Domauozit ofThe World Ban

10R OFFICtAL USE ONLY

Report No. 6664

PROJECT COMPLETION REPORT

ROMANIA

CRAIOVA CHEMICAL PROJECT

(LOAN 1634-RO)

February 26 1987

Industry Department

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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FOE OFm CLAL USE ONLYTHE WORLD BANK

Washington DC 20411USA

Opefatumn 1b11U6614*

February 2b, 1987

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report: Romania - Craiova Chemical Project(Loan 1634-RO)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report: Romania - Craiova Chemical Project (Loan 1634-RO)" preparedby the Industry Department. Under the modified system for project performanceauditing, further evaluation of this project by the Operations EvaluationDepartment has not been made.

Attachment

This document has a restncted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Sank authonzatkon.

FOR OFfCIL US ONLY

PROJECT COMPLETION REPORT

ROMANIA - CRAIOVA CHEMICAL PROJECT

(LOAN 1634-RO)

Table of Contents

Page No.

Preface *.*. *..ooo o.,o.o* oeX-o**e *oooo e*oo***o . ... *,,o i

Basic Data Sheet oooo**e*v****vvv+v**00***00**0*00000ot ii

Highlights 000000040 00*0000000 *00OO0 00004 000000040***** iv

I. INTRODUCTION I. **.** ..... 0000*4* 4040004 ........00.........1

II. PROJECT BACKGROUND .o..o.............. ................... 2

A. Project Preparation and Appraisal, Loan Approvaland Effectiveness 2..........................*. 2

Be Project Description and Technologies .... 2.......... 2

III. PROJECT IMPLEMENTATION AND MAANAGEMENT ... 3.............. 3

A. Achievement of Project Objectives .................. 3B. Project Implementation Schedule .................... 4Co Project Management ................... o 5D. Employment and Training .......................... 6E. Sources of Procurement ......... ,..........e.. 6F. Performance of Consultants, Contractors and

Suppliers *............eo...e...40404***eoo...44 6G. Capital Costs, Financing and Disbursements ......... 7H. Bank Loan Utilization ..., .......................... 8

IV. OPERATING PERFORMANCE o..o......*,eo*.eeeo,o.eeoooeee 9

A. Commissioning and Production Buildup ..... 6.......... 9B. Market Information *4........ . .... 44.... o 9C. Environmental Aspects .............................. 10

V. FINANCIAL AND ECONOMIC PERFORMANCE ...., ............... 10

VI. LESSONS LEARNT ........... ......... 14

VII. ROLE OF THE BANK AND RECOMMENDATIONS * ................ 14

This document has a restricted distribution and may be used by recipients only in the peforanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

TABLE OF CONTENTS (Cont'd)

Pseie No.

ANNEXES

1 - Flowsheet of the Craiova Production Process ................ 162 - Financial Return Calculations and Assumptions .............. 173 - Economic Return Calculations and Assumptions ....... ,......, 20

ATTACHMENT I: Project Completion Report prepared by the Borrower 25ATTACHMENT II: Comments Received from the Borrower ............... 63

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PROJECT COMPLETION REPORT

ROMANIA - CRAIOVA CHEMICAL PROJECT

(LOAN 1634-RO)

PREFACE

The Bank approved a loan of US$40 million equivalent in December1978, to Banca de Investitii of Romania (Borrower) to assist in thefinancing of the Craiova Chemical Project implemented by the CraiovaEnterprise (Beneficiary).

The Project was part of Romania's plans for increasing rapidlythe domestic chemical capacity, for both local consumption and exports, byputting to more economic use its natural gas resources. The individualconstituent plants included in t1.e Project were commissioned over a periodof time from 1983 to 1985.

After the commissioning of the major production plants, Bankstaff visited Romania in November 1984 to initiate preparation of theProject Completion Report (PCR). A further mission visited Romania inFebruary 1986 to finalize the preparation of the PCR with Banca deInvestitii. The Borrower's PCR is also attached. Further comments fromthe Borrower were received in December 1986 and have been taken account ofin the preparation of this report.

This project has not been audited by the Operations EvaluationDepartment.

- Ii -

CRA1OVA CHEMICAL PROJECTMLAE 00. 1634-RO)

Basic Data Shoet

KEY PROJECT DATA(Amountsin 115 mlion)

Loan Position --

Loan No. 1634 RtO OIgnal Disbursed Cancelled Repaid&/ Outstanding

40.0 40.0 13.3 26.7

a/ As of Apr,l 30, 1986. An amount of US$2.2 to cover exchange adjustmentis also due, making the Borrower's obligation US$30.8 million in total,

Cumulative Loan Disbursement

FY79 FY80 FY81 FY82 FY83,1

(1) Planned 11.00 37.50 40.00 40.00 40.00(ii) Actual 6.81 16.80 36.20 39.80 .2(iii) (ii) as X of (i) 62 45 91 99 100

GM= 3P2j5C DM

Oriinal Actual

Board Approval - December 1978Loan Signature - January 1979Effectiveness - May 1979Closing Dec. 31, 1982 March 31, 1983Date of Physical Completion Dec. 1981 December 1985Completion Time (Months) 51 99Time Overrun (%) - 94%Date of Start ofFull operations Jan, 1982 Dec. 1985

Total Project Cost ($ mil.) 151.5 183.6Cost Overrun (2) - 21%Financial Rate of Return 212 15%Economic Rate of Return 16% 7%

- iii -

MISSION DATA

No. of No. of Date ofMonth, Year Weeks Persons Manweeks Report

Identification 05/76 2 3 6.0 04/06/76Preparation 06/77 2 3 6.0 06/27/77Preappraisal 10/77 1 1 1.0 12/08/77Appraisal 03/78 3 2 6.0 04/03/78Supervision 09/79 1 2 2.0 10/12/79Supervision 07/80 1 2 2.0 07/30/80Supervision 10/82 1 2 2.0 10/24/82Supervision/Completion 11/84 .50 2 1.0 12/13/84Completion 02/86 2 2 4.0 04/86

OTHER DATA

Borrower Banca de InvestitliExecuting Agency Craiova EnterpriseFiscal Year of Borrower January 1 - December 31

CURRENCY EXCHANGE RATES

Currency: Lei

Project Appraisal 1 US$ - 18 LeiJanuary 1, 1981 - December 31, 1982 1 US$ - 15 LeiJanuary 1, 1983 - June 30, 1983 1 US$ - 16.50 LeiJuly 1, 1983 - December 31, 1983 1 US$ - 17.50 LeiJanuary 1, 1984 - October 30, 1984 1 US$ - 21.50 LeiNovember 1, 1984 - March.31, 1986 1 US$ = 17.50 Lei

- iv -

HIGHLIGHTS

1. The project is a part of the overall Romanian strategy for moreeconomic use of its natural gas resources. It is an extension andmodernization of the preexisting Craiova Chemical complex and includesfacilities to produce methanol, acetic acid, acetic anhydride, vinylacetate, polyvinyl acetate and ethyl acetate (paras. 1.01-1.02, 2.02-2.04).

2. The Bank loan of US$40 million financed roughly 57% of the totalforeign exchange cost ard covered 21% of the total financing needs for theproject (para.1.03).

3. The project was completed in December 1985, four years later thanplanned. The most important reasons for the delays were: the lack ofmanpower in construction due to a switching in national priorities in favorof power projects; late delivery of locally supplied goods;technical problems with machines leading to a need for their replacement;modifications of construction technologies halfway through implementation;difficulties in making Romanian procurement procedures conform to theBank's guidelines; and the problems of integrating new facilities in anexisting crowdee site (paras.3.01-3.17).

4. The commissioning of the units has been undertaken successfullywith the exception of the carbon monoxide (CO) separation and the aceticacid units, where technical problems still persist (paras. 3.14-3.17,

¶ 4.01-4.03).

5. The financial and economic rates of return are significantlylower than estimated at appraisal. The financial rate of return (FRR) isre-estimated at 15% compared to 212 at appraisal and the economic rate ofreturn at 72 compared to the original 16%. The declines are due to theimplementation delays, persisting technical problems in some of the unitsand input and output price changes (paras. 5.01-5.09).

6. Lessons to be learnt include: (i) being more realistic in thefuture in assessing implementation schedules of projects in the Romanianplanning system (il.) the need for early missions after loan approval toexplain and speed up procurement procedures; and (iII) making explicitprovision in the Bank loan for post-startup technical assistance (paras.6.01-6.03).

I. INTRODUCTION

1.01 Romania has had an established petroleum and gas-based industrybased on its vast hydrocarbon resources since the 19th century. In theearly 1960s, as gas production was levelling off, the Government beganrestricting new gas connections solely to the chemical Industry, whileconverting utilities and Industries using methane gas as fuel to otherenergy forms, in a policy effort to increase the value added in the use ofmethane gas. Throughout the 1960s, much of the methane gas was used by thechemical industry to produce nitrogenous fertilizers and carbon black;beginning in the late '609 the country's various five-year plans placedemphasis on use of methane gas for the production of methanol, acetyleneand a wide variety of specialized chemical products. The Craiova ChemicalProject, part of the Government's 1976-80 five-year plan, was among suchnew investments*

1.02 The Project was designed to absorb about 360 million cubic metersof methane gas being di7erted from fuel to chemical feedstock use, thusincreasing the amount of gas processed into chemica's by 11%. The Projectconsisted of the installation of an acetylene unit, a unit for theseparation of carbon monoxide (CO), the expansion of existing vinyl acetateand polyvinyl acetate units, and the construction of several new plants forchemical products including methanol, acetic acid, acetic anhydride andethyl acetate. The project's output was primarily designed for importsubstitution, although some exports were envisaged during the initial yearsof operation to permit early full utilization of the project's facilities.Of total production in the first three years of operation, about 30 percentwas expected to be exported; as local demand increased the percentage ofoutput destined for export was expected to decline to about 8 percent by1985.

1.03 The project scope was unchanged during implementation. Actualproject cost was US$183.6 million compared to US$151.5 million estimated atappraisal. Total financing required, including interest during construc-tion, was US$192.7 mil'lion compared to US$156.6 million at appraisal.Actual foreign exchange cost was US$70 million compared to the appraisalestimate of US$60 million. The Bank loan of US$40 million financed 57% ofthe actual foreign exchange cost (compared to the appraisal estimate of67%) and 22% of the total project cost, in comparison with 26% as estimatedat appraisal.

1.04 The project was completed during the fourth quarter of 1985, fouryears later than planned. Serious and as yet unresolved technical problemsremain in the carbon monoxide separation unit and in the acetic acid plant,resulting in low capacity utilization in these units and in downstreamunits which depend on them for feedstocks. Early assessment of thepersisting problems and quick solutions to them will be necessary to permitfull realization of the project's benefits.

II. PROJECT BACKGROUND

A. Project Preparation and Appraisal, Loan Approval and Effectivenees

2.01 The project was identified by a Batak mission in May 1976. Duringpreparation, the Bank recommended changes of scope to eliminate a polyvinylalcohol plant and a butyl acetate plant which preliminary assessmenthad shown were uneconomic. The project was appraised in March 1978. TheBank loan of US$40 million was approved in December 1978 and signed inJanuary 1979. The original loan closing date was December 31 1982;disbursement started in the third quarter of 1979 and was completed in thefirst quarter of 1983. The loan was made to Banca de Investitii, as thethe borrower, with the guarantee of the Government of Romania; the loanproceeds were channelled to the Craiova Enterprise as the beneficiary. TheBank loan had a maturity of 14 years, including four years of grace, at aninterest rate of 7.35X per annum (p.a.) plus a commitment charge of .75%p.a.

B. Project Description and Technologies

2.02 The Project was designed to divert about 360 million m3 ofmethane gas from fuel to chemical feedstock uses, thuis increasing theamount of gas processed in Romania into higher value chemicals by 11%. Itwas designed so as to achieve the best possible utilization of thefeedstock by existing and new facilities incorporated in the Project.About half of the methane stream is directed to a new acetylene unit whichreplaced a pre-existing acetylene plant based on the now non-competitivecarbide technology. One-third of the carbon contained in this stream ofgas is thus transformed into acetylene and thence into a variety of highvalue organic chemicals. The remaining two-thirds of the carbon istransferred in the form of off gas to other units, mainly to existingammonia/urea facilities; the composition of the offgas permits direct useby the ammonia reactor and thus allows the replacement of pure methanegas. The other half of the original methane stream is used for theproduction of methanol. Existing capacities of vinyl acetate and poly-vinyl acetate were expanded correspondingly, and new plants for theproduction of acetic acid, acetic anhydride, ethyl acetate and methanolwere built as part of the project. A new plant for the separation ofcarbon-monoxide (CO) provides CO to the acetic acid plant and hydrogen tothe already existing butanol plant.

2.03 The annual production capacities of the units in the project andthe percentages of output transferred to other units in the Craiova complexor sold outside the complex are shown below:

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Project Unit Capacities and Net Prod,,:tion Capacities for Sale(tpy)

Net Production Sales Capacities asProduct Capacity for Sale a/ % of Unit Capacities

Acetylene 30,000 14,331 47Carbon Monoxide (m3/h) 5,000 - -Methanol 210,000 172,000 82Acetic Acid 60,000 27,946 47Acetic Anhydride 10,000 10,000 100Vinyl Acetate 20,000 18,825 94Polyvinyl Acetate 13,000 13,000 100Ethyl Acetate 8,025 7,965 99

a/ Net production for transfer to other units of the Craiova Complex orfor sale; the balance is internally consumed in the Project.

A flowsheet of the integrated production structure showing the variousprocess stages and the use of the methane gas, including its by-productsand the various downstream uses, is shown in Annex 1.

2.04 The project location was chosen so as to make the best possibleuse of pre-existing investments in the complex, especially the existingmethane pipeline from the Transylvanian fields to Craiova, and otherinfrastructure facilities. The technologies for the CO-purification, theacetic acid and the acetic anhydride plants were imported under licenses offirms in USA, the Federal Republic of Germany (FRG) and the GermanDemocratic Republic (GDR). The other technologies were obtaineddomestically.

