India - Hazira Fertilizer Project

Document of FILE COP The World Bank F0DR OMCAuL USE ONLY Kept pb P-2986-IN REPORT AllD RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE HAZIRA FERTILIZER PROJECT March 11, 1981 Thus dscumeut his a noictbd dihibhi. and my be ud by recipleis aly in the pefmnxxe d1 their official dats, Its cmtemls ty at ihewise be disoed witd_s WeM Dmk B dhriem. |  CURRENCY EQUIVALENTS (As of March 3, 1981) Rs 1.00 = Paise 100 US$1.00 Rs 8.291203 Rs 1.00 = US$0.1206 Rs 1 million = US$120,610 (The U.S. Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were made at US$1.00 to Rs 8.00, which represents the projected exchange rate over the disbursement period.) FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS FACT - Fertilizer and Chemicals Travancore Ltd. FEDO - FACT Engineering and Design Organization GOI - Government of India IDBI - Industrial Development Bank of India IFFCO - Indian Farmers Fertilizer Cooperative Ltd. KRIBHCO - Krishak Bharati Cooperative Ltd. Ncmd - Normal cubic meters per day ODA - Overseas Development Administration, UK OECF - Overseas Economic Cooperation Fund, Japan tpd - Metric tons per day tpy - Tons per year  FOR OFFICIAL USE ONLY INDIA HAZIRA FERTILIZER PROJECT Credit and Project Summary Borrower: India, acting by its President. Beneficiary: Krishak Bharati Cooperative Ltd. (KRIBHCO). Amount: SDR 321.5 million (US$400 million) Terms: Standard Onlending Terms: GOI to KRIBHCO 15 years, including 5 years of grace, at 10-3/4% per annum. The foreign exchange risk would be borne by GOI. Project Construction of a fertilizer plant at Hazira, in the State Description: of Gujarat, with a daily capacity of about 2,700 metric tons of ammonia and about 4,400 metric tons of urea, including the provision of infrastructure, auxiliary and offsite facilities required for the efficient maintenance and operation of the plant. Possible risks facing the project are in the form of implementation delays, and possible management shortcomings. These risks are minimized by the use of commercially proven technologies supplied by internationally recognized engineering firms and by the use of the services of staff recruited from the team that successfully completed the Bank-financed IFFCO Phulphur project, who are experienced in building and commissioning similar plants. The risk of delay in plant commissioning if the gas pipeline to Hazira is not completed on time will be minimized by the close monitor- ing of the pipeline to-be constructed by GOI. The possible management risk would be minimized on account of the action taken by KRIBHCO to hire the services of efficient senior managers from IFFCO to help to implement this project. This document has a restricted distribution and may be used by recipients only in the performance of I their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Costs: (US$ Millions) Local Foreign Total Equipment and Spares 125.8 276.9 402.7 Ocean Freight - 22.9 22.9 Engineering Services 35.5 35.7 71.2 Project Management Services 20.4 0.9 21.3 Erection 26.1 1.9 28.0 Civil Works and Land 56.4 3.5 59.9 Commissioning Charges 5.6 - 5.6 Township 9.8 0.6 10.4 Railway Siding 20.0 1.3 21.3 Duties and Taxes 104.4 0.9 105.3 Base Cost 404.0 344.6 748.6 Physical Contingencies 40.4 34.5 74.9 Price Contingencies 104.8 70.3 175.1 Total Installed Cost 549.2 449.4 998.6 Working Capital 136.6 23.9 160.5 Total Project Cost 685.8 473.3 1,159.1 Interest during Construction 115.4 2.4 117.8 Total Financing Required 801.2 475.7 1,276.9 Financing Plan: (US$ Millions) Local Foreign Total Equity - GOI 287.5 - 287.5 Equity - IFFCO 125.0 - 125.0 Equity - Participating Cooperatives 25.0 - 25.0 Internal Cash Generation 80.6 - 80.6 Long-Term Debt - GOI 1/ 47.8 155.4 203.2 Long-Term Debt - IDA 2/ 79.7 320.3 400.0 Long-Term Debt - Industrial Development Bank of India 93.0 - 93.0 Short-Term Debt 3/ 62.6 - 62.6 Total 801.2 475.7 1,276.9 1/ Made up of ODA (UK) and OECF (Japan) financing of about US$104.5 million and US$98.7 million, respectively. 2/ Based on estimates that about 50% of the equipment procured under international competitive bidding would be won by domestic suppliers. 3/ Commercial Bank Short-Term Borrowings. The amount of such borrowings would depend upon the amount of KRIBHCO's internally generated funds made available to finance the project.  - iii - Estimated (US$ Millions) Disbursements: FY82 FY83 FY84 FY85 FY86 Annual 47.0 93.2 118.8 102.7 38.3 Cumulative 47.0 140.2 259.0 361.7 400.0 Rate of Return: About 17%. Appraisal Report: No. 2852-IN, dated March 6, 1981.   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF INDIA FOR THE HAZIRA FERTILIZER PROJECT 1. I submit the following report and recommendation on a proposed development credit to India in an amount equivalent to SDR 321.5 million (US$400 million) to help finance the construction of an ammonia/urea fer- tilizer complex at Hazira in the State of Gujarat. The proceeds of the credit would be on-lent to Krishak Bharati Cooperative, Ltd. (KRIBHCO) repayable over 15 years, including five years grace, at 10-3/4% interest per annum. The foreign exchange risk would be borne by the Government of India. PART I - THE ECONOMY 1/ 2. An economic report, "Economic Situation and Prospects of India" (2933-IN, dated May 1, 1980), was distributed to the Executive Directors on May 14, 1980. Country data sheets are attached as Annex I. Background 3. India is a large and, diverse country with a population of 663 mil- lion (in mid-1980) and an annual per capita income of US$180. Agriculture continues to dominate India's economy, employing over two-thirds of the labor force. However, the land base is not sufficient to provide an ade- quate livelihood to all those engaged in agricultural activities, espe- cially the landless or nearly landless who have only an insecure grasp on the means of existence. The share of agriculture in GDP at factor cost (measured in 1970/71 prices) has declined from 59.6% in 1950/51 to 40.7% in 1978/79. The share of industry has increased over the same period from 14.5% to 22.7%. But industrialization has not been rapid enough to absorb the growing labor force, nor to bring about the substantial economic transformation that has led to higher productivity and rapid urbanization in some other developing countries. The urban population was 18% of the total in 1960, and is 21% now. 1/ Parts I and II of the report are substantially the same as Parts I and II of the President's Report for the Eighth Telecommunications Project (No. P-2964-IN dated February 25, 1981).  -2- 4. Economic growth has been slow in the past. The trend growth rate of GDP was 3.7% per annum from 1950/51 to 1978/79. Slow growth in agri- culture -- 2.5% per annum over the same period -- has constrained overall growth, not only because of the high share of agriculture in GDP but also because scarce foreign exchange has often been required to import food. Industrial value-added has grown more rapidly, at 5.4% per annum between 1950/51 and 1978/79, but this growth has not been as high as in many other countries, nor as high as required. Gross domestic saving more than dou- bled from 10% of GDP in 1950/51 to 24% in 1978/79. Similarly, gross domestic investment as a fraction of GDP rose from 10% in 1950/51 to just over 24% in 1978/79. Foreign savings have never financed a large portion of domestic investment: a peak of about 20% was reached during the early 1960s; by the end of the 1970s, the proportion had returned to much lower levels. External assistance has been low both as a percentage of GDP and in per capita terms. Net external assistance has never risen above 3% of GDP. 5. Except during periods of balance of payments crisis, exports have received relatively little emphasis in India, which has primarily pursued a strategy of import substitution. As a result, India's share of world trade has fallen consistently since 1950/51. The volume growth of exports between 1950/51 and 1978/79 averaged only 3.0 per annum. The volume of growth of imports over the same period has slightly exceeded that of exports. During the early 1970s, India's terms of trade, which had remained roughly constant during the 1960s, deteriorated drastically, spurring a relatively rapid period of export growth through the mid-1970s. For the five years ending in 1976/77 the volume of India's exports grew on average over 10% per annum, demonstrating that sustained rapid growth was possible. While expanding world markets, particularly in the nearby Mid- dle East, contributed to this process, adjustments in trade policies designed to improve the profitability of exports played a major role. Recent Trends 6. Over the period 1975/76 to 1978/79, growth in real GDP (at fac- tor cost), agricultural value-added and industrial value-added averaged 4.7%, 2.8% and 7.3% per annum, respectively. These trends represent a marginally better growth performance than the long-term trends from 1950/51 to 1975/76. However, GNP is expected to have declined by about 3% in 1979/80 as a result of the drought-induced decrease in agricultural production and input constraints in other sectors, bringing recent trends back in line with the long-term picture. Industrial production stagnated in 1979/80, largely due to shortfalls in the production of major inputs such as coal, steel and cement, as well as constraints in the provision of infrastructure, notably power and transportation. As a consequence of these developments, the remarkable price stability that characterized the Indian economy after 1975 came to an abrupt end at the close of fiscal  -3- year 1978/79. During the spring and summer of 1979 the price index rose sharply, and under the drought conditions, which were then quite serious, prices failed to make the normal downward adjustment over the winter. The result was that the level of prices at the end of the year (1979/80) were almost 20% above the level at the beginning of the year. Foodgrain prices rose over the summer and fall of 1979 but in most markets still prevailed close to the Goverment's ration prices. Low income groups in urban areas were assured adequate supplies of grain at stable prices through the pub- lic distribution system. The substantial stocks of foodgrains also pro- vided resources for a large-scale drought relief employment program for low income groups in rural areas. 