Project Resource Guide - · PDF fileUnipetrol Spolana Cyclohexane/Cyclohexanone/Caprolactam Unit ... Raytheon and Honeywell have ... Project Resource Guide Development

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Princeton Energy Resources International, LLC

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Central and Eastern EuropeChemicals ConferenceNew Orleans, Louisiana November 18-20, 2001

U.S. Trade and Development Agency

Project Resource Guide

The U.S. Trade and Development Agency

The U.S. Trade and Development Agency (TDA)

promotes American private sector participation in

developing and middle-income countries, with special

emphasis on economic sectors that represent

significant U.S. export potential. Through the funding

of feasibility studies, orientation visits, specialized

training grants, business workshops, and various

forms of technical assistance, we help U.S. businesses

compete for infrastructure projects in emerging

markets. We assist in building mutually beneficial

partnerships between American companies and

overseas project sponsors, which result in increased

U.S. exports and jobs, and the completion of high

quality, successful projects in host countries.

1621 North Kent Street, Suite 200, Arlington, VA 22209Phone 703-875-4357 • FAX 703-875-4009

Table of Contents


Central and Eastern European Chemical ConferenceNovember 18-20, 2001 i

Introduction ................................................................................................................................... 1

TDA Success in the Region ................................................................................................ 1

Identifying and Developing Projects................................................................................... 3

Briefing Book Organization................................................................................................ 4

Acknowledgements ............................................................................................................. 4

Notes ................................................................................................................................... 5

Regional Overview ........................................................................................................................ 7

Introduction ......................................................................................................................... 7

Political and Economic Climate.......................................................................................... 7

Chemical, Petrochemical, and Refining Industries ............................................................. 8

Conclusion........................................................................................................................... 9

Country Profile – Bulgaria......................................................................................................... 10

Project Profiles – Bulgaria

LUKOIL Neftochim Refinery and Petrochemical Complex Modernization Project........ 13

NEOCHIM Energy Efficiency Project.............................................................................. 17

NEOCHIM Mixed Fertilizers Project ............................................................................... 20

Orgachim Energy Conservation Project............................................................................ 23

Country Profile – Croatia........................................................................................................... 25

Project Profiles – Croatia

Rijeka Refinery Upgrading Project ................................................................................... 29

Sisak Refinery Upgrading Project..................................................................................... 32

Sisak Refinery Soil Remediation Project .......................................................................... 35

Country Profile – Czech Republic ............................................................................................. 38

Project Profiles – Czech Republic

Unipetrol Spolana Cyclohexane/Cyclohexanone/Caprolactam Unit ................................ 41

Chemopetrol Ethylbenzene Production Plant ................................................................... 43

Chemopetrol C5 Treatment Project .................................................................................. 45

Chemopetrol Pyrotol Unit/Aromatics Expansion ............................................................. 48

Kaucuk SBR Lattices Production Plant ............................................................................ 51

Unipetrol / Kaucuk HIPS Unit Expansion Project ............................................................ 54

Table of Contents


Central and Eastern European Chemical ConferenceNovember 18-20, 2001 ii

Kaucuk Solution Styrene-Butadiene Rubbers................................................................... 57

Country Profile – Hungary ........................................................................................................ 60

Project Profiles – Hungary

TVK Wastewater Treatment Project ................................................................................. 63

TVK Polyethylene Plant Expansion Project ..................................................................... 66

Country Profile – Poland............................................................................................................ 69

Project Profiles – Poland

Zachem Chlorine Capacity Expansion Project.................................................................. 72

Zachem Phosgene, Epichlorohydrin and Allyl Chloride Derivatives ............................... 75

Kedzierzyn Nitric Acid and Neutralization Plant Project ................................................. 78

Kedzierzyn Oxo Aldehyde and Oxo Alcohol Derivatives Project.................................... 81

Kedzierzyn Methanol Plant Project .................................................................................. 84

Rokita Propylene Oxide Capacity Expansion Project....................................................... 87

Dwory Polystyrene Conversion Equipment...................................................................... 90

Dwory Solution SBR and Latex Capacity Expansion Project .......................................... 93

Country Profile – Romania ........................................................................................................ 96

Project Profiles – Romania

Rompetrol VEGA Refinery’s Soil and Groundwater Remediation Projects .................. 100

Rompetrol VEGA Refinery Upgrading Project .............................................................. 104

Rompetrol Petromidia Petrochemical Upgrading Project............................................... 107

Rompetrol Petromidia Refinery In-Line Blending Project ............................................. 110

Petrom Petrochemical Plant Expansion .......................................................................... 113

Petrom Delayed Coker and Calciner Project................................................................... 116

Petrom New Alkylation Unit .......................................................................................... 119

Petrom Acrylonitrile Unit Upgrading Project ................................................................. 122

Country Profile – Slovakia ....................................................................................................... 125

Slovnaft and its Cooperation with TDA.................................................................................. 128

Project Profiles – Slovakia

Slovnaft Aromatics Project ............................................................................................. 133

Slovnaft Steam Cracker Revamp .................................................................................... 135

Table of Contents


Central and Eastern European Chemical ConferenceNovember 18-20, 2001 iii

Slovnaft Polyethylene Project ......................................................................................... 137

Slovnaft Polypropylene Project....................................................................................... 139

Plastika Nitra Expansion and Modernization ................................................................. 142

Chemolak Coil Coating Technology............................................................................... 145

Appendix I.................................................................................................................................. 147

Introduction


Central and Eastern European Chemical ConferenceNovember 18-20, 2001 1

Chemical, Petrochemical, and Refining inCentral and Eastern Europe

Owners, operators and sponsors of chemical,petrochemical, and refining projects fromseven (7) Central and Eastern Europeancountries: Bulgaria, Croatia, Czech Republic,Hungary, Poland, Romania, and Slovakia willpresent over 35 projects at this conference.U.S. companies will have an opportunity tomeet with over 30 industry and governmentexecutives from these countries to discussthese upcoming projects, and identify newopportunities to work together.

Lower production costs in Central and EasternEuropean countries have led to the increasedexport of chemicals, petrochemicals, andrefined products—creating a need forincreased production and plant expansion. Atthe same time, these Central and EasternEuropean countries are raising their pollution-control and product standards to meet those ofthe European Union (EU). This requires themodernization of old facilities and installationof clean and efficient new technologies.

As the countries of Central and EasternEurope aim toward EU accession, theseindustries will be facing stiff competition fromother European chemical and petrochemicalproducers and refiners. These marketpressures combined with lower labor andfeedstock costs are aiding the developmentand creation of chemical, petrochemical andrefining industries that are expected to becomeimportant players on the international market.

The conference will highlight a number oflarge projects in the chemical, petrochemical,and refining industries. These projects aresponsored by established companies and rangefrom an estimated total cost of $4,000,000 toover $350,000,000. These projects are

TDA Success in the Region

Since the early 1990s, the U.S. Trade andDevelopment Agency (TDA) has beenproviding feasibility grants for chemical,petrochemical and refining projects inCentral and Eastern Europe. The initialrequests were generally for upgrading ormodernizing refineries. In recent years, notonly have the number of grant requestsincreased, but they have also includedfunding requests for feasibility studies,definitional missions, and other activities insupport of chemical and petrochemicalprojects.

TDA’s grants for feasibility studies andfunding of other activities in this regionhave led to successful implementation ofmany projects – some of which will bepresented at this conference. The three (3)following examples typify TDA’s successstories.

MOL Refinery Modernization

Since the late 1990s, modernization of three(3) petroleum refineries in Hungary has ledto the export of U.S. goods and servicesvalued at over $13,000,000. This value isexpected to increase as modernizationefforts are scheduled to continue through2005. Foster Wheeler, Chevron, andHoneywell to have supplied engineeringservices, process licensing, and/orequipment for these refineries.

Introduction



selected to be featured in this Project ResourceGuide because they either are in earlyplanning stages and require feasibilityassessments, or EPC or equipment bidpackages are about to be issued. Sponsors ofsome of these projects are seeking jointventure partners, technology licensors, orequipment suppliers to partner with for exportof technology or machinery. Projects includedare:

New Projects: to meet EU motor fuelstandards for 2005.

New Petrochemical Projects: Ethylbenzene,Polypropylene, Benzene Derivatives,Polyethylene Terephtalate, Cyclohexane,Cyclohexanone, Caprolactam, C5 Treatment,SBR Plants, plant for production of dyes,detergents, and cosmetics, and a PET plant.

New Refinery Projects: Alkylation units,Calcining units, In-line product blendingsystems, Hydrocrackers, hydrogen plant,sulfur plant, HDS unit, MHC, Amine units.

Petrochemical Expansion andModernization Projects: Polyethylene plantexpansion, SBR Lattices plant expansion,Ethylene unit capacity expansion, Benzenecapacity expansion, Caprolactam andpolyacetal plant expansion, Acrylonitrile unitrevamping, HDPE plant expansion, DMTplant modernization.

Chemical Projects: Fertilizer plantexpansion, chlorine plant modernization andexpansion, syn-gas modernization, newmethanol plant, propylene oxide plantmodernization and expansion, caprolactamplant expansion and modernization.

Energy Efficiency and EnvironmentalProjects: Waste heat recovery, cogeneration,reconstruction of underground piping, soil

In 1990, TDA funded a feasibility study forthe modernization and expansion of theserefineries. The study assessed the refineries’modernization needs for meeting futuredemands for environmentally acceptableunleaded gasoline and low-sulfur fuel oil.The primary contractor was Foster WheelerInternational and this work was completedin 1992. TDA approved funding for anadditional scope of work on the study in1993. The new scope of work consisted of areevaluation of investment costs based onMOL’s more recent data and developing atime-phased refineries’ investments plan.This work was completed in 1993. TDA’stotal grant amounts for these studies was$560,000.

Slovnaft Refinery Modernization:

To date, this effort in Slovakia has led to theexport of U.S. services, technology, andequipment valued at over $20,000,000.UOP, ABB Lummus Global, andSTRATCO have entered into processlicensing agreements with Slovnaft. FluorDaniel, Raytheon and Honeywell haveformed a joint venture to provide Slovnaftwith engineering, construction, andprocurement (EPC) services.

In 1992, TDA approved funding of$314,000 for a feasibility study to assess themodernization of the Slovnaft Refinery. Theprimary contractor was BechtelInternational and the feasibility study wascompleted in 1994. These efforts have alsoresulted in project specific activities that arecurrently at various stages of development.Two of these projects — a newPolypropylene Project and an EthyleneModernization Project, are described in

Introduction



remediation, wastewater treatment,contaminated ground water treatment.

Those projects that are at early planning stagesbut are well defined, have a high potential forexport of U.S. technology, equipment andservices, meet a potential market need, andhave a high likelihood of obtaining financingwere recommended to be considered by TDAfor feasibility grants. Grant Agreements forsome of these projects are anticipated to beexecuted by TDA and project sponsors duringthe course of the conference. Projects that areat very early planning stages, and not readyfor a detailed feasibility study, but couldeventually present an opportunity for export ofU.S. technology, equipment and services arerecommended to be considered by TDA fortechnical support — to introduce projectsponsors to U.S. technologies and technologysuppliers.

Identifying and Developing Projects

Princeton Energy Resources International,LLC (PERI), a consulting and engineeringfirm, and INTRATECH inc., a consultingfirm, were retained by TDA to identify,characterize, and assess the viability of theprojects presented in this guide. The approachincluded a review of previously fundedprojects and assessment of their current statusand identification of new projects. PERI andINTRATECH inc. explored potential projectswith the project sponsors to determine theirpriority and likelihood that the projects couldattract financing and be completed withinplanned schedule and budget.

PERI and INTRATECH inc. requested projectsponsors and owners provide certaininformation regarding each project. Thisinformation was initially screened to identifyprojects meriting further consideration.

detail in this Project Resource Guide. Theseprojects present additional exportopportunities for U.S. firms.

Chemopetrol’s HDPE Project:

This project will result in over $40,000,000of revenue from sales of technology(including licensing fees) and equipment forU.S. firms. The website for the ChemicalsIndustry reports “Union Carbide partlymerged its operations with Exxon to create atechnology joint venture called UnivationTechnologies.” The joint venture providedthe process technology for the HDPE plantfor the first time in Eastern Europe.Chemopetrol has also reported planning toexpand plant capacity from 200 metric tonsper year to 300 metric tons, adding potentialrevenue sources for the U.S. firms.

This project was identified as a suitableproject for TDA’s feasibility funding duringa definitional mission to the Czech Republicin 1996 and Chemopetrol, an affiliate ofUnipetrol received a $300,000 grant for thea feasibility study. Union CarbidePolyolefins Development Company wasselected by Chemopetrol to conduct thestudy.

Introduction



Selected projects were then reviewed with theproject sponsors and a team visited the projectsites to collect additional information. Theavailable information was then used todetermine project viability. PERI andINTRATECH inc. also assisted projectsponsors in preparing project profiles forinclusion in this guide and presentation at theCentral and Eastern Europe ChemicalsConference scheduled to be held onNovember 18- 20, 2001 in New Orleans,Louisiana. Each project profile includes thefollowing:

• Sponsor’s corporate history;

• Technical and commercial descriptionof the project;

• Assessment of feedstocks availability;

• Assessment of market potential for theproducts;

• Budget level cost estimates;

• Financing strategy; and

• Assessment of potential for exportedU.S. goods and services during projectimplementation.

The project profiles are designed to provideengineering, construction and financing firms,potential investors, and equipment andtechnology suppliers with sufficient technical,commercial, and economic information tomake a preliminary assessment of theirinterest in the project.

Briefing Book Organization

This Project Resource Guide is available onboth CD-ROM and in hardcopy. ProjectProfiles are grouped by country and arepresented following a brief Country Profile.

Acknowledgements

Project Sponsors and Owners

The PERI and INTRATECH inc. team wishesto express its deepest appreciation to projectowners, sponsors, and developers in Centraland Eastern Europe for their superbcooperation with the team prior to, during, andfollowing the team visit to project sites. Theproject team also wishes to acknowledge thecontribution of the project sponsors whosubmitted project descriptions, costs, financialdata and other information that was used tocompile Project Profiles.

U.S. Trade and Development Agency(TDA)

The Central and Eastern Europe ChemicalsConference and the work presented in thisProject Resource Guide were funded by TDA.The PERI project team wishes to express itsdeepest appreciation for the leadership andtimely guidance provided by TDA.

U.S. Foreign Commercial Services (FCS)

The FCS provided valuable backgroundinformation, and supported the team withcontacts and logistics in the countries visited.

INTRATECH inc.

INTRATECH inc. provided invaluablesupport with identifying, assessing, andproviding input for preparing Project Profilesfor the projects in Czech Republic, Poland,and Slovakia. INTRATECH inc. also visitedproject sites and project sponsors in thesecountries. PERI’s team would like toespecially thank INTRATECH inc. for theircontribution to the preparation of this ProjectResource Guide.

Introduction



Others

Many information sources were used todevelop background information for preparingthis Project Resource Guide. In particular, theCountry Profiles include information providedby the European Bank for Reconstruction andDevelopment, The World Bank, and the U.S.Foreign Commercial Services.

Notes

Below is a listing of the abbreviations usedthroughout the Project Resource Guide.

Abbreviation MeaningABS Acrylonitrile butadiene

styreneBGN Bulgarian currency unitBOO “Build, Own, Operate”BOSD Barrels of oil per standard

daybpd Barrel per dayBR Polybutadiene rubberBTX Benzene, toluene, zyleneC4, 5, 6 etc. Hydrocarbon structuresC&E Central and Eastern

(Europe)CEE Central and Eastern EuropeCEFTA Central European Free

Trade AgreementCEI Central European InitiativeCEOG CE Oil & GasCPN Centrala Produktow

NaftowyschDADMAC DiallyldimethylammoniumDCPD DicyclopentadieneDCS Distributed control systemDEPA Danish Environmental

Protection AgencyDFI Direct foreign investmentDMT DimethylterephthalateDT Deutsche Telekom AG

Abbreviation MeaningEBRD European Bank for

Reconstruction andDevelopment

EFPA Environmental Fuel ProjectApollo

EFTA European Free TradeAgreement

EMU European Monetary UnitENI Ente Nazionale Idrocarburi

(Italy)EPC Engineering, Procurement,

ConstructionEPS Expandable polystyreneE-SBR Emulsion styrene-butadiene

rubberETOX Ethylene oxideEU European UnionFCC Fluidized catalytic crackingFCCU Fluid catalytic cracking unitFCS U.S. Foreign Commercial

ServicesFDI Foreign direct investmentFSU Former Soviet UnionGATT General Agreement on

Tariffs and TradeGDP Gross domestic productGPPS General purpose

polystyreneHDPE High-density polyethyleneHDS HydrodesulfurizationHIPS High-impact polystyreneHMWPE High molecular weight

polyethyleneHRK Croatian currency unitHUF Hungarian ForintIGCC Integrated gasification

combine cycleIMF International Monetary

Fund

Introduction



Abbreviation MeaningINA Industrija nafte d.d

(National Oil Company ofCroatia)

IRR Internal rate of returnISO International Standards

OrganizationISPA Instrument for Structural

Policies for Pre-AccessionKRASOL Special liquid polystyrenekt/y Thousand tons/yearLDPE Low-density polyethyleneLLDPE Linear Low Density

PolyethyleneLPG Liquid propane gasMAEG Minimum acceptable

environmental goalsMHC Moderate pressure

hydrocrackerMM MillionsMOL Hungarian Oil and Gas

Public Limited CompanyMSE Millennium Science &

Engineering, Inc.MT Metric tonsMTD Metric tons per dayMTY Metric tons per yearMW MegawattNATO North Atlantic Treaty

OrganizationNPG Neopentyl glycolNPV Net present valueOECD Organization for Economic

Cooperation andDevelopment

OGFA Oil and Gas FrameworkAgreement

O&M Operations andmanagement

OPIC Overseas PrivateInvestment Corporation

PB PolybutadienePE Polyethylene

Abbreviation MeaningPERI Princeton Energy

Resources InternationalPET Polyethylene terephthalatePFO Pyrolysis fuel oilPHARE Poland and Hungary Action

for the Restructure of theEconomy

PKN Polski Koncern NaftowyPP PolypropylenePVC Polyvinyl chlorideREGENOX Regenerative oxidation

catalyst systemRTV Room temperature

vulcanizedSAA Stability and Association

AgreementSAPARD The Special Assistance

Programme for Agricultureand Development

SBR Styrene-butadiene rubberSBS Styrene-butadiene-styreneSEZ Special economic zonesSK Slovak currency unitS-SBR Solution polymerized

styrene-butadiene rubbert/d Metric tons per dayTDA U.S. Trade and

Development AgencyTDI Toluene diisocyanateTMP TrimethylolpropaneTRCC Deep conversion plantVAT Value added taxVGO Vergion Gas OilWTO World Trade OrganizationXPS Extruded polystyreneX-SBR Carboxylated styrene-

butadiene lattices

Regional Overview



Introduction

Central and Eastern European countries areundergoing significant industrial andeconomic reform and restructuring. Seven ofthese countries are the focus of thisconference. They are:

• Bulgaria

• Croatia

• Czech Republic

• Hungary

• Poland

• Romania

• Slovakia

This section provides an overview of theirpolitical and economic climate as well as theirchemical, petrochemical, and refiningindustries.

Political and Economic Climate

In general, the EU accession process shapesthe transition to a market economy and thedevelopment of commercial rules andregulations in these countries. Poland andHungary signed framework agreements forCentral and Eastern European (CEE) countriesto prepare for membership in the EU in 1991.Bulgaria and Romania signed this agreementin 1993. The Czech Republic, Hungary andPoland were invited to begin accessionnegotiations in 1996. Bulgaria, Romania, andSlovakia were invited in 1999, and Croatiawas invited in 2000.

These countries must meet a series ofrequirements, generally referred to as the“Copenhagen Criteria,” before they canbecome a full member of the EU. Theserequirements include:

• Political Criteria – achieving stabilityof institutions guaranteeingdemocracy, the rule of law, humanrights and respect for and protectionof minorities.

• Economic Criteria – establishing afunctioning market economy, and thecapacity to cope with competitivepressure and market forces within theEU.

• Administrative Criteria –demonstrating the ability to take onthe obligations of membership,including adherence to the political,economic, and monetary goals of theEU.

Accession candidates must also bring theirlegislation into line with EU’s common bodyof law “acquis communautaire.” However,acceding to the EU does not guaranteeinclusion in the European Monetary Union(EMU). To become a member of the EMU,countries must meet four additional criteria,known as the Masstricht ConvergenceCriteria. They are:

• Inflation – a rate within 1.5% of thebest performing EU countries in termsof price stability.

• Public Finance – absence of anexcessive government deficit anddebt.

• Exchange Rate Stability – observanceof the normal margins of the exchangerate mechanism without severedevaluation for two (2) years.

• Long Term Interest Rates – a ratewithin 2% of the rates in the threecountries with the lowest inflationrates.

Regional Overview



The timing and number of countries that willbe admitted during various phases of theaccession process is unclear. The mostoptimistic projections indicate that the firsttier candidates (Czech Republic, Hungary, andPoland for the purposes of this briefing bookand conference) could potentially enter the EUin 2004. In the meantime, the candidatecountries, including those present at thisconference, are focusing on implementingmajor political and economic reforms, such asindustry restructuring and privatization, anddeveloping viable legal structures, contractlaws, regulatory systems, capital markets, andtrade policies for meeting the CopenhagenCriteria. They are also implementing specificlegislative and regulatory policies to conformto stringent EU environmental, health, andsafety regulations and product standards(standards for motor fuel are presented inAppendix I).

Each country has a unique socioeconomiccontext, causing variation in the transitionprocess and different privatization schemes.Reform has continued, even in the face ofeconomic decline, decreased production, andloss of traditional markets. These countrieshave recently begun to recover economicallymostly due to the infusion of foreign capitaland increased exports, as well as domesticdemand. The petroleum sector, particularly thepetroleum retail sector, has become one of thefastest growing sectors in some of thesecountries, partly due to the introduction offoreign competition and investment.

EU membership means that the chemical,petrochemical and petroleum refiningindustries in these countries will face stiffcompetition from the present EU chemical,petrochemical, and refining industries.However, they are provided an opportunity toexpand their markets in the short term, bytaking advantage of their lower labor costs and

by maximizing utilization of availablecapacity; and in the long term by improvingoperational efficiency.

Chemical, Petrochemical, and RefiningIndustries

There are a number of issues facing thechemical, petrochemical, and refiningindustries of Central and Eastern Europe.First, these countries, with the exception ofRomania, produce very little oil or natural gas.They are dependent on imports, mainly fromRussia, to meet their energy needs as well asthe demand of their chemical andpetrochemical industries for raw material andprimary hydrocarbon building blocks.

Another major issue is that the chemical,petrochemical, and refining industries in thesecountries are generally in need of updatingand upgrading. They suffer from decades ofneglect and have outdated, inefficient, andenergy intensive technologies that lacksufficient environmental safeguards.

The pre-EU accession period has provided thechemical industry with a window ofopportunity to boost its exports to WesternEurope, by taking advantage of their lowerlabor costs and attracting foreign investment.In the long term, these industries can, withsome capital investment, take advantage oftheir existing excess capacity to compete inthe EU market. Investment will be needed toimprove production efficiency (or productyield), reduce energy consumption, andminimize pollution. Investments will also berequired to remediate environmental damage.

Privatization efforts, along with increasedcompetition, have led to a number ofconsolidations, mergers, cross border alliancesamong these industries. In the CzechRepublic, Unipetrol has strengthened its

Regional Overview



position by acquiring Chemopetrol, Kaucuk,Paramo, and Ceska Rafinerska. The currentprivatization of Unipetrol has attracted annumber of potential foreign investorsincluding U.S., Russian, Austrian and Dutchinterests. Slovnaft in Slovakia and MOL ofHungary recently formed a strategic alliance.In addition, MOL owns 32.9% share in TVK,Hungary’s largest petrochemical producer,MOL is also reported to have an interest inacquiring a major refinery in Poland.LUKOIL, the largest oil producer in Russia, isalso a majority shareholder in LUKOILNeftochim in Bulgaria. LUKOIL also owns arefinery in Romania.

Similarly, Orgachim, a paint producer inBulgaria, and Policolor of Romania, justacross the border, are combining theirresources to reduce operating costs and markettheir products.

Conclusion

Alliances, mergers, and acquisitions are aimedat a more effective market positioning toimprove market shares domestically,regionally within Central and Eastern Europe,and eventually in Western Europe.

These developments have also created asignificant opportunity for further cooperationamong U.S. industry leaders and theircounterparts in these countries, where U.S.technologies are prominent and oftenpreferred.

Country Profile

Bulgaria


GDP (in US$ Billion) 12.0

GDP Growth (est.) 5%

GDP Per Capita (US$) 1,463

Population (Million) 8.2

Credit Rating B+Source: European Bank for Reconstruction andDevelopment & The World Bank

Executive Summary

Bulgaria, one of the most stable countries inthe region, has experienced real economicgrowth in every year since 1998. Inflation hasbeen single digit or close to single digit.Corporate and income taxes have beenreduced and are among the lowest in Centraland Eastern Europe.

Bulgaria was invited to begin EU membershipnegotiations in 2000 and, to date, over aquarter of the required agreements are closed.In anticipation of the country’s eventual fullmembership in the EU and in order to be

competitive in an open market, the Bulgarianchemical, petrochemical, and refining sectorsface a major effort to eliminate pastenvironmental neglects, to improve productquality, and increase energy and operationalefficiency. These sectors require hundreds ofmillions of dollars of capital infusion and newtechnologies to overcome many years ofneglect and the inefficiencies of a centrallyplanned economy.

Despite privatization of state ownedenterprises and steps taken to promotefinancial discipline, the restructuring of theseenterprises, particularly smaller private firms,has been slow. Restructuring is impeded bythe lack of new commercial credit and byinsider ownership. In addition, low laborproductivity, an underdeveloped capitalmarket, and weak bankruptcy laws limit themechanism for disciplining and removingineffective management.


In 1996 and 1997, the early transition periodthat began with the close of the communist eraended. Parliament was dissolved two yearsahead of schedule. Elections in 1997 resultedin the formation of a clear reformist majoritygovernment for the first time since the start oftransition. The new government took radicalmeasures toward economic stabilization andreforms. In a relatively short time, thegovernment achieved economic stabilization,passed important legislation, and initiatedeconomic reform in many areas. The EBRDreports that despite an unfavorable externalenvironment, including the Russian crises in1998 and Kosovo in 1999, Bulgaria hasachieved macro-economic stability and astrong economic recovery. Foreign exchangereserves have recovered sharply, inflation hasstayed moderate, important progress has been

Country Profile

Bulgaria


made in privatization, and foreign investmenthas increased.

The economy grew by about 5% in 2000.There was rapid growth in the output ofservices and industry, while the agriculturalsector performed poorly— impacting thefertilizer industry—due to a summer drought.Economic growth in 2001 has slowed due to ageneral economic slump in Europe andreduced price competitiveness of Bulgariangoods, caused partly by an appreciation of theEuro-Lev exchange rate. Assuming the U.S.economy continues to slow down, the Lev willcontinue to appreciate with the Euro againstthe U.S. Dollar.

The inflation rate increased from 6.2% in1999 to 11.4% in 2000 and is forecast to dropto 4% by the end of 2001.

Investment Climate

Foreign direct investment (FDI) in Bulgariahas increased sharply since 1997. Net FDI wasover US$2.4 billion for the period 1998–2000,with petroleum and chemicals accounting forover 11% of the total. The U.S., with overUS$235.5 million, was the sixth largestinvestor in Bulgaria during the same timeperiod. Germany with over US$498 million,Italy with about US$413 million, and Greecewith $328 million in investment are the threetop-ranking investors in Bulgaria. About 90%of foreign investment came from 28 largeinvestors. The largest investments were madein the financial, trade and services, andchemical and petrochemical sectors. U.S.investment in Bulgaria is expected to increasein the coming years primarily due to continuedprivatization efforts in the banking,telecommunication, energy, transportation,water and wastewater sectors.

In recent years, the Bulgarian government hasencouraged foreign investment by providing amore favorable regulatory environment. In1999, Bulgaria liberalized its foreign currencyexchange legislation. Currently, there are norestrictions on the transfer of investmentrelated funds. Import of national and foreignexchange cash by resident and non-resident isfree, while export of over BGN 20,000(around US$10,000) or its equivalent inforeign exchange requires a permit from theBulgarian National Bank. Currently,acquisition of land by foreigners is stillforbidden by law, but land ownership rules areanticipated to change. Bulgaria is alsobenefiting from three pre-accessioninvestment instruments (PHARE, SAPARD,and ISPA) financed by the EU. The EU’sPHARE finances environmental projects. TheSpecial Assistance Programme forAgricultural and Development (SAPARD)supports a national agricultural anddevelopment plan and the Instrument forStructural Policies and for Pre-Accession(ISPA) provides funding for transportationstructural projects in 2000–2006. In 2000–2002, the annual allocation for Bulgaria isroughly 100 million Euro from PHARE, 52million Euro from SPARD, and between 82 to125 million Euro from ISPA.

In 2000, the corporate tax rate was reducedfrom 25% to 20% for companies with taxableprofits of greater than US$26,300, while thetax rate for companies with lower taxableprofits was reduced from 20% to 15%. Thismade the corporate tax rate in Bulgaria amongthe lowest in the region.

Bulgaria is a member of the World TradeOrganization (WTO), a party to the CentralEuropean Free Trade Agreement (CEFTA)and has an Association Agreement with theEU. Bulgaria has liberalized trade in industrialand agricultural goods with other (Poland, the

Country Profile

Bulgaria


Czech Republic, Hungary, Romania, Slovakia,and Slovenia) members of CEFTA. Exports tothe EU are almost entirely duty free, making itBulgaria’s most important trading partner.Among the EU countries, Germany, Italy, andGreece are Bulgaria’s leading partners forboth imports and exports. Turkey is also animportant partner, especially for exports.Russia, however, accounts for the largestshare of imports – mostly minerals, fuels, oil,and gas. Chemicals, plastics, and rubberaccount for more than 10% of imports each.On the export side, metallurgy, bulk-chemicals, and agricultural products are themost predominant sectors.

Sector Overview

The sector is privatized and the refining,petrochemical, and chemical industryenterprises (including fertilizer, paint and dye)are undergoing extensive restructuring. Themajor players in the sector include LUKOILNeftochim (previously Neftochim) in refiningand petrochemicals, Agropolychim andNeochim in fertilizer and inorganic chemicals,Solvay in specialty chemicals and plastics, andOrgachim in paint and dyes. Neftochim is thelargest oil and petrochemical complex in theBalkans and its privatization brought about thelargest foreign investment deal of 1999.

In general, the sector is utilizing 30% to 50%of its available capacity and requiressubstantial upgrading and modernization toreduce operating costs, which include rawmaterials, labor, and energy. This must bedone in order to be competitive in an open andfree market, and to meet the EU’s productstandards and environmental regulations.

The effort to increase utilization of theavailable capacity is based on an expectedincrease in both the domestic and exportmarkets. However, strong competition from

other countries in the Central and EasternEuropean region, as well as Western Europe,is expected as these markets are developed.

U.S. Presence

From 1998 to 2000, U.S. investment inBulgaria amounted to US$235 million. U.S.technologies are prominent, particularly in therefining and petrochemical sub-sectors. Theestimated costs for upgrading andmodernizing the chemical, petrochemical andrefining complexes in Bulgaria can easilyexceed US$600 million, of which aboutUS$300 million is expected to be imported.

Project Profiles – BulgariaLUKOIL Neftochim Refinery and Petrochemical ComplexModernization Project


Planned Additions / Expansions

• Refinery capacity expansion

- Viskbreaker unit- Hydrocracker unit- Hydrogen plant- Sulfur plant

• Gasoline and Diesel fuel qualityimprovement

- Ethylene plant- Polyethylene plant- Polypropylene plant

Project SummarySector Refining and

PetrochemicalLocation Bourgas, BulgariaCapital Required $500 millionExport Potential $150 - $200 millionProject Sponsor LUKOILTDA Funding $450,000Project Status Feasibility study

underway

Project Discussion

Project Background

The LUKOIL Neftochim Refinery andPetrochemical Complex at Bourgas isBulgaria’s primary refinery and petrochemicalproduction facility. The complex is composedof a 210,000 BOSD refinery and apetrochemical complex featuring over 30production units, including base chemicalsand polymer production units.

