China - Pharmaceuticals Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15831 IIPLEMENTATION COMPLETION REPORT CHINA PHARMACEUTICALS PROJECT (LOAN 2943-CHA) June 27, 1996 Industry and Energy Division China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Name: Renminbi (RMB) Currency Unit: Yuan (Y) = 100 Fen (As of January 1, 1988) Y 1.00 = $0.27 Y3.70 = $1.00 (As of December 31, 1994) Y 1.00 =$0.118 Y 8.50 = $1.00 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES I hectare (ha) = 2.47 acres I metric ton (ton) = 1,000 kilograms (kg) 1 kilometer (km) = 0.621 miles I cubic meter (m3) = 35.3147 cubic feet (cf) 1 kilocalorie (kcal) = 3,968 British Thermal Unit I kilowatt (kW) = I 000 watts I megawatt (Mw) = 1,000 kilowatts (kW) ABBREVIATIONS AND ACRONYMS CIB - China Investment Bank CPE - Centrally Planned Economy EEC - European Economic Community FDA - US Food and Drug Administration GDP - Gross Domestic Product GMP - Good Manufacturing Practice GOC - Government of the People's Republic of China GSP - Good Shop Practice ITC - International Tendering Company MOF - Ministry of Finance MOPH - Ministry of Public Health QCC - Henan Provincial Pharmaceutical Quality Control Center R&D - Research and Development SEC - State Economic Commission SINOPEC - China Petrochemical Corporation SPAC - State Pharmaceutical Administration of China SPB - State Pricing Bureau SPC - State Planning Commission TCM - Traditional Chinese Medicines TNC - Transnational Pharmaceutical Company tpd - tons per day tpy - tons per year UNICEF - United Nations Children's Fund UNIDO - United Nations Industrial Development Organization WHO - World Health Organization ZYPF - Zhong Yuan Pharmaceuticals Factory ZYPFPO - Zhong Yuan Pharmaceuticals Factory Preparation Office  FOR OFFICIAL USE ONLY CONTENTS PREFACE ........................................................... ii EVALUATION SUMMARY ........................................................... iv PART I: PROJECT IMPLEMENTATION ASSESSMENT .................................1 A. Project Objectives ............................................................1 B. Achievement of Project Objectives ............................................................2 C. Implementation Record and Major Factors Affecting the Project ................5 D. Project Sustainability ............................................................6 E. Bank Performance ............................................................8 F. Borrower Performance ............................................................8 G. Assessment of Outcome ............................................................8 H. Future Operation ............................................................9 I. Key Lessons Learned ............................................................9 PART II: STATISTICAL TABLES ........................................................... 11 Table 1: Summary of Assessments ............................................................ 1 1 Table 2: Related Bank Loans ........................................................... 12 Table 3: Project Timetable ........................................................... 12 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual ..... 12 Table 5: Key Indicators for Project Implementation ...................................... 13 Table 6: Key Indicators for Project Operation ................................................ 14 Table 7: Studies Included in Project ........................................................... 14 Table 8A: Project Costs ........................................................... 14 Table 8B: Project Financing ........................................................... 15 Table 9: Financial and Economic Benefits ..................................................... 15 Table 10: Status of Legal Covenants ........................................................... 16 Table 1 1: Compliance with Operational Manual Statements ......................... 17 Table 12: Bank Resources: Staff Inputs .......................................................... 17 Table 13: Bank Resources: Missions ........................................................... 17 APPENDICES Appendix A: Zhong Yuan Pharnaceutical Component Income Statement ............... 18 Appendix B: Zhong Yuan Pharmaceutical Component Balance Sheet ...................... 19 Appendix C: Zhong Yuan Pharmaceutical Component Fund Source And Application .......................................................... 20 Appendix D: ICR Preparation Mission's Aide Memoire ........................................... 21 Attachment 1: List of Persons Met .......................................................... 28 Attachment 2: Operational Plans .......................................................... 29 Appendix E: Borrower's Contribution to the ICR ...................................................... 33 T| is document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   - 111 - CHINA PHARMACEUTICALS PROJECT (LOAN 2943-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Pharmaceuticals Project in China, for which Loan 2943-CHA in the amount of $127.0 million equivalent was approved on May 24, 1988, and made effective on February 17, 1989. The loan was closed on December 31, 1994, compared with the original closing date of December 31, 1993. Final disbursement took place on March 29, 1995, at which time a balance of $0.344 million was canceled. The ICR was prepared by Mr. Roger Heath, IENIM, with assistance from Mr. David Caplin, Consultant, and reviewed by Mr. Austin Hu, Acting Chief, EA2EM, and Mr. Juergen Voegele, Acting Project Adviser, EA2DR. The borrower and implementing agencies and enterprises provided their contribution as shown in Appendix E to this ICR. Preparation of this ICR was begun during the Bank's project completion mission, January 13-25, 1995. It is based on discussions with the Borrower, the Staff Appraisal Report, Loan and Project Agreements, supervision reports, and the Project Completion Reports submitted by the borrower and implementing enterprises, and on material in the project file. The State Pharmaceutical Administration of China also provided views and data on the project and plans and progress for implementing Good Manufacturing Practice in the Pharmaceutical Sector.   - iv - CHINA PHARMACEUTICALS PROJECT (LOAN 2943-CHA) EVALUATION SUMMARY Introduction and Project Objectives I1. The Project was designed to assist China in reaching the following objectives in the pharmaceutical sector: . Expanding pharmaceutical production using modem technologies to match changing demand and increase the potential for export from the pharmaceutical subsector through the establishment of new vitamin C production capacity. - Improving the quality of pharmaceutical products and their manufacturing practice through improving pharmaceutical product quality control in Henan Province; and introducing Good Manufacturing Practices (GMP) in selected enterprises and training programs in all aspects of GMP. 3 Improving the quality of training, maintenance, marketing, management and GMP in the pharmaceutical industry by emphasizing these aspects in the investment components. 2. The objectives were clear and achievable. They also conformed to Government priorities for the pharmaceutical sector regarding modernizing production capacity, improving quality control, and moving toward nationwide introduction of GMP standards. 