Report No. 657a-PAK

Pakistan FILE C°PAppraisal of theNational Development Finance CorporationApril 21, 1975

Agriculture Credit and Development Finance Companies DivisionSouth Asia Projects Department

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

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CURRENCY EQUIVALENTS

US$1 - Rs 9.9Rs 1 - US$0.101Rs 1 million - US$101,000Rs 1 billion - US$101.0 million

FINANCIAL YEAR

NDFC: January 1 - December 31

GOP: July 1 - June 30

PAKISTAN

APPRAISAL OF THENATIONAL DEVELOPMENT FINANCE CORPORATION

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS .............................. i-iii

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

II. ECONOMIC AND INDUSTRIAL ENVIRONMENT. 1

Economic Environment ............................. 1Industrial Sector ............................... 2Industrial Policy ............................... 3The Performance of the Public Sector .... ........ 5Sources of Industrial Finance for the

Public Sector ................................. 7

III. THE INSTITUTION ...................................... 10

A. Organizational Structure ........................ 10B. Operating Policies and Procedures .... ........... 12C. External Relations .............................. 13

IV. NDFC'S ROLE IN THE ECONOMY ........... .. .............. 14

Resource Mobilization ........................... 14Terms and Conditions of Financial Assistance .... 15Resource Allocation ............................. 16Developmental Impact ............................ 18

V. NDFC'S FINANCIAL POSITION ............................ 18

VI. PROSPECTS ............................................ 19

General Outlook ................................. 19Business Forecasts .............................. 20Resource Requirements ........................... 21

VII. OBJECTIVES OF THE CREDIT ............................. 23

VIII. RECOMMENDATIONS ...................................... 24

This report is based on the findings of an appraisal mission to NDFC byMr. M. D. Rowat in October/November 1974.

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LIST OF ANNEXES

Annex 1 - Pakistan: Manufacturing Production Indexes by Year andQuarter 1966-67-1973/74

Annex 2 - Pakistan: The Structure of Industry

Annex 3 - Pakistan: Private and Public Sector Industrial Investment1963/64-1974/75

Annex 4 - Pakistan: List of State Corporations and Units(as of September 30, 1974)

Annex 5 - Pakistan: Distribution of Public Sector Enterprisesby Industry, Region and Control (September 30, 1974)

Annex 6 - Pakistan: BIM Weighted Production Index

Annex 7 - Pakistan: Average Rate of Capacity Utilization in PublicSector Engerprises - 1969/70-1973/74

Annex 8 - Pakistan: Total Capacity by Product in BIM Units and CapacityUtilization - 1973/74-1974/75

Annex 9 - Pakistan: Growth in BIM Sales - 1971/72-1973/74

Annex 10 - Pakistan: Profitability of BIM Enterprises - 1971/72-1973/74

Annex 11 - Pakistan: BIM Exports - 1972/73 - 1973/74

Annex 12 - Pakistan: Employment in BIM Industries - 1971/72-1973/74

Annex 13 - Board of Directors

Annex 14 - Statement of Policy

Annex 15 - Resource Position as of September 30, 1974

Annex 16 - Comparative Study of Various Investment Opportunities inPakistan

Annex 17 - Summary of Standard Terms and Conditions of FinancialAssistance

Annex 18 - Interest Rate Structure - Commercial Banks & GovernmentSecurities

Annex 19 - Approvals, Commitments and Disbursements (1973 - 1974)

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Annex 20 - Summary Breakdown of Loan Approvals by Industry (1973 - 1974)

Annex 21 - Summary Breakdown of Loan Approvals by Currency, Term, Region,Organization and Type (1973-1974)

Annex 22 - Summary Breakdown of Loan Approvals by Size (1973 - 1974)

Annex 23 - Partial Indicators of Sample of Projects Approved as ofSeptember 30, 1974

Annex 24 - Statement of Income and Expenses

Annex 25 - Comparative Operational Ratios

Annex 26 - Balance Sheets (December 31, 1973 and September 30, 1974)

Annex 27 - Pakistan: 1974-75 Annual Development Program forSector Corporations

Annex 28 - Projected Approvals, Commitments & Disbursements from1974 to 1979

Annex 29 - Projected Income Statement for the Years 1974 to 1979

Annex 30 - Projected Balance Sheet as at December 31, 1974 to 1979

Annex 31 - Estimated Cash Flow For the Years Ending December 31, 1974to 1979

Annex 32 - Development Strategy for 1975 and 1976

Annex 33 - Estimated Disbursement Schedule for the Proposed Credit

Chart - Organization Chart

LIST OF ACRONYMS

ADBP - Agricultural Development Bank of PakistanADP - Annual Development PlanADB - Asian Development BankBIM - Board of Industrial ManagementCDWP - Central Development Working PartyFCCC - Federal Chemical and Ceramics CorporationFLEC - Federal Light Engineering CorporationICP - Investment Corporation of PakistanIDBP - Industrial Development Bank of PakistanIIS - Industrial Investment ScheduleKfW - Kreditanstalt fuer WiederaufbauNDFC - National Development Finance CorporationNDISC - National Design and Industrial Service CorporationNFCP - National Fertilizer Corporation of PakistanNIT - National Investment TrustNWFP - North West Frontier ProvinceOPEC - Organization of Petroleum Exporting CountriesPACO - Pakistan Automobile CorporationPERAC - State Petroleum Refining and Petrochemical CorporationPICIC - Pakistan Industrial Credit and Investment CorporationPIDC - Pakistan Industrial Development CorporationPSMC - Pakistan Steel Mills CorporationPTC - Pakistan Tractors CorporationSBP - State Bank of PakistanSCCP - State Cement Corporation of PakistanSECP - State Electrical Corporation of PakistanSHE and MTC - State Heavy Engineering and Machine Tool Corporation

PAKISTAN

APPRAISAL OF THENATIONAL DEVELOPMENT FINANCE CORPORATION

SUMMARY AND CONCLUSIONS

i. The National Development Finance Corporation (NDFC) was established

as a mixed bank in January 1973 to provide financial assistance, both shortand long term, in both foreign and local currencies, to undertakings which

were wholly or partly owned by the Federal Government, which had been taken

over and managed by the Government undrer the Economic Reforms Order of 1972,or had been declared by the Government to be an eligible enterprise. NDFCbegan lending operations in July 1973.

ii. The manufacturing sector has recovered substantially from the

serious production difficulties it experienced in FY71 and FY72 registering

a growth of 11.8% in FY73 and 6.8% in FY74, and now represents approxi-mately 15% of GNP. Up until 1972, new industrial investment was predomi-

nantly in the private sector (90%). However, the new Government which came

to power in 1971 advocated the establishment of a mixed economy operated on

a sound commercial basis in the industrial sector. Consequently, it took

over management control of 31 units in ten basic industries which were sub-

sequently nationalized as were the vegetable ghee and shipping industries.It is estimated that the pdblic industrial sector now accounts for 25% of

total industrial assets.

iii. As a result of the nationalizations, a reorganization of the

public sector took place in 1973 with the establishment of 12 Sector Cor-

porations for specific industries encompassing about 40% by number of all

public sector units. A Board of Industrial Management (BIM) had previously

been established to provide managerial guidance to public sector units

through reviews of budgets, control of most capital expenditures, andappointment of key personnel.

iv. Though it is difficult to isolate the performance of the public

sector over the past three years from the effects of exogenous factors,nevertheless, substantial improvements in such units have been recorded

in the areas of production, capacity utilization and sales, profitability,export performance, and in managerial efficiency, particularly in thetaken-over units.

v. Historically, the long-term financing of public sector industry

has been undertakeg through appropriations of Government funds from the

Annual Development Plan largely channelled through the Pakistan IndustrialDevelopment Corporation, which has since become one of the 12 Sector Cor-

porations.

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vi. NDFC was established as a 100% Government-owned development bankwith an authorized share capital of Rs 100 million which has since beenfully paid in. It has a six-man Board of Directors including an ExecutiveChairman who are all appointed by the Government. The Chairman, who hasbeen with NDFC since it began operations, is an experienced banker havingspent most of his career with the First National City Bank. NDFC had 20professional staff as of September 30, 1974 who have been carefully recruitedover the past eighteen months.

vii. NDFC has succeeded in mobilizing Rs 154 million in deposits, bothshort and long term, in addition to its share capital, to provide the basisfor its local currency. lending. In the case of foreign exchange, aboutRs 30 million has been allocated by Government to NDFC's local currencyborrowers, of which only Rs 0.7 million has been disbursed.

viii. As of September 30, 1974, NDFC had approved Rs 362.9 million forloans to 53 projects (of which Rs 104 million and 26 projects representedworking capital financing). Cumulative disbursements totalled Rs 120.7million as of the same date. NDFC has, for the most part, financed themore advanced technological industries, and its appraisal standards havebeen reasonable.

ix. Though NDFC is a 100% Government-owned institution, it has none-theless demonstrated its independence through its rejection of 18% by numberof all public sector investment applications. At the same time, it is ex-pected that NDFC will become an important repository of detailed informa-tion on individual operating units in the industrial public sector whichwould place it in an advantageous position to provide industrial policyadvice to the Government.

x. NDFC's financial position is sound. For the first nine monthsof 1974, it has earned a net profit of Rs 7.9 million (on share capitalof Rs 100 million) while the total debt/equity ratio was 0.4:1, with debtservice coverage of 4.8:1. A contractual long-term debt/equity ratiolimit of 5:1 is recommended. NDFC's accounts have been audited by two ofthe top auditing firms in Pakistan without qualification.

xi. The Draft Five-Year Plan anticipates a growth rate of 15% perannum in total industrial output. About 67% of industrial investment isexpected to be in the public sector including a few extremely large projectssuch as the Karachi Steel Mill. On the basis of NDFC's fotecasts, it willfinance about 14% of total public industrial investment on a disbursementbasis concentrated mainly in the areas of chemicals, cement, automotiveassembly, steel and engineering, energy and agro-industries.

xii. NDFC's total foreign currency requirements for the two-yearperiod beginning April 1, 1975 are expected to be about $60 million. Itis recommended that an IDA Credit be made to NDFC of $30 million to meeta maximum of about 50% of its requirements on terms similar to those of

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recent IDA Credits to development-finance companies. The balance willprobably be met by borrowings from OPEC countries and the Asian Develop-ment Bank. A free limit of $1 million is recommended.

PAKISTAN

APPRAISAL OF THENATIONAL DEVELOPMENT FINANCE CORPORATION

I. INTRODUCTION

1.01 The Government of Pakistan has requested an IDA Credit to be lentto the newly established National Development Finance Corporation (NDFC)to assist in financing industrial enterprises in Pakistan which have govern-ment equity participation.

1.02 The Bank Group has until now financed two industrial developmentbanks in Pakistan; (i) the Pakistan Industrial Credit and Investment Corpo-ration (PICIC) which has received eight direct loans since 1957 totalling .$185 million and an administered loani of $25 million, all of which were re-stricted to the private industrial sector, and (ii) the Industrial Develop-ment Bank of Pakistan (IDBP) which received an IDA Credit of $20 million in1970 to be used for medium and small scale units primarily in the privatesector.

II. ECONOMIC AND INDUSTRIAL ENVIRONMENT

Economic Environment

2.01 An assessment of Pakistan's present economic position is con-tained in the Bank's latest Economic Report No. 658a-PAK, dated March 28,1975. The Pakistan economy has recovered significantly from the disas-trous events of FY71 and FY72 caused by the war in the former East Pakistanas well as severe droughts resulting in no growth. In FY73, GDP grew by7.3% and is estimated to have grown by 5.0% in FY74, despite the severefloods in August 1973 which caused considerable damage to agriculturalproduction. Agriculture continues to represent the largest sector of GDP(36%) compared to manufacturing (15%).

2.02 However, Pakistan's balance of payments position deteriorated inFY74j/ after the strong performance in FY73 when foreign exchange reservesgrew from $171 million to $463 million, as the country experienced itsfirst balance of trade surplus in 21 years spurred on by the rupee deval-uation and a successful effort in the redirecting of its markets away fromthe former East Pakistan. The cause of the deterioration in FY74 were (a)the flood which caused a loss of agricultural production for export (cotton)and increased import requirements for wheat and vegetable oil (b) the gen-eral rapid increase in prices of foreign equipment and (c) the impact ofthe increase in oil prices in 1973 which increased the import bill from

1/ The current account deficit for 1973/74 is estimated to be about$566 million.

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$60 million in FY73 (7.4% of total imports) to $385 million in FY74. Overthe past five years, the composition of exports has changed significantlywith the share of manufactured exports increasing from 59% to 69%. Exportperformance should improve again in FY75.

2.03 An additional problem facing Pakistan over the past few years hasbeen inflation. The consumer price index (CPI) increased by 26.5% from June1973 to March 1974. The inflation has been caused by excessive domesticmonetary expansion in FY72, large increases in import prices, and the August1973 floods which forced up the prices of essential domestic commodities. Inorder to stem the rate, the Government in August 1973 increased the Bank ratefrom 6% to 8% and increased the liquidity ratios of commercial banks from30%-35%, as well as adopting a variety of other fiscal measures. This hadsome success as the CPI increased by only 2.7% between December 1973 andMarch 1974. However, the wholesale price index increased by 14.3% in thefirst half of FY75 (July-December) compared to the same period in FY74. TheBank rate was further increased to 9% on September 3, 1974.

Industrial Sector

2.04 Recent Performance. The manufacturing sector suffered a majorsetback in FY71 and FY72, after having enjoyed growth rates in excess of10% per annum during the sixties. Manufacturing production increased byonly 1.1% in FY71 and then fell by 9.3% in FY72 (Annex 1). However, theimpact of the devaluation of the rupee, the import liberalization policy,improvements in labor/management relations, better utilization of existingcapacity and the rapid adjustment to the loss of the East Pakistan marketresulted in a growth in manufacturing production of 11.8% in FY73. InFY74, the growth rate was 6.8%, the drop reflecting the high price andlack of availability of certain raw materials, a softening in demand inthe export market, the impact of the floods, and the low levels of invest-ment in the private sector (para 2.07).

2.05 Structure. The manufacturing sector represents 15.5% of GNP ofwhich 12.2% represents medium and large scale industry (firms with morethan 10 employees) with the balance in the small scale sector. The formergrew at a rate of almost 8% in FY74 compared to 2.7% for small scale indus-try. 1/ Total industrial employment is estimated to be slightly less than1 million, or 5% of the labor force.

2.06 The sectoral distribution of industry reflects'the importance ofagro-based industries. The textile sector accounted for 32.3% of valueadded in FY70, 2/ followed by food and beverages (15.4%), non-metallicmineral products (12.3%) and chemicals (8.9%) (Annex 2). -Consumer goodsrepresented 62.7% of industrial value added, followed by intermediategoods (36.4%) and capital goods (0.9%). Nearly 50% of Pakistan's indus-trial labor force is engaged in textiles. The geographic distribution of

1/ However, the growth rate for small scale industry is underestimateddue to a lack of reliable data.

2/ The date of the most recent manufacturing census.

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the industrial sector is also quite uneven with nearly 50% of industrialoutput in Sind, 40% in the Punjab, while only 10% in NWFP and 1% in Balu-chistan, despite the Government's incentives to promote industries in:backward areas.

2.07 Investment. For the period 1962-1972, private investment repre-sented almost 90% of total industrial investment in the country (Annex 3).Total industrial investment declined from Rs 1.5 billion (current prices)in FY71 to Rs 1.15 billion in both FY73 and FY74. The decline was accountedfor entirely by a significant decrease in total private industrial invest-ment from Rs 1.4 billion to Rs 0.7 billion over the same period. The fallwas caused primarily by a lack of investor confidence given the recentnationalization of large-scale firms (small scale private industrial invest-ment continued to experience a significant growth during this period), andthe existing levels of unutilized capacity in many industries. The lattersituation reflected shortages in power and raw materials, as well as a lackof demand in certain industries.

Industrial Policy

2.08 GOP's industrial policy has undergone many significant changessince the new Government took over in 1971. These have included the estab-lishment in May 1972 of a more realistic exchange rate for the rupee toreduce the serious distortions in the economy and to make Pakistan exportsmore competitive. Further, the export bonus system with multiple exchangerates was abolished and import restrictions liberalized. In addition, theGOP introduced important labor reforms which have significantly reducedlabor tension and production lost due to strikes. Because of the upheavalsin the Pakistan economy from 1970-72, the fourth Five-Year Plan (1970-75)quickly become obsolete, and industrial policy over the past few years hasbeen conducted within the framework of Annual Plans and the Industrial In-vestment Scheduhe (IIS). A new draft Five-Year Plan (1975-80) is beingprepared, and should take effect from July 1975 (para 6.01).