7. In agriculture the positive results of large investments and appropriate policies over the past few years are becoming increasingly evident and have withstood the test of a severe drought. Agricultural production, which had increased by 14.5% in 1977/78 and 3.4% in 1978/79 to record levels each year, fell about 10% in 1979/80. Foodgrain production is estimated to have declined from 131.4 million tons in 1978/79 to 116 million tons in 1979/80. Considering that 1979/80 was a year of acute drought, coming after two successive years of record output, the foodgrain production achieved -- still the fourth highest in Indian history -- pro- vides a measure of the contribution that expanded irrigation, extension and other inputs have made to Indian agriculture. Furthermore, the capa- city of India's irrigation potential to counteract drought conditions might have been even more clearly demonstrated had not the diesel shor- tages inhibited the utilization of groundwater resources. Rapid growth in the use of basic inputs for agricultural production has continued. Addi- tions to the area under irrigation have almost doubled from 1.3 million hectares during the five-year period ending in 1973/74 to about 2.5 mil- lion additional hectares a year during the most recent three-year period. Fertilizer consumption in 1979/80 exceeded five million nutrient tons, twice the level consumed in 1974/75. 8. As the new decade begins, the Indian economy is shifting from a situation of resource surplus, which had been a temporary phenomenon of the late 1970s, to one of resource scarcity. Investment has again over- taken domestic savings, and the scope for further increases in the latter appears limited. Marginal savings rates have recently been well above 30% in the household sector. Future increases in savings will depend largely on enhanced profitability of public sector enterprises. Impending resource scarcity is even more apparent in the foreign sector. Between 1975/76 and 1978/79 India's current account deficit had remained comfort- ably small in relation both to GDP and to a growing pipeline of aid com- mitments. This was primarily due to favorable terms of trade movements and rapidly growing net invisibles which masked adverse underlying trends in the volume of exports, which has barely grown since 1976/77. Particu- larly serious is the evident decline in the quantum of manufactured non- traditional exports which had contributed much to the export growth of the  -4- first half of the decade. A combination of strong domestic and slack international demand, exacerbated until recently by apparent lessened interest in export promotion, have been the major causal factors. 9. In contrast, imports have grown rapidly in volume terms and there have been important changes in composition. As a result of the accumulation and maintenance of foodgrain stocks, foodgrain imports -- which had been a traditional item in the balance of payments -- have declined to insignificant levels since 1977/78. Reflecting the impact of the liberalized import policy adopted by the Government, non-foodgrain imports increased sharply, so that their level in 1978/79 was over 80% higher than in 1975/76. In large part, the liberalization in import pol- icy and increase in imports were limited to raw materials, basic commodi- ties and intermediate goods; consumer goods remained banned and capital goods imports were permitted only on a selective basis. Strong new pres- sures on the balance of payments have developed during 1979/80. The terms of trade again deteriorated markedly as a consequence of unexpectedly large increases in petroleum prices, which caused the oil import bill to double in 1979/80, accounting for more than 80% of the total estimated US$2.5 billion increase in imports, and bringing India's total import bill to about US$11 billion. Petroleum imports as a proportion of merchandise exports now exceed 44%. Development Prospects 10. The experience of recent years illustrates that India does have the capacity to grow and develop at a more rapid pace. Although the industrial sector is small compared to the size of the economy, it nevertheless has a highly diversified structure and is capable of manufac- turing a wide variety of consumer and capital goods. Basic infrastructure -- irrigation, railways, telecommunications, roads and ports -- is exten- sive compared to many countries, although there is considerable scope for expansion as well as improvement in the utilization of existing capacity. India is also well-endowed with human resources and with institutional infrastructure for development. Finally, India has an extensive natural resource base in terms of land, water, and minerals (primarily coal and ferrous ores, but also gas and oil). With good economic policies and suf- ficient access to foreign savings, India has the capability for managing these considerable resources to accelerate its long-term growth. 11. The new Indian Government installed in January 1980 is in the pro- cess of formulating its policies and programs. A new Plan for the period 1981-85 is being prepared to replace the Draft Five-Year Plan for 1978-83. At this stage it is not possible to comment in detail on the new develop- ment strategy; however, it is clear that the priorities accorded to agri- culture and power will be maintained. Furthermore, developments in India as well as in the world economy during 1979/80 have brought to the surface urgent issues which will need the attention of policy-makers, irrespective  -5- of the broader context of development strategy that the new Government may adopt. Among these issues are the following: (a) the bottlenecks in infrastructure and related constraints in production of several basic industrial inputs; (b) the new policy options emerging in agriculture; (c) the need to substitute less costly energy sources for imported petroleum; and, (d) the anticipated deterioration of the balance of pay- ments in the near future. 12. The higher capital formation rates of the past few years augur well for future income growth. However, there are signs that, relative to existing demands, the past investment program has led to disproportionally low growth in certain crucial sectors, namely power, coal, transport ser- vices, steel and cement. Potential output growth in sectors which have benefitted from large investments in the recent past may not materialize unless these input bottlenecks are alleviated. In the case of coal, steel and cement, domestic production appears to be clearly justified on grounds of comparative advantage, indicating an a priori case for policies to pro- mote further investment. All these are tradeable commodities. Although in 1979/80 they were not impoiLed in sufficient amounts to eliminate the shortages, increased short-term reliance on imports may be necessary to alleviate slowdowns and dislocation in using industries. In the case of sectors in which there is no option to import the final product --power and transportation-- the planning of capacity expansion becomes even more crucial. Although there is scope for improvement in the shortrun perfor- mance of these sectors, major investments in balancing and modernization programs as well as new capacity are needed in order to provide adequate and stable growth in the medium term. The presence of infrastructual con- straints and shortages of basic industrial inputs demonstrates that the expansion of industrial output leads to competing claims on scarce resources with significant implications for public versus private and short versus long-term investments. 13. The substantial increase in the world price of petroleum in 1979, together with the expectation that this pattern will not be reversed in the near future, raises several issues concerning energy prospects for India. India imports the equivalent of almost two-thirds of its petroleum consumption. In order to implement its policy of minimizing dependence on foreign oil, the Government intends to rapidly expand its oil exploration program, to increase the utilization of its vast coal reserves and to increase the development of India's considerable hydroelectric potential. However, recent shortages of coal and power are symptomatic of operational problems reflecting, in part, past planning and investment decisions which are inhibiting the timely implementation of India's long-term conversion program. 14. In agriculture, despite the 1979 drought, economic policies, development programs and secular trends all seem favorable for sustaining a period of high growth during the 1980s. India ended the 1979/80 rabi  -6- season with grain stocks of about 15 million tons, without having imported foodgrains during the year. This is partly due to the bumper crop of 1978/79, but also reflects the trends of the last five years during which substantial foodgrain stocks were built up while imports were reduced to negligible levels. In view of the acceleration in the use of agricultural inputs and the projected fall in the population growth rate, the long-run prospects for foodgrain supply and demand balances look favorable. Per- sistent shortage seems unlikely, and it is probable that a wide range of policy options will become much more practical as the overriding emphasis on foodgrains can be somewhat relaxed. These options include a slowly falling real price of foodgrains to increase the affordability of foodgrains to low-income families, further rationalization of domestic markets and prices, and diversification to the production of other higher value crops. This prospect will involve only a gradual shift in emphasis rather than a dramatic break with past policies. 15. Foreign exchange reserves still provide some cushion that can help the Government of India in short-term supply management, but this situa- tion is likely to be short-lived. Rising import prices and uncertainties in the prospects for exports and invisible receipts have led to a serious and rapid deterioration in India's balance of payments prospects. Reserves were only marginally higher in March 1980 than the level of a year earlier and, in terms of import coverage, fell below the 8-month level for the first time since 1977. A sharp decline in the reserve level is expected in 1980/81. At best, India's reserves may provide a cushion for two more years, and even that is conditional on the maintenance of aid flows and workers' remittances and on moderation in oil price rises. 