The refinery has a processing complex for themanufacture of a wide range of products suchas gasoline, liquefied gas, jet and diesel fuel,heating oil, and bitumen.

The petrochemical plant can produce ethylene,benzol, toluene, phenol, and acetone. Thepolymer plant produces polyethylene,polypropylene, polyester, and latex. Thecomplex is highly integrated to ensure theability to react to market changes. The originalfacility was built in 1964 with variouspetrochemical facilities added during the1960s and 1970s. Many of the units utilizeU.S. or western European technologies.

Design CapacityTotal, (Crude Oil) 10.5 million MTYEthylene 400,000 MTYPolyethylene 84,000 MTYPolypropylene 75,000 MTYPolyester 25,000 MTYPolyacrylonitrile 25,000 MTYLatex/RubberPolymer

45,000 MTY

In 1999, JSC LUKOIL (LUKOIL) acquired amajority share of Bulgaria’s government-owned Neftochim Refinery and PetrochemicalComplex at Bourgas, forming LUKOILNeftochim-Bourgas. As part of its acquisition,



LUKOIL has committed to invest over $400million in modernizing the facility.

Modernization Plan

At present, less than half of the crude oilfeedstock is converted into valuabletransportation fuels. The remaining residue issold as high sulfur fuel oil, a low valueproduct.

LUKOIL Neftochim’s goal is to have amodern refinery that produces essentially allclean fuel products, and to increase therefinery throughput by converting high sulfuroil. The refinery is also looking at expandingcapacity by installing facilities for theprocessing of high sulfur vacuum residuematerial from a LUKOIL-owned refinery inthe Ukraine.

The planned study will examine severalalternative configurations for the refinerymodernization aimed at vacuum residueconversion. Simultaneously, it will examinethe impact of expanding plant-operatingcapacity from 6.0 million MTY to 8.0 millionMTY of crude and vacuum residue.

The petrochemical complex modernizationwill involve the de-bottlenecking of one of theethylene units to produce added ethylene andpropylene. These intermediates, incombination with increased aromaticsproduction (as the result of increased refineryoperating capacity), will enable the facility toexpand petrochemical/polymer production.The final unit expansion or additions will bedetermined based on a planned supply anddemand analyses of the petrochemical marketin Europe, Russia, and Turkey.

The modernization program is being carriedout in three phases. Phase one (1) has alreadystarted and includes:

• A 600,000 MTY catalytic reformer

• Integration of the crude unit with thevacuum unit

• FCC unit modernization

• A new computerized motor fuelloading system.

This phase is scheduled for completion in theyears 2001 – 2003.

The second phase involves installation of theresidue upgrading facility. This facility will bedesigned to convert most of the vacuumresidue material to lighter and cleaner fuelproducts, primarily low sulfur fuel oil anddiesel, and to reduce high sulfur fuel oilproduction. In addition to conversion andexpansion of an existing FCCU pre-heater to ahydrocracker, this phase is expected to includethe design and installation of:

• A vacuum residue hydrocracker,

• A Hydrogen plant, and

• A sulfur plant.

The third phase of the modernization programwill focus on the petrochemical/polymercomplex. The initial step in this phase will bethe expansion of one of the ethylene unitsfrom 150,000 MTY to 200,000 MTY. Basedon the market demand, both the polyethyleneand polypropylene plants are also expected tobe expanded. The TDA funded feasibilitystudy will focus on the second phase and theinitial step of the third phase ofmodernization.



Project Guidance Parameters

Project Costs

The modernization and residue upgrading ofthe refinery is estimated to have an initial costof $500 million, of which $150-$200 millionis anticipated to be imported.

Known Initiatives

To date, LUKOIL has committedapproximately $80 million to modernize therefinery’s existing catalyst reformer andisomerization units (Phase 1).

LUKOIL Neftochim has selected ABBLummus Global to develop a master plan forthe modernization of the facility. A feasibilitystudy, funded by TDA and cost shared byABB Lummus Global, is currently beingcarried out to evaluate various availableoptions.

Modernization Schedule

LUKOIL has committed to investing over$400 million over the next five years at theLUKOIL Neftochim facility.

Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2002Phase 1 4th 2002Phase 2 4th 2003Phase 3 4th 2005

Project Financing

LUKOIL Neftochim envision that financingcould be arranged in part through the U.S. Ex-Im Bank by utilizing a Russian Oil and GasFramework Agreement (OGFA) typearrangement. Under OGFA, the borrower

must be a privately controlled firm. LUKOILNeftochim is owned by LUKOIL (58%),private enterprises or individuals (25%), andthe Bulgarian Ministry of Industry (17 %).

Ex-Im Bank’s support for local cost financingand its willingness to allow non-guaranteedlenders to share in the OGFA securityumbrella could prove to be a sufficientinducement for lenders to provide 100% of thefinancing needed for the project.

Debt service and debt service reserverequirements are expected to be met by exportrevenue from LUKOIL’s existing oil andrefined product production and export.

U.S. Competitiveness

U.S. engineering firms, technology licensors,manufacturers and suppliers could competefor the sale of engineering services, refiningand petrochemical technologies, equipment(e.g.; pressure vessels, pumps, compressors,heaters), high-alloy pipe and valves,instrumentation, computer based distributedcontrol systems, and catalysts.

Conclusion

This project is a high priority for LUKOILNeftochim and is important to further thedevelopment of Bulgaria’s free marketeconomy.

The project maximizes the use of existingfacilities and infrastructure to produce highvalue and quality products for domestic useand export.

LUKOIL is one of the world’s largestvertically integrated oil companies. It is thelargest oil producer and one of the largest



refiners in Russia. It also has three refineriesoutside of Russia.

Key Contacts

Country SponsorLUKOIL Neftochim BourgasBourgas8104 Bulgaria

Mr. V.M RakitskyExecutive DirectorTel: 359-56-800-005Fax: 359-56-801-870E-mail:

American SponsorABB Lummus Global Inc.Lummus Technology Division1515 Broad StreetBloomfield, NJ 07003U.S.A

Mr. M.J. Maddock, Ph.D.Vice President – RefiningTel: 973-893-1515Fax: 973-893-2000E-mail:


NEOCHIM Energy Efficiency Project


Planned Additions / Upgrades

• Small scale gas and steam turbines

• Reformers

• Air compressors

• Gas compressors

Project SummarySector ChemicalsLocation Dimitrovgrad,

BulgariaCapital Required $20 millionExport Potential $15 millionProject Sponsor NEOCHIM SATDA Funding $254,000Project Status RFP issued

Project Discussion

Project Background

NEOCHIM SA, with a current operationalcapacity of 630,000 MTY, is one of theBulgaria’s leading ammonium nitrateproducers. NEOCHIM has operated an

integrated fertilizer complex since 1951. In the1980s, NEOCHIM commissioned a newammonium nitrate unit and in the early 1990sshut down certain units to reduceenvironmental emissions. Today, NEOCHIMmainly produces ammonium nitrate, ammonia,formaldehyde and urea.

The company was privatized in 1999, withcurrent ownership as follows (approximatepercentages): EUROFERT SA – 40%Karimex Chemicals International SA – 14%and the remainder is owned by the BulgarianState, various privatization funds andindividuals. The State participation should bereduced to zero next year.

Design CapacityAmmonium nitrate 630,000 MTYNitric acid 480,000 MTYAmmonia 410,000 MTYFormaldehyde 110,000 MTYSodium Nitrate 12,000 MTYSodium Nitrite 8,000 MTYAmmoniumBicarbonate

6,000 MTY

NEOCHIM products are sold domesticallyand in Europe, the Middle East, and recentlyin the U.S. NEOCHIM exports a limitedamount of ammonium nitrate to the U.S.

Although the major sections of NEOCHIM’sfertilizer complex are less than 20 years old, alarge amount of heat and steam is dissipatedinto the atmosphere due to the poor insulationdesign in the reforming and reactor stages ofthe ammonia production line. In addition, alarge amount of steam and waste gases(200,000 m3/h) are emitted into theatmosphere during the summer months.NEOCHIM would like to assess the viabilityof upgrading and/or retrofitting various reactorsystems in order to improve the plant’s energy




efficiency and use the waste steam and gasesfor power generation.

Project Location

The plant is located on a 570-acre site inDimitrovgrad, approximately 200 km east ofSofia, 45 km north of Kurdzhali, and 40 kmsouth of Stara Zagora. The site is easilyaccessible by rail and road from major citieswithin Bulgaria and also from Turkey andGreece.

Scope of Feasibility Study

NEOCHIM received a grant in the amount of$254,000 to conduct a feasibility study toassess the viability of capturing waste heat andgases for power generation. A plant audit willbe conducted to analyze operations in detailand identify key plant areas requiring retrofitsand upgrades. A plant audit will be carried outand detailed operating data will be collectedover an extended period. This data will beanalyzed to assess plant performance andidentify plant bottlenecks, energy losses,equipment operating efficiency, and key areasof the plant requiring upgrades or retrofits toimprove plant energy efficiency. Finally, theamount of available waste heat, steam, andsynthetic gases will be identified, and thepotential for their capture and the viability oftheir conversion to power in a small-scalecogeneration facility will be assessed.


Project Costs

The plant retrofit, upgrading, and addition of asmall cogeneration plant is reported to costabout $20 million of which about $15 millionis anticipated to be the value of importedequipment and services.

Project Schedule

NEOCHIM is committed to reducingenvironmental emissions and improving plantoperating efficiency and profitability. In orderto maintain its market share andcompetitiveness, NEOCHIM also has tominimize operating costs. NEOCHIM plans tocomplete plant upgrades and retrofits atdifferent stages during summer time plantshutdowns.

Planned Completion ScheduleActivity Qtr YearFeasibility Study 4th 2001Engineering andConstruction

2003

Cogeneration FacilityStart-up

2004

Project Financing

The project will be implemented in stagesdepending on availability of funds and thefeasibility results.


U.S. engineering firms, technology licensors,manufacturers and suppliers could competefor sale of engineering services, technologies,equipment (e.g., compressors, gas turbines),and catalysts.

Conclusion

NEOCHIM is committed to reducingenvironmental emissions and improving plantoperating efficiency and profitability. In orderto maintain its market share andcompetitiveness, NEOCHIM also has tominimize operating costs. This project willallow NEOCHIM to realize a substantialenergy cost saving.




Key Contacts

Country SponsorNeochim S.A.6403 Dimitrovgrad

Mr. Dimitar DimitrovExecutive DirectorTel: 359-391-60-558Fax: 359-391-60-555e-mail: [email protected]


NEOCHIM Mixed Fertilizers Project


Planned Additions

• Manufacturing Facilities to producemixed Fertilizers

Project SummarySector ChemicalsLocation Dimitrovgrad,

BulgariaCapital Required $80-140 millionExport Potential $24-42 millionProject Sponsor NeochimProject Status Preplanning

Project Discussion

Project Background

NEOCHIM is a 50 year old company thatproduces a range of fertilizers and otherproducts, including: ammonia, nitric acid,nitrous oxide, ammonium bicarbonate,ammonium nitrate, potassium nitrate, sodiumnitrate and sodium nitrite.

The company was privatized in 1999, withcurrent ownership as follows (approxpercentages): EUROFERT SA – 40%,Karimex Chemicals International SA – 14%and the remainder is owned by the BulgarianState, various privatization funds andindividuals. The State participation should bereduced to zero next year.

NEOCHIM sells approximately 50% of itsproducts domestically and the remainder isexported.

Company products are used in the followingapplications:

• Agricultural fertilizers

• Derivative chemicals & resins

• Concrete & cement additives

• Flocculants for mining

• Food & medical industries

• Metallurgy

• Glues for furniture manufacture

• Anti-friction materials for machinery

• Reinforced glass fibers

• Synthetic fibers

• Plastic electrical components

• Insulation

• Fungicides

• Explosives

Today, NEOCHIM mainly producesammonium nitrate, ammonia, formaldehydeand urea.




Design CapacityAmmonium nitrate 630,000 MTYNitric acid 480,000 MTYAmmonia 410,000 MTYFormaldehyde 110,000 MTYSodium Nitrate 12,000 MTYSodium Nitrite 8,000 MTYAmmoniumBicarbonate

6,000 MTY

Project Description

The company has identified an opportunity tomarket additional products for the domesticmarket. Excessive use of ammonium nitratefertilizers in the past has resulted in high soilacidity and low crop yields in Bulgaria. Thishas created an opportunity for the productionand sale of mixed fertilizers to increasepotassium and calcium content in the soil.

NEOCHIM has excess ammonia productioncapacity that can be used to feed the newplant. This reduces overall capital costs andbalances the company’s ammonia productioncapacity with the overall plant needs. Theproject would require external funding as thecompany has insufficient cash flow fromcurrent operations.

The company believes that the domesticfarming community would be able to purchasethe new fertilizers using EU agriculturalsupport programs. In addition, the anticipatedrestructuring of land ownership will permitforeigners to own and farm land, and exportproducts, which is expected to increasedemand for the company’s products.


Project Costs

The plant addition is estimated to have a costof $80-140 million of which about $24-42million is anticipated to be imported. Thisestimate is based on the capital cost of asimilar plant in the region.

Project Location

The plant is located on a 570-acre site inDimitrovgrad, approximately 200 km east ofSofia, 45 km north of Kurdzhali, and 40 kmsouth of Stara Zagora. The site is easilyaccessible by rail and road from major citieswithin Bulgaria and from Turkey and Greece.

Scope of Feasibility Study

Further work is needed to assess the technicaland economic viability of the project anddevelop a plan for the financing of the project.

Known Initiatives

The company received a grant from TDA for afeasibility study to improve the plant coststructure, largely based on energyconservation and reduced emissions. Theproject will utilize excess steam to generatepower. The power will be consumed inside theplant, and represents approximately 25 – 33%of plant power demand. Total project cost isestimated at $10 million.




Plant Addition Schedule

Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2002Financing 4th 2002Construction 3rd 2003Plant Start-up 4th 2003

Project Financing

The project will require external financing asNEOCHIM financial resources are limited.The debt portion for the project is expected tobe arranged through financial institutions suchas U.S. Ex-Im Bank, OPIC, EBRD, andcommercial banks.


U.S. suppliers of technology, equipment, DCScontrol systems, catalysts, engineering andconstruction services are well positioned toprovide equipment and services required forthis project.

Conclusion

This project has a high priority for NEOCHIMbecause it will improve utilization of theexisting plant, provide crucial new productsfor the domestic market, and replace costlyimports. Better utilization of the plant shouldimprove NEOCHIM’s competitiveness andhelp the company achieve their profitpotential.

Key Contacts

Country SponsorNeochim S.A.6403 Dimitrovgrad

Mr. Dimitar Dimitrov,Executive DirectorPhone: (359) 391 60558Fax: (359) 391 60555Email: [email protected]


Orgachim Energy Conservation Project


Planned Additions

• 1 MW power generation fromvented steam

• Other, unidentified, energy reductioninitiatives

Project SummarySector ChemicalsLocation Rousse, BulgariaCapital Required $1 – 1.5 millionExport Potential <$1 millionProject Sponsor OrgachimProject Status Preplanning

Project Discussion

Project Background

Orgachim is the largest paint manufacturer inBulgaria and the Balkans, and is part of agroup including Policolor of Romania. Theyproduce a whole range of industrial andconsumer paints and lacquers. The companywas established in 1901 and privatized in1998.

The company has 35%-38% of the domesticmarket and exports to Russia, and otherEastern European countries as well as MiddleEastern countries. About 40 domestic paintproducers supply 90% of the local market,with only 10% importing to the country.

Orgachim’s plant is located in Rousse,Bulgaria, which is on the Danube. Currentutilization of the plant is only 30%, due to lowdomestic demand. Much of the equipment is30 years old, although a phthalic acid unit,utilizing BASF catalytic distillationtechnology, was installed about 8 years ago.This particular unit runs at about 60%-70% ofcapacity. The Rousse plant employs 580people.

Project Description

The plant is labor-intensive and has poorenergy efficiency. The company is convincedthat they need to reduce costs and operate at ahigher capacity utilization in order to beprofitable. The company would like toevaluate the potential for utilizing theavailable excess steam in a combined cyclemode to generate electricity. Steam is notrequired for the production of paint but it is aby-product and currently being wasted whileelectricity is being purchased. A project toreduce energy use is expected to cost about$1-1.5 million. However, the project is notwell defined and would benefit from furtherplanning.

The company believes that with a lower coststructure, they could be competitive in exportmarkets and increase plant capacity. Thisproject works to achieve this. Given their highshare of the domestic market, the companywould seek export markets for incrementalproducts.


Orgachim Energy Conservation Project



Project Costs

The plant energy conservation initiative isestimated to have a cost of $1-1.5 million ofwhich up to $1 million is anticipated to beimported.

Known Initiatives

The management team has taken a number ofsteps to reduce operating costs and improveplant operation. Improving product qualityand reducing costs has made Orgachim theleading supplier of resins in Bulgaria and haseliminated imports. Orgachim has reducedlabor and utility costs by introducingautomated quality control monitoring systems.

Plant Energy Conservation Schedule

Planned Completion ScheduleActivity Qtr YearFeasibility Study 4th 2001Financing 2002Construction 2002

Project Financing

Orgachim plans to commit its internalresources for up to 20% the project capitalcost requirement. The balance is expected tocome from the U.S. Ex-Im Bank, OPIC,EBRD, and commercial banks.


U.S. suppliers of equipment, DCS controlsystems, and engineering services are wellpositioned to provide equipment and servicesrequired for this project.

Conclusion

This project has a high priority for Orgachimbecause it will reduce their production costsand therefore allow them to be morecompetitive in the European market.

Key Contacts

Country SponsorOrgachim21, Treti Mart Blvd.7000 Rousse, Bulgaria

Mr. Valeri Petrov,Executive DirectorPhone: (359) 82 822 494Fax: (359) 82 822 762Email: [email protected]

Country Profile

Croatia


GDP (in US$ Million) 22.4

GDP Growth (est.) 3.5%

GDP Per Capita (US$) $5,091


Credit Rating BBB-Source: European Bank for Reconstruction andDevelopment & The World Bank

Executive Summary

Following political changes that took place in2000, Croatia has taken important stepstoward improving its investment climate,progressing with privatization and economicstability. The government’s expenditures werereduced from 20% of GDP in 1999 to 12.8%in 2000. The inflation rate has been controlledand corporate and income taxes have beenreduced. Croatia is a member of the WTO,NATO’s Partnership for Peace Program, andthe Stability Pact for Southeastern Europe.Croatia also began discussions with the EU onStability and Association Agreement (SAA) in

2000. The SAA is a precursor to beginningfull negotiations on EU accession.

In anticipation of the country’s eventual fullmembership in the EU and in order to becompetitive in an open market, Croatia’schemical, petrochemical, and refiningindustries face a major environmental clean-up, product quality improvement, and energyand operational efficiency effort. Thesesectors require hundreds of millions of dollarsof capital infusion and new and more effectivetechnologies to overcome many years ofneglect and the market inefficiencies of acentrally planned economy.

Despite the current government’s seriousefforts to accelerate the privatization of state-owned assets and the closure of money losingenterprises, INA, which is engaged in oilexploration, refining, and distribution andother related oil and gas businesses, is still astate-owned monopoly. Other petrochemical,fertilizer and chemical enterprises appear to bein need of extensive restructuring.


Following the breakup of the Socialist FederalRepublic of Yugoslavia (SFRY), Croatia wasinternationally recognized in January 1992. Inthe 1990s, the country suffered from war andeconomic hardships caused by the costs ofreconstruction and the accommodation ofrefugees and displaced persons. The electionsof January 2000 brought a broad coalition ofparties to power supporting economic reformand full integration with the EU. In a shorttime, the new government implementedconstitutional changes enhancing the role ofthe Parliament, curtailing the executivepowers, strengthening the independence of thecourts, and protecting the rights of minorities.The Government also took steps to reduce thesize of government, achieve macro-economic

Country Profile

Croatia


stabilization, accelerate growth, reduceunemployment, impose restrictive constraintson non-profitable state-owned enterprises,accelerate privatization, and facilitate foreigninvestment. The new government has alsosucceeded in normalizing Croatia’s foreignrelations and ended the country’s internationalisolation. It has joined WTO and the NATO’spartnership for peace Program, the StabilityPact for South-Eastern Europe. The Pactsupports the countries in the region in theirefforts to foster peace, democracy, respect forhuman rights, and economic prosperity.Croatia also benefits from funds madeavailable by the international financialinstitutions (for infrastructure projects) underthe umbrella of the Stability Pact. In addition,Croatia has begun discussions with the EU onSAA. The SAA is the precursor to beginningfull negotiations on EU accession that amongother things has led to almost duty-free exportto the EU. The country is also in the processof becoming a member of Central EuropeanFree Trade Agreement (CEFTA). Bulgaria,the Czech Republic, Hungary, Poland,Romania, Slovakia, and Slovenia are currentmembers of CEFTA.

The EBRD reports that Croatia has achievedgood results in terms of macro-economicstabilization in the last few years. Theeconomy grew by about 3.5% in 2000 almostentirely as a result of growth in the tourismindustry. In 2001, the economic growth isexpected to be 4%. The impact of theeconomic slow down in Europe is expected tobe offset by an increase in FDI and thecontinued strong performance of the tourismindustry.

Croatia’s inflation rate increased from 4.2% in1999 to 6.2% in 2000 and is forecast todecrease, due to lower oil prices and tariffs onimported goods.

Investment Climate

The new government has taken concrete stepsto improve Croatia’s attractiveness to foreigninvestors. In 2000, the government introducedlegislation to provide investment incentives,reduced corporate and payroll taxes, revisedthe privatization framework and drafted plansfor the liberalization of the energy andtelecommunication sectors.

The new investment legislation providesfavorable terms for the sale or lease of realestate, rewards creation of new jobs,encourages worker’s retraining, and offersreduced corporate taxes depending on thelevel of investment and the number of jobscreated.

Croatia has 12 free zones. Companies locatedin the free zones are exempt from payingcustom duties or taxes on goods and productsthat are not intended for the domestic market.Those organizations engaged in infrastructureprojects with a value exceeding HRK 1million (about $130,000) in the free zones alsoenjoy a five-year tax holiday. Othercompanies in the free zone are subject to 50%of the standard corporate tax. In 2000, thecorporate tax was cut to a 20% standard rate,pension insurance contribution to 8.75% andhealth insurance to 7%. The value added tax is22% and import duties vary depending on theproducts but will be reduced to 10% or less by2005.

Foreign investors have mostly been interestedin the large privatization deals. The largestforeign investment to date was the purchase ofa 35% stake in Hrvatske Telekomunikacije(HT) by Deutsche Telekom AG for US$850million in 1999. Net FDI was over US$2.7billion in 1998 – 2000, withtelecommunications accounting for over 27%and financial enterprises for over 12% of the

Country Profile

Croatia


total. Other sectors attracting foreigninvestment included pharmaceuticals,electronics, gas exploration and distribution,food and soft drinks, and cement. The U.S.,with 24% of the FDI since 1993, is the leadinginvestor in Croatia, followed closely byAustria (23.4%) and Germany (22.8%).

In 2000, Croatia joined the World TradeOrganization (WTO), and has committed toreduce agricultural and industrial protection.In 2000, Croatia also started negotiating aStabilisation and Association Agreement withthe EU, which will liberalize trade betweenthe two sides. The EU has also lifted tariffs on95% of goods exported to the EU fromCroatia. Croatia is also in the process ofjoining the Central European Free TradeAgreement (CEFTA).

The EU countries, particularly Italy andGermany, are Croatia’s main trading partners.Croatia’s economy is closely integrated withthat of western Herzegovina leading tosubstantial exports to this region of Bosniaand Herzegovina. In recent years, importsfrom other transition countries, especiallyHungary and the Czech Republic, haveincreased.

The main Croatian exports are shipbuilding,chemicals, pharmaceuticals, food products,metals, building materials, textiles andclothing. The imports primarily include fueland capital goods.

Sector Overview

The principal player in the sector is Industrijanafte d.d. (INA), an integrated state-ownedcompany that covers a whole range ofactivities. It has a monopoly in gasdistribution, operates the two largest refineriesin the country, and conducts oil and gasexploration activities in Croatia and abroad.

About two-thirds of the country’s crude oilconsumption comes from fields operated byINA, located in Angola, Egypt and Russia.About one-third of Croatia’s natural gasdemand is also supplied by INA; theremainder is imported from Russia. INA,jointly with ENI of Italy, is developing newoffshore gas fields. INA also owns a 35%share in the Adriatic oil pipeline, JANAF,which runs from oil terminal at Omisalj on theisland of Krk and is linked to pipelinenetworks in Hungary and Slovakia. INA alsoowns a network of about 400 gasoline stationsin the country.

INA closely cooperates with other oilcompanies in Hungary, Romania, and Austria.INA management has expressed a desire forpartnership between INA and MOL,Hungary’s largest oil and gas company.

The petrochemical sector is dominated byDIOKI d.d., which until 1997 was a memberof INA. Currently, a 51% share of thecompany is held by the PrivatizationInvestment Funds. DIOKI’s productionexceeds the demand in both Croatia and theformer Yugoslavia. In 2000, over 82% ofDIOKI’s products were exported to EUcountries. DIOKI is under going extensiverestructuring, and is reported to have difficultyobtaining raw materials, including natural gas.DIOKI reported operating losses in 2000.Other fertilizer and chemical producers inCroatia are in need of extensive restructuring,and have had some difficulty purchasing rawmaterials, and reported negative operatingcash flows in recent years.

In general, the sector is utilizing 30% to 70%of its available capacity, and requiressubstantial upgrading and modernization toreduce operating costs, if they are to becompetitive in an open and free market and

Country Profile

Croatia


meet the EU’s product standards andenvironmental regulations.

The efforts to increase the utilization of theavailable capacity are primarily based onexpected demand increase in the exportmarkets. However, Croatia’s refineries,petrochemical, and chemical producers areexpected to meet strong competition fromother regional producers targeting the samemarkets.

U.S. Presence

From 1993 to 2000, the U.S. investment inCroatia amounted to more than US$379million. U.S. technologies are particularlyprominent in the refining and petrochemicalsub-sectors.


Rijeka Refinery Upgrading Project


Planned Additions

• Phase I - EU Product Specifications

- New MHC

- HDS Expansion

- Sour water stripper

- Amine unit

- H2 and Sulfur Plants

• Phase II – IGCC Power Generation

Project SummarySector RefiningLocation Urinj, Rijeka, CroatiaCapital Required $141 million Ph I

$350 million Ph IIExport Potential $50 MillionProject Sponsor INAProject Status Preliminary Planning

Project Discussion

Project Background

INA, a 100% state owned company, is an oiland gas exploration, oil processing, anddistribution company in Croatia. It producescrude and natural gas domestically, operatestwo refineries and about 400 service stationsin Croatia. INA has production assets andinterests in Angola, Egypt, and Serbia. It alsoowns 187 service stations and 8 storagefacilities in Serbia, which are expected to bereturned to INA’s control shortly.

The Company operates two fuel refineries, atSisak and Rijeka. They also operate a lubebase stock manufacturing facility at Mlaka.Products are marketed both domestically, in anetwork of service stations, and exported toneighboring countries. INA is undergoingrestructuring and is planned to be privatized in2002-2003.

Sisak Refinery is a deep conversion refinerythat includes FCC and coking/calcining units.The plant has a maximum capability of 4million MTY, but currently operates at 2.5million MTY. The Sisak refinery is an inland,niche plant that serves local domestic marketsas well as the neighboring countries ofYugoslavia and Bosnia and Herzegovina. Theplant was heavily damaged during the war, butcontinued operations almost uninterrupted.The damage was repaired at a cost of about$80 million.

Rijeka Refinery is a 4.5 million MTY capacityrefinery located at the Adriatic coast some 12-km south of city of Rijeka. It is connected tothe Adriatic pipeline terminal on the island ofKrk by a 5-km submarine oil pipeline. Therefinery produces a wide range of productsincluding liquefied gas, gasoline, jet anddiesel fuel, heating oil, fuel oil, and liquefied




sulfur. It also provides long residue to Mlakaand heavy fuel to a 400 MW power plant.

The Rijeka Refinery was originally built in1883, at the site of Rijeka’s current towncenter. The refinery was built at its currentlocation in 1965, and was expanded in 1971,then from 1977 through 1981. The latestaddition of HDS and MHC units werecompleted in 1997 to meet new productspecifications. The refinery was built to alarge extent based on UOP technologies.

Design CapacityTotal, (crude oil) 4,500,000 MTYVacuum Distillation 1,700,000 MTYCatalytic Reforming 780,000 MTYFCC 1,000,000 MTYVisbreaker 610,000 MTYMildHydrocracker/HDS

600,000/1,000,000MTY

Isomerisation(to be restarted)

233,000 MTY

Claus 20,000 MTY

Project Description

The refinery upgrading is proposed to becarried out in two phases. The first phase is toallow production of EU specification fuels by2005 and improve the ability to process highersulfur crude. Currently, the refinery processes3.5 million MTY of Russian crude. Thesecond phase is to eliminate production ofhigh sulfur fuel oils beyond 2005 and produceelectricity for use within the refinery and forsale.

The first phase involves the expansion of theexisting gas oil hydrodesulfurization (HDS)unit, construction of a new moderate pressurehydrocracker (MHC), sour water stripper,amine unit, and hydrogen and sulfur plants.Hydrogen plant technology underconsideration includes Foster Wheeler, Howe

Baker, Linde, and Lurgi. Licensors for thesulfur plant considered to date include Parsonsand Lurgi.

The second phase of the project, which isscheduled for the post-2005 period, isdesigned to eliminate high sulfur fuelproduction. The refinery is examining thepotential construction of an IGGC plant toproduce power from the heavy fuel oils. Sucha plant would produce 350 MW capacity. Thepower generated would essentially replace thatproduced by a neighboring power plant, whichis scheduled to be shut down. Refinery powerconsumption is approximately 35 MW.

Potential competitive technologies to beconsidered include vacuum residuehydrocracking or flexicoking.


Project Costs

The Phase I plant modifications areanticipated to cost approximately US$141million. The company is exploring “Build,Own, Operate” (BOO) concept for thehydrogen manufacture and sulfur recovery asa way of reducing their initial capital costs.

The second phase of the project is estimated tocost about $350 million.

Known Initiatives

The refinery is currently restarting andrevamping the Isomerization and Reformatesplitter units to meet the benzene limitspecification in gasolines (1% vol.) at a cost ofUS$8 million. This project would enableRijeka to produce additional blended gasoline,meeting EU2000 specification. The refinery isalso upgrading an existing smallhydrodesulfurization unit for middle




distillates. This project will reduce sulfurcontent in a portion of the diesel pool to 50ppm. Estimated cost for this project is US$1.5million.

The refinery has also received an EBRD loanto implement seven environmental projectsregarding the protection of air and sea andwaste disposal, in four years.

INA has also been in discussions withtechnology suppliers, gathering technical andcost information, and gauging technologysuppliers’ interest in providing financingsupport for the project. A feasibility study isneeded to assess technical and economicviability of available options.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2002Financing &Construction

2002-2005

Plant Start-up (Ph I) 1st 2005

Project Financing

Project financing has not yet been addressed.However, INA has limited ability to fundthese projects from its cash flow and isseeking partners for the financing of theseprojects.


The Rijeka refinery is built mostly on UOPbased technologies giving U.S. firms an addedadvantage over their European and Japanesecompetitors. UOP, Chevron, ABB LummusGlobal, Parsons, and many other U.S. firmsare well positioned to provide technology,

equipment and services required for thisproject.

Conclusion

The company views this project as critical forits future competitiveness. The refinery willhave to produce fuels meeting EUspecifications by 2005. Elimination of highsulfur fuel oils by IGCC technology has thepotential to bring the company into the powerbusiness, producing almost 10% of Croatia’selectricity demand.

