital Cost $467.54 $514.29 +10million million

(7) Commissioning of Nov. 1985 Nov. 1986 One yearthe co mmrcial delayoperation

a/ Ex-factory price

Reference in text: para. 112, page 53.

- 138 -

Appendix 29Page 2

2. The urea price for the domestic market usedin the base case is not a projected market price but isthe minimum price which has to be maintained to ensurethat stipulated financial covenants (see para. 105) canbe complied with by CUFL. As change of selling price ofurea is a major factor in the sensitivity analysis, theeffect of a 10 per cent decrease in selling price has beentested in order to indicate the sensitivity of this factor.For the urea price for the export market, the effect of a10 per cent decrease has been tested, taking into consi-deration the future demand-supply condition of the inter-national market.

3. Although the demand for urea in Bangladesh isprojected to keep growing, the Project would have toexport surplus urea during the early part of the ProjectLife (see para. 25). The effect of a 10 per cent decreasein the export price of urea has been tested.

4. The pricing of natural gas is the controversialissue in Bangladesh and there is always the tendency toincrease the gas price. Therefore, the effect of a 50per cent increase in the gas price has been tested.

5. Other production costs are expected to increasebut not at a greater rate than the general rate of in-flation in the country.

6. Capacity utilization depends heavily upon theavailability of experienced skilled manpower and adequateinfrastructure. Although the Project can be expected torecruit capable personnel from the existing fertilizerindustry, a low level of initial capacity utilization ratewas assumed in the base case, taking into oDnsiderationthe present manpower situation in Bangladesh. However,it should not be ruled out that the Project might sufferfrom a slow capacity build-up and low level of capacityutilization rate. In this regard, the effect of 40, 50,65 and 80 per cent of capacity utilization has beentested.

- 139 -

Appendix 29Page 3

7. There are always possibilities of costoverrun and delay in construction caused byunforeseeableincidents. Effects of (i) a 10 per cent increase incapital costs and (ii) a one year delay in construction,with a reduction in capacity utilization have beentested.

- 140 -

Appendix 30Page I

Basis for Economic Analysis

A. General Approach

1. The economic evaluation is based on mid-1985constant US dollar values. Price escalation on theassumption of future inflation has been excluded.Present and future changes in relative prices have beentaken into account. Transfer payments and time costssuch as import duties, taxes and interests during con-struction have been excluded from financial capitaland operation costs. A 12-year economic life of theProject is assumed, as was done in the financial analy-sis. The market wage rates are taken as the economicwage rates, since the costs of labor constitute only avery small proportion of total production costs. Theeconomic benefits of the Project are derived from importsubstitution and the export of urea fertilizer using theeconomic price of urea (bagged) at $360 per ton forimport substitution and $330 per ton for export,respectively. In converting taka values into US dollarvalues, an exchange rate of Tk 16.00 per US$1.00 is used.

B. Cost of Natural Gas

2. The economic cost of natural gas in Bangladeshis valued at $1.44 per MSCF in 1985, comprising the oppor-tunity cost of natural gas under the ground of $1.18 perMSCF and the development and transmission costs of naturalgas of $0.26 per MSCF.

1. The Opportunity Cost of Natural GasUnder the Ground

3. The opportunity cost of natural gas under theground is defined as the cost of replacing the natural gasby the best alternative source (crude oil is assumed),when the natural gas is exhausted. Assumptions used for thecalculation of the replacement cost of natural gas are asfollows:

Reference in text: para. 117 page 55.para. 118, page 55.

- 141 -

Appendix 30Page 2

(i) reserve adequacy of 30 years; and

(ii) the price of crude oil is $30 perbarrel (Arabian Light) at present,and will increase at three per centper annum in real terms; and

(iii) discount rate of 10 per cent perannum in Bangladesh.

2. The Development and TransmissionCosts of Natural Gas

4. The estimated development and transmission costof natural gas is $0.26 per MSCF (unit investment cost;$0.232 per MSCF, unit operating cost; $0.026 per MSCF,based on the estimated investment and operating costsfor the Gas System).

- 142 -

Appendix 30Page 3

C. Production Cost (at 90 per cent Capacity Utilization)

$ million $ per mt

A. Variable Cost

1. Natural Gas 22.22 44.02. Catalyst and Chemicals 1.68 3.33. Bagging Materials 14.97 29.6

Total 38.87 76.9

B. Semi-Variable Cost

4. Production Bonus 0.21 0.4

C. Fixed Cost

5. Labor Cost 1.25 2.56. Fringe Benefits 0.71 1.47. Maintenance Cost 7.97 15.88. Overhead 0.89 1.7

Total 10.82 21.4

Economic Internal Rate of Return

(SMillinn)Project Production Cost Total B e n e f i t Net Discounted at

Po Cost Variabl Fixes, Cost Domestic Export Total Benefit 19%Cost- Cost- Sales (Cost)

D

M 1981 7.78 7.78 ( 7.78) ( 7.78)n 1982 86.07 86.07 (86.07) (72.29)m 1983 166.53 166.53 (166.53) (117.57)' 1984 116.72 116.72 (116.72) ( 69.21)

1985 63.71 1.92 1.80 67.43 16.85 16.85 (50.58) (25.23)X 1986 10.71 10.82 21.53 79.92 13.10 93.02 71.49 29.95X 1987 17.80 10.82 28.62 120.60 32.97 153.57 124.95 43.98

!7 1988 20.67 11.03 31.70 168.48 12.18 180.66 148.96 44.091989 20.67 11.03 31.70 181.76 181.76 150.06 37.36

'0 1990 20.67 11.03 31.70 181.76 181.76 150.06 31.361991 20.67 11.03 31.70 181.76 181.76 150.06 26.41

P 1992 20.67 11.03 31.70 181.76 181.76 150.06 21.45~ 1993 20.67 11.03 31.70 181.76 181.76 150.06 18.61

. 1994 20.67 11.03 31.70 181.76 181.76 150.06 15.601995 20.67 11.03 31.70 181.76 181.76 150.06 13.211996 20.67 11.03 31.70 181.76 181.76 150.06 11.10

X 1997 (69.38)y/ 17.23 9.02 (43.13) 151.47 151.47 194.60 12.06OQD

Oh 2010 2,230.68 2,230.68 (2,230.68) (13.38)

( 0.28)

Economic Internal Rate of Return = 19.0%

a/ In the process of calculating EIRR, the portion of the opportunity cost of natural gas under the ground is treated as Ithe cost to the Project at the year when the natural gas is depleted.

b/ Fixed cost includes semi-variable cost.c/ Residual value of project cost.

- 144 -

Appendix 32

Foreign Exchange Savings

Annual Cost($ million)

1. Operating Costs

a. Foreign Exchange Components 14.62b. Local Currency Components 35.28

2. Capital Charges2

a. Foreign Exchange Components 42.56b. Local Currency Components 24.12

3. Total Operating Costs and Capital Charges

a. Foreign Exchange Components 57.18b. Local Currency Components 59.40

4. Annual Gross Foreign Exchange Savingsand Earnings at cif price of $360per ton and fob price of $330 perton 170.80

5. Net Annual Foreign Exchange Savings(4-3a) 113.62

a/ Annuity for the Project cost is calculated using12 years amortization period and 10 per cent perannum interest rate.

Reference intext: para. 121, page 57.