Romania - Bucharest Glass Fiber Project

Docunment of The World Bank FOR OMCAuL USE ONLY Repot No. 5414 . PROJECT COMPLETION REPORT ROMANIA BUCHAREST GLASS FIBER PROJECT (LOAN NO. 1447-RO) January 28, 1985 Industry Department lThis document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents my not otherwise be disclosed without World Bank suthorization.  FOR OFFICIL USE ONLY ROMANIA - BUCHAREST CLASS FIBER PROJECT (LOAN 1447-RO) PROJECT COMPLETION REPORT TABLE OF CONTENTS Page No. PREFACE .. ii PROJECT DATA.. iii MISSION DATA. iv HIGHLIGHTS ........................................................ v I. INTRODUCTION ............................................. 1 II. PROJECT BACKGROUND ........................ 1 A. Project Preparation, Appraisal and Approval .... ......... 1 B. Project Objective and Description ....................... 2 III. PROJECT IMPLEMENTATION ANT) MANAGEMENT .... ........... 3 A. Achievement of Project Objectives ....................... 3 B. Project Management ...................................... 3 C. Manpower and Training ................................... 3 D. Performance of Consultants .............................. 4 E. Implementation Schedule ................................. 4 F. Procurement and Performance of Suppliers .... ............ 5 G. Environmental Aspects ................................... 5 H. Capital Cost, Disbursements and Financing Plan .... ...... 6 IV. nPFEATTNG PERFORMANCE ..-........ 7 A. Production .............................................. 7 B. Market Development ...................................... 7 V- FINANCIAL PERFORMANCE ...... ................ 8 A. Production Costs . 8 B. Financial Analysis ...................................... 9 VI. ECONOMIC PERFORMANCE ....................................... 9 VII. BANK ROLE AND LESSONS LEARNED ............................... 10 A. Bank Role ............................................... 10 B. Lessons Learned ......................................... 11 ANNEXES 1. implementation Schedule 2. Capital Costs and Financing Required (in USS and Lei) 3. Acttual and Projected Production 4. Class Fiber Production and Consumption 5. Product Prices A. Actual and Projected Revenues and Costs 7. Financial Rate of Return 8. Economic Analysis - Capital Cost Q. Economic Analysis - Production Cost (at full capacity) 10. Economic Rate of Return ATiACHMENT Comments received from the Borrower This document has a restricted distribution and may be used by recipients only in the performance | of their officia duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - ROMANIA - BUCHAREST GLASS FIBER PROJECT (LOAN 1447-RO) PROJECT COMPLETION REPORT PREFACE Loan 1447-RO, for the Bucharest Glass Fiber Project, in the amount of US$18.3 million, was signed in June 1977, and was closed in December 1980, with US$18.1 million disbursed. The main objective of the loan was to finance the construction of a new glass fiber plant in Bucharest, to satisfy the increasing domestic demand for glass fiber products in Romania. The Project Completion Report has been prepared by the Industry Department and the Investment Bank of Romania, based on missions to Romania in August and December 1982. Chapters II-IV are substantially as prepared by the Investment Bank. Comments received from the Borrower, which are included as an attachment, have been incorporated into the text. The project has not been audited by the Operations Evaluation Department.  - iii - ROMANIA - BUCHAREST GLASS FIBER PROJECT (LOAN 1447-RO) PROJECT COMPLETION REPORT PROJECT DATA (US$ million) As of 10/31/84 Original Disbursed Cancelled Repaid Outstanding Loan Amount 18.3 18.1 0.2 6.0 12.1 Cumulative Loan Disbursement 1977 1978 1979 1980 Mi) Planned 3.1 11.4 17.9 18.3 (ii) Actual 2.8 9.3 16.6 18.1 (iii) (ii) As Z of (i) 90 82 93 99 Original Actual Date Date Start of Implementation 12/75 12/75 Appraisal Date 11/76 11/76 Board Approval - 06/07/77 Loan Signing - 06/15/77 Effectiveness - 08/11/77 Loan Closing 06/30/80 12/31/80 Date of Physical Completion 12/79 12/80 1/ Completion Time (in months) 48 60 Time Overrun, months - 12 Date of Start-up of Operations Section I 12/79 12/80 Section II 06/78 12/79 Total Installed Cost 2/ (US$?illion) 42.4 33.1 Cost Underrun (%) 22 Total Financing Required, US$ Million 45.7 38.1 Financial Rate of Return (%) 11.0 25.8 Economic Rate of Return (Z) 16.5 19.8 1/ Section I had two lines. The first line was brought on stream in August, 1980. The second line, which had more Romanian components than the first line, was completed four months later in December, 1980. Implementation schedule is discussed in para 2.09. 2/ Excluding working capital and interest during construction.  - iv - ROMANIA - BUCRAREST GLASS FIBER PROJECT (LOAN 1447-RO) PROJECT COMPLETION REPORT MISSION DATA Month No. of No. of Report Missions Year Weeks Persons Date Identification/Preappraisal 04/76 1/2 2 07/15/76 Appraisal 11/76 2-1/2 3 04/28/77 Supervision I 09/77 1/2 1 08/24/77 Supervision II 03/79 1/2 1 08/03/79 Supervision III 11/79 1/2 2 11/09/79 Supervision IV 09/81 1/2 1 09/22/81 Completion 08/82 1-1/2 3 - Completion 12/82 1 1 06/17/83 -~~~~~~~~~~~~~~~~~~~~~~~~~~~~  v ROMANIA - BUCHAREST GLASS FIBER PROJECT (LOAN 1447-RO) PROJECT COMPLETION REPORT HIGHLIGHTS The project is intended to increase the production of glass fiber and glass fiber products in the quality required by the electrotechnical industries and for chemical processing equipment as well as for wear-resistant and fireproof textiles and furniture. The project, which represents a major expansion of the Glass Fiber Factory in Bucharest, includes a glass-making and spinning section with an annual capacity of 6,000 tons of glass fiber produced as yarn and roving, and a weaving and finishing section where approximately 6 million sq m of fabrics and woven roving, and 13.3 million m of tapes and tubes are produced. Of the 6,000 tons of glass yarn and roving produced, 1,270 tons/year would be used for weaving while the balance of 4,730 would be for sale to other domestic users (para 2.05). This project was commissioned with 9 months' delay (para 3.08). The delay was due to difficulties in obtaining offers for the main technology and equipment package, need for redesigning foundation work for the furnaces and, most important, the urgent tasks assigned to the civil works contractor for the rebuilding of industrial areas damaged by the severe earthquake of 1977. Considering the impact of the earthquake, the implementation schedule is considered satisfactory. This project has been able to reach full capacity operation during commissioning. But production in 1982 was only two thirds of capacity and full capacity operation is not expected until 1984. This is mainly as a result of lower consumption and change in type of product demand (para 4.03). The project has met its main objective to provide additional glass fiber products of improved quality at reduced cost as well as training of personnel required for the operation of the new plant. The project cost amounted to US$35.5 million, 18.6X below appraisal estimate. This is mainly as a result of substantial reductions in the cost of local equipment, import duties, erection, engineering and civil works that compensated some overruns in preoperating, start-up and training expenses, imported equipment and working capital (para 3.15). The FRR and ERR for the project were calculated at 24.1X and 19.8% compared to appraisal estimates of 11% and 16.5% (paras 5.04 and 6.02). The higher FRR is due to the lower capital costs, the increase in product prices and shift towards higher value products. The increased ERR is mainly due to reduced capital costs, increased production of high-value items and favorable international price developments for the glass fiber products.  - vi - There were no new revelations concerning this project; however, there were a number of observations related to procurement that confirm lessons learned in previous projects. Extended negotiations to reduce prices, obtain maximum information on technology and minimize the foreign content, as was the case with the main package, could in the long run discourage foreign suppliers from bidding in Romania. Furthermore, when local suppliers win each of the packages on which they bid in this project, it is possible that foreign suppliers may be reluctant to participate in bidding. Better understanding of Bank procurement guidelines should also avoid unnecessary misprocurment (para 7.04).  I. INTRODUCTION 1.01 The Bucharest Glass Fiber Project (the Project) is part of the overall Romanian plan for the development of the industrial sector through acquisition of modern technolcgy and maximizing domestic industrial production. The Project's objective is to increase the production of glass fiber and glass fiber products in the quality required by the electrotechnical industries (cable and electrical equipment parts) and for chemical processing equipment (such as reinforced polyester tubes and tanks) as well as for wear-resistant and fire-proof textiles and furniture. 1.02 The Project, as is generally the case in Romania, was selected, prepared and implemented under a three-tier organizational structure comprising the technical ministry (the Ministry of Light Industry in this case) at the top, the Industrial Central for Glass and Fine Ceramics (the Central) in the middle, and the Glass Fiber Yarn and Fabric Enterprise of Bucharest (the Enterprise) as the lower rung of the hierarchy. Construction of a facility of the scope of the Project was included in the 1975-80 Five-Year Plan and a techno-economic study was prepared by the Central and IPIU and after review by the Ministry and the Investment Bank of Romania (IB), investment in the Project was approved by the Council of Ministers in October 1976. 1.03 The Project was completed with an average delay of about one year. The Project commissioning was gradual and some components such as roving and others were commissioned with shorter delays. The Project was completed at a lower cost than the appraisal estimate. This underrun is due largely to a substantial reduction in civil works costs compared to original estimates. 1.04 Although equipment has been able to reach full capacity operation during commissioning, production in 1982 was only two-thirds of capacity and full capacity operation was reached in October 1983. The main reasons for this slow build-up of output are lower consumption of glass fiber than estimated and a change in the type of product demand (para 4.04). II. PROJECT BACKGROUND A. Project Preparation, Appraisal & Approval 2.01 The Government of Romania requested Bank assistance in the development oI its chemical industry in FY1976. An identification mission by the Industry Department 1 visited Romania in April/May 1976, and the Glass Fiber project (the Project) was one of three selected for further consideration by the Bank. 1/ At the time of appraisal the Industry Department (the name used throughout this report) was called Industrial Projects Department.  -2- 2.02 The Industrial Central for the Glass and Fine Ceramics (the Central), under the Ministry for Light Industries, is responsible for the planning of production of glass products. This agency, in collaboration with the Design Institute for Light Industries (IPIU) prepared the Technical Economic Study for the Project. After review by the Investment Bank (IB), this study was approved by the Government on October 26, 1976. 2.03 The Project was appraised in November 1976 (Appraisal Report No. 1504-RO dated April 28, 1977) based on preparatory work carried out by the Central and other agencies (para. 2.01) and, on June 7, 1977, the Executive Directors approved a loan of US$18.3 million to the Investment Bank (IB) for on-lending to the Bucharest Glass Fiber Enterprise (the Enterprise). The Loan became effective on August 11, 1977. Prior to appraisal, the Government had secured financing for the more conventional part of the required investment (para. 2.04) but sought Bank assistance and financing for the part where modern technology was required. B. Project bbjective and Description 2.04 The main objective of the Project was to double the country's fiber glass making capacity to reach 6,000 tons per year (tpy) and, at the same time, reduce production costs. This involved a change in the process technology used previously in Romania (para. 2.06), the training of personnel to utilize efficiently this new technology, and the eventual shutting down of the existing fiber glass making capacity, but not of the plants making glass fiber products. 2.05 The Project as appraised included a glass making and spinning section (Section I) with an annual capacity of 6,000 tons of glass fiber produced as yarn and roving, and a weaving and finishing section (Section II), where approximately 6 million square meters (m2) of fabrics and woven roving, and 13.3 million meters of tapes and tubes were to be produced annually using 1,270 tons/year of yarn and roving. The balance of 4,730 tons of glass fiber produced in Section I would be for sale to other domestic users. The Project is located in Bucharest, in an important industrial zone, where suitable supplies of electric power, steam, water and natural gas are available. 2.06 The process selected for the production of glass fiber uses direct drawing from the molten glass in form of strand, which is more effective than the older drawing system from glass balls (Cmarbles") since energy consumption is much reduced and the requirement of platinum-rhodium catalyst and the material losses are also smaller. The licensor, a UK contractor, has supplied the know-how, engineering and equipment for Section I and provided technical assistance and personnel training for commissioning and operating the plant within the guarantees included in the contract. 2.07 The weaving-finishing section (Section II) uses conventional technology (building, weaving section, utilities, etc.), similar to that for other fiber types in the textile industry. The equipment suppliers trained the personnel needed for this Section and provided technical assistance during commissioning ensuring that the performance guarantees for the installed equipment were met.  -3- 2.08 The main raw materials, quartz sand, limestone, calcined alumina, dolomite and boric acid are locally Available but calcium floride and sizing products have to be imported. The necessary utilities are provided from sources outside the factory: electrical power from the natlonal network, processed steam from a neighboring factory and natural gas from the main gas supply pipeline in Bucharest. Therefore the supply of raw materials, energy and other utilities has generally been satlsfactory, assuring the reliability of the Project's operation. III. PROJECT IMPLEMENTATION AND MANAGEMENT A. Achievement of Project Objectives 3.01 The main objective--improved technology and increased glass fiber making capacity--has been fundamentally attained and training of the personnel required for the operation of the new plant and the new process has been successful. 3.02 There were no changes in the project scope during Implementation but at present the Central and the Enterprise indicate that they intend to increase output of yarn by reducing the output of roving. The capacity of the plant to make glass fiber will remain unchanged but yarn being finer than roving, volume of spun glass fiber will be smaller than originally planned. B. Project Management 3.03 The Glass Fiber factory (the Enterprise) of Bucharest is incorporated in the Glass and Fine Ceramics Central, being authorized to assume direct responsibility to procure local equipment and raw materials and to recruit and train personnel. Having a good experience in the implementation of new investment projects the Central delegated part of its activities regarding Project implementation to some other local specialized organizations, assuming however the overall responsibility for the final results. 