Tanzania - Mwanza Textile Project

Document of The World Bank FOR OFFICIAL USE ONLY Repuwt No. 5187 PROJECT COMPLETION REPORT TANZANIA - MWANZA TEXTILE PROJECT (LOAN 1128-TA) June 29, 1984 Industry Department This docume_t has a resicted distnlbution ad may be used by recpients oly in the perfomnee of I eir official duti Its conte_t may n otherwise be disriosed withot World Bank autberizaton.  PRINCIPAL ABBREVIATIONS AND ACRONYMS USED Government = Government of Tanzania KFAED = Kuwait Fund for Arab Economic Development KILTEX = Kilimanjaro Taxtile Corporation mm = million me...ers MTP = Mwanza Textile Project (the Project, or Mill No. 2) MW = Megawatts Mwatex = M -anza Textiles Limited NDC = National Development Corporation NESP = National Economic Survival Program PIU = Project Implementation Unit SUNGURATEX = Tanganyika Dyeing and Weaving Mills Ltd. Tanesco = Tanzania Electric Supply Company TEXCO = National Textile Corporation TNT = Thousand Metric Tons COUNTRY EXCHANGE RATES Appraisal Year - US$1 = TSh 7.1 Investment Period - US$1 = TSh 7.1-9.4 Completion Year - US$1 = TSh 9.4  FOR OMCUIL USE ONLY PROJECT COMPLETION REPORT TANZANIA - NWANZA TEXTILE PROJECT (LOAN 1128-TA) Page No. Preface ........... .................................... i Basic Data Sheet ...................................... ii Highlights ............................................ iii I. INTRODUCTION ........................................... 1 II. PROJECT BACKGROUND ......................... 2 A. Project Preparation, APpraisal, Approval and Loan Effectiveness ..................... ............ 2 B. Project Description and Objectives................. 3 III. PROJECT IMPLEMENTATION AND MANAGEMENT . . . 3 A. Achievement of Project Objectives .. 3 B. Project Scope .. 4 C. Project Management .. 4 D. Training ........................................... 5 E. Use and Performance of Engineering Contractors and Consultants .. 5 F. Implementation Schedule .. 6 G. Procurement and Performance of Suppliers ........... 6 H. Environmental Aspects .. 7 I. Costs, Disbursements and Financing . . 7 IV. OPERATING PERFORMANCE .... 9 A. Production ......................................... 9 B. Market Development ................ . 11 V. FINANCIAL PERFORMANCE .... 12 A. Incremental Financial Rate of Return . . ............. 12 B. Financial Results .................................. 12 C. Financial Prospects . . ..................... 13 VI. ECONOMIC PERFORMANCE .... 14 A. Economic Rate of Return . . . 14 B. Foreign Exchange Savings and Earnings . . ............ 14 i document has a restricted distribution and may be used by rccipients only in the performanco their ofircial duies. Its cmntents may not otherwise be disclosed without World Bank autborzatiori  Table of Contents (Cont'd.) Page No. VII. INSTITUTIONAL PERFORMANCE ..... ....................... 14 VIII. BANIK PERFORMANCE .... 14 A. Overall Performance and Relationship with Borrower.... 15 B. Performance in Project Preparation, Formulation and Implementation ...................................................... 16 IX. CONCLUSIONS ............................................... 17 A. Overall Assessment .................................... 17 B. Lessons for the Borrower and the Bank for Similar Projects .............................................. . ..... 17 ANNWEXES 1 Implementation Schedule 2 Employment 3 Sources of procurement 4 Project Capital Cost - Plan and Actual 5 Project Disbursement Schedule (Cumulative) 6 Production and Revenue Losses due to Shortages of Power, Fuel and Water 7 Capacity Utilization and Technical Efficiency 8 Investment Costs - Mill No. 2 (the Project) 9 Incremental Financial Benefit - Mill No. 2 10 Financial Rate of Return Calculations 11 Hwatex Historical Balance Sheets 12 Mwatex Historical Income Statement 13 Shadow Price Calculations 14 Economic Revenue and Operating Cost Calculations 15 Economic Rate of Return Calculations 16 Excerpts from the Loan Agreement 17 Comments from the Kuwait Fund for Arab Economic Development  PROJECT COMPLETION REPORT TANZANIA - MWANZA TEXTILE PROJECT (LOAN 1128-TA) PREFACE Loan 1128-TA for the Mwanza Textile Project, in the amount of US$15.0 million, was signed in June 1975 and was closed in December 1981, US$0.5 million was cancelled. The project was cofinanced by the Kuwait Fund in the amount of KD4.5 million, of which KD1.6 million was not utilized. The main objective of the Loan was to finance the expansion of an existing integrated textile plant (Mwatex) in the cotton growing region of Mwanza, to satisfy the increasing domestic demand for woven cotton fabrics ic Tanzania. The Project Completion Report has been prepared by the Industry Department, based on a mission to Tanzania in November 1982. Comments received from the Co-financier are reproduced as Annex 17. No comments were received from the Borrower. This project has not been audited by the Operations Evaluation Department.  - ii. - PROJECT COMPLETION REPORT TANZANIA - MWANZA TEXTILE PROJECT (LOAN 1128-TA) BASIC DATA SHEET Amounts (in US$M) LOAN POSITION As of 3/31/84 Original Disbursed Cancelled Repaid Outstanding Loan 1128-TA 15.0 14.47 - 1.63 12.84 CUMULATIVE LOAN DISBURSEMENT 1975 1976 1977 1978 1979 1980 1981 1932 Ci) Planned 0.2 8.1 14.0 15.0 15.0 15.0 15.0 15.0 (ii) Actual 0.2 2.5 9.2 11.5 12.6 13.1 14.2 14.5 (iii) (ii) as Z of (i) 100 31 66 77 84 87 95 97 OTHER PROJECT DATA Original Actual or Loan Date Re-estimated Board Approval 06/75 06/03/75 Loan/Credit Agreement 06/75 06/19/75 Effectiveness 09/75 10106/75 Loan/Credit Closing 07/01/79 12/31/81 Borrower United Republic of Tanzaniz Executing Agency Mwatex/TEXCO Fiscal Year of Borrower 07/01-06/30 MISSION DATA No. of No. of Date of Month, Year Weeks Persons Manweeks Report Preappraisal 08-09/74 2 2 4 09/06/74 Appraisal 11/74 2 3 6 03/21/75 Supervision I 09/75 1 1 1 09/11/75 Supervision II 08/76 1 2 2 08/06/76 Supervision III 08/77 1 2 2 08/12/77 Supervision IV 05/78 1 1 1 05/18/78 Supervision V 10/78 1 2 2 10/15/78 Supervision VI 05/79 1 2 2 06/01/79 Supervision VII 11/80 1 1 1 01/13/81 Completion 11/82 1 2 2 06/20/83  - iii - PROJECT COMPLETION REPORT TANZANIA - MWANZA TEXTILE PROJECT (LOAN 1128-TA) HIGHLIGHTS The project consisted of a major expansion of a Government-owned textile mill in Mwanza in Western Tanzania. It was based on the Government textile sector plan developed in 1973 which had as a major goal the country's becoming self-sufficient in woven cotton fabrics based on the country's cotton resources. The project was completed seven months behind schedule with a cost underrun of 20X compared to appraisal estimates. Most of the delay was caused by inability to transport materials efficiently from Kenya due to the border being closed. Successful project implementation was largely due to the efficient project management provided by the Engineering Company and the Technical Advisor as well as cooperation and coordination provided by the Texco and Mwatex personnel (paras. 3.07-3.10, 3.14). The project met its main objective, increased textile output under efficient conditions, and availability of trained staff. However, shortly after successful commissioning, the mill suffered from shortages of power, water and fuel due to the generally depressed economic situation in the country and to a major technical problem in the power plant that supplies electricity to Mwatex. Production deteriorated during 1979-1982 and from November 1982 until mid-1983, the mill was closed due to lack of power. Production was resumed in mid-1983 (paras. 4.01-4.04). The project's viability is difficult to assess given the low output due to factors outside the mill's control. The FRR and ERR are calculated at 9.2% and 8.9% compared to appraisal estimates of 24.2% and 16.1%, respectively. The lower figures are a result of the low output during the 1979-1983 period and the expectation that the mill will only be able to achieve a two-shift operation instead of the forecast three shifts at appraisal due to a shortage of foreign currency required to purchase dyestuffs, chemicals and spare parts. At the time of project preparation, appraisal and approval, neither the Bank nor, for that matter, other donors, anticipated the severe difficulties which would face Tanzania's economy in the late 1970s and 1980s, and the foreign exchange problems which caused drastic shortages of fuel, power and imported input materials (paras. 5.01-5.04, 6.01-6.03). The most important lessons learned from the experience in this project were: (a) given adequate financial and human resources a project can be implemented within the appraised time schedule and capital costs, but subsequently it cannot be efficiently operated unless maintenance of infrastructure and foreign exchange required to cover the costs of imported inputs can be assured; (b) any project with no prospects for export earnings or dependable allocation of foreign currency and structurally requiring a significant amount of imported inputs for indefinite periods of time is highly vulnerable to foreign exchange constraints, and the risks associated wlth potential deterioration of the country's economy should have been taken into consideration at the time of appraisal (although this is obviously difficult to predict); and (c) the need to provide training on a long-term basis to provide trained local staff for operations without external assistance (para. 7.02).  PROJECT COMPLETION REPORT TANZANIA - M1ANZA TEXTILE PROJECT (LOAN 1128-TA) I. INTRODUCTION 1.01 Tanzania's textile industry which was virtually non-existent prior to 1965, grew rapidly during the subsequent ten years, and by 1975 accounted for about 25% of employment, 13% of value added and 11% of output in the manufacturing sector as a whole. By 1974, Tanzania produced about 76 million meters (mm) of woven fabrics accounting for about 67Z of domestic consumption (89% of cotton fabric consumption). 