III. PROJECT IMPLEMENTATION SCHEDULE AND MANAGEMENT

A. Achievement of Project Objectives

3.01 Inasmuch as the project is enabling Romania to divert 360 millioncubic meters of methane gas from fuel uses to production of higher-valuechemicals, the project can be said to have met its principal objective.However with the delay of four years in project completion, and thepersistent technical problems in the CO separation unit and the acetic acidplant, resulting in low capacity utilization of these units and indownstream units whxich depend on raw materials from there, the projectcannot be said to have achieved its full economic benefit potential. Onlywhen the technical problems in the two units are resolved, permitting fullcapacity utilization, can the project be considered to have successfullyachieved its objectives.

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B. Project Implementation Schedule

3.02 The table below compares the planned implementation schedule withthe actual achieved under the project.

Romania - Craiova Chemical Project

Project Implementation Sehedule - Planned Versus Actual

Appraisal ActualStart of Start Start of StartErection UR Erection Up

Acetic Acid IV. 1977 IV. 1979 III.1978 I. 1983Methanol I. 1978 111.1979 IV. 1978 IV. 1984Acetylene IV. 1978 I11.1981 IV. 1979 IV. 1985Acetic Anhydride a/ IV. 1978 I. 1980 II. 1979 I11.1983/

1II.1985Ethyl Acetate 111.1979 IV. 1981 I. 1984 II. 1985Vinyl Acetate I. 1979 TII.1981 IV. 1979 IV. 1985Polyvinyl Acetate II. 1979 IV. 1981 I11.1980 IV. 1985Utilities II. 1978 IV. 1981 III.1978 I. 1982/

IVe 1984

a/ The unit was started up in 1983 with the reactor coils originallysupplied; these, due to technical problems, had to be replaced later,leeding to the new start-up in 1985 (para.3.06).

3.03 The project was completed during the fourth quarter of 1985, fouryears later than planned. Among the major reasons for the delay were (i)organization of procurement and conclusion of contracts, due to thecomplexity of the project; (ii) technical problems with some items ofequipment leading to their replacement, the major liability for which isstill in dispute; (iii) modifications in domestically-procured technologymidway through implementation; and (iv) problems of integrating newfacilities in existing units, which affected procurement and installationschedules. Other factota contributing to the delay were (i) lack ofskilled construction manpower, particularly in 1982, due to the switchingof national priorities; and (ii) late delivery of some items ofdomestically procured equipment.

3.04 Dela in Procurement: Shortly after loan approval, the Bankorganized a supervision mission to work with the Romanian authoritiesresponsible for project procurement on preparation of instructions tobidders, bid invitations, specifications and evaluation procedures. TheBank also carried out procurement seminars in Romania, while supervisionmissions focussed on procurement issues. Nonetheless, procurementdifficulties, attributed by the Borrower to the technical complexity of the

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project and to the large quantities of equipment and materials required forimplementation, resulted in an estimated delay impact (compared withappraisal estimates) on the project of about 18-24 months. There wereseveral main causes for this overall delay as described below.

3.05 Technical Problems with Delivered Equipment: Technical problemswere experienced with some of the equipment for two of the units. Theseproblems, according to the beneficiary, were observed after delivery. Thesteel coils for the acetic anhydride unit were reportedly defective upondelivery, necessitating their replacement and resulting in an estimated30-month delay in the start-up of this unit. Technical difficulties havealso been experienced with the CO-separation unit and the carbon monoxitdecompressors in the acetic acid plant; these difficulties have yet to becorrected and are affecting the capacity utilization of the above-mentionedplants, and consequently downstream units depending on them for theirfeedstocks.

3.06 Modifications in Technology Mid-way Throh Implementation: Thetechnology for the ethyl acetate unit was procured locally from Romaniansources. Mid-way through the unit's construction, the technology wassubstantially modified, resulting in delays in the commissioning of theunit by more than 2 years beyond the planned schedule.

3.07 Problems of Integration of New Facilities with Existing Units:The integration of new facilities into an existing site, chosen to make themost use of existing infrastructzre, turned out to be cost-intensive andtime-consuming; the possibilities of using heavy construction equipment inan already crowded site were very limited, necessitating a high degree ofmanual work in construction.

3.08 Lack of Construction Manpower: After the second energy crisis,and in particular during 1981/82, skilled construction manpower throughoutRomania, by Government directive, was drafted to the construction ofelectric power projects to the detriment of other construction projects.The Craiova Chemical project was no exception. Although it has not beenpossible to estimate its impact on the project, this lack of sufficientconstruction manpower was a contributing factor to the overall delay.

C. etaneent

< s, The Industrial Central for Chemical Fertilizers (CIICH), aholding company structure under the Ministry of Chemical Industry, had thegeneral responsibility for project implementation. The Craiova ChemicalComplex, the beneficiary, was in charge of the day to day implementationsupervision. Technological design arrangements were handled centrally bythe Technical Engineering and Design Institute (IITPIC), the engineeringinstitute of the Ministry of Chemical Industry. ROMCHWIM, and since 1980,Industrialimportexport, the agencies organized under the Ministry ofChemical Industry were responsible for procurement. Physical constructionof the project was the responsibility of various construction enterprisesunder the Ministry of Industrial Construction. Although in the course of

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project implementation the Ministry of Chemical Industry was split into theMinistry of Chemical Industry and the M4inistry of Petrochemical Industries,this did not materially affect the project implementation managementarrangements.

D. Employment and Training

3.10 The project is estimated to require about 1,040 people at fullcapacity (600 operators, 400 auxiliary workers and about 40 engineers).This is slightly less than estimated at appraisal. Nine workers and 8engineers were trained in the FRG, GDR and USA, in the licensor companies.Although only about 50% of the Bank loan funds assigned to training wereused, (10 million lei), the Craiova management is satisfied that thetraining received abroad and in other Romanian plants is adequate for itsneeds.

E. Sources of Procurement

3.11 Out of the total cost of equipment and services financed by theBank, foreign suppliers accounted for roughly 52% and Romanian deliveriesfor 48%. Detailed sources of procurement by country and amounts in US$equivalent are shown in the following table.

In iOOQs US$ % ofEquivalent Loan Amount

Federal Republic of Germany 8,956 22.39Japan 3,192 7.98Netherlands 2,603 6.51Italy 1,512 3.78Austria 1,040 2.60Belgium 810 2.03United Kingdom 660 1.65USA 577 1.44France 569 1.42Sweden 530 1.33Other Foreign Suppliers 210 0.53Total Foreign Suppliers 20,659 5165Romania 19,341 48.35

40,000 100.00

F. Performance of Consultants, Contractors and Suppliers

3.'2 With the exception of (i) the steel coils for the aceticanhydride plant and (ii) the carbon monoxide compressors for the aceticacid plant and the CO-separation unit, the borrower and the beneficiarywere satisfied with the performance of equipment, consultants, contractorsand suppliers.

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3.13 The steel coils for the acetic anhydride plant were delivered bya foreign 3upplier in 1980 and installed two years later. Prior toinstallation, severe cracks in all coils were discovered. The supplier andthe enterprise could not agree on the responsibility and the liability ofthe necessary coil replacement. The coils were later replaced by spareparts purchased from other external sources, resulting in a satisfactoryplant start-up in 1985. The dispute between the original P"pplier andthe Romanian authorities is awaiting international arbitration.

3.14 The CO-purification technology was procured under a license froma foreign firm. Due to the unresolved technical problems, the unit hasbeen operating well below nameplate capacity. The resulting shortfall inthe supply of carbon monoxide to the downstream acetic acid plantcontributes to the latter's low capacity utilization and is affectingflexibility in operating downstream facilities (vinyl acetate, polyvinylacetate and acetic anhydride plants).

3.15 The acetic acid plant, working with foreign technology andequipment, has never worked satisfactorily since its commissioning.Both the licensor's and the equipment supplier's businesses have beensubsequently taken over by other firms. Negotiations between the Romanianauthorities and the firms involved, aiming at technical assistance andremedying the technical problems, had failed by November 1984. In March1985, the Bank tried, in the interest of the project, to encourage theRomanians and the licensor/supplier to solve the technical problemsurgently while reserving their position as to the corresponding legalliability. However, in February 1986 the Bank was informed that no newnegotiations had taken place.

G. Capital Costs. Financing and Disbursements

3.16 As shown below, the actual total capital costs of $192.7 millionis $35.9 million or 23% above the appraisal cost estimate. The projectcost overrun, excluding interest during construction, represented 21%.Comparison of appraised and actual capital costs in Lei yields a projectcost overrun of 19% and a total cost overrun of 20%.

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Estimated and Actual Capital CostsUSS Million

Estimate Actual Overrun (%)

Land .2 .2 -Engineering, Licenses, TechnicalAssistance 5.4 7.0 30Equipment, Material, Spares,Including Duties 88.9 125.5 22Erection 6.6 9.8 48Building and Civil Works 24.9 26.3 6Training 1.1 .6 -45Administrative and PreoperatingExpenses 3.2 4.7 47Base Cost 130.3 174.1 34Physical Contingencies 4.2 --Price Escalation 8.5 - _Total Installed Costs 143.0 174.1 10Working Capital 8.5 9.5 12Project Cost 151.5 183.6 21Interest During Construction 5.1 9.1 78Total Financing 156.6 192.7 23

3.17 For engineering, license, and technical assistance, the overrunof 30X is explained by the technology modifications in the locally-procuredethyl acetate plant and additional safety measures in the acetylene plant.The high overrun in erection cost is due to price increases in materialsand to wage increases, in addition to supplementary work in the acetyleneand acetic acid units. The overruns in administrative and preoperationalexpenses and interest during construction reflect the implementation timeoverruns and price increases.

3.18 In the original financing plan given in the appraisal report,US$40 million equivalent was to be financed by the Bank loan and US$12.9million equivalent by a FRG supplier's credit. Except for a slight chaageto $11.5 million equivalent in the supplier's credit, the only change inthe actual financing compared to the plan is that the cost overruns of $36million were met from Romanian sources, increasing the Romanian financingcontribution from the appraisal estimate of 66% to about 72%.

H. Bank Loan Utilization

3.19 The following table summarizes the appraisal estimate and actualallocation of the Bank loan, by categories.

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Allocation of Funds

Loan Agreement Actual% of Total X of Total

US$ million Loan US$ million Loan

1. Imported Equipmentand Services 22.0 55 17.6 44

2. Imported Equipmentand Services With aContract Cost LowerThan 100,000 DollarEquivalent 2.0 5 3.1 8

3. Imported Equipmentor Local Supply 16.0 40 19.3 48

Instead of 40% of the total loan, actual disbursement under category"Imported Equipment or Local Supply" was 48% as a result of Romaniansuppliers winning more supply contracts than expected.

IV. OPERATING PER70RMANCE

A. Commissioning and Production Build-up

4.01 The table on page 17 shows the appraisal estimate of theproduction build-up by products in the first years after commissioning ofthe plants until full capacity is reached, and compares this estimate withthe current Romanian estimate and the current Bank estimate (for 1986onwards). The Romanian estimate assumes full capacity production for allproducts for 1986 and onwards. However, in the light of the persistingtechnical problems in late February 1986 in the CO-separation and aceticacid units, it seems highly unlikely that full capacity can be reached in1986 and 1987 in the production of acetic acid and the offgases (hydrogenfrom the CO-separation unit, residual methane in hydrogen and purge gasfrom acetic acid). It is therefore conservatively assumed in the Bankestimate that full capacity will not be reached until 1988; the capacityutilization of the acetic acid plant in 1986 and 1987 is estimated to be68% and 83%, respectively. It is furthermore assumed that out of thhe totalacetic acid production in 1986 and 1987, the complete feedstock needs ofthe vinyl acetate, polyvinyl acetate and acetic anhydride plants are met,so that their production for sale is not affected by the problems in theacetic acid plant. This acetic acid feedstock supply to downstream unitsreduces the acetic acid production available for sale as shown in thetable on the following page.

B. Market Information

4.02 Section 3.02 of the Loan Agreement contained the obligation ofthe Borrower to carry out and submit to the Bank a study on domestic andexport market potential for methanol and export strategies for the products

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of the Craiova Chemical Complex by December 1979. After extension of thedeadline, the study was received by the Bank in September 1980, reviewedand found to be satisfactory. During the Bank completion mission, meetingswith representatives of the foreign trade enterprise Industrialimportexportwere requested to review the latest developments in the market for theseproducts, especially in the export market, but the meetings could not bearranged. Historical current and forecast information about the relevantmarkets was promised but has not yet been received. Discussions withrepresentatives of the Banca de Investitii, the Ministry of ChemicalIndustries and the Craiova Central provided only limited insight. Verbalstatements indicate that the domestic offtake of products from the projectis assured by contracts and current plan targets. Supporting details,however, have not been received to verify the local market demand. Theexport market for methanol, acetic acid and polyvinyl acetate are thin andprices depressed. Methanol is the only significant export product (80,000tons out of 172,000 tons production for sale), while acetic acid (6,000tons out of 28,000) and polyvinyl acetate (4,000 tons out of 13,000 tons)are relatively minor.

C. Environmental Aspects

4.03 The Romanian authorities have stated that all the project'sproduction units comply with the Romanian standards of environmentprotection, and also comply with west European standards. The resultsof an analysis of a Craiova-based pollution control center carried out by aBank engineer in 1981 were satisfactory. Pollution control sample resultsin Craiova are routinely sent to WHO.

