Documat of The World Bank FOR OFFICIAL USE ONLY Report No. 6298 PROJECT PERFORMANCE AUDIT REPORT ROMANIA BRASOV BEARINGS PROJECT (LOAN 1436-RO) June 23, 1986 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. ABBREVIATIONS AND ACRONYMS BCR - Borrower Completion Report CIROA - Industrial Central for Bearnings and Assembly Components ERR - Economic Rate of Return FRR - Financial Rate of Return IB - Banka de Investitii (Investment Bank) NB - Banca Nationala a Republicii Socialiste Romania (National Bank) PCR - Project Completion Report PPAM - Project Performance Audit Memorandum PPAR - Project Performance Audit Report TECHN(EXPORTP4PORT - Technoexportimport Foreign Trade Enterprise UZINEXPORTIMPORT - Uzinexportimport Foreign Trade Enterprise OCIR - Central Organization for Bearing Producers and Consumers 0EK -- Original Equipment Manufacturers CURRENCY EQUIVALENTS Except where otherwise indicated, all figures are quoted in Romanian Lei and US Dollars. For all calculations, the following conversion rate has been used: US$1 = Lei 20 Lei 1 US$0.05 Lei 1,000 = US$50.00 FISCAL YEAR January 1 - December 31 THE WORLD BANK OFFICIAL USE ONLY Washington, D.C. 20433 U.S.A. Office of Dvector-General Operations Evaluatmn June 23, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Romania - Brasov Bearings Project (Loan 1436-RO) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Romania - Brasov Bearings Project (Loan 1436-RO)" prepared by the Operations Evaluation Department. Yves Rovani by Otto Maiss Attachment 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. PROJECT PERFORMANCE AUDIT REPORT ROMANIA BRASOV BEARINGS PROJECT (LOAN 1436-RO) TABLE OF CONTENTS Page No. Preface .................................................... i Basic Data Sheet *************************************************** i Evaluation Summary ...... .......................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT OBJECTIVES .......................................... 1 II. PROJECT IMPLEMENTATION .................................... 2 Project Management ............. ........... ........ 2 Project Cost ..................................... 2 Procurement ............................................ 2 Supervision ...................................... ....... 3 III. PROJECT OPERATIONS ......................................... 3 Capacity ............................ ...................00 3 Ouality ..............4...........,........................ 4 Productivity .......... ...0............................... 4 Ecology ..................................................... 4 IV. TRANSFER OF TECHNOLOGY ...................................... 4 V. MARKETING AND PRODUCT MIX ............................ 5 VI. FINANCIAL AND ECONOMIC VIABILITY ............................ 5 Financial Results ................................ 5 Financial Rate of Return (FRR) .............................. 6 Economic Rate of Return (ERR) ...................... 6 VII. OVERALL ASSESSMENT AND LESSONS .............................. 6 ATTACHMENT: Comments Received from the Investment Bank ............ 8 TABLE OF CONTENTS (cont'd) Page No. PROJECT COMPLETION REPORTS PART A - PCR PREPARED BY BANK ..* ........ .... ............. 13 I. Project Background ......................................... 15 II. Project Implementation and Management ....................... 16 III. Operating Performance ... 21 IV. Financial and Economic Performance .......................... 24 V. Bank Role and Lessons Learned ............................... 25 ANNEXES 1. Capital Cost Estimates ......................................... 29 2. Financing Plan ................................................. 30 3. Disbursement Schedule ........................................ 31 4. Income Statements ........................ 32 5. Financial Rate of Return Calculation ........................... 33 6. Incremental Economic Rate of Return Calculation ................ 34 PART B - PCR PREPARED BY INVESTMENT BANK ........................... 35 I. Project Description .........................................0 37 II. Brief Data Concerning the Bearings Industry in Romania and Production Processes at Rulental Brasov ............... 45 III. Importance of Product Mix in Project Formulation ............ 50 IV. Purchases and Allowances from the Loan of Bank Procurement Arrangement ........................ 52 V. Production marketing and Domestic and External Market for Bearings ************.................................. 60 VI. Improvement of Product Quality and Quality Standards as Part of the Project Achievement Production *......o...o. 64 VII. Labor and Work Forces as Part of the Project ............... 69 VIII. The Staff Specialization and Training of Personnel .****.. 71 IX. The Way for Solution of Environmental Aspects sc the Project ............................................... 73 APPENDICES: 1. Financial Rate of Return of Brasov Ball-Bearings Plant ........ 78 2. Calculation of the Financial Rate of Return (RIR) for the Brasov-Ball Bearings Project (BIRD) .................. 79 3. Calculation of the Financial Rate of Return (RIR) Development of the Brasov Ball-Bearings Enterprise ...................... 80 4. Comparison of Brasov Product Mix Between 1975 and 1982 ........ 81 TABLE OF CONTENTS (cont'd) Pag No. 5. Implementation Schedule ..................................... 82 6. Agreed Goods and Services to be Imported from Bank Member Countries and Switzerland ................................... 85 7. Agreed Equipment to be Procured from Bank Member Countries and Switzerland, Including Romania .............................. 87 8. Capital Cost Estimates Rulmentul Bearing Factory .............. 88 9. Income Statement for 1982 o................................... 89 10. Income Statement for Manufactured Products at Rulmentul Bearing Factory-Brasov *......*............................. 90 11. Financing Plan ..................................*............. 91 12. Romania: Historical and Projected Export of Bearings 1965-85 .. 92 13. Sales of Brasov-made Bearings by Distribution ................. 93 14. Rulmentul Bearings Factory Brasov-Internal Sales per Branch ... 94 15. Export Sales at Economies 1971-85 ............................. 95 16. Distribution of Labor-Year 1983 ............................... 96 PROJECT PERFORMANCE AUDIT REPORT ROMANIA BRASOV BEARINGS PROJECT (LOAN 1436-RO) PREFACE The Brasov Bearings Project was supported by Loan 1436-RO in the amount of US$38 million. The project was designed to improve the capacity, product mix, quality and productivity of an existing company (Brasov Enterprise). The loan was made to the Investment Bank which was responsible for supervising the execution of the project, including the procurement of the goods and services required. The loan was approved in May 1977 and fully disbursed by June 1983, six months after the original closing date. This report cons' a of the Project Performance Audit Memorandum (PPAM) prepared by OED, and two Project Completion Reports prepared by the Industry Department (PCR) and the Borrower (BCR), with the PCR complementing the BCR. The PPAM is based on the attached PCRs, the Staff Appraisal and President's Reports, the summary of the Board discussion, the loan documents, study cf the project files and discussions with Bank staff. The PCR and BCR very ably review the main elements of project design, implementation, management, operating performance, and draw the lessons from project experience. The PPAM dwells on some of these elements and provides an overall assessment of the results achieved. Comments received from the Borrower have been taken into account in finalizing the report and are reproduced in an Attachment. - ii - PROJECT PERFORMANCE AUDIT REPORT ROMANIA BRASOV BEARINGS PROJECT (LOAN 1436-RO) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Item Expectations Current Eatimate Total Project Cost 78.9 93.2 Overrun (%) - 22 Loan Amount 38.0 38.0 Disbursed - 38.0 Repaid (as of 01/31/86) - 19.0 Outstanding 19.0 Date Physical Components Completed: Civil Works February 1977 February 1977 Low Volume Bearings April 1982 December 1982 High Volume Bearings July 1981 December 1981 Proportion of Time Overrun Low Volume Bearings (%) 13 High Volume Bearings (%) 8 Economic Rate of Return 15.6% 14.3% Financial Rate of Return 12.5% 9.3% CUMULATIVE LOAN DISBURSEMENTS FY77 FY78 FY79 FY80 FY81 FY82 FY83 (i) Planned - 3.7 11.1 19.2 30.8 38.0 38.0 (ii) Actual - - 4.7 26.2 33.1 34.1 38.0 (iii) (ii) as % of (i) - - 42 136 107 90 100 OTHER PROJECT DATA Original Loan Date Actual Board Approval 5/77 Loan Agreement 6/77 Effectiveness - 8/77 Loan Closing 12/82 3/83 /a Borrower Investment Bank Investment Bank Executing Agency Brasov Enterprise Brasov Enterprise Fiscal Year of Borrower January through December /a Informally extended to 6/83 to permit umall final payments. -1ii- BASIC DATA SHEET MISSION DATA No. of No. of Date of Month, Year Weeks Persons Manweeks Report Identification 4/75 Preparation Preappraisal 5/75 Appraisal 5/76 3.8 4 15.2 6/76 Post Appraisal 11/76 0.8 3 2.4 11/76 Supervision 1 5/79 0.4 2 0.8 6/79 Supervision 2 1/80 0.8 1 0.8 2/80 Supervision 3 7/81 0.6 2 1.2 8/81 Supervision 4 11/82 1.2 2 2.4 11/82 Completion 1 6/84 1.2 2 2.4 3/85 - iv - PROJECT PERFORMANCE AUDIT REPORT ROMANIA BRASOV BEARINGS PROJECT (LOAN 1436-RO) EVALUATION SUMMARY Introduction The Bank's lending in Romania at the time the Brasov Bearing Proj- ect was approved supported projects that would increase exports or reduce imports. More importantly, Bank lending also aimed at introducing new tech- nology leading to more efficient production, more sophisticated and better quality products, and increased international competitivenes- of the Romanian industry (para. 1). Objectives The main objectives of the project were to increase the production capacity of Brasov Enterprise by two thirds; to upgrade the product quality to international standards; to produce a wider range of bearings; and to improve the overall productivity of the enterprise through the introduction of modern production processes and equipment (para. 3). Implementation Experience Project engineering and implementation was competently managed, and supervision was adequate (paras. 6, 12). The start-up of the project was delayed by eight months, partly because of procurement difficulties resulting from extensive equipment changes and unfamiliarity with Bank bidding proce- dures (paras. 7, 9-11, 29). Cost overruns were 22% when expressed in U.S. dollars but only 2.6% when expressed in Lei (para. 8). Results The results attained have been positive, with notable increases in production and exports, better quality and product mix, and higher produc- tivity. Production build-up has been ahead of appraisal estimates (paras. 13, 26). The operations and performance of Brasov Enterprise have been affected by the delay in implementing a parallel project, not financed by the Bank, and by deteriorating market conditions (para. 20). As a result, pro- fits of the company were below expectations (para. 22), and the financial rate of return (FRR) of the project is only 9.3% compared with an appraisal estimate of 12.5%; however, the economic rate of return (ERR) at 14.3% is satisfactory and only marginally lower than the appraisal estimate of 15.6% (paras. 23, 24). - v - A notable accomplishment of the project was the introduction of a new process technology relating to cold forming of bearing components (para. 17), and the establishment of an Industrial Engineering Group to assist in quality and production improvements (para. 18). Sustainability The outlook for the company and the project is good. Management is very competent, and there is reason to expect that further improvements in productive efficiency will be realized over time, following the introduction of modern process technology. The financial position of the company remains sound, and exports generate substantial foreign-exchange earnings. Improve- ment in the demand for bearings should translate into positive results for Brasov. Findings and Lessons This has been a successful industrial project and has achieved most of its stated objectives (paras. 25, 26). Transfer of technology, produc- tivity improvements, and increased export capability are notable project achievements (paras. 15, 17, 18, 20). Lessons learned concern the need to pay closer attention to procurement, particularly in projects where new tech- nologies are introduced at a late stage of project development and where the domestic industry plays a substantial role in supplying equipment. In this respect, the Bank's insistence that certain precision equipment essential to attain quality objectives be purchased abroad proved to be right, and this policy could be applied to other projects under similar circumstances. In addition, closer attention to project cost comparisons would be useful, particularly if major changes in equipment purchases are made during the implementation period (para. 30). - 1 - PROJECT PERFORMANCE AUDIT MR4ORANDUM ROMANIA BRASOV BEARINGS PROJECT (LOAN 1436-RO) I. PROJECT OBJECTIVES 1. The Bank's main objectives in Romania at the time the Brasov Bear- ing Project was approved were to alleviate the shortage of foreign exchange by granting long-term loans for projects which would increase exports or reduce imports. Bank lending also aimed at introducing new technology lead- ing to more efficient production, more sophisticated and better quality products, and increased international competitiveness of the Romanian industry. 2. Brasov Enterprise is the oldest and largest bearing manufacturing plant in Romania; Brasov is also the seat of the Industrial Central for Bearings and Assembly Components. In common with other Romanian enterprises, Brasov is a public enterprise; it is subordinated to the Ministry of Machine Building.i/ 3. The project was to achieve four specific objectives: (i) to expand annual production capacity of Brasov Enterprise from 20.0 million bearings to 33.5 million by 1982; (ii) to bring the average quality of bearings nearer to international standards; (iii) to produce a wider range of bearings in order to minimize Romania's reliance on imported bea.ings; and (iv) to improve overall productivity in the enterprise through the introduction of modern production processes and equipment. 4. In parallel, but independent of the Bank-supported project, Brasov Enterprise also undertook a separate Needle and Cardan Bearing Project, aimed at increasing the production capacity for these types of bearings by 20 million units per year. 5. The project was designed and engineered by Brasov Enterprise in close collaboration with the Design Center and the Central Design Institute for Machine Tools; it was implemented by Brasov Enterprise and supervised by the Romanian State Investment Bank (IB). 1/ For a brief description of the institutional structure of Romania's industrial sector see the PPAR: Romania-Otelinox Special Steel Project, June 20, 1985, No. 5723, paras. 4-9. - 2 - II, PROJECT 114PLEMENTATION Project Management 6. The Rank's judgement at the appraisal stage that Brasov was fully competent to manage a project of this magnitude was fully confirmed during the construction period. Process changes introduced after appraisal were smoothly incorporated into the project. 7. The maior part of the equipment was commissioned by December 1982, while the appraisal estimate for completion was April 1982. Some minor pieces of auxiliary equipment and machines procured locally were not installed until 1985; however, this further delay did not affect the opera- tional readiness of the project. The eight-month delay in completing the major part of the project is attributed to procurement problems relating to lack of competition in the first round of bidding and the need to re-bid and renegotiate certain contracts. A detailed projpct implementation bar chart is given in Appendix 5 of the RCR. Project Cost 8. The project cost at appraisal was estimated at $93.1 million (Lei 1,861 million),2/ of which US$43.4 million in foreign exchange. The Bank loan amounted to US$38.0 million, accounting for 41% of the total estimated project cost or 88% of the foreign exchange requirements. On completion the total project cost expressed in Lei had increased fr>m Lei 1,861 million to Lei 1,909 million, a scant 2.6%. However, if the project cost is expressed in US$, the escalation is from US$93.1 million to US$113.9 million (+22%), reflecting the upward valuation of the Lei against the U.S. dollar as well as increases in equipment cost and in working capital.3/ Procurement 9. Procurement has presented some problems. From the outset there was a disagreement on the required foreign exchange for essential imports between the Bank and the Romanian authorities. The Bank insisted that critical precision manufacturing equipment would have to he imported to ensure the technical success of the project. The Borrower, on the other hand, felt that some of this equipment could be locally procured (BCR, paras. 4.01-4.13). In the event, it appears that the Bank's firm insistence that the equipment in question be purchased from the best qualified suppliers, essentially in the convertible currency area, provided a safeguard for the quality performance of the completed project. 2/ Exchange rate at time of appraisal was Lei 20 - US$1. 3/ Details in PCR, paras. 2.12-2.15 and BCR, Appendix 8. -3- 10. Another matter of concern was the substitutions in equipment pur- chases which occurred between appraisal and implementation. Of the 146 pieces of equipment originally planned to be procured abroad, only 131 were actually purchased; of the 592 items to be procured in Romania, mainly small machines and tools, only 116 were purchased while the remainder was acquired with financial sources other than the Bank loan (BCR, para. 4.02). The reduction in number of imported machinery is attributed largely to the higher productivity of the machines acquired. The cost of the domestically purchas- ed equipment turned out to be higher than expected, contributing to the above-mentioned cost overrun. Further problems to the procurement issue were added by the need to expand the scope of the cold forming operations after appraisal (PCR, para. 2.02). 