Uganda - Phosphate Engineering Project

DoeumM of The World Bank FOR OFmFCIAL USE ONLY ReptNo. 7860 PROJECT COMPLETION REPORT UGANDA PHOSPHATE ENGINEERING PROJECT (CREDIT 1228-UG) JUNE 13, 1989 Industry and Energy Operations Eastern Africa Department 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 Current Unit U Uganda Shilling (USb) US$1.00 - USh 60.55 (June 1968 US$1.00 . SDR 0.72 USh 1.00 - US$0.017 SDR 1.00 - US$1.37 GLOSSARY OF ABBRrVIATIONS N - nitrogen CDC - Commonwealth Development Corporation P205 - phosphate DAP - diammonium phosphate (182 N, 462 P205) EIB - European Investment Bank NPK - complex fertilizer MAP - mono-ammonium phospbAte (11Z N, 552 P205) SSP - single superphosphate (18? P205) TICAF - Tororo Industrial Chemical and Fertilizers Limited tpy - tons per year TSP - triple superphosphate (46Z P205) UDC - Uganda Development Corporation GOU - Government of Uganda FISCAL YEAR Government July 1 - June 30 TICAF January 1 - December 31  FOR OFFICLAL UR ONLY THE WORLD SANK Washington. DC 20433 USA OIce i Dvent-CeEW,ai Op.#amwm% ivaW tum June 20, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Uganda Phosphate Engineering Project (Credit 1228-UG) Attached, for information, is a copy of a report entitled OProject Completion Report on Uganda - Phosphate Engineering Project (Credit 1228-UG)' prepared by the Eastern Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Yves Rovani by Rom K. Chopra Attachment This document has a restricted distribution and may be used oy recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Dank authorization.  FM 0OFIIAL UU ONLY PROJECT COMPLETION REPORT UGANDA PHOSPHATE ENGINEERING PROJECT (CREDIT 1228-UG) TABLE OF CONTENTS Page No. Preface ............................................................ i Basic Data Sheet . ............................................. ii Evaluation Summary ............................................. iv PROJECT COMPLETION REPORT I. INTRODUCTION .............................................. 1 II. THE PROJECT .............................................1 A. Project Origin, Preparation, Appraisal and Credit Effectiveness .1 B. Project Objectives and Scope. 2 III. PROJECT IMPLEMENTATION AND MANAGEMENT. 3 A. Achievement of Project Objectives. 3 B. Project Management. 5 C. Contracting, Use and Performance of Consultants. 5 D. Project Implementation Schedule.. 6 E. Project Cost and Financing .6 F. Future Action.. 6 IV. ASSOCIATION ROLE. 7 V. LESSONS LEARNED.. 7 ANNEX A - Letter of Uganda Development Corporation dated April 18, 1989 * ........................................ 9 This document has a restricted distribution and may be used by recipients only in the performance I of their official duties. Its contents may not otherwise be disciosed without World Bank authorization.  - iii - OTHER DATA First Mention in Files 02/80 Appraisal Mission 06/81 Post Appraisal Mission 08/81 Negotiation 11/61 Board Approval Date 03/14/82 Loan Signature Date 06/14/82 Loan Effective Date C9/14/82 Closing Date 01/15/86 Borrower GOU Executing Agency TICAF MISSION DATA Month/Year No of Days Persons Report Date Reconnaissance 2/80 5 1 3180 Appraisal 6181 8 2 2/82 Supervision I 8/82 3 1 8/24/84 Supervision II 11/82 3 2 12/09/92 Supervision III 2/83 3 2 3117/83 Supervision IV 12/83 5 2 1/14/84 Supervision V 6/84 4 2 7/12/84 STAFF INPUT (mn-veeks) FY19S0 FYlOSI FY1982 FYI90$ FY194 FYINS FYIM FY157 TOTAL Preappraieal 4.6 6.7 - - - 11.8 Appraisal - t.:. 16.6 - - - - - 21.7 Negotiation - 7.6 - - - - - 7.5 Supervision - - .5 16.9 11.9 6.7 .9 1.7 86.6 TOTAL 4.6 9.6 26.6 16.9 11.9 6.7 .9 1.7 79.1  - iv - PROJECT COMPLETION REPORT UGANDA PHOSPHATE ENGINEERING PROJECT (CREDIT 1228-UG) EVALUATION SUHMARY 1. The Association first reviewed the Govern.ient of Uganda (%;OU) request to provide assistance in assessing the prospects of an integrated phosphate project based on the Sukulu Hills deposits during a Bank reconnaissance mission in February 1980. Following the Association appraisal mission in Uganda in June 1981, an IDA Credit of SDR 3.5 million was provided to the Government to finance the execution of a comprehensive feasibility study under the Phosphate Engineering Project. The Project was approved by the Board on March 14, 1982, and the Credit became effective on September 14, 1982 (para. 2.02). 2. The Study was contracted out by TICAF to a foreign engineering contractor to: (i) review the potential markets for various phosphate products in Uganda, the Eastern African region, and the Indian sub-continent; (ii) firm up the extent of phosphate reserves in the Sukulu Hills area; (iii) test beneficiation alternatives for concentrating phosphate ores; (iv) derive appropriate processing methods for the production of fertilizers; and (v) design optimal configuration of the full-scale project by comparing capital and operating costs of different options--seventeen different project configurations and their corresponding economic viability were evaluated (para. 3.02). 