1.02 After the Arusha Declaration (February 1967), the Government adopted a policy of controlling and directing all major industrial activities, including textile manufacturing, through parastatal organizations. The major textile companies were incorporated into and operated as subsidiaries of the National Development Corporation (NDC). In January l974, all four large integrated textile companies, as well as the manufactmring of garments and Jute bags, were transferred from NDC to a new parastatal company, the National Textile Corporation (TEXCO). TEXCO was organized as a holding company controlling the majority of shares and exercising complete responsibility for overall management and production of its subsidiary companies, and planning and expansion of the sector. 1.03 Cotton, the major raw material of Tanzania's textile mills, is produced locally. Of an annual production ranging from 45 to 70 thousand metric tons (TNT), in 1974, less than 20% was consumed locally by the textile mills. The rest was exported, constituting Tanzania's second most valuable crop and export earner. In 1973, the Government developed a long-term industrial strategy aiming at a gradual restructuring of the economy by linking the pattern of production more closely to domestic resource availability and local demand. Within the framework of this policy, expansion of the textile sector was given high priority by the Government. The objective of the planned expansion was to enable Tanzania to become self-sufficient in woven cotton fabrics and achieve a small exportable surplus by 1980. The plan included elimination of production bottlenecks and minor expansion of Friendship, Kiltex and Sunguratex plants, and doubling of the capacity of Mwatex textile mill in Mwanza. 1.04 Early in 1974, the Government of Tanzania requested Bank financing to cover part of the foreign exchange expenditures for a project to expand the annual production of Mwatex by 20 mm to 43 mm per year. The project was appraised in September 1974 and approved by the Board in June 1975. The cost of the project was estimated at TSh 314 million (US$44.3 million equivalent). The financing of the foreign component included a US$15 million loan from IBRD and a US$15 million loan provided, on the basis of the Bank's appraisal of the project, by Kuwait Fund for Arab Economic Development (KFAED). Local financing was made available in the form of equity by TEXCO. The Mwanza Textile Project (MTP) was the Bank's first industrial investment in Tanzania. At the time, the only other Involvement of the Bank Group was a US$17.5 million IDA Credit approved in January 1971 to help finance a cotton cultivation development project in Geita District of the Mwanza region.  1.05 MTP (Mill No. 2) was completed in October 1978, i.e. with a minimal delay of about seven months, at lower cost than the appraisal estimates and achieved higher capacity utilization within the first three months of operation than forecasted. At that time, TEXCO requested, and on the basis of a detailed action program submitted by Mwatex, the Bank agreed that the unused balance of the Bank loan (US$2.2 million) should be used for proviston of spare parts and rehabilitation of the weaving and processing equipment in the original Mwatex plant (Mill No. 1). A similar arrangement was made regarding the unused portion of the KFAED loan regarding spinning equipment and at the time of the closing of the Bank loan (12/31/81) an additional US$1.7 million of the Bank funds and US$0.7 million of KFAED funds was spent for rehabilitation of the Mill No. 1. Also, TEXCO contributed TSh 4.7 million (US$ 0.5 million equivalent) for repairs of roofs and floors in Mill No. 1. 1.06 In 1979 and subsequent years, Mwatex experienced severe operational problems due to shortages of fuel, power and water in the Mwanza region. Shortages of fuel and power in Tanzania have been wide-spread in recent years due to the critical foreign exchange situation. In the case of Mwatex, the situation has been exacerbated because of the plant's location at the end of a 600-mile long single track railway from Dar-es-Salaam, and repeated failures of the newly erected, Nyakato power station nearby (Mwatex's source of electricity) due to technical problems (para.4.02). 1.07 In addition to MTP, TEXCO has invested in five other textile projects, four of which are still under construction. Currently, the sector, due to acute shortages of fuel, power and spare parts, is operating at about 40% of the installed capacity and the future prospects of the sector depend heavily on the success of the recently formulated National Economic Survival Program (NESP) and the Structural Adjustment Program for 1983/85. II. PROJECT BACKGROUND A. Project Preparation, Appraisal, Approval and Loan Effectiveness 2.01 The expansion of the Mwatex plant in Mwanza was part of the Government's policy to enable Tanzania to become self-sufficient in woven cotton fabrics. At the time the project was identified (April 1974), Mwatex was one of the best textile mills in the country with satisfactory operating performance and relatively high product quality. TEXCO, the parastatal organization fully owned by the Government and responsible for the textile sector, submitted to the Bank a well-prepared feasibility study carried out by a leading Pakistani textile manufacturing company. The MTP was preappraised in August 1974 and appraised in November 1974 (Appraisal Report No. 743-TA dated May 5, 1975). 2.02 At the time of appraisal of MTP, there were two major issues of concern to the Bank. The first related to the Government's plans to proceed with construction of a new textile plant at Musoma, construction of which was scheduled to be concurrent with the expansion of Mwatex. The Bank's position was that before embarking on another major project in its textile industry, Tanzania should undertake a special market and marketing study to establish the long-range market potential for its cotton fabrics. The Bank was also anxious to impress upon the Government that, because of resource constraints  and shortage of trained technical personnel, Tanzania would be well advised to develop the textile industry at a more realistic pace. The second, related to TEXCO's intentions to award the project engineering contract for implementation of the MTP to a Pakistani firm despite the fact that the company had never executed or operated a project outside its own country. The first issue was resolved as the Government agreed to carry out a study of the possibilities of marketing textiles manufactured in Tanzania in other countries and applying the conclusions of such a study to any major future expansion of the textile industry. On the second issue, the Bank agreed to the appointment of the Pakistani firm as the Engineering Company responsible for the implementation of the project, provided that, in addition, TEXCO would employ an experienced textile consulting company to act as a Technical Advisor to provide specialized assistance and supervise the implementation of the project on behalf of the sponsors. TEXCO agreed to this approach. The loan was subsequently approved by the Bank's Executive Directors on June 3, 1975 and became effective October 6, 1975. B. Project Description and Objectives 2.03 The project consisted of the expansion of an existing integrated textile plant (Mill No. 1) at Mwatex in the cotton growing region of Mwanza, about 600 miles north-west of Dar-es-Salaam. The project (Mill No. 2) was built adjacent to Mill No. 1 on land already owned by Mwatex. The project added 27,648 spindles and 578 looms to the existing facilities, as well as related bleaching, mercerising, dyeing and printing equipment. Civil works consisted of construction of about 23,000 m of covered floor space, addition of two 1.5 NW transformers and two extra boilers, each with capacity to generate 6 tons per hour of steam. The main objective of the project was to increase the annual spinning capacity from 3,360 to 6,540 tons of yarn and weaving and finishing capacity from 23 to 43 million meters to provide additional 20 million meters of woven cotton fabrics for the domestic market. The project's objectives also included improved capacity utilization and a training program designed to train a sufficient number of qualified staff of Mwatex in textile technology and implementation of a study of the possibilities of marketing textiles manufactured in Tanzania in other countries (para. 2.02). III. PROJECT INPLEMENTATION AND MANAGEMENT A. Achievement of Project Objectives 3.01 The civil works were finished in May 1978, and MTP was mechanically completed in October 1978 and commissioned in December 1978, about nine months behind schedule (Annex 1). The delay was mostly due to the problem of transportation of building materials, specifically steel structures, across the Tanzania-Kenya border which was closed, due to political reasons, in February 1977. As stated above, a key objective of the project was to improve overall capacity utilization. Early in 1974 prior to project appraisal, a four-shift (168 hours/week) operation was introduced in all TEXCO textile mills, including Mwatex, and capacity of the new facilities was calculated accordingly. However, the four-shift operation was abolished after two years due to the reluctance of the labor force to work on Sundays as well as negligible production gains, and in 1977 all mills converted to a six-day (144  hours) week. Consequently, the new mill at full capacity could produce 2,726 tons of yarn and 17.1 million meters of fabric. In the first three months of operations (January-March 1979), the yarn and fabric production from Mill No. 2 amounted to 594 tons and 3.7 mm. On this basis, the overall capacity utilization in the first three months of operation was about 87%, i.e above the appraisal estimates. But subsequently in 1979-81, due to shortages of fuel, power and water, the capacity utilization deteriorated to about 50-60%. At the same time, the technical efficiency of the mill, whenever it was operating, was satisfactory and only in one department (weaving) slightly below the appraised estimates. 