China - Fertilizer Rehabilitation and Energy Saving Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10825 PROJECT COMPLETION REPORT CHINA FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT (LOAN 254 1-CHA) JUNE 22, 1992 :M.- ., : ..-::.. . Industry, Trade and Finance Division Technical Department Asia Region This document has a restricted distribution and mav be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVAIENTS Currency Name = Rehminbi Currency Unit o Yuan (Y) 1991 US$1.00 - Y5.4 (Y1.00 - US$0.185) 1990 US$1.00 . Y5.2 (Y1.00 - US$0.192) 1989 US$1.00 Y4.7 (Y1.00 - US$u.21) 1988 US$1.00 - Y3.7 (Y1.00 - US$0.27) 1987 US$1.00 . Y2.8 (Y1.00 - US$0.36) WEIGHTS AND MEASURES I hectare (h) - 2.47 acres 1 metric ton (ton, t) a 1,00 kilograms or 2,205 pounds 1 kilometer (kIn) u 0.621 miles 1 cubic meter (mi3) 35.315 cubic feet 1 liter D 0.2642 US gallons 1 kilocalorie (kcal) - 3,968 British Thermal Units (BTU) 1 megawatt (mw) - 1,000 kilowatts 1 kilocalorie per kilogram (kcal/kg) a 1.80 British Thermal Units per pound 1 kilowatt (kw) . 1,000 watts GLOSSARY OF ABBREVIATIONS AN - Ammonium Nitrate LNGCC - Luzhou Natural Gas Chemical Company BTU - British Thermal Unit CCFC - Canghou Chemical Fertilizer Company i3 - cubic meter MCI - Ministry of Chemical Industry CFDC - China Fertilizer Development mg/l - milligram per liter Center CIF - Cost, Insurance and Freight MWK - The M.W. Kellog (US) CNCCC - China National Chemical mWh - megawatt hour Construction Company N - Nitrogen Content in Fertilizers C02 - Carbon dioxide NCIC - Nanjing Chemical Industry FOB - Free on Board Nm3 - Normal cubic meters GOC - Government of the People's p.a. - per annum Republic of China P205 - Phosphorous Pentoxide Content in HG - Humphreys & Glasgow (UK) PCR - Project Completion Report ha - hectare ppm - parts per million kcal - kilocalorie SAA - State Audit Administration kg - kilogram SAR - Staff Appraisal Report KCN - Kellogg Continental (Netherlands) SO2 - Sulfur dioxide km - kilometer SPC - State Planning Comlission K20 - Potassium Oxile Content tpd - tons per day (Potash) in Fertilizers tpy - tons per year KWh - kilowatt hour typn - tons per year of nutrients LCFC - Liaohe Chemical Fertilizer YNGCC - Yunnan Natural Gas Chemical Company FISCAL YEAR January 1 to December 31  FOR OMCIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Direciaoe.Ceefi Opiatiom EbskautKm June 22, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on China Fertilizer Rehabilitation and Energv Saving Project (Loan 2541-CHA) Attached, for information, is a copy of a report entitled "Project Completion Report on China - Fertilizer Rehabilitation and Energy Saving Project (Loan 2541-CHA)" prepared by the Industry, Trade and Finance Division, Technical Department, Asia Regional Office, with Part II contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. 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.  FOR OMCIAL USE ONLY PROJECT COMPLETION REPOR, CifiNA FERIZER REHABILITATI-ON A-ND ENERGY SAVING PROJECT (Loan 2541-CHA) TABLE OF CONTENTS Page _N_. Preface ............................ .................. i Evaluation Summary. iii Part I PROJECT REVIEW FROM BANK'S PERSPECTIVE ................ 1 Project Identity ..........................................1 Background ......................................... 1 Project Objectives and Description .......... .................... 3 Project Objectives .................................... 3 Project Description .................................... 3 Project Design and Organization ....... ................... 4 Project Implementation ...................................... 5 Loan Effectiveness and Project Schedule ..................... 5 Implementation Schedule ........... .................... 5 Procurement ....................................... S Project Costs ...................................... 5 Disbursements ...................................... 6 Loan Allocation ..................................... 6 Project Results ........................................ 6 Project Objectives . .................................. 6 Physical Results . .................................... 6 Economic and Financial Rates of Return ..................... 7 Financial Performance .................................. 8 Impact of Project . ................................... 8 Project Sustainability . ................................. 8 Bank Performance .................................... 9 Borrower Performance ................................ 10 Project Relationship .................................. 10 Consulting Services . .................................. 10 Project Documentation and Data ....... ................... 10 This document has a restricted distribution and may be used by recipients only in the performance ,1 :r,eir o(Aicial duties Its contents may not otherwise be disclosed without World Bank authorization.  Part Ii PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ........... 11 Borrower's Comments . 11 The Plan for Further Energy Saving .12 The Comparison B"ween Bank Allocation and Actual Disbursement .14 The Function of CFDC .14 Bank Performance .14 Borrower Performance .15 The Relationship with the Bank. 15 The Relationship with Other Agencies . 15 Part m STATISTICAL INFORMATION. 17 Related Bank Loans and/or Credits .17 Project Timetable .18 Loan Disbursements .18 Project Implementation .19 Project Cost and Financing .20 Project Costs .20 Project Costs by Components .21 Project Financing .21 Project Results .22 Direct Benefits .22 Economic Benefits .22 Financial Impact .23 Studies .23 Status of Covenants .24 Missions .25 ANNEXES 1. Physical Performance of the Companies .26 2. Company Financial Statements .27 3. Assumptions used for Financial and Economic Analysis .32 4. Present Status of the Fertilizer Sector in China .34  PROJECT COMPLETION REPORT CMINA FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT (Loan 2541-CHA) PREFACE This is the Project Completion Report (PCR) for the Fertilizer Rehabilitation and Energy Saving Project in China, for wiich Loan 2541-CHA in the amount US$97.0 million was approved on May 15, 1985. The loan was closed on December 31. 1990, 18 months behind schedule. The loan was disbursed to the extent of US$96.32 million and an amount of US$0.68 million - which remained undisbursed, was canceled. The last disbursement under the loan was on May 3, 1991. The PCR (Preface, Evaluation Summary, Parts I and III) was prepared by the Industry, Trade and Finance Division of the Asia Technical Department, based substantially on information provided by the borrower and the beneficiary companies. The Bank received Part II from the Borrower in early February 1992 for inclu3ion in the PCR. Preparation of the PCR was started with the presentation of draft PCRs for the different components by the beneficiary companies in mid-1990 and during the sunervision mission of the project in October 1990. This was followed by a project completion mission to China in July 1991. The PCR is based on the Staff Appraisal Report; the Loan and Project Agreements; Supervision reports; the draft PCRs prepared by the beneficiary companies and discussions during the project completion mission in July 1991.  - iii - PROJECT COMPLETION REPORT CHINA FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT (Loan 2541-CHA) EVALUATIQN SU\MARY Objectives 1. This project developed into the first of a series of Bank operations in the fertili7er sector (as of FY91/92: under implementation - Fertilizer Rationalization Project, Phosphate Development Project, Hubei Phosphate Project, and Shenxian/Weixian Fertilizer Components under the Hebei Agricultural Development Project; and under preparation - Fertilizer Component under Sichuan Gas Development and Utilization Project and Fertilizer Restructuring Project) and has aimed at assisting China establish an efficient fertilizer industry by improving the productivity and international ceonpetitiveness of its existing plants and comprised rehabilitation and energy conservation in nitrogenous fertilizer plants at five locations. The plants assisted under this project include four large and one medium size ammonia/urea plants (i.e. large plants: Liaohe Natural Gas Chemical Company (LNGCC), Yuinan Natural Gas Chemical Company (YNGCC), Cangzhou Chemical Fertilizer Company (CCFC) and Luzhou Chemical Fertilizer Company (LCFC)) based on internationally adopted technologies; medium size plants: Luzhou Chemical Fertilizer Company (LCFC) and the ammonia plant at Nanjing Chemical Industry Company (NCIC) which is based 4,n locally developed technology. 2. In addition the project has supported the sector ir. improving technical and management skills in the production plants and in strengthening the research, development and design skills in the research and design institutes. A study of the production costs of medium size plants in China - carried out under the project, intended to identify further options in the subsector for efficiency improvements. 3. By pursuing these objectives, the project also attempted to establish demonstration models for the modernization of other existing large size ammonia and urea plants with the purpose of conserving energy, reducing industrial pollution and expanding capacity. 4. The second Bank operation in the sector (Fertilizer Rationalization Project, Loan 2838-CHA) aimed at optimizing existing medium-size nitrogenous fertilizer plants by upgrading their products and improving their efficiency. The subsequent third and fourth operations (Phosphate Development Project, Loan 2958-CHA, and Hubei Phosphate Project, Loan 3066-CHA) were designed to develop the deficient Chinese phosphate subsector. In continuation of its involvement in the sector, the Bank is currently focusing on the restructuring, upgrading and modernization of existing small and medium size fertilizer plants aiming at improving the sector's overall efficiency by conserving energy, controlling industrial pollution, transferring and up-grading technology, enterprise restructuring, and pricing reform. The proposed Sichuan Gas Development and Conservation Project and Fertilizer Restructuring Project that are currently under preparation would be the vehicle for introducing these improvement and establishing  - iv - demonstration models for a large number of potential follow-up and repeater projects under government sponsorship. Implementation Experience 5. Details on appraisal and actual completion dates of the various components of the project are presentf c; in para 4 of Part 11' and reviewed in para 5.02 of Part I. Due to the realistic assumption of zero dats in the SAR, loan processing did not result in any project delays. There were small delays in the completion of modifications of the large ammonia/urea plants mainly due to some variations in project scope. The medium size ammonia/urea plants at Luzhou were delayed by about 18 months due to delays in finalizing the designs and procurement caused by difficulties in coordinating the work of the foreign and local engineering firms - not envisaged during appraisal. The Nanjing ammonia plant and utilities were delayed due to holdups in finalizing the scope, siow procurement and damage during shipment of the ammonia compressor. The training program on research and development - proposed under the project, was drastically pruned by the Ministry of Chemical Industry. Results 6. During the test runs, except for the Nanjing ammonia plant, all the components achieved and even exceeded the benefits envisaged under the projewt. The Nanjing ammonia plant could not improve its ammonia production level dti to a deterioration of the quality of coal now being supplied. rhe Luzhou ammonia plants are unable to operate at their full potential due to gas supply constraints and as a result, the ERR of the medium size plant has suffered and is only 13.3%. While the financial position of the companies under the project is satisfactory, some of them have suffered a decline in profitability. This has been mainly due to (a) lower production levels caused by gas supply shortages, and (b) increases in input prices often not matched by corresponding increases in product prices. The China Fertilizer Development Center (CFDC) was promoted under the project to become the overall coordinating agency for research and development work in the fertilizer subsector in China. However, this responsibility continues to remain with the Ministry of Chemical Industry. 