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D)ocumnt of

Tlhe World Bank

FOR OMCIAL USE ONLY

Report No. 7352

PROJECT ZOMPLETION REPORT

PORTUGAL

FERTILIZER MODERNIZATION PROJECT(LOAN NO. 1649-PO)

June 30. 1988

Industry Department

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

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Principal Abbreviations and Acronyms Used

CAN - Calcium Ammonium NitrateEIB - European investment BankK2 0 - Potassium Nutrient Content as Potassium OxideN - Nitrogen Nutrient ContentNPK - Complex FertilizersP2 05 - Phosphate Nutrient Content as Phosphorous PentoxideTpd - tons per dayTpy - tons per year

Portuguese Fiscal Year January 1 to December 31Portuguese Fertilizer Year July 1 to June 30

Currency Exchange Rates

Appraisal Report 1 US$ - Esc 45.501979 Esc 48.921980 Esc 50.061981 Eec 61.551982 Esc 79.471983 Eec 110.781984 Esc 146.391985 Esc 170.391986 Esc 149.59

WI. I. t -W.ALL .LUa L,THE WORLD BANK

Washington. DC 20431USA

Opw*wm va,Itmin

June 30, 1988

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on Portugal Fercilizer ModernizationProject (Loan 1649-PO)

Attached, for information, is a copy of a report entitled"Project Completion Report on Portugal Fertilizer Modernization Project(Loan 1649-PO)" prepared by the former Industry Department. As aresult of the reorganization the PCR was reviewed by the Europe,Middle East and North Africa Regional Office. Further evaluation ofthis project by the Operations Evaluation Department has not been made.

Yves Rovani

by Graham Donaldson

Attacament

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

wuR 4. 6LL . L.La

PORTUGAL - FERTlLIZER MODERNIZATION PROJECT

PROJE5T COMPLETION REPORT

Table of Contents

Page No

Basic Data Sheet .............................. .. .. ***.. ilHighlights ......................................................... iv

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

II. PROJECT BACKGROUND ...... *...*............................ 1

A. Project Preparatioa, Appraisal, Approvaland Effectiveness .......... ..... e . 1

B. Project Objectives and Description ..... .............. I

III. PROJECT IMPLEMENTATION AND MANAGEMENT .................... 4

A. Achievement of Project Objectives .................... 4B. Changes in Project Scope *............................ 4C* Project Management ..................... * 4D. Employment and Training ..... ......................... 5E. Use and Performance of Engineer'ng Firms

and Consultants ... 6 ...... ....................... 5F. Procuremert and Performance of Suppliers ............. 6G. Environmental Considerations ......................... 7H. Implem.ptation of Studies ............................ 8I. Implementation Schedule .eeeeeeee..eeeeee..ce.eee..... 8J. Project Cost and Loan Disbursement ................... 9

IV. OPERATING PERFORMANCE ................................... 11

A. Commissioning and Start-up .......................... * 11Be Production Build-up *............ ....-. ....-...-... 11

Co Market Development .eeeee. . . 11

V. FINANCIAL PERFORMANCE ....... ........................... 12

A. Company Performance ............... ................... 12B. Strategic Studies and Financial Restructuring Plan.... 13C. Financial Rate of Return ..... e.eee... 14

VI. ECONOMIC PERFORMANCE ..... ................................ 15

A. Economic Rate of Return .......... *................... 15B. Foreign Exchange Savings *ee.......c ....... e .. 15C. Technology Transfer . .e ........................ 15

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.

VII. BASK ROLE ...................................... e...... 16

VIII. CONCLUSIONS AND LESSONS LEARNED ................ ....... 16

A. Conclusions ^ ............. 16B. Lessons Learned . ............. 16

LIST OF ANNEXES

3-1 QUIMIGAL - Non-Fertilizer Projects3-2 Procurement of Centrifugal Ammonia Compressor3-3 Bank-Financed Procurement of Goods and Services

by Country of Origin3-4 Estimated and Actual Implementation Schedule3-5 Estimated and Actual Capital Cost and Financing Required3-6 Estimated and Actual Loan Disbursement Schedule3-7 Actual Disbursements and Allocation of Other