3. The Project had the following major components: (a) establishment at Zhong Yuan, Zhengzhou City, Henan Province, of facilities using modem technology for the production of 5,000 tpa of Vitamin C and related products; (b) establishment in Zhengzhou City of the Henan Province Quality Control Center for analyzing and monitoring the quality of pharmaceutical raw materials, intermediates and finished products; (c) implementation of GMP in selected demonstration facilities at the Shanghai No. 4 and Shandong Xinhua Pharmaceutical Factories; and,  - v - (d) implementation of a training program by the State Pharmaceutical Administration of China (SPAC) in GMP methodologies and techniques for staff of SPAC, design institutes and enterprises. Implementation Experience and Results 4. The Zhong Yuan Pharmaceutical Factory commenced trial of a key intermediate in April 1992, 3 months behind the original schedule, and vitamin C production-the main product-in 1993, 1 1 months later than the original estimate. This was a creditable performance given the complex nature of the project and late delivery of some critical imported equipment. However, the project has experienced serious technical difficulties in achieving sustained production at design parameters of a number of intermediates and final products, especially vitamin C. As a result, additional financial resources are required until 1997-when the company is projected to be financially self- supporting-for the factory to meet all its financial obligations. Financing requirements were almost three times higher than originally estimated due to much higher local inflation than anticipated, increased foreign exchange costs due to depreciation of the US dollar against contract currencies, additional imported goods and services required after startup, and higher interest during construction arising from the longer period for production buildup. The re-estimated financial and economic rates of return are much lower than expected at appraisal: financial rates of return before and after tax were estimated at appraisal at 26 percent and 20 percent, respectively; recalculations based on actual and projected production build up are l1 and 10 percent, respectively. The economic rate of return is 1 1 percent compared to the appraisal estimate of 34 percent. This was the only component for which benefits were quantified at appraisal. 5. The Henan Pharmaceutical Quality Control Center commenced operation in 1991, 30 months later than the original schedule due to delays in site acquisition and availability of domestic finance. In light of revised demand estimates, some of the very sophisticated analytical capacity originally specified, representing 20 percent of total equipment cost, was not installed. As a consequence of deregulation, the official work load of the Center, as part of the Henan Provincial Pharmaceutical Bureau, is less than expected as enterprises themselves are now responsible for much of the routine analytical work required for finished product quality control. To better utilize the Center's facilities, other work on a fee basis is being undertaken. The Center still plays an important role in monitoring the quality of pharmaceuticals produced and distributed. The objective of improving pharmaceutical quality control has thus been met in Henan Province, although the role of the Center in achieving this objective is less than originally planned. 6. The GMP Component at Xinhua, comprising tablet production, commenced successful operation in 1994, 24 months later than originally scheduled, but within the revised schedule submitted shortly after loan effectiveness. The delay was due mainly to site clearance problems and delayed availability of counterpart funds. Overall, costs and financing required were double those originally estimated due to higher local costs arising  - vi - from much higher than anticipated local inflation. The facilities and quality control management systems have been designed, with the assistance of foreign consultants, to conform to the GMP standards of the US Food and Drug Administration (FDA), one of the most exacting standards in the pharmaceutical sector. This component represents the first successful introduction of international GMP standards to a Chinese-owned pharmaceutical formulation plant. The component has generated considerable interest within the pharmaceutical sector and many visits have been made by local enterprises and institutions to learn from the Xinhua experience. The project has also been closely monitored by SPAC to draw lessons for the introduction of GMP nationwide and disseminate the project experience throughout China. 7. The GMP Component at Shanghai No. 4, comprising injectibles production, is due to commence operation in July 1995, some 40 months later than originally scheduled due to difficulties in securing local finance and the need to relocate the project from the original site at the company's main facility to a new "green field" site in Pudong. The relocation was due to the loss of part of the original site area to the construction of a major highway by the Municipality. The capital cost and financing requirements are almost three times those estimated at appraisal due to high local costs arising from the increased project scope as a consequence of the relocation, and higher local inflation than anticipated. The component is designed to meet FDA GMP standards and is expected to meet the objectives for this component. It has generated very considerable interest within the pharmaceutical sector and has also been closely monitored by SPAC. 8. The SPAC Training and GMP Component training program commenced in December 1988, and has been carried out in China at a number of the joint venture pharmaceutical plants that have received FDA approval. It comprised the training of staff of the various project components, and special symposiums. There was also extensive foreign training at engineering and design consulting firms, and at a formulations plant. The Ministry of Health has now promulgated the GMP standards that will govern the manufacturing quality standards for the pharmaceuticals sector during the Ninth Five Year Plan. SPAC will submit a nationwide GMP implementation report to the Government that is expected to recommend mandatory GMP standards with an initial goal of 80 percent of the pharmaceutical plants meeting the new GMP standards by the year 2000. Initial estimates for the cost of this GMP program are Y 15 billion. 9. Actual project costs totaled Y 1,044 million in local costs and $159.2 million in foreign costs, compared to the appraisal estimates of Y 340 million and $130 million. The main factor responsible for increased local costs was inflation-driven price increases. Other factors affecting costs are described above. The costs were covered by the Bank loan for $127 million, domestic loans (often for much more than envisioned at appraisal), internal cash generation and, for the Zhong Yuan component, equity participation by Henan Province. 