Key Contacts

Country SponsorINA10000 ZagrebCroatia

Dr. Zeljko VrbanovicExecutive Director & Member of the BoardTel: 385-01-645-0105Fax: 385-01-645-2105

Dr. Emir CericRefining DirectorTel: 385-01-645-0511Fax: 385-01-645-2511Email: [email protected]

Sanjin KiriginDirector, INA-Rafinerija RijekaUrinj bb51221 KostrenaTel: 385-51-203-209Fax: 385-51-203-172Email: [email protected]


Sisak Refinery Upgrading Project


Planned Additions and Expansions• Phase I – New Hydrocracker, HDS,

H2 and Sulfur Plants, FCC unitupgrade, coke calciner expansion,in-line product blending equipment,automation equipment at truck andrail car loading stations

• Phase II – Deasphalting andBitumen production facilities

Project SummarySector RefiningLocation Sisak, CroatiaCapital Required $209 millionExport Potential $75 millionProject Sponsor INAProject Status Preliminary Planning

Project Discussion

Project Background

INA is the state oil company in Croatia. Thestate is preparing to privatize the company,possibly next year. It produces crude and

natural gas domestically and operates tworefineries and about 400 service stations inCroatia. INA has production assets andinterests in Angola, Egypt, and Serbia. It alsoowns 187 service stations and 7 storagefacilities in Serbia, which are expected to bereturned to INA’s control shortly, 65 inBosnia and Herzegovina, and 6 in Slovakia,among other.

The company operates two fuels refineries, atRijeka and Sisak. They also operate a lubebase stock manufacturing facility at Mlaka.Products are marketed both domestically in anetwork of service stations, and exported toneighboring countries. The Rijeka plant alsoproduces asphalt and supplies heavy fuel oil toa neighboring 400 MW power plant.The Sisak refinery is a deep conversionrefinery that includes FCC andcoking/calcining units. The plant has amaximum capability of 4 million MTY, butcurrently operates at 2.5 million MTY. TheSisak refinery is an inland, niche plant thatserves local domestic markets as well as theneighboring countries of Yugoslavia andBosnia Herzegovina. The plant was heavilydamaged during the war, but continuedoperations almost uninterrupted. The damagewas repaired at a cost of about $80 MM.

Project Description

The project will be implemented in twophases. The first phase is to allow theproduction of EU specification fuels and theexpansion of secondary units to balance thecrude unit rate of 4 million MTY. The refinerycurrently does not produce any EU gradeproducts. The second phase is to upgrade therefinery to maximize production of whiteproducts and, essentially, eliminate high sulfurfuel oil production at the higher crude rate.




The first phase involves the construction of anew moderate pressure hydrocracker (MHC),a gas oil hydrodesulfurization (HDS) unit, andhydrogen and sulfur plants to meet EUspecifications. A short-term measure of FCCgasoline desulfurization (toluene dealkylationunit converted to ISAL) is being consideredbefore the MHC is completed.

In-line blending equipment will also be addedto reduce the quality of giveaways andmaximize the utilization of existingequipment. In addition, the truck loadingstation will be automated, and the rail carloading facilities will be modernized.

A de-bottleneck of the refinery is plannedconcurrently to allow secondary units tobalance total crude run of 4 million MTY.Central to this element of the project are anFCC de-bottleneck (including new riser,catalyst, cooler, new feed nozzles andimproved catalyst cyclones), estimated atUS$5 million, and a coke calciner expansion,estimated at US$2.3 million.

The second phase of the project, which isscheduled for the post-2005 period, isdesigned to eliminate high sulfur fuelproduction. The refinery is reviewing de-asphalting technology, along with additionalbitumen production, to achieve this objective.

Equipment requirements include reactors,towers, drums, pumps, compressors, furnaces,hydrogen purification equipment, specializedpetroleum coke calcining equipment, piping,electrical distribution equipment, and processcontrol systems. For the in-line blending andloading facilities, specialized equipment willinclude quality monitoring and controlsystems, weigh stations, and gasoline blendingoptimization software and hardware.


Project Costs

The plant modifications are anticipated to costapproximately US$209 million for the firstphase. The Company is exploring “Build,Own, Operate” (BOO) concepts for thehydrogen manufacture and sulfur recovery asa way of reducing initial capital costs.

The second phase of the project has not beenestimated at this time.

Known Initiatives

The refinery is revamping an existing naphthahydrodesulfurization unit to desulfurizemiddle distillates and coker gas oils. Thisproject will reduce the diesel pool sulfurcontent to 350 ppm (from 5000 ppm).Estimated cost for this project is US$4million.



2002-2005

Plant Start-up (Ph I) 1st 2005

Project Financing

Project financing for the current US$4 milliondesulfurization project has been provided bythe EBRD. The company has not yetaddressed financing of the proposed upgradesin project.





U.S. suppliers of technology, equipment, DCScontrol systems, catalysts, specializedblending and product loading equipment,engineering and construction services are wellpositioned to provide equipment and servicesrequired for this project.

Conclusion

The refinery has the potential to be a highlycompetitive niche producer, due to location,freight costs for imports, and significantlybetter configuration than neighboring plants inBosnia and Yugoslavia. The projects will berequired to keep the plant viable and meet EUproduct specifications, as well as to improvecompetitiveness by matching secondary unitsto crude capacity.

Key Contacts

Country SponsorINA10020 ZagrebAv. Veceslava Holjevca 10

Dr. Zeljko VrbanovicExecutive Director & Member of theBoardTel: 385-01-645-0105Fax: 385-01-645-2105


Boris Cavrak44103 SisakCroatiaTel: 385-44-534-554Fax: 385-44-533-316Email: [email protected]


Sisak Refinery Soil Remediation Project


Planned Additions

• Reconstruct underground piping

• Sub-surface environmentalremediation

Project SummarySector RefiningLocation Sisak, CroatiaCapital Required $20 to $25 millionExport Potential $5 to $7 millionProject Sponsor INAProject Status Preplanning

Project Discussion

Project Background

INA is the state oil company in Croatia. Thestate is preparing to privatize the company,possibly next year. It produces crude andnatural gas domestically, operates tworefineries and about 400 service stations inCroatia. INA also has production assets andinterests in Angola, Egypt, and Yugoslavia. Italso owns 187 service stations and 8 storage

facilities in Yugoslavia, which are expected tobe returned to INA’s control shortly.

The Company operates two fuels refineries, atRijeka and Sisak. They also operate a lubebase stock manufacturing facility at Mlaka.Products are marketed both domestically, in anetwork of service stations, and exported toneighboring countries. The Rijeka plant alsoproduces asphalt and supplies heavy fuel oil toa neighboring 400 MW power plant.The Sisak refinery is a deep conversionrefinery that includes FCC andcoking/calcining units. The plant has amaximum capability of 4 million MTY, butcurrently operates at 2.5 million MTY. TheSisak refinery is an inland, niche plant thatserves local domestic markets as well asneighboring countries of Serbia, Bosnia, andHerzegovina. The plant was heavily damagedduring the war, but continued operationsalmost uninterrupted. The damage wasrepaired at a cost of about $80 million.

Project Description

The Sisak refinery site has been active forover 70 years. In that time, there has beensignificant contamination of the sub-surfacedue to equipment leaks, tank leaks and processspills. In addition, the war activity causedmajor damage resulting in the leakage ofhydrocarbons into the substructure.

Due to the porosity of the soils, there existssignificant risk of sub-surface plumesspreading to the Kupa and Sava Rivers, whichare tributaries of the Danube basin. Croatia isa signatory of the Convention of the DanubeRiver Basin Protection and the Use of theDanube River, and the refinery is thereforerequired to test subsurface conditions,determine the state of their undergroundpiping, replace piping as needed, andremediate any soil or water contamination.




Requirements include specialized soil andwater treatment and clean-up equipment.Other equipment requirements include pumps,piping, tanks, filtration devices, andcentrifuges.


Project Costs

Based on review of similar projects, PERI(Princeton Energy Resources International)estimates that project costs could range fromUS$20 to US$25 million. However, the extentof the soil contamination, the amount of soilthat has to be remediated, or measures thathave to be taken to protect water sources arenot fully identified yet.

Known Initiatives

INA and Sisak are committed to improvingthe operational efficiency of the refinery,reduce costs, and minimize refinery’semissions. Extraordinary measures were takenduring the war to repair equipments andvessels and to minimize potentialcontamination of soil and ground water. Sisakis also revamping an existing naphthahydrodesulfurization unit to desulfurizemiddle distillates and coker gas oils. Thisproject will reduce the diesel pool sulfurcontent to 350 ppm (from 5000 ppm). Theestimated cost for this project is US$4 million.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2002Plant Start-up 2004

Project Financing

The Company has not yet addressed financingfor this and INA has limited ability to fundthis project from cash flow. However, fundingis available for environmental projects inCroatia from EU as part of the EU accessionprocess. Project financing for the currentUS$4 million desulfurization project has beenprovided by EBRD.

In the past, the EBRD and the World Bankhave provided financing for other projects inCroatia designed to address problems withsewage systems and water pollution.


U.S. suppliers of technology and specializedequipment are well positioned to provideequipment and engineering services requiredfor this project. U.S. companies such asCEVA International, Inc. and Colt America,Inc. are providing technologies andengineering services for similar projects in theregion.

Conclusion

The refinery has the potential to be a highlycompetitive niche producer, due to itslocation, freight costs for imports, andsignificantly better configuration thanneighboring refineries in Bosnia andYugoslavia. The project will be required tokeep the hydrocarbons from reaching thegroundwater and contaminating the Kupa andSava Rivers and eventually, the Danube River.




Key Contacts

Country SponsorINA10020 ZagrebAv. Veceslava Holjevca 10

Dr. Zeljko VrbanovicExecutive Director & Member of the BoardTel: 385-01-645-0105Fax: 385-01-645-2105


Boris Cavrak44103 SisakCroatiaTel: 385-44-534-554Fax: 385-44-533-316Email: [email protected]

Country Profile

Czech Republic


GDP (in US$ billion) 50.8

GDP Growth (est.) 2.5



Credit Rating A-Source: European Bank for Reconstruction andDevelopment & The World Bank

Executive Summary

Following the reforms that took place in 1998,the Czech Republic’s economy improved andbegan recovering in 2000. The CzechRepublic has one of the most advancedeconomies in the region and has attractedmuch foreign investment, especially due togreenfield projects and the privatizationprocess. It is a member of the WTO, NATOand the OECD and is in the EU accessionnegotiation process.

In anticipation of country’s eventual fullmembership in the EU and in order to becompetitive in an open market, the Czechchemical, petrochemical, and refining

industries face a major environmental clean-up, product quality improvement, and energyand operational efficiency effort. Thesesectors require capital infusion, and new andmore effective technologies to overcomemany years of neglect and marketinefficiencies of a centrally planned economy.

The Czech government has recently embarkedon a rapid privatization of Unipetrol havingrecently gone through a bidding process andselection of a short list of potential candidatesfor the acquisition of the outstanding Stateholdings in Unipetrol. A decision on the finalselection is expected early in 2002. As fullentry into the EU approaches, the Czechgovernment will come under increasingpressure to divest itself of its remaining assetsin Unipetrol.


Following the break-up of Czechoslovakia,The Czech Republic was internationallyrecognized in 1993. In the early 1990s, thecountry launched a radically liberal economictransition program that included a large-scaledevaluation of the local currency, price andtrade liberalization, a rapid enterprisetransformation, and an innovative voucherprivatization program. While there was initialsuccess, the economy began to flounder in1996 partially because of a lack of reforms inthe state-dominated banking sector. Followingthree years of decline, the Czech economyturned the corner in 2000 and has embarkedon the path of economic recovery and growth.Even with the decline in the late 1990s, theCzech Republic is one of the mosteconomically advanced countries in Centraland Eastern Europe and it has stable and wellfunctioning democratic institutions. TheCzech Republic is at the forefront of the EUenlargement process; out of a total of 31chapters in the accession negotiations, 29 have

Country Profile

Czech Republic


been opened and 13 have been provisionallyclosed by 2000. The country is also a memberof Central European Free Trade Agreement(CEFTA). Bulgaria, the Czech Republic,Hungary, Poland, Romania, Slovakia, andSlovenia are current members of CEFTA. Inaddition, the Czech Republic is also a memberof the WTO, NATO and the OECD.

The economy grew by about 2.5% in 2000 asa result of banking and capital market reforms,bank privatization, and improvements made inthe investment environment. Economicgrowth in 2001 is expected to grow to 3% dueto large FDI inflows made in the past fewyears.

The inflation rate almost doubled to 4.0% in2000 due to price deregulation and high oilprices. The decision to complete pricederegulation by the end of 2002 and oil pricesmay affect the inflation rate in the next fewyears.

Investment Climate

The Czech Republic has been one of theregion’s most successful countries inattracting FDI with over US$20 billion offoreign investment recorded since 1990. Thecampaign to attract foreign direct investmenthas been extremely successful over the lastfew years, as net FDI investment totaledUS$4.5 billion in 2000. For two years in arow, FDI into the country doubled, clearlysurpassing that of all other Central and EasternEuropean countries in per capita terms in 1999and 2000. The sharp increases in FDI thatstarted in 1998 can be attributed to twofactors: the introduction of investmentincentives for both foreign and domesticinvestors and an acceleration of theprivatization process.

A new investment law was passed in May2000 that codified and simplified the originalscheme put forth in 1998. The followingincentives are currently offered: tax holidaysof 10 years for new companies and 5 years forexpansions of existing companies; job creationgrants in regions with high unemployment;training and retraining grants in regions withhigh unemployment; and local incentives,such as the provision of low cost developmentland. These incentives have requirements,however, such as the requirement that theinvestment be made into the manufacturingsector, the investment be at least US$10million equivalent with at least US$5 millionequivalent in equity, and investment intomachinery be at least 40% of the totalinvestment. In addition, the Czech Republicallows duty free import of machinery andequipment and support for small companies.

The Czech Republic has 8 free trade zonesestablished in several cities throughout thenation. The rules for operation within acommercial or industrial customs free zoneare the same as in the EU; materials,components and semi-finished products areexempted from customs duties and VAT ifthey are exported into a free trade zone. If thegoods are used in the manufacturing orprocessing of a final product that is then re-exported, it is also exempt from duties andVAT. Czech tax codes are generally in linewith European tax policies with corporateincome tax set at 31% and the VAT generallyset at 22%.

As mentioned above, foreign investors havebeen interested in both greenfield companies,due to investment incentives and theprivatization process. As of December 2000,there were 37 companies that had beenawarded incentives to invest of more thanUS$1.5 billion. In 2000, the most notablegreenfield investments were in the electronics

Country Profile

Czech Republic


and automotive sectors, with Philips, a Dutchcompany, starting the construction of aUS$624 million television plant that, whencompleted, will be the Czech Republic’slargest greenfield investment to date.Privatization has also been and is expected tocontinue as a significant source of FDI, withthe privatization of the banking and financialsectors being important over the past fewyears and the telecommunications andelectronics sectors gaining in importance overthe next few years. Germany, with a 27%share, leads the world in foreign investment inthe Czech Republic, followed by theNetherlands (22.2%), Austria (13.7%), UK(5.2%), and U.S. (5.0%).

The Czech Republic is a member of the WorldTrade Organization (WTO) and joined theOECD in 1995. The Czech Republic is also amember of the Central European Free TradeAgreement (CEFTA), and is at the forefront ofthe EU accession process.

The EU countries, particularly Germany, arethe Czech Republic’s most important tradingpartners. The Czech Republic also does asignificant amount of trading with CEFTAand Slovakia, with which it shares a customsunion.

The main Czech exports are manufacturedgoods. The main imports are food, energy andcapital goods.

Sector Overview

The principal player in the sector is Unipetrol,a holding company that assembles a majorpart of the Czech refining and petrochemicalindustry. Unipetrol was formed from themerger of the Kaucuk and Chemopetrolgroups into the country’s third largestindustrial company. Unipetrol is listed on thePrague stock exchange, with about 40% of its

shares tradable and the remaining 60% held bythe government. Through its various parts,Unipetrol is involved in all branches of therefining and petrochemical industry. It iscapable of producing motor fuels, LPG,solvents, aromatics, hydrogenates, fuel oils,bitumens, sulfur, aromatic hydrocarbons andtheir derivatives, alcohols, polyolefines,hydrocarbon gases, urea, ammonia, phenols,industrial gases, SBR, polystyrene plastics,and operates the largest retail chain of fuelstations in the Czech Republic.

As the Czech Republic moves closer to fullaccession with the EU, the government willface pressure to further divest itself of itsshares in companies such as Unipetrol.

In general, Czech producers have inherited oldand inefficient plants from the communist erathat show an excessive use of raw materials,poor energy efficiency, and low utilization ofexisting capacity. They are eager to modernizeand replace them with modern and efficient,environmentally friendly technology andequipment. It is realized that they must do thisif they are to be competitive in the globalmarketplace and meet European Unionstandards. Unipetrol is currently determiningthe feasibility of adding a variety of new linesand expanding their current capacity.

U.S. Presence

By 2000, the U.S. ranked 5th in investment inthe Czech Republic. The Czech Republicencourages the importation of U.S. equipmentby not applying duties and VAT to foreignimported machinery. With the possibility ofexpansion by companies such as Unipetrol,and the need for environmental cleanup byCzech companies as the country nears EUaccession, there exists an opportunity for U.S.companies.

Project Profiles – Czech RepublicUnipetrol SpolanaCyclohexane/Cyclohexanone/CaprolactamUnit



• Addition of new Cyclohexane /Cyclohexanone / Caprolactam Unitsand expansion of production from44,000 MTY to 80,000 MTY

Project SummarySector PetrochemicalsLocation Litvínov / Neratovice

Czech RepublicCapital Required $230 millionExport Potential $160 millionProject Sponsor Unipetrol/SpolanaProject Status Pre-feasibility Study

Project Background

Chemopetrol, a subsidiary of Unipetrol, is thelargest petrochemical company in the CzechRepublic. Chemopetrol produces ethylene,polyethylene, polypropylene, benzene,ethylbenzene, alcohols and agriculturalchemicals at its Litvinov site.

The Litvinov site is located in the Usti nadLabem region in the northwestern part of thecountry – near Germany.

Recently, the Czech Government decided thatSpolana should become a new subsidiary ofUnipetrol. Spolana is located 100 kmsoutheast of Chemopetrol at Neratovice.Spolana has the following production Units:linear alpha olefins, polyvinyl chloride,specialty chemicals, and industrial chemicals.

Caprolactam Project

The existing Caprolactam unit is currentlybeing supplied with Cyclohexanone, producedin Chemko Strazske/Cenon (Slovakia). Thedistance between Neratovice and Strazske is700 km. Chemopetrol is a main benzenesupplier to Chemko. The intention of thisproject is to reduce transportation costs and toestablish an independent cyclohexanonesupply. At the same time, they would like toincrease production of caprolactam at Spolanaconsistent with current market expectations.While the capacity remains to be defined, it isexpected that the existing capacity of 44,000MTY will be increased to approximately80,000 MTY. Since both Chemopetrol andSpolana have their own hydrogen source, theCyclohexane Unit can be installed either atChemopetrol or at Spolana, while the othertwo units (Cyclohexanone and Caprolactam)should be built at Spolana.


Project Costs

A pre-feasibility study, conducted by Spolanain 1996, aimed at the construction of a newcyclohexanone Unit arrived at an investmentcost of US$60 million for the cyclohexanoneunit alone. Investment costs for the new

Project Profiles – Czech RepublicUnipetrol SpolanaCyclohexane/Cyclohexanone/CaprolactamUnit


cyclohexane/ cyclohexanone/ caprolactamunits production train is estimated at US$230million. Of this amount, approximatelyUS$125 million of equipment and servicescould be sourced form the U.S.

Known Initiatives

• Spolana had been negotiating withAllied Signal Inc. in 1995 for apotential strategic partnership but thenegotiation had failed.

• A pre-feasibility study was completedby Spolana in 1997.

• Spolana/Unipetrol has approachedTDA for funding for a detailedfeasibility study for the project thatwould analyze the options and preparea bankable document for arecommended expansion strategy.

• An initial authority approval isexpected to be issued within 6 monthsof the feasibility study completion.

Plant Expansion/Modernization Schedule

Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2002Financing 1st 2003Engineering 2nd 2003Construction 2nd 2004Plant Start-up 3rd 2004

Project Financing

Unipetrol is supportive of this Project andwould provide funding for the Projectprovided the results of the feasibility study arefavorable. Potential sources of financinginclude:

• EBRD

• U.S. Ex-Im

• OPIC

• Commercial banks


A number of U.S. suppliers of industrial plantequipment including rotating equipment,columns, DCS, catalysts, and engineeringservices are well positioned to provideequipment and services required for thisproject.

Conclusion

This Project has been considered by Unipetrolas one of high priority in order to remaincompetitive in the region and to be able toexport to EU markets.

Key Contacts

Country SponsorUnipetrol, a.s.Trojska 13a182 21 Praha 8Czech Republic

Stanislav BrunaDevelopment DirectorPhone : 035 616 3932Fax : 02 689 85 23e-mail : [email protected]

Project Profiles – Czech RepublicChemopetrol Ethylbenzene ProductionPlant



• New 180,000 MTY to 300,000 MTYEthylbenzene Plant.

Project SummarySector PetrochemicalsLocation Litvinov, Czech

RepublicCapital Required $30 millionExport Potential $5 millionProject Sponsor Unipetrol/ChemopetrolProject Status Project approved by

Unipetrol

Project Discussion

Project Background

Chemopetrol, a subsidiary of Unipetrol,currently operates an ethylbenzene plant at itsLitvinov site. Essentially all of the plantoutput is supplied to another Unipetrolsubsidiary, Kaucuk, for the production ofstyrene.

The Litvinov site is located in the Usti nadLabem region in the northwestern part of thecountry – near Germany. The site is a largechemical, oil refining, coal mining and powergeneration complex. The existing 125,000MTY ethylbenzene uses ethylene and benzenethat are produced at Litvinov. The existingethylbenzene plant is old and uses an obsoletetechnology for ethylbenzene production.

The Kaucuk chemical complex is located atKralupy, north of Prague. The Czech OilRefining Company also operates a refinery atthis site. The main chemical plants are a new130,000 MTY styrene plant, a polystyreneplant, a styrene butadiene rubber plant, and abutadiene extraction plant.

Kralupy receives ethylbenzene from Litvinovvia a pipeline with a capacity of 180,000MTY. The Litvinov site also has ethylbenzenepipeline connections to Neratovice and Bohlenin Germany. Railroad loading is also availableat Litvinov for benzene and ethylbenzene.

At Unipetrol’s request, TDA provided$230,000 for a feasibility study to evaluate thetechnical and economic viability ofconstructing a new ethylbenzene productionplant. The study was competitively bid andChem Systems of Tarrytown, New York, wasawarded a contract by Unipetrol. ChemSystems also offered $80,000 of cost sharingand completed the feasibility study inDecember 1999.

New Plant

Chem Systems evaluated the feasibility ofconstructing a new plant at Litvinov andKralupy using the two leading technologies,liquid and vapor phase, for ethylbenzeneproduction. Several plant capacity optionswere also analyzed, including:

Project Profiles – Czech RepublicChemopetrol Ethylbenzene ProductionPlant


• 180,000 MTY of ethylbenzene

• 300,000 MTY of ethylbenzene

• 180,000 MTY, with the capability toexpand to 300,000 MTY within 5years of plant start-up.

On the basis of this feasibility study, Unipetrolapproved construction of a new ethylbenzenefacility.


Project Costs

The new plant is estimated to cost aboutUS$40 million of which about US$20 millionis anticipated to be imported.

Known Initiatives

Unipetrol recently approved required capitalinvestment for the project.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 4th 1999Financing 2nd 2001Engineering 2nd 2001Construction 2nd 2003Plant Start-up 2nd 2003

Project Financing

Financing was arranged through a syndicatedloan.


Alternative process technologies wereconsidered by Unipetrol. ABB LummusGlobal/ UOP was selected as a turnkeycontractor.

Conclusion

This project is a high priority for Unipetrol asindicated by Unipetrol approval of the projectcapital investment.

Key Contacts

Country SponsorChemopetrol43670 LitvinovZaluzi 1Czech Republic

Stanislav BrunaDirector of Strategy and DevelopmentTel: 420-35-616-3178Fax: 420-35-616-5707E-mail: [email protected]


Chemopetrol C5 Treatment Project



• Addition of facilities for deeptreatment of steam cracker C5liquids to produce:

- 80% pure Dicyclopentadiene(DCPD)

- 99% pure Isoprene

- 85% pure Piperylene


RepublicCapital Required $25 millionExport Potential $18 millionProject Sponsor Unipetrol/

ChemopetrolProject Status Feasibility study on-

going

Project Discussion

Project Background

Chemopetrol, a subsidiary of Unipetrol, is thelargest petrochemical company in the CzechRepublic. Chemopetrol produces ethylene,polyethylene, polypropylene, cumene, phenol,ethylbenzene, and agricultural chemicals at itsLitvinov site.

The Litvinov site is located in the Usti nadLabem region in the northwestern part of thecountry – near Germany. Because of a uniquefeedstock, Chemopetrol’s steam cracker is oneof the most important unit operations at thissite. In the U.S. and Europe, a typical steamcracker feedstock contains 80 percent naphthaand 20 percent lighter products. In contrast,the feedstock to this steam cracker containsmore than 51 percent materials that areheavier than naphtha. Consequently, steamcracker yield of lower value liquid products(C5 cut, C9 cut, and fuel oil) are higher thanusually expected.

Chemopetrol is evaluating the technical andeconomic feasibility of a project (known asProject C5+) for converting the lower valueproducts to higher value-added products suchas:

• DCPD

• Isoprene

• Piperylene

• Naphthalene concentrate

• Dimethylstyrene for hydrocarbonresins production

• Pitch




The Project C5+ consists of seven (7) stages:

1. Production of 94% pure DCPD fromlight pyrolysis gas by distillation.

2. Deep treatment of C5 cut.

3. Production of higher than 99% pureDCPD using products from stages1 & 2.

4. Production of biphenyl concentrate.

5. Production of naphthaleneconcentrate.

6. Production of C10 cut (for productionof resins).

7. Deep treatment of pyrolysis fuel oil(PFO) for pitch production.

The stage 2, “Deep treatment of C5 cut” alsoknown as the C5 Treatment Project is the mostimportant stage of the seven stages of the“Project C5+.” The feasibility of the C5Treatment Project heavily influences theviability of the entire “Project C5+.” Itrepresents more than 70% of the total costsand 30% of the reported anticipated marginincrease.

At Chemopetrol’s request, TDA provided$255,000 to conduct a feasibility study thatevaluates the technical and economic viabilityof the C5 Treatment Project. Chemopetrolawarded Chem Systems of Tarrytown, NewYork, the contract to perform the study. Thescope of work includes evaluating processoptions available for converting C5 (propane)to higher value products and the potentialmarket for these products.


Project Costs

The implementation cost of the C5 TreatmentProject is estimated to be approximately $25million of which up to $18 million isanticipated to be imported.

Known Initiatives

Chemopetrol has completed a preliminarystudy of the C5 Treatment complex.Chemopetrol has also completed preliminaryfeasibility studies for some of the other stagesof “C5+ Project” and has identified additionaltechnical data/information needed forconducting feasibility study for other stages.Chemopetrol has also began searching forstrategic partners to assure that the new slatedproducts can find export markets and furtherbe refined.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2002Plant Start-up 2nd 2004

Due to privatization efforts of Unipetrol, theproject schedule is being reevaluated. Adecision to go ahead with the project isexpected in the first quarter of 2002.

Project Financing

Chemopetrol has indicated that Unipetrol issupportive of this project and would providefunding for the project provided the results ofthe feasibility study are favorable. Potentialsources of financing include:

• EBRD




• U.S. Ex-Im

• OPIC

• Commercial banks.


A number of U.S. companies, including UOPand Koch-Glitsch Technologies, havesuccessfully provided technologies forconverting C5 to higher value products in theU.S. and abroad. In addition to exportingtechnology, U.S. suppliers of industrial plantequipment, including rotating equipment,columns, DCS, catalysts, and engineeringservices, are well positioned to provideequipment and services required for thisproject.

Conclusion

This project has a high priority forChemopetrol and Unipetrol in order tomaintain market share. Chemopetrol,traditionally a basic petrochemical producer,has determined that it must diversify itsproducts, improve product quality andproduce higher value products in order toremain competitive in the region and export toEU markets.

Key Contacts



Project Profiles – Czech RepublicChemopetrol Pyrotol Unit/AromaticsExpansion



• Evaluation of extension ormodification of existing Pyrotol Unit(part of Steam Cracker Complex).

• Increase capacity of benzeneproduction by approximately 35%.from 176,000 ton/year toapproximately 240,000 ton/year

• Styrene extraction


RepublicCapital Required $54 millionExport Potential $26 millionProject Sponsor Unipetrol/ChemopetrolProject Status TDA grant approved

Project Discussion

Project Background

Chemopetrol, a subsidiary of Unipetrol, is thelargest petrochemical company in the CzechRepublic. Chemopetrol produces ethylene,polyethylene, polypropylene, cumene, phenol,ethylbenzene, and agricultural chemicals at itsLitvinov site.

The Litvinov site is located in the Usti nadLabem region in the northwestern part of thecountry – near Germany. Because of a uniquefeedstock, Chemopetrol’s steam cracker is oneof the most important unit operations at thissite. In the U.S. and Europe, a typical steamcracker feedstock contains 80 percent naphthaand 20 percent lighter products. In contrast,the feedstock to this steam cracker containsmore than 51 percent of materials that areheavier than naphtha. Consequently, steamcracker yields of lower value liquid products(C5 cut, C9 cut, and fuel oil) are higher thanusual.

Chemopetrol currently processes the pyrolysisgasoline by partially hydrotreating the C6-C8cut through a Pyrotol unit (licensed by theHoudry company) which was constructed 21years ago (1980). It then recovers benzene forchemical feedstock usage.

Chemopetrol will be increasing the capacity ofits steam cracker from 435,000 ton/year to560,000 ton/year of ethylene production,along the lines recommended in a feasibilitystudy funded by TDA. This expansion willautomatically increase production of otherproducts including the pyrolysis gasolinefraction. This would allow Chemopetrol toincrease benzene production by about 35%from the current level of 176,000 ton/year toapproximately 240,000 ton/year of 99.9%



purity benzene. It could also allow therecovery of byproduct styrene.


Project Costs

The implementation cost of the AromaticsRecovery Project is estimated to be between$10 million and $54 million depending on thefinal processing scheme selected. PotentialU.S. export potential should be around $12million to $24 million.

Known Initiatives

Over the last several years, Chemopetrol hasworked with TDA’s assistance to increase itsproduction of chemical feedstocks, chemicalintermediates and final products. This hasinvolved:

• Expansion of the Steam cracker atLitvinov

• C5 Treatment Project

• Ethylbenzene Production

• Cyclohexane/Caprolactam Production(under consideration)

• HIPS expansion

Benzene production and utilization is a keyactivity for Chemopetrol and Unipetrol’scompanies Kaucuk, Kralupy and Spolana. Theeffort to recover the increased benzene (andstyrene) production resulting from the steamcracker expansion is important forChemopetrol in its quest to optimize productrevenue and efficiency.



2002-2004

Plant Start-up 2nd 2004

Project Financing

Chemopetrol has indicated that Unipetrol issupportive of this project and would providefunding for the project provided the results ofthe feasibility study are favorable. Potentialsources of financing include:

• EBRD

• U.S. Ex-Im

• OPIC

• Commercial banks


Chemopetrol’s steam cracker and aromaticextraction units were originally constructed bythe Lummus Corporation using U.S.technology. U.S. sources would hence befavored for the implementation of this project.