3. The Study concluded that the best option for the exploitation of the Sukulu Hills phosphate deposits is to establish a single superphosphates (SSP) plant with an annual capacity of 217,000 tons using sulfuric acid based on imported sulfur. The total project cost with this configuration was estimated at US$65.1 million; the Project was estimated to have an economic rate of return of 14.5Z (para. 3.02). 4. The Project achieved its attested objectives of establishing the technical, commercial and economic viability of a full-scale phosphate development project based on the Sukulu Hills deposits. However, the follow- up implementation of recommendations made in the Study could not materialize because the Government did not have the financial and technicai resources to build a project of this scope on its own. Further, the political conditions in the country and continued depressed global phosphate market conditions have discouraged potential foreign investors and financiers from making commitments to participation in the full-scale project. At present, it is anticipated that the follow-up projec, will not be substantiated until these two major constraints will be mitigated significantly (paras. 3.04, 3.05).  PROJECT COMPLETION REPORT UGANDA PHOSPHATE ENGINEERING PROJECT (CREDIT 1228-UG) PREFACE 1. The Association approved a Credit of SDR 3.5 million (US$4.0 million equivalent) on March 14, 1982 to the Government of Uganda (GOU) to assist in carrying out a comprehensive feasibility study (the Study/the Project) to evaluate the technical, commercial and economic viability of exploiting the phosphate deposits at Sukulu Hills, the largest proven phosphate reserves in East Africa. The Study was intended to prepare for a full-scale phosphate development project covering mine development, rock beneficiation and phosphate fertilizer production. The Project's sponsor was the Tororo Industrial Chemicals and Fertilizer Limited (TICAF), a state-owned enterprise. The Study was completed in May 19f5; US$3.92 million equivalent of the Credit had been disbursed by December 1985. The balance of US$0.08 million has been cancelled due to cost underrun. 2. The Study indicated that the Sukulu Hills deposits can be exploited in an economically and commercially viable manner. At the start of the Study, it was expected that the firm establishment of the technical, commercial and economic viability of exploiting the deposits would enable the Government to attract foreign partners or financiers, who would be willing to participate in the full-scale development and operation of the Project. However, continued political instability in Uganda in recent years, coupled with the current phosphate market conditions, has made it difficult for this opportunity to materialize. Consequently, since the Government lacks technical and financial resources to carry it out without foreign participation, the follow-up of recommendations made in the Study has not been implemented yet. The Government now feels (letter of UDC dated April 18, 1989) that with improved political stability, with a change of product-mix (to include Triple Superphosphate), and the possibility of sale of the output to PTA countries (Kenya and Tanzania), there is now scope for proceeding with the project. They have updated the project report to reflect the changed product-mix and initiated the process of identifying possible equity partners. However, BAnk views are that the proposed change in product-mix may not be the optimal te_6inicai solution and that the original project scope should normally show a higher economic viability. The revised proposal requires critical assessment. 3. This PCR was read by the Operations Evaluation Department (OED). The draft PCR was sent to the Borrower for comments and they are attached to the Report (Annex A).  - ii - PROJECT COMPL5TION REPORT UGANDA PHOSPHATE ENGINEERING PROJECT (CREDIT 1228-UG) BASIC DATA SHEET KEY PROJECT DATA Item Appraisal Estimates Actual Project Cost (SDR million) Local Cost 0.42 0.42 Foreign Exchange Cost 3.50 3.43 Total Financing Required 3.92 3.85 Cost Overrun (Underrun) (Z) (0.7Zi Financing (SDR million) Government Contribution 0.42 0.42 IDA 3.50 3.43 a/ Total Financing 3.92 3.85 Cumulative Credit Disbursement (SDR mil?ion) 1982 1983 1984 1985 1986 1987 Appraisal Estimate 0.5 1.4 3.2 3.5 ) Actual 0.5 1.2 2.9 3.4 ) nil nil Actual/Appraisal Est. (Z) 100 86 91. 98 ) ; Completion Date Appraisal Estimate: 10/84 Actual: 05/85 a/ SDR 0.07 million has been cancelled.  