16. India's medium-term development prospects are mixed. Progress has been made and continues to be made, particularly in agriculture, but the economy faces a period of difficult adjustments in the coming years. Investments required to relieve short-term supply constraints must compete with longer-term programs to accelerate growth and to develop India's con- siderable physical and human resources. The balancing of these objectives will place a difficult burden on the framers of India's next Five-Year Plan. The primary focus must be on the implementation of appropriate domestic adjustment policies, although the aid community can and should play an important role in ensuring that India's efforts do not fail due to inadequate foreign resources. 17. The annual population growth rate declined from 2.2% in the late 1960s to below 2% at present and is expected to continue falling to around 1.6% by the latter half of the 1980s. Despite the declining trend in the rate of population increase, a net reproduction rate of one (replacement level) will only be achieved around the year 2020. At that time, the population of India is estimated to reach 1.2 billion persons, an increase of about 81% over the mid-1980 level of 663 million. Family planning has played an important role in achieving the fertility decline in the past  -7- decade, and the extent of a further decline will be greatly influenced by the continuation of a successful official family planning program. The family planning performence data for 1978/79 and the first ten months of 1979/80 clearly indicate a comeback from the sharp decline observed in virtually all major contraceptive methods during 1977/78. Except for male sterilizations, the number of acceptors for all contraceptive methods sur- passed the 1974/75 levels in 1978/79. While the increase in the total acceptors of IUD and conventional contraceptives was modest, female sterilizations increased by about 40% between 1977/78 and 1978/79. Data for the first ten months of 1979/80 confirm a secular upward trend in overall performance. So far, policy makers have not made major attempts to accelerate the male sterilization program. Instead, they have opted for policies that would yield relatively modest but sustainable results with increased emphasis on non-terminal methods. 18. Beyond the effects of overall economic growth and constrained population growth, the reduction of poverty in India requires special attention to ways of raising the income and productivity of low-income groups. More than one-third of the world's poor live in India, and more than 80% of the Indian poor belong to the rural households of landless laborers and small farmers. In addition to marginal holdings of physical assets, the poor are ill-endowed with human resources, being dispropor- tionately represented among the illiterate, the malnourished and those having otherwise poor health status. Improvements in the living standards of the poor will depend to a large extent on the overall growth of the economy, mainly on productivity increases in agriculture and non-farm rural employment, but also on the expansion of employment opportunities in urban areas. These developments will have to stem largely from market forces which, however, can be greatly facilitated by appropriate govern- ment policies and investment priorities. There is also a role for direct government actions in faster implementation of land reform (though the scope for significant reduction in poverty through redistribution is quite limited in India), in increasing the supply of credit available to small farmers and rural artisans and finally in broadening the provision of those services which enhance the human capital of the poor and improve living standards. Many of the latter are elements of the Minimum Needs Program which has been an integral part of Indian planning for the past decade. Progress has been slow but steady in the expansion of primary education, the extension of rural health facilities and the provision of secure village water supplies. Recent innovations, including the commun- ity health volunteer program and the national adult literacy campaign, are encouraging evidence that well-targetted, relatively low-cost programs can lead to enhanced prospects for India's poor.  -8- PART II - BANK GROUP OPERATIONS IN INDIA 19. Since 1949, the Bank Group has made 61 loans and 134 development credits to India totalling US$2,833 million and US$8,672 million (both net of cancellation), respectively. Of these amounts, US$1,133 million had been repaid, and US$4,107 million was still undisbursed as of January 31, 1981. Bank Group disbursements to India in the current fiscal year through January 31, 1981, totalled US$373 million, representing an increase of about 20% over the same period last year. Annex II contains a summary statement of disbursements as of January 31, 1981, and notes on the execution of ongoing projects. 20. Since 1959, IFC has made 19 commitments in India totalling US$110.6 million, of which US$20.8 million has been repaid, US$27.6 mil- lion sold and US$7.5 million cancelled. Of the balance of US$54.7 mil- lion, US$46.2 million represents loans and US$8.5 million equity. A sum- mary statement of IFC operations as of January 31, 1981, is also included in Annex _ (page 5). 21. In recent years, Bank Group lending has emphasized agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on-farm investments through agricultural credit operations and in providing direct support to major and medium irrigation. Marketing, seed development, agricultural extension, and dairying are other agricul- tural activities supported by the Bank Group. Also, the Bank Group has been active in financing the expansion of output in the fertilizer sector and, through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small-scale indus- trial enterprises. IDA financing of industrial raw materials and com- ponents for selected priority sectors has been instrumental in facilitat- ing better capacity utilization in industry. The Bank Group has also been active in supporting infrastructure development for power, telecommunica- tions, and railways. Family planning, water supply development, urban investments and the development of oil and natural gas have also received Bank Group support in recent years. 22. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Goverment's priorities. The emphasis of the program on agriculture, power, water supply and other infrastructure sectors remains highly relevant. Projects designed to foster agricultural production through the provision of essential inputs, particularly water and credit for on-farm investments, will continue to receive emphasis. Improved water management and intensification and streamlining of extension systems form an important institution-building aspect of the Bank Group's program for the next several years. Special emphasis will be given to projects benefitting small farmers. The Bank Group's continuing role in the fertilizer sector also assists India in the more efficient provision of another key input in the agricultural growth  -9- process. Projects supporting water supply, sewerage, urban development and investments in the petroleum sector also form an integral part of the Bank's lending strategy to India for the next several years. Lending in support of infrastructure and industrial investments will focus on those subsectors which have recently emerged as key constraints on India's overall growth, primarily power and transportation. 23. The need for a substantial net transfer of external resources in support of the development of India's economy has been a recurrent theme of Bank economic reports and of the discussions within the India Consor- tium. Thanks in part to the response of the aid community, India success- fully adjusted to the changed world price situation of the mid-1970s. However, there is now a need for increased foreign assistance to adjust to an even greater deterioration in balance of payments anticipated during the 1980s by augmenting domestic resources and stimulating investment. As in the past, Bank Group assistance for projects in India should aim to include the financing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sectors as agriculture, irrigation, and water supply. 24. India's poverty and needs are such that whenever possible, external capital requirements should be provided on concessionary terms. Accordingly, the bulk of the Bank Group assistance to India has been, and should continue to be, provided from IDA. However, the amount of IDA funds that can reasonably be allocated to India remains small in relation to India's needs for external support. Therefore, India should be eligi- ble and regarded as creditworthy for some supplemental Bank lending. The ratio of India's debt service to the level of exports was 12% in 1978/79 and is projected to remain below 20% through 1995/96. As of January 31, 1981, outstanding loans to India held by the Bank totalled US$1,766 mil- lion, of which US$561 million remain to be disbursed, leaving a net amount outstanding of US$1,206 million. 25. Of the external assistance received by India, the proportion contributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disburse- ments, and 12% of net disbursements as compared with 64%, 60% and over 100%, respectively, in 1979/80. On March 31, 1980, India's outstanding and disbursed external public debt was US$15.6 billion, of which the Bank Group's share was US$5.2 billion or 34% (IDA's US$4.5 billion and IBRD's US$0.7 billion). Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will rise slowly. In 1979/80, about 18.0% of India's total debt service payments were to the Bank Group.  - 10 - PART III - THE FERTILIZER SECTOR 26. Increased fertilizer use is an essential element in India's program to increase agricultural output. The output of foodgrains, particularly the high-yielding varieties of wheat and rice, is largely a function of the fertil- izer application rate, although the availability of other inputs--water, seeds, pesticides, research, extension services, credit and appropriate pricing and distribution systems--are also essential to improved agricultural productivity. It is estimated that, under present conditions in India, the application of one nutrient ton of fertilizer yields an average incremental production of between seven and ten tons of grain. Thus, shortfalls in the supply of fertilizer, whether imported or produced domestically, have consequences of the utmost gravity for essential food supplies. 