10. All of the Project objectives were met. Performance of all project components as regards meeting initial schedule and cost estimates was deficient, but this was largely for  - vii - reasons outside of the control of the project entities and, except in the case of Zhong Yuan, has not impacted on long-term project performance. Overall, the Project is judged to be sustainable. Although the financial performance of the Zhong Yuan Pharmaceutical Factory is much lower than expected, many of the technical problems encountered have been solved, and a program dealing with the remaining problems, which are now well understood, was completed in 1995. Providing this program is successful, the long-term future of the factory would be ensured. The Henan Quality Control Center plays an important, albeit lesser, role than expected in the analyses and monitoring of the quality of pharmaceutical products in Henan Province as routine enterprise analytical work is now the direct responsibility of the particular enterprise. The GMP Projects at Xinhua and Shanghai No. 4, both of which are now joint stock companies, have been successful and are seen as key factors in the companies' future development both in improving product quality and in exporting higher value product. There is thus a very strong commercial interest in extending GMP to other facilities of the companies and maximizing the benefits from the Project. SPAC has successfully completed the first stage of the process for nationwide introduction of GMP. Through the training program and the implementation of the pilot projects at Xinhua and Shanghai No. 4, it has built up expertise in designing facilities to international GMP standards, specifying appropriate GMP standards for China, and auditing facilities for GMP compliance. It has also been instrumental in having the Ministry of Health promulgate nationwide GMP standards. The initial institutional prerequisites for nationwide introduction of GMP have thus been largely met. The eventual implementation of GMP in all of the pharmaceutical facilities is a high priority of SPAC and the Ministry of Health to ensure that pharmaceuticals are manufactured, packaged, and delivered to appropriate quality control standards. The introduction of GMP is also essential for international competitiveness of the sector. The costs for introduction of GMP are considerable as many of the existing production facilities, especially formulation plants, would have to be replaced. Nevertheless, based in part on the results of the project, SPAC intends to vigorously pursue the implementation of GMP. Summary of Findings, Future Operations, and Key Lessons Learned 11. Overall, there was a very strong commitment of the borrower and the project entities at all levels to meet the Project Objectives. Additional key factors, for individual components, are assessed below. 12. Preparation of the Zhong Yuan Pharmaceutical Factory had included extensive feasibility studies with Chinese and international consultants so that project scope and implementation arrangements were very well defined, enabling construction of the project to proceed quickly. All of the entities involved in the project (Henan Provincial Government, Zhengzhou Municipal Government, and SPAC) showed a very high level of commitment to the project in ensuring that the following were available: financing on a timely basis, use of a top construction contractor, technical expertise from other enterprises and institutions in China to assist in solving the commissioning and startup problems that the project encountered, and reorganization of the management structure of  - viii - the factory. While the implementation organization of the factory was strong, it became apparent after plant startup that it needed strengthening for the operational phase, and effective measures to strengthen management were put in place in 1994. 13. Preparation for the GMP Component at Shanghai No. 4 and Xinhua was soundly based on recommendations arising from audits carried out during project preparation by international consultants working with local consultants. Qualified international consultants were selected (the same for both projects) to work with and supervise the local consultants at critical stages to ensure that facilities were designed and constructed to GMP, and to audit the facilities on completion. The international consultants built up strong and effective relationships with the staff of the two companies and the local consultants (the same local consultants had worked on preparation of the GMP component and the preparation and implementation of the Zhong Yuan component), who were highly qualified and carried out their work very effectively. 14. The SPAC Training and GMP Component benefited from the strong leadership that SPAC has provided in the pharmaceutical sector. SPAC was thus well placed to use many of the resources and skills available in the sector to carry out an effective training program and develop realistic GMP standards and programs. 15. The Bank played an important role in identification and preparation of the Project by providing technical, financial and management advice during implementation and extensively exchanging views with SPAC on the implementation of GMP on a nationwide basis. SPAC provided a very active and effective coordination and leadership role. Henan Provincial Government and Zhengzhou Municipality, two of the major beneficiaries, provided very strong support to the Zhong Yuan Pharmaceutical Factory component. Procurement for the project was handled efficiently with remarkably few problems and procedural delays. 16. Overall, the Project is rated as satisfactory as the major objectives of the project have been met and all components are considered sustainable. However, the outcome of the Zhong Yuan Component is still dependent on the successful completion of the program to solve the remaining technical problems that are impeding performance. Henan Quality Control Center is playing an important role and the services of the Center are now available to others. The GMP component (Xinhua and Shanghai No. 4) and the SPAC Training and GMP components have clearly met all their objectives: the pilot projects are already having a strong demonstration effect throughout the sector, and SPAC is now well prepared for the introduction of GMP on a nationwide basis. 17. The Project demonstrated the value of careful preparation and the early involvement of local consultants in assisting in project preparation so that country specific factors are adequately addressed, and there is confidence at all levels that the project scope is rational and achievable. The value of strong, sustained commitment and leadership was also demonstrated in the speedy construction of the facilities and the  - Ix - implementation of measures for resolution of the operating and difficult technical problems that the Zhong Yuan Component has faced and still faces. 18. The Zhong Yuan component highlighted the complex problems that can develop in technology transfer. For key technologies that have restricted availability, it would have served the project better to have achieved technology transfer via a joint venture project with a holder of the key technology, or as would have been feasible, to have relied solely on indigenous Chinese technology in addition to the patented Chinese technology successfully used for the first stage of vitamin C production, and accepted the resulting lower overall productivity in terms of energy and conversion efficiencies. 19. It was intended that the GMP component should provide the first step toward introducing GMP on a nationwide basis. The Chinese authorities have now incorporated plans for the comprehensive introduction of GMP into the country's next five-year plan, and the Government is actively seeking financing assistance for the introduction of GMP to the entire Chinese Pharmaceutical Industry. Introduction of international standards of GMP (an issue facing many developing countries and those with economies in transition) is a complex process requiring considerable Government leadership and commitment to institutional development including an appropriate regulatory system. Introduction of GMP where there is a significant established industry, as in China, can benefit from pilot operations such as this project that have strong Government and enterprise support that demonstrate to policymakers, regulatory authorities, and the sector enterprises the problems that arise and their solutions in successfully implementing GMP.  