levels needed L. support the Project. The Project would be highly dependent on exports which is risky. D. Project Management 3.06 TICAP was responsible for executing the Project. TICAF employed engineering consultants to carry out the feasibility study. and a technical advisory fira to make up for its staffing weakness for the supervision of the consultants' work. TICAF's Project Unit, which was responsible for project implementation and supervision of the consultante' work, was maintained until the completion of the Study. A Project Coordinating Committee, with representatives from TICAF, UDC, Kilembe mines, the Geological Surveys and Mines Department, and the Ministries of Industry, Planning and Economic Development and Finances, was established to oversee the overall implementation of the Study and to facilitate coordination with the Kilembe pyrites project. TICAF's Project Unit provad committed to the success of the Project and actively contributed to the development of the Study. It lacked, however, sufficient expertise and in this respect the assistance of the technical advisory firm played an extremely important role. The project authority (Uganda Development Corporation) has indicated the further developments in project implementation in their letter of April 18, 1989 (Annex A). With improved political stability and the possibility of Kenya and Tanzania using some of the output if the project also produces Triple Superphosphate, UDC has re-started its search fox an equity partner for this project. The African Development Bank (ADB) has agreed to assist in funding the project and finding an equity partner. The changed product-mix is claimed to result in an ERR of 16.8Z. This, however, requires further assessment as in the Bank's views there are doubts on the merits of the envisaged change in scope. C. Contracting, Use and Performance of Consultancs 3.07 The Study was conducted satisfactorily by an international engineering firm under the oversight of a technical advisory firm, both of which were selected following World Bank Guidelines. During appraisal and Credit negotiations, terms of reference (TORs) for the engineering firm and the technical advisor (section 2.02 (a) and (b) of the Project Agreement) were agreed upon by the Government and Association. TICAF invited seven internationally recognized firms to present proposals, of which five responded by the due date, January 5, 1982. Out of the five firms, Bearden & Potter (U.S.) was selected as the engineering consultant for the Project. SEMA (France) was selected as the technical advisor to TICAF. After consultation with Association, the corresponding contracts were both signed in March 1982. 3.08 The engineering consultant carried out the Study satisfactorily. The conclusions of Phase I of the Study were reviewed jointly by TICAF, the Technical advisor and the Association in January 1983. The review meeting concluded that the results of Phase I warranted the continuation of further studies and tests considered in Phase II, and that a particular emphasis should be given to marketing, transportation, water supply and financial aspects of the full-scale development project. Further, it was recommended  -6- that given the financial veakness of Government, it would be very important for potential sources of risk capital to be sought early in the process. IZC participated in the review of the studies and the Government, assisted by the engineering consultant, contacted potential investors. As mentioned in para. 3.03, no potential investor showed any firm comitment. 3.09 The work of the engineering consultant and the technical advisor was adequate. Throughout Project Implementation, the Project Unit, in collaboration with the Association, monitored and supervised their work effectively. D. Project Implementation Schedule 3.10 The Project was implemented closely following the schedule as anticipated at appraisal. Phase I of the Study was completed in October 1982 on schedule, and Phase II was com leted in October 1984, one month behind schedule. Final report of the Study was presented to the Government in January 1985. E. Project Cost and Financing 3.11 Total cost of the Project was kept within the appraisal estimate. The entire amount of foreign currency requirement of SDR 3.43 million was covered by the Credit. 3.12 Disbursement of the Credit was carried out against the following categories: Credit Disbursements (in SDRs) Appraisal Category Estimates Actual Advances through PPF 620,000 540,885 Consultant Services for Phase I of the Project (in addition to payments made through the PPF) 946,000 630,077 Consultant Services for Phase II of the Project 1,894,000 2,247,368 Operating Costs for the Project Unit 40,000 11,992 Total Costs 3,500,000 3,430,322 F. Future Action 3.13 Engineering loans and credits such as this Project are aimed at firming up the technical and economic feasibility of a project at an early stage of its preparation. The role of these loans/credits is extremely important, especially in less-developed countries with a shortage of professional skills to supervise and monitor the quality and responsiveness of  -7- such specialized studies. In the case of this Project, the Study concluded that the