27. The consumption of nitrogenous fertilizers in India increased at an average annual rate of 22% in the decade 1962-72. For the next three years, consumption remained static, due primarily to high prices and adverse weather conditions. However, as a result of improved agricultural conditions and a reduction in the price of nitrogen, consumption picked up once again, result- ing in a growth rate of approximately 15% per annum in the period 1975-80. Phosphatic and potassic fertilizers followed a consumption pattern similar to nitrogenous fertilizers, but did not begin to recover until 1976/77. By 1979/80, India's total fertilizer consumption was 5.3 million nutrient tons, of which 67% was nitrogen, 22% phosphates and 11% potash. The fertilizer con- sumption level for 1979/80 increased by only 2.7% over the previous year on account of the severe drought that struck India's summer (Kharif) crop and the below normal rainfall during the first months of the winter (Rabi) crop. In 1980/81, the consumption level is expected to recover somewhat increasing by about 5.6% over the previous year. Although overall fertilizer consumption per hectare (total nutrients) has increased substantially from an all-India average of 7.0 kg/ha in 1966/67 and now stands at 31.2 kg/ha of arable land, this figure still remains low relative to (1979) usage in other developing countries (e.g., Philippines 38.5; Pakistan 43.3; Mexico 45.5; Brazil 79.0). IDA's estimate of the growth rate of demand for nitrogenous fertilizers in India over the next five years ranges from a low of 8.5% to a high of 12.5% per annum, which yields a possible demand of between 5.9 and 7.3 million tons of nitrogenous fertilizer in 1985/86. At present, fertilizer consumption rests on a relatively narrow base of consumers and even the conservative growth rates that have been projected can only be achieved through implementation of proposed measures directed towards widening the base, including provision of adequate supplies, increased credit, intensive promotion campaigns and expan- sion of the distribution system. The Bank Group is assisting GOI's efforts in implementing these measures through its support of policies in the agri- cultural sector, including the financing of projects covering agricultural credit, extension and research, warehousing, etc. 28. India's installed capacity for the production of both nitrogen and phosphate has grown from 148,000 nutrient tons per year (tpy) in 1952 to its current level of approximately 5.2 million nutrient tpy (nitrogen 3.9 million nutrient tpy). The expansion of the industry has generally followed interna- tional trends with respect to production technologies and plant capacities.  - 11 - There has been a significant shift toward high-analysis products and complex fertilizers, and the typical size of a nitrogen facility has increased from 50-100 tons per day (tpd) of ammonia in the early 1960s, to 600-1,100 tpd of ammonia today. Locational decisions have been made in the light of regional supply/demand, raw material sources and infrastructure considerations. The feedstock policies for ammonia production in the 1960s emphasized the use of naphtha. Long-term planning in the early 1970s envisaged a change of emphasis, first to fuel oil and subsequently to coal, as a means of decreasing dependence on imported hydro-carbon feedstocks. The first four of the seven fuel oil plants planned are already in operation (Nangal was commissioned in 1978, and Sindri, Panipat and Bhatinda in 1979--see para 32). Two coal-based plants were commissioned in early 1980 at Talcher and Ramagundam (see map). No further coal based plants are planned until sufficient operating experience has been gained from these two plants and the newer technologies have been evaluated. With the large quantities of offshore natural gas now available in the Arabian Sea, it is expected that the next 2.0 million tons per year of nitrogen production capacity, including the proposed Project, will use this natural gas as feedstock. By the mid-1980s, natural gas will account for about one-third of nitrogenous fertilizer capacity; naphtha fof 35%; fuel oil for 23%; and coal for most of the remaining 9% of capacity. 29. The utilization of available capacity has been relatively low in India. From an average of 58% in 1974 it has been steadily improving and registered 72% in 1978/79. However, production in several cooperative and public sector plants suffered in late 1979 and throughout 1980 on account of the non-availability of inputs such as naphtha, fuel oil and coal, and because of power cuts, sharply reducing the country's overall capacity utilization in 1979/80 to 66%. However, these averages disguise a wide range of performance. The cooperative sector (i.e., IFFCO) has shown on average the highest level of capacity utilization, followed by the private and joint sectors. The overall performance of the public sector has been low. These differences in capacity utilization, however, cannot be entirely explained by management and ownership factors alone. The private sector plants are generally of smaller capacity based on proven design. As a group they have been in operation longer and have already solved initial problems. The public sector plants, on the other hand, being generally of more recent origin, are larger, use a more varied range of feedstocks and are built with a much greater involvement of local equipment and engineering. Among the major factors leading to low overall capacity utilization are problems of commissioning new plants, equipment failures due to raw material problems, continuing operating problems due to design defects in several older public sector plants, power supply and coal transportation problems, and constraints resulting from the unplanned use of indigenous engineering equipment. The Bank Group is participating in programs to increase capacity utilization of existing plants through Credit 481-IN (Trombay IV Fertilizer Expansion and Plant Operations Improvement Project) and Credit 598-IN (Fertilizer Industry Project). The Government has placed considerable emphasis on measures necessary to ensure reasonable production levels from new projects and to increase the capacity utilization of existing plants from their relatively low overall rates. Problems affecting the performance of the public sector fertilizer plants were studied by a Government committee  - 12 - in 1978. Several remedial measures were recommended and adopted, including those for plant modifications and better planning of preventive maintenance to minimize unscheduled losses. The Government has also established a control and monitoring system to review performance against unit-wise monthly produc- tion targets developed after detailed discussions with plant managements. Weekly production statistics are now being received and reviewed by the Ministry of Chemicals and Fertilizers to monitor progress, identify constraints to production and evolve solutions. Foreign exchange for import of normal maintenance and emergency spares is now more readily available. Furthermore, to improve the decision-making process, and the performance of the public sector, in April 1978 the Government regrouped production units previously owned by the Fertilizer Corporation of India and National Fertilizers Ltd. into four separate geographically oriented companies. The full impact of this delegation of responsibility and authority should be reflected in higher capacity utilization gradually during the next few years with overall capacity utilization targeted to increase from 66% in 1979/80, to a satisfactory average level of about 85% by 1985/86. 30. Fertilizer production in India has increased significantly during the last 18 years. Nitrogen production rose from 154,000 tons of nutrient in fiscal years 1961/62 to 2.2 million tons in 1979/80, equivalent to an average annual growth rate of 16%. Phosphate production reached 763,000 tons from 65,000 tons of nutrient, averaging a 15% annual growth rate over the same period. All potash requirements are imported as there is no domestic production. Fertilizer production, however, has generally lagged behind consumption. In the period 1971/80, an average of 857,000 tons of nitrogen and 220,000 tons of phosphates were imported annually, representing about one-third of the domestic consumption of nitrogenous and phosphatic fertilizers. The Government's objective is to meet most of the requirements for nitrogen and phosphates from domestic production, supplemented by imports as necessary to ensure adequate availability. Present Government estimates of the capital investments necessary in new fertilizer production and related gas development facilities, based mainly on the newly found off-shore natural gas in the Bombay High and the North and South Bassein field areas, are of the order of US$7 billion over the next decade. Taking into consideration the new projects underway and those firmly planned, estimates of future fertilizer consumption growth indicate that nitrogen and phosphate fertilizer consumption is expected to exceed domestic output significantly. For nitrogenous fertilizer, the gap between domestic production and consumption is expected to reach approximately 1.8 million nutrient tons per year (tpy) by 1987/88 and 3.1 million tpy by 1989/90. GOI expects to meet this gap through imports from abroad and through the provision of additional domestic manufacturing capacity. Pricing 31. The retail and ex-factory prices of urea (and other nitrogenous fertilizers) are statutorily controlled in India. A comparison of the retail price 1/ of urea to farmers with its import price shows that until recently, 1/ The retail price excludes local sales tax, while the import price has been calculated including port handling and internal distribution charges but excluding import duties and taxes.  - 13 - domestic retail prices have been in close harmony with import prices except during 1974/75 when there were abnormal conditions prevailing in the inter- national fertilizer market. GOI recognizes that its ex-factory pricing policy determines, to a large extent, the success of its fertilizer industry develop- ment strategy. In 1976, it set up a committee charged with developing a rational ex-factory pricing system which would (i) ensure the financial viability of the fertilizer plants; (ii) motivate the industry to invest in new plants; (iii) give a strong incentive for the producing units to operate efficiently; and (iv) ensure that the Government's subsidy to the farmers for fertilizer would not in time become too large a burden on public finances. The Committee recommended a system of "retention prices" which satisfied the above-mentioned objectives. This system, introduced in November 1977 and revised in January 1981, establishes a pricing formula which sets the urea ex-factory price--i.e., "retention" price--at a level needed to enable pro- ducers, operating efficiently at 80% of capacity, to generate sufficient cash to cover production costs and obtain a 29% pre-tax return on capital. This policy ensures a satisfactory financial situation for manufacturers and, at the same time, enables the authorities to maintain low fertilizer prices to farmers, at a reduced cost to public finances, by what amounts to a cross- subsidization from old to new fertilizer plants. The Government would not take or cause to be taken any action which would prevent fertilizer manu- facturers, under conditions of efficient operation, from meeting all their expenses, servicing their debts, and earning a reasonable return on invested capital (Section 4.01 of the Development Credit Agreement). Previous Bank Group Operations 32. The Bank Group has supported the fertilizer industry in India through participation in the financing of ten projects with a total contribution of US$481.9 million. The financing has been through IDA for six public sector projects, IFC for three private sector projects, and lBRD for a cooperative sector project. Five of the IDA projects, which aimed at a balanced expansion of capacity in the public sector while at the same time removing bottlenecks to the efficient utilization of existing capacity, have been completed. According to their project completion reports, the first three of these, at Cochin (Credit 264-IN of July 1, 1971), Gorakhpur (Credit 279-IN of December 21, 1971) and Nangal (Credit 357-IN of January 30, 1973), experienced comple- tion delays on account of finalizing engineering arrangements (Gorakhpur), poor project and financial management (Cochin) and late delivery of equipment (Nangal), as well as cost overruns of 35% to 45% following the 1973 oil crisis. The Sindri (Credit 520-IN of November 26, 1974) project completion report indicates that inadequate installation capacity of the selected local equipment supplier has accounted for a six month delay in project completion. Performance has improved substantially under the more recently financed projects. The Trombay (Credit 481-IN of June 18, 1974) project was physically completed with only three months' delay, and at or close to appraisal cost estimates. The IDA-financed Fertilizer Industry Project (Credit 598-IN of November 16, 1975) included a variety of subprojects designed to increase capacity utilization at several existing plants; after initial delays which resulted in the replacement of some subprojects not being implemented with new subprojects, this project is now proceeding satisfactorily. Two of the three  - 14 - private sector projects in which IFC has invested (Indian Explosives Ltd. and Zuari Agro-Chemicals Ltd.) are now in satisfactory operation, while the third (Deepak Fertilizers and Petrochemicals Corporation Ltd.), approved by the Board on November 13, 1979, is presently under implementation. A Bank loan of US$109 million was approved by the Board on January 7, 1975 to the Indian Farmers Fertilizer Cooperative Ltd., the sponsor of the proposed project. Implementation of this project was initially delayed by 7 months due to a change of feedstock from fuel to naphtha. The project suffered further delays towards the end of the construction period due to late deliveries of local structural steel and power interruptions from the national grid due to drought conditions. The project was mechanically completed in March 1980, 19 months behind the original completion date and is ready to start commercial produc- tion. Its capital costs are about 6% above original estimates. The OED report for the Gorakhpur Expansion Project concluded that, despite delays and a cost overrun, the project was a technical success and improved the financial and economic returns of the Fertilizer Corporation of India. Lessons learned in this and other projects relate to improved implementation, monitoring and management systems, need for captive power, prompt government decisions, greater selectivity in the use of engineering and equipment, and an incentive- oriented pricing policy. These and other lessons have been incorporated in the design of the proposed project. PART IV - THE PROJECT 33. The proposed project was appraised by missions which visited India in October/November 1979 and November/December 1980. The Staff Appraisal Report (No. 2852-IN dated March 6, 1981) is being distributed separately to the Executive Directors. Negotiations were held in Washington in February 1981 with the Borrower represented by Mr. S.C. Jain of the Department of Economic Affairs, Ministry of Finance, as coordinator of the Indian delegation. A supplementary Project Data Sheet is attached as Annex III. Project Description 34. The proposed credit would help finance the construction of a fer- tilizer plant on a 770 hectare site at Hazira in the State of Gujarat to produce 2,700 tons per day (tpd) of ammonia and 4,400 tpd of urea. It would consist of two gas-based ammonia units with a capacity of 1,350 tpd each, and four urea units with a capacity of 1,100 tpd each, as well as all necessary auxiliary and off-site facilities, including three steam generation plants of 275 tons per hour each, two power generation units of 15 MW each, ammonia storage facilities for about 20,000 tons, product handling and storage facili- ties for about 90,000 tons, workshops, warehousing, gas terminal plant and water treatment plant. The project also includes the cost of a township, a rail siding and a power link from the State grid to the project site. Also included are KRIBHCO's share of the cost of access roads, power supply and widening of a water supply canal which will be implemented by the relevant Central and State Government agencies in conformity with the Project Schedule. The project, however, excludes the cost of development and transmission of natural gas, which will be undertaken by the Oil and Natural Gas Commission and charged to the project at full cost during operation of the plant.  - 15 - 35. The proposed project is a part of the Government's overall plan to use the associated and non-associated gas from the Bombay High and North and South Bassein offshore oil and gas fields. The planned production of associated gas from Bombay High (about 2.7 million Ncmd by 1983) financed under two Bank loans (Ln. 1473-IN and Ln. 1925-IN) will be inadequate to meet the requirements of potential users in the Bombay area. The Government has, therefore, decided to develop the South Bassein non-associated gas fields to supplement the supply of gas to the Bombay area, as well as to provide suffi- cient gas for the proposed project and to other prospective users in Gujarat and Central Indian States. As the timely provision of this gas is crucial to the implementation of the proposed project, GOI would execute a gas pipeline project, as it relates to the project under consideration, in accordance with a schedule to be agreed upon with the Association and complete it not later than January 31, 1984. For this purpose, GOI would take or cause to be taken all actions, including the provision of funds, facilities, services and other resources necessary for its timely completion (Section 4.02 of the Development Credit Agreement). Project Implementation 36. The proposed project would be owned and operated by Krishak Bharati Cooperative Ltd. (KRIBHCO), a new cooperative society recently established. KRIBHCO's shareholders include GOI (66%), the Indian Farmers Fertilizer Coop- erative Ltd. (IFFCO) (28%) and several local cooperative marketing societies (6%). Rs 3,500 million (about US$437 million) of KRIBHCO's authorized capital of Rs 5,000 million (US$625 million) will be paid in over the next five years as required by the project. KRIBHCO is managed by a 23-member Board of Directors representing its shareholders and including its Managing Director who functions as an ex-officio Director on the Board. KRIBHCO's Board has been initially appointed by the Government for a ten-year period, after which KRIBHCO's shareholders will assume responsibility for appointing its Board. To permit an increasing participation of cooperatives in the operations of KRIBHCO, its draft by-laws provide for the eventual partial or full transfer of the shares initially held by GOI and IFFCO to the cooperatives, as may be agreed periodically between KRIBHCO and its shareholders. The day-to-day management of KRIBHCO has been entrusted to a 12-member executive committee selected from among the members of KRIBHCO's Board. 37. KRIBHCO would be responsible for implementing the project. Although recently established, KRIBHCO is staffed with highly competent and experienced managers assisted by trained cadre transferred to it from IFFCO. Established as a cooperative society in 1967, IFFCO is jointly owned by GOI and some 27,000 cooperative institutions representing about 20 million farmers. In 1974, IFFCO successfully completed construction of a 910 tpd natural gasbased ammonia unit and a 1,200 tpd urea unit at Kalol, as well as an NPK fertilizer plant (capacity 1,250 tpd) in Kandla, in the State of Gujarat (see map). The capacity utilization of these plants has been consistently among the highest of Indian fertilizer plants. IFFCO has also implemented the Bank-financed IFFCO Fertilizer Project (Loan 1079-IN) at Phulpur, in the State of Uttar Pradesh, consisting of a 900 tpd naphtha-based ammonia plant and a 1,500 tpd urea plant. This project was mechanically completed in March 1980 and has been commissioned.  - 16 - 38. With the completion of its Phulpur project, IFFCO has transferred to KRIBHCO 55 of its senior professional staff, including its Managing Director and General Project Manager, who will be the Project Manager of the proposed project. A General Manager, Finance, has also been appointed from among IFFCO's Phulpur staff. Separate groups reporting to KRIBHCO's Project Manager will be formed to supervise implementation of the ammonia plants, urea plants, steam and power plants and offsites. Each group will be responsible for coordinating the engineering, procurement, construction and commissioning activities for their respective areas. KRIBHCO will install or cause to be installed, a computerized control and monitoring system to cover materials status, cost control and construction scheduling for the project by September 30, 1981 (Section 2.10 of the Project Agreement). KRIBHCO has prepared a draft Project Implementation Manual incorporating the above features, which will be updated and submitted to IDA for its comments prior to June 30, 1981. KRIBHCO will also prepare and furnish IDA by June 30, 1982, a detailed training and recruitment plan for its operational staff (Section 3.04 of the Project Agreement). 