3.04 The design and engineering for the whole plant (based on the information and the designs supplied by the technology licensor and the equipment suppliers) were carried out by IPIU and the responsibility for procurement of equipment acquired through international competitive bidding (ICB) procedures was assumed by ICE Romsit (now ICE CMT). Civil works and equipment erection were executed by the Industrial Construction Trust of Bucharest. The management of the Enterprise was very active in attempting to reduce as much as possible the impact of negative factors on the normal development of the Project implementation, which in one way or another were not under their control. C. Manpower and Training 3.05 The Enterprise employs at present 1,200 people (of which, 830 are women) including operative, technical and administrative personnel. This number is the same that was considered at the time of appraisal. During  -4- Project execution, the number of people employed In construction and erection works fluctuated between 80 and 260 per day. 3.06 Based on a training program, supervised by the Central, the Enterprise management formed, from the very beginning of the Project a number of worker teams using various professional training systems, both in Romania, In various glass and textile plants, and abroad. The training of specialists abroad wam carried out with the assistance of the licensing firm and equipment muppliers. The cost of this program, provided from the beginning, was Included in the preoperating and start-up expenses. This cost was approximately USs0.5 million. The Project anagemnt was particularly active In assuring sultable conditions for the trallng of the operating personnel and the building up of the plant staff. Part of the personnel was recruited already trained from other existing units of the Central but the new technology required extensive retralning of most of the operating personnel. During the lmplemntation period of the Project (1977-1981), 490 persons were tralned, out of which 250 were trained on the job as glassuaker, locksmiths, mechanics, electriclans and plumbers and other 240 persons were taken after graduation from vocational school. In the same period, 25 specialists (16 engineers, 2 foremen and 7 workers) received training abroad. D. Performance of Consultants 3.n7 During the periol of project implementation the specialists from various equipment suppliers were present on the site. giving up-to-date Information on the technology and the equipment being used. At the peak of the Implementation period (1979-19ln), more than 30 experts were on the site. The experts from the UK licensor were particularly useful in the erection and testing as well as in their assistance In training personnel to ensure the successful implementation of the Project. Except for these technical services, the Project manmgement did not consider necessary or useful to resort to other consulting firms (management etc.). The consultants' participatiSn was therefore limited to the introduction of up-to-date Information on techrology and equipment. E. Implemenntation Schceule 3.8 The entliaLed and actiual schedule of project implementatton In shown In Annex 1. The commissioning of the first and second lines of Sectton I of the Project was delaved 8 and 12 months to August and November 1980. respectively. while the commissioning of Section II was delayed 17 months to November 1979. The net delay was 9 months due to difficulties in obtaining offers from the main technology and equipment package for the direct spinning of glass fiber from molten glass. The terms of delivery obtained from the suppli.!rs were generallv longer than originallv projected and erection of Section ; took I months longer than programmed. 3.nQ Civil wnrks we-e comp'leted 24 months later than estimated at the time of appraisal. This delay was due. in part, to (i) the need to complete engineering design for main equipment. (ii) the need to redesign the foundation for the firnace and (iII) the urgent tasks assigned to the contractor (Bucharest Iniustrial Construction Trust) for the rebuilding of the constructions damagei by the severe earthquake that hit Romania in  -5- 1977. Considering the Impact of the earthquake, the implementation schedule is considered satisfactory. F. Procurement and Performance of Suppliers 3.10 Procurement took place under the general coordination of the Enterprise with the responsibility for technical aspects, being assumed by IPIU. Romuit was in charge of the procedures followed for imports and * Romanian equipment acquired through ICB. For these Items, potential suppliers were prequalified following procedures acceptable to the Bank and taking Into account the technical capabilities and demonstrated * experience of Interested firms. At least 2 or 3 foreign companies for each package were prequalifled and in the case of 17 packages, wlth a total value of about US$1.5 million, Romanlan suppliers were also prequalified. 3.11 Because of the difference between the Romanian and IBRD procurement procedures, the Bank interpreted that its procurement guidelines had not been fully complied with In the case of package No. 5 costing US$n.2 million and this amount of the Loan was cancelled. Four packages supplied by Romanian firms could not be financed with the Loan proceeds because of the higher price of imported packages (i.e. the proceeds of the Rank loan had been exhausted). The final distribution of disbursed funds from the Loan were 932 for imported equipment and 72 for Romanian equlpment. Mnst of the value of imported packages was supplied by the ItK (64.32), UISA (23.8A) and France (0.72). The balance (1.22) was supplied by firms in Italy, Belgium, the Netherlands and the Federal Republic of Germany. 