Loans and Government Participation4-1 Portugal - Production, Imports, Exports and Apparent

Consumption of Fertilizers (1975-1986)5-1 Rate of Return Calculationst;-l Comments Received from the Borrower

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PORTUGAL - FERTILIZER MODERNIZATION PROJECT

PROJECT COMPLETION REPORT

(Loan 1649-PO)

PREFACE

i. Loan 1649-PO for US$58.0 million was approved by the Board onJanuary 4, 1979, signed on March 14, awid declared effective on June 1, 1979.It was fully disbursed by June 30, 1984. The Borrower, QUIMIGAL, is a largePublic sector conglomerate. The objectives of the Loan (para 2.03 of theProject Completion Report) were to assist in the modernization and expansionof fertilizer production, and ensure that Portugal will possess sufficientcapacity to satisfy expected increases in domestic demand for fertilizers bythe agricultural sector. T'wards this end, it provided financing for theconstruction of a new ammonia plant and construction and revamping ofdownstream facilities for nitrogenous fertilizers (paras 2.04-2.10). Thephysical objectives of the Loan were fulfilled (paras 3.01 and 3.16-3.17), butthe Project fell short of attaining the objectives of financial/organizationalstrengthening of the borrowing entity, which has been in serious financialdifficulties (paras 5.01-5.05).

ii. The Project Completion Report has been prepared by the IndustryDepartment on the basis of a "Situation Report" submitted by QUIMIGAL in April1986, and an Industry Department supervision/completion mission of July 1986.However, throughout the period between closing of disbursements and July 1986,the Bank had been involved in an intensive follow-up effort, working closelywith Quimigal on a restructuring plan for its operations and finances, firstin the context of an extended Project supervision work given the difficultcorporate and financial position of Quimigal, and subsequently in the frame ofthe preparation of the now defunct Public Enterprise Restructuring Loan (PERL)(paras 5.04-5.05). Preparation of the PCR was correspondingly delayed,pending the outcome of the extended Project supervision and the PERLpreparation work.

iii. In accordance with the revised procedures for project performanceaudit reporting, this Project Completion Report was read by the OperationsEvaluation Department (OED), but the project was not audited by OED staff.

iv. Following standard procedures, copies of the draft report were sentto the Government and the borrower. The comments from the latter are shown inAnnex 6-1, and have been incorporated in this report.

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PORTUGAL - PERTILIZER MODERNIZATION PROJECT


(LOAN 1649-PO)

BASIC DATA SHEET

Project Data

Loan Amount Original Disbursed Cancelled Repaid Outstandinga/

(US$ million) 58.0 58.0 - 24.15 33.85

'1979 1980 1981 1982 1983 1984

Planned 9.6 32.0 50.3 58.0 58.0 58.0Actual 2.1 10.9 32.7 49.1 56.7 58.0X of Planned 21.9 34.1 65.0 60.0 98.0 100.0

Key Project Data Appraisal Estimate Actual

Start of Preparation - 06/77Appraisal Date - 02/78Board Approval - 01/04/79Loan Signing - 03/14/79Loan Effectiveness - 06/01/79Loan Closing Date 06/30/83 06/30/84Completion Date 03/82 05/84Time Overrun (months) 12Financing Required (US$ m) 242.1 265.0Cost Overrun (US$ a) 17.8Economic Rate of Return 14-18% 82

a/- As of February 28, 1987.

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MISSON DATA

Monch/ No. of No. of ReportYear Days Persons Date

Project Identificatiou 06/77Project Preparation 09/77 10/18/77Appraisal 02/78 8 12111/78Follow-up 1 04/78 3 12/11/78Follow-up II 06;78 3 12/11/78Supervision 1 09/79 4 2 09/21/79Supervision II 05/80 10 1 07/11/80Supervision III 03/81 5 3 04/23/81Supervision IV 06/82 4 2 08/06/82Supervision V 02/83 10 1 03/25/83Supervision VI 09/83 5 1 10/25/83Supervision VII 02/84 4 1 03/07/84Supervision VIII 04/84 6 1 05/14/84Supervision IX 12/84 5 1 /85Completion 7/86 3 1 05/30/87