IMPLEMENTATION COMPLETION REPORT CHINA PHARMACEUTICALS PROJECT (LOAN 2943-CHA) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES 1. The Project was designed to assist China in reaching the following objectives in the pharmaceutical sector: (a) expanding pharmaceutical production using modem technologies to match changing demand and to increase the potential for export from the pharmaceutical subsector through the establishment of new vitamin C production capacity; (b) improving the quality of pharmaceutical products and their manufacturing practice through: (i) improving pharmaceutical product quality control in Henan Province; (ii) introducing Good Manufacturing Practices (GMP) in selected enterprises; (iii) training programs in all aspects of GMP; and (c) improvement of the quality of training, maintenance, marketing, management and GMP in the pharmaceutical industry by emphasizing these aspects in the investment components. 2. The objectives were clear and achievable. They also conformed to Government priorities for the pharmaceutical sector as regards modernizing production capacity, improving quality control, and moving toward nationwide introduction of GMP standards. Project Description 3. The Project had the following major components: (a) establishment at Zhong Yuan, Zhengzhou City, Henan Province, of new large-scale facilities using modern technology for the production of 5,000  - 2 - tpa of Vitamin C, as well as quantities of other products, such as starches, dextrose, sorbitol, etc.; (b) establishment within the Henan Provincial Pharmaceutical Bureau, in Zhengzhou City, of the Henan Province Quality Control Center for analyzing and monitoring the quality of phannaceutical raw materials, intermediates and finished products; (c) implementation of viable procedures and necessary investments for the adoption of GMP in selected demonstration facilities at the Shanghai No. 4 (injectibles) and Shandong Xinhua (tablets) Pharmaceutical Factories; and, (d) in parallel with the above components and utilizing the training opportunities afforded by the components, implementation of a training program by the State Pharmaceutical Administration of China (SPAC) in GMP methodologies and techniques for staff of SPAC, design institutes and enterprises. This was in furtherance of SPAC's program for introduction of GMP standards and, by agreement, was monitored by the Bank. B. ACHIEVEMENT OF PROJECT OBJECTIVES 4. Zhong Yuan Pharmaceutical Factory. The factory commenced trial production of starch, a key intermediate, in April 1992, three months behind the original schedule. Vitamin C production commenced in 1993, 11 months later than the original estimate; still a creditable performance given the complex nature of the project and delays in the arrival of some of the critical imported equipment. However, the project experienced serious difficulties in achieving sustained production at design parameters of a number of intermediates and final products due to equipment and process design problems. The equipment and process problems encountered with the final stages of vitamin C production are particularly serious as sales of vitamin C constitute the major revenue source of the project. As a result, the build up of production has been much slower than predicted and production at over 90 percent of design capacity for vitamin C is not now expected, based on a phased plan to correct equipment and process problems, until 1998, five years later than originally predicted. Due to the low production rates in the early years of the project, additional financial resources are required from Henan Province and Zhengzhou Municipal Governments until 1997, at which time the enterprise is projected to be self supporting, for the factory to meet all its financial obligations. The financing requirements (see Tables 8A and 8B) were almost three times higher than originally estimated. For the period up to the start of operations in 1993, foreign costs for goods and services were some 5 percent higher than appraisal estimates due to the significant appreciation of contract currencies against the US dollar after all the major process package contracts had been awarded. Total foreign exchange requirements, however, were within appraisal estimates as interest during construction for the period (financed  under the loan) was less than estimated. Overall, for the period up to the ICR mission, foreign exchange costs are 26 percent higher than appraisal estimates due to interest and principal repayment from the start of operations and to additional foreign goods (spare parts, catalysts and chemicals) and services required. Local costs until completion were considerably higher than appraisal estimates due to higher local inflation than anticipated, higher interest during construction due to interest rates above those estimated at appraisal, and the longer period for production buildup. The financial and economic rates of return are, in consequence, much lower than expected: financial rates of return before and after tax were estimated at appraisal at 26 and 20 percent respectively; recalculations based on actual and projected production build up are 11 and 10 percent, respectively. The economic rate of return at appraisal was calculated at 34 percent (the large difference from the financial rate of return being the then low domestic prices for the project output); under prevailing market conditions the economic rate of return is essentially the same as the financial rate of return before tax, or II percent. This was the only component with quantified benefits in the SAR. 5. Henan Pharmaceutical Quality Control Center. The Center commenced operation in 1991, 30 months later than planned in the original schedule. The delay was mainly due to procedural delays in acquiring the site for the Center and availability of domestic finance. During the course of project implementation, it became apparent that there was an inadequate demand to justify some of the very sophisticated analytical capacity originally specified. This analytical equipment, representing 20 percent of total equipment cost, was not installed. The demand for the Center's services was expected to come solely from the Henan Provincial Pharmaceutical Bureau and the Municipal Pharmaceutical Bureaus within the Province. However, as a consequence of deregulation within the pharmaceutical sector, much of the routine analytical work for quality control at the enterprise level is now an enterprise responsibility so that the analytical work load from the pharmaceutical bureaus is less than expected: the role of the Center is now the selective monitoring of the quality of pharmaceuticals marketed by the enterprises, particularly at the various levels of distribution. To better utilize the Center's facilities, Henan Provincial Pharmaceutical Bureau has authorized the Center to take on other work on a fee basis to make up for the lower work load from the pharmaceutical bureaus. The objective of improving pharmaceutical quality control has thus been met in Henan Province, although the role of the Center in achieving this objective is less important than originally planned. 6. GMP Component-Xinhua. The GMP facilities for tablet production commenced successful operation in 1994, 24 months later than originally estimated at appraisal although within the revised schedule submitted to the Bank shortly after loan effectiveness. The delay was due mainly to site clearance issues as other work on the site had to be completed before the area for the new GMP building could be made available. There was also a problem with the availability of counterpart funds. Overall costs and financing required (see Tables 8A and 8B) were double those estimated: foreign costs were within appraisal estimates, local costs were much higher due to higher local inflation than anticipated and higher interest during construction. Originally, all of the I  - 4 - local costs were planned to be financed by self-raised funds; however, part of the additional local funds required was financed through local banks. The facilities and quality control management systems have been designed, with the assistance of foreign consultants, to conform to the GMP standards of the US Food and Drug Administration (FDA), one of the most exacting standards in the pharmaceutical sector. Production from the facilities has been in line with planned targets that only single-shift operation (50 percent capacity) would be reached in the first 18 months to allow for quality control problems to be worked out and for personnel financing for a second shift. This component of the project represents the first successful introduction of international GMP standards for a Chinese-owned pharmaceutical formulation plant. As such, the component has generated considerable interest within the pharmaceutical sector and many visits have been made by local enterprises and institutions to learn from the Xinhua experience. The component has been closely monitored by SPAC to draw lessons for the introduction of GMP nationwide, and to disseminate the project experience throughout China. 