39. The engineering contractual arrangements for the proposed Project have already been finalized. The foreign ammonia contractor M.W. Kellogg Company (US) is qualified and experienced to build a plant of the size proposed. M.W. Kellogg has engaged the services of FACT's Engineering and Design Organi- zation (FEDO) of Cochin, India as a subcontractor to carry out the detailed engineering work, but will itself be responsible for engineering, procurement services, construction supervision and technical supervision of commissioning of the ammonia plants. The foreign contractor for the urea plant, Snamprogetti (Italy), will work with Fertilizer Planning and Development India, Ltd. (FPDIL) as local contractor. The coal-fired boilers to be financed by ODA have been ordered from Messrs. Foster Wheeler Power Products Ltd. (UK) on a fixed price basis covering both supply and erection. Selection of a local engineering company, Development Consultants Ltd (India), to be responsible for the power plant, coal and ash handling system and other offsites, has been completed. The first ammonia stream--with its two associated urea plants--is expected to be mechanically completed by July 1984, approximately 39 months from the project zero date, with the second stream 12 months thereafter, giving an overall project schedule of 54 months, including time allowed for commissioning. 40. Infrastructure. The project's infrastructure requirements will be built as follows: township by KRIBHCO; road strengthening, water supply and power line by State Government agencies; gas supply and rail siding by Central Government agencies. GOI will ensure the provision of adequate road and rail facilities critical to the movement of raw materials required for the project and for the finished products to be manufactured under the project (Section 4.03(a) of the Development Credit Agreement). Detailed soil investigations and site acquisition have been completed. The infrastructure and utilities required for the project are substantial and their execution critical to the timely implementation of the project. GOI has, therefore, set up a high level committee, headed by the Chief Secretary of the Government of Gujarat and made up of concerned Central and State Government agencies to review the progress of construction of these facilities and to provide the needed inputs and resources for their timely completion. Satisfactory contracts by KRIBHCO for adequate supplies of natural gas, water, power and coal to enable the proposed plant to operate at full capacity have already been finalized.  - 17 - 41. Environment. The proposed site for the plant was selected from among 5 alternative locations in the State of Gujarat by a GOI Task Force which included experts in the field of environmental affairs. IDA has care- fully reviewed its environmental aspects to ensure that project design and lc' ation will not adversely affect the region. The major potential pollutants from the complex are ammonia and urea effluents from the main process plants, urea dust from the prilling towers, and fly ash dust and sulphur dioxide from the coal-fired boilers. The plant will be so designed and operated as to minimize the introduction of ammonia and urea into its effluent stream. The coal-fired boilers will use low-sulphur coal and will be fitted with electro- static precipitators and stacks of about 100 meters height to minimize fly ash dust allowed into the atmosphere. Sulphur dioxide emissions are not expected to exceed IDA guidelines. The urea dust, which escapes from the urea prilling towers into the atmosphere will be no more than 40 mg of urea per normal cubic meter through the use of a natural draft-prilling tower. The solid waste ash, principally from the coal-fired boilers and electrostatic precipitators, will be disposed of in fallow and impervious areas available within the project site. Precautions will be taken to prevent drainage of wastes into water- courses. The standards propo6ed for the project have been carefully reviewed and found acceptable. KRIBHCO has engaged consultants to assist in the timely design of environmental measures and to ensure their proper implementation. KRIBHCO will also ensure that the design, execution and operation of this project will be with due regard to appropriate safety norms and ecological and environmental standards satisfactory to IDA. Towards this end, KRIBHCO will collect relevant information on meteorological conditions upon which pollution levels will be based and set up adequate monitoring stations. A fully quali- fied environmental officer will be employed by KRIBHCO to coordinate these activities (Section 3.03 of the Project Agreement). Safety and fire prevention norms will meet standards laid down by the State Inspectorate of Factories for Industrial Plants. KRIBHCO staff will also include well trained and qualified personnel to operate its safety and fire-fighting system. Project Cost and Financing 42. The estimated cost of the proposed project, including contingencies and working capital, is estimated at US$1,159.1 million equivalent of which US$473.3 million represents the estimated foreign exchange cost. Interest during construction (US$117.8 million) brings to US$1,276.9 million the total financing required for the project. The cost estimates include infrastructure investments for the township (US$10.4 million), railway siding (US$21.3 million) and KRIBHCO's share of the cost of the water supply channel (US$9.0 million), power generation and distribution (US$5.6 million), as well as the cost of access roads, but exclude those for the proposed gas pipeline from the South Bassein fields to the project site which would be borne by the Oil and Natural Gas Commission, and paid for by KRIBHCO and other consumers through user charges. 43. The proposed credit would provide about 38% of the estimated project cost of US$1,053.8 million, net of duties and taxes. The proceeds of the proposed credit would be on-lent to KRIBHCO for a period of 15 years, including five years grace at an interest rate of 10-3/4% per annum. The execution of a  - 18 - Subsidiary Loan Agreement between GOI and KRIBHCO incorporating these terms and conditions is a condition of credit effectiveness (Section 6.01 of the Develop- ment Credit Agreement). The balance of financing required would be provided as follows: equity contributions from GOI (US$287.5 million) IFFCO (US$125 million) and participating cooperative institutions (US$25 million); long-term loans from GOI (US$203.2 million) and 1/ the Industrial Development Bank of India (US$93.0 million); KRIBHCO's internally generated resources (US$80.6 million); and short-term borrowings from commercial banks (US$62.6 million). Procurement and Disbursement 44. Equipment financed by the IDA credit will be procured by interna- tional competitive bidding (ICB) in accordance with IDA's procurement guide- lines, except for equipment proprietary to the process design, items whose supply is critical to efficient project execution, and small items estimated to cost less than US$100,000 which may be procured through limited interna- tional tendering from qualified suppliers in accordance with an agreed list of goods. The aggregate of such contracts under the IDA credit procured without ICB procedures will not exceed US$40 million equivalent. Indian manufacturers competing under ICB will be granted a preference margin of 15% or the current rate of import duty, whichever is less. ODA funds (US$104.5 million) would be used to finance procurement of the steam plant and related facilities already under order from UK and Indian suppliers. OECF funds (US$98.7 million) would finance the cost of some ammonia equipment procured from Japan, India and eligible developing countries under OECF's selective bidding procedures. A heavy demand for locally manufactured equipment is expected as a result of the implementation of other fertilizer projects simultaneouAly. Consequently, KRIBHCO would update a survey it had previously prepared of the capability of local suppliers to make timely deliveries of goods as part of the process of developing an agreed vendor's list for submission to IDA (para A.3 of Procure- ment Schedule to the Project Agreement). 45. The proposed credit would be disbursed against 100% of the foreign costs of consultants' services (SDR 32.15 million or US$40 million), 100% of the cif or ex-factory cost, and 70% of other local expenditures on equipment, materials and spares procured under ICB (SDR 257.20 million or US$320 million). US$40 million (SDR 32.15 million) would be unallocated. It is estimated that Indian firms would win about US$194 million of the supply of equipment procured under ICB out of the IDA credit, about US$161 million would be used to finance imported equipment and the balance of US$45 million would cover the cost of engineering services. The IDA credit would retroactively finance up to US$15 million of expenditures incurred after October 1, 1980 to avoid delays in project execution. Marketing and Distribution 46. At a 90% production level, the Hazira unit would produce for sale about 1.31 million tons per year (tpy) of urea and about 18,000 tpy of ammonia in excess of the ammonia needed for urea production. A national fertilizer 1/ Made up of US$104.5 million and US$98.7 million equivalent against the cost of equipment and services provided to GOI under ODA (UK) and OECF (Japan) funding.  - 19 - marketing strategy has been developed which is designed to minimize cross movements of products from different producers in the country and to ensure that each consuming area has more than one source of supply. As part of this marketing strategy, IFFCO will be responsible for the distribution of KRIBHCO's products and would use its own distribution channels for this purpose. In this connection, a supply plan for the Hazira marketing area for 1986/87, based on GOI estimates of statewise demand for urea, has been produced by IDA staff. The plan envisages that Gujarat (24%), Haryana (24%) and the Punjab (23%) will be the major markets for the project's output, with Madhya Pradesh (16%), Uttar Pradesh (8%), Maharashtra (3%) and Rajasthan (2%) taking the balance. Most of the project's output sold in Gujarat will be moved by road, and the balance carried by unit trains owned and operated by the Indian Railways to selected nodal points in the marketing area. As the operation of unit trains would need to be planned, GOI has undertaken a "Nodal Points Study" which is presently under implementation covering the likely volume of fertilizer traffic involved, an identification of nodal points to which this traffic would be moved, and an assessment of the additional facilities needed at selected nodal points for unloading and handling fertilizer. For the purposes of the proposed project, GOI would complete the rail spur connecting the project site to the main railroad junction at Udhna in time for the project to ensure that difficulties would not be encountered in transporting fertilizers produced at Hazira (Section 4.03(c) of the Credit Agreement). 47. IFFCO and KRIBHCO products would be almost entirely marketed through the cooperative system under a mutually agreed sales, marketing and distribu- tion arrangement. The pyramidal nature of the cooperative system in India facilitates IFFCO's marketing efforts. IFFCO's direct sales effort is rela- tively small. In accordance with a prearranged shipment plan, IFFCO consigns its products to about 270 railhead warehouses located in the marketing area where they are picked up and stored by about 20 State Apex Cooperatives until they are collected by the lower layers of the cooperative system according to their requirements. Approximately 27,000 cooperative shareholders of IFFCO participate in the distribution of IFFCO fertilizers to member farmers. IFFCO's marketing division consists of 140 head office staff (including 50 management and professionals) and about 711 field employees. Given IFFCO's marketing experience and to avoid duplication of effort, KRIBHCO would make arrangements satisfactory to IDA by December 31, 1981, for a joint sales, marketing and distribution program for its products with IFFCO (Section 3.08 of the Project Agreement). The surpius ammonia (about 18,000 tpy) will be taken up by IFFCO's compound fertilizer plant at Kandla in Gujarat which is being expanded and will require an additional 65,000 tpy of ammonia for the production of NPK. Given the overall shortfall in supply of nitrogenous fer- tilizer expected to prevail in India for the foreseeable future, together with the fact that the intensity of fertilizer use in India is generally low, even with the proposed project and other planned investments, there should be no problem in marketing the urea output of the project. KRIBHCO Finances 48. The sales revenue from the project is expected to increase from Rs 1,029 million (US$129 million) in FY1985 when the plants are commissioned to Rs 4,396 million (US$549 million) in FY1987 when capacity utilization is  - 20 - expected to reach 81%. Net profits (after taxes) are expected to increase from about Rs 267 million (US$33 million) to Rs 878 million (US$110 million) during the same period. The project is expected to generate, immediately after commissioning, sufficient revenues to meet all its obligations. Its FY1985 debt service coverage of 2.1, current ratio (calculated excluding excess cash) of 2.5, and debt/equity ratio of 58/42 are all satisfactory. These financial indicators remain satisfactory throughout the life of the project. However, since the capizal employed upon which the retention price formula (para 31) is based does not increase over time, retention prices in real terms will decrease over time and so will project revenues based upon it. This reduction is, to some extent, compensated by increases in produc- tion costs due to inflation. For the proposed project, the retention price is projected to grow in current prices at an average of 2% per year over the life of the project. The formula, however, will always allow the project to cover its costs and earn an annual 29% before tax return on capital employed, provided it is operating efficiently at a capacity utilization of 80% or above. 49. The proposed project is expected to generate a large amount of cash early in its economic life, with accumulated cash surpluses increasing from Rs 458 million (US$57 million) in FY1985 to Rs 5,496 million (US$687 million) in FY1994. While the Government's pricing formula (para 31) provides a strong incentive to producers to reinvest their earnings in fixed assets, no definite assumption can be made as to the reinvestment opportunities available to KRIBHCO for purposes of the financial projections. In practice, KRIBHCO is likely to reinvest this cash in new projects, in securities, or reduce its debt burden. To that extent, the financial projections for this project are somewhat conservative. The project has good financial ratios over its eco- nomic life and is expected to pay a dividend of 6% on its share capital in 1988, and a yearly dividend of 10% thereafter. The base case financial rate of return (before tax) on the basis of the foregoing assumption, is calculated at about 9% in constant Rupees compared to an economic rate of return of about 17% (para 52). The large difference between the financial and the economic rates of return is mainly due to the retention price formula under which the urea ex-factory price decreases over time in constant Rupees. 50. In order to ensure the company's viability, KRIBHCO will follow prudent financial practices. These would include maintenance of a debt/equity ratio of 60:40 or better and a current ratio of at least 1.2:1. KRIBHCO will also be required not to declare any dividends, enter into any financial com- mitments (not related to its own internal corporate operations) or prepay any debt which would reduce its current ratio below 1.5:1 and not incur any addi- tional debt if, by so doing in any fiscal year, its projected debt service coverage would fall below 1.4. KRIBHCO will also not make any investments in fixed assets other than for this project in excess of US$10 million equivalent in any year during the project construction period without the prior approval of IDA (Section 4.03 of the Project Agreement). Benefits and Risks 51. The net foreign exchange savings over the project's 12-year life due to reduced fertilizer imports are estimated at over US$3,440 million in 1981 dollars after provision of principal and interest payments on the foreign  - 21 - loans and deducting foreign exchange components of operating costs. By 1988, with production at full capacity, the project is expected to provide about 10% of India's forecast domestic requirements and about 7% of her forecast consumption of nitrogenous fertilizers. The project will create about 1,400 permanent jobs, in addition to the employment of more than 4,000 people during the peak period of construction. An additional 5,000 or more jobs are expected to be created through secondary and tertiary employment. 52. The project's economic rate of return is about 17% based on esti- mated international fertilizer prices calculated on the basis of January 1981 dollars. The economic rate of return is sensitive to changes in product prices, and to a lesser extent, to operating costs. A 10% drop in revenues would reduce the return to 12%, while a 10% increase would raise it to 20%. If the economic cost of gas increases without any corresponding increase in product prices by 1984 to US$248 (20%) per 1,000 normal cubic meters in 1981 dollars, instead of US$207 assumed in the base case, the economic rate of return would drop to about 13%. Thus, even under adverse circumstances. the project would yield a satisfactory rate of return. 53. The project faces possible risks in the form of (a) delays in imple- mentation and provision of necessary infrastructure; (b) delays in start-up; (c) cost overruns; and (d) possible management problems. The risk of serious delays in implementation and consequent cost overruns, as well as the delays in commissioning are minimized by the use of commercially proven technologies supplied by internationally recognized engineering firms. Furthermore, GOI and KRIBHCO have already signed the ammonia engineering contract, and GOI approval has been given for execution of the gas pipeline project which will help to alleviate the risks of implementation delays. KRIBHO's staff recruited from IFFCO with adequate experience in implementing other projects would closely monitor the project to avoid the possibility of cost overruns due to commissioning delays, problems associated with the construction and trans- portation of large pieces of equipment and unforeseen civil works and erection problems. The location of the plant near the ocean is also expected to help to ease possible transportation delays. Possible management shortcomings will be minimized by the provisions made to hire experienced senior staff from IFFCO to ensure the efficient management of KRIBHCO. Potential risks asso- ciated with the availability of the necessary infrastructural facilities will be reduced by the arrangements referred to in para 40 above. PART V - LEGAL INSTRUMENTS AND AUTHORITY 54. The draft Development Credit Agreement between India and the Asso- ciation, the draft Project Agreement between the Association and KRIBHCO and the recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 55. Special conditions of the project are listed in Section III of Annex III. The execution of a Subsidiary Loan Agreement between GOI and KRIBHCO is an additional condition of effectiveness of the credit (Section 6.01 of the draft Development Credit Agreement).  - 22 - 56. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 57. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President March 11, 1981  ANNEX I Page 1 of 5 INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGHTED AV,AGES LAND AREA (THOUSAND SQ. EM.) MUST RECENT ESTIMATEZ TToAL 3287.6 AGRICULTURAL 1824. 0 MOST RECENT LOW INCOME MIDDLE INCOHE 1960 ab 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (USS) 60.0 100.0 190.0 212.4 1114.7 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 108.0k 141.0k 176.0, 166.0 842.4 POPULATION AND VITAL STATISTICS POPULATION. HID-YEAR (MILLIONS) 434.9 547.6 643.9 URBAN POPULATION (PERCENT OF TOTAL) 17.9 19.7 21.7 20.8 39.1 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 974.0 STATIONARY POPULATION (MILLIONS) 1645.0 YEAR STATIONARY POPULATION IS REACHED 2150 POPULATION DENSITY PER SQ. EM. 132.0 167.0 196.0 193.2 376.1 PER SQ. KM. AGRICULTURAL LAND 247.0 308.0 353.0 409.6 2350.