Document of

The World Bank

FOR OFFICIAL USE ONLY

, g. ? t> _ TA/

Report No. 6025-IN

STAFF APPRAISAL REPORT

INDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

June 2, 1986

Industry Department

thThis documeria hts a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World liank authorization. |

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CURRENCY EQUIVALENTS WEIGHTS AND MEASURES

P.upees (Rs) 1.0 US$0.077 I Metric ton (t) - 1,000 Kilograms (kg)Rs 13.00 = US1.0 1 Metric ton (t) = 2,204.6 Pounds (lb)Rs 1,000,000 US$76,923 1 Kilometer (km) = 0.62 Miles

1 Rectare (ha) - 2.47 Acres1 Cubic meter (Ncm) =:35.32 Cubic feet (cf)

PRINCIPAL ABBREVIATIONS AND-ACRONYMS USED

BTU British Thermal UnitCIF Cost, Insuratnce and FreightDANIDA Danish International Development AgencyDAP Diammonium PhosphateFAT Fertilizer Association of IndiaFICC Fertilizer Industry Coordination CommitteeFOB Free on BoardGAIL Gas Authority of India Ltd.GDP Gross Domestic ProductGOI, Goverument Central Government of IndiaHBJ Pipeline Hazira-Bijaipur-Jagdishpur PipelineIGFC Indo-Gulf Fertilisers and Chemicals Ltd.IFFCO, the Companiy Indian Farmers Fertiliser Cooperative Ltd.KV KilovoltsKW, MW, MWH Kilowatt, megawatt, megawatt-hour(20 (Potash) Potassium oxide content in fertilizersMARD Ministry of Agriculture and Rural DevelopmentMP Madhya Pradesh StateN Nitrogen content in fertilizersNcm, Ncmd Normal cubic meters, per dayNFL National Fertilisers LimitedNPK Nitrogerr-Phosphate-PotashOECF Overseas Economic Cooperation Fund, JapanP205 Phosphorus pentoxide content in fertilizersScf Standard cubic feet (at 60° F - 15.5°C, 1 Atm)tph, tpd, tpy Metric tons per hour, per day, per yeartyn Metric tons per year of nutrientUP Uttar Pradesh State

Fiscal Year

Governuent of India: April 1 to March 31

IFFCO: July 1 to June 30

FOR OFFICIL US ONLY

INDIA

STAFF APPRAISAL REPORT

COOPEtATIVE FERTILIZER INDUSTRY PROJECT

TABLE OF CONTENTS

Page No.

I* INTRODUCTION AND SUMXURY ............. I * 1

II. THE INDIAN FERTILIZER SECTOR ............ 3

A. The Governmeat's Initiatives in the Fertilizer Sector .,.. 3B. India's Nitrogen Fertilizer Iudustry ..................... 5C. Fertilizer Pricing and Subsidy ..... ... 7D. Trantsport and Distribution ............................... 12E. Bank Group Role In the Sector 12

III. FERTILIZER DEMAND AND SUPPLY .......... 13

A. Fertilizer Use in Agriculture 13B. Historical Demand and Supply 15C. Projected Growth in Nitrogen Fertilizer Demand and Supply. 15

IV. PROJECT SPONSOR .................... 17

A. Organization antd Management 17B. Plants and Production Performance ........................ 17C. Historical Financial Performance and Projections 18D. Marketing o 18

V. THE PROJECT . 20

A. Objectives and Bank Role 20B. Scope, Technology antd Locations .... 21C. Supply of Gas and Other Utilities 23D. Environmental Considerations 24

E. Study and Imports Components ............................. 25

VI. PROJECT MANAGEMENT AND EXECUTION .2........... 26

VII. CAPITAL COST. FINANCING PLAN, PROCUREMENT AND DISBURSEMENT ... 27

As Aoula Component . 28B. Rehabilitation Component ................................. 31C. Study antd Imports compotnents ............................. 33D. Procurement and Disbursemeut ............................. 33

This report was prepared by H. Harald Burmeister, Hideo Aomatsu atid tichaelPearson, of the Industry Department, based mainly on their .July/'-s--t 1984appraisal mission. Mesdames George, Greaves, Haidara, Johuson and Lawrenceprovided word processing and secretarial assistance.

Ths dcument h mstrictW distibution nd may be u by recipients onb in the perofomnceof their offcial duties. Its contents way not otherwise be disclosed without World Bcank authoriution.

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TABLE OF CONTENTS (Continued) Page No.

VIII.* FINANCIAL ANALYSIS 3*8.....ee...e .......................

A* Financial Projections .............................. 39B. Financial Rate of Return and Sensitivity Analysis ...... 41C. Financial Covenants and Reporting Requirements ......... 43D. Risks .*.e,q...eeee.ieege.e....e.eee..*.....e..e..e..* 43

IX. ECONOMIC ANALYSIS ......... .. eVeqe...... 44

A. Economic Costs and Benefits *........................... 44B. Economic Rates of Return ........... .......- 44C. Other Benefits .g ............................ e..... 46

X. AGREEMENTS ggg.gegggg....e.ggg....... .. g.......e..e.....g... 46

ANNEXES

2-1 Initiatives in the Fertilizer Sector2-2 Sectoral Measures Taken by 001 to Improve Public Sector Fertilizer

Plants2-3 Capacity and Production of Principal Nitrogen Fertilizer Plants

3-1 Selected Agriculture Statistics, 1952-19813-2 Historical Consumption, Production and Imports of Fertilizers,

1952-19853-3 Projected Growth of Nitrogen Fertilizer Demand and Production

4-1 IFFCO - Organization Chart4-2 IFFCO - Summarized Financial Statements4-3 IFFCO - Marketing Organization

5-1 Aowla - Project Location and Infrastructure5-2 Description of Rehabilitation Schemes5-3 Gas Supply to the Aonla Project5-4 Environmental Standards5-5 Pollution Control Measures

6-1 Project Management and Execution Arrangements6-2 Aoula - Project Implementation Schedule

7-1 Aonla - Capital Cost Estimate7-2 Rehabilitation - Capital Cost Estimate7-3 estimated Disbursement Schedule for Bank Loan

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ANNEXES (Continued)

8-1 Assumptions Used in Financial Analysis8-2 Urea ReZention Price Calculation8-3 Aonla - Financial Projections8-4 IFFCO - Financial Projections8-5 Aonla - Cost and Benefit Streams for Financial Rate

of Return Calculations

9-1 Aonla - Assumptions Used in Economic Analysis9-2 Aonla - Cost and Benefit Streams for Economic Rate

of Return Calculatiou9-3 Rehabilitation - Economic Rates of Return of Sub-Components

MAPS

Map A - India - Major fertilizer Plants (IBRD 19361)tNap B - Fertilizer Complexes Based on South Bassein Gas (IBRD 19363)Map C - Aonla Project Location and Proposed Layout (IBRD 19364)

DOCUDMNTS AVAILABLE IN THE PROJECT FILE

Reference Subject

A. India - Fertilizer Marketing and DistributionB * Bio-data of IPFCO Senior ManagementC. Guidelines for Evaluating the Management Information Systems of

Industrial Enterprises, and Evaluation of IFFCOD. Aonla Fertilizer Complex - Feasibility Report, IFFCO.E. Rehabilitation Component - Proposal for Revamp of IFFCO UnitsF. Land Acquisition and Site StudiesG. Documentation Relating to Aonla Project InfrastructureH. Contract between IFFCO and SnamprogettiI. Aonla - Manpower Development PlanJ. IPFCO's Local Competitive Bidding ProceduresK. Economic Analysis of Rehabilitation Sub-Components

INDIA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

1. INTRODUCTION AND SUMMARY

1.01 The Goverument of India (GOI, the Government) has requested, atndthis report recommends, Bank loa0n of US$150.2 million to GOI (the Gcvern-ment Loan) and US$152.0 million to the Indian Farmers Fertilizer Coopera-tive Ltd. (IFFCO) (the IFFCO Loan) for the Cooperative Fertilizer-IndustryProject (the Project), which cousists of (i) a new gas-based ammonia/ureaplant comlplex to be built at Aonla in the State of Uttar Pradesh (UP) (theAonla Component), (ii) measures to increase production efficiencies atthree existing cooperative fertilizer plants located at Phulpur (UP), Kaloland Kandla (both in Gujarat State) (the Rehabilitation Component), (iii) astudy to develop ways to expand GOI's management information, evaluationand control system for the public sector fertilizer industry (the Study),and (iv) the importation of fertilizer materials (the Import Component).

1.02 The Bank's support for this Project as well as for two others inthe fertilizer sector which are presently under preparation, will be linkedto GOI's establishing and implementing a program of measures designed toachieve several broad sectoral objectives. These are to make India'sfertilizer production and distribution more competitive, to reduce theircost, and to reduce GOI's fertilizer subsidy. A program of actions hasbeen agreed with government officials, including on a number of performancetargets by which progress towards reaching the above objectives over thenext few years can be measured.

1.03 The Aonult Component for which US$112 million of the Bank'sproposed IFFCO Loan is to be used, consists of a natural gas based plant toproduce 423,000 metric tons per year (tpy) of ammonia, essentially to beused in the production of 690,000 tpy of urea, and includes related offsiteand utility facilities as well as needed infrastructure; it will use well-proven technology which has been applied in other projects in India.Execution of this component is now in its initial phases. The Rehabilita-tion Component for which US$40 million of the IFFCO Loan is to be used, isunder preparation and will be ready to begin implementation later in 1986.It is designed to increase production and energy efficiencies at threeexisting plants in the cooperative sector which have suffered mainly due tochanges in feedstock specifications and infrastructure conditions as wellas aging of equipment, and to allow them to maintain or increase furthertheir already high levels of capacity utilization. This will be achievedby adapting equipment to such changes and replacing obsolete or inadequatefacilities. These measures are technically viable. The Study, to befunded from the Bank's proposed Government Loan with US$200,000, will bedesigned to prepare an important institutionrbuilding measure; it will cor-sist of a review by experienced international consultants of GOI's manage-ment information system of the public sector fertilizer plants, with theaim of introducing performance control, signaling and incentive featuressimilar to those successfully implemented in other countries. The ImportComponent, also to be funded from the Government Loan with US$150.0million, will assist GOI in meeting its import requirements of fertilizersand fertilizer raw materials.

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1.04 The Aonla and Rehabilitation Components of the Project will beimplemented and operated by IFFCO (the Compauy), an organization sponsoredby some 27,000 cooperative societies in 16 Indian states and territories.IFFCO, which will be the Borrower of the IFFCO Loan, already is a majorproducer of fertilizers; It owus and efficiently operates the three plantsat which investments to increase production efficiencies are proposed to befinanced under the Project, and is a shareholder in the Bank-financedHazira fertilizer complex (Credit 1125-IN). On the basis of its pastexcellent performance in terms both of implementation capabilitv and opera-tional efficiency, IFYCO is well suited for undertaking the Project, tohandle its productiou aspects ad to market its output. The viability ofthe Project is demonstrated by its satisfactory projected returns: for theAonla Component, the economic rate of return (ERR) is estimated at 17.1%,while those of the various rehabilitation measures range from 20% to ever40%. The technical, financial and economic risks to which the Project issubject, are acceptable.

1.05 The Bank loans will cover approximately 33% of the Project'sestimated financing requirements totalling US$917.9 million, and about 57%of its foreign exchange cost. Japan's Overseas Economic Cooperation Fund(OECF) and agencies of the Governments of Italy and Denmark will providebilateral credits totalling US$150.8 million. The remaining financing willbe provided by 001 in the form of long-term debt and equity (US$250.6million), from IFFCO's internal cash generation (US$97.9 million), throughequity contributions from its constituent cooperatives (US$34.6 million),and from other 1-cal borrowings (US$81.8 million).

1.06 The Aonla project for which no particular risks are foreseen, ispart of GOI's overall plan to make the most economic use of India's off-shore natural gas resources, which prompted GOI to embark on a programinvolving implementation of ten large-scale ammonia/urea plants. Of these,the two-plant Hazira complex has recently been completed and two others,one located in Madhya Pradesh State (MP) (Loan 2415-IN) and the other inRajasthan, are under construction and expected to be completed in 1988;another two-plant complex started production in 1985 at Thal-Vaishet(MaLarashtra State). The Aonla project is the seventh in this series.Three additional plants, all to be located in UP aud to be implemented bythe private sector, are in the planning stage. Except for the Thal andHazira complexes, these plants will be fed natural gas through the new1,700 km Hazira-Bijaipur-Jagdishpur (HBJ) pipeline whose construction is tobegin shortly.

1.07 In keeping with GOI's long-term objective of agricultural self-sufficiency, implementation of the ten plants as well as increasing andrationalizing the output of existing production facilities aims at increas-ing the availability of end-use fertilizers to agriculture in an effort toraise its consumption from levels which are still below the average ofsimilar countries. India has been suffering from low rates of fertilizerapplication due, in part, to limited availability, long haulage and aninadequately developed distribution system. With easier access to fertil-izers, Tndian crop yields are likely to be improved with the adoption of

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intensified farming practices. Most of the output of the Aonla projectwill be marketed in UP where fertilizer supply Is expected to continue tofall short of demand.

1.08 India's production capacity of nitrogen fertilizer, the mostimportant of the three priucipal plant nutrients, currently totals about5.2 million tons per year of nutrient (tyn). This Is expected to increasewith comp?etlon of the ten new plants and other measures being taken, toabout 9.4 million tyn by the early 1990s. The anticipated production fromthis vast capacity, even when taking into account a substantial furtherimprovement in the utilization rates of existing plants, is estimated toreach at most 8.1 million tyn (para 3.07), which still falls short ofprojected demand by more than 2.0 milliou tyu.

11. THE INDIAN FERTILIZER SECTOR

2.01 Fertilizer plays an important role in India's agriculture whichaccounts for about 40% of the country's GDP and provides employment to over67% of the total work force. GOI's consecutive 5-year Plans have empha-sized the objective of agricultural self-sufficiency, and efforts in thisdirection have resulted in an increase of over 65% in agricultural produc-tion during the last two decades. Increasing agricultural productivitythrough improved farming practices and the use of modern inputs have beenof paramount importance, especially in light of the negligible scope forexpanding the land available for agriculture. The objective of furtherexpanding fertilizer use, which has grown at a compound annual rate of 1OZsince the early 1970s, reaching 8.2 million tons of nutrient in 1984/85, isan integral part of GOI's agricultural development strategy.

2.02 India is now the fourth largest fertilizer producer in the worldwith a total production in 1984/85 of 5.2 million tyn, of which 3.9 milliontytn was in the form of nitrogen. In spite of this large production, thecountry still has a supply gap which in 1984/85 corresponded to 37% of itsfertilizer requirements, or some 3.0 million tyn, at a value (FOB basis) interms of imported material of some US$750 million. The outflow of foreignexchange on account of fertilizer imports over the years has had a consi-derable negative impact on India's balance of payments. To increase domes-tic production so as to substitute for imports, GOl is attaching highpriority to installing new production facilities while further increasingthe level of capacity utilization at existing plants.

A. The Government's Initiatives in the Feriilizer Sector

2.03 In the course of several missions, Bank staff have developed withGOI officials a program, to be implemented by GOI, of Initiatives in theFertilizer Sector (Annex 2-1). This program sets specific time-bound per-formance targets to be achieved by implementing a number of measures to betaken in pursuit of Gol's objectives of reducing the cost of fertilizersand the level of its fertilizer subsidy.

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2.04 More specifically, these objectives are (i) to further improvethe economic efficiency anid international competitiveness of India's fer-tilizer production and improving public sector industry management; (ii) toimprove the efficieucy of fertilizer transportation and distribution inorder to reduce the cost of fertilizer use and increase its availability;and (iii) to reduce the fertilizer subsidy. The targets being aimed atinclude: (a) atn increase in average capacity utilization for all plants andparticularly for those in the public sector; (b) reductions in unit feed-stock consumption; (c) reductious in distribution distances and costs anideliminationi of shipping delays and production stoppages resulting from lackof railroad hauling capacity; and (d) following a review currently underway by GOI, a rationalization of the existing ox-factory retention pricesystem (para 2.16) with a view towards maintaining constant present averageex-factory prices.

2.05 GOI has already taken a number of measures to address fertilizersector issues, many of them as a result of the Bank's dialogue with GOI inconnection with previous projects; these measures,listed in Annex 2-2, havehad a considerable impact on improving capacity utilization and production,and reducing production costs at existing plants. The 10% fertilizer priceincrease atnounced by GOI in January 1986 is estimated to reduce the subsi-dy by about 20% from levels where it would have otherwise been. The addi-tional actions to be implemented (Annex 2-1) with a view towards attainingGOI's objectives in the sector, include:

(i) improvements in the efficiency and capacity utilization ofexisting public sector plants, through technical and energysurveys and audits, studies of the economic viability ofcertain units and the subsequent rehabilitation or closureof existing plants, as well as a long-range perspectivestudy to develop an optimal scenario for the structure offertilizer production up to the year 2000;

(ii) improvements in the management of public sector plants, by(a) developing a computerized performance control and sig-nalling system, to be assisted by consultants with interna-tional experience 'v be funded under the Project (para5.18); and (b) increasing the role of the private sector infertilizer production by placing responsibility for imple-mentation and operation of the four remaining new gas-basedammonia/urea plants with the private sector;

(iii) in order to stimulate internal competition and to inducelong-term competitiveness with the international fertilizerindustry, improvements in the retention price system with aview to reducing the cost of locally produced fertilizer(para 2.16); and

(iv) changes in the fertilizer distribution system so that it canhandle more efficiently and competitively the increasingvolume of fertilizers required; this includes establishment,presently being prepared initially for North India, of a

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network of nodal points to which fertilizer can be shippedby rail in bulk and wnere it cau be received, stored, baggedand tratns-shipped to conlsumers.

2.06 Progress In the implementation of these measures and towardsachievement of the targets mentioned earlier will be taken into account bythe Bank when considering possibly two additional projects in the sector:a Fertilizer Industry Rehabilitation Project, currently under preparationfor FY88, and a Fertilizer Distribution Project, planned for FY90.

B. India's Nitrogen Fertilizer Industry

2.07 India currently has a production capacity of 5.2 million tyn ofnitrogenous fertilizer and 1.7 million tyn of phosphatic fertilizer. Withcompletiou of the remainder of the ten new gas-based plants, total nitrogenproduction capacity will increase to 9.4 million tyn and phosphatic fertil-izer capacity, to 3.0 million tyn by the early 1990's. There is no potashproduction in India due to the lack of exploitable raw materials.

2.08 India's vast existing capacity has been developed in the courseof some 30 years. There are now tweuty-seven nitrogeni fertilizer producersin India, operating 42 plants. The majority of the plants produce nitro-genous fer.ilizer in the form of urea for direct application or in combina-tion with other nutrients as compound fertilizers. Annex 2-3 provides alist of these plants, their respective ownership, products manufactured,feedstock base, production capacity, actual production from 1981/82 through1984/85, and rates of capacity utilization for the most recent year.Twenty-two of the plants, representing about 56% of total nitrogen capaci-ty, are owned wholly or partly by GOI, 16 plants (33% of capacity) by theprivate sector, and the remaining four (18% of capacity) by the cooperativesector. The location of the principal units is shown on Hap A.

2.09 Feedstock for Nitrogenous Fertilizers. Prior to the exploitationof India's natural gas reserves, fertilizer production capacity was devel-oped on the basis of naphtha and fuel oil as feedstock, available fromdomestic refineries in excess of demand, and abundantly available coal.Presently, twelve major naphtha, six fuel oil and two coal-based plants arein operation. With the large quantities of natural gas n,ow available par-ticularly from the Bombay High/South Bassein off-shore oil and gas fields,all the recently completed plants are gas-based; once the MP, Aonla andremaining four projects are completed by the late 1980s or early-1990s,natural gas-based plants will account for 47% of nitrogenous fertilizercapacity, naphtha-based plants for 30%, fuel oil-based plants for 13%, andcoal and coke oven gas-based plants for the remainder of India's fertilizerproduction capacity.

2.10 Plant Capacities and Technologies. A wide range of plant capa-cities and ammonia technologies have been used in India and the country hasnow acquired substantial experience in building and operating plants with anumber of sizes and technologies. These range from those of the smallplants built in the 1950s and 1960s to the recently completed large units

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of up to 1,350 tpd of ammonia, reflecting the technologies available at thetime of plant design. Production processes tnow in commercial use includecoal gasification, electrolysis of water, coke oven gas cracking, partialoxidation of fuel oil, and steam reformitng of naph,ha and natural gas.Following recent developments In more advanced countries, the latestgas-based installations in India use steam reforming aud involve largecapacities allowing the use of more economical centrifugal compressors.

2.11 Capacity Utilization. In addition to increasing capacity, GOIhas been placing considerable importance on taking measures necessary toenhatnce the capacity utilization of existing plants. Theae have resultedin significant improvements. Recent levels are shown in Annex 2-3 foreach nitrogen fertilizer plant. In the past, production in many Indianplauts suffered greatly, particularly because feedastocks were not alwaysavailable, and because of power supnly interruptions; this was due toexternal factors, Including temporary operational difficulties of the rail-ways and political disturbances in the oil producing and refining State ofAssam. However, rail movement of coal and fuel oil has significantlyimproved. Power supply interruptions are progressively beinr overcome withinstallation of captive generating facilities at several plants, and otherconstraints are being removed through debottlenecking and efficiencyimprovement measures, as a result, average capacity utilization hasincreased from below 60% in 1980/81 to 74% in 1984/85. Plants in thecooperative sector, all owned by IFFCO, have consistently operated atlevels well above the country averages and reached 107% in 1984/85.

2.12 The performance of the public sector plants has been lower thanthat of the others. However, improvements achieved in this sector havebeen remarkable, with the average capacity utilization rate increasing from41% in 1980/81 to 60% in 1984/85. Six of the major public sector plants,accounting for 27% of India's nitrogen capacity, have been producing atrates less than 60%. GOI's program of sectoral initiatives (para 2.03-2.06) includes efficiency and energy audits and technical studies which areexpected to lead to further corrective remedial measures in these plants.Studies are in progress (with Bank funding under the MP Project) for therehabilitation of two coal-based plants, which are expected to form thebasis for the Rehabilitation Project under preparation. The rehabilitationof several other public sector plants, once found to be economicallyviable, could also be funded under the same project.

2.13 Management. Apart from technical problems, many past inefficienrcies in public sector plants were caused by lack of motivation of plantmanagers to act energetically to resolve technical matters, improve capaci-ty utilization and reduce production costs. Although significant improve-ments have been made, the existing system of management selection, perfor-mance evaluation and incentives is still lacking in some respects. Currentprocedures are being reviewed by several GOI studies including those forthe selection, appointment, teuure, training, incentives and motivation oftop managers in the public sector in general; the studies' aim is to findways to ensure a higher level of professional decision-making by topmanagement, to increase autonomy and accountability of the matnagers, and as

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a result, to Improve public sector companies' operational performance andefficiency. In this context, the Department of Fertilizers under theMinistry of Agriculture and Rural Development (lARD), which is responsiblefor administrating the public sector fertilizer plants, is in the processof implementing a computerized management information system. Under theProject, GOT intends to work with the Sauk in further refining that system(pare 5.18).

2.14 New Capacit-. The current expansion In domestic manufacturingcapacity of ntitrogen fertilizer will be based almost entirely on naturalgas, e.g. the recently cowmileted two-plant Thal and Hazira complexes, theMP, Aonla and Indo-Gulf Fertilizers and Chemicals (IGFC) projects underconstruction, aud three more being planned and expected to be completedbetween 1989 aud 1991 (Ia 3). Regarding phosphates, due to limiteddomestic phosphate reserves, supplies will have to be obtiined mostlythrough import of finished fertilizers or from domestic productiou based onimported phosphoric acid.

2.15 Given the large claims an public funds in the present resource-constrained circumstances, GOI has sought substantial participatiou ofprivate firms and cooperatives in owning, building and operating the newfertilizer plants. Apart from several expansion projects under way in theprivate sector, proposals for new plants include the following:

India: New Gas-based Ammonia/Urea Projects

EstimatedLocation S2onsor Sector Cowmletion a/

1. Aonla IFPC0 - under Cooperative 1988(Bareilly, UP) construction

2. Jagdishpur Indo-Gulf Fertilizers Private 1988(Sultanpur, UP) and Chemicals (United

Arab Emirates) - underconstruction

3. Billopa Zuari Agro-Chemicals Private 1989(Sawai Madhopur, (Birla Group) -Rajasthan) approved

4. Babrala Tata Group - Private 1990(Badaun, UP) approved

5. Shahjahanpur (UP) To be decided Private 1991

a/ Source: Fertilizer Association of India (FAI).

C. Fertilizer Pricilg and Subsidy

2.16 Retention Prices. Nitrogen fertilizer prices are statutorily setby the Government - at both the ex-factory and faragate levels. Whileprices at which fertilizers are sold to farmers are uniform throughout thecountry, ex-factory "retention" prices, which are administered by GOI's

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Fertilizer Industry Coordination Committee (FICC), are set on a plant-by-plant basis, under a carefully designed and administered formula. Providedgiven conditions are met, this "retention price formula" which was intro-duced in 1977, generally enisures the financial viability of fertilizerplants, giving them adequate incentives atd motivation to operate effi-cieutly, and invest in new equipment and faciliLies. The formula which isdescribed in more detail in Chapter VIII, allows each unit, when operatingefficiently at 80% capacity utilization, an annual 12%-after-tax return onequity; plants operating at lower rates earn a lower, and those operatingat higher rates earn a higher return. The system does not compensate pro-ducers for productiou inefficietncies since it allows them to recover costsanid earu a return only if their plants operate at acceptable input conisump-tion norms; conversely, it peualizes producers for capital cost increasessuffered during construction due to delays beyond original planned comple-tion dates or due to additional preoperating expenses, interest during cor-struction and project management charges. The formula therefore ensuresthat most inefficiencies which can occur, both during plant implementationand operation, do not raise a plant's retention price. The formula fur-thermore has been widely credited with encouraging private investors toparticipate in the establishment of new production capacities (para 2.15).The pricing arrangement, however, fails to generate the necessary elementof competition among matnufacturers, considered useful in improving theoverall performance of the sector.

2.17 There are therefore, potential areas for improving the formula.GOI's ongoing review of the retention price system which is part of theprogram of initiatives (para 2.03), is focusing on several measures aimedat optimizing the system, to stimulate internal competition, to inducelong-term competitiveness with the international fertilizer industry, andto help reduce the fertilizer subsidy.

2.18 Urea retention prices for the various plants vary widely andcurrently range between Rs 1,669 to Rs 4,900 per ton, depending on techno-logy and feedstock used, plant age, cost of feedstock (which also can varywidely between plants) and other factors. The weighted average retentionprice during 1984/85 was Rs 2,940/ton of urea (equivalent to US$238).This, plus the cost of freight and distribution margia bring the totalaverage farm-gate cost of domestic urea to Rs 3,253 or US$263/ton; althoughsubstantially higher than the price paid by farmers (Rs 2,150 orUS$174/ton up to Jatnuary 1986, and Rs 2,350 or US$181/ton thereafter), thisis essentially in line with the cost - at farm-gate - of Imported urea(actual average in 1984/85: Rs 3,140 or US$254/ton). It is also importantto note that the current average urea retention 4rice (US$238/ton) is wellbelow the landed international prices prevailing in the past and the Bank'sprojected equilibrium prices; it is also considerably below domestic farmerprices in many developed countries, which have ranged up to aboveUS$300/ton, pointing to the fact that international fertilizer prices aresubject to wide fluctuations and often at dumping levels. Although a lowdemand in recent years for internationally traded fertilizer has resultedin depressed prices (in 1985 urea was traded FOB Europe as low as

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US$100/ton),11 interuational prices are expected to increase with thegradual reduction in available surpluses in world markets. The WorldBank/UNIDO/FAO Fertilizer Working Group currenitly projects that a continua-tion of growth in world nitrogen demand will absorb the present surplus andlead to supply deficits in the late 1980s, unless some ten large-scaleammonia plants are commissioned world-wide each year; it appears unlikelythat implementation of such a number of new projects will occur in the nearfuture.

2.19 As further developed in Chapter IX, the Bank's projectionsestimate international equilibrium prices for urea of US$190/ton by 1990when worldwide demand and supply would be in balance, and of US$206/tou by1995 (all in 1985 terms). When adding freight from ports to India'sprincipal agricultural regions, handling charges and losses, deliveredcosts at farm level are estimated to amount to US$282/ton and US$298/ton,respectively; the following table is a summary.

International Prices for Bagged Urea(in 1985 US$/ton)

projected1980/81 a/ 1984/85 a/ Esuilibrium

1990 1995

FOB Europe 225 162 190 206Sea-Freight and Insurance to India 40 40 40 40Port Handling Charges and Losses 12 12 12 12

Landed 277 214 242 258

Inland Transportation to UP 28 28 28 28Handling and charges at retail level 12 12 12 12

Del)irered at Farm Level 317 254 282 298._ _ _

a/ Based on actual international purchases by India.

2.20 As further detailed in Chapter VIII, the urea retention price forAonla is estimated at US$302/ton (in 1985 terms) when newly commissioned iu1989; with decreasing interest and depreciation costs, it will decline to

I/ The depression in international fertilizer prices is partly due to thefact that surplus producers such as the US, Mexico, the Arabian Gulfcountries and Eastern Europe currently do not price the energy input(in the form of natural gas) at its economic opportunity value, dis-torting output prices. The surplus supply is caused to a large extentboamsiorJbuvers such as China, Brazil and India having temporarily cutDac on Sp r so

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US$273 by 1995 and to US$202 by 2002; ever the Project's life, the weightedaverage price is estimated at US$261. Although higher than the retentiouprices of older plants, the average Aonla retentiou price remains at orbelow the Bank's projected long-term landed international equilibrium pricedelivered to up-country warehouses (US$270/ton to US$286/ton).

2.21 Farmer Prices, GOI sets fertilizer prices to farmers utniformlythroughout the country. The urea price is currently set at Rs 2,350/ton.As mentioned, this is about 30% below the actual 1985 delivered cost of,both, domestically produced and imported material. Despite substantialfluctuations in these latter costs, GOI has maintained farmer prices (incurrent Lterms) essentially unchanged since 1982 in keeping with its policyof stimulating agricultural production through increasing fertilizerap,plication. The incentive to farmers to use fertilizer obviously dependsnot only on the price of this input but also on the crop prices obtained:as a result of increasing crop prices, since 1981 farmers' cost/benefitratios of fertilizer application have become more favourable, an importantfactor in the high growth rates (averaging 14X p.a. since 1982) infertilizer consumption. The following table illustrates the historicalrelationship with respect to urea between fertilizer prices, cost/benefitratios for the two principal fertilizer-using crops, and consumptiongrowth; the latter clearly is affected also by uon-price factors, includingrainfall:

India - Comparison of Fertilizer and Crop Priceswith Nitrozen Consumption Growth

AnnualGrowth of

As of Farmer Cost/Benefit Ratios a/ NitrogenFebruary Price of Urea Wheat Raddy Consumption

(Current Rs/ton) i1n %

1974 1,050 3.0 3.3 (1)1975 - 2,000 4.1 5.9 (3)1976 1,850 3.8 5.4 221977 1,650 3.6 4.9 141978 1,550 3.0 4.3 181979 1,550 2.8 3.7 171980 1,450 2.7 3.3 21981 2,000 3.7 4.6 51982 2,350 3.6 4.4 111983 2,350 3.4 4.2 41984 2,150 3.1 3.5 241985 2,150 3.0 3.4 161986 2,350 tna* n.a. n.a.

a/ Kgs of crop required to buy 1 kg of nitrogen.