11. Procurement issues resulted in some delay and contributed to cost overruns. However, these problems could have been eliminated if at the time of appraisal the project had been better designed, including the introduction of a new process technology,4/ and if firmer cost estimates and equipment specifications had been available at that time. Supervision 12. Supervision has been adequate. The Investment Bank followed up closely the implementation of the project, while there were annual Bank supervision missions starting in 1979 until the project was essentially com- pleted at the end of 1982. It is noted, however, that the Bank did not send supervision missions in 1978,5/ at a time when they might have been helpful to ease the procurement problems discussed above. III. PROJECT OPERATIONS Capacity 13. The production of bearings under the project has increased slightly ahead of the estimates made at appraisal. In 1983, when all major new pro- duction equipment was installed, Brasov produced 30.8 million bearings, which was 4% above appraisal estimates; in 1985 production is expected to reach 4/ With regard to technology, the Bank recommended the introduction of a new process technology (cold forming) into the project design during the time of project appraisal. Given that situation, the Bank staff felt that it was preferable to go ahead with the project (as was done) rather than delay the appraisal until "down stream" changes in project design (due to the introduction of cold forming technology) could be fully reflected in a more precisely defined project and in a new appraisal. 5/ Procurement was monitored during this period by frequent telex communi- cations. 33.5 milion bearings, in line with the original estimates for full capacity production in that year (PCR, para. 3.01). Quality 14. There has been a substantial improvement in the quality of the bearings. However, the improvement in quality has not been as rapid as pro- jected at appraisal, and the full benefits of the project regarding bearing quality have yet to be achieved. In 1976, 45% of the bearings produced by Brasov were in the lowest Po quality group (highest dimensional tolerances), and only 15% in the high quality P4 and P5 groups. For the first 4 months in 1984, the latest available figures, Po production was still 23% but P4 and PS production had increased to 21% (PCR, para. 3.02), although still below tar- geted levels. These results indicate the inherent difficulties in achieving quality improvements--with the requisite stringent supervision requirements, quality control, and necessary production discipline--compared to increases in production by purchasing additional machines and equipment. Productivity 15. Productivity gains fell short of the appraisal estimates. The appraisal report suggested that the higher production level could be achieved by adding only 500 workers to the 6,280 already engaged by Brasov Enterprise in this operation in 1975. The actual increase in labor force turned out to be more than 1,000 (BCR, para. 7.01). Specific productivity gains, however, are difficult to measure in view of the changes in product mix. A study un- dertaken by the Borrower suggests that labor requirements under the project were reduced by some 12%, compared with a 20% reduction envisaged at appraisal, which is significant (BCR, para. 7.02). Ecology 16. The project helped to address ecological concerns, and to improve working conditions in the plant. Such measures included the treatment of wastewater, disposal of solids, installation of electric high-frequency heat- ing systems in the heat treatment areas, and better ventilation to reduce oil mist and other airborne contamination (BCR, paras. 9.01-9.13). IV. TRANSFER OF TECHNOLOGY 17. The Bank project appraisal team suggested to Brasov's management the use of a cold forming process for certain types of bearing rings using carburizing grade steel, and this suggestion was accepted. This constituted a major new technological development at Brasov, and resulted in better qua- lity and reduced subsequent machining operations. The new technology and associated equipment were successfully introduced by Brasov's management into the project scope during the implementation period of the project (PCR, para. 2.03). - 5 - 18. The Bank also suggested during appraisal that an Industrial Engineering Group be established in the Central Design Institute for Machine Tools. This Group has already made contributions at Brasov by suggesting methods to improve labor productivity, studying product mix and production rationalization, suggesting procedures to reduce inventories and improve material handling, and facilitating automation of quality control (PCR, para. 5.01(c)). V. MARKETING AND PRODUCT MIX 19. Market developments are detailed in the PCR, paras. 3.04, 3.05 and BCR, paras. 5.01-5.06. Total production in the four national plants in 1982 was 109.3 million bearings, compared with an appraisal estimate of 129.0 mil- lion bearings, due to lower than expected domestic and export demand. Esti- mates for 1985 show production at 125 million bearings instead of the SAR estimate of 145 million. Depressed market conditions have also resulted in lower prices (para. 22). 20. In 1982, as a result of the declining demand in the domestic market, Brasov Enterprise's production of all types of bearings was 39.5 million against an estimated 49.0 million at appraisal. However, the produc- tion of bearings covered by the Bank's project were actually ahead of esti- mates (para. 13). Brasov has achieved better penetration in export markets, and in 1985 it expects to export 18.7 million bearings (56% of production) compared with SAR projections of 13.0 million bearings (39% of production). 21. The Brasov product mix was expanded to satisfy market demands. In 1982, Brasov already produced 415 basic types of bearings (with 550 varia- tions), as compared with the original SAR projections that Brasov would pro- duce only 340 Basic types (with 428 variations) by 1985. However, the ex- tended product mix results in shorter production runs per basic type of bear- ing, which in turn contributes to longer machine change-over periods, lower productivity and higher unit costs. VI. FINANCIAL AND ECONOMIC VIABILITY Financial Results 22. The financial results for Brasov Enterprise are presented in the PCR, para 4.01 and Annex 4. Of particular interest are the considerable lower gross and net profits ("benefits"), as compared with the appraisal projections, as summarized below: 1979 1983 1985 (Estimated) (Million Lei) Actual SAR Actual SAR Actual SAR Gross Profit 546.7 582.5 423.4 924.7 605.7 1,011.6 Net Profit 400.2 241.5 123.9 435.4 382.0 628.1 Net Profit/Revenues 31.2% 18.6% 5.8% 24.4% 13.0% 32.2 - 6 - The lower benefits are attributed to a slower than expected build-up of pro- duction and decreasing profit margins. The latter reflect increasing unit costs not offset by comparable price adjustments. Financial Rate of Return (FRR) 23. The BCR includes all of Brasov Enterprise in the FRR calculation, claiming that it is difficult to calculate the incremental benefits resulting from the project alone. The FRR thus calculated is 15.9% (BCR Appendix 2). Bank staff, using some broad assumptions, estimated the FRR for the project only arriving at a rate of 9.3%, compared with a projected FRR at appraisal of 12.5%. The same factors which affected the financial results, as dis- cussed above, also influenced the FRR (PCR, paras. 4.02-4.04). Economic Rate of Return (ERR) 24. The calculation of the ERR was also difficult because border prices were not available for a variety of products. Using a set of assumptions, the ERR was calculated by the Bank to be 14.3%, marginally lower than the ERR of 15.6% projected at appraisal (PCR, paras. 4.05 and 4.06). VII. OVERALL ASSESSMENT AND LESSONS 25. The Brasov Bearing Project has been largely successful, and achiev- ed most of its objectives. The management of the project engineering and implementation was very competent. Project supervision has been adequate. The project cost exceeded the original estimates due to a revaluation of the Lei against the US$, and higher prices for equipment procured in Romania. The cooperation between the Bank and the Romanian counterparts has remained cordial throughout the appraisal and implementation stage. The Bank staff has commented favorably on the professional competence of the Brasov Enter- prise management and staff, and in turn Brasov management was receptive to new ideas put forward by the Bank during the appraisal. 26. Regarding the achievement of the objectives of the project as set out in para. 3, it is noted that: (a) the objective of increasing production will be fully met; exports increased more than expected; (b) considerable progress has been made toward the objective of improving the quality stan- dards of the bearings but progress was below projections; (c) the objective of producing a wider range of bearings to reduce imports was exceeded by a comfortable margin; and (d) the objective of increasing productivity was only partly realized, but the registered increase in productivity is significant. The outlook for the project's sustainability is good. Management is compe- tent, and it can be reasonably expected that further improvements in produc- tive efficiency will be realized over time. 27. The financial and economic results were somewhat short of expecta- tions, but were on the whole satisfactory. The financial results were affected largely by factors outside the control of Brasov Enterprise such as - 7 - the change in the economic climate since the project was conceived. Correc- tive measures to counteract sluggish domestic demand were introduced by Brasov management, resulting in a substantial increase of exports. Favorable market developments will improve further the financial performance of Brasov Enterprise. 28. The Bank has made a major contribution to the transfer of tech- nology by suggesting the use of cold forming process for the manufacture of carburizing-grade steel bearing rings, a technique successfully adapted by Brasov Enterprise to the manufacturing process. In addition, the Bank's pro- posal to form a central industrial engineering group has been put into effect, and proved useful to improve productivity and the internal organiza- tion in general. 29. Procurement presented a number of problems. At the core of these problems were unfamiliarity with Bank procurement procedures, / and the understandable intent of the Borrower to limit foreign exchange expendi- tures. The Bank, on the other hand, considered it essential that specialized precision equipment of critical importance to the project be procured abroad from suppliers with proven reputation. The Bank's approach of allocating a major part of the loan proceeds to such essential purchases abroad has proved useful, and could well be applied to similar situations in other loans. 30. Several lessons emerge from the project experience. More time should be allowed for project design when new technologies are introduced. The difficulties encountered with procurement point to the need for close Bank supervision at the time tenders and contracts are being prepared. When it comes to procuring critical equipment, there is a fine line between wh&t can be procured locally and what should be imported. Realistic implementa- tion schedules and cost estimates should be established for equipment manu- factured domestically for the first time whether in Romania or in other countries at a similar stage of industrial development. Finally, time should be allowed for the absorption of newly introduced technologies in production processes. 6/ The Investment Bank feels that some of the delays in implementation were not due to the unfamiliarity with Bank procurement procedures, but rather to the need to acquire equipment of high performance and to delays in organizing the biddings and in finalizing the contract for the US$5.5 million originally unallocated (Attachment, p. 1). -8- COttMTS RBCBIVED FROM THE INVBSTHENT BANK Attachaent INVISTMUT BANK Paps 1 of 2 Poreiga alations Department Mr.Yukineri Watanabe Director Operations Evaluatien Department Dear Mr.Wataabe : We acknowledge with thanks receipt of your letter dated February 21,1986 whereby you submitted the Project Perfermance Audit Report prepared by your Department and the Project Completion Report of the Tadustry Department for the Bragev Ball Bearings Project - Loan 1436 - RO and we consider them generally as satisfactory. However,ia cenectien with several aspects related to Procurement and Project Perforeace,we would like to make some commeats with a view to more accurately reflect the situations and real feets,as follows : -Under the chqoer"the experience in the implementation of the Project" it is mentioned that one of the causes leading to the 8 months delay in starting the Project was due vo the difficulties in procurement resulting from the nonfamiliarity with the Bank's procurement precedures.uch a comment is also made in the conclusions of the Audit Report under item 29 where it is specified that there were problems in procurement."At the core of these problems were unfamiliarity with Bank procurement procedures..." In respect of this issue, we wish to undel-line that some delays which appeared in the procurement process were not due to the Re f lected unfamiliarity with Bank procurement procedures, but to the need to in footnote 6 of para. acquire equipment of high preformance, capable to cope with the 29 of PPAM. new technologies used for this Project, and also to the delays in organising the biddings and in finalising the contract for the amount of US dollars 5.5 million originally unallocated which was used for para I (imports). Please, keep in mind that for the 25 biddings organised for this Project we had no problems related to the award or the approval by the Bank of the bid evaluation reports and contracts. - In the sub-chapter "Quality" of the Audit Report, it is Attachment Page 2 of 2 stated that the high quality products, from group P4 represent only 6%, fhile the Compl4ies Report of the Industry Department (pare 3.e2) shows that the share of the high quality products, Text amended from group P increased to 15%. Please, keep is mind that both in para. 14 the products from goup P4 sad those from group P5a are high of PPAM. quality ; in order to reflect*the reality, their respective shares have to be cuumulated. We also add that, in 1985, the share of the products from these two groups was of 26%. Therefer, in finalising the reports you have submitted to us, we weuld kindly ask you to take into account the issues mentioned before. We thank you again for the good cooperation between our institutions. Yours fait fully, Alexandru ltenu Director -- -tic'G r11 - ROMANIA BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORTS April 1985 Industry Department ーブ之～ メん：戸柳さお必汐ぐ - 13 - PART A ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PCR PREPARED BY BANK 瀾 汝秀 )k 丰‘, 麩 k 又 - 15 - PROJECT COMPLETION REPORT ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) 1. PROJECT BACKGROUND A. Project Preparation, Appraisal, and Loan Approval 1.01 The project was identified in April 1975 by an industrial sector mission, and preappraised in December 1975. The Design and Research Center for Bearings and Fasteners of the Ministry of Machine Building prepared the technical and economic study for the Project. 1.02 The Project was appraised in April 1976. At the time of appraisal, the Government agreed to the mission's suggestion to review the possibilities of further improving the project design to make the proposed investment economically more attractive. These changes were reviewed by the Bank in the field in November 1976. 1.03 In March 1977, negotiations between the Romanian authorities and the Bank took place and on May, 1977, the Bank's Executive Directors approved a loan of US$38.0 million to the Investment Bank of Romania to be onlent to Brasov Enterprise. The loan became effective in June 1977. Bo Project Deezri2tion and Objectives 1.04 The project description is covered in detail in the Romanian PCR (para 1.01). The main objectives of the project were: (a) to increase annual production capacity from 20.0 million to 33.5 million bearing units per year,* (b) to bring the average quality of bearing nearer to international standards; (c) to produce a wider range of bearings; and (d) to improve the overall productivity of the enterprise through the introduction of modern production processes and equipment. 1.05 These objectives were accomplished primarily by introduction of new production equipment, such as forging presses, cold extrusion presses, heat treatment facilities, turning and grinding equipment, superfinishing machines, quality control equipment, etc. The project also included z !