3.12 During the period of procurement the borrower has observed the IbRD methodology, namely procurement based on international bidding for the equipment the values of which exceeded a certain price level (USS100,000) stated in the Loan Agreement. Romsit stated that in certain cases equipment could have been obtained at lower prices if direct shopping or other forms of procurement had been followed instead of ICB. For the beneftt of future projects, they therefore would want to increase the value levels of procurement which according to the Loan Agreement could be acquired through direct shopping. C. Enviromental Aspects 3.13 The Project has not encountered difficult problems concerning the protection of the environment. Gas emissions resulting from the production of molten glass are subject to Romainian standards which are in line with those required by the US and Western European countries. The limits for fluorine and fluoride concentrations are respectively 9.2 and 2.n m.g. per m3 of effluent gases and It is reported that the plant operates well within these limits. Since total gas effluent volume is small the impact on the enviroment is negligible. 3.1L Liqtild indtistrial effluents are also subject to standards regulated bv the Ministries of Industries and the Ministry of Health. To complv with these standards, Project effluents are treated before being discharged into the public sewage system. Solid waste materials amount to about 2,5nn tons annuallv but do not present any pollution control problems  -6- because they are practically inert materials. The plant installations are provided with ventilation systems that maintain suspended materials (including glass fibers) within the factory at an acceptable level. Noise levels are comparable with other textile mills. H. Capital Costs, Disbursements and Financing Plan 3.15 The Project cost (i.e. excluding interest during construction) amounted to US$35.5 million, 18.6% below the value estimated at the tine of appraisal (Annex 2). This is mainly due to substantial reductions in the cost of local equipment, import duties, erection, engineering and civil works that compensated some overruns in preoperating, start-up and training expenses, imported equipment and working capital. 3.16 Total financing required amounted to US$38.1 million, lower than the 1977 estimate of US$45.7 million. The actual project costs in foreign currency amounted to US$21.9 million, while those in local cuwrency Lei 682 million, which represent 97.8% and 50.3% respectively of the initial estimates. Annex 2 draws a parallel between the figures initially estimated in 1977 and those of the actual project costs broken down by component items. 3.17 By their structure the actual costs were lower than the estimated values. Unimportant overruns were recorded for training and commissioning expenses as well as for working capital. The level of the expenses prior to commissioning (including technical assistance charges for foreign suppliers) is 3% higher than the estimated level, the balance being explained by the extension of the test period, as compared with the estimate. It should be mentioned that this excess would have been much higher if the Romanian specialists had not taken part of the technical assistance services initially foreseen to be supplied by foreign suppliers. The increase of the working capital is mainly explained by the price changes during the period of project implementation. 3.18 Initially, the closing date of the Bank loan was June 30, 1980. As a result of the delays in Project implementation, the Bank agreed that the closing date be extended six months until December 31, 1980, at which date the remaining loan amount had been fully disbursed. The schedule of loan disbursements is as follows: ROMANIA - Bucharest Glass Fiber Project Cumulative Disbursement Schedule (million US$) Appraisal Report Actual Year Estimate Total Category I Category II 1977 3.1 2.8 2.8 1978 8.3 6.5 6.5 - 1979 6.5 7.3 6.7 0.6 1980 0.4 1.5 0.8 0.7 Total 18.3 18.1 16.8 1.3 Disbursements were reasonably close to the estimate. Major coutributing factors were that the project was relatively well defined and Romanian preparation began well before the appraisal date.  -7- IV. OPERATING PERFORMANCE A. Production 4.01 The actual and projected output of the Enterprise up to 1992, is shown in Annex 3. The result is an increase both in yarn and roving production and in fabrics and tubes output (tapes showing a marked decrease). For 1985, it is planned to change part of the roving facilities to manufacture yarn so that the production capacity of fabrics would be correspondingly increased. B. Market Development 4.02 The comparison of supply and demand between appraisal estimates and the current situation is shown in Annex 4, summarized below. ROMANIA - Glass Fiber Production and Consumption (tons) 1985 1976 1980 Forecast Actual App. Report Actual App. Report Now Consumption 1,345 7,100 3,634 11,440 9,417 Imports 829 1,600 560 4,440 Production 516 5,500 3,074 7,000 9,417 4.03 As compared to the appraisal report, actual 1980 demand showed: - total consumption decreased by 49% (from 7,100 tons at the time of appraisal, to 3,634 tons actual), 85Z of this demand being supplied from domestic production (as against 77% foreseen in the appraisal report) and 15% was imported (compared to the appraisal estimate of 232). - production decreased by 44% compared to the appraisal report due to the delay in commissioning the Project. - imports decreased to 560 tons as compared to the estimated 1,600 tons in the appraisal report, a drop of 65%. The evolution of consumption is lower than projected at the time of appraisal, the demand for finished products (fabrics, tubes and tapes) being lower than the demand for glass fiber. 