2.09 The Role of the Public Sector. Until 1971, the public industrialsector had consisted primarily of units under the management and control ofthe West Pakistan Industrial Development Corporation (WPIDC). 1/ It hadbeen established to fill gaps in industrial subsectors where entrepreneur-ship was lacking, particularly in mining, with the objective of eventuallytransferring the ownership of such enterprises to the private sector. WPIDCwas also expected to promote regional growth, particularly since financialviability was not considered the main criterion for financing. Indeed manyprojects were established with inadequate equity bases and, in certain cases,in locations which virtually guaranteed project failure. In FY73, 24 of 40PIDC projects (where data are available) showed a return of 4.5% on invest-ment compared to 6.8% in FY72 but in both years, the projects in the prov-inces of Baluchistan and NWFP showed losses on a gross basis. The largest

1/ Since known as PIDC which acted as the channel for government appro-priations for particular projects.

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loss was in the mining sector. As of June 30, 1973, PIDC had provided Rs895 million for 60 projects (total project costs Rs 1.2 billion) of which40 projects remained under PIDC management. The largest amount of invest-ment went to fertilizer (33.8%), followed by gas (21.6%) and cement (14.4%).

2.10 Under the Economic Reforms Order of January 1972, the Governmenttook over the management of 31 industrial concerns in ten basic industries 1/which, until then, had been in the private sector, and which representedtotal assets of Rs 2.2 billion and approximately 8% of Pakistan's total in-dustrial assets at the time. The Government's objective in the takeover wasto (a) improve the performance of such key industries through the infusionof top professional managers carefully selected from the private sector,(b) break the concentration of wealth in a small group of families, and (c)lay the basis for the growth of a mixed economy in the industrial sector.

2.11 A Board of Industrial Management (BIM), responsible to the Min-istry of Production (the Minister in fact became the Chairman of the BIM)was established at the same time to oversee the performance of the taken-over units. Since the Boards of Directors of the units were abolished atthe time of takeover, the BIM took control over the major decisions of theunits (para 2.15). The BIM is composed of a Finance Group of about 12 pro-fessionals as well as two or three technical/financial specialists in eachindustry headed by the Chairman of the individual Sector Corporations.

2.12 In August 1973, an amendment to the Economic Reforms Order waspassed, which enabled the Federal Government to acquire a majority owner-ship in the units the management of which had been taken over. In November1973, the Government took over the entire equity of the private limited com-panies as well as acquired a majority ownership in the public limited com-panies of the taken-over units. The Government agreed to pay compensation,and after lengthy discussions, amounts were agreed on the basis of marketprices in the case of 18 units, book value in 13. Initially, certificatesof entitlement were issued to shareholders, but in July 1970 these werereplaced by compensation bonds carrying interest rates at one percent abovethe Bank rate and repayable at par after 15 years.

2.13 At the time of nationalization of the 31 industries, the Governmentindicated that there would be no additional nationalizations, provided thatthe private sector fulfilled its responsibilities. In September 1973, theGovernment nationalized the vegetable ghee industry (26 of 28 units) 2/ onthe grounds, according to Government, that owners had created artificialshortages through hoarding and production cuts and engaged in smuggling toforce up prices. Provincial Governments were given responsibility for the

1/ Iron and steel, basic metals, heavy engineering, heavy electrical,automotive assembly and manufacture, tractor assembly and manufac-ture, chemicals, petrochemicals, cement, and public utilities.

2/ The two remaining units were foreign-owned.

industry. Later, in January 1974, nationalization was extended to shipping,oil distribution, raw cotton exports, and commercial banking (para 2.29).

2.14 In December 1973, the Government, after studying the experience ofItaly in organizing the industrial public sector, set up 12 Sector Corpora-tions under the Federal Ministry of Production comprising the taken-overindustries, new public units, as well as a large number transferred fromthe PIDC which is now primarily responsible for forestry, sugar, and textileprojects in the public sector (Annex 4). A breakdown of public enterprisesin the industrial sector by industry, region, and control is given in Annex5 (excluding provincial units such as Provincial Industrial DevelopmentBoards). The manufacturing sector represents 65% of the 118 units by num-ber while the BIM is responsible for 62 of the total units (53% by number).As of June 30, 1974, total fixed assets of the Sector Corporations underBIM control amounted to Rs 4.6 billion. Finally, nearly 20% by number ofthe units were located in the backward provincies of NWFP and Baluchistan,well above the national average (10-11%). It is estimated that the publicsector now constitutes approximately 25% of total industrial assets.

2.15 In July 1974, the Government transferred its shares in theoperating units to the Sector Corporations which now function basicallyas holding companies. However, no Boards of Directors were reinstitutedfor the individual operating units, while the Sector Corporations werenormally headed by a Chairman and perhaps one or two Directors. Essen-tially, the BIM and the Ministry of Production took the role of managingthe individual units on the basis of control of capital expendituresin excess of Rs 50,000, appointment of key personnel, review of annualbudgets, and receipt of monthly operational reports.

2.16 It is Government policy that the industrial public sector beoperated on a sound commercial basis including the retention of profitsin individual units after the payment of reasonable levels of dividendsand taxes, and that commercial relations with other public sector unitswould normally be at market rates of interest for borrowing and lendingand at market prices for purchases and sales. Moreover, other thingsbeing equal, the Government's policy is to give equal treatment to indus-trial firms in the public and private sectors.

2.17 In an important speech in October 1974, the Prime Minister pledgedonce again that there would be no further nationalizations during his termof office which has helped the private sector investment climate somewhat.In the case of certain industries (iron and steel, cement, heavy electricalequipment) the Government has restricted ownership to the public sector.However, in the case of other industries (fertilizer, engineering, textiles,sugar, etc.), the Government has encouraged investment in both public andprivate sectors.

The Performance of the Public Sector

2.18 Because of the series of exogenous factors that have had a sig-nificant impact on industrial performance over the past few years (the warwith India, the devaluation of the rupee, significant changes in import

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policy, and the 1973 floods) it is difficult to isolate the performanceof the public industrial sector over the past three years. Nevertheless,detailed information on the original 31 BIM units from 1971/72 to 1973/74provides a reasonably clear picture of performance.

2.19 Production. The Sector Corporations enjoyed an overall growthin industrial production of 31.2% (Annex 6) from FY73 to FY74 which is farin excess of the national average of 6.8%. The largest increase was re-corded by PACO 1/ (83.9%), followed by SHE and MTC 2/ (74.0%) and NFCP 3/(26.7%).

2.20 Capacity Utilization. In line with the national trend, the aver-age rate of capacity utilization has increased over the past few yearsreaching 69.2% in 1974, with cement showing the highest rate of utiliza-tion (89.7%) (Annex 7). A more detailed analysis of the capacity utiliza-tion of BIM units over the past two years shows a similar improving trendin nearly all units, though the BIM appears to have outperformed the publicsector as a whole (Annex 8).

2.21 Sales. BIM units have recorded substantial increases in salesover the past two years from Rs 948.3 million in FY72 to Rs 2.3 billion inFY74. In the latter year, 41% of total sales was represented by auto andfarm equipment (Annex 9). Similarly, the profitability of the enterpriseshas shown a rapid improvement from a Rs 23.4 million loss in FY72 (-1.2%return on fixed assets) to a profit of Rs 136.3 million in FY74 (6.0%return on fixed assets) (Annex 10). Income, sales and property taxesamounted to Rs 84 million in the latter year. Nevertheless, a number ofpublic sector enterprises have suffered from the fact that Government hasheld prices of certain commodities at below market levels thereby reducingprofitability.

2.22 Exports. Though many of the industries in the public sector areimport substitution oriented, BIM enterprises managed to export goods worthRs 111 million in FY73 and Rs 239 million in FY74 (115% increase) or 9% ofthe total value of manufactured exports (Annex 11). The cement industrywas the top export performer (Rs 122 million). The Middle East has provento be a very good export market for cement, light engineering goods andcertain chemicals.

2.23 Employment. BIN units employed nearly 28,000 people at the endof FY74 (Annex 12) representing 5.4% of the total industrial labor forcein registered factories or 10.6% of the employment in industrial units withmore than 500 workers. BIM units are quite capital intens'ive with a fixedasset/employment ratio of about $17,000.

2.24 Value Added. Gross value added 4/ as a percentage of sales rangedfrom a low of about 24% in the automotive sector to about 56% in the cement

1/ Pakistan Automobile Corporation.2/ State Heavy Engineering and Machine Tool Corporation.3/ National Fertilizer Corporation.4/ Sales - raw materials - manufacturing overheads.

industry. The results in nearly all industries conform substantially tothose in the industrial sector as a whole.

2.25 Linkages with the Small Scale Sector. Though no data are avail-able, certain industries in the public sector have important forward andbackward linkages with the small scale sector. It is estimated that 15-20%of light engineering and 5-10% of automobile and farm equipment componentscome from the small scale sector. Further, about 20-30% of industrialchemical output from public sector units is sold to small scale units.

2.26 Managerial Performance. As a result of the infusion of competentmanagement from the private sector at the time of takeover as well as themanagerial improvements instigated by the BIM such as capital budgeting,monthly operational reports, improved accounting procedures, etc., on thewhole, the BIM units must be considered better from a management point ofview at present than when in private hands. In many cases, new competentauditors have been appointed for the units which has led to a more accurateassessment of the financial condition of the companies.

Sources of Industrial Finance for the Public Sector

2.27 Prior to the EconQmic Reforms Order of 1972, long-term publicindustrial investment was confined largely to PIDC industries and was pro-vided through budgetary allocations which reached their peak, in terms ofutilization, in FY72 at Rs 140 million:

FINANCE OF PIDC PROJECTS(Rs million)

Budget Allocation UtilizationLocal funds

Fundsreleased Total Util-by the Borrow- Foreign ized Expen-

Year Local Foreign Total Govt. ings Total Funds diture

1969-70 15.58 85.85 102.43 61.24 38.37 99.61 13.08 112.691970-71 49.90 15.20 65.10 49.90 8.36 58.28 2.34 60.621971-72 34.13 7.01 41.14 9.74 28.67 38.41 101.64 140.051972-73 80.85 65.40 146.25 48.64 26.91 75.55 57.23 132.791973-74 105.06 66.94 172.00 55.96 (10.06) 45.90 42.87 88.771974-75 45.45 33.05 75.50

The rupee expenditures were met through allocations from the Annual Develop-ment Plan (ADP) while foreign exchange expenditures were met largely fromforeign loans and credits from international aid agencies, bilateral donors,and supplemented by the country's own foreign exchange resources. Up untilFY65, such rupee funds were treated as equity, but thereafter the Governmentbegan making loans and charging interest which reached a level of 6-1/2% inFY72. This compounded the financial difficulties of some firms, given theirinitial weak financial prospects.

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2.28 With the takeover of the 31 units in the private sector and sub-sequent nationalizations, the sources of financing took on a different pat-tern. A breakdown of the amount of financial assistance outstanding to BIMunits for the two years ending June 30, 1974, is given below:

(Rs Million)Outstanding on June 30

BIM Units 1972-73 1973-74

Working Capital 574.18 883.80

Industrial Development Bank of Pakistan (IDBP) 1.50 1.80National Development Finance Corporation (NDFC) - 45.00 (est.)Commercial Banks 572.68 837.00

Long Term Loans 891.22 1,000.36

National Development Finance Corporation (NDFC) - 33.22Pakistan Industrial Credit and Investment Corporation

(PICIC) 319.85 342.65Industrial Development Bank of Pakistan (IDBP) 272.74 263.94Investment Corporation of Pakistan (ICP) 14.96 15.63National Investment Trust (NIT) 10.54 11.69State Life Insurance Corporation 11.03 13.90General Insurance Co. 1.50 7.08Pakistan Insurance Corporation .44 -Government of Pakistan - Customs Department 12.81 -Commercial Banks 138.19 114.63Other Financial Institutions 109.36 198.62

Total- 1,465.40 1,885.16

Total financial assistance outstanding to BIM units increased from Rs 1.46billion in FY73 to Rs 1.88 billion in FY74, or by 28.6%. Working capitalfinancing represented nearly 50% of the total.

2.29 The largest single source of finance were the comnercial banks(Rs 952 million) of which 88% represented short term funds. The Pakistanibanks (including IDBP, ADBP, the Punjab Provincial Cooperative Bank and allscheduled commercial banks) were nationalized on January 1, 1974. Theobjectives of nationalization were:

(a) to direct banking activities towards nationalsocio-economic objectives;

(b) to distribute equitably bank credit to differentclasses, sectors and regions;

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(c) to coordinate banking policy in various areas offeasible joint activity; and

(d) to ensure safety and security of deposits of accountholders.

In the case of commercial banks, 9 were merged into 5 following national-ization, and had total assets of Rs 45.5 billion as of June 30, 1974. Fur-ther, a Banking Council was established (made up of six people includingthe Deputy Governor of the State Bank) to formulate policy guidelines forbanks and lay down performance criteria. Given the Government's attemptsto control inflation (para 2.03), credit ceilings were established for bothnationalized and foreign commercial banks for FY75 amounting to Rs 2.35billion for the private sector and Rs 1.28 billion for the public sector(the latter primarily for the vegetable ghee and transport industries).However, short-term lending to the public sector has and will continue tobe supplemented by NDFC, and to a small extent by IDBP.

2.30 In the case of term lending, PICIC and IDBP are predominant atpresent. PICIC's large involvement reflects the fact that 19 of the 31units originally taken over by Government were PICIC clients. SincePICIC is barred by its Charter and Policy Statement from lending to thepublic sector, its former clients have now become ineligible for financialassistance from PICIC except where loan commitments had taken place priorto the actual Government takeover of shares in November 1973. PICIC'smanagement has felt that if there is a revival in the investment climatein the private sector, particularly large-scale industry, it would preferto maintain its present policy rather than amend it to be enabled to fi-nance public sector units. IDBP, on the other hand, has always been per-mitted to lend to the public sector but has preferred, particularly overthe last five years, to restrict its activities to medium and small scalefinancing in the private sector. IDBP's maximum lending limit in foreignexchange is Rs 3.0 million and Rs 1.5 million in local currency for limitedliability companies.

2.31 Capital market activities are undertaken primarily by the Invest-ment Corporation of Pakistan (ICP), a Government-owned institution estab-lished in 1966, and the National Investment Trust (NIT), an open-endedmutual fund also Government-owned with total assets of Rs 492.6 millionas of June 30, 1973. Historically both institutions financed private in-dustry, though with the spate of nationalizations, this has changed. Thestock market had experienced such a slump over the past few years thatboth institutions have been relatively inactive. The general index ofshare prices fell from Rs 87.4 in June 1973 to Rs 65.5 in November 1974,but has since recovered to Rs 81.1 by March 1975. Both ICP and NIT havebeen actively involved in consortia arrangements organized by NDFC (para4.05).

2.32 Thus, it is anticipated that NDFC's small role in financing BIMunits (4% of total outstandings) will substantially increase in future.

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Its financing of non-BIM units in the public sector, as well as a highproportion of new investment that will be in the public sector in future(para 6.02) will further increase NDFC's developmental role.

III. THE INSTITUTION

A. Organizational Structure

3.01 Origins. NDFC was established under the NDFC Act (No. 13) ofJanuary 1973. The purpose of the institution was to finance through loans(short- and long-term), equity investments, underwriting and guaranteessound undertakings in the industrial sector (manufacturing, transport,mining and utilities) which were wholly or partly owned by the FederalGovernment, which had been taken over and managed by the Government underthe Economic Reforms Order of 1972, or had been declared by the Governmentto be an eligible enterprise (Article 17). NDFC has submitted a numberof amendments to the Act which are presently pending with the Government.These include an amendment to Article 17 to redefine "eligible" enterprises,in the light of the recent organizational changes in the public sector(para 2.12), to include (a) undertakings which are wholly or partly ownedby the Federal Government and (b) undertakings which are wholly or partlyowned by undertakings in sub-section (a) in order to allow for the creationof Sector Corporations.

3.02 Ownership. NDFC, located in Karachi, was established as a 100%Government-owned Corporation with a total authorized capital of Rs 100 mil-lion, which had been fully paid-in as of September 30, 1974.

3.03 Board of Directors. NDFC's Board (Annex 13) consists of 6 per-sons who are appointed by the Government, of whom two must come from finan-cial institutions. The Chairman, who is the Chief Executive, is appointedby Government to hold office for a three-year term, though this can bealtered. There is no fixed term for the remaining Board members. Thecomposition accurately reflects the nature of NDFC's business with repre-sentatives from the BIM, the Ministry of Production (responsible for publicsector projects), the Ministry of Finance (responsibl.e for NDFC), ICP (in-volved in local currency join financing with NDFC), and the State Bankof Pakistan. The Board meets regularly once a month with at least two-thirds of the Board in attendance. The Board is empowered to establishan Executive Committee though, given the small size of the overall Board,this has not taken place.

3.04 Organization. NDFC's organizational structure is contained inthe attached chart and at present consists of four active divisions. Giventhe small size of the organization, this structure is appropriate. InNovember 1974, NDFC opened a Regional Office in Lahore, with one profes-sional, as a means of better serving its clients (potential and existing)

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in this important industrial region, as well as contributing to its owndeposit base. NDFC is planning to establish additional branches inKarachi, Rawalpindi, Peshawar and Quetta over the next year to facili-tate appraisal and supervision work, and increase NDFC's deposit base.