- replacement of some equipment to achieve closer tolerances of manufactured components of bearings, i.e., new ball making machines; new, more accurate instrumentation and "in-process" gauging equipment was also introduced to improve production quality control and improve the efficiency of the manufacturing process by earlier detection of defects in the manufacturing process* - 16 - II. PROJECT IMPLEMENTATION AND MANAGEMENT A. Achievement of Project Objectives 2.01 The four basic objectives of the project are expected to be essentially attained by 1985. Major equipment has been installed to increase production from 20 million bearings to 33.5 million, an increase of 13.5 million bearings per year.l/ Production build-up (measured in number of bearings) has been ahead of appraisal estimates (para 3.01). In 1983, production was 30.8 million bearings compared to the appraisal estimate of 29.5 million. By 1985, the full production increase of 13.5 million bearings should be attained, as estimated at the time of appraisal (para 3.01). The quality mix of Brasov bearings has improved from that in 1976, but there appears to be some risk that attainment of quality gains estimated at appraisal may not be fully achieved by 1985 because of the difficulty in achieving the stringent quality requirements for the more complex and diversified product mix than originally envisioned (para 3.02). By 1982, the number of basic types and variations of bearings exceeded that estimated at appraisal. This increase in the diversification of product mix at Brasov is in accordance with the overall rationalization of the Romanian bearing industry. The Brasov Enterprise has been designated as one of Romania's producers of a diversified product mix. B. Project Scope Changes 2.02 Two basic types of scope changes were introduced in the project, the first during appraisal and the second during implementation. (a) Changes in Production Process Technology. At the suggestion of the Bank, the basic production method for manufacturing of bearing rings for tapered roller bearing rings was reevaluated by Brasov and the originally designated process (hot forging) was changed to utilize a relatively new technology at that time - cold extrusion forging. This change in process technology resulted in the manufacture of bearing rings to closer tolerances, requiring less "downstream" metal removal - machining and grinding. It also resulted in a decrease in loss of material in the manufacturing process (higher metallic yield) together with a slightly lower cost of raw material itself (use of carburizing steel instead of higher grade 52100 steel). Overall, this change resulted in lower costs of production of bearing rings for tapered roller bearings and some decrease in capital costs for other machinery utilized in the production process. (b) Product Mix and Related Production Methods. Another change in the project scope resulted from a change in product mix and I/ The Needle and Cardan Bearings Project was a separate component designed to increase production capacity of needle and cardan bearings by 20 million units per year. It was implemented at approximately the same time as the Bank component, with some delay in implementation, and some additional delay in reaching its projected level of output. - 17 - diversification of bearing types produced at Brasov (this change occurred gradually during implementation and was made with the knowledge of the Bank). It was linked to the domestic and international market situation, the relation between product selling.prices and production costs (which indicated higher profitability for certain moderate/low volume ball bearings and roller bearings), and the resulting designation of Brasov Enterprise as Romania's producer of greater sizes/types of bearings while other plants specialized in a more limited product line. Such considerations indicated that Brasov should maintain a high degree of flexibility and ability to manufacture a wider, more diversified mix of bearings than previously anticipated. For economic manufacturing of the new product mix Brasov required the same basic machines as originally defined, but (during implementation) some modifications were made in layout, transfer devices, material handling, and assembly techniques. All were necessary to produce the more diversified product mix efficiently. C* Project Management 2.03 The Project was implemented by Brasov Enterprise. It was designed and engineered by Brasov in close collaboration with the Design Center and the Central Design Institute for machine toola. During appraisal it was judged that Brasov had competent plant management, access to a good design institute, and fully adequate engineering capability, and that no outside technical assistance would be necessary. This judgement was confirmed during project implementation; for example, the technical management introduced changes in project scope fully consistent with changes in process (use of the cold-forming process suggested by Bank consultants). 2.04 The Investment Bank of Romania supervised the implementation of the Brasov project, togetber with Bank supervision missions and periodically between Bank missions. The level of supervision was fully adequate to handle problems which arose during implementation; the degree and frequency of problems requiring intervention by the Investment Bank or IBRD was relatively minor due in large part to the high level of management and technical competence of the Brasov enterprise, its affiliated design institute, and its engineering department. D. Employment and Training 2.05 As of January 31, 1983, the total work force at Brasov enterprise was 8,553 employees. This compares with 7,325 estimated at appraisal. The appraisal estimates did not, however, include employees at machine-tools and special bearings shops. Excluding employees at these two shops, the number comes down to 7,375, which is greater than the appraisal estimate by only 50 employees. 2.06 The training of workers is well organized at Brasov, which runs a large industrial trade school. The Romanian PCR (paras 8.01 to 8.03) covers in detail the staff specialization and training of personnel at Brasov. - 18 - E. Procurement 2.07 All major machinery and equipment, financed by the Bank, were procured under international competitive bidding (ICB) using Bank guidelines. Procurement financed by the Bank loan was divided into two categories: (a) Category I - Machinery and equipment to be supplied exclusively from imports; and (b) Category II - Machinery and equipment which could be supplied from Romania or through imports. 2.08 The procurement of items in Category I was spread among 10 countries. Among foreign suppliers, the most important ones were Italy (22%), West Germany (21%) and the USA (19%). All machinery and equipment in Category II was won by Romanian Companies. The total loan amount allocated for this category was US$6.5 million. Full procurement details are provided in the attached Romanian PCR (Sections IV and V). 2.09 In reference to major production equipment (presses, large lathes, turning, grinding, heat treatment, superfinishing equipment) actual procurement under the project was very close to the list of equipment agreed upon at appraisal. However, as shown in the Romanian PCR (Annex 7), a simple numerical count of equipment (including small tools) indicates some substantial differences versus appraisal. Essentially all project objectives were achieved with the equipment list actually purchased and the end result of the indicated large differences in number (or pieces of equipment) is not believed to be significant. Some of this change in total equipment purchased was due to the introduction of the cold forming technique (para 2.02). G. Implementation Schedule 2.10 A comparison of the appraisal and actual implementation schedules is presented in Annex 5 of the Romanian PCR. At the time of appraisal it was estimated that the project would be completed by April 1982. Most of the additional production capacity to be installed under the project was actually commissioned by December 1982, a delay of eight months. Much of this delay could be attributed to lack of competition and need to re-bid and renegotiate certain contracts. However, several pieces of (mainly locally supplied) equipment, including tooling, scrap handling and heat treatment equipment, controls, and mostly minor turning, grinding and support facilities to be financed by State funds were still not installed by mid-1984, but are expected to be completed by early- to mid-1985. Due to the high level of flexibility of Brasov's operations and existence of some alternative processing facilities, these latter facilities have not imposed any important restrictions on the growth of production buildup, but improvement in quality of bearings has been slower than estimated at appraisal. 19 - H. Ecology 2.11 Considerable attention has been given by Brasov Enterprise to protection of ecology and improvement of the working environment. Brasov is in compliance with the Romanian laws on protection of the environment. The Romanian PCR (paras 37 to 41) covers in detail the measures taken by Brasov to protect the environement. Capital Costs and Financing Plan 2.12 The capital cost figures provided by Brasov in the PCR are overstated (Annex 8, Romanian PCR). They include the Needle and Cardan project which is not part of the Bank project. In addition, the foreign exchange costs are converted to Lei by a uniform exchange rate of Lei 15 to the US dollar although the exchange rate of Lei to the dollar varied from 15 to 21.5 during the implementation period. Similarly, the financing plan shown in Annex 11 of the Romanian PCR also includes the Needle and Cardan project. Annexes 1 and 2 at the end of Part A provide the adjusted capital costs and financing plan figures. The total cost of fixed assets for the project amounted to US$93.2 million, an increase of 18% over the appraisal estimate of US$78.9 million. Total financing required amounted to US$113.9 million, up 22% over the US$93.1 million appraisal estimate. A summary of final project cost and financing required, shown in Annexes 1 and 2, is provided below. Romania - Brasov: Project Costs and Financing Required (US$ millions) Appraisal Revised Increase % Estimate a/ Actual 6/ ($) Increase Equipment, Machinery & Spare Parts 61.2 75.9 14.7 24 Others 17.7 17.3 (0.4) (2) Total Fixed Assets 78.9 93.2 14.3 18 Working Capital 8.9 15.0 6.1 69 Total Project Cost 87.8 108.2 20.4 23 Interest During Construction 5.3 5.7 0.4 8 Total Financing Required 93.1 113.9 20.8 22 a/ Price and physical contingencies included in the appraisal estimate are distributed among individual cost items. b/ Converted at official rates of exchange at the time of disbursement. 2.13 The increase in project cost in US dollar terms is due largely to changes in exchange rates and some increases in local equipment and machinery costs* During appraisal the exchange rate was assumed to remain constant at Lei 20 per US dollar, whereas the actual average exchange rate during implementation was only around Lei 16.3 per US dollar. Total local costs were Lei 1,142 million (estimates at appraisal were Lei 995.2 million), resulting in an additional US$11.4 million due only to the exchange rate differential. During appraisal no allowance was made for - 20 - price contingencies for the local equipment and civil works since the orders and works were assumed to be placed on a fixed price basis in 1977-early 1978 and no subsequent price revisions were expected (not "legally permitted" at the time). US$9.0 million were due to higher local costs, of which US$7.7 million were in fixed assets and US$1.3 million were in working capital. Physical changes in project scope resulted in a few reductions in number of machines required (i.e., turning and grinding equipment). However, it is believed that these changes had only a minor impact on total capital costs of the project. 2.14 The financing plan for the project (actual compared to appraisal) is summarized in the table below: Romania - Brasov: Financing Plan Appraisal Actual Change US$ % of US$ % of US$ million Total million Total million IBRD Loan 38.0 41 38.0 33 - State Funds 15.7 17 42.9 38 27.2 Funds Retained from Operation 39.4 42 33.0 29 -6.4 93.1 100 113.9 100 20.8 2.15 As can be seen from the above table, the increase in project financing requirements came solely from State funds. State funds accounted for 38% of the total project cost as compared to 7% estimated at appraisal. Even though there was a substantial increase in State funds required, there was no apparent delay due to lack of financing. Internal cash generation, which was forecast at appraisal to be the largest source of project financing, provided US$33.0 million instead of the US$39.4 million forecast, i.e., 84% of appraisal estimate mainly because of a shortfall in the production of bearings not covered under the Bank project, e.g. Needle and Cardan bearings. J. Disbursements 2.16 The original closing date of the Bank loan was December 31, 1982. The closing date for the loan was informally extended an additional six months through June 30, 1983, to permit small final payments. Compared to the appraisal estimates (Annex 3), disbursements were as follows: Romania - Brasov: Disbursement Schedule (Cumulative) (US$ million) 1977 1978 1979 1980 1981 1982 1983 Appraisal Estimate 1.87 7.28 14.78 23.45 38.00 38.00 38.0 Actual 0.00 0.30 15.00 31.20 33.25 37.63 38.0 Actual as % of Estimate 0 4 101 133 88 99 100 e 21 - 2.17 Disbursements for the loan did not start until the fourth quarter of 1978 as a result of delays in the start of the procurement process due in part to unfamiliarity with Bank procurement procedures, and to a limited degree to introduction of a new technology (cold forming technique) in the early stages of project development. By the third quarter of 1982, 99% of the loan had been disbursed. Essentially all major production equipment had been procured and the additional production capacity of 13.5 mi'lion bearings was actually installed by December 1982. Some relatively minor equipment related to plant services, scrap handling and quality control and other miscellaneous items still remained at that time, and was finally procured by June 1983. 2.18 The actual allocation of the loan proceeds compared to appraisal estimates was as follows: Romania - Brasov: Allocation of Loan Proceeds (US$ million) Original Reallo- Disbursed SAR cated (Actual) Category I Imported Machinery & Equipment, Spares & Related Services (100% of Foreign Expenditures) 26.0 5.5a/ 31.5 Category II Other Agreed Equipment, Machinery, Spares & Services (100% of Foreign Expenditures or 100% of Ex-factory Cost of local Expenditures) 6.5 - 6.5 Unallocated 5.5 Total 38.0 5.5 38.0 a/ This "reallocation" had been planned for Category No. I, based on the Bank's estimates of capital costs. III. OPERATING PERFORMANCE A. Production 3.01 In 1983, total production at Brasov Enterprise - as a whole - was only 42.9 million bearings compared to 50.0 million estimated at appraisal. The slower growth in production is due to the slippage of the Needle and Cardan project (para 2.15), which was not part of the Bank project. The production build-up of the Bank project component, however, has been ahead of appraisal estimates. As shown in the table below, with the exception of 1980, the production due to the project was higher than the appraisal estimates. By 1983, the production was 30.8 million bearings, or about 4% above appraisal estimates. The reasons for this higher production build-up appears to be related to shifts in state - 22 - production plans and to a smaller degree somewhat conservative estimates utilized at time of appraisal.2/ Romania - Brasov Bearing Project Ylanned Versus Actual Growth of Production (Millions of bearings) 1979 1980 1981 1982 1983 1984 1985 Project Component a/ Appraisal Estimate 22.0 25.2 26.5 28.5 29.5 31.5 33.5 Actual b/ 23.2 23.5 27.2 29.0 30.8 32.1 33.5 Total Production c/ Appraisal Estimate 39.0 43.0 46.0 49.0 50.0 50.0 53.0 Actual b/ 30.3 31.5 36.4 39.5 42.9 46.0 53.0 a/ Excluding needle and cardan bearings production. 9/ 1984 and 1985 figures are latest available estimates. c/ Including needle and cardan bearings production. B. Quality 3.02 The quality of bearings produced by the Brasov Enterprise has improved significantly due to the project (see table below). The percentage of PO quality bearings (lowest quality) was reduced from 45% in 1976 to 24% in 1983. In the same period, the percentage of higher quality, P5 bearings increased from 10% to 15%. However, this actual improvement in quality lags somewhat behind the target estimated at appraisal. Part of this difference is associated with difficulty in achieving the stringent quality requirements for the modified product mix manufactured (a more complex and diversified product mix). Based on the latest available information (4 months, 1984) on the quality mix of Brasov products, there appears to be some risk that attainment of the gains in product quality estimated at appraisal may not be fully achieved by 1985. However, Brasov management has a firm commitment to meet or exceed the quality levels anticipated under the project (probably in 1986). 2/ Explanatory Note - In order to clarify further this point, Brasov is not a "green field" project and - in regard to many manufacturing steps - has alternate, older equipment and processes available for use. Thus, in some cases, the company can achieve physical production targets (number of bearings) without full usage of new equipment provided under the project, but cost and quality objectives will not be achieved fully until the new machinery and processes are operating at full efficiency (i.e. some bearing retainer rings can be manufactured by utilizing older existing equipment without the new automatic retainer press provided under the project; however, a lower quality (tolerance) retainer ring would be produced with higher labor input, more scrap generated, and higher material costs). - 23 - Romania - Product Quality Mix Actual SAR Quality Estimated 4 mos. Estimate Designations 1976 1982 1983 1984 1984 1985 PO (Low Quality) 45 25 24 21 23 10 P6 40 55 56 57 56 60 P5 10 15 15 16 15 20 P4 (High Quality) 5 5 5 6 6 10 Total 100 100 100 100 100 100 C. Product Mix 3.03 By 1982, the variety/number of different bearing types in the product mix at Brasov Enterprise exceeded that estimated at appraisal. In 1982, Brasov produced 415 basic types (with 550 variations) as compared to 340 basic types (with 428 variations) estimated at appraisal by 1985, when full production of 33.5 million bearings was expected. This increase in diversification of product mix has resulted in changes described previously in para 2.02. D. Market Developments 3.04 The Romanian PCR covers in detail the market developments for bearings in Romania (Chapter V, Romanian PCR). The total production of bearings (in millions of pieces) in Romania has lagged behind appraisal estimates due to lower than projected domestic and export demand and this trend is expected to continue in 1985. In 1982, production was only 109.3 million bearings as compared to the appraisal estimate of 129.0 million, a difference of 20 million bearings. This trend is expected to continue in 1985; new estimates are 125 million, 20 million less than the appraisal estimate of 145 million. This is due in great part to lower actual domestic consumption (including replacements) than estimated at appraisal. In 1982, domestic consumption was 64.8 million bearings as compared to the appraisal estimate of 70.0 million. By 1985, the gap is expected to increase; the new estimate of demand is 70.0 million as compared to the appraisal estimate of 82.0 million. Although exports did better than appraisal estimates until 1980, export sales fell drastically in 1982. Compared to exports of 54.5 million bearings in 1980, the exports in 1982 were only 44.5 million, a decrease of 18%. This was due to a fall in international demand for bearings, both in market-oriented economies and eastern-block countries. Exports are expected to recover in 1985 to the 1980 level, although still well below appraisal estimates of 63 million. 