Jordan - Shidiya Phosphate Mine Project

Document of The World Bank FOR OMCIAL USE ONLY Report No. P4647-JO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERMATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED WAS IN AN AMOUNT EQUIVALENT TO US$31.0 MILLION TO THE JORDAN PHOSPHATE MINES COMPANY LIMITED WITH THE GUARANTEE OF THE HASHEMITE KINGDOM OF JORDAN FOR THE SHIDIYA PHOSPHATE MINE PROJECT De: mber 18, 1987 ni document has a resricted distrbudon and may be used by recdpis only in the peance of thei officil duies. Its contents may not othebwse be disclsed witout Wodd BDk n.  HASHEMITE KINGDOM OF JORDAN SHIDIYA PhOSPHATE MINE PROJECT CURRENCY EQUIVALENTS Currency Unit - Jordan Dinar (JD) JD 1.00 - US$3.02 JD 0.33 - US$1.00 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 cubic meter (m3) 1.308 cubic yards I metric tonne (t) 2204.6 pounds 1 kilometer (km) 0.62 mile ABBREVIATIONS AND ACRONYMS JFI - Jordan Fertilizer Industries JPMC - Jordan Phosphate Mines Company Ltd. * mt - million metric tonnes mtpy - million metric tonnes per year TPC - The Aqaba Port Corporation  FM ovuCuI. US ONLY HASHEMITE KINGDOM OF JORDAN SHIDIYA PHOSPHATE MINE PROJECT LOAN AND PROJECT SUMMARY Borrower: Jordan Phosphate Mines Company Ltd. (JPMC) Amount: US$31 million equivalent Terms: 17 years, including 4 years of grace, at standard variable interest rate. JPIC will bear the foreign exchange and interest risks. Financing Plan: IBID Loan US$31.0 million JPMC US$58.0 million Total US$89.0 million Economic Rate of Return: 372 Staff Appraisal Report: Report No. 6932-JO * Map: IBRD No. 19920 R This document ha a stictd distributon andA y be usd by edpints only in the pefmdince of thew offca dutes its contents may not otrwse be dilosd without Wodd bnk aut'-snati.en  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED-LOAN IN Ai AMOUNT EQUIVALENT TO US$31.0 MILLION TO THE JORDAN PHOSPHATE MINES COMPANY LIMITED WITH THE GUARANTEE OF THE HASHEMITE KINGDOM OF JORDAN FOR THE SHIDIYA PHOSPHATE MINE PROJECT 1. The following memorandum and recommendation on a proposed loan to the Jordan Phosphate Mines Company Limited (JPMC) for US$31.0 million equivalent is submitted for approval. The proposed loan would be guaranteed by the Hashemite Kingdom of Jordan and would carry a standard variable interest rate with a maturity of 17 years, including 4 years of grace and would help finance the Shidiya Phosphate Mine Project. 2. Background. Phosphate is Jordan's most important natural resource and the country's major foreign exchange earner. The Jordan Phosphate Mines Company has increased exports of phosphate rock from 2.2 mt in 1978 to more than 5.1 mt in 1986 (about 10 percent of present world trade), taking advantage of a favorable location for the growing markets of Asia, the Far East and, to a lesser extent, Eastern Europe, combined with low costs relative to major competitors. Existing mines have limited reserves. The Shidiya deposit has higher grade rock, good mining conditions, and over 1 billion tonnes of reserves. Restructuring of the sector has been initiated by the Government by absorbing the former Jordan Fertilizer Co. (JFI) into JPMC. The project will support the initial phase of the Shidiya mine development and would enable Jordan to sustain and increase its exports. 3. Rationale for Bank Involvement. The Bank has had a long-standing relationship with Jordan on the development of its important mining sector and has been advising the Government on technical, financial and market aspects for a number of years. This advice has been accepted by the Government as evidenced most recently by its substantial downsizing of the Project. The Bank's continued involvement will provide the Jordanian Government and JPMC with technical advice and assistance for sector insti- tution building, and to ensure a proper techno-economic evaluation of the further second-stage developments at Shidiya and an optimal phasing