Romania - Cimpulung Muscel Polyester Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-2092-RO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INVESTMENT BANK OF ROMANIA WITH THE GUARANTEE OF THE SOCIALIST REPUBLIC OF ROMANIA FOR THE CIMPULUNG MUSCEL POLYESTER PROJECT May 24, 1977 This document has a restricted distribution and may be used by recipients only in the performance of I their offielal duties. Its contents may not otherwise be disclosed without World Bank authorintion.  CURRENCY EQUIVALENTS 1. Official.Rate Lei 4.97 = US$1.00 Leu 1.00 = US$0.20 2. Tourist Rate Lei 12.00 = US$l.OO Leu 1.00 = US$0.08 3. Conversion Rate for TTaded Goods Lei 20.00 = US$1.00 Leu 1.00 = US$0.05 FISCAL YEAR January 1 - December 31 GLOSSARY-OF ABBREVIATIONS COFACE - Compagnie-Frangaise d'Assurance pour le Commerce ExtErieur ECOD - Export Credit Guarantee Department SEPMES - Hermes Kreditversicherings-Aktiengesellschaft ZITPIC - Technological Engineering and Design Institute for the Chemical Industry ROMCHIM - Import Agency for Chemical Equipment and Technology under the Ministry of Chemical Industry tpy - Tons per year  FOR OFFICIAL USE ONLY ROMANIA CIMPULUNG MUSCEL POLYESTER PROJECT Loan and Project Summary Borrower: Investment Bank of Romania Guarantor: Socialist Republic of Romania Beneficiary: Cimpulung-Muscel Synthetic Fiber Enterprise Amount: US$50 million, in various currencies Terms: Amortization in 15 years, including 3 years of grace, at an interest rate of 8.2 percent per annum. Project The project consists of the construction of facilities for Description: a new polyester plant in Cimpulung-Muscel (district of Arges) for the production of 31,500 tons per year (tpy) of polyester staple, tow and tops and 15,200 tpy of poly- ester chips. It includes: (a) polymerization, spinning and drawing sections to produce 31,500 tpy of polyester staple fiber in the form of cotton-type, wool-type or flax-type tow or staple; (b) facilities to produce 15,200 tpy of polyester chips which will be processed further in other Romanian plants; (c) facilities to convert 5,000 tpy of wool-type tow to tops; (d) infrastructure and related installations for power and steam generation; raw material and product transportation, handling and storage; recovery and recycling of raw materials and by-product methyl alcohol; as well as extensive maintenance and laboratory facilities. This document has a restricted distribution and may be used by recipients only in the performance of their officil duties. Its contents may not otherwise be disclosed without World Bank authorization.  Cost Estimates: Estimated Cost"- Local Foreign Total Item ----- (US$ million)----- % Equipment, Supplies & Spares 21.1 30.5 51.6 48.7 Freight 2.8 0.3 3.1 2.9 Erection & Supervision 8.4 2.1 10.5 9.9 Licenses & Engineering 1.6 8.7 10.3 9.7 Land & Site Development 1.4 - 1.4 1.3 Civil Works 24.6 1.3 25.9 24.4 Pre-Operating Costs 2.3 - 2.3 2.2 Training 0.7 0.2 0.9 0.9 Base Cost 62.9 43.1 106.0 100.0 Physical Contingencies 7.6 3.4 11.0 10.4 Price Escalation 1.2 3.7 4.9 4.6 Total Installed Cost 71.7 50.2 121.9 115.0 Working Capital 6.8 0.2 7.0 6.6 Total Project Cost 78.5 50.4 128.9 121.6 /1 Discrepancies due to rounding. Financing Plan: US$ Million Local Foreign Total State Funds for: Fixed Assets 71.7 0.2 71.9 Working Capital 6.8 0.2 7.0 IBRD 0.0 50.0 50.0 Total 78.5 50.4 128.9 Estimated Disbursements: Calendar Years 1977 1978 1979 1980 ------(US$ Million)------ Annual 10.0 22.5 13.7 3.8 Cumulative 10.0 32.5 46.2 50.0  Procurement: The major package proposed for Bank financing comprises imported technology, engineering, and key equipment and includes drawings, specifications and foreign technical assistance for items of equipment to be made by Romanian fabricators. This complex package, costing an estimated US$23.6 million and including physical and prices contin- gencies, would be procured through international competi- tive bidding. Price bids were submitted at the end of December 1976, and it is expected that, following evalua- tion of the proposals, a contract for this package will be signed by the end of June 1977. Other equipment and materials estimated to cost about US$24.6 million will also be procured following international competitive bid- ding. Romanian suppliers participating in international competitive bidding would be accorded a margin of preference of 15 percent or applicable customs duty, whichever is lower, and it is expected that Romanian suppliers would win about $10.2 million of contracts for power plant, recovery systems for raw materials and by-products, and other equipment. Imported items costing less than US$100,000 each, and up to a total of $1.8 mil- lion, may be purchased through international shopping on the basis of suitability, availability and price considera- tions, subject to prior approval by the Bank of the list of items involved. Economic Rate of Return: 15.6 percent. Appraisal Report: No. 1436-RO, dated May 24, 1977 Division III Industrial Projects Department EMENA May 24, 1977   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INVESTMENT BANK OF ROMANIA, WITH THE GUARANTEE OF THE SOCIALIST REPUBLIC OF ROMANIA, FOR THE CIMPULUNG-MUSCEL POLYESTER PROJECT 1. I submit the following report and recommendation on a proposed loan to the Investment Bank of Romania, with the guarantee of the Socialist Republic of Romania, for the equivalent of US$50 million, to help finance a polyester project. The loan would have a term of 15 years, including three years of grace, with interest at 8.2 percent per annum. PART I - THE ECONOMY 1/ 2. The latest economic memorandum for Romania (818a-RO) was circulated to the Executive Directors on December 29, 1975, and an agricultural sector survey (953a-RO) was circulated on November 15, 1976. A basic economic mission visited Romania in October/November 1976 and its report is under preparation. Preliminary findings of this mission are incorporated in this report. Country social and economic data are given in Annex I. 3. Since the founding in 1947 of the People's Republic of Romania, which in 1965 was reconstituted as the Socialist Republic of Romania, economic management has been organized along socialist principles which have included state and cooperative ownership of almost all productive resources, and the absence of private enterprise. Economic activity is directed by means of obligatory development planning, coordinated by the central authorities. Productive enterprises operate within the framework of the development plan which defines the scope of their activity, the outlines of their production and investment goals and their targets for operating efficiency. The plan is elaborated within a five-year time frame, each year having a separate Annual Plan. The country began its latest Five-Year Plan in January, 1976. 4. The technical and functional Ministries are the State's chief agents for the administration of economic activity. They are assisted by subordinate units known as Centrals, which coordinate and supervise activities within a common branch or industry without being directly engaged in production. En- terprises subordinate to the Centrals are responsible for production which is controlled through a system of physical production and financial targets. Production enterprises generally are not authorized to engage directly in foreign trade and rely on specialized foreign trade enterprises for this purpose. In agriculture, large State farms and cooperatives are the pre- dominant units of production. 5. Economic development is of paramount concern to the Romanian Gov- ernment. Rapid industrialization is a major objective with priority being 1/ Identical to the corresponding sections of the President's Reports dis- tributed to the Executive Directors on May 16, 1977 for the Brasov Bear- ings Project and on May 23, 1977 for the Bucharest Glass Fiber Project.  - 2 - given to heavy industry including steel, engineering products and chemicals. To achieve their growth objectives, the Romanian authorities have made consid- erable efforts to mobilize domestic resources for development and to maintain a high rate of capital formlation. In the 1971-75 Five-Year Plan, planned and actual investment rates of around 30 percent of GNP were the norm. As a consequence, consumption has been restrained, and the development of the consumer goods industry has been less strongly emphasized than that of heavy industry. In 1975, heavy industry (led by engineering and metal working, chemicals and ferrous metallurgy) accounted for about 61 percent of industrial production. 