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1 Public Disclosure Authorized Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P PAK Public Disclosure Authorized REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO Public Disclosure Authorized THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE FAUJI FERTILIZER PROJECT August 16, 1978 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS WEIGHTS AND MEASURES Except where otherwise indicated, 1 metric ton (t) - 1,000 kilograms (kg) all figures are quoted in Pakistan 1 metric ton (t) - 2,204.6 pounds Rupees (PRs). 1 kilometer (km) mile 1 hectare = 2.47 acres PRa US$ cubic meter = 35.3 cubic feet PRs 9.90 = US$1.00 PRs 1 million = US$101,010 PRINCIPAL ABBREVIATIONS AND ACRONYMS USED Anic - Anic S.p.A. (Italy) BTU - British Thermal Up-it CAN - Calcium Ammonium Nitrate (26-0-0, i.e, 26% Nitrogen) Coming - Coming S.p.A. (Italy) DH - Dawood Hercules Chemicals Ltd. Fauji - Fauji Foundation FFC - Fauji Fertilizer Company Ltd. ICP - Investment Corporation of Pakistan IDB - Islamic Development Bank IFU - Industrialization Fund for Developing Countries (Denmark) JCE - James Chemical Engineering (USA) KfW - Kreditanstalt fuer Wiederaufbau (Germany) 20 - Potassium Oxide, the Indicator of Potassium Content of Fertilizer MAP - Mono Ammonium Phosphate N - Nitrogen, the Indicator of Nitrogen Content of Fertilizer NFC - National Fertilizer Corporation NIT - National Investment Trust NP - Nitrophosphate N:P - Nitrogen/Phosphate Ratio PIDC - Pakistan Industrial Development Corporation P Phosphorus Pentoxide, the Indicator of Phosphorus Content of Fertilizer Snam - Snamprogetti S.p.A. (Italy) Topsoe - Haldor Tops4e A/S FISCAL YEAR Government: July 1 - June 30 Topsoe : January 1 - December 31 Fauji : October 1 - September 30 FFC ; July 1 - June 30

3 FOR OFFICIAL USE ONLY PAKISTAN FAUJI FERTILIZER PROJECT Credit and Project Summary Borrower: Beneficiary: Amount: Terms: Relending Terms: Project Description: Islamic Republic of Pakistan. Fauji Fertilizer Company Limited (FFC). US$55.0 million. Standard. 15 years, including 4 years grace, at 10% per annum interest. FFC will carry the foreign exchange risk. The Project will help meet Pakistan's growing requirements for nitrogenous fertilizer using locally available gas. It consists of the construction of a 1,725 tons per day (tpd) urea plant, including an intermediate ammonia plant of 1,000 tpd at Goth Macchi, Punjab Province. The Project also includes the construction of a 33-mile pipeline to transport gas from the Mari field to the Project site and all necessary ancillary facilities. An important benefit would be substantial foreign exchange savings, estimated at US$79 million annually in 1978 terms. Because of inflationary pressure in Pakistan, there is some risk that costs will escalate beyond the provisions included in the cost estimates. There is also a risk that demand for fertilizer may not grow at the projected rates if the Government does not pursue appropriate agricultural pricing and other policies. This document has a restrictedistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - ii - Estimated Cost: US$Million Local Foreign Total Buildings & structures including land Equipment, materials, spares, including freight Gas & water lines Erection, construction, supervision, licenses & engineering Total Plant Cost Township Technical assistance, training Pre-operating & administrative expenses, including stamp duties Base cost Contingencies: Physical Price Working capital Total Project Cost Interest during construction Total Financing Plan: /a (US$ million) Local Foreign Total Equity Fauji Foundation Haldor Topsoe A/S IFU-Denmark Islamic Dev. Bank Pakistan Financial Institutions & Commercial Banks Total Equity Debt IDA USAID KfW-Germany Italian Govt Pakistan Fin. Inst. & Commercial Banks Total Debt Total /a A contingent financing plan provides for additional contributions in the event of cost increases (see paragraph 44).

5 - iii - Estimated (US$ Million) Disbursements: FY1979 FY1980 FY1981 Rate of Return: 23% Annual Cumulative Appraisal Report: No. 1392a-PAK dated August 14, Map: IBRD RI

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7 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE FAUJI FERTILIZER PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Islamic Republic of Pakistan for the equivalent of US$55 million on standard IDA terms to help finance a project for the construction of a fertilizer plant at Goth Macchi in the Southern Punjab, with a capacity of 1,725 tons per day (tpd), equivalent to 570,000 tons per year (tpy) of urea. The proceeds of the credit would be relent to Fauji Fertilizer Company Limited (FFC) for 15 years, including 4 years of grace, with interest at 10% per annum. 2. On April 12, 1977, the Executive Directors approved a Bank loan of US$55 million for the project, which at that time was sponsored by the Fauji Foundation and Agrico Chemical Company (Report No. P-2023-PAK). However, on May 20, 1977, before signing of the loan documents, Agrico informed the Bank and the other parties concerned that Agrico had decided to withdraw from the project. As a result, the Bank did not proceed with the loan. We informed the Executive Directors of Agrico's withdrawal (Sec M dated June 9, 1977) and indicated that a new proposal would be submitted for their consideration if efforts to make new arrangements for the project proved successful. The main parameters of the project now proposed are substantially the same as in the earlier proposal. Annex III, page 37 shows, in a summary table, the main differences between the Fauji Agrico project and the present project. Because of Pakistan's present external financial situation, the proposed Bank Group's contribution is now in the form of an IDA credit instead of a Bank loan (see paragraph 16). 3. The Fauji Foundation (Pakistan) and Haldor Tops$e A/S (Denmark) are the sponsors of the project and are participating in the financing with subscriptions of up to US$29.2 million equivalent and up to US$5.2 million equivalent respectively to the share capital of FFC. The Industrialization Fund for Developing Countries (IFU-Denmark) and the Islamic Development Bank (IDB) will also participate with subscriptions of up to US$5.2 million and US$10 million, respectively, to the share capital of FFC. A consortium of Pakistan financial institutions and commercial banks will subscribe to the remainder of the equity. 4. The United States Agency for International Development (USAID) and the Kreditanstalt fuer Wiederaufbau (KfW-Germany) are also participating with loans of US$40 million and about US$40 million equivalent, respectively. In addition, Italy is providing a credit of up to US$10 million equivalent and the Government of Denmark will provide a loan of up to US$3.9 million equivalent as part of the contingent financing plan in the event there are cost overruns (see paragraph 44). The USAID loan is for 40 years at 2% per annum during the grace period and 3% per annum thereafter. The KfW loan is for 30 years at 2.1% per annum. These four loans would be made to the Government

8 -2- which would relend them to FFC on the same relending terms as those applicable to the IDA Credit. The remaining Rupee financing would be provided by a consortium of Pakistan financial institutions and commercial banks in the form of loans. PART I - THE ECONOMY 5. The most recent economic report "Pakistan: Development Issues and Policies" (No PAK, dated April 7, 1978) was distributed to the Executive Directors on April 11, Economic performance during the 1970s compares unfavorably with the record of rapid growth of output and exports during the 1960s. GDP has grown at about 3% per annum in real terms, compared to more than 6% during the 1960s, and rapid population growth has meant that there has been virtually no increase in per capita incomes. Output in the major productive sectors (agriculture and industry) has risen even more slowly than GDP - at about 2% per annum - and GDP itself only achieved a growth rate of 3% as a result of expansion in construction, government and service industries. 7. To a considerable degree this disappointing performance has been due to factors outside the Government's immediate or direct control. The 1970s began in crisis with the war with India and the separation of Bangladesh, and there followed a series of economic and climatic misfortunes which undermined the basis for growth. These included a poor monsoon in 1974/75 and serious floods in 1972/73 and 1975/76, as well as the petroleum crisis and the subsequent world recession. Moreover, political instability and uncertainty have had serious economic implications. It is also, however, true that the policy response to these problems has in many respects been inadequate and has contributed to the economy's disappointing performance. Changing attitudes to the private sector, illustrated by a series of nationalizations that began in 1972, had a depressing effect on private investment, while legislation served to increase real wages in the industrial sector at a time of other cost increases and increasingly difficult export markets. Major increases in public investment have more than offset declining private investment, but new investment has been concentrated in capital-intensive, long-gestation projects which in many cases have yet to result in increased production. This investment contributed to a massive deterioration in the trade account. To finance imports, and to cover serious shortfalls in public saving, the Government resorted to heavy borrowing from abroad, including a major increase from OPEC countries. Workers' remittances have increased very substantially over the last two years, but stagnant exports and rising debt repayments still impose a serious strain on the balance of payments while the problem of domestic resource mobilization continues to constrain economic development. 8. A start has been made in the process of policy adjustment and measures have been implemented which go some way towards solving the country's serious resource management problems. The new Government has shown that it attaches importance to the private sector. The agricultural processing industries (except the vegetable ghee industry) have been denationalized, the

9 area open to private investment has been greatly extended, credit and tax incentives (especially for export) have been improved and considerable improvements have been recorded in the labor situation. Agricultural support prices have been maintained, and in some cases increased, and an effort is being made to improve input availability to the farmer. Finally, a review of Government investment and related priorities was undertaken in the context of the preparation of the revised Fifth Plan, which recognizes the limitations of overall resources and the need to redirect the pattern of economic development away from large public industrial and other long gestation projects and towards the agricultural and social sectors. 9. To date the impact of these measures has been limited. While GDP, according to preliminary estimates, grew by around 6.5% during FY78, compared to only 1.7% in FY77, this represents in large measure a recovery in agriculture, especially in the cotton crop which fell disastrously in the previous year. In contrast, there has been little indication of a significant recovery in private investment or exports, the budget deficit is likely to remain large in FY79 and inflationary pressures and the external balance continue to give cause for concern. In addition, the 1977/78 wheat crop was a major disappointment, with production well below, and thus import requirements considerably above, the Government's target. 10. While the overall economic situation provides little room for maneuver, and the policy changes that have already taken place are in the right direction, it remains the case that further measures which face basic issues limiting economic growth in the longer term are needed. These issues include the farm-level factors affecting low productivity in agriculture; the structure and competitiveness of the industrial sector; the factors lying behind continued rapid growth in population; the need to redirect social service expenditures; the deterioration in the performance of public sector enterprises and the administrative machinery generally; the low elasticity of tax revenues and the problems of public resource mobilization; and the large trade deficit and the continued dependence on capital inflows from abroad. 11. Agriculture remains the economy's mainstay, accounting directly for roughly a third of GDP, employing about 60% of the labor force and, directly or indirectly, providing nearly two thirds of total exports. Much of agriculture's disappointing performance in recent years is attributable to the decline in cotton output since other crops (with the notable exception of wheat last year) have generally fared better. Nevertheless, even for these (wheat, rice, sugar) there was a major setback in the early 1970s to the 'green revolution' initiated during the 1960s. While a deceleration in the introduction of new technologies after several years of rapid growth is not surprising, yields still remain well below those achieved under comparable conditions elsewhere, even for the new varieties. Since cropped areas have also failed to respond to the opportunities created by increases in water availability (e.g., from Tarbela) production has been well below the potential implied by the resources and technologies available. Considerable potential still exists for the additional use of fertilizer and other inputs, but it appears also essential to give greater priority to evolving complementary policies and programs which have a direct impact at the farm level. Major improvements are possible in