of such development in relation to the depletion of existing mines in the 1990's. Bank involvement will help improve JPMC's financial position, temporarily weakened by the costly absorption of JFI, and thus help attract potential private sector partners for iPMC. Through the Project, the Bank would work closely with JPMC to ensure that dust control measures are taken to reduce phosphate dust pollution at Aqaba port to internationally accepted environmental standards. Finally, the proposed Project is well in line with the Bank's lending strategy. It will increase the country's foreign exchange earnings by about US$45 million per year; it will expand Jordan's exploitation of natural resources and its industrial sector. 4. Project Objectives. The Project's objectives would he to (i) bring the Shidiya deposit into production at a level of 1.5 mtpy to allow Jordan to pursue its successful export strategy; (ii) improve efficiency in  -2- mining and downstream fertilizer production through accelerated research; (iii) help secure the overall viability of the restructured phosphate fertilizer sector; and (iv) reduce environmental pollution at Aqaba port from loading/unloading of phosphate rock. 5. Proiect Description. A new mine and beneficiation plant would be developed at Shidiya, 120 kms north of the port of Aqaba, to produce 1.5 mtpy of phosphate rock. The project is an important first step in the development of the large unexploited Shidlya deposit. It comprises open-pit mine equipment; millsite equipment, including screening plant with product storage and handling facllities; and associated social and industrial infrastructure, including townsite development, water and power supply and distribution, and an access road. The Project's technical assistance component will help to orient and implement (i) research for phosphate fines and slimes recovery; and (ii) appropriate beneficiation research programs to define future mine and beneficiation development phases at Shidiya to ensure optimal sector configuration. It will also upgrade corporate planning, financial studies, personnel administration and lnternal audit functions. The total cost of the project is estimated at US$89.0 million equivalent, with a foreign exchange component of US$65.6 million. A breakdown of the costs and the financing plan are shown in Schedule A. Amounts and methods of procurement, disbursements and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Jordan are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report No. 6932-Jo, dated December 18, 1987, is being distributed separately. 6. Actions Agreed on. Agreement was reached with JPNC during negotiations that it will: (a) implement an action plan for completion of JPMC's Managerial Integration (following absorption of JFI) by December 31, 1988; (b) Submit annual audited financial statements, together with the auditor's report, to the Bank within 6 months of the end of each fiscal year; (c) progressively reduce phosphate dust pollution at Aqaba to internationally acceptable standards by December 31, 1990; (d) prepare and submit an implementation plan for the project technical assistance component for Bank review by end-FY88 and that hiring of consultants will commence by mid-FY89; (e) achieve and maintain a working ratio (working expenditures/ current revenues) below 0.8 from FY88 onward, and satisfact- ory debt service and long-term debt/equity ratios of above 1.5 and below 60/40 respectively in FY88 and thereafter;  -3- (f) update 5-year investment plans annually in consultation with the Bank at least 6 months prior to the beginning of the fiscal year; (g) seek prior Bank agreement before contracting new long-term loans in excess of JD 1.5 million; and (h) raise its capital and special reserve by minimum JD 25 million by end-FY88. 