V. FINANCIAL AND ECONOMIC PERFORMANCE

A. Financial Performance

1. Financial Situation of the Craiova Enterprise

5.01 Table 2, Annex 2 shows balance sheets of the Craiova Enterprisefrom 1978 to 1980, and Table 3, Annex 2 gives Project-related incomestatements for 1983-1997, based on Romanian indications and downscaledproduction assumptions for 1986 and 1987 (para 4.01 above). The Statefinances, through the Banca de Investitii, the investment program of theCraiova Central and its enterprises. Since the introduction of the "NewEconomic Measures" in 1979 each enterprise is now expected to cover itsoperating costs out of its revenues and to repay investment funds providedby the Central and the State Budget. In addition, the new measures requireenterprises to build-up equity, a development fund for modernization anddebottlenecking, a worker's benefit participation fund and other uses fromtheir revenues.

5.02 The Borrower has pointed out that the new measures have increasedthe competence of enterprises is self-management and self financing,leading to a closer relationship between the efforts of the enterprise andits financial results. Nonetheless, domestic output prices are normallyset on a cost-plus basis and domestic market consumption is ensured by

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RDOIAIL4At CAIOVA CHEMICAL PRJECT

Build-up of Production for Sale By Product and Years After Start-up a|

Cutreat CurrentAppraisal Romanian Bank

Production Unit litigate Estimate t/ Estimate ]methanol CFirst year after start-up 1 9 149,550 149,550Second year after start-up 168,662 172,000 172,000Third year after start-up 172,200 172,000 172,000Fourth year after start-up

and onwards 172,200 172,000 172,000Acetic Acid tFirst year after start-up 20,960 8,278 8,278Second year after start-up 26,549 17,020 17,020Third year after start-up 27,946 31,290 31,290Fourth year after start-up 27,946 27,946 8,350Fifth year after start-up 27,946 27,946 17,350Sixth year after start-up

and onwards 27,946 27,946 27,946Vinyl Acetate tFirst year after start-up 10,354 1,400 1,400Second year after start-up 15,625 17,825 17,825Third year after start-up 18,449 18,825 18,825Fourth year after start-u?

and onwards 18,825 18,825 18,825Polyvinyl AcetateFirst year after start-up 9,750 10,800 10.800Second year after start-up 12,350 13,000 13,000Third year after start-up 13,000 13,000 13,000Fourth year after start-up

and onwards 13,000 13,000 13,000Acetic Anhydride tFirst year after start-up 5,600 1,800 1,800Second year after start-up 8,300 3,200 3,200Third year after start-up 9,800 6,800 6,800fourth year after start-up

and onwards 10,000 10,000 10,000Ethyl Acetate tfirst year after start-up 5,974 3,490 3,490Second year after start-up 7,567 7,740 7,740Third year after start-up 7,965 7,950 7,950Fourth year after scart-up

and onwards 7,965 7,950 7,950Acetylene tFirst year after start-up 3,583 14,300 14,300Secoad year after start-up 11,751 14,331 14,331Third year after start-up 13,901 14,331 14,331Fourth year after start-up

and onwards 14,331 14,331 14,331Purge Gas from Acetic Acidc/ of000 Vm3

First year after start-up 10,000 2,440 2,5S0Second year after start-up 13,680 5,100 5,100Third year after start-up 14,400 9 820 9,820Fourth year after start-up 14,400 14,400 9,840Fifth year after start-up 14,400 14,400 12,000Sixth year after start-up

and onwards 14,400 14,400 14,400822 Hysdrogen c/ '000 Nm3 1,0First year after start-up 20,216 750 750Second year after start-up 85,120 1,500 1,500Third year after start-up 102,144 3,000 3,000Fourth year after start-up 106,400 106,400 72,350Fifth year after start-up 106,400 106,400 88,310Sixth year after start-up

and onwards 106,400 106,400 106,400Residual Methane in Hydrogen c|/000 Me3

First year after start-up 2,014 2,700 2,700Second year after start-up 8,480 7,200 7,200Third year after start-up 10,176 10,600 7,740Fourth year after start-up 10,600 10,600 8,800lf tt, year after start-up !0,600 10,600 10,600

Sixth year after start-upand onwards IC,600 10,600 10,600

Acetylene Off-Gas 000 Nm3

First year after start-up 410,850 19 ,100 19,100Second year after start-up 113,988 152,600 151 00Third year after start-up 158,498 163,400 16i,400Fourtb year after start-up

and onwards 163,400 163,400 163,400

a/ Reported actual figures until 1985, estimates from 1986 onwards. Forcomparison of calendar years, see Annex 3, table 2.

b/ This is one of the units where technical problems perstst. The plantis projected to operate at less than full capacity tlll 1988; and ttis assumed that most of the production in 1986/87 will first be usedin downatream facilities before outside sale.

c/ The off-gas volumeas have been scaled down according to the productionlevels of the units from where they come.

- 12 -

official decisions in the national planning syetem. It is thereforedifficult to assess the project and enterprise performance in the normalmanner ae in other Bank industrial projects. As in previous completionreports, therefore, financial ratios for the enterprise have not beencalculated and additional financial analysis has not been carried out sincethis would have little meaning in the context described above.

2. Financial Rate of Return and Sensitivity Analysis

5.03 The estimated financial rate of return has been calculated as151, compared with 21% at appraisal; sensitivity analysis shows the rateof return fluctuates between 12% and 17% when sales revenues and operatingcosts (in 1986 US constant dollars) are assumed to vary by 10% up and downfor the period 1986 to 1997. The corresponding sensitivity range atappraisal was 17% to 241. Assumptions used in the calculations and resultsare detailed in Annex 2. The lower than expected financial rate of returnand sensitivity results are due to implementation delays and the persistingtechnical problems leading to a slower capacity build-up.

B. Economic Performance

5.04 The economic rate of return of the project is calculated at 7% ascompared to 161 at the time of appraisal. Sensitivity tests were carriedout assuming that the operating costs and sales revenues vary by 10% from1986 onwards, yielding a range of 31 to 10% for the economic rate ofreturn. Again, the lower than expected economic rate of return is due toimplementation delays and low capacity utilization in the acetic acidplant, as detailed in Table 2, Annex 3.

5.05 Although some of the financial prices in 1986 have been broughtcloser to the economic prices since 1978, comparison between financial andeconomic prices as of 1986 shows persisting differentials especially forvinyl acetate, ethyl acetate, acetylene, methane, diesel oil, power andindustrial water, contributing to the difference of 8 percentage pointsbetween the financial and economic rates of return. Financial and economicprices are given in Table 1. of Annex 3.

5.06 It has been difficult to arrive at accurate long term economicprices for the project's outputs in view of the depressed market and therange of products, for which price forecasts are infrequent. Prices arebased on current prices obtained from the Craiova Central, publishedsources and consultants. Prices at the time of appraisal were obtainedfrom three stuzdies specifically prepared for the Bank. The table belowcompares economic prices as of 1978 and 1986:

- 13 -

Appraisal Estimate Prevailing PricesDelivered Europe Delivered Europe-- -- - (in 1986 US$) -----…-----

Methanol 160 145Acetic Acid 480 400Vinyl Acetate 615 750Polyvinyl Acetate 650 900Acetic Anhydride 765 630Ethyl Acetate 650 550

Ex-factory prices have been derived as follows:

Product Prices Used in Eoxvmic Anlysis(inUS$ pr ton)

Averags Ioga1rm &-factoryPerenote to be Intern. Price Cost of/ Cost of Price_:erted ̂/ (Deliverd) Y2wxrm Evxt wrtb "ttu/o

lethawl 47 145 7 14 131 152AceticAcid 21 400 20 41 359 420Vinyl Acetate -750 40 - - 790Fblyvinyl Acetate 31 900 45 90 810 945Acetic Aihytridpr - 630 35 - - 665Ethyl Acetate 550 30 - 580

a/ At full apacity, and asafn that acordifg to Ra,.nia plans, a sales production inexcess of the projected domstic market wil be expoted. Lirg-term International pricesin the target Western European mriet haw ben obtained from disissiu In the hik and fram variousconsultants.

b/ Frelt plus insurance._' Freight, insurance plus EW tariffs.

5.07 Economic prices of power, feedstock and transportation are Bankstaff estimates. Financial prices have been used for labor and chemicalsas these items are of lesser significance in the build-up of costs;financial prices for these items are not believed to differ significantlyfrom economic prices.

5.08 A key assumption in the estimated economic return is the value ofmethane, the most important input accounting for about half of theproject's variable costs. As stated in the appraisal report, the mostattractive alterrative use of methane in Romania is still as fuel in powerplants. Due to lack of current data on the economic cost of lignite, which

- 14 -

could be the alternative fuel in power plants replacable by methane, fueloil price was retained as the basis for the methane value. A crude oilprice per barrel of US$15 over the life of the project has been aS sumed,leading to a methane value in calorific terms of US$69 per 1000 m .

5.09 The assumptions used in the economic analysis, including thedetailed price assumptions, are given in Annex 3e

VI. LESSONS LEARNED

6.01 Like many Romanian projects initiated in the late 1970s,including other Bank assisted projects in Romania, the Craiova project tooklong to complete. This was so despite the advanced stage of preparation atthe time of appraisal, the considerable prior experience of the enterprisein similar projects, and the high priority given to the project by theplanning authorities. The appraisal team anticipated the problems whichwere foreseeable but, in retrospect, more time contingency should have beenallowed by estimating longer delays in the implementation of this complexproject.

6.02 The length of time required for the implementation of procurementprocedures was a major reason for delay. The priority given after thesecond oil crisis to energy production projects at the expense of theCraiova project was a further cause, but other factors, includingmodification of technology midway through completion, technical problemswith some equipment after delivery and difficulties of integrating newfacilities in existing units, were major causes for delay.

6.03 In summary, the lessons learned are essentially three: (i) theimportance of assessing the impact of the national planning goals, insituations of capacity shortage, on the implementation schedules forindividual projects, (ii) the importance of starting procurement/implemen-tation arrangeirents as early as appraisal and continuing with intensivesupervision efforts during the initial project stages, to work with thenewly established project team, particularly in expediting procurement, and(iii) the need to ensure that foreign exchange funds can be made availableto correct technical problems which might arise after start-up. Providinga portion of future Bank loans for post-start-up technical assistance,equipment required for repairs or replacement might be considered in thiscontext.

VII. ROLE OF THE BANK AND RECOMMENDATIONS

7.01 The Bank's economic analysis of the project at appraisal assistedthe Romanians in understanding the use of economic prices. During thepreparation of the project, however, differences of opinion on projectscope caused some delay in project appraisal. In the end some componentsthat were not economic were dropped from the project,

- 15 -

7.02 The Bank's continuing efforts to help the enterprise overcometechnical problems are hampered by the fact that the loan is fullydisbursed, no new loans or technical assistance funds are currentlyavailable and both the World Bank and the borrower, Banca deInvestitli, do not normally continue active supervision after the loan isfully disbursed and the Completion Report issued. Until the currenttechnical problems are resolved, the Bank should continue to follow up onthe situation.

Industry DepartmentJune 1986

Revised: October 1986Revised: January 198T

BIOMANIA - CRASOVA ClHEtICAL PROJECTPROCESS fPOW SHEET

*ctIv.D ao ZJ ltfeaCa 0o0

bOWed Ga~ ~ ~~~~~~~~~~~4 kV

"or. *.V.b

"alwagen &Aft~~~~~~~ean

9sob. we WV . WV

It660 eIrv*1Yb tt DI_

fAVA"I~~~~~~~~~~~no*ufta Wm wem.|5. VW _- _ ._ , . . _ , .. -- -- e,,>

\ Fe|"F _ ~~~~to " e Irvt

-_ 6*we \Z4*

- 17 - AMN=X 2

ROMANIA - CRAIOVA CHEMICAL PROJECT

ASSUMPTIONS USED IN THE FINANCIAL ANALYSIS

A. General

1. All price projections were carried out in 1986 US dollar terms.

B. Product Mix

2. The product mix at full capacity is given in Table 1, Annex 2 andthe production build-up in Table 2, Annex 3.

C. Product Prices

3. Romanian prices prevailing in February 1986 have been used forall products. Table 1, Annex 3 gives a summary of the product prices atfull capacity; for comparison purposes, the table also shows economicprices.

D. Production Costs

4. Table 1, Annex 3 gives the bzeakdown of the production costs.Again, for comparison, economic costs are given in the same table.

E. Producticn and Income Statements

5. Table 1, Annex 2 shows the projected income statements for theproject from 1983 to 1997. Revenues aia production costs have beencalculated in accordance with the assumptions stated above.

F. Financial Rate of Return

6. Financial rates of return are calculated for the expansionproject as a whole. The cash flows and results are given in Table 2,Annex 2.

Industry DepartmentJune 1986

ANNEX 2

- 18 - Table l

ROMANIA - CRAIOVA CHEMICAL PROJECT

Craiova Enterprise Balance Sheet(Million lei)

1978 1979 1980 1981 1982 1983 1984 1985Assets

Current Assets

Cash 22 72 121 141 6 5 8 182Receivables 48 3 5 10 4 23 2 2Others 608 648 701 B83 1,224 1,110 1,082 1,250Suh-total 678 723 827 1,034 1,234 1,138 1,148 1,442

Construction in Process 499 1,332 1,926 2,722 2,923 2,634 2,203 2,171

Other Assets 684 271 137 160 125 296 469 235

Fixed Assets

Gross Fixed Assets 6,108 6,250 6,269 6,361 6,777 7,646 8,959 9,124Less: Accumulated Depreciation 2,167 2,429 2,650 2,846 3,086 3,323 3,607 3,897Net Fixed Assets 3,941 3,821 3,619 3,515 3,691 4,323 5,352 5,227

Total Assets 5,802 6,147 6,509 7,431 7,973 8,391 9,171 9,075

Liabilities

Current Liabilities

Payables 54 41 59 38 77 73 125 68Short Term Credits 205 215 230 327 542 495 482 727Other Liabilities 415 478 549 650 557 581 612 632Sub-Total 674 734 838 1,025 1,176 1,149 1,219 1,427

Long-Term Funds

IBRD Loans - 110 303 542 590 632 580 500Investment Bank Credit 204 290 181 95 80 72 32 7Other Long-Term 4,236 4,753 5,060 5,599 5,944 6,942 6,942 6,891Sub-Total 4,440 5,153 5,544 6,236 6,614 6,957 7,554 7,398

Benefits

Total Liabilities

Source: Investment Bank.

