Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 6662-CHA

STAFF APPRAISAL REPORT

CHINA

FERTILIZER RATIONALIZATION PROJECT

May 11, 1987

Industry Department

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

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CURRENCY EQUIVALENTS(As of March 1, 1987)

Currency Name - Renminbi (RMB)Currency Unit - Yuan (Y) - 100 PenY 1.00 - US$0.27US$ 1.00 Y Y 3.70

WEIGHTS AND MEASURES

1 hectare (ha) 3 2.47 acres1 metric toa (ton) 1,000 kilograms (kg)1 kilometer (km) - 0.621 milesI cubic meter (i 3 ) - 35.3147 cubic feet (cf)1 kiloca±orie (kLal) a 3,968 British Thermal Units (BTU)1 kilowatt (kW) 1,000 watts1 megawatt (MW) 1,000 kilowatts (kW)

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

ABC - Ammonium Bicarbonate MOF - Ministry of FinanceAMPC - Agricultural Means of Production MWh - megawatt hour

Corporation NCIC - Nanjing Chemical Industry CompanyBCEC - Beijing Chemical Experimental N - Nitrogen Content in Fertilizers

Company NPK - Complex Fertilizers of N, P and KBICEM - Beijing Institute of Chemical Nm3 - normal cubic meters

Engineering and Management p.a. - per annumBTU - British Thermal Unit P205 - Phosphorous PentoxideCNCCC - China National Chemical ppm - parts per million

Construction Company PRS - Production Responsibility SystemCIF - Cost, Insurance, and Freight SAA - State Audit AdministrationCIB - Chemical Industry Bureau SEC - State Economic CommissionCMP - Calcium Magnesium Phosphate SINOCHEM - China Chemical Export and ImportCO2 - Carbon Dioxide CorporationDAP - Diammonium Phosphate SINOPEC - China Petrochemical CorporationFOB - Free on Board SPB - State Pricing BureauGOC - Government of the People's SPC - State Planning Commission

Republic of China SSP - Single Superphosphateha - hectare tpd - tons per dayKzO - Potassium Oxide tpy - tons per yearkWh - Kilowatt hour tpyn - tons per year of nu%rientsLCFC - Luoyang Chemical Fertilizer YCFC - Yuanping Chemical Fertilizer

Companiy CompanyMAAF - Ministry of Agriculture, Animal YXCFC - Yunnan Xuanwei Chemical Fertilizer

Hu,'andry and Fishery CompanyMCI - Ministry of Chemical Industry XCFC - Xuanhua Chemical Fertilizer CompanyMIS - Management Information System

FISCAL YEAR

January 1 to December 31

FOR OMCIAL US ONLYCHINA

FERTILIZER RATIONALIZATION PROJECT

TABLE OF CONTENTS

Page No.

LOAN AND PROJECT SUMMARY ................................ iv

I* INTRODUCTION o.o 1o ........ I

II. THE CHINESE FERTILIZER SECTOR ............................ 1

A. Agricultural Background ................................. 1B. Fertilizer Use in Agriculture ....................... 2C. Fertilizer Demand and Supply 2D. Fertilizer Industry Structure 5E. Feedstock Supply and Energy ConsumDtion 6F. Fertilizer Marketing and Distribution 7G. Fertilizer Pricing 8H. Government Strategy in the Fertilizer Sector *........... 10I. Bank Role in the Sector and Project Justification ...... 11

III. PROJECT INSTITUTIONS 1 ........... 12

A. Five Medium-Size Fertilizer Plants 12B. The Ministry of Chemical Industry .................... ° 16C. The Beijing Institute of Chemical Engineering and

Management j*********XXv*vv***e 16

IV. THE PROJECT 16

A. Project Objectives 16B. Phosphate Fertilizer Development Component 17C. Nitrogenous Fertilizer Rationalization Component *.....e 18D. Institutional Development Component #.................... 19

V. PROJECT MANAGEMENT AND ENVIRONMENTAL PROTECTION ...... o .... 19

A. Engineering Arrangements .o... . .. o. o o... . ... . .. 0.. 19B. Project Management ......... ..... ....... 0000......00.. 20C. Implementation Schedule ................. o.... * ........... 20Do Training 21E. Environmental Aspects o..................... ....o...o...... 21

This report has been prepared by Messrs. K. S. Song, K. M. Constant, andS. Thiyagarajan of the Industry Department. Messrs. So K. Agarwal (WAPID)and B. Stone (Consultant) contributed to the fertilizer sector chapter.Mesdames M. Greaves, E. George, and A. Johnson provided word processingassistance, and secretarial support was provided by I. Haidara in thepreparation of this Report.

This document has a resticted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be diCslosd without World Bak authorization.

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TABLE OF CONTENTS (Continued)

Page No.

VI. CAPITAL COSTS, FINANCING PLAN. PROCUREMENT ANDLOAN AGREEMENT .............. e eo.,eo. 21

A. Capital Cost Estimates .... e,....e...,e..oe.....e.... 21Be Financing Plan ...................................... 22C. Procurement ............ 25D. Allocation and Disbursement of Bank Loan ................ 26

VII. FINANCIAL ANALYSIS *....ee ...... e... ................. 28

A. Background on Financial Management Practices 28B. Past Financial Performance and Financial Projections 28C. Financial Rate of Return and Sensitivity Analysis 30D, Financial Covenants *0 .......... ...... *e..,..... . 318. Auditing And Reporting Requirements 31

VIII. ECONOMIC ANALYSIS ............... ...,.., 32

A. Economic Costs and Benefits 32B. Economic Rate of Return and Sensitivity Analysis ........ 33C. Sectoral Contribution and Other benefits .............. 34D. Project Risks 35

IX. AGREEMENTS REACHED AND RECOMMENDATION ....................... 35

ANNEXES

2-1 Historic Consumption, Production and Imports of Fertilizers,1976-1985

2-2 The General Scope of Fertilizer Pricing and Allocation Policy Review

2-3 Comparison of Domestic and International Prices of Fertilizersand Main Energy Inputs, January 1987

3-1 Production Performance of the Five Companies3-2 Feedstock and Fuel Supply for the Five Companies

4-1 Summary of Phosphate Fertilizer Development Component4-2 Summary of Nitrogenous Fertilizer Rationalization Component4-3 An Outline of Terms of Reference for the Management Study4-4 Summary of the Program for Strengthening Management Training at

BICEM

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ANNEXES (Continued)

5-1 Organization Chart of MCI's Project Implementation Coordination Unit5-2 Project Implementatlon Schedule5-3 Pollution Levels Befcre and After the Project for the Five Companies

6-1 Project Capital Coat Estimates6-2 Estimated Disbursement Schedule for Bank Loan

7-1 Assumptions for Financial Analysis7-2 YXCFC - A Summary of Historical and Projected Financial Statements7-3 YCFC - " t " n t7-4 LCFC - t t n " n o of7-5 XCFC - to of n n i a7-6 BCRC - o s f " t t7-7 Incremental Cost and Revenue Streams for Financial Rate of

Return Calculations

8-1 Assumptions Underlying Economic Analysis8-2 Incremental Cost and Benefit Streams for Economic Rate of Return

Calculations

MAP

IBRD-20217: China - Major Fertilizer Plants

DOCUMENTS AVAILABLE IN THE PROJECT FILES

Reference

1. Organization Chart of the Five Medium-Size ProjectBeneficiaries

2. Organization Chart of MCI

3. OrganIzation Chart of BICEM

4. Full Text of the Terms of Reference for the Management Study

5. A Program for Strengthening Management Training at BICEM

6. Organization Charts of Project Management Teams of the FiveCompanies

7. A Black Book Containing Details of Economic and FinancialAnalysis

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CHINA

FERTILIZER RATIONALIZATION PROJECT

Loan and Project Summary

Borrower : The People's Republic of China.

Beneficiaries: Yunnan Xuanwei Chemical Fertilizer Company (YXCFC, Yunnan)Yuanping Chemical Fertilizer Company (YCFC, Shanxi)Luoyang Chemical Fertilizer Company (LCYC, Henan)Xuanhua Chemical Fertilizer Company (XCFC, Hebei)Beijing Chemical Experimental Company (BCEC, Beijing)The Ministry of Chemical Industry (MCI)Beijing Institute of Chemical Engineering and Management(BICEM)

IBRD Loan : US$97.4 million equivalentAmount

Terms of Loan: 20-year repayment, including 5 years of grace, at thestandard variable interest rate

Onlending : The Government will onlend US$96.1 million equivalent ofTerms the loan proceeds to the five Project companies at an

onlending rate of 7.92% p.a., with a repayment period of 15years, including 5 years of grace. An additional amount ofUS$0.45 million equivalent for a management study will beonlent to the same companies with a service charge of 0.75%p.a., for a period of 15 years, including 5 years grace.The commitment charge and foreign exchange risk will bepassed on to the companies.

Project : The proposed Project is designed to assist theObiectives Government in achieving its three main sector development

objectives, namely: (a) improvement in productionefficiency of existing medium and small-size plants throughtechnical renovation and energy saving measures; (b)reduction of nutrient imbalances through capacity expansionof phosphate fertilizers; and (c) improvemeat ofinstitutional efficiency through the introduction of moderneconomic, financial and operational systems and techniques.

Project : The Project comprises three components: (a) establishing aDescription phosphate fertilizer production capacity at an existing

plant in Yunnan; (b) converting nitrogenous fertilizerproduction of four existing medium-size plants from lowgrade to high grade products, and expanding productioncapacities with the use of modern energy saving technology;and (c) carrying out a management efficiency study and a

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program to introduce modern systems for organization,information and cost management at fertilizer enterprises,and upgrade sector-wide management training capabilities.

Project Risk : The Project is not subject to any unusual technical orcommercial risks* It deals with existing plants,technically and commercially proven technology, and %ithproducts which will be sold (at flexible prices) in whatare expected to be buoyant markets. There is some risk ofdelay due to the lack of local experience in designing andoperating facilities for DAP and urea-based NPK ferti-lizers. The Involvement of international engineering firmsand provision of comprehensive training for local staffwould minimize this risk.

Project Cost :Local Foreign Total(US$ million equivalent)

Phosphate Development Component 13.9 36.4 50.3Nitrogenous Fertilizer

Rationalization Component 37.7 46.5 84.2Institutional Development Component 0.1 1.3 1.4

Base Cost (January 1987 prices) 51.7 84.2 135.9

Physical Contingencies 5.2 8.3 13.5Price Contingencies 2.9 4.9 7.8

Installed Cost 59.8 974 157.2

Working Capital 10.4 - 10.4Interest During Construction 3.7 12.7 16.4

Total Financing Required 73.9 110.1 184.0

Financing Plan:Local Foreign Total(US$ million equivalenWtT-

IBRD Loan - 97.4 97.4Domestic Loans 54.2 - 54.2Companies' Internal Funds 19.6 12.7 32.3Government Contribution 0.1 - 0.1

Total Financing 73. 110.1 184.0

Estimated Disbursements: (FY) 1988 1989 1990 1991 1992 1993(US$ milllion equivalent)

Annual 5.8 25.3 38.6 19.4 6.3 2.0Cumulative 5.8 31.1 69.7 89.1 95.4 97.4

Economic Rate of Return: 241

CHINA

FERTILIZER RATIONALIZATION PROJECT

I. INTRODUCTION

1.01 The Government of the People's Republic of China (the Government,GOC) has requested a Bank loan of US$97.4 million equivalent to finance theFertilizer Rationalization Project (the Project)o The Project builds uponexperience gained in the design of the on-going Fertilizer .ehabilitationand Energy Saving Project (Loan 2541-CHA), the first Bank-supported fertil-izer project In China. While the first project concentrated on efficiencyimprovement of large-size nitrogenous fertilizer plants, the Project hasbeen designed to have a broader impact in line with the country's sectoraldevelopment strategy. The Project will: (a) establish one of the coun-try's first major phosphate fertilizer (DAP and NPK) production facilitiesto be based on local phosphate rock and diverting ammonia from an existingmedium-size nitrogenous plant; (b) rationalize and expand four medium-sizenitrogenous fertilizer plants while improving operating efficiency and con-verting their products from low-grade to high grade fertilizer with the useof modern technologies; and (c) strengthen sector-wide institutional effi-ciency by introducing improved enterprise-level systems for organizationalstructure, information management and cost management, and strengtheningsector-wide management training capabilities.

1.02 The Project was initially proposed to the Bank's identificationmission in September 1985, prepared during two subsequent Bank missions inMay and October 1986, and appraised in January 1987 by Messrs. K. Song andK. Constant (Industry Department). This report recommends a Bank loan ofUS$97.4 million equivalent, which will cover 52.9% of the Project's totalfinancing required and 88.5% of the total foreign exchange cost (equivalentto 100% of the foreign component of installed cost)*

II. FERTILIZER SECTOR

A. Agricultural Background

2.01 Agriculture in China, which employs some 190 million farmfamilies and accounts for about 35% of the country's GDP, provides self-sufficiency in the basic food requirements for its population of more thana billion people despite the scarcity of arable land. A relatively smallportionl/ of China's 960 million ha is cultivated, but a large portion(about TS%) of this cultivated area is irrigated, Because of land scar-city, China's agriculture employs intensive farming with relatively welldeveloped irrigation systems and heavy inputs of labor, chemical andorganic fertilizers and water per unit of land. This intensive farming,inturn, enables China to meet the basic food requirements of its population,

1/ About 10 as compared with 75% in India.

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about 22% of the world's total, from less than 8% of the world's cultivatedland. Foodgrains occupy about 70% of total cultivated area. Cotton is themost important industrial crop.

2.02 The agricultural sector has performed exceptionally well since1979, when the Government introduced a new agricultural production incen-tive system, the "production responsibility system (PRS)". Major changeswhich have taken place under PRS include: (a) an increasing role allottedto the farm household as the fundamental unit of agricultural productionand management; (b) gradual substitution of the strict production quotasystem with a "contract" system, giving farmers more flexibility in deter-mining what crops to grow and where to sell their products; (c) a rewardsystem for farmers who produce above quota; (d) price increases in majorfarm products; and (e) introduction of flexible prices within a certainprice range for above contract deliveries of agricultural products bycollectives and individual producers. Due to this incentive system, thegross value of agricultural production increased by 10% p.a. over theperiod 1980-85, compared to an average of 3% p.a. in the preceding 20years. PRS also contributed to diversification of agricultural productionby shifting acreage from grain to non-grain industrial crops and live-stock. During 1979-1985, the area sown to grain declined from 119 millionha to 109 million ha. 2/

B. Fertilizer Use in Agriculture

2.03 While China is the third largest user of chemical fertilizers andthe largest consumer of nitrogen in the world, its 1985 fertilizer applica-tion level of 123 kg of nutrients per hectare of cultivated land is only athird of that in neighboring countries such as Japan and South Korea,implying a large potential for increased fertilizer application in thefuture. However, the current nutrient imbalance among nitrogen (N), phos-phate (P 9 05 ) and potash (K20) fertilizers in China, i.e., low applicationof phosphate and potash (para 2.06), reduces synergism and the benefitsfrom the relatively high level of nitrogen application, thus posing aconstraint to the increased application of nitrogenous fertilizers. Thereare also wide variations in fertilizer use among provinces, ranging from 35kg to 210 kg of nutrients per sown ha. In view of the constraint to expan-sion of cultivated areas, efforts aimed towards increased and more effi-cient fertilizer use will thus remain central to China's strategy toincrease agricultural output.

C. Fertilizer Demand and Supply

2.04 Historical consumption, production and imports of chemicalfertilizers from 1974 to 1985 are shown in Annex 2-1, and are summarized,together with projections for 1990, in Table 2-A on the following page.

2/ However, grain production increased during the same period from 332million tons to 379 million tons due to an increase in agriculturalyields.

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Table 2-A

China - Cleaical Fertilizer Cftsu2tion, Production and Iuports a/Past and Projected

(in thOa-ndtons of mutrient)

Nitro (N) Phoaate (Pp,E) Potash ()Total NutrietCon. Prod ',Cr. Prod. Ca. Prod. 1 O C. Prod. I.

1974 3,490 2,827 928 ',368 1,390 82 57 5 57 4,915 4,222 1,0671979 8,997 8,820 1,451 1,758 1,817 190 108 16 108 10,863 10,653 1,7491984 13,378 12,211 2,828 3,686 2,359 1,342 804 31 755 17,868 14,601 4,9251985 13,448 11,584 2,052 3,522 1,734 950 920 32 364 17,887 13,350 3,361990 (proj.)b/ l5S,000 13,200 3,300 6,750 3,000 4,425 1,600 100 1,660 23,350 16,300 9,385

Aerage Annual Growth Rates (%)

1974-1985 13.0 13.7 9.0 2.0 28.8 18.4 12.5 11.21974-1979 20.8 25.6 5.1 5.5 13.6 26.2 17.2 20.31979-1985 6.9 4.6 12.3 -0.3 42.9 12.2 8.7 3.81985-1990 (proj.) 2.2 2.6 13.9 11.6 11.7 25.6 5.5 4.1

a/ Cbnsumption figures (sales to farmers) do not balanoe production plus iœports due to distributionlosses, stoc diarges and some unrecorded imports.

b/ Projected imports for 1990 were derived from supply gaps betwen domestic poduction and coumption,tsking into acount a 10% fertilizer loss in transit, storage and distribution.

Source: Mlistry of (hemical Iustry, Ministry of Agriculture, Animal Husbaidry and Fishery,General Adinistration of Custas, and State Statistical Bureau.

2.05 Fertilizer Demand. Consumption of all fertilizers increased from4.9 million tons per year of nutrients (tpyn) in 1974 to 17.9 million tpynin 1985, representing an average annual growth rate of 12.5%. Nitrogenconsumption grew at an average annual rate of 20.8% during 1974-1979, butthis spectacular growth has somewhat slowed down in recent years mainlybecause China has already reached a relatively high level of nitrogenapplication compared to the constraint in the supply of phosphate andpotash fertilizers. Phosphate consumption, which shcwed an average growthrate of 5.1% p.a. during 1974-1979, increased at a <iuch faster rate of12.3% p.a. during 1979-1985 partly due to the Government's recent emphasison increased application of phosphate fertilizer to improve the overallnutrient balance. Potash consumption has also grown rapidly during thelast decade, from a negligible base in the early 1970s, but is still verylow. During 1985, consumption of all fertilizer nutrients increased at amuch slower rate of 0.1% mainly due to a significant decline in the acreageand output of cotton and grain in response to temporary overstock situa-tion; particularly the acreage sown to cotton declined by 26%. In 1986,fertilizer consumption has rebound*d with first half sales increasing by17.4% over the same period in 1985. China also has a long history of usingorganic fertilizer, which will continue to be a valuable source of nutri-ents and to complement further increases in the use of chemical fertil-izer. Total nutrients supplied by organic fertilizers in 1985 wereestimated at about 12 million tons.

2.06 Demand for fertilizer has been projected by the Government toreach 23.4 million tpyn in 1990, with implied average annual growth ratesof about 2.2% for N, 13.9% for P20' and 11.7% for 120. These demandprojections might appear conservative in view of the past trends in fertil-izer consumption and the ability to absorb additional nutrients, but theyare realistic considering the constraints in the supply of phosphate andpotash fertilizers. According to the Ministry of Agriculture, AnimalHusbandry and Fisheries (MAAP), the desirable ratio of nutrients in Ch4naas a long-term target is 100:50:20 compared with the current ratio of100:26:7. Therefore, the Government's priority during the Seventh Five-year Plan (1986-90) is placed on rapidly expanding the consumption of phos-phate and potash fertilizers to improve the nutrient balance. By 1990,this ratio is planned to improve to 100:45:11.

2.07 Fertilizer Supply. China currently has about 1,900 operatingfertilizer plants of varying type and size, and is the world's thirdlargest producer of chemical fertilizers after the USSR and the USA.Chemical fertilizer production in China increased steadily from 4.2 milliontons per year of nutrient (tpyn) in 1974 to 14.6 million tpyn in 1984,before falling back to 13.4 million tpyn in 1985. Production of nitroge-n-ous and phosphate fertilizers during 1974-1985 grew at average annualrates of 13.7% and 2.1%, respectively. The decline in domestic productionof both nitrogenous and phosphate fertilizers in 1985 was due mainly to theGovernment decision to close some 200 small inefficient plants producinglow quality, low nutrient content fertilizers, such as ammonium bicarbonate(ABC), single superphosphate (SSP) and calcium magnesium phosphate (cMP),in response to diminishing demand for those fertilizers.

2.08 A significant portion of the fertilizer production in China is oflow grade. Nitrogen production in 1985 comprised about 55% ammonium bicar-bonate (ABC, 17% N), 36% urea (46% N) and the balance, largely, ammoniumnitrate (35% N), liquid ammonia, ammonium chloride (25% N) and ammoniumsulfate (21% N). About 77% of the phosphate production in 1985 was SSP(18% P505), and 22% was CMP (18% P205). ABC, which is the main product ofmost of the small plants and several medium-size nitrogen plants, is proneto decomposition and evaporation during and after application, and is dif-ficult to transport and store for prolonged periods without substantialnutrient losses. Overall nitrogen losses for ABC in transportation,storage and application are estimated at about 12.3% above those for urea(para 8.03 and Table 1 of Annex 8-1).

2.09 During the Seventh Five-Year Plan period (1986-1990), the Govern-ment expects to add the following production capacities for high-grade fer-tilizers: (a) two large-size urea plants, each with 1,740 tons per day(tpd) capacity based respectively on fuel oil and natural gas feedstock,(b) three 800 tpd DAP plants; (c) one 400 tpd DAP plant; (d) one large-sizenitrophosphate plant, with capacity of 2,970 tpd; (e) one medium-sizenitrophosphate plant, with 500 tpd capacity; (f) one 1,800 tpd NPR capaci-ty; (g) one 500 tpd NPK plant; and (h) one 200,000 tpy potash plant toexpand the exploitation of the potash resources of Quarhan Lake in QinghaiProvince. In addition, conversion of all medium-size ABC plants, includingthe five plants under the Project, will be commenced during the present

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plan period to produce high grade fertilizers. The production target for1990 is about 16.3 million nutrient tons, of which 13.2 million tons wouldbe nitrogen, 3.0 million tons phosphate and 0.1 million tons potashfertilizers. This implies average annual growth rates of 2.6% for nitrogenproduction, 11.6% for phosphate output, and 33.0% for potash. Thecomposition of the overall investment program is reviewed in para 2.28below.

2.10 Fertilizer Demand and Supply Balance. Despite the impressivebuild-up in production capacity during the last decade and continued expan-sion under the Seventh Five Year Plan, China will need to continue import-ing fertilizers to meet expected domestic demand. In 1985, about 68% ofChina's total consumption of chemical fertilizers was met from domesticproduction (78% for nitrogen, 45% for phosphate and 3% for potash).Fertilizer imports during the last five years have averaged about 3.5million tpyn, at a value of over US$1 billion p.a., making China theworld's largest net importer of fertilizers. The fertilizer demand andsupply balance outlined in Table 2-A shows that the overall fertilizerdeficit, to be met by imports, is projected to increase from 3.4 milliontons of nutrients in 1985 to 9.4 million tons in 1990.

D. Fertilizer Industry Structure

2.11 Supervisory Authorities, At the central government (state)level, the Ministry of Chemical Industry (MCI) has overall supervisory res-ponsibilities for the fertilizer industry. MCI prepares five-year sectoralplans for the industry, works out annual production targets and coordinateswith other government agencies for raw material supply and output sales.The State Planning Commission (SPC), which is in charge of planning coordi-nation for centrally controlled sectors of the economy, sets guidelines forinvestment and production activities of the fertilizer sector, and approvesthe major investment and production plans prepared by MCI. The StateEconomic Commission (SEC) is responsible for resolving Plan implementationissues through coordinating the interests of the related government agen-cies. At the local level, Chemical Industry Bureaus (CIBs) of the provin-cial, county and city governments undertake a function similar to that ofMCI for the local fertilizer industries, and local Planning Commissions,likewise, act as the counterparts of SPC.

2.12 Of about 1,200 operating nitrogenous fertilizer plants in China,only 15 large plants have capacities in line with current internationalnorms (about 280,000-300,000 tpy ammonia each). In 1985 these plantsaccounted for about 26% of the total nitrogen fertilizer production.Fifty-five medium-size plants (45,000-200,000 tpy ammonia) accounted forabout 22% of the nitrogen output, and some 1,130 remaining small plants(lese than 45,000 tpy ammonia), produced the remaining 52%. In addition,China has some 600 phosphate fertilizer plants of varying size, rangingfrom 15,000 tpy to over 100,000 tpy of products. Potash fertilizer produc-tion in China is at present insignificant.