7. Agreement was reached with the Government during negotiatons that it will: (a) complete construction of access road to Shidiya by December 31, 1988; (b) cause JEA to complete the construction of the power line and substation for the Project by December 31, 1988; and (c) subscribe to a new issue of capital stock in JPMC to increase JPMC's equity to JD 80 million if the present JPMC capital share offering is not fully subscribed. The proposed loan will become effective only upon receipt of satisfactory evidence that JPMC has all necessary rights for use of water and land at (i) the Shidiya mine site and townsite, and (ii) water wells and water pipelines. 8. Benefits. The project would contribute to increasing Jordan's foreign exchange earnings and to rationalizing and streamlining the phosphate industry. Favorable geological/geographical conditions place the project among the lowest in terms of production and investment cost worldwide as reflected in the projected FRR and ERR in excess of 35%. The net balance of payment impact of the Project is about US$850 million over 20 years (average: US$43 million p.a.). In addition, the Project will generate directly about 750 jobs and at least 150 indirect jobs. The Project will reduce the environmental pollution at Aqaba due to loading/unloading of phosphate rock. It will contribute to institutional improvements in JPMC. 9. Risks. Given the oversupply of phosphate rock in the world market, market an9 price risks associated with the Project have been reviewed in detail and found acceptable. The production increase resulting from the Project represents less than 1% of world demand, and will not increase significantly Jordan's phosphate market share. The Project's production will be absorbed mainly by the growing Asia and Far East markets, and replace depleting mines in Oceania. Jordan has a significant cost advantage on these markets, compared to its major competitors. Sensitivity analyses have demonstrated that the company and the Project can sustain substantially lower price and market prospects and remain financially viable. The project faces no higher technical risks than those normally associated with open-pit mining. All project activities involve proven technology that has been in regular use in the industrialized world and in Jordan. JPMC has considerable experience with the implementation of similar open-pit mines in Jordan and has developed sound project management techniques and tools.  -4- 10. R.couendation. I am sstisfled that the proposed loan would comply with the Articles of Agreement of the Bank and recomend that the Executive Directovs approve it. Barber Conable President Attachments Washington, D.C. December 18, 1987  IASHEMITE KINGDOM OF JORDAN SHIDIYA PHOSPHATE MINE PROJECT SCHEDULE A ESTIMATED COSTS AND FINANCING PLAN Project Cost Summary Local Foreign Total - - US$ million - Mine Equipment 2.9 30.3 33.2 Millsite Equipment 1.3 6.2 7.5 Civil Works and Infrastructure 8.1 8.2 16.3 Dust Control Equipment 0.6 1.5 2.1 Engineering & Technical Assistance 4.6 0.7 5.3 Base Cost (September 1987 Prices) 17.5 46.9 64.4 Physical Coatingencies 0.9 4.7 5.6 Price Contingencies 0.7 2.1 2.8 Installed Cost 19.1 53.7 72.8 Working Capital 4.3 10.0 14.3 Total Project Cost a/ 23.4 63.7 87.1 Interest During Construction - 1.9 1.9 Total Financing Required 23.4 65.6 89.0 a/ The project is exempt from import duties and taxes. Financing Plan Local Foreign Total ------- US$ million -- IBRD Loan - 31.0 31.0 JPMC 23.4 34.6 58.0 Total 23.4 65.6 89.0  -6- HASHEMITE KINGDOM OF JORDAN SHIDIYA PHOSPHATE MINE PROJECT SCHEDULE B I. PROCUREMENT TABLE Project Element Procurement Method Total ICB LIB Other b/ Cost Mine Equipment 32.5 1.7 3.3 37.5 (18.0)8/ (1.7) (-) (19.7) Millsite Equipment 6.9 - 1.5 8.4 (6.9) (-) (-) (6.9) Civil Works & Infrastructure 5.3 - 13.1 18.4 (3.6)cI (-) (-) (3.6) Dust Control Equipment - - 2.5 2.5 Engineering & Technical Assistance - 0.8 5.2 6.0 (-) (0.8) (-) (0.8) 44.7 2.5 25.6 72.8 (28.5) (2.5) (-) (31.0) al Figures in parenthesis are the respective amounts