Romania - Craiova Chemical Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-2409-RO REPORT AND RECOMNENDATION 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 A CRAIOVA CHEMICAL PROJECT November 14, 1978 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 Currency Unit : Leu (plural Lei) 1. Official Rate, Lei 4.47 = US$1.00 Leu 1.00 = US$0.22 2. Tourist Rate Lei 12.00 = US$1.00 Leu 1.00 = US$o.08 3. Conversion Rate for Traded Goods Lei 18.00 = us$1.60 Leu 1.00 = us$0.06 The Official Exchange Rate of lei 4.47 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 March 1978, a trading rate of lei 18 per US$1 has been used to convert the prices of all traded goods; this rate is considered representative of the average cost of convertible foreign exchange. Consequently, this rate has been used as the base rate for calculation in the appraisal. Fiscal Year January 1 to December 31 GLOSSARY OF ABBREVIATI0NS The Central, CIICh - Central for Chemicals and Fertilizers DANUBEXIM - Danubiana Export Import Agency for the Chemical Industry IITPIC - Technological Engineering and Design Institute for Chemical Industry ROMCHIM - Import Agency for Chemical Equipment and Technology under the Ministry of Chemical Industry tpd - Metric Tons per Day tpy - Metric Tons per Year VAM - Vinyl acetate monomer  FOR OFFICIAL USE ONLY ROMANIA - Craiova Chemical Project LOAN AND PROJECT SUMMARY Borrower: Investment Bank of Romania Guarantor: Socialist Republic of Romania Beneficiary: Craiova Chemical Complex Loan Amount: US$40 million equivalent Terms: Repayable in 14 years, including a 3-1/2 year grace period, through semi-annual installments, with interest at 7.35 percent per annum. Project Description: The project would consist of the installation of a 30,000 metric tons per year (tpy) acetylene unit using methane feedstock which would provide additional acetylene inter- mediate to new or expanded downstream units and would also deliver off-gases for use in the existing ammonia reactor and in part of the new acetic acid plant. The capacities of the existing vinyl acetate and polyvinyl acetate units would be expanded and the acetaldehyde unit would be fully utilized. New units which would be constructed under the project include methanol, acetic acid, acetic anhydride, and ethyl acetate plants. A new unit would also be constructed for the sepa- ration of carbon monoxide (CO) which would provide CO to the new acetic acid plant and hydrogen to the existing butanol plant. The project would enable Romania both to earn and save scarce foreign exchange, and would assist in the transfer of technology to the Romanian chemical sector for some of the project products. The project would also provide employment for about 1,100 people. The only sub- stantial identified risk is that it may not be possible to achieve fully the planned exports of 30 percent of produc- tion during the first three years of operation due to heavy competition in western markets (absorbing 60 percent of the initial export tonnage) and high EEC tariffs. This risk is reduced to an acceptable level by the flexibility in project design, which enables different production mixes to be undertaken without affecting overall project profit- ability and viability. By 1985 the export percentage will decrease to 8 percent and this risk largely disappears. This document has a rstricted distribution and may be used by recipients only in the performance of their oAicial duties. Its contents may not otherwise be disclosed without World Bank authorlatlon.  Cost Estimates US$ Millions Foreign as % Item Local Foreign Total of Total Civil Works and Buildings 24.3 0.6 24.9 2 Equipment Material and Spares 44.6 39.6 84.2 47 Other 17.3 3.9 21.2 18 Base Cost Estimate (BCE) 86.2 44.1 130.3 34 Physical Contingencies (3.2% of BCE) 2.7 1.5 4.2 Price Excalation (6.3% of BCE and Physical Cont.) 1.1 7.4 8.5 Sub-total 90.0 53.0 143.0 Working Capital 6.1 2.4 8.5 Total Project Cost 96.1 55.4 151.5 Interest During Construction 0.8 4.3 5.1 Total Financing Required 96.9 59.7 156.6 Financing Plan: US$ Millions Local Foreign Total State Budget 96.9 6.8 103.7 IBRD - 40.0 40.0 Supplier's Credit - 12.9 12.9 TOTAL 96.9 59.7 156.6 Estimated Disbursements: US$ Millions Bank FY 1979 1980 1981 1982 Annual 7.0 19.0 11.0 3.0 Cumulative 7.0 26.0 37.0 40.0 Internal Economic Return: 16 percent Staff Appraisal Report: No. 2144-RO; October 30, 1978 Industrial Projects Department  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INVESTMENT BANK OF ROMANIA FOR A CRAIOVA CHEMICAL 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$40 million to help finance a project for the production of chemical products. The loan would have a term of 14 years, including 3 1/2 years of grace, with interest at 7.35 percent per annum. Co-financing in the form of a supplier's credit, equivalent to US$12.9 million, is being finalized. PART I - THE ECONOMY 2. The first basic report on Romania (Report no. 1601-RO, "The Indus- trialization of an Agrarian Economy under Socialist Planning") was circulated to the Executive Directors on April 20, 1978. An economic mission visited Romania in mid-May to collect information on economic performance in 1977 and to discuss the 1978 Annual Plan and the new economic measures announced in February 1978. This part incorporates its findings. Country social and economic data are given in Annex I. 3. Over the past 25 years the Romanian economy has undergone a radical transformation and has sustained one of the highest growth rates in the world. The average growth rate of national income during the period has been 9.7 percent per annum. The level and diversification of industrial production has increased rapidly, providing the basis for the modernization and expansion of other economic sectors and a general increase in labor productivity and national income. With the transfer of labor from agriculture to industry, the population has become increasingly urbanized. Standards of living have increased substantially, not only because of the growth of personal incomes but also because of the provision through the state budget of expanded and improved education, medical services, housing and social expenditures of other kinds. Furthermore, Romanian participation in the world economy has changed significantly as the level of trade has risen and its composition altered. 4. The changes in the level and structure of economic activities be- tween 1950 and 1975 represent the outcome of a development strategy designed to accelerate the rate of growth and to catch up, as quickly as possible, with the level and structure of development in the developed countries. The main features of the strategy can be summarized as: high and increasing rates of saving and investment; the creation of a broad industrial base; the devel- opment of local natural resources; the reorganization and modernization of agriculture; the balanced regional distribution of production and income; the expansion of foreign trade and international economic relations; and the development of human resources.  - 2 - 5. The main instrument for carrying out the strategy has been the system of comprehensive central planning and management. Economic management is organized along socialist principles which include state and cooperative ownership of almost all productive resources. Economic activity is directed by means of obligatory development planning coordinated by the central party and government authorities. The national plan, drawn up on a five-year time frame and elaborated each year in an Annual Plan, sets out for the economy as a whole, by sector and branch, and on a regional basis, specific tasks for economic and social units. The plan is drawn up through a combination of central directives and aggregation of individual enterprise plans, any dif- ferences being reconciled through discussions between the entities involved. During the late 1960s and throughout the present decade, Romania has under- taken measures to improve the planning and management system, to increase the responsibility of enterprises in preparing and implementing the plan and to orient the economy to a more efficient use of resources (see para 20 for the latest changes). 6. 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. Enter- prises subordinate to the Centrals are responsible for production which is controlled through a system of financial and physical production targets. In agriculture, large State farms and cooperatives are the predominant units of production. 7. To achieve the objectives of rapid growth and structural change, the Romanian authorities have made great efforts to mobilize domestic resources for development and to maintain a high rate of capital formation. Over the past 25 years, investment has grown at 13 percent per annum, and by the 1971- 75 Five-Year Plan, the proportion of national income utilized for accumulation had risen to 34.1 percent (equivalent to 27-28 percent of GNP). The sectoral allocation of investment throughout the period reflected the priority of industrialization and the creation of a broad industrial base oriented towards self-sufficiency; approximately 50 percent of investment has been allocated to industry and, of this, by far the largest part was directed to the producer goods sector. This has resulted in rapid growth of the industrial sector, over 13 percent per annum during the last decade, with the producer goods sector growing more rapidly than consumer goods. In 1976 industry was the leading sector of the economy, accounting for almost 60 percent of national income, and employing approximately 32 percent of the labor force compared with 14 percent in 1950. Heavy industry, led by chemicals, ferrous metallurgy, engineering and machine building comprised 62 percent of industrial production. 8. However, this industrialization strategy has particularly increased the demand for raw materials and energy. It has also necessitated rapid growth of construction. Romania has concentrated on exploiting known local resources of fuels, mretnls and minerals to be as self-sufficient as possible in these items. The rapid growth of energy consumption, 8.6 percent per annum since  - 3 - 1950, has outpaced the growth of domestic production. Romania started to import oil in 1968 and became a net importer of energy in 1972. 9. Notwithstanding the emphasis on industrialization, agriculture remains a key sector of the economy, still employing 36 percent of the labor force (compared with 74 percent in 1950). Apart from supplying foods and other agricultural products as inputs for agro-industries, the sector also supplies about 30 percent of the nation's convertible foreign exchange earn- ings. Though agricultural output almost tripled in the last 25 years, the faster growth of non-agricultural sectors has reduced its share in national income to somewhat over 18 percent by 1976. Over the past decade, agricultural performance has improved with the increased emphasis on agricultural develop- ment and the increased investment funds made available. However, the level and growth of production have remained below the sector's potential. 10. Romania's population growth is about 1 percent per annum. The rapid growth of industrial employment has therefore drawn labor from the rural areas. The average GNP growth of 9 percent per annum implies a percentage growth in output per head of about 8 percent per annum, up to an estimated GNP per capita of US$1,580 in 1977, based upon official national income information using the World Bank Atlas methodology. 