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2.22 Since the above cost/benefit ratios, relating the price of ureato those of crops, are significantly below the response rates of crops tofertilizer application (normally the application of I kg of nitrogenresults in a 10 kg increase iu crop), the use of fertilizer clearly isprofitable for Indian farmers at present price levels. Recent studiesconducted in India have concluded that in view of this profitability,fertilizer application may uot be significantly affected if prices wereincreased in reasonable steps, accompanied at the same time by othermeasures in support of the agricultural sector (such as an increased timelyavailability of credit to ensure that across-the-board price increases donot affect disproportionately the majority (85%) of small farmers whoproduce mostly for their own consumption and who have no or littlemarketable surpluses through which input price increases could berecovered). Howeve.t, it is felt by GOI officials that the presentprofitability needs to be maintained if fertilizer use which throughoutIndia is still significantly below the economic optimum attained in othercountries (para 3.02), is to further increase. A recent estimate showsthat the economic value of annual crop production that could be lost fromlower fertilizer use, may be higher than the cost of the subsidies.Accordingly, increases in farmer prices of fertilizer to bring them closerto its economic cost, would need to be accompanied by increases in cropprocurement prices, lest fertilizer consumption and as a result, foodproduction and agriculture incomes, were to decrease. The long-term priceelasticity of fertilizer has so far not been conclusively assessed butexperience with earlier price increases in India and other countries haveindicated short term elasticities ranging from -0.4 to -1.0, meaning thatfor example a ten percent increase in fertilizer prices could result in adecrease in fertilizer consumption of between four and ten percent.

2.23 Subsidy. With farmer fertilizef prices maintained constant (incurrent terms) for several years In the face of increasing costs ofimported and locally produced fertilizer and the growing volume, GOI'sbudgetary fertilizer subsidy has increased sharply; although essentiallydesigned as a subsidy to agriculture and consumer food supplies, subsidypayments are made through fertilizer producers and importing agencies. IIn 1982/83, total fertilizer subsidies amounted to the equivalent of UST605million (in current terms) (or US$95 per ton of nutrient consumed); theyreached US$1,440 million in 1984/85 (or US$175/nutrient ton) and areexpected to exceed US$1.5 billion in 1985/86. Had it not been for theimprovements already achieved in plant operating efficiency, rationaliza-tion in distribution, and reduction of Inventories in the Government-heldfertilizer pool, the subsidy would have risen even faster.

2.24 GOI has become increasingly concerned about the growing subsidyburden but except for a 10% Increase in farmer fertilizer prices announcedin January 1986, has not yet decided on measures to contain it. It is

2/ In the case of locally produced fertilizer, the subsidy covers thedifference between the farmer price (net of dealer's margin andtransportation costs) and the different plants' agreed retentionprices; regarding imports, the suLsidy similarly covers the differencebetween the farmer price and their delivered costs (CIF plus cost oftransportation, handling and dealer's margin).

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recogntized that possibly apart from minor reductions in retention prices, aseries of further farr-gate price incereases is the only measure to containor signtificantly reduce the subsidy. To study this issue in depth, GOIappointed in 1985 a high level interministerial committee whose recommenda-tioUs are expected in 1986. Given the importance of the food and fertiliz-er subsidies which currently correspond to a total 1.4 percent of India'sCDP, GOI will take measures which will lower the subsidies over the periodof GOI's Seventh Plan (1985-90) to an average of 1.1% of GDP. The actionprogram developed by GOI with Bank assistance (para 2.03) is designed toachieve a substantial reduction in the fertilizer subsidy, taking intoaccoutnt the many issues discussed above that need to be considered in thiscontext.

D.o Transport and Distribution

2.25 The provision of adequate facilities for the transportation antddistributiou of fertilizer in India is of major importance. In 1984/85, anestimated 21 million product tons had to be handled by railways, roads andtrucks, ports, and warehouses over an extensive network throughout thecountry. Given the growing volume of this and many other commodities beinghandled by India's transportation system, bottlenecks have developed caus-ing greatly increasing costs to the economy. GOI has been aware of theneed for measures to optimize fertilizer transportation, and is undertakingfeasibility studies focusing on the estahlishment of a number of nodalrailroad points, initially in northwest India. These are nearing comple-tion and will be presented to the Bank as the basis for Lhe FertilizerDistribution Project under preparation. Similar studies are being consi-dered to address the fertilizer distribution system in other parts of Indiawith high consumption intensity, as well as policies, regulations anduitfrastructural needs, and it is expected that the Batik would also beinvolved in these. GOI has also recognized the need to review its fertil-izer distribution strategy and has begun to develop action plans to supportthe efficient distribution of the increasing fertilizer volume. These willbe based on ougoiug reviews of (i) the changes needed to strengthen thedistribution system, (ii) the appropriateness or otherwise of continuingthe present system of market allocationts to the various producers, (iii)the usefulness of increased competition at the market place to achievebetter services for farmers, (iv) the need for reviewing the distributionmargin to ensure farmers better access to supplies, and (v) the need fori'tcreased institutional support for promotion, crop insurance and creditsupply. A description of the Indian system of fertilizer marketing anddistribution is contained in a ProJect File - Ref. A.

E. Bank Group Role in the Sector

2.26 The Bank Group has so far participated in the financing of twelvefertilizer projects in India, making a total contribution of about US$1.1billion. The most recent operation was a loan of US$203 million for the MPProject, expected to be completed in 1988. Earlier Bank Group financinghad been through IDA for six public and one cooperative sector projects,

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IBRD for a cooperative sector oject, and IFC for four private sector pro-jects. IFC is furthermore considering to participate in one or two of theprivate sector projects to be established along the RU pipeline.

2.27 The Bank's major objective in all the above projects has been tosupport India's strategy for increasing domestic production of fertilizerswhere India has a comparative advantage. The Bank/IDA-financed projectshave also aimed at optimizing the design, scope and selection of projectsand improving project organization anid management capabilities in the pub-lic sector, as well as project implementation time and capacity utiliza-tion. On the whole, these objectives have been satisfactorily achieved,particularly in the more recent projects.

2.28 The principal lessons learnt from the Bank's involvement over theyears, described in a report currently being prepared by the OperationsEvaluation Department ("Sustainability of Projects--Review of Experience inthe Fertilizer Subsector") has been that the transfer of technology in thissector is an ongoing process which will need to continue. In continuingits role in fostering and broadening this transfer, it is appropriate forthe Bank to support the Project in the light of this lesson. Other lessonsrelate to the more conservative estimates used in this and similar projectsof plant construction times and to the need for sponsors to be selective itusing domestic suppliers of services and equipment. In addition, certainof the older projects, particularly in the public sector, were based onpreviously largely urnused technology, greatly split sources of equipmentsupply, and poorly balanced plants; the projects currently being planned orunder implementation have incorporated these lessons.

2.29 As mentioned earlier, the Bank's continued involvement in India'sfertilizer sector is furthermore justified in providing support to GOI intaking a number of sectoral initiatives (Annex 2-1) which are designed tomake India's fertilizer production and distribution more competitive,reduce its costs and the fertilizer subsidy. Although significant measureshave already been and will continue to be taken by GOI, a continuedsectoral presence will, as in the past, allow the Bank through a coutinuingpolicy dialogue, to provide catalytic suppor. for the implementation, par-ticularly of the more difficult policy measures needed. The Bank's supportof a series of three projects (the Project plus the proposed FertilizerRehabilitation anid Fertilizer Distribution projects) is to allow it to playthis catalytic role effectively.

III. FERTILIZER DEMAND AND SUPPLY

A. Fertilizer Use in Agriculture

3.01 Annex 3-1 shows selected agricultural statistics from 1952 to1981 (the most recent year for which overall statistics are available);from 1952 to 1984, foodgrain output iucreased at an average annual rate of3.4X, to 152 million tons. This compares to a population growth rate

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during the same period, of 2.2% p.a., to 684 million. Part of thisincrease in agricultural output, particularly in the aore recent past, isattributable to changes in cropping patterns, Improved farming practicesand increasing research and extension efforts. Much of it is due, however,to (1) the substantial expansion of irrigation and atn annual growth of 3%of Iudia's gross irrigated area; (ii) an increase, particularly up to themid-1960s, in the area upder multiple cropping (at an overall annual rateof 2.7%); (iii) the cultivation of high-yieldiug varieties (HYVs), particu-larly of wheat and rice which since their introduction in 1966 have spreadto 26% of gross area sown; and (iv) the applicatiou of chemical fertilizerswhich increased at an overall antnual rate of 16.1%. As a result of theseimprovements, India is practically self-sufficient in food. Nevertheless,to feed the growing population, continued increases in productiotn arenecessary.

3.02 India ranks third in the world in gross cultivated area (afterthe USSR and the US) and has one of the largest irrigated areas. As of1984, India's gross cultivated area stood at 173 million ha; the grossirrigated area totaled 55 million ha of which 77% was under food grain.Since agricultural land can only be marginally increased, further increasesin foodgrain production will have to come from more irrigation, greater useof HYVs, further improvements iu cropping practices, especially inl rain-fedareas, and greater use of fertilizers. Although fertilizer consumption perhectare of gross cultivated area has increased substantially throughoutIndia, from 0.6 nutrient kg per hectare of arable land in 1951 to 13.6kg/ha in 1970/71 and 36.6 kg/ha in 1983/84, the country still consumes sig-nificantly less fertilizer per hectare than many other developing coutr-tries, e.g., Brazil (79 kg/ha), Mexico (67 kg/ha), and China (150 kg/ha).overall, about 85% of all fertilizer is used in irrigated areas, whichrepresents about 32% of the country's cultivated land; the remainder goesto rain-fed areas which comprise less than 70% of the arable land. India'slow consumption level - particularly in nonr-irrigated areas - is partly dueto the limited availability of fertilizers in many remote parts of India;this is frequently caused by transportation and distribution constraintsbut more importantly, is due to the high risks incurred aud the lowprofitability in farmers' use of modern inputs at current levels of farmtechnology. To reduce these risks, GOI has recently implemented a cropinsurance scheme. Variability in water supply, inadequate extensiouservices, and logistical difficulties in selling crops at attractive pricesare other factors.

3.03 There are wide variations in the intensity of fertilizer useamong different states of India. While the Punjab recorded a nutrientapplication of 149 kg/ha in 1983/84, other states used as little as 12kg/ha. Part of this variation can be attributed to differences in theavailability of irrigation, climatic and topographical conditious and soilcharacteristics, and farm income levels, but much of it is explained by thefactors described above, as well as the actual use of HYVs. Since in mauyareas the percentage of farmers using any fertilizer at all is low andfertilizer use is concentrated in relatively few districts, there is asignificant potential for increasing overall fertilizer consumption.

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3.04 About 88% of all nitrogen fertilizers used is now applied in theform of urea, the balance being supplied in the form of other straightnitrogen or complex fertilizers composed of nitrogen (N) and phosphate(P205), atid to a lesser extent, potassium (K20).

B. Historical Demand and Supply

3.05 The past Indian consumption, production and importation of fer-tilizers are shown in Annex 3-2 . The following table summarizes the pastgrowth rates of consumption and production:

Idia - Aver e Anul Grmth in Fetillzer Conswption and Production(_ %)

Nitrogen n2ghate Potash TotalsC "n- xun ;tI3nPtion Production cm motion Production

1980/81-1984/85 10.4 15.4 12.2 12.9 8.5 10.5 14.71970/71-1984/85 9.7 12.0 10.0 14.3 10.7 9.5 11.71960/61-1984/85 14.8 16.5 13.1 11.3 12.4 14.0 14.5

Cons6umption of all fertilizers increased from 294,000 tyn in 1960/61 to 8.2million tyu in 1984/85, representing an annual growth rate of 14%.Nitrogen consumption, representing two-thirds of total fertilizer used,increased at an annual rate of 14.8% from 212,000 tyn in 1960/61 to 5.5million tyn in 1984/85. As can be seen from the table, this rate has beendecreasing over the more recent years, due to adverse conditions such asdrastic price increases in the mid-1970s and early 1980s, leading to abruptreductions in farmers' input-output price ratios, and the diminishing ratesat which new irrigation facilities were installed. As was described inChapter II, although fertilizer production has increased at a rapid pace,it continues to lag behind consumption. Therefore, increasing quantitieshave had to be imported. In 1984/85, the supply gap covered by importsamounted to about 29% of nitrogen demand, and to 37% for all fertilizers.

C. Projected Growth in Nitrogen Fertilizer Demand and Production

1. Demand

3.06 Growth of fertilizer consumption is expected to continue due to(i) GOI's sustained policies to further increase agricultural output; (ii)the wide disparities in fertilizer use among states, providing opportuni-ties for broadening the fertilizer demand base; and (iii) continuingefforts to increase agricultural productivity which will lead to furtherincreased levels of fertilizer consumption. However, achieving futuregrowth at levels sitlUar to the past appears difficult not only because thetrend of declining growth rates will coutinue as the demand base widens,but also as a result of the likely reduction in GOI's level of fertilizersubsidization, which may have an impact on farmers' cost/benefit ratios(paras 2.22 and 2.23). Therefore,-base case nitrogen fertilizer demandprojections used in this report assume a gradual decline in growth ratesfrom recent averages to 7% by 1988189 and 6% by 1995/96. Projections which

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are showui in Annex 3-3 point to levels of nitrogen consumption of 7.7Allion tyn by 19897 0 and '0.6 million tyn by 1994/95. When projecting

demand even more conservatively, using a gradual reduction of averagegrowth rates to 5% in 1985186 and 4% by the end of this decade andthereafter, nitrogen consumption would total 6.9 million tyn by 1989/90 and8.8 million tyn by 1994/95. Such a scenario could be envisaged, forexample in the unlikely event that OI decided to increase farmer prices offertilizers drastically without or only limited parallel increases in cropprices.

2. Production

3.07 Taking into account fertilizer plants presently in operation orunder constructiotn, includintg MP, Aonla and IGFC (para 2.14), India'snitrogen production capacity will increase from the present 5.2 million tynto 8.2 million tyn by 1989/90. Assuming that average plant capacity utili-zation levels for all existing plants will be raised from currently 74% to77% by 1989/90 and 80% by 1994/95, and that the levels of capacity utiliza-tion for the new natural gas-based plants will reach 95% within three yearsof start-up, total nitrogen fertilizer production is projected to increasefrom a current 3.9 million tyu to 6.9 million tyn by 1991/92. When addingthe three remaining planned natural gas-based ammonia/urea plants andseveral other minor projects presently under construction or planning,total capacity would rise to 9.4 million tyn in the early 1990's, with pro-duction reaching 8.1 million tyn (Annex 3-3). It is unlikely, however,that all the new plants can reach and sustain the assumed high capacityutilization levels, given likely financial, managerial and implementationconstraints; therefore, this assumption of a production level of 8.1million tynt of nitrogen may not be realistic, unless further capacity isadded.

3. Demand/Supply Balance

3.08 An analysis based on the nitrogen demand and production projec-tions described above and detailed in Annex 3-3 reveals that under realis-tic demand growth assumptions, even after the completion of the series often new gas-based plants and atn increased average capacity utilization ofall others, there will be a considerable gap between demand and supplywhich will have to be covered by imports. Except in the near future whenthe Thal and Hazira plants are building up their production, this gap islikely not to fall below the level of 1.2 million tyu, antd could grow tobetween 2.5 and 3.7 million tyn by 1995. When assuming a lower demandgrowth (para 3.07), there would still be nitrogen supply shortages, albeitat lower levels, until the early 1990s; under such an assumption, abalanced situation could be reached by the mid-1990s before the gapincreases again; therefore, only in the event that demand growth werelimited to these conservative levels, further additiotnal capacity wouldnot be needed until the late 1990s.

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IV. PROJECT SPONSOR

A. Organization and Management

4.01 IFFCO was registered in 1967 as a Central Cooperative Society.The Company's paid-in share capital stood at Re 970 million (US$75 million)in June 1985, of which Ro 562 million (58%) was subscribed by GOt, and Rs408 million (42%) by member cooperatives. The Company's Board of Directorsconsists of 31 members, including 12 from the shareholding cooperatives.The Board has adequate powers to provide policy direction to company execu-tives, including authorization of capital and operating budgets, and guid-ance ont employment and compeisation policies; its chairman is proposed byIFFCO's constituent cooperatives. Mr. M. H. Avadhani, Malaging Director ofIFFCO, antd the members of his management team are highly competent andexperienced in the fertilizer industry. Bio-data of members of the manage-vment team are showu in Project File - Ref. B. IFFCO's organization(Annex 4-1) includes three production plants, a finance division, amarketing division, and au administration unit. The Company's staff number4,945, including 1,920 professionals and technicians. IFFCO has been ableto attract and retain competent staff at all levels; its inr-house trainingsystem is extensive, and managers regularly attend outside managementtraining institutions.

4.02 IFFCO is one of the best managed fertilizer companies in India,as indicated by the high capacity utilizationi rates of its plants. TheCompany has a well structured management and intertnal control system,including external and internal audit arrangements. Its management inform-ation system and efficiency were evaluated utilizing the Bank's 'Guidelinesfor Evaluating the Management Information Systems of Industrial Enter-prises". Project File - Ref. C, gives the results of the evaluation,according to which, on a 5-point scale, IFFCO's management informationsystem is rated overall at 4.3, underlining IFFCO's highly satisfactoryperformance. It can be concluded that there is no major managerial risk inIFFCO's implementing and operating the Project.

B. Plants and Production Performance

4.03 IFFCO operates fertilizer production facilities at three loca-tions--Kandla, Kalol and Phulpur (Map A). The seaboard Kandla plant wasthe first to go on stream in 1975, designed to produce complex fertilizerat a capacity of 127,000 tpy of P205 in two trains, using the slurry/granu-lation process. Since the addition of two further trains in 1981, plantcapacity has been expanded to 315,700 tpy of P205, based on the productionof three DAP and NPK product grades. Phosphoric acid, potash and part ofthe ammonia raw material requirements are imported and the balance ofammonia is supplied from Kalol. The Kalol planit, consisting of a 910 tpdammonia unit and a 1,200 tpd urea unit, was brought on stream in 1975 anduses natural gas as feedstock. At the Bank-financed Phulpur plant (LoanIN-1079), commercial production began in 1981 from a 900 tpd ammonia unitand a 1,500 tpd urea unit, using naphtha as feedstock.

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4.04 IFFCO has generally maintained a high level of capacity utiliza-tion in its plants, which in 1984/85 averaged 107%. Despite their highlysatisfactory production performance, there are a number of measures (des-cribed in Chapter V) that need to be taken as a result of changes in feed-stock specifications and infrastructure conditions as well as aging ofequipment, to increase the plants' operational efficiency.

C. Historical and Projected Financial Performance

4.05 IFFCO's financial statements for the period 1979/80 to 1984/85are summarized in Annex 4-2. Key indicators for the most recent four yearsas well as projections (without the Project) for the years until completionof the Aonla project (further detailed in Chapter VIII) are showen in thetable on the following page. From 1981/82 to 1984/85, revenues increasedfrom Rs 4.5 billion to Rs 5.7 billion, primarily because of retentiou priceadjustments and some sales of imported fertilizer. Income before taxes didnot always increase commensurately because of some time-lag of cost recov-ery through the retention price system, as well as temporary plant shut-downs caused by power cuts. As demonstrated by its debt/equity and currentratios, IFFCO's capital structure is strong and its internal cash genera-tion healthy. Retained earnings have been supplemented by minor additionsof share capital resulting from the capitalizaton of fertilizer sales dis-counts to cooperatives, currently at an atnnual rate of US$1.7 million.IFFCO will restart to pay iucome taxes after using up past investmentcredits, and therefore net income will decline in the future; however, itscash position is projected to remain satisfactory and its capital structurefurther strengthened. This is due in part also to IFFCO's practice of dis-tributing only token amounts as dividends, a policy the Company will conti-nue. Thus, while partly meeting capital expenditures for recurring andalready committed investments (including a new soda ash/ammonium chlorideplant), aggregating US$80 million from 1985/86 to 1989/90, and debt repay-ment requirements (US$70 million), IFFCO will be able to provide an esti-mated US$40 million in surplus internally generated funds for the Project.IFFCO's financial records are audited by reputable domestic charteredaccountant firms.

D. Marketing

4.06 In line with GOI's current fertilizer distribution plans, 77% ofthe Aonla plant's urea production is expected to be consumed in UP, withonly 15% in Punjab, and 8% in Haryana. In UP where also the Phulpur plantis located, IFFCO has established a solid competitive marketing positionthrough active efforts including field demonstrations and agriculturalseminars for farmers, and i8 oae of the few producers actively involved inextension services. The urea supply from the Phulpur plant to the UPmarket currently accounts for 36% of the total indigenous supply to thisstate. Thus, a market seeding program will not be required for the Aonlaproject.

4.07 The marketing function of IFFCO is centered in New Delhi, with 48field offices at various locations and transportation units at the existing

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plantts. Annex 4-3 gives IFFCO's marketing organization structure. TheCompatiy currently employs 372 field officers, most of them agricultural

iF1m - S y of Historicl and P pected Prukcdtiand FivAiial Stateents

(In millos of rent rupees, mlm otvise mted)

1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89Atla - - -cted a1

Produtboti ('000 txos)Kai$!a -NPK (10-26-26) 121 92 100 190 145 165 165 165NPK (12-32-16) 651 524 335 455 465 535 535 535DAP (18-46-0) 34 182 344 300 355 400 400 400

Kalol- Urea 390 401 383 365 350 350 350 350Phulpur - Urea 394 401 323 425 450 450 450 450

btal Poductio 1,590 1,600 1,485 1,735 1,765 1,900 1,900 1,900

Revewes 4,484 5,146 5,379 5,743 5,911 6,827 7,159 7,712Net Incoe Before Taxs 413 442 413 491 322 480 464 541Net Inee After Taxes 413 442 413 362 193 314 269 338

Total Equity 2,414 2,815 3,187 3,512 3,669 3,948 4,181 4,482toag-Term Debt 2,008 2,085 1,615 828 793 782 797 983Current Assets 2,393 3,363 3,616 3,758 3,995 4,221 4,445 4,673om rntl b/ 798 1,26 1,714 2,401 2,604 2,559 2,631 2,699

Intertal Cash Geeratioun 642 752 732 671 508 639 536 614Capital Expediturs 134 52 72 244 167 171 173 332Ivesbtflts 65 185 290 230 236 6 6 6Projected Surplus Cash - - - - - 145 329 594

Net Inaae AfterTaxes/Revenues 9.2% 8.8% 7.7% 5.0% 3.3% 4.6% 3.8% 4.4%

Curret Ratio 3.0 2.7 2.1 1.6 1.5 1.6 1.7 1.7Debt/Eqity Ratio 45/55 43/57 34/66 19/81 18/82 17/83 16/84 18/82

a/ Items reated to Aonla project as well as effect on rwam and osts of Unxotedfetlizeras sold by nIVO have beew reived.

b/ curent aset and lablity projections are basd on anrul verages, actual on yem-enddata when iuventorias and reoeivabls are seasonally bMgb ProjectIs inclide short-termportion of Loug-tem debt.

graduates, engaged in both logistics operation and product promotion.Field offices are structured in three tiers: zonal, State and area levels.To strengthen the fertilizer promotion and extension service, agronomists

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are usually posted at each field office. To meet the future increase inIFFCO's fertilizer volume, mainly from the Aonla project, IFFCO plans toexpand its marketing capacities: by 1991/92, the number of field officeswill be increased to 70, and the number of officers, to 475.

4.08 IFFCO's marketing and distribution capabilities are satisfactoryto handle the increasing volume. Its strong organizational tie with theagricultural cooperatives clearly provides the compauy with a competitiveedge in terms of market information feedback from cooperative memberfarmers and a certain brand loyalty. Thus, there should be no major mar-keting risk for the Project.

V. THE PROJECT

5.01 The proposed Project includes: (i) new facilities for theproduction of ammonia and urea at Aonla, based on steam-reforming of non-associated natural gas,3/ (ii) a number of measures to improve the fertil-izer production efficiency of IFFCO's three existing plants4 /, (iii) acotnsultant study to assist GOI in the establishment of a management perfor-mantce evaluation and control system for the public sector fertilizer indus-try, and (iv) imports of fertilizers and fertilizer raw materials.

A. Obiectives and Bank Role

5.02 The Project's main objectives are to expand domestic nitrogenousfertilizer capacity, and to increase the utilization rates of existingplants in the cooperative sector, to help lessen India's dependence onimports. Without increased fertilizer production, imports are bound togrow as a result of India's increasing food demand and thus, fertilizerconsumption. By resulting in increased fertilizer production in India'smain agricultural areas, the Project also aims at reducing the volume oftransportation of fertilizer from coastal ports and plants to northerntstates. GOI expects that greater availability of fertilizer will stimulateits consumption in areas where this is still at low levels. The Aonla pro-ject's scope and design reflect today's proven 'state of the art' and eco-nomies of scale in fertilizer production technology, and its implementationwill thus further the transfer of technology being pursued by GOI. Fundingof a study to establish a management performance evaluation and controlsystem aims at improving existing institutional arrangements for themanagement of public sector plants in order to enhance their performanceand increase their levels of capacity utilization. The Bank is furthermoresupporting GOI's initiatives in the fertilizer sector by providing US$150million to assist GOI in meeting its imports requirements for fertilizermaterials, to bridge the domestic production shortfall, and to free up thatamount of GOI funds to permit making the efficiency investmentq required tomeet the targets outlined in para 2.04.

3/ See Feasibility Report in Project File Ref. D.

4/ See 'Proposal for Revamp of IFFCO Units- in Project File Ref. E.

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5.03 Over the years, the Bank has played ant important role in helpingIndia to build up her fertilizer production capacity and assisting in thedevelopment of operating know-how; the Bank's participation in the Projectwould be in continuation of this role. The earlier Indian fertilizerindustry projects were ofteni hampered by extended delays In completiou anidprotracted commissioning periods; furthermore, past projects were frequent-ly uiot executed in the most cost-efficient manner. By being involved inthis Project, the Bank can help ensure that cost-efficient arrangementsfor implementation are effected through the use of international competi-tive bidding procedures, that conisultants' work to define rehabilitationInvestments and to improve capacity utilization is carried out satisfacto-rily, and that overall project implementation arrangements are advanta-geous. Through the Project, the Bank would be well placed to coutinue itsdialogue with the Govertment on sector policies (para 2.29).

B. Scoppe. Technology and Locations

5.04 Aonla Component. The .4onla plant scope consists of: (a) asingle-train 1,350 tpd ammonia unit; (b) two 1,100 tpd urea units with acommon 2,200 tpd prilling tower; (c) integrated power and steam generationfacilities, including two 18 MW gas turbine generators, two exhaust heatrecovery units of 80 tph steam each, and one 150 tph boiler; (d) raw wateraud effluent treatment facilities, water demineralization plant and coolingwater systems; (e) storage for 10,000 tons of refrigerated ammonia and for45,000 tons of bulk urea, and facilities for bagging urea; (f) otherrelated offsites; and (g) infrastticture, including a township with 985housing units, rail link and transmission lines for power supply from thegrid.

5.05 The Project ammonia unit employs technology from Haldor TopsoeA/S (Denmark); its capacity antd design are the same as that for the ammoniiaunit of the MP Project and the two units of the Thal complex. The two ureaunits use the ammonia-stripping technology offered by Snamprogetti (Italy);their capacity and design are similar to each of the four urea units atHazira and to the two units of the MP Project. These units are the largestinstalled in India and their design has been used successfully in plants ofsuch capacity elsewhere. In view of the duplication of the conservativedesign philosophy adopted for Thal and MP, which incorporate additionaldesign margins in critical process areas, the ammonia planit will have ahigher level of stable average operation than is typical for such plants.It is therefore expected that after a production build-up period of abouttwo years, the Aonla ammonia/urea train will reach and maintain an averageproduction at 95% of daily rated capacity, which is equivalent to the pro-duction of 689,700 tpy of urea and an additional reserve ammonia capacityof about 20,000 tpy.

5.06 The plant is to be located at one of the sites (Map B) selectedby GOI on the basis of detailed studies for the construction of six ammo-nia/urea complexes (all of s.milar scope) based on1 natural gas to be sup-plied by the HBJ pipeline. The site selection criteria, the analysescarried out and the final choice of the Aoula location by GMI-appointedcommittees are satisfactory. Annex 5-1 describes details of the Aonla

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location and project infrastructure. Map C provides details of the loca-tiorn aud site lay-out. Project File - Ref. F contains land acquisitiondocumenits and site studies.

5.07 Rehabilitation Component. The measures required at the existingIFFCO platnts in ord;r to increase their operational efficiencies, whichhave suffered as a result of changes in feedstock specifications aidiufrastructure conditions as well as ageing of equipment, were identifiedby staff of IFFCO's process and project engineering and maintenance groupsat each of the sites. As necessary, certain of the definitive schemes lowproposed were developed in consultation with the appropriste engineeringconttractors/process licensors. A description of the schemes to be imple-mented at IFFCO's three plants is given in Annex 5-2. The following para-graphs summarize the principal schemes.

5.08 Phulpur Plant. This is IFFCO's most modern facility, where apurge gas recovery uuit has recently been commissioned. Output, however,is currently constrained to about 90X of capacity due to the higher thanexpected content of aromatics in the naphtha feedstock. The aromatic con-tenit is likely to increase further as more of the naphtha will be based onBombay High crude oil, resulting in even less capacity utilization, and theoptimum level of plant operation can only be attained by a major modifica-tion of the primary reformer. Improved on-stream performance of the plantcan be achieved by reducing steam shortages, through replacement of theboiler-fuel (coal) grinding mills with larger capacity machines, and bybetter preventive maintenance, for which the existing inspection equipment.is inadequate. Other energy conservation, operational efficiency and pol-lution control measures have been identified in the plant. However, thesite has not yet been subjected to an end-to-end energy audit and engineer-ing study to determine the optimal program for rehabilitation; such asurvey, proposed to be funded under the Project, is required prior to afinal decision on the various actions required.

5.09 Kalol Plant. This plant has been in operation since 1975. Anextensive rehabilitation program is needed to improve energy consumptionand to maintain operating reliability, product quality and adherence tostatutory safety and pollution requirements. The various categories ofwork include: (i) rehabilitation of the urea plant, in consultation withStamicarbon, the process licensor; (ii) modifications in the primaryreformer convection zone (with support from its engineering companv, M. W.Kellogg), replacement of heat exchangers, and purification of syuthesis gasmake-up; (iii) replacement of the inert gas generation plant and of ageingprocess equipment, as well as renovation of water treatment and coolingwater facilities; (iv) purchase of instrumentation and inspection equipmentfor operational efficiency; and (v) additional ammonia storage, variouspollution control measures, a cooling system to improve the quality of ureaprills and a unit to produce urea supergranules.

5.10 Kandla Plant. It is proposed to retrofit, initially, two of theDAP/NPK trains with the pipe reactor or pressure reactor process. Thiswill lower the water content in the slurry, resulting in a lower ratio ofrecycled material to product, thereby increasing the production rate (by at

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least 25%, depending on product grade) and reducing the specific consump-tion of fuel oil and power. The project also includes: (i) additionalstorage capacity (2 x 10,000 tons) for imported phosphoric acid; (1i) extraproduct bulk storage capacity and the necessary material handling equip-ment; and (iii) a 3,000 tpd bagging facility atnd others for storage ofbagged product and empty bags. In addition, to ensure reliability of watersupply antd improve operational efficiency, IFFCO proposes to develop analternative source of water to the existing inadequate dam and tube wellsupplies, by installing a seawater desalination unit.