3.05 Management. NDFC's Chairman, Mr. Amin Ullah, is 42 years old withlong banking experience with First National City Bank, both in Pakistan andNew York, as well as with the Bank of China in London. He is concurrentlythe Chairman of the NIT. For a year prior to joining NDFC, he held theposition of Member-Finance with the BIM. He is a capable individualwho is in the process of building NDFC into a strong viable institution.He has been delegated authority by the Board to approve loans up toRs 2 million.

3.06 Staff. As of September 30, 1974, NDFC's professional staff num-bered 20 people including 5 accountants, 2 economists, 1 engineer, 10 finan-cial analysts, 1 lawyer, and 1 commercial banker. 1/ Given the newness ofthe organization, the smallness of the staff is understandable. The Chair-manis recruitment policy has been to hire experienced individuals as divi-sion heads (from PICIC, IDBP and commercial banks and industry) while de-veloping lower echelon staff straight from graduate school. The Chairmanexercises complete freedom in the selection of staff, and 'has been activelyrecruiting over the past year. NDFC's salary scales are competitive withthose of other financial institutions except in the area of fringe benefits.Nevertheless in 1974, NDFC lost an engineer to a commercial bank. Given thegreat shortage of experienced development bankers in Pakistan, which hasbeen compounded by the "brain drain" to the Middle East, the Chaiman'sapproach is a sensible one. The greatest need in NDFC at present is tech-nical staff (the engineering staff consists of two well-qualified individ-uals), even though NDFC benefits from the technological input from consult-ants who prepare the feasibility studies for operating units as well as thetechnical expertise available within the BIM. However, the latter is notavailable to non-BIM units. An additional need is the recruitment of mar-ket analysts which the Chairman considers to be of high priority. Duringnegotiations, NDFC's recruitment program over the next few years was re-viewed. Over the next 18 months, NDFC intends to recruit 3 additionalengineers and 4 market analysts to strengthen the Economic Research andProject Division. In addition, sufficient staff will also be recruitedto man the proposed new branches, and handle the appraisal and supervisionwork at the Head Office as business grows.

1/ 4 additional professionals have since been recruited.

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B. Operating Policies and Procedures

3.07 Statement of Policies. NDFC's Board adopted a Policy Statementon June 5, 1974. During negotiations, this was reviewed and a number ofchanges were agreed upon (Annex 14). NDFC intends to present the revisedPolicy Statement to its Board shortly, whose approval will be a conditionof effectiveness of the proposed Credit. Article 1 states that NDFC'sobjectives are "to promote industrial expansion and economic growth in thecountry by providing financial and technical assistance for the establishmentof new enterprises as well as for the balance, modernization and expansion ofexisting enterprises in the public sector." NDFC is empowered to providefinancial assistance in the form of direct loans both in local and foreigncurrency, for medium- and long-term, as well as for working capital, andsubscribe and underwrite debentures and equity participations, as well asguarantee both local and foreign currency loans. NDFC will finance onlythose projects "which are financially sound, technically feasible andeconomically viable and contribute to the economic development of thecountry" (Article 4).

3.08 Exposure limit. NDFC proposes not to commit normally more than 30%of its own paid-up capital and reserves to a single enterprise. Further,NDFC's equity participation in any single enterprise will not normally ex-ceed 20% of the paid-up capital of that enterprise or 5% of its own paid-upcapital and reserves whichever is lower.

3.09 Project cost. In view of NDFC's potential involvement with largeprojects in the public sector and its present small size, the proposedPolicy Statement provides that NDFC will not normally finance a projectwhose total cost is greater than $40 million to ensure that NDFC's involve-ment is significant enough to allow for active involvement in projectformulation. Secondly, NDFC should not normally finance more than 75% oftotal cost for new and significant expansion projects to ensure sufficientsponsor contribution though some flexibility should be adopted dependingupon the capital structure of the firm.

3.10 Appraisal Procedures. Over the past few months, NDFC's appraisalprocedures have undergone significant changes in the case of its term loans.Under the old arrangement, NDFC had not become involved in public sectorprojects at a sufficiently early stage where it could contribute in asignificant way to project formulation. However, at NDFC's insistence, anew procedure has developed. Specifically, once a feasibility study hasbeen prepared on the basis of a project idea from the operating unit, itis then submitted to NDFC for appraisal (if financial assistance is beingsought) and concurrently to the Planning Commission, which will look at theproject in terms of overall national priorities; to the Ministry of Pro-duction, which is responsible for public sector units; and to the relevantProvincial Government, which checks the availability of suitable infra-structure. Once each organization has had an opportunity to review the

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project in detail, which normally takes two months, the project (where thetotal cost is greater than Rs 10 million) is submitted to the CentralDevelopment Working Party (CDWP) at which all interested Ministries as wellas NDFC are represented. Final approval rests with the Economic CoordinatingCommittee chaired by the Ministry of Finance and consisting of five or sixCabinet members. NDFC is satisfied that at present it is in a positionto make a significant contribution to projects and is in a position toreject projects which has occurred in 6 of the 33 cases to date for bothfinancial and economic reasons. Nevertheless, during negotiations, it wasagreed that Government would write to the Association formalizing NDFC'spresent role in project formulation.

3.11 Appraisal Standards. Despite NDFC's short history, it has alreadyestablished reasonably good appraisal standards particularly in the finan-cial area. The head of NDFC's Appraisal Department (Development BankingDivision) was formerly with PICIC (9 years) and has succeeded for the mostpart in introducing PICIC's appraisal techniques into NDFC. However, im-provements are still desirable in the technical, marketing, and managerialareas, which will be facilitated by an increase in staff size. NDFC isalready routinely calculating financial and economic rates of return.

3.12 Follow-Up Procedures. Given the fact that the long-term portfoliois still in the disbursement rather than the repayment stage, follow-upactivities consist primarily of construction visits, and reviews of reportsreceived from clients. NDFC has laid down elaborate follow-up procedureswhich, if effectively implemented as NDFC's portfolio matures, should bemore than sufficient to monitor the portfolio. Further, NDFC intends tobecome a repository of operational and financial information for itsown public sector clients and will endeavout to collect and analyze suchinformation from non-clients as well where feasible.

3.13 Procurement and Disbursement. NDFC's staff review the equipmentrecommended as to suitability of price and quality based on quotations fromat least three different sources. Once satisfied, NDFC arranges a letterof credit in favor of the foreign suppliers through a designated commercialbank. In the case of local currency, NDFC reviews the procurement of localmachinery on the basis of competitive bids and when satisfied will make pay-ments to the suppliers directly.

C. External Relations

3.14 Relations with Government. Given NDFC's ownership structure(para 3.02), the composition of its Board (para 3.03) and the nature ofits clientele, it is understandable that NDFC maintains close relationswith Government. Nevertheless, since its inception, NDFC has demonstratedits own independence in decision-making through its rejection of projects,

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and also its own innovativeness in developing schemes for suppliers' credits(para 4.20). NDFC's newly-developed active participation in project formula-tion (para 3.10) should ensure itself of an important role in decision-making.In due course, NDFC should become a prime repository of information on thepublic sector through its lending operations (para 3.12) after which it shouldbe in a good position to make a valuable contribution to the Government'splanning for the public industrial sector.

3.15 Relations with Financial Institutions and Clients. NDFC has playedand should continue to play, an important role in the mobilization of domes-tic resources from other financial institutions through consortia arrange-ments for its projects (para 4.05). Moreover, it expects to be in a positionto engage in joint financing with IDBP in public sector projects (within thelatter's upper lending limits) as well as PICIC in the case of private sectorprojects with Government participation. NDFC's clients have expressed satis-faction with the speed and efficiency with which NDFC has processed loans,and for its contribution to financial planning.

IV. NDFC'S ROLE IN THE ECONOMY

Resource Mobilization

4.01 Long-term Resources. NDFC's resource position as of September 30,1974 is shown in Annex 15. Long term resources consisted of Rs 108.9 mil-lion in share capital and reserves and Rs 110.9 million in long-term depo-sits (para 4.02). NDFC does not at present have its own long-term foreignexchange though it has until now received foreign exchange authorizationsfrom the Government amounting to approximately Rs 30 million of which Rs 0.7million has been disbursed for clients who-had borrowed from NDFC in localcurrency to purchase the foreign exchange. Taking into account all dis-bursements and undisbursed commitments with respect to long-term lending,NDFC had Rs 125.2 million in long term resources available for commitmentas of September 30, 1974.

4.02 NDFC's long-term deposit base has grown rapidly from Rs 29.5 millionat the end of 1973 to Rs 110.9 million in the following nine months despitethe absence of a branch network. Nearly 90% of the long-term deposits havecarried maturities between 1 and 3 years while the remaipder have gone upto 7 years. NDFC has been able to attract deposits on account of its abilityto offer rates of interest between 1/2-1% above those of the commercial bankssince it is not classified as a bank under the direction of the SBP. A com-parison of various investment opportunities is given in Annex 16,.which re-flect the revisions that took place following the increase in the Bank Ratein September 1974. NDFC is more competitive with deposits of short maturity(less than one year). NDFC also has adopted a policy of rewarding compen-sating deposits with reductions in lending rates. Not surprisingly, thegreat majority of depositors are public sector units which to a great extentare already receiving financial assistance from NDFC.

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4.03 Short-Term Resources. As of September 30, 1974, NDFC's short termresources consisted of Rs 43.5 million in short-term deposits (8-8-1/2%) andRs 12.3 million of a Rs 50 million revolving line of credit from the StateBank of Pakistan (SBP) at 9% for a period of 12 months which can be extended(Annex 15). Thus, NDFC had Rs 19.2 million available for short-term dis-bursements as well as the balance of Rs 37.7 million from SBP and Rs 153.4million available for long-term disbursements. NDFC also received a short-term deposit in foreign currency of Rs 8.22 million from the State CementCorporation which it has placed on deposit in the Eurodollar market.

4.04 NDFC's proposed liquidity policy (revised Policy Statement) is tokeep 25% of its deposits in the form of cash in hand and with approved banksand investments in short-term paper. 1/ It also includes a commitment inits proposed Policy Statement to match as much as possible the maturitiesof its sources and uses of funds and to maintain a prudent mix of short andlong-term deposits. NDFC has invested up to Rs 10 million in compensationbonds (for the various nationalizations) in order to earn 10% per annum.NDFC has successfully developed a secondary market in these bonds.

4.05 Mobilization at Project Level. NDFC has taken the lead in organiz-ing consortia with commercial banks, ICP, NIT and the State Life InsuranceCorporation of Pakistan. To date, six such arrangements have been organizedinvolving debentures of Rs 225.5 million (of which NDFC subscribed Rs 51.5million), Rs 24.5 million in equity (Rs 2.0 million from NDFC), and Rs 50million in working capital. NDFC should continue to play an important rolein this area for its clients. On average (by number), NDFC has financedonly about 20% of total project cost to date though this has ranged from 1%to 75%. The percentage should increase as NDFC obtains foreign exchange,though NDFC should be encouraged not to finance normally more than 75% oftotal individual project costs (para 3.09).

Terms and Conditions of Financial Assistance

4.06 NDFC's interest rates and other charges on its overall operationsare given in Annex 17 while the general interest rate level in the countryis given in Annex 18. In the case of local currency lending, NDFC's ratesapproximate those of commercial banks being 12% for long-term (3% aboveBank rate) compared with a range of 11-13% for commercial banks. However,NDFC can make a reduction of up to 1% in exchange for compensating depositsof up to 10% of the value of the loan. NDFC is entitled to convert 20% ofthe loan account into ordinary shares of the borrower at par, though thishas not yet occurred.

4.07 In the case of suppliers' credits (para 4.20), NDFC is-obliged tooffer a rate of interest on foreign currency 1% below the lowest rate availa-

1/ Under NDFC's present Policy Statement, the ratio is 20%. Though even25% is below the 35% ratio of commercial banks (para 2.03), unlikethe commercial banks, NDFC does not accept demand deposits.

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able from either itself, PICIC or IDBP, which at present is 8-1/2% (IDBP).Refinance from the SBP is available at 2% below NDFC's foreign lending rate,which would be 5-1/2% at present.

4.08 In its short term operations, NDFC also charges 12% per annum,except for export credits (none have as yet been granted) which carry arate of 10% per annum. NDFC normally charges a penal rate over the regularrate of interest ranging from 2%-6% for overdues depending on the amount ofthe loan.

4.09 NDFC's foreign currency rate will be 2% above the rate of intereston its foreign credits. In the case of the IDA Credit, the GOP will on-lendat 8.5% with NDFC relending at a minimum of 10.5% with the subborrower bear-ing the exchange risk. This will ensure an adequate spread. Though the rateof inflation in Pakistan is presently running at 14% per annum, a 10.5%relending rate is appropriate since end-users will be bearing the exchangerisk. This rate would be somewhat higher than practised by other DFCs forforeign exchange term lending. IDBP's foreign currency lending rate rangesfrom 8-1/2-9%, while PICIC's has ranged from 8-1/2-9-1/2%, though it wasrecently increased to 10-1/4% under the latest ADB loan. While the lendingrates vary somewhat between the three industrial development banks, thedifferentials are temporary since all lend at a 2% spread, the differencebeing explained by the timing of each institution's borrowing.

Resource Allocation

4.10 Overall Operations. A summary of NDFC's operational resultsthrough September 30, 1974 is given in Annex 19. Cumulative approvals(net of cancellations) since its inception in July 1973 have totalledRs 362.9 million for loans to 53 projects and Rs 7.0 million for equityinvestments in 7 companies. Cumulative disbursements totalled Rs 120.7million ($12.2 million) as of the same date. Total approvals increasedfrom Rs 48.7 million in 1973 (six months) to Rs 321.2 million in 1974(nine months).

4.11 Sector Distribution. Annex 20 shows the subsectoral distributionof NDFC's loan approvals since inception. The chemical industry has beenthe most important recipient of NDFC assistance by amount (29.1%) whilesteel and engineering have accounted for 39.6% by number and in the caseof working capital loans, 63% by amount. Overall, NDFC's portfolio hasbeen well diversified by industry.

4.12 Local Currency and Import Financing. One of the important con-tributions of NDFC's lending activities to date has been the magnitude ofits local currency financing which represented 56% of total approvals asof September 30, 1974 (Annex 21). This has been possible due to NDFC'ssuccess to date in deposit mobilization (para 4.02) as well as from theinitial use of share capital. This proportion is expected to decline some-what over the years to about 45%.

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4.13 Loan Maturities. The maturities of NDFC's loans have ranged fromless than one year (14.5% by amount) for working capital loans to over tenyears (41.8% by amount) for term loans. Nearly 70% of the loans by amounthave had maturities of greater than five years (Annex 21).

4.14 Geographical Distribution. NDFC's loan approvals by amount havebeen concentrated in the two most industrialized provinces, namely Sind(72.8%) and Punjab (25.8%), while N.W.F.P. has received only 1.4% andBaluchistan nothing at all (Annex 21). Given the fact that the Govern-ment is in an advantageous position in the case of public sector projectsto influence project location, the Government and NDFC intend to promotea better regional balance in the public sector though not by establishingnon-viable units due to faulty location.

4.15 Ownership Structure. NDFC's initial lending operations have beenheavily concentrated in BIM units (72.8% by amount) (Annex 21).- This re-flects the fact that NDFC's initial orientation was to assist those unitsthat had been recently taken over. However, with subsequent. nationaliza-tion and a broader public sector coverage on the part of NDFC, the BIMproportion of future financing is expected to decline to around 30%.

4.16 Type of Project. Of the 53 projects approved by NDFC to date,26 have been for working capital, 20 for new and expansion, and 7 forbalancing and replacement (Annex 21). In the long run, NDFC expects thatits term lending operations will represent approximately 75% of its totallending activities.

4.17 Size of Loan. The breakdown of NDFC's loans by size is in Annex22. In the case of long-term loans, 37% by number and 87% by amount havebeen for amounts greater than Rs 10 million while the balance involved loansof less than Rs 6 million. In the case of working capital loan the break-down has ranged from 25% by amount of less than Rs 3 million and 29% byamount greater than Rs 9 million.

4.18 Guarantees. NDFC had issued two guarantees for a 1% fee as ofSeptember 30, 1974 (one was actually a counter-guarantee) totalling Rs 36.4million involving Rumanian and Russian suppliers. In general, NDFC prefersto make direct loans or investments.

4.19 Suppliers Credits. In order to support the growth of the localmachinery industry, NDFC recently inaugurated a suppliers credit scheme tofinance the purchase of equipment from its public sector clients by whollyprivate units which are beyond the scope of its lending activity. As ofSeptember 30, 1974, NDFC has arranged for two suppliers credits with com-mercial bank guarantees amounting to Rs 1.97 million, 1/ though the growthof this business is constrained by the lack of domestic machinery.