4.04 Comparing the forecasts for 1985 with the consideration of the appraisal report shows: - a decrease of 18% in total consumption (from 11,440 tons estimated in the appraisal report to 9,417 tons) which would be 100% supplied from domestic output (as against 61% foreseen in the appraisal report), imports being eliminated (compared to the appraisal estimate of 39%).  -8- - consumption is fully covered by output. The evolution of structure marks also changes in comparison with the appraisal report, thus: - yarn consumption is at the level estimated at the time of appraisal (this being fully covered from domestic production) and tubes and tapes consumption decrease by 62Z and 64Z respectively as compared to appraisal report. The Glass Fiber project did not have problems as far as placing its production. The implementation of this project made it possible to substitute imports. 4.05 The 1980 and 1981 consumption structure was the following: Percentage Estimated Actual Actual 1980 1980 1981 Building materials 52 19 31 Chemical plants 13 8 27 Electronic industry 35 73 42 Total 100 100 100 In the field of building materials, the range of products for consumption comprises: corrugated plates and skylights (for roof), sanitary objects, bituminous slabs for water proofing, fireproof curtains; for electronic industry cables and materials for electrical insulation, parts of machines for the electrotechnical industry; and for chemical industry, pipes and tanks. As compared with the consideration of the estimate, the rate achieved in 1980 shows an obvious orientation towards the electrotechnical industry, as a result of the policy of continuous modernization and export promotion in this industry. In 1981, the product range structure became more complex, depending on the glass fiber supply, by commissioning the spinning mills. V. FINANCIAL PERFORMANCE A. Production Costs 5.01 The actual specific consumption of raw materials at full capacity (11,814.1 tons per year) is in general comparable to the appraisal estimate of 11,551 tons per year. The unit consumption of raw materials for the production of glass fiber was revised after appraisal in view of the requirements indicated by the main technical know-how and equipment supplier. A comparison with those considered in the appraisal report follows:  9 Annual Consumption of Raw Materials (at full capacity) tons/year Estimated Actual X Quarts Sand 4,908 5,058.7 103.0 Calcinated Alumina 1,214 1,370.9 112.9 Limestone 1,578 1,915.8 121.4 Dolomite 1,718 1,533.4 89.3 Boric Acid 1,736 1,634.4 94.1 Calcium Fluoride 395 240.1 66.9 Salt Cake 32 60.8 1.9 Total 11,551 11,814.1 102.3 Under steady operations it has been found that consumption of alumina and limestone was higher than design and consumption of dolomite, boric acid and calcium fluoride was lower. However these changes are typical in glass fiber production since the raw material formulation is not an exact science. 5.02 A review of the price structure of a number of products and materials, including fuel prices, took place in 1981, in order to be in line with international prices and to reflect the substantial increase of fuel and energy prices. The new prices and those utilized for appraisal are shown in Annex 5. B. Financial Analysis 5.03 Financial projections are shown in Annex 6. They are based on actual prices prevailing until 1981 and new prices now in force, applied to the project's actual and projected volume of productien and costs, 5.04 The internal rate of return calculated on the basis of the above is 24-1% (Annex 7), compared with 11% at the time of appraisal. The increase in the financial return is due to the lower capital costs, the increase in product prices and the shift towards higher value products. These positive factors more than offset the negative impact of the Project delay and the lower than expected buildup in production levels. VI. ECONOMIC PERFORMANCE 6.01 For the purpose of calculating the economic costs and benefits of the Project, the following ad,ustments are made on the financial data. Eliminating import duties is the only adjustment in the economic capital costs of the Project. The economic capital cost streams in current and constant 1982 terms are shown in Annex 8. Production costs are adjusted as shown in Annex 9. For natural gas, the economic price has been estimated to be Lei 2,550/N m3 (or US$170/N m3), compared to the Romanian price of Lei 5001N m3. For electric power, the economic price has been assumed to be Lei 450/Mwh (or US$30.0 Mwh), compared to the Romanian price of Lei  - 10 - 370/Mwh. Boric acid, the only direct imported raw material, is priced substantially equal to its import value, so its financial price is unchanged. For other inputs, most of which are not internationally traded to any significant degree, local prices have been increased by 10X, to correct approximately for low energy prices in their respective production costs. (At appraisal, no price adjustment was made for local materials to arrive at economic prices.) The Romanian prices for glass fiber and glass fiber products in 1982 are found to be generally in line with the international prices 2/, except for roving, for which an econom&ic price of Lei 30.0/kg (or US$2.0/kg) has been assumed, while the domestic price is Lei 45.3/kg. 6.02 The economic rate of return calculated from the cost and benefit streams in Annex 10 is 19.8%, compared with 16.5% at the time of appraisal. The increased return is mainly due to: (i) capital costs are lower than forecast despite the delays in Project implementation; (ii) the increased production of high value items, as mentioned in para 3.03; and (iii) the favorable international price developments for the glass fiber products, which have increased the revenues at full capacity by about 50Z while limiting the operating costs increases to about 41% in real terms. 