2.13 Supervisory responsibility for individual plant operationsdevolves upon different levels of government, depending upon the size andfeedstock of plants. Large-size nitrogenous fertilizer plants are under

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the direct responsibility of central government agencies; out of the 15large nitrogenous fertilizer plants, six are under MCI, and the other nineunder the China Petrochemical Corporation (SINOPEC). Niedium-size fertil-izer plants belonging to integrated chemical complexes are supervised bycentral governmernt agencies, but most of the small- and medium-size fertil-izer plants are under the supervision of local CIbs. MCI monitors theperformance of these companies through local CIBs.

2.14 Production Technolo Most of China's fertilizer plants werebuilt using indigenous design, technology and equipment, reflecting GOC'spolicy during earlier phases of the industry's development to rely onindigenous technology to the maximum extent possible. In the early 1970sthis approach was modified and the 15 large nitrogenous fertilizer plantswere constructed over the 1970s and early 1980s using imported technologyand equipment. The average capacity utilization of the large nitrogenplants in 1985 was 89%, compared to the average of about 80% for theoperating small and medium-size plants.

E. Feedstock Supply and Energy Consumption

2.15 Feedstock Supply. China uses a variety of feedstocks for nitro-gen fertilizer production. In 1985, anthracite, coke and lignite accountedfor 62% of the total ammonia production, natural gas for 22%, and fuel oiland naphtha for 16%. Large-size nitrogenous fertilizer plants use naturalgas, naphtha and fuel oil as feedstocks for ammonia production, while thesmall- and medium-size plants mainly use coal. Natural gas for the larve-size plants is supplied from nearby gas or oil fields through pipelines,and coal for the small and medium-size plants is supplied mainly fromregional mines by rail. Small-size phosphatic fertilizer plants use localphosphate rock to produce SSP and CMP. The current level of phosphate rockproduction is low compared to China's large proven reserves. During thenext decade, the Government will give priority to more intensive exploita-tion of local phosphate resources.

2.16 Energy Consumption. Energy consumption in China's nitrogenousfertilizer plants is significantly higher than their attainable levelsbased on technical analyses, as shown in Table 2-B below:

Table 2-B

China - Average Energy Consumption in Ammonia Production(in million kcal/ton of ammonia)

Energy ConsumptionPlant Type Feedstock Current Attainable

Large-Size Natural Gas 9.7 8.5-9.0Naphtha 9.4 8.5-9.0

Medium-Size Anthracite/Coke 16.2 13.0Fuel Oil 15.1 12.0Natural Gas 12.4 9.5

Small-Size Anthracite/Coke 17.0 15.0

The large-size plants, which were designed in the early 1970s, have notincorporated more recent technological improvements in energy consump-tion. Under the Bank's first fertilizer project, five large-size plantsare implementing energy saving measures with the use of modern technology.Most of the mediumrsize plants are based on outdated technology, and wouldrequire major process modifications to reduce energy consumption substan-tially. The Project will help the five project companies reduce theirenergy consumption close to the attainable level. The small-size nitrogenplants typically have higher energy consumption than the medium-sizeplants. In many of these plants, it is not clear whether major investmentprograms would be warranted by the remaining economic life of existingfacilities. The question of excessive energy consumption can be addressedonly gradually, in view of the substantial investment and time required fortechnical renovation and industry restructuring.

2.17 In recent years, the Government has introduced several policymeasures to provide incentives for energy conservation, namely: (a) priceincreases for energy feedstocks; (b) tightening of energy supply quotas;(c) bonuses for below quota use; (d) penalties in the form of higher pricesfor additional energy consumption; and (e) the establishment of energyconservation centers to assist enterprises in improving energy efficiency.However, these policy measures have only been partially successful partlybecause advanced energy saving technologies were not easily availablelocally.

F. 1ertilizer Marketing and Distribution

2.18 Fertilizer Allocation Plan. In May 1985, a significant policychange was made in China's fertilizer allocation system when the Governmentintroduced the new contract system for the procurement of farm output (seepara 2.02). In the past, fertilizers were essentially allocated by theGovernment under a state allocation plan in exchange for agriculturalproducts acquired through the state procurement system. The currentcontract system allows more flexibility to both farmers and the Governmentin fertilizer allocation, by reducing the quantity of fertilizers coveredby the state allocation plan. Fertilizer producers have been allowed tosell an increasing portion of their production outside the state plan,sometimes directly to farmers and across provincial boundaries. However,the state procurement system still handles about 60% of the country's totalfertilizer consumption, and over 90% of the high grade fertilizersincluding urea and DAP.

2.19 Fertilizer Marketing. About 80% of chemical fertilizers in Chinais marketed through the Agricultural Means of Production Corporation(AMPC), a state-owned company under the Ministry of Commerce (MOC). Thebalance is sold by fertilizer plants directly to farmers. AMPC procuresfertilizers from the domestic fertilizer plants and SINOCHEM,3/ andmarkets fertilizers through some 2,500 wholesale offices at national,

3/ The China Chemical Export and Import Corporation (SINOCHEM), under theMinistry of Foreign Economic Relations and Trade, is responsible forall imports of chemical fertilizers.

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provincial and county levels. The county level wholesale offices sellfertilizers to farmers through: (a) about 64,000 retail cooperative shops(about 55% of total AMPC fertilizer sales); (b) some 110,000 retail shops(30%); and (c) direct sales (15%).

2.20 Fertilizer Transportation, The transport system has so far beenable to cope with the movement of the large and growing quantity of fertil-izers, which in 1985 amounted to about 75 million prods.ct tons. Fertilizermovement is given priority in the transport system to ensure timely avail-ability to farmers. Fertilizer is transported, mainly in bagged form,directly from plants and ports to a network of county level AMPC warehouseslocated close to consuming areas. ABC from small nitrogen plants, account-ing for about half the total tonnage in terms of transportation volume in1985, was transported mainly by road because it is generally consumed inareas close to the plants. About one-third of the total fertilizer distri-buted in China is transported by rail, over an average distance of about750 km. River transportation also plays an important role.

2.21 Fertilizer Storage. With increasing fertilizer consumption, fer-tilizer storage capacity has not been adequate in recent years to meet peakstorage requirements. Storage facilities for fertilizers provided by AMPCat various levels have a total warehousing capacity equivalent to threemonths' national fertilizer consumption. AMPC's warehouses at national,provincial and county levels account for half of the total storage capa-city, and the remaining half is located in the countryside in its retailshops. Currently, AMPC enecurages farmers to buy fertilizers during off-seasons by offering rebates to reduce storage burdens as well as carryingcosts. The shortage of warehousing capacity at peak storage demand wlll bealleviated gradually as low-grade fertilizers are displaced by high-gradefertilizers.

G. Fertilizer Pricing

2.22 The on-going economic reforms have introduced various positivechanges in fertilizer pricing, and these changes, along with the change infertilizer allocation policy, have enabled market forces to play anincreasing role in determining fertilizer production and allocation. Inthe past, fertilizer prices, like those for other essential commodities inChina, were strictly administered by the Government. The Government'sstrategy now includes allowing greater scope for market forces to influ-ence fertilizer pricing and allocation, so as to contribute to improvedefficiency in fertilizer production and application. As a result, a two-tier pricing system has emerged: (a) controlled prices for the state planquota; and (b) flexible, market-influenced prices for outside the stateplan quota. At present, about 40% of the country's total consumption offertil ers is sold at flexible prices outside the state allocation plan;this percentage varies significantly among products and with the quality ofproduct.

2.23 The current two-tier pricing system is viewed as an intermediatestep in the evolution of sectoral policy. This transitional system has

several recognized limitations, including: (a) discrimination among differ-ent producers and consumers; (b) administrative complexity involved inpartial application of new principles; and (c) distortions and time lags inprice adjustments of inputs and outputs. However, the two-tier structureis expected to continue in place until a broader economic reform package isintroduced, due in part to the close interrelationship between fertilizerand the agricultural sector, and the potential disruption if allocation andpricing arrangements for fertilizers were to be liberalized in isolation.The Government's strategy is to continue to reduce administrative controlof fertilizer pricing gradually in parallel with the gradual dismantling ofannual production planning and allocation, thus allowing the economy to"grow out of the plan." To serve as a guideline for future policy reforms,the Chinese authorities, under the leadership of the State Pricing Bureau(SPB), intend to undertake a comprehensive review of fertilizer pricing andallocation policies in parallel with the Project. A "Fertilizer Pricingand Allocation Policy Review Group", headed by the Director of theDepartment for Heavy Industry and Communication, SPB, and consisting ofrelated government agencies including Ministry of Finance (MOP), MCI, MOC,MAAFP SINOPEC and SINOCHEM, will review the present two-tier pricing andallocation system and various options for future policy reforms. Thegeneral scope and timetable of the review has been discussed with the Bank,and is given in Annex 2-2. During negotiations, confirmation was obtainedfrom the Government that this review will be carried out along the linesstated in this agreed general scope and timetable.

2.24 Ex-factory Fertilizer Prices. Fertilizer production within thestate plan quota is sold at controlled ex-factory prices and productionabove the quota is marketed directly by fertilizer producers at market-related flexible prices, within the limits for retail prices set by thepricing authorities including SPB and local (provincial, city and county)pricing bureaus. Prices for major fertilizers, such as urea and DAP, areset by SPB, while prices of other products are determined by the localauthorities. The portion of fertilizers allowed to be sold at flexibleprices differs among products and localities and according to the financialsituation of individual manufacturers. In general, many manufacturers oflow-grade fertilizer (ABC, SSP) are allowed to sell almost their entireproduction at flexible prices outside the state allocation plan, whilemanufacturers of high-grade fertilizers, like urea and DAP, enjoysubstantially less flexibility. The Government has issued guideline pricesfor low-grade fertilizers around which actual prices have clustered, butwith large variations.

2.25 The ex-factory prices of urea, DAP and ABC, and the deliveredprices of the main energy inputs, together with comparable internmationalborder prices in February 1987, are given in Annex 2-3. The present ex-factory controlled price of bagged urea is Y 420 (US$114)/ton, and themarket-related price of urea is negotiated within the ceiling price of Y520 (US$141)/ton, which is equivalent to about 952 of its import parityvalue. In practice, however, observed negotiated ex-factory pricesfrequently exceed the ceiling price, at least during the peak season,implying considerable upward flexibility in the retail price as well.

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There is at present only insignificant local production of DAP (about15,000 tpy at Nanjing), and the entire production is allowed to be sold ata flexible price of about Y768 (US$208)/ton, equal to its import parityprice. Imported DAP within the State Plan is sold at Y560 (US$151)/ton,and the difference between the import price and the sale price issubsidized by the Government. The current ex-factory guideline price ofABC has been set since March 1986 at Y 160/ton (US$43), about 89% of itseconomic value. Over 90% of high grade fertilizers including urea and DAPare currently being sold at controlled prices under the state allocationplan. During negotiations, an assurance was obtained from the Governmentthat the five project companies w1ll be allowed to market directly theentire output from project-supported facilities outside the stateallocation plan at market-related prices (subject only to such Governmentprovisions as may apply to prices of fertilizers at the retail level).

2.26 Farmgate Fertilizer Prices. Distribution margins are added toex-factory prices to determine controlled farmgate prices of fertilizersused for major crops within the State Plan. The margin of about Y 100(US$27/ton) allowed for controlled prices of urea and DAP appears realisticfor AMPCs to cover transport and storage costs. Farmgate prices of thesefertilters outside the state allocation plan are negotiated, and arecurrently as much as 20-50% above controlled farmgate prices.

H. Government Strategy in the Fertilizer Sector

2.27 The Government's priorities in the fertilizer sector are to: (a)increase high-grade fertilizer production by building new capacities andrationalizing the existing low-grade fertilizer facilities; (b) increaseproduction efficiency of existing fertilizer plants through technicalrenovation, energy saving measures, and product quality improvements; (c)reduce the nutrient imbalance by rapidly expanding capacity of phosphatefertilizers based on locally available phosphate rock and developing domes-tic potash resources; and (d) raise efficiency of enterprise operationsthrough improvements in operational and financial management.

2.28 During the Seventh Five-Year Plan, the Government's sectorinvestment strategy envisages: (a) commissioning of 11 new plants current-ly under construction (see para 2.09); (b) conversion of medium-size plantsto produce high-grade fertilizers; (c) intensified exploitation and devel-opment of local phosphate mines; (d) initiation of several phosphatefertilizer projects to be completed during the following five-year Plans;and (e) rationalization of small-size plants including conversion ofproducts. At present, the Government does not contemplate any investmentsin new small-size plants. Indeed, 300 such plants were closed between 1978and 1983, and additional 200 small plants have been inoperative since early1985. A preliminary economic evaluation r-ade by the appraisal mission ofprojects representative of the major types of proposed investments indi-cates that the larger scale high-grade fertilizer plants the Governmentplans to build are economically well justified. Their economic viabilityis largely attributed to China's abundance in energy feedstocks and short-ages of hi&a grade fertilizers, which are anticipated to persist at leastwithin the next decade. Conversion of medium-size plants as proposed, forexample, under the Project, also yields attractive economic rates of

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return. The Government's emphasis on establishing an efficient domesticphosphate industry is also considered appropriate given the nutrient imbal-ance in fertilizer use as well as China's endowment of phosphate rockreserves. As for the rationalization of small size plants, a significantnumber of theee plants have location and feedstock advantages which couldJustify their continued operations and rehabilitations. A case-by-caseapproach will be taken considering variations in plant size, technology,feedstock and location of those plants. In converting small plants to pro-duce high-grade fertilizers, the Government is currently taking a cautiousapproach through pilot implementation of a few such conversions.

I. Bank Role in the Fertilizer Sector and Project Justification

2.29 In support of the Government's efforts to establish an efficientfertilizer sector, the Bank's main role in the sector is to provide: (a)advice on policy measures relevant to the improvement of sectoral efficien-cy, particularly in fertilizer pricing and allocation, investment planning,information management, and management reforms; and (b) financial and tech-nical assistance in modernizing existing fertilizer production facilities,building new capacities, particularly for phosphate and potash fertilizers,and selecting appropriate technologies. The fertilizer industry has beenselected by GOC as a priority sector for Bank lending in view of its impor-tance to agriculture and major technological and large investment needs.

2.30 The Bank's first project in the sector (Fertilizer Rehabilitationand Energy Saving Project, Loan 2541-CHA, FY85) provides financial assis-tance for efficiency improvements in four large and two medium-size nitro-genous fertilizer plants. Implementation of the first project is proceed-ing well and on schedule. In addition, testing of phosphate rock andfeasibility studies for exploiting local phosphate reserves in Hubei andGuizhou Provinces are being undertaken under the IDA-financed TechnicalCooperation Credit (1412-CHA). The Bank is also providing support for thedevelopment of a phosphate subsector investment planning study to optimizeinvestments up to the year 2000, which is nearing completion. The studycovers all the phosphate related subsectors, including phosphate mining,transportation and fertilizer manufacturing.

2.31 The Project will complement the Bank's first fertilizer projectand broaden the Bank's contribution in improving sector-wide efficiency.In line with China's current strategy to rationalize its existing medium-size plants, the Project will support the rationalization efforts of fivemedium size ABC plants. In the course of project preparation, the Bank hasalready made a significant contribution in optimizing the future configura-tion of the five medium-size plants. Experience in the preparation andimplementation of this Project will be useful to the Government in imple-menting similar projects in the future. The Yunnan phosphate fertilizercomponent, which will establish the country's first major DAP productionfacility utilizing local phosphate rock, supports the Government's mediumand long term strategy to develop a phosphate fertilizer industry to solvethe problem of nutrient imbalance in fertilizer use. Further, the institu-tional development component will support the on-going efforts of the

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Government to Improve managerial efficiency of the sector. This componentis the first example of a comprehensive sectoral approach to adaptingorganization and management of enterprises to the increasingly commercialoperating environment in China and its succ2ssful implementation will havea strong demonstration effect on othker sectors. Future Bank assistance inthe fertilizer sector is expected to include support for phosphate fertil-izer development. The scope for further assistancs in carrying out plan-ning and strategic studies in the sector is also under consideration.

III. PROJECT INSTITUTIONS

3.01 The Fertilizer Rationalization Project Involves: (i) fivemedium-size nitrogenous fertilizer companies, which will implement the res-pective phosphate development and nitrogenous fertilizer rationalizationcomponents; (ii) the Ministry of Chemical Industry (MCI) ,which will sponsora study on managerial efficiency of enterprises in the chemical fertilizerindustry (the Management Study, para 4.06); and (iii) the Beijing Instituteof Chemical Engineering and Management (BICEM) which will carry out aprogram to strengthen management training of fertilizer enterprises andMCI's information management capabilities. Details on these institutionsare given below.

A. Five Medium-Size Fertilizer Companies

1 General

3.02 The five medium-size fertilizer companies involved in theProject, which are currently producing ABC, are: (a) Yunnan XuanweiChemical Fertilizer Company (YXCFC) in Yunnan Province; (b) YuanpingChemical Vertilizer Company (YCFC) in Shanxi Province; (e) Luoyang ChemicalFertilizer Company (LCPC) in Henan Province; (d) Xuanhua Chemical Fertil-izer Company (XCFC) in Hebei rrovince; and (e) Beijing Chemical Experimen-tal Company (BCEC) in Beijing City. These companies are state-owned enter-prises, whose production operations are under the direct supervision oflocal CIBs. Their charters, describing the scope of activities, responsi-bilities and authorities of their organizations, have been registered withthe respective provincial governments. While the local governments, actingprincipally through their CIBs, direct the administrative, operational andfinancial activities of these companies, the latter operate as independentlegal and accounting entities and enjoy a wide spectrum of autonomy inmajor business decisions, though detailed arrangements vary from provinceto province. Further details on the five companies are given in thefollowing paragraphs, and their financial situation and prospects arereviewed in Chapter VII.

2. Company Background

3.03 The Yunnan Xuanwei Chemical Fertilizer Company (YXCFC) locatednear Xuanwei ity, Yunnan Provinee, was founded in 1966. Its ammonia andABC plants were commissioned in 1972. The original capacities of the

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ammonia and ABC plants were, respectively, 45,000 tpy and 180,000 tpy. InDecember 1985, rehabilitation work for Lhe ammonia plant was completed andits production capacity was increased to 60,000 tpy. A 7,000 tpy methanolplant and a 7,300 tpy formaldehyde plant were commissioned in 1986. Thecapacity of the ABC plant has been expanded to 240,000 tpy.

3.04 The Yuanping Chemical Fertilizer Company (YCFC), located inYuanping County in the coal-rich province of Shanxi, was established in1966. The ammonia plant, with a design capacity of 45,000 tpy, and the180,000 tpy ABC plant were commissioned in 1971.

3.05 The Luoyang Chemical Fertilizer Company (LCFC), located nearLuoyang city in Henan province, was established in 1966. The company com-missioned an ammonia plant with a 45,000 tpy capacity and a 180,000 tpy ABCplant in 1970.

3.06 The Xuanhua Chemical Fertilizer Company (XCFC), located in ZhangJia Kou city, Hebei Province, was established in 1966 and started producingABC in November 1968. XCFC has an ammonia plant and an ABC plant identicalto those of YCFC and LCFC.

3.07 The Beijing Chemical Experimental Company (BCEC), located in theeastern suburb of Beijing City, started as an experimental pilot plant forammonia production in 1958. The ammonia plant, with an original capacityof 10,000 tpy, was subsequently expanded six times to the existing capacityof 110,000 tpy in 1979. BCEC also has a 200,000 tpy ABC plant, a 45,000tpy methanol plant, a small formaldehyde plant, and a small urea plant witha 12,500 tpy capacity. The urea plant was closed in 1986 due to its lowefficiency.

3. Organization and Management

3.08 Recent Management Reforms. Chinese fertilizer companies havebeen given increasing management autonomy under the recent economicreforms. In the past, the managerial and financial autonomy of the compa-nies, as in other sectors, was extremely constrained; the Government (SPC,MCI and respective local governments) set annual production targets, allo-cated inputs, distributed output, and allocated funds from budgets. Inrecent years, various measures have been taken to allow some flexibility inthe system, resulting in the appearance of a two-tier planning and manage-ment system; a state plan mandates i basic minimum level of activities,while beyond this level the companies are permitted autonomy to operate inresponse to market forces under a flexible plan. The flexible plan allowsthe comueanies to take their own decisions relating to the productionlevels, procurement of raw materials, and sales of products in respect toproduction above the quota, and utilization of funds generated by suchoperations. Although state planning is expected to continue to affect thefertilizer sector in the near future, the scope for flexible planning andmanagement is expected to expand further, providing greater autonomy to themanagement of the companies.

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3.09 Organization. The five fertilizer companies, whose organiza-tional structure is quite similar (their organization charts are given inProject File No. 1), are typical of Chinese fertilizer enterprises inbeing characterized by an extremely flat structure consisting of numerousunit workshops and departments with few management layers. A Director,appointed by the supervisory authorities, heads the company with the assis-tance of: (a) three or four Deputy Directors who are responsible, respec-tively, for sales and procurement, administration, production and mainte-nance and construction projects; (b) a Chief Engineer in charge of techni-cal matters; and (c) a Chief Accountant responsible for accounting andfinancial matters. The existing structure does not conform to the standardcontemporary principles of organizational efficiency such as adequate spanof control or functional distribution of responsibilities among linemanagers. Some managers are overloaded with supervisory responsibilities,and horizontal coordination among various departments and workshops is notwell maintained. Production managers of the five companies, for example,are each responsible for an average of about 20 different working units.There is a strong need for organizational restructuring of the companies toenable them to carry out effectively their changing organizational man-dates. The Management Study to be carried out under the Project (para4.06) will look into this organizational aspect in the context of thechanging business environment, and will help to design appropriate organi-zational structures suited to the Chinese situation.

3.10 Management. ABC producers, including the five fertilizer compa-nies under the Project, enjoy greater autonomy than other fertilizer pro-ducers. In early 1985, ABC manufacturers became responsible for the mar-keting of their entire production outside the state allocation plan atmarket-related negotiated prices. On the production side, the portion ofthe state quota production for ABC producers has been reduced substantiallyor totally eliminated since then 4/. As a result, the companies have beenencouraged to take a variety of measures to strengthen their marketingcapabilities: the product quality has been improved; sales forces havebeen expanded, on average, from 2-5 persons to 20-60 persons, in part todevelop inter-provincial sales; and new emphasis is being given to develop-ing client relationships with AMPC at various levels and with farmers.

3.11 Management capabilities of the companies are not yet adequate toexploit fully the potential benefit of the new business environment.Significant improvements are required in the area of production and finan-cial planning, information management, and cost and financial management.Most importantly, production and financial planning for the five companiesis currently limited to one-year plans, which do not adequately cover themost strategic variables. Difficulties in extending the planning periodlie mainly in: (a) the lack of a reliable data management system; (b)limited autonomy in determining major business variables; (c) the lack ofexpertise and capacity in business forecasting; and (d) the absence of a

4/ For example, XCFC enjoys total autonomy in both production andmarketing.

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proper cost management system. These difficulties can be overcome only bya combination of further delegation of responsibilities to company manage-ments, and the establishment of reliable computerized management informa-tion and cost management systems. The Management Study will provide prac-tical recomendations on the introduction of modern systems for informationand cost management as well as investment and financial planning. Follow-ing successful introduction of these systems on a pilot basis, the Govern-ment would gradually extend them to the entire sector. BCEC and YXCFCwill undertake pilot implementation of these systems under the ManagementStudy, and the other three project companies plan to introduce them subse-quently.

3.12 Staffing and Training. The five companies maintain an almostsimilar set of training programs for their employees. On average, eachcompany currently employs about 2,000 staff,5/ of which about 7-10% istechnical and another 15-20% is general management personnel. Most of thehigher level operational and managerial staff have received college or uni-versity education, and most technicians have attended technical schools.WIhile technical and management training at professional training institu-tions is urgently needed to update technical expertise and adapt to thechanging business environment, outside training opportunities for managersand technicians as well as workers are currently limited and the quality oftraining provided has not been adequate to meet training needs. The insti-tutional development component under the Project will contribute toimprovements in the quality of technical and management training, at theBeijing Institute of Chemical Engineering Management (BICEM, para 3.16), aprofessional training institution under MCI. In connection with the imple-mentation of the Project, arrangements have been made for top and middlemanagers of the five companies to receive intensive training in theirspecific fields of &pecialization at BICEM.

4. Production Performance

3.13 All the five companies have operated at high levels of capacityutilization; in 1986, the level was over 90% for both ammonia and ABC. Upto 1983, YXCFC's capacity utilization was somewhat low due to mechanicalproblems in the ammonia plant. These problems were solved through plantmodifications during 1984-1985. The urea plant of BCEC, having operated asa balancing plant for surplus ammonia at low capacities, was closed down in1986 because of its low efficiency. The recent trend in production andcapacity utilization of the five companies during 1981-1986 is given inAnnex 3-1.

