China - Shanghai Machine Tool Project

Dclument of The World Bank FOR OFFICIAL USE ONLY Report No. P-4454-CHA REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO W1MO.O MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SHANGHAI MACHINE TOOL PROJECT February 6, 1987 This document has a restricted distribuLion 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 Currency name - Renminbi Currency unit - Yuan tY) Calendar 1986 January 1987 $1 = Y 3.45 $1 = Y 3.72 Y 1.0 = $0.28 Y 1.0 = $0.27 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet I square meter (m2) = 10.76 square feet PRINCIPAL ABBREVIATIONS AND ACRONYMS CIF - Cost, insurance and freight ICB - International Competitive Bidding MMBI - Ministry of Machine Building Industry PIU - Project Implementation Unit SBMEIA - Shanghai Bureau of Mechanical and Electrical Industries Administration SMG - Shanghai Municipal Government SMTC - Shanghai Machine Tool Corporation SMTW - Shanghai Machine Tool Works  FOR OmcIuL USE ONLY CHINA SHANGHAI MACHINE TOOL PROJECT Loan and Project Summary Borrower: People's Republic of China Beneficiaries: Shanghai Machine Tool Works (SHTW) Shanghai Machine Tool Corporation (SMTC) Amount: $100.0 million equivalent Term.: 20 years, including 5 years of grace, at standard variable interest rate Onlending The Government will onlend, through the Shanghai Municipal Terms: Government, $36.0 million equivalent to SHTW and $64.0 million equivalent to SNTC for a period of 15 years, including 5 years of grace, at a fixed annual interest rate of 8.5% and a commitment charge of 0.75%. SMTW and SMTC will bear the foreign exchange risk. Project The major objectives of the Project are: product Description: rationalization; product upgrading and manufacture of precision machines; improvements in quality and quantity of inputs; increase in manufacturing efficiency; expansion of design and engineering capabilities; and improvements in management systems. The Project consists of: (a) rehabili- tation and modernization of 18 plants and 2 research insti- tutes owned by the two beneficiaries; (b) import of appro- priate technology; (c) establishment of a modern management structure and system; and (d) development and implementation of a comprehensive training program. Benefits: Import of technology will enable the beneficiaries to manufacture quality products and precision machine tools efficiently. Rationalization measures during project preparation have already led to a restructuring of SMTC's organization and agreements to: reduce overlapping operations among the beneficiaries' plants; and close down two polluting foundries. Management support will add con- siderable flexibility to the operations, improve maintenance and inventory control, and facilitate the introduction of cost-accounting techniques. Support to the research institutes will streamline product development and help to ensure the compatibility of product design with market requirements. The training program wiLl result in expansion of the beneficiaries' design and engineering capabilities and will improve the managerial abilities of shop, plant and I 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.  - 11. - corporate managers. The Project will have a demonstration effect on other provincial machine toot manufacturers as well as capital goods manufacturing industries. Risks: The Project's potential risks are whether the technology can be transferred to the project entity and whether the products which result from the introduction of the new technology can be marketed on the scale anticipated. These risks have been carefully addressed in project preparation and design to the extent that necessary safeguards and other measures to minimize their potential impact are in place. Local Foreign Total Estimated Cost: -- (US$ millionj)--- SMTW: Plant cost 15.0 28.2 43.2 Engineering, management, training and technology transf .r 0.7 7.6 8.3 SKTC: Plant cost 16.5 53.4 69.9 Engineering, management, training and technology transfer 1.4 10.9 12.3 Base Cost /a 33.6 100.1 133.7 Physical contingencies 3.4 10.0 13.4 Price escalation 6.0 9.8 15.8 Installed Cost 43.0 119.9 162.9 Incremental working capital 38.1 3.4 41.5 Interest during construction 8.8 9.9 18.7 Total Financing Required 89.9 133.2 223.1 Local Foreign Total Financing Plan: --- (US$ million) --- IBRD loan - 100.0 100.0 Domestic loans 51.8 29.8 81.6 Self-generated funds 38.1 3.4 41.5 Total 89.9 133.2 223.1 /a Estimated project costs exclude taxes.  - iii - Estimated Bank FY: 1987 1988 1989 1990 1991 1992 Disbursements: