Documents - Pub - World Bank Ghorasal Urea Fertilizer H Feasibility Report On The Fertilizer

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Document of FILECOPY
The World Bank
FOR OFFICIAL USE ONLY
Report No. 2876-BD

STAFF APPRAISAL REPORT
BANGLADESH
FERTILIZER INDUSTRY REHABILITATION PROJECT
April 23, 1980

Industrial Projects Department
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
In August 1979 the Bangladesh Taka was officially devalued

relative to the Pound Sterling, to a rate of Tk 34.7 to the Pound. Since
then the Taka exchange rate has been determined through a basket of major
currencies, with the Pound Sterling as the reference currency. Consequently,
the Taka-US dollar rate has been subject to change. The rates below have
been used throughout this report except when otherwise stated.
US$1 = Tk 15.5
Tk 1 = US$0.065
Tk 1 million = US$64,516
ABBREVIATIONS AND ACRONYMS
ADB - Asian Development Bank

AFCC - Ashuganj Fertilizer and Chemical Company
BADC - Bangladesh Agricultural Development Corporation
BAI - Bresler and Associates, Inc.
BCIC - Bangladesh Chemical Industries Corporation
DAP - Diammonium Phosphate
EEC - European Economic Community
HYV - High-yielding Varieties
IFAD - International Fund for Agricultural Development
JEG - Jacobs Engineering Group
KfW - Kreditanstalt fur Wiederaufbau
Mscft - Thousand Standard Cubic Feet
ODA - United Kingdom Overseas Development Administration
OPEC - Organization of Petroleum Exporting Countries
P 05 - Phosphate Fertilizer Nutrient Unit
PPM - Parts per Million
ROP - Run of Pile
TEC - Toyo Engineering Corporation
tpd - Metric Tons per Day
tpy - Metric Tons per Year
TSP - Triple Superphosphate
UNDP - United Nations Development Program
USAID - US Agency for International Development
BANGLADESH FISCAL YEAR (FY)
July 1 - June 30
FOR OFFICIAL USE ONLY
BANGLADESH
THE FERTILIZER INDUSTRY REHABILITATION PROJECT
TABLE OF CONTENTS
Page No.
I. INTRODUCTION ................................ 1
II. THE FERTILIZER INDUSTRY ...... .....................

........... 2
A. Existing Plants ..................o........................................

2
B. Additional Capacity ..............o..........................................
2
C. Factory Gate Fertilizer Prices 3
3...............
D. Foreign Exchange Constraint ........ ...... 4
E. Staffing and Training ..................................... 5
III. FERTILIZER MARKET AND MARKETING ......................... 6
A. Fertilizer Consumption/Demand............ ........... 7

B. Fertilizer Supply ......................................... 8
C. Fertilizer Sales Prices ..... .............................. 9
D. Marketing Arrangements .................................... 10
IV. BANGLADESH CHEMICAL INDUSTRIES CORPORATION .................... 12
A. History and Organizational Structure ........... ........... 12

B. Financial Performance .9999.................................. 13
C. Restructuring of BCIC .. .99.................................. 17
D. Ghorasal Plant Facilities ................................. 18
E. Chittagong TSP Facilities .. .................... 19
F. Fenchuganj Plant Facilities ............................... 24
V. THE PROJECT ............ ....................................... 25
A. Plant Improvement Component ....................

. . .......... 26
B. Training Component . .....
....... ...................... 26
C. Spares, Catalysts and Chemicals Component ................. 27
VI. PROJECT MANAGEMENT AND EXECUTION .............................. 27
A. Project Management ........................................ 27

B. Engineering Arrangements ................................. 29
C. Project Schedule .......................................... 29
This report was prepared by Messrs. S. Venkataraman and Kurt Loos of the
Industrial Projects Department.
This document has a restricteddistributionand may be used by recipients only in the performance
of their official duties. Its contents may not otherwise be disclosed without WorldBank authorization.
TABLE OF CONTENTS (Continued) Page No.
VII. CAPITAL COST, FINANCING PLAN AND PROCUREMENT ................. 30
A. Capital Cost ................ ............................. 30

B. Financing Plan .................................. ........ 31
C. Procurement and Disbursement .................... .......... 32
VIII. FINANCIAL ANALYSIS . ................ .o......................... 34
A. General .......o............................................
*......o... 34
B. Operating Costs and Revenues ........* ................... 34
C. Financial Rate of Return . ...... .... ........ ....... . .. . 37
D. Financial Covenants and Reporting Requirements ......... 38
E. Major Risks ......................... .....................38
IX. ECONOMIC ANALYSIS . ........... .......................... ..... 39
A. Economic Costs and Benefits ............. ................. 39

B. Economic Rate of Return .....................................40
C. Other Benefits and Foreign Exchange Savings .............. 41
X. AGREEMENTS ...................................................
42
ANNEXES
3 Fertilizer Offtake in Bangladesh 1965-79

4-1 List of BCIC's Production Units
4-2 BCIC Financial Statements 1976-80
4-3 BCIC Fertilizer Production and Capacity Utilization
4-4 Plant Improvement Component - Project Scope
7-1 Plant Improvement Component - Capital Cost Estimate
7-2 Estimated Disbursement Schedule for IDA Credit
8-1 Estimated Production Cost Summary and Output Value
8-2 Cost and Benefit Streams for Financial Rate of Return Calculation
9 Cost and Benefit Streams for Economic Rate of Return Calculation
MAP
IBRD-14866 BANGLADESH- Location of Fertilizer Plants

DOCUMENTS AVAILABLE IN THE PROJECT FILE
Reference
A Fertilizer Works Operation Improvement Programme - Inception

Report - Ghorasal Urea Fertilizer Factory. July 1979.
Bresler and Associates, Inc.
B Fertilizer Works Operation Improvement Programme - Final

Report. August 1979. Bresler and Associates, Inc.
C Proposal for Rehabilitation Work for Urea Ferttlizer Factory

Ghorasal. September 1979. Toyo Engineering Corporation.
D Draft Technical Annex for the Ministry of Overseas Development

on Triple Superphosphate Complex, Chittagong, Bangladesh.
January 1978. Cremer and Warner Ltd.
E Rehabilitation and Conversion Options for T3P MKanufacturing

Facility, Chittagong, Bangladesh. April 1979. Jacobs
Engineering Group, Inc.
F TSP Manufacturing versus Fertilizer Importation. April 1979.

Soros Associates Consulting Engineers.
G Feasibility Report on the Fertilizer Production Improvement

Programme of Urea Fertilizer Factory, Ghorasal. December 1979.
Bangladesh Chemical Industries Corporation.
H Feasibility Report on the Fertilizer Production Improvement

Programme of TSP Complex, Chittagong. March 1980.
Bangladesh Chemical Industries Corporatton.
I Feasibility Report on the Fertilizer Production

Improvement Programme of Natural Gas Fertilizer Factory,
Fenchuganj, Sylhet. March 1980.
Bangladesh Chemical Industries Corporation.
BANGLADESH
APPRAISAL OF THE FERTILIZERINDUSTRYREHABILITATIONPROJECT
I. INTRODUCTION
1.01 The Governmentof Bangladesh (the Government)has requestedan

IDA credit of US$29 million to finance (i) the rehabilitationof the three
operating fertilizerplants at Ghorasal, Chittagongand Fenchuganj (the Plant
ImprovementComponent); (ii) the setting up of training facilitiesat Ghorasal
(the Training Component);and (iii) the essential spare parts, catalystsand
chemicalsneeds of the fertilizerindustryfor about two years (the Spares,
Catalystsand Chemicals Component). The plants to be rehabilitated(Map
IBRD-14866)are at present operatedby the BangladeshChemical Industries
Corporation (BCIC), a wholly government-owned corporation. The Government,
however, is implementing steps to form the three fertilizer plants into
separate corporateentities retaining BCIC's overall coordination role (para
4.09). The proposed IDA credit of US$29 million would include US$19.7 million
for the Plant ImprovementComponent covering along with Dutch assistance of
DFl 10 million (equivalent of US$4.7 million) all of the estimated foreign
exchange needs and about 75% of the estimated total financingrequirements
(excludingtaxes and duties) of US$32.3 million;US$1 million for the Training
Component covering 100% of the foreign and local costs; and US$8.3 million
covering 100% of the estimated import needs of the Spares, Catalystsand
Chemicals Component. The-remainingProject financingwould be providedby
the Government.
1.02 The Project includesadditions and replacementsof equipment and

plant modificationsas well as the provisionof maintenance and other imported
materials at the three fertilizerplants to enable them to operate at close
to their rated capacitiesand to minimize losses in productiondue to plant
interruptions. Due to the nature of the Project, the investmentrequired for
an additionalannual ton of fertilizerproductionwill be significantlylower
than for building fresh additionalcapacity. The proposed training facilities
at Ghorasal are crucial to help ensure an adequateand competentwork force
for the operation of the fertilizerplants in Bangladesh.
1.03 The proposed credit is to finance one of three operationsunder con-

siderationby IDA to assist the Bangladeshfertilizersector. The other two
now under appraisal would (i) provide a fertilizer import credit which is to
include a component to ensure timely supply of rock phosphate and sulfur to
the ChittagongTriple Superphosphate(TSP) plant; and (ii) improve the trans-
portation facilitiesrequired for inland fertilizer movement and distribution.
1.04 The Project was identifiedin July 1979 by a mission consistingof

Messrs. H.P. Gassner of South Asia Programs Departmentand S. Venkataramanof
the IndustrialProjectsDepartment,and appraised in October 1979 by Messrs.
K. M. Loos and S. Venkataraman(missionchief) of the IndustrialProjects
Department.
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II. THE FERTILIZER INDUSTRY
A. ExistingPlants
2.01 Domestic fertilizerproductionstarted in Bangladeshwith the

commissioningof the Fenchuganjplant in 1961 for the productionof urea and
ammonium sulfate. Two other plants have since then been set up, one at Ghorasal
in 1970 for the productionof urea and the other at Chittagong in 1969/70 for
the productionof TSP. The three plants have a combined installed capacity
of 489,500 tons per year (tpy) of urea, 13,200 tpy of ammonium sulfate and
152,000 tpy of TSP. The installednutrient capacity correspondsto 228,000
tpy of nitrogen and 70,000 tpy of P 05. The nitrogen productionis based on
abundant domesticnatural gas and tAe sulfate and the phosphaticproduction on
imported sulfur currentlybeing procured from Iraq and rock phosphate currently
being procured from Jordan and Morocco.
2.02 Capacityutilizationachievedby the Fenchuganjplant was close

to 90% during its first nine years of operationbut declined after 1971.
Following a rehabilitationprogram completed in 1978, productionhas sub-
stantiallyimprovedsince :979. The Ghorasal plant faced difficultiesfrom
the beginning and a serious explosion in late 1974 put the plant out of
commissionfor most of 1975. Productionhas recently improved;the FY1979
average capacity utilizationof 63% correspondedto 80% of the capacity for
the ten months during which the plant was in operation in FY1979. The
Chittagongplant, though completedbefore Bangladesh'sindependencein
1969/70,began trial runs only in 1974 and 1975 and has been facing technical
problems and raw material shortages. Despite recent improvementsits annual
production is unlikely to exceed 60% of rated capacity. All the above plants
are owned and operatedby BCIC, with fertilizeraccountingfor about 40% of
the BCIC production (para 4.01).
B. AdditionalCapacity
2.03 A large fertilizerplant with an installedcapacity of 528,000 tpy

of urea is currently under constructionat Ashuganj. The plant was initially
financedwith the assistanceof seven internationaland national agencies:
IDA, ADB, USAID, ODA, Governmentof Iran, KfW and Government of Switzerland
(ReportNo. 598-BD dated December 18, 1974). The Project encounteredsubstan-
tial delays and cost overrunsand the Association,togetherwith most of the
other original lenders,along with EEC, IFAD and OPEC Special Fund, helped
to cover the foreign exchange cost increase,with the Governmentproviding
the additionallocal financingrequired (Report No. P-25-68-BDdated May 18,
1979). Constructionis now progressingsatisfactorilyand is expected to be
completedwithin the revised time schedule (March 1981) and only slightlyover
the cost as presented to the ExecutiveDirectors in May 1979.
2.04 During the Ashuganj project appraisal the Government and the lenders
agreed that it would be preferableto create a new entity which could devote
its full attention to the implementationof the project. Subsequently,a new
government-ownedcompany,the Ashuganj Fertilizerand ChemicalCompany (AFCC),
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was formed to construct,own and operate the facilities. In extensionof this

principle,the Governmentnow intends to transform the three existingplants,
to be rehabilitatedunder the proposed Project, into separate corporate
entities (para 4.09). At the time of the Ashuganj appraisal,the need to
identify and implementmeasures to improve productionfrom the existingplants
was also recognizedand IDA financed studies for this purpose under the First
and Second Technical AssistanceCredits (CreditNo. 409-BD dated June 29, 1973
and Credit No. 622-BD dated April 8, 1976). The final recommendationsform-
ulated by the consultantsin August 1979 form the basis for the proposed Project.
2.05 Presently BCIC is setting up further new facilitiesat Ghorasal for

the productionof 100,000 tpy of urea with technical and financingassistance
from the Peoples' Republic of China. The plant is expected to come on stream
by early 1984. The Governmentis also consideringconstructionof another
large fertilizerplant at Chittagongwhich is to have an installedcapacity
of 561,000 tpy of urea. This project is expected to be implementedby a new
company with possible private equity, both local and foreign. The lender
assistance for the Chittagongproject is being coordinatedby ADB. IDA
has reviewedthe project and indicatedwillingness,in principle,to consider
cofinancingif requested in time to permit staff participationin preappraisal
and appraisal. IFC has also been approachedby the Government to assist in
identifyingpossible private equity participation. The Chittagongurea plant
is now expected to start implementationin mid-1981 and be in operationby
late 1985.
2.06 With expected implementationof these projects, Bangladeshwould

have an installedcapacityby 1985 of about 1.63 million tpy of urea, 13,200
tpy of ammoniumsulfate and 152,000 tpy of TSP, correspondingto 753,000 tpy
of nitrogen or about 240% above the country'spresent nitrogen capacity.
There would however be no change in the phosphate capacity. The four signi-
ficant factors that will affect the performance of all the fertilizerplants
in achieving capacityproductionare (i) removing current bottlenecksto
efficientproduction (which is to be achievedunder the proposed Project);
(ii) adequacyof the factory gate fertilizerprices to ensure reasonablecash
flow; (iii) adequate foreign exchange availabilityto procure the required raw
materials--rockphosphate and sulfur--andthe spares and componentsneeded to
maintain the plants in good condition;and (iv) availabilityof a well-trained
and competentwork force. These factors are discussedbelow.
C. Factory Gate FertilizerPrices
2.07 The fertilizerproduced by BCIC is pooled with importedfertilizers

and distributedby the BangladeshAgriculturalDevelopmentCorporation (BADC).
The domesticproduct is taken over by BADC at a transferprice fixed by the
Government on the basis of BCIC's costs. The Government-fixedprice is
intended to cover budgeted cash costs, depreciationand a profit element.
Adequate pricing norms have not, however, been clearly defined especially
for determiningan appropriatecapital base and return criteria. The prices,
though periodicallyrevised, lag behind changes in costs of inputs by several
months, often with substantialadverse impact on producer'scash flow and
operations.
2.08 Under the Ashugani Fertilizer Project (Credit No. 527-BD), the
Government is required to establish an ex-factory urea sales price which
will enable AFCC to earn a reasonable return after taxes on its net worth
after meeting all costs including depreciation and interest on debt. A
reasonable basis for the above purpose is to establish the fertilizer prices
at a production level corresponding to 80% of the plant's installed capacity.
However, during the two initial years of operation of the new plant and until
the rehabilitation measures in the three existing plants are implemented, the
pricing could be based on realistically achievable production levels. This
would provide the plants the required cash flow and also adequate incentives
to improve their profitability through better performance. The Government
has agreed to review at least once each year the ex-factory fertilizer prices
of the three existing plants and establish the prices for each plant for the
following year to obtain revenues sufficient to cover operating and adminis-
trative expenses including adequate provision for maintenance and deprecia-
tion and provide a minimum return of 10% on the equity after interest on
borrowings and taxes. For purposes of determining the fertilizer prices,
the equity will be determined as net fixed assets, suitably revalued from
time to time, plus current assets for normal operation less accounts payable
and borrowings. The Government has also agreed to extend the above pricing
mechanism to the Ashuganj Fertilizer and Chemicals Company.
D. Foreign Exchange Constraint
2.09 An important factor affecting the operations of the existing fer-