7. Encouraged by the attractive benefits experienced under the project, the Ministry of Chemical Industry and some individual enterprises have followed the models established and introduced similar rehabilitation schemes in other plants. Sustainability 8. To derive and sustain the full benefits of energy saving/optimization investments, it is necessary for the plants to maximize their production levels based on adequate gas supply and efficient operation. Several of the beneficiary plants are lacing gas supply constraints. Gas supplies are being committed beyond the supply capabilities resulting in gas allocations which are inadequate to operate the production facilities at their optimum levels. There is need for achieving a better match among capabilities for gas production, transportation and utilization. The Nanjing ammonia plant, which has suffered from lower coal quality, is installing three more gasifiers to provide adequate gas. With this investment, the company expects to produce at the designed levels.  Findings and Lessons Learned 9. The project has once again confirmed the importance of flexibility in defining the project scope of optimization schemes - decisions to evaluate more ecoaomic alternatives for the hydrogen removal unit at Liaohe for implementation after project completion and the addition of converter internal modifications, when an appropriate technology l ecame available, have helped to improve project economics On the other hand, the project has also brouglit out the difficulties in optimizing the older medium size plants, whether based on offshore cr local technologies. Both at Luzhou and at Nanjing, there were delays in finalizing the design and procuring th'n supplies. Such optimization projects are best carried out under the total responsibility of a single experienced contractor. 10. The benefits foregone due to the limited gas supplies to existing plants are substantial and this issue needs to be addressed at the policy levels in China. Therm is a strong need to achieve a better Match among investments in gas production, transportation and gas consuming industries to coordinate the material balances in these linked sectors so that Inefficienci^s in the use of investment resour.es could be minimized. 11. It is understood that the gas supply constrair .s are mainly d& 3 to over-co, mitment of available gas and limitations in the transmission systems. Su?aplV commitments are being made in anticipation of projected investments that often P-t delayed. It would also appear that gas allocations are apparently made against fertilizer quotas, plants are required to deliver. Additional gas supply is eithler not available for production beyond the production quota, or eharged fer at levels which do not support its use as feedstock for fertilizer mnanufacture. In this cottext, ther-e is some concern tha; e plarts use the allocated gas to the best financial advant.ge of the corapanios. often for purposes oti;e; than the often marginally profitable fertilizer production. The gas supply constraint appears to be especially severe during winter when there is an increased demand for hleat genera.ion. Potential Impact on Future Bank Operations 12. The experience with the project brings out several points which may prove very use,ful to the Bank's future operations in the Chinese fertilizer sector. Experience shows that the Chinese institutions are usually not strong enough to formulate on their own revamping programs for existing plants. This has been mainly due to limited capabilities in evaluating alternative options, both technically and economically, and in finalizing the project scope early in the projecl cycle. This has been especially evident in the Nanjing ammonia and utilities sub-components. 13. Revamping of older existing plants is especially difficult as field changes of process or equipment (i.e. the up-to-date state of a plant) are frequently not fully documented. The lack or conflicts of data and consequent revisions may lead to significant delays in project implementation and procurement activities as weil as escalations in investment costs. The problems get even more complicated if responsibilities are split between a foreign contractor providing the technology and local design institutes providing detailed engineering. A more unified approach to such projects needs to be developed that should support an integration of strong technical assistance with transfer of technologies and equipment supplies.  -vi - 14. The attractive benefits of optimization investments should not be jeopardized by constraints in raw material/feedstock supplies. In future projects, this aspect should be evaluated more carefully and provisior. of sustained critical input supplies ensured. 15. Despite notable improvements in the performance standards of most project related entities through technical assistance and institutional development, the full anticipated strengthening process could not be achieved due to major cuts by the Ministry of Chemical Industry of the contemplated training programs. Similar cuts have also been experienced under other projects. This issue is of particulae importance as increasing complexity and size of future operations will demand a high degree of proficiency.  PROJECT COMPLETION REPORT fIUNA FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT (Loan 2541-CHA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Name : Fertilizer Rehabilitation and Energy Saving Project Loan Number 2541-CHA RVP Unit Asia Region Country China Sector Industry 2. Backsround 2.01 Fertilizer production subsector in China has played an important role in the growth of Chinese agriculture. It has contributed to the growth in food grain production in China from 164 million tons in 1952 to 371 million tons in 1989 - an average annual growth rate of about 3.1%. This has been achieved, in spite of China's limited share of arable land, mainly through improved farming practices which emphasize increased fertilizer application. In 1988/89, the level of fertilizer application per hectare averaged about 262 kg in China compared with the world average of 99 kg, but well below the levels in several other countries such as Egypt (400 kg), S. Korea (400 kg), Japan (415 kg) and New Zealand (732 kg). In the last decade, fertilizer consumption in China has grown annually at an average of 6.2 % - stimulated by government policies which ensured adequate and timely fertilizer avai:ability (from both increased domestic production and imports). 2.02 As a result, China is presently the world's third largest producer of chemical fertilizers, next only to USSR and USA. The present status of the fertilizer production subsector in China is briefly reviewed in Annex4 and summarized below. In 1990, China met about 73% of the country's fertilizer requirement of 25.9 million nutrient tons through domestic production. Of the total nutrient production of about 18.8 million tons, nitrogen formed about 78% and phosphates about 22%. Nearly all the potash, most of the phosphates and a significant share of the nitrogen requirements continue to be imported. China's nitrogen production comes from 18 large scale plants, 55 medium size plants and about 1063 small plants. Their shares in ni; -,en production are about 23%, 21% and 56% respectively. The larger nitrogen plants - built mostly in the 1970s, have relatively lower energy efficiencies compared with the present generation plants and, in several cases, operate at relatively low capacity utilizations due to natural gas/naphtha supply constraints. The medium size plants have poor overall efficiency and high productien costs due to the technologies adopted by them and their vintage. The small size plants - based on locally developed technologies, operate with locally available coal, fuel oil or gas as feedstock and  -2- produce, mostly, ammonium bicarbonate. Generally, they have poor energy efficiency and low production levels. 2.03 In the above context, the government's current priorities for the subsector are (a) in nIkitr , aiddition of new capacity and rehabilitation and energy saving in existing capacity; (b) in nnhnshAk, rapid capacity expansion based on locally available rock phosphate; and (c) in pQtnh, identification and development of domestic resources. The present project addressed item (a) above as a first step in the Bank's support through technical and financial assistance of the Government's major efforts in the sector. Specifically, the project supported (a) technical renovation and energy saving measures in nitrogen fertilizer plants; (b) improvements in the nutrient balance through capacity expansion in the phosphate fertilizer subsector; and (c) institution building and training. 2.04 Following approval of the present loan, the Bank has continued and expanded its dialogue with the Chinese authorities and participation in further projects in support of the above priorities. Although the Government has taken a cautious approach to overall price reforms due to concerns about their inflationary implications, market-influenced prices negotiated within the limits of guideline retail prices set by local pricing authorities prevail for production outside the state plan quota. This two-tier pricing system is viewed as an intermediate step in the evolution of sectoral pricing policy. The Government's strattgy is to continue gradually reducing its administrative control while simultaneously dismantling central annual production planning and allocation. Guidelines for future policy reforms are being developed with due consideration to the close inter-relationship between the fertilizer and agricultural sectors and the potential for disruption if the allocation and pricing arrangements for fertilizers were to be liberalized in isolation. 2.05 The se'ection of the project scope was based on an attempt to combine the high economic benefits of rehabilitation schemes comprising energy conservation and capacity expansion in existing plants and using predominantly international technologies with a relatively simple implementation. As most of the plants under the project are based on international technologies, the selection of engineering contractors and the procurement of equipment and materials were by and large straight forward. The result was a project that could be executed without major delays despite deficiencies in experience with Bank guidelines and ICB procedures within the Chinese agencies affiliated with the project. 2.06 A further reason for rehabilitating the selected large size plants under the project was their profound impact on the performance of the nitrogen fertilizer subsector as result of their magnitude of operations and the resulting savings in feedstock and increased output rates. 2.07 The accumulation of wide ranging experience and data under the project as well as agreements reached between the GOC and the Bank during project appraisal on medium to long term sector developments and continued economic reform were expected to establish a firmer basis for continued Bank participation in the further development of the sector including increases in size, diversity and complexity of forthcoming operations.  -3 - 3. Project Obiectives and Description 3.01 PrQject Objectives: The main objectives of the Project were to assist China in (a) implementing rehabilitation and energy saving measures in nitrogenous fertilizer plants of the five companies located at Luzhou (one large and one medium size plant, Sichuan province), Shuifu (Yunnan province), Cangzhou (Hebei province), Liaohe (liaoning province, and Nanjing (locally designed medium size ammonia plant, Jiangsu province); (b) strengthening the capabilities of the above companies for project implementation, plant operations and financial management; (c) strengthening the newly established China Fertilizer Development Center (CFDC) and the fertilizer research and design institutes for improved research, development and engineering capabilities in the fertilizer industry; and (d) developing strategies for modernization of the medium size nitrogen fertilizer plants through a study of this segment of the subsector. As mentioned in para 2.03 above, these objectives are in line with the priorities of the government for improving the overall competitiveness of the subsector. 3.02 Project Description: The Fertilizer Rehabilitation and Energy Saving Project (Loan 2541-CHA) included: (a) Energy saving modifications of the large 1,000 tpd ammonia plants at Luzhou, Shuifu, Cangzhou and Liaohe. (b) Installation of hydrolysis units to reduce pollution and recover additional urea from the large urea units in the above four locations. (c) Installation of a low pressure absorption unit to reduce pollution at Luzhou and a carbon dioxile gas dehydrogenation unit to improve plant safety at Liaohe - simultaneously producing additional urea. (d) Revamping and energy saving modifications of the medium size ammonia and urea plants at Luzhou to increase their capacities by about 50%. (e) Modification of the medium size coal based ammonia plant at Nanjing to reduce energy consumption and increase production by more than 25%. (f) Modification of the ammonium nitrate plant and addition of facilities to increase industrial grade porous ammonium nitrate production by 50,000 tpy. (g) Replacement of existing sulfuric acid production with a new more efficient and less polluting 200,000 tpy capacity plant based on locally available pyrites. (h) Improvements to the utility system of the Nanjing industrial complex. (i) Upgrading production efficiency in the five plants through training and other measures. (j) Provision of research equipment, scientific instruments, computer facilities and training to expand the capabilities of eight member research and design institutes and of CFDC for research and design work.  -4- (k) Technical assistance to the project implementation coordination unit of the Ministry of Chemical Industry in international procurement for the overall Project. (1) Assistance in carrying out a Nitrogenous Fertilizer Production Cost Study to evaluate the operational and energy efficiencies of medium size nitrogenous fertilizer production and to develop strategies for modernization of the fertilizer industry. 3.03 Except for an earlier technical assistance credit, the project was the first Bank group operation in the fertilizer subsector in China. The Bank missions had, therefore, reviewed in considerable detail the status of the subsector and identified the range of options appropriate for strengthening the subsector. These findings have supported the present project and further Bank involvements in the subsector in China. 4. Project Design and Organization 4.01 The Fertilizer Rehabilitation and Energy Saving Project was decigned mainly to optimize the overall performance, reduce energy consumption and achieve better pollution control in selected fertilizer plants in China. Based on a Bank mission review of the Chinese fertilizer subsector and discussions with the Ministry of Chemical Industry (MCI). the Project was designed around the selected large and medium sized fertilizer plants. This design was based on the conlcusion that other large ammonia/urea plants, built in the 1970's using well known offshore technologies, could benefit from subsequent international experience with similar optimization programs. It was also agreed that the project should include one medium sized ammonia/urea plant based on offshore technology and one medium sized ammonia plant based on locally developed technology, so that the experience gained from these components could have a demonstration effect on other medium size plants in China. It was agreed that more work was needed before improvement measures could be developed for the large number of smaller coal/anthracite based plants for which the potential for improvements is very large. 4.02 For the large ammonia glants, the M.W. Kellogg Company (USA), which had engineered and supplied the original facilities and has built a large number of similar facilities all over the world, prepared plant modification proposals based on their experience with similar projects elsewhere. These proposals were evaluated and the project scope defined by the companies, MCI and the Bank missions based on detailed technical and economic analysis. The project scope was further modified during implementation when additional options became available such as the modification of ammonia converter internals. Hydrolyzer units, to reduce the liquid effluent pollution levels of the large urea plants to the currently acceptable tighter standards, were procured, following competitive bidding, from Snamprogetti (Italy) - a major urea process licensor. Humphreys and Glasgow (UK), which had originally engineered and supplied the medium size ammonia plant at Luzhou, provided the basic design and part of the engineering for the modifications. Basic design and part of the engineering for the medium size urea plant at Luzhou was obtained through competitive bidding from Tecnimont (Italy). Lurgi (Germany) provided the technology support for the pyrites roaster and waste heat boiler for the Nanling sulfuric acid plant. All other aspects of project implementation were carried out by the Chinese design institutes, the beneficiary companies and the project implementation coordination unit of MCI. 4.03 The performance results that have been achieved and the adoption of similar optimization projects - in several cases Bank financed, in other countries indicate that the project objectives were timely and appropriate. As a result, China has continued the program with additional investments in which the Bank has participated or intends to.  -5- 5. Project Implementation 5.01 Loan Effectiveness and ProJect Schedule: Based on progress made with engineering arrangements by the time the appraisal was completed, it was expected that most engineering contracts would have been awarded by June 1985. However, the SAR conservatively scheduled project completion based on award of all engineering contracts by December 31, 1985. The loan agreement was signed in August 1985 and became effective in December 1985. The loan processing schedule, therefore, did not result in any project delays. 5.02 Implementation Schedule: The appraisal and actual completion dates of the various components of the project are presented in para 4 of Part III. The modifications of the large ammonia piants in the four companies were completed with delays from I to 5 months. The delays were mainly due to the inclusion of ammonia converter internal modification - now being adopted extensively internationally, in all the four plants and the addition of energy saving rotors for the compressors at Luzhou. The converter internal modification was proposed to the Bank in early 1987 and the contract with Casale (Switzerland) was signed only in December 1987. The medium size ammonia/urea plants at Luzhou were delayed by about 18 months. These plants were originally set up in the mid-60s and had undergone several modifications which were not always reflected in the drawings maintained by the company. As a result, frequent design revisions were necessary when modified drawings conflicted with field conditions. The split in responsibility between the offshore and local engineering agencies further complicated the progress of engineering work and procurement of supplies. These difficulties were not anticipated at the time of project preparation and, in retrospect, the SAR completion schedule for this component was possibly optimistic. There was, however, good cooperation among the offshore and local engineering firms, the companies and the MCI which helped to minimize the resulting delays. The Nanjing ammonium nitrate plant was completed ahead of schedule. The NanJing sulfuric acid plant was delayed only by about three months. While the new gas generator, synthesis system and waste heat boiler for the Nanjing ammonia plant were completed in time, the installation of the ammonia storage and pumps and the gas purification modifications were delayed by 7 to 9 months. However, due to damage in transit of the ammonia compressor and delays in receiving the replacement parts, this component was completed only by the end of 1990. With the Nanjing utility Rlants, there has been a delay of over one year for the medium pressure boiler and the turbo-generator due to design changes and delays in delivery. 5.03 Procurement: Since the Project was the first Bank operation in China and the Chinese companies were not familiar with the Bank's procurement procedures, MCI's project implementation coordination unit coordinated the procurement of all equipment and materials. MCI was assisted in this task by an experienced procurement x -isor from UNICO (Japan). The Bank's procurement guidelines were generally accepted by the companies, who have stated that the guidelines helped efficient procurement. There were no significant procurement problems during project implementation. 5.04 Project CQos: The final project cost was about US$177.78 million equivalent against the appraisal cost estimate of US$186.86 million equivalent. Significant increases in local costs have been more than offset by changes in exchange rates. The Luzhou medium size anmnonia/urea plants was the only component with a significant cost overrun - about 32%. This was mainly due to delays in implementation of the component and difficulties in establishing the details of the project scope during appraisal when the engineering studies were not yet completed. The Nanjing components were implemented at the appraisal estimated costs. Generally, the actual costs of the large ammonia/urea plant modifications have been below appraisal estimates, even with the addition of the ammonia converter  -6 - internal modification. This has been due to the favorable international prices under ICB procurement, reduced procurement of spares and changes in exchange rate. The project components have achieved - in general, favorable actual costs through efficient implementation management by the various Chinese institutions. 5.05 Disbursements: The appraisal and actual loan disbursements are given in para 3 of Part III. The actual disbursements were delayed significantly compared with the appraisal estimates, in spite of the fairly satisfactory project implementation schedule. The original closing date was June 30, 1989; but the loan was actually closed on December 3', 1990 after two extensions of closing dates. Disbursements against already committed items were made till May 3, 1991 and an outstanding loan balance of US$0.68 million was canceled. 5.06 Loan Allocation: The original allocations and actual disbursements for the loan are shown in Table 5C of Part III. There was significant reduction in the requirement of Bank funds for Engineering, Licensing and Technical Services for Project Management. The available surplus was reallocated to Equipment, Materials and Spares to finance the ammonia converter internal modifications and the increased cost of the Luzhou medium size ammonia/urea plants. 