C. Supply of Gas and Other Utilities

5.11 Natural Gas. Natural gas for the Aonla plant from the offshoregas fields in the Arabian Sea will be transported through the RBJ gas pipe-line, as shown on Map B. Details of the available gas resource aud itsusers as well as the description of the pipeline and its proposed Implemen-tation progran are described in Annex 5-3. The information obtained fromGOI and the agencies responsible for implementing the pipeline indicatesthat there will at least be sufficient gas for the process needs of theAonla aud other projected fertilizer plants and also certain other users;based on the currently planned output of the second phase of gas productiondevelopment from the South Bassein field under execution, GOI projectionssubmitted to the Bank show the possibility that marginal deficits can occurin the early 1990's if all user projects are Implemented according to theirpresent schedules, and all consume the committed gas supply allocations.It is envisaged, however, that such a deficit could be handled by addition-al gas production and off-shore pipelining, if and when needed, or by: (i)interrupting gas supply to power plants which will have the capability ofusing alternative liquid fuels; and (ii) using liquid fuels to generatepower and steam within the fertilizer projects.

5.12 Construction of the HBJ pipeline is expected to commence by mid-1986. Its implementation schedule as presently foreseen (Annex 5-3) istight, allowing about 14 months for construction of the 1,210 km stretch toAonla, where according to the bidding terms for the pipeline constructioncontract, gas is expected to be available by August 1987, which has beenconfirmed by GOI. This is about four months later than would be requiredfor starting up boilers for testing purposes under IFFCO's 42-month imple-mentation schedule, but would be in time for boiler start-up under the moreconservative 48-month schedule assumed to be achilities as well as neededin proven technology which has been applied in other projects in India.Execution of this component is now in its initial phases. The Rehabilita-tion Component for which US$40 million of the IFFCO Loan is to be used, isunder preparation and will be ready to begin Implementation later in 1986.It is designed to increase production and energy efficiencies at threeexisting plants in the cooperative sector which long term, the ability togwill, in addition, cope with shortfalls which may arise in supply of thenon-process gas requirements.

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5.13 Gas supply arratgements between IFFCO and the Gas Authority ofIndia Ltd. (GAIL), have been substantially completed in principle. IFFCOhas agreed to formalize the agreement on terms and couiditions satisfactoryto the Baik by June 30, 1987 and sufficiently in advance of plautcommissioning.

5.14 Power. In order to avoid power interruptions and ensure sus-taitned plant operation, thereby preventing damage to equipment and cata-lysts, the Project will include two gas-turbine driven geuerator sets, eachcoupled to a heat recovery steam getneration unit and having a capacity of18 MW. The power plant will normally supply about 15 MW for operating the-process and offsite plants. The rest of the plant's power needs for theless critical facilities will be drawn from the UP State Electricity Board(UPSEB) grid system through 25 km,-twin 132 KV tranismission lines to belaid between the project site anid the UPSEB Bareilly substation. Thesefacilities will have the capacity to temporarily supply the entire projectload; a continuous load of up to 8 MW has been sanctioned by the UPSEB.Project File - Ref. G contains supporting documentation on power supply aswell as other infrastructure arrangements. The UPSEB has confirmed thatthe grid has adequate capacity for these purposes; the linkage will be com-pleted by mid-1986 at a cost to the Profect of about US$2 million. A 2 MWdiesel-driveu generator would provide emergenicy power to critical equipmentin case of failure of the main sources of power supply. The Aonla plantwill require a maximum of about 2 MW of power during the constructionstage. To etnsure reliability of supply, UPSEB has approved this power tobe drawn through temporary feeders, to be financed under the Project, fromtwo sources of 37.5 KV; a line from the Aonla substation to the site isalready in use.

5.15 Water. Local surface water sources are insufficient to supplythe Project requirements of up to 45,000 cubic meters per day (CMD) ofwater. On the basis of promising results from an earlier hydrogeologicalstudy of the area, IFFCO commissioned a detailed study of the potentialsupply of water from tubewells (Project File - Ref. G) and the supervisionof two exploratory wells drilled to a depth of up to 300 meters. The evi-dence is that aquifers in the area will allow wells operating at such adepth to produce at about 300 cubic meters per hour without adverselyaffecting other shallow tubewells in the area, and that correct spacing ofwells around the site will minimize mutual interference between their per-formance. On this basis, IFFCO has contracted the design of a battery of10 production tubewells at the plant site, including 5 tubewells in thetownship area, to produce the required quantity of water from 6 or 7 wellsin operation at any time. Followintg its clearance by the Central Ground-Water Board, the well-field design report has been reviewed and the pro-posed provisions for water supply to the Project are cousidered acceptable.

D. Environmental Considerations

5.16 The location of the Aonla plant in a nonr-fertile antd sparselypopulated area will not cause atny significant change in the general natureof the local environment. The fertilizer complex, with any associatedsmall/medium-scale industry that may later develop, is expected rather to

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enhance the living standards of people in the area. The plant will bedesignied and operated to meet the liquid effluent tolerances and limits forgaseous emissions according to Indian standards which are comparable tothose applied for such facilities in industrialized countries and are Con-sidered satisfactory. These have been incorporated into the contractsbetween IFFCO and its engineering cotnsultants and form part of the processguarautees to be met by them without l1mit to their liabilities(Annex 5-4), The potential pollutants from the Aonla project are: (i)liquid effluents from the process plants, containing ammouia and urea, andfrom the fresh water treatment facilities and demineralization plant; (ii)gaseous emissions containing urea dust from the prilling tower; anld (iii)sludge from the effluent treatment plant. The necessary treatmtent measuresto be adopted are described in Annex 5-5. For the Rehabilitation Compo-nent, various measures at the existing IFFCO plants are designed to reduceeffluents and treat any pollutant problems in order to comply with orimprove upon statutory requirements and modern industry pollution controlpractices.

5.17 Assurances have been obtained from IFFCO that execution andoperation of the Project will be carried out with due regard to safety,ecological and environmental factors, and comply with environmentalstandards satisfactory to the Batnk.

E. Study and Imports Components

5.18 Under the Project, the Batik will assist GOI in further developingits managementt information system currently being implemented by theDepartment of Fertilizers by funding a study by internationally experiencedconsultants focussing oi Ci) the incorporatiou in the existing system ofelements of periodic evaluation of compatny performauce, (ii) setting up asignalling system to highlight out-of-line situations, (iii) establishing acotntrol over follow-up actions and (iv) incorporating management incentivefeatures to foster efficiency in operations. Such assistance, to be basedon the Bank's experience in other countries, will take the form of a reviewof the present system, resulting in recommendations for expansion of thesystem, together with linkages to management selection, promotion andincentive practices, and other improvements. This study should be initiat-ed by September 1986, following agreement with GOI on the terms of refer-ence for the study no later than by June 1986. GOI has agreed to completethe study by June 30, 1987.

5.19 India is currently importing anntually about US$500-750 millionworth of fertilizers to make up the shortfall in domestic production (para2.02). The Bank's support under the Project is designed to ease the finat-cial burden on GOI's budget caused by these imports by funding the importof fertilizer and relaLed raw materials up to a value of US$150 million.The Mines and Minerals Trading Corporation, a government entity, wouldimplement this component as part of its ongoing responsibility for import-ing the country t s fertilizer requirements.

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VI. PROJECT MANAGEMENT AND EXECUTION

6.01 Annex 6-1 describes in detail the arrangements for engineering,transfer of technology, project management and implementation and alsoprovisions for operational manpower and training for the Aonla plant.ProIect File Ref. H contains the license, engineering, aud constructionsupervision agreements. These arrangements have been reviewed by themission and were found to be acceptable. IFFCO's manpower developmentplan, included in Project File Ref. I, is also cousidered acceptable.

6.02 IFFCO's overall schedule shown in Annex 6-2 of 42 months for com-pletion of the Aonla project from the 'zero date of October 1, 1984, isbased on (i) a 36-month period to mechanical completion of the processplants and associated offsite facilities (by October I, 1987) and (ii) sixmonths for commissioning, performance guarantee tests and plant stabiliza-tion, with the start of commercial operation on April 1, 1988. This sche-dule appears somewhat ambitious although achievable in principle, bearingin mind that the Aonla project will benefit from experience of the similarand completed Thal and Hazira projects: these multi-unit projects experi-enced delays of six to eight months in respect of their first phase units,but these delays were largely absorbed by the second phase units beingcompleted at about the same time (due to the repeat nature of procurement)and within 48 months. The mission thus considers this to be a more prudentschedule for the Aonla project, and is assuming 45 months to mechanicalcompletion, plus a shorter commissioning period of 3 months, which shouldbe achievable. A 48-month schedule also provides increased room to accom-modate some possible delay in completion of the HBJ pipeline (para 5.12)and takes into account (i) the present execution performauce being achievedon the MP Project, which is not facing auy serious delay on the part of theproject itself; (ii) IFFCO's past performance in bringing its plants intocommercial operation in e timely manner; (iii) the consultants' familiaritywith execution of the technology and of the conditions for project imple-mentation in India; and (iv) experience gained by Indiau contractors andequipment manufacturers from the earlier projects.

6.03 Nevertheless, there is a risk that the Aoala Component may befurther delayed as a result of delays in construction of the HBJ pipeline.A more pessimistic schedule is therefore assumed for the Project's basicfinancial and economic projections (Chapters VIII and Ix), which are con-sistent with the Bank's standard profile for disbursements: the base caseassumption is of a six year period for completion of disbursements, withcommercial operation of the project commencing after 63 months from zerodate, i.e. January 1, 1990. Throughout the first nine months of operation,certain residual capital expenditures, amounting to about 3Z of the total,are likely to be incurred, owing to late payments, the release of retentionmonies on performance of goods and services, and the continuance of work onnon-critical items not affecting production. The aforementioned case forcompletion of the project under a four-year implementation and disbursementperiod is analyzed in the financial and economic sensitivity analyses as alikely but less conservative scenario.

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6.04 Implementation of the Rehabilitation Component is expected tolast from 1986 to 1990, as indicated in Annex 5-2. The 29 individual sub-components are estimated by IFFCO to take two to three years each to com-plete. In the Bank's experience with this type of multi-component project,however, implementation tends to become protracted due to the many organi-zations involved and with activities at three different locations. A6-year execution and disbursement profile typical of Bank-financed projectsin this industry has therefore been assumed.

6.05 Project preparations for the Aonla Component have been completedwith respect to scope aud design of the manufacturing facilities, the pro-vision of feedstock, utilities 8nd infrastructure, and also the Implementa-tion arraugements. Project execution has now started and the detailedengineering should be finished by mid-1986 when most of the major equipmentorders will have been placed and mechanical erection is scheduled tobegin. At the end of March 1986, engineering, procurement and constructionactivities on the process units were 74%, 44% and 14% complete, respective-ly, and the overall advancement in other areas was 35% for the steam andpower generation plant atnd distribution systems, 33% for offsites, and 51%for township and other remaining items. With regard to preparation of theRehabilitation Component, the design and engineering requirements, althoughnot yet definitive, are relatively less significant and, in general, can becompleted for each element in a short period. Much of the work will conr-sist of specification of individual equipment items already identified, theordering of packaged units of a standard nature available from engineeringcontractors/suppliers and, in some instances, the replacement of existingequipment. Also, definition of some of the schemes will follow the etnergyaudit and engineering studies to be undertaken under the Project, particu-larly in the case of the Phulpur unit. IFFcO is in the process of develop-ing a detailed plan for project management and execution of the Rehabilita-tion Component, which will be submitted to the Bank by December 1986.

VII. CAPITAL COST, FINANCING PLAN. PROCUREMENT AND DISBURSEMENT

7.01 The total Project capital cost, including working capital andinterest during construction, is estimated at US$917.9 million, relating tothe following components:

Total Project Capital Cost(US$ million)

Component Local Foreign Total

Aonla 301.7 331.4 633.1Rehabilitation 81.8 52.7 134.5Fertilizer Imports - 150.0 150.0Study 0.1 0.2 0.3

Total 383.6 534.3 917.9

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The Project is proposed to be financed with (1) the proposed Bank loansto IFFCO (US$152.0 million) and to GOI (US$150.2 million), (ii) bilateralcredits to GOI from OECF (US$126.8 million) from the Government of Italy(US$18.0 million) and DANIDA, an ageucy of the government of Denmark(US$6.0 million), (iii) other borrowings by IFFCO (US$179.9 million), (iv)fresh equity from GOI (US$152.5 million) and IFFCO's c&-nstituent coopera-tives (US$34.6 million), and (v) IFFCO's internal cash generation (US$97.9million).

7.02 The Bank loan to IFFCO (the IFFCO Loan) (for the Aonla andRehabilitation components) is to be made directly to IFFCO, which willcarry the foreign exchange risk. The Government as the guarantor of theloan will charge IFFCO a guarantee fee, which, together with an assumedcost of covering IFFCO's exchange risk, is expected to raise the totalannual cost of the loan to 14X; this corresponds to the prevailing costIFFCO would incur with long-term local currency borrowings. The repaymentperiod of the IFFCO Loan is 15 years, including five years of grace. TheBank Loan to GOI (the GOI Loan) for the Fertilizer Imports and Study Compo-nents is to be made to GOI with a 15-year repayment period including fiveyears of grace.

A. Aonla Component

7.03 Capital Cost. The total financing required for the AonlaComponent is estimated at US$633.1 million equivalent (Rs 8,230 million),including adequate provisions for infrastructure, physical contingencies,price escalation, working capital and interest during construction.Capital and operating costs related to the provision of gas are notincluded but will be reflected in the gas user charge. Total foreignexchange requirements of the Aonla project are estimated at US$ 331.4million. The detailed breakdown of the capital cost estimate into majorcategories is given in Annex 7-1 and summarized in the following table.

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Aonla - Capital Cost Estlmate

Rs million US$ Million a/Local Foreign Total Local Pore£n Total

Equipment, Materials 6 Spares 624 2,274 2,898 48.0 174.9 222.9Frelght, Handling & Insurance 83 296 379 6.3 22.8 29.1Excise Duties and Taxes 171 171 13.2 - 13.2

Sub-total 878 2,570 3,448 67.5 197.7 265.2

License &-Engineeriug Services 205 213 418 15.8 16.4 32.2Project Management & Insurance 180 12 192 13.9 0.9 14.8Land & Site Development 114 - 114 8.7 - 8.7Civil Works & Building 326 244 570 25.1 18.7. 43.8Erection & Commissioning 299 56 355 23.0 4.4 27.4Township 217 20 237 16.7 1.5 18.2Infrastructure 110 10 120 8.4 0.8 9.2

Total Base Cost sttimate (BCE) 2,329 3,125 5,454 179.1 240.4 419.5

Physical Contingencies (PHC, 1.6%of BCE) 35 54 89 2.7 4.1 6.8Price Contingencies (9.1% of BCE+ PUc) 192 312 504 14.8 24.0 38.8

Total Installed Cost 25 T9 6,047 196.6 268.5 465.1

Working Capital b/ 1,095 - 1,095 84.2 - 84.2Interest During Construction 271 817 1.088 20.9 62.9 83.8

Total Financing Required 3,922 4,308 8,230 301.7 331.4 633.1

a/ US$1 - RS 13.0.b/ Working capital requirements at 95% capacity utilization of plant.

7.04 The base cost estimate is expressed in Deceuber 1985 prices anddeveloped as follows: (i) ammonia plant costs were based upon thedefinitive costs for the duplicate units of the Thal project, completed in1985; (ii) costs of the urea plants were directly derived from costsincurred for the completed Hazira project; (iii) offsites costs weredeveloped from IEFCO's in-house experience and take into account the dataavailable from Thal and Razira; (iv) Aonla site-related costs are well

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defined as a result of completed land, hydrogeological and infrastructuresurveys; and (v) consultants fees and rates have actually been negotiatedfor engineering and construction services.

7.05 Since essentially the same cost information (from the Thal andHazira projects) was used as the basis for estimating the capital costs ofthe MP Project, now at an advanced stage of procurement, the pricesprevailing for equipment being bid for that project were analyzed and takeninto account in development of the Aonla project cost estimate.Furthermore, a recent analysis of the Aonla project costs by IFFCO, whichestablishes the commitments made for procurement of goods and services upto March 1986, actual expenditures to that date and also the remainingscope and estimated cost of goods and services yet to be committed, hasbeen used to further refine the base cost estimate. The physicalcontingency allowance of 1.6Z is considered appropriate in view of the highdegree in definition of design, the applicability of the recent costinformation available from similar projects in India and the presentadvanced state of execution of the Project. The installed cost estimateassumes annual foreign price escalation rates of 6% for 1986, 6.8% for 1987and 1988, 7.0% for 1989 and 7.1% for 1990, in line with price projectionsrecommended by the Bank's Commodity Studies and Projections Division. Thesame rates are presumed to apply for local price escalation (as advised bythe Country Programs Division) on the basis of the assumed exchange rate ofRs 13 to US$1.

7.06 Financing Plan. The following table gives a preliminaryfinancing plan for the Aonla Component:

Aonla - Preliminary Financing Plan(in million US$)

Sources Local Foreign Total %

Long-Term DebtWorld Bank - 112.0 112.0 17.7OECF - 126.8 126.8 20.1Government of Italy - 18.0 18.0 2.8DANIDA - 6.0 6.0 .9GOI 79.9 5.7 85.4 13.5

68.55-58.2 5.0

EquityGOI 89.5 62.9 152.4 24.0Cooperatives 34.6 - 34.6 5.6IFFCO Internal Funds 40.0 - 40.0 6.2

16.1 MT 227.70 35.8

Internal Cash Generationof the Project 57.9 - 57.9 9.2

Total Financing Plan 301.7 331.4 633.1 100.0-_ w

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7.07 In the financing plan for the Aonla Component, essentially exceptfor foreign exchange interest during construction, foreign exchange costsare assumed to be covered by foreign debt, and local currency costs byequity contributions. The foreign exchange debt and equity contributionsby GOI are basically intended to fund interest during construction onforeign debt. In addition to the US$112.0 million portion of the proposedIFFCO Loan to be applled mainly to equipment purchases and materials,US$211.2 million equivalent in debt and equity financing for both local andforelgn expenditures will be provided through (i) loans to GOI from OECF,totalling US$126.8 million;5/ (ii) loans to GOI from the Governments ofItaly and Denmark for US$18.0 million and US$6.0 million respectively; and(iii) GOT loans (supplemented as necessary by loans from domestic financialinstitutions as well as supplier's credits) for which arrangemeats would befinalized during the procurement cycle (US$94.5 million). The debtfinancing for Aonla will thus amount to US$357.3 million or 55% of thetotal financing requirements of this component. The equity financing,equivalent to US$235.1 million or about 36% of the total financingrequirements, will be provided by GO (US$160.5 million), IFFCO'sconstituent cooperatives (US$34.6 million), and internal cash generation byIFFCO's existing operations (US$40.0 million). In addition, the internalcash generation of the Aonla project (US$57.3 million), expected to beavailable beginning with the second year of operation, will financeincremental working capital requirements.

7.08 IFFCO's equity contribution will come from the cash generated inits existing operations, after meeting other funding commitments includingfor recurring investments, repayment of loans, and funding for ongoinginvestment projects (para 4.05). Assurances have been obtained from IFFCOto limit, during project implementation, capital expenditures other thanfor the Project, to an aggregate of US$80 million, including for the sodaash project, and that no existing debt will be prepaid. GOI's equitycontribution (US$152.4 million) will in effect come from its developmentbudget (US$58 million), excise taxes on equipment for the Project (US$38million), and the interest during construction (US$56 million) payable byIFFCO on GOI and cofinancing loans. GOI has agreed to make availableadequate and timely funds to IFFCO for the Aonla Component up to theequivalent of US$267.8 million, and that it will make available to IFFCOany additional funds required to cover any shortfall in the Aonla Componentfinancing plan on terms satisfactory to the Bank.

B. Rehabilitation Component

7.09 Capital Cost. The estimated capital cost of the variousrehabilitation measures proposed to be funded under this component isdetailed in Annex 7-2 and summarized as follows:

5/ OECF loans carry 30-year repayment periods, including a 10-year graceperiod and 3.25% interest rate. This loan will be onlent to IFFCO atGOI's long-term lending rate to the cooperative sector (14%), with arepayient period of 15 years including 5 years of grace.

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Rdhtitatiai - CtaLi±a cost Estiuste

Res ad llmfal US$ miillT1caL Paore TTotal LAl Foream Toa

P"W4PUr Plant 148 135 283 1. 1.OA 21.8Kalol Plant 323 210 533 24.8 16.2 4140KamiLa Plant 35 94 229 1OA 7.2 17.6

Tot Base Cost Estfrte (DM) 606 439 1,045 46.6 33.8 80.4

Phsal ( sC, 101Xof Bi) 60 44 104 4.7 3.3 8.0Price nQmtlasides (13.6? ofB + PHC) 115 41 156 8.8 3.2 12.0

Total Instaled Cost 781 524 1,305 60.1 40.3 100.4

Interest During (brtruction 282 161 443 21-? 12.4 34.1

Total Fliaxnng ReqIred 1,063 685 1,748 81.8 52.7 134.5

Base cost estimates were prepared by IFFCO technical staff and areconsidered satisfactory on the basis of: (i) preliminary designs forprocess area/major equipment retrofits, developed in consultation with theoriginal engineering firms and operating companies; (it) suppliers'quotations for subcomponents involving equipment replacements, additionalequipment and new packaged plant units; (iii) inr-house information onplant, equipment and materials costs; and (iv) information fromlicensors/engineering firms. Physical contingencies, at 10 of the basecost estimate, are higher than for Aonla due to the rehabilitative natureof this component and its present lower level of definition. Pricecontingencies are based on the same annual escalation rates as for theAoula component, using a rate of 4.0% beyond 1990. Customs and exciseduties and sales tax on purchases of equipment are estimated to amount toUS$23 million including contingencies.

7.10 Financing Plan. The following table gives a preliminaryfinancing plan for the Rehabilitation Component:

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Rehabilitation - Preliminary Financing Plan(in million US$)

Sources Local Foreign Total z

Lonr-Term Debt

World Bank - 40.0 40.0 29.8GOI - 12.7 12.7 9.4Local Borrowings 81.8 - 81.8 60.8Total Financing Plan 81.8 52.7 134.5 100.0

The US$40 million portion of the proposed Bank loan will essentially fundthe foreign exchange portion of the installed cost estimate of thiscomponent, covering equipment, materials and engineering services,supplemented by credits from suppliers. GOI funding will essentially belimited to interest during construction on foreign debt. Assurances havebeen obtained from GOI that adequate and timely funds be made available tocomplete the Rehabilitation Component. Since It Is assumed for thefinancial analysis that the totality of IPFCO's available internal cashgeneration would be applied to the Aonla Component, the local costs of theRehabilitation Component are to be funded with local borrowings.

C. Study and Imports Components

7.11 The cost of the study (para 5.18) is estimated at US$300,000,including US$100,000 for related local currency costs. The foreignexchange cost estimate is based on an assumed fifteen man-months ofconsultancy work, at a cost of US$10,000 per manrmonth, plus a provisioufor the acquisition of computer hardware and software. The foreignexchange requirements for this study are proposed to be funded out of theBank's Government Loan, aud the local costs by GOI. GOI would beresponsible for implementing the study in line with the appropriate Bankguidelines for consultancy services. With regard to the Imports Component(para 5.19) the Bank will provide funding under the proposed GovernmentLoan for the foreign exchange cost of imported fertilizers and fertilizerraw materials, up to a value of US$150 million.

D. Procurement and Disbursement

1. Procurement

7.12 Aonla. Equipment financed by the proposed loan will be procuredthrough international competitive bidding (ICB) and other procedures con-sistent with Bank guidelines. Equipment proprietary to the process designwill be procured from specialist suppliers (about US$1.5 million) and smallItems under contracts each with an estimated value of not more thanUS$200,000 (about US$4 million), may be procured through limitedinternational biddlig (LIB) from qualified suppliers from at least -hree

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eligible countries. The aggregate of contracts uide: the Bank loan to beprocured under the above special procedures will not exceed US$5.5 millionequivalent or nearly 5% of the Aonla portSon of the Bank loan. Forpurposes of bid evaluation under ICB, qualified local suppliers willreceive a margin of preference of 15% or the generally applicable duty forsuch goods, whichever Is lower. Indian manufacturers are expected tosupply 32% of the equipment to be procured under ICB procedures or underthose of the OECF loans. Bank approval prior to contract award to befunded by the Bank will be required on all items with a value in excess ofUS$500,000, totalling 702 of the loan amount, which is satisfactory in viewof the experience of the borrower, workload on project staff and thepost-review of all contracts. Equity contributions and GOI and other loanfunds stipulated in the financing plan will be used to cover (i) the costof engineering and erection services, (it) civil works, (Mi) township,(iv) equipment for the Aonla component not financed by the Bank loan, and(v) interest during construction.

7.13 IFFCO has developed and reviewed with the Bank a list of criticalequipment and items with long delivery times. Because of the early starton the Aonla project, the good progress made so far and the need for earlyprocurement activity on critical and long delivery equipment, IFFCO hassought the Bank's consent to provide retroactive financing for the list ofitems considered, in order to maintain the planned pace of implementation.IFFCO has been advised that the items are suitable for such an arrangement,subject to a ceiling of 10% of that portion of the Bank's loan which isdestined to the Aonla Component, although IFPCO must bear the risk ofproceeding on this assumption if the Bank chooses not to agree to suchretroactive financing. Since IFPCO's procurement procedures and biddingdocuments are acceptable to the Bank, it is recommended that the Bankpermit retroactive financing of agreed eligible items of equipment forpayment due and made after July 31, 1985.6/

7.14 It is also recommended that the Bank provide about US$5.5 millionfor procurement of proprietary and small items and about US$3.5 million forspecialist erection and commissioning services supplied by vendors, allunder LIB procedures. For a number of Items of low value to be funded fromsources other than the Bank, only local suppliers are expected to bid underIFFCO's local competitive bidding procedures (Project File Ref. J).

7.15 The allocation of US$112 million of the proposed IFFCO Loan forthe Aonla component is summarized as follows:

6/ By April 1986, IPFCO had expended an amount of US$5 million for thesupply of goods for procurement under the proposed loan.

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-Anla - Allocation of Bgank Loan

Category US$ million Disbursement for

Equipment, Materials and 100% of foreign expenditures,Spare Parts, (lucluding Supply 85.0 100X of local expendituresand Erection Contracts) - (ex-factory cost). and 70X of

other local expenditures.

Technical Services 12.0 1OOZ.

Unallocated IS.0 a/Total 112.0

a/ No allocation has been made for the Front-end Fee, currently waived bythe Bank.

7.16 Apart from the work of piling which was awarded early and let tothree Indian firms while IFFCO was uncertain of its financing sources,erection and civil works contracts are not likely to attract interest frominternational bidders. As has been seen in the case of Hazira and otherIndian fertilizer projects, the individual contracts will likely not exceeda value of US$5 million equivalent. The policy of awarding such sizecontracts locally is considered to provide the most economical means forexecution of the Project and will allow IFFCO to efficiently control workperformance.

7.17 Rehabilitation and Other Components. The procurement packagesfor the Rehabilitation Component will generally be of relatively low valueand a significant proportion are likely to be of a proprietary nature. Ofthe proposed US$40 million of Bank financing for this component, the itemswhich will be suitable for procurement under ICB are expected to have avalue of about US$30 million, with about 50% of this amount relatiug totenders won by local suppliers. The rest of the loan, covering equipment,materials and services totalling about US$10 million, will includeproprietary items (about US$3.5 million) and small value items (aboutUS$4.5 million) which can be procured under LIB procedures. The componentwill have only limited foundation, structural aud construction requirements(about US$16.5 million) and those can be carried out by the respectiveplant maintenance staffs with the appropriate use of local subcontractors.Engineering services (about US$2 million of Bank financing) will beprocured under LIB from firms supplying th; particular process andequipment designs and working in close cooperation with the IFFCO projectmanagement teams, that were either the original process consultants for theexisting plants, or that offer the specific process designs required forthe proposed plant modifications.

7.18 The allocation of the rehabilitation component portion of theproposed IFFCO loan will be as follows:

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Rehabilitation - Allocation of Bank Loan

Category USS million Disbursement for

Equipment, NfateriaIs & Spare 29.0 1001 of foreign expenditures,Parts (including Supply and 100l of local expendituresErection Contracts) (ex-factory) and 701 of other

local expenditures

Technical Services 2.0 100%

Unallocated 9.0Total

Regarding the Imports component, materials financed by the Bank under theGovernment Loan will be procured under ICB procedures. Bank approval priorto contract award will be required on all purchases with a value In excessof US$2 million. Such approval will also be required for the first fivepurchases, regardless of amount.

7.19 General. The procurement arrangements for the Aonla,Rehabilitation, Imports and Study components are summarized on thefollowing page:

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Procurement Methods al(US$ million)

IGB LIB LCB Other N.A. Total

Equipment & Materials 251.5 150.9b 48.1 - 450.5(242.5) (13.5w - - - (256.0)

License, Engineering & - 32.9/ 8.9 - - 41.8Consultaacy Services - (13.5) (0.2) - - (13.7)

Project Management &Insurance - - - 20.5 - 20.5

Land & Devel., Civil 17.2 - 56.6 - - 73.8Works (17.2) - - - - (17.2)

Erection & Commissioning - 4.4d/ 37.3 - - 41.7- (3.51 - - - (3.5)

Township & Infrastructure 0.9 - 30.9 - - 31.8(0.9) - - - (0.9)

Local Handling 12.8 - 4.3 - - 17.1(10.9) - - - (10.9)

Excise Duties & Taxes - - - - 38.4 38.4

Total Installed Cost 282.4 188.2 186.1 20.5 38.4 715.6(271.5) (30.5) (0.2) - - (302.2)

8/ Figures in parentheses indicate amounts to be financed by the Bank.b/ Includes US$126.2 million equivalent of financing from OECF and

US$10.2 million equivalent of other bilateral financing for goods tobe supplied from Japan, India and certain other countries.

c/ Includes US$18.9 million equivalent of bilateral financing for workby the foreign project consultants.

d/ Includes US$0.6 million equivalent of financing from OECF.

2. Disbursement

7.20 It is anticipated that the total amount of the proposed Bank loanwill be disbursed by December 31, 1991; the disbursement schedule for theAonla and Rehabilitation Components is provided in Annex 7-3. The schedulegenerally reflects past experience with similar Bank-financed fertilizerand chemical industry projects, as reflected In the standard disbursementprofile. It is, however, possible that the project will be implementedmore efficiently and with fewer delays; as stated in para. 6.03, theimplementation period may be reduced from six to four years. This wouldresult in a slight reduction in financiug requirements, mainly on accountof interest, reducing the needed provision of funds by GOI accordingly.Disbursement of the IPFCO Loan for Aonla would then be completed by

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mid-1989. While costs would be incurred earlier, the flow of benefitswould also begini more quickly, so that the financial rate of return wouldincrease from 11.8% to 14.3% (para. 8.08), and the economic return, from17.1% to 19.2% (para. 9.05). Applications for payment will be allowedunder statements of expenditure for all paymeats relating to coutracts witha value below US$500,000. The relevant supporting documentationt will beretained by IFFOO for subsequent review as may be required by the Bank.The Government Loan is anticipated to be fully disbursed by FY1988.