tilizer plants has been the uncertain and often inadequate availability of
foreign currency funds for the import of raw materials, sulfur and rock
phosphate as well as spares and components. As a result, the Chittagong TSP
plant remained idle for several days in 1979 due to lack of raw materials
and all the fertilizer plants have had inadequate preventive maintenance.
As noted previously, the Chittagong TSP plant operates on imported rock
phosphate and sulfur and with production at 80% of nameplate capacity,
requires imports of about 200,000 tons of rock phosphate and about 44,000 tons
of sulfur annually. The foreign exchange required for the purchase of these
raw materials at the above production level will be about US$20 million per
year (in 1979 dollars). In addition, due to the relatively underdeveloped
Bangladesh industrial sector, the fertilizer plants need to import spares
and components, catalysts and various other chemicals (such as caustic potash
and arsenic oxide). The annual import costs of these materials is estimated
at US$4.0 million (in 1979 dollars). In addition, when commissioned, the
Ashuganj plant will require imports of similar materials at an annual cost
of about US$3.0 million. While a large part of the spares and components
will have to come from the original equipment suppliers, the catalysts and
chemicals are competitively procured internationally.
2.10 IDA has, in a series of program credits, provided foreign currency

to finance the import of fertilizer raw materials, spares and components.
As part of the Eighth Program Credit (Report No. P-2664-BD dated January 22,
1980) approved in February 1980, the Association will provide up to US$10
million for the same purpose. Additional financing for fertilizer raw mate-
rials is under consideration as part of a proposed fertilizer imports credit.
To assure adequate availability of spare parts, catalysts and chemicals beyond
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the period intendedto be covered under the Eighth Program Credit, the
credit presentedhere includesUS$8.3 million to cover about two years'
import requirements. For this purpose, BCIC will prepare before December 31,
1980 a maintenance program satisfactoryto the Association,and the new
fertilizercompanies will carry it out in accordancewith appropriate
engineering standardsand practices. The preparationof the maintenance
program will be a conditionof disbursementof the spares,catalysts and
chemicalscomponent. The annual foreign exchangerequirementsof US$24
million to cover the operationalimport requirementsof the existingplants
will contributefertilizerproductionof about US$100 million in value based
on present fertilizer CIF prices. The Government has agreed to take all
necessary steps to ensure adequateand continuingprovisionof foreign
exchange funds to meet the plants' requirementsfor imported raw materials,
spares, catalystsand chemicals.
E. Staffingand Training
2.11 The three existing fertilizerplants have a total employmentof

about 3,600, about half of them with technical skills. The limited avail-
ability of experiencedplant operatorsand techniciansdue to the low
Bangladeshindustrialbase continues to affect the performanceof these
units adversely. The absence of an adequate program and related facilities
to hire and train skilled workers in required numbers has been an important
constraint. The problem is further aggravatedby the low salary levels
allowed in the government-ownedcorporationsand the drain of skilled workers
to much higher paying jobs in the Middle East. The drain of trained technical
personnel,which had stabilizedafter initial large departures,is once again
causing concern to the plant managements. During early 1980 alone, the three
existingplants and AFCC are expected to lose about 200 techniciansto the
Middle East. While the Ghorasal unit is now implementinga trainingprogram,
the facilitiesand the training plans are still inadequate.
2.12 Under a UNDP financed project,a contract has been signed with
UNICO Internationalof Japan (UNICO) to provide operations assistance to the
Ghorasal and Chittagongplants. This project provides technicalmanagement
assistance to develop the BCIC management skills and will train each year
approximately4 managerial,7 supervisory,14 skilled technicaland 25
operative staff. In addition, the project includestraining adviserswho
will assist BCIC in developingproposals for the setting up of an adequate
training center and in assessing the equipment and facilitiesneeded for the
purpose. In addition,the Ashuganj Credit (CreditNo. 527-BD) and the IFAD
Credit (Credit 31-BA) have provided funds for the import of training aids
to be used initiallyfor training techniciansfor the Ashuganj project and
later to be made availablefor training techniciansfor the other fertilizer
plants. Since the UNDP project does not finance the setting up of the train-
ing center, the Governmenthas requested IDA financingunder the proposed
Credit. Thus the proposed training componentwould complementthe assistance
provided to Bangladeshin this crucial area throughother UNDP and IDA projects.
2.13 While the setting up of the training facilitieswill improve the

availableBangladeshskills, it will be possible to increaseand adjust the
trainingplans and maintain an adequatework force in the fertilizerplants
only if annual staff losses are limited to a small part of total availability
and are spread over the various skill levels and over time reasonably evenly.
While the high salaries available in the Middle East are an important factor
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in attracting Bangladesh's skilled manpower, the plant managements are also

concerned with the Government decision to maintain government-owned company
pay scales on par with those of the civil service. This is especially serious
since promotion opportunities within the fertilizer companies are limited.
Under similar circumstances elsewhere, incentives to skilled technicians are
offered in the form of a special allowance linked to different skill levels.
2.14 In the proposed Credit documents, BCIC has agreed to furnish its
detailed training plans for review by the Association before December 31,
1980. Completion of training plans acceptable to the Association will be a
condition of disbursement of the training component. Further, the Government
has agreed to introduce procedures and schedules governing the recruitment
of fertilizer technicians and engineers from Bangladesh to work abroad. For
this purpose, the Government will require newly recruited and trained fertil-
izer technicians and engineers to continue in service in Government-owned
plants for an appropriate period. The Government will also take measures to
minimize, with the cooperation of relevant agencies, the departure of
fertilizer technicians and engineers to such numbers as can reasonably be
replaced without adversely affecting the operation of the fertilizer plants.
BCIC has agreed that the three fertilizer plants will establish by December
31, 1980 and maintain subsequently an appropriate program of incentives for
their skilled technicians in order to retain them in service.
III. FERTILIZER MARKET AND MARKETING
3.01 The proposed Project, aimed at improving production by the existing

fertilizer plants, will add to domestic supply about 68,000 tpy of urea and
31,000 tpy of TSP. Since the additional supply will form only about 5% to
6% of Bangladesh's 1985 demand and the country can be expected to remain a
significant importer of fertilizer for years to come, this section reviews
Bangladesh's fertilizer market only briefly. Also, detailed review of the
fertilizer market and marketing aspects is contained in Report No. P-2588-BD
of June 8, 1979 (Fertilizer Imports Credit) and therefore fertilizer market
and marketing has not been discussed in detail in this report.
3.02 The agriculture sector dominates the Bangladesh economy. In 1979

it accounted for 55% of the GDP, 75% of the total employment and over 80%
of the country's exports. Bangladesh's agriculture is characterized by the
predominance of rice, which forms about 80% of the gross cropped area and has
a high cropping intensity, generally averaging 135%. Thus increased food
production required to achieve self-sufficiency even at a relatively low
nutritional level will have to come mainly from higher yields which, in turn,
depend mostly on the increased and complementary use of inputs such as fertil-
izers, irrigation, high yielding variety (HYV) seeds, pesticides and improved
cultivation/farm management techniques. To achieve and maintain a 3.5-4.0%
agricultural production growth rate required in Bangladesh as an absolute
minimum, fertilizer application will have to increase by about 15% per year.
Surveys in 1978 indicated that fertilizer is used by as many as 64% of the
owner-cultivators and between 43% and 63% of the tenants. Since fertilizer
application techniques are relatively simple and the results well known to
most Bangladesh farmers, the above growth rates are considered achievable.
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A. Fertilizer Consumption/Demand
3.03 Past Consumption. Use of chemical fertilizers in Bangladesh started

in 1958. Fertilizer consumption has grown rapidly since the formation in 1962
of the East Pakistan Agricultural Development Corporation--now the Bangladesh
Agricultural Development Corporation (BADC). Urea accounts for 62% of the
fertilizer consumption, wtth TSP and diammonium phosphate (DAP) forming 29%
and potash 9%. Urea is the main nitrogenous fertilizer used, except for small
tonnages of ammonium sulfate used mainly in tea plantations. Since 1966,
fertilizer consumption has been increasing at an annual average rate of 16%,
as indicated in the table below and Annex 3.
Bangladesh - Fertilizer Consumption 1966-79

(in thousand tons of products)
Average Annual
FY (ending June 30) 1966 1970 1975 1976 1977 1978 1979 Growth Rates (%)
1966-79 1976-79
Total Fertllizer 106 277 280 457 513 715 740 16.1 17.4
Urea 84 199 178 319 360 478 495 14.6 15.7
Between FY77 and FY78, total fertilizer consumption increased by 40% due
to improved paddy support pricing and the Government's promotional efforts.
Actual consumption in FY79 was about 740,000 tons of product, well below the
earlier projected figure of 900,000 tons due to severe drought in that year
when fertilizer application levels were below normal under the excessively
dry soil conditions. With this unexpectedly sharp drop in consumption
growth, the mid-1979 stocks were about 370,000 tons of product resulting
in inadequate storage capacity to handle the additional imports ordered
previously and domestic production. Fertilizer consumption growth continued
to be depressed by drought conditions during early FY80.
3.04 Future Demand. The estimated demand for FY80 for all fertilizers
is between 850,000-900,000 tons, though the BADC target is 1,000,000 tons.
The projected offtake for FY81 ranges between 1.05 and 1.15 million tons with
urea forming about 61% of total demand, TSP/DAP about 31% and the remaining 8%
being made up of potash. Based on historical trends and planned agricultural
irrigation programs, demand for all fertilizers and urea is projected to
increase by about 15% per annum between FY81 to FY85, and by at least 10% per
annum during the rest of the decade as shown in the following table. This
would compare to actual growth rates for urea (para 3.03) of 14.6% during
FY66-79 and 15.7% during FY76-79 and even slightly higher growth rates reached
for all fertilizers combined. The projected consumption of all fertilizers
in FY85 is slightly lower than the latest Planning Commission estimates.
The Planning Commission, however, expects the nitrogen demand growth rate to
be significantly lower than the average for all fertilizers, which appears
unlikely.
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Bangladesh - Projected Fertilizer Demand 1980-90

(in thousand tons of products)
Average Annual
Growth Rates %
FY (ending June 30) 1980 1982 1985 1987 1990 1980-85 1985-90
Total Fertilizers 850-900 1,190 1,810 2,190 2,915 15 10
Urea 569 743 1,130 1,367 1,800 15 10
The urea requirements based on these assumptions would be about 1.13 million
tons by FY85 and 1.80 million tons by FY90. The present use of phosphatics
forms about 31% of the total fertilizer product. Even if the phosphate
consumption grows only at the same rate as that of urea, maintaining the
present ratio with nitrogenous fertilizers, the TSP/DAP consumption could
reach 574,000 tpy by FY85 and 924,000 tpy by FY90.
B. Fertilizer Supply
3.05 Past. Before independence of Bangladesh, local supplies were

limited to production from the Fenchuganj plant with annual production capa-
cities of 115,500 tons of urea and 13,200 tons of ammonium sulfate. Since
then, as mentioned, the plants at Ghorasal and Chittagong have been completed.
Production, however, has been erratic and well below the rated capacities
(paras 4.11 to 4.29). In FY79, the best production year in the recent past,
local production reached 55% of rated capacity. Against BCIC's target
production in FY80 of 449,000 tons (about 69% of rated capacity), the actual
production in the first six months was 218,000 tons, or about 67% of the
capacity, despite some reduction in production due to the inability of BADC to
move the fertilizer because of the transport priority assigned by the Govern-
ment to emergency food distribution and the inadequate raw material supplies.
Revised projections of FY80 local supply indicate that it should reach about
430,000 tons, giving a 65% capacity utilization rate for the industry.
3.06 Future. The shortfall in supply continues to be met by large

imports which are expected to be close to 600,000 product tons in FY80,
despite the reduced offtake due to drought in the early part of the year.
With the completion of the large new projects at Ashuganj and Chittagong,
assuming satisfactory operation of the existing plants at Ghorasal, Chittagong
and Fenchuganj and excluding any additional fertilizer production facilities
that may be set up, domestic supply of urea is expected to increase to about
930,000 tons by FY85 (82% of the projected demand) and 1.30 million tons by
FY90 (77% of the projected demand), based on an average capacity utilization
of 80%. The expected TSP production of about 122,000 tpy would be equivalent
to about 21% of the FY85 projected TSP/DAP consumption. The future fertilizer
supply and demand balance based on the above assumptions is given in the table
below:
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Bangladesh- Projected FertilizerDemand and Supply Balance 1980-1990

(in thousand tons of product)
FY (endingJune 30) 1980 1985 1990

(Est.) (Projected) (Projected)
Nitrogen (as urea)
Demand 569 1,130 1,800

Production 345 930 1,300 a/
Import b/ 224 200 500
Phosphates (as TSP)
Demand 285 574 924

Production 85 122 122 a/
Import b/ 200 452 802
Potash
Demand 80 160 320

(all imported)
a/ Excludingproductionfrom possible additionalcapacitynot yet planned.

b/ Includingvariations in stock.
C. FertilizerSales Prices
3.07 Domestic and imported fertilizersare pooled and marketed by BADC at

a farm gate price fixed by the Government,keeping in view the crop/fertilizer
price ratios necessary to promote fertilizeruse. BADC purchases fertilizer
at the Governmentfixed ex-factoryprices from BCIC and at international
fertilizerprices in the case of imports. The Governmentprovidesa subsidy
to BADC to cover the differencebetween procurementand distributioncosts and
the sales revenues. As shown in the following table, the level of subsidy has
grown substantiallyover the recent years and is now about Taka 1,376 (US$90)
per ton, equivalent to about 40% of the farmer price.
- 10 -
Bangladesh - Fertilizer Subsidy 1974-1980
Fertilizer Subsidy Percentage of Farmer Price

FY (ending June 30) Taka Million Taka per ton Subsidized
1974 28 74 9.3
1975 150 536 30.5
1976 485 1,060 46.3
1977 644 1,256 46.1
1978 1,200 1,677 50.0
1979 1,301 1,950 50.0
1980 (est.) 1,170 1,376 40.0
The Taka 1,301 million (US$84 million) subsidy in FY79, (and for that matter
in the previous years) imposed a heavy burden on the Government budget. If
unaltered, the burden would further increase as fertilizer consumption is
expected to rise in the coming years. Government policy, agreed with IDA
(Report P-2588-BD dated June 8, 1979) and USAID in the context of financing
fertilizer and foodgrain imports, is to gradually reduce the fertilizer
subsidy, and the Government has stated its intention to eliminate it altogether
by 1985. As a first step, average farmer fertilizer prices were increased by
about 28% in August 1979 reducing the average per ton subsidy from Taka 1,950
per ton in FY79 to Taka 1,376 in FY80. The Government's food procurement
program is also being structured to ensure attractive foodgrain prices to the
farmer so that fertilizer application continues to be economic despite in-
creases in farm fertilizer prices. The present paddy/fertilizer price ratio
of 1.3 in Bangladesh continues to be attractive (India 0.60, Philippines
0.80). In periods of scarcity, significant amounts of fertilizers are
reportly sold at black market prices substantially higher than the official
prices. These factors indicate that fertilizer prices can be further
increased without adversely affecting consumption growth rates.
D. Marketing Arrangements
3.08 Distribution. BADC, an autonomous government-owned body, is respon-

sible for the procurement, storage and marketing of all agricultural inputs,
including fertilizers. While the major constraint to increased consumption
has been inadequate supplies, the fertilizer distribution system has also been
handicapped by inadequate planning and coordination and lack of transport and
storage facilities. An IDA-financed fertilizer marketing and distribution
study, completed in 1977, provides the basts for BADC to formulate a compre-
hensive and improved marketing and storage program. BADC's marketing system
- 11 -
has traditionally handled wholesale distribution and limited private parti-

cipation to the retail dealer level. In 1978 BADC introduced wholesale and
retail competition among fertilizer dealers--private and cooperative--in a
pilot project in Chittagong division, where about a third of the Bangladesh
fertilizer sales are effected. The new system has had a reasonably successful
start and has been extended to the Dacca and Khulna divisions from January 1,
1980. About three-fourths of the fertilizer market is covered now by the new
distribution arrangements.
3.09 Transport and Storage. Even though fertilizers form only a small
part of the total freight movement (about 3% at ports, 8.5% rail freight and
8% of inland water cargo), transport and storage system inadequacies have
limited fertilizer availability and use. While the Government is taking
several steps to remedy these inadequacies, improvement can only be gradual,
particularly in the railways. Current fertilizer storage facilities totalling
about 440,000 tons are not adequate even for FY81 and would continue to be
inadequate even after completion of the additional 63,000 tons of capacity
currently under construction, including about 35,000 tons of capacity with
USAID financing. An additional 173,000 tons of storage is programmed under
USAID financing and is expected to be completed by 1981-82. While the above
program will meet the requirements in the next few years, there would still be
need in the near future for some additional storage at particular locattons
and inaccessible areas and for substantial additional capacity to meet long-
term needs.
3.10 Due to the inadequacies of the transport and storage facilities,