6. Proiect Results 6.01 PrjLect Qbjectives: The project has been successful in meeting its main objectives of improving the competitiveness of selected plants in the Chinese fertilizer subsector. In the large ammonia/urea plants, energy consumption has been significantly reduced, although full benefits of the optimization investments are not available due to natural gas supply constraints. However, the investments have helped to maximize urea production with the available limited gas supply. Contamination of liquid effluent from the urea plant has been reduced to internationally acceptable levels including the recovery of the pollutant as valuable ammonia. Though the medium size ammonia/urea plant at Luzhou has been successfully revamped to increase its capacity by about 50%, this additional capacity is not fully available due to natural gas supply constraints. The Nanjing ammonia plant has not been able to reach good production levels mainly due to poorer quality of coal now being supplied. Project management capabilities - especially for ICB, have been developed within the MCI, the companies and the design institutes. On the institutional side, the Project expected to build up the China Fertilizer Development Center (CFDC) as the overall coordinating agency for the research and development program relating to the fertilizer subsector. However, this has not happened and the MCI continues to play this coordinating role. 6.02 Physical Results: The physical results achieved by the Project are summarized in Table 6A of Part III. These indicate that, except in the case of the Nanjing ammonia plant, the physical targets of the Project have been substantially achieved and, in some cases, even exceeded. The large ammonia plants at Luzhou, Yunnan and Cangzhou have been able to utilize the gas conserved through energy saving investmnents, for additional nitrogenous fertilizer production. The additional productions were 67,500 tpy of urea in Luzhou, 42,800 tpy of urea and 3,200 tpy of ammonium nitrate in Yunnan and 45,800 tpy of additional urea and 2,200 tpy of ammonia at Cangzhou. 6.03 All the five large ammonia plants revamped under the project suffer from gas supply constraints. Only the Liaohe plant is able to operate at its normal capacity, mainly due to the gas conserved under the project. When the ammonia and urea plants are operating at full capacities, the benefits of the energy saving investments are reflected as reduction in the cost of gas used. This is  -7 - because the conserved gas cannot be further processed to marketable products. However, if as result of constraints in the gas supply the plants operate below their achievable capacities, the conserved gas can be used to increase production of ammonia and urea and such a plant obtains increased benefits on the incremental investment. A quick analysis indicates that a plant operating at about two-third of its rated capacity (base case) will gain an annual benefit (at economic prices) of only about US$2.0 million through energy saving. However, if the conserved gas is used to maximize ammonia/urea output, the benefit increases to US$;0 million per year. If a plants' full gas needs are met, the plants will gain an additional net benefit of US$34 million over the base case. 6.04 Even though the newly added tenth gas generator in the Nanjing ammonia plant has demonstrated the capability to produce raw gas required for 12,000 to 13,000 tpy of ammonia, the total ammonia production at Nanjing has remained below 110,000 tpy. This has been reported to be due to a deterioration in the quality of available coal, i.e. lower fixed carbon content and increased fines during feed preparation. Even if the pre-revamp capacity of the plant is assumed to have declined by about 10% due to poorer coal quality, the additional ammonia production due to the revamp is only about 11,000 tpy against the planned increase of 30,000 tpy. The company is adding three more gasifiers - scheduled to be commissioned in 1991, to utilize the full capacities of the plant of 150,000 tpy of ammonia. The porous ammonium nitrate plant has proved to be capable of producing 50,000 tpy. However, porous ammonium nitrate production comes mostly by diversion from crystallized ammonium nitrate already in short supply in the domestic market. The sulfuric acid plant operated only at about 66% of its capacity early in 1989, mainly due to market constraints. The production has, however, reached 184,000 tons in 1990 and is expected to be maintained at least at that level. 6.05 The Nanjing ammonia plant is based on locally developed technologies and uses coal as feedstock. At the time of SAR, the plant had an installed capacity of 120,000 tpy of ammonia. The anthracite coal for the plant comes from the Zhencheng (Shanxi province) and Jinzhuo (Hunan province) coal mines located from the plant at about 900 km and 800 Ian, respectively. The plant coal requirement was originally 285,000 tpy, while the mines had a combined capacity of seven million tons. The Nanjing component under the Project allowed for the expansion of the ammonia plant and included an additional gasifier to increase overall ammonia capacity by 30,000 tpy. When the gasifier was commissioned, a significant decline in the qualitv of the coal occurred leading to diminished performance. Currently, the plant can only produce about 110,000 tpy of ammonia, even after the revamp. It was stated that mining operations in the two mines have been mechanized and as a result there has been a decline in coal quality due to admixture of overburden. This has lead to a higher ash content in the coal, lower heating value and more fines. Consequently, the coal consumption per ton of ammonia has increased from 2.05 tons to 2.50 tons per ton of ammonia while the ammonia output has declined. The power consumption has also increased from about 1545 kWh to 1732 kWh, mainly for processing the additional coal required to maintain previous production rates. To cope with the low grade feedstock, the company is adding three more gasifiers and the coal handling facilities needed for the increase in throughput. However, it is questionable whether ammonia production at Nanjing is economical, if coal (including its transportation) and power are priced at economical rates using proper conversion factors. 6.06 Economic and Financial Rates of Return: The various assumptions used in estimating the economic and financial rates of return are summarized in Annex-2. Appraisal and actual economic rates of return (ERR) of the various investments under the Project are summarized in Table 6B of Part III. The actual ERR's are estimated using recent (June 1991) preliminary Bank projections for fertilizer and energy prices, which are generally lower than the projections used in the appraisal. In the ammonia plant at Nanjing the incremental benefits barely match the costs, resulting in a negative ERR. This has  -8 - been mainly due to the substantially reduced (because of the lowver coal quality) additional ammonia production attributable to the new investment. The ERR could improve if with the three additional gasifiers now being installed, the additional production can reach 30,000 tpy. The Nanjing sulfuric acid plant will have an ERR of 30.2%, if it can continue to operate at no lower than 85% of its .apacity in the future years. The medium size ammonia/urea plant at Luzhou has a significantly lower ERR of 13.8%. This has been mainly due to constraints in gas availability, the higher capital cost and the implementation delays. If the gas use in the large plant at Luzhou is maximized to improve the profitability of the company, the ERR of the medium size plant will decline further. The other components have achieved ERRs comparable with or better than the appraisal estimates. For the large ammonia/urea plants, the ERRs on an incremental basis improve if plant conditions allow the conserved gas to be utilized for increasing nitrogenous fertilizer production. However, the ERR will be higlier if gas supplies are adequate to optimize the production levels. The appraisal and actual financial rates of return (FRR) of the various components are summarized in Table 6C of Part III and reflect a similar situation. The Nanjing ammonia and porous ammonium nitrate plants and the Luzhou medium size plants have low FRRs for the reasons mentioned earlier. In addition, input prices have increased substantially and have not oeen fully reflected in product prices. 6.07 Financial Performance: The production levels in the beneficiary companies in 1989 and 1990 are summarized in Annex-l. The financial performance of the beneficiary companies has continued to be satisfactory, though the profitability has generally declined due to changes in input and product prices. The investments carried out under the project will help, except at Nanjing, to improve the performance, though only in a limited way, due to t;ie relatively small size of the investments. A summary of the recent financial statements of the beneficiary companies is presented in Annex 2 (A) to 4 (E) in Part III. 6.08 Impact of Project: The project has demonstrated the potential that exists in the Chinese fertilizer industry for efficiency improvements in both production and energy. rhe success of the present Project and the demonstrated benefits derived from it, have created interest in China for preparing and implementing other similar projects with Bank assistance. Experience through the project has demonstrated to the Chinese institutions the benefits of international competitive bidding for obtaining high quality supplies at competitive prices. In several locations facing gas supply shortages, the project will help to increase fertilizer production without further demand on the scarce natural gas supplies Through its training and R&D components, the project aimed at enhancing the technical and management capabilities of the Chinese professionals and their contributions to overall subsector efficiency improvements. However, the full anticipated benefits of these components could not been achieved, due to due to MCI's decision to significantly cut the original training program. 7. Project Sustainabilitv 7.01 The energy conservation/optimization investments in nitrogenousfertilizer plants generally have very attractive rates of return. However, these benefits can be sustained only under certain situations. The plants which can process the conserved gas to finished fertilizers derive the maximum benefits. It is, therefore, necessary to ensure that the gas supply is maintained at an adequate level - in any case not below the present levels, to optimize production and achieve best benefits. The benefits can also be sustained only if the plants continue to be operated at very efficient levels through sound operation management and good preventive maintenance. This is especially so since the existing plants have already been in operation for several years. The project has provided for training and procurement of critical spares to support efficient plant performance. The inclusion of ammonia converter internal  9 - modification to the large ammonia/urea plants will not only conserve energy but also increase ammonia production capabilities. The Luzhou plant has modified the rotors of the major machines to benefit from this potential. Similar possibilities should be explored in other plants. While the plants have benefitted from known options which were available in 1984 and evaluated, further options are now available for energy saving investments based on more recently developed and proven techniques. These should be examined for the large ammonia/urea plants in China. 8. Bank Performance 8.01 The Bank missions played an important role during project preparation in developing the project scope and evaluating the available options. Different options were identified based on proposals from offshore engineering firms, thinking of different Chinese institutions and the Bank's own experience in other countries. These options were reviewed for their technical feasibility and evaluated for their economic attractiveness. Only those options which were considered practical and economically attractive were included in the project. 8.02 Both Bank missions and Nanjing plant officials failed to recognize fully the difficulties in optimizing ammonia production in a plant based on solid feedstocks, especially the potential risks of deteriorating input quality. In retrospect, investments in the Nanjing nitrogen facilities should have been more carefully planned and preceded by adequate detailed studies. 8.03 It is not unusual in optimization and energy saving projects, that the project content undergoes revision during implementation for several reasons. For example, the hydrogen removal unit at the outlet of the carbon dioxide compressor at Liaohe - proposed to improve plant safety, could not be installed. Similarly, ammonia converter modification - given up after evaluation of the option available during project preparation, was included when better technologies became available. The flexibility of the Bank in such cases enabled the plants to achieve increased energy savings within the planned investments. 8.04 Since this Project was the first Bank operation in China in the fertilizer subsector, the beneficiary companies were not fully familiar with various Bank requirements. The Bank missions spared no efforts to work with the beneficiary company managers to get them familiar with landk procedures and their contribution to project implementation efficiency. 8.05 The difficulties in modifying the Luzhou medium size ammonia plant, i.e. increasing significantly its capacity, were not fully recognized during appraisal. This component could have been more efficiently implemented - at a lower cost and shorter time, if the total responsibility had been entrusted to a single institution. The implementation delays were mainly due to coordination difficulties among the various institutions.  - 10- 9. Borrower Performance 9.01 With full knowledge of their plants and their performance, the beneficiary institutions participated constructively in project preparation. In spite of some initial difficulties in familiarizing themselves with the Bank procedures, the project components were implemented efficiently. Their performance was coordinated by MCI's Project Implementation Coordinating Unit with offshore technical assistance for international procurement. Project progress was closely watched at the management levels and problems with potential adverse effects on project implementation were identified in time and discussed constructively with the concerned agencies including the Bank. 10. Project Relationship 10.01 The Bank's relationship with the Government and the project beneficiaries has been good. Discussions on various project issues were always constructive and positive. 11. Consultine Services 11.01 The Project utilized offshore consultancy services for different purposes as summarized below: Assignment Company Country International Procurement UNICO Japan Large Ammonia Plants Kellogg USA Ammonia Converter Retrofits Casale Switzerland Urea Hydrolysis Snamprogetti Italy Medium Size Ammonia Plant H & G UK Medium Size Urea Plant Tecnimont Italy Sulfuric Acid Plant (Limited) Lurgi Germany 11.02 A large part of the detailed engineering, procurement and construction work were carried out by various Chinese design institutes and companies. On the overall, the consultants performed satisfactorily, except, as mentioned earlier, for some coordination difficulties encountered at the Luzhou medium size ammonia plant. 12. Project Documentation and Data 12.01 The Loan agreement for Loan 2541-CHA was adequate and appropriate for achieving the project objectives in all the key areas. The staff appraisal report - along with the documentation in the project files, provided an adequate background to the Bank missions for efficient review of project implementation. The beneficiary companies have provided draft completion reports for their individual components. They have also provided the additional information requested for by the Bank. This Project Completion Report has been prepared by a Bank mission in July 1991 consolidatir3 the above information.  - 11 - PROJECT COMPLETION REPORT CHINA FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT (Loan 2541-CHA) Part II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Per the requirement of providing the Borrower's views in the second part of PCR for 2541-CHA, we present you our following comments through discussion with project entities for your information. The Fertilizer Rehabilitation and Energy Saving Project (2541-CHA) was the first project in fertilizer sector in China with the World Bank's financing, which comprises five companies located at Luzhou, Shuifu (Yunnan), Cangzhou, Liaohe and Nanjing as well as newly established China Fertilizer Development Centre (CFDC). The whole project had spent 5 years for completion from the beginning to loan closing date generally with construction period of 3 or 4 years. This project was efficient and successful with result of energy saving, production expansion, good training of various personnel, addition of research and design equipment and improvement of enterprises' efficiency at five companies and one centre. All beneficiary agencies and the departments concerned are satisfactory with the project achievements and consider the Bank's involvement in supervision and supporting rehabilitation project fruitful and efficient. We reviewed the parts of PCR prepared by the Bank on the basis of draft PCRs and information and data provided by the MCI and all beneficiary companies as well as the discussion made during the meeting between the Bank supervision mission and project entities; and find it revealed the practical situation. We and the beneficiary companies have no objection to the basic content of the Bank prepared PCR, but would like to make additional comments as follows: 1. The four large size fertilizer plants obtained fruitful result in energy conservation with modification of converter internals and addition of energy saving rotor for the compressor, achieving maximum energy conservation at 1.02 mill. Kcal and maximum production expansion at 15% (generally at 10%). The whole project proceeded basically as projected construction schedule. 2. The rehabilitation of medium size ammonia plant at Luzhou was also efficient with remarkable energy saving results. The maximum daily capacity reached to 200 ton. It was delayed by about 18 months due to the difficulties in cooperation between foreign and local engineering agencies on design work and the removal of 50% of the old equipment and 80% of pipings during the construction as well as equipment modification, readjustment of process layout and utilities, which the latter one were the major reasons causing large delay. These points were not anticipated at the time of project appraisal and increased the volume of work by 8 months. The current poor efficiency at Luzhou medium ammonia plant is mainly due to gas supply constraints not envisaged before, which caused the plant is unable to operate at its full potential.  - 12 - 3. The upgrading equipment and technology at Nanjing ammonia plant with 50 year history originally based on our own financial sources. Due to financing shortage at that time, this project component obtained positive support from the Bank and once again make the old plant modification successful. This project component was finalized as four items, i.e. (a) Modification of ammonia plant, (b) replacement of existing poor sulfuric acid plant with a new more efficient plant, (c) Addition of facilities to increase industrial grade porous ammonium nitrate production replacing crystallized ammonium nitrate, (d) Improvements to the utilities. The above component was proposed in 1983 and finalized to use the World Bank financing at the end of 1985. During appraisal there were some changes in project scope and this caused the delays in following engineering design and procurement work. 3.1 One coal gasifier was in operation in December 1986 and convertor with 1.6 M diameter, waste heat boiler and synthesis unit installed at the end of 1987 and put into production on May 9, 1988. It is one of the largest system with our own design and equipment fabrication. The execution of the above two items followed the Bank's schedule. 1000 M3 ball tank and liquid ammonia pump were in operation in October 1988, which removed the liquid ammonia storage constraints. The appraisal on pressure shift and decarbonization units were not completed until July 1988, which caused about nine months delay in processing the project. Due to the damage in transit of the ammonia compressor and delays in receiving the replacement parts, the goods was delivered to Shanghai port from USA till February 1990, which caused overall delay in ammonia plant modification. The reason for Nanjing ammonia plant could not improve its ammonia production level is a deterioration of the quality of coal now being supplied. To cope with this situation, Nanjing decided to add three more gas generators and the ammonia production level and tne consumption index have fully meet the Bank appraisal requirement upon the completion and operation of newly-added gasifiers in December 1991. The efficiency on modified part of ammonia plant has been reflected to some extent. The capacity has been expanded by 12,000 T/Y and the recovered steam exceeded 100,000 ton every year after rehabilitation. 3.2 The design institute under Nanjing Chemical Industry Company carried out overall arrangement and detailed engineering of building new sulfuric acid plant except for roaster, waste heat boiler and electric precipitator supplied by Lurgi and procurement of some other critical equipment such as blower and acid cooler with anode protection with a view to develop its capability in design large size sulfuric acid plant. The institute completed all design work of sulfuric acid plant in May 1986 and started construction work in third quarter of the year 1986. Well organized procurement work ensured the project proceeding as per expected schedule. Nanjing sulfuric acid plant was commissioned on March 8, 1988. In year 1989 the plant only produced 131,540 T sulfuric acid due to market constraints, but operated at 91.8% of the design capacity to produced 183,582 ton sulfuric acid, exceeding the Bank test figure 78.57%. Rock consumption for per ton acid production was also reduced *o 0.9766 T/T (calculated at 35% sulfur content in pyrite). The porous ammonium nitrate and utilities items were completed in time. The success of these items indicates that the institute under Nanjing Chemical Industry Company and the construction firms have the capabilities to undertake engineering and construction of large size fertilizer plant. 3.3 The plan for further energy savine (a) To improve the energy application efficiency by increasing steam pressure of gas generator and waste heat boiler from 8 kg/cm2 to 20 kg/cm2 recovering additional heat energy produced by pressure differential; to preheat boiler feedwater with fume coming from waste heat boiler achieving better waste heat recovery.  .. ., ,. , ., . i ~.I............................... 1 ..,b1_ - 13 - (b) To obtain energy saving at conversion system by selecting low steam ratio catalyst for conserving steam; to heat copper wash liquid with hot water generated by recovered remaining heat at conversion system. Rough calculation shows that per ton ammonia production can save steam by 0.4-0.5 T/T. (c) About 300 ton hot water with 90 C can be recovered at per hour acid prciuction. Now only about 100 ton hot water has been utilized and they try to achieve better application of hot water in following steps. 4. The established CFDC is fruitful and efficient, which mainly reflect as follows: 4.1 Many institutes have upgraded their equipment level by adding a batch of necessary apparatus (including computer). (a) Four institutes purchased computers and CAD systems, which are prerequisite conditions to conducting modern design. The application of CAD svstem not only improved the working efficiency, but also can process those design work which are beyond manpower (such as three dimensional layout drawing). (bj There were poor facilities for catalyst research at the institute in the past. The newly added computer with automatic control and data processing has precise control over the job and easy operation and achieves quality research work as well. This ensures large improvements of catalyst research and development work with complete engineering data and experiences. (c) The technical personnel can conduct any testing work with newly added large analytical and experimental apparatus and small testing instruments. The new testing facilities facilitate our lab work and also improves the preciseness of our research work and expedite our working progress. (d) The institute also purchased some soft wares including process simulation and engineering design soft ware, while upgrading the existing facilities. Some purchased soft wares has fully showed their efficiency and some are under second development, which will soon show their efficiency. All these indicate the purchased hard and softwares with the Bank financing improved the equipment level of CFDC members. 4.2 The Bank loan played positive role in improving the professional quality and research ability of scientific and technological personnel at each institute. A batch of middle-aged backbone at institute were designated to go abroad for advanced study. The benefits show: (a) the understanding of the world development trend in each field; (b) The study and application of most advanced experimental apparatus and method. Many people has completed research task abroad- (c) A batch of backbone at each member institute has been well trained in the field of fertilizer research such as high pressure phase balance, absorption engineering catalyst theory and research development, chemical mining and beneficiation, nitrogenous fertilizer process, chemical equipment development, multi units in chemical engineering, chemical technical and economic analysis with application of computer.  - 14 - In a ward, there are large improvement, after training, in professional knowledge and quality among the technical forces of the institutes. These technical forces will play significant role in further development at each research field and also will benefit the nther people by sharing advanced new technology. Based on the above overall situation, we can say we have realized the projected loan objectives. The enhancement of equipment level and the upgrading of technical personnel quality will make more contribution to the development in fertilizer sector. 4.3 The comparison between Bank alloation and actual disbursement (Unit: Mill. USD) Bank Loan Actual Percentage between Allocation Disbursement Column Two and One 1. instruments and equipment procurement 8.25 9.12 110.5% 2. Personnel training 1.54 0.38 24.7% 3. Consultation and others 0.21 0.01 4.8% TOTAL 10.00 9.51 95.1% 4.4 The Function of CFDC CFDC is a technical development institute established based on state reform policy on scientific research system in 1984. Although it didn't become overall coordinating agency as previously projected for research and development work in the fertilizer sub sector in China, CFDC has played positive role in promoting technical advance in fertilizer industry. Besides organizing seminar on introduction of advanced foreign and local technologies, CFDC also recommends suitable new technology for specific nitrogenous fertilizer plant modifications, which help the plant to have better benefits. CFDC has become the bridge between the institutes and the enterprises for spreading locally developed technology. CFDC has large involvement in organizing and preparing feasibility study as well as evaluation of key construction projects; and also enjoys good reputation. CFDC has many contacts with foreign engineering firms and overseas fertilizer development companies and also selectively recommends suitable overseas technology for local technical rehabilitation projects. Now CFDC members has expanded from early 9 to 19. Most of fertilizer enterprises consider it's a wise selection to technically rely on CFDC and try to become CFDC member. Generally speaking, there have been large improvement in capability of CFDC and its 8 members with the Bank loan. They are playing positive role in technical advance and fertilizer Industry expansion. 5. Bank Performance The Banig's supervision played major role in smoodi implementation of the project and the Bank has made great effort to ensure the project following the schedule. The selected project components  - 15 - based on the Bank's evaluation during appraisal stage were reasonable and were consistent with the real situation of project entities. We obtained timely procurement guidance and assistance from the bank so that we can purchase both economic and advanced equipment and materials. The Bank's procedures and methods for project management are rigorous and scientific. The Bank's requirement to project entities are also reasonable. The evaluation personnel and project operators of the Bank are professional, competent, conscientious to the work and also very easy to get along with. 6. Borrower Performance The project entities have attached great importance to the project and closely followed the project progress. Competent and experienced professional personnel were selected to take care of project at each beneficiary company. They were diligent, conscientious and eager to learn; efficiently fulfilled the work as per the specified requirements of the Bank, MCI Loan Coordination Group and CNCCC. Having been getting involvement in project, they are familiar with the Bank procedures and requirement; and improved their abilities to handle Bank financed project. However, because this is the first time for us to handle the project with the Bank financing, they know very little about the Bank's approach e.tc. Thus, there are still room for further improvement in planning and projection while carrying out project implementation. 7. The Relationship with the Bank We maintained good relationship with the Bank during project implementation. Our people worked together with the Bank project operators and had close cooperation. All the discussion on specific points between both sides were always constructive and positive. S. The Relationship with the Other Agencies There were many agencies involved in this project. The coordination work among so many organizations became very difficult. However, the beneficiary companies still maintained good relationship with each agency and strictly executed the contracts under the guidance of MCI and CNCCC. They closely worked with other companies and learned from each other to achieve mutual advance. Any problems arisen during implementation were properly solved through timely and friendly discussion. This ensured the smooth project completion.  - 17 - PROJECT COMMLEMON 1REEORT CHINA (Loan 2541-CHA) PART III: STATISTICAL INFORMATION 1. Related Bank Loans and/or Credits: Loan 2541-CHA is the first Bank Group operation in China in the fertilizer production subsector. Other Bank Group operations in the subsector in China are summarized below. Loan/Credit Year of Status Title Purpose Approval Cr. 1412-CHA Testing of phosphate 1983 Completed Technical rocks in Hubei and Guizhou Cooperation provinces and studies for Credit exploiting them. Ln. 2838-CHA Improve production efficiency 1988 Proceeding Fertilizer of medium and small size satisfactorily Rationalization plants through renovation Project phosphate capacity expansion. Ln. 2958-CHA Establish first large size local 1988 Proceeding with Phosphate Develop- phosphate mine and beneficiation some ment Project plant for high grade phosphates. implementation delays Ln. 3066-CHA Set-up demonstration models for 1989 Proceeding Hubei Phosphate large and medium size integrated satisfactorily Project phosphate mining and fertilizer manufacture. Cr. 2159-CHA As project sub-components, establish 1990 Implementation Hebei Agricultural two models for the rehabilitation started recently Development Project of existing small size nitrogenous and phosphate fertilizer plants.  - 18 - 2. Irolet Timetable Date Date Item Planned Actual Preparation Sep. 1983 Sep. 1983 Prm.-apraisal/Appraisal Jul/Aug. 1984 Jul/Aug. 1984 Follow-up M.ission Dec. 1984 Dec. 1984 Loan Negotiation March 1985 April 1985 Board Approval April 1985 May 1985 Loan Signature August 1985 Loan Effectiveness Dec. 1985 Loan Closing June 30, 1989 Dec. 31, 1990 Loan Completion May 3, 1991 3. Loan Disbursements Disbursements (in US$ Million) Bank Fiscal Year Estimated Actual Actual % of And Semester Cumulative Cumulative Estimated 1986 03/31/86 4.0 0.5 13 06/30/86 13.0 1.3 10 1987 12/31/86 27.0 5.9 22 06!30/87 52.0 11.7 23 1988 12/31/87 82.0 32.2 39 06/30/88 92.0 61.7 67 1989 12/31/88 97.0 71.4 74 06/30/89 - 88.1 91 1990 12/31/89 - 91.7 95 06/30/90 95.8 99 1991 05/03/90 96.3 99 Based on the World Bank Disbursement lformadon.  - 19- The original closing date for the Project was June 30, 1989. The closing date was extended to June 30, 1990 in October 1989 in view of delays in the implementation of some of the components. The closing date was further extended to December 31, 1990 in June 1990. An amount of about US$0.7 million was canceled. 4. Proiect Implementation Indicators Appraisal Actual Completion Completion i) Energy Improvement Luzhou June 1988 November 1988 in large ammonia Yunnan June 1988 July 1988 and urea plants Cangzhou June 1988 September 1988 Liaohe June 1988 October 1988 ii) Liquid effluent Luzhou June 1988 December 1988 treatment for large Yunnan June 1988 August 1988 urea plants with urea Cangzhou June 1988 September 1988 recovery Liaohe April 1988 November 1988 iii) Large urea plant Luzhou June 1988 November 1988 improvements with Liaohe June 1988 Not Implemented additional urea output iv) Modification of Luzhou Ammonia June 1988 November 1989 medium size plants Urea June 1988 January 1990 v) Modification of Nanjing Ammonia December 1987 July 1990 ammonia and other plants Amm.Nitrate December 1986 December 1985 Sulf. Acid December 1987 December 1987 Utilities June 1987 September 1989 vi) CFDC Component December 1987 End 1989 Comments on Project Implementation There has been about 3 to 4 months delay in the implementation of the lage ammonia/urea plant modifications. This has been mainly due to the addition of converter internal modifications to the project scope based on improved technology that became available. The hydrogen removal unit for the Liaohe urea plant was not installed due to the expected long installation time and the resulting production loss. Implementation of the Luzhou medium size ammonia/urea plants was delayed by about 18 months. Given the complexity of the project and the potential difficulties in coordinating the joint design efforts of the foreign and local firms, the appraisal schedule was optimistic. The delay could have been less if the project had been implemented under the total responsibility of a single contractor. The Nanjing ammonium nitrate and sulfuric acid plants were implemented well within schedule. The ammonia plant and utility modifications have been carried out over time and some items  - 20 - have been delayed due to various factors often outside the control of the company. Some training under the CFDQ Component spilled into 1990. 5. Prlect Cost and Finandog A. Prflject Costs (in US$ millions) Apriusal Estimate Actusl Costs Local Pomign Total Local Foreign Total Cost Cost Cost Cost Cost Cost Plant Rehablbitation and Enemy Savlne Comooneol Enginering and Licensws 4.92 7.07 11.99 3.51 8.87 12.38 Equipment and Materials 14.97 51.28 66.25 20.04 68.50 88.54 Taxes 1.60 1.60 0.10 0.10 Freight and Insurance 4.54 5.05 9.59 1.51 1.85 3.36 Civil Works and Etection 22.43 1.19 23.62 36.33 36.33 Project Management 0.56 5.33 5.89 2.28 1.97 4.25 Sparm Parts 0.51 7.56 8.07 4.05 4.05 Training Aids 0.10 1.52 1.62 0.01 1.24 1.25 Trining 0.04 1.52 1.56 0.01 0.44 0.45 Others 2.83 2.83 Bae Cost Estimate 49.67 80.52 130.19 66.62 86.92 153.54 Physical Contingency 4.95 7.19 12.14 0.64 0.64 Price Contingency 7.77 12.64 20.41 Installed Cost 62.39 100.35 162.74 67.26 86.92 154.18 Working Capital 0.29 0.29 0.07 0.07 Subtotal 62.68 100.35 163.03 67.33 86.92 154.25 Fertlizer Research and Develogment (CFDC) Comoonent Equipment 0.35 4.10 4.45 0.73 5.70 6.43 Computer Hardware and Software 0.10 3.24 3.34 0.37 3.41 3.78 Trining 0.30 1.49 1.79 0.02 0.39 0.41 Project Management 0.06 0.06 0.01 0.01 Subtotal 0.75 8.89 9.64 1.12 9.51 10.63 Contingency 0.09 1.11 1.20 Subtotal 0.84 10.00 10.84 1.12 9.51 10.63 Interest During Consruction 0.58 12.41 12.99 3.69 9.21 12.90 Total Financing 64.10 122.76 186.86 72.14 105.64 177.78  -21 - S. Olec Costs by Components (in US$ millions) AimmL ai Acdal EPrioc CWL om L=ocl Foisign Total Local Foreign Total Cost Cost Coat Cost Cost Coat Piq IRehbll8b~ Ed * Luzhou 15.59 46.31 61.90 18.32 48.23 66.55 - Yunnin 5.57 13.84 19.41 2.58 10.50 13.08 - Cangzhou 5.27 12.97 18.24 4.49 13.15 17.64 - Liaohe 5.95 11.79 17.74 4.00 7.55 11.55 - Naujing 30.88 27.85 58.73 41.63 16.70 58.33 SubtotA 63.26 112.76 176.02 71.02 96.13 167.15 FerAlier R & D (CG 0.84 10.00 10.84 1.12 9.51 10.63 Total Financing 64.10 122.76 186.86 72.14 105.64 177.78 Above pejct cost daa psokidd by I. bmnsfiisy comanies, CFDC and CNCCC. C. lml iai (in US$ millions) Planned (Lan 2541-CHA) Acald Finming Agmeia IBRD FlAoan (Expendtur Catgre) Equipment, Materials anW Spa 78.86 84.51 Engineering, LicaninS and Toeh. Svieec 14.08 10.65 for Project Mabnagmu Overseas Visit by Local ltdf for 0.63 0.33 Engineoin and P _ourmt Overseas Training 3.19 0.66 Consultant Services for Trawin 0.17 Subtotal 97.00 96.32 lioaw Fla~ Dometic Dank Lon 22.80 14.90 Own Funds 67.04 66.56 Total fUndoe - 186.84 177.78 IBRD loan of about USSO.6S mioe ow cuussd.  - 22 - 6. irieBt Resut A. Diret Benefits Indicators Appraisal Actual (eat) a) Energy Improvement Luzhou 0.76 kcal/t 1.26 kcal/t in large amnonia Yunnan 0.76 kcallt 1.05 kcallt and urea plants Cangzhou 0.76 kcal/t 1.10 kcait Liaohe 0.76 keal/t 0.83 koal/t b) Liquid effluent Luzhou 5000 tpy 5000 tpy treatment for large Yunnan 5000 tpy 2000 tpy urea plants with Cangzhou 5000 tpy 5000 tpy urea recovery Liaohe 5000 tpy 2000 tpy c) Effluent Quality < Sppm < 2ppm d) Large urea plant Luzhou 3000 tpy 3000 tpy improvements with Liaohe 3000 tpy additional Urea output e) Modification of Luzhou Ammonia 49,500 tpy 49,500 tpy medium size plants Urea 82,500 tpy 82,500 tpy 1) Modification of Nanjing Ammonia 30,000 tpy 11,000 tpy ammonia and other plants Amm.Nit. 50,000 tpy 50,000 tpy Sulf. Acid 200,000 tpy 200,000 tpy Utilities - The above achieved result. are based on the test runs. B. Economic Benefits Appraisal Estimated Estimate Actual Luzhou Medium Size Plant. 44.7% 13.8% Large Size Plant. 27.5% 53.4% Yunnan Large Size Plants 38.8% 63.4% Cangzhou Large Size Plants 27.2% 43.8% Liaohe Large Size Plants 26.8% 25.5% Nanjing Nitrogen Plant. 17.8% Ammonia Plant (274.3%) Porous Ammonium Nitrakt 21.9% Sulfuric Acid Plants 28.7% 28.7% Total Project 30.8% 24.9%  - 23 - C. Flandlal InUt Appraisal Etimated Estimate Actual Luzhou Medium Size Plants 25.8% (1.4%) Large Size Plants 18.4% 22.7% Yunnan Large Size Plants 31.4% 22.4% Cangzhou Large Size Plants 12.6% 22.1% Liaohe Large Size Plants 16.0% 16.5% Nanjing Nitrogen Plants 18.4% Ammonia (9.3%) Porous Ammonium Nitrate 8.3% Sulfuric Acid Plans 19.1% 11.8% D. Studies Purpose as Defined at Impaet of Appraisal Status Study Nitrgenous Festilizer To study production Completed Has helped to Production Cost Study costs of selected locate options medium-size plants for efficiency for which potential improvements for efficiency inprovement is subsanti  - 24 - 7. Status of Covenants Section Covenant Deadline Status Loan Agreeinent 3.06 (i) Provide its 4 year R&D develop- Oct. 31, 1985 Completed ment plan and allocation of work among institutes for 1986-9C 3.06 (ii) Provid- annual R&D for next Oct. 31 of Completed year by Oct. 31 each year each year from 1986 to 1990 3.07 Cause CFDC to develop its Sept. 30, 1985 Completed Training Program Projet Agreements 2.07 Carry out and provide the Bank Dec. 31, 1985 Completed with environmental safety case studies 2.06 Develop company training programs Sep. 30, 1985 Completed Provide Bank each year with October 31 of Completed projected financial statements each year for the next five years  - 25 - 8. Missions Stage of Month/ Number of SW Specialization Performance Rating Types of Project Cycle Year Persons in field Represented' Status Problems Through Appraisal Prenaration 9/83 4 8 Eng.,Eco./FA Preappraisal 3/84 5 14 Eng.,Eco/FA Appraisal Fert.Mktg. Follow-up 1/85 4 10 Eng.,Eco.,FA Supervision 1 9/85 2 5 Eng.,FA 1 2 5/86 3 2 Eng.,Eco.,FA 1 3 9/87 1 2 Eng. 1 4 10/88 1 2 Eng. 2 5 9/89 1 2 Eng. 2 6 10/90 2 4 Eng.,FA 2 Project Completion 1 7/91 2 2 Eng . Engineer Eco . Economist PA . Fa ncial Analyst Pert.Mkig. Fenilizer Marketing Specialist  - 26 - Annex - 1 FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT Physical Performance of the Companles (in thousand tons per year) Projected 199i 1990 A. LNGCC (Luzhou) Large Size Plant Ammonia 270 346 334 Urea 478 539 503 Med. Size Plant Ammonia 72 38 82 Urea 210 37 99 B. YNGCC (Yunnan) Large Size Plant Ammonia 270 314 328 Urea 475 463 500 C. CCFC (Can zhou) Large Size Plant Ammonia 270 237 253 Urea 475 384 418 D. LCFC (Liaohe) Large Size Plant Ammonia 270 330 322 Urea 478 530 526 E. NCIC (Nanling) Ammonia 150 102 103 Methanol 45 40 41 Ammonium Nitrate 85 84 81 Ammonium Nitrate (IG) 50 30 28 Ammonium Bicarbonate 97 62 64 Sulfuric Acid (100%) 180 132 184  - 27 - Annex - 2 Pane 1 of S LNGCC - Flnanclal Statements (in million Yuans) < A-- Appraisal --------------> < ------ Actual -----> 1984 1989 1990 1989 1990 A. INCOME Gross Sales Revenue 235.6 311.2 328.0 305.9 319.9 Less: Product Tax 6.4 62.2 65.6 55.2 50.6 Net Sales Revenue 229.2 249.0 262.4 250.7 269.3 Cost of Goods Sold 138.8 179.1 186.3 215.4 247.9 Add: Other Incorme 3.0 3.4 3.5 6.8 6.4 Less: Financial Charges 0.2 9.4 8.5 Less: Loan Amortization 3.9 19.1 29.5 25.8 Net Taxable Income 93.2 60.0 52.0 12.6 2.0 Less: Taxes and Remittances 87.1 53.7 46.5 2.0 2.0 Retained Profits 6.1 6.3 5.5 10.6 (0.0) B. BALANCE SHEET Current Assets 102.1 145.9 162.4 168.6 174.9 Net Fixed Assets 258.2 308.9 283.0 394.8 369.7 Works in Progress 1.8 3.4 3.5 16.4 65.6 Long Term Bonds 9.8 9.8 9.8 14.6 17.0 Total Fixed Assets 269.8 322.1 296.3 425.8 452.3 Total Assets 371.9 468.0 458.7 594.4 627.2 Current Liabilities 7.6 28.1 25.2 63.9 74.4 Long Term Debts 107.7 91.7 100.2 102.5 State Funds 299.7 223.6 216.8 317.5 319.0 Reserves 64.6 108.6 125.0 112.8 131.3 Total Equity 364.3 332.2 341.8 430.3 450.3 Total Equity & Liabilities 371.9 468.0 458.7 594.4 627.2 C. RATIOS Net Profit/Sales (96) 39.3 20.5 21.7 8.7 13.8 Operating Income/ 24.7 17.0 19.6 3.9 7.2 Average Assets (%) Current Ratio 13.4 5.2 6.4 2.4 2.6 LT Debt/LT Debt & Equity 24.5 21.2 18.9 18.5 18.9 Total Liabilities/Total Assets (%) 2.0 29.0 25.5 28.2 27.6 Debt Service Coverage 97.5 2.7 1.8 2.3 2.1  - 28 - Annex - 2 Page 2 of S YNGCC - Financial Statements (in million Yuans) < -~~ Appraisal -- > <--- Actual--> 1984 1989 1990 1989 1990 A. INCOME Gross Sales Revenue 172.2 227.2 234.1 255.6 284.1 Less: Product Tax 5.2 45.4 46.8 40.9 45.6 Net Sales Revenue 167.0 181.8 187.3 214.7 239.1 Cost of Goods Sold 117.8 138.1 141.5 173.6 187.5 Add: Other Income (0.4) 1.5 Less: Financial Charges 2.1 1.9 Less: Loan Amortization 1.2 2.8 9.2 15.0 Net Taxable Income 49.2 40.4 41.1 31.5 38.1 Less: Taxes and Remittances 46.2 31.3 31.8 15.2 16.1 Retained Profits 3.0 9.1 9.3 16.3 22.0 B. BALANCE SHEET Current Assets 93.7 131.2 144.9 116.6 160.5 Net Fixed Assets 226.9 187.6 168.7 216.0 205.2 Works in Progress 2.5 2.3 2.3 24.6 30.9 Long Term Bonds 5.7 9.7 10.5 76.6 89.0 Total Fixed Assets 235.1 199.6 181.5 317.2 325.1 Total Assets 328.8 330.8 326.4 433.8 485.6 Current Liabilities 3.0 6.3 6.7 33.0 53.3 Long Term Debts 22.4 19.3 6.7 26.7 State Funds 262.0 197.5 181.4 250.5 227.4 Reserves 63.8 104.6 119.0 143.6 178.2 Total Equity 325.8 302.1 300.4 394.1 405.6 Total Equity & Liabilities 328.8 330.8 326.4 433.8 485.6 C. RATIOS Net Profit/Gross Sales (%) 28.6 18.3 18.8 15.8 18.4 Operating Income/ 19.5 17.4 19.5 13.5 16.7 Average Assets (%) Current Ratio 21.2 20.8 21.6 3.5 3.0 LT Debt/LT Debt & Equity 6.9 6.0 1.7 6.2 Total Liabilities/Total Assets (%) 0.9 8.7 8.0 16.5 9.2 Debt Service Coverage 7.1 5.4 6.2 4.5  - 29 - Annex - Z Palle 3 of 5 CCFC - Financial Statements (in million Yuans) <C-~ Appraisal > <-- Actual -> 1984 1989 1990 1989 1990 A. INCOME Gross Sales Revenue 148.5 220.7 227.4 228.1 267.7 Less: Product Tax 14.0 44.1 45.5 28.7 32.2 Net Sales Revenue 134.5 176.6 181.9 199.4 235.5 Cost of Goods Sold 99.6 129.1 132.2 175.1 225.8 Add: Other Income 0.9 14.9 36.4 Less: Financial Charges 0.2 2.7 2.5 Less: Loan Amortization 1.3 3.1 9.2 15.5 Net Taxable Income 35.6 43.5 44.1 30.0 30.6 Less: Taxes and Remittances 28.8 39.1 39.7 12.9 15.4 Retained Profits 6.8 4.4 4.4 17.1 15.2 B. BALANCE SHEET Current Assets 116.3 145.0 154.8 145.7 191.1 Net Fixed Assets 146.4 126.4 111.4 207.7 189.0 Works in Progress 0.6 1.1 1.2 2.2 11.5 Long Term Bonds 4.1 7.6 8.3 14.4 14.0 Total Fixed Assets 151.1 135.1 120.9 224.3 214.5 Total Assets 267.4 280.1 275.7 370.0 405.6 Current Liabilities 5.9 12.4 13.0 33.6 23.9 Long Term Debts 24.6 21.1 26.8 26.2 State Funds 180.1 133.7 121.8 206.2 207.9 Reserves 81.4 109.4 119.8 103.4 147.6 Total Equity 261.5 243.1 241.6 309.6 355.5 Total Equity & Liabilities 267.4 280.1 275.7 370.0 405.6 C. RATIOS Net Profit/Gross Sales (%) 24.0 20.3 20.8 17.2 17.2 Operating Income/ 16.3 21.4 23.7 7.1 3.0 Average Assets (%) Current Ratio 19.9 1.7 11.9 4.3 8.0 LT Debt/LT Debt & Equity 9.2 8.0 6.9 8.0 Total Liabilities/Total Assets (%) 0.9 13.2 12.4 12.4 16.4 Debt Service Coverage 110.0 4.3 3.4 5.3 6.1  - 30 - EagcAOf5 LCFC - Finandal Statements (in million Yuans) < ---- Appraisal--- > <-Actual-> 1984 1989 1990 1989 1990 A. INCOME Gross Sales Revenue 235.1 222.5 229.2 273.1 300.9 Less: Product Tax 19.4 44.5 45.8 52.3 54.8 Net Sales Revenue 215.7 178.0 183.4 220.8 246.1 Cost of Goods Sold 113.2 137.4 140.5 186.0 209.4 Add: Other Income (7.4) Less: Financial Charges 0.1 2.6 2.3 Less: Loan Amortization 3.2 5.4 6.8 4.2 Net Taxable Income 102.4 34.8 35.2 20.6 32.5 Less: Taxes and Remittances 96.1 33.4 33.8 12.1 8.5 Retained Profits 6.3 1.4 1.4 8.5 24.0 B. BALANCE SHEET Current Assets 91.8 135.6 148.0 154.1 183.1 Net Fixed Assets 220.1 215.7 196.6 268.9 277.1 Works in Progress 38.1 0.7 0.7 43.6 45.7 Long Term Bonds 2.8 6.3 7.0 9.4 10.2 Total Fixed Assets 261.0 222.7 204.3 321.9 333.0 Total Assets 352.8 358.3 352.3 476.0 516.1 Current Liabilities 8.5 13.3 14.1 51.4 65.9 Long Term Debts 30.8 26.1 14.7 15.7 State Funds 267.3 228.1 213.0 317.6 326.4 Reserves 77.0 86.1 99.1 92.3 108.1 Total Equity 344.3 314.2 312.1 