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l , _ LSK Report No. PI-8

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness, The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

THE COCHIN II FERTILIZER PROJECT

THE FERTILISERS AND CHEMICALS, TRAVANCORE LIMITED

INDIA

May 14, 1971

Industrial Projects Department

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Currency Equivalents

1 Rupee (Rs) $0.1331 U.S. Dollar ($) Rs 7.5Rs 1,000,000 ' $133,000

Weights and Measures

All weights and measures are expressed in metric units:

1 metric ton = 1,000 kilograms (kg)1 metric ton 2,205 pounds1 kilometer (km) - 0.62 miles

Principal Abbreviations and Acronyms Used

GOI, Government The Central Government of IndiaFACT The Fertilisers and Chemicals, Travancore Ltd.FEDO FACT Engineering and Design OrganisationUDL Udyogamandal Division of FACTPCI Fertilizer Corporation of IndiaUWNDP United Nations Development ProgrammeTPY Metric Tons Per YearTPD Metric Tons Per DayCIF Cost, Insurance and Freight

N, P, and K are used throughout the report to refer to the fertilizernutrients:

N = Nitrogen ContentP = P205 or Phosphate ContentK = K20 or Potash Content

Fiscal Year

April 1 - March 31

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ............................. i

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

II. FACT'S EXISTING OPERATIONS .......................... 2

A. History and Organization ................. 2

B. FACT Management ....... ......................... 2

C. Financial Analysis of Existing Operations ...... 3

III. PROPOSED COCHIN II PROJECT .......................... 5

A. Project Scope ....... ........................... 5

B. Project Description and Ecology .... ............ 5

IV. PROJECT COSTS AND FINANCIAL PLAN ............... 6

A. Capital Costs ..................... 6

B. Working Capital ................................ 7

C. Financial Plan ................................. 7

V. PROJECT EXECUTION ............................. 8

A. Project Management ............................. 8

B. Project Schedule and Procurement ............... 9

C. Allocation of IDA Credit ....................... 10

VI. MARKET AND MARKETING ....... ......................... 11

A. Present Situation in India ..... ................ 11

B. Market Forecast for India ..... ................. 12

C. Fertilizer Market in South India .... ........... 13

D. FACT Marketing Area and Handling System .... .... 15

E. NPK Seeding Program ............................ 16

F. Sales Prices and Competition ................... 16

G. Agricultural Credit ............................ 17

VII. OPERATING COSTS ................... .................. 18

A. Raw Material Costs ............................. 18

B. Production Costs ............................... 19

This report has been prepared by Messrs. Donald E. Browni

and Anthony R. Perram of the Industrial Projects Depart-

ment based on missions to India in December 1970 and

February/March 1971.

Table of Contents (Continued) Page No.

VIII. FINANCIAL AND ECONOMIC ANALYSIS OF THE PROJECT 20

A. Financial Analysis and Sensitivity Tests 20B. Economic Analysis .21C. Imported Vs. Manufactured Phosphoric Acid 22

IX. FUTURE PROFITABILITY AND FINANCIAL POSITION ON FACT . 22

X. RECOMMENDATIONS .24

ANNEXES

1. Description of FACT's Existing Operations2. FACT Historical Income Statements3. FACT Historical Balance Sheets4. Product Schedule and Sales Price - Cochin II Project5. Technical Description - Cochin II Project6. Summary of Capital Costs - Cochin II Project7. Working Capital Requirements - Cochin II Project8. Forecast of Nitrogen Production - India9. Forecast of P205 Production - India10. Fertilizer Market - Demand Forecast for South India11. Fertilizer Market - Supply Forecast for South India12. Annual Cost of Production - Cochin II Project13. Forecasted Income Statement - Cochin II Project14. Sensitivity Analysis and Major Assumptions15. Project Breakeven Analysis16. Annual Foreign Exchange Savings17. FACT Income Statement Forecasts18. FACT Source and Application of Funds Forecast19. FACT Long-Term Debt Service Coverage Forecasts20. FACT Balance Sheet Forecasts

MAP - Present and Proposed Major Fertilizer Plantsin South India.

SUW4ARY AND CONCLUSIONS

I. This report appraises a proposed major expansion of the produc-tion facilities of The Fertilisers and Chemicals, Travancore Ltd., (FACT),a public sector company in the State of Kerala, India. The Governmentof India (GOI) owns 81% of the company. Fertilizer production is a major

part of India's efforts to improve agricultural output. This project,which will have a design capacity of 485,000 tons per year of granulatednitrogenous, phosphatic and potash (14PK) fertilizers, would make a signi-ficant contribution towards rmeeting India's increasing fertilizer require-

ments. A small by-product plant for 7,500 tons per year of cryolite which

is used in aluminum manufacture is also included.

ii. Total financing required for the project is estimated at $50.7million (Rs 380 million), of which $19.6 million is in foreign exchange.

GOT will provide the financing with at least half in equity and with the

balance in loan. The proposed IDA credit of $20 million (Rs 150 million)will be relent by the Government as part of its loan. The loan to FACT

will be at 3.5% interest per annum with a maturity schedule that includesthree years of grace and ten equal annual repayments for each wiclhdrawalfrom GOI by FACT. Based on expected withdrawals the maximum life of the

loan will be 16 years.

iii. FACT's existing plants are small, in part obsolete and haveencountered operating difficulties which have adversely affected the

company's financial position. Followin,g recommendations of a 1969 IDAmission the company prepared a rationalization program which is now being

implemented. The December 1970 appraisal mission reviewed this programand the Association is satisfied that FACT, with the help of someexperienced consultants, is capable of improving existing operations,

completing and operating a new urea plant (Cochin I) now under construc-tion and of executing the proposed NPK project. To carry out such ambi-

tious investments and to adjust its debt service to realistic expectationsof cash generation, the company's financial position will be improved by

increasing equity and rescheduling existing debt.

iv. The managing contractor for the project will be FACT E.ngineeringand D)esign f)rganisation (FEDO), a division of FACT, withi major portionssubcontracted to other engineering firms and local contractors. The

project is based on conventional technology within the experience and

capability of FEDO which has designed and constructed similar plants al-though not of the same magnitude. To assist with the project, the companyhas selected several international engineering firms as process subcon-tractors who will supply the necessary technical support.

v. CGovernment-owned fertilizer plants in India have experienced

substantial delays in construction and start-up difficulties and on thewhlole have not yet been able to reach normal levels of capacity utiliza-

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tion. Various factors have been responsible for tlhis, niot all within thecontrol of the plants concerned. 1lowever, GOI has become increasinglyaware of the high cost of construction delays and undertutilized plant.It has agreed that for the planned project the construction scheduileshould not be more than 33 months. It is therefore expecte(d that tlleproject will be completed by March 1974.

vi. Procedures for the procurement of foreign and domestic equip-ment have been agreed with FACT and GOI. The Government has indicatedthat it will reserve about 12% of the value of equipment and materialsfor Indian suppliers. These items are expected to be procured within therequirements of time and quality imposed by the project. All other equip-ment will be bid competitively by international tender with assurancesgiven by GOI that all import licenses required will be promptly issued.Any reserved Indian equipment which is delayed and might endanger timelycompletion of the project will be promptly secured from other sources.The proceeds of the proposed IDA credit would be used for internation-ally bid equipment, imported materials for equipment on the "reservedlist", costs of foreign process licenses, plant designs and consultantservices as well as a portion of the local costs of FEDO's engineeringand equipment erection costs.

vii. Projections of Indian fertilizer demand and supply indicatethat, even on optimistic estimates of local production, India will have anannual production shortfall through this decade of around 900,000 tonsof nitrogen and 800,000 tons of phosphates. The foreign exchange requiredto import the tonnages required is substantial and emphasizes the hiighpriority of the proposed project, which will save India approximately$16 million per year in foreign exchange.

viii. In FACT's marketing region in South India, projections offertilizer demand and supply show nitrogen in balance in the latter halfof the decade and a continuing shortfall in phosphatic fertilizer supplyof around 150,000 tons per year (in terms of nutrients). Since theproject's output will be NPK fertilizers with a high nutrient content andease of application, no sales difficulties are expected. FACT's market-ing organization will be strengthened by adding more distribution pointsand, on the basis of the company's successful marketing experience in thepast, it should be able to handle the increased volume satisfactorily.Moreover, FACT will carry out a large seeding program for NPK to assurethe successful introduction of its new products. The effectiveness ofthe company's marketing efforts will depend heavily on the availabilityof agricultural credit. The Government has assured IDA that FACT willhave a suitable level of working capital to cover normal company opera-tions and to finance required credit to the extent not available from thebanking system.

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ix. The project provides a suitable economic return of 13.5%, whichindicates that production costs of the project are competitive interna-tionally. Profitability of the project is satisfactory, with an indicatedfinancial return of 19.5%. The project is highly sensitive to relativechanges in selling and raw material prices and to any delay in completionof the project.

x. There have been no previous IDA credits or Bank loans to theGovernment-owned fertilizer industry of India. IFC has participatedin two private sector fertilizer projects, (Indian Explosives, Ltd., inUttar Pradesh and Zuari Agro Chemicals, Ltd., in Goa) and is consideringa third. Indian Explosives is successfully in operation and Zuari Agrois anticipated to start production in mid-1972. IDA is also consideringseveral other fertilizer projects with the GOI-owned Fertilizer Corpora-tion of India (FCI), the largest fertilizer company in India with fiveexisting plants and three presently under construction. In addition,the Bank is Executing Agency for a UNDP-financed phosphate mining projectstudy in Rajasthan.

xi. Based on the assurances received during negotiations, the projectis suitable for an IDA credit of $20 million.

I. INTRODUCTION

1.01 The Government of India (GOI) has requested financing from theInternational Development Association (IDA) for a major expansion offertilizer production facilities of The Fertilisers and Chemicals, Tra-vancore Limited (FACT), which are located near Cochin port in SouthiwestIndia. This expansion, designated as the Cochin II Project, would add

about 115,000 metric tons per year (TPY) phosphates (as P205); 54,000 TPYpotash (as K20); and 47,000 TPY nitrogen (as N) capacity to FACT's presentcapability. The increased production will be high nutrient content, gra-nulated NPK 1/ fertilizers to meet the increasing demand in South Indiaand will permit FACT to market more balanced and competitive grades offertilizers than their present products. The plant will produce six dif-ferent grades with an average NPK analysis of 19-23-11.

1.02 FACT has been producing fertilizers in Kerala State since 1948and markets its own production, as well as fertilizer from the GovernmentFertilizer Pool, in the states of Kerala, Tamil Nadu, Mysore, Andhra Pra-

desh and the Union Territories of Goa and Pondicherry. FACT's existingfactories are in Udyogamandal near Cochin port (see Map). A major ammonia-urea factory (Cochin I) located about 20 km from Udyogamandal is expectedto begin operations in mid-1971 and the proposed expansion would be adja-cent to it. Both factories are served by major highway routes and arelocated adjacent to commercial waterways. Cochin has railroad facilitiesat its factory and Udyogamandal has railroad stations nearby.

1.03 The proposed new project was originally conceived by FACT as anelemental phosphorus project. An IDA mission studied this proposal in mid-1969 and recommended that FACT should consider a more economic route forobtaining phosphoric acid, either by import or manufacture from sulfurand phosphate rock. IDA also recommended that FACT review its existingfacilities and devise a scheme for increasing performance. FACT has res-ponded to both recommendations and submitted a project feasibility reportto IDA in October, 1970. An appraisal mission visited FACT in December1970 to assess the proposed project and a program to rationalize existingoperations.

1.04 The Cochin II Project will produce sulfuric acid, phosphoricacid, granular NPK fertilizers, as well as cryolite which is used in theproduction of aluminum. The design is based on imported sulfur, ammonia,phosphate rock and potash; plus urea from the Cochin I plant. The!project includes necessary port facilities to handle the large quantitiesof raw materials and all required offaites.

1/ The nomenclature used to describe multi-nutrient fertilizers is N-P-K,referring respectively to the % Nitrogen (N), % P205 (P), and % K20(K). Thus 28-28-0 contains 28% nitrogen, 28% P205 and no potash;17-17-17 contains 17% of each nutrient. The term phosphate is used inall cases to refer to the P205 content.

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1.05 FACT is presently in financial difficulty due to poor operatingperformance at Udyogamandal and a 1-1/2 year delay in completing theCochin I ammonia-urea project. Due to losses in recent years, FACT has notbeen able to meet portions of its maturing debts to GOT and negotiationsare now being completed between GOT and FACT to restructure the company'sdebt.

1.06 The appraisal report was prepared by Messrs. Donald E. Brownand Anthony R. Perram of the Industrial Projects Department, based onmissions to India in December 1970 and February/March 1971.

II. FACT's EXISTING OPERATIONS

A. History and Organization

2.01 FACT was incorporated iln 1943 as a private company with theGovernment of the State of Travancore (now part of Kerala) having a sub-stantial holding. The company's management was taken over in 1960 bythe Government of Kerala, by then the major shareholder. GOI, whichsubsequently acquired the majority shares, has managed the company since1963. GOI presently owns about 81% of FACT with the State Governments ofKerala, Tamil Nadu, PHysore and Andhra Pradesh holding about 15% of theshares and the remaining 4% is held by about 5,500 private shareholders.

2.02 FACT began operations as a small producer of single super phos-phate and since then has completed several expansion projects. FACTpresently produces and markets ammonium phosphate, ammonium sulfate,mixed NPK products, and in 1971, will add urea production. The company'spresent capacity is about 7% of the total fertilizer capacity in India.With the Cochin Division the proportion will increase to about 12%.

2.03 FACT has five operating divisions which report to the ManagingDirector: (1) Udyogamandal (UDL), which operates the existing plants;(2) Cochin, which will operate the ammonia/urea plant now under construc-tion and the Cochin II plant when it is completed; (3) FACT Engineeringand Design Organisation (FEDO), the planning and engineering arm of FACT;(4) FACT Engineering Works (FEW), a small equipment ranufacturer; and (5)Marketing, which handles all ferti:Lizer sales. These divisions are fur-ther described in Chapter VI and in Annex 1.

B. FACT Management

2.04 FACT has a 12-member Board of Directors of which eight are chosenby GOI, two by Kerala, and two by private shareholders. The Board meetsabout seven times a year to review operations and decide on major invest-ments, budget and policy issues. The Board has delegated considerable au-thority to the Managing Director, who is a Board member chosen by GOI. Heacts as principal liaison with the shareholders and directs day to dayoperations assisted by the Finance Manager, who functions as his deputy.

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2.05 FACT's overall management capability was assessed by IDA in Julyand August 1969, including a report by P. A. Management Consultants, Limit-ed, of London. The major problems found then were: (1) management inform-ation, such as production, marketing, and financial reports were not com-plete nor prepared on time; (2) the UDL division had excessive staff, withpoorly defined lob specifications; and (3) maintenance was not properlyscheduled. Some improvement has occurred but the basic problems stillexist.

2.06 The Managing Director has recently been transferred and a new Man-aging Director has been appointed who appears to be capable and is satisfac-tory to the Association. The Cochin II Project Manager has had productionand engineering experience and appears to be capable. The appointment ofhighly competent people to the senior management positions (three key per-sonnel have been lost recently by death or transfer) and continuity of man-agement are particularly important to the company and the execution of theproject since the company is not deep in management personnel.

2.07 The company recognizes that cost accounting and reporting need im-provement. Reasons given for the unsatisfactory reporting were union pro-blems within the accounting department, installation of a new computer sys-tem, and concentration on improving production rates. However, the speedwith which information requested was produced, was impressive as was theamount of detail provided. The company intends to introduce monthly pro-duction cost data for each individual production unit, improve quarterly fi-.nancial statements and budget goals for future operations, using realisticproduction targets to stimulate improvements in operations. FACT has givenassurances to IDA that its cost accounting and management information sys-tem will be satisfactory by January 1972.

C. Financial Analysis of Existing Operations

2.08 Historical income statements for the fiscal years (FY) 1966through 1971 are contained in Annex 2 and are summarized below.

Summary Income Statements(million of Rs)

Total1966-

Fiscal Years FY66 FY67 FY68 FY69 FY70 FY71* 1971

Net Sales (from operations) 25 57 77 119 118 133 529Operating Costs 31 51 73 116 134 136 541

Operating Profit (Loss) (6) 6 4 3 (16) (3) (12)Non-Operating Income 2 5 2 7 3 2 21

Gross Profit (Loss) (4) 11 6 10 (13) (1) 9Interest 3 7 6 7 6 9 38Taxes _ __ -__ ___ -__

Net Income (Loss) (7) 4 3 (19) (10 (9)

*Preliminary figures

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FACT's earnings record has been unsatisfactory over the past years. In-creasing sales and stable selling prices since 1968 have been offset by lowoperating performance and higher operating costs, particularly labor. Theseproblems were quite evident in 1970. Net losses over the six-yea?r periodtotal Rs 29 million or about 5.5% of net sales from operations. The corn--pany expects that fiscal 1971 will show a loss although the exact resultwill depend upon decisions to *be made regarding deferred expenses for rmarketdevelopment.

2.09 Historical balance sheets are shown in Annex 3 and are summarIzedbelow.

Summary Balance Sheets(million of Rs)

Fiscal Years FY66 FY67 FY68 FY69 FY70 FY71*

AssetsCurrent Assets 54 98 177 232 216 189Net Fixed Assets 172 207 257 499 598 684Other Assets 4 4 4 10 12 16

Total Assets 230 309 438 741 826 889

Liabilities and CapitalCurrent Liabilities 59 109 166 205 277 318Long-Term Debt 100 124 197 392 391 371Equity: Share Capital 75 75 75 141 174 226

Reserves & Surplus (4) 1 - 3 (16) (26)

Total Equity 71 76 75 144 158 200

Total Liabilities & Capital 230 309 438 741 826 889

Current Assets/Current Liabilities .9:1 .9:1 1.1:1 1.1:1 .8:1 .6:1Long Term Debt/Equity 58/42 62/38 72/28 73/27 71/29 65/35

*Preliminary figures

2.10 Recent losses and delays in the completion of the Cochin I Projecthave prevented FACT from paying its maturing debt to GOI. By March 31,1971 this unpaid debt had accrued to Rs 81 million including Rs 21 millioninterest which is now being renegotiated. Payments on outstanding loansto the Industrial Finance Corporation of India and on the Italian creditsfor Cochin I have been paid on schedule. GOI has been supplying funds toFACT, particularly for the Cochin I project, in the form of two-thirdsdebt and one-third equity. The combination of high debt and losses hasmade the company financially weak and has required increased short-termborrowings which have been difficult to obtain. The company now has anegative working capital position and high debt service requirements whichwill be eased by the rescheduling of the GOI loans and the provision ofadditional funds by GOI if required (para. 4.08).

