Turkey - Second Fertilizer Industry Rationalization and Energy Saving Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Kepet No. P-3259-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A SECOND FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECT April 6, 1982 This dwcumet ha a resititea distbut snd my be used by recipents dy In the perfrmance of their sitkf dotls. ftS oeneft may _ i 6therwfte be distffed w_tbei 'Word ESak authoudat.  TURKEY CURRENCY EQUIVALENTS Currency Unit January 1981 September 1981 March 1982 US Dollar /1 TL 91.0 TL 121.0 TL 143.7 TL 1 = US$0.011 US$0.008 US$0.007 /1 Since January 1980, the rate has been adjusted for the differential inflation between Turkey and its import trading partners. (TL 143.7/$1.00 was used for this report.) FISCAL YEAR Republic of Turkey: March 1 to February 28 (through 1982) January 1 to December 31 (thereafter) Beneficiary Companies; January 1 to December 31 ABBREVIATIONS AND ACRONYMS AKGUBRE - Akdeniz Gubre Sanayii A.S. (Mediterranean Fertilizer Company) AS - Ammonium Sulfate AZOT - Azot Sanayii T.A.S. (Nitrogen Industries) CAN - Calcium Ammonium Nitrate CIF - Cost, Insurance and Freight DAP - Diammonium Phosphate DONATIM - Turkiye Zirai Donatim Kurumu (Turkish Agricultural Supply Agency) DWT - Dead Weight Ton DYB - State Investment Bank EGE - Ege Gubre Sanayii A.S. (Aegean Fertilizer Company) GUBRE - Gubre Fabrikalari T.A.S. (Fertilizer Manufacturing Company) IGSAS - Istanbul Gubre Sanayii A.S. (Istanbul Fertilizer Company) KBI - Karadeniz Bakir Isletmeleri A.S. (Black Sea Copper Corporation) MAP - Monoammonium Phosphate N - Nitrogen ContenV in Fertilizer NOX - Nitrogen Oxide s NP - Complex Fertilizer tpd, tpy - tons per day, tons per year TSKB - Industrial Development Bank of Turkey TSP - Triple Super Phosphate  FOR OFFICIAL USE ONLY TURKEY SECOND FERTILIZER RATIONALIZATION AND ENERGY SAVINGS PROJECT Loan and Project Summary Borrower: Republic of Turkey Beneficiaries: 1. Gubre Fabrikalari T.A.S. (GUBRE) (Fertilizer Manufacturing Company) 2. Akdeniz Gubre Sanayii (AKGUBRE) (Mediterranean Fertilizer Company) 3. Ege Gubre Sanayii (EGE) (Aegean Fertilizer Company) 4. Karadeniz Bakir Isletmeleri A.S. (KBI) (Black Sea Copper Corporation) Amount: US$44.1 million equivalent (including capitalized front-end fee). Terms: Seventeen years, including four years of grace with interest at 11.6 percent per annum. Relending Terms: The Borrower would onlend; (i) the equivalent of about $34.4 million to the Industrial Development Bank of Turkey (TSKB) which would relend the equivalent of $6.1 million to GUBRE, $25.3 million to AKGUBRE and $3.0 million to EGE; and (ii) the equivalent of $7.9 million to the State Investment Bank (DYB) for relending to KBI. Onlending would be for twelve years including four years of grace. The interest rate to TSKB and DYB would be 11.6% and their loans to the beneficiary companies would be at spreads of between 3.5% and 5.5%, with the beneficiary companies bearing the exchange risk. The Borrower will retain about $1.8 million equivalent for a study. Project Description; The project aims at increasing the productivity and energy efficiency as well as production in selected fertilizer facilities through rationalization and modernization of existing facilities, energy savings and training. The project consists of: (a) at GUBRE's plant at Iskenderun with rated capacity of 200,000 ton per year (tpy) triple superphosphate (TSP), spare parts and final engineering for investments in rationalization/modernization, pollution control, and conversion from TSP production to diammonium phosphate (DAP); (b) at AKGUBRE's plant at Mersin with rated capacity of 594,000 tpy calcium 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.  - ii - ammonium nitrate (CAN) and 148,000 tpy of DAP, rationalization, energy saving, pollution control and addition of new 600 ton per day (tpd) ammonium sulphate (AS) unit; (c) at EGE's plant at Foca with rated capacity of 306,000 tpy of complex fertilizer (NP) rationalization, pollution control, and changes enabling the plant to produce additional varieties of fertilizer; (d) at KBI's plant at Samsun with rated capacity of 350,000 tpy of sulfuric acid (sold to Azot Sanayii for production of TSP), rationalization and modernization; (e) training programs for staff of the beneficiary companies; (f) study by the Government of domestic fertilizer raw material resources. The major benefits are more cost-efficient operations, substantially increased production from the rationalized facilities and lower energy costs. Following project completion, an estimated additional 630,000 tpy nitrogen and phosphate fertilizers, 10,000 tpy of blister copper, 240,000 tpy of sulphuric acid, 180,000 tpy of nitric acid, and 25,000 tpy of phosphoric acid will be produced at lower unit cost, and $80 million per year of foreign exchange saved at 1980 prices. Technical risks are moderate, as the project deals with existing plants and commercially proven technology. The main risks are delays in implementation and increased costs. These have been mitigated by providing, where necessary, expatriate specialists to strengthen the operational staff and by the involvement of experienced engineering firms.  - iii - Estimated Cost: Local Foreign Total ---------$ Million -------- Rehabilitation and Energy Saving GUBRE-Iskenderun 0.8 3.5 4.3 AKGUBRE-Mersin 12.3 17.0 29.3 EGE-Foca 1.8 1.7 3.5 KBI-Samsun 3.9 5.1 9.0 Sub-total 18.8 27.3 46.1 Training 0.6 2.9 3.5 Fertilizer Raw Materials Study 0.9 1.5 2.4 Base Cost 20.3 31.7 352. Contingencies /1 7.6 11.7 19.3 Incremental Working Capital 0.5 4.0 4.5 Total Project Cost 28.4 47.4 75.8 Financial Charges During Construction 1.8 7.2 9.0 Front-end Fee on Bank Loan _ 0.7 0.7 Total Financing Required 30.2 /2 55.3 85.5 /1 27 percent price and 10 percent physical contingencies on the rehabilitation component and 15 percent total contingencies on the training and study components. /2 Includes taxes of about $1.5 million. Financing Plan: Local Foreign Total