Industry DepartmentJune 1986

- 19 - ~~~~~ANNEX 2Table 2

ROMANIA - CRAIOVA CHEMICAL PROJECT

Projected Income Statement (million le) Financial Values a/

Revenues with Financial Prices 1983 1984 1985 1986 1987 1988-1997

Methanol - - 335.7 386.1 386.1 386.1Acetic Acid 59.6 122.54 225.3 60.1 124.9 201.2Vinyl Acetate - - 25.2 320.8 338.8 338.8Polyvinyl Acetate - - - 135.7 163.3 163.3Acetic Anhydride 28.8 51.2 108.8 160.0 160.0 160.0Ethyl Acetate - - 93.2 206.6 212.2 212.2Acetylene - - - 358.9 359.7 359.7Hydrogen 82% 0.97 1.9 3.9 94.06 114.8 138.3Purge gas from acetic acid 0.95 1.9 3.7 3.6 4.5 5.4Residual Methane in Hydrogen - 1.3 3.6 3.9 4.4 5.3Acetylene Off-gas - _ 7.2 57.2 61.3 61.3

Subtotal 90.32 178.84 806.6 1,793.4 1,787.0 2,031.6

Variable Costs 55.5 98.1 457.9 748.7 823.7 866.9Fixed Costs 37.4 53.6 108.7 125.0 127.3 127.3Depreciation 26.6 47.9 97.9 152.0 152.0 152.0Gross Benefits (29.2) (15.8) 142.1 761.3 827.0 885.4

3/ Production build-up given in Table 2, Annex 2. Variable Costs in 198S and1987 have been scaled down according to Romanian indications, to take intoaccount that the slower production build-up also implies savings in theoperating costs.

-20 - ANMEX 3

ROMANIA: CRA;OVA CHEMICAL PROJECT

Assu!Mtions Used in the Economic Analysis

A. General

1. All prices used in the economic rates of return for the projecthave been calculated in constant 1986 dollars. All benefits and costs fortradeable items have been determined by using prevailing internationalprices (Western Europe) with the assumption that these prices will remainstable in 1986 dollars in the foreseeable future. For non-tradeable items,domestic prices have been adjusted to reflect the international pricelevels or production costs in comparator countries. Labor, which accountsfor only 4X of total operating costs, has not been shadow priced and itsfinancial cost has been used. Prices used are summarized in Table 1 ofthis annex.

B. Capital Costs

2. The capital costs for calculating the financial rate of returnhave been used in the economic analyses, after deducting Lei 39.6 millionof duties.

C. Operating Costs

3. About half of the total variable cost of the project comes frommethane. The economic price of methane has been determined by assuming theuse of the gas as a fuel in power plants. Methane replaces either locallyavailable lignite or fuel oils from crude oil refining. The appraisalreport used the lignite equivalent production cost as the basis for one ofthe sensitivity cases. However, current information about ligniteproduction costs in Romamia are not available to the Bank and comparisonswith other countries give only a rough approximation. The fuel oil pricewas thus retained as for calculating the base case. In the light of thecurrent uncertainties in o'l price projections, a crude oil price of US$15per barrel over the life of the project has been assumed, leading to amethane value in calorific terms of US$69 per 1000 i 3 .

4. The economic costs of electricity have been assumed as U345.5 perkwh, which is in line with Bank experience with power production fromlignite and hydroelectric sources in comparator countries.

5. The economic cost of the input polyvinyl alcohol has been assumedas US$1,700 per ton as compared to US$1,500 at appraisal, based on thepresent international price level. This is significantly lower than theRomanian financial price equivalent of US$3,919 per ton of polyvinylalcohol. Other chemicals, labor, maintenance and other operating costshave been priced according to Romanian financial prices.

- 21 - ANNEX 3Page 2-of 2

D. Benefits

6. With the exception of methanol, only minor quantities of theproject's output are destined for export, the bulk being Importsubstitution. The economic (ex-factory) prices are shown in Table 1 ofthis annex. As stated in para 3.06, eo-factory prices have been derivedfrom West Europe delivered prices by taking Into account transportationcosts and EEC tariffs.

E. Project Life

7. It has been assumed that units which were started up before 1985,will produce until 1997 together with the units commissioned in 1985.

Industry DepartmentJune 1986

-22 - AN=E 3Table I

ROMANLA - CRAIOVA CHEMICAL PROJECT

Product Mix. Prices sad Operating Costs at Full Capacity

Quamtities Pinancial EconomicRevenue Unit (Units/wear) LeI/Unit Million Lei USS/Uoit Lei/UAit Mlllion US

Methanol t 172,000 2,245 386.1 140 2,450 24.08Acetic Acld t 27,946 7,200 201.2 410 7,175 11.46Vinyl Acetate t 18,825 18,000 338.9 790 13,825 14.87Polyvinyl Acetate t 13,000 12,565 163.3 905 15,837 11.76Acetic Anhydride t 10,000 16,000 160.0 665 16,637 6.65Ethyl Acetate t 7,950 26,698 212*2 580 10,150 4.61Acetylene t 14,331 25,100 359.7 800 14,000 11.46Purge gas fromAcetic acid '000 Nb3 14,400 375 5.4 26.3 460 0.38

821 Hydrogen '000 ft3 106,400 1,300 138.3 83.1 1,454 8.84Residual Methanein Hydrogen '000 Na3 10,600 500 5.3 69.0 1,207 0.73

Acetylene off-gas '000 am3 163,400 375 61.3 36.8 644 6.01

Total Revenues 2,032.1 100.85

Production CostVariable Cost

Methane '000 XN3 439,440 1,000 439.1 69.0 1,207 30.32Fuel Oil t 9,000 2,910 26.2 75.0 1,312 0.67Diesel Oil t 25,500 1,890 48.2 132.0 2,310 3.36Power Mvb 286,930 410 118.8 55 962 15.788 Ata Steam t 1,106,548 106 117.3 6.33 111 7.0013 Ata Steam t 164,940 116 19.1 7.48 131 1.23Industrial Wate:: '000 a3 14,601 460 6.7 44 770 0.64Polyvinyl Alcobol t 497 68,585 34.1 1,700 29,750 0.84Other Chemicals - - 57.1 - - 3.26

Subtotal - - 866.9 - - 63.10

Fixed Costs

Labor - - 52.8 3.02

Maintenance andGeneral - - 74.5 4.26

Subtotal - - 127.3 7.28

Total Operatlng Costs - 994.2 70.38

AM= 3- 23 - Table 2

ROMANIA - CRAIOVA CHEMICAL PROJBCT

Table 2 - Projected Production and Income Statements (million USS). economie Values

Production Unit Start-up Date 1983 1984 1985 1986 1987 1988-1997

Methanol t 10/84 - - 149,550 172,000 172,000 172,000Acetic Acid t 1/83 8,278 17,020 31,290 8,350 17,350 27,946Vinyl Acetate t 11/85 - - 1,400 17,825 18,825 18,825Polyvinyl Acetate t 12/85 - - - 10,800 13,000 13,000Acetic Anhydride t 8/83 1,800 3,200 6,800 10,000 10,000 10,000Ethyl Acetate t 6/85 - - 3,490 7,740 7,950 7,950Acetylene t 10/85 - - - 14,300 14,331 14,331Hydrogen 821 '000 Nm3 1/83 750 1,500 3,000 72,350 88,310 106,400Purge gas fro Acetid Acid '000 NO3 1/83 2,550 5,100 9,820 9,840 12,000 14,400Residual Methane in

Hydrogen '000 Nm3 1/83 2,700 7,200 7,740 8,800 10,600Acetylene off-ges '000 Nl3 10/85 - - 19,100 152,600 163,400 163,400

Revenues

methanol t - - 20.94 24.08 24.08 24.08Acetic Acid t 3.39 6.98 12.83 3.42 7.11 11.46Vinyl Acetate t - - 1.11 14.08 14.87 14.87Polyvinyl Acetate t - - - 9.77 11.76 11.76Acetic Anhydride t 1.20 2.13 4.52 6.65 6.65 6.65Ethyl Acetate t - - 2.02 4.49 4.61 4.61Acetylene t - - - 11.44 11.46 11.46iydrogen 82S '000 NoR 0.06 0.12 0.25 6.01 7.34 8.84rurge g8a from

Acetic Acid '000 No3 0.07 0.13 0.26 0.26 0.31 0.38Residual Methane in

Hydrogen '000 N 3 - 0.19 0.50 0.53 0.61 0.73Acetylene Off-gas '000 Nm3 - - 0.70 5.6 6.01 6.01

Subtotal 4.72 9.55 43.13 86.33 94.81 100.85Variable Costs Million US$ 4.03 7.12 33.24 54.33 59.78 62.92fixed Costs Million U8$ 2.14 3.06 6.21 7.14 7.27 7.27

sl The attached Romanian report assumes a full capacity production for all products in 1986 and onwards. In the light ofpersisting technical problems in late February 1986, it seems highly unprobable that full capacity in the acetic acid unitcan be achieved in 1986. It is thus conservatively assumed that full capacity cannot be reached before 1988. Since thedownstream units vinyl acetate, polyvinyl acetate and acetic anhydride plants are assumed to reach their full capacity in1987, the full acetic acid int-.-.ediate needs are to be delivered out of the acetic acid production, which reduces theacetic acid production available for sale as shown above.

b/ The off-gas volumes have been scaled doun according to the production level of the units from where they come.e According to indications from Craiova Enterprise engineers, 601 of the foregone finaneial acetic acid production value in

1986-1987 corresponds to the value of saved inputs (variable operating costs) because of the gradual production build-upIn the acetic acid unit. The variable operating costs have been reduced correspondingly.

-f. !

- 24 -ANNE 3Table 3

ROMANIA - CRAIOVA CHEMICAL PROJECT

Cash Plow for Economic Rate of Return (in million US$)

Investment Operating Cots b/ Sales CashYear Costs Variable Fixed Revenues b/ Flow

1977 1.85 - - _ (1.85)1978 8.52 - - (8.52)1979 25.65 - - - (25.65)1980 28.86 - - - (28.86)1981 36.66 - - - (36,66)1982 35.69 - - - (35.69)1983 23.82 4.31 2.29 5.05 (25.37)1984 16.32 7.76 3.34 10.41 (17.01)1985 16.36 35.57 6.64 46.15 (12.42)1986 - 54.33 7.14 86.33 24.861987 - 59.78 7.27 94e81 27.761988 - 62.92 7.27 100.85 30.661989 - 62.92 7.27 100.85 30.661990 - 62.92 7.27 100.85 30.661991 - 62.92 7.27 100.85 30.661992 - 62.92 7.27 100.85 30.661993 - 62e92 7.27 100.85 30.661994 - 62.92 7.27 100.85 30.661995 - 62.92 7.27 100.85 30.661996 - 62.92 7.27 100.85 30.661997 (9.54)0/ 62.92 7.27 100.85 40.20

a/ Investment costs less duties of US$39.6 million, converted into US$with the current exchange rate and brought to 1986 dollars.

b/ Operating costs and sales revenues, see table 2 of this Annex; broughtto 1986 dollars.

c/ Residual value is net working capital, valued at Lei 167 million orUS$9.54 million.

Sensitivity Analysis

Base Case 6.7ZOperating Costs up to 102 3.92Operating Costs down 102 8.9%Sales Revenues up 10 9.8%Sales Revenues down 101 2.6%

- 25 - ~ATTA%~NN I-25-

(I"n Too 163A IRO)

U. no0set main o;~~~ OF C|WeR11f

Z. Intzoduabtiorlo Iffs ufabtion Cons.e2snt the 0ojet

APtepeation eand estimate of the Plos pzo$ AppSM, aeoasig Lato force of the 1oae

BDGaozipbton of the pzo .etIII. lm9Intfatton and m sagement of tts pojeet

AeAohievement of th projectb scopeP1oLocatton and utlitiesC o P 0oeet managementDaInstrt:ction sad tzeticng of the b taf1, EPtoeotemon7,P!o0eot *e*sztnt out eshedaleGeAdvtises ,ootreaoton and m uppltezupet"fozmaeoE.Captbal oosagb9poject ftnunotng asd ttIliSatton of

ths lon1V. Oorat tor Pftrovatnae

A. Commtustoninug sad poduaotSon bul&'aupDo A urvoe on the Cezket and marketingC. FantRonmental aspeats

V. Neonomtoe sed Rtnecaal Perfozmnesn

- 26 -

lo sb L

a/ Projet Coat 1 1742Czeulattvs apItal 8,5 9,Interest paid duringuxeiation period 503 I 9,2.Tbotal eosts 15,6,8 192,8

b/ 2inonetn (Wle$) 12569 192,d- Own fund I 105,3 241,3

o IMvitment funds 102,9 131,8* ?tds for ctrculating means 2,4 9,5

- Credits a 51,5 51,5, D credits - 40,0 40,0

C redits to equitpmlent ,Uppli,I 1195 11,5

o/ Execution eshedule _ _start of Start Start of statelection up ertofl Io

acetic sold 1V.1977 M1979 11, IWO978 I11903methanol 1h197d 111.1979 IV*197d 17.1984

* acetylene IV* 197d ZIL 1901 IV* 1979 IVo 1905acetic anbydride 1761978 1*1980 11.1979 m01983/

111.1945- etbVl acetate 1X1.1979 rVv1981 1s954 17.19d5

-vinl acetate 1.1979 I1U*,191 IY.1979 17.19d5- polvin-yl eoetate IL1979 Y. 1981 1.980 IV. 19o5- utilitiee IL 197d 17.1901 117 197t I 19d2/

IR. 1984

d/ luther data concerning the pzojeetProJoot Identiftcstion - June 1977

mE1utiona - December 1977 June 197dNegotiation - 09tobi 197dBank loan approva1 - Decemb 1970Signing of the loanagreement - January 15 1979Coming into force _ V8a 2 1q79Dote of loen closing - December 31 1902

- 27 -

3orrower ~ Investment Bank

Loas beneficiar Cratoiv Chemical ComlexFiscal :.eZ of tbe loon - 01. - 31eXIToValue of the TI= Credit 40.00000004SInterest rate 7,35% / 7ea

o/ Abbreviations usedsC.I*I,Ch.PCrsiova The Industrial Central for Chemicalor the central FestilizersThe Bozower Investment BankfTlPTC Technological Engineering and Design

Institute for Chemceal lndustr7

Industrialexpoztimport - Foreign Trade EnterprisetP7 - 'Aetric Tons per YearZ/ Rate of rvohang.