III. PROPOSED COCHIN II PROJECT

A. Project Scope

3.01 The proposed expansion (Cochin II) has a design capacity of435,000 TPY of granulated, high analysis NPK fertilizers and 7,500 TPYcryolite. The grades, production schedule and ex-factory sales pricesfor the NPK products and cryolite are shown in Annex 4. NPK productionis based on imported phosphate rock, potash, sulfur and ammonia andincludes manufacture of sulfuric and phosphoric acid as intermediateproducts. Urea will be obtained from Cochin I. The major plants willbe based on licensed designs from contractors that have been selected byFACT. The project also includes the necessary facilities at Cochin port,about 15 km away.

B. Project Description and Ecology

3.02 The phosphoric acid plant will have a design capacity of 115,000TPY P205. FACT has a licensing agreement with The Engineering and Indus-trial Corporation of Luxembourg (Prayon) for phosphoric acid design know-how. The process represents conventional and commercial technology, andPrayon and FACT both have considerable experience in design and operationof these plants.

3.03 The sulfuric acid (H2SO4) plant is a 330,000 TPY unit basedon elemental sulfur. The process and size represent commercial and con-ventional technology and FACT's licensor, Chemiebau, Dr. A. Zieren GmbH& Company KG (Chemiebau), of Germany has adequate experience, includingdesigns of up to 264,000 TPY sulfuric acid.

3.04 The NPK plant will have a design capacity of 485,000 TPY NPKbased on technology from Wellman-Power Gas Inc., of the U.S. Theirgranulation experience includes about 20 commercial plants includingCoromandel in India.

3.05 The cryolite plant will produce 7,500 TPY and is based on asimilar plant that FACT now has under construction.

3.06 Port facilities and other offsites represent a major portion ofthe project. The Cochin Port Trust has agreed to provide a wharf and amooring berth exclusively for FACT. GOI and FACT have agreed to providethe necessary assurances from the Cochin Port Trust as a condition ofeffectiveness of the IDA credit. FEDO's design of the port, transporta-tion and site facilities was reviewed with FEDO's engineering staff andis considered adequate.

3.07 A phosphate fertilizer complex such as the Cochin II projectdischarges several streams that are potential pollution hazards. Theeffluents are fluorine and sulfur compounds that may be discharged to

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the atmosphere, fluorine compounds that may be discharged in liquidwastes, and a solid material (gypsum) that is stored. FEDO has designedthe project to control these effluents within normal practice in theindustry. The cryolite plant offers the advantage of recovering fluorinefrom phosphoric acid manufacture and decreases a potential pollutionproblem.

3.08 A more complete technical description of the project, includingpollution control is given in Annex 5.

IV. PROJECT COSTS AND FINANCIAL PLAN

A. Capital Costs

4.01 The total estimated financing required for the project is Rs 380million (US$50.7 million) which includes interest during construction.These costs are summarized below and further details are given in Annex 6.

Summary of Project Costs(in millions)

Indian Rupees U.S. DollarsLcocal Foreign Total Local Foreign Total

Equipment, Materials, Freight 510.3 79.7 130.0 6.7 10.6 17.3Duty, Sales Tax 20.2 - 20.2 2.7 - 2.7Design, Erection 39.4 9.9 49.3 5.3 1.3 6.6Civil Works, Land, Offices 68.3 - 68.3 9.1 - 9.1Pre-Operating Expenses 8.8 0.5 9.3 1.2 0.1 1.3Technical Assistance - 3.9 3.9 - 0.5 0.5

Sub-Total 187.0 94.0 281.0 25.0 12.5 37.5Working Capital 12.0 38.0 50.0 1.6 5.1 6.7Contingency 13.0 15.0 28.0 1.7 2.0 3.7

Total Project Costs 212.0 147.0 359.0 28.3 19.6 47.9Interest during Construction 21.0 - 21.0 2.8 - 2.8

Total Financing Required 233.0 147.0 380.0 31.1 19.6 50.7

4.02 The foreign exchange portion of capital costs, including workingcapital, is estimated at $19.6 million. The foreign exchange costs arebased on 12% of total equipment beLng reserved for Indian procurement andthe expectation that approximately 40% of the internationally bid equip-mnent will be won by Indian suppliers.

4.03 The above costs represent: preliminary estimates based on theproject beginning in mid-1971 and iinclude adequate price escalation.

Costs have been conservatively stated and the contingency, representing10% of the direct project costs, should be sufficient.

B. Working Capital

4.04 Total working capital requirements for the project at an annualproduction rate of 436,500 tons (90% of capacity) are estimated at Rs 209million ($28 million) as shown in Annex 7. The above figure is based onfour months accounts receivable, three months raw material storage (excepturea and ammonia) and two months product storage. The initial workingcapital is assumed at Rs 50 million ($6.7 million) of which the foreignexchange component is $5.1 million.

C. Financial Plan

4.05 The Rs 380 million financing needed for the project will beprovided by the Government, with at least half (Rs 190 million) in theform of equity and the balance as loan. The proceeds of the proposedIDA credit of Rs 150 million ($20 million) would be relent by theGovernment as part of its loan under a subsidiary loan agreement.

4.06 The interest rate for the subsidiary loan agreed to in negotia-tions is 8.5% per annum. GOI's normal policy is to approve the fundsfor the entire project and then disburse them to the recipient in quarterlyinstallments, each of which constitutes a separate loan. Each disburse-ment has a three-year grace and a ten-year repayment period. Since thefinal disbursement is expected to be made in the fourth year after startof construction the last maturity would be in the sixteenth year of theproject. The financial forecasts in the annexes correspond to thismaturity schedule. Since the loan from GOI to FACT is wholly a rupeeloan, the exchange risk remains with the Government.

4.07 The following table gives a summary of the total estimatedsources and application of funds for FACT as a whole during implementa-tion of the project (Refer to Chapter IX).

Summary of Source and Application of Fundsduring Project Implementation - 1971/1974

(millions of rupees)

Sources Application

Long-Term Debt 190 Cochin II Project 380Equity 213* UDL and Cochin I 199Cash Generation - UDL/Cochin I 380 Debt Service 264Short-Term Funds 60

Total 843 Total 843

*Including Rs 23 million for Cochin I.

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4.08 The forecasted cash generation is based on UDL operating atimproved levels and Cochin I achieving its expected production. GOI andFACT are currently renegotiating the company's debt. It is expected thatthe actual amount of rescheduling will be Rs 85 million with repayment be-ginning in FY 1972 and ending five years thereafter. Completion of thearrangements for the debt rescheduling will be a condition of effectivenessof the proposed credit. Although IDA anticipates that further reschedulingmay be necessary for some arnounts; due towards the end of FY 1972, the Asso-ciation has agreed to this scheme because (a) negotiations for the resched-uling are virtually completed and (b) the Government has agreed to keepthe company in a liquid position during construction with a current ratioof at least 1.5:1 being obtained at the start of commercial production.

4.09 To protect against an overrun in project costs (including CochinI) or shortfall in cash generation, GOI has agreed to provide funds neces-sary to complete the project and put FACT in a sound financial positionincluding adequate working capital. To this end the Government will put aminimum of 50% of the funds representing Cochin I and Cochin II investmentsin the form of equity by completion of Cochin II. GOI also agreed to seta goal of a long-term debt/equity ratio of not greater than 55/45 for thecompany after Cochin II begins commercial operation. The Association'sprojections show that at the time Cochin II starts up, FACT should be ina sound financial position (a long-term debt/equity ratio of about 50/50and a current ratio of about 1.5:1).

V. PROJECT EXECUTION

A. Project Management

5.01 FEDO will act as managing contractor for the Cochin II project.IDA's evaluation of FEDO as an engineering company, is given in Annex 1.In view of the overall size and complexity of Cochin II, FACT has agreedto employ an experienced Assistant Project Manager plus one experiencedEngineer to assist FEDO in budget and schedule control and in general en-gineering, procurement, and construction duties. The Assistant ProjectManager will remain until completion of the project and the Engineer isexpected to stay 2-3 years.

5.02 Tn addition, FACT will use selected process licensors in design,equipment selection, construction and start-up. The extent of such assist-ance by the licensors (beyond their initial process package) is expected tobe as follows:

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Man Months

Sulfuric Acid (Chemiebau) 8-12Phosphoric Acid (Prayon) 12-18NPK (Wellman-Power Gas) 60-80

The assistance is primarily aimed at adding depth and experience to theFEDO organization to ensure the success of Cochin II. FEDO has alreadyestablished continuing associations with Chemiebau and Prayon for sulfuricand phosphoric acid designs, respectively, and has recently concluded acontract with Wellman-Power Gas for the NPK plant. FACT is now completingfinal agreements with Chemiebau and Prayon and arranging for the engineer-ing personnel described above. IDA has reviewed these agreements in draftform and found them acceptable. Their satisfactory conclusion is a con-dition of effectiveness of the proposed credit.

5.03 To avoid FEDO's overextending its management and engineeringstaff capacity during project execution, FEDO will not accept any engineer-ing contracts in excess of Rs 1,500,000 ($200,000) each without firstconsulting with IDA until engineering for Cochin II is substantiallycompleted. FACT has agreed not to undertake any other major capital invest-ment program in excess of Rs 7,500,000 ($1,000,000) per year without IDA'sconsent.

B. Project Schedule and Procurement

5.04 FEDO has updated its critical path schedule for the project onthe basis of a completion time of 33 months. For appraisal purposes, proj-ect construction has been assumed as 36 months, but a concerted effort willbe made to realize the 33-month schedule. The shorter schedule is largelydependent on efficient implementation of procurement. GOI has expresseda strong desire to minimize project execution time and has agreed to the33-month schedule as the governing criterion to which all its and the com-pany's actions will be geared and has modified its procurement policy withthis objective in mind.

5.05 The Government agreed that the equipment and materials reservedfor procurement from Indian suppliers will be limited to about 12% of thetotal estimated equipment value. IDA is satisfied that the "reserved list"includes only those items that do not have critical delivery time and can besupplied from Indian firms in adequate quality. If it should become evidentthat delivery of any equipment on the reserved list would adversely affectthe project's critical path schedule, then the Government will permit suchitems to be shifted promptly to international or other procurement sources.

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5.06 All other equipment will be bid by international competitivetender, including India. Indian suppliers will be given a 15% cost pref-erence in bid evaluations compared against the CIF India price of competi-tive equipment bids. GOI has given assurance that after FEDO has completedits bid analysis and decided the procurement source, any required importlicenses will be issued promptly.

5.07 In collaboration with the process licensors, FEDO will preparesuitable bid packages which will permit qualified Indian suppliers to com-pete on the smaller of the packages but still maintain project scheduleand equipment standardization requirements.

5.08 The proposed IDA credit will include an estimated $0.5 millionof foreign exchange costs for the import of materials and components tobe used by Indian suppliers for items on the "reserved list". While tothe extent practical these imports will be subjected to internationalshopping, their speed of procurement will be the governing factors. FEDOwill coordinate the import of such materials and components.

C. Allocation of IDA Credit

5.09 The proceeds of the proposed IDA credit would be used as follows(see Annex 6):

Use of IDA Credit

$ Million

1. Equipment 15.22. Equipment (for foreign components

of "reserved list") 0.53. Engineering and Equipment Erection

(a) Licensors 1.3(b) FEDO 0.5

4. Technical Assistance 0.55. Unallocated 2.0

Total 20.0

The allocation of IDA funds to the above categories is approximate at thistime and may have to be revised somewhat when FEDO has completed its detailedengineering work. The credit will cover the CIF cost of imported equipmentand the ex-factory price (excluding taxes) of locally procured equipmentthat is internationally bid. As mentioned before, the credit will alsoinclude the CIF cost of imported foreign components of locally procuredequipment on the "reserved list", and the foreign exchange costs of processlicenses and consultants' services. A portion of FEDO's local costs forengineering and equipment erection is also included. The estimated foreign

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exchange content of the proposed credit is about $15 million, which assumesthat 30% of the internationally bid equipment is won by Indian suppliers(para. 4.02). The projected disbursement schedule for the IDA credit iscontained in Annex 6.

VI. MARKET AND MARKETING

A. Present Situation in India

6.01 A major goal of Indian economic development is self-sufficiencyin agriculture, including fertilizer production. However, India currentlyimports about half of the required fertilizer nutrients as finished prod-ucts and as intermediate raw materials. Nitrogen, the major fertilizernutrient, is produced in India primarily as ammonia and urea with mostmanufacture based on naphtha from imported petroleum feedstocks. Currentplans propose increasing reliance on fuel oil and indigenous coal as rawmaterials to produce nitrogen fertilizer. India permits some ammoniaimports, but imposes a 60 percent duty on the CIF price. Use of importedammonia may increase as a result of recent trade agreements between Indiaand Iran.

6.02 Virtually no phosphate material is produced in India. Whilefeasibility studies are about to start (financed by UNDP with the Bankas Executing Agency) to develop promising phosphate rock deposits inRajasthan these deposits are not likely in the near future to produceenough rock to make India self-sufficient. India imports large amountsof phosphate rock and, in recent years, the Government has granted per-mission for three companies 1/ to also import phosphoric acid. Potash,or potassium chloride, is not produced locally; so all requirements areimported, either as potash or in a finished NPK product.

6.03 Fertilizer consumption and production for the period 1964-1970are shown below based on data from the Fertilizer Association of India,the Ministry of Food and Agriculture and IDA.

1/ Madras, Zuari Agro, and Indian Farmers Fertilizer Cooperative(IFFCO).

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Fertilizer Consumption and Production in India(thousands of tons)

Nitrogen (N) Phosphate (P205)Apparent Apparent

Consumption Production Imports Consumption Production Imports

FY 65 580 240 340 160 130 30FY 66 530 240 290 160 120 40FY 67 660 310 350 200 150 50FY 68 920 400 520 290 210 80FY 69 1,200 560 640 410 210 200FY 70 1,450 720 730 560 220 340

6.04 Consumption of nitrogen increased during the six-year period atan average annual rate of about 20%. Local production rose even morequickly (about 28% per year) but was not able to catch up with demand.Phosphate consumption increased at about 28% annually and here too pro-duction was unable to meet demand. Low production levels (about 60% ofcapacity) in existing plants have contributed to these deficits. Further-more, while a more normal ratio between nitrogen and phosphate should beapproximately 2:1, the actual ratio in India in 1969/70 was about 3.3:1.Consumption of phosphate fertilizer therefore has lagged substantiallybehind that of nitrogenous fertilizer. Foreign exchange expenditures forimports of nitrogen and phosphate have averaged in excess of $150 millionannually during recent years.

6.05 Annexes 8 and 9 give lists of the fertilizer plants now in op-eration, under construction, or planned in India; recent production; andmajor sources of finance.

B. Market Forecast for India

6.06 Estimates for supply and demand of nitrogen and phosphate fertil-izer nutrients for all of India for the current Fourth Five-Year Plan (end-ing March 31, 1974) and the Fifth Five-Year Plan (ending March 31, 1979)are shown below. These projections are based on a previous Bank study(September 30, 1970) and a projection recently prepared by the GOI (Ministryof Petroleum and Chemicals). The demand projections through 1973/74 aretaken from the Bank study mentionecd above and are based on a projectionmodel that included historical data plus growth rates in area irrigatedand in fertilizer consuming crops. The figures for the Fifth Five-YearPlan (1974/79) are based on IDA's extrapolation of these data and itsestimate of completion dates for individual plants (Annexes 8 and 9).

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Fertilizer Market in India(thousands of tons)

Nitrogen (N) Phosphate (P 2 05 )

Demand Supply Deficit Demand Supply Deficit

FY 71 1,760 850 910 750 230 520

FY 72 2,110 1,470 640 970 380 590

FY 73 2,500 1,830 670 1,220 430 790

FY 74 2,910 2,050 860 1,510 530 980

FY 75 3,300 2,260 1,040 1,700 750 950

FY 76 3,700 2,590 1,110 1,900 940 960

FY 77 4,100 3,390 710 2,100 1,310 790

FY 78 4,600 3,860 740 2,300 1,540 760

FY 79 5,200 4,230 970 2,600 1,730 870

6.07 The table indicates a substantial nitrogen deficit through theperiod. The deficit decreases slightly in the early years as new FertilizerCorporation of India (FCI) and FACT urea units come on stream but widensagain thereafter. The phosphate deficit grows from about 500,000 tons peryear to 800-900,000. The supply forecasts are based on a realizable butoptimistic schedule for new projects and on all plants achieving a 90%capacity utilization. The assumptions used in the forecasts are explainedin Annex 8. Therefore, the supply figures represent IDA's best estimate

of the maximum fertilizer production India can reasonably be expected toachieve. If the assumptions on capacity utilization and schedule of proj-

ects are not fulfilled, then the estimated supply could be 10-20% belowthe above forecasts.

C. Fertilizer Market in South India

6.08 Estimated consumption of nitrogen and phosphate from 1969/70(actual) to 1978/79 for the four southern states (FACT's marketing area)is given in Annex 10. Average annual growth rates anticipated by FACTthrough 1973/74 are about 10% for nitrogen and 20% for phosphate andthereafter are assumed for both nutrients at about 13%. It has beenassumed that phosphate consumption would increase at a faster rate thannitrogen until the ratio reaches 2:1. FACT assumed fertilizer growthrates below those for the rest of India because of the already higherfertilizer application in South India. The FACT estimates are the mostconservative and are used in this evaluation. They are based on exten-sive market surveys and the requirements of N, P and K for the area'smain crops (rice, wheat, tea, fruits, nuts, spices, sugar, cotton, vege-tables, and tobacco).

6.09 The projected supply and demand of fertilizer for South Indiaare shown below. The supply data are taken from Annex 11.

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Fertilizer Market in South India(thousands of tons)

Nitrogen (N) Phosphates (P205)

Demand Supply Deficit Demand Supply Deficit

FY 71 600 140 460 230 110 120FY 72 670 340 330 280 180 100FY 73 730 550 180 330 230 100FY 74 810 670 140 400 260 140FY 75 910 720 190 470 330 140FY 76 1,030 810 220 550 380 170FY 77 1,180 1,180 0 620 490 130FY 78 1,330 1,330 0 700 530 170FY 79 1,500 1,530 -30 790 630 160

6.10 The locations of the fertilizer producers in South India areshown in the map along with major broad gauge rail lines to illustrate themarket area served by FACT. The principal competitors to FACT will be ZuariAgro (Goa), Madras (Tamil Nadu), and Coromandel (Andhra Pradesh). IDA'sassessment of supply assumes that the above three producers will operateat 90% capacity from 1974/75 onward. Superphosphate production is projectedat 40,000 TPY P205 based on FACT's estimate. Other proposed projects inSouth India are Coromandel Expansion (II and III), Mangalore, Tuticorin(Southern Petrochemical Industries Corporation), Ramagundam, and Occidentalat Vizag. These are assumed to come into production over the period 1975-1979; however, the probability of all five of these projects maintainingthe schedule given is considered unlikely. These production forecasts aremore optimistic than the all-India forecast in Annexes 8 and 9 to show themaximum competition that FACT would have to contend within its marketingarea.