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(Loan 1649-PO)

HIGHLIGHTS

i. The Fertilizer Modernization Project was part of the Bank'G programto assist Portugal in it3 efforts to modernize industry and improveagricultural production, particularly in anticipation of Portugal's possibleentry into the European Economic Community (EEC). The Bank's Loan of US$58.0million thus helped to finance the: (i) construction of an ammonia and twonitric acid plants using modern technology; (ii) revamping/expansion of a ureaand an ammonium nitrate plants; and (iii) carrying out of studies to improvefertilizer use in Portugal's agriculture.

ii. There -ere no significant changes in Project scope. However, theconstruction of the Project main component--the ammonia plant--was hampered by(i) delays in implementation of engineering contracts; (ii) difficulties inobtaining materials according to specifications; and (iii) untimely supply ofpiping and comp-essors. (This is discussei in para 3.17 of the report.)Other Project components were implemented with mi.aor delays.

iii. The actual cost of the Project, excluding financial charges, am-ountsto US$223.5 million, 7.5% higher than appraisal estimate (US$207.9 million).However, be--ause of implementation delays, total financing required (US$265.0million) was 9.5% higher than estimated (L'S$242.1 million). The main overrunsrelate to pre-operating and start-up expenses and civil works (paras3.18-3.20).

iv. The two nitric acid plants, and revamped/expanded urea and ammoniumnitrate plants, had a production build-up as expected, and have been, since,operating smoothly. The ammonia plant had a major mishap due to the failureof a welded dishhead in the heavy pressure co-slift conversion reactor which forced ashut down of the plant for several months and a claim presented by Quimigalagainst the foreign supplier of the reactor is being arbitrated (para 4.01).Since mid 1986, the ammonia plant has been back in operation.

v. The market for fertilizers in Portugal did nrot develop in the1978-1985 period as was expected. Consumption of nitrogenous fertilizers in1985 was 123,000 tons in terms of nutrient content (N), 57.5% of appraisalestimate and 20.6% below the 1978 consumption level (paras 4.04-4.05).

vi. The Project physical objectives of modernizing and expandingfertilizer production in Portugal wei,_ met, albeit with an overall delay of 18months due to the ammonia plant problems. However, as a result of theconsiderable decline in ammonia/urea prices, the economic return on theinvestment now appears less promising than the appraisal forecast (para6.01). Furthermore, the other implicit objective underlying the Project, interms of restructuring of a major public sector industrial enterprise, is yetto be fully attained (para 5.04).

vii. The most important lessons learned are:

the need in a ccmpany like the Borrower, with a large investmentbeyond the Bank project, to assess the entire program, and tomake sure that the impact on the Bank project of shortcomings inother parts of the investment program are limited (para. 8.04(a));and

in the case of time-critical equipment, prequalification proceduresexcluding netoriously delinquent suppliers should be adopted unlessproper financial guarantees are given (para. 8.04(d)).

PORTUGAL - FERTILIZER itODERNIZATION PROJECT(LOAN 164-PO)


I. INTRODUCTION

1.01 The Government of Portugal (the Government) requested Bankassistance in 1977 to modernize and expand industrial fertilizer productionin Portugal. Importatit components of the Government strategy aimed atincreasing fertilizer production were to (i) improve the dosages ofnutrients used in Portugal, which were low in relation to rates offertilizer usage prevailing in other European countries; and (ii) enhancecompetitiveness in agricultural output and industrial production prior tojoining the European Economic Community.

1.02 In pursuit of this policy, the Government merged, In January1978, three nationalized enterprises (para 2.04), which manufacturedfertilizers and chemicals, and which had prepared studies for the expansionand improvement of production of fertilizers and related chemicals. Thesestudies were submitted to the Bank in mid-1977.

-I. PROJECT BACKGROUND

A. Proejct Preparation, Appraisal, Approval and Effectiveness

2.01 At the request of the Government, a Bank mission visited Portugalin June 1977 and identified a Fertilizer Modernization Project as beingsuitable for Bank assistance. The Project was prepared by staff of Quimicade Portugal E.P. (Quimigal), who had experience of chemical sectorprojects. On this basis, the Project was pre-appralsed by the Bank inOctober 1977, and was appraised by missions that visited Portugal in Apriland June 1978.