3.02 Another objective of the project-carrying out of a training program--has been implemented and altogether about 130 mechanics, supervisors and technologists have been successfully trained locally, and 14 outside the country. Finally, studies of the textile market and the feasibility of the cotton-polyester plant were completed in June 1977 and resulted in identification and eventually financing by the Bank of the next textile project in Tanzania (Morogoro Textile Project - SAR 1893a-TA). B. Project Scope 3.03 There were no significant deviations from the appraised scope of the project. However, because of an underrun in the cost of the project, about US$2.9 million was used for the rehabilitation of the equipment and buildings in Mill No. 1. The rehabilitation of the equipment and supply of spare parts for Mill No. 1 was technically and economically justified and agreed to by the Bank. C. Project Management 3.04 For the purpose of the project implementation, TEXCO formed a small Project Implementation Unit (PIU) composed of three officials with a background and some experience in civil works, textiles and finance. TEXCO entered into a contractual arrangement with the Pakistani firm (para. 2.02) to act as the Engineering Company to implement the project, including design and engineering, procurement, construction, erection, start-up and initial operations, and personnel training. In addition, TEXCO retained an experienced textile consulting firm from Switzerland as Technical Advisor. The main responsibility of the Technical Advisor was to assist the TEXCO PIU and management of Mwatex in supervising the work of the Engineering Company, specifically developing the plant and machinery design, procurement of equipment, construction activities, training of management personnel and commissioning of the new mill. The decision to use a Technical Advisor appears to have been a right one, as the personnel of the PIU was not fully adequate to manage all project implementation activities by themselves. Eventually the local staff involved were assigned to other tasks, so the implementation of the project was supervised by the staff of the Technical Advisor reporting directly to the Managing Director of TEXCO. The lesson learned from this experience is not a new one. By using enough qualified expatriate assistance, a project has been implemented in a relatively timely fashion and within the approved budget, but its contribution to institution building, i.e assisting the country in developing capability to plan and implement new projects has been limited, mostly because of a shortage of qualified personnel.  -5- D. Training 3.05 The most recent data (9/30/82) indicated that the staff of mwatex was 3,624, up from 2,400 at the time of the project ldentification In 1974, below the high of 4,186 in 1978, and very close to the appraisal projection of 3,600 (Annex 2). In order to cope with its expanded activities, TEXCO has developed, in cooperation with the Engineering Company and the Technical Advisor, a detailed job-related training program for the operators, supervisory personnel and management which was accepted by the Bank in September 1976. The program included on-the-job training for additionally recruited operators as well as specialized training for mechanics, foremen and supervisors. Also, selected high school graduates were sent to Pakistan College of Textile Technology in Lyalpur, Pakistan for a specially designec 3-month training program. In addition, seven suitable candidates were sent to textile colleges in UK and FRG. 3.06 The on-the-job training program of the operating personnel over a three-year period (1977-79) covered 1,043 people. About 40 mechanics, 25 foremen and 75 supervisors were trained by the staff of the textile machinery equipment procured for the project. Also, 14 staff members were trained In Pakistan and seven obtained Higher Diplomas in Textile Technology from colleges in UK and FRG. The total cost of training amounted to TSh 3 million, plus US$0.3 million in foreign exchange. The program can be considered as only partly successful as it has not produced enough highly qualified weavers as reflected in somewhat lower than appraised technical efficiency of the weaving mill, and occasionally, low capacity utilization due to shortage of weavers. An important lesson for any future textile project is that the problem of training a sufficient number of highly skilled weavers, in view of the critical importance of their performance on the efficiency, capacity utilization of the plant and quality of the product, has to receive special consideration in formulation of the training program. E. Use and Performance of Engineering Contractors and Consultants 3.07 The cooperation between TEXCO, the Engineering Company and the Technical Advisor, and the management of Mwatex was quite successful as indicated by the underrun in costs and a relatively short delay in the completion of the project. The supervision missions also reported that the management of TEXCO expressed satisfaction with the progress of the work and the performance of the consultants' personnel, and recognized that the Bank's insistence that both an Engineering Company and a Technical Advisor had to be used during project implementation was essentially correct. 3.08 The performance of the Engineering Company was satisfactory as it was able to call on the manpower and experience of its operating companies in Pakistan. Their main strength was a good experience in textile technology and civil engineering, and they were able to maintain good relations with local contractors, local labor and Mwatex and TEXCO management. However, their knowledge of foreign equipment was limited to the types used in Pakistan and assistance of the Technical Advisor with their international experience was most useful in procurement activities. In addition to supervising and assisting the Engineering Company, the Technical Advisor was most helpful in dealing with Government authorities regarding the problems of transportation  -6- of material from Dar-es-Salaam to Mwanza, the power and water authorities, keeping of records and report writing. Essentially, in view of the relative weakness of the TEXCO team, the Technical Advisor also acted as the management agent and coordinated all aspects of the implementation. They have performed their work well and were awarded a contract (Part C of the project) for a marketing study and feasibility study of the cotton-polyester plant. The total cost of the engineering and technical assistance to the project (not including the studies) amounted to US$1.3 million, the same as projected in the appraisal estimates, and included about 1,200 man-weeks on the site. 3.09 As stipulated in Article 2(d) of the Project Agreement in August 1978, Mwatex entered into contractual arrangements for technical management of the expanded plant. The firm that was the Engineering C.ompany was also selected for this assignment. The original three-year contract was extended until August 1983. The management team consists of 12 expatriates (about 4X of the total number of personnel listed as administration and management) but including such key positions as Plant Manager, Technical Manager, Financial Manager and Department Heads. Within the limitations imposed by the shortages of power, water and fuel, the management team has been considered both by TEXCO and Bank missions to be doing an excellent job under very difficult circumstances. This has been particularly important because the performance of Kill No. I in the period 1976-1978 deteriorated very badly, due to a drastic reduction of the number of expatriate technicians and administrative personnel, imposed by the personnel localization policies of the Government. F. Implementation Schedule 3.10 The mechanical completion of MTP was seven months behind the appraisal schedule and the commissioning nine months behind schedule (Annex 1). Most of the delay was due to the political situation as the Tanzania-Kenya border, o-er which most of the construction (steel structure) material had to be transported, was closed in February 1977. Consequently, civil construction work was completed only in March 1978, about thirteen months behind schedule. Also, some problems were experienced with customs clearance of equipment in the port and the office of the Bank Representative in Dar-es-Salaam was most helpful in resolving the misunderstanding regarding the Government's waiving of custom duties on equipment for the Bank financed project. There was little problem with procurement and ocean freight but the local transportation from Dar-es-Salaam to Mwanza along single track railway provided some difficulties which resulted in a large amount of additional work in frequent changing of the erection schedules, but due to close cooperation between the Engineering Company and machinery suppliers, no additional delays took place. As a matter of fact, the interval between the completion of the civil works and mechanical completion was cut to five months as compared with seven months projected during appraisal. The commercial production started in December 1978, and in the first sixty days of 1979, the production of the new mill reached the completion requirement as stipulated in Article I(e) of the Loan Agreement. G. Procurement and Performance of Suppliers 3.11 Procurement of equipment and services was carried out in accordance with World Bank guidelines. Except for a few items that were proprietary equipment, about 95% of the contract was awarded through international  - 7 - competitive bidding (ICB) procedures_ All specifications, tender documents and instructions to the bidders were prepared by the Engineering Company, reviewed by the Technical Advisor on behalf of TEXCO, and approved by the Bank. Altogether, about 900 companies applied for prequalification and about 300 were prequalified in 35 categories. This included about 50 companies prequalified in six categories to supply spinning equipment financed by KFAED which had adopted identical procurement procedures. Although the contracts were awarded to companies in 12 countries, the top three (Japan, FRG and Switzerland) received 60% of the orders (Annex 3). As far as the civil works were concerned, two contracts were awarded through competitive bidding to local companies-one for site preparation and another for excavation, concrete and erection of the buildings. The steel structure was awarded through ICB to a Yenyan company. 