Report No.1 131-EGT FILE COPYAppraisal of Kafr El Dawar andEl Beida Textile Project EgyptJune 7, 1976

Industrial Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS WEIGHTS AND MEASURES

Official Rate 1 hectare = 2.379 feddans1 Egyptian Pound (LE) = US$2.56 or 1 feddnrn = 1.038 acres

SDR 2.118* 1 acre = o.963 feddans1 US Dollar = LE 0.391 1 sq. kilometer = 238 feddans

1 kantar = 157.5 kg of seedParallel Market Rate cotton1 Egyntian Pound (EE) = US$1.56 = 50 kg of cotton lint1 US Dollar = BE 0.641

* In the general realignment of currencies which occurred in February 1973the value of the Egyptian Pound was kept constant in terms of SDRs atLE 1 = SDR 2.118. This was equivalent to an appreciation against thedollar to BE 1 = US$2.56, from its previous value of BE 1 = US$2.30.

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

cc = Cotton CountCIF = Cost, Insurance, FreightEB Company = Misr El Beida DyersECGO = Egyptian Cotton General OrganizationEGOSi = Egyptian General Organization for Spinning and WeavingFAO = UN Food and Agriculture OrganizationFOB = Free on BoardGAFI = General Authority for IndustrializationGovernment = Government of EgyptKED Company = Misr Fine Spinning and Weaving Company Kafr El DawarREA = Rural Electrification AuthorityTA = Technical Advisor

FISCAL YEAR

Effective January 1, 1973, the fiscal year became identical with thecalendar year (Gregorian Calendar). Previously, the Government's fiscalyear had been July 1 - June 30.

FOR OFFICAUL USE ONLY

EGYPT

APPRAISAL OF KAFR EL DAWAR AND EL BEIDA

TEXTILE PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS .................... .*.. ........ . i -iii

I. INTRODUCTION 1........................

II. THE TEXTILE INDUSTRY AND THE COMPANIES (KED AND EB). 1

A. Structure of the Textile Industry .. 1B. Organization, Operation and Financial

Performance of the Textile Sector. 2C. KED and its Operations . 4D. Financial Analysis of KED - Past and

Future (without the Project) . . 5E. EB and its Operations. 5F. Financial Analysis of EB - Past and

Future (without the Project) . . 6

III. MARKET AND MARKETING ........ ...... 7

A. Past and Present Textile Situation in Egypt ... 7B. Textile Fabrics Forecast for Egypt. ..... 8C. Marketing of Textiles .... *..................... 10

IV. THE PROJECT ......................................... 12

A. Project Location and Scope 12B. Machinery and Buildings ., .14C. Raw Materials and Utilities .14D. Ecological Considerations and Occupational

Hazards ..... ..................... 15E. Implementation, Staffing and Training 16F. Present Status .................. , 17

V. CAPITAL COSTS AND FINANCING PLAN ..... 17

A. Capital Costs .. 17B. Financing Plan .. ........... 19C. Allocation of Loans ........ 20D. Procurement and Disbursement. 21

This report has been prepared by Messrs. Aleksander Sandig, NeithardPetry and Michael Sarris of the Industrial Projects Department.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Page No.

VI. FINANCIAL ANALYSIS ............. ................. . 22

A. Incremental Financial Analysis . . .22B. Financial Analysis of Companies after

Implementation of Sub-IProjects .............. 24C. Financial Covenants .... I...... ........ ........ 25D. Major Risks .................. 26

VII. ECONOMIC ANALYSIS ............. . ........... ......... . 26

A. Raw Materials and Textile Prices .............. 27B. Economic Rate of Return and Foreign Exchange

Savings ........... ........ ........ . 28

VIII. AGREEMENTS .... ............... . .............. 28

A. From the Government . 28B. From KED and EB .................... 29C. From EB .................................. 30

ANNEXES

1 Glossary of Technical Terms

2-1 EGOSW Subsidiary Companies2-2 EGOSW Selected Statistical Data2-3 Composition of Exports2-4 EGOSW Historical Income Statements and Balance Sheets2-5 KED Board Members2-6 KED Organization Chart2-7 KED Production Statistics2-8 KED Historical Income Statements and Balance Sheets2-9 KED Assumptions Made for Calculating Production, Revenues

and Operating Costs for the Base Case2-10 EB Board Members2-11 EB Organization Chart2-12 EB Production Statistics2-13 EB Historical Income Statements and Balance Sheets2-14 EB Assumptions Made for Calculating Production Revenues

and Operating Costs for the Base Case

3-1 Historical Production, Consumption, Imports and Exports ofTextile Fabrics in Egypt

3-2 Fiber Consumption and GNP in Selected Countries3-3 Rationed Fabrics3-4 Market Requirements for Polyester-Cotton Fabrics3-5 Projected Fabrics Production, Consumption, Exports and Imports3-6 Converting Capacity of Textile Mills3-7 Egypt Raw Cotton Production

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3-8 Long and Extra Long Staple Cotton Production3-9 World Consumption of Major Fibers3-10 Cotton and Raw Materials3-11 World Consumption and Comparative Prices of Polyester3-12 Channels of Distribution for Fabrics in Egypt3-13 Domestic Price Structure3-14 A Program for Strengthening Export Capabilities

4-1 Employment Effect of the Project4-2 Production Schedule of the Existing and Proposed KED and EB Mills4-3 List of Machinery4-4 Implementation Schedule4-5 Employment of Technical Advisor for KED and EB

5-1 Assumptions Made for Calculation of Capital Costs5-2 KED Capital Cost Estimate5-3 EB Capital Cost Estimate5-4 KED Working Capital Requirements5-5 EB Working Capital Requirements5-6 Disbursement Schedule for Bank Loan

6-1 KED Assumptions and Projections for the Incremental Case6-2 EB Assumptions and Projections for the Incremental Case6-3 Financial Rates of Return6-4 KED Projections for the Expanded Case6-5 EB Projections for the Expanded Case

7 Assumptions Made and Calculation of Economic Rates of Return

MAP - IBRD 11966

Industrial Projects DepartmentJune 1976

EGYPT

APPRAISAL OF KAFR EL DAWAR AND EL BEIDA

TEXTILE PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises a project to replace obsolete equipment andexpand production of the Government-owned Misr Fine Spinning and WeavingCompany Kafr El Dawar (KED) and Misr El Beida Dyers (EB) both located nearAlexandria, Egypt. The project is expected to cost US$153 million equivalentincluding financing of sector assistance and be completed by July 1979. Inthe case of KED, annual manufacturing capacity will be increased by 10.1 mil-lion linear meters of polyester/cotton fabrics; 16.5 million meters of finecotton fabrics of which 11.4 million meters would be exported; and about 1,200metric tons of cotton yarn all of which would be exported. In the case of EB,the company's annual converting (i.e. bleaching, dyeing, printing, merceriz-ing, and finishing of yarn and fabrics) capacity will be increased by about43 million meters of fabric and 1,550 tons of yarn. In addition, obsoleteequipment witlh an annual production capacity of converting 30 million metersof fabric and 500 tons of yarn will be replaced. The operations of the twocompanies are closely interrelated as all of KED's production is converted byEB on a commission basis. The project would benefit from existing management,skilled labor, and infrastructure and would use locally grown cotton andimported polyester fiber; it would also provide additional employment forabout 2,850 persons. Incremental output of the project would satisfy about7% of the next ten years estimated expansion requirements.

ii. Until the end of 1975 the two companies were wholly owned by theEgyptian General Organization for Spinning and Weaving (EGOSW) which wascreated in 1961 as a parastatal organization but dissolved as of December31, 1975 along with all General Organizations. EGOSW was responsible formost of the production of textiles in the country and was organized as aholding company to function as a link between the Government (Ministry ofIndustry) and the individual textile companies. The objective of the abo-lishment of the General Organizations and thus of EGOSW was to remove asuperfluous layer of management and give the companies more freedom in theirday-to-day operations and make them more competitive. The companies are nowdirectly responsible to the Minister of Industry, who in the formulation ofsector policy, is assisted by a Higher Council, consisting of the chairmenof the boards of all the public sector textile companies and representativesfrom other Ministries.

iii. The public sector dominates the textile industry and has the mono-poly in yarn production. In 1974, the 30 public sector companies had combinedsales of LE 401 million (US$1,027 million) and were employing 266,000 persons.The importance of the textile sector is underlined by the fact that, besidesproviding for nearly all of the local needs, textile products have in 1974accounted for 43% of exports of manufactured goods. Despite the importanceof the textile sector to the Egyptian economy no comprehensive sector stud-ies have been done in the past. To overcome this deficiency, the BankGroup financed a detailed study of this sector under the Agriculture andIndustrial Imports Project of December 1974 (CR. No. 524-EGT and LN. No.

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was completed in May 1976 and its findings are presently being reviewed by theGovernment and the Bank.

iv. In the last five years domestic per capita consumption of textilesrose at about 2% per annum. To meet this increase, exports had to be cur-tailed and some fabrics had to be imported since increases in local productioncould not cope with demand. The per capita consumption of textile fibers inEgypt (4.5 kg. per year), though much lower than in the US or Western Europe(22.5 and 14.0 kg. respectively), is somewhat higher than in countries of asirmilar income level; this is mostly due to the existence in Egypt of adomestic textile industry based on local cotton and controlled domesticprices cf textiles. Assuming a moderate growth in the domestic demand fortextiles, the projections show that very considerable investments in theindustry will be required to satisfy this demand and to maintain Egypt'sexpcrts of cotton textiles. At the same time it is clear that the increas-irig demands of the domestic textile industry will reduce the cotton availablefor exports. To deal with the anticipated reduction in fiber availability andat the same time maximize export earnings, the Government is planning to estab-lish plants for the domestic production of synthetic fibers and to importshort staple cotton in the future so as to restrain the use of premiumEgyptian long staple cotton for local consumption unduly.

v. About 35% of the domestic fabric consumption is of so-called "ra-tioned" fabrics which are allocated to each individual at subsidized Govern-ment-controlled prices, which often do not cover production costs. Pricesfor non-rationed fabrics are also controlled by ,-he Government, but the com-panies can obtain high enough prices to recoup their losses on the "rationed"fabrics. It appears that the pricing mechanism designed to give the localconsumer low-priced textiles is not always effective; within its review ofthe overall price structure the Government is currently studying the situa-tion, taking into account the Bank's observations on this matter.

vi. Although exports of textiles are of great importance to the Egyp-tian balance of payments, the proportion of the country's exports in theworld textile trade has accounted for only about 2% of the total trade andless than 5% of the cotton yarn and fabrics trade. About 60-70% of Egypt'stextiles exports go to the relatively unsophisticated markets in the EasternEuropean and Arab countries. Quotas for Egyptian textiles in the EuropeanCommunity and the US have not been filled by a wide margin for several yearsand a modest increase in the country's exports as envisaged under the projectis not expected to present any significant marketing problems.

vii. KED and EB both started operations in 1938 as private companiesand were nationalized in 1963. The companies have been operating at capacityfor some time and employ about 21,000 and 7,000 persons respectively. Both areoperated by local, highly competent management teams; they are profitable andhave sound financial positions. To carry out the project, each company hasalready established an implementation unit. Their managements are fullycapable of implementing the project, provided some limited assistance isprovided in such areas as procurement, production planning and qualitycontrol systems. This will be done through a Technical Advisor firm tobe selected during July 1976.

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viii. Total financing required for the project would amount to aboutUS$153 million equivalent of which US$105 million would be in foreign cur-rency. Most of the foreign exchange financing is proposed to be met by loansfrom the Bank (US$52 million) and by the Arab Fund for Social and EconomicDevelopment (Kuwaiti Dinars 10 million or US$34.5 million equivalent). Theproposed Bank loan would primarily finance the weaving equipment for KED andall of the converting equipment for EB, and would be made to the Arab Republicof Egypt at an interest rate of 8.85% per annum for 15 years including 4 yearsof grace. Except for some financing for sectoral assistance (US$1.3 million),the loan would be on-lent to the two companies at 10% interest with the samerepayment terms as those of the loan. The Arab Fund loan would finance mostof the foreign exchange required for spinning equipment for the KED sub-project.The balance of foreign exchange of US$18.6 million would be supplied by theGovernment. Financing of local costs of about US$48 million equivalent isenvisaged to come from the following sources: (a) the companies' own genera-

tion of funds; (b) a suspension of dividend payments by the companies to theGovernment during the implementation period of the project; (c) the repaymentof transfers made previously by the companies to other public sector enterprises;(d) an increase of the Government's share capital in the companies; and (e)from local commercial sources. The Government has agreed that these alternativesor a combination thereof will be explored and has assured the timely avail-ability of the required local and foreign currency for the financing ofthe project. Should there be any additional need for funds to completethe project--either because of a project cost overrun or a shortage of funds--it will also be the responsibility of the Government to find such funds in theform acceptable,to the Bank.

ix. The project is expected to increase further the companies' finan-cial strength. The financial rates of return are calculated at 12% and 16%for KED and EB respectively. After implementation of the project the debt/equity ratio will be about 42/58 for KED and 24/76 for EB and each companyis expected to be able to service its debt comfortably. Furthermore, tosafeguard the financial positions of the companies, certain financial cove-nants will apply. The two subprojects combined are expected to yield anattractive economic rate of return of 22%. The project's annual net for-eign exchange savings are estimated to reach about US$52 million equiva-lent by 1980. The technical and commercial risks of the project are minorbecause of the standard plant design and because its incremental outputwould satisfy only a small portion of the next ten years estimated expan-sion requirements.

x. In addition to some outside assistance in the implementation of thetwo sub-projects (US$0.3 million), provision has also made for technicalassistance in the preparation of a feasibility study for a new textile project(US$0.1 million) as well as training abroad of technical and supervisorypersonnel from the textile sector (US$0.2 million). Also US$1.0 million isincluded to provide technical support for the task force to be established bythe Government to develop an action program and institutional measures torevitalize exports of industrial goods to convertible currency areas.

xi. On the basis of the agreements reached with the Government, KEDand EB, the project is suitable for a Bank loan of US$52 million.

I. INTRODUCTION

1.01 The Government of Egypt has requested Bank financing of US$52 mil-

lion for about 49% of the foreign exchange expenditures of two fully state-

owned textile companies, Kafr El Dawar (KED) and El Beida (EB) both located

in Kafr El Dawar (Map IBRD 11966) to expand their production from 107 to 134

million linear meters and from 135 to 178 million linear meters respectively;

to replace obsolete equipment and to assist in sector training and export

development. Estimated total financing required for the project is LE 59.8

million (US$153.2 million). The remainder of the foreign exchange required

would be provided by the Arab Fund for Economic and Social Development (Arab

Fund) and the Government of Egypt. Local financing would be made available

from retained earnings of the companies, new Government share capital and

other local sources. Both sub-projects are expected to be completed by

July 1979.

1.02 The operations of the two companies are closely interrelated since

all of KED's output (grey yarn and fabrics) is converted by EB on a commis-

sion basis. KED is one of the largest and more efficient mills in Egypt

with a satisfactory operating performance and relatively high product quality.

During 1968-75 the company exported about 40% of its production of fabrics,

or about one-third of total Egyptian exports of fabrics. EB is the largest

converting operation in Egypt with 25% of all installed capacity for bleaching

mercerizing, dyeing, printing and finishing of yarn and fabrics. The KED and

EB sub-projects would account for only a small portion (4.2% and 7.6% respec-

tively) of the textile sector's estimated expansion and replacement require-

ments over the next 10 years.

1.03 Bank Group involvement in the Egyptian textile sector commenced

in 1973 when IDA made a credit of US$18.5 million to help finance the Cotton

Ginning Rehabilitation Project (CR. No. 423-UAR). Subsequently, a study of

the textile sector was included as part of the Bank Group's Agricultural and

Industrial Imports Project (CR. No. 524-EGT and LN. No. 1062-EGT) of December

1974. This study, completed in May 1976, will serve as the basis for future

Bank Group involvement in the sector. Without preempting the final findings

of the study, the Government decided to request Bank financing of KED and EB

since priority was given to the expansion of these two companies already at

the initiation of the study. This decision was later supported by the find-

ings of the sector study. The Bank assisted the Government and the companies

in the preparation of the project.

1.04 The project was appraised in January 1976 by a mission consist-

ing of Messrs. A. Sandig (Chief), N. Petry, and M. Sarris of the Industrial

Projects Department and F. Kaps of the EMENA Region. A glossary of tech-

nical terms used in the textile industry is given in Annex 1.

II. THE TEXTILE INDUSTRY AND THE COMPANIES (KED AND EB)

A. Structure of the Textile Industry

2.01 During nationalization of industrial enterprises which began in

1961, most of the existing textile companies became state-owned and were

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until the end of 1975 incorporated into the Egyptian General Organization for

Spinning and Weaving (EGOSW). EGOSW was a holding company reporting to the

Ministry of Industry, and was responsible for operating, coordinating, super-

vising and developing the textile sector. In 1974 the 30 textile companies

(Annex 2-1) in the public sector had combined sales of LE 401 million

(US$1,027 million) and employed 266,000 persons. Although some of the com-

panies had a small number of residual private shareholders, over 95% of the

shares were owned by EGOSW.

2.02 By Presidential Decree No. 111 dated September 4, 1975 all General

Organizations, including EGOSW, were dissolved effective December 31, 1975

and all shares of the former subsidiary companies were transferred from EGOSW

to the Government. The decree removed EGOSW as an intermediary and made

the companies directly responsible to the Ministry of Industry. EGOSW has

been replaced by the Hligher Council which is presided over by the Minister

of Industry. The Council members comprise the Chairmen of the Boards of

all the 30 textile public sector companies, as well as representatives of

the Ministries of Finance, Agriculture, Planning and Economy. The Higher

Council has advisory rather than line responsibilities, and while the

purpose of the decree is to give greater freedom and flexibility to the

mainagements of the individual companies and hence to permit them to act in

a more competitive manner, specific policies in these areas will still have

to be determined. The management and the structure of the individual com-

panies have not been affected by the abolishment of EGOSW.

B. Organization, Operation and Financial Performance of the Textile Sector

1. Organization

2.03 The textile industry covers a wide range of activities such as

spinning, weaving, converting, knitting and garment manufacturing. Since

nationalization in 1963, all spinning and converting as well as 70% of weaving,

45% of knitting and 30% of garment manufacturing have been part of the pub-

lic sector; the balance being carried out by several hundred small companies

in the private sector. Because of the dominant position of the public sector

and because only limited statistical data is available about the private sec-

tor, the historical situation of the textile industry can best be described

in terms of EGOSW data.

2.04 The 30 public sector companies formerly controlled by EGOSW produce

mostly cotton textiles but also manufacture synthetic fibers, jute products,

spare parts for textile machinery and carpets. Each of these companies had and

still has a similar organizational structure with Boards consisting of a

Chairman, four executive directors representing the management, and four

memnbers elected from amongst the employees.

2. Operations

2.05 In the last eight years (1968-75) the number of spindles and looms

increased by about 40% and 30% respectively (Annex 2-2). Also, output per

loom increased by 15% as modern equipment was installed. Nevertheless in-

vestments in new facilities and the rate of replacement of obsolete eqtuipment

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during this period have been far from adequate as -- despite full capacityutilization of the industry and a good potential for exports -- domesticconsumption of textiles showed only a modest increase (para. 3.01) and textileexports decreased. All mills operate on four shifts, 350 days per year.Consequently, repairs and maintenance have regularly to be carried out duringworking hours affecting adversely the efficiency and actual capacity utiliza-tion. The mills are operated by local management and technicians and in viewof the age of the equipment -- more than half is over 25 years old -- as wellas continuous shortage of spare parts making working conditions and maintenanceparticularly difficult, the performance of management and supervising personnelfor most of the companies must be rated as highly satisfactory. At the sametime because of Government employment policies, the mills are heavily over-staffed resulting in labor productivity (para 2.12) substantially lower thanin the US and Western Europe although still somewhat higher than in most otherdeveloping countries.

2.06 Locally grown cotton is the industry's major raw material andaccounts for 96% of fiber input. In 1975, 48.7% (218,000 tons) of cottonproduction was consumed locally by the textile mills; the rest was exportedand continued to constitute Egypt's most valuable single export crop. In1974, the last year for which complete export data is available, exports ofcotton and cotton products accounted for about 70% of the value of all Egyptianexports. In the same year exports of cotton yarn and fabrics accounted for43% of exports of semi-finished and finished products (Annex 2-3).

3. Financial Position of the Textile Industry

2.07 An analysis of the consolidated income statements and balancesheets for EGOSW for the years 1968-74 (Annex 2-4) reveals that a carefulcontrol of input and output prices has been exercised since all operatingratios have stayed remarkably constant.

EGOSW - Key Historical Financial Data(In Million LE)

1968 1970 1972 1974

Sales 243 258 308 401Profit After Tax 18 21 25 44Gross Fixed Assets 183 203 236 269Total Assets 323 354 401 514

Profit After Tax as % of Sales 7.4 8.1 8.1 11.0

During the same period internal cash generation of the EGOSW companies wasof the order of LE 269 million (US$689 million) while total investment wasonly about LE 137 million, or about half. Of the difference some 30% was paidto the workers and the remaining 70% went to the Government's budget in theform of dividends as required by law. Leverage is quite low with a debt/

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equity ratio of 23/77 for EGOSW as a whole as of the end of 1974. The for-eign exchange for purchasing textile machinery has come mostly from bilateralsources and from the Government's reserves.

2.08 Overall, the industry has a good financial record -- the problembeing not generation but inadequate retention of funds. The substantialtransfers by the industry to the Government as are required by law andthe shortage of foreign exchange have, as mentioned previously, limitedthe individual companies' ability to replace obsolete equipment and investin new facilities. Since the majority of Egypt's textile machinery is veryold, there is no doubt that in the future the textile industry will requiresubstantial investments (paras. 3.05 and 3.06).

2.09 A related matter is the complete financial dependence of the in-dividual companies on the Government. Up to now, the companies have hadno freedom in using their self-generated funds and the only vehicle of obtain-ing funds has been the annual budget. As a sequel to the abolishment of theGeneral Organizations, the Ministry of Finance is now in the process ofdeveloping a new financial policy for all public sector companies. This isexpected to allow the companies more freedom in making use of their own fundsand in borrowing from banks. At this time, however, it is difficult to predictwhen this new policy will become effective and what specific form it will take.

C. KED and Its Operations

2.10 KED was established in 1938 and nationalized in 1963. The companyhas always concentrated on the spinning and weaving of very fine yarns andgrey fabrics. The company enjoys a near monopoly position in the productionof fine poplins for the domestic market and is, by providing about 25% of thecountry's fabric exports, an important earner of foreign exchange. KED hasonly spinning and weaving facilities and depends for all converting of itsproducts on EB. KED with a work force of about 21,000 is the second largestemployer in the textile industry. Its present share capital of LE 2.2 millionis wholly owned by the Government.

2.11 The management of KED is competent and most of the top managers havebeen with the company for many years. In May 1975, when the previous chairmanwas appointed Minister of Industry, Mr. Hussein Fahmy, who had been the com-pany's marketing director, became chairman. The Board members are listedin Annex 2-5 and the organization chart of the company is shown in Annex 2-6.

2.12 KED's main operations (5 spinning and 3 weaving mills) are locatedin one complex near the village of Kafr El Dawar, 15 miles southeast ofAlexandria, the second most important city of Egypt. The company also hasa spinning mill in Mahmoudia, 20 miles from Kafr El Dawar, and another is underconstruction at Komhamada, 30 miles north of Cairo. In 1975 KED produced 100million linear meters of fabric including 26 million meters for export and1,700 tons of yarn and sewing thread. KED's production and other statisticaldata for the period 1969-75 are shown in Annex 2-7. Production and efficiencyfigures per spindle and per loom are very good in relation to the type ofequipment and fineness of the yarns and fabrics produced. Although the wagespaid by KED are low in comparison to other, including developing countries-

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this advantage is largely offset by KED's low labor productivity due tooveremployment. The result is that labor costs per unit of output are nearlythe same as for example, in the US textile industry where wages are very muchhigher (Annex 2-7).

D. Financial Analysis of KED - Past and Future (without the Project)

2.13 The historical financial statements of KED are shown in Annex2-8 and earnings forecasts through 1985, together with the assumption made,are given in Annex 2-9. These projections assume that no major investmentswould be undertaken by the company. Key financial data are summarized below.

KED - Key Financial Data(In Current LE Million)

-----Actual ----- ----- Forecast----1973 1974 1975 1976 1979 1982

Sales 27.8 31.3 33.4 34.0 44.0 50.0Profit After Tax 2.9 3.4 3.4 3.2 4.8 5.7Internal Cash Generation 3.9 4.4 4.4 4.4 6.4 7.2Gross Fixed Assets 19.9 20.7 21.4 25.2 36.1 36.7Long-Term Debt - 6.5 7.2 9.3 7.4 6.oProfit After Tax as % of Sales 10.4 10.9 10.1 9.3 10.9 11.4Debt Service Coverage - - - 4.4 9.0 14.8Debt/Equity Ratio 0/100 19/81 19/81 20/80 18/82 15/85Current Ratio 1.5 2.9 2.4 2.1 2.1 2.1

The historical financial statements for KED indicate a satisfactory earningsand financial record and one that is better than the average EGOSW enter-prise. They also show an earning pattern which reflects the stability ofKED's domestic market and the policy of the Government to ensure that inputand output prices are correlated. Although KED's export sales volume, due toworldwide recession in textiles, has significantly deteriorated over the pasttwo years, this has been offset by an increase in world textile prices,leaving the export earnings nearly unaffected. For 1976 a significant recoveryin export volume is expected. The company has very little debt and theliquidity has been satisfactory; also the projections indicate that KED wouldremain financially sound.

E. EB and Its Operations

2.14 EB was established in 1938 and nationalized in 1963 with theGovernment owning all the shares. The company's plant is also located nearthe village of Kafr El Dawar and its management is considered very competentwith an impressive number of able executives. Dr. Shazli, who had beenchairman of EB for over 15 years, retired at the end of 1975 and Dr. Borai,previously the chairman of another public sector converting company, tookhis position. Board members are listed in Annex 2-10 and EB's organizationchart is shown in Annex 2-11. Most of the company's business consists ofconverting yarn and fabrics on a commission basis with about three-fourths

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deriving from the public sector and the rest from private sector companies.In 1975 its production amounted to 1,270 tons of yarn and 142 million meters offabric, approximately 25% of the total Egyptian output. In the late 60's thecompany started to diversify and is now the only Egyptian producer of wooltops and synthetic tops (Annex 2-12). In 1975 production of these itemsreached 5,100 tons and thus accounted for 56% of EB's sales revenue. Totalemployment is about 7,000. The company is not credited with any exportearnings from its converting business and exports of wool tops accounted foronly 5% of EB's sales revenue in 1975.

F. Financial Analysis of EB - Past and Future (without the Project)

2.15 The historical financial statements of EB are shown in Annex 2-13and earnings forecasts through 1985 are given in Annex 2-14. As for KEDthese projections assume that the company would undertake no major invest-ments in new facilities. Key financial data are summarized below.

EB- Key Financial Data(In Current LE Million)

------Actual ------ -----Forecast-----1973 1974 1975 1976 1979 1982

Sales 16.6 17.5 22.3 22.4 26.7 31.8Profit After Tax 3.4 2.6 2.7 3.6 4.7 5.7Internal Cash Generation 4.3 3.5 3.7 4.9 5.8 6.8Gross Fixed Assets 15.5 15.6 17.8 22.0 25.7 26.3Long-Term Debt 1.2 1.7 1.8 1.3 0.9 0.9Profit after Tax as % of Sales 20.5 14.9 12.2 16.1 17.6 17.9Debt Service Coverage 21.5 8.8 14.3 14.7 32.9 -Debt/Equity Ratio 6/94 8/92 8/92 5/95 3/97 3/97Current Ratio 1.8 1.4 1.2 1.4 1.7 1.7

2.16 In the past, EB's financial position has been much stronger thanthe average Egyptian textile company and sales have been growing steadilyreflecting an increasing demand for the company's services. Internal cashgeneration has been impressive and in excess of the company's capital invest-ments; the balance going to the Government's budget. More recently, however,the company has had to borrow rather heavily to finance increases in currentassets which rose from about LE 12 million in 1973 to LE 26 million in 1975,while sales increased by only about 35% during the same period. Part ofthis increase is explained by higher inventory levels of raw materials anddocumentary credit. These reflect the company's hedging against the uncertainraw material and foreign exchange availability. Equally noticeable, however, isthe increase in accounts receivable during 1974 and 1975. As a result of anoverall decrease in the liquidity of the public sector, there has been asignificant increase in the collection period mainly from the companies pur-chasing EB's wool products. The recent introduction of a 6% p.a. interestcharge for overdue payments should, however, lead to a decrease in accountsreceivable and offset the cost of financing them. The inventory situa-tion has already improved in 1976. With the expected reduction in the

collection period, it is projected that the company will be able to improveits current ratio to 1.4 in 1976 and subsequently maintain a current ratioof over 1.5 without much difficulty. It is also projected that the companyshould be able to maintain its sound overall financial position. EB hasagreed to submit to the Bank within 6 months of the signing of the projectagreement a detailed study of its liquidity position under terms of referenceacceptable to the Bank.

2.17 Since EB has to import about 75% of its chemicals and dyestuffsand nearly all its wool and synthetic fiber requirements, it is most impor-tant for the company that the foreign exchange for these purchases is promptlyprovided by the Government; this has not always been the case. An agreementto that effect has been received from the Government. The increased certaintyof the availability of foreign exchange will also allow EB to reduce its rawmaterial inventory levels.

III. MARKET AND MARKETING

A. Past and Present Textile Situation in Egypt

3.01 Production, consumption, imports and exports of textiles (by majorgroupings) in the last six years (1970-75) are shown in Annex 3-1. Since1970 domestic consumption of fabrics has been rising at an average annualrate of 4%, or by 2% on a per capita basis. The pattern of consumption andproduction growth has been erratic although the growth of population andconsumption has been faster than increases in production. In order to achieveat least a modest increase in consumption under these circumstances, exportswere reduced and in 1975 fifty million meters of fabric were imported fromChina.

3.02 While much lower than in industrialized countries, textile consump-tion in Egypt is somewhat higher than in countries with a comparable incomeper capita (Annex 3-2). This is mostly due to the existence of a sizeabledomestic textile industry based on local cotton and the Government's policy tocontrol and subsidize the prices of utility fabrics of which a certain quantityis allocated to each individual. These fabrics, which are also referred toas "rationed" fabrics, account for about 35% of domestic consumption and arefrequently sold below production costs (Annex 3-3).

3.03 Egypt has essentially a sub-tropical climate and cotton productsmeet 95% of consumer textile requirements. Most of the rural and urban malepopulation wear "galabiya," a traditional heavy cotton, loose, one-piece, out-erwear; females wear "melay-laf," a black wraparound garment. In the largecities, people wear European type clothing but wool accounts for less than 4%of total fiber consumption. Imports of textiles until 1975 were almost non-existent. Lately, easy-care polyester cotton blended fabrics have becomepopular and while local production in 1974 was only 5.5 million meters (0.7%of total production), 3 million meters were imported and an estimated 7

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million meters were smuggled into Egypt; the current unsatisfied demand for

this type of fabrics is estimated at 37 million meters (Annex 3-4).

B. Textile Fabrics Forecast for Egypt

3.04 Supply and demand forecasts for textile fabrics in 1985 are summarizedbelow and shown in detail in Annexes 3-5 and 3-6.

Egypt - Supply/Demand Balance of Textile Fabrics

(million m 2)

1970 1975 1980 1985(Actual) (Estimated) (Forecast)

Production 813 879 1,005 1,050Imports 6 61 - -Exports 152 123 138 152Available for Home Market 667 817 867 898Total Consumption/Demand 663 812 1,059 1,371Balance (Deficit) 4 5 (192) (473)Population (million) 2 33.3 37.2 42.4 46.1Apparent Consumption per capita (m ) 19.9 21.9 25.0 29.7

Production forecasts for textile fabrics are based on the assumption thatexisting mills will operate at present levels of efficiency and capacityutilization. Output of the proposed project is included as well as that ofminor expansions in progress or already approved. It is also assumed thatthe expected future drop in production due to deterioration and attrition ofobsolete facilities will be compensated by purchase of new equipment. Underthese assumptions, the figures indicate only a modest increase in the pro-duction of knitted fabrics in the private sector but generally demand fortextile products is expected to increase faster than supply.

3.05 The demand projection as given above has been made by using 1975as base year and assuming a population growth of 2.2% per annum 1/, and a6.5% GDP per capita growth up to 1980 and 6% thereafter. Income demandelasticity for textiles implied in these projections is assumed to be 0.5;this is somewhat lower than the 0.7 average for developing countries as awhole 2/, as their present per capita consumption is considerably lower thanthat of Egypt. It is also assumed that by 1985 the country's fabric exportswill have increased by 23% compared with 1975, or by 2.1% per year, i.e., thesame rate at which cotton consumption in the world is expected to grow. 2/ In

1/ Arab Republic of Egypt Economic Report 870a-EGT (January 5, 1976).

2/ IBRD Fiber Seminar 1974.

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view of the importance for Egypt to increase its foreign exchange earningsand the fact that revenues from exporting textile products, based largelyon a local resource (cotton), cannot be easily replaced by export of othermanufactured products the assumed export growth would be desirable and attain-able.

3.06 Comparing the estimated demand and supply projections, it appearsthat, unless additional production facilities are provided, in 1980 demandwill exceed supply by about 190 million square meters and in 1985 by about470 million square meters. Even when assuming a more modest growth of demandequal to that in the last five years (4% per annum), in 1980 demand willstill exceed supply by tbout 120 million square meters and in 1985 by about300 million square meters. There are no comprehensive Government projectionsof textile demand in Egypt and actual domestic consumption will largely dependon overall economic development in the country, the priority given to exportsof yarn and fabrics, the level of investment in the textile industry andGovernment policy regarding price and wage controls.

3.07 The Egyptian textile industry is facing three major problems inthe next ten years: (a) shortage of additional manufacturing capacity;(b) need for substantial replacement of obsolete equipment; and (c) short-age of cotton for export, assuming priority is given to the domestic market.Solving the first two problems is largely a question of availability offinancing. The new Five-Year Plan for 1976-80 has not been finalized andthe allocation of investment funds for the textile sector is not yet avail-able. The textile sector study (para 1.03) indicates that about US$1.0 bil-lion, expressed in 1975 constant prices, would have to be invested in theindustry (75% in foreign currency) to achieve a supply/demand balance in 1985.

3.08 As noted, the equipment used by the textile industry is largelyobsolete with 72% of the looms and 44% of the spindles being over 25 yearsold and 25% of all textile equipment in use for over 30 years. It has beenestimated that within the next ten years one million spindles and 10,000looms plus auxiliary machinery (i.e. about 50% of existing equipment) shouldbe replaced. The cost of such replacement would also be close to US$1.0 bil-lion. Consequently the cost of the proposed project represents approximately7% of the financing which might be required for expansion and replacement ofobsolete equipment in the sector in the next ten years.

3.09 Egypt has been a major producer of cotton and in 1970 the countryaccounted for almost 5% of world production (Annex 3-7). Since then pro-duction has steadily been decreasing as the limited amount of arable landhas to accommodate an increasing demand for food crops. This, combined withrising domestic consumption, resulted in a drastic decrease in cotton exports.This trend is expected to continue in the future (Annex 3-7). Ninety percentof the country's cotton exports is long and extra-long staple in which Egypthas a dominant position, accounting for one-third of world production and al-most half of world trade (Annexes 3-8 and 3-9). Long and extra long staplecotton is more valuable than short staple cotton which, if imported, could

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satisfy most of Egypt's cotton requirements. Therefore, in order to maximizeforeign exchange revenues, Egypt will have to import short staple to releaselong and extra-long staple for export. Another measure to alleviate the fibershortage would be importation and/or local production of polyester fibers inEgypt. A more detailed discussion of the present and future fiber situationin Egypt is given in Annexes 3-10 and 3-11.

C. Marketing of Textiles

1. Distribution

3.10 Fabrics from the factories are sold either to public sector whole-salers (80%), private wholesalers (15%), or private garment manufacturers(5%) (Annex 3-12). There are eight public wholesale organizations, six ofwhich are department stores with about 300 retail branches throughout thecountry and the remaining two sell to 30,000 private retailers. Terms areeither cash or 90 days with LE 10,000 credit limit per account. Rationedfabrics account for approximately 35% of total consumption with each indivi-dual entitled to purchase 6 meters per annum (but not more than 26 meters perfamily). Most of the rationed and cheaper fabrics (up to LE 0.3 per meter)are distributed in roughly equal proportion by the department stores and thetwo wholesale companies. The bulk (85%) of so called "novelty fabrics" (overLE 0.3 per meter) is sold by the department stores. In 1974, Cairo, Alexandria,and Tanta, the three largest cities, which accounted for 26.3% of the popula-tion, recorded 35.4% of retail sales. They were served by 125 branches ofthe department stores but only 5,000 retailers.

2. Prices

3.11 Ex-factory prices of rationed fabrics are determined by the Ministryof Industry in cooperation with the Ministry of Supply. There have beenno increases in these prices since 1968 and on average they are well belowcosts (Annexes 2-4 and 3-3). It appears however that the consumer doesnot always benefit from this policy as a good portion of rationed fabricsis sold at retail prices considerably higher than those prescribed. Domesticex-factory prices of non-rationed fabrics have increased since 1968 by 25% butare still about 7% lower than world prices. Also price controls for thesefabrics result in proliferation of the number of fabrics beyond actual marketrequirements and do not provide any incentive to manufacturers to raise and/ormaintain a high quality of domestic fabrics.

3.12 Export prices of yarn and fabrics are determined by the competitiveconditions in world markets at the official rate of exchange. To compensatethe manufacturers for occasional losses on export sales within the imposedquotas the Government operates a special export incentive scheme with thelevel of incentives ranging according to market conditions. In 1975, theincentive level was 15% of the FOB value of the goods exported to convertiblecurrency countries and 3% to bilateral and barter agreement countries.

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3.13 Because of strict controls on wages and prices, a policy which islikely to continue in the immediate future, production costs for woven cottonfabrics increased by only 10% in the period 1970-75, i.e., much less than incountries importing textiles. Consequently Egyptian cotton products are nowcompetitive even at the official exchange rate in world markets at priceswhich are profitable to local manufacturers (Annex 2-4) and it appears thatthe incentive scheme may no longer be required.

3.14 It is recognized that there are a number of issues regarding properpricing of inputs and outputs of the textile sector which are causing somedistortion in the sector. However, because of the state of flux in Egypt'spublic sector, it is too early to expect immediate decisions and solutionsregarding these issues. The Bank's observations on the subject of the pricingpolicy in the textile sector are described in Annex 3-13.

3. Imports and Customs Duties

3.15 Imported fabrics are subject to customs duties ranging from 75-100%ad valorem. In addition, import licenses are very difficult to obtain andthe procedure for the necessary foreign exchange allocation is very cumber-some. Imports of fabrics have therefore been negligible amounting to only 2%of the market in 1974 (Annex 3-1). More recently Government policy has changedtoward some liberalization of imports but it is too early to say what effectthis change may have on textile imports.

4. The Export Situation

3.16 As pointed out, exports of cotton yarn and fabrics are a very impor-tant element in the national economy and provided, in the period 197C-74, be-tween 40% and 50% of the country's foreign exchange earnings in the manufac-tured products category (Annex 2-3). Exports of yarn account for about onequarter of total yarn production and exports of fabrics for 10-15% of totalfabric production. Constrained by the lack of modern equipment and growingdomestic requirements Egyptian exports have been largely restricted to yarnand grey fabrics destined for markets in the Eastern European and Arab coun-tries which, in the last five years, absorbed between 60 and 70% of exports.In 1974 only 30% of the yarn and 35% of the fabrics exported were to theEuropean Community (EC) and other Western countries.

3.17 The proportion of Egyptian exports in world textile trade has beensmall. In 1972 total imports of textile products by developed market economycountries amounted to US$14,265 million of which Egypt's exports (US$288million) accounted for only about 2% of the total 1/. Also, in terms ofvolume, Egypt's share in world exports of cotton yarn and fabrics decreasedfrom 6.5% in 1970 to less than 5% in 1974 (Annex 2-3). Hong Kong remained

1/ UN Conference on Trade and Development Statistics, 1974.

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the major exporter of textiles and clothing from developing countries ac-counting for 43.5% of cotton and 40% of man-made textile exports. In cottongoods, Hong Kong was followed by India (9.7%), and Pakistan (7.9%), and inman-made textiles Korea (18.4%) and Yugoslavia (8.5%) were other major ex-porting countries. In the same year the US and the Federal Republic ofGermany absorbed 52% of total cotton products and 69.2% of man-made tex-tiles exported by developing countries.

3.18 In the EC and the US, Egypt's annual quotas have not been filled forseveral years (Annex 2-3) and therefore a modest increase of Egyptian produc-tion to be exported as a result of the project, should also in this respectnot present any significant marketing problems. A 1975 bilateral agreementwith the US established a textile quota for Egypt of 72 million square metersfor 1976 (11,000 tons) and 105 million square meters for 1977 (16,000 tons),compared with average Egyptian shipments of 3,500 tons per annum for the1971-1974 period. If all additional fabrics production financed by theproject (1,700 tons annually) were to be directed either to the EC or theUS markets, the quotas would still remain unfulfilled.

c. Export Promotion

3.19 A successful economic development program will depend on an expan-sion of export markets and an extension of the kinds of products that arecompetitive in these markets. Without a very significant export increase itwould be difficult for growth to be self-sustaining. Textiles and textileproducts have in the past been the major manufactured export and could providea leading role in the future. The five-year plan framework recognizes theproblem and tentatively projects almost a doubling of total exports duringthe period 1976-80. Exports of industrial products are expected to providemuch of the impetus, but there are obstacles to be overcome; of prime import-ance are improvements in quality control and hence quality of products. Othersare increase in price competitiveness and marketing capabilities. In view ofthe importance of accelerating the pace of exports and of instituting meas-ures to sustain their growth in the long term, technical support is includedtowards this program. An outline of a study to develop an export promotionprogram and its implementation is described in Annex 3-14. The Government hasagreed to carry out such a study, and this program will cover all industrialexport potential (not just in textiles).