6.11 In spite of the optimistic supply forecast, a phosphate produc-tion deficit will still exist in South India and FACT should have no salesdifficulty as far as total market demand is concerned. The phosphate def-icit ranges from 130-170,000 TPY over 1974-1979 and would be met by a netinflow from North Indian plants (such as FCI Trombay) or imports. The sup-ply deficit will remain high unless a number of the other projects proceedat a considerably faster rate than now appears likely.

6.12 The nitrogen supply could be essentially in balance in SouthIndia by 1976/77 based on FACT's conservative estimate of consumption andthe optimistic forecast of supply. Nevertheless, even if such balance couldbe achieved the nitrogen from Cochin II will be sold as NPK fertilizer and,with the large deficit of P205 expected, the company's NPK fertilizers shouldbe marketed with no difficulty even if competition develops in straight ni-trogen. The company's competitive position is further discussed in paras.6.21 to 6.23 below.

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D. FACT Marketing Area and Handling System

6.13 The marketing area of FACT in South India includes the four statesof Kerala, Tamil Nadu, Andhra Pradesh, and Mysore. Within this area, FACThas established an extensive distribution network of godowns, wholesale andretail dealers, and a marketing staff to service the more than 6,000 finaldistribution points. At present the company markets about 460,000 TPY fer-tilizers of which 250,000 TPY are purchased. Tonnages may increase toabout 700,000 TPY with Cochin I and about 1,000,000 TPY with Cochin II,excluding amounts for seeding programs or other outside purchases. Tohandle this expanded tonnage, FACT expects to utilize its existing distrib-ution network more efficiently and also to establish additional distributionpoints.

6.14 The market share that the company expects to obtain in each ofthe four southern states is shown below:

FACT Market Share by Area

Rail Freight Selling% of Market Avg. Cost Sales Points

Market N P205 K20 Rs/ton Headquarters Dec. 1970

Kerala 70 70 70 12 Trivandrum 3,000Tamil Nadu 25 25 25 35 Madras 2,100Southern Mysore 25 25 25 35 Bangalore 210Northern Mysore 12 7 7 45 Bangalore (inc. above)Andhra Pradesh 12 7 7 45 Hyderabad 500

6.15 Kerala forms the principal marketing area. At present FACT mar-kets about 70% of the total supply to the state and its forecasts are basedon maintaining this percentage. No other producer can effectively competewith FACT in Kerala due to the company's location advantage and its well-established name. FACT has a large sales network in Tamil Nadu and SouthernMysore and estimates that it will supply 25% of the total market demand.The lower share is due to the longer freight distance involved and the com-petition from Madras Fertilizer and Zuari Agro, both of which will be mar-keting similar products.

6.16 The other marketing areas contain northern Mysore and AndhraPradesh. These are much farther from FACT and substantial competition maybe expected from Zuari Agro and from Coromandel. Therefore, FACT has esti-mated that it will obtain only 12% of the nitrogen market and 7% of thephosphate and potash market. The market penetration projected seems rea-sonable for all areas.

6.17 FACT reports an average Rs 138/ton ($18.40/ton) distribution cost,which includes charges for freight, storage, marketing overhead, credit anddealer comnission. These costs compare favorably with marketing costs in

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other countries. Distribution costs, plus sales and excise taxes, arepassed on to the farmer. About 70% of the fertilizer is sold under somecredit arrangement. Fertilizer credit is discussed further in paras. 6.24and 6.25.

E. NPK Seeding Program

6.18 Presently FACT sells the following tonnages of fertilizer annually:

NPK Mixtures 110,000Superphosphate 20,000Ammonium Phosphate 60,000Ammonium Sulfate 100,000Urea 170,000

Total 460,000

While sales of the above provide FACT witlh valuable marketing experience,they provide little help in developing markets for the NPK's to be producedin Cochin II. The analysis of the above NP and NPK mixtures varies but theyare generally much lower in nutrient content than those expected from theproject.

6.19 It will be necessary for FACT to develop a comprehensive seedingprogram for Cochin II based on the import of grades conforming as closely aspossible to those to be produced. This is particularly important since mostgrades are not now available to the farmers. The specific grades are listedin Annex 4 along with detailed comments on the fertilizer requirements of thearea and the basis for the selection of the grades to be produced by theproject. To be successful this program should provide NPK fertilizers insuitable grades in at least the following amounts (in tons per year):

FY 72 25,000 - 50,000 NPKFY 73 100,000 - 150,000 NPKFY 74 200,000 - 250,000 NPKFY 75 As necessary to supplement production

During negotiations it was agreed that FACT will implement a suitable seed-ing program and that the Government will import fertilizers for that purposeas necessary.

F. Sales Prices and Competition

6.20 Typical current retail fertilizer prices in India are:

Ex-plant pricesSource Grade Rs/ton US$/ton

Government Pool 14-14-14 757 101Government Pool 15-15-15 832 111Coromandel 28-28-0 1,270 170

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Witlh the exception of 28-28-0, the grades proposed by FACT (Annex 4) arenot now marketed in India. Therefore, FACT calculated the current pricesfor its NPK products based on the above prices of the Government pool andCoromandel (Annex 4). The average grade of 19-23-11 would thus have anex-factory sales price of Rs 928/ton ($124/ton).

6.21 Fertilizer sales prices have been constant for about two yearsduring which time raw material prices on the whole have increased slightly.Currently, only Coromandel is producing and marketing high analysis, urea-based NPK fertilizers in India. When Madras and Zuari Agro come on strcesin 1971 and 1972 respectively with new NPK capacity, the price could rea-sonably be expected to drop due to increased competition but this tendencywill probably be offset by the continuing shortfall in supply. IDA con-cludes, therefore, that prices are likely to remain at about existing levelsand represent a reasonable basis for evaluating the project.

6.22 FACT will face major competition in its market area from Coromandeland Madras but other producers will be less competitive. Zuari Agro willmarket a bulk blend based on urea and ammonium phosphate. Although thegrades can be the same, bulk blends are not generally as acceptable as thegranular product that FACT will manufacture. Also, Goa and the nearby areaof Mysore are serviced only by narrow gauge rails so transportation becomesa major problem for Zuari Agro.

6.23 Manufacturers in north India will not be able to compete verywell in South India due to higher freight costs and product disadvantages.Thus, competition from Northern producers should have limited impact andFACT should be able to sell its output within its marketing area at pro-jected prices.

G. Agricultural Credit

6.24 The importance of credit to fertilizer consumption is well recog-nized in India. At present credit is provided by the commercial bankingsystem and by the GOI to cover purchases from the Government Pool. TheFertilizer Association of India (FAI) has estimated total fertilizer creditfor India of Its 2,970 million ($400 million) in 1970/71. Based on consump-tion forecasts, the requirements in 1974/75 will be approximateLy Rs 5,000million ($670 million). While availability of credit has thus far notseriously restricted growth in fertilizer demand, continuing efforts willbe necessary if future consumption forecasts are to be met. To fulfillthis need FAI recommended comprehensive changes in the agricultural creditpolicy of India including establishment of a Fertilizer Credit GuaranteeCorporation by the GOI. This corporation has not yet been established.Other programs to improve fertilizer credit are being studied by GOI, theState Governments, and the Reserve Bank of India.

6.25 FACT estimates its total fertilizer credit needs in the latter1970's at about Rs 800 million annually, of which it expects to provide

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about Rs 120 million from its own resources. The company's financial pro-jections indicate that FACT can readily provide this amount. Total creditwill be supplied as follows (in Rs million):

Dealers 200Commercial Banks 400Cooperatives 80FACT 120

Total 800

The above distribution of credit sources has been proposed by FACT to reducethe amount of credit to be supplied by FACT and its dealers through increasedreliance on commercial banks. The company has been successful in involvinglocal banks in selected areas in extending fertilizer credit but this systemis not in wide use at present. FACI's marketing efforts depend on the avail-ability of such credit, and the Government has agreed to provide adequateworking capital if funds are not available from commercial banking sources.

VII. OPERATING COSTS

A. Raw Material Costs

7.01 Raw material costs represent about 70% of total production costsand their impact on the company's profitability therefore is significant.As noted before, the project is based on urea from Cochin I plus importedphosphate rock, sulfur, potash and ammonia. At full production, annuallyrecurring foreign exchange expenditures for the imported raw materials aloneare approximately $21 million at present prices. Prices of raw materialshave fluctuated widely over the past two to three years which makes accurateforecasts of raw material costs difficult. The following table shows thepresent prices (actually paid by FACT and used in the financial forecasts)for these materials and the price trend (used in the economic return calcu-lations) expected by IDA.

Comparison of Present and Future CIF Prices

Present PricesDelivered Assumed Future

CIF Plant Site Prices$/ton Rs/ton Rs/ton $/ton

Phosphate Rock 30 227 245 24Sulfur 36 270 290 30Potash 53 400 423 40Ammonia (plus 60%duty) 37 278 318 37

Urea (from Cochin I) - - 620 ($82.70) 60

There are no import duties on phosphate rock, sulfur and potash. Other rawmaterials, such as filler and coating agent, are available in India.

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7.02 All imports of sulfur, phosphate rock and potash into India arenow channeled through the Minerals and Metals Trading Corporation (MMTC),a government-owned corporation which contracts for supplies from interna-tional sources, usually under bilateral trade agreements. MMTC supliesthe materials to the users such as FACT at its import price plus a fee.Present raw material prices are generally higher than current internationalprices due to such bilateral arrangements. Ammonia will be supplied forCochin II through a long-term contract recently concluded between Iran andGOI. GOI has agreed to permit import of all raw materials needed includingbagging supplies to the extent not available in India.

7.03 Present raw material prices are higher than those expected byIDA in the longer run. IDA's assumptions are based on international pricesand assume that freight rates, which have greatly escalated over the pasttwo years, will decline to more normal levels. Present prices have beenused in financial projections to allow an accurate comparison with presentNPK prices. The effect of raw material and fertilizer price changes onthe company's profitability is discussed in Chapter VIII.

7.04 The project analysis does not include the possibility of supplyof phosphate rock from the mining project now being considered in Rajasthan(para. 6.02). It is too early to predict the quantity and price of anyindigenous rock supply, and it is not anticipated that Rajasthan phosphaterock will be supplied to FACT in the near future. Cochin II will, however,be designed to permit use of Rajasthan rock when it does become available.

B. Production Costs

7.05 Production costs were calculated for the average NPK grade to beproduced (19-23-11) and include costs for sulfuric acid and phosphoric acid.Details of these costs are given in Annex 12 for various levels of plantutilization and are summarized below for the normal operating level assumedat 90% of design capacity.

Annual Production Costs- at 90% of Design Capacity(Rs million)

NPK Cryol:Lte

Variable Costs 258.2 8.3Fixed Costs 46.9 1.1

Total Production Costs 305.1 9.4

/1 Includes depreciation, but no interest on long-term debt.

7.06 The high proportion of variable costs reflects the large raw ma-terial component. Since the raw material costs used in the projections arehigher than the estimated trend, they should not increase further unless

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affected by bilateral arrangements. Overall production costs are thereforeconsidered conservative. A direct comparison of Cochin II's projected op-erating costs with FACT's existing cost of production is not possible sincethe grades produced differ markedly in nutrient content and composition.However, a comparison on a cost per ton nutrient basis indicates much lowerproduction costs at Cochin II than FACT can obtain at UDL Division. Whilecryolite represents only about 3% of the project's output and will hardlyinfluence the company's profitability, it is nevertheless an important prod-uct in that it is crucial in the production of aluminum and would help toreplace current imports.

7.06 The project will provide direct employment for about 500 skilledand semi-skilled personnel. The lproject is capital intensive and labor costsrepresent only a small fraction of operating costs. No attempt was made toproject employment created as an Lndirect result of the project in ancillaryindustries.

VIII. FINANCIAL AND ECONOMIC ANALYSIS OF THE PROJECT

A. Financial Analysis and Sensitivity Tests

8.01 Detailed income statements for the project are contained in Annex13. Summary statements of these forecasts are shown below:

Summary Income Statements - Cochin II(in millions of rupees)

FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87

Capacity Util-ization (%) 50 80 90 90 90 90 90 90 90 90 90 90 90Sales 195 353 413 422 422 422 422 422 422 422 422 422 422Operating

Costs 162 269 308 315 315 315 315 315 315 315 315 315 289

Gross Profit 33 84 105 107 107 107 107 107 107 107 107 107 133Interest 14 15 14 13 11 10 8 6 5 3 2 1 -Profit beforeTaxes 19 69 91 94 96 97 99 101 102 104 105 106 133Taxes - - - - - 53 54 56 56 57 58 58 73

Net Profit 19 69 91 94 96 44 45 45 46 47 47 48 60

8.02 The project shows a small profit in the first year of production(FY 1975). Profits are expected to rise rapidly in the next two years asproduction increases to 90%, and remain at a level above Rs 90 million

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per year until FY 1980, when - after a tax holiday of five years - theimpact of taxes (about 55%) forces net profit down to approximately Rs 45million per year.

8.03 Due to the relatively high selling prices of fertilizer :Ln India,the project is very profitable and, after taxes become applicable, net pro-fit equals 11% of sales and 24% of share capital. If Cochin II were carriedout in a separate corporation, it would have a quite satisfactory debt serv-ice coverage of around 4.0 times in the early years when no taxes are paid,and about 2.9 times thereafter.

8.04 The internal financial return (IFR) for the project has been calcu-lated at 19.5%. The assumptions used in this analysis, as well as for thesensitivity tests, are shown in Annex 14.

8.05 The project has been tested for various factors and is very sensi-tive to changes in raw material and product selling prices. If raw materialprices are reduced to the level of the expected long-range trend, sellingprices could be decreased 7% without reducing the financial return. Withcurrent raw material prices and a 10% reduction in selling price, the IFRdecreases to 9.3%.

8.06 The project is not appreciably affected by changes in productionlevels. The IFR for a maximum of 80% production beginning in the secondyear and 100% beginning in the fourth year are 16% and 21% respectively.A project delay, however, is critical. A one-year delay with a resulting15% cost overrun would decrease the IFR to 9.2%. If this delay were fol-lowed by other adverse circumstances, such as a 10% decline in selling prices,the project would show a negative return.

8.07 As shown in Annex 15, the profit break-even point for the projectat the assumed selling prices is 37% of capacity. At normal production theproject would break-even profitwise if NPK prices were reduced as much as22%. The cash break-even point on the same basis including the service oflong-term debt would require sales at 32% capacity or an NPK selling priceof Rs 710/ton (22% reduction).

B. Economic Analysis

8.08 The internal economic return (IER) for the project is 13.5% asshown in detail in Annex 14 and is based on the following major assumptions:

(1) Raw material costs are the long range trend prices shownin para. 7.01.

(2) The average selling price is equivalent to expected CIFimport prices of N (as urea); P205 (as phosphoric acid),and K20 (as potash) in the proportions required for the

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project's average NPK formulation £A2 notional manufac-turing costs and profits if produced in a modern and ef-ficient plant in one of the industrialized countries.

8.09 Although the above analysis has its shortcomings, it still offersthe best comparison with imported NPK products, since the grades to be manu-factured at Cochin II are not avaLilable internationally. This evaluationindicates that when using internaLtional input prices, the project would becompetitive with imported NPK fertilizers while earning at the same timean acceptable economic return.

8.10 Sensitivity analyses of the economic return show the same trendsas the financial return with the project being very sensitive to relativechanges in raw material costs and selling prices. Again, a delay in projectcompletion reduces the return substantially to 6.0% and a delay coupled witha relative selling price reduction of 10% results in a negative return.Details of the sensitivity tests are contained in Annex 14.

8.11 As shown in Annex 16 the project would realize net annual foreignexchange savings of $15.6 million at normal 90% production. The local cur-rency expenditure required to achieve this savings is Rs 92 million ($12.2million) per year.

C. Imported Vs. Manufactured Phosphoric Acid

8.12 In considering Cochin II, an analysis has been made to see if amore optimum solution would be to use imported phosphoric acid rather thanto produce acid from imported raw materials (phosphate rock and sulfur).Essentially the decision to import phosphoric acid would save about $18 mil-lion in capital costs, of which $4-6 million would be foreign exchange. How-ever, local production of acid would save annually about $3.7 million inforeign exchange operating costs, albeit at an increase in local costs ofabout $3 million equivalent per year. Details of this evaluation are con-tained in Annex 16.

8.13 As shown more fully in Annex 14, an economic return has been cal-culated on a separate project to produce phosphoric acid. The return hasbeen based on two alternative assumptions of delivered cost of importedP205 - $160 per ton and $150. The return at the higher cost is 13.7% andat the lower 9.0%. The foreign exchange savings (para. 8.12), plus thepossible use of phosphate rock from Rajasthan support the decision toproduce rather than import phosphoric acid.

IX. FUTIURE PROFITABILITY AND FINANCIAL POSITION ON FACT

9.01 Forecasted income and cash flow statements for the company as awhole through FY87 are contained in Annexes 17 and 18. Consolidated incomesstatement forecasts through FY79 are summarized below:

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Summary Income Statements -- FACT(million of rupees)

FY72 FY73 FY74 FY75 FY76 FY77 FY78 FY79

Net Sales 251 379 421 586 721 774 783 783

Operating Profit 14 72 86 115 173 193 195 195Interest 31 29 24 34 30 26 21 17

Profit before Taxes (17) 43 62 81 143 167 174 178Tax Provision - - - - - - 50 85

Net Profit (17) 43 62 81 143 167 124 93

Debt Service Coverage .9 1.6 1.8 2.1 2.5 3.5 :3.0 2.8

9.02 FACT is expected to show an operating profit in FY72, Cochin I'sfirst year of operation; however, this will be more than offset by interestexpense and a net loss for the year of Rs 17 million results. A net profitof Rs 43 million is expected in FY73 which will increase in succeeding yearsas Cochin I output increases and Cochin II comes on stream. Profit reachesa peak in FY77 at a level of Rs 167 million when Cochin II reaches 90% ca-pacity. Net profit is reduced in FY78 when income taxes are first applicableand again the next year when the full tax impact is felt. In that year netprofit reaches a plateau of about Rs 90 million, or 11% of net sales. Thisprofit level is considered satisfactory.