2.02 After completion of negotiations in November 1978, the Boardapproved on January 4, 19,9 a loan of US$58 million equivalent to Quimigal,at an interest rate of 7.352 p.s. and a maturity of 14 years, including 3years of grace. The Government guaranteed the Loan for a fee of 2.65Sp.a. so that the total cost to the Borrower was 10.0% p.a. The Loan becameeffective on June 1, 1979.

B. ProJect Objectives and Description

2.03 The Project major objective was to assist in the modernizationand expansion of fertilizer production to ensure adequate availabillty ofsupplies to meet expected growth in demand. In this respect, it was a partof a broad Bank-supported strategy to expand and rationalize industrial andagricultural production in Portugal. Although the domestic industry wasmeeting Portugal's fertilizer needs at the time of Project preparation,

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many of its facilities were appre,ching the end of their useful life. Inparticular, the country's capacity to produce ammonia was seriouslyendangered by the precarious conditions of small, old plants with obsoletetechnology, and whic';i were scheduled for early saut down due to economicand ecological reasons.

2.04 Until 1977, five companies were produciug fertilizers inPortugal: (i) Cia Uniao Fabril (CUF); (ii) Amoniaco Portugues SARL%AMPORT); (iii) Nitratos de Portugal SARL (NP); (iv) Sociedade Portuguesade Petroquimica SARL (SPP); and (v) S.A. de Prodults et Engrais Chimiquesdu Portugal (SAPEC). With the exception of SAPEC, all these firms werenationalized in 1975 and the first three were merged in January 1978 toform Quimica de Portugal (QUIMIGAL). The other nationalized company (SSP)was renamed Empresa Petroquimica _ Gas (EPG) and transferred to the energysector because it supplied town gas to Lisbon although it continuedproducing, as a co-product with town gas, ammonia for sale to Quimigal.

2.05 Before the Fertilizer Modernization Project, the followingfertilizer/fertilizer feedstock plants-all of which, except two ammoniaplants, were owned by Quimigal--were in operation in Portugal:

i) A naphtha-based ammonia plant (550 tons-per-day (tpd)) ownedby EPG, located at Cabo Ruivo near Lisbon, and which startedoperation in 1965.

(ii) Two old naphtha-based ammonia plants (210 tpd), o.ie owned byQuimigal and located at Lavradio, and one located at CaboRuivo.

(iii) A urea plant (170 tpd) located at Lavradio.

(iv) A nitric acid plant (115,000 tons per year (tpy)) located atEstarreja.

(v) Two nitric acid plants (70,000 tpy) located at Alverca,built in 1960 and 1969.

(vi) An old and obsolete nitric acid plant (55,000 tpy) atLavradio.

vii) Three ammonium nitrate solution plants located atEstrarreja, Alverca and Lavradio; the latter, with acapacity of 62,000 tpy, was erected in 1963, modified in1966/67 and in need of modernization to extend its life andreduce pollution.

(viii) A plant to make calcium ammonium nitrate (CAN) using locallyproduced lime, operating at Lavradio, and scheduled forclosing.

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2.06 The Project comprised the following components:

(i) Construction of a new 900 tpd partial oxidation fueloil-based ammonia plant located at Lavradio.

(ii) Construction of two new 360 tpd nitric acid plants locatedat Lavradio and Alverca.

(iii) Revamping of the Lavradio urea plant and expansion of itscapacity from 170 to 270 tpd.

(iv) Revamping of the ammonium nitrate facilities at Lavradio.

(v) Construction and installation of required off-site andancillary facilities.

(vi) Study to (a) identify measures to remove the constraints tofertilizer use; (b) determine optimal application offertilizers by crop/region; (c) evaluate the influence ofother factors affecting productivity; and (d) recommendimprovements in fertilizer marketing, sales, pricing,subsidies and distribution systems to support increasedlevels of fertilizer consumption.

In addition, the Project addressed the problem of the Company's financialstructure and performance, through a number of covenants.

