Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3998 PROJECT PERFORMANCE AUDIT REPORT INDIA--TROMBAY IV FERTILIZER EXPANSION AND PLANT OPERATIONS IMPROVEMENT PROJECT (CREDIT 481-IN) June 23, 1982 FILE COPY Operations Evaluation Department 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. PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ANP Ammonium Nitrophosphate BHEL Bharat Heavy Electricals Limited CAN Calcium Ammonium Nitrate (26% Nitrogen) DAP Diammonium Phosphate (18-46-0, i.e. 18% Nitrogen, 46% P205) DGTD Directorate General of Trade and Development DFPC Deepak Fertilizers and Petrochemicals FACT Fertilisers and Chemicals Travancore Limited FCI Fertilizer Corporation of India Limited FPDIL Fertilizer Planning and Development India Limited FY Fiscal Year (April 1 to March 31) GOI Government of India HFC Hindustan Fertilizer Corporation IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IEL Indian Explosives Limited IFC International Finance Corporation IFFCO Indian Farmers and Fertilizers Cooperative Limited KRIBHCO Krishak Bharati Cooperative Limited MAP Mono Ammonium Phosphate (11-52-0) N Nitrogen Content NP Nitrophosphate NPK Fertilizer with Nitrogen, Phosphate and Potassium Content P&D Planning and Development Department of FCI POIP Plant Operations Improvement Project P205 Phosphorus Pentoxide, used to express phosphate content of fertilizer RCF Rashtriya Chemicals and Fertilizers Limited TPD Metric Tons per Day TPH Metric Tons per Hour TPY Metric Tons per Year TSP Triple Super Phosphate (0-46-0) CURRENCY EXCHANGE RATES Appraisal Report US$1.0 = Rs 7.5 Investment Period US$1.0 = Rs 8.9 Completion Year US$1.0 = Rs 9.0 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT INDIA--TROMBAY IV FERTILIZER EXPANSION AND PLANT OPERATIONS IMPROVEMENT PROJECT (CREDIT 481-IN) TABLE OF CONTENTS Page No. Preface ........................................................ * i Basic Data Sheet................................................... i Highlights ........................................................... iii PROJECT PERFORMANCE AUDIT MEMORANDUM A. The Trombay IV Expansion Project .....1............. Project Design ................. .. .......... Project Implementation ........................... 2 Project Operations ................................... 4 Financial and Economic Results ....................... 5 B. The Plant Operations Improvement Project (POIP) ......... 6 C. Conclusions ............................... .............. 7 ANNEX 9 ATTACHMENT A: Comments received from the Borrower 10 ATTACHMENT B: Comments received from the Borrower 13 ATTACHMENT C: Comments received from the Borrower 17 ATTACHMENT C: PROJECT COMPLETION REPORT 19 I. Introduction............................................. 19 II. Project Background............................ ......... 21 A. Project Preparation, Appraisal, Approval and Credit Effectiveness................ ............... 21 B. Project Description and Objectives.................. 22 III. Project Implementation and Management.................... 23 A. Achievement of Project Objectives................... 23 B. Project Scope............................. ........ 23 C. Project Management..................... ........... 24 D. Employment and Training....... ..................... 24 E. Use and Performance of Engineering Contractors and Consultants................................... 25 F. Implementation Schedule................. .......... 25 G. Procurement and Performance of Suppliers/ Contractors ......................... ............ 27 H. Plant Operations Improvement Project................ 27 I. Environmental Aspects............................... 28 J. Costs, Disbursements and Financing .................. 29 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 IFC authorization. Table of Contents (Cont'd) Page No. IV. Operating Performance.......................... ..... 30 A. Commissioning and Start-up........................ 30 B. Build-up of Production. .................... 31 C. Further Work to Improve Plant Performance......... 31 D. Market Development and Performance................ 32 V. Financial Performance.......... ......... ........ 32 A. Financial Rate of Return....................,.... 33 B. Financial Results........ .................... ... 34 C. Financial Covenants ...................... ..... ... VI. Economic Performance..... ............ ......... ......... 34 A. Economic Rate of Return................o.......... 34 B. Transfer of Technology.......................... 35 C. Foreign Exchange Savings.......................... 35 VII. Institutional Performance........ ...................... 35 VIII. Bank Performance.................... . .............. . 35 IX. Conclusions.. . ....................... 0............. 36 A. Overall Assessment.............................. 36 B. Lessons for the Borrower and the Bank for Similar Projects ................ .. ............ 37 Annexes: 1. Fertilizer Projects Financed by Bank Groupp....... 39 2. Organization Chart During Project Implementation of Trombay IV Expansion......... ......... 40 3. Organization Chart During Commissioning of Trombay IV Plants ......... .............. 41 4. Implementation Schedule........... ....... 42 5. Sources of Procurement Using IDA Credit........... 43 6. Project Cost Summary...........*........... 44 7. Disbursement of IDA Credit.............. 45 8. Build-up of Production...................... 46 9. Financial Rate of Return.......................... 47 10. RCF Income Statements........................ ..... 48 RCF Historical Balance Sheets......... ....... 49 11. Operating Cost Data at 90% Capacity Utilization in 1985/1986.................. ..............50 12. Economic Rate of Return........................... 51 Map - 1 - PROJECT PERFORMANCE AUDIT REPORT INDIA--TROMBAY IV VERT':LIZER EXPANSION AND PLANT OPERATIONS IFFR'VL;MENT -ROJECT ((FEDIT 481-IN) PREFACE This report presents a performance audit of the Trombay IV and Plant Operations Improvement Project supported by Credit 481-IN. The Credit, for US$50 million, was approved in June 1974 and fully disbursed in June 1980, two and a half years after the original closing date. The Credit consisted of two components: a US$33 million component to help expand the capacity of the Trombay unit of the Fertilizer Corporation of India (FCI) near Bombay, subsequently managed by the Rashtriya Chemicals and Fertilizers (RCF), and a US$17 million component to improve the operations of several other Government-owned fertilizer plants. A Project Completion Report (PCR) was prepared by the Industrial Projects Department of the Bank on the basis of information and data supplied by RCF and is attached. It is preceded by an audit memorandum prepared by OED staff who visited the project in February 1981, before the PCR was completed. The memorandum was prepared on the basis of discussions with Bank staff as well as Government and project officials during the mission, and a review of the PCR, relevant files and documents, and the summary of Board discussions. Comments received from the Borrower have been taken into account in final- izing the report and are reproduced as Attachments A, B and C to the Audit Memorandum. h PROJECT PERFORMANCE AUDIT BASIC DATA SHEET INDIA--TR4BAY IV FERTILIZER EXPANSION AND PLANT OPERATIONS IMPROVEMENT PROJECT (CREDIT 481-IN) KEY PROJECT DATA (US$ Million) As of 04/30/82 Original Disbursed Cancelled Repaid Outstanding Credit Amount 50.0 50.0 -- -- 50.0 Cumulative Credit Disbursement 1974 1975 1976 1977 1978 1979 1980 (i) Planned 2.0 25.0 46.0 50.0 50.0 50.0 50.0 (ii) Actual - 4.0 21.7 35.3 41.8 49.0 50.0 (iii) (ii) as % of (i) - 16 47 71 84 98 100 OTHER PROJECT DATA Original Actual or Credit Date Re-estimated Board Approval - 06/18/74 Credit Agreement - 06/19/74 Effectiveness - 08/21/74 Credit Closing 12/31/77 06/30/80 Date of Physical Completion Completion Time (in months) 27 38 Time Overrun (%) 41 Total Project Cost (US$M) 59.7 75.9 Cost Overrun (%) 27 Economic Rate of Return (%) 16 17 MISSION DATA Month, No. of No. of Date of Item Year Weeks Persons Report Pre-appraisal 12/71 2 2 01/14/72 Pre-appraisal follow-up 02/72 2 2 03/03/72 Preparation 09/72 1 2 09/19/81 Meeting with Engineering Firm 11/72 1 1 12/06/72 Appraisal 02/73 3 3 03/02/72 Post-appraisal 05/73 1 2 06/22/73 Post-appraisal 07/73 1 1 08/09/73 Post-appraisal 10/73 1 1 10/19/73 Post-appraisal 03/74 1 1 Supervision I 07/74 1 2 07/24/74 Supervision II 01/75 1/2 2 02/18/75 Supervision III 04/75 1/2 2 05/30/75 Supervision IV 07/76 1/2 1 08/13/76 Supervision V 08/78 1 1 09/29/78 Completion 12/79 2 3 11/30/81 OTHER DATA Original Plan Actual Borrower GOI GOI Executing Agency FCI FCI/RCF Fiscal Year of Borrower - 04/01 to 03/31 - iii - PROJECT PERFORMANCE AUDIT REPORT INDIA--TROMBAY IV FERTILIZER EXPANSION AND PLANT OPERATIONS IMPROVEMENT PROJECT (CREDIT 481-IN) HIGHLIGHTS The project under review consists of two separate components: (a) an expansion program of the Trombay Fertilizer plant, operated initially by the Fertilizer Corporation of India (FCI) and subsequently by the Rashtriya Chemicals and Fertilizers (RCF), involving the construction of a nitric acid plant with a capacity of 250,000 tpy, an ammonium-nitrophosphate plant (ANP) with a capacity of 350,000 tpy, and miscellaneious ancillary facilities; and (b) a Plant Operations Improvement Project (POIP), intended to improve the capacity utilization of a number of fertilizer plants operated by the FCI and the Fertilizers and Chemicals Travancore Limited (FACT). The Trombay IV expansion project was physically implemented in October 1977, about eleven months behind schedule, in part due to factors beyond FCI's control. Project management was particularly effective. How- ever, the project ran into prolonged commissioning problems due to design defects and technical problems, and the plant was fully commissioned in January 1979, about 21 months behind schedule (PPAM, paras. 6 to 8; PCR, paras. 3.01, 3.05, 3.06, 3.10 to 3.18, 3.27, 4.01 to 4.03). Total project cost amounted to US$75 million, 27% above the appraisal estimate, mainly due to changes in project scope, the delay in mechanical completion and the procurement of equipment not provided for at appraisal. Production levels have been lower than projected, affected by the technical difficulties already mentioned. To rectify these deficiencies, RCF is implementing a debottlenecking program to be completed in 1982 (PPAM, paras. 11, 12; PCR, paras. 4.07 and 4.08). Nevertheless, the financial performance of the Trombay plant has been satisfactory, with return on equity averaging 7.5% over the 1976-81 period. The financial and economic rates of return of the project are now re-estimated at 15% and 17%, respectively, slightly above appraisal estimates, despite the higher capital costs. The sharp increase in world fertilizer prices accounts for this improvement in the rates of return (PPAM, para. 13; PCR, paras. 5.01, 5.02, 6.01 and 6.02). The Plant Operations Improvement Project supported four projects for a total of US$6.7 million, compared to US$17 million originally estimated, with the balance reallocated to Trombay IV. As a result, the impact of this component was rather limited. POIP also experienced delays in implementation because of longer than expected delivery periods for equipment and cumbersome administrative procedures for screening applications. The effectiveness of these investments is more difficult to assess, as the plants financed faced - iv - considerable technical difficulties and disruptions in the supply of raw materials, power supply problems and labor disputes. Capacity utilization has remained very low, but it is expected to improve as constraints ease up (PPAM, paras. 14 to 18; PCR, paras. 3.20, 3.21, 3.28 and 3.29). In analyzing the project experience, the PCR (para. 9.03) stresses the importance of appointing a full-time project implementation team early in the project cycle; selection of a competent foreign engineering firm as contractor; development of an efficient procurement system; identification of training needs and development and implementation of an appropriate training program; and the top management's role in coordinating and monitoring the various project activities, in delegating authority and responsibilities, and in motivating staff. In addition, the project's experience suggests the expediency of advance arrangements for technical assistance during the com- missioning stage to cope effectively with emerging teething problems and of continued Bank supervision during this stage. PROJECT PERFORMANCE AUDIT MEMORANDUM INDIA--TROMBAY IV FERTILIZER EXPANSION AND PLANT OPERATIONS IMPROVEMENT PROJECT (CREDIT 481-IN) 1. The Trombay IV Fertilizer Expansion and Plant Operations Improve- ment Project was the fourth of eight fertilizer projects financed by the Bank Group since its decision in the late 1960s to support public enterprises in India's fertilizer sector11. The project consisted of two separate components: (i) an expansion program of the Trombay Fertilizer plant operated then by the Fertilizer Corporation of India (FCI); and (ii) a Plant Operations Improvement Project (POIP), intended to improve the capacity utilization of a number of fertilizer plants operated by FCI and Fertilisers and Chemicals Travancore Limited (FACT), another public sector enterprise. At the time of appraisal, FCI was India's largest fertilizer producer, with five operating units including the Trombay plant and a number of important projects under implementation. In the course of project implementation, the fertilizer sector was restructured by the Government and FCI was split up into four regionally operating companies and an engineering firm. As a result of this reorganization, a new company, Rashtriya Chemicals and Fertilizers (RCF), was established in 1978 to assume responsibility for operations in Western India and has since been managing the Trombay plant. Another company, Hindustan Fertilizer Corporation (HFC) assumed responsibility for a number of plants in Northeast India supported under the POIP component. A. THE TROMBAY IV EXPANSION PROJECT Project Design 2. The original Trombay plant consisted mainly of small urea, NPK fertilizer-! and methanol units built during the early 1960s which, however, suffered from design deficiencies that constrained production. FCI embarked on a number of balancing investments to overcome these capacity limitaitions. At the time of appraisal, FCI was concluding the streamlining of existing facilities by way of a modernization program. While this prograw wis not part of the IDA-financed project, it was to be implemented concurrently and was expected to improve Trombay's operational and financial performance. 3. In parallel with this modernization program, FCI decided to under- take a major expansion of the Trombay plant. This expansion program consisted of two separate projects: Trombay IV and Trombay V. IDA financing was approved for the former project only. The Trombay IV project involved the construction of (i) a nitric acid plant with a capacity of 250,000 tons per 1/ IFC has financed three fertilizer projects in India for a total of US$38.9 million. 2/ NPKs are fertilizer compounds that include nitrogeneous (N) and phos- phatic (P205) nutrients as well as potash (K20). -2- year (tpy); (ii) an ammonium-nitrophosphate plant (ANP) with a capacity of 355,000 tpy; and (iii) miscellaneous ancillary facilities and equipment, including a steam-generation plant, a water treatment plant and bagging facilities. The Trombay V project, to be carried out concurrently, was to be originally similar to the Nangal project for which IDA had approved a credit in 1973 (PPAR No. SecM82-71, January 28, 1982), and consisted of an ammonia/ urea complex with annual capacities of 300,000 tons of fuel oil based ammonia and 280,000 tons of urea. As a result of the location of the gas off the Bombay coast, the ammonia plant has now been constructed based on the use of natural gas. 4. The design of the Trombay IV project was the subject of prolonged discussions between the Borrower and IDA on the choice of an appropriate scope and configuration that would meet the objective of producing phosphatic fertilizer at minimal cost (PCR, paras. 2.01 to 2.03). The more conventional route to produce phosphatic fertilizer is to use sulfuric acid to dissolve phosphate rock and to react the resulting phosphoric acid with ammonia to obtain ammonium phosphates (MAP or DAP). An alternative route, known as nitrophosphate technology, consists of using nitric acid to dissolve phosphate rock followed by ammoniation to obtain a combination of nitrophosphate and calciu nitrate (CN), the latter being eliminated by filtration or centrifug- ing. The production of nitrophosphate has the economic advantage of obviating the use of sulfur, which India would have to import, thus permitting significant savings in foreign exchange. The negative aspects include: (i) higher equipment costs and (ii) ANP phosphate water solubility (an important factor in assessing the value of phosphatic fertilizers) which is lower than that of the more conventional MAP or DAP, depending on the degree of solubili- zation for which the facilities are engineered. 5. The project, as eventually formulated, was based on nitrophosphate technology and aimed at producing ANP of 21-21 grade (i.e. with 21% content each of nitrogeneous and phosphatic nutrients), with 60% phosphate water solubility. To obtain an end-product with a 1:1 N/P205 nutrient ratio, secondary addition of phosphate was needed in the form of either di-ammonium phosphate (DAP) or triple super-phosphate (TSP). The principal raw materials were ammonia, MAP, phosphoric acid, phosphate rock and DAP or TSP. Amonia requirements were to be met by the Trombay V project once complete.L; DAP and, until domestic production was sufficient, rock phosphate were to be imported; TSP was available locally. 1/ The Department of Chemicals and Fertilizers indicates that there is an alternate route which eliminates the excess calcium from the solution by precipitation as calcium sulphate using ammonium sulphate as the precipitant, a route originally considered but later given up (Attachment C). 2/ The project was initially delayed for lack of an assured supply of ammonia, following market upsets caused by increased energy prices. The Bank decided to go along with the project after obtaining assurances from the Government that the Trombay V project would be completed within one year of completion of Trombay IV. -3- Project Implementation 6. The project was physically completed in October 1977, about eleven months behind schedule. Construction took 38 months from the date of credit effectiveness, 41% longer than expected. Overall, this was not an undue delay, especially if viewed in the context of the tight equipment market that prevailed during the intervening years and which could not have been foreseen. Project management by FCI (and later by RCF) was particularly effective. The same basic implementation arrangements were adopted for the project as those that had proved successful in the case of the FCI projects previously sup- ported by IDA. An independent project unit was created within the organiza- tional set-up of the Trombay plant. This unit, headed by a general project manager, was fully responsible for all on-site activities, including the supervision of procurement, scheduling and financial control. The project also benefitted from the fact that procurement was organized on-site rather than at the headquarters of the general contractor located in the state of Bihar, as was in the case of the Nangal project. Thi arrangement improved coordination significantly and helped expedite orders.1. Reliance on an *nde- pendent project team organized following an effective matrix structure2, was an additional major factor in the successful implementation of the project (PCR, para. 3.05). 7. As regards project engineering and construction, the general approach was to utilize outside engineering companies to supplement FCI's staff in project execution. Unlike other Bank financed projects (e.g., Nangal, Sindri), the Trombay IV project relied almost exclusively on foreign contractors for the engineering and construction of the main plants. 8. The plant was fully commissioned on January 1, 1979, about 21 months behind schedule. Overall, commissioning took 14 months compared to the four months expected at the time of appraisal (PCR, paras. 3.12 to 3.17). Three factors account for the longer than originally planned commissioning period. First, lack of water, power and steam, due to delayed completion of the infrastructure and the steam generation unit, caused a slippage in the start of trial operations. Second, the task of stabilizing production proved more complex than the management of the company anticipated, particularly in the ANP plant. Third, basic design deficiencies emerged in the ANP plant. These flaws in design, which are discussed further in para. 11, have not been 1/ The Fertilizer (P&D) India Ltd. (now Projects & Development India Ltd.), FCI's engineering arm, appears to doubt that organization of procurement at headquarters had contributed to delays in Nangal and other projects where it was adopted. They feel that other factors (e.g., increase in oil prices, delays in delivery of equipment) accounted for the delays that occurred (see Attachment B). 2/ The project was divided into small geographical areas. The project unit was also organized along geographical as well as functional lines (e.g. procurement, budget, etc.). removed w th the completion of the Phase I debottlenecking project by the end of 1981,1' but are expected to be fully eliminated when Phase II is completed in 1982, except for the mud dissolving section. They also made the stabiliza- tion process in a number of sections of the plant more difficult (PCR, para. 4.03). The company responded effectively to these difficulties by identifying and implementing the necessary modifications with speed and efficiency. In particular, as the PCR notes (para. 3.05), judicious changes in the organiza- tion of the project unit introduced as the project moved from the construction phase to the commissioning phase, allowed for effective decision-making and management during trial operations. The company, however, experienced diffi- culties in obtaining back-up assistance when technical problems arose during testing as, in part due to the unforeseen nature of the problems, it had not contracted in advance technical support to resolve teething problems. 9. Total project costs amounted to US$75.0 million, 27% above the appraisal estimate (PCR, paras. 3.26 to 3.30 and Annex 6). Several factors account for this overrun, including higher prices due to project delays and procurement of equipment not provided for at appraisal, e.g., larger than planned steam boiler capacity, construction of storage facilities and erection of a liquid effluent treatment plant (PCR, para. 3.03 and 3.04). The cost overrun was financed in equal parts by the Government and IDA. For this purpose, IDA reallocated funds from the POIP component of the credit to Trombay IV (para. 17). 10. The Trombay plant is located in the Bombay industrial zone, close to one of the city's populated suburbs. Provisions were made to minimize the impact of the potentially harmful waste materials and gases released by the project, most notably fluorides and nitrogen oxide, and to ensure that the relevant statutory regulations were met. A discussion of the pollution con- trol aspects of the project is presented in paras. 3.22 to 3.25 of the PCR. Project Operations 11. Production levels have been lower than projected at appraisal, which had targeted a 90% capacity utilization rate by 1980 (Annex, Table 1). The single most important factor for the plant's slow build-up of production to date has been the capacity constraints imposed by design flaws in the ANP plant, which have delayed the company in stabilizing production at reasonable levels. The defects resulted from difficult process coordination problems that arose in combining the know-how of two different engineering firms in the design of the plant and in maintaining overall process responsibility. 1/ The reasons were: free acid could not be maintained at the desired value; failure of the mud dissolving solution pump; clogging of the inlet nozzles of hydrocyclones; and lack of improvement in the mud cake cutting mechanism (Attachment A). - 5 - Even though both engineering firms had experience in building nitrophosphate plants based on the crystallization process, the combination of sub-processes had never been inplemented anywhere before and the plant had thus no working reference modell--contrary to the assessment made at appraisal that the project was to utilize commercially proven processes (SAR, para. v). More importantly, due to errors made by the engineering firms in working out the basic engineering of the plant, some of its sections were underdesigned2. 12. To rectify these defects, RCF is implementing a number of modifica- tions in the ANP plant. Following discussions with the process licensor and the engineering contractor, a two-phase rehabilitation scheme was agreed upon. The cost, estimated at Rs 28 million (US$3.5 million), will be in part borne by the licensor and the engineering contractor who have agreed to contribute beyond what was considered as their contractual obligation (PCR, paras. 4.06, 4.07 and 8.04). The debottlenecking program involves the installation of additional equipment to correct the underdesigning of some sections of the plant and is expected on completion to bring the plant up to full capacity (para. 8). 1/ A similar but much smaller plant producing nitrophosphates of lower water solubility and nutrient content did exist in Europe. However, the project under review was not developed on the basis of operational data from this plant, but from extrapolation of data obtained through a lab process. A similar technology was used to develop the Multan Fertilizer Project in Pakistan (supported by Bank loan 988-PAK). Although the nitrophosphate plant at Multan and the one at Trombay are not identical, both plants have suffered from the same technical problems. 2/ Capacity utilization has been constrained by the underdesigning of (i) the cooling/crystallization/centrifuging section of the plant, where calcium nitrate is separated from the nitrophosphate mother liquor; (ii) the mud filtration system, where P205 remaining in the calcium nitrate is separated and recycled; and (iii) the chalk filtration system, where calcium precipitated as chalk is separated from the ammonium nitrate liquor before the latter is recycled. Besides lowering the plant's attainable capacity, these design defects affect the quality of output since less calcium is eliminated from the mother liquor and the specified water solubility of the ANP produced cannot be achieved. The design defects originated in the process of combining the main nitrophos- phate section of the plant with the portions dealing with the treatment of calcium nitrate and recycling of P205 and ammonium nitrate. These two processes were based on the know-how of two independent companies. While each of the two processes--NP production and CN conversion--was well known, they had never been integrated in such a fashion before. Problems relating to their interfacing were not solved correctly and some segments of the plants were underdesigned; this is particularly true of the mud filtration system. The problem with the cooling/crystallization/ centrifuging section, on the other hand, was mainly due to design faults stemming from the extrapolation of the data of the lab process that was used as a basis for the project. - 6- Financial and Economic Results 13. The financial performance of the Trombay plant since the credit was approved has been satisfactory (Annex, Table 2). Following project start-up, the company's net income increased from a net loss of Rs 14 mil ion in 1976 to a net income of Rs 185 million in 1981. Return on equityl' averaged 7.5% over the 1976-81 period. This performance is somewhat inferior to that expected at appraisal and is due mostly to the delayed completion of the Trombay V project. Revenues are based on retention prices fixed by the Government. These are calculated so as to ensure a minimum return on pro- ducer's equity when plants are operated at 80% of rated capacity. In the case of the ANP plant, prices are based on the plant's attainable capacity (which is lower than the rated capacity) and, as a result, capacity limitations have not affected the project's financial performance. The pre-tax financial rate of return of the project is now re-estimated at 15%, slightly above the appraisal estimate of 14%. The economic performance of the project has benefitted from the sharp increase in international fertilizer prices and transportation costs since appraisal. These more than compensated for the higher capital costs and slow production build-up. These developments, as well as anticipated further real price increases in future years, are re- flected in the revised economic rate of return of the project (17% compared to 16% estimated at appraisal). The recalculated economic return is based on the assumption that 90% capacity utilization will be achieved by FY83, which may be somewhat optimistic. B. THE PLANT OPERATIONS IMPROVEMENT PROJECT (POIP) 14. Approximately one-third of the US$50 million credit was intended to be used to assist two public sector fertilizer enterprises, FCI and FACT, to complete and commission some of their projects under construction at the time of appraisal. Particular emphasis was placed on plants closest to the stage of commissioning, the objective being to achieve high capacity utilization as rapidly as possible. To this end, the POIP component of the credit was to be used to meet the foreign exchange cost of critically needed equipment, spare parts, consumables and technical assistance. 15. Four plants received assistance under the project: three FCI (now HFC) plants (Durgapur, Barauni and Namrup) and one FACT plant (Cochin I). All four were ammonia/urea plants undergoing trial operations at the time the project was appraised. Their problems sprang from the fact that their financ- ing arrangements (bilateral suppliers' credits) had permitted only limited choice of equipment and that the involvement of project licensors had been limited to providing the technology and assistance from specific process con- siderations. It was felt, however, that large production gains and greater efficiency could be attained from comparatively small debottlenecking invest- ments. 1/ FCI's Trombay Unit until 1978 and RCF from 1979 onward. - 7 - 16. The two plants at Durgapur and Cochin were of similar design and were physically completed in October 1971. Three years later, however, they had not yet been stabilized for commercial production because of con- siderable difficulties, in part due to equipment failures during commis- sioning. The Barauni and Namrup expansion projects were nearing physical completion and were due for commissioning in 1976. These two plants were based on technologies similar to those used at Durgapur and Cochin whose pitfalls the POIP was intended to help avoid. 17. A much smaller portion of the credit was utilized under the POIP than was anticipated at appraisal--US$6.7 million instead of US$17 million-- as not all the modifications envisaged in the project appraisal report were implemented; the requisite feasibility studies for the operational improvement programs took longer to prepare than expected; and imports of equipment were delayed as they had to satisfy Government control procedures normally waived for Bank projects. Aiming at improving capacity utilization, the component was the first of its kind and encountered delays. The concept has been more successfully employed in the subsequent fertilizer industry credit (Cr. 598-IN), though again, with some delays. In the meantime, cost overruns on the Trombay IV project arose, and the Bank agreed to the Government's request to transfer part of the funds available under the POIP component to cover part of the additional expenses. A substantial program of Rs 72.6 million (US$8.2 million, including a foreign exchange component of US$3.3 million) was nonetheless implemented at Cochin; smaller programs were under- taken at the other three FCI plants. 18. The effectiveness of the investments supported by the POIP program is difficult to assess. Performance of the Cochin plant has improved con- siderably over the years (Annex, Table 3). Production at Durgapur, Barauni and Namrup, on the other hand, has been adversely affected by inadequate supply of coal and feedstock due to disruptions in the railway system, power supply problems and labor disputes. Capacity utilization has as a result remained very low. Production is expected to pick up as constraints linked to the availability of raw materials ease up. C. CONCLUSIONS 19. The Trombay IV expansion project was implemented efficiently, and since its physical completion has been well-managed. The managerial talent of the project team and the organizational framework within which it was allowed to operate should both be credited for the satisfactory project implementation experience. The project, however, ran into prolonged commissioning problems caused by design defects which have limited the plant's production capacity to 65% for more than three years. Although the cost of modifications that are now being implemented to rectify these defects is not high, the value of foregone production alone suggests that the errors made by the engineering firms in preparing the basic design of the plant were costly. There can be no denying that a considerable risk was inherent in supporting a project - 8 - utilizing an as yet not fully developed process based on an untried com- bination of subprocesses. Whether the risk was worth taking is debatable. While a new plant is never designed as an exact replica of an existing one, as more recent plants embody past operational experiences and on-going techno- logical improvements, the configuration of Trombay's ANP plant involved a notable advancement in process development, the adoption of which should at best have been initiated with adequate safeguards. In addition, the project's experience suggests the need for continued Bank supervision during the commissioning phase, and the expediency of advance arrangements for technical assistance during this stage to cope effectively with emerging teething problems. 20. Further to the observations made in para. 19, the project experience points to a number of lessons aptly summarized in para. 9.03 of the PCR. They relate to the implementation arrangements utilized under the project and the measures taken by the company's management to improve coordination and to enhance staff motivation. 21. The results of the POIP are more uncertain. Given the extent of technical problems faced by many fertilizer companies across the country, the POIP component could clearly have been utilized to a larger extent than it was for rehabilitation purposes. However, in view of the slow implementation progress of the POIP component, the Bank made an exception to its normal policy and agreed to transfer a portion of this component to finance the cost overrun of the Trombay IV project. While in effect this diminished the potential impact of this component whose objective was to improve the performance of existing plants, the Bank was able to carry out a fertilizer industry production improvement project with several components having similar objectives. 22. IDA's role in the expansion project has been substantial both in terms of its assistance in defining the project and during implementation. When the flaws in the design of the ANP plant became apparent, IDA assumed a mediating role between the Company and the engineering and licensing firms, and thereby contributed to the resolution of important issues. However, IDA took a more distant stance in regards to the POIP component. While supervi- sion of the component was regular, IDA has not been able to convince the Borrower of the need to accelerate the preparation of the necessary technical studies and, later on, to carry out fully the modification programs that had been envisaged at appraisal. -9- ANNEX PROJECT PERFORMANCE AUDIT MEMORANDUM INDIA--TROM4BAY IV FERTILIZER EXPANSION AND PLANT OPERATIONS IMPROVEMENT PROJECT (CREDIT 481-IN) Table 1: Capacity Utilization Rates (Percent) Calendar Years: 1978 1979 1980 1981 1987/a Nitric Acid 36 73 66 85 88 ANP 22 55 56 73 80 /a January to March. Table 2: Selected Financial Ratio/a (Percent) Year Ending March 31: 1976 1977 1978 1979 1980 1981 76-81 Net Income (before taxes) as a percentage of Sales (2.6) 10.3 8.9 6.8 5.5 7.5 6.6 Ave. Total Assets (2.0) 7.3 6.7 4.0 4.0 5.2 4.5 Ave. Equity (3.6) 12.5 8.3 6.8 6.7 8.7 7.5 /a FCI's Trombay Unit until 1978 and RCF from 1979 onwards. Table 3: Capacity Utilization in Fertilizer Plants Supported Under the POIP (Percent) Year Ending March 31 1974 1975 1976 1977 1978 1979 1980 1981 1982 Cochin I (Urea) 9 26 44 50 49 56 64 75 - Durgapur (Urea) 4 10 24 30 34 25 35 23 40 Barauni (Urea) /a /a /a 15 25 35 31 31 50 Namrup II (Urea) /a /a 14 42 45 56 38 9 53 /a Project under implementation. - 10 - COMMENTS RECEIVED FROM THE tORROW ATTACHMENT A C I~O Page 1 of RASHTRIYA CHEMICALS & FERTILIZERS LIMITE 9 ( Government of ladle Undertaksing ) CHEMBUR, BOMBAY-400 074. PHONE : 521451 - TELEX : 011-3027/4328-RCF- IN. GRAM, FERTILIZER Expn./1(74)/82 o ( May 3, 1982. Shri Shiv S. Kapur, Acting Director-General, Operations Evaluation, International Bank for Reconstruction and Development, 1818 H, Street, N.W., Washington DC. 20433, U.S2A.- Dear Sir, Sub s- Project Perfommance Audit Report on Trombay-IV Fertilizer Expansion and Plant Operations Improvement Project (Credit 481-3N) We have received your letter dated April 8, 1982 addressed to our Chalman & Managing Director, enclosing Draft performice Audit Report. We note with satisfaction the conclusion dram by you. However, we give below our comments on the following paras of the report for incorporating in the final report s- A. THE TWDMBAY IV EXPMSMN PMDJECT Rfference gf World Bank Report CgMn Page 3, para 5 The sources of external P205 are also from Phosphoric Acid ad M)P besides DAP & TSP as mentioned. Page 5, para 8 The commissioning of Phase-I in April-May 1981 has not been successful for the following reasons s- (i) Free acid could not be maintained at a desired value, (ii) Failure of mud dissolving solution pump imediately within a week after Phase-I start up, (iii) Clogging of inlet nozzles of hydrocyclones and (iv) no improvement in mud cake cutting mechanism. TATTACENT A The Phase-I modification Jas not "gmoved design flows partially. It is now expected that design flaws will be fully eliminated whemn Phase-II modification is completed In 1982, except the mud dissolving section. MMTACMENT III. HWJECr WLEMIaTMN ARD It is not cofrect that appropriate MMAGSAWTexperts with experience in the Nitrophosphate Technuology were not C. Prelect Miaamet easily ailable in the country when Para 3.06 technical problems were encountered during start E iad testing operations. Imaediately after start .., deficiencies In refrigeration capacity, crystallizer surface areap centrifuge capacity, brine circulation system, hslt.pup capacityg N Melt Tank agitator, mud filtration system, etc. were bougt to the notice of the contractor. The contractors did not agree and insisted a 72 hr. test. This test was done ad it was established that the plit cn produce only 66% of the design capacity as predicted by us. After this test9 contractors agreed only for Phase-I modifications hih did not Include additional equipments of crystallizers ad refrigeration ait aend a centrifuge cnd additional brine system. However, CF continued to insist for the above additional equipments and gve an ultimatn to the contractor that without correcting the refrigeration capacity, crystallization capacity with a fourth centrifuge the plynt will never come to its rated capacity. RC hs contention was agreed to in Dortmund in March 1980. We therefore request suitable modification of par 3.06. E. Use end Perforimence of Ne cnnot agree that there was Inadequate Engineering Contractors Co-Ordination between 1aF end the and Canaltants. Contractors. RCF had full co-ordination Para 3.11 with the contractors and ohatever modifications in the equipment and layout ad changes In operating conditions were suggested by the contractors were done without del ay. c u h n l r - 12 - ATTACHMENT A Page 3 of 3 C G. Pwcurement and perfomanice of suppliers/ contracts.. Para 3.18 There was no delay in taking prompt decisions for procurement of equipments. Para 3.19 This might be relating to centrifuges. Krauss- Maffei were asking Zi . specified granulametry of the crystal slurry for prwaing the perfobance of the centrifuges whereas the contractors were of the opinion that centrifuges are not designed correctly. The vendor did let of modifications In the centrifuges. It is a fact that contractors could not produce crystal slurry of specification given by them to the vendor. I. Environmgntal ADegts Para 3.24 The plant has been stabilized by our personnel without the assistance of the contractors in Chilled Acidic System. The plant is now operated in Chilled Acidic System with NOx level of 30 ppm. Contractor has failed to achieve the specified level of 20 ppm. IV. OPEUTING PERIOF*X4CE C. Further work to improve Plaint PerfgManc. Para 4.07 Phase-I has so far been proved unsuccessful. MN EXURE - 10 (Pate-2) Totalling error in (total equity - 1980) may be corrected from Rs.1,180.0 million to Rs. 1,808.0 million. Thinking you, Yours faithfully, (S.C. De Baksi) General Manager. Changes made as appropriate in PPAM and PCR - 13 - ATTACHMENT B COMMENTS RECEIVED FROM THE BORROWER Page 1 of 4 TELEPHONE: JHARIA (STO CODE 0 326) 60904 TELEPHONE: JHARIA 60110. 60160, 60260 TELEIRAM 'PLANDEV SNI'W TELuEx : 00W-2i5/0629-216 F PD I IN K. S. SARMALT CHAIRMAN & MANAGING DIRECTOR Ln SINDRI- 828122 DHANBAD BIHAR, INDIA Ref .No.CMD(PS /6/ Dated: Ist May,1982. Dear Mr. Kapur, Please refer to your letter dated 8th April,1982 forwarding a copy of the ocapletion report of Trambay IV and POIP projects and a performance audit report on these projects. I thank you for giving me an opportunity to study these reports and make sane carnments. The reports cover the various aspects of the projects very well but I thought that I should point out one or two factual errors as also cament# on sam of the conclusions drawn there-fran. It has been mentioned both in the project ccopletion report and the audit report that the P&D Division of PCI (now known as Projects and Change made in Deelo nt India Ltd since first April,1982) was engaged as the prime PPAM, para. 7, contractor as in the case of other World Bank assiited fertilizer projects. and PCR, para. Actually, while all the other projects in which World Bank financing 6.03. was made available, such as Gorakhpur Expansion, Nangal Expansion,Sindri Mo~dernisation and recently Nevyli Fuiel oil change over and Rourkela additional synthesis gas production units had P&D as the prirw. contractor, the TCabay IV project relied ammst exclusively on the foreign engineering contractors viz Davy Pcwer Gas and Uhde for the engineering and construction of the main plants. P&D was -associated with some off-sites services such as product handling and bagging sectios but had practically nothing to do with the main plant except to the extent of a limited association at the initial stage-say upto the time of negotiations wit the World Bank and finalizing the credit and engineering agreoents B It has been rentioned that the ordering of equiaent frrn B bay resulted in speeding up of all procurduent action and is one of the reasons Comment reflected for the delay in the project capletion beinc limited to 11 rnths-wiich 6 again has been attributed to delays in the supply of equie nt by contxactors in PCR, para rather than due to delays in Procuraeent activities. 3.18. It is true that in the other projects past of the procur ent activities took place at Sindri altough in the case of critical and high value ites, evaluation of tenders, discussions with manufacturers etc had taken place at convenient locations in foreign countries to get the benefit of the advice o the consultants , make it easier for quick negotiations with suppliers and finalisation of the orders. However, it would be worth examining whether basically operating fron Sindri has in fact delayed the mechanical canpletion of the projects. I have reviewed the corresponding data for the Nangal Expansion,Sindi deisation and Nevyli change over projects and find the position as indicated belnw. In the case of Nangal Expansicn the scheduled and actual ccutpletion dates are October 1975 and July 1977 respectively indicating a delay of 21 nonths. It may be recalled that this project was approved - 14- ATTACHMENT B Page 2 of 4 and a considerable amount of work on the procurement of major item of equipment had been campleted by October 1973.when the unprecedented increase in oil prices came into effect. As you would be aware this upset the calculations of plant owners like the Fertilizer Corporation as also major suppliers of equipnent all over the world. Settlng these issues took some time . Due to this and other reasons deliveries of equipment were affected considerably. To illustrate I am giving below a few major cases. Promised Actual receipt at delivery site. Urea reactor 4.1.i975 5.4. 76 15 m (Rheinstahl) West Germany. Air separation & 11.2.1975 9.12.75 10 nonths Liquid nitrogen wash plants (Cryo Plants UK) Tall Towers 8.10.74 20.12.76 26 months (BHPV,India) Pipe Fittings 29.10.74 2. 9.75 11 nonths (Petrol Tubi Italy) It would be seen that delays of upto 26 nonths had occurred in the delivery of vital equipment but for which the overall delay in the coapletion of the project would have been much less. In the case of Sindri Modernisation plant the scheduled date of copletion was Decenber,1977 and the actual date was September 1978 i.e. a delay of 9 months ccmpared to the schedule. The main reason for the delay has been the delay in the supply of the synthesis gas compressor by BHEL by over 15 months, but even with this the overall delay is only 9 months against 11 months for the Trombay IV plant. In the case of Nevyli fuel oil change over the schedule and actual dates of capletion are 31.8.78 and 15.1.79 indicating a delay of 4 months , which is substantially lower than the delay that occurred in the Trambay IV Project. In regard to cost escalation in som of the projects the position is as follows. Project Estimated cost Actual cost % Variation in Rs. Million in Rs.Million Nangal Expansion 756 1298 71 Sindri Modernisation 1344 1832 36 Neyveli 126 165 31 15 - ATTACHMENT B Page 3 of 4 In the case of Nangal you would be aware .that the estimates were made on the basis of pre-energy crisis costs. This would account for the 71% increase in the costs campared to 31% in the case of Tranbay IV, ad 36% in the case of Sindri Modernisation Project and 31% in the case of Neyveli. You may please consider whether, in the light of what I have stated above , any changes are required to be. made in the drafts already prepared. I have brought these out only because I thought that I should present you the factual position as known to us here when you have taken the trouble of asking for my comments. Thanking you, With regards, Yours sincerely, tX.S. Sama) Mr.Shiv S.Kapur, Acting Director-General Operations Evaluation, The World Bank 1818 .H Street. ,N.W. ,Washington, D.C.20433, U.S.A. ATTACHMENT B 1- Page 4 of 4 VE W From April 1,1982 Lis lown as frOJECTS & DEVELOPMENT INDIA LTD. The change in our name will not, control, material handling. however. mean a change in our operational improvement, do- aim. endeavour and corporate bottlenecking, non-destructive philosophy. tasting, predictive maintenance We continue to be the leaders in and technical services. the fertilizer field-rendering the Yes, we are unfolding many new full range of technical and chapters and stepping into a engineering services on con- wider spectrum. Hence, the sultancy, turnkey and semi- change is made to signify our turnkey basis. From now on we diverse activities. offer the sama high quality of Call us P&D' as before. But services for petro-chemicals, remember, from April 1, 1982 organic chemicals, power genera- 'P&D'stands for tion. water treatment, pollution 'Projects it Development'. PROJECTS & DEVELOPMENT INDIA LTD. L'A GDYT OF Ipwi, UNDERTAKINGq C.I.F.T. BUILDINGS,bSINDRI-82122 (BIHAR) C,lP7~THE FERTILIZER (PLANNING & DEVELOPMENT) INDIA LTD. - 17 - ATTACHMENT C Page 1 of 2 COMMENTS RECEIVED FROM THE BORROWER COMMENTS OF THE DEPARTMENT OF CHEMICALS & FERTILIZERS Ref. Para PPAR - No.4: In describing the Nitrophosphate technology, Report says it, "consists of dissolving phosphate rock in nitric acid before ammoniation to obtain a combination of nitrophosphate and calcium nitrate (CN), the latter being eliminated by filtration or centrifuging". There is also an alternate route which eliminates the excess calcium from the solution by precipitation as Calcium sulphate using Ammonium sulphate a. the pre- cipitant. This is being followed in another plant in India currently being commissioned at Haldia in West Bengal. Actually this was the production route which was originally suggested for Trombay IV but was later given up on the suggestion from World Bank since one of the steps in the route which involved re-conversion of precipitated ammonium sulphate for Calcium sulphate had not been practised and demonstrated on a commercial scale. Ref. Para PPAR No. 5: For correction of the end-product 1:1 N/P205 nutrient ratio besides DAP and triple super-phosphate, Mono Ammonium Phosphate (MAP) or Phosphoric acid could also be used. As a matter of fact in Annexure - XI of the PCR, the additive which has been mentioned is MAP. In the Trombay case, the original recommendation was for use of TSP for this purpose as it was intended to manufacture this product on a large scale in one other FCI plant at Sindri. In fact, if indigenous TSP were to be used in the process, there would have been no import content for the nitrophosphate apart from rockphosphate. Ref. Para PCR 6.03 and PPAR No. 7: There is a slight mis-conception about the role which was assigned to Planning and Development Division on this particular project. Although the original proposal was for the Planning and Development Division to rely on its agreement with M/s. Stami Carbon to use their licences and pro- vide detailed engineering and project services for this particular scheme, this arrangement was not acceptable to World Bank. The reason given was that neither of them had demonstrated their capabilities in any other similar Nitrophosphate project for the Bank to have sufficient credibility on their capacity to do the job. In effect, therefore, on this particular project, except at the project formulation stage and providing some peri- pheral services like engineering the product handling facilities, etc., the P&D Division was not involved in the active phase of project implementation. The main responsibility for this was entirely in the hands of the Project Coordination Group which was set up within the RCF itself. It is under- stood that similar comments have been transmitted to World Bank by FPDIL who are the successor group for the erstwhile Planning and Development Division of Sindri. Ref. Para PPAR No. 8: It has been stated that the flaws in design have been partially removed by completion of Phase I Debottlenecking Project. RCF has its own reservations on these commments and have conveyed the same to World Bank. ATTACHMENT C -18- Page 2 of 2 It would appear that some of the serious defects which were expected to be removed by measures classed under Phase I have not been removed to the expected extent even after these measures were completed. Measures yet to be completed may not eliminate these inconveniences completely though it would put the plant in a much better position to work up to its rated capacity. Ref. Para PPAR No. 10 and PCR Para No. 3.24: As has already been reported by RCF to the World Bank, RCF by their own efforts have been able to stabilise the NOX exit figure at around 300 ppm using the chilled acid wash system. They have probably some difficulties in switching over to alkaline wash system as it creates problems for disposal of the scrub liquor. 300 ppm. NOX has not been considered completely satisfactory by the pollution authorities. Ref. Para: PPAR Nos. 11 & 12: The observations mention about the two different foreign con- sultants having had to work together on the Nitrophosphate plant in view of the FCI commitments to M/s.Stami Carbon on the licencing of their process for the Nitrophosphate. This has been stated as one of the causes for the shortcomings which crept up in Trombay IV. It is further stated that similar technology was used to develop the Multan Fertilizer Project in Pakistan which also seems to have run into same type of techni- cal problems. As far as we are aware, the Multan fertilizer project was not based on the same combination of technology though it still ran into difficulties. One of the consultants who had the principal role in engineering the project at Trombay was however, associated with the Multan project also. Apparently, therefore, design shortcomings have come more on the engineering side than on the process concept itself. Changes made as appropriate in PPAM and PCR - 19 - PROJECT COMPLETION REPORT ATTACHMENTD INDIA: TROMBAY IV FERTILIZER EXPANSION AND PLANT OPERATIONS IMPROVEMENT PROJECT I. INTRODUCTION 1.01 The Government of India gives high priority to the development of the fertilizer sector as a means of achieving self-sufficiency in food. The Bank Group has been involved in the development of this sector since 1967 when IFC financed the urea project in Kanpur which was implemented by Indian Explosives Ltd (a subsidiary of Imperial Chemical Industries of the UK). Since then the Bank Group has financed a tot 1 of 11 projects in the sector, a7 three by IFC, one by IBRD and seven by IDA. The most recent operation of the Bank Group was an IDA Credit of $400 million for the Hazira Fertilizer Complex based on the offshore gasfields in Western India. The Trombay IV Project was the sixth project in the fertilizer sector financed by the Bank Group and the fourth by IDA. Annex 1 lists all the Indian fertilizer projects in India financed so far by the Bank Group. The Bank decision to support development of the fertilizer sector in India has been appropriate. It has resulted in significant economic benefits for the country and assisted in bringing about some important policy and institutional changes in the sector as discussed below. The Bank expects to remain active in this sector and is currently discussing the possibility of financing a fertilizer distribution project. In addition, another large gas-based fertilizer project is under consideration for future Bank/IDA lending. 1.02 Since 1966/67, when production was 309,000 tons of nitrogen (N) and 146,000 tons of phosphate (P205), fertilizer production has increased substan- tially to 2,224,000 tons of N and 763,000 tons of P205 in 1979/80, at an average annual growth rate of 16.4% for N and 13.6% for P205. During the same period, domestic consumption has increased from 738,000 tons of N to 3,499,000 tons of N and from 249,000 tons of P205 to 1,150,000 tons of P2 0 corresponding to to an average annual growth rates of 12.7% for N and 12.5% for P 0 . A number 2 5 of studies have concluded that increased fertilizer consumption has been a major factor in increasing agricultural and food production in India during the recent past. 1.03 During the 15 years of the Bank involvement in the sector, India has become the fourth largest fertilizer producer in the world after the USSR, the US and China. During this same period, several significant technological developments have emerged, following closely developments in the more advanced countries. Firstly, with the evolution of technology and due to increased economies of scale, the trend has been towards building larger plants; for example, size of ammonia plants has increased from below 200 tons per day (tpd) in 1967 to 1350 tpd. Secondly, the product pattern has in parallel changed significantly. While low nutrient fertilizers, such as ammonium sulphate (20.5% N), calcium ammonium nitrate (20.5% N) and single superphos- phate (16% P205) formed about 75% of the nutrient capacity in 1966/67, most of the newer capacity have been for higher nutrient fertilizers such as urea (46% N) and complex fertilizers. Thirdly, the feedstock pattern for the production of ammonia has been diversified from emphasis on naphtha in the 1960s to include fuel oil and coal and, more recently, to an increased a/ Excluding the Thal Fertilizer Project for which Bank financing did not materialize. - 20 - emphasis on natural gas which has been discovered off the West Coast of India. Fourthly, as a result of the experience gained by the fertilizer industry in India, project implementation has improved. The delays in physical project implementation are substantially less now than they were in the first few IDA- financed projects although there still remains ample room for further improve- ment, particularly in commissioning and stablizing new plants. Finally, an increasing role is being played by indigenous companies in project design, equipment supply and implementation. 1.04 Capacity utilization in the fertilizer industry, although still low, has shown improvement over the last decade. Compared to 58% in 1973/74, the capacity utilization increased to 75% in 1978/79. In 1979/80, however, it dropped to 62% as a result of the serious economy-wide shortages of coal and power, transportation bottlenecks, and difficulties in stabilizing new plants. Most of these problems are being tackled effectively and since early 1981 the situation has improved substantially. In recent months, actual monthly fertili- zer has been about twice that of last year due to an increased supply of power and coal, improved capacity utilization and the commissioning of new facilities. The average annual capacity utilization is expected to increase to about 85% by 1985. 1.05 Another major development in the industry has been the introduction of a price retention formula under which fertilizer prices are set at levels that provide a 12% after tax return on net worth at 80% capacity operation. This pricing policy has allowed the companies, as IDA had discussed with GOI, to generate sufficient funds to meet their financial obligations, meet a portion of their investment requirements and also earn a reasonable return at efficient operation. It also encourages production beyond the 80% capacity since companies can retain the additional profit earned as a result of operating at higher levels. 1.06 Following discussions between the Government of India (GOI) and IDA over a number of years, the public sector fertilizer companies were re- structured by GOI in 1978, and FCI was split into four regional companies. Rashtriya Chemicals and Fertilizers (RCF), which emerged as a result of this reorganization as the company responsible for operations in Western India, became an independent legal entity in April 1978; it became responsible for the entire Trombay Complex including the Trombay IV Project. A Government-appointed Board of Directors is responsible for the corporate management of RCF and for coordina- tion with the Government. Most senior managers and technical personnel of RCF were appointed from FCI staff, and provided continuity with the earlier manage- ment. 1.07 The Trombay Unit has consistently shown good production performance with capacity utilization remaining above 80% and, in some years, exceeding 100%; over the years, its capacity utilization has been amongst the best in India. The Trombay Unit has also diversified and expanded its capacity to include several industrial chemicals. Since 1966, when the first plants were commissioned at Trombay, several diversification and expansion projects, including production of argon, concentrated nitric acid, sodium nitrate, ammonium bicarbonates and methy- lamines have been implemented there. The Trombay Unit has also commissioned a 100 phosphoric acid plant and expanded its NPK plant. The existing sulfuric acid palnt has been converted to the double catalyst process to expand capacity - 21 - and reduce pollution. The Trombay V Project, which includes a natural gas- based 900 tpd ammonia plant and a 1,000 tpd urea plant, was cons.issioned in 1981, and the ammonia requirements of Trombay IV will be met entirely from Trombay V as it reaches full capacity in two to three years. RCF is currently in the process of implementing a billion dollar project at Thal, which consists of two 1,350 tpd ammonia plants and three 1,500 tpd urea plants. The project scope and configuration of the Thal Project is similar to the IDA-financed Hazira Project which also has two trains of 1,350 tpd ammonia -,ants. II. PROJECT BACKGROUND A. Project Preparation, Appraisal, Approval and Credit Effectiveness 2.01 In pursuance of its policy to increase fertilizer production to achieve food self-sufficiency, the Government of India decided in 1971 on the expansion of the facilities of the Trombay Unit of FCI. In addition, the Government also decided to eliminate prevailing bottlenecks in some existing fertilizer plant facilities and thereby provide for the efficient use of those facilities. The Goverment of India requested Bank Group participation in financing a project designed to meet these objectives and a preappraisal mission visited India in December 1971. However, the mission had to return prematurely as a result of the hostilities that broke out between India and Pakistan. 2.02 The preappraisal mission concluded that the project configuration presented by FCI was not economical. The original project proposal envisaged the use of imported ammonia and local phosphate rock for the incremental production of 675,000 tons per year (TPY) of 20:20:0 fertilizer with 60% phosphate water solubility. The total financing required for the project was estimated at Rs 639 million (US$85 million). The project was a combination of the nitro- phosphate process and the more conventional phosphate technology. Since the nitrophosphate process produces a product with high N to P2 0 ratio the FCI proposal was to add phosphate to produce 20:20:0. However, this required additional facilities to produce sulfuric acid and phosphoric acid and made the project uneconomic. 2.03 IDA staff also evaluated an alternate project configuration estimated to cost $56.0 million and based on the more conventional phosphate technology producing ammonium phosphate from phosphate rock, sulfuric acid and ammonia. The total nutrient output for the alternate configuration was the same as the suggested project but the product was 28:28:0 with phosphate water solubility of 90%. Although more attractive than the project proposed by FCI, the alternate project was also not considered economically attractive. Sub- sequent to the preappraisal mission and review by FCI, the project scope and configuration underwent several modifications. As the result of these modifications and subsequent increases in fertilizer prices, the project that emerged ultimately was based on the nitrophosphate process to produce 355,000 tpy of 21:21:0 fertilizer with 60% phosphate water solubility as desired by Indian agricultural experts and recommended by an expert committee appointed by the Government to select project technology. The nitrophosphate route allowed significant savings by reducing the need for imported sulfur or concentrated phosphatic intermediates. 2.04 The appraisal mission visited India in February 1973. This was followed by three post-appraisal missions in May, July and October. The major issue of concern to IDA at that time was the availability of key - 22 - inputs, particularly ammonia, phosphate rock and power, for the Project. Since the ammonia requirements of the Project were to be met by another project, Trombay V, assurances were sought that adequate supplies of ammonia, domestic or imported, would be made available for Trombay IV till such time as Trombay V would reach levels to meet the entire ammonia require- ments of Trombay IV. Therefore, timely completion of Trombay V, also undertaken by the Trombay Unit, was important for the success of the project. Subsequent to Credit approval, supervision missions also kept abreast with progress of implementation of Trombay V because of its impact on Trombay IV. Although commissioning of Trombay V was delayed more than Trombay IV, there was no major adverse impact on Trombay IV as arrangements were made for adequate supplies of imported ammonia until Trombay V was completed in the second half of 1981. 2.05 The Board approved on June 18, 1974 an IDA credit to the Government of India for $50 million repayable in 50 years with a grace period of 10 years. Of this amount, the $33 million was earmarked for the Trombay IV project and the remaining $17 million for Plant Operations Improvement Project (POIP). The Government onlent the proceeds of the Credit to FCI and FACT for 15 years including 5 years of grace, at an annual interest rate of 9.5%. B. Project Description and Objectives 2.06 The Project consisted of two parts. The first was the expansion of the Trombay Unit of FCI (referred to as Trombay IV). The second component, the Plant Operations Improvement Project aimed at improving capacity utiliza- tion of four other Indian fertilizer plants: the FACT plant at Cochin, and the three FCI plants at Durgapur, Barauni and Namrup. 2.07 The Trombay IV Project involved the expansion of the production capacity of the Trombay Unit by 355,000 metric tons per year of nitrophos- phate fertilizer of 21-21-0 grade. The basic rationale for choosing this process route was to provide in the most economic manner a high grade N: P 20 fertilizer for which there was considerable demand in India. The project included the following main features: Plant 1. Ammonium phosphate nitrate plant 355,000 tpy (1,200 tpd) (21-21-0): (75,000 tons N) (75,000 tons P205) 2. Nitric acid plant 60% concentrate 750 tpd (measured as 100% by wt/wt: Nitric Acid) 3. Steam generation plant: 170 tpd (105 Ats. 5000C) 4. Water treatment plant: 200 cu. m/hr of treated water 5. Bagging and product handling plant: 5 streams with 25 tph capacity. - 23 - 2.08 The principal raw materials to be used in the project were: (a) ammonia (about 100,000 tpy) to be provided for initial production as imports and eventually from the new ammonia plant to be established at Trombay as part of the Trombay V project; and (b) phosphate for the project was to be supplied as phosphate rock and the secondary phosphate in the form of either diammonium phospate (DAP) or triple superphosphate (TSP). At the time of appraisal, it was envisaged that the Project would utilize local Rajasthan rock to produce phosphoric acid. However, in the event that the quality of this rock was not acceptable, as the case turned out to be, alternate arrange- ments for obtaining imported phosphate rock were to be made. III. PROJECT IMPLEMENTATION AND MANAGEMENT A. Achievement of Project Objectives 3.01 Trombay IV was mechanically completed in October 1977, about eleven months behind schedule. The delay was mainly due to the tight equipment supply situation in the world markets, caused by heavy capital investments in the world fertilizer capacity, following steep increases in international fertilizer prices in 1974/75 and consequently lengthening of the delivery period for equip- ment. Production of nitrophosphates (NP) in 1979 (the first full calendar year of operation) was 195,664 tons, reflecting a capacity utilization of 55%. In 1980, the capacity utilization increased marginally to 56% in spite of prolong- ed technical problems. During the first nine months of 1981, production was 196,864 tons, reflecting an average capacity utilization of 74%. While this production performance was substantially better than the capacity utilization of the Indian fertilizer industry during the year (62%), the production build- up is lower than the appraisal estimate primarily because of some technical problems discussed in Chapter IV. In order to remedy the situation, RCF in conjunction with the process vendor and engineering contractor is implement- ing a debottlenecking program in two phases (para. 4.06). Phase I of the debottlenecking program which will increase capacity utilization to 90% has been completed and when Phase II is completed in April 1982, the average annual capacity utilization is expected to increase to about 100-105% of rated capacity. 3.02 The POIP Component of the Trombay IV Credit has been successful in meeting its objectives. It has already helped overcome prolonged commissioning problems faced by fertilizer plants at Namrup, Durgapur, Barauni and Cochin and improve capacity utilization in those plants. Further increases in capacity utilization are expected by 1982/83, when the full impact of POIP would be felt as the production builds up gradually to 90% of capacity. B. Project Scope 3.03 There were no significant deviations from the original scope of the project with regard to the process units, but during implementation changes were made to the services and offsite facilities. Originally, it was planned to install two coal-fired boilers of 40 tons/hr capacity each producing steam at 40 atmospheres. Because the existing boilers of the Trombay Unit were old and not giving satisfactory service, it was decided to increase the new boiler capacity substantially to 140 tons/hr to cover requirements not only of Trombay IV but also of the existing plants. The change in boiler si e resulted ij the need to expand the water treatment plant from 120 M /hr to 200 M /hr and the yard piping and electrical systems. - 24 - 3.04 In order to maintain stores required for the Trombay IV plant in a proper manner, it was decided to construct a new storage building as the existing facili- ties were inadequate for the storage of the additional spares required. It was also decided to build a liquid effluent treatment plant to ensure that the liquid effluent from the Trombay IV plant would meet the requirements stipulated by the Maharashtra Board for Prevention of Water Pollution. Originally, it was planned to dispose of the lime, a by-product of Trombay IV ANP plant, as dry chalk. However, in view of the available market for wet lime and to provide flexibility in operations, a wet lime disposal system was installed. These scope changes, while appropriate, increased the cost by Rs 49.7 million (10%) over the appraisal estimates; about Rs 45 milion of this increase relate to facilities built to maintain the existing ?erations at Trombay and should not be charged to the Trombay IV Project itself. C. Project Management 3.05 Trombay IV project implementation was supervised by a special project group headed by the General Project Manager. The General Project Manager was fully responsible for both the project budget and implementation schedule and, in addition to the Trombay IV project staff, available to him were the services of other staff when necessary. The organizational set-up for the project during implementation and commissioning are shown in Annexes 2 and 3. Reporting directly to the General Project Manager were the Chief Engineer (Mechanical), Chief Engineer (Civil), Finance Manager and the Deputy Materials Manager. The General Project Manager and other senior staff on his team were well qualified and experienced. The project team had been vested with the authority to make on the spot decisions and this helped prevent delays that would have occurred if all decisions had to be approved by senior management of the Corporation. At the completion of the physical implementation and commencement of commission- ing, the organizational structure of the Project team was appropriately modi- fied to cope with the new requirements and manpower demands. This modified organizational structure during commissioning enabled project management to make decisions expeditiously during the commissioning stage such as carrying out modifications of equipment, maintenance, air freighting spares, and summoning foreign experts on a timely basis. The sound organizational structure, accompanied with adequate authority for making timely decisions proved to be one of the reasons for the relatively moderate delay in project implementation inspite of the problems that were encountered due to delays in obtaining government clearances and longer than anticipated equipment delivery times. 3.06 After mechanical completion, the major problems faced were the un- availability of power and water on a timely basis. This resulted in delaying start-up and testing operations. Further, when technical problems were encountered, there were disagreements between RCF and the contractors on the modifications required, which to some extent prevented prompt identification and resolution of the design problems. D. Employment and Training 3.07 Before the Trombay IV project, Trombay had a staff of about 1,900 in production operations and about 500 in marketing. At the time of appraisal, it was estimated that the project would create about 440 additional permanent jobs whilst enabling Trombay to better utilize the existing manpower. Most 1/ The steam generation unit cost Rs 77.7 million (US$8.7 million) and of the net output of 130 tph, 55 are used by Trombay IV and the remaining 75 tph by existing facilities at Trombay. - 25 - of the professional staff, who were responsible for the implementation of the project, have taken over the operations of the new plants. One hundred and twenty operating and maintenance personnel who were experienced in the existing Trombay facilities were transferred to Trombay IV and, in addition, 265 personnel were recruited and trained on the job under the supervision of engineers, vendors, experts and engineering contractors. Overall, 482 new staff (96 professional staff and 386 other personnel) have been engaged for the operation and maintenance of Trombay IV. 3.08 Considerable care and attention was given to specialized training. Twenty-one operating and maintenance personnel were trained in difterent plants in Europe and Turkey, as recommended by the Engineering Contractors, for periods ranging from two to six weeks. Also, six maintenance personnel were sent to different vendors- works abroad for specialized training on machinery. Apart from this specialized training overseas, on-the-job training was given to operating personnel at all levels to enable them to get properly acquainted with the operation and maintenance of the plant. 3.09 RCF has a well-equipped training center at Trombay and offers continu- ing training in various fields to all its personnel. The content of courses offered in this center varies considerably depending on the plant needs and includes management courses for supervisors offered by outside consultants. The training program and facilities were well suited to project requirements. E. Use and Performance of Engineering Contractors and Consultants 3.10. The nitric acid plant, designed by a foreign engineering firm, is now operating well after overcoming initial teething problems. RCF was satisfied with the firm's services. 3.11 The ANP plant, which was engineered by another foreign engineering firm using the process of a different foreign firm, has faced problems. Although the engineering firm for the ANP plant was extremely cooperative during the construction phase of the Project, commissioning problems and subsequent identification of serious technical problems in the plant led to some friction between them and RCF. Some of the problems faced are the result of the unexpected difficulties encountered in the combination of Uhde and Stamicarbon technology; the process has also been used by the same firm in the Bank-financed Multan Fertilizer Project in Pakistan which is also facing similar problems. RCF felt that the engineering firm has been responsible for design errors as a result of which the plant could not produce at over 80% capacity while maintaining the desired phosphate water solubility of ANP (60%). The engineering firm, on the other hand felt that the problems were process-related and that since RCF chose the process the firm was not responsi- ble for the problems. The result of these disagreements during the commissioning stage has been lower production of fertilizers during the initial period of production. However, the production losses have not been as serious and as prolonged as in the case of the Pakistan Multan Fertilizer Report (see PPA No. 3582 dated August 18, 1981) since the Indian fertilizer experts had specified a more realistic water solubility requirement (60%) for the Trombay plant than the Pakistani experts had for the Multan Plant (85%). The Trombay plant is expected to reach the design capacity after the ongoing plant modifications are completed in March (para. 4.07). F. Implementation Schedule 3.12 Project commissioning was expected to be on April 1, 1977, four months after mechanical completion which was initially estimated to be - 26 - December 1, 1976, 32 months after starting the engineering contract for the nitric acid and ANP plants scheduled for April 1, 1974. However, the engineering contract for the ANP plant did not come into effect until the end of May 1974, resulting in a delay of two months in project schedule. 3.13 The time for deliveries of some of the main items of equipment by suppliers was much longer than estimated at the time of project planning, leading to further delays in schedule. Equipment procurement had been estimated to take 19-21 months, whereas actual delivery times quoted by the vendors for the equipment for the nitric acid plant and ANP plant were 30 and 28 months, respectively. Because of the decision to change the size and ratings of the new boilers, there was also a delay of five months in placing the order for the steam generation plant. The other reasons which delayed the commercial commencement of production until January 1979, are discussed below. 3.14 Steam Generation Plant. The plant was commissioned and steam was made available to the grid in January 1978. There was a total delay of about five months on this plant of which: (a) nine weeks were lost during the erection period by Bharat Heavy Electrical Ltd (BHEL) which was executing the project on a turnkey basis; (b) another nine weeks were lost before start- up due to delays in obtaining the necessary sanctions from the Government of Maharashtra; and (c) about six weeks were lost during the commissioning due to failures in various items of equipment. 3.15 Nitric Acid Plant. The plant was mechanically completed by October 1977 with a delay of only three months because of the non-availability of a mast derrick. The commissioning of the plant was delayed by a further 13 weeks because steam was not available. A further 22 weeks were lost due to repairs and equipment problems required and 13 more weeks were taken to stabilize the plant and carry out the sustained load run. Commercial production was started in January 1979 with a total delay of 61 weeks (about 14 months). 