Romania - Brasov Bearings Project (Vol. 2 of 2) : The annexes

Report No. 1381a-RO FILE COPY Romania: Appraisal of the Brasov Bearings Project (In Two Volumes) Volume II: The Annexes May 10, 1977 Industrial Projects Department FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Except where otherwise indicated, all figures are quoted in Romanian Lei and US Dollars. For all calculations, the following conversion rate has been used: US$1 - Lei 20 Lei 1 = US$0.05 Lei 1,000 = US$50.00 WEIGHTS AND MEASURES All units are metric. 1 metric ton = 1,000 kilograms (kg) 1 metric ton = 2,204.6 pounds 1 kilometer (km) = 0.62 miles 1 meter (m) 3 = 39.3 inches 1 cubic meter (m ) = 35.32 cubic feet ABBREVIATIONS AND ACRONYMS IB - Banca de Investitii (Investment Bank) NB - Banca Nationala a Republicii Socialiste Romania (National Bank) CIROA, the Central- Industrial Central for Bearings and Assembly Components The Enterprise, Brasov - Brasov Bearings Enterprise The Design Center - Design and Research Center for Bearings and Fasteners The Central Design Institute - Ministry of Machine Building Central Institute for Machine Tool Design TECHNOEXPORTIMPORT- Technoexportimport Foreign Trade Enterprise UZINEXPORTIMPORT - Uzinexportimport Foreign Trade Enterprise OCIR - Central Organization for Bearing Producers and Consumers OEM - Original Equipment Manufacturers ROMANIAN FISCAL YEAR January 1 - December 31 Industrial Projects Department May 1977  FOR OFFICIAL USE ONLY Volume II List of Annexes Annexes 1 Description of Technical and Manufacturing Terms 2-1 History and Organization of Romanian Bearings Industry 2-2 A Brief Note on Production Processes at Brasov 2-3 Organization Structure of Romanian Bearings Industry 3-1 Organization Structure of Brasov Bearings Enterprise 3-2 Brasov Bearings Enterprise - Income Statements 1971 - 1975 3-3 Brasov Bearings Enterprise - Balance Sheet Statements 1971 - 1975 3-4 Brasov Bearings Enterprise - Sources and Application of Funds, 1971-75 4-1 Domestic Bearings Market and Marketing 4-2 Export Markets for Romanian Bearings 4-3 Brasov Bearings Enterprise - Sales by Destination, 1971-85 4-4 Brasov Bearings Enterprise - Domestic Sales by Sector (Volume), 1971-85 4-5 Brasov Bearings Enterprise - Export Sales to Market Economies, 1971-85 4-6 Pricing in Bearings Industry in Romania 5-1 Improvement of Product Quality 5-2 Project Description 5-3 Process Flow Chart - Hi-Volume Component 5-4 Process Layout - Hi-Volume Component 5-5 Process Flow Chart - Low-Volume Component 5-6 Plant Layout - Low-Volume Component 5-7 A Brief Analysis of Product Mix 5-8 Labor and Work Force 5-9 Training of Personnel 5-10 Environmental Aspects of the Project 6-1 Implementation Schedule 6-2 Planned Growth of Production 6-3 Expansion Project Implementation Organization 7-1 Capital Costs 7-2 Breakdown of Capital Costs between Project Components 7-3 Basis of Capital Cost Estimates 7-4 Wording Capital Requirement 7-5 Financing Plan 7-6 Disbursements and Debt Repayment Schedule 7-7 Procurement Arrangements rthi document has a retricted distribution *nd may be used by recipients only in the performfncen of theif offcil dutie. Its contents may not otherwse be diclosd without World Bank authorintion.  -2- Annexes (Continued) 8-1 Revenue Estimates for the Project 8-2 Operating Cost Estimates for the Project 8-3 Projected Income Statements - Project Components 8-4 Projected Income Statements - Brasov Enterprise 8-5 Projected Working Capital Needs - Brasov Enterprise 8-6 Projected Balance Sheet Statements - Brasov Enterprise 8-7 Projected Sources/Applications of Funds - Brasov Enterprise 8-8 Breakeven Analysis - The Project 8-9 Rate of Return Calculations and Sensitivity Analysis for Project 8-10 Fiscal Impact of the Project 9-1 Calculation of Economic Costs and Benefits 9-2 Economic Rate of Return and Sensitivity Analysis  ANNEX I Page 1 ROMANIA BRASOV BEARINGS PROJECT DESCRIPTION OF TECHNICAL AND MANUFACTURING TERMS A. TECHNICAL TERMS TERM DESCRIPTION 1. Plain Bearing A flat surface or cylindrical surface of softer material than a load carry- ing surface subject to continuous or intermittent reciprocating or rotating motion. 2. Anti-Friction Bearing A set of components harder than the load carrying element, set apart from each other by a set of rolling articles usually divided by a separator. The Brasov Bearings Project concerns itself with rotating elements and loads only. 3. A. Single Row Ball Bearing A set of two cylindrical rings of narrow annulus, each with a matching semi-circular track whose purpose is to guide a set of balls as they rotate about a common center. One element, called the outer race, has the ball track on the internal section of the annulus. The second element (which rotates) has the ball track on the external surface and its bore in application is pressed onto a shaft. The balls are eventually spaced radially between the inner race and outer race ball tracks by a two piece ribbon steel separator whose halves are riveted together at assembly. (See Page 4 for sketch.) B. Double Row Ball Bearing A ball bearing similar to 3.A. (above) except that it has a double grooved track separated by a narrow land on the inner race and an outer race whose bore has a common spherical surface for both sets of balls to roll on. This design tolerates misalignment between shafts and housing bore axes. (See Page 4 for sketch.)  ANNEX 1 Page 2 TERM DESCRIPTION C. Tapered Roller Bearings A bearing whose rolling elements are truncated cones the included angle of which is complimented by the inner race track and outer race track such that a trace of the track surfaces and center line of the rollers all converge in a common apex point thereby assuring pure geometric rolling contact. The large end of the roller rides against a flange on the inner race permitting thrust capacity and accurate end location. The assembly is held together with a one piece steel separator. (See Page 5 for sketch.) D. Cylindrical Roller Bearing A bearing whose rolling elements are straight cylindrical surfaces. These bearings offer a compromise between ball and taper bearings in speed and load carrying capacity. Their straight surface elements permit many combinations of design and application. (See Page 5.) E. Spherical Roller Bearings A bearing whose rollers have a spherical ground surface whose center line axis that passes through an apex center about which the center line of the radius of curvature for the inner and outer races meet. This bearing has more load carrying capacity than its ball bearing counterpart but runs at a lower rate of speed and is not as stiff as the tapered bearing. (See Page 5 for sketch.) 4. A. Inner Race Usually the rotating element of an anti-friction bearing that is pressed onto a shaft with a press fit estab- lished in accordance with load and application requirements. B. Outer Race Usually the stationary element of an anti-friction bearing that is pressed into a housing against a locating shoulder with a fit varying from light slip to a heavy press depending upon load and application requirements.  ANNEX 1 Page 3 TERM DESCRIPTION 5. Separator That component of an anti-friction bearing which separates the balls or rollers so that the load is equally shared by all rolling elements under operating loads. 6. A. Ball A spherical shaped rolling element that rotates in contained tracks between inner and outer races at high rates of speed, light load and precision. B. Roller A rolling element that provides con- tact between inner and outer race tracks whose ends are normal to center line axis of the roller. The diametric surface trace of the roller may be a straight line parallel to the center line, at an angle, or be a segment of circle whose centerline is normal to the roller centerline. 7. Seals Devices made of rubber, plastic or resins inserted between inner and outer races in permanently lubri- cated bearings to keep grease from escaping during operation. 8. Sheild Device made of sheet metal to resist migration of gross hostile particles from entering into rolling contact element area during operation. Usually supplied in severe oper- ating conditions.  