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.0 42.5 41.4 42.0 40.4 15-64 YRS. 56.5 54.6 55.6 55.0 56.2 65 YRS. AND ABOVE 3.5 2.9 3.0 3.0 3.4 POPULATION GR(WTH RATE (PERCENT) TOTAL 1.9 2.5 2.0 2.2 2.4 URBAN 2. 5/d 3.3 3.3 3.9 4. 1 CRUDE BIRTH RATE (PER THOUSAND) 43.0 40.0 35.0 37.4 28.7 CRUDE DEATH RATE (PER THOUSAND) 21.0 17.0 14.0 14.6 7.9 GROSS REPRODUCTION RATE 3.2 2.9 2.4 2.6 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) 64.0 3782.0 4714.0 USERS (PERCENT OF MARRIED WOMEN) .. 12.0 16.9 15.6 39.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71.100) 98.0 102.0 103.0 101.4 116.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 93.0 92.0 91.0 92.4 108.9 PROTEINS (GRAMS PER DAY) 52.0 51.0 50.0 49.8 60.3 OF WHICH ANIMAL AND PULSE 17.0 15.0 13.0 12.0 18.8 CHILD (AGES 1-4) MORTALITY RATE 28.0 22.0 18.0 17.9 5.3 HEATH LIFE EXPECTANCY AT BIRTH (YEARS) 43.0 48.0 51.0 50.8 63.0 INFANT MORTALITY RATE (PER THOUSAND) .. 134.0 .. .. 52.8 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 17.0 33.0 30.2 42.4 URBAN . 60.0 83.0 66.0 62.1 RURAL .. 6.0 20.0 20,0 29.7 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 18.0 20.0 17.7 52.8 URBAN .. 85.0 87.0 71.3 71. 1 RURAL .. 1.0 2.0 .. 42.4 POPULATION PER PHYSICIAN 5800.0/e 4890.0 3617.0 6322.7 4120.1 POPULATION PER NURSING PERSON 9630.0/e 5220.0 5675.0 9459.0 2213.6 POPULATION PER HOSPITAL BED TOTAL 2149.Of 1629.0 1289.0 1758.4 819.4 URBAN .. .. RURAL .. .. ADMISSIONS PER HOSPITAL BED .. .. .. .. 28.8 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.2 .. 5.2 URBAN 5.2 .. 4.8 RURAL 5.2 .. 5.3 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.6 2.8 URBAN .. .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. URBAN .. .. RURAL ..  ANNEX I Page 2 of 5 INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGHTED AVEI3GES - MOST RECENT ESTIMATE MOST RECENT LOW INCOME MIDDLE INCCME 1960 /b 1970 /b ESTIMATE lb ASIA & PACIFIC ASIA 6 PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 61.0 72. 0 80. 0 80.9 98.6 MALE 80.0 87.0 95.0 94.3 99.2 FEMALE 40.0 55.0 64.0 66.7 97.7 SECONDARY: TOTAL 20.0 29.0 28.0 26.6 55.5 MALE 30.0 39.0 38.0 34.8 60. 7 FEMALE 10.0 17.0 18.0 18.2 49.9 VOCATIONAL ENROL. (% OF SECONDARY) 8.0 6. 0/g .. 9.9 13.7 PUPIL-TEACHER RATIO PRIMARY 29.0 40.0 42.0 41.1 34.6 SECONDARY 16.0 17.0 .. 20.5 28.5 ADULT LITERACY RATE (PERCENT) 28.0 33.0 36.0 40.9 85.8 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0. 7 1.0 1. 3 1.8 9.0 RADIO RECEIVERS PER THOUSAND POPULATION 5.0 21.0 24.0 25.8 118.9 TV RECEIVERS PER THOUSAND POPULATION .. 0. 1 0. 5 2.4 39.4 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 11.0 16.0 16.0 13.4 . CINEMA ANNUAL ATTENDANCE PER CAPITA 4.0 6. 3 3.8 .. 4. 9 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 189761.4 220670.5 252235.8 FINALE (PERCENT) 31.3 32.6 32.0 29.4 36.8 AGRICULTURE (PERCENT) 74.0 74.0 74. 0 70.5 51.9 INDUSTRY (PERCENT) 11.0 11.0 11.0 11.6 21.9 PARTICIPATION RATE (PERCENT) TOTAL 43.0 40.2 39.2 37.9 39.1 MALE 57.1 52.3 51.3 51.3 48.5 FEMALE 27.9 27.1 26.2 23.7 29.6 ECONOMIC DEPENDENCY RATIO 1.0 1. 1 1. 1 1.2 1.1 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.7 26. 3/h HIGHEST 20 PERCENT OF HOUSEHOLDS 51.7 48. 9/h LOWEST 20 PERCENT OF HOUSEHOLDS 4. 1 6. 7/h LOWEST 40 PERCENT OF HOUSEHOLDS 13.6 17.2/h POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 88.0 107.8 . RURAL .. .. 76.0 86.5 192.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. RURAL .. .. .. .. 182.5 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 40.7 46.2 RURAL .. .. 47.9 51.7 33.2 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b 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 1974 and 1978. /c Solid fuel conversion factors revised, /d 1951-60; /e 1962; /f 1958; /g 1967; /h 1964-65. Most recent estimate of GNP per capita is for 1979, all other data are as of April, 1980. October, 1980  ANNEX I Page 3 of 5 DEItNITIONS OF SOCIAL INTICATIRS No.te. Although the aaa d drt. rIeccegneal ugdteat stolaleadrlibe tsol lobe norod that they may nt be loner- nationaly coepaahle beause ofthe 1.0 of staderd-e -defn,io and concepts usd h difeenjcotisinclecigthe dana. The data ace, n oF theaubjet coutry lncrytfor 'Ispuri turlos li faprtere'9arcco.er 'fttddle Income North fttits aod Middl:e tat"i cheebcasofsrge Octa - Tnal urfer ars coprisug hnd ees sd inlnP aea stsaqaifePrmameia oolya _tieeit is h Ascicliors - Esimateci-Pgioauri. ae sdtaomnyo Acuenr Peltn e I.ncdu Prne- Pag-uletd-de dinds by. asbe Pef pesualoihg for -rcps, Pastre, maker end kltohsn gsrdsa o. n ie. failno; 1977 dana. maim andfee _ grdatenrses,- prarItiral nieces, b -md aeisem su- s ONP PiP CAPITA (hUS) - Np pe,t capins e ti__asa urn ahn r s- ubn n etal dvdsdb aercepnie tro0bsielbd rutdb oe ourirmanda ul an ta NO-O senOb- 60 snulbir ha publ)irdnd privtet`. gL.os so pcilsdbopnl a s 190,sd 11970 bld daabblimiectrs ptrtos.pitei r etb1uetsprsa tfe EHECY CPtONSITIOt FERi CarlTu oca c_an_pticoo crtue ca bac ernt included~i..nua hopnas tto --er Pnri1d batb adfedo sod lictre,peatolun, cncral ae an ndr-, nuclear sod0 g197termd alc ene nt permanet ly ensfed hy a phyitnia (bun by a madin1 assistant. trffrp Inhlgris col eutolen pe caita 190. 970 co 196 nrer rdwife, et.-) ohich cfier ir-panimai -c bdetioo sad p-aide nasintlide WOm pri-cipe geo-cl a d spectiasi.d hospitals, sdmm POPLt.ATONO ANDh VITAL STATISTICS lcepi-ai loca cc rualbdri se a mdia sad, maernit -cm hare. ~~4yyjyjt~iq~)((.i-.ier nililonaf - na f JulY 1; l9A0, 1070, and 1970 h..ptesion rr orna e Tonal nuahec u admei in a-t dsoy re doto. jfrton -. pp..ib; t hceptoale dfvidsd hr the number of beds. dfetedo) Iditoo ofura trssnytaffect -p-npir li,y of darn HOUSNGn iscag ountris; lOu 1970.and 190 Osta ucersstier of.H gruhold (rarsoas per househol)1 onl urban, andel Prolecaco paraereta fc mnrtalty rht!. c-ltmpdnite fthe yeclisu- Ontg hnue of ArIo .et dton --total., aria sad _hr - vrgetm fertility accordcng to Accot:lac no attutypaoo pet. cr.nce..cch. an.l f.ctica (trrno.dthje tnl ra, a am inc onr r hngngedoec ha cltl . ilite coh..c.. o nrlt Conetional -- -olhng nin elorci i tisquraa preig and.. fertiIytsd cprftinprnn.f total, urban, nod tonaly doJjlbtgrsncfr the ilitb ratedin equa tc. th -dat rain and aloteoestutrd sal ts i itneca ... Thi Inacicttnilftrfotilprac dclnL5 dfaedfroiro ,cn tharopacoeotlecl o olc et eprducionrae, leceac cecta tn Flnayacool- tta, miriodgemqe-Ice .ccai pn-l an tfeai of oon cplcr Icel mci t.Th nitccay ppuacoc nt sn eromet ofal afr t.tep. sylo tproaor frsetv rociato 00 he onicor ho pojecad fho icre incc of. the poua o rmaytho-a ppltosf-asl rldschirsss r hoocIc ..ar1 1-f-1t---dt- - con Pealty ducation . rqIre at latTn yano proo rmr ierci uih lochoe iccuctureAP lhren -7 -f dhidren I-Il orern t, ochr-plt(1- cnidtthnfra p, touni.. y roterFnn haitr aprasinepn Aoyornfucdrtlrd 19 orrnio crp) a pecentgnaofad-yrtpco- dnclorsedrprnh,tsIaeccdarynsttuno ti cent houaln fr10-E.16- en-h70lidcrrapningti lecin. ponuntln; 060 107, sd 1701ata cart.. nesin less thairgtpeut;oclds7hisns"hsaan Ironstertouct _o tai - ucrug ou-ber of dbc- h franoa g n-,tI Itarc nil foscy -eghiolen.l hc ntolraroucit erodI ae oertern raen asnpriccir- soo cceoeoIrr huandpoultot -ci yps1freedec orrai F6alo--cnln-datrnd~5 -d. )- I---~ idrcocf a-ieoor-- nreds- o mcrn cdu....otabolosl_dltcrcsiog Gt A.P-1 .... th .1d. f t.t.1 ."d P0 countrieshm ttoi araoa teinstrtr fOt aeot nfe yrodocfco cOall fod coondiccen. Ptccc.tlocciudh nee ar Teed and fc ito ,tocdyi... y o eLeira gnors d.trot. In is ouetdare fo or calendar pi 9t honl. tondid rcoe rmaygos a.euacne n e"du'ITI lpnailes ou ie a etch'. corao caioihroifincotturrco fgofeo CtlrrtAunncalccn-- dancr pe- Cad.soe p neart-Nasad oohe ntd o eccclocroc roucr r A- 0lacn d-ilh. p, 10-7.., 00f lOilan., anPoil tt rorerqiclerr ncfod uo lcAuoilh I I cnor l Octthcupitto-1conoh-.rcnrn F rporc, cr rha -e fr ..cri Ott ..p..c ccclud1 ...na- fed teed.., or-d frcet a id corle hot indinbuslee s.tudents, etc.di quart it inn und In food croceolng. und lonto In dlrteflut.o . P.cle lflhopn nca io Ipurcrc er cott oerble 1060l. 197ten Attn Ott-isaec in ti I h y-rd on chy ioocl -ad-Oc do-us- cci 01.aa oilipudhat odro trccoh ca cpthr, oyoect,5t Pal fotri enip - rh ltlao fp.d rte an pereni-e frtnos b-ehorforce. mdnn0crioono o.ico. c lohuI ero o nto ugectot1 pcrlini P- fh...bot fprpol In fros fo ..nr. dann and oco-ehTiTONllcl Oln,17,ad17 aa lho nprerg oficoral labo T-rce;.Iu . cO so 190 idafta. ald't'l rtrn cI athir 10- olln Ph-ud-h ioal r- oln lIen stnd acfor cae ur'Y oue an .cne,melt sod feal labo fteidtd Pet cupItppctrucnrclf fro ocloal sd rulor-rotolo apply of fod 0. rg-aecnrrutorrr.f te populaicti sodlong otontread. Aton esti ownn itirannoa ecucot rI_.rn cnl todplo I- -grow 1ar6doy; 197l-l 1079ad 97 d ata. r donoiclee ______I Perataadrod tocs 11cc roi ln, OhI 100 an -11 pdt d fCn ciTltei P_ d-Y A-il.blt -PPI -p'i- L,bo~~~~prcer,pihor '20 Erren .rc-r-ot0 pecet,adn- en 0pecn Ncuetrcfproclr (toPnd,ura,iag ttl It onclbe Fret ne tti i.. ly Fde..t die.bt p-h .esnia ro-t-food -. tqi bets is0nt- icir lc on-iha 1961 prot1rred hoeole! acn, adaotrola t elee esiaPc.r enn ee illt ret cart7s -. orban sd ria poreroao f heI rtyciotropla Ins fenrbneraaobtccorl elaie ovetycoom lve inon-tir "Y'actae" roosin ffnan -rnodya po. cdnnatthn00nte oo on a e proo nom ftecoiy ihnlcli deyrinaddtfis-nbe total. tranonablr dornon ould Irply char dth hourul 20o en -Ar of ro oned tioti-Fpcliinironibiln -dca ieLvl rrat ra doniho c pn dnrrrcrir ut__tedf nTtho cIt arorurel~P 1-1 Prco fpplahnlro odrrt h-re'ho apo poelof aclt fecoletIc nddsptl.olbccothottassr,fonwc nlyi and Pfjeool isptna Zr-.. October 1990~~~~~~~~~~~~~P t. hi cituocnut~~dett-nte b nte-hrc yees o te sni pit c1cfaacO 11cIcetllatl'7Oca. 1 Zy  ANNEX I Page 4 of 5 EGOKC DZYEIANT Mm n PER CAPITA IN 1978: USS 180 GROSS NATIONAL PRODUCT IN 1978/79 ANNI6L IATE OF GROT (7 contant orices) USS Bn. B 1 1955/56-1959/60 1960/61-1964/65 1965/66-1969/70 1970/71-1974/75 1975/76-1977/78 GNP at Market Price. 117.08 100.0 3.7 3.6 3.7 2.8 5.6 Cross Domestic Investment 28.28 24.2 Grosa National Saving 28.11 24.0 Current Account Balance d/ 0.50 0.4 OUTPUT. LABOR YOCR AND PRODUCTIVITY IN 1971 Value Added (at factor cost) Labor Force V.A. Per Worker US5 Bin. 2 Hl 2 US$ 2 of National Averane Agriculture 24.5 46.6 130.0 72.1 188 64 Induetry 11.8 22.3 20.2 11.2 582 199 Services 16.3 ILA 30.2 16.7 5U 186 Total/average 52.6 100.0 180.4 100.0 292 100 GOVBURINT FININCE / venral Governat central governC t Rs. Bla, ~ ~ ~ ~ ~ ~ ~ ~ ~~ IAWED& I of GDP 1978/79 Z' '1