11. The organization of the economy is such that all labor is employed (indeed, required to work). There is, however, some seasonal labor surplus in agriculture. Income distribution is also relatively equal, through govern- ment policy controls over the level, growth and structure of wages. By law the maximum wage/salary is five and a half times the minimum. Monthly wages were increased by 8.3 percent in 1976 to an average of 1,964 lei. The Govern- ment also promotes its income distribution policies through regional allocation of industrial investment. 12. The Government aims to give the population a basic needs package, partly by providing services such as education, health and housing. From this basic level, the Government has planned annual increases in living standards. Real incomes have risen at an annual rate of 6.6 percent since 1950, with the growth rate accelerating particularly in the last decade as more benefits of a rapidly expanding national income were channelled to consumption. Prices of essential consumer goods and services such as foodstuffs, rents and urban transport remain low and most social services, notably education and health care, are provided free of charge. 13. The value of Romania's trade grew at an average annual rate of 13 percent in the past 25 years, with a gradual acceleration in the last decade, reflecting not only the effects of international inflation but also an increase in the importance of trade, particularly industrial imports, to the economy. The level of imports rose in response to the need for capital goods and raw materials, reaching US$6.10 billion in 1976. Exports also grew rapidly, reaching a level of US$6.14 billion in 1976, and the share of manufactured  - 4 - goods increased to 50 percent, reflecting the progress of Romania's indus- trialization. Trade with LDC's and developed market economies has also been increasing rapidly in response to policies of diversifying sources of raw material supply and as a consequence of exports of more manufactured goods. In recent years, there has also been a tendency to move away from trade on a bilateral basis towards trade involving multilateral payments, within the framework of the general trade cooperation agreements signed with almost all of the country's trading partners. These agreements also covered cooperation in production, technical assistance and economic relations. In 1977, the convertible balance of payments deteriorated, reversing the trend of the previous three years. After a surplus of US$76 million in 1976, the trade balance had a deficit of US$81 million in 1977, as a result of additional imports made necessary by the earthquake, the diversion of export goods to the domestic economy for reconstruction and continued weak demand in the developed countries for more Romanian exports. With an increased deficit on the invisibles account (US$192 million compared with US$137 million in 1976), there was a current account deficit in 1977 of US$273 million compared with the 1976 deficit of US$61 million. 14. In spite of these developments, the structure of Romania's trade with the developed market economies is still characterized by exports of natural resources and imports of capital goods. Because of the present low level of reserves, any instability in export earnings, as frequently arises from shortfalls in agricultural output or softening in prices tends to place the import program, largely sophisticated machinery and components, in imme- diate jeopardy. Recent Economic Developments 15. The Five-Year Plan under implementation covers the period 1976-80. The high growth rates experienced during 1971-75 are planned to continue. The pattern of growth planned for this period suggests that the present decade has been viewed as a decisive period in the achievement of long-term objectives, during which Romania will overcome the major constraints on its transformation from a developing country into a developed and technologically advanced coun- try. There have been substantial and comprehensive revisions to the Five-Year Plan targets during 1977 to help accomplish this. In July, increased targets for standards of living were announced and in December, following the Eleventh Conference of the Romanian Communist Party (RCP), revised targets for all other areas of the Plan were announced. Also, in January 1978 important decisions were taken to substantially increase work incentives by allowing workers to participate in sharing the profits of enterprises (see para 20). 16. According to the revised plan, national income is to grow at 11 percent per annum between 1976-80, practically the same rate as was achieved between 1971 and 1975. Gross industrial production will increase at 11.5 percent, compared with the original target of 10.2-11.2 percent, while gross agricultural production is expected to grow at a rate of 6.9-9.0 percent per annum, which would require a significant improvement over previous results in that sector. In addition, investment is to increase by 12.7 percent per annum. A campaign to increase the utilization of existing capacities and  -5- to make significant economies in the consumption of raw materials and intermediate goods is being implemented throughout the economy, especially in the construction sector. As a result, a reduction of lei 109 billion in investment costs throughout 1976-80 is planned. The volume of foreign trade is to increase by 109.1 percent in real terms over the five years, a much faster rate of growth than in 1971-75 when trade merely doubled in current prices. Furthermore, the Government plans to encourage the growth of exports so that it exceeds that of imports, to pursue its long-term objective of reducing its external debt and allowing for the accumulation of reserves. While the rate of growth of consumption will remain below that of production, it will nevertheless be increased. Real wages are now to increase by 32.3 percent over the five years compared with the previous target of 22 percent. As a result, targets for socialist retail trade and services for the popula- tion have been increased. 17. The economy was dealt a severe blow on March 4, 1977 when a violent earthquake occurred in the east of the country, causing severe damage in the vicinity of Bucharest. The Government estimated that 1,570 people were killed, 11,300 injured and that it caused damage valued at US$2 billion. US$1.4 billion of the total damage was to buildings and associated utilities, of which US$1 billion was in housing. Of the remaining 30 percent of damage, almost all was in inventories and production. The earthquake also had a substantial detri- mental effect on the country's balance of payments' prospects; the net balance of payments cost is estimated to be approximately US$630 million during 1977 and 1978. 18. The Government organized immediately an intensive reconstruction effort with the stated aim of avoiding any impact upon the implementation of five-year plan targets. This required additional efforts from the population in the form of labor, e.g. work on one Sunday per month, and money. While these efforts enabled the economy to continue its growth, 1977 plan targets were only partially fulfilled. National income increased by 8.6 percent com- pared to a plan target of 11.3 percent and an increase in the previous year of 10.5 percent. Industrial production increased substantially more than the plan target (12.5 versus 10.5 percent). In net production or value added terms, however, growth was significantly lower, since reductions in production costs were less than planned and because of the need to make repairs after the earthquake. For reasons other than the earthquake, chiefly climatic and management problems, gross agricultural production fell 1.3 percent short of the 1976 level, and was far below the plan target of 2-4 percent growth. The gross output of the construction sector rose rapidly; much of the addi- tional output constituted repairs and the sector provided a relatively large share of growth in national income. The impact of the earthquake showed up clearly in the growth rates of investment and trade. The volume of investment increased by 11.5 percent rather than the 16.7 percent planned, reflecting the diversion of construction resources and manpower to repair work. The volume of trade increased in current prices close to that planned (14.8 versus 15.5 percent) but with imports increasing more rapidly and exports less rapidly than planned.  -6- 19. Published details on the 1978 Plan indicate growth rates similar to those planned for 1977. National income is planned to increase by 11-11.5 percent, industrial production by 10.6 percent and agricultural production by between 6.9 and 16.1 percent. Investment is planned to increase by 16.8 percent and foreign trade by 19.1 percent. Real incomes will increase by 7.9 percent. 20. In February, 1978 the Government announced changes in economic and financial mechanisms designed to improve the planning and management of the economy, to stimulate improvements in labor productivity, in cost reduc- tion and efficiency of production and also to make existing provisions for enterprise self-management more effective. The major change announced was the introduction of net production as a major plan target, both for inducing enterprises to fulfill plan objectives, particularly in the areas of increased efficiency and reduction of costs and as the basis upon which worker's wages and bonuses are paid. In future enterprises are also to retain a higher pro- portion of profits, have increased responsibility for socio-cultural expendi- tures, be more concerned in the final stages of the annual plan preparation, be permitted to enter into longer term contracts to ensure a closer correla- tion between the plan and actual contract provisions and will have more direct responsibilities for the achievement of foreign trade targets. These measures are now under detailed discussion within Romania and are expected to become law in 1979. It is too early to make a definite judgment, but it does appear that they are designed to make the existing management and planning system operate more efficiently rather than to cause radical changes. However, they are a step in the direction that the basic economic report suggested was desirable if the economy was to meet its objectives. Furthermore, they will set up new pressures between the various levels of the economy which may lead to more substantial changes in the future. External Assistance 21. The expansion of Romania's trade with the non-socialist industrial countries has led to an increased need to obtain convertible currencies to pay for imports from those countries. Romania has met this need both by borrowing abroad and by mounting a major effort to expand exports and tourism to Romania. Gross inflows of convertible currency through medium- and long- term loans were US$843 million in 1977, consisting mostly of financial and suppliers' credits with relatively short repayment periods. This gross inflow represented a net inflow of some US$282 million after accounting for the coun- try's repayment obligations. There was also a net inflow of US$156 million on short-term during 1977, the result of the Government's temporary reversal of its policy to reduce reliance on short-term credits. 