3.14 Anthracite and coke, used as feedstocks for ammonia production,have been supplied in sufficient quantities, and have not posed anyconstraint to production. About 80% of feedstock requirements for thecompanies are currently allocated within the state plan at controlledprices. The balance of the requirements is purchased from various

5/ YCFC - 1,876 (160); LCFC - 2,024 (123); XCFC - 1,869 (136); BCEC -3,409 (336) including personnel for other non-fertilizer operations;and YXCFC - 2,348 (180)--technical staff in parentheses.

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suppliers at market-relate-d negotiated prices which are, in general, about10% higher than the controlled prices applied to the state allocation.Sources, prices, and calorific value of the main feedstocks for the fivecompanies are given in Annex 3-2. Electricity is supplied from localgrids.

B. The Ministry of Chemical Industry (MCI)

3.15 MCI is essentially a technical planning and policy-implementingbody, whose objective is to promote the development of the chemical indus-try and to coordinate production. In addition to the chemical fertilizersector, MCI oversees some refineries, rubber plants, and several otherchemical industries. MCI monitors activities of the chemical industry atthe provincial and county levels in coordination with local CIBs. MCI isheaded by a Minister, assisted by four Deputy Ministers who are responsi-ble, respectively, for: (a) finance and foreign affairs; (b) production;(c) construction projects; and (d) education and research. MCI maintains atask force for coordination with the World Bank, known as the"World Bankproject Implementation Coordination Group" led by the Deputy Minister forFinance and Foreign Affairs. The World Bank Loan Office, an executive armof the group, is headed by a Director level official. The organizationchart of MCI is given in Project File No. 2.

C. Beijing Institute of Chemical Engineering and Management (BICEM)

3.16 Recognizing the growing need for the introduction of modernmanagement techniques in the chemical industry, MCI established BICEM in1983. BICEM is the training arm of MCI for government officials relatedto the fertilizer industry and for managers of chemical enterprises.Financial resources for BICEM come mainly from the budget allocation of MCI(about 90%) and partly from tuition fees of students (about 10%). Atpresent, BICEM has five departments specializing, respectively, in econo-mics and management, accounting, chemical engineering, administrativemanagement, and foreign languages. These five departments are furthergrouped into different specialized fields. BICEM currently has 206 staff,of which 116 are teaching staff. About 1,000 students can be trained atany one time at the Institute, which has dormitories, a library, a computercenter, 18 laboratories, and a language laboratory. The organization chartof BICEM is given in Project File No. 3.

IV. THE PROJECT

A. Project Objectives

4.01 The Project is designed to assist China in achieving its priorityobjectives of meeting the country's growing fertilizer needs more effi-ciently through the expansion of fertilizer production capacities, theupgrading of fertilizers, and the improvement of the production and manage-rial efficiency of chemical fertilizer enterprises. Specific objectives ofthe project are to: (i) establish one of the country's first major DAP

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production facilities, utilizing local phosphate rock reserves; (ii)install new urea production capacity while replacing the production of ABCand expanding ammonia capacities; (iii) modernize technology in fertilizerproduction; (iv) support efforts of enterprises to improve efficiency inproduction, financial and marketing management through organizationalrestructuring, introduction of management information systems (MIS) and theimprovement of cost accounting systems; (v) improve the quality ofmanagement training for high and middle-level managers of fertilizerenterprises and government officials; and (vi) upgrade MCI's capabilitiesin investment planning and information management. To achieve theseobjectives, the Project comprises the following three major components: (a)phosphate fertilizer development component; (b) nitrogenous fertilizerrationalization and expansion component; and (c) institutional developmentcomponent.

B. Phosphate Fertilizer Development Component

4.02 This component of the Project will establish a DAP/NPK productionfacility at YXCFC in Yunnan Province, which currently operates a 15-yearold medium-size nitrogenous fertilizer plant producing ammonia and ABC.In order to accommodate the changing market demand towards high-grade andphosphate fertilizers, YXCFC will modify its plant configuration to produceDAP and NPK. This component cniprises: (a) installation of a 200,000 tpypyrites-based sulfuric acid plant, a 80,000 tpy P205 phosphoric acid plantwith a 4,200 tpy fluoride processing capacity, and a 240,000 tpy DAP/NPKgranulation plant; (b) establishment of utilities and offaites includingraw material handling and storage facilities and a site for phosphogypsumdisposal; (c) implementation of energy saving measures in the existingcoal-beqed ammonia plant; and (d) local and overseas training for opera-tions and technical staff. Phosphate rock will be supplied from theJinning mine in Yunnan Province, and pyrites will be shipped 1,700 km byrail from the Yunfu mine in Guandong Province. The granulation plant willproduce 158,000 tpy of DAP, and 90,000 tpy of NPK (typically 16-16-16)utilizing 32,000 tpy of DAP. A detailed description of this component isgiven in Annex 4-1.

4.03 Production levels before and after the Project are shown in Table4-A on the next page.

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Table 4-A

YXCFC - Production levels Before and After Project('000 tons of product per year)

Product Beforea/ After0/

Ammonia 48 54ABC 215 75DAP - 126NPK (16-16-16) -oc/

a/ Based upon actual production performance.b/ At 90% of design capacity.cl 19,000 tpy of urea will be purchased from outside sources to produce

NPKe

C. Nitrogenous Fertilizer Rationalization and Expansior. Component

4.04 This component is designed to convert four medium-size nitroge-nous fertilizer plants (YCFC, LCFC, XCFC and BCEC) from ABC production tourea production, using the latest international urea technology, whichfeatures high conversion efficiency and low energy consumption. All fourplants are about 12 to 15 years old, and have high energy consumption ofabout 15-16 million kcal per ton of ammonia compared to an attainablelevel of about 13 million kcal for anthracite/coke based plarts (para2.16). The Project will also modify the existing ammonia plants to saveenergy. This component for each of the four plants consists of: (i) energysaving modifications in existing coal-based ammonia plants; (ii) expansionof ammonia capacities to 80,000 tpy; (iii) installation of a 132,000 tpy(400 tpd) urea plant, based on the latest international technology; (iv)all utilities/off-sites required for smooth plant operation, includingstorage facilities for 800 m3 of ammonia and 3,000 tons of bagged urea; and(v) training in operations and maintenance. A description of thiscomponent is given in detail in Annex 4-2.

4.05 Production levels before and after the Project are shown inTable 4-B below:

Table 4-B

YCFC, LCFC, XCFC and BCEC - Production Levels Before andAfter Project

('000 tons of product per year)

Ammonia ABC Ureabeore"/ after"/ befor IO/ after-/ Be-ore" after"/

BCEC 65 72 230 0 0 119LCFC 45 72 170 0 0 119XCFC 55 72 220 0 0 119YCFC 46 72 170 0 0 119

rn, zarru uu aErual production performance.b/ At 90% of design capacity.

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In addition to product change, the total output in nutrient terms of thefour companies would be increased by about 88,000 tpy. This capacityexpansion is technically feasible given the good condition of the ammoniaplants, which will permit high capacity utilization of the proposed ureaand DAP plants, and can be achieved with only minor capital investmentsbecause many sections of the ammonia plants were originally overdesigned.

D. Institutional Development Component

4.06 The institutional development component will carry out: (i) aManagement Study to design improved enterprise-level management systems;and (ii) a program at BICEM to strengthen sector-wide management trainingand MCI's data and project management bystem, The Management Study, to becarried out by internationally recruited consultants in close collaborationwith a group of local experts to be formed within MCI, will: (i) reviewthe organizational atructure, management information and cost managementsystems of chemical fertilizer enterprises; (ii) recommend improvements inthe design of such systems considering the changing organizational mandatesof the companies; and (iii) introduce new systems on a pilot basis at BC2Cand YXCFC. The Management Study will also prepare specific recommendationsfor the extension of such systems to the entire chemical fertilizersector. The terms of reference for the Management Study are given inproject File No. 4 and summarized in Annex 4-3. During negotiations, anassurance was obtained from the Government that the Management Study willbe carried out in accordance with the terms of reference agreed with theBank, and completed and reviewed with the Bank no later than June 30,1989.

4.07 BICEM offers various management courses for managers of chemicalenterprises and officials of central and local governments. However, itsteaching staff, equipment, and materials require upgrading, and curriculumdesign needs to be strengthened. Under this component of the Project,BICEM will carry out a program to strengthen the quality of training by:(i) aligning the curricula to priority training needs of the industry; (ii)overseas training of selected teaching staff; (iii) inviting foreignexperts to participate in teaching local training courses; and (iv)acquiring advanced teaching and research equipment and materials. Inaddition to its involvement in the training component, BICEM will establishand maintain a data base for MCI's information and project management. Theprogram for BICEM is in Project File No. 5, and is summarized in Annex 4-4.During negotiations, an assurance was obtained from the Government that theprogram for BICEM will be carried out in accordance with the scope of theprogram agreed with the Bank, and completed no later than December 31,1990.

V. PROJECT MANAGEMENT AND ENVIRONMENTAL PROTECTION

A. Engineering Arrangements

5.01 The basic engineering and some detailed engineering for the foururea plants and the phosphoric acid plant will be carried otut by qualifiedinternational engineering firms. The international engineering firms willreview and supervise detailed engineering for the urea and phosphoric acid

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plants to be undertaken by domestic design institutes, and will provideassistance during construction, erection and commissioning of the plants.

5.02 The Project will utilize local engineering capabilities to themaximum extent possible, with necessary support from foreigncontractors/licensors. The basic and detailed engineering of the pyritesroasting, sulfuric acid and granulation plants, as well as all requiredoffsites and utilities at YXCFC, will be undertaken by the Nanjing DesignInstitute (NDI). NDI has experience in the design, with support fromforeign licensors, of almost identical facilities at Nanjing. Most of thedetailed design for the urea plants will be done by the Wuhan DesignInstitute in collaboration with foreign urea contractors/licensors. Thebasic and detailed engineering for the energy saving modifications andcapacity expansions of the four coal-based medium-size ammonia plants inthe urea component of the Project will be carried out by local designinstitutes. Local technologies to be used in the Project will be confinedto those already commercially proven and technically acceptable byinternational standards in terms of installed costs, efficiencies,operating costs, operability, safety and emission levels. The local designinstitutes will conduct hazard and operability studies on all criticalprocess sections in collaboration with specialists in this field, andprovide process guarantees.

B. Project Management

5.03 Project management arrangements are similar to those under theongoing China Fertilizer Rehabilitation and Energy Saving Project (Loan2541-CHA, FY85), which have proven satisfactory. MCI, which will have theprimary responsibility for supervision of overall project implementation,has set up a project coordination uuit to ensure effective coordination,review progress during procurement and take timely action to remove anyconstraints affecting the progress of the Project. For individualcomponents of the Project, each beneficiary fertilizer company has alreadyset up a project management team. The management and staff of MCI'sproject coordination unit and of the five companies have the capability toimplement the Project efficiently. The organizational chart of MCI'sproject coordination unit is given in Annex 5-1, and those for thecompanies' project management teams are given in Project File No. 6.During negotiations, an assurance was obtained from the Government and thecompanies that MCI and the companies will maintain, respectively, theproject coordination unit and project management teams until the ProjectCompletion Date.

C. Implementation Schedule

5.04 The implementation of the Project is expected to take 36 monthsfor the institutional development component, 42 months for the urea plants,and 54 months for the sulfuric acid, rusphoric acid and DAP plants, fromthe date of loan approval. The four urea plants are expected to becompleted by the end of December 1990, with commercial productioncommencing in January 1991. The phosphate fertilizer development componentis expected to be complete4 by the end of December 1991. The Projectimplementation schedule, as discussed and agreed with the Chineseauthorities, is shown in Annex 5-2.

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D. Tiainin!

5.05 YXCFC has no prior experience in the manufacturing and marketingof phosphate and complex fertilizer and extensive training in all aspectsof operations will be required. A comprehensive training program will beprepared by the company, reviewed by the Bank and implemented in time toensure a smooth comissioning and operation of the plants. Training forsulfuric acid and DAP operations will be arranged at the new DAP productionfacility of Nanjing Chemical Industry Company (NCIC). Training forphosphoric acid production will be carried out at Yunnan PhosphaticFertilizer Company (YPFC)o The training program also allows for overseastraining on the technology for phosphoric acid and DAP/urea based NPKproduction. The major part of the training for the four urea plants willbe conducted in local and foreign urea plants in accordance withcomprehensive training programs to be prepared by each company after areview by the Bank. During negotiations, assurances were obtained from thecompanies that they will develop training programs by December 1987,including specific arrangements with existing local manufacturers operatingsimilar plants, for Bank review, and implement them subsequently inconsultation with the Bank.

E. Environmental Aspects

5.06 The new DAP plant at YXCFC will employ pollution control measuresthat have been used and proven successful at NCIC to ensure emission levelsmeeting local and intLrnational standards. Fluorine emissions from phos-phoric acid production will be controlled within the limit of internationalstandards. Site selection and preparation for the disposal of phosphogyp-sum has been reviewed by the Yunnan Provincial Environmental ProtectionAgency Advisory Research Institute, and has been approved by the localauthorities based on the satisfactory result of this review. At the fourmedium-size urea plants, no environmental problems are anticipated. Theurea plants will be based on the latest technology and will meet interna-tional emission standards. The current emission levels from the respectiveammonia plants exceed local emission standards. Actual and expected pollu-tion levels before and after the Project, given in Annex 5-3,show that thefive companies will be able to reduce pollution to meet the local standardswhich are generally in line with Bank guidelines and acceptable to theBank. Assurances were obtained from MCI and the five companies thatexecution and operation of the Project will be carried out with due regardto safety, ecological and environmental factor and comply withenvironmental standards satisfactory to the Bank.

VI. CAPITAL COSTS, FINANCING PLAN, PROCUREMENT ANDLOAN AGREEMENT

A. Capital Cost Estimates

6.01 The total financing required for the Project, including interestduring construction and incremental working capital, is estimated atUS$184.0 million equivalent, of which US$110.1 million or 59.82 is inforeign exchange. The capital cost estimates are detailed in Annex 6-1and summarized in Table 6-A on the following page.

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Table 6-A

Capital Cbst Breakdown

Z ofLocal Foreign Total local Foreig! TDtal Us$ BCE--- (Y millions)--- - -Us$ adllious)---

Phosphate Development qnoet 51.5 134.6 186.1 13.9 36.4 50.3 37.0Nitrogenous Fertilizer RationalizationOnPqmxnt 139.6 172.2 311.8 37.7 46.5 84.2 62.0Institutional Developuent 0mpoet 0.4 4.8 5.2 0.1 1.3 1.4 1.0

Base Cbst Estimate a,/(Janry 1987 price) 191.5 311.6 503.1 51.7 84.2 135.9 100.0

hysical d i es 19.1 30.7 49.8 5.2 8.3 13.5 10.0Price Conilnies 48.7 80.4 129.1 2.9 4.9 7.8 5.7

IStalled Costs 259.3 422.7 682.0 59.8 97.4 157.2

Working Capital 51.1 - 51.1 10.4 - 10.4Interest During Constnxtion 16.1 54.6 70.7 3.7 12.7 16.4

tal Financing !Rquired 326.5 477.3 803.8 73.9 110.1 184.0- ~ - xcn= =w

a, local osts, incla sale tax on locally ptwchased eqdpiment and materials amvuntig to US$1.6million equivalent.

6.02 The base cost estimates, expressed in January 1987 prices, havebeen derived from estimates made by the project authorities and MCI incollaboration with the domestic design institutes, and have been checkedagainst cost information obtained by the Bank from internationalengineering firms. Physical contingencies are estimated at 10% of the basecost estimates. For the calculation of base cost and physicalcontingencies, the prevailing exchange rate of Y 3.7: US$1 has been used.Price escalation for costs expressed in terms of foreign exchange (USdollars) is calculated according to anticipated international pricemovements of 3.0% for 1987, 1.0% for 1988-90, and 3.5% for 1991 andthereafter. Price escalation for costs expressed in local currency iscalculated according to projected local inflation rates of 6.5% for 1987-90and 4.5% for 1991 and thereafter. Equipment and materials imported for theProject are exempt from import duties. The companies will pay sales tax onlocally procured equipment and materials.

B. Financing Plan

6.03 The proposed Bank loan of US$97.4 million will meet 88.5% of thetotal foreign exchange component and 52.9% of the total financingrequired. The remaining financing needs will be met mainly by locallending institutions (29.5%), the companies' own funds (17.5%) and budgetallocation (0.1%). The proposed financing plan for the Project issummarized in Table 6-B on the next pagee

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Table 6-B

Financing Plan% of US$

Component/Entity Source Local Foreign Total Local Foreign Total Total-- (Y millions) -i3S$U-illionsY--Z

A. Phosphate F2ertilizerDevelopmentYXCFC IBRD Loan - 185.5 185.5 - 42.3 42.3 57.7

Domestic Loans 81.7 - 81.7 18.4 - 18.4 25.1Internal Fund 28.0 28.4 56.4 5.7 6.9 12.6 17.2Sub-Total 109.7 713W9 323.6 24T 49.2 73.3 156.T

B. Nitrogenous FertilizerRationalization and ExpansionYCFC IBRD Loan - 59.2 59.2 - 13.8 13.8 47.1

Domestic Loans 43.9 - 43.9 9.9 - 9.9 33.8Internal Fund 17.6 6.7 24.3 4.2 1.4 5.6 19.1Sub-Total 61.5 65.9 127.4 14.1 15.2 29.3 100.0

LCFC IBRD Loan - 60.6 60.6 - 14.0 14.0 45.8Domestic Loans 56.6 - 56.6 13.3 - 13.3 43.5Internal Fund 8.9 6.9 15.8 1.8 1.5 3.3 10.7Sub-Total 65.5 67.5 133.0 S5.1 15.5 30.6 100.0

XCFC IBRD Loan - 58.0 58.0 - 13.4 13.4 50.4Domestic Loans 28.4 - 28.4 6.2 - 6.2 23.3Internal Fund 22.8 6.6 29.4 5.5 1.5 7.0 26.3Sub-Total 51.2 64.6 115.8 11.7 14.9 26.6 100.0

BCEC IBRD Loan - 54.6 54.6 - 12.6 12.6 55.3Domestic Loans 28.4 - 28.4 6.4 - 6.4 28.1Internal Fund 9.7 6.0 15.7 2.4 1.4 3.8 16.6Sub-Total 38.1 60.6 98.7 8.8 14.0 22.8 100.0

C. Institution DevelopmentFive ProjectCompaniesa/IBRD Loan - 1.7 1.7 - 0.45 0.45 32.1MCI/BICEM IBRD Loan - 3.1 3.1 - 0.85 0.85 60.7

Budget Allocation 0.4 - 0.4 0.1 - 0.1 7.1Sub-Total 0.4 3.1 3.1 0.1 1.3 1.4 100.0

D. Total ProjectIBRD Loan - 422.7 422.7 - 97.4 97.4 52.9Domestic Loans 239.0 - 239.0 54.2 - 54.2 29.5Internal Funds 87.1 54.6 141.7 19.6 12.7 32.3 17.5Govt. Contribution 0.4 - 0.4 0.1 - 0.1 0.1

TOTAL 326.5 477.3 803.8 73.9 110.1 184.0 100.0

a/ The cost for the Management Study is to be shared equally among the five ProjectComganief .

Note: Domestic loan amount for each company comprises: (a) long-term loans; (b)short-term working capital loans, if necessary; and (c) deferred interestpayment during construction (para 6.05).

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6.04 The proposed Bank loan will be made to GOC at the Bank's standardinterest rate for 20 years, including 5-year grace and with a commitmentcharge of 0.75%. Of the total Bank loan of US$97.6 million equivalent, GOCwill onlend US$96.1 million equivalent to the five companies at an onlend-ing rate of 7.92% p.a. with a commitment charge of 0.75% and repaymentperiod of 15 years including 5 years of grace. In addition, the cost ofUS$450,000 equivalent for the Management Study under the institutionaldevelopment component will be shared evenly among the five project compa-nies, and US$90,000 equivalent of loan proceeds will be onlent to eachcompany at a service charge of 0.75% p.a. with a commitment charge of 0.75%for a period of 15 years, including 5 years grace. The foreign exchangerisk will be passed on to the companies. Subsidiary loan agreements to besigned by GOC and the companies will be prepared based on terms and condi-tions of onlending acceptable to the BRnk. The balance of US$850,000million equivalent will be made available to MCI to carry out the BICEMpart of the institutional development component. The funds required forBICEM will be allocated by MCI through the internal budgetary process.During negotiations, confirmation was obtained from the Government on theseonlending arrangements.

6.05 The People's Construction Bank of China will provide local con-struction loans to cover the local cost financing requirements for fixedassets at its prevailing rate for similar investments (currently 7.2%p*a.), with a maturity of 15 years including a grace period during con-struction as follows: (a) YXCFC - Y 35.7 million (US$8.1 million equiva-lent), (b) YCFC - Y 33.0 million (US$7.5 million), (c) LCFC - Y 40.0million (US$9.1 million), (d) XCFC - Y 26.0 million (US$5.8 million), and(e) BCEC - Y 26.4 million (US$6.0 million). Interest payments on theseloans will be deferred during the construction period and repaid ininstallments after the completion of the Projecto YXCFC and LCFC willborrow, respectively, an additional loan of Y 30.0 million (US$6.8 million)and Y 13.0 miltlon (US$3.0 million) from other local financing sourcesagainst the guarantee of local governments on the same terms as the capitalconstruction loans. The remaining local financing needs, including incre-mental working capital, will be met by either internal funds or short termloans from local banks. Financial projections indicate that YXCFC, YCFCand LCFC will need to borrow short term loans from local banks as workingcapital loans to cover a portion of their incremental working capitalrequirements, while XCFC and BCEC will be able to meet the remainingfinancing requirements from internal funds (para. 7.05). During negotia-tions, confirmation was obtained from the Government that capital construc-tion loans and additi.onal long-term loans will be made available to financethe local costs of the Project for the five companies.

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Co Procurement

6.06 Procurement arrangements are summarized in Table 6-C below:

Table 6-CProcurement Arrangements a/

(US$ million)

Procurement Method TotalICB LIB Other Cost

Equipment and Materials 60.3 9.5 43*0 112*8(60.3) (9.5) (13.2) (83.0)

License, Engineering and 11.4 11.4Consultancy Services (8.7) (8.7)

Project Management and 6.0 6.0Commissioning (3.1) (3.1)

Land, Civil Work and Erection 23.4 23.4(-) (-)

Training 2.0 2.0(1.2) (1.2)

institutional Development 1.4 1.4(1.3) (1.3)

Otherse/ 27.0 27.0

Total Financing 60.3 9.5 114.2 184.0(60.3) (9.5) (27.6) (97.4)

a/ Including incremental working capital and interest duringconstruction.

Note: Figures in parenthesis indicate the respective amounts to befinanced by the Bank.

6.07 Procurement Arrangements for Bank Financing. Procurement ofequipment, materials and engineering services financed out of the proceedsof the Bank loan will follow Bank procurement and consultant guidelines. Amajor portion of equipment and materials will be procured through interna-tional competitive bidding (ICB). In ICB, domestic manufacturers will begiven a margin of preference of 152 or the prevailing customs duty,whichever is lower, for bid evaluation purposes. Engineering and projectmanagement services will be selected according to Bank guidelines.Specialized items for urea and acid plants with only limited number ofsuppliers will be procured through limited international bidding (LIB).Items for LIB, with an estimated value of up to US$500,000 each, will besubject to an aggregate amount of US$9.5 million; where feasible, a minimumof three bids from three different countries shall be obtained under LIB.Orders for small or miscellaneous items with an estimated value of up toUS$250,000 each will be procured through international shopping with pricequotations from at least three qualified and eligible suppliers up to anaggregate amount of US$8.0 million. Equipment proprietary to processdesign may be procured through direct contracting up to an aggregate amountof US$5.3 million. Packages over US$750,000 each, estimated to total abouZ

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25, will be subject to prior Bank review. Packages below US$750,000 eachwill be subject to post-review by the Bank. Consultants for technicalservices, training and the Management Study, financed by the Bank, will becontracted in accordance with Bank guidelines for use of consultants.Contracts with engineering firms will be subject to Bank approval prior tosignature. International procurement will be executed by the ChinaNational Chemical Construction Company (CNCCC)6/ under HCI in coordinationwith MCI's project coordination unit for the Project. To avoid delays inProject execution, the Bank loan will retroactively finance up to US$201million of eligible expenditures for downpayments to engineering firms andfor project management incurred between February 1, 1987 and the date ofloan signing.