Prom the project estimateuntil Dbcember 31 19d0 -1 1$ a 1a let

Jonuary 1 19d1 - December 31 19o2 1 188 M a 15 lot

January 1 19d3 - June 30 L9d3 1 MS u 16,50 1ltJu17 1 193 - December 31 1983 1 1783 u 17,50 leiJanuary 1 19d4 October 30 19o4 - 1 8M a 21950 letNovember 1 1984 up to now I 1S$ a 17950 let

To% 11 T1 R 0 D UJ C T! I 0 N1

1.TOlThe superioir vlorlfication of the domestic raw

materials resouxces,the utilization as efficient as possible ofthe manpower as well as making the best of the productive capecitie;

existtng within the Cratova Chemical Complex were decisive gumeats

in adopting the resolution to develop and modernize the Complex.Within this framework can we insctib the p2ojost

"Development of the Chemical Complex" which consists of moderniza-

tion and divezstfication of the production,the project oomprising

several plants for the execution of which a loan of $ 40 million

was obtained from I29RDe

1902*The project was prepared,located and achieved under

the manarement and gurlPance of MIChbCITCh Cratove and Crelova

Chemical Complex*

l*03*The start-up of the plants executed ais part of theprojeot will finllV d,tegmine,when reaching the designed paramsters,the achievement of the bellow shoztlI presented pgoductiona

Product Pvoduotlve Net pvoduction Procontage for saleeapeaitT for sale from the total

capacity

Acot7leno 306000 140300 47%Carbon oxide(r/h) 5O0 -oMethenol 210.000 172o200 d2%Acetic said 600000 27.9y 4#7%Acetic an dride 10.000 10.000 100%Vin7l1 Acetate 20.000 ldtd25 94%PolvWnyl acetate 130000 130000 l0owEthyl acetate 10 0025 7,950 99%

x (including 450 t secondsr7 production)

'39t Productive ocpactties for sale.,., mentioned above,

zr6pesent the ideal ratio between market demands and internal needs-fo plants operation within the Complrs.The projeot is£aevrtbelessadjustable aeording to the market demands and the impeat of theprice variation.For inetanccgthe acetic anh7drtde production ma7be reduced or elinlneted,by ineeasing the sale of acetic acid,

le.4Io Location of the plants snd technological conceptionwere established ti view of making the best of the prea4xistingplants within the Complec,the methen gas pipe and the otherutilities alread7 exiating itthin the Cocplexzthe old and the nowproduction pl3nts were integrated in the general production flowof the Complex.

IIe.ASIC IFOIF.SAT!IOI CONCE.NfZG T!TM rIROJECT

A.PR.oMrLAto and Estimateof the PJo1oatAonroMaand Cn In~nto Wurc of- the LBkLoayn

2.0l.The project was identified and checkod up b7 arepresentative delefgation of the Bank that visitod Romania In!La7 1976.

The Bank dele-at ion that took pertain_bt ovkIar out

- 29 -

of the ePzoaeet in Une W7 r xoe onendad soos aban;oa in the pgojoetstzoctuz9,changes v3hich aimed t givting up the construet;on of thb2but7l acetate and the po1?viW sla@hol plants and the reduotionof the investment cost fzom aproxe S dOul90 milo to $ 151 Milo

They also adviecd the tnerese of productioni fop soelfrom 30325 tons to ovrr 15,300 tone vin7l soetato and from 167o5dOtons to 1729200 tons mthenoalThese oiaoges were operated befoxethe project estimate hloh Was pQ2forced ia Merah 197do

The bank loan negoctation took plaee La Otobov 1978and the approval in December 1978.

2.02. The psoject consisted of the eXpansiongmodertsationand diversification of the production within Czalova ChemicalC omplex*

2e03. The project comprised the following olementetinstallation and atext-up of a 30.000 t97 acet7lene

unit based on methane vas which replaced the formez aeot71one plantbased on carbide.so that the new plant supplies both the scet7len

necesaser for running of the plants provided ti the project andthe asC17ene neoesssr7 for xunning of the pro-existing plantswithin the Complexa

At the some time the acetylene plant supplies the off'.ran necessary for the preoexisting ammonia reactor operatioa andfor the acetic acid operation,plant which was built within the.rojq t and (determines the complete aso of the exist tiap cpecit7of scetaldehyde.

expansion of the existing caaacities of vinyl acetateand^ polvinyl acetate units bty the execution of nev plantse

- construction of new p2oduaction cepecities,such assacetic anhydxide plent,ethwl acetate plant.methanol plant andacetic said plant.

in the project -.vas also pzovided and it was built the

*azbna sonoxide separation plant so that It provides the carbonz:nY!d4e -e,d for the acetic asid plant operationo

2*04oWith coming Into operatIon of the projeat9when theplants will run at the designed capecit7vit will be used foRchemicalization about 400 mil cubic metres of methane geasthus

- 30 -

leading to the inroesee Of the aMount of the pto0eesed meGtsan gasused to msnufaetuae high value chemitcls.

2.05.Aboat half of the nece0sQSe amount of methanea sto used b7 the new seet7lene plant which operates thsough paxtialoxtdation of tbh methane gas.

The transfer of the new technologies from abroad wasperf ormed fort

l)tbhe asbon monoxide spearation plant and the stacetsaid plant

2) the aseeo enhtdrtid plantPox the msnufsaturing of seetie acid a high pressure

corbon7lation process based on BASP ('-eat Gezna4)ucobhcnlog7 wasadopted.

The manufacturing of seette snhqdrido ti based on thetechnolog7 supplied b' compa8n Banna Schkopau from Bast Ge.rm0n

Poz the carbon monoxide sep8ratton plant an absorbtion-desozbtion prooess was adopted,prooess based on the tehoholofqconeeived b7 TENCO - U*S*Ao and offered bsy the company R! -Holland.

The manufacturtng of vin1l aoetate,pol7vin7l acetate,eth:l acetate sed methanol are based on Romanian technologies desg-'nod bZj Romanian sjpocalieta from IITPIC and CIICh Craim.

U.I MdL 1. W. AA'ICN AND UANAO'AMN'T OF THE eROJECT

3501. The project scope lIes In inereasing and diversi-fication of thie production of organtc chemicals manufactu!edwithtn Czaiova Chemical Complex.

' ht start-up of the aeet7lene lent whioh operates throughPartiel oxidatton of the methane geo determtned the extension ofvtnyl acetate and poJL:vin7l acetate production b7 @ommisuionagnof the now plants,At the same time this led to the utiltzationat designed capacpit' of the alread: existing setaoldehyde plant

tithin the Complex.The offr-ao coming out from the aset,7lene unitate psrtiall7 used for operetion of the new CO separation plantand acetic acid planteAlso,dependong on the achievement andoperation of the aecet7lene plant,the eth7l acetate and saettc

-31-

oamhddrld eate as3o executed.Out of the eau17 production of m'ethanol which to goin0

to be achteved, aboati 37J300 tons are used fox manufecturing ofacetic said and 1729200 tpy wetianol reprosents pmodaction for salse

34.2o The project woo planned to come Into operation

at tntervalG,between 1979-1982,Compared to the target dates decided to the project osti-

mte,ttheS ast*tup of the plants within the pzo,eat was perfozmed

an

Acettc maid IVO 979 JanGax7 1983VethanoL TV.1979 Ontobex 1984Acetic unbdride Is 19UO Aago1963aAul4965Aeet7lene ml1981 Ostabex 195VtnA7 acetete I 1981 loasobor 1985

0o17vitol cette t IV.191 D"eebsi 19d5Mtb1l acetate IV61961 June 1965Utilitt0e and auxilleriees I19d0- Doaeebos 19U2w

IV.1901 August 1903

The ressons for dela in achieving the project andcommtsutoving of the plants takin into account the antiotpateddates in eattmate,ere treated tn detail in setion 1I1 I and Go

The ree1 coat of tho project is about UdK higher thanthan the entlciiated costs when evaluation Wso done - 2,d21J millei,gmtnl' as a result of the internal priose incresee in 1902,(details in section IIIff

3.03, After the om1istioning of the plants,the didnot ran at the designed pearameteszxon one bhnd becouse of shostageof raw matmriolstthe acet7lene and methanol plants being startedup after the acetic saidl plant, and on the other hand because otthe tecbnolos7 deficiencies at carbon monoxide separation plant(it rans at 50 of oepacit7) and the frequent disturbances of thecasbon monoxide ctmpressors at thevalve plates and at the high pressure druomsahoxtcomtngs whichthe muppl7ing companies have not remedied.

- 32 -

36(4,6? Project west ea91tsed to the Sexsttig eveIlsblo2oos between tho plants to operation within t.1e Crgeova ChemicalCoapler,thst to located at 10 km vast of Crstove at th eonfluene,of the Jim end AXinardia rivers,st about 360 km west of Buohaest

esSpOctivOl79

The Project was roelised on the rietiag platform ofthe Cratova Chemtial Compler,svoiding the additional sxpenasfog placing out of o0pration the foaming ares and la7 ing oat of omwsommunioetion ways,making at the same time the bent possible asof the avatlable zoom and utilities pzt-existing within the Comples.

3*05* The noceseea% raw matezials and utilities wllbe ptovided to the following wae %

Methane to delivered frori the natural gas fields in thenoxth poet of Oltenia through the 250 km pipline which esaneststhe Chemisal Complex to the Cos field.

Oei is aveallable from the national grtio

Frocess steam is provided b7 the plsats within theComplex as well sn b7 the thermoolectute power station of I9alMitewhich is ID the immediate neighbourhood of the Complex*

Industtrol water ti available from the asorb Jim river.There are no difficulttes ta provtding the othe: vaw

materials and uttlitie,9which with the exception of a few somstivale are locall7 supplied.

3.06.The Industrial Central for Chemical fertilizers(COUCh) had the general respoasobtlit' for the earr7ing out of theproject and Cratova Checaiel Complex aoted as the benefotaez ofthe psroject

The Central had this responssbiltt7 from the first stage

of project preparation up to the commissioning of the plantsstipulated by the project and will uncessingly have ti view andprovide all the conditions for the pPopOe operation of the plants.

The Central as well as the ComtAe have a significant

experience in zealizing plojects for the chemical induatry.Cretova Chemical Complez,as the boneftctnar of tie projeat

had the duty to supervtse da the wes io which the psoject isaccomplishod.The Complex concluded. contrats with conatructios

- 33 -

orgsninationa specielized to aoeoap1lshment of @onautUtiLOf*tinstlletion and erection Wofka and with the soppliors of eqitp-sent and 1aq=at financed from internal resouzces4he *ouple01o paetWipStOd 1n eutimetion of the Offerts for goods andsetivittee finansed from the B*nk loan,

Soeveal inotitutioni took Pert ia wosking out esd aehismveoment of the pzoje@ttas follows I

307aThe Teohologisol laetneeving angsd 1tLn Ititt@sfor the Chemteal Induati7 (TIITPC)9specialised istitute ofengiaee.ing and toehoolog within VIECNhsd the responeeabiltW fOEthe geneoatl destg,hoi.ce of poduaetion toehnologlea@#helS@ of*quipmenta,doeign of constsuction and Inotallettoo worke, detailewn flesng,rWespoet lve1a

I21?lC lent teohateil asesttnsne to OClh CratiovaheComplex end Porotga Trade BNterpriee tn view of procuring thenecesser' lyout end equipmet.

* 3,08.tn@ ] lZl2 destri2leXpottimUQoitthe lozotgn Tzde Ruteptpi1s11

organized and earried out the procuement of imported goods and* ~services.

3.09.Construotion end erection wer'Asmid oult bW

enterprises of construotion-ere*tion sed instaelAtia uubuadintefhe Vr n.estz of !Adustrisl ButwIding.

The locel eoterptises and the forseig companies whithsupplied the 1esmoute,equipmente and know-how took Vert to thechecking up of the ereotton for the supolied leouts and equtipents.

The permnent coordination of the work wes perfozmed 1CUTCh Crsiove,while NICh eansured the general superviston and thecontast with the othep economic ministries involved,

De2 Staff Tnduaklatin Ind. Tranint

3.104 When the 1.ilants within tha pobj;et will operate fs

full cepacit79the total number of the personnel will be Of about1100 peopleouot of whom 600 operstorx,0O0 awiliar7 wolkr"s andabout 40 engineers and toehnbatens,being according to the appsoednumbtr at the date of worktai out the tecbnicalmeooaiote donmen-tat4un(ll40 total persotnel,out of whom 600 operatovs,O45 esmiliau7workers sad 60 engineers and technIians)e

- 34 -

3-1.0TIaLaing of the personnel,was aohieved mLA1n to GOreLoveChemical Complex,as well as in the chewAntZ7 high schools in reLve.