1/ Included in loan operation totals above.

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4.20 Equity Investments. NDFC's role in equity investments has beenrather marginal to date involving approvals of Rs 7.0 million in 7 compa-

nies and disbursements of Rs 3.5 million. This has been largely due to thepoor state of the capital market, though with the recent upturn (para 2.31),NDFC's activities should increase.

Development Impact

4.21 Aside from NDFC's important contributions to date in domesticresource mobilization (paras 4.01-4.03), its contribution can also be meas-ured at the micro level through an analysis, on an ex ante basis, of NDFC'ssubprojects. Using a sample of 11 projects (out of 27 term loans approvedsince inception), the financial rates of return varied from 6.0 - 21.5%(weighted average of 13.5%) while the economic rates of returns variedfrom 17.2% to 49.0% (weighted averaged of 33.2%) (Annex 23). The widevariation in a number of cases (sugar, fertilizer) between the financialand economic rates of return reflects the wide discrepancy between domesticand international prices in many commodities. Moreover, on average, NDFCfinanced 24.2% of total project cost, created 211 jobs per project, itsclients exported 11.3% of their output, and the annual incremental for-eign exchange saved/earned was Rs 43 million.

4.22 Given NDFC's small staff, the opportunities for actively engagingin promotional work are not very great at present. Nevertheless, as the

staff is strengthened both in terms of numbers and disciplines, and as NDFCbecomes the repository of detailed knowledge of the public industrial sector,this promotional aspect including subsector reviews should be emphasizedwhich should be facilitated by NDFC's profitability prospects (para 6.09).

V. NDFC'S FINANCIAL POSITION

5.01 Profitability. In 1973, NDFC earned slightly more than Rs 1 mil-lion in net profit (it is tax exempt) on the basis of gross income of Rs 2.35million (Annex 24). Net profit as a percentage of year-end share capitalamounted to 2.80%. Administrative costs as a percentage of average totalassets amounted to 1.5% (Annex 25). For the first nine months of 1974,NDFC recorded a net profit of Rs 7.9 million on a gross income of Rs 14.8million. Under its Act, NDFC is required to transfer 5,0% of its annual rev-

enue to reserves. Book value per share reached Rs 109 as of September 30,

1974 while NDFC is expected to begin paying a dividend of 8% in 1975.

5.02 Quality of Portfolio. Given the newness of the institution, no

repayment pattern on term loans has emerged since all clients are enjoyingperiods of grace. In the case of working capital loans, all have been

repaid on time. To foster a good collection performance, NDFC will be re-quired, under the proposed Project Agreement, to maintain as a condition offurther subproject authorizations by IDA, at a minimum, a collection ratio of

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80% of all principal and interest falling due during the financial yearplus overdues from previous financial years (excluding arrears of lessthan three months). Notwithstanding this, NDFC's basic objective will stillbe to strive for a 100% collection performance.

5.03 Financial Position. Balance sheets as of December 31, 1973 andSeptember 30, 1974 are contained in Annex 26. NDFC's total assets grew fromRs 102 million to Rs 288 million over this period, for an almost threefoldincrease. NDFC's total debt/equity ratio was 0.4:1 as of December 31, 1973while its debt service coverage position was a substantial 4.8:1. NDFC'sreserves and retained earnings as a percentage of year-end share capitalwere 2.55%, while no provisions were made given the newness of the portfolio.NDFC's liquidity position remains extremely strong with net current assetsof Rs 167 million (current ratio of 9.8) and undisbursed commitments (shortand long term) of Rs 60.6 million.

5.04 Audit. NDFC's 1973 accounts were audited without qualification bythe well-known and qualified firms of A.F. Ferguson & Co. and Ford, Rhodes,Robbins and Morrow. NDFC is obliged under Article 23 of its Act to haveits accounts audited annually by two separate auditors, the results of whichmust be submitted to its Board, and the Federal Government, which in turn,submits the accounts to the National Assembly. NDFC has agreed to haveits 1974 accounts audited in the "long form".

VI. PROSPECTS

General Outlook

6.01 The preliminary Draft Five-Year Plan (1975-80) provides for agrowth rate of 15% per annum in nominal terms of industrial output comparedto the 9% achieved during the last three years of the Fourth Plan. Totalindustrial investment during the Fifth Plan is projected to be Rs 35 bil-lion compared to Rs 7.2 billion in the Fourth Plan.

6.02 Significantly, public industrial investment as a percentage oftotal investment is expected to increase substantially from 36.5% to 67%reflecting the Government's commitment to a mixed economy with a signifi-cant public sector. Though the Government is encouraging the revitaliza-tion of private sector investment through promises of no further nationali-zations as well as through provision of certain fiscal incentives, it isestimated that this will have an impact only on the medium and small-scalesector. The ADP for the Sector Corporations in 1974/75 is given in Annex 27.Industrial investment in the Fifth Plan will be based on the followingpriorities:

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(a) agro-based industries (textile, sugar, vegetable ghee,paper, cigarettes, rice milling)

(b) industries producing essential wage goods

(c) basic and heavy industries (steel)

(d) export-oriented industries (textiles, cement,engineering)

(e) import-substitution industries not includedunder (a)-(b) (fertilizer)

6.03 The Government has also outlined a number of additional policyobjectives including:

(a) the need to promote regional development based onintegrated regional plans to develop economicallyfeasible projects that would have forward andbackward linkages; and

(b) the use of appropriate technology to favor laborintensive projects (where appropriate), the greateruse- of local raw materials, and the need to developindigenous designs to encourage manufacture ofdomestic capital goods.

Business Forecasts

6.04 Annex 28 shows a forecast of NDFC's total approvals, commitmentsand disbursements for the years 1974 through 1979. Total approvals areexpected to increase from Rs 498 million in 1974 to Rs 1,040 million in1979 reflecting an overall growth rate of 15% per annum (except for sup-pliers credits and equity investments) which is directly comparable tothe growth rate of industrial output for large scale industry envisionedin the draft Five-Year Plan. 1/ Thus, foreign currency approvals areexpected to grow from Rs 248 million in 1974 to Rs 498 million in 1979,constituting a relatively constant proportion (50%) of total approvalsover this period. Of the balance, approximately 30% will take the formof working capital loans, 60% long term local currency loans, with theremainder split between suppliers credits, export credits, and equityinvestments. A similar pattern is anticipated in the case of disburse-ments which are expected to grow from Rs 204 million in 1974 to Rs 910million in 1979. Thus, over the next five years NDFC is expected tofinance about 14% on a disbursement basis of large-scale industrial in-vestment in the public sector, though the percentage would be considerablyhigher if a few large projects such as the Karachi Steel Mill were excluded.It is expected that NDFC's foreign exchange lending will go primarily for

1/ The capital/output ratio for large scale industry is estimatedto be 1.1:1.

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cement, chemicals, agro-industries, automotive, and steel and engineeringindustries which have shown improving performance (paras 2.18 - 2.26).Nevertheless, given NDFC's relatively small role over the next few yearsin total public industrial finance, it intends to concentrate its lendingactivities on those projects where it can make a significant contribution,and where its contribution to total project cost will be significant.

Resource Requirements

6.05 Foreign Currency. As of September 30, 1974, NDFC had not mobil-ized any foreign currency on its own (aside from Rs 8.22 million in foreigncurrency deposits), but instead had relied on allocations from the Govern-ment on a priority basis. As of that date, foreign currency commitmentsamounted to Rs 24.92 million, while disbursements were Rs 0.7 million.From April 1, 1975 to April 1, 1977, NDFC's total foreign currency resourcecommitment requirements are expected to be approximately US$58 million,which is a conservative estimate since projects amounting to US$18.7 millionwere expected to be committed between October 1, 1974 and April 1, 1975and could be postponed, though a portion of the foreign exchange require-ment is being met by direct government allocations. In addition, theproposed credit agreement provides fo: IDA's financing of expendituresincurred between April 1, 1975 and the date of signature of the CreditAgreement for not more than 3 subprojects and up to an amount not exceedingUS$2,000,000. Further, the Asian Development Bank (ADB) has agreed tomount an appraisal mission in mid-1975 so that foreign exchange could beavailable early in 1976 of the order of $20 million. Later, NDFC and thegovernment intend to approach OPEC (Organization of Petroleum ExportingCountries) for funds of approximately $30 million. Thus, it is recommendedthat the Bank Group provide NDFC with a $30 million credit to meet about50% of its foreign currency requirements for the two year period beginningApril 1, 1975.

6.06 Domestic Currency. NDFC's rupee disbursements for the period from1974 to 1979 are expected to grow from Rs 149.8 million to Rs 508.6 million.In the case of long-term operations, new commitments from October 1, 1974to December 31, 1976 amounting to Rs 423.8 million should be financed pri-marily through uncommitted long-term resources (Rs 125 million) long-termdeposits (Rs 115.6 million) as well as through the issuance of its own de-bentures in 1976 (Rs 15 million):

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-(Rs million)1974 1975 1976

Uncommitted long-term local resources 125.2 138.1 82.2(as of Sept. 30)

Share capital/subordinated loan 50.0 40.0Internal cash generation 3.8 18.1 27.6Refinancing from SBP 3.6 17.3 9.3Bonds and Debentures - - 15.0Borrowings from SBP - - 15.0Loan collections 3.0 0.9 19.3Long-term deposits 39.2 34.0 42.4

Sub-total 49.6 120.3 168.6

New Commitments 36.7 176.2 210.9Uncommitted rupee resources at the endof year 138.1 82.2 59.9

6.07 NDFC's short-term local resource position for the period October 1,1974 to December 31, 1976:

1974 1975 1976(as of Sept. 30)

Undisbursed short-term local resources 17.0 13.6 4.8Short-term loan collections 38.1 82.1 96.9Short-term deposits 18.7 12.0 14.4New commitments 60.2 102.9 118.3Cash surplus (deficit) 13.6 4.8 (2.2)

6.08 The slight shortfall of Rs 2.2 million in 1976 could be easilycovered by the surplus position (Rs 59.9 million) in NDFC's long-termposition.

6.09 Financial Projections. Projected income statements for the period1974-79 are contained in Annex 29. Net profits are expected to grow from10.8% to 53.4% as a percentage of year-end share capital., NDFC's highprofitability performance can be attributed to the absence of tax, lowadministration costs (0.3% of average total assets in 1979) due to largeloans and small staff, and favorable spreads on local currency. NDFC ex-pects to declare an 8% dividend in 1975, increasing to 10%'in the followingtwo years, and then to 15%. Over the five-year period, NDFC's book valueper share is expected to more than double from Rs 111.8 to RS 233.

6.10 Projected balance sheets from 1974 to 1979 are given in Annex 30.Total assets are expected to grow from Rs 331 million in 1974 to Rs 2.56billion in 1979, a more than sevenfold increase. The most rapid increase

- 23 -

would occur in the case of foreign currency loans (from Rs 34.9 million toRs 1.3 billion). NDFC presently enjoys a long-term debt/equity limit of

20:1 both in its Act and Policy Statement. Given the newness of the insti-tution, the nature of its clientele, the size of the loans it will beexpected to make, and the need to develop a sound equity base a long-termdebt/equity limit of 5:1 was agreed upon during negotiations (where debtexcludes deposits maturing within one year from the date of receipt).Short-term deposits are excluded from the calculation on the grounds that

(a) NDFC's liquidity policies (para 4.04) are adequate; (b) these short-term deposits are expected to account for a maximum of 5-6% of its totalliabilities by 1979 and (c) NDFC has undertaken to match the maturities ofits sources and uses of funds and maintain a prudent mix of short and long-term deposits (para 4.04). NDFC's debt/equity ratio (under IDA's definition)is expected to grow from 1.3:1 as of September 30, 1974 to 5.9:1 in 1979.This assumes, however, that NDFC's equity base is increased by Rs 120 millionover this period. The Government has agreed to increase NDFC's share capital

by Rs 20 million in 1976. In addition, NDFC's forecasts provide for Govern-ment subordinated loans of Rs 100 million over the 5-year period, though

the Government has reserved its option of increasing equity by share capitalor subordinated loans. Projected cash flow statements (1974-1979) are con-tained in Annex 31. NDFC's debt service coverage position is expected todecline from 7.6:1 in 1974 to the still adequate level of 1.6:1 in 1979.

VII. OBJECTIVES OF THE CREDIT

7.01 Since Bank Group assistance to financial intermediaries in Pakistanhas been concentrated in PICIC and IDBP, which are concerned almost entirelywith the private sector (para 2.30), a credit to NDFC would provide the first

Bank Group assistance to the public industrial sector (through a financialintermediary). NDFC would in turn substitute, to a growing extent, for the

traditional direct government financing of public units. Thus, for thefirst time, a financial intermediary would bring its appraisal and super-vision skills to bear on the public sector which should contribute to betterproject selection and performance. Moreover, NDFC's successful mobilizationof both short and long term local currency in addition to foreign currencyshould provide a more balanced package of financial assistance than hasbeen possible by Pakistan's development banks in the past. Finally, thenewness of the institution would enable the Bank to contribute substantiallyto institution building. NDFC has prepared a statement of its developmentstrategy own the next two years which is contained in Annex 32.

7.02 The industries to be financed under the credit would, for the mostpart, provide:

- 24 -

(a) a positive impact on the balance of payments both interms of exports (cement, engineering goods) and importsubstitution (steel, heavy engineering and automotive)(para 2.22);

(b) a greater diversification of the industrial sector awayfrom- industries such as textiles which accounts for 32%of total value added and 47% of employment, and which hasexperienced a difficult period recently due to interna-tional economic events (para 2.06);

(c) a greater potential for regional development (para 4.14).

7.03 NDFC will fill an important informational gap in becoming aprimary repository of information on public sector units which shouldgive it the opportunity to provide industrial policy advice to the govern-ment (para 3.14).

VIII. AGREEMENTS AND RECOMMENDATIONS

8.01 On the basis of NDFC's present foreign resource position and itsforeign currency requirements over the two-year period beginning April 1,1975, a $30 million credit to the GOP is recommended to be on-lent toNDFC. The use of the credit would be limited to expenditures for theimport of capital equipment. The GOP would on-lend to NDFC at an interestrate of 8.5% to be repaid to the GOP in 18 years including 3 years grace.The amortization schedule would be based on the aggregate amortizationschedules of NDFC's loans to sub-borrowers. NDFC would relend at a rateof interest of 10.5% per annum, constituting a 2% spread, with the sub-borrower bearing the foreign exchange risk. A free limit of $1 million isproposed, given the large size of the potential loans, which would implythat 75% by number and over 90% by amount of subprojects financed underthe proposed credit would require prior approval of IDA. A disbursementschedule for the proposed Credit is contained in Annex 33.

AN14EX 1

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: Manufacturing Production Indexes by Year and Quarter

1966/67 - 1973/74

(1964/65 = 100)

QuartersYear I II III IV Yearly

Jul-Sept Oct-Dec Jan-Mar Apr-June Average

1964/65 ... ... ... ... 100.01965/66 ... ... ... ... 112.91966/67 ... ... ... ... 120.21967/68 ... ... ... ... 134.81968/69 ... ... ... ... 140.61969/70 ... ... ... ... 160.21970/71 148.5 138.4 152.8 181.9 162.11971/72 136.1 148.5 174.6 145.3 151.11972/73 135.2 170.8 203.5 166.3 169.01973/74 146.5 185.6 217.8 172.5 180.6

a/ 1966/67 - 1972/73 based on CSO data.1973/74 based on average of indexes for four quarters.

NOTE: All years end June 30.

Source: Tables III.1 from selected issues of Key Economic Indicators(Karachi: Statistical Division) and relevant tables in MonthlyStatistical Bulletin.

April 1, 1975

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: The Structure of Industry

Value Added Employment

1965/66 1969/70 1965/66__ _ 1969/70c_ _

Rs. Mn. % Rs. Mn. % InOOO __ In OOO

Food and beverage 449.3 15.8 739.6 15.4 29.7 8.7 36.0 8.6Tobacco 263.3 9.2 383.3 8.0 8.5 2.5 10.5 2.5Textiles 807.1 28.4 1,554.1 32.3 164.0 48.1 197.9 47.3Footwear, apparel 38.5 1.4 67.5 1.4 5.8 1.7 7.5 1.8Wood manufacture 7.6 0.3 11.4 0.2 2.0 0.6 2.5 0.6Paper and paper products 52.3 1.8 62.6 1.3 3.1 0.9 6.3 1.5Leather and leather products 38.1 1.3 94.4 2.0 3.8 1.1 5.4 1.3Rubber products 38.8 1.4 41.8 0.9 3.1 0.9 2.5 0.6Printing and publishing 46.4 1.6 71.2 1.5 7.5 2.2 8.8 2.1Chemicals and chemical products 290.4 10.2 428.7 8.9 18.4 5.4X 22.2 5.3Non-metallic mineral products 135.8 4.8 -/ 591.6 12.3 13.0 3.8- 19.2 4.6Basic metals 91.4 3.2 116.1 2.4 8.9 2.6 13.8 3.3Metal products exc. machinery 63.5 2.2 86.1 1.8 14.7 4.3 18.0 4.3Non-electrical machinery 51.4 1.8 57.6 1.2 12.3 3.6 13.0 3.1Electrical machinery and supplies 99.2 3.5 160.4 3.3 13.0 3.8 16.3 3.9Transport equipment 116.8 4.1 67.4 1.4 13.3 3.9 17.2 4.1Miscellaneous 256.o 9.0 277.3 5.7 20.0 5.9 21.3 5.1

All industries 2,845.9 100.0 4,811.3 100.0 341.1 100.0 418.4 100.0

a/ Value added includes sales tax and excise duties.

b/ Monthly average.

c/ Daily average.

d/ Without petroleum and coal products.