ANX 1 Page 4- A SINGLE ROW DEEP GROOVE BALL INSERTION OF BALLS IN SINGLE ROW BALL BEARING BEARING WITHOUT FILLING SLOT DEEP GROOVE BEARING WITH FILLING SLOT WITHOUT FILLING SLOT B SEALED BEARING SELF-ALIGNING SELF-ALIGNING BALL BEARING BALL BEARING WITH ADAPTER SLEEVE  ANNEX 1 Page 5 C TAPERED ROLLER BEARING TAPERED ROLLER BEARING WITH LARGE CONTACT ANGLE D TYPE NU TYPE N TYPE NJ TYPE NUP TYPE NH CYLINDRICAL ROILLER BEARINGS E SPHERICAL SPHERICAL ROLLER BEARING ROLLER WITH SEPARATE GUIDE FLANGE BEARING  ANNEX I Page 6 TERM DESCRIPTION 9. Bearing Tolerances Romanian Designation P P P P Quality Designations N. American " (ABEC No.) 1 3 5 74 9 Inner Ring Tolerances in .001/inch by above class Radial Runout 3 2 1.5 1.0 0.5 Width Variation * * 2.0 1.0 0.5 End Square with Face * * 3.0 1.0 0.5 Groove Run out with Face * * 3.0 1.0 0.5 Bore Tolerance 5 4 3.5 3.0 2.5 Outer Ring Tolerances in .001/inch by above class Radial Runout 6 4 2.0 1.5 0.5 Width Variation * * 2.0 1.0 0.5 End Square with Face 8 6 3.0 1.5 0.5 Groove Run out with Face * * 3.0 1.5 0.5 Outside Diameter Tolerance 5 4 3.0 1.5 0.5 All of the above for bearings 30 to 50 mm range. * Where tolerances not shown (in low grades) indicates process capabil- ity better than application require- ments. 10. Bearing Steel Grades A. Carburizing Grades SAE 8620, 4120, 4320 Low carbon content requires carbon enrichment on surface with depths varying in accordance with size and load. Combination of hard skin and tough ductile core makes bearings using these materials excellent for heavy loads and heavy press fits. This combination is often necessary where the bearing is mounted in a dissimilar material such as aluminum whose thermal characteristics subtract from a press fit. The structural strength of the bearing provides rigidity.  ANNEX 1 Page 7 TERM DESCRIPTION B. Hardening Steels SAE 50100 and 52100 These materials harden completely through and have excellent wear char- acteristics and good rolling fatigue properties. Because there is no soft core they work well with ball bearings with the high unit loading at the ball contact surfaces. B. MANUFACTURING TERMS 11. Hot Forming Machine A machine designed to accept rack loads of hot rolled bar steel and automatically feed these bars (up to 2-3/4" diameter) through a series of induction heating coils into a heavy duty horizontal crank press. Externally the hot former has the appearance of the "Nut Formers," used in the fastner industries. The machine is equipped with cut off bar and a transfer arrangement so that a hot slug is upset, flattened and ex- panded, dimpled and pierced forming single or double rings depending on size and geometry. This equipment runs from 50 to 100 strokes/minute. 12. Ring Rolling Machines These machines take a hot ring (2200 F) of small diameter and heavy wall and by rolling the wall between a pair of pinch rolls that exerts a squeezing force on the ring section, expands the diameter up to twice the original ring size. This equipment can produce parts from 100 to 1200 per hour depending on size of part and whether it is fed by hand or automatically loaded.  ANNEX 1 Page 8 TERM DESCRIPTION 13. Cold Forming Essentially a form of coining in which a piece of cold steel (usually a sheared slug from a round bar) is put into a large heavy duty crank press (transfer style) and squeezed in a progressive series of operations into desired form. The frictional forces against die surfaces in this type of operation are enormous (up to 300,000 P.S.I.) and die life is intolerable economically unless the part is properly annealed and chemi- cally treated with various phosphate and molybdenum sulfide coatings devel- oped for this purpose. The carbon content of bearing steels to date is the limiting factor in this process. So far, only the carburizing grades of steel with 20 points, or less, of carbon have been cold formed. Many firms are investigating the applica- tion of warm form (1000 to 1200 F) methods for SAE 52100 but there are no successful operations in use today. 14. Annealing A heat treat process wherein parts are brought up to the sub-critical temperature of the steel involved and slowly cooled, at a controlled rate to refine the crystalline struc- ture of the part. Its purpose is to soften the steel and make it more ductile so it will properly flow into die cavities without cracking in cold form operations. It also softens 52100 steel so that it can be machined. 15. Primary Machining This part of the process is performed on single and multiple spindle lathes immediatley after the annealing oper- ation from forging. The rough rings from forging are machined into shape for the various inner and outer race configurations (ball bearing, taper, etc.).  ANNEX I Page 9 TERM DESCRIPTION 16. Grinding All bearing races are finished to precision size after secondary heat treat where the rockwell hardness is increased from about R 18 to R 60 for c c wear characteristics. Every surface on the bearing inner and outer races is ground except for chamfers and radii. The equipment is highly sophisticated and is the final result of long years of develop- ment. Most of the equipment that handles parts up to 4-1/2 inches in diameter is fully automatic with a great many self-monitoring features. 17. Super Finish When trying to obtain surfaces under 5 micro inches by grinding, the pro- cess becomes skill oriented requir- ing manpower. The superfinishing process uses shapped ultrafine abra- sives applied with rapid oscillating strokes as opposed to grinding which removes stock with a rotating cir- cular grinding wheel. Super finish- ing removes from .0001 to .0003 stock and improves the surface finish of parts only but does not correct geometry. Grinding removes any- where from .010 to .075 stock and generates the roundness and flatness necessary for bearings. 18. In Process Gaging This gaging is an integral part of a grinding machine that measures the surface of a bearing part during the grinding cycle and sends a signal to the machine controls to stop the cycle when proper size has been reached. This system is man- datory for high volume bearing manu- facture.  ANNEX 1 Page 10 TERM DESCRIPTION 19. Post Process Gaging Defined as being an automatic gage at the end of line of machines arranged to check all of the dimen- sions on parts generated by the line of machines. Good parts are passed on to wash and final assembly. Bad parts are diverted into tote pans for review by overcheck inspectors. 20. Ball Processing A. Heading A form of hi speed cold forming. Coiled wire is fed into a horizon- tal power press where a slug is cut off and formed into a crude ball at up to 500 strokes per minute. Parts are then tumbled and passed on to soft grinding. B. Grinding (Soft & Hard) Balls are put into a hopper that ele- vates the balls and feed them sequen- tially into the center of a rotating spiral wheel above which is a rotating grinding wheel that applies grinding force through a hydraulic cylinder. Balls circulate through recycling continuously until proper size before heat treat is obtained. Multiple passes for roundness and finish are necessary during hard grind. C. Ball Lapping This process is much the same as grinding except that finer, denser wheels are used. Because of the close tolerance required at this stage of the process, balls are kept in individual lots as they go through inspection to eliminate the necessity of segregation into classes.  