strained further by the unforeseen foodgrain crisis in 1979, BADC could not
move adequate quantities of fertilizers from the BCIC warehouses during the
early part of FY80, resulting in excessive stock accumulations and forcing
production levels below capabilities. While the problems were caused by
factors specific to the period, BADC and BCIC did not anticipate the problems
and evolve alternative solutions in time. Even when such emergency situations
are not present, coordination between fertilizer production and its movement
has not been adequate. In order to improve such coordination, the Government
has agreed that BADC will enter into agreements with the three fertilizer
plants by October 31, 1980 covering arrangements for the pick-up of fertilizers
by BADC. The agreements will include provisions for (a) BADC to compensate
the fertilizer plants to cover the additional costs of warehousing or higher
stacking incurred by the plants on fertilizers not picked up by BADC in
accordance with agreed arrangements; (b) the fertilizer plants to compensate
BADC for failure of the plants to supply the fertilizer as per agreed sched-
ules; and (c) evolving arrangements which would permit the plants to sell
the fertilizer directly to private sector wholesalers. Additional measures
are under discussion in connection with a proposed fertilizer transport credit
appraised in January/February 1980. Assistance to transport operators is
expected to be included in proposed Development Finance Corporation and small
industry credits scheduled for consideration in the near future.
- 12 -
IV. BANGLADESH CHEMICAL INDUSTRIES CORPORATION
4.01 Bangladesh Chemical Industries Corporation (BCIC), the Project

sponsor and proposed beneficiary of the Credit, is a fully Government-owned
corporation. It is one of the country's major manufacturing companies with
a total work force of 27,000 and projected sales revenues of Taka 3.2 billion
(US$207 million) for FY80. It presently operates 30 operating entities which
are engaged in 10 different major product areas in the chemical industry,
i.e., fertilizer, pulp and paper, soap and detergents, safety matches and
rubber products, to mention the most important. A full list of BCIC's present
production units and their respective revenues are given in Annex 4-1.
A. History and Organizational Structure
4.02 BCIC is an autonomous public sector enterprise formed in July 1976,

when the Government decided to combine its numerous holdings in the chemical
sector 1/ into one major chemical corporation. Many small and medium-sized
companies had suffered enormously during the liberation war of 1972 and after
independence were in shaky financial condition, often without effective
management/owners. Subsequently, a large number of these companies were
nationalized to avoid bankruptcy. After this takeover, the Government became
increasingly aware that many of the small, often inefficient and inadequately
managed operations under BCIC imposed an evergrowing burden on the Government's
fiscal budget. Furthermore, it was extremely difficult to coordinate and
manage activities of the 89 independent companies, which often competed with
each other, and to bring them in line with the Government's major objective
of optimal allocation of resources. The Government decided that a strong
commercially oriented corporate management team, operating from a centralized
headquarters, was required to develop and implement successfully a program
for streamlining and consolidating of the various Government interests in the
chemical sector. BCIC was assigned this responsibility.
4.03 Since the formation of BCIC, its management has been primarily
occupied with two tasks: (i) restructuring the accumulated assets into
manageable and self-sufficient operating units; and (ii) improving the operat-
ing efficiency and levels of capacity utilization in various plants. During
this process, about 60 of the companies acquired earlier were either dis-
invested to the private sector, integrated into existing or newly created
units, or shut down where no other economic solution could be found. At
the end of this first phase of reorganization in mid-1979, BCIC's corporate
structure had improved considerably limiting the company's activities to 10
mainly chemical related product areas and 30 operating units (Annex 4-1).
I/ The merger involved in total 89 companies, of which the 4 most important

were the following: (a) Bangladesh Fertilizer, Chemical & Pharmaceutical
Corp.; (b) Bangladesh Paper & Board Corp.; (c) Bangladesh Tanneries
Corp.; and (d) Sylhet Pulp and Paper mills.
- 13 -
4.04 From the administrativeand operationalpoints of view, these

remaining units are decentralizedin their day-to-dayoperations. Each
unit operatesas a separate profit center and maintains individual--though
standardized--accounts.However, all policy decisions regarding capital
expenditureand budgetingare taken by the corporatemanagement in Dacca,
in close consultationwith the Government. In addition,all support func-
tions, such as finance,procurement,planning and development,are carried
out in BCIC's corporate headquarters. Headquarter staff comprisesof only
a relativelysmall number of professionalsand is organized according to its
supportive,supervisoryand coordinativefunctionsas shown in the organogram
on the followingpage.
B. FinancialPerformance
4.05 BCIC's financial statementsfor the period 1977-1980are shown in

Annex 4-2 and summarizedbelow:
BCIC - Summary Financial Statements 1977-1980

(in million Takas)
FY (endingJune 30) 1977 1978 1979 1980 a/

(projected)
Net Sales 1,658 1,927 2,343 3,216

Cost of Goods Sold 1,299 1,690 1,888 2,820
Depreciation 165 199 122 234
Interest 111 133 109 130
Operating Profit 359 237 455 396
Net Profit 167 (8) 156 66
Cash Flow Before Interest 443 324 387 430
Current Assets 2,224 2,690 3,498

Current Liabilities 1,849 2,197 2,579
Long-term Debt 1,757 1,906 2,218
Equity 249 756 939
Operating Profit/Sales(%) 22 12 19 12
Current Ratio 1.2 1.2 1.4
Debt/Equity Ratio 88:12 72:28 70:30
a/ Assuming ex-factoryprices of 1979 remain unchanged.

- 14 -
- FERTILIZERINDUSTRYREHABILITATION
BANGLADESH PROJECT
BCICORGANIZATIONCHART
BOARD OF DIRECTORS
CHAIRMAN
- | | ~~~MANAGEMENT
l
PERSONNEL INFORMATION PBLIC RELATION SECRETARIAT
SERVICE
TREASURY PLANNING PRODUCTION l-/CIVIL PRHSN

CONSTRUCTION PURCHASING I
GENERAL DEVELOPMENT PRODUCTION I I| MAINTENANCE PURCHASING 11
l COST l|MAINTENANCE| li
_
ACCOUNTING | _ CHEM. PLANT EXPORT
& BUDGETING |& EQUIPMENT
-| AUDITING l_DOMESTIC SALES|
a/ Includes: Fertilizer, Paper, Paper Products, Boards, Matches, Rayon, Dilphane, Pharmaceuticals.
$/ Includes: Chemicals, Tanneries, Rubber Products, PVC Products, Resin Products, Insecticides,
Pesticides, and Other Miscellaneous Products.

February 1980 World Bank -21218
- 15 -
Considering the difficult circumstances and often adverse operating conditions,

BCIC's financial performance has been quite reasonable. During 1977-80, the
company achieved revenue growth rates averaging about 25% in a period of
relative price stability. 1/ Operating profit margins averaged a reasonable
level of about 20%--with the exception of 1978 when it was 12%. However,
profit before taxes suffered due to the heavy burden of interest charges on
borrowings (averaging about one-third of operating profit) required because of
the under-capitalization of the company, its debt/equity ratio was 88:12 in
1977 and 70:30 in 1978. Although some progress has been made in strengthening
the capital structure, as a result of a substantial capital infusion in 1978,
BCIC is still well below the preferred debt/equity ratio of 60/40. While
the working capital ratios appear reasonably acceptable, as indicated by
the current ratio of 1.4 at the end of 1979, BCIC is suffering from inflated
working capital requirements. At the end of 1979, current assets had reached
about 18 months of sales primarily as a result of high inventory and accounts
receivables (each equivalent to about 8 months of sales). Since accounts
payable amount only to about 4 months of sales, the balance of about 14 months
of sales is financed through other short-term sources.
4.06 Part of the problem lies in unusually high stocks of raw materials
and spare parts, considered by BCIC as necessary to ensure sufficient supply
due to long delivery times. Despite the recent substantial increases of
inventory of spares and components--mainly towards imported spares, chemicals
and catalysts--there is still a noticeable need to complement and to replace
the present stocks with specialty items in the forthcoming years. Inventory
of finished products is relatively low with about 1.8 months of production
costs (excluding depreciation). While the above observations are, in general,
also valid for the three individual fertilizer units, their capital structure
and profitability are better than that of the consolidated company, as shown
in the table below and detailed in Annex 4-2:
1/ While 1977 experienced a deflation of 5%, the inflation rates for 1978
and 1979 were 6% and 15%, respectively. However, many of the company's
product prices were hardly or not at all increased. Ex-factory fertil-
izer prices, for example, have remained practically unchanged since
April 1976.
- 16 -
BCIC - Key Ratios of Fertilizer Units
FY (ending June 30) 1977 1978 1979 1980

(projected)
Ghorasal
Operating Profit/Sales (%) 47 14 36 30

Current Ratio 2.5 2.1 2.7 -
Debt/Equity Ratio 96:4 77:23 66:34 -
Chittagong

Debt/Equity Ratio negative 28:72 27:73 -
Fenchuganj

4.07 The operating performance of the three existing fertilizer units are
given in Annex 4-3 and summarized below:
BCIC - Capacity Utilization of Existing Fertilizer Plants a/
First Half
FY (ending June 30) 1977 1978 1979 1980 1980
(actual) (target)
Ghorasal 56 40 65 69 67
Chittagong 40 27 41 30 b/ 60
Fenchuganj 67 55 50 81 87
Average 52 40 55 63 69
a/ Based on 330 operating days for Fenchuganj and Ghorasal, and 300
operating days for the TSP plants at Chittagong according to
industry practice.
b/ The low production during the first six months of FY80 was due to
raw material shortages and product movement problems.
- 17 -
The above table shows a significant drop in average capacity utilization in

1978 due to the operating problems discussed in paras 4.11 to 4.29. The
capacity utilization staged a recovery in 1979, slightly above the 1977
levels and continued to improve during the first half of 1980, though it is
uncertain if the target for the full operating year will be achieved. This
trend in operating performance is closely reflected in the profits generated
by each unit. As a result of improved capacity utilization in 1979, BCIC's
fertilizer units were able to maintain their profit level, despite increased
input costs, while ex-factory sales prices remained unchanged.
C. Restructuring of BCIC
4.08 With the formation of separate profit centers and the assignment
of competent management to the operating units, the first phase of the Govern-
ment's efforts to restructure the chemical industry was completed in mid-1979.
However, the wide range of products of the industry and the relative scarcity
of managerial capabilities at corporate level have made it difficult to res-
pond quickly to the day-to-day requirements of the individual units, especially
in the technologically difficult fields like fertilizer and paper. The Govern-
ment has recognized the need to implement a second phase of reorganization to
overcome inefficiencies associated with the rigid nature of centralized proce-
dures. To give unit management maximum entrepreneurial initiative, decisions
requiring quick responses should be taken as far as possible at the plant unit
level.
4.09 In an effort to decentralize and delegate responsibility, the

Government has, therefore, decided to form unit-wise Boards of Directors by
restructuring each of the operating units into independent companies. It
is understood that the implementation of the restructuring will be a gradual
process which will start with the fertilizer units in mid-1980. The result-
ing fertilizer companies will be the final beneficiaries of the plant
rehabilitation component of the Credit. The Government is currently working
out the capital structure of the individual companies based on a 60/40
debt/equity ratio for each. BCIC is also preparing a detailed plan describ-
ing the powers to be delegated to the individual boards. The Government
expects to continue using BCIC's corporate staff for coordinating the
overall budgeting and investment plans of the units. BCIC is expected to
perform this coordinating role either by holding equity in the units or as
an agent of the Government. The Government has yet to take a decision on
this. The Government has confirmed that the Ghorasal and Chittagong com-
panies will be registered by May 30, 1980 under the Companies Act. The
formalities for making the Companies Act applicable to the Natural Gas
Fertilizer Co. Ltd. Fenchuganj will also be completed by the above date.
The present Enterprise Management Boards will become Boards of Directors of
the three companies by June 30, 1980. The Boards of the new companies will
be empowered adequately to take decisions on production planning, financial
operations and production management. The powers provided to the companies
under the draft Memorandum and Articles of Association are adequate for per-
forming their responsibilities. The establishment of the three fertilizer
companies will be a condition of credit effectiveness.
4.10 The following three sections of this Chapter give a brief description
of the history, major technical features, recent performance, current operating
problems and major plant improvement needs of the three existing fertilizer
plants at Ghorasal, Chittagong and Fenchuganj.
- 18 -
D. Ghorasal Plant Facilities
4.11 The Ghorasal complex (Map IBRD-14866), located in Dacca district

on the Sitalakhya river bank, includes a 660 tpd ammonia plant and a 1,137
tpd urea plant along with gas turbine power generators, cooling towers,
maintenance shops and other auxiliary facilities. The ammonia plant uses
the conventional steam reforming process with the Giammarco-Vetrocoke Process
for the decarbonation of the raw synthesis gas and a centrifugal system to
compress the gases to the ammonia synthesis pressure. The urea plant is based
on the Mitsui-Toatsu Process and produces prilled urea. The plant facilities
were engineered and constructed by Toyo Engineering Corporation (TEC) of Japan
and were completed in 1970.
4.12 The natural gas required for ammonia, steam and power production
is supplied from the Titas gas fields by a pipeline which delivers gas at
pressure to the plant. The raw water needed for the process and cooling tower
make-up requirements are taken from the Sitalakhya River, and the effluent
water is returned after treatment to the river. The steam requirements are
met from the process waste heat boilers and a gas-fired auxiliary boiler.
The fertilizer plant requires approximately 12.6 MW of power. At present,
two gas turbines installed as part of the Ghorasal facilities, each with a
rated capacity of 8 MW, supply the plant's power requirements. The system has
been engineered to use the national grid power if one of the turbines is under
maintenance. Urea is shipped both through a five-mile rail spur to Tongi and
from the plant's river wharf using barges and the inland waterways.
4.13 Following the test run in 1970, the Ghorasal complex suffered two
major shutdowns--in FY72, during the war of independence, and in FY75,
following an explosion in the control room. Urea production touched a peak of
236,000 tpy in FY79 against the rated capacity of 374,000 tpy. The production
performance of the Ghorasal plant since start-up in FY71 is shown below:
Ghorasal Plant - Production Performance

(in tons)
Fiscal Year Annual Urea Capacity Average Daily Production Operating Days
(ending June 30) Production Utilization Urea Ammonia Urea Ammonia
(%)
Capacity 374,000 100 1,137 660 330 330
1971 45,000 12 596 239 76 118

1972 - - - - - -
1973 175,000 46 736 389 238 282
1974 221,000 59 825 468 268 295
1975 21,000 5 713 196 15 35
1976 229,000 61 898 480 255 303
1977 208,000 56 914 497 228 265
1978 151,000 40 920 510 164 207
1979 236,100 63 930 580 254 262
Source: Bresler Reports.

- 19 -
Ammonia production continues to be the major constraint and there have been
difficulties in reaching and maintaining rated levels of production as well
as in achieving consistently even 300 annual operating days, while the annual
production capacity is based on the general industry practice of 330 operating
days per year. FY79 has been the best performance year so far and production
could have been significantly higher but for interruptions due to events
outside plant management's control. Of the FY79 total ammonia plant downtime
of 103 days, nonavailability of gas supply (25 days) and national grid power
supply interruptions (17 days) together accounted for 42 days of downtime; 61
days of downtime was due to normal and unforeseen maintenance. The gas supply
was interrupted due to the fall in hydel power production following the
drought and the resulting priorities assigned to gas supply for increased
thermal power generation. The excessive downtime for maintenance was due
primarily to the lack of appropriate preventive maintenance, spare parts and
poor physical condition of some equipment. During the first six months of
FY80, urea production was about 143,000 tons. The FY80 urea production is
expected to be 240,000 tons, equivalent to a capacity utilization rate of 64%.
4.14 Under the First and Second Technical Assistance Credits (Credit Nos.
409-BD and 622-BD), Bresler and Associates, Inc. (BAI) of the US carried out
studies to review the performance of the Ghorasal facilities and to recommend
specific measures to improve their operation and maintenance. The findings of
the BAI study presented in the consultants' final report submitted in August
1979 (Reference B - Prolect File) were reviewed by IDA staff with the plant
and BCIC managements. Several of the recommendations have been implemented
during the latest plant shutdown for maintenance in 1979 and some others will
be during the scheduled shutdown in the next few months. The performance of
the facilities was also reviewed in April 1979 by Toyo Engineering Corpora-
tion, who formulated their preliminary recommendations in their report dated
September 12, 1979 (Reference C - Project File). The recommendations of the
consultants proposed to be implemented as part of the present Project are
summarized in Annex 4-4.
E. Chittagong TSP Facilities
4.15 The Chittagong fertilizer complex is located about 2 miles south

of Chittagong City on the Karnaphuli River. The complex consists of two
separate TSP plants. The TSP-1 plant consists of a 100 tpd sulfuric acid
plant, a 31 tpd phosphoric acid plant and a 100 tpd Run-of-Pile (ROP) TSP
plant. The TSP-2 plant consists of a 400 tpd sulfuric acid plant, a 135
phosphoric acid plant and a 450 tpd ROP-TSP plant. The TSP-1 facilities were
engineered and constructed by Pan American Consultants (US) and Technique
Chimie (France) and were completed in 1968. The TSP-2 facilities were
engineered and constructed by Hitachi Zosen (Japan) and were completed in
1970. The rock phosphate and sulfur required by the complex are imported in
shiploads, unloaded at BCIC's own wharf on the Karnaphuli River and conveyed
by a belt conveyor to the plant storage facilities. The plant power require-
ments are met from the public grid. The waste gypsum is moved and dumped into
a 20-acre pond within the plant area.
- 2o -
4.16 The TSP-1 plant, first commissioned in 1969, almost immediately

ran into difficulties due to the use of Jordan rock phosphate contaminated
with sea water instead of the Moroccan rock for which the plant had been
designed. As a result, several of the pumps and agitators were badly corroded
requiring plant shutdown for replacements. A legal dispute over the contractual
liabilities for the replacements led to the plant remaining shut until April
1977, except for intermittent operation of the sulfuric acid plant to produce
sulfuric acid for sale and for use in the TSP-2 plant. Since April 1977, the
plant has been in operation except during overhauls in late 1977 and 1979.
The TSP-2 plant, though completed in 1970, was not commissioned until 1974--
after the war of independence. The TSP production has generally been around
40,000-45,000 tpy against the combined installed capacity of 152,000 tpy. The
TSP production reached a maximum of 62,300 tpy in FY79 as indicated below:
Chittagong Plant - Production Performance 1975-79