3.12 Evaluation of the bids, award of the contracts and supply of equipment proceeded smoothly, and by the end of 1977 practically all machinery and equipment was delivered to the site. There were few problems with erection, performance tests and commissioning of the machinery and equipment. Only in one cate,ory (high speed cards) did the equipment procured by KFAED fail to reach the expected level of performance, and a few additional units had to be purchased as KFAED and TEXCO were not inclined to press claims against the supplier. During the whole procurement procedure, the Bank received only one complaint from a bidder on one package who claimed that the contract was unjustly awarded to a higher-priced competitor. A subsequent investigation indicated that the offer of this bidder was unresponsive and the complaint was withdrawn. H. Environmental Aspects 3.13 As there are no Tanzanian standards for pollution control, the project was designed to meet international standards for gaseous and liquid emissions. The new steam boilers were equipped with automatic regulating devices to ensure maximum combustion so as to control the discharge of carbon monoxide in the fuel gases. Similar modifications have been made in the existing boilers. The cards in the new mill were equipped with floor wLste exhaust filters and air filters have been installed in the spinning and weaving sheds to reduce the level of dust in the working areas. Additional settling tanks were installed to treat effluent from the converting operations, so the possibility of the waste being discharged into Lake Victoria has been eliminated. I. Costs, Disbursements and Financing 3.14 The cost of the project was US$6.1 million below the appraisal estimates (Annex 4). A summary comparison of the actual capital costs with the appraisal estimates is presented below:  -8- Mwatex - Summary of Project Costs (in US$ million) Appraisal Estimates Actual Cost Variance Local Foreign Total Local Foreign Total Engineering & Consulting 0.3 1.0 1.3 0.3 1.0 1.3 Nil Plant & Machinery 4.3 23.8 28.1 - 17.3 17.3 (10.4) Civil Works 4.5 1.9 6.4 7.7 4.0 11.7 5.3 Study & Training 0.1 0.3 0.4 - 0.4 0.4 - Working Capital 4.6 - 4.6 4.8 - 4.8 0.2 Interest During Construction 0.5 3.0 3.5 - 2.7 2.7 (0.2) Total Financing Required 14.3 30.0 44.3 12.8 25.4 38.2 (6.1) Actually, the cost of the project as appraised was US$35.3 million, but subsequently US$2.9 million was used for rehabilitation of Mill No. 1. The figures indicate that two significant differences between the appraisal estimates and the actual costs related to equipment and civil works. In the case of equipment, neither physical nor price contingencies were utilized, which accounted for most of the savings. There were three major reasons for lower than expected prices. One was the use of ICB procedures. For example, prices for similar equipment procured for a textile plant in a neighboring country in the same period, but procured on a negotiated basis, averaged 30-40% higher. The second is that in the general inflationary environment of the 1975-76 period, the years following the major increase in energy costs, the textile industry and its suppliers experienced acute economic difficulties resulting in a surplus capacity, lack of orders and low prices. On the other hand, the cost of the civil works exceeded the appraisal estimates, including contingencies, by 83%, mostly due to higher than expezted increases in the price of building materials and delays in construction due to the closing of the Tanzania-Kenya border. The third reason is the strong performance and cooperation of the Engineering Company and the Technical Advisor. 3.15 Allowing for one year delay, disbursement of the loan followed the pattern of the appraisal estimates (Annex 5) quite closely. The portion of the Bank loan related to the project (US$12.8 million) was disbursed by the end of 1979. Subsequent disbursements in the 1980-81 period were in connection with the cost of rehabilitation of Mill No. 1. The last disbursement was made on 02/01/82, one month after the loan was closed on 12/31/81, and the balance of US$0.5 million was cancelled in October 1982.  -9- 3.16 Financing for the project was provided from the following sources: Mwatex - Summary of Project Financing (in US$ million) Appraisal Estimate Source Total Actual Debt Equity Total TEXCO 14.3 - 12.8 12.8 IBRD 15.0 14.5 - 14.5 KFAED 15.0 10.9 - 10.9 Total 44.3 25.4 12.8 38.2 The actual amounts are lower than appraisal estimates due to the underrun in project costs. IV. OPERATING PERFORMANCE A. Production 4.01 The operating performance of Mwatex and MTP has been closely linked to the problems of shortages of power, fuel and water. Originally, Mwatex started operations in 1968, and, in 1970, achieved production of 12.3 mm which was gradually increased to 22.6 mm in 1974 and 22.7 mm in 1975, at which time Mi-1 No. I was operating at maximum capacity on 4 shifts (50 weeks per year, 168 hours per week). Dmring the period of project implementation, production of Mill No. 1 declined to 19.1 mm in 1976, and about 16 mm in 1977 and 1978. While the problems at the time appeared mainly to be due to lack of spare parts, poor maintenance, low productivity and a lack of qualified personnell/ (in 1977 and 1978, respectively), there was also a loss of about 0.3 mm and 2.0 mm of fabric production due to shortages of water, fuel and power. Problems with power supply were also mentioned in the Staff Appraisal Report. At the time of appraisal, the Tanzanian Electric Supply Company (Tanesco) was operating six 1.5 MW units at Nyakato (Mwanza), but had under construction an additional four diesel generators expected to be ready in 1976. This was projected to increase the supply of power from 7.5 to 22.5 MW, adequate to meet Mwatex's increased needs (from 5 to 10 MW), together with those of other consumers in the area. Supply of electric power sufficient to ensure the efficient operation of the Hwatex integrated textile plant was also made a Covenant of the Loan Agreement (Section 4.03), with the Borrower. 4.02 The expansion of Nyakato power plant was completed in 1978, but supply of power did not improve because of the worsening fuel supply situation. In the years 1979-81, power was cut repeatedly, and 9.8 mm total of potential Mwatex production was lost. Also, 6.0 mm of production was lost due to water shortage as the municipal pumping station was incapacitated due to the lack of power and spare parts. In addition, 7.4 mm of production was lost due to direct shortage of fuel to operate Mwantex's boilers for steam generation. Details of down time and resulting losses of production and revenues are presented in Annex 6. 1/ The number of expatriates was drastically reduced at the end of 1974 when the contract with the textile consulting firm managing the plant was terminated.  - 10 - 4.03 The Bank missions which visited the Mwanza project in 1979, 1980 and 1981 reported alarming deterioration of the operating performance of Mwatex due to shortages of power, fuel and water, and the most unsatisfactory state of affairs was being highlighted in the Project Progress Reports. Several letters were sent by the Mwatex management to TEXCO pointing out the loss of production and heavy financial losses in 1979, 1980 and 1981. Similar letters were sent to TEXCO from the Bank and copies to the Principal Secretaries in the Ministries of Industry and Finance, but in view of the wide-spread shortages of fuel and power in the country, no remedial actions were taken by the Government, and it has become apparent that it may not be realistic to expect the Government to be able to honor its commitments to the Bank regarding supply of power to Mwanza until there is a general improvement in the economic situation of the country. Actually, the problems of Nyakato power plant have not been limited to the shortage of fuel. The last supervision mission (November 1982) learned that from the time the plant was commissioned in 1978, the generators had been repeatedly stopped for adjustments to eliminate vibration, and prolonged stoppages were necessary to realign the crankshafts. Finally, in 1962, the problem was traced to faulty foundations and the plant was closed for major rehabilitation, including rebuilding of the foundations and regrinding of the crankshafts. The work was expected to be completed in stages during 1983, which would allow Mwatex to operate one shift beginning in March, two shifts in June and reinstate full production in November 1983. (This schedule may be optimistic due not only to power problems, but also to other problems such as lack of foreign exchange for procurement of spare parts and dyestuffs). In the meantime, output of the old Nyakato plant is down to 5 MW which is barely sufficient to satisfy the domestic needs of the consumers in the area. It is to be noted, however, that