VIII. FINANCIAL ANALYSIS

8.01 The finanicial projections for the Project are carried out incurrent rupees; financial returus are calculated in constant 1985 prices.Annexes 8-1 to 8-4 describe the key assumptions used in the financialanalysis and show projected financial statements for the Aonla project, andfor IFFCO as a whole, without and with the Project (Aonla andRehabilitation Components). The principal assumptions are as follows:

8.02 Revenues. It is assumed in the base-case analysis that the Aonlaplant will start commercial production in January 1990, 63 months after thecommencement of basic engineering in October 1984 (para 6.02). Projectedurea ex-factory prices have been calculated according to the "retentionprice" formula. As explained in paras 2.16-2.20 and further elaborated inAnnex 8-2, the formula sets the price at levels needed to enable producers,operating efficiently at 80% of capacity, to generate sufficient cash tocover production costs and obtain a 12% after tax return on capitalemployed. The urea retention price for Aonla is thus projected at Rs5,339/ton for 1989/90 in current terms, corresponding to Rs 3,930/ton(US$302/ton) in 1985 terms. The ten-year average urea retentiou price inconstant terms will be below the economic value of urea when using presentinternational price projections (para 2.20).

8.03 With regard to the Rehabilitation Component, its benefits consistlargely of increasing the reliability and extending the operability ofexisting facilities, strengthening safety and pollution control arrange-ments, and improving energy efficiency. Although certain cost savingswill be achieved by the proposed measures, these would result in a reduc-tion of plant retention prices so that in the longer-term they would haveno effect on IFFCO's income level. Therefore, while all capitalexpenditures of the Rehabilitation Component are fully reflected in IFFCO'sfinancial projections, the Company's revenues and costs are conservativelyassumed to remain unaffected by the rehabilitation weasures.

8.04 Operating Costs. The following table summarizes the costs perton of ammonia and urea for the Aonla project; greater details are providedin the Attachment to Annex 8-1. The project is energy and capitalintensive: natural gas represents 52% of the total production cost of urea(including gas consumption used for intermediate ammonia production),followed by depreciation cost which accounts for 24% of the total. At thetime of appraisal, the price for natural gas for feedstock use was

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estimated at Re 1,652 per thousand Ncm (equivalent to US$3.70 per millionBTU). This price is based on the local price of naphtha and Its calorificvalue, in line with G0o8 estabilshed pricing formula for natural gas.Similarly, the estimated natural gas price for utility use of Rs 1,292 perthousand Ncm (or US$2.88 per million BTU) is based on the local price offuel oil at the time of appraissl. Should gas prices be increased, theimpact on TYFOO's finances would be liited since such increases would berecovered through increases in the retention price.

Aez4e - Dh atins Cost SLUiM(at 95Z capacity utilization, per ton of product)a/

Ammonia Urea b/Rs USS X _ Us$_-_

Natural gas--feedstock 1,655 127.3 57.4 - -Gas--utilities 50 3.8 1.7 297 22.8 12.0Intermediate a_onia c/ - - - 1,685 129.6 67.9

(996) (76.6) (40.1)Power 26 2.0 0.9 17 1.3 0.7Water 2 0.2 0.1 1 0.1 0.0Chemicals 64 4.9 2.2 7 0.5 0.3Bags - - - 100 7.7 4.0Labor 43 3.3 1.5 46 3.5 1.9Repair & Maintenance 109 8.4 3.8 35 2.7 1.4Insurance 36 2.8 1.2 11 0.8 0.4Depreciation 896 68.9 31.2 284 21.8 11.4

Total 2,881 221.6 100.0 2,483 190.8 100.0

a/ In 1985 prices.hi One ton of urea requires J58S ton of ammonia.ci Numbers in parentheses indMcate natural gas portion of intermediate

ammonia cost.

A. Financial ProJections

8.05 Aonla. The followdig table sumaritzes t;ue financial projectiousof the Aonla project, as detailed in Annex 8-3, showing that sales revenueswould reach Rs 4,267 million in 1992/93, the first full year duriug whichthe plant is expected to operate at a 95Z capacity utilization. Operatingincome would amount to Rs 1,786 million, fully sufficient to cover interestcosts. As a result of the tax benefits described in Annex 8-1, taxes would

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be postponed until 1994/95. The resulting projected initial net cashgeneration would -over Aonla's incremental working capital requirementtsbeginning in the second year of capacity build-up. The profit break-evenpoint would remain around 45-50% of capacity beginning in the third year ofoperation. The debt service coverage ratio would remain above 2.0 and thecurrent ratio above 1.5, while the debt/equity ratio would graduallydecrease from 59/41 in 1989/90. The financial structure and liquidityposition of the Aonla project is thus projected to be satisfactory.

Surv of Ala Fm Pro(in mLsflto of currest rupee, uimls othezase wtnd)

Fiscal Year Endb 199 a, 1991 1992 1993 1994 1995

capcity Utlltzaln bb/ (%) 65.0 72.5 87.5 95.0 95.0 95.0Amvla sales ('000 tpy) 7 15 18 20 20 20Urea sal ('000 tpy) 236 526 635 690 690 690Urea rtention prie (Rs/too) 5,339 6,097 6,072 6,032 6,038 6,049

Sales revemm 1,292 3,292 3,957 4,267 4,272 4,279Variable productico ast 552 1,287 1,527 1,645 1,711 1,779Fixed proUctIon, st 384 781 789 798 807 816Total pro&uti2 n act 935 2,068 2,317 2,443 2,518 2,596

Oprtirg iccm 346 1,197 1,607 1,786 1,714 1,643interest 290 616 571 507 444 380Net Inacae before t (lBr) 55 581 1,036 1,279 1,270 1,262Net Inc after tms (IA) 55 581 1,036 1,279 1,270 1,262

Internal cash genwration 343 1,155 1,611 1,854 1,845 1,837Net fx assaets 6,819 6,275 5,701 5,126 4,551 3,977Total equity 3,004 3,588 4,447 5,549 6,643 7,728long-tenm debt 4,275 3,849 3,3% 2,943 2,490 2,038Debt service 290 843 1,023 960 897 833

Ratios

IBr/sales (2) 4.3 17.6 26.2 30.0 29.7 29.5TAT/salea (%) 4.3 17.6 26.2 30.0 29.7 29.5Profit break-eve (2) 60.1 51.2 49.7 48.0 47.1 46.2Debt service cverae ratlD 2.2 2.1 2.1 2.5 2.6 2.7current ratio 1.5 1.8 2.1 2.3 2.3 2.3Debt/equity ratio 59/41 52/48 43/57 35/65 27/73 21/79

a/ 6 I only.Adjustei to fiscal yea (July-Jme).

_ 41

8.06 IFF¢O. The following table summarizes the financial projectionsof IFFCO consolidated with the Aonla and Rehabilitation components of theProject and its financing plan (Chapter VII), as shown in greater detail inAnnex 8-4. As capacity utilization of IFFCO's existing plants has beenhistorically high and is expected to continue to be so, the Company shouldcontinue to have a substantial cash-flow and adequate returns. Ascommented in Chapter IV, IFFCO will provide US$40.0 milliou for the Projectwhile also implementing some recurring investments and a aw soda ashproject (requiring a total of US$80 million). IFFCO is expected to remainfinancially sound. This is reflected in a projected minimum current ratioof 1.5, a minimum debt service coverage-of 1.5 and a maximum debt-equityratio of 49/51.

MMO Thnwactl Projectios, 1Sth the Project(in millVzs of cirret rupees, swept for ratios)

Actuall: Cal Yeer E¢dig 1985 1986 1987 1988 1989 1990 1991 1992 13

Sales revhmes: 5,743 5,911 6,827 7,159 7,712 9,410 11,776 13,267 13,795ofwit1Aa0Oqnit - - - - - 1,292 3,292 3,957 4,267Net Tne after tns 362 193 314 269 338 283 783 1,415 1,396ntetrnal cash g.ielm 671 508 639 536 614 890 1,675 2,274 2,290

Captal ea dituresa: 244 1,018 1,1(0D 2,585 3,010 1,646 433 72 48of which tX Ama

iutxit 164 851 864 2,278 2,197 753 31 - -

of which the lat*oqxx~it - - 65 134 481 691 354 24 -

Arm,1ated Surplb cash - - 32 58 73 487 909 1,804 2,926Net fired assets 2,150 2,853 3,627 5,945 8,679 9,720 9,260 8,473 7,627Tntal eqaity 3,512 3,980 4,487 5,687 6,359 6,992 7,739 8,939 10,115TAM-term debt 828 1,333 1,909 3,212 5,454 6,727 6,467 6,095 5,343

Ratios

Debt servie cerWe ratio 2.1 1.6 2.0 1.8 2.2 2.1 1.8 1.5 2.0Oirrent ratio 1.6 1.5 -1.6 1.7 1.7 1.8 2.0 2.4 2.3Debt/equity ratio 19t81 25/75 30/70 36/64 46/54 49/51 46/54 41/59 35/65

B. Financial Rates of Return and Sensitivity Analykg

8.07 Annex 8-5 provides detailed financial cost and benefit streamsfor the financial rate of return (FRR) calculation for the AonlaComponent; the following table summarizes results of sensitivity tests anda switching value analysis. Regarding the Rehabilitation-Component, theanalysis was limited to returns in economic terms (Chapter IX):

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Aonla - Financial R;te of Return(in constant terms, before tax)

1. Base Case (63-months Implementation Period) 11.8%

2. Sensitivity Test*

Project Implementation Period of48 Months 14.31

Gas Prices l: Up 101 10.4%Down 10X 13.12

Capital Costs: Up 10 10.2XDown 10% 13.5Z

Attainable Capacity Utilization RateDown by 101 (to 85%) 10.2Z

Delay of Operation Start-up by 1 Year 11.2%

3. Sitching Value Analyi a(nor-cumulative)

FIRR t 11.81 vase 9g.) 5X 0%

Gas Price (Rs/lOOO H3 ) a/- for feedstock 1,652 2,362 2,742- for utilities 1,292 1,848 2,145

Index 10 143 166

Capital Costs (ExcludingWorking Capital) (Re million) 5,543 8.592 11,917

Index 100 155 215

Capacity Utilization Rate (X) 95 63 48index 100 66 I

a/ Sensitivity and switching value testa were made only for changes ingas prices but not taking into account the effect on sales pricesunder the retention price formula.

8.08 Aonla's base case FRR, in constant 1985 terms and before taxes,Is estimated at 11.8X. This is lower than the 17.1% base case economicrate of return (para 9.04), primarily because (i) urea retention prices areprojected to be lover than economic values, (ii) financial gas costs areassumed to remain at telatively high levels irrespective of internationalenergy price prospects, and (iii) the effect of the standard conversionfactor of 0.8 applied to local costs for arriving at economic capitalcosts. The relatively low base-case FRR is also due to the conservativeassumption used for the project implementation period, i.e., 63 months fromthe beginning of basic engineering to commercial start-up. As described inpara 6.02, the mission considers a 48-moth implementation period to bereasonable and attainable. A sensitivity test using this assumption shows

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that the FRR for the Aonla component would increase to 14.3%. Theswitching value analysis indicates that for the FRR to decline to 5%,either gas prices have to increase by 43%; or capital costs have to go upby 55%; or the attainable capacity utilization rate has to decline from 95%to 63%. It is considered unlikely, however, that gas and capital costswill exceed the base case levels to such an extent, without being reflectedin modifications in the retention price so that financial returns wouldeventually be assured, provided that the plant capacity utilization rate is.kept at 80% or higher. In light of IFFCO's historical good operatingperformance and the location of the Aonla plant close to India's principalfertilizer markets, the risk of underutilization of the Aonla capacities isconsidered low.

C. Financial Covenants and Reporting Requirements

8.09 Assurances have beer obtained from IFFCO that it follow prudentfinancial practices, and will (i) maintain at all times a long-termdebt/equity ratio not exceee ag 60/40; (ii) after completion of theProject, maintain at all times a current ratio of at least 1.2; (iii) notincur additional debt in any fiscal year, if by so doing the projected debtservice coverage ratio would fall below 1.3; and (iv) not prepay debt ordeclare any dividends, if such action would result in the current ratiofalling below 1.4. IFFCO will submit, in a form satisfactory to the Bank,(a) its annual audited financial reports within nine months from the end ofeach fiscal year, (b) within one week of every month-end, constructionprogress reports through to commissioning of all components, and (c) notlater than 30 days after the end of each quarter, quarterly financialstatements for IFFCO. Finally, IFFCO will prepare and submit to the Bankwithin four months after Project completion, a completion report dealingwith its experience during Project implementation and initial operations,and a reassessment of its costs and benefits. GOI will submit annualaudited financial reports regarding implementation of the study and importcomponents (para 5.18).

D. Risks

8.10 The Project is not expected to face any major technical or mana-gerial risks since the technologies to be used in the various componentsare commercially proven and the ammonia and urea units of the Aonla projectare of similar design to those of the completed Thal and HP projects. Mostof IFFCO's project team members were involved in implementing the Hazira aswell as other fertilizer projects in India and are experienced in projectmanagement, plant erection and start-up.

8.11 The timely availability of adequate gas supply to Aonlaconstitutes a potential risk. While gas production estimates based onONGC's latest development plans are adequate (Annex 5-3), it is essentialthat ONGC's and GAIL's plans and facilities are implemented in a timelymanner to ensure that the Aonla plant can start-up without delay whenready. In addition, the HRU pipeline to Aonla must be completed beforestart-up of the plant. As described in para 5.12, while the overallpipeline project plan has been established, the exact timing of its

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completion remains to be confirmed after the completion of pipelineconstruction arrangements. As IFFCO is one of the best managed fertilizercompanies in the country and has a sufficient pool of capable matnagers, theoperational management of the Project does not constitute an undue risk.

IX. ECONOMIC ANALYSIS

A. Economic Costs and Benefits

9.01 Annex 9-1 describes the principal assumptions used in theeconomic analysis of the Aonla Coiponent. In summary, economic costs andbenefits for tradeable items have been valued at international borderprices, while for non-tradeable items, appropriate domestic prices havebeen used. All prices are expressed in constant 1985 US dollar terms. Theeconomic capital cost of the Project was derived by deducting taxes onequipment and other items from the financial capital cost. For localcurrency costs, a standard couversion factor of 0.8 was used, in effectapplying a 25% premium to the prevailing exchange rate. The cost of gaspipelines is not included since the pipeline network will be built for anumber of different users, and its opportunity cost to the Project shouldtherefore be minimal. It is assumed that the pipeline cost will berecovered through a)propriate gas pricing.

9.02 The economic value of production is primarily determined byestimates of the future international price of urea. This FOB price isassumed to increase (in constant terms) from the actual US$162/ton (FOB,bagged) incurred by Indian fertilizer imports in 1984/85 to US$190/ton in1990/91 and to US$206/ton in 1995/96 (para 2.19). This projection reflectsthe Bank's assessment of the future global demand and supply of nitrogenwhich is expected to be essentially in balance in the 1990s, as well asprospects for the future energy situation. Adding to the FOB price thecost of sea freight to India, port handling charges and losses, and inlandtransportation to UP warehouses, the economic cost of urea is estimated atUS$270/ton for 1990191 and US$286/ton for 1995/96.

9.03 Natural gas is the single biggest cost item, accounting for 80% ofthe total economic production costs. As described in Annex 9-1, its econo-mic value is assumed to be its fuel oil equivalent value. Based on theBank's projection of crude oil prices, the fuel oil equivalent value ofnatural gas to be used by the Aonla plant was estimated at US$2.80 permillion BTU in 1990/91 and US$3.80 in 1995/96.

B. Economic Rates of Return

9.04 Aonla. The base case economic rate of return (ERR) of the Aonlaproject assuming a 63-month implementation period, is calculated at 17.1?.Annex 9-2 gives the corresponding economic cost and benefit streams, andthe table on the following page summarizes the results of sensitivity testsand a switching value analysis.

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9.05 The table indicates that the ERR remains adequate, even if eitherinternational urea prices fall, or capital costs go up by 20%, or theattaiuable capacity utilization rate declines to 85%, or operation start-upis delayed by 1 year. A reduction in the natural gas cost, toUS$2.40/million BTU, which would correspond to a crude price of US$13/bbl,FOB, would result in an improvement of the Aonla component's economics by3.0% to 20.1%. If such a reduction were to be accompanied by a US$30/tonreduction in the economic value of urea, the Aonla component's ERR would be17.02. The switching value analysis of energy and urea prices furthermoreindicates that in order for the ERR to decline to 10S, either the crude oilprice has-to go up to US$32.5/ton (and the value of the gas toUS$5.2/million BTU) without a parallel change in urea prices, or the ureaPOB price has to remain at US$143/ton without a decrease in energy

Aonla - Economic Rate of Return(in 1985 prices)

1. Base Case 17.1%

2. Sensitivity Tests

Implementation period of 48 months (instead of 63 months) 19.2%Urea equilibrium prices lower than projected by US$30/ton 13.6%Gas cost down to US$2.40/million BTU a/ 20.1%Capital Costs: Up 20% 14.2%

Down 20% 20.9%Capacity Utilization Rate Down by 10% to 85% 15.6%Delay of Operation Start-up by 1 Year 14.81

3. Switching Value Analysis of Energy and Urea Prices(non-cumulative)

Crude Oil Gas b/(FOB. US$/bbl) (US$/millIon BTU) Urea (Bagged FOB. US/ton)

1990/ 1995/ 1990/ 1995/ 1990/91: 190 143 9091 96 91 96 1995/96: 206 143 90

ERR (%)

16.2 22.6 2.8 3.8 E c/ 10.0 0.0

32.5 32.5 5.2 5.2 10.0 0.0 C-)

45.7 45.7 7.2 7.2 0.0 (-) (-)

a/ Equivalent to US$13/bbl of crude oil (FOB) and to US$74/ton of fueloil (FOB).

b/ Fuel oil equivalent, delivered to Aonla.£' Base case.

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prices. The likelihood of the crude oil price going up to such an extent,or of the urea price to remain at US$143/ton during the entire projectlife, is cousidered slim. Projections for international urea prices havebeen discussed in paras 2.18 and 2.19. This leads to the conclusion thatthe Aonla project should be not ouly economically viable but fairlytolerant of unfavorable conditions*

9.06 Rehabilitation. The benefits of the Rehabilitation Component areboth tangible and intangible (Annex 5-2). Tangible benefits include thoseresulting from efficiency improvements and energy saving Investments in theexisting plants, intangible benefits include expected increases in reliabi-lity and safety of various pieces of equipment to.be replaced or reno-vated. As shown in Annex 9-3, all rehabilitation subcomponents whose bene-fits are quantifiable were found to have economic rates of return rangingfrom 16% to over 40%; details of the economic analysis of each subcomponentare contained in ProJect File Ref. K. Since operations at the existingplants are currently economic, i.e., marginal economic production costs arelower than equilibrium fertilizer prices, the rehabilitation measures,designed to improve existing operations, are economically meritorious.

C. Other Benefits

9.07 Besides the Project's general economic desirability as reflectedby the above rates of return, there are other economic benefits. The localengineering firms as well as IFFCO engineering staff will gain valuableexperience through involvement in the implementation of the Project. Atthe peak of construction activities, the Aonla component alone is expectedto provide employment to more than 3,000 persons. The Aonla Component willalso have significant backward linkages with the industrial sector,creating additional jobs and need for investments there. Local erectionand civil work contracts will have a positive impact on the local economy.Installation of a large industrial complex in an otherwise entirelyagricultural area will help attract small and medium scale serviceindustries needed to provide maintenance and other services for thecomplex.

X. AGREEMENTS

10.01 The following principal assurances and agreements have beenobtained:

a. from the Government that it will:

(i) implement a program of initiatives to improve thefertilizer sector (para 2.03);

(ii) make natural gas available for the Aonla plant no laterthan July 31, 1987 (para 5.12);

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(iii) complete before June 30, 1987 the study on performanceevaluation and control, according to terms of referenceto be agreed with the Bank by June 30, 1986(para 5.18); and

(iv) provide IFFCO with equity and loan funds totallingUS$267.8 million equivalent, and make available toIFFCO any additional funds required to cover any short-fall in the Aonla Component financing plan on termssatisfactory to the Bank (paras 7.08 and 7.10);

b. from IFFC0 that it will:

(i) conclude and submit to the Bank by June 30, 1987, anagreement on terms and conditions satisfactory to theBank for the timely and adequate supply of gas (para5.13);

(ii) execute and operate the Project with due regard toenvironmental standards satisfactory to the Bank (para5.17)1;

(iii) during implementation of the Aonla Component, limitcapital expenditures other than for the Project to anaggregate of US$80 million and prepay no debt(para 7.08); and

(iv) comply with the financial covenants and reportingrequirements described in para 8.09.

10.02 With the above agreements, the Project is suitable for Bank loanstotalling US$302.2 million for the Cooperative Fertilizer IndustryProject. The proposed loans would be for 15 years, including 5 years ofgrace at the Bank's applicable variable interest rate.

10.03 Retroactive financing of up to US$11.2 million is recommendedunder the loan for eligible expenditures for engineering services andadvance payments for procurement of long delivery items for the Aonlaproject incurred after July 31, 1985 (para 7.13). Furthermore, it isrecommended that the Bank loan provide US$5.5 million for procurement ofproprietary and small items and US$3.5 million for specialist erection andcommissioning services supplied by vendors under LIB procedures (para7.14).

Industry Department

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ANNEX 2-1Page 1 of 6

INDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

Initiatives in the Fertilizer Sector

1. In connection with the Cooperative Fertilizer Industry Project,GOI agrees to aim at achieving a series of performance targets and to takea number of measures spelled out below.

Performance Targets

2. Plant capacity utilization: A gradual increase in the averagecapacity utilization and production of existing nitrogen fertilizer plantsfrom their present levels, both in the aggregate, as well as for thepublic sector plants alone, as shown in the following table:

Targets for Capacity Utilization and Production ofExistlig Nitrogen Fertilizer Plants

Actual Targets1984/85 85/86 86/87 87/88 88/89 89

Plant -Caacity (2)

All India 74 75 76 78 80 82Public Sector 60 61 63 65 69 73

Fertilizer Production(million nutrient tons)

All India 3.8 3Md 3.9 4.0 4.1 4.2Public Sector 1.8 1.8 1.9 2.0 2.1 2.2

GOI will provide the Bank, by June 1986, with plant-by-plant capacityutilization and production data for 1984185. Similar data will beprovided to the Bani: annually through completion of the project by Junefollowing the end of each fiscal year.

3. Feedstock and Energy Consumption: Reduction of the overallaverage feedstock and energy consumption per unit of output, as follows(in approximate million kcal per ton of ammonia):

- 49 -

ANNEX 2-1Page 2 of 6

Actual Targets19G 87188 89/90

Natural Gas 10.0 9.5 9*0Fuel Oil 16.0 15.0 14.0Naphtha 12.0 11.0 10.5Coal 18.0 18.0 15.0 a/

a/ Assuming completion of the coal-based plants rehabilitation.

&OI will provide the Bank, by June 1986, with plant-by-plant consumptiondata for 1984/85. Similar data will be provided to the Bank annuallyuntil the completion of the project by June following the end of eachfiscal year.

4. Miltribution Efficiency: Steps are being taken by GOI tofurther gradually reduce the average haulage distance of fertilizers frompresently about 900 km to at most 800 km by 1990 and a 0l real reductionover the same time of the average fertilizer unit transportation andrelated costs, as reflected in the Government's 'equated freight" paymentsto producers, which in 1984/85 amounted to an average of Re 173 per ton ofurea. In addition, despatch delays and production stoppages at principalplants resulting from or necessitated by lack of railroad haulagecapability, is expected to be eliminated by 1989.

5. Ex-Pactori Pricing: The review of the retention price systemjust completed has evaluated various options, recommending a series ofactions with a view to (a) improving efficiency in existing facilities;(b) building new capacities for meeting the growing demand forfertilizers; and (c) providing adequate incentives through an appropriatepricing mechanism in order to develop the sector to its full potential.The Government of India intends to modify and rationalize the existingretention price system to generate adequate signals to plant managementsto take appropriate investment and operating decisions that would saveenergy and reduce costs. The LTFP statement recognizes the need tocontain subsidies within a certain level in terms of GDP, recognizing alsothe necessity to ensure that the rate of growth on this account is lowerthan the rate of growth of GDP. Various steps have been recomended inthis regard by the Study. Based on the above considerations, GOI wouldendeavour to keep the existing retention price constant in real terms, atpresent levels, pending decisions on, and implementation of, therecommendations of the Committee. The Indian delegation informed that themajor recommendations of the Committee are (a) for the existing plants:the retention price for urea would be fixed based on grouping for directcosts, relating to feed-stock and individual capital-related costs; and(b) for new gas-based plants: a system of tariff-adjusted import parityprices based on long range average prices of sample of countries. GOIintends to review the recommendations by September 1986, and thereafterimplement an action plan with monitorable targets in regard to ex-factorypricing. In this process, GOI proposes to take into consideration theBank's views on the evolution of an appropriate pricing system forpromating efficiency and reducing the subsidy burden.

- so -ANNEX 2-lPage of 6

6. Farmgate Prices: GOI has-recognized tb't budgetary implicationsof maintaining farugate fertilizer prices at present levels. The ongoingstudy on farmgate prices Is expected to be completed by the end of 1986and will address the major issues surrounding the overall fertilizersubsidy. In this process, GOI proposes to take the Bank's views intoaccount.

Measures Current,ly Under Consideration or Being Taken

7. In order, Inter alia, to achieve the above targets, a number ofmeasures, as summarized below, will be or are being taken.

(i) Production Efficiencies

8. The following principal actions are envisaged to improve theefficiency and capacity utilization of the public sector plants nowperforming unsatisfactorily:

(a) Technical and Energy Surve"s and Subsequent Rehabilitationof the Barauni, Namrup and Durgapur Plants. Based onongoing reviews of their performance and identification ofdefective equipment, the companies will carry outmodifications or replacements. Feasibility studies to thiseffect are to be initiated by mid-1986. On completion ofthis work, the Government will assess the Investmentrequirements. These studies will also evaluate theeconomics of continuing operation of the plants aftercarrying out any needed physical and financialrestructuring.

(b) Energy Audits of Other .C.. .CF. PACT and MFL Plants.In-house audits are under way at RCF and MFL and will becompleted by mid-1986. Similar studies will be initiatedshortly at FCI and FACT and are expected to be completed bylate 1986. Their conclusions will be discussed with theBank.

(c) Rehabiiitation of the Gorakhpur Plant. Necessary studiesare under way and the findings are expected to be availablewith the Government by mid-May 1986, at which time theGovernment will discuss the findings with the Bank andreach decisions with regard to their implementation bySeptember 1986.

(d) R biiitation of the Coal-Based Piants at -Taicher -sandRamagundam. The Bank-financed feasibility stutdy has beencompleted. The Government will review the findings of thestudy with the Bank and teach decisions on actions to betaken by mid-1986.

(e) Ciosing of the Existing Urea Plant at Na=rup. The Namrupfertilizer complex is being rehabilitated and expanded.

AN 2-1Page 4 of 6

Following this rehabilitation, the old Namrup I uret plant,being replaced under the current Naerup III Project, isplanned to be closed by late 1987.

Closure of Od Udyiogamandal Plante With the expectedcommissioning of the caprolactam plant at the saw site bymid-1988, the existing gypsum-route ammonium sulfate plantwill cease to operate.

(f) Study of' the Economic ViabilUty of Selected FertilizerPlants. Following completion of the above-mentionedstudies and audits, the Government will initiate a review,under terms of reference to be developed in cooperationwith the Bank, of plants selected in view of their highproduction costs and/or retention prices to (i) determinetheir economic production costs and values; (ii) reviewfurther potential, if any, for decreasing their production,operating and financial costs; and (iiI) identify andimplement measures for the purpose.

(g) Perspective Sector Planning. As part of its perspectiveplanning for the fertilizer Industry, the Governmentconstitutes a Working Group prior to each five Year Plan toreview the status of the industry and to formulate theinvestment plans for the five-year periode In view of theimportance of the industry, the Government now plans tocarry out a longer period sectoral perspective studycovering the period up to the year 2000 to be utilized bythe Government's Planning Commsssion in its overallperspective planning work. This review is to develop anoptimal scenario for the structure of the fertilizerproduction including aspects of location, feedstock, sizeand sequence of new plants, marketing, distribution andconsumption in India, proposed targets to be reached andstrategy of action needed to be adopted. The Study isproposed to be started by mid-1986 and scheduled forcompletion by December 1986. The Government proposes toconsider the Bank's suggestions with regard to this studyand discuss its findings with the Bank.

(ii) Public Sector Management

10. The procedures applied for the selection, appointment, tenure,training, incentives and motivation of top managers in the public sectorin general are currently being reviewed by the Government to find ways toensure professional decision-moking at the senior management levels, toincrease autonomy and accountability of the managers, and thus to improvepublic sector companies' operational performance and efficiency. In thiscontext, the Governmnt is currently reviewing the recomendations of the1985 Sengupta Study which focuses on improving the Indian public sectorenterprises in general; it is expected that decisions will be reached in1986.

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ANNEX 2-1Page 5 of 6

11. The Fertiliser Department of the Government is in the process ofdeveloping a computerized management information system which is expectedto be operational by mid-1986. The Government intends to work with theBank in further refining the system, taking into account internationalexperience to incorporate elements of periodic evaluation of companyperformance, setting up a signalling system pointing to out-of-linesituations, establishing a control over follow-up actions, and alsoproviding appropriate linkages with top management selection, promotionand incentives. In this context, the Government and the Bank have agreedto the provision by the Bank of financing of technical assistance underthe Cooperative Fertilizer Industry Project in the form of consultantswith international experience on the subject.

12. On behalf of the Government, the Fertilizer Association of Indiahas carried out and submitted to GOI a study of the manpower requirementsof the fertilizer industry. The Government intends to discuss with theBank by June 1986 the findings of the study, including the training needsin the public sector fertilizer companies.

13. Regarding the Government's intentions as to ownership offertilizer plants, the delegation has pointed to the size of theinvestment program and the needed growth rate, and also notes theGovernment's policy in the last two decades of mobilizing financial andmanagement resources available in all the sectors. As evidence of thispolicy, the Government pointed out that of the six large gas-based plantsnow under study or construction, five are to be owaed by the private andcooperative sectors, the only one in the public sector being implementedby National Fertilizers Ltd. which is a very successful and efficientlymanaged company.

(iiI) M4airiketiing and Distribution

14. Given the projected growth in fertilizer consumption and thenecessary consumer diversification, the Government has recognized the needto review its marketing and distribution strategy. In line with thestudies referred to in paragraphs 6 and 8(g), the Ministry of Agricultureintends to review the projected growth In consumption and production up tothe year 2000 and develop an appropriate strategy of actions to be takento ensure the efficient marketing of the increasing volume offertilizers. This study will include a review of the changes andstrengthening needed in the distribution system, the appropriateness orotherwise of continuing the present system of market allocations, theusefulness of increased competition at the market place to achieve betterservices for the farmers, the need for reviewing the distribution marginto ensure farmers better access to supplies, and the need for increasedinstitutional support for promotion, crop Insurance and credit supply.

15. The Government has been aware of the need for measures tooptimize fertilizer transportation and distribution. Initial feasibilitystudies focusing on the establishment of a number of nodal railroad pointsin northwest India are being prepared. Furthermore, in view of transportand storage constraints in other parts of India with high consumption

- 53 -

ANNEX 2-1Page 6 of 6

intensity, the Covernuent is considering to carry out an all-Indiadistribution project. A decision on this study will be reached by June1986, with completion scheduled within 12 months.