Source: Census of Manufacturing Industries.

April 1, 1975

ANNEX 3

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: Private and Public Sector Industrial Investment

1963/64 - 1974/75

(Millions of Rupees in Current Prices)

Private Industrial Investment-/ Public TotalLarge and Medium Industrial Industrial

Scale Small Scale Total Investment-/ Investment

1963/64 1,044.1 124.4 1,168.5 39.8 1,208.31964/65 1,188.1 135.4 1,323.5 132.7 1,456.21965/66 1,084.0 146.0 1,230.0 133.5 1,363.51966/67 1,022.2 162.9 1,174.1 134.1 1,308.21967/68 1,050.8 167.1 1,217.9 148.5 1,366.41968/69 1,003.3 174.0 1,177.3 93.7 1,271.01969/70 1,225.5 187.7 1,413.2 179.2 1,592.41970/71b/ 1,249.6 201.7 1,451.3 68.2 1,519.51971/72-/ 1,301.6 219.1 1,250.7 98.5 1,349.21972/73-/ 781.2 255.2 1,036.4 121.5 1,157.91973 /74-'/ 307.3 400.0 707.3 470.0 1,177.31974/7 1,040.0 500.0 1,540.0 1,096.3 2,636.3

a/ Includes investment in related buildings and price of land.

b/ Provisional.

c/ Estimate.

d/ Target.

Source: Investment Promotion and Supplies Department, Karachi. Data for 1972/73 to1974/75 taken from 1974/75 Annual Development Plan, pp. 111, 113.

April 1, 1975

ANNEX .

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: List of State Corporations and Units(as of September 30, 1974)

1. Federal Light Engineering Corporation (FLEC)

1. Textile Corp. of Pakistan Ltd.2. Karachi Pipe Mills.3. Lahore Eng. & Foundry Ltd.4. Metropolitan Steel.5. Northern Foundry & Eng.6. Nowshera Engineering Co. Ltd.7. Pakistan Engineering Co. Ltd.8. Pioneer Steel Mills.9. Quality Steel Works Ltd.

2. State Heavy Engineering & Machine Tool Corporation (SHE and MTC)

1. Pakistan Machine Tool Factory.2. Heavy Mechanical Complex.3. Peoples Steel Mills.4. Heavy Forge and Foundry.

3. Pakistan Automobile Corporation (PACO)

1. Pakistan Tyre Company Ltd.2. Domestic Appliances Ltd.3. Awami Autos Ltd.4. Bela Engineers Ltd.5. Millat Tractors Ltd.6. National Motors Ltd.7. Naya Daur Motors Ltd.8. Republic Motors Ltd.9. Sind Engineering Ltd.

10. Trailer Development Corp.

. Federal Chemical & Ceramics Corp. (FCCC)

1. Ittehad Chemicals.2. Ittehad Pesticides.3. Pakistan PVC Ltd.4. Ravi Engineering Ltd.5. Ravi Rayon Ltd.6. Sind Alkalis Ltd.7. Synthetic Chemicals Ltd.8. Antibiotics (Pte) Ltd.9. Pak Dyes & Chemicals Ltd.10. Kurram Chemical Co. Ltd.11. Swat China Elutriction Plant.12. Pak Bofors Chemicals Ltd.

ANNEX 4Page 2

5. Pakistan Tractors Corp. Ltd. (PTC)

6. State Cement Corporation of Pakistan Limited (SCCP)

1. Associated Cement Industries.2. Gharibwal Cement Ltd.3. Javedan Cement Ltd.4. Mustehkam Cement Ltd.5. National Cement Industries Ltd.6. Zeal Pak Cement Fhctory.7. Maple Leaf Cement Factory.8. White Cement Industries.

7. National Fertilizer Corporation of Pakistan Limited (NFCP)

1. Pakistan Fertilizer Co. Ltd.2. Natural Gas Fertilizer Factory.3. Pak American Fertilizer Ltd.4. Lyallpur Chemical & Fertilizer.5. Lyallpur Chemical & Fertilizer, Jaranwala.6. Pakarab Fertilizer Ltd.7. Mirpur Methaolo Fertilizer Co.

8. State Petroleum Refining & Petro-Chemical Corporation (PERAC)

1. National Refinery Limited.2. BTX Project.

9. National Design & Industrial Services Corporation Limited (NDISC)

10. Pakistan Steel Mills Corporation (PSMC)

11. State Electrical Corporation of Pakistan Limited (SECP)

12. Pakistan Industrial Development Corporation (PIDC)

Conpleted Projects/Companies Under the Management of PIDC

1. Harnai Woolen Mills Limited, Harnai.2. Talpur Textile Mills Tando Mohammad Khan, District. Hyderabad.3. Qaidabad Woolen Mills Limited, Qaidabad, Dist. Sargodha.4. Bannu Sugar Mills, Naurang Serai, Dist. Bannu.5. Indus Gas Company Limited, Hyderabad.6. Karachi Gas Company Limited, Karachi.7. Timber Seasoning Plant, Pirawala (closed).8. Haripur Rosin & Turpentine Factory Ltd. Haripur (closed).9. PIDC Dolomite & Silica Sand Project, Mari Indus (closed).

ANNEX hPage 3

13. Names of Ongoing Projects of PTDC

1. Larkana Sugar Mills, Naudero.2. Dadu Sugar Mills, Pyro Goth.3. Tarbela Cotton Textile Mills.4. Balancing and Modernization of Harnai Woolen Mills Ltd.5. General Refractories Plant, Hattar.6. Specialized Refractories Plant, Hattar.7. Dir Dorest Industries Complex, Shringal.8. Air Mix L.P.G. Project, Larkana.9. Air Mix L.P.G. Project, Quetta.

April 1, 1975

ANNEX 5

NATIONAL DEVELOPMENT FINANCE CORPORATION1/PAKISTAN: Distribution of Public Sector Enterprises- by Industry,

(Soptember 30, 1974)

Industry Established NewUnits ProJects TOTAL

I. Manufacturing 56 21 77

a. Automobile & Farm Equipment 9 1 10b. Cement 8 3 11c. Chemicals, Pharmaceutical 14 1 15d. Fertilizer 4 5 9e. Food & Related Products 1 3 4f. Paper, Board & Forest Based

Industries 3 1 4g. Steel & Engineering 13 4 17h. Textile 3 2 5i. Other Manufacturing 1 1 2

II. Mining 15 - 15

III. Energy 13 5 18

a. Gas 4 4 8b. Electricity 4 - 4c. Oil 5 1 6

IV. Transport 3 - 3

V. Construction 1 1 2

VI. Services 3 - 3

TOTAL 91 27 118

Regional distribution

Region-' Established New(Province) Units Projects Total

Baluchistan 6 4 10Sind 38 12 50Punjab 35 8 43N.W.F.P. 9 3 12

TOTAL 88 27 115

ManadinaJAgency Established Newcontrolling Units Projects Total

B.I.M. 49 13 62P.I.D.C. 9 9 18Others3/ 33 5 38

TOTAL 91 27 118

1/ Does not include projects or units under Provincial Industrial Development(PID) Boards, Fauji Foundation and Provincial Road Transport Corporations.Most of the units under the PID Boards consist of the recently nationali4edvegetable ghee plants. Besides, the PID Boards have various developmentprojects which are in the planning stage.

2/ Excludes three service industries.

3/ Includes industries under the Ministry of Natural Resources (Mineral DevelopmentCorporation of Pakistan), Ministry of Production, Ministry of Defense, and otherGovernment agencies.

April 1, 1975

ANNEX 6

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: BIM Weighted Production Index

CORPORATION 1972/73 1973/74 Increases/Decreases

Federal Chemical and Ceramics 100 111.7 11.7%

Federal Light EngineeringCorporation 100 120.0 20.0%

National Fertilizer Corporationof Pakistan 100 126.7 26.7%

Pakistan Automobile Corporation 100 183.9 83.9%

Pakistan IndustrialDevelopment Corporation 100 108.5 8.5%

State Cement Corporationof Pakistan 100 109.5 9.5%

State Heavy Engineering andMachine Tool Corporation 100 174.0 74.0%

State Petroleum Refining andPetrochemical Corporation 100 94.7 ( 5.3%)

Total Production 100 131.2 31.2%

Source: BIM

April 1, 1975

ANNEX 7

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: Average Rate of Capacity Utilizationin Public Sector Enterprises

1969/70 - 1973/74

Product Group 1970 1971 1972 1973 1974 Ratio1974:1970

CementAverage 85.3 86.1 82.6 81.9 89.7 1.16Range (57-111) (39-122) (56-119) (51-124) (60-130)

Chemicals -Average 57.6 71.6 68.7 73.3 71.0 1.23Range ( 0-90) (10-109) (10-123) ( 8-102) ( 9-119)

FertilizerAverage 53.4 60.7 65.6 72.6 59.1 1.11Range (40.81) (49-82) (46-88) (24-130) (43-75)

Motor VehiclesAverage 29.6 24.0 26.2 37.3 54.1 1.83Range (17-53) (11-54) ( 4-51) ( 9-72) ( 2-114)

Textiles (woollen)-/Average 57.4 62.6 65.4 64.4 72.4 1.26Range (25-84) (42-93) (50-100) (45-100) (35-100)

Average (unweighted) 56.7 61.0 61.7 65.9 71.1 1.25(range) (30-85) (24-86) (26-83) (37-82) (54-99)

a/ Included is the one cotton textile plant presently in the public sector; the TalpurTextile Mills produces cotton yarn.

April 1, 1975

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: Total Capacity by Product in BIM Units and Capacity Utilization

1973/74 - 1974/75

Rated 1973I 74 l974/5b/

Product Unit Capacity P-oduction Capacity _ Production % Capacity

Motor Vehicles Nos. 38.5 57.1

Passenger 3,000 120 4 o 120 -.

Jeeps 3,000 1,000 33.3 1,200 40.o

Comemercial Vehicles 1,500 940 62.7 1,000 66.7

Truck/Bus Chassis 8,800 7,300 83.0 7,5s0 85.2

Truck/Bus Bodies 2,600 320 12.3 850 32.7

Tractors 4,200 60 1.4Motor Cycles 6,ooo 2,600 43.3 3,000 50.0

Trailers 600 400 66.7 450 75.0

Diesel Engines 3,000 1,200 40.o 1,500 50.0

Light Engineering 41.6 51.0

Pumps 6,ooo 2,700 7 3,000 50.0

Power Looms 1,200 175 14.6 250 20.8

Bicycles 100,000 60,000 60.0 80,000 80.0

Tubing R. ft. (mls) 18 7 38.9 8.5 47.2

Diesel Engines Nos. 6,ooo 2,200 36.7 2,500 41.7

Electric Motors H.P. (ths) 100 30 30.0 35 35.0

Road Rollers Nos. 72 10 13.9 15 20.8

Steel/Iron Products Tons (ths) 145 -85 58.6 100

Pipes 49 12.5 25.5 15

Special Steel Wire " 27 25 92.6 31 114.o

Petroleum and Petrochemicals) /Asphalt, Kerosene, Light, ) ths. Tons 531 531 100.0 531 100.0

Diesel Oil, Naptha, ) crudeLube B4Be Oil ) input

Chemicals 76.2 81.5

PVC ProductsResin TonsCompound 1,650 1,750 106.1 1,750 106.1

Pipes " 1,730 600 34.7 750 43.

Caustic Soda Tons (ths) 35 32.5 92.9 35 100.0

Soda Ash " 33 34 103.0 34 103.0

Sodium Bicarbonate Tons 5,000 4,800 96.0 5,000 100.0

Sulphuric Acid 3,300 4,000 121.2 4,ooo 1 1.2

Acetate Yarn 3,300 4,0oo 121.2 4,ooo 121.2

Polyethelene Granules " 5,000 1,200 24.0 1,500 -0.0

Methanol " 3,000 600 20.0 750 25.0

BHC 6,320 2,360 37.3 3,000 47.5

CementCement Tons (ths) 1,410 1,200 85.1 1,400 99.3

a/ Product mix depends on demand. x

J Estimated on basis of BIM's 1974/75 budget.

Source: BIN

April 1, 1975

ANNEX 9

NATIONAL DEVELOPMENT FPT " ANCE CORPORATION

PAKISTAN: Growth in BIN Sales(millions of s)

1971/72 - 1973/74h

Product Group 1972 1973 1-974 Growth (M)

Auto and Farm Equipment 261.8 424.8 952.9 62.2 124.3

Steel and Engineering 232.9 455.6 423.1 95.6 -5.2

Gas and Oil 163.0 21O.5 374.6 47.5 55.6

Chemicals 137.1 212.9 330.0 55.3 55.0

Cement 153.5 185.1 233.1 20.6 25.9

Total 948.3 1,373.8 2,322.7 44.9 69.8

NOTE: Years ending June 30.

Source: BIN Annual Reports.

April 1, 1975

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: Prof'itability of BIM Enterprises

1)71/72 - 1973/74

-~~~~~~~~~~- ~~~~~~~~1971/72 19772773 1973/74Sector and Finn Assets Profit Return Assets Profit Return Assets Profit Return

or Loss (W) or Loss (W) or Loss (,)

Auto and Farm Equipment 356.5 -21.7 - 6.1 52.5 10.1 2.0 562.5 49.4 8,6Awami Autos 38.7 0.3 7 57.4 2.1 3.6 12.9Bela Engineers (began assy. diesel engines 1973/74) 55.7 _ - 55.7 0.4 0.7Millet Tractors 14.3 - 1.5 -10.5 17.7 0.9 5.1 17.7 1.5 8. 5National Motors 169.2 -8.4 - 5.0 278.4 13.0 4.7 278.4 36.6 13.2Naya Daur Motors 39.8 - 5.9 -14.8 57.2 2.0 3'5 57.2 2.8 4.9Republic Motors 47.3 -2.3 - 4.9 38.4 -1.7 -4.4 38.4 3.4 8.9Sind Engineering 34.2 -2.5 - 7.3 39., -3.9 -9.8 39.8 - 0.2 - 0.5Trailer Dev. Corp. 13.0 - 1.5 -10.8 17.9 - 2.9 -15.2 17.9 - 2.5 -13.9

Cement 374.8 0.3 0.0 5.3 2, 375.1 8.5 2.3Charibwal Cement 118. - 2.3 - 2.0 1i1.° 0.5 0.4 1.3 1.2Javedan Cement 94.1 3.5 3.7 103.5 0.4 0.4 103.5 1.7 1.6Mustehkan Cement 112.6 1.4 1.2 1U1.5 1.2 1.1 111.5 0.5 0.4National Cement 49.5 -2.3 -4.6 48.3 3.2 6.6 48.3 5.0 10.3

Chemicals 593.8 -11.8 - 2.5 583.2 3.8 0.7 583.2 39.7 6.8Ittehad Chemicals 105.5 7.1 83.6 9.1 10.9Ittehad Pesticides 37.3 - - 41.8 -1.5 3.6 41.8 3.2 7.7Pakistan PVC 76.o -15.8 -20.8 72.4 - 7.3 _10.1 72.4 2.1 2.9Ravi Enug 9.9 - 10.9 - 0.2 - 1.8 10.9 0.3 2.8Ravi Rayon 194.9 - 2.5 - 1.3 190.0 21.6 11.4 190.0 30.5 16.1Sind Alkalis 101.2 1.7 1.6 103.9 2.3 2.2 103.9 10.0 9.6Synthetic Chemicals 69.0 - - 80.6 -18.2 -22.6 80.6 -15.4 -19.1

Gas 70.0 11.6 16.6 76.o 13.0 17.1 76.o 16.4 21.6Karachi Gas 7.70 3. 17.1 76. 21

Oil 194.4 3.7 1.9 213.9 -3.0 - 1.4 213.9 -9.7 - 4.5National Refinery 3.7 1.9 213.9 - 3.0 - 213.9 - 9.7 -7

Steel and Engineering 4!. 5 5.5 -1.3 455.6 15.4 3.4 455.6 32.0 7.0Karachi Pipe 47.2 _ -17.2 732 T 37 1.7 7;7Lahore Eng. Foundry 29.7 -1.1 -3.7 43.7 -0.7 - 1.6 43.7 -9.9 -22.7Metropolitan Steel 76.2 - 5.4 - 7.0 88.9 - 0.3 - 0.3 88.9 8.8 9.9Northern Foundry 26.3 - - 31.8 - 0.2 - 31.8 _ 0.1 - 0.3Nowshera Eng. 13.6 - 0.9 - 6.6 19.4 - o.6 - 3.1 19.4 - 0.1 0.6Pakistan Eng. Co. 171.1 10.7 6.3 179.6 14.4 8.0 179.6 . 20.8 l1.6Pioneer Steel 16.0 - 0.9 - 5.6 23.2 - 0.0 23.2 5.9 25.4Quality Steel 34.9 0.2 o.6 30.8 1.2 3.9 30.8 4.9 15.9

Total 2,004.5 -23.4 - 1.2 2,266.3 44.5 2.0 2,266.3 136.3 6.0

a/ In the absence of asset data for 1973/74, asset values for 1972/73 were used as a rough approximation.