10 -4- the water delivery system and in the general level of agricultural practices. High priority therefore needs to be given to water course improvement programs, to investments designed to reverse water-logging and salinity and to projects designed to establish a systematic and effective extension service. Without such initiatives, agricultural growth in the longer term will suffer and the benefits from the available inputs and resources will remain well below their technical potential. 12. Industry contributes about 16% of GDP and during much of the 1950s and 1960s provided a major stimulus to growth. Growth rates in industrial production have, however, declined from about 10% per year during the 1960s to only 2% in recent years. The major structural change in the industrial sector since 1973 has been the expansion of the public sector from about 10% to about 25% of industrial assets. Private investment has declined markedly as a result of nationalization fears, rapid cost inflation, labor problems, adverse export market conditions and problems in raw material supply. The textile industry, in particular, which accounts for about 40% of value added in large-scale industry, has suffered from problems of inefficiency, excess capacity and a lack of competitiveness in foreign markets, while manufacturing growth generally has been affected by the poor performance of public sector enterprises. A revival in the industrial investment climate depends on a period of reasonably prolonged stability and a shift in the overall balance of production towards higher value added products which are responsive to market opportunities and preferences. Also important will be progress in, and results from, oil exploration for which there appears to be considerable potential. 13. While it is clearly vital to re-establish a base for more rapid growth in the commodity-producing sectors, it is also true that rapid growth in population, currently running at about 3% per annum, has seriously handicapped the country's ability to improve living standards. Family planning programs have unfortunately had little effect and there have been few changes in the socio-economic environment of a type that usually accompany declines in fertility. Rapid population growth places severe burdens on Government resources simply to maintain education and health programs at their current inadequate standards. However, without higher literacy rates, improved health facilities and a reduction in child mortality, it is doubtful that population growth rates can be much reduced. Expenditures on social services remain comparatively low and undue emphasis has been given to such elements as higher education and urban health facilities. High priority needs therefore to be given not only to increased allocations for family planning and social service expenditure but also to its redirection to serve the wider interests of the population and the economy. 14. Policies that face the longer term issues in both the productive and the social sectors will take time to have an appreciable effect and will have to be implemented in the context of continued domestic and external resource constraints. Domestic resource mobilization has become a major problem area in the economy. Public sector development expenditures increased from 5.5% of GDP in FY71 to 11.2% in FY77 while non-development expenditures more than trebled. Public sector savings declined, and indeed were negative from FY72 to FY75, although they recovered to about 2% of GDP in FY77. The

11 - 5 - scope for non-inflationary domestic borrowing has been limited by declining private savings, so that financing public expenditures has become heavily dependent on external and domestic bank borrowing, with foreign assistance financing no less than 70% of development expenditures in FY76, and an even higher proportion of public investment. The share of development expenditures financed through foreign assistance fell to 48% in FY77 because of a decline in aid receipts. To improve domestic resource mobilization, additional taxation and improvements in tax administration are needed; nondevelopment expenditures must be restrained, possibly through selective reductions in subsidies; and the contribution of public enterprises should be enhanced, for instance through tariff increases. Given the limits to domestic and external borrowing, and the constraints on increasing revenues and decreasing current expenditures, it remains essential to limit the size and adjust the content of the public investment program. Emphasis needs to be given to providing adequate resources for agriculture and other areas where substantial and rapid increases in production and exports appear possible, as well as to the social sectors, which have been neglected in recent years. Conversely, the proportion of resources devoted to capitalintensive industrial and long gestation projects should be reduced. 15. The external position has been greatly assisted by rapidly rising workers' remittances from abroad, notably from the Middle East, and these have risen from US$130 million in FY73 to US$578 million in FY77 and to an estimated US$1,100 million in FY78. This increase has, however, been more than offset by a massive deterioration in the trade balance with the result that the current account deficit increased from about US$130 million in FY73 to more than US$1,000 million in FY75. It remained at roughly this level in FY76 and FY77, with rising remittances offsetting further increases in the trade deficit, but declined in FY78, due mainly to the massive increase in remittances. Allowing for debt repayments, however, external financing requirements amounted to about US$1,100 million in FY78. Long-term capital inflows on concessional terms have been insufficient to cover this amount and - even after suspending debt payments to Iran - substantial recourse to short-term borrowing proved necessary. The major uncertainty for FY79 and beyond relates to remittances but, assuming a fairly conservative estimate for these, external financing requirements are likely to remain well above US$1,000 million in nominal terms, even allowing for fairly optimistic trade projections. While financing in the range of US$1,100-US$1,300 millions was obtained during the mid-1970's, funds from OPEC sources may be more difficult to arrange in the future while assistance from traditional donors is only likely to be forthcoming in the required amounts if appropriate development policies are implemented. Unless workers' remittances rise more rapidly than is now expected, therefore, the external position is likely to continue tight. 16. Total external debt outstanding at the beginning of FY78 amounted to about US$6.27 billion of which US$3.76 billion was due to Consortium bilateral donors, US$1.04 billion to OPEC, US$1.08 billion to multilateral agencies and the balance to other bilateral and private lenders. Contractual debt service to official agencies rose from US$313 million in FY73 to US$394 in FY77 although the burden of these payments was eased to US$200 and US$310 million respectively as a result of debt relief arrangements. The four-year

12 - 6 - debt relief agreement with bilateral consortium members expired on June 30, 1978, and if no further agreement is reached, debt service payments will rise steeply, greatly increased by repayments under relatively short-term OPEC borrowing. In FY79, contractual payments are expected to amount to around US$535 million and considerably more in subsequent years. As a proportion of exports, non-factor service payments and workers' remittances, debt service can be expected to rise from about 15% in the FY75-77 period to around 17.5% in FY79, assuming substantial growth in both exports and workers remittances. Pakistan obviously needs to exercise care in protecting its ability to borrow to meet future requirements, and to restrict commercial borrowing to a minimum. For this reason, Bank Group lending to Pakistan is currently confined to IDA credits. Pakistan's debt to the Bank and IDA at the end of FY77 was about 15% of its external public indebtedness; by 1980 this ratio is likely to fall to about 11%. The share of the Bank Group in total debt service (after taking into account debt relief from other creditors) is now about 20%, but this is expected to decrease to about 9% in Pakistan's resource endowment, especially in the Indus Basin system, is substantial and during the 1960s the economy demonstrated a considerable capacity for growth. Rough estimates suggest that the economy could grow at perhaps 5-6% per annum over the next five years, and that this could be accompanied by a wider distribution of the benefits of growth than was achieved during the 1960s. A start has been made in the process of policy adjustment, but it is clearly evident that a wide range of further initiatives are necessary to deal with the causes underlying the economy's disappointing performance in recent years. Only if these new policies and programs are pursued consistently over a number of years will the basis for longer-term improvements in living standards for the population as a whole be established. PART II - BANK GROUP OPERATIONS IN PAKISTAN 18. The cumulative total of Bank/IDA commitments to Pakistan (exclusive of loans and credits or portions thereof which were disbursed in the former East Pakistan) now amounts to approximately US$1.7 billion. During its long association with Pakistan, the Bank Group has been involved in almost all sectors of the economy. Through FY78, 37% of total commitments were for public services, 30% for agriculture, 31% for industry (of which 10% was for industrial imports) and 2% for education. Lending for public services has amounted to almost US$700 million and has included loans and credits for railways, electric power, gas pipelines, Karachi Port, highways, telecommunications and water supplies. A large part of past lending for agriculture was for Indus Basin projects. Lending for industry has been mainly through the Pakistan Industrial Credit and Investment Corporation (PICIC). For most projects for which loans and credits are being disbursed, construction is now going ahead satisfactorily. The principal problems being encountered are that the rates charged by some of the public services have not kept pace with inflation and, hence, some utilities are not earning adequate returns. Annex II contains a summary statement of Bank loans and IDA credits as of June 30, 1978 and notes on the execution of ongoing projects.

13 19. Lending operations in Pakistan have three main objectives. One of these is to support the directly productive sectors of the economy and, in particular, to increase production of import substitutes such as foodgrains, edible oils, fertilizer and engineering goods and to sustain export growth in cotton yarn and textiles, rice and a large number of other industrial and agricultural products. The main part of Bank Group assistance for industry will continue to be through financial intermediaries. These include PICIC for the medium and large-scale private sector, the Industrial Development Bank of Pakistan (IDBP) for the small and medium scale industrial sector, and the National Development Finance Corporation (NDFC) for industries in the public sector. For the agricultural sector IDA lending is expected to be concentrated on the Government's program to increase productivity in the Indus Basin by controlling salinity and improving the utilization of surface irrigation and groundwater. The Bank is the Executing Agency for a UNDP technical assistance grant for improving agriculture and water planning in the Indus Basin. 20. Another objective is to support the necessary expansion of, and to improve the institutions which are responsible for, the principal public services which have benefitted from Bank Group lending in the past, namely, the Telegraph and Telephone Department, Karachi Port, Water and Power Development Authority, Pakistan Railways, Sui Northern Gas Pipelines Ltd. and the Lahore Water and Sanitation Agency. A number of these agencies are beset by institutional weaknesses. In some cases, improvements are being made with technical assistance financed under loans and credits. In other cases, where the problems are of such a nature that action by government is required, the Bank Group is encouraging GOP to take remedial measures. 21. A third objective is to extend lending operations into areas which will help to bring economic development to the poorest strata of the population. This shift implies increased lending for agriculture and rural development and will involve significant lending for projects complementary to the Indus/Tarbela works. In the urban sector, Bank missions have been working with municipal authorities on the plans for the urban development of Karachi, whose population now exceeds 4 million, and Lahore, Pakistan's second largest city. A Karachi master plan was completed in 1974 with the assistance of consultants financed by UNDP. Within the framework of the plan, a project was proposed and appraised for urban upgrading in the Lyari section of the city. This project, however, has been deferred indefinitely due to Government reconsideration of the project cost and financial arrangements. Planning in Lahore, which has a population of about 2 million, is at a much earlier stage than in Karachi and the immediate need is for technical assistance. Accordingly, the IDA credit for the second Lahore water supply, sewerage and drainage project includes provision for the financing of urban studies in Lahore. The emphasis being given to agriculture and other projects with low foreign exchange component justifies the financing of some local expenditures in appropriate cases. 22. A number of projects for Bank Group financing are currently under appraisal or being prepared in Pakistan. Appraisal missions have completed

14 -8- field reviews of a third power project, a petroleum development project and another irrigation and drainage project. Preparatory work is proceeding on a fourth agricultural credit project, a third highways project, a Karachi bulk water supply project and an agricultural extension and development project in Sind. 23. IFC has made investments in nine Pakistan enterprises for a total of US$30.2 million, of which US$22.8 million was by way of loans and US$7.4 million by equity participations (these are shown in Annex II). About US$11 million remains outstanding. The enterprises assisted by IFC include three in the field of pulp and paper products, two in textiles and one each in cement, steel and fertilizers. IFC is also a shareholder of PICIC. PART III - THE FERTILIZER SECTOR General 24. As already described in paragraph 11 above, the growth in agricultural production in Pakistan has slowed down in recent years. In order to reverse this trend, the Government is endeavoring to increase the availability of major inputs such as water, fertilizers, improved seeds, pesticides, farmer credit and extension services. About 48 million acres, or 24% of the country's total area, are cultivated. The main crops are wheat, cotton, rice and sugarcane. About 34 million acres, or 71% of the cropped areas, are irrigated by an extensive system of canals and tubewells, one of the largest in the world. The Province of the Punjab, the major agricultural region with about 25 million cropped acres, has a particularly well-developed irrigation system. 25. The expansion of Pakistan's agricultural output will depend predominantly on developing the potential for higher production in irrigated areas. At present, year-to-year variability in canal water supply is large and this uncertainty has a negative impact on fertilizer consumption. The Bank Special Agricultural Sector Review, circulated to the Executive Directors in March 1976, concluded that on average only 55 to 60% of the water required for maximum yields, and thus for maximum fertilizer application rates, was actually available at the farm gates. Moreover, because of the yearly variation of water supply, the farmer cannot rely on a stable supply of more than 40 to 45% of water requirements. The Government's efforts to increase total water availability from 97 million acre feet (MAF) in 1975 to 116 MAF in 1980 are of vital importance for increasing agricultural production. About half of the increased water supply will be through surface water schemes (mainly Tarbela) and about half through groundwater development (mainly tubewells). Fertilizer Market 26. During , consumption of nitrogenous and phosphatic fertilizer increased from a low base at average annual rates of 28 and 70%, respectively. The primary reasons were the introduction of high-yielding varieties of wheat