ANNEX 1 Page 11 TERM DESCRIPTION 21. Assembly Inner races and outer races are individually measured on their rolling contact surfaces and a ball or roller size is selected to give the proper internal clearance upon assembly. The reason for this is that it is impossible to custom grind, the three elements of a bearing by mass production tech- nique and control the process size close enough to arrive at the necessary assembled internal running clearance required by the product. When the proper elements have been selected (automatically in high volume) the cage is inserted and fastened to make a self-contained unit. The bearing now is washed, lubricated, inspected for visual defects, radial play, overall dimen- sions and noise test. It is then wrapped, packed and shipped. Industrial Projects Department April 1977  ANNEX 2-1 Page 1 ROMANIA BRASOV BEARINGS PROJECT HISTORY AND ORGANIZATION OF ROMANIAN BEARINGS INDUSTRY A. Historical Background 1. The Romanian bearings industry started in 1949, when the then Brasov Truck Plant, which was located at the current site of the Brasov Bearings Plant started domestic production of bearings on a small scale. Since this modest beginning 27 years ago, the industry has made rapid progress and in 1975 supplied about 86% (47 million pieces) of domestic bearings needs while also exporting 22 million bearings (31% of production) from four different bearings plants. B. Brief History of Individual Plants 2. The Brasov Bearings Plant since its inception has beeen the largest bearings plant in Romania. Its production gradually increased from 0.22 million pieces in 1950 to 1.04 million pieces in 1955, as plant facilities were gradually expanded and more products added to the product line. After the plant exclusively started producing bearings and was designated as Brasov Bearings Enterprise in 1959, its production has in- creased more rapidly to meet demands of fast expanding domestic industrial sector and to enter export markets - production increased to 11.0 million units in 1965 and 28.5 million in 1975. The plant which will be the last of the three existing plants to be modernized, will remain the largest domestic facility after the completion of the proposed expansion program which will raise the annual production to 53.0 million units. Brasov also produces the largest mix of bearings amongst Romanian plants. Its product mix includes: (a) single row radial ball bearings; (b) double row radial axle and self-aligning ball bearings (c) tapered roller bearings; (d) needle and cardan bearings; and (e) plain and other special bearings. Brasov sells a part of its ball production and some forgings to the Birlad Plant. Brasov Enterprise is also the base of the Brasov Bearings Central (CIROA). 3. The second bearings plant developed in Romania is at Birlad in the eastern part of the country. It was one of the first major industrial plants to be located in the area as part of the Government's policy of balanced regional development. Birlad was constructed between 1950 - 52, and in 1955 produced 0.63 million bearings out of the total domestic production of 1.67 million units. Birlad continued to increase production of relatively heavy bearings, particularly roller bearings, by low volume techniques until 1973 when production reached 4.9 million units (Attachment I). In 1974, it commissioned a new facility built with technical assistance from Koyo-Seiko of Japan. Under this expansion program, new forging capacity was installed and two new automated Hi-Volume production lines were added to produce  ANNEX 2-1 Page 2 single row radial ball bearings, which were earlier manufactured mostly at Brasov but on less efficient equipment. Birlad currently has a production capacity of about 30 million units and continues to produce single and double row cylindrical roller bearings, axial ball bearings and oscillating barrel-type roller bearings (Annex 1). Due to the limited capacity of its forge shop and the absence of a ball shop, Birlad purchases forgings for inner and outer races and balls mostly from Alexandria but also some from Brasov. Birlad tentatively expects to further expand its capacity by about 50% to 47 million units in the next five years. 4. The third and currently the most modern bearings plant in Romania is located in Alexandria about 150 km south-west of Bucharest. This green field plant, commissioned in March 1974, was designed, built and initially operated in close collaboration with Koyo-Seiko. The plant is comparable to any Hi-Volume bearings plant built elsewhere in recent years and is operating well. Since it has only Hi-Volume production facilities (the plant has three full automated lines that start with forged pieces and end with assembled bearings), Alexandria has a relatively narrow product line of single row ball bearings and tapered roller bearings. A significant part of Alexandria plant's production is exported to Bank member countries, including over 30% of production sold to leading bearings manufacturers. 5. The fourth and the smallest bearings production facility is located at Ploesti, an important industrial center, located midway between Bucharest and Brasov. Actually, this facility which primarily produces heavy bearings needed by the chemical industries, still does not belong to CIROA and operates as a department of a Chemical Enterprise. Its current production of about 1500 tons of large bearings is slated to increase to about 4,000 tons under a major expansion program scheduled to be completed in 1978. At that time, this facility will become an independent enterprise under CIROA. The expansion program will be executed in technical collaboration with Rollway Bearings of U.S., which specializes in large bearings used in chemical, earthmoving and construction machinery. The U.S. Export-import Bank will finance the purchase of equipment. Except for importing forged rings with external diameter exceeding 1000 mm, the plant will have a high degree of vertical integration like other bearings plants in Romania. C. Industry Rationalization Program 6. Major changes took place in the bearings industry during 1971-75 Plan period. Not only were two major and modern new facilities constructed and commissioned and production of bearings increased 170% from 26 million units to 71 million units (capacity installed increased more sharply to 98 million) but the industry also launched a major production rationalization program to improve efficiency. As mentioned earlier, new automated facil- ities at Alexandria and Birlad now produce large volume bearings earlier produced at one or more locations by less efficient low-volume production techniques. At the same time, it was decided to: (a) eliminate production of the same bearing at more than one location: (b) produce bearing needed  ANNEX 2-1 Page 3 in relatively small volume mostly at Brasov, though some would continue at Birlad; (c) minimize the variations of the same basic size produced by con- verting the users to standard bearings, in order to streamline production processes; and (d) specialize production at different plants by type (groups) of bearing (e.g. cylindrical roller bearings at Birlad, needle and cardan bearings at Brasov, large chemical and earthmoving machinery bearings at Ploeisti etc.) with an exception that single row radial ball bearings and tapered roller bearings would continue to be produced at more than one plant as indicated below: Distribution of Bearings Production at Major Plants by Size and Category. Type of Bearings Brasov Birlad Alexandria 1. Single row radial and radial-axial ball OD 31 - 350 Small and medium lots x - OD 15-80 mm large lots - - x OD 23-50 mm mass production - x 2. Double row radial-axial and self-aligning radial ball x 3. Axial ball - x 4. Single row cylindrical - x 5. Double row cylindrical - x 6. Bearings for cardanic transmission and needle roller x 7. Spherical roller - x 8. Tapered Roller OD 66-350 mm x OD 31-120 mm - - x 7. This rationalization program follows the trends in the bearings industry elsewhere and is clearly desirable. It should lead to cost reductions even when real wages are increasing in Romania. With the proposed expansion and modernization of the Brasov plant and the opening of the Plotesti plant, most of the objectives of the rationalization program would have been achieved.  