2.07 The Lavradio Ammonia Plant was intended to replace two 18-yearold, naphtha-based 210 tpd ammonia plants scheduled to be shut down in1981. The propo6eA plant was based on fuel oil and its capacity of 900 tpdwas selected to take advantage of economies of scale obtained from the useof centrifugal compressors. The larger capacity was also Intended to coverfuture downstream expansion of production of nitrogen compounds at Lavradioand other plants. Market projections showed that in the early years ofoperation there would be a surplus of supply over demand but no difficultywas foreseen in exporting such relatively small surpluses. The partialoxidation process used for productton of synthesis gas from fuel oll hadalready been proven elsewhere (including tvo plants in India financed bythe Bank). Although more costly and complex than steam reformlng processin plants based on natural gas or naphtha, this feedstock was selectedbecause a fuel oil surplus and a naphtha deficit were forecast forPortugal.

2.08 The nitric acid plants were designed to substitute the obsoleteAlverca and Lavradio plants, improve production efficiency, reduceenvironmental contamination and expand capacity to match the expected needsof Quimigal's revamped downstream ammonium nitrate plants. The latterincluded the substitution of a 62,000 tpy ammonium nitrate solutionplant by a new 124,000 tpy plant and installing a dust collection systemto avoid pollution.

2.09 The revamping of the urea plant aimed at expanding productionfrom 50,000 to 82,000 tpy by increasing the reaction yield from 46X to 70X.

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The Project also comprised offeite facilities, including steam boilers,cooling and feedwater systems, fuel oil unloading and storage facilities,and product storage and shipping installations.

2.10 The new Lavradio Ammonia Plant requires 250,000 tpy of fuel oilas process feedstock and fuel for steam generation. Power was scheduled tobe supplied from the 70 SW EDP thermal station, adjacent to the Lavradioplant; the Loan Agreement stipulated that QUIMIGAL had to ensure that allrequired inputs be supplied in a timely'manner.

III. PROJECT IMPLEMENTATION AND MANAGEMENT

A. Achievement of Project Obiectives

3.01 The main explicit objectives of the Project-to improve theperformance of the Portuguese fertilizer industry and expand capacity atexisting facilities to levels necessary to meet eTpected domestic needsthrough the mid-1980s-have been formally attained. However, given thesharp decline in output (fertilizer) prices, the Project economic returnappears less promising than the appraisal estimate. Furthermore, theaccompanying implicit objective of restructuring Quimigal's organization,and improving the performance of a major segment of the public enterprisesector in Portugal, has yet to be achieved.

B. Changes in Project Scope

3.02 No major changes in project scope took place durirg implementa-tion, although there were minor modifications which consisted of: (i)additional water wells drilled at the ammonia plant site ',ubstituting forthe 20 Km pipeline originally envisaged to supply water co the plant; and(ii) a software component added in early 1983 for a "strategic study forrestructuring of the Borrower's operations and finances".

C. Proiect Management

3.03 As a result of the merger of three large industrial enterprises,Quimigal became a major diversified manufacturing company, with anoperating organization consisting of:

(i) Seven decentralized manufacturing divisions, each operatingas a profit center within Quimigal. These divisions areresponsible for: Agricultural Products (fertilizers andpesticides), which generate about 40% of Quimigal's sales;Inorganices and Metals; Plastics and Chemical Specialities;Organics; Oils and Soaps; Feed-stuffs; and Textiles.

(ii) Two service divisions, namely: Services and Maintenance andNew Projects.

(iii) Three central divisions (Directorates), namely: Finance;Planning; and Personnel.

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In addition, Quimigal has over 20 subsidiary companies, generally majorityor wholly-owned, operating in Portugal (10), Hozambique (3), Angola (3),Brazil (1), USA (1), Switzerland (1) and Spain (1).

3.04 Quimigal was responsible for the implementation of the Projectthrough its Fertilizers and Pesticides Division and the New Plant ErectionDivision (DNI). It also secured assistance from engineering companiesengaged early on in the Project cycle. At the time of appraisal, QUIMIGALhad underway nine projects (Annex 3-1) entrusted to various divisions ofthe company.