7. GMP Component-Shanghai No. 4. The GMP facilities for injectibles commenced operation in July 1995, some 40 months later than originally scheduled. The implementation delay was due to difficulties in securing local finance, the need to relocate the project from the original site at the company's main facility to a new "green field" site in the Pudong area, and the resulting need to construct utilities and other services not originally included in the project scope. The need for relocation arose because the Municipality constructed a major highway that cuts through the main facility and occupies some 3,000 square meters of the plant site: insufficient space was then available for the GMP project. The capital cost and financing requirements (see Tables 8A and 8B) are almost three times those estimated at appraisal. Foreign costs were within appraisal estimates. Local costs were much higher due to the increased project scope as a consequence of the relocation, higher local inflation than anticipated, and higher interest during construction due to the need to finance part of the increase in local costs through debt instead of equity as originally planned. As at Xinhua, the company started operations with just one shift until all startup production and quality control problems are worked out and the personnel for a second shift are thoroughly trained. This is expected to be accomplished in the second half of 1996. The component, as with that of Xinhua, has generated considerable interest within the pharmaceutical sector and has also been closely monitored by SPAC. 8. SPAC Training and GMP Component. The GMP training program commenced in December 1988 with the "train the trainers" phase in which nine key staff received at least 12 months training in drafting GMP feasibility studies, GMP in engineering and construction, GMP in production and quality control, and economic and accounting aspects of GMP. Training was carried out in China at a number of the joint venture pharmaceutical plants that have received FDA approval, at courses conducted as part of the training of staff of the other project components, and at special symposiums. There was also extensive foreign training of the trainers at engineering and design consultants, and at a foreign company's formulations plant. A special committee for  - 5 - GMP was formed in 1992, and the Ministry of Health has now promulgated the GMP standards that will govern the manufacturing quality standards for the pharmaceuticals sector during the Ninth Five-Year Plan. A number of pharmaceutical plants will be audited by SPAC to determine the requirements for meeting GMP, and based on the findings, SPAC will submit a nationwide GMP implementation report to the Government that is expected to recommend mandatory GMP standards. The goal would be that by the year 2000, 80 percent of the pharmaceutical plants would meet the new mandatory GMP standards. Initial estimates for the cost of this GMP program are Y 15 billion. 9. Actual project costs totaled Y 1,044 million in local costs and $159.2 million in foreign costs, compared to the appraisal estimates of Y 340 million and $130 million. The main factor increasing local costs was inflation-induced price increases. Other factors affecting costs are discussed above. The costs were covered by the Bank loan for $127 million, domestic loans (often for much more than expected at appraisal), internal cash generation and, for the Zhong Yuan component, equity participation by Henan Province. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT 10. Overall, there was a very strong commitment of the borrower and the project entities at all levels to meeting the Project Objectives. Additional key factors, for individual components are assessed below: (a) Zhong Yuan Pharmaceutical Factory. Preparation of the component had included extensive feasibility studies carried out initially with Chinese consultant only and finally with Chinese and international consultants. As a result, the project scope and implementation arrangements were very well-defined which enabled construction of the project to proceed quickly. All of the entities involved in the project, (Henan Provincial Government, Zhengzhou Municipal Government, and SPAC), showed a very high level of commitment to the project in ensuring that financing was available on a timely basis, persuading the Ministry of Chemical Industries to allocate one of its top construction contractors to the project, marshaling technical expertise from other enterprises and institutions in China to assist in solving the commissioning and startup problems that the project encountered, and reorganizing the management structure of the factory. While the implementation organization during construction was strong, it became apparent during the operating phase that it was weak in the skills and structure necessary for operation, and that a number of the aspects in the implementation affecting operation (specification and choice of technology, technology transfer, training) had not been adequately dealt with. This was recognized in late 1993 and effective measures to strengthen management were put in place in 1994. The number of suppliers for the process packages was lower than expected and several recognized suppliers that had expressed considerable interest during the  - 6 - preparation stage failed to submit bids. The element of competition and choice in the bidding process was thus much less than had been expected. (b) GMP Component-Shanghai No. 4 and Xinhua. The scope of these components was soundly based on recommendations arising from audits carried out, during project preparation, by international consultants working with local consultants that identified the measures required to upgrade the selected formulation operations to GMP standards in the two pharmaceutical companies. Qualified international consultants were selected (the same for both projects) to work with and supervise the local consultants at critical stages to ensure that facilities were designed and constructed to GMP, and to audit the facilities upon completion. The consultants also provided training for project and design staff, and for SPAC officials. The international consultants built up strong and effective relationships with the local consultants and the staff of the two companies. The local consultants (these worked on preparation of the GMP component and the preparation and implementation of the Zhong Yuan component) were highly qualified and carried out their work very effectively. (c) SPAC Training and GMP Component. SPAC has provided strong leadership in the pharmaceutical sector and has thus been well placed to use many of the resources and skills available in the sector to carry out an effective training program and develop realistic GMP standards and implementation program. D. PROJECT SUSTAINABILITY 11. All of the Project objectives were