IV. THE PROJECT

A. Project Location and Scope

4.01 The project is designed to expand and rehabilitate the manufac-turing capacity of two textile companies: Kafr El Dawar (KED) and El Beida(EB). The project is scheduled to start production in mid-1979 and provideemployment for about 2,850 persons (Annex 4-1).

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4.02 The KED sub-project will add about 78,000 spindles and 900 loomsand thus increase the company's manufacturing capacities of fine cottonand polyester/cotton fabrics by 16.5 and 10.1 million linear meters respec-

tively. The expected product mix of these additional capacities is shownin Annex 4-2. About 70% of the cotton fabrics output of the sub-projectas well as all the yarn not used in weaving will be exported. At maximumprojected efficiency (90%) of the new facilities, KED's annual manufacturing

capacity for yarn will be about 27,000 tons and for fabrics about 134 million

linear meters as against 21,000 tons and 107 million linear meters respective-ly at present.

4.03 The EB sub-project consists of the expansion of converting capacityfor 43 million meters of fabric and 1,550 tons of yarn and, in addition, the

replacement of obsolete equipment for converting 30 million meters of fabric

and 500 tons of yarn. The EB sub-project also includes expansion of thecaustic soda recovery and fabric coating operations. At maximum projected ef-

ficiency (90%) of the new facilities, EB's annual capacity for fabric convert-ing will be increased to about 178 million meters and for yarn converting toabout 2,800 tons as against 135 million linear meters and 1,250 tons at present.

4.04 The design of both sub-projects takes into account that the existingmills are not entirely balanced and rearrangement of production schedules

after the sub-projects are implemented will result in increased overall capac-ity utilization. On the basis of not fully satisfactory experience with thefour shift/350 day per year operation the two companies plan to operate thenew mills on only three shifts and 300 days to leave more time for scheduledmaintenance. On this basis productivity is expected to increase and unitlabor costs to decrease considerably compared with the existing operationswhich will continue to operate on four shifts and 350 days per year.

4.05 In addition to a Technical Advisor to assist the implementationunits of the two companies (para 4.16) the project also provides for sometechnical assistance and training to the textile industry: (i) trainingabroad of technical and supervisory personnel from the textile sector subjectto a detailed program to be submitted by the Ministry of Industry not later

than August 31, 1976 (US$0.2 million); and (ii) technical assistance for thepreparation of a feasibility study for a new textile project (Us$o.1 million),for which the Government will submit to the Bank a specific proposal not later

than December 31, 1976 taking into account the recommendations of the textilesector study.

4.06 As explained in para 3.19, a special effort is needed by Egyptto expand exports. The Government has agreed that within one year fromthe initiation of the work (which is expected to begin within three monthsafter loan effectiveness), the ministries concerned will jointly recom-mend to the Government, following consultation with the Bank, an action

program to revitalize exports through measures aimed at specific product

lines and markets, and a set of policies that may include export incen-tives. The work will be under the direction of an inter-ministerial com-

mittee to include, inter alia, the Ministers of Commerce, Economy and

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Economic Cooperation, Planning, Industry and Agriculture or their representa-tives. A task force will be assembled with professional staff seconded fromthe ministries, and with help from qualified consultants. Bank staff willassist the Government in the initiation of the task force, including prepara-tion of the scope and content of the work and its review, the selection of theconsultants, and supervision of their work. The estimated foreign exchangecost (US$1.0 million) of this program based on 600 man-weeks of consultingtime has been included in the project (U$1,700/man-week).

B. Machinery and Buildings

4.07 The mills will be equipped with new but conventional machinery.The type and amount of equipment has been specified in the feasibility studiesprepared by KED and EB as revised where felt necessary, after review by theBank. All spinning, weaving, converting, and service machinery has to beimported. A list of machinery required for the different plant sections isshown in Annex 4-3.

4.08 2 To house the new faci ities KED will have to construct about54,400 m and EB about 19,800 m 2 of covered floor space2 The area of floorspace to be provided for (0.4 m per spindle and 20.4 m per loom) is in linewith standards accepted in the textile industry. All factory buildings areto be of steel reinforced concrete which, in Egypt, is standard constructionfor industrial buildings. While steel and cement are manufactured locally,the demand for such materials exceeds by far the local supply. It is there-fore anticipated that most of the construction materials required under theproject will have to be imported. Bank financing of US$2.3 million whichwould cover about half of the foreign exchange requirements for such items,is included under the project. For technical quality reasons the spinningsection will be air conditioned while the weaving section will be humidified.Furthermore, the spinning section will have an overhead air exhaust system andthe carding room an additional floor waste filter exhaust to improve workingconditions and yarn quality. The proposed machinery layout has been reviewedand found satisfactory. The Government has agreed that the project will re-ceive high priority regarding availability of public sector contractors andbuilding materials so that implementation can proceed according to schedule(Annex 4-4). As the operations of the two companies are closely interre-lated the schedule is designed in such a way that both sub-projects areto be completed within one month of each other.

C. Raw Materials and Utilities

4.09 Basic raw materials required by the KED sub-project are cotton andpolyester. In 1980, at maximum projected efficiency (90%) the mills will useannually 33,200 tons of cotton and 1,700 tons of polyester staple; incrementalrequirements will be 6,100 and 1,500 tons respectively. The Ashmouni andGiza cotton used by KED are of superior quality suitable for spinning of finecotton and polyester/cotton yarns. For EB, input materials will be grey cot-ton fabric for PVC coated products as well as dyestuffs and chemicals, 75% ofwhich will continue to be imported.

4.10 There is an ample supply of cotton in Egypt. In 1975 only slightlymore than half (Annex 3-7) the crop was processed by the domestic industr-,

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As mentioned, however, availability of cotton (Annex 3-10) for export isexpected to shrink substantially (from 230,000 tons in 1975 to 116,000 tonsin 1985) as the Government is giving high priority to an expansion of thelocal textile industry to meet domestic demand expectations for textiles

and employment objectives and increase foreign exchange earnings by export-ing more highly processed goods (para. 3.09). Polyester staple will have tobe imported initially but eventually the fiber is to be supplied from a newplant now being considered by the Government. The Government has providedassurances regarding future supplies of input materials required by theproject including import licenses and foreign currency allocations for mate-rials to be imported to ensure efficient operation of the new facilities.

4.11 As for requirements of electricity, steam, and water, KED is using121 million KWH per annum of which 76 million KWH is generated by the com-

pany's own power station and 45 million KWH is obtained from the nationalgrid through the Rural Electrification Authority (REA). For the project thecompany will require an additional 66.5 million KWH from REA. While it isnot envisaged that REA will have difficulties in meeting this incrementalneed, the Government has provided assurances regarding the availability ofsufficient power. KED's water filtering and steam generating capacities arealmost twice current requirements and consequently the additional projectneeds (25%) can be easily met. As for EB, it is currently generating 37.5million KWH and using 30 million KWH, the rest is fed into the public grid(REA). With the expansion of its steam power plant, currently underway andto be completed in 1976, production of electricity will be increased to 58million KWH and consumption, including the project, to 42 million KWH. Uponproject completion EB's steam requirements will be of the order of 100 tonsper hour and be met by the existing and presently expanded boiler capacity.The company also has a filtering plant with a capacity almost double itspresent usage; consequently incremental water requirements of the project(32%) will present no problem. It appears therefore that the project willhave no difficulty in securing additional supplies of power, steam or water.

D. Ecological Considerations and Occupational Hazards

4.12 As KED is a grey cloth mill there are no water or air pollutionproblems and none are expected as a result of the project. KED's new spin-ning and weaving sheds will be equipped with air filters to control fibersand dust being exhausted into the atmosphere and humidity and temperaturewill be controlled for technical reasons but at the same time creating bet-ter working conditions. Also the design of the buildings will allow thenoise level to be kept below 90 decibels. Carding machines will be equippedwith floor waste exhaust filters to minimize dust hazards.

4.13 Effluent from the EB plant is highly alkaline (pH 10-11) and isdischarged to a special drainage canal. As the water in the canal is onthe acid side due to effluent from a rayon plant, 200 meters downstreamfrom EB, the pH of the water in the canal, after the effluents from the twoplants mix, is down to 8. Biological Oxygen Demand (BOD) of the effluent is125 ppm, equivalent to 3 tons or 4% of daily output. The drainage canal whichleads to the Mediterranean Sea 15 miles north, serves as an outlet for effluent

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from several chemical and other industrial plants in the Alexandria area aswell as the overflow of water used for irrigation. Consequently the projectdoes not introduce any environmental dangers. There will be no air condition-ing in EB but all departments generating heat and/or steam will be equippedwith special hoods with forced exhaust systems to lower the temperature inthe working areas.

4.14 The power plants of the two companies operate on crude oil butthe boilers are equipped with automatic regulating devices to ensure maximumcombustion and the boiler flue contains no carbon monoxide. Since the crudecontains 3.5% of sulfur a certain amount of sulfur dioxide is generated.However, the plant is located in a rural area and the workers living inhouses adjacent to the plants are not affected as the chimneys are eachabout 60 meters high.

E. Implementation, Staffing and Training

4.15 The managements of KED and EB are competent in operating theirexisting plants and neither company is employing expatriates. Also, expan-sion of plant facilities in the past was accomplished by local managementin a satisfactory manner as was the preparation of the feasibility studiesfor the two proposed sub-projects. It is recognized therefore that theprojects can be successfully executed by the present managements with onlylimited outside assistance. Project implementation units have alreadybeen established within KED and EB, each consisting of a team leader, spe-cialized engineers and scheduling coordinators. All have been selected fromexisting staff and seconded to the implementation units full time. The teamswill be supported by regular company personnel as required. Preparation andevaluation of foreign tenders is being coordinated and supervised by the Gen-eral Authority for Industrialization (GAFI), which is responsible to theMinistry of Industry for all foreign procurement in the industrial sector.

4.16 While the companies have good experience with the equipment theyare currently operating, they are not adequately familiar with the differenttypes of modern machinery which will be offered to them as a result of inter-national competitive bidding. Also, operation of the new plants at higherproductivity levels will require additional training as well as introductionof modern technical and cost control methods during project implementationand early operations. Since KED and EB do not have sufficient experiencein international procurement, mill control and production planning systemsfor high productivity operation, the companies will employ an internationallyexperienced textile engineering and consulting firm as Technical Advisor (TA)acceptable to and on terms satisfactory to the Bank. The main responsibilityof the TA will be to assist the implementation units of the companies indrafting detailed engineering specifications, evaluating tenders and inproviding management and technical assistance to KED and EB to start-up theirsub-projects and integrate them with existing operations. The terms ofreference for the TA are given in Annex 4-5. The estimated foreign exchangecost of this assistance (US$0.3 million), equivalent to about US$1,900 perman-week of consulting time based on the actual offers received, has beenincluded in the project.

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4.17 Skilled workers from the companies' existing operations will beselected and trained to operate the new equipment. As the equipment willbe of conventional design it is judged that training, customarily given bymachinery suppliers, plus special training programs for supervisory and otherpersonnel carried out with the assistance of the TA during implementation andearly operation of the project, will ensure the new plants to achieve fulloperating capacity within one year after start-up.

F. Present Status

4.18 EB and KED are presently completing the engineering designs andwill place contracts for civil works before July 1, 1976. Both companieshave already selected the personnel for the implementation teams. Noticesto vendors have been sent to all embassies of the Bank's member countriesand Switzerland in Cairo and advertisements have been placed in foreignnewspapers. Proposals for technical assistance have been received fromseveral consulting firms interested in serving as TA and an appointment,in consultation with the Bank, by the Ministry of Industry is expectedshortly.

V. CAPITAL COSTS AND FINANCING PLAN

A. Capital Costs

5.01 Total financing requirements are estimated at LE 59.8 (US$153.2)million including LE 5.0 (US$12.7) million interest during construction. Asummary of capital costs including a breakdown among the different projectcomponents is shown below and the details are given in Annexes 5-1 to 5-3.

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Summary of Capital Cost Estimate

/1Local Foreign Total Local Foreign Total %

(In Million LE) --- --- (In Million US$)---

Equipment:KED Spinning - 10.7 10.7 - 27.3 27.3 31

KED Weaving - 5.7 5.7 - 14.6 14.6 16

EB Finishing 6.1 6.1 _ 15.5 15.5 17Sub-Total - 22.5 22.5 - 57.4 57.4 64

Spares - 1.1 1.1 - 2.9 2.9 3

Freight, Insurancce 2.4 2.4 - 6.0 6.0 7Local Transport 0.6 - 0.6 1.6 - 1.6 2

Erection 0.4 0.4 0.8 1.0 1.1 2.1 2Civil Works 5.6 1.8 7.4 14.2 4.6 18.8 21Technical Assistance - 0.1 0.1 - 0.3 0.3 1Training - 0.1 0.1 0.1 0.2 0.3 -

Base Cost Estimate(BCE) 6.6 28.4 35.0 16.9 72.5 89.4 100

Physical Contingencies(5% of BCE) 0.3 1.4 1.7 0.8 4.1 4.9

Price Escalation(13% of BCE+Phys.Cont.) 1.2 3.6 4.8 3.1 9.0 12.1Sub-Total 8.1 33.4 41.5 20.8 85.6 106.4

Working Capital 10.3 2.5 12.8 26.3 6.5 32.8Sect. Tech. Asst.& Trng. - 0.5 0.5 - 1.3 1.3

Total Project Cost 18.4 36.4 54.8 47.1 93.4 140.5

Interest duringConstr. 0.4 4.6 5.0 1.0 11.7 12.7

Total Financing Req'd. 18.8 41.0 59.8 48.1 105.1 153.2

Of this Required for:- Kafr El Dawar 12.3 27.8 40.1 31.4 71.4 102.8- El Beida 6.5 12.7 19.2 16.7 32.4 49.1- Ministry of Industry - 0.5 0.5 - 1.3 1.3

/1 Including indirect foreign exchange requirements of about US$1 million.

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5.02 The base cost estimate was prepared by KED and EB from informa-tion obtained from textile equipment suppliers and Egyptian constructionfirms in November 1975. A 5% allowance for physical contingencies wasadded for possible changes in the scope of the project; these changes,however, are expected to be minimal since the project details are welldefined. To provide for inflation until the expected date of commitment,annual price escalation rates of 9% for 1976 and 8% for 1977 and thereafterwere assumed for foreign equipment and 13% and 12% for civil works respec-tively. As the type of equipment to be used is standard and the projectscope is well defined including civil works (which are relatively modestbecause of already existing infrastructure) the risk of cost increasesis limited and the capital cost estimates are considered realistic.

5.03 Permanent incremental working capital requirements for the proj-ect are estimated at LE 12.8 (US$32.8) million including LE 2.5 (US$6.5)million in foreign exchange needed to finance additional raw material in-ventories of polyester fibers and yarn and dyestuffs and chemicals whichhave all to be imported. Details of the working capital requirements areshown in Annex 5-4 for KED and in Annex 5-5 for EB.

B. Financing Plan

5.04 The financing plan of the project is as follows:

Financing Plan

--- (In Million LE) --- --- (In Million US$) --Local Foreign Total Local Foreign Total %

Foreign Long-Term Debt-Bank - 20.3 20.3 - 52.0 52.0 34-Arab Fund - 13.5 13.5 - 34.5 34.5 22

Sub-total - 33.8 33.8 - 86.5 86.5 56

Local Debtand Equity 1/ 18.8 7.2 26.0 48.1 18.6 66.7 44

Total Financing 18.8 41.0 59.8 48.1 105.1 153.2 100%

1/ The financial forecasts assume that all financing other than the Bank andArab Fund loans will be in the form of equity: (a) the companies' owngeneration of funds (about US$42.6 million equivalent including aboutUS$20.6 million from suspension of dividend payments by the companiesto the Government during the implementation period of the Project); (b)the repayment of transfers made previously by the companies to otherpublic sector enterprises (about US$16.4 million equivalent); and (c)an increase of the Government's share capital in the companies (US$7.7million equivalent). Should only internally generated funds be avail-able as equity, the rest would be borrowed on terms that will enable thecompanies to comply with the current ratio covenant of 1.5. Such borrow-ing would not significantly reduce the debt service coverage from theprojected comfortable levels of 4 to 8 times reflecting the strongdebt/equity ratio of the companies (paras. 6.08 and 6.10).

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The proposed Bank loan of US$52 million would cover about 49% of the project'stotal foreign exchange requirements. The Arab Fund would provide a loan ofKuwaiti Dinars 10 million (US$34.5 million) equivalent for financing spinningequipment for KED. The remaining foreign costs of about US$18.6 million willbe met by the Government.

5.05 Financing of local costs of about US$48.1 million equivalent is ten-tatively expected to come from the following sources: (a) the companies' owngeneration of funds; (b) a suspension of dividend payments by the companiesto the Government during the implementation period of the project; (c) therepayment of transfers made previously by the companies to other publicsector enterprises; (d) an increase of the Government's share capital in thecompanies; and (e) from local commercial sources. The Government has agreedthat these sources or a combination thereof will be employed and has assuredthe timely supply of the required local and foreign currency for the financingof the project consistent with the financial covenant to maintain a currentratio of 1.5. While therefore the exact distribution of these local sourcesihas not yet been finally determined, the financial projections in Chapter Vindicate that a shift toward more debt financing, as compared to the assump-tions made, is not going to adversely affect the financial soundness of thetwo companies. Should there be any additional need for funds to complete theproject -- either because of a project cost overrun or a shortage of funds --it will also be the responsibility of the Government to find such funds onterms acceptable to the Bank.

5.06 The proposed Bank loan (U$52 million) would be made to the Govern-ment at 8.85% interest for 15 years including 4 years of grace. Except forthe amount earmarked for training and technical assistance to be adminis-tered by the Ministry of Industry (US$1.3 million), US$25.8 million andUS$24.9 million would be on-lent to KED and EB respectively at an interestrate of 10% p.a. and on otherwise identical terms. The foreign exchange riskwould be borne by the companies. Signing of the Arab Fund loan, the appoint-ment of technical advisors, and execution of the subsidiary loan agreementsbetween the Government and the companies will be conditions of effectivenessof the proposed Bank loan.

C. Allocation of Loans

5.07 Bank and Arab Fund financing would be on a parallel basis withspecific goods and services to be covered by each of the two lenders.

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Allocation of Loans(In US$ Million)

---------------Bank---------------- Arab FundMinistry of

KED EB Industry Total KED

Equipment and Spares:Spinning and Weaving 16.1 - - 16.1 27.5 /IFinishing - 16.3 - 16.3 -

Sub-Total 16.1 16.3 - 32.4 27.5

Freight and Insurance 3.0 1.6 - 4.6 1.4Erection 0.9 0.8 - 1.7 0.4Project Technical Asst. 0.2 0.1 - 0.3 -Sector Tech. Asst. and Training - - 1.3 1.3 -Construction Materials 1.1 1.2 - 2.3 -Raw Materials 1.0 1.7 - 2.7 -Unallocated 3.5 3.2 - 6.7 5.2

25.8 24.9 1.3 52.0 34.5

/1 For spinning equipment only.

D. Procurement and Disbursement

5.08 Goods and services financed by the Bank would be procured throughinternational competitive bidding in accordance with the Bank's Guidelines,except: (1) items costing less than US$100,000 equivalent but not exceedingthe aggregate amount of US$1.0 million for each company; these items may bepurchased through international shopping on the basis of suitability, avail-ability and price considerations following approval by the Bank of the listof items involved; (2) proprietary items necessary for repair of the existingequipment and items in limited supply which are critical to the timely comple-tion of the project and whose aggregate cost is estimated not to exceed US$2million for KED and US$1 million for EB; these items may be procured followingbidding from a list of qualified suppliers, with prior Bank approval; and (3)construction materials (such as cement, steel and timber) and raw materials(polyester fibers, dyestuffs and chemicals); these items may be procuredthrough international shopping on the basis of at least three quotations fromqualified foreign suppliers approved by the Bank. Raw materials would allbe imported but, since some of the construction materials are also producedlocally, Egyptian manufacturers would have an opportunity to tender. However,because of the shortage of construction materials and the continuous needfor importing such items, it is unlikely that domestic manufacturers would be

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able to bid (para. 4.08). As mentioned above, construction materials areexpected to be procured through international shopping. If, KED and EBchoose to procure such materials through international competitive bidding,local manufacturers would be allowed a preference of 15% or the actualcustoms duty, whichever is lower. Preparation of technical specificationsis now in progress and it is expected that the first equipment orders couldbe placed in January/February 1977.

5.09 Equipment financed by the Arab Fund would be purchased accordingto its own procurement guidelines. Local procurement and contracting forcivil works will be carried out according to guidelines specified by theEgyptian Ministry of Industry and General Authority for Industrialization.These guidelines ensure adequate competitive bidding within Egypt and aresatisfactory to the Bank.

5.10 The Bank loan would be disbursed as follows:

(a) 100% of the foreign expenditures for imported equipmentand spares and related items (raw materials);

(b) 100% of foreign expenditures for directly importedconstruction materials or 100% of the local expendi-tures (ex-factory costs) if locally manufactured; and

(c) 100% of foreign expenditures for project and sectorTechnical Assistance and Training.

Retroactive financing for the technical advisors and foreign expenditures forbid advertisements would be eligible in an amount not exceeding US$100,000equivalent for expenditure after May 1, 1976. The Bank loan is expected to befully disbursed by mid-1979; an estimated disbursement schedule is given inAnnex 5-6. Any portion of the Bank loan not utilized for any part of theproject will be cancelled. The Arab Fund Loan would be used to financeforeign exchange expenditures of the spinning equipment for KED. Foreignexchange expenditures for freight, insurance and erection will be paid inconjunction with the categories of equipment financed by each of the twolenders. It is estimated that at most US$1.0 million (or 2%) of the Bankloan would be disbursed for local currency expenditures (construction materials).

VI. FINANCIAL ANALYSIS

6.01 The financial analysis, including forecasts of earnings and ratesof return, has been carried out on an incremental basis for each of thetwo sub-projects and, in addition, financial projections have been preparedfor each of the two companies. It is assumed that both projects will startcommercial production by July 1979 and, based on 300 operating days peryear, that efficiency of the new facilities will reach 90% in 1980. Given thefact that the two companies have a record of operating their equipment at highcapacity utilization and efficiency and expecting no market constraints, theproduction build-up is considered realistic.

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A. Incremental Financial Analysis

6.02 The KED sub-project is forecast to increase the company's salesin 1980 by about LE 18 million and it is expected that about 30% of thisincrement will be exported. Detailed incremental income statement projec-

tions and underlying assumptions are given in Annex 6-1 and are summarizedbelow:

Key Incremental Financial Data for the KED Sub-Project(In Current Million LE)

1979 1980 1981 1985

Sales 4.3 14.6 18.2 20.4Profit (Loss) after Tax (0.1) 1.5 3.3 4.6Net Cash Flow 1.3 4.3 6.1 6.7

Profit After Taxas % of Sales - 10.3 18.1 22.4

6.03 The project is estimated to become very profitable in the secondyear of operations (1981) with a profit after tax to sales ratio of over18%, which compares to only about 8% for the existing operations. The com-pany's revenues from domestic sales are strongly influenced by the priceassumption made for polyester cotton fabrics. At present, KED realizes onaverage about LE 1.60 (US$4.10) per meter on the small volume it is nowproducing and selling. This price is not related to costs but reflectsthe unsatisfied demand for this type of fabric in Egypt. As a result ofKED's and other projects in the sector, the supply of polyester cottonfabrics will increase and it can be expected that prices will drop consid-erably and will become more closely related to production costs. Assumingthat KED wants to realize at least an internal rate of return of 15% on itsinvestment in the polyester cotton plant, a sales price of LE 0.8 (US$2.05)per meter has been taken; this is only slightly higher than the estimatedworld market price for this type of fabrics.

6.04 The financial rate of return for the KED sub-project is estimatedat 12%. The return is most sensitive to changes in sales prices. A 10%lower price level than the one assumed would reduce the return to 9%. Anincrease in operating or capital costs by 10% will result in a decrease inthe financial rate of return by 2.3% or 1.4% respectively.

6.05 The EB sub-project is also expected to generate substantial incre-mental sales revenues, i.e. by about LE 12 million in 1980. Details of theincremental revenues, operating costs and the assumptions made are shown inAnnex 6-2 and are summarized below:

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Key Incremental Financial Data for the EB Sub-Project(In Current Million LE)

1979 1980 1981 1985

Sales 2.3 9.4 11.5 13.5Profit (Loss) After Tax (0.4) 1.2 2.0 2.5Net Cash Flow 0.1 2.4 3.1 3.3

Profit After Tax as% of Sales - 12.8 17.4 18.5

6.06 The realization of the sub-project will continue to support theprofitability of the company as the profit after tax for the new project isestimated at over 17% of sales. The attractiveness of the project is furtherreflected in the high financial rate of return of about 16%. This rate dropsto about 10% as revenues decline by 10%. Similarly, an increase in operatingcosts or capital costs by 10% will result in a decrease in the financial rateof return by 3.5% or 2.0% respectively.

6.07 Since the financial rates of return for the two sub-projects areattractive, the overall return for the project is also satisfactory and isexpected to be about 13% (Annex 6-3).

B. Financial Analysis of Companies after Implementation of Sub-Projects

6.08 Financial projections through 1985 for KED's entire operationsare shown in Annex 6-4 and key data for selected years are summarizedbelow:

/KED - Key Financial Data(In Current Million LE)

1975 1976 1979 1982 1985

Sales 33.4 34.0 48.3 69.7 79.5Profit After Tax 3.4 3.2 4.7 9.9 11.1Internal Cash Generation 4.4 4.4 7.7 14.2 14.7Gross Fixed Assets 21.4 25.2 64.9 65.5 66.1Long-Term Debt 6.4 11.8 30.5 24.1 17.7Profit After Tax as % of Sales 10.1 9.4 9.7 14.2 14.0Current Ratio 2.4 2.2 2.8 1.9 2.0Debt/Equity Ratio 19/81 26/74 41/59 33/67 24/76Debt Service Coverage - 4.7 5.4 4.0 5.0

/1 Based on assumptions discussed in paras. 5.04 and 5.05.

6.09 Implementation of the sub-project will significantly alter thescope of operations and financial position of the company. In real terms,

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sales will increase by nearly 60%, profits are expected to triple and soare gross fixed assets. Long-term debt will increase substantially andbring the company to a maximum debt/equity ratio of 42/58. The cost struc-ture will also be affected. Before implementation of the sub-project depre-ciation and interest accounted for only 4% of total operating costs; by 1981these will increase to 9%. Liquidity and debt service coverage will remainmore than adequate. Overall, the financial outlook for the company is good,provided that the Government will continue to allow KED to set adequate salesprices (para. 6.14).

6.10 Financial projections for EB are contained in Annex 6-5 and keydata for selected years are summarized below:

/EB Key Financial Data(In Current Million LE)

1975 1976 1979 1982 1985

Sales 22.2 22.4 29.1 43.8 51.3Profit After Tax 2.7 3.6 4.3 8.4 9.3Internal Cash Generation 3.7 4.9 6.0 10.6 11.0Gross Fixed Assets 17.8 22.0 36.6 37.2 37.8Long-Term Debt 1.5 2.2 10.2 7.6 5.0Profit After Tax as %of Sales 12.2 16.1 14.8 19.2 18.1Current Ratio 1.2 1.4 2.0 1.7 1.8Debt/Equity Ratio 8/92 9/91 24/76 17/83 10/90Debt Service Coverage 14.3 14.6 10.0 6.7 8.1

/I Based on assumptions discussed in paras 5.04 and 5.05.

6.11 Projecting from an already sound position, the proposed expansionwill further improve the company's finances. In real terms, sales revenueis expected to increase by more than 50%, profits will nearly double andgross fixed assets will increase by about one-third. The companies'liquidity position is expected to be satisfactory. Current ratio is pro-jected to increase from 1.2 in 1975 to 1.5 during the life of the project.Debt/equity ratio is also projected at a comfortable 30/70, and the debtservice coverage is more than adequate.

6.12 Even after the additional borrowing envisaged for the project,both companies will have a very ample debt service coverage, indicatingthat amortization of the proposed loans could be shortened to less thanthe assumed 11 years without endangering the cash position of KED and EB.However, under the existing financial regime, the companies do not havecontrol over the funds they generate, except for those derived from depre-ciation out of which debt repayments have to be made. To leave the companiessome cash for their own disposition, it is therefore necessary to have thedebt repaid over about the same number of years as the project's assets aredepreciated.

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6.13 The financial statements of KED and EB are audited by the CentralAgency for Auditing, a government agency. This arrangement is acceptable tothe Bank.

C. Financial Covenants

6.14 To safeguard the strong financial position of the two companiesas indicated above, the Government has agreed that it will:

(a) not take any action which would preclude the companiesfrom meeting all their expenses and servicing debt outof earnings and, assuming efficient operations, fromearning a reasonable return on invested capital;

(b) allocate sufficient foreign exchange to the companies forthe purposes of procuring future supply of input materialsas required; and

(c) not make any cash withdrawals from the companies over andabove the legal requirements which would prevent each ofthem from maintaining a current ratio of at least 1.5;in any event the Government will promptly provide the companieswith any funds required to maintain this ratio.

The companies have also agreed to the following:

(a) To ensure their liquidity, KED and EB will maintain acurrent ratio of 1.5 or above;

(b) Before completion of their sub-projects, KED and EB willnot undertake any new investments in excess of US$2.5 mil-lion equivalent each per year without prior agreementwith the Bank; and

(c) After completion of their sub-projects the two companieswill not undertake any further capital investment withoutprior agreement with the Bank if as a result of such in-vestments their respective debt/equity ratios would exceed60/40.

D. Major Risks

6.15 The project faces only moderate technical, managerial and com-mercial risks. After assurance on the availability of public sector con-tractors and building materials (para 4.08), the potential for substan-tial delays and major cost overruns during project implementation, unlesscaused by a sudden increase in the demand for textile equipment which isconsidered unlikely, is rather low because of (i) KED's and EB's experi-ence in managing, constructing and operating textile projects; and (ii) par-ticipation of a Technical Advisor in some aspects of project implementation.

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The commercial risks of the project are rather small, because of the largeunsatisfied demand for the polyester-cotton fabrics in Egypt and the rel-atively minor additional exports of cotton products as compared to presentexports.

VII. ECONOMIC ANALYSIS

7.01 For the economic analysis of the project, costs and benefits aredivided into tradeable and non-tradeable items and are valued at their re-spective world market and domestic prices. Most significant in the economicanalysis is the valuation of the raw materials and textile prices. Annex 7contains the detailed assumptions made in this analysis.

A. Raw Material and Textile Prices

7.02 The three types of raw materials required by the project are cotton,polyester fiber and yarn, and dyestuffs and chemicals. All of these can betreated as tradeable commodities with defined world market prices.

7.03 The cotton required by the project is of the long staple varietyEgypt produces. Underspinning of the domestic cotton is minimized in thiscase by producing mostly fine and very fine yarns and fabrics particularlyfor the 100% cotton fabrics destined for export. World market prices forEgyptian long-staple cotton have followed the same trend as the shorterstaple cotton varieties which account for the bulk of the trade. However,the premium over the shorter staple varieties has fluctuated rather widelyand has, over the last 25 years, been as low as 30% and as high as 100%with an average of about 60%. In line with prices for other commoditiesall cotton prices reached unprecedented high levels in 1973/74. Althoughprices have come down, it is not expected that they will return to levelsprevailing before 1973. For purpose of calculating the economic rate ofreturn of the project the Egyptian cotton has been priced by using theBank's estimate for the long-term international price for short-staplecotton of US$0.52 per pound (in constant 1976 dollars) and by applyingthe historically derived premium of 60% to arrive at an average price ofUS$0.83 per pound of Egyptian long-staple cotton.

7.04 Polyester represents a major breakthrough in man-made fibers andthe recent growth in the man-made fiber consumption has to a very largeextent been satisfied by this fiber. Accordingly, polyester prices whichwere around US$1.00 per pound in the early 1960s have come down to aroundUS$0.50 at present. Polyester has thus become an economic and widely ac-cepted substitute for short-staple cotton and is expected to follow theprice trends of short-staple cotton closely. A long-term internationalprice in constant 1976 dollars of US$0.50 per pound FOB of US$0.54 perpound CIF is assumed.

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7.05 About 75% of the dyestuffs and chemicals required by EB are im-ported and for these imports the same CIF prices as used in the financialanalysis, although excluding duties and taxes, have been taken. The remain-ing 25% are procured locally and consist of a very large number of items forwhich world market prices are difficult to ascertain; consequently domesticprices have been used.

7.06 The project output is valued in terms of the export and importsubstitution benefits it provides. The types of cotton fabrics which willbe produced as a result of the project are already produced in the countryand border prices for these can be derived from historical export prices.For the polyester-cotton fabrics intended for the local market it is diffi-cult to establish border prices because international trade in textilestakes place in a large variety of fabric constructions and finishes andsuch prices are generally not published. The border prices for the poly-ester-cotton fabrics are therefore estimated by adding to the internationalraw material costs, spinning, weaving, and converting costs as are consid-ered typical for efficient producers of textiles in Western Europe.

7.07 To determine the economic benefits of expanding EB's convertingcapacity it has been established (Annex 7) that EB's commission charges,somewhat lowered for some specific services (so as to make them all in linewith prices prevailing in Europe and the US), can be used to estimate theeconomic benefits of this sub-project.

B. Economic Rate of Return and Foreign Exchange Savings

7.08 Based on the above assumptions, the sub-projects and the overallproject yield satisfactory rates of return as shown below:

For KED For EB For Overall Project

Economic Rate of Return 21% 22% 22%

7.09 The above returns are calculated using the market exchange rate(fE 1.00 = US$1.56) 1/ as a crude approximation of a shadow foreign exchangerate. However, even if the official rate of exchange (IfE 1.00 = US$2.56)were used, the returns would be only about 2% lower, which indicates thatthe economic rate of return for this project is not very sensitive to theexchange rate used. For calculating the above returns the amounts (US$1.3million) earmarked for sectoral training and technical assistance were ex-cluded from the project costs, since the benefits deriving from this invest-ment cannot be easily quantified. The reason the economic rate of re-turn for the overall project (22%) is higher than the financial rate ofreturn (13%) is because the differential between the economic and finan-cial benefits (100%) outweighs the difference between the economic andfinancial values of both capital and operating costs (43% and 74% respec-tively, Annex 7).

1/ In May 1976, this rate was adjusted to LE 1= US$ 1.47.

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7.10 The estimated foreign exchange cost of the project is US$105.1million equivalent. In return, by 1980, the project will result in an esti-mated net annual foreign exchange saving of about US$52 million equivalent.Such savings do not constitute an economic benefit additional to thoseincluded in the projected economic rate of return.

VIII. AGREEMENTS

8.01 Assurances and agreements were obtained from the Government, KEDand EB on the following major points:

A. From the Government that it will:

(a) assure future supply of domestic input materials as well asissue import licenses and foreign currency allocations formaterials to be imported to allow the execution of the project aswell as efficient operation of the new facilities (paras. 2.17and 4.10);

(b) not later than three months from the effective date of theproposed Bank loan initiate an export promotion study andprogram (paras. 3.19 and 4.06);

(c) submit not later than August 31, 1976 a detailed programfor the training abroad of technical and supervisory personnelfrom the country's textile sector (para. 4.05);

(d) submit to the Bank by December 31, 1976 a proposal for the executionof a feasibility study for a future textile project (para. 4.05);

(e) assure availability of public sector contractors and buildingmaterials so the implementation of civil works can be carriedout according to schedule (para. 4.08);

(f) cause the Rural Electrification Authority to supply sufficientpower to KED to ensure efficient operation of the expandedplant (para. 4.11);

(g) provide the local and additional foreign currency as required bythe project (paras. 5.04 and 5.05);

(h) relend the proceeds of the Bank loan to the two companies at10% interest for 15 years, including 4 years of grace(para. 5.06);

(i) allow KED and EB to set prices at levels to earn reasonablereturns (para. 6.14); and

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(j) not make any withdrawals over and above the present legal re-quirements which would prevent KED and EB from maintaining acurrent ratio of at least 1.5 (para. 6.14); in any event theGovernment will promptly provide the companies with any fundsrequired to maintain this ratio.

B. From KED and EB that they will:

(a) employ a Technical Advisor and enter into a technicalassistance agreement, satisfactory to the Bank (para.4.16);

(b) maintain a current ratio of at least 1.5 (para. 6.14);

(c) not undertake any major new projects before completion ofthis project without prior agreement by the Bank (para.6.14); and

(d) after completion of the project obtain the prior consentof the Bank if the undertaking of any further capital in-vestments would result in a debt/equity ratio exceeding60/40 (para. 6.14).

C. From EB that it will:

Within six months after date of signing of the Loan Agreementsubmit to the Bank for review a detailed study of the company's present andprojected future liquidity position under terms of reference acceptable tothe Bank and EB (para. 2.16).

8.02 In addition, signing of the Arab Fund Loan, employment of theTechnical Advisor, and execution of the project agreements and subsidiaryloan agreements between the Government and KED and EB are conditions ofeffectiveness of the proposed loan.

8.03 Based on the above agreements and assurances, the project issuitable for a Bank loan of US$52 million equivalent to the Government for15 years including a 4-year grace period, and for relending of US$50.7 milionto KED and EB on identical repayment terms.

Industrial Projects DepartmentJune 7,1976

ANNEX 1

EGYPT

TEXTILES PROJECT

GLOSSARY OF TECHNICAL TERMS

Ashmouni: medium-long Egyptian cotton (1-1/8") suitable for spinningyarn up to 80 cc.

Beater: A device for the opening and/or cleaning of fibers, found onthe opener or on picker machines. Its teeth, blades, or barsbeat against layers of fibers which are fed to it at a slowrate.

Blowroom The machinery for opening/blending and cleaning of cotton andEquipment: forming a uniform fiber sheet called a lap.

Capacity The ratio of the time scheduled for production to the 8,?60Utilization: hours available during the year.

Carding: An operation which opens and cleans fibers, separates theindividual fibers and delivers them in sliver form.

Caustic Soda: Strongly alkaline chemical used in textile manufacturing forbleaching and mercerizing.

Converting: General term for variety of processes by which grey (alsogray, or greige) woven fabrics are converted into finishedgoods. Bleaching, mercerizing, dyeing, printing as well asapplication of resins and chemicals in finishing are someof the converting processes. The same term applies to greyyarn when bleached, mercerized, dyed and finished.

Cotton: Unicellular fibers attached to the seeds of various speciesof Gossypium, a member of the mallow family (Nalvaceae).Soft, usually white, between 3/8 and 2 in. long. Chemicallyalmost pure cellulose. Main producers: US, India, Brazil,Egypt, USSR and China.

Denim: Washable, inexpensive, strong, stout twilled cloth, made ofsingle yarns, either dyed in the piece or woven with coloredwarp and white filling; used for overalls, skirts, etc. Nowalso made in fancy plaids, dobbies, stripes and sometimesprinted.

Draft: In spinning, reducing the size of a fiber aggregate such asa lap, sliver, roving, top, by advancing it through pairsof rollers moving with progressively higher surface speed.

ANNEX 1Page 2

Drawing: The process by which draft is obtained in the spinning offibers into yarns.

Dyeing: The process of coloring materials. Piece dyeing: dyeing"in the piece" after weaving.

Easy-care: A term used to describe garments--also fabrics from wiichthey are made that will satisfactorily retain their originalneat appearance after repeated wear and laundering, withoccasional or no ironing. Note: "Retain their original neatappearance" t means that after laundering the garment will:(1) retain desirable pressed-in creases or pleats, if any;and (2) be essentially free from undesirable wrinkles bothduring wear and after laundering. It is also assumed thefabric will meet normal consumer's demands for suchproperties as durability, color fastness, and shrinkage.

Efficiency: The ratio of the time the equipment is operating to the timeactually available according to the production plan.

Fabric: A collective term applied to cloth no matter how constrvctedor manufactured and regardless of the kind of fiber fromwhich made. Textile fabrics include the following varieties:bonded, braided, felted, knitted, and woven.

Fiber: The fundamental unit used in the fabrication of textileyarns and fabrics.

Fiber, A class name for various genera of fibers (including fila-manmade: ments) produced from fiber forming substances which may be:

(1) polymers synthesized by man from simple chemical com-pounds; (2) modified or transformed natural polymers.

Fiber, A class name for various genera of fibers, including fila-natural: ments of: (1) animal; (2) mineral; or (3) vegetable origin.

Examples: (1) silk and wool; (2) asbestos; (3) cotton, flax,jute, ramie.

Filling: (1) Yarn running from selvage to selvage at right angles tothe warp in a woven fabric; (2) yarn to be used as fillingin weaving.

Finished Cloth after passing through finishing processes, ready forgoods: market.

Giza: Long Egyptian staple i-1/8" tc 1-3/8" suitable for spinningyarn counts up to 120 cc.

Grade: Cotton: the quality for raw cotton determined by its color,dirt content, etc.