Industry DepartmentJune 1986

-54 ANX 2-2Page 1 of 3

INDIA - COOPERATIVE FERTILIZER IDSTRY PROJECT

Sec toral Measures Taken by GOI to luprovePublic Sector Fertilizer Plants

S.-Ifficieest

I. CoUl-ki s ertillre Plnt

- Plant review by * Bigh-Level Tecbhical Comsittee basbeen coapleted.

- Impleueatation of the Comsittee's short tersrecommendations has been completed inacludinginstallation of a captive power plant at Talcher.These actions bave resulted in increases in capacityutilization from 371 to 491 and in esergy savinge.

- Foreign consultants finsaced ander the Guns Projecthave been contracted to conduct am end-to-end surveywhich is currently in progress.

b. Wa.rug I

- The existing Jasrup I plants other thba the urea plantare being renovated during the 1985 asnual turnaround.

- The Nanrup I urea plant will be sbut dows, when theNasrup III urea plant with the built in additionalcapacity is cosmissioned.

- Measures are beiug implemeuted to increase g&a supplyto the Iasrup II plants.

- Captive power station is currently being installed toprovide assured power supply.

c . DarausilDurzanur

- Substantial modifications have been carried out toisprove performance.

- Captive power plants are being installed to providereliable power supply.

d. Sindri

- The Sindri rationalisation plants, which have not beenoperating satisfactorily have beea shut down in 1984.

e. xorakkou._

- Renovation measures already impleaeated have increasedcapacity utilization from 572 to 63X.

- In view of the age of the plant and its doubtfuleconomics, studies are in progress - scheduled forcompletion in September 19S5. to identify capitalinvestments for a full rehabilation.

-55-ANNEX 2-2Page 2 of 3

f Other tli.t

- Isplesentation of seasures at NFL plants have resultedin energy *sving$ of US$5 sillion in 198485.

- Similar energy audit* are uaudr way at RCF, FACT andNFL plants.

985.L90 Jim mu P-LU

- The measures proposed to be taken up total aninvestment requiresent of about VS1 billion and arebeing studied in detail as summarized above forprepariag investment proposals.

II. )Eanoemet/Ownershin.

a. e fa-s-bas*t glggc, Flive of the gas based plants whicbare being planned for ispleseatation (including the AoalaProject) will he in the privatelcooperative sectors, ifneeded witb financial support of the public sectorfinaocial institutions and the Governsmet.

b. Goveranent has adopted well laid out evaluation proceduresfor evalusting new project investment proposals withadequate emphasis on economic and financial soundness.

c. Public sector companies' operations sanagements bave beengiven full autonomy and responsibility to draw up andimplesent their own production plan*.

d. Similarly Project managers have been given full autonomyand responsibility to isplement projects.

e. Public sector company sanagesents are empowered to makeall appointsent upto the Board level and approve allrevenue expenditures. Provided they are reflected in thecompany budgets. capital expenditures can also be approvedwithout Government consulatation upto US$8 millionequivalent.

f. Incentive schemes have been implemented covering themiddle level managers and staff both in the operations andproject implesentation funetions.

g. The study on long-term smapower requireseats - beingcarried out by the Fertiliser Association of India at therequest of the Goveranent is soon to be completed. GO!plans to request PAZ to also develop a long termsanagement plan as an eztension of tbe above study.

h. A maagemesnt reporting systes is being developed witbinthe Ministry of Cbesicals and Fertilizer* wbich willInclude appropriate signalling system for managementperforsance, evaluation and control.

-56 - AMNU 2-2

Page 3 of 3

i. A study by the Sngupta Committee covering tbe entirepublic sector woo coopleted in 1985 and itsrecomuendations to improve public sector performance-and possible privatisatiou are uader 01 review.

III. marketinanDistribution -

a. The delivery points for fertilizers bos been moved fromrailbead to block level to improve farmer access to theproduct.

b. The distribution margin has been reviewd sad increasedeven though further review is now necessary.

c. Nodal points study to optiaise distribution system iaWortb West Indi* and reduce distribution costs is inprogress.

IV. PriLStI

a. Several improvewents bove been carried out. tbough witbinthe same overall pricing frasework, mainly to reaoveanoualies whicb existed in the orisinal formula.

b. Isport duty on capital goods needed for new projects hasbeen waived with a view to reduce the investmentrequiresents and consequently the es-factory prices.

c. A Nigh-level Governmeat committee (under the ebairmanshipof Secretary D. S. iangb) has been formed to review theretention price system in the contest of the need forincreasing budgetary support.

Tndustry DepartmetJune 1986

_ 57 -

AlIBI 2-3

INA- COOPWIVBTILI IMDVSI PUiC

Capacity and Production of Principal witttta frtilizr Fbnts

1984/65Nareh 1985 -' ---P Poduction - Capacity

-Co e idr/Plant Product Feedstock -C aactt 1981J82 1982/83 1983164 1 .tt toatn

A. Pubic Sector

I. Verttliter axd Cheaicals Travaneore Ltd. (FACT)Alvaye - Udyogmndel AS N 78.0 37.4 32.8 35.7 51.5 66aebalaedu - Cochin I Urea *.A 152.0 118.8 ) ) 107.9 71

Aebalamed - Cochin It NP/NPK N 40.0 10.2 3127.7 )134.t 65.6 1642. Fertilizer Corporation of India (PCX)

Gorakhpur - Utter Pradeak Urea N 131.0 73.2 75.1 80.3 82.4 63SiAdri - biher AS, Urea FO 219.0 118.6 131.5 125.9 125.3 57ineinguode - Andhra Prsdesh Urea C 228.0 58.9 73.5 75.0 93.4 41Taicher Ortasa UreS C 228.0 45.8 19.S 42.6 55.1 24

3. Hindustan Ferttlizer C*rporation Ltd. (HFCL)Narauni - Bihar lirea N 152.0 74.2 78.5 60.8 37.7 25Dlrgapur - West Bengal - Urea N- 152.0 60.0 43.2 69.4 57.5 38Nalrup - aeaS Urea. AS MG 197.0 104.9 100.3 81.4 88.2 45

4. Madras Fertilizer Ltd. (PFL) Vhanali - Taoil Nadu Urea. NP, NPW N 176.0 154.0 135.0 113.8 151.4 86

S. National Fertilizer Ltd. (NPn)IWtinda - Funjab Urea PO 235.0 133.7 150.7 162 143.6 61Nangal - Punjab CAN, Urea FO 232.0 170.4 180.8 188 190.4 82Penipet - Yana Urea FO 235.0 182.1 168.9 161 157.1 67

6. Neyveli Lignite Corp. (ILC)Neyv_li - Tedl Nadu Urea FO 70.0 45.2 45.3 55.2 58.8 84

7. Reehtriya Cheeiclas and Ferttliter Ltd. (RCPL)Troebay - Maharaehtre Urea, NP. AN MG, A 317.0 167.3 209.6 277.8 264.8 84

8. Steel Authority of Indta Ltd.(SAIL)Rourkela - Orisa CAN COC, N 120.0 53.4 10.0 22.9 49.7 41a etml plants AS COG 36.4 16.1 11j0 14.9 20.8 51

Total Public Sector 2.998.4 1.624.2 1.599.4 1.700.8 1.801.2 60

A. Prtivate Sector

1. Coroandel Fertlitzer Ltd. (CFL)Virag - Andhra Predeeb Urea, MP. NPK N 84.0 71.1 63 71.5 73.3 87

2. E1D - Parry (India)Senore - Tdall Nadu APS S 16.0 8.0 7.7 9.2 9.2 57

3. Gujarat Narmada Valley Fertilizer Ltd. (GNVF)Bharuch - Gujerat Urea FO 273.0 2.4 178.2 212.9 212.8 78

4. Gujarat State Ferttlizer Co. (GSFC)Baroda - Gujarat UreS. AS, DAP NG. N 235.0 200.8 184.4 205.9 211.6 90

5. Nart Fertiler Ltd. (NCOW)VaranaL - Uttar Pradeah AICl COG 10.0 2.1 1.2 3.5 2.1 21

6. Indian Exploaswie Ltd. (IBL)gnpur - Uttar Predeash rea N 310.0 202.0 262.9 237.8 286.3 92

7. Mangalore Chmicala and Fertilizers Ltd. (C!CFL)hangalore - Karnataka Ure 156.0 118.8 97.2 104.2 134.0 86

S. Punjab National Fertililer.Maya Nngal - Punjab Urea FO 16.0 - - 2.1 25

9. Shrtraa Fertilizer Corp. (SFC)Kota - Rajasthan Urea S 152.0 121.1 143.4 136.7 143.7 95

10 Southern Petrocebsical Industriea Corp. (SPIC)Tuticortn - taml NMduia Urea. NP, NPI N 293.0 206.2 278.1 246.5 308.9 105

11. Tate Iron and Steel Co. (TISCO)Jaabedpur - Bihar AS COG 4.0 3.3 3.3 2.9 n.a. n.a.

12. Zuar£ Agro Chemicals Ltd. (ZACL)Sen Cole - Goa Ure B 187.0 144.1 171.8 140.9 146.1 85

Total Private Sector 1,753.6 1,079.9 1,391.2 1,372.0 1,593.9 91

C. Coonerat£ve Sector

1. Indian Farmers Ferttlier Cooperative (IFFCO)landla/Balol - Gujarat Urea, NP. NW NW 260.0 255.1 277.1 253.0 321.8 124Phulpur- Utter Pradeeb Urea N 228.0 183.2 166.8 174.2 200.1 88

total Cooperative Sector 488.0 438.3 443.9 4V.2 521.9 107

Total India 5,240.0 3.142.4 3,434.5 3,500.0 3.917.0 74

pf Reporting pertods from April through March.oP * FTel Oil; S - Naphthe; C - Coalt US - Natural Gee; A - AJiai; COG - Cdke Own Osa.

f Oed jointly dith private ector.

Source: Fertilizer Aaaocatton of India.

industry Depaft

- 58 -

ANNEX 3-1

INDA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

Selected Agriculture Statistics. 1952-1981 *1

_A'eraLe Annual Growth Rates1952 1961 1971 1981 1952-1981 1966-1981 1971-1981

Gross Cropped Area (million ha) 133.2 152.8 165.8 173.3 0.9 0.6 0.4

Net Cropped Area (million ha) 119.4 133.2 140.8 140.3 0.6 0.4 0.2

Area under Multiple Cropping 13,8 19.6 25.0 33.0 2.7 2.2 1.8(4tllion ha)

Gross Irrtgated Area (utlltqn ha) 23.2 28.0 38.2 49.6 3.0 3.4 3.2

Gross Irrigated Area as Z of 17.4 18.3 23.0 28.6 2.1 2.8 3.3Gross Cropped Area

Gross Area under HYV - - - 15.4 43.1 _ _ 11.4

Gross Area under HYV as S of - - 9.3 26.1 - - 10.9Gross Cropped Area

Total Fertilizer Consumption 65.6 239.9 2,256.0 5,515.6 16.5 17.0 9.4('000 tons nutrient)

Fertilizer Consumption (kg) per 0.6 1.9 13.6 31.5 14.6 15.1 8.8ha of Gross Cropped Area

N.PK Consumption Ratios 7,6:0.9:1 7,3:1.8:1 6,3:2.3:1 5,9:1.9:1 - - -

Foodgrain Production (million tons) 52.0 82.0 108.4 129.0 3.2 2.3 1.8

Total Population (million) 361.0 439.2 548.2 683.8 2.2 2.2 2.2

I/ Most of the data correspond to the years ending March 31. Consumption data, however, relate to years endingJanuary 31.

Source: Fertilizer Association of India.

Industry DepartmentJune 1986

PIDIA - COOPATIVI VUTILIZUR IDUSTRY

atorical C imptio, Produatiam and XIportS of tLtUS, 1952-198S f(tn '000 tons of utrient)

_itrogen Phosphate pottak All Nutrient

Year Conmuaptio Production Imports Copsuaption Production Imports Consumption Iports Cocou.tlon Pkoduettom Imports

1952153 58 53 44 5 7 - 3 3 6_ 60 471933/54 89 53 19 8 14 - S 7 105 67 261954/55 95 68 20 15 14 - it 11 121 82 311955/56 107 77 53 13 12 - 10 10 131 89 631956/57 123 79 57 16 17 - 15 13 154 106 721957/58 149 81 110 22 26 - 13 13 184 107 1231958/59 172 81 97 29 31 - 22 22 224 112 1191959/60 229 84 142 54 St 4 21 33 305 135 1791960/61 212 112 399 53 54 - 29 20 294 166 4191961/62 230 154 307 60 6S - 28 75 338 219 3821962/63 333 194 244 83 88 10 36 41 432 282 2951963/64 377 219 228 116 io8 13 50 40 S4 327 2811964/65 555 243 232 149 131 12 69 57 773 374 3011965/66 575 238 326 132 119 14 77 73 765 357 4131966/67 738 309 632 248 146 148 114 118 1,101 455 8961967/68 1,034 402 867 335 207 349 170 270 1,539 609 1,4861968/69 1,209 563 844 382 213 138 170 213 1,761 776 1,1951969/70 1,356 730 667 416 224 94 210 120 1,962 954 6811970/71 1,479 832 477 S4l 228 32 236 120 2.256 1,060 6291971/72 1,798 949 481 558 290 248 300 268 2,657 1,239 9971972/73 1,839 1,054 665 582 330 204 347 325 2,768. 1,364 1,1941973/74 1,829 1,050 659 650 324 213 360 370 -2,839 1,374 1,2421974/75 1,766 1,186 884 471 331 286 336 437 2,573 1,517 1,6071975/76 2,149 1,535 996 467 320 361 278 278 2,894 1,853 1,6351976/77 2,457 1,857 750 635 478 23 319 278 3,411 2,335 1,0St1971/78 2,913 2,000 758 867 670 164 506 599 4,286 2,670 1,5211978/79 3,419 2,169 1,228 '1,106 776 243 592 517 5,117 2,945 1.981979/80 3,498 2,226 1,295 1,151 763 237 606 473 5,255 2,989 2,0051980/81 3,678 2,164 1,510 1,214 842 452 624 797 5,516 3,006 2,7591981/82 4,069 3,143 1,055 1,322 95O 343 676 644 6,067 4,093 2,0421982/83 4,263 3,434 425 1,420 984 65 735 644 6,418 4,418 1,1331983/84 5,236 3,487 6S6 1,757 1,057 143 799 556 7,792 4,544 1,3551984/85 3,486 3 917 n.a. 1,886 1,318 n.ae 839 n.a. 8,211 5,235 u.s.

I/ Statistical consumption years run from February I to January 31. Statistical production years run from April I to march 31. Fligures representofftake from plants and importers.

Sources The Fertilixer Association of India.

Industry DepartmentJune 1986

INDIA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

Projected Grovth of Nitrogen Fertilizer Demand and Production(in million tons of nutrient)

Demand Supp1Y Gy ERelItstic Growth !I Lower Crowth Plant Plant Capacity Realistic Laer*ear Rste Quantity Rste Quanttty C Production / Utlization 12) Demand ,nd

1984/85 (actual) 5.42 5.4 5.42 5.4 S.2 3.9 742 1.5 1.5

1985/86 7.32 5.9 5.02 5.7 6.3 4.4 702 1.5 1.3

1986/87 7.22 6.3 4.8S 5.9 7.0 5.2 742 1.i 0.7

1987/88 7.12 6.8 4.62 6.2 7.6 5.4 712 1.4 1.2

1988/89 7.02 7.2 4.32 6.5 8.2 6.0 732 1.2 0.5

1989190 6.92 7.7 4.12 6.8 8.2 8.2 6.1 6.4 752 1.6 1.3 0.7 0.4

1991/92 6.7% 8.8 4.02 7.3 8.2 i.4 6.9 7.0 842 1.9 1.8 0.4 0.3

1994/95 6.02 10.6 4.02 8.2 8.2 9.4 6.9 8.1 842 3.7 2.5 1.3 0.1

1999/2000 6.02 14.2 4.02 10.0 8.2 9.4 6.9 8.1 842 7.3 6.1 3.1 1.9

a/ Sources Fertilizer Association of India

l Assuming a conservative but less likely scenario whereby growth rates would be xradually reduced to 42 p.a. in 1989/90 and remaining at that levelthereafter

c/ Including all plants In operation and under ifplementation as of late 1985, Including Aonla and Indo-Gulf Projects.

f Same as c/, but also Including three additional gas based plants under consideration.

e/ AsswIng utilixation of ezlsting plants to increase to 75! of capacity by 1969/90 and 802 by 1994/95 and thereafte, vtth the new gas-basedplants to reach 952 by their respective third years of operatton.

Industry DepartmentJune 1986

- 41 -

II1~4-'_ X~I

. s

III Aiif .

+~~~~~

11<~~~~~~~~~~~I

-62- ANNEX 4-2

Page 1 of 2

INDIA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

IFYCO - Summarised Puianieal Statements(in olllions of current rupees)

A. IBOCMS STATlENTSe/

197980 1980/81 1981/82 1982/83 1983/84 1984/85

Soles Revenues b/ 1,862 2,657 4,484 5,146 5,379 5,743

Variable CostsRaw Materials 990 1,518 2,624 2,813 2,784 3,772Power, Fuel & Water 56 100 252 291 305 344Catalysts, Chemicals andother Purchases is 18 38 64 180 305 37

Bags 87 106 131 156 173 286Total Variable Costs 1,151 1,761 3,077 3,439 3,568 4,339

Fixed CostsLabor L Overhead 54 68 98 128 145 138Maintenance & Repair 40 66 77 90 96 108Insurance 6 12 20 23 35 40Depreciation 66 107 229 310 319 309Others d/ 284 381 383 511 581 166

Total Fixed Costs 451 634 807 1,062 1,179 761

Operating Income 260 262 600 646 633 643

Financial Charges 44 85 235 261 204 181

Other Income & Expenses 2 8 48 57 (15) 29

Income Before Taxes 218 185 413 442 413 491

Income Taxes 27 - - - - 129

Net Income After Taxes 191 185 413 442 413 362

Dividends 17 50 52 52 . 53 54

Retained Earnings 174 135 361 389 360 308

Ratios (Z)

Operating Income/Revenues 14.0 9.9 13.4 12.6 11.8 11.2Net Income After Taxes/Revenues 10.3 7.0 9.2 8.6 7.7 6.3

a/ Auditedb~/ Including reimbursement of fertilizer distribution expenditures from Fertilizer

Industry Coordination Comittee and some fertilizer imports, but before stockadjustment (except 1984/85).

c/ Including purchases of fertilizer for resale (except 1984/85).d/ Including distribution expenditures and stock adjustment (except 1984/85).

- 63 -

ANNEX 4-2Page 2 of 2

INDIA - COOPERATIVE FERTILIZE8R INDUSTRY PROJECT

8. IFFCO: BALANCE SHEET a/

1979/80 1980/81 1981/82 1982/83 1983/84 1984/85

Current AssetsOperating Cash 62 109 234 212 198 307Accounts Receivable 151 429 520 777 877 1,254Inventory 648 876 1,454 1,77-7 1,350 1,749Others 269 230 188 598 1,199 448

Total Current Assets 1,131 1,638 2,393 3,363 3,616 3,758

Investments bf 5 133 198 383 673 833

Fixed AssetsGross Fixed Assets 2,768 3,167 3,316 3,419 3,551 3,801Aec. Depreciation & Amort. 349 462 690 999 1.320 1.651

Net Fixed Assets 2,419 2,705 2,626 2,419 2,231 2,150

TOTAL ASSETS 3,556 4,481 5,220 6,166 6,520 6,741

Current LiabilitiesAccounts Payable 298 548 713 1,183 1,634 963Others 129 83 85 84 85 1,438c

Total Current Liabilities 427 631 798 1,267 1,719 2,401

Long-Term Debt d/ 1,244 1,812 2,008 2,085 1,615 828

EquityShare Capital 814 840 864 876 889 972Retained Earnings 1,071 1,198 1L550 1.939 2 297 2.540

Total Equity 1,885 2,038 2,414 2,815 3,187 3,512

TOTAL LIABILITIES & EQUITY 3,556 4,481 5,220 6,166 6,520 6,741

Ratios

Current Ratio 2.6 2.6 3.0 2.7 2.1 1.6Debt to (Debt + Equity) Ratio 40/60 47/53 45/55 43/57 34/66 19/81

a/ Audited.b/ Principally in Krishak Iharatt Fertiltzr Co. (Hazira ProJect) and

Industries Chimiques du Senegal (a phosphoric acid project)c/ Including a current portion of long-term debt.d/ Including a current portion of long-term debt (except 1984/85).

Industry DepartmentJune 1986

-64-

AINEt 4-3

INDIA - COOFERATIVE FERTILIZER INDUSTRY PROJECT

IFFCO - HAREUETNG ORGANIATION

|DIRECTOR

CAUTIS? )WER DPGtNgiU MANAGER U GNIMA HMANbE TRUSPORT

HARKSINC. NIORH-WlST FUUUUTl%Gs SOUTNF UrfAVtSOR

"MUUKAG HMAN,iE WUXR |CHU.1 | HVQUUUB |DETYUUUMARKETING & HMARETING )MtB1EtINGt AGRICULTURAL |PULIC P pERSONNEL b

DISTRITIUTION SERVICES ACCOUNTS SERVICES RELATtON RAINING AMINISTRATION

| ZONAL OFFICES2

NORTH ZONE WEST ZONE SOUTi ZOIE gAST ZONE

I I I IZONAL MANAGER ZONAL HANAGER ZONAL MHNAGER ZONAL MANAGERAGRONOMIST AGRONOMIST AGRONOMIST AGRONOMIST

I I I ISTATE MKTG. MANAGER/ STATE HRTG. MANAGER/ STATE IETG. MANAGER/ STATE MKTO. MANAGER/AGRONOMIST AGRONOMIST AGRONOMIST AGRONOMIST

I I I IARZA MANAGER/ AMEA MANAGER/ AREA MANAGESR/ AREA MANAGER/AGRONOMIST AGRONOMIST AGRONOMIST AGRONOMIST

I I I IFIELD OFFICER F1ELD OFFICER FIELD OFICER FIEW OFFICER

Industry DepartmentJune 1986

- 65 - ANNEX 5-1Page I of-3

INDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

Aonla Project Location and Infrastructure

A. Project Location

1. The Project Site-about 23 km from Bareilly (an industrializedcity of 700,000 people, providing a skilled and unskilled labour-force and-local maintenance facilities) and 7 km from the small town of Aonla (seeMap C). The land necessary for the Aonla project is free of 'permanenthomesteads and cultivation and has been acquired by IFFCO from the localdistrict authority, central forestry and private sources (ProjectFile--Ref. F). The statutory environmental clearances required from theUttar PraJesh State Pollution Control Board and the concerned GOIdepartments have been obtained.

2. Site Aspects-entire project area is almost flat and is part of anon-fertile and alkaline tract, containing compact and non-porous fineclay. Site topographical survey and soil investigation was undertaken byIFFCO's consultants, Projects and Development I4dia Ltd. (PDIL). Asgeneral area is considered to be subject to possible seismic activity, PDILengaged specialist services of School of Earthquake Engineering (Universityof Roorkee) and others, to investigate problems that might arise frompotential for soil liquefaction during earthquakes. In view of soilcondition, piled foundations will be required for heavy structures, andabout 35,000 different types of piles are currently being driven underthree contracts. Of the 517 ha of land acquired, 215 ha will be used forplant facilities and 162 ha for township and surrounding greenbelt area,leaving 140 ha for use as demonstration farms.

3. Ctimate is relatively temperate with average annual rainfall of31 Inches and temperatures between 45C and 7C. Some water-logging atsite has been recorded in wet seasons and, to counteract this, appropriatedrainage systems are being Installed; an area is being raised with fill byabout 1 meter. In addition, embankment of Aril River (close to thenorthern boundary of site) is to be adequately raised and strengthened.Aril is small perennial river with adequate flow during dry season todilute a regulated flow of treated aqueous effluent discharged from plantholding ponds. Site studies and information made available to the Bank(Project File--Ref. F) confirm the general suitability of location.

B. Housing

4. Project will invest some Rs 200 million (US$17 millionequivalent) in new township of 985 single and multi-residential units toaccommodate permanent staff and families; also included will be hostels fortrainees and security staff, hospital, school, shopping centers and welfarefacilities.

-66- ANNEX 5-1

Page 2 of 3

C. Raildays

5. Site is well located regarding access to the national road andrailway networks for transportation of equipment, inputs and products ofthe Project: it is 8 km from the Basharatganj railway station (onBareilly-Chandausi broad gauge section of the Northern Railway), and 4 kmfrom Markandpur station (on the Bareilly-8udaun meter gauge section of theNorth Eastern Railway) (see Map C). The Railway Board has approvedconstruction of a line linking the site to main tract near Bashratganjstation. IFFCO has appointed Rail India Technical and Economic Services(RITES), for the survey, alignment and execution of the broad gauge spurline (Project File - Ref. G). Its construction is expected to be completedby mid-1986, r. readiness for movement of construction equipment andsupplies. In this regard, PDIL has carried out a detailed survey for railand road movements to the site and a sub-consultant has been engaged todesign railway-wagons for the heavy consignments. The above railway linesare underutilized and Ministry planning studies indicate that additionaltraffic to and from the Aonla complex will not pose any problems ofoverloading or availability of rolling stock. The capital cost estimateIncludes provisions for the rail link, or diesel shunting locomotives andother related facilities.

D. Roads

64 State Highway 33, which connects the district centers of Bareillyand Budaun, passes about 7 km from site. Plant and township straddlesexisting metalled road between Aonla and the highway, which offers goodlink to state trunk road system and beyond. In view of dimensional andweight limitations on rail movement, certain over-dimensioned equipmentsuch as the ammonia reactor will be brought to the site either by road fromthe Wastern port of Kandla, or from Calcutta by barge along the GangesRiver to Varanisi (or further up-stream in the wet season), and thereafterby road. The initial survey report for movement of such equipment to site,by consultants to PEIL, has been reviewed by the Bank and foundsatisfactory (Project File - Ref. G).

E. Telecommunications

7. These should not pose problem during construction and operationalstages, as nearby Bareilly is well connected by microwave and coaxialcables to national system. Telecommunications Consultants India Ltd., hasdesigned suitable provisions for Project's public telecommunicationrequirements (telephone/telex links and a hot-line to Delhi), a privatebranch exchange and Internal plant mobile emergency communications (ProjectFile - Ref. G), expected to cost about US$1 million equivalent.

F. Coordinatlon

8. As the timely availability of utilities and infrastructure iscritical for Project implementation, high level inter-agency committeeshave been established at Central and State Government levels to coordinate,monitor and expedite these requirements. The GOI committee, chaired by theSecretary, MARD, includes representatives from the Fertilizers Department,

- 67- AJX 5-1Page 3 of 3

Railways, Energy (Department of Petroleum/GAIL), Communications, Forestry,Planning Commission and IFECO. GOI's Planning Commission routinely submitsflash reports to Prime Minister's office, prepared on basis of IFFCO'smonthly project status report, highlighting execution performance againstschedule and any major problem areas. The UP Government committee, chairedby the Chief Secretary, includes representatives from UPS!, IFECO and thevarious departments with project related interests, such as Commerce andIndustry and Irrigation.

G. Rehabilitation Component

9. Supply of feedstocks, utilities and Infrastructure for thevarious schemes under Rehabilitation Component will impose but slightincremental burdens, if at all, on the existing facilities, and nodifficulties are foreseen. A few of the schemes are themselves designed toease the situation where there are deficiencies in support facilities, suchas supplemental water supplies, new inert gas generators and, for Kandla,improved product handling facilities.

Industry DepartmentJune 1986

etg of 2

MSIA

OOOPn9IE V FVELIZE INDuS! PY JCT

Deacrintion of Ubeablitattion Scmes

Descriptton V/ 1'rgncil aeefits

I. Snre, Coasrvation/Production imrovemnt She

A. Phulpur Plant

1., Retubing of prUry refomer to .lleV operation with 102 tlcrese In ammonia output, equivalent to 49,500 tpy of urea.high aromatic feedstock for tiproved capacityutlIzatlon. (3.86/3.88)

2. end-to-Sad energy survey of plant by coaultant to Quantifiable upon eomplettion of survey.identify aodifications needed for enaray consrvation.(1.86/7.86)

3. Purification of synthesis gs wIks-up with molecular Saving in Sygs Copresor BP Stesm 7 tph. equivalent tosieves and repiping of synthesis loop to reduce energ 5,000 tpy of spbtlu ned for stem generation.use. (7.87/12.89)

4. Presre song absorption, inert ae generation plant Saving in h_onia - 2.73 tpd, equivalent to 1,500 tpyto replace existing unit bed on amm_o cracking. production of urea.(10.87/10.89)

8. Kaol Plant

1. Urea plant equipment replaceent. and odifieationw SaviAg itn Ammonia - 0.01 t/t urea, or 3,960 tpy of urea.based on plant energy consumption survey. (1.86/1.89) Saving in Steam - 0.005 t/t urea or 143 tpy of fuel oil.

2. Replacenent of coils aad additional burners in pritry Saving iSn Wpbtha - 6,391 tpy.reformer convection zone. (7.86/7.88)

3. Replacement of LT Shift Convetter and NIthanator Boiler feed water het recovery increase of 1.5 cal./ht, equivalent toeffluent coolers for itproved heat excu_e efficiency. reduction In uaphtha use for stem gnration by 1,131 tpy.(1.86/1.88)

4. Pressure energy recovery by back pressure steam Saving In 60 ata steao - 2.4 tph, or 1,354 tpy of fuel oil.turbine on HP Amonia pump for supply of 23 atescean. (7.86/7.89)

S. Guard bed for LT Shift Converter to prolong catalyst 1,872 tpy itcrease in ammonia output; with a 1992 net value of aboutLife and increase amonia production. (7.86/7.8U) US$100,000 (1985 terme) after costs of Increased catalyst nd naphtha.

6. ass Spactroester and Wicroprocessor for amonta Saving in Energy - 0.05 C cal/t Meonia, or 1,430 tpy of naphtha.plant measuremnt and control for process optitizetion.(7.86/7.88)

7. Purification of synthesis gas ake-up witb molecular Saving in Syngas Compressor HP Stea - 6 tpb, equivalent to 3,530 tpySieves end repiping of synthesis loop to reduce of napbtha use for stem generation.energy use. (7.87/7.90)

C. Kandla Plant

1. Installation of Pipe or Pressure Reactor Ln two trains Decrease in the cost of production due to increased outputto reduce rtecycle to product ratio, Increase output and equivalent to 65,000 tpy of P205 and 30? reduction in energy consumptionreduce the speciftc consumption of energy. (1.86/1.88) per ton of product.

a/ Dates (monthyear) In brackets lndicate eapectd starting and completion dates for ech schow.

- 69 -

AEX5-2p.8, a of 2

Descriptien of Rehabilitation Schemes (eontd)

it. Operational Reliability ISrovEtvst Sc

A. Phulhur Plant

1. Replacement of ammonia pl,Ce beat Avoidance of past production losees through recorded downtime of equipment,exchangers giving fraquent let ge, problem. equivalent to about 1,400 tpy of urea.(1.86/7.a7)

2. lsntal 6 high capacity bowl dlils for grinding coal Rtduction in frequency of boiler shut--down and bility to handlefed to boilers, to replace eristing inadequate unite. htgb ash content fuel, savitg at leat 3 dayale/r of urea production

B. Raldl Plant-

1. Instal urea prill cooling systea to ceol product to Improvesent in product strength, reduction in dust formation and50160 frto 80190. observed in su,c/st peek loads. caking tendency.(1.8661.88)

2. lstal a urea supergranule plant of 100,000 tpy improvemnt in product quality cthrecteristics, compared to prilln, andcapacity, including material handtiUg facilities. higher (up to 25S) efficiency in the application of urea.(1.83611.89).