Project was feasible, and recoamended app;.opriate configuration of the processing facilities. However, the country's political and other conditions and the continued depressed international phosphate market, posed significant difficulties in the follow-up of reca endations made in the Study, particularly regarding the implementation of a full-scale phosphate fertilizer project in Uganda. Foreign investors experienced in the technical and marketing aspects of the fertilizer industry have not shown any willingness to rake commitAments because of the above-mentioned market and political situations as well as the over-riding dependence on one country's import market for project viability. Considering the country's political and financial situation, it is anticipated that the Government will not be able to carry out such a full-scale project in the near futuro. The follow-up project might have to wait for quite some time until those constraints disappear. Meanwhile, the Government needs to closely monitor the domestic and international market conditions. When the situation improves, the Government, possibly with Association assistance, needs as a first step to revive its contacts with potential foreign investors and financiers. The UDC has begun to revive the project as indicated in their letter of April 18, 1989 (Annex A). IV. ASSOCIATION ROLE 4.01 The Association considered that the exploitation of the Sukulu Hills phosphate deposits was an important element of the country's rehabilitation drive given the shortage of foreign exchange to purchase essential imports. TICAP, which had operated for a decade with marginal efficiency, needed external support to establish a basis for sound evaluation of investment opportunities. Therefore, the Association responded positively to the Government's request for assistance in carrying out the detailed engineering and economic studies, thus providing required funds to finance its execution under the Project. The Association helped TICAF to define the scope of the Study, and monitored its progress periodically. During the five Association supervision missions, Association staff provided necessary advice to the Project Unit on the implementation of the Project. In addition, the Association contracted prospective investors and arranged the Government's correspondence with them. V. LESSONS LEARNED 5.01 One important lesson learned from the Project was that the preparation of well-designed TORs and continuous monitoring of consultants' work are the key to the success of engineering projects. The structuring of the Project with an engineering firm, supervised by Government with assistance of another consulting firm, while expensive, was justified. Despite political instability and administrative inefficiencies which prevailed in the country during project implementation, the Project was executed well largely due to the well-conceived TORs covering most of the critical issues and appropriate institutional arrangements proposed by the Association for close monitoring of  the work. The Project also benefited from periodic supervision by the Association at different stages of the consultant's work. The Study put forth comprehensive recommendations on almost all the important aspects of the full- scale development of the Sukulu Hills deposits, confirming the need for careful consideration of plausible options to be investigated in such studies. The Study has been one of the most comprehensive and mll-executed feasibility studies carried out recently in sub-Saharan Africa; considering the size of future investment requirements in implementing such a development project, the Study war a critical step in avoiding possible waste of resources; in fact, aggressive sales promotion by foreign suppliers of equipment and services could have led to improper planning and development for the Sukulu deposits. 5.02 The other lesson was that stronger emphasis on the identification of possible sponsors and cofinanciers should have been put at an earlier stage of the Study if it was expected that their participation was indispensable. In fact, the commercial and economic viability of a project alone is not sufficient to attract foreign investors in politically unstable countries. Foreign investors generally want to be assured of guaranteed profits and recovery of initial investment in such countries. Uganda needs to improve its political and economic stability to attract potential investors to participate in long-term ventures such as that sponsored by TICAF. When it is time to take up this Project it will be critical to seek a technical and financial collaboration as a first step to project implementation. The collaborator would recheck the economic viability and also ensure that the marketing linkages established are firm enough to ensure its long term success. Another lesson learned is for the Bank to determine the degree to which it ought to support studies of capital intensive projects that, even if viable, are unlikely to be financeable without the participation of local and foreign partners. In retrospect, such determination should have been made as soon as the investment project seemed viable--i.e. at the end of Phase I.  