6. As a result of this strategy, a marked change has been achieved in the strmcture of Romania's economy. Rapid industrial growth, which over the last decade has averaged more than 13 percent per annum, has expanded the share of the labor force employed in industry (including power and construc- tion) from about 14 percent in 1950 to approximately 40 percent in 1975. During the same period, the share of labor force engaged in agriculture has declined from 74 percent to around 38 percent; and while agricultural output almost tripled, its share in GNP amounted to only 15 percent in 1975. 7. Notwithstanding the emphasis on industrialization, more than half of the population (about 57 percent in 1975) still lives in rural areas and agriculture remains a key sector of the economy. Apart from supplying food, industrial inputs and the residual labor increment for industrial growth (which requires an expansion in agricultural productivity), the sector also supplies about one quarter of the nation's convertible foreign exchange earn- ings. These earnings, which are largely used to buy imported inputs for in- dustry, have often been jeopardized as a result of unstable production growth in agriculture. The maintenance of the industrial development program, there- fore, is dependent on the performance of the agricultural sector. 8. Romania's population growth is around one percent per annum. Thus, the impact of rapid economic growth on per capita incomes has been only mar- ginally diluted by the population increase. In the last decade, GNP growth has averaged nine percent per annum, implying a growth of about eight percent per annum of per capita GNP. It is estimated that GNP per capita in 1975 was US$1,300 based upon official national income information and using the World Bank Atlas methodology. 9. The organization of production in both the urban sector and in agri- culture is such that all labor is employed and there is no open unemployment. There is, however, some seasonal labor surplus, mainly in agriculture. Income distribution is also relatively equal. In 1975, average monthly wages were 1,813 lei (over $90 equivalent) up nine percent over the previous year. About 87 percent of all monthly wages in 1975 were within the range of 1,300-2,500 lei. Four percent were under 1,300 lei and about nine percent were above 2,500 lei. Prices for essential consumer goods and services such as basic foodstuffs, rents and urban transport are relatively low and most social services, notably education and health care, are provided without charge. Standards of living, while still modest, have been increasing because of the rapid growth of national income. Romania also pursues an active regional policy which has sought to bring a balanced development of both human and natural resources to all parts of the country.  10. The official exchange rate of lei 4.97 per US$1 is used only for accounting purposes. The rate used for tourist transactions is lei 12 per US$1, having been revalued from a rate of lei 14.38 per US$1 in October 1974. Beginning in July 1973, a trading rate of lei 20 per US$1 has been used to convert the prices of all traded goods; this rate is considered representa- tive of the average cost of convertible foreign exchange. The rate of lei 20 per US$1 has also been used to convert national income statistics from lei to dollars. Consequently, this rate has been used as the base rate for calcula- tion in the appraisal. Recent Developments 11. Since the National Party Conference of 1967, which set the stage for major qualitative advances in Romania's economic and social development, there have been important new emphases in Romania's economic management. Measures were taken to improve the institutional basis of planning (e.g. by creating centrals to assist in plan administration), to increase the effi- ciency of economic management and to improve the quality of products in industry. In agriculture efforts were made to raise productivity and stabilize growth through irrigation, mechanization and the expanded use of chemical fertilizers. To promote the growth of foreign trade and technical-economic cooperation the Government has concluded trade and cooperation agreements with a wide range of countries. In this context, Romania has also made positive efforts to expand its multilateral external relations and to pursue full cooperation with international agencies, in- cluding UN, UNCTAD, UNESCO, FAO, UNIDO, GATT and more recently, the IMF and the Bank. 12. Measures aimed at continued improvement of the management system include a reorganization (involving a reduction from 217 to 95 in number) of industrial centrals and a concentration within the centrals of all plan- ning, control and research functions. The pursuit of purely physical goals in production and trade, while still an important element in the system, is being supplemented by much greater emphasis on production and investment efficiency, product quality, pricing and foreign competitiveness. To eliminate wasteful investment and production expenditures, a Superior Court of Financial Control has been established, among other things, to oversee a new system of financial control. 13. Foreign trade has expanded rapidly in recent years both in volume and in regional diversity. There has also been a tendency to move away from trade on a bilateral basis toward trade involving multilateral payments. During 1971-75, total foreign trade grew at approximately 18 percent per annum in current prices. In 1975, however, after the very rapid growth in the value of trade of 33 percent in 1974, trade grew by only 6.6 percent, with exports increasing by 9.6 percent to US$5.34 billion and imports by 3.9 percent also to US$5.34 billion. This slower increase in 1975 was explained chiefly by the floods of July 1975 which resulted in a smaller exportable surplus of agricultural goods and necessitated cancellation of some imports. About 54 percent of 1975 trade was with the convertible currency area. Over- all current account deficits have generally remained small; in 1975 the deficit was only US$135 million, while the deficit with the convertible currency area was US$260 million. In recent years, imports from eastern  - 4 - European socialist countries have been slightly lower than Romania's exports to that region. In Romania's trade with western industrialised countries, on the other hand, exports have typically been considerably less than imports. These deficits have generally been increased by deficits on the invisibles account with western countries. 14. The structure of Romania's trade with the developed market economies remains essentially unfavorable. Raw materials and agricultural commodities, both of which are subject to unstable price and production conditions, com- prise about 60 percent of total exports to these countries. At the same time imports from these countries are largely of machines and equipment and other manufactures. Because of the present low level of reserves, any instability in export earnings, as frequently arises from shortfalls in agriculture (para- graph 7 above), tends to place the import program in immediate jeopardy. 15. Preliminary results for 1976 indicate that most major targets of the 1976 Annual Plan have been met. National income rose by 10.5 percent, gross industrial production increased by about 11.5 percent, and gross agri- cultural production was a record, exceeding the flood affected 1975 level by 17.2 percent. These achievements were realized despite a lower than planned investment growth rate (8.2 rather than 19.4 percent). The volume of trade increased less than plan targets, but a reported overall trade surplus of US$40 million was attained hecause of measures to economize on imports. In November 1976, Romania's National Assembly approved the country's 1977 Annual Plan and Budget, which calls for continued high rates of growth. National income is expected to rise by 11.3 percent and gross industrial production by 10.5 percent. The Plan provides a range of 1.9-3.6 percent growth for the gross farm output. This wide range is provided because of the uncertain impact climatic conditions might have on production. Investments in the national economy are expected to increase by 16.7 percent and total foreign trade volume by 15.5 percent. Insufficient information is available to assess the full impact of the earthquake in March 1977. The Government has announced that production targets for 1977 will be met and that no revisions of the annual plan will be made. While it is possible that planned production levels will be attained, it is likely that replenishment of the damaged capital stock will take longer and require additional resources and/or diverting of invest- ment resources from new projects. 