ANNEX 1Page 3

Gray goods Woven or knitted fabrics which have received no bleaching,(also grey dyeing, or finishing treatment.greige goods):

Greige: Term for fabrics in unbleached, undyed state beforefinishing. More commonly in US "gray goods".

Humidity, The weight of water vapor present in a unit volume of air.absolute: For example, grains per oubic foot, or grams per cubic

meter. Note: the amount of water vapor is also reported interms of weight per unit weight of dry air, for example,grains per pound of dry air. This value differs fromvalues calculated on a volume basis and should not bereferred to as absolute humidity. It is designated ashumidity ratio, specific humidity, or moisture content.

Kier: A large, metal vat, usually a pressure type, in whichfabrics may be boiled out, bleached, etc.

Lap: In spinning, a continuous, usually compressed, sheet offibrous material which is rolled into a cylindrical package,produced by opening or picking machinery.

Licker-in: The first roller of a card, which receives the stock,fleece, or lap from the feed rolls and delivers the fiberto the bumbler or main card cylinder.

Loom: A weaving machine for producing a fabric by interlacingwarp and filling yarns.

Mercerizing: Treatment of cotton fabric with cold caustic soda undertension to improve luster, strength and affinity to dye-stuffs.

Overall CapacityUtilization: The multiple of efficiency and capacity utilization.

Padding: The application of solutions to textiles by passing themthrough the solutions and subsequently through squeeze rolls.

Pick: A throw of the shuttle. One filling thread is termed apick on the loom or in the fabric.

Picker: In spinning, the machine used to clean and further openfibers which have been through the opening department.Produces laps.

Pirn: A wood, paper, or plastic support, slightly tapered, withor without a conical base, on which yarn is spun or woundfor use as filling (USA quill). Also, the yarn comprisingsuch a package.

ANNI 1Page 4

Polyester: A synthetic fiber produced from petro-chemicals.

Poplin: A plain weave spun yarn fabric with fine ribbed or corded effect.

Printing: Process of producing designs of one or more colors onyarns, warp, or fabric. There are several methods, suchas roller, block, screen, etc., and several color tech-niques, such as-direct, discharge, and resists.

Productivity: Output per manhour; in the textile industry productivityin spinning is usually expressed in kg of yarn and inweaving in thousand weft yarn inserted.

Quill: A tapered, wooden core on which filling yarn is woundpreparatory to weaving. The package of yarn itself.

Ring spinning: A spinning method using a ring and traveller in place ofa flyer, cap, or mule spindle.

Roving: A loose assemblage of fibers drawn or rubbed into a singlestrand with very little twist. An intermediate stagebetween sliver and yarn.

Sateen: A type of cotton fabric with a lustrous surface.

Scouring: (1) Removing the sizing and tint used on the warp yarn inweaving; (2) general cleaning of the fabric prior to dyeing.

Shuttle: Device used to carry filling or weft yarns back and forthwithin the warp shed to form cloth.

Sizing: (1) Operation consisting of applying onto yarns compoundssuch as starch, gelatin, oil, wax, or any other suitableingredient to aid the process of fabrication or to controlfabric characteristics, e.g., crepe fabrics; (2) the com-pounds used in this process; (3) warp sizing is generallyreferred to as slashing.

Sliver: In textile spinning, a continuous strand of looselyassembled fibers that is approximately uniform in cross-sectional area and without twist. Produced by cards,drawing and gill frames, combers, etc.

Soft waste: Yarn waste that has received little twist. Also roving,card, and top waste.

Spinning: (1) General: the process of making yarns or cordage fromfibers, tow, or liquid materials; (2) yarn from fiber: theformation of a yarn by a combination of drawing or draft-ing and twisting operations applied to prepared fibermasses such as rovings.

Spinning A machine by means of which the roving is drawn out to theframe: required fineness, the twist is inserted, and the finisbed

yarn is wound onto bobbins or other packages. There arefour types: cap, ring, flyer, and mule.

ANNEX 1

Twill: A weave characterized by diagonal lines or ribs producedby staggered floats. Warp face twill has prevalentlywarp floats on the face, filling face twill has fillingfloats. One of the basic weaves; permits heavier,denser cloth than plain weave.

Twist: The turns about their axes of fibers, yarns, or cords.Expressed in turns per unit of length or, less commonly,by the helix angle in reference to the diameter of theyarn.

Voile: A light weight, crisp, plain weave fabric made from yarnshaving considerably more than normal amount of twist.

Warper: A machine for preparing the yarns intended for the warpof a woven or warp knit fabric.

Warping: The preparation of the warp for looms or knitting machinesby arranging the yarns on a beam. Principal methods: beamwarping, chain warping, and sectional warping.

Waste: Fiber and yarn by-products created in the manufacturing orprocessing of fibers or yarns.

Weaving: The process of manufacturing a fabric by interlacing aseries of filling (crosswise) yarns with a series of warp(lengthwise) yarns at right angles.

Width: The distance between the two selvages of woven cloth.

Winding: Transfer of a yarn or thread from one type of package toanother, for example, from cakes to cones.

vi4ol Top: In wool spinning, a continuous strand of loosely assembledfibers. Intermediate stage between raw wool and yarn.

Yarn: A generic term for continuous strands of textile fibersor filaments in a form suitable for knitting, weaving, orotherwise intertwining to form a textile product. It maycomprise: (a) a number of fibers twisted together; (b) anumber of filaments laid together without twist (a zero-twist yarn); (c) a number of filaments laid together withmore or less twist; or (d) a single filament with orwithout twist, a monofilament.

Yarn, carded: Yarns made from fibers that have been carded but notcombed in the manufacturing process. Note: most spunyarns are of this type.

Yarn numbering A measure of linear density. For cotton, the cotton countsystem: (c.c.) is defined as the number of basic hanks (840 yard

lengths) per pound. Hence the finer the yarn the higherthe count.

Zephyr: A light weight cotton fabric usually p,rintea.

Industrial Pr^jects DepartmentMarch 1976

ANNEX 1

EGYPT TEXTILES PROJECT PageiMISR KAFR EL DAWARPROCESS FLOW SHEET

SPINNING OF POLYESTER-COTTON BLENDED YARN

COTfON IN BALES POLYESTER IN BALES

BLOW ROOM EQUIPMENT l BLOW ROOM EQUIPMENTOPENING, BLENDING & PICKING | OPENING, BLENDING & PICKING

CARDING CARDING

| PRECOMffBINGl

COMBING

r ADRAWING |

DRAWING

ROVING

RING SPINNING

WINDING YARN ON CONES

Incdustriat Projects Department

November 1975WorId Bank--15497

EGYPT TEXTILES PROJECT ANNEX 1MISR KAFR EL DAWAR Page 7PROCESS FLOW SHEET

WEAVING OF POLYESTER COTTON BLENDED FABRICS

YARN ON CONES

WARPING

PIRN WINDING SIZING AND SLASHING

WEFT WA,RP

(Gray) Fabricl

Sales as Gray To Misr El Beida for Converting

lndustrial Projects DepartmentNovember 1975

VVorld Bank-15494

ANNEX 1EGYPT TEXTILES PROJECT Page b

MISR EL BEIDAPROCESS FLOW SHEET - CONVERTING OFPOLYESTER-COTTON BLENDED FABRICS

SEWING

INSPECTION

BATCHING

SHEERING

SINGEING

& DESIZING

BLEACHING

DYEING __ CYLINDERDRYING -- SETTING

PIECE DYED I DYEING I STRIPES

SOLID COLORS I AND WHITES

DRYING

& SETTING

FINISHING--------

FRAMING

INSPECTION

World Bank-15495

INDUSTRIAL PROJECTS DEPARTMENTNOVEMBER 1975

ANNEX 2-1

EGYPT - TEXTILES PROJECT

EGYPTIAN GENERAL ORGANIZATION FOR SPINNING AND WEAVING

LIST OF SUBSIDIARY COMPANIES-'/

1. Mehalla El Kubra2. Esco3. Misr Helwan4. National5. El Siouf6. El Nasr Co. 'Chourbaguil7. Orient Linen and Cotton8. Kafr El Dawar9. El Nasr Damietta10. Dakahlia11. Upper Egypt12. Central Egypt13. Misr Shebsin El Kom14. Arab and United Spinning and Weaving15. Alexandria Spinning and Weaving16. Delta Spinning and Weaving17. El Beida18. El Nasr Dyeing and Finishing19. Cairo Dyeing and Finishing20. Modern Textiles21. 'Stial22. Wooltex23. El Nasr - Port Said2!/. El Nasr Clothing'5. Misr Rayon26. General Jute Products27. Arab Carpet and Upholstery28. Cairo Silk Company29. Cairo Clothing Company30. Misr Card Clothing Company

1/ Prior to abolition of General Organization on December 31, 1975.

Indastrial Projects DepartmentFebruary 1976

EGYPr - TEXTILES PROJECT

TEXTILE INDUSTRY - PRODUCTION AND SALES STATISTICSI/

1967 1968 1569 1970 1971 1972 1975 .

Number of Spindles J 1,501 1,531 1,615 1,697 1,763 1,840 2,120Number of Looms 3/ 25.5 25.5 25.8 28.7 29.1 29.2 33.6Production .f Cotton Products:- Cotton Yarn i 157.5 157.4 162.4 164.5 171.0 179.2 186.0- Cotton Fabrics 92.7 102.3 106.1 110.3 113.6 115.9 141.0- Average CountV 24.2 24.5 24.7 25.1 25.3 26.2 n.a.- Production per Spindl.e 105.0 103.0 101.0 97.0 97.0 97.0 87.7- Produc tion per Loom. / 3.6 4.0 4.1 3.8 3.9 4.0 4.2Consumption of Cotton Products:- Cotton Yarn: % Local. 76 75 72 73 76 74 79

% Export 24 25 28 27 24 26 21Cotton Fabrics: % Local 81 81 79 80 81 82 90 g

% Export 19 19 21 20 19 18 10

1 Yearbook of the Federatkon of Egyptian Industries, 19732/ '- estim,iated

7/ Thousandsv/ Thousand metric tons

Cotton CountI Kg per spindle per annumN Metric tons per loom per annumIncluding imports

Industrial Projects DepartmentIJMarch 1976

ANNEX 2-2Page 2

EGYPT - TEXTIIES PROJECT

INVESTMENT IN THE TEXTILE INDUSTRY(in LE Million)

Year Public Sector Private Sector

1968/69 10.5 n.a.1969/70 7.4 n.a.1970/71 6.3 n.a.1971/72 / 10.8 2.31973 5.4 i.61974 11.8 5.11975 / 17.7 5.6

Total: 69.9 14.6

1t 18 monthsg/ Plan

Industrial Projects DepartmentMarch 1976

ANNEX 2-3Page 1

'EGYPT - TEXTIIES FROJECT

COMPOSITION OF EXPORTS 1(in million LE)

1973 1974

Fuels 5.9 40.5Crude petroleum. 5.2 33.4Petroleum products 0.7 7.1

Primary products 230.3 344 oRaw cotton 168.4 259.0Other 61.9 85.0Rice, husked and bleached (21.8) (35.8)Rice, husked

Onions and garlic, fresh (11.8) (E.8)Onions and garlic, dehydrated (0.6) (2.8)Groundnuts (1.3) (2.3)Oranges (8.8) (11.2)Potatoes (5.1) (4.7)

Other vegetables, fruits and pulses (2.9) (2.0)Fish, poultry and animals (.O.8) (1.0)Cotton waste, rags and straw (3.6) (3.6)Raw flax (0.8) (1.8)Other (4.h) (8.0)

Semi-finished products 39.5 88.9Cotton yarn .35.7 83.2Other yarn 0.1 --

Other 3.7 5.7

Finished products 120.6 180.5Textiles 19.1 33.0Cement 3.7 1.6Chemicals 7.7 12.6Footwear 4.3 11.5

Other leather goods 3.4 4.0Sugar 1.1 005Alcoholic drinks 4.0 8.?Books and periodicals o.6 1.2Furniture, wood and metal 1.9 2.5

Other 74.8 105.4

Total 396.3 653.9

i/Source: Central Bank of Egypt, based on Exchange Control statistics.

Industrial Projects DepartmentMarch 1976

ANNEX >3Page 2

EGY?T - TEXTILES PROJECT

EXPORTS OF EGYPTIAN CCOTON TEXTILES(in thousand metric tons)

KnittedYear Yarn Fabrics Garments Goods Other Total

1970 41.4 20.9 0.7 1.2 0.7 64.91971 42.3 23.2 0.7 1.4 0.9 66.31972 44.7 19.0 1.0 1.4 14.3 80.41973 44.7 19.0 1.0 1.7 12.3 78.71974 35.7 13.3 1.2 1.7 9.4 61.3

EXPORTS OF EGYPTIAN COTTON TEXTILES(in LE million)

tctal Exports of Semi FinishedYear Textiles and Finished Products Percentage

1970 60.1 101.4 59.31971 62.1 102.8 6o.41972 63.8 112.5 56.71973 54.9 160.1 34.31974 l16.2 269.4 43.1

Source: EGOSWConsolidation FundArab Republic of Egypt, Ecnomic Report No.870a-EGT

Industrial Projects Department'!arch l',76

ANNEX 2-3Page 3

EGYPT - TEXTILES PROJECT

SHIPMENTS OF WOVEN FABRICSTO EUROPEAN COMMON MARKET COUNTRIESI/4-in metr-i c tons')

Year Quota Actual Shipments X

1971 3,600 2,472 68.61972 3,600 2,898 80.51973 3,780 3,982 o 105.31974 4,008 2,637 65.81975 4,308 2,029 47.1

1/SHIIPMES OF WOVEIN FABRICS TO USA

(in metric tons)Y

4/Year Quota Actual Shipments

1971 n.a. 3,820 n.a.1972 n.a. 3,895 n.a.1973 n.a. 4,477 n.a.1974 10,000 1,769 17.71975 6,900 290 4.21976 11,000 n.a. n.a.1977 16,000 n.a. n.a.

1/ Source: Consolidation Fund2/ Including UK and Denmark from 1 9733/ Estimated on the basis of 6.5 square meters per kgiY/ Aggregate quota as per bilateral agreement expiring end 1977

Industrial Projects DepartmentMarch 1976

ANNEX 2-3Page 4

EGYPT - TEXTILES PROJECT

KED - AVERAGE COST OF PRODUCTION AND SAL7J-5 PRT CE.S F KWOVEN FAkB?Z S

Average Cost of Productioni. Average Sales %YrE per ?rice. LE per Actual

Year Type of Fabric Linear Meter Linear Meter Profit (Loss)J

1970 Export 0.15 0.12 (17.1)Rationed 0.18 0.19 3.3Free 0.23 0.28 25.4

1971 Export 0.15 0.12 (18.4)Rationed 0.18 0.18 1.0Free 0.23 0.31 32.8

1972 Export 0.15 0.12 (15.1)Rationed 0.18 0.18 (4.7)Free 0.23 0.31 32.9

1973 Export 0.16 0.14 (7.6)Rationed 0.19 0.17 (9.2)Free 0.26 0.33 30.0

1974 Export 0.17 0.22 31.6Rationed 0.18 0.16 (9.6)Free 0.26 0.35 38.2

1/ Excluding export subsidya/ Net before taxes

Industrial Projects DepartmentMarch 1976

ANNEX 2-3Page 5

E&YPT - TEXTILES PROJECT

PRODUCTION, EXPORT AND IMPORT OF COTTON YARN AND FABRICSIN SELECTED COUNTRIES

COTTON YARN(thousand metric tons)

1970 1971 1972 1973 1974

Production: Western Europe 1,430 1,345 1,364 1,388 1,355USA 1,618 1,669 1,591 1,507 1,382Egypt 162 171 171 180 176World Total 8,062 8,092 8,160 8,327 n.a.

Imports: Western Europe 179 177 231 257 274USA 10 13 16 11 5Egypt 3 2 4 3 n.a.World Total 327 378 439 470 n.a.

Exports: Western Europe 147 160 190 197 200USA 9 6 7 6 7Egypt 42 42 47 45 36World Total 368 378 482 490 418Egypt as % of Total 11.4 8.8 9.8 9.2 8.6

COTTON FABRICS(thousand metric tons)

1970 1971 1972 1973 1974

Production: Western Europe 1,036 1,016 1,041 1,026 n.a.USA 917 903 832 747 690Egypt 110 115 114wiorld Total 5,224 5,112 5,070 5,050 n.a.

Imports: Western Europe 280 316 365 413 420USA 78 98 127 121 106Egypt nil nil nil nil 1World Total 692 728 820 900 n.a.

Exports: Western Europe 215 239 263 284 n.a.USA 34 38 48 55 63Egypt 24 22 21 18 13World Total 647 672 717 754 n.a.Egypt as % of Total 3.7 3.3 2.9 2.4 n.a.

Source: Cotton World Statistics ICAC Janua-y 1976

Industrial Projects DepartmentMarch 1976

EGYPT - TEXTILES PROJECT

HISTORICAL INCOME STATEMENTS

EGYPTIAN GENERAL ORGANIZATION FOR SPINNING AND WEAVING(in million LE)

1/1967/68 1968/69 1969/70 1970/71 1972 1973 1974

Total Value of Production 243 247 258 276 308 324 401

Wages and Salaries 47 53 57 60 74 79 87Materials & Commodity Inputs 125 123 127 135 148 153 163Services & Non-Commodity Inputs 15 15 16 17 19 20 22Depreciation 11 11 11 12 13 14 16Indirect Taxes 13 13 14 15 16 17 18

Cost of Goods Produced 211 215 225 239 270 283 306

Operating Profit 32 32 33 37 38 41 95

other Expenses 8 6 5 4 5 3 27

Profit Before Interest and Tax 24 26 28 33 33 38 68Interest 2 3 3 3 4 4 4

Profit Before Tax 22 23 25 30 29 34 64Tax 4 4 4 4 4 6 20

Profit After Tax 18 19 21 26 25 28 44

RatiosOperating Profit as % of Sales 13.2 13.0 12.8 13.4 12.3 12.7 23.7

Profit Before Tax as % of Sales 9.1 10.5 9.7 10.9 9.4 10.5 16.0

Profit After Tax as % of Sales 7.4 7.7 8.1 9.4 8.1 8.6 11.0

1/ For years 1967/68 - 1970/71 fiscal year ended June 30.Thereafter years ended December 31. O x

Industrial Projects DepartmentMarch 1976

EGYPT - TEXTILES PROJECT

HISTORICAL BALANCE SHEETS

EGYPTIAN GENERAL ORGANIZATION FOR SPINNING AND WEAVING(in million LE)

1/1968 1969 1970 1971 1972 1973 1974

CURRENT ASSETS:

Cash 13 16 18 15 15 17 26Accounts Receivable 61 67 67 80 66 64 80Raw Material Inventory 38 39 47 47 47 46 55Finished Goods Inventory 50 36 34 31 31 32 35

Supplies Inventory 14 25 27 29 32 35 38Work in Process Inventory 28 28 27 27 31 30 54

Total Current Assets 204 211 220 229 222 224 288

FIXED ASSETS:

Machinery and Equipment 111 114 125 131 145 156 165Other Fixed Assets 72 74 78 82 91 100 104

Gross Fixed Assets 183 188 203 213 236 256 269Accumulated Depreciation 87 96 105 116 131 142 154Construction in Progress 11 12 12 22 35 45 62

OTHER INVESTMENTS: 12 19 24 30 39 43 49

Total Assets 323 334 354 378 401 426 514

CURRENT LIABILITIES:

Bank Overdraft 29 28 29 27 26 32 40Accounts Payable 57 58 60 64 60 56 87Taxes Payable and Accrued Expense 29 32 31 34 31 32 38

Total Current Liabilities 115 118 120 125 117 120 165

LONG-TERM LIABILITIES:

Long-Term Debt 38 39 47 55 64 71 79

EQUITY:

Capital 44 44 45 47 47 50 50Retained Earnings (Reserves) 126 133 142 151 173 185 220

Total Equity 170 177 187 198 220 235 270

Total Liabilities 323 334 354 378 401 426 514e- = 5 =

1/ Years 1968 to 1970 are ending June 30.All other years are as of December 31.

41

Industrial Projects DepartmentMarch 1976

ANNEX 2-5

EGYPT

TEXTILES PtOJECT

MISR KAFR EL DAWAR MEMBERS OF TIE BOARD OF DIRECTORS

Appointed

1. Mr. Hussein Fahmy - (,hairman

2. Mr. Hashem El Tabaa - Financial Manager

3. Mr. Bakr El Badwi - Weaving Manager

h4 Eng. Nabiz Y. Amaar - Workshop Manager

5. Mr. Salem A. Ali - Administrative Manager

Elected by Labor

6. Mr. Mohamed Abdel Rahman Abou-Ali - Chief in Weaving Preparation,Weaving Mill No. 3

7. Mr. Mohamed Abdel Hamid El Saka - DOF Supervisor in Spinning Mill No. 2

8. Mr. Ahmed Abdel Hamid El Naggar - Chief Clerk in Finance Department

9. Mr0 Mohamed Abdel Fattah Gharib - Weaving Mechanic Mill No. 1

Industrial Projects DepartmentFebruary 1976

EGYPT TEXTILES PROJECTORGANIZATION CHART

MISR FINE SPINNING & WEAVING CO.KAFR ELDAWAR EGYPT

LI~r, r :H f i - T2 1_ d1! X :i: X __IL

ttCXX lb 0 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

ARlUSe-Sn-OeL~~~~~~~ LjQ. ;:lR

EGYPT - TEXTILES PROJECT

KED PRODUCTION STATISTICS

Spinning 1968/69 1969/70 1970/71 1972 1973 1974 1975SpinningNumber of Spindles (000) 189 189 210 235 235 235 235Yarn Production / 15.2 15.5 15.7 18.1 17.8 17.1 17.3Average Count 32.7 32.3 31.5 31.2 32.1 32.3 32.0Average Annual Production

(kg/spindle) 80.7 82.3 74.7 76.8 75.8 72.5 73.6Efficiency (%) 94.6 94.7 90.3 88.7 88.7 n.a, n.a.Number of Laborers 5,336 5,246 5,901 6,287 6,448 6,400 6,400Productivity (kdVmanhour) 1.14 1.18 1.07 1.15 1.11 1.10 n.a.Labor Cost per Kg o§fYarn (US$/kg) 0.26 o.25 0.24 0.27 0.24 0.24 n.a.

Weaving

Number of Looms 3,152 3,216 3,520 3,672 3,672 3,672 3,672Production (million meters) 100 101 104 111 110 104 100

Of this Bxported 42 4 44 45 45 43 30 26Average, Annual Production per Loom.- 31.7 31.4 29.5 30.2 30.0 28.3 36.7Pickic/ 253,543 248,435 252,o40 268,181 269,621 257,075 n.a.Efficiency (%) 88.8 88.1 87.2 86.3 85.6 n.a. n.a.Number of Laborers in Weaving 3,818 3,851 4,260 4,465 4,417 4,560 4,500Weft Inserted per Manhour / - 25.0 25.0 23.0 23.0 23.0 22.0 n.a.Labor Cost in US$ per thousandmeters of weft inserted 0.015 0.015 0.015 0.016 0.017 0.017 n.a.

/ Metric tons (ig/ Thousand meters

Millionbz Estimated

Industrial Projects DepartmentFebruary 1976

ANNEX 2-7Page 2

EGYPT - TEXTIIES PROJECT

COMPARISON OF PRODtCTIVITY AND LABOR COSTS

Egypt ProposedWestern New Polyester-

KED USA Europe Tanzania Cotton MillProductivityKg of Yarn per Manhour 1.1 20.1 / 10.0 1 2.3 2.0 /Thousand Meters of Weft Insertedper Manhour 23.0 175.o 80.0 13.9 98.0

Labor Cost (in US cents)Average hourly wage (includingfringe benefits) 38.0 -424.0 400.0 41.4 38.0

Per Kg of Yarn 24.0 20.2 40.0 17.9 19.0Per Thousand Meters of WeftInserted 1.7 2.4 5-.0 2.9 0.4

' 40 c.c.20 c.c.4/ 5 c.c.

Source: USA and Western Europe: Kurt Salmon Associates Management ConsultantsTanzania: IBRD Report 743-TA

Industrial Projects DepartmentMarch 1976

AIP :EY 2-O

TEGYPT _ T X II PROJZCT

ED- PTSTORICAT. ThOOME STATEMENTS

(in million £E)

1/ 2/

1968,/69 196)/770 1097C/71 1972 1t73 1974 197

2oc- Ja7es e2evenlie 23.6 2,.7 23.9 27.1 97 31.3 32.3

Orerating CostsWrages ar.d 3Jalries 5.2 5.), 5.5 6.7 6.8 7.3 7.ctiW .latUr aiLS 6.7 o.I ., 7.6 7.8 7.5 8.

P?^wer O0.5 0.4 05 0.5 0.7 0.9Mair.tena.ce lMater-ls 0.2 0.3 0.4 0.5 0.5 0.8 1 .1Packing 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Sub-r,cntracting ½ B 4.3 L.3 !4.7 5.5 5.2 5.1 6.1Indirect Taxes 1.3 1.3 1.4 1.8 1.9 2.1 2.1De2wre: iat-un .s0.9 0.9 0.9 1.0 1.0 1.0 1 .0Admii,istrptior. 0.2 02 0.2 0.2 0.2 0.3 .5Tnventor- AdJustment 0.3 0.2 (0.3) (1.3) (0.8) (0.5) (0.5)

Iotal Operating Costs 15.6 19.6 19.8 22.6 23.2 24.4 27.7

Oerating Profit 4.C 4.1 4.1 4.5 L.6 6.9 4.6

Otaer Ircomie/ExpeasesOtlher incoome (.1 ) (0-.2) (0.2) (0.3) (1C.3) (0.4) (0.4)Other Expenses 1.5 1.5 1.1 1.2 1.2 2.3 0.7interest - - 0.1 0.1

Total Other 11.4 1.3 0.9 0.9 0,9 2.0 0.L4

Pr_fit Before Tax 2.6 2.8 3.2 3.6 3.6 4.9 4.4

.7rcome Tax 0.7 0.8 0.7 0.8 0.7 1.5 0.8

Profit After T"a 1.9 2.0 2.5 2.8 2.9 3.4 3.L4

AllocationsReserves 0.3 C.3 0.4 0.4 0.L ., 5Workers C - O.LL 0.4 0.5 0. 0.6 0.6Govren;ent 1.2 1.3 1.7 1.9 1.9 2.3 2.3

RaltiosJperating rofit as

of Sales 1700 17.0 17.2 16.6 16.6 22.0 14.2Profit Before Tax as %

of Sales 11.0 11,8 13.L4 13.3 13.0 15.7 13.6?rcfiT After Tax as l

of 3.les 8.1 8&i 10.5 10.3 1c.4 1 .9 10.5

1/ Prom January 1, 1972 fiscal years changed to be same as calendar years . 1M70/71 equalsa period of 18 months beginning July 1, 1970. All prior fiscal years were from July 1to JTlpe 30.

2/ Estimated

Industrial Projects DepartmentMarch 1976

EGYPT - TEX2ILES PROJECT

KED - HISTORICAL BALANCE SHEETS(in million Egyptian Pounds)

I'1969 1970 1971 1972 1973 1974 1975

AssetsCurrent Assets

Cash 2.1 3.3 1.5 4.3 3.8 2.3 5.7Accounts Receivable 5.2 5.5 6.9 6.0 6.7 5.2 3.7Inventory 10.2 9.6 10.4 10.9 11.1 13.0 11.5Other _ - - - - 5.2 3.2

Total 17.5 18.4 18.8 21.2 21.5 25.7 24.1

Gross Fixed Assets 16.3 16.8 18.2 19.0 19.9 20.7 20.9Acc. Depreciation 9.5 10.2 10.9 12.1 12.9 13.6 13.7

Net Fixed Assets 6.8 6.6 7.3 6.9 7.0 7.1 7.2

Construction in Progress 0.1 0.2 2.0 3.4 5.0 7.3 4.8

Other 1.3 1.9 2.7 3.4 3.4 4.0 _3.7

Total Assets 25.7 27.1 30.8 34.9 36.9 44.1 39.8

LiabilitiesCurrent LiabilitiesAccounts Payable 4.8 5.2 7.2 8.8 8.8 7.4 3.8Other 3.6 3.9 4.6 4.8 5.7 1.6 3.0

Total 8.4 9.1 11.8 13.6 14.5 9.0 6.8

Long Term Debt - - - - - 6.5 5.8

EquityShare Capital 2.2 2.2 2.2 2.2 2.2 2.2 2.2Retained Earnings 14.4 15.1 15.6 17.3 17.9 18.6 18.8Long Term Provision 0.7 0.7 1.2 1.8 2.3 7.8 6.2

Total 17.3 18.0 19.0 21.3 22.4 28.6 27.2

Total Liabilities 25.7 27.1 30.8 34.9 36.9 44.1 39.8

RatiosCurrent Ratio 2.1 2.0 1.6 1.6 1.5 2.9 3.5Debt/Equity Ratio - - - - 19/81 1S/82

1/ Years 1969 and 1970 are ending June 30.All other years are as of December 31.

/ Estimated

Industrial Projects Department

March 1976

ANNEX 2- 9

EGYPT - TEXTTLES PROJECT

KAFR EL DAWAR - WITHOUT THE PROJECT

Assumptions Made for Calculating Projected

Production. Revenues and E eratiiF josts

A. Production

(a) Fabrics

Estimated production for 1976 is used as a basis in terms of levelof production and composition of the product mix which is about thesame as in 1974. It is assumed that exports would reach again andremain at about h0O of total fabrics production. It is assumed thatminor investments will take place which will allow the company tomaintain the level of production over the planning period.

(b) Yarn

Yarn surplus for sale is calculated as the difference between totalyarn production and weaving and sewing and fishing yarn. It is however,assumed that no yarn would be available from Kon Hamada in 1976, 2,000 tonsin 1977, 3,000 tons in 1978 and 3,200 tons thereafter. All yarn is forthe domestic market.

(c) Sewing and Fishing Yarn

KED's estimate is used. All sewing and fishing yarn is for thedomestic market.

(d) Wlaste

lWaste is a function of the total yarn output and is estimated to bcabout 35% of the total yarn produced (or 26% of the overall cottonrequired). The yarn required for weaving is estimated by assuming anaverage fabric weight of 142 gramms per linear meter and a wast.e inweaving of 5%. About 70% of the waste is assumed to be consumed in thedomestic market, the remainder is exported.

B. Sales Prices

The 1976 price levels are used as a base to calculate the expectedsales revenue which is then adjusted to compensate for the assumedincreases in operating costs. Under the assumptions made, the salesrevenue and thus the average sales price will have to increase byabout 4% per annum -lo ,aintain KED at its -resent level of n-rof;ta,bo 1itvr.

ANNEX 2-9Page 2

C. Operating Costs

(a) Inflation Factors

Expected mid-1976 operating cost levels have been used as a basisand local costs have been inflated by 5% per year for the local costsand by 8p per year for Lmported inputs, the latter being the averageinternational price index for manufactured goods.

(b) Wages and balaries

At the end of December 1975, KED will employ 20,200 people at anaverage salary of 32 LE/month. During 1976 an additional 1,500 peoplewill be required for the spinning mill at Kom Hamada. After that therewill be no more labour required. Salaries and wages will increaseduring 1976 to 34.5 LE/month.

(c ) Raw Materials

Raw material requirements during 1976 will be as follows

Cotton Tons Price (EP/ton) Value (000 EP)

Ashmouni 8,284 332 2,750Giza 69 8,976 357 3,204Giza 68 5,239 395 2,069Giza 45 332 442 147

Total Cotton 22,831 358 83171

Other Fibers 644 650 419

Total 23,475 360 8,590

The cotton requirement for the new spinning mill at Kom Hamada willrequire the following amounts :

19791977 19A8 And 'hereafter

AssumedYarn Production (tons) 2,000 3,000 3,200Waste Factor 1.18 1.18 1.18

Cotton (tons) 2,360 3,540 3,776At Average Price (LE ton) 358 358 358Value (000 LE) 845 1,267 1,352

ANNEX 2- 9Page 3

(d) Pbwer

Power is assumed to stay at present consumption levels for the mill atKED totalling about 125 million kwh or about LE 900,000 per anmum.For Kom Hamada an additional 24 million kwh or LE 170,000 per annumwould be required.

(e) Maintenance Materials

Maintenance materials are expected to go up 6% p.a. starting from1976. This assumption reflects the requirement of increasing maintenancecosts to maintain 1976 production levels.

(f) Packing

Packing materials for exports are staying at 1976 levels.

(g) Commission

From historical data it can be shown that the cost of commission dyeing andfinishing of dyeing and finishing fabric and yarn can be approximated by usingan average of 0.062 LE/linear meter of finished fabrics. Given the factthat the product mix is not changing, subcontracting can be expressed asa percentage of sales revenue, which has been between 16% and 19%historically. Here 18% is assumed.

(h) Indirect Taxes

This includes the production tax on yarn, the duties on imported rawmaterials and the treasury tax on finished fabrics. Historically thishas amounted to between 25-28% of the value of the raw materials. Here27% is assumed.

(i) Dapreciation

Depreciation on existing machinery is based on actual KED calculations.From 1976 a yearly amount of LE 240,000 is added for depreciating thedisputed Indian machinery. From 1977 450,000 LE per annum are added forKom Hamada.

(j) Replacement Provision

Once an asset is fully depreciated a replacement provision of 4% p.a.is made. For KED's written off machinery, this amounts to the following:

Replacement &Depreciation Replacement Depreciation

1976 1,421 276 1,1h51977 1,628 303 1,3251978 1,601 331 1,2701979 1,581 351 1,2301980 1,561 371 1,1901981 1,540 392 1,1481982 1,529 402 1,1271983 1,51L 420 1,094198h 1,509 424 1,0851985 1,49h 442 1,052

ANNEX 2-9 Page A

(c) Other Overhseads

Fror historical relationships to wTages and salaries, other overhead~-can be calculated as 6, of total wages and salaries.

(1) Other -Income and Expenses

Tlhs includes interest income from. securities, income frcm the housing,oocn-cry, real estate taxes, appropriations to the Nasr Bank, and miscellanecusrese~rveg, It is projected that these will continue on 1976 levels. ±nteres,

en e 7' -n' oqn- epr deb t iS 5 iIs so i n Ted

(mi) T -xe s

The cornpany pays taxes only on the portion of the profit. that isretained by the com.pany. -However, the t,axable income is adjusted by"other expenses" which are normally not allowed for tax purpcses. Thetax rate is about 40% and the following forule. is used:

Tax = 40% of (15% of Profit before Tax plus 100% of other expenses).

(n) Proofit Allocations

The following profit distribution is leal> Lcire :

15% Retained by the company. Of this1/3 goes to retained earnings1/3 goes to statutory reserves1/3 is used for the mandatory purchase of Government bonds

85,% Distributed to workers and the Government in the folloirng manner:>a tC -workers3/4 to the Governnent

Industrial2 .rojects DepartzIeenzFebruarn, 1976

ANNEX 2-9

:::fF I ESX1 F U. EX S i R 1 ..E 1 : Page 581 OR sKI.1" E-L LP68AR

FIRtLJlUlCJ1 .ON SOUMMARY SCH:EUL.JLE.

COMAl-'fNY W:IT1 IHFUT FIE PR(JE(.E

1 9/7 1' 78 1. I9 79 t 90 ;(j t 1 98 .1 -98

,) *i . .-, , * .: .1 F ., C: ... t. :6 ii JMB:1 Elk 01:: N . .:S. 231: p264 28'8 7 64 288 / 764 8 /64 288' B 9 /64 28u 8 /6r6RliN I::kII:I .}v [.O.1N ii ONS ) 1. 7y 645 1I 650 2 y650 20 so 0 20 y 8l. 20 O U',J,,

: P:5k . ; :u:.i 1j p: N I.. 1::: i .", 6F,(3 :' 2 72'2Wl8.A6VJ1 NUO Yfr.:dN E O' NS) 15y 9 54 15 5 954 1.y 95,j4 15 y'94 1.5 y9J 4'4 1.'.- 9i 54

ALDER RE UL FR;E. MEN E N TOcNS 3 y 46e)8S 26g 135 27 25.?8 272 Y3I 4 2' 9 3IL4 2/ 31. 4W6F Ffl i' l:: I i'' l l; ' l l RL EUK 3;.5 L 3o .r :1. .3;3 :iSL . . ' .5 t 1 1 .3 I!. I. 1 1. 1.

i1.1 Ot F I : .) OMS 3 ; 66 4 6:64 39 6 e) 4 39 I 3 ' ( 4 3 y 3 43 o6 4!E I 611F ARIC ,W. hINT t4M 142 14 :1.2. 1. 4|.. 1,42

I ' R)JI. I .IO.l)N VUl!...l.MEl.;L iJ111 Ifr.I.1.1 OLl:lN MTERS ) 107 * 0 10 .0 102.0 1/. 104. . . O A OV) O ./4)Y4.'N .ON 'S 6 4 1. ; ' y4o 3 46 d ; 4 5 y 3 i'lC) 3 0 6S (EI YO N i 1 Y O' 00 :1 r o.0 o 1 0L Y 0i L1 9 0 YO 1. 05W AS I ( iOJN l) 598235 . el C8 09600 6946e4l 6946.4 6 9 464

: 1OR .-E DOM S E1: C I U M R K E IUL. L. I l-l di4 o 2 6, 4 . 2 6,4 . 2 64*4 2 )A4 r 4 1

YARN 641. 2)' 4)6 :396d4e 39y846) 3if846 .3 P 5Y0 46L-i,t1 YrARN 1. y 9O Y ob9 .1. v 050 1 r 050 1 0O50)o :I. 1 9 050W AS t :.Ey17 47 19. 946 19. 982 :I. Y9;'5 :.3yY1939 1. 9 3 9

F :R1 I-lEE EX1ORT MARI•KE FLU,._0 H 42.t 42.83 42 .8 42.8 42.0 42.0. ,

YARNSd +F YARNWAfS I S 4Y076 4 9 1$21 4 Y6 ¾ .54 P 525 4 525

I NLIUSTI RI :AL FRl:JEO iS 'PARTMENTL ! -'REF'AR E Li :05/22/7/6

ANNEX 2-9Page 6

t:.br1'1 I 1: X 11:. I 1 .J0i:1M 1.SR SrA- h' ELt:... 1.'WAi

1 : '1 'l:1J.ll: I 1CN A Nll s :if1...F 1:: 3 ':l: 1-1:.DI.1..1::

W1: IflOL :).J( HE 11-1t:1:'NAN.JD UT 1d11M 101.'

1.Y9/e 1 Y,'/ :1.9 7/8 1979 1 483) 1. I .. 1:8'

i ,,L ii.LJ LI I J:. uNI.. ! .11:( M 1 : . N I. 1

1l I.: Y Q. 0 () .0 3() 030 0.30)F..f Afll E.D E 9.9/ 9 9 Y/ 9./ 9/ / . 9 . Y

J( iY ;.39 . 5 .$9 . 5' 3 .55 39't 55 39. J 5 Y I1:I:N fE 11.38 :123 12.38 12 38 122.38 1. ZoP::'l.1 YE:i r ESTERt BU-ENDI2S 2. 00 2 * 00 2.. 00 . 0(0 2 , 00i

I T) fA .. C . C OT 11 64.20 64.20 64.2o 64 . 20) 4.20 64. 12)

Y ARMN ( TO:NS ) 64:1. 2 646 3 Y646) 3 Y 8 46 3 81i6 4.384 eb41:: YARN ( TONS) 1.YObO 1. )50 1 Y050 1 050 1 Y050 1.'J 050SAIS OF WAS FE (TONS ) 1 I t4;7 467 : 1. 4 98 1 Y939 :1 p 939 1 L 93 9

AV::E : 1A C; E GE SAL. E:S I:. I CE-I:N 1.976 FP R I1CE S

C.L o Tr I 1 ( LE F.U:RER M ETE-I:;Y 0 -i /3 0 . 3'/ ;3 0 . 3'7.3 0. 373 0 3 3 0. 373- .1...ACHUD 0 .252 0. 252 0 . 2512 0. 252 0 o 2b2 0 + 252 I"DYEI:) 0.309 0.309 0,309 0.309 0. 309 0 .iV309* FR I N'T E*:DI 0. 254) 0 , }256 0,o256 0. 256 0.256 0.256Fl 0 (L S F t.U:l:R B. IE:NDS 1. . rS04 1. 604 :1. 6 604 1 * 60.4 :t * 604 1 . 604

)R,NS (LIE: PE .. F.' ) .. .182 :i. .82 1.*t. :1. . 1 .a 1.1O 1+. 32 1. . 1.82'.; t-lRII -(, . 1:: R 1K49; s 2.032 2C. 032 2. 032 2 0 O3.2 2 + 22 -* .32

inht LW:(: 1 WAST 1E. (L.1: PER1.fi 50G) O.2; 0 r2i..i1.263 0.14:16 0,26'.f 0.2 30 2d:3 K) .26S

F 1 .1.: Y: E:'GNlJ (NI. ..! 3 . 2lN .E11.1. 011JTII LI I IIN,IC:;1 Y . 1 : J. :1. ' L. r i 1. ' 1. 0 .. :i

1:X L.h(:1 1:::1 ....2 +eJ . . J : 2 '. :1 2 ' 1. +5 1. 2. ',- :1.f'I YEDl J.2t2 1 22'2 :1. 2 - . 21. 2 :1. 2.22 22FIN D 3 I. N I .L3 . L t 3- 17 3 . 1 3, 1. 3 1. ;'-OY::'C)1Y1.AirE:TR IL.BENDS 3 . 21. 31 2 21 I 21 3 3It21 J

TOTAL. CL1- OT!I!-I 2:1. 22 22I2'' . 2 ~21 2 ':. 122 2:1.2.2

Y A1 R N S: 0. 76 3 41. 3 4 + 31. 4 . li l.55 4 .'. IJ 4 .j ',5JS+F YAIRN 2el.3 :213 . .1.3 2.:1.3 2.13 2.13SA L::IES OF WASTE 0. 0.46 0 * .51 . 52 0 . 51 0. 51 0. 0 I

TOTA L .:SALE1:S REVENUE 24 * 57 26 * 9i)9 2 8'3 2S . 41. 28 * 41 2t3 41

1 NDJlJ':i 1AL 1'PROJECTS DEPI-'ARTME NTDAll - P'RE1PARED : 05/212/76

ANNEX 2-9Page 7

E:lYI 1 F EI l XTl 8 .'i<JO..JECIMi ;,3 ISF -R 1::1... UW " AP.