3.05 The domestic sales of Brasov's bearings have also followed the national trend. The domestic sales were much lower than appraisal estimates and this trend is expected to continue. Export sales for Brasov, however, were higher than appraisal estimates. By 1985, Brasov estimates exports to be 18.7 million bearings as compared to 13.0 million estimated at appraisal. This appears to be associated with Brasov's effectiveness in -6 24 - export marketing techniques, increased flexibility to meet the changini specialized market demands (consistent with Brasov's semi-automation), I and, probably very important: ability to offer favorable export prices, especially in US dollars. IV. FINANCIAL AND ECONOMIC PERFORMANCE A. Financial Results 4.01 Brasov Enterprise's financial results over the 1979-83 period are summarized in Annex 4. Of particular note is the much lower profit levels as compared to appraisal estimates. The major reasons for lower profits are () slover oroduction build-up for Brasov Enterprise as a whole; and (ii) lower contribution margin per bearing. Although the production build-up duk to the Bank project component was moderately ahead of appraisal escimates, the total production for the Brasov Enterprise lagged about 25% behind appraisal estimates due to the slippage of the Needle and Cardan Bearings Project (para 2.05). In addition, adjustments in domestic prices of bearings have lagged behind and do not adequately offset price increases in principal inputs like steel and labor, reflecting the Romanian authorities' desire to limit the prices of machinery and equipment in containing the overall level of inflation. Consequently, Brasov's profit margin per bearing has been progressively declining. B. Financial Rate of Return 4.02 The financial rate of return (FRR) calculated in the PCR prepared by the borrower is overstated (Annex 2, Romanian PCR). The borrower's FRR calculation includes the overall cash flow for the Brasov enterprise instead of only the incremental net benefit from the Bank-financed project. When this was pointed out during the PCR mission, Brasov staff felt it would not be possible to calculate the incremental net benefit due to the project, because in conjunction with the Bank-financed project, Brasov was undertaking the Needle and Cardan bearings project which also improved existing facilities and increased production capacity. 4.03 Due to the extensive product mix, which covers over 500 basic types and 550 variations in types involved, and lack of the latest cost and price data (no meaningful data on the latest costs and prices were provided by Brasov in order to preserve the confidentiality of such information), major assumptions had to be made to estimate an FRR. Following are some of the major assumptions made: (i) projected 1985 average aggregate production costs and selling prices, adjusted to exclude needle and cardan bearings, were assumed to be representative of the product mix of the project and remain unchanged in future years; (ii) the product mix beyond 1985 remains constant; and (iii) no investment is required for the "without project" base case as assumed in the SAR. 3/ The other plants in Romania, which are more specialized in fewer product lines and with less flexibility, suffer the brunt of the decreased demand. - 25 - 4.04 On the above basis the incremental financial rate of return for the project is estimated at 9.3%, compared with 12.5% at appraisal (Annex 5). The decline in FRR can be attributed mainly to the recent lag in actual selling price increases, which have not kept up with actual costs of basic inputs such as steel and labor. D. Economic Rate of Return 4.05 The economic rate of return (ERR) is a more meaningful measure of benefits in the Romanian context because Romanian practice (only) assures the enterprises that their final product prices will be adequate to cover production costs. Because of the extensive product mix and the difficulties in obtaining accurate international prices for the various qualities, type and sizes of bearings and the difficulties in estimating border prices as well as the need to adjust input prices, the calculation of ERR is difficult. Major assumptions made to estimate economic benefits and costs were as follows: (i) economic price of bearings is fixed at 10% higher than that estimated at appraisal based on price trends in the international market; (ii) special steel (a primary raw material) is priced at international price of US$1,200 per ton; and (iii) labor rates are no. shadow priced to be consistent with appraisal methodology. 4.06 The incremental ERR of the project in real terms is 14.3%, compared with 15.6% at appraisal (Annex 6). The lower ERR is due to higher production cost as compared to appraisal estimates. The ERR is very sensitive to prices. If the prices improve by 10%, the ERR increases to around 18.2%. If, however, prices fall by 10%, then ERR would drop to around 10.0%. V. BANK ROLE AND LESSONS LEARNED A. Bank Role 5.01 The major Bank role during project preparation, appraisal and negotiation were as follows: (a) Project Design and Technology Transfer. During project appraisal the use of the newly introduced Cold Forming Process (for manufacturing of bearing rings) was suggested to Brasov management by the Bank appraisal team. This represented a change in process choice and had a favorable impact on the quality of rings produced and also resulted in some decreases in investment costs for other equipment required under the project; it also resulted in use of lower quality, lower cost steel as raw material for bearing rings. This technical change in project design and scope was successfully implemented by Brasov. (b) Procurement - Sourcing of Equipment (i) Equipment List. During appraisal it was determined that a large quantity of imported equipment (with high standards of - 25 - precision) was needed to assure the substantial product quality improvements (and productivity levels) expected under the project. Because of awareness of very strong pressures to reduce foreign exchange expenditures (by substituting locally manufactured goods) previously experienced in the Otelinox Special Steel Project, the Bank set strict limits on bidding procedures and allocation of funds between (1) imported, and (2) locally supplied equipment (i.e., no substantial change in the list of imported equipment, spare parts or services was permitted without prior agreement of the Bank). T.us the Bank provided a firm mechanism to assure that the mix of foreign/local equipment required for product quality improvements would, in the end, be actually purchased for the project. (ii) Increased Competition among Equipment Suppliers to the Project. By making a clear delineation between equipment to be supplied from imports versus equipment which could be supplied from Romania, foreign suppliers were better informed about potential competition for supply to the project, than if such delineation had not been made clear in the beginning. Under the circumstances, this procedure promoted greater effective competition among foreign suppliers than otherwise might have been obtained (in other cases, knowledge of domestic participation in bidding on Romanian projects has sometimes resulted in decreased interest of some foreign firms to compete). (c) Industrial Engineering Group. One of the components of the project recommended by the Bank was the creation of a new Industrial Engineering Group in the Central,4/ to increase the use of systematic technical and analytic methods being applied to business decision making. Examples are described below of improvements made at Brasov:5/ (i) Labor Productivity - reducing practical manning levels for production machines, together with revised work stations and efficient layouts; (ii) Size of Work Force - analytic studies were made resulting in reduction of (net increase in) work force by at least 400 men; (iii) Product Mix Analysis and Rationalization of Plant Product Mix (all three major bearing plants) - studies were made to identify and eliminate unprofitable bearing types, or evaluate the economics of production of bearing types yielding marginal profits; 4/ Central Design Institute "Ministry of Machine Building-Central Institute for Machine Tool Design. 5/ Similar studies are being carried out for Birlad and Alexandria bearings plants. 27 - (iv) Inventories - inventory reduction studies were made to reduce the amount of work in progress and reduce interest costs on inventory, especially steel and semifinished materials; (v) Material Handling in Plant - additional use of conveyor systems, automatic loading and unloading; (vi) Automation and Quality Control Techniques - increased use was made of "in process" gauging equipment (instead of checking only at stage of final finished product) to reduce subsequent processing costs and achieve higher overall levels of bearing production in the high quality categories; (d) Export Marketing. At the recommendation of the Bank, Brasov organized an increased effort to develop an effective export marketing strategy for ball and roller bearings. Such efforts were apparently successful as indicated by the large increase in exports from 6.1 million bearings in 1976 to 15.2 million bearings in 1982, a period during which overall exports of Romanian bearings actually decreased (para 3.04). (e) Ecology. The Bank emphasis on improvement of plant working conditions - especially noise control and oil mist in the work place - resulted in some increase in attention actually devoted to reduction of noise in the ball making shop; and oil mist (in the air) in the turning shop through additional ventilation and changing of air. B. Lessons Learned 5.02 The schedule (used at appraisal) for supply of locally manufactured equipment was optimistic.6/ More realistic schedules should be utilized in similar situations in Romania or similar countries. Project implementation schedules for future projects should allow substantially more time for: (a) local design, domestic production, and proper quality control, of additional capital equipment to be produced locally for the first time and included in Romanian Industrial Projects (a longer learning curve for the initial production of satisfactory local equipment); and (b) absorption of new technology for production processes, (i.e., cold forming, complex metal stamping processes, development of full tooling, etc., in the case of Brasov). 5.03 In this respect, some of the lessons learned in carrying out the OTELINOX Special Steel Project (regarding problems on sources of equipment - also in Romania) were successfully applied in the case of the Brasov 6/ This delay had very limited impact on the overall completion of the project. .- 28 - project. During appraisal it was determined that attainment of project objectives - especially improvements in product quality - would be dependent on acquisition of imported machinery and equipment such as lathes, grinders, precision super finishing machines, and measurement/ control instrumentation. For that reason, somewhat rigorous conditions were imposed by the Bank in regard to the make up and sourcing of individual project components, (i.e., "equipment list" of imported machinery versus domestic machinery). Although these conditions were initially opposed by the Romanian officials, during project implementation it was generally concluded by both sides that they were helpful in resisting strong pressures to cut back on the amount of imported equipment used in the project (as a part of strong Government efforts to minimize expenditures of foreign exchange). Such restrictions proved to be necessary to assure that project objectives were essentially obtained. PART A -29 - ANNEX 1 ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Capital Cost Estimates a/ Appraisal Estimates Actual For- For- eign eign Local b/ Total Local c/ Total ---------------- (Let million) -------------- Equipment, Machinery & Spare Parts 507.9 528.1 1,036.0 641.7 670.2 1,311.9 Others 269.1 45.9 315.0 300.6 - 300.6 Contingencies d/ 40.0 186.0 226.0 - - Total Fixed Assets 817.0 760.0 1,577.0 942.3 670.2 1,612.5 Working Capital 178.2 - 178.2 199.8 - 199.8 Total Project Costs 995.2 760.0 1,755.2 1,142.1 670.2 1,812.3 Interest During Construction - 105.8 105.8 - 96.4 96.4 Total Financing Required 995.2 865.8 1,861.0 1,142.1 766.6 1,908.7 ---------------- (US$ million) Equipment, Machinery & Spare Parts 25.4 26.4 51.8 37.9 38.0 75.9 Others 13.5 2.3 15.8 17.3 - 17.3 Contingencies d/ 2.0 9.3 11.3 - - - Total Fixed Assets 40.9 38.0 78.9 55.2 38.0 93.2 Working Capital 8.9 - 8.9 15.0 - 15.0 Total Project Costs 49.7 38.0 87.7 70.2 38.0 108.2 Interest During Construction - 5.3 5.3 - 5.7 5.7 Total Financing Required 49.7 43.3 93.1 70.2 43.7 113.9 a/ Prepared by the Borrower and Bank staff during June 1984 PCR mission. b/ Constant exchange rate of US$1 - Lei 20 used for conversion. c/ Exchange rates at the time of payment used. 7/ Price contingencies for local cost are assumed to be zero at appraisal. '*30 - PART A AlUK 2 amNIA - 8RASW BEARINGS PROJECT (LOAN 1436-80) PROJECT COPLETION REPORT inaneitd Plan a/ (in Let Million) 1984 1985 1977 1978 1979 1980 1981 1982 1983 c/ c Total Needs Loal 66.8 178.2 167.8 163.4 177.4 106.6 81.1 - - 941.3 Foreignb/ - - 345.6 255.6 9.0 60.0 - - - 670.2 Working Capital - - 22.0 27.4 43.7 24.7 18.0 32.0 32.0 199.8 Interest during Construction - - - 35.5 33.0 27.9 - - - 96.4 Total 66.8 178.2 635.4 481.9 263.1 219.2 99.1 32.0 32.0 1,907.7 Sources IBD oans - - 290.0 241.7 54.2 62.6 10.1 - - 658.6 Own Funds 66.8 70.4 91.9 126.6 25.0 43.0 53.2 - - 476.9 State Funds: Finad Capital - 107.8 131.5 50.7 102.2 61.0 17.8 - - 476.0 Working Capital - - 22.0 27.4 43.7 24.7 18.0 32.0 32.0 199.8 Interest during Construction - - - 35.5 33.0 27.9 - - - 96.4 Total 66.8 178.2 535.4 481.9 263.1 219.2 99.1 32.0 32.0 1,907.7 af Prepared jointly by the Borrower and Bank staff. b/ Exchange rates at the time of payment used. / Estimates. 31 - PART A ANNEX 3 ROMANIA - BRASOV BEARINGS PROJECT PROJECT COMPLETION REPORT Disbursement Schedule (US$ 000) Calendar Disbursed Disbursed Year Quarter in quarter Cumulative in Quarter Cumulative 1977 I 0 0 0 0 II 0 0 0 0 III 870 870 0 0 IV 1,000 1,870 0 0 1978 I 1,000 2,870 0 0 II 1,000 3,870 0 0 III 1,500 5,370 0 0 IV 1,910 7,280 300 300 1979 I 1,500 8,780 800 1,100 11 2,000 10,780 3,400 4,500 III 2,000 12,780 6,500 11,000 IV 2,000 14,780 4,000 15,000 1980 I 2,350 17,130 6,810 21,810 II 2,000 19,130 4,290 26,100 III 2,350 21,480 1,200 27,300 IV 2,000 23,480 3,900 31,200 1981 I 5,000 28,480 1,395 32,595 II 5,000 33,480 517 33,112 III 2,520 36,000 37 33,149 IV 2,000 38,000 99 33,248 1982 t 0 38,000 292 33,540 II 0 38,000 585 34,125 III 0 38,000 3,204 37,329 IV 0 38,000 299 37,628 1983 I 0 38,000 211 37,839 II 0 38,000 161 38,000 IDENIA - RAS BEARDI0 PIWHCF (La 1436-D) in=EC 036'1£rIN Ff~tK inm= Statements (Iai tlli~ns) Atual Est. SAR atiotes 1979 1980 1981 1982 1983 1985 1979 1980 1981 1982 1m3 1985 Proaction (allin bearis) 30.3 31.5 36.4 39.5 42.9 53.0 39.0 43.0 46.0 49.0 50.0 53.0 raenus 1,281.6 1,386.1 1,500.7 1,588.7 1,696.5 2,015.0 1,352.4 1,518.0 1,612.9 1,732.3 1,783.1 1.953.4 Direct, of dch: Rm hals. 6 Other Productton Motl. 419.9 453.1 607.5 650.6 794.5 813.7 390.9 428.9 436.6 463.0 481.4 555.9 1es (bncl. Soal Charges) 254.9 310.5 333.9 341.6 359.0 444.2 347.5 336.9 33.0 334.3 336.6 342.8 Inees, ibols, etc. 60.2 72.9 83.0 115.4 119.6 151.4 32.1 35.2 37.4 39.6 40.4 43.1 Subotal 734.9 836.5 1,024.4 1,107.6 1,273.1 1,409.3 769.8 801.0 807.0 836.9 858.4 941.8 Grs Profits 546.7 549.6 476.3 481.1 423.4 605.7 582.5 717.0 806.0 895.4 924.7 1,011.6 Indirect, of Jdich: Depec~iton 69.1 82.1 116.4 132.1 140.8 169.4 168.1 212.2 260.5 260.5 20.5 165.5 General Pactory Overhead 33.8 34.2 33.3 57.0 60.0 50.7 30.9 35.5 37.8 40.6 42.0 47.3 Maatenue & Rpairs 43.6 53.' 69.0 83.8 %.7 103.6 132.1 133.7 137.8 140.1 140.1 136.5 Mise. P=lanes - - - - - - - ---- S*htal 146.5 169.3 218.7 272.9 299.5 223.7 331.2 381.5 436.1 441.2 442.5 349.3 ~enfits 400.2 380.3 257.6 208.2 123.9 382.0 251.4 335.6 369.9 454.2 482.1 662.3 Tnterest- Foregn aan - 35.4 33.0 27.8 25.0 20.0 - - - 53.0 46.7 34.3 nits After Interest 400.2 344.9 224.6 180.4 98.9 362.0 241.5 335.6 369.9 401.3 435.4 62.1 ft,n (x): Grss Prof~t/&=mues 42.7 39.7 31.7 30.3 25.0 30.1 43.1 47.2 50.0 51.7 51.9 51.8 &fits/AkNes 31.2 27.4 17.2 13.1 7.3 14.0 18.6 22.1 22.9 2.2 27.0 33.9 nfits fter Interest/Revenue 31.2 24.9 15.0 11.4 5.8 13.0 18.6 22.1 22.9 23.2 24.4 32.2 -33 - PART A ANNEX 5 ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Financial Rate of Return Calculation (In millions of constant 1983 LeI) With Project Without Project Capital Working Operating Operating Year Cost Capital Revenue a/ Cost Revenue b/ Cost 1977 86.04 1978 225.01 1979 635.56 27.23 1,487 1,094 1,349 1,099 1980 508.53 33.25 1,477 1,087 1,323 1,078 1981 222.89 58.23 1,684 1,239 1,303 1,062 1982 194.92 28.90 1,758 1,293 1,275 1,039 1983 81.10 18.00 1,595 1,173 1,090 888 1984 32.00 1,662 1,223 1,090 888 1985 32.00 1,735 1,276 1,090 888 1986 1,735 1,276 1,090 888 1987 1,735 1,276 1,090 888 1988 1,735 1,276 1,090 888 1989 1,735 1,276 1,090 888 1990 1,735 1,276 1,090 888 1991 1,735 1,276 1,090 888 1992 1,735 1,276 1,090 888 1993 -195.41 -229.62 1,735 1,276 1,090 888 Financial Rate of Return * 9.3 (constant) a/ Based on actual production until 1983. Forecast for 1984 = 32.1 million bearings per year, 1985 onward - 33.5 million bearings per year. b/ Production assumed to remain constant at 20 million bearings per year. - 34 - PART A ANNEX 6 ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Incremental Economic Rate of Return Calculation (In millions of constant 1983 Let) With Project Without Project Capital Working Operating Operating Year Cost Capital Revenue a/ Cost b/ Revenue c/ Cost b/ 1977 86.04 1978 225.01 1979 635.56 27.23 1,636.49 1,203.67 1,484.30 1,253.20 1980 508.53 33.25 1,625.15 1,195.33 1,455.20 1,228.63 1981 222.89 58.23 1,853.22 1,363.09 1,433.69 1,210.47 1982 194.92 28.90 1,933.33 1,422.01 1,402.83 1,184.41 1983 81.10 18.00 1,754.98 1,290.83 1,199.00 1,012.32 1984 32.00 1,829.06 1,345.31 1,199.00 1,012.32 1985 32.00 1,908.83 1,403.99 1,199.00 1,012.32 1986 1,908.83 1,403.99 1,199.00 1,012.32 1987 1,908.83 1,403.99 1,199.00 1,012.32 1988 1,908.83 1,403.99 1,199.00 1,012.32 1989 1,908.83 1,403.99 1,199.00 1,012.32 1990 1,908.83 1,403.99 1,199.00 1,012.32 1991 1,908.83 1,403.99 1,199.00 1,012.32 1992 1,908.83 1,403.99 1,199.00 1,012.32 1993 -195.41 -229.62 1,908.83 1,403.99 1,199.00 1,012.32 Incremental Economic Rate of Return - 14.3 a7 Based on actual production until 1983. Forecast for 1984 * 32.1 million bearings, 1985 onward - 33.5 million bearings. Average international prices which are about 10% higher than domestic prices have been used. b/ Financial operating costs have been adjusted to reflect the cost of imported price to Romania of 52,100 high-chrome alloy steel. c/ Production assumed to remain constant at 20 million bearings. - 35 - PART B ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PCR PREPARED BY INVESTMENT BANK -36 y% - 37 - PROJECT COMPLETION REPORT ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) 1. PROJECT DESCRIPTION A. Scope and Objectives 1.01 The basic objectives of the project were fourfold: (a) Definition of capacity. The project stipulated the increase of the production capacity from 20 million bearings per year to 33.5 million bearings per