9.03 The likelihood of FACT profitability being in line with estimatesrests primarily on its ability to complete Cochin II within the time and costnow forecast, and to reach expected production levels at Cochin I and II.UDL's contribution to profits is marginal and, after completion of Cochin II,will amount to only about 7% of profit before interest and taxes, while thosefrom Cochin I and II are 38% and 55% respectively.

9.04 As the company's earnings improve, its cash buildup should enableFACT to begin paying dividends on share capital. It has been assumed thatRs 44 million, or 10% on share capital, will be paid each year beginning inFY76. This will represent only about one-half of net profit after fulltaxes are reached in FY79 and further payments may be possible.

9.05 After FY72 when some debt may have to be postponed (para. 4.08),debt service coverage, Annex 19, is adequate at 1.6 to 1.8 times in FY73and FY74 and above 2 times in each year thereafter. Since GOI has assuredIDA that FACT will have adequate liquidity during project execution, pro-tection against the lower coverage in the first three years is provided.

9.06 Forecasted balance sheets for 1972-1987 are contained in Annex 20.Pertinent data from these for FY72 through FY79 are as follows:

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Selected Balance Sheet Items - FACT(in millions of rupees)

FY72 FY73 FY74 FY75 FY76 FY77 FY78 FY79

Current assets 229 280 388 557 698 858 1,024 1,145Current liabilities 309 312 302 364 368 370 420 452

Net working capital (80) (32) 86 193 330 488 604 693

Current ratio .7:1 .9:1 1.3:1 1.5:1 1.9:1 2.3:1 2.4:1 2.5:1

Long-Term Debt/Equity Ratio 63/37 54/46 47/53 38/62 30/70 23/77 17/83 12/88

9.07 The long-term debt equity ratio improves from the present 65/35to better than 50/50 by March 1974 and the current ratio improves to 1.5:1by March 1975. These ratios assume deferment of Rs 85 million debt (seepara. 4.08) and no further increase in long-term funds above the thefinancing for Cochin I and Cochin II. After 1974 the company's financialposition improves steadily and its long-term debt/equity ratio is forecastedto reach 12/88 by FY79. Net working capital becomes positive by FY74 andincreases each year. Dividends and debt prepayments will not be permittedif they would reduce the current ratio below 1.5 to 1.

X. RECOMMENDATIONS

10.01 During credit negotiations, agreement was reached between theGovernment, FACT and IDA on the following principal points:

(i) GOI will furnish at least Rs 190 million in equity andthe balance (not less than Rs 150 million) in loan forthe project (para. 4.05);

(ii) GOI will provide additional funds as necessary to completethe project and Cochin I; assure a sound financial positionfor FACT at the time Cochin II is completed; and maintainan adequate liquidity position of FACT during project execu-tion (para. 4.09);

(iii) GOI will promptly issue import licenses as required includingsuch items on the "reserved list" which cannot be procured inIndia without adversely affecting the project (paras. 5.05,5.06);

(iv) GOI will provide credit facilities for marketing of FACT'sfertilizers to the extent required (para. 6.25);

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(v) FACT will implement satisfactory accounting and managementinformation systems by January 1972 (para. 2.07);

(vi) FACT will implement an appropriate seeding program includingnecessary imports of NPK fertilizers (para. 6.19);

(vii) FACT will carry out the project according to its criticalpath schedule (para. 5.04).

10.02 Completion of the following arrangements will be additional con-ditions of effectiveness of the credit:

(a) FACT will have completed arrangements with the Cochin PortTrust that terminal facilities will be permanently availableat the time required (para. 3.06);

(b) FACT and GOI will have completed arrangements regarding re-szheduling FACT's debt that is in arrears as of March 31, 1971(paras. 4.08 and 9.07);

(c) FACT will have completed arrangements for obtaining processlicenses, plant designs and technical assistance as requiredand on terms that are satisfactory to IDA (paras. 5.01 and 5.02).

10.03 The project has a high priority in the Government's effortsto increase fertilizer production. The project's attractiveness dependslargely on FACT's ability to complete construction on schedule and FACTand the Government have agreed to take all necessary steps to completethe project within the agreed time. With such assurances and those in-dicated above, the project constitutes a suitable basis for an IDA creditof $20 million for relending under the terms described herein.

Industrial Projects DepartmentMay 14, 1971

ANNEX 1

DESCRIPTION OF FACT's EXISTING OPERATIONS

The five operating divisons of FACT are described below:

A. Udyogamandal Division (UDL)

UDL started commercial production in 1948 and since then has im-plemented four expansion stages with some of the earlier plants no longerin production. Over the past five years, FACT has invested Rs 200 millionin the UDL Division, tripling the gross fixed assets to Rs 300 million.The UDL Division contains a number of small process units with an aggre-gate capacity of 90,000 TPY N and 40,000 TPY P205. The major products areammonium phosphate (16-20-0 and 20-20-0), ammonium sulphate and singlesuper phosphate. The major production levels for FY 72 are expectetd toaverage about 60-80% of design capacity, and in FY 73 and subsequent yearsare forecasted at an average of 90% of the annual design capacity. Theseimproved efficiencies are obtainable with the Rationalization Program, seeAnnex 1 Section F below. Earnings projections for UDL are based oni theseproduction assumptions.

Ammonia is produced in four separate units of which the oldest isa 15 TPD NH3 electrolysis process which consumes large amounts of power.Since FACT does not at present show each unit as a separate cost center,the economics of this unit cannot be determined but it is difficult to con-ceive that production from this plant is economical. Two ammonia units (80and 140 TPD NH3) are based on partial oxidation of naphtha. This lprocessis relatively expensive in part because it requires oxygen which has to begenerated in air separation plants; furthermore the units are small by com-parison to plant sizes now available. The fourth unit (120 TPD NH3) is dueon stream during April 1971 at which time the oldest unit will probably bephased out. The process employs naphtha reforming which is the most eco-nomical design but the unit size is still small. Overall production costof ammonia from UDL will continue to be high even if all units were tooperate at design capacity. However, at 80-90% capacity UDL should be ableto produce NH3 at about $65-80/ton (Rs. 500-600/ton) and thus generate areasonable profit with the existing fertilizer prices in India.

Sulfuric acid is produced in four separate units, which togetherhave a capacity of 750 TPD H2SO4 and which all use the same basic process.In addition, FACT purchases about 100 TPD H2 SO4 from a nearby aluminumsmelter. The first two plants (68 TPD each) were part of the originalfacilities. The last two plants (160 and 450 TPD) represent reasonablemodern design and size and can produce sulfuric acid economically or atnear design capacity. However, for the reasons stated before, it is impos-sible to accurately assess their profitability.

ANNEX 1Page 2

UDYOGAMANDAL DIVISION

DESIGN CAPACITY AND OPERATING PERFORIMANCE

OF PROCESS UNITS

ON STRFAM ANNUAL DFSIGNPROCF,SS UNITS DATE CAPACITY OPERATING CAPACITY

Thousand TPY Thousand TPY1967-71 1971-73 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73

TPY % TPY % TPY % TPY % TPY % TPY %

~mmonia

1) I5 TPD 19482) 80 TPD 19623, lihO TPD 196620 L20 TPD 1971

335 TMU 77.6 112.0 44.2 57 54.9 71 49.5 6U 55.0 71 8L.o 70 90.0 80

Phosphoric Acid(P 2 0s)

1) 25 TPD 19622) 100 TPD 1966 (1) (1)

125 T-PF- 33.0 41.3 11. 33 13. 4o 10.6 32 13.8 42 26.2 61h 33.0 80

Sulfuric Acid

i) 68 TPP 19472) 68 TPD 19493) 160 TPD 19624) 450 TPD 1966

750 TPID 247.0 247.0 120. 49 135.0 126.0 166.0 59 166.0 59 198.0 80

Ammnonium Sulfate

1) 225 TPD2) 330 TPD 19663) 45 TPD

600 TPD 198.0 198.0 78.0 4o 112.0 57 101.0 51 116.0 59 155.0 78 172.0 87

Ammonium Phosphate

1) 100 TPD 19622) 300 TPD 19663) 150 TPT) 1971

550 TrPM 132.0 181.5 54 41 65.0 49 53.0 40 69.0 52 112.0 62 165.0 91

'2uperphosphate

L) 150 TPD 1950 49.5 49.5 42.2 85 28.3 57 29.7 61 30.0 61 9.8 20 45.0 90

Antjioniium Chloride

1) 75 TPD 24.8 2h.8 5.6 23 6.5 26 9.0 36 9.0 36 12.0 48 12.8 50

Oleun

1) 20 'D 6.6 6.6 2.5 38 2.4 36 2.2 33

.ulfur Di oxide

1) 25 'PPD 88.3 .3 2.6 31 3.0 36 2.2 27 1.5 18

E.j Fstimated

ANNEX 1Page 3

Phosphoric acid is produced in two plants, 25 TPD and 100 TPD

P205, both of which are very small by current design standards, but use

conventional and competitive technology. The operating level of theseplants has been low due to corrosion, mechanical problems, lack of - partlyimported - raw materials, and low operating levels of other plants.

Ammonium phosphate is produced in three granulation plants, allconsiderably smaller than modern economic units. Their low operating per-formance has been attributable to mechanical problems and non-availabilityof intermediate feed materials from other units. When other units operate

satisfactorily, the ammonium phosphate plants should also operate at reason-

ably high capacity.

Ammonium sulfate is produced in two different processes. One unituses ammonia and sulfuric acid and produces product by direct neutralization.This plant consumes sulfur which is imported. The other plant utilizes as

its source of sulfur by-product gypsum, or calcium sulfate, from the phos-phoric acid plant. It was designed by FACT, has a much higher capital in-

vestment than normal but produces ammonium sulfate at a lower cost sinceraw material costs are lower. The process is basically sound, although it

has operated at low efficiency and equipment size is small.

Single-super phosphate has been produced by FACT since initialoperation of the company in a conventional process of reacting phosphaterock with sulfuric acid. The unit is typical of super phosphate factoriesthroughout the fertilizer industry. FACT operates the plant when raw mater-

ials are available. The projected production of 20% in 1971/72 is due toshortage of phosphate rock grinding capacity which will be corrected in1972/73.

FACT also produces minor quantities of other chemicals at UDLincluding ammonium chloride, oleum (concentrated sulfuric acid), and sulfurdioxide.

B. FACT Engine and Design Organisation (FEDO)

FEDO, the Engineering Division of FACT which was established in1965, carries out engineering and construction work in the chemical indus-

try based on licensed processes and their own know-how. The FEDO personnel

are competent but the organization's depth in engineering staff is lacking.FEDO, with a total technical staff of about 240, handles all of the expan-

sion of FACT as well as outside work. They are currently building a 100,000TPY sulfuric acid plant in Trivandrum, a 115,000 TPY phosphoric acid plantfor FCI at Sindri, and the Cochin I project.

In addition to Cochin II FEDO has bid on other projects. It ispossible that FEDO could overextend its staff capabilities if too muchadditional work is accepted. FACT is aware of this potential problem andhas agreed to consult with IDA before further major contracts are accepted

during engineering of Cochin II.

ANNEX 1Page 4

On previous jobs, particularly Cochin I, FEDO has not handledprocurement and project delays very, well. It is difficult to assess fullythe 1-1/2-year delay at Cochin I but FEDO could have improved the scheduleby making a concerted effort to minimize delays by replacing orders, changingspecifications or expediting shipments. Part of these delays were caused byimport licensing or other procurement limitations outside FEDO's control;nevertheless, to a major extent the delays are indicative of poor managementcontrol. FEDO should concentrate cn project schedule and effective use ofthe project's critical path schedule. The Project Manager should be dele-gated sufficient authority to identify potential delays early and undertakecorrective action.

FEDO has experience with each of the process units being consideredfor Cochin II, although the only other large project they have managed hasbeen Cochin I. IDA considers FFDO capable, but considering the project'ssize and their lack of depth in technical staff, several experienced person-nel will be added to FEDO's organization to assist in the execution of theproject.

C. FACT Engineering Works (FEW)

FEW is a small equipment fabrication division that manufactures forFACT and other firms. FEW will not bid on any major equipment for Cochin II.

D. Cochin Division

The Cochin complex is located about 20 km from Udyogamandal. Co-chin I is a 200,000 TPY ammonia and 330,000 TPY urea project estimated tocost about Rs 538 million ($72 million) including initial working capital,interest during construction and market development expenses. This projectis being financed by Rs 126 million ($16.7 million) in Italian supplier cre-dits and Rs 175 million ($23.3 million) in equity from GOI and Rs 237 million($31.7 million) in loan from GOI. GOI has agreed to increase the equity por-tion of the Cochin I project cost to 50% to improve FACT's financial position.This adjustment in equity will be accomplished by the completion of the CochinII project. IDA's financial projections for the company (Annexes 18 and 20)assume this equity ratio will be achieved by profits from UDL and Cochin I.However, if insufficient profits are earned then the equity will be adjustedby the form of new funds coming into the company or by restructuring the com-pany's debt. The plant is based on naphtha from the adjacent refinery at aprice of Rs 110/ton ($15 per ton). The refinery is expanding its crude oilcapacity from 2.5 to 3.3 million TPY.

FEDO is the managing contractor and also engineered the ammoniasynthesis gas preparation unit based on ICI-Power Gas design. The ammoniasynthesis plant and the urea plant are being supplied by FCI and Montecatini.The plant is expected to be completed in May 1971 and begin production in,idid-1971.

ANNEX 1Page 5

'rhe Montecatini ammonia design has not been proven in this sizeplant and the ammonia/urea plant may have difficulty in coming on stream eventhough a substantial number of expatriate personnel are being used for con-struction and start-up. The operating factors assumed in preparing the finan-cial forecast for Cochin I are: 50% of design capacity in 1971-72 (9 months);75% in 1972/73 and 90% in 1973/74 and thereafter. On completion, Cochin IIwill be transferred to this division.

E. Mark eting Division

FACT's Marketing Division is responsible for al,l fertilizer salesfrom UJdyogamandal, outside purchases including seeding materials, and thefuture sales of Cochin. Fertilizer research and market promotion are alsohandled by this division. FACT markets only in South India.

F. Udyo .mandal Rationalization Program

The operating and profit performance of UDL Division has been verypoor for the past few years. The IDA mission that assessed the company'sperformance in 1969 found major problems in the following areas:

1) Power supply2) Phosphate operations3) Ammonia operations4) Maintenance5) Small process units6) Management

As a result of the mission, FFDO and FACT prepared a comprehensive -programfor rationalizing or debottlenecking the UDL operation. A list of the majorprojects to be undertaken together with their completion schedule is givenon the following page. Total expenditures of the program are about Rs 7.7million ($1.0 million) including about Rs 1.0 million ($130,000) in foreignexchange. These costs do not include most of the local construction costswhich are being absorbed in UDL's maintenance budget.

ANNEX 1Page 6

UDL DIV1SION

MAJOR PROJECTS

FOR RATIONALIZATION PROGRAM

Atem Total Cost Foreign EstimatedCost Completion

Rs 1,000 Rs 1,000 Date

1) Power Supply - - 4/71

2) Plant Maintenance & Instrumentation - -

3) NH3 Plant

a) PumP Turbinie 500 500 4/72

b) Carbon Recycle System - - 6/71

c) Oxygen Pump maintenance budget 12/70

4) Sulfuric Acid Plant

a) Air Blower (Chemiebau plant) 80 70 2/72

b) Absorption & Drying System(Chemiebau plant) 2,350 120 4/72

c) Acid Storage 250 - 6/7:1

3) Phosphoric Acid Plant

a) Elevator 150 12/71

b) Grinding 141ll 2,000 6/72

c) Reactor Tank 1,ltOO 130 12/71

it) Ammonium Sulfate Plant

a) Gypsum Thickener 750 - 6/171

b) Filter Cloth (Imported) maintenance budget -

5) Ammonium Phosphate

a) Reconditioning maintenance budget 7/71

6) lAmmonium Chloride

a) Centrifuge 220 200 6/72

b) Vacuurm fluiq. purchased 1/71

'T("PAL, 1,700 1,020

ANNEX 1Page 7

The Government has given its approval for the program and portionshave already been implemented. Items requiring foreign equipment and materialare being discussed with GOI and some import licenses have been issued. Therationalization program represents a major step towards profitable operationof UDL and it is expected to be substantially completed by the end of FiscalYear 1971/72.

Power is supplied from the Kalamassery power station of the KeralaState Electricity Board (KSEB). Power distribution in Kerala has been ex-periencing many interruptions and voltage dips. The principal causes areinadequate protection from lightning. The UDL division, and specificallythe armonia and oxygen plants, is sensitive to power variations. The planthas a small auxiliary power generation unit, but it would be prohibitivelycostly for UDL to generate all its power requirements. The recent historyof power interruption as UDL is shown below:

Power Interr2uionsVoltage Plant Shutdo,wns

Failures Dips Total Ammonia Oxygen

1969/70(12 months) 11 100 111 37 17

1970/71 /1(8 months) 12- 63 75 29 20

1969Sept. to Nov.(3 months) - - 53 - -

197()Sept. to Nov.(3 months) - - 33 - -

/1 6 are attributed to labor strike at KSEB.

Some slight improvement is indicated due to changes already implemented byFACT and KSEB. However, it will be late 1971 before any substantial improve-ment in power supply can be expected. The problem of power supply in Keralawas evaluated in 1969 by an Indian study commission and specific recommenda-tions were made for both KSEB and the FACT/UDL electrical systems. The recom-mendpd changes in the FACT power system were:

1. Independent power supply to control circuits.2. Independent power supply to excitation motor-generator sets.3. Automatic voltage regulators for synchronous motors.4. Time lag relays for synchronous motors.5. Time lag under-voltage relays for induction motors.

ANNEX 1Page 8

The recommended changes in the KSEl3 power system were:

1. Operation of 110 KV bus at Kalamassery as an integrate(d bus.2. Carrier inter-trip facility on all inter-connecting feeders.3. Single pole opening and reclosing facilities for all feeder

circuit breakers.4. Automatic recording of power interruptions and voltage dips.

KSEB has completed some of the changes listed, and is now waiting for importedcomponents to complete the other improvements. FACT has installed time delayrelays as recommended on some motors but apparently not all. These relayscan correct for most short power dips, but FACT states that further improve-ments to their internal electrical system cannot be done until after KSEB hascompleted its changes. It is difficult to assess whether the recommendedchanges will completely solve the power distribution problems or if morefundamental and costly improvements are needed. The ammonia plants at UDLare heavily dependent on continuous power supply for efficient operationand power dips and interruptions have previously shut them down for 12-24hours at a time. In addition to the electrical changes, FACT is presentlymodifying their oxygen supply system so that most power fluctuations willnot bring down the ammonia plant completely. Other equipment modificationsshould permit the ammonia plants to attain steady production by mid-1971.