Flj [ D 1J.O t') N AND SAL L.S OH1IIJ L l:.

WI :1HO ' 1-l:l I. J 1 T 'OJI::1: :I EXPOJ1RT'S

1.976 1.Y f '? 1./ :1.9 [980 Y l I?3 1.981. iVU

1:.> 1- . , t .1 1 .) N;1. u I)' 11Ht:1:..I..O 1 N ME. I'I... : )

-RE:, Y 20 '.00o 20.0 2 0 0 ',.If) * 0 20 .9 )

B1L1. A UiId ELI .. 6.60 d) .60 . t d) .. :, d, V 6 6 .

DY ll 15.4:1 . . 4:1 :.' :. 1 4 :1. I-5 I . 4.:1. 15. q :.F P .I. N FE 029 0 _.2 0 Y29 0 0 K 0* 29 0 >9)

10 l4.. CL OT H' l 42. Of 42 4 1 4' 42 .8 0 42. u0

U : 'W .)1 (1 FINS ) 4 076 4 Y07 ` .) ', 4 6 26,l) 4 y'2:i` 4 5` 2'J I .: ,j:

F'I 1.1: t 1: :. l...E{i lI: I, 1 :: 1I,. 1. Y 01 0. 14 ' 4 0 .1. 0, 1 00.

I ' 1!11*1.. :::' F:1.:1 .R . .Y1i Ei l::i:.I L:. Y 1) l4,-j 0 i1. 4'., 0 .:1. 4' ItJ 4 l.-%'I ! 04 O)| i+. l

-I: ! l.f:;i.l.E .....H 0.2UO 0+270 . 270 0* 270 0 . 2f0 (1 ,2/t) 0 . 2 o 0 0 . 2/0-iY1: L, 02 0 2 o0 0 * >: 3 O0 20 5 ) >320 00230WRINlED .10. NI: 0 4 Q . "4.10 0 .210 0 21. 0 0, 2:1.0 0.210

S t.L. ESl l:F W A S I E (L'.E ,ER K) 0.2C 0. 0 0 0-' 0 .2/0 00 21() 0.270 0. 2/0

o:1I..1I:: .S it: N l .JE .tiL. L1.1N LE)

C: R I.. :: T 1-1Y 51/ 2.9'; 02YOjREl Y 29' 2497 2.>97 2*i/ 24(/ 2.9/-Dtl l.:.r,.;l ll::l.l ...... :1.EALHE :1.u . ." 1. . / : 1. / . '/8 .i.lYE:1:l .5. 4 3.:j - 34.0 4 3 . b4 3. 54 3. b4Ril:1.NI 0L0l. 006 0 . 06 0.0 4 0) o.06 0. 06

............ ......... ............ ......... .. I. ........ ......... ........ .... ...... .... ....... .. .. ...... ...... ...... .. - .... - ..

IOAL C . 01.-1 8 3J 8.35 . 4i E iS 4 3l ; 3 8.3'5 8.35

WAI E.S O)l:: WASTE. : . 1.0 1. .23 1.2 1 .222 1. 22 :1. .22

.)[lfeint 5I. R ENO9...... .... ...ENEI... .... .... .45 9..8 .60 .. 5. .... . .. 5.

1 NL l.US I FI .. xAI FOJIciS D['.SPArR I M1IENIlit1::. !RlEPAREDl : 05/22/76

ANNEX 2-9M-ge 8

I1-SH rFIC EX E. 1. f.l) 4llt11llJl.lLe)~~ND C^Ni i,,) |I;llll

W TII(jUT THE PROJECT 1JNL8 ,1.0 AND1 EXll111R

1976 J.77 1.9/1 19/9 1.980 1981. 1 '8

1FR4 U. 1. LI t: I [IUNCII VH( HiTL.LILON ME1VERS)

RE Y 20. 80) 2! .80 20. 80 20. 80 20.*80 20 * loBLEA-IHE) 1t6./ 16.i5/ 16.57 1.f6i.15 16.5 1;4 5/YI: YE' 54. /6 S4 .. 9 6 96 54 * 96 54 . 96 i54

FP RI:NIEl 12.67 :12.67 12 6/ 12.6/7 1.2./ 612.67FPOLYESI'ER BLENDS' 2.0 2.0 2 .' . 2 '2. 2O 00

TOT L I.. TOMF- 107. 00 107.00 107. 00 1077.00 107.00 107. 00

YARN t TONS) 641 2,646 3 J, 646 3 Y846 3 Y,46 3,846S+F YARN (TONS) 1L,050 1Y050 1YO50 1 050 1YO50 1YO50SALES 0F WASTE (TONS) 5y 823 6Y485 6Y608 6 y464 6Y464 6,464

AVERAGE SALES P-RICEIN 1976 PRICES

CLOTH r lE FPER METER)GR EY 0.148 0.148 0.148 0.148 0.148 0.148BL.EA|CH EDI 0 . 259 0 .2b9 0.J259 0., 59 0.259 0.259DYIEDl 0. 287 0.28/37 0 . 2 7 0.287 0C .27 0.28/PR INTE11 0.255 0.255 0 . 255 0. 0.25b 0.255POLYEsrTER BLENDS 1l.605 1*605 1.605 1.605 1 .605 1.605

YARNS _LE FPIR KG) 1.186 1.183 1. :382 1 .183 1. 183 1.183S+F YARN (LIE PER KG) 2.029 2. 029 2.029 2.029 2 .029 2.029SAL-ES OlF- WASTE (L..t.- P:ER KD) 0. 268 0 * .26.8 0I 626 0 . 2)68 0. 268 0.2268

SALE.L':S RE.!-VENUI.E (MII.I.O0 N 1.EC L. [1 1

i,lEY 340808 8 3.08 3.9O8 3.08 3.08-- BLEAflCiHEDf 4.29 4,29 4s29 4.29 4.29 4.29-lYIll YE.D5.76 1,6. 1 5. 76 15.76 15.76 15.76PRINTEr! 3.23 3.23 3.23 3.23 3.23 3.23POLYESTER BLENDS 3.21 3.21 3.21 3.21 3.21 3.21

TOTA.L CLOTH 29.57 29.S7 29.57 29.57 29.57 29.57

A)RNS: 0.76 3.13 4.31 4.55 4.55 4.55Stl7 YARN 2.13 2.13 2.13 2.i3 2.13 2.135ALES OF WASTE 1.56 1.74 1.77 1.73 1.73 1.73

TOT A r-,L SAL. ES R EVENUE 34 e 02 36.57 37.78 37.98 37.98 37.98

INDUSTR37,IAL PROJECTS DEPAf)RTMENTl)Af,E :'REF:ARED : 05/22/76

ANNEX 2-9Page 9

EGYPT -- IEXTILES PROJECTMISR KAFR EL DAWAR

INCOME STATEMENTS(FOR YEARS ENDING DECEMBER 31)

(IN MILLION EGYPTIAN FOUNDS)

COMPANY WITHOUT THE PROJECT

1976 1977 1978 1979 1980 1981 1982 1983 1984 1905

TUAL SALES REVENUEIN 1976 TERMS 34.02 36.57 37.78 37.98 37.98 37.98 37.98 37.98 37.98 37.9i

IN CURRENT TERMS 34.02 38.40 41.67 43.98 46.18 48.46 50.89 53.44 56.13 58.91

OPERATING COSTSWAGES AND SAI.ARIES 9.00 9.45 9.90 10.44 10.98 11.52 12.06 12.69 13.32 13,95RAW MATERIALS 8.60 9.87 10.89 11.60 12.20 12.80 13.40 14.10 14.80 I15i.5i0POWER 0.90 1 .12 1.18 1.24 1.31 1.37 1.43 1 . 151 .5i8 1.66MAINTENANCE MATERIALS 1L00 1.11 1.23 1.38 1.54 1.72 1.90 2.12 2.35 2.60FPACKING 0.11 0.12 0.12 0.13 0.13 0.14 0.15 0.16 0.1 6 0.17SUB--CONTRACTING EB 6.12 6.91 7.50 7.92 8.31 8.72 9.16 9.62 10.10 10.60INDIRECT'r rAXES 2.32 2.66 2.94 3.13 3.29 3.46 3.62 3.81 4.00 4.19DEPREC1ATION 0.96 1.39 1.27 1.23 1.19 1.15 1.13 1.09 1.09 1.05REPLACEMENT PROVISION 0.28 0.30 0.33 0.35 0.37 0.39 0.40 0.42 0.42 0.44ADMINIST RATrlON 0.54 0.57 0.59 0.63 0.66 0.69 0.72 0.76 0.80 0.84

IOTAL OFERAT'ING COSTS 29.83 33.50 35.95 38.05 39.98 41.96 43.97 46.28 48.62 51.00

OPERATING PROFIT 4.19 4.90 5.72 5.93 6.20 6.50 6,92 7, L6 7.51 /.9i

OTHER INCOME/EXPENSESOTHER INCOME (0.44) (0.46) (0.48) (0.51) (0.54) (0.56) (0.59) (0.62) (0.65) (0.68)OTHER EXPENSES 0.75 0.79 0.83 0.87 0.92 0.96 t.01 1.06 1.11 1 .161NTEREST ON EXIS'TING L_T DEBT 0.19 0.16 0,13 0.10 0.08 0.06 0.05 0.04 0.02 0.01

TOTlAL OTHER 0.50 0.49 0.48 0.46 0.46 0.46 0.47 0.48 0.48 0.49

PROFIT BEFORE 'TAX 3.69 4.41 5.24 5.47 5.74 6.04 6.45 6.68 7.03 7.42---- ---- -- -- - ____________ _ _,___. ._ ........ ___ _ _.____ .... _ _ ...... __. ........ _ ._..... ....._

INCOME TAX 0.52 0.58 0.65 0.68 0.71 0.75 0.79 0.82 0.87 0.91

FPROF'I'T' AFTER 'TAX 3.17 3.83 4.59 4.79 5.03 5.29 5.66 5.86 6.16 6.51.

PROFIT ALLOCATED TORETAINED EARNINGS 0.48 0.57 0.69 0.72 0.75 0.79 0.85 0,88 0.92 0.98WORKERS 0.59 0.72 0.86 0.90 0.94 0.99 1.06 1.10 1.16 1.22IGOV)1ERNMFNl' 2.10 2.54 3.04 3.17 3.34 3.51 3.75 3.88 4.08 4.31

TOTAL A-LLOCATIONS 3.17 3.83 4.59 4.79 5.03 5.29 5.66 5.86 6.16 6.51

RATIOSOPERATING PROFIT AS ': OF SAIL ES 12.32 12.76 13.73 13.48 13.43 13.41 13.60 13.40 13.38 13.43PROFIT BEFORE TAX AS % OF' SOl-ES 10.85 11.48 12.57 12.44 12.43 12.46 12.67 12.50 12.52 12.60PROFIT AFTER TAX AS % OF SALES 9.32 9.97 11.02 10.89 10.89 10.92 11.12 10.97 10.97 11.05TIMES INTEREST EARNED 16.68 23.94 35.31 47.90 62.88 88.17 113.20 146.50 308.00 651.00

CASH F'LOWBEFORE INTEREST AF'TER TAX 4.60 5.68 6.32 6.47 6.67 6.89 7.24 7.41 7.69 8.01AFTER INTERESI' AFTER TAX 4.41 5.52 6.19 6.37 6.59 6.83 7.19 7.37 7.67 8.00

PROFIT BREAK - EVENUT ILIZ ATION 0.75 0.73 0.71 0.71 0.70 0.70 0.70 0.70 0.70 0.69PRICE 0.89 0.89 0.87 0.88 0.88 0.88 0.87 0.88 0.87 0.87