PROJECT COMPLETION REPORT UGANDA PHOSPHATE ENGINEERING PROJECT CREDIT 1228-UG) I. INTRODUCTION 1.01 Uganda's per capita GDP fell by about 182 between 1972 and 1978 mainly due to political instability and the lack of appropriate economic policies. Modern sectovs, such as cash crops, nditng, manufacturing and construction were hardest hit. Uganda's manufacturing sector, which accounted fur 5.9Z of the country's GDP in 1978, w&. dominated by small-scale enterprises and cottage industries mostly processing consumer goods based on imported intermediate products. Uganda's mining sector produced mainly copper, mica, limestone and phosphates, a major portion of which was exported. It also provided a basis for a small-scale manufacturing of industrial goods based on local raw materials. The Tororo Industrial Chemicals and Fertilizers Ltd. (TICAF) was formed in 1962, as a subsidiary of the Uganda Development Corp. (UDC), to exploit the Sukulu Hills phosphate deposits, and to establish the basis for manufacturing phosphate fertilizers locally. TICAF set up a single superphosphate (SSP) plant with a capacity of 25,000 tons per year (tpy) in 1964 based on the utilization of local phosphate rock; sulfuric acid was produced at a 10,000 tpy plant located at the same site, using about 3,600 tpy of sulfur imported from Kenya and transported by rail. The SSP plant operated well for about ten years but had to be closed in 1977 due to shortages of imported sulphur, chemicals, catalysts and spares, and the departure of skilled technical manpower. At the time of the IDA reconnaissance mission, the conditions of the plant, irremediably affected by severe corrosion and long disuse, were beyond any possible prospects of rehabilitation. Against this background, the Project was aimed at initiating a study to assess the technical commercial and economic feasibility of reviving TICAF operation through expanded full-scale exploitation of the Sukulu Hills phosphate deposits and installation of a new plant at the same site. The Study was considered an essential step for the full exploitation of the deposits, particularly in view of the urgent need for foreign participation. The Government expected the Study to help attract foreign firms with global interest to participate in the financing of a full-scale project as well as in its management afterwards. II. THE PROJECT A. Project Origin, Preparation, Appraisal and Credit Effectiveness 2.01 During a reconnaissance mission of the Bank's Industry Department in February 1980, the Government informed the mission of its high priority for the development of a modern phosphate industry, and requested the Association assistance in carrying out detailed feasibility studies and preparatory work  -2- that could lead to commercially and economically viable exploitation of the Sukulu Hills phosphate deposits. Detailed terms of reference (TOR) for the Study were discussed during the Association appraisal missions to Uganda, rerpectively, in June and in August 1981. The TORs were agreed upon during Credit negotiations in November 1981. 2,02 A Credit of SDR 3.5 million (US$4.0 million equivalent) was approved by the Board on March 17, 1982 under standard terms. The Credit proceeds were passed on to the Tororo Industrial Chemicals and Fertilizers Ltd. (TICAF) in the form of equity. The Credit and Project Agreements were signed, respectively, with the Government and TICAF on June 14, 1982, and the Credit became effective on September 14, 1982. B. Project Obiectives and Scope 2.03 The Project objectives were to: (i) assess the technical, commercial and economic viability of exploiting the Sukulu Hills phosphate deposits; (ii) compile data required for the preparation of a full-scale project, that would help potential foreign partners and credit sources understand better the merits of investment in such a project; and (iii) prepare a comprehensive full-scale mine and production development plan, including basic engineering design of the facilities required, machinery and equipment lists, manning requirements, possible marketing arrangements and detailed cost and benefit analyses. Within the scope of the Study, the possibility of reducing SSP production costs by using the cobaltiferous pyrite byproducts of copper mining at Kilembe as the raw material for sulfuric acid was also analyzed. The potential rehabilitation of the Kilembe mines was reviewed separately under an EIB-financed engineering project. 