(in tons)
Annual TSP Production Annual Average

FY (ending June 30) TSP-1 TSP-2 Total Capacity Utilization %
Capacity 32,000 120,000 152,000 100
1975 - 33,000 33,000 28

1976 - 39,240 39,240 33
1977 - 48,000 48,000 40
1978 3,300 38,000 41,300 27
1979 9,000 53,300 62,300 41
4.17 The FY79 production was only equivalent to 41% of the rated annual
capacity, primarily due to the very low plant operating days of 150. During
the days the plant was operating, production averaged 75-80% of the daily
rated capacity. Factors responsible for the plant downtime and their share
in total operating days lost are summarized below:
Chittagong TSP Plant Downtime Factors 1974-79
No. of Days Lost Percent of Total

Factors 1974-78 (Avg) FY79 1974-78 (Avg) FY79
Equipment Failures and

Maintenance Problems 114 113 61 53
Shortage of Raw Materials 51 79 27 37
Power Failure 23 12 12 5
Insufficient Product
Lifting by BADC - 10 - 5
Total 188 214 100 100

- 21 -
Equipment failures and maintenance problems accounted for 53% of the total
lost days. Shortage of raw materials, power supply interruptions, and BADC's
difficulties in moving fertilizers, all of which were outside the control of
the plant authorities, were also important factors accounting for 47% of the
lost days. These same factors are expected to adversely affect the FY80
production which may be only about 70,000 tons of TSP. Production during the
first six months of FY80 was only about 23,000 tons mainly due to shortage of
raw materials.
4.18 The BAI study mentioned earlier also included the Chittagong TSP
plants (para 4.14). These facilities were reviewed by Jacobs Engineering
Group, Inc. (JEG) of the US under a subcontract with BAI. The Chittagong TSP
complex was also studied by Cremer and Warner Ltd. of the UK in January 1978
and recommendations made to the UK Ministry of Overseas Development (Reference
D - Project File). The rehabilitation and conversion options for the TSP
complex were studied by JEG in April 1979 (Reference E - Project File) under
a separate subcontract to Soros Associates Consulting Engineers of the US as
part of the study on bulk shipment and unloading of fertilizer imports in
Bangladesh. In addition to the major technical recommendations, the various
studies highlighted the need for: (i) adequate and acceptable quality water
supply; (ii) more reliable power supply; (iii) long-term arrangements for
gypsum disposal; (iv) resolutions of other environmental problems; and (v) a
study of the economics of continuing TSP production at Chittagong. These
aspects are discussed further in the following paragraphs.
4.19 The two TSP plants were initially designed to use water drawn from
tubewells within the plant area and having a salinity not exceeding 100 parts
per million (ppm) of chlorides, for the process and boiler feed water require-
ments. The quality of the tubewell water has deteriorated with salinity
increasing up to 1,400 ppm and as a result the water treatment and demineraliz-
ing facilities have proved inadequate. Limiting the use of the tubewells to
periods when the quality is acceptable and supplementing the supplies with
public utility water have not been adequate to meet the plant process water
requirements. Hydrological surveys have also not identified possibilities of
improved water supply with new tubewells. BCIC studies have, however, con-
firmed that Karnaphuli river water has acceptable salinity during 1-2 hours
per tide. BCIC has, therefore, already made arrangements to meet most of the
plant process water requirements by pumping water from the river during low
salinity periods and thus providing adequate plant raw water storage; con-
sidering the small size of the plants which require modest amount of water,
this solution would not require construction of large storage capacity. BCIC
supplements the water supply by stand-by arrangements with the public water
supply authority. With these arrangements the plants are assured of adequate
water supply.
- 22 -
4.20 Power interruptions are mainly due to the failure of the Chittagong
grid supply. The deficiency of the Chittagong grid supply is recognized by
the Government and a project is currently being implemented to improve the
supply by installing additional substations in the area. The Chittagong TSP
plant has two diesel generators which provide emergency power supply to keep
the vital plant units (such as the agitators in the phosphoric acid reaction
vessels) in operation during grid power supply failures. The diesel generator
capacity however is not adequate to provide emergency power to all those units
which should be kept in operation during power failures. To minimize produc-
tion losses and limit equipment damage, BCIC intends to install additional
diesel generating capacity which, along with the expected improvements in
the Chittagong power grid quality, will make the power supply situation
satisfactory.
4.21 After the TSP production gets stabilized at an annual rate of

122,000 tpy (or about 80% of rated capacity), the Chittagong plant is expected
to produce about 230,000 tpy of waste gypsum. Gypsum is at present slurried
and pumped to a 20-acre pond where it is allowed to drain. About 15,000-
20,000 tpy of gypsum is manually recovered from the pond and sold for cement
manufacture. According to current estimates, the land for gypsum disposal
will be adequate for another 3 or 4 years. Additional land required for
subsequent gypsum disposal would be expensive and could find better uses
in the industrially developed North Patenga area. Alternative arrangements
for the use or disposal of gypsum have to be identified and implemented before
the disposal develops into a serious problem. Gypsum could be useful for
direct application as a soil conditioner and for land reclamation but these
applications require considerable promotional and marketing efforts. Under
a UNDP financed study, other alternatives for gypsum utilization have been
evaluated and the findings are being reviewed by BCIC. These include (i)
production of ammonium sulfate using the conventional Merseberg process; (ii)
cement and sulfuric acid production based on the Chemie Linz technology; and
(iii) to a limited extent production of gypsum wall boards. With the planned
expansion of cement production, the use of gypsum for that purpose could
increase to about 75,000 tpy or about one-third of the total. The consultant
analysis, confirmed by preliminary studies by IDA staff, indicates that use
for cement/sulfuric acid manufacture could be an economic alternative. There
is, however, concern with the limited commercial experience available with the
technology and its sensitiveness to gypsum quality. Unless uniform quality of
rock phosphate supplies can be maintained with long-term contractual arrange-
ments, it would not be possible to maintain the required gypsum quality.
4.22 If economic utilization of gypsum cannot be developed, gypsum would

either have to be pumped to the Bay of Bengal about 3 km away or disposed of
in the present area developing high banks of gypsum material to increase the
capacity. Disposal to the sea would have to be planned carefully to reduce
any adverse impact on marine life, but it would be a relatively permanent
solution. The second alternative is expected to enable BCIC to continue to
dump gypsum in the present area for another 6 to 7 more years and is possibly
the cheapest one at least in the short term. In view of the importance of
- 23 -
gypsum disposal to the continued operation of the TSP plants, satisfactory

assurances have been obtained that the Government will complete by December
31, 1980 the evaluation of alternatives for gypsum disposal or utilization
and review with IDA the findings and recommendations of the study and the
plan for their implementation.
4.23 The major environmental problems at the Chittagong TSP plants

result from (i) sulfure oxide emissions; and (ii) dust emissions. The sulfur
oxide emission problems are mainly the result of equipment conditions and
power outages. With completion of the plant renovation program, improved
power supply and better operating procedures the sulfure oxide emissions can
be maintained within acceptable levels. Further improvement would be possible
by converting the sulfuric acid plant to the double catalysis/double absorp-
tion process which would be economically justified if adequate markets are
identified for approximately 60,000 to 100,000 tpy of additional acid that
would then become available.
4.24 Good plant maintenance and better operating practices would be

adequate to minimize dust pollution in the sulfur and rock phosphate handling
and storage areas. Since the Chittagong facilities produce and market a
run-of-pile product, the bagging and storage areas are very dusty as in other
similar facilities. The working conditions in this area are unpleasant and
present health risks. The atmosphere in which the shovel drivers and bagging
personnel work is so heavily laden with dust that visibility is limited to a
yard or so and the workers are inhaling dust. While no sickness statistics
are available, the dust inhalation damage causes symptoms only after some
years. From the point of view of obtaining an acceptable working environment,
it is essential to granulate the TSP and thereby reduce dusting. The plants
were initially planned to include granulation facilities which were not built
due to financing constraints. According to JEG, the dust problem can be
minimized adequately by building semi-granulation facilities. However,
farmers find fully granulated TSP easier to apply and have shown a marked
preference in their purchases for the imported TSP and DAP-which are fully
granulated. The Project will, therefore, include provisions for the somewhat
costlier full granulation alternative. If engineered around the existing
facilities and by using as far as possible the available equipment, this
option would improve product quality and farmer acceptance without substantial
additional cost.
4.25 Finally, there is the question of whether it is economical to con-

tinue production of TSP at Chittagong. Production of one ton of TSP requires
about 0.36 tons of sulfur and 1.64 tons of rock phosphate--both of which are
imported and generally without the benefit of long-term supply contracts.
Since about two tons of raw materials are required per ton of TSP, the produc-
tion of phosphatic fertilizers based on imported rock phosphate and sulfur
must be reviewed carefully, taking into account the freight costs. While fresh
investments in Bangladesh for phosphatic production based on imported rock
phosphate would for this reason probably not be an economic investment, con-
tinued operation of existing facilities with marginal renovation investment
offers better economics. Economic production cost estimates included in
Annex 8-1 indicate that, at an annual production level of 121,600 tpy (80%
- 24 -
capacity utilization rate) after renovation, the annual economic cost of TSP
production would be lower than the import cost by about Taka 104.5 million or
US$6.7 million (in 1979 dollars). It is, therefore, considered economically
advantageous to Bangladesh to continue with the Chittagong Plant TSP produc-
tion. This conclusion differs from the findings of a study carried out by
Soros Associates in April 1979 on the economics of bulk import of fertilizers
through the Chittagong and other Bangladesh ports (Reference F - Project File)
that there could be economic advantages in shutting down TSP production to
permit the plant's wharf, handling, storage and bagging facilities to be used
instead for bulk fertilizer imports. This study concluded that the savings
from import of bulk fertilizer (instead of bagged fertilizer) using the
factory's facilities would be greater than the savings from continued TSP
production in Bangladesh vis-a-vis imports. However, a further detailed study
by a Bank consultant has concluded that the plant facilities have adequate
capacity to handle fertilizer imports without shutting down TSP production. A
recent IFAD project (Report 2729-BD) includes a component to quickly upgrade
existing facilities at the TSP jetty to handle small bulk ships, lighters,
mini-bulkers and, if the river were dredged, large bulk ships. The IFAD
project bulk unloading component would assist in meeting immediate requirements
while long-term solutions such as an offshore unloading platform or use of
shuttle bulkers with wharf bagging are being investigated and carried out.
4.26 In summary, continued TSP production at Chittagong is economically

advantageous provided the bulk unloading project at Chittagong will be imple-
mented in accordance with the relevant provisions of the IFAD project agree-
ment. Satisfactory assurances have been obtained from the Government to
this effect.
F. Fenchuganj Plant Facilities
4.27 The Fenchuganj complex, located about five miles from the Fenchuganj
town in Sylhet district, includes a 200 tpd ammonia plant, a 333 tpd urea
plant, a 35 tpd sulfuric acid plant and a 40 tpd ammonium sulfate plant. The
facilities also include steam turbine power generating facilities, cooling
towers, maintenance shops and other auxiliary facilities. The plant and
facilities were supplied and erected by Kobe Steel (Japan) based on ammonia
and urea technologies from Chemical Construction Corporation (US) and the
sulfuric acid and ammonium sulfate technologies from Lurgi-Mitsubishi (FRG-
Japan). The ammonia and urea plants were completed in 1961 and commenced
commercial production in 1962. The sulfuric acid and ammonium sulfate plants
were completed in 1969 and began commercial production in 1970. Natural gas
for process and energy needs are met from the Haripur gas fields. Most of
the urea is shipped via rail spur to the main rail system through Maijgaon.
4.28 Urea production at the Fenchuganj plant in recent years is shown

below:
- 25 -
FenchuganjPlant - Urea Production Performance1964-80

(in tons)
Annual Average
FY (ending June 30) Annual Urea Production CapacityUtilization%
Capacity 115,500 100
1964 53,300 46
1966 98,700 85
1968 122,200 106
1970 96,700 84
1973 35,900 31
1977 77,500 67
1978 61,400 53
1979 59,500 51
1980 (Projected) 95,000 82
4.29 During 1962 to 1970, urea productionaverage 87% of the rated

capacitywith ammonium sulfate production often exceeding capacity. The
productionlevels, however, declined thereafterand in FY77 the capacity
utilizationwas only 67%. The decline in productionwas mainly due to the
absence of thorough inspectionand overhaul of the facilitiesfrom the time
they were erected till 1974. Under a contractwith Kobe Steel, the facili-
ties were fully renovated during the summer of 1978. Since the recommis-
sioning af"berrenovation,the plants operate at rated daily capacitiesand
the monthly average production has increased from 5,000 tons of urea and 510
tons of ammonium sulfate before renovationto 8,700 tons of urea and 760
tons of ammonium sulfate after renovation. During the first six months of
FY80, urea productionwas about 52,500 tons. Productionis expected to be
about 95,000 tons in FY80. The present major need of the facilitiesis to
maintain an adequate and competentwork force, so that downtime can be
minimized by proper operation and preventiveplant maintenance. However,
some of the recommendationsof the consultantsfor improving instrumentation
have not been carried out during the renovation. There is also need to
replace some of the heat exchangersfor critical duties and provide a spare
set of turbine blades for the power generationunit to ensure continued
satisfactoryproduction levels.
V. THE PROJECT
5.01 The Project has been designed to improve the performanceof BCIC's
existing fertilizerplants. It consistsof three components: (i) improve-
ments to be carried out at Ghorasal, Chittagongand Fenchuganj(Plant Improve-
ment Component); (ii) constructionof a training center at Ghorasal to ensure
availabilityof skilled staff to operate the plant facilities (Training
Component);and (iii) import of critical plant spares, catalystsand chemicals
- 26 -
to meet the needs of the plants for the next two years (Spares, Catalysts and
Chemicals Ccmponent). The specific modifications and improvements required at
the three plants for better performance were identified by consultant studies
(para 4.11 to 4.29) and further reviewed by a BCIC Technical Committee for
preparing feasibility reports. In formulating the details of the improvement
programs, the Technical Committee has taken into account the more recent
performance experience of the plants and the modifications already carried
out or planned to be carried out in turnarounds before the implementation of
the proposed Project. The three project components are described below.
A. Plant Improvement Component
1. Ghorasal Plant Improvement Program (Estimated Cost US$17.8 million)
5.02 As mentioned, the requirements of the Ghorasal Plant were identi-

fied by the BAI and the TEC studies (para 4.14). Parts of the requirements
have been implemented in May/June 1978 and BCIC has arranged to carry out
further improvements during early 1980. The program to be carried out as part
of the proposed Project (Reference G - Project File) are given in Annex 4-4.
The program covers generally the following categories of improvements: (a)
modifications to remove equipment inadequacies; (b) replacement of equipment
having difficult maintenance problems; (c) improvements to the water and steam
supply systems; (d) improvements to the power generation system; (e) modifica-
tion of the vetrocoke system; and (f) revamping the instrumentation of the
trip system.
2. Chittagong Plant Improvement Program (Estimated Cost US$15.0 million)
5.03 The requirements of the Chittagong plant were identified by the BAI
and Cremer and Warner studies (para 4.18). Parts of the requirements were
implemented during late 1979. The improvement program intended to be carried
out under the proposed Project (Reference H - Project File) includes the
following categories of works: (a) provisions of replacement and standby
equipment where required; (b) improving plant utilities including steam, power
and treated water facilities; (c) improvements in instrumentation; and (d) TSP
granulation facilities (Annex 4-4).
3. Fenchuganj Plant Improvement Program (Estimated Cost US$4.5 million)
5.04 The Fenchuganj facilities were fully renovated during the summer
of 1978 (para 4.29) and the present program (Reference I - Project File) is
limited to: (a) improvement of the present instrumentation for better process
control; (b) replacement of heat exchangers for some of the critical duties;
and (c) a set of turbine blades and diaphragm for the power generation unit.
These items would improve reliability and reduce downtime.
B. Training Component
5.05 Under UNDP financing, technical assistance has been made available
to BCIC in the preparation and implementation of training plans at Ghorasal
(para 2.12). The UNDP project does not include financing for setting up the
training facilities. IDA staff will review the training plans prepared by
- 27 -
BCIC and its consultantsand will finance the setting up of trainingfacili-

ties identtfiedin the above plans under the proposed Project. The training
componentestimatedto cost US$1.0 million will include (a) equipment and
trainingaids required for the setting up of the trainingcenter at Ghorasal;
(b) constructionof the training center and the workshop;and (c) trainees'
hostel.
C. Spares,Catalysts and ChemicalsComponent
5.06 Inadequateforeign exchangeavailabilityhas been a major constraint

to domestic fertilizerproduction(para 2.09). The existingBCIC plants
require annuallyabout US$4.0 million of importedspares,catalysts and
chemicalsfor maintainingand operatingthe existing fertilizerplants. The
proposed componentwould provide US$8.3 million to finance the import of the
essential spares,catalystsand chemicalsduring the fiscal years (ending
June 30) 1981 to 1983. As part of this component,BCIC will preparebefore
December 31, 1980 a maintenanceprogram satisfactoryto the Association
(para 2.10).
VI. PROJECT MANAGEMENTAND EXECUTION
A. Project Management
6.01 Implementationof the Plant ImprovementProgramsat Ghorasaland