22. As part of its effort to expand its foreign trade and cooperation relationships, Romania has also taken active steps to attract long-term private capital. A regulation passed in 1972 defines the conditions under which foreign firms can establish joint ventures with domestic. enterprises, preferably in foreign exchange earning or saving industries. As of December 1977, eight joint venture agreements had been signed and two more announced. In contrast with the earlier ventures, which were of small scale involving  - 7 - total direct foreign investments of about US$10 to US$15 million, the latest ventures involve far larger sums. The seventh agreement, signed in early 1977 with Citroen, involves a contract of FF 2.5 billion (about US$500 million) and will lead to a total capital inflow of aproximately US$250 million. Even larger inflows are expected as a result of an agreement with Kuwait for the construction of a petrochemical complex costing US$1.25 billion. Romania also receives medium-term trade credits from U.S. Eximbank and trades under the Government guaranteed supplier's credit schemes, ECGD, COFACE, and HERMES with the United Kingdom, France and the Federal Republic of Germany, respectively. During 1977, Romania became the first East European recipient of a Japanese Eximbank loan, receiving US$80 million for the expansion of the port of Constanta. In 1975 Romania succeeded in securing a US$100 million, eight-year loan from Kuwait as part of a general cooperation agreement and also a US$420 million loan from Iran on concessionary terms. During 1977, it also negotiated two Eurodollar loans totalling US$125 million. In January 1978, Romania negotiated a further US$100 million on the Eurocurrency market and it was recently announced that the Government has negotiated a new Eurocurrency borrowing of US$200-300 million. The terms for this eight-year loan, with four years grace are 0.625 percent above LIBOR for the first three years and 0.750 percent for the remaining years. As part of its strategy to secure long-term energy supplies, Romania has concluded a long-term contract for purchase of coal with a United States coal mine; a banking consortium provided a US$53 million loan to finance the purchase in April 1978. In addition, Romania has access to non-convertible currency investment credits from the International Investment Bank, Moscow. 23. Romania's access to long-term finance in convertible currencies is still very restricted. The IBRD is the major source of such long-term devel- opment finance, though Romania is making efforts to improve its access to financial markets. The Bank's presence on a significant scale would have a positive influence in this regard and serve to build outside confidence in the country, thereby enhancing in the long-term its independent access to the world's financial markets. Prospects 24. Romania has good potential for further economic growth. Endowed with important natural resources (fuels, some minerals, timber, rich soils and sources of irrigation water for agriculture, and a favorable climate for agriculture and 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. To attain its growth objectives, however, Romania will have to rely on a major expansion of exports of manufactured goods in order to finance modern foreign technology and an increasing depen- dence on imported raw materials and fuel. 25. 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  - 8 - achievement of export targets requires improvements in the quality of products and responsiveness to customer demands, areas in which the economy appears to have lagged in past years. To keep up with these changes and requirements, large programs of education and manpower training have been mounted, invest- ments in scientific and technological research have been emphasized, and efforts are being made to strengthen technical cooperation with industrialized countries and international organizations. The increasing diversity and com- plexity of Romania's economic structure also require continuing improvements in the efficiency of economic planning and coordination and further refine- ments in economic management. 26. The growth rate is expected to remain quite high by international standards and if its present momentum is maintained, Romania will be among the more developed of the high-income, developing countries in the 1980s. The Government plans to achieve this high growth rate by emphasizing, first, the utilization of the country's own resources and a large local investment effort, and second, more effective use of human, capital and natural resources. However, in order for Romania to attain its growth targets and its long term plans for creating.a competitive industrial economy, it will have to attract foreign resources and technology and secure loans to support its development efforts. Creditworthiness 27. As of December 1977, Romania's total medium and long-term external debt amounted to US$3,491 million. Most of these debts (US$3,402 million) were denominated in convertible currencies, the major creditor countries being the Federal Republic of Germany, France, the United Kingdom (UK) and Italy. While the total debt does not appear excessive in relation to the volume and growth of external trade, average maturities are relatively short and con- vertible debt service payments are estimated to be in the order of US$900 million a year in 1978 and 1979. The convertible debt service ratio was 19 percent in 1977 and is expected to be 18 percent in 1978. 28. The organization of economic activity in Romania, the pursuit of a development strategy involving high 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$3,403 million in 1977. The preferential trade status accorded to Romania by the European Community in June 1973 is facilitating the expansion of such exports as is the granting of most favored nation status by the U.S. Since the early 1970s, the Government has restricted the use of short-term credit from Western suppliers in an effort to improve the structure of the country's external debt. In view of the earthquake's impact upon the balance of payments, the Government indicated that there would be a temporary reversal of this trend and short-term debt increased again in 1977. Assuming a continuation of present export and debt management policies, we estimate that the debt service ratio will be about 20 percent at the end of the 1976-80 plan period, after which it will remain fairly stable. The country's present outward-looking  - 9 - 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. 29. 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 U.K. and in the U.S. 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 the U.K. claims proved more difficult, but a final agreement was signed in January 1976. The Bank was also informed in late 1976 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 meeting to discuss settlement of these claims was held in Bucharest in October 1976 and further discussions were planned at a date to be established through diplomatic channels. The Bank has been unable to obtain a consistent picture from the two Governments of the present status of this matter and has, there- fore, urged the Romanian and Swedish authorities to clarify their respective positions directly with each other. PART II - BANK GROUP OPERATIONS IN ROMANIA 30. The proposed loan would bring total Bank commitments to Romania to US$882.8 million for seventeen loans in agriculture, industry and power. Disbursements under the Bank's initial loans were slow during 1975, but this situation improved considerably during 1976 and 1977. Annex II contains a summary statement of Bank loans to Romania and notes on the execution of ongoing projects as of September 30, 1978. 31. 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 supporting the Government's efforts to introduce new industrial technologies, to improve the quality of products and production efficiency, to reduce pro- duction 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. 32. A number of further loans are under consideration. Projects for irrigation and drainage, power, poultry production, pig production, horticul- ture, and a number of industrial projects, have been proposed. The Government has also requested that the Bank consider lending for a major navigation canal linking the Danube and Black Sea.  - 10 - 33. In addition to lending, the Bank (through EDI) has assisted Romania by conducting industrial and transportation project appraisal training courses for 163 Romanian officials in Belgrade in 1973 and in Bucharest in 1975, 1976 and 1977. Additional courses, including one in agricultural project appraisal, are planned. The methodology taught in these courses is becoming more widely known in Romania and is expected to begin to supplement the methodology normally used by the Romanian planning authorities. 34. The projects, for which assistance has been committed or is being considered, represent only a small portion of Romania's total need for external financing and of its total disbursed convertible debt. However, they will 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 debt outstanding to the Bank is expected to constitute about 12 percent of Romania's total projected convertible 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 35. 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 export of raw materials into a country with a strong and broad-based industrial sector. Large capital investments, at annual rates of the order of 28 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 in that period. 36. In the process, the industrial sector of Romania has assimilated in a relatively short period of time vast amounts of technology and know-how, and it is asssuming a sophistication with which it is increasingly capable of solving complex technical 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 manpower supported by well organized training programs. 37. Industrialization will remain the first priority of development both in the remaining years of the 1976-1980 Five Year Plan and in the longer run with output expected to grow at roughly 10 percent per annum until 1990. While previous growth was often achieved at the 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  - 11 - auditing. By applying the most advanced methods and by stressing scientific organization of manpower, substantially more value will be incorporated 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 38. 