to be financed by the Bank loan b/ Other includes mine development, civil works, infrastructure and engineering being undertaken by local bidding procedures. c/ The Bank loan will finance only select items of infrastructure equipment. JPMC will finance all civil works. II. LOAN DISBURSEMENTS Category Amount S (US$ million) Mine and Infrastructure 23.3 100% (of foreign or Equipment ex-factory cost) Millsite Equipment 6.9 100% (of foreign or ex-factory cost) Engineering & Technical. Assistance 0.8 100% (of foreiga cost) Estimated IBRD Disbursements IBRD Fiscal Year 1988 1989 1990 1991 1992 1993 1994 ------US$ millio Annual 2.0 7.9 7.5 5.6 3.8 3.4 0.8 Cumulative 2.0 9.9 17.4 23.0 26.8 30.2 31.0  - 7 - HASHEMITE KINGDOM OF JORDAN SHIDIYA PHOSPHATE MWNE PROJECT SCHEDULE C TIMETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time Taken to Prepare: 31 months (b) Prepared by: Jordan Phosphate Mines Company Ltd. assisted by Sofremines (Consultants) (c) First IBRD Mission: October 1984 (d) Appraisal Mission Departure: May 1987 (e) Negotiations: December 1987 (f) Planned Date of Effectiveness: ELid-January 1988 (g) Relevant PCRs and PPARs: None  - HAMSINII KDEM4 OF XCaW SWtUE D Par 1 of 2 SMMUS OF BAW =LT OPAI(1 IN MMN A. Sum ta of Ban T ae d BA Credits a/ (As of October 30, 1987) AmDunt Less C1OSfr Credit 1 Year Bormr Sector Coe1atiais UrdJsbused Dote 20 Lon(s)/Credit(s) Closed 185.81 LU8930 1981 Jordan Urban 20.55 3.57 12/31/87 120680 1982 Jordan E tn 25.00 6.42 12/31/88 12162D 1982 GerimJ AJE& PAer 35.00 1.23 12/31/88 12213D 1983 GoverroeantNA Water Supply & S&ma 17.00 3.06 06/30/89 122460 1983 Jordan Education 18.80 4.73 06/30/88 123340 1984 Jordan Urban 25.00 18j8 06/30/89 L23710 1984 Govt/JF.XD-1I Pawer 30.00 7.22 12/31/88 123780 1984 Jordar uaxtion 40.00 23.27 12/31/89 124250 1984 GveuemmntJ Water Supply & Sewqp 30.00 0.60 06/30/90 124630 1985 Jordan/PR0-M Transportation 30.00 20.52 06/30/90 124830 1985 GC ta/AJ Water Supply & SeuW 30.00 O.99 12/31/91 125310 1985 GovtMin. of Health Populatio 13.0 12.66 12/31/92 L25870 1985 Jordan Urban 26.56 24.47 06/30/91 126140 1986 Jordan/ID intrial Dev./Pice 15.00 12.40 06/30/91 L26330 1986 Jodan 10.20 9.03 12/31/92 126940 1986 GovernmntAIAJ Water Supply & S_mp 50.00 31.99 12/31/92 127100 1986 GoVt/JEA-JE.WO E-D Power 27.50 26.31 12/31/91 127860 1987 Arab Potash Co., Ltd. Industry 12.00 10.50 06/30/92 L28350 1987 Jordan Power 70.00 70.00 L2B410 1987 Jordanb/ Urban 26.40 26.0 12/31/93 1988 Govt of Jordnc/ Edecatico 40.00 40.00 Total Number of Loans - 20 592.51 353.85 Total (Not Approved)d/ 778.32 Of 1&dch Has Been Rpaid to the Bark Total Now Outstanding 657.19 Total Undisbursed 353.85 / he status of the above projects Is described in a semae report on all Bark/ID& frnond projects In exertion, w*dch Is updated twie yearly and cirolated to the ERmotive Directors on April 30 and October 31. b/ Not yet effective. c/ Not yet sigred. d/ Total appved, rsWmnts, asd outstanding balne rprmee both active and inacive loans and credits. The approved, canllation and disbruemnt ants for Im-6/Mkr7 Credts as tiken from Acwntig haw been canerted to their US dollar equivalents, based on the acrrent exdwar rate.  - 9 - B. STATEMENT OF IFC INVESTMENTS (As of October 30, 1987) SCHEDULE D Page 2-of 2 ----US$ Million--- Year Obligor Type of Business Loan Equity Total 1974 Jordan Ceramic Ind. Co., Ltd. Ceramic Tiles 1.6 0.2 1.8 1975/78/ Jordan Fertilizer Phosphatic 81/82 Ind. Co. Fertilizer 79.58/ 8.7 88.2a/ 1979 Jordan Lime and Silicate Building Materials 2.5 1.3 3.8 1979 Jordan Securities Money and Capital Corp. Market - 0.7 0.7 1980 Jordan Leasing Co. Ltd. Leasing -- 0.3 0.3 Total Commitments 83.6 a/ 11.2 94.8 a, Less Commitments Repaid, Sold or Cancelled 63.9 a/ 9.3 73.2 a/ Total Commitments now held by IFC 19.7 1.9 21.6 Total Undisbursed -- -- -- a/ Includes a US$50 million loan managed by IFC on behalf of other participants.  360 .' ' 'i'$'' 7_ s / v w"^ssi t s