3.16 Ammonium Phosphate Nitrate Plant. Mechanical completion was achieved in June 1977, with a delay of two months caused mainly by the loss of acid proofing material during transit. Commissioning was delayed a further six months due to the unavailability of nitric acid. Delays in commissioning and stabilization accounted for another 26 weeks, bringing the total delay up to 61 weeks (about 14 months). Although part of the delay in stabilizing the operation of the plant was caused by'equipment failures such as pumps, centrifuges, etc., there were, as mentioned., some basic design problems which hindered the commissioning of the plant. 3.17 Overall, as indicated above, the two major plants were mechanically completed by October 1977, a total of 11 months behind the appraisal schedule. Considering the size and complexity of the project and the initial delays en- countered in signing the engineering contracts and in equipment supplies, this completion was a creditable performance on the part of RCF and project management. It also compares very favorably with the experience of other public sector fertilizer plants completed a few years earlier. Unfortunately, this success in mechanically completing the project close to the schedule was not matched by the commissioning experience which took 14 months compared to 4 months anticipated at the time of appraisal. The Trombay IV Project was commissioned on January 1, 1979. This experience of a long commissioning period is similar to - 27 - that of some other fertilizer plants completed in India during the late 1970s and has led GOI and the Bank Group to make a greater provision for expatriate technical assistance during this phase of project implementation for projects approved recently. Annex 4 contains the detailed implementation schedule. G. Procurement and Performance of Suppliers/Contractors 3.18 Difficulties were experienced in the procurement of equipment because of an extremely tight international market due to a sudden spurt of fertilizer industry expansion in the world, following steep increases in world fertilizer prices during 1974/75. The delivery period particularly for critical items was much longer than anticipated (para. 3.13). Further, in the case of imported equipment, procurement was delayed as it took a longer time than expected to obtain clearances from DGTD (Directorate-General of Trade and Development) despite assurances to the contrary given to IDA during negotiations. As a result, Trombay IV experienced a delay of eleven months in project implementation. Except for items that had been agreed as critical items, and for small items consisting of less than US$50,000, all contracts were awarded based on the International Competitive Bidding (ICB) procedure as specified in the Credit Agreement. 3.19 RCF management was satisfied with the performance of the equipment vendors but not fully with that of the contractor firm and the process vendor. When the commissioning problems were prolonged, the relationship between RCF, the contractor firm and process vendor became strained. It subsequently improved with the Bank playing a mediator's role in finding a solution to the commissioning problems. The conflict between RCF, the contractor and the process vendor could have been minimized, if the contractor was more involved in the process selection. In the case of Trombay IV, the process selection was made by the P & D Division of FCI and the contractor was asked to design the plant based on that process. When the commissioning problems proved serious, initially the contractor and the process vendor each denied responsi- bility and RCF found it difficult to pinpoint the responsibility for the performance guarantee. H. Plant Operations Improvement Project 3.20 To help improve the performance of the fertilizer sector in India, the Bank included in Trombay IV a credit portion of US$17 million to assist the Fertilizer Corporation of India (which was subsequently reorganized into four fertilizer companies) and Fertilizer and Chemicals, Tranvancore Ltd. (FACT) in commissioning four of their projects which were experiencing serious prolonged start-up problems and to subsequently achieve high capacity utilization in those plants. Accordingly, under the Plant Operations Improve- ment Project (POIP), the fertilizer plants at Durgapur, Barauni, Namrup and Cochin were helped to improve their performance by providing the foreign exchange for critically-needed equipment, spare parts and technical assistance. 3.21 POIP, as in the case of Trombay IV, also experienced delays in implementation because of longer than expected delivery periods for equip- ment and the Government-s cumbersome procedures for screening applications for imports under the auspices of DGTD. In spite of the delays, the POIP component of the Credit was implemented successfully and has had a significant - 28 - impact on overcoming the technical problems in four large-scale fertilizer plants with a total installed capacity of about 1.5 million tons of fertilizers. As a result, the attainable capacity in the plants has gone up from 20-30% in the mid-1970s to 80-85%. However, the actual capacity utilization in those plants in 1980 was less than 50% because of the country-wide shortages of power and coal and transportation problems mentioned earlier. The country has alleviated those problems to some extent during 1981 and further progress is expected in this direction during the next two to three years. As the country makes further progress in overcoming those problems, the capacity utilization in the abovementioned fertilizer plants is expected to increase to 80-85% by 1983/84. I. Environmental Aspects 3.22 The Trombay complex is located in one of the populated suburbs of Bombay City, and special consideration had to be given to the possible hazards to the environment, and in particular to the health of the local population from the potentially harmful gaseous/liquid effluents coming from the plants. Necessary environmental control measures were adopted under Trombay IV to ensure that the relevant statutory regulations were met. In particular, the emission levels adopted for nitric acid were lower than any- where else in India and amongst the lowest in the world. The measures taken have ensured that all the required standards were met. 3.23 Steam Generation Plant. The main pollutant from the plant is sulphur dioxide, and provision was made in the plant for utilizing the low sulphur heavy stock/associated gas with relatively low sulphur content as fuel. The boiler is currently being operated with associated gas as fuel with virtually no sulphur content, so that the emission of sulphur compounds from the Trombay IV boiler is negligible. As a further anti-pollution measure, flue gases from the boiler are discharged to the atmosphere at a height of 84 meters from the ground level through a chimney. 3.24 Nitric Acid Plant. Attention was given at the design stage to ensure that there would be a low level of NO oxides from the fuel gases. Additional x equipment included an additional absorption column and a high level stack with facilities in the absorption column to scrub the tail gases to achieve a level of 200 ppm NOx at exit. In the initial stages of commissioning due to mal- functioning of the absorption column, the emission of NOx was very high. It was also very difficult to stabilize the chilled acid wash system. RFC personnel have subsequently stabilized the chilled acid wash system maintaining NOx level of 300 ppm.which, however, is not considered completely satisfactory by the pollution authorities. 3.25 Ammonium Phosphate Nitrate Plant. The process and equipment were chosen to maintain the emission of gases, particularly solids and liquids within acceptable standards. Equipment included scrubbers, cyclones and dust filters, and an integrated effluent treatment plant was also built to treat liquids from the ANP plant along with liquids from other plants to meet local regulations. During the start-up of the plant, much higher NOx emissions than anticipated at the design stage were encountered in the acidulation tanks due to inadequate cooling, and supplementary cooling had to be installed. This was not completely successful, and a scheme had to be implemented to add a small quantity of urea to break down the NOx to harmless nitrogen. This scheme is working well; it - 29 - has added only about Rs 2 to the cost per ton of final product (0.1% increase in cost), which is acceptable. J. Costs, Disbursements and Financing 3.26 A summary table comparing capital cost estimates at the time of appraisal and actual costs is presented below. The detailed table is shown in Annex 6: Summary of Project Costs (US$ millions) Appraisal Estimates Actual Local Foreign Total Local Foreign Total % Change Nitrophosphate Plant 10.4 10.3 20.7 11.8 10.5 22.3 + 8 Nitric Acid Plant 5.7 6.5 12.2 6.6 9.6 16.2 +33 Steam Generation 2.3 0.9 3.2 8.6 0.1 8.7 +172 Other Equipment 11.2 3.8 15.0 13.5 2.4 15.9 +26 Spares 1.0 1.6 2.6 1.8 2.2 4.0 +54 Misc. - - - 0.7 0.3 1.0 Nonplant Civil Works 0.8 - 0.8 0.6 - 0.6 -25 Project Management 1.6 0.6 2.2 3.2 - 3.2 +46 Subtotal 33.0 23.7 56.7 46.8 25.1 71.9 +27 Working Capital 1.6 1.0 2.6 4.0 - 4.0 +54 Employee Housing 0.4 - 0.4 - - Total Project Cost 35.0 24.7 59.7 50.8 25.1 75.9 +27 Interest during construction 4.0 - 4.0 7.6 - 7.6 +90 Total Financing Required 39.0 24.7 63.7 58.4 25.1 83.5 +31 3.27 The Project experienced a cost overrun of 31% in US dollar terms mainly due to changes in project scope, need for acquiring equipment not provided for at the time of appraisal, eleven-month delay in mechanical completion, international currency realignments, increase in duties, taxes, freight and insurance charges, higher cost for civil works and a higher working capital requirement as a result of steep increases in raw material prices. The following table shows the increase in cost by different causes: Cost Increases by Causes (US$ millions) Amount % 1. Project delay 3.7 18.5 2. Equipment not provided for 4.1 20.5 3. Civil works 1.3 6.4 4. Current realignments 3.5 17.5 5. Increase in duties, taxes, freight and insurance charges 2.1 10.8 6. Changes in project scope 3.7 18.9 7. Rise in working capital 1.1 5.7 8. Others 0.3 1.7 Total 19.8 100.0 - 30 - 3.28 The actual disbursement pattern for the IDA credit and that esti- mated at the time of appraisal are shown in Annex 7. Of the total credit of $50.0 million, $33.0 million was originally earmarked for Trombay IV and the remaining $17.0 million for POIP. The allocation of the IDA credit between Trombay IV and POIP had been considered flexible and subsequent to the appraisal a larger portion of the credit was disbursed for Trombay IV. Of the total credit, $43.3 million was actually disbursed for Trombay IV. This higher allocation to Trombay IV was achieved by reducing the allocation to POIP as the actual foreign exchange cost of POIP proved to be lower than the appraisal estimate. The actual disbursement for POIP was $6.7 million. 3.29 The disbursement pattern assumed at the time of appraisal proved to be optimistic. According to appraisal estimates, the credit disbursements should have started in the third quarter of 1974 and completed by June 30, 1977. Disbursements actually commenced in the beginning of 1975 and proceeded at a rate slower than that assumed during appraisal. The credit was fully disbursed by July 23, 1980. The annual disbursements are shown below. IDA Disbursement 1974 1975 1976 1977 1978 1979 1980 (million US$) Appraisal estimate 2.0 23.0 21.0 4.0 - - - Actual - 4.0 17.7 13.6 6.5 7.2 1.0 3.30 The total financing required for Trombay IV was Rs 743.5 million (US$83.5 million equivalent). Of this amount, Rs 385.3 million (US$43.3 mil- lion) was provided by IDA funds onlent through 001, and the remaining Rs. 358.2 million (US$40.2 million) as equity contributions from the Govern- ment, compared to the appraisal estimate that US$33.0 million would be 1/ provided by IDA funds and the remaining US$30.7 million as equity from GO. IV. OPERATING PERFORMANCE A. Commissioning and Start-up 4.01 Although the testing of the equipment and start-up of the plant was delayed for a considerable period due to lack of water and power, and taking into account also some of the design problems encountered, the commissioning of the plant went reasonably well. There were, of course, the usual commissioning problems caused by equipment failure but these were rectified with minimum delay and the maintenance staff worked well to overcome these problems. 4.02 For the nitric acid plant (one of the largest of its type in the world), a major modification and repair to the economizer coils to achieve satis- factory effluent standards was carried out in four weeks using indigenous resources. Some other modifications, mostly minor, were carried out in a relatively short time in order to stabilize the plant and achieve high capacity utilization. 1/ The exchange rate used in appraisal report was US$1 = Rs 7.5. The average rate during project implementation was US$1.00 = Rs 8.9. - 31 - 4.03 The commissioning of the ANP plant proved more difficult than that of the nitric acid plant because of the complexity and integration of several process units. There were also several technical problems which hindered the commissioning operation and still continue to constrain output. These problems had to be overcome by the local operators before the plant could be stabilized, particularly in the dissolution section where foaming and NO x evolution were excessive. The severe corrosion experienced in the plant due to the nature of the materials being handled and the problem of erosion in the centrifuges put a heavy load on the maintenance staff which, because of the benefits of the training program and of sound project management, handled the situation well. B. Build-up of Production 4.04 The build-up of production since the plants started operating is shown in Annex 8. Although steady progress has been made in improving the operation of the ANP plant, the output of the plant has been limited to less than 80% of its design capacity, mainly because of technical problems. The operation of the nitric acid plant has been satisfactory but, on some occasions, due to low output in the ANP plant, it has been necessary to slow down nitric acid production because of high stocks. 4.05 During 1980, a total of 165,776 tons of nitric acid was produced representing 67% capacity utilization and ANP output that year was 199,240 tons, representing 56% capacity utilization based on the original design capacity. During the first nine months of 1981, Trombay IV produced 163,280 tons of nitric acid and 196,864 tons of ANP, reflecting a capacity utilization of 87% in the nitric acid plant and 74% in the ANP plant. This production performance while below appraisal estimates was better than the capacity utili- zation of most other Indian fertilizer plants. C. Further Work to Improve Plant Performance 4.06 Most of the engineering and technical problems which are typical for the start-up of new complex plants such as those of Trombay IV have now been resolved, and the plant is working fairly well. The plant is well managed and maintained. However, there are still some technical constraints in the ANP plant which cannot be overcome without plant modification and which limit capacity utilization to less than 80%. These constraints have been conceded by the engineering company and process vendor. What was considered as the maximum liability within the contract has been accepted and, in addition, further help has been given on a goodwill basis by both the engineering company and the process vendor, though it would not cover the full cost of modifications required to bring the plant up to full capacity (para. 8.04). Meanwhile, final performance tests have not been carried out so far although plant performance has been stabilized. 