15 - 9 - and rice during the mid-1960s, increased availability of water and attractive fertilizer prices. The 1973 floods, the subsequent drought, the delay in the availability of Tarbela water because of the mishaps in 1974 and 1975, and the doubling of fertilizer prices (reflecting the increase of import prices) without commensurate increases in crop prices led to a decline in fertilizer consumption during Disruption of the fertilizer distribution system, following the takeover of fertilizer marketing in 1973 by the Provincial Governments, also contributed to this decline. 27. In 1975 and 1976, the Government took a number of steps to stimulate fertilizer demand. Crop procurement prices were increased and fertilizer retail prices lowered. Fertilizer companies were allowed to revive their marketing and distribution systems, and marketing margins were increased. In addition, lending procedures for small and medium-scale farmers were simplified. These measures, combined with good weather, increased consumption of nitrogenous and phosphatic fertilizers by 23% and 80% respectively in 1976 and a further 15% and 8% respectively in The large increase in phosphate use reflected the Government's efforts to maintain a favorable price for phosphate in order to correct the imbalance in the nitrogen/phosphate ratio. Despite the rapid increase, fertilizer application rates in Pakistan are only one-quarter to one-third the recommended levels, depending on the crop. 28. Taking into account planned increases in water supply and existing crop/fertilizer price ratios, fertilizer consumption is expected to continue to grow at relatively high, though declining rates in the next few years. Gradually, as opportunities for increasing water supply and increased use of high-yielding varieties diminish, the growth rate is expected to slow down from 15% in 1977 to about 7% by 1981, and 6% in The level of nitrogen consumption is forecast to increase from 511,000 nutrient tons in 1977 to 954,000 tons in Demand for phosphate fertilizers is expected to nearly triple from 118,000 nutrient tons in 1977 to 329,000 tons in Fertilizer Supply 29. Pakistan has been heavily dependent on imports for its fertilizer supplies. At present, the country has five operating fertilizer plants, with a combined capacity of 317,000 tpy of nitrogenous and 17,500 tpy of phosphatic nutrients. Two private sector plants, including the Bank/IFC-financed Dawood Hercules plant near Lahore, account for 75% of the industry's installed capacity for nitrogen and over 80% of output. The remaining three plants, accounting for 25% of capacity, are operated by the public sector National Fertilizer Corporation (NFC); because of design deficiencies in the ammonia sections, the capacity utilization of one of these plants currently averages about 40%. In 1977, local production met about 60% of nitrogen and about 10% of phosphate consumption. 30. Using Pakistan's natural gas, the Government plans to expand fertilizer production substantially. Including the proposed project, three large plants will increase production capacity of nitrogenous and phosphatic fertilizers by 320% and 900%, respectively, by Two of these projects - the Pakarab plant in Multan, in the financing of which the Bank is participating

16 and the Pak-Saudi plant at Mirpur Mathelo - will be operated by NFC. With the implementation of the proposed FFC project, Pakistan should be self-sufficient in nitrogenous fertilizer from 1981 until A small surplus of domestic production is expected during the period. 31. Both retail and ex-factory prices of fertilizers are set by the Government. Retail prices, which are uniform throughout the country, are revised periodically to take into account import prices, domestic production costs and crop prices. The last major revision was undertaken in early 1976 when retail prices were reduced, despite high world prices, in order to stimulate agricultural production. Since then, the minimum price for cotton and the procurement price established by the Government for rice have been increased but those for wheat and sugar have remained constant. While price relationships have been adequate to encourage the rapid increase in fertilizer offtake mentioned above (paragraphs 26 and 27), there is evidence that further price adjustments, especially in relation to wheat, may be desirable. Ex-factory prices are established on a case-by-case basis, with the aim of allowing each manufacturer a reasonable return on investment. In recent years, the retail price of urea (PRs 1,360 per ton in 1977/78) has been much higher than the price paid to the main domestic producers (PRs 784 to 856 per ton). The difference, less distribution costs including dealer margins, is paid as a Development Surcharge to the Government and is used to partially offset the subsidy on imports. As new projects with much higher initial capital costs (and hence higher exfactory prices) come on stream and the cost of imported fertilizer continues to increase, the net subsidy paid by the Government will increase substantially unless the retail price of urea is raised. The newly established Fertilizer Planning Committee (see paragraph 41) is expected to review pricing policies as a whole, including the treatment of different factories and the extent to which the Government budget can be expected to bear an increasing subsidy. Any recommendations for increased fertilizer prices would have to be accompanied by adjustments to crop output prices in order to maintain, or increase, the returns to the farmer. PART IV - THE PROJECT 32. The project was reappraised in March/April An updated Appraisal Report (No. 1392a-PAK) is being distributed separately to the Executive Directors. Additional data on the preparation of the project are given in Annex III. Negotiations were held in Washington in July The Pakistan delegation was led by Mr. Aftab Ahmad Khan, Secretary, Finance and Economic Affairs, Government of Pakistan. 33. The proposed credit would be the Bank Group's third operation in support of the fertilizer industry in Pakistan. The first loan - in July was for US$32 million equivalent and was made, together with an IFC loan of US$1 million and equity investment of US$2.9 million, to Dawood Hercules Chemicals Ltd. (DH) for a 1,100 tons per day (tpd) urea plant near Lahore in the Punjab. The project has been a major technological and economic success. The plant was completed at close to the original estimated cost and began production in July 1971, virtually on schedule. It has consistently

17 operated at high capacity. Because of higher than expected import duties, the reluctance of the Government in granting price increases, the temporary nationalization of the fertilizer distribution system in 1973 (in 1975 private producers and dealers were again allowed to market fertilizers), and the devaluation of the rupee in 1972, DH's financial return has been less satisfactory (8% for local and 4% for foreign investors) (Project Performance Audit Report No dated November 10, 1976). However, the Government has recently allowed DH a higher price. The second Bank loan in the amount of US$35 million was made in May 1974, to Pakarab Fertilizers Ltd. to help finance the expansion and modernization of the Government-owned calcium ammonium nitrate (CAN) and urea plant at Multan. The Asian Development Bank (ADB) and the Abu Dhabi National Oil Company (ADNOC) are providing loans of US$27 million and an equity participation of US$31 million, respectively. When completed, the expanded plant will have a capacity to produce about 910 tpd ammonia, 1,000 tpd prilled nitro-phosphate, 1,800 tpd CAN and 200 tpd urea. The project has borne the full brunt of the worldwide inflation and equipment delivery delays following the oil price increases in Originally estimated to cost US$106 million equivalent, it is now expected to require US$199 million. Additional funds are being provided by the OPEC Special Fund, NFC, ADNOC and commercial banks. Startup, originally scheduled for early 1977, is now expected to take place in late The main causes of delay were a shortage of civil contractors' capacity in Pakistan and late deliveries of critical equipment. Because of the increase of international prices of fertilizers that has taken place in the meantime, the project remains economically viable. 34. The proposed project incorporates lessons learned from the DH and Multan projects. It embodies the elements that have contributed to DH's technological and economic success, namely, the involvement of local and foreign partners which combine the knowledge of local conditions with technical and marketing experience; the hiring of competent engineering firms which have an incentive for constructing the project on time and within a specified budget and have experience in constructing the Pak-Saudi plant which is almost identical in design and only about 20 miles away from the site of the proposed project; emphasis on reliable plant design; and careful planning and training. The Marketing and Pricing Principles Agreement between the Government and FFC also deals satisfactorily with the pricing, taxation, devaluation and marketing issues which adversely affected DH's financial performance. Similarly, the contracts between FFC and the engineering and construction firms provide a satisfactory framework for dealing with the implementation problems that have affected the Multan project, and contain incentives to complete the project on schedule and within a specified budget. These firms have assumed full liability for foreign exchange cost overruns beyond US$12 million above US$105 million for the landed cost of imported equipment, materials and spares included in the basic estimate. 35. Essentially, the project arrangements, taken together, constitute a package designed to reconcile three major objectives. First, the Government of Pakistan wished to attract foreign private capital and know-how to the country in general and to the fertilizer industry in particular to supplement the effort of the public sector, which is over-stretched in constructing two

18 large plants and to provide competition. Second, private sponsors, both foreign and local, were naturally concerned that in a situation in which the Government controls many of the determinants of sales revenue and cost - in particular, input and output prices as well as marketing margins - their ability to earn a reasonable return on investment should not be jeopardized by Government actions. Third, the Government was concerned that the arrangements for the project in no way impaired the sponsors' incentive to build and operate the plant efficiently. To that end, the Government has agreed with FFC and the sponsors that the project's ex-factory price will be set so as to yield the sponsors a reasonable return on their investment if the plant is built within a specified capital cost and operates at efficient levels (paragraph 47). The Company will assume the production and sales volume risk and will be allowed to market its output without territorial restrictions in the country. The Company will realize the stipulated return on equity if it builds the project on time and at or below the established ceiling on capital cost, operates efficiently at stipulated levels of capacity utilization and effectively markets its output. Project Scope and Location 36. The proposed credit would finance the construction of a 1,725 tpd gas-based urea plant, an intermediate ammonia plant with a capacity of 1,000 tpd and ancillary facilities at Goth Macchi in the southern Punjab. The project includes a bagging plant, storage and loading facilities, water purification and effluent treatment units, a power plant, maintenance facilities and a housing colony. The plant will be located halfway, about 375 miles, between Karachi and Lahore along the main railway line and highway connecting both cities. Gas will be transported from the Mari field by a 33-mile pipeline included in the project and to be built, owned and operated by FFC. The field's reserves are estimated at 4.0 trillion cubic feet (TCF), of which 1.8 TCF are proven. Including the proposed project, the Mari field would supply three fertilizer plants, of which one (Esso Fertilizer) has operated since 1968 and another (Pak-Saudi Project) is under construction. The proven reserves would meet the requirements of the three plants for about 25 years. However, if a fourth plant of the same size as the proposed FFC plant were established on the basis of Mari gas, the assured reserves would meet the gas requirements of the four plants for only about 15 years. Accordingly, the Government has agreed to guarantee the supply of gas to the project and not to sanction additional users until adequate additional reserves are proven (Section 3.06 (b) of the draft Credit Agreement). A contract between Esso Eastern Incorporated and FFC for the supply to the project of gas for 20 years has been concluded. Project Implementation 37. The project will be implemented by a newly established company, Fauji Fertilizer Company Limited (FFC), in which the sponsors, the Fauji Foundation (Fauji), and Haldor TopsOe A/S (Topsoe) will provide up to 36% and 6.4%, respectively, of the equity capital. Fauji is a charitable trust established in Pakistan in 1953 for the benefit of ex-military personnel and their dependents. The main benefits provided by Fauji are medical services and