met. Performance of all project components as regards meeting initial schedule and cost estimates was deficient, but this was largely outside of the control of the project entities. Overall, the Project is judged to be sustainable. Sustainability for the individual components is assessed below: (a) Zhong Yuan Pharmaceutical Factory. The initial financial and economic performance of the factory was much lower than expected due to technical and operating problems. However, many of these problems have been solved; those remaining have been extensively studied under the leadership of SPAC utilizing expertise from throughout the pharmaceutical sector. Modifications to critical processes using proven Chinese technology have been made. In addition, a number of important management changes have been made: the new Chief Executive appointed in 1994 is now responsible for all aspects of company performance, and the operations have been strengthened by the appointment of highly qualified staff from other enterprises. The plans for production build up developed by the new management team are  - 7 - conservative and are achievable: vitamin C production would increase from the 1995 level of 30 percent of design capacity (vitamin C production in 1995 was interrupted while the process modifications were made) rising to 80 percent in 1997, 94 percent in 1999, and 100 percent in 2000. Demand and prices for the output of the factory are higher than originally estimated so that the commercial outlook is good. Once stable production at satisfactory levels has been achieved, the factory plans to expand vitamin C production capacity and to produce formulations of a number of its products. (b) Henan Quality Control Center. The Center plays an important, albeit lesser, role than expected in the analyses and monitoring of the quality of pharmaceutical products in Henan Province. The Center is efficiently operated and seems assured of a long term future. (c) GMP Component-Xinhua. The Company, starting in 1992, changed the structure of the enterprise to a joint stock company. It is now free to set prices for its products and, since April 1992, has been authorized to conduct its export business directly, without having to market its products through a foreign trade enterprise. Foreign trade amounts to about $12 million/year and is increasing. The Company sees the GMP facilities as a key factor in its future development both in improving product quality and in exporting higher value products. There is thus a very strong commercial interest in extending GMP to other facilities of the Company and maximizing the benefits from the Project. The Company has also found that the introduction of the management systems necessary for GMP of the tableting plant have led to an overall improvement of its management capabilities. (d) GMP Component-Shanghai No. 4. The Company is now a joint stock company that was first listed on the Shanghai Stock Exchange in 1993 and, as with Xinhua, is free to set prices for its products and export directly. Although the project schedule and financing requirements were severely impacted by the need to relocate the project, the long term effect will be beneficial due to the superior features of the new site, including space for expansion. As with Xinhua. the Company sees the GMP facilities as a key factor in its future development. The Company now plans to construct other formulation facilities at the site to GMP specifications so that eventually all of its formulations will reach GMP standards. The commercial future of the project is thus assured. (e) SPAC Training and GMP Component. SPAC has successfully completed the first stage of the process for nationwide introduction of GMP. Through the training program and the implementation of the pilot projects at Xinhua and Shanghai No. 4, it has built up expertise in  - 8 - designing facilities to international GMP standards, specifying appropriate GMP standards for China, and auditing facilities for GMP compliance. It has also been instrumental in having the Ministry of Health promulgate nationwide GMP standards. The initial institutional prerequisites for nationwide introduction of GMP have thus largely been met. The eventual implementation of GMP in all of the pharmaceutical facilities is a high priority of SPAC and the Ministry of Health to ensure that pharmnaceuticals are manufactured, packaged, and delivered to appropriate quality control standards. The introduction of GMP is also essential for international competitiveness of the sector. The costs for introduction of GMP are considerable as many of the existing production facilities, especially formulation plants, would have to be replaced. Nevertheless, based in part on the results of the Project, SPAC intends to pursue vigorously the implementation of GMP. E. BANK PERFORMANCE 12. The Bank played an important role in identification and preparation of the Project, especially in identifying finance for the feasibility studies and ensuring that these addressed critical issues. During implementation, the Bank provided technical, financial and management advice via review of procurement, monitoring of training programs, and regular supervision missions. The Bank also assisted in the preparation of enterprise operational statements during the ICR Mission. The Bank had extensive exchange of views with SPAC on the implementation of GMP on a nationwide basis. F. BORROWER PERFORMANCE 13. The overall implementation of the project from the borrower's side was largely delegated by MOF to SPAC. SPAC provided a very active and effective coordination and leadership role. Henan Provincial Government and Zhengzhou Municipality, two of the major beneficiaries, provided very strong support to the Zhong Yuan Pharmaceutical Factory component. Procurement for the project was handled efficiently with remarkably few problems and procedural delays. G. ASSESSMENT OF OUTCOME 14. Overall, the Project is rated as satisfactory and sustainable. The project has met all of its major objectives. The delays in attaining full production for the Zhong Yuan Component have had a severe impact on its financial and economic performance, but as many of the problems have now been resolved, and the plan for resolution of the remaining problems appears viable, the project is still financially and economically viable and sustainable. The Henan Quality Control Center plays an important role in ensuring that the Henan Provincial Pharmaceutical Bureau has the means to adequately monitor and enforce pharmaceutical quality standards within the Province, and the availability to others of the resources of the Center is an additional benefit. The GMP component of Xinhua and the SPAC Training and GMP component are rated as highly satisfactory  - 9 - since all the objectives were clearly met and components are sustainable. The GMP project at Shanghai No. 4 is rated as satisfactory, below that at Xinhua, since at the time of the ICR mission, it was still under implementation. However, all indications are that this is also a sustainable project. H. FUTURE OPERATION 15. It was intended that the GMP component should provide the first step toward introducing GMP on a nationwide basis, and that these two units (Xinhua and Shanghai No. 4) should be regarded as demonstration plants. The management of many Chinese pharmaceutical plants has visited these two plants in order to learn how the experience gained can be utilized in bringing their own units up to standard. The Chinese authorities have now incorporated plans for the comprehensive introduction of GMP into the Country's next five-year plan. Consequently, the Government is actively seeking financial assistance to proceed with this plan. Lessons for Future Projects in the Pharmaceutical Sector 16. Many developing countries as well as those with economies in transition are having to face the issue of introducing international standards of GMP into their pharmaceutical sectors. There are two main reasons for this: (a) the health of the local population consuming domestically-produced drugs can only be guaranteed by the introduction of procedures, which are strictly adhered to, for quality assurance of the pharmaceuticals produced and distributed; and (b) international trade in pharmaceuticals is now restricted virtually to only those products that can be certified to be produced according to international GMP standards. 