year, reaching this production level in 1985. By putting the equipment specified in the project into operation by the end of 1982, the whole increase ta capacity has been created, namely 13.5 million bearings per year, with the help of which in 1982 a production of 30.052 million bearings have been achieved, that is an increase in production of 10.052 million bearings per year. It is possible to reach the 33.5 million bearings production level in 1985, as it was foreseen in the project, however, a great amount of preparation for manufacturing on the MINSTER presses is required, which can be made by end-1984. (b) A considerable Iprovement of quality has been achieved, so that presently the whole production is within the specifications of the international standards ISO, DIN, ASTM, etc. (c) A wider range of product mix. Increase in production volume has partly occurred by the increase of the number of basic types and constructive variations manufactured at that time, as well as - 38 - by tallying up the production of new bearing types. The present situation of the diversification of production relevant to the development financed by IBRD is the following: Existing at the Date of After Situation Valuation Report Development in 1982 Basic Types 210 340 415 Different Types 312 428 550 We underline the fact, that though the medium volume production has been reduced per total the volume of bearings taken up for production are not below the minimum one as far as the profitability is concerned. (d) Reduction in Cost of Production. The updating of manufacturing processes called forth a favorable effect upon the production cost by: (i) the reduction of specific manual labor per bearing from 0.259 hours/bearing in 1976 to 0.227 hours/bearing in 1982, which represents a reduction of 12.3% leading to an increase in labor productivity; (ii) the reduction of specific raw material consumption from 2.310 t/t to 2.218 t/t which represents a reduction of 4% in 1982, but while production is increasing towards final capacity, an increase in metal savings is also felt. B. Brasov Project - Its Relation to the Romanian Bearing Industry 1.02 The project is in accordance with the study and overall plan for further rationalization of the bearing factories existing in Romania. Thus - 39 - the constructional groups of bearing are divided in manufacturing companies as follows: Brasov Birlad Alexandria Single Row Radial & Radial-Axial Ball Bearings, OD 31-350 mm: Small & Medium Production Lots x - - Large Production Lots, OD 15-80 mm - - x Mass Production OD 23-50 mm - x - Double Row Radial & Radial Axial Ball Bearings x - - Axial ball Bearings - x - Single-Row Cylindrical Roller Bearings - x - Double-Row Cylindrical Roller Bearings - x - Cardan & Needle Roller Bearings x - - Spherical Roller Bearings - x - Tapered Roller Bearings: OD 66-350 mm x - - OD 31-120 mm - Large Production Lot - - x Textile Bearings x - - Machine-Tool & Other Special Bearings x - - x/ We did not mention separately URB, FRB and FRA, because the trademark for bearings manufactured in the SR of Romania is URB. When choosing the specialization of the factories we had at first in view the volume of manufacture and at the second time, the size of bearings with the aim of ac*ieving the new capacities with an increased degree of mechanization and productivity. 1.03 The above specialization promotes the achievement of certain more reduced costs and a higher etficiency in the new factories. The "Rulmentul" investment aims at the increase in capacity and also at the diversification of production in order to better assure the national economy with bearings from domestic production. C. Location 1.04 The location of "Rulmentul" Bearing Factory is in Brasov, a town situated at a distance of 175 km from Bucharest. - 40 - 1.05 The achievement of this development at Brasov had the following reasons: (a) nearness to the raw material sources, as it is the case of steel from Tirgoviste, at a distance of 90 km from Brasov; (b) petroleum products - Refinery in Brasov, Refinery in Ploisti - at 100 km distance from Brasov; and (c) abrasive wheels - Cluj Napoca - at 260 km from Brasov. 1.06 Besides the nearness of raw material sources, the "Rulmentul" Bearing Project also derived the advantages of the following existing elements: (a) roads and facilities; (b) maintenance-repair shops and laboratories; (c) highly qualified labor force, including lor-g experienced team; (d) a shop for mechanization-automation to update and increase the mechanization and automation degree. Presently most of the machines are provided with feeders, in-process transporting carriages, belt conveyors, measuring and control devices, etc. 1.07 In appendix no. I is presented the "Rulmentul" organization. D. Project Design and Know-How 1.08 The technological concept of the project has been made by a team of experienced specialists of the Factory, the Industrial Central to which it belongs and the Research and Design Center for Rolling Bearings, Plain Bearings and Assembly Components in Brasov. The know-how for this project has been based on the experience gained during the cooperation with KOYO-SEIKO Company - JAPAN in the building of the bearing factories at - 41 - Alexandria and Birlad, as well as with ROLLWAY BEARING Company, USA in the realization of the heavy, large size bearing manufacturing factory at Ploiesti. E. Components of the Project 1.09 The project is divided into two components, that is: (a) High and medium volume components. (b) Low volume component. The two components differ from technical point of view, as well as due to the different degree of mechanization of machines and technological lines. The production processes programs for the two components are presented in Annexes 19 and 20. 1.10 Initially, component 2, that is the low volume manufacturing shop was placed into a separate shop, but when running through the design work, a new solution has been found by placing it in the area left by moving the roller manufacturing shop, so that presently it derives the advantage from the same facilities (mechanized ship transportation coolant supply from the centralized station in the turning shop, nearness to the secondary heat treatment shop). F. Production Programs 1.11 The development of the production program is the following: - 42 - According to Estimate Reort Increase AcMieved Foreseei Achieved in Pro- 1976 for 1985 1983 duction Group I - Ball Bearings 31-50 mm - 120 370 370 51-80 Ma 5,180 5,000 5,300 120 81-100 as 5,300 4,880 3,730 (1,570) 101-120 am 2,000 1,700 1,740 (260) 121-160 mm 1,770 1,700 1,590 (180) 161-200 as 550 450 250 (300) 201-270 as 100 150 130 30 Total Group I T,Y5 14,000 T3iTT (1,79") Group II - Double Row Radial & Radial-Axial Ball Bearings 2,500 3,300 2,470 (30) Group VIII - Single-Row Tapered Roller Bearings: Up to 100 as OD 400 6,400 9,630 9,230 Over 100 mm OD 2 200 7 600 3,066 866 Total Group VIII , TWoo 169 10,096 Textile Bearings - 700 690 690 Group X - Transmission Sets - 1,500 1,780 1,780 Total Production 20,000 33,500 30,746 10,746 G. Quality 1.12 The major objective of the project is to increase capacity, raising simultaneously the quality level of production, too. By the endowment achieved, the manufacturing process concerning dimensional differences has been successfully controlled. The equipping of the manufacturing shops with in-process control precision machines, provided with post process measuring and control devices within the manufacturing line, has led to the realization of bearing parts which better correspond to the tolerances provided for in the manufacturing documentation compiled with respect to domestic and international standards of specialty. - 43 - H. Costs 1.13 The new endowment had a positive influence upon the reduction of production costs by the following way: (a) reduction of specific consumption of manual labor per bearing from 0.259 to 0.227 hours/bearing, respectively a reduction of 12.4% and it is decreasing continuously as far as the equipment and installations are used at their designed parameters; (b) reduction of metal consumption from 2,310 t/t to 2,218 t/t by reducing the stock removals, scraps etc. respectively a reduction of 42; (c) reduction of the average energy consumption from 4.52 kWh/brg to 3.60 kWh/brg in 1982, respectively a reduction of 222. 1. Services and Basic Installations 1.14 Power. The total electric power consumption has increased in absolute values, but in percentage this increase was less than that of production. So that: According to Estimate Report Needed Achieved in 1976 in 1982 Installed Power, kW 56,500 98,000 Absorptive Power, kW 17,000 20,000 Power Consumption kWh/Year 90,315,000 108,300,000 Power Consumption/Bearing 4.52 3.60 1.15 Other utilities and energies as natural gas, industrial water, compressed air have been supplied to the necessary developments as follows: (a) natural gas, from the state's network; - 44 - (b) drink-water and industrial water from wells existing inside the factory's territory; and (c) compressed air, from own sources of the factory. The mechanization-automation shop, as well as the maintenance and service shops, by their capacities assure conditions for the continuous increase in bearing production having in view the achievement of the parameters provided for in the "Rulmentul" Bearing Project. 1.16 All necessary provisions for utilities and service have been carried out, inclusively laboratories, separating-sorting and control equipment, jig and tool rows, storages for materials and finished products which satisfy the requirements of this stage of the project. J. Design of the Product, Engineering and Application 1.17 The annual production plan of "Rulmentul" Bearings Factory, Brasov, is established and reviewed periodically by the Industrial Central for Bearings and Assembly Components, Brasov, depending on the requirements of the national economy and on the exporting possibilities. The design of new bearing types required by industry and external end-users is a responsibility of the Design and Research Institute for Bearings and Assembly Components, Brasov on the basis of the production capacities created at the "Rulmentul" factory Brasov and the decision of the management of the Central and the Factory. - 45- II. BRIEF DATA CONCERNING THE BEARINGS INDUSTRY IN ROMANIA AND PRODUCTION PROCESSES AT "RULMENTUL" BRASOV A. The Economical Background 2.01 The bearing manufacturing industry, as a branch of the machine building industry, has been developed year by year due to the development of the other industrial branches which are manufacturing products the bearings are part of (Appendix 2). The variety of bearing types and sizes, as well as certain quality characteristics have been determined also by technical necessities which developed progressively from stage to stage. The development of bearings industry in Romania in 1950-1980 period and the estimations for future are presented in Appendix 3. The selection of manufacturing processes is determined by certain factors out of which we mention the following: (a) series of production; (b) imposed quality level; and (c) economical efficiency. B. The Manufacturing of Inner and Outer Rings 2.02 Selection of basic material and the preparation of blanks. Presently the greatest part of the bearings are made from 52100 high chrome alloy steel. At the same time some manufacturers of certain bearing types and sizes use low alloy carburizing grade steels. Generally the carburizing grade steels are used in the American industry, because they render the bearings a higher loading capacity, taking over heavier loads than the chrome steel made bearings. The application of these steel grades . - 46 - determines a selection of the technologic processes necessary for the manufacturing of blanks and the heat treatment methods to get the required hardness of bearing rings. Chrome steel blanks are obtained only be hot forming processes, while those of carburizing grade steels up to a certain dimension, depending on the type of equipment, are made also by cold forming. Cold form is new at Brasov under the project. 2.03 Rulmentul Bearings Factory. Brasov manufactures blanks from chrome steel as well as from carburizing grade steel. From chrome steel, rings for radial and single row angular contact ball bearings are made as well as self aligning single and double row ball bearings, radial needle roller bearings and tapered roller bearings having an outer diameter of above 80 mm. From carburizing grade steel cardan bearing rings and tapered roller bearing rings having an outer diameter smaller than 80 mm are made by cold forming. For ring forging, the factory is provided with automatic forging machines and lines of HATEBUR, NATIONAL and WAGNER type, horizontal forging machines, great capacity presses rolling mills, etc. The bearing rings-after rolling and sizing-undergo a primary neat treatment (annealing) in continuous, controlled atmosphere furnaces. 2.04 The basic forging process used in the bearing production has not been changes since 1980, when the capacity was increased by the purchasing of an automatic forging machine of NATIONAL HF 6.4. type. As a technological novelty in the manufacturing of blanks, in 1979, the cold forming of carburizing grade steels have been introduced for the production of cardan bearing rings and ia 1982 the cold forming of carburizing grade steels for the production of tapered roller bearing rings, operation made on VERSON type cold forming lines. - 47 - 2.05 Rings Turning. Turning of rings in low-volume production is made on universal lathes in combination with semiautomatic single-spindle profile turning (copying) lathes. Turning of rings in high volume production is made on multi-spindle automatic single and double indexing lathes and on hydraulic single-spindle integrated in transfer lines. 2.06 Rings Marking. Within the turning shops bearing rings are marked by compression on special presses. 2.07 Secondary Heat Treatment. The secondary heat treatment (hardening-tempering) of bearing rings is made in continuous controlled atmosphere furnaces. 2.08 Grinding and Superfinishing. Grinding of bearing rings is made in a special production shop arranged in workshops. Surface grinding of rings is made on special automatic feed machines provided with a wheel dressing system. External grinding is made on centerless grinding machines. 2.09 Grinding of outer ring, inner ring raceways and bores is carried out on special machines made on the microcentric principle with electromagnetic feeding of rings from a plate supported by slides. The superfinishing of raceways is carried out on superfinishing machines provided with two working stages made on the hydrocentric principle. We mention that the transfer lines are equipped with pre-process and post-process control devices for the separation of good parts from those which can be repaired. Rings machined in the grinding shop are collected on conveyors and taken to the assembly shop. '-48 - C. Ball Bearing Production 2.10 Balls are manufactured in a separate workshop equipped with special machines. Up to the 1 inch dimension the balls are obtained by cold pressing from annealed chrome alloy steel wire coils and those of over 1 inch are made by hot pressing from bars on automatic forging machines. After pressing or hot forging the balls undergo the flashing operation on special flashing machines. Also, before heat treatment the balls are ground on the on the same special machines provided with grinding wheels (plates). The heat treatment (hardening-tempering) is carried out in continuous type furnaces. After heat treatment, grinding operations and lapping operations. The technological process is organized on production lots in which each charge (lot) represents a ball type, the use of separating machines for sorting the balls thus being not required. The balls are packed in plastic boxes lined with antirust paper and stored on dimensions and types and overtaken by the computer for evidence. They are allotted from the storeroom both to assembly and to other end users.,/ D. Manufacturing of Rollers 2.11 Rollers are manufactured by cold pressing from drawn steel in coils up to 21 am diameter and by turning on multispindle automatic lathes over this dimension. Heat treatment is made in continuous type furnaces. Machining after heat treatment is made on grinding machines arranged in transfer lines. External appearance control is made on testing devices by specialized people. After checking the external appearance of rollers, they are separated on diameter and angle size on specialized CENSOR and 1/ .... of the balls are manufactured on new machinery supplied under the project, resulting in (part of) quality improvement cited. - 49 - FEDERAL type machines. The rollers are packed in plastic boxes lined with antirust paper and stored in the semi-product store-room of the assembly shop. Storage is made on types and sizes and sorts. E. Cage Production 2.12 Cages for radial ball bearings in high volume production are manufactured from strip material on high productivity ESSA type presses. Cages for spherical roller bearing are made on multi-stage transfer presses. In 1982, two MINSTER presses have been purchases, on which tapered roller bearing cages and medium size radial ball bearing cages are pressed. These technologies will lead to the increase of productivity and quality level. In low volume production we shall continue to produce cages on classical presses. F. Assembly, Final Control, Packing 2.13 Within the assembly shop mating of bearing parts is made so that to assure the required technical conditions imposed for the bearings. Hi-volume production bearings are assembled on mechanized equipment low-volume production is assembled manually. Fully automatic assembling lines have not yet been introduced.2/ Washing of bearings is carried out on specialized machines in petroleum products. Preservation of bearings is made on special installation for conservation. Packing is made by hand. 2/ Three semi-automatic (flexible) assembly lines for tapered roller bearings have been assembled locally and installed in first half of 1984. Another four lines are planned for other bearings and are to be commenced in 1984/85. - 50 - III. IMPORTANCE OF PRODUCT MIX IN PROJECT FORMULATION 3.01 In the "Rulmentul" Bearings Factory, Brasov bearings of some construction groups are manufactured in accordance with the specialization program of the bearing production within CIROA. The manufacturing series for which Rulmentul Brasov is specialized, varies from 100 pcs./year to 1,200,000 pes./year depending on the requirements of the domestic market and contracts for export. Depending on these manufacturing series, the factory has been equipped with necessary machines and equipment, for the achievement of the production from both quantitative and qualitative point of view. Due to the great variation in the manufacturing series, it was necessary to provide for and use flexible, general purpose machine tools with possibilities for frequent change-overs from one dimension to the other within the machining capacity of the respective equipment and within the specialization of machines on technological operations and on bearing types. The majority of equipment, especially those for grinding are equipped with automatic loading and unloading devices which can be included in transfer lines.3/ Industry Product Mix 3.02 In 1975, Romania consumed about 45.5 million bearings of some 6,000 different types and sizes of bearings, both basic designs and constructional variations. out of these about 39.1 million bearings, representing 1,419 types and sizes have been supplied from domestic production (the total local production rising to 70.6 million bearings), 3/ As justified by product mix, a higher degree of automation could be introduced into the production process, when needed in the future. - 51 - the balance of 6.4 million bearings, about 6 million dollars in value, respectively 4,581.types and sizes, have been imported. In the period between 1975-1982 the situation of domestic consumption is as follows: Supplied from Domestic Domestic Supplied Consumption Production From Import Crt. Million Types & Million Types & Million Types & No. Year PCs. Sizes Pes. Sizes Pcs. Sizes 1. 