19 educational stipends. The Foundation owns and operates nine industrial projects (sugar and textile mills, gas bottling and distribution, and food processing). Currently, Fauji employs about 12,000 people, and in FY77 had an estimated income of about US$9.6 million equivalent and total assets of US$84 million equivalent including net fixed assets of US$30 million equivalent. Topsoe is a well known Danish chemical plant design and process development company. Founded in 1940 by Dr. Haldor Tops6e, and reorganized into a limited company in 1972 with a share capital of Danish Kroner 30 million (US$5.6 million equivalent), the company is engaged in chemical process development and licensing, process engineering, detailed engineering, catalyst research and manufacture, as well as consulting and advisory services. It employs about 450 people and in 1977 had operating earnings of US$4.7 million equivalent. Topsoe is 50% owned by Snamprogetti S. p. A. (Snam) of Italy. Snam has been selected as the engineering firm by the sponsors; it will employ the commercially proven Topsoe ammonia process. The direct selection of Snam by the sponsors was accepted by the Association and other lenders because Snam's contract price and services in 1978 compared very favorably with the proposals evaluated in 1976 for the Fauji-Agrico Project. This earlier competition and evaluation process provided a good basis for establishing the reasonableness and competitiveness of the Snam proposal. 38. Within FFC's organization which will supervise the engineering and construction firms selected (Snam and its wholly-owned subsidiary, Coming S.p.A.), Topsoe will have prime responsibility for project execution. Anic S.p.A. of Italy, a major manufacturer of fertilizers and petroleum products (like Snam, a company within the wholly Government-owned ENI Group), has been retained to assist the FFC plant during the initial three years of operation. Under a technical agreement with FFC, Topsoe will provide for a reasonable fee their current and future know-how relating to engineering, design, procurement, and marketing and will also assist in training FFC's personnel. Anic, in addition to acting as the operating company, will provide assistance in all preoperating phases regarding design, engineering, pre-start-up and commissioning. James Chemical Engineering (JCE), in its role as Owner's Representative, has carefully reviewed the activities of Snam to date and will continue to do so to assure appropriate supervision of Snam. 39. In full operation, the project will employ about 660 people. Because of the rapid expansion of Pakistan's fertilizer industry, the majority of the skilled work force would have to be trained. To this end, FFC has arranged for Anic to provide training of Pakistani personnel. Key Pakistani personnel will also be attached to the engineering firm during the engineering and procurement stages and to major suppliers during equipment manufacture. Further training needs will arise during the final stages of plant construction and during start-up and commissioning. It has been agreed that by December 31, 1978, FFC will submit to the Association a training program which it will implement after obtaining agreement from the Association (Section 2.08 of the draft Project Agreement). The Association will be consulted on the appointment of FFC's Chairman and Managing Director and of its Assistant Managing Director (Section 3.02 of the draft Project Agreement).

20 Marketing 40. Based on a transportation and marketing study, FFC plans to market about 80% of its sales in the Punjab. The remainder will be sold in Sind Province. Prior to plant start-up, FFC will undertake a two-year seeding (market and marketing development) program. It has been agreed that by September 30, 1978, the Government and FFC will develop a seeding program and that the Government will allow FFC to obtain sufficient local or imported fertilizer for this purpose (Section 3.04 of the draft Credit Agreement). 41. The Government recognizes that, because of the variety of factors and linkages affecting fertilizer use, there is a need for more effective review and coordination of policies and programs in the fertilizer sector, particularly in pricing, marketing margins and credit. There is also a need for sound statistical data and a more effective organizational framework to coordinate, within the Government decision-making machinery, fertilizer policies and programs. The Government has, therefore, recently set up a Fertilizer Planning Committee (FPC) to examine these matters and to review its findings with the Association (Section 3.03 of the draft Credit Agreement). At present, retail dealers receive a commission of PRs 40/ton, which may not provide adequate incentives for them to undertake a vigorous marketing effort, particularly to reach more remote areas and smaller farmers. The Government has agreed to consult with the Association from time to time regarding the adequacy of dealer's margins (Section 3.08 of the draft Credit Agreement) and intends to request the FPC to review this matter on a priority basis. 42. FFC plans to transport about 50-60% of its output by truck for distances up to 300 miles and the remainder by rail. Pakistan's present and prospective fertilizer plants located near the Mari gas field will make heavy demands on the country's rail transportation facilities. The Government has established a Fertilizer Transportation Task Force, consisting of representatives of GOP and of the railways and fertilizer companies, to formulate, based on a recent transportation study, detailed action programs and to supervise their implementation. The Government will ensure that Pakistan Railways provide the required number of trains to transport FFC's output (Section 3.05 of the draft Credit Agreement). Cost Estimates and Financing Plan 43. Total financing required is estimated at US$260.3 million, of which US$158.8 million is in foreign exchange. The project is exempt from import duties. Physical contingencies have been provided at 5% for equipment and 10% for civil works, handling and freight. Price escalation for equipment has been calculated at 7.5% during 1978/79 and 7% thereafter. On civil works, escalation rates of 15% per annum during 1978/79 and 12% thereafter have been assumed because of the overstretched state of the heavy construction industry, particularly in remoter areas of Pakistan. The cost estimates include initial working capital requirements of US$12.7 million and interest during construction totalling US$21 million. A summary table of the cost estimates is shown in the Credit and Project Summary.

21 The base financing plan is as follows (in US$ million equivalent): Local Foreign Total Equity Fauji Topsoe IFU IDB Pakistan Financial Institutions and Commercial Banks Debt IDA USAID KfW Italian Government Pakistan Financial Institutions and Commercial Banks Total Although US$260.3 million is the best estimate of total project costs at the present time, arrangements have been made for possible cost overruns. Under a contingent financing plan totalling US$272.0 million, cost increases would be financed by additional equity contributions of US$1.6 million from Fauji (bringing its total equity contribution to US$29.2 million equivalent) and US$0.2 million each from Topsoe and IFU (raising each of their contribution to US$5.2 million equivalent), additional equity from local banks and additional loans from the Danish and Italian Governments and local banks. Cost increases beyond the amount covered by the contingent financing plan would be financed partly by Snam under the guaranteed price provisions of their contract (see para 34) and any remainder by the Government. 45. FFC's share capital will be paid in pari passu with loans to maintain a debt/equity ratio of 70/30 (Section 4.06(a) of the draft Project Agreement). This is relatively high for a new company building a grass-roots plant with associated infrastructure, and having to repay its debt on an equal principal basis. However, the Marketing and Pricing Principles Agreement between FFC and the Government provides the company with enough liquidity from the first year of operation to enable it to service its debt without difficulty. Moreover, USAID has agreed that its loan be subordinated to those of other lenders until the debt/equity ratio reaches 50/50, which is expected to be achieved during the fourth year of operation. The USAID loan has been committed. The KfW loan is expected to be signed in September The commitment of the Pakistan financial institutions and commercial banks has already been obtained. The remainder of the foreign exchange requirements would be met by an Italian Government loan and, in the event of cost escalation, a loan from the Danish Government. The IDA credit will become effective after agreements covering loans from AID, KfW and the group of commercial

22 banks and equity contributions from Fauji, Topsoe, the Consortium of Pakistan banks and financial institutions, IFU and IDB have been signed. Disbursements from the proposed IDA credit would, however, be limited to US$2 million equivalent until all loan and equity agreements have become effective. All foreign loans will be relent to FFC for 15 years, including four years grace, at 10% p.a., a rate comparable to that charged by local financing institutions for long-term foreign-currency loans. FFC will bear the foreign exchange risk. Since 1975 wholesale prices have risen an average of 8% per year; inflation during the next three years is expected to be only slightly less severe. Procurement and Disbursement 46. Foreign loans will be used to finance imported services and equipment. Local expenditures will be financed by local funds and partly by Topsoe's and IFU's equity, after competitive bidding. The balance of Topsoe's and IFU's as well as IDB's equity, together with the Italian credit, will finance engineering, licenses, technical assistance and training. USAID's loan, which is tied, would finance equipment and JCE's fees. The balance of imported services and equipment will be financed by the Association and KfW on a parallel basis. Except as mentioned below, international competitive bidding procedures (ICB), in accordance with Bank Group guidelines, will be used for equipment and materials to be financed by the Association. Processcritical and proprietary equipment and items in limited supply to be financed by the IDA credit (estimated to cost US$6.0 million in total) will be purchased following bidding from qualified suppliers, which have been approved by the Association. In addition, items costing less than US$100,000 each, up to a total of US$3.0 million, may be purchased through international shopping. The IDA credit will be disbursed to meet 100% of foreign expenditures for imported equipment and services and 100% of the ex-factory cost of locally manufactured equipment awarded after ICB. Qualified Pakistani manufacturers participating in international bidding would be accorded a preference of 15% or the prevailing import duties whichever is lower. Local manufacturers are expected to supply not more than US$1 million equivalent (less than 2% of the IDA credit). Up to US$1 million of the IDA credit will be used for retroactive financing expenditures prior to the date of the Credit Agreement. Financial Covenants 47. As already noted, prices of fertilizer in Pakistan are controlled by the Government; ex-factory prices are set on a case-by-case basis with the aim of allowing a reasonable return on each manufacturer's investment. For the proposed FFC project, FFC entered into a Marketing and Pricing Principles Agreement with the Government which provides that the ex-factory price for urea will be set, for a period of 10 years following the commencement of commercial operations, so as to yield a 16% annual after-tax return on the par value of preferred shares (to be held by Pakistan financial institutions and banks) and a 20% annual after-tax return on the par value of common shares, provided the plant operates at 65% of capacity in the first year of operation, 85% in the second year, and 90% from the third year onwards, based on 315 operation days a year. FFC will bear the production and sales volume risk and will only realize the above returns if it sells at or above annual levels

23 stipulated in the agreement. The agreement also contains two major provisions to induce the sponsors to mur'mize project cost. First, there will be a ceiling on the ex-factory price of urea should capilal costs increase beyond US$272 million (i.e. by more than 520 above the pr2sent cost estimate), which is considered an upper limit for project cost if elficiently executed. Secondly, funds borrowed from or through the Government -o finance cost overruns in excess of US$272 million will be repaid by FiC prior to any dividend payment. 48. To ensure sound financial management of FFC, il has been agreed that, unless the Association shall otherwise agree, FFC will: (a) not make additional investments in fixed assets outside the project exceeding US$5 million equivalent per year plus unutilized balances of previous years, or cumulatively, a maximum of US$15 million in any one year (Section 4.04 of the draft Project Agreement); (b) not exceed a debt/equity ratio of 70/30 (Section 4.06 (a) of the draft Project Agreement); (c) achieve a current ratio of at least 1.5 at the project completion date and 1.2 thereafter (Section 4.06 (b) of the draft Project Agreement) and will not incur any additional long-term debt if a debt service coverage ratio of at least 1.4 cannot be maintained in the succeeding fiscal years (Section 4.06 (c) of the draft Project Agreement); and (d) pay dividends only out of accumulated net earnings and no dividend or any other distribution with respect to share capital will be paid unless a current ratio of at least 1.5 is maintained after such payments (Section 4.05 of the draft Project Agreement). In addition, Fauji and Topsoe have agreed that they will take all necessary measures to ensure that FFC performs its obligations under the Project and other Agreements (Section 2 of the draft Fauji Topsoe Agreement). Project Benefits and Risks 49. The estimated financial rate of return on the project as a whole is 21% before taxes and 14% after taxes. The economic rate of return of the project is estimated at 23%. These rates of return are sensitive to changes in fertilizer prices, capital cost, delays in completion of construction and capacity utilization. However, even under the unlikely combination of the most adverse foreseeable circumstances, they remain satisfactory. One important benefit of the project would ": substantial savings in foreign exchange. The average annual savings, after payment of dividends to foreign shareholders and royalties and fees to Topsoe and Anic, are estimated at US$79 million in 1978 terms. The project would also have unquantified benefits of management training, assured fertilizer supplies, and development of a marketing organization.