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 enterprises, Centrals and Design Institutes, which are not authorized to trade abroad, conduct their foreign business through the foreign trade enterprise which normally belongs to the same Ministry. However, as a result of new economic measures announced in March 1978, some changes may occur (see para 20). The Chemical Industry 39. Hydrocarbons, along with sulfur and industrial salts, have provided the basis for the development of the chemical industry in Romania. While Romania is no longer a significant exporter of basic petroleum products, it has established a flourishing chemical industry largely based upon domestic oil and natural gas resources, and has a highly trained workforce on which to base further development of the sector, as well as considerable experience in chemical engineering, research and development. Beginning from a relatively small base in 1950, the chemical industry grew at an average rate of 21 per- cent per annum from 1950-75. Growth rates in the past decades have also been substantial, at about 21 percent for 1965-70 and 16 percent for 1971-75, with the decline in growth rate reflecting increasing absolute size of the industry and delays in commissioning new plants. In 1976, the chemical industry accounted for 12 percent of industrial output (compared with 2.1 percent in 1950) and 8.3 percent of industrial exports (compared with 1.7 percent in 1950). The sector received 14.7 percent of industrial sector investments during the 1971-1975 Five Year plan period, and 13 percent in 1976. The development strategy for the chemical industry in the future will continue, as it is, to increase the value added to the country's petroleum and natural gas resources. 40. Chemical industry facilities are largely concentrated in the center and the south of the country, where large refinery and chemical complexes have been developed around the Ploiesti and Pitesti oil fields to produce a broad range of refinery products, chemical intermediates and end-products. The Government is making an effort to locate new plants for production of end products, such as fertilizers or synthetic products, away from these tradi- tional industrial centers, partly to promote a balanced regional growth and to avoid industrial congestion, and partly to take advantage of the availability of labor.  - 12 - Methane Gas Processing Industry 41. Romania has had an established chemical industry since the last decade of the 19th Century, based on its large petroleum and gas extraction industry. It is only in the last fifteen years that methane gas processing has become important, largely as a result of the Government's policies for the chemical industry and, more generally, for the energy sector. Accordingly the Government has restricted new gas connections solely to the chemical industry and is making considerable efforts to diversify primary fuel sources for industry and electric utilities away from gas, to coal and lignite. As a result the proportion of methane gas used as feedstock for the chemical industry has grown rapidly. Production of methane gas (which accounts for 90 percent of total gas production) is expected to remain at about the 1975 output figure of 27 million cubic meters over the next ten years. But, whereas in 1975 only 10 percent of methane gas produced was used as feedstock, by 1985 this figure is planned to increase to 30 percent. 42. A second significant trend is the widening variety of uses to which methane gas is being put. In the 1960s it was used primarily to produce ammonia for nitrogenous fertilizer production, and carbon black. Although ammonia production remains predominant, methane gas now is used as feedstock for a rapidly increasing output of methanol, as well as a widening variety of specialized chemicals. In 1975, 107,000 tons of methanol and 15,000 tons of specialized chemicals were produced and together accounted for about 7 percent of total chemical output of 1,663,000 tons from methane gas. In 1985, however, this proportion is planned to increase to 14 percent of a total output of 3,501,000 tons the same year. 43. Although some derivatives of methane can be manufactured by alterna- tive processes using ethylene as feedstock, these processes are not currently used in Romania. The one ethylene based complex now operating in Romania produces a range of other products. It is expected that in the future the possibilities for increasing the output of methane will remain limited, and ethylene-based derivatives for most applications are expected to remain cheaper than methane-based derivatives. Therefore, Romania will have to begin relying on ethylene-based products derived from imported crude oil to an increasing extent, and the Government is planning a large new petro- chemical complex at Midia for production of ethylene-based chemicals. How- ever, since ethylene-based complexes have to be large to be economic, the products to be produced by the project are unlikely to be manufactured by ethylene-based domestic plants due to the small size of the domestic market for these products. The Market 44. The products to be manufactured by the project are methanol, acetic acid, vinyl acetate monomer (VAM), polyvinyl acetate (PVA), ethyl acetate and acetic anhydride. All these are intermediates which are used in the manufac- ture of a wide variety of chemicals, which in turn are further processed  - 13 - before appearing in products in the capital goods or consumer markets such as synthetic fibres, water based paints, adhesives and aspirin. 45. In spite of rapid growth in the last decade, the Romanian domestic market for chemicals is still relatively small, with per capita consumption of many end-use products still below that of, say, Western Europe; there is thus, still room for further growth before parity with more developed countries is achieved. From 1965 to 1977 domestic consumption of chemicals grew at an annual rate of 20 percent as the Government sought to establish a basic chemicals intermediates industry prior to developing end-use industries. By the early 1970s a market for more sophisticated secondary products such as PVA was already established. For the chemicals to be produced by the project, consumption is expected to grow at an annual rate of 16 percent through 1983, after which plans for new outlets for methanol will accelerate consumption growth to bring the overall annual growth rate for 1978-85 close to that for the last decade. The table below summarizes domestic consumption of project products: Romania - Consumption of Project Products (000 tons) Average Annual Actual Projected Growth Rates (%) Product 1965 1970 1977 1983 1985 1965-77 1977-83 1977-85 Methanol 21.3 53.3 214.4 572.2 1,096.4 21.2 17.8 22.6 Acetic Acid 6.1 20.1 32.1 74.8 77.3 14.8 15.1 11.6 VAM /1 - 4.8 17.3 35.0 36.0 20.1 12.5 9.6 PVA 71 - 2.5 12.8 18.0 20.0 26.3 5.8 5.7 Ethyl Acetate /1 1.1 1.8 3.2 4.8 5.6 9.3 7.0 7.3 Acetic Anhydride /1 0.4 0.4 0.4 5.0 6.6 - 52.3 42.0 /1 Derivatives of acetic acid. 46. Examination of the Romanian authorities' plans for production, consumption and export of downstream products has shown that planned domestic consumption of the output of the project are consistent with the projected expansion of production and consumption-of end-use products, and are achievable within the framework of the Romanian economy. Domestic consumption of methanol for instance is projected to grow at an average annual rate of 18 percent until 1983, compared with a growth rate of 21 percent which was achieved between 1965 and 1977. Methanol is used principally in the Romanian market for the production of synthetic resins, rubber and fibres. Although increases in the production of all these end-use products are planned, the 1985-projected per capita consumption will still be below that of Western Europe countries. Of particular interest is the use of methanol for the production of isoprene rubber which will form a much higher proportion of total synthetic rubber production than is the case in the US and Western Europe. Isoprene rubber will replace most of the requirement for currently imported natural rubber;  - 14 - the use of isoprene rubber in the manufacture of radial tires is the only major growth area predicted for synthetic rubbers in western markets in the future. Another major use planned for methanol is the manufacture of single- cell protein 1/; by 1985, methanol production capacity in Romania is planned almost to double over its 1983 level to meet projected requirements for this use, although methanol produced by the project will all be absorbed into the domestic market before the single-cell protein project is planned to start-up. All methanol required for single-cell protein production will come from units which are outside the project and will be primarily built for that purpose. However, if problems were to be encountered with the operation of this plant, large quantities of methanol would be available which would have a major impact on the domestic and export markets. Further, the commitment of such a substantial capacity may be considered premature in view of the current state of technologies for single-cell protein production to be used mainly as animal feeds. The Government would review its projections for domestic con- sumption and production of methanol up to 1985 by December 31, 1979 and dis- cuss the results of this review with the Bank (Section 3.02, Loan Agreement). 47. Acetic acid and its derivatives are used principally in the Romanian market for the manufacture of man-made fibres, in paints and lacquers, and raw materials for adhesives and coatings. Export markets (particularly to COMECON countries) for these end use products have already been established, and future plans are aimed at maintaining and expanding these exports, as well as meeting anticipated increases in domestic consumption of end use products. Domestic consumption of acetic acid and its derivatives is planned to increase at an average annual rate of 9 percent from 1977 to 1985, compared with 23 percent in the period between 1965 and 1977. 48. Export of the project products will take place mainly in the first years of the project's life; of total production in the first three years of operation, about one third will be exported; by 1985 only 8 percent of output will be exported. Almost 40 percent of total export tonnage in the period 1980-1985 is destined for COMECON countries and China, while part of the rest will be placed in countries outside Europe with which Romania has established special trading relations; part of the material is planned to be sold in Western Europe. The three principal export items to Western Europe from the Craiova project are methanol, acetic acid and vinyl acetate; exports of each of the other project products is not expected to exceed 2,000 tons per year (in all cases less than 1 percent of Western European consumption) and little difficulty is anticipated in disposing of such small quantitites. Exports of methanol will represent 1.4 percent and acetic acid 1.2 percent of Western Europe consumption in the peak export year of 1981, while peak vinyl acetate exports in 1983 will amount to 0.6 percent of Western Europe consump- tion. Production and consumption of acetic acid in Western Europe have been 1/ Single-cell proteins are microbial proteins for animal, or even human, consumption and which are produced by microbiological fermentation of essentially non food materials, e.g., hydrocarbons, petrochemical products and certain types of waste.  - 15 - reasonably well balanced with only net marginal import requirements. However, trading operations have led to both exports and imports of these products to and from the region and the disposal of the relatively small quantities of Romanian acetic acid should not be much of a problem. 