Conclusion

A feasibility study is required to determine thebest technical and economical route toincreasing benzene production from theLitvínov steam cracker unit, considering thefollowing possibilities:

• Installation of new benzene extractiondistillation

• Styrene extraction



• De-bottlenecking existing Pyrotol unit

• Other possibilities (e.g., selling the restof BTX fraction, which cannot beprocessed by the existing Pyrotol unit)

Key Contacts



Ing. Karel SvobodaTechnical development ManagerTel +420-35-616 4198Fax: +420-35-776 8479E: Mail [email protected]


Kaucuk SBR Lattices Production Plant


Planned Additions/Expansions

• SBR Lattices Expansion

Project SummarySector PetrochemicalLocation Kralupy nad VltavouProject Sponsor Unipetrol a.s.Project Status Preliminary Planning

Project Discussion

Project Background

Kaucuk a.s. is a major petrochemical companyin the Czech Republic and is the country’ssole producer of synthetic rubbers andpolystyrene plastics. The production ofsynthetic rubbers was started in 1963 byputting into operation a plant for themanufacturing of emulsion styrene-butadienerubber (E-SBR), trade name KRALEX. Thepresent total capacity of the emulsion SBRplant is 75,000 metric tons of several gradesE-SBR.

Besides solid emulsion styrene-butadienerubber, a new low capacity plant (2,000 MTY)started the production of special liquidpolybutadienes (KRASOL). Other Kaucukproducts are polystyrene plastics, such asexpandable polystyrene, high-impactpolystyrene and ABS polymers.

Emulsion polymerized elastomers E-SBRbelong to the core business of the Kaucukcompany. The existing emulsion SBR plant isin relatively good technical condition due tothe company’s recent extensive investmentsinto technological and environmentalimprovements. With the use of availablesources of raw materials, utilities andexperienced staff, the production of solid E-SBR could be suitably extended by themanufacturing of SBR dispersions - emulsionpolymerized styrene-butadiene lattices.

The emulsion polymerization technologies forthe production of solid SBR and SBR latticeshave many common features. While SBRlatex is the dispersed counterpart of its solidE-SBR form, the latex manufacture andapplications have developed into a separateentity from the solid rubbers, with verydifferent production technology, markets andend uses. Though a low-concentration SBRlatex is an intermediate product in the solid E-SBR process, the production of high qualitySBR lattices with very specific propertiescannot be designed within the existing solid E-SBR manufacture (e.g., by increasing thepolymerization capacity or by a treatment ofthe common E-SBR latex), but it is necessaryto build a new SBR latex plant.

Currently there are two main groups ofstyrene-butadiene lattices: The basic styrene-butadiene copolymer dispersions (SBR latex)and carboxylated styrene-butadiene lattices(X-SBR latex). The consumption of X-SBRlattices dominate in most industrial




applications. Kaucuk assumes that theimplementation of the plans should result in aproduction of a wide range of SBR latticeswith the carboxylated X-SBR latex as themain product.

According to all current forecasts, the demandfor the styrene-butadiene lattices in Europe isexpected to grow at about 3.6%. Most of thelatex applications are in the paper and textileindustries.

Project Description

The objective of the project is the constructionof a plant for the production of styrene-butadiene lattices. The plant shouldsupplement the existing manufacture of solidemulsion SBR (trade name KRALEX) andprovide various grades of SBR lattices,predominantly for the paper and textileapplications.

The designed initial capacity of the styrene-butadiene lattices plant is 15,000 dry metrictons per year (i.e. about 30,000 tons of latex)with the possibility of gradually increasing theproduction.


Project Costs

Capital costs of the project have not yet beenestimated.

The first estimation is being processed.

Known Initiatives

The plans are in an early initial stage. Amarket study was made by Kaucuk(September 2001) that focused on Europeanmarket potential. The study includes market

analysis and updated information on styrene-butadiene lattices.

A domestic market potential has beenresearched by the Kaucuk company duringAugust-October 2001. The end users of SBRlatex in the Czech Republic – mostlycompanies in the paper and textile industries –have been contacted and the data on theirpotential latex consumption have been gained.The research results lead to the conclusion thatthe substantial part of the lattices productionshould be exported to other Europeancountries.

Project Schedule

The project implementation is assumed infollowing time periods:

Planned Completion ScheduleActivity YearFeasibility study 2002Engineering and design 2003Construction of the plant 2003-2004Production start (50%capacity)

2005

Project Financing

Kaucuk assumes that the financing of theproject could be arranged as a combination oftheir own resources and bank loans. The ratiobetween various sources is to be determinedaccording to the overall costs and the specificproject agreements.

Conclusion

The project implementation can be significantfor the further development of emulsionsynthetic rubbers business of the Kaucukcompany. The main part of the SBR latexproduction should be directed to the Centraland Western European region.




The project planning is in an early stage. Themost important first step is an expertfeasibility and market study that wouldestimate the economics of the project, latexmarket potentials and identifiers, possiblelicensors and technology suppliers.

Key Contacts

Country SponsorKAUCUK, a.s.Kralupy nad Vltavou278 51Czech Republic

Mr. R. VekExecutive DirectorTel: + 420 205 71 4600Fax: + 420 205 71 3800E-mail: [email protected]

Project Profiles – Czech RepublicUnipetrol / Kaucuk HIPS Unit ExpansionProject



• Mass HIPS Unit – CapacityExpansion

Project SummarySector Refining and

PetrochemicalLocation Kralupy, Czech

RepublicCapital Required $14 millionExport Potential $4 millionProject Sponsor Unipetrol, a.s.Project Status Feasibility study

underway

Project Discussion

Project Background

Unipetrol, a.s. is a holding company, whichassembles a major part of the Czech refiningand petrochemical industry. Kaucuk, a.s. (jointstock company) is a chemical companyfounded in 1957. It is a company fully ownedby Unipetrol, a.s. and focuses on production

of Polystyrenes, (GPPS, HIPS, EPS), SBR,ABS and liquid PB.

Production Units:

• Polystyrenes (GPPS, HIPS, EPS)

• SBR

• ABS

• Butadiene

• Styrene

• Liquid Polybutadiene

HIPS belongs to the core business of theKaucuk company. In its early stages, HIPSwas produced by suspension technology but itis now manufactured by a continuous masspolymerization process. HIPS Unit was startedin 1985 with a capacity of 38,000 MTY, anduses a technology under Cosden’s license.Both extrusion and injection molding HIPSgrades are manufactured.

Important environmental improvements havebeen made but the production portfolio,technology and capacity have not beenchanged. To keep its market position in thegrowing markets in Western, Central andEastern Europe, Kaucuk has decided toimprove the quality of their HIPS productswhile reducing costs. The capacity expansionis the most effective way to decrease theproduction costs, thus, Kaucuk has decided toexpand the capacity of the existing continuousmass polymerization unit from 38,000 MTYto 60,000 MTY.

HIPS Unit expansion also incorporatesmeasures to improve HIPS quality.



Capacity Expansion Plan

A Kaucuk sponsored feasibility study will becompleted in December 2001.

The significant quality improvement of theexisting HIPS production portfolio is one ofthe most important conditions for thesuccessful capacity expansion.

The goal of the HIPS quality improvement isfocused on the material, final products andprocessing properties.

At present, a thermal initiated masscontinuous polymerization process is used. Asa part of the expansion plant, it will bereplaced by the chemical initiatedpolymerization. The extrusion HIPS gradewill be improved first.

An additional goal is to decrease the residualvolatiles content in the final polymer.Therefore, the de-volatilization part of theHIPS production unit will be modified as apart of the expansion project.

The capacity expansion will be carried outstepwise without a long-term productioninterruption.

The expansion program is foreseen to becarried out in the following steps:

1. Chemical initiated continuous masspolymerization development. (It hasbeen started.)

2. Capacity expansion to 42,000- 44,000MTY

3. Modification of the de-volatilizationfacility; capacity expansion to 50,000MTY

4. Capacity expansion to 60,000 MTY.


Project Costs

Capital costs of the project are estimated atUS$14 million.

Known Initiatives

The feasibility study, including project costestimates for capacity expansion to60,000 MTY and product qualityimprovement, was made by RaytheonEngineers & Constructors Litwin s.a. (1999)

Preliminary studies were made in cooperationKaucuk with a group of external specialists,including a U.S. specialist.

Kaucuk has started the development of thechemical initiated continuous masspolymerization tailor-made for the HIPSproduction unit.

Project Schedule

Project Schedule – Time PeriodsActivity YearStep 1 2001–2002Step 2 2002Step 3 2003Step 4 2004

Project Financing

KAUCUK assumes to finance the project asfollows:

• Steps 1, 2 - own resources

• Steps 3, 4 - combination of ownresources and bank loans.



The ratio of own resources and bank loanswill be determined according to theconclusions of Kaucuk´s feasibility study andto the final Kaucuk´s investment decision.


The Kaucuk´s HIPS production is connectedwith the company Cosden (Fina Cosden). U.S.engineering companies and manufacturers ofthe equipment and instrumentation are amongpossible suppliers.

Conclusion

The Project is a part of Kaucuk’s long-termplans.

Following the preliminary studies, Kaucukdecided to develop the chemical initiatedcontinuous mass polymerization process forthe HIPS-unit.

Further, steps will be decided according to theconclusions of the Kaucuk´s feasibility study.

Key Contacts




Kaucuk Solution Styrene-Butadiene Rubbers


Planned Additions /Expansions

• Construction of facility to produce60,000 MTY of solution styrenebutadiene rubbers

Project SummarySector PetrochemicalsLocation Kralupy nad VltavouCapitalRequirement

$50 million

Project Sponsor Unipetrol a.s.Project Status Preliminary, seeking

partner & technology

Project Discussion

Project Background

Kaucuk a.s. is a major petrochemical companyin the Czech Republic and is the country’ssole producer of synthetic rubbers andpolystyrene plastics. The production ofsynthetic rubbers was started in 1963 byputting into operation a plant for themanufacture of emulsion styrene-butadiene

rubber (E-SBR) under the trade nameKRALEX. The present total capacity of theemulsion SBR plant is 75,000 MTY of E-SBRin several grades. Later, a new low capacityplant (2,000 MTY) was constructed toproduce special liquid polybutadienes(KRASOL). Other Kaucuk products arepolystyrene plastics, such as expandablepolystyrene, high-impact polystyrene, andABS polymers.

Elastomers are a part of the core business ofthe Kaucuk company. Though the existingemulsion SBR plant is in very good conditionand the company has recently extensivelyinvested in technological and environmentalimprovements, it is necessary to be preparedfor the anticipated market demand. Accordingto all European, as well as worldwideforecasts, the demand for the emulsion SBRshould gradually decrease in favor of the moretechnically advanced solution polymerizedstyrene-butadiene rubbers (S-SBR). Thesolution process allows better control of basicpolymer parameters and results in betterrubber properties, especially when used for themanufacture of tires. S-SBR consumption isexpected to increase worldwide over the nextfive years. Accordingly, the company isplanning the construction of a new plant forthe manufacturing of the solution polymerizedbutadiene elastomers.

The butadiene solution anionic polymerizationtechnology allows the production of severaltypes of elastomers in the same process andequipment as S-SBR. Most of the majorproducers of solution butadiene-based rubberscannot only manufacture S-SBRs, but alsothermoplastic SBS elastomers andpolybutadiene rubbers (BR). The combinedproduction is more flexible and can bettercope with the market changes. Thus, acombined plant (S-SBR, SBS and BR) couldalso be an interesting alternative option. An




up-to-date study of the potential markets fortheir products, alternative technologies andplant configurations, plant capital and O&Mcosts needs to be carried out to assess theproject economics.

The manufacturing of solution SBR has been apart of the company’s plans for a long time.Nevertheless, during the 1990’s these planshad to be postponed due to other largeinvestment priorities, such as the constructionof new plants for the production of styrenemonomer and polystyrene plastics.

Project Description

The objective of the project is to construct asynthetic rubber plant for the manufacture ofsolution styrene-butadiene rubbers (S-SBR).These products are intended as a broadeningof the existing production line of emulsionstyrene-butadiene rubbers (E-SBR) that aremanufactured by the company, and a possiblefuture replacement of the existing E-SBRproduction.

The initial design capacity of the new S-SBRplant is 60,000 MTY.


Project Costs

The capital costs of the project are estimatedat US$50 million.

This estimate is based on previous feasibilityand marketing studies in 1996-1997, recentinitial discussions with two possible licensorsand suppliers of the technology, and also onsome experience with similar projects.

Known Initiatives

A feasibility study was carried out in 1996-97by the ICF Kaiser Engineering andConstruction Group (“Marketing andEconomics Feasibility of Constructing aSolution Styrene Butadiene Rubber Plant inthe Czech Republic,” December 1996,prepared for Unipetrol).

ICF Kaiser evaluated E-SBR and S-SBRmarket and identified solution SBRtechnology suppliers and licensors. Amongthe companies identified were two U.S.companies that were contacted as potentiallicensors or partners in the project.

Project Schedule

The project is a part of Kaucuk’s long termplans. The project is to be implemented infollowing time periods:

Planned Completion ScheduleActivity YearEngineering and design 2002-2003Financing & construction 2004-2005Production start 2005

Project Financing

Kaucuk assumes that the financing of theproject could to be arranged as a combinationof its own resources and bank loans. The ratiobetween the various sources is to bedetermined according to the overall costs andthe specific project agreements.

Conclusion

The project is a high priority for Kaucuk dueto the demand for high quality syntheticrubber in the Central European region.




The implementation of the project wouldmake use of Kaucuk’s existing raw materialsources, available infrastructure, off-sitefacilities and experienced technical stafftrained in synthetic rubber productiontechnologies.

Key Contacts



Country Profile

Hungary






Credit Rating A-

Source: European Bank for Reconstruction andDevelopment & The World Bank

Executive Summary

Since 1990, Hungary has pursued economicand political strategies and programs to buildan open and free market economy and apolitical system based on democratic values.To date, over 80% of the economy isprivatized and recent years have witnessedmergers, acquisitions, and regional expansionof some of the largest and most successfulHungarian companies, including its oil andpetrochemical companies. The FDI inflowwas about US$2 billion in 2000 even thoughmost forgiven investment incentives werephased out. Hungary continues to attractforeign investment primarily due to a stableand favorable investment environment andskilled labor force. According to the EBRD,greenfield projects have attracted most ofrecent foreign investments, as the privatizationprocess is nearly completed.

Hungary is a founding member of the WTOand CEFTA. In 1998, Hungary beganaccession negotiations with the EU and is afront-runner among the Central and EasternEuropean countries for full membership.Hungary also became a member of NATO in1999.

Hungary’s chemical, petrochemical, andrefining industries have attracted considerableforeign investment and have participated inrecent mergers and expansions in the region.The industry has taken the necessary steps tomeet the EU’s product standards and improveefficiency. However, significant investment isrequired in the energy sector and processingindustry, including petrochemical andchemical industries, to bring Hungary closerto EU environmental standards.


Historically, Hungary enjoyed one of the mostliberal and advanced economies of the formerEastern bloc countries. By the late 1980s,Hungary had taken a number of economic andmarket oriented measures such as passing ajoint venture law, joining the IMF, andenacting significant corporate and income taxlegislation that paved the way for theambitious market-oriented reforms of the1990’s. Consecutive governments since 1990have aimed to build an open and free marketeconomy and a democratic political system.Today, Hungary is a well functioning andstable multi-party democracy with aprosperous economy and has one of the moststable and mature financial markets. Hungaryhas attracted over US$20 billion in foreigninvestment in the last decade – more than anyother country in Central and Eastern Europeon per capita basis over the past decade.Hungary is a member of WTO, CEFTA, andNATO.

Country Profile

Hungary


Hungary is also a front-runner among Centraland Eastern European countries for fullmembership in the EU. The EU beganaccession negotiations with Hungary in 1998.Negotiations have progressed well, as 13chapters of 31 have been closed andnegotiations continue for the remainingchapters. The Hungarian government has alsocommitted to complete preparation for fullmembership by the end of 2002. Since 2000,the EU has provided Hungary three pre-accession instruments, PHARE Programme,SAPARD, and ISPA, for financingagricultural and rural development andenvironmental and transportationinfrastructure projects. The EBRD reports thatHungary experienced economic growth ofapproximately 5% in 2000 and projects thatthe economy will continue to grow at about5% annually. Prices dropped by 0.3% in 2000compared to 1999. Falling oil prices, thestrengthening of the Euro, and its monetarypolicy are likely to support some disinflationin 2001.

Investment Climate

Since 1990, Hungary has attracted overUS$23 billion in foreign direct investment(FDI), about one-third of all FDI in all Centraland Eastern Europe. The U.S., with 35% oftotal investment, is the largest single investor.Much of the early investment was the result ofthe privatization of state-owned enterprises. Inrecent years, however, most of FDI has beendirected toward greenfield projects. Foreign-owned companies generate about 77% ofHungary’s exports, 33% of GDP, and 25% ofprivate sector employment. The EBRD reportsthat more than 18,000 joint ventures areregistered in Hungary and more than 35 of theworld’s 50 largest multinationals have aHungarian subsidiary. Eighty multinationalcompanies are reported to have their regionalheadquarters in Hungary. Hungary’s well

developed financial and commercialinfrastructure, well educated and skilled laborforce, and transparent transactions have beenthe primary factors in continuing to attractforeign investors. Favorable policies towardforeign investors and special tax incentives(which were in place until 1995) contributedto early foreign investment.

The privatization of state-owned enterprises isabout 80% complete. The state still ownssome large companies such as the mainelectric grid company, the railways, and 25%shares in a pharmaceutical company andMOL, the Hungarian Oil and Gas Company.

The establishment of foreign ownedcompanies is governed by the 1998 Act onInvestments of Foreigners in Hungary. Thisact also grants significant rights and benefitsto foreign investors. It provides protectionagainst losses resulting from nationalization,expropriation, or similar measures, andguarantees free repatriation of invested capitaland dividends. Hungary has also adopted theEU’s anti-discrimination laws; thereforeinvestment incentives are available to allqualified investors, regardless of theirnationality. Current investment incentivesinclude:

• 100% corporate tax holiday through2011 for investments greater than HUF10 billion (about US$42 million).

• 100% corporate tax holiday through2011 for investments greater than HUF3 billion (about US$12.6 million) indesignated underdeveloped areas.

• Regional support in Hungary’s 19counties in the form of grants, loans,support for interest payment forgreenfield projects creating more than100 jobs.

Country Profile

Hungary


• Interest support for capacity-increasinginvestments by small and medium sizeenterprises.

• Wage support, training subsidies,social security cost reimbursement,and commuting expenses.

• Export credit subsidies includingsubsidies for promotions.

• Custom-free zones.

Currently, the corporate tax rate is 18%, theVAT rate is 25% and employer’s socialsecurity contribution rate is 33%. The toppersonal income tax rate is 40%.

The average tariff on imported products was12.4% in 2000. Tariffs for industrial productsimported from the EU will be eliminated bythe end of this year. About 90% of allindustrial products are also traded duty freeamong the members of CEFTA, whichincludes Hungary, the Czech Republic,Slovakia, Poland, Bulgaria, and Romania(Croatia is in the process of joining CEFTA).The EU countries account for about 75% ofexports and 67% of imports. Germany,Austria and Italy are Hungary’s mostimportant trading partners and Russia isHungary’s primary provider of energyresources. In recent years, exports of appareland clothing accessories, automobile parts,and machinery have increased while the shareof its food industry, although still important,has dropped. Hungarian imports primarilyinclude fuel and capital goods.

Sector Overview

Hungarian Oil and Gas Company, MOL, is thelargest company in the country, a dominantforce in the sector, and increasingly a majorplayer in the region. MOL dominatesimporting and marketing of oil and it refines

products in the country. It owns the largest oilretail network representing 34% of the market,has one-third stake in TVK Rt., one ofHungary’s largest petrochemical companies,and holds a monopoly in the gas market. MOLwas privatized in 1994 and foreign investorshold approximately 55% of its shares, the state25% plus a golden share, and domesticinvestors the remaining shares. MOLpurchased a 36% stake in Slovnaft, a majorrefinery in Slovakia, and is planningexpansion into Poland. MOL also has retailoperations in Romania and has announcedlarge-scale expansion plans there.

TVK Rt. and BorsodChem Rt. are two of thelargest companies in the country.BorsodChem is a leading producer of plasticraw material and operates subsidiaries thatdominate the field of plastic processing. TVKis a major producer and processor of ethyleneand polyethylene in the region. Recently, alarge number of small and medium sizeenterprises and foreign owned chemical plantshave also been established to supportmanufacturing of components for theautomotive industry.

U.S. Presence

From 1990 to 2000, the U.S. investment inHungary amounted to about US$2 billion.Although the U.S. firms have not made amajor contribution to investments in thechemical, petrochemical or refining sectors,the U.S. technologies are applied in thesesectors. Some of the U.S. corporations activein Hungary include GE, GM, Ford, and Coca-Cola.


TVK Wastewater Treatment Project


Planned Expansions and Additions

• Expansion of an existing wastewatertreatment facility

• Addition of salt removal/separationtechnology

Project SummarySector PetrochemicalLocation Tiszaujvaros, HungaryCapital Required >$5 millionExport Potential >$2 millionProject Sponsor TVKProject Status Preliminary Planning

Project Discussion

Project Background

TVK, with a market capitalization of US$400-US$500 million, is one of the top threepetrochemical companies in Eastern Europeand is the 12th largest company in Hungary interms of sales. TVK is the sole producer ofpolyolefin in Hungary supplying domesticplastic companies and several Western andEastern European companies. About 50% ofTVK products are exported to severalEuropean countries; the remainder isconsumed domestically.

The TVK plant at Tiszaujvaros includes thefollowing major facilities:

• A 360,000 MTY Steam Cracking unit.This cracker largely converts naphthainto ethylene, but can also be fedLPG’s and atmospheric gas oils. Lindeis the technology supplier.

• A 200,000 MTY High DensityPolyethylene (HDPE) unit usingPhilips technology.

• Two Low Density Polyethylene(LDPE) units. The oldest unit, built in1970, is based on ICI’s technology andhas a capacity of about 135,000 MTY.The newer unit, built in 1991, is basedon BASF technology.

• Three polypropylene plants. The oldestline, using Sumitomo technology, isshut down. The two newer units arebased on Basell (Himont/Montell)technology. One unit has a capacity of115,000 MTY, the other 140,000 MTYand is being expanded to 175,000MTY.

• Granulation, packaging and storagefacilities.

TVK receives naphtha feed from the MOLDanube refinery via a dedicated pipeline.Byproduct pygas, gas oils, C4’s, etc. arereturned to MOL.

The site can also deliver or receive ethylenevia pipeline from Ukraine (Oriana). Thiscapability has been used to cover ethyleneplant maintenance shutdowns, allowingdownstream units to continue production andcontinue supply to BorsodChem, a chemicalcompany in Kazincbarcika, located in thenortheastern region of the country.

Most of the products are in granular form andare shipped by trucks to customers. Productsare marketed domestically and abroad. Morethan 50% of the products are exported from




Hungary using TVK’s own sales offices inAustria, Germany, Italy, and the UK.Technologies and costs are equivalent toWestern plants, so freight plays the largestrole in determining where products can beeconomically placed.

Project Description

Following a planned expansion of the steamcracker by 250,000 MTY and the equivalentdownstream units, the wastewater dischargeincrease and the salt content of the wastewaterwill exceed the permitted quantity fordischarge into the Tisza River. TVK will needa technology survey and implementation planto mitigate the increased salt content. TVKexpects to receive waivers for the salt-waterdischarge from Authorities in support of theirexpansion project. However, the expectation isthat such a waiver will not be for a long periodand that the water will require treatment in thelong term. Capital cost has not beendetermined, pending a technology review.However, TVK is assuming an estimate ofgreater than US$5 million.

Equipment required for this project potentiallyincludes reactors, separation technology andequipment, filters, pumps, storage tanks,piping, electrical distribution, and processcontrols.


Project Costs

The wastewater treatment project is estimatedto cost in excess of US$5 million with overUS$2 million potential for the import oftechnology, equipment, and services.

Known Initiatives

TVK has embarked on a US$450 millionexpansion project at the site, to be completedby 2004. The project includes expansion ofthe steam cracker by 250,000 MTY. Theincreased ethylene production will beabsorbed by equivalent downstreampolyethylene capacity increases plus sales toBorsodChem.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2002Plant Start-up 4th 2006

Project Financing

Project financing has not yet been addressed.However, project financing is not anticipatedto be difficult considering TVK’s pastexperience in financing large-scale projectsand the availability of funds for environmentalprojects in Hungary as a part of the EU pre-accession process.


U.S. companies such as Calgon CarbonCorporation, Tempest EnvironmentalSystems, USFilter, Industrial Waste WaterServices, and many others can providetechnologies, specialized equipment and theengineering services required for this project.European companies such as OndeoDegremont may also compete for this project.

Conclusion

TVK are expanding their facilitiessignificantly, and need to make investments inwastewater treatment to maintain and improve




their current discharge quantities and tocomply with the existing and future waterdischarge regulations and permits.

Key Contacts

Country SponsorTVKVaci ut 18,Budapest, H-1132Hungary

Janos MatyasDirector of Corporate Strategy and BusinessDevelopmentTel: (36) 1 236 9914Fax: (36) 1 236 9950

Email: [email protected]


TVK Polyethylene Plant Expansion Project


Planned Additions

• Expansion of Existing High DensityPolyethylene Plant

Project SummarySector PetrochemicalLocation TVK Site;

Tiszaujvaros, HungaryCapital Required >$30-40 millionExport Potential >$9-12 millionProject Sponsor TVKProject Status Preliminary planning

Project Discussion

Project Background

TVK, with a market capitalization of US$400-US$500 million, is one of the top threepetrochemical companies in Eastern Europeand the 12th largest company in Hungary interms of sales. TVK is the sole producer ofpolyolefin in Hungary supplying domesticplastic companies and several Western andEastern European companies. About 50% ofTVK products are exported to severalEuropean countries; the remainder isconsumed domestically.

The TVK plant at Tiszaujvaros includes thefollowing major facilities:

• A 360,000 MTY Steam Cracking unit.This cracker largely converts naphthainto ethylene, but can also be fed

LPG’s and atmospheric gas oils. Lindeis the technology supplier.

• A 200,000 MTY High DensityPolyethylene (HDPE) unit usingPhilips technology

• Two Low Density Polyethylene(LDPE) units. The oldest unit, built in1970, is based on ICI’s technology andhas a capacity of about 135,000 MTY.The newer unit, built in 1991, is basedon BASF technology.

• Three polypropylene plants. The oldestline, using Sumitomo technology, isshut down. The two newer units arebased on Basell (Himont/Montell)technology. One unit has a capacity of115,000 MTY, the other 140,000 MTYand is being expanded to 175,000MTY.

• Granulation, packaging and storagefacilities.

TVK receives naphtha feed from the MOLDanube refinery via a dedicated pipeline.Byproduct pygas, gas oils, C4’s etc. arereturned to MOL.

The site can also deliver or receive ethylenevia pipeline from Ukraine (Oriana). Thiscapability has been used to cover ethyleneplant maintenance shutdowns, allowingdownstream units to continue production andcontinued supply to BorsodChem, a chemicalcompany in Kazincbarcika, located in thenortheastern region of the country.

Most of the products are in granular form andare shipped by trucks to customers. Productsare marketed domestically and abroad. Morethan 50% of the products are exported fromHungary using TVK’s own sales offices inAustria, Germany, Italy, and the UK.Technologies and costs are equivalent to




Western plants, so freight plays the largestrole in determining where products can beeconomically placed.

Project Description

TVK plans to optimize the utilization of theethylene production resulting from their on-going steam cracker expansion project byprocessing ethylene to polyethylene. TVK’sethylene plant expansion is partly predicatedon the sales of ethylene to BorsodChem. In theevent these sales do not materialize, TVKwould have surplus ethylene. TVK iscontemplating restarting an old ICI LDPE orexpanding their Philips HDPE plant to processany potential ethylene surplus. A feasibilitystudy needs to be conducted to evaluate whichone of the above two options is more viable.


Project Costs

The polyethylene expansion project isestimated to cost US$30-US$40 million ofwhich US$9 to US$12 million is expected tobe imported.

Known Initiatives

TVK has embarked on a US$450 millionexpansion project at the site, to be completedby 2004. The project includes the expansionof the steam cracker by 250,000 MTY. Theincreased ethylene production will beabsorbed by equivalent downstreampolyethylene capacity increases plus sales toBorsodChem.


Planned Completion ScheduleActivity Qtr YearFeasibility study 1st 2002Financing &construction

2002-2004

Plant Start-up 1st 2004

Project Financing

Project financing has not yet been addressed.


U.S. firms such as Parsons, Kellogg, Stone &Webster, ABB Lummus Global, could be verycompetitive in supplying the engineeringservices required for this project.

Conclusion

TVK are expanding their facilitiessignificantly. The polyethylene expansionproject will optimize the use of their ethyleneproduction capability and allow the utilizationof any potential excess should BorsodChemfail to purchase ethylene from TVK. TVK willimport additional ethylene shouldBorsodChem continue purchases of ethylenefrom TVK.




Key Contacts

Country SponsorTVKVaci ut 18,Budapest, H-1132Hungary

Janos MatyasTel: (36) 1 236 9914Fax: (36) 1 236 9950Email: [email protected]

Country Profile

Poland






Credit Rating BBB+Source: European Bank for Reconstruction andDevelopment and the World Bank

Executive Summary

One of the most advanced transitioneconomies, Poland has kept up its record ofuninterrupted growth for nine years. Bycontinuing to encourage growth, privatization,and foreign investment, Poland has sustainedmacro-economic stability and continues on itscourse for membership in the European Union(EU). Poland is a member of the WTO,NATO, CEFTA, and is currently in EUaccession negotiations.

As Poland prepares for full entry into the EU,Poland’s chemical, petrochemical and refiningindustry faces the major issues of

environmental cleanup, modernization, andenergy and operational efficiencyimprovements. These sectors require hundredsof millions of dollars of capital infusion aswell as new and more effective technologiesto overcome many years of neglect and themarket inefficiencies of a centrally plannedeconomy.

Poland set a record for foreign investment in2000 with an estimated US$9.3 billionentering the country. Much of this foreigninvestment was due to the country’sprivatization efforts; almost 78% of the sharesof Poland’s largest oil and refiningconglomerate is available for purchase on theLondon and Warsaw exchanges and the fourlargest fertilizer producers are scheduled forprivatization in 2001 and 2002.


The general elections of September 2001 havebrought a new coalition of parties to power inthe Parliament, but this change in governmentis not expected to affect Poland’s centralpolicy aim of joining the EU. There is a broadpolitical consensus for reform that has driventhe nation’s move towards privatization,facilitating foreign direct investment,maintaining economic growth, good exportperformance, and sustaining macro-economicstability. Poland is already a member of theWTO, the OECD, NATO and has shownactive support for the Stability Pact forsoutheastern Europe. Poland is also a memberof the Central European Free TradeAgreement (CEFTA) (other current membersof CEFTA include Bulgaria, the CzechRepublic, Hungary, Romania, Slovakia, andSlovenia).

The EBRD reports that Poland has achievedimpressive economic performance over thelast several years. The economy grew 4.1% in

Country Profile

Poland


2000 due to strong output growth, an increasein both domestic and foreign demand, and asignificant inflow of foreign direct investment.Economic growth is projected to be 4.5% in2001 due to the slowdown in EU economies,the real appreciation of the Zloty, anddepressed domestic demand.

The inflation rate increased from 7.3% in1999 to 10.1% in 2000 and is forecast todecrease to 6.8% in 2001.

Investment Climate

Poland has become a leader in recent yearsamong Central and Eastern Europeancountries in terms of foreign investment.Poland is attractive to foreign investorsbecause of factors such as the strong growthperspective of the economy, relatively a lowlabor costs, large labor pool, size of thedomestic market, prospects for EU accession,and a generally good business climate. Polandattracted a record amount of foreigninvestment in 2000, estimated at US$9.3billion.

Foreign-owned companies enjoy nationaltreatment in Poland and operate under generalbusiness legislation. Foreign companiesoperate under the same tax and labor codes asdomestic companies and are free to repatriatecapital.

In 2000, a major tax reform was launched.Corporate income tax will be steadily lowered– from 34% in 1999 to 30% in 2000, to 28%in 2001-2002, to 24% in 2003, and to 22% in2004. January 1, 2001 saw several significantlegal changes that came into effect that furtherenhanced the attractiveness of the Polishmarket and cleared some of the legal barriersthat had hindered foreign investors for the pastfew years.

Poland has 17 Special Economic Zones(SEZs), of which 15 are active. Foreigninvestors located in SEZs receive preferentialtreatment and tax breaks, including partial ortotal exemption from income tax for a definedperiod of time, treating certain parts ofinvestment outlays as revenue expenditure,and exemption from certain local taxes.