4.07 Following the identification of the major problems and with IDA assistance, discussions were initiated in 1980 between RCF, the process supplier and the engineering contractor on a program to carry out the modifications nec- essary to improve the plant operation. As a result of these discussions, a two-phase ANP plant rehabilitation scheme was agreed. In the first phase, the bottlenecks in (a) inert separation, (b) mud filtration and recycle and (c) refrigeration load were removed. Phase I has been completed but has not succeeded in achieving the production level of 90% expected earlier. However, it is expected that the problems faced during Phase I will be resolved during Phase II. - 32 - 4.08 The modifications planned for Phase II will remove the bottlenecks in the crystallizer section. Orders have been placed for the major items of equipment for this purpose. These have been shipped and are expected on site by January 1982. Civil design and construction were expected to be completed by end of November 1981. Erection of mechanical equipment and piping is expected to be completed by March 1982 after which the contractor will carry out performance tests to demonstrate the guarantees according to the contract with respect to to capacity, quality, consumption of raw materials and level of pollution. RCF expects that after the completion of Phase II, the Trombay IV project facilities would be able to produce at 100-105% of capacity. D. Market Development and Performance 4.09 Fertilizer consumption in India has shown a slower growth than expected at the time of Trombay IV appraisal. The Bank staff had forecast that during 1972/73 and 1978/79, the nitrogen (N) and phosphorous (P) consumption would increase at 16% and 17.5%, respectively. However, during that period the annual growth rate of consumption for N was 11% and for P, 11.5%. The following table compares the appraisal forecasts with the actual consumption. N AND P CONSUMPTION ('000 nutrient tons) 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 I. Appraisal Estimate N 1,839 1,779 2,960 2,320 3,720 4,160 4,570 P 581 587 990 1,100 1,240 1,390 1,520 II. Actual N 1,839 1,829 1,766 1,990 2,457 2,913 3,420 P 581 650 471 430 635 867 1,106 III. Difference (I-II) N - (50) 1,194 1,330 1,263 1,247 1,150 P - (63) 519 670 605 523 414 Fertilizer consumption stagnated in 1973/74 and declined in 1974/75 primarily as a result of sharp increases in retail prices of fertilizers following the 1973 world oil crisis. However, as farmers gradually realized that the ratio of ferti- lizer crop prices were still favourable for the increased use of fertilizers, the demand for fertilizers began to pick up sharply in 1974/75. During 1974/75 and 1978/79, the average growth rate in consumption of N and P was 18% and 24% respectively, slightly higher than the growth rates forecast in the appraisal report. V. FINANCIAL PERFORMANCE A. Financial Rate of Return 5.01 The financial rate of return for Trombay IV expansion project has been estimated at 15.2%. The financial rate of return estimated at the time of appraisal was 13.5%. In spite of the fact that capital costs have increased by more than 30% compared to the appraisal estimate, the financial rate of return has increased. The major reason for this is the Government decision to set ex-factory fertilizer prices according to the price retention formula according to which each company is assured a 12% after tax return (28.4 before tax) on - 33 - net worth at 80% capacity utilization Accordingly any increases in capital costs are compensated for by higher ex-factory prices for the company 5 02 For calculating the financial rate of return it has been assumed that the present debottlenecking operations would prove successful and the project will be able to reach 90% capacity utilization by FY 1982/83. Financial cost and revenue streams are shown in Annex 9. B. Financial Results 5.03 At the time that the credit became effective, the borrower was Fertilizer Corporation of India (FCI). Later on when FCI was split into four companies, the credit was assumed by Rashtriya Chemicals and Fertilizers India Ltd.(RCF) which was also responsible for implementation of the project. RCF evolved from what was the Trombay Unit of FCI. Since the Trombay Unit of FCI was an independent profit center, the past financial data for only the Trombay unit is presented below: Income Statements and Balance Sheets of Trombay Unit of FCI up to 1977/78 and of RCF thereafter are shown in Annex 10. a! SELECTED FINANCIAL DATA (In million Rupees) Year Ended March 31 1976 1977 1978 1979 1980 1981 Net Sales 542 735 778 1,188 2 005 2 461 Net Income (14) 76 69 81 110 185 Depreciation 34 23 31 46 100 109 Internal Cash Generation 20 99 100 127 210 294 Current Assets 300 309 352 735 1)001 1,112 Total Assets 796 1,300 1 645 2,392 3d166 3,932 Current Liabilities 81 108 112 318 536 598 Long-term Debt 261 434 624 612 822 885 Equity 454 758 909 1,462 1 808 2 450 Ratios Current Ratio 3.7,1 2.9-1 3.1 1 2-3-1 1.9;1 1 9-1 Debt/Equity Ratio 37/63 36/64 41/59 30/70 31/69 27/73 Net Income/Assets (%) -2.0 7.3 4.7 4,0 4,0 5.2 Return on Equity (%) -3,6 12.5 8.3 6.8 6.7 8,.7 a/ Trombay unit of FCI till 1978 and RCF from 1979 onwards- 5.04 As is evident from the data above the Trombay unit of PCI and later RCF has consistently improved its performance over the years. The net income for the unit increased from a net loss of Rs 14 million in 1976 to a net income of Rs 81 million in 1979 and of Rs 185 million in 1981. The total equity of the company increased from Rs 454 million in 1976 to Rs 1,462 million in 1979 and Rs 2,450 million in 1981. During this period the Trombay Unit has maintained acceptable debt/equity. 5.05 RCF is currently implementing the Thal Fertilizer Project which would result in an additional production of 1.33 million tons per year of urea. This would further improve the financial situation of the company and the net income of RCF is expected to exceed Rs 1.0 billion by 1985/86. - 34 - C. Financial Covenants 5.06 As part of the project agreement it was agreed that the Trombay unit and FCI as a whole would maintain a debt to equity ratio of 50:50 or lower. FCI also agreed to maintain a current ratio of at least 1.2:1 and not declare any dividends or prepay debt if this would lower the current ratio to lower than 1.5:1. Both these covenants have been complied with. 5.07 The Project Agreement had also stipulated that the Company provide the Association with audited financial statements within four months of the close of the fiscal year. This covenant has not been fully complied with. Considering the fact that the financial statements of the company are audited by independent chartered accountants as well as the Government auditors, four months proved inadequate. In order to overcome this, the Trombay Unit used to provide the Bank with unaudited financial statements on a timely basis and audited statements when they were ready. However, after mechanical completion, there was some slackening on the part of RCF. The audited financial statements for FY79/80 and FY80/81 were received in November 1981. VI. ECONOMIC PERFORMANCE A. Economic Rate of Return 6.01 Economic prices for all the tradeable items are based on the projected international prices adjusted for freight to India. All non-tradeable items have been valued at their financial price after adjusting for duties and taxes. The projected economic price of ANP (21:21:0) has been derived using the economic prices of DAP, TSP and urea and adjusting for granulation and transportation charges. Local costs were not shadow priced. The production cost details for the Project are shown in Annex 11 and economic cost and benefit streams in Annex 12. The major inputs and outputs are shown below. Economic Price per Unit (ex-factory) Products Units (1980 US$) 1981/82 1985/86 1990/91 ANP (21:21:0) tons 285 329 336 Nitric Acid (100%) tons 145 170 176 CAN (26%) tons 161 190 198 Raw Materials Ammonia tons 251 303 317 Phosphate Rock tons 65 83 83 MAP tons 233 365 371 Associated Gas 1,000 M 200 200 200 6.02 The economic rate of return of the project is reestimated at 16.7% which is marginally higher than the 16.3% estimated at the time of appraisal. The major reason for the higher economic rate of return inspite of the increase in capital cost and the delay in achieving the expected high capacity utiliza- tion was the steep increase in international fertilizer prices and transporta- tion charges. - 35 - B. Transfer of Technology 6.03 FCI, through its Planning and Development (P&D) Division (later FPDIL) was significantly involved in the project. FPDIL worked closely with the foreign engineering contractors and gained valuable experience in modern design and engineering techniques. As a result of FPDIL-s involvement in several Bank financed projects, it has developed into a competent and professionally recognized engineering firm and now even operates outside India. Several RCF staff were also trained abroad and this has further improved the skills of the RCF engineering staff. This project was innovative because it was the first project in India to utilize the nitrophosphate route to produce complex fertilizers. C. Foreign Exchange Savings 6.04 Annual foreign exchange savings generated by the project at 90% capacity production are estimated to be about US$40 to 50 million in 1980 prices. This is higher than the US$18 million in 1978 prices estimated at the time of appraisal. The higher foreign exchange savings are the result of increases in world fertilizer prices. The total foreign exchange financing required for the Project was about US$25.2 million, which is less than the foreign exchange saving each year. VII. INSTITUTIONAL PERFORMANCE 7.01 Rashtriya Chemicals and Fertilizers Ltd (RCF) is one of the most efficient and well-managed large public sector industrial enterprices in India. The company has, where necessary, relied on foreign engineering firms while depending on the Planning and Development Division for basic engineering and design process selection. At the same time, it has developed its own staff to take on responsibilities for tackling technical, financial and marketing problems. RCF has a full-fledged training center which has helped meet its requirements for trained manpower, as well as those of some other companies in India. Moreover, this training center has also attracted trainees from some developing countries such as Turkey. VIII. BANK PERFORMANCE 8.01 The Government of India requested the Bank for assistance in March 1973 for Trombay IV. Pursuant to the request, the Bank appraisal mission visited India in February 1973. Follow-up missions were sent in May/June 1973 and in October 1973 to discuss outstanding isues. The Board approval for the Project was grant- ed in June 1974, about 14 months after the formal request. The credit processing experienced a delay of about three months because of the need for a follow-up mission to deal with outstanding issues. In view of this, 14 months for the Project from the date of request to Board approval is considered reasonable. 8.02 The Bank's relationship with RCF throughout the project preparation and implementation was excellent and was greatly facilitated by the provision by RCF of an adequate team of competent professionals who quickly learned Bank procedures for procurement and disbursement. 8.03 To maximize the impact on the fertilizer sector in India, the Bank had agreed to include in the Trombay IV Credit a portion of US$17 million to assist FCI (which was subsequently divided into four separate fertilizer companies) and - 36 - FACT in commissioning some of the projects which were experiencing serious start- up problems and to achieve in the shortest possible time, high capacity utiliza- tion in those plants as well as in some of their operating units. Under this Plant Operations Improvement Project (POIP), Durgapur, Barauni, Namrup and Cochin I fertilizer plants were helped to improve their performance by providing the foreign exchange for critically-needed equipment, spare parts, and technical assistance. POIP helped increase fertilizer production in those four fertilizer plants. While it is difficult to quantify the exact impact of these investments because of other constraints such as lack of coal and power which kept the capacity utilization low in these plants, the encouraging results obtained under POIP induced the Bank to provide additional assistance in 1975 for debottlenecking the fertilizer sector, as a whole. Under the US$105 million Fertilizer Industry Credit (Credit No. 598-IN), eight public, joint and private sector fertilizer companies are being assisted in removing production bottlenecks, improving environmental controls, and diversifying production of industrial chemicals. As a result of this Credit as well as of POIP, the average capacity utilization in the fertilizer industry in India increased from 58% in 1973/74 to about 75% in 1978/79 and is expected to go further to about 85% by 1985 with the product- ion build-up following the rehabilitation of fertilizer plants. 8.04 Trombay IV was mechanically completed by October 31, 1977, but ran into difficulty in achieving high capacity utilization due to design/process problems. The Bank organized a meeting in Dortmund (where the head office of the contractor firm is located) in 1980 with representatives of the Bank, contractor, process vendor, and RCF to discuss Trombay IV problems and arrived at an amicable solution. At the meeting, a plan was prepared to overcome the technical deficiencies of the Project. The total cost of this debottlenecking was estimated at Rs 28 million (US$3.5 million) including Rs 13.5 million (US$1.7 million) in foreign exchange. The contractor firm agreed to meet Rs 12.6 million (3 million DM or US$1.6 million). Subsequently, the Government request- ed that about US$0.7 million from the uncommitted amount under the Fertilizer Industry Credit (Credit No. 598-IN) be reallocated to Trombay IV to meet part of the remaining costs. The Bank agreed to this reallocation as it was in line with the project objective of debottlenecking plants in the fertilizer sector. Of the total expenditure of Rs 14.5 million to be borne by RCF, Rs 4.3 million was incurred up to March 31; Rs 10.5 million would be required in 1981/82 and Rs 0.6 million in 1982/83. IX. CONCLUSIONS A. Overall Assessment 9.01 Trombay IV was implemented by a capable and experienced project team. The project progress up to mechanical completion was satisfactory. There was a delay of only eleven months up to mechanical completion inspite of the tight supply situation in the equipment market, especially for critical items, because of heavy investment in the fertilizer industry in the world , conse- quent to the steep increases in world fertilizer prices following the quadrupling of world oil prices in 1973. When prolonged commissioning problems were experienced by the Project, the Bank played an important role in bringing together the contractor and process vendor firms and the project sponsor and in developing a debottlenecking program for overcoming the technical deficiencies. - 37 - Most of the deficiencies have been overcome and the debottlenecking program, expected to be completed by March 1982, is expecLed to increase the capacity utilization from the current level of 74% to about 100%. There was a 31% increase in capital costs in US$ terms due to more than anticipated increases in equipment prices following the world oil crisis in 1973, international currency alIgnments, and changes in project scope, and serious commissioning problems (resulting in additional investment to overcome them). In spite of the cost overrun and prolonged commissioning problems, the Project still shows an acceptable economic return of 16.7%. 