the existence of the technical problems at Nyakato were not communicated by Tanesco to Mwatex or TEXCO until late 1982, and during the entire period, all concerned were under the impression that power interruptions were entirely due to shortage of fuel. 4.04 In the first three months of operation of the MTP (January-March 1979), the project achieved 86.5% capacity utilization. Subsequently, due to shortages of power, water and fuel, the production deteriorated and for all of 1979, the project operated at 64.3% capacity utilization. In 1980 and 1981, the capacity utilization was further reduced to about 50%. In 1982, Mwatex was non-operational most of the time and finally production was completely discontinued on October 14, 1982, following the closing of Nyakato for major repairs (para. 4.03). It is important to point out, however, that during the operational period of the MTP (Iill No. 2) the technical efficiency in the weaving mill was gradually improving, and in the spinning mill it remained close to 90% throughout 1979-1982, i.e. at the level exceeding the appraisal estimates which is considered excellent for developing countries. Also, while capacity utilization of Mill No. 1 has been deteriorating, the technical efficiency, as a result of the supply of spare parts and new management in the 1979-1982 period, had improved. A summary of Mwatex's operating performance is presented below, and details of capacity utilization and technical efficiency are shown in Annex 7:  Mwatex - Production of Woven Fabrics (in million meters) 1974 1975 1976 1977 1978 1979 1980 1981 1982 Mill No. 1 22.6 22.7 19.1 15.9 1-2.2 9.4 7.2 8.9 2.1 Hill No. 2 - - - - 3.9a/ 11.0 8.2 8.4 2.4 Total 22.6 22.7 19.1 15.9 16.1 20.4 15.4 17.8 4.5 a/ Trial runs. B. Market Development 4.05 Consumption of textile fabrics in Tanzania has shown a slower growth than expected at the time of the project appraisal. The Bank appraisal missions projected that the local production would reach 122 mm in 1982 and that the consumption would increase from 7.9 to 8.7 square meters per capita. Actually, while the capacity increased to about 144 mm2/, with the deteriorating economic situation of the country and ensuing shortages of energy and input materials, the production of textiles decreased steadily from the 73 mm produced in 1975, and in 1982 only 58 mm were produced. Also, due to foreign exchange restrictions, imports of textile products were drastically reduced and, in 1982, the fabric equivalent of the imports was about 24 mm. Apparent consumption was about 4.5 mm of cloth, about 5 square meters per capita, one of the lowest levels in the world. 4.06 To increase revenue and reduce consumption, the Government drastically increased the prices of textile fabrics and imposed high sales taxes amounting to over 100% of the value ex-factory. For example, a linear meter (116 cm wide) of printed fabric (Kitange) which at the time of appraisal sold for TSh 7.0, currently sells at TSh 32.5, including TSh 17.3 of the sales tax; while during the same time the average industrial wage increased from about TSh 3.0 to TSh 4.3 per hour. At the same time, the Government made an effort to develop foreign markets, but with the exception of a barter deal with Mozambique in 1979 and 1980, the exports to nearby countries amounted to 500-600 tons, worth about US$3 million. The details of production, export and imports are presented below: Tanzania - Apparent Supply of Textiles (in million meters) 1975 1976 1977 1978 1979 1980 1981 1982 Imports a/ 199 226 287 362 304 324 191 199 Exports a/ 19 26 10 14 104 138 30 22 Balance a/ (180) (200) (279) (348) (200) (196) (161) (177) Volume Equivalent 34 32 44 60 32 32 26 25 Production 73 66 63 72 73 67 62 58 Apparent Supply 107 98 107 132 105 99 88 83 Population (million) 14.8 15.8 15.6 15.0 16.5 17.0 17.4 18.0 Meters/Capita 7.2 6.2 6.9 8.8 6.4 5.8 5.1 4.6 a/ TSh million at current prices 2/ The Government's projections were 186 mm.  - 12 - 4.07 Textile consumption generally is a direct function of GDP and the above figure of decreasing per capita consumption reflects, in part, the difficult economic conditions now prevailing in the country. Even when the immediate utility problems of Mwatex are solved (para. 4.03), it is difficult to forecast a rapid return to full output at Mwatex or a dramatic increase in the overall textile sector's output until economic recovery is underway in Tanzania. V. FINANCIAL PERFORMANCE A. Incremental Financial Rate of Return 5.01 In order to evaluate the success of MTP in terms of financial rate of return (FRR), the effects of 'external- factors, i.e. factors outside the control of the project and plant management such as persistent shortages of fuel, power and water, have to be separated from the usual project parameters such as delay in implementation, number of shifts worked or variations in capital costs. Also, to calculate FRR, assumptions have to be made when MTP will be back in operation, and at what rate of capacity utilization. 5.02 Assuming a rapid resumption of power in 1983 and a full three-shift operation in 1984, FRR of the project would be 12.9% in constant terms. If, however, the "external" factors contributing to the shortage of fuel, power and water were removed, FRR would have been 21.3%, compared with the appraisal estimate of 24.2%. Other factors such as lower number of shifts worked and delay in commissioning had only a minor effect on reducing FRR and accounted for 1.7 and 2.3% decrease, respectively, in FRR, while lower than anticipated capital costs increased FRR by 1.1%. 5.03 It appears, however, that operation of MTP beyond a two-shift level is not likely until there is a significant economic recovery in the country. If the plant operates one shift for six months in 1983 and two shifts in 1984 and afterwards, which is a most likely scenario, then FRR would be 9.2%. On the other hand, if, due to the general economic situation in the country, only one-shift operation can be sustained, FRR would be 3.3%. 5.04 The assumptions and calculations of the FRR are, as shown in Annexes 8 through 10, based on the actual investment costs, the actual sales and production costs until 1982, and the projected sales and production costs from 1983 and onward. Annual net sales and production costs attributable only to NTP were not provided by Mwatex. The incremental net sales and production costs to the project have been estimated by prorating MTP's share of Mwatex fabric production with consideration for better quality products and lower average production costs of the new mill. The project cost and benefit streams are then adjusted to 1975 US dollars after incorporating changes in the foreign exchange rate. B. Financial Results 5.05 Detailed income statements and balance sheet statements of Mwatex are shown in Annexes 11 and 12, and summarized below:  - 13 - Mwatex - Selected Financial Data (in T Shillings million) 1975 1976 1977 1978 1979 1980 1981 Net Sales 17.7 115.0 105.2 104.1 176.9 140.8 189.9 Income After Tax 7.2 4.2 (4.2) (6.7) (25.8) (38.9) (24.2) Depreciation 7.5 7.2 7.4 8.3 29.8 25.1 23.6 Interest 3.5 1.4 0.4 0.5 16.6 19.3 17.2 Cash Flow (before tax & int.) 18.2 12.8 3.6 2.1 20.6 5.5 16.6 Current Assets 92.9 81.2 69.7 87.0 116.4 116.0 114.0 Total Assets 143.2 158.6 274.7 353.7 375.6 351.8 336.5 Current Liability 98.2 82.8 27.9 87.2 111.0 142.1 171.3 Long-term Debt 11.9 20.5 136.7 154.1 163.1 159.4 137.7 Equity 33.1 55.3 110.1 112.4 83.6 51.7 27.5 Debt Service 18.9 16.8 8.4 2.6 17.3 41.8 40.3 Ratios: - Current Ratio 0.9 1.0 2.5 1.0 1.0 0.8 0.7 Debt/Equity Ratio 26/74 27/73 55/45 58/42 63/37 76/24 83/17 Debt Service Coverage 1.0 0.8 0.4 0.8 1.2 0.1 0.4 5.06 The overall financial position of the company deteriorated from 1976 due to: (i) replacement of highly qualified expatriates in key operational and accounting positions with Tanzanian nationals, in some instances, of limited professional experience; and (ii) shortage of fuel, power and water in early years of operation of Mill No. 2 (the Project). The net profit fell from TSh 7.2 million in 1975 to a net loss of TSh 24.2 million in 1981. The debt/equity ratio decreased to 83/17 by 1981. Debt service coverage was below 1.0 most of the period, forcing the company to finance debt service payments with short-term borrowings. C. Financial Prospects 5.07 The company has not prepared financial projections, !n part, due to its present extreme difficulties. At present, TEXCO and ultimately the Government, is meeting the financial obligations of Mwatex. The company's short-term financial outlook is not good. However, the company's ability to service its debt is expected to improve in the near future, as it re-starts its operations. Annual debt service requirements of the company are currently estimated to be about TSh 40 million (US$4.4 million equivalent). The company can meet its minimum debt service requirements plus cash break-even if it achieves a capacity utilization of about 40% (one-shift with occasional t-bo-shift operation), which is likely to be achieved during 1984, at the earliest. By 1984, the company should be able to service its foreign debts at the present exchange rate, but a major devaluation, as well as the present high debt structure may require a restructuring of the company's finances. At the time of the completion mission (Nlovember 1982) none of these possibilities was being addressed by Mwatex or TEXCO and the mission was not able to obtain a full analysis on the future of the company. 