49. The future demand and supply situation for methanol is somewhat more difficult to assess, because structural changes in the supply pattern are likely to occur. OPEC countries and the USSR are entering the market with large capacity units and Western European producers are discouraged from planning any major capacity extensions. Although the output of the USSR plants will ultimately have a significant effect on the European market, their effect on export of methanol from the project (which should cease by 1983 because of the growth of the domestic market) are likely to be small, since these units are not likely to come on stream before the latter half of 1982. Furthermore, Romanian methanol enjoys a freight advantage over these plants, which will be situated in the Urals and Siberia. It is likely that from 1980 until the USSR plants reach full capacity operation, there will be a produc- tion deficit, marginal in 1980 but increasing to perhaps 600,000 tons by 1983. The disposal of peak exports of 55,000 tons of methanol in 1980 and 1981 should therefore be achievable. 50. In order to take full advantage of the export opportunities, Romania needs to improve its export sales organization. Export marketing of Craiova production will be carried out by DANUBEXIM, a foreign trade enterprise under the Ministry of Chemical Industry which is currently trading in fertilizers, explosives, tires, plastics, rubber and fibres. While DANUBEXIM has several partnerships with distributors in the main European markets, it has limited market intelligence capabilities. For Craiova products there may well be a need for some form of technical service to customers. The Government would review its export marketing development plans up to 1985 for the products to be produced by the project by December 31, 1979, and discuss the results of this review with the Bank (Section 3.02, Loan Agreement). The Borrower 51. 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 begins with preparation; its staff appraises all major investment projects technically and financially, and recommends for or against financing to the Government. 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 must 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 obligation to ensure that a project is executed according to the financial and technical data included in the final technical and economic  - 16 - study, approved by the Council of State. Its inspectors check whether the project is proceeding according to the schedule approved in the Plan. 52. While the Investment Bank's supervision and control function is thus rather strong during implementation of a project, its functions are much more limited during operation of a project. Although it has the right and obligation to verify that an enterprise is meeting the targets set in the investment plan, it has no legal authority to influence directly the manage- ment of the enterprise or to force the enterprise directly to take operational actions which it considers necessary. In practice, however, it can request such actions very effectively by reporting through the Ministry of Finance to the Government. 53. The Investment Bank is the channel for all sources of major domestic investment financing other than in agriculture, but its own funds for onlending as credits are relatively small. The primary source of its funds is the state Budget. The Government will ensure the availability of sufficient funds including foreign exchange requirements for the implementation and operation of the project (Section 2.02, Guarantee Agreement). The Guarantor will also ensure that the Investment Bank can meet the debt service on the Bank loan (Section 2.01, Guarantee Agreement). The Government confirmed that the new economic reforms will not affect the role of the Investment Bank as a relend- ing institution for Bank funds. PART IV - THE PROJECT 54. 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 subsector projects. A preparation mission visited Romania in June 1976 to further discuss the project. More complete information on the project was received in May 1977, and a second preparation mission visited Romania in June 1977. The project was appraised in March and June, 1978, and negotiations were held in Washington in October 1978. The Romanian delegation was led by Mr. Gheorghe Popescu, President of the Investment Bank, and included other representatives of the Investment Bank. The Staff Appraisal Report (No. 2144-RO of October 30, 1978) is being distributed separately to the Executive Directors. The Project 55. The project has three principal objectives. The first is to divert about 360 million cubic meters of methane gas from fuel to chemical feedstock uses, thus increasing the amount of gas processed into chemicals by about 12 percent. This would also diversify the range of products made in the Craiova Chemical Complex. The second is to transfer new technologies for two major plants included in the project; the acetic acid and acetic anhydride  - 17 - plant, and the carbon monoxide separation unit. The third objective is to make the best use of pre-existing investments at the project location, and the project's design concept fully takes this into account. Labor, raw materials and utilities are all available. The project would consist of the installation of a 30,000 tpy acetylene unit using methane feedstock, which would provide additional acetylene intermediate to new or expanded downstream units and would also deliver off-gases for use in the existing ammonia reactor and in part of the new acetic acid plant. The capacities of the existing vinyl acetate and polyvinyl acetate units would be expanded and the acetaldehyde unit would be fully utilized. New units which would be constructed under the project include methanol, acetic acid, acetic anhydride, and ethyl acetate plants. A new unit would also be constructed for the separation of carbon monoxide which would provide CO to the new acetic acid plant and hydrogen to the existing butanol plant. The project would produce the amounts of chemicals listed below: Project Unit Capacities and Net Production Capacities for Sale (tpy) Product Capacity Net Production for Sale /1 Acetylene 30,000 14,330 Carbon Monoxide (m3/h) 5,000 - Methanol 210,000 172,200 Acetic Acid 60,000 27,946 Acetic Anhydride 10,000 10,000 Vinyl Acetate 20,000 18,825 Polyvinyl Acetate 13,000 13,000 Ethyl Acetate 8,025 7,965 /1 Net production for sale to other units of the Craiova complex or outside. The balance is internally consumed in the project. 56. The project would be implemented by the Craiova Chemical Complex (the enterprise), which has long experience of chemical industry operations, an experienced labor force, and a capable management, led by the Deputy Manager of the Central. The Industrial Central For Chemical Fertilizers (CIICh.) is responsible for eleven plants (enterprises) in Romania, including the project enterprise. The Central's. head office is at Craiova, and its senior staff, under the Deputy Manager, have responsible executive positions in the enterprise. In addition the Central will provide all the technical assistance required to the enterprise, except for technical assistance for the acetic acid plant, which will be provided by BASF Company of the Federal Republic of Germany. Under Romanian law, civil works and construction would be carried out by construction trusts from the Ministry of Industrial Construc- tion, under the supervision of the Central's Design Institute (IITPIC), and international procurement would be handled by ROMCHIM (the foreign trade enterprise of the Ministry of Chemical Industries). These arrangements are well established under the Romanian system and have worked satisfactorily for previous Bank projects.  - 18 - Project Cost and Financing 57. The total financing required for the project (excluding import duties and taxes) is US$156.6 million equivalent, with an estimated foreign exchange component of US$59.7 million. The cost of equipment and materials to be procured from foreign suppliers has been estimated at the international prices prevailing in January, 1978. Physical contingencies have been esti- mated at 3 percent of the base cost. This is considered adequate given the advanced state of project implementation. Price contingencies on foreign exchange costs are based on an annual increase of 7.5 percent during the construction period. Due to near zero inflation under the Romanian system of administered prices, price contingencies on local costs have been calculated at one percent per annum. 58. The proposed Bank loan of US$40 million would finance 67 percent of the estimated foreign exchange costs of the project. The proposed loan to the Investment Bank would be for 14 years, including a grace period of 3-1/2 years and would be guaranteed by the Government. It is Romanian practice for the State to invest virtually all funds in industrial 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 transfer from state enterprises, taxes and depreciation payments. For this reason, the Investment Bank would not actually relend the Bank loan to the project enterprises. 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 equiv- alent of the debt service on the Bank loan, including (notional) payment of principal plus interest at 10 percent (Section 4.01(b)(iv), Loan Agreement). This arrangement is in line with our practice in previous industrial projects, and the Investment Bank would bear the foreign exchange risk on the Bank loan. Of the remaining project costs, US$12.9 million of foreign exchange costs would be financed by a supplier's credit from the Federal Republic of Germany, and the balance, including an estimated US$5.1 million of interest during construction, would be financed by the Government. The signing of this supplier's credit would be a condition of effectiveness of the proposed loan (Section 7.01, Loan Agreement). Procurement 59. Equipment and materials to be financed under the proposed loan will be procured according to Bank's guidelines in the following manner: (i) international competitive bidding (ICB) will be used for procuring imported equipment, materials and the know-how and services connected with such equip- ment esitmated at US$12.0 million; (ii) US$16.0 million of equipment and sub- assemblies which will also be subject to ICB and for which qualified Romanian suppliers exist and may be expected to bid; for these items, Romanian suppliers will be accorded a preference of 15 percent or the applicable custom duty, whichever is the lower; (iii) imported long-delivery items available from a limited number of suppliers and estimated at US$10.0 million may be purchased through prudent international shopping, subject to prior approval by the Bank  - 19 - of such procurement procedure and of the list of items involved; and (iv) imported items costing less than US$100,000 each (and up to a total of US$2.0 million) may be purchased through international shopping on the basis of suitability, availability, and price considerations, subject to prior approval by the Bank of the list of items involved. Advance contracting of US$7 mil- lion for long-delivery items has been incurred in accordance with Bank guide- lines after the appraisal was started and before the project is presented to the Board; however, there would be no retroactive financing for this project. Any change in the list of equipment and services proposed to be financed by the Bank (Annex to Schedule