In recent years, most foreign investment hasbeen due to the privatization process. Thelargest deal in 2000 was the sale of a 35%stake in telecom operator TelecommunikacjaPolska (TPSA) to a consortium led by FranceTelecom. Net FDI was over US$35.5 billionin 1991-2000, with the financial sectoraccounting for almost 24% of the overallinflow of direct investment by the end of June.Other sectors attracting and expected to attractforeign investment due to privatization are:telecommunications, transportation, energy,power, food processing, automotive, woodprocessing, printing and publishing, and non-metal goods sub-sectors. The U.S. replacedGermany in 2000 as the leader in foreigninvestment to Poland; Germany, the U.S., theNetherlands, and France jointly account for70% of the total FDI stock invested in Poland.

Poland is a member of the World TradeOrganization (WTO). Poland is in EUaccession negotiations, and is bringing its taxsystem into harmony with the EU as well aspreparing its markets for the pressures of fullmarket integration by continuing marketreforms in the agriculture and heavymanufacturing sectors. Poland is also amember of the Central European Free TradeAgreement (CEFTA).

Poland’s largest trading partners are Germany,followed by Italy, France, the Netherlands,and the UK. Although a member of CEFTA,the majority of Poland’s trade is with EUnations. Poland also holds free trade

Country Profile

Poland


agreements with Turkey, Estonia, Latvia,Lithuania, the EFTA countries, and Israel.

The main Polish exports are cars and car parts,wood and timber products, machinery andequipment. The imports include capital goods,machinery, transportation equipment, mineralfuels, lubricants, and agricultural products.

Sector Overview

The largest player in the oil refining and petrolretail sector is PKN Orlen, which holds 70%of the market. PKN Orlen includes thePetrochemia Plock refinery and the petrolretail chain CPN, which has 30% of themarket. With a market value of US$1.9 billionand a refining capacity of 13.5 million tons ofcrude per year, being expanded to 20 millionMTY, PKN Orlen is Poland’s largest listedcompany, with 71.5% of its stock on theWarsaw and London stock exchanges and theremaining 28.5% held by the Polish StateTreasury. PKN Orlen has plans to expand inthe region, and it is reported that it isinterested in purchasing Rafineria Gdanska,Poland’s second largest oil refinery. PKNOrlen is also seeking a strategic alliance and isin talks with the Hungarian oil and gas groupMOL and Austrian petrochemicalconglomerate OMV about possiblecooperation in the Polish fuels market or evencreating a large regional company in CentralEurope.

Poland’s four largest fertilizer producers arebeing privatized. They are: Nitrogen WorksPulawy, Nitrogen Company Police S.A.,Nitrogen Company Kedzierzyn S.A., andNitrogen Company Tarnów S.A. Pulawy isplanned to be privatized in 2001, is the leadingproducer of fertilizers in Poland with a 50%share of the domestic market, and is in thebest economic condition because it is thelargest domestic producer of melamine, used

in the manufacturing of paints, syntheticresins, and varnishes. In 2001, the TreasuryMinistry solicited bids for a 10% to 85% stakein Kedzierzyn, which produces fertilizers,organic chemicals, Oxo alcohol and adhesives.Kedzierzyn also has innovative processes,modern facilities, ISO-9000 certification andproduces fertilizers to European qualityspecifications. The government also acceptedbids in February 2001 for a 10% to 85% shareof Police, which produces chemical productsand semi-products. The privatization ofPolice, which produces nitrogenous fertilizersand titanium dioxide, was delayed due toinsufficient bidders.

In general, the Polish chemical sector hasinherited old and inefficient plants from thecommunist era that show an excessive use ofraw materials, poor energy efficiency, and lowutilization of existing capacity. The Polishchemical producers are eager to modernizetheir plants and replace existing technologyand equipment with modern, efficient, andenvironmentally friendly technologies andplant equipment. They realize they must dothis if they are to be competitive in the globalmarketplace and meet European Unionstandards.

U.S. Presence

The U.S. is Poland’s 7th largest trading partnerand surpassed Germany in 2000 as the countrywith the most amount of foreign investment inPoland. Polish chemical producers prefer U.S.process control technology and U.S.equipment and products. However, theirknowledge of U.S. products and processes islimited because they are constantly exposed toGerman, Austrian, French, Belgian, Dutch andScandinavian products. Producers from thesecountries are opening offices in Poland andare making their products generally known tothe Polish market.


Zachem Chlorine Capacity Expansion Project



• Increase plant capacity from 40,000MTY to 120,000 MTY.

• Substitute hydrochloric acid forbrine in the chlorine manufacturingprocess to produce 50,000 MTY ofchlorine.

• Modernize the existing 40,000 MTYchlorine production and cells andexpand to 70,000 MTY.

• Improve overall product yield andminimize waste.

Project SummarySector ChemicalsLocation Bydgoszcz, PolandCapital Required $70 millionExport Potential $35 millionProject Sponsor ZachemProject Status TDA grant approved

Project Discussion

Project Background

With over $208 million in revenues, 400products and 2,200 employees, Zachem is oneof the largest chemical companies in thenorthwestern region of Poland. Zachem beganoperations in 1948 as a state-owned companyand continues to be state-owned.Representatives from the State TreasuryMinistry serve on its Board of Directors. TheGeneral Manager operates the company undera management contract. Zachem is ready forprivatization, which will take place within oneto two years.

Zachem’s manufacturing complex is locatedin the City of Bydgoszcz, where it producesthe following chemicals: Dyestuffs,epichlorohydrin, polyurethane foam, PVCcompounds, chlorine, caustic soda,hydrochloric acid, sodium hydroxide, sodiumhypochloride and liquid phosgene. Zachem isan important producer of toluene diisocyanate(TDI) used in the production of polyurethanefoams for soft cushions and seats in thefurniture and automotive industries.

Zachem products are used in the followingindustries:

• Textiles, fibers, paper, detergents

• Chemicals

• Furniture

• Plastics

• Household chemicals

Zachem’s most important objectives are toincrease its chlorine production by 80,000MTY (from 40,000 MTY to 120,000 MTY),replace brine with hydrochloric acid in thenew chlorine production, modernize the cells




in the existing 40,000 MTY chlorine plant andimprove the efficiency of its operations whileincreasing capacity.

The capacity expansion is needed to maintainZachem’s market share in TDI production andits profitability. Zachem is expanding its TDIcapacity to keep pace with the growingdemand for soft cushions in the furniture andautomotive industries. By recyclinghydrochloric acid in its new chlorine plant,Zachem will increase efficiency, lowerenvironmental emissions, and increaseproduction safety.

Chlorine Plant CapacityCurrent 40,000 MTYPlanned 120,000 MTY

Modernization Plan

Zachem plans to use hydrochloric acid as itsraw material for chlorine production ratherthan brine, which is used in conventionalchlorine plants. By recycling hydrochloricacid, Zachem expects to use less electricity,avoid storage and transportation costs, andincrease productivity and safety.

Zachem’s management seeks a U.S. licensorfor hydrochloric acid based chlorineproduction.

Zachem desires to complete the feasibilitystudy by the first quarter of 2002. During2002, it plans to finalize the financing andstart construction.


Project Costs

The plant capacity expansions andmodernization is estimated to cost US$70

million, of which $35 million is anticipated tobe U.S. exports.

Known Initiatives

Zachem has previously conducted an internalstudy of the TDI expansion and isimplementing it. Based on the TDI expansioncurrently underway, Zachem requested thatTDA fund a feasibility study to evaluate thetechnical and economic viability of theprocess change and plant capacity expansion.TDA has approved the grant for Zachem’sfeasibility study. Currently, preparations areunderway for a public tender to select theconsulting firm that will execute this study.


Planned Completion ScheduleActivity QTR YearFeasibility study 1st 2002Financing 2002Construction 2003

Project Financing

The capital cost of the capacity addition isexpected to reach $70 million. Zachem iswilling to contribute 20% ($14 million) fromits internal sources. The balance will have tocome from a partner and lenders like Ex-ImBank, OPIC, EBRD and commercial lenders.The Polish National Fund for the Protection ofthe Environment and the Water Ways is likelyto participate in a consortium to finance thisproject.

Preliminary discussions have been held withEx-Im Bank and OPIC. These discussionshave been encouraging.





Several U.S. chemical companies are usinghydrochloric acid instead of brine in theproduction of chlorine. Therefore, U.S.engineering companies having the licensingright to this technology are expected to bevery competitive. In addition, U.S. suppliersof modern cells, DCS control systems andengineering services are well positioned toprovide equipment and services required forthis project.

Conclusion

This project has a high priority for Zachembecause of its important contribution to thecontinued competitiveness of the company inPoland and the region, as well as itscontribution to the local economy in theBydgoszcz area.

The project also allows Zachem to maintain itsleading market share in the TDI andpolyurethane foam industries.

Key Contacts

Country SponsorZaklady Chemiczne Organika-Zachem65 ul. Wojska Polskiego85-825 Bydgoszcz, Poland

Mr. Ryszard Ostrowski, Expansion ProjectDirectorPhone: 011/48/52/374-7100;011/48/52/374-8100Cellular:011/48/602 212 694Fax:011/48/52/361-0292Email:[email protected]

Mr. Przemyslaw Nawracala, Technical andDevelopment DirectorPhone: 011/48/52/374-7100;011/48/52/374-8100Fax: 011/48/52/361-0294

Project Profiles – PolandZachem Phosgene, Epichlorohydrin and AllylChloride Derivatives



• Construct:

- 4,000 MTY Chlorides

- 10,000 MTY Epichlorohydrinderivative plant

- 4,000 MTY Allyl Chloridederivatives

- Improve overall product yield

Project SummarySector ChemicalsLocation Bydgoszcz, PolandCapital Required $30 millionExport Potential $15 million

Project Sponsor ZachemProject Status Preliminary Planning

Project Discussion

Project Background

With over $208 million in revenues, 400products and 2,200 employees, Zachem is one

of the largest chemical companies in thenorthwestern region of Poland. Zachem beganoperations in 1948 as a state-owned companyand continues to be state-owned.Representatives from the State TreasuryMinistry serve on its Board of Directors. TheGeneral Manager operates the company undera management contract. Zachem is ready forprivatization that will take place within one totwo years.

Zachem’s manufacturing complex is locatedin the city of Bydgoszcz, where it producesthe following chemicals: Dyestuffs,epichlorohydrin, polyurethane foam, PVCcompounds, chlorine, caustic soda,hydrochloric acid, sodium hydroxide, sodiumhypochloride and liquid phosgene. Zachem isan important producer of toluene diisocyanate(TDI), which is used in the production ofpolyurethane foams for soft cushions and seatsin the furniture and automotive industries.

Zachem products are used in the followingindustries:

• Textiles, fibers, paper, detergents

• Chemicals

• Furniture

• Plastics


Zachem is the only producer of phosgene,epichlorohydrin and allyl chloride in Poland.One of Zachem’s most important objectives isto start-up production of derivatives fromthese products.

Modernization Plan

Zachem would like to produce 4,000 MTY ofchlorides from phosgene, using its own



manufacturing process. Chlorides are used inthe production of alkyl ketene dimer, used inthe paper industry. From epichlorohydrin itwould like to produce 10,000 MTY of epi-polyamines, dimethylamines, polyamide-epichlorohydrin resins, and possiblyepichlorohydrin elastomers using licensedU.S. technology. Most of these products areused in the paper industry, and to a smallerdegree in the textile industry.

From allyl chloride, using licensed U.S.technology, it would like to produceDADMAC (diallyldimethylammonium),sodium allylsulfonate and trimethylolpropanediallyl ether.

New Derivative Plant CapacityCurrent Future

Phosgene 0 4,000MTY

Epichlorohydrin 0 10,000MTY

Allyl Chloride 0 4,000MTY

Zachem plans to use the phosgene,epichlorohydrin and allyl chloride derivativesto penetrate markets closer to the users andconsumers, improving its profit margins andcreating outlets for its own production. Byusing its own products as feedstocks, it willalso reduce the cyclical nature of itsproduction, improve transportation costs, andincrease productivity and safety.

Zachem’s management seeks a U.S. licensorfor the epichlorohydrin and allyl chloridederivatives production.

Zachem desires to complete the feasibilitystudy in 2002. During 2002 it plans to finalizethe financing and start construction.


Project Costs

The plant capacity expansion andmodernization is estimated to cost $30million, of which $15 million is potential U.S.exports.

Known Initiatives

Zachem has previously conducted an internalstudy of the phosgene, epichlorohydrin andallyl chloride expansion and plans toimplement it, subject to the findings of a moredetailed feasibility study. Zachem plans torequest that TDA fund this more detailedfeasibility study to evaluate the technical andeconomic viability of the processes and plantcapacity expansion. TDA previously extendeda grant to Zachem to conduct a study to assessthe feasibility of expanding its chlorineproduction from 40,000 MTY to 1200,000MTY.


Planned Completion ScheduleActivity QTR YearFeasibility study 1st 2002Financing 2002Construction 2002-

2003

Project Financing

The capital cost of the capacity addition isexpected to reach $30 million. Zachem iswilling to contribute 20% ($6 million) from itsinternal sources. The balance will have tocome from a partner and lenders like Ex-ImBank, OPIC, EBRD and commercial lenders.The Polish National Fund for the Protection ofthe Environment and the Water Ways is likely



to participate in a consortium to finance thisproject.

Preliminary discussions have been held withthe Ex-Im Bank and OPIC. These discussionshave been encouraging.


Several U.S. chemical companies areproducing phosgene, epichlorohydrin and allylchloride derivatives and own the technology.Therefore, U.S. engineering companies havingthe licensing rights to this technology areexpected to be very competitive. In addition,U.S. suppliers of modern cells, DCS controlsystems, and engineering services are wellpositioned to provide equipment and servicesrequired for this project.

Conclusion

The project has a high priority for Zachembecause of its important contribution to thecontinued competitiveness of the company inPoland and in the region as well as itscontribution to the local economy in theBydgoszcz area.

The project also allows Zachem to maintain itsleading market share in the phosgene,epichlorohydrin and allyl chloride industries.

Key Contacts

Country SponsorZaklady Chemiczne Organika-Zachem65, ul. Wojska Polskiego85-825 Bydgoszcz, Poland

Mr. Ryszard Ostrowski, TDI ExpansionProject DirectorPhone: 011/48/52/374-7100;011/48/52/374-8100Cellular:011/48/602 212 694Fax:011/48/52/361-0292Email:[email protected]

Mr. Przemyslaw Nawracala, Technical andDevelopment DirectorPhone: 011/48/52/374-7100;011/48/52/374-8100Fax: 011/48/52/361-0294


Kedzierzyn Nitric Acid and Neutralization Plant Project



• A 300,000 MTY nitric acid plant

• A 100,000 MTY neutralization plant

Project SummarySector ChemicalsLocation Kedzierzyn-KozleCapital Required $80 millionExport Potential $40 millionProject Sponsor KedzierzynProject Status Preliminary

planning

Project Discussion

Project Background

With some $240 million in revenues, 60products and 2,200 employees, Kedzierzyn isa leading nitrogen fertilizer producer inPoland. It began operations as a government-owned facility and is now being privatized.

It operates a manufacturing complex locatedin Kedzierzyn-Kozle, in southwestern Poland.Its main products are nitrogen fertilizers,phthalates, Oxo alcohols and maleicanhydride.

About 53% of Kedzierzyn’s products areexported mainly to Western Europeancountries.

Kedzierzyn products are used in the followingindustries:

• Chemicals

• Agriculture

• Plastics

Project Description

Kedzierzyn is producing about 700,000 MTYof nitrogen fertilizers per year from Russianimported natural gas. Its gas synthesis andammonia plants are modern facilities.However, the ammonia production is limitedby the capacity of a 40 year old nitric acidplant and an equally old neutralization plant.Both plants are inefficient, technicallyobsolete, and cause pollution. Kedzierzyn’smost important objective is to replace the oldnitric acid and neutralization plants withmodern facilities. This will allow the companyto increase ammonia production to itsdesigned capacity of 1500 MTD, considerablyincreasing nitrogen fertilizer production. Itwill also eliminate pollution, lower productioncosts, and increase profitability. Demand forfertilizers is expected to grow by about 60%once Poland joins the European Union and itsfarmers gain access to western European foodmarkets and EU farm subsidies.




Nitric Acid Plant CapacityCurrent 264,000 MTYPlanned 300,000 MTYNeutralization plant 100,000 MTY

Kedzierzyn’s front-end fertilizer productionline consists of synthesis gas and ammoniasynthesis are technically quite acceptable.However, the tail end fertilizer productionrequires modernization. Ammonia isconverted in two nitric acid plants. One ofthem is a modern plant with almost no impacton the environment, while the second is morethan 40 years old, with a high level of NOxemissions. This plant has to be replaced with amodern nitric acid plant. The next stage of thefertilizer production line is the neutralizationplant. In this facility, a neutralization reactionbetween ammonia and nitric acid takes placeand ammonium nitrate is produced. Theneutralization plant is also old and is notcapable of operating with nitric acid of morethan 50% concentration. Modern plantsintegrate both facilities into one plant.

Kedzierzyn’s objective is to maintain andincrease nitrogen fertilizer production aboveits current level of 700,000 MTY. With theexisting old plants it will be difficult tomaintain a nitrogen fertilizer production at700,000 MTY. Kedzierzyn is considering thefollowing options: a) to build a new nitric acidand neutralization complex, or b) find amodern used nitric acid – neutralization plant.

Kedzierzyn’s management seeks a U.S.licensor for the nitric acid-neutralizationtechnology.

Kedzierzyn’s management desires to completethe feasibility study in early 2002. During2002, it plans to finalize the financing andstart construction.


Project Costs

The estimated cost of a new nitric acid andneutralization plant is about $80 million. Aused nitric acid plant may be acquired for $40million.

Known Initiatives

Kedzierzyn previously conducted an internaltechnical study, and management has placed ahigh priority on implementing this project.Based on the findings of its own study,Kedzierzyn will request that TDA fund afeasibility study to evaluate the technical andeconomic viability of the required processchanges and capacity additions. TDA hasrecently approved a grant to Kedzierzyn forconducting a study to assess the technical andeconomic viability of constructing a 150,000MTY methanol plant.


Planned Completion ScheduleActivity Qtr YearFeasibility study 1st 2002Financing andconstruction

2002

Project Financing

Kedzierzyn is considering two alternatives forfinancing this project. First, they are lookingat project financing of the nitric acid andneutralization plants as an integral part of theexisting operations. Second, they are lookingat attracting a joint-venture partner andconfiguring the nitric acid-neutralizationplants as a separate stand-alone joint venture.





Modern nitric acid and neutralization processtechnology is available in the U.S. Firmshaving the licensing rights to the technologyare expected to be very competitive. Inaddition, DCS control systems andengineering services are well positioned toprovide equipment and services required forthis project.

Conclusion

This project is a high priority for Kedzierzynbecause of its important contribution to thecontinued competitiveness of the company inPoland and the region as well as itscontribution to the local economy, particularlythe Kedzierzyn-Kozle area.

This project also allows Kedzierzyn toimprove its return on equity, on capital, andon assets.

Key Contacts

Country SponsorZaklady Azotowe Kedzierzyn S.A.P. O. Box 16347-220 Kedzierzyn-Kozle, Poland

Mr. Jozef Pietronski, Technical DirectorPhone: 011/48/77/481-2452Fax: 011/48/77/481-3051

Mr. Zbigniew T. Slezak, Director ofAdministrationPhone: 011/48/77/481-2944; +2688Fax: 011/48/77/481-2751Email:[email protected]

Dr. Ryszard Grzybek, Dept. of StrategicStudiesPhone: 011.48/77/481-2343Fax: 011/48/77/481-3051

Project Profiles – PolandKedzierzyn Oxo Aldehyde and Oxo AlcoholDerivatives Project



• Complex A using Oxo aldehydes asfeedstock:

- A 25,000 MTY neopentyl glycol(NPG) plant

- A 10,000 MTYtrimethylolpropane (TMP) plant,

- A 1,000 MTY trioelate

• Complex 8 using Oxo alcohols asfeedstock:

- A 35,000 MTY acrylic esters(butyl acrylate and 2-EH acrylate)+ optionally 50,000 MTY ofacrylic acid

- A 10,000 MTY butylamine

Project SummarySector ChemicalsLocation Kedzierzyn-Kozle

PolandCapital Required $60 million, for both

projectsExport Potential $30 millionProject Sponsor KedzierzynProject Status Preliminary planning,

seeking technologylicensors

Project Background

With some US$240 million in revenues, 60products and 2,200 employees, Kedzierzyn isa leading nitrogen fertilizer producer inPoland. It began operations as a government-owned facility and is now being privatized.

It operates one manufacturing complexlocated in Kedzierzyn-Kozle, in southwesternPoland. Its main products are nitrogenfertilizers, phthalates, Oxo alcohols andmaleic anhydride.


Kedzierzyn products are used in the followingindustries:

• Chemicals

• Agriculture

• Plastics

Kedzierzyn’s Oxo plant is currently producing205,000 MTY of alcohols or aldehydes, usingUnion Carbide’s low pressure Oxo process.The feedstock is 140,000 MTY of propylene.In 2000, Kedzierzyn produced 163,000 MTYof Oxo products compared to 2001, when it



produced 90,000 MTY during the first 8months. Of the 163,000 MTY produced in2000 some 120,000 MTY were sold abroad,generating export proceeds of US$70 million.However, of the 90,000 MTY produced in thefirst 8 months of 2001, 60,000 MTY were soldabroad, producing only US$30 million inexport revenues.

Kedzierzyn consumes some Oxo alcohols inits own production of phthalates, with most ofit going abroad. New Oxo alcohol capacityhas come on stream worldwide, causingovercapacity and lower prices. A shortage ofpropylene is also developing in Poland. Inresponse, Kedzierzyn is considering a two-pronged strategy: a) New products using Oxointermediates as raw material and b)feedstocks that are different than propylene.

Project Description

Kedzierzyn is motivated to evaluate theproduction of: 1) Neopenyl glycol,trimethylolpropane and trioleate, from Oxoaldehydes, 2) acrylic esters, acrylic acid andbutylamine from Oxo alcohols and replacingpropylene with butylenes for the production ofC-10 alcohols. None of these products aremade in Poland and are currently imported.

Kedzierzyn’s Oxo plant consists of 3 parts:aldehyde production, butanol production and2-ethylhexanol production. In the aldehydeunit, a chemical reaction between propyleneand synthesis gas is taking place with Oxoaldehydes, producing n- and iso-butyraldehydes. In the butanol unit,hydrogenation of Oxo aldehydes produces n-butanol as well as iso-butanol. In the 2-ethylhexanol unit, the n-butyraldehyde isprimarily aldolized and then hydrogenated to2-ethylhexanol.

Kedzierzyn’s objective is to regain itsprominent market position in Oxo alcohols byentering the production of derivatives andswitching feedstock away from propylene.

Kedzierzyn’s management seeks a U.S.licensor for the Oxo alcohol derivativeproduction technology.

Kedzierzyn’s management desires to completethe feasibility study in 2002. During 2002, itplans to finalize the financing and startconstruction.


Project Costs

The estimated cost for complex A, consistingof 25,000 MTY of NPG, 10,000 MTY of TMPand 1,000 MTY of trioleat is US$15 million.Complex B, consisting of 35,000 MTY ofacrylic esters and 10,000 MTY of butylaminewill cost US$13 million. The optional 50,000MTY acrylic acid plant will add US$42million. The total cost of the project isestimated at about US$60 million.

Known Initiatives

Kedzierzyn previously conducted an internaltechnical study and management has placed ahigh priority on implementing this project.Based on the finding of its own studyKedzierzyn will request that TDA fund afeasibility study to evaluate the technical andeconomic viability of the required processchanges and capacity additions.





2002

Project Financing

Kedzierzyn is considering two alternatives forfinancing this project. First, they are lookingat project financing as an integral part of theexisting operations. Second, they are lookingat attracting a joint-venture partner andconfiguring the Oxo derivative plants as aseparate stand-alone joint venture.


Modern Oxo aldehyde and Oxo alcoholderivatives technology is available in the U.S.Firms having the licensing rights to thetechnology are expected to be verycompetitive. In addition, DCS control systemsand engineering services are well positionedto provide equipment and services required forthis project.

Conclusion

This project has a high priority for Kedzierzynbecause of its important contribution to thecontinued competitiveness of the company inPoland and the region, as well as itscontribution to the local economy, particularlythe Kedzierzyn-Kozle area. This project alsoallows Kedzierzyn to improve its return onequity, on capital and on assets.

Key Contacts



Mr. Zbigniew T. Slezak, Director ofAdministrationPhone: 011/48/77/481-2944; +2688Fax: 011/48/77/481-2751Email:[email protected]



Kedzierzyn Methanol Plant Project



• Construct a new 150,000 MTYmethanol plant.

• Modernize an existing syn-gas plantto serve as front-end of the newmethanol plant.

Project SummarySector ChemicalsLocation Kedzierzyn-Kozle

PolandCapital Required $27.5 millionExport Potential $13.25 millionProject Sponsor KedzierzynProject Status Feasibility study

underway

Project Discussion

Project Background

With some $240 million in revenues, 60products and 2,200 employees, Kedzierzyn isa leading nitrogen fertilizer producer in

Poland. It began operations as a government-owned facility and is now being privatized.

It operates a manufacturing complex locatedat Kedzierzyn-Kozle, in southwestern Poland.Its main products are nitrogen fertilizers,phthalates, Oxo alcohols and maleicanhydride.


Kedzierzyn’s products are used in thefollowing industries:

• Chemicals

• Agriculture

• Plastics

Methanol is not currently produced in Poland,resulting in imports of 300,000 metric tons ofmethanol annually at a cost of US$60 million– excluding transportation costs. Kedzierzynalone imports about 75,000 MTY.Kedzierzyn’s most important objective is toproduce 150,000 MTY of methanol, using itsunder-utilized syn-gas capacity. Currently,Kedzierzyn produces syn-gas from importednatural gas as an intermediate product forproduction of nitrogen fertilizer. Demand forfertilizers is high in the spring and fall and lowin summer and winter. Thus, the syn-gas plantis under-utilized during the summer andwinter. This spare capacity can be used toproduce 150,000 MTY of methanol, by addingthe tail end of a methanol plant to the existingsyn-gas plant.

A grassroots methanol plant of this size wouldcost about $67.5 million. By utilizing theexisting syn-gas plant, Kedzierzyn will onlyhave to invest $27.5 million.




Methanol Plant CapacityCurrent 0Planned 150,000 MTY

Kedzierzyn’s objective is to replace 150,000MTY (50% of imports) of methanol byproducing it at its own plant. The newmethanol production should increaseKedzierzyn’s revenues by some $30 million,while reducing costs.

Kedzierzyn’s management seeks a U.S.licensor for the methanol technology.

Kedzierzyn’s management desires to completethe feasibility study in 2001. During 2002, itplans to finalize the financing and startconstruction.


Project Costs

The methanol plant is estimated to have aninitial cost of US$27.5 million, of which aboutUS$13.75 of equipment and services could beimported from U.S. sources.

Known Initiatives

Kedzierzyn previously conducted an internaltechnical study and management has placed ahigh priority on implementing this project.Based on the finding of its own study,Kedzierzyn requested that TDA fund afeasibility study to evaluate the technical andeconomic viability of the required processchanges and capacity additions. TDA hasapproved Kedzierzyn’s request for funding.Currently a public tender is under preparationto select the consulting firm that will executethe feasibility study.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 4th 2001Financing &Construction

2002

Project Financing

Kedzierzyn is considering two alternativestrategies for the financing of this project.First, they are looking at project financing ofthe methanol plant as an integral part of theexisting operations. Alternatively, they arelooking at attracting a joint-venture partnerand configuring the methanol plant as aseparate stand-alone joint-venture entity.


Methanol process technology is available inthe U.S. Firms having the licensing rights tothe technology are expected to be verycompetitive. In addition, DCS control systemsand engineering services are well positionedto provide equipment and services required forthis project.

Conclusion

This project has a high priority for Kedzierzynbecause of its important contribution to thecontinued competitiveness of the company inPoland and the region, as well as itscontribution to the local economy, particularlythe Kedzierzyn-Kozle area.

This project also allows Kedzierzyn toimprove its return on equity, on capital and onassets.




Key Contacts



Mr. Zbigniew T. Slezak, Director ofAdministrationPhone: 011/48/77/481-2944; +2688Fax: 011/48/77/481-2751Email: [email protected]



Rokita Propylene Oxide Capacity Expansion Project



• Increasing plant capacity from25,000 MTY to 50,000 MTY

• Substituting sodium hydroxide forcalcium hydroxide in saponificationprocess

• Modernize equipment andmachinery

• Improve overall product yield (i.e.,minimize waste)

Project SummarySector ChemicalsLocation Wroclaw, PolandCapital Required $40 millionExport Potential $20 millionProject Sponsor RokitaProject Status TDA funded

feasibility studyunderway

Project Discussion

Project Background

With over $100 million in annual revenue,400 products, and 1,900 employees, Rokita isa leading chemical producer in Poland. Rokitabegan operation in 1946 as a governmentowned facility and was privatized in 1995.Rokita operates two chemical complexes. Themain complex is located at Brzeg Dolny,about 30 km from Wroclaw, and the secondcomplex is located in Gdansk, near the BalticSea.

The complex at Brzeg Dolny producesChlorine, Polyols, Pesticides, Herbicides, andSurface Active and Auxiliary Agents. Thecomplex in Gdansk produces raw materials forcosmetics and household chemistry.Approximately 25% of Rokita’s products areexported primarily to Germany, Austria, Italy,France, Sweden and The Netherlands.

Rokita products are used in the followingindustries:

• Chemical

• Metallurgical

• Power

• Cellulose – paper

• Household chemical

• Textile

• Plastics

• Dyestuffs manufacturing

• Waste and drinking water purification

One of Rokita’s most important objectives isto double its production of propylene oxidefrom 25,000 MTY to 50,000 MTY and to




improve the efficiency of its operations whileincreasing capacity.

The production capacity expansion andupgrades are needed to maintain Rokita’smarket share in supply to the flexiblepolyurethane industry, and to maintainprofitability. Rokita is one of the primarysuppliers of polyols (polyester polyols used inflexible foam). Propylene oxide is anintermediate chemical used in themanufacturing of the polyols. Polyols are themost important products made by Rokita,representing about 30% of the company’sannual income. In addition, a Britishpolyurethane manufacturer has recentlyinvested in a production facility adjacent tothe Rokita plant in Brzeg Dolny, so that it canreceive feedstock polyols across the fence.

Propylene Oxide Plant CapacityCurrent 25,000 MTYPlanned 50,000 MTY

Modernization Plan

Currently, Rokita produces propylene oxideby means of the chlorohydrin process. Thisprocess involves reacting propylene, chlorineand water to form propylene chlorohydrin.This chlorohydrin is then saponified withcalcium hydroxide in solution to yieldpropylene oxide. This reaction produces awaste product, calcium chloride, whichcurrently does not have any market use orvalue in Poland and has to be discharged to“salt pits.”

Rokita is evaluating the technical andeconomic viability of an alternativechlorohydrin saponification process thatsubstitutes sodium hydroxide for calciumhydroxide while doubling production capacity.The by-product of this alternative process is

sodium chloride, which can be recycled to themercury cells with the virgin brine feedstock,reducing the waste by-products in theproduction of polyols considerably. Thefeasibility study is being carried out by CDIEngineering Group, Inc.

Rokita management seeks a U.S. licensor forthe sodium hydroxide based chlorohydrinsaponification processes.

Rokita management desires to complete thefeasibility study in 2001 and finalize financingand project agreements and begin constructionin 2002.


Project Costs

The plant capacity expansion and equipmentreplacement/additions is estimated to have aninitial cost of $40 million – of which about$20 million is U.S. exports.