9.02 The Plant Operations Improvement Project (POIP) helped debottleneck four fertilizer plants in India, and those plants are now capable of operating at 80-85% capacity compared to 20-30% in the mid-1970s. However, the full impact of POIP was not realized during 1978/79-1980/81 because of the country- wide shortages of power and coal and transportation problems. These problems have now been alleviated to some extent, and further progress in this direction is expected in the near future. The Bank's favourable experience with POIP led to the financing of a separate large project subsequently to debottleneck other fertilizer plants in India which were facing serious technical problems. B. Lessons for the Borrower and the Bank for Similar Projects 9.03 The satisfactory progress, until mechanical completion, of Trombay IV was mainly due to: (a) a full-time project implementation team appointed early in the project cycle; (b) a capable foreign engineering firm selected as contractor; (c) an efficient procurement system; (d) close attention to coordination and monitoring of activities by company's top management; (e) identification of training needs and development and implementation of an appropriate training program; (f) promotion of trained staff, where appropriate, to higher responsibilities to enhance their motivation; and (g) appropriate delegation of authority and responsibilities by the company-s top management. These factors should be put into the implementation arrangements for future fertilizer projects, as appropriate. 9.04 RCF staff worked harmoniously with the contractor firm and process vendor until mechanical completion of the projects. However, when the Project experienced prolonged commissioning problems, the relationship between them was strained and the Bank had to play a mediators role to bring them together and agree on a program to overcome the technical problems. One of the lessons of the Trombay IV Project is that engineering contractors should be involved in the selection of processes for complex projects. Also the Bank should be willing to use its good offices in bringing together the borrowers and the suppliers when such intervention is necessary and is desired by the parties concerned. 9.05 In summary, Trombay IV and POIP components were well managed and the implementation progressed well despite the sudden development of a tight situation in the world equipment market and abnormal increases in equipment prices following the 1973 oil crisis. POIP has been a successful program with a minimum foreign exchange investment of US$6.7 million, helped increase capacity in four fertilizer plants, helping the country achieve a saving of scarce foreign exchange. Trombay IV, however, experienced prolonged commissioning problems in spite of the involvement of competent and experienced internationally-known engineering and process firms. Subsequently, a satis- factory program was developed to overcome the problems and most of the technical deficiencies have already been overcome. By March 1982, when the - 38 - program is expected to be completed, the Project should be able to increase its capacity utilization to a high level. Inspite of project delay and cost overrun, the Project is still economically viable, it has introduced effectively advanced nitrophosphate technology in the country and its foreign exchange saving effect on the Indian economy has been significant. Thus, the Project has successfully met its basic objectives. - 39 - Annex 1 INDIA - TROMBAY IV FERTILIZER PROJECT FERTILIZER PROJECTS FINANCED BY BANK GROUP Project Amount of A. International Finance Corporation Date of Signing Financing (US$ million) 1. IEL Kanpur April 1967 11.5 2. Zuari - Goa March 1969 18.9 3. DFPC - Deepak Jan. 1980 8.54 B. International Development Association 1. FACT - Cochin II July 1971 20.0 2. FCI - Gorakhpur Jan. 1972 10.0 3. FCI - Nangal Feb. 1973 58.0 4. FCI - Trombay IV and POIP May 1974 50.0 5. FCI - Sindri Nov. 1974 91.0 6. Fertilizer Industry Credit Dec. 1975 105.0 7. KRIBHCO - Hazira Oct. 1981 400.0 C. International Bank for Reconstruction and Development 1. IFFCO - Phulpur Jan. 1975 109.0 Industrial Projects Department November 1981 ORGANIZATION CHART DURING PROJECT IMPLEMENTATION OF TROMBAY IV EXPANSION GENFRAL PROJECT MANAGER CHIEF ENGINEER CHIEF__ENGINEER_CHIEF ENGINEER FINANCE ICIVIL) MANAGER O AREA MANAGER AREA MANAGER ASSISTANT CHIEF AREA MANAGERS STEAM GENERATION DEPUTY CHIEF DEPUTY CHIEF DEPUTY CHIEF BAGGING AND ENGINEER A.N.P WATER TREATMENT ENGINEER ENGINEER DEPUTY MATERIALS ENGINEERS DEPUTY FINANCE PRODUCT HANDLING (COORDINATION) NITRIC ACID PLANTS PLANTS ELECTRICAL (INST) MANAGER ICIVIL MANAGER YARD PIPING, ETC. ASSISTANT CHIEF A.C.E ASSISTANT CHIEF ASSISTANT CHIEF AMMCE.s PEENG INEER M.'ACCOUNTS OFFICERS/ INDUSTRIAL ENGINEERS AE( RL) ENGINEERS A.CFs AUNTSOFFICERS ENGINEER FE. JEs PEs JE.-Js J.E s - -- sl J.E.'s JEs - WarM Bank -237 ORGANIZATION CHART DURING COMMISSIONING OqF TRMBAY IV PLANTS_ GEN 14;ANAGER CHIEFF ENIGINEIER JEER FINANCE MANAGER DEPU CHEF OORINAION COORDINATION COORDiNATION COORDINATION DEPUTGIEF PROAGRANRJECT CORIAINMANAGE MANAGER MANAGE R D)EPUTY C.E. DEPUTY MATERIALS DEPUTY FINANCE EGIEER CORIA10)A NITRICNACID PANT A STEM T Ol GA(NT MANAGER MANAGER GENERATION PLANT PLANT MANAGERS PLANT MANAGER ASSATMTRA E ELCT) LANENGIsNEE PLANTENGINEERS PLNEGER PFsMANAGERS ACCOUNRSOOFFICERS/ J.E.'s A,P Es A.P.E.s Is J,Es _ A. sM.0 I'sUNO FFC R J E.'s .LE.' A. . World Bank - 2339.6 TROMBAY IV PROJECT IMPLEMENTATION SCHEDULE 1974 1975 1976 1977 1978 1979 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1t 2nd 3rd 4th _t 2nd 3rd 4th 1. BASIC AND DETAILED ENGINEERING SERVICES Ple a mm OF MAIN PLANTS 2. EQUIPMENT /MATERIAL .. PROCUREMENT M 3. EQUIPMENT /MATERIAL gg DELIVERY AT SITE U - 4. CIVILWORKS S. EQUIPMENT AND PI;ING ' etalt Hll Ila 9A2II 511- 6. TESTING AND ge msma i COMMISSIONING s m m 7. COMMENCEMENT OF 4/177 COMMERCIAL PRODUCTION --1/7/ 1ll1li AS PER AS PER REVISED APPRAISAL REPORT SCHEDULE DRAWING AFTER THE FINALIZATION OF g m f ACTUAL ENGINEERING CONTRACTORS World Bank -.2339q - 43 - Annex 5 INDIA - TROMBAY IV FERTILIZER PROJECT 1/ SOURCES OF PROCUREMENT USING IDA CREDIT US$ Equivalent % of Currency (in '000) IDA Amount US Dollars 26,562.9 53.13 Pounds Sterling 5,708.0 11.42 Swedish Kroner 4,061.6 8.12 Japanese Yen 3,948.0 7.90 Netherlands Guilders 3,035.0 6.07 Canadian Dollars 2,890.4 5.78 French Francs 1,692.2 3.38 Italian Lira 996.8 1.99 Danish Kroner 811.6 1.62 Finnish Markkaa 140.0 0.28 Austrian Schillings 76.1 0.15 Australian Dollars 34.9 0.07 Deutsche Mark 17.7 0.04 Norwegian Kroner 14.6 0.03 Irish Pounds 9.4 0.02 Belgian Francs 0.8 - 50,000.0 100.00 1/ Including US$6.7 million for the Plant Operation Improvement Project. Industrial Projects Department November 1981 -44- Annex 6 INDIA - TROMBAY IV FERTILIZER PROJECT PROJECT COST SUMMARY (in million Rupee) a/ b/ Appraisal Estimates Actual Local Foreign Total Local Foreign Total Z Chanse a/ 1. Nitrophosphate Plant 78.1 77.7 155.8 105.5 93.5 199.0 + 28 2. Nitric Acid Plant 43.1 48.6 91.7 59.0 85.2 144.2 + 57 a/ 3. Other Equipment:- - Steam Generation 17.6 6.5 24.1 77.0 0.7 77.7 + 222 - Water Treatment 1.7 0.6 2.3 10.5 - 10.5 + 357 - Cooling Towers 5.0 1.9 6.9 8.7 1.4 10.1 + 46 - Bagging and Product Storage 16.9 4.1 21.0 27.3 2.4 29.7 + 41 - Raw Material Handling and Storage 17.9 3.5 21.4 12.1 . 1.4 13.5 - 37 - Yard Piping and By- Product Disposal 7.4 3.4 10.8 10.9 4.7 15.6 + .44 - Electrical Installa- tion 7.3 3.4 10.7 14.1 3.9 18.0 + 68 - Water Supply System 2.3 0.6 2.9 2.4 - 2.4 - 17 - Storage Tanks for Acid, CO2 m. Nitrate etc. 15.2 6.4 21.6 15.6 7.3 22.9 + 6 - Railway Tracks 3.6 1.3 4.9 3.8 - 3.8 - 22 - Locomotives 2.3 1.2 3.5 3.7 - 3.7 + 6 - Fire Fighting 1.3 0.6 1.9 0.5 - 0.5 - 74 - Liquid Effluent Disposal System 2.8 1.2 4.0 10.1 0.1 10.2 + 155 4. Miscellaneousc/ - - - 3.0 - 3.0 - 5. Spares 7.5 12.2 19.7 15.7 19.8 35.5 + so 6. Non Plant Civil Works- 6.0 - 6.0 5.7 - 5.7 - 5 7. Project Management 12.0 4.8 16.8 28.9 - 28.9 + 72 8. Contingencies-: Physical (10.0) (8.0) (18.0) 2.8 3.2 6.0 - Price (31.0) (22.0) (53.0) - - - - 248.0 178.0 426.0 417.3 223.6 640.9 + 50 9. Working Capital 12.0 8.0 20.0 35.2 - 35.2 + 76 10. Employees' Housing 3.0 - 3.0 - - - + Total Project Cost 263.0 186.0 449.0 452.5 223.6 676.1 + 51 11. Interest During Construc- tion 30.0 - 30.0 67.4 - 67.4 + 125 Total Financing Required 293.0 186.0 479.0 519.9 223.6 743.5 + 55 a/ Cost including civil works, duties, taxes, engineering fees and contingencies. b/ As of June 30, 1979. c/ Unallocated capital stores. / Includes site works and non plant buildings. e/ Appraisal contingencies have been prorated to the various categories; as of June 30, 1979 there was Rs 6.0 million equivalent earmarked for plant improve- ment. Industrial Projects Department November 1981 - 45 - Annex 7 INDIA - TROMBAY IV FERTILIZER PROJECT 1/ DISBURSEMENT OF IDA CREDIT Calendar Year ------Appraisal Estimates---------- -------------Actual--------------- and Quarter Quarterly Cumulative Cumulative % Quarterly Cumulative Cumulative % 1974 - IV 2.0 2.0 4.0 - - 0.0 1975 - I 3.0 5.0 10.0 1.5 1.5 3.0 II 6.0 11.0 22.0 1.1 2.6 5.2 III 6.0 17.0 34.0 0.7 3.3 6.6 IV 8.0 25.0 50.0 0.7 4.0 8.0 1976 - I 7.0 32.0 64.0 2.6 6.6 13.2 II 6.0 38.0 76.0 2.3 8.9 17.8 III 4.0 42.0 84.0 9.3 18.2 36.4 IV 4.0 46.0 92.0 3.5 21.7 43.4 1977 - I 2.0 48.0 96.0 3.7 25.4 50.8 II 2.0 50.0 100.0 7.3 32.7 65.4 III - - 100.0 1.1 33.8 67.6 IV - - 100.0 1.5 35.3 70.6 1978 - I - - 100.0 3.1 38.4 76.8 II - - 100.0 1.6 40.0 80.0 III - - 100.0 0.4 40.4 80.8 IV - - 100.0 1.4 41.8 83.6 1979 - I- - 100.0 5.0 46.8 93.6 II - - 100.0 1.7 48.5 97.0 III- - 100.0 0.5 49.0 98.0 IV - - 100.0 - 49.0 98.0 1980 - I- - 100.0 0.8 49.8 99.6 II - - 100.0 0.2 50.0 100.0 1/ Including US$6.7 million for the Plant Operation Improvement Program. Industrial Projects Department November 1981 -46 - Annex 8 INDIA - TROMBAY IV FERTILIZER PROJECT BUILD-UP OF PRODUCTION Monthly Output (tons) 1978 1979 1980 1981 1982 Nitric ANP Nitric ANP Nitric ANP Nitric ANP Nitric ANP Year Acid Product Acid Product Acid Product Acid Product Acid Product January - - 15,396 14,388 14,364 20,362 21,023 24,020 16,610 18,880 February - - 12,723 12,558 11,461 10,737 16,138 21,643 18,100 21,482 March - - 19,002 16,966 16,998 16,707 19,510 26,000 19,997 29,311 a/ April 5,296 - 13,821 13,365 7,439 10,527 10,771 11,782 a/ May 1,851 130 11,591 15,355 19,545 22,293 20,385 26,930 June 1,230 1,784 12,496 13,942 11,167 15,244 20,211 24,146 July 5,884 5,746 17,178 19,082 9,314 19,873 15,242 17,717 August 5,460 5,616 17,628 15,629 19,854 21,742 17,856 20,276 September 7,101 10,883 14,568 19,473 17,616 21,472 22,143 24,350 October 28,096 19,660 17,725 19,748 19,113 24,500 14,985 18,966 c/ C/ November 15,980 14,007 14,696 16,233 - - 16,610 19,480 December 17,867 20,400 14,800 18,925 18,905 15,783 17,792 21,866 88,765 78,226 181,624 195,664 165,776 199,240 212,666 257,176 a/ Testing of the nitric acid plant was started April 1978. b/ Testing of the ANP plant was started May 1978. c/ The plants were closed for maintenance. Industrial Projects Department November 1981 - 47 - Annex 9 INDIA - TROMBAY IV PROJECT FINANCIAL RATE OF RETURN (in million 1980 Rupees) Capital Working Fixed Variable Net Cash Year Cost Capital Cost Cost Revenues Flow 1974/75 136 - - - - (136) 1975/76 150 - - - - (150) 1976/77 462 - - - - (462) 1977/78 153 - - - - (153) 1978/79 38 41 10 58 104 (43) 1979/80 4 - 53 326 545 162 a/ 1980/81 4 - 59 390 621 168 a! 1981/82 10 - 62 510 850 268 a! 1982/83 1 - 63 571 936 301 1983/84 - - 65 571 931 295 1984/85 - - 67 571 927 289 1985/86 - - 68 571 923 284 1986/87 - - 70 571 919 278 1987/88 - - 83 571 915 261 1988/89 - - 85 571 882 226 1989/90 - - 87 571 882 224 1990/91 - (41) 88 571 882 264 Financial Rate of Return = 15.2% a/ ANP Rehabilitation scheme. Industrial Projects Department November 1981 - 48 - Annex 10 Page 1 INDIA - TROMBAY IV PROJECT RCF INCOME STATEMENTS (Year ending March 31) 1975 1976 1977 1978 1979 1980 1981 Sales 530 542 735 778 1188 2005 2461 Cost of Goods Sold 410 524 639 674 1063 1824 2214 Gross Profit 120 18 96 104 125 181 247 Selling Expenses 13 13 14 17 - - - Interest on L.T. Loan 8 11 9 8 44 69 72 Prior Period Adjustments (2) (8) 3 (10) - (2) 10 Profit (Loss) Before Tax 101 (14) 76 69 81 110 185 Income Tax Net Income 101 (14) 76 69 81 110 185 a/ For Trombay Unit of FCI up to 1978 and RCF for 1979 onwards. Industrial Projects Department November 1981 - 49 - Annex 10 Page 2 INDIA - TROMBAY IV PROJECT RASHTRIYA CHEMICALS AND FERTILIZER COMPANY a/ HISTORICAL BALANCE SHEETS (million Rupees) (Year ending March 31) 1975 1976 1977 1978 1979 1980 1981 Current Assets Cash 2.5 5.8 0.8 0.9 4.0 123.2 7.1 Accounts Receivable 17.6 0.6 36.4 69.8 257.0 231.4 445.9 Raw Material Inventory 56.9 35.2 13.1 31.7 412.8 565.3 534.5 Finished Goods Inventory 92.5 134.9 107.1 77.7 - - - Other 104.2 123.7 151.9 171.7 61.4 81.0 124.3 Total Current Assets 273.7 300.2 309.3 351.8 735.2 1,000.9 1,111.8 Investments and others - - - - 20.1 8.4 0.5 Fixed Assets Work in Progress 128.7 214.4 711.5 988.5 745.0 1,185.4 1,891.8 Gross Fixed Assets 604.6 704.4 724.5 780.5 941.2 1,128.5 1,197.6 Accumulated Depreciation 388.6 422.6 445.5 476.2 49.2 157.6 269.2 Net Fixed Asets 344.7 496.2 990.5 1,292.8 1,637.6 2,156.3 2,820.2 Total Assets 618.4 796.4 1,299.8 1,644.6 2,392.3 3,165.6 3,932.5 Current Liabilities c/ c/ c/ Accounts Payable 117.7 66.3 107.5 111.7 318.4 535.6 597.7 Current Portion of L.T. Debt 23.8 14.4 0.1 0.1 - S.T. Debt - - - - Total Current Liabilities 141.5 80.7 107.6 111.8 318.4 535.6 597.7 Equity Paid in Capital 201.6 339.5 569.8 921.9 1,405.4 1,674.8 2,174.8 Retained Earnings 130.8 114.8 188.0 (13.3) 56.3 133.2 275.0 Total Equity 332.4 454.3 757.8 908.6 1,461.7 I,Sg.0 2,449.8 Total Liabilities and Equity 618.4 796.4 1,299.8 1,644.6 2,392.3 3,165.6 3,932.5 RATIOS Current Ratio 1.9 3.7 2.9 3.1 2.3 1.9 1.9 L.T. Debt/Equity Ratio 30/70 37/63 36/64 41/59 30170 31/69 27/73 a/ For Trombay Unit of PCI up to 1978 and RCF for 1979 onwards. b/ Raw material and finished goods inventory. c/ Includes all current liabilities. Industrial Projects Department November 1981 - 50 - Annex 11 INDIA - TROMBAY IV FERTILIZER PROJECT OPERATING COST DATA AT 90% CAPACITY UTILIZATION IN 1985/86 (million 1980 US$) Cost per Unit Annual Annual Percentage Unit (US$) Consumption Cost of Total VARIABLE COSTS Ammonia tons 303 116,190 35.21 36.3 Phosphate rock tons 83 146,800 12.18 12.5 MAP tons 365 41,480 15.14 15.6 Associated gas 000 cu m 200 60,216 12.04 12.4 Chemicals and catalysts tons 7.17 7.4 Packing materials 5.41 5.6 Subtotal 87.15 89.8 Utilities Electricity MWh 37.38 111,806 4.18 4.3 Water a/ 000 cu m 250 3,508 0.88 0.9 Less steam export tons 22.07 133,800 (2.95) (3.0) Subtotal 2.11 2.2 Total Variable Costs 92.0 FIXED COSTS Labor and overhead 1.40 1.4 Maintenance 2.08 2.1 General administrative 2.63 2.7 Selling 1.75 1.8 Total Fixed Costs 7.86 8.0 Total Operating Cost 97.12 100.0 a/ Steam export from nitric acid plant. Industrial Projects Department November 1981 - 51 - Anaex 12 INDIA - TROMBAY IV FERTILIZER PROJECT ECONOMIC RATE OF RETURN (million 1980 US$) Capital Working Variable Fixed b/ Net Cost Capital Cost Cost Benefits Benefit 1974/75 14.9 - - - - (14.9) 1975/76 16.5 - - - - (16.5) 1976/77 51.3 - - - - (51.3) 1977/78 18.5 - - - - (18.5) 1978/79 4.5 4.9 25.6 6.0 37.7 (3.3) 1979/80 0.5 - 42.8 7.1 64.2 13.8 1980/81 0.5- - 52.8 7.5 80.6 19.8 1981/82 1.2-' - 68.9 7.9 104.0 26.0 1982/83 0.1a/ - 79.6 7.9 122.2 34.6 1983/84 - - 82.6 7.9 126.2 35.7 1984/85 - - 85.9 7.9 130.3 36.5 1985/86 - - 89.3 7.9 134.4 38.2 1986/87 - - 89.7 7.9 136.2 38.6 1987/88 - - 90.1 7.9 136.8 38.8 1988/89 - - 90.4 7.9 137.2 38.9 1989/90 - - 90.8 7.9 137.9 39.2 1990/91 (5.3) (4.9) 91.2 7.9 138.5 49.6 Economic Rate of Return = 16.8% a/ ANP Rehabilitation Scheme. b/ Include benefits from selling surplus steam from boiler to other plants in Trombay. At 90% operation 434,000 tons of steam would be sold to other plants. This does not include steam export from the nitric acid plant. Industrial Projects Department November 1981 > 0 lig 6 ' - O_ b-X ilt bm i \\ 7 - m- et -- 0 - - z - -IZO [ Zr-z en 1> j eez z-n - - rn r - - ~ - ¼.J - n r MIZORAM < N.fl u - |
Группа Всемирного банка · Project Performance Assessment Report
India - Fourth Trombay Fertilizer Expansion Project
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