From about 1967 to 1970, the phosphoric acid plant operated pri-marily on rock which had a high chloride content and is very corrosive inphosphoric acid plants. The corrosive nature of this rock is well-knownthroughout the world phosphate industry. The phosphoric acid plant hasbeen severely corroded and, as a result, experienced long down times. Ifthe phosphoric acid plant is not working then the downstream ammonium phos-phate and ammonium sulfate plants cannot operate. In addition, the ammoniumsulfate plant is affected by the quality of gypsum it receives when thephosphoric acid plant does operate. The percentage down time due to theinferior rock supply is not known, but it obviously was high. Nor was itpossible to determine who initially ordered the rock, how quickly the causeof corrosion was discovered, nor how effectively FACT tried to circumventits use. The mechanical changes in the phosphate plant such as rock grind-ing mill, new reactor, and the ground rock elevator should permit the phos-phate plants to operate at close to design capacity.

The poor maintenance and operating control was noted in the earlierBank mission. FACT has set up a system for improving maintenance, and areconsulting with an instrument firm on instrumentation. Also, FACT and G0Ihave agreed to employ three experienced fertilizer plant operators for 6-12months to assist in the UD)L divisicin operations. Negotiations are now und(er-arv with Wellman Power Gas to supply these engineers. The function of these

engineers would be to work with FA(T on maintenance, instrumentation, operation[ln(i cost control.

ANNEX 1Page 9

The multiplicity of small units at UDL is inherent in the age andgrowth pattern of FACT. These small plants are less efficient than modern,single-train plants. T{owever, with good management control and completionof the rationalization program, the plants can operate at a high rate andreduce production costs substantially below their existing levels.

Industrial Projects DepartmentApril 1971

FACT

Historical Income Statements

For Fiscal Years Ending March 31

(Thousands of Metric Tons)

Sales Volume 1966 1967 1968 1969 1970 1971

From Own Production (ex NPK Mixtures) (EstiMa e)

Ammonium Sulfate 32.6 64.7 55.9 82.3 76.8 106Ammonium Phosphate 13.9 32.2 48.7 56.9 66.7 60Ammonium Chloride 4.2 3.2 4.8 6.6 8.3 9Super Phosphate 34.7 34.o 20.2 17.0 20.2 18Others 10.7 14.7 29.5 10.3 6.3 10

Total 96.1 148.8 159.1 173.1 178.3 203

Mixed Fertilizers & Urea SeedingNPK Mixtures* 58.7 74.8 108.8 113.5 97.2 108Urea _ 7.9 30.2 87.6 170

Total 58.7 74.8 116.7 143.7 184.8 278

Grand Total 154.8 223.6 275.8 316.8 363.1 481

Income (Millions of Rupees)

Total Sales 514 82 132 192 261 315Sales From Own Production 1 m m 3Cost of Sales** 23 :;3 100 112 111Depreciation 6 10 12 12 16 16Selling & Administration Expense 2 3 6 9Operating Costs 31 223 7136Operating Profit (Loss) T ) :? 3 ) )Non-Operating Income 2 5 2 7 2

Gross Profit 211 6 10 1) 7)Interest on Long Term Loans 3) (6) (7) (6)Net Profit Before Taxes 7 ) 4 3 19) T1-0)Taxes _ _ _ _ -

Net Profit (Loss) (7) 4 3 (1)9 (10)

* Including ingredients from own production** Excluding cost of purchased fertilizers

Note: The company has reorganized the historical income statements to be consistent with the forecastedstatements, which show net sales (from operations) at ex-factory prices. Net sales exclude fertilizer

bought and sold (with the trading profit shown in other income), as well as distribution and sellingcosts passed on to the purchaser. These other fertilizer sales, urea and fertilizer mixes, have

increased steadily from about Rs 29 million in FY 1966 to an estimated Rs 227 million in FY 1971.However, profits from these trading operations are small and do not appreciably affect the company's

financial results.

Industrial Projects DepartmentApril 1971

Annex 3

FACT

Historical Balance Sheets

Fiscal Years 1nded March 31

(Millions of Rupees)

ASSETS 1966 1967 1968 1969 1970 1971stimate

Current Assets

Cash 3 4 7 50 31 34Accounts Receivable 12 27 54 59 73 60Inventories

Raw Materials 10 18 50 4444 40Goods in Prmcess 1 3 3 4 9 5Finished Products 5 23 33 41 29 20Supplies and Spares 23 23 30 34 30 30

Total Inventories 39 67 116 123 112 95

Total Current Assets 54 9B 177 232 216 189

Fixed Assets 108 231 246 264 283 310

Less Depreciation 46 56 69 82 100 116Net Fixed Assets 62 175 177 182 183 194

Expansion Projects 110 32 80 317 415 490

Investments 4 4 4 4 4 4

Deferred _xperses - - - 4 8 12

Other Assets 2 -

Total Assets 230 309 438 741 826 889

LIABILITIES AND CAPITAL

Current Liabilities

Accounts Payable and Accrued Expenses 24 49 80 80 131 70Short Term Debt 31 51 68 77 48 113Current Maturities of Long Term Debt 2 5 12 25 39 50Past Du Debt* - - 3 19 56 81Other Current Liabilities 2 4 3 4 3 4

Total 59 109 166 205 277 318

Long Term Debt

IFCI 22 20 17 15 13 11GOI 80 109 195 289 327 357Italian Suppliers _ - - 126 126 113

Total 102 129 212 430 466 481

Less Current and Past Due Maturities (2) (5) (15) (38) (75) (110)

Net 100 124 197 392 391 371

daquity

Share Capital 75 75 75 141 174 226Reserves 8761 Surplus (Deficit) (12) (6) 6 (1) 2 2

Total 71 76 75 144 158 200

Total Liabilities and Capital 230 309 438 741 826 889

Current Ratio .9:1 .9:1 1.1:1 1.1:1 .8:1 .6:1

Net Long Tenn Debt/Equity Ratio 58/42 62/38 72/28 73/27 71/29 65/35

* Principal and interest on GOI Loans

Industrial Projects DepartmentApril 1971

Anrnex 3

Page 2

FACT

COCHIN II PROJECT

POSITION OF LOANS OUT3TANDING AS OF MARCH 31, 1971

SOURCE AMOUNT RATE OF GUARANTEE PENAL INTEREST TERMS OF PAiYMNTINTEREST

(millionsof Rupees)

1. Government of India Loans*

a) UDL Third Stage 78.8 6% Nil 8k% in case of default In 9 equal annual installments comsencingof repayment of principal from 5 years after date of drawal or 2 yearsand interest after commencing production. Annual install-

ment Rs 10 sillion.

b) UDL Fourth Stage 50.0 7% NiL 9½f% in case of default of In 10 equal annual installments commencingprincipal and interest from the third year after date of drawal.repayment Annual installment Rs 5 million.

c) Cochin I Project 215.4 7% Ni-L 94% in case of default of In 10 equal annual installments commencingprincipal and interest from the third year after date of drawal.repayment Annual installment Rs 21.5 mdllion.

d) Ways and Means 12.5 6% Ni: 2k4% in case of default of Due on August 2, 1969, which was extendedprincipal and intereat later.repayment

2. Industrial Finance Corporation 11.2 4%-6% Guaranteed by A sum of Rs 2.13 million repayable everyof India Central Gov't. year up to FY 72 and Rs 1.83 million up

to FY 76 and last installmnt of Rs 1.74million in FT 77.

3. Italian Credit: Cochin I 11.1 6% Guaranteed by Repayment due on 14 March and 14 SeptemberState Iank from 1970 to 1979. Annual installmentof India and Rs 1.30 million.co-nter guaran-teed by Gov't.of Indi.a to StateBank of India

101.8 5.75% Guaranteed by Repayment due on 15 December 1970 to 1979.State Bank Annual installment Rs 11.30 million.of India and

480. 8 counter guaran-teed by Iov't.of India to StateBanbk cf India

* Arrears of installments of Governmen; Loans (millions of rupees)

PCL Third Stage 33.1UDL Fourth Stage 2.8Cochin I project 11.7Ways and Means 12.5

Interest 21.3

Total Past Due 81.4

n-iustrial Pmoje-to 3ep rtmentApril 1971

ANNEX '

PRODUCTION SCHEDULEAND SALES PRICE

COCHIN II PROJECT

DESIGN NORMAL SALES PRICEPRODUCTION PRODUCTIONJ EX-FACTORY RETAIL

PRODUCTION TPY TPY Rs/ton Rs/ton

17-17-17 121,250 109,000 860 1,010

28-28-0 72,750 65,500 1,036 1,186

14-28-14 97,000 87,500 967 1,117

18-36-0 72,750 65,500 1,000 1,150

24-12-12 72,750 65,5oo 829 979

11-22-22 48.,500 43,500 910 1,060

AVG.(18.7-23.4-11.1) 485,OOO 436,500 928 1,078

Cryolite 7,500 6,750 2,250 2,400

1/ Normal production capacity is assumed at 90% of design.

Industrial Projects DepartmentMarch 12, 1971

ANNEX 4Page 2

Product Grades

The product grades recommended for production in Cochin II containsix different grades of NP and NPK complex fertilizers in the following nu-trient ratios, with percentages to total volume of complex fertilizers:

N :P :K1 : 1 1 25%1 : 1 0 15%1 2 : 1 20%1 : 2 0 15%2 1 1 15%1 : 2 2 10%

These ratios represent the accepted pattern for different crops inthe marketing area of the company and the relative quantities taken into con-sideration in cropping pattern and areas under major crops. The grades andtonnages can be adjusted to meet changing market preferences. The proposedplant design is flexible, depending on the availability of raw materials,and it is possible to make grades with nutrient ratios other than those indi-

cated above.

The existing product mix (including the Cochin I production) indi-cates an imbalance in the combination of nitrogen, phosphate and potash. Theexisting product mix offers a poor NPK ratio of 12:2:1. The proposed capaci-ties of Cochin II will improve this position to an NPK ratio of 6:3:1. Suchan improved NPK ratio is advisable, both from the requirement of providingbalanced fertilizer nutrient to the soil and marketing requirements of pro-

viding a balanced product mix for easy market acceptability.

The fertilizer consumption trend in FACT's marketing area indicate

a definite trend towards urea, ammonium sulphate, NP and NPK complexes. TheNPK ratios and grades included in the product mix are in line with the ferti-lizer recommendations for different crops in the marketing area. The popularratios of NPK recommended for the various crops in the area are 1:1:1, 1:2:1,2:1:1 and 1:2:2. For potash rich soils, NP ratios of 1:1:0 and 1:2:0 are

generally recommended. Hence all these are included in the product mix.Since many of the important crops in this area require an NPK ratio of 1:1:1for basal application, a higher production is proposed for this ratio. Theratio of 1:2:1 is taken as next in importance as this is generally recommendedfor local varieties of paddy. The ratio fo 2:1:1 is preferred for crops inareas without assured irrigation and where all the NPK required by the crops

are to be given in one basal application. The ratio 1:2:2 will cater to the

requirements of some specific crops like groundnut, vegetables, etc. The NPratios of 1:1:0 and 1:2:0 are :Lncluded for meeting the requirements of those

parts of the marketing area where soil is rich in potash. An analysis of NPKmixture grades recommended for crops and their consumption in the marketingarea will show that these NPK ratios are the most popular ones. The product

mix also gives the maximum possible concentration of NPK in the various ratiosand, therefore, will offer economies in handling, storage and application

costs. The product mix offered for production in Cochin II will satisfy mar-keting requirements and crop requirements of the area.

ANNEX 5

TECHIICAL DESCRIPTION

COCHIN II PROJECT

A. Production Facilities

The production facilities consist of four major process plantsand their associated services and offsites. The process plants are:

1) Sulfuric acid plant2) Phosphoric acid plant3) Complex fertilizer granulation plant4) Cryolite plant

Sulfuric acid will be produced in a 33n,nn TTrY single stream plant,based on elemental sulfur. FEDO has an arrangement with Chemiebau Dr. A.Zicren Gmbll of West Germany, for design and engineering of sulfuric acidplants in India. The process know-how will be supplied by Chemiebau andthe detailed engineering, procurement and erection will be undertaken byFEDO.

Sulfuric acid is produced by melting sulfur and burning it in thepresence of controlled quantities of air. The combustion air is first driedin a drying tower by contact with 94% sulfuric acid. The gases, at 900%C,are cooled to about 400°C in a waste heat boiler. The gases, which contain8% So, are then passed through beds of vanadium pentoxide catalyst, to con-vert {he sulfur dioxide (SO2) to sulfur trioxide (SO ). The heat evolved isalso recovered through heat exchangers. The SO is absorbed in 98% sulfuricacid and product acid is drawn off from the circulating stream and cooled.A part of the 98% sulfuric acid is recycled to the drying tower, taking backportion of the 94% acid in the drying system, and adding water as required.The gases, after absorption of SO3, are vented to the atmosphere through astack.

Phosphoric acid will be produced in a single stream plant, of115,000 Tl'Y P 0 size. The plant, based on the Central Prayon Process, willgive a produc? acid containing about 35% P 20 , with a high recovery efficien-cy. FEDO has an agreement with The EngineerKng and Industrial Corporation(I'rayon) of Luxembourg, for building phosphoric acid plants. Prayon willprovide the process know-how and FEDO will do the detailed engineering, anderection.

Phosphoric acid is produced by reacting phosphate rock and sulfuricacid. Thic phosphate rock is ground to the required fineness and then reactedwith the phospho-sulfuric acid from the hemihydrate section, and the re-cyclecl dihydrate slurry, in the attack tank. A portion of the 98% sulfuricacid is also added and conditions are controlled to precipitate the calcitimsulfate as dihydrate. A portion of the slurry from the attack tank is re-cycled through an evaporator-cooler, to remove excess heat and water. The

ANNEX 5Page 2

slurry from the attack tank is fed to centrifuges and is further clarifiedby settling and taken otlt as product acid containing about 35% P 0 . Theslurry from the centrifuges is sent to the hemihydrate tanks. The5conversionof dihydrate into hemihydrate is the key step, which differentiates thisprocess from the dihydrate process and improves recovery. The slurry con-taining dihydrate and phosphoric acidl reacts with the balance of sulfuricacid, at a higher temperature, in the hemihydrate section. The calcium sul-fate dehydrate is converted into the hemihydrate form and then filtered,using conventional filters. The filtrate, phospho-sulfuric acid, is returnedto the attack tank. A portion of the centrifuged phosphoric acid is con-centrated in forced circulation evaporators to 54% P 0 to meet the needsof the NPK granulation plants. 2 5

Complex Fertilizer (NPK) will be produced in a plant with twoidentical streams with a total capacity of 485,000 TPY. FEDO has an agree-ment with Wellman-Power Gas Inc. of the U.S. to supply the basic engineeringknow-how. FEDO will complete the design and erection with substantial as-sistance from Wellman-Power Gas. Complex fertilizers are produced by reactingplhosphoric acid with ammonia and blending in the required amounts of ureaand potash. Phosphoric acid is neutralized with ammonia in a 2-stagereactor. Vapors from the reactor corntain free ammonia, which is recoveredby scrubbing with phosphoric acid, and the scrubbed gases are dischargedto the atmosphere. A drum type ammoniator-granulator will be used for gran-ulation. The slurry from the neutralizer is further ammoniated in the gran-ulator and mixed with recycled product, urea and potash. Vapors from thegranulator are fed into a fume scrubber, where ammonia is recovered byscrubbing. The product from the grarulator is then dried, screened, andcooled. A portion is recycled to the granulation step and a portion isremoved as product. The dryer and cooler will be handling dry solidmaterials which creates dust. The gases from this equipment are passedthrough cyclone separators, to remove a large portion of the dust and thenare scrubbed with a circulating stream of acid to remove the remaining dust.The dust is recycled back to the process, thus, loss of material is minimized.

The product, from the bulk storage, is delivered to the baggingplant where it is filled into 50 kg. polyethylene woven sacks or polyethy-lene-lined bags through automatic weighing machines, stitched and dispatchedeither to the bagged product storage or directly to the platform to be loadedinto wagons.

Cryolite is produced from the fluorine recovered from the phos-phoric acid plant. A portion of the liquor in the fluorine scrubbing systemis pumped to the cryolite plant. This liquor, a 15-20% solution of hydro-fluosilicic acid, is filtered and treated with sodium chloride to precipi-tate sodium fluosilicate. The precipitate is slurried with water and thenammoniated under controlled conditions to precipitate silica, which is fil-tered off. The resulting solution of ammonium and sodium fluorides is reactedwith aluminum sulfate solution (prepared from sulfuric acid and hydrated

ANNEX 5

Page 3

alumina) precipitating trisodium aluminum hexafluoride (cryolite) and ammo-nium aluminum hexafluoride. The latter is then converted to cryolite byreacting it with sodium chloride solution. Cryolite is then filtered,washed, dried and bagged. The proposed plant will produce 25 TPD of cryo-lite.

B. Offsites and Services

Imported raw materials required for the project are:

Rock Phosphate 347,000 TPYSulfur 110,000 TPYPotash 91,000 TPYAmmonia 57,000 TPY

The above materials will come by ship to Cochin port, where faci-lities are planned to unload and transport them to site as part of the pro-posed project. Urea required for the project will be available from theadjacent Cochin I Project and will be moved from urea silos to the NPKgranulation plant by a conveyor. Other materials such as filler, coatingagent, hydrated alumina, sodium chloride, soda ash, are available locallyand can be moved to the factory by road using transport contractors.

Cochin port authorities have agreed to allot one wharf in the har-bor for unloading and handling imported raw materials and have agreed toprovide a mooring berth for over-side deliveries. Where raw material isunloaded onto the wharf, there is sufficient area for building storages andplacing of unloading equipment. When the material is unloaded over-sideusing ship's equipment the raw material will move directly by barge fromthe ship to the site.

Solid raw materials will be unloaded at the berth using two mobilegrab cranes of 200-ton/hour capacity. Phosphate rock and sulfur will beunloaded into overhead concrete silos, each of 2,500-ton capacity, the totalstorage being 10,000 tons. From these silos, materials can be loaded di-rectly into rail wagons or into barges and moved to the site. Potash willbe unloaded into a 4000-ton storage from which it can be loaded on railwagons. The railways have agreed to place 55-ton box type wagons on aclosed circuit for the movement of raw materials to the site. The materialswill be moved to storage through covered conveyors and then to consumingplants by conveyors and elevators. Where material is moved by barges, theywill be handled by grabs and moved to storage through conveyors.