1975 45.5 6,000 39.1 1,419 6.4 4,581 2. 1976 44.4 6,500 39.4 1,790 5.0 4,710 3. 1977 50.5 7,100 465.4 2,301 4.1 4,799 4. 1978 51.5 8,000 47.4 2,965 4.1 5,035 5. 1979 55.5 8,500 49.6 3,150 5.9 5,350 6. 1980 58.8 9,000 49.4 3,594 9.4 5,406 7. 1981 59.5 10,000 49.4 4,100 10.1 5,900 8. 1982 62.0 10,850 50.8 4,750 11.2 6,100 Source: CIROA - Brasov. 3.03 From the above, the conclusion is that within CIROA action had been taken in order to widen the range of product mix which increased with about four times. To these achievements "Rulmentul" Bearings Factory in Brasov had a considerable contribution.4/ Product Mix in Rulmentul Bearing Factory Brasov 3.04 Beginning with 1975 up to 1982 the enterprises have been developed to manufacture bearings in order to meet domestic requirements and a considerable great volume for export. The factory in Brasov is 4/ Although efforts to standardize sizes and types were made, several factors resulted in a widening of product mix manufactured in Romania: (i) severe restriction on bearings Imports on maintenance; and (ii) additional diversity of bearings exports judged to be necessary to assist marketing of export sales. - 52 - producing besides normal type bearings - standardized - a wide range of special bearings required either determined by the reduction of bearing imports for maintenance or by the taking up of the manufacture of bearings on the basis of license, within which also special bearings are included. In order to meet both domestic and external dewands, the factory was obliged to widen the range of products to be manufactured in it. Thus, year by year new products and new constructional variations of the basic types and sizes have been taken up to manufacture. To illustrate the above mentioned information of Appendix 4, the evolution of the production by constructional groups and bearing types and sizes between 1975 and 1982 on the basis of exact dates is shown. Also in the above mentioned Appendix, it is to be observed that besides the fact that the number of basic types has been continuously increasing,the number of constructional variations has been more considerably increased (more than two times). IV. PURCHASES AND ALLOWANCES THE LOAN OF BANK PROCUREMENT ARRANGEMENT 4.01 The machines and equipment financed from the IBRD loan were divided in 2 groups (as shown in Attachments 6 and Attachments 7). The amount granted for these purchases has initially been of $26 million, which was subsequently increased by the amount provided for "unallocated" - $5.5 million- thus, the total for this group amounts to $31.5 million.5/ The provided and effective value for the Romanian purchases was $6.5 million. 5/ Bank estimate was US$31.0 million, not US$26 million. * - 53 - 4.02 Analyzing the situation of purchases carried out within the list the result is that: (a) The number of machinery foreseen to be purchased from import was 146 from which 131 have been purchased. Thirty-one machines and different equipment have not been purchased. The number of machines within an item has been increased especially for superfinishing (11 machines) and for grinding - this increase is quantity being necessary due to the wish to get an improvement in bearing quality. There are certain equipment we could easily renounce, because: (i) some machines of the kind we have purchased had a higher productivity than that estimated to cover our requirements; (ii) certain items could have been purchased from CAER countries; (iii) certain items have been subsequently considered unnecessary. (b) From 592 machines foreseen purchased with the Romanian sellers - 116 machines have been purchased with the amount of $6.5 million granted, that is 476 machines less than foreseen,6/ the rest of items have been manufactured without any use of the loan granted. In conclusion, the result is that the machines and equipment foreseen purchase with the participation of Romanian Seller in Attachment II have been under estimated as far as their price is concerned, so that from the amount of dollars granted only 1/5 could be covered. Although we required for these 6/ Bank estimates had not been based on purchase of all this equipment with Bank funds, i.e., only US$6.5 million plus additional local costs (Lei). . - 54 - purchases the allowance of all the amount or part of the amount stipulated at "unallocated" IBRD did not agree, allocating the whole amount ($5.5 million) for import exclusivelye/ 4.03 For the procurement of machines, measuring and control apparata as well as equipment, 29 packages have been provided as shown in Appendix 7 Attachment I of the evaluation report. 4.04 Procurement has been divided into two categories having in view the suppliers; (a) Category I - direct imports. For this category only foreign companies entered the bid, the Bank financing the costs of direct imports of machinery, equipment and services. (b) Category 11 - other. For this category, besides foreign companies, also Romanian companies have been prequalified, participating in the bidding along with foreign bidders.8/ 4.05 As far as procurement value is concerned it is divided into two categories: (a) values higher than 100 thousand $ have yet with direct contracts according to the loan agreement; (b) values under 100 thousand $ for which no bidding have been held; in this category measuring and control apparata are included. 4.06 From the total of 29 packages, for 4 packages no bidding have been held; the equipment provided for in these packages being not required any more. These packages are:- 7/ If it were done actual imports would have been less. 8/ All of it won by Romanian companies. . - 55 - (a) package 23 - surface grinding machines (b) package 27 - automatic assembly line, including packaging equipment (c) package 28 - antifriction bearing retainer processing machines (d) package 29 - maintenance tools, milling machines etc. 4.07 From the packages entering the bidding only one have not been contracted - package 22 - milling and boring machines the bidding being won by ICE Masineexportimport - Romania (SRR), but the 6.5 million $ fund granted was not enough to cover also the value of these properties. For the same reason, from the 187 single-spindle lathes foreseen and bid within package 4, only 30 have been contracted. 4.08 Analyzing the way these 31.5 million $ for imports (83% from loan) have been dispersed by countries, according to the purchases made by now; we come to the following: . - 56 - % from the Contracted Amount Crt. Value in of No. Country $'000 $31.5 M Remarks 1. Italy 6,983 22.0 Grinding Machines Multi-Spindle Lathes 2. West Germany 6,594 21.0 Multi-Spindle Lathes Presses Recycling Equipment 3. USA 6,089 19.0 Presses Separating-Sorting Machines 4. Belgium 3,480 11.4 VERSON Presses 5. Switzerland 3,053 10.0 High-Precision Tool-Room Equipment 6. Austria 2,994 9.0 Air-Conditioning Equipment 7. Sweden 1,454 5.0 Centerless Grinding Machines 8. Japan 581 2.0 Heat Treatment Equipment Ball Washing Machines 9. England 213 0.4 CINCINNATI Grinding Machines Control Apparatus 10. Spain 79 0.2 Electro-Erosion We consider that the greatest amount have been granted to the companies in the USA, from which we bought especially automatic presses, at a relatively high price, but the high productivity rate warrants this price level. Thus, besides the amount of $6,089 thousand shown for the USA - the sum of $3,480 thousand for Belgium may also be considered to belong to the USA because VERSON company is a branch of the American company. The same is the situation with WEST GERMANY where about $2 million are provided for the roller presses from NATIONAL company, which is a branch of the American - 57 - company. Consequently, it can be said that about $11.5 million representing about 30% of the $31.5 million fund, belongs to companies in the USA. We consider consequently that the $31.5 million fund granted for these purchasing has been sufficient and it was used with judgement in order to assure the final production capacity and the foreseen quality.!/ 4.09 The Romanian party won the bidding for: (a) package 4 - hydraulic single-spindle lathes - 30 pcs. (b) package 5b - hydraulic and sizing presses - 12 pcs. (c) package 14b - heat treatment lines and furnaces - 7 pes. (d) package 15 - bearing ring rolling machines - 7 pes. (e) package 17 - flashing, grinding and lapping machines - 60 pes. The value of equipment within these packages is of $6.5 million. Bidding Procedures 4.10 Category I - Direct Imports. During the different stages of purchasing have been repeated the IBRD norms concerning the acquisitions. In this category only foreign companies have been foreseen. To these companies invitations for bidding were sent and necessary technical discussions were held before the biddings. After receiving the technical offers, technical discussions were held in order to clear any problems. Priced bids were opened and read publicly on the date of bidding. The bid evaluations have been approved by IBRD and after this, the successful bidder was notified in writing and then invited to Bucharest for discussions leading to a final contract. 9/ US$31.5 million was used for foreign equipment purchase. - 58 - 4.11 Category II - Other. Bidding procedures for this category were similar to those provided for category 1, the only difference being that both foreign and Romanian companies had been prequalified for bidding. One hundred percent of these items were won by Romanian firms. 4.12 Procurement was made by I.R. Brasov with the help of Ciroa-Brasov in all the technical aspects. Primary responsibility for commercial aspects of procurement rests with ICE Uzinexportimport. All the bidding packages have been contracted through ICE Uzinexportimport, except package 21 -- measuring and control apparatus -- amounting to about $265,000 and the electrolytic marking machines amounting to about $141,000, which were contracted through ICE Technoimportexport. Implementation Schedule for Purchases Realization 4.13 The expected timing for purchases realization project implementation is given in Appendix 5. As is shown in Appendix 5, there are three distinct stages (groups) of the implementation schedule: (a) In Group 1 generally imports are included which have been foreseen to be purchased from the $26 million fund. As compared to the initial data for bidding termination (the first quarter of 1978) the finish of bidding has been until the second quarter of 1978, exceptions -- one bidding made in December of 1978 for the air conditioning equipment. Delivery of equipment for high- and low-volume component was foreseen to be ended in the second quarter of 1981. All the equipment provided for within the $26 million fund was delivered in the December 1978-May 1981 period, thus the requirements being met. Acceptance (reception) - 59 - of equipment was also carried out in the scheduled period (by March 31, 1982), this term being delayed only: (1) package 6 - 2 surface grinding machines, SIM - Switzerland, accepted in December 1982. (ii) package 24 - air conditioning equipment - Euroclima - Austria, which overtook the contract from 0KG company, which went bankrupt. Acceptance was done in December 1982. (b) Group 2 covers eqtjipment purchased from the $5.5 million reallocated later from reallocated category. The following packages were part of this group: (i) package 14a - generator parts - Aichelin - Austria. (ii) package 3 - 4 multi-spindle lathes - Gildexeister - West Germany. (iii) package 5a - 2 retained presses - Minister - USA; 1 retainer press - Essa - Switzerland. (iv) package 9 - 1 grinding machine - Famir - Italy. Biddings for these imports were held in the July 15, 1980-November 13, 1980 period. They were contracted in the January 18, 1981-December 3, 1981 period. Delivery period was January-December 1982 and for Famir has been delivered grinding machine, March 1983. (c) Group 3 covers different measuring and control apparatus contracted in the third through fourth quarters of 1982 and the delivery term of which is the first quarter of 1983 in the January-April period. For this group, because the values are under $100,000, no biddings have been held. . - 60 - V. PRODUCTION MARKETING AND DOMESTIC AND EXTERNAL MARKET FOR BEARINGS 5.01 The designation of Romanian-made bearings in the period between 1970-85, compared to the provisions of the IBRD study, is as follows: For Romania, as a Whole Estimated 1970 1972 1974 1976 1978 1980 1982 1985 ------------ (Million Pieces of Bearings) - Total Production Foreseen 24.5 28.3 50.7 74.4 94.0 112.0 129.0 145.0 Achieved 24.5 28.3 50.7 72.6 92.0 101.9 109.3 125.0 Out of Which: prelim. For Domestic Consumption Foreseen 17.1 21.2 36.8 52.0 59.0 65.0 70.0 82.0 Achieved 17.1 21.2 36.8 49.4 45.7 47.7 64.8 70.0 For Export Foreseen 7.4 7.1 13.9 35.0 41.0 52.0 57.0 63.0 Achieved 7.4 7.1 13.9 23.0 46.3 54.5 44.5 55.0 Amount of Production Designed for Domestic Consumption in Total Production (%): Foreseen 69.8 74.9 72.6 69.9 62.7 53.6 54.2 56.6 Achieved 69.8 74.9 72.6 68.3 49.7 46.5 59.3 56.0 5.02 In the period up to 1976, when the volume of production was smaller, the bearing production was designed in a proportion of 70% to domestic consumption to satisfy the requirements of the Romanian economy. In the period after 1976, together with a more marked increase of the bearing production in Romania, the volume of production designed for domestic consumption has been reduced to about 50% and that of the exports has been considerably increased, in certain periods exceeding even 50% of the total Romanian production, especially in periods of favorable world - 61 - market position. It must be mentioned that the deviations recorded as far as production and its designation are concerned are not essential as compared to the IBRD provisions, the obtained achievements confirming it. 5.03 As far as the Rulmentul Bearings Factory, Brasov, is concerned the designation of production in the 1475-85 period is as follows: 1975 1976 1978 1980 1982 1983 1984 1985 ------- (Million Pieces of Bearings) --- Total Production Foreseen 28.5 27.8 34.0 43.0 49.0 53.0 Achieved, Out of Which 28.5 27.8 30.0 31.8 39.5 43.0 46.0 53.0 prelim. For Domestic Consumption Foreseen 22.5 21.7 25.6 31.0 36.5 40.0 Achieved, of Which the Project 22.5 21.7 17.6 19.2 24.3 29.1 30.4 34.3 For Export Foreseen 6.0 6.1 8.4 12.0 12.5 13.0 Achieved 6.0 6.1 12.4 12.6 15.2 13.9 15.6 18.7 Amount of Production Designed for Domestic Consumption (%): Foreseen 79 72 70 71 70 69 Achieved 79 72 59 60 62 65 A considerable reduction of the production volume for domestic consumption in the period of 1978-82 is observed, especially as a consequence of the increase in production for exports, exceeding the provisions of IBRD for this period. 