Chittagongwill be the responsibilityof the individualGeneral Managers
of the plants, assistedby their Material Control Managersand separate
Project Managers. The engineeringcontractmanagement,procurementcoor-
dination and material planning will be the responsibility of the two Project
Managers. The civil works and construction will be carried out by the
existing maintenance departments of the plants, each of which will have a
coordinator/material controllerto coordinatethe renovationwork. A material
managementcell will be formed to receive,store and issue, as required,the
renovation materials. In critical areas, specialist erectors and technicians
would be drawn from equipment suppliers or engineering firms. Overall tech-
nical coordination will be provided by the selected expatriate engineering
ftrms, Toyo Engineering Corporation (Japan)for Ghorasaland another suitable
engineeringfirm for Chittagong. All the BCIC managers and staff required for
the program implementationwill be organizedfrom persons already with BCIC.
The proposed organogramis given in the followingpage. The Fenchuganjplant
improvementprogram,which is by far the smallest,will be carried out by the
plant's operating, maLntenance and material managers without a formal implemen-
tation organization.
6.02 The training component will be Implemented based on proposals

prepared with the technical assistance of the UNDP-financed consultants and
reviewed with IDA (para 2.12). BCIC will appointby June 30, 1980 a training
manager reporting to the Ghorasal General Manager, to coordinate the implemen-
tation of the training component. The facilities will be engineered by a
competentarchitect firm and constructedas part of the GhorasalImprovement
Program.
BANGLADESH - FERTILIZER INDUSTRY REHABILITATION PROJECT
PROJECT IMPLEMENTATION ORGANIZATION
| GENERAL MANAGER
|MATERfAL CONTROL PRCEC_ !A

| ~~~ ~ ~ ~ ~ ~ ~~~PWC
MANAGER____J ~~~~~CHIEF
MANAGER
CO-O0RDINTR
MATERIAL MECHANICAL ELECTRICAL POWER

MANAGEMENT MAINTENANCE MAINTENANCE ST STATION OPERATI
CELL
NTROLLER COO RD INA T ORIC O O RD IN A TO R CO N T ROLLER CO OR D NA TO R

|CO N TRO LL ER CO O R O N ATOR CONTROLLER CO--O RDIN ATOR CO
SUPER ISORY SUPERVISORY SUPER ISORY SUPERVISORY SUPERVISORY

GROUP GROUP GROUP GROUP GROUP
L
VVORKING
GROUP
WORKING
GROUP
WORKING
GROUP GGROUP
WORKING

February 1980 W Buk -- 21414
- 29 -
6.03 The annual requirementof spares, catalystsand chemicalswill be

assessedby the technicalmanagers of the three existingBCIC plants, along
with the UNDP consultantstaking into account the present inventories,and
further reviewedby BCIC's ProductionDirector. The plant materialmanagers
will procure the items to match the plant's requirements.
B. EngineeringArrangements
6.04 BCIC intends to contractToyo EngineeringCorporation(TEC) to

assist in implementingthe improvementprogram at Ghorasal. Since the plant
facilitieswere engineered,supplied and constructedby them, TEC has access
to the full design and engineeringdetails and is best equippedto carry out
the program. TEC is also expectedto find it easier to obtain equipment
supplierparticipationin studyingthe plant and developingimprovements. The
agreement to be negotiatedbetween BCIC and the TEC will include TEC services
for requiredengineering,supply of proprietaryequipment,procurementof
other suppliesand providing specialisttechniciansas required.
6.05 For the ChittagongTSP plant, BCIC intends to negotiatean agreement

with a competentengineeringcompany to provide the engineering,procurement
assistance,and implementationcoordinationservices. No externalengineering
assistanceis proposedfor the Fenchuganjcomponent. The proposedcredit will
require engineeringservices for Ghorasal and Chittagongon terms acceptable
to the Association,and the signatureof appropriatecontractswill be condi-
tions of disbursementfor each of these respectivecomponents.
C. Project Schedule
6.06 The project schedulefor Ghorasal and Chittagongare determined

by two factors: (a) the speed with which BCIC can finalize the engineering
arrangementsfor Ghorasal and Chittagongand (b) the need to carry out the
modifications with minimum production interruptions and therefore mostly
during scheduledannual overhauls. BCIC has already asked TEC to present
its proposals for Ghorasal and will invite proposalsfor Chittagongafter
Credit negotiations. BCIC expects to receive the technicaland commercial
proposals from the engineeringconsultantsby October 30, 1980 and finalize
the engineeringarrangementsby January 31, 1981. The equipmentand supplies
are expectedto be deliveredto the site by March 31, 1982 and the program
should be completedby August 31, 1982. Due to the nature of the supplies
and the involvement of experienced engineering firms in engineering and
procurement, the above time schedule is considered reasonable. The program
at Fenchuganj can be completed in about 15 months after the procurement
bid invitations are issued or by December 1981. With finalization of the
training plans by end of 1980, the facilities including setting up of the
workshop and installing the training aids can be completed by March 1982.
The procurement of spares, catalysts and chemicals will occur during the
fiscal years 1981 to 1983 to match the plant requirements.
- 30 -
VII. CAPITAL COST, FINANCING PLAN AND PROCUREMENT
A. Capital Cost
7.01 The total financing requiredfor the plant rehabilitationcomponent

is estimated at US$37.3 of which US$24.4 million equivalentis in foreign
exchange. In addition,the financing includesa training componentof US$1
million and a program component of US$8.3 million for import of spares,
catalysts and chemicals. The capital cost estimates for plant rehabilitation
are detailed in Annex 7-1 and summarizedbelow:
Plant ImprovementComponent - Summary of Capital Cost
Taka million US$ million

Local Foreign Total Local Foreign Total %
Equipment and Supplies - 246.5 246.5 - 15.9 15.9 61

Freight and Insurance 3.1 24.8 27.9 0.2 1.6 1.8 7
Taxes and Duties 54.3 - 54.3 3.5 - 3.5 13
Inland Handling 9.3 - 9.3 0.6 - 0.6 2
Foundations and Structures 21.7 - 21.7 1.4 - 1.4 5
Erection 17.0 - 17.0 1.1 - 1.1 4
Engg. & Mgmt. Assistance 14.0 17.0 31.0 0.9 1.1 2.0 8
Base Cost Estimate (BCE) 119.4 288.3 407.7 7.7 18.6 26.3 100
Physical Contingency (PC)
(15% of BCE) 18.6 43.4 62.0 1.2 2.8 4.0
Price Escalation
(14.3% of BCE + PC) 20.1 46.6 66.7 1.3 3.0 4.3
Total Project Cost 158.1 378.3 536.4 10.2 24.4 34.6
Interest During Construction 41.8 - 41.8 2.7 - 2.7
Total FinancingRequired 199.9 378.3 578.2 12.9 24.4 37.3
7.02 The base cost estimates are in December 1979 prices and were pre-
pared by Bank staff, based on BCIC staff's estimates followingpreliminary
designs and informationsubmitted by engineering firms combined with the
Bank's own cost informationobtained from contractors'budgetary quotations.
Physical contingenciesare calculatedgenerally at 15% of the base cost
estimate, in light of the rehabilitationnature of this project component.
Price contingenciesare based on annual escalationrates for equipmentand
materials of 12% for 1980 and 10% thereafter,slightly higher than the
latest CPS guidelines. These estimated escalationrates were used for both
local and foreign expenditures (when expressed in US dollars) on the assump-
tion that differencesin the internationaland domestic inflation rates will
be accounted for by changes in the exchange rate which is periodically
repegged. It is estimated that all equipment and materials will be imported
and that about 60% of engineeringand managementassistancewill be provided
by foreign suppliers. The cost of engineeringservices are expected to form
about 5% of the base cost estimate, excluding duties for Ghorasal and
- 31 -
Chittagong,and would total about US$2.0 million. TEC servicesrequirementis

esttmated to be about 70 man-monthsand would cost about US$12,000per man-
month whLch includessalary,social costs, internationaltravel and subsistence.
In additionto these personnelcosts, the contractcost will includehome
office costs and other minor items. The man-month requirementof engineering
services for Chittagongis roughly estimatedat 15 man-months.
7.03 The capital cost breakdownby project componentsis as follows:
FertilizerIndustryRehabilitationProject - Capital Cost Breakdown

(in US$ million)
Project Component Local Foreign Total %
I Plant ImprovementComponent
Ghorasal 6.1 11.7 17.8 38
Chittagong 5.3 9.7 15.0 32
Fenchuganj 1.5 3.0 4.5 10
II TrainingComponent 0.9 0.1 1.0 2
III Spares, Catalystsand

ChemicalsComponent - 8.3 8.3 18
Total FinancingRequired 13.8 32.8 46.6 100
About 80% of the total financingrequired is estimatedto be needed for the

plant improvementcomponentmainly in the Ghorasaland Chittagongplants and
another 18% for the import of essential suppliesfor the sustainedoperation
of the three works. The balance of 2% would be requiredfor the training
facilities.
B. FinancingPlan
7.04 The financingplan for the plant improvementcomponent is shown below:
Plant ImprovementComponent- FinancingPlan

(in US$ million)
Local Foreign Total %
Equity
Governmentof Bangladesh 12.9 - 12.9
IDA Credit to Government - 2.0 2.0
Sub-total 12.9 2.0 14.9 40
Debt
Dutch Assistanceto Government - 4.7 4.7
IDA Credit to Government - 17.7 17.7 60
Sub-total - 22.4 22.4
Total Financing 12.9 24.4 37.3 100

- 32 -
The above componentwill be financedwith 40% equity and 60% debt. The
Governmentwill provide as equity US$12.9 million equivalentto finance
local project costs. The terms of on-lendingof the Dutch financing (US$4.7
million) have not yet been determined. The project debt financingof US$22.4
million equivalentis assumed to be financedwith Dutch and IDA assistance
on-lentby the Governmentto the new fertilizercompanies. To the extent
such on-lendingmay bring the ratio of debt financingto equity financing
for any of the new companiesabove 60:40, a part of IDA assistancenow esti-
mated at US$2 million may be passed on as equity. The proposed IDA credit
portion of US$19.7 million will cover 53% of total financingrequirementsand
is equivalentto 81% of the estimatedforeign exchange cost of the Plant
ImprovementComponent. US$18.7 million out of an IDA credit totallingUS$20.7
million for the Plant Improvementand TrainingComponentswould be on-lentby
the Governmenton standard terms to the new fertilizercompaniesat a rate of
interestof 10%, for 10 years including3 years of grace. The exchangerisk
will be borne by the new fertilizercompanies. These terms are comparable
with the terms currentlybeing applied to other foreign currencyloans presently
on-lent to BCIC and other similar enterprises. Finalizationof satisfactory
on-lendingagreementsfor the plant improvementand trainingcomponentswill
be a condition of credit effectiveness.
7.05 IDA funds for the spares, catalystsand chemicalcomponenttotalling

US$8.3 million will be made availableby the Governmentto the new fertilizer
companiesagainst payments in local currency.
C. Procurementand Disbursement
7.06 The proposed credit covers plant improvementsin the three existing
plants, the setting up of training facilitiesand importsof spares, catalysts
and chemicalsfor the operationof the three existingplants. The proposed
procurementarrangementshave taken into account the specificneeds of the
three componentsand proceduresmost appropriatefor them. The procurement
packages for the plant improvementcomponentwill generallybe of small value
and in large part of proprietarynature. It is expected that only about 15
packageswill exceed US$50,000 in value and several of them are best procured
from the originalequipmentvendors. Only 7 packageswith total value of
about US$3 million may be appropriatefor internationalcompetitivebidding
(ICB). The rest of the equipmentand supplies totallingabout US$13 million
in value will include proprietaryitems (about US$8 million)and small value
items (about US$5 million) procured followingBank procurementguidelines.
The same arrangementswill also cover suppliesfor the training component.
In view of the nature of the project, such procurementproceduresare
appropriateto ensure timely and efficient plant renovation.
7.07 The engineeringserviceswill be providedby selectedengineering

firms most appropriatefor the nature of the servicesinvolved. For Ghorasal,
BCIC has selectedToyo EngineeringCorporationwho engineeredand constructed
the present facilities. For ChittagongBCIC intends to select a firm that
can provide efficientlythe required services. The engineeringagreements
will be negotiatedwith the selected firms.
7.08 The plant improvementcomponenthas only limited civil works,

foundationand constructionrequirements(about US$2.6 million) and these
will be carried out by the respectiveplant maintenancepersonnel using local
- 33 -
subcontractorswhen required. The civil works for the trainingcomponents

will be implementedwith local civil subcontractorsselectedfollowingcom-
petitivebidding procedures.
7.09 The catalystsand chemicalswill be importedfollowinginternational

shoppingamong a representativelist of suppliers. Spares and componentswill
be procuredinternationallyfollowingBCIC's normal procurementproceduresfor
such supplies,which provide for limited competitionwheneverpossible. These
arrangementsare consideredsatisfactory.
7.10 The existingplants were mostly engineeredand constructedby

Japaneseengineeringfirms with large part of the equipmentcoming from
Japanesesuppliers. As a result, spares and componentsrequiredfor revamping
moving machineswould probably come from the same suppliers. However,equip-
ment replacementsfor heat exchangers,etc. will be procuredinternationally.
The total suppliesare expected to be shared about 60% from Japan, 25% from
Europe and 15% from other countries.
7.11 The allocationof the proposed credit of US$29 million will be as

follows:
FertilizerIndustryRehabilitationProlect - Allocationof the Credit

(in US$ million)
Ghorasal Chittagong Fenchuganj Total Application

Plant ImprovementProgram
Equipment,Materials&
Spares procuredunder ICB 2.5 1.0 - 3.5 100% of foreign
and local
ex-factory
Critical,Proprietaryor
Small Items 5.5 1.5 2.5 9.5 100% of foreign
EngineeringServices 0.8 0.3 1.1 100% of foreign
TrainingComponent - - - 0.8 100% of foreign

and 90% of local
Spares,Catalysts & Chemicals - - - 7.5 100% of foreign
Unallocated - - 6.6
Total 29.0
The credit includesabout US$1.0 million to financelocal currencyexpendi-

tures mainly under the trainingcomponent.
7.12 The credit is expectedto be fully disbursedby June 1983 as

indicatedin the disbursementschedulegiven in Annex 7-2.
- 34 -
VIII. FINANCIALANALYSIS
A. General
8.01 Since the nature of the Project is the rehabilitationof existing

operatingplants,an incrementalapproachhas been used for the financial
and economic evaluations;only the incrementsin cost and revenue as a result
of the proposedrehabilitationprogram are consideredin the financialand
economicanalyses. The productionincreasesassumed for the three plants
are summarizedbelow:
Plant ImprovementComponent- ProjectedAnnual ProductionIncreases
Rated CapacityUtil- Increase in Production

Capacity ization in % Annual Output Increase
in 1,000 tpy Before After in 1,000 tons Estimatedto
Plant Product of Product Rehab. Rehab. of Product Materializein FY
Ghorasal Urea 374 67 85 67.9 1983

Chittagong TSP 152 60 80 30.4 1983
Fenchuganj Urea 116 87 a/ 87 a/ - NA
a/ Target capacityutilizationafter renovationis completedin 1978.
While, as noted before, the capital expendituresof Chittagongand Ghorasal

are aimed to raise substantiallythe operatinglevel of the respectiveplants
by means of debottlenecking,the investmentsat Fenchuganjare aimed towards
preventivemeasures in order to avoid or at least shortenpotential operating
interruptionswhich might impair achievingcontinuationof the present level
of capacityutilization.Since the plant improvementexpenditurefor Fenchuganj
forms only a small portion (10%) of the total project cost and is of a
"preemptivecharacter,"it is difficult to reasonablyquantifypotential
savings in the future and no financialanalysisfor this project component
has been undertaken.
B. OperatingCosts and Revenues
8.02 An estimatedoperating cost breakdown for each plant at the expected

capacityutilizationrates upon project completion (para 8.01) is given in
Annex 8-1 and summarizedon the followingpage:
- 35 -
Fertilizer Industry Rehabilitation Project - Estimated Production Costs a/

After Project Completion
Ghorasal % Chittagong % Fenchugani %
Product Urea TSP Urea

Expected Capacity Utilization 85% 80% 87%
----------in constant 1979 Taka/ton----------
Raw Materials 301 22 2,269 65 385 20