Known Initiatives

Rokita has previously conducted an internaltechnical study of changes required, andmanagement placed a high priority onimplementing this project. Based on the study,Rokita requested TDA to fund a feasibilitystudy to evaluate technical and economicviability of required process changes and plantcapacity expansion. The feasibility study isbeing carried out by CDI Engineering Group,Inc.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 4th 2001




Project Financing

Rokita plans to commit up to $8 million of itsown internal resources to finance the project.The balance is expected to come from U.S.Ex-Im, OPIC, EBRD, and commercial banks.The Polish National Fund for the Environmentand the National Bank for the Environmentmay also participate in a consortium to financethis project.

Preliminary discussions have been held withEx-Im Bank and OPIC. These discussionshave been encouraging.


The alternative process technology beingconsidered by Rokita has been developed inthe U.S. Therefore, U.S. firms having thelicensing right to the technology are expectedto be very competitive. In addition, U.S.suppliers of rotating equipment, DCS controlsystems, catalysts, and engineering servicesare well positioned to provide equipment andservices required for this project.

Conclusion

This project is a high priority for Rokitabecause of its important contribution to thecontinued competitiveness of the company inPoland and the region, as well as itscontribution to the local economy, particularlyin the Brzeg Dolny area.

This project also allows Rokita to meetprojected continued growth (5% annually) forpolyols.

Key Contacts

Country SponsorZaklady Chemiczne “Rokita” SpolkaAkcyjna56-120 Brzeg Dolnyul. Sienkiewicza 4

Mr. Piotr LesniakBusiness Development ManagerTel: 48-71-319-2089Fax: 48-71-319-2090E-mail: [email protected]

Mr. Wojciech KostrzewaDirector of Strategic Planning &DevelopmentTel: 48-71-319-2580Fax; 48-71-319-2090e-mail: [email protected]

Mr. Mariusz DopieralaPolyol Business Unit DirectorTel: 48-71-319-2249Fax: 48-71-319-2630e-mail: [email protected]

American SponsorCDI Engineering Group, Inc.955 West Sam Houston Parkway SouthSuite 100Houston, TX 77099

Mr. Scott WinkleyTitle: Project ManagerTel: 713 354-0200Fax: 713 354-0593e-mail: [email protected]


Dwory Polystyrene Conversion Equipment



• Equipment for the conversion of35,000 MTY of polystyrene intopremixes and compounds of specialgrades for RTV boards, extrudedfilm for thermoforming, co-extrudedmulti-layer film and plates, extrudedrigid boards and plates for thermo-forming, XPS, etc.

Project SummarySector ChemicalsLocation Oswiecim, PolandCapital Required $20 millionExport Potential $10 millionProject Sponsor DworyProject Status Preliminary

planning

Project Discussion

Project Background

With $215 million in revenues and 2,200employees, Dwory is the third largest rubber

and one of the largest polystyrene producers inEurope. In addition, it produces latex, vinyldispersion and chlorine. Dwory beganoperations in 1948 as a state-owned companyand was privatized 1995. It is privately held,with about 60% of its equity in the hands ofthe National Investment Funds and 15% inindividual ownership.

During the last 4 years, Dwory rejuvenateditself. It invested $100 million into newprojects aimed at increasing production andimproving its environmental performance.During 1998, it replaced its old styrene plantwith a new 100,000 MTY plant. Also during1998 and 1999, it increased polystyreneproduction by 30,000 MTY by de-bottlenecking and intensifying production. InDecember 1999, it started-up a new 50,000MTY block polystyrene plant. On theenvironmental side, Dwory installed, jointlywith the City of Oswiecim, a modern sewagetreatment plant, using PURAC’s technology.It installed REGENOX, a plant for thecatalytic after-burning of exhaust gases fromsynthetic rubber production. As a result,Dwory meets all environmental standards andregulations, obtaining the quality certificatesseries ISO 9001 and 14001.

Dwory has a strong market position in Poland,as indicated by its market share per product:

Synthetic rubber 60%Latexes 82%Polystyrene 15%Expandable polystyrene 41%Vinyl dispersions 50%

Export sales accounted for 33% of salesduring 2000. Synthetic rubber accounted for56% of exports, polystyrene for 29%,expandable polystyrene for 3%, latex for 4%,sodium hydroxide for 2% and others for 4%.




Germany accounted for 37% of exports, Italyfor 15%, Sweden for 6%, the Czech Republicfor 5%, France with 4%, and many othercountries for the remaining 33%.

Dwory’s products include film, extrudedpolystyrene boards with foaming agents andother intermediate products, which are used inthe following industries:

• Tire and rubber

• Housing and office construction

• Automotive

• Packaging


• Chemical

• Plastics

One of Dwory’s primary objectives is toconvert about one-third, or 35,000 MTY outof 120,000 MTY polystyrene production, intovarious fabricated products.

The new conversion capacity is needed tomaintain Dwory’s profitability and marketshare in polystyrene production. Dworyrecently expanded its polystyrene capacity tokeep pace with the growing demand forpolystyrene in the packaging, construction,and household appliance industry. Byconverting polystyrene into fabricatedproducts, Dwory will produce higher profitmargin products and stabilize its production ofpolystyrene, becoming less cyclical. It willalso improve its efficiency, lowerenvironmental emissions and increaseproduction safety.

Fabricated Product Plant CapacityCurrent 0Planned 35,000 – 40,000 MTY

Modernization Plan

Dwory plans to use its own in-house madepolystyrene as raw material for the fabricationof various premixes and compounds of specialgrades. It will need the following equipment:

Equipment CapacityMTY

XPS line 5,000Compounding lines 10,000Multi-layer film lines 5,0002 Extruded film 2 X lines 5,000Extruded boards/plates 3,000Other injection equipment 2,000

Dwory’s management seeks U.S. suppliers forpolystyrene conversion equipment.


Project Costs

The conversion plant is estimated to costUS$20 million, of which US$10 million isexpected to be imported.

Known Initiatives

Dwory previously conducted an internal studyof the polystyrene conversion business and isimplementing it. Based on the findings,Dwory is planning to request that TDA fund afeasibility study to evaluate the technical andeconomic viability of the polystyreneconversion and fabrication plant to be built atDwory.





Planned Completion ScheduleActivity QTR YearFeasibility study 1st 2002Financing 2002Construction 2003

Dwory desires to complete the feasibilitystudy in 2002. During 2002, it plans to finalizefinancing and start construction.

Project Financing

Out of the total project cost of $20 million,Dwory is considering to contribute 20%, or $4million, as its investment into the polystyreneconversion plant. It is their expectation thatany additional equity will be provided by apartner. They also expect that debt financingwill be arranged through financial institutionsand commercial lenders.


There are many manufacturers of equipmentfor the conversion of polystyrene intofabricated products in the U.S. Companieswith experience in exports and attractivepayment terms will enjoy a competitiveposition.

Conclusion

This project is a high priority for Dworybecause of its important contribution to thecontinued competitiveness of the company inPoland, in the region, as well as in the localeconomy, particularly the Oswiecim area.

Key Contacts

Country SponsorFirma Chemiczna Dwory S. A.ul. Chemikow 132-600 Oswiecim, Poland

Mr. Zdzislaw Ingielewicz, PresidentPhone: 011/48/33/847-2101

011/48/33/847-2103Fax: 011/48/33/847-2721Email: [email protected]

Dr. Wieslaw Ziembla, Director of StrategicPlanningPhone: 011/48/33/847-3230Fax: 011/48/33/847-2721Email:[email protected]

Project Profiles – PolandDwory Solution SBR and Latex Capacity ExpansionProject



• Increasing plant capacity from80,000 MTY to 120,000 MTYSolution SBR

• Increase production of SBR latticesfrom 10,000 MTY to 20,000 MTY

• Modernize equipment andmachinery

• Improve overall product yield (i.e.,minimize waste)

Project SummarySector ChemicalsLocation Oswiecim, PolandCapital Required $70 – 100 millionExport Potential $35 – 50 millionProject Sponsor DworyProject Status TDA grant approved

Project Discussion

Project Background

With $215 million in revenues and 2,200employees, Dwory is the third largestsynthetic rubber and one of the largestpolystyrene producer in Europe. In addition, itproduces latex, vinyl dispersions and chlorine.Dwory began operations in 1948 as agovernment owned facility and was privatizedin 1995. It is privately held, with about 75% ofits equity in the hands of the NationalInvestment Funds.

During the last 4 years, Dwory rejuvenateditself. It invested $100 million into a newproject aimed at increasing production andimproving its environmental performance.During 1998, it replaced its old styrene plantwith a new 1000,000 MTY plant. Also during1998 and 1999, it increased styrene productionby 30,000 MTY by de-bottlenecking andintensifying production. In December 1999, itstarted-up a new 50,000 MTY blockpolystyrene plant. On the environmental side,Dwory installed, jointly with the City ofOswiecim, a modern sewage treatment plant,using PURAC’s technology. They alsoinstalled a REGENOX plant for the catalyticafter-burning of exhaust gases from syntheticrubber production. As a result, Dwory meetsenvironmental standards and regulations,obtaining the quality certificates series ISO9001 and 14001.

Dwory has a strong market position, with itsmarket share for individual products being asfollows:

Synthetic rubber 60%Latexes 82%Polystyrene 15%Expandable polystyrene 41%Vinyl dispersions 50%



Export sales accounted for 33% of salesduring 2000. Synthetic rubber accounted for56% of exports, polystyrene for 29%,expandable polystyrene for 3%, latex for 4%,sodium hydroxide for 2% and others for 4%.

Germany accounted for 37% of exports, Italyfor 15%, Sweden for 6%, the Czech Republicfor 5%, and France for 4%.

Dwory’s products are used in the followingareas:

• Tire and Rubber

• Housing and office construction

• Automotive

• Packaging

• Household chemical

• Chemical

• Plastics

One of Dwory’s primary objectives is toincrease its synthetic rubber production from80,000 MTY to 120,000 MTY and its latexproduction from 10,000 MTY to 20,000 MTY,improving operating efficiency whileincreasing capacity.

The synthetic rubber capacity expansion isneeded to maintain Dwory’s market share inthe tire and rubber industry by adding solutionSBR capacity. The latter will complement itsproduct range and maintain profitability.

The expansion of the latex capacity is aimedspecifically at the paper industry. Dwory is theonly supplier of synthetic rubber andpolystyrene in Poland. Demand for bothproducts is growing in Poland and CentralEurope due to strong demand from theconstruction and automotive sectors.

SBR Plant CapacityCurrent 80,000 MTYPlanned 120,000 MTY

Latex Plant capacityCurrent 10,000 MTYPlanned 20,000 MTY

Modernization Plan

Currently Dwory produces styrene butadienerubber using butadiene it purchases from thePlock refinery and from imports. To producesolution SBR, it has to build a polybutadieneplant and a solution SBR plant, each with a40,000 MTY capacity. Since the Plockrefinery is expanding, more butadienefeedstock will be available in the future.


Dwory purchases feedstock from PKN Orlen’srefinery in Plock, Poland and from imports.The Plock refinery is expanding to refine 20million MTY, of which 13 million MTY willbe used as fuel and 7 million MTY asfeedstock for petrochemical production.

Project Costs

The estimated construction cost of the 40,000MTY polybutadiene plant and of the 40,000MTY solution SBR plant are US$35 millioneach, for a total of US$70 million, of whichUS$35 million is expected to be imported.

The estimated cost of expanding the latexproduction from 10,000 MTY to 20,000 MTYis not known yet.

Dwory has previously conducted an internaltechnical study of the solution SBR and latexcapacity expansions. Dwory has placed a highpriority on implementing both projects. Basedon this study, Dwory has requested that TDA



fund a feasibility study to evaluate thetechnical and economic viability of both plantcapacity expansions.

TDA has approved Dwory’s request. A publictender to select the consulting firm that willexecute the feasibility study is being prepared.

Project Schedule

Dwory’s management desires to complete thefeasibility study in 2002, finalize the financingand start construction during 2003.

Project Financing

Once the feasibility study is completed in 3 –6 months, Dwory’s management will seek alicense for the solution SBR plant.

Dwory is contemplating various schemes forthe project implementation, including creatinga stand alone joint venture companymanufacturing synthetic rubber and is willingto contribute the existing SBR and latex plantsto the joint venture. Any additional equityrequirement is expected to be met by the newjoint venture partner. The debt and financingwill be arranged through financial institutionsand commercial banks.


The solution SBR/BR plants processtechnology being considered by Dwory is verywell known in the U.S., Europe and Japan.U.S. firms having the licensing right to thetechnology are expected to be verycompetitive. In addition, U.S. suppliers ofequipment, DCS control systems andengineering services are well positioned toprovide equipment and services required forthis project.

Conclusion

This project is a high priority for Dworybecause of its important contribution torevenues, net income, and cash flow. It hasimportance for maintaining Dwory’s positionas the leading synthetic rubber supplier inPoland and Central Europe. Theimplementation of this project will improveDwory’s return on equity, capital and assets.

The future solution SBR/BR plants willcontribute to the improvement of Poland’s tireindustry, where Goodyear, Michelin andBridgestone own large tire manufacturingplants. It will also contribute to the economicwell being of the Silesian region.

Key Contacts

Country SponsorFirma Chemiczna Dwory S.A.Ul. Chemikow 132-600 Oswiecim, Poland

Mr. Zdzislaw Ingielewicz, PresidentPhone: 48/33/847-2101 48/33/847-2103Fax: 48/33/847-2721E-mail:[email protected]

Country Profile

Romania






Credit Rating B-Source: European Bank for Reconstruction andDevelopment & the World Bank

Executive Summary

The Romanian transition from a centrallycontrolled economy to a free market economyhas proven to be more difficult and complexthan many had imagined in the early 1990s. Inless than 10 years, the country has faced twomajor transition recessions and economicreforms have not delivered the desired results.In 2000, after three years of recession,Romania returned to economic growth, drivenlargely by exports and growth in industrialoutput. The privatization process has beenslow. Large enterprises, including Petrom, thenational oil company, and Gazprom, the

natural gas monopoly, are still state-owned,although, the privatization of small andmedium size enterprises, retail businesses andsmall farms has progressed relatively well.Romania is in need of major investment andrestructuring, but foreign investment in thecountry has been very slow, attracting onlyabout US$6.5 billion in the last decade.

Romania is a member of CEFTA, CentralEuropean Initiative (CEI), and the StabilityPact for South-East Europe and a foundingmember of the WTO. The EU began accessiontalks with Romania in 2000 and joining EUand NATO are two of the major priorities ofRomania’s foreign policy.

Romania has a significant domestic reserve ofoil and gas and a highly developed oil refiningand petrochemical industry. U.S. technologiesappear to be preferred and U.S. firms such asUOP appear to have a prominent position inthe sector. With a population of about 22million, Romania is the second largest marketin Central Europe and a prime target forforeign investment, particularly in the oilexploration sector.


Romania’s transition to democracy and amarket economy started in 1989. From 1989to 1996, Romania initiated a number ofprograms aimed at a gradual reform of theeconomy and establishment of democraticinstitutions. These efforts were accelerated in1996 and 1997 and the government achievedsome success in accelerating large-scaleindustry and bank privatization and in theclosing of a number of non-profitable, state-owned enterprises. However, from 1997 to2000, Romania experienced a second majorrecession in its transition period, furtherslowing down the privatization process. In2000, Romania experienced economic growth

Country Profile

Romania


but inflation remained high and thegovernment is under strong pressure frominternational institutions, including the IMF,the World Bank, and the EU, to furtheradvance economic reform and privatization. Anewly elected government took office inDecember of 2000 and has pledged to improvethe economy by offering tax cuts tobusinesses, fight corruption, reducegovernment size, and increase socialprotections. The new government has alsorestated its commitment to joining the EU andNATO. The EU began accession talks withRomania in 2000 and today Romania benefitsfrom three pre-accession instruments financedby the EU. From 2000 through 2002, totalfinancial assistance to Romania will amount toat least US$240 million from PHARE,US$150 million from SAPARD, and US$200million from ISPA.

The Romanian economy grew by 1.6% in2000 driven primarily by industrial outputgrowth and strong foreign exports. Year-endinflation was 40.7% in 2000, down from54.8% a year earlier.

Investment Climate

Since 1990, Romania has attracted roughlyUS$6.5 billion in foreign direct investment(FDI). The inflow of FDI peaked in 1998 toUS$2 billion as the result of the privatizationof ROMtelecom and Romanian automanufacturer, Dacia. The U.S., with about aUS$6.5 million investment since 1990, rankssixth in FDI in Romania after the Netherlands(US$13.3 million), Germany (US$12.7million), France (US$7.9 million), and Italy(US$7.2 million).

The private sector accounts for about 62% ofRomania’s GDP and about half ofemployment. The privatization processcontinued in 2000, with the sale of 19 large

companies, 908 small and medium sizeenterprises and 348 companies where the stateheld a less than 33% share. The governmenthas also committed to transparent privatizationof a number of large companies includingPetrom, the national oil company.

In 1999 and 2000, the government enacted apackage of legislation to improve the legalframework and to reform corporate andpersonal income tax laws. Romanianlegislation provides for foreign investors tohave free access to domestic markets, toparticipate in privatization process, torepatriate profits and dividends or proceedsfrom the sale of shares and bonds. However,there are still some restrictions on capitalimport and export. This legislation alsoprovides the same incentives for both foreignand Romanian investors. The main changes inthe tax laws included:

• Reducing corporate income tax ratefrom 38% to 25%.

• Reducing tax rate to 5% for corporateincome stemming from export.

• Applying a uniform VAT rate of 19%.

There are also six free trade zones inRomania. These free trade zones provide anumber of additional incentives including:unrestricted entry and export of goods,exemption from custom duties, VAT, andincome taxes for the duration of company’soperation in a free trade zone. There are also anumber of concessions available forcompanies located in regions with highunemployment known as “disadvantagezones.”

Romania is a founding member of the WTOand has adopted trade policies consistent withthe Uruguay round. Romania is also a memberof CEFTA and EFTA, a party to the EU

Country Profile

Romania


Association Agreement, and has agreed toestablish a free-trade area in manufacturedgoods with Turkey and Bulgaria. Inaccordance with these trade agreements,Romania reduced import tariffs by 80% onmost products and tariffs will be liftedcompletely on all industrial products forCEFTA, EFTA, and EU member countries.The EU has already lifted all tariffs andceilings on manufactured goods fromRomania. The EU is Romania’s mostimportant trading partner accounting for morethan 75% of all imports and exports. Tradewith CEFTA members has improved in recentyears. Romania imports a significant amountof raw materials, oil and gas from Russia, butexports to Russia are insignificant.

Sector Overview

The oil processing and chemical industrieshave a long tradition in Romania, as the firstrefinery in Europe was commissioned inPloiesti in 1857. There are about 15 refineries,combined refinery and petrochemicalcomplexes, and petrochemical complexes inRomania. Five are the most modern andcomplex refining and petrochemical facilitiesin Romania and are designed to processdomestic and imported heavy and light crudeto produce motor fuels, industrial fuels, andraw petrochemicals. They include Arpechimand Petrobrazi, owned by Petrom; Petromidiaowned by Rompetrol; Petrotel owned byLUKOIL; and Rafo, which is government-owned. The average capacity of these facilitiesis reported to be about 100,000 bpd each. Fiveothers are small refineries designed to processdomestic non-sulfurous crude to producespecialty products such as naphthenic oils,solvents, acicular coke, etc. They include four(Astra, VEGA, Steaua Romana, andPetrolsub) privately held and one(Darmanesti) government-owned refinery.The remaining facilities are petrochemical

complexes specialized in chemical treatmentof oil products and methane gas. Mostfacilities operate below their capacity and arein need of up-grading and major investment tomeet EU product and environmentalstandards. Government sets the fuel prices.The government owned entities are alsoresponsible for the transport of crude oil andrefined products, and operation of the oilterminal facility in Constanta. One privatelyheld refinery is reported to have suspendedoperations recently and one of the governmentowned facilities is reported to be on the vergeof bankruptcy.

Fertilizer plants are operating at very lowcapacity due to low demand and increasednatural gas prices, although Petrom isrehabilitating one or two plants.

Today, Petrom, a vertically integrated nationaloil company, appears to dominate theRomanian oil and petrochemical market. Itextracts the entire Romanian crude oil output(about 6.2 million MTY) and 40% of naturalgas (about 6 billion cubic meters per year),operates two refinery and petrochemicalcomplexes (Arpechim and Petrobrazi) with acombined capacity of 8 million MTY, andmaintains a network of 600 service stations(40% to 50% of the market). The Romaniangovernment is contemplating privatizingPetrom and is considering a strategic investoror a golden-share approach (where thegovernment will keep 1% share and vetopower over critical issues).

U.S. Presence

From 1990 to 2000, U.S. investment inRomania amounted to about US$6.5 million.Although U.S. firms have not made a majorcontribution to investments in the chemical,petrochemical or refining sectors, U.S.technologies are applied in these sectors.

Country Profile

Romania


Some of the U.S. firms having historicalpresence in the Romanian refining andpetrochemical sector include UOP, Philips,Stone & Webster, Honeywell, and FosterWheeler. It is reported that U.S firms havebeen able to provide superior export packages,including financing, compared with theirEuropean competitors even though Romanianimport duty regulations are moreadvantageous for European firms.

Project Profiles – RomaniaRompetrol VEGA Refinery’s Soil and GroundwaterRemediation Projects


Anticipated Project ImplementationActivities

• Removal of approximately 150,000 m3

of contaminated soil.

• Treatment of contaminated soil forsafe disposal.

• Treatment of contaminatedgroundwater and its safe disposal.

Project SummarySector Refining/

EnvironmentalLocation PloiestiCapital Required $15 -$18 millionExport Potential $6 - $8 millionProject Sponsor RompetrolProject Status TDA grant agreement

signed and contractorsolicitation underway

Project Discussion

Project Background

CONCORDIA, a private company,established the VEGA Refinery in northernPloiesti in 1904. From 1948 to 1999, VEGAwas operated as a state owned refinery. In1999, VEGA was acquired by RompetrolGroup B.V., a provider of services to the oiland gas industry in Romania and abroad. TheRompetrol Group, headquartered inRotterdam, The Netherlands, is the largestprivate company operating in the Romanianpetroleum industry. The Group is a verticallyintegrated petroleum company withsubstantial upstream, downstream and refiningassets, principally in Romania but also inother countries. It is also an oilfield servicecompany with global operations.

Since 1904, VEGA Refinery has processedcrude oil to obtain naphtha, gas oil, lubricants,bitumens, gasoline, and hexane, and hasmanufactured catalysts for petroleum andpetrochemical operations. Some of theseoperations have produced an acidic wastesludge, which have been disposed of in 13lagoons at the refinery’s 70 hectares site. Therefinery’s current capacity is about 500,000MTY.

The VEGA Refinery purchase agreementobliged Rompetrol to assume the RomanianGovernment’s Minimum AcceptableEnvironmental Goals for private facilities.These goals address environmentalcompliance for soils and groundwater,wastewater discharge, air pollution, solidwaste management, and environmentalpermits. Rompetrol was required to investabout $10 million in the refinery to meet thesegoals.



Upon purchase of the VEGA Refinery,Rompetrol took certain measures towardsmeeting its environmental goals. The first stepwas obtaining the Environmental Permit (firstrefinery in the region). This is how the generalMAEGs were defined in a very thorough andspecific manner. In particular with regard tosoil and groundwater compliance, Rompetrolhas:

• Discontinued all of the processesgenerating acidic waste sludge.

• Selected the most appropriatetechnology to remove the content ofthe lagoons and to dispose the wastesludge off site. This remedial activityis scheduled to begin late 2001 andcontinue through mid 2004.

• Installed a network of wells to monitorthe quality and movement ofgroundwater at the site.

• Conducted, with assistance fromCOLT International, Inc., tests forrecovering oil from ground water.

• Signed a feasibility study grantagreement with TDA to assess theviability of various options for thetreatment of contaminated lagoon soilsand groundwater.

Project Scope

Approximately 150,000 m3 of contaminatedsoil may have to be removed and treated. Thesubsurface soils at the site have been reportedto include layers of clay, which could havehelped to keep most of the contaminantswithin the facility. The volume of thegroundwater that must be treated is not yetestimated.

Feasibility Study Scope

Rompetrol received a grant of $161,000 aspart of a $230,000 feasibility study from TDAto assess the viability of various optionsavailable for decontaminating lagoon soils andgroundwater at the refinery. The study isexpected to include:

• A detailed review of available sitedata.

• Sampling and analysis of soil andgroundwater to develop new data.

• Discussions with regulatory authoritiesto establish permitting and otherrequirements.

• An environmental audit and riskassessment associated with emptyingthe lagoons and drilling new wells formonitoring groundwater at the site.

• Establishing improved estimates of thevolume and characteristics ofcontaminated soils and groundwater.

• Assessing the technical and economicviability of the most promising optionsfor the treatment of soils andgroundwater (at least three optionseach).

• Recommending the most viable optionfor soil and groundwater treatment.

• Preparing a report addressing all majortechnical, economic, and financialissues including cost and benefitanalysis and the strength, weaknesses,opportunities and threats associatedwith the treatment option.

The feasibility study is expected to be carriedout in two phases. The first phase will includethe screening of available data and treatmentoptions, and recommending treatment options



for further considerations. The second phasewill include site data collection and analysis,site characterization, selection of remediationtechnologies, and developing animplementation plan including costs andschedule.

Project Location

The VEGA Refinery site encompasses about70 hectares on the northeast of the city ofPloiesti, between the rivers of Dimbu andTeleajen. Three other refineries are alsolocated in the surrounding area. The Petrotel-LUKOIL Refinery is located southeast of theVEGA Refinery between the same two rivers.Astra and Petrobrazi are located east ofPrahova River, fed by Dimbu and Teleajen.The city of Ploiesti and its neighboring areaare heavily industrialized and, in addition tothe refineries, houses a power station andother industrial complexes.


Project Costs

The feasibility study is estimated to costapproximately $230,000. The projectimplementation costs are estimated to be $20-$23 million subject to the outcome of thefeasibility study. The potential export of U.S.goods and services is estimated to be $6-$8million.

Known Initiatives

As noted earlier, Rompetrol has alreadydiscontinued certain refining operations inorder to stop the generation of acidic waste;has commenced work to remove sludge wastefrom the lagoons; and has begun monitoringgroundwater contamination and movement.Rompetrol has also conducted anenvironmental risk assessment of the site and

is the first refinery in the Prahova region toobtain an environmental permit.

Remediation Schedule

Planned Completion ScheduleActivity Qtr YearFeasibility StudyAward

4th 2001

Feasibility Study 4th 2003

Project Financing

Several sources of funds may be available forfinancing this project. The refinery capitalinvestment program for environmentalprojects appears to provide over $7 million forthe remediation of contaminated soils andgroundwater. In addition, some ofRompetrol’s initial $20 million commitmentfor the environmental and developmentprojects at VEGA Refinery may also beavailable for the soil and groundwaterremediation projects. Furthermore, theadditional funding can become available if therehabilitation of the contaminated soil isnecessary for construction of new facilities atthe lagoon site(s). Recent changes inenvironmental laws could also make somepublic funds available for the proposedprojects, especially the groundwaterremediation project. Availability of bilateraland multilateral funds in Romania is alsoexpected to increase for environmentalprojects.

Two financing alternatives they areconsidering include: sharing project costs andrevenues with a contractor; and leasingarrangements. These options will be addressedas a part of the proposed feasibility study.




U.S. firms could provide the services neededto implement these projects. U.S. firms are,however, expected to face strong competitionfrom Danish, Canadian, French and otherEuropean countries. The DanishEnvironmental Protection Agency (DEPA)has been the lending foreign governmentagency providing technical and financialassistance to environmental projects inRomania. The European Union is expected toprovide about $100 million annually tosupport environmental projects in Romaniaunder the Instrument for Structural Policiesfor Pre-Accession (ISPA). According toRompetrol, Canadian and French firms haveexpressed interest in these and otherenvironmental projects at VEGA and otherrefineries.

Conclusion

These environmental projects have a highpriority not only for Rompetrol but also forthe government of Romania. Romania has toincrease its pollution control and remediationstandards in order to join the European Union.

The VEGA refinery is one of the fewprivatized industries in the region. For thisreason, the local government andenvironmental regulators actively seekconformity with the compliance schedulenegotiated between Rompetrol and the localEPA.

Key Contacts

Country SponsorThe Rompetrol Group222 Calea Victoriei71104 BucharestRomania

Mr. Cantemir MambetDirector, R.I.S.C. Management Department(Quality-Health and Safety Environment-Risk)Tel: 40-1-303-0859Fax: 40-1-312-2490e-mail: [email protected]


Rompetrol VEGA Refinery Upgrading Project


Planned Additions

• Revamp and capacity increase forthe vacuum distillation and Bitumenunit

• Add new continuous bitumenoxidizer

Project SummarySector RefiningLocation VEGA Refinery,

Ploiesti, RomaniaCapital Required $9 millionExport Potential $2.7 millionProject Sponsor RompetrolProject Status Preliminary Planning

Project Discussion

Project Background

CONCORDIA, a private company,established the VEGA Refinery in northernPloiesti in 1904. From 1948 to 1999, VEGAwas operated as a state owned refinery. In1999, VEGA was acquired by Rompetrol

Group B.V., a provider of services to the oiland gas industry in Romania and abroad. TheRompetrol Group, headquartered inRotterdam, The Netherlands, is the largestprivate company operating in the Romanianpetroleum industry. The Group is both avertically integrated petroleum company withsubstantial upstream, downstream and refiningassets, principally in Romania but also inother countries, and an oil-field servicecompany with global operations. Rompetroloperates two refineries, Petromidia andVEGA, and a network of retail stations inRomania.

The Petromidia refinery at Constanta (on theBlack Sea) is a 3 million MTY deepconversion plant (TRCC) with an associatedpetrochemical plant.

The VEGA refinery is a small capacity (0.5million MTY) plant designed to producespecialty products, such as solvents andbitumen. The refinery can also takeintermediate products from Petromidia.

Project Description

The upgrading project includes revamps of thevacuum tower and replacing the existingbatch-bitumen oxidizer unit with a 150,000MTY continuous unit. In addition, thecapacity of the vacuum distillation unit will bedoubled to 300,000 MTY.

The new unit would manufacture a widerrange of asphalt products, while reducingemissions, decreasing utilities consumptionand improving heaters efficiency to 85-87%.

Domestic asphalt demand is expected toincrease over the next 5 years due to agovernment infrastructure developmentprogram.




Equipment for the project would includefractionation tower internals for the vacuumunit, heat exchangers, furnaces, towers, drumsand process control systems.


Project Costs

Modifications at VEGA Refinery areestimated to cost about US$9 million of whichabout US$2.7 million is expected to beimported.

Known Initiatives

Rompetrol is studying the installation of crudeand product mono-buoys to create a lower costalternative to the State-owned terminal atConstanta, which presently holds amonopolistic position in the area. Currenttariffs are US$4.5/MT for crude imports plus$1/MT for storage. This represents asignificant cost for Rompetrol, which imports3 million MTY crude through the ConstantaTerminal. Product exports pay a tariff ofUS$2.5 per ton. The mono-buoys would belocated 12 km offshore crude oil and 7 km forproducts. The crude mono-buoy is designedfor 150,000 MT vessels and the productfacility for 35,000 MT vessels. TDA hasprovided a grant for conducting a feasibilitystudy for this project. The company also needsadditional storage for crude and oil products toallow an increase of throughput to 4.8 millionMTY (current maximum throughput). Theyare investigating the idea of using floatingstorage for crude.

The VEGA refinery is an old site with wastelagoons filled with oil/water/sludge mixes.Rompetrol has recently commenced removalof the material from these lagoons and hasreceived a TDA grant to determine the best

viable technologies for remediatingcontaminated soils and groundwater.



2002-2003

Plant re-startup 2003

Project Financing

Project financing has not yet been addressed.However, Rompetrol is committed to diversifytheir product slate and maximize utilization ofthe available facilities while responding tomarket needs.

Rompetrol also has committed to investUS$10 million for environmental projects andwould provide funds from internal sourcestoward financing the modernization of theVEGA Refinery.


U.S. suppliers of technology, equipment, DCScontrol systems, catalysts, engineering andconstruction services are well positioned toprovide equipment and services required forthis project.

Conclusion

Rompetrol views diversification of theirproduct line as a crucial requirement for theirbusiness. This project makes maximum use ofexisting assets to produce a wide range ofbitumen for domestic consumption.