D. Employment and Training

3.05 Since the Project was not a greenfield undertaking but largely amodernization project, additiqnal employment required after start-up wasrelatively minor. It resulted In an increase of about 10% in the staff(1,200) of the Fertilizer Division. The production engineers required for.normal operations were, to a large extent, drawn from the existing plantsand from the implementation group being assembled at DNI. However,specialists in instrumentation, heavy rotating equipment and welding ofhigh pressure vessel were recruited in 1980/81 and spent over a year intraining. Chief operators and panel supervisors could not be drawn fromexisting personnel. The need to retrain staff drawn from other operationswas recognized during project preparation and the engineering agreementsincluded provisions to this effect. Quimigal agreed to complete a detailedtraining plan before June 30, 1980 (SAR paras 6.12 and 10.01 (f)) which wasimplemented.

RE Use and Performance of Ensineering Firms and Consultants

3.06 At the appraisal stage, Quimigal had already received offers fora study for revamping and expanding of the urea plant and had invited, incoasultation with the Bank, proposals for technology and engineeringservices for the ammonia and n.etric acid plants comprising: (i) assistancein negotiating licensing agreements as needed; (ii) basic and detailedengineering for battery-limit plants; (iii) conceptual design of offsiteand auxiliary facilities; (iv) procurement services for proprietary andcritical equipment; (v) assistance in supervision of plant erection,testing and start-up; and (vi) training of operating and maintenancepersonnel. DNI was responsible for procurement of remaining supplies incoordination with the selected engineering firms, as well as for contract-ing and supervision, with assistance from the engineering firms, of allcivil and erection works. A study of fertilizer use in Portugal was partof the Project scope (para 2.06 (vi)), for which the Secretariat of SLatefor Planning was given responsibility.

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3.07 The engineering firms contracted for the project were thefollowing:

Designand Basic Date Detailed

Plants Engineering Contracted Engineering

Ammonia Lurgi (FRG) 5/28/79 Profabril/Lusotena/ENINitrfc Acid Uhde (FRG) 5/29/79 Lusotecna (Port)Urea Tecnimont 2/01/79 Profabril/QUIMIGAL

(Italy)Ammonium Nitrate Tecnimont - QUIMIGAL/Tecnimont/

(Italy) LusotecnaProfabril/Kaltenbach

The performance of the-firms responsible for basic design and engineeringhas been evaluated by the sponsor as having met Project needs in asatisfactory way, and the Bank concurs in this opinion. The performance ofthe detailed engineering and erection work contractors used for the ammoniaplant--which, due to the borrower's interest and desire to maximizetechnology transfer, relied heavily on local companies--was hampered by thelimited number of skilled and experienced staff available for such a largeundertaking. Lack of sufficient preparatory work and labor problems alsocreated difficulties for the erection contractors.

3.08 The study on fertilizer use prepared by consultants was submittedto the Bank in October 1980. Based on this study, a Government appointedworking group produced a report containing a set of constructiverecommendations, which, for the most part, have yet to be implemented bythe Government.

F. Procurement and Performance of Suppliers

3.09 Procurement of Bank-financed goods and services was carried outfollowing Bank's Guidelines. International Competitive Bidding (ICB) wasfollowed in the acquisition of equipment except for: (i) proprietary and,subject to Bank approval, critical items, which were procured directly froma single source or through appropriate international shopping; and (il)items costing less than US$200,000 which were purchased through prudentinternational shopping. Schedule 4 of the Loan Agreement stipulated thatthe amount of the Loan to be used in the above categories, should notexceed US$5 million each; Quimigal requested that the two categories bemerged because the proprietary and critical equipment allocution was goingto be overdrawn while some items costing less than US$200,00'J had alreadybeen procured though ICB. This modificatLon of the Loan Agreement wasformally approved on March 29, 1983.