16. A campaign to increase efficiency in the utilization of existing capacities and to effect significant economies in the consumption of raw materials and intermediate goods is being implemented throughout the economy. Targets have been established to reduce by 30 percent the previously antici- pated construction and erection costs of industrial projects between 1976-80. Substantial, but as yet unspecified, savings have also been prescribed for most other industrial inputs during 1976-80, while the global production targets as set in the Five Year Plan remain unchanged. External Assistance 17. The expansion of Romania's trade with the non-socialist industrial countries has led to an increased need to obtain convertible currencies to  - 5 - pay for imports from those countries. Romania has met this need both by bor- rowing abroad and by mounting a major effort to expand exports and tourism. Gross inflows of convertible currency through medium- and long-term loans were US$946 million in 1976, consisting mostly of financial and suppliers' credits with relatively short repayment periods. This gross inflow repre- sented a net inflow of some $312 million after accounting for the country's repayment obligations. 18. As part of its effort to expand its foreign trade and cooperation relationships, Romania has also taken active steps to attract long-term pri- vate capital. A regulation passed in 1972 defines the conditions under which foreign firms can establish joint ventures with domestic enterprises, prefer- ably in foreign exchange earning or saving industries. As of January 1977, seven joint venture agreements had been signed. In contrast with the first six which were of a small scale involving total direct foreign investment of about US$10-15 million, the seventh agreement which was signed a few months ago with Citroen, involved a contract of FF 2.5 billion (about US$500 million) of which 49 percent is direct foreign investment. Romania also receives medium-term trade credits from U.S. Eximbank and trades under ECGD, COFACE, and HERMES credit guarantees with the United Kingdom, France and the Federal Republic of Germany, respectively. Romania succeeded in securing a US$60 million, eight-year loan from Kuwait as part of a general cooperation agree- ment and more recently a $50 million Eurodollar loan. In addition, Romania has access to non-convertible currency investment credits from the Interna- tional Investment Bank, Moscow. 19. As it stands Romania's access to long-term finance in convertible currencies is still very restricted. The IBRD is the only major source of such long-term development finance, though Romania is making efforts to improve its access to the major financial markets. The Bank's presence on a significant scale would have a positive influence in this regard and might serve a. a catalyst for involving other lenders in Romania. This could serve both to increase the total amount of Bank-sponsored funds available to Romania and to build outside confidence in the country, thereby enhancing in the long-term its independent access to the world's financial markets. Prospects 20. The 1976-80 Five-Year Plan reflects Romania's continued strategy of rapid growth. Investment rates of some 30 percent of GNP are to be main- tained, and the major thrust is in industry. The plan targets are impressive. National income is expected to grow at 10-11 percent per annum and gross in- dustrial output by 10.2-11.2 percent per annum, with more rapid growth in heavy industry than in consumer goods. Continued emphasis is to be placed on foreign trade which is expected to double in real terms, with the aim of securing a continued transfer of technology needed for the modernization and diversification of Romanian industry and the raw materials required by indus- try. Greater emphasis than in the 1971-75 Plan is to be given to developing the infrastructure in agriculture, particularly with regard to irrigation and drainage and the plans for fertilizer production envisage an increase in supply sufficient to double the 1974 application rates by 1980.  - 6 - 21. Romania has good potential for further economic growth. Endowed with importan. natural resources (fuels, some minerals, timber, rich soils and source.s Ltrigation water for agriculture, and a favorable climate for agriculture atid tourism) and located conveniently with respect to its major international markets in the East and West, the country has built a broad industrial infrastructure (power, metallurgy, chemicals) which will serve as a base for the expansion of secondary manufacturing sectors such as machine building and consumer durables. Above all, Romania has a hard-working and increasingly skilled population. In order for Romania to attain its growth objectives, however, it will have to rely on a major expansion of exports of manufactured goods in order to finance modern foreign technology and an increasing dependence on imported raw materials and fuel. 22. Economic growth and structural change call for the introduction of new technologies, improvements in the quality of products, more efficient use of materials and factor inputs, and reductions in production costs. The in- creasing diversity and complexity of Romania's economic stru,cture require continuing improvements in the efficiency of economic planning and coordina- tion and further refinements in economic management. To keep up with these changes and requirements, large programs of education and manpower training have been mounted, investments in scientific and technological research have been emphasized, and efforts are being made to strengthen technical coopera- tion with industrialized countries and international organizations. Creditworthiness 23. As of December 1976, Romania's total medium and long-term external debt amounted to US$3,095 million. Most of these debts (US$3,023 million) were denominated in convertible cuirzencies, the major creditor countries being Germany, France, UK and Italy. While the total debt does not appear excessive in relation to the volume and growth of external trade, average- miaturities are relatively short and convertible debt service payments are estiliated to be in the order of US$550 million a year during 1975-76. The convertible debt service ratio was approximately 14 percent in 1D,i5. The correspondi,g figure for 1976 is estimated to havc been 19 percent and is expect lcd to be 18 per(:fntt for 1977. 24. The organization of eco,i,n,i.c acLivity in Romania, the pursuit nf a development strategy involving I,igh investment and saving rates, and rapid income growth ensure the effective use of foreign credits. Moreover, the country's major efforts to expand exports (particularly to convertible cur- rency areas) are increasing the foreign exchange available for debt service. Convertible export earnings rose from US$830 million in 1971 to US$2,839 million in 1975, and are estimated to have been about US$3,250 million in 1976. The preferential trade status accorded to Rumania ;y the European Communities in June 1973 is facilitating the expansion oi such exports as is the g, ting of most favored nation status by the U.S. In 1973, the GoverLi- ment also restricted the use of short-term credit facilities from western suppliers in an effort to improve the structure of the country's external debt. Assuming a continu;liion of present export and debt management policies, we estimate that the debt service ritie- w-ill remain around 20 percent during  - 7 - the 4-;.ementation of the Five-Year Plan 1976-80 and decline thereafter to about i, percent by 1985. The country's present outward-looking posture, the success of both its domestic growth and foreign trade policies, and its potential for continued development, all support the judgment that Romania is creditworthy for substantial Bank lending. 