CASH BREAK - EVENUTILIZATION 0.67 0.63 0.62 0.62 0.62 0.63 0.62 0.63 0.63 0.63

PRICE 0.86 0.84 0.84 0.84 0.84 0.84 0.84 0.85 0.85 0.85

INDUSTRIAL PROJECTS DEPARTMENTDATE PREPARED :05/24/76

ANNEX 2_10

EGYPT

TEXTILES PROJECT

MISR EL BEIDA MEMBERS OF THE BOARD OF DIRECTORS

Appointed

1. Dr. Abdel Monem El Borai - Chairman

2. Mr. Mohamed Galal Farghaly - Administrative Director

3. Mr. Abdou Kholief - Chief Engineer

4. Mr. Mohamed Farid Wagdy - Commercial Director

Elected by Labor

5. Mr. Attia Daba - Foreman for Compressive ShrinkingM/CS "RIGMEL"

60 Mr. Hamdi Abaza - Clerk "Grade 5"

7l Mr. Abdel Moniem Salem - Maintenance Foreman at Wool Tops Plant

8. Mr. Ahmed Mohamed Eissa - Chief Departments "Quality Control ofFinished Goods".

Industrial Projects DepartmentFebruary 1976

0 0

WOOL SORTIS> & B ~ ~ MINTNANC &OIRKS

0001-ECANCE FIS

3Z A~~~~~~~~~~~~~~~~~~~~~

I,WT STTO - m

FA0RI S--ETC INOC

~~~~~~~~~~~.1 -IN

-NA.IA... A.. _

C,

= G i AW S .- XO'E

I IF-~~~~~~~~~~~~~~~~~~

:=L =-2 O~N-

EG,YP'r - TEXITILES PRO.JErCT

EB - PflODUCTION STATISTI'C>.

1968/69 1969/70 1970/71 1.972 :1973 1.97h l Th(Nil]1ion Meters)

TPyp irog F n i ni shii ng,

Gr.ay 0.9 2.2 0.6 0.) I 0. 6 0.5 1.7Pa I!.1 3.8 0.13 I1t).8 1)!.7 )!5.7 39.0

52.8 51.8 53.6 57.2 65.5 53.h 60.fFri.n t rri 20.2 21.2 21.7 23.7 2)A.0 38.0 ItO. ICost -< 0.1 0.1 0.2 0.1 0.1 0.1 0.4PoliyestfLr dyerl - - - -_).5 1.5

£ot.al 117.1 118.9 119.4 126.2 131 t.9 138.2 113.6

Yarns (Thousand Tons)

Whi1te 0.18 o.?)l 0.32 0.30 0.33 0.11 0.20Dyec1 0.73 0.77 0.71 0.78 0.78 1.02 0.80Mercerised. - - - 0.08 0.06 C).11 0.31)

Total 0.91 1.01 1.03 1.16 1.27 1.27 1.34

Woi_ 2.31 3.26 3.4L4 3.80 3.70 2 .51 4.85

Kan Made PFibers 0.81h 0.91 1.13 1.31 1.39 1.12 1.55

Industrial Projf cts Departmentey., 1976

ANPTK 2 -13Page I

EGYPT - TEXTILES PROJECT

EB - HISTORICAL INCOME STATEMENTS(in million Egyptian Pounds)

1968/69 1969/70 1970/711/ 1972 1973 1974 1975

Total Sales Revenue 10.8 12.6 13.3 14.1 16.6 17.5 22.3

Operating CostsWages and Salaries 1.4 1.6 1.7 2.0 2.2 2.3 2.8Raw Materials 4.4 5.0 5.0 5. 7.0 8.2 11.0Power o14 0.5 0.5 0.5 0.6 0.6 0.7Maintenance Materials 0.2 0.2 0.3 0.4 0.4 0.5 0.6Packing 0.2 0.2 0.3 0.3 0.3 0.4 0.5Sub-Contracting - - - - 0.1 0.1 0.1Indirect Taxes 0.5 0.6 o.6 0.7 0.9 1.1 1.3Depreciation 0.8 0.8 0.8 0.8 0.9 0.9 1.0Administration 0.3 0.3 0.3 0.3 0.4 0.4 0.5Inventory Adjustment (0X4) (0.3) (0.1) (0.2) (0-3) (0-4) 0.1

Total Operating Costs 7.8 8.9 9.4 10.0 12.6 14.2 18.6

Operating Profit 3,.0 3.7 3,9 4.1 4.0 3.3 3.7

Other Income/ExpensesOther Income ( 0.1) (0.2) (0.2) (0.2) (0.3) (0.3) 0.4Other Expenses 1.0 1.0 1.0 0.6 0.5 0.6 0.4Interest _ 0.2 0.1 0.1 0.2 0.4 1.0

Total Ot,her 0.9 1.0 0.9 0.5 0.4 0.7 1.0

Profit before Tax 2.1 2.7 3.0 3.6 3.6 2.6 2.7Income Tax 0h5 0.3 0.2 0.0 0.0

Profit after Tax 1.7 2.2 2.6 3.3 3.4 2.6 2.7

AllocationsReserves 0.3 0.3 0.4 0.5 0.5 0.4 0.4Workers 0.3 0.4 0.5 0.6 o.6 0.5 0.5Government 1.1 1.5 1.7 2.2 2.2 1.7 1.8

RatiosOperating Profit as %of Sales 27.8 29.4 29.3 29.1 24.1 18.9 16.6

Profit before Tax as %of Sales 19.4 21.4 22.6 25.5 21.7 14.9 12.2

Profit after Tax as %of Sales 15.7 17.5 19.5 23.4 20.5 14.9 12.2

1/ From January 1, 1972 fiscal years changed to be same as calendar years. 1970/71equals a period of 18 months beginning July 1, 1970. All prior fiscal years werefrom July 1 to June 30.

Industrial Projects DepartmentMay 1975

EGYPT - TEXTILES PROJECT

E HISTORICAL BALANCE SHEETS(in million Egyptian Pounds)

19691/ 1970 1Q71 1972 -L7- 1_7_ L97~5AssetsCurrent AssetsCash 0.5 2.0 1.0 1., 0.8 0.4Accounts Rec(r4vable

6.556.5 6.2 7.O 15.9 19.6Inventory 5.7 6.5 6.5 6.9 7 8 15.9 15.6Other

-- -Total 10.7 12.0 l).? 12.1 13.0 2O.l, 25.8

Gross Fixed Assets 13.I -L.h 13.6 1L.9 15.5 15.6 17.8Acc. Depreciation 6.2 6 7 9.' 10.0Net Fixed Assets 7.1 Y5 .1 . 6.? 7.0Construction in Progress 0.2 0.5 0.7 1.6 3.0 h.6 L.3Other 2.3 2.8 3.1 L.6 X 5.7Total Assets 20.3 21.8 23.1 2L.2 26.8 36.1 42.8

Liabilities

Current Liabilities 3.9 7.7

Accounts Payable h 2 Ll 9 5. h L 5-349 lo7 AcOunts Pybe1.1

1.6 1.8 1.6 1.B 0.7 0.6Short Term Debt -- 8.6 12.4

Total 5.3 6.5 7.1 6.0 7.1 IL.2 20.7Long Term Debt 0.3 0.1 - 0.2 1.2 1.7 1.8EquityShare Capital 2.0 2.0 2.0 2.0 2.0 2.0 2.0Retained Earnings 12.2 12.7 13.2 15.0 15.7 16.3 16.9Long Term Provision 0.0 0.5 o.8 1.0 0.8 1.9 1.4Total 1l!.7 15.2 16.0 18.0 18.5 20.2 20.3

Total Liabilities 20.3 2 2?3.1 21.2 26.8 36.1 42.8

Ratios

Current Ratio 2.0 1.8 1.9 2.0 1.8 1.1 1.2

Debt/Enuity Ratio 2/98 1/99 1/99 6/9l 8/92 8/92Footnote:

j/ Years 1969 and 1970 are ending June 30.All other years are as of December 31.

Industrial Projects Dept.May 1976

Annex 2-1!Page 1

EGYrT - TBXTIT,W; FROJ&-T

3LRID - WITHOUT 'THS PROJECT

isswmptiors lade for alculating Projected

Production, Revenues and Operating Costs

A. Production

For all categories in Dyeing and Finishing and Yarn, estimatesbased on recent production levels were used and they were maintainedthrough 1985. For Wool and 1Manmade Fibers. the 1°76 estimates areassumed to prevail through 1985.

B. Sales Prices

Real 1976 prices are assumed to hold true through 1985. Tomaintain EB's level of profitability, sales prices have been escalatedby 5% per annum from 1976 onwards to maintain EB'E level of profitability.

C. uperatin, ,osts

a. Inflation Factors

All domestic operating costs have been inflated by 5% annuallyand all foreign operating costs by 8% annually.

b. Wages and Salaries

For 1976 a labor force of 7,000, earning a monthly average ofLE 3LI.5, is assumed (LE 2,898,00C per year). This representsan addition of 200 men in 1976 on account of the waste treatmentplant. "lo further labour increases are expected thereafter.

c. Chemi-als and Dyes

The cost of chemicals and dyes is assumed to be 25% of the totaldyeing and finishing sales revenue.

d. Gray Cloth

The requirement of gray cloth is assumed to be 110% of coatedfabrics produced and it is priced at LE .3 per meter.

e. Wool

Ar: assumption of LE 9.2 million is made based on the 1976 wooles-t,imate.

Annex 2-1)!Page 2

f. Power

*E.e power recui-emerts as in 1975 assumed at a cost of LE f6 ,oocas followMs

Quantity Unit Cost Cost (LE)(OOC's) (LE)

Ziec tri city 30,000 (KwH) 0.00' 21,00,.eamn 5L0 (ton) O.Y90 535.000

Total Cost 555,000

g. I'ailnteenance Yaterials

According to trend, an estimate of LE 500,000 (about 3% of grossfixed assets) is taken.

h. Packing

Estimated at LE 0.002 per meter of fabric.

i. Sub-Contracting

Sub-contracting is assumed to be LE 70.000 per year.

Indirect Taxes

Indirect taxes are assumed to be 19% of the imported chemicals anddyes and 15% of the spares - about 75% of chemicals and dyes areimported and 100% of spares.

k. Depreciation

Once an asset is fully depreciated an annual replacement provision(0!) is made. The schedule for depreciation and for replacementprovision as supplied by Beida is as follows (in rm.illion LE):

ReplacementProvision Depreciation Total

1076 193 1,127 1,3201977 230 1.126 1,3561978 327 878 120h197c 356 782 1,1381980 372 7)6 1,1181981 399 689 1,0881982 h12h 629 1 05!

,e3 1O~~~~~)38 595 1, 0)3l19831 h36 535 10951985 )!97 1,3l, 931

Page 3

1. Administration

20% of payroll is assumed as administration expenses.

m. Other Ipcome/Expenses

Other income and other expenses assumed to stay constant atT1 '. 2'4 .-,llion and T 0 o.37 million respectively. The ongoing

interest on short-term debt is asslumed at LE .36 million whilethe interest on existing long-term debt is assumed at LE O.Lm±Ii1on and is gradually reduced to iE u.2 mdilion.

n. Taxes

Same asslmption as for KED. See Annex 2-9, page L.

O. Profit Allocations

Same assumption as for KED. See Annex 2-9. page l.

ndustrIal I-ro ects DepartmentMarch 1976

AMU 2-14

EGYPT TEXTILES PROJECT.MISR EL BEIDA DYERS

PRODUCTION, PRICE AND SALES SCHEDULE

COMPANY WITHOUT THE PROJECT

1976 1977 1978 1979 1960 1981-1985

PRODUCTIONDYEING AND FINISHING(MILLION METERS)GRAY 1.60 1.60 1.60 1.60 1.60 1.60BLEACHED 36.10 36.10 36.10 36.10 36.10 36.10DYED 57.00 57.00 57.00 57.00 57.00 57.00PRINTED 38.00 38.00 38.00 38.00 38.00 38.00COATED 0.30 0.30 0.30 0.30 0.30 0.30POLYESTER DYED 2.00 2.00 2,00 2.00 2.00 2.00

TOTAL D I F VOLUME 135.00 135.00 135.00 135.00 135.00 135.00

YARNS (000 TONS)WHITE 0.18 0.18 0.18 0.18 0.18 0.18DYED 0.74 0.74 0.74 0.74 0.74 0.74MERCERISED 0.33 0.33 0.33 0.33 0.33 0.33

TOTAL 1.25 1.25 1.25 1.25 1.25 1.25

WOOL (000 TONS)DIRECT SALES 3.90 3.90 3.90 3.90 3.90 3.90SERVICES 0.60 0.60 0.60 0.60 0.60 0.60

TOrAL 4.50 4.50 4.50 4.50 4.50 4.50

MAN MADE FIBERS(000 TONS)DIRECT SALES 1.03 1.03 1.03 1.03 1.03 1.03SERVICES 0.37 0.37 0.37 0.37 0.37 0.37

TOTAL 1.40 1.40 1.40 1.40 1.40 1.40

AVERAGE SALES FRICEDYEING AND, FINISHING(LE PER METER)GRAY 0.032 0.032 0.032 0.032 0.032 0.032BLEACHED 0.035 0.035 0.035 0,035 0.035 0.035DYED 0.060 0.060 0.060 0.060 0.060 0.060PRINTED 0.068 0.068 0.068 0.068 0.068 0.068COATEID 0.900 0,900 0.900 0.900 0.900 0.900POLYESTER DYED 0.200 0.200 0.200 0.200 0.200 0.200

YARNS (LE FER KG)WHITrE 0.316 0.316 0.316 0.316 0.316 0.316DYED 0.571 0.571 0.571 0.571 0.571 0.571MERCERISED, 0.265 0.265 0.265 0.265 0.265 0.265

WOOL (LE PER KG)DIRECT SALES 2.934 2.934 2.934 2.934 2.934 2.934SERVICES 0.388 0.388 0.388 0.388 0.388 0.388

MAN MADE FIBERS(LE PER KG)DIRECT SALES 2.044 2.044 2.044 2.044 2.044 2.044SERVICES 0.282 0.282 0.282 0.282 0.282 0.282

SALES REVENUE(LE MILLION)DYEING AND, FINISHING

GRAY 0.05 0.05 0.05 0.05 0.05 0.05BLEACHED 1.26 1.26 1.26 1.26 1.26 1.26DYEII 3.42 3.42 3.42 3.42 3.42 3.42PRINrED 2.58 2.58 2.58 2.58 2.58 2.58COATED 0.27 0.27 0.27 0.27 0.27 0.27POLYESTER DYEDt 0.40 0.40 0.40 0.40 0,40 0.40

TOTAL Di I F SALES REVENUE 7.98 7.98 7.98 7.98 7.98 7.98

YARNSWHITE 0.06 0.06 0.06 0.06 0.06 0.06DYED 0.42 0.42 0.42 0.42 0.42 0.42MERCERISED 0.09 0.09 0.09 0.09 0.09 0.09

TOTAL YARNS SALES REVENUE 0.57 0.57 0.57 0.57 0.57 0.57

WOOLDIRECT SALES 11.44 11.44 11.44 11.44 11.44 11.44SERVICES 0.23 0.23 0.23 0.23 0.23 0.23

TOTAL WooL SALES REVENUE 11.67 11.67 11.67 11.67 11.67 11.67

MANMADE FIBERSDIRECT SALES 2.11 2.11 2.11 2.11 2.11 2.11SERVICES 0.10 0.10 0.10 0.10 0.10 0.10

TOTAL MMF SALES REVENUE 2.21 2.21 2.21 2.21 2.21 2.21

TOTAL SALES REVENUE 22.43 22.43 22.43 22.43 22.43 22.43

INDUSTRIAL PROJECTS DEPARTMENTDATE PREPARED: 05/24/76

AlnR 2-14

EGYPT - TEXTILES PROJECTMISR EL BEIDA DYERS

INCOME STATEMENTS(FOR YEARS ENDING DECEMBER 31)(IN MILLION EGYPTIAN POUNbS)

COMPANY WITHOUT THE PROJECT

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

TOTAL SALES REVENUEIN 1976 TERMS 22.43 22.43 22.43 22.43 22.43 22.43 22.43 22.43 22.43 22.43

IN CURRENT TERMS 22.43 23.78 25.21 26.71 28.31 30.01 31.83 33.73 35.75 37.88

OPERATING COSTSWAGES AND SALARIES 2.90 3.05 3.19 3.36 3.54 3.71 3.89 4.09 4.29 4.50CHEMICALS AND DYES 2.00 2.15 2.32 2.49 2.66 2.85 3.05 3.26 3.49 3.74GRAY CLOTH 0.10 0.10 0.11 0.11 0.12 0.13 0.13 0.14 0.15 0.15WOOL 9.20 9.94 10.68 11.48 12.28 13.14 14.07 15.05 16.10 17.23POWER 0.56 0.59 0.62 0.65 0.68 0.72 0.75 0.79 0.83 0.87MAINTENANCE MATERIALS 0.50 0.53 0.55 0.58 0.61 0.64 0.67 0.71 0.74 0.78PACKING 0.27 0.28 0.30 0.31 0.33 0.35 0.36 0.38 0.40 0.42SUR-CONTRAcrING 0.07 0.07 0.08 0.08 0.09 0.09 0.09 0.10 0.10 0.11INDIRECT TAXES 0.36 0.38 0.41 0.44 0.46 0.50 0.53 0.56 0.60 0.64DEPRECIATION 1.13 1.13 0.88 0.78 0.75 0.69 0.63 0.60 0.54 0.43REPLACEMENT PROV. 0.19 0.23 0.33 0.36 0.37 0.40 0.42 0.44 0.46 0.50ADMINISTRATION 0.58 0.61 0.64 0.67 0.71 0.74 0.78 0.82 0.86 0.90

TOTAL OPERATING COSTS 17.86 19.06 20.11 21.31 22.60 23.96 25.37 26.94 28.56 30.27

OPERATING PROFIT 4.57 4.72 5.10 5.40 5.71 6.05 6.46 6.79 7.19 7.61

OTHER INCOME/EXPENSESDIHER INCOME (0.27) (0.28) (0.30) (0.31) (0.33) (0.35) (0.36) (0.38) (0.40) (0.42)

OTHER EXPENSES 0.37 0.39 0.41 0.43 0.45 0.47 0.50 0.52 0.55 0.57INTEREST ON ST DEBT 0.44 0.30 0.20 0.10 - - - - -INTEREST ON EXISTING LT DEBT 0.04 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.02 0.02

TOTAL- OTHER 0.58 0.44 0.34 0.24 0.14 0.14 0.16 0.16 0.17 0.17

PROFIT BEFORE TAX 3.99 4.28 4.76 5.16 5.57 5.91 6.30 6.63 7.02 7.44

INCOME TAX 0.39 0.41 0.45 0.48 0.51 0.54 0.58 0.61 0.64 0.67

PROFIT AFTER TAX 3.60 3.87 4.31 4.68 5.06 5.37 5.72 6.02 6.38 6.77

PROF I1 ALLOCATED TORErAINED EARNINGS 0.54 0.58 0.65 0.70 0.76 0.81 0.86. 0.90 0.96 1.02WORKERS 0.68 0.73 0.81 0.88 0.95 1.01 1.07 1.13 1.20 1.27GOVERNMENT 2.38 2.56 2.85 3.10 3.35 3.55 3.79 3.99 4.22 4.48

TOTAL ALLOCATIONS 3.60 3.87 4.31 4.68 5.06 5.37 5.72 6.02 6.38 6.77

RAT I OSOPERATING PROFIT AS X OF SALES 20.37 19.85 20.23 20.22 20.17 20.16 20.30 20.13 20.11 20.09PROFIT BEFORE TAX AS x OF SALES 17.79 18.00 18.88 19.32 19.68 19.69 19.79 19.66 19.64 19.64PROFIT AFTER 'TAX AS X OF SALES 16.05 16-27 17.10 17.52 17.87 17.89 17.97 17.85 17.65 17.87TIMES INTEREST EARNED 7.50 11.73 18.74 39.00 253.00 268.50 286.00 301.00 319.00 338.50

CASH FLOWBEFORE INTEREST AFTER TAX 4.96 5.26 5.55 5.84 6.20 6.48 6.79 7.08 7.40 7.72AFTER INTEREST AFTER TAX 4.92 5.23 5.52 5.82 6.18 6.46 6.77 7.06 7.38 7.70

PROFIT BREAK - EVENUTILIZATION 0.57 0.56 0.53 0.51 0.50 0.49 0.48 0.48 0.47 0.47PRICE 0.82 0.82 0.81 0.81 0.80 0.80 0.80 0.80 0.80 0.80

CASH BREAK - EVENUTILIZATION 0.43 0.42 0.41 0.40 0.40 0.40 0.40 0.40 0.40 0.40PRICE 0.76 0.76 0.76 0.76 0.76 0.77 0.77 0.77 0.78 0.78

INDUSTRIAL PROJECTS DEPARTMENTDATE PREPARED :05/25/76

EGYPT - TEXTILES PROJECT

HISTORICAL PRODUCTION, CONSUMPTION, IMPORTS AND EXPORTS OF TEXTILE FABRICS IN EGYPT 1!(in million square meters)

Public SectorAvailable for Home Market Apparent Consumption

----- Production -- I- mports ------- Exports ------- Woven -------- Knitted Private Sector 3 Grand Population _per CapitaYear Cotton other Total Cotton OtherV Total Cotton Cotton Other Total Cotton Knitted & Woven Total (million) Sq. M. M

1970 507 34 541 - 6 6 152 355 40 395 32 240 667 33.3 19.9 3.51971 524 35 559 - 8 8 169 355 43 398 36 244 676 34.1 20.5 3.61972 586 31 617 - 9 9 141 445 40 485 39 250 774 34.8 22.2 3.91973 554 27 581 - 12 12 135 429 39 468 45 254 767 35.6 21.5 3.81974 504 23 527 5 10 15 97 407 33 440 50 260 755 36.4 20.6 3.71975 .5/ 547 26 573 55 6 61 123 474 32 506 46 260 817 37.2 21.9 3.9

1/ EGOSW and Werner International Management Consultants Interim Report, October 19752 Including synthetic fabrics smuggled into the country (estimated)3 There is some export of clothing but not fabrics from the private sector; actual figures are not available4/ Excluding jute and flax5/ Estimated

Industrial Projects DepartmentMarch 1! '976

ANNEX 3- 2

EGYPT - TEXTILES PROJECT

F C NSUMP"?DN AND GNP PER CAPITA IN SELECTED COUNTRIES2

Egypt 4.5 260oTanzania 1.7 130Tunisia 4.3 460Ivory Coast 4.5 510Senegal 4.5 25oGhana 2.5 290Africa 2.0 n.a.West Africa 1.4 n.a.Western Europe 14.0 4,320USA 22.5 6,200All Developing Countries 2.6 n.a.

j FAO - 1974 (including jute)

g/ Kg per capita3J US$ per capitag/ Excluding South Africa

Industrial Projects DepartmentMarch 1976

EGYPT - TEXTILES PROJECT

RATIONED FABRICS

Specifications

Construction Average Produc- Ex-Factory Ave. Retail Total Deliveries in Thousand MetersCounts NE Threads/Inch Width tion Cost Price Price (Estimate) (Estimate)

Article Warp Weft Warp Weft cm Finishing LE/Meter LE/Meter LE/Meter 1969/70 1970/71 1971/72 1973 1974 1975

Grey Loomstate 14 14 52 38 90 Calendered 0.13 0.11 0.125 18.7 21.5 24.7 33.8 40.0 48.5Bleached Cloths 14 14 56 38 80 Bleached 0.14 0.11 0.130 29.4 32.7 33.5 40.9 50.0 57.0Zephyr 20 20 65 54 80 Printed for Men 0.15 0.14 0.155 21.7 13.5 16.7 18.9 25.0 28.5Foulard 14 14 53 33 70 Dyed 0.12 0.10 0.105 11.3 11.0 9.7 14.4 14.0 14.5Sheet 14 14 47 30 80 Printed for Ladies 0.15 0.12 0.140 3.3 2.3 3.5 3.5 7.0 8.5Flannelette Mabrad 20 10 58 46 70 Raised Printed 0.18 0.15 0.165 29.9 38.7 41.4 39.1 - -Flannelette Katifa 20 8 56 41 70 Raised Printed 0.19 0.17 0.200 18.1 14.1 16.7 13.6 - -Cambric 30 30 64 57 80 Dyed 0.13 0.12 0.130 17.1 10.7 11.1 11.6 15.0 24.5Poplin I x 1 30 30 117 53 90 Dyed 0.20 0.18 0.210 12.6 8.1 7.3 7.9 9.0 10.5Apron Cloth 14 14 50 41 80 Dyed 0.15 0.14 0.160 1.5 4.6 4.9 4.7 6.0 6.5Flannelette Misr 16 10 41 38 70 Printed n.a. 0.14 0.160 - - - - 70.0 78.5

0.154 0.134 0.153 165.6 157.7 169.9 188.8 236.0 277.0

Source: Market Aspects of the Textile Industry in Egypt, ECOSW, Cairo1/ Including capital and financial charges

Industrial Projects DepartmentMarch 1976

ANNEX 3-4

EGYPT - TEXTILES PROJECT

MARKET REQUIREMENTS FOR POLYESTER/COTTON FABRICS(in million linear meters)

Total Supplies Supplies Deficit after theDemand Without the After the Project

End Use in 1976 Project Project Suitings Shirtings

School Uniforms 1/ 8.0 0.5 2.0 (6.0) -

Galabiya 2/ 2.5 1.4 1.9 (0.6) -

Garment Factories:- shirts 3/ 10.0 1.5 4.8 _ (5.2)- suitings i 8.0 1.0 2.8 (5-2) _Variety DressFabrics 4.0 0.5 0.5 (3.5) _

Variety ShirtFabrics 10.0 o.6 3.0 - (7.0)

Total: 42.5 5.5 15.0 (15-3) (12.2)

1/ 2 million girls x 2 meters4 million boys x 1 meter

j National dress - one million garments x 2.5 metersX 4 million shirts x 2.5 metersg/ 4 million trousers and jackets

Source: KED Marketing Department

industrial Projects DepartmentFebruary 1976

EGYPT - TEXTILES PROJECT

PROJECTED FABRIC PRODUCTION, CONSUMPTION. EXPORTS AND IMPORTS(in million square meters)

------------ Public Sector -------------- Private Sector --- Available---------- Production ---------- ------- Imports ------ for Home Apparent Cotnsumption Total

Woven Woven Export ----- Production ------ Market Population Demand per capita Apparent Demand BalanceYear Cotton Other Knitted Total Cotton Other Total Cotton Woven Knitted Total Grand Total (million)1/ Sq.M.2/ a 2/

1975 547 26 46 619 35 6 61 123 200 60 260 817 37.2 21.8 3.9 812 51980 600 40 60 700 - - - 138 200 105 305 867 42.4 25.0 5.1 1,059/2 988/3 (192)/2 (121)/31985 600 40 60 700 - - _ 152 200 150 350 898 46.1 29.7 6.5 1,371/2 1,203/3 (473)/2 (305)/3

1/ Population growth 2.2%2/ CDP growth per capita 6.5% until 1980, 6% thereafter. Elasticity of demand for textiles 0.53/ Extrapolating 4% growth on the basis of 1970-1975 period

Industrial Projects DepartmentFebruary 1976

117T - "P.PTTP`OJ ECT

CURRENT AND ?7-'JECTEDI/ SUPPLY AND DE3AND FrR P-C COATED FABRICS, r^ thousand neters)

'roductionn Irket-1 da O¾,thers I smor,, 2otal .-equwiremnts 3alance

aaoe lot-hs 230 i)V - 600 UO. (200.hol te r 100 800 750 1,650 2,000 (50)iiandhags and

?uitcases Du 250 500 300 1,000 200)Thoes - 1,00 1,000 2,p00 ,000 ' ,•oo).,o >.nd

-nU.erD - - IC 1C '' J?

2'o1ta ZI75 350 2,950 2, 5O 400,0' ),h0)'ro. ected

9r 2 0 11 700 OTir

1/ El Beida Marketing Department

-ndustu.rial Projects DJeartment

ANNEX 3-6

EGYPT - TEXTILES PROJECT

FABRIC COiJSERTINC CAPACITY OF TEXTILE MIL.S!/(in mill'on linear meters)

Fabric Category 1975 19&8ui3 1985Capacity Market Requirements Balance

Grey 555 118 (63)Bleached 141 181 301 (120)Dyed 236 320 470 (150)Printed 267 340 600 (260)Color Woven 3 10 13 (3)Coating 3 9 12 (3)

Total 700 915 1,514 (599)

Private Sector 100 200 200

Grand Total 800 1,115 1,514 (399)

1/ Source: EGOSW and Werner Internati6nal Management ConsultantsSector Interim Report

2/ Public Sector3/ Including El Beida expansion

Industrial Projects DepartmentMarch 1976

ANNE= 3- 7page 1

EGYPT - TEXTILES PROJECT

EGYPT RAW COTTON PRODUCTION

Year Thousand Tons % _ of World Production

1950-54 382 4.81955-59 374 4.01960-64 436 4.21965-69 473 4.11970-74 515 4.11970 541 4.71971 511 4.31972 512 4.01973 516 3.81974 492 3.61975 448 3.21*1/ 41 2 2.6

1/ Estimatedj Source: Egyptian Cotton General Organization

EGYPT RAW COTTON EXPORTS

Season Thousand Tons

1966/67 3021967/68 2611968/69 2371969/70 3201970/71 3021971/72 2941972/73 3031973/74 26015974/75 207

Industrial Projects DepartmentMarch 1976

ANNEX 3-7Page 2

EGYPT - TEXTILES PROJECT

PRODUCTICN/OUTILT FLCdW FOR FIBERS, YALRN AND FABRICS(in thousand metric tons)

1975 I/ 1 9ht 21 1?8 21

Cotton Crop 448 431 412Cotton Export 230 169 116Cotton Consumption 218 262 296Fibers other than Cotton 15 42 3/ 67Fiber Consumption 233 304 363CQcttn TyDe Yarn Production 186 255 i 305Cther Yarns 17 13 23Total Yarn Production 203 268 328Yarn Ecpert 46 46 46Yarn Consumption 157 222 5 282Fabric ?roduction 147 211 268Fabric Imrts 18 -

Fabric ExDorts 19 21 23Fabric Consumption 146 190 245Fabric Consumption in kg per Capita .9 5.1 6.5

1/ ?t-+,iaily estimated2/ Estimated

B/ based on Government plans to build a synthetic fiber plant witha capacity of 25,000 metric tons of polyester staple by 1979and a second unit with a capacity of 15,000 metric tons ofpolyester staple and 10,000 metric tons of polyester filamentby 1984.

h/ Waste 16%/ Waste 5i

Industrial Projects DepartmentMarch 1976

EGYPT - TEXTILES PROJECT

LONG STAPIEI/COTTON PRODUCTIONJ(MT 000)

Country 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75

Brazil 25 27 28 31 29 15 33 29 33 24Egypt 294 270 270 269 344 292 309 324 313 278India n.a. n.a. n.a. n.a. 1 16 65 108 195 320Mexico 28 25 23 31 19 23 19 11 11 14Peru 78 54 54 75 57 41 56 48 57 50Uganda 39 33 19 29 34 42 30 21 25 15United Statesy 94 88 162 394 150 156 345 216 165 306Others 52 67 82 102 114 134 126 154 176 176

Sub-total 610 564 638 931 748 719 983 911 1,008 1,183

USSR (270) (347) (386) 341 336 337 282 307 325 n.a.

World Total:4/ 880 911 1,024 1,272 1,084 1,056 1,265 1,218 1,333 n.a.

2/ 1-1/8"1 to 1-3/8"

Cotton World Statistics, International Cotton Advisory Committee, January 19763/ Upland only14/ Excluding Mainland China

Industrial Projects DepartmentMarch 1976

I. F

X .i

EGYPT - TEXTILES PROJECT

EXTRA LONG STAPISY COTTON PRODUCTION AND EXPORTS-(MT °°°)

1961/62 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 197V4/75Production

Egypt 138 183 167 167 198 216 201 189 177 160Sudan 199 165 159 186 202 205 203 160 192 173Peru 32 47 31 35 27 35 26 20 31 24USA 13 15 15 17 17 12 21 20 17 20Others - 15 9 15 12 14 14 17 15 16

Total excl. USSR 398 425 381 420 4 482 4 406 432 393USSR - 65 76 102 76 124 155 152 163 n.a.

Total: 490 457 522 532 606 621 558 595 n.a.

ExportsEgypt 170 171 142 132 162 186 176 148 114u 6Sudan 128 138 159 172 199 195 176 209 137 n.a.Peru 28 43 31 29 28 28 29 18 20 n.a.USA 1 3 10 2 3 2 1 1 1 n.a.Others 9 14 9 11 12 12 13 13 n.a. n.a.

Total excl. USSR 336 370 350 346 404 423 395 389 n.a. n.a.

I/ 1-3/8" and over

2/ Cotton World Statistics, international Cotton Advisory Committee, January 1976.

Industrial Projects DepartmentMIt'ch 19"i

I ";P

r\)

EGYPT - TIXTIIIS PROJECT

WORMD CONSUMPilON OF MUJOR FIBERS(billion lb)

1955-721/' 1957-59 1967-69Growth Rate Average Average 1971 1972 1973Y 1980 1985

Cotton 1.9 21.4 25.6 26.4 27.1 27.8 31.9 36.3Wool/ 1.3 3.0 3.4 3.4 3.6 3.3 3.3 3.4Rayon and Acetate 2.8 5.3 7.6 7.6 7.8 8.1 6.6 6.2Polyester 28.7 0.1 2.3 4.7 5.5 6.9 16.9 20.1Other Non-Cellulosicsa 19.9 0.9 5.4 7.6 8.5 9.8 15.0 14.6

Total Man-mades 6.4 15.3 19.9 21.8 24.8 38.5 41.0

Total Major Fibers 3.7 30.8 44.3 49.7 52.5 55.9 73.7 80.7

21 Annual average compound percentage change#/ Preliminary#/ Clean basisW ,Excludes polyester, textile glass fiber and olefins since 1967.

Source: IBRD Fibers Seminar, October 1974; IBRD Annual Review of Commodity Forecasts, April 1976Cotton, ICAC; Wool, Commonwealth Secretariat; Man-made Fibers, Textile Organon.

Industrial Projects DepartmentNovember 1975

IW

ANNEX 3-10

EGYPT - TEXTILES PROJECT

COTTON AND RAW MATERIALS

1. Egypt is a major producer of cotton. Production increased until1970 when 541,000 tons were produced accounting for 4.7% of world production(Annex 3-7). By 1975 production of cotton decreased to 448,000 tons whilein the period 1970-1975 domestic consumption of cotton fabrics increasedfrom 117,000 to 146,000 tons. The increase in population has had a twofoldeffect on the cotton supply/demand balance. On one hand the limited amountof arable land has to accommodate an increased demand for food crops whileon the other hand more cotton is required to clothe the growing population.Changes in the supply/demand balance are shown in Annex 3-7, page 2. In theperiod 1967-1973 Egyptian cotton exports averaged 288,000 tons per annum.In 1974 exports dropped to 260,000 tons and in 1975 to 230,000 tons.

2. In future, world consumption of cotton is projected to grow atthe rate of 2.1%1A while demand for Egyptian cotton may grow at a somewhatslower rate there is no reason to assume that Egypt should not be able toretain its traditional share of the world market if sufficient supplies ofcotton are available for export. Ninety percent of Egypt's cotton exportsia long and extra long staple in which Egypt has a dominant position,accounting for one-third of world production and almost half of worldtrade (Annex 3-8).

3. The supply/demand balance for cotton and cotton production inEgpt indicates (Annex 3-7), however, that by 1985 only 116,000 tons willbe available for export in the form of lint. This is based on theGovernmentts policy to: (a) increase domestic consumption; (b) increaseexports of fabrics; (c) maintain export of cotton yarn at present levels;and (d) also establish domestic production capacity to manufacture 50,000tons of polyester fiber. In order to maximize foreign exchange revenuesEgypt will have to import cheaper short staple cotton to release the morevaluable long and extra long Egyptian cotton for export.

4. The traditional price relation between short staple (Liverpoolindex) and Egyptian long cotton and extra long cotton have been 0.71 ando.56 respectively. Import of foreign cotton has been considered on severaloccasions by the Government in the past and until recently rejected on theadvice of Egyptian agricultural experts, who feared that imported cottonoould carry diseases capable of infecting and destroying the local crop.However, large scale trials indicated that short cotton can be importedand utilized safely in the area of the city of Alexandria and other areas

j/ IBRD Commodity Paper No.163/75.

ANNEX 3-10Page 2

which are located far enough from cotton plantations. It is therefore

expected that large scale importation of short cotton will be undertaken

by the Government.

5. Another measure to alleviate the shortage of fibers would be

importation and/or local production of polyester fibers in Egypt to release

long staple cotton for export. Polyester can be easily blended with cotton.

Polyester-cotton (65/35) blended fabrics are superior to 100% cotton interms of durability, dimensional stability, and easy-care characteristics.

Use of synthetic fibers in Egypt is economically sound as polyester staple

can be landed in Alexandria at US$0.50 per lb FOB compared with Egyptian

cotton which, even at current depressed prices, commands between US$0.80

and US$1.25 per lb (average US$0.90) FOB Egyptian port. The long range

price trend also favors polyester. Since 1966 the price of cotton

(American Middling 1-1/16") has increased from US$0.29 to US$0.64 per

pound while the price of polyester, despite the quadrupling of oil prices,

dropped in the US domestic market from US$0.80 to US$0.55 per pound

(Annex 3-11). The trend towards polyester is worldwide (Annex 3-9) both

in developed as well as developing countries and in the period 1967-1971

world imports of :nanmade fabrics increased from US$682 to US$1,263 millioni.e. by 85% or twice the rate of growth of cotton fabrics. WFhile in 1960

cotton accolmted for 68% of all fibers used in the world, by 1972 this

figure had decreased to 52% and it is estimated that by 1985 the cotton

share may be as low as 44%. On the other hand, the share of polyesterincreased from 1% in 1960 to 11% in 1972'and is expected to reach 25% in

19851/. Detailed projections for world consumption of cotton, polyester

and other major fibers are shown in Annex 3-11.

6. The Government has announced plans for establishing, within the

next five years, a chemical complex to produce 25,000 tons of polyester

fibers as a link with the future development of the petrochemical industry.

Negotiations to erect another plant with capacity to produce 15,000 tons

of polyester fiber and 10,000 tons of polyester filament are well advanced.

Therefore, the part of the project to increase KED's capacity to produce

polyester-cotton fabrics is well timed as it involves replacement of cotton

with polyester in the domestic market. The project would provide avaluable opportunity for the Egyptian textile industry to develop technology

for efficient manufacture of polyester-cotton blends on modern equipment.

This is most important in view of the long range plans of the Government

to introduce polyester into Egypt on a massive scale.

j IBRD Fibers Seminar, October 1974.

Industrial Projects DepartmentMarch 1976

ANNEX 3-11Page 1

EGYPT - TEXTILES PROJECT

'WORLD COTTON AND POLYESTER CONSUMPTION AND RATIOS

--- million lb Polyester CottonCotton Polyester Consumption (%)

1960 22,746 270 1.11961 22,328 333 1.41962 21,649 446 2.01963 22,062 580 2.61964 23,538 747 3.11965 24,479 1,007 4.11966 25,288 1,298 5.11967 25,492 1,661 6.51968 25,613 2,383 9.31969 25,752 2,996 11.61970 26,019 3,619 13.91971 26,358 4,678 17.71972 27,111 5,530 20.31973 Preliminary 27,867 6,950 24.9

Source: Cotton Data; ICAC; Polyester Data; Textile Organon.

Industrial Projects DepartmentMarch 1976

ANNEX 3-11Page 2

EGYPT - TEXTIISS PROJECT

FIBER PRICES: COTTON PRICES, POLYESTER STAPLE PRICES AND RATIOS(US domestic prices)

…US cents per lb -------- Polyester Cotton Rayon CottonCottonl/ Polyester Staple 2 ! Rayon3/ Price Ratios Price Ratios

1960 39 126 28 3.23 0.721961 40 118 26 2.95 o.651962 41 114 26 2.78 0.631963 41 114 27 2.78 0.661964 37 99 28 2.68 0.761965 31 85 27 2.74 0.871966 30 80 26 2.67 0.871967 32 62 24 1.94 0.751968 37 56 25 1.51 0.681969 32 45 26 1.41 0.811970 31 41 25 1.32 0.811971 33 37 27 1.12 0.821972 38 35 31 0.92 0.821973 61 37 33 0.61 0.541974 62 46 51 0.74 0.821975 53 48 52 0.91 0.981976 Jan. 64 55 54 0.86 0.84

V/ Strict Middling 1-1/16" Memphis Territory Landed Group B mills, net weight.2/ Type 54, 1.5 denier, FOB producing plants2/ 1.5 and 3.0 denier, regular rayon staple

Source: Cotton and Polyester Prices USDA

Industrial Projects DepartmentMarch 1976

EGYPT - TEXTILES PROJECTCHANNELS OF DISTRIBUTION FOR FABRICS IN EGYPT

FABRICMANUFACTURERS

Rationed Fabrics Free Fabrics

80% 15% 5%

PUBLIC SECTOR PRiVATE SECTORWHOLESALERS WHOLESALERS

6 COMPANIES 2 COMPANIES 200 COMPANIES

-IF I -IPUBLIC SECTOR PRIVATE SECTOR PRIVATE SECTOR PRIVATE SECTORRETAIL OUTLETS RETAIL OUTLETS RETAIL OUTLETS GARMENT MAKERS

. |~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

t | ~~~~CONSUMER | 4I

Industrial Projects DepartmentNovember 1975 World Bank-15480

ANNEX 3-13

EGYPT - TEXTILES PROJECT

CURRENT PRICIWi POLICY IN THE TEXTILE SECTOR

1. Ex-factory prices of rationed fabrics are determined by theMinistry of Industry in cooperation with the Ministry of Supply. Therehave been no increases in these prices since 1968. In 1973 the averagecost of production of these fabrics was £E o.154 (US$0.394) and the sellingprice LE 0.134 (US$0.303) i.e. 14% below ex-factory costs (Annex 3-3). The

subsidy is therefore financed by the losses incurred by the individual

sector companies which have to fill production quotas for rationed fabrics.

The aggregate losses on production of rationed fabrics amounted to 11% of

the industry's profit after taxes in that year but it appears that the

subsidy does not always benefit the population as a good proportion of the

rationed fabrics is being sold on the black market. It is questionable

whether subsidizing of rationed fabrics is really meaningful as only a

small proportion of a family's income is spent on textile products. It

also appears doubtful that an alternative mechanism for enforcing rationing

can be successfully set up and it would be the Bank's recommendation thatthe Government consider abolishing the subsidy. This would free the whole

textile industry from a large number of bureaucratic rules and regulations

without making arn real difference to the consumer.

2. Ex-factory prices of non-rationed fabrics are controlled by the

Industrial Control Board (ICB) which has a staff of eight people to monitorprices of more than 120 industrial goods. For an existing product the price

can only be raised by submitting evidence that operating cost increasescannot be covered by the existing price. For a new product the company

submits a proposed price and cost structure and the application normallygets routine approval by the ICB. Only if a substantial number of complaints

are received the price is investigated. In the textile industry the easiestway of increasing the price of an existing product is by slightly changing

the construction or the finish of a fabric and to apply for a new product

price which is normally granted by the ICB. It appears that priceincreases are granted to compensate the individual companies for losses

incurred in the production of rationed fabrics; this practice is widely

followed in the industry and has led to a proliferation of products beyondmarket requirements. It would therefore appear that decontrolling of prices

for non-rationed fabrics would basically not change anything for the final

consumer, it would most likely reduce the number of products required by

the market and it would eliminate a rather ineffective and bureaucraticprocedure. The decontrolling of prices for non-rationed fabrics would have

one further advantage and that would be the fact that higher quality fabrics

would command a premium which would give an incentive to the companies to

keep their quality standards high. At the moment quality is not reflected

in the price structure and textile companies do not have any reason for

raising the quality of their fabrics destined for the domestic market.

ANNEX 3-13Page 2

3. Wholesale and retail profit margins are also controlled by theICB, both for rationed and non-rationed fabrics. The wholesale margin isbetween 3% and 6% and the retail margin between 9% and 19% according tothe price category. In addition, there is an excise duty for non-rationedfabrics varying from £E 0.01 to 0.05 per meter which is passed from thecustomer through the retailer and wholesaler back to the factory. When thefabric manufacturer is also a spinner the excise duty collected can be usedto offset production duties on yarn payable to the Government; otherwisethe excise duty is returned to the Ministry of Finance. On the whole thecost of distribution is extremely low compared with free economy countries.The margin between the ex-factory price and the price paid by the customerin Egypt never exceeds 25%, versus 250-350% in the US and Western Europe.Details of the pricing structure is shown on page 5.

4- Prices of yarn and fabrics exported to convertible currencymarkets are governed by competitive conditions in world markets. Con-sequently export transactions with these countries may either be profitableor non-profitable according to world market conditions in arn particularyear. To compensate the manufacturers for occasional losses on exportsales within the imposed quotas the Government allows a special incentivewhich currently, in 1975, was established at 15% of the FOB value of thegoods. In addition, all proceeds from transactions in excess of the quotaare eligible for conversion at parallel market rates.

5. Prices of goods exported to socialist or "Eastern Bloc" countriesare determined by bilateral or barter type agreements concluded at Govern-mental level with companies having little influence on the price or volumeof the contract. All proceeds from these transactions are eligible forconversion at parallel market rates. There is also an incentive schemebut as these transactions have been, as a rule, more profitable than salesto more competitive convertible currency countries the Government incentiveis currently 3% of the FOB value.

6. The Textile Consolidation Fund (TCF) is responsible to theMinistry of Industry for quality control of exported goods, conformity offabrics with specifications, and also for monitoring the level of worldprices. Presently, TCF is not directly involved in the marketing ofexports which is done by the individual companies but all contracts forexport sales have to be checked and approved by TCF before they arefinalized and executed. The TCF is financed from the proceeds cf a levypaid by the manufacturers at the rate of 6% of the value of cotton consumed.

Industrial Projects DepartmentMarch 1976

ANNEX 3-13

: 3

EGYPT - TEXTILES PROJECT

DOMESTIC PRICE STRUCTURE OF WOVEN FABRICS

Ex-Factory Price Percentage Percentage Excise Duty jin Piastres Wholesale Margin Retail Margin in Piastres

Up to 15.0 I/ 3.0 9.0 1.015.0-20.0 4.0 12.0 1.020.0-30.0 5.0 1,.0 3.0

Over 30.0 6.0 19.0 5.0

j Ecx-factory prices for all rationed fabrics except Katifaflannelette and poplin are below 15.0 piastres per linear meter.

There is no excise duty on rationed fabrics.

DOMESTIC PRICES OF TYPICAL FABRICS(in Piastres)

Fabrics Ex-Factory Wholesale Retail

Zephyr / 14.0 144.2 15.68

Poplin 1 x 1 1f 18.0 18.72 20.88

Poplin 1 x 1 / 28.0 29.45 33.40

1/ Rationed

j Non-rationed

Industrial Projects DepartmentMarch 1976

ANNEX 3-1 IL

EGYPT - TEXTCITLS PROJECT

A ROGRAM FOR STREZATHTENIL EXPO3T C.4PA3ILITIES

1. . is generally agreed that futu e development depends in largemeasure on ImDroving the capability to O - otn manufactured goods andagricu ;ural co.m oaCties. There are several stages to the prcgram, andbecause of their common interests in the Droblems. it is suggested thatthe effcrt be undertaken Jointly by the Ministries of Foreign Trade,ocononQy and Economic Cooperation, ?Planning, Industry, and Agriculture.

;: . It is anticipated that by the end of one year from initiationo h roFram the -Ministers could jointly recommend to the Government:set o) ol-cv measures for stimulating exports, particularly

including one or more export incentive schemes. Some alternative incentiveschemes that should be considered are briefly described below; (ii) anactJcn prcgram for revitalizing industry, specifically to create exportcapability. through measures that are also briefly described below.

J. nhe first stage I's to undertaKe an operational analysis of thecurrent oosition on exports, to identify products that have been exported-n the recent past or are being exoorted and, most importantly, to analyzetne apoarent limitations or constraints that prevent improvements now.The cause commonly cited for lack of better export performance is shortagecf foreign exchange to import inputs or to undertake investment, but whilethat may be a contributing cause, there are many others that may, from our-oservaions of in dividual enterprises, be equally or more important.Industrial enterprises are often unable to compete in world marketseffectively because of inefficiencies that can be traced to a variety cf::ctors, including: uncertain management; inappropriate technologicalDrocesses and equipment, lack of incentives to be efficient and lack ofaocountability; an administratively controlled price system; insufficiently-rained labor; lack of a strong promotional and marketing capability dueto inexperience; and an entrepreneurial spirit that has oeen s-ppressed.The first stage of the analysis is to take stock orF the current situationand identify the key limitations _n various product lines andior enter-prises. The process of clear identification will itself lead to ideas forpossible solutions to these problems. It should be specially noted thatthe sector or planning studies that were agreed to in the first importprcIecti/ are now, or shortly will be, underway, and the first stage oftho.,? Analvses is to investiaate current conditions in each of the six

lst,? groups2/. Consequently they shculd be able to contribute to~-is suggested analysis.

1 Industrial Import Credit 522L-EGT2/ Food, Textiles, Engineering, Metallurgy, Chemicals and Building

Materials.

AuNNEX 3-14Page 2

h. Concurrently with the first stage of work, the task force,composed of a few professional staff from each of the Ministries plusforeign consultants, should also institute a systematic study of theproducts in which Egypt now has a comparative advantage or, with a littleassistance and correctives, could have such an advantage. The analysisshould be in the form of calculating the real domestic resource cost ofearning or saving a dollar of foreign exchange through importing orexporting. Thus, for example, if in terms of real domestic resources itcosts £E 3 to earn a dollar of foreign exchange by exporting or the sameamount to save a dollar of foreign exchange by domestic production whichsubstitutes for imports, and if the actual exchange rate is £E 2 for US$1,then the activity is clearly inefficient to the economy; the activity isefficient if the domestic resource cost is less than LE 2. The mechanicsof this kind of analysis are well known and can be easily understood.The task force of the Ministries would be supplemented by selected foreignconsultants. The funds for this activity will be provided in the KED-EBtextile project. This is briefly discussed below.

5. The results of this operational analysis would be a comprehen-sive list of products for which conditions for export are favorable or couldbe made favorable with small additional assistance. This list of productswould be the ones the Government should encourage for export by providingincentive programs. They are the ones in which costs of production arefavorable in world markets and in terms of the costs of domestic resources.

6. Another part of the analysis is to determine the characteristicsof foreign markets in order to determine those that are most favorable forexpansion of Egyptian exports. This stage would evaluate the marketconditions (prices, competitors, delivery requirements, quality of productsneeded, etc.) in all of the product lines and in a variety of countries.Special attention could be given to other arabic countries.

7. This stage of the analysis should also prepare a plan forincreasing promotional and marketing programs to exploit market opportuni-ties. Egyptian industry is noticeably weak in this area. Various measurescould be considered including assigning a greater responsibility tocommercial and economic attaches of embassies abroad to report daily orweekly on prices, market trends, fashions, contract advertisements, tradefairs, lists of buyers, etc. in all of the selected product lines. From allof the above work an operational plan for greatly strengthening the pro-motional and marketing effort should emerge.

ANNEX 3-14Page 3

8. It is also necessary to provide a solid basis of incent-ves toindustry to export. Every successful country has had an incentive systenwhich has been revised as conditions change. A review of the costs andthe relative effectiveness of various incentives is an important phase ofthe work of the task force. The objective is to find those incentives thatare least costly and most effective in promoting exports. Many measureshave been employed including: (a) custom duty drawback or exemption forimported goods to be directly incorporated in exports; (b) preferentialcredit for finance of exports, or for investment for exports; (c) directexport incentives in which a percentage payment is made based on the valueof exports. Targets may be established and the incentive applied only tothe exports above target; (d) "export bonuses" in which the firm is permittedto sell a claim on imported materials, above those it needs for its own use,at whatever price the market will pay; (e) export bonuses based on exceedingpast performance, or based on the amount of value added in the export commodity.There are literally thousands of variations and combinations of exportincentives. The task force should evaluate the major alternatives andrecommend a set of incentives that will be effective in promoting exports.

9. Finally, based on all of the above work the task force shouldrecommend specific measures that would increase export capability in certainindustries or enterprises. These might include: recommendations on specificinvestments; changes in tax or custom duty regulations; changes in priceregulations; special allocations of foreign exchange; allowances to enter-prises in free zones; etc. The purpose is to bring production that is nowjust marginal for exports into a regime and conditions where it would beexported efficiently.

10. Organization of the Task Force: It is recommended that the taskforce consist of a few professionals seconded from each of the Ministriesplus foreign consultants. It is recommended that from two to fourprofessionals be seconded from each Ministry. The proposed Bank loan couldsupport the foreign exchange costs of the task force including the foreignconsultants. The equivalent of about 10-15 man years of foreign consultantscould be provided. Thus the task force would have 20-25 professionals.With that size of staff each of the problems cited above could be quitethoroughly covered.

11. The program is to cover two years of activity and it is estimatedto cost US$1 million. By the end of the first year a preliminary report willbe prepared for the Government outlining policies, incentives, and specificactions in industries and enterprises that will improve export capabilities.The second year will commence implementation through an export promotionagency and complete additional analytical work so that the whole program canbe sustained.

ANNEX 3-1 4Page 4

12. On average, US$500,000 in foreign exchange is needed each year.This will support a resident staff of about 3-h experts, who will work withcounterparts in the Government, in undertaking the analytical studies ofincentives, other policy measures, cost analyses of products, design of thetotal program, etc. In addition, short term consultants equivalent toanother 2-3 fall time persons will be needed to provide practical advice onmarketing procedures and problems for specific products and specific markets,engineering and technical advice on raising quality levels, lowering costs,etc. in individual enterprises or groups of enterprises. These will be partof the specific action programs.

13. It is estimated that personnel and all associated foreign exchangecosts will amount to US$480,000 annually and US$20,000 is set aside forEgyptian officials and businessmen to obtain training and information abroadat trade fairs and visits to successful exporting countries. In addition itis estimated that the equivalent of US$150,000 annually in local currency willbe required for logistic support of the program. This will be supplied by theGovernment.

Industrial Projects DepartmentJune 1976

ANNEX 4-1

EGYPT - TEXTILES PROJECT

EMPLOYMENT EFFECT OF THE PROJECT

(Incremental Number of Enployees)

___________ ___ ----------E EB ---------Polyester-Cotton Cotton Replacement and Expansion

Spinning 808 500Weaving 476 488Bleaching 79Dyeing 52Printing 61Finishing 110Production Planning

and Control 205Yarn Dyeing 37Caustic Soda Recovery 30

Total: 1,284 988 574

Grand Total: 2,846

Industrial Projects DepartmentFebruary 1976

EGYPr - TEXTIlES PROJECT

ESTIMATED PRODUCTION OF THE PROPOSED KED COTTON WEAVING MILL

-Production/_------Grey Width Count Ends Per Picks per Weight per for Export for Domestic

Fabric cms Warp Weft inch inch linear meter Market Market Total

Wide Sateen 144 28 16 68 86 290 1.66 0.31 1.97Plain Linen (1 x 1) 150 60 60 94 96 124 0.93 0.13 1.o6Fine Poplin (2 x 2) 94 100/2 100/2 152 78 115 1.50 0.18 1.68Fine Poplin (2 x 2) 96 80/2 80/2 123 70 120 1.54 0.33 1.87Fine Voile (2 x 2) 101 120/2 120/2 97 78 84 1.02 0.49 1.51Plain Poplin (1 x 1) 96 36 32 122 72 148 1.02 0.17 1.19Plain Poplin (1 x 1) 95 32 36 123 66 1.53 1.11 0.18 1.29Plain Linen (1 x 1) 96 60 5° 84 78 76 1.58 0.08 1.66Striped Sheeting 254 32 24 95 64 369 - 1.01 1.01Plain Poplin (1 x 1) 157 60/2 38/2 129 58 296 _ 0.58 0.58Bed Sheeting 250 32 32 76 68 298 1.15 0.13 1.28

Total: 11.52 i/ 3.59 15.11

1/ Million linear meters based on 300 days' operation, 3 shifts, iO/g efficiency.2/ 1,710 metric tons

Industrial Projects DepartmentFebruary 19 76

Ft d

EGYPT - TEXTILES PROJECT

ESTIMATED PRODUCTION AND SALES OF THE PROPOSED KED POLYESTER-COTTON WEAVING MILL

------ Production1'----- ---------------- Sales ------------------Loom State Finished Fabrics

Width in Count No. Ends per Picks per 000 Linear 000 Square 000 Linear Price/Linear Meter ValueEnd Use/Category cms Warp Weft cm cm Meters Meters Meters in Piastres LE 000

Suits 4 154 40/2 40/2 44 27.5 338 520 327 191,4 625Suits IA, 1B, 2 150 40/2 40/2 28.3 27.5 338 508 325 158,9 516Suits 1A, 1B, 2 158 60/2 60/2 57.8 28.3 357 555 339 112,6 585Shirts 3A 101 40 90 den. 42.5 24.4 2,445 2,470 2,336 67,1 1,567Shirts 3A 100 60 90 den. 36.2 30.7 1,377 1,376 1,315 67,1 883Suits 1A, 1B 151 24/2 24/2 20.9 18.1 550 830 525 172,2 904Suits 1A, lB 149 40/2 40/2 25.1 22.0 959 1,429 930 166,9 1,552Suits 4, 5 149 40/2 40/2 37.7 21.2 439 653 428 172,2 737Shirts 3A 99 60 60 37.4 32.2 1,987 1,967 1,908 52,7 1,006Suits 4, 5 155 60/2 60/2 51.1 26.7 697 1,079 676 172,2 1,164Suits 2, 3B 151 40/2 40/2 29.1 19.6 1,011 1,528 971 170,6 1,656Shirts 3A 98 40 40 48.8 25.9 1,340 1,314 1,307 44,1 577Suits 4, 5 152 60/2 60/2 37.0 25.9 766 1,162 739 172,2 1,274

12,598 15,391 12,126 107,6 2 13,046

1/ Based on 300 days, 3 shifts, 90% efficiency2/ Average3/ Categories: 1A = School uniforms for girls

1B = School uniforms for girls2 = Galabiya (national dress)3A Factory-made shirts3B = Factory-made suits l4 = Variety outerwear fabrics for ladies5 = Fashion blouse and shirt fabrics

Industrial Projects DepartmentNovember 1975

ANNEX 4-2Page 3

EGYPT - TEXTILES PROJECT

KED INCRMEDNTAL PRODUCTION OF WOVEN FABRICS(million linear meters)

A. Cotton Fabrics

1. Production with the project 15.12. Production released by polyester-cotton fabrics 2.03. Incremental production - grey fabrics 17.14. Incremental production - finished fabrics 16.5

B. Polyester Cotton Fabrics

1. Production with the project - grey fabrics 12.62. Production with the project - finished fabrics 12.13. Existing production - finished fabrics (2.0)4. Incremental production - finished fabrics 10.1

Industrial Projects DepartmentMarch 1976

ANNEX 4-2Page 4

EGYPT - TEXTILES PROJECT

EL BEIDA - PRODUCTION CAPACITY OF THE EXISTING AND EXPANDED MILL(million meters per annum)

Converting Capacity for Fabrics-Type of Operation Existing After the Project Increase

Singeing 136 1 70 34Mercerizing 104 150 46Bleaching 98 138 40Water Mangling 85 107 22Drying 200 270 70Dyeing 42 71 29Printing 29 41 12Washing 29 39 10Steaming 45 45 nilPolymerizing 17 28 11Raising 126 150 24Calendering 75 80 5Stentering 150 170 20PVC Coating 0.3 4.8 4.5

(metric Tons per Annum)

------- Converting Capacity for Yarn ------Existing After the Project Increase

Hand Scouring andBleaching 950 1,260 310

Hand Dyeing 416 516 100Cheese and Beam Dyeing 720 1,540 820

Industrial Projects DepartmentMarch 1976

ANNEX 4-3Page 1

EGYPT - TEXTILES PhOJECT

KED - IIST OF MACHINERY - SPINNING POLYESTER-COTTON

Number ----- In US$ OO -Type of 'Machine of Units Unit Price Total Price

Blow Room 2 230.4 460.8High Production Cards 40 34.6 1,384.0Precombing Drawframes 2 20.7 41.4Sliver Lap Forming 2 23.0 46.oCombing 10 34.6 346.0Drawframes 24 20.7 496.8High Speed Roving Frames (96 spindles each) 12 38.7 464.4Ring Frames (480 spindles each) 74 55.3 4,092.2Overhead Cleaners 184.3Automatic Winding Frames (50 spindles each) 15 86.4 1,296.0Multiple Winding Frames 6 34.6 207.6Ring Twisting Frames (400 spindles each) 30 41.0 1,230.0Auxiliary Equipment 50.0Testting Equipment 100 .0

10,399.5Accessories (5%) 520.0Fire Fighting 150.0Air Conditioning Eq.ipment 1,262.1Electrical Equipment 500.0Spare Parts, Tools and Gauges (5%) 641.5

Total FOB Price (US$) 13,473.1it I I t (£E) 5,262.9

Source: Recent quotations from textile machinery manufacturers

Industrial Projects DepartmentMarch 1976

ANNEX 4-3Page 2

EGYPT - TEXTILES PROJECT

KED -LIST OF MACHINERY - SPINNING 100% COTTON

Number ------ In US$ 000 -------Type of Machine of Units Unit Price Total Price

Blow Room 2 230.4 460.8High Production Cards 46 34.6 1,591.6Precombing Drawframes 7 20.7 144.9Sliver Lap Forming 5 23.0 115.0Combing 33 34.6 1,141.6Drawframes 16 20.7 331.High Speed Roving Frames (96 spindles each)- 12 38.7 464.4Ring Frames (448 spindles each) 88 51.6 4,540.8Ring Frames (480 spindles each) 10 55.3 553.0Overhead Cleaning Equipment 230.0Automatic Winding (50 spindles each) 17 86.4 1,468.8Ring Twisting Frames (400 spindles each) 12 41.0 492.0Yarn Singeing 2 204.8 409.6

11,943-9Accessories (5%) 562.9

11,820.4Fire Fighting Equipment 150.0Airconditioning Equipment 1,262.1Electrical Equipment 500.0

Spare Parts (5%) 722.7Total FOB Price (US$) 15,175.9

it It 'l (£E) 5,928.1

Source: Recent quotations from textile machinery manufacturers

Industrial Projects De-)artmentMarch 1976

ANNEX 4-3Page 3

EGYPT - TEXTILES PROJECT

KED -LIST OF MIACHINERY - WEAVIN) POLYESTER-COTTON

Number - in US$ 000 -

Type of Piachine of Units Unit Price Total Price

Looms 140 cm wide 1/ 192 11.3 2,169.6Looms 140 cm wide 48 8.0 384.0Looms with dobby 96 11.7 1,123.2Looms 170 wide 112 8.5 952.0High Speed Warper 2 46.1 92.2High Speed Sizer 2 194.6 389.2Warp Tying 2 15.6 31.2Leasing 2 15.4 30.8Pirn Winders 32 12.5 400.0Pirn Stripping 4 6.o 24.0Shearing and Cropping 1 194.6 194.6Folding and Measuring 2 26.1 52.2Inspection 16 17.9 286.4

6,129.4

Accessories (5%) 306.5Fire Fighting Equipment 150.0Air Conditioning (no refrigeration) 427.5Electrical Equipment 409.6

7,423.0

Spare Parts, Tools and Gauges (54) 371.1

Total FOB Price (US$) 7,794.111 If U (£E) 3,044.6

j Positive cam motion for critical end uses.Source: Recent quo`ations from textile machinery manufacturers

Industrial Projects DepartmentFebruary 1976

ANNEX "-3Page .i

EGYPT - rTEXTILES POGJECTr

KED -LIST OF i4'ACHINEHY - WEAVING 1 00Q COTTON

Nvumnber ------ In US$ 000 -------.voye of f4achine of Units Unit ?rice Total Price

.,ooms 2b1) om wiae 40 O(w. ) W40U.ULooms 1 8O cm wide 144 8.5 1,224.0'Joms l 1 cm wide l/ 176 11.3 1,988.8Looms 140 cm wide 80 8.0 64o.oHi£h Speed Warner 2 46.1 92.2High Speed Sizer 2 194.6 389.2Warp Tying 2 15.6 31.2Leasing 1 15.l i5.hPirn Winders 40 12.5 500.0?irn Striiping 6.0 30.0Shearing and Cropping 1 194.6 194.6Foldin, and ieasuring 2 26.1 52.2Inspection 16 17.9 286.4

5,924.0Accessories (5%) 296.2Fire Fighting Equipment 150.0Air Conditioning Equipment (no refrigeration) 427.6Electrical Equipment 1409.6

7,207.4Spare Parts, Tools and Gauges (5%) 360.4

Total FOB Price (US$) 7,567.8It n I1 (EE) 2,956.2