Other Variable Costs 536 40 529 15 711 37
Fixed Costs 515 38 713 20 812 43
Production Costs 1,352 100 3,511 100 1,908 100
----------- …;n constant 1979 US$/ton----------
Production Costs 87.2 226.5 123.1

Ex-factory Prices 122.6 280.7 154.6
Internat. FOB Prices b/ 190.0 215.0 190.0
Landed Cost Bangladesh b/ 240.0 275.0 240.0
a/ Excluding financial charges.

b/ As of December 1979.
As a result of the low cost of the abundantly available natural gas (between
US$0.30 and US$0.40 per Mscft), urea production costs including depreciation
are very competitive at Ghorasal with similar plants elsewhere. Although
Fenchuganj costs are substantially higher than Ghorasal because of smaller
plant size and the use of power-intensive technology, they are nevertheless
well below international prices. While the current price of natural gas
permits the covering of operating expenses and capital charges of related
facilites, it is on the low side considering the present costs of developing
new gas fields and providing transport facilities. The Bank is currently
appraising a pipeline project in Bangladesh and the issue of an appropriate
gas price for commercial users will be reviewed in the context of that project.
Natural gas accounts for only about 20% of urea production cost--as indicated
in the table above--so that even a 50% rate increase would not significantly
affect the project's financial viability.
8.03 With regard to TSP production at Chittagong, Bangladesh is less

favorably endowed with raw materials, and depends entirely on imports of both
sulfur and rock phosphate. Consequently, raw material costs account for
two-thirds of its production costs, causing production costs to be equal to
international FOB prices. The production costs, however, would be lower if
the investments already made were treated as sunk costs. Domestic TSP produc-
tion costs are, nevertheless, still significantly lower than the landed cost
of imported TSP (Annex 8-1).
- 36 -
8.04 Since the Government is still to finalize the ex-factory fertilizer

prices based on the negotiated pricing arrangements (para 2.08), the revenue
estlmates are based on current ex-factory prices. Due to the proposed forma-
tion of independent companies within BCIC which will also involve a substantial
revision of the present capital structure of the three fertilizer units and in
consideration of the relatively small amounts of capital expenditures allocated
to each plant, detailed financial statements of BCIC and the fertilizer units
have not been presented in this report. Instead, it appeared more appropriate
to prepare projections of key income data in constant 1979 terms for the
individual plants. Based on the above revenue and cost assumptions, financial
key data are projected for the three plants as follows:
Fertilizer Industry Rehabilitation Project - Projected Income Statements a/

(in constant 1979 million Taka)
Ghorasal Chittagong Fenchugani

FY ending June 30 1981/82 1983 1981/82 1983 1981/82/83
Capacity Utilization in % 67 85 60 80 87
Production in 1000 tons 250 318 91 122 100

Revenues 475 604 397 529 240
Production Cost 351 408 327 412 191
Operating Profit 124 196 70 117 49
Cash Flow Before Debt Service 200 272 104 151 92
Cash Flow After Debt Service d/ 60 132 57 104 7
Key Ratios (in %)
Operating Margin 26 32 18 22 20
Return on Assets b/ Before
Interest and Tax 12 19 9 16 8
Return on Assets Before
Interest and After Tax c/ 10 13 7 10 7
a/ Assuming that the capital structure of June 1979 for the three
entities remains basically unchanged.
b/ Defined as total assets minus non-interest bearing current liabilities.
c/ Corporate tax rate is 55%.
d/ Amount of debt service is notional, based on 1979 balance sheets.
8.05 The operating profits for both plants at Ghorasal and Chittagong
are expected to improve substantially, i.e., by 58% and 67%, respectively,
after completion of their plant improvement projects. Similarly, the return
on assets before interest and after tax will increase from 10% to 13% for
Ghorasal and from 7% to 10% for Chittagong, which are considered as acceptable
- 37 -
levels of income. In both cases the cash flow after debt servicewill approxi-
mately double. With regard to Fenchuganj,the project will help sustain the
estimated operatingprofit. The return on assets of 7% is lower than for the
two other plants,mainly as a result of higher operating costs which are not
adequatelycovered by the present FenchuganJex-factoryprice of urea. A
price increaseof about 10% to Taka 2,635per ton of urea would achieve a
return on assets of approximately10x. The relativelysmall cash flow after
debt service at Fenchuganjis a direct consequenceof high requirementsof
net working capital which by requiring large short-term debt substantially
increases the debt service.
C. Financial Rate of Return
8.06 The financial rates of return before tax, in constant 1979 terms,
on an incrementalbasis for the plant improvementcomponentsat Ghorasaland
Chittagongare calculatedat about 30% and 22%, respectively. The cost/benefit
streams for the base cases are given in Annex 8-2 and the results of the
sensitivityanalysisare summarizedbelow:
SensitivityTests on Before-TaxFinancialRate of Return

(in percent)
Rate of Return
Ghorasal Chittagong
(a) Base Case 30 22

(b) Capital Cost up 25% 23 16
(c) Capacity Utilization Improvement
75% of Target 21 14
(d) Combination of (b) and (c) 15 9
(e) Gas Price up 50% 25 NA
The financial rate of return is most sensitive to changes in the assumed rates
by which the capacity utilization is projected to improve. Nevertheless, even
in a severe case of a combinationof a capital cost increaseof 25% and an
improvementof capacityutilization25% below target would result in a still
satisfactoryrate of return of 15% for Ghoras4l and a marginallyacceptable
rate of return of 9% for Chittagong. However, due to commercially proven
technology, experienced contractors and increased operating training assis-
tance, the likelihoodof a combinationof such adverse sensitivitiesappears
to be remote.
D. FinancialCovenantsand ReportingRequirements
8.07 BCIC has agreed that the three new fertilizercompaniesto be formed
under BCIC's restructuringplan (para 4.09) will follow prudent financial
practices and conform to the following financial covenants: (i) maintain at
all times a debt/equity ratio of 60/40 or better; (ii) maintain a current
- 38 -
ratio of at least 1.3:1.0; (iii) not incur any additionaldebt if by doing so

the projected debt service coveragewould fall below 1.4; (iv) not pay at any
time any dividends,prepay any debt or effect any other cash distributions,
including to affiliatedcompanies,if by doing so the current ratio would
drop below 1.5; and (v) obtain prior agreement of the Association for all new
projects requiring capital expendituresin excess of US$1.5 million until
project completion. In addition, the Governmenthas agreed to supply the
companieswith adequate funds to ensure a timely completionof the Project
and to cover promptly any justifiedunexpected cash needs over and above the
agreed budget.
8.08 BCIC has agreed that the successor companieswill submit: (i) annual
audited financial reports within six months of the closing of each fiscal year;
and (ii) monthly progressreports and periodic financial statementsand pro-
jections according to a schedule and form satisfactoryto the Bank.
E. Major Risks
8.09 The Project faces only limited technical risks since the technology
associatedwith the plant improvementcomponent is commerciallyproven and
will be suppliedby internationallyexperiencedfirms. However, the sustained
performanceof the plants at the projected operating levels will depend to a
substantialextent on the availabilityof an adequate and competentmanagement
and work force. The availabilityof sufficientlyexperiencedpersonnel is
expected to be reasonablyensured by including a trainingcomponent in the
credit and by other measures that would help to retain the trainedmanpower
at technical and managerial levels (para 2.14).
8.10 The Project also would face some potential financial risks if not
for the pricing arrangementsproposed. The continuedsatisfactoryfinancial
performanceof the sponsoringcompanies is largely dependent on the recommended
change in the Government'spresent fertilizerpricing policy at producer level
and subsequentimplementationof a pricing mechanism which allows for timely
price adjustmentsduring periods of rapidly rising productioncosts. This
risk is expectedto be adequatelymet by the proposed agreementswith the
Government,which will allow the companies to earn a minimum agreed return
on their assets (para 2.08).
8.11 There is also a potential,though limited, marketing related risk,

mainly due to the need to improve the effectivenessof the present distribu-
tion system as a result of inadequatetransportationcapacity. However,
this risk is within acceptablelevels and will be further reduced by likely
investments to be financedunder a FertilizerTransport Project recently
appraised,and by facilities in DevelopmentFinance Corporationand small
industryprojects for providing funds to the private sector for financing of
barges and trucks. In addition,an improved coordinationof transportand
marketing arrangementbetween BADC and BCIC is being stipulated (para
3.10).
- 39 -
IX. ECONOMICANALYSIS
A. EconomicCosts and Benefits
9.01 For the economic analysis,costs and benefits are divided into
tradeableand non-tradeableitems. The economic costs and benefitsof the
tradeablesare calculatedby using projected long-terminternationalprices,
while those of non-tradeablesare determinedby using domesticprices after
making necessaryadjustmentsfor local taxes, except for natural gas for which
a higher opportunitycost of US$1.00/Mscftis used (Annex 8-1). Bangladeshhas
adequategas reservesto meet the country'sand the Project'sneeds. In
addition,Bangladeshhas a small fuel oil surplus thus preventingits economic
substitutionby natural gas. Therefore,the opportunityvalue of naturalgas
used by the Project should be based on the higher of (i) economiccost of gas
productionsand delivery,or (it) anticipatedvalue of exports of natural gas
in the form of LNG. Bangladeshis in an unfavorablepositionfor the produc-
tion and export of LNG due to its somewhat limited gas reserves relative to
the very substantial gas requirements for an economically sized LNG plant, its
inadequatelydeveloped infrastructurebase and the limited port capabilities.
Furthermore,studies carried out tn the past on possibleLNG projects in
Bangladesh have not established the economic viability of such a project.
As a result, the gas price at which LNG can be exported competitively from
Bangladesh would be lower than in other possible locations. Even with the
increasinginternationalLNG prices, the netback for natural gas from a
possibleproject in Bangladeshis, therefore,not likely to exceed US$1.00
per Mscft in 1979 terms. The economiccost of gas productionand delivery
to Chittagongis estimated at about US$0.66 per Mscft (ReportNo. P-25-68-DP
dated May 18, 1979). While the base case uses US$1.00 per Mscft, a sensitiv-
ity analysiswas undertakenfor Ghorasalapplying a 50% increaseabove the
apparentmaximum value of US$1.00 per Mscft. The Project'seconomiccost is
derived from the financialcapital cost estimate after deductingapplicable
import duties and taxes on equipmentand are expressedin US Dollar based on
an exchangerate of US$1.00 - Taka 15.5.
9.02 Except for natural gas, which is suppliedfrom indigenoussources,

Bangladeshis an importerof all major raw materials as well as of the output
productsurea and TSP. The economiccosts for raw materials deliveredat
factory and output prices are derived from the latest price forecasts for
the mid-1980s by the Bank's Commodities and Export Projections Division. The
projected costs and prices reflect the most recent price increases for hydro-
carbons,energy and phosphaterock, expected improvementof current bottle-
necks tn distributionof sulfur and higher capital costs of new capacities.
It is assumed that the raw materials sulfur and phosphaterock will be Imported
from the Middle East, while the alternativesources of supply for the finished
productsurea and TSP would be Europe 1/ and Mexican Gulf, respecttvely. For
1/ It is conceivablethat on a spot contractbasis urea could be also pro-

cured from the Far East. In this event, however, it is assumed that the
savings in transportcost are likely to be compensatedby higher FOB
prices.
- 40 -
urea an FOB price of US$245/ton 1/, US$40/ton for ocean freight and US$10/ton
for port-handling and inland transportation differential are assumed. In the
case of TSP, a FOB price of US$195/ton is assumed with ocean freight and port
handling cost of US$50/ton and US$10/ton, respectively. The computation of
economic costs and prices are shown in Annex 8-1 and its results are given
below:
Fertilizer Industry Rehabilitation Project -

Economic Costs and Ex-Factory Prices
(in constant 1979 dollars)
US$/ton
Raw Material
Sulfur 115
Phosphate Rock 73
Output
TSP 270
Urea 280
B. Economic Rate of Return
9.03 The economic rates of return, calculated on an incremental basis,

for the Ghorasal and Chittagong plant improvement programs are 92% and 18%,
respectively. These satisfactory returns reflect the Project's rehabilitation
nature which results in substantial revenue improvements through relatively
small capital expenditure. Ghorasal's economic rate of return is considerably
higher than its financial return of 30%, mainly due to the fact that domestic
urea ex-factory prices as discussed earlier are presently substantially below
world market level and the financial return is calculated on the basis of
current prices as explained in para 8.04. In the case of Fenchuganj, the
relatively small improvement program is "preemptive" in nature and aims to
maintain operating reliability (para 5.04). No economic rate of return has
been computed for this part of the project due to the difficulties in esti-
mating with reasonable accuracy the inefficiency costs that may result from
excessive downtimes and consequent loss of production without the proposed
investment. However, the investment would be economically justified with the
savings realized even if the annual downtime would be reduced by only one week
over the plant's economic life.
9.04 The cost/benefit streams used for calculating the economic rates
of return are given in Annex 9 and results of the sensitivity analysis are
summarized below:
1/ All costs and prices are expressed in constant 1979 terms.

- 41 -
SensitivityTests on Economic Rate of Return

(in percent)
Rate of Return
Case Ghorasal Chittagong
(a) Base Case 92 18

(b) Capital Cost up 25% 76 13
(c) Capacity UtilizationImprovement
75% of Target 72 11
(d) Combinationof (b) and (c) 59 7
(e) Gas Price of US$1.50/Mscft 82 NA
The economicreturn of the Ghorasal plant improvementcomponent is of such

magnitude that even under a combinationof adverse circumstances--within
reasonable limits--itseconomic viability is more than ensured. Although
the Chittagongcomponent is more exposed to adverse conditionsthan that of
Ghorasal, due to its lower base case return, it also does not face any undue
risk jeopardizingits economic viability. Sensitivitiesof a 25% capital cost
increase and of a 25% below projected capacityutilizationincrease show still
satisfactoryeconomic returns of 13% and 11%, respectively. It is unlikely
that a combinationof these factors will occur.
C. Other Benefits and Foreign Exchange Savings
9.05 At Chittagong,the present TSP plants have no granulationfacilities

and thus create problems of severe dust hazard not only for plant workers but
also for farmers using mainly hand distribution. The implementationof
granulationfacilitiesas part of the proposed Project will eliminate the
current dust problem, which could become otherwise--inthe long run--a serious
health hazard.
9.06 The economic output value of the plant improvementcomponent is

estimated at US$17 million annually, and its net annual foreign exchange
savings after provision for principal and interest paymentson the foreign
loans are estimated at about US$12 million expressed in constant 1979 US
dollars. The related foreign exchange costs of about US$24 million will thus
be offset by the foreign exchange savings in about two years after Project
completion.
9.07 Removing productionbottleneckswhich limit output at the existing

fertilizerplants will also have a significanteffect on the morale of
fertilizerindustryworkers, and are expected to set standards for attainable
productionefficiencyfor other fertilizerplants. Bangladeshhas abundant
and cheap natural gas resources for which few other economicallyattractive
uses are available. In the long run, as Bangladeshgains experience in
urea productionand improves its productivity,it should be able to compete
effectivelyin producing urea for export. Improving the productivityof its
plants producing for the domesticmarket is an important first step.
- 42 -
X. AGREEMENTS
10.01 Satisfactory assurances and agreements have been obtained from the
Government that it will:
(a) review at least once each year the ex-factory fertilizer

prices of each of the three existing fertilizer plants and
establish prices for each of the plants which would provide
after interest and taxes at least 10% return on equity
(para 2.08);
(b) agree to take all necessary steps to ensure adequate and

continuing provision of foreign exchange funds to meet
the plants' requirements for imported raw materials spares,
catalysts and chemicals (para 2.10);
(c) introduce procedures and schedules governing the recruitment

of fertilizf"r -echnicians and engineers from Bangladesh to
work abroad so that the departures are restricted to such
numbers as can reasonably be replaced without adversely
affecting the operation of the fertilizer plants (para 2.14);
(d) cause BADC and the three new fertilizer companies to enter
into a satisfactory agreement before October 31, 1980 on
arrangements for pick-up of fertilizers from the plant
warehouses with provision that BADC payment will include
an agreed compensation to cover additional cost of higher
stacking or renting additional warehouse space if fertilizer
is not picked up according to a predetermined schedule and
that arrangements will be evolved to permit BCIC to sell
fertilizers directly to wholesalers, as well as to BADC
(para 3.10);
(e) complete the evaluation of alternatives for gypsum disposal

or utilization, and review with IDA the plans by December 31,
1980 (para 4.22); and
(f) cause the Chittagong bulk unloading project to be implemented

in accordance with the relevant provisions of the IFAD project
(para 4.26).
10.02 Satisfactory assurances and agreements have been obtained from

BCIC that:
(a) it will furnish its detailed training plans for review before
December 31, 1980 (para 2.14);
(b) the three fertilizer plants will establish by December 31,

1980 and maintain subsequently an appropriate program of
incentives for their skilled technicians in order to
retain them in service (para 2.14);
- 43 -
(c) it will form the three new fertilizercompanies to the

agreed time scheduleand with powers delegated to the
three fertilizerentities to ensure efficientmanagement
on corporate and plant levels (para 4.09); and
(d) the three new fertilizercompanieswill follow prudent

financialpractices and conform with the financial covenants
and meet reporting requirementsdescribed in paras 8.07 and
8.08.
10.03 Establishmentof the three new fertilizercompanies (para 4.09),