409.9 434 5 Total Equity & Liabilities 352.8 358.3 352.3 476.0 516.1 C. RATIOS Net Profit/Gross Sales (%) 43.6 17.1 17.7 10.0 12.2 Operating Income/ 30.1 14.0 15.8 8.6 8.4 Average Assets (%) Current Ratio 10.8 10.2 10.5 3.2 2.8 LT Debt/LT Debt & Equity 8.9 7.7 3.0 3.5 Total Liabilities/Total Assets (%) 2.4 12.3 11.4 13.1 15.8 Debt Service Coverage 159.0 4.3 3.8 6.1 13.6  - 31 - Annex - 2 NCIC - Financial Statements (in million Yuans) <-- Appraisal --> <- Actual -> 1984 1989 1990 1989 1990 A. INCOME Gross Sales Revenue 326.7 400.2 416.6 653.6 705.2 Less: Product Tax 22.7 28.2 29.3 35.2 36.3 Net Sales Revenue 304.0 372.0 387.3 618.4 668.9 Cost of Goods Sold 247.8 278.4 287.8 541.7 615.9 Add: Other Income (0.8) 1.0 1.0 (18.1) (22.8) Less: Financial Charges 0.7 5.0 4.7 Less: Loan Amortization 3 n 5.3 Net Taxable Income 54.7 ,.6 90.5 58.6 30.2 Less: Taxes and Remittances 20.0 64.9 67.9 15.0 15.0 Retained Profits 34.7 21.7 22.6 43.6 15.2 B. BALANCE SHEET Current Assets 200.2 190.7 204.3 407.4 463.6 Net Fixed Assets 205.7 318.2 303.6 394.5 513.6 Works in Progress 64.4 52.1 52.5 68.9 87.3 Long Term Bonds 7.1 11.9 Total Fixed Assets 270.1 370.3 356.1 470.5 612.8 Total Assets 470.3 561.0 560.4 877.9 1,076.4 Current Liabilities 43.1 49.6 50.4 328.5 410.3 Long Term Debts 3.0 38.0 32.4 56.1 145.8 State Funds 301.9 341.2 331.9 461.1 483.7 Reserves 122.3 132.2 145.7 32.2 36.o Total Equity 424.2 473.4 477.6 493.3 520.3 Total Equity & Liabilities 470.3 561.0 560.4 877.9 1,076.4 C. RATIOS Net Profit/Gross Sales (%) 16.7 22.4 23.0 9.0 4.3 Operating Income/ 17.7 20.6 22.4 9.9 5.6 Average Assets (%) Current Ratio 4.o 3.8 4.1 1.2 1.2 LT Debt/LT Debt & Equity 1.0 7.4 6.4 10.2 21.9 Total Liabilities/Total Assets (%) 10.0 15.6 14.8 43.8 48.1 Debt Service Coverage 66.4 5.4 4.6 5.9 4.9  - 32 - Annex - 3 Palge I of 2 Assumptions used for Financial and Economic Analysis A. .General 1. The financial and economic rates of return for all the components except the Nanjing porous ammonium nitrate and sulfuric acid plants have been calculated on incremental basis. All calculations are in constant 1991 US dollars. The life of the investments have been assumed to end in year 2000 with no salvage value for the assets. Duties and taxes have been excluded from all cost and benefit streams for economic analysis. Appropriate conversion factors have been applied to convert the financial pr.ces of local currency components of the capital cost, non-traded goods and other items to economic prices. B. Production Levels 2. The production levels and benefits now projected for the various components are summarized in the table below. Production Levels and Benefits (in thousand tons unless otherwise stated) Phnot Produ ProducdnQ heneflb Before Aftr Luzhou (Large) Aumonia 233.8 270.0 Urea 67.5 Urea 359.9 427.4 (Modium) Ammonia 96.8 114.8 Urcs 40.8 Urea 153.7 194.5 Yunnan Ammfonia 273.3 300.0 Urea 42.8 Urea 437.2 480.0 AN 3.2 Cangzhou Anmonia 221.4 250.0 Urea 45.8 Urea 354.2 400.0 Ammonia 2.2 Liaohe Anumonia 322.0 322.0 Ammonia 1.5 Urea 526.0 526.0 Gas (Million kcal) 1.15 Nanjing Porous AN 35.0 Porous AN 35.0 Sulfuric Acid 180.0 Sulf.Acid 180.0 Ammnone. 99.0 110.0 Ammonia 11.0 3. All the four locations, where energy saving investmnents have been carried out under the Project, are now encountering gas supply constraints. Despite concerns about adequacy of gas supplies, the Liaohe plant is expected to operate at its normal levels taking advantage of the conserved gas. At this location, the benefit is reflected as the value of gas conserved. At the other three locations, the ammonia plants will operate at below their achievable production levels because of continuing gas supply  t - 33 - Annex - 3 Page 2 of a constraints. Production losses are especially severe in the winter months. Due to the energy saving investments under the Project, these plants are able to produce more fertilizers than they could have before the renovations. For these plants, the energy conservation benefits are reflected through additional production of ammonia, urea and/or ammonium nitrate obtained using the conserved gas. 4. At Nanjing, the ammonia plant continues to produce only about 110 thousand tpy of ammonia, even after the investmeints. This is reported to be due to the deterioration in the quality of coal supplies following mechanization of the coal mining operations. It is now estimated that the Nanjing ammonia plant would have produced only about 99 thousand tpy of ammonia without the investments under the Project. The company expects that production can reach 150 thousand tpy with the commissioning of three more gasifiers expected to be commissioned in 1992. This has not been taken into account in the analysis. In all cases, the analysis has been carried out using actual production up to 1990, expected production in 1991 and the above projected levels for the subsequent years. C. Capital Cos 5. The capital costs and their phasing are as estimated by the companies and have been converted to 1991 US dollars using average exchange rates prevailing in the year of disbursement and the preliminary international inflation rates as projected by the Bank in June 1991. Interest during construction, cost of spares and cost of training (including training aids) have been deducted from the project costs. Due to the nature of the investments, there is no significant increase in working capital. D. Benefits 6. Financial product prices obtained from the companies have been converted to 1991 US dollars using an average exchange rate for 1991 of US$1 = Yuan 5.5. Economic product prices have been obtained - wherever available, from the June 1991 preliminary Bank Commodity Price Forecasts, suitably adjusted for the locations. Ammonia and ammonium nitrate prices have been derived from the urea prices using the same assumptions as in the Staff Appraisal Report. E. Operating Cos 7. Financial costs for the different components have been obtained from the production costs sheets of the companies. Economic costs of inputs such as coal, pyrites and natural gas have been derived adopting the same assumptions as in the SAR. Other costs - both variable and fixed, have been converted to economic costs using appropriate conversion factors.  - 34 - Annex - 4 FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT Present Status of the Fertilizer Sector in China 1. Fertilizer continues to play an important role in China's agricultural production. Between 1952 and 1989, foodgrain production has increased from 164 million tons to 371 million tons - an average annual increase of 3.1 %. National development plans envisage that China's foodgrain production will increase to 447 million tons by 1995 and 500 million tons by the year 2000. However, China shares only about 8% of the world's arable land, though required to support about 22% of the world population. Continued emphasis on intensive agriculture based on improved farming practices and high fertilizer application levels is, therefore, important to China's food self-sufficiency programs. China's fertilizer consumption in 1989 was about '52 kg. per hectare of arable land compared with the world average of 99 kg. However, fertilizer application intensity in China is still lower than several countries, such as Egypt (351), S. Korea (422), Japan (415) and New Zealand (732). 2. Historical and projected consumption and production of chemical fertilizers in China are sumrnmarized in the table below. CHINA - Fertilizer Consumption and Production Past and Proiected (in thousand tons per tear of nutrients) NITRO4GEN PHOSPHATE POTASH TOTIL Consumption Production Consumption Productlon Consumption Production Consumption Production 1975 4.71 3.75 1.92 1.92 0.05 0.04 6.68 5.67 1980 11.53 9.99 2.38 2.31 0.34 0.05 14.25 12.34 1985 12.93 11.50 2.34 1.76 0.41 0.05 15.68 13.31 1986 12.97 11.59 2.58 2.33 0.82 0.05 16.37 13.96 1987 15.55 13.42 3.47 3.24 1.12 0.05 20.14 16.71 1988 16.94 13.61 3.66 3.61 1.33 0.03 21.93 17.27 1989 17.23 14.24 3.67 3.61 1.01 0.04 21.91 17.88 1990 17.60 14.64 5.84 4.12 2.46 0.07 25.90 18.80 1995 16.70 15.71 7.90 4.86 3.10 0.23 27.70 20.80 2000 18.00 17.63 9.00 6.26 4.60 0.60 31.60 24.50 Source: Miniatty of Chemical Induatriea, China The consumption of all fertilizers has increased from 6.68 million tons per year of nutrients (tpyn) in 1975 to 25.90 million tpyn in 1990 - corresponding to an average annual growth rate of 9.5%. The actual 1990 consumption was higher than the Seventh Five Year Plan (SFYP) projection of 21.40 million tpyn by about 21%. As a result, imports formed about 29% of the 1990 consumption, as compared with 20% projected in the SFYP. During the period 1985 to 1990, the consumption of nitrogen. phosphates and potash grew at an average rate of 6.4%, 20.1% and 43% per year respectively compared with 1.2%, 7.0% and 21.6% respectively projected in the SFYP. The ratio of nutrients  - 35 - Annex - consumed in 1990 of 100:33:14 - though short of the SFYP target of 100:50:20, shows an improvement over the 1983 ratio of 100:32:5 especially for potash. Further efforts are, however, required to obtain a better balance. 3. Chemical fertilizer production in China has increased from 12.34 million tpyn in 1980 to 18.80 million tpyn in 1990. The increase in production consisted of 4.65 million tpyn of nitrogen and 1.81 million tpyn of phosphates against 3.00 million tpyn of nitrogen and 1.69 million tpyn respectively projected in the SFYP. As tavisaged in the SFYP, the additional production has come from both capacity additions and improved performance of the existing plants. During the SFYP period, five large nitrogen plants and two large phosphate plants have been brought into production. The average capacity utilization has improved from 81% in 1983 to 87% in 1991. About 137 of the small nitrogen plants have stopped production. The share of low nutrient ammonium bicarbonate continues to be about 58%, but the share of urea has increased to about 34%. About 94% of the phosphate production continues to be in the form of low nutrient products. On the overall, there has been some improvement in the energy efficiency of the plants - partly through energy saving investments and partly through improved operation. 4. The share of nitrogen output based on natural gas has declined from 23% in 1983 to about 19.5% in 1991. This is indicative of the gas supply restrictions faced by several gas based plants including some of the beneficiary companies under the present Project. It would appear that gas supplies are being committed beyond the supply capabilities resulting in gas allocations being inadequate to operate the production facilities at their optimum levels. For optimum use of investments in these facilities, there is need for achieving a better match among capabilities for gas production, transportation and utilization. 5. China's national plans project for the production of about 24.5 million tpyn of fertilizers by the year 2000. This is expected to include about 17.6 million tpyn of nitrogen and about 6.3 million tpyn of phosphates. Several projects are being planned and/or being implemented to achieve the required capacity. In addition, efforts will be continued to improve the productivity of the subsector. Investments are being planned to upgrade the products of small and medium size plants from low nutrient ammonium bicarbonate to higher nutrient urea. Small coal based ammonia plants are being revamped to reduce energy consumption from about 14.3 million kcal per ton to about 12.0 million kcal per ton. While there are plans to add phosphate capacity for high nutrient ammonium phosphates, there are no defined plants for improving the existing plants - especially those producing low nutrient phosphates, and for developing alternative sulfur supply sources such as sulfuric acid production based on phosphogypsum.