6.03 At full capacity, net annual foreign exchange savings is estimated to be about US$30 million 3/ in 1982 US dollars against the appraisal estimate of US$12 million. The large increase in net annual foreign exchange savings is mainly due to about two-fold price increases for the glass fiber products during 1976-82 period, and the shift towards higher value products mentioned in para 3.03. VII. BANK ROLE AND LESSONS LEARNED A. Bank Role 7.01 During the mid-1970s, the project formed part of a broad-based effort on the part of the Bank to assist Romania in improving performance of the industrial sector. Other projects selected include those in fertilize-, steel, chemicals, fibers, and mechanical subsectors. This Project was selected since it was import substitution for a key industrial intermediate-glass fiber. 7.02 The Bank assisted in defining the technology package and competitive bidding for that package reduced the cost substantially. The same is true for equipment. The only alternative available--supplier's credits--would have limited choice of equipment and repayment terms would have been much shorter than for Bank funds. 2/ International prices for glass fiber are not readily available. Several sources revealed present prices for several types of glass fiber but it is probable that the present recessionary situation has depressed price levels. These prices and prices for other products set in line with them have been conservatively used for the economic analysis. 3/ Natural gas is treated as a local cost in this calculation.  - 11 - 7.03 Overall, the Bank has helped the Romanian agencies develop a better understanding of economic criteria in project evaluation. The Glass Fiber Project is one example of this continuing process. B. Lessons Learned 7.04 While there were no new revelations concerning this project, there were a number of observations that confirm lessons learned in previous projects. Project implementation was reasonably successful despite the one year delay. Early supervision is highly desirable to complete all arrangements for engineering, technology and procurement procedures. If a rapid follow-up after Board approval is not made, the project sponsor can be left without sufficient guidance. In a situation such as Romania's, where the country's procurement procedures are different from the Bank's, frequent and early supervision can lead to better understanding. This point has been confirmed in a number of projects. 5r a  ive ~~~ROMA.NIA FIRE DZE STIC!LA lu Graficut de reatiztare 19'75. 1976 1977; 1978..'' :-.-1979 _ ; 1980O --.19B1 _ 1982- _ _ _ Wi W WFIV I I lV I II tII [V ~~I IH I IV -I; I I lII E I I IlII VI II III IV APfDt POIECTAR D_EA C .2 t, ..__ ,___@:' ,*, .~~~~~~~~- PRO7e NtSCsI I) __ .. .- _L i_ . . v:.._ ._ -_. f PtlE R 0- 1C.k T.. _q[-L (L tXLl SEGT~~IA )I ;^ >+., - * L.4 ,I -" .- - -- 9 @' , -.6 .,. IefEtll (SEC CONSTr(ucf~~~~~~~~~~~~~~~~ IDE , L INI  3OttAIIIA - 1IrCIIARt:ST lIASS IltER P3IOJCT CAPITAL COST AmO VimAlCiNG 3Equi43o w r1 _ a tn Experessed IsnLei ml lion taptaeed In U$A lulIleo t ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A,etual Actual .1 Appraisal tstimAte Actual t Appr. Appraisal Eatistst Actual to Appr - _ - _- - st last. e at a _l.% Local Prcoli Total Local Foreign Total 2 Local Foretign Total Local foeaima Totol (1) r quilpnt and Spasn 108.1 291.2 405.S 1:0. 231.6 408.: 100.6 5.4 14.9 20.1 3.Sb/ 16.5$/ 22.3 109.9 Impoart iles 124.0 - 124.0 34.1 - 28.0 6.2 8.2 - 1.9 1.9 - 1.9 30.8 *trcglen *.2 12.0 1S 2 - 1.1 7.4 0.2 e.4 0.2 -.1 _ o.l 12.S Civil Uorhu 98.6 1t.4 111.4 71.0 13.S 91.3 31.0 4.9 0.8 5.7 4.2 0.SeI 5.0 07.7 Inou-how of ln*inesring 14.8 40.0 S4.S - 19.4 19.4 3I.1 0.1 2.0 2.7 _ 1.1 1.1 40.7 Pltoope.atiLns start-up said Training Expanons 29.0 I6.0 41.0 21.2 21.4 4t.8 101.4 I.S 0.9 2.4 1.2 1.5 2.7 112.5 bass Coit ta.ials 3171.2 )S3.6 141.0 205.5 398.4 603.9 4 .s. 36.9 19.2 36.3 11.2 21.9 33.1 M.o Cont liegnncis P hypsical l16. 19.2 36.0 - - - a.m. 0.9 1.0 1.9 - - - M.S. - Price 4.0 41.0 49.0 - - ,2. 0.2 2.2 2.4 _ - - M.S. IIaiiA@IIJ Cost 400.0 443.0 843.0 20S.1 193.4 801.9 7 1.2 20.0 22.4 42.4 11.2 21.9 53.1 76.1 Wotkins Capitl 24.0 - 24.0 31.0 _ 21.0 114.2 1.2 - 1.2 2.4 - 2.4 200.0 Psulrz C.. ost. 424.0 44e.0 612.0 242.5 398.4 h40.9 71.5 21.2 22.4 41.6 13.6 21.9 11.5 81.4 intetsat deartlig CoOs^l,uctlon _ 42.0 _ - 4..I 41.1 9N.O 2.1 2.1 - 2.6 2.8 123.6 1utilj Vieunesgeq4uirej 424.0 490.0 914.0 242.5 419.9 eO2.4 74.1 21.2 24.1 45.7 13.4 24.5 I.1 63.4 S/ Adlustd Oros tile IS bpout as oe follow 1i Report lisport. acnd loeanlai ICS-woo) USS33.3 a Za14.3 a. La, local cost ut ICI-wnu *quivll. (0lt of USSI. a) 0.9 13.1 Plus 1ut,itn eost ul other 0S"tiao squival. (302 of US1.6 a) 1.1 30.0 bi Adjusted from ties 11 Reports USSIS Leit 89., Plus local cost of toacniao ICS-uoa siulval. (lot of 1Iss 13. *) 0.9 1.S Liss (aloft" coct ol otler sofalon squliel. (lot ot USII .3) 1.1 20.0 plus sdiltional seulval. for waesr supply (creonidsrd me runtinrsncle it IS report) 0.2 .4 1.3 10.4 Ct ISto co rit.  