5.08 The financial problems are not limited to Hwatex but exist in the textile sector as a whole, and the solution must be addressed by TEXCO. The November 1982 mission advised TEXCO that it should assess its overall  - 14 - operations considering the potential overcapacity (if and when all plants currently under construction are completed), the severe shortage of foreign exchange (for spares and chemicals), the social problem of laying-off workers, and try to develop a cost minimization operating scheme that would extend through the present economic period. The program should consider whether increased exports of yarn or cloth (not dyed) is possible, to assist TEXCO and the country in servicing at least part of its external debts. TEXCO undoubtedly would need significant levels of experienced consulting assistance in achieving this goal. VI. ECONOMIC PERFORMANCE A. Economic Rate of Return 6.01 The revised economic rate of return (ERR) for the project is 8.9%, compared to the appraisal estimate of 16.1%. The main reason for the lower return is lower than forecasted capacity utilization in the early years of operation due to the shortage of fuel, power and water, while other factors such as a longer than expected implementation period and a lower production capacity due to abolition of four-shift operation have only a minor effect on ERR. If the -external' factors contributing to the shortage of fuel, power and water during 1979-1983 were removed, the ERR would have been 14.2% compared with the appraisal estimate of 16.1%. The remaining deviation from the appraisal estimate results from a delay in commissioning of the project and the abolishment of four-shift operation, whose adverse impact on the ERR have been mitigated by the lower than estimated capital costs. 6.02 As with the FRR (para. 5.03), sensitivity tests on lower levels of operation were made. If the plant resumes operation on one shift-for six months in 1983,3/ two shifts in 1984 and afterwards, the ERR would be 4.8%. 6.03 The calculations of ERR are shown in Annexes 13 through 15. Financial cost and benefit streams are adjusted using economic shadow prices. The calculations of shadow prices are as follows: for tradable goods, economic prices are border prices (f.o.b. price for cotton and c.i.f. prices for fabric) For electricity, the economic price of US$0.078 per KWh is assumed. For non-tradables, i.e. mostly salaries and wages, a shadow price of 75% of the actual rate is assumed as in the Appraisal Report. Further, whenever applicable, transfer payments to the Government (custom duties and sales taxes) are excluded. Also, sensitivity tests on the effect of production costs indicated that an increase of 10% in annual production costs would lower ERR by 2.1%. B. Foreign Exchange Savings and Earnings 6.04 The foreign exchange savings and earnings in 1981, expressed in constant 1981 dollars, is estimated at US$3.3 million. This figure would be increased to US$4.0 million when full capacity operation is achieved. VII. INSTITUTIONAL PERFORMANCE 7.01 At the project level, the institutional performance of Mwatex has to be divided into three periods. The first was when Mill No. I was managed on a 3/ The plant reportedly resumed one-shift operation in May 1983.  - 15 - contract basis by an expatriate textile consulting company until early 1976. The second was when the company was operated by predominantly Tanzanian personnel until August 1978, and the third has been since August 1978 when both Mill No. 1 and 2 have been managed by an expatriate management team. During the first period, the mill achieved a high capacity utilization and technical efficiency, and 6% return on sales before taxes. During the second period, the number of expatriates was reduced from 23 to 8 people who were hired on individual contracts and responsible to the Tanzanian management. During that time, supervision, maintenance and labor discipline deteriorated markedly, resulting in a drastic decrease in production, quality and profits. As stipulated in the Project Agreement, since the completion of the MTP, Mwatex has been operated by the Pakistani management team and, within limitations imposed by power, water and fuel shortages, the performance of Mwatex has been considered satisfactory. Therefore, if the performance of a company is defined in terms of results achieved by a local management team, the rating of institutional performance of Mwatex would be quite low. On the other hand, all textile companies in Tanzania (except Friendship) are operated by expatriate management, as the qualified local personnel required to fill the key 15-20 technical, administrative and financial positions in the textile companies are not available locally. In this context, Mwatex compares well with other companies operated with expatriate management. 7.02 Also, the performance of TEXCO has been strongly affected by shortage of qualified personnel. At the time of appraisal, TEXCO employed twenty five expatriates on a contractual basis. These expatriates were later released and the Project Implementation Unit formed by TEXCO was not fully effective, so the supervision of the Engineering Company implementing the Project was carried out by the staff of the Technical Advisor, reporting directly to the Managing Director of TEXCO. More recently, TEXCO staff has been strengthened by a UNIDO team whose personnel are filling top technical, operational, merketing and financial positions. VIII. BANK PERFORMANCE A. Overall Performance and Relationship with Borrower 8.01 The Government of Tanzania requested Bank assistance for the textile sector in May 1974. Pursuant to this request, the subsector was included in the Industrial and Mining Sector Survey carried out by the Bank in September 1974. The Mwatex Project was appraised in November 1974, and Board Approval was granted in June 1975, 13 months after the formal request. In view of considerably longer loan processing time for other projects, 13 months interval for MTP from the date of the request to Board Approval shows that the Bank made a special effort to respond quickly to the Borrower's needs. The effort is especially significant as MTP was the Bank's first industrial project in Tanzania and also the first textile project ever undertaken by the Industry Department. 8.02 In order to expedite the implementation of MTP, the Bank agreed to use the same engineering firm which prepared the feasibility study, but prudently insisted that the capability of Mwatex and TEXCO to supervise the implementation of the project should be strengthened by retaining an experienced international company of textile consultants as Technical Advisor.  - 16 - 8.03 The Bank's relationship with Mwatex and TEXCO throughout project preparation and implementation was excellent and was aided by TEXCO's provision of a team of local professionals (the PIU) who provided liaison with TEXCO and the Government in the initial and most critical stage of the project. B. Performance in Project Preparation, Formulation and Implementation 8.04 The Bank helped to prepare the project by carrying out the sector survey, helping to establish priorities in the sector and identifying MTP as the project with the best chance of providing the needed additional production of textiles in the shortest possible time, and at relatively low cost. The Bank also made a valuable contribution to the success of the project by correcting some of the assumptions of the feasibility study regarding prices and equipment capacity, labor productivity, technical efficiency, as well as in preparation of tender documents, machine specifications and reviewing of the bid evaluation procedures. The Bank also assisted TEXCO in preparation of the terms of reference for the contracts with the Engineering Company, Technical Advisor and Textile Consultants who implemented the study of export marketing prospects, as well as the contract for Technical Management of the company after MTP completion. Finally, the Bank exercised a careful monitoring of the project progress reports, mounted six supervision missions during the 42-month period of project implementation, and assisted Mwatex in formulating a program of rehabilitating Mill No. 1, using the balance of IBRD and KFAED loans. 8.05 The Bank played an important and successful role in bringing in co-financing (para 1.04), to enable the project to proceed without delay and with minimum use of the Government's foreign exchange reserves. 8.06 The Bank correctly identified training as a key element, and a substantial training program was included. However, as indicated earlier, the amount of training should have been larger (para. 3.05). 8.07. On the debit side, the Bank failed to anticipate and made no attempts to ensure orderly localization of key personnel in TEXCO and Mwatex management, which, in retrospect, had rather deleterious effects on Mwatex and the entire textile sector. 