Ammonia will be received in refrigerated tankers and pumped intoan atmospheric pressure refrigerated storage tank of 10,000-ton capacity tobe constructed near the unloading berth. Ammonia will move from port tosite in 28-ton rail tank wagons and be stored in a 1,500-ton Hortonsphere.The Indian Railways have agreed to provide chassis for the wagons on whichtanks will be placed by FACT, these being built to specifications given bythe railways.

ANNEX 5Page 4

The present proposal is based on rail transport of all major rawmaterials taking a comparatively less economical alternative. The Governmentof India has agreed to improvements to a canal connecting the port with thesite. The State Government has assured FACT that the improvements can becompleted in 24 months, i.e. it will be ready for use for the movement ofmaterial from port to site. With the alternatives of overside delivery from

ship to barge and the availability of arrangements for loading from berth-storage direct to the barges, it will be more economical to move the materialby river. However, as details are still under negotiations, the economicsof the project have been worked out on the costlier alternative of transportby rail.

Power requirements for Cochin II are 17 MW which will be providedtlhrough two 110 KV feeders from the Kalamassery Station of KSEB. Each linecan handle the full load of Cochin I and II. (Cochin I requires 25 MW).The electrical drives in Cochin IT will be designed to handle voltage dipsthat plague industrial facilities in Kerala. Cochin I has a 14 MW generatorthat has excess emergency capacity and FEDO has included another small dieselgenerator in Cochin II. These electrical facilities can keep critical unitsof Cochin II operating during a power interruption. Although production willbe stopped by a power interruption, the units can be quickly brought backon stream. The Kerala State Electricity Board has indicated that power willbe made available to the project and the power tariffs applicable to non-power-intensive, bulk consumers will apply to this project. This rate iscurrently Rs. 220/KVAY and with existing surcharges is equal to about 4 paiseper KWH.

Steam requirements of the project will be supplied by the wasteheat boiler in the sulfuric acid plant and supplemented by a 50-TPH steamgeneration plant. (Four package boilers of 12.5 TPM capacity). Totalsteam required for the project will be 2,500 TPD of which 1,300 TPD willbe provided by the sulfuric acid plant.

Water for the project will be available from the artificial reser-voir built for Cochin I. The reservoir, with a capacity of 1,050 milliongallons is fed by the two monsoons. In dry months, a State Irrigation Canalfeeds water into the reservoir through a channel capable of carrying 46 mil-lion gallons per day. The total water requirement has been indicated to theKerala State Public Works Department to determine a suitable filling scheduleduring the dry months. This matter is now being considered by the PublicWorks Department. The total water requirement for the present project willbe 4.3 million gallons per day and a provision to increase the present capa-city of the reservoir has been included.

Fuel Oil will be available from the nearby Cochin refinery. About150 tons a day will be required for the project.

ANNEX 5,Page 5

C. Pollution Control

Several effluent streams from the Cochin II factory will be poten-tial pollution problems. The proposed project design controls these effluentstreams within normal industrial practice. The principal effluents arefluorine, sulfur oxides and dust. It is understood from FACT that thereare no legal requirments now in force in Kerala for the control of thesematerials.

The sulfuric acid plant burns sulfur and then recovers the result-ing sulfur oxide by absorption. The efficiency is a minimum of 98'% recoverywith the balance of sulfur oxides being exhausted to the atmosphere; repre-senting about 290 kg/hour of sulfur. This efficiency is typical of mostmodern commercial sulfuric acid designs. The efficiency could be increasedby adding more absorption equipment but it is not considered necessary byFACT nor the IDA staff.

The fluorine effluents are a result of the 3-4% fluorine containedin phosphate rock that is liberated during processing. The exhaust gasesfrom the phosphoric acid plant are scrubbed with water and the gases thatare vented to the atmosphere contain about 50 kg/day of fluorine. This levelrepresents a high scrubbing efficiency and should be acceptable. Most ofthe recovered fluorine is converted into cryolite. The NPK plant liberatesfluorine as it processes phosphoric acid. These gases are also scrubbed andeach plant discharges a maximum of 50 kg/day of fluorine to the atmosphere.

The NPK plant discharges small amounts of ammonia and dust, butthese materials are substantially completely removed by scrubbing.

Both the phosphoric acid plant and the NPK plant discharge largevolumes of water that are contaminated with fluorine. FACT has designed asystem that neutralizes any overflow from the water system to the river.The overflow still contains about 150 kg/hour fluorine (as calcium fluosili-cate). This amount should not be harmful and corresponds to normal commer-cial practice in plants in the U.S. The system can easily be modified ata later date if more stringent fluorine controls are required.

The phosphoric acid plant also discharges about 1,700 tons/day ofgypsum, a solid waste. The gypsum will be stored in a diked area and con-verted to land fill as normally practiced in the industry. FACT later pro-poses to convert a portion to ammonium sulfate and sell the resulting cal-cium carbonate to cement factories.

Industrial Projects DepartmentApril 1971

FACT

SUMMARY OF CAPITAL COSTS(in Millions)-

COCHIN II PROJECT

Indian Rupees U.S. DollarsLocal Foreign Total Local Foreign Total

Currency Currency Cost Currency Currency Cost

Equipment and Materials 48.0 76.6 124.6 6.4 10.2 16.6Freight, Handling and Insurance 2.3 3.1 5.4 0.3 0.4 0.7Duty, Sales Tax 20.2 - 20.2 2.7 - 2.7Design, Engineering and Procurement 12.4 7.4 19.8 1.6 1.0 2.6Erection and Cormissioning 27.0 2.5 29.5 3.7 0.3 4.0Civil Wbrks 60.2 - 60.2 8.0 - 8.0Land and Development 7.2 _ 7.2 1.0 _ 1.0Office Buildings, Furniture 0.9 - 0.9 0.1 - 0.1Pre-operating Expense 8.8 0.5 9.3 1.2 0.1 1.3Technical Assistance - 3.9 3.9 - 0.5 0.5

9hb-Total 187.0 94.0 281.0 25.0 12.5 37.5

Working Capital 12.0 38.0 50.0 1.6 5.1 6.7Contingency 13.0 15.0 28.0 1.7 2.0 3.7

Total Project Costs 212.0 147.0 359.0 28.3 19.6 47.9

Interest during Construction 21.0 21.0 2.8 _ 2.8

Total Financing Required 233.0 147.0 380.0 31.1 19.6 50.!

Industrial Projects DepartmentMarch 12, 1971

ANNEX 6Page 2

USE OF IDA CREDIT

$ Million

1. Equipment 15.22. Equipment (for foreign components of "reserved list") 0.53. Engineering and Equipment Erection

(a) Licensors 1.3(b) FEDO 0.5

4. Technical Assistance 0.55. Unallocated 2.0

Total 20.0

Note: Category 3(a) above represents the foreign exchange costs of thedesign packages from the process licensors. The funds for additionalconsultants services described in Paragraph 5.02 are covered in Cate-gory 4 above. Category 3(b) represents local currency financing fora portion of FEDO's engineering and equipment erections costs whichtotal $5.3 million (see Annex 6, page 1). If the proposed IDA creditis not used in other categories or cancelled for any reason then theunallocated or unused funds would be shifted to this category.

PROJECTED DISBURSEMENTS OF IDA CREDIT(in US$ millions)

Jan.-Mar. Apr.-June July-Sept. Oct.-Dec. Total

1971 - - 0.3 0.4 0.71972 1.8 2.9 0.4 0.4 5.51973 3.2 3.2 3.2 0.4 10.01974 0.7 0.7 1.2 1.2 3.R

20.0

Industrial Projects DepartmentApril 1971

ANNEX 7

FACT

Working Capital Requirements at kmual Production of 436,500 Tons

Cochin Phase II Project

AmountRs Milli: o-

1. Accounts Receivable

a) 100,000 tons NPK ORs 928/ton 92.8b) 500 tons Cryolite @Rs 2,250/ton 1.1

2. Raw Materials

a) Phosphate Rock, 78,000 tons @Rs 245/ton 19.1b) Sulfur, 25,000 tons ORs 290/ton 7.3c) Potash, 21,000 tons ORs 423/ton 8.9d) Ammonia, 4,300 tons ORs 485/ton 2.1e) Urea, 8,000 tons @Rs 620/ton 5.0f) Other Chemicals 1.4

3. Operating Supplies

a) Bags, 2 mos. suppl;y 2.9b) Operating Supplies and Consumables .6a) Spare Parts 8.3

4. Goods in Process 3.7

5. Product Storage (2 mos.)

a) 72,750 tons NPK ORs 700/ton 50.9b) 1,350 tons Cryolite ORs 1,400/ton 1.9

206.6

6. Cash Balance 3.0

7. Total Working Capital 209.0

8. Initial Working Capital 50.o

9. Foreign Exchange Requirement (Total) 38.0

Industrial Projects DepartmentMarch 12, 1971

INDIA ANNEX 8FORECAST OF NITROGENT PRODUCTION(thousands of metric tons per year)

Design (1)EXISTING FACILITIES Capacity FY 70' FT 71 FY 72 FY 73 FY 74 FY 75 FY 76 F'Y 77 FY 78 FY 79Public Secto 1

FACT-UDLTL3) 92 35 35 60 75 80 80 8o 80 80 80FCI-NAMRUP 45 26 30 40 4o LO lo 4o 4o 4o 4oFCI-SINDRI 117 79 75 105 105 105 105 105 105 105 105FCI-NANGAL 80 79 75 77 77 77 77 77 77 77 77FCI-TROMPAY go 44 LO 80 80 80 80 80 80 80 80FCI-GORAKHPUR 80 73 70 73 73 73 73 73 73 73 73FOURFELA 120 30 ho 110 110 110 110 110 110 110 110NETVELI 70 42 - 35 60 60 60 60 60 60 60 60GSFC, DAROEA 216 111 130 200 200 200 200 200 200 200 200OTFER PFRODDUCENS 12 12 12 12 12 12 12 12 12 12 12

SUB "OTAL 922 5312 l 537 o 37 7 5 3 37 37

?MIVATE SECTOR,ORO1M1ANDEL, VIZAG 80 68 60 73 73 73 73 73 73 73 73ICY, YOTA 130 81 100 120 120 120 120 120 120 120 120IEL, 12ANPTR 200 17 120 185 185 185 185 185 185 185 185OTHER 1TWODJCEFS 34 30 30 30 30 30 30 30

SUB TOTAL -=19 6 7 4 00 o 7 1; 408 Aor

TOTAL EXISTING PLANTS 1366 727 852 1225 1240 1245 1245 1245 1245 1245 1245

PROJECTS UJNDE CONSTRUCTIONPublic Sector

FACT-COCFHIN I 152 75 110 140 1LO 140 14o 140 140-'CI-DURBGAPLT 152 75 110 140 14o 14O 14o 140 140FC1-EARAB UI 152 - 75 110 1LO 14o 140 140 140FC I-XTA1BIRTF 152 - 75 110 14o UhO 14O 140 140IAT 'AS 190 95 130 175 175 175 175 175 175

SUIB CC AL 7 4 500 67 735 737* 735 735 735Private-Sector

ZUtARI AGRO-50A 175 - 90 125 160 160 160 160 160

TOTAL UNTrER CONSTRUCTION 973 21 X 59° 0 7 895 °95 R 95 695

FbOBABLE PROJECTS (NEAl? FUTUTE)Public Sector

FACT COCHIN II L!7 25 35 45 45 45FCI-TROMBAY EXP. 132 65 90 120 120 120FCI-GORAKHPUR EXP. 50 25 35 45 45 45FCI-TALCHER 229 - - 115 160 205FCI-RAMAGUNDAM 229 - - 115 160 205FCI-BIALDIA 152 - 75 110 140 140FCI-TTANGAL EXP. 152 - 75 110 i4o 140

SU' TOTAL 991 1 310 600 810 goo

Private sectorIFFCO, KANDLA 215 - 110 150 195 195COPONLANDEL EXP., II 30 - 30 30 30 30SPIC, TUTICORIN 248 - - 125 175 220MIANGA LORE 160 - - 80 110 145

SUB TOTAL 653 3 710 9

TOTAL EROBABLE EROJECTS 1644 115 450 lo45 1320 149o

LONG RANGE PROJECTS

(2)TOTAL _ 200 boo 6oo

GRAND TOTAL 6020 727 °52 1470 1830 2045 2255 2590 3385 3860 '4230

GOT ESTMATE 6020 716 850 1420 1820 2185 31f40 3970 4420 4700 5200

Fiscal Years ending March 31

Public Sector: Korba, Kamiptee, Rajasthan, Mirzapur, ParadeepPrivate Sector: Coromandel, Tata, Hindustan Lever, Dharamsi Morarji

(3)GOI figures are not consistent with FACT's (see Annex 1).

Industrial Projects DepartmentMarch 12, 1971

ANNEX 8Page 2

NITROGEN AND PHOSPIIATE PRODUCTION

ASSUMPTIONS AND COMMENTS

The following comments refer to the forecasts made on nitrogenproduction (Annex 8) and P205 production (Annex 9);

1. Production figures for 1969/70 are actuals and for 1970/71 areprovisional estimates supplied by the Government. While overall totals for1970/71 may be close to the 850,000 tons N and 260,000 tons P2 05 shown, pro-duction for individual plants may vary. Production from existing plantsafter 1971/72 has been estimated at about 90% of design capacity. In re-cent years production in public sector plants has averaged 60-70% of capacityand these estimates may therefore be high. llowever, any overestimate under-states the gap between demand and supply and lends conservatism to the defi-cit. A 90% production estimate for the private sector is considered real-istic based on its operating performance.

2. For projects under construction, production has been assumed at50% of design in the first year, 70% in the second year, and 90% thereafter.Three plants - Cochin I, Durgapur, and Madras - are substantially completedand start-up by summer of 1971 seems probable. The estimated start-up ofBarauni and Namrup is less certain, but it is assumed for spring of 1972.Work at Zuari Agro is on schedule with start-up scheduled for summer of 1972.

3. The 11 projects designated as probable for the near future are invarious stages of negotiation and IDA's assessment of the start-up datesvaries somewhat from GOI estimates. In each case production is assumed at50% first year, 70% second year, and 90% thereafter once production begins.The three projects assumed to be in production in 1974/75 must begin con-struction in 1972. Of these Cochin II should start construction in mid-1971and negotiations appear well-advanced at the Gorakhpur and Trombay plants ofFCI. The project and financing plans for three projects, Nangal Expansion,IFFCO and Haldia, must be completed by early 1972 if the projected 1975/76start-up schedules are to be met. Plans for Coromandel Expansion, SPIC(Tuticorin) and Mangalore are considered less certain and are projected for1976/77 start-up. Two plants in the "probable category" are coal-basedammonia plants with a total capacity of 460,000 TPY N. The technology ofthese plants is not commercially proven and the plants are much larger thanany undertaken by FCI thus far. Start-up has been assumed for 1976/77.

4. A number of other projects have been suggested for the longer-range. The tentative nature of the plans for these projects make forecastshighly unreliable so they have been grouped together with arbitrary aggre-gate production schedules assumed at 10%, 20%, and 30% in 1976/77, 1977/78,and 1978/79 respectively.

5. There is little difference in the aggregate figures betweenIDA's projection of supply and that of the Government in the early years.Beginning in 1974/75, the difference becomes increasingly greater., due to

ANNEX 8Page 3

different forecasts of completion dates for various plants. These fore-casts (Annex 8 and 9) represent IDA's best estimate of the productionthat India can reasonably be expected to achieve. If the 90% capacity util-ization assumption is reduced to 80%, then the production figures will beapproximately 10% less. The project start-up dates assumed could vary eitherway and give an estimated t10% difference in the forecasts.

6. Progress in fertilizer production in India has been disappointing.This is true both for the public sector, where production has been below ex-pectations and where completion of new projects has been delayed, and theprivate sector, where only one plant is currently under construction andonly one plant, IFFCO, seems likely in the near future. If India is to nar-row its supply gap, new projects must be implemented at a much faster pace

than projected. Every effort should also be made to improve productionlevels at existing plants. The deficits forecasted in the Bank estimateindicates the magnitude of the problem India faces in meeting its fertilizer

requirements.

7. Pertinent data on the nitrogen capacity of the public and privatesectors in India are given below:

Public Private Totalcapa- % Capa- % Capa- %

Number city Total Number city Total Number city Totalof 1000's Capa- of 1000's Capa- of 1000's Capa-

Plants TPY city Plants TPY city Plants TPY city

Existing 9 910 69 3 410 31 12 1,320 100Under Con-struction 5 798 82 1 175 18 6 973 100

14 1,708 74 4 585 26 18 2,293 100

Probable 7 991 60 4 653 40 11 1,644 100

21 2,699 69 8 1,238 31 29 3,937 100

8. The present division of nitrogen plants show about 70% of N capac-ity in the public sector. This percentage is likely to be increased over thenext few years as new plants are completed.

9. The high priority for India's self-sufficiency in fertilizer produc-tion suggests that private sector industry should be encouraged as well aspublic sector projects. Given the limited resources of India, the fertilizerindustry should have as broad a base as possible.

ANNEX 8Page 4

10. The public sector projects show increasing reliance on one company,FCI; with 8 plants completed or under construction and another 6 planned forthe near future. The Government should review this situation to determinewhether one company is the most appropriate vehicle for expansion of theindustry.

11. Also critical to India's fertilizer production is its recent de-cision to build extremely large-scale coal-based ammonia plants. Whetherthis is appropriate in India, considering that the technology has not beenproven commercially, should be given thorough study before the projects arecommitted.

12. Foreign exchange financing of fertilizer plants in India in recentyears has come from a variety of sources. The principal one recently hasbeen Italian Credits for the four urea plants now under construction in thepublic sector - Cochin I, Durgapur, Barauni and Namrup. US AID suppliedfunds for Trombay plant of FCI but has not participated in further financingof FCI plants due to problems related to choice of engineering firms. USAID also participated in the Coromandel project in the private sector andassisted the Madras plant now under construction. It is considering financ-ing for the IFFCO project, which may also have finance from the U.K. Govern-ment. Japan has given credits for three Japanese built plants, Gorakhpur,GSFC, Baroda, and Kota. Foreign exchange for Indian Explosives at Kanpurand Zuari Agro was supplied by IFC. In several cases foreign equity sponsorsalso supplied foreign exchange.