25. When Romania joined the Bank, most pre-war foreign debts of the country had been settled. Settlements which were still under discussion at that time concerned claims in the United Kingdom and in the United States. With regard to the settlement of these claims, the final payments of U.S. claims began in September 1975 and were completed in October 1976 based upon agreements reached in May 1975. Settlement of British claims proved more difficult, but a final agreement was signed in January 1976. The Bank has also been informed recently of certain Swedish claims concerning public loans from the pre-war period, nationalized Swedish property and other interests such as concessions granted to Swedish companies before the Second World War. The eleventh and most recent meeting to discuss these claims was held in Bucharest in October 1976. The Romanian and Swedish authorities have also dealt with this matter in April 1977 in the context of more general dis- cussions of bilateral trade, and further discussions are planned at a date to be established through diplomatic channels. PART II - BANK GROUP OPERATIONS IN ROMANIA 1/ 26. The proposed loan, would bring total Bank commitments to Romania to US$626.3 million. 2/ Disbursements under the Bank's initial loans were slow during 1975, but this situation improved considerably during 1976. Annex II contains a summary statement of Bank loans to Romania and notes on the execu- tion of ongoing projects as of April 30, 1977. 27. Foreign exchange, especially in convertible currencies, continues to be a major constraint and one of the major objectives of Bank lending con- tinues to be to help alleviate the country's shortage of foreign exchange by providing long-term external capital and by financing projects which will expand foreign exchange earnings or savings. Bank lending also aims at sup- porting the Government's efforts to introduce new industrial technologies, to improve the quality of products and production efficiency, to reduce produc- tion costs and to provide for necessary electric power development. Market aspects and marketing, especially for export goods, are also emphasized. Special attention is given to agriculture which is heavily dependent upon favorable weather and where productivity levels are still comparatively low. 1/ Substantially the same as the corresponding section of the President's Reports distributed to the Executive Directors on May 16, 1977 for the Brasov Bearings Project and on May 23, 1977 for the Bucharest Glass Fiber Project. 2/ Assuming approval of the proposed loans of $38 million for the Brasov Bearings Project and $18.3 million for the Bucharest Glass Fiber Project.  -8- 28. A number of projects are under consideration for future lending. Negotiations have begun recently for a pork production and processing project which is expected to provide the basis for a loan proposal during 1977. In addition, projects for further irrigation works, poultry production, dairy cattle development, chemical and tire plants, and seamless pipes have been proposed, and further power projects will also be considered in context of a sector investment study currently being prepared by the Government. 29. In addition to lending, the Bank (through EDI) has assisted Romania by conducting industrial and transportation project appraisal training courses for Romanian officials in Belgrade in October 1973 and in Bucharest in January/ February 1975, November/December 1975, January/February and October/November 1976. Additional courses, including one in agricultural project appraisal, are planned. 30. The projects, for which assistance has been committed or is being considered, represent only a small portion of Romania's total need for ex- ternal financing and of its total disbursed convertible debt. However, they provide a substantial net addition to the inflow of convertible currency finance, and may set a pattern for obtaining longer term convertible finance from other sources. The disbursed IBRD debt outstanding to the Bank is expected to constitute about 12 percent of Romania's total projected con- vertible currency debt in 1980; the Bank's share in Romania's debt service payments in 1980 would be about 3 percent. PART III - THE INDUSTRIAL SECTOR IN ROMANIA Industrial Development 1/ 31. Performance of Romania's industrial sector during the last 25 years has been impressive, and great efforts have been made to transform a nation that once specialized in the exportation of raw materials into a country with a strong and broad based industrial sector. Large capital investments, at annual rates in the order of 30 percent of GNP have been concentrated on basic and heavy industry, particularly on fuel, electric power, metallurgy, machine building and chemicals and have resulted in a rapid expansion and diversifica- tion of industrial output. During the last Five Year Plan gross industrial output increased by about 85 percent surpassing significantly plan targets. Growth in the chemical, engineering and metal working, and ferrous metallurgy sectors has been the fastest with production about doubling. 32. In the process of this impressive development the industrial sector of Romania has assimilated in a relatively short period of time vast amounts 1/ Identical to the corresponding sections of the President's Reports dis- tributed to the Executive Directors on May 16, 1977 for the Brasov Bear- ings Project and on May 23, 1977 for the Bucharest Glass Fiber Project.  - 9 - of technology and know-how, and it is assuming a sophistication with which it is increasingly capable of solving complex techaica'l problems and producing products that require a high degree of technological achievement. One of the comparative advantages of Romanian industry is its relatively low-cost, skilled and unskilled man-power, supported by well organized training programs. 33. Industrialization will remain the first priority of development both in the 1976-80 Five Year Plan and in the longer run with output expected to grow seven fold in the period 1970-1990 (or roughly 10 percent per annum). While previous growth was often achieved at sacrifice of quality, efforts for quality and productivity improvement are more evident now. Internally, the areas of major emphasis will be manpower planning and development, growth in technological capabilities, industrial modernization, and central efficiency auditing. By applying the most advanced scientific methods and by stressing scientific organization of manpower, substantially more value will be incor- porated per ton of product. The thrust of the sector's development will continue to be the growth of the chemical, engineering, metal working and ferrous metallurgy sectors. Industrial Organization 34. At present nine industrial ministries are responsible for the indus- trial sector in Romania. Subordinate to each Ministry are several foreign trade enterprises, research and design institutes and a number of Centrals, which in turn direct the activities of a group of related enterprises. The work on overall design and supervision of projects is delegated by each Min- istry to one of its research and design institutes. The enterprises, Centrals and Design Institutes, which have not been authorized to trade abroad (see also para 4 above) conduct their foreign business through the foreign trade enterprises which normally belong to the same Ministry. The Chemical Industry 35. Petrochemicals have provided the basis for development of the chemical industry in Romania. While Romania is no longer a significant ex- porter of simple petroleum products, it has established a flourishing petro- chemical industry based upon domestic oil and natural gas resources, and has a highly trained workforce on which to base further development of the sector. Beginning from a relatively small base in 1950, the chemical industry has grown at an average rate of 21 percent per annum from 1950-75. Growth rates in the past decade have also been substantial, at about 21 percent for 1965-70 and 16 percent for 1971-75, with the decline in growth rate reflecting increas- ing absolute size of the industry and delays in commissioning new plant. In 1975, the chemical industry accounted for 11.3 percent of industrial output (compared with 2.1 percent in 1950) and 10.8 percent of industrial exports (compared with 1.7 percent in 1950). The sector received 14.7 percent of industrial sector investments during the 1971-75 Five-Year Plan period. 