The training progzammes have been presented at the projstestimation and have been aeepted b7 the Banke

During the accomplishment period ot the projeot,ttheo haebeen trained b7 the equipment and know-how suppl7tng compgnies anumber of 17 People out of whom 9 wofrers and foremen and 8 engineersand technicians at s:r-TIJNNECO USA,BASP-Webt Germen7gBuna SblkopSa-East German7e

3.12*The procurement of goods and services finaneod by

internal resouresa(equtpment,umterials,know-how,eto) noluding eoonstzu-tion and erection was oarried out 7 CICh Cralove and the Complex,as benefioiar7,and with technical assistance from IVPICf

The goods and the services financed b7 external means wereprocured through the foretgn trade eatrprise Industrialexpoztiapoetwith technical assistance from CIICh Csatova and IITPtC*AS to thegoods and services finaneod bh IBRD there have been applied thB3ank's guidelines with regasd to the pooursment,o'ganiaiaginternational auctions.

3*13#The goods and the services pzovided to be proseued

within the IBRD loan have been divided into three oategorionasfoLlows s

IARd 4210dA1alotcategor 7 ,Imported equip-

ments and services(equipments 229o 16,9 1796technical asuistance,know-

how,engineeingl,etc. )

2ndeategorz.Imported equip.

ment and services vith en

contract cost lower than 290 3,8 301

100 000 dollar equivalent

3rdostagor7.Imported equip-

ment or local sapPl 16,0 19,3 19,3

4090 40,0 4090

3.l*or the equipment and sexviesa mentioned ia the

- 35 -

ooeond catego271With a value of 3.1 mtledollatezeepweaenttngeqAipmenta01s7r4ut,sotmentals end spare parts with a contreatvalae lower thsn 100,000 dolUa,nth. prosurement was sehieVed bydirect cont2ttaggsedtagges ng to TBRD psocedures requestsof bid to gevesal potential suppliers

lot the t and 32d%atgortes of goods there were orga-nized International biddinga for each proourement peaket beingprequaltfied at least 3 firmsttaking into ascount the technicalpsobilibg of the competitive firma.1ov the 3 deatego& of goods

vOre proqualified Romanian supplitezetooo

The pxocurement of teshnolog7 and equipmat came upagainst a uancesion of dtficulties which de1a7ed the generalsahtevement of the project with more thsn 9 montba.The diffisul.ties were determined by the technical compoexitl of the probl.mowhich had to be clartfied in a relettvely short poriod of time,as well as bt the ltmited number of poteattis) inteteted uupglAexs.

301.o Tho emot taportent forelga 8suppliers were f:.msWest Ge2msnay#JYsnFollmnd,Itsl7 sad Austria (annax 2)

Out of the total cost of equipments and servtces finsnsedby flRD,the fereign suppliers delivered 51,66% and the Romanianenterprises 4Jd,35,*

The delays to achievtig the project were mostly determinedb7 the lateness in organizing the international oomptitive biMiugell these beinS conditioned by the negotiation and the loon

epproveleBut in genersl there were no dela7s having tn view thecontrectual dete,on the part of the suppliers an,' at the same timethe layoats and thc equipments had the adequate qualit7e

An exoeption were the sichxomal-steel cotls for the aeeticanhxdride plant whichcracked before the mouatitag,due to the tnadequate quality of thesteeoleor this reseon the acetic anhydride nit wee started upwith a dela7 of over 30 montha.

Another exception from the above stated are the sexbonmonoxide compressors where come outdefects at the valve. end the high pressure damue,defects whishhave not 7 et been remedied.

3.16*The projeat carrying out schedule is presented inthe annwex 1.

Coompser to the esttmtod target dates of plants start u'

- 36 -

the 4thquartet 1979 - the 20 4qu,Xter 1981,the etual @ouimigiei@1ntoo?i pseae at intemla in the period the 1. qusater 193 the 4hqsarter 19050with an avetage deoa7 of 3 to 4 7e085.

The dols were main1 determined b7 the follovig se*asons3.17. Dsls7ed beginning of. the *onstwuetion vorks and

leteness in organizing the iaternetionel auotionosthe preparationof which being conditioned b7 the signing of the loan agreement.The late organizing of the suetions and the approval of thecontracts determined dela8s in earx7ing out of the projects ofover Id months.Compared to the estimated target dates0impoxtantdela7s occured In organiting the auctions for the goods from the3IdoeteG017(egst imatetarget dateithe rVth q,ater 1978 - the I

quarter 1979aohioved target dates the nIrdquestex 19W0)lgfothe gas com0resaors In acet7lene unit(ostimrted target dates the

i!d quarter 19760actual target dateathe liedquaster 19d00,The technical compl=xit of the pRoj.et,aa well ea the

great amber aZd volme of equpent,1e*..ot, rala end spaveparts which were to be parxoesed,reated uajos dtfiemoltiY incontracting and cavrring, out In due tin of the respettiv pflem.rementa.The oana:se1 Lng of the equipmetss arid ervieOs war perfor-wed over a period of 50 months (the 1Vtiquarte,l97d - the IYhquarter 1982) compared to the estimated period of 24 months(the Wthquarter 1977 - the ledquarter 1979)o

3.18.Closel7 relsted to the organistig of the auctionsand the equipments and services contracting as well ea to th.izrespective dellver7 datea,the oocstruction and t,r,@tion beganwith a ('e91a of over 6 months,most of the operation being achie-ved during 19o2 and 1903 at the same time with the delivor7 andmounting of the main equipment.

3.19oThe construction organizationstfailUre to assurethe manpower necesear7 for carr7ing out the works of onostrtUztionand erection of the equip-ent,oepecial11 during 19d29when theconstruotion labour were mainly employed to finish and start upthe units fron the enerCetical seotoreaelso oontributed to certaindelais in e..ecutione

3.20.The modification of the manufactuse tocnolop7 foxthe eth71 acetate unit determined the beginning of the operationat this unit with a delay of over 24 monthasthis fact tinal7determining a delay of ovex 20 months in cOlmtmssioning the Plante

- 37 -

3.21.The deliuvei of dfeeted imported equipmate and 1a7touts led to delasy both in the period of equipments'ereotion sad inthe period of teohnologicel tests(the gas oompressors from the COseperation and aoetic a@id unitalthe uichiomal steel coils fromthe acetio aondzide uniteto.9)

The deliverl from the Oompaa0 WOlders-elgium of 12 steelcoils of inadequate qualit7 finally determined the delay of theacetic anh7dride plant 00mmission.ng with over 30 months snd theuce of additional funds it order to procure the especltive equip.ments from other suppliers.

3.224Certain dels in deliveEg og bthe measuroment andcontrol units,of the equipments fo: Safe operation of the iethanoland aoet-$lene lants (safet:7 velves,messuzement and controlinstzumentation,stainleusrsteel pipes,electrioal motove with anticexecution,etc.)bl local suppliers contributed to the lagging ofcommissioning of the methanol and aeotilene units with ovex 6 montheswhich also influenced the ch4.tevment and the commissioning of thevingl acetate and pol7vin7l acetate plant8s(usiug acet7lene asraw material)e

3o23eWhen cLonsidering the length of tisi of achieving theproject,the reel circumstances under which the project was carriedout must also be taken into account, As already known,the pxojestrepresented a modernization and an expansion of the old Complaes thonew units being located in the available room in-between the pre-existing plants,This is wh7 the opexations could not alwa7s be carri-ed on on a large area,part of the construction works whioh wereexpected to be carried out mechanically (diggingasdithhes,exectionpipes.etc) were carried out manually with a low productivity,because of the pre-existing pipeing system and of the pie-eisting_lanta3ll8sothe transport inside the Complex and mounting ofover-sized technological oquipment as well as of constxurtionequiPment(oranes) was conditioned by the shut-down of some operatingplants,dismounting of some pipes and of aerial equipment.etot)

;o.24o.,ith the exception of designers and equipment andlicense supiers,who were oalled upon to aesure technical amtance duraing 'he erection and technological teats peziodnas wel as

- 38 -

aies the start up of some planta(aoetie aeid,CO seprastion)vOl6ChCrasove did not find It Aecessar7 to consult other adviseae

The companies NA87 and espeoiully B!l-Iolland postopued theconsulta'.ioos In the start up period and afterwards the7 requestedverb high.onerous tariff s.

i.CaittAl Coat.PW291 ct ?nnei adTYIizt

3*25.The Project coat represents 3 047.7 utl ll($ 174.2 PA1.)about 18% uoze than the cost estimated in tbe ovslultioo4 repoxt(2574.0 ail lei,i.e. # 14 .e0 mil)o

The exaeeding of the projected *oat wes datermined by thefailure to oarrw out in time the constrtuetion worksand b7 the

influence of the internal prise increases at the main low matolxhls

used in construction-erection,as well as at prefabs,equipsont,maehinea,sarze parts,whose prices increased durozng 193 b7 about 20.

3o26. The project cost was matif seeeoded to the followingdomeains t

. enginserlng,liene and technical assistene b7 26% an aresult of additional research and work conneoted with the itncreseof safety in operation at the scetylene plantses well as a resultof changing the manufacture technolog7 for the etb7l sootate plant,

- equipmentesmaterialssparoe parts(includiug customs duties

and insurance by aproxe19% as a result of the price inerease.- erectiom costs by aprox. 43%,as a result of prtoe tgeresse

at erection materials and prefabricated ports,of increoitng the wages

in t:e construction field,as well as performing some additional

erection woSk for increasing the safety in operation at the acet7leneunit and execution of some remedy and additional work in the aeetic

acid unit.administrative and postoperational expenses by 43% muinly

determined by the failure to carry out the eecuotion in time and byonice increaseeThe3e influences also explainthe xceeeding of the

projected costs at the chapters I overheada(stazt up) by 2905 and

working capital by 11%.The project coat is shown in annex 3a and 3b.3.27.The I9RD loan was expected to be entizely used util the

Ivhquarter l9dl.As a result of delays in contracting the equipment

- 39 -

and in beesnning of erectiongthe loal was entively nod untilZanuor7 19830

The schedule of the loan utllization is shown in anne 4.Until pember 31 1985 from the ThRD loan of 8 40 Mile

the amount of 11,4 n1i have been repaid.or financtng the pzojeaoIlI,Ch Crtaim mots7 telied

on the own interal zesoutRes(sinking and qvofits)qwhtih reproseo-ted 66.3% out of the total demandedAatonsl11 tt also relied onetestal resousces out of which 2o,7% foa the total ammand ti rexoesented by the ZBRD loon($ 40 mile) and I33. creditoffexed b7 the German muppliera(BASP) to ICE Indnstrtolexpozt-import.

Compared to the estimates in the evaluatton repoxt,the proJeot financing was ashieved as follows:

million sulion

ERD loon 720.0 40.0 700Q0 40.0Suppliersordit 207.Q0 1.5 201.0 l1.Own fundst 109500 105.3 2489.0

-fixed funds 175700 97*6 Li 4G.0 _ 73i-circulating funds 43.0 (4q4 147.0 ...-intxrest eauting

constructton 95.0 5.3 160.0 9o1

Total funds 282290 15;6,d 339000 193.7

...... Co,nuuopn ..nd fta_.io Th ..Un

4.01a.,?oduetion was not achieved according to the eatim-ted sohodules,as a aondsquence of the dela7 in the projeeteazi7ing out and start-up of the plants.

The carbon monoxide sepeartion and the aeette said planatafter commissioning in Januae 1983,operated ande, the designed

, 40 -

e*.oaltt both 09 @i i8ilX Ot fftlure t@ OWS?@ tbe nes"8Get ronUX|tehtela(Jljthesdl,f6 tfom seetv@l00 uniti) old o. the tault0opoatson of s0o0 equtipont(o68bof monoxide eouIproOfloos) andbSecaSe of the teeh@alog deficteneatea whitc he not beenremedied ret.o

The msctt. *sh7dvtde piant was@ommitsitooed it Autist

l903,opoetiU at he.t the designed copeott- as a result of theinadequate oqutpcimt delivered bt WeldersaBelSugwwhich bhd to ber@plaeed with other equipmae

With the ooamisuioata6 of the methaol plent(OtobWl9*4) end of the ecet7lene plant(Octobez 19*5)9have heen resatedall the matesial condttions fax operation at the designed capecitbo8 all the lants foxnoeXr starto&Up0

Produettoo,eosts sad the achteved proftiages well as

the estimates until 1993 are showa in annex 5

Chmial ffianfokIe ahnltg?z t.Poe.

4ao2a vast of the produotion to be sohiswd esordtng to

the projoet,whon the olants operste at the designed capasitV,is meant to satt sf the taternal need of iuch chemicals of thounits belonging to CflChCratovs end of other shemteal eon p1esestn the chemical industr7a

About 505 of the soet71en production (14300 tpy) *ep2Os.seats available scet7lene withta the aew project end will bedelivered to pleants prexisting within the CompleK#b7 replatcngthe old ocet7lete plant based on oarbide,

The whole vinl acet7te,etb.l aoet7te and acetti enbdride

production to delivesed to the enterprises from the chemical andpetroceimical ldumtz7 for manufacturing of paints and lacquers,artiftcial fibres sad d2uVse

Over 75% of the aoetic said production and about ?.O

of the pol7avinyl 'estate vroduction ts deliveted to the consumers

from the chemical iadustv7 fot mnufectuoing of the ozoatsecheiicals(but7l aeotst,aodiuam seetate,otba oeetateespiguenti,uzugs,eto)sfrom the patnts indust,ufrnl 1 tuze tindoetx7eand tathe light indastz7 fox testile feb2ic,The reaining 30'25%will be expoted.

out of the nethanol pzo4ucttoa(172000tg7) about 50, isdeltiered to the consurmers ti the cheateal and ?etrobsnic.al

- 41 -

iadustry fof Mnanu.factuaring the a7nthetie zubboe 0 ?p1astsos,drgpaints and laequ@rf,0tcO

it is estimated that about 5C% of the methanol produotioawill be exported.

Produotion,consumption and product marketing achievedwithin the project are shown in annex 5aem5*

I&XV=1 Oninetal Asnects

4.03. The project was carried out according to the Romeni.an standards regarding the protection of the environment9whicharei.n some respects,more strict than those used in West Europeancountries and in USA.

The moat polluting substanoes within the Complex arethe otgento compounds,which -.re wsshed eava in the methanol andacetylene plants.