3. Procurement of Inspection and na lysis Equipment for Ensured reliabi ity of plant equipoent/reduced shut-down frequency throughmonitoring plant equipment condition. (7.66/12.68) t5nely maintenance or replacemnts.

4. Replacementa of aging equipment, causing problems and Reduction in plant shut-downs, toes of production capacity and maintenanceunscheduled shut-downs, and ranovetiona in offaites or replacements.areas. (1.86/7.89)

5. Presaure sviug absorption, inert gas generation plant Improved reliability of plant, fast start-up eapability and savings into replace exlsting unit based on a&onIa crackIng. operating cost and ammonia consumptIon.(12.86/12.88)

C. Kandla Plant

1. ntast supplemtal water supply system by tube-wells Reduction of plant downtime due to water shortages in the dry season,or ues-water desalination. (1.86/4.87) estimted to save up to 50,000 tpy of product.

2. Construction of nw bulk storage and product Ability to handle up to 1.5 miltion tpy of product and maintsin productionhandling facilities. (7.87/12.89) continuity and generally Improve produetion reliability.

Ill. Effluent and Pollution Control Scheme

A Phut ur Plant

1. Installation of urea bydrolser unit for recovery linimization of mmonia/urea in plant effluent discharge and water recoveryand recycle of amonia and urea to process. for feed to boilers after polishing; estimAted avings are 4,300 tpy of(1.86/1.88) urea and 277,000 tpy of boiler feed water.

2. Various schems for use of aqueous blow-don General iprovements in treatmnt of effluents and wastes dischargedand effluenta, re-uae of water, and treatment of by the plant.oil drains and flue gases. (1.86/1.89)

B. Kslol Plant

1. lIstallation of Reverse Osmoss Plant to desalinate Reduction in high blow-down rates from system, threat of stressraw water for supply of cooling tower make-up uater, corrosion from high chloride content and di charge of pollutants.(1.8617.88)

2. Provision of evaporative system to use stripped Winimization of effluent discharge from urea unit and recovery of aboutprocess water frow desorber colum as a cooling 2 tpd of urea presently lost in plant effluent.medim, with purge recycle to process.(7.8617.89)

3. bdifications to deseorber column for Improved Reduction in stem censmption, higher steam condensateoperational efficency in eanergy conservatlion recovery and effluent quality improvemnt.and pollution control. (7.86/7.89)

tV. Safet asuren

A. PhulMnr ana Iblol Plants

1. Installation at each site of an additional monie Compliance with State and industry safety practices, the provision ofstorage tank with improved safety aspects of design a spare tank and the removal of large amounts of oil accumuated in theend to allow statutory inspection of existing tank, tanks.whichb ba been in operation over ten years.(1.86/1.89)

Industry DepsrtmntJnae 1986

- ?0 - ~~~~ANNEX 5-3

Page I of 4

INDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

Gas Supply to the Aonla Project

A. West Coast Offshore Gas Availability

1. Current Production

Source-Associated gas from Bombay High Oil Field.Supply-Expected peak flow: 11 to 13 million Nced in late 1980s,

declining to about 8 million Ncmd by mid-1990s.Users--Existing fertilizer and power plants in the Bombay area.Potential Usage--Higher than supply, though the power plants with

multi-fuel firing capability are Interruptible consumers.Supply Restraints-The Uran gas terminal and the offshore gas pipeline

from the oil field (see Map B) can only handle 8 and 9.5 millionNcmd of rich natural gas, respectively.

2. Production Under Development

Source--Non-associated gas from South Bassein field (Bank Loan No.2241-IN, South Bassein Offshore Gas Development Project).

Initial Supply-10 million Ncmd of gas (including up to 5 million Ncmdof Bombay High rich gas) to Kawas gas terminal, near the Hazirafertilizer plant, via a recently codmissioned 235 km offshorepipeline with a capacity of 20 million Ncmd. If needed,additional pipeline capacity will be provided. Production ofSouth Bassein gas scheduled to begin October 1986 and reach fullcapacity by January 1987.

Expansion of Supply-South Bassein gas output is to be quadrupled to20 million Ncmd by adding three drilling platforms and secondprocess platform. Execution of this second phase, requested forBank financing, has commenced and scheduled for commissioning byApril 1988.

Recoverable Reserves-Estimated at 205 billion Nem. giving a reserveto production ratio of 28 years for the 20 million Ncmd level ofproduction at. which the field is presently being developed.

3. Potential Production--From satellite offshore fields, estimated by theBank to centain in all about 125 billion Ncm of recoverablereserves, and expected to be in production by mid-1990s at a rateof about 9 million Ncmd.

B. Demand for Additional Gas Production

4. Planned Consumers--Growth In output of natural gas will supply: (i)the operational Hazira fertilizer plant, requiring about 3.7million Ncmd at full output; (ii) the six inland ammonia/ureacomplexes under construction or proposed in the north-westernregion, each consuming 1.32 million Ncmd of gas as feedstock anda further 0.5 Ncmd for power generation; (iii) the likelygeneration of approximately 1,500 KW of power from threecombined-cycle gas turbine plants using up to 6.9 million Ncmd ofgas, situated at Kawas, Anta and Auralya along the inland gaspipeline that will feed the new fertilizer complexes; and (iv)

- 71 -ANNEX 5-3Page 2 of 4

other likely industrial users of captive power, consumlng about Imillion Ncmd gas.

5. Gas Distribution SYstem_-About 1,720 km of onshore gas pipeline andrelated auxillarli will be installed from Hazira up to UP.'nown as the UaLira-Iijaipur-Jagdishpur (or NBJ) Gas PipelineProject, it will connect the land-fall of the South Basseinsubmarine pipeline to the fertilizer locations as shown byNap S. SAR 5436-IN gives full details of the HBJ Project andupdated gas supply/denmad situation. Subsequent to itsappraisal, the Bank has withdrawn from this project.

6. The following table sumaorizes the likely future supply/demand balancefor HBJ pipeline gas:

mr PiEMM (l Swplyn Dowd for elsol d Years

16788/ L98/89 9/90 199/91 1993/4 1995/96

1. Go bagltbllf

GM Pzudactina/ 13.0 11.2 11*1 10.5 9.0 8.0L_: Ri Gm tD emosy 8o 8.0 Lo 8.0 8.0 8oBalai to Ke 5.0 32 3. 2.S 1.0 -

Sih Fiell4d

Fm an Proction Sa/ M10 14.4 0.0 20.0 24.4 2L8TaOW atly atK b/ 1r8 162 21.3 :0.7 234 265

1mg: Hbdra lIchb G d 3.4 3.7 3.9 3.9 3.9 3.9hMfu Avalable to IWM#f 14- 12.5 17.4 16.8 19.5 22.6

2. Ptoiectd Rid DCmd c/FertiUzxr PLade 1.9 6.6 11.2 d/ 121 d / 12.1 12.1pbmr pines e/ ,o0 0 6.9 6.9 6.9 6.9O0w Luslyseu - 1.1 1.1

Total HIR ld- witbut FRer PlIts 1.9 6.6 11.2 13.2 13.2 132- with POr Plaits 1.9 6.6 18.1 20.1 2D.1 20.1

i.GCm awDr, (hDecit)- vitbu PoAr P1ats 8.5 5.9 6.2 3.6 6.3 9.4- with Fmr PLits 85 5.9 (0.7) (3.3) (0.6) 2.5

Notes: at nolatfonm not 1nc1ilff omdenate (t0 projection).b After iiagi (Le., redictim In hvolm due to aso ud In

proams1z ant sm.teIlg oeratlm, mallU- ama extraction iE12 adit cuate), go f1.u c _omate.

4 AU1 for 9.62 *d to dipg 1 pin¢t drmsio, comressor ueand pipeUne UIG plt (Rlich Go 1.1062 x ten On Dmtod).

d/ lmdua awi amme i dulay in eatiute stt-up duta fr platsat Dilopa, 3s1xsea and Rbhjdmiw (paa 2.15). D1imu fhn 1990is baud an 100 of oqmrity idtil4atn.

d/ Ikxz1u. GOI stoxe tht it viMi aimlt to siVply 4 mEllon Nad ofgPs, abone ld. tdhe pLais s1mld t nbeile af .Eiitg lt iquddfinl in the emme of a gs dsht...

- 72 -ANNEX 5-3

7. Gas Sufficiency Supply of gas could be In deficit assuming fertilizerplants operate at full capacity by 1990 and, concurrently, thepower plants and other users are connected and fullyoperational. This is unlikely to the extent shown by the abovetable, where gas production levels are probably conservative,relative to that possible over the next decade, and theconsumption indicated is maximum. The South Bassein field couldbe exploited more quickly, development of the satellite fieldscould be accelerated and additional gas may also be availablefrom the Gu arat onshore fields. On the demand side, theconsumer's gas requirements can be reduced by alternative firingof liquid fuels in the three power plants and in the sixfertilizer plants for the generation of power and steam;equivalent to a total of about 4.5 MMCMD of rich gas at fullcapacity utilization. Nevertheless, if GOI commits substantialamounts of HBJ pipeline gas to power generation, there is a clearneed for a concerted gas production planning and marketdevelopment exercise.

C. HBJ Pipeline Arrangements

8. Implementing Agency-As a separate organization split off from the Oiland Natural Gas Commission (ONGC), the Gas Authority of IndiaLtd. (GAIL) was established by GOI in July 1984 to plan andconstruct plants and infrastructure to facilitate use of naturalgas, to purchase gas from producers (ONGC at Kawas) and todistribute and market the gas.

9. Role of GAIL on BJ Prolect-Initially, to engineer and construct theHMJ pipeline (estimated cost about US$1.3 billion), for whichpurpose GAIL contracted Engineers India Ltd. (NIL) to providetechnical design and engineering services and BIL in turncontracted for specialized technical back-up support with the gasutility GASUNIE-Netherlands. In April 1985, however, GOI changedthe role of this organization to one of project management.

10. Execution of HBJ Project--GOI decided to award the work of design,engineering, construction and commissioning of the pipeline andits associated facilities under a turnkey arrangement toexperienced international pipeline contractors through ICB. Thiswill be based on GAIL's preliminary engineering activities ofpipeline sizing and alignment and spacing of compressors and alsoprocurement of the line pipe, which was ordered in mid-1985 forfree supply to the pipelaying contractor in 1986/87.

11. Execution Status and Schedule-The HBJ pipeline contract waste-!ered in June 1985 and four consortia from Italy, France,Catiada and Japan responded. Technical bids were opened inAugust. Bid evaluation was completed and the awardrecommendation submitted to GOI by end-1985. Followingconclusion of a construction agreement, expected shortly, thesuccessful contractors should mobilize in the field by mid-1986and establish methods and technical details for construction ofpipeline, which according to the bid invitation for thiscontract, must comply with following schedule:

ANNEX 5-3Page 4 of 4

HBJ Pipeline Terminals Completion Schedule(as per bid invitation for construction contract)

GAIL - Commercial Operation Dates for Gas SupplyBoiler Start-up Process Start-up

Fertilizer Plant Site _(0.3 MMCMD) (1.4MMCHD)Gas Supply forBijaipur, MP 3.31.1987 9.31.1987Aon}a, UP 7.31.1987 1.31.1988Jagdisbpur, UP 12.31.1987 6.31.1988Sawai Madhopur, Rajasthan 1.31.1988 7.31.1988Babrala, UP 7.31.1988 1.31.1989Shahjahanpur, UP 12.31.1988 6.31.1989

a/ Initial rate of supply, to be increased according to plant demands tofull level of 1.82 MMCMD per plant.

The pipeline implementation schedule is tight and allows about 14 monthsfor construction and commissioning of the 1,210 km section between Kawasand Aonla. For Aonla, the above timing for initial supply of gas is about4 months later than planned for boiler start-up under IFFCO's 42-monthplant construction schedule, but would be in time for boiler start-up underthe move conservative 48-month schedule assumed as achievable by theappraisal mission. As is the case for the MP Project, IFFCO will minimizethe effect of delay in gas availability on the Project by providingcapability for firing steam generation plant with a liquid fuel, for up to6 months.

12. GOI has committed itself to IFFCO in principle to make the neededgas available to the project; however, a formal gas supply agreement hasnot been concluded.

Industry DepartmentJune i986

- 74 -

ANNEX 5-4

MDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

Euvirounental Standards

Threshold Limit Values for Working Aeaes of Plant (8 Hour Average)

Ammonia 25 ppmHydrocarbon (methane) 100 ppmCarbon Monoxide 50 ppmVanadium (as V2 05 ) 50 micrograms/ms

Atmospheric Emissions

Prill Tower Emissions: Tke dust content in the prilling tower exhaust airshall not exceed 40 mg/NW and the total particulate matter emission shallnot exceed 1 metric tons per day from the prilling tower of Urea Plant.The expecqed amount of total air flowing from prilling tower is about12,000 N1l/tonue of urea product. Atmospheric emissions of ammonia shallnot exceed 50 ppm.

Urea Plant Inert Gas Scrubbers: Emissions shall be out of the explosiverange and the maximum ammonia losses shall be o.8 kg/ton of urea product.

Plant Liquid Effluent

Water quality standards for discharge at plant battery limits:

- pR 5.5 to 9.0- Temperature 40-C- Ammoniacal Nitrogen (as N) 50 mg/l- Total Nitrogen (as N) 50 yg/1- Free Ammonia (as NH3 ) 5 mgli- Total Suspended Solids 50 mg/l- Biochemical OxygenDemand for 5 days at 20C 30 mg/l

- Oils and Grease 10 mg/l- Total Chromium (as C:) 0.5 mg/l- Rexavalent Chromium (as Cr) 0.1 mg/i- Chemical Oxygen Demand 250 mg/l- Vanadium (as V205) 0.1 ig/l- Urea 5 ppm

Industry DepartmentJune 1986

- 75 -ANNEX 5-5

INDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

Pollution Control Measures

1. Liquid Effluents

Process Plant Effluents -- The process plants are designed for minimalammonia and urea losses in the plants' liquid effluent streams,similar to designs adopted in the recent gas-based fertilizerprojects. After stripping to reduce the ammonia content, the processplant effluent will be hydrolized to decompose the urea to recover andrecycle the resulting carbon dioxide and ammonia, with the aqueouseffluent stream normally being reused as boiler feedwater make-upafter polishing.

Stream and Turbine Condensates -- Recycled as boiler feedwater afterpolishing.

Cooling Tower low-downs -- Treated for chromate removal and limesoftening. Filter cake from the lime softening plant is transportedfor disposal.

Demineralization Plant Effluent - Following neutralization of theacidic/alkaline effluents, the concentrated stream will be collectedin solar evaporation ponds for drying and disposal of salts.,

Others (Boiler blow-down, clarifier/filter back-wash/softening plant/oilywater separator effluents) - The treated effluents will be held indelay ponds for regulated discharge into the Aril E.ver.

2. Atmospheric Diacharnes -- Urea dust escaping from the urea prillingtower into the atmosphere will be no more than 0.04 grams of urea per Ncmof exhaust sir. Flue gases from the gas reforming, furnace and the streamand power plant will be discharged Without adverse impact. A flare stackwili be provided so that no harmful gases escape unburnt into theatmosphere. The tank for storage of up to 10,000 ton of ammonia consistsof an insulated outer shell containing an inner shell holding the ammonia.Both shells are of steel suitable for storing refrigerated ammonia in theevent of failure of this inner shell and will meet the safety standards ofthe UK Chemical Industry Association codes.

3. A summary diagram of the effluent scheme is shown in the Attachment.Details of these arrangements and 'pollution emission levels have beenreviewed by the Central Department of Environmental and Forestry and the UPState Pollution Control Board to their satisfaction.

Industry DepartmentJune 1986

- 76 -

Ao 55

C00POUT1U YEfr?TERU IRIUTg PVROJ=AoDla - Ligauid Wlguzonta Troeat Bats.

AMOUIk PLANT

tiy Waler %1DiC Oil Separator |

85005/hr,-,

Proees3 C~~~~~Oadenat e Pollaituff nsit

PilerBak nsh __uli

25uO3/brBCooling Tower Blou-n o _ -

10IRBATotl PZJ ETid

52 Uo5/lhr

(Sateram ittenat)

0115 VI'ES ~ ~ ~ 2 4/h

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- 77 ANNEX 6-1Page 1 of 6

INDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

Project Management and Execution Arrangements

A. Aonla Component

I EnRgineering Arrangements and Transfer of Technology

1. Thal and Hazira Projects--GOI strategy was to facilitateintroduction and transfer of technology from foreignlicensor/contractors through their close association withIndian counterpart contractors for engineering/construction.Physical completion of these projects with minimal delays andcosts close to budget justified a previous GOI decision tocontinue with above strategy in its selection of executionarrangements for three inland fertilizer projects based on gassupply from HUJ pipeline.

2. Inland Projects Under Construction-In order of commencement ofexecution; the MP project of National Fertilizers Ltd. (NFL),the Aonla Project, and the Jagdishpur Project of Indo-GulfFertilizers and Chemicals Corp., also in UP. For -the MPProject and based on their evaluation of the foreign andIndian firms involved with Thal and Hazira, NFL and GOInegotiated with Haldor Topsoe/PDIL for ammonia plant servicesand Snamprogetti/PDIL for urea plant services, repeatingarrangements under Thal Project. Arrangement conforms withBank guidelines for use of consultants, permitting (in thecase of repeat projects) the selection of aqualified/experienced firm without re-bidding when a soundlyestablished relationship ecists. GOI approved selection oftechnologies and related firma, maintaining same basicarrangements for Aonla/Jagdishpur projects, thereby completingprocess of technology transfer to PDIL.

3. Contracting Details for Process Plants

HP Project-Ammonia Plant : Topsoe with PDIL as sub-contractor.

Urea Plants : Snamprogetti in consortium withPDIL.

Jagdishpur Project-Ammonia: Snamprogettl having total turnkeyand !Trea Plants responsibility with PDIL as

associate.

Aonla Project-IFFCO recommended and GOI approved singularresponsibility by Snamprogetti; being most advantageous redesign uniformity, a compact and unified plant layout,optimized process and utility system-likely to result inlower investment cost and higher on-stream efficiency as wellas better coordination with other contractors and moreeffective control of project costs and schedule.

_ 78 -ANNMX 6-1Page 2 of 6

-- IFFCO, Snamprogetti and PDIL entered into atripartite agreement whereby Snamprogetti provides the basicdesigns and process guarantees for both the ammonia and ureaplants, with Topsoe acting as sub-consultant and licensor ofthe ammonia technology. Both processes are extensivelyproven. PDIL, as co-consultaut, is undertaking detailedengineering, the preparation of bid documents for equipment,materials and construction contracts, management ofprocurement, supervision of construction and commissioning ofthe entire process facilities.

--IFFCO, in addition, has separate contracts with: (1)Snamprogetti, for all services outside India including processlicense, basic engineering package and procurement of criticalequipment; and (ii) PDIL for detailed engineering, procurementservices for non-critical equipment andconstruction/commissioning services, under the overallsupervision of Snamprogetti (Project File - Ref. H).

-PDIL, to further Its acquisition of the technology,will also work with Snamprogetti on proprietary design,engineering and procurement aspects.

--IFECO has obtained adequate insurance coverage forequipment and civil works for the construction period.

4. The Process Planc Consultants

Snamprogretti-8as considerable experience in the execution ofprojects using both technologies and on-going experience inIndia, particularly on the Thal, Hazira and NP Projects,besides the provision of services for IFCCO's urea plant atPhulpur.

PDIL-Now more proficient in the execution of modernfertilizer plant technologies; through its involvement on samegas-based projects with Soamprogretti and is performing wellin its broad responsibilities for process and offsitefaeilities of MP Project.

--With completion of work at Thal and Hazira andengagement of extra staff, engineering/construction manpower(capable of providing required services for the MP andJagdishpur ammonia/urea/offsite facilities and for the Aonlaprocess units) is adequate, in addition to other ongoing work.

-Total engineering manpower is about 1.2 millionman-hours per qiarter compared to the present peak deploymentof about 0.76 million man-hours per quarter, of which 76% istaken up with the above three projects. Construction manpoweramounts to about 0.86 million man-hours per quarter, which Isadequate for the construction supervision needs of the threeprojects, plus a small amount of other residual work.

- 79 -

ANNEX 6-1Page 3 of 6

5. The Offsites Consultant--Development Consultants Private Ltd.(DCPL), engaged by IFFCO as general contractor responsible fordesign, procurement and erection of the auxiliary facilitiesand offsites. The major areas, including the integrated powerand steam plant will be executed under packaged contracts forengineering, equipment supply and erection with specialiatfirms under ICR. DCPL has sufficient manpower to undertakethis activity and has extensive experience especially onoffeites and -"eptive power plant works including inter alia,the IFFCO plant and Phulpur and the more recent Thal andHazira projecto. The DCPL team assigned to the Project is thesame that carried out the work at Phulpur, and has moved tothe Project after completing its responsibilities at Hazira.

--The engineering arrangements for the offsitefacilities, as well as for the process plants, are consideredto be satisfactory.

II. Proiect Management and Implementation

6. Existing IFFCO Plants-The Kalol and Kandla plants wereconstructed under the management of IFFCO proje-t groups withthe assistance of a limited number of US expatt ate staff ofCooperative Fertilizers International and others from thecontractors' project teams. Contracts were let in July 1971.The Kandla plant and the Kalol ammonia unit began commercialoperation 42 months and 40 months later, respectively. TheKalol urea unit, however, did not start-up until 5 monthsafter the ammonia unit, due to delayed shipment of theimported reactor. The Phulpur Project was mechanicallycompleted in 46 months from the effective zero date, asagainst the initial estimate of 45 months. All the plantshave since operated very efficiently. The general adherenceto schedules in these projects indicates the ability ofIFFCO's staff, in conjunction with major engineering firms, toeffectively manage the construction of large fertilizer plantsand to bring them successfully into commercial operation. Inaddition, IFPCO provided a substantial engineering workforcefor the initial stages of implementation of the Hazirafertilizer complex of KRIBHCO and these experienced staff havelargely been redeployed to the Project.

7. Project Team-IFFCO employs a total of 4,945 personnel, includingabout 1,000 graduate staff in senior managerial to supervisorygrades and over 900 (with an engineering diploma as a basicqualification) in skilled technical grades. IFFCO is thusable to select the required professionals, experienced inammonia/urea-production, technical services, maintenance andproject execution, for building up its Project Management Team(PMT) as a task force independent from normal line-managementfunctions and dedicated to execution of the Project. TheProject implementation organization is shown in Attachment 1,and is currently functional and adequately staffed for the

- 80 -ANNEX 6-1Page 4 of 6

present level of execution activities. It has exzcusiveresponsibility for management of the Aonla Project, within thestipulated time and cost, by coordinating the work of theforeign and local design and engineering consultants and othercontractors. The PMT is headed by an Executive Director, whoreports to IFFCO's Managing Director and is assisted by foursenior managers responsible for the technical services,construction, financial and administrative functions of theProject. The Mission has reviewed the biodata for key staffand considers them well qualified for their posts (ProjectFile - Ref. B).

-The responsibilities of the Project ServicesDepartment are discharged by four Project groups, supervisedby two managers (one for engineeringtprocurement, the otherfor scheduling/monitoring of the Project and for coordinatingquality control and clearances of equipment and materials.Besides formulation of the design philosophy, theengineering/procurement groups coordinate with the consultantsin basic design, detailed engineering and procurementactivities. The technical groups review engineering designsand plan all preparatory work relating to commissioning andoperations, including training. In support of the PMT's keyactivity in supervising costs, schedule and quality, TataConsultancy Services was appointed as consultant for thedevelopment of the computerized project monitoring system.IFFCO's construction department, now geared to site andinfrastructure development activities in the field, consistsof sections responsible for each major construction area (inplanning and coordinating the work of the plant contractorsand also sub-contractors providing the craft functions) andfor planning and management of materials and supplies.Project financing and accounting, budgeting, control ofexpenditures and overall financial discipline vith regard tohandling of funds is the responsibility of the FinanceDepartment, while the normal administrative procedures,concerning industrial relations, recruitment, personnelmatters and liaison with outside agencies, are exercised bythe Administration Department.

--The PMT includes about 100 staff at present and isplanned to reach a peak number of 270 staff when constructionis fully underway. Initially, the Project Services Departmentis operating from IFFCO headquarters in Delhi, with someprocess and project engineers working in the foreignconsultant's office. Some construction staff are located atBareilly to supervise work on the Aonla site development,piling, infrastructure and construction facilities, now allunderway, as well as execution of the first phase of thetownship. The center of activity is expected to shift to sitelater in 1986 with the build-up of the construction workforceand, after procurement has been substantially completed, mostPMT staff wili be relocated to manage the Project from site.

- 81 - ANNEX 6-1

Page 5 of 6

Production and maintenance staff will be assigned to theProject well before mechanical completion to undertakepre-commissioning activities on the plants and also to set-upthe operational procedures and for start-up of the Project.

1II. Operational Manpower and Training

8. Workforce--According to IFFCO's estimates, total requirement ofmanpower for the Aonla plant during the operational phase willbe 1,227 persons, including 9 managerial, 186 supervisory, 621skilled operatives and 384 unskilled workers,-besides 27marketing staff. This number appears to be on the high sidecompared with other large gas-based fertilizer projects inwhich the Bank has been involved. The staffing plan is,however, based on IFFCO's experience in its existing plants,where employment levels are 931 at Kalol, 994 at Krndla and1,171 at Phulpur. Appropriate adjustments were made in thestaffing estimate for special requirements such as captivepower plant, total maintenance capability without recourse toexternal services, and township administration.

9. Recruitment/Traini--The organization diagram for the operationalphase of the Project is given in Attachment 2. Key seniorpositions will be entirely filled through reassignments fromother locations within IFPCO. About 100 middle to lowermaanagement positions and another 150 key operators andmaintenance technicians will also be drawn from IFFCO'sexisting plants. The balance of the manpower will be metthrough recruitment from outside in line with needs of theProject. Experienced personnel requiring the minimum amountof induction training will be engaged from otherorganizations, mainly in the fertilizer, chemical andoil-refining industries. The potential middle level managerswould undergo more extensive training in management andfunctional skills and techniques in the existing plants. Atthe same time a regular flow of trainees will be drawn fromtechnical institutions for employment in operations andmaintenance after successfully completing the trainingprograms provided by IFFCO. An important feature of therecruitment plan is that a large number of technical andnon-technical personnel will be developed and trained byemploying fresh young engineers and other graduates. Thecontinuous process of training started in early 1985 with 55trainees and IFFCO plans for a peak number in trainiag of 335about one year ahead of plant start-up. The mission reviewedIFFCO's recruitment and training proposals and considers themto be adequate for the needs of the Project (Project File -Ref. I).

B. Rehabilitation Component

10. -The rehabilitation requirements of existing IFFCO plantswere proposed by the plants' technical services and

- 82 -

ANNEX 6-1Page 6 of 6

maintenance departments. The present proposals and themanagement of their execution are consistent with the specificrehabilitation program that was successfully undertaken atKalol in the late 1970s. The technology involved and theequipment modifications and replacements have been selected inthe normal course of plant optimization studies and energyconsumption surveys, and from the awareness of inadequateequipment performance and the potential for use of more moderntechnology.

11. Implementation--Rehabilitation measures involving processchanges, modifications to critical process equipment and theadoption of modern technology will be carried out under themanagement of site process, project and maintenance staffteams assigned for this duty to a project task force at eachsite. Process or mechanical design and engineering assistancewill be contracted from the original processconsultants/contractors, who have already been involved indefinition of the appropriate rehabilitation schemes.Companies offering new technology, such as the Kandla pipereactor component, or designs for process modernization, willbe eligaged on a licensor or consultant basis. Implementationof the plant improvement programs will be the responsibilityof the individual General Managers of the plants, assisted bythe Project Managers heading the project task force at eachsite. For this purpose, IFFCO is strengthening theengineering services departments at the three locations, whichcan call on the maintenance departments for specialistengineering.

12. Manpower-All IPFCO managers and staff required for implementingthe program will be drawn from within the organization,although in critical areas specialist erectors and techniciansmay need to be engaged from equipment suppliers or engineeringfirms. The operational phase of the various rehabilitationmeasures is unlikely to alter existing manpower arrangements.IFPCO will be required to sutbmit to the Bank a detailed planfor the project management and execution arrangements to befollowed during implementation of the RehabilitationComponent.

Industry DepartmentJune 1986

INDIACOOPERAUVE FERTUZER INDUST PROJECT

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Industry Department

June 1986

INDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

AONLA - ORGANIZATION CHART - PLANT OPERATION

NGER MANAGER MANAGER MANAGERMANAGERERMANAGN

ENVIRONMEN N ',ENERAL PECHCESSL ELCTRICAPROTECTION EHNIG UNMN.

Industry DepartmenitJune 1986

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INDIACOOPEUATI FERnLUZER INDUST PROJECT

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Industry DepartmentJune 1986

-6-ANNME 7-1

INDIA

COOPBRATIVE FERTILIZER IUMSTRY PROJE

&onla - Capital Cbost Estimate

Rs million US$ million

Local Purehases Local PurchasesDirect Indirect Total Direct tindirect TotatImports Foreign Local imports Foreign -Local

ExUc'han8e OesDonent Exchange omponent -n -

1. Equipment. Matertials and SparesAmmonia Plant 806 130 154 1,090 62.0 10.0 11.8 83.8Ufea Planat 435 83 91 609 33.5 6.4 7.0 46.9Power 6 Steam Gener'o 6 DIete'n 330 62 12S 517 25.4 4.8 9.0 39.8Other Offettes 48 102 199 349 3.7 7.8 15.3 26.8Spares 221 tl 18 250 17.0 0.8 1.4 19.2Construction Equlp. 6 Tools 28 18 37 - 83 2.1 1.4 2.9 6.4

Sub-total 1,868 406 624 2.898 143.7 31.2 48.f Z22.9

2. Ocean Freight & tnsurance 176 - - 176 13.5 - - 13.53. Inland Hiandling - 120 83 203 - 9.3 6.3 15.64. Excise Duties & Taxes al 171 171 - _ 13.2 13.2

Delivered Cost of Equip. & Spares 2,044 526 878 3,448 157.2 40.5 67.5 265.2

5. License & Engineering Services 213 - 205 418 16.4 - 15.8 41.v6. Project Management & Insurance 12 - 180 192 0.9 - 13.917. Land and Site Development - - 114 114 - - 8.7 8.78. Civil Works and BulIdings 224 20 326 570 17.2 1.5 25.1 43.39. Erection 27 15 185 227 2.1 1.2 14.2 17.510. Commissioning Chargea 14 - 114 128 1.1 - 8.8 9.9It. Township - 20 217 237 - 1.5 16.7 18.212. Power, Road & Road Links,

Constr'n. Facil's - 10 110 120 _ 0.8 8.4 9.2

Base Cost Estimate (BCE), in 2,534 591 2,129 5,454 194.9 45.5 179.1 419.5Physical Contingencies (51 of BCE) 44 10 35 89 3.4 0.7 2.7 6.8Price Escalatton b/ 253 59 192 504 19.4 4.6 14.8 38.8

Total Installed Coat 2,831 660 2,556 6,047 217.7 50.8 196.6 465.1

a/ Customs duty on imported goods for fertilizer projects was waived in March 1985.tI 9.11 of Base Cost Estimate and Physical Contingencies. Price Escalation is based on expected annual inflation rates,

international and local, of 62 in 1986, 6.82 in 1987 and 1988, 7.02 in 1989 and 7.11 in 1990.