36. Production of synthetic fibers in Romania began with nylon in 1960, and was extended to include acrylics during the 1960-65 Five-Year Plan and polyester during the 1966-70 Plan. Textile fiber production and consumption  - 10 - have grown very rapidly--at average annual rates of 18.4 percent and 9.4 per- cent respectively in the last ten years--but the net deficit of fibers has still been increasing and now amounts to more than 100,000 tons per year (virtually all due to imported cotton). Production and consumption growth of synthetic fibers during the same period has been more impressive, amounting to about 40 percent and 27 percent per year respectively. From 1975 through 1985 fiber consumption is projected to grow at a slower pace, with annual rates of 7.1 percent for all yarn and 12 percent for synthetics. Production through 1980 is forecast to increase slightly faster than consumption, so that the textile fiber deficit would drop to about 90,000 tons. If no new plants were to be built after those now projected, substantial fiber imports would be again required, by 1985. However, the Government is expected to initiate new synthetic projects in the early 1980's with the objective of maintaining an export position in synthetic fibers and thereby reducing the net fiber deficit further. 37. Chemical industry facilities are largely concentrated in the center and the south of the country, where large refinery and petrochemical complexes have been developed around the Ploiesti and Pitesti oil fields to produce a broad range of refinery products, petrochemical intermediates and end-products. The Government is making an effort to locate new plants for production of end products, such as fertilizers or synthetics, away from these traditional industrial centers, partly to promote a more balanced regional growth and to avoid industrial congestion, and partly to take advantage of the availability of labor and accommodations. The Borrower 38. The borrower for the proposed loan would be the Investment Bank, which is the specialized agency, under the Ministry of Finance, for invest- ment projects in all sectors of the economy except agriculture (including water resources) and food processing. It has a large technical and economic staff with branch offices in all districts of the country. The Investment Bank's involvement in investment projects commences in the preparation phase of a project; its staff appraises all major investment projects technically and financially and recommends approval or otherwise of their financing to the Council of Ministers. When a particular project and its financial plan has been approved by the Council of Ministers, all funds are channeled through the Investment Bank in accordance with the approved financial plan. All payments for the execution of a project have to be authorized by the Investment Bank which keeps separate accounts for each category in the financial plan for every enterprise. It is the Investment Bank's obliga- tion to ensure that a project is executed according to the financial and technical data included in the final technical and economic study approved by the Council of Ministers. Its inspectors check whether the project is proceeding according to the schedule approved in the Plan. 39. While the Investment Bank's supervision and control function is thus rather strong during the implementation phase of a project, its functions are much more limited during the operation phase of a project. Although it has the right and obligation to verify th:-t the enterprise is meeting the  - 11 - targets set in the investment plan, it has no legal authority to influence directly the management of the enternrise or to force the enterprise directly to take operational actions which it considers necessary. In practice, how- ever, it can request such actions very effectively by reporting through the Ministry of Finance to the Government. 40. The Investment Bank is the channel for all sources of major domestic investment financing, but its own funds for onlending as credits are still relatively small. Its prime source of funds is the state Budget. The Gov- ernment will ensure the availability of sufficient funds including foreign exchange requirements for the implementation and operation of the project (Section 2.02 of the Guarantee Agreement). The Guarantor will ensure that the Investment Bank can meet the debt service on the Bank loan. PART IV - THE PROJECT 41. The project was proposed to the Bank in February 1976 as one of a number of projects for which the Romanians sought Bank financing during the 1976-80 Five-Year Plan. Following preparation of project data requested by the Bank, it was identified as a project of further interest to the Bank in May 1976 by a mission which reviewed ten chemical sector projects. The project was appraised in September and October 1976, and negotiations were held in Washington in March 1977. The Romanian delegation was led by Mr. Mihai Diamondopol, President of the Investment Bank, and included representatives of the Ministry of Chemical Industries and the Investment Bank. Project Description 42. The objective of the project is to increase production of high quality polyester primarily for domestic consumption. The project would be established as a new facility in a relatively less developed region of the judet (district) of Arges, about 50 kilometers north of Pitesti and 160 kilo- meters northwest of Ploiesti (see map). It would have a design capacity of 46,700 tons per year (tpy). The project would produce about 31,500 tpy of polyester fiber suitable for blending with cotton, wool or flax, and about 15,200 typ of polyester chips which would be further processed at other plants in Romania. Additional facilities would be provided to process 5,000 tpy of longer-fiber polyester suitable for blending with wool. Infrastructure and facilities would also be provided for steam and power generation; raw material and product transportation, handling and storage; recovery and recycling of raw materials and by-products; maintenance; and quality control and chemical laboratories. The Appraisal Report (No. 1436-RO, dated May 24, 1977), is being distributed separately to the Executive Directors. Project Execution and Operation 43. A new enterprise to be established for the project (the Cimpulung Enterprise) will be responsible for the implementation and operation of the  - 12 - project. A project management team was established months ago and includes staff from the several specialized agencies responsible for particular aspects of the project. IITPIC (Technological Engineering and Design Institute for the Chemical Industry) is responsible for project scope and design, technical aspects of imported technology and equipment, overall site layout, construc- tion design and detailed engineering. Civil works and construction work will be carried out, under supervision of IITPIC, by a construction trust from the Ministry of Industrial Construction. International procurement would be handled by ROMCHIM (Import Agency for Chemical Equipment and Technology under the Ministry of Chemical Industry), subject to technical review by IITPIC. Overall responsibility for the project would rest with the Cimpulung Enter- prise. Although these arrangements may appear rather fragmented, the respon- sibilities of each party will be mandated by law after the Council of Ministers has approved the project (Condition of Effectiveness, see paragraph 53). Arrangements of this sort are well-established under the Romanian system and have worked satisfactorily in previous projects. Project Cost and Financing 44. The estimated total cost of the project is US$128.9 million, with an estimated foreign exchange component of US$50.4 million. The cost of equipment and materials to be procured from foreign suppliers has been esti- mated at the international prices prevailing in 1976. Physical contingencies have been provided at 6 percent for licenses and engineering, 8 percent for equipment and 12 percent for civil works. Price contingencies on foreign exchange cost are based on an annual increases of 7.5 percent during the construction period for equipment and an overall allowance of 5 percent for licenses and engineering. Due to near zero inflation under the Romanian system of administered prices, annual price contingencies on local costs have been calculated at one percent. 