China - Phosphate Development Project

 Phosphate development project Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Fertilizer & Other Chemicals; Major Sector: Industry; ProjectID: P003456 The Implementation Completion Report (ICR) for China Phosphate Development Project (Loan 2958-CHA approved in FY89 and closed in FY96 with two years of delay) was prepared by the East Asia and Pacific Regional Office, with Annexes 2 and 3 contributed by the Borrower. The Bank loan amounted to US$62.7 million of which US$4.46 was cancelled. The project was the third in a series of four projects that were designed to address the problems facing the Chinese fertilizer industry. The Government’s strategy for the development of the subsector called for: (i) increasing production efficiency and competitiveness of existing fertilizer plants, through technical upgrading, energy saving, renovation and product quality improvement; (ii) increasing high grade fertilizer production by rationalizing the existing low grade fertilizer facilities and building new capacity; (iii) reducing the nutrient imbalance by the rapid expansion of producing capacity of phosphatic fertilizers based on locally available phosphate rock, while developing domestic potash resources; and (iv) raising efficiency of operation through improvement in operational and financial management. The main project objective was to help the Government to achieve the third and fourth strategic objectives above. The project had two components: (a) the development of an open pit mine at Wengfu in Guizhou Province for the annual production of 2.5 million tons of phosphate rock, a beneficiation plant with an annual capacity of 1.8 million tons to produce phosphate concentrates and a slurry pipeline to transport the phosphate slurry to the Wengfu Triple Super Phosphate (TSP) producing unit and the railway stockyard, some 45 kilometers away from the mine; and (b) the technical assistance for project management and mine workshop maintenance as well as extending the scope of an existing computer-based sector investment optimization model to strengthen the Ministry of Chemical Industries’ (MCI) subsector planning ability. The main project objectives were achieved, although with considerable delays. Because of late government approval of the project design, mobilization of local funds and procurement problems, development of the Wengfu mine was delayed by nearly 18 months. The project was completed at a cost of about 10 percent above the estimate at appraisal. The performance test of the mine equipment, the beneficiation plant and the slurry pipeline were completed in 1995 and the project entered commercial production in April 1996, but it cannot reach full capacity utilization because the TSP plant is behind schedule and slated for completion for the end of 1997. As a result, the Wengfu Mining and Fertilizer Development Group (WMFDG) is selling some quantities of phosphate concentrate to other fertilizer companies, while awaiting the completion of the TSP unit and the railway line. The ICR calculates the ex-post ERR and FRR at 13.9 percent and 10.2 percent respectively (compared with 26 percent and 12.4 percent at appraisal). The FRR could be further reduced if the somewhat optimistic production assumptions do not materialize. Moreover, the company is facing some financial strains and is in need of financial restructuring. The institutional objective of the project was also realized. The technical assistance aimed at improving project management and maintenance was completed satisfactorily. The technical assistance for strengthening MCI’s subsector planning was less successful mainly because of the incompatibility between the hardware and the software in the data processing system. The ICR rates the outcome as satisfactory, institutional development impact as substantial, sustainability as likely and Bank performance as marginally satisfactory. OED agrees with the ratings for outcome, institutional development impact and Bank performance, but rates sustainability as uncertain, given the serious financial problems facing the mine operation.  A major lesson of this project is the need to coordinate the completion of associated projects under the control of other entities. The ICR is of satisfactory quality, but it could have contained more up to date information regarding the mine’s production performance because a year has elapsed since the ICR Aide Memoire was prepared in February 1996. An Audit is planned.