1/ Positive cam motion for critical end uses.Source: Recent quotations from textile machinery manufacturers

Industrial Projects DepartmentFebruary 1976

ANNEX 4-3Page 5

EGYPT - TEXTILES PROJECT

EB -LIST OF MACHINERY - ODNVERTING

Number ------ In US$ 000 ---Type of Machinery of Units Unit Price Total Price

A. BleachingSingeing 2 193 366Rope Bleaching 1 950 950Open Width Bleaching 280 1/ 1 770 770Open Width Bleaching 160 1 480 480Chain Mercerizing 160 3 600 1,800Rope Washing 1 110 110Water Mangling 4 55 220Cylinder Drying 330 3 200 600

5,316B. Dyeing

Water Mangling 2 55 110Cylinder Drying 330 1 200 200Pad Steam Continuous Dyeing 1 600 600Thermasol Continuous Dyeing with Stenter 1 380 380Jiggers 280 6 55 330Jiggers 200 1 35 35Jiggers 125 1 13 13Open Width Washing 160 1 316 316Batching 160 3 17 51

2,035C. Printing

Cylinder Drying 330 1 200 200Printing 280 1 440 440Printing 160 1 250 250High Speed Steamer 280 1 267 267Continuous Polymerising 280 2 166 332Color Preparation 1 220 220Open Width Washing 300 2 48o 960

2,669D. Finishing

Shearing and Brushing 1 100 100Hot Air Stenter 280 1 600 600Hot Air Stenter 160 1 400 400Rai si ng 1 430 430Calendering 160 1 82 82

1,612E. Making-Up

Making-Up 1 237 237Batching 160 4 17 68Batching 280 1 28 28

333F. Yarn Bleaching and Dyeing 1 883 883G. Plastic Coating 160 1 1,300 1,300H. Caustic Soda Recovery 1 1, 08 1,408

15,556Spare Parts (5/.) 778

rotal FOB Price (US,$) 16,334t, ,, tv (£E) 6,380

Industrial Projects DepartmentFebruary 1976

EGYPT TEXTILES PROJECTIMPLEMENTATION SCHEDULE

| , MONTHSITEMS

0 6 12 18 24 30 36 42 48

Detailed Engineeringand Design

Civil Works -

Procurement

Equipment -Delivery

Machinery Erection_

Trial Production

CommercialProduction

1/1/1976 1/1/77 1/1/78 1/1/1979 1/1/80

World Bank-15481(2R)Industrial Projects DepartmentFebruary 1976

ANNEX 4-5Page 1

EGYPT - TEXTIIES PROJECT

EMPLOYMENT OF TECHNICAL ADVISOR FOR

MISR KAFR EL DAWAR (KED) AND MISR EL BEIDA (EB)

1. About US$300,000 is included under the proposed loan for theemployment of non-Egyptian technical advisors.These advisors should be employed as soon as possible to forward projectimplementation during the present period of relative stagnation in theworld textile equipment industry and would be involved in the initialprocurement stage of the proposed project and, during the implementationperiod, would assist the project teams established within the twocompanies in executing the proposed project. Initially the recommendationregarding the employment of outside consultant-advisors had not been wellreceived by the Egyptian authorities who felt that there was enoughexpertise available within Egypt to perform the functions expected fromthe outside advisors. The authorities had, nevertheless, agreed to inviteproposals from a short list of consultant firms, using terms of referenceagreed with the Bank, and indicated they would not object to appointingconsultants if these offered better expertise than is available in Egypt.

2. The draft terms of reference for such advisors were discussedwith the companies during appraisal and a number of consulting firms havealready been contacted by the Ministry of Industry.

3. Local management of KED and EB are competent in managingexisting operations and neither company is employing any expatriates.Feasibility studies have been prepared by the companies; also, expansionof plant facilities in the past were accomplished by local management ina satisfactory manner. It is recognized therefore that execution of theproposed project can be successfully carried out by the present managementwith only limited outside assistance. Implementation of the project isbeing handled by special units established within KED and EB. The KEDteam consists of a team leader, electrical, civil, spinning and weavingengineers and a scheduling coordinator. The EB team consists of a teamleader, electrical, civil, dyeing, printing, and finishing engineers anda scheduling coordinator. All these people have been selected fromexisting staff and seconded to the project units on a full time basis and,at a lower level, the teams will be supported by regular company personnel.Preparation and evaluation of foreign tenders is being coordinated andsupervised by the General Organization for Industrialization (GOFI), whichis responsible to the Ministry of Industry for all foreign procurement inthe industrial sector.

ANNEX 4-5Page 2

4. While management personnel of the companies have good experiencewith the type of equipment they are currently operating, it appears thatthey may not be fully familiar with the different types of modern nachinerywhich will be offered to them as a result of international competitivebidding. Also, operation of the new plant at a higher productivity levelwould require additional training as well as introduction of moderntechnical and cost control methods during implementation and early operationsof the plant. Since KED and EB do not have sufficient experience in inter-national procurement, mill control and production planning systems for highprocuctivity operation the companies will employ a 'technical Advisor(TA). The main responsibility of the TA will be to assist the implementationunits of the companies in drafting detailed engineering specifications,evaluating tenders and providing management and technical assistance toKED and EB to start up the project and integrate it with existing operations.The TA will most likely be an experienced engineering and consulting companywith worldwide reputation and expertise in the textile field. To cover thecost of this assistance US$0.3 million, based on about 150 man-weeks of consultingtime, has been included in the project for Bank financing.

5. It is believed that the early involvement of outside expertsfamiliar with modern machinery and equipment as well as implementation ofmodern systems in the areas of project control, inventory management,preventive maintenance, high productivity operation and quality control arevery important for a successful start and timely implementation of theproject. It is also believed that in view of the large procurement element andpotential costs associated with any delay in project implementation,the expenditureof US$0.3 million to be spent for the TA which represents about 0.2% of theproject cost is well justified.

6. The Arab Fund which is interested in co-financing the projecthas also expressed the view that employment of a TA will be essential inassisting the companies in the implementation of the project, particularly,in the area of procurement.

7. The Terms of Reference for the TA are as follows:

(a) The TA will give technical assistance to KED and EB duringimplementation and early operations; (b) the TA shall supply, as requiredduring project implementation and early operations, highly experiencedengineers in the fields of spinning, weaving, dyeing, printing, andfinishing, and any other discipline required. The duration of the assign-ment is estimated to be 3-1/2 years; (c) specifically, the TA shall assistKED and EB project teams in:

ANNEX 4-5Page 3

a) reviewing plant design and machinery specifications;

b) formulating and evaluating tender documents for plant andmachinery;

c) developing production plans, including work assignments, andoperating and maintenance schedules for machinery designed tomaintain high productivity operation;

d) developing quality standards for company products as well asappropriate quality control methods;

e) reviewing and monitoring the work of the project teams andsetting up a project control system based on up to date projectmanagement methods;

f) start-up and early operation of new machinery and equipment.

Industrial Projects DepartmentMay 1976

ANNEX 5-1Page 1

EGYPT - TEXTILES PROJECT

ASSUMPTIONS FOR CAPITAL COST ESTIMATES

The Base Cost Estimate reflects estimated equipment pricesprevailing in November/December,1975. Detailed listings of assumed unitprices by type of machine are given in Annex 4-3.

The following assumptions have been made with respect to cal-culating freight, duties etc :

Spare Parts: Estimated at 5% of value of imported machinery andequipment.

Freight and Insurance: Estimated to be 10%o of f.o.b. valueof imported machinery, equipment and spares.

Import Duties: None

Clearingand Local Transport: Estimated to be 2.5% of f.o.b.value of imported machinery, equipment and spareparts.

Erection: Estimated to be 3% and 5% for KED and EB respectivelyof f.o.b. value of imports. Half would be inforeign exchange.

Physical contingencies are 5% of the Base Cost Estimate. Theallowance for price escalation is as per the detailed schedules assuming thefollowing inflation rates:

1976 1977 1978 1979

Escalation Rates for:Impo:ted Enuipment 14% 9% 8% 8%Local Equipment andCivil Works 14% 13% 12%' 12%

Interest during construction is calculated by assuming the follow-ing disbursement pattern :

1976 1977 1978 1979

Percentage of loansdisbursed 10% 50% 30% 10%

ANNEX 5-1Page 2

This pattern ass-umes early procurement and start of commercialoperations by january 1, 1979. Interest rates are assumed to be 10% on theIBIRD and 6% or. the Arab Fund loan with a commitment charge of 0.75% and0.5% on the undisbursed balances of the two espective loans.

Details on working capital calculations are given in Annexes 5-4and 5-5 Lor KED and ED respectively.

Industrial Projects DepartmentFebruary, 1976

ft. Y Y r V : 1E.:. I i 1. P )IO-F .*1 F ::, I OF F " L . A Iki A 01k,

1 .f1':: . L'OS'..t . N N A shF.

IlN MI L.I..OiN lE) (IN MIl[.11.*i )N 1JS$V CU).fl.. I F'COR I (N '11) L. L..OCAL. L O R E I'G N TOr AI..

................................. ..... ........ ..... ............ .......... .... .. . ...... .... ..... ..... .... ..... _..... ...... ... ..... .... ... .... .... . ... . .... .... .... ..... ... ..... ......... .... ..... ... .... ... .. .... .... .... ... .... .... .... ..

P'OL-YESTER COFT l ON PL.ANT

Sl' I NNIl NG lO IIBMEN'r 000 5.01 5*01 0.00 1.2. 83 12.183 1 9 'P.'1Wl'vl Nli E:J1llMl NT 0. 00 2 * 90 2. 90 0.00 7.42 7 , 42 11 * 40

SUl TOTL. 0.00 97...T... 91 0.00 20) 25 20. 25 3 i L. 1coTTnON ::. AN 1................ ........ ...........

SPIINN.INS.N fOUlUIFMENT 0.0 5. 65 6000 14 46 14.46 fJ2WF.E:V. ING U.C.H. IFPMENT 0. 00 2481. 281 0l. (0 7. 1 9 7. 19 1 1 -05

SiUB TOT'AL. 0.00 a. 46 E. 46 0.00 21 .i66S 21 .66 .53.2

SPARR' S 0+00 0. 81..O. 0281 07 200 2 2i07 3v.9FRE I GHIT + INSURANCE 0+00 1, 72 1 .. 72 0.00 4.40 4.40 6b.iCL.EAR + I OCAL TRANS. 0. 42 0.00 0,42 1 .0 0 i * 00 1 . 08 1 .65lRECTTIION 0.25 0.25 0.50 0i64 0.64 1.28 1 .97CIVll_ WORKS 3.91 1 .31 5.22 10+O1 3. 35 13. 36 20.53E:'NGINE:ERING CIVIL. WO)RKS 0412 0.000.1 2 0+.31 0.00 0 3U 0.47TECHNICAL. ASSISTANCE 0.00 0.18 0.18 0.00 0.46 0,46 0.71TRAININGi 0.04 05 009 0.10 0(.1 3 0.23 0i.3'.5

BASIC COST EST. (BCE) 4+ 74 20+69 2.4:3 12.1:3 52.97 65.10 100000

PHYSICAL CONTINGENC,IE:S 0.24 1.03 1+27 0.61 2.65 3.26 5400PRICE: ESCAL-ATION 0.86 2454 3.40 2. 20 6 I 5 8. 72 12. 75'i

..... .. .... .. .... .... .. ............. ......... ... . .. .... ... ............ ..... .... .... .... _ ... .. .. .... _.. ..... .... .... .... .... .. ... .. _..... ... ..... ... .... ..... ....... ..... .... .... .... .. ..... .... ........

SUB -- TOTAL. 5.84 24.27 30. 11 14 .94 62. 1J3 2.7707 0.00~~~~~~~~~.. . .... .... .... .. , . .......... . .... ., .... ..... . . .... ... ... ........ ..... .... ... .... .... ...... ... ... ... .... .. .. __,_.... .... . .... .... ... ... .... .. ........ ................... ......................... .. .....

IN'T'E:REST DURING CONSTR. 0.21 3.14 3.35 0.53 8.04 8.57 0.00WORKING CAPITAL 6.21 0.47 6.68 15.90 1+20 17+10 0.0 0

..... . ......... . .. ....... .... .. .... - .. .. .... .. . .... _................. ......... .... .... .. ..... .. _. _.... .. .... .... . ... ... .... .... ... .... .... .... .... .... ... .. .... .... .... .... .. . ................ ...............

TOTAI F INANCINGN REQU I RED 12.26 27.88 40, 13 :31 +;37 71 377 130:;?.f4 0.0- = ..... :=: - ... =:. --.

INDUSTRI AL. PROJECTS DEPARTMENt05 / 23 / 76

F' HILl;Y 1:. 1 I;C 41.LI.I0W ....11...... :, I-'l 'I i(56(11 ... 1 1. N

I::K.i'tlSC .I 1.1 O5 l1-t 'I.; \UlM.BJFI:::lIR l:)lF: PONTAHi NLII. 1 JL I .. 1l i:l.is! 14. i N i -.. t:i1 .N1C.:.41 ... , m I Jl.d I4.. t.5'IN lo. l

(X4> NNI NO I5l:AJtJ.FMl:N1 2 :1 . 1.4 L: 1.4 * 1.5 -. i :1+3.:L O.i*0 1.ill'J1 0', 0"WtIt:f I Nii l::.1 l.:I.I-'MEN 1 2 :1 IL 4 1 4 1. 15tj 1. * 1.1 ' j 0 0 0 6;4

W E:. fS I :l. NO li l:.: (.i (J .l:l:' MEl: NIT 2 1. 1. 4 1.4 1 I :', I lI. 0J.) Q0 36 0 Q lSP4R i:, 2 1. :1.4 :L 4 1 t 15 IL. 1. 1. 0)009 00.i)(.ER.1 t H)6i + J.LNSURMC. .11. 2l: 16. : 1. .20 0 0i ij. dt:.l :1kAR 4 ..0 l3l. C AL R'f R A 1 1. 2 6 26 :L .20 1. .20 0. 09 0.0( O *

!: IO::li:N 2 :1. 130 150 IL * .541:.2;3 0.''i09 0.06 0. IL52191. L.l .L Wl.WORKS 2 1. 115 15 1. 1i :1. * 1.2 0. 6 / 0. 1.6 0. 06,

L:::N-IL NE:LIRli NlU l1..1 I WO1l:R K S 1 :1. 0. I 1 .060. OI O0I40 011.N1- - 1 (AL iN.C SS1L S fIANClE 2 1. 0 0 0 00 0 00 0.00 00 0 00

I R lN WN. N. 3 1 C. 0.00 0.00 0,00 0.00 0.00

IOLIAL 1-PR ICE ES LA 1' OII:)N 0 0 0. 00 0. 0 0 0. 6 2,5 3 , 4*

NUMbI2ER OF- F'L..S1L A.0S

MtON) 85 t'tR i _fill' 1 . 0000 IL, C.0 124 o 0000 12. 000 12 .00........... .... .. . ., .... .... .. . ... .... . ...... ... .... ... .

YEf,RI(. Y SiA L.,4)1 .OiN F ACh 0l R bY I I-'I.::.

1L 1. v4. 0000 *. 0000 8.0000 i0000 8. 00002 1i.-/4+l.)fif'2.) L;5, 0000 13.0 12'.,I 0000 1 2 40000 12. 0000

;.4 i000 '! 000 51 0(1( 50000 i . .3

0l NlJU' 21. /AL FR OdE..' 2': .15 SilS < V6 MEN05 ,/ 2:1.! /i

TEYI : P ~XTIIL-E-~ S PRO ,.iff-, C I.H L. E..l Ii' A )

CAPI TAL. COS'T SUMMARY

(IN MIlLLION I.E ) ( IN MIL.L.ION U115$)L.OCAL- FOREIGN TOTfAL. L-OCAl.. FOR E I GN TOTA L. "4

EQU IF'MEN' PBL.EACHING 0.00 2.08 2.08E 0.600 5-j. 32 5. 32 21. 55DYEING 0.00 0.79 0.79 0*00 2.02 2.02 81.19PRIN'TING 0.00 1.04 1.04 0.00 2.66 2.66 10.78FINISH'ING 0.00 0.63 0.63 0.00 1. .61 1L.61 6.53MAKING -- UFP 0.00 0.13 0.13 0.000 0.33 0.33 1.35YARN DYEING *f F'INISH. 0.00 0.34 0,34 0.00 0.87 0.87 3.52PVC COATING 0.00 0.51 0.51 0.0 1. .31 1 * 31 '5.28CAUS3TIC SODA 0,00 0 .5 15 0 .15 5 0400 1.41 1. .41 5.70SPARES 0.00 0.31 0.31 0.0 0.479? 0.79 3.21

SUP TO`TAL- 0.00 6.38 6. 38 0.00 16.33 1.6.33 66, 11

FREIGHT + INSUIRANC:E 0.0 064 0,64 0.0 64 1 .64 6.63C"LEI:AR, + LOCAL- TRANS * 0.*1.6 0 * 00 0.*16 0 * 41, 0,00 0.41 1.661E.R E C TI ON 0,16 0.1J.6 0.32 0.~4:1 0.41 0.82 3.32CIVIL.. WORKS 1. 40 0.50 1.98 3.79 1.28 5,07 20.52ENGINEERING CIVIL- WORKS 0.05 0.00 0.05 0.13 0,00 0.13 0,52TIECHNICAI.. ASSISTANCE 0.00 0.09 0 09 0.00 0.23 0.23 0,93'TRAINING 0,0 0.3 0.03 0.00 0.08F. 0.08 0.31

BASIC COST EST. *(BCE)a '.85 7,80 9.65 4,74 :19+97 24.70 1.00.00

PHYSICAL. CON'TINGENCIE.'S 0,09 0.39 0.48 0.24 1 .00 1 .24 5.00

PRICE ESCAL.ATrION 0.35 0.96 1,31 0.89 2.47 3.35 12.92

SUB TOTFAL. 2.29 9.15 11,44 5.86 23.43 29.29 0.00

INTERESTr DURING CONSTR. 0.18 1.44 1.61 0.45 3 *6.68 4,13 0.00WORKING CAPIT'AL 4,05 2.07 641.2 10.37 5.30 1.5.67 0.00

TYO'TAL. FITNANCING REQUIRED 6.51 121.6 6 1 9.17' 16.68 32.41 49.08 0.00

I NDUS`TRI Al PROJECTS DEPARTrMENT05 / 23 / 76

!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. -1s C1 i.;1: 1...,.i:l. i. U l:i1 '.U Li N! Iif U

(II:::(fl . f. iq Il:l ) YI : I: Nl, !.) ,:!i Ii, Ma; u '- fi U1,: I%l! I' iI .I. :1 .) L I::.I R, . L- A:!:;fl .V! '',l. iiilltA

B..l E4 I:,-I:N13 .I.. 2 N Li :1. :. :! " o. . 0'. :!.1 : :24IXY!:::NO I . 1 1 :1. -:01 1:.. :.O9

F''I \. LN , 1. FIT :l.N:LU I I O 0. o7

M(A KIN .: t.) 2 : :1. .: 2 i.(.1 00 0 : O1.YARN I)YIE .I. NG + F J:1N :1 &H 2 11 I. 1- . CIO 0 04 0 * 4[,l:jN L.f O Nl 'I tN 2 :::I4 :14:1. 2 1 1. 1. II 00 o Q6)4 0.06

bIA "iH S :1. 1 I I . I. 1. II 0 i 0 06

i -1.' -- : 1. W. U !Rf:, N C l.J l:;:. I N I 0 u. I: CI :1. 3l .; t 1.. .L I LL. i 1:1. A1 2 -j J O iO

881:.:' C ii ' i N i v' U i. f i

i. V~ 1 4 L i W P II< 8 :. ! 26 0 et0I:::Nlil:N!~::I:F:::Rl.NI. C: :I.Y:I:i .......... (4'.Jl!:lI•U .. 2 :1. *- -o.; i f. 4\ 3f 0 (o0i V .VfO)0 'ILCHN I, l2~I. Ff,L r:z:;:;l.:Vi6hNl 2 :1. i.' f.'i 4vi,'(i I.'Jti C.).fi,J Vof.)i.) 00 0 0C

R o) 1. Wl:. N Li$ C 0 .0 C. 00 C,00

Ij'. lit. :1. :fI' fl iij.;.,) .ivi.ti.l iV+ly' e1.

ll.Jtfil ..1::'1:.1:1:1.:: -:;.:i:.fAL...........fsi',I:l:;Ni! ... is .i?UV M 1 i ,- , F ;,I.. ,, R-: :V:a

.......................... ,. ..1. .

.... .... .... .... ... ,... .... ... .... .... .... ............... ..

Y !: r R I 7 I I tJ N 1:: 6) L : i :J < X '.Y I Yi-1:::.

.I. . o . .... .... . [.. .... .... . .... K). ..;. .i.. .. . coo... . . :!.;.: . . ... . ..

Of, 3U ', f' ' . oc:oo

ANNEX 5-.Page 1

EGYPT - TEXTILES PROJECT

KAFR EL DAWAR

Assumptions Made for Calculating Incremental

Worling Capital Requirements

Working capital requirements for the project were determined by usingthe following assumptions. The working capital requirements here excludeshort term debt that might be used for financing. Allocations of profitswhich are carried over the year-end and the current portion of long-termdebt are also excluded.

A. Current Assets

(a) Cash:

5% of cash operating costs are assumed to be sufficient for cashrequirements. Any excess or deficit cash will be shown in the cash surplusbalance outside current assets.

(b) Accounts Receivable:

The actual collection period of 55 days or 15% of the sales revenueis taken.

(c) Inventory

For inventory, the following breakdown is used :

(i) Rpw Materials Inventory:

Cotton, the basic raw material, is allocated to KED inOctober-November each year and fully paid during thattime. Actual shipments of cotton are made betweenOctober and April. The year-end inventory of cottonhas historically been between 35-40% of the yearlyrequire-nents. Here 37% is assumed. The same percentageis used for imported fibers, i.e. polyester staple andfilament yarn.

(ii) Work in Progress:

Inventory of work in progress has been about 10% oftotal operating costs,

ANNEX 5-4Page 2

(iii) Finished Goods:

The finished goods inventory equals about 12% or 45 daysof total operating costs.

(iv) Spares:

KED kecps about a three-year supply of spares. For theBase Case, the spares inventory is assumed to remain at1976 levels (in real terms). For the project, theestimated spare requirements are taken and maintainedat 0.79 million LE (in 1976 prices).

(v) Other:

Fuel and oil, packing materials, waste and documentarycredits amount to about 2.5% of total operating costsand are included in this category.

(d) Other Current Assets

Includes loan to employees, other short-term debtors, prepaid cottonand miscellaneous current assets amounting to about 7% of total operatingcosts.

B. Current Liabilities

(a) Accounts Payable

Trade accounts payable amount to about 1h% of total cash operatingcosts.

(b) Other Current Liabilities

Include prepaid sales and non-commercial current liabilities and canbe estimated at about 7% of total cash operating costs.

Industrial Projects DepartmentFebruary, 1976

ANNEX 5-4Page 3

EGYPT - TEXTILES PROJECT -MISR KAFR EL DAWAR

INCREMENTAL WORKING CAF'ITAL. REQUIREMENTS(IN MILLION EGYPT IAN POUNDS)

1976 1977 1978 1979 198(t 1981 1982 1983 1984 1985s

WITHOCUT THE PROJECTCURRENT ASSETrs

CASH 1.43 1.59 1.72 1,82 1.92 2.02 2.12 2.24 2.36 2.4 At:CCOUNTS REtCEIVABLE '.1i-0 5.76 6.25 6.60 6.93 7.27 7.63 8.ti2 8 42 8.84INVENTORY

RAW MATE'RI'AILS 3.18 3.65 4.03 4.29 4.,51 4.74 4.96 5i. 2 J2 5.48 74WOJRK IN PROGRESS 2.98 3 . 3S'i; .60 3.81 4.00 4.20 4.40 4 * 63 4.86 5 t0FINISHFD G OOD'0S 3.58 4.02 4.31 4,5'7 4.80 5-04 5,28.) S.55 5.8;5 6. 2SPARES 2.30 2.42 2.54 2.66 2.80 2.94 3.08 3.2'4 3.40 3.''7O'TlHI R 0.75 0.84 0.90 0.95 1.00 1.05 1 .1I0( 1.16 1.22 1 28

TOTAL. INVENTORY 12.79 14.2.8 15.38 16.28 17. 1117.97 18.82 19.80 20.79 21 .9i

OT'HE R 2.09 2,35 2..52 2.66 2.80 2-94 3.08 3.24 3.40 3.57

TOTAI URREN'T ASSETS 21 .41 23.98 25.`j 87 27.36 28. 76 30.20 251. 6'5 ;'33.30 34.97 36 .701

II LI ABP 12lI. 1.I ESA)(C.COOUNTS FPAYVADLi E 4.00 4.45 4. St 5. ll 5.383 5.66 5.94 6.27 6.60 6. 93OTr I.EI .ER l 2.00 2. 23 2.40 2 . 2.69 28.3 2. 97 3. 1 :3.30 3. 47

TOTAL. CURRENT1 N'l LI UT I I'l'ES 6.00 6.68 7.21 7;;'66 8.07 8 .49 8.91 9.40 9.90 10.40

WORK I N' CAPI FAL 15. 41 17, 30 18.66 19. 70 20.69 21.71 22. 74 23.90 25.07 26.30

CHANG.l I N WORK INti CAPT CTAL (3.39) 1.89 1.36 1.04 0.99 1.02 1 .03 1. 16 1.17 1.23

W14 .. f.HE FR: O£(JI 2CTCUIREI1N r ASSI.S

CASH 1.4'3 1.59 1 -72 1.993 2.355 2.54 2.67 2.01 2.95 53.10ACC.)LUNTS RI. (:EJVABI .E 5.1-0 5.76 6.25 'J24 9.12 0.0 O110.45 1t0.92 11l.41 11,92fINVE..NTOR.Y

IRAW MATERIALS 3.18 3.65 4.03 4.51 5-75 6.31 6.61 6.96 7.32 7.66WORK I\N PtROGRESS 2.98 3.35 3.60 4.15 5.13 5.52 5.77 6.05 6.30 6.55F TN NISI-IEI: GOODS 3.58 4.02 4.231 4,98 6. 15 6.623 6.93 7.26 7.56 7,86SPARES 23.30 2.42 32.58 ;3.70 2i.84 4.00 4.28 4.58 4.90 5.24OTF`I-ER 0.75 0.84 0.90 1.04 1.28 1.2'38 1.44 1.51 1.58 1.64

TOTAAl. INVENTORI'Y 12.79 14.28F 16.42 18 .238 22 * 15 23.84 25.03 26.36 27.66 28.95

OTHER ) r * l j < ^:), tS i2.09 2.35 252 . 2. 9 91 3 . i ;4 3.87 4.t 04> 4.24 4.41 4.58

TOTAL. (CURRENRT ASSET S 21 .41 223 .98 26.91 230, 46 7. 21 40.26 42. 19 - 44.323 46.43 48 .55

C2UFRE Nf 1..AI LIT I ESA(C(COUNTS PAYAlBLE 4.00 4.45 4,81 5.40 6I 157 2'.12 7.47 7.87 8.27 8.67OT(HER 2.00 2-23 2.40 2.70 3o29 3256 53.74 3.923 4.13 4233

TOTAL. CLJYRENT LIA L. I TLIES 6.00 6.68 7221 8(31 9.86 10.68 11 .21 11 80 12.40 1.23.00

WORKING CAFPI'TAL f ..... 15.41. 17.30 19.70 22536 27.35 29.58 30.98 32. -53 34,03 35.55

CHANIEE N WOFRKIING CAPTITAL. (3.339) 1.89 2.40 2.66 4.99 2.23 1.40 1- 55 1.50 1 .52

1 NCREMEL`'NTAL. REQO.-:[4IREMT.-.NETSW:ITI-I SPARES - 1.04 1 .62 4.00 1 .21 0. 37 0t239 0.323 0.29

WI THOUT SPARES3 - - 1 *62 4.00 1. 19 0.223 0.25 0.17 0. 12

IND1U11)S',TREAL.. PFRC)..)T CT'S DEiAR'TMEN'TDh'IE PREP'ARED : 05/24/76

ANNEX 5-5Page 1

EGYPT - TEXTILES PROJECT

EL BEIDA

Assumptions Made for Calculating Incremental Working Capital Requirements

Working capital requirements for the project were determined by usingthe following assumptions. The working capital requirements here excludeshort term debt that might be used for financing. Allocation of profitswhich are carried over the year-end and the current portion of long-termdebt are also excluded.

A. Curirent Assets

(a) Cash

5% of cash operating costs are assumed to be sufficient for cashrequLirements.

(b) Accounts Receivable

25% of total sales revenue is used.

(c) Other Debtors

These are assumed to amount to 6% of total sales revenue.

(d) Inventory

This is broken down into: raw materials, work in progress, finishedgoods, spares and others.

(i) Raw Materials: 1 .Chemicals and Dyes - the following scheduleof percentages of yearly requirements isassumed: 1976, 120%; 1977, 105%, 1978, 9C%;1979-1985, 80%.

2. Wool - 25% of yearly requirements.

3. Gray Cloth - 17% of yearly requirements.

(ii) Work in Progress

5% of total operating costs.

(iii) Finished Goods

11% of total operating costs.

(iv) Spares

For the Base Case the 1976 level of LE 2.10 million is takenescalated by 5% annually.

The incremental requirements for the EB sub-project areLE 0.45 million in 1976 prices.

ANNEX 5-5Page 2

(v) Other

This includes Documentary Credit, Packing and Parcelling Matsand "Other" -- an assumption of LE 2.0 million is made reflect-ing a historical level unlikely to be affected by the project.

B. Current Liabilities

(a) Accounts Pr3yable

Estimated at 25% of cash operating costs.

(b) Other

Estimated at 6% of cash operating costs.

Industrial Projects DepartmentFebruary, 1976

mANn 5-5Page3

EGiYF' -- TEXTILES Pj5(JECY MISR EL BEIDA DYERSZc

INCREMENt AL WORKING CSAPITAL P58U1FkRE.MEA\VS(IN MIL LION EGYPTIAN POUNDED)

19716 1977 1978 1979 1980 1981 1.982~ 1983 1,984 :P1989

W.1 HOUP ML HFPROJECT'((P511" N I AS S f S

0.83 0.89 0.95 1.01 1.07 1 .1I4 1.22 i ..so 1. .38 IA ,i 1)011NIN) RECECIVABLE 5.61 5.95 6.30 6).68 7.08 7.90 7.96 8 . 4 3 t3 9" 4 9(-f'Hf I f 1-fifRS 1.35 1.43 1.,51 1.60 1 .;70 1 8 E0 P.9 2cit I - 2I N'S Ni fit. Y

Cl-IftlCrd-n3 &YES; 2.40 2.26 2.09 1.99 213 2'8 2 44 2 .) 792, I 9"W80)4 2.30 2.49 2.67 2. 87 3.07 3,29 352 376 4 03A _31

As L(TI OU 0.02 0.02 0.02 0.02 0.02 0 0.. 0.02 . '4"2 0 j0WOitH I N F ROGRESS 0.89 0.95 1.01 1.07 1.1.3 1-2 0 1 .211 I 1"'" ),4 iI WINSH))'-1:1 GOODS 1.96 2.10 2.21 2.34 2.4? 244 2.79 296 3" 14 :13 (1'-

ALF r IE S2.10 2.20 2.30 2,40 2.60 2/0 2.80 3,00 3., (0 3Iffll I I,1; 3.00 3.00 3.00 3.0)) 3.00 3 00 3.( 34 '

t0

1OT1r.A. IfNVE..NTORY 12.67 13,02.13.30 13,69 14. 44 A5 15. '1 :1,fl :1.6. 70 1 7 .952 J.8. 4 7

OI ALC IF.[' fF4P NFNI AS S ET'S 20.46 21.29 22.06 22.98 24.29 25 ', 31.68M 932.4 9

1,1F2iJ)RRN f L.I AS]).TLl IE SA I-:C2LIJNf,S PAYABLE 4.14 4.43 4.73 5.04 5.37 ,.7 '0 6 .48 1 6.89 OTHER.- 0.99 1 .06 1. 13 1 .21. 1.,29 1 1 , 1 46 I . 99 1,- . 69- :1.

TOTAL.. CURRE-.NT LIABfL T'IlES .5. 13 5.*49 5.86 6. 25 6.66 7.09 7'14 8.0(3 0 .9!J4 9, 10

LORIH AF45TI AL.. 15.33 15,80 16,20 16.73 1 7 ,6:3 18.48 19.39 20.42 21. .4' 22.

fCn NCII 5 "N WORK1IING CAPITAL (4.37) 0.47 0.40 0.53 0.90 0.85 091 1 J. :1 .03 1. ,.1

CURif:52 1N A S 552 TCwPl ~~~~~0.83 0.89 0.95 1,09 1. 3/ I .1 160 1. 7:1 1 1. .9 1

)Cf)))N.. RECEIlVABLE. 56 95 63 7.26 9,43 :10.31 1ff ?) jj J.4 jq' if I 1) 3OTHIER DEBTORS 1.35 1.43 1.51 1.74 2'6 2t49 2 . 63 2-'17 2 9.-. 3. 00I HJE NTORY

ff i-I17 MICA ). IS %YES 2.40 2.26 2,09 2.55 4. sO 5.24 5.:1 6 Do 6.42 6 w 0lL) 2.30 2.49 2.67 2.87P 3 07, .9 ¾ '.52 / 4,u (3 4 ~ 3I(thAY T COTIH 0,02 0.02 0.02 0.09 0.2"7 o, 35 0. 36 , 0, ~3 0 A4 0.42WORl.1 YN PROGRESS 0.89 0.95 1.01. 1,17 :I ,"l 4 ,6 1.62 71. 1 .u2 1.91 2 2FINISH1ED (30OlDS 1.96 2.10 2.21 2.52 '3 '26 3,. t6 ,3,/ 3.59,' if 'II t4 44S.PAFl: jm 2,10 2.20 2.721 2.82 3.02 3, 24 Z3,4.- 1. Y0 4,00' 4~if iE R 3.00 3.00 3.300 3. 00 3.( 3.00 3 00 s.(.S 3.00 3 Ou0

TO)TAL. INVE.NTORY 12,67 13.02 13,72 15.07 18.60 20.230 21.4>221. 69 23.9'/ 2,. .236e.

TOTIAL. CURRENT' ASSETS 2~0. 46 21.29 22.48 25.16 31 .656 234.683 536.60 238' .6 7 0 P ~lo 43 2 .

CURRENT LI.AS'.' L.ITIfESA2)20UWTS PAYABLE 4.14 4.43 4.73 5423 6 .8`4Z 7 .99-i5 8.02 (3993 ,0 9 . 69.

OTHER ~~~~~~~~~~~~0.99 1.06 1.13 1 .30 '1.64 1 . 81. 1.92 2.0 I (HI .. 3.

TOTAL CiURRENT LIABILITIES 5.13 5.49 5.86 6.;73 8 ~48 9 . 36 9. 94 1 0.98" if I A 26 1) .97

WORKING3 CAPITAL 15.233 15.80 16.62 18.43232.31. 215 .32 26.66 28.09 29.6.2 31-23

CHAI.I(NGE IN WORKING) CAPITAL (4.37) 0.47 0.82 1.81 4.75 2.14 1.34 1.423 1 ,92~3 1 .61J

INCREMEN'TAL REOUIREMENTSWI.1TH SPARES- - 0.42 1.28 3.89Z' 1.2.9 0.423 0.40 8.50 0,48

WY I.ff4UT SPARES - - 1 .28 23.85 1 ,17 0.232 0,35 0230 0.238

I NDUJSTR IAL i--)JE.CTS DEPARTMENTDIATE. P'REPAREDt :05/24/76

ANNEX 5-6

EGYPT - TEXTILES PROJECT

ESTIMATED DISBURSEMENT SCHEDULE FOR BANK LOAN

(In Million US$)

Calendar Year Cumulativeand Quarter Disbursements Disbursements

1977

January - March 5.0April - June 3.0 8.0July - September 3.0 1 .0October - December 20.0 3160

1978

January - March 10.0 41.0April - June 2.0 41.0July - September 2.0 45.0October - December 2.0 )47 .0

1979

January - March 2.0 49.0April - June 1.0 00.0July-September 1.0 01.0October-December 1.0 52 .0

Industrial Projects DepartmentFebruary, 1976

ANNEX 6-1Page 1

EGYPT - TEXTILES PROJECT

KAFR EL DAWAR

INCRZPENTAL FOR THE PROJECT

b:oduction, Sales Price, and Operatinf Cost Assuptions

A. Genseral

Assumptiona made about the expected inflation of sales pricesand operating costs are the same as those made in the income statementprojections for the company without the project (Annex 2-1i). All pricesand costs given below are in mid-1976 prices unless otherwise noted.

Some of the operating costs Fre expressed as a percentagq ofanother variable. In these caaes, the percentage was either derived fromthe actual data of the last five years or estimated by the Bank from datagiven by the company.

Tax calculations and profit allocations are described in Annex2-9.

B. Production

(a) Efficiency

The new spinning and weaving facilities will begin commercialproduction in July 1979 with the following build-up in efficiencyassuming 300 operating days per year :

1979 for 6 months 50%1980 for 6 months 75%Thereafter 90%

(b) Cloth Production

At 90% efficiency the new looms will produce a total of 26.6million meters per year of which 12.1 nillioc meters will be blended fabrics.Since 2.0 million meters are expected to be produced without the project andsince the equipment now producing theae 2.0 million meters will be utilizedfor high valued cotton fabrics, the incremental production of the projectwill be 1.1 million meters of blended and 16.5 million meters of cottonfabrics.

(c) Yarn Production

,Surplus yarn for sales is estimated to reach 1196 tons per year.Of this, 450 tons would be count 40 and 50 and the remaining 296 tons ofcount 60.

ANNEX 6-1Page 2

(d) Waste

For the polyester plant, the assumed waste factor is 13%, for thecotton plant 21%, the average comes therefore to 18% of the total fiberrequirements, which equals 22% of the yarn production.

C. Prices

(a) Polyester Blends

Here an average price of 0.8 LE/m is assumed which would givethe company an internal rate of return of about 15% on it's investment inthe polyester plant. Such a price is substantially lower than the presentprice of about LE 1.6/m. To arrive at the average of 0.8 LE/M for all of KED'spolyester/cotton fabrics production, the incremental project output has to bepriced at 0.6 LE/m.

(b) Cotton FabricsPrice assumptions for each quality for the export and domestic

market are given in Annex 7-1, Table 1.

D. Operating Costs

(a) Wages and-Salaries

KED estimates the labour requirements for the project to beas follows:

Polyester CottonPlant Plant Total

Spinning 808 500 1,308Weaving h76 h88 96h

Total: 1,284 988 2,272

The average wage is assumed to be about 31.5 LE per month. Thecost of wages and salaries would therefore amount to 9h1,000 LE peryear.

(b) Raw Materials

The incremental raw material requirements based on an incrementalproduction of 10.1 million meters of polyester-cotton fabrics and 15.5million meters of 100% cotton fabrics are as follows:

ANNEX 6-1Page 3

Quantity Price Value(tons) (LE/ton) (000 LE)

Polyester-Cotton Plant

Cotton:GIZA 69 681 357 243Other 350 358 125

Total Cotton 1,031 357 368

Polyester:Polyester Staple 1,421 539 766Filament Yarn 111 1,819 202

Total Polyester 1,532 6322 968

Fiber Requirements 2;563 521 1,336

Cotton Plant:

Cotton:GIZA 45 181 442 80Menoufi type 859 398 342GIZA 69 2,958 357 1,056Ashmouni 1,071 333 357

Fiber Requirements 5,069 362 1,835

Overall IncrementalFiber Requirements 7,632 415 3,171

The-above price for polyester does not include duties and ffvernment taxes.The breakdown is as follows:

PolyesterStaple Filament

Costs (EP/ton):F.O.B. 383Q0 1,522.0InsuranceFreight 77.4 61.3Duties 78.8 (17% on CIF) 2,153.3 (136% on CIF)Government Tax 60.0 300.0Local Costs 50.8 235.4

Total 650.0 4,272.0

All polyester inputs are to be imported initially, and are expected tobe produced domestically after 1980 at about the same price. DutieB andGovernment taxes are shown in indirect taxes.

ANNEX6-1Page 4

(c) Power

Incremental power requirements are estimated to be 29.8 and 36.7million kwh for the polyester-cotton and the cotton plant respectively.The total incremental is therefore 66.5 million kwh at a cost of 0.0056LEAkwh totalling 372,000 LE per year at full capacity.

(d) Maintenance and Materials

Estimated to be 1.2% of the gross fixed assets costs, or about320,000 LE per year at full capacity.

(e) Subcontracting

Estimated to be about 16% of the incremental sales revenue. Thisis slightly higher than the assumed average for the other products of KED.This is required in view of the fact that dyeing and finishing for polyester-cotton requires additional equipment and that all fabrics produced by theproject are wider than the average width of KED products.

(f) Indirect Taxes

In addition to the estimated 16% of the value of raw materials,which accounts for the yarn production and treasury tax, the import dutiesand government tax is included here. At full capacity this amounts tot

(000 LE/year) Staple Filament Total

Tams 112 239 351Duty 85 33 118

Total 197 272 469

(g) Depreciation and Amortization

The average depreciation charge is 7.2% of the gross fixed assetsvalue excluding preoperating expenses which are amortized over five years.From this, depreciation amounts to 2.08 and amortization to 0.72 millionLE per year.

(h) Other Overhead

Assumed to be 6% of total wages and salaries.

(i) Long Term Interest

Assumed to be 10% and 6% for the IBRD and Arab Fund loans respectivelywith repayments being made yearly with constant principal payments. The Bank

ANNEX 6-1Page5

loan would be repayable over 11 years and repayments of principal would startby the middle of 1980 after the grace period of 4 years. The Arab Fund loanis assumed to be repaid over a period of 15 years after a grace period of 5years.

(In Million LE)-- Outstanding Loan-- -- Interest Due-- Principal Repayment

Arab Arab Arab_D Fund IBRD Fund IBRD Pand

1979 10.08 13.48 0.50 o.401980 9.62 13.48 0.98 0.81 o.46 _1981 8.70 13.03 0.92 0.79 0.92 0.451982 7.78 12.13 0.84 0.76 0.92 0.901983 6.86 11.23 0.74 0.70 0.92 0.901984 5.94 10.33 0.65 o.65 0.92 0.901985 5.02 9J43 0.55 0.59 0.92 0.90

(j) Income Taxes

As a result of the project, the company will be exempted ofincome taxes for 5 years after implementation of the project. In otheryears, taxes are calculated as per Annex 2-9, page 4.

(k) Profit Allocations

As a result of implementing the project, the company will not payany dividends to the government during the years 1977-1979. Otherwise theprofit allocation is the same as described in Annex 2-9, page 4.

Industrial Projects DepartmentMay, 1976

E(3YP1 --- TEXTILE C l AnnOf 6-iMIS N F Page 6

'R N or' u 1.1:1 ON .lU MM ANFY isoI-i or::' u .!.;

N N - T .F: OR THE l F NO j j: I- i

.1) |79 I [ :1: '.!. 9. -9

b f ATT. 1 I 1.Ct1H!UME1:J1 C| : <IF E :xl . -:C>-/$vsqr 7 ;r-,i'"-9 9 ,1;.

t ARN I : .I r ]LjN f 010 ' } : ' 1 54F '5 :O 7 6e I

fil:: + I: F :.tI:.: g .::- 1 : (!lLl ............Gl: ) 20 . 66 Ce) 7

Wk :4 'Jlo :f N ' f(JiNS) :1. 2 58i.s 4 Y :1. 1.2 4 ' "? 451: .R j:\1 F 1 iNIEFI.N::N I SF (. T N4I' ) N1 } 1 ' 9 6 2 j 231

I 1!4 5 1FlfJ 0 * 2s 1. .12.

t;!t ml !11X.F: 1 .:R 01F... I l: ;j .,.... .t:;96 ElS 9 6. : i.,Al tV b1 F A FB X. ILl I I: W 1l . .:1:( H 7 (0 /:; J1.M )t } :!; I . i 1 :1. 7 9 :I 1.79 r79

!1-1XlJ!l' fIO)IN V )L. UtMELOTH : MT II L .. I O)N MTR -.1i 2. e.9: ::21 26.6

i,-AFRlNl (' TOI:)NS) >.9290 995 :1 !, 196S4iF:- YAhlRN ( TO1INS )-WASTF'rE ( TNS) 341 1 . 124 A.K3

TH: F F-I H E: M 5f A F'MAKETr.. 111 .-I 3.8 :12 .:5 1.5. 2

"' A 1INN ..F1 Y A F NN

w ST 1: :171 6 62: 6813 1

F1O ) TON 1-11 F: E X 1CF F.OYT MA ARKETCI1(11 C -I 2 . 9 9.4 11.. 4

YAR,l:<N 290 995 :1 1.96

SfF Y. RNW fT F 1.: :1. 7() .IA 6(:1.

1 NIsN IA... P1ROJE:CTS DEPARTMENT(lATE FNAREE : 05/24/76

ANINf 6-1EGYPT - TEXTILES PROJECT Page 7

MISR KAFR El DAWARPRODUCTION ANID SALES SCHEXDULE

I:NCREMI:MENTAL FOR THE PROJECT -- DOME STIC, -

1.979 :1.9°0 :1.1- 9 1.9835: J

Fh 11 D Jl C T7 1 oNCL.. O TH ( Ml MiL. I O:N METE RS)

LEA CHEr' 0'I17 0 f 5f / 0.70- . ,E , -[II : : : I+ ; 0 . 1 7;S C j ;D y V- 0. 97 31.19 3.90)F' IRNTED:I O;:iM:! 0*41 0. 50POIY .. YST ER Eff.. ENI:'S 2 * `5 3 P3 * 33 :10 * 10F g l) l 7Zl :5~~~~~~~~~~~~~~~~~~~~~~~~~~~~. ... E...t ... .... .... EX:s... ... A.I ; t ; l

TO TA L CLO .. :.T'H 3 79 .2 50 15 * 20

SAl EE C1F WASTE C T ONS 1 71 562 681

AVE 'F'RAO.3'F: SAI ES ER I C,E'l: N :I '/- 6 Ft; r I..' C

C, I l:1r ( I.E IE:fi METER)B1 I E:' l EACl E 0 .0260 0.260 O o26()

-) Y F U .677 0 . 677 0 . 677F I:l: NI ED 1. 0.393 0. 393 0.393P-l:iL YE:S T EPFt M31 ........ E.:NDS O . dsO 0.600 0.600 0.600

SA9hL E::S l :OF: WASi....;TrE (I E. FPER KG) 0.263 O).o263 0.263

S ALE. REVENUE C MI l.L..ION L E)C1... IJTHl

B L A CH 1l:' 0.*04 0. O 1 0 * 1.DyED1. 0.66 2.1:L6 2.64FRI NT E D 0, 0 A5 0. 1 6 0.20

Iv:o:lL YEfl.3TER FBLENDS5 J. . 12 5 2 00 6 * 06

*f (1 rT A 1.. 0 I. 0TH 2 . '27 7, 47 9 (08

SAL ES OF' WASTE 0. 0 0,1 0 :0t1,

T~~~~~~~~~~~~~~~~~~~. . ...T' ... <... I. ... ....S .E- I N.J.:A ... '..:. .... .... ... 7 ;A?t ./TOTAL SALE."S R-EVE'NUE 2 * 3:1. / 62 9.*26

I N1USTJ RE AL. PROJECTS DEPARTMENTIA'T'E PREPAREX) h : 05/24/76

AN= 6-1E(3Yl:T - TE XTILES PROJECT Page 8

MISR KAFR El..L DAWARI:P,RCriLJClTI0ON AND SL .E:S SCHEDULE

:i NC,PE.:MENTAI F.. lI:Z TlT HE PROJE..CT - E.XP ) RT S

1979 1980 1981 1-1985

PR OIlUC T :i ONCLOTrH ( M [:1:.Ol::N ME.TERS )

D3L. E:nf: (C C H.: I 1 .32 4.29 5.20DiYED 1.32 4.29 5.2C0

-F PIN T ED 0.26 0.83 1. 4.0

TO T Al... CL OTH 2.90 9.41 11 .40

Yg,AtR C TONS ) 290 995 :1. :I. 9 6SAL.E:S O1F W A STE ( TONS) 170 562 68il1

AV:FRAGE. SALF. E:S FPR:hl:C E. N :J.976 PRICF:CE

CI.'.OTF (L.)" PER METE:R)B LEACED 0.354 0.354 0.354

*- DYED 0363 0.363 0.363PR IT'NT ED 0.470 0.470 0.470

YARNS (I PF E R 1K) 1l. .760 1. *760 1. 760SAIES OIF WAISTE I. E FPER K) 0 .270 0 .27C) 0 ;27()

SCA L IES RE.:VENU C. MI IL.' C N LE I

EBL A :C I.-I:E 0f * i47 1. . 5.2 1: 84DYEDI 0.48 1:I. . 156 I . 89

w FP RI N7T1:D 0. 12 0 39 0.47

-71:1~~~~~~~~~~~~~~~~ . ... .... .. ... ... .... ... .:. ... ... ... ... ..I ̂ ̂'T OTAl.I CL OTH 1 .07 3. 47 4 .20

Y ARZNS1 0.51. 1 .75 2. t0S AL 1E:S O C) F W A ST E 005 0. 1 0 . 18.

T OTA L SrilAl ES RE:VENUE 1. 1 63 5.37 6o4B

INDI:UST PRIAL. PROJEC.-TS DEPARTMENTDALT E PFE'FPARED, :+1 05/24/76

E:L3YPT TEXTILES FPROJECT ANNEX 6-1MISR KAF'R EL DAWAR Page 9

PRODUCTII)N AND SALES SCHEDULE

INCREMENTAL. FOR 'THF.: PROJECT - DIOMESTIC ANDi EXFORTS --

1979 1980 1981-1985

F;: R 0fi' LI (1::T l:O NlI OTHIbMIL.L.1AON METERS)

*L T. A CH ED 1.49 4.86 5.90* YE ED 2.29 7.48 9.10PFRINTED 0.38 1.24 1.50POLYESTER BLENDS 2.53 8.33 10,10

TOTAL. CLOTH 6.69 21.91 26.60

YARN ( T'ONS) 290 995 1F:.96SALES OF WASTE (TONS) 341 1,124 1,362

AVERAGE SALES PRICELN 1976 PRICESCLOTLH (LE PER METER)

B*LEACHED 0.342 0.344 0.342DYED 0.498 0.497 0.498PRINTEID 0,447 0,444 0.447POL.YESTER BLENDS 0.601 0.600 0.600

YARNS (LE FPER KG) 1.759 1.759 1.756SALES OF WASTE (LE PER KG) 0.264 0.267 0.264

S3AiL..LS: RE.:.VENUE (MILLION LE)

*i. E:ACHI .:l 0.51 1.67 2.02D YED 1.14 3.72 4.53P FRiINTEDl 0.17 0.55 0,67* POL.YESTER F.Bl I END.S 1.52 5.00 6.06

TOTAl.I. C l.O)TH 3.34 10.94 13,28

YARNS 0.51 1.75 .. 10SALES Or WASTE 0,09 0.30 0.36

tO rAL S,AL ES REVENUE 3.94 12.99 .15,74

I NDUSTRfI hl.. PROJECTS DEPARTMENTDATIE' PREPARED : 05/f24/76

EGYI 'PT .- TrEXT IL ES FRO)JECT ANNISx 6-1MiSR KAFR E:L 1DAWAR Page 101 N CLIME STA'rE M EN l'S

::'OR YEARS END 1 NG DIECEMBE'R (IN M l.l. I OCN EGYPTI AN POUNDS)

INCREMEN'T'AL FOR THE PROJECT

1 979 1980 1981 1982 1983 1]984 1 985

TO(TAL.. SAIES REVENUEIN 1976 T'ERMS 3.94 12.99 15.74 15.74 1.5.74 15.74 15.74

LN CURR1ENT TERMSE 4.31 14.63 18.24 18.79 19.36 19.94 20.54

OP)F E:RA'r:TING COSTSWAGES AND SAL-ARIES 0.35 1.15 1.20 1.26 1.33 1.39 1.46RAW MATERIALS 0.60 3.33 4.25 4.47 4.72 4.98 5.20PO:'WER 0.10 0.38 0.47 0.0 0.52 0.55 0.57MAINTENANCE MAI'TERIAl ' 0.09 0.32 0.41 0.43 0.45 0.47 0.50SUB-CONTRACTING E B 0.69 2.34 2.92 3.01 3.10 3.19 3.29INDIRECT TAXES 0.22 0.92 1 .1S 1 .19 1 .23 1.27 1 .30DEPRECIATION 1.04 2.08 2.08 2.08 2.08 2.08 2.08AMORTIZATION 0.36 0.72 0.72 0.72 0.72 0.38ADMINISTRATION 0.02 0.07 0.07 0.08 0.08 0.08 0.09

TOTAL C OPIERAT I NG C'OS'T"S 3.47 1 1 .31 1.3.27 1.3.74 1 4 .23 14.39 1.4.49

OPE'RAT INCO PROFRI)T'r 0.84 3.32 4.9'7 5.05 5.13 5 *55 6 .05

.1TE R IN8LOME/EXI-`ENSESNTEIREST ON ST DEET 0 .06 0 .05 - _ -

INTE'REST 'T'O ]IBRlO 0.50 0.98 0.92 0.84 0.74 0.65 0.55'NTERESTT O ARAB FO ND1 0.40 0.81 0.79 0.76 0.70 0.65 0.59

TO'TALC OTHER 0.96 1 .84 1 .71 1 .60 1 .44 1 .30 1. 1 4

PROFIT BE'FOR1 TAX (0.12) 1.48 3.26 3.45 3.69 4.25 4,91

INCtOME: 'T'AX - - - - O .29

1 ROF'1T AFTE'R '.'AX (0.12) 1.48 3.26 3.45 3.69 4.25 4.62

PROF 1'. AL LO)ATED TORlT 'IAINEDtl EARNJI NtI` 0.22 0.49 0.52 0.55 0.64 0.69WORKER1S3 0.28 0.61 0.65 0.69 0.E0 0.87(3)UCVERNM ENT 0.98 2.1l6 2.282E 2.45 2. 81 3.06

TO(TAL' AL-LOCA(.r4T [ (I)NS - 1 .48 3.26 3.45 3.69 4.25 4.62

RA'TI'OSOPERAT'lNG PROFIT AS X OF' SAE-S 19.49 22.69 27.25 26. 8E3 26.50 27.83 29.45PROF-IT BEFORE 'I'AX AS % OF S Al E-S (2.78) 1t0.12 17.87 1.8.36 L9.06 21 .31. 23.90lRLOF IT AFT'ER 'I'AX AS % OF Sl'AL E'S (2.78) 1O. 3) 2 37.87 18.36 19.06 21.31 22.49T'I MES :1: NIEREST 'EARNED (0.13) 0.80 1.91 2.16 2.56 3.27 4,05

C ASH FL OWBE1'FORE INT'FRF 'i'T Al'FTR h 'T'AX 2.18 6.07 7.77 7.85 7.93 8.01 7.84AFTE''ri R.[NTE1REST AFT ER TAX 1.28 4.28 6.06 6.25 6.49 6.71 6.70

PROFI [T BREAK EV ENll'T'XL IZA'T1ON 1.05 0.80 0.64 0.62 0.60 0.55 0.49PR I CE 1.03 0.90 0.82 0.82 0.81 0.79 0.76

CASH11 BRlEAK -- EVENUT'1l.. I2A'TI'(ON 0.51 0.42 0.33 0.32 0.31 0.29 0.28

PRI'CER 0.70 0.'71 0.67 0.67 0.66 0.66 0.66

I NDIISTRhl AL IPROJECTS lDlEPTARTME N'TDA'IF PRP F, ARE D :05/25/76

ANNEX 6-2Page 1

EGYPT: TEXTILES PROJECT

EL BEIDA

INCREMENTAL CASE

Assumptions Made for Calculating Production Revenuesand Operating Costs

A. General

Assumptions made about the expected inflation of sales prices andoperating costs are the same as those made in the income statementprojections for the company without the project (Annex 2-14). All pricesand costs given below are in mid-1976 prices unless otherwise noted.

Some of the operating costs are expressed as a percentage of anothervariable. In these cases, the percentage was either derived from the actualdata of the last five years or estimated by the Bank from data given by theCompany.

Tax calculations and profit allocations are described in Annex 2-9.

B. Production

Commercial production of this sub-project is expected to start inJanuary 1979. The assumed efficiency build-up is 50% during thefirst six months of 1979, 75% during the second six month period and 90%thereafter.

C. Prices

Commission prices for the company after implementation of the projectwere estimated in detail by EB and from this the incremental revenuescalculated. As given in detail in Annex 6-5, page 1, the average commissioncharges for dyeing and finishing are expected to increase in the followingmanner

Without Afterthe the

(LE/Linear Meters) Project Project % Change

Average charge forGray 0.032 0.032 -Bleaching 0.035 0.039 11Dyeing 0.060 0.072 20Printing o.o68 0.086 26Pblyester Dyeing 0.200 0.200 -

The increases result from a considerable change in the company's expectedservices. After implementation of the two sub-projects EB is expected toprocess much wider fabrics and to dye and print higher quality finishes,which the company cannot do now to the same extent because of the relatively

ANNEX 6-2Page 2

large portion of obsolete and unreliable equipment.

D. Operating Costs

(a) Wages and Salaries

The company estimates the following increases in the number ofemployees

Dyeing and Finishingof Fabrics 302of Yarn 37

Gray store, making up 205Gaustic soda recovery plant 30

Total 574

The average wage is assumed to be about LE 40/month resulting in anannual labor charge of LE 275,000.

(b) Chemicals and Dyestuffs

The cost of chemicals and dyestuffs is estimated at about 30%of the incremental dyeing and finishing revenue.

(c) Gray Cloth

The amount of gray cloth which has to be purchased for conversioninto PVC coated fabrics is estimated at 110% of the finished productvolume. The assumed price is LE 0.3 per meter.

(d) Utilities

Incremental power and steam requirements are as follows

Quantity Unit Cost Annual Cost(I&/Unit) (LE)-

Electricity 12 Mwh 7,000 84,000Steam 240,000 tons 454 109,000

Total: 193,000

(e) Maintenance Materials

The historically derived percentage of 3% of gross fixed assetsis used.

(f) Packing

Estimated at LE 0.002 per meter of finished fabric.

ANNEX 6-2Page 3

(g) Indirect Taxes

Indirect taxes are estimated at 19% of the value of importedcheidcals and dyestuffs (75% is imported) and 15% of the value ofmaintenance materiala.

(h) Depreciation and Amortization

The average depreciation charge is 7.2% of the gross fixed assetsvalue excluding preoperating expenses which are amortized over fiveyears. From this, depreciation amounts to 0.78 and amortization to0.35 million LE per year.

(i) Administration

Includes all overhead and is estimated at 20% of the annual costof wages and salaries.

(j) Interest

Short-term interest is 6% per annum. Long-term interest on the1BRD loan is 10%. The IBRD loan is repayable over 11 years startingin 1980 after a grace period of 4 years. The IBRD debt schedule isgiven below:

Outstanding PrincipalLoan Interest Repayment

1979 9.73 0.48 _1980 9.29 0.94 0.441981 8.41 0.87 0.881982 7.53 0.79 0.881983 6.65 0.70 0.881984 5.77 O.60 0.881985 4.89 0.52 0.88

(k) Income Tax

Same as for KED (Annex 6-1, page 5).

(1) Profit Allocation

Same as for KED (Annex 6-1, page 5).

Industrial Projects DepartmentMay, 1976

E.l.'iY PR OT EC X T :: L C) F CT A1I 6-2MI SR E: li E.: IDA DYERS .a.. a 4

FRODLJCT I ONPR ICE ANDi SAI.ES SCHIED.) lIE.

*INC:RERME-NTAI. FOR 'Ti HE F, R 0,JEC T

:1 979 1980 19F:1. - :1.985

F R O El i, C I:1:1 NDYEING AND FIN]SH:ClNG(MIllION METERS)

BLEACHED 4.73 15.60 18. 90D YED :1. 75 5.80 7.00PFRINTEDl 0.50 1.65 2.00COAEATIED :1. 4 13 3.71 4*50FOL_YE .E S'T EPR D1 Y E D 2.65 8.75 10460

TOTAL DI & F VOLUME 10,76 3~551 43.00

YARNS (000 TONS)WHITE 0.08 0.26 0.32DYED:1 0 034 1 .:12 13 36MERCE:RISED (0.03) (0,11) (0,13)

*rOTAL 0.39 :1:27 1.55

WOOL (000 TONS)MAN MAIDE: F- :[ BlElRRS(000 TONS)

AVERAGE SAL ES FRI1CEDYEING AND FIN:ISHING(LE PER METER)YARNS ( l..E F:ER KG)WOOL (LE PER KG)MAN MADE F'IBERS(LE FER KG)

SALES REVENUE(LE MILLION)DYEING AND F:IN:SHINC

BLEACHED 017 0e76 (089DYED 0011 1.10 1,19PRINTEDl 0.04 0.83 0.86COATED 1.02 2.94 3.57POILYESTER DyYEDo 0,53 1.75 2.12

TOTrL AL & F SAL-ES RE.:VENUJE 1 87 7 .38 8.63

YARNSWHITE 0.02 0,06 0,(08DYEDL 020 0464 0,78MERCERISED (0,0:1.) (0,03) (0.04)

T'TOAL Y A RNS SAL.ES RE:vENU.:NJE 0L21. O . 067 0.82

WlC)C)11...MANMANMIE:D F::IIDERS

TOTIAL . S I... E:S REVl:'.NLJE 2 . 08 8.05 9. 45

INDUSTRIAL.. PROJECTS DEPARTMENTrDATE: PREPARED:+ 05/24/76

ECiYFPr -- TEXTILES PROJECr ANNEX 6-2MITSR EL BEIDA DYERS Page 5

INCOME Sl'ATEMENTS(FOR YEARS ENDING DECEMBER 31)

(IN MILLION EGYPTIAN POIJNDS)

INCREMENTAL FOR THE PROJECT

1979 1980 1981 1982 1983 1984 1985

rOTAL SALES REVENUEIN 1976 TERMS 2.08 8.05 9.45 9.45 9.45 9.45 9.45

IN CURRENT TERMS 2.34 9.42 11.50 11.95 12.44 12.94 13.45

OPERATING COSTSWAGES AND SALARIES 0.12 0.34 0.35 0.37 0.39 0.41 0.43CIIEMICALS AND DYES 0.70 2.96 3.70 3.96 4.24 4.53 4.85GRAY CLOTH 0.43 1.49 1,90 1.99 2.09 2.20 2.30POWER 0.06 0.19 0.25 0.26 0.27 0.28 0.30MAINTENANCE MATERIALS 0.08 0.28 0.36 0.38 0.39 0.41 0.43PACKING 0.02 0.09 0.11 0.12 0.12 0.13 0.13INDIRECT TAXES 0.11 0.46 0.57 0.61 0.65 0.70 0.74DEPRECIATION 0.39 0.78 0.78 0.78 0.78 0.78 0.78AMORTIZATION 0.16 0.35 0.35 0.35 0.35 0.17 --ADMINISTRATION 0.02 0.07 0.07 0.07 0.08 0.08 0.09

TOTAL OPERATING COSTS 2.09 7.01 8.44 8.89 9.36 9.69 10.05

O1::'l.'-.--RAArJN6 FPROF'IT 0.25 2.41 3.06 3.06 3.08 3.25 3.40

OTHFR INCOME/EXPENSESINTEREST ON ST DEBrT 0.19 0.23 0.20 0.20 0.20 0.20 0.20INTEREST To IBRD 0.48 0.94 0.87 0.79 0.70 0.60 0.52

TOTAL OTHER 0.67 1.17 1.07 0.99 0.90 0.80 0.72

PROFIT BEFORE TAX (0.42) 1.24 1.99 2.07 2.18 2.45 2.68

I NCOMC TAX - - - -- - 0.16

PROFIT AFTER TAX (0.42) 1.24 1.99 2.07 2.18 2.45 2.52

FROFIT ALLOCATED TORETAINED EARNINGS - 0.19 0.30 0.31 0.33 0.37 0.38WORKERS - 0.23 0.37 0.39 0.41 0.46 0.47GOVERNMENT - 0.82 1.32 1.37 1.44 1.62 1.67

TOTAL ALLOCATIONS -- 1.24 1.99 2.07 2.18 2.45 2.52

RATTIOSOPERATING PROFIT AS % OF SALES 10.68 25.58 26.61 25.61 24.76 25.12 25.28PROFIT BEFORE TAX AS Z OF SALES (17.95) 13.16 17.30 17.32 17.52 18.93 19.93FROFIT AFTER TAX AS % OF SALES (17.95) 13.16 17.30 17.32 17.52 18,93 18+74TIMES INTEREST EARNED (0.63) 1-06 1.86 2.09 2.42 3.06 3.50

CASH FLOWBEFORE INTEREST AFTER TAX 0.61 3.31 3.99 3.99 4.01 4.00 3.82AFTER INTEREST AFTER TAX 0.13 2.37 3.12 3.20 3.31 3.40 3.30

FROFIT BREAK - EVENUTILIZATION 1.45 0.69 0.57 0.55 0.53 0.48 0.43PRICE 1.18 0.87 0.83 0.83 0.82 0.81 0.80

CASH BREAK - EVENUTILIZATION 0.86 0.40 0.32 0.31 0.29 0.28 0.26

PRICE 0.94 0.75 0.73 0.73 0.73 0.74 0.74

INDUSTRIALF PROJECTS DEPARTMENrDATE PREPARED :05/25/76

ANNEX 6-3Page 1

EGYPT - TEXTILES PROJECT

KED - FINANCIAL RATE OF RETURN

Capital Costs(miulion LE) 1976 1977 1978 1979 1980 Total

Financing Required 3.00 18.20 9.84 4.03 5.06 40.13Less Interest DuringConstruction 0.07 0.78 1.51 0.99 - 3.35

Current Capital Costs 2.93 17.42 8.3 30 5.06 36.78

(million)_------- In Current Terms ---------- ---------- In 1976 Terms ----------LE - Capital Sales Operating Capital Sales Operating

Year Costs Revenue Costs Costs Revenue Costs

1976 2.93 - 2.69 _1977 17.42 - 14.821978 8.33 - - 6.60 - -1979 3.04 4.31 2.07 2.24 3.17 1.521980 5.06 14.63 8.51 3.48 10.07 5.861981-95 - 18.24 10.47 - 11.73 6.73

SESTIVITIES

Capital Costs Sales Revenue Operating Costs Return%

1. Base Case 100 100 100 12.32. 90 100 100 14.03. 110 100 100 10.94. 100 90 100 8.65. 100 110 100 15.66. 100 100 90 14.3-7. 100 100 110 10.38. 100 90 90 10.89. 100 110 110 13.8

Industrial Projects DepartmentMay, 1976

ANNEX 6-3Page 2

EGYPT - TEXTILES PROJECT

EB - FINANCIAL RATE OF RETURN

Capital Costs 1976 1 2977 1978 1979 1980 Total

Financing Required 1.00 7.00 3.92 2.41 4.84 19.17Less: Int. During Const. 0.03 0.36 0.73 0.49 - 1.61

Current Capital Costs 2J27 6.64 3.19 1.92 4.84 17,56

------In Current Terms ------- --------In 1976 Terms--------Capital Sales Operating Capital Sales Operating

Year Costs Revenue Costs Costs Revenue Costs

1976 0.97 - _ 0.89 _ _1977 6.64 - - 5.65 _1978 3.19 _ _ 2.53 - -

1979 1.92 2.34 1.54 1.41 1.72 1.131980 4.84 9.42 5.88 3.33 6.48 4.051981-95 - 11.50 7.31 - 7.40 4.70

SensitivitiesCases Capital Costs Sales Revenue Operating Costs Return

1 100 100 100 15.52 90 100 100 17.33 110 100 100 13.94 100 90 100 10.45 100 110 100 19.96 100 100 90 18.37 100 100 110 12.38 100 90 90 13.79 100 110 110 17.3

Industrial Projects DepartmentFebruary, 1976

ANNEX 6-3Page 3

EGYPT - TEXTILES PROJECT

FINANCIAL RATE OF RETURN FOR KED AND EB COMBINED

Costs and Benefits in (million LE)1976 Constant Terms 96 1977 1978 1979 1980 1981-L995

Capital Costs 3.58 20.47 9.13 3.65 6.81 -Operating Costs - - 2.65 9.91 1 1.43Benefits - - - 4.89 16.55 19.13

SENSITIVITIES

Capital Sales OperatingCosts Revenue Costs Return %

1. Base Case 100 100 100 13.32. 90 100 100 15.03. 110 100 100 11.94. 100 90 100 9.15. 100 110 100 16.96. 100 100 90 15.57. 100 100 110 10.98. 100 90 90 11.79. 100 3110 110 15.0

Industrial Projects DepartnentFebruary, 1976

EGYPT - TEXTILES P ROJECT ANz 6-4MISR KAF'R El DIAWAR Page

PRODUCTION SUMMARY SCHEDULE

COMPANY AFTER EXPANSION

1976 1977 1978 1979 1980 1981-1985

STA'TlSTr ' SNlUMBER OF SF PINDL)ES 235Y264 288 Y764 288,764 366Y716 366,716 366,616YARN PRODUCTION (TONS) 17Y645 19,650 20J650 22,398 25,957 27,040PROD. PER SPINDL.E(KG) 75 68 72 61 71 74WEAVING YARN (TONS) 15,954 15,954 15,954 17,212 20,066 20,Y48F IBER REQUIRfEMENIS (TONS) 23,468 26,135 27,258 29,203 33,545 34,866WASTE F rACTOR 1 .33 1.33 1 .32 1.31 1.30 1 .29

NUMBER OF IlOOMS 3,*664 3,664 3,664 4,560 4,560 4,560AVG. FABRIC WEIGHT(G/LM) 142 142 142 144 148 149

PFiRODUCTION VOLU UMECLOTH (MILLION METERS) 107.0 107.0 107.0 113.7 128.9 133.6YARN (TONS) 641 2,646 3,646 4,136 4,841 5,042S+F YARN (TONS) 1,050 1 ,050 1,050 19 050 1,O50 1 ,050WASTE (TONS) 5,-823 6,485 6Y608 6,805 7,588 7,826

FOR THE IDOMESTIC MARKETCL-OTH 64.2 64.2 64.2 68.0 76.7 79.4YARN 641 2,646 3,646 3.v846 3,846 3,846S+F YARN L,050 1,050 1,050 1,050 1,050 1,050WASTE 1Y747 1,946 1,982 2,110 2,501 2Y620

F-OR THE EXPORT MARKETCLOTH 42.8 42.8 42.8 45.7 52.2 54.2YARN -- .- 290 995 1.196S F YARNWASTE 4,076 4P539 4i,626 4P695 5,O87 5Y206

INDUSTRIAL FPROJECTS DEPARTMENTDAITE PREPARED :05/24/76

EGYPT -- TEXTILES PROJlECT ANNEX 6-4MISR KAFR EL DAWAR Page

PRODUCTION AND SAhlES SCHEDIULE

COMPANY AFTER EXPANSION -DOMESTIC -

1976 :1977 1978 1979 1980 19818l-1985

IPRllODUCT IOCNCLOTH (MIL.L I ON METERS)

G GREY 0.30 0.30 0.30 0.30 0.30 0.t30

BLEAClHEDl 9.97 9.97 9.97 10.14 10O54 10O67-DYEFD 39.55 39.55 39.55 40.52 42.74 43 t 45PFRINT EDI: 1238 12t38 12.38 12(50 12.79 12.88-01 llY F T lER BlENDS 2*00 2.00 2';00 4.53 310.33 12 t 10

'OTAL_. (.C'LOH 64.20 64.20 24.20 67.99 76.70 79t40

YARN : TONS) 641 2P646 3 p646 3,846 3st846 3,846Stl' YARN (TONS) 1YO50 1Y050 1pO50 1YO50 15 p050 1sp050SAL ES OiF WASTE (TONS) 1LY747 LY946 1'Y982 2T 1.)0 2y50t1i 2Y620

AVJERAGE SALEF PR I CEIlN 1.976 lR']lES

COITH LIE PER METER)-G('iREY 0.367 0t367 0.367 0+367 0.367 0.367-BiEACHEDl 0.252 0.252 0t252 0.251t 0.252 0.252DYED 0.309 0,309 0.309 0.318 0.33;6 0342

- PR I NTEC 0.256 0.256 0256 0.258 00260 0.262P-O FCYRST ER BIENDS 1.605 1.c605 1 * AGE 1 J 044 0.795 0.766

YARNS ( lE FER KG) 1. 186 1 .183 1 *I'82 1.183 1.183 1.183Stl' Yh'ARN (LE PER KG) 2.029 2.029 '.'{029 2,029 2.029 2.029SAmLES OF' WASTE: (LE PERi KG;) 0.263 0.262 0O262 0.261 0.264 0.263

SAiE'S REVENUE (MILLION LE)

G REY 0.11 0 1.11 0,11 0.1o 0.11. 011- BLEACHEX1 2.51 2.51 2.51 2.55 2.66 2.69

DYED 12.22 12.22 12.22 12.88 14.38 14,86- PRINT'ED 3.17 3.1t7 3.17 3.22 3.33 3,37- POLYESTER BLENDS 3.21 3 21 3.21 4.73 8,21 9.27

TOTACl' C'LOTH 21.22 21.22 21.22 23,49 28.69 30.30

YARNS 0.76 3.13 4.31 4.55 4.55 455S+F' YARN 2.13 2.13 2.13 2.13 2.13 2.13SALES OF WASTE 0.46 0.51 0.52 0.55 0.66 0,69

TOT AL SALES REVENIJE 24.57 26.99 28,18. 30.72 36.03 37.67

IND USTRIA L PROJEECTS DEPARTMENTDATEl PREPARED : 05/24/76

EGYPT - TEXTILES PROJECT AMNEX 6-l4M I SRt NFlAFR El- DAWAR Page 3

PRODUCTION AND SAiL.ES SCHEDLJULE:

CO',MPANY *AFTE:R EXPANSION -- EXPORTS -

1976 1.977 1.978 1979 1.930 9 1 -19 5

PfiOLIUCT IOS NCLOTH (MI LL ION METE'RS)

GRfE:Y 20.50 20.50 20.50 20 t5 20.50 2 0 .5- I:.BL EAnC.IIfD l:l *.... 6.60 6*60 6*60 7*92 10.8.9 1 .1 80

-I:I Y I: 15.41 15.41 15.41 16.73 19.70 20. 61.FP R INTE II 0.29 0.29 02.9 0 .55l-,- J 1, 12 1.29

....... .... . .. _. -....._... .... ... .. .. ...... .... ......... .... .............. .....

' OTA . CL T0'rH 42 80 42.80 42.80 457.7 52+21 54, Z2)

YAFRN TIONS) - - 2.90 9 9 5 1 1 96SAL ES 3OF WASTE (TONS) 4sO76 4*539 4,626 4, 695 5S 037 5P2r6

AVERAGE1.: S3)ALES PRICEI N 1976 PR IC,ES

C1OTH (i ::EiR MErTER)(3REY 0V145 0.,145 0.145 0.:145 041.45 04,145-rL E ACHE D 0.270 0.270 0.270 0.234 0.303 04 307

: DYED 0.230 0.230 0.230 0.240 0.259 0 .263P R INTE2 ' 0.207 0.207 04207 0.327 0.402 0.4111

YARNS F( E:': .' ) G.'i. 759 1 + 759 . 56SALES OF WASTE ( LE F.PERl KG) 0.270 0.271 04270 0.27:1 04.269 0.269

SALES REVENUE ( MILLION LE)CLIO'TH

-- GREY 2A97 2o97 2.97 2.97 2.97 2?, 7

BL EA'CHED I : 7 :1 . 78 1 78 2 25 .3 0 3 .62DYED 3.54 3.54 3.54 4.02 5.10 `5.4 3PR R I NT E. D 0l6 0 06 0 .06 ( 4 * 0J + 45 0. 53