ANNEX 2-1 Page 4 D. Organization of Bearings Industry 8. Like most other productive assets in the Romanian economy, the bearing industry is owned and managed by the State. Romania is a centrally planned economy and all policy decisions concerning the industry are made by the Government authorities in Bucharest; the framework within which all technical and economic activities are carried out is laid down in laws passed by the Grand National Assembly. A detailed description of the Romanian planning and the decision making systems under which the industry operates is given in the Bank report "No 492a-RO Planning and the Planning System in Romania." Once the policy decisions are made and the quantitative objectives for the subsector determined, the bearings industry receives the necessary resources from the State and is obliged by law to meet the given targets. The organization structure of the industry, depicted in Annex 2.3, consists of a three step hierarchy as in other ministries. The Technical Ministry has the final authority over the activities of all units belonging to the sub- sector. Under it, Industrial Centrals are responsible for coordinating the planning and production scheduling of similar enterprises or enterprises engaged in the production of the same product. At the bottom are the operat- ing units called Enterprises which are responsible for meeting production and other economic targets set by higher authorities. The Ministry 9. The bearings industry belongs to the Ministry of Machine Building Industries, one of the nine technical ministries responsible for the indus- trial sector in Romania, which was created in 1975 through the amalgamation of two technical ministries - Ministry of Heavy Machinery and Ministry of Machine Tool Building. The ministry owns about 150 enterprises coordinated by some 10 centrals that produce automobiles, trucks, earthmoving machinery, machine-tools, power generating equipment, steel, chemical and other heavy machinery in addition to engineering goods like structures and bearings. It is responsible for the overall performance of the subsector including achieve- ment of plan targets, and plays the primary role in coordinating the activi- ties of the subsector with other parts of the economy, in translating overall economic objectives of the country into specific financial and physical tar- gets for individual industries and in the overall design and approval of investment projects. Under the Vice-Minister responsible for planning and execution of new projects in the ministry, are the Central Design Institute and the Construction Trusts responsible for engineering and construction. However, unlike some other technical ministries, the Ministry of Machine Building does not have, under its control, all the foreign trade enterprises, engaged in importing and exporting products under its jurisdictions. For example, TECHNOEXPORTIMPORT, which has the exclusive right to export and import bearings, belongs to the Ministry of Foreign Trade. This organiza- tional separation of the foreign trade responsibilities from other aspects of the bearing industry is currently under review by the Romanian authorities to determine if its elimination would strengthen the export marketing capabil- ities of the industry.  ANNEX 2-1 Page 5 The Central 10. All four bearings enterprises belong to the Industrial Central for Bearings and Assembly Components (CIROA), which is located in Brasov. As in other cases in Romania, the senior staff of the Central also doubles as the senior staff of Brasov Enterprise, which is the largest productive unit within the Central. The role played by the centrals in the planning and management of the industrial sector was enhanced somewhat after the organizational reforms introduced in 1974, under which some of the planning and supervision functions previously belonging to the technical ministries were transferred to the centrals. However, the basic function of CIROA still remains in the planning area. It acts as a conduit between the Ministry and the Enterprises for this purpose and is responsible for co- ordinating the preparation of annual and five year financial plans of the enterprises for which State assistance is needed and for allocating production targets to individual enterprises on the basis of industry targets finalized by the ministry. CIROA, through its Design and Research Center supplements the engineering staffs of the enterprises. It is also responsible for conducting negotiations with foreign buyers and suppliers. It offers trouble-shooting services to the enterprises in case of need. The Central also keeps most the investment and reserve funds belonging to the enterprises. However, CIROA plays a relatively insignificant role in the day to day production oriented activities of its member enterprises. 11. Within the Ministry of Machine Building Industries, CIROA is res- ponsible for the production and domestic distribution of bearings and indus- trial fasteners (assembly components). Under its jurisdictions are four plants engaged in the production of bearings, five plants that produce indus- trial fasteners, a warehousing enterprise that sells and distributes bearings and fasteners through its warehouses in different regions, and the Design and Research Center for Bearings, Fasteners and Assembly Components which is responsible for designing new products and machinery as well for engineering new projects. 12. The Directors of all enterprises report to the General Director of CIROA who chairs the executive committee of the Central composed of worker representatives and managers from the enterprises. On matters concerning ongoing operations, the General Director is responsible to the Vice-Minister in charge of the industry and on matters concerning new investments he reports to the Vice-Minister responsible for planning and executing all new projects, including major expansions, in the Ministry of Machine Building. The Enterprise 13. The Brasov enterprise like other industrial enterprises in Romania, is primarily a production-oriented organization with only limited decision- making responsibilities outside that area. It became a legal entity in 1959 when it was approved by the Council of Ministers and registered at the Ministry of Finance. It has its own production plans (based on targets set  ANNEX 2-1 Page 6 by the plan for the Central), prepares financial statements, has its own bank accounts, and can borrow money from appropriate banks. It maintains economic, financial and legal relations with other organizations (generally through CIROA). But any major changes in its facilities, production targets, or in product mix, must be approved by the Council of Ministers. In short, the enterprise has limited autonomy. 14. The organization structure of the enterprise is shown in Annex 3.1. Technically, the ultimate decision making power lies with the Worker's General Assembly, which includes all the workers of Brasov Enterprise and normally meets twice a year to examine the operating results and review the performance of the Working People's Executive Committee. This Executive Committee, consisting of elected representatives of workers and also some key members of the Management, is chaired by the Director (or the General Director) of the Enterprise who is normally appointed by the Minister of Machine Building. The General Manager is responsible for the day to day operations and implements the decisions taken by the Executive Committee, through a team of key managers, including a technical manager responsible for production and all technical matters, a commercial manager responsible for sales and procurement and a chief accountant responsible for finance and accounting departments. The Engineering Department has the primary responsibility for implementing the expansion project. Industrial Projects Department April 1977  --NIA BRASOV BEARINGS PROJECT GROWTH OF BEARINGS INUSTRY IN R014N NWA 1950-76 (Millions of Bearings) 1950 1955 1960 1965 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 TOTAL DONESTIC CONSUMPTION 0.44 2.13 6.50 13.00 25.60 27.10 34.20 37.40 43.20 46.60 52.00 55.00 59.00 62.00 65.00 67.00 70.00 76.00 81.00 85.00 TOTAL DOMESTIC PRODOCTION 0.22 1.67 4.50 13.50 24.50 25.10 28.30 30.20 50.70 70.70 74.40 81.00 94.00 107.00 112.00 121.00 129.00 136.00 141.00 145.00 of which Brasov Plant 0.22 1.04 3.20 11.00 20.80 21.10 24.00 25.90 28.20 28.50 27.80 29.00 34.00 39.00 43.00 46.00 49.00 50.00 50.00 53.00 Birlad Plant - 0.63 1.30 2.50 3.70 4.00 4.30 4.90 14.30 25.40 25.80 30.00- 33.00 38.00 39.00 40.00 42.00 44.00 46.00 47.00 Alandria P1a-- 8.20 16.80 20.8O 22.00 27.00 30.00 30.00 35.00 38.00 42.00 45.00 45.00 Ploeisti Plant./ (000 tons) _ . - - - - _ - _- - 1.00 2.50 3.50 3.60 3.70 3.80 3.90 4.00 IMPORTS 0.47 0.74 3.00 4.80 9.10 11.60 13.80 14.60 10.10 6.40 4.50 5.00 5.00 5.00 5.00 5.00 4.00 4.00 4.00 4.00 KrSYMS- 0.01 0.30 4.50 7.40 6.80 7.10 7.30 13.90 21.60 35.00 37.50 41.00 47.00 52.00 55.00 57.00 59.00 61.00 63.00 BEARINGS STOCK AT YEAR END 0.37 1.42 4.00 7.30 11.00 13.50 14.30 15.00 18.70 27.60 19.50 13.00 12.00 15.00 15.00 19.00 25.00 30.00 33.00 34.00 DomlStiC Supply as 7 of Domestic Consumption 32% 66% 547. 