In order to prevent the wvter pollution there Ws beeninstalled bio-treatement outfit.

Due to the manufacture tecimolog7 used,there have beeneliminated the pollution problems*The two siz admission waysto the air separation plantsare placed at 3 k1m fom one another,thus eliminating the risk of hydrocarbon presence.

Also,the acetylene plant is provided with an adequateventilation and automatic shut-off devices aCcor41ng to thesafety standerds.The high ecetylene are diluted in gesoil andlicuid aimmonte,sefely,without exceeding the maximum conoentrationallowed In si "ilaz plants.

The medium and the high pressure devices used withinthe project were designed,built and started up taking intoaccount the ecological standards and the safet7 in operation.

V. FlIANCIAL ?MI OMMANCEScot===-==i relation

%0 l.The cost-pr ieQ relat ion

_42-

Eoteo podauettoa Avizg,e pvgttt

Sale pRod ttio _ _Plosese Catz0nt Px040Z° Cal8X^ ft0jeo Covent

t@d estima0te tou stint tocL antist

methanol 1060 2245 #95 1ui* 560*5 #41

ai d 580 7200 4254 2d78 15g6 022

9300 1d000- -8500 10335 1200 7"6

9o17vi.nvw dO5 12565 6609 906 1596 3479asetate RooUN

aeetiC 9000 16000 o 6725 9279onh7dnide 0000 p7

etiql dQ2St1M 17960 26696--?272-- " 1801M 106d8 d6"$ee ~ 79 et 9 7

acet7low 3ooootp7 10490 25100 4539 12700 5951 1200

Gross prof it per ton of piodnet In high.! than the1974egtimateasThis is due to the increase of prioes it the final p*o@deti

which is higher bhan the price tianeases of the aw inaterialaq

utilities asd noinaol wages.Benefit per product ton to lower at the ethl acetate

soopased to the estimates fzoo 197d,es a oonsequonce of the unfuvoc.table prios ond cost evolutim foo this product.

5,32elt t3 erpeoted that the direct production costiatt the

designed cepacit7will be 262!.-o highev ther. those estimatedpthust

- 43-

aA mount Value Coat Amount Value Costnil1 let/ il let/lot vU. l8 U.N

methane forchecizattin 357500 21,5; 60.0 357500 307.5 10o0 166¶thousandoubio mattesmethane fuelthousand come 81940 li.e4 200. d1940 81.9 100 504Black ol4-ton 25500 15.3 599 25500 46.2 1890 32!G08ol.1ton 9000 6.9 985 9000 26,2 2910 292lectricpowez-W M 286930 77*2 269 286930 Ud* 414 15Steam d bar-ton 1106548 33.2 30 1106548 117,3 106 353Prooess steam13 be- ton 164940 5.d 35 164940 19.2 136 32¶Industrial waterthousand come 14601 7. 500 14601 697 U60 9*

alcohol 497 33.3 67000 497 34,1 68585 lo

Othez chemicels t 50.9 ° 37a _1 t lip

Labour - 45.0 # 52,8 11!Overheads 640d - 74.5 It-*

Total expenses - 379.6 994.2 c 263

This inozease wse s &toszned b the iaoUae. of pricos ataW Matsrislase,o0w@! end utilittes to 1982.

The Most speoteculOr tuonessee ooused at; methane gas fRau

60 les/1000Q to 1000 let/lOOQuIaOm9oo0s steam 13 bas from 35 lt6ttoll6 lei/toPzoGeas steam d bar from 30 lie/t to 106 let/toot blackoll from 599 let/t to 1s90 let/to,ted

At the sene time with the *rS,e iuerees aSt SW etoetel.spo-..or and utilities took place an increase of the Selling pricesof ths ozgantasl chestoals 6eaufectured aeordiNg to the pro3eotb

- 44 -

;tmhno 1tl soconta of the Pioe4r. *we piesented inannex 6e and 6be

5,011 in vtew of egl@ulattfs the flnsnclal rate of2etuxn the followll asguW9tions haVe been made s

g/ the pzojeot soat p 8eivoed to US dollars was obtainedtr tranfo?mLaS the "spective now to lei on the beuis of theof0t.al iato of eaohge at the date of Payment

ii/ the ftnal productu and saw mSteraels prties weeassumed to "Main mnhanged in the ittewvl foflowlsg the goas1965.

1t1/it was assumed tht the project will o*eute at thedesigned oapettO beginanW w'ith Mah 1g86.

t,v the sinkin taken into eceount Is IC htgho thanthe 7ea17 stLnktng of the projecet

5.05 besad on the above essumPttonoths tinancial rateof return was decided to be % cogazed to 2X% as it wasestablished it th,e dase of pwojeot estiaete(sane j),

ROMANIACRAIOVA CHEMICAL pR t

.I . ... . . : CONSTRUCTION SCHEDULE-

Projected dates 1977 1978 1979 1980 1981 1982 1983 1984 1985Methanoi _ - - - - - _ _ _ __Detail Engineering - - -_ - - -_ - -Long Delivery Items Contracfng _ -L _ = -. . _ _ -_ . . _ _ _Civil Works -_Min Equipment 4s4iverY - _ - - _ . _. . - 1-Erection _ __ I_ - - - _ _. _ _ _ _Start Up Tests* Cv.jA.szfng sAcetic Acid------Detail Enginee|ri_g - -Long Delivery Iter.b Contracting _ _ _ - -.Civil Works -- 4__=_I

Main Equipment D4L overy - 1

Erection . _ -1 _ … … … … … … … … -

Acetic Anhydride - - _ _ _ _ _ _ - - - - _ _ _ -Detail Engineering -

Long delivery Ite ContractingCivil Works 4_ ___ _ - - - IMain Equipment Delivery 7 _ - _ _ - - - _ …- - - -Erection

- -

Start Up Tests& CEtimisslonig _ AcetyleneDetail Encineering _ Lona Delivery ftems Eontractina-

plai-Equipment Detivery -1 _ _ - - -Erectioio-.Stdrt' Up Te-.tst Colmmissioning

Original schedule .- - ------ Actucit schedule - -

*MOMANIh

-RAIOVA-7CHEMICAL PROJECTtONSTRUCTION SCHEOULE

Projected dates 1977 1978 1979 1980 1981 1982 1983 1984 1985Vinl acetate ' - -_ _ T - -Deftai enfineerig---

Lorg delivery items contracting _ - - - -_ _ - -_ _ _ _ _ _ _ _ -Civil works-

-- --Main equipment d4livery --

- -

|Erection _____ _ _ _ _ _ -_ _ _

-_

- -.…Start up testes comonessioning ____1 ........................

Polyvinyl cetate _ _ _ _ Detail engineering ___ __ __ __ __ __ __…_Long delivery items contracting……_

.… . _ Civil works _______ -_ _ _

--Moin equipment di very __Erection

-Y

_Start up testes & commissioninn _ _Ethyl acetateDetail enaineerinqLong delivery iteims;-contractin _ _Civil worksMain equipment detiverlI

… AErection -Start up testes &' *mmlsslonlna __ __

Utilities & auxiliaries …--…-

Details- engineering _____-__ … …… …… ----- - _ _Lonq deivery items contractina g _ -

_c4vitworks

-Moin equipment delivery 'trectios~~

-. _ - _ _ - _ _ - IT - _ _ _ - - -. - _ _ _ _ - .'. - - -A -St rt,up testes c commissionfng _ a a a a a

…_

- - OriginaI scheduteActual schedule

-47 -.

D8sbuis* ta M8 t ft the ems

ot4 m oan t

ot w2 1h: (thowV 8 ,qulve A,)t

Wvst 8,9236 a393. 192 7,*S

NetbOrlands 29603 6.31le512 3.781,o0Io 2.60

Gweat 8i1tain .663vAu 577 1044

1zICE 569 le42thwe ivE 530 1.33

ostal Pomgtp1 1i3plews 20o,659 53163

-48

CArIAL COST (ta UlLon Le)

Toand 306 3.6 3.1 - 3.

ftd A*T* 63.. 34.2 9702 89.4 33.1 122.53qai~.t ,h1toralsapas( laslng r6gbt,lateas .a Otkrs) 8sue 7n8.2 16 o92 9o99. 992.2 19.12irgtla 11560 306 118s8 17X 6 171.63BLng am Cl1lefts 43704 1o.B 4 48. 46o4Twe- w ge 19.8 e 1 i9.8 9.e 0.2 lo*o

Ripeasem 57.6 57.6 029 as29Plc.e Iodalation 19.8 133.2 153.0o -

OntLxWe*n*ea 48.6 27.o 75*6 27904 16.6 296*oof whi*ho-co£dselool 4m - do 2 w. o 251.Otkars _ 28.4 1606 28.4

Total rnstalledcot 1647.0 927,, 2574oo 2oo.S6 lo42.l 347,7Woa*kng Capital 109.3 43,7 153.0 167.0 167..Interest duringCmtiton V 94o8 94.8 @ OS

Total 3FLnaa izgF.equLz.d, 1756.3 1o65.3 2821,8 2172.6 1202.L 33.74

- 49 -

mm-wn

",~~5. 118

ae*~~~ 3u2AnaM01

a ~~~~~~004 0..l02 oJ

Waft 24.3 eG 24.09 26.3 a6.

* raini La i as9 1.01 o.6 '*,1 0.6

A s an 09 Jvom.

opmatng xxon"s3,2 m 3.2 4.7 -4

Price BRsaueati 1.1 7*0 8e.5 as

Pb7siwl Cout1uMeoea 2.7 1.5 4,2 16.. , 16.9of ibiobs

- - -g14,4 - 14.4

tkespa"s 1* - 1.6 e0.9 2,5

Total Iusoa1aed gOst. .91,5 31.3 143,. 114c6 39,3 174.1

Woakins Capital 6.1 2,4 8.5 9_5 - 9-3

Xft.i'at DuringC asm twtion - 3 .3 - 901 9.1

lequired 97.6 59o2 14608 124, 1 S !6b 1.,?

CRAIOVA CHW.'MICAL PROJECT

IROJ1CT COST AND FINANCING RW-,UIRED( in US 4 million)

Direct Imports F.Rx.Costs of Total F. Total local TotalEquipment Special Materi. Local Suppliers Exchange Currency Costs Costs

and als Instruments and Other F'.Rx. CostsTechnology and Suppliers Costs

Land and Site Improvement - - - - o.2 Oe2Equipment and Materials

- Proces 2 9.6 18.3 51.7 41.9 93.6-Utilities 2.o 1.5 0.5 403 5.4 .947-Spares 0.5 - - 0.5 1.0 1.5

Freight and Insurance - - 0.5 Q.5 1.1 1.6Erection - - . - 9.8 9.8Duties and Other Expenses - - - 2.5 2.5Buildings and Civil Works - - - - 26.3 26.5Enginsering,Licenses and T.A. 1.9 - - 1.9 5.1 7,OTraining o.ol - 0.01 o.6 o.6Adminuitrative and Preoperating - - - _4.7 4.7

Base Cost 28,2 11.1 19.3 58.6 98.6 157.2Contingencies-Pysical(Start Up Tests andOthers) 0o9 - - o.9 16.o 16.9

Total Installed Cost 29.1 11.1 19.3 59.5 114.6 174.1Working Capital - 9 _ _ 9 5 9 5Interest during Construction - - 901. 9.1 _ 9.1total Financing 29.1 28.4 6tS.61

X 11.1 28.4 68*6 ~~~~~ ~ ~~~~124..1 192.7

-51- M Wi d

C&AI2 OV CgUL4 PROJICT

WORKING CA.PITAL R3QUIBMHTS(in M±lihn Lai)

Operating Cash 600Accounts Receivable 115.0Inventory(15 days)

Raw Materyals:-Domestic 35o?-Imported o.3

Work in Progress(1o days) 55*Oi inished Good(5 das) 38.0

T &l 25o.o

Current Liabilities-Account Payables(15 days) o3.0

Net Working Caital 167.0

of which:-Local 167.0

- 52-

Sqhodule of Disblwo o6

n 4000 4000~~-MllonUS8.an ai'be1 Ratmt mmua*e. 3ibu fa u1a4

L~~~~~-4 - _

U 4,.0 4,oo v _ -

UK 1.53 3,3 * 3.85 385? 35047 11. 2.96 6.8l

198 26MOO 33,30 9,99 16,8oX 6o6 1706o 1,2 800.