6.08 Procurement Arrangements for Local Financing. Supply of localconstruction materials, plant and equipment is regulated by an allocationsystem administered by central and provincial government agencies, andapplications for annual requirements have to be made to SPC and the StateMaterial Supply Bureau in advance. However, under recent provisions,buyers and suppliers of equipment have some scope for negotiations as tothe type of equipment, deliveries and price. Most of the detailed engi-neering work, civil works and erection and some equipment will be procuredlocally. Contracts for civil works and erection will be through assignmentto specialized construction bureaus or companies, under negotiated con-tracts specifying the unit costs, terms of payments, and incentives/penal-ties for early/late completion. The capacity and capabilities of the localcontractors proposed for the Project are satisfactory for timely and effi-cient completion of proposed works.

D. Allocation and Disbursement of Loan

6.09 The proposed allocation of the Bank loan is summarized in Table6-D on the next page.

6/ CNCCC is responsible for international procurement of the on-goingBank-supported Fertilizer Rehabilitation and Energy Saving Project(Loan No. 2541-CHA, FY85).

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Table 6-D

Bank Loan Allocation(in US-$ millio equivalent)

YXCFC YCFC LCFC XCFC BCEC MCI a/ Total B8nk Loan Financing

1. Equipment, 36.50 12,00 12.20 11.60 10.80 - 83.10 100% of foreignMaterials and expenditures, andSpares 100% of local

expenditures (ex-factory)

2. Engineering, 4.90 1.40 1.40 1.40 1.40 - 10.50 100% of fore.gnLicenses and expendituresTechnical Services

3. Overseas Travel 0.50 0.20 0.20 0.20 0.20 - 1.30 100%for Engineeringand Procurement

4. Overseas Training 0.40 0.20 0.20 0.20 0.20 - 1.20 100%

5. Institutional 0.09 0.09 0.09 O.09 0.09 0.85 1.30 100%Development

Total 42.39 13.89 14.09 13.49 12.69 0.85 97.40

a/ The portion for BICEM.

6.10 The proposed Bank loan will cover (a) 100% of foreign expendi-tures for directly imported goods and 100% of local expenditures(ex-factory) for domestically manufactured goods to be procured followingBank guidelines; (b) 100% of foreign expenditures for licenses, engineeringand technical services for project management; (c) 100% of the cost foroverseas travel by local staff for engineering, procurement and overseastraining; and (d) 100% of foreign expenditures for the institutionaldevelopment component. To facilitate disbursement of funds, a specialaccount (revolving fund) will be established in US dollars in a commercialbank acceptable to the Bank, with an authorized allocation of US$4.0million. Disbursement will be against full documentation except foroverseas travel for engineering, procurement and training, and contractsvalued less than US$200,000 equivalent each, which would be againststatements of expenditure. Documentation c%f statements of expenditure willbe maintained by MCI's project implementation coordination unit, auditedannually by independent auditors acceptable to the Bank, and made availableto the Bank for review during Pro4ect supervision. The project completiondate would be December 31, 1992, and the loan closing date is expected tobe June 30, 1993. An estimated disbursement schedule for the Project isgiven in Annex 6-2.

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VII. FINANCIAL ANALYSIS

A. Background on Financial Management Practices

7.01 Financial Autonomy. Recent changes in China have resulted ingreater financial autonomy and accountability for the managers of iAdivi-dual enterprises. In the past, all major financial decisions, includingapproval of new investments, were made by the Government, and enterprisesremitted almost all internally generated funds to the Government. Fundsfor new investments were provided as grants through budget allocations.Major recent changes affecting the financial autonomy of the companies are:(a) enterprises now retain 100% of their depreciation allowances; (b)enterprises retain an increasing portion of profits (which varies betweencompanies and provinces); (c) new funding requirements, including those forinvestments, are met from the company's internally retained funds orinterest-bearing loans (long-term capital construction loans for fixedinvestments, and short-term borrowings for working capital); and (d)enterprises utilize an increasing portion of internally retained fundswithout prior Government approval. At present, financial planning of thecompanies is still limited to one-year financial targets, but there is agrowing need for longer term financial planning in view of their increasingfinancial autonomy.

7.02 Financial Accounting and Audits. The Chinese accounting systemis governed by several regulations issued by state and local governmentauthorities. Special features of the system include: (a) two separateaccounts are maintained-one for production operation and the other forconstruction projects--which are not consolidated; (b) interest charges areincluded in production costs, so that operating income reflects the effectof financial structure; (c) funding sources are matched with specific typesof assets-fixed assets with fixed funds, current assets with currentfunds, and special assets with special funds. 7/ Financial statements ofChinese enterprises are subject to external accounting audits by the StateAudit Administration (SAA), which was established in 1983 in order toensure the efficient and prudent financial management of enterprises. TheBank has been supporting the Government's efforts to improve its auditcapability through training under the Technical Cooperation Credit (Cr.1412-CHA).

B. Past Financial Performance and Financial Projections

7.03 Financial projections of the project entities have been carriedout in current yuan terms. Key assumptions used for the financial analysisare detailed in Annex 7-lo It has been assumed that the real prices ofinputs and outputs (i-.e. after allowing for inflation) will remainunchanged at their January 1987 levels. Detailed historical and projectedfinancial data, prepared, after several adjustments to the Chinese

7/ This principle of earmarking or non-fungibility, which was strictlyfollowed in the past, is being gradually relaxed as enterprises areallowed to retain an increasing portion of internally generated fundas special funds.

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accounting system, in accordance with conventional accounting conceptsbased upon international accounting standards, are given in Annexes 7-2through 7-6 . Salient features of the financial performance and projectedfuture finances of the companies are shown in Table 7-A below.

Table 7-A

Summary of Selected Historical and Projected Financial Data(in millions of current yuans unless otherwise stated)

Actual Prelim. ProjectedYear Ending December 31 1983 1984 1985 1986 1987 1988 1990 1992 1994

A. YXCFC

Gross Sales Revenue 21.2 29.2 27.6 38.4 42.8 52.4 59.4 212.8 309.4Net profit 0.6 3.2 3.5 4.5 5.9 8.0 10.1 38.9 92.5Internal Cash Retained 1.7 4.6 4.7 7.2 9.3 12.3 14.3 81.4 133.1.Net Profit/Gross Sales (YJ 3.0 11.0 12.8 11.7 11.5 15.2 17.0 18.4 29.9Current Ratio 2.7 2.1 1.4 1.9 2.5 2.6 2.5 1.5 9.8Debt/Equity Ratio 0:100 9:91 13:87 17:83 20:80 39:61 73:27 72:28 43:57Debt Service Coverage Ratio 21.3 6.7 4.2 10.51 3.9 5.4 6.9 2.4 2.4

B. YCFC

Gross Sales Revenue 28.8 30. 23.4 26.0 29.0 30.9 35.0 77.1 94.8Net Profit 5.5 5.9 3.4 2.9 3.9 4.4 5.3 18.3 30.0Internal Cash Retained 2.6 3.0 2.5 3.6 6.4 6.9 8.1 34.7 45.2Net Profit/Gross Sales (%) 19.4 19.7 14.5 10.7 13.4 14.3 15.2 23.6 31.3Current Ratio 2.6 2.9 1.6 2.0 2.7 2.3 4.3 6.3 8.5Debt/Equity Ratio 0:100 0:100 0:100 0:100 2:98 15:85 62:38 50:50 32:68Debt Service Coverage Ratio 13.8 14.5 N/A 13.0 29.0 31.4 17.9 2.8 2.8

C. LCFC

Gross Sales Revenue 27.4 30.7 21.8 26.4 29.0 30.9 35.0 77.1 94.8Net Profit 2.6 4.0 0.5 3.6 1.9 2.4 3.3 13.9 25.3Internal Cash Retained 1.2 1.2 1.6 5.8 4.9 5.2 6.2 30.3 40.0Net Profit/Gross Sales (Z) 9.7 13.2 2.4 13.1 6.9 8.0 9.5 18.2 26.8Current Ratio 3.8 4.7 2.0 2.5 2.8 2.1 1.3 1.8 3.9Debt/Equity Ratio N/A N/A N/A 5:95 6:94 17:83 60:40 *55:45 32:68Debt Service Coverage Ratio N/A N/A N/A 21.5 6.0 6.8 7.2 1.9 2.0

D. XCFC

Gross Sales Revenue 35.4 37.9 14.7 42.7 38.7 41.2 46.7 77.1 94.8Net Profit 6.7 8.1 0.4 5.1 3.9 5.3 6.7 10.7 19.8Internal Cash Retained 2.1 3.2 (0.8) 4.7 6.5 7.7 9.1 25.9 34.0Net Profit/Gross Sales (X) 19.8 21.0 0.9 12.7 11.0 13.6 15.0 14.4 21.4Current Ratio 1.8 1.2 1.1 3.2 15.4 17.4 10.5 3.5 6.6Debt/Equity Ratio 0:100 0:100 0:100 0:100 2:98 18:82 53:47 49:51 33:67Debt Service Coverage N/A N/A N/A N/A 37.4 N/A N/A 3.3 2.3

go BCEC

Gross Sales Revenue 70.7 74.6 75.1 77.8 83.3 88.7 100.7 127.7 150.0Net Profit 17.2 18.1 9.8 9.5 8.5 9.6 12.2 19.0 29.5Internal Cash Retained 5.7 5.5 6.1 7.0 8.6 9.14 10.4 28.4 37.8Net Profit/Gross Sales (S) 24.3 24.3 13.1 12.7 10.8 11.4 12.9 16.0 21.8Current Ratio 1.9 2.3 1.1 2.0 8.7 8.8 8.7 5.0 8.4Debt/Equity Ratio 0:100 0:100 O0lOO 6:94 6:94 13:87 46:54 44:56 29:71Debt Service Coverage Ratlo N/A N/A N/A 2.8 13.7 14.6 18.7 2.6 2.8

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7.04 Past Financial Performance. The extremely low financial leverageof all five project companies is a consequence of the past governmentpolicy for financing state-owned enterprises, i.e., the provision ofinvestment and working capital as grants through budget allocations. Thecompanies are similar in their plant configuration, marketing environment,low-debt financial structure and good operating results characterized byhigh capacity utilization, but their financial performances differ mainlydue to differences in input consumption, input price, and proximity tomajor consumption areas. Since 1984 net profits for all the companies havedeclined gradually, mainly due to the declining price of ABC and increasingprices of energy inputs. In particular, they experienced serious finan-cial difficulties in 1985, due to marketing difficulties; net profits forthe five comparies declined from Y 39.3 million in 1984 down to Y 17.6million in 1985, and their liquidity situation has tightened due to thebuild-up of inventories. In 1986, aggregate net profits of the companieshave increased to Y 25.6 million, as the companies were able to sell theirentire 1986 ABC production as well as inventories carried over from 1985 atslightly increased prices.

7.05 Financial Projections. The financial performances of the fivecompanies, which are anticipated to show only marginal improvement untilthe start-up of the urea facilities under the Project due to the low priceof ABC, are projected to improve significantly after the start-up and staysatisfactory throughout the life of the Project. Until the start-up, allthe five companies are expected to maintain the 1986 level of net profits.After the product conversion from ABC to urea under the Project, thecombined net profits for the five companies are expected to increase from Y37.6 million in 1990 to Y 100.8 million in 1992 and Y 197.1 million in1994. The companies are expected to generate sufficient cash internally toservice debts and make necessary investments for maintenance and replace-ments. The current Chinese tax system allows the companies to deductrepayment of long-term loans from taxable income to improve their debtservice capacities until the completion of debt repayment. The key finan-cial ratios (profitability, current, debt to equity and debt servicecoverage) are expected to remain at satisfactory levels throughout the lifeof the Project.

C. Financial Rate of Return and Sensitivity Analysis

7.06 The cost and revenue streams for the incremental financial rateof return (FRR), expressed in constant 1987 yuans, are presented inAnnex 7-7. Estimated base case FRRs (before taxes) for the companies varybetween 11.9% and 19.7%. Despite similarities of project configurationand selling prices of urea among the four urea project companies, theirFRRs vary mainly because of differences in input consumption, input pricesand ABC prices. FRRs for the companies are lower than their respectiveeconomic rates of return (ERRs), mainly because the financial prices offertilizers are lower than their economic value (para 2.25) and savings intransportation costs of products after the conversion are not reflected inFRR calculations (para 8.02). Results of sensitivity tests are shown inTable 7-B on the next page.

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Table 7-B

Sensitivity Test on Financial Rates of Return (Before Tax)(in percentage)

Yunnan Yuanping Luoyang Xuanhua Beijing(YXCFC) (YCFC) (LCFC) (XCFC) (BCEC)

Base Case 19.7 15.7 16.2 11.9 13.1Capital Cost Up 20% 16.4 12.6 13,0 9.2 10.1Capital Cost Down 20% 23.9 19.7 20.5 15.5 17.1Sales Revenue Up 20% 27.3 21.2 21.5 16.8 17.0Sales Revenue Down 20% 11.9 9.2 10.1 6.0 8.6Variable Cost Up 20% 15,8 14.3 15.1 11.0 13.4Variable Cost Down 20% 23.1 17.0 17.2 12.8 12.82-Year Delay in Completion 16.4 10.6 12.9 10.6 10.4

The FRRs for the Project are sensitive, in descending order, to changes insales revenue (i.e. output price), capital cost, and variable cost (i.e.input prices). Results of sensitivity analysis also indicate that the FRRsfor the project will for the most part remain satisfactory under likelychanges in key financial parameters. XCFC shows a low return of 6.0% iffertilizer prices go down by 20%. However, such a steep decline in theprice of a high grade fertilizer like urea is unlikely given that itsfinancial price is still lower than its import parity price.

D. Financial Covenants

7.07 During negotiations, agreements were reached that the companieswill: (a) maintain at all times a debt service coverage ratio of at least1.2, and not incur any long-term debt unless their projected internal cashretention for each fiscal year during the term of the debt to be incurredwill exceed 1.2 times their projected debt service requirements in suchyear; (b) maintain at all times a long-term debt to equity ratio of no morethan 75:25; (c) maintain at all times a current ratio of at least 1.2; and(d) prepare and furnish to the Bank for review, by October 31 of each yearfrom 1987 to 1992, their 5-year rolling financial plans including pro-duction, marketing and investment plans in the form of projected financialstatements. Such plans would be supported by: (i) detailed analysis ofproduction cost trends; (ii) operational and financial budget varianceanalysis for the current fiscal year; (iii) detailed criteria for perfor-mance evaluation and measures proposed to meet the financial covenants; and(iv) financing arrangements for the investments proposed over this 5-yearhorizon.

E. Auditing and Reporting Requirements

7.08 An assurance was obtained that the companies will have theirannual financial statements and project accounts, including withdrawalsfrom the Special Account, audited by independent auditors acceptable to theBank and submitted with the audit report--for both production and capitalconstruction accounts-to the Bank within six months after the close of

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each fiscal year. Based on project progress and financial reports sub-mitted by the five companies, MCI will provide to the Bank the summary oftheir project progress and procurement status quarterly, and the summary oftheir financial statements semi-annually within 45 days after the end ofeach period. An assurance was also obtained that MCI will have its projectaccounts for the institutional development component, including withdrawalsfrom the Special Account, audited by independent auditors acceptable to theBank, and submitted with the audit report to the Bank within six monthsafter the end of each fiscal year. BICEM will also submit to the Bank itsquarterly project progress and procurement status reports within one monthafter the end of each quarter. Within six months after the closing datefor the Project, the five companies and MCI will prepare and provide to theBank a completion report for their respective components of the Project,covering project implementation, initial operation, actual project costsand projected costs and and benefits.

VIII. ECONOMIC ANALYSIS

8.01 Economic rate of return (ERR) calculations were made only for theplant conversion components because the benefits from the institutionaldevelopment component, though significant, are not quantifiable. In addi-tion to incremental ERRs which would justify additional investments, econo-mic viability of continued operations of the existing facilities was alsoanalyzed to justify their conversion. Key assumptions used in the economicanalysis of the Project are detailed in Annex 8-1.

A. Economic Costs and Benefits

8.02 Economic Benefits. The measurable economic benefits, expressedin 1987 US dollars, of the Project come from five major sources, namely:(a) phosphate fertilixer (DAP) production utilizing locally available phos-phate rock, pyrites, and ammonia which is currently used for ABC produc-tion; (b) improvement in economic efficiency of production through conver-sion of low economic value fertilizers (ABC) to high economic value fertil-izers (urea, DAP and NPK); (c) expansion of ammonia production; (d)improvements in the energy efficiency of ammonia production; and (e)savings in transportation costs of products mainly due to the highernutrient content of urea (46% N), DAP (18%N, 46% P205) and NPK (16% N, 16%P205 and 16% K20) compared with ABC (17% N).

8.03 The economic prices of fertilizer products were derived fromtheir projected international prices. The economic ex-factory prices ofurea, DAP and NPK for each plant were derived from their CIF import priceby adding unloading, port handling, bagging and mixing charges and inlandfreight from ports to the plant sites. Because ABC Is not actively traded4r the international market, its economic value was derived from the ureaprice. The economic value of the nitrogen content of ABC has been computedto be lower by 12.3% than that from urea, taking into account the nitrogenlosses of ABC during transportation, storage and application (see para 2.08and Annex 8-1, Table 1). The high moisture content of ABC results in high

- 33 -

bag breakage rates and accelerated nitrogen volatilization during storageand transportation. When applied in the field, ABC faces rapid nitrogenevaporation, particularly when applied as top dressing under dry climateconditions.

8.04 Economic Costs. The economic value of tradeable luputs was alsobased on their estimated FOB export prices. The economic value of coal ateach plant is equivalent to its netback value to the counLry from exports,i.e., the FOB export price, minus port handling charges and inlandtransportation cost from the mines to ports, plus inland transportationcost from the mines to the plants. The economic value of phosphate rockfor YXCFC is also based on its netback value to China from exports. Theeconomic value of sulfuric acid is obtained from its long run marginalproduction cost based on imported sulfur. Non-trsdeable inputs areconverted to their economic value by applying their respective specificconversion factors.

B. Economic Rate of Return and Sensitivity Analysis

8.05 The base-case ERRs in constant terms are respectively 23.3% forYXCFC, 28.3% for YCFC, 26.2% for LCFC, 21.3% for XCFC, and 20.4% for BCEC.The economic rate of return for the entire plant rationalization componentis 24.0. The streams of economic costs and benefits for the ERRcalculations are given in Annex 8-2.

8.06 The results of sensitivity and switching-value analyses aresummarized in Table 8-A below.

Table 8-A

Sensitivity Analysis of ERR

ProjectYunnan Yuanping Luoyang Xuanhua Beijing as a(YXCFC) (YCFC) (LCFC) (XCFC) (BCEC) Whole

%Z) --- Economic Rates of Return (ERR)---Cases

Base Case 23.3 28.3 26.2 21.3 20.4 24.0Capital Cost Up 20% 20.0 24.2 22*4 17.8 17.1 20.4Capital Cost Down 20% 27.6 33.7 31.4 25.9 24.8 28.4Sales Benefits Up 20% 31.0 34.7 32.3 26.7 24.4 30.4Sales Benefits Down 20% 13.3 20.9 19.3 14.8 20o7 16.2Variable Cost Up 20% 19.0 26.8 25.2 20.1 20.6 21.1Variable Cost Down 20% 27.1 29.7 27.4 22.4 20.2 26.62-Yr Delay in Completion 18.1 22.0 20.2 17.0 15.7 20.4

Switching Values of Selected Variables (%)a/ ---Variables

Capital Cost +55.1 +105.4 +78.2 +45*2 +52.5Sales Benefits -22.4 -36e5 -40.7 -26.5 -32.0Variable Cost +48.2 +145.3 +320.1 +116.2 +253.4

v it 2 dU5MuUt rate is used.

- 34 -

Results of sensitivity tests indicate that the Project is relatively sensi-tive to chariges in fertilizer prices, and to a lesser extent to changes invariable costs (i.e. prices of variable inputs). This sensitivity patternis typical of rehabilitation projects for which incremental benefits (dif-ference between with and without project) are affected more by output pricechanges than by input prices. The switching-value analysis of majorvariables indicates that the Project would remain economically viable evenunder unlikely adverse conditions, and confirms that the price of fertil-izers is the most critical variable determining the economic viability ofthe Project.

8e07 The economic viability of continued utilization of the existingfacilities also has been tested to justify incremental investments forrationalization under the Project. Continued operations of these facili-ties with their existing configuration would be more economic than theirclose-down, implying that the project would not rationalize plants whichshould otherwise shut down, but would improve the economic efficiency ofplants which would otherwise be only marginally economic. The presentvalue of future net benefit streams to be obtained from continued opera-tions over the life of the existing facilities for all the five plants,discounted at 12% p.a., exceeds the respective estimated scrap value whichcould be recovered from the close-down of the plants; no alternative utili-zation of these residual assets is technically feasible.

C. Sectoral Contributions and Other Benefits

8.08 The plant rationalization component of the Project would helpChina meet its broader sectoral development objectives. The Project willcontribute to the renovation of the five plants to produce better qualityfertilizers economically, and the experience of these plants will beutilized for the renovation of other similar plants in China. Similarly,efficiency improvements in ammonia production facilities using projectexperience will result in substantial savings in energy consumption else-where. The phosphate fertilizer development component will be a pioneeringeffort in utilizing local phosphate rock for major DAP production. Inlight of the Government's emphasis on expanding the use of local phosphaterock in the fertilizer industry over the next decade, this component willprovide a valuable basis for future development.

8.09 The effect of the institutional development component is expectedto be very significant, albeit unquantifiable. The Management Study willreview the existing situation and design improved systems for Chinesefertilizer enterprises, including organizational structure and managementinformation systems, particularly in connection with the trends in greaterautonomy of enterprises' management. The improved systems will be intro-duced in the entire fertilizer industry over time after pilot implementa-tion. This component is the first comprehensive sectoral approach toadapting state-owned industrial enterprises to the changing business envi-ronment. The successful implementation of this component is expected tohave a strong demonstration effect on other industries.

- 35 -

8.10 Once full operating capacity is reached, the Project will lead tonet import substitution of 158,000 tpy of DAP and 191,300 tpy of urea,resulting in gross foreign exchange savings of about US$74 millionequivalent per year in 1987 prices. After netting out the annual serviceof foreign debt (both principal repayment and interest payment), net annualforeign exchange savings, as of 1995, are estimated at US$63 millionequivalent.

D. Project Risks

8.11 The Project is not subject to any unusual technical or commercialrisks. It deals with existing plants, technically and commercially proventechnology, and with products which will be sold (at market-related prices)in what are expected to be buoyant markets. There is some risk of delaydue to the lack of local experience in designing and operating facilitiesfor DAP and urea-based NPK fertilizers. The involvement of internationalengineering firms and provision of comprehensive training for local staffwould minimize this risk.

IX. AGREEMENTS REACHED AND RECOMMENDATION

9.01 During negotiations, confirmation was obtained from the Govern-ment that it will:

(a) carry out the review of fertilizer pricing and allocationpolicies along the lines stated in the agreed general scope andtimetable (para 2.23); and

(b) ensure that capital construction loans and additional long-termloans are made available to finance the local costs of theProject for the five companies (para 6.05).

9.02 During negotiations, assurances were obtained from the Governmentthat it will:

(a) allow the five companies to sell their entire output outside thestate allocation plan at market-related prices (para 2.25);

(b) carry out the Management Study in accordance with the terms ofreference agreed with the Bank, and complete and review with theBank no later than June 30, 1989 (para 4.06);

(c) carry out the program for BICEM in accordance with the scope ofthe program agreed with the Bank, and complete it no later thanDecember 31, 1990 (para 4.07);

(d) maintain MCI's project coordination unit until the ProjectCompletion Date (para 5.03);

- 36 -

(e) onlend US$96.1 million equivalent out of the proceeds of the Bankloan to YXCFC (US$42.3 million), YCFC (US$13.8 million), LCFC(US$14.0 million), XCFC (US$13.4 million) and BCEC (US$12.6million) under subsidiary loan agreements which will specifyterms and conditions acceptable to the Bank, including an onlend-ing rate of 7.92% p.a., a commitment charge of 0.75% p.a., andrepayment over 15 years including five years of grace. Anadditional amount of US$90,000 equivalent will be onlent to eachof the five companies at a service charge of 0.75% p.a. with acommitment charge of 0.75% p.a. for a period of 15 years,including 5 years grace. The coupanies will bear the foreignexchange risk (para 6.04 and para 6.09); and

(f) meet auditing and reporting requirements (para 7.08).