17. The adoption of GMP in even new pharmaceutical production facilities is not a straightforward process of technology selection, training in appropriate procedures and quality control. It is in fact a complex process requiring considerable Government leadership and commitment to institutional development and implementation of an appropriate regulatory system. This is even more true when GMP is to be introduced in a significant established industry where some of the old facilities have to be shut down and production rationalized and new control procedures have to be learned and traditional methods discarded by both workers and management. In such circumstances, the introduction of GMP, on an industrywide scale, can be expected to take an extended period and can receive a major impetus from pilot operations like this one that have strong Government and enterprise support and that can provide significant demonstration effects to policymakers, regulatory agencies, and the sector enterprises of the problems that arise and their solutions in successfully implementing GMP. I. KEY LESSONS LEARNED 18. Experience from the Project again demonstrated the value of careful preparation and the early involvement of local consultants in assisting in the preparation so that country specific factors are adequately addressed. There is confidence at all levels that  - 10- the project scope is rational and achievable. Again, the value of strong, sustained commitment and leadership was demonstrated in the measures taken to resolve the difficult problems that the Zhong Yuan Component has had to deal with in its plans to achieve design operation. 19. The Zhong Yuan component highlighted the complex problems that can develop in technology transfer. The problems were least, and manageable, where the technology was fairly widely available, but much more difficult where available from few sources and covered by patents and restrictive know-how secrecy agreements. For such restricted technologies, it would have served the project better to have achieved technology transfer via a joint venture project with the holder of the key technology, or, as would have been feasible, to have relied solely on indigenous Chinese technology (the project uses patented Chinese technology for the first stage of vitamin C production and a significant number of vitamin C plants exist in China based solely on indigenous technology with product that meets international standards) and accepted the resulting somewhat lower performance in terms of energy and conversion efficiencies.  - 11 - PART Il: STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMENTS Achievement of Objectives Not Substantial Partial Negligible Applicable Macroeconomic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender concerns X Other social objectives X Environmental objectives X Public sector management X Private sector development X Other (specify) X Project Sustainability Likely Unlikely Uncertain x Bank Performance Highly Satisfactory Satisfactory Deficient Identification X Preparation assistance X Appraisal X Supervision X Borrower Performance Highly Satisfactory Satisfactory Deficient x Preparation X Implementation X Covenant compliance X Assessment of Outcome Highly Satisfactory Satisfactory Unsatisfactory Highly Unsatisfactory x  - 12 - TABLE 2: RELATED BANK LOANS There were no preceding nor following operations in the China Pharmaceutical Sector. TABLE 3: PROJECT TIMETABLE Steps in project cycle Date planned Date actual/latest estimnate Identification November 1986 November 1986 Preparation July 1987 July 1987 Project Brief Preappraisal Appraisal December 1987 December 1987 Negotiations April 1988 April 1988 Board presentation May 1988 May 1988 Signing N.A. December 1988 Effectiveness September 1988 February 1989 Project Completion December 1992 July 1995 Loan closing December 1993 December 1994 TABLE 4: LOAN/CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL ($ million) Bank FY Quarter Cumulative Disbursement Actual % Ending Estimated Actual of Estimated 1989 31-Dec-88 0.9 0.0 0.0 3 1-Mar-89 4.2 0.0 0.0 30-Jun-89 10.3 4.1 39.7 1990 30-Sep-89 18.8 5.1 27.2 31-Dec-89 27.3 11.8 43.3 31-Mar-90 35.7 12.9 36.2 30-Jun-90 44.8 23.4 52.3 1991 30-Sep-90 57.6 45.4 78.9 31-Dec-90 70.4 49.9 70.9 3 1 -Mar-91 81.5 77.3 94.8 30-Jun-91 89.3 88.2 98.8 1992 30-Sep-91 100.3 95.3 95.1 31-Dec-91 111.3 97.9 87.9 31-Mar-92 119.5 106.7 89.3 30-Jun-92 121.3 107.7 88.8 1993 30-Sep-92 123.8 115.8 93.5 31-Dec-92 126.3 116.8 92.4 31-Mar-93 127.0 119.6 94.2 30-Jun-93 127.0 119.9 94.4 1994 30-Sep-93 127.0 122.1 96.2 31-Dec-93 127.0 122.4 96.4 31-Mar-94 127.0 124.4 98.0 30-Jun-94 127.0 124.8 98.3 1995 30-Sep-94 127.0 125.3 98.6 31-Dec-94 127.0 126.2 99.4 31-Mar-95 127.0 126.7 99.7 The date of the final disbursement was March 29, 1995. An amount of $0.344 million was canceled.  - 13 - TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION Key Implementation Indicators in SAR Estimated Actual A. Zhong Yuan Pharmaceutical Factory Major Process Packages Contract Award Jan-89 Aug-89 Commencement of Major Civil Works Dec-89 Jun-90 Commencement of Major Equipment Erection Jul-90 Jun-91 Completion of Equipment Testing Sep-91 Oct-92 Completion of Commissioning Dec-91 Oct-92 Commencement of Vitamin C Production Jan-92 Nov-93 Commercial Operation, 100% Capacity Jun-93 1999 (Estimate) Utilization B. GMP Components Xinhua Selection of Design and Implementation Dec-88 Jan-90 Consultants Completion of Major Equipment Deliveries Feb-91 Nov-92 Commencement of Major Civil Works Apr-89 Aug-91 Completion of Erection Jul-91 Jun-93 Completion of Commissioning Dec-91 Dec-93 Commencement of Commercial Operation Mar-92 Apr-94 Shanghai No. 4 Selection of Design and Implementation Dec-88 Jan-90 Consultants Completion of Major Equipment Deliveries Feb-91 Jul-94 Commencement of Major Civil Works Apr-89 Jun-93 Completion of Erection Jul-91 Dec-94 Completion of Commissioning Dec-91 Apr-95 Commencement of Commercial Operation Mar-92 Jul-95 (Estimate) C. Henan Quality Control Center Initiation of Procurement Jun-88 Jun-89 Final Equipment Delivery Apr-89 Sep-90 Completion of QCC Jun-89 Oct-91  - 14 - TABLE 6: KEY INDICATORS FOR PROJECT OPERATION There were no specific indicators set apart from financial covenants. TABLE 7: STUDIES INCLUDED IN PROJECT There were no studies included in the Project. TABLE 8A: PROJECT COSTS ($ million) Estimated Actual Local Foreign Total Local Foreign Total Component (Yuan) ($) Yuan (Yuan) ($) Yuan Equiv. Equiv. A. ZYPF Component Installed Cost 222.6 98.2 635.4 800.0 116.0 1,786.0 Interest During Construction 17.7 19.3 99.3 36.9 32.0 308.9 Working Capital 72.5 0.0 72.5 110.0 110.0 Total Financing 312.8 117.5 807.2 946.9 148.0 2,204.9 B. GMP Component Xinhua Installed Cost 13.5 5.0 35.4 26.3 5.0 68.7 Interest During Construction 0.9 3.6 6.0 0.8 12.5 Working Capital 1.9 1.9 3.5 3.5 Total Financing 15.4 5.9 40.8 35.8 5.8 84.7 Shanghai No. 4 Installed Cost 10.2 4.9 31.5 52.5 4.2 87.9 Interest During Construction 0.8 3.2 4.7 0.5 8.7 Working Capital 1.7 1.7 3.6 3.6 Total Financing 11.9 5.7 36.4 60.8 4.6 100.2 C. Henan Quality Control Center 1.0 4.3 0.8 6.8 Total Financing Required 340.1 130.0 888.7 1,043.5 159.2 2,396.7  - 15 - TABLE 8B: PROJECT FINANCING ($ million) Estimated Actual Local Foreign Total Local Foreign Total Component (Yuan) ($) Yuan (Yuan) ($) Yuan Equiv. Equiv. A. ZYPF Component IBRD Loan 117.5 494.4 117.5 998.8 Domestic Loan 195.8 195.8 619.9 619.9 Equity (Province) 72.6 72.6 300.0 20.9 477.7 Internal Cash 44.4 44.4 27.0 9.6 108.6 Subtotal 312.8 117.5 807.2 946.9 148.0 2,204.9 B. GMP Component Xinhua IBRD Loan 5.0 20.7 5.0 42.2 Domestic l oan 19.0 19.0 Internal Cash 15.4 0.9 20.1 16.8 0.8 23.5 Subtotal 15.4 5.9 40.8 35.8 5.8 84.7 Shanghai No.4 IBRD Loan 4.5 18.5 4.2 35.3 Domestic Loan 35.0 35.0 Internal Cash 11.9 1.2 16.9 25.8 0.5 30.1 Subtotal 11.9 5.7 36.4 60.8 4.7 100.3 C. Henan Quality Control Center Govemment 1.0 4-3 0.7 5.9 Total Financing Required 340.1 130.1 888.7 1,043.5 159.2 2,395.8 TABLE 9: FINANCIAL AND ECONOMIC BENEFITS ZYPF Component /a Rates of Return % Estimates Appraisal Loan closing Financial Rate of Return Before Tax 26 11 Financial Rate of Return After Tax 20 10 Economic Rate of Return 34 11 /a Only component for which benefits were quantified in the SAR.  - 16 - TABLE 10: STATUS OF LEGAL COVENANTS Original Present Fulfillment Section Type Status Date Description of Covenant Comments Loan Agreement 3.04 12 C Dec-90 Furnish an industry wide program for Completed introduction of GMP during 8th plan period, and exchange views. 4.01 1 C GMP enterprises to furnish audited accounts, In compliance audits of Special Accounts and SOEs within 6 months of the close of the financial year. Schedule 5 10 CD Jun-89 GMP enterprises to fumish implementation Complete schedules and training programs Schedule 5 2 C GMP enterprise to maintain: debt service ratio In compliance of at least 1.5, debt/equity of greater than 60:40; current ratio of not less than 1.3 Project Agreement 2.01 (c) 10 C Dec-90 Establish Zhong Yuan Factory (ZYPF) and enter Completed into a transfer agreement satisfactory to the Bank. 4.01 I Furnish audited accounts, audits of Special In compliance Accounts and SOEs within 6 months of the close of the firancial year. Schedule 10 C Jun-89 ZYPF to furnish recruitment and training Coinpleted program 10 C ZYPF to appoint marketing staff one year prior Completed to plant startup. 6 C ZYPF to prepare plant safety manual for Completed hazardous materials and emergency procedures by one year prior to startup. 2 CP Jan-94 In operation, ZYPF to maintain debt service ratio Debt equity of at least 1.5, maintain a debt to equity ratio of not met. at least 70:30, and a current ratio of not less than Expected 1.25 compliance in 1999. Covenant types: Present status: I = Accounts/audits 8 = Indigenous people C = covenant complied with 2 = Financial performance/revenue 9 = Monitoring, review, and reporting CD = complied with after delay generation from beneficiaries 10 = Project implementation not CP = complied with partially 3 = Flow and utilization of project covered by categories 1-9 NC = not complied with funds II = Sectoral or cross-sectoral 4 = Counterpart funding budgetary or other resources S = Management aspects of the allocation project or executing agency 12 = Sectoral or cross-sectoral policy/ 6 = Environmental covenants regulatory/institutional action 7 = Involuntary resettlement 13 = Other  - 17- TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS There was no significant lack of compliance with an applicable Bank Operational Manual statement (OD or OP/BP). TABLE 12: BANK RESOURCES: STAFF INPUTS Actual Stage of Project Cycle Weeks $ Through Appraisal 75.9 n.a Appraisal to Board 6.5 n.a Board to Effectiveness I n.a Supervision 53.2 n.a Completion 13 n.a Total 149.6 TABLE 13: BANK RESOURCES: MISSIONS Performance Rating No. of Days in Staff Implementation Development Types of Stage of Project Cycle Mo./Vr. Persons Field Skills Status Impact Problems Through Appraisal Nov-87 6 166 Eng. Fin. Pharm. Econ Marketing Appraisal Through Board n.a n.a n.a n.a Board TFlrougih Effectiveness n.a n.a n.a n.a Supervision Jun1-89 2 14 Eng. Econ.Fin I I F Oct-90 2 28 Eng. Econ.Fin I I F Nov-91 1 6 Eng. 2 I M Oct-92 2 28 Eng. Econ.Fin 2 I M/T Dec-93 2 22 Eng. Econ.Fin 2 1 M/T Comnpletion Jan-95 2 26 Eng. Econ.Fin F/T Eng. Engineer Pharm. = Pharmaceutical Specialist Econ. = Economist Fin. = Financial Analyst  Financial Project Income Statement 1993 1994 1 995 1996 1997 i1998 1999 2000 2001 2002 2003 2004 20 2006 20071 2008 2009 2010 Cortunon Sarch I 1.1 28.9 55.0 81.11 89. 999 19. 2. 172127.2 127.2 1 7. 2721127.227. 127.2 127.2 1272 Modified Starch ____1 12.0 26.3 29.0 39.8 39.8 39.8 39.8 39.8 39.8 39.8 39.8 39.8 39.8 39.8 0 - Dextrose Monohydrare ~~~~~10.4 9 6 53.3 66.01 72.6 84.3 927 107.4 107.4 107.4 107.4 107.4 107.4 107.4 107.4 107.4 107.4 107.4 DetoeAnhydrate ___ - 2.5 73 3.4 48.0 52.81 72.6 72.6 72.6 72.6 72.6 72.6 72.6 72.6 72.6 72.6 72.6 *0 Soebitol (700/) 2.5 7.8 53 5 648974.7 lOOl2 110.2 128.0 128.0 128.01 128.0 128.0 128.0 128.0 128.0 128.0 128.0 128.01 0 Vitamin C (Domestic) 02 8.2 44.9 49.4 54.3 23.9 26.3 28 9 28.9 28.9 28.9 28.9 28.9 28.9 28.9 28.9 28.9 28.9 Vitamin C (Export) 89.7 246.81 380.1 537.5 591.3 693 8 693.8 693.8 693.8 693.8 693.81 693.8 _693.8 693.8 693.8 693.8 Refined ComnOil 3.1 45 15.4 24.2 31.9 39 5 44.0 53.1 53.1 53 1 53.1 53.1 53.11 53.1 53.1 53.1 53.1 53.1 GTluete Meal 1.6 6.0 7.0 Il.l 13. 9.0 20. 30.! 30.lI 30.1 30.1 30.1 30.l 30.1 0I 30.30. 30.1 Gluten Feed -2.6 4.l1 6 30 4 33.9 47.9 52.2 6517 65.7 65.7 65.7 6.7 65.7 65.7 63.7 65.7 65.7 6. Hydrol 1.7 2.1 5.6 8.4 10.2 11J.7 12.81 14.9 14.9 14.9 14.9 14.9 149 14.91 14.9 14.9 14.9 149 Total Sales ~~~~~~~~~33.1 71.2 344.7 609.3 803.2 1838.2 1142.0 1361.5 1361.5 1361.5J 1361.5 8361.5 1361.5 1361.5 1361.5 1361.5 16. 31 Miarketing Cost 1.8 I 4 3.5 6.1 8 0 10.4 11.4 13.6 13.6 13.6 13.6 13.6 13.6 13.6 13.6 13.6 13.6 13.6 Product Sales Cost 38.8 88.4 255.2 482.7 581.8 693.7 713.9 810.1 810.1I 810.1 810.1 810.1 810.1 810.1 810.1 810.1 810.1 810.10 Including_Raw Materials 15.2 30.0 144.3 186 5 229.5 288.5 293 1 340.9 340.9 340.9 340.9~ 340.9 340.9 340.9 340.9 340.9 340.9 340.9 ____ __ __ Z~~~~~~~~~~~~~~~~~~~~~ --4 40 Corn 8.0) 17.7 29.9 80.2 110.7 140.6 5.3 176.4 176.4 176.4 176.4 176.4 176.4 176.4 176.4 176.4 176.4 176.4 I Packi~ng_Materiails 2.0 4.4 12.6 2 1.5 24.8 32.2 34.9 40.9 40.9 40.9 40.9 40.9 40.9 40.9 40.9 40.9 40.91 40.9 Coal 2.0 5.2 22.6 24.7 30 9 34.3 47.3 36.1 36.1 36.1 36.1 36.1 36.1 36.1 36.1 36.1 36.1 36.1 Electricity ~~~~~~~~~~5.0 18.51 19.81 34.0 42.5 47 3 3.4 49.8 49.8 49.8 49.8 49.8 49.8 49.8 49.8 49.8 49.8 49.8 Water 1.3 16 .7 2.4 3.0 3.4 26.1 3.6 3.6 3.61 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 ' ' Salary/Allowanice 5.4 8.0 17.8 19.6 21.5 23.7 28.1 28.7 28.7 28.71 28.7 28.7 28.7 28.7 28.7 28.7 28.7 28.7 Maintenance 3.0 16.6 20.0 25.0 30.0 35 0 40.0 40.0 40.01 40.0 40.0 40.0 40.01 40.0 40.0 48.0 40.0 Depreciation ~~~~ ~~~~~~~~~~~~~0.0 93.8 93. -93.8 93.8 93.8 93.8 93.81 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.81 ofit ~ ~ ~ 7. 186 86.1 1228.5 21i]3.3 3.1 467 5.8 3.8 3.8 537.8 537.8 537.8 537.8 537.8 537.8 537.8 537.8 Financial Cost 4.2 5.2 10.0 1 3.0 13.01 13.0 13.0 12.0 12.0 12.0 12.01 12.0 12.0 12.0 12.0 12.01 12.0 12.0 Management Ovcrhead 6.7 13.5 15.0 15.0 15.0 15.0 ISO0 15.0 15.0 15.0 5. 150 15.0 15.0 15.0 15.0 15.0 15.0 Profit Before Tax -18.4 -37.3 61 1 92.5 185.3 306.1 388 7 510.8 310 8 510.81 510.81 510.8 510.8 510.8 510.8 510.8 510.8 510.8 Plus Taxs Draw Back from Export 15.3 42.0 64.6 9. 100.5 117.9 117.9 117.9 117.9 117.91 117.9 117.9 117. 11.9 11.9 11. Less Tax Payable 11.7 17.2 7. 1.7 20.0 252 25.2 35.2 25 2 25.2 1 25.21 2. 52 2. 52 2. Profi't After T ~-1 8.4 Y73 64. 817.3 23.>7. 6. 0. 0. 0. 0.) 0. 0. 0. 0. 0. 0. 0.  - 19 - Appendix B APPENDIX B: ZHONG YUAN PHARMACEUTICAL COMPONENT BALANCE SHEET 00 o W' _ W r-T sv 1 1 0 _ VN V.0C |n-'o4$n C o N _ rlV 0 0 0 0' _ 0 0 0 00 N0X IW - - N qX X W v >