China - Pharmaceuticals Project

 Pharmaceuticals project Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Fertilizer & Other Chemicals; Major Sector: Industry; ProjectID: P003517 The Implementation Completion Report (ICR) for the China Pharmaceutical Project (Loan 2943-CHA approved in FY88 and closed in FY95, one year after the original closing date) was prepared by the East Asia Regional Office, with Appendix E contributed by the Borrower. The Bank loan of US$127 million was fully disbursed except for a balance of US$0.34 million which was cancelled. The project objective was to assist the Government of China in its efforts to introduce modern technology in the public sector pharmaceutical industry, improving and upgrading its manufacturing practices as well as quality control, and improving the efficiency and competitiveness of this industry. The project consisted of three components: (i) the construction of a large pharmaceutical manufacturing facility for the annual production of 5000 tons of Vitamin C and other products such as starches, dextrose, sorbitol, etc.; (ii) introduction of procedures and equipment for upgrading two demonstration plants to achieve the internationally acceptable Good Manufacturing Practice (GMP) standards of the pharmaceutical industry; and (iii) upgrading the testing capability of the Henan Pharmaceutical Quality Control Center. The project objective was achieved but with substantial technical difficulties and cost overruns. The foreign exchange cost of the project increased by 26 percent (US$159.2 million versus US$130 million estimated), and the local cost increased further because of devaluation and rapid inflation during implementation. The Zhong Yuan Pharmaceutical Factory has experienced difficulties in achieving the expected production levels of both intermediate and final products. These difficulties arose from problems with process design and equipment, necessitating repeated modifications to the design during the implementation stage. The Region has recently informed OED that due to the lack of working capital, a halt in the program for rectification of the technical problems and a precipitous drop in the international prices of Vitamin C, the factory’s operation has stopped since June 1996. Efforts were made by Zhengzhou Municipality, in cooperation with the Bank and IFC, to bring in an appropriate joint venture partner to resolve the technical and financial problems. The GMP demonstration plants at Shanghai and Xinhua have been satisfactorily completed and have become models for other pharmaceutical manufacturing enterprises aspiring to improve their manufacturing practices. In addition to training courses offered by the demonstration plants, other GMP training is being carried out at a number of joint venture pharmaceutical plants that have already received the US Food and Drug Administration (FDA) approval. The Henan Pharmaceutical Quality Control Center has lost some of its clients as the pharmaceutical plants have increasingly assumed the responsibility of carrying out the routine analytical work for quality control. Because of the delay in start up, sharp drop in the price of Vitamin C in recent months and the shut-down of the plant since June 1996, the ICR’s reestimated ERR and FRR (10 percent and 11 percent at completion from 34 percent and 20 percent at appraisal, respectively) are now likely to fall well below 10 percent. The ICR, which was prepared before the recent deterioration in the market for Vitamin C and the the shut down of the plant, rates the outcome as satisfactory, institutional development impact as substantial, sustainability as likely, and Bank performance as satisfactory. In view of the deteriorating circumstances, the Operations Evaluation Department rates the outcome as marginally unsatisfactory and sustainability as uncertain because of the problems with the Zhong Yuan plant. OED agrees, however, with the other ratings for institutional development impact and Bank performance.  A major lesson of this project is that technology transfer to developing countries may face serious difficulties when technology is available from only a few sources and is covered by patent and restrictive know-how secrecy agreements. In such instances, a joint venture approach may provide a better alternative. Furthermore, introduction of international standards of GMP is a complex process requiring considerable commitment to institutional development and the creation of an appropriate and efficient regulatory system. The ICR is of satisfactory quality but does not provide details on the assumptions used to recalculate the ERR and FRR. Nor does it discuss the future plan of operation of the Zhang Yuan Plant, even though the ICR notes the start-up delays at the plant (recent information on the stoppage of operations was not available at the time the ICR was completed). An audit is planned.