45. The proposed Bank loan of US$50.0 million would finance the foreign costs of the project. The remaining project costs would be financed by the Government. The proposed loan to the Investment Bank would be for 15 years including a grace period of 3 years and would be guaranteed by the Govern- ment. It is Romanian practice for the state to invest virtually all funds in such projects through the Investment Bank without formal onlending agreements and to recover investment costs from project beneficiaries through a variety of financial mechanisms including net income transfers from state enterprises, taxes and depreciation payments. For this reason, the Investment Bank would not actually relend the Bank loan to the enterprise. However, the enterprise would be the beneficiary of the Bank loan and its provision of funds to the State Budget and Investment Bank would be sufficient to cover the Lei equiva- lent of the debt service on the Bank loan including (notional) payment of principal plus interest at 10 percent (Section 4.01 (a)(ii)(4) of the Loan Agreement). This arrangement is in line with our practice in previous indus- trial projects.  - 13 - Procurement and Disbursement 46. The major package proposed for Bank financing comprises imported technology, engineering, and key equipment and includes drawings, specifica- tions and foreign technical assistance for items of equipment to be made by Romanian fabricators. This complex package, costing an estimated US$23.6 million and including physical and price contingencies, would be procured through international competitive bidding. Price bids were submitted at the end of December 1976, and it is expected that, following evaluation of the proposals, a contract for this package will be signed by the end of June 1977. Other equipment and materials estimated to cost about US$24.6 million will also be procured following international competitive bidding. Romanian sup- pliers participating in international competitive bidding would be accorded a margin of preference of 15 percent or applicable customs duty, whichever is lower, and it is expected that Romanian suppliers would win about $10.2 mil- lion of contracts for power plant, recovery systems for raw materials and by- products, and other equipment. Imported items costing less than US$100,000 each, and up to a total of $1.8 million, may be purchased through interna- tional shopping on the basis of suitability, availability and price considera- tions, subject to prior approval by the Bank of the list of items involved. 47. The Bank loan would be disbursed for (i) 100 percent of foreign expenditures for imported technology, equipment and materials, and (ii) 100 percent of local costs ex-factory for equipment. Audit 48. Romania has developed an elaborate control and audit system, under which enterprises submit periodic operational and financial reports to their central, the technical ministry and the banks concerned. The central and the technical ministry, as well as a special unit in the Ministry of Finance and the National Bank and Investment Bank, conduct extensive audits of these reports to ensure achievement of Plan targets and proper use of funds. The Bank would receive quarterly project progress reports, annual financial statements on the enterprise and Investment Bank, and copies of annual audit reports prepared by the Ministry of Finance (Sections 6.01(c), (e) and (f) of the Loan Agreement). Environment 49. The general level of effluents permitted in Romania is somewhat higher than in the United States or Western Europe, but for touristic areas or near larger cities, stricter standards are applied on a case-by-case basis. Internationally accepted effluent standards will be employed since, in par- ticular, the site is in a touristic area.and the Tirgu River is upstream of major cities, and the Loan Agreement (Section 4.01(ii)(A)) provides that the project will be operated with due regard for ecological, environmental and safety factors.  - 14 - Benefits and Risks 50. The project will mainly provide for necessary expansion in polyester production capacity to supply anticipated growth in domestic consumption through 1983; there will also be exportable surpluses (averaging 7,200 tons annually) during the initial period of operation from 1980-83. Substantial transfer of technology for both the chemical and machine building industries will result from the project, in line with the objectives of the Bank program in Romania. In addition, the project will develop industry and employment opportunities in a relatively less developed section of the country. The estimated net annual foreign exchange savings or earnings of the project are about US$30 million. Virtually all costs and benefits of the project have been quantified, and the estimated economic return of the project is 15.6 percent. 51. No serious risks to the achievement of project benefits are fore- seen. About three-fourths of project output will be sold domestically in the first four years of operation (100 percent after 1983). The Romanian planning system provides that project output will meet future needs and no problem is anticipated in marketing the relatively small amounts of exportable surplus during the initial years of operation. The production process is well established outside of Romania, and all key technology equipment which must be imported, as well as technical assistance for the manufacture of equipment in Romania will be provided under the contract noted in paragraph 46 above. Conclusion of this contract, including satisfactory performance guarantees, is a condition of effectiveness of the proposed loan (Section 7.01 of the draft Loan Agreement). These measures will minimize the technical risks of the project. Romania has adequate supplies of indigenous raw materials for the production process, and the draft Loan Agreement provides that necessary feedstocks will be made available to the Cimpulung Enterprise (Section 4.01(a) (i) ). PART V - LEGAL INSTRUMENTS AND AUTHORITY 52. The draft Loan Agreement between the Bank and the Investment Bank of Romania, the draft Guarantee Agreement between the Socialist Republic of Romania and the Bank, the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement and the draft resolution approving the proposed loan are being distributed to the Executive Directors separately. 53. Special conditions of effectiveness of the loan are (i) the approval by the Council of Ministers of the technical and economic indicators of the project, (ii) establishment of the Cimpulung Enterprise, and (iii) the entering into force of the main contract under the project as noted in paragraph 51 (Section 7.01 of the Loan Agreement). Approval of detailed project parameters (the technical and economic indicators) is normal under the Romanian system and will provide the legal basis for financing and implementing the project. 54. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 15 - PART VI - RECOMMENDATION 55. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments May 24, 1977 Washington, D.C.   a -emtI 1 * SB 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 t ~ l~1 a -t A, 01 ~ M, " W 0 Z8 o 8~ 0 - a 0 A~~~~~~~~~~~~~~~~~~~~~~~~ 0~~~ roe ~ ~ ~ ~ ~ .. 00 Ul Os 00 ~~~~~~~0S In 8- cm 0Uo  ANNEX i Page 2 of 3 pages unlees othorise noted, data for 1960 refer to any yea betwee 1959 end 1961, for 1970 betwee 1968 and 1970 end for Moat Recet Estlean bet-een 1973 and 1975. a ti-tlaaatntz.s,loooCCl - 5 l s.ftaa,arbo,so anThe Federal Rapublit of Garnsay ha. been seleotad asa bjotiwa c-try beneoao in is indnttriliead European coutry with najor trade ties wi th cRnst.U c,- he aclia of thee. flgorna is idac dis.....ion. RCgiAIlIA 1960 /a 1962; lb Ratio of population under 15 end 65 end ove to total labor fae; Ic Hospitals only, neclodee sonftart cod naternity h-aa 1970 /a Ratio of populatIon coder 15 and 65 ad ant to total leber faine; Lb Hospitala only, -eludes esiarsad ctetnity harce; /. 1966; /d Inaide only. 6100? RECE1r :Ft' flix(: /c 1970-75; /b Ratio of popolation code 15 and 65 and -ns to total labor force; I Hoapitals only, enCl..odo siaranod noterely hca; Ld 1969-71 avrae; I unadjusted. 