3.10 The only problem related to procurement during Projectimplementation was in the tender for the turbo-set of the nitric acid plantin which the bid award recommendation made by Quimigal on the basis of theengineering firm's report was initially questioned by the Bank. Therecommendation was for a bid from a Swiss supplier, the capital cost of

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which was 21.1X higher than the lowest priced bid (Italy). Operating

expenses of the latter were projected however to be highet over the life ofthe equipment. Nonetheless, the second-lowest evaluated bid (Italy) was

overall 6.5Z higher than the lowest (Switzerland). As s result of Bank'sinquiry and a visit to the lowest-priced bidder by Quimigal and the

engineering firm, changes were made in the compressor speed and number of

stages, resulting in maximum power demand being increased by 0.9% and steam

consumption lowered by 1.8% without loss of performance. As a result,overating costs were reduced and the award was made--at the initial bid

price with Bank approval--to the lowest-priced supplier. The second lowest

bidder presented protests to the Sponsor and the Bank. After careful

consideration of the case, the Bank decided that the procedures followed

were correct and the complaint was not pursued by the complainant

(Annex 3-2).

3.11 The performance of suppliers during project implementation was

generally satisfactory. The two salient exceptions were the suppliers of

the ammonia plant piping, and the turboset in the nitric acidplant. The order for piping was placed following ICB but the supplier was

able to fulfill only part of its commitment, so that many orders had to be

placed with other suppliers.

3.12 The foreign firm selected to manufacture the specializednitric acid turboset (para. 3.10) was reportedly plagued by

strikes, and could not overcome the delays and obstacles in construction.

Although the Bank and the engineering firm intervened at the request of

Qulimigal to reduce delays, delivery of the compressor was several months

behind schedule.

3.13 The Appraisal Report estimated that 73.72 of the equipment and

62.32 of the engineering and licensing costs would be in foreign exchange:

Actually, most of the equipment was imported with no significant supplyfrom Portuguese firms. Of the value of consulting and engineeringservices, 38.22 was paid to foreign firms, and the balance to Portuguesefitms subcontracted by the major engineering firms. Distribution of the

Bank loan by country of origin of the goods and services is shown inAnnex 3-3. The main suppliers were from the FRG (54.0S), Italy (12.4X),France (12.2X), the Netherlands (7.82), and Portugal (4.52).

G. Environmental Considerations

3.14 The Borrower was required to maintain and operate the Project

facilities in accordance with air and water environmental standards

acceptable to the Bank. For this purpose, the Bank specified in a

memorandum on August 22, 1978 the limits on chromium concentration in

effluent water, and nitrogen oxides and sulfur dioxide in the stack gases

and at ground level in the plants' areas. The engineering firms were

requested to consider generally acceptable ecological and safety standards

in the preparation of their bids. The project was implemented according to

these recommendations.

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H. Implementation of Studies

3.15 The execution of the following studies was included in theproject scope:

SIWLA/GA Gxnletion To be Excuted ActualStudy _ _ Date t TIetla

I) Reviw of QUD4GAL's Drfertilizer opersatirs 4.07/-/ 3.03(a) 3/31/80 (JIGAL/GOVeZnt 10/31/83

II) Fertilizer Dawid, Pricing,Maxkmt1g and Distribitiin 5.23/-/ 3.02(b) 6/30/80 Cofltants 10/28/80

III) Qutixuo Reviej of QUIHIGAL'sprofitability 4.07/4.05/- 12/31/79 a/ (plMGAL/oxnAtq-te

(UK) 4/30/82

IV) Detaied Train n Plan 6.12/4.04/- 6/30/80 (MGAL 6/30/80

V) Snratjrc -/b/ - 8/31/83 Caiwultanta 10/31/83

a/ Ad frmu tum to tie thweafter but at least euey tWo years.b/ Scdue 1 Part F asn u'difted by lark and (UDIAL on 3i29/83.

I. Implementation Schedule

3.16 Estimateil and actual Project implementation schedules are shownin Annex 3-4 and summarized in the following table:

Fertilizer Modernization ProJect - Implementation Schedule

Appraisal DelayEstimate Actual (Months)

(i) Ammonia Plant

- End of Battery-limit Erection 3/82 7/83 16- End of Off-site Erection 6/82 2/84 20- Start-up 10/82 5/84 18

(ii) Urea Plant Start-up 1/81 6/81 5(iii) Nitric Acid Plants Sta.t-up

- Lavradio 5/82 10/82 5- Alverca 10/81 3/82 5

(iv) Ammonia Nitrate Plant Start-up 6/82 10/82 4

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At appraisal, the implementation of the ammonia plant was expected to take45 months from the selection of the engineering consultant to final testingand commissioning. Since delays in implementation of the downstream plantshave been much less significant, the delay of 18-month In the start-up ofthe ammonia plant has been the defining event for overall completion of theProject.