Industrial Projects DepartmentApril 1971

ANNEX 9

FORECAST OF P2 05 PRODUCTION

(Thousands of metric tons per year)

DESIGNEXISTING FACILITIES CAPACITY FY 70(1)FY 71 FY 72 FY 73 FY 74 FY 75 FY 76 FY 77 FY 78 FY 79

FACTPLIDL E ' 4o 11 15 26 33 33 33 33 33 33 33FCI-TROMBAY 43 16 16 35 35 35 35 35 35 35 35GSFC, BARODA 50 21 30 45 45 45 45 45 45 45 45SUPERPHOSPHATE FACTORIES 45 14 15 30 30 30 30 30 30 30 30

SUB TOTAL 7 73 17 N

PRIVATE SECTORCOROMANDELi VIZAG 73 64 50 66 66 66 66 66 66 66 66DMCC, BOMBAY 11 4 5 8 8 8 8 8 8 8 8E.I.D. PARRY, ENNORE 10 7 9 9 9 9 9 9 9 9 9SUPERPHOSPHATE FACTORIES 172 85 90 120 120 120 120 120 120 120 120

SUB TOTAL _i TM M M O 0 T w 0 3 w

TOTAL EXISTING FACTORIES 444 222 230 339 346 346 346 346 346 346 346

PROJECTS UNDER CONSTRUCTIONPUBLIC SECTOR

MADRAS 185 40 60 78 78 78 78 78 78FCI.SINDRI 156 75 110 140 140 140 140

SUB TOTAL 24i -7J 6 T

PRIVATE SECTORZUARI ARGO, GOA 45 - 22 32 ho ho 40 40 40

TOTAL 86 40 82 185 228 258 258 258 258

PROBABLE PROJECTS (NEAR FUTURE)P4=UBLC SECTOR

FACT-COCHIN II 115 60 80 105 105 105FCI-TROMBAY EXP 132 65 90 120 120 120ECI-HALDIA 70 - 35 50 63 63KHETRI 100 5° 70 go 90 90

SUB TOTAL I7 50 70 9 9770 90

PRIVATE SECTORIFFCO, KANDLA 127 - 65 90 115 115SPIC, TUTICORIN 70 - - 35 50 63COROMANDEL II, VIZAG 7 - - 7 7 7MANGALORE 90 - -

SUB TOTAL 27 165 177 76w

TOTAL 711 175 340 542 613 643

LONG RANGE PROJECTSTOTAL 1600 160 320 480

GRAND TOTAL 3041 222 230 379 428 531 749 944 1306 1537 1727

GOI ESTIMATE 3000 222 230 422 476 671 1200 1663 2025 2250 2500

1/ Fiscal years ending March 31

2/ GOI figures are not consiatent with FACT's (See Annex 1).

3/ Public Sector: Rajasthan, Paradeep, and others Industrial Projects DepartmerPrivate Sector: Dharamsi Morarji, Occidental, and Coromandel III March 1971

FERTILIZER MARKET: DEMAND FORECAST

SOUTH INDIA!

(thousands of metric tons per year)

1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79N P>O r N P,Oe N PqOK N PnOf N P,Oz N PoCw N P205 N P2 Oc N P2(k' N PoOC

World BankY/Kerala 48 32 58 40 68 49 77 59 85 69 95 77 107 87 119 97 134 109 150 122Mysore 76 29 90 38 107 49 124 62 144 77 161 86 181 97 202 108 227 121 254 136Tamil Nadu 123 50 145 69 168 89 193 111 218 134 244 150 273 168 306 188 343 211 384 236Andhra Pradesh 268 89 326 113 386 141 450 170 515 206 577 231 646 258 724 289 810 324 908 363

Total 515 200 619 260 729 328 844 402 962 486 1,077 544 1,207 610 1,351 682 1,514 765 1,696 857

GOI (Planning Commission) 540 186 - - - - 825 422 - - - - - - - - 1,800 900

FACT 540 186 601 231 667 281 734 333 805 399 912 471 1,033 545 1,174 622 1,332 704 1,502 790

V/ Kerala, Mysore (including Goa), Tamil Nadu (including Pondicherry) and Andhra Pradesh.2/ Figures beyond 1973/74 are projected at 12% growth rate.

Industrial Projects DepartmentMarch 12, 1971

ANNEX 11

FERTILIZER MARKET - SUPPLY FORECAST

SOUTH INfDIA-1

(thousands of metric tons per year)

Design 2Capiacity FY 70-/FY 71 FY 72 FY 73 FY 74 FY 75 FY 76 FY 77 FY 78 FY 79

N P205 2 N NP 2 05 N P20P 2 05 2 N P205 P 2 05 205 N P20 P205 N P2 05 N P205

FACT, UPL-/ 92 40 35 11 35 15 60 26 75 33 80 33 80 33 80 33 80 33 80 33 80 33

COROMANDEL, VIZAG 80 73 68 64 60 50 73 66 73 66 73 66 73 66 73 66 73 66 73 66 73 66

NEYVFLI 70 _ )42 -- 35 -- 60 -- 60 -- 60 -- 60- £0-- -- 60 -- 60 --

E.I.D. PARRY, IMORE 16 10 10 7 14 9 14 9 14 9 14 9 14 9 14 9 ])4 9 14 9 14 9

SUPERPHOSPHATE FACTORIES -- 80 -- 40 40 -- 40 -- 40 -- 40 -- 40 - 40 - 40 -- 40 -- 40

MADRAS 190 85 - - - - 95 40 130 60 175 78 175 78 175 78 175 78 175 78 175 78

ZUARI AGRO, GOA 175 45 -- -- -- -- -- -- 90 22 125 32 160 4o 160 4o 160 4O 160 40 160 4O

FACT COCHIN I 152 -- 75 -- 110 -- 140 -- 140 -- 140 -- 1l)0 -- 140 -- 140 --

FACT COCHIN II 47 115 25 60 35 80 4i5 105 45 105 45 105

COROMANDEL EXPANSION_/ 155 55 80 30 1]O 4O 140 50 140 50

SPIC, TUTICORIN 2)48 70 125 35 175 50 220 63

MANGALORE 160 90 80 45 1o 63 145 80

RAMAGUNDAM 229 -- 115 -- 160 - 205 --

OCCIDENTAL, VIZAG 140 140 -= -- -- 7Q 70

TOTAL SUPPLY 1750 800 155 122 1)44 114 337 181 552 230 667 258 727 326 817 376 1177 491 1332 534 1527 634

TOTAL DEMAND -- -- 540 186 601 231 667 281 734 333 805 399 912 471 1033 545 1174 622 1332 702 1502 790

DEFICIT -- -- 385 64 457 117 330 100 182 103 138 141 125 145 216 169 (3) 131 0 168 (25) 156

Kerala, Mysore (Including Goa), Tamil Nadu (including Pondicherry) plus Andhra Pradesh. Data taken from Annexes 8 and 9.

2/ Fiscal Years ending March 31

3/ GOI Figures are not consistent with FACT'S (See Annex 1).

4/ Coromandel II and III are shown earlier than in Annexes 8 and 9 to show possible effect on Cochin II Project.

Industrial Projects DepartmentMarch 1971

FACT

Annual Cost of Production

Cochin Phase II Project

(millions of Rupees)

Design Unit 1974/75 50% Capacity 1975/76 80% Capacity 1976/77 90% Capacity Design CapacityCapacity CostTons Rs/ton NPK Cryolite NPK Cryolite NPK Cryolite NPX Cryolite

Tons Production, 1000 242.5 3.75 388 6 436.5 6.75 485 7.5

VARIABLM COST._

Raw Materials-Fertilizer

Sulfur 109,200 290 15.8 25.3 28.5 31.7Phosphate Rock 346,500 245 42.5 67.9 76.4 84.9Ammonia 52,700 318 8.4 13.4 15.1 16.8Duty-Ammonia 167 4.4 7.0 7.9 8.8Urea 106,000 620 32.8 52.5 59 1 65 7Potash 90,600 423 19.2 30.7 34 5 3 3Fifler 32,000 50 0.8 1.3 1.4 1.6Coating Agent 9,700 230 1.1 1.8 2.0 2.2

Raw Materials - Cryolite

Ammonia - Cryolite 3,900 318 0.6 1.0 1.1 1.2Duty-Ammorna 167 0.3 o.6 o.6 0.7Alumina 3,900 900 1.8 2.8 3.2 3.5Sodium Chloride 15,000 135 1.0 1.6 1.8 2.0Soda Ash 750 650 0.3 0.4 0.4 0.5

Other

Utilities 3.8 0.4 6.1 0.6 6.9 0.7 7.6 0.8Operating Supplies 1.2 0 2.0 0 2.2 0 2.5 0Packing Costs 9.7 0.2 15.9 0.2 17.1 0.3 19.4 0.3Labor and Supervision 2.5 0.1 3.4 0.1 3.5 0.1 3.7 0.1Interest on Short Term Loans 2.3 0.1 3.3 0.1 3.6 0.1 3.9 0.1

TdtAl VariAble coa 144.5 4.8 230.6 7,~ 258.2 8.3 287.1 9.2

FIIED COST

Selling and Administrative Expense 6.4 0.2 9.0 0.2 9.4 0.2 9.7 0.2Maintenance, 3.5% of Investment 10.6 0.2 10.6 0.2 10.6 0.2 10.6 0.2Depreciation, 8.3% of Investment 25.4 0.6 25.4 0.6 25.4 0.6 25.4 o.6Insurance, 0.5% of Investment 1.5 0.1 1.5 0.1 1.5 0.1 1.5 0.1

Total Fixed Cost 43.9 1.1 46.5 1.1 46.9 1.1 47.2 1.1Total Cost of Production 188.4 5.9 277.1 8.5 305.1 9.4 334.3 10.3

Cost of Production, Rs/Tons 776.9 1,573.3 714.2 1,416.7 699.0 1,392.6 689.3 1,373.3Cost of Production, W/O Depreciation 163.0 5.3 251.7 7.9 279.7 8.8 308.9 9.7Cost of Production, W/O Depreciation & Duty 158,6 5.0 244.7 7.3 271.8 8.2 300.1 9.0

Industrial Projects DepartmmtMarch 12, 1971

FACT

COCHIN II PROJECT

FORCASTED INCOME STaTEMENT

FOR FISCAL YmARS ENDING MARCH 31

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

I Volume ---- _L 9416 9616

Thousanis of Metric TonsNPK

Production 242.5 388 436.5 436.5 436.5 436.5 436.5 436.5 436.5 436.5 436.5 436.5 436.5

Inventory Build-up 40.5 23 9.5 - - - _ _ _ _ _ _ _

Sales 202.0 365 427.0 436.5 436.5 536.5 436.5 436.5 436.5 436.5 436.5 436.5 436.5

CryoliteProduction 3.75 6.oo 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75

Inventory Build-up .75 .25 .15 - - - - _ _ _ _ _ _

Sales 3.00 5.75 6.60 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75

Sulfuric AcidSales 5 8 9 9 9 9 9 9 9 9 9 9 9

II Value Millions of Rupees

Net SalesNPK 187 339 396 405 405 405 405 405 405 405 405 405 405

Cryolite 7 12 15 15 15 15 15 15 15 15 15 15 15

Sulfuric Acid 1 2 2 2 2 2 2 2 2 2 2 2 2

195 353 413 422 422 422 422 422 422 422 422 422 422

1/

Cost of Production 195 286 315 315 315 315 315 315 315 315 315 315 289

Less Inventory Adjustment 32 17 7 - -

Cost of Sales 162 269 308 315 315 315 315 315 315 315 315 315 289

Operating Profit 33 85 105 107 107 107 107 107 107 107 107 107 133

2/Interest at 8.5% 14 15 14 13 11 10 8 6 5 3 2 1

Net Profit Before Taxes 19 69 91 94 96 97 99 101 102 104 105 106 133

Taxes- - - - - - 53 54 56 56 57 58 58 73

Net Profit 19 69 91 94 96 ss 45 45 46 47 47 48 60

Net Profit as a Return:On Net Sales 10% 19% 22% 22% 23% 10% 11% 11% 11% llg 11, ll 14%

On Share Capital (Rs 190 million) 10% 35% 47% 49% 50% 23% 24% 24% 24% 25% 25% 25% 32%

1/ See Annex 12 for detailed operating costs and Annex 14, Page 2, for major assumptions.

2/ Assuming loan of Rs 190 million

3/ Nominal tax of 55% provided after 5 years for return calculations. Actual taxes for FACT as a whole may begin earlier as

tax benefits attributable to Cochin II will be applied againstoverall comparn profits and thus could be exhausted by 1977/1978.

As depreciation for tax purposes is higher in earlier years actual taxes would range from 50% to 65%.

Industrial Projects DepartmentApril 1971

FACT

COCHIN II PROJECT

SENSITIVITY ANALYSIS AND MAJOR ASSUMPTIONS

BASE CASES (See Page 2 for Assumptions) IFR IER

A. Financial 19.5 -1/

B0 Economic - 13.5-

SENSITIVITIES - Calculated on Base A and B Above

I. Long Range Trend for Raw Material Prices* and 7% Decrease in Selling Prices 19.5 -

II, One Tear Delay with Resulting Overrun 9.2 6.0

III. Maximum Production of 80% Reached in Second Year of Production 17.8 11.4

IV. Maximum Production of 100% Reached in Fourth Year of Production 21.0 14.8

V. Selling Prices Reduced 10% 9.1 5.1

VI. Selling Prices Increased 10% 27.3 20.0

VII. Combination of II and III 8.6 4.0

VIII. Combination of II and V -1.8 -2.1

C. Economic - Phosphoric Acid as Separate Project

Selling price on $160 per ton _ 13.7Selling price on $150 per ton 9.0

l/ The economic return increases if evaluated at a foreign exchange ratio greater at Rs 7.5/$1.0. Thisresults from the use of the rupee equivalent of international selling prices which should increase morethan costs. CD

* Consistent with Base Case used in Economic Return rlus Duties and Urea ( Rs 620 ton.

Industrial Projects DepartmentA-4I 1 071

FACT

COCHIN II PROJECT

TABLE I

ASSUMPTIONS FOR BASE CASESPHOSPHORIC ACID

DESCRIPTION FINANCIAL RETURN ECONOMIC RETURN AS SEPARATE PROJCTA B C

Selling PricesRs/Ton $ Equiv. Rs/Ton $ Equiv. Rs/Ton $

NPK Rs 928 (=) Rs690 7$ 92)Cryolite Rs 2250 ($300) Rs 1930 ($257)Sulfuric Acid Rs 230 ($ 31) Rs 230 ($ 31)Phosphoric Acid Rs ($160)

Raw Material Costs - per tonDELIVERD CIF DELIVERED CIF DELIVERED CIF

Phosphate Rock R % 24R $(I) % s2 (*R2SulfUr RB 290 ($36) Rs 245 ($30) Rs 245 ($30)Potash Rs 423 ($53) Rs 321 ($40)Ammonia Rs 485* ($37) Rs 320 ($37)Urea Rs 620 ($82.67) Rs 475 ($60)

Project Cost Rs 359 million Rs 339 million Rs 138 million

Construction Period 36 months Same Same

Life of Project 15 years Same Same

Production 12 years Same Same

Year 4 50% Same SameYear 5 80%Year 6-15 90%

Sales

Year h 42% Same 50%Year 5 75% 80%Year 6 88% 90%Year 7-15 90%

Scrap Value Rs 18 million Same Rs 7 mill.ion

(* Inc. 60% Duty)

Industrial Projects DepartmentApril 1971

Annex 14Page 3

COMMENTS ON SENSITIVITY ANALYSIS

Case I is a test to see how much the selling prices could bereduced without the IFR decreasing, if imported raw material costs followthe long-range trend used in the IER.

Case II indicates the impact of a one-year delay in the projectwith a 15% overrun. With the budget estimates being conservative andproject execution receiving full support from GOI, no significant overrunor lengthy delay is foreseen.

Case III (80% production) shows that both the IFR and IER arestill satisfactory at the production.

Case IV (100% production) is possible but not considered likelydue to the wide range of blends and consequent downtime.

Case V (10% reduction in selling prices) can be considered un-likely as prices should not fall to this extent unless costs are similarlyreduced. The test indicates that prices could decline somewhat in the faceof competition and the project still show acceptable returns.

Case VI (10% increase in prices) is not likely although pricescould increase somewhat in view of stable prices in the last 2-3 years.This will depend upon supply factors.

Case VII (15% overrun, one-year delay and maximum production80%) shows that the combination of overrun, delay and production diffi-culties could make an otherwise acceptable project marginal.

Case VIII (15% overrun, one-year delay and 10% decrease inprices) for the IFR is not considered likely as the price-cost relationshipshould continue. For the IER, however, international prices could be lowerthan calculated by IDA staff.

The senistivity test on the phosphoric acid production as aseparate project has been performed using a 6% drop in the selling price.The test shows the project returns 9% at $150 FOB per ton. Phosphoricacid has been contracted for Indian delivery at $135 per ton CIF. However,it is probably that a fair price for use in an economic return would be$145 per ton to which $5 to $15 would have to be added for local costs,assumed in this case to be borne by an importer with storage facilities,transport costs, and overhead.

Industrial Projects DepartmentApril 1971

FACTCOCHIN II FROJECT

TABLE 2(millions of rupees)

Base Case StreamsFiscal Capital Costs Operating Costs LnaitR

Year Financial Economic inancial Economic ?tnaumnt knnom$cEnding Return Return P20c Return Return P205 NPK @ NPK e P20t March 31 Period -_______ ______ ________ _______ Rs. 928 Rs. 690 Rs. 1,200

1972 1 64 61 251973 2 129 118 481974 3 118 112 461975 4 48 48 19 168 141 57 195 147 691976 5 260 216 86 353 264 1101977 6 289 240 96 113 309 1241978 7 289 240 96 422 316 1241979 8 289 240 96 422 316 1241980 9 342 240 96 422 316 1241981 10 343 240 96 422 316 1241982 11 345 240 96 422 316 1241983 12 345 240 96 422 316 1241984 13 346 240 96 422 316 1241985 14 346. 240 96 422 316 1241986 15 346 240 96 490 384 151

Industrial Projects DepartmentApril 1971

1W

FACT

COCHIN II

Project Break Even Analysis

Break-Even Requirement

Cash ProfitMillions of Rupees

Fimed Coats 26 26Depreciation - 26Debt Repayment 19 -Interest 9 9z

Volume Required a Selling Price of RS928

Selling Price Re 928Variable Coats 86Margin Rs 312

158,000 Tonx x Rs 342 - _4

178,000 Tons x Rs 342 - 61

Price Required 0 90% Capacity

436,500 Tons x RS 124 argin - _Variable Costs 86

Selling Price Rs 75

436,500 Tons x R. 140 margin - 61Variable Costs 586

Selling Price in/ Assuming 50% of project cost financed by debt maturing over 10 years

!/ Assuming interest on 50% of debt7/ NFK only - assuming cryolite sold at variable cost

/ Variable costs exclude labor and supervision for this calculation.