1974-75 rrlntotako a P.a pecetage ofth 6-14 end 15-19 age gronpa repe-tively of oid-1974 PoploIcII; If 1974, officia nsl-at is 100 percent. YMO01LAVIA 1970 / Agric-lture land bald by -ioll -otar "Itoblnato"; lb Agrlcoltoro land held hy private sn11-ho1ders "10 bec.t.ra n-dooa /c Inoloding niiova, nistant id.wtv ass...istant nose ad nursingoutria ITALY 1970 Ra Oat of popoilFlon ovde 15o iS nod over to total lohor force; /b HosPItal personne. iET1tkfY Ff0. REP. 1070 I TotL1, orac, nr,d r-ra; /b U1oido 0=57, R15, APril 25, 1977 IRPTNITIO;S3 At SACIAL UINDICATORS Land ore fihoo k.' P.polntin net noteiangpro Popoletic divIded by noober of proto lcng TotAl - Total sort a.co area cptiig land ares and m.Ind ocet. l and fan1l gcndosst raa, trained" or "oetiifid" c-reec ..ad isri - Mot recnt astiato of sgriooleo-e area ced caporsily or pae- -,iliaey ptrs-1e othb training or- prin nenil fororope pasures,aerht & kitohan garden orto lie fila_. poMeltion ner hoarita bad - Popolatio divdod by nonh- of hospital beds owiblal in pnbl ad private ga.era. and sP`oieli-ad hospitel ard iHP_par -pjtta fUll - GNsP Per capita satictns cc core akcpricae, rehabliation centers; an.cldes nuring bhns and esithlihl,ete tot alc-1-,d b,y eas ocovrato sethd as World icek Atlas (1973-75 beais); ctndia1 sod pceveni-scae 1960; 1970 sod 1975 deta. Pe cieaelyo aoiai of rniren-ts) - Ccopo-d fran ensogy eqoivElntIo nt od oppliec -vilable in coontry Pee -pitc Per day; ooolatoo end Ita eteietftc avilable eoppli. -ps tnise docestic prodocitot . tPor I... -oports. cd lt-eolcio (nid-,.e tIlitoc)-O fJyfit if not -vslcbln, avrg hanges in ettok; tet aoppli. le nc lode anLol feed, eosde, qo.stinaod oftw nd- year astIboi ; 1-160, 1970 and 1975 dcto. in food Process Ing and losens in disiribocion; raqoiraeni .were . est-ecd by FAQ basedZo Physiologicl. needs. for c-no ac:tivityand heith cocid- (100 bacceres) of cocol orpso.I popoq kil I- ie_Ine, an talcin 1_ ! berasos boossb,oldlel. t bio f .porlction denat, - rtp sytoat I ) of oortc. Icod C-Cpo-d aabove for Per ..pitsoel of'1 orotein o. sordy Protein atons of Per oa0h . ) f" .Pits agrico1tora1 land ooly. nat soply atfoo Per day; not eopply of fond Is deined os aboo; ceqoie- !ntafo all cotias e-tabiiehed by USDA EIoonio Re...nrnb Sernio.. 0 cit oei.1 y prov Ide foanIelo alaac f60 gret nf toto~l Protnn1 Per day, and trodo, bItch rac pot Ibhwenod. avree- ct lv birbepa tboe-d of, 20 rso 1naa and plsprocelo,ofhoicy grn_ bood be soled nid-prar popnletioo; ceo-year orttoas It -veras n din in 1960:nd 1970, protein; thesa standads are loser than chose of 75 ngin of total protein and, ft, -eya avrgo r-Idng in 2975 folot retIoct estiotet. en 23 grot of atioc1 pro-tein s vrg for the corid, propond by FOG Crd Ioahrc oar thotoand, vra A -oooI deaths per thonsand of nid-yact in the Third W.lord Food Sorvy. pooaion; to-yea .,thrlnrtic --etage aodlg in 1960 and 1970 nod fiv- Pet s nice protein aol fran aslol and roles - Protein eopply of food yea coergs toditg is 1975 for. I. noscr -etoei-cte. dncv. fr n ia.ol end pol.a. in Srts Per dcy. iofcncnorte icy ote (thy-, -n-Ivov .. sth. of iofaoIso-d-r one yea of age 5ecih rate fthhno) aces 1-4 -. Annol d-ahe Pet th-o.asod iv age grop 1-4 per ihoo d iebirth,,far,t tidron in this 8 ege top; sogfested so nn todicecr of Lifertoataio atbirh lyre) -Aeoaothrfyseoflife ronaining ateanrion biroh; ..soally fiv-yea evIEtge eoding io 1960, 1970 and 1975 for develop- Ing coonties. Ed-otico iroe. -pcrod-cioorIto- Ao..r.geno-be of lImo d-oght-r a catwll boa Adloeted enrolmet ratio - Prot o sc,hool -i tor.lII- of all ages ee Pe- it h ben onI ceprodootivo por,iod If0 h. -oprrlo-e presnt age-ep_oific centega ofprinty eohool-age ponsi_n ioldes ohildrn aged 6-li years I_rtIIity ttcee osoly ~ iv-y-o avrrcgea ending in 1960, 1970 and 1975 hoc edjoated for dIfferent lengths of pri-sty edoc-eon; for ontris- it Poroltion rnaibrcne(7) - cocc C-Capood o.... 1 gr-Lh nita. of id-yoar or ah he officIal soho age. popolettoo for 1950 -60, 1962-70~ cd 1970-75. Adotd atlnt rstio-aaooo da- sohooI - Canpoted ee ahoe;ne odet rocoicction rotrteT)-rhn-Ccopnted 1 o rI_th rate of intel edoocir reo-e t 1es fotyaao Pprndpiayiarc popolation; different dninitioca of orban arasny effect -opaokilicy of provides general, vovtioal or test.bh, teining Ins..octions for popila deco onong c_tosi_o of 12 to 17 yer fae oraodnenoaeaegenerally anlodd. bra onltn(, fcci - Ratio of orb c to tota PoPolation ; different User of soboolion crooldd (firse an aod level) -Tolyeaso definitions of orben aton nay effect ronpar-ility of date awing conra. ahonling; at secondary isel, v-ctional in -oolo nay be partially o ooaletely ..loded. one ttoroca ercet) -Childre (0-14 years), -orkig-gal (15-64 yacto), focatiaalenonnt (U of aecondoty) - V-oct1n1 intiiLotiooe I.cride and recitd )65 y.ar a.,nd00cr) as pa tcnta0r, of old-year roponl,tic.toice,idorilo te progret shlob opertel iodopand...ly ora 000 deroodnoty ratio-RaIoPo pooato 5nc I) d 65 n vrt those depe ona- feeotdsr osItoI_ ion. oags15 throog hO64 idolt1 i .. crty rae(a)- Ltra ado1ts .bi s t read sod cruet ccPr- tcoidrod._ cy rtoRatio of PoPltiato, coder 15 cod 65 o vrt eto fttloocpplto odl or n vr the labor force in age gro..p of I5-h4 yesra. Pal iv, onlcnoiv-accrrtorn italoive, chAt) - oolto csa of.1 occ-ptri g-snm of hic-oco d-vc- onder a..yIcI_ of notIonlfooly plnnn .rogr Pctsns pot coon orhn - A-ercge nohor of P-r-n Pr ton in occopied oIn- loception. convenL 'lnI dwellings in orba areas..; doellin,s rot lode non-pe-nne- ooic clni,-or 7 f tapiod -oon) - rP-ootgro of nar-e -oa of o rcoe a nd o-ccpied patti. child-bt..rIng age (5-44 -ra) obo -o birth,-ooot-o device to .ii earnetd Octted doelldicgs cithot ciced -ac (,) O- O pied convo .looI doelliog 0crin con ag groP. In orhn an _tta areas ith-o inolde or.oat id. piped ctrfclte as.pero.nt.g of all oocaptd dwellings. toot oynant gocese to electricity (7, ~.c.. t.of elI duelligos) - onvenioaldwelicscih foallao forc (cho..oand) - E-ovni-l 1ly so-ite parsons, inclodlyg c-nd electriity tn I1icig qoorters aa porten of tocIdolItosi rban and ..cc cod vopod ... hot roiding h.oooye .stdenca. t.-; definitions rualaras ino toococlsaenot IP coprbl. Rota!dwellings conntned to electricity (7 - Cp-cd as shov for rota Labo Forc In cocico1tore C)-A...tc...tota labor force (in facoIng, foresty, delings only. hoot tog cod fiahing) as pIeratago of totel labo- force. unopoelyed (% of labor force) -Llnanployed.aen Aally drfitnd as parsons oho. oson are able, an t ito toke ajob ,Io of a b on . gi-e dey, reinamd Oc adorr -r leer ihon pop) - All types of resvers fr raio hroa,%dccnto ofajo,sd see blc f0 - it .p Ified ninlac parid -o sotnding.ona tognea poblir Per th...eo nfpooeto; onlde n tesd rcio oe, naynth coael etwrncoricdoe to differ-t definItion incrunctis cod In ysara ohen fgtea itracionof ra'dio sets a fet of oaptoyed androre f dat, e.g. , npl.tys- office scttnis -aple date for reen years nay not be canperabh setce . etcoon-i-s boliahed .o-vY., canpoloory vo-ploy-et netae-lIcensing. Paeeeoger nets (partheo roe) - Pa....oger care canprise Ioo .cr esig incoan distributiono-Petcee-ag of Privat int,ne (both in cash cod hind) lesthe eight paron; -niodes nholan-re h ...here end ailitary re-olod by rtrhret 55, riches 20%, poores 205, cod poores Oil of boner- vehicle. holds. Etisti.tyot (kwh/or pot tee) - Atn-a con-,aption of ind-sria1,tseia pobltc and private electritiry .kin bunst hoots per -ptt. generally Utrbotioo of tond ownerhi -Percentagae of Icod owod by -altbi-s 107, hosed onprdticdate, vithoit allacn- for loseIn grida ht ala and poorest 102. of land net.ing for inor-an oprt f l ctrtiy. N7:sPrLi,t .(kg/nt potca) Per nopti . ooc on-option in kilogran jeslth an.d N-ocriticoI.pd t.p. .tf. -pi, yon ht y ecp),itiao - Popolatioo diotded by nchb- of pr-ctictng phynicla.. qoellfted frn a ordinal sohool at onlecaicy leve.  ANNEX I Page 3 of 3 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1975 ANNUAL RATE OF GROWTH -- (% and in constant prices) US$ Mln. % of GNP 1961-65 1966-70 1971-75 GNP at Market Prices 24,900 100 9.0 1/ 7.7 1/ 11.3 1/ Cross Fixed Domestic Investment 7,560 30 11.3 11.2 11.2 Exports of Guods 5,341 21.4 9.0 2/ 10.9 2/ 23.6 2/ Tmports of Guo-:. 5,342 21.4 10.7 2/ 12.7 2/ 22.3 2/ LABOR FORCE IN 1975 GOVERNMENT FINANCE Mlxi. % General Government Agriculture 3.9 38 (lei bill.) % of GDY 3/ Industry 4.0 40 1975 1975 Services 2.3 22 Total Receipts 238.6 47.9 Total Expenditure 236.2 47.4 Total Surplus 2.4 0.5 RETAIL PRICES 1971 1972 1973 1974 1975 (1966 = 100) 101.6 10-1. 