Sub-total profits are based on profits of companies for which asset data are available.

NOTE: Profits are net before taxes.

Source: BIM Annual Reports and NDFC.

April 1, 1975

NATIONYAL DEVELOPIOEIT FINAiCE CIP O.i?ATI0ON

PAKISTAN: BIM bxports (1972/73-1973/74)(Rs 000)

Expor+ -1972/73 1973i74 ,g Change

Federal Chemical & Ceramics Corporation 6,188 30,732 396

Federal Light Engineering Corporation 20,761 15,o83 - 27

National Fertilizer Corporation ofPakistan _

Pakistan Automobile Corporation - 258

Pakistan Industrial DevelopmentCorporation 25 -

State Cement Corporation of Pakistan 83,170 122,012 47

State Heavy_Engineering & MachineTool Corporation - 1,951 100

State Petroleum Refining & PetrochemicalCorporation 946 69,119 7,206

GRAND TCOAL 111,090 239,115 115

Source: BIM

April 1, 1975

ANNEX 12

NATIONAL DEVELOPMENT FINANCE CORPORATION

PAKISTAN: Employment in BIN Industries

1971/72 - 1973/74

Product Group 1972 1973 1974 Growth

Auto and Farm Equipment 5,347 5,951 6,251 11.3 5.0

Steel and Engineering 9,665 11,326 11,404 17.2 0.7

Gas and Oil 965 993 1,136 2.9 14.4

Chemicals 4,710 5,206 5,285 10.5 1.5

Cement 3,381 3,449 3,626 2.0 5.1

Total 24,068 26,925 27,702 11.9 2.9

NOTE: Employment figures are as of end of each fiscal year.

Source: BIM Annual Reports.

April 1, 1975

ANNEX 13

NATIONAL DEVELOPMENT FINANCE CORPORATION

Board of Directors

NAME TITLE DATE OF APPOINTMENT

M. A. G. M. Akhtar Additional Secretary December 25, 1973(Budget)Ministry of inance

N. M. Qureshi Managing Director January 3, 1973Investment Corporationof Pakistan, Karachi

Amanullah Durrani Member-Finance August 4, 1973Board of IndustrialManagement

Alauddin Ahmed Additional Secretary March 6, 1974Ministry of Production

Mohammad Yusuf Executive Director June 24, 1974State Bank of Pakistan

Amin Ullah Chairman August 4, 1973National DevelopmentFinance Corporation

April 1, 1975

ANNEX 14Page 1

NATIONAL DEVELOPMENT FINANCE CORPORATION

Proposed Statement of Policy

I. OBJECTIVES

1. To promote industrial expansion and economic growth in the countryby providing financial and technical assistance for the establishmentof new enterprises as well as for the balancing, modernization andexpansion of existing enterprises in the public sector.

2. To identify and develop proposals for new investment.

II. SCOPE OF FINANCING

NDC will provide financial assistance only to the "EligibleEaterprises". The term "Eligible Enterprises" refers to undertakingsas defined in Section 17 of the NDFC Act.

III. METHOD OF FINANCING

1. TNUFC will provide-financial assistance to enterprises in one or -several of the following forms:

a) Medium and long term loans in local and foreign currencies andloans for working capital;

b) Debenture purchasing and underwriting;

c) Guarantees;and

d) Fquity participation and underwriting of new issues.

2. In cas e of large sized projects, NDFC will seek the cooperationdf banks and other financial institutions to meet the enterprisesfinancial requirements through consortia.

IV. GDNFRAL INVESTMENT POLICY

1. NDFC will make investment decisions after careful evaluation ofeach project on the basis of sound investment criteria and standards.It will provide financial assistance only to those projects whichare financially sound, technically feasible and economically viableand which are capable of making contributions to the economicdevelopment of the country.

ANNEX 14Page 2

2. Wiile assigning priorities to investment proposals, NDFCwill be guided by the general economic plans and policiesof the Government.

3. NDFC will follow the policy of diversifying its finances,as far as possible, as regards different regions of thecountry and different industries.

4. In accordance with prudent lending practices, NDFC willrequire its financial exposures to be adequately secured bycollaterals. Notwithstanding the adequacy of security, theCorporation will assign prime importance to the repaymentability and soundness of management of the enterprise.

5. NDFC will not seek a controlling interestin any of theenterprises financed by it, or any other interest which wouldgive it responsibility for management, except when in itsjudgement its investment is in jeopardy. In such cases NDFCreserves the option of taking such actions as may be necessaryto protect its interests.

V. FINANCIAL GUIDELINES

1. a) NDFC's commitments to any single enterprise shall not normallyexceed 30 percent of the Corporation's paid up capital andreserves.

b) NDFC will not normally finance a project whose totalcost is greater than $40 million.

c) NDFC will not normally finance more than 75 percent of totalcost for new and significant expansion projects.

2. Equity Participation

a) NDFC's equity participation in any single enterprise will notnormally exceed 20 per cent of the paid up capital of thatenterprise or 5 percent of the Corporation's paid up capitaland reserves whichever is lower.

b) The aggregate equity investment in the portfolio of NDFC willnot exceed 50 percent of its paid up capital and reserves.

ANNEX 14Page 3

3. Liquidity

To maintain adequate liquidity, NDFC will keep at least 25 percentof its deposits in the form of cash in hand and with approvedbanks and in investments in short term government papers. It willalso, to as great an extent as possible, match the maturities ofits sources and uses of funds bearing in mind the desirability ofmaximizing returns on investment.

4. Exchange Risks

NDFC will pass on to the ultimate borrower exchange risksassociated with foreign currency loans and/or find other suitablemeans to cover them.

5. Deposits

In keeping pace with the nature of its lending, NDFC will endeavorto maintain a prudent mix of short and long term deposits and tobroaden its deposit base.

6. Interest Rates

To remain broadly in line with market conditions, NDFC will reviewits interest rates on deposits and loans periodically and determinethe rates so as to allow a reasonable spread between the averagecost of funds and interest earnings.

VI. DISPOSAL OF PROFITS

NDFC will appropriate funds from its profits to build up adequatereserves. It will credit at least 50 percent of its annual netprofit to a reserve fund. The minimum appropriation of profitsto the reserve fund shall apply till such time as the amount inthe reserve fund equals the paid up capital of the Corporation.

VII. STAFF

NDFC will build up efficient and competent organization with staffspecially qualified and trained in their respective field of discipline.

April 1, 1975

ANNEX 15

NATIONAL DEVELOPMENT FINANCE CORPORATION

Resource Position as of September 30, 1974(Rs in million)

LocalLong-term resources

Paid-up capital and reserves 108.9Long-term deposit 110.9

219.8

Long-term' uses

Disbursements

Local currency loans 59.9Foreign currency loans 1/ 0.7 1/Equity investment 3.5Suppliers' credit 1.8

65.9

Net fixed assets 0.5

Local Resources availablefor Disbursements 153.4

Undisbursed Commitments 28.2

Local Resources Available forcommitment 125.2

Short-term resources

Short-term deposits 2/ 43.5Short-term borrowings 12.3

55.8Short-term uses (excluding short-term investment)

Disbursements 36.6

Local Resources availablefor Disbursements 19.2

1/ Represents foreign currency purchased

2/ Excluding short-term foreign currency deposits of Rs 8.22 million

April 1, 1975

NATIONAL DEVELOQFEIl FINANCE CORPORATION (ND9C)

Comparative Study of Various Investment Opporturiities In Pakistan

Whether Investiment qualifiesWhether the Investment pro- for Income Tax Rebate under Whether profit/dividend

Name of Investment vides capital appreciation Limit of Investment Sec. l5AA of Income Tax Act Profit/Dividend per annum is free from Income Tax Remarks

Poet Office Fixed Does not provide any capi- Investnent is Investment does not qualify Interest is calculated Profits not taxable No interest is payableDeposits tal growth to the investors i) Limited upto for Income Tax rebate according to the period if deposits are with-Rs.5O,OOO for of retention. No interest drawn before 6 monthsone investor is payable if deposits are

ii) Limited upto withdrawn before 6 months.Rs,100,000 for The rate of interest istwo persons as fixed and is payable asJoint investors under:

1 year 8 1/2%2 years 9 %3 years and above 10 %

Profit Cum Bonus Does not provide any eapi- Investment is Investmbnt in this scheme Deposits withdrawn before Profits and bonus initially thi. schemeDeposit Account tal growth to the investors i) Limited upto does not qualify for Income the completion of 4 years earned are not taxable was with Post Office.(7 years scheme) Ros100,000 for Tax rebate are not entitled for bonus; Now National Savingone investor profit will, however, be Centres are alsoii) Limited upto - paid at the rate of 6% per operating it. A

Rs.200,000 for annum. scheme with a similartwo persons as After 4 years Bonus is name is also operatedJoint investors Rs.20 by National Saving

5 .Rs30 Centre which is exactly6 I." Rs.42 like National Deposit7 " " Rs.56 Certificates.

iKhas Deposit Investment does not provide Investment is Investment does not qualify Interest is carried tax Profit is not taxable Coupons are attachedCertificates any capital growth i) Limited upto for Income Tax rebate free at the fixed rate of to the certificatesRs.75,000 per 10% payable half-yearly, which can be encasbedone investor No increase in earnings after 6 months period.

ii) Limited upto is possible A certificate of Rs.100Rs.150,000 for will have the followingtwo persons as coupons:Joint investors lst 6 months Rs. 5

2nd 6 months Rs. 53rd 6 months Rs. 54 C h ( months Rs. '

ti - mont,hs No.56th t, months is(.

Defence Saving Does not provide any capi- Investment is Investment is admissible for No profit accrues before Profit is not taxable Profit is nou paidCertificates tal growth to the investors i) Limited upto income tax rebate under Sec. the completion of one annually to the investorsRs.100,000 for 15AA of Income Tax Act year. A graduated scale but is paid at, ti,e tine,one investor of 7% to 20% over a of encashment/matulity

ii) Limited upto period of 10 years isRs.200,000 for applied on a compoundtwo persons as interest basis (11.6%)Joint investors 1 year 107

2 years 1163 years 1264 years 1375 years 150 CX36 years 175 H7 years 200 °oS years '2309 years 260

10 years 300

Whether Investment qualiries

Whether the Investment pro- for Income Tax Rebate under Whether profit/dividend

Name of Investment vides capital appreciation Limit of Investment Sec. 15AA of Income Tax Act Profit/Dividend per annum is free from Income Tax Remarks

National Deposit Does not provide any capi- Investment is Investment in this scheme No interest accrues before Profits earned are not Amount deposited doubles

Certificates tal growth to the investors i) Limited upto does not qualify for Income the completion of 1 year. taxable after 6 years on compound

Rs.100,000 for Tax rebate A graduated scale for 7 interest basis and there-

one investor years is applied as follows: fore, the profit is not

ii) Limited upto 1 year 108 paid to the investors

Rs.200,000 for 2 years 117 each year

two persons as 3 years 127

joint investors 4 years 1505 years 1756 years 2007 years 225

Fixed Deposits No capital growth. Deposits No limit on deposits Nstpermissible for income The interest is calculable Interest income received Interest on fixed deposits

with Scheduled remain the sasme except pay- tax relief purposes according to the period of from deposits is taxable can be received semi-

Banks ment of interest to deposi- retention as per the annually

tors each yeat rollowing rates:3 months 7 1/2 %6 months 8 %Ilyear 9 %2 years 9 1/2 %3 years 10 %5 years & over 11 %

NIT Units The investment in NIT Units There is no limit Investment in NIT Units Along with capita. appre- Dividend income froa NIT Minimum dividend and

appreciate in the shape of for investment in upto 30% of one's total ciation in the shape of Units upto Rs.10,000 per repurchase price

increase in NIT Unit prices. NIT Units by indi- income, subject to a increase in Unit Price, the annum is free from tax guaranteed by govern-

The unit holders therefore viduals, partner- maximulm of Bs.20,000 is investors receive dividend ment. NIT Units can

reap benefits of capital ship, companies, admissible for income each year. For the year be encashed instantly

growth along with dividend banks or trusts, tax rebate ending June 1974 a maximum

paid each year etc. dividend of 10 paisa per

unit has been guaranteed bythe government. However,with the improvement inStock Market a higherdividend can be distributed

Deposits with No capital grcnth No limit on Not permissible for Interest payable at the Not applicable Investment more than

NDFC investment tax relief following rates: doubles in about 7

3 months & over 8 % years.

6 months & over 8 1/2 % In case the deposit is

1 year & over 9 3/4 % broken before maturity,

2 years & over 10 1/4 % interest shall be paid

3 years & over 11 % at the rate applicable

5-3,dars , 11 1/2 % for the period the(interest payable semi- dep6sit has remained

annually) less 1%7 years 11 1/2 %(Interest compounded) A

April i,'l975

ANNEX 17Page 1

NATICNAL DEVELOPMNT FINANCE CORPORATION

Summary of Standard Terms and Conditions ofFinancial Assistance

1. Interest and Other Fees and Charges:

A. LCNG TERM OPERATICNS:

(la) Foreign Currency Loans

Rate of interest to be 2% above the rate of interestassociated with the foreign line of credit.

(lb) Local Currency Loan

(i) Debentures with or without participation inconsortium.

Rate of interest to be minimum 31% per annumabove the bank rate.

(ii) Government Guaranteed Debentures.Rate of interest to be minimum of 23* perannum above the bank rate.

(iii) Term loans/Bridge Loans.Rate of interest to be minimum 3% per annumabove Bank rate. However, interest rate onterm loans may be reduced commensurate with thecompensatory revolving one-year deposit placedwith us by the borrower as follows:

Deposit as % Effective interestof total loan Reduction rate to be applied

5% 0.5% 11.5%10% 1.0% 11.0%

(2) SUPPLIERS' CREDIT

(i) Rate of interest to be 1% below the lowest rateof interest on foreign currency loans presentlyavailable with NDFC, PICIC and IDBP.

(ii) The refinance for the loans under Suppliers' CreditScheme to be provided by State Bank of Pakistan at2% below NDFC's lending rate of interest.

ANNEX 17Page 2

PlUS

(i) Technical examination and professional assistancefee to be maximum of 1-2% of the amount of financialassistance.

(ii) Cormitment charges to be maximum of 3/8% perquarter on the amount of loan remaining undis-bursed from 30th (thirtieth) day of the issue ofletter of sanction.

(iii) The borrower to bear the actual, legal anddocumentation charges, etc. including the stampduty.

(iv) In case NDFC organizes a consortium, the consortiumfee to be maximum 1¼4% of the total amount of financialassistance.

(v) Penal interest to be 2% per annum on amounts indefault from due date. However, in case of supplier'sCredit, the penal interest to be a minimum of 6%per annum on the amounts in default from due date.

B. SHORT TERM OPERATIONS:

(1) Working Capital Loans

(i) Rate of interest to be minimum 3% per annum abovethe bank rate on the amount of loan outstanding.

(ii) Handling charges to be 1/8% per quarter on theamount of loan.

(iii) Other expenses related to warehousing, inspectionetc. of collateral and other charges to be borne bythe borrower on actual basis.

(iv) Penal interest to be 2% per annum on amounts indefault from due date.

(2) Export Credit:

(i) Rate of interest to be 1% per annum above the bankrate.

(ii) Handling charges to be 1/8% per transaction on theamount of loan.

(iii) Exchange and commission to be shared on a fifty fiftybasis.

ANNEX 17Page 3

(iv) Penal interest to be 4% per annum in case theborrower fails to effect the shipment on or beforethe due date as mentioned in the letter of creditor in firm export order.

II. Security:

A. LONG TERM OPERATICNS:

(i) Term Loans/Debentures/Bridge Loans

(a) First charge including pari-passu on all the fixedassets of the borrowers.

(b) Other security in the form of bank guarantee etc.in case first charge on the assets is not available:

(ii) Suppliers' Credit

(a) Bank Guarantee.