24 Project design, which will meet environmental and safety standards satisfactory to IDA, will be based on modern commercially proven technology, thus minimizing technical risks. The plant will be built by an experienced engineering firm, which has the incentive to minimize cost, and will be managed and operated with the assistance of experienced partners and advisors who combine the knowledge of local conditions with technical and marketing experience and whose return is sensitive to capital cost, timely completion and capacity utilization. Because of inflationary pressure in Pakistan, there is some risk of price escalation beyond the US$26.5 million equivalent provided in the cost estimates and an additional US$11.7 million has been secured on a stand-by basis from the sponsors, local financial institutions and Danish and Italian Governments. The Government will provide, on terms satisfactory to the Association, funds to cover costs in excess of US$272 million. The forecast of fertilizer demand is based on conservative assumptions, but there is a risk that demand for fertilizer will not grow at the projected rates if the Government pursues adverse agricultural pricing and other policies. The promotion of agricultural development figures prominently in the Bank's dialogue with the Government of Pakistan. There will also be a slight sales risk during the first three years of operation when domestic nitrogenous fertilizer production is expected to exceed demand by a small amount. The plant, however, is expected to be able to export any surplus output profitably. PART V - LEGAL INSTRUMENTS AND AUTHORITY 51. The draft Development Credit Agreement between the Islamic Republic of Pakistan and the Association, the draft Project Agreement between the Association and FFC, the draft Agreement between the Association, Fauji, Topsoe and Anic and the Recommendation of the Committee provided for in Article V, Section I(d) of the Articles of Agreement are being distributed separately. 52. Special conditions of the project are listed in Section III of Annex III. Additional conditions of effectiveness (Section 5.01 of the draft Credit Agreement) include the signing of the USAID Agreement, the KFW Agreement, the agreement to be entered into by the consortium of Pakistan financial institutions and banks, the Fauji Topsoe Agreement, the IFU Agreement, the IDB Agreement, the Participation and the Shareholders' Agreements (between Fauji and Topsoe). No withdrawals from the Credit in excess of an aggregate of US$2 million equivalent may be made until these agreements, as well as the Danish loan and Italian credit agreements, have become effective. 53. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association.

25 PART VI - RECOMMENDATION 54. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachments August 16, 1978

26 TABLE 3A PAKISTAN - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) PAKISTAN REFERENCE COUNTRIES (1970) TOTAL MOST RECENT AGRIC ESTIMATE INDIA THAILAND TURKEY** _ -_------_ _-----_ _ _ ANNEX I GNP PER CAPITA (USS) POPULATION AND VITAL STATISTICS POPULATION (MID-YR, MILLION) POPULATION DENSITY PER SQUARE KM PER SO. KM. AGRICULTURAL LAND VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) CRUDE DEATH RATE (/THOU,AV) INFANT MORTALITY RATE (/THOU) 142.0/a8b /a LIFE EXPECTANCY AT BIRTH (YRS) GROSS REPRODUCTION RATE /b,C POPULATION GROWTH RATE (X) TOTAL URBAN tt URBAN POPULATION (X OF TOTAL) AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 42 /ac 43C TO 64 YEARS 52.0:/a YEARS AND OVER AGE DEPENDENCY RATIO 0 9/a c ECONOMIC DEPENDENCY RATIO 1I7: i 1.6/a I i.1 /a t.:9/ 1 :,/e FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU).. * USERS (% OF MARRIED WOMEN)......,, EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) Lh 140D.0. Lf LABOR FORCE IN AGRICULTURE (%) UNEMPLOYED (% OF LABOR FORCE) Z4 L, t INCOME DISTRIBUTION % OF PRIVATE INCOME RECID BY- HIGHEST 5% OF HOUSEHOLDS HIGHEST 20% OF HOUSEHOLDS /C 51.1/C 60.6 LOWEST 20X OF HOUSEHOLDS 6.4 Li * ,7 /C 5.6 I 2.9 LOWEST 40 OF HOUSEHOLDS 17.5.Z /C DISTRI8UTION OF LAND OWNERSHIP --- _ -- % OWNED BY TOP 10% OF OWNERS ,.,0 % OWNED BY SMALLEST 10% OWNERS i HEALTH AND NUTRITION POPULATION PER PHYSICIAN /& 431O.O/b /a POPULATION PER NURSING PERSON W 844O a b tg A POPULATION PER HOSPITAL BED ; s PER CAPITA SUPPLY OF - CALORIES (X OF REQUIREMENTS) PROTEIN (GRAMS PER DAY) U OF WHICH ANIMAL AND PULSE 1?6/a. 14.0/c /d 22.O/k beat' RATE (/THOU) AGES /d EDUCA ION ADJUSTEU ENROLLMENT RATIO PRIMARY SCHOOL SECONDARY SCHOOL YEARS OF SCHOOLING PROVIDED (FIRST AND SECONO LEVEL) 1O.O/k 10.0/6 10.0/C t.0 VOCATIONAL ENROLLMENT (% OF SECONDARY) /e 14.0 ADULT LITERACY RATE (%) 16.0/ /rn HOUSING PERSONS PER ROOM (URBAN) 3.1/m * OCCUPIED DWELLINGS WITHOUT PIPED WATER (X) ACCESS TO ELECTRIC4TY (X OF ALL DWELLINGS) RURAL DWELLINGS CONNECTED TO ELECTRICITY (X) CONSUMPTION RADIO RECEIVERS (PER THOU POP) B PASSENGER CARS (PER THOU POP) ELECTRICITY (KWH/YR PER CAP) NEWSPRINT (KG/YR PER CAP) 0 '/a n 0.6/C SEE NOTE AND D-EFT I-----O--R---E I SEE NOTES AND DEFINITIONS ON REVERSE