102.4 103.7 103.9 BALANCE OF PAYMENTS MERCHANDISE EXPORTS 1975 (Mln. US$) 1971 1972 1973 1974 1975 us$ Mln. % Exports of goods 2,102 2,884 3,667 4,858 5,341 Imports of goods 2,102 2,910 3,424 5,049 5,342 Capital goods 1,351 25 Consumer goods 860 16 Trade balance 0 -26 +243 -191 -1 Foodstuffs 566 11 Net services -23 -31 -107 -168 -134 Intermediate goods 577 11 Raw materials 1,986 37 Balance on goods Industrial 1,682 31 and services -23 -60 +136 -359 -135 Agricultural 304 6 Nct MLT Capital 5 24 83 643 437 Total 5,341 100 Disbursements 350 516 589 1,055 817 Amortization -345 -492 -506 412 380 Residual Balance -18 -36 +219 +284 +302 EXTERNAL DEBT, December 31, 1976 RATE OF EXCHANGE US$ Mln. Official Rate: Tourist Rate: Total 3,095 US$ 1.00 = Lei 4.97 US$ 1.00 = Lei 12.00 of which convertible Leu 1.00 = US$ 0.20 Leu 1.00 = uS$ 0.08 currencies 3,023 Official Trading Rate: DEBT SERVICE RATIO FOR 1976 (Estimate) US$ 1.00 = Lei 20 % Leu 1.00 = US$ 0.05 Convertible currencies only 19.0 1/ Net National Income 2/ Current Prices 3/ Gross Domestic Income Country Programs Department 1 Europe, Middle East and North Africa Region May 24, 1977  ANNEX II Page 1 of 4 pages STATUS OF BANK GROUP OPERATIONS IN ROMANIA A. STATEMENT OF BANK LOANS (As of April 30, 1977) Amount in $ millions Loan Less Cancellations Number Year Borrower Purpose Bank IDA Undisbursed Ln. 1020-RO 1974 Investment Fertilizer 60.0 - 37.0 Bank Ln. 1027-RO 1975 Investment Special 70.0 - 63.7 Bank Steel Ln. 1028-RO 1975 Investment Thermal 60.0 - 18.0 Bank Power Ln. 1082-RO 1975 BAFI 1/ Irrigation 70.0 - 22.5 Ln. 1083-RQ- 1975 BAFI Agricultural 30.0 - 15.8 -- Credit Ln. 1169-RO 1976 BAFI Flood 40.0 - 3.6 Recovery Ln. 1170-RO 1976 Investment Flood 20.0 - 1.9 Bank Recovery Ln. 1242-RO 1976 Investment Hydropower 50.0 - 46,4 Bank Ln. 1247-RO 1976 BAFI Irrigation 60.0 - 59.5 Ln. 1368-RO 2/ 1977 BAFI Irrigation 60.0 - 60.0 Total 520.0 4/ 328.4 of which has been repaid -_-_- Total now outstanding 520.0 - - Amount sold 1.6 - - - of which repaid 0.0 1.6 - - Total now held by Bank 3/ 518.4 - _ Total undisbursed 328.4 _ 328.4 1/ Bank for Agriculture and Food Industry 2/ Not yet effective. 3/ Excluding exchange adjustments 1 Excludes proposed loans for the Brasov Bearings Project ($38 million) and Bucharest Glass Fiber Project ($18.3 million).  ANNEX II Page 2 of 4 pages B. PROJECTS IN EXECUTION Ln No. 1020 Bacau Fertilizer Project; US$60 million Loan of June 28, 1974; Effective Date: December 31, 1974; Closing Date: December 31, 1978. By agreemenc between the Bank and the Borrower, the project site was changed from Tecuci to Bacau which is more advantageous from the point of view of controlling effluents. After a slow start, due mainly to the change of site, lack of familiarity with Bank procurement procedures, and the floods of spring 1975, the project is now proceeding satisfactorily. Ln No. 1027 Otelinox Special Steel Project; US$70 million Loan of July 10, 1974; Effective Date: April 3, 1975; Closing Date: December 31, 1979 Execution of the project was delayed several months, primarily be- cause of the complexity of two large bid packages and because of the Romanians' lack of familiarity with international competitive bidding procedures under the Bank's Guidelines. Progress on procurement has been closely monitored by several Bank supervision missions, and US$50,000 allocated for procurement consultants but not used has been cancelled. The contracts for the two steel mills under the loan have been signed and construction has begun. Ln No. 1028 Turceni Thermal Power Project; US$60 million Loan of July 10, 1974; Effective Date: November 6, 1974; Closing Date: June 30, 1979 Delays in construction due to late delivery of equipment are likely to result in a five month delay in commissioning of the first generating unit. Project execution is otherwise according to plan and satisfactory. Training of future operational staff is in hand. Financial performance has been satis- factory despite a reduction in energy sales growth in response to energy conservation measures. Ln No. 1082 Giurgiu-Razmiresti Irrigation Project; US$70 million Loan of February 6, 1975; Effective Date: May 5, 1975; Closing Date: December 31, 1978. Construction of project works is progressing satisfactorily and about 60 percent of the project has been completed more or less on schedule. International procurement was delayed initially by the Romanians' lack of familiarity with international bidding procedures required by the Bank, and by a delay in appointing consultants to assist with this work. All contracts have now been awarded. The project is expected to be completed by October 1977, ahead of the December 1977 schedule anticipated at the time of appraisal.  AN4EX II Page 3 of 4 pages Ln No. 1083 Sadova-Corabia Agricultural Credit Project; US$30 million Loan of February 6, 1975; Effective Date: April 29, 1975 Closing Date: December 31, 1979. Progress of the project is satisfactory. Contracts for chemicals were not awarded after international competitive bidding because the Romanians judged all bid prices to be too high; the Bank has advised the Romanians that Bank financing for these items would be possible only if the contracts were retendered. The Bank has concurred in the award of a contract for technical know-how and for supplying equipment for the premix feed mill as recommended by the Romanians. Ln No. 1169 Flood Recovery Project (Agricultural Component); US$40 million Loan of November 12, 1975; Effective Date: December 2, 1975; Closing Date: June 30, 1979. Project execution is proceeding well and disbursements are ahead of schedule. Equipment procured under international competitive bidding has been delivered and only small quantities of spare parts remain to be procured. Bids have been received for the early warning system equipment and bid evalua- tion is in progress. Ln No. 1170 Flood Recovery Project (Industry, Mining and Transport Com- ponent); US$20 million Loan of November 12, 1975; Effective Date: December 2, 1975; Closing Date: September 1, 1977. After a slow start due to difficulties encountered in Romania in preparing and assembling documentation on procurement of imported industrial machinery, disbursements have improved considerably since September 1976. The closing date has been extended from March 31 to September 1, 1977 to permit full disbursement of the loan. Ln No. 1242 Riul Mare Retezat Hydropower Project; $50 million of April 28, 1976; Effective Date: July 26, 1976; Closing Date: December 31, 1981. Project execution is according to plan. Civil works for the dam and underground power station are well underway. Commitments concerning some 73 percent of the loan amount have been made and although disbursements are delayed they are expected to catch up by mid 1977. Ln No. 1247 Rasova-Vederoasa Irrigation and Agriculture Development Project; $60 million of April 28, 1976; Effective Date: November 3, 1976; Closing Date: June 30, 1981. Advertisement for international competitive bidding has been com- pleted and the Bank has approved tender documents. Bids for virtually all items have already been opened, and bid evaluation reports are expected to be submitted for IBRD review during the spring of 1977.  ANNEX II Page 4 of 4 pages Ln No. 1368 Ialomita-Calmatui Irrigation Prolect; $60 million of March 2, 1977; Closing Date: June 30, 1982. Loan documents were signed on March 2, 1977 and the deadline for effectiveness is June 2, 1977. Tender documents for this project were combined with those for the Rasova-Vederoasa Irrigation and Agricultural Development Project (Loan No. 1247) and have been approved by the Bank. Bids for virtually all items have been opened, and bid evaluation reports are expected to be sub- mitted for IBRD review during the spring of 1977. EMENA May 24, 1977  ANNEX III ROMANIA CUMPULUNG-MUSCEL POLYESTER PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Project first identified by the Bank: May 1976 (b) Time taken by the country to prepare the project: 28 months (c) Agency which prepared the project: Ministry of Chemical Industry (d) Date of first Bank mission to consider the project: May 1976 (e) Date of departure of Appraisal Mission: October 18, 1976 (f) Date of completion of negotiations: March 31, 1977 (g) Planned date of effectiveness: About September 7, 1977 Section II: Special Bank Implementation Actions Procurement for the main contract has been closely monitored since project appraisal, and the contract is expected to be signed by the end of June 1977. Section III: Special Conditions Special conditions of effectiveness of the loan are (i) the approval by the Council of Ministers of the technical and economic indicators of the project, (ii) establishment of the Cimpulung Enterprise, and (iii) the enter- ing into force of the main contract for the project. Approval of detailed project parameters (the technical and economic indicators) is normal under the Romanian system and will provide the legal basis for financing and imple- mentation of the project (paragraphs 51 and 53). EMENA May 24, 1977  222 10 C4tP00UTSV 20e 2G2 U.+* S. R. s <+ ) is o SOCIALIST REPUBLIC OF ROMANIA -48- .18/ o r I <' J t