~~~~~~~~~~~._... . ... ... .. ... .... .. ..... ..... .. .. .... .-... ..... ... .... ..... ._ .... ........ ...... ._

r T'O L. C:LO lTH 3 .35 8 35 .3 + 35 9. 42 1. 1 . O2 .1 . .55

YARNWS - 0451 1475 21.0SALES CF WAST'E . * 10 1 .23 1 .25 1 . 27 1. *37 1 + 40

............ ....... .... . .. .... I... ... ... ...... ..... . ....... ...... ....... ... .... . ... ........ ...... .... ........

TOTA L.. SAL .ES RF"EVENULE : 9 * 45 9. 53 9 * 60 1 1 +20 14 t94 1 6 + 05

INDIUSTRIAL. PROJECTS DEPARTMENTDATi'E PREPAREDI :4 05/24/76

E:GYF::T -- 'TEXTIL E ES PPROJEC, T ANNlEX 6-4M'ISR FI'r 1 L DAWAR PageL A

:PRODUCTION AND1 SALES SCHEDULE

COMPANY AFTER EXPANSION - DOMESTIC AND: EXPORTS -

1976 :1.977 1978 1979 1.980 1981--1985

PRODUC'T'IONCLOTH(MILLION METERS)

GREY 20.80 20.80 20,80 20.80 20.80 20.80- BLE ACHE:rlED 16.57 16.57 16.57 18.06 21.1 443 22.47

DIYED 54,96 54,96 54.96 57.325 62.44 64.06PR INTED :12 ,67 1.2.67 :1.2.67 13.05 1.3.91 14.17

-- PO:1.YES.81.'TER BLENI:S 2.00 2.00 2. 00 4 .53 1.0.:33 12. 10

TOT AL Cl O TH 107 00 107 .00 1.07 * 00 1. 13 69 12 .91 1:33 * 60

YARN ( TONS) 641 2Y646 3Y646 4s136 47841 5,042SFF YARN ( TONS) 1Y 050 1*050 1 , 050 1. 050 1 s,050 1 050SALES OF WASTE. (TONS) 5,823 6Y485 6f608 6Y805 7,588 7Y826

AVE-RAGE SALES:' P:;RICEIN 1976 F:RICES

CLOTH (LE PER METER)GFREY 06148 0.148 0.148 0.148 0.148 0.148B L EACH E: D 0.259 0.259 0.2.59 0.2.66 0.278 0o281II Y E 0 o 287 0.287 0.2.87 .295 0.312 0.317FPR INTED1 0,255 0.255 0.255 0 .261 0.272 0.275POL.YE STEElR END-S 1.605 1 .605 1 .605 1 .044 0.795 0.+766

YARNS (LE PER KG) 1. 186 1. * 1d3 1. 182 1.223 1.3:01 1 .319S8tF YARN (LE PER KG) 2.029 2.029 2.029 2.029 2.029 2*029SALES OF" WASTE (LE PEfR KG) 0.268 0.268 0.268 0.267 0.268 0.267

SAILES REVENUE (MILLION LE)CLOTTH- GREY 3.08 3.08 3.08 3.08 3.08 3.08- BLEACHED 4.29 4.29 4.29 4.80 5.96 6.31

D DYEr 15.76 1.5.76 1.5,76 16.90 19.48 20.29FP,R INTED 3.23 3.23 3.23 :3.40 3.78 3.90POLYESTlER BLENDS 321.2 32.1 3.2.1 4.73 8.21. 92.27

*T OTAL Cl lOTIHI 29.57 29.,57 29.57 32.91. 40.51 42.85

YARNS 0.76 3*1L3 4.31. 5.06 6.:30 6.65S+F YARN 2.13 2.13 2.1?3 2.13 2.13 2.13SALES E)F WAST1 1. 8 56 1 * 74 1. 0 77 1. * 82 2 *03 2 .09

TOTI'AL .. SAl I ES RVE NUE 34.02 366 7 37.78 41,92 50,97 53.72

1: NYDU ISTR I AL. 1::FRj) E C'zfS D:1EPA RTMEN TDA'TE PREPARED *. 05/24/76

ANNEX 6-4Page 5

EGYF. r - IE XLF :E. Sf PFRlJF('CTM ISR Kfl:AI: FL. LDAWARI

INCOME STrATElMNTFNS(FOR YEARS ENDING DECEMBER 31)

(IN MILLION EGYYPT IAN POUNDS)

COMFPANY AF TER EXFANSION

1976 1977 197 3 1979 1980 1981 1982 1963 1964 1 9 8!

TOTAL SALL -S REVENUEIN 1976 TEIRM'S 34.02 36.57 37. J76 41. 92 50.97 53.72 53. 72 53.72 5;3.72 53. 72

IN ClURRENT TEfRMS 34. 02 38.40 41 .67 48.29 60.8F1 66.70 69.68 72.80S 76,.07 79.4,

OPERAT'INGl COS rSWAGES AND SALARIES 9.00 9.45 9.90 10.79 12.13 12.72 13.32 14.02 14.71 15.4:RAW MATERIALS 8.60 9.87 10.89 12.20 15.53 17.05 17.87 18.82 19.78 20.2POWER O ,90 1.12 1.18 1.34 1.69 1.84 1.93 2.03 2.13 2.72MAINTENANCE MATERIALS 1 .00 1.11 1.23 1.47 1.86 2.. 13 2.33 2.57 2.82 3. 1(PACKING 0.11 0.12 0.12 0.13 0.1.3 0.14 0.15 0.16 0.16 0.12SLIB-CONTRACTING EB 6. 22 6.91 7.50 8.61 10.65 1.164 12.17 12.72 13.29 13. 81IND)IRECT TAXES 2.'32 2.66 2.94 3.35 4.21 4.61 4.81 5.04 5.27 5.4?DEPRECIATION 0.96 1.39 1.27 2.27 3.27 3 .23 3.21 3.17 3.17 3.1 .REPLACEMENT FPROVISION 0.28 0.30 0.33 0.35 0.37 0.39 0.40 0.42 0.42 0-4'AMORTIZATION - - 0.36 0.72 0.72 0.72 0.72 0.38ADlMINISTRAI ION 0.5 4 0.57 0).59 0.65 0.73 0.76 0M80 0.84 0.88 0.92

.... .... ... --. ... , ... . ,.... . __. .... .--. ._..__+..--..*.....

TO)TAl OPF2RAT ING COSTS 29.83 33.50 35.95 41.52 51.29 55.23 57.71 60.51 63.01 65.4?

OPERATING jF::RFT T 419. 4.90 5.72 6.77 9.52 11.47 11.97 12.29 13.06 13.9e

OTH IER INCOME/XEXPENSESO'THER INCO.)ME (0.44) (0.46) (0.48) 51 (0.54) (0.56) (0.59) (0.62) (0.65) (0.6EOT'HEIR FE:FXPENSES 7. 5 0.79 0. 83 0.87 0.92 0.96 1.01. 1.06 1 .11 1 *. >INrEREST ON ST DEBT -- 0.06 0.05 - - -

INTERESr ON EXISTING L.T DEBT 0.19 0.16 0.13 0.10 0.08 0.06 0.05 0.04 0.02 0.O1INTEREST rtO IBRD - - - 0.50 0.98 0.92 0.84 0.74 0.65 0.55INrEREST TO ARAE F-UND -- - 0.40 0.81 0.79 0.76 0.70 0.65 0.5$

. ... . _ ,, . ... ., 8 --, .. _ * * ...... _ --_ ., ._ _ _ -_, _ _ _ _ _ -._ -._ .. _ _ _ _ ...... . . .... .

TOTAL LITFHER 0.50 0.49 0.48 1.42 2.30 2.17 2.07 1.92 1.78 1 .62

PROF IT BEFORE TAX 3,69 4.41 5.24 5.35 7.22 9.30 9.90 10.37 11.28 12i32?

:1 N C( n M E T A X o0J.O 0.58 0.65 0 - 1 2 2(2

PROF-IT AFrI'ER TAX 3.12 3.83 4.59 4.68 7.22 9.30 9.90 10.37 11.28 1.1.12

PROFIT ALLOCATED TORETAINED EARNINGS 0.46 3.11 3.73 3.80 1.08 1.40 1.49 1.56 1.69 1.67WORKERS 0.59 0.72 0.86 0.88 1.35 1.74 1.86 1.94 2.12 2.09GOVERNMENT 2.10 - - - 4.79 6.16 6.55 6.87 7.47 7.32

TOTAL ALLOCATIONS 3. 1£7 3.83 4.59 4.68 7.22 9.30 9.90 10.37 11.28 11.13

RATIOSOPERATING FPROFIT AS X OF SALES 12.3" 12.76 13.73 14.02 15.66 17.20 17.18 16.88 17.17 17.57PROFIT BEFORE TAX AS % OF SALES 10.85 11.48 12.57 11.08 11.87 13,94 14.21 14.24 14.83 15-52PROFIT AFTER TAX AS X OF SALES 9.32 9.97 11.02 9.69 11.87 13.94 14.21 14.24 14.83 14.01TIMES INTEREST EARNED 16.68 23.94 35.31 4.42 3.76 5.25 6.00 7.01 8.55 9.68

CASH FLOWBEFORE INTEREST AFTER TAX 4.60 5.68 6.32 8.66 13.45 15.41 15.88 16.16 16.57 15.85AFTER INTEREST AFTER TAX 4.41 5.52 6.19 7.66 11.58 13.64 14.23 14.68 15.25 14.70

PROFIT BREAK - EVENUTILIZATION 0.75 0.73 0.71 0.75 0.73 0.68 0.67 0.67 0.65 0.64FRICE 0.89 0.89 0.87 0.89 0.88 0.86 0.86 0.86 0.85 0.84

CASH BREAK - EVENUTILIZATION 0.67 0.63 0.62 0.61 0.57 0.53 0.53 0.53 0.53 0.53

FPRICE 0.86 0.84 0.84 0.83 0.81 0.80 0.80 0.80 0.80 0.80

INDUSTRIAL PROJECTS DEFARtMENTDATE PREPARED :05/25/76

ANNU <-4EGYPTr - 'TEXTILES PROJECT Pg

MISR KAF'R ELU DAWARP'ROJECTED FUND FLOW AND, 'ALACE,SEE Tf3

(IN MILLION EGYPTIAN F'OUNDS)YEARS ENDING DECEMBER 31.

1976 1977 1978 1979 1980 1981 1.98H2 1.983i 1984 1985

FUND FLOW

SOUJRCES OF FUNDSPROF'IT AFTER TrAx BEF.INT. 3.36 3.99 4.72 5.68 9.09 1:1,07 11 .5-5 11I,805 1.2.60 :12,2DEPRECIATION 0,96 1.39 1,27 2.27 3,27 3.23 3.21. 3,17 3.7 3.13.REPL'I-. PROVISION 0.28 0,30 0.33 0.351: 0.37 0,39 0.40 (nAC. 0,42 0,44ANM:)R TITA TI ONS - -- -- 0,36 0.72 0.22 0.7 0. 7: -0.8-

INTERN4AL. CASH GENERA'TION 4.60 5.68 6.32 8.66 1 3. 45 15.41. 15.-80 16.16 .1 6,52'j~- 85,8

INCREASE I N CAPI1TAL. 2.23 - - - - -

LONG 1 ERM DEBT0 NO 13 0HNG 3.66 - - - -

I,D-~RI:' 1.1.0 5.00 3.00 0,98 -

ARAB FUND 1.40 6.70 4.00 1.38

'TOY'AL LT DE.B'T 6.16 11.70 7.00 2.36

RE:'FUND) 0g.-T'RANSFE.'RS - 1.3 0 .1.40 - -

SHORT' TlRMN DEBT - 1 .50 - - -. - - -

DECREASE. IN WOC)R KINGCi CA PIT AL1 3.39 - - - - - -

'TO'TAL. SOUR'CES 16.38 20.18 1.4.72 11 .02 .13.45 15.41 1.5.8 16SI..16 16 .S57 1.5 .85

A PPL1:C A I.ON O)F F UNDOSINCkEoSI: :N F IXEDt ASSETS 0.20 0.20 (1420 0.2.0 0,20 0.20 0.20 0.20 0, 20 0.20INCREASE: IN CONSTRUC"T ION IN PROGRESS

DASh. CASL. 4.32 - -- -.. ...

P R oJE C V 2. 90 17.30 7 .2 1.39 - - .