27 NOTES~~~~~~~~~NON ULess o:.therwise noted, dote for 1960 refer to any year between 1959 and 1961, for 1970 between 1969 and 1971, and for Most Rerent Estimate between 1973 ad Turkey baa been, aeilcted aaa bjective o-nutry for Pakistan sine. the natural resoercee, agricultural hbasiand eooialefficient prodootion and tnv..earnt proaranoare likely to be similar in both countries. Moreover, Turkey and Pakistan hav asomilareligions and cultural baokgrownde, with nany of the oas social and cultural barriers ta ond.anination with Turkey being Oscsewhat ahead in, this procesa. PAKISTAN i96i Ia Tuciodra data for Bangladesh; lb ;.c ixcclading frontier regions; /d and 60 years and over respectively; /g Retio of population under 15 sod 65 and over is tetal labor fence; If ; La Reglstered, mar all practicing in the.- try0; /h Includes. nidwivss; Ai Including dispensaries; LT ; lk Up to roatricolatiec (10th grads); /1 yasrsaend over; the aility no read with undarstanding a short statement Mon very day life in, spy lacl enae;j data rater to houceho1ds; to Figors dogs not inladed iports by lend /afoti of population under 15 end 65 and over is total labor force; /b Registered, not all practicing in the country; - 7.W lec1iding dats for Bangladesh: Id Enlodiga population ef D.1. Than cud Pssha-a Divisiene; Is Tp cc oacrlculstinn (10th grade). MOST ORENTM ESTIMATE: /0 Registered, not all pr...ricing in the country; lb T1o1sdingource-dafdwvra; It Op to natricolation (10th grade). INDIA 1970 /cotio of population coder 15 end 65 and Over to total loabr force age 15 cod over; /b Eatimeted by National Sample Survy, In toc onfv the average ounher of person Necks of onenpin)yert as perce..tege of ntotl peranon /weehe in, the total labor force; 1o967-69; Id lnludinf nidwivee. THAILANDh 1970 Ia Otio of population cadet 15 and 65 sand ovan to e.non-ically active popalation - age 11 and over; /b Econoanioally active population age 11 cnd over; Ic Rural only; Id b Is Public schools, whinh includes rechntcl'educstian at the poot-secodary level. TRKNiEY 1970 I 1967; /b teoludee 17 eastern provinces; /n ; Id ; Is Ratio of population coder 15 and 65 and over to total laboar force; I/f Civilian labor force; /a Inluding Peak season agricultural underemployment; /6 Disposable mouswe (1966) ; / Agricultural land (1973), ignoring landless bouaseholds; Ij Including assistant nurses and midwives; Lk ,6; / ; _/n Person sic years and aver who tell the caseus takers that they can read and write.. R13, may 12, 1978 DmEIuWO Of BQIUL DIDICATOR Land Are ithe _e 2 ) P-elatiLsn ft. norsin se.so - Population diolded by noeber of praticing Total- Total surface area comprising leand area and island wasters, mle sad female graduaste nurses, "trained" or "CertifiRed" unures, Agric.- sand Moat recent estimate of ogfutrlare awed iaoporarily at par,s- axeiliary personnel with trafaing on exe,prience. neatly for crops, pastures, nrket 6kitchen gardns or to ha. follmw. Poeslatiem ea ibseal bed - Pspulatinn divided by saber of hospioti heda avial spbic and Privts general sand speniallzed hospital imp cotta(000 en and - NP Per-.. pit. astiesstes at current sacht Prices, rahabilitatifn Renters; excludea nursieg homes end etatblishesents far caolmdby a- nono-rion method asa Woand Book Atlas ( basis); asatediai ad pevea.tiva osre. 1960; 1970 and 1976 deta. r capiat ccalci:.% el t eairm-ts5 - Computed teem energy equvalnt f Population mt fed and uppiesavila:ble vital stetistice is oeustry per capita per dsy; avaitaha aupplies mompriss domesi prduatio. Population imperta, (mid-year lea. separis, milion) and - Anof July fi"ap: if eat available, syctag Changes in stack; met supplies exclude anial feed, seeds, of quantities twa end-year used estimates; 1960, 1970 and 1976 data. ia feed processing end Iass.. in distribution; reqeireests were eatieted by FAO baead ee physiatogical masdate normael Ponulottoc activity dteait, ad - health par eooars comaidhe - Mid-yea population. por square kil amss sting smeiraoental tosaperat,,rs, body saight, age and se. distribtciee af (100 hectares) of Catol area. pepulatilso, ad allseeg lot far waste at household level. Population, density - Par aeqarels a f geric, land - Esutad aso babov fee Pa aia ed t orr foram ear day) - Pesate. courntest agitnloland Patpr only. naples ma.t uppty effeeda pe e; met supply of food Is defined se abeve; requirementspital fall. statiatios csuetrias esatablished by USDA Eceameo Research Se,vife- provide fat a mdlatesin alloweance at 60) grew. at total preteke pee day, and Crude birth rate par thmsaand, ovrage - Amnes1 live hints per thousand at 20 gslatm- animal and poles pnatain. at which 10 gr-s mid-year should benia population; tnyaeritoasetic averages -ding is 1960 and 1970, Prtotai; rheas standards are, lamer thee thoss of 75 gems of tstal protein and five -year averag ending in 1975 far emat recent setimsate. and 23 geese- at aimal pretein as an average fat the world, Crude Preposed.by deaat rate PAD ear th-au nd. average - Annual. deathe per thousand o at md-year, in tha Third Wlorld Fead Survey. papuletian; ten-year aritesetlc averages ending in 1960 and 1970 end f in- Pa aiaeeemas rmeimel end Pulse - Protein sapply af teed year averag ending in 1970 for most rec..ant estimate, dervdfoonmasadple in gin sper Infeant day. aertaliry rate 0/thaul Annatl destba at imfsta uandar ens pear at gag Death rats (Itheul ere Anneal dsthe Per thousad in sea group 1-i per thb.a.a.d live births. years, to children 19 this age group; suggested as em indicator of Litte a..eceeny at birth (yr.) -Avera.ge ounber of peace at life resaosiniaso atale,trition. birth;, usually f ives-year averages ending in 1960, 1970 and 1975 tar developtag nonns.education Drre preerdu_ctiam rate, - Average oa-brofa live daughtrer a comae will boar Ajseeniuatrio-pmryscohol - Rarallmant in bee of o-na all reproductive ages as Par- period if abs eaperienca prvaemt age-apacifc canfg oprmyshe-aepeplatia; includse nhild-m aged 6-lI fertility yeses rates; usually five-year enrages ending is 1960, 1970 and 1973 but adjusted fat diffa-rst Iengths at primary edccecio; tar cousries for with dvleping coutries. universsl educatime, enainllmet may sexceed 1% sine suew pupils are balso, Po ainarmed, rats it) - total - Compound annutal growth -atas aft md-year at abase th. eg inial school age. population fo at , and Adutdspnla ere- t seeondary sohenl - t'pmsatd as Ppoelatnon shav; eanedary areth rate (X - urban - Computed like greth eats of total adustim rqures at laset four yearsa appenwed paplation; primarydi fferat Instruction; defini-sin of urban arses may afgect comparability at Provides general, vacational at teachar traimig Instructions far pupils dat amnconcia.a Urban P=claio 0i7. 12 attoal) to 17 years - Ratio at at ajpp; corrsponsmdaq urant teisl Papuletion; ora diffsrent B Yasetor aaal f aln eldd defiaitiaaa reie (first of urbsa an 4end levels) - erae may afsot comarability Total yeasr. of g dsta anang coutries. shalg attseneday val, vesatenj im_tnstia my be partially a sc"1ataly axcleded. dee arootta fsromm) -Children, (0-14 years), weoftia-aga (13-64 years), Yaaimlerian t tscdr)-pcranliaiafm Andl retired (f65 yaa. sld an ve)a parcatagas ef mid-yeas populaiaoin. - tehia,idsra=rahrpoe chitch aprate Redap4adancl at as AR. desend-sy ratis - Ratio of Population undsr 15 sold 65 end over to chess departments, of asos_dary Rtin, fsa ZRof rs15trug 4 nonenic dpeodnov rtis AdulRItiree rae (1 -Litarata Rata ofpoplatin under 11 and adults 63 and awr (able to ta read and cetg write) aa ftoa par- dl oplto gd i pasts end aver. tbs labor force in age gr-ep of yeasr. lankly olnii-eceeaf,sitv.tel-tmusslati-s neshr at acptove aio..il of birth-sset-1i delcs oadsr..cepices at natiemal fesly Planslng program Praaertm since inception. ubn - Average mnbr of persona par rcae in acuiad cneinadwlngrnrban are...; dwellings aclud.a ne-pateanent pasil oteciog- uses ftat mrrie child-heaing woan -Preatagas ~age4 ( af oarrisd ~Year)who wassa at s bieth-coutral atrciuca sand devices, -n-,pisid to all marrisd prts wesn is aas age group. Oore wlig iha iuraanrularawihtisds oa sa 'i-oope svsinldciig or a ptada piedwtr siiiaa. ~~~~~~~~~~~~~~~~as EmaL1Y R_t percentage -at all.anpiad dwal1inga. ftraleyso Acetitealapriciy ftofnaluddsingasad.oa-lprfoc Conventionsl lihaayed dwellinga aludngoiel with -u ashes_. pesn,icuigswd lcrct fornue nlvn sod ba uemployed estotadinghanaecivea,audeots, quarter. as Parcent of total etc.; dwellings dafinltiona Is urb,an sd rural areas. is v-rio- c.oanrosa sea co ospa-bla ualdelia oomatd o lciie (. -Cn. pucda bv a ua Lahor force insnolue(1.gicrllbor, fract (in fanning, torestey, dwlings ny. -.bw a.. basting and fihag a ecetg of totallabor force. 5(1)96fl!oved it at la~~bor farce) Unemployd -rsusully dafimd as Persona wha ton-emtion are able ad willin:g ta tkbe a Mo, tu 07 a job on a iven fey, reanad out Raiteavr er-thasna-p) of a - All job, types and aseking at receivers work furaaeiidmnm foe -adi. broadamata eee e eedn u Ato ers pulcper thousand of Papulation;.. slolds. unicensed renei-ar ek; may rot be loc,p-cbla between coatrias des ta differest datefi.1iuns iscusr and in pearst whea registration of at radia.acpioved sacs and was in source affect; at data, e.g., employment office statitics, sample data fur recant years may not he ompracble since east csartris abolished suvys, copalsry uneploynan in...ra.n..ticensing I ditiblill - loo'os dtao-0bcicsprc ta :t c priva I~~~~~~~Pessga or.fet ho ca - Psaanger ours. comprise eotsfr cars aseating 5 te imooe (both is nash and kind) ltessthas, sight Pereou; selude mablsoes rece.ived by hoarae riohast and military 17., rchet20%, poorst lit, and pooreat 40% at h-ous- heblle.. balds. ilsortloity Okeb/vo per cas) -~~~~~~~~...oel n-samapriem ~ of industrial, cins-oisl,i oflrdaorei _itrbaio Diotrib.tiu. Poccenoages of land noted by ecaltbiest 10%.1,11.~~~~~~~~~~~pali and private eleotricity hpsasd on pradacties in kilmawti data, hour per witkoselmet capita, genrally c farels. ngid and poorest 107% e lo- of land oweetrs. Roe far imparts and expartts of al-triniity... -Si.btal Stealth_sod Nutrition~ esimtdrrm omsic cpita ansul tanaceptian in kilograms P`eoc4Laco proran - Populatiss divided by mache at praticingaoat. i."t mot fa.pjt phyairisra qualified free a nedicl1 scheel at universty leve..

28 -22 - ANNEX I ECONOMlC DRWVLOI 87T DA:A (A-ount. n MIllions of U.S. Dollr,) II t 7aEll 73z..Eetod i983 t "1977 Pries- *d Kthan.e Rate. Atetaoe Annool Crooth Rates As Prrc-t of COY 44720NAL ACCO41TS.-tog cornotc Prndoct 14,227 14,452 14,709 15,710 20, oos fro- Tere.oflTrado -300 _ 264 _ -36 nil Co Gonstlt -ns foco- 13,927 14,1i 14,709 15,674 20, l port, f-ci. NTS 2,430 2,549 2,933 3,405 3, S f xr. 1. NF5 rts t (toport <"- o tty ,405 1,656 2., Rec...te Cap 1,238 1,160 1,9528 1,749 1, C:rtapttot Eopett ditte 13,046 13,033 13,497 14,400 28, v.stvntt topondi Nor,. (Iec. sooks) 1,929 2,642 2,740 3,055 3, , VC:,stlo Sactaga 81 1,155 1,212 1,306 2, ttoai I SatiNg ,345 1,634 2,053 3, :3R HANDISE TRAOD A-n-Il Dat, a Correct Price A-erane Atros Growth Ratre As Perrrnt of Total loportt Capttal Goode ,076 1, nt-eccediste Goods (soti. fol.) , of ihlth, fer-ttlier _ POL All Gorcuptloo Ooode d o Id8 0. 1'2. ]Z. 7 Other Inporta' Got-i trrthandtse Irporte (t..f.) 2,322 2,341 2,645 3,129 4, Eoport. oas cotton Cotton raro ~~ 3 ~ ~~~~ 118 ~~~~ 247 ~~~~~~~~~~~ ~~~~ ctot Cloth IrsI others Total nerthandiae Eport. (fot) 978 1,162 1,141 1,338 2, :c-h-rdiae Trade ldio.. Aea Etport Prire lode, Ter=s of Trida RAPOn of VGats,, lnde, _2.5 ) onpart Petoe Index ~~~~~~~~~ ~~~~~~~~~9:9. VALUE ADDED 8Y SECTOR Aentul Data at 1977 Frttss nd Ethngee Rttes Avera-e Ano-l CroSh RO-tee A, Pertent of Toal grti4tr 4, ,446 4,783 5, 'aoofantoriog 2,840 2,965 2,929 3,090 4, B Other sectors , , rotal 12,765 13,245 13,360 14,250 18, LCOLIC FINANCE A-nual D tc t 1977 Price,. nd tochanas OAtea Aterhsa Aena1 Grott Rate, An Porro-c of 000 loottroi Gonerno,eit)l/ C - Rc cpns 2,059 2,221 2, C-rrnt EP-dtt-re Othrt Peblia Sector... * Pnblto Sector Is-e-t.ee ,539 1, CUERENT EXPENIlIT DETAILS Actnu lmst. eni. f IL ti. PtBLIc SEG07R At 1977 Yrices and inctatas rat,. % of to 1 (A. Total - C1rrett Eorndttore IWESTM7E9NT PdOG6AN Ed-catoi Soolsi Sectors ther Social ServIces Agrictul-trtI o;ttolt-n Lndoetry M Nttlo tier E-tan e-i.es P-der of.en.e AdrtJInt-ti.on Tr.nep. Othet 4 c,enniooo--oc s OtherO/ Total lopa,di-cra 1,370 1,539 1, Total Correct Elparditoro Pbhiic Sefton s-nito!7/ Do=etic Onroo-ong F-ret 0 Bortoeto 1J Total Ft,tctti - 1,370 1,539 1, NOte: All orors gioa ii thi table refer to the PaRkitan tfiol ypear July I - lone 30. The fle-al Tear - s identiffld by the calrtder yten i nhih It rndt. 1/ Otidoal brt.rer tco-l tnpcrts en recorded Ib th, Stte 21 Oo,nidatrdfd Fedrl nd Pro-onct] rrl roa ene. R.ank and b7 the Otcltic-I Olivston at the Otina-ry of Ftante. 3/ nc.odir" roprtdfturr on h. Ta-bhla DR= r-jeo-. 4,.ncludre nterrat cetnoonts. odj..ard for innee o tt torrent bhdgt, cratetrn of -rpl..e and eeif-fi.oncnt g by poblf sector. Sooth AtoNronrtprnt hay 12, 1978