Industry Departaentjune 1986

- 87 -

ANNEX 7-2

INDIA

COOPEKATIVE FERTILIZER INDUSTRY PROIECT

Rehabilitation Componiit - CapStul Cost Estimate

Locl Purch se. Local PurchasesIndirect Indt nct

Direct Foreign Local Direct Forelgn LocalImports Exchange C4 w"ent Total L morts xehanste Component Total

- -- s mllltio -- -0S$ dmllion -

A. Phulpur Plant

1. Revamp of primary reformer 39.8 7.5 40.3 87.6 3.061 .580 3.101 6.7422. Installation of urea hydrolyser 4.4 3.9 15.1 23.4 .338 .300 1.162 148003. Liquid effluents-improve quality/reduce quantity - 2.6 7.1 9.7 - .200 0.545 .7454. Energy survey 1.0 - 0.3 1.3 .077 - .023 .1005. Ammonia plant equipment replacements 2.8 0.4 2.8 6.0 .214 .030 .214 .4586. tilstlng boiler operational improvements - 9.1 21.7 30.8 - .700 r.667 2.3677. Synthesis gas drying with molecular slevea 8.3 3.3 10.3 25.9 .638 .250 1.102 1.9908. Inert gas generation plant and hydrogen storage - 3.9 9.2 13.1 - .300 .706 1.0069. Ammonia Storage Tank 45.2 3.2 37.1 85.5 3.483 0.850 2.855 6.588

Sub-total 101- wX Tr3 Y83. 7.81 2.6 11.375 21C7M

R. Kalol Plant

*. Urea plant revamp for energy savings 7.1 1.7 9.1 17.9 .547 .130 .697 1.37b.2. Primary reformer convection zone modif'ns 12.0 - 10.6 22.6 .923 - .818 1.7413. Replacement of heat exchangers - 1.3 2.7 4.0 - .100 .207 .3074. Pressure energy recovery by steam turbine 1.5 1.0 4.0 6.5 .115 .080 .304 .4995. Guard bed for low temp. shlft reactor - - 5.0 5.0 - .388 .3886. Mass spectrometer 1.4 0.3 2.3 4.0 .112 .020 .175 .3077. Raw water desslination 12.0 1.0 16.9 29.9 .923 .080 1.297 2.3008. Urea plant desorber evaporative system 4.5 0.7 7.8 13.0 .346 .050 .601 .9979. Urea plant desorber modifications - 2.6 6.4 9.0 - .200 .492 .69210. Urea prill cooling system 4.0 1.0 6.9 11.9 .308 .080 .532 .92011. Inspectlon and analysis equipment 11.1 - 8.9 20.0 .854 - .687 1.54112. Equipment replacemeats 46.1 44.1 163.3 253.5 3.538 3.400 12.562 19.50013. Ammonia storage tank - 26.0 24.0 50.0 - 2.000 1.843 3.84314. Molecular sieves and repiping synthesis loop 7.2 4.8 17.9 29.9 .554 .370 1.378 2.30215. PSA based nitrogen generation plant - 1.8 3.2 5.0 - .140 .245 .38516. Urea superganules plant 9.8 6.5 34.4 50.7 .75 .500 2.642 3.899

Sub-total 116.7 - 2 t877 7g5 24.6 40.9

C. Kandla Plant

1. Pipe/pressure reactor modifn's 16.9 10.4 31.3 58.6 1.300 .800 2.409 4.5092. Independent water supply scheme 23.4 2.6 14.6 40.6 1.800 .200 1.125 3.1253. New product storage, bagging & handling

facilities 13.0 27.3 88.9 129.2 1.000 2.100 6.833 9.933

Subtotal 53.3 40.3 134.8 228.4 4.100 3.100 10.367 17.567

Total Base Cost Estimate (OCE) a/ 271.5 167.2 605.9 1,044.6 20.888 12.860 46.610 80.358Phyaical Continge- tea (1o0 of BCE) 27.2 16.7 60.6 104.5 2.089 1.286 4.661 8.036Price Escalation 25.7 15.8 114.7 156.2 1.976 1.217 8.820 12.013

Total Installed Cosz c/ 249.5 199.7 781.2 1,305.3 24.953 15.363 60.091 100.407

*1 In 1985 prices.b/ Average 13.62 of base cost estimate and physical contingencies, based on expected annual international and local inflation rates of

61 in 1986, 6.8Z in 1987 a*d 1988, 7.0S in 1989, 7.1S In 1990 and 4.0S thereafter.c/ Includes US$23 million for customs and excise duties and taxes on total equipment purcbases.

Industry DepartmentJune 1986

- 88 -ANNEX 7-3

INDIA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

Estimated lltsbur4ement Schedules for Bank Loan al(US$ million)

Aonla Component Rehabilitatlon Component TotalYear Quarter quarterly Cumulative Quarterly Cumulative !uarterly Cumulative

1986 Up to Dec. 11.2 11.2 11.2 11.2

1987 Jan.-Mar. 5.3 16.5 .4 .4 5.7 16.9Apr.-June 6.7 23.2 .5 .9 7.2 24.1July-Sept. 7.2 30.4 .8 1.7 8.0 32.1Oct.-Dec. 9.7 40.1 .9 2.6 10.6 42.7

1988 Jan.-Mar. 10.8 50.9 1.1 3.7 11.9 54.6Apr.-June 12.0 62.9 1.2 4.9 13.2 67.8July-Sept. 12.0 74.9 1.8 6.7 13.8 81.6Oct.-Dec. 10.3 85.2 2.8 9.5 13.1 94.7

1989 Jan.-Mar. 8.6 93.8 3.8 13.3 12.4 107.1Apr.-June 6.2 100.0 4.5 17.8 10.7 117.8July-Sept. 4.7 104.7 4.9 22.7 9.6 127.4Oct.-Dec. 2.5 107.2 4.7 27.4 7.2 134.6

1990 Jan.-Mar. 2.0 109.2 4.2 31.6 6.2 140.8Apr.-June 1.8 111.0 2.8 34.4 4.6 145.4July-Sept. 1.0 112.0 1.8 36.2 2.8 148.2Oct*-Dec. 1.2 37.4 1.2 149.4

1991 Jan.-Mar. .9 38.3 .9 150.3Apr.-June .8 39.1 .8 151.1July-Sept. .6 39.7 .6 151.7Oct.-Dec. .3 40 .3 152.0

a/ Disbursements for the Fertilizer Imports Performance Evaluation and Control Study Components notincluded. They are expected to be completed by FY1988.

Industry DepartmentJune 1986

- 89 -

ANNEX 8-1Page I of 2

INDIA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

Assumptions Used in the Financial Analysis

1. The financial projections of the Project, in current rupees andin line with IFFC0's fiscal years ending June 30 are provided for the AonlaComponent (Annex 8-3) and IFFCO as a whole (Annex 8-4) without the Project(pages 1-3) and with the Project (pages 4-6). Revenues and applicablecosts have been escalated with inflation rates of 5.0% p.a. in 1985/86,6.0% p.a. in 1986/87, 6.8% in 1987/88-1988/89, 7.0% in 1989/90, 7.1% in1990-91, and 4.0% p.a. thereafter. The financial rate of return calcula-tion of the Aonla Project (Annex 8-6) assumes a project operating life of12 years (plus 6 months for the start-up fiscal year), and is calculated in

constant 1985 rupees.

a. Flinancing Plan and Debt Service

2. The financing plan of the Project is detailed in Chaptet VII ofthe Report. For debt service computation of the Aonla Component, it isassumed that the Bank loan (US$112.0 million), the OECF loan (US$126.8million) and the total GOI/cofinancing loans (US$109.6 million) for theProject will carry interest at 14.0% p.a., with repayments beginning in1990/91 and ending in 2000/2001. For the Rehabilitation Component, allfinancing requirements are assumed to be met through debt, I.e., the Bankloan (US$40 million), G0I loan (US$12.7 million), and local borrowings(US$81.8 million) with an interest rate at 14% p.a.

b. Capacity Build-up and Revenues

3. It is assumed thet the Aonla project will start commercialproduction In January 1990, 63 months after commencement of the basic engi-neering in October 1984. Based on an assumed 330 operating days per year,production would achieve 65% capacity utilization in the first twelve-monthoperating period, 80% in the second'period, and 95Z thereafter. In addi-tion, and until full capacity utilization is achieved, production willallow for a build-up of adequate product inventories.

4. Revenues are in line with the above capacity utilization rates;they are valued at ex-factory retention prices (Annex 8-2), excludinggovernment levy, excise duty, freight and storing costs, and dealers'margin and distribution expenses not accruing to the Project entity. Nointerest earnings are assumed for surplus cash. Ammonia sales are valuedat 90% of the urea sales prices.

c. Operating Costs and Working Capital

5. Production cost estimates, which are presented in the Attachmentare based on IFFCO estimates and are similar to those used for the Thal, MPand other similar fertilizer projects. A 12-year straight line method isused for computing depreciation expenses.

- 90 -

ANNEX 8-1Page 2 of 2

6. Working capital requirements are assumed as follows:

Accounts Receivable 60 days of sales

InventoryRaw MaterialsNatural Gas 3 days of purchasesCatalyst & Chemicals 90 days of purchasesBags 45 days of purchases

Work-in-Process 3 days of variable production costsFinished Products 60 days of variable production costs

Accounts PayableNatural Gas 7 days of purchasesPower 30 days of purchasesWater 30 days of purchasesCatalysts & Chemicals 30 days of purchasesBags 30 days of purchases

d. Taxes and Dividends

7. The Project will benefit from (i) the use of the decliningbalance depreciation method for taxable income calculation as per the localincome tax act; (ii) the unabsoxbed depreciation carryover allowance (theloss-negative taxable income-in initial years being carried forward astax credit); (iii) tax holidays equivalent to 20% of taxable income for 10years; and (iv) investment credit amounting to 252 of the plant andequipment costs, which ie applied after the unabsorbed depreciationcarryover has been fully used. Income tax rate for the cooperative sectoris 40%.

8. It is assumed that dividends of 6X of share capital will continueto be distributed annually. With regard to new equity raised in connectionwith the Aonla investments, dividends will be distributed beginning in thethird year of operation of the plant.

Industry DepartmentJune 1986

- 91 -

ARME 8-1Attacimant

INDIA - COOPERATIV IFRRTILIZER INDUSTRY PROJECT

AONLA - Financial Production Costs(at 95X capacity utilisation in 1985 prices)

1. At 95% capacity utilization, the Project wiII produce 423,225 tpy of ammonia (NH3) , of which 403,474 tpy will beconverted to 689,700 tpy of urea (0.505 ton of amwonia per ton of urea), and 19,751 tpy of asmonia will b* sold as surplus.

2. Variable Costs

Specific Ammonia Spectfic Urea TotalConsumption Production Consumption Production Production

Unit Rate Per ton of Mlii Cowt Per Ton of Urea Coat Coata'(Re mtillion) ---(Re million)--

Natural Gas--Feedstock Rs 1,652/1,000 Nca 1,002 Ncm 700.6 _ - 700.6Natural Gas--Utilities Rs 1,292/1,000 Ncm 39 mcm 21.3 230 Ncm 205.0 226.3Purchased Power as 550/HUH 0.036 Mi 8.4 0.024 MlW 9.1 17.5Outies on Generated Power Rs 5514Ml 0.107 MWH 2.5 0.073 M1H 2.8 5.3Water Rs 70/1,000 27 M3 0.8 H3 8 0.4 i.2Chemtcals - - 21.1 - 4.5 25.6Bags Rs 5/bag - - 20 bags 69.0 69.0

Total 290.8 1,045.5Intermedtate Ansonia (719.5) 719.5Total Variable Costs for Products Sold 35.2 1,010.3 1,045.5

3. Fixed Costs

Labor 18.0 32.0 50.0Repair and Haintenance (1.51 of plant and equip. costs) 46.2 23.8 70.0Insurance (0.5S of plant and equip. costs) 15.4 7.9 23.3Depreciatton 379.4 195.6 575.0

Total 459.0 259.3 718.3Intermediate Ammonia (437.6) 437.6Total Fixed Costs for Products Sold 21.4 696.9 718.3

4. Total Production Costs for Products Sold 56.6 1,707.2 1,763.8

Industry DepartmentJune 1986

-92- ANNEX 8-2

Page 1 of 2

INDIA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

Urea Retention Price Calculation

1. The urea recention price for the Aonla project is calculated asper the formula enunciated by the Marathe Committee in November 1978. Thecalculations are made for pricing periods of 3 years as follows:

(i) Share capital used in urea production. In each successivepricing period, share capital is equal to that prevailing atthe beginning of the period.

(ii) + Retained earnings.

(iiI) - Capital employed outside the business and accumulatedsurplus cash.

(iv) - Capital employed in the business. A lower limit has beenset for this capital employed and it cannot decrease belowshare capital.

(v) x 25.2 return on capital employed.

(vi) + Variable and fixed production costs at 80X capacityutilization related to urea production, with depreciation asprovided in the company balance sheet.

(vii) - Ex-factory revenue to producer.

(ix) - Production volume of urea at 80Z capacity utilization.

(x) - Urea Retention Price allowed.

2. As can be seen in the price retention schedule on the next page,capital employed in business equals share capital from 1989/90. This isbecause accumulated surplus cash exceeds retained earnings, and theprovision on the lower limit applies. Meanwhile increases in productioncosts due to inflation tend to increase the retention price. The formulaproVides the Company a large cash flow during the initial years ofoperations, declining thereofter. In fact, over project life, theretention increases on ave. at about 0.62 per year in current terms,which is well below the assumed Inflation rates. The project's revenuesdecrease at about 4..% per annum in real terms.

- 93 -AU4U 8-2nage Z or 2

ItIA - CWIMIWE FIITILIm INUU PJECT

"APA= aMGM 19 PRIiI F

(in aillian of current rupa)

1983/P ll"0 1"1091 1"1192 M1923 1994 I4194 I9W9 1MM IM 1918/9 199/00 2000J01 200uo2

Share Capital 294 22 2952 2 952 2 2 29 2952 295 25 29 2952Rbtaintd Earnings 145 149 1405 4775 4m 475 71A 714 7166 8742

Sub-total 248 252 2 4447 4447 4447 773 772 728 10118 10tl8 10118 11714

Srplus CAt 1580 15 150 5113 5118 1118 7823 7123 723 949

Capital Employed 2948 2952 2 2 m92 29 22 29 2952 2952 2952 2952 2952 2952

25.2632 Ratqrn oa CWita 745 746 746 741 746 746 746 746 746 746 746 746 746aiWable Production Co%ts 1300 1399 1422 1453 1511 157 165 1700 176.8 139 1912 191 2068

Fired Preduction Costs 767 71 7W 793 107 816 826 336 36 857 849 609Intarnt an S-T Dahtltrnest an L-T Obt 190 616 571 507 44 330 317 254 10 127 63 0 0

Total Slas Value to Realize 3102 3542 3528 35 3508 3514 3524 353 3551 356 3590 3616 3423

Urea ProductionlW0 tons) a 5El 51 581 581 5111 511 591 51 5 51 581 581 5Lt 581

btantion Price(h/tmn) 5339 609 6072 6032 6036 64 60 65 6111 614 4110 6223 5891(UnItas) 411 449 4 464 464 465 467 468 470 473 475 479 453

a at 80O cpacity utilization

Industry DepartmentJune 1986

CM IV a * t is is is a r * tit rit r _ mm

411 t75 *193 911 *' 1W 9W va ra rg1 i i rtn ri 313f13ru Ila ra ta I's *dA r ra re St re IS Vafl rn mm 5 nr5 4 91* *11 t16 OW Ila SW l-i It' rit S ra 91WaiJ =

EDA)I11.114*

43 I* 31 of I." iu Ot 31 UN ml a 3 at a da _Pe

"I UT u5 In Ut 4Ul to UV l tt at Popo

U; n U i i a; i t n in a nt a _ plA3

ns 3t m a5 at55 13 3 111 l t 4t 11 3 3 q ml so gm no ani an s I am mu VA a a 3

9 e n at 5 on In OK 1 at tt1 *1 t PM* 0 19 13 93 1 32 13 9* S IS 91 I * 9 3 lii 943 13 ttS #S 5 Ut Ut 919 45 9W 1-

9W14

Sn^ 332 t3 mx 03 11 so 3t5 *15; 313 Ut l ox u11 114 bl aSIlt 9111 131 8*1 9591 *191 131 131 133 091 *33 0 lI~~~~~s 1041011PJd -4

am no ow am $Dm us on , turn ml 121 til '83 833S5 1919aS at a a 0 o a n 0 a n a it | I lps

Iml U l W5 s 415 45 45 45 45 4 m31 a3411 1

O t6t *St 9* II 3h 1* 5C 3t 913 3-8 11 r I -3=1 03 33 D1 tI 0 33 (II 63 45 *19 33 1* 4'St9

; cs n * " b n s s s ss a a a a- ss az-SL o1 DI tS lS m U t tit fl m Zt Zt A10113110111asl 3t 1 3 * a4 S a a At ti U a _we i A1

gmt Pl

Ing m m 1 r SW Si WuL sIa an m ml at '. $wvJ4 PR191

l 81 of Mtt tt? in 33 £11 to 4 9 a a dia a 3 11 4 b a * a * S a a1 1ISPIt f t 1 I I I £ 8 I I I A1M

it a fit n tT t a a a S a 61 I inIi 11 1* ff ** t * * it IL a a ii t!P

UK 1111 II 4 1 am l i 4w 4u 4 9b I I la 3319

1 to 41 3 II to t i 2 Ot 41 n £ 419 338183

91 1* 3* 13 0 91* I S SS 45 13 Sll 99 31 1131 4113 ICl S3-t tf 1 U1 31 l1 mlll O4 3 _J

to to3 an 1 Om3 to3 33 811 991 SI isi 41 11

on5 399I fit 41 in3 on3 IN OK6 in 69 1W a95 a

to1 as 5 39 33 39 93 on9 lat 36 1199 a59 56

im ~~ ~~~~~~~~~~~~~~~~~s w mmm

M 114 1am 114 1m 11 NW "to NW I1 1 1119 am

49514359313356103 mNE r~~ LU- 311 ItNSZ a ^ X a tt*

Wa rs ra rs ra 11% i'm ru #1V A~~~~~~~~~~~~~31111 1391301

am Wm ow~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3W'43 40 4W 411 011 93 491 491 OW R91 l.ai 531 46* 8333,VI?IIUMI

-" 31KB 01*45 b1911W 163445339 01143119*01454*35131116 315_'W l-t

ZtH~~~~~~~~~~~~~~~~~~~ 138* 8313t9 9IIt 1

mum 'mamma ammemsmm anus wu

^~~-5 - s^rgrtjs

_ 91

AM= 8-32 ef 3

Ill1t - CWMtIWE PNILIZER ItIl FECI

APO. pNCT m miEM FM FLO ITBEIUT

(in sillims of cert rup")

19|54/15 3085/3 6/57 1W/ 113 ttU/V IWODt; 1 /11#2 iSM l931 19/5 91% 1996M 191908 I9/9 IWf/00 200101 2001102

lbt Into" ftv Tame 55 m1 103n m2l 1271 1au 11in 597 34 B 673 645 1060.yciatatl -2fS 5751 575 55 575 575 555 575 575255 m s s ss 291

........................................... _._

lntgtnd Cals mrataon 4 1155 till f1 1 I U 7I t176 3412 1415 3J8 1247 1220 "9

Sh#e Cpi tat 164 311 341 1124 6 W 4

1-1 3bt 5 123 -1154 17 70 H- Debt

Total Mtt S40 5 1f5 1SA 749 27

Tot1 tloinc.s 144 f51 34 2273 2197 tat 11US 16t 14 154 353 1760 1472 1415 1334 1247 1220 W7

IPLICATIaIS:fi.te skats 1N 3St 664 27 2197 15 31

Loan RapaymtaL-T Dbt 22 453 453 43 453 453 453 43 453 43 22

Total paymnts 22 453 453 453 453 453 453 43 453 4f3 226

DivIdina 177 177 ITT 177 177 177 177 177 m77 In 177

Othur Appropriations

Oang. in Ibrking Cpital 343 S06 166 79 14 iS 6 17 18 20 21 22 -25

Total 0ppitatian 164 Ot 164 2273 217 18%6 tO 7% 7O9 64 6 5 647 64B 649 ill 42 12

Surplas/defictts) 0 0 0 0 0 m3 423 514 1144 2 1192 1114 a2 766 75 5n I94 45kec. Suploa(fizutsl 0 0 0 0 0 143 76 190 2724 3926 5115 622 7057 7323 I555 9155 949 10793

lIet Srvict Ctvewap

A. Idet SinvicPrincipal R ay.ats 226 453 453 453 453 453 453 453 453 453 226 0Intat ~Ayte 290 616 573 507 444 33 317 254 190 12 63 0 0

Tota 2l 43 ton 9 S 09 333 770 706 643 5w0 516 226 0

S. Fuds Available AfterTa. Befoe. Interest

lit laconai fter taa sa SU 1036 1279 1271 1262 115 897 84O 310 673 645 706ftprecistion 233 57 5n 515 5n 575 57n s7 57 SS 57 575 2D1

Interest Payts 290 6it 57l 50t 444 310 317 254 190 12 63 0 0

to 6U3 17t 2183 2361 275 2217 2077 1t25 1US 1511 1311 1220 W7

C. ebt Servire Cwrp O(U 2.2 2.3 2.1 2.5 2.6 2.7 2.7 2.4 2.5 2.6 2.5 5.4 1l.A

96 -- 3

ali 95w m ._WU mm 39 7

(is illis, of cwTmt rgil

19941115 t 117 1MM 7w* Iwo9 131 "0 11019 5 9IM tm991 3 1934 19194115 t1919 117 1911 1 9 199100 2OX/OI w250

Cwu louts

1410 6 t2 13 U3 14 4 15 IS U6 57 17 le 1sAmovots kijaMsd 2 5 19 17 7 n78 70 73 7 M79 0 795 NO 1nvffiey

am Uatmrlas i2 29 33 79 41 42 44 46 43 S1 51 53 16I a-ftrei 5 U 24 Is 16 56 12 17 to it 20 #0 21Fiui nots too 23 211 29 311 32 33 350 364 378 39 49 426

Total lstoy III 274 327 03 347 312 3 413 430 447 461 4* 50

Total braent buts 3 1low t14 It 1174 11u2 1211 23 1 IM 102 1 tf7

rln tubh 34 1 5U to0 2724 39t 51te 62 7 7 tl35 9H5 94 to07

Fised lts

Gres Fring Assts 264 tIS 1 4t57 3 7106 71 7ISt 7137 7t13 713 7137 73 713 7 7137 7137 7tJ?kc. hpr.iatieo I hat. 2I 862 1437 211 25 3561 37 4310 4_ 55 6H34 6_9 68

Vat Find htb s 14 IO1S iON9 417 62 31t 62 5tO 5t126 4511 7? 7 342 27 23 W5 5104 t29 230

W0Th6 ItMIS 164 l 015 t19 4157 63 7$ 20 76t 3 G 9635 1029 1026 1109 113 114W tt5135 5t179 123

Csfrtat Ustilitln

kmt Payable 15 36 43 47 4 51 53 55 57 60 62 65 67t- IDebtCarrut Part. Of L- ft 22 453 423 453 453 453 453 453 43 42 226

Total Ct rt Ufdiitin 242 49 46 50 502 504 50 5so 510 5) 2 2111 65 a

Total L-t lt 540 1063 2217 3192 4275 349 3M3 294 240 203 £33 5132 679 226

Capital 164 475 816 1940 251 24 2I 2952 2952 2952 25 2 5 25 5 2 252 2 52 2t52btatls Evinp 5S 63 149 2597 360 4775 57 3 7166 779 824 9762 9291

Total Edtp .164 475 *U 1940 2561 300 3 4447 54 MS4 722 1V tNt 1011 £0751 1246 11714 1214

W07AL L15LITIES S, tItTY 164 1t05 tO7 4157 635 10 92 S9 692 9635 129 10826 5106 113 1t4 155 t17 12310

Bati.

hit to ftDi4IitpI btie 0.00 0.13 0.57 0.53 0.60 0.59 0.52 0.43 0.35 0.27 0.21 0.15 0.11 0.06 0.02 0.40 0.00 0.00Ctrrant Ratio 1.5 1.3 2.1 2.3 23 2.3 2.4 2.4 2.4 2.4 4.4 20.2 19.1

Indusdt De.pstmtJuae 1986

IFFW-~ PRJ8CS rAo STIU OeM TI-6=

(ing itli4||- of curr=t I_

Aetwd

18/8WIIS b SSY51 ttlJ8 W91?8 I"Ml tt/l 1w0191 11tt/9 l"PR tEl/ 'M 19"1% iWt? 4"71% tWll/9 19"/00 2000/01 2001/02

Re.eauff~~~~~57 "It 611 7 7159 m72 *ttl 8l 906 9I %U ItM IOI 16 t11> 1175 122U 1ImS IM4

Catatlysts a Cbcis 37 q 32 56 e is AB ?2 n3 7a St S as 9n n5 4 0 tOl

- h. 286 2" 3U 33Sw Ult *97 42 45 479 - 54 36 saa wl 6M (At 6 716

StokAtl 4jat -i30 -2e -117 w?4 -174 -174 -1r4 -174 *l1 74 - t74 -t74 -17 14 -t74 -174 -174 -1U4 -17+-_ ----- -_--- --- - -

Total er Xt ales sw ssts 5 7 09 In456 596S 7" 6a47 s s lo 744 s e U 4 S80 We llO555 "SO IOM 10ar111

Fused CostsL*or IS d -b tsa 14U IH 157 16s 1al tss 205 215 224 233 142 252 UW 2n2 293 2"t 304

Ibact anact 6 Ib ir Nt8 124 121 130 140 153 u67 l75 101 Igo In 20t 214 223 232 241 250 260

12sitr na 4J 43 47 51 55 6e 63 6S 71 74 Ty go 85 St S0 93 s7 lo

grciatias 30S 31 in5 2a 276 3U9 3te 284 14 14 4 t o toU lO O0 l0 Be of

eth rs 165 l75 m7 I"e 2Ci 2Z0 231 243 255 UtS 21t 2a 2" M m no 6 $49 3t:

total Fixe costs 76 BC0 Bit 7s a"4 s3 976 S7 on 8S7 927 9t4 N7 nat St 1033 SSI 1030

Total Prdctin Costs 5070 5mt U112 650l 6sl 7s0 seu 8415 sts SOU s4n 740 tOl33 10S¢1 IOI4 113BS 11767 1224C

Corwat# Obewa Ch 45 32 *l U4 n so 53 St Sl tO U3 tS 6e n1 n 76 79 a3

Obtin!l Incom t2a 516 6U 614 6U4 4 3S ss 5 55S 5?9 6" 668 t ?J? 7u2 oh? IN?