CL ffROHANIA - BUCIIAREST ClASS FIBER PRWOECT PROJECT CO*IPLETION REPORT Actual and ProJected Production g . ~ 1980 1981 1982 1983 1984-1992 Present Present Unit A.R. Actual A.R. Actual A.R. Preliminary A.R. Estimate A.R. Estimate Yarn ton 1,500 256 2,000 1,054 2,000 1,430 2000 2,250 2,000 2,500 Roving _ 3,000 506 4,000 2,167 4,000 2,500 4,000 2,750 4,000 3,000 Total Class Fiber _ 4,500 762 6,000 3,221 6,000 3,930 6,000 5,000 6,000 5,500 Fabrics O0002 4,930 2,622 4,930 4,017 4,930 4,200 4,930 5,100 4,930 6,000 Tubes 6 Tapes ooo.2 13,300 7,758 13,300 9,254 13,300 11,500 13,300 12,600 13,300 14,300 Woven Roving ooo0,Z 1,070 - 1,070 - 1,070 - 1,070 - 1,070 - Equiv. Classe Fiber in fitiished products - Yarn a/ ton 720 386 720 576 720 610 720 737 720 864 - Rovin8 _/ - 550 37 550 50 550 75 550 86 550 98 Subtotal _ 1,270 373 1,270 626 1,270 685 1,250 823 1,270 962 ;~~~~~~~~~~~~~~~~~~ a/ Averaging 130 kg of yarn per 000 *2 of fabric, 5.6 kg per 000 a of tubes and 6 kS per 000 a of tapea. b/ Averaging 10 kg of roving per 000 a of tapes and 420 kg per 000 a2 of woven roving. I d  - 15 - ANNEX 4 ROMANIA - BUCHAREST GLASS FIBER PROJECT PROJECT COMPLETION REPORT GLASS FIBER PRODUCTION AND CONSUMPTION ( Actual and Appraisal Estimates Revised Estimates Consum. Product. Izport Consum. Product Imports tons-- 1976 1,345 516 829 1,345 516 - Yarns (Textile + roving) 884 516 368 884 516 368 Fabrics 390 - 390 390 390 368 Tubes + Tapes 71 - 71 71 - 71 1980 7,100 5,500 1,600 3,634 3,074 560 Yarns (textile + roving) 5,130 4,230 900 3,170 2,610 560 Fabrics 1,791 1,091 700 422 422 - Tubes + Tapes 179 179 - 42 42 - 1985 11,400 7,000 4,440 9,417 9,417 - Yarns (Textile + roving) 8,237 5,730 2,507 8,200 8,200 - Fabrics 2,915 1,091 1,824 1,113 1,113 - Tubes + Tapes 288 179 109 104 104 - Conversion coefficient: 130.0 kg/1,O00 sq.z - Fabrics 5.6 kg/1,000 linear meter - Tubes 6.0 kg/1,000 linear meter - Tapes 420.0 kg/1,000 sq.n. - Roving Fabrics Industry Department June 1983  - 16 - ANNME 5 ROMANIA - BUCHAREST CLASS FIBER PROJECT PROJECT COMPLETION REPORT PRODUCT PRICES Appraisal Units Report Estimate Actual 1982 (in 1976 Lei) (in 1982 Lei) YARN 5 micro 5,5 x 1 tex lei/t 124,140 212,900 5 - 11 x 1 tex - 90,630 118,760 7 - 11 x 2 tex 78,240 174,980 7 - 11 x 2 tex 116,540 189,400 9 " 34 x 1 tex 57,730 101,550 9 - 32 x 2 tex 65,480 101,770 9 ' 68 x 2 tex 50,180 77,430 Weighted Average lei/t 65,510 101,500 ROVING 160 tex 9-10 micro leilt 19,400 45,300 240 tex 10 26,000 - 320 tex 9-10 - 24,500 - 480 tex 10 - 23,450 44,887 600 tex 10 - 19,600 44,410 750 tex 13 - 18,620 40,800 1200 tex 10 - 18,420 42,563 2400 tex 9-24 - 17,640 57,420 Weighted Average lei/t 18,920 45,300 FABRICS E 27/0.05 lei/m2 13.95 31.23 E 31/0.04 17.95 24.35 E 79/0.08 18.30 30.37 E 82/0.11 16.60 33.60 E 165/0.14 19.90 31.22 E 200/10.20 21.70 36.39 Weighted Average lei/m2 19.55 31.8 TUBES E 0.5 lei/m 0.80 2.00 E 1.0 - 0.20 - E 1.5 i 0.33 1.52 E 2.0 0.38 1.59 E 2.5 0.46 1.67 E 3.0 - 0.50 2 E 3.5 .0.59 1.83 E 4.0 0 0.64 2.13 E 5.0 0.77 2.33 E 6.0 0 0.99 2.21 E 7.0 1.13 2.15 E 8.0 1.25 2.36 E 10.0 1.55 2.63 Weighted Average lei/m o.72 2.0 Industry Department June 19S3  ROHANTA - BUCHAREST CLASS FIBER PROJECT PRODUCTION AND REVENUES CO Actual and Projected Revenues (million tel) 1980 1981 1982 1983 1984-1992 Present Present Unit A.R. Actual A.R. Actual A.R. Preliminary A.R. Eati-ate A.R. Estimate Yarn Let m 97.3 16.6 129.7 107.0 129.7 145.2 129.7 224.9 129.7 253.7 Roving - 58.3 9.8 77.7 98.2 77.7 113.3 77.7 124.6 77.7 135.9 Total Class Fiber - 155.6 26.4 207.4 205.2 207.4 258.5 207.4 349.5 207.4 389.6 Fabrics | 96.4 51.1 96.4 127.7 96.4 143.1 96.4 170.0 96.4 190.8 Tubes & Tapes - - 10.8 6.2 10.8 18.5 10.8 23.0 10.8 25.8 10.8 28.6 lloven Rovinig . 12.6 - 12.6 - 12.6 - 12.6 - 12.6 - Total _ 275.4 83.7 327.2 351.4 327.2 431.6 327.2 545.8 327.2 609.0 Less Initernal Transfers - Yarn - 46.7 25.0 46.7 58.4 46.7 61.6 46.7 74.7 46.7 h7.7 - Roving - - 10.7 0.7 10.7 1.0 10.7 3.3 10.7 3.9 10.7 4.4 Net - 218.0 58.08/ 269.8 292.0 269.8 369.7 269.8 375.0 269.8 516.9 Totals accori__g to volume & price USS *b/ 3.2 19.5 24.6 31.1 34.5 Revenues in 1982 US$ US$ 4 3.3 21.0 24.6 31.1 22.Oc/ 34.S a/ According to the IB, revenues In 1978, 1979 and 1980 were Lei 38, 62, and 114 million respectively including production from the older existing unit. The figures in this table Includes only tihe Project's output. b/ At uxclwange rdtes of: I.el 18 to the US$ in 1980; and Let 15 to the US$ from 1981. c/ First converLed to the US$ equivalent using the exchange rate at appraisal (1916), I.e. Lei 20 to the US,. then Inflated to 1982 terms.  - 18 - A=6 Pag. 2 OUAIA -SMARKST ClASs Vista , Tm P341CC? CtzwPLFTI0A 1K909T OlET Wd,Vfw-FM WM: =0 , App_.a I zopll I. ulnit MULt Itql - PriLe Cost QWaaSiV Prig. Cost 400. got. Trno oasttisy (LI) Lot million Toole (L) JtLt milli. laSt. PAW hNtl_at._ Sillca Und can 4.C0 437 2.14 5.0S1 1.170 5.92 L asa - 1.592 *29 1.00 W .916 24 0.49 DoL =ica 1.Y20 28? 0.30 L.533 33 0. 54 Calcmned Alumina 1.214 2.950 3.59 1,371 3,400 4.99 logic Acld 1.739 7.190 12.49 L.*34 11,00 19.95 Caltck Fluerlda 39 1,322 0.47 240 3.823 092 Salt Cake - 32 1,890 0.06 91 1,930 0.11 Sutot-al - 11.531 '0.21 11.814 31.0 1. S4 Aualllary Hatrelalm ft. lb. Alloy kg *.07 135.000 0.92 9.50 353,000 2.37 _auur 31 sv m OOD 330 7.000 2.31 330 9.950 53.28 Catdboard Uoses 000 395 .700 2.19 _ 75 29,000 7.: _ f lv*thylone too 46 I2.-00 O.S9 49 19.600 0.75 labbla. 900 68 9.5 0