Key Contacts

Country SponsorRompetrol222 Calea Victoriei71104 BucharestRomania

Eric Florin ChisTel: (40) 41 50 6100Fax: (40) 41 50 6930Email: [email protected]

Project Profiles – RomaniaRompetrol Petromidia Petrochemical UpgradingProject


Planned Additions and Modifications

• Modify HDPE plant to produceMedium Density Polyethylene

• Add New Ethylene OxideDerivatives plant

• Restart and increase capacity ofDimethyl terephthalate plant

• Add new bottle-grade Polyethyleneterephthalate turn-key plant

• Polypropylene compounds plant

Project SummarySector PetrochemicalsLocation Constanta, RomaniaCapital Required $85 - 100 millionExport Potential $50 millionProject Sponsor RompetrolProject Status Preliminary Planning

Project Discussion

Project Background

Rompetrol Group B.V., a provider of servicesto the oil and gas industry in Romania andabroad, acquired majority stock in PetromidiaRefinery in 2000. The Rompetrol Group,headquartered in Rotterdam, The Netherlands,is one of the largest private companies andPetromidia is one of the most modernrefineries operating in Romania. RompetrolGroup is both a vertically integratedpetroleum company with substantial upstream,downstream and refining assets, principally inRomania but also in other countries, and anoilfield service company with globaloperation. The company was originallyfounded as the international arm of theRomanian oil and gas industry and it wasprivatized in 1997.

Built in 1975 through 1977, Petromidia is a4.8 million MTY refinery producing a varietyof fuels and petrochemical feedstocks. Itconsists of a deep conversion plant (TRCC)with an associated petrochemical plant. Therefinery is currently processing about 3million MTY of crude oil. The petrochemicalplant is undergoing a revamp in preparationfor its re-start.

Rompetrol also owns VEGA refinery, a smallcapacity (0.5 million MTY) plant in Ploiesti,Romania.

Project Description

Rompetrol is looking to diversify their productslate. In particular, they are considering aproject to upgrade the Petromidia Complexwhile taking advantage of significant, but idle,petrochemical capacity to produce a new slateof products. The project scope is describedbelow.



1. Modify the existing high-densitypolyethylene plant to produce 6million MTY of MDPE and HMWPE.There are no current domesticproducers of this product. However,the market is already well establishedand supported by imports. Rompetrolowns a piping company and expectsto manufacture plastic pipes insupport of a nationwide effort toreplace old metal gas pipes. Thecapital required for modifying theexisting HDPE plant is estimated tobe about US$1 million.

2. Build a new plant to producederivatives (dyes, detergents,cosmetics etc.) from ethylene oxide.The refinery has a 14,000 MTYETOX plant, but Rompetrol is unableto transport ETOX by rail or truck,due to State regulations. Therefore,Rompetrol has concluded that toutilize their existing ETOX plant theymust manufacture the derivativesonsite. The new equipment wouldmatch the ETOX size, and isestimated to cost US$6-$7 million.

3. Upgrade the existing DMT plant andinstalling a new bottle-grade PETplant. Polyethylene terephthalate(PET - polyester) is produced fromdimethylterephthalate (DMT) co-polymerized with ethylene glycol.Petromidia already has facilities toproduce DMT and ethylene glycol.The DMT plant is not currently inoperation and needs to be upgradedand reactivated. A new PET plant alsoneed to be installed to produce chipsand pre-forms which are currentlyimported into the country fromHungary by rail and truck. Theproposed facility would be the onlydomestic producer. Capacity is

expected to be 80,000-90,000 MTY,and the project cost is estimated atUS$60 to US$70 million (for revampof DMT plant and new PET plant).

4. Use the polypropylene produced toobtain compounded polymers withincreased properties for injection andrafia grades. The capital cost isestimated at approximately US$1.5-US$2 million.

5. Build a LLDPE plant with a capacityof 60,000-80,000 MTY whoseproducts can be used unblended orcompounded in injection molding,roto-molding and cables. There isonly one such capacity in the regionlocated in Uzbekistan. Estimated costis approximately US$6-US$7 million.

6. Unit producing through a relativelysimple process dichlorethane, vinylchloride, polyvinyl chloride – wellquoted on the market. Estimated costis approximately US$12 million.

Equipment required for these projects includesreactors, towers, vessels, pumps, compressors,furnaces, piping, process control systems andelectrical distribution equipment.


Project Costs

The proposed additions and modifications atPetromidia refinery are estimated to cost atotal of US$85 to US$100 million of which upto US$50 million U.S. exports is expected tobe imported.

Known Initiatives

Rompetrol recently received a TDA grant toconduct a study to assess the feasibility ofinstalling crude and produce mono-buoys on



the Black Sea to lower their currentloading/unloading costs. Rompetrol iscurrently using the only availableloading/unloading facility terminal atConstanta, which currently holds amonopolistic position in the area. Currenttariffs are: $4.5/MT for crude imports plus$1/MT for storage; and $2.5/MT for productexports. This represents a significant cost forRompetrol, which imports a significantamount of products through the ConstantaTerminal. The mono-buoys would be located12 KM offshore for crude and 7 KM forproducts. The crude mono-buoy will bedesigned for 150,000 MT vessels and theproducts facility for 35,000 MT vessels. Thecompany also needs additional storage forcrude and products to allow an increase ofthroughput to 4.8 million MTY. They areinvestigating the potential for using floatingstorage for crude. (The storage facility study isnot a part of the TDA funded study.)

Rompetrol has also received a grant fromTDA to evaluate the feasibility of installing anin-line fuels blending facility at Petromidiarefinery for gasoline and distillate products.The facility would allow the meeting ofproduct specification while reducing “give-away” amounts. Capital costs are estimated atUS$6-US$7 million.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 1st 2001

Project Financing

Project financing has not yet been addressed.However, Rompetrol is committed to diversifytheir product slate and maximize utilization of

the available facilities while responding to themarket needs.

Rompetrol has committed to invest $200million, including $20 million forenvironmental projects, to modernizePetromidia Refinery.


U.S. suppliers have well-established,internationally dominant technologies thatcould be competitively supplied. In addition,U.S. firms could competitively provideengineering services, and specializedequipment.

Conclusion

Product diversification is a crucial componentof Rompetrol’s future business plan. Theproposed program utilizes significant idlepetrochemical manufacturing capacity, and theproducts largely replace costly imports.

Key Contacts



Project Profiles – RomaniaRompetrol Petromidia Refinery In-Line BlendingProject


Planned Additions

• New In-line Blending Facility forGasolines and distillates

• Quality monitor and control systems

• Additive injection systems

• Computer Control Systems

• Pumps, piping & control hardware

Project SummarySector RefiningLocation Constanta, RomaniaCapital Required $6-7 millionExport Potential $3-4 millionProject Sponsor RompetrolProject Status TDA grant agreement

signed

Project Discussion

Project Background

Rompetrol Group B.V., a provider of servicesto the oil and gas industry in Romania and

abroad, acquired majority stock in PetromidiaRefinery in 2000. The Rompetrol Group,headquartered in Rotterdam, The Netherlands,is one of the largest private companies andPetromidia is one of the most modernrefineries operating in Romania. RompetrolGroup is both a vertically integratedpetroleum company with substantial upstream,downstream and refining assets, principally inRomania but also in other countries, and an oilfield service company with global operation.The company was originally founded as theinternational arm of the Romanian oil and gasindustry and it was privatized in 1997.Currently, Rompetrol operates two refineries(Petromidia and VEGA) and a network ofretail stations in Romania.

Built in 1975 to 1977, Petromidia is a 4.8million MTY refinery producing a variety offuels and petrochemical feedstocks. It consistsof a deep conversion plant (TRCC) with anassociated petrochemical plant. Thepetrochemical plant is undergoing a revamp.The refinery is currently processing about 3million MTY of crude.

Rompetrol also owns the VEGA Refinery, asmall capacity (0.5 million MTY) plant inPloiesti, Romania.

Project Description

Rompetrol has embarked on a program toimprove the competitiveness of their facilities.The in-line fuels blending project is acomponent of this strategy.

The project will construct an in-line blendingfacility at the Petromidia refinery that wouldbe used for gasoline and distillate products.The facility would reduce productspecification “give-away” (i.e. the additionalproduct quality that has to be produced to



assure that the final product always meetsfinal specifications).

Typical payout for in-line blending facilities isabout 18 months. Capital costs are estimatedat US$6-US$7 million.

Equipment required for this project includespumps, piping, additive injection systems,quality monitor and control systems, processcontrol systems, and electrical distributionequipment.


Project Costs

The capital cost of the in-line blending facilityat Petromidia Refinery is estimated to rangefrom US$6-US$7 million.

Known Initiatives

Rompetrol is studying the installation of crudeand product mono-buoys to create a lower costalternative to the state-owned terminal, whichcurrently detains a monopolistic position inthe area. Current tariffs are $4.5/MT for crudeimports plus $1/MT for storage. Thisrepresents a significant cost for Rompetrol,which import 3 million MTY crude throughthe Terminal. Product exports pay a tariff of$2.5/MT. The mono-buoys would be located12 km offshore crude and 7 km for products.The crude mono-buoy is designed for 150,000MT vessels and the products facility for35,000 MT vessels. TDA has provided a grantfor conducting a study to assess the feasibilityof constructing the mono-buoys. The companyalso needs additional storage for crude andproducts to allow increase of throughput to 4.8million MTY (current maximum throughput).Rompetrol is investigating the idea of usingfloating storage for crude.

The VEGA Refinery is an old site with wastelagoons filled with oil/water/sludge mixes.Rompetrol has recently commenced removalof the material. TDA has also provided a grantfor conducting a feasibility study to determinethe best way to remediate contaminated soilsand groundwater. The remediation is expectedto cost about US$20 million.

Project Financing

Project financing has not yet been addressed.However, Rompetrol is committed tomaximizing profitability and utilization ofavailable facilities. Rompetrol has alsocommitted to invest about US$200 million tomodernize the Petromidia Refinery.


U.S. suppliers of the in-line blendingspecialized equipment such as qualitymonitoring and control systems andoptimization hardware and software are wellpositioned to meet the requirements of thisproject.

Conclusion

The in-line blending project is part ofRompetrol’s program to improvecompetitiveness. This project is a well-provenmethod to maximize the use of existing assetsby matching the severity of operations closelyto the product qualities required.



Key Contacts




Petrom Petrochemical Plant Expansion


Planned Expansions and Additions

• Expansion of ethylene productioncapacity by 100,000 MTY

• Addition of a new polyethylene unit

Project SummarySector PetrochemicalLocation Arpechim Refinery,

Pitesti, RomaniaCapital Required $115 millionExport Potential $35 millionProject Sponsor PetromProject Status Preliminary planning

Project Discussion

Project Background

Petrom, the State Oil Company of Romania, isa vertically integrated petroleum companywith upstream and downstream assetsincluding two (2) refineries -- Arpechim andPetrobrazi -- and a network of 700 servicestations in Romania. Petrom, with about35.4% of the country’s active refinery

capacity, is the largest refinery in the country.Arpechim and Petrobrazi have a total capacityof 8 million MTY and in 2000, processed 5.7million tonnes of crude, 53.3% of the totalcrude processed in Romania. These refineriescan produce a wide range of productsincluding LPG, gasoline, jet fuel, diesel, lightand heavy fuel, coke, bitumen, lube oils, andaromatic hydrocarbons.

Arpechim and Petrobrazi are located on thedomestic crude oil fields operated by Petrom.Both refineries are capable of processingdomestic and imported crude and areconnected to the State owned crude pipelines,Conpet, connecting the refineries to Petrom’sproduction fields and the crude importterminal at Constanta, on the Black Sea.

Both Arpechim and Petrobrazi are integratedrefinery and petrochemical plants and havesignificant on-site storage facilities for crudeoil and products. The petrochemical facilitiesproduce a wide range of products includingethylene, propylene, polyethylene,acrylonitrile, carbon black, ethylene oxide,phenol, acetone, and maleic anhydride. Eachrefinery tends to produce the products thatcannot be produced at the other refinery.The two complexes are also connected toPetrotrans, a Petrom owned petroleum productpipeline infrastructure. Petrotrans is the onlyproduct pipeline network in the countryserving all major domestic consumers andconnects all Romanian refineries to petroleumproduct export terminals at Constanta, on theBlack Sea, and Giurgiu, on the Danube river.

Most of the technology at Arpechim andPetrobrazi was supplied by UOP, and UOP(working with Solomon Associates) isproviding long-term assistance to Petrom inorder to develop a master plan for upgradingand modernizing these refinery and




petrochemical plants. The plan is envisaged infour (4) phases:

1. Cost Reduction and ProfitabilityImprovement Program

This program included low or no-costprojects for yield improvement andenergy reduction. To maintain itscompetitive position, Petrom hasidentified a series of projects toreduce oil loss, energy consumption,maintenance costs, and utility costs.They also plan to improve capacityutilization.

2. EU Fuel Specifications Program

About 50% of the gasoline and gas oilproduced by Petrom meet the EUspecification. Additional alkylationcapacity will be needed to allowproduction of 100% gasoline and gasoil products meeting the EU productstandards. Petrom has exported someproducts to the EU.

3. Re-instrumentation andImplementation of Advanced ProcessControl Program

This program includes a project to bedeveloped in the next 2-3 years basedon offers from leading suppliers inthis field (Honeywell, Emerson,Invensys, Aspen Tech).

4. Environmental Program

Refineries need significant investmentfor environmental work. Petromprefers to utilize financial assistancefor environmental projects (e.g.EBRD).

Project Description

Petrom operates a 200,000 MTY steamcracker, built by Lurgi, at the ArpechimRefinery. The Petrom modernization planincludes expanding the capacity of this unit by100,000 MTY to 300,000 MTY.

The project involves some modifications tothe compressors, the addition of furnaces,upgrading of the separation and purificationsystems, and expansion of the coldboxcapacity. The estimated cost is US$50 million.The project would allow Petrom to gain fromeconomies of scale for the ethylene operation,and to also expand their polyethyleneproduction capability.

Petrom also plans to increase polyethylenecapacity at Arpechim with the addition of anew unit, largely to produce medium-densitypolyethylene. The product would be used forproducing plastic pipes to replace pig-ironpipes in the gas distribution system throughoutthe entire country. Estimated cost for thisfacility is US$65 million.

American and European firms have beenapproached by Arpechim for technicalinformation regarding these projects.However, a detailed feasibility study isrequired to evaluate the technical andeconomic viability of the proposed expansionsand assess market size. It must considerpotential domestic and foreign competition ina free market economy as Romania progressestowards becoming a full member of the EU.


Project Costs

Based on the available, preliminaryinformation, the petrochemical expansion




project is estimated to cost about US$115million.

Known Initiatives

Petrom has developed a series of projects toimprove the competitiveness of their tworefineries. The projects include the upgradingand revamping of many refinery units toimprove product yields and energy usage, aswell as reducing oil losses.



2002-2003

Plant Start-up 4th 2003

Project Financing

Project financing has not yet been addressed.Petrom plans to use a mix of internalresources, supplier’s credit, and loans frominstitutions and commercial banks forfinancing this project. A detailed financingplan will be developed as a part of thefeasibility study.


U.S. suppliers of technology, equipment,catalysts, engineering and constructionservices are well positioned to provideequipment and services required for thisproject. U.S. firms such as UOP, Kellogg,Stone & Webster, ABB Lummus Global,could be very competitive in supplyingtechnology and/or engineering services.

Conclusion

Petrom is undertaking a significant program toimprove the competitiveness of its tworefineries. Expansion of the petrochemicalfacilities is predicated to satisfy domesticdemands for medium density polyethylene.

Key Contacts

Country SponsorPetrom109 Calea Victoriei71176 BucharestRomania

Lucian MotiuTel: (40) 41 1 659 6639Fax: (40) 41 1 315 9849Email: [email protected]


Petrom Delayed Coker and Calciner Project



• New Coke Calcining Module

• Eliminating an intermediate quenchcolumn

• Coker automatic drum unheadingsystems

• Coke Cutting System

• Furnace refurbishing

• Heat exchanger revamps

Project SummarySector RefiningLocation Petrobrazi Refinery,

Ploiesti, RomaniaCapital Required $31 millionExport Potential $10 millionProject Sponsor PetromProject Status Technical Feasibility

Study Completed

Project Discussion

Project Background

Petrom, the State Oil Company of Romania, isa vertically integrated petroleum companywith upstream and downstream assetsincluding two (2) refineries -- Arpechim andPetrobrazi -- and a network of 700 servicestations in Romania. Petrom, with about35.4% of the country’s active refinerycapacity, is the largest refiner in the country.Arpechim and Petrobrazi have a total capacityof 8 million MTY and in 2000, processed 5.7million tonnes of crude, 53.3% of the totalcrude processed in Romania. These refineriescan produce a wide range of productsincluding LPG, gasoline, jet fuel, diesel, lightand heavy fuel, coke, bitumen, lube oils, andaromatic hydrocarbons.


Both Arpechim and Petrobrazi are integratedrefinery and petrochemical plants and havesignificant on-site storage facilities for crudeoil and products. The petrochemical facilitiesproduce a wide range of products includingethylene, propylene, polyethylene,acrylonitrile, carbon black, ethylene oxide,phenol, acetone, and maleic anhydride. Eachrefinery tends to produce the products thatcannot be produced at the other refinery.The two complexes are also connected toPetrotrans, a Petrom owned petroleum productpipeline infrastructure. Petrotrans is the onlyproduct pipeline network in the countryserving all major domestic consumers and




connects all Romanian refineries to petroleumproduct export terminals at Constanta, on theBlack Sea, and Giurgiu, on the Danube river.

Most of the technology at Arpechim andPetrobrazi was supplied by UOP, and UOP(working with Solomon Associates) isproviding long-term assistance to Petrom inorder to develop a master plan for upgradingand modernizing these refinery andpetrochemical plants. The plan is envisaged infour (4) phases:









Project Description

The Petrobrazi refinery plans to modify anexisting 800,000 MTY delayed coker and tobuild a new Calciner for improving cokequality. The current operation has 4 drums.The Petrom plan includes eliminating aquench column, installing a new coke cuttingsystem, re-piping of furnace outlets directly tothe coke drums, and adding an automaticdrum de-heading system. The calcined cokewould be used in the metallurgy industry andfor electrodes manufacturing.

The project would include the implementationof a new petroleum coke calcining module.


Project Costs

The delayed coker revamping and newcalcining unit is estimated to cost aboutUS$31 million, of which US$20 million is forthe calciner.

Known Initiatives

Petrom has developed a series of projects toimprove the competitiveness of their tworefineries. The projects include the upgradingand revamping of many refinery units toimprove product yields and quality, reduceenergy consumption, reduce emissions,improve safety and reliability, and reduce oillosses.





Planned Completion ScheduleActivity Qtr YearFeasibility Study 3rd 2001Financing &Construction

2001 &2002


Project Financing

Project financing has not yet been addressed.Petrom would like to use a mix of internalresources, supplier’s credits, and loans frominternational financial institutions andcommercial banks.


U.S. suppliers of technology, equipment, DCScontrol systems, engineering, coke cutting,automatic drum un-heading and constructionservices are well positioned to provideequipment and services required for thisproject. It is reported that U.S. companiesoften manage to provide a superior overallpackage of technology, services, and financingeven though EU companies benefit from theRomanian import regulation and do not payany import duties.

Conclusion

The delayed coker and calcining project willhelp Petrom improve product quality andyields, operation safety, and economicefficiency while reducing plant emissions.

Key Contacts




Petrom New Alkylation Unit


Planned Additions

• New Alkylation Unit

Project SummarySector RefiningLocation Petrobrazi Refinery,

Ploiesti, RomaniaCapital Required $22 millionExport Potential $7 millionProject Sponsor PetromProject Status Preliminary Planning

Project Discussion

Project Background

Petrom, the State Oil Company of Romania, isa vertically integrated petroleum companywith upstream and downstream assetsincluding two (2) refineries -- Arpechim andPetrobrazi -- and a network of 700 servicestations in Romania. Petrom, with about35.4% of the country’s active refinerycapacity, is the largest refiner in the country.Arpechim and Petrobrazi have a total capacity

of 8 million MTY and in 2000, processed 5.7million tonnes of crude, 53.3% of the totalcrude processed in Romania. These refineriescan produce a wide range of productsincluding LPG, gasoline, jet fuel, diesel, lightand heavy fuel, coke, bitumen, lube oils, andaromatic hydrocarbons.



Most of the technology at Arpechim andPetrobrazi was supplied by UOP, and UOP(working with Solomon Associates) isproviding long-term assistance to Petrom inorder to develop a master plan for upgradingand modernizing these refinery andpetrochemical plants. The plan is envisaged infour (4) phases:












Project Description

Petrom plans to build a new 120,000 MTYAlkylation unit at Petrobrazi Refinery toimprove the gasoline pool quality and to meet

EU gasoline specifications. Feed to the unitwill be butylenes from the FCC unit and iso-butanes from the FCC and reforming units.

The project would include all the facilitiesrequired for a new plant. These includereactors, columns, vessels, heat exchangers,and furnaces, along with piping, processcontrols and power supply.

The company has not yet selected atechnology for this plant. Under considerationare hydrofluoric acid, sulfuric acid and solidcatalyst technologies.


Project Costs

The alkylation unit is estimated to cost US$22million.

Known Initiatives

Petrom has developed a series of projects toimprove the competitiveness of their tworefineries. The projects include the upgradingand revamping of many refinery units toimprove product yields and quality, reduceenergy consumption, improve safety, reduceemission and oil loss, and improve economicefficiency.


Planned Completion ScheduleActivity Qtr YearTechnical FeasibilityStudy

3rd 2001

Financing &Construction

2001-2003





Project Financing

Project financing has not yet been addressed.Petrom would likely utilize a mix of internalresources, supplier’s credits, and loans frommultinational/international financialinstitutions and commercial banks to financethis project. A detailed financial plan will bedeveloped as a part of a feasibility study.


U.S. suppliers of technology, equipment, DCScontrol systems, catalysts, engineering andconstruction services are well positioned toprovide equipment and services required forthis project. It is reported that U.S. companiesoften manage to provide a superior overallpackage of technology, services, andfinancing, even though EU companies benefitfrom the Romanian import regulation and donot pay any import duties.

Conclusion

The Alkylation unit is required to enablePetrom to meet EU gasoline specificationsefficiently.

Key Contacts




Petrom Acrylonitrile Unit Upgrading Project



• Revamp Acrylonitrile Unit

• Add chemical and biological wastewater treatment

• Add thermal oxidizer

Project SummarySector PetrochemicalLocation Arpechim Refinery,

Pitesti, RomaniaCapital Required $24 millionExport Potential $7 millionProject Sponsor PetromProject Status Technical Feasibility

Completed

Project Discussion

Project Background

Petrom, the State Oil Company of Romania, isa vertically integrated petroleum companywith upstream and downstream assetsincluding two (2) refineries -- Arpechim andPetrobrazi -- and a network of 700 service

stations in Romania. Petrom, with about35.4% of the country’s active refinerycapacity, is the largest refiner in the country.Arpechim and Petrobrazi have a total capacityof 8 million MTY and in 2000, processed 5.7million tonnes of crude, 53.3% of the totalcrude processed in Romania. These refineriescan produce a wide range of productsincluding LPG, gasoline, jet fuel, diesel, lightand heavy fuel, coke, bitumen, lube oils, andaromatic hydrocarbons.



Most of the technology at Arpechim andPetrobrazi was supplied by UOP, and UOP(working with Solomon Associates) isproviding long-term assistance to Petrom inorder to develop a master plan for upgrading




and modernizing these refinery andpetrochemical plants. The plan is envisaged infour (4) phases:









Project Description

The Arpechim Refinery plans to upgrade theiracrylonitrile unit to improve yields, andreduce both emissions and energyconsumption. The project includes revampingthe recovery towers to avoid polymerblocking, improving wastewater treatment byadding further chemical and biologicalprocesses, and the addition of a thermaloxidation unit to process contaminants.

Equipment needed include a thermal oxidizer,boilers, electrical generator and transformers,new fractionation tower internals, and a newwastewater treatment facility.


Project Costs

The acrylonitrile plant revamp is estimated tocost about US$24 million.

Known Initiatives

Petrom has developed a series of projects toimprove the competitiveness of their tworefineries. The projects include the upgradingand revamping of many refinery units toimprove product yields and quality, reduceenergy consumption, reduce emissions,improve safety and reliability, and reduce oillosses.





Planned Completion ScheduleActivity Qtr YearTechnical FeasibilityStudy

3rd 2001

Financing &Construction

2001-2003


Project Financing

Project financing has not yet been addressed.Petrom has sufficient cash flow to fund itsprojects, but would likely utilize financing forsome of the projects. Potential financingsources include internal resources, supplierscredits, Ex-Im, OPIC, EBRD, and commercialbanks


U.S. suppliers of technology, equipment, DCScontrol systems, catalysts, engineering, andconstruction services are well positioned toprovide equipment and services required forthis project. It is reported that U.S. companiesoften manage to provide a superior overallpackage of technology, services, and financingeven though EU companies benefit fromRomanian import regulations and do not payany import duties.

Conclusion

The acrylonitrile project will help Petromreduce emissions from the refinery andimprove energy efficiency.

Key Contacts



Country Profile

Slovakia






Credit Rating BB+Source: European Bank for Reconstruction andDevelopment & The World Bank

Executive Summary

Improving rapidly since the 1998 elections,Slovakia has benefited from the government’scommitment to become a member of the EU.By encouraging privatization and foreigninvestment, Slovakia has improved its macro-economic stability and continues on its coursefor membership in the European Union (EU).Slovakia is a member of the WTO, CEFTA,and OECD and also hopes to join NATO in2002.

As Slovakia prepares for full entry into theEU, the country’s chemical, petrochemicaland refining industry face environmentalcleanup, modernization, and energy andoperational efficiency improvements. Majorchemical producers are seeking foreigninvestors and partners in order to fund theacquisition of new and more effectivetechnologies to improve quality of theirproducts and to position themselves for theEU’s competitive and free market.

Since 1998, Foreign Investment in Slovakiahas been skyrocketing, increasing from aboutUS$400 million in 1998 to a projected US$ 2billion in 2001. Much of this foreigninvestment is due to the privatization ofenterprises and businesses in Slovakia. TheU.S. is the 4th ranked private investor inSlovakia, with companies such as U.S. Steelbuying part of Slovakia’s largest steelproducer.


Slovakia became a sovereign countryfollowing the dissolution of Czechoslovakia inJanuary 1993. Over the next five years, therestructuring and privatization process wasmuch slower in Slovakia than in other CentralEuropean countries. Since the elections of1998, a broad coalition government inSlovakia revitalized the process of theconsolidation of democratic institutions,started to rebuild ties with the internationalcommunity, and has taken important steps tofurther economic progress. Currentgovernment policies have reducedmacroeconomic imbalances, significantlyreduced both government size and accountdeficits, eliminated price distortions, madelarge inroads in restructuring andprivatization, and created incentives forforeign investment. The country’sinternational standing has also been regained,as reflected in Slovakia’s accession to theOECD in 2000. Accession to NATO and tothe EU have been and remain a governmentpriority. Slovakia is currently engaged inaccession negotiations with the EU, and todate has provisionally closed 20 out of the 31total chapters. Slovakia has also beencontributing actively to regional stabilitythrough a policy of good neighborly relationsand regional economic cooperation. Slovakiais a member of the Central European FreeTrade Association (CEFTA). Slovakia also

Country Profile

Slovakia


operates a customs union with the CzechRepublic and is a member of the WTO.

The EBRD reports that the Slovakgovernment has taken important steps toreduce macroeconomic imbalances. Theeconomy grew by about 2.2% in 2000, anincrease largely fueled by excellent exportperformance. Economic growth in 2001 isexpected to be about 3.2% as domesticconsumption recovers and increases.

The inflation rate decreased from 14.2% in1999 to 8.4% in 2000 and is forecasted tofurther decrease to 7.8% in 2001 as a result offiscal consolidation and moderate wagesettlements.

Investment Climate

In 1999, the Slovak government adopted itsStrategy for the Support of Foreign DirectInvestment Inflow, which sets out measures toincrease the level of FDI in Slovakia. As ofJanuary 1, 2001 several investment incentivesexist in Slovakia. These incentives include afive year corporate tax break to companiesthat are 60% foreign owned, lower investmentthresholds, 50% corporate tax relief for thesubsequent five years for companies thatfurther invest in districts with highunemployment, zero tariffs on imports of newmachinery and equipment for manufacturing,and a state contribution for every job created.

In the January-September 2000 period, netFDI inflows of US$1 billion were registered;this is double the figure for 1998, previouslythe most successful year. In 2000, a largeportion of foreign investment was related tothe privatization of state assets and aroundhalf of all investment was in themanufacturing sector. Within themanufacturing sector, automotivecomponents, consumer electronics and

precision engineering accounted for the largestshare of FDI. Further important sectors forFDI are financial services and trade, realestate, and communications. As of September2000, Germany leads foreign investment inSlovakia with 42.4%, followed by Austria, theNetherlands, and the U.S. with respectiveshares of 14.3%, 11.1%, and 10.2%. To date,the largest privatization deal was the sale of a51% stake in Slovak Telekom (ST), toDeutsche Telekom AG in 2000. Otherimportant deals took place when US Steelbought into VSZ, the country’s largest steelmaker, and Hungarian MOL acquired 36.25%of the oil refinery Slovnaft, the dominantplayer in the Slovak oil and gas market.

Slovakia is a member of the WTO and isbound by the GATT Agreement onImplementation of Article VII. Customsvaluation is based on this agreement and therules appear to provide a uniform and neutralsystem of valuation. In addition,documentation standards are harmonized withEU standards. In 1998 and 1999, the averagetariff reached 1.03% and 0.75%, respectively,with new machinery and equipment formanufacturing being exempt from customsduty.

Slovakia’s trade is heavily oriented towardsEU member states. [With 59.3% of totalexports to and 49.3% of total imports fromGermany, Germany is Slovakia’s mostimportant trading partner.] The CzechRepublic is also an important trade partnerbecause the two countries are part of acustoms union and pursue a common tradepolicy.

The main Slovakian exports are manufacturedgoods such as automotive components. Themain Slovakian imports are fuel and energy,food, and capital goods for use inmanufacturing.

Country Profile

Slovakia


Sector Overview

The principal player in the oil refining andpetrochemical sector is Slovnaft. Slovnaftowns the country’s only refinery, with acapacity of 330,000 barrels per day. Slovnaft,with 333 gas stations, controls approximately40% of the fuel retail market in Slovakia.Slovnaft was privatized in two stages in1990’s. The Hungarian oil and gas company,MOL, purchased more than one third of therefinery in April 2000, with the right toincrease its stake to above 50% in 2002.Currently, Slovnaft is in the process ofupgrading the refinery, making it one of themost modern refineries in Europe.

Slovnaft, Duslo, Plastika Nitra, and Chemolakare the significant producers of chemicalproducts in Slovakia. Slovnaft’s chemicalproducts include car engine oils (under thebrand name of Madit), industrial oils (bearing,turbine, compressor, hydraulic, shaping, gearand other oils), lubricants, vaseline, heatingoils, asphalts, polyethylenes (Bralen),polypropylenes (Tatren) and otherpetrochemical products. Plastika Nitra is alarge, private manufacturer of plastics. Theyseek a joint-venture investor to help themmodernize production, introduce newtechnologies, and generally make them morecompetitive in the European market. They areespecially interested in offering corrugatedplastic tubes/piping and also hope to purchasetechnology licenses in order to improveproduction. Chemolak has a 118-year historyand is Slovakia’s leading manufacturer ofpaints and coatings. They seek a joint ventureinvestor with the hopes to modernize andacquire new technologies.

U.S. Presence

The U.S. has the 4th largest amount of foreigninvestment in Slovakia as of 2000. WhileSlovakians have no prejudices againstAmerican products, they prefer to buySlovakian made products unless there is asignificant price advantage in not doing so.Therefore, pricing is a very important factorwhen dealing with Slovakia.