8.08 At the sector level, the Bank had correctly raised the issue of the Government's plans regarding other expansions in the cotton textile sector (para. 2.02). After extensive discussions at all levels within the Bank on whether it was appropriate or feasible to set limits on expansion, the compromise language of Section 4.02 of the Loan Agreement was reached requiring the Borrower to carry out a study of export possibilities for Tanzania's textiles, and applying the conclusions of the study to any major expansion of the textile manufacturing industry (Annex 16). Although the letter of the covenant was followed, the spirit was not. In the ensuing years, in addition to the Bank sponsored Morogoro Textile Project, designed to satisfy Tanzania's need for polyester-cotton blends as recommended by the study, three other cotton text'le projects were undertaken by TEXCO with no apparent regard to the excess capacity being built. The Bank was not  - 17 - consulted and while it is not clear that a stronger position regarding sector planning and investment strategy was achievable in practical terms, at least a consultation clause on overall planning and development could have resulted in a continuous dialogue with TEXCO regarding limitations of the country resources and a realistic supply/demand balance of textile products. IX. CONCLUSIONS A. Overall Assessment 9.01 In the overall assessment of the project, a clear distinction has to be made between the implementation and subsequent operation of the project, especially as the onset of severe shortages of fuel, power and water coincided (beginning of 1979) with the completion of the project. The Mwanza Textile Project could be considered one of the best Bank projects in Tanzania in terms of implementation. Very close attention was paid to time schedule and cost control. Civil works, machinery procurement and training programs have been completed with minimum delay and, overall, within the appraised cost. The plant has a proven capability to produce cotton woven fabrics at low cost and relatively high efficiency, and quality suitable for domestic and export markets in neighboring countries. On the other hand, the plant still cannot be effectively operated without assistance of an expatriate management team. As a matter of fact, the appraisal mission anticipated that the plant would require foreign assistance after completion and an appropriate covenant (para. 3.09) regarding technical management was made part of the Project Agreement. However, neither the Bank, or, for that matter, other donors, adequately anticipated the severe difficulties which would face Tanzania's economy in the late 1970s and early 1980s, or the foreign exchange problems which caused drastic shortages of fuel, power, spare parts and other input materials which have been responsible for the subsequent operational problems in Mwatex and the entire textile sector. B. Lessons for the Borrower and the Bank for Similar Projects 9.02 Lessons learned from the experience in this project were: (a) given enough financial and human resources a project can be implemented within the appraised time schedule and capital costs, but it cannot be effectively operated unless maintenance of infrastructure and supply of vital inputs can be assured; (b) as far as infrastructure is concerned, the technical probles of Nyakato power plant could be considered force majeure but at the same time, the fact that electricity supply to Mwatex was dependent on the operation of a single power plant ratber than a multiplant grid was not taken into consideration in evaluation of major risks associated with the Project; (c) the risks associated with the condition of the water pumping station in Nwanza and its dependence on the power supply were not recognized; {d) a major reduction in the number of expatriates in Mwatex and TEXCO was not recognized as a major risk; in retrospect, a correct strategy should have been to establish and finance a major management training program and to localize the key positions in the sector more gradually until such a program was completed; (e) not enough attention was given to labor training, in particular the difficulties in training the adequate number of critically important weaving operators; (f) at the time of appraisal, Mwatex and the sector were operating  - 18 - at 168 hours per week (four shifts/seven days per week), and it was assumed by the appraisal mission that this would become the norm in the sector; the lesson here is that in Tanzania, as in many other developing countries, due to social pressures the operation of a seven-day working week is not likely to be achieved; and (g) the current deterioration of Tanzania's economic situation and, particularly, the drastic foreign exchange shortage, probably could not have been predicted in 1975; however, the lesson here is that any project with no prospects for export earnings or assured allocation of foreign currency and requiring a significant amount of imported inputs annually (dyes, chemicals and spare parts), is highly vulnerable to foreign exchange constraints, and risks associated with possible deterioration of the country's economy should have been taken into consideration. 9.03 In summary, implementation of the project itself has been successful mainly because Mwatex and TEXCO used expatriate help from established firms and worked harmoniously with them. The Bank, in addition to financing, has rendered valuable assistance in project identification, preparation and implementation. Neither TEXCO, Mwatex nor the Bank placed enough emphasis on using the presence of expatriates to train local management or to establish a comprehensive training program for technical, administrative and financial personnel. Also, the risks associated with the fragility of Tanzanian infrastructure and the foreign exchange situation were not recognized. Industry Department June 1983  TANZANIA MWANZA TEXTILE PROJECT Completion Report Implementation Schedule ~1-975 .976 1977 1978 1 979 MONTHS 0' 12 18 24 30 36 42 48 54 Deloi!ed Engineenng andDesign ConstructionWVork ..... .. .... ......... Procurement (FOB) - - Unbod:ng ond IrnoNl_ Tiansporloion Mochinery Erection ................ Trial Production Commercial Production . _ _ _ _ _m_m_i........ I July 1. 1975 Key - Approisol Estirntos s a a e Actuol Vd Br*-24770 Industry Department June 1983  - 20 - ANNEX 2 TANZANIA - MW& TEXTLER PROJECT PROJECT COI2=ETION REPORT Employment (Number of People) 1974 1975 1976 1977 1978 1979 1980 1981 Operators: Spinning 641 647 693 708 1,232 1,021 820 766 Weaving 961 972 984 1,030 1,689 1,669 1,793 1,746 Processing 509 505 510 513 833 768 767 724 Services, Engineering and Maintenance 72 74 87 99 147 156 197 314 Administration and Management 225 245 263 218 255 228 299 356 Expatriates 23 17 8 8 12 18 13 11 TOTAL 2,331 2,460 2,545 2,576 4,188 3,860 3,889 3,917 Cost of Labor and Management (Tsh Million) Operators: Spinning ) Weaving ) 17.6 19.8 20 1 21.4 25.1 33.6 33.8 40.9 Processing) Services, Engineering and Maintenance - - - - - - - Administration and Management ) 2.4 2.9 3.8 3.5 3.2 4.0 4.4 5.4 Expatriates ) Industry Department June 1983  - 21 - ANNEX 3 TANZANIA -MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Sources of Procurement Country US$ Equivalent Z of Loan Amount (in Thousands) Japan 4,729 31.6 Fed. Rep. of Germany 3,190 21.4 Switzerland 1,484 9.9 France 1,243 8.3 United Kingdom 824 5.5 Netherlands 799 5-3 United States 760 5.1 Pakistan 686 4.6 South Africa 466 3.1 Belgium 215 1.4 Denmark 57 0.4 Tanzania 15 0.1 Subtotal 14,468 96.6 Cancelled 532 3.4 Loan Total 15,000 100.0 Industry Department June 1983  TANZANIA - HWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Project Capital Cost - Plan and Actual Appraisal Estimates Actual Cost,/ In Killion Shillings In Killion US Dollars In Million Shillinags In HU1lion US Dollars Local Porelin Total Local Poreign'j Total Local Foreln atLt Engineering b Consultancy Services 2.0 7.1 9.1 0.3 1.0 1.3 2.8 9.4 12.2 0.3 1.0 1.3 Plant 6 Machinery 0.7 109.9 110.6 0.1 15.5 15.6 - 162.6 4/ 162.6 - 17.3 17.3 Freight & Insurance 10.8 11.4 22.2 1.5 1.6 3.1 - - - _- - Erection 4.9 3.5 8.4 0.7 0.5 1.2 - - - - - - Civil Works 17.8 12.1 29.9 2.5 1.7 4.2 72.4 37.6 110.0 7.7 4.0 11.7 Base Cost Estimate (BCE) Tr.Y T144 MY 58. 2-T 2504 7-32 ! : 284- IF." uW Y2 30.0 Contingencies& Physical (5Z of BCE) 1.8 7.1 8.9 0.3 1.0 1.3 Included In Above Cost Included In Above Cost Price (34% of BCe plus physiael contingency) 26.6 38.8 64.9 3.7 5.4 9.1 H It Installed Cost 64.6 189.4 254.0 9.1 26.7 35.8 75.2 209.6 284.8 8s0 22.3 30.0 Working Capital 32.4 - 32.4 4.6 - 4.6 45.1 - 45.1 4.8 - 4.8 Study 6 Training 0.7 2.1 2.8 0.1 0.3 0.4 - 3.8 3.8 - 0.4 0.4 Project Cost .77 191.5 289.2 21r 8 0 U 40.8 -3 Yrr.T NT.7 Tr. 8 YET 34.S Interest During Construction 3.9 21.3 25.2 0.5 3.0 3.5 - 25.3 25.3 _ 2.7 2 7 Total Financing Required 101.6 221.8 314.4 14.3 30.0 44.3 120.3 238.7 3SB0 12.8 25.4 38.2 1/ Including Item C, Table 1 2/ At TSh 7.1/US$ I At TSh 9.4/USs / Including freight and insuranaee Industry Department June 1983  - 23 - ANNEX 5 TANZANIA - MWANZA TEXTILE PROJECT PROJECT CONPLETION REPORT Project Disbursement Schedule (Cumulative) (in US$ Million) Year Appraisal Actual Kuwait IBRD TEXCO1/ IBRD Fund Total 1975 0.2 1.2 0.2 - 1.4 1976 8.1 3.4 2.5 3.1 9.0 1977 14.0 9.4 9.2 6.8 25.4 19782/ 15.0 12.3 11.5 9.0 32.8 1979 - 12.7 12.6 9.0 34.3 1980 - 12.8 13.1 10.2 36.1 1981 - 12.8 14.2 10.9 37.9 19823/ - 12.8 14.5 10.9 38.2 i/ At TSh 9.4/US$ 2/ June 30 3/ Last disbursement was made on 2/01/82 Industry Department June 1983  TANZANIA - MWANZA TEXTILE PROJECT PROJECT COHPLETION REPORT Production and Revenue Losses due to Shortages of Power, Fuel and Water (1977-1981) liour. Metersl/ Revenues2/ 1-977 1978 1979 1W90 1981 1977 1978 1979 1950 1981 1977 1978 1979 1980 1981 Power 107 641 783 815 662 0.3 1.0 3.6 3.4 2.8 3.1 11.6 43.9 49.4 49.5 Water - 67 583 605 282 - 0.2 2.3 2.5 1.2 - 2.2 34.0 36.7 21.4 Fuel - 284 510 343 896 - 0.8 2.3 1.4 3.7 - 9,2 29.8 20.8 67.9 Total 107 992 1,876 1,763 1,870 0.3 2.0 8.2 7.3 7.7 3.1 23.0 107.7 106.9 138.8 1/ Killion 2/ TSh million Industry Department June 1983  - 25 - ANIEX 7 TANZANIA - MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Capacity Utilization (Z)1/ 1974 1975 1976 1977 1978 1979 1980 1981 1982 Spinning Existing (Mill No. 1) 92.3 95.2 80.4 71.4 68.5 27.5 15.8 18.0 3.1 Project (Mill No. 2) - - - - - 75.8 59.6 72.4 18.6 Weaving Existing (Mill No. 1) 99.6 102.6 84.1 70.9 70.5 41.8 31.7 39.2 9.2 Project (Mill No. 2) - - - - - 64.3 45.6 52.0 14.0 Technical Efficiency (x) Spinning Existing (Mlll No. 1) 85.0 n.a. n.a. n.a. n.a. 70.0 74.8 82.0 81.3 Project (Mill No 2) - 89.0 88.4 88.6 88.8 Weaving Existing (Mill No. 1) 80.0 n.a. n.a. n.a. n.a. 46.0 42.0 55.0 62.0 Project (Mill No. 2) - - - - - 69.0 51.8 57.2 66.1 1/ As based on 3-shift (144 hours per week) operation, the capacities of Mwatex plants are as follows: Mill No. 1 Hill No. 2 Total Spinning (MT) 2,900 2,700 50600 Weaving (mm) 19.5 17.1 36.6 Industry Department June 1983  - 26 - ANNEX 8 TANZANIA - MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Investment Costs - Mill No. 2 (the Project) 1975 1976 1977 1978 Total --- --(in US$ Million) )- A. Investment Costs: - In Current US$ 1/ 1.4 7.3 15.3 2/ 8.2 3/ 32.2 - In Constant 1975 US$ 1.4 7.2 13.9 6.3 B. Conversion Factors: - Exchange Rate (TSh/US$) 7.41 8.38 8.27 7.69 - US$ Deflator (1975 - 100) 100.0 101.8 110.2 130.1 1/ Project Disbursement Schedule (Annex 6) less estimated interest payments during construction. 