63% 64% 59% 60% 617 76% 86% 91% 91% 92% 92% 92% 93% 94% 957 95% 95% Imports as % of Domestic Consumption 68% 34% 46% 377 36% 41% 407 39% 24% 14% 9% 9% 8% 8% 8% 7% 6% 57 5% 52 Exports as % of Domestic Production _ 1% 1% 33% 30% 26% 25% 23% 287, 31% 47% 46% 44% 44% 46% 46% 44% 43% 43% 43% Brasov's Share of Domestic Production 100% 62% 71% 81% 85% 85% 85% 84% 55% 40% 37% 36% 36% 36% 38% 38% 38% 377 36% 372 1/ In 1975, Ploeisti plant produced about 6000 large sized bearing totalling about 1500 tons. 2/ Estimated Industrial Projects Department April 1977  ANNEX 2-2 Page 1 ROMANIA BRASOV BEARINGS PROJECT A BRIEF NOTE ON CURRENT AND PROPOSED PRODUCTION PROCESSES AT BRASOV A. Background 1. The bearing industry is a mature industry that has been subject to much competitive pressure over the years. The basic choice of process is pretty much dictated by the requirements of the product itself, which must be consistent in quality, durable in performance and still cheap in price. Therefore, most bearings are made of high quality steels (which offer both durability and economy) through known metal forming processes that permit mass scale production at low costs. The races start with some form of alloy steel that is given a rough form in the primary state and then is heat treated for wear characteristics, after which it is ground and assembled. Many machine tool companies around the world have been started and maintained for fifty or sixty years to primarily serve the bearings industry. These companies supply the same basic equipment to all bearing manufacturers, and thus the basic production process used by most manu- facturers is the same. However, most large bearing producers also make their own specialized equipment to make particular types of bearings and to introduce process innovations developed in-house. B. Manufacture of Inner and Outer Races 2. Choice of Basic Material and Rough Forming: At present, most of the bearing production in Europe and Asia is from 52100 (chrome) steel, while in the United States ball bearings are made from 52100 steel (through hardening) and roller bearings are made from carburizing grades (soft core) of steel. This has come about because American consumers prefer more load carrying capacity and heavier press fits than their European counterparts in addition to the fact the American steel industry has enough capacity and demand to supply "tailor made" alloys for the bearings industry. This can influence the selection of process for the rough forming stage, because carburizing bearing steels can be cold formed and 52100 steel (at the present state of the art) cannot. 3. The Brasov enterprise makes all of its products (single row and double row ball bearings, straight roller and tapered roller bearings, needle roller and Universal Joint-Cardan-bearings) out of 52100 chrome steel, as most European manufacturers do. The races start in a well equipped forge shop where bar stock is formed into inner and outer races by various process steps which are determined by the size and shape of the end product. Hi- Volume parts (single row ball bearings) are made two at a time on a con- tinuous hot form transfer machine (Hatebur of Switzerland) that makes an inner and outer race ring simultaneously at 70 strokes per minute. Some of the larger Hi-Volume parts are then rolled out to a larger diameter on ring rolling machines built in Romania. For other product lines, inner and outer  ANNEX 2-2 Page 2 races are made separately on upsetters, drop forges, and hand-operated ring rolling machines. There is also a very large continuous Wagner processing system that makes big heavy wall races in much the same manner as the Hatebur but at a rate of 6 per minute. All of the parts made are then annealed in large continous furnaces and sent to the primary machining area where the parts are shot blasted as needed before being further processed. 4. The basic forging process used in the bearing production has not changed much in recent years. The process, and the basic equipment, used at Brasov is similar to that used in most bearing factories elsewhere, except that new models of equipment are much more productive. Due to the nature of the forging process, there is no difference in equipment used for the Hi Volume and Low Volume production of bearings. However forging equipment utiliza- tion rates for Hi Volume production are much higher, due to less frequent tool changes which involve substantial set up time. Since modern hot forge presses are quite expensive, the production of bearings in short production runs substantially increases the production cost due to the lower equipment utilization. 5. Machining: The Low Volume primary machining area will continue to use multiple spindle and single spindle chucking machines in sequence, one machine per operator to turn most of the forge shop output into races ready for heat treat. A few parts considered too small to be economically forged would be made from bar stock on multiple spindle bar machines. 6. Hi Volume components would be roughed out on multiple spindle chuckers and then finished on the ends with thru feed double disc grinders, and finished on the outside diameter on continuous thru feed centerless grinders. All of these pre-finished rings would then be processed thru an integrated manufacturing line automatically fed into and out of individual single spindle lathes, where outside diameter and inside diameter ball races forms, chamfers and radii are machined onto the rings. The integrated scheme of manufacturing by Japanese technology is already used in Alexandria and Birlad, and would be extended to Brasov. 7. Secondary Heat-Treatment: All races - for both Hi-Volume and Low Volume would be sent from the machining area into a secondary heat treat area to harden and temper the parts in continuous furnaces. Both inner and outer races are then to be put through double disc end-grinders and centerless outside diameter grinders before the work is delivered and taken away in large gondolas. 8. Grinding and Super Finishing: Low volume inner and outer races would continue to be brought to separate colony style groups of machines where they are processed on microcentric style grinders. Micro-centric grinding is a centerless grinding technique that grinds narrow cylindrical parts round without the necessity of mounting the part to be ground on a mechanical chuck or an arbor. Instead, it has rotating magnetic plate engage the end-face of a narrow cylindrical part whose center line is set off center from the center  ANNEX 2-2 Page 3 line of the magnetic plate in two planes by about .005 in each plane. The resulting force of the grinding wheel as it engages the part being ground is directed down forcing the part being ground into a pair of work support carbide shoes that act as the work blade and regulating wheel of the original thru-feed centerless grinding process. Inner races have the ball race track ground with the pathway surface locating on carbide shoes against a magnetic backing plate that resists the driving force of the grinding wheel as its surface abrades the part. An "in process" guage is in continuous contact with the part as it is being ground; when blue print size is reached a signal orders the machine to retract, unload the part, load another part and recycle. The refinish bore grind and ball track superfinish equipment operates in similar centerless fashion. The operator hand loads the machines and inspects his own work before disposing into tote pans. Outer race equipment functions the same as inner race equipment, loading and unloading automatically with "in process" gage controls. 