Conclusions Cash break-even Profit break-even

Percent of total capacity needed 32% 37%Capacity in tons needed 158,000 178,000

Percent of expected selling price ofRJ 928 needed 0 90% production 77% 78%

Price needed 0 90% production Rs 710 Rs 726

Industrlial Projects Department LIApril 1971

ANNEX 16

FACT

Cochi.n II Project

Annual Foreign Exchange Savings at Normal Production (90%)

(Millions of Dollars)

Gross Foreign Exchange Savings NPK Cryolite P 0 *

436,500 tons NPK @ $85 each *37.1-95,400 tons Urea @ $60 each .7

6,750 tons Cryolite @ $250 each $1.9103,500 tons P205 @ $145 each $15.9

Less Foreign Exchange Costs

Sulfur - 98,280 tons @ $30 each 2.9 2.9Phosphate Rock - 311,850 tons @ $24 each 7.5 7.5Ammonia - 50,940 tons @ 37 each 1.9Potash - 81,540 tons @ $40 each 3.2Ammonia - 3,510 tons @ $37 each .1

Other supplies and spare parts .2 .1

Depreciation 1.2 - .5

Interest on 50% of capital costs *7 . - *3

Total Foreign Exchange Costs 17.6 .1 11.3

A. Net Foreign Exchange Savings $13.8 $1.8 $3.7

Local Currency Costs (Millions of Rupees)

Total Operating Costs (Both Local & Foreign) Re 267 Rs 9 Rs 106Including Depreciation

Less Duties - 8 -1 - 0Plus Interest on 50% of Debt 9 -

Plus 10% on Equity 18 1 8

Total Annual Costs 286 9 118

Less Urea Transferred -48 - -Less Foreign Exchange Costs -132 - 1 85Less Handling Costs Saved _ 23 -12

B. Net Local Currency Costs Rs 83 Rs 8 Rs 21

Net Local Currency Costs Divided byNet Foreign Exchange Savings 6.0 Rs/$ 4.4 Rs/$ 5.7 Rs/$*

* Included in NPK

Industrial Projects DepartmentApril 1971

FACT

INCOME STATEM5NT3 FORECAST - COII3LIDATED

FISCAL TEARS ENDING MACH 31

(amtltone of Rapeoz)

1972 1S73 1974 I775 1976 1977 1978 1979 198 198.1 1982 1983 1984 1985 1986 1987

IDL, FESO AND FEW

Net Sales 177 219 219 219 219 219 219 219 219 219 219 219 219 219 219 219

Cost of Sales 157 189 190 195 196 197 197 197 197 192 176 176 176 176 176 176Admin., Sales & General Expeoses 11 11 1 11 11 11 11 11 11 11 12 1 21 11 11Other Inooes - (Inc. P0E1 & FEW) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3)

Profit Before Interest & Taxes 12 22 21 16 15 14 14 14 14 19 35 35 35 35 35 35

Cochin

Net Sales* 74 160 202 205 202 201 201 201 201 201 201 201 201 201 201 201Cost of Sales* 69 97 123 125 122 121 121 121 121 121 1°05 74 74 74 74 74Ad-oin., Sales&OGeneral Experoeoa 3 13 14 14 6 6 6 6 6 6 6 6 6 6 6 6

Profit Before Interest & Taxes 2 50 65 66 74 74 74 74 74 74 90 121 121 121 121 121

* induced Ri 80 per ton for orea transferred to Cochin II** Including amorttoation of deferred expeoses 1973-1975 is 8 million per year

bgCochin II

Net Sales 195 353 413 422 522 522 522 522 522 422 422 422 222

Cost of Sales 155 260 299 305 305 305 305 305 305 305 305 305 279Adjoin., Sales & General Expenses 7 9 9 10 10 10 10 10 10 10 10 10 10Profit Before Interest & Taxes 33 84 105 107 107 107 107 107 107 107 107 107 133

Net Sales and Coot of Sales have been redueed (a) by deducting freight, interest and other distribution ostscharged to customers, and (b) by eliminating purchased fertiltoer sold as part of the seeding progrem.

a) See Annex 17 page 2 for assumptions usedb) See Annex 14 page 2 for essuoptions used

Consolidated

Profit Before Interest & Taxes 15L 72 86 115 173 193 195 195 195 200 232 263 263 263 263 289Initemsotl/ 31 29 25 34 30 26 21 17 13 6 5 3 2 1-

Net Prtfit Before Taxes (17) 43 62 8i 143 167 174 178 182 191 226 258 26o 261 262 289-

Estimated Taxes 2/ - - - - - - 85 90 100 ios no 120 120 120 130

Net Profit (Loss) (17) 43 62 81 143 167 124 93 92 91 121 148 140 141 159

1/ See Annoe 19 for intorest on long-term debt for each diviston.j/ After alluassceo for imes caroy forwrd, de,oloopment robote end other ta oonoesstorns.

Irdutistal Projests Dep-rtmentApr1l 1971

FACT'

COCHIN II PROJECT

Major Assumptions Used in UDL and COCHIN I

In Forecasts

SALES (OOO's of metric tons)

Ammonium Ammonium Ammonium Super Other UPEASulfate Phosphate Chloride Phosphate Products Ammonia Cochin II Others

1972 155 112 10 10 11 .8 104

1973 172 165 12.8 45 12 1.5 - 227

197L 172 165 12.8 h5 12 1.8 - 287

1975 172 165 12.8 L5 12 1.8 53 2LIh

1976 172 165 12.58 45 12 1.8 85 212

1977- on 172 165 12.8 45 12 1.8 95 202

SETLLING PRICES (Rs per ton)

4Oo 700 515 200 - 700 620 700

COSTS - Based on current input costs for present productionand naphtha O Rs 110 per ton delivered for Cochin I.

Industrial Projects DepartmentApril 1971

FACT

Booroe an Applioation of Funds F-recont

Piseal Tears Ending March 31

(Milli.oa of Indian hupees)

SOURCE 1971 1972 1W3 1974 1975 1976 1977 190 1961 1962 1983 14 1986 1987

Net Pr1ofit Before T--sx and VInterest on I.og Term Debt - (1) 14 72 66 115 173 193 195 195 195 200 232 263 263 263 263 289

Dopreoiation (15 yr-.) UDL 16 20 21 21 21 21 21 21 21 21 16

(I:L y3 .) C_I - 36 47 47 47 47 47 47 47 47 47 31

(12 yre.) C-_r - - - - 26 26 26 26 26 26 26 26 26 26 26 26

Tota1 Dpreciaton 16 56 68 68 9b 94 94 94 94 94 89 57 26 26 26 26

A-ontintion of Deferred C-_l - - 8 8 8

Expeases

Iw-resses in ity 2/ 52 56 67 66 24

Leng Term Lone 30 33 68 65 24

Bank Borrowings UDL 65 10C-I - 3D 20C-II - _ - - 56 24

Reeched.led Debt - 85

001 Leone Wad Advnoesa - 30 (18) (12)

TOTAL SO218E 162 314 285 281 321 291 287 289 289 289 289 289 289 289 289 289 289

APPLICATION

Pined ABeet3 102 73 138 81 48

Working Capital UDL (31) 10 1 12C_I 54 50 36 (12) (6) (6)

C-I 50 90 0 16

Total Workiog Capita1 (31) 64 51 98 7c 10

Acoroe-d E open 60 23

Loon BepaymetsIFCI UDL 2 2 2 2 2 2 1

Goe.t UDL - 30 25 26 25 23 6 5 5 5 3 1 1

C-I - 5 26 27 27 27 22 22 22 19 12 5 1

C-II - - - 3 10 17 19 19 19 19 19 19 19 16 9 2

IOt an Credit C-I 13 13 13 13 13 13 12 12 12 12

Re..hede3d Debt 85

Total.oIn. epoyeot 15 135 67 68 70 76 56 58 58 55 34 25 21 19 16 9 2

Deferrd BpesMee UDL 2C_I 4 10

Taxen 50 85 90 100 105 310 120 120 l3

Disideed. W 44 44 44 44 44 44 44 44 44 44 44 44

Intert onLong Ten Dsbt 9 30 27 23 34 30 26 21 17 13 9 6 5 3 2 1 -

Internet on GOI LmOn and 1 2 1

lIAdva,es

TOTAL APPLICATION 159 338 285 271 230 194 137 123 168 197 177 175 175 176 182 174 176

Conh BMn3p1n (Deficit) 3 (24) - 10 91 97 1i0 166 in 92 312 3 114 31 113 107 r15 113

Conh Balsee 34 10 10 20 111 208 358 524 645 737 849 963 1077 190 1297 1412 1525

1/ Per detcls3 refer to An.exes 2 ond 17

,/ Bs 52 =Jlion in 1971 Cad Ba 23 million in 1972 for Coohie I, Bal.o1s far Coehin II

3/ (a) RB 75 dllion in 1971 for Coebin Ij (b) Ba 27 sillio. in 1971; Ba 7 eilion in 1972 sad Ba 3 illi.o in 1973 for UDL; (e) Balaaoe fwr Coehin LI IL

./ .ee Annex 19 far debt neroice by diioa.n

Iadrstril1 PreJecte DepartratnApril 1971

FACT

Long-Term Debt Service Coverage Forecasts

(in millions of Rupees)

Fiscal Years Endring March 31

SOURCES 1972 1973 1974 1975 1976 1977 1973 1979 1980 1981 1982 1983 1984 1985 1986 1987

Profit Before Interest UDL 12 22 21 16 15 14 1-4 14 14 19 35 35 35 35 35 35

and Taxes C-I 2 50 65 66 74 74 74 74 74 74 90 121 121 121 121 121

C-II - - - 33 84 105 107 107 107 107 107 107 107 107 107 133'

Depreciation and 56 76 76 102 94 94 94 94 94 89 57 26 26 26 26 -

Amortization

Sub Total 70 148 162 217 267 287 289 289 289 289 289 289 289 289 289 289

Less Taxes - - - - - - (50) (85) (90) (100) (105) (nO) (120) (120) (120) (120)

A. Total 70 148 162 217 267 287 239 204 199 1a9 184 179 169 169 169 169

RflUIREMENTS

Intereste* UDL 10 8 6 5 3 2 1 1 1 - - - - - - -

C-I 20 19 17 15 12 10 7 5 2 1 - - - - - -

C-II _a -* -* 14 15 14 13 11 10 8 6 5 3 2 1 -

Total 30 27 23 34 30 26 21 17 13 9 6 5 3 2 1

Principal** UDL 32 28 28 27 26 5 5 5 5 3 1 1 - - -

C-I 18 39 40 40 40 34 34 34 31 12 5 1 - - - -C-II - - - 3 10 17 19 19 19 19 19 19 19 16 9 2

Total 50 67 68 70 76 56 58 58 55 34 25 21 19 16 9 2

B. Total 80 94 91 104 106 82 79 75 68 43 31 26 22 18 10 2

Times Covered 0.9 1.6 1.8 2.1 2.5 3.5 3.0 2.8 2.9 4.4 5.9 6.9 7.7 9.4 16.9 79.5

* Assuming interest is financed by project furds ard charged to Cochin II capital costs until 1975

** After Rescheduiing.See Page 2 attached.

Industrial Projects DepartmentApril 1971

FACT

Long Term Debt Repayment Schedule After Reschedul-ing Arrears on March 31, 1971

A. UDL DIVISION FY 72 F72 FY 74 FY 75 FY 76 FY 77 F Y 79 FY 80 FY 81 FY 82 FY 83 FY 64 FY 85 FY 86 FY 87

THIRD STAGE - GOI

Normal 50.0 14.3 10.0 10.0 8.8 6.9Arrears 28.8 5.7 5.7 5.7 5.7 6.o

75.6

FOURTH STAGE - GOI

Normal 47.2 3.9 4.4 5.0 5.0 5.0 5.0 5.o 5.0 4.5 2.7 1.1 .6Arrears 2.8 .5 .5 .5 .5 .8

WAYS AND MEA4N - GOI

Arrears 12.5 2.5 2.5 2.5 2.5 2.5

IFCI

Normal 11.2 2.2 2.2 2.2 2.2 2.4

INTEREST

Arrears 12.3 2.5 2.5 2.5 2.5 2.3

. COCHIN I - GOI

Normal 186.6 - 20.5 21.5 21.5 21.5 21i5 21.5 21.5 19.2 12.2 4.5 1.2Rescheduled 17.1 3.4 3.4 3.4 3.4 3.5Arrears 11.7 2.3 2.3 2.3 2.3 2.5

215.4

ITALIAN CREDIT

Normal 112.9 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.1

C. COCHIN II - GOI

Normal 190.0 - - - 3.0 100 17.0 19.0 19.0 19.0 19,0 19.0 19.0 19.0 16.0 9.0 2.0

TOTAL 683.1 49.9 66.6 68.2 70.0 76.0 56.1 58.1 58.1 54.8 33.9 24.6 20,8 19.0 16.0 9.0 2.0

Industrial Projects DepartmentApril 1971

roF

FACT

ALAROS S2'T SORNUASTS

FISCAL YEARS EMAIMA MARCH 31

(Million. of I0di. MApR..0)

ASSETS DIVI8 1972 3 1975 1976 1977 1978 1979 1980 1981 1982 1983 12& 1985 1966 1987

O-rr0nt ka0et0

CMAh 1o 1o 20 III 208 358 523. 63.5 737 8459 963 1077 USC1 1297 13.12 1.525

Other current -. at. 7DL 165 166 178 178 178 178 178 3178 178 178 178 3.78 178 178 178 178

C-I 54 104 140 128 122 116 116 16 116 116 11.6 116 116 116 316 116

C-I3S- - - 50 140 190 206 206 206 206 206 206 206 206 206 206 206

Total C-mreet Amete 229 280 388 557 698 058 1,024 1,145 1,237 1,349 1,462 1,578 1,691 1,798 1,913 2,026

Fixed Aset. DOL 317 320 320 320 320 320 320 320 320 320 320 320 320 320 320 320

C-C 490 490 490 490 490 490 490 490 490 4397 490 490 490 .90 490 490

C-Cl 66 201 282 330 330 330 330 330 330 330 330 330 330 330 330 330

Tote 673 1,011 1,092 11340 1,130 1,140 1,140 1,140 1,140 1,140 1,140 1,140 1,140 1,140 1,140 1,140

Lees Depr-.ti.6on (172) (230) (308) (402) (496) (590) (684) (778) (872) (961) (1,018) (1,033) (1,070) (1,096) (1,122) (1,122)

Net Fixed Amaet 701 771 784 738 644 550 456 362 268 179 122 96 70 44 18 18

Irestat_t. 4 4 4 4 4 4 4 4 4 4 -4 4 4 4 4

Deferred MApensee (Market Deeeloet) 24 16 8

Tlgni= 958 1,071 1,184 1,299 1,346 1,412 i,484 1,511 1,509 1,533 1,58 678 1,765 1,846 1,935 2,048

LiAILrTCCS AND IAPTAL

COrreet Liabilitie-

Aocs,Ad EM

p-ne 59 59 59 59 59 59 109 1446 149 159 163. 3.69 179 179 179 179

O-erdrmTt, Goarene,t L-,, Trade 183 185 173 229 253 253 253 253 253 253 253 253 253 253 253 253

PVmbles a-A AdvomeeM tr8iMf Debt (See A-n 19) 67 68 70 76 56' 58 58 55 34 25 21 19 16 9 2

T7ta1 Ourrent LTA;}Utime 309 312 302 364 368 370 420 452 436 437 438 443 448 441 434 432

Losg Tormo Debt

IPC1 UDL 9 7 5 3 1

oc-ersont UDL 125 99 73 38 24 19 14 9 4 2 1

C-I 209 183 156 129 102 B0 58 37 18 6 2

C-II 33 101 166 187 177 160 v1.1 122 103 84 65 46 27 11 2

Ita}i-n CreOit C-I 100 87 74 61 b3 36 24 12

TotAl Long Term Debt 476 477 474 428 352 295 237 180 125 92 68 46 27 11 2

Less COrrent Y4twittLee (67) (68) (70) (76) (56) (58) (53) (55) (34) (25) (21) (19) (16) (9) (2)

Net Long Tem Debt 4309 309 340 352 295 237 lO 125 92 68 46 27 11 2

Sauity

Sh-e Capital 283 350 416 440 440 440 440 b40 440 440 440 440 440 40o 440 440

S-rp1lu (Deficit) (43) (0) 62 143 232 365 445 494 532 589 666 770 866 963 1,061 1,176

Tetal 114,1it/r 240 350 478 583 682 805 885 934 982 1,029 1,106 1,210 1,306 1,403 1,501 1,636

TOTAL IHIACITISS AIND CAPITAL 958 1,071 1,184 1,299 1,346 1,412 1,484 1,511 1,509 1,533 1,538 1,678 1,765 1,846 1,935 2,0348

0,,re,t Ratio .7:1 .9:1 1.3:1 1.S:l 1.9,1 2.3:1 2.4:1 2.5,1 2.8:1 3.1:1 3.4:1 3.6,1 3.8,1 4.1,1 4.411 4.7 1

Net Leeg Temn Debt,/Nfity Ratio 63/37 54/.6 47/53 38/62 30/70 23/77 17/83 12/88 9/91 6/94 4/96 2/98 1/99 O/1Oo O/100 0/A

1/ 8. Asne r 7 for ae.segstiOne for Coc-hi. I sesottg cepital. UDL and Cochin I -oon-t rewe.ieble forecasted on basis coesletemt sith C-ohib CI.

Ininotriel P-8e.ote DeprtentApril 1971

V 710 k. |S W7¢ eo- 1 S4INDIA

AGAIT PRESENT AND PROPOSED MAJOR FERTILIZER PLANTSAFGHANISTAN ;et '-t,^ a- <,~\ IN SOUTH INDIA

J /¢:,*.rrte tor {!r'. t MAJOR FERTILIZER PLANTS-V C_~~~~~~~~~~~~~~~~~~~ Csptd

JiAMMU n'd KASHMIR fJ U n,Ler consBtOicBOc'-.--/ ~~~~~~~~~~~~~~~~~~~~~~~0 Propooed

-----.- |-.-- Broad gguge rmIhwaysk%~~~~~~~~~~~~~~~~~~~ ~~~~~Railw.ys unde, construction

S '-*, I > >E Stote on unadn lerritory boundares'-7 ....~~~~~~~~~~~~~~~~~~~~~~-...Iternat,oflo boundcries

Hi/MACHAL '1,A * Nationo cap,tol

.V/T- P'RADOSH 0 ' 00 200 300 40:) 500.5 WEST 0) MILES

PAKISTAN r Cdqart,a 200 300 *00 oo 600 70o Boo

PUNA 30

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