I, Loan Agreement) would be subject to the prior approval of the Bank. 60. The Bank loan is expected to be disbursed over three years for (i) 100 percent of foreign expenditures for imported equipment, materials and services, (ii) 100 percent of local expenditures ex-factory for equipment and sub-assembly items procured from Romanian suppliers following international competitive bidding. Environmental Impact and Safety 61. Potential water pollution arising from organic components in indus- trial waste water from the Complex would be brought to acceptable levels by the installation of biological treatment facilities. No problems are antici- pated with regard to the air pollution levels on account of the technological process selected. A variety of different chemicals, hot fluids and high pressure fluids might present a potential hazard if not properly handled. However, the 6perating standards already employed at the Complex are in line with up-to-date standards elsewhere in the world resulting in safety records which are remarkably good. No major hazards are expected with regard to the oxygen separation plant and acetylene furnaces because of this design and the installation of proper facilites to avoid any risk of explosion. The engineer- ing and operational standards adopted on safety were reviewed by a Bank expert and a consultant, and found satisfactory. The Government has undertaken that the project facilities will be designed, constructed and operated with due regard to ecological, environmental, and safety standards (Section 4.01(a)(i), Loan Agreement). Benefit and Risks 62. The project would contribute to meeting Romania's growing demand for methane based chemical products, and would enable Romania to both earn and save scarce foreign exchange. The end use products manufactured from the chemicals to be produced under the project would find a wide range of applica- tions across Romanian industry, including plastics, paints, varnishes and man-made fibres. Transfer of technology by the foreign suppliers for the acetic acid and acetic anhydride plant, and the carbon monoxide separation unit will also be a benefit to the Romanian chemical industry. The project would provide employment for about 1,100 people. The estimated economic return for the project is 16 percent, which is satisfactory. The return is most sensitive to changes in product prices. If chemical product prices were to increase by 10 percent, the return would rise to 20 percent, but if they were to fall by 10 percent the return would decline to 12 percent.  - 20 - 63. The major risk to the project is that exports may faLll short of expectations in the initial years of project operat-lon as a result of strong competition from other suppliers in Western Europe, and EEC tariffs which are at present equivalent to 10 percent of product prices on average. A second risk concerns the commercial marketing practices of DANUBEXIM, the export marketing agency for chemicals. To reduce these risks to an acceptable level, the Government would review its projections for domestic consumption and production of methanol up to 1985, and its export marketing development plans for the products to be produced by the project, both by December 31, 1979, and discuss the results of these reviews with the Bank. The risk would also be reduced to an acceptable level by the flexibility in project design, which enables different production mixes to be undertaken without affecting overall project profitability or viability. In particular, production of acetic acid can be substituted for acetic anhydride with almost no effect on the economic return. PART V - LEGAL INSTRUMENTS AND AUTHORITY 64. 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, and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 65. Features of the project of special interest are listed in Section III of Annex III. 66. The special condition of effectiveness of the proposed loan is that the signing of the supplier's credit from the Federal Republic of Germany has taken place (Section 7.01, Loan Agreement). 67. I am satisified that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 68. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments November 14, 1978 Washington, D.C.  - 21 - ANNEX I Page 1 of 5 pages TABLE 3A ROMANIA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES RUMIANIA a LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE) TOTAL 237.5 SAME SANE NEXT HIGHER AGRICULTURAL 149.0 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 Lb ESTIMATE Lb REGION /c GROUP /d GROUP We GNP PER CAPITA (USS) 190.0 530.0 1580.0 1898.8 1796.4 2839.0 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 1342.0 3013.0 3803.0 1869.3 1525.0 2376.4 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 18.4 20.3 21.7 URBAN POPULATION (PERCENT OF TOTAL) 32.0 40.8 43.0 43.0 52.2 POPULATION DENS ITY PER SQ. XM. 77.0 85.0 91.0 81.4 27.6 55.8 PER SQ. X0(. AGRICULTURAL LAND 126.0 136.0 146.0 135.2 116.4 83.6 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 27.9 /f 25.9 25.4 26.2 34.8 40.0 15-64 YRS. 64.9 If 65.5 64.8 63.4 56.0 55.3 65 YRS. AND ABOVE 7.2 /f 8.6 9.8 9.9 5.7 3.8 POPULATION GROWTH RATE (PERCENT) TOTAL 1.2 1.0 1.0 0.8 1.6 2.9 URBAN 3.8 3.4 2.1 2.2 3.4 CRUDE BIRTH RATE (PER THOUSAND) 23.9 19.0 19.7 19.2 27.0 31.7 CRUDE DEATH RATE (PER THOUSAND) 10.9 8.9 9.3 9.0 9.9 7.9 GROSS REPRODUCTION RATE 1.2 1.3 1.3 1.3 1.9 1.6 PAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. .. USERS (PERCENT OF MARRIED WOMEN) .. .. .. 38.0 19.3* FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 96.2 100.0 146.1 113.7 103.8 114.7 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREPENTS) 105.0 118.0 118.0 /t 127.4 110.4 113.4 PROTEINS (GRAMS PER DAY) 81.0 92.0 90.0 ft 92.8 77.7 89.9 OF WHICH ANIMAL AND PULSE 24.0 28.0 .. 39.3 22.2 48.0 CHILD (AGES 1-4) MORTALITY RATE 4.9 /f 2.4 2.1 1.6 1.9 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 65.9 67.7 69.1 68.9 63.0 60.2 INFANT MORTALITY RATE (PER THOUSAND) 75.7 49.4 34.7 34.5 38.2 22.1 ACCESS TO SAFE WATER (PERCENT OF POP ULATION) TOTAL .. .. .. 68.3 67.7 83.0 URBAN ... .74.3 83.5 100.0 RURAL 64.4 41.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 94.0 70.3 57.8 URBAN .. .. .. 94.0 90.7 99.3 RURAL .. .. .. 93.0 38.3 POPULATION PER PHYSICIAN 740.0 680.0 620.0 686.5 1310.8 976.9 POPULATION PER NURSING PERSON 300.0 200.0 180.0 339.0 849.2 676.1 POPULATION PER HOSPITAL BED TOTAL 130.0 /f 120.0 108.0 178.0 275.4 325.8 URBAN 50.0 /f 50.0 60.0 70.0 129.9 250.0 RURAL 620.0 /f 770.0 730.0 1770.0 965.9 770.0 ADMISSIONS PER HOSPITAL BED .. 23.0 .. 15.3 18.9 18.7 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL *- 3.2f/ .. .. 3.9 URBAN * 2.8 /h RURAL .. 3. 4 /h AVERAGE NUMBER OF PERSONS PER R0OM TOTAL .. 1.4 /h .. 0.9 0.9 URBAN .. 1.3f/ .. 0.8 0.8 RURAL .. 1.4f/ .. 1.0 1.0 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 49.0 /h 57.5 59.2 URBAN 0 990 78.0 RURAL .. 27.0h . 1.  - 22 - ANNEX I TABLE 3A Page 2 of 5 pages ROMANIA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES ROIMAIA /a - MOST RECENT ESTIMATE) SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 lb ESTIMATE lb REGION jc GROUP Id GROUP /e EDUCATION ADJUSFTED ENROLLMENT RATIOS PRIMARY: TOTAL 98.0 113.0 109.0 108.0 97.6 104.1 FEMALE 95.0 114.0 109.0 99.5 87.4 120.3 SECONDARY: TOTAL 24.0 45.0 62.0 62.8 47.8 44.7 FEMALE 22.0 38.0 59.0 63.6 42.6 46.0 VOCATIONAL (PERCENT OF SECONDARY) 54.0 58.0 70.0 28.2 22.7 18.7 PUPIL-TEACHER RATIO PRIMARY 25.0 21.0 21.0 24.9 25.4 30.6 SECONDARY 16.0 18.0 19.0 17.3 24.9 16.3 ADULT LITERACY RATE (PERCENT) .. .. 98.0 88.3 96.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION .. .. .. 90.4 32.3 53.4 RADIO RECEIVERS PER THOUSAND POPULATION 109.0 152.0 145.0 199.0 201.9 195.5 TV RECEIVERS PER THOUSAND POPULATION 3.0 73.0 127.0 132.5 97.7 108.4 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 147.0 169.0 129.0 97.1 70.9 108.0 CINEMA ANNUAL ATTENDANCE PER CAPITA 9.0 9.8 8.9 6.6 4.4 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 9600.0 9900.0 10200.0 FEMALE (PERCENT) 44.9 44.5 44.6 32.4 17.4 26.9 AGRICULTURE (PERCENT) 65.4 49.0 35.6 32.8 38.4 25.7 INDUSTRY (PERCENT) 15.1 23.0 32.7 PARTICIPATION RATE (PERCENT) TOTAL 57.1 56.0 55.9 39.1 33.7 40.1 MALE 64.5 63.3 62.8 56.7 50.8 55.8 FEMALE 50.1 49.0 49.1 29.7 12.6 24.7 ECONOMIC DEPENDENCY RATIO 0.7 0.7 0.7 0.9 1.4 1.6 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. .. 31.9 20.2 HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. .. 59.7 47.9 LOWEST 20 PERCENT OF HOUSEHOLDS .. .. .. 4.0 3.2 LOWEST 40 PERCENT OF HOUSEHOLDS .. .. .. 12.9 13.7 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) UTRBAN .. .. RUJRAL .. .. .. 194.9 157.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 295.1 448.8 RURAL .. .. 325.0 309.2 313.1 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. .. 18.2 23.2 RURAL .. .. 10-20 24.2 54.5 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. lb Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c Europe; /d Upper Middle Income ($1136-2500 per capita, 1976); le High Income (over $2500 per capita, 1976); /f 1962; /a Av. 1969-71; 1h 1966. September, 1978  - 23- DEFINITIONS OF SOCIAL INDICATORS ANNEX I Page 3 of 5 pages Ha&j: The adjusted group averages for each- indiostor are population-weighted geometric means, e.ncluding the extreme values of the indiocotr and the moot popu1ated country in each group, Coverage of countries smong the indicators depends on availability of data and is not uniform. Sue to lack of data, group averages for Capital Surplus oil Exporters and indicatorn of access to water and excreta disposs1, housing, intcome distribution and poverty are simple popul at ion-weighted geometric means without the exclusion of extreme vslues. LA.ND AMAE (thousand sq. kin) Population Par hospital bed - total. urban, and rsral - Population (total, Total - Total surface ares comprising land area and Inland waters, urban, and rural) divided by their respective number of hospital beds A&rILultural - M..t r recent estimate of agricultural area used temporarily available In public xnd private general sod specialized hospital and r- or permanently for crops, pastures, macbat and kitcher gardens or to habilitation centers. Hospitals are establishments permanently staffed by lie fallow. at least one physician. Establishments providing principally custodial care are not included. Rural hospitals, however, include health and "ai- GNP PER CAPITA GIJS$) - GNP per capita estimates at currant market prices, cal centers not permanently staffed by a physician (hut by a medical as- calculated by same conversion method as World Bank Atlas (1975-77 basis); sistant. nurse, midwife, etc.) which offer in-patient accOomodotion and 1960. 1970, and 1977 data, provide a limited range of meical facilities. Admissions per hospital bed - Total number of admissions to or discharges ENERGY CONSUMPTION PER CAPITA- Annual consumption of cowAercial energy from hospitals divided by the number of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear and geo- thermal electricity) in kilograms of coal equivalent par capita. ODUSING vrge ales of household (nar-on per household) - total, urban. and rural - POPULATION AND VITAL STATISTICS A household consists of a group of individuals who share living quarters Total population. mid-year (millions) - As of July 1; if not available, antd their main meals. A boarder or lodger may or nay not be inicluded in aeaeof two end-year estimates; 1960. 