B. SHCRT TERM OPERATIONS:

(i) Working Capital Loans

(a) Pledge and hypothecation of goods.

(ii) Packing Credit

(a) Pledge of Letters of Credit.

III. Disbursement:

A. LONG TERM OPERATICNS:

(i) Local Currency

Disbursement made in accordance with the draw-downschedule prepared by the borrower in consultation withand approved by NDFC.

(ii) Foreign Currency

The disbursement made against confirmed and irrevocableletter of credit established by NDFC through any authorisedbank according to the terms of the respective lines of credit.

ANTEX 17Page 4

B. SHORT TERM OPERATICNS:

Disbursement made according to the requirements of theClients.

IV. Repayment:

A. LONG TERM OPERATIONS:

Repayment is fixed keeping in view the construction timeand the debt servicing capability of the project. Generally,a grace period of two years from the completion of the new/expansion projects is allowed. In case of balancing,modernization and replacement projects, a grace period of12 months is allowed from the completion of the projects.Repayment of foreign currency loans is fixed also takinginto consideration the terms of the lines of credit fromwhich the project is financed.

B. SHaRT TERM OPERATICNS:

(i) Working Capital Loans:

The repayment period of these loans ranges from 90-180days.

(ii) Export Credit:

Repayment is made from the proceeds of the negotiatedletters of credit.

April I, 1975

NATIONAL DEVELOPIENT FINANCE CORPORATION

Interest Rate Structure

Commercial Banks & Government Securities

(4% 1974) AverageInter-Bank Yield on Rate on SCHEDULED BANKS DEPOSITS RATES SCHEDULED BANKS ADVANCE RATES

Period Call Money Central Government Bank Fixed StockJune Rate /Government Three Months Rate Current Call Saving Deposit Merchandize Machinery Exchange

Securities Treasury Deposit Deposit Deposit 1-2 years SecuritiesBills Duration

1967 6 1/2-7 i/4 3.95 4.00 5 0-6 0-7 1/2 o-6 0-5 1/2 0-12 0-12 0-10 1/2(0.02) (2.81) (3.49) (4.09) (7.14) (7.84) (7.52)

1968 6 1/2-7 1/4 4.54 4.00 5 o-6 1/2 0-7 1/2 o-6 o-6 0-12 0-11 1/2 0-11 1/2(0.01) (2.45) (3.98) (4.29) (7.27) (7.98) (7.90)

1969 5 1/14-5 1/2 4.10 4.5o 5 o-6 0-7 1/2 0-7 1/4 o-8 0-12 0-11 1/2 0-11 1/2(0.01) (3.06) (4.14) (5.o8) (7.57) (8.29) (8.26)

1970 5 1/4-5 1/2 4.12 4.5o 5 o-8 0-7 1/2 o-6 1/2 0-8 0-12 1/4 0-12 0-11(0.01) (3.40) (4.09) (5.26) (7.82) (8.30) (8.27)

1971 7 1/2-7 1/4I 4.5o 5 0-7 o-8 o-6 1/2 o-8 0-12 3/4 0-12 1/2 0-12(0.01) (3.20) (4.06) (5.31) (8.09) (8.22) (8.35)

1972 5 -5 1/2 4.40 4.5o 6 o-6 1/4 o-8 o-8 o-8 0-12 1/2 0-12 1/2 0-12(0.03) (4.27) (4.67) (5.46) (8.82) (8.45) (9.35)

1973 5.25 4.58 4.50 6 o-8 o-8 o-8 o-8 0-12 0-12 0-12(4.14) (4.14) (4.97) (6-53) (8.68) (8.15) (9.06)

1974 9.87 U 5.431/ 5.00° 9 0-85/ 0-85/ 0-82/ 0-82/ 0-132/ 0-135/ 0-132/

% Stock Exchange remained closed.

March, 1974 NOTE: Figures in brackets are weighted average rates.

J April, 1974December, 1973 c

April 1, 1975

ANNEX 19

NATIONAL DEVELOPMENT FINANCE CORPORATION

Approvals, Commitments and Disbursements1973 - 1974

(Rs Million)

Years ending December 31 1973 1974 (Sept. 30) Total

APPROVALS

Foreign currency loans 5.7 154.26 159.96

Local currency loans: long term 9.0 87.95 96.95

short term 29.0 75.00 104.00

Sub-Total 43.7 317.21 360.91

Equity investments 5.0 2.00 7.00

Suppliers credits - 1.97 1.97

TOTAL APPROVALS 48.7 321.18 369.88

COMMITMENTS

Foreign currency loans 4.2 20.72 24.92

Local currency loans: long term 5.5 55.90 61.40

short term 29.0 40.00 69.00

Sub-Total 38.7 116.62 155.32

Equity investments 4.5 1.25 5.75

Supplies credits - 1.97 1.97

TOTAL COMMITMENTS 43.2 119.84 163.04

DISBURSEMENTS

Foreign currency loans - 0.70 0.70

Local currency loans: long term 5.5 54.40 59.90

short term 29.0 25.80 54.80

Sub-Total 34.5 80.90 115.40

Equity investment 3.5 - 3.50

Suppliers credits - 1.83 1.83

TOTAL DISBURSEMENTS 38.0 82.73 120.73

April 1, 1975

ANNEX 20

NATIONAL DEVELOPMENT FINANCE CORPORATION

Summary Breakdown of Loan ApprovalsBy Industry (1973 - 1974)

(Rs. in million)

INDUSTRIAL CATEGORY 1973 1974 TOTAL- (6 Months) (9 Months) _

No. Amount % No. Amount % No. Amount %

Short-term loans

Steel and Engineering 7 14.0 48.0 8 52.0 69.0 15 66.0 63.0Chemicals 1 4.0 14.0 3 7.9 10.0 4. 11.9 11.0Cement - - - 1 4.0 5.0 1 4.0 4.0Automobile 2 7.0 24.0 1 7.0 9.0 3 14.0 13.0Energy - - - - - - - - -Textile - - - - - - - - -Sugar 1 2.0 7.0 - - - 1 2.0 2.0Construction - - - - - - - - -Miscellaneous 1 2.0 7.0 1 5.0 7.0 2 7.0 7.0

12 29.0 100.0 14 75.9 100.0 26 104.9 100.0

Long-term loans

Steel and. Engineering 3 - 4.5 31.0 3, 20.75 8.0 7 25.25 9.7Chemicals 1 2.0 14.0 2 92.16 38.0 3 94.16 36.3Cement - - - 1 0.80 - 1 0.80 -Automobile 2 4.2 28.0 2 46.30 19.0 4 50.50 19.6Energy 2 4.0 27.0 4 43.00 18.0 6 47.00 18.2Textile - - - 2 10.37 4.0 2 10.37 4.0Sugar - - - 1 20.00 8.0 1 20.00 7.8Construction - - - 2 5,00 2.0 2 5.00 2.1Miscellaneous - - - 2 5.80 3.0 2 5.80 2.3

8 14.7 100.0 19 244.18 100.0 28 258.88 100.0

TOTAL 20 43.7 33 320.08 53 363.78

All Loans

INDUSTRIAL CATEGORY

Steel and Engineering 10 18.5 42.3 11 72.75 22.7 21 91.25 25.0Chemicals 2 6.0 13.7 5 100.06 31.3 7 106.06 29.1Cement - - - 2 4.80 1.5 2 4.80 1.3Automobile 4 11.2 25.6 3 53.30 16.7 7 64.50 17.7Energy 2 4.0 9.2 4 43.00 13.4 6 47.00 12.9Textile - - - 2 10.37 3.2 2 10.37 2.8Sugar 1 2.0 4.5 1 20.00 6.2 2 22.00 6.0Construction - - - 2 5.00 1.6 2 5.00 1.4Miscellaneous 1 . 2.0 4.6 3 10.80 3.4 4 12.80 3.6

TOTAL 20 43.7 100.0 33 320.08 100.0 53 363.78 100.0

April 1, 1975

ANNEX 21

NATIONAL DEVELOPMENT FINANCE CORPORATION

Summary Breakdown of Loan Approvals by Currency, Term,Region, Organization and Type (1973-1974)

(Rs Million)

1973 1974 TOTAL

LOCAL vs FOREIGN CURRENCY No. Amount % No. Amount % No. Amount %6

Foreign 3 5.7 13.0 6 154.26!/ 48.2 9 159.96!1.43.9

Local 17 38.0 87.0 27 165.82 51.8 46 203.82 56.1

TOTAL 20 43.7 100.0 33 320.08 100.0 53 363.78 100.0

TERM OF LOANS

Less than 1 year 9 23.0 52.6 7 29.90 9.3 16 52.9 14.5

1 - 5 years 7 12.7 29.0 9 47.97 15.0 16 60.67 16.6

5 - less than 10 years 4 8.0 18.3 10 90.05 28.1 14 98.05 26.9

10 years and over - - - 7 152.16 47.6 .7 152.16 41.8

TOTAL 20 43.7 100.0 33 320.08 100.0 53 363.78 100.0

GEOGRAPHICAL SPREAD

Sind 13 29.2 66.8 22 235.71 73.6 35 264.91 72.8

Punjab 5 11.5 26.3 10 82.37 25.7 15 93.87 25.8

N.W.F.P. 2 3.0 6.9 1 2.00 0.7 3 5.00 1.4

Baluchistan - - - - - - - - -

TOTAL 20 43.7 100.0 33 320.08 100.0 53 363.78 100.0

BIM vs NON-BIM

BIM 16 35.2 80.5 20 233.16 72.8 36 268.36 73.7

Non-BIM 4 8.5 19.5 13 86.92 27.2 17 95.42 26.3

TOTAL 20 43.7 100.0 33 320.08 100.0 53 363.78 100.0

NATURE OF PROJECT

New 3 5.5 12.5 5 79.30 24.8 8 84.80 23.3

Expansion 3 7.0 16.0 9 140.83 44.0 12 147.83 40.6

Balancing 1 1.5 3.4 5 24.05 7.5 6 25.55 7.0

Replacement 1 0.7 1.5 - - - 1 0.70 0.2

Working capital 12 29.0 66.3 14 75.90 23.7 26 104.90 28.9TOTAL 20 43.7 100.0 33 320.08 100.0 53 363.78 100.0

1/ Includes Rs 30 million of foreign exchange authorization.April 1, 1975

ANNEX 22

NATIONAL DEVELOPMENT FINANCE CORPORATION

Summary Breakdown of Loan Approvals by Size(1973 - 1974)

(Rs. in million)

1973 1974 TOTALSIZE OF LOANS No. Amount % No. Amount % No. Amount %

Short-Term Loans

Below 1,500,000 - - - 1 0.9 1.1 1 0.9 0.8

1,500,000 to 2,999,999 10 20.0 - 3 6.0 7.9 13 26.0 24.8

3,000,000 to 4,499,999 1 4.0 - 2 7.0 9.2 3 11.0 10.4

4,500,000 to 5,999,999 1 5.0 - 2 10.0 13.2 3 15.0 14.2

6,000,000 to 7,499,999 - - - 2 14.0 18.4 2 14.0 13.3

7,500,000 to 8,999,999 - - - 1 8.0 10.5 1 8.0 7.7

9,000,000 and over - - 3 30.0 39.8 3 30.0 28.5

12 29.0 100.0 14 75.9 100.0 26 104.9 100.0

Long-Term Loans

Below 2,000,000 4 4.2 28.5 4 3.52 1.4 9 9.72 3.7

2,000,000 to 3,999,999 4 10.5 71.5 4 12.20 4.9 8 23.70 9.1

4,000,000 to 5,999,999 - - - 1 5.00 2.2 1 5.00 1.9

6,000,000,to 7,999,999 - - - - - - -

8,000,000 to 9,999,999 - - - - - - - -

10,000,000 to 19,000,O0O - - - 5 50.00 20.$ 5 50.00 19.3

20,000,000 and over - - - 5 173.46 71.5 5 173.46 67.0

8 14.7 100.0 19 244.18 100.0 27 258.88 100.0

April 1, 1975

ANNEX 23

NATIONAL DEVELOPMENT FINANCE CORPORATION

Partial Indicators of Sample of Projects Approved as of

September 30, 1974

(Rs. in million)

List of Companies Financial Economic-V % of Total Incremental % of Output Incrementalto Whom Loans have Rate of Rate of Project Cost Employment Exported Foreign Exchangebeen Approved Return % Return % Financed by Generated (estimate) Saved/Earned

NDFC Per Annum

CHEMICALS

Sind Alkalis Ltd. 12.7 31.80 74.48 212 18 1

Pakistan PVC Ltd. 11.1 17.80 47.48 46 - 51

FUEL & POWER

Sui Northern GasPiplines Ltd. 6.0 31.10 12.20 - -

POL (Pakistan Oil-fields Ltd. 7.9 41.00 11.11 - - 211

Pakistan Pert. Co. 21.5 49.00 6.11 - -PERAC (AromaticChemicals) 14.5 22.47 5.74 22 79 18.

National RefineryLtd. 18.8 27.20 5.01 - - -

Pakistan NationalOils Ltd. - - 4.44 500 - 14.

AUTOMOBILES

National Wheels Ltd. 16.8 18.90 61.55 240 - 9

AGRO-INDUSTRIES

Fauji Cotton Mills 16.2 47.10 22.73 450 27 9Pattoki SugarMills Ltd. 13.1 46.60 15.69 857 - 162

1/ No adjustments were made on wage rates

April 1, 1975

NATIONAL DEVELOPMENT FINANCE CORPORATION

Statement of Income and Expenses

(Rupees)

Sept. 30, 1974 Dec. 31t 19739 monhs 6 months

INCOME

Income from loans, investments and guarantees:Loan interest 6,795,963 607,887

Dividends 47,910 113

Com=ission, fees and exchange 1,300,382 85,979

Discount on treasury receipts 4,405,231 747,263

Interest on banks deposits 2.230.790 906.052

14,780,276 2,347,294

Profit on sale of investments 160

Gross Income. 14,780,276 2,347,454

EXPENSES

Interest on deposits and borrowings 5,929,573 789,895

Administrative expenses:Compensation - officers and employeea 434,128 187,201

Professional services 13,432 54,650

Travel 51,972 24,225

Communications 24,984 16,862

Printing and supplies 25,702 24,379

Insurance 364 -

Rent 162,921 96,000

Depreciation of property and equipment 81,875 28,136

Others 174.708 123.924970.086 555.377

Total expenses 6,899,659 1,345,272

Net income 7,880,617 1,002,182

April 1, 1975

NATIONAL DEVELOPMENT FINANCE CORPORATION

Comparative Operational Ratios

1973 1974 1974 1975 1976 1977 1978 1979Dec. Sept. 30

(a) Ratios of.Profitability1. Profit and Provisions as % of Average Total Assets 2.64 5.1 3.8 3.7 3.4 3.2 3.12. Profit as 7. of Average Total Assets 2.64 4.8 3.5 2.9 3.0 2.9 2.43, Profit as % of Year-ftd Share Capital 2.86 10.8 16.7 22.8 36.6 50.3 53.4

(b) Ratios of Structure4. Non-current Debt-Equity (IDA Definition) o.4 1.3 1.7 2.1 3.0 4.2 5.1 5.95. Total Debt-Equity 2/ o.4 2.0 2.3 2.7 3.6 4.6 5.8 6.56. Debt Service Coverage - 7.b 4.2 3.7 3.1 2.7 2.6

(c) Rate of Growth7. Annual Rate of Growth of Total Assets (%)

(excluding guarantees) - - 244 72 60 52 36 28

(d) Cost8. Financial Costs as % of Average Total Assets 2.1 - 4.7 7.1 7.3 7.5 7.5 7.59. Administrative costs as % of Average Total Assets 1.5 - 0.7 0.5 0.4 0.3 0.3 0.3

(e) Reserves10. Reserves (including retained earnings) plus

provisions as % of Year-end Portfolio (Loans,Guarantees and Equity Investments) 2.55 - 5.6 4.4 4.5 5.1 5.8 6.8

11. Reserves for Bad Debts as % of Year-end Loan andEquity Portfolio - - 0.48 0.49 0.98 0.98 0.98 1.47

(f) Share Capital12. Book Value as % of Par Value 101,4 109 111.8 120.5 133.3 159.9 195.2 233.7

(g) Dividend13. Dividend as 7. of Par Value of Share Capital - - - 8 10 10 15 1514. Dividend as % of Net Earnings (Pay-Out Ratios) - - - 47.8 43.9 27.3 29.8 28,1

Including possible subordinated loan as quasi equity butexcluding short-term borrowings.

/ Including possible subordinated loan as quasi equity.