29 ANNU I PAKISTAN MIlANCE OF PAYMErN. EXTERNAL ADSIS7ANCE AND DEdr soants in milions oi.s. doll arm at currcnt prices) 1973/74 1*74/75 t tU / /al L981/ /6) [977/76 - L982t83 SLNeNRiY icltdlle -- OF F FA-~-- PA17116T ,997 2, ,044 3, Eopurts (-i1. NFS) 1,202 1,252 1,433 1,406 1,679 _ mports I 829 (tnct -1,29 NFS) _ -6, , ,647-1,776 j627jij 2: * ,7 trimmere (net) _ litrect Ion, nmestnnncas. (gret) A38 A ,610 1, ,350 1,350 S.8 Aurbeem' (gross) Renttnsncme ~ ~ ~~~ 335 ~~ , k-rr Faocor Seroit. e (n t) 12 7 _ Currrnc Transfers..(nt) t... C-- Tt-f- ( ~~~~~~~~~~~~~~~~ _ Plalcca on torrent Account ,16B , _969 _T 649 _ PrLcain limct Innemnatant (met) * D Official Uspicti Gronts (net) Dtsboramssntsk' -107~~~~~~~~44 DlFburs_ 446 nt/ , ,099-28_ , ,074,24B , Net Dtsbretm-at Othi r46lt Lo a DisborssOetta Ner Nrt ibrsm,tta Di.b.rtm-t _ _ Capital Tranmactions n.n.i.-2/ Chans It lit RssnvT s ( intrte.) _ Actual - RAcuT Aol LutN 00684ITlEN11N SUIT AID DEBT SERVICE 1973/ / /76 197/57 Officia1 GOrnte ' - t-lm De tdots. A D bt4/ mtnnonpoblic Dnbt 4 / 1 6, , D , Dobt St.i Poblic MALT Lo-ns Ptal 60on IDM so 70 Tat-DebtohI Sabi- Srnln DA Tth r Debt Sennia (.nt) i 2i8 310 Other Mtttilltsr-l Gorsr,osni/ oardn AK EIpact Earnings (2)2/ FircOal Insitttian f - Poblic Debt Samvi l5.4 P nc-_ Tatal Debt Se-ni-a t T... snei I-Vt....- Dict PBli -SD Ine Suppliers ~~~~ ~~~~~~~~~~15 Total PMblit MHLT Loans 1, , A Ange Tsem of Public Debt l.tet,a. Prior l..r Anr. Antoal o 1977 t e Prior Yetr D0OD Debt Disborand OWtst-ndtya Onlo June 30. Percent EXTERb'AL DEFT LaDE Dabt. Sons. A Disbursed EXTERHAL. DEBT DM0) as I olcdb LIBD Dabi Service IEitD s I Public IED Debt Setvica DIA 597 t0 Othern Mnitilt.a.l ID Debt Dot. I Dlsborand Govrrs_nst 4, ID, as % Poblic 0bD 06D Suppliers "N Debt Service Ftri-tiol 92 1 IA a. Doblic Institutioos P Debt Service Poblic Debt. ne-it_ Total Poblic MALT Debt 6, Other rlt Debt. Short-te Debt (ditsb only) Not svoilo.bls,.asml miaa int av ilblsegliibl. Not a_ailable esp-rtely but it-lodd in total. L..te than heif the elss -Et bt.d i The figore. for 1977/78 incids iempated disb-raaemt on c- onont of dmbt relisf airsady agr-d rith thn Pakist;n Aid Cnn-orti-t P Ocrl1die errors aid oesisaians I rnclud4ide toeitnscs sda foe debt relief-only shoe ebhieved through reft-ooing credits. TiNt f debt relief. /7' Border -t -oringe Iron empprte Ilo diudg NFS and -krees'eiisns

30 ANNEX II STATUS OF BANK GROUP OPERATIONS IN PAKISTAN A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of June 30, 1978) Loan or US$ Million Credit Amount (less cancellations) Number Year Borrower Purpose Bank TW IDA Undisbursed Seventy loans and credits fully disbursed /a Pakistan Railways Pakistan Engineering Education Pakistan Power Distribution Pakistan Karachi Port III Pakistan Industrial Investment Pakarab Multan Fertilizer Fertilizer Pakistan Karachi Port IV Pakistan Telecommunications III SNGPL Gas Pipeline IV Pakistan Industrial Development (NDFC)

31 ANNEX II Loan or US$ Million Credit Amount (less cancellations) Number Year Borrower Purpose Bank TW IDA Undisbursed Pakistan Power Transmission Pakistan Seed PICIC Industrial Development Pakistan Lahore Water II Pakistan Irrigation and Drainage Pakistan Livestock / Pakistan Railways Pakistan Education Pakistan Flood Rehabilitation Pakistan Hill Farming Pakistan SCARP VI /b - (70.0) (70.0) Pakistan Hazara Forestry /b - ( 1.7) ( 1.7) Pakistan Tarbela II Pakistan Punjab Extension /b (12.5) (12.5) TOTAL of which has been repaid TOTAL now outstanding Amount sold 23.3 of which has been repaid Total now held by Bank and IDA Ic Total Undisbursed /a Excludes the disbursed portion of loans and credits wholly or partly for projects in the former East Pakistan which have now been taken over by Bangladesh. lb Not yet effective and not included in totals. /c Prior to exchange adjustments.

32 ANNEX II B. STATEMENT OF IFC INVESTMENTS (as of June 30, 1978) Fiscal Amount in US$ Million Year Obligor Type of Business Loan Equity Total 1958 Steel Corp. of Pak. Ltd Rolled Steel Products Adamjee Industries Ltd Textiles Gharibwal Cement Cement 1965 Industries Ltd Development 1975 PICIC Financing Crescent Jute Products Textiles Packages Ltd Paper Products Pakistan Paper 1976 Corp. Ltd Paper Dawood Hercules Chemicals Ltd. Fertilizers Karnaphuli Paper Mills Ltd Pulp and Paper Total Gross Commitments Less: Cancellations, Terminations Repayments and Sales Total Commitments Now Held by IFC Undisbursed

33 ANNEX II C. PROJECTS IN EXECUTION 1/ Credit No. 771 Tarbela Dam: US$35.0 Million Credit of March 10, 1978; Effective Date: April 4, 1978; Closing Date: June 30, 1982 This credit is intended to help finance the repairs and additional works required to complete the project. In September 1973, the Indus River was diverted through tunnels on schedule to enable the final stage -- the construction of the closure section of the dam -- to be undertaken. By end- June 1974, the main embankment had been completed to full height, and the first impoundment began on schedule in July In early August, difficulties were encountered in the operation of the tunnel gates and damage to one of the tunnels necessitated the emptying of the reservoir and repair of the tunnels and outlet structure. Agreement was reached with the parties of the Indus Basin and Tarbela Development Funds whereby special contributions were made by a number of parties, including IDA (Credit 581-PAK), to help with the cost of repairs and additional remedial works. The stilling basins suffered further damage in August 1975 and again in April Stilling Basin 3 has now been redesigned and repaired, and operated satisfactorily during the 1977/78 irrigation season. The permanent solution for Stilling Basin 4 is still under discussion. Serious erosion in the plunge pool below the service spillway during 1977 necessitated additional protection works. A first phase of these was successfully completed before the current flood season. From 1975 through mid 1978, irrigation requirements have generally been met. Power generation by the first four units began in Loan No. 621 Ninth Railway: US$14.5 Million Loan of June 26, 1969; Effective Date: August 28, 1969; Closing Date: June 30, 1978 Loan No Tenth Railway: US$35 Million Loan and US$25 Million and Credit of March 8, 1977; Effective Date: May 9, 1977; Credit No. 684 Closing Date: June 30, 1982 The Ninth Railway Project is nearly complete; disbursements amount to more than US$13.0 million. The main outstanding item is construction of the first stage of a new marshalling yard at Pipri, near Karachi. The location and design of this yard were changed twice following protracted investigations and negotiations between various agencies and planning authorities with a view to reconciling urban planning and railway marshalling objectives. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

34 ANNEX II The GOP has requested an extension of the Closing Date until March 31, The Tenth Railway Project became effective on May 9, 1977; procurement under the Project is proceeding satisfactorily although there have been no disbursements so far. PR's 1976/77 traffic level and financial results were adversely affected by the severe flooding in August 1976, a sharp drop in wheat imports and political unrest in the first half of Revised estimates show an improved financial performance for 1977/78 as a result of a 20% increase in passenger fares and a 12.5% increase in freight rates effective July 1, 1977 and efforts to hold down working expenses. PR's performance of covenants is generally satisfactory. Credit No. 206 Engineering Education: US$4.0 Million Credit of June 29, 1970; Effective Date: July 14, 1971; Closing Date: December 31, 1978 The Credit provides US$4.0 million to finance the relocation of the NED University of Engineering and Technology, Karachi (formerly NED Engineering College) and technical assistance for the upgrading of University staff. The new physical facilities were expected tobe in full use by June An extension of the Closing Date until December 1978, has been agreed to allow for execution of technical assistance and other qualitative improvement programs. Credit No. 213 Power Transmission and Distribution: US$23.0 Million Credit of August 13, 1970; Effective Date: December 11, 1970; Closing Date: December 31, 1978 Physical construction of the grid substation and associated equipment of this Project is underway and can now be considered to be 70 percent complete. Physical completion of the project is expected by the end of To enable retention payments and final payments for equipment deliveries to be made, a further postponement of the Closing Date by six months to December 1978 has been approved. Credit No. 422 Third Karachi Port: US$18.0 Million Credit of July 19, 1973; Effective Date: December 14, 1973; Closing Date: June 30, 1979 Credit No. 492 Fourth Karachi Port: US$16.0 Million Credit of July 8, 1974; Effective Date: September 18, 1974; Closing Date: December 31, 1979 Construction work on the Juna Bunder Berths is currently about 15 months behind schedule. Quay piling was substantially completed in June 1978 and shed construction is now scheduled for completion by July The initial and subsequent delays in construction of the Napier Mole Bridge will mean that completion is likely to be delayed until late about 18 months behind schedule. About US$14.5 million (82%) of Credit 422 has been disbursed. Construction of the oil berth commenced in January 1977,

35 ANNEX II some 27 months behind the program prepared at the time of appraisal, and has now been substantially completed; only some electrical equipment lost in transit remains to be fitted. Tenders have been invited from prequalified contractors for channel dredging works and dredger procurement. Nine bids have been received for supply of the dredger, and bids for the channel dredging were due to be returned by June 26. Disbursements total about US$5.8 million (36%) from Credit 492. Covenants and understandings reached at the time of negotiations relating to the improvement of management and finances have not been satisfactorily complied with. A new Chairman of KPT was appointed in March and actions taken since then have been favorable and generally in line with those proposed by the Association to KPT and GOP. Cargo handling and other mechanical equipment has been contracted out for urgent repairs and new equipment is being obtained from Bulgaria. Steps are being taken to modify the priority system of ship berthing to promote improved berth utilization. Loan No. 961 Industrial Investment: US$25.0 Million Loan of January 31, 1974; Effective Date: April 3, 1974; Closing Date: June 30, 1979 The Loan was made to the Government and is administered by PICIC. The loan has been fully committed and disbursements amounted to $21.2 million on June 30, The Closing Date has been extended by one year to June 30, 1979, to accommodate three subprojects. Loan No Development Finance Company - PICIC: US$25.0 million Loan of September 14, 1976; Effective Date: November 29, 1976; Closing Date: December 31, 1980 As of June 30, 1978, subprojects for US$19.3 million had been approved by the Bank. PICIC remains a capable institution, but its operations and collections have been adversely affected by the recent political difficulties in Pakistan. Its long-term prospects will depend mainly on developments in the political/economic environments, including the textile sector, which accounts for a large portion of PICIC's outstandings. Loan No. 988 Multan Fertilizer: US$35.0 Million Loan of May 24, 1974; Effective Date: July 30, 1974; Closing Date: September 30, 1978 Delays and escalating prices for civil works and, to a lesser extent, for foreign equipment have raised the total project cost above the appraisal estimate by about 87% (US$92 million). Construction delays have been due to a shortage of civil contractors' capacity in Pakistan and to late deliveries of critical equipment. Project completion is currently forecast to be about 18 months longer than the appraisal estimate and production is expected to start in September The project's economic return is still close to 28%, because of higher forecast international fertilizer prices. The company has obtained the extra financing required, in equity from the Government and the