2.04 The Project was carried out in two phases. Phase I of the Project covered analyses on: (a) markets and marketing of various potential phosphate products in Uganda and the African region; (b) availability of phosphate raw materials and optimal mining method; (c) the feasibility of utilizing the pyrites stored at Kasese as domestic sources of sulfur as compared with the option of using imported sulfur; and (d) transportation and distribution of inputs and outputs. 2.05 Phase II of the Project, which was approved by the Government in consultation with the Bank after the completion of Phase I, was carried out to investigate options for marketing products and to prove the specifics of a potentially economically exploitable phosphate deposit in terms of quality. quantity and continuity. The detailed scope of Phase II included the following:  -3- (a) Design of appropriate pnosphate mining methods and facilities, including trial mining operations and preliminary design and engineering work; (b) Laboratory and pilot testing of phosphate beneficiation and processing to determine the optimal beneficiation procc ss; (c) Analysis of status of utilities and infrastructure and of the environmental impact of a potential full-scale fertilizer project; (d) Definition of the project implementation arrangements and schedule, including recommendations on training programs; (e) Analysis of capital and operating costs; (f) Evaluation of the financial and economic viability of a full-scale development project; and (g) Preliminary exploration of equity financing and legal aspects related to concession agreements, mining regu'lations, and incentives necessary to attract potential partners. III. PROJECT IMPLEMENTATION AND MANAGEMENT A. Achievement of Project Objletives I 3.01 Phase I of the Study, completed in December 1982, suggested encouraging findings that warranted further investigation of critical issues in Phase II. On February 16, 1983, the Government requested Association approval for the implementation of Phase II of the Study, and that request was approved subsequently. The final report of the Study was presented to the Government in November 1984. 3.02 The Study concluded that the Sukulu Hill deposits, the largest one in East Africa, with reserves estimated at about 230 million tons of residual soil with an average grade of 11-12Z P205, are easily mineable--as confirmed by a successful trial mining test executed under the Study; and furthermore, that on-site beneficiation of the rock could upgrade the P205 content up to 40-44Z, a level among the highest in the world. In order to select the optimal plant configuration, the Study considered 29 different scenarios, from the simplest ones (ground rock, partially acidulated rock, single superphosphate) to the most complex (triple superphosphate, mono-ammonium phosphate, di-ammonium phosphate), at different levels of plant capacity and under different assumptions of sulfuric acid availability. A plant with a capacity of 217 i000 tpy of SSP based on local sulfuric acid production from imported sulfur was recommended as part of the optimum project configuration. 1 The EIB-financed studies of the Kilembe cobalitferous pyrite deposits did not endorse the long-term utilization of the pyrites as a substitute for imported sulfur.  The Project was directed to satisfy regional demand--Uganda, Kenya and Tanzania--while its impact on the international markets was considered negligible, given the land-locked location or the Project and the relatively low grade content of the proposed product (SSP, 23? P205 which would increase the delivered cost of phosphorous nutrient. The capital cost of the full- scale project, including working capital but excluding interest during construction, was estimated at US$65.1 million in 1984 prices. Based on future prices of phosphate fertilizers projected by the Bank's Commodities Division, the economic rate of return of the proposed full-scale project was estimated at 14.5X. Reviewing the project assumptions under today's conditions shows that international prices of TSP and SSP have not changed significantly between 1984 and 1988, and there are now indications that they are moving up, while prices of sulfur (the main imported raw material of the Project) has gone down by 302 between 1984 and 1988. The investment cost may have increased by 10?, while local costs have not in real terms. Overall, the ERR of the Project under current conditions is still in the range of 14z. 3.03 After the completion of the Study, with Association assistance, the Government explored participation of potential investors in the full-scale development project. Foreign firms contacted by the Government included AGRICO (U.S.), the Islamic Development Bank, BADEA, the ENI Group (Italy). Kenyan agricultural associations were also contacted as the Study indicated that a major target market for future TICAF Production was tha. western region of Kenya. However, formal negotiations were not carried out nor were commitments made. 3.04 The stated objectives of the Project were met