9.03 During negotiations, assurances were obtained from YXCFC,YCFC, LCFC, XCFC and BCEC that they will:

(a) maintain their respective project management teams until theProject Completion Date (para 5.03);

(b) develop training programs by December 1987, including specificarrangements with existing local manufacturers operating similarplants, for Bank review, and implement them subsequently inconsultation with the Bank (pars 5.05);

(c) build and operate the plants with due regard to safety, ecolo-gical and environmental factors, and in accordance with environ-mental standards satisfactory to the Bank (para 5.06);

(d) maintain at all times a debt service coverage ratio of at least1.2 and not incur any long-term debt unless their projectedinternal cash retention for each fiscal year during the term ofdebt to be incurred shall exceed 1.2 times their projected debtservice requirements in such year on all its debt including thedebt to be incurred (para 7.07);

(e) maintain at all times a long-term debt to equity ratio of no morethan 75:25 (para 7.07);

(f) maintain at all times a current ratio of at least 1.2 (para7.07);

(g) prepare and furnish to the Bank for review, by October 31 of eachyear from 1987 to 1992 their 5-year rolling financial plansincluding production, marketing and investment plans, in the formof projected financial statements (para 7.07); and

(h) comply with auditing and reporting requirements (para 7.08).

9.04 Conditions of loan effectiveness are: (a) signing of subsidiaryloan agreements between the Government and YXCFC, YCFC, LCFC, XCPC and BCECunder terms and conditions satisfactory to the Bank (para 6.04); and (b)approval of the loan agreement by China's State Council.

- 37 -

9.05 Subject to the above assurances and agreements to be reached, theProject is suitable for a Bank loan of US$97.4 million equivalent to GOC atthe Bank's standard variable rate for 20 years including 5 years of grace,with a commitment charge of 0.75%.

Industry DepartmentMay 11, 1987

CHINA - FERTILIZER RATIONALIZATION PROJECT

Historic Consumption, Production, and Imports of Fertilizers

1974-1985 a/(in thousmnd tons of nutrient)

Nitrogen Phosphate Potash All NutrientsYear Consumption Production Imports Consumption Production Imports Consumption Production Imports Consumption Production Imports

1974 3,490 2,827 928 1,390 1,390 82 57 5 57 4,915 4,222 1,0671975 4,020 3,709 964 1,531 1,531 34 40 7 39 5,407 5,247 1,0371976 4,468 3,815 928 1,360 1,418 20 16 11 6 5,844 5,244 9541977 5,065 5,509 1,147 1,415 1,708 151 33 21 23 6,513 7,238 1,3211978 7,726 7,639 1,227 1,114 1,033 246 45 21 31 8,885 8,693 1,5041979 8,997 8,820 1,451 1,758 1,817 190 108 16 108 10,863 10,653 1,7491980 10,180 9,993 1,537 2,368 2,307 395 128 20 126 12,676 12,320 2,0581981 10,363 9,858 1,541 2,735 2,508 499 251 24 250 13,349 12,390 2,2901982 10,433 10,219 1,808 3,448 2,537 631 568 25 489 14,449 12,781 2,928t983 11,923 11,094 2,365 3,945 2,666 1,028 728 29 634 16,596 13,789 4,0271984 13,378 12,211 2,828 3,686 2,359 1,342 804 31 755 17,868 14,601 4,9251985 13,445 11,584 2,052 3,522 1,734 950 920 32 364 17,887 13,350 3,366

at Nutrients composition (nitrogen, phosphate and potash) of compound ferttlizer is assumed to he 2:3:1.

Source: Ministry of Chemtcal Industry, Ministry of Agrtculture, Animal ilushandry and Fishery, General Administration of Customs, and StateStatistical Bureau.

Industry DepartmentMarch 1987

- 39 -

ANNFX 2-2Page 1 of 3

CHINA - FERTILIZ1R RATIONALIZATION PROJEMT

The General Scope of Fertilzer Pricing and Allocation Policr Review

A. Background

1. Under the on-going economic reforms, various positive changeshave recently been introduced in fertilizer pricing and allocation policiesin China. In the past, the allocation of fertilizers deperded solely on anadministrative mechanism at strictly controlled prices. In recent years,attempts were made to introduce the "market", and to graduallv increase itsrole in fertilizer pricing and allocations as a means of improvingefficiency in fertilizer production and application. The long-termobjective of the Government is to further increase the role of the markettowards the full introduction of a market-based fertilizer pricing andallocation mechanism.

2. The present fertilizer pricing and allocation system, with itstwo-tier (track) structure--one for the st&te plan quota, and the other foroutside the state plan quota--has various difficult issues, which have tobe solved during the course of forthcoming price reforms. The pricesetting practices for fertilizers need improvement, and flexible pricesoutside the state plan quota are frequently used as special treatment forovercoming financial difficulties of enterprises. Fertilizer pricing andallocation practices vary greatlv among different products, provinces andcounties. Further, adlustments of energy and fertilizer prices are notproperly and timely related, causing interruptions in the relationship ofinput and output prices as well as financial difficulties of fertilizerproducers.

3. Against this background, the Government of China will carry out acomprehensive review of the Chinese fertilizer pricing and allocationpolicies, which would provide proper guidance for future policy reforms.

B. General Scope of the Review

4. The present fertilizer Pricing and allocation system will bereviewed with specific focus on the following aspects:

(a) adequacy of the present allocation system in terms ofeconomic efficiency--whether fertilizers are allocated tofarmers in a way that equalizes the marginal production offertilizer application;

(b) timeliness of fertilizer delivery to farmers;

(c) efficiency of fertilizer distribution svstems;

(d) analysis of the current price structure including acomparison of various fertilizers and import parity prices;

- 40 -

ANNRX 2-2Page 2 of 3

(e) price relationship between inputs and fertilizers;

(f) analysis of budget and economic subsidies for bothdomestically produced and imported fertilizers; and

(g) the correlation between the level of fertilizer prices andthe efficiency of agricultural production.

5. Various options for policy reforms will be reviewed to develop afertilizer pricing and allocation system, which would:

(a) give preference to fertilizer allocation to farmers whosemarginal efficiency of fertilizer application is higher;

(b) ensure timely delivery of fertilizers;

{c) minimize losses during storage, transportation anddistribution;

(d) reduce economic subsidies for fertilizers and agriculture;

(e) set a prover price relationship between various types offertilizers, based on their respective nutrient contents andagronomical efficiency;

(f) set an adequate price relationship between inputs andfertilizers to ensure reasonable profits for efficientfertilizer producers; and

(g) encourage farmers to economize fertilizer applications.

6. The review will recommend an action program and the time framefor the implementation of policy reforms.

C. Institutional Arrangements for the Review

7. SPB and MCI will play a leading role in the review withparticipation of related government agencies, including SPC, M1F, MOC,MAAF, SINOPEC, and SINOCRKM.

8. A "Fertilizer Pricing and Allocation Policy Review Group", whichwill consist of representatives of the related agencies under theleadership of the Director of the nepartment of Prices for Neavy Industryand Communication, SPB, will be established within SPR to define thedetailed scope of the review, monitor its pToceeding, and discuss thevarious policy options to be evaluated by the review. The detailed scopeof the review will specify the involvement and contributions of eachagency, the overall evaluation of future policy options by SPY andimplementation details, and will be prepared along the lines specified inthis general scope. Each line agency will form a study team comprisingexperts in the related scope of the review (in MCI's case, about 10 expertswill participate), and prepare a policy review report. A study team in

- 41 -

ANNRX 2-2Page 3 of 3

assisted by the Price Research Institute (PRI), will review the overallpolicy options in fertilizer pricing and allocation, based on the reportssubmitted by the line agencies, and prepare a review report for discussionwithin the Group.

9e The Industry nepartment of the World Rank will orovideassistance, when requested by the Group, particularlv for information onfertilizer pricing and allocation practices in other countries andmethodologies for evaluating options.

D. Schedule of the Review

10. The schedule of the review is given below:

Activity Agency Date

(a) Establishment of the Review SPR end-February 1987G,roup

(b) Send the draft scope of the SPR/MCI mid-April 1987review to the World Rank

(c) Completion of the review by Agencies August 1987the study teams

(d) Completion of the review by SPB December 1987the study team of SPR

(e) Preparation of the final SP$ February 1988report

Industry DepartmentMarch 1987

- 42 -

ANNEX 2-3

CRINA - FERTILIZE.R RATIONALIZATION PROJECT

Comparison of Oomestic and International Prices of Fertilizers and MainEnergy Inputs, March 1987

(in rTSSMIton unless otherwise stated)

FOR Domestic Price X ofDomestic Ex-FactorV Prices International Economic Economic Price

Product Controlled (A) Flexible (R) Price (C) PriceC/ 0) A/D R/D

Bagged nrea 113.5 140.5 115.0 148 n 76.7 94.9

ABC - 43.2 42 .5d/ 4S.7d/ - 88.7

DAP 151.4 207.6 175.0 208.n 73.0 100.0

Input

AnthraciteYuanping 17.6 17.6 42.0 31.6 55.7 55.7Luoyang 22.4 24.6 42.0 34.4 65.2 67.6Xuanhua 22.4 - 42.0 36.0 62.2

CokeRei1ing 35.3 35.3 46.2 44.2 79.9 79.9Yunnan 19.5 21.5 46.2 44.2 44.1 48.6

Phosphate Rock e/ 17.8 - 34.0 21.3 83.6 -

Pyrites 23.0 20.0 20.0 115.0 -

a/ US$1 - 3.7 yuans.b/ Ex-factory prices for products and delivered prices for inputs.c/ CIV China prices for imported products and netback value from exports for exportable

inputs.d/ Derived from the imported urea price, taking into account relative nitrogent contents and

losses during handling, storage and application between ARC and urea.e/ Price for Vunnan rock.

Industry DepartmentMarch 1987

- 43 -

AWxZ3-1

('-0-00 tauuV veer,z 2)(Cmaity ard joUi~im In '00 trr cmudtyv tflIamt In ?)

_mdt fw. . _

imlda 45.0 46.5 kW3. 5D04 111.0 T).7 112.6 50. 111.5 47.7 10.m 18r.0 175.5 Q7.5 W.1 ll.5 189.4 105.2 189.3 15 190.0 im.

Amnda 45.0 43A 96A 46.0 1( 46.4 10. 43.1 95. 46.5 10.AMC 180.0 1542 85.7 166.5 92.5 170 94.8 160 89.1 1734) 9%1

dnia 60.0 50.8 129 5.9 122. 51 122A 51.7 M.2 57 91.2AMC 240.0 231A 111.9 217.6 1M.9 212 119.6 197A 8L 217.0 93.4

hmrda 65.0 (.4 1(2 67.3 ID3.5 6(2 104.9 66.5 102.3 640 9.5MBC 220n M.1 94.6 224.0 101.R 238.7 108.5 231.1 105*1 M50 93.2ikee 12.5 6.6 52.8 4.4 35.2 54) 404 .5.5 44J) - -M'htiol 501) 33*5 674 35.0 70.0 38.7 77. 0.5 810 4)54 q360

Amcna 80.0 37.9 P4A2 37.1 F4 48W 107.8 55.1 91.8 1P.1 9MMC 24O.0 129.4 71.7 129A4 71.9 170.7 94.8 192.7 8n3 21fi) 90.0

at Opit1 frv VW A 1h beaqm tD tt anwt lwel, nstvely , It 184 an1985 ftuu 45)000 t7 of a a mda 10IX) tw of MC

- 44 -

ANNEX 3-2

O°* - 1 JW PATRMLATU(R 'WLJW

Feudfstoc ndul Pu wpl& for tlu fve Gapmle

IWA Di~~~~~starme Tieliveredp~rice/Qawwiptian fiun the (Ihimu/tim) - .orlfic

Feedstok Vo0 tffl c* of Mt= Plat (km) QOtrow1I i,tIAted Value (Kcal/ton)

(l*e 103 XIQ WeI, 80u 8D 72.2 79A 7,ttO

l3ttuinu 0e1 30 M to1, mm - 38.0 5,50

Apiraete 125 Jirdwa , swud 493 65.3 65.3 5,80Provinm

Bitwnws cod 28 Yuup1i,S1wud 20 26.1 26.1 5,25k)

Anthacite 250 Jimuo, Iw 120 82.7 91.) 6,064

.tuu1n Ocl. 40 Y1uo, 1lb.m - 45.5 5,092

Mtwacte 66 fgdituMftv 1,177 82.7 - 7,o3QRhpa frwbme

Q,e 44 T, M bla 1,013 - 97.5 70M

tmnD bal ca 30 m .36.0 .500

Cc&e 186 lmby (bklE Plait 10 130).5 130.5 7,000heb an bitmiiwcoal

Fuel onl 19 Yan ai, a.lif 70 132.5 132.5 l0,00

a/ Ta an 52 fin, col outst for altraite ni cd (ewotahe qdlity).

bI After Piec al,O wte, vo& rqumit of 3M000 tpy wih be aUppied ftom the Jit*gd Mire inym-, an pyites of 195,,OM tpy wl be ddp* fsd huaAma Provnoe

1ary T1987Muh 1997

45 -

ANN-X 4-1Page 1 of 2

(RINA - PRRTILIZRR RATTONAT.I7ATTON PR0J1P. T

Summarv of Phosphate Fertilizer Development Component

YXCPC will establish a DAP/NPI production capacitv utilizing localphosphate rock. This comporent comprises:

I. A 200,000 tEy sulfuric acid (1002) plant. The plant will hebased on pyrites roasting and include facilities for the handlingand storage of dust and ash from the roasting plant andof 3,000 t of product acid, utilizing the latest technology inenergy saving and pollution abatement, and almost identical to aplant presently under construction at Nanjing with financialassistance from the Rank. The Nanjing Design Institute willprovide the process design for pyrites roasting and fordouble-contact, double-absorption sulfuric acid manufacture withassistance from Lurgi, W. ierimany.

2. An O 000 y P _0hosphoric acid plant Includingafurdprocessin capacity for cryolite NuaAll' of 4,200 tp. Theplant will include phosphate rock grinding facilities 35 tph,300.000tpy) and high efficiency scrubbers, and will be designedfor 29n operating days/year and a sulfuric acid to phosphate rockattack ratio of 2.5. For a conventional attack ratio of 2.R, asmall quantitv of sulfuric acid would have to be purchased fromnearby copper smelters. Nvaporator capacities will be sized toproduce 542 P2 05 Phosphoric acid; the product acid storagecapacity will be 3000ntons of P2 01.

3. A granulating plant for 240.000 tpy of flAP and NPR (typically16-1-16. fAP will be produced In a preneutralizer and

ammoniator-granulator. The design of the standard nAPgranulation plant will be adequately modified to allow efficientproduction of NPRs mainly based on fAP, urea and potassiumsulfate. On the basis of a combined nAP and 16-16-16 production,annual output is anticipated to be about 140,flOt nAP and100,OOOt NPR based on 290 operating days/year. The plant willinclude bagging facilities (40 tph) and indoor storage capacityfor a minimum of 5,OOOt of bagged product.

4. Utilities required to operate the new phosphate complexefficiently, including power, steam, process and cooling waterand effluent treatment.

5. Off-sites including railroads, facilities for railcar shunting,raw material, product and waste handling, storage of 13,00tpyrites and of 13,000t phosphate rock. A dump site forphosphogypsum will be prepared with a capacity of 3 million tons,expandable to a minimum of 5 million tons In preparation for afuture duplication of the phosphate complex.

- 46 -

ANNEX 4-1Page 2 of 2

6. Energy saving modifications for the ammonia plant comprise mainlyof Improvements in the gasification section, incorporation ofhigh temperature CO-shift conversion and Cf2 removal and therecovery of hydrogen from purge gas.

Industrv DepartmentMarch 1987

- 47 -

ANNEX 4-2Page 1 of 2

CHINA - FERTILIZER RATIONALIZATION PROJECT

Summary of Nitrogenous FertilizerRationalization and Expansion Component

YCFC, LCFC, XCFC and BCEC will install four identical urea-plantsof 132,000 tpy each, (400 tpd, 330 operating days/year), to replaceexisting inefficient ABC plants, expansion of ammonia production capacitiesto 80,000 tpy and energy saving measures to reduce the specific energyconsumption in the manufacture of ammonia. To guarantee a steady feedstocksupply and a smooth urea production, the liquid ammonia storage capacitiesat the plants will be expanded to 800m3 and provision will be made for aminimum of 3,000 t storage capacity fQr bagged urea. For the expansion ofammonia production capacities and for energy conservation, commerciallyproven Chinese technology will be implemented, which was technically andeconorically reviewed and considered to be sound and of low risk. Emissionlevels from all plants under the Project will be reduced during the Projectimplementation and will meet the Chinese standards, which show asatisfactory correlation with Bank guidelines. The project scope for theindividual plants consists of:

1. YXCFC

- 132,000 tpy urea plant, including baggiln- one additional gasifier- modifications to gasifiers, i.e. coal feeders and

steam controllers- electrostatic precipitator for dust removal- high temperature co-shift conversion- high pressure de-carbonization- octivated carbon C02 desulfu-,ization- expansion of copper solution plant- one ammonia circulator- one ammonia refrigeration compressor- heat exchangers for synthesis loop- hydrogen recovery from purge gas- increase liquid ammonia storage capacity to 800 m3.- two boilers

2. LCFC

- 132.000tpy urea plant, including bagging- two additional gasifiers- modifications to gasifiers, i.e. coal feeders and

steam controllers- electrostatic precipitator for dust removal- expansion of desulfurization plant- high temperature CO-shift conversion- high pressure decarbonization- activated carbon C02 desulfurization

- 48 -

ANNW 4-2Page 2 of 2

- expansion of copper solution Plant- addition of two syngas compressors- one ammonia circulator- ammonia refrigeration compressors- heat exchangers for synthesis loop- increase liquid ammonia storage capacity to ROOm3- two boilers

3. XCPP

- 132,0lO tpy urea plant, Including bagging- two additional gasifiers- modifications to gasifiers, i.e. coal feeders and steam

controllers- electrostatic precipitator for dust removal- high pressure Co-shift conversion- high pressure decarhonization- qactivated carbon h°2 desulfurization- expansion of copper solution plant- ammonia refrigeration compressors

- hydrogen recovery from purge gas- Increase liquid awmonia storage capacity to ROOm3- boilers

4. EEC

- 132,000 tpy urea plant, including bagging- high temperature CO-shift conversion- high pressure decarbonization- activated carbon C02 desulphurization- of amonia refrigeration compressors- increase liquid ammonia storage capacity to Rn0 m3- boilers

Industry DepartmentMarch 1987

- 49 -

ANNEX 4-3

CHINA - FERTILIZER RATIONALIZATION PROJECT

Summary of Terms of Reference for the Management Study

1. Objectives of the Study

As a means of improving sector-wide management efficiency, MCIwill sponsor a study on managerial efficiency of chemical fertilizer enter-prises. The main objectives of the study are to reviews (i) relationshipsbetween various supervisory authorities and enterprises based on the stra-tegic objectives of the Government; (ii) organizational structure of enter-prises in connection with their changing organizational mandates; (iii)appropriate management information systems for enterprises based on definedrelationships between enterprises and related agencies or clients withreference to proper utilization of computerized tools; and (iv) the costaccounting system. The study will prepare specific recommendations on thealternative organizational structure, management information and costaccounting systems for enterprises and pilot implement such systems forBCEC and YXCFC. The study will also prepare an implementaiton program tointroduce the alternative systems into the entire industry.

2. Liplementation of the Study

An internationally renowned consulting firm will be selected forthe carrying out of the study. The study will be carried out with maximumparticipation of local counterparts through the formation of a task forcewithin MCI. The cost for the study will be shared among the five projectcompanies.

3. Scoe of the Study

The study will review recommendations for Improvements in: (a)the existing institutional structure of the chemical fertilizer industry;(b) the organizational and management information system (MIS) of fertil-izer enterprises; (c) the current cost accounting system of enterprises;(d) management training programs for the chemical fertilizer industry; and(e) pilot implementation of alternative systems (organization, MIS and costaccounting system) for fertilizer enterprises.

4. Schedule of the Study

The study will take about 12 months from the date of contractaward, which is currently scheduled for May/June 1987, including two-monthpilot implementation.

5. Reporting

Major reports to be prepared by the consultant are: (a) FinalStudy Report; (b) Pilot Implementation Completion Report; and (c) Implemen-tation manuals for the alternative systemso

Industry DepartmentMarch 1987

- 50 -

ANNEX 4-4

CHINA - FERTILIZER RATIONALIZATION PROJECT

Summary of the Program for Strengthening ManagementTraining at BICRM

1. Objectives of the Program

BICEM plans to play a central role in disseminating modernmanagement systems and skills in the Chinese Chemical Industry, andstrengthening MCIts capabilities In data and project management. Theprogram is aimed at improving the quality of management training at theInstitute,

2. Scope of the Program

The Program will comprise:

(a) adjustment of curricula in line with the training needs ofenterprises;

(b) overseas training of teaching faculty;

(c) invitation of foreign specialists to conduct local training;

(d) introduction of advanced teaching and research equipment andmaterials; and

(e) establishment of a data base for MCI's information andproject management.

3. Schedule of the Program

The Program will take three years to complete.

4. Main Areas of Focus in the Program

The Program will focus on improvements in the quality of trainingfor the following subjects:

(a) Organization and management;

(b) Management information system;

(C) Cost accounting;

(d) Finance and financial management; and

(e) Project planning and evaluation.

Industry DepartmentMarch 1987

CHINA - FERTILIZER RATIONALIZATION PROJECT

Organization Chart of MCI ProjectCoordination Unit

World Bank ProjectImplementatio Coordination

Group

Deputy Minister for Finance

Project General Manager

Chief, World Bank LoanOffice

Vice General Manager

Deputy Director, CNCCC

, I

Proj4vPe Of ficer

_- _ ~ ~ ~ ~ F

Design Technology Construction Procurement Transportation Financing Planning andCoordinator Coordinator Coordinator Coordiator Coordinator Coordinator |Cost Coordinator

- 52 -

ANNEX 5-2

CHINA - PUtLtZER RATIONALIZATION PROJECT

PROJECT IWPLEMKNTATION SCEEDULB

1987 1988 1989 1990 1991JPHAHUJASOND JPPAPJJASOND JFHAMUJASOND JFMANUJASOND JFMAKJJASOND

A. Plant RationalizationComponents

1. 4 Urea Plants:

Process Inquiry XXProcess Bid Evaluation XXProcess Contract Award XXXXBasic 8ngineering XYX XXXIssue Major Equipment

Enquiries X%XXXBid Evaluation XXXXXContract Award XXXXXXDetailed Engineering XIXIXXX XXXXXXEquipment Delivery XXXX XXXXXI XXXIX.Site Preparation/Civils XXXX XXXXUXXXXXXEquipment Installation/

Erection XXX XXXXXXXXdechanical Completion XComuissioning xX

2. DAP/NPR:

Process Inquiry XXProcess Bid Evaluation XXProcess Contract Award XXXXBasic Engineering XX XXXXIssue Major EquipmentEnquiries XXXXXXXXBid Evaluation XXXXXXXXContract Award XXX XXXDetailed Engineering XXXXXIX XXXXXEquipment Delivery XX XaiIXXiXXX= XXXISite Preparation/Civils XXX XxxxxxxxIXXX XXXXEquipment Installation/ XX XXXXXXIXXXXX XXXXErection

mechanical Completion XXXXComissioning XXXX

B. Institutional DevelopmentComponent

1. Management Study (MCI):Preparation of bidding

document XXXXSend the bid XXXOpen the bid XXXStudy XXXXXX XXXIXX

2. Overseas training (BICEM):Preparation XXXXXXTraining XXX XXXIXXXXXXX1 xIIXXXXItXXXI XXXXX

3. Purchase of ComputerEquipment (BICEM/ICI):

Preparation of bidding XXdocument

Send the bid XXOpen the bid XXXDelivering XX XXXXXInstallation XXX

4. Invitation of ForeignExpertsPreparation %XXXXXXXTraining XXIX XXIXXXXXXV X XXXXXXXXXII XKXXXXX

Industry Departmentmay 1987

-53- ANNEX 5-3

CHINA - FERTILIZER RATIONALIZATION PROJECT

Pollution Levels of Plant Effluents Sefore and After the Project

Flow Rate Local World BankPlantss Pollutants 3/h Before ProJect After Project Standard Guidelines

YXCFC

lasifters + Iaste water pH 8.6 pH 6-9 pH b-9Ammonia NH4-N 80.4 mg/l

Total N 88.8 mg/l 1.0 mg/iCyanogen 6.9 mg/l Cyanogen 0.5 mg/i 0. Smg/I

(0.5 Mg/I

Sulfuric Acid Off-gas 80,000 <450 pPm S02 500 DPp S02 220 ppm SO2-< 94.3 kg/h

Phosphoric Acid Off-gas 140,060 -( 15 mg F/w3 50 mg / m3 10 mg/A3

Waste water 178 -< 10 mg F/I0.6 g/l P20s

DAP Off-gas 75,000 to 10 ug F/t3 50 MR/ m3 10 mg/03

, PCEC

Gasifiers + Waste water ,N 5.7-9.5 pH 5.7-9.5 pR 6-9 pH 6-9Ammonia total N 10.0- Total N 10.0-

122. 5 mg/I 122.5 mg/I 100 ug/ICyanogen 0.15 - Cyanogen 0.15- 0.5 mg/I 0.5 mg/I0.69 mg/l 0.69 mg/I

3. LCFC

Gasifiers + Waste water Sefore 350 pH 5.7-9.5 pH 6.7 pR 6-9 pH 6-9ammonia After 125 Cyanogen 1.77 mg/I Cyanogen <0.31 m8/1 0.5 mg/l 0.5 mg/l

Sulfide 1.78 mg/I Sulfide <0.3 mg/I 1.0 mX/I 0.5 mg/iCOD 1.54 mg/i COD <50 mg/l tOO mg/I 100 ag/ISuep. soltds Suep. solids506 mg/I 50 Mg/I 500 mg/l 50 mg/l

Boilers Off-gas Before 14,300 Dijst 800-1,200 :j/ Dust 100 mg/03 170 mg/a3 100 mg/M3

After 16,400 mSO2 32.6 mg/ 660 mg/n3 550 Mg/r3

Nox 14 tg/m3 390 mg/m3 450 mg/b3

4. XCFC

Gasifiers + Waste water 540 Cyanogen 10- CyanogenAmmonia 13 mg/I u< 0.5 mg/I 0.5 mg/I 0.5 m4/I

Sulfide <20 mg/l Sulfide <0.5 mg/I 1.0 mg/l 0.5 mg/ISusp. solids Suep. solids960 mg/I <30 mg/t 500 mg/l 50 mgg/I

S. YCIC

Gasifiers + Waste water Before 780 pH 6.8 pH 6-9 p& 6-9

Ammonia After SO0 Cyanogen 0.07 mg/l 0.5 mg/l 0.5 mg/tSulfide 0.48 mg/i 1.0 mg/l 0.5 ag/ISuep. solids Susp. solids554 mg/l <500 mg/l 500 mg/I 50 ng/l

Boilers 0ff-Sas Before 12,200 Dust 119 mg/i 3 ItO mtg/a3 100 ig/lAfter t5,S00 S02 31.7 mg/ 3

660 mg/u3 550 mg/imix 14 mg/*3 390 mg/03 450 tg/l

The Four Urea Comoates

Ures Naste water 9 XH3 <50 mag/ 50 mg/IUres <10 mg/i n.s. n.e.