5.02 Referring to the domestic consumption of bearings for the period between 1975-85, the initial provisions have not been totally confirmed, the situation per main consumers presenting itself in the following way: ' - 62 - 1975 1980 1985 Foreseen Achieved Foreseen Acheived Foreseen Achieved - (Thousand Pieces/%) Total Consumption 46,600 45,500 65,000 58,800 85,000 85,000 Out of Which: 100 100 100 100 100 100 Transportation & 14 450 14,500 17,550 16,450 22,100 22,100 Agricultural 31 32 27 28 26 26 Equipment Technological 4,190 4,190 7,800 7050 12,750 12,750 Equipment 9 9 12 15i 15 Electrical 4,610 4,610 9,100 7,650 12,700 12,750 Equipment 10 10 14 13 15 15 Maintenance 11,700 11,700 14,950 14,700 18,750 18,700 25 26 23 25 22 22 Other Consumers 11,650 10,550 15,600 12,950 18,700 18,700 25 23 24 22 22 22 According to these changes, the average annual increase structures foreseen have also been changed, that is: 1976-80 1981-85 Foreseen Achieved Foreseen Achieved - --- (RHA %) Total Bearing Consumption 6.9 5.3 5.5 7.6 Transportation & Agricultural Equipment 4.0 2.6 4.7 6.1 Technological Equipment 13.0 11.0 10.2 12.6 Electrical Equipment 14.6 10.7 6.9 10.8 Maintenance 5.0 4.7 4.6 5.0 Other Consumers 5.9 4.2 3.7 7.6 5.05 The bearing production showed a more rapid increase rate than that of the bearing demand. Thus, in the period between 1976-80 production has been increased by an annual rate of 7.6%, while the domestic consumption increase rate was of 5.3%, which made the acceleration of . - 63 - bearing export feasible. The evolution of the balance of bearings in the period 1975-85 is as follows: Rate of Increase 1976 1981 1975 1976 1977 1978 1980 1982 1985 -80 -83 (Million Pieces) ---------- - Production Foreseen 70.7 74.4 81.0 94.0 112.0 129.0 145.0 9.6 5.3 Achieved 70.6 72.6 88.4 92.0 101.9 109.3 125.0 7.6 4.2 prelim. Import Foreseen 6.4 4.5 5.0 5.0 5.0 4.0 4.0 - - Achieved 6.4 5.0 4.1 4.1 9.4 11.2 12.0 8.0 5.0 Total Supplies Foreseen 77.1 78.9 86.0 99.0 117.0 133.0 149.0 8.7 5.0 Achieved 77.0 77.6 92.5 96.1 111.3 120.5 137.0 7.6 4.3 Domestic Consumption Foreseen 46.0 52.0 55.0 59.0 65.0 70.0 85.0 6.9 5.5 Achieved 45.5 44.4 50.5 51.5 58.8 62.0 85.0 5.3 7.6 Export Foreseen 26.0 35.0 37.5 41.0 52.0 57.0 63.0 14.9 3.9 Achieved 21.6 23.0 38.2 46.3 54.5 44.5 55.0 20.3 - % Imports from Domestic Consumption Foreseen 14.0 9.0 9.0 8.0 8.0 6.0 5.0 - - Achieved 14.1 11.3 8.1 8.0 16.0 18.1 14.1 - - % Exports from Production Foreseen 31.0 47.0 46.0 44.0 46.0 44.0 43.0 - - Achieved 30.6 31.7 43.2 50.3 53.5 40.7 44.0 - - The achievement of certain increased imports has partly balanced the unachievement of foreseen production and the domestic volume consumption has assured additional export availabilities which were kept at a high rate, respectively, at about 50% of production. - 64 - 5.06 By the development achieved during this period, the Rulmentul Bearing Factory's contribution to the total bearing production of Romania is more than 352, being the unique supplier of needle roller and cardan bearings, self-aligning and double-row radial-axial bearings and stngle-row angular contact ball bearings, designed for machine-tools and wheel-heads. The offtake of domestic pro4uction is centralized through a specialized enterprise which distributes bearings directly to big consumers or through territorial distributors to the rest of bearing users. The internal bearings production marketing on activity area and at export on destination is presented in Appendices no. 12, 13, 14 and 15. VI. IMPROVEMENT OF PRODUCT QUALITY AND QUALITY STANDARDS AS PART OF THE PROJECT ACHIEVEMENT PRODUCTION 6.01 The following is a list containing the classification of quality designations used by "Rulmentul" Bearing Factory and their equivalents to the quality designations found in international standards: Precision JIS; Classes ATAS ISO SKI NF UNI TGL GOST ASA Normal PO 0 - 0 PO 0 ABEC-1 P6 6 P6 6 P6 6 ABEC-3 Superior PS 5 PS 5 P5 5 ABEC-5 PA 4 P4 4 P4 4 ABEC-7 "Rulaentul" Brasov Factory uses quality designations according to STAS. - 65 - The List of Abbreviations STAS - Standard do Stat (Romania) ISO - International Organization for Standardization DIN - Deutsche Industrie Normen (West Germany) SKF - Svenska Kullagerfabriken (Sweden) JIS - Japanese Industrial Standard (Japan) UNI - Unificazione Nazionale Italiana (Italy) TGL - Technische Normen Gutevorschritten und Lieferbedingungen (GDR) GOST - Gosuderstvenii Standard (USS$) ASA - American Standards Association (USA) Quality Improvement Objective 6.02 The quality level of bearings produced by "Rulmentul" Brasov Factory in 1983 -- after applying the project -- is as follows: Equivalent Percent Dispersion Quality Level According to Actual According to ABEC Standard 4 mos. Foreseen STAS (Romania) (USA) 1976 1983 1984 for 1984 in 1985 PO 1 45 24 23 21 10 P6 3 40 56 56 57 60 P5 5 10 15 15 16 20 P4 7 5 5 6 6 10 The increased quality level achieved in 1983, during the short period after applying the provisions of the project, making use of the technical equipment, training and experience of the personnel, warrants the achieving of the quality levels foreseen in the project. 6.03 Improving the geometry of rolling elements and raceways of bearing rings by their machining within closer tolerances led to a reduced noise level of bearings in running conditions as hereunder: -66 - Percent Dispersion Foreseen Achieved 1976 1982 1985 Single Row Radial Ball Bearings Normal Noise Level Bearings: 80 50 30 Reduced Noise Level Bearings 20 40 50 "Noiseless" Bearings x 10 20 All Other Bearing Types: Normal Noise Level Bearings 100 70 60 Reduced Noise Level Bearings x 25 30 "Noiseless" Bearings x 5 10 Selection of Equipment and Quality of Product 6.04 The equipment which has been purchased within the "Rulmentul" Brasov Project with their technical characteristics, assures the quality levels foreseen in the project. The grinding machines, which define in the end the level of deviations and tolerances at sizes and surfaces of functional importance, have been properly selected to cover the requirements of each operation for which they were purchased, thus assuring the precision and fidelity imposed by the high manufacturing volume of component parts for the bearings in the program. Improvement of Quality under the Project 6.05 The organization of production within technological lines -- using the basic machines which finally determine the quality of bearings - permits and assures a close control of the quality of bearings, as they are provided with in-process, post-process control instruments, automatic devices for the control and separation of component parts and assembled bearings, to which high precision control instruments of laboratories are added for the checking of the precision and fidelity of the measurements made on control instruments existing in the production lines. . - 67 - 6.06 Having in view the large production series and the provision of automatic post-process control equipment, final control is performed according to AQL levels (Acceptable Quality Level), determined mathematically by statistics on samples taken at random excepting the high precision class bearings which will be checked 100% by hand. In the test laboratory of the Research and Design Institute for Bearings and Assembly Components representative bearings of the production lot taken at random are checked for their loading capacity, lite, fatigue resistance and test reports are made to prove the quality of production. 6.07 The quality of balls and rollers is checked 100% with special equipment of the proper level and to assure the required precision classes the principle of separation on sizes is applied, a principle assured by the existing automatic separating-sorting machines. 6.08 The hi-volume bearings are automatically assembled and checked 100% on automatic control devices for international sizes, run-out and external appearance. Also hardness, residual magnetism and noise level are checked. 6.09 We have searched and succeeded in solving the quality problems appearing on the technological lines for low-volume production where the quality is mainly determined bay the training grade and experience of operators working at this production line. 6.10 By equipping with machines provided with special adjustment and compensating devices, automatic operating cycles and in-process control equipment the number of interventions on the low-volume bearing production lines and the length of time needed for them have been successfully reduced - 68 - and the fidelity of maintaining the adjustments and the quality of manufactured parts is checked at random, manually, with the help of specific control devices for each technological operation. The quality levels obtained in 1982 are as follows: Percent Dispersion Estimated In Romania World Uside Quality Level Low-Volume Average STAS ABEC 1976 1982 Low-Volume PO 1 16 10 10 P6 3 45 45 45 P5 5 26 27 25 P4 7 13 18 20 As a result of the achievements mentioned above, a certain progress is to be observed in the manufacturing of low-volume bearings, so tat it is situated at the quality levels obtained world-wide. Quality Control and Maintenance 6.11 The Research and Design Institute is permanently controlling and testing in its own laboratories, at random the quality of manufactured bearings making comparisons with internal and international standards, observing the t&.,dencies harmful for quality in order to make proper corrections in production. 6.12 Equipping the control points (microlabs) of the manufacturing shops with control and checking equipment to allow a preventive tracing of the tendencies of deviations occurring due to the manufacturing equipment, thus giving an orientation towards the steps which have to be taken in order to maintain this equipment (machines and devices) within the indicated parameters. - 69 - 6.13 As a result, the quality factors implied achieved under the "Rulmentul" Brasov.Project assure the quality levels provided by the project.10/ VII. LABOR AND WORK FORCES AS PART OF THE PROJECT 7.01 Analyzing Appendices 5-8, Attachments I and II of the Appraisal Report, it is to be observed that two shops, machine-tools and special bearings (FRS) have not been included. In fact the report is referring to the 1975 stage and respectively to 33.5 million bearings per year stage. Comparing all these data it would result in: (a) Dispersion of the labor force in 1975 Attachment I - 6,280 (b) Dispersion of the labor force for 33.5 million bearings - 7,325 (c) Total work force of Brasov vill be - 8,553 (d) The existing situation at January 31, 1983 was of: - 8,713 Out of which: Machine-tool shop - 352 Special bearings shop FR5 - 1,086 (e) Rest of comparable personnel - 7,375 The production achieved in 1982 was of 39,518,000 bearings with a total number of personnel rising to 8,713. Comparing the total labor consumption foreseen in the Appendix, the results are as follows: - foreseen medium consumption, Attachment 1, 33.5 million bearings stage: 7,325 x 2,150 a 15,748,750 man-hours total. 10/ Based on latest available information (4 months, 1984), there appears to be some risk that attainment of quality gains may not be achieved in 1985. However, Brasov management have a firm commitment to meet or exceed quality levels anticipated under the project. - 70 - - total medium consumption: 15,748,750 : 33,500,000 * 0.4702 man-hours/pe. That is: medium consumption per bearings - 0.4702. - total medium consumption achieved by December 31, 1982: 8,713 x 2,150 - 18,732,950 18,732,950 : 39,518,000 - 0.474 man-hours/pc. That is: medium consumption per bearings - 0.474. - increase in consumption achieved as compared to the study * 0.474 --- 1.0081. 0.4702 Increase is of 0.8% with all the negative consequences shown above due to diversification, change in structure, etc. 7.02 Labor consumption per product resulting from the study, item 7, page 70, is of 0.259 man-hours/bearing and from calculations made by us at the end of 1982 it was reduced per total to 0.227 man-hours/bearing which represents 12.4% against the about 20% foreseen. To the fact that the provisions have not been achieved, the following might had had a contribution: (i) change in product structure; (ii) non-conformance to the high-volume area; and (iii) product mix (for example) we can show that in the study (STE,, the 53 million bearings stage, a number of 267 types and sizes have been foreseen and by the end of the year 1,704 types and sizes have been made that means a 6.4 times increase which led to negative influences upon working time, preparations for machining much set-up time, high consumptions of tools and jigs, etc. ' - 71 - 7.03 The comparison with certain bearing enterprises from the USA in respect of bearing production, productivity and labor force is not conclusive due to differences in the degree of endowment, mechanization and automation, structure of administration, specialization of production, integration, etc. In conclusion, we consider that as far as development in Brasov is concerned, we are within the provisions of the IBRD project for estimates made up in 1975. VIII. THE STAFF SPECIALIZATION AND TRAINING OF PERSONNEL 8.01 Between 1976-82 (the period in which the development program was applied) a great number of workers, operators have been trained in the factory and in the industrial trade school belonging to the factory, as shown below: 1976 1977 1978 1979 1980 1981 1982 Electricians - - - 8 15 18 7 Locksmiths 98 57 57 53 134 185 41 Forges & Heat Treatment Specialists 30 51 26 45 76 1 99 Tool-Makers 32 - - 32 - 3 - Cutting Machine Operators 464 440 318 436 403 594 236 Other Trades 50 56 39 72 67 44 64 Total 674 604 440 646 695 845 447 In the evaluation report we have provided for the training of 4,959 workers between the period of 1976-81; training period has been prolonged also for 1982, the total number of trained workers being of 4,351, that is with about 600 less than foreseen. I - 72 - 8.02 Training has been made in the following way: Industrial Trade School: (a) graduates of the first grade of trades high-schools (mechanics): completing the on-job training period; (b) graduates of the second grade of trade high schools (12 years-mechanics): completing the on-job training period; on-job training during the day, attending school in the evenings, Skilled workers transferred from other enterprises in the interest of duty are not included in this situation, neither skilled workers doing much simpler jobs who get their training on-job only and obtain their qualification by being examined bay the assignment committee. We mention that as compared to the period the study was prepared, certain changes in the training legislation occurred which were already applied in our enterprise too, that is: (i) the setting up of new trade high schools (mechanics); and (ii) reduction of vocational-school training time from three years to one and one half years to which graduates of the compulsory ten years' education schools may attend. 8.03 The technical administrative (TESE) staff is being completed each year according to the approved schedules with graduates of the universities who joint enterprise after getting their degrees or with graduates of the evening university courses or other training programs which upgrade existing employees. Medium-degree staff (technicians, accountants, planners, etc.) are graduates of special high-schools; foremen are chosen from highly skilled operators after graduating special foreman training schools. It is considered that both the number of skilled and trained * - 73 - employees and the trades in which they are trained according to the training program are adequate for the project. IX. THE WAY FOR SOLUTION OF ENVIRONMENTAL ASPECTS OF THE PROJECT 9.01 To the aspects of environmental protection considerable attention has been given bay the project sponsors in view of developing the Rulmentul Bearings Enterprise, Brasov, which have been solved the following way. A. Wastewater Treatment 9.02 The kind of technology used in the manufacturing of bearings does not rise significant problems as far as environmental protection is concerned, respectively, for drinking water or rainwater pollution. The main sources of pollution are: (a) coolants for grinding operations; (b) oil-base emulsions for superfinishing operations and ball-lapping, medium weight petroleum solutions for washing; and (c) wash water for surface plating operations. All these solutions and emuisions are centralized in modern recycling stations in which they are recycled and returned; unsalvageable wastes are treated so that they can be disposed of in sewerage systems, respectively waste dumping areas. Thus, 11 recycling and returning stations have been made and 2 emulsion breaking stations, too, which together with the old ones assure an environmental protection according to applicable Romanian laws.11/ For the treatment of wash water used in surface plating, wastewater treatment and neutralization systems are also provided. .I/ The most important conditions are in ................................. .74 - B. Noise Level 9.03 Ball Shop. By equipping the shop with a lower noise level machinery, as well as providing a more correct layout and arrangement of the machines, the noise level has been reduced in most of the workshops to 75-85 dB, that is, under the 85 dB level allowed by Romanian law.12/ Some areas in the flashing shop are still expected to have noise level above 5 dB. 9.04 Forge Shop. Also in this shop, by providing modern machines with reduced noise-level and by introducing certain noise-level reducing measures, noise-1evel in this shop has been considerably reduced as compared to the preceding situation and it is, anyway, under the limits allowed by Romanian law. 9.05 Grinding and Turning Shops. In these two shops noise is at an acceptable level. 9.06 One of the measures applied with good results, especially in the ball shop, was that of redesigning ind manufacturing of certain series of low-noise level machines. Thus, the MPB-800, MRB-800 and MLB-800 type machines which are part of the equipment in the ball shop have considerably contributed to the reduction of noise level within allowable limits in this shop. 9.07 Noise reduction in the shops has been attained through use of specially designed sound-absorbing panels installed to absorb noise, mainly in the ball flashinig shop, where the noise level is still high. Presently different ways to install these panels are being tested in order to get as 12/ Prior to project, noise level of 96 db existed although the legally permitted maximum was 90 db at the time. * - 75 - high an efficiency as possible. Especially in the forge and retainer shops "screens" have been placed between different machines made up from containers or shelves for tools and other arts which in fact make a sufficient sound absorption so that noise is reduced to a bearable level. In the ball, turning and grinding shops the equipment and machines have been studied and arranged so that a reduction of the noise level should be attained by dispersion due to adjacent equipment and constructional elements. C. Smoke and Oil Mist 9.08 The turning and grinding shops, in which problems of this kind did exist before, have been equipped with fans for local ventilation and high-capacity ventilation systems which assure 11 air-changes per hour in the vaole shop. As a result, the air in these shops is clean of dust and fumes, and the up-draft ventilation system pulls smoke and oil mist up from the machines, floor and walls, which assures better working conditions and a cleanliness required for the technological processes carried out here. 9.09 In the grinding and assembly shops air conditioning and air filtration systems have been introduced in areas where high levels of cleanliness are required for product quality. Such improvements assure better working conditions for plant workers. D. Disposal of Solids 9.10 Besides everyday wastes resulting from sweeping out the shops, other solids and sludge resulting from water and oil base emulsions filtering processes are recovered in centralized systems for extracting every reusable substance and material, so that useless residues are then disposed of in waste dumping areas. I - 76 - E. Land Use - Effects on Surrounding Areas and Adjacent Land 9.11 The plant site borders in the south on a large tractor factory, in the northeast on a stream and in the west on a highway which separates it from farmland. By this development the expansion of the factory has been made almost completely within the present plant site, on a total area of 47,670 m2. 