Governmentapproval of the Project proforma and finalizationof satisfactory
on-lendingarrangements(para 7.04) for the Plant Improvementand Training
Componentswould be conditionsof credit effectiveness.
10.04 The preparation of the detailedmaintenance program would be a con-

dition of disbursementfor the Spare Parts, Catalysts and ChemicalsComponent
(para 2.10). The presentationof BCIC's training plans to the Association
for review and agreementwould be a condition of disbursementfor the training
component (para 2.14). The signatureof the appropriatecontracts for engi-
neering services, acceptable to the Association,for Ghorasal and Chittagong
plants would be conditionsof disbursementfor these respectivecomponents
(para 6.05).
10.05 With the above assurancesand agreements,the Project is suitable

for an IDA Credit of US$29 million equivalentunder on-lendingterms as
discussed in para 7.04.
IndustrialProjects Department
April 23, 1980
- 44 -
ANNEX 3
BANGLADESH- FERTILIZER INDUSTRY REHABILITATIONPROJECT
FERTILIZEROFFTAKE IN BANGLADESH1965-79
Year Offtake ('000 tons) Percent Change
1965 93.8
1966 106.2 13.2
1967 162.1 52.6
1968 211.1 30.2
1969 225.3 6.7
1970 277.1 23.0
1971 304.4 9.8
1972 243.8 -19.9
1973 383.7 57.3
1974 379.8 - 1.0
1975 279.6 -26.4
1976 457.2 63.5
1977 512.6 12.1
1978 715.4 39.6
1979 740.0 3.4
Source: BangladeshAgriculturalDevelopmentCorporation
April 1980
ANNEX 4-1
BANGLADESH- FERTILIZERINDUSTRY REHABILITATIONPROJECT
LIST OF BCIC'S PRODUCTIONUNITS
- - - -In Million Takas- - -

FY79 FY80
Projected
ProductionUnit Sales % Sales %
I Fertilizer
1. Urea FertilizerFactory 370
2. Natural Gas Fertilizer Factory 119
3. Triple Super Phosphate Fertilizer 297
Complex
Sub-total 786 31 1,060 32
II Pulp & Paper Products

1. Khulna Newsprint Mills 349
2. KarnaphuliPaper Mills 289
3. North Bengal Paper Mills 85
4. Sylhet Pulp & Paper Mills 69
5. KarnaphuliRayon & Chemicals 143
6. Khulna Hard Board Mills 13
7. Star Particle Board Mills 19
Sub-total 967 38 1,080 32
III Soap, Detergent & Miscellaneous

1. Crescent Industries 74
2. Kohinoor Chemical Co. 208
3. Kohinoor Battery Mfg. Co. Ltd. 79
Sub-total 361 14 650 19
IV Safety Matches
1. Dacca Match Factory 50
2. Dada Match Factory 39
3. Ujala Match Factory 22
4. Habib (Match) Industries 24
Sub-total 135 6 160 5
V Rubber
1. Bengal Belting Corporation 30
2. Karim Rubber Industries 33
3. Lira IndustrialEnterprise 9
4. Bella Artifitex Industries 7
Sub-total 79 3 120 4
- 46 - ANNEX 4-1
Page 2
- - - -In Million Takas- - - -
FY79 FY80
Projected
Production Unit Sales X Sales %
VI Pesticide and Insecticide

1. Agro ChemicalsLtd. 29
2. D.D.T. Factory 23
Sub-total 52 2 95 3
vII Packing and Converting

1.- BangladeshPaper Products. 20
2. Eagle Box & Carton Mfg. Co. Ltd. 19
3. Manifold Industries 5
Sub-total 44 2 50 2
VIII Pharmaceuticals
1. Albert David (Bangladesh)Ltd. 37 2 50 1
TX Chemicals
1. The Chemical Industriesof Bangladesh 27
2. Farookh Chemical Industries 4
Sub-total 31 1 40 1
X Glass & Ceramic

1. Usmania Glass Sheet Factory 25 1 45 1
Total 2,517 100 3,350 100
IndustrialProjectsDepartment
April 1980
BCIC - FINANCIAL STATEMENTS 1976-80-/
CONSOLIDATED INCOME STATEMENTS

(in Million Takes)
FY Ending June 30 1976 1977 1978 1979 1980

Budget
Sales Revenue (Net) 1,112.4 1,658.1 1,926.9 2,342.7 3,216.1
Materials Consumed 648.4 679.6 945.5 1,058.1 1,663.4

Power and Fuel 159.2 194.2 164.5 262.1 346.7
Change in Invent. of Fin. Goods ( 40.8) 17.1 13.1 ( 48.4) ( 7.4)
Salaries, Wages and Bonuses 148.1 170.6 221.3 254.5 306.9
Production Overheads 91.7 73.0 147.2 239.8 276.4
Depreciation 157.2 164.6 198.5 121.6 234.1
Cost of Goods Sold 1,163.8 1,299.1 1,690.1 1,887.7 2,820.1
Gross Operating Profit ( 51.4) 359.0 236.8 455.0 396.0
Administrative Overhead 60.3 63.8 94.0 165.6 200.0

Sales Cost 14.3 16.8 18.0 24.5 )_ _
Net Operating Profit (126.0) 278.4 124.8 264.9 196.0
Financial Charges (Net) 112.9 111.1 132.8 108.8 130.0
Profit (Loss) Before Taxes (238.9) 167.3 ( 8.0) 156.1 66.0
Ratios
Gross Margin in % ( 4.6) 21.7 12.3 19.4 12.3

Net Margin (Bef. Taxes) in % ( 21.5) 10.1 ( .4) 6.7 2.1
a/ Source: BCIC
- 48 - ANNEX 4-2
Page Z
BANGLADESH - FERTILIZER INDUSTRY REHABILITATIONPROJECT
BCIC - FINANCIAL STATEMENTS 1976-80
CONSOLIDATED BALANCE SHEETS

(in million Takas)
FY ending June 30 1976 1977 1978 1979
Assets
Cash and Banks 51.2 58.8 134.1 78.1
Accounts Receivable 460.6 828.1 1,018.0 1,464.4
Inventory 1,090.5 1,089.4 1,240.2 1,600.3
Raw Material 379.4 385.8 459.0 632.3
Stores and Spares 416.2 346.2 565.1 729.2
Finished Goods 294.9 357.4 216.1 238.8
Loans and Advances 177.2 247.2 298.1 355.2
Total Current Assets 1,779.5 2,223.5 2,690.4 3,498.0

Gross Fixed Assets 2,462.5 2,500.4 3,322.2 3,562.6
Less Accumulated Depreciation 719.8 910.4 1,197.3 1,352.4
Net Fixed Assets 1,742.7 1,590.0 2,124.9 2,210.2

Investments 62.5 42.3 42.9 25.3
T o t a 1 A s s e ts 34584.7 3,855.8 44858.2 54733.5
Liabilities
Accounts Payable 1,139.4 960.3 888.8 806.5
Bank Loan 262.9 116.7 185.8 235.3
Other Current Liabilities 514.3 772.4 1,121.9 1,534.3
Total Current Liabilities 1,916.6 1,849.4 2,196.5 2,576.1
Long-term Debt 1,720.5 1,757.2 1,905.6 2,218.4
Share Capital 491.1 615.6 1,296.7 1,291.7

Retained Earnings (543.5) (366.4) (540.6) (352.7)
total rquitv ( 52.4) 249.2 756.1 939.0
T o t a 1 L i a b. & E q u i t y 34584.7 34855.8 4385.8.2 5 5733.5
Ratios
Current Ratio 1.6 1.2 1.2 1.4
Quick Ratio 0.4 0.6 0.7 0.7
Debt Service Coverage 0.1 1.7 0.9 1.5
a/ Source: BCIC
BCIC - FINANCIAL STATEMENTS 1976-80a/
GHORASAL INCOME STATEMENT

(In Million Takas)
1976 1977 1978 1979 1980

FY Ending June 30 Budget
228.8 357.9 269.2 397.7 459.5

Sales Revenue (Net)
94.3 91.8 82.3 121.7 185.4

Materials Consumed 20.9
- - 2.1 19.1
Power and Fuel
6.0 ( 2.8) 3.0 ( 7.6) (36.3)
Change in Invent. of Fin. Goods 20.1 1
9.4 13.2 13.2 14.7
Salaries, Wages and Bonuses X
17.2 14.2 56.5 105.5 55.0
Production Overheads 76.6
66.9 74.7 75.2 .2
Depreciation
193.8 191.1 232.3 253.6 321.7

Cost of Goods Sold
35.0 166.8 36.9 144.1 137.8

Gross Operating Profit
4.9 8.0 7.4 34.8 36.0

Administrative Overhead )
.1 .0 .0 .9
Sales Cost
30.0 158.8 29.5 108.4 101.8

Net Operating Profit
6.9 16.5 12.8 15.6 5.0

Financial Charges (Net)
23.1 142.3 16.7 92.8 96.8

Profit (Loss) Before Taxes
Ratios
47 14 36 30 * X
Gross Margin in % 15
40 6 23 21 >
Net Margin (Bef. Taxes) in % 10
a/ Source: BCIC
ANNEX 4-2
Page 4
GHORASALBALANCESHEETS
(In Million Takas)
FY ending June 30 1976 1977 1978 1979
Assets
Cash and Banks 1.8 1.3 20.3 1.3
Accounts Receivable 176.1 374.8 439.5 621.9
Inventory 94.7 112.6 183.4 227.5
Raw Material - 30.9 50.9 2.7
Finished Goods .2 3.1 .0 4.9
Total Current Assets 285.0 492.2 651.4 860.8
Gross Fixed Assets 773.1 811.8 817.0 822.6
Less Accumulated Depreciation 195.5 298.1 373.3 448.5
Net Fixed Assets 577.6 513.7 443.7 374.1
Investments - .3 _
T o t a 1 A s s e t s 8634.9
862-6 _55.9 1,095.4
Liabilities
Accounts Payable 196.4 193.6 259.4 185.5
Bank Loan _ _ _ _
Other Current Liabilities 3.6 7.6 54.4 137.1
Total Current Liabilities 200.0 201.2 313.8 322.6
Long-Term Debt 775.7 771.9 601.9 601.9
Share Capital 8.4 8.4 177.9 177.9
Retained Earnings (121.5) 24.4 1.8 132.5
Total Equity (113.1) 32.8 179.7 310.4
T o t a 1 L i a b. & E q u i ty 862.6 1_005.9 1,095.4 1.234.9
Ratios
Quick Ratio 1.0 1.9 1.5 2.0
Debt Service Coverage 1.3 2.7 1.3 1.3
Debt/Equity Ratio - 96:4 77:33 66:33
a/ Source: BCIC
a/
BCIC - FINANCIAL STATEMENTS 1976-80 -
CHITTAGONG INCOME STATEM1ENT

(In Million Takas)
1976 1977 1978 1979 1980

FY Ending June 30
Budget
103.8 190.3 168.1 272.5 410.5
Sales Revenue (Net)
101.3 75.7 81.7 117.2 225.7

Materials Consumed 13.1
1.7 4.7 7.9 8.3
Power and Fuel
3.2 10.6 (21.8) ( 4.1) 4.5
Change in Invent. of Fin. Goods 14.1
4.9 4.9 8.1 17.0
Salaries, Wages and Bonuses 27.0
17.8 10.7 11.5 12.5
Production Overheads 34.4
26.9 27.4 32.8 44.9
Depreciation
155.8 134.0 120.2 194.0 318.8

Cost of Goods Sold
(52.0) 56.3 47.9 77.6 91.7

Gross Operating Profit
4.7 6.6 9.5 5.2 6.0

Administrative Overhead )
.1 .0 .1 .4 _
Sales Cost
(56.8) 49.7 38.3 71.1 85.7

Net Operating Profit
20.3 20.4 20.2 20.2 18.9

Financial Charges (Net)
(77.1) 29.3 18.1 50.9 66.8

Profit (Loss) Before Taxes
Ratios
(50.0) 29.6 28.5 28.5 22.3

Gross Margin in %
(74.1) 15.4 10.8 18.7 16.3
Net Margin (Bef. Taxes) in %
a/ Source: BCIC
- 52 -
ANNEX4-2
Page 6
CHITTAGONGBALANCESHEETS
(In Million Takas)
FY Ending June 30 1976 1977 1978 1979
Assets
Cash and Banks 3.1 1.2 7.4 5.3
Inventory 96.8 124.6 153.6 322.2
Raw Material 47.1 6.8 14.9 49.3
Stores and Spares 13.4 .0 127.6 251.1
Finished Goods 36.3 117.8 11.1 21.8

Less Accumuldted Depreciation 51.0 84.7 146.6 155.5
Net Fixed Assets 254.2 223.5 180.6 164.8

Investments - - - -
T o t a 1 A s s e t s 379.0 423.3 478.2 759.2
Liabilities
Bank Loan 70.0 - - -
Total Current Liabilities 290.5 309.2 342.2 574.5
Long-rerm Debt 210.9 210.5 38.6 49.5
Share Capital - - 174.8 174.8

Retained Earnings (122.4) ( 96.4) ( 77.5) ( 39.7)
Total Equity (122.4) ( 96.4) 97.4 135.2
T o t a 1 L i a b. & E q u i t y 379.0 423.3 478.2 759.2
Ratios
Ratios
Current Ratio .4 .7 .9 1.0
Quick Ratio .1 .2 .4 .5
Debt Service Coverage - 1.9 1.8 2.9
Debt/Equity Ratio - 28:72 27:73
a/ Source: BCIC
__ . ~~~~~~a/
FENCHUGANJ INCOME STATEMENT

(In Million Takas)
FY Ending June 30 1976 1977 1978 1979 1980
Sales Revenue (Net) 57.3 145.8 149.2 96.2 234.9
Materials Consumed 33.5 43.5 46.5 34.4 75.8

Power and Fuel - 1.6 1.3 .9 3.3
Change in Invent. of Fin. Goods ( 9.9) ( 3.0) 14.0 ( 7.9) ( 1.9)
Salaries, Wages and Bonuses 14.0 19.6 14.8 15.8 24.5 1
Production Overheads 10.4 10.7 9.3 2.7 25.4 L
Depreciation 14.1 13.9 13.7 8.8 37.8 (
Cost of Goods Sold 62.1 86.3 99.6 54.7 164.9
Gross Operating Profit ( 4.8) 59.5 49.6 41.5 70.0
Administrative Overhead 6.7 5.8 7.9 6.6 )

Sales Cost .5 .4 .3 .2 ) 8-0
Net Operating Profit (12.0) 53.3 41.4 34.7 62.0
Financial Charges (Net) 4.4 4.3 5.4 4.2 32.0
Profit (Loss) Before Taxes (16.4) 49.0 36.0 30.5 30.0
Ratios
Gross Margin in % (8 ) 41 33 43 30 A
Net Margin (Bef. Taxes) in % (29 ) 34 24 32 13 sX
a/ Source: BCIC
- 54 - ANNEX 4-2
Page 8
BCIC - FINANCIAL STATEMENTS 1976-80 8/
FENCHVGANJ BALANCE SHEETS

(In Million Takas)
FY Ending June 30 1976 1977 1978 1979
Assets
Cash and Banks 2.3 1.5 13.7 3.5
Inventory 120.4 139.5 134.9 162.0
Raw Material 14.0 - 1.3 46.8
Finished Goods 2.2 19.1 3.4 14.5

Less Accumulated Depreciation 98.8 113.4 127.3 141.5
Net Fixed Assets 131.3 121.2 103.1 305.2

Investments .2 .4 1.9 .2
T o t a 1 A s s e t s 315.0 362.3 405.7 698.9
Liabilities
Bank Loan - - - -
Total Current Liabilities o8.5 96.1 106.3 72.6
Long-term Debt 78.2 83.5 103.7 384.2
Share Capital 100.0 100.0 100.0 100.0

Retained Earnings 48.3 82.7 95.7 142.1
Total Equity 148.3 182.7 195.7 242.1
T o t a 1 L i a b. & E q u i t y 315.0 362.3 405.7 698.9
Ratios
Quick Ratio .7 1.1 1.6 3.2
Debt Service Coverage .3 5.0 4.0 3.0
Debt/Equity Ratio 35:65 31:69 36:64 61:39
av Source: BCIC

April 1980
BANGLADESH- FERTILIZER INDUSTRY REHABILITATION PRDJECI
BCIC - FERTILIZER PRODUCTIONAND CAPACITY UTILIZATION

(In '000 tons per year)
FY77 FY78 FY79 FY80 Projected

Design Operating Operating Operating Operating
Plant Product Capacity Production Rate as % Production Rate as , Production Rate as % Production Rate as 7°
Fenchuganj Urea 115.5 77.5 67 61.4 53 59.5 52 100.0 87
Sulfate 13,2 9.3 70 9.6 73 5.3 40 9.0 68

Ghorasal Urea 374.0 208.0 56 151.0 40 236.1 63 250.0 67
Chittagong
No. 1 TSP 32.0 0

41.3 27 62.3 41 90.0 60
No. 2 TSP 120.0 48.0 40
Total 654.7 342.8 52 263.3 40 363.2 55 449.0 69
a/ Based on 330 operating days for Fenchuganj and Chorasal, and 300 operating
days for the TSP plants at Chittagong according to industry practice.