1970. and 1977 date, the household for statistical purposes. Statistical definitions of house- Urban population (percent of total) - Ratio of urban to total popula- hold vary. tion;, different definitions of urban areas may affect comparability Average number of persons par room - total. urban. and rural - Average num- of data song countries, ber of persons per room in all, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings exclude non-permanent structures and Per sq. km. - Kid-year population por square kilometer (100 hectares) unoccupied parts. of total area. Access to electricity (percent of dwellings) - total, urban. and rural - Par sq. be. agriculture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters as percestage only. of total, urban. and rural dwellings respectively. Population age structure (percent) - Chisldrmn (0-14 years), wocking-age (15-64 years). and retired (65 years and over) as percentages of mid- EDUCATION year population.- Adlusted enrollment ratios Population growth rate (percent) - to ta'l. andurb!, - Compound annual Primary school - total. and female - Total and female enrollment of all ages growth rates of total and urben aid-year pouatipns for 1950-60, at the primary level as Percentages of respectively primary school-age 1960-70, and 1970-75. populations; no rmawlly includes children aged 6-11 years but adjusted for Crude birth rate Cpor thousand) - Annual live births per thousand of different lengths of primary education; for countries with univareal edu- mid-year population; ten-year arithmetic averages ending in 1960 and ratios en~rollment may exceed 100 percent since some pupils are below or 1970 snd five-year averge ending in 1-975 far meat recent estimate, above the official school age. Crude death rate (per thousand) - Annual deaths per tho"naad of sid- Secondary school - total, and female - Computed an above; secondary educe- year population; ten-year arithmetic averages ending in 1960 and 1970 tion requires at least four years of approved primary instruction; pro- and five-year average ending in 1975 for most recent estimate. vides general vocational, or teacher training Instructions for pupils Gross reproduction rate - Average numbe of daughters a woman will heat usually of 12 to 17 years of age; correspondence courses are generally in her normal naproductive period if she experiences present age- excluded. speci.fic fertility rates; senally five-year averages ending in 1960, V2otional enrollment poercenkt of secondary) - vocational institutions in- 1970, and 1975. clods technical, industrial, or other programs which operate independently Family planninng - acceptors, annual (thousands) - Annual number of or a departments of secondary institutiosn. acceptors of birth-control. devices under auspices of national family Pusil-teacher rato-pimy and secondary - Total students en,rolled in planoing program. priaryan secodar I yal divided by numbers of teachers in the corre- Family piasniRg - users (percent of married womex) - Percentage of sponding levels. married ..amn of child-bearing age (15-44 years) who .se birth-control Adult literacy rate (paccet) - Literate adults (able to read and write) as devices to all married women in same age group. a percentage of total adult population aged 15 years end over. FOOD AND NUTrRITION CONS-UMPTION Index of food production per capita (1970-100) - Index nmuser of per Paseenaer cars (per thousand population) - Passenkger cars comprise macor cars capita annual production of all food coemodities. seating less than eight persons; excludes eabulankces, hearses and military Per capita supply of calories (percent of requirements) - Computed from vehicles. energy equivalent of nar food supplies available In country per capita Radio receivers (per thousand population) - All types of receivers for radin per day. Available supplies comprise domestic productimn. imports less broadcasts to general public per thousand of population; excludes unlicemeed exports, and changes in stock. Not supplies exclude animal feed, seeds, receivers in, countries and in years when registration of radio sets was in quantities used in foodprcsig and Losses In distribution. Re- effect; date for recent years may not be comparable since mast countries quirements were estimated by FAO based on physiological needs for nor- abolished licensing. mal activity and health considering anvironmsentel toWerature, body TV raceiveru (per thousand population) - TV receivers for broadcast to Sener&t weights, age and sea distributions of population, and allowing 10 per- public par thousand population; excludes unlicensed TV rece.ivers in noun- cent for waste at household level. tries and in years when registration of TV sets was in effect. Per capita supply of pr1otein (a:roa Per day) - 1rotein content of per esppr circulation (per thousand population) - Shows the avrage circula- capita net supply of fodprdY. Hot supply of food is defined as tion of "daily general interest newspaper"', defined as a Periodical publi- above. Requirements for all countries established by USDA provide for cation devoted primarily to recording general nwew. It is considered to a minimum allowance of 60 grams of total protelin per day and 20 grmam be "daily" if it appears at least four timas a week. of animal and pulse protein, of which 10 grams should be animal protein. Cinem annual attendance per capita per year - Based on the number of tickets These at.ndarda are lower than those of 75 geems of total protein and sold during the year. including admissions to drive-in cin .... an d mobile 23 grams of animal protein as an average for the world, proposed by unite.. PAO in the Third World Pond Survey. Per caepita poteinosuaply from nimal nd pulse - Protein supply of food EMPLOYMENT derived from animals and pulses in gram per day. Total labor force (thousands) - Economically active persons, including armed! Child Omases 1-4) mortality rate (per thouaemd) - Annual deaths per thous- forces end unmployed but excluding housewives, stodents, etc. Defini- and in age group 1-4 yearsr, to children in this age group. tione in various countries are not comparable. Pmalel (percent) - Female labor force as percentage of total labor force. HEALTH Agriculture (percent) - Labor force in farming, forestry. hunting and fishing Life expectancy at birth (years) - Average number of years of life as percemntae of total labor forc., remaining at birth; usually five-year averages ending in 1960. 1970. Industry (percent) - Labor force in mining, constmuctIon, manufacturing and and 1975. electricity, water end gas as percentage of total labor force. Infant maortality rate (por thousand) - Annual deaths of infants under, Participation rate Ceercext) - total. male. aed female - Total. male, and one year of age per thousand live birhts. 'emale labor force as percentages of their respective populations. Access to safe water (Percent of pulto)-total. urban. aed rural - Thease are TLO.' adjusted participatiom rates reflecting sue-sen Number of people (total, urban, Emd url) wih reas ona.ble access to structore of the popoistion. .nd toutrime trend. safe water supply (includes treated surface waters or untreated but tcouomic dependency ratio - Ratio of population under 15 and 65 and over to uncontaminated waetr such as that from protected boreholes, springs, the labor force in age group of 15-64 years. and sanitary cells) as percentages of their respective populations. In an urban area a public fountain or cstmdpost located not mare INCOM DISTRIBUTION than 200 meters from a house may be considered as beitng within rea- Parcentage of private income (both in cash and kind) received by richest 5 sonable access of that hos . I rural Arsereasona.ble access. woulId Perccant, richest 20 percent, pooret 20 peccant, and poorest i0 percent imply that the housewife or members of the househldJ do not have to of households. spend a disproportionate part of the day in fetching tha family's water needs. POVERTY TARGET GROUPS Accee s to excrete dispc,a.l (Percent of population) - totaLl. urban. and Estimated absolute poverty incou* level (US$ per capita) - urban and rural- rural - Number of people (total, urban, and rural) served by excrete Absolute -poverty income level Is that income-level below which a minimal disposal as percentages of their respective populations . Excrete nutritionally adequate diet plus essential non-food requirements in not disposal na-y include the collection and disposal, with or without affordable. treatment , 01 humen excrete and casts-water by water-borne systems Estimeted relative poverty income level (US$ per capita) -uban and rural- or the .uc of pit privies and similar installations. Relative poverty income level is that income levells tha one-third PoPulation per physician - Population divided by nzber of practicing per capita personal incomme of the country. physicians qualified fr.on a medical school at university level. Estimated population below pov.rty incme level (percent) - urban and rural- Population per nursing person - Population divided by pusher of Percent of population (urban and rural) who sre either "absolute poor" or practicing male and female graduate nurses, practical nurses, and "relative poor" whichever is greater. Economic and Social Data Division Econtomic Analysis and Projections Department  - 24 - ANNEX I Page 4 of 5 pages ECONCMIC INDICATORS GROSS NATIONAL PRODUCT IN 1977 ANNUAL RATE OF GROWTj (% constant prices) US$ Min. 7% 1961-65 1966-70 1971-75 1975-77 GNP at Market Prices 30,300 100.0 9.O/ 7.71k 11.31' 9.61/ Gross Fixed Domestic Investment 8,463 27.9 11.3 11.2 11.2 9.9 Gross National Saving 8,157 26.9 .. Current Account Balance -306 1.0 , 2/3/ Export of Goods, NFS 7,523 24.8 9O2 123/ 23 6- - 14;723/ Imports of Goods, NFS 7,537 24.9 1O:72/3/ 12:7!/h/ 22.32/-/ 14.J/3/ OUTPUT. LABOR FORCE AND PRODUCTIVITY IN 1977 National Income 4/ Labor Force N.I. Per Worker US$ Bln. % Mtn us U $ % Agriculture 3.29 13.2 3.53 34.4 932 38.3 Industry 13.22 53.0 3.36 32.7 3,935 161.7 Constru tion 2.33 9.3 0.90 8.8 2,589 106.4 Other J 6.12 24.5 2.47 24.1 2,478 101.8 Total/Average 24.96 100.0 10.26 100.0 2,433 100.0 GOVERNMENT FINANCE IN 1977 Central Government Lei Billions % of GDP Total Receipts 282.0 46.2 Total Expenditures 280.4 45.9 Total Surplus 1.6 0.3 MONEY. CREDIT AND PRICES (in billions of Lei, end of year) 1971 1972 1973 1974 1975 1976 1977 Money Supply .. .. .. 160.1 176.4 201.4 207.5 Short-tern Bank Credit .. 131.3 155.3 170.2 194.0 194.5 Retail Prices (1970 = 100) 101.6 101.6 102.4 103.7 103.9 104.4 105.0 Percentage Changes in Retail Prices 1.6 - 0.8 1.3 0.2 0.5 0.5 1/ Growth rate of national income. EMENA CPlD 2/ In current prices. 3/ Growth rates of exports and imports only. November 1, 1978 _/ System of material production methodology, 5/ Includes net output of the non-productive sector,  - 25 - ANNEX I Page 5 of 5 pages BALANCE OF PAYMENTS (Convertible Currencies) MERCHANDISE EXPORTS 1977 (All Currencies) 1971 1976 1977 (Millions US $) US $ Mln % Exports of Goods & NFS +944 +3,653 3,983 Capital goods 1,878 27 Imports of Goods & NFS -988 -3,592 4,080 Consumer goods 1,167 17 Resource Gap (deficit -) -44 +61 -97 Foodstuffs 910 13 Intermediate goods 596 9 Interest Payments -40 -122 -195 Raw materials 2,479 35 Other Factor Payments (net) -25 0 +19 Industrial 2,066 29 Balance on Current Account -109 -61 -273 Agricultural 413 6 Direct Foreign Inv stment Total 7,031 100 Net MLT Borrowing I Disbursements +312 +912 928 EXTERNAL DEBT (Dec.31. 