9.12 Generalities. As has been shown, the type of bearing manufacturing technology does not present special problems as far as environmental protection is concerned. Consequently, in developing the plant better in-pi t working conditions have been created, especially by installing ventilat .on systems, air filtration and conditioning equipment, solving this way also all the requirements for pretentious technological processes, controlled and constant cleanliness, temperature and humidity conditions. Measures have been taken for environmental protection by the filtration of polluted air disposed of in the atmosphere, by the treatment of wastewaters and by collecting polluting substances from coolant and other liquid effluent recyling systems. Measures to Improve Working Conditions in the Forge and Primary Heat Treatment Shops 9.13 The design of the new expansion and rearrangement of these shops has been carried out according to the labor protection norms in force and regulations which assure better working conditions. Thus: (a) The height of the shop building and the lighting-suction apertures in the roof are to assure a good, natural lighting and ventilation of the shop. Certain equipment which produces smoke (shot blasting, phosphating) has been provided with local - 77 - ventilation and a part of the aeroterms for heating would absorb fresh air from outside. This way, about 4-6 changes per hour shall be assured, and the atmosphere in the shop is pleasant enough in summer as well as in winter. (b) Almost all gas-heated and open-flame furnaces have been replaced by high-frequent currency heated equipment. The gas-heated furnaces still in use are provided with economizers which assure a more efficient use of heat. (c) The medium-frequency converters used in electrical heating equipment have been placed in separate rooms to eliminate noise. - 78 - Appendix 1 q e br i i KN tchi i a 222 22i i - 79 Appendix 2 CALCULATION OF THE FINANCIAL RATE OF RETURN (RIR) FOR THE BRASOV BALL-BEARINGS PROJECT (BIRD) Year Net Profits Rate of Realization 20% 15% 1977 (21.7) (18.1) (18.9) 1978 (181.3) (125.8) (137.1) 1979 (171.8) (99.5) (113.0) 1980 (180.1) (86.8) (103.0) 1981 (141.8) (57.0) (70.5) 1982 (227.9) (76.3) (98.5) 1983 305.5 85.2 114.9 1984 485.0 113.0 158.6 1985 207.0 40.2 58.8 1986 207.0 33.5 51.1 1987 207.0 27.9 44.5 1988 207.0 23.2 38.7 1989 207.0 19.3 33.7 1990 207.0 16.1 29.2 1991 207.0 13.5 25.5 +371.9 - +555.0 - 463.5 541 -91.6 + 14 14 RIR 15 + 5 77.6 15 + 0.9 15.9% (Project funded by BIRD credits). - 80 - Appendix 3 CALCULATION OF THE FINANCIAL RATE OF RETURN (RIR) DEVELOPMENT OF THE BRASOV BALL-BEARINGS ENTERPRISE Year Net Profits Rate of Realization 20% 15% 1976 140.9 117.4 100.6 1977 401.2 278.4 204.6 1978 212.9 123.3 77.5 1979 (171.8) (82.8) (44.7) 1980 (180.1) (72.4) (33.5) 1981 (141.8) (47.5) (18.9) 1982 (227.9) (63.6) (21.6) 1983 305.5 71.2 20.8 1984 485.0 94.1 23.3 1985 207.0 33.3 7.0 1986 207.0 27.9 4.9 1987 207.0 23.2 3.5 1988 207.0 19.3 2.5 1989 207.0 16.1 1.8 1990 207.0 13.5 1.2 +817.7 - +447.7 - 266.3 118.7 +551.4 +329.0 Note: If the development of the existing enterprise is taken into consideration, the RIR is more than 50%, taking into account the results of the existing enterprise. 手戶姘。中 ·排向挪礬‘聲篷‘暮” :！〕！〕！〕〕！I, ！〕〕〕〕！〕〕〕， ！〔“&’籐‘〕！―韋〕二 登蘇’萬華居秀？！巨徑―拯瀉 雪，·：；·！于―露｝才――參―! ！〔〕〕〕！〕〕〕蠶！-! ：召·，三三‘!!i-,-i區 詠潘；頂日：號啊賽―一― 〕〕！〕〕〕〕〔；〔。 :!！〕：〕！〕I, 璽〕〕〕！！〔I。 ,Tg, 82 - APPMIX 5 RMANIA - BRASOV BURINGS PROJECT (WAN 1436-RO) PROJECT COMPLETION REPORT DeLMMATION scfizmE tal m m bd be 10 yo 40 ide am 3M om 14 am 34 & a w bol~ am !ä2 4 oftam,8 o AM TO TU@ ofteo^speto t a oweerv o@ 1,~ m mål meta e= occism To a*~ co~ov 00 1~ 0~11å. 00 ta ta ofulomv ag t~ sen 10 M, 0" ou~ .9 tom~ OF faut#~ tt pcc~o~ mo mo~ fal Å~*Nco fan Appraisal nom vol.~ CG~or Estl=te Actual A - Msuring & Control Apparatus Investment Bank 16279 R 0 a Au ZA 1è1Ihas1 2 41--34 41- 41 1 o 1 1 a~. ...... ... ..1 ''iaa.êuaoi. to *M * . 1 - sUs. 1 *M bM deel- * I ' . .. - tSaa theDL - b.B 9e.le1e St e -e t awr // 釅鯽 ：二二︰等需，鑿慧舛軾一翻 專’刀D纔煙奮為匹劉馴紹瀾總切碧啊總劉目口n斤劉總細口口為越度一1籲的伯 85 - Nodix 6 Pap I RMU - WASW WARM FMW (LOAN IL&R FRWBcr 0341MCN REM 4pmed Goods and ervlces To Be PE2E!! - frcm Bank YW*er Countries and Switzerland Provided TO RaThase Pur- Dif fer- No. dhased enees item ication Pcs- Pcs- 3-4 1. 2. 3. 4. 5. 1. Automatic Forging Press, with High Ft"ueney Heating, up to 60mm Dim. I I - 2. Cold Extrusion Preset for Tapered Rings, up to 80 om Dianater I I - 3. Special W pment for High Frequay-T Heating - - - 4. Special W pment (Parts) for Heat Treatment Furnaces - - - 5. Kdti--spinde Lathes up to 200 mm Diameter 26 15 3 +4 4 6. Converter-Wt, with ftw Portable Drilling Machines 4 - 44 7. Double Disk Grinding Machines, up to 300 = DLareter 5 6 -1 8. centerless Grinding Machines, up to 300 mm Diameter 9 10 -1 9. Grinding Machines for Ball-Beadng Rings Racemy 14 14 - 10. Inner and Outer Grinding Machines up to 100 = Dtameter 4 3 - 11. Grinding Machines for Tapered Rings Racemy up to 180 mm Diameter 15 16 -1 12. Grinding Machines for Sloping Shoulder on Tapered Rings, up to 120 mm 7 7 - 13. Continuous Carturizing Line for Tapered Rings 1 3 -2 14. Equipment & Apparatus for Heat Treatment Fwaces, Washing MwWxm, - - - Grinding Machines, Superfinishing Machines and Transfer Lines 15. Ultrasonic Wohing Machines for Balls 2 2 - 16. Heat Treatment Furnaces for Lm-ge & Small Balls 2 2 - 17. Automatic Press for Cold Forming of Tapered Rolls up to 45 mm Diameter 7 6 +1 18. Superfinishing Machine for Tapered Rolls 1 2 -1 19. Trichlorethylene Wohing Machines for Tapered Rolls 7 4 +4 20. Sorting W Ment for Tapered Rolls 11 6 +5 21. W pment & Apparatus for Grinding & Superfinishing Machines - - - 22* Automatic Kdtipost Press for Retainers Q-50/315 Ton 7 2 44 T 23. Automatic ftwises for Cutting RoU Spaces an Tapered Retainers 2 - +2 Q - 50/100 Ibn 24. Saperf inishing Machine for Roller Bearing Ramay up to 300 m Diameter 3 13 -10 25. Fquipment & Apparatus for Assembling & Fackagirg Lines - - - 26. Inside Broaching Machine for Plain Bearings up to 120 mm Diameter I - +1 27. Universal & Profile Milling Machine for Tool Room 2 1 +1 28. No Axis Coordinated Grindirg Machines for Tool Room 2 2 - 29. Universal Grinding Machines, 50/500 mm Diameter 5 3 +2 30. Masters Grindirg Machine I I - 31. Prof tie Grinding Machines 3 3 - 32. Horizontal Surface Grinding Machine I - +1 33. Precision Sharpening Machines 2 2 - 34. Part for Machine Tools - - 35. too-frequency Heating Machine I I 36. Measuring & Inspection FqApment for Laboratories - - - 86 - 6 Pae 2 Proimded TO Puchase Pur- Differ- No. chased ences Item Specificatim Ps. Pcs. 3-4 1 . 2. 3. 4. 5. 37. Equipinnt for Galvanic Plants (Parts) - - - 38. Filterirg & Cootirg Equipment for Coolants - - - 39. Filtering Equipent for Washing Liquids (W4itespirit) - - - 40. Air-conditionig Equipment - - - 41. Tubrboccpressor for Coolirg (4,120,000 Kcal/hr, 840 1W) 2 - +2 42. Special Equipment & Apparatus for Heatirg Central & Campressed Air - - - 43. Other Equipient Agreed betwen the Borrower & the Bank - - - Total 146 131 +31 -16 +15 - 87 - Appendix 7 RooIrA - WeAVs BARlUS PRJar (MMA 1436-W) PRw 020MON R Fdquient To Be Procmred from Bank Mmber ountries ad Switzerlard, Incl Imnia Provided Tb Purchase Pur- Differ- No. chased ences Item Specification PCs. Pcs 3-4 1 2. 3. 4. 5. Miahims & Fquipmt 1. Ring Rolling-Mills and Calibratig Tines up to 250 mm Dianater 14 7 +7 2. Horizaotal lathes Other than Described in Amex A; 80-800 mn Diamater 249 30 +219 3. High Frequency Equipment for Heating Rings 9 3 +6 4. Heat Treatment Purnaces with Controlled Atmosphere & Ataosphere 5 4 +1 Generators 5. Ball Memifacturiog Machines 90 60 +30 6 Presses 41 12 +29 7 Washing Mahines - - - 8. Assembly Une with Transfer & Related Parts 1 - +1 9. Rivetirg & Aserbling Machines 89 - +89 10. Steam Boiler for Heatirg with Related Equipont - - - 11. Lifting Bridges & Cranes 16 - +16 12. Horisantal Drilling, Boring & Milling Machims - - - 13. Superfinishing Machines Other than Those Described in Annex A 24 - +24 14. GriMing Machines for Forge Shop, Machine-tool Shop & Tool Roan 54 - +54 15. Measurig & Impection Equipment & Apparatus up to 250 m Diameter r-lotal - - 16. SignaliM Equipment Value - - 17. Special Ball & Tapered Bearings - - 18. Electronic Materials 19. Hydraulic Equipmnt 20. Special Elect .ic Motors 21. Special Electric Equipment & Apparatus Approx. - - 22. Different Special Razps, Valves & Fittigs $3.9 - - 23. Different Fireproof Steels aMillion - - 24. Different Alloyed Steels - - 25. Differe it Other Steels - - 26. Other Materials L - - Total 592 116 4476 - 88 - Appendix 8 ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Capital Cost Estimates - Rulmentul Bearing Factory (Lei millions) According Differences with the Achieved Exe- Total Fac.. with Estimate at cution Inv. Estimate U.M. Project 12/31/82 Rest (3+4) Project Base Costs Equipment, Let mil. 1,036.0 1,439.7 104.4 1,544.1 +508.1 Machinery & Spare Parts Erection & Let mit. 27.0 4.1 1.4 5.5 -21.5 Commissioning Utilities Lei mil. 121.4 - - - -121.4 Construction- Lei mil. 152.7 268.2 25.4 293.6 +140.9 Erection Works Design Lei mil. 13.9 69.9 3.5 73.4 +59.5 Other Lei mil. - 4.0 - 4.0 +4.0 Administrative Expenses Total Base Costs Lei mil. 1,351.0 1,785.9 134.7 1,920.6 +569.0 Physical Lei mil. 100.0 - - - -100.0 Contingencies Price Lei mi. 126.0 - - - -126.0 Contingencies Total Fixed Let mil. 1,577.0 1,785.9 134.7 1,920.6 +343.6 Assets Working Capital Lei mil. 178.2 - - - -178.2 Total Project LeTi mi. 1,755.2 1,785.9 134.7 1,920.6 -165.4 Costs Interest during Lei mit. 106.7 6.7 2.9 9.6 -97.1 Construction Total Financing Lei mil. 1,861.9 1,792.6 137.6 1,930.2 +68.3 Required - 89 - Appendix 9 ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Income Statement for 1982 Million Quantity Unit Price Lei 1. Total Production 1,603.2 Of which: Bearings - ail. pcs. 39.5 32,780 1,294.9 Other Products 308.3 2. Total Sales 1,588.7 Of which: Domestic - Base Prod. 1,100.8 Export - Base Prod. 464.4 Intern - Other Activities 23.5 3. Total Cost of Manufactured Goods 1,419.0 a. Raw Material 582.0 Steel - tons 51,765 10,435 540.2 Other Material 41.8 b. Other Materials 17.1 Paper, Cardboard 7.5 Oils, Grease 8.5 Others 1.1 c. Utilities 86.9 Electric Current 52.0 Fuel 34.9 d. Total Wages + Tax + CAS 347.2 Tax 42.8 CAS 45.3 e. Manufacturing Shop Expenses 310.5 Depreciation 126.4 Jigs & Tools 118.6 f. Gross Expenses of Enterprise 75.5 4. Benefits (133) 184.2 5. Interest at Loan IBRD 6. Resting Benefit ROMANLA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Income Statement for Manufactured Products at Rulmentul Bearing Factory - Brasov Estimate U.M. 1976 1977 1978 1979 1980 1981 1982 1985 Production (al. brgs) mil.pcs. 27.9 29.1 30.0 30.3 31.5 36.4 39.5 53.0 1. Revenues, of which: mil.Lei 1,134.4 1,235.8 1,295.7 1,286.6 1,386.1 1,500.7 1,603.2 2,015.0 -Intern mil.Let 864.0 821.4 856.8 792.1 929.1 970.4 1,138.8 1,315.0 -Export mll.Let 270.4 415.4 438.9 489.5 457.0 530.3 464.4 700.0 2. Total Costs: mil.Let 993.5 812.9 901.5 881.4 1,005.8 1,243.1 1,419.0 1,733.0 -Steel mil.Lei 393.3 334.5 395.5 383.2 407.4 535.3 582.0 685.8 -Other Material (Auxil.) mil.Let 12.2 10.2 11.7 11.1 12.0 15.2 17.1 20.0 -Utilities (Energy + Fuel) mil.Lei 30.4 24.6 25.8 25.5 33.7 57.0 86.9 107.9 -Wages + Taxes + CAS mil.Lei 224.7 254.5 254.7 254.9 310.5 333.9 347.2 444.2 0 -Special Jigs & Tools mil.Lei 64.1 62.3 59.3 60.2 72.9 83.0 118.6 151.4 Total Costs of Goods mil.Lei 724.7 686.1 747.0 734.9 836.5 1,024.4 1,151.8 1,409.3 Profits mil.Lei 409.7 549.7 548.7 546.7 549.6 476.3 451.4 605.7 Operating Expenses: -Depreciation mil.Lei 93.3 66.1 77.4 69.1 82.1 116.4 126.4 169.4 -Gen. Factory Overheads mil.Lei 30.6 17.7 31.8 33.8 34.2 33.3 57.0 50.7 -Maintenance, Repairs mil.Let 49.1 43.0 45.3 43.6 53.0 69.0 83.8 103.6 -Investment Tax + Land Ml.11i 95.9 - - - - - - - -Total Operating Expenses mil.Lei 268.8 126.8 154.5 146.5 169.3 218.7 267.2 323.7 3. Benefits (12) mil.Lei 140.9 422.9 394.2 400.2 380.3 257.6 184.2 282.0 4. Interest - Foreign Loan mil.Lei - - - - 35.4 33.0 27.8 20.0 5. Benefits After Interest mil.Lei 140.9 422.9 394.2 400.2 344.9 224.6 156.4 262.0 6. Profits/Revenues mil.Lei 36.1 44.5 42.3 42.7 39.7 31.7 28.2 30.1 7. Benefits/Revenues mil.Lei 12.4 34.2 30.4 31.2 27.4 17.2 11.5 14.0 8. Benefits After Interest Revenues mil.Let 12.4 34.2 30.4 31.2 24.9 15.0 9.8 13.0 ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Financing Plan 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Total Needs -Local Costs -Foreign Costs -Total Financing Required - (21.7) 181.3 572.0 560.4 399.4 412.1 80.5 11 75.0 2,270. Sources -Loan Funds -IBRD Loans - - - 241.7 201.4 54.2 62.6 10.1 - - 570. -Other -Total Loans - - - 241.7 201.4 54.2 62.6 10.1 - - 570. -Own Funds for Investments - - - - - - - - - -From Benefits - - - 18.9 38.6 9 8 53.2 - - 127. -From Depreciation - 66.6 70.4 73.0 88.0 16 35 - - - 349. -Total Own Funds - 66.6 70.4 91.9 126.6 25 43 53.2 - - 476. State Funds For: -Fixed Capital - 17.2 158.7 207.1 147.1 214.0 61.1 17.0 - - 822. -Working Capital - (105.5) (47.8) 31.3 49.8 73.6 217.6 (24.8) 11 75.0 280. -Interest During Construction - - - - 35.5 33.0 27.8 25.0 - - 121. -Total State Funds - (78.3) 110.9 238.4 232.4 320.6 306.5 17.2 11 75.0 1,223. Total Financing Available - (21.7) 181.3 572.0 560.4 399.8 412.1 80.5 11 75.0 2,270. £otAUmA - RASON =UMs PRWCT (W 143-1t0) _wffi COPW=rM0 Rimwe icuø.la: Historical and Projected EPort of Bearigs, 1M5-85 (1housand erinits) vet. 1965 19%6 19%7 1968 1%9 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1 A. IE Conatres "hlgar~a 887 789 498 928 525 590 345 286 431 338 635 1,517 1,751 1,151 1,i0 2,095 1,719 1,522 1, ceeoslovakla 54 280 180 441 75 146 367 278 350 665 532 755 641 758 711 605 1,822 2,121 2,0 GOR 489 1,509 630 98 36 733 522 731 1,026 1,215 2,042 1,559 1,768 1,126 1,745 2,124 2,421 2,285 2,~ uWgary 34 28 20 9 7 76 126 150 175 162 166 45 298 260 476 379 372 385 430 loland 230 443 2,041 1,277 820 473 252 128 36 1,8 1,479 1,972 1,33 901 1,749 1.150 1,027 625 m USm 1,403 949 698 723 956 506 299 413 244 390 1,810 2,245 447 178 190 526 1,238 737 90 Others - - - 380 681 376 559 1,014 259 262 251 428 219 1,175 1,124 529 482 53 430 Total CMA 3,097 3,998 4,067 3,85 3,100 2,900 2,500 3,000 2,800 4,400 6,915 8,929 6,257 6,151 7,595 7.08 9,081 8.428 10, 0 I. larket-oriented p- - - - - - - - - 2,50 8,363 5,418 12,983 1,517 5,769 2,004 7,492 3.391 4,900 Pw M0 306 734 1,428 1,940 1,652 1,231 924 1,324 970 591 197 1,436 3,189 3,499 5,314 5,2% 1,595 2,I0* USA - - - - - - - - - - 525 2,981 8,386 21,167 24,543 23,149 18.884 21.06 31,30 prance 300 488 129 336 3%6 272 139 46 % 333 %2 429 2,554 1,712 4,983 4,335 1,666 758 1,100 vugoslavia - - - - - - - - - - 77 79 447 219 48 - 21 21 se Tk 35 - 31 41 38 43 - 46 105 527 1.164 1,184 651 459 767 1,153 721 751 1,100 Spaln - - 56 134 158 695 1,105 605 840 1,017 138 416 900 1,086 894 1,084 575 232 40 Other jw 470 659 1,574 705 1,498 1,890 1,845 2,477 2.113 4,136 2.828 3,075 3,668 7,611 12,587 9,636 7,953 8,065 11.850 Total Exporto 4,102 5,451 6,591 6,500 7,100 7,452 6,850 7,098 7,278 13,883 21,563 22,908 37,282 47,133 60,685 54,483 51,624 44,849 61,000 - 93 - A n 13 1M~fA - M WRASW l!RDVS PMcr (IMM4 1436-) Pacr Gifflzrt fnyr Sales ofBrasom-ade 1arits by Dstrition (flm Pes) Fat. 1971 1972 1973 .1974 1975 1976 1977 1978 1979 1980 1981 1982 1985 Total Sales 2..1 24.0 25.9 28.2 28.5 27.8 29.0 30.0 30.3 31.8 36.4 39.5 53.0 Out of tWch: -DMstic 15.3 18.1 19.9 21.0 22.5 21.7 20.8 17.6 15.6 19.2 20.2 24.3 34.3 -bterml 5.8 5.9 6.0 7.2 6.0 6.1 8.2 12.4 14.7 12.6 16.2 15.2 18.7 Out of ich: -East 1.7 2.0 1.9 3.1 4.2 4.6 3.6 2.7 4.1 4.1 4.8 3.6 5.0 -est 4.1 3.9 4.1 4.1 1.8 1.5 4.6 9.7 10.6 8.5 11.4 11.6 13.7 1. !cludits plain beart:E ad other products. Sure: cML&. -. 94 - Apedx14 N - ~ MASOV li S Pin11!Cr (QN 1436-1) PMCT C2z= RM aflinnal lritg Factory Brasov - Internal Sales per wranch <M1illin &e~rings) !st. Bra~l1 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1985 Total Cosumptio 15.3 18.1 19.9 21.1 22.5 21.7 2D.8 17.6 15.6 19.2 20.2 24.3 34.3 Out of %dch: -Transport & 4.6 5.4 5.9 6.3 6.8 7.1 6.8 6.1 5.3 6.1 7.0 8.2 11.0 gricultural Fqupent -Thnlogical 1.4 1.7 1.8 2.0 2.0 2.2 2.1 1.7 1.5 2.1 2.2 2.7 4.5 Pu~pænt -ectric Motors 1.6 1.8 2.0 2.2 2.2 2.3 2.3 1.9 1.7 2.4 2.4 2.8 4.5 & Cenerators -Maintxnanoe 3.6 4.2 4.5 4.8 5.0 5.4 5.2 4.6 4.2 4.8 4.8 5.3 7.6 -Other 4.1 5.0 5.7 5.7 6.5 4.7 4.4 3.3 2.9 3.8 3.8 4.4 6.7 1. Irc1dHi antifrictZio bearings only. Source: CIL ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Export Sales at Economies 1971-85 (Thousand Bearings) Est. 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1985 Total West. 4,100 3,900 4,100 4,100 1,800 1,500 4,585 9,683 10,668 8,500 11,400 11,615 13,700 Relation Japan - - - - - - - - - - - - - USA - - - - 51 197 2,609 7,534 7,943 6,329 8,488 9,433 11,000 Turkey - 43 105 303 400 340 185 128 173 138 185 97 100 West Germany 1,018 942 1,288 538 90 74 159 185 353 281 377 201 235 France 103 17 53 217 163 117 186 232 224 178 239 251 300 Bangladesh - - - 200 94 6 5 14 1 1 1 - - Spain 1,068 501 714 750 81 155 239 261 147 117 157 51 50 Brazil - 167 178 348 254 7 29 74 268 214 287 19 25 Austria 458 1,313 194 347 104 70 97 167 114 91 122 143 150 England 40 39 262 203 53 33 24 250 140 112 150 131 150 Italy 75 6 275 400 133 63 74 42 314 250 335 67 75 India 234 299 171 109 60 22 34 124 59 47 63 232 275 Argentina 92 39 - 60 29 31 25 - 60 48 64 64 75 Yugoslavia - - - - 33 17 10 29 1 1 1 14 15 Iran - - - - - 26 127 107 22 18 24 200 230 Finland - - - - - 98 16 48 63 50 67 11 10 Switzerland - - - - - 81 - - 5 4 5 1 1 Mexico - - - - - 40 33 10 26 21 28 - - Others 1,012 534 860 625 272 123 733 478 735 600 807 700 1,009 - 96 - Appendix 16 ROMANIA - BRASOV BEARINGS PROJECT (LOAN 1436-RO) PROJECT COMPLETION REPORT Distribution of Labor - Year 1983 Crt. Total Employees at 10/31/83 No. Denomination Direct Indirect T.A. Total 0. 1. 2. 3. 4. 5. 1. Forging 364 153 39 556 2. Turning (Machining) 613 143 41 797 3. Heat Treat 4. Grinding 778 145 47 970 5. Finishing 6. Assembly 538 35 20 593 7. Packing 8. Ball Production 544 97 35 676 9. Roller Production 395 85 23 503 10. Others: Small Lots 11. Retainers, Plain Brgs. 12. Special Brgs., Tool Room 2,704 720 199 3,623 13. Maintenance Shop Foundry, Joinery 14. Machine-tools Shops Total 5,936 1,378 404 7,718 7,800 workers + 711 office workers + 202 foremen = 8,713 Note: Workers number at Tools-Machines Shop 352 Workers number at Speciales Bearings Entreprise No. 5 1,086 These have been contents in the total of employees at art. 1. - In 1982 has been realized 39,518,000 pes./bearings in 1,704 typodimensions selected, of which: - types bars - 717 - execution special = 987 - In STE have been provided 267 typodimensions. - Have not been realized bearings from high volume type A by change the manufacturing program face with provided in STE namely. - The average hours/pcs. bearings - 0.227 8,971,301 hours 0.227 ______________ : - --- 87.6% 39,518,000 pcs. brgs. 0.259 Therefore resulted a manual labor economy of 12.4%.
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Romania - Brasov Bearings Project
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