9. Hi Volume inner and outer races would be processed thru the same operations on the same type of equipment as used in "Low Volume" operations described above, except that the equipment used would be more specialized and machines arranged in order of process sequence in continuous lines as opposed to "colonies" of similar equipment being located in a general area. Each continuous line would be at a right angle to a long multi-lane conveyor. Parts would start at a bulk elevating hopper loaded from the aisle with a fork truck. The parts would be automatically fed into the first machine of the line which upon completion of its operation would dispose the part into a track that feeds the next machine; at the ejection of the part from the final machine it will be fed into an automatic "Post Process" gage that would passo good work into the long collection conveyer and reject faulty work into a pan for repairs or scrap as determined by the inspection department. C. Ball Manufacturing 10. Balls, rollers and separators from both Hi Volume and Low Volume bearings would be made in common shops for both groups of products. Under the project, ball processing at Brasov will undergo a major change due to new "know how" introduced from Japan. Some of the ball grinding and lapping equipment is being replaced with equipment to be built locally, under license in accordance with Japanese practice. This equipment produces a much finer ball requiring only lot type inspection in place of individual ball selection which will help to reduce labor cost in the inspection area. It is absolutely necessary isn the manufacture of bearings for use in so called "silent motors" to have good ball quality because good ball geometry is necessary for quiet running bearings. The proposed changes would permit production of such high quality balls.  ANNEX 2-2 Page 4 D. Roller Manufacturing 11. There will be some improvement in the manufacture of tapered rollers wherein the installation of continuous integrated lines with rough grind, semi-finish, end grind and hone operations would permit the product to flow from operation to operation. Tapered rollers would start with material in coil or cut lengths of cold drawn rod (for diameters over 3/4") that is cut off and cold formed automatically. Parts would then be tumbled soft, end- ground and heat treated. After heat treat, the O.D. and end grind process will be repeated and then super finished on the diameter before being sent into the inspection department for a visual check and then automatically classification for size and angle. E. Separator Manufacturing 12. Separator manufacture would continue to use conventional methods used in other bearing plants world wide. The production expansion will bring new, better engineered transfer presses into operation that will give improved quality and greater output. F. Assembly and Final Inspection 13. Hi-Volume races would be transported from the end of the grinding lines by means of the aforementioned long, powered collection conveyors to the assembly area where the races will be stored in spiral storage units ahead of a complete automated integrated assembly line. The races would meet with the balls and separators (transported by internal trucks) at the ball insertion stations where the components would be matched for proper internal clearance controlled by an automated inspection and assembly machine. Thus, separators will be riveted in place and the bearings put thru an automatic wash, vibration check, radial play, overall mechanical dimensions and visual check and auto- matic greasing before being sent on to the seal and shield insertion stations as determined by customer requirements. Parts would be wrapped and packed by hand at this stage. 14. Full automation of the assembly operation through an assembly lines will be introduced in the Hi-Volume production, substantially improving quality and operator productivity. Ten different sizes of ball bearings would be going through this line and Brasov intends to change these lines over four times a year. 15. The Low Volume area intends to continue using manual assembly and inspection operations. However, even here Brasov intends to hold the number of its inspection people constant while increasing the output. This labor productivity improvement will be brought about by the increased use of "in process" machine control gages which will permit the inspection of  ANNEX 2-2 Page 5 races on an A.Q.L. basis instead of the 100% inspection requirements now in use. Similarly, the proposed improvements in ball processes would reduce inspection needs in the assembly area and also permit introduction of semi- mechanized assembly units. Industrial Projects Department April 1977  ROMAN IA BRASOV BEARINGS PROJECT ORGANIZATION STRUCTURE OF INDUSTRIAL CENTRAL FOR BEARINGS AND ASSEMBLY COMPONENTS tCIROA) Ministry of Machine Building Industry l~~~~~~~~ t Industrial Central Design and Bearings Bearings Bearings for Research Industrial Enterprise Enterprise Enterprise s Bearings & Assembly Center for Fastners Ploiesti Alexandria Birlad l Components Bearings and Enterprises I - - - - ~~~~~Fastners l Bearings Enterprise l Brasov _ _ o _ortWarehouse Enterprise ' Technoexport (BAZA) | Export Domestic Sales Sales and Distribution NOTE: Export sales are handled by TECHNOEXPORT-IMPORT Enterprise which organizationally reports to the Ministry of Foreign Trade. S INDUSTRIAL PROJECTS DEPARTMENT July 1976 World Bank-16297  ROMANIA BRASOV BEARINGS PROJECT ORGANIZATION STRUCTURE OF BRASOV BEARINGS ENTERPRISE I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~aiO . IlI = t Dlzpolnnt t { Dlrocror l l sna Prot ctlonShop Dna shpermn IflOalOf 1.1 P,Oi~~~~~~~~~~~~~~~~~~~t O.p~~~~~~~fltOfl.flt World Bank-16296 -~~~~~~~~~~~~~~~~~~Y.,d ..-129 ,.ly 1976  ROMANIA BRASOV BEARINGS PROJECT BRASOV ENTERPRISE: INCOME STATENTS 1971-75 (Thougands of Tei) 1971 1972 1973 1974 1975 Bearing :Sales (000 units) 21,094 24,007 25,877 27,984 28,200 Gross Revenues N.A. N.A. N.A. 841,329 848,795 Other Income N.A. N.A. N.A. 1,196 4,189 Total Net Revenues 610,000 724,000 810,000 5)42,525 d52,9b4 Cost of Production Raw Materials and Other Director Materials 200,314 231,518 253,616 269,807 296,726 Wages 149,780 167,950 174,832 ~~~~3)43,208 38)4,75)4 Auxiliary Materials and Services 117,153 116,432 119,948 Total Cost of Production 467524 515,900 54b,396 613,015 6dl ,4O0 Gross Profit 142,753 208,100 261,604 229,510 171,504 Depreciation 59,533 63,822 69,080 77,026 78,925 Benefit (Operating Profits) 83,220 144,178 192,524 152,484 92,579 Industrial Projects -Department August 1976  ANNEX 3-3 ROMANIA BRASOV BEARINGS PROJECT BRASOV ENTERPRISE: BALANCE SHEET STATMMENTS 1971-75 1971 1972 1973 1974 1975 ASSETS Current Assets Cash 24 15 247 1,620 850 Accounts Receivables 198,248 198,326 256,739 275,696) 334,160 Inventories 2.240 1.405 669 838) Total Current Assets 200,512 199,746 257,655 278,154 335,010 Other Assets 23,473 35,323 Fixed Assets Gross Fixed Assets 991,460 1,112,589 1,231,764 1,325,741 1,439,597 Less: Accumulated Depreciation 356,030 410,233 469,761 531.825 604,363 Net Fixed Assets 635,490 702,356 762,003 793,916 835,234 Assets under Construction 124.172 286,453 44,310 60,608 141.454 Total Assets 960,174 1.188.555 1.063.968 1,156,042 1.347.021 LIABILITIES Current Liabilities Short Term Credits 35,355 32,754 66,541 66,982 105,365 Creditors and Suppliers 13,098 8,032 10,827 12,324 10,709 Other Liabilities 2,003 2,668 3,343 8.339 38,785 Total Current Liabilities 50,456 43,454 80,711 87,645 154,859 State Advances for Assets under Construction 124,172 286,455 44,310 60,608 141,454 State Equity Funds Own and State Funds for Fixed Assets 635,490 702,356 762,003 793,916 835,234 State Funds for Working Capital 150,056 156,292 176,944 213,873 215.474 Total State Equity Funds i'5,546 858.648 938.947 1,007 789 1,050,708 Total Liabilities 960,174 1.188,555 1,063,968 1.156.042 1.347.021 Industrial Projects Department August 1976  ROMANIA BRASOV BEARINGS PROJECT BRASOV ENTERPRISE: SOURCES AND APPLICATION OF