April 1, 1975

NATIONAL DEVELOPMENT FINANCE CORPORATION

Balance Sheets (December 31, 1973 and September 30. 1974)

(Rupees

As On As On

ASSETS Sept. 30. Dec. 31. CAPITAL AND LIABILITIES Sept. 30, Dec. 31,1974 1973 1974 1973

CURRENT ASSETS CURRENT LIABILITIES

Cash 434,638 55,272 Amount payable and accrued expenses 4,933,821 1,146,182

Fixed deposits (Foreign Currency) 8,215,017 - Borrowers expense account 2,170,081 19,711

Fixed deposits (Local Currency) 36,575,000 42,075,000 Short-term borrowings 12.300.000 -Treasury receipts 133,117,200 19,396,000 19,403.902 1.165.893Quoted shares and debentures 862,788 812,019 DEPOSITS OF FIXED MATURITIES (Local

Accrued income 6,511,991 535,470 Currency)Prepaid expenses 80,779 48,277 Less than 1 year 41,298,182 500,000

1854797.413 62.922,038 1 year but less than 3 years 97,312,848 22,631,8003 years but less than 5 years 7,076,813 6,850,0005 years and above 6.557,422 106,987

152.245.265 30.088.787

PORTFOLIO INVESTMENTS DEPOSITS OF FIXED MATURITIES (Foreign Cur.)Loans 102.447.456 39,000,000 Less than 1 year 8.215.017

PROPERTY AND EQUIPMENT (at cost less RESERVES AND UNAPPROPRIATED PROFITaccumulated depreciation 28,136; 1973, Statutory reserve 900,000 900,000110,011; 1974) 491.258 323.,968 Unappropriated profit 7.971.943 91.326

8.871,943 991.326

CAPITALIssued, subscribed and paid up

1,000,000 ordinary shares of

Rs. 100 each 100,000.000 70,0009000

TOTAL ASSETS 288.736.127 102.246.006 TOTAL CAPITAL AND LIABILITIES 288,736.127 102.246,006

CONTINGENT LIABILITIES 35.751.000

April 1, 1975

NATIONAL DEVELOPMENT FINANCE CORPORATICN

1974-75 Annual Development Program for Sector Corporation

(Rs in Million)

Total Federal Government AssistanceDevelopment Self Cash Foreign

Program Financing Total Assistance ProjectAssistance

1. P.I.D.C. 78.50 - 78.50 45.45 33.05

2. Pakistan Steel Mills 410.00 - 410.00 404.76 5.24

3. National Fertilizer Corporationof Pakistan 393.00 393.00 23.00 370.00

4. State Petroleum Refining &Petrochemical Corporation 31.50 - 31.50 31.50 _

5. Federal Chemical & Ceramic Corporation 43.30 - 43.30 18.86 24.44

6. State Cement Corporation of Pakistan 2.00 - 2.00 2.00 -

7. State Heavy Engineering & MachineTool Corporation 105.76 - 105.76 40.88 64.88

8. Federal Light &igineering Corporation 3.00 (3,00) 3.00 3.00 -

9. Pakistan Automobile Corporation .50 - .50 .50

10. State Electric Corporation ofPakistan 2.50 - 2.50 2.50 -

Total 1070.06 - 1070.06 572-45 497.61

Source: Ministry of Finance, Government of Pakistan Explanatory Memorandum on the Badget 1974-75.

April 1, 1975

ANNEX 28

NATIONAL DEVELOPMENT FINANCE CORPORATION

Projected Approvals, Commitments & Disbursements from 1974 to 1979

(Rs. in million)

Type of Loan 1974 1975 1976 1977 1978 1979

APPROVALS

Foreign currency loan 247.66 284.81 327.53 376.66 433.16 498.13

Long-term local currencyloan 153.45 176.47 202.94 233.38 268.39 308.65

Suppliers' credit 5.00 7.50 11.25 16.88 25.32 37.98

Equity investments 2.00 3.00 4.50 6.75 10.13 15.19

Working capital loan 80.00 92.0Q 105.80 121.67 139.92 160.91

Export credit 10.00 11.50 13.23 15.21 17.49 20.11

TOTAL 498.11 575.28 668.25 770.55 894.41 1,040.97

COMMITMENTS

Foreign currency loan 143.65 247.92 306.17 352.09 404.91 465.65

Long-term local currencyloan 122.70 166.60 196.33 225.77 259.63 298.59

Suppliers' credit 4.00 7.00 10.50 15.75 23.64 35.44

Equity investments 2.00 2.60 4.05 6.08 9.11 13.67

Working capital loan 76.00 91.40 105.11 120.88 139.00 159.86

Export credit 10.0Q 11.50 13.23 15.21 17.49 20.11

TOTAL 358.35 527.02 635.39 735.78 853.78 993.32

DISBURSEMENTSForeign currency loan 34.92 124.87 222.83 297.89 348.88 401.21

'Long-term local currencyloan 58.20 164.45 184.44 213.99 246.09 283.00

Suppliers' credit 3.60 6.70 10.15 15.22 22.86 34.26Equity investments 2.00 2.30 3.33 5.06 7.60 11.39Working capital loan 76.00 91.40 105.11 120.88 139.00 159.86Export credit 10.00 11.50 13.23 15.21 17.49 20.11

TOTAL 184.72 401,23 539.09 668.25 781.92 909.83

April 1, 1975

ANNEX 29

NATIONAL DEVELOPMENT FINANCE CORPORATION

Projected Income Statement for the Year 1974 to 1979

(Rs. in 000)

1974 1975 1976 1977 1978 1979

INCOME

Interest earned 21,305 48,419 81,266 125,962 178,246 233,153

Income from Securities 197 915 1,322 1,929 2,843 4,215

Commission, Fees andExchange 2,542 5,062 6,890 8,293 9,698 11,347

TOTAL INCOME 24,044 54,396 89,478 136,184 190,787 248,715

EXPENDITURE

Interest Paid 10,765 31,564 54,936 87,998 126,913 167,697

Staff Expenses 788 1,182 1,537 1,998 2,597 3,376

Building Expenses 247 371 482 627 815 1,060

Other Operating Expenses 581 872 1,134 1,474 1,916 2,491

Other Charges (Commitment) - 2,232 2,222 2,800 3,187 3,562

TOTAL EXPENDITURE 12,381 36,221 60,311 94,897 135,428 178,186

OPERATING PROFIT 11,663 18,175 29,167 41,287 55,359 70,529

Provision for bad debts 889 1,430 6,364 4,718 5,012 17,091

NET PROFIT/(LOSS) 10,774 16,745 22,803 36,569 50,347 53,438

April 1, 1975

ANNEX 30

NATIONAL DEVELOPMENT FINANCE CORPORATION

Projected Balance Sheet as at December 31, 1974 to 1979

(Rs. in 000)

1974 1975 1976 1977 1978- 1979

ASSETS

Cash & short-termdeposit 3,444 2,286 3,198 5,369 1,314 3,300

Time deposits (BankDeposit) 40,000 40,000 30,000 30,000 35,000 40,000

Short-term investments(Treasury Bills) 117,000 75,000 33,000 50,000 60,000 78,000

Accrued Interest Receiv-able and others 5,669 12,964 21,744 33,517 47,334 61,923

166,113 130,250 87,942 118,886 143,648 183,223LOANS AND INVESTMENTS

Export Credit 10,000 11,500 13,230 15,210 17,490 20,110Working capital loan 45,600 54,840 63,070 72,530 83,400 95,920Suppliers Credit 3,600 9,400 16,970 27,070 41,000 60,610Local Currency term loan 63,700 228,160 395,860 564,220 727,790 885,470Foreign Currency " " 34,920 159,790 379,130 661,040 971,660 1,304,820Investments (equityand others) 7,500 10,800 15,630 22,940 33,920 50,370

Less provision for losses (889) (2,319) (8,683) (13,401) (18,413) (35,504)164,431 472,171 875,207 1,349,609 1,856,847 2,381,796

Fixed assets (net) 848 828 678 668 545 432

TOTAL ASSETS 331,392 603,249 963,917 1,469,163 2,001,040 2,565,451

LIABILITIES AND EQUITY

Current LiabilitiesDividend payable - 8,000 10,000 10,000 15,000 15,000Accrued interest payableand others 6,027 12,969 19,904 29,701 41,295 53,860

DEPOSITS

Less than 1 year 60,000 72,000 86,400 103,680 124,416 149,2991 year to less than 3 yrs 130,000 156,000 187,200 224,640 269,568 323,4813 years and over 20,000 28,000 39,200 54,880 76,832 107,564

210,000 256,000 312,800 383,200 470,816 580,344DOMESTIC CURRENCY BORROWINGS

Borrowings (GOP/SBP) - - 15,000 105,000 106,000 120,000

Governmienti/ 70,000 70,000 80,000 90,000 100,000Rediscounting (SBP) 3,600 20,900 30,200 42.280 58.490 80,720Bonds & Debentures - - 1 ,0 0 15, 00 65,00o 85,0°0

3,600 90,900 130,200 242,280 319,490 385,720

FORETGN CURRENCY BORROWINGS - 114,870 337,700 6,2,100 939,210 1,276,860

PAID UP CAPITAL 100,000 100,000 120,000 120,000 120,000 120,000

RESERVES & UNAPPROPRIATEDSURPLUS 11,765 20,510 33 313 59,882 9 1332667

111,765 120,510 153,313 179,882 215,229 253,667

TOTAL LIABILITIES & EQUITY 331,392 603,249 963,917 1,469,163 2,001,040 2,565,451

CONTINGENT LIABILITIES 40,000 46,000 52,900 60,800 70,000 80,500

1/ Subordinated loan or sbare capital increase.

April 1, 1975

ANINEX 3

NATIONAL DEVELOPMENT FINANCE CORPORATION

Estimated Cash FlowFor the Years Ending December 31, 1974 to 1979

(Rs. in 000)

1974 1975 1976 1977 1978 1979

SOURCES OF FUNDS

Net profit + depreciation 10,898 16,965 23,063 36,869 50,670 53,751Add back provisions 889 1,430 6.364 4,718 5,012 17,091

11,787 18,395 29,427 41,587 55,682 70,842

Paid-up capital 30,000 - 20,000 - - -

Foreign currencyborrowings - 114,870 222,830 297,890 348,880 401,210

Borrowings from StateBank of Pakistan - - 15,000 90,000 1,000 14,000

Gavernnet (subordinatedloon or share capital in- - 70,000 - 10,000 lO,O00 10,000

crease )Bonds & Debentures - - 15,000 - 50,000 20,000

Deposits (Net) 179,911 46,000 56,800 70,400 87,616 109,528

Rediscounting 3,600 17,300 9,300 12,080 16,210 22,230

Loan collections:Suppliers' credit - 900 2,580 5,120 8,930 14,650

Working capital loan 57,400 82,160 96,880 111,420 128,130 147,340

Local currency loan 3,000 - 16,740 45,630 82,520 125,320

Foreign currency loan - - 3,490 15,980 38,260 68,050

Decrease in short-termInvestments - - - - - -

Deposits 2,075 - 10,000 - - -

Treasury Receipts - 42,200 42,000 - - -

Increase in currentaccruals 4,861 6.942 6,935 9,797 11.594 12,565

292,634 398,567 546,98 709,904 838,822 1,015,735

USES OF FUNDS

Disbursement of loan:Working capital loan 76,000 91,400 105,110 120,880 139,000 159,860

Export Credit (Net) 10,000 1,500 1,730 1,980 2,280 2,620

Foreign currency loan 34,920 124,870 222,830 297,890 348,880 401,210

Local currency loan 58,200 164,460 184,440 213,990 246,090 283,000

Suppliers' credit 3,600 6,700 10,150 15,220 22,860 34,260

Equity investment 3,188 3,300 4,830 7,310 10,980 16,450

Short-term investmentDeposits (Bank) - - - - 5,000 q,onn

Treasury receipts 97,604 - - 17,000 10 000 18,000

Repayment of foreigncurrency borrowings - - - 11,490 33,770 63,560

Investment in fixedassets/others 700 250 250 250 * 250 250

Payment of dividends - - 8,000 10,000 10,000 15,000

Increase in accruals 5,034 7,245 8,730 11,723 13,767 14,539

289,246 399,725 546,070 707,733 842,877 l,bl3,749

Cash surplus (Deficit) 3,388 (1,158) 912 2,171 (4,055) 1,986

Cash balance beginningof the year 56 3,444 2,286 3,198 5,369 1,314

Cash end of the year 3,444 2,286 3,198 5,369 1,314 3,300

April 1, 1975

ANNEX 32Page 1

NATIONAL DEVELOPMENT FINANCE CORPORATION

Development Strategy for 1975 and 1976(prepared by NDFC)

1. Industrial investment in Pakistan today is characterised by asubstantial planned expansion in public sector enterprises. The expansionis in many forms such as increase in the utilization of installed capacity,balancing, modernization and capacity expansion of existing units andestablishment of new plants. NDFC is either involved or expected to beinvolved in all these forms of industrial investment by way of providingterm loans in local and foreign currencies, working capital loans, debenturefinancing, underwriting of equity issues, and financial advice to all thepublic sector companies except those projects which are very large such asthe steel mill or which involve the construction of infrastructure such asPort Qasim, Indus Super Highway etc., or which are of social necessity.Such types of projects are to be financed through the Annual DevelopmentProgram (ADP).

2. The public sector has prepared a very ambitious investment planfor the next five years, of which a substantial portion is programmed forl975 and 1976. Since a significant part of the program, which relates toindustry, energy, transport and construction (amounting to Rs. 65oo million,including foreign exchange component of Rs. 4500 million) will not befinanced by the government through ADP, the responsibility for its financingwill have to be assumed by financial institutions in general and NDFC inparticular. In view of the obvious scarcity of resources in relation torequirements, the government has set up priorities for investment projectswhich call for a simultaneous development of industries and other relatedsectors such as transport, energy, construction etc.. In the case ofindustry, the priorities are assigned to energy producing, agro-based andbasic industries, and those producing essential wage goods with exportorientation. Among these industries, the emphasis is on those projects whichare based on locally made machinery and use maximum local raw material inputs.NDFC has therefore planned its strategy over the next two years in line withthe foregoing market opportunities and government priorities. Consequently,it has identified for its involvement energy development and distributionprojects, rice mills, sugar mills, paper mills, cement plants, engineeringand basic chemical industries etc.. To reduce the time lag between invest-ment and production, NDFC will give special priority to undertakings whichare already in operation and need to expand, balance or modernize theirexisting facilities.

AI'NEX 32Page 2

3. Keeping in view the financing requirements of the units over thenext two years, we expect our foreign currency loan sanction and disburse-ment to be approximately $60 million and $35 million respectively and localcurrency loans sanction and disbursement (including short term loans andsupplier's credit) to be about Rs. 650 million and Rs. 550 millionrespectively. The requirement of foreign currency is expected to be metthrough funds provided by IBRD, Asian Development Bank and oil producingcountries. The total availability of foreign resources over the next twoyears is expected to reach $80 million approximately. In order to increaseits domestic resources through mobilization of private savings in depositschemes, NDFC has planned to open five branches during 1975 in Karachi,Rawalpindi, Peshawar, and Quetta. Branches in other important towns willbe opened during 1976. To maintain a healthy debt/equity ratio, NDFC hgsalso planned an increase of Rs. 20 million in its equity during 1976.The present Rs. 50 million credit line from the State Bank of Pakistan willnot be utilized except when absolutely necessary and then only for a veryshort period. The refinancing provided by the State Bank will, however, beavailed fully for our supplier's credit and export financing schemes.

4. To keep up with the growth of its lending activities and resourcedevelopment, NDFC will require additional professional staff. Its recruit-ment plan aims at strengthening its engineering and marketing departmentsin addition to the general enlargement of other sections of the organization.To overcome the shortage of trained personnel, on account of excessivebrain-drain, NDFC has prepared an executive development program which apartfrom training on the job, provides opportunities to its executives toparticipate in training programs in their respective fields organized inPakistan and abroad.

April 1, 1975

ANNEX 33

NATIONAL DEVELOPMENT FINANCE CORPORATION

Estimated Disbursement Schedule for the Proposed C-redit

1975 - July - September 1,000

October - December 2,QOOSub-total 3,000

1976 - January - Earch 2,500

April - June 3,000

July - September 3,750

Oetober - December 3,750Sub-tot>al 13,000

1977 - January - March 3,500

April - June 3,000

July - September 2,500

5otober - December 21000Sub-total 11,000

1978 - January - March 1,000

April - June 750

July - September 750

October - December .00Sub-total 3,000

TCTAL 3Q0 000

April 1, 1975

NATIQ?4AL DEVELOPMENT FINANCE CORPORATIONORMAIZATION CHART

CHkAlRMAN

AMIN ULLAH

ECONOMIC | FINANCE'& ACCOUNTS

RESEARCH AND COMMERCIAL & LAHORE DEVELOPMENT

TECHNtCAL DIV. CREDIT DIVISION _AVMNt} DIV. BANKING DIV.

3 3 .4. 5

CREDIT

LEGAL AUDIT SUPERVISiON SUPPLIERS' CREDIT

AND REVIEW

... 1 .' 1 11

Numbers indicate number of professionalstaff per division.

World Bank-9334