Slovnaft and its Cooperation with TDA*


About Slovnaft

Slovnaft, a.s., is a joint stock company locatedin Slovakia. Slovnaft is the major downstreamoil and petrochemical company in Slovakia.Slovnaft processes crude oil into a range ofpetroleum and petrochemical products, is thelargest marketer of petroleum products inSlovakia, enjoys a significant wholesalepresence in the Czech Republic, Austria andPoland, and also has retail operations in theCzech Republic, Poland and Ukraine. Lastyear, MOL Hungarian Oil and Gas Co.,became a strategic investor in Slovnaft.

The Slovnaft Group implemented a significantproject of Heavy Petroleum Residue Upgrade(EFPA) in the Bratislava Refinery. The projectbecame fully operational in March 2000, andresulted in a significant increase in the volumeof lighter products (gasoline and diesel) fromthe Bratislava Refinery. The BratislavaRefinery is now one of the most complexrefineries in Europe.

Slovnaft Products

In 2000, Slovnaft processed 5,682 kt of rawmaterials, of which 5,320 kt was crude oil.Crude oil was imported exclusively fromRussia.

* Prepared by Slovnaft.

Main Products (thousands tons)Gasoline 1,372.9Diesel 2,023.9Kerosene 46.8Aromatics 95.2Heavy fuel oil 414.7Lubes 39.2Bitumen and oxidizing mixture 78.9Sulfur 51.4Petrochemical products 263.2Plastics 234.0

Cooperation between Slovnaft and TDA inEFPA

LC Finer reactors

Slovnaft began cooperation with the U.S.Trade Development Agency (U.S. TDA) in1993, when the agency provided it with agrant to conduct a feasibility study aimed atthe Heavy Residue Upgrading Project. TheAmerican company Bechtel carried-out thestudy and, based-on its recommendations, aproject called EFPA (Environmental FuelProject Apollo) budgeting $526 million hasbeen undertaken. Several Americancompanies took part in the implementation ofthe project. Slovnaft has signed licensecontracts regarding individual productionprocesses with American companies includingABB Lummus Global, UOP and STRATCO,as well as EPC (Engineering, Procurement,Construction) contracts with the three

Slovnaft and its Cooperation with TDA


American companies Fluor Daniel, Raytheonand Honeywell.

The following processing units have beenconstructed:

LC Finer 1200 kt/yHDS VGO 1000 kt/yFCC 850 kt/yAlkylation 155 kt/ySHU C4 40 kt/yMTBE 55 kt/yHydrogen 27 kt/ySulfur 2x45 kt/y

Thanks to the implementation of the project,Slovnaft has become one of the mostadvanced refineries in Europe with a highlevel of conversion.

In the late 1990s, Slovnaft was awardedadditional grants by TDA to finance feasibilitystudies of the New Polypropylene Unit andRevamp and Modernization of Ethylene Plant.These studies were carried-out by Americancompanies Raytheon and MW Kellogg andnow, based also on these studies, Slovnaft ispreparing to undertake a project ofpetrochemical production development.

Planned Petrochemical Projects

Presently, three projects are being prepared:

• A new polypropylene unit – 250kt/year

• A revamp of a steam cracker – up to300kt/year

• A new polyethylene unit – 200-300kt/year of polyethylene

Moreover, Slovnaft, in cooperation with MOLand TVK in Hungary, is evaluating variouspossibilities for further benzene processing

that is anticipated to become available in2006.

The feasibility studies for the newpolypropylene unit and the revamp of steamcracker, were funded by TDA. In addition,Slovnaft and TDA have cooperated inconducting another important feasibility studynamed “Decrease in Cooling WaterConsumption and Water Discharge.”

The Polypropylene Project

Raytheon Engineers & Constructors wasretained by Slovnaft, under a grant from theU.S. Trade and Development Agency, toinvestigate the feasibility of adding newpolypropylene production facilities to theexisting Bratislava plant complex.

The feasibility study addressed the followingimportant items:

• Evaluation of Central and WestEuropean polypropylene markets

• Comparison and evaluation oftechnical and economic aspects ofmodern polypropylene technologies

• Selection of one polypropylenetechnology for use as a basis for thefeasibility study

• Analysis of a project for Slovnaft thatis based upon the selected technology

The feasibility study was based on thefollowing:

• Erection of a new polypropylene plantwith ultimate capacity of 170,000 t/y

• Operation at 130,000 t/y untilDecember 2004 when the full 170,000t/y of propylene will be available



• Use of gas phase technology

• Initial installation of facilities forproduction of homopolymer andrandom copolymers but with provisionfor ease of upgrading to production ofimpact copolymers

• Partial or complete use of existingfacilities such as pellet storage, railcarloading, packaging, warehousing andutilities.

The feasibility study was updated this yearbecause Slovnaft was able to obtain additionalpropylene from MOL Duna refinery and fromTVK. The capacity of the new polypropyleneunit will be increased to 205 kt/y by the end of2004 and further increased to 255 kt/y in2007.

Investment and operation costs werecalculated and inputted into a financial modelconsisting of annual cash flows beginningfrom the start of engineering and ending after20 years of plant production. The model wasutilized to review cash flow, NPV, IRR andpayback period. Sensitivity analysis regardingchanges in product sales price, propylene feedcost and fixed capital investment was made.Based on this economic and financial analysis,Slovnaft plans to undertake the project.

The estimated investment cost for the NewPolypropylene Unit is about US$130-US$180million.

Revamp and Modernization of SteamCracker

M.W. Kellogg Co. (MWK) was selected bySlovnaft a.s. to perform a feasibility study toexpand the ethylene plant in Bratislava,Slovakia.

Present situation

The existing ethylene plant has a designcapacity of 200,000 mt/y of polymer gradeethylene, and has operated at up to 215,000mt/y after some modifications in the furnacearea. Basically, no other modification hasbeen made to increase the capacity of theplant.

MWK visited the Ethylene Plant to evaluateplant capacity with the current feed stocks anddetermined the potential bottlenecks in theplant. The plant is capable of meeting andexceeding the original design capacity despitesome equipment limitations.

Slovnaft set the maximum target capacity,after expansion, of 300,000 mt/y of polymergrade ethylene. This was expected to be themaximum capacity that can be achievedwithout adding major towers. The feasibilitystudy then analyzed several alternatives of theplant’s expansion – to 220,000 mt/y, 240,000mt/y, 260,000 mt/y, 280,000 mt/y and 300,000mt/y. The study showed that the SlovnaftEthylene Plant can be expanded to the targetcapacity of 300,000 mt/y without addinga major tower and this alternative proved to bethe most beneficial based-on the financialanalyses. However, to achieve this expansioncapacity, substantial modifications to theexisting ethylene plant are required.

Last year, Stone & Webster performed asimilar feasibility study for expansion of anethylene plant in Slovnaft.

The estimated investment cost for the Revampand Modernization of Steam Cracker is aboutUS$90-US$125 million.Slovnaft is planning this expansion for2005-6.



New Polyethylene Unit

With production of 168 kt/y of LDPE in 2000,Slovnaft ranks among middle size companiesin the region of the Central Europe, but withinEurope as a whole, this capacity does notallow Slovnaft to play an important role on themarket. It is expected that, after the revamp ofthe steam cracker in 2006, Slovnaft willproduce 300 kt/y of ethylene.

Based on a market analysis, several alternativeprocesses are being analyzed currently.

The final decision regarding which alternativewill be implemented has not been made yet.First, Slovnaft wants to deal with thepolypropylene project.

The estimated investment costs are withinrange US$135 to US$200 million and dependon final capacity and selected process.

Slovnaft is planning this New Polyethyleneplant for 2005-6.

Aromatics Project

This project will follow the planned expansionof steam crackers at TVK, Hungary andSlovnaft and after the shutdown of a smallproduction unit processing benzene, theamount of available benzene will rise to about250 kt/y by 2006.

At the present time, Slovnaft is gatheringinformation about available processes, marketdemand for different derivatives of benzeneand performing market analysis for variousoptions of benzene processing

Slovnaft is still at the very early stages of thisproject.

Decrease in Cooling Water Consumptionand Water Discharge

The staff at the Slovnaft Bratislava Refineryhas expressed interest in working with anexperienced U.S. environmental team indeveloping and implementing a dischargeflow and load reduction program. Thisprogram shows promise of investmentexceeding US$ 50 million with goodprospects for U.S. supplier participation. Theproposed Slovnaft project team, led byMillennium Science & Engineering, Inc.(MSE) and financially supported by TDAfunding, has to deal with a large, complexproject involving process water use reduction,pollution prevention considerations, and end-of-pipe wastewater treatment, all of whichhave significant potential for equipmentrequirements. At least three U.S. equipmentsuppliers, probably more, will participate inthis feasibility study, providing technical inputon processes, equipment and estimated costs.They are Smith & Loveless, WaterLink, andU.S. Filter. This will facilitate their biddingfor the project in later stages of thedevelopment of the project.



Project Technical Description

On October 1st, 2002, strict wastewaterdischarge limits will take effect with regard toSlovnaft’s effluent into Maly Dunaj River. Thenew limits concern both the volume andquality of discharged wastewater.

Slovnaft has to reduce the wastewater effluentinto Maly Dunaj River below 50 million m3 /year and meet the hydrocarbons content limitof 0.4 mg/l. Last year’s figures were 65million m3 / year of wastewater effluent intoMaly Dunaj River and the averagehydrocarbons content was 0.68 mg/l.

Slovnaft is systematically shifting from a oncethrough cooling system to closed re-circulation systems where possible, and toreduce cooling water consumption. Slovnafthas 6 re-circulation facilities. All new processunits are connected to re-circulation systems.Nevertheless roughly 75% of wastewater stillmoves only once through cooling water.

The use of process wastewater needs to bestudied to determine what can be done toreduce water and pollutant flows from eachsource. New product processing equipmentmay be needed to achieve environmental goalsand bring about economic efficiency. Forexample, better electro-mechanical controlsmay be needed in some cases; in others,centrifuges and other oil/water separationequipment may perhaps be appropriate. Therewill also be opportunities to recover materialsthat can be recycled back into product refiningstreams.

The ultimate objective will be to design a costeffective treatment plant, which will reducewastewater discharge from the refinery asmuch as possible. The MSE team will workwith Slovnaft representatives to develop aschedule of implementation and prepare bid

packages for construction of neededimprovements.

Conclusion

The overall relationship between Slovnaft andTDA as well as American companies has beenvery fruitful. Based on this cooperation,several important projects have already beenimplemented and others are to beimplemented in the next few years – all ofwhich have a great potential to improve theeconomic performance of the petrochemicalproduction at Slovnaft. Many American firmshave taken part in Slovnaft’s activities and thenumber is consistently growing. Slovnaftlooks forward to the future cooperationbetween our firm and other countries.


Slovnaft Aromatics Project



• Expansion of Benzene production to250,000 MTY

• Rationalization of current benzeneproduction

• Construction of a new productionunit for benzene derivative(ethylbenzene, styrene, phenol, etc.)

Project SummarySector ChemicalsLocation Bratislava, SlovakiaCapital Required $ 75-150 millionExport Potential $ 50-75 millionProject Sponsor SlovnaftProject Status Preliminary Stage

Project Discussion

Project Background

Slovnaft, a.s., is a joint stock company locatedin Slovakia. Slovnaft is the major downstreamoil and petrochemical company in Slovakia.Slovnaft processes crude oil into a range ofpetroleum and petrochemical products and isthe largest marketer of petroleum products inSlovakia, enjoys a significant wholesalepresence in the Czech Republic, Austria andPoland, and also has retail operations in theCzech Republic, Poland and Ukraine. Lastyear, MOL, became the strategic investor inSlovnaft.

The Slovnaft Group implemented a significantproject of Heavy Petroleum Residue Upgrade(EFPA) in the Bratislava Refinery. The projectbecame fully operational by the end of March2000, and resulted in a significant increase inthe volume of lighter products (gasoline anddiesel) from the Bratislava Refinery. TheBratislava Refinery is now one of the mostcomplex refineries in Europe.

Project Description

The core complex, which providespetrochemical feedstocks is an ABB LummusGlobal steam cracker originally constructed in1976 with a design capacity of 200,000 MTY.

Plans are currently underway to expand thesteam cracker’s capacity to 300,000 MTY by2005-6 at Slovnaft and further expansions areplanned for the cracker at TVK Hungarywhich will collectively increase potentialbenzene production from Slovnaft, TVK andMOL Duna refinery up to 250,000 MTY.

Benzene capacityCurrent 155,000 MTY2007 250,000 MTY

Slovnaft is currently gathering informationabout available processes, market demand forthe different benzene derivatives andperforming market analysis and puttingtogether various processing scenarios forpreliminary evaluations. A detailed feasibilitystudy will be needed to assess market potentialfor benzene derivatives, assessing viability ofdifferent processes, developing detail costs,conducting analysis and developing afinancing plan.


U.S. suppliers of benzene derivativestechnology, DCS control systems, catalysts


Slovnaft Aromatics Project


and engineering services are well positionedto provide equipment and services for thisproject.

Conclusion

The Project is still in the early stages anddependant on integration with the expansionplans and strategy of its majority shareholder,MOL of Hungary.

Key Contacts

Country SponsorSlovnaftVlcie hrdlo824 12 BratislavaSlovakia

Mr. Pavol ParakDirectorDepartment of Strategy and New BusinessActivitiesPhone +421 (0)2 4055 8852Fax +421 (0)2 4524 4803E-mail [email protected]


Slovnaft Steam Cracker Revamp



• Increasing plant capacity from215,000 MTY to 300,000 MTY ofethylene

Project SummarySector ChemicalsLocation Bratislava, SlovakiaCapital Required $95-125 millionExport Potential $70-85 millionProject Sponsor SlovnaftProject Status Feasibility study

completed

Project Discussion

Project Background

Slovnaft, a.s., is a joint stock company locatedin Slovakia. Slovnaft is the major downstreamoil and petrochemical company in Slovakia.Slovnaft processes crude oil into a range ofpetroleum and petrochemical products, is thelargest marketer of petroleum products inSlovakia, enjoys significant wholesalepresence in the Czech Republic, Austria andPoland, and also has retail operations in theCzech Republic, Poland and Ukraine. Lastyear, MOL, became a strategic investor inSlovnaft.

The Slovnaft Group implemented a significantproject of Heavy Petroleum Residue Upgrade(EFPA) in the Bratislava Refinery. The projectbecame fully operational by the end of March

2000, and resulted in a significant increase inthe volume of lighter products (gasoline anddiesel) from the Bratislava Refinery. TheBratislava Refinery is now one of the mostcomplex refineries in Europe.

The core complex providing petrochemicalfeedstocks is an ABB Lummus Global steamcracker originally constructed in 1976 with adesign capacity of 200,000 MTY of ethylene.

In 1997, Slovnaft approached TDA for thefunding of a feasibility study to determine thetechnical and economic feasibility ofexpanding the steam cracker’s capacity to300,000 MTY of ethylene to be thenprocessed to polyethylene by Slovnaft itself.This feasibility study was carried out by theMW Kellogg Corporation and was completedin May 1998.

Steam Cracker capacityCurrent 215,000 MTYPlanned 300,000 MTY

Modernization Plan

Slovnaft set the maximum target capacity afterexpansion to be 300,000 MTY of polymergrade ethylene. This was expected to be themaximum capacity that can be achievedwithout adding major towers. The feasibilitystudy then analyzed several alternatives of theplant’s expansion – to 220,000 MTY, 240,000MTY, 260,000 MTY, 280,000 MTY and300,000 MTY. The study has shown that theSlovnaft Ethylene Plant can be expanded tothe target capacity of 300,000 MTY withoutadding a major tower and this alternativeproved to be the most beneficial, based on thefinancial analyses. However, to achieve thisexpansion capacity, substantial modificationsto the existing ethylene plant are required.


Slovnaft Steam Cracker Revamp


The necessary modifications are:• An addition of one new furnace

• Compressors replacement

• Replacement of internals, packing infractionators and strippers


Project Costs

The plant capacity expansion and equipmentreplacement/additions are estimated to costabout US$90-US$125 million of which aboutUS$70-US$85 million is anticipated to gotowards imports.

Known Initiatives

A TDA funded feasibility study was carriedout by MW Kellogg for Slovnaft in 1998.

The Stone and Webster EngineeringCorporation performed a similar feasibilitystudy for the expansion of the ethylene plantfor Slovnaft in 2000.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 2nd 1998Plant Start-up 2006-2007


The U.S. companies (ABB Lummus Global,Stone and Webster Engineering and MWKellogg) are in the forefront of steam crackertechnology and should be well positioned toprovide technology and services for theexpansion of this unit.

Conclusion

The final decision regarding the size andtiming of implementation of the ethylene plantexpansion is still under consideration. A finaldecision is expected to follow the Board ofDirectors anticipated approval of thepolypropylene expansion project.

Key Contacts


Pavol ParakDirectorDepartment of Strategy and New BusinessActivitiesPhone +421 (0)2 4055 8852Fax +421 (0)2 4524 4803E-mail [email protected]


Slovnaft Polyethylene Project



• Polyethylene plant expansion fromcurrent capacity of 168,000 MTY toa capacity of 300,000 MTY by2006-7.

Project SummarySector ChemicalsLocation Bratislava, SlovakiaCapital Required $150-230 millionExport Potential $120-140 millionProject Sponsor SlovnaftProject Status Pre-feasibility Study

on-going

Project Discussion

Project Background

Slovnaft, a.s., is a joint stock company locatedin Slovakia. Slovnaft is the major downstreamoil and petrochemical company in Slovakia.Slovnaft processes crude oil into a range ofpetroleum and petrochemical products, is thelargest marketer of petroleum products inSlovakia, enjoys significant wholesalepresence in the Czech Republic, Austria andPoland, and also has retail operations in theCzech Republic, Poland and Ukraine. Lastyear, MOL (Hungarian Oil and Gas Co.),became a strategic investor in Slovnaft.

The Slovnaft Group implemented a significantproject of Heavy Petroleum Residue Upgrade(EFPA) in the Bratislava Refinery. The project

became fully operational by the end of March2000, and resulted in a significant increase inthe volume of lighter products (gasoline anddiesel) from the Bratislava Refinery. TheBratislava Refinery is now one of the mostcomplex refineries in Europe.

The core complex providing petrochemical,feedstocks is an ABB Lummus Global steamcracker originally constructed in 1976 with adesign capacity of 200,000 MTY of ethylene.

Plans are currently underway to expand thesteam cracker’s capacity to 300,000 MTY ofethylene by 2006-7.

Polyethylene capacityCurrent 168,000 MTY LDPE2006/7 300,000 MTY

Modernization Plan

With the capacity of 168,000 MTY of LDPE,Slovnaft ranks among middle size companiesin the central European region, a factor whichprohibits Slovnaft from playing an importantrole in the overall European market.

It is expected that after the revamp of thesteam cracker in 2006, Slovnaft will produce300,000 MTY of ethylene, which will allow itto increase polyethylene capacity.

Based on market analysis, several alternativeprocesses are being analyzed at present time.

The final decision regarding which alternativewill be implemented has not been made yet.These decisions will follow theimplementation of the polypropylene plantcurrently underway.


Slovnaft Polyethylene Project



U.S. suppliers of polyethylene technology,DCS control systems, catalysts andengineering services are well positioned toprovide equipment and services for thisproject. Many of the U.S. companies currentlyinvolved in other Slovnaft projects arequalified to support this project

Conclusion

The final decision regarding the size andtiming of the implementation of thepolyethylene plant expansion is still underconsideration and will follow after thepolypropylene expansion that is waitingapproval from the Board of Directors.

Key Contacts




Slovnaft Polypropylene Project



• New polypropylene plant with acapacity of 255,000 MTY.

Project SummarySector ChemicalsLocation Bratislava, SlovakiaCapital Required $130-180 millionExport Potential $100-125 millionProject Sponsor SlovnaftProject Status Feasibility study

completed

Project Discussion

Project Background

Slovnaft, a.s., is a joint stock company locatedin Slovakia. Slovnaft is the major downstreamoil and petrochemical company in Slovakia.Slovnaft processes crude oil into a range ofpetroleum and petrochemical products, is thelargest marketer of petroleum products inSlovakia, enjoys significant wholesalepresence in the Czech Republic, Austria andPoland, and also has retail operations in theCzech Republic, Poland and Ukraine. Lastyear, MOL, became a strategic investor inSlovnaft.

The Slovnaft Group implemented a significantproject of Heavy Petroleum Residue Upgrade(EFPA) in the Bratislava Refinery. The projectbecame fully operational by the end of March2000, and resulted in a significant increase in

the volume of lighter products (gasoline anddiesel) from the Bratislava Refinery. TheBratislava Refinery is now one of the mostcomplex refineries in Europe.

The core complex, providing petrochemicalfeedstocks, is an ABB Lummus Global steamcracker originally constructed in 1976 with adesign capacity of 90,000 MTY of propylene.In addition the new refinery FCC unitproduces about 45,000 MTY of propylene.

In 1997, Slovnaft approached TDA for thefunding of detailed feasibility study thatwould identify and evaluate the mosteconomic means of achieving the desiredexpansion. This feasibility study was carriedout by Raytheon Engineers & Constructorsand was completed in July 1998.

Polypropylene capacityCurrent 70,000 MTYDec. 2004 205,000 MTY2007 255,000 MTY

Modernization Plan

Raytheon Engineers & Constructors wasretained by Slovnaft in 1997, under a grantfrom TDA, to investigate the feasibility ofadding new polypropylene productionfacilities to the existing Bratislava plantcomplex.

The feasibility study addressed the followingimportant items:

• Evaluation of Central and WesternEuropean polypropylene markets.

• Comparison and evaluation oftechnical and economic aspects ofmodern polypropylene technologies.




• Selection of one polypropylenetechnology for use as a basis for thefeasibility study.

• Analysis of a project for Slovnaft thatis based upon the selected technology.

The feasibility study was based on thefollowing:

• Erection of a new polypropylene plantwith ultimate capacity of 170,000MTY.

• Operation at 130,000 MTY untilDecember 2004 when the 170,000MTY of propylene will be available.

• Use of gas phase technology.

• Initial installation of facilities forproduction of homopolymer andrandom copolymers, but withprovision for ease of upgrading forproduction of impact copolymers.

• Partial or complete use of existingfacilities such as pellet storage, railcarloading, packaging, warehousing andutilities.

In 2001, the feasibility study was updated toassess the viability of increasing the capacityof new polypropylene unit to 205 MTY by theend of 2004 and to 255 MTY in 2007.


Project Costs

The plant capacity expansion and equipmentreplacement/additions are estimated to costapproximately US$130-US$180 million, ofwhich about US$100-US$125 million couldbe imported.

Known Initiatives

A TDA funded feasibility study was carriedout by Raytheon Engineers & Constructors forSlovnaft in 1998.

The feasibility study was updated in 2001.The project is now awaiting approval fromSlovnaft’s Board.


Planned Completion ScheduleActivity Qtr YearFeasibility Study 2nd 1998Construction 2002-2004Plant Start-up 4th 2004


There are two major technologies that couldeventually be imported from the U.S.,Univation technology and BP Technology.

U.S. suppliers of DCS control systems,catalysts and engineering services are wellpositioned to provide equipment and servicesfor this project.

Conclusion

Based on the results of the feasibility studies,which show a positive economic and financialanalysis, Slovnaft plans to proceed with thisproject. Nevertheless, an approval from theBoard of Directors, which is scheduled to takeplace by the end of 2001, is still needed.




Key Contacts




Plastika Nitra Expansion and Modernization



• Production capacity expansion

• Monofoil production line for packing

• Multilayer foil productions line

• HDPE corrugated tubes equipment

Project summarySector Plastic ProductionLocation Nitra, SlovakiaCapital Required $4 millionExport Potential $3 millionProject Sponsor Plastika Nitra, j.s.c.Project Status Technical Assistance

and Financing

Project Discussion

Plastika Nitra is a joint stock company (a.s.)that was founded on February 2, 1962 and hasundergone many organizational changesduring its history. Currently, 86.41% of thiscompany is shared by legal entities owned bymutual and investment funds, while theremaining 13.59% is shared by individuals.

Located in Nitra, in the southwest of thecountry, Plastika has earned ISO 9001certifications and warrants product quality inaccordance with ISO 9001.

Plastika is one of the leading manufacturers ofproducts from thermoplastic materials inSlovakia. The company produces plasticfabricated products for the industrial,construction, automotive and packagingindustries. The major product lines are: PVC,PE and PP piping systems; Polyethylene foilsand films; Injection molded parts; Roof andWindow Parts; and expanded polystyreneparts.

Plastika sells its products through it own retailnetwork and commercial partners. Plastika has100% ownership of its subsidiary companiesthat supplement its production portfolio andprovide services. Therefore, Plastika is able torespond very quickly to its customerrequirements.

Total sales revenue in 2000 was SK 1.34billion (US$ 27 million). In 1999,approximately 45% of sales were due toexport to the Czech Republic, the Netherlands,Germany, Denmark and other EuropeanCountries. The company’s expectations for2001 are for a 7% increase in total sales over2000.

Design CapacityTotal 18,840 MTYFoils 5,180 MTYPVC pipes 8,580 MTYPE pipes 2,340 MTYEPS products 2,150 MTYOthers 590 MTY

Expansion Plan

Plastika’s main products are technical foilsand films for civil engineering, agriculture andpiping systems.




Plastika intends to increase production ofspecial multiplayer packing foils for grouppackaging of products and pallets.

Plastika is the major producer of 160-1000mm double wall corrugated PVC tubes and isthe largest producer of piping systems in theterritory of the Slovak and Czech Republics.

New legislation and political andenvironmental pressures have placedrestrictions on the production, processing, anduse of PVC products. Plastika has successfullymet these market challenges by increasing theproduction of polyolefin pipe for use in theelectronic, building and automotive industries.Plastika also produces double-wall tubes in anew manner that meets required physical andmechanical properties while minimizing rawmaterial consumption.

Plastika plans to double production volume offoil materials to final 10,000 MTY and of P.E.pipes to 4,000 MTY and intends to sell theadditional volume in Europe including the EUcountries, Ukraine, and Russia.

As part of it expansion plan, Plastika Nitra isplanning to purchase several specific plasticfabricating machines. Total cost of thesemachines is estimated at approximately US$ 4million. The machines can be sourced out ofthe U.S., though the competition fromEuropean manufacturers, especially Germanand Italian companies, is very strong. Theavailability of financing could be a key factor.


Project costs and financing

The total costs of the capacity expansionprojects are about US$4 million. Plastika

intends to contribute US$1 million of its ownfunds and seeks US$3 million in financing.

Modernization schedule

The expansion project will be implemented intwo years.

Planned Completion ScheduleActivity Quarter YearTechnical study 1st 2002Monolayer foil line 2nd 2002HDPE corrugatedpipeline

2nd 2002

Multilayer foil line 3rd 2003


U.S sources produce complete blow moldingand extrusion molding devices, dozingdevices, automatic measurement andparameter check systems, cutting andsocketing devices and laboratory equipmentthat could meet the project requirementspackage. Competition will be based on priceand financing.

Conclusion

This project has a high priority for Plastika asit increases production capacity, processingefficiency and profitability.

The new products will meet EU and Slovakrequirements and standards and would allowPlastika to improve its position as a producerof the plastics piping systems and packagematerials.




Key contacts

Country SponsorPLASTIKA, a.s.Novozámocká cesta 222P.O.BOX B1Nitra 1Slovakia

Uubomír JahnátekProduct and Technical DirectorPhone: 421 37 6530625Fax: 421 37 6515561E-mail: [email protected]


Chemolak Coil Coating Technology


Project Highlights

• Production /licensing of CoilCoatings, Electroforetic primer andPowder Coatings

• Looking for technical /productioncooperation and strategic partnershipwith U.S. paint and coating company

Project SummarySector ChemicalLocation Smolenice, SlovakiaCapital Required US$200,000Export Potential $3.5 million /yrProject Sponsor ChemolakProject Status Planning stage,

seeking partner

Project Discussion

Project Background

Chemolak, with a 118-year history, isSlovakia’s major paint and coatingsmanufacturer with its main manufacturingfacilities located in Smolenice some 60 kmnorthwest of Bratislava. Since 1883,Chemolak has developed into the region’smajor producer of coatings resins, adhesives,thinners, and auxiliary materials. TheCompany was transformed into a joint stockcompany during the first wave of voucherprivatization in 1992, and was listed on theBratislava Stock Exchange in February 1993.

Total production at its peak in the communistdays amounted to some 90,000 tons perannum. Since the opening of Slovakia to thewest in the early 1990s, Chemolak has lostmany of its markets in the East and has beensubjected to further market erosion bycompetition from major western Europeancompanies. Total production in 1999amounted to 22,962 tons. The company feelsthat the production decline has now bottomedout and intends to reverse the trend.

Coil Coating Project

An American company, U.S. Steel, recentlyacquired the steel mills located at KosiceSlovakia. One of their product lines is coatedsteel coil used for the manufacture ofappliances, fabricated structures etc. Kosice’scoil coating line currently producesapproximately 70,000 tons per year of coatedsteel consuming about 1500 to 1800 tons ofpaint in about 120 different color nuances.The maximum output of the coil coating lineis about 90,000 tons per year. Kosice currentlypurchases its coating requirement fromWestern European suppliers.

Chemolak would like to become a supplier tothe Kosice steel mills, but recognizes thatwhile they have been manufacturing andselling coil coatings for many years in theEast, they do not have the prestige andrecognition that the major Western Europeancoating suppliers have. They are thereforelooking to establish a licensing agreementand/or a joint venture with a U.S. companythat has well-established coating technology.

Plant capacity

Plant CapacityCurrent 0Planned Up to 1,800 MTY


Chemolak Coil Coating Technology



Project Costs

Potential exports from the U.S. are estimatedto be about US$3.5 million per year forlicensing fees and for the export of specialtychemicals (pigments, resins, etc) that wouldbe needed on an ongoing basis.

Known Initiatives

Chemolak has initiated an initial screeningprocess of potential U.S. partners throughtheir consultants Deloitte & Touche, andexpect to follow up on these and otherpotential sources during the New OrleansChemicals conference.

Project Financing

The capital requirements for this project willbe minimal, the main expense being for theimport of supplies from the U.S. ofapproximately US$3 million per year. Thisproject should qualify for Ex-Im Bankfinancing or other supplier arranged credits, orthrough financing arranged by Chemolak’sfinancial advisor, Citibank, in Bratislava.


U.S. coil coating is highly competitive and hasbeen well established in Western Europe. InCentral and Eastern Europe, U.S. companiesappear to be trailing their western EuropeanCompetitors. This project could be anopportunity for U.S. companies to enter theC&E European market.

Conclusion

Chemolak recognizes that they will have toexpand and improve their product line to

remain competitive in light of the increasingcompetition from Western Europeancountries, which will only increase whenSlovakia joins the EU. The move to supply theKosice steel mill with high quality coil coatingmaterial is a high priority project in order tomove toward this direction.

Key Contacts

Country SponsorChemolakTovarenska 7919 04 SmoleniceSlovenska Republika

Ing Vojtech ValentManaging DirectorPhone: +421-33-5560 545Fax +421-33-5560 630e-mail [email protected]

Ing Miroslav Belica Phone: +421-33-5560 545Fax +421-33-5560 630e-mail [email protected]

Appendix I



EU-SPECIFICATIONS FOR GASOLINE

Parameter Unit Limits2000

Limits2005

Reid vapor pressure, summer period (2) kPa max. 60 60

Distillation evaporated at 100 °C Vol. % min. 46 51

Olefins Vol. % max. 18 10

Aromatics Vol. % max. 42 35

Benzene Vol. % max. 1 1

Oxygen content Weight % max. 2.3 2.7

Sulfur content mg/kg max. 150 50

Lead content g/l max. 0 0

Appendix I



EU-SPECIFICATIONS FOR DIESEL FUEL

Parameter Unit Limits2000

Limits2005

Cetane number Min. 51 51

Density at 15 °C kg/m3, max. 845 835

Distillation: 95% point °C 360 350

Polycyclic aromatic hydrocarbons Weight % max. 11 6

Sulfur content ppm max. 350 50

Documents

Project Resource Guide - · PDF fileUnipetrol Spolana Cyclohexane/Cyclohexanone/Caprolactam Unit ... Raytheon and Honeywell have ... Project Resource Guide Development