sAtisfactorily. The Study confirmed that exploiting the phosphate deposit of the Sukulu Hills could be technically, commercially and economically feasible, and recommended that the optimum configuration of a full-scale project would consist of the mining and beneficiation facilities to process about 1.2 million tons per year (tpy) of phosphate rock, and a downstream plant with a capacity of 217,000 tpy of SSP (or 50,000 tpy P205). Political instability and the continued depressed market situation for phosphate fertilizers, however, prevented the Government from reaching trade arrangements and/or entering partnership with potential importers of the product in the region or from making necessary financing arrangements with foreign financing sources for a full-scale development project. 3.05 The market forecast showed that 70Z of the plant output could be utilized in Kenya, another 20? in Tanzania and the rest in Uganda. Kenya's import demand in terms of P205 would come to 31,000 tons, as compared to their current consumption of 40,000 to 45,000 tons. For the proposed Project to sell 31,000 tons per year of SSP to Kenya, it would have to replace with its SSP the current Kenyan imports of SSP and TSP, as also 50Z of P205 imported by Kenya as MAP, DAP and NPK fertilizers. This could be difficult due to the excess fertilizer stocks and capacities around the world. International prices, although they have improved significantly in the last few months, are still low and 'tatural protection" for the plant zould be limited. In addition the tapping of the domestic demand of Uganda would require appropriate policies in the agricultural sector to provide incentives for increased use of fertilizers. Thus, it will take time to develop to the  9 g ANEX A Page 1 of 2 UGANDA DEVELOPMENT CORPORATION LIMITED TELEGRAMS: UGADEV P 0 Box 7042 TELEX NO. 6100 UGAOSV TEL.EPHONE: KAMPALA KAMPALA 23436116 UGANDA DEV/K 6 18th April, 1989 Alexander NoDwicki, Division Chief, Policy-Based Lending, Industry, Public Utilities, & Urban Sectors Operations Evaluation Department, World Bank, 1818 H Street N.W. Washington D.C. 20633, USA. Dear Sir, UGANDA PHOSPHATE ENGINEERING PROJECT (CREDIT 1228-6) PROJECT COMPLETION REPORT We are in receipt of your letter dated April 4, 1989 and the Project Completion Report dated November 30, 1988 on the above Project. We do concur with most of your deductions but would like to make some observations: You do emphasize that the project has been delayed because of political instability, current phosphate market condilions and inability of Uganda to raise the required funds. Stability has improved tremendously in the country with a result that most industries are now reviving pretty fast. At the time of carrying out the study the collaborative and cooperative arrangements within the P.T.A. for Eastern and Southern Africa had not been drawn out. Fertilizer Policy and development has since been mapped out. Bilateral negotiation between Uganda, Kenya and Tanzania took place in Nairobi in May 1987 under the auspices of P.T.A. Secretariat. At that meeting it was agreed that the project should be implemented but with strong emphasis on inclusion of Triple Super Phosphate in the product-mix. We are glad to advise that Government of Uganda/UDC commissioned the original consultants Beaden Potter Corporation to carry out the relevant exercise to update the ,tudy and include the possibility of manufacturing TSP. The final report has been received. We are sending a copy of the report to Mr. H. E. Wackman, Industry Division, World Bank. The study indicates that TSP is a better project to undertake with an Economic Rate of Return of 16.8%. I [~~~~~~~~~~~~~~. /12  ANNEX A - 10 - Page 2 of 2 l Negotiations for funding and identification of a technical/management equity partner had not progressed due to bureaucratic procedures. The Government has however officially requested African Development Bank (ADB) to take the leading role in putting together the funds and idenltifying an equity partner. The ADS has accepted the role. It is hopetd therefore that the project may move faster. One of the major issues was to update the report and also have a product-mix acceptable to the market which has now been addressed. In sumary the current status is as follows: (a) Up-dated report Vol VII dated March 1989 is now available. (b) PTA bilateral negotiations between Kenya, Uganda and Tanzania now provide a wider market. (c) ADB has accepted the leading role of co-financing the project and to identify an equity partner. (d) We are gratified to note that the World Bank is still ready to render assistance if necessary. (e) We do not know what is your cut- off point in your project completion report but we consider the up-dated information to be part of the project completion report as in any case they should have been accomplished concurrently. Yours f uly, UGAND CORPOTI kulya ~ v