2/ Including working capital amounting to US$3.6 millon. 3/ Including working capital amounting to US$1.2 million. Industry Department June 1983  - 27 - AME 9 TANZANIA - MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Incremental Financial Benefit - Mill No. 2 (in T Shillings million) A.R. I/ 1979 1980 L981 1982 2/ 1983 2/ 1984-93 2/ Production (mm) 20.0 11.0 8.2 8.4 2.4 9.0 17.1 Net Sales 3/ 127.3 110.4 86.7 107.3 30.7 115.0 218.4 Direct Costs:3/ Cotton 21.8 25.5 17.4 20.2 5.8 21.7 41.2 Cotton Yarn ( 6.7) (6.8 ) (6.8) (6.8) (6.8) (6.8) (6.8) Salaries and Wages 9.8 15.6 15.6 16.6 16.6 16.6 16.6 Dyes and Chemicals 13.6 11.2 10.5 10.5 3.0 11.2 21.3 Other Material 1.5 1.8 1.8 1.5 0.4 1.6 3.0 Inventory Decreases - 2.3 (2.8) (2.1) (0.6) (2.3) (4.3) 40.0 49.6 35.7 39.9 18.4 42.0 71.0 Operating Expenses:3/ Management Fee - 1.5 1.5 1.6 1.6 1.6 - Electricity, Water & Ias. 12.7 22.8 21.7 22.5 6.4 24.1 45.7 Total Production Costs 52.7 73.9 58.9 64.0 26.4 67.7 116.7 Exchange Rate (TSh/US$) 7.41 8.25 8.20 8.29 US$ Deflation (1975 = 100) 100 145.1 157.1 149.6 1/ Appraisal estimates at full capacity in 1975 T Shillings. 2/ Present estimates at 1981 prices. 3/ Prorated according to Mill No. 2's share of production in Mwatex. However, 15.7% premium in average product price for its superior quality, as well as 23.1% lover unit labor costs (per meter of fabric), are allowed for Mill No. 2, as assumed in the Appraisal Report. Industry Department  - 28 - ANNE 10 TANZANIk - MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Financial Rate of Return Calculations Appraisal Estimate Actual/Present Estimate Investment Production Net Investment Production Net Year Costs Costs Sales Costs Costs Sales 1975 0.8 - 1.4 - - 1976 13.1 - 7.2 - - 1977 14.7 - - 13.9 - - 1978 1.8 5.3 9.6 6.3 - - 1979 - 6.6 14.3 - 6.2 9.2 - 1980 - 7.2 17.0 - 4.6 6.7 1981 - 7.2 17.0 - 5.2 8.7 1982 - 7.2 17.0 - 2.1 2.5 1983 - 7.2 17.0 - 5.5 9.3 1984-93 - 7.2 17.0 - 9.4 17.6 Financial Rate of Return (before tax): Appraisal Estimate: 24.2% Present Estimate: 12.9% Industry Department June 1983  - 29 - ANNEX 11 TANZANIA -MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Mwatex Historical Balance Sheets (in T Shillings million) 1975 1976 1977 1978 1979 1980 1981 ASSETS CURRENT ASSETS: Cash Receivables 38.2 35.7 27.2 17.5 34.6 19.7 21.6 Inventory 54.7 45.5 42.5 69.5 81.8 96.3 92.4 Total Current Assets 92.9 81.2 69.7 i8i 11. 116.0 114.0 FIXED ASSETS: Gross Fixed Assets 96.2 124.2 266.0 337.2 358.0 359.7 370.1 Accumulated Depreciation 45.9 53.4 61.0 70.5 98.2 123.9 147.6 Net Fixed Assets 50.3 70.8 205.0 266.7 259.2 235.8 222.5 OTHER ASSETS - - - - - - - TOTAL ASSETS 143.2 158.6 274.7 353.7 375.6 351.8 336.5 LIABILITIES CURRENT LIABILITIES: Creditors 57.8 34.3 18.9 55.4 33.1 86.8 114.9 Short-Term Borrowings 25.2 40.5 6.9 21.4 28.7 30.8 38.8 Current Long-Term Debt 15.4 8.0 2.1 0.7 22.5 23.1 23.6 Total Current Liabilities 98.2 82.8 27.9 87.2 111.0 142.1 171.3 LONG-TERM DEBT: IBRD - 12.1 79.2 86.3 100.3 103.6 105.3 Kuwait Fund - 5.4 56.4 67.3 84.4 78.9 56.0 Other Loans 27.3 11.0 3.2 1.2 0.9 - - Sub Total 27.3 28.5 138.8 154.8 185.6 182.5 161.3 Less Current Long-Term Debt 15.4 8.0 2.1 0.7 22.5 23.1 23.6 Total Long-Term Debt 11.9 20.5 136.7 154.1 163.1 159.4 137.7 EQUITY Share Capital 29.0 47.0 106.0 115.0 115.0 119.0 120.0 Retained Earnings 4.1 8.3 4.1 ( 2.6) (28.4) (67.3) (92.5) Total Equity 33.1 55.3 110.1 112.4 83.6 51.7 TOTAL LIABILITIES AND EQUITY 143.0 158.6 274.7 353.7 375.6 351.8 336.5 Debt Service Coverage (Times) 0.9 1.0 2.5 1.0 1.0 0.8 0.7 Debt/Equity Ratio 26/74 27/73 55/45 58/42 63/37 76/24 83/17 Current Ratio 0.9:1 1:1 2.5:1 1:1 1:1 0.8:1 0.7:1 Industry Department June 1983  - 30 - ANNEX 12 TANZANIA - MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Hvatex Historical Income Statement (in T Shillings million) 1975 1976 1977 1978 1979 1980 1981 Production: CapacityL/ 22.7 22.7 19.5 19.5 36.6 36.6 36.6 Capacity Utilization (Z) 105.4 84.1 81.5 82.6 55.7 42.1 47.0 Fabric (NLM)1/ 23.4 19.1 15.9 16.1 20.4 15.4 17.2 Yarn (TMT)2/ 3.2 2.7 2.4 1.3 3.0 2.2 2.6 Net Sales 117.7 115.0 105.2 104.1 176.9 140.8 189.9 Direct Costs: cotton 26.4 28.0 30.0 34.8 47.2 32.7 41.4 Cotton Yarn 8.5 3.8 1.9 6.8 - - - Salaries and Wages 22.7 23.9 24.9 28.3 37.6 38.2 46.3 Dyes and Chemicals 16.7 14.8 14.0 15.0 20.7 19.8 21.4 Other Materials 2.5 3.0 2.7 3.1 3.4 3.3 3.0 Inventory - Adjustment3/ (3.0) (0.2) - (16.1) 4.3 (5.3) (4.3) Subtotal 73.8 73.3 73.5 71.9 113.2 88.7 107.8 Gross Profit 43.9 41.7 31.7 32.2 67.7 52.1 82.1 Operating Expenses: Management Fees - - - 1.2 3.0 3.0 3.2 Other Expenses (Income) 20.9 23.4 24.6 26.5 42.3 40.7 61.8 Interest on Short-Term Debt 1.9 3.3 2.7 1.9 1.6 2.4 2.3 Subtotal 22.8 26.7 27.3 29.6 46.7 46.1 67.3 Operating Profit 21.1 15.0 4.4 3.6 21.0 6.1 14.3 Depreciation 7.5 7.2 7.4 8.3 29.8 25.1 23.6 Interest on Long-Term Loan 3.5 1.4 0.4 0.5 16.6 19.3 17.2 Other Financial Charges 2.9 2.2 0.8 0.5 0.4 0.6 0.2 Subtotal 13.9 10.8 (8.6) (9.3) (46.8) 45.0 40.0 Income Before Tax 7.2 4.2 (4.2) (6.7) (25.8) (38.9) (24.2) Taxes - - Net Income (Loss) 7.2 4.2 (4.2) (6.7) (25.8) (38.9) (25.2) 1/ Million Linear Meters 21/ Thousand Metric Tons 3/ Variation in inventories plus work in progress Industry Department June 1983  - 31 - ANNEX 13 TANZANIA - MNANZA TEXTILE PROJECT PROJECT COIIPLETION REPORT Shadow Price Calculations (in 1981 TSh) Financial Price 1/ Economic Price Shadow Price (TSh) (TSh) (Percent) I. Average Product Price (per meter)2!: 12.8 10.8 3/ 84.4 _I. Unit Cost (per meter): - Cotton 2.4 2.8 3/ - Salaries & Wages 1.0 0.75 4/ - Dyes & Chemicals 1.2 1.0 Y/ Direct Cost Subtotal 4.6 4.55 - Operating Expenses 2.7 2.7 Total Production Costs 7.3 7.25 99.0 I/ Based on actual 1981 financial statements of Mwatex 2/ Average price for the product mix of Mwatex 3/ Border prices using shadow exchange rate of TSh 12.0 to US$1. For cotton, FOB price of US$0.72 per pound is used. For fabric, c.i.f. price of US$0.90 per meter is used. 4/ Same shadow pricing (75Z) as in the Appraisal Report (AR). 5/ Excluding payments of custom duties (20%). Industry Department June 1983  - 32 - ANNEX 14 TANZANIA - MWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT -Economic Revenue and Operating Cost Calculations Actual Projected 1979 1980 1981 1982 1983 1984-93 A. Production (million meters) 12.2 9.2 9.6 2.4 9.0 17.1 B. H Fnancial Revenue and Costs: -(In Constant 1975 US$ Million)-- - Net Sales 9.2 6.7 8.7 2.5 9.3 17.6 - Production Costs 1/ 6.2 4.6 5.2 2.1 5.5 9.4 C. Economic Revenue and costs:2/ - Net Sales 7.8 5.7 7.3 2.1 7.8 14.9 - Production Costs 1/ 6.2 4.6 5.2 2.1 5.5 9.3 1/ Direct costs plus operating expenses. 2/ Using shadow prices calculatd in Annex 14. Industry Department June-'1983  - 33 - ANNEX 15 TANZANIA - XWANZA TEXTILE PROJECT PROJECT COMPLETION REPORT Economic Rate of Return Calculations (in Constant 1975 US$ Millon) Appraisal Estimate Actual/Present Estimate Investment Production Net Investment Production Net Year Costs Costs Sales Costs 1/ Costs Sales 1975 1.2 - - 1.4 - - 1976 16.6 - - 7.2 - - 1977 18.5 - - 13.5 - - 1978 2.2 5.7 8.8 6.2 - - 1979 - 7.8 13.2 - 6.2 7.8 1980 - 9.0 17.8 - 4.6 5.7 1981 - 9.0 17.8 - 5.2 7.3 1982 - 9.0 17.8 - 2.1 2.1 1983 - 9.0 17.8 - 5.5 7.8 1984-93 - 9.0 17.0 - 9.3 14.9 Economic Rate of Return: Appraisal Estimate: 16.1% Present Estimate: 8.2% 1/ Adjusted to exclude the payments of custom duties on imported dyes and chemicals, which are estimated to be about US$0.4 and US$0-1 million in 1977 and 1978, respectively, in current dollars. Industry Department June 1983  - 34 - ANNEX 16 TANZANIA K-WANZA T.EXTILE PROJECT PROJECT COMPLETION REPORT Excerpts from the Loan Agreement Section 4.02 The Borrower shall carry out the study included in Part C of the Project. The conclusions of the study will be applied to any major expansion of the textile manufacturing induLtry . Schedule 2 Part C The carrying out of a study of the possibilities of marketing textiles manufactured in Tanzania in other countries including the study of the feasibility of constructing in Tanzania a textile plant for the production of polyester-cotton blended materials." Industry Department June 1983  -35- AleN= 17 COENTS nRox. THE COFnNCIER ZCZC DTST7203 .IWS0656 DIST RFF: T5P HC OEDDIRJ J1450656 ZJRSB2 IN 26/05:53 01lT 26/06:400 AL_SUNDIJK REF: KF/SFN/R/058/i 960 26. ;.t 994 FROM: KIUWAJT FiND FOiR ARAB FCONOMIC DEVELOPMENTS KUWAIT TO : MR. SHIV S. KAPtJR WORL.D BAN-K - WASHINGTON Df1. U. S. A. SUBJECT : PROJECT COMPIF TION REPORT (IN TAtN.ZANIA - M4;;NZA TEXTILE PROJECT. WE THANK Ynu FnR YOUR LFTTER JATED 5TH AlRIL 198A. AND FOR THE EXCELLENT DRAFT PROJECT CoMPl ErTXON RFPOr DATED 20TH JU.NfE 1983. THE KUWAIT FLINn HAS NCOT SIJPERVISEJD THE PROsJECT AND C!.ANOT TIERRFr!ORh.F USEFULLY COMMENT (IN THE SAID REPORTh HOWEVER WE WOO. 1Ut. LIKE T) BRrtJG TO YOUR ATTFNTION THE ?Cl l WINS: A) THE KUWAIT FUND LOAN TO THE PROJECT ;JYOJNT1N( Ti) KD 41.5 MILLION HAS ONLY BEEN PARTIALLY WITHDRAWN AfND TH;.f rAPPIROXIXMATELY lCD 1'5 9 MIL-LION REMAINS tJNDISBURSFD. B) THFRF IS YET NO ASRE:MFNT DEl WEEN THt KUWAIT FUND ANED BORQOHElt-R (iN THE UTILIZATION OF r:iE umDIsBsRED PoR rIoN (IF T:IE LOAN. THE BORROFWR HAS CHANGED HIS MINDI A NUMBER OF TINES ABJT HOtl )CS' tl' UTIl.IZE THE SAD13 FUJNDS AND H.AS LATELY MADE SCONE NEW PROPUShA'..S TO THIS ENIt WHtCH ARE BEING CONSIDEREsi. BESIT REGARD-Si, BADIER Al -HIIMATIHI DEPUrY B (RECTOR-GENERAL COPERATTONS AND FINANCE) Al-SUNDUK =05261115 MAY 21984 UNNN