Randal Chwp lei 241 237 m 237 U0 m7 223 1ss 141 IV 11 S as 7l s7 U3 2S

Ob lacm 44 *7 43 as 104 103 197 l73 Ili 107 101 e4 s 83 n7 72 70 73

ItcoZ klfoel Tme "I 32 480 464 34 40 we 307 4 z 525 M54 677 6SI 69 74S ns 87 "S*

lnrm TYfs 129 12S 1U 19s 2os IBe 1s 164 20 2e m 251 2^3 274 m 3U1 355 m

lnoso After Tam 362 19n 314 2ts 3a 229 2C m7 m 313 332 376 ms U1 ut6 4 53e st

hubda 54 56 s7 sB 3S tO U1 t7. U 63s 64 6e 66 Si fi 7e n n2

.Tummd Etliws 3es IVr 257 al1 279 ttS 141 sl 2Xs 25l 267 31C 325 3U m" 397 467 494

AM=K 6-4

murn - 00A? TLRnUvm raw

(in 31110 of currot twis)Att41atSIIU85 imS1b5 ISI"W t4N1/11 timeO lWtS0 lmo" '.?I/ in )mwm t tm rMM 1997/i tM iMteo 200D/01 2001U02

SOURM: ~ Acua

Incmm Altar Ta" 362 193 314 209 33 228 202 m 292 311 332 376 395 414 44 467 539 5U6Depreciat(io 301 315 320 2W7 27t 319 318 Z4 t1 t1 1o l00 1O0 10ot6 SO to a 0

lotanil COb ration V7 509 0n 53 014 547 520 03 430 459 11 47t 41 S14 52a 147 5s 5U

Sae Capital 1 20 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22

8HI Copital For Wne 70

L-T Ddt 34 17 171 173 332 100 48 4

TOTAL SMS 791 09 832 731 %98 60 50 733 458 481 49 498 517 S3u 148 569 160 S08flflfltn..nn..*ftmn lfLfSl S SSS ZS WA__ _ fl.tfh._ taStrflflflazfltflnzflnSf

OPLICATINs:CApital Ewneditures 90 167 171 173 332 202 48 48 48

Auola 144

Lan ROtpaymStsL-T Dbt 221 228 202 182 ISO 146 7 37 100 100 100 100 10o 10o 100 100 100F-T Debt 3 411

Total Repsaeyets 221 227 202 182 158 146 329 448 37 lO 100 10O 100 100 100 100 100 100

livieod 54 50 57 58 59 01 62 63 64 U1 46 67 08 6a 70 tt 72

oth r lpw pritat:ae 230 230 6 0 6 0 6 0 6

Cbha in oarkiq Capital 430 15 251 128 148 18 14 130 t27 179 is 198 207 218 223 240 252 204

TOTALA 9LICAtiS 1159 702 687 547 703 597 59 700 241 343 31 3 374 386 410 423 430

Swplustlkficitl -3u8 -7 145 14 25 72 0 13 177 13B 145 135 143 IN5 ISn 159 137 152

Dt Service Coerwp

A. ebt ServicePrincipal bepay ts 221 228 202 182 M1 140 329 448 37 1o ItO 100 t0o 1oo 100 1OO t00 100Intereot Paymts UIl 241 237 235 237 2U 277 22 155 141 127 113 9 85 71 57 43 29

Total 402 40 439 417 39 409 00m 071 192 241 227 213 19 185 171 157 143 129

L Furds bulebleDt Incm Atr Tans 32 193 304 29S 38 228 202 379 m 3U 332 37 35 414 4406 47 538 500Dpreiatien 309 315 325 W 270b 319 318 24 144 144 144 IO 1tO 100 sO go 0 0Inteet Peputs 181 241 237 25 237 263 277 223 In 141 127 113 e B 71 37 43 29

total 852 749 870 "7 eSI tO 797 6 591 600 603 589 4 5S 597 604 5B1 59f

C. ebt Servic Coverape (5IA 2.1 1.0 2.0 1.8 2.2 2.0 1.3 1U 3.1 2.1 2.7 2.8 3.0 3.2 3.5 3.9 4.1 4.6

-'9--

tNDI - ~CFUATY! 1IILIZU 25856 IROflT

(Ia aillt Of cuTmt TV")

1984185 9134 1903 19378 1" 9 1IW9 101t 19 2 t191 1934 1n9 199% 199s9 1l0 o o 190 00/01o 2011002

LurrLOft #Mts

QW#tiqCob 3*7 190 190 1le t9 190 1* 19t 19" 1* 1I0 190 I" 1"0 I"0 1tO 190 1904kOutis lecqb3e 1Zlt 1270 14 1507 M15 14 19 1158 10 4 IS 2028 2091 214 2242 l21 2403hbwtorv 14t9 16 1919 2110 2252 2404 21 AU2 24 2t U 73 35 3142 3M 34 3592 3157 1928 4107

otbms 44 641 432 709 724 732 U 7 m 5 U 9ID n8 1066 1134 1211 12" 1375 144

Total Gerlnt Asash 3713 3SW 422t 4445 473 4t9 503 5291 5M Wi?t7 U4 4t 3 713 7478 1814 8W16

Suplus kh 145 329 594 1 664 49 474 t014 t15 29 14 15is 17 18% 2033 2105

Alnl 164 ti4 164 164 164 I 164 164 164 144 14 14 t44 14 144 144 164 164

Invastamat 333 1too 1075 0os1 1017 1093 10 1105 1111 ll 1111 till 1t1l t111 1t1l till tttl 1111

Vined ksets

Sros Fi.ed bAsts 3S7 3304 375 41 44D 4SS2 4730 4173 43 4026 4326 4326 432 412 4 824 43z 4 42kc. ugctiatltca kwt. 1651 196 2291 25sB 33 3152 3470 375 35 40 *t 48 47 447 47 4647 447 447

-- t Fixed wts 198S 1838 1684 1590 1t4 I50 1210 102S 927 73 A9 S39 439 39 2 17 179 179

TOTAL ASSE1TS 141 70 7239 7609 3144 a3 1227 32 SW0 3S3 90 93 M1 t1IS3 104Jo 1023 U1301 1i

Current Liabilities

Accounts Payable 9U3 1017 1078 144 1215 t 1347 t 40 144 1527 t592 160 1?t I0O5 1i32 I92 2046 2139S-T Sbt 733 740 74 40 74 74 411Cvrent Part. d L-T hOt 223 202 132 t15 14 0 37 St 100 100 100 tO1 100 100 100 100 tOO 0others 477 N5 559 589 55 576 502 5S2 60 i40 40 44 60 60 6 06 60S 0

Tatal Currst Lailities 24I1 2604 219 263 249 2603 2297 2003 2iW 2233 2298 : 2437 2511 21 268 2752 274U

Tota L-1 0t a2n 79 7S2 79 93 10£03 1094 1105 101 05 t5 605 535 405 S5 5 203

Equity

IOr. Capital 92 992 1014 1041 1053 IS6 1102 1124 2146 t116 it"9 1212 US3 1256 1273 130 1322 134bt3e ef Easiep 2D40 2677 293 3145 3424 3592 3S33 405 427 43 47 5U10 S 5731 6158 65 7022 751t

Total Equty S512 3669 3D 4181 4482 472 480 5174 55 5908 59V7 63 4 7 7436 7355 3344 OM60

ITASL LIUILITIES I EOUt1 4741 7044 723 760 34 13U 3224 282 s0 o4 90e 990 9711 10053 0t429 10023 1tl01 11004

Ratios

Mit to lDbt4ptyl Ratio 0.19 0.1U 0.17 0.1 0.1 0.19 0.3 0.10 0.14 0.14 0.12 0.10 0.0 0.07 0.05 0.04 0.02 0.02Iwrwst latin 1.4 1. 1.6 1.7 1.7 1.9 2.2 2.4 2.5 2.6 2.6 2.7 2.7 2.7 2.3 2.3 2.3 3.0

- 100 -

R7 1 t 1150: 1t12 10!R ttnt STA! OMU 133 1'OJC?V

£cgus: (to10 na oU1 fl 651245 flq*a)

198i8 1985/8 1966p twin8 19318 193919 190-191 199119 119219 193194 1994/95 I19694 1996197 1997198 19981 199100 200010 2001103

Roytmiu 5743 "11 6821 7159 1712 9410 1177* 13261 1379 14144 14510 1489 I530 1512 16172 1664 17132 1739

Vie,abIo CastsRaw attrals 3772 3793 4W 14 1 20 l 70 71 7 7931 824 87 8921 M1 94 10035 043U lltSI 11208Pow, Fuel I Mater 344 433 2 42) 43 ay 840 94 9RS 12 106 1112 1157 1203 121 1301 13$3 1407Ctalysts Chtesarlt 37 59 52 a 60 7n too 1)5 120 125 1J 13S 140 146 I5 t15 t64Iqs 284 29 343 Mt9 3W7 460 532 s75 612 61 M61 68 n1 744 774 805 837 170others -130 -20 -114 -174 -174 174 -114 -174 -174 -174 -174 -174 -t1. -174 -114 -t14 -174 -174

total ariahle Cnts 4309 454 529 5706 U147 7197 I3s s 7 J412 98 10259 1 7 IlO W 11t 52 205 U2 12520 1301 I555

fixed CutsLam- & r,ffts 138 145 144 I5 169 217 28 281 29 30s 31t m0 34 357 m 3 402 418uIntmn.Ke i Rpazr 1oo 124 121 130 140 20 267 27 29 0 315 32 341 35 39 384 399 415Insurance 40 43 41 51 55 75 9a 103 107 fIt 116 121 12 I 134 141 147 153Deprecnition 309 31 325 247 27 401 893 on9 84 a94 94 0 850 es0o 830 830 7r 465Othrs 16 175 1n 190 204 220 231 243 255 245 274 211 29 310 32 356 349 36

Total Fixed Cuts 761 eo0 elk 95 1319 137 1164 1841 1t79 19s1 91s 19 2002 202a 2016 2047 1*14

Iotal ptwuttion Cests 5070 53 R2 6561 6"9 8515 10112 10732 11315 11737 12178 12592 130 15 140 14596 15014 1S69

arpwrate Dvhud Csts 45 32 41 44 47 41 so 90 96 100 104 30B II? 117 N21 126 131 137

O4ertz1 Inca, 4n 514 414 614 474 834 1584 2446 231 2301 2M9 219 2119 2044 1990 191 1927 18OU

Fin ncial urwgu lt 241 237 235 237 554 8s4 1040 899 794 us 53 478 373 27 142 57 29

Other lncm Ajustats 44 47 43 8a 104 183 197 173 114 107 101 94 8e 3 77 72 10 75

Inca Bef/rc Tan 491 322 480 444 541 4s 3 m 1579 1603 1621 141 174 1m 1754 IO 182 194 1932

toees ra 129 129 16 Mff 203 180 INS 14 207 210 m 3 413 6a5 719 8a4 932 835

Inct Aftr Taxes 342 193 314 2U 338 285 1 1415 139 1411 1420 1387 1117 1079 1081 965 1008 It97

Divdan 54 56 57 ss 59 4O 61 239 240 241 242 243 244 245 246 247 248 249

ktaind Ericsp soe 137 257 211 279 223 2 1176 1154 114 1178 1143 873 34 34 n17 160 84

- 101 _

AN4- 8-4

INIA - OOUAnE U ZLXZ INUSTRty PROJECT`

111Cc PROJECTED mUNs now mTATD8N (WI THz PROEC)

(i .lliu of curmit rupee)

14SSU t395 1,4167 3907/ 168189 I9/190 3990MM 3193192 I9V993 1993/94 4199 5 19959 319 97 I 9 199Sf 199910 2000101 XOi200(

U-CES: - - - -l1nw MAter lam 342 1 314 2f4 131 21 1 14t5 13 1413 3420 3W7 111 1079 I01 965 106 '091Owe actitn 309 319 35 U 241 2" m0 893 BP 69 64 6E 4 690 650 6 6 S6O 150 44g

lnath-la Cub WA 61 SS U9 3 44 0 3 22 22 234 2311 22 1966 I92 1910 1794 115 13

Shu Capita1 106 33 2A 949 394 409 26 22 22 22 72 22 22 22 22 22 22 Z

t-tSt~~~~~~~~~~~~3 "T l0 5 U S U4 4 ie. o o o 4 L-Tflebt 34 11 5 1441 u38 1499 42 1 0 0 0 0 0 0 3

TOTAL m013E1 611 t54 I641 246 39 4 27S 2S30 2614 2312 2326 23 22 19tS 1951 1932 IS16 t6 15.

ICIIiATlOI:Calptal .3pUitodt 244 t303 11 25695 3010 ti6 433 7 48 0 0 0 0 0 0 0 0 4

Loan 3hpayetL-T abt 223 226 202 162 ISO 146 226 689 46 152 752 152 152 752 75 752 592 I0-r Odet 0 0 0 0 0 0 32S 411 0 0 0 0 0 0 0 0 0 1

Totala aynnts 22 226 202 162 196 146 95 300 669 7S2 752 t52 752 752 752 752 524 301

Dividend 54 54 5 51S S9 60 41 239 240 241 242 243 244 245 246 247 248 24

Otber ApprWit:ios 230 236 6 6 f 6 6 * 6 0 0 0 0 0 0 0 0 o

Choe jn Nrkmtg Cpital 430 15 251 126 146 526 52 302 206 393 203 213 224 236 24 2U1 214 23

TOTAL APPLICATIOK 1319 I39 1613 2959 33b3 23 173706 3720 I19 l6 1197 124 122tl 1233 1246 320 104 5S

Surplul{lhflcit) -36 -7 32 27 15 414 422 SS4 1122 1140 1136 1050 768 lie 666 556 732 "9kc. Serplne

ebt Srrvice Cwrap

L. Debt ServiceIrindcpal 3ayn ts 22t 226 202 162 t5o 346 555 1100 669 752 752 752 192 752 752 52 S26 10Iotert Peynts 163 241 237 225 237 Su4 S94 1040 699 194 6S 533 476 m 26 162 57 2

Total 402 469 439 417 3n 700 1449 2140 156 1546 441 I 335 1230 1125 1039 934 562 12

S. Faods Availablefet Inrw After Tan 342 193 314 269 33 23 163 1415 13946 I14 1420 1381 3117 1079 IS6 965 1006 109

hractiton 309 315 329 267 271 607 893 659 694 69S469 650 S50 S50 830 B30 750 461ntset Paymats lo6 241 237 235 237 554 S94 34o 69 794 668 563 470 m 247 162 57 2

total 65 749 i76 771 651 1444 2569 3314 3169 306 3002 2619 2444 2301 2177 1956 1615 159

C. Dflt SerVice Cor4ag (a/1U 2.1 1.6 2.0 1.6 2.2 2.1 1.6 1.5 2.0 2.0 2.1 2.1 2.0 2.0 2.1 2.1 S.3 12.

- 102 -

64of 6

STA - ci !HMMU WWW-!EC

(in at41 of d eat we)Actual£981415 1 s 1984191 91188 918189 1989 tn 1013990191 91192 £921m 193194 94l1 MM9 1 19?I"?9 71919 199100 2400101 2001102

Cnrrmt Astsi

Opnratian Cub 307 I"0 10 0 190 19t J2 0 203 4 204 205 2 214 207 201 20 209acDbt, RkeiYale 1254 1301 1370 tIl 1507 1820 223 24t7 25 259 13 M2 2513 2011 295s 3037 3121 llbllvuotuty 1749 185 1919 2110 2252 521 21 2955 310£ 3241 33 359 9 365 43 421 4411 4610thhs 448 141 b2 lot 724 132 95 715 2 ON 9 100 If 1 3iU 11 1290 15 1£416

Total Correut Asets 315 3995 4221 444*5 4M 52SW U923 6350 67114 :m 7192 MS M 004 01 9155 911 9

urplus Cb 32 s1 13 417 90 £04 29 4* 504 42 702M 773 824 G1 9713 10709

Inestwt 83 10R 1015 1081 t101 1093 £00 £105 111£. tttt Uttt t1U 11ti£ Ut1 tt11 till ttt tttt

F7ud Rusts

ksr. Fuld Aseits 3801 4819 5918 9503 115J13 3159 1353 13665 £13 13713 £3113 13713 I£313 13711 £13 13713 13713 13511kcc. pratiation & hut. 1651 16, 2291 258 284 340 4332 5192 65 97 7872 8722 92 1042 1125t 12080 12£0 1324

let Fixed ksets 2150 29 3427 5S45 8619 970 2 0 473 7n2 A3 0 491 414 39 242 £132 88 431

TOTAL ASSES 6741 7917 055 1150 512 1U56 17192 IM I8M3 I£32 I194 139930 2805 2225 240 201 20822 21612

Cret Liabilities

Accounts Payable 963 1017 1078 £144 1215 IW 1383 1441 51 1576 i1 1713 1116 182 192 2024 2111 m2FlO t 733 t4 740 740 140 740 411 0 0 0 0 0 0 0 0 0 0 0Carreat Pwt. of L-T Oet 228 202 12 IS 146 226 689 8 752 152 152 752 152 752 152 52 140 0Ottes 477 s5 559 59 598 574 502 562 604 60 606 6 60 64 604 606 6* 66

Total Current Ueilitiatjs 40£ 2604 239 2631 269 20 295 269 289 23 M 3071 3144 3220 00 315 2817 27

Total L-t ktt 83 1333 190" 322 54 672 7 6095 5343 4591 309 307 23 153 831 305 205 205

Epity

gr ECaital 972 I13 153 2542 23 34 30 39 3414 344 343 3488 350 2 S 324 354 3W 35 3612htainsd Earono 2540 2477 2934 3145 3424 4 4369 5545 670£ M1 94 10191 £1014 II£8 £273 13450 £42o £5

Total Eqaty 3512 390 44u7 sw 639 sm s 77 10111 11307 12U 13672 6 15422 £79 1ltO3 3780 18670

TOTAL A81LI£-IES I RQUT7 4741 7917 89M 11530 14512 5 £7191 IM1 1B3 112 194 1 200 20225 20419 2022 21682

Ratios

hOt to (Odtftity) Rbtio 0.1 0.25 0.30 0.36 0.46 0.49 0.46 0.41 0.35 0.29 0.25 0.08 0.14 0.09 0.05 0.02 0.01 0.01Current Ratio 1.6 1.5 1.6 1.7 1.7 3.8 2.0 2.4 2.3 2.4 2.4 2.4 2.5 2.5 2.5 2.8 3.2 3.4

laduSt1Y Depart -ntJune 1986

- 10 -3

8 tA # t cu t S FIIWIT 81 3 FOR FR IAL 1ATE rW ETII

tin n211i of cUltat ISSS pVcS

1984/13 190S/U 1996/07 MISS 1919 1989/90 t 9 I"11/ t2 tM19/94 1994/5 39/96 t19979? 1997/98 "81" / 19/00 2000Ot 2001/02

Capttol Roisrcux USIsd

Capital Cost -64 -776 -Ut -"95 -176 -_39 -22 SS4.3licrus to lekmag apitol -252 -348 -110 -50 7&0.B

TOWa - -.16 -176 -91 -1945 -1576 I2 -370 -1t0 -50 0 0 0 0 0 0 0 O f131

Fisnieal Vlta of Praduoctip

Ura "2 2 2550 244 25 4 233 2 202 2128 208 99 tWllAsia 24 St 6 68 66 43 61 59 57 55 53 51 47

Total 951 22U 215t. 2-12 261 21 4 2M 27!11 2111 20I4 18

FiNciat VNiabl Cohst

atural Su forFaistt-2 -2 -300 -674 -701 -70I -701 -701 -70I 701 -701 -701 -701 -701Utilstin -90 -203 -226 -226 -226 -226 -226 -22 -22t -226 -2-2 -226

VA-total -u -m - -927 927 -7 -2 -927 -927 427 -97 -927 -9

Pourdskternal) 6 -13 -16 -18 -t8 -18 -t8 -t8 -18 -18 -18 -18 -18Psrlltuntal) -2 -S -5 -s -5 -5 -5 -5 -5 -5 -s -s -sVater 0 -l -I -I -l -1 -l -I -1 -1 -1 -1 -ICatulysts t Uoscals -9 -20 -24 -26 -26 -26 -2 -26 -26 -26 -2 -26 -26bSa -24 -3 -4 -9 -9 -69 -9 -a -9 -9 -69 -69 -69Smlling Expoitou -19 -45 - -54 -52 -9 -4 -47 -4 -4 -42 41 -17

Total -425 -0 -1062 -1100 -IM -1093 -109 94 -t02 -1091 -1 -1088 -1086 tlS

Fiancial Fised Costs: -71 -42 -142 -142 -142 -142 -142 -142 -142 -142 -142 -142 -142

Net Ficial ntid rcas Flo: -164 -776 -61 -1945 -1576 -166 821 1302 1420 tS71 12n7 Ils 1104 1026 S52 82 816 tS51

Itftwio Rat ef hbtvaol( 11.3

lt Prsent Vwlsal aillioxoat 102 446at t2 -0at 14 -419

Industry Doepart tJune 1986

-104 - ANNEX 9-1

Page 1 of 3

INDIA - COOPERATIVE FERTILIZER INDUSTRY PROJECT

AONLA - COMPONENT

Assumptions ulsed in Economic Analysis

A. Capital Cost Estimate

1. The economic capital cost of the Aonla project is derived from-the financial capital cost, as follows (in.constant 1985 prices):

US$ million

Local Currency Component ofFinancial Capital Costs,Including Physical Contingencies 181.9

Less: Local Taxes 13.2168.7

Multiplied by 0.8 StandardConversion Factor

Economic Local Currency Capital Costs 135.0

Plus Foreign Compouents ofFinancial Capital CostsIncluding Physical Contingencies 244.5

Total Economic Capital Cost 379.5

B. Working Capital

2. The economic working capital requirements of the Aotla projectare based on the raw materials and work-in-process inventories only.Finished products inventory has been omitted, since in the case of importsubstitution, the inventory of products produced by the Aonla project wouldsubstitute for that of imported products and thus does not increase thecountry's total inventory. Accounts receivable and payable have also heenomitted as they do not represent costs incurred by the economy, but areconsidered instruments of "transfer of obligation". These are the majorreasons why the economic working capital requirements (US$3.3 million) aremuch smaller than financial ones (US$58 million in 1985 prices).

C. Revenues

3. Economic prices of urea were based on the projected internationalprices of urea prepared by the Bank's Commodity Studies and ProjectionsDivision. These are described in more detail in paras 2.20 and 2.21. Insuammry, the FOB price of urea (bagged, Europe) Is projected to increase

- 105 -ANNEX 9-1Page 2 of 3

from the 1984/85 cost of US$162/tou actually incurred by Indian fertilizerimports, to US$190/ton in 1990/91 and US$206/ton in 1995/96. The priceprojection reflects the future global demand and sunply balance of urea aswell as the projected energy situation. Added to the FOB price are seafreight to India-(US$40/ton), port handling and losses (US$12/ton), andinland transportation cost (US$28/ton) to UP, the projected market for theAonla project's output. The economic price of urea at UP is thuscalculated at US$270/ton for 1990/91-aud US$286/ton for 1995/96. Thefollowiug table summarizes the actual and projected economic prices ofurea.

Economic Values of Urea(US$Tton in 1985 prices)

Actual ------Projected--1984/85 1990/91 1995/96

FOB Europe, Bagged 162 190 206Sea Freight to Bombay 40 40 40Port Handling and Losses 12 12 12Rail Freight 28 28 28

Economic Values of Ureadelivered to UP Warehouse 242 270 286

D. Operating Costs

4. The natural gas for feedstock is costed at its fuel oilequivalent valu,. based on calorific value, as the gas is not traded in theinternational market. The fuel oil price is projected based on the Bank'sCommodity Studies and Projections Division's projection of crude oil pricesas well as the estimate of fuel oil crude oil price ratio of 0.78. Thefollowing table summarizes the projected economic prices of natural gas tobe used by Aonla plant.

- 106 - NNN~AEX 9-1Page 3 of 3

Ecouomic Prices of Natural Gas(in 198S prices)

Actual -- Projected--1984/85 1990/91 1995/96

Crude OilUS$/bbl, FOB Arabian Gulf 28.6 16.2 22.6US$/ton, FOB Arabian Gulf 209 118 165

Fuel OilUS$/ton, FOB Arabian Gulf 163 92 129US$/ton, CIF Bombay 104 141 141

Fuel Oil Equivalent Valueof Natural Gas a/

US$/1,000 sce 156 93 126

Gas Transportation Costto Aoula

US$11,000 Ncm 5 5 5

Fuel Oil EquivalentValue of Natural Gasat Aonla

US$/1,000 Ncm 161 98 131US$/Million BTU 4.7 2.8 3.8

a/ Calorific values of fuel oil and natural gas are respectively 9,750Kcal/kg (38,688 BTU/kg) and 8,700 Kcal/Ncm (34,522 BTU/Ncm).

Other raw materials, chemicals and catalysts are costed at CIF prices.Economic selling expenditures are assumed to be 2X of sales revenues.Economic fixed costs are calculated by subtracting taxes and duties fromthe financial fixed costs.

Industry DepartmentJune 1986

- 107 -

MU- LIIWUIWI I3TMIIZ IWWIY FRIWI AMuu 9-2

#R UTm la OMLIT $T11N fM Eltc "IE or M

(5 stlls. La sutat 19. pricmlActuA1198185 t9w5in 1lI0 937m 19w 194/ 0 M99M 1991192 199V3 199I4 19492 1999 19W97 1997/8 19999 199/OO 20Q0/ 2001)02

C.4z tat husrCn Oad:

Caiutat Ct -11.0 -51.6 -459 -130.5 -109.7 -28.5 -2.3 38.0Itcrfm ifs aki.i Caital -1.0 -t.4 -0.S -0.4 3.3

ot.l -It.O -Sa.a -45.9 -I3.5 -109.7 -2.5 -3.7 -0.S -0.4 0.0 0.0 0.0 0.0 0.0 0.0 00 .0 41.3

Ecsoc Ylub of Prfftiuz

Irs 62.3 (42.1 173.5 19Q.5 192.7 195.0 197.3 197.3 197.3 197.3 197.3 197.3 17.3fAnie 1.6 3.7 4.5 4.9 S.O se 4 .0 5.0 5. 5.1 5.I 5. 5.1 5.1 S.l

Ttatl 63.9 145.8 118.0 195.4 197.7 200.0 M2.3 202.3 202.3 202.3 M02.3 M02.3 20.3

Econ.ic Variable Costa:

Natiural ts g-FtaH i -19.8 -38.4 -39.9 45.9 46.5 -4.2 -52.2 -55.4 -55.4 -55.4 -55.4 -55.4 -55.4Utilities -0.3 -17.0 -17.1 -18.1 -19.2 -20.3 -2t.5 -2. -22.9 -22.8 -22.8 -22. -22.8

sub-total -29.1 -55.4 -7.0 -2.0 -f.7 -69.6 -73.7 -73.2 -78.2 -79.2 -79.2 -79.2 -79.2

Pow lbtvoal) -0.7 -:.1 -1.8 -. 9 -1.9 -1.9 -1.9 -1.9 -1.9 -1.9 -19 -1.9 -1.9atar -0.1 -0.3 -0.3 0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3

Catalysts & thuuiculs -0.5 -1.1 -1.3 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4ags -1.4 -3.2 -3.8 -4.1 4.1 -4.1 -4.1 -4.1 -4.1 -4.1 -4.1 -4.1 -4.1

sullg Ezgeitasr -1.3 -2.9 -3.6 -3.9 -4.0 -4.0 -4.0 -40 -4.0 -4.0 -4.0 -4.0 .4.0

t@til -32.0 -64.3 -67.8 -73.7 -77.4 -81.4 -45.6 -90.1 -90.1 -90.1 -90.1 -90.t -90.1

Ecauc Fitld Csts; -4.4 4.7 -8.7 -9.7 -8.7 -6.7 -8.} -1.7 -8. 7 -8.7 4- -8.7 -6.7

*t1 Ecowi _c Resources Flo -11.0 -51.6 -05.9 -130.5 -109.7 -2.0 69.0 100.9 112.6 111.5 19.9 108.0 103.5 103.5 I03.5 103.5 103.3 144.8

Intmnal Rate of btars(2l 17.1

lbt Prewt VaIslUSS ailliulit 101 125.7at Il 73.at 14 34.4

udutz DepaitmutJune 1986

- 108 -

AMNEX 9-3

INDLA - COOPERUTIVE FERTILIZER INDUSTRY PROJECT

RelabuxSlagion Compneta

Eco-nmic Ratea of Return of Sub-Comeonents(in constant terms)

Economic rates of return are estimated only for the subcomponents whoseeconomic costs and benefits are reasonably quantifiable. The detail of theanalysis is glven In Project Pile Reference K.

NPV (at a 121Rehabilitation Subcomponents Capltal Cost8/ ERR discount rate)

(M million) () (US$ million)

Kalol Plant

- Energy Revamping ofUrea Plant 1.15 44 2.7

- Modification of PrimaryReformer Convention 1.77 22 0.9

- Replacement of HeatExchangers 0.31 38 0.6

- Recovery of PressureEnergy by Steam Turbine 0.38 37 0.7

- LTS Guard Bed 0.35 35 0.5

- Molecular Sieves andRepiping of Synthesis Loop 2.31 20 0.9

- Mass Spectrometer withMicroprocessor 0.31 44 0.8

Phulpur Unit

- Revamping of Primary Reformer 7.31 52 24

- Synthesis Gas Dryingthrough Molecular Sieves 1.92 29 1.9

- Urea Hydrolyzer 1.38 43 3.1

- Replacement of Equipmentand Exchangers 0.30 over 60 8.3

- Improving the ExistingBoilers 2.31 22 1.1

Kandla

- N.A. (mainly storage and independent water supply scheme whose benefitsare not reasonably quantifiable).

aI Base Cost Estiates.

Industry DepartmentJune 1986

= 1 HIMACHANDIA

COOPERATIVE FERTILIZER INDUSTRY PROJECT

r L P AB MAJOR FERTILIZER PLANTS

PAKISTAN HAR,AN / Y

J WHARtANA o UTTAR 41/ \ t DEHI ,L. 4

C R A J A S T H A N oi PRADESH iwco BH HU

/ ) - - 0+°irAn la Kapa, ~ ~ . ".

\ ~~~~~~~oKolo I- (av orrai > + ,

I f Ur.14ipurip~ t -;,F B I H A R

0~~~~~~~~~~~~~~~~~~~~~~~~~~ 0 o,' oljajJ 0l' oE b WEST",

5 , X GUJARArT WB ° M A D H Y A N '

ouKARAr A H A AA SvR.

¢OTronboy X~~~~~~4 {2 tl ~~.,rI.a

' OB&rod °~indore P R A D E S H -- 7 Moia

BhwanJh0 Roaiil

-

H -' , /- oce

20' . 0 R I S S A 20'

M A H A R A S H T R A

mB..0 W Tromboy

Thai Voi het0

0aI,

' Romngagodgm o

' ° Hydr.obod 0Viaakopotmnn

0d PRADfSH~-& ~ ~ QoIi*

A -~~~~~~ ~R-akel.aHaz,ro' 0'Tiae

20,(M R RSA 201

M A HAR A SHTR A

Tha1 VidAe0 a ~II

0Vi.kIaapotnham

0Kokn,ad

ANDHRA

- ~~~~~PRADESH-GOA

KARNATAKA 000 r a0a0 .aFFI000IOR PLANTS-

(MYSORE) iar apa'

uad. Ca,,a-,Mongolor uoro Pnan.a a. m,,,

Banrgolorr°eMdo0

g e ndrPoe

I~~~~~~~~~~~~. E-i C om:nNeyzl ci, 0 n vm

' ' ~~~~~~~~~* SNFIoO 'op3 0

TAMIL

To, NADU -1, A -1d0,. m 0W aad~O0a on aI

CochinO cheato m9f OEidCOdm? m P0 mp ma0m

KERALA f

a 103 000 300-. 0 Tuti-oar-w.d 06 T~ 5 i0 07w 3

Trivaundrum, o0 o >~~~~~~~~~~~~~ o~ 2J 00 OCO0 400 soa

SRI

LANKA

ii 70TO'0

GUJARAT(Kwu %

INDIA

ix ix 2000 ~~~COOPERATIVE FERTILIZER3 ~~INDUSTRY PROJECT

v.050 ~~~~~~~~FERTILIZER COMPLEXES BASED ON & rps6 rlc

a vi ~~~~~~~~~~~~~~~~SOUTH BASSEIN GAS Ple-ned

TOO0Pi,R teopere~~~~~~~~~~~~~~&_ U.,-t-tin

Ox/ito, SecOiN ~~~~~~~~~~~~~~~~~~~~~~~R.t Higes pipe1., ,nn on xt.ti-bo

l4~~ Bombay~ ,.x,,x *,y"

ThniVn-ix PA KIS TA N HIMASeecedtoAsen ntlge¾FRA 9DHE .Scf t/I-

L Z Proven oi resrve lod os,vciotnd go.~) ,< ~ 0,i

Provn neter,g.rsre N Piretine t-'etna.) Kano /JNIJAB ' . .* Existing tee-inni. tUeT/iCooie

U.d., -studi.m~~~< -

b Existing dersiber ier 6.9thrnd x

e Poinne /~~~~~~ J 5--7HAPY NAA IV,ti/ 'P. ', "'. 9

v Under cnet-otio* Exisning ~~~~~~~~~~~~~~~~a *x-detiod

Eouting, 36" nsio go.s~NO3J2,a4)L/( veeI--- Enising. 30" crodo oil 'N.6erala Ii i

Eoistiitg, 26" neserel 905 0 t,I,..,..IV,ee,i.0 Aenlo * "-. N E PA LE-tsing disriborio Ie, Osx~¾ ~

--stern b oo..nrj 1 tcocA /T fAR PIA DE5t Si2i\

V ''7 ~~~7..22QA7IA5T'HA N Jie 0,,Oii' ,., 0

os v

Mdh4p.,I?

Pvocess plxrtormsi /~~~~ Ud- 2)HA

G I/ J A R A 7' ~ ~ ~ ~ ~ ~ / '<2 -

* Exoti~ K-' ¾ CMrvi 00xedeOed ' t,d-

Pipelines ' tortes C~~~~~~K-d.- Ecissing, 36" notorel go. New De!k@)iut,i/ '~~~~~~~N ntixia.hr ~

Existing. 30 erode oil 0 AR S 5ho Aio ~ NE PEoi.t'xg, nesorol ~ ~ ~o Bebrole ocr3

In ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Oxhe w,~ x<oo1

ba ve0 A IVDH RA~odopu~ ~

ou- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~- Jiehox IT',,' V !I"' PRADESH~~~~~~~~~~x eO~eer

I.

. . _. . I6RD 1916~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IR

A, PROPOSED PROJECT LAYOUT ~ ~~~~~~~~~~~~~~~~~~COOPERATIVE FERTtLIZER INDUSTRY PROJECT

- r f , e 3 .1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PROJECT LOCATION AND PROPOSED LAYOUT

4 ZJ0xt WUss bI L -. MA g MA= A pC PRCaJECT LAtOUI- MAP e PSJECT tLI10N~~~~~~~MA A ROPSeDPRJEC LAOUTMA P JEC tOAT

/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~M L.

%q.l L- P"

|A-,

P

I SH.t \ \ I j \ 1 'rt: '.ek - 15 H~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~R6 LI"- RW

1s \ 9 4$ 8 j -. \ / SMIGIIa E l N DIA 2T~~~~~~~~~~~~~~~~~~~~~~~~~~~Pt, ~ ,-0- .,-

-&wt- ~ ~~~~ \ I ArrooxirnaxeScille:~~~~~~~f;. -- A2rmtet __k- ll A-.

g my om_ d ( | bLLdlX 3udeTm iu ~~~~~~~~~~~~~~ ~~ --~~ _ t_ _ ILr z 1001. 6~

_ \ > ~~~~~_ MeTERS 91S - METCP9 z_ \ eLSnI ^ _ v __ S~~~~~~~~~~~~~~~k-.-d -%

-E __ _ _uTMnh1L