ICTOT)I AL. iNCREASE. IN c"IF, 7.22 1.7.30 7.205 1.39

F'REOPFFA1 ING EXP * 0.10 (1.90 1.60 1 .0::! -. . . -

INClREW'ASE IN WORKING CAP"I'TAl. 1..89 2.40 2.66 4,~99 2.23 1L.4(0 1455 1.50 1. .5'i2INCREdASE I N O'TH,ER ASSETYS (1.6 (019 0.23 0.23 04~36 (1.47 (1.50 0 I 52 (1. 5.j6, "' (56ST' DEB'T REPAYMENTS . - 0 . 10 0 .5(1 0, -( --

DEB"T RE.PAYME"N`TSE:XISTI-NG DjE:BTr (1.8 0,81 0.69 0,61 0.-54 0.47 014:7 0.47 0.47/ 0.23I, B R El -. 0,46 0.92 0.92 0,92: 0 .92" 0.92ARAB FUND - . - 0.45 0.9(1 0,90 0.9(1 0.90

'TOT'AL. IREP,AYMEN'TS (1.80 (1.81 0.69 (1.61 :1 ,(1(1 1.114 2.2.9 '2.29 2.2.,9 2..05INTERES'T P'AYMENTS

EXISTING DEBT (1,19 0.16 0.13 (1.10 0,(i8 0.06 (1,05 (1,04 (1,02 0,01IDF81'- 0 .5(1 (1.98 0,92 0. 84 (1.74 (1. 6,5 0. 55ARAB - - 0.40 0.81 (1.79 (1.76 (1.70 0.65 (1.59

'TOTAL. IN'TE.RES'T (1 *19 (1.16 (1,13 1 .0(1 .1 . 8? 1 *27 1 .65 :1 . 48. 1 .32 :1 . 1. '5

TOTAL. DE"BT SERVICE 0.99 0.97 0.832 1.61. 2,8L7 3. 6:1 3.94 3.77 3.61. 3.20

ALLOCATIONS 2.8(1 2.69 0.7:;? (1.6 (1,81 6 .134 7.9(1 8,41. 8.81. 9.59

TO'TAL APPLICA'TIONS 11.47 24.14 .1.3. 67 8.47 1(1,10 12.65 13.94 1.4.45 14,611 15.07

ANNUAL. CASHl SURPLUS(DEFICIT) 4,91 (:3.961 1 .05 2.55 3.35 2.76 1.94 1.71 1. 89 0.78

SURPLUS CASH- BALANCE 4.91. 0.95 2.00 4.55 7.90 10.66 1.2,60 14.31 16.2.0 1.6.98

DJEBT SERVICE COVERAGE 4,65 5.86 7.71 5.38 4.69 4.27 4,03 4.29 4 .59 4.95

EGYPT - TEXTILES PROJECT ANNEX 6-4MISR KAFR EL DAWAR Page 7

PROJECTED FUND FLOW AND BALANCE SHEETS(IN MILLION EGYPTIAN FOUNDS)YEARS ENDING DECEMBER 31

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

BALANCE SHEETS

ASSETsCIJRR-E NT

CASH 1.43 1,59 1.72 1.93 2.35 2,54 2.67 2.81 2.95 3.10ACCOUNTS RECEIVABLE 5.10 5,76 6.25 7.24 9,12 10,01 10,45 10.92 11.41 11,9:2INVENTORY 12,79 14.28 16.42 18.38 22.15 23.84 25.03 26.36 27,66 28.95OTHER 2.09 2,35 2.52 2.91 3.59 3,87 4,04 4.24 4.41 4,58

TOTAL CURRENT ASSETS 21.41 23.98 26.91 30.46 37,21 40.26 42,19 44.33 46,43 48.55

SURPLUS CASH BALANCE 4.91 0,95 2.00 4.55 7,90 10.66 121.60 14,31 16.20 16,98

GRZOSS FIXED ASSETSBASE CASE 25.20 35.72 35,92 36.12 36,32 36.52 36.72 36,92 37.12 37.32PROJECT - - - 28.79 28.79 28.79 28.79 28.79 28.79 28.79

TOTAL GROSS FIXED ASSETS 25.20 35.72 35,92 64.91 65,11 65.31 65.51 65.71 65.91 66.11

ACCUMOLATEDl DEPRECIATIONBASE CASE 15.26 16.65 17.92 19.15 20.34 21.49 22.62 23.71 24,80O 25BP,R OJ ECTr - - - 1.04 3.12 5.20 7.28 9.36 11I..44 I'i.-5

TOTAL. DCEPRECIATION 15.26 16.65 17.92 20,19 '23.46 26,69 29.90 3307 36.24 3',

NET F-IXED, ASSET'SBASE CASE 9,94 19.07 18,00 16.97 1.5.98 15,03 14,10 13.21 12.3:' 1147PROJ,.EC TI - -- 27.75 25.67 23.59 21J..51 19.43 17.35 F 5,2/

TOTrAL NET FIXED ASSETS 9,94 19,07 18.00 44.72 41.65 38,62 35.61 32.64 2.9.672 6.74

CONST'RUCT'ION IN P"ROGRESSBASE CASE 10.32 - - - -P'ROJECT 2.90 20.20 27.40 - -

NET CONSTR, IN PROGRESS 13.22 20.20 27.40 ... ... ..

CAPITALIZED PREOP. EXPENSES 0.10 1.00 2.60 3,2.6 2.54 1.82. 1,10 0,38TRA,.fNSF7ERS TO GOVERNMEN'T 2.70 1.40 - - - - .

OTHER ASSE'TS 2.26 2,45 2.68 2,91 3.27 3.74 4.24 4,76 5.32 25.08.

roTOTAL AssETS 54.54 69.O5 79,59 85.90 92.57 95.10 95.74 96.42 97.62 98,15

LIABILITIES-CUR REMNT

ACCOUNT'S PAYABL-E 4,00 4.45 4,81 5.40 6.57 7.12 7,47 7.87 8.2.7 0i.67OTHER 2,00 2.23 2.40 2.70 3.29 3.56 3.74 3.93 4.13 4.33ALLOCATIONS P'AYABLE 2,69 0.72 0.86 0.88 6.14 7.90 8.41 8.81 9,59 9,46SHORT T'ERM DiEBT 0.30 1.80 1.30 0.80 - - - - - -

CUJRREN'T LT- DEBTEXISTING 0.81 0.69 0,61 0,54 0.47 0,47 0,47 0.47 0.23 0.2.1I BR]).* - - 0.46 0.92 0,92 0.912 0.92 0,92 0.92ARAB F'UND - - * - 0.45 0.90 0.90 0.90 0.90 0,90

TO0TAL CURRENT LIABILITIES 9.80 9.89 9.98 10.78 17.84 20.87 21,91 22.90 24.04 24.4,9

LONG TERM DEBTEXISTING 9.25 8.56 7.95 7.41 6.94 6,47 6.00 5.53 5.30 5,09IBRD 1.10 6.10 9.10 9.62 8.70 7.78 6.86 5.94 5.02 4.10ARAB FUIND 1,40 8,10 12.10 13.48 13.03 12.13 11,2.3 10.33 9.43 8.53

ToTrAL L-ONG TERM DEBT 11.75 22,76 29.15 30.51 28.67 26.38 24.09 21,80 19,75 17,72:

EQUITYPAID IN CAPITAL 4.43 4.43 4.43 4.43 4.43 4.43 4.43 4.43 4.43 4.43RE'TAINED EARNINGS 20.16 23.57 27.63 31.78 33,23 35.02 36.91 30.89 41.00 43.11LONG TERM PROVISIONS 8.40 8.40 8.40 8.40 8.40 8,40 8.40 8.40 8.40 8.40

TOTAL. EQUITY 32.99 36.40 40.46 44.61 46.06 47,85 49,74 51.72 53.83 '55.94

T'OTAL LIABILITIES 54.54 69.05 79,59 85.90 92,57 95,10 95.74 96.42 97,62 98.15

R A T IOSCURRENT RATIO .2,18 2,42 2.70 2.83 2.09 1.93 1.93 1.94 1.93 1.98DEBT EQUITY RATIO 0.26 0.38 0,42 0.41 0.38 0,36 0,33 0.30 0.27 0.24

INDUSTRIAL PROJECTS DEP'ARTMENTDA'TE PREPARED :05/25/76

EGYPT TEXTILES PROJECT NN 65MISR EL BEIDA DYERS Page I

PRODUCTION, PRICE AND SALES SCHEDULE

COMPANY AFTER EXPANSION

1976 1977 1978 1979 1980 1981-1985

PRODUCT IONDYEING AND FINISHING(MILLION METERS)

GRAY 1.60 1.60 1.60 1.60 1.60 1.60BLEACHED 36.10 36.10 36.10 40.83 51.70 55.00DYErl 57.00 57.00 57.00 58.75 62.80 64.00PRINTED, 38.00 38.00 38.00 38.50 39.65 40.00COATED 0.30 0.30 0.30 1.43 4.01 4.80POLYESTER DYED 2.00 2.00 2.00 4.65 10.75 12.60

TOTAL D I F VOLUME 135.00 135.00 135.00 145.76 170.S1 178.00

YARNS (000 TONS)WHITE 0.18 0.18 0.18 0.26 0.44 0.50DYED 0.74 0.74 0.74 1.08 1.86 2.10MERCERISED 0.33 0.33 0.33 0.30 0.22 0.20

TOTAL 1.25 1.25 1.25 1.64 2.52 2.80

WOOL (000 TONS)DIRECT SALES 3.90 3.90 3.90 3.90 3.90 3.90SERVICES 0.60 0.60 0.60 0.60 0.60 0.60

Tol'AL 4,50 4.50 4.50 4.50 4.50 4.50

MAN MADE FIBERS((00 TONS)

DIRECT SALES 1.03 1.03 1.03 1.03 1.03 1.03SERVICES 0.37 0.37 0.37 0.37 0.37 0.37

TOTAL 1.40 1.40 1.40 1.40 1.40 1.40

AVERAGE SALES PRICEDYEING AND FINISHING(LE PER METER)

GRAY 0.032 0.032 0.032 0.032 0.032 0.032BLEACHED 0.035 0.035 0.035 0.035 (.039 0.039DYErl 0.060 0.060 0.060 0.060 0.072 0.072PRINTED 0.068 0.068 0.068 0.068 0.086 0.086COATED 0 .900 0.900 0.900 0.900 0.8()0 0.800POLYESTrER DYED 0.200 0.200 0.200 0.200 0.200 0.200

YARNS (LE PER KG)WHITE 0.316 0.316 0.316 0.316 0.282 0.282DYED 0.571 0.571 0.571 0.571 0.571 0.571MERCERISED 0.265 0.265 0.265 0.265 0.265 0.265

WOOL (LE FPER KG)DIRECT SALES 2.934 2.934 2.934 2.934 2.934 2.934fiERVICES 0.388 (1,388 0.388 0.388 0.38E1 0.388

MAN MADE FIBERS(LE PER KG)

DIRECI SALES 2.044 2.044 2.044 2.044 2.044 2.044SERVICES 0.282 0.282 0.282 0.282 0.282 0.282

SAL ES REVENUE(LE M[LLION)DYEI[NG AND FI'NISHING

GRAY 0.05 0.05 0.05 0.05 0.05 0.05BLEACHED 1.26 1.26 1.26 1.43 2.02 2.15D'YEDI 3.42 3.42 3.42 3.53 4.52 4.61PRINTED 2.58 2.58 2.58 2.62 3.41 3.44COATED 0.27 0.27 0.27 1.29 3.21 3.84POLYESTER DYED 0.40 (1.40 0.40 0.93 2.15 2.52

TO T Al D S F SALES REVENUE 7.98 7.98 7.98 9.85 15.36 16.61

YARNSWHITE 0.06 0.06 0.06 0.08 0.12. 0.14DYED 0.42 0.42 0.42 0.62 1.06 1.20MERCERISED 0.09 0.09 0.09 0.08 0.06 0.05

IOIAL YARNS SALES REVENUE 0.57 0.57 0.57 0.78 1.24 1.39

WOOLDIRECT SALES 11.44 11.44 11,44 11.44 11,44 11.44SERVICES (1.23 0.23 0,23 0.23 0.23 0.23

TOTAL WOOL SALES REVENUE 11.67 11.67 11.67 11.67 11.67 11.67

MANMADE FIBERSDIRECT SALES 2.11 2,11 2,11 2.11 2.11 2.11SERVICES 0.10 0,10 0,10 0.10 0.10 0.10

TOTAL MMF SALES REVENUE 2.21 2.21 2.21 2.21 2.21 2.21

TOTAL SALES REVENUE 22.43 22.43 22.43 24.51 30.48 31.88

INDUSIRIAL PROJECTS DEPARTMENTDATE PREPARED: 05/24/76

EGYFPT - TEXTILES P-ROJECT ANNEX 6-5MISR El BEIDA DYERS Page 2

INCOME STATEMENTS(FOR YEARS ENDING DECEMBER 3:1)

(IN MILLION EGYPTIAN FOUNDS)

COMPANY AFTER EXPANSION

1976 1977 1978 1979 198( 19813 1982 19893 1984 1 9'P

' 0 TAL SAL F S REVENUfIN 197. T f ..RP 22.43 22.43 22.43 24.51 30.48 31.88 31.88 31 .88 318.38 3 1+88O

IN UIRR0EN2r TERMS 22.43 23.78 25.21 29.05 37.73 41.51 43.78 46.17 48,69 51.333

o PEL OI IN t:' (SN fO5;WAGESL ANI SALARIES 2.90 3.05 3.19 3.48 3.88 4.06 4.26 4.48 4.70 4.93CHEMICAAL AND DYES 2.00 2.15 2.32 3.19 5.62 6.55 7.01 7.50 8.02 8.59C',RAY C(AP O-1 0.10 0.10 0.11 0.54 1.61 2.03 2.12 2.23 2.35 2 4.WOOL. 9.20 9.94 10.68 11.48 12.28 13.14 14.07 15.05 16.10 17.23P O WE ER 0.56 0.59 0.62 0.71 0.87 0.97 1.01 1.06 1. 1. L ? . 1 7MAINTENANC' MAHTRIALS 0.50 0.53 0.55 0.66 0.89 1.O 1.05 1 .1* ( 1 J. I .21PAFCKiNG 0.27 0.28 0.30 0.33 0.42 0.46 0.48 0.50 0.53 1 .m5SUJB-CO 3NTR:;ACTI'lNG 0.07 0.07 0.08 0.08 0.09 0.09 (.09 o.o 0 .10 0 l LIINDrI.RECT TAXES 0.36 0.38 0.41 0.55 0.92. 1.07 1.14 1.21 1.30 1.313DEPRECIATI: flCN t1.13 1.13 0.88 1.17 1.53 1.47 1.41 1.38 .32 11.2:1.REPLACELMlENT PROV. 0.19 0.23 0.33 0.36 0.37 0.40 0.42 0.44 0.46 o. $0AMORT IZA TION - - 0.16 0.35 0.35 0.35 0.35 0.1/7ADMINISTR[ATION 0.5`8 0.61 0.64 0.69 0.78 0, .1 0.85 0.90 0.94 '9

TrO TAL OP'ERATING COSTS; 17.86 19.06 20.11 23.40 29.61 32.40 34. 26 36.30 38.25 40,123

OPERATIN(G PROFIT 4 57 4.72 510. 5.65 8.12 9.11. 9.52 9.87 10.44 11.0:1

OTHER INCOME./EXPENSESOTHER INCOME (0.27) (0.28) (0.30) (0.31) (0.33) (0.35) (0.361 (0.38) (0,40) (0.4,4)OTHER EXPF'NSE-S 0.37 0.39 0.41 0.43 0.45 0.47 0.50 0.52 0. 5 0,5'.7'INTERFsrT ON Sr DEBT 0.44 0.30 0.20 0.29 0.23 0.20 0.20 0.20 0.20 0.20INTEREST1 ON EXISTING l T DEBT 0.04 0.03 0.0;3 0.02 0.02 : 0.02 0.02 0.02 0.02 0.0:2INrEES'TT rO IBRD - -- 0.48 0.94 0.87 0.79 0.70 0.60 0',52

TOTAL OTHER 0.58 0.44 0.34 0.91 1.31 1.21 1 .15 1.06 0.97 0.89

P'ROFIT BEFORE 'TAX 3.99 4.28 4.76 4.74 6.81 7.90 8.37 8.81 9.47 I1(0.:12

INCOMHE TAX 0.39 0.41 0.45 0.46 - .- - - 14- _ + . . . .+ S ..... ........ ... .- - - - . +...... .P.. ....... ... .... ...- ........ . ...... ... . .. . ..........

PsROFIT Al r hr-.FTR TAX 3.60 3.87 4.31 4.28 6.81 7.90 8.37 8.81 9.47 9.28

PROFIT ALLOCATED TOFR,ETAINErf EARNINGS 0.54 3.14 3.50 3,48 1 .0 1 .19 1 .26 1.32 1.42 1.39WORKER SF 0. 681 0.73 0.81 ,80 I f2 1 .48 1 . 57 1 .65 1 . 78 1 .74GOVERNME:NT 2.38 - - 4 1 5.23 5.54 5.84 6.27 6 .15

TOTAL ALL OCA'TIONS 3.60C, 3.87 4.31 4.28 6.81 7.90 8.37 8.8B1 9.47 9.28

R AT IOSPFFRATJNG PROFIT AS OF S AL ES 20.37 19.85 20.23 1.9.45 21.52 21 .95 21.75 21.38 21.44 21.4 5

PROFIT BEFORE TAX AS X OF- SAIES 17.79 18.00 I8.88 16.32 18.05 19. 03 19. 12 19.08 19.45 19. 72PR i F IT A F f.ER TAX AL; A uF ShA I ES 16.0 1627 1 7 .10 14.73 111.0?) 19.03 19.12 19.083 19,425 18.08TIl MES IlNTrlES lTr EARNED 7.50 ll .. 7;3 j 74 5 . 42 : 72 7 .25 8.29 9.5 l .5,c:?;? 12,5 .4

CASHI FLOW- BEEFORE INTERESi AFTER .AX 4.96 5. 2?6 5.55 6.47 1002 11.01 11 . 36 11.f .70 12.04 11 ,l 53

AFTER INTEREST AFTER TIx 4.92 5.23 5. 52 5C97 .9,06 10,12 10.5?5 10.91? 11 42. 10.99

PROFJIT BREAK - EVENLUT[ILIZATION 0.57 0.56 0.53 0.i9 0.55 0.5L 0.50 0.49 0.47 0.46P1iICE 0.82 0.82 0.81 0.84 0.121; 0.81 0,1 0.c111 0.81 0..80

CASH BREAK EVENUTILIZATION 0.43 0.42 0.41 0.44 0.40 0.38 0.37 0.37 0.37 0.37

FRICE 0,76 0.76 0.78 0.76 0<6 0.76 0.76 00.7 0.Z7

INDUSTRI AL FROJECIS DEPARrMENTDATE PREPARED t05/25/76

EG.YPT TEXTILES PROJECT ANNEX 6-5MISR El, BEXDA DYERS Page 3

P:RO.JE.CTED'. FLINDi FLOW ANDi DAL.A NCE SHEETS(IN MILLION EEGYPTIAIN POUNDS)

YEARS ENDING DECEMBER 31

1.976 1.977 1976 1979 1.96( 1 j901L 1.962 .1 963 :1933 4 190-;

SO LCI PEE 0 1- F: U NDlP:-ROFIT IFTE A X F.3N.3. 64 3.9(0 4.34 4. 76 7.77 6,719 9 . 16 I?.3 1. 0 . O¾' 0,

OEFI' P, C : 1 O1ONtqI 1.13 1-*1.3 0668 1 .17 1.53 :3..47 1. 41. 1 .,363 I.. 32 .1 :R :,PEP!. IP34l1-. )"'l'['2({t'N 0.19 0. 23 033 0.36 0.37 0. 40 0.42 0. 44 0.~46 00A 0MUFJI:•4 TON 'lS -. - 0. 16 03 0.'; 35 0.3,; I35 (..I0,

1.P8r4[.. 0.056GENEIIOl,A TIN1 4.96 5. 26 52;. 3.;5 6 .47 :10 .02 JI.. 0.1. 1.:1,36 A /l [1., 2 (.04 .1 :1.5

INC::F:4t43::3:: EN COP).1.03... 0.768 - -.. *

T!101 3 if f: 090 4 .60S 00 1,03

[([23I 3.31' IF i 0 VI1.21,, I:. 1:~*' R 2 00 :3., 70..... ..

003 1'1K 3 1FN (33, 038

ENN 312F' 3[3XI 1 A'SSETS 13.0 (1O .20 0 ,20 0 .. 3 0, 20 - ¾ ¾' .

F.''.! 0 3 ~~~~~~~~~ ~~~~~~~~1. 2 1 .00 0. 30

P3i3, 1 I 3t:, I 00!,. 3 [. , .. ,*6Q z * C0 C

i3I3C'I-F3 ~ E 1N N A' (1,40 ('.3 0 03

33l- i I F.!- k,4 I 1N 63333 O3:0-(3 1.- 0.4:' ('03 1,3 '- 3 3 0 ,

3 !:T H 1CP111 OSSE' J: 0133 h 1.j9 (23V, . .2

'33 I* i34[: 33.2, 2 '24 001,I 3"

612332 3:,.f32,..,\ '23-3.325~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. .. .. .. .

EI 021. Fi0 S -i B I3. ., 0(1 u :3 ,1 0 -15 ' 0 131 ,3' 30,.,4

I NIRDFl ... .... 3..

EX:KL,T: ! 36 10 .u2 (03 *'.F'2 0 ~.92 0,: 0.0 3->' '.1 0

I DEFO -. -. 2~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .. ... 3.. ... .2......

TIOTAl 0101 1 OFT .R VEC t F 0.34 0.2(3 033 x, I3i : 3 . 3D 1.4. 3.42

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EGYPT - TEXTILES PROJECT ANE 6-5MISR EL BEIDA DYERS Page

PROJECTED FUND FLOW AND BALANCE SHEETS(IN MILLION EGYPTIAN FOUNDS)

YEARS ENDING DECEMBER 31

1976 1977 1978 1979 1980 1981 1982 1983 1984 198l5"i

BAL-ANCE SHEETS

ASSETSCU R R EN I'

CASH 0.83 0.89 0.95 1.09 1.37 1.51 1.60 1.71 1.f32 1.93ACCOUNTS RECEIVABLE 5.61 5.95 6.30 7.26 9.43 1.0.38 10.95 11.54 12.17 12.83OTHFR DEBTORS 1.35 1.43 1.51 1.74 2.26 2.49 2.63 2.77 2..92 3.0BTNVENlTRY 12.67 13.02 13.72 15.07 18.60 20.30 21.42 22.65 23.9 25. 36

_ _ . ..... . __ _ _.. ..... ._ ....... ..... ,.,. ,...,,........ . , . , , ._.........,..,....,..... . _ ................. ....

TfOIAl CURRENT ASSETS 20.46 21.29 22.48 25.16 31.66 34.6B 36.60 30.67 40.f3 4X.

SURPLUS CASFI BALANCE 0.57 0.51 2.01 4.50 5.94 6.65 7.h, 8.57 9.42 9.21

GROWS FIXED ASSETSBASE CASE 21.99 22.69 25.52 25.72 25.92 26.12 26.32 26.52 26.72 2f 9'PRoJEcr - - -- 10.90 10.90 10.90 10.90 :10.90 10.90 1090

_ _ _ _ .. _ _ _ _ _ _ _ _ ._ .... ._ _ ... _ _ _ .... ............ ..... .. ................. ... .... ................. - ............... -.

TOTAL.. GROSS FIXED ASSETS 21.99 22.69 25.52 36.62 36.82 37.02 37.22 37,42 37.62 s.7 2

ACCUMULATED DEPRECIATIONBASE CASE 11.93 13.06 13.94 14.72 15.47 16.16 16.79 1/.Y:I'. 9S :I.S ;6PROJECT - - - 0.39 1.17 i .95 2.73 3. 4.'9 ' 42

TOTAL DEPRECIATION 11.93 13.06 13.94 15.11 16.64 18.11 19.52 20.90 22.22 23' 43

NET FIXED ASSEITSBASE CASE 10.06 9.63 11.58 11.00 10.45 9.96 9.s3 9.13 f3.79 8.."PROJECT - - -. 1 051 9.73 f0.95 97 .1 7 i. 3, ; 61 9 3

_ _ _ _ _ ~~~~~~~~~~~~~~~~~~~~. .. . _. ..... ... . -... ... _. ... ... . ... ......... ....... .... I...... ............ ........

TOTAL NET FIXED ASSETS 10.06 9.63 11.58 21.51 20.10 18.91 17.70 1 6. I 41 0 14.9

CONSTRUCTION IN PROGRESSBASE CASE 1.83 2.33 -PF,OJECr 1.00 7.60 10.30

_ _ ._ .. _ .... .. _ .. _. . ...... ............. ....... ...... .... ..... . ... . .... . . ... .... .. ... .. .. .. ..

NET CONSTR. IN FROGRESS 2.83 9.93 10.30 - -

CAPITAL-IZED PREOP. EXPENSES - 0.40 1.20 1 .57 1.22 0.07 0.52 0.17TRANS3-'ERS TO GOVERNMENT 3.70 1.70 - - - -OTHER ASSETS 2.18 2.37 2.59 2,80 3.14 3.54 3.96 4.40 4.87 5.33

TOITAL- ASSE'TS 39.80 45883 50.96 55.54 62.. 14 64.65 66.43 60. S3 70. 57 72. 13

LIABILI TI ESCURRENT

ACCOUNTS PAYABLE 4.14 4.43 4,73 5.43 6.84 7 .55 8.02 8a 453 9.08 9. 65OTHER 0,99 1.06 1.13 1.30 1.64 1.81 1,92 2.05 2.18 2.32ALLOCArIONS PAYABLE 3.06 0.73 0.81 0.80 5.7 9 6.71 7.11 7.49 8.08 7.8)9SHORr TERM DEBT 7.40 7.40 5.40 4.40 3.40 3.40 3.40 3, 40 3.40 3.40CURRENT LT DEBT

EXISTING 0.17 0.15 0.15 0.09 - - - -

I BR - - - 0.44 0.88 0.80-) 0.88 0, 80 0.88 0.88ARAB FUN -- - - -

TOTAL, CURRENT LIABIL-ITIES 15.76 13.77 12.22 12.46 I18.55F 2 0 .3,35 2J1.33 22.35 23.59 24.14

LONG TERM DEBTEXISTING 1.33 1.18 1.03 0.94 0.94 0.94 0.94 0.94 0.94 0.94IBRD 0.90 5.70 8.70 9.29 8.41 7.53 6.65 5.77 4.89 4.01ARAB FUND -- _

TOTAL LONG TERM rDEBT 2.23 6.88 9.73 10.23 9.35 s.47 7;59 6,71 5.83 4.95

EQUITYPAID IN CAPITAL 2.78 2.78 2.78 2.78 2.78 2.,78 2.78 2.78 2.78 2.78RETAINED EARNINGS 17.63 21.00 24.83 28.67 30.06 31 .65 33.33 35.09 36.97 3s.86LONG TERM PROVISIONS 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40

TOTAL EQUITY 21.81 25.18 29.01 32.85 34.24 35.83 37.51 39.27 41.15 43.04

TOTAL LIABILITIES 39.80 45.83 50.96 55.54 62.14 64.65 66.43 68.33 70.57 72.13

R A r I 0 SCURRENT RATIO 1.30 1.55 1.84 2.02 1.71 1.70 1.72 1.73 1.73 1.79DEBI EQUIrY RATIO 0.09 0.21 0.25 0.24 0.21 0.19 0.17 0.15 0.12 0.10

INDUSTRIAL PROJECTS DEPARTMENTDATE F'REPARED :05/25/76

ANNEX 7

EGYPT - TEXTILES PROJECT

ASSUMPTIONS MADE IN THE CALCULATION OF THE

ECONOMIC RATE OF RETURN

The economic rates of return for the two sub-projects are determinedby adjusting the financial cost and revenue assumptions in the mannerdescribed below. The same inflators and deflators as used in the financialanalysis are used here. For calculation of the economic rate of return theparallel market foreign exchange rate (1LE - 1.56 U$s) is used as an approxi-mation for the shadow foreign exchange rate. For ease of comparison withthe financial costs and benefits, the following presentation gives theeconomic costs and benefits are given at the official rate of exchangewherever this facilitates such comparison.

A. Capital Costs

The financial capital costs are used, adjusted by the interest dur-ing construction and by the shadow foreign exchange rate.

B. Economic Benefits

For KED, the economic benefits can be divided into two categories.The first category contains the benefits derived from exports of fabricsand yarns, while the second category contains the benefits from domesticsales.

To calculate the export benefits, the same price assumptions havebeen made as in the financial analysis.

The value of the cotton fabrics which are sold domestically has beendetermined by using the corresponding export prices, which are availablefor all types of fabrics (Page 5).

For the polyester-cotton product mix envisaged by KED, a Europeanconsulting firm has supplied the following margins which are comparedbelow to KED's expected operating cost margins (adjusted to early 1976price levels):

Europe KED 1/Financial Financial - Economic

(at official rate of ehange)Margins

Raw Materials ($/kg) 1.58 2.24 1.48Spinning ($/kg) 1.72 2.61 2.15Weaving ($/mz) o.66 0.17 0.17Finishing ($/u2) 0.23 0.40 0.40

1/ Economic marginr are arrived at by using world market prices for rawmaterials and by eliminating transfer paymeats from the spinning margin.

ANNEX 7Page 2

Using an average fabric weight of about 142 g/m2 the comparisonbecomes

Europe KED($/m2) Financial Financial Economic

(at officiaT rate of exchange)Raw Materials 0.22 0.32 0.21Spinning 0.24 0.37 0.311eaving 0.66 0.17 0.17Finishing 0.23 0.40 0.40

Average Cost of Fabric 1.35 1.26 1.09

Although the average fabric cost is quite similar for European manu-facturers and for KED, there are significant differences between them ineach of the categories. The difference in the raw material margin isexplained by the inclusion of import duties on polyester fibers in KEDfinancial costs. The higher spinning margin for KED is due to the highdepreciation and financial charges for the new spinning equipment whichis considerably more expensive than the average European equipment. Atthe same time, any cost reduction because of cheap Egyptian labour ismostly offset by the much lower productivity which is about half of thatof European manufacturers. With KED's wages being only about one-tenthof those prevailing in Europe, weaving costs are substantially lower inKED than in Europe. This reduction in costs is only partially offset bythe high investment costs required for KED's new facilities. Still, KED'sincremental weaving margin is only about 25% of the average Europeanmargin. The cost of finishing is considerably higher to KI= than to&ropean textile manufacturers for reasons explained further below.

The value of the polyester-cotton fabrics has been calculated onthe basis of the average cost of these fabrics in Europe, increased by15% to cover taxes and profits. The average fabric price would then be$1.35 x 1.15 = $1.55/m 2, or, using an average width of about 123 cm, theaverage fabric price per linear meter becomes $1.91. This correspondsto an average price of about $3.00 for the heavy suiting fabrics andabout $1.00 for the lighter shirting and blouse material.

To establish the economic benefits of expanding EB's convertingcapacity it has to be taken into account that grey fabrics cannot beconsumed as such but have to be bleached, dyed or printed to become aconsumable final product. Instead of so converting their grey goods tosatisfy the domestic market, Egypt could follow a policy of exportingthem and importing finished fabrics. Such a policy, however, couldonly be defended if it could be shown to result in substantial savingsto the economy. It is therefore important to establish whether EB isan efficient converter of grey fabrics by comparing their averagecommission charges to those of large converting houses in Europe andthe U.S. The very nature of the converting business makes such acomparison extremely difficult because of the very large variety of

ANNEX 7Page 3

operations, because prices are often adjusted to achieve optimum utilizationof the converting facilities and because they depend very much on thetype of contract that can be obtained. The comparison below can thereforebe only taken as a very broad indication for EB's competitiveness

Comparison of kverage Commission Chargeskat orficial rate or exchange)

2 EB US Europe(In $/m )Bleaching 0.09 0.06 0.12Dyeing 0.15 0.07-0.17 0.15-0.32Printing 0.17 0.20-0.25 0.34-0.63Dyeing of Polyester Blends 0.51 0.20 0.15-0.36

From the above comparison it can be roughly stated that EB's conversioncharges seem to be in line with those prevailing in the US and Europe exceptfor the dyeing of polyester blends which are converted considerably cheaperoutside Egypt. This is the result of the different technology which is usedat EB compared to the one used in the US and Europe. EB, however, is not ina position to use the more efficient US and European technology because itsproduction runs are too short and too varied and thus do not justify theinstallation of such equipment. It is estimated that for the type of lengthand variety of dyeing of polyester blends that EB has to do a comparativecommission charge of about 30 to 35 US cents per meter would have to be paidif the conversion was done in Europe or the.US. Accordingly, for thevaluation of the economic benefits, EB's commission charges for bleachingdyeing and printing cotton fabrics have been used, but the dyeing chargeof polyester blends has been reduced by 65% to 33 US cents per meter.

Regarding Egypt's fabric exports, the question can be raised whetherit would not be more beneficial for the country to export grey goods andnot to expand EB's converting facilities. The experience of the exportingcompanies has clearly been that it is more profitable to export finishedthan grey goods. However, because of the deteriorating machinery at EB,the quality of finished fabrics has suffered and iMD in particular hasbeen forced to export more and more of its fabrics to 'vestern Europe ingrey form. To show the difference in export realization between grey andfinished fabrics a number of KED fabrics have been selected which areexported in grey as well as in finished form. The comparison which isgiven in Pe shows that EB's commission charge is with one exceptionwell covered by the price differential. It therefore seems desirable forEgypt to export finished rather than grey fabrics.

A part of EB's major expansion will increase its capacity to producePVC-coated fabrics. The assumed financial price of about US$2.00 permeter has been compared to and has been found in line with world marketprices for similar fabrics.

ANNEX 7Page 4

C. Economic Operating Costs

The single most important adjustment which has had to be made tothe financial operating costs is in the valuation of cotton for the KEDsub-project. The table below gives the domestic price, the expectedexport price and the ratio of these two prices for the three basictypes of cotton required by the project :

----------------- US cents/lb -----------------Domestic Excpected Export Price Ratio

Price Price (op /DomesticlCotton Type (at ofiTcial rate of exhneExtra Long Staple: Menoufi 46.3 94.0 2.03Long staple: Giza 69 41.5 84.4 -2.02Long Medium Staple: Ashmouni 38.7 70.0 1.81

The expected export price has been obtained by taking the historicalrelationship between the three Egyptian types of cotton and the American Sr41-1/166" and by maintaining this historical ratio given the lQng-term priceforecast of 52 cents per lb. for the SM 1-1/16".

In the following table, a calculation is jnade of the factor by whichthe financial cotton c6sts have to be multiplied in order to arrive at theexport value of the cotton used

% of Project Export/DomesticRequirements Price Ratio Weighted

cotton TypeExtra Long Staple 16 2.03 0.32Long Staple 65 2.02 1.31Long Medium Staple 19 1.81 0.34

Total 100 1.97

For polyester staple and filament yarn the same import prices as inthe financial analysis have been used, excluding duties and taxes.

The chemicals and dyes input into the EB project has been taken atthe financial costs since about 75% of this expenditure is for imports.The remaining 25% represents a very large variety of chemicals and dyespurchased domestically probably at a price somewhat higher than worldmarket price.

The heavy, grey fabrics which EB has to purchase to convert theminto PVC coated fabrics are estimated to have a border price of about65-70 US cents per meter or about 10% lower than the financial cost to EB.

D. Economic Rates of Return

Pages 7-9 contain a summary of the economic cost and benefit streamsfor the KED and EB sub-projects and for the overall economic return on theproposed project. The tables also give the results of the sensitivity testsperformed.

ANNEX 7Page 5

EGYPT - TEXTILES PROJECT

KED - ECONOMIC BENEFITS AT 90% EFFICIENCY

AnnualA. COTTON FABRICS Domestic Economic Economic

Quantity Price Price BenefitQuality No. Description (Nillion Meters) LEM) (Million LE)

150 Wide Sateen 1.89 0.37 0.34 0.64336 Plain lxl Linen 1.02 0.25 0.30 0.31371 Fine 2x2 Poplin 1.16 0.17 0.37 0.60

374 Fine 2x2 Poplin 1.80 0.25 0.46 0.83644 Fine 2x2 Voile 1.45 0.39 0.39 0.57672 Plain lxl Poplin 1.14 0.15 0.28 0.32676 Plain lxl Poplin 1.24 - 0.28 0.35835 Plain lxl Linen 3.60 0.11 0.20 0.725308 Striped Sheeting 0.97 0.71 0.60 0.585314 Plain lil Poplin 0.55 1.06 0.75 0.415320 Bed Sheeting 1.23 0.32 0.35 0.143

Total s 16.5 5.76

B. COTTON TARN

EconomicCount Quantity Price(CC) (000 tons) (LE/ton)

40 450 1212 0.5550 450 1646 0.7460 296 1840 L.54

3196 1.83

C . POLYESTER-COTTON FABRICS(10.1 million meters at $1.91) 7 .54

D. SALES OF WASTE 6

E. TOTAL YEARLY ECONOMIIC BENEFITS -Y 49(at official rate of exchange)

F. TOTAL YEARLY ECONOMIC BENEFITSkat paraLLel rate or exchange)

Industrial Projects DepartmentFebruary, 1976

DYPT - TXTILI:S PROJECT

El - COMPARISON OF PRICE; FOR GR AND FINISHED FABRICS(at official rate of exchange)

DifferenceBetween EB's

Quality Grey Finished Grey and CommlisionNo. Fabric Fabric Finished Charge

of Fabric (LI/M) (LB) (L/N) (L/)

336 0.182 0.269 0.087 0.052371 0.279 O.345 0.066 0.052374 0.257 0.438 0.181 0.121672 0.184 0.241 0.057 o.o47673 0.141 0.190 0.0249 0o0476'74 0.154 0.199 O.045 o.047676 0.170 0.223 0.053 0.052835 0.146 0.227 0.081 0.058

Industrial Projects DepartmentFebruary 1976

ANNEX 7Page 7

EGYPT - TEITILES PROJECT

KED - ECONOMIC RATE OF RETURN

(In Million LE)Capital Costs (in 1976 Terms) 1976 1977 1978 1979 1980 Total

Financial 2.69 14.82 6.6 2.24 3.48 29.83Economic 3.81 21.20 .44 3.20 4.98 2.67

(In Million LE)Operating Costs 1979 1980 1981-1995

Financial 2.07 8.51 10.47Less Indirect Taxes 0.22 0.92 1.15Financial Raw Materials o.60 3.33 4.25Of this for Cotton 0.42 2.33 2.98Add 97% Premium for Economic

Cost of Cotton 0.41 2.26 2.89

Current Economic Operating Costs 2.26 9.8 12.21(at official rate of exchange) = -

In 1976 Terms 1.66 6.78 7.85

At parallel rate of exchange 2.76 11.25 13.03

(In Million LE)Benefits 1979 1980 1981-1995

(As per page 5 of this Annex) 6.35 20.97 25-42

SENSITIVITY

Capital OperatingCosts Benefits Costs Return %

1. Base Case 100 100 100 21.42. 90 100 100 23.43. 110 100 100 19.64. 100 90 100 17.25. 100 110 100 25.16. 100 100 90 23.37. 100 100 110 19.3B. 100 90 90 19.49. 100 110 110 23.4

Industrial Projects DepartmentMay, 1976

ANNEX 7Page 8

EGYPT - TEXTILES PROJECT

EB - ECONOMIC RATE OF RETURN

Capital Costs 1976 1977 1978 1979 1980 Total

Financial 0.89 5.65 2.53 1.41 3.33 13.81Economic 1.27 8.08 3.62 2.02 4.76 19.75

(In Million LE)Operating Costs 1979 1980 1981

Financial (Current Terms) 1.54 5.88 7.31Less Indirect Taxes 0.11 o.46 0.57Add Grey Fabric Adj. 0.04 0.15 0.19

Current Economic Operating Costs 1.47 5.57 6.93(at official rate of exchange) - -

In 1976 Terms 1.05 3.83 4.-46

At parallel rate of exchange 1.62 5.90 6.87

(In Million LE)Benefits 1979 1980 1981-1995

Financial 2.34 9.42 11.50Less Adj. for Polyester 0.06 0.21 0.26

Current Economic Benefits 2.40 9.63 11.76(at official rate of exchange)

In 1976 Terms 1.77 6.63 7.56

At parallel rate of exchange 2.90 10.88 12.41

SENSIT IVITIESCapital Operating

Cases Costs Benefits Costs Return %

1 100 100 100 22.32 90 100 100 24.53 110 100 100 20.44 100 90 100 17.45 100 110 100 26.76 100 100 90 24.87 100 100 110 19.78 100 90 90 20.29 100 110 110 24.5

Industrial Projects DepartmentMay, 1976

ANNEX 7Page 9

EGYPT - TEXTILES PROJECT

ECONOMIC RATE OF RETURN FOR KnED AND EB COMBINED(in LE million)

1976 1977 1978 1979 1980 1981-1995

Capital Costs 5.12 29.28 13.06 5.22 9.7 -Operating Costs - - - 4-38 17.15 19.90Benefits - - - 9.25 31.85 37.83

SENSITIVITIES

Capital Sales OperatingCosts Revenue Costs Return %

1 Base Case 100 100 100 21.62 90 100 100 23.83 110 100 100 19.84 100 90 100 17.35 100 110 100 25.66 100 100 90 23.77 100 100 110 19.48 100 90 90 19.69 100 110 110 23.7

Industrial Projects DepartmentMay, 1976

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