April 1980
4-
ANNEX 4-4
- 56 -
BANGLADESH- FERTILIZER INDUSTRYREHABILITATIONPROJECT

PLANT IMPROVEMENTCOMPONENT- PROJECT SCOPE
A. GhorasalPlant ImprovementProgram
- Improvementof the refrigerationsystem including the

ammonia condenser.
- Modificationsas required of the synthesis gas compressor.
- Modificationof the auxiliary boiler fan.
- Improved type of replacement tube bundle for the methanator

effluent economizer.
- Replacementtube bundle for the reformed gas waste heat boiler.
- Investigationsand adoption of the ICI technique to improve the

vetrocoke decarbonatorperformance.
- Additional reboiler for high pressure decomposer.
- Replacementof the urea plant ammonia and carbamatepumps with

centrifugalpumps.
- Modificationsas required of the carbon dioxide booster and main

compressors.
- Improvementsto the cooling towers to improve their capacity.
- Repairs, replacementsand improvementsof the existing gas turbine

generators.
- Addition of a new package boiler.
- Third water purification unit.
- Revamping the instrumentationand the trip systems.
- Replacementof the turbine rotor and intercoolerof the air

turbocompressor.
- Replacementof the urea crystals centrifuge.
- Any other modificationsas may be agreed to between the

Borrower and the Association.
57 ANNEX 4-4
Page 2
B. ChittagongPlant ImprovementProgram
- Provision of replacementand standby pumps in the sulfuric

and phosphoric acid plants.
- Standby phosphoricacid concentrator.
- Modificationsand improvementsin main air blower and digesters.
- Improving distributorsin sulfuric acid towers.
- Installationof filters and drying towers.
- Additional agitators.
- Oil-fired steam boiler.
- Improvementsto water treatment system.
- Diesel emergency generator set.
- TSP granulation facilities. a/
- Improvementsand replacementsof instrumentation.
- Water cooling and recycling system.
- Improvementsin material handling.
- Any other modificationsas may be agreed to between the

Association and the Borrower.
C. FenchuganjPlant ImprovementProgram
- Provisionfur replacementof some critical pumps and prefabricated

pipes.
- Improvementof the present instrumentationfor better process

control.
- Replacementheat exchangersand condensersfor some of the

critical duties.
- A set of turbine blades and diaphragm for the power generationunit.
- Any other modificationsas may be agreed to between the Association

and the Borrower.
a! These installationswill be financed out of Dfl 10 million provided

by the Governmentof The Netherlands.
April 1980
BANGLADESH - FERTILIZER INDUSTRY REHABILITATION PROTECT
PLANT IMPROVEMENT COMPONENT - CAPITAL COST ESTIMATE
(in million US Dollars)
CHORASAL CHITTAGONG FENCHUGANJ PROJECT

Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total
Equipment and Supplies - 7.31 7.31 - 6.46 6.46 - 2.10 2.10 - 15.87 15.87
Freight and Insurance 0.07 0.73 0.80 0.06 0.65 0.71 0.02 0.21 0.23 0.15 1.59 1.74
Taxes and Duties 1.62 - 1.62 1.43 - 1.43 0.47 - 0.47 3.52 - 3.52
Inland Handling 0.41 - 0.41 0.04 - 0.04 0.10 - 0.10 0.55 - 0.55
Foundation and Structures 0.39 - 0.39 1.00 - 1.00 0.05 - 0.05 1.44 - 1.44
Erection 0.52 - 0.52 0.45 - 0.45 0.16 - 0.16 1.13 - 1.13
Engineering and Management 0.64 0.82 1.46 0.20 0.30 0.50 0.05 - 0.05 0.89 1.12 2.01
Base Cost Estimate (BCE) 3.65 8.86 12.51 3.18 7.41 10.59 0.85 2.31 3.16 7.68 18.58 26.26 X
Physical Contingency 0.55 1.33 1.88 0.47 1.11 1.58 0.13 0.35 0.48 1.15 2.79 3.94
(PC) at 157. of BCE
Price Escalation 0.60 1.46 2.06 0.52 1.21 1.73 0.14 0.38 0.52 1.26 3.05 4.31
(14.37, of BCE + PC)
Total Project Cost 4.80 11.65 16.45 4.17 9.73 13.90 1.12 3.04 4.16 10.09 24.42 34.51
Interest during Construction 1.30 - 1.30 1.11 - 1.11 0.33 - 0.33 2.74 - 2.74
Financing Required 6.10 11.65 17.75 5.28 9.73 15.01 1.45 3.04 4.49 12.83 24.42 37.25

April 1980
- 59 - ANNEX 7-2
BANGLADESH- FERTILIZER INDUSTRY REHABILITATION PROJECT
ESTIMATED DISBURSEMENT SCHEDULE FOR IDA CREDIT
Bank Fiscal Estimated Cumulative

Year and Quarter Disbursements Disbursements
1980 July - September 0.3 0.3

October - December 0.4 0.7
January - March 3.6 4.3
April - June 3.8 8.1



April 1980
- 60 - ANNEX 8-1
BANGLADESH- FERTILIZER INDUSTRY REHABILITATION PROJECT
ESTIMATED PRODUCTIONCOST SUMMARY

AND OUTPUT VALUE
GHORASAL: UREA PRODUCTION COSTS AT 85% CAPACITY UTILIZATION a/
… - - - - - - - - - -…In constant 1979 Takas-- - - - - -

Financial Financial Financial Economic Economic Economic
Unit/Tons Cost/Ton Cost/Year Cost/Ton Cost/Year
of Product Price/Unit of Product In MM Tk Price Unit of Product in MM Tk
1. Variable Costs
Natural Gas (Mscft) 48.2 6.25 301.3 95.8 15.5 747.1 237.6
Chemicals - - 108.6 34.5 - 103.2 32.8
Duty on Electricity (MKWH) .381 10.0 3.8 1.2 - -
Packing Materials 37 9.46 350.0 111.3 8.50 314.5 100.0
Others - - 73.3 23.3 70.4 22.4
Total Variable Costs 837.0 266.1 1,235.2 392.8
2. Fixed Costs
Salaries 58.5 18.6 58.5 18.6

Maint. Materia,as 33.7 10.7 32.1 10.2
Depreciation - 307.9 97.9 _ _
Others 114.7 36.5 114.7 36.5
Total Fixed Costs 514.8 163.7 205.3 65.3
3. Total Urea Cost 1,351.8 429.8 1,440.5 458.1
4. Value of Output
318,000 to6siof urea 1,900.0 604.2 4,340.0 1,380.1
a/ Nameplate capacity: 374,000 tpy urea.

b/ Based on BCIC's budget estimates for FY80 plus depreciation of Taka 21.3 million for Plant Improvement
Component.
Economic Assumptions
1. Natural Gas Tk 15.5 or US$1.00 per Mscft reflects economic price (para 9.01).
2. Chemicals Financial cost less 5% for local taxes and duties.
3. Packing Materials: Financial cost less 10% for import duties (35%) on PE lining.
4. Maint. Materials : Financial cost less 5% for import duties.
Port Handling,
Ocean Transportation
FOB Freight Differential Economic Cost
- - - -US$-US$
- - - - - - - Tk
5. Urea 230 40 10 280 4,340.0
- 61 - ANNEX8-1
- FERTILIZER INDUSTRY REHABILITATION PROJECT

BANGLADESH Page 2
ESTIMATEDPRODUCTIONCOST SUMIMARY
AND OUTPUTVALUE
CHITTAGONG: TSP PRODUCTION COSTS AT 80% CAPACITY UTILIZATION-2J
… - - - - - - - - - -…In constant 1979 Takas- - - - - - - - - - - -

of Product Price/Unit of Product in MM Tk Price/Unit of Product in MM Tk
1. Variable Costs
Sulfur 0.36 1,469.0 528.8 64.3 1,782.5 641.7 78.0

Phosphate Rock 1.64 1,061.0 1,740.0 211.6 1,131.5 1,855.7 225.6
Catalysts & Chemicals 49.6 6.0 47.1 5.7
Power & Fuel 146.0 17.8 182.5 22.2
Others 90.0 10.9 86.3 10.5
Total Variable Costs 2,798.0 340.2 3,020.7 367.2
2. Fixed Costs
Salaries 90.5 11.0 90.5 11.0

Maint. Materials 36.2 4.4 34.4 4.2
Depreciation b/ 405.4 49.3 - _
Others 180.9 22.0 180.9 22.0
Total Fixed Costs 713.0 86.7 305.8 37.2
3. Total TSP Costs 3,511.0 426.9 3,326.5 404.4
4. Value of Output
121,600 tons of TSP 4,350.0 529.0 4,185.0 508.9
a/ Nameplate Capacity: 152,000 tpy TSP.

b/ Based on BCIC's budget estimates for FY80 plus depreciation of Taka 14.9 million for Plant Improvement
Component.
Economic Assumptions Ocean Port landling

FOB Freight Bagging & Unloading Economic Cost
-- - - - - - - -- US 9- - - - - - - - - -- US$ Tk
1. Sulfur : 90 25 - - 115 1,782.5
Phosphate Rock: 49 25 - - 73 1,131.5
TSP : 195 50 15 10 270 4,185.0
2. Chemicals : Financial cost less 57 for local taxes and duties.

3. Power & Fuel : Financial cost plus 25% for economic value of fuel oil (US$230/ton).
4. Packing Materials : Financial cost less 15% for import duty (35%) on PE lining.
5. Maint. Materials : Financial cost less 5% for local taxes and duties.
- 62 - ANNEX 8-1
Page 3
BANGLADESH
- FERTILIZER INDUSTRYREHABILITATIONPROJECT
ESTIMATED PRODUCTIONCOST SUMMARYAND OUTPUT VALUE
FENCHUGANJ: UREA PRODUCTION COSTS AT 87% CAPACITY UTILIZATION IV
- - - - - - - - - - - -In constant 1979 Takas…- - - - - - - - - - -

of Product Price/Unit of Product in MM Tk Price/Unit of Product in MM Tk
1. Variable Costs
Natural Gas (Mscft) 86 4.48 385.3 38.5 10.3 885.8 88.6

Chemicals - - 185.0 18.5 175.8 17.6
Duty on Electricity (MKWH) 2.177 10.0 21.8 2.2 - -
Others - - 111.2 11.1 106.6 10.6
Total Variable Costs 1,094.5 109.4 1,516.7 151.6
2. Fixed Costs
Salaries 254.7 25.5 254.7 25.5

Maint. Materials 45.6 4.6 43.3 4.3
Depreciation b/ 418.4 41.8 - -
Others 93.5 9.3 93.5 9,3
Total Fixed Costs 81 75 81.2 391.5 39.2
3. Total Urea Cost 1,906.7 190.6 1,908.2 190.8
4. Value of Output
100,000 Tons of FTrea 2,395.7 239.6 4,340.0 434.0
a/ Nameplate capacity: 115,500 tpy urea.

b/ Based on BCIC's budget estimates for FY80.
omic Assumptions
1. Natural Gas Tk 10.3 or US$.66 per Mscft reflects charges applied to non-preferential industrial users and
is used as economic price due to the remote location and limited size of the Hiaripur gas fields.
2. Chemicals Financial cost less 5% for local taxes and duties.
3. Packing Materials Financial cost less 102 for import duties (35X) on PFE lining.
4, Maint. Materials Financial cost less 5% for import duties.
Port Handling,
Ocean Transportation
FOB Freight Differential Economic Cost
- - - - - - - US$- - - - -- - - - - - - US$ Tk
5. Urea 230 40 10 280 4,340.0

April 1980
COST AND BENEFIT STREAMS FOR FINANCIAL RATE OF RETURN CALCULATION

(in millions of constant 1979 US dollars ) 1/
Incremental Incremental
Capital Variable Output Net
FY ending June 30 Costs 2/ Costs Value Benefit
Chittagong
1981 3.5 - - (3.5)
1982 7.6 - - (7.6)
1983-1992 - 5.5 8.5 3.0
Financial Rate of Return Before Tax = 21.8%
Ghorasal
1981 4.1 - - (4.1)
1982 9.0 - - (9.0)
1983-1992 - 3.7 8.3 4.6
Financial Rate of Return Before Tax 29.8%
1/ At an exchange rate of US$1.00 = Taka 15.5.
2/ Excluding interest during construction.

April 1980
BANDLADESH - FERTILIZER INDUSTRY REHABILITATION PROJECT
COST AND BENEFIT STREAMS FOR ECONOMIC RATE OF RETURN CALCULATION

(in millions of constant 1979 US dollars)|/
Incremental Incremental
Capit2a3 Variable Output Net
FY ending June 30 Costs- Costs Value Benefit
Chittagong
1981 3.0 _ (3.0)

82 6.7 - _ (6.7)
1983-1992 - 5.9 8.2 2.3
Economic Rate of Return 18.2%
Ghorasal
1981 3.6 - (3.6)

82 7.9 - (7.9)
1983-1992 - 5.4 19.0 13.6
Economic Rate of Return = 91.7%
1/ At an exchange rate of US$1.00 = Taka 15.5.
2/ Financial cost less import duty of US$1.9 million and US$2.1 million for Chittagong and
Ghorasal, respectively.

April 1980
x
IBRD 14866
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Report No. 2876-BD

STAFF APPRAISAL REPORT

FERTILIZER INDUSTRY REHABILITATION PROJECT

April 23, 1980

Industrial Projects Department

In August 1979 the Bangladesh Taka was officially devalued

ABBREVIATIONS AND ACRONYMS

ADB - Asian Development Bank

BANGLADESH FISCAL YEAR (FY)

THE FERTILIZER INDUSTRY REHABILITATION PROJECT

II. THE FERTILIZER INDUSTRY ...... .....................

A. Existing Plants ..................o........................................

III. FERTILIZER MARKET AND MARKETING ......................... 6

A. Fertilizer Consumption/Demand............ ........... 7

IV. BANGLADESH CHEMICAL INDUSTRIES CORPORATION .................... 12

A. History and Organizational Structure ........... ........... 12

V. THE PROJECT ............ ....................................... 25

A. Plant Improvement Component ....................

VI. PROJECT MANAGEMENT AND EXECUTION .............................. 27

A. Project Management ........................................ 27

VII. CAPITAL COST, FINANCING PLAN AND PROCUREMENT ................. 30

A. Capital Cost ................ ............................. 30

VIII. FINANCIAL ANALYSIS . ................ .o......................... 34

IX. ECONOMIC ANALYSIS . ........... .......................... ..... 39

A. Economic Costs and Benefits ............. ................. 39

3 Fertilizer Offtake in Bangladesh 1965-79

IBRD-14866 BANGLADESH- Location of Fertilizer Plants

A Fertilizer Works Operation Improvement Programme - Inception

B Fertilizer Works Operation Improvement Programme - Final

C Proposal for Rehabilitation Work for Urea Ferttlizer Factory

D Draft Technical Annex for the Ministry of Overseas Development

E Rehabilitation and Conversion Options for T3P MKanufacturing

F TSP Manufacturing versus Fertilizer Importation. April 1979.

G Feasibility Report on the Fertilizer Production Improvement

H Feasibility Report on the Fertilizer Production Improvement

I Feasibility Report on the Fertilizer Production

APPRAISAL OF THE FERTILIZERINDUSTRYREHABILITATIONPROJECT

1.01 The Governmentof Bangladesh (the Government)has requestedan

1.02 The Project includesadditions and replacementsof equipment and

1.03 The proposed credit is to finance one of three operationsunder con-

1.04 The Project was identifiedin July 1979 by a mission consistingof

II. THE FERTILIZER INDUSTRY

2.01 Domestic fertilizerproductionstarted in Bangladeshwith the

2.02 Capacityutilizationachievedby the Fenchuganjplant was close

2.03 A large fertilizerplant with an installedcapacity of 528,000 tpy

was formed to construct,own and operate the facilities. In extensionof this

2.05 Presently BCIC is setting up further new facilitiesat Ghorasal for

2.06 With expected implementationof these projects, Bangladeshwould

C. Factory Gate FertilizerPrices

2.07 The fertilizerproduced by BCIC is pooled with importedfertilizers

D. Foreign Exchange Constraint

2.09 An important factor affecting the operations of the existing fer-

2.10 IDA has, in a series of program credits, provided foreign currency

2.11 The three existing fertilizerplants have a total employmentof

2.13 While the setting up of the training facilitieswill improve the

in attracting Bangladesh's skilled manpower, the plant managements are also

III. FERTILIZER MARKET AND MARKETING

3.01 The proposed Project, aimed at improving production by the existing

3.02 The agriculture sector dominates the Bangladesh economy. In 1979

3.03 Past Consumption. Use of chemical fertilizers in Bangladesh started

Bangladesh - Fertilizer Consumption 1966-79