Prilliag Off-gas 140,000 Urea -<SO tg/Nm3 100 mg/n3

Industry DepartmentNsrch 1987

CHIIA - FERTILIZ8R RATIONALIZATION PROJECT

CAPITAL COST 2RST:ATES(in IIt tllion)

A. ?bsoapate Development and Nitrogenous Ferttiliter Expsusion

Yunnan Tuenping Luoyang Xuanb"u teing TotalLocal Foreign Total Local oreign Total Lo orn Total Locl oreign Total Lcal Foreign Tota Local Fore TotalLicence Fees 0.00 1.40 1.40 0.00 0.50 0.50 0.00 0.50 0.50 0.00 0.50 0.50 0.00 0.50 0.50 0.00 3.40 3.40Baic Engieerins 0.52 0.76 1.28 0.03 0.40 0.43 0.05 0.40 0.45 0.03 0.40 0.43 0.05 0.40 0.45 0.68 2.36 3.04Detailed Engi osering 0.86 0.89 1.75 0.26 0.20 0.46 0.25 0.20 0.45 0.23 0.20 0.43 0.15 0.20 0.35 1.75 1.69 3.44Equipmet and Materials 4.12 23.37 27.49 5.04 8.47 13.51 5.92 8.69 14.61 4.77 8.29 13.06 3.48 8.00 11.48 23.33 56.82 80.15Spare Farts 0.17 1.06 1.23 0.08 0.35 0.43 0.33 0.35 0.68 0.08 0.35 0.43 0.07 0.35 0.42 0.73 2.46 3.19Freight and Insurance 0.80 1.36 2.16 0.24 0.69 0.93 0.17 0.74 0.91 0.22 0.67 0.89 0.23 0.65 0.88 1.66 4.11 5.77Civls and Erection 5.47 5.78 11.25 3.91 0.78 4.69 4.04 0.74 4.78 3.81 0.68 4.49 3.04 0.30 3.34 20.27 8.28 28.55Project mangemnt 1.74 1.44 3.18 0.24 0.30 0.54 0.20 0.30 0.50 0.20 0.30 0.50 0.20 0.30 0.50 2.58 2.64 5.22Training 0.24 0-30 0.54 0.10 0.20 0.30 0.09 0.20 0.29 0.08 0.20 0.28 0.08 0.20 0.28 0.59 1.10 1.69B"e Cost (January 1987) 13.92 36.36 50.28 9.90 11.89 21.79 11.05 12.12 23.17 9.42 11.59 21.01 7.30 10.90 18.20 51.59 82.86 134.55Phystiel Contingency 1.39 3.64 5.03 0.99 1.19 2.18 1.11 1.21 2.32 0.94 1.16 2.10 0-73 1.09 1.82 5.16 8.29 13.45Price Contingency 0.85 2.30 3.15 0.54 0.72 1.26 0.60 0.67 1.27 0.52 0.65 1.57 0.39 0.61 1.00 2.90 4.95 7.81Installed Coat 16.16 42.30 58.46 11.43 13.80 25.33 12.76 14.00 26.76 10.88 13.40 24.28 8.42 12.60 21.02 59.65 96.10 155.75Incremental Working Capital 6.53 0.00 6.53 1.98 0.00 1.98 1.54 0.00 1.54 0.38 0.00 0.38 0.03 0.00 0.03 10.46 0.00 10.46Interest Dur. Conatr./) 1.38 6.87 8.25 0.64 1.48 2.12 0.79 1.51 2.30 0-52 1.45 2.01 0.34 1.36 1.70 3.67 12.67 16.34

Sub-Total 24.07 49.17 73.24 14.05 15.28 29.33 15.09 15.51 30.60 11.78 14.85 26.63 8.79 13.96 22.41 73.78 108.79 182.55S. Institution Developnent

Study - 0.09 0.09 - 0.09 0.09 - 0.09 8.09 - 0.09 0.09 - 0.09 0.09 0.00 0.45 0.45UCEltttlCI 0.10 0.85 0.95

Subtotal 0.10 1.30 1.40

Total Financing Kequired 24.07 49.26 73.33 14.05 15.32 29.42 15.09 15.60 30.69 11.78 14.94 26.72 8.79 14.05 22.84 73.88 110.07 183.95(A+B) - - - - - - - _ - - - _ _ _ _ _ _ _

Commitment fees are included in IDC.

ladustry Department 0may 1987

CNA - FE1TILIZER RATIONALIZATION PROJECT

CAPITAL COST ESTUIATES(in million yuana)

A. Phosphate DeyeloiRent and Nitrogenous Fertilizer Component

YTunal kuanpg Z Xuanhu Beij log TotalLocal Foreign Total Local Foeign Ttal ig Total Local Foreign Total Local Forelgn Total Local Foreign Total

licence Fees 0.0 5.2 5.2 0.0 1.9 1.9 0.0 1.9 1.9 0.0 1.9 1.9 0.0 1.9 1.9 0.0 12.6 12.63asic Engiaeering 1.9 2.8 4.7 0.1 1.5 1.6 0.2 1.5 1.7 0.1 1.5 1.6 0.2 1.5 1.7 2.5 8.7 11.2Detailed Engineering 3.2 3.3 6.5 1.0 0.7 1.7 0.9 0.7 1.7 0.9 0.7 1.6 0.6 0.7 1.3 6.5 6.3 12.7Equimpent and Materials 15.2 86.5 101.8 18.6 31.3 50.0 21.9 32.2 54.0 17.7 30.7 48.4 12.9 29.6 42.5 86.3 210.3 296.6Spare Parts 0.7 4.0 4.6 0.3 1.3 1.6 1.2 1.3 2.5 0.3 1.3 1.6 0.3 1.3 1.5 2.8 9.0 11.8Freight and laerance 3.0 5.0 8.0 0.9 2.7 3.6 0.7 2.7 3.4 0.8 2.5 3.3 0.9 2.4 3.3 6.2 15.4 21.6Civila and Erection 20.2 21.4 41.6 14.5 2.9 17.4 14.9 2.7 17.7 14.1 2.6 16.7 11.2 1.1 12.4 75.0 30.7 105.7Project Ma_agemet 6.4 5.3 11.8 0.9 1.1 2.0 0.7 1.1 1.9 0.8 1.1 1.9 0.8 1.1 1.9 9.6 9.7 19.3Trataiig 0.9 1.1 2.0 0.4 0.7 1.1 0.3 0.7 1.1 0.3 0.7 1.0 0.3 0.7 1.0 2.2 4.1 6.3

Dase Coat (January 1987) 51.5 134.6 186.1 36.6 44.1 80.7 40.9 44.8 85.7 35.0 42.9 77.9 27.1 40.3 67.4 191.1 306.8 497.9

Physical Contingency 5.2 13.5 18.6 3.7 4.4 8.1 4.1 4.5 8.6 3.5 4.3 7.6 2.7 4.0 6.7 19.1 30.7 49.SPrice Contingency 14.0 37.4 51.4 9.4 10.6 20.1 10.0 11.3 21.3 8.5 10.8 19.3 6.6 10.2 16.8 48.7 80.4 129.1

installed Cost 70.7 185.5 256.2 49.7 59.2 108.9 55.0 60.6 115.6 47.0 58.0 105.0 36.4 54.6 91.0 258.9 417.9 676.8 '^

Incremental working Capital 33.3 0.0 33.3 8.9 0.0 8.9 6.9 0.0 6.9 1.8 0.0 1.8 0.2 0.0 0.2 51.1 0.0 51.1Interest Dar. Constr.1/) 5.7 28.4 34.1 2.9 6.7 9.6 3.6 6.9 10.5 2.4 6.6 9.0 1.5 6-0 7.5 16.1 54.6 70.7

Sub-Total 109.7 213.9 323.6 61.5 65.9 127.4 65.5 67.5 133.0 51.2 64.6 115.8 38.1 60.6 98.7 326.1 472.5 798.6

S. Institution DevelopmentCo-ponent

Study - 0.3 0.3 - 0.3 0.3 - 0.3 0.3 - 0.3 0.3 - 0.3 0.3 0.0 1.7 1.7BICdm/CI 0.4 3.1 3.5

Subtotal 0.4 4.8 5.2

Total Financing Required 109./ 214.2 323.9 61.5 66.2 127.7 65.5 67.8 133.3 51.2 64.9 116.1 38.1 60.9 99.0 326.5 477.3 803.8(A+B) - - - - - - - - - - - - - - - - - -

Commitment fees are included in IMC.

lndustry DePartmentM 19S7

- 56 -

ANNEX 6-2

CHINA - FERTILIZER RATIONALIZATION PROJECT

Estimated Disbursement Schedule for Bank Loan

As x of TotalSemester Cumulative Amount of Loan

Year (FY) Ending Disbursement Disbursement Annual Cumulative- million US$ ---

1988 Dec. 31, 1987 2.1 2.1 2.2 2.2June 30, 1988 3.7 5.8 3*8 6.0

1989 Dec, 31, 1988 8*1 13.9 8.3 14.3June 30, 1989 17.0 30ot 17.5 31.8

1990 Dec. 31, 1989 19.4 50*3 19.9 51.7June 30, 1990 19.4 69.7 19.9 71.6

1991 Dec. 31, 1990 13.3 83.0 13.6 85*2June 30, 1991 6.1 89.1 6.3 91.5

1992 Dec. 31, 1991 4.2 93.3 4.3 95.8June 30, 1992 2.1 95*4 2.2 98.0

1993 Dec. 31, 1992 2.0 97.4 2.0 100.0

Industry DepartmentMay 1987

- 57 -

ANK1.X 7-1Page 1 of 2

CHINA - SICOND FERTILIZER RATIONALIZATION PROJECTASSUMPTIONS UNDERLYING FINANCIAL ANALYSIS

A. General

1. Financial projections have been carried out in current yuansusing projected domestic inflation rates for local inputs and outputs andinternational inflation rates for imported inputs as follows: domesticinflation rates--6.5Z p.a. during 1987-1990, and 4.5% p.a. thereafter,international inflation rates-3.O% p.a. in 1987, 1.0% p.a. during 1988-90,and 3.5% p.a. thereafter. Key assumptions for financial projections havebeen based on the actual practices currently exercised by companies underthe Chinese regulations annually. To provide an overall view of thecompanies' financial performances In accordance with the conventionalaccounting concepts based upon international accounting standards, thefollowing adjustments have been made to the Chinese accounting system: (i)consolidation of the two sets of financial statements--productionoperations and capital construction; (it) reclassification of accounts inincome statements and balance sheets as necessary in accordance withconventional concepts; and (ili) preparation of sources and applications offunds statements which do not exist under the current Chinese accountingsystem. For financial rate of return (FRR) calculations, cost and benefitstreams in constant yuan have been used. The assumed capacity utilizationand production levels with and without the Project are given in Table 1 ofthis Annex.

S. Income Statements

2. Sales Revenue. Net sales revenues are calculated after deductingproduct tax. nuring project implementation and the initial four yearsafter the commissioning of urea/flAP plant (1987-1995 for YXCPC and1987-1994 for others), all the companies will not pay product taxes basedon special arrangements made for the project companies.

3. Variable Production Costs. Annual consumption of inputs has beenobtained from the material balance and estimated production levels with andwithout the Project. Material balances for each company with and withoutthe project are given in Project File No. 7.

4. Depreciation. Fixed assets are depreciated using the straightline method at rates agreed on between the companies and their respectivesupervisory authorities as follows: (i) Yuanping - 3.65? for the existingplant and 5.28% for the urea plant; (ii) Luoyang - 3.2X; (iii) Xuanhua -3.5% for the existing plant and 4.74% for the urea plant; (iv) Reijling -3.6% for the existing plant and 4.742 for the urea plant; and (v) Yunnan -4.5% for the existing plant and 6.R% for the urea plant.

5. Maintenance Costse In the Chinese accounting system, maintenancecost is divided into two categories - annual overhaul and othermaintenance. Provisions for annual overhaul are provided as a percentageof the original acquisition value of fixed assets, and managed separately

- 58 -

ANNEX 7-1Page 2 of 2

within the special fund account. Other maintenance costs are covered asoperating expenses. The rates of provision for annulI overhaul for eachcompany are: (a) Yuanping - 2.5% for the existing p and 3.7% for theurea plant; (b) Luoyang - 1.8%; (c) Xuanhua - 1.8%; R Beijing - 4.2% forthe existing plant and 3.7% for the urea plant; and (v) Yunnan - 3.0%.Total maintenance costs combining annual overhaul expenses and othermaintenance expenses are estimated on the basis of actual costs in thepast.

6. Interest Expenses. Interests on foreign exchange dominated loansare converted into local currency using projected foreign exchange rateswhich are assumed to be adjlusted to preserve relative currency valuesbetween the two currencies.

7. Taxes. The taxable income is derived from net profits afterdeducting amortization of long-term loans, and is taxed at an uniformincome tax rate of 55% and additional adjustment tax rates which differamong companies. The companies do not pay income and ad,ustment taxes onprofits during project implementation and the initial four years after thecommissioning of urea/nAP plants.

Co Balance Sheets

S. Fixed Assets. Fixed assets are shown at their historical costs.

9. Equity. The following four items are considered as equity giventheir equity "nature": (i) state fixed funds; (ii) state circulatingfunds; (iii) enterprise fixed funds allocated from internally generatedfunds; and (iv) net special funds (special fund assets minus special loans)retained by enterprises.

D. Funds Flow Statement

10. Depreciation Fund, The current government policy allows for theretention of 100% of the fund by the companies.

11. Expenditures from Special Funds. Provisions for annual overhaulare used to cover annual overhaul expenses. Annually, 15% of the retaineddepreciation fund and profits are paid to the Energy Conservation Fund.The companies will be exempt from contribution to the Vund during Projectimplementation and the initial four years after the commissioning of theurea/DAP plants. A portion of internally generated funds (in the specialfund account) is used for: (i) production technology development; (ii)improvement of workers' living condition; (iii) cash bonus; (iv) newproduct test fund. The balance is accumulated within the company asreserve funds.

Industry DepartmentMarch 1987

CHINA - FERTILIZER RATIONALIZATION PROJECr

Productlon Levels and Capacity UtilizationWith aod Without Project

YXCFC YCFC LCFC XCFC ICECABC DAP NPK ABC Urea ABC Urea ABC Urea ABC Ureao V w/-o w w/o 1 W/ V wo W W/o1 Wio a V VwoW WYo V Vo V VWo W

Production ('000 tpy) 240 - - 140 - 100 180 - - 132 180 - - 132 240 - - 132 220 - - 132

199l 215 190- - - - 170- - 92 170 - - 92 220 - - 92 230 - - 921992 215 121 - 84 - 60 170 - - 106 170 - - 106 220 - - 106 230 - - 1061993 215 93 - 105 - 75 170 - - 119 170 - - 119 220 - - 119 230 - - 1t9194 215 75 - 126 - 90 170- - 119 170 - - 119 220 - - 119 230 - - 1192002 215 75 - 126 - 90 170 - - 119 170 - - 119 220 - - 119 230 - - 1192003 215 75 - 126 - 90 170- - 119 170 - - 119 220 - - 119 230 - - 119Capacity Utilization (X)

Z

19I 90 90- - - - 94- - 70 94 - - 70 92 - - 70 1O5 - - 70 11992 90 50 - 60 - 60 94 - - 80 94 - - 80 92 - -80 105 - - s01993 90 39 - 75 - 75 94- - 90 94 - - 90 92 - - 90 105 - - 901994 90 31 90 - 90 94- - 90 94 - - 90 92 - -90 105 - - 902002 90 -31 - 90 - 90 94- - 90 94 - - 90 92 - - 90 105 - - 902003 90 31- 90 - 90 94- - 90 94 - - 90 92 - - 90 1OS - - 90

40-

cairn - mutLia arnonauowl taso

3293 1E I 8 197 O!_N ,, 1* 191 1992 193 1996

Ctro Sesle an"nue 21.2 29.2 27.6 58.4 U4.8 52.4 5.8 59.4 62.1 212.8 260.0 309.4Lses Pred ea:ion Tau 0.6 1.0 1.4 1.8 L.6 1.4 1.5 1.6 1.7 1.7 1.8 1.9

Variable Cent 12.4 16.3 14.2 23.2 23.8 29.1 31.0 33.0 14.5 98.0 118.7 '41.7fined Costs 5.6 8.6 - - - -Cenital Sal. 4 nAdm. up. 14 j 2.0 0.3 2.9 31 U j, 3.7 12.0 2.6 13.1

orating tncmm 0.7 $.3 5.6 4.s 6.0 8.9 9.8 10.8 11-6 58.0 84.4 109.7Loses nnmial Chtga .0,1 ,1j 0j 0 4 0.9 °j 0.7 0.6 19 1 19.2 17.2Net Inte 0 Jl e.s IT,e S.O INO.I 11.0 1if UT ViLace lon Amrtizatine - 0.6 1.0 2.8 1,4 1.4 1.4 1.4 1.4 14.9 28.6 28.2

taxec 4 Otbuw RmattanPA - 0, .beerid Profit 7 Ea i- x i T 7r Ti.-o- ii

8. tunic Plow Statetttt

Sources of lunds tree Oetraiaesfleattnd Pofitt 0.6 2.3 2.1 1.7 I.6 6.6 7.6 8.7 9.6 24.0 36.6 64.3teprotutteom 1.7 1.7 1.7 2.1 1.5 3.4 3.4 3.4 3.4 23.4 23.4 23.4

Inteet Supna 0.1 0.1 0.1 0.4 1.0 0.9 0.8 0.7 0.6 19.1 19.2 17.2Oetber Aduetntat +! J 0 14 A j 1.5 I*4 14.9 28.6 28.2

Itel Cach 0vti 1 "47.1T 1 Tr1y. 14 81 TM Tn

8eute. of eund. Pc OGteitde8m La - - - ^ 2.6 21.5 S2.8 68.9 21.3 18.4 - -

'nettiC 1oS tow lwoa - 6.9 6.6 4. - 4.7 16.0 24.7 11.9 8.4 - -Dlantic Obrt tM Lea (0.1) 0.8 (0.2) 0.1 - - - 10.3 (11.9) - -Bungot Allouatian 11 c - 0 - - - - - -I -

Total Cuout*% seutoa I- 17! 1r 1i-r wr ur w:r i3T TrvAploeatttn of lt"f@

Invstnt ln osd Lecg 0.5 6.8 *.1 7.3 5.7 34. 77.S 104.8 43.9 22.3 - -Pitecpl 8.pamwet Of lsns

TOts to 0.0 0.6 1.0 0.5 1.4 1.4 1.4 1.4 1.4 14.9 26.6 28.2Ihtoat upoana 0.1 0.1 0.1 0*4 1.0 0.9 0.8 0.7 0.6 19.1 19.2 17.2Incraca in lenkng Capital 0.1 2.4 1.9 0.6 0.5 0.6 0.6 0.7 10.8 33.3 4.8 4.6special lund empeItav 0.8 1.4 1.3 1.8 1.4 1.5 1.6 1.7 t.8 1.8 1.9 2.0Otebt Applicatien 4j jA JAL 0.1 0"1 j - 0.1 0.1 0.1 0.1 0.1

totl Applitien ofPu" 1.6 11.4 13.5 10.5 10.1 38.7 02.2 109.2 58.5 91.5 54.6 52.1

Inctease In 0al 1.1 0.9 (2.6) 1.7 I.S (0.2) (0.1) (.3) 0-0 15.1 53.2 81.0

C. Val8JM3t

Gerftt Asets t: ab 1.8 2.7 0.3 2.0 3.9 3.8 5.7 2.5 2.5 17.6 70.9 151.9

nvnterim .6.1 6.6 7.4 7.4 10.1 11.5 12.2 13.0 23.9 30.1 32.3 34.9Bnva. .*j 0. .0 a .2 3.4 5.6 3 4 12.8 15.7 18.7

Toal Gotnt dn_sta i 10 117! 1-8 K : W 19 lE T Wi 60.5 1 1U

lined AetasSbt ned Assets 44.6 48.7 49.2 53.5 50.2 48.3 44.8 41.4 38.0 303.4 280.0 256.6i;k-tn Ptrgress 3.9 6.5 17.3 20.0 5.7 38.6 116.1 210.1 254.5 - -

Othel nxed Acte 0 .J 0.3 0.4 0.4 0.5 0.5 0 6 0.6 0.7 0.7 0.8Total Pi.d acet 7 5e , 3 S6j77! U7.4 T 1TIl 260.1 N1t . T 17 207T

COrrant Usblitie.ssPaebla 1.5 2.2 3.1 3.7 3.7 4.2 4.6 4.8 5.1 10.9 12.7 14.8Shutt Tom 1ea 0.9 1.7 1.5 1.6 1.6 1.6 1.6 1.6 11.9 - - -Cornnt ogttn efL.t. Lem 0.6 1.0 5 0 4 1,4 14 1,4 4 14.9 28.6 28 28.4

Total Cartnt abilites IT 4. -in -WI -e, ,78 9 5 9

Lang-tas, Liabilitiesaetid se - - - - 2.6 24.1 76.9 145.8 157.3 167.7 149.5 131.1Cpiel Cenmtrtueti a -t.S 13 5 10.8 1422 28S .2 5.1 66.0 58.0 49.9

totl L.t. UebUittlieiccfog -J1.! ' , 5 1U- 15TX 11! i 7; S 1wr w

State ised ode, 44.1 43.7 44.2 53.6 47.0 46.0 44.8 41.4 38.1 34.8 31.5 28.2State Ci tut Pand 5.l 5.1 5.2 5.2 3.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0

ecal fda _evm 4 7 0. 5 2,8 82 165 25.9 30.6 50.6 113.7 204.5Total 8quity uw4 w1 in 57, u.2 ,; 7 1 -2 38.7

0. a

Set Ptefttigrea Sol" (1) 3.0 11.0 12.8 11.7 11.5 15.2 18.2 17.0 17.7 I1.4 25.1 29.9Operettn aasAsuAen a lnt in

Setue () 1.5 6.4 7.2 0.8 10.5 15.8 18.2 21.2 24.1 25.4 27.1 38.1Debt Steing C Dee (timas) 213 6. 4.2 10.5 5.9 5.4 6.1 6.9 7.6 2.4 2.3 2.4Curant Satti (tine) 2.7 2.1 1.4 1.) L5 2.6 2.6 2L5 1.8a 1.5 2.9 9.8LaNg tos Scs/uty 0o810o 9*91 15:07 17*83 20t80 3961 61:39 75t27 7426s 72*28 58*42 43:57

SI Vitht t OA Corrent pOn4an of ona debt hdA1b 121 be Pad er its the cecend ban of 1992. n applying the currant ratiocovnat fet 1991,tht speien il be aseld fram fane t lteblities.

