Jordan - Arab Potash Project

Documnent of The World Bank FOR OFFICIAL USE ONLY Report No. 7078 PROJECT COMPLETION RE-ORT JORDAN ARAB POTASH PROJECT (LOAN 1617-JO) January 5, 1988 Industry Department This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY THE WORLD BANK Washingtnn. DC 20413 u S A 00ce of Dwocgeu.C.wSa Opntum EvakatHm January 5, 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE 0RESIDENT SUBJECT: Project Completion Report on Jordan: Arab Potash Project (Loan 1617-JO) Attached, for information, is a copy of a report entitled "Project Completion Report on Jordan: Arab Potash Project (Loan 1617-JO)" prepared by the Europe, MiddLe East and North Africa Regional office. Further evaluation of this project by the Operations EvaLuation Department has not been made. Attachment 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.  FOR OMCIuL UsE ONLY JORDAN - ARAB POTASH PROJECT (LOAN 1617-JO) PROJECT COMPLETION REPORT TABLE OF CONTENTS Pzle No Preface .. ......... *.*.. . *............***.. *....i Mission Data .......... ... *..... ... *.... ... ...***......... ii Highlights .... . ........ .. 0000*00* ..** ....... iv I. INTRODUfCTION .................. .......... ......................... II. PROJECT BACKGROUND . ........... 1 A. Project History ... .................*...... I B. Project Description ....................... a 2 C. Project Objectives . ............ ..... ... .....*.......... 3 III. PROJECT IMPLEMENTATION AND MANAGEMENT .............. ......... 4 A. Achievement of Project Objectives ....................... 4 B. Project Scope Changes .... .. ... ........ 4 C. Project Manag.ment .... .................. .. ........ 5 D. Use and Performance of Consultants ...................... 5 E. Implementation Schedule ..... .oo... ..*. *.... ** ...*..... 6 F. Procurement Methods and Procedures ..... ................. 7 G. Costs, Disbursements and Financing ...................... 8 LV. OPERATING PERFORMANCE ..... ........ ............ ...... 9 A. Commissioning and Start-up ...... . ....................... 9 B. Production Build-up ............. ...... .. .......... .to 9 C. Manpower Development .. .. ..................... ............. 10 D. Market Development and Performance ...................... 10 V. FINANCIAL PERFORtANCE ... ............. e- ....11 A. Company Performance and Financial Results ............... 11 B. Financial Rate of Return .......... ... .o.*........ 13 C. Financial Covenants et .... ........... * .............* 13 VI. ECONOMIC PERFORMANCE ........ ..... 6.. . . to... ... ... 14 A. Economic Rate of Return ..... ....*.*.o* *....***...... 14 B. Economic Benefits .................. ................... 14 C. OveraLl Justification ... .... *... .*...... ............. 14 This document has a restricted distribution and may be used by recipients only in the performance of their ofvicial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (contd) Page No. VII. INSTITUTIONAL PERFORMANCE AND ORGANIZATIONAL GROWTH ........ 15 VIII. BANK ROLE ..9...........****9*9**9***.......****.9...... 16 A. Overall Bank Performance and Relationship with Borrower *********9*e***9********999**.**..9*******99* 16 B. Performance in Project Preparation, Formulation and Implementation .. ......*..*.... .. *................. 16 C. Covenants .............9 9.9.9.9.9.9...* 16 IX. CONCLUSIONS AND LESSONS LEARNED ............................ 17 Ao Overall Assessment .o.o.. ... . . ..ooo.......o.. . . . . 9999o999999999 17 a. Implementation Schedule and Technical Design 999..... 17 b. Costs and Financial Position . ...................... 17 B. Lessons for the Borrower and the Bank .................. 18 ANNEXES Attachment 1 - Implementation Schedule. ......... .... . . ... . ... A0 Attachment 2 - Capital Cost - Comparison of Actual Cost With Appraisal Estimates 99*... 9999............ 9.99. 21 Attachment 3 - Project Financing .............. o o o o .. ....... 0 22 Attachment 4 - APC Sales by Country in 1985 .............. ........ 23 Attachment 5 - Average Sale Prices of Potash FOB Aqaba ..... . . 24 Attachment 6 - Net Cash Flow Tables - Internal Rate of Return ... 25 Attachment 7 - Comments from the Borrower ...... .................. 27  JORDAN - ARA.B POTASH PROJECT (LOAN 1617-JO) PROJECT COMPLETION REPORT Preface i. Loan 1617-JO for US$35.0 million was approved by the Board on September 5, 1978, signed on October 21, 1978 and declared effective on Hay 30, 1979. It was fully disbursed by December 31, 1984. The borrower, the Arab Potash Compzny (APC), founded to commercially exploit the minerals of the Dead Sea brines, is a corporate entity under Jordanian law, with a capital structure involving the Government of Jordan, the Islamic Develop- ment Bank and various Arab governments and institutions. ii. The main objectives of the Loan were to develop a resource-based extracting and manufacturing industry with promising prospects, diversify and increase Jordan's sources of exports and enhance regional development in the Project area. iii. After experiencing--and diagnosing--technical constraints to achieving production targets, modifications for plant debottlenecking/ optimization were initiated by APC and are being completed under a second project also with Bank financing. The financial difficulties which have beset the Company and delayed profitability, result essentially from the recession in the major fertilizer markets and decline in potash prices, and consequently, shortfall in revenues. However, the optimization investments now underway in APC will further reduce production costs, which coupled with the Bank forecast recovery of the potash market will allow the Company to recover from its difficulties. A second loan approved by the Board on March 10, 1987. involves a financial rehabilitation plan with additional capital injection and debt rescheduling to strengthen APC's financial structure and put the Company on a sound path to profitability. iv. Although the Project's physical construction was achieved in September 1982, Project completion as defined in Section 1.02 (e) of the Loan Agreement, is deemed to have occurred in 1985, following confirmation by the Borrower's operations management consultants that the plant has achieved--and, on permanent basis, can achieve--75Z of design capacity. Throughout the period from the end of physical construction to Project completion, the Bank has maintained an intensive supervision effort, work- ing closely with APC to diagnose and alleviate the constraints on output. an effort which has culminated in the approval of the Second Arab Potash Project. v. In accordance with the revised procedures for project performance audit reporting, this PCR was read by the Operations Evaluation Department (OED), but the project was not audited by OED staff. vi. Following standard procedures, OED sent copies of the draft report to the Borrower for comments. These comments have been reproduced as Attachment 7 to the report.  - 1i - JORDAN - ARAB POTASH PROJECT (LOAN 1617-JO) PROJECT COMPLETION REPORT Key Project Data (Amounts in US$ Millions) --------------------