1977) Amortization -190 -482 -561 Subtotal +122 4430 +367 US $ Mln Export Credits ExtendedV/ (net) 2/ -274 -171 Short-term Credit (net) -20 -44 +156 Total M & LT 3,491 Net Errors & Omission - - - of which convertible Increase in Reserves (+) -7 +52 +32 currencies 3,402 Fuel & Related Materials Imports 635.6 2,496.8 2,622.1 DEBT SERVICE RATIO 1977 of which Petroleum Exports 425.5 1,477.5 1,463.0 % of which Petroleum 142.9 Convertible currencies only 19.0 EXCHANGE RATES 1. Official Rate Before August 1971 6 lei:US$l August 1971-February 1973 5.53 lei:US$l February 1973-March 1978 4.97 lei:US$l Since March 1978 4.47 lei:US$1 2. Tourist Rate Before August 1971 18 lei:US$1 August 1971-February 1973 16 lei:US$1 February 1973-October 1974 14.38 lei:US$l Since October 1974 12 lei:US$l 3. Conversion Rate for Traded Goods July 1973 - March 1978 20 lei:US$l Since March 1978 18 lei:US$l EMENA CPID 1/ Includes use of IMF credit. November 1, 1978 2| Included in M & LT Capital. 3/ Includes S, M & LT credits extended.  ANNEX II - 26- Page 1 of 4 pages STATUS OF BANK GROUP OPERATIONS IN ROMANIA A. STATEMENT OF BANK LOANS (As of September 30, 1978) US$ Million Loan Amount (less cancellations) Number Year Borrower Purpose Bank TW IDA Undisbursed One loan fully disbursed 20.0 Ln. 1020-RO 1974 Investment Bank Fertilizer 60.0 11.5 Ln. 1027-RO 1975 Investment Bank Special Steel 70.0 9.4 Ln. 1028-RO 1975 Investment Bank Thermal Power 60.0 0.9 Ln. 1082-RO 1975 BAFI a/ Irrigation 70.0 . 57 Ln. 1083-RO 1975 BAFI Agricultural 30.0 T 5 Credit Ln. 1169-RO 1976 BAFI Flood Recovery 40.0 3,2 Ln. 1242-RO 1976 Investment Bank Hydropower 50.0 27.4 Ln. 1247-RO 1976 BAFI Irrigation 60.0 40.9 Ln. 1368-RO 1977 BAFI Irrigation 60.0 50.3 Ln. 1436-RO 1977 Investment Bank Bearings 38.0 38.0 Ln. 1447-RO 1977 Investment Bank Glass Fiber 18.3 13.3 Ln. 1448-RO 1977 Investment Bank Polyester 50.0 344 Ln. 1479-RO 1978 BAFI Agricultural 71.0 Credit . 59.4 Ln. 1509-RO 1978 BAFI Irrigation 40.5 40.5 Ln. 1536-RO 1978 Investment Bank Tire 85.0 85.0 Ln. 1581-RO 1978 Investment Bank Post 60.0 60.0 Earthquake Total 882.8 487.4 Of which has been repaid - Total now outstanding 882.8 Amount sold 18.6 - Of which repaid 0.0 18.6 Total now held by Bank-b/ 864.2 Total undisbursed 487.4 487.4 a/ Bank for Agriculture and Food Industry b/ ,'xeluding exchange adjustments.  ANNEX II - 27 - Page 2 of 4 pages B. PROJECTS IN EXECUTION LN No. 1020 Bacau Fertilizer Project; US$60 Million Loan of June 28, 1974; Date of Effectiveness: December 31, 1974; Closing Date: December 31, 1978 The project is proceeding satisfactorily after initial delays due to changes in site and project scope, and delays in design and construction. About 85 percent of total procurement has been completed, and construction is well advanced. The ammonia and the DAP plants are expected to be commis- sioned by the end of 1978, and the urea plant by the second quarter of 1979, about 18 months later than expected. The final project cost is expected to be close to the appraisal estimate. Ln No. 1027 Otelinox Special Steel Project; US$70 Million Loan of July 10, 1974; Date of Effectiveness: April 3, 1975; Closing Date: December 31, 1979 Execution of the project was delayed nearly a year, primarily be- cause of the complexity of two large bid packages, the Romanians' lack of familiarity with international competitive bidding procedures under the Bank's Guidelines, and lack of interest and competition among suppliers. Progress on procurement has been closely monitored by several Bank supervision missions. The contracts for the two steel mills under the loan have been signed and construction is progressing in accordance with contracted schedules. Total project costs are expected to be slightly below appraisal estimates, but this is not expected to affect disbursement of the loan which is now fully com- mitted for two main supply contracts. The project is now expected to be completed in August 1979. Ln No. 1028 Turceni Thermal Power Project; US$60 Million Loan of July 10, 1974; Date of Effectiveness: November 6, 1974; Closing Date: June 30, 1979 Delays in construction due to late delivery of equipment are likely to result in a nine month delay in commissioning of generating units. Project execution is otherwise according to plan and satisfactory. Training of future operational staff is in hand. Ln No. 1082 Giurgiu-Razmiresti Irrigation Project; US$70 Million Loan of February 6, 1975; Date of Effectiveness: May 5, 1975; Closing Date: June 30, 1979 Construction of project works is progressing satisfactorily and about 85 percent of the project has been completed. Procurement is 93 per- cent completed. About 67 percent of the project area has been irrigated by June, 1978. All remaining works are expected to be completed by December, 1978. Total project costs are expected to be about US$33 million less than appraisal estimates, and about US$4 million of the loan amount is expected to be cancelled if not required for the project before the closing date.  -28 - ANNEX II Page 3 of 4 pages Ln No. 1083 Sadova-Corabia Agricultural Credit 1 S530 Million Loan of February 6, 1975; Date of Effectiveness: April 29, 1975; Closing Date: December 31, 1979 Progress continues to be satisfactory in implementing subprojects. A contract for the pre-mix feed mill has been concluded and remaining project procurement, for chemicals and fertilizers, is being carried out under bulk contracts tendered internationally for 1978 Romanian requirements. Disburse- ments amounted to US$21.1 millior. as of June 30, 1978 and are 12 percent ahead of the appraisal estimate. Ln No. 1169 Flood Recovery Project (Agricultural Component); US$40 Million Loan of November 12, 1975; Date of Effectiveness: December 2, 1975; Closing Date: December 31, 1979 Project execution is proceeding well and disbursements are on schedule. Equipment procured under international competitive bidding has been delivered and'only small quantities of spare parts remain to be procured. Bids were received in March 1977 for flood early warning system equipment. The Romanians advised us that bid evaluation was delayed because of the tech- nical complexity of the package, but the bid evaluation report has been sub- mitted to the Bank, approved by the Bank, and the contract has been signed. Ln No. 1242 Riul Mare Retezat Hydropower Project; US$50 Million Loan of April 28, 1976; Date of Effectiveness: July 26, 1976; Closing Date: December 31, 1981 Due to shortage of manpower, tunneling works have been delayed and mechanized excavation methods are expected to be introduced in early 1979. Project execution is currently about one year behind schedule. Civil works for the dam and underground power station are well underway, and about 75 percent of the loan amount has been committed. Ln No. 1247 Rasova-Vederoasa Irrigation and Agriculture Development Project; US$60 Million Loan of April 28, 1976; Date of Effectiveness: November 3, 1976; Closing Date: June 30, 1981 Construction of pumping stations, canals, and other project works is well underway and progress on these facilities is satisfactory. Twenty four thousand ha have been brought under irrigation during 1978, one year ahead of schedule. Facilities for four dairy farms are complete and contracts for purchase of about 4,600 imported heifers (50 percent of total) valued at over US$3 million have been awarded. Procurement contracts for all equipment, except canal lining equipment, have been awarded. Ln No. 1368 Ialomita-Calmatui Irrigation Project; US$60 Million Loan of March 2, 1977; Date of Effectiveness: June 23, :1977; Closing Date: June 30, 1982 Procurement for this project has been consolidated with that for the Rasova-Vederoasa Project (Ln. 1247) noted above, and all contracts have already  - 29 - ANNEX II Page 4 of 4 pages been awarded, except those for tile laying machines and canal lining machines, which are expected to be awarded shortly. Construction of some project works is underway and progress is satisfactory. Ln No. 1436 Brasov Bearings Project; US$38 Million Loan of June 15, 1977; Date of Effectiveness: August 11, 1977; Closing Date: December 31, 1982 Initial bids on major bid packages have been received and procurement is proceeding satisfactorily. Ln No. 1447 Bucharest Glass Fiber Project; US$18.3 Million Loan of June 15, 1977; Date of Effectiveness: August 11, 1977; Closing Date: June 30, 1980 Procurement has been completed, and execution of the project is proceeding satisfactorily. Ln No. 1448 Cimpulung, Muscel Polyester Project; US$50 Million Loan of June 15, 1977; Date of Effectiveness: October 3, 1977; Closing Date: March 31, 1981 The main supply contract has been signed, and execution of the project is proceeding satisfactorily. Ln No. 1479 Pig Production and Processing Project; US$71 Million Loan of July 15, 1977; Date of Effectiveness: September 28, 1977; Closing Date: June 30, 1982 Project implementation is proceeding satisfactorily. BAFI has made subloan commitments of US$114.5 million or 36 percent of total project costs. Ln No. 1509 Viisoara Irrigation Project; Us$40.5 Million Loan of January 27, 1978; Closing Date: December 31, 1983 This loan was signed on January 27, and became effective on May 15, 1978. Ln No. 1536 Tires Project; US$85.0 Million Loan of March 30, 1978; Closing Date: December 31, 1981 This loan was signed on March 30, and became effective on June 9, 1978. Ln No. Post Earthquake Construction Assistance Project; US$60.0 Million Loan of June 12, 1978; Closing Date: June 30, 1981 This loan was signed on June 12, and became effective on September 5, 1978.  - 30 - ANNEX III ROMANIA - CRAIOVA CHEMICAL PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Time taken by the country to prepare Two years project: (February 1976 - February 1978) (b) Agency which prepared the project Ministry of Chemical Industry (c) Date of first presentation to the Bank and date of Bank mission to consider the project: February 1976, June 1976 (d) Date of departure of Appraisal March 1978 Mission: (e) Date of completion of negotiations: October 6, 1978 (f) Planned date of effectiveness: March 12, 1979 Section II: Special Bank Implementation Actions None Section III: Special Conditions The special condition of effectiveness of the proposed loan is that the signing of the supplier's credit from the Federal Republic of Germany has taken place (paras. 58 and 66). Other Special Conditions are: (a) The Investment Bank will cause a review of the Government's projections for domestic consumption and production of methanol up to 1985, and of its export marketing develop- ment plans for the products to be produced by the project, both by December 31, 1979 and to discuss the results of these reviews with the Bank (paras 46 and 50). (b) The Craiova Chemical Complex will ensure that it will operate the project facilities with due regard to ecological, environ- mental and safety factors (para. 61).  I BRD- 13591 g I z W 0 i s e g S ~I. ( 23i\t z~~~~ U_X< ff i fit<O ct- U~~~~~-. JO | ( t i Y 6 2 ) | j 2 0.~~~~~~~~~~~~~~~~~~~~~~, MAY 1978