industry leptaaSteb 1987

- *1 -

A 7-3

CRMA - ltRTILIZE RATIMO UHlEATSII A"OJC

YCFC - A Sumrr of Btstorical and Projeted FiXnsnal Statements(in million yvuena unless oth sis sta ae)

-- Actual- Prel. -P o e t d -198 1984 1985 1986 1987 398 1989 1990 1991 1992 1993 1994

A. Income Stateuents

Gross 5alec Revenue 28.8 30.0 23.4 26.0 29.0 30.9 32.9 35.0 64.6 77.1 90.7 94.8Less: Production Tax 0.9 1.1 1.2 1.3 - - - - - -

Variable Cost 17.0 17.2 12.3 15.8 15.7 16.7 17.8 10.9 24.3 29.0 34.1 35.7Pixed Costs 5.3 5.6 6.3 5.5 6.5 6.7 6.8 7.0 14.0 18.2 18.4 18.5General Sal. 6 Admin. exp. 0.1 0.2 0.2 0.2 2.7 _.9 3.1 3. 4 4.3 4.5 4.7

Operating Income 5.5 5.9 3.4 3.2 4.1 4.6 5.2 5.8 22.9 25.6 33.7 35.9Less Financial charges - - - 0.3 0.2 0.2 0.2 0.5 7.5 7.3 6.6 5.9Net Income TVr ;o TT T ; TM 15.4 1. 26Leasst Loan Aoortimation 0.2 0.2 - - - - - - 5.0 10.0 10.1

Taxes & Other Remittance 3.9 4.2 2.3 1.1 - - - - - - - -Reserved Proftte T;T T! TT T; T. Y19 137 T inT 1 9.9

B. Funds Flow Statements

Sources of Funud from Operations:Retained ProfIt 1.4 1.5 1.1 2.0 3.9 4.4 5.0 5.3 15.4 13.3 17.1 19.9Depreciatton 1.5 1.8 2.0 1.5 2.3 2.3 2.3 2.3 9.0 9.0 9.0 9.0Interest Ixpenses - - - 0.3 0.2 0.2 0.2 0.5 7.5 7.4 6.9 6.2Other Adjustments (0.3) j0.31 (0.6) (0.2) 0.0 0.0 0.0 0.0 0.0 5.0 10.0 10.1

Internal Cash Ceneration 2-S 3 .6 1.3 7r -rl -M 34.7 f f l

sources of Funds Pres Outsidea1BRD Loan - - - ^ 1.0 7.3 25.3 19.2 6.3Domestic Long Term Loan - - - - - - 21.3 11.7 -Domestic Short Term Loan (0.2) 0.2 2.6 (0.6) - - - 8.0 (11.9)Budget AllocAtion

Total Outside Sources T T) 0.2 2-6 T0 7. 3 ' tr Wi- M)

Applications of Funds:Investment in Ftxed Azseta 0.6 1.2 2.3 0.8 1.5 14.7 52.6 37.5 9.3Principal Repayent of Long

Term Loan 0.2 0.2 - - - - - - - 5.0 10.0 10.1loterest Expenses - - - 0.3 0.2 0.2 0.2 0.5 7.5 7.4 6.9 6.2Increase In Wiorking Capital 0.1 0.1 1.5 0.8 0.4 0.4 0.5 9.5 1.1 1.1 - -Special Pund Bxpediture 1.2 1.2 1.0 0.8 0.9 0.9 0.9 1.0 1.S 1.6 1.6 1.7Other Applications 0.2 0.2 0.2 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Total Applications t3 -T r tTT T 7 WI V. 1T3* ITT I1T 152ldCrease in Cash 0.1 0.3 0.1 - 4.3 (2.1) (0.3) (1.6) 6.9 19.4 24.0 26.8

C. Balance Sheets

Current Assets:Csh 0.3 O.t 0.9 0.9 5.2 3.0 2.7 1.1 8.0 27.4 51.4 78.2Inventories 6.5 6.2 5.7 6.7 5.3 5.4 5.8 13.4 14.0 15.1 16.2 16.9Raeidvables 1.3 0.4 5.l 4.0 2.4 2.5 2.5 2.9 5.3 6.3 7.5 7.8

Total Current Asets 8.T 7. 1T7 Tr11. i! ITO lT 17 7.3 48.8 i1 I AT

Fixed AssetstNet Fixed Assets 38.0 37.8 37.8 36.6 34.3 32.1 29.8 27.5 140.9 131.9 122.8 113.8Iork-tn Progress 1.8 0.8 1.3 1.1 I.S 16.2 69.5 109.1 - - - -Other Fixed Aset 0.8 1.0 1.1 1.2 1.3 1.4 1.6 1.7 1.9 2.0 2.1 2.3

Total Fixed Assets UTT W T WI WI WT 4T9 TT Ti;I 1W! TW! 11 1T

(srrant WiabilitiestPayables 1.3 0.7 2.8 2.0 0.8 0.9 1.0 1.1 1.4 1.6 1.9 2.0Short Tare Loan 1.6 1.8 4.4 3.9 3.9 3.9 3.9 11.9Current Portion of L.?. Loan 0.3 - - - - - - 5.0 10.0 10.1 10.2

Total Current 1iabitltaee 2 .5 7. 5 . 9 -; .8:Ts T ;t 1.r 12.0 21

Long Term Liabilities:World Dank Loan - - - - t.0 8.3 33.6 52.9 60.0 54.2 48.3 42.4Capital Constructton Los - - -L 21.3 35.5 34.0 30.5 26.9 23.3

Total L.T. Liabilities - - - - T8.T ;7IT llJ P9 8 75.2 65.7

equitysState Fixed Funds 38.0 37.8 37.7 36.6 34.3 32.0 29.8 27.5 25.3 23.0 20.7 18.4State Circulatiug Funds 3.9 3.9 3.6 3.6 5.1 5.4 5.8 13.4 14.0 15.1 16.2 16.9Special Fund Reserves 3.7 2.6 3.4 S.4 4.6 10.0 16.7 13.2 30.4 48.3 76.0 105.8

Total Equity ff. W4. WT 7t 4T .4 7 5tT 54. 6! 86. DT! 141.1

D.; Ratios

Net Profit/Groas Sales (2) 19.4 19.7 14.5 10.7 13.4 14.3 15.1 15.2 23.9 23.6 30.0 31.3Operating Income/Average Assts iaService (2) 12.4 13.7 8.1 7.9 10.3 12.3 14.5 15.6 16.1 17.0 23.8 27.0

Debt Service Coverage (tins) 13.8 14.5 VA 13.0 29.0 31.4 33.9 17.9 4.3 2.8 2.5 2.8Currant Ratio (time) 2.6 2.9 1.6 2.0 2.7 2.3 2.3 1.4 4.3 4.2 6.3 8.5Long Tom Debt/Equity 0:100 0:100 0:100 OlOO 2s98 15:85 51:49 62:38 57:4 50s50 40:60 32:68

Industr7 DpartmntNteeh 1987

- 62 -

jAlflIf 7-_

CINA - FBlTILIZER RATIONALIZATION PROJECT

LCFC- A Sw-_ of Hiatorical and Pro1ected FInancial Statements(in dillion yuann unlesn othertise stated)

--- Actual--- Prot. - Pooject1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

A. locose Statements

Gross Sales Revenue 27.4 30.7 21.8 26.4 29.0 30.9 32.9 35.0 64.6 77.1 90.7 94.8LeOS: Production Tax .9 1.2 1.2 - - - - - - -

Variable Cost 17.4 18.6 12.8 16.7 18.0 19.1 20.4 21.7 25.2 30.1 35.3 36.9Fixed Costo 4.5 4.9 5.1 5.5 5.1 5.3 5.3 5.3 15.3 15.4 13.6 15.7General Sal. & Admin. EIp. 2.0 2.0 2.2 0.3 3,5 3.7 3.9 4.2 4.4 8.5 8.9 9.3

Operating Income 2.6 4.0 0.5 3.9 2.4 2.8 3.3 3.8 19.7 23.1 30.9 32.9Lesst Financial charges - - - 0.3 0.5 0.4 0.4 0.5 9.0 9.2 8.5 7.6Not Income 2. Z ; T:5 T 31' 1T 9 TT " 13.9 22. ;25.3Lfsst Loan Amortlzation - - - - 0.3 0.3 0.3 0.3 0.3 6.5 12.8 12.8

Taxes & Other Remittence 1.5 2.2 0.4 - - - -Reserved Profits 1.1 1.8 0.1 T5 1T6 1T71 177 En 104 12.5

8. Funds Flo, Statements

Sources of Funds from Operations:Retained Profit 1.1 1.8 0.1 3.6 1.6 2.1 2.7 3.0 10.4 7.5 9.6 12.5Depreciation 1.6 1.7 1.8 1.8 2.4 2.4 2.4 2.4 7.1 7.1 7.1 7.1Interest 'xpansee - - - 0.3 0.5 0.4 0.4 0.5 9.0 9.2 8.5 7.6Other Adjustsents (1.4) (2.3) (.3) 0.1 0.4 0.3 0.3 0.3 0.3 6.5 12.8 12.8

Internal Cash Generation 1.2 1.2 1.6 358 S' -M 'i:w tT 26.8 3.230i 38.0 40.0

Sources of Funds From Outside:18RD Loan - - - - 1.0 7.2 26.2 19.7 6.4Domestic Long Term Loan - - - - - 1.0 27.4 11.6 - - - -Domaestic Short Term Loon (1.4) (.1) 2.3 (0.2) - - - 4.7 (8.7)Budget Allocation

Total Outside Sources (1.4) (01 T (.) 1T) r1. 8.2r 36.0 S2)

Applications of Funds:Investment in Fixed Assets 0.6 3.0 0.6 (1.8) 1.5 15.2 55.6 40.1 9.8Principal Repayment of Long

Term Loan - - - - 0.3 0.3 0.3 G.3 0.3 6.5 12.8 12.8Interest Expenses - - - 0.3 0.5 0.4 0.4 0.5 9.0 9.2 8.3 7.6Increase in Working Capital (1.2) (3.7) 2.4 2.7 0.5 0.5 0.6 0.6 0.5 1.1 1.2 0.0Special Fund Expediture 0.6 1.1 1.6 0.9 1.0 1.0 1.1 1.2 2.3 2.4 2.5 2.6Other Applications 0.1 0.1 - - 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Total Applications .1 0. 5 E 5 175 T T:T 7V1 75 2 2 .0 1937 25.1 Increase in Cash - 0.5 (0.7) 3.4 2.0 (4.2) 1.3 (0.6) 2.5 11.1 13.0 17.0

C. Balance Sheets

Current Assets:Cash 0.5 1.0 0.3 3.7 5.7 1.5 2.8 2.2 4.7 15.8 28.8 45.8Inventories 8.7 7.7 11.3 11.0 6.7 7.2 7.6 S.1 3.1 3.6 4.3 4.5Receivables 4.3 3.7 4.6 1.1 2.4 2.5 2.7 2.9 5.3 6.3 7.5 7.8

Total Current Assets -TaT 13.5 16.2 T571 13.1 1 3.2 13. 1 T E1T l5 4 35TFixed Assets:

Net nxed Assets 49.4 50.2 49.6 49.2 46.8 44.4 42.0 39.6 162.5 155.4 148.3 141.2Work-in Progress 0.8 2.3 1.7 3.3 1.5 16.8 73.4 116.0 - - - -Other Fixed Assets 0.4 0.5 0.5 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3

Total Fixed Assets 5.6 3§;2 3.0 377 IiW .5 163.5 135.5 1T49 .5 TWI U"

Current Liabilities:Payebles 1.5 0.7 4.2 2.0 1.0 1.1 1.2 1.3 1.4 1.7 2.0 2.0Short Term Loan 2.0 1.9 4.2 4.0 4.0 4.0 4.0 8.7 - - - -Current Portion of L.T. Loan - - - 0.5 0.3 0.3 0.3 0.3 6.5 12.8 12.8 12.9

Total Current Liabilities T17.T TT -M 6.5 5.3 35 tT T l 7.9 *14. 14.T 14.9

Long Term Lisbilities:World Bank Loan - - - - 1.0 8.3 34.5 54.2 61.4 55.3 49.5 43.4Capital Construction Loan - - - 3.4 2.7 3.4 30.4 41.7 42.7 38.0 33.4 28.7

Total L.T. LUsbilities - - - -35 3. TYw 64. 3v T 10. 138. 7-n 5Equity:

State Fixed Funds 46.9 45.5 36.4 49.2 46.8 44.4 42.0 39.6 37.2 34.8 32.4 30.0State Circulating Funds 6.6 6.4 3.7 6.0 6.7 7.2 7.7 8.1 3.1 3.6 4.3 4.5Special Fund Reserves 6.8 10.8 19.5 3.8 1.1 4.5 9.3 15.8 24.2 35.8 55.7 79.1

Total Equity 59.6 ;7 5 4. 5 6. 1 6.0' 63 .T -74.2 92. 113.6

D. Ratios

Net Profit/Gross sales(t) 9.7 13.2 2.4 13.1 6.9 8.0 9.0 9.5 16.6 18.2 24.8 26.8Operating Incole/Average Assets in

Service (U) 4.5 7.0 0.8 6.8 4.3 5.5 6.6 8.0 12.1 15.6 20.1 22.4Debt Service Coverage (times) IN/A N/A N/A 21.5 6.0 6.8 7.6 7.2 2.9 1.9 1.8 2.0Current Ratio (times) 3.8 4.7 2.0 2.5 2.8 2.1 2.4 1.3 1.7 1.8 2.8 3.9Long Term Debt/Equity OlO:0 0:100 0:100 5:93 6:94 17:83 52:48 60:40 62:38 55343 47t53 32:68

Industry DepartentNereb 1987

- 63 -

AIU 7-5

CaIM - FEILIIER RATI0NALIZATION PMOBCr

IICC Sa f AH e etical and Projected Financial StaentS{lihillion yuens unless otherwise stated)

-- Actu5l- Prel. - Projected1983 19U4 1985 1986 1987 1988 1989 199I 1991 1992 1993 1994

A. Income Statements

Cross Sales Revenue 35.4 37.9 14.7 42.7 38.7 41.2 43.9 46.7 64.6 77.1 90.7 94.8

Least Production Tax 1.1 1.3 0.5 - - - - - - - - -

Variable Cost 16.4 16.2 7.2 21,8 21.4 22.8 24.3 25.9 26.3 31.4 37.0 38.6Fixed Costs 11.0 12.1 3.3 11.7 14.0 9.6 9.6 10.1 19.0 19.3 20.8 21.0General Sal. & min. Esp. 0.2 0.2 3.3 2.9 3.3 3.5 3.8 4.0 4.2 8.9 9.3 9.7

operating Incoms 6.7 8.1 0.4 6.3 4.1 5.3 6.2 6.7 15.1 17.5 23.6 25.5Lesst Financial charges - - - 1.2 0.2 - - - 6.5 6.8 6.3 5.7

Net Income KT7 6; i7 ET T" 17: ! r Lesst Loan Amortization - - - - - - 9.6 9.2 9.2

Tax"e & Other Remittance 5.6 6.0 0.1 3.6

Raserved Profits 1;.1 2.1 T.3 1. 3.9 5 37 7 1 T 1! 5T

B. Funds Flow Statemwnts

Sources of Funda From OperationsaRetained Profit 1.1 2.1 0.3 1.5 3.9 5.3 6.2 6.7 8.6 6.1 8.1 10.6Depreciation 1.3 1.8 1..0 2.6 2.1 2.1 2.1 2.1 8.0 8.0 8.0 8.0Interest Expenses - - - 1.2 0.2 - - - 6.5 6.8 6.3 5.7Other Adjustmsnts (0.3) (0.7) (2.1) (0.6) 0.3 0.3 0.3 0.3 0.4 5.0 9.7 9.7

Internal Cash Geration 2.1 3.2 (6.8) 4t.T- -T! 7 *17T '7 1172 5 25.9 32.1 34.0

Sources of Funds Prom OutsidetIBID Loan - - - 1.0 7.0 25.1 18.8 6.2 -

Domestic Long Term Lon - - -- 4.1 11.6 10.3

Domestic Short Term Loan (0.7) 2.6 7.7 - (6.1) -

Budget Allocation 1.4 - -

Total Outside Sources 0.7 *7I -T - T (, 17 W2F *71

Applications of Funds:lovestment in Fixed Assets 3.2 4.7 2.6 0.7 1.5 14.1 50.7 36.3 9.1Principal Repayment of LongTerm Loa - - - - - - - - - 4.6 9.2 9.2

Interest Expenses - - - - 0.2 - - - 6.5 6.8 6.3 5.7

Increase in Working Capital (1.7) (0.2) 3.9 (4.8) 0.6 0.7 0.7 1.8 1.3 1.4 0.0 0.0

Special Fund Expediture 1.5 2.0 0.2 0.3 1.0 1.1 1.1 1.2 0.9 0.9 0.9 1.0Other Applications 0.2 0.1 0.1 - 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Total Applications 3.2 6.6 6.8 (3.8) 3.4 160 52.6 T T 13.8 16.5 16.0Increase in Cssh (0.4) (0.8) 0.1 8.5 (2.0) 2.8 (7.3) (1.2) 11.8 12.1 15.6 18.0

C. Balance Sheets

Current ssets:cash 1.2 0.5 0.8 9.3 7.4 10.3 3.0 1.8 13.7 26.0 41.6 59.7Inventories 5.9 7.0 19.2 9.5 7.9 8.4 8.9 9.5 5.2 6.2 7.2 7.5Receivables 4.0 2.2 5.7 2.2 3.2 3.4 3.6 3.8 5.3 6.3 7.5 7.8

Total Current Assets 11. 1 -25.7 1 18.5 22.1 15.5 T17 2 4.2 3 6.3 75!W

Fixed Assets,Nat Fixed Assets 29.4 31.0 35.5 35.3 33.2 31.2 29.1 27.0 136.9 128.9 120.9 112.9Vork-in Progress 7.8 6.4 1.5 2.1 1.5 15.7 67.1 104.9 - - -

Otber Fixed Aasets 0.2 0.3 0.3 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0.7 0.8Total Fixed "sets ITT 4 7.7 11! 'T;: =7 7t= 17 flSET T17T IZ9.61 T121, TMT

Current Liabilities:Psyables 3.7 3.4 11.4 0.6 1.2 1.3 1.3 1.4 1.4 1.8 2.0 2.2Short Term Loan 2.3 4.9 12.6 6.1 - - - - - - - -

Current Portion of L.T. Loan -- - - - - - - 4.6 9.2 9.2 9.3

Total Current Liabilities S.0 MU 2T4 -: 1 S T TT M1. 7II.Z1T

L,ong Term Liabilities:korld Bank Loan - - - - 1.0 8.0 33.0 51.8 58.8 53.1 47.3 41.5Capital Construction Loan - - - - 4.1 15.7 26.0 27.0 24.1 21.3 18.4

Total L. T. Liabilities - - - -1 0 21 .7 77.T 8 77.2 68.6 60 .7

Equity:State Fixed Funds 29.4 31.0 35.5 35.5 33.3 31.2 29.1 27.0 24.9 22.8 20.7 18.7State Circulating Funds 2.7 2.7 2.7 2.3 7.9 8.4 8.9 9.5 5.2 6.2 7.2 7.5Special Fund Reserves 10.3 5.4 0.8 14.3 10.2 16.5 24.1 31.8 39.9 51.0 70.0 91.1

Total Equity -! . 1 5 .T W! 52.1 51.4 317T 1gT -W.T m7T 117.3

D. Ratios

Nat Profit/Gross Sales (2) 19.8 21.0 0.9 12.7 11.0 13.6 14.9 15.0 14.1 14.4 19.6 21.4Operating Income/Average Amsts in

Service (2) 20.0 24.7 0.9 14.5 12.7 13.5 16.5 17.5 17.9 18.4 19.1 20.9Debt Service Coverage (times) NA NA NA NA 37.4 NA NA NA 3.6 3.3 2.1 2.3

Current Retio (tims) 1.8 1.2 1.1 3.2 15.5 17.4 11.4 10.5 4.0 3.5 5.0 6.6

1n Term Debt/Equity 0:100 OtOO OtlOO 0:100 2:98 18:82 44:56 53:47 55:45 49s51 42:58 33:67

ntduatry DepartmentMarch 1987

KUIC - A Sui Mwof Ristorloal od rojyd S- -Peel

(i *ultpasuls ot so ta:sz

-Actual ltd. -.-- tJeS51983 198 1985 1986 19879M 88 1 190 191 1992 1993 1994

A. Incam Statmnts

Cross Sales Revenue 70.7 74.6 75.1 77.8 83.3 SS87 94.3 100.7 113.0 127.7 143.5 150.0Lose: Production Tax 4.4 5.5 5.7 6.4 3.8 4.1 4.4 4.6 4.8 5.1 5.3 5.5

Veaible 37.9 39.1 46.7 47.9 50.4 53.6 57.1 60.8 55.0 62.1 69.7 72.8Fixed cotst 10.7 10.9 11.7 12.3 18.4 19.1 19.8 20.6 30.5 34.9 31.7 32.5Coneral Sal. 6 Amin. Sgx. 1-0 .42 1.4 1.9 2 .1 2.3 2.4 3.9 4.0 _4.2

Operating tncoe" 17.2 18.1 9.8 9.8 8.8 9.9 11.1 12.4 20.3 25.6 32.8 35.0Lesas Pinea ial charges - - - 4 0- 0.3 0.2 0 2 61 6.6 6.1 5.5Not Income wi 17 - VT VTr VT i,er f i 8 N7 WYls8: LAn A11 ortisa1tion 2.6 2.4 2.2 2.4 0.4 0.4 0.4 0.4 0.4 4.8 9.2 9.2

Taxes & Otber sattanc 12.7 13.7 5.5 S 4 5.4 5.9 6.1 7.6 7 9 8.0 8.1 8.2Isservod Ptofits -1r T-u VT .7T 1 r. ET r T rT ;T rr1

B. Funds Flow StatalntA

Sources of Funds from OperationsRetaind Ftofit 1.9 2.0 2.1 1.7 2.7 3.3 4.4 4.2 5.9 6.2 9.4 12.1Depreciatton 3.6 3.7 3.7 3.9 5.3 5.4 5.5 5.6 10.8 10.8 10.9 11.0Interet 8xpenses - - - 0.3 0.3 0.3 0.2 0.2 6.1 6.6 6.1 5.5Other Adjustments 0.2 (0j2) 0.3 1.1 0.3 0.4 0.4 0.4 0.4 4.8 92 9.2

Internal Casb Onoaation - .7 5. 7T 70 'Tr -10 1 T l-T VTY UT !3 Xi

Sourcos of Funds From OutidasIlnl Los - - - - 1.0 6.5 23.2 17.8 6.0 -Dometic Wug Taern - - - - - - 10.7 9.1 6.6 - - -

Domestic Short Tew Loan 1.7 1.9 0.6 1.3 -3.9 - - - - - - _Bsudgt Allocation -2 3 -0 6 9.6 - - - - - - - -

Total Outside Soures * At ' TET 1.3 -r 6 s 5 :r w.r T. - -

Applications of Funds:Invetontn to ed Assts 1.6 1.9 10.7 3.2 1.5 12.2 43.4 31.8 6.4Principal Repeymnt of Lo"

TOM l - _ - 2.4 0.4 0.4 0.4 0.4 0.4 4.8 9.2 9.2interet Es - - - 0.3 0.3 0.3 0.2 0.2 6.1 6.6 6.1 5.5Inre"a in working capital 2.3 0.1 2.1 1.2 0.8 0.8 0.9 0.9 0.7 1.6 1.7 -

Special Fund Ispodtture 2.1 2.6 2.7 2.1 2.2 2.4 2.5 2.7 3.6 2.1 2.1 2.1Otber Appliction 0s1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Total Applications t. -VT T5 -T T 5 2 Td rYy ,. Tr ; Tf 1 16 9Increaa in Cas 1.0 2.0 0.6 -1.0 0.5 -0.3 -3.1 1.2 18.5 13.2 16.4 24.9

C. Balance Sheets

Current AssetsO ah 1.8 4.0 4.7 4.1 5.1 5.3 2.7 5.0 24.4 9.0 57.5 81.7Iaventerie 8.5 8.6 14.8 19.8 13.4 14.3 15.2 16.2 10.6 12.0 13.4 14.0Receivables 1.2 1.6 8.0 1.3 6.9 7.3 7.8 8.3 9.3 10.5 11.8 12.3

Total Current Assets T1 it 2 7 . W 15. l3 l; l9. 44 .61. lET 108.

Fixed Assets:Not ixed Assa 65.2 61.0 72.2 51.5 47.2 43.3 39.4 35.5 128.7 119.6 110.6 101.6Work-in Progres 5.2 9.2 14.1 4.8 1.5 13.7 57.5 90.4 - - -Ote Fixed Assets 0.4 0.4 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5

Total Fixed Assets 7 7VT iT 570 49.5 VTE 9. 1J7. 1WV i0" iT1. 1T0T

current LiabilittesP Dyable 4.4 2.7 20.7 8.9 2.5 2.6 2.9 3.0 2.8 3.1 3.5 3.6Short TrM Loan 2.0 4.7 5.8 3.9 - - - - - _ _ _Current Portion of L.T. Ion - - - - 0.4 0.4 0.4 0.4 4.8 9.2 9.2 9.3

Total Cugrrnt Llabilitie -6r -;r ?{ lTET 1212.7T Ml

Loag Term LiailitiessWorld ank Lon - - - - 1.0 7.5 30.8 48.5 55.3 49.9 44.5 39.0Capital Wastructton Lo - - - 4.2 3.4 2.9 13.2 21.9 28.2 25.0 21.8 18.5

Toul L.T. loan - - 4.4 10.5 4.T UT 7 T W

Equity:Stet Fixsd Funds 65.2 61.0 72.2 51.1 47.2 43.3 39.4 35.5 31.7 27.W 23.9 20.0State Circautig tudo 5.6 6.4 6.4 5.6 13.4 14.3 15.2 16.2 10.6 12.0 13.4 14.0Specil food ResUv 5.7 12 7 9.9 8.6 7.0 13.7 21.8 30.9 40.9 55.6 78.5 106.7

Total Squity 970. l MTlE WE 71T 73T-2IT -VT lET ITrE I0. Retina

Sot Profit/good Sales (2) 24.3 24.3 13.1 12.7 10.8 11.4 12.1 12.9 13.4 16.0 20.0 21.8Oerating In /Avsa Assets inSwivi, (X) 23.9 26.0 13.7 14.1 14.6 17.5 20.8 21.1 21.9 23.4 26.3 30.1Debt SUVA" Coverage (ties) S/A ll /A U/A 2.8 13.7 14.6 17.1 18.7 3.7 2.6 2.5 2.8Crrt Ratio (tims) 1.9 2.3 1.1 2.0 8.7 8.8 7.9 8.7 5.9 5.0 6.5 6.4lon Te Debt/Dnity 0OO 0:100 01O0 644 6t94 13t87 36MM 46tS4 50JS0 44:56 36:4 29:71

lustry DOpartn"rWb 198"7

- 65 -

Anex 7-7CHINA - flRTILIZ MAUO_ALIZ M-OM PSOJtCT

Incremsntal Cossandb"efit St 5 for Ml Celcalations(in d lUon of 1987 yu a)

- |R YCICCapital Vorking Production soles Not Capital Votkag Production Sales NetCosts Capital _ Cos Re Casb Flow Costs Cgitj Costs Revenue Cash Flow

1987 2.6 (2.6) 1.0 (1.0)1988 28.2 (28.2) 12.3 (12.3)1989 60.6 (60.6) 42.1 (42.1)1990 74.4 (74.4) 26.5 (26.5)1991 23.2 (23.2) 6.9 7.4 7.8 20.8 (1.2)1992 15.8 23.7 60.2 104.7 5.0 008 10.3 27.7 16.61993 3.2 71.2 131.0 56.5 0.8 12.9 34.6 20.91994 3.0 81.5 155.5 71.0 l2.9 34.6 21.71995 81.5 155.5 74.0 12.9 34.6 21.71996 81.5 155.5 74*0 12.9 34.6 21.71997 81.5 155.5 74.0 12.9 34.6 21.71998 81.5 155.5 74.0 12.9 34.4 21.71999 61.5 155.5 74.0 12.9 34.6 21.72000 81.5 155.5 74.0 12.9 34.6 21.72001 81.5 155.5 74.0 12.9 34.6 21.72002 81.5 155.5 74.0 (8.8) (9.0) 12.9 34.6 39.52003 (20.8) (29.9) 81.5 155.5 124.7

Return on Investment * 19.72 Retura on Investsaent - 15.72

LCPC XCFCCapital Working Production Sales Net Capital Ueokiag Production Sales NetCosts Capital Costs Revenue Cash Flow Costs C0sotal Costs Revenue Cash Flow

1987 1.0 (1.0) 1.0 - - - 1..0)1988 12.8 (12.8) 11.8 - - - (11.8)1989 44.6 (44.6) 40.6 - - - (40.6)1990 28.5 (28.5) 25.6 - - - (25.6)1991 7.4 5.7 6.1 20.8 1.6 6.8 2.0 6.1 13.7 (0.9)1992 0.8 8.8 27.7 18.1 - 1.0 19.0 20.6 10.71993 0.8 11.5 34.6 22.) - 1.0 11.8 27.5 14.81994 11.5 34.6 23.1 - - 11.8 27.5 15.81995 11.5 34.6 23.1 - - 11.8 27.5 15.81996 11.5 34.6 23.1 - - 11.8 27.5 15.81997 11.5 34.6 23.1 - - 11.8 27.5 15.81998 11.5 34.6 23.1 - - 11.8 27.5 15.81999 11.5 34.6 23.1 - - 11.8 27.5 15.82000 11.5 34.6 23.1 - - 11.8 27.5 15.82001 11.5 34.6 23.1 - - 11.8 27.5 15.82002 (9.3) (7.3) 11.5 34.6 39.? (8.6) (4.0) 11.8 27.5 28.3

Return on Investment c 16.22 Return onalnvestaent * 11.92

MC Overall Pro actCapital Working Production Sales Net Capital Vorking Production Sale. NetCosts Capital costs Rgvenue Cash Flow Costs Canital Costs Revenue Cash Flow

1987 1.0 (1.0) 6.6 (6.6)1988 10.2 (10.2) 75.3 (75.3)1989 34.6 (34.6) 222.5 (222.5)1990 22.3 (22.3) 177.2 (177.2)1991 6.1 0.1 (2.3) 5.8 1.9 50.5 14.6 16.6 59.3 (22.4)1992 1.2 1.0 12.7 10.5 15.8 27.4 86.1 191.4 60.11993 1.2 4.3 19.5 14.1 6.9 110.5 245.1 121.71994 4.3 19.5 15.3 3.0 120.7 269.7 145.91995 4.3 19.5 1503 120.7 269.7 148.91996 4.3 19.5 15.3 120*7 269.7 148.91997 4.3 19.5 15.3 12007 269.7 148.91M98 4.3 19.5 15.3 120.7 269.7 148.91999 4*3 19.5 15.3 120.7 269.7 148.92000 4.3 19.5 15.3 120.7 269.7 148.92001 4.3 19.5 15.3 120.7 269.7 148.92002 (7.2) (2.5) 4.3 19.5 24.9 (34.0) (22.0) 120*7 269.7 205.02003 (20.8) (29.9) 61.5 155*5 126.7

Return on Investment a 13.X Return n looVWtusat 16.72

- 66 -

ANNEX 8-1Page 1 of 4

CHINA - FERTILIZFR RATIONALIZATInN PROJECT

Assumptions Underlying Economic Analysis

A. General

1. The economic rates of return (ERRs) have been calculated on anincremental basis for the five medium-size fertilizer plants. Prices areexpressed in constant January 1987 1U.S. dollars. The economic life ofplants, both with and without rationalization, is assumed to be 12 years.Salvage value of new investments is assumed to be 10% of the original valueof fixed assets at the end of the economic life of the project. Theassumptions for production levels of the plants with and without theProject are presented in Table I of Annex 7-l, The following conversionfactors, which have been provided by Bank economic work, are applied to thefinancial prices of non-tradeable goods and services to derive theireconomic prices:

Non-tradeable Items Conversion Factor

Ulnskilled Labor 0.25Technical Labor 4.00Managerial/Administrative Labor 1.00Electricity 1.50Rail Transport 2.05Local Machinery 1.34Construction 1.08

B. Capital Cost

2* The economic capital cost of each subproject expressed in January1987 prices has been obtained from the financial base capital cost after:(a) deducting duties and taxes on equipment and other items; (b) deductingthe costs of those spare parts which are to be included in operatingcosts; and (c) applying conversion factors to non-tradeable goods andservices for economic valuation.

C. Working Capital

3. Incremental economic working capital requirements for eachsubproject have been derived by comparing goods and services employed inprocess for production with and without rationalization.

D. Economic Benefits

4. Economic benefits for the Project come mainly from five majorsources, namely: (a) phosphate fertilizer (DAP) production utilizinglocally available phosphate rock, pyrites, and ammonia which Is currentlyused for ABC production; (b) improvement in economic efficiency ofproduction through conversion of low economic value fertilizers (ABC) to

- 67 -

ANNEX 8-1Page 2 of 4

high economic value fertilizers (urea, DAP and NPK); (c) expansion ofammonia production; (d) improvements in the energy efficiency of ammoniaproduction; and (e) savings in transportation costs of products mainly dueto the higher nutrient content of urea (46% N), PAP (18%N, 46% P205) andNPK (16% N, 16% P205 and 16% K20) compared with ABC (17% N). Economicprices of internationally traded products are derived from their latestprojected international prices taking into account marine freight from theorigin of export to China ports, unloading and port handling charges, andinland rail freight to the plant sites. Marine freights, estimated fromthe latest statistics, are assumed to change in line with internationalenergy costs.

5. Projections of economic prices for each product are given inTable 2 of this Annex. Key assumptions are summarized below:

(a) Urea. Bulk urea is imported from Western Europe and bagging isdone in China;

(b) Ammonium Bicarbonate. Since ammonium bicarbonate (ABC) is nottraded in the international market, its economic value is derivedfrom the economic value of urea, taking into account the relativenutrient contents (Urea, 46% N; ABC, 17% N) and attributes of thetwo products. The economic value of nitrogen from ABC has beenconservatively estimated to be lower by 12.3% than that fromurea, based on the analysis of relative nitrogen losses betweenABC and urea during various stages of transportation, storage,and application (See Table 1 for details). In addition, ABC hasother qualitative, non-quantifiable, disadvantages such as: (i)difficulty in handling and application because of its smallparticle size (available only in powder form) and acceleratedcoking, particularly in using top dressing method; (ii) highhandling and storage cnsts for ABC due to low nitrogen contentand high bag breakage rates; and (iii) unsuitability for bulkblending because of physical and chemical incompatibility withother fertilizer compounds;

(c) Di-ammonium Phosphate (DAP). Since China will continue to importphosphate fertilizers in the foreseeable future, the importparity price of DAP is derived from imported bagged DAP fromMorocco plus transport cost to the Yunnan area by train; and

(d) NPK (16-16-16). The import parity price of NPK is based uponimported straight fertilizers such as urea, DAP, and potashfertilizer using appropriate mixing formula and costs.

6. Savings in transportation costs are attributed mainly to thereduction of transportation volumel/ because of higher nitrogen contentsof urea vis-a-vis ABC. Potential savings in terms of transportationdistance of products have not been considered because of measuringdifficulties.

I/ Average transportation distances between each plant and retail outletsare: (a) 400 km for YXCFC; (b) 895 km for YCFC; (c) 500 km for LCFC;(d) 727 km for XCFC; and (e) 453 km for BCEC.

- 68 -

ANNEX 8-1Page 3 of 4

B. Operating Costs

7. Tradeable Raw Materials, The economic cost of exportable inputshas been derived by adding to the netback prices, from exports at theproduction sites, the inland transportation costs between the productionsites and the plant sites. The netback value of inputs at the productionsites is calculated by deducting inland freight between the sites andexporting ports from the FOB export prices. The economic value of majortradeable inputs based on EPD's price projections are given in Table 3 ofthis Annex. Key assumptions are summarized below.

(a) Anthracite and Coke. Anthracite and coke are currently exportedfrom coal mines in China. The economic costs of anthracite andcoke delivered at the plant sites are derived from the netbackfrom export prices;

(b) Bituminous Coal. The plants use low quality coal for steamproduction. Since this coal is not tradeable, the long-termmarginal production cost is used as its economic value; and

(c) Fuel Oil. Since China is a net exporter of fuel, the economicvalue of fuel oil is based on the netback prices received fromexports of fuel oil to Sirgaporeo The international price offuel oil is expected to move in line with international crude oilprices, as currently projected by the Bank.

8. Other Non-tradeable Items. The economic value of non-tradeableinputA is based on their long-term marginal production costs plus inlandtrans 'rtation costs adjusted by specific conversion factors. Assumptionsfor major non-tradeable inputs are as follows:

(a) Phosphate Rock. Although phosphate rock is actively traded inthe international market, phosphate rock used for the Yunnanplant is assumed to be non-tradeable since it is not conceivablethat China will export phosphate rocks in the foreseeable futurein light of the country's general shortage of phosphatefertilizers, which is expected to persist within the next 15years;

(b) Pyrites. Pyrites are not actively traded in the internationalmarket. Pyrites used for the Yunnan plant cannot be exportedeconomically because of their grade and the unfavorable locationof their source; and

(c) Utilities, Bagging Materials, and Chemicals. The economic costsof other non-tradable items including utilities and locallypurchased chemicals are derived from their financial costs byapplying specific conversion factors,

9. Fixed Costs. The economic cost of fixed cost elements comprisinglabor, maintenance, overhead and selling costs are based on financial costsadjusted by specific conversion factors,

- 69 -

ANNEX 8-1Page 4 of 4

F. Economic Evaluation of the Existing Facilities

10. The net present of future net benefit streams obtained fromcontinued operations of the existing facilities over the life of the plantis compared with their estimated scrap value as follows:

PV vs SV of the Existing Facilities(in millions of January 1987 US Dollars)

YXCFC YCFC LCFC XCFC BCEC

A. Present Value (at 12X) 32.5 34.5 26.9 40.4 45.3B. Scrap Value 12.2 8.1 8.1 8.1 16.2C. Net Benefits from

continued operations 20.3 26.3 18.8 32.3 29.1

Industry DepartmentMarch 1987

- 70 -

ANNEX 8-1Table 1

CHINA - FERTILIZER RATIONALIZATION PROJECT

Relative Nitrogen Losses (%) Retween ARC and Urea

DifferentialARC I1rea Assumed

(a) Prebagging Neglible if low mois- None No differenceevaporation loss ure content is bagged assuming good

immediately after practices ofproduction ARC Production

(h) Loss from hag 4% (recovery is vir- n.75% 3.25%breakage tually impossible) (initial

loss of 3%with recovervof 75% o0 theinitial loss)

(c) Volatilization 8% Negligible 8%loss fromunbroken bagsduring storagedue to decompo-sition

(d) Loss afterapplication?i) Rasal

application No difference(55%)

(ii) Top dressing 75.8% 66.2% 1% assuming that(45%) 75% of farmers

applying ABCusing topdressing methodwill useadvanced techno-logva/ in thefuture((75.8 - 66.2)0.45 x n.25)

(e) Differential in 12.3%cumulative losses -__

a/ No difference after application if ARC is applied bv advancedtechnology.

Industry DepartmentMarch 1987

CHINA - FP.RTILI.R RATIONALIZATION PRtjtCr

IMPORT PARITY PRICKS OF FItRTILIZVIRS FOR ECONOMIC ANALYSIS(in t9q1 11 dnitsr' per ton of prnmuct)

tlar1ne Freixht andInsurance from Inland Tr. ~Zrt Cost Between 8/FOS Price _riin t Unloading Prokdutet Rngging I niJ fInand / ntnjln- Tlan TianJ ni Zhanjang/Product ttrigtn 1991 199S 2t8tk Tianjtin 7hanhiag cost Losses Cost Yuanping Xuanhua huvang Beijing Yunnan

Urea (Btlk) W. tBurope 192.6 tf1t.2 196.8 35.t - 5.) 2.5 I5.0 6.8 2.2 8.36 1.5 1.5ontim Bicarbonate Not Traded - - - - - - - - - - -

Dl-AaoniumPhosphate (DAP) lbrocco 229.2 249.6 259.2 - 33.0 5.n 4.5 15.0) - - - _ 6.5

NP bt/ 21S.7 224.6 218.8 - - 1.4:1 - 15.0 - - - - 1h.5

er_t Parity Prices At

Yuanping _ _ Xuanhua LAoyang _eiJinj __ nce1991 1995 2000 1991 1995 213tt1) 1991 1995 2000 1991 1995 2001) 9919 1995 20fIJ'Urea (B aed) 254.9 24S.5 259.1 250.3 238.9 254.5 256.5 245.1 260.7 249.6 238.2 253.87 261.6 250.2 265.KA,_oniu 81carNinate

(Sagged) ±' 81.9 8tl.1 5.3 82.4 73.6* 83.8 84.4 80.7 85.8 t2.1 78.4 83.5 86.t 82.3 87.5Di -Amonitum

Phosphate (DAP) - - -3t3.2 323.6 335.2 F

MPK - - - - - - - - - - - - 248.6 257.5 271.7

a/ Transportation distance by rafI: Tianjin - Yuanptnr. 70t) kme; Tr.anjIn-Mianhwu, 270 km; TiAJin-Lnoyang,1.000 km; Tianjin-SeIjint, IStn km; Zbangtiant-Yunnan, 2,000 Km.b/ Based on iaported straipht fertilit.ers ,slxesi locally.

ct ttiing cost.d/ Derived frome urea, prie-s by multiplytng their relative nttrngen content ratio (.17t.46) with a 12.37..discotnt againot amanottun htcarbonate based on the analtyis oaf nttrogen losses dtring transportation, storage, and rppIiration.

Industry Departmentnarch 1987

IL

CHINA - FERTILIZER REHA5BLITATION PRDJECT

ECONOMIC PRICES FOR TRADEABLE INPUIS(tn 1987 US dollars per too)

artne Freight and IoslranceCIF Destination Prices to Destination from

Export Destination 1991 1995 2000 Qiobhuagao TYeulitn Ebanlang

Anthracite Far East - - - - -Coke Far East - - - - -Fald Oil Singapore 56.3 65.8 80.2 - (8.8) (6.0)

F05 Prices at Exportins Ports

QIakhangdiao Tlanl in ZhasViat199-t 1995 2000 1991 1995 2000 1991 19"5 2000

Anthracite 45.6 50.4 57.6 45.6 50.4 57.6 45.6 50.4 57.6Coke - - - 50.2 55.4 63.4 50.2 55.4 63.4Fuel Oil - - - 47.5 57.0 71.4 50.3 59,8 74.2

Ioland Transport Cost from origin to Exporting Ports

Jin Cheng/ Ningxial Inner Nongolial Jtaoo/ Betijitg Xuan Met/ Yunnan/Qingbangdao Qinghanadao oinghbngdao Tlanjin TiasjIn Zhalimang Zhanliang

Antbractte 12.5 13.3 - 9.3 - - -Coke - - 13.3 - 2.0 6.3 -FuelOtl - - 1.3 - 1.3 - 12.7

Intaad Transport Costs frorm Ori4n to Plaets

Jtn Cbang/ IingzLa/ Irner 4ongolta/ Jiaoauo/ LUnru/ Usijingl Xuan 14t1TYanpiRa R boa Xnhuuanbua Luovn LMoyan E1na Yuaonnan

AnthrecLte 2.1 8.3 - 1.7 -7Coke - - 8.3 - 0.9 - 8.3Fael O11 - -_

Economic Costs of Dellvered Inputs at Plants

YuoapLng Xuanhua LYOuan Beijing TUnan 1991 199 20 991 1"5 2000 1991 1"995 2000 1991 195 2000 1991 1995 2000Anthracite 35.2 40.0 47.2 - - - 38.0 42.8 5.0 - - - - - -Coke - - - 45.2 50.4 58.4 - - - 48.2 53.4 61.4 50.2 55.4 63.4 WFuel Oil - - - - - - - - 46.2 55.7 70.t 37.6 47.1 61.5

Industry DepartmentMarch 1987

-73 -

Annex 8-2

CHINA - 18RTILIZUR RATIONALIZAlTON PROJee!

Zacraomutal Cosgt and fenef it Stream for ERR CalulationAs(in .illton of 1987 US dollars)

YXCFC YCFCCapital Working Production Not Capital Working Production NetCosts Capital Costs sanefits Cash Flow Coats Capital Costs Benefits CashFlov

1987 0.7 - - - (0.7) 0.3 - - (0.3)1988 9.5 - - - (9.5) 3.8 - - _ (3.8)1989 18.8 - - - (18.8) 13.3 - - - (13.3)1990 21.8 - - - (21.8) 8.1 - - - (8.1)1991 6.8 - - - (6.8) 2.1 1.6 2.5 10.1 3.91992 4.4 5.9 20.6 3S.1 4.2 - 0.1 3.5 13.3 9.71993 - 0.9 25.2 44.8 18.7 - - 46.5 16.5 12.01994 - 0.8 29.5 54.1 23.8 - - 4.8 16.3 11.51995 - - 29.6 S5.2 25.6 - - 4.9 16.1 11.21996 - _ 29.9 55.5 25.8 - - 4.9 16.3 11.41997 - - 30.1 55.9 26.0 - - 5.0 16.5 11.51998 - - 30.3 56.2 26.1 - - 5.1 16.7 11.61999 - - 30.5 56.6 26.3 - - 5.1 16.9 11.82000 - - 30.5 56.9 26.4 - - 5.1 17.1 12.02001 - - 30.5 56.9 26.4 - - 5.1 17.1 12.02002 - - 30.5 56.9 26.4 (2.8) (1.7) 5.1 17.1 16.52003 (6.0) (7.6) 30.5 56.9 40.0

Return on Investment - 23.31 Return on Investment * 28.32

L-CIC XCFCCapital Working Production Not Capital Working Production NetCosts Capital Costs Beneflts Cash nlow Costs Capital Costa Benefits Cash Flow

1987 0.3 - - - 0.3 0.3 - - - (0.3)1988 4.0 - - - 4.0 3.7 - - - (3.7)1989 13.8 - - - 13.8 12.5 - - - (12.5)1990 8.7 - - - 8.7 7.8 - - - (7.8)1991 2.2 3.8 2.0 9.6 1.6 2.0 0.4 1.0 5.4 2.01992 - 0.1 3.0 12.9 9.8 - 0.2 2.1 8.7 6.41993 - 0.1 4.1 16.1 11.9 - - 3.3 12.0 8.61994 - - 4.3 IS.9 11.6 - - 3.9 .11.9 7.91995 - - 4.4 15.7 11.3 - - 3.9 11.8 7.91996 - - 4.4 15.9 11.5 - - 3.9 11.9 8.01997 - - 4.5 16.1 11.6 - - 3.9 12.1 8.11998 - - 4.5 16.3 11.8 - - 4.0 12.2 8.31999 - - 4.6 16.5 11.9 - - 4.0 12.4 8.42000 - - 4.6 16.7 12.8 - - 4.0 12.5 8.52001 - - 4.6 16.7 12.1 - - 4.0 12.5 8.52002 (2.9) (4.0) 4.6 16.7 19.0 (2.6) (0.6) 4.0 12.5 11.7

Return on lnvestment . 26.22 Return on Investment a 21.3S

8CEC Overall ProjectCapital Working Production Not Capital Working Production notCosts Capital Coats bDnefits Cash Flow Costa Capital CoWta Benefits Cash Flow

1987 0.3 - - - (0.3) 1.8 (1.8)1988 3.1 - - _ (3.1) 24.1 (24.1)1989 10.5 - - _ (10.5) 68.9 (68.9)1990 6.6 - - _ (6.6) 52.9 (52.9)1991 1.8 - (1.1) 1.7 0.9 14.9 5.8 2.9 26.7 3.21992 - 0.2 0.1 5.0 4.7 4.4 6.5 29.3 75.0 34.71993 - 0.2 1.3 8.3 6.8 1.6 38.3 98.0 58.01994 - - 1.3 8.2 6.9 1.0 43.8 106.4 61.61995 - - 1.0 8.1 6.8 43.9 106.9 62.91996 - - 1.3 8.2 6.9 44.2 107.8 63.51997 - - 1.3 8.3 7.0 44.5 108.8 64.21998 - - 1.3 8.4 7.1 44.8 109.8 64.91999 - - 1.3 S.5 7.2 45.1 110.8 65.62000 - - 1.3 8.6 7.3 45.4 111.8 66.92001 - - 1.3 8.6 7.3 45.4 111.8 66.42002 (2.2) (0.4) 1.3 8.6 9.9 (10.7) (7.3) 45.4 111.8 84.42003 (6.0) (7.6) 30.5 56.9 40.0

Retur on Investment a 20.42 Return on Investment * 24.02

a/ Benefits inelude savings in transport coats of products due to higher nutrient content of urea (462 SO, compared withARre 172 N).

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UNDER TO BE RATIONALIZEDEXISTING CONSTRUCTION UNDER THE PROJECT

no ~~~~~~~~Large Size Nitrogen PlantsXA

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