FUNDS 1971-75 (Thousands of Lei) 1971 1972 1973 1974 1975 Sources Profits 83220 144178 192524 215300 ,237220 Depreciation 59533 63822 69080 77026 78925 Own Funds and State Allocation From the Budget for Investments 8623. - - From the Central Reserve Fund -- - Working Capital - - - - - Short Term Credits 11812 6236 20652 18485 20045 TOTAL SOURCES 163188 214236 282256 310811 336190 Application of Funds Investments 96000 127950 108752 123836 173684 Increase in Working Capital Growing 11821 6236 20652 18485 20045 Depreciation Funds - 327 13209 - Profits' Application For the State Budget (through Central) 28506 65334 130680 144781 120814 Workers Bonus Distribution 2306 2577 2727 3057 3162 Repayment of the National Bank Loan 24564 11812 6236 20652 18485 TOTAL APPLICATIONS 163188 214236 282256 310811 336190 Investments' Financing: - from profits 27874 64455 52881 46810 94759 - from depreciation 59533 63495 55871 77026 78925 4.5 Industrial Projects Department August 1976  ANNEX 4-1 Page 1 ROMANIA BRASOV BEARINGS PROJECT DOMESTIC BEARINGS MARKET AND MARKETING 1. In recent years, most of bearing production in Romania has been for consumption internally as is shown in the following table: Destination of Romanian Bearings: 1970-1985 (Millions of Pieces) Actual Est. Forecast 1970 1972 1974 1976 1978 1980 1985 Total Production 24.5 28.3 50.7 74.4 107.0 112.0 145.0 of which Internal Consumption 24.5 34.2 37.4 52.0 59.0 65.0 85.0 Export 7.4 7.1 13.9 35.0 41.0 52.0 63.0 Proportion Consumed Internally 69% 75% 72% 53% 56% 54% 57% 2. As the table shows, until recently, more than two-thirds of the Romanian production of bearings was for local consumption. The forecast for 1976-85 shows a slight drop in this proportion due to the proposed large increases in export targets and the expected slowdown in the growth of domestic demand. 3. For the Brasov enterprise, both the production and export targets were recently revised downwards, due to the difficulties anticipated in achiev- ing even higher export targets. Whereas initially the 1980 production target was for 46 million bearings and export target was 15.1 million, these have now been revised downwards to 43 million and 12.0 million respectively. The revised projections are shown in the following table:  ANNEX 4-1 Page 2 Destination of Bearings from Brasov Enterprise 1970-1980 (Millions of Pieces) 1975 1976 1978 1980 1982 1985 Total Production 28.5 27.8 34.0 43.0 49.0 53.0 of which: Internal Consumption 22.5 21.7 25.6 31.0 36.5 40.0 Export 6.0 6.1 8.4 12.0 12.5 13.0 Proportion consumed Internally 79% 72% 70% 71% 70% 69% Because of their very different nature, the export and the internal market of bearings are discussed separately. A discussion of the internal market is given below and export markets are discussed in Annex 4.2. Domestic Romanian Market Demand 4. The main consumers of bearings in Romania as in other countries, have been in the transportation sector, machine and technological equipment building sector and the electric motor and generator manufacturing sectors. These sectors have historically shown rapid growth, thereby generating an equally rapid growth in demand for bearings. The following table shows the average annual growth rate for these sectors, for 1950-75. I/ Romania: Growth Rate -of Production in Major Bearing Consuming Sectors - 1950 to 1975 1950-55 1955-60 1960-65 1965-70 1970-75 1950-75 Transportation Vehicles and Tractors 39.0% 3.9% 6.8% 13.1% 12.0% 14.4% Technological Equipment including Machine Tools - 2/ 53.0% 11.2% 8.7% 14.4% 16.1% Electric Motors and Generators 12.9% 26.1% 19.2% 18.2% 14.1% 17.3% National Income 14.0% 7.0% 9.0% 7.7% 11.3% 9.7% 1/ Average annual volumetric growth rates. 2/ Figures for 1950 are not available.  ANNEX 4-1 Page 3 5. The main bearing consuming sectors have shown a much higher growth rate compared with the 10% growth of the national income. This has created a very high growth in the demand for bearings within Romania. The average annual growth rate for demand over 1950-75 period has been 20.2%. In the past this demand could not be satisfied by local production and a large proportion of the bearings consumed in Romania had to be imported. The table below shows the proportion of bearings that have been imported. Bearing Consumption in Romania (Millions of Bearings) 1950 1955 1960 1965 1970 1975 Net Consumption 0.44 2.1 6.5 13.0 25.6 46.6 Growth Rate of Consumption 1/ - 37% 23% 15.6% 13.2% 12.7% Proportion Imported 68% 34% 46% 37% 36% 14% 1/ Annual growth rate, averaged over preceding 5 year period. 6. Historically the local production of bearings has not been suffi- cient to satisfy the demand for bearings and over a third of the bearings consumed locally have had to be imported. Until 1973, such a supply situa- tion of course had its impact on demand too. In Romania, as in many other developing coutries, foreign exchange is a relatively scarce commodity whose use is actively discouraged by state directives to reduce import content of the goods produced. With the improvement in local supply situation between 1970-75, and a sharply decreased reliance on imports (in proportional terms), some hidden demand for bearings also came into play. 7. However, in future, the opportunity for growth of demand for locally made bearings through import substitution would diminish. The recent high growth rate of demand in Romania for locally made bearings is not likely to be sustained during the next five years. Even then the growth in demand for locally produced bearings would still be high owing to the continued vigorous expansion of the industrial and transportation sectors. The table below shows the relationship between increase in production of various sectors of the eco- nomy and the corresponding increases in the consumption of bearings by that sector.  ANNEX 4-1 Page 4 Growth in Internal Consumption of Bearings Produced in Romania - 1970-1975 Average Annual Average Annual Growth Growth Rate of Rate of Production in Elasticity of Sector Bearings Consumption the Sector Growth of Demand Transportation vehicles and agricultural equipment 13.5 12.0 1.13 Technological equipment 11.2 14.4 0.78 Electric motors and generators 13.0 14.1 0.92 Maintenance 7.8 11.3 1/ 0.70 Other 19.0 11.3 2/ 1.68 Total 12.7 11.3 1.12 1/ Maintenance depends on the stock of old vehicles and machines. Therefore, a lagged variable has been used. The variable used is the weighted average growth rate of the consuming sector in the previous five years. 2/ Based on estimated growth rate of national income. 8. The historical and projected consumption of bearings by major con- suming sectors is shown in the table below: Romania: Domestic Consumption of Bearings, 1970-85 (Thousands of Pieces) Transport & Technological Electrical Agr. Equipment Equipment Equipment Maintenance Other Total 1970 7,700 (30%) 2,470 (10%) 2,500 (10%) 8,050 (31%) 4,880 (19%) 25,600 (100%) 1971 9,160 (32%) 2,890 (10%) 2,800 (10%) 9,030 (32%) 4,570 (16%) 28,400 (100%) 1972 10,930 (32%) 3,290 (9%) 3,300 (10%) 9,970 (29%) 6,760 (16%) 34,200 (100%) 1973 13,010 (35%) 3,680 (10%) 3,900 (10%) 11,050 (29%) 6,060 (16%) 37,700 (100%) 1974 14,255 (33%) 3,890 (9%) 4,320 (10%) 11,665 (27%) 9,070 (21%) 43,200 (100%) 1975 14,450 (31%) 4,190 (9%) 4,610 (10%) 11,700 (25%) 11,650 (25%) 46,600 (100%) 1976 15,600 (30%) 4,680 (9%) 5,200 (10%) 12,470 (24%) 14,050 (27%) 52,000 (100%) 1977 15,950 (29%) 5,500 (10%) 6,050 (11%) 13,200 (24%) 14,300 (26%) 55,000 (100%) 1978 17,100 (29%) 6,500 (11%) 7,100 (12%) 14,150 (24%) 14,150 (24%) 59,000 (100%) 1979 17,950 (29%) 7,450 (12%) 8,100 (13%) 15,500 (25%) 13,000 (21%) 62,000 (100%) 1980 17,550 (27%) 7,800 (12%) 9,100 (14%) 14,950 (23%) 15,600 (24%) 65,000 (100%) 1981 67,000 (100%) 1982 70,000 (100%) 1983 76,000 (100%) 1984 81,000 (100%) 1985 22,100 (26%) 12,750 (15%) 12,700 (15%) 18,750 (22%) 18,700 (22%) 85,000 (100%) Growth Rates 1970-75 13.5% 11.2% 13.0% 7.8% 19.0% 12.7% 1975-80 4.0% 13.3% 14.6% 5.0% 5.9% 6.9% 1980-85 4.7% 10.2% 6.9% 4.6% 3.7% 5.5%  ANNEX 4-1 Page 5 The above demand forecasts, developed by CIROA, appear to be excessively conservative. As shown above historically, domestic demand for bearings has grown at rates much higher than the growth rates registered by the overall Romanian economy. Therefore, it appears that during 1975-80 demand for bearings should grow at a rate higher than 6.9% projected by CIROA since the national economy is planned to grow at an annual rate of between 9-10%, or slightly higher than that registered during 1970-75; the same should hold true during 1980-85. 