U 7670 25*33 IOU 9412KU 7,20 32.30 2322 12a3*I 3,00 37.30 4.4 16,8

198 2.3. 4.o.o 1904. , 36.2a

I; 1,25 38075 6003 22,83

-U 1.25 40.00 4,93 27.76all am 6.3i 34013

IV 2,o7 36.2o

1982 - 3*6o 39,80

X - - 1.oo 37.2o

U -x -D ,090 38.1.

m? e - 04* 538,50

IV - - o13. 39,80

1983 0 . o.2o 400o0

I o - o02o 4gOOO

Cl1oai Date 12/31/1982 12/3l1982

- 53-

P.-odustloa,CUuUup*i@ and 8sa oNtha AO sd

]~~than101;08i Ma8 die kid

1983 1984 198 1986 19a. 1983 1 .98.1985 196 1

fotal Production 27oo 18O83e 21lS 12 an" 9Wo 60000

Of which,1Ztma ~ 7o 3,00 36.. f2o. 971. 32%5' 3265A*

2,fe~iniz tw Sale -14 50 72. 8278 172 312 7~ 7~

-salesto dometatsouppUewa X 9"50 920" 92. 8276 17.20 23290 21496 21,96

ax_0 _ 535oo 8so* 80000 o 80* 6** 6oeo

- 54-

iPw*wt-m ,a tia na d Bas C TtWI Asgeate man

Po27jWl Aewate

VlWI Moatae ^ 12 vMaO

TOUL 4 b timn _ * sun* 2ot* 10o e of wubteh

a - _ 17.5 1175 w

loaterd I"o1 S °

2*PA*dft~ti. fa )@14 17625 3M662 M"

1mgalgs to datos'wpi.is do 1a 1co35 ID - at f

~~~-= - -D e - - - _ awo ... @

- 55 -

Proditaotions,ommptlon n4 Sales of WIb AMtate gadAoeti,At )di4

wez~tri a¢a2ab u e 0e stgiae Aaayt

IM 19" M5 19" 198 198." M G a

Tota ftOd=tIo 3530 780 Sb25 100o 32-". 1 3*0of uhieha

~~~~~~6 Go

Xo 6e 75 - - -

Z,heodtia on tonrale -°3 1740 10 32 GBo loeo lUs"o

of wheuh

seles to dstissuppltws 3119o 7740 7950 lOoe 32*1000 1** LO"

do l - o t

- 56 -

TSmI Aaqtatoa,qwat$.ado@t m 3 la Bta.t ,1,

(Milt Zet)

Y2 B*a90.q 193 192 Goa" 1 1 s 9e

Aeo"lo x AM d9 174-,oo 1720.4 AQtIG Aold 2,1983 8278 17020 9129 24 7L%4, 27,96Reidl Metbte in .198 m 1$o 97,8 17X

Hydne a ZV" 2j?O 70Oass eet

TotaReenu 92,198 1996e. 1 03,ffI A..tato VL1985 9 349e 8 7r74 7,95

emeth 1 ,1983 2A g3 2oo 144,31

*1 2.1983 175 1,e3. .0.2 1O699 18 02

Baa~~~~~~~~~~~~~~~~~~~

teA*t" e183 23,"4 5,1008 12504 W

2.1dL923 2G72 729 12o 1 00,.et*1eao OS 1.1963 -(19,0 152 , E

Kbbul 111141 - 3 35fq 386,1 3664&Ae0t9,eue plat " 88,4 17347 l36,5 1o23.8 ¾,§7S.8Ohu S 2,e 5.2 18, 555.1 57e.4

glolbal ll@_l ~9.,4> 176.9 '95O,i 1,965,0 2,03g2.1_,o 8 lahl^$ ~55.5 98,1 457,9 830.83

lbthll81114el 15.@ 4.6o1 249.. 433,7 #9.4~tl1t1*L8 2.o0 3147 166.7 31.02 3564

0b±oala 17.5 RoeS 1.02 86.9 91,2X#L " ~~~37.4 53.6 1o8,7 125,o 127,3

5 "~I 92.9 151.5 %{6,6 955,8 9x

n ~~2616 42,9 97,9 152.o. So

@ (29.1) (13.3) r 85.0 B7,2 885,9

- 57 -

Pseuctmixsciss d ouvtt esJmto flil es mi,i

-otbal lto. 172,o0 29243 38A60^X1= -A"to, 279946 o aei,aT1W1 Aetat. Pe 18,825 lot" 339Pe 1UW iAstatOs too 13,oo - 12,%53 3.AMtotAWdtdo tolgm1%.o 600Rb' -la too 7,9150 269698 232.*Aee3ano too 14,331 491ee 359.7

P Gas fAs at e Asia Osas 140i@ 37.5 5

G" ea 146040 3,1,30, 101,3

Acetylene Oft-.pz ooo ea 16344oo 375 61.3T@> eot l-t4v4m20 52oo l

Ut"211I 11 0 . >05A

etbhane ooom 439,440 1 000 439.4Juol 0i1 t** 9,000 2,91o 26o2Diesel Ol too 259,5oo 1,89o 48,2POw Ykle 286,93o 410 118.8 Atfteam tO. l,1969548 1e6 117.313 AtSteam too 164,94. 116 19.1Industria1 WUat 000 ea 10,j6 o 460 6.7P.ly W1 Alsohol too 497 686540 34*1Othw Giadels co o 57.1Sub-Total -6669?ixd Costsa of wbic 1W7O3Labow 52.8MaSAao and Gonezl -co74,5

_ 59JA m M L 2

-58 -

A*CaOh lUIW tot P12UMO±8 RAte Of PAt=w(1u MWOUlmI19? a. - S 22.e

1978 118.. .199 4o1, 0 e - - (44.e1980 495,.*1981 636-0 - - * (b.ow1982 6oO - - -. (609.)

1983 3530o *a@ 37q* 9044 (3v44-1984 267,@ 98., P4o 179a (296.

9 985 146.0 45700 1690 791 7.1986 - 830.o IVA L616* 1l4*o

1_99 - 867os Inae 20o32

CRAIOVA C1MlICAL PR.OJBCT

BALANCh' SHI13qT OF CRAIOVA CHUMICAL COMIBINh(Million Lei)

1978 1979 1980 1981 1982 1914 198

ASSETS 5,do2 6,147 6,509 7,431 7,973 b,391 9,171 9eO75

Fixed assets 3,941 3,821 3t619 3,515 3,691 4,323 5,352 59e27

Gross Value 6,1o8 6,25o 6,269 6,361 6,777 7,646 8,959 9,124

Depreciation 2,167 2,429 2,650 2,o46 3,o.6 3,323 3,607 3,897

Current Assets 678 723 827 1,o34 1,254 1,138 1,148 1,442

Cash 22 72 121 141 6 5 8 lo2

Receivables 48 3 5 lo 4 23 2 2

Deposits and expenses 485 511 666 6k3 1,o35 1,llo 1,o82 19250

Other Assets 123 137 35 - 189 - 56 12

Assets and Expendituresfor Investments 499 1,332 1,926 2*722 2,923 2,634 2,203 2,171

Investment in progress 370 965 1,525 2,000 2,498 2,079 1,725 1,136

Equlpmest and Materials 94 2d3 3o7 316 165 112 49 15

Others 35 t4 94 4o6 26o 443 429 1,o2o

Other Assets 684 271 137 160 125 296 469 235

IJABILITIES 5.8o2 6,147 6,509 7,431 79973 89391 9,171 9,075

Fixed Assets Fund 3,941 3,820 3,619 3,515 3,691 4,323 5,352 5.!27

Current Libilities 674 734 838 1,o024 1,176 11A9l 1,219 1,427

Fund for Working Capital 326 338 345 393 436 436 436 559

Short Term Credits 205 215 230 327 495 462 727 .;

'o

1978 1979 _19. 0 1981 1 198 1904 1985Payables 54 41 59 38 '77 '73 125 68Other iablilities 89 139 204 266 121 145 176 73Sources for Inveements 499 19332 1,926 2,722 2,923 2,634 2,203 2,171IBRD Loan - llo 303 542 590 632 58o 500IB Credits i ,1c. -JAI 00) 204 290 181 95 dO 72 32 7Combine8s Fund 295 912 1,418 1,9"7 1,%8 16 1,583 1,559Other Sources - 2o 24 Ž37 )35 634 8 5BenefLts -lob 260 125 170 183 285 398 250

0

1/ estimxate

to.

CRAIOVA CHSMCAL PROJW*C

Actual Cbsh Flow (In lillion Let)

1977. 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

:ash Generation:

-GrIpse Beief:its - - - ' (29.1) (15.5) 126 857 885

-Dej)recia 0on . - - - - - - 26.6 42.9 97.9 152 152

unds made available byne Cantral(for Investment) 22 118 4o1 495 '32 609 396. 2±67. 270. - .-

.- "-E r debit service duritig . * - 2 -

ap 4 tact construction -.. -; - 2 14 22 42 98 -86. 6.9 . _

;tate Funds

-:or Fixed Assets - . 199 252 397 454.5 :349.5 .267 146 _ ' _

-.or Working Capital - -- 43 124

ijRDI LOAN - llo 193 239 154.5 3.5 _ _ * _

applier's Credit forJE Industrialexpoot 22 2 -92 .5o . - -

Lib-TOtal ; 22. 1:18'. 4i 4.95 636 609 396 269 270 - -

wids f io Intti1" ..t during -. .onstructionl - .. 2 . 14 2t 42-; : .9 349, 6p9' _

'ub-.-'otal.Ccas .- ailab1l - .22 1'18 403 509 658 - 6 5 g A35 301.o 2'/6.9 -_

'>apLE7~ew. ,,e ' .- ..

1- ed -.A.11& .Io 4L. 4x 6 . 609r, 353 262 1K .1-

} *- -; -12942 - -9 04

.L_~. 92 24.

1977 1978 1979 198o 1981. 1982 1983 i9811 1985 1986 1i9Repayment - - - - - - 59.o 52.6 8o.o 66.5 66"Alocation of Funa s-Pay back of Funds Received.. . .for Investment -. - : - .- - -- .27.4 93.7 126 126Development Fund of,

.- . - -tEnterprise - -, - . : - - - 119.3 392 4o4 .Other Equsty of theAterprise o - - _ _ _ _ -, lo.9 361 372..fayments to tha StateBudget- . - - - .. 30. - . - -- - 13o 135

.t1 L.WE . M

BANCA DE INVESTITII 1 - uchare t INotber l86- 63 -_(LeeaUttatea 91 data)

Unltate Porein Relations,,4~~~~~.,,,,.me,,,.,,........ V 1, .................. Ue O<C{Servictul ........... . I . .

(A se repeta In risp. dv.) ATTACHMENT II

No.12,458 Page I of 4

COMbENTS RECEIVED FROM THE BORROWER

Mr. Otto MaissDivision ChiefOperations Evaluation Department

WORLiD BANK

Re: Draft Completion Report for the Expalsion of tkaOraiova Chemical Plant (Loan 1634.-Q))

Dear Mr. Maiss:

To your letter of September the 23rd 1986 and in additionof out telex of November the 1st 1986, we confirm that we havecarefully analysed the draft of the Completion Report for theOraiova Chemical Projeoct and which was drawn up by the World Bank.

On tb basis of the respective analyses we send you belowsome comments and suggestions we present having the wish to showas real possible the conditions of the implementation of the Projectthe reasons for delays and also other aspects concerning the achie-vement of the Project, and which we kindly ask you to consider indrawing up the final form of the Completion Report,

1. As concerns the reasons for delays in implementingthe Project and commissioning the Project facilities, showed inthe Bank's Report in Chapter I,para.l104 and Chapter III B, para,3.03, 3.04 and 3.05, we oonsider that the main reasons have beenshowed in the Draft Report of the Investment Bank in Chapter III Pand have been largely discussed with the Bank misston in February1986,

We also consider that the delays in organizing the IOBand concluding the contracts, have been determined by the technicalcomplexity of the Project, by the great volume and number of equip-ment and materials required for the implementation of the Projectand not because of the difficulties caused by aligning the procu-rement Guidelines of the Bank with the Romanian procurement practi-ces or by different opinions concerning the matter of proaurement.

ATTACHMENT II- 64 - Page 2 Of 4

Under these circumstances, the projections at the time of

Appraisal concerning the procurement have been too optimistic

(estimated - 24 months, actual - 5o months),

As a result, we would request to delete the respective

comments included in Chapter I, pare lO4, Chapter III B, pare

3.03 and Chapter III S, para 3.12,

Also, the delayed delivery of some items by the local

suppliers, can not be considered as one of the major reasons

of the delayed implementation of the Project, because such cases

occured for a small amount of materials for errection and small

value equipment and which had impact only upon two facilities.

The major cause which has to be emphasized within the

Report, and which unfortunately created much problems in the

implementation of the Project, in commtssioning and even at

present in operating some facilities, was the wrong delivery by

the foreign suppliers, from the point of view of construction

or concept of some equipment, of which we can mention:

- the delivery by welders company of Belgium of 12

steel coils of poor quality which determined the delayed commis-

sioning of the acetic anhydride plant with over 30 months and

the additional expense for the procurement of the respective

equipment from other suppliers;

- the delivery with construction and concept defaults

of the low pressure compressors of the acetic acid and CO sepa-

ration facilities.

After the commiusioning of the acetic acid and CO

separation facilities, besides the repeated broke of the equip-

ment supplied by the foreign suppliers, have occured also very

serious technological cocept defaults which have detenmined the

under capacity operating of these facilities and additional costs

for materials and for the correction of the defaults.

The defaults which occured in some imported equipment

and also the conceptual default of the technology of acetic acid

- 65 - ATTACHMENT I1Page 3 of 4

plant, have created signi-ficant difficulties in the commissioning of the Project and inachieving the provided benefits. Some of these problems, 88

you are aware, have not been settled even now.

As concerns the influence of non ensuring the laborfor thu works requested, it is necessary to note that such gapexisted only in some periods, especially in 1982 and,even theycontributed in some way at the delays, it can not be consideredthat this was a major fact in delaying the Project.

2. In connection with solving the technical problems

of the acetic acid plant, Chapter III F,para 3.17, we requestto delete the last phrase ("although Craiova Central, the bene-

ficiary is interested in solving the technical problems, the

Borrower . . . . up to the end of the paragraph), taking into

consideration that the Investment Bank is not directly included

in the contractual relations between the foreign suppliers and

the beneficiary.

3. The statement of Chapter V A, pare 5.02 according

with the fact that the financial results of the Enterprises are

the direct result of the official regulations is not according

to the real facts,As it was explained to the other missions of

the Bank too, the measures which have been taken after 1980 to

improve the economic mechanism, of the planning and price system,

have determined the increased competences and self-management of

the Enterprises in self-financing and self-management. Also,

these measures have determined a close connection between theefforts of the Enterprise and their financial results.

The domestic market consumtions are established on

the basis of annual plans, taking into consideration the realrequirements of the Enterprise and the possibilities to coverthese from domestic production and in addition from imports,

xx x

In accordance with the comments and suggestion pre-sented above, we would kindly ask you to review also the con-clusions of Chapter IV "Lessons to be learned", esepeciallythose of para 6.02.

- 66 - ATTACHMENT II

Page 4 of 4

On tlhis occasion, we would like to ask you to modifya small error of Annex 2 - Table 2, respetively to write 42.9instead of 47.9 for depreciation for 1984.

With best regards,

Alexandry OlteenuDir4etor