36 ANNEX II foreign partner, and in debt from the OPEC Special Fund and commercial banks. The project's corporate and field management has been strengthened. Craftsmen and field supervisors from Europe have been hired to expedite plant construction. Credit No. 510 Third Telecommunications: US$36.0 Million Credit of September 12, 1974; Effective Date: October 25, 1974; Closing Date: December 31, 1978 The project covered by this Credit is proceeding reasonably satisfactorily, but is now about 12 months behind schedule. Procurement action for all the main equipment items has been substantially completed, installation of plant and equipment is making good progress, and about 70% of the additional subscriber's lines are in service. As part of the project, T&T was to have been reorganized so as to function more effectively along commercial lines and to have been given a greater degree of autonomy. This reorganization, important to improving the efficiency of operation of the sector, has been delayed, but proposals which appear satisfactory are awaiting final Government approval. The matter is continuing to be pursued with Government. Credit No. 546 National Development Finance Corporation (NDFC): US$30.0 Million Credit of May 15, 1975: Effective Date July 17, 1975; Closing Date: September 30, 1979 The Credit has been fully committed and US$22.6 million had been disbursed as of June 30, We anticipate that the Credit will be fully disbursed by next March. Although NDFC is currently a highly profitable and financially stable institution there are several aspects of its operation which are of concern. The orientation of NDFC's activities has been toward commercial banking; its development impact would be improved if it were to redirect its efforts toward analyzing sector problems in the public industrial sector. Its rapid expansion has placed considerable strain upon its limited manpower resources and newly established systems and procedures. While further growth is projected over the next few years, staffing and systems development may prove limiting factors. Loan No Fourth Sui Northern Gas: US$60.0 Million Loan of May 15, 1975; Effective Date: July 5, 1975; Closing Date: December 31, 1979 Project activities are generally on schedule. A recent re-estimate of final project costs (including the additional pipelines and distribution systems authorized by the Bank) indicates savings in foreign exchange expenditures of about US$7.3 million. The Borrower has applied to the Bank for permission to apply these savings towards equipment and facilities needed for handling additional gas supplies from the Potwar basin as well as toward several other items that are required.

37 ANNEX II Credit No. 620 Seed Project: US$23.0 Million Credit of March 29, 1976; Effective Date: November 29, 1976; Closing Date: December 31, 1980 Progress continues to be satisfactory. Civil works contracts have been awarded for the three processing plants for the Punjab Seed Corporation (PSC). It is anticipated that equipment contracts will also be finalized shortly, and that the first processed seed from the project will be available in May/June Equipment tender documents for a similar plant of the Sind Seed Corporation (SSC) have been approved by the Association. Coordination of the project has improved. Development of the Corporations' seed farms is proceeding; PSC has now started - and SSC will start next year - their registered growers' schemes. Pilot projects for vegetables and potatoes in Baluchistan and NWFP and for potatoes in Punjab have started. Progress of the Seed Certification Agency and the National Seed Registration Agency has been slower; GOP is still in the process of nominating the Directors of these agencies. Credit No. 630 Second Lahore Water Supply, Sewerage and Drainage: US$26.6 Million Credit of June 8, 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1980 The detailed design of the project is now nearing completion but this has been delayed and consequently the construction has also been delayed and is about one year behind schedule. UNDP is financing US engineering consultants who are advising and assisting WASA staff and local consultants to carry out the engineering work. Experts provided by UK are assisting with engineering management, leak detection and training. Loan No T Second WAPDA Power: US$50 million Third Window Loan of February 19, 1976; Effective Date: April 30, 1976; Closing Date: December 31, 1980 Physical construction of the 336-mile transmission line between Faisalabad (formerly Lyallpur) and Guddu and associated equipment will start during 1978 with a completion date scheduled for December The contract for consultant engineering and supervision was signed in April 1976 and most bidding documents for equipment and material have been issued with awards having been made on the major items. Credit No. 648 Khairpur Tile Drainage and Irrigated Farming Development Project: US$14.0 Million Credit of July 22, 1976; Effective Date: March 14, 1977; Closing Date: July 31, 1982 Overall progress is about ten months behind schedule due to delays of about six months in appointing consultants and of a further four months as a result of political disturbances last year. Tenders for the supply of a major part of the construction equipment were invited in May 1978, and bid

38 ANNEX II openings are expected in September. The Water and Power Development Authority is completing construction of housing and offices for the construction colony and is preparing to start construction early in Agricultural extension activity has begun and program staff are being mobilized. Aerial surveys have been completed and arrangements have been made to carry out field work for the Landsat Imagery component in April The National Bank of Pakistan plans to provide credit to farmers for leveling beginning early in Credit No. 678 Third Education: US$15.0 million Credit of February 18, 1977; Effective Date: July 6, 1977; Closing Date: December 31, 1982 The project, which became effective in July 1977, provides facilities for: (a) primary teacher training and experiment on adult functional literacy program and related studies; and (b) agricultural education to assist in developing higher and middle level agricultural manpower, farmer training and related studies. Project implementation is about three months behind schedule because of: (a) delays by the Government in confirming the appointment of consultant architects in the Province of Sind; and (b) delays in contracting technical assistance for the project. The architects have been now appointed and the Government is addressing the problem of contracting specialists. Loan No T Punjab Livestock: US$10.0 million Loan of February 18, 1977; Effective Date: August 3, 1977; Closing Date: December 31, 1982 Project implementation has been slower than expected with delays being experienced in the appointment of consultants and the formation of Village Livestock Associations (VLA's). The Managing Director of the Punjab Livestock Board (the major project implementing agency) has been replaced and Government has given assurances that project implementation will be speeded up. It is anticipated that milk collection from the first VLA's will commence in July and that consultants will be in place by January Credit No. 683 Flood Damage Restoration: US$40 million Credit of March 8, 1977; Effective Date: April 27, 1977; Closing Date: December 31, 1978 Progress on this Project has improved considerably in recent months. All of the civil works restoration was completed by July 1978; orders for US$10.5 million (of the US$12.4 million allocated in the Credit) have been placed for spares, equipment, materials and assemblies; and reports have been prepared on Phase I of the National Flood Plan and on Operation and Maintenance of Flood Protection and Drainage Facilities. The report on the Civil Works Contracting Industry has been delayed until September 30, The Association has approved reallocation of US$4.58 million from major to minor civil works restoration and US$1.64 million from spares to equipment, materials and assemblies. It should be possible to meet the December 31, 1978 closing date.

39 ANNEX II Credit No. 775 Hazara Forestry US$1.7 Million Credit of January 19, 1978; Effective Date: July 14, 1978; Closing Date: December 31, 1983 This Credit became effective on July 14, Short-lists of consultants for the feasibility study, and for forestry and inventory specialists have been prepared. There has been good progress in land acquisition, building construction and local staff appointments.

40 ANNEX III PAKISTAN FAUJI FERTILIZER PROJECT A. Supplementary Project Data Sheet Section I: Timetable of Key Events I/ (a) Time taken by the country to prepare the project One year (b) The agency which has prepared the project The Fauji Foundation of Pakistan, in cooperation with Haldor Topsoe A/S (Denmark) (c) Date of first presentation to the Bank and date of first Bank Mission to consider the project November 1977; First mission March 1978 (d) Date of departure of appraisal mission March 11, 1978 (e) Date of completion of negotiations July 17, 1978 (f) Planned date of effectiveness About October 15, 1978 Section II: Special Bank Implementation Actions (a) Reviewed contract of engineering and construction firms. (b) Reviewed contracts with operating company and technical advisors and between sponsors. (c) Review training program. 1/ Subsequent to the withdrawal of Agrico Chemical Co. from the Project in May 1977.

41 ANNEX III (d) Review fertilizer seeding program. (e) Review work programs and timetables of Fertilizer Planning Committee and Transportation Task Force. Section III: Special Conditions (a) Government not to sanction additional users of Mari gas until adequate additional reserves are proven (para 36). (b) FFC to submit to the Association a training program by December 31, 1978, and to consult the Association on the appointment of key management (para 39). (c) Government and FFC to agree by September 30, 1978 on seeding program, and that Government will allow FFC to obtain sufficient local or imported fertilizers (para 40). (d) Government to maintain a Fertilizer Planning Committee (para 41) and a Fertilizer Transportation Task Force (para 42). (e) Government to consult periodically with the Association regarding the adequacy of dealers' commissions (para 41). (f) Fauji, Topsoe, IFU and IDB to subscribe up to US$29.2 million, US$5.2 million, US$5.2 million and US$10 million, respectively, of FFC's equity (para 44). (g) Financial Covenants (para 48): (i) FFC to require IDA approval prior to making additional fixed investment outside the Project exceeding US$5 million per year or US$5 million plus unutilized portions of previous years subject to a maximum of US$15 million; (ii) FFC not to exceed debt/equity ratio of 70/30 (or 60/40 including subordinated debt as equity); (iii) FFC to achieve current ratio of at least 1.5 at project completion date and 1.2 thereafter. FFC will not incur additional long-term debt if it could not maintain a debt service coverage of at least 1.4;

42 ANNEX III (iv) FFC will pay dividends only out of accumulated net earnings and only if a current ratio of at least 1.5 is maintained after such payments; and (v) Fauji and Topsoe to ensure that FFC performs its obligations under the Loan Agreement.

43 ANNEX III B. Main Parameters of the Fauji-Agrico (FAFCO) Project and the Fauji Fertilizer (FFC) Project FAFCO FFC 1. Sponsors Fauji Foundation and Fauji Foundation and Agrico International, Topsoe A/S, Denmark USA 2. Project Implemen- Agrico, USA FFC, Topsoe A/S, James tation Management Chemical Engineering, USA 3. Engineering and Kellogg (Ammonia), USA Snamprogetti, S.p.A. Italy Construction Toyo (Urea), Japan Coming, S.p.A. Italy 4. Operating Management Agrico, USA Anic, S.p.A. Italy 5. Marketing Management Agrico, USA FFC with Topsoe A/S 6. Financing Plan Equity:-Agrico, USA: Equity:-Topsoe A/S, (Changes) US$25 million Denmark, US$5.0 million - IFU, Denmark, US$5.0 million - Islamic Dev. Bank, US$10.0 million Debt:-KfW US$39 million Debt:-KfW US$40 million - Japanese Suppliers - Italian Govt. Credit: US$18 million US$7.4 million - Danish Govt. US$3.9 million - Pak. Comm. Banks: - Pak. Comm. Banks, US$38 million US$40.0 million 7. Pricing and Market- 20% Return on Equity 20% Return on Equity ing Agreement US$1.5 million plus US$1.5 million and US$1/ton Know How Fee US$1/ton Know How Fee 8. Project Finances Project Estimated Cost: Project Estimated Cost: and Viability US$259.8 million US$260.3 million (Base financing plan) Financial Rate of Return after Taxes: 12% 14% Economic Rate of Return: 24% 23%

44

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