9. The transportation and agricultural equipment sector, the largest consumer of bearings, showed the annual growth rate of 13.5% during 1970-75. Though the 12% growth rate in transportation and tractors sector was the main contributor to the expansion of Romanian bearings consumption, other significant factors were the increasing sophistication of equipment and import substitution. During the 1975-80 period, the scope for import substi- tution would be smaller and the growth rate of production in transportation and tractors sector is expected to slow down. These factors would com- bine to reduce the future growth rate of consumption of bearings in this subsector below the recent levels, but the projected growth rate of 4.3% for 1975-1985 appears overly conservative. 10. Technological equipment (e.g. machine tools) showed a relatively slower growth rate of consumption of bearings during 1970-75. The growth rate of consumption was about 11.2% per year which compares with 14.4% average annual growth in production of that sector. No significant import substitu- tion took place (as far as bearing consumption is concerned) in this sector. This was mainly due to the small and dispersed nature of demand which made local production of these bearings a lower priority item and also an economi- cally less justifiable alternative. However, by 1975 the production in that sector had grown sufficiently to create demand for large batch sizes, which would enable the Romanian bearing industry to supply those bearings at competitive prices. During 1975-80 period, therefore, import substitution is expected to be an important factor affecting demand for bearings in the 'Technological Equipment' sector. Easy availability of locally produced bearings is expected to bring out the hidden demand for such bearings. For that reason, an average annual growth rate of 13.3% is achievable during 1975-80 even though the production in that sector will grow by only 11.7% per annum. This dramatic growth would raise the proportion of bearings for internal consumption going to technological equipment manufacturers from its 9% level in 1975 to a 15% level by 1985. 11. The proportion of Romanian bearings going to the replacement market has historically been high. It was 31% in 1970 and 25% in 1975. As the qual- ity of the Romanian bearings and other equipment improve, this proportion is expected to go down further and may reach a level of about 22% by 1985. Therefore, a much slower growth in demand is expected, but the 4.9% average annual growth in demand for 1975-85 appears conservative even if substantial quality improvements do materialize. The actual demand may turn out to be substantially higher, particularly if the national economy expands as planned.  ANNEX 4-1 Page 6 12. The highest growth rate in demand for internally manufactured bearings during 1970-75 took place in the 'Other' category, which accounts for about one fourth of total domestic sales. This represents many small users of bearings which are not included in any of the major categories such as the manufacturers of home appliances like vacuum cleaners. This high growth rate in demand resulted in the increase of the percentage of locally produced bearings consumed under the 'Other' category from 19% in 1970 to 25% ir 1975. This high growth in demand was due to the tapping of hidden demand which was made possible by the rapid build-up of production capacity during 1970-75. The opportunity for tapping still latent sources of demand may be smaller during 1975-80. Hence a much smaller growth rate of demand of about 6%, is projected during 1975-80 and only 4% during 1980-85. This would result in a decline of the proportion of locally consumed Romanian bearings going to 'Other' category from 25% in 1975 to 22% in 1985. Again, considering the future growth rates planned for the economy, these estimates may prove too low. 13. The second highest growth rate in demand for bearings in Romania has been in the electric motor and generators manufacturing sector, account- ing for 9% of domestic sales in 1975. In that sector the demand grew at an average annual rate of 13.0% during 1970-75. This high growth rate resulted from the relatively high growth of production (14.1% per year) in that sector. With the 13% average annual growth in production planned for 1975-80 period, this high growth rate in demand for bearings going to the electric motor and generator producers, is expected to continue. The 14.6% average annual growth in the demand projected for 1975-80 period appears reasonable. Romanian Bearings Market: Supply 14. To supply the above mentioned demand for bearings, in the early years, a large proportion of bearings was imported (para. 5). Some anti- friction bearings were being manufactured by the consumers themselves. The most significant example was the truck factory in Brasov. In 1949, this factory had established a separate shop for manufacturing bearings. The shop became the nucleus for the growth of the bearing industry in Romania. Starting with a production of about 220,000 units in 1950, the production was expanded to 1.04 million units in 1955. This was achieved by expansion of production in the Brasov shop as well as setting up of a new factory in Birlad in 1952. In 1974, production was also started in a new factory set up in Alexandria with Japanese collaboration. The evolution of production in the three units is shown in the Table below.  ANNEX 4-1 Page 7 Romania: Domestic Bearings Production 1950 - 1975 (Millions of Pieces) Average 1950 1955 1960 1965 1970 1975 Growth Brasov 0.22 1.04 3.2 11.0 20.8 28.5 21% Birlad - 0.63 1.3 2.5 3.7 25.4 20% Alexandria - - - - - 16.8 - Total 0.22 1.67 4.5 13.5 24.5 70.7 30% 15. The bearing production has grown at a faster rate than the demand for locally produced bearings. This has allowed Romania to export bearings in recent years. In 1975, about 22 million pieces were exported which accounted for a third of the production of bearings in Romania that year. The projected growth in domestic demand and exports in the next ten years is indicated in the table below. Romania: Projected Demand/Supply Balance 1975-85 (Millions of Pieces) Growth Rate 1975 1976 1977 1978 1980 1982 1985 1975-80 1980-85 Production 70.7 74.4 81.0 94.0 112.0 129.0 145.0 9.6% 5.3% Imports 6.4 4.5 5.0 5.0 5.0 4.0 4.0 NA NA Total Supply 77.1 78.9 86.0 99.0 117.0 133.0 149.0 8.7% 5.0% Domestic Demand 46.6 52.0 55.0 59.0 65.0 70.0 85.0 6.9% 5.5% Exports 26.0 35.0 37.5 41.0 52.0 57.0 63.0 14.9% 3.9% Imports/Dom. Demand 14% 9% 9% 8% 8% 6% 5% Exports/Dom. Prod. 31% 47% 46% 44% 46% 44% 43% However, as mentioned above, the estimates of growth of domestic demand appear overly conservative. If the actual domestic demand indeed turns out to be much higher than projected above, as seems possible, then the surplus left for exports would be proportionately smaller. Role of Brasov Plant 16. Before 1970, the role of different domestic plants in supplying bearings was not well defined. This often resulted in the same type of bearing being produced at more than one location. Since there is a signifi- cant economy of scale in the manufacture of bearings, such duplication was clearly uneconomical. Therefore, an industry-wide rationalization program was undertaken during 1971-75 plan period (described in more detail in Annex 2.1).  ROMAN IA BRASOV BEARINGS PROJECT CONSUMPTION OF BEARINGS IN ROMANIA BY MAJOR CONSUMING SECTORS 1970 - 1985 19% 25% 24% 22Y o OTHERS 31% 22% 25% MAINTENANCE 101% 10% 14% ~~~~~~~~~~~~~~~~~~ELECTRIC MOTORS AND GENERATORS .*10% 9%.:v:::: ......5% TECHNOLOGICAL EQUIPMENT 30% 31% ~~~~~~~~~~~~~~~~~~~27% 000000 I l 26% D0 0TRANSPORTATION AND AGRICULTURAL EQUIPMENT e 70 75 80 85