3.17 The main reasons for the ammonia plant delays were: (i) a3-month postponement in sigring the engineering contract; Ili) substantialdelay in detailed piping engineering; (iii) problems in purchase ofmaterials according to US standards by local fabricators; (iv) failure ofthe piping supplier to deliver the order on time and problems encounteredduring commissioning, including failure of radiant tubes In the steamsuperheater, and high water vapour and carbon dioxide leakage from the airseparation plant's molecular sieves.

J. Project Cost and Loan Disbursement

3.18 Actual capital costs and appraisal estimates are shown inAnnex 3-5 and summarized below. The overall cost overrun represents 9.1Zof estimated Project cost.

Capital Costs and Finmecingqufret(US$ million)

Appraisda ESaIMe Actual Costs Oernun

* i#nerig 1U&Ln 19.8 28.9 9.1Equip=nt & Spares 12.3 113.1 (15.2)kewt1ia 34.0 21.3 (12.7)W.vIl Wo*s 9.3 26.7. 17.4

Start-up ExFwe 3.7 22.9 19.2

Total tasled Cost 195 .la/ 212.9 17.8

Woridg Capital 12.8 10.6 (2.2)

Total Project Cost 207:9 223.5 15.6

Interest dwzlrg Costruction 34.2 41.5 7.3

Total Finmicing Reqired 242.1 265.0 b/ 22.9

af~~ m

Of wbch,- For Ahmmnia Plant 187.1 207.7 20.6- For Urea Rampirg 10.1 ic;.5 0.4- For Other Coaxnts 44.9 46.8 1.9

8/ Esatld ai d rinc escalation awe ben allocated to the Individualcost - b v

b/ The Bg1e#e of US$307 Illim gLv by JDAL iTcporm US$42.0 -iian in fo ratedlffermo resultig fr(a dwalumtim of the Fec. This az shld t a a US$dmuiouiatd wc.mt and wthse l ins b*n clArified with 02xmizel

- 10 -

3.19 The overruns for individual Project components and categnries areas follows:

Installed Project Cost Overruns(As X of Appraisal Estimates)

Engineer- Pre-Project ing & Equipment Civil Works CperatingComponents Licenses & Spares & Erection & Startup Total

Ammonia 52.3 (14.1) 7.8 636.7 9.9Urea Revamping - (10.7) 114.3 200.0 5.2Nitric Acid 36.1 (1.4) 18.9 16.7 6.2Ammonium Nitrate a/ -

Total Project 45.9 (11.8) 8.5 518.9 7.5

a/ Included in the above.

Cost overruns in engineering and licenses were due, In part, to the need toreinforce field services because of (i3 difficulties encountered indetailed piping designs, (ii) procurement of materials according to U.S.standards; and (iii) need to cross-reference the different standards usedin Portugal and the suppliers' countries. A substantial overrun in thecost of civil works (187.1%) is partially compensated by a 37.42 underrunin erection works. One of the reasons is that some costs, such asfoundations, which have been included as part of erection costs in theappraisal report, have late been allocated to civil works. The mainreasons for underrun in equipment a.ad spares costs are (i) lower pricesobtained for major items of equipment; and (ii) lower than normal stock ofspares. TIf the latter were to be built up to the normal 10% of the totalcost of equipment, an additional expenditure of US$7.2 million would havebeen incurred and the underrun reduced to 6.22 of appraisal estimate.Finally,the large overrun in pre-operating and start-up expenses are due tothe short-term stoppages during testing and start-up of the ammonia plantas well as to the serious stoppage of 12 months which took place as aresult of the welding failure of the dished head and wall of thehigh-pressure co-shift conversion reactor.

3.20 Actual disbursements in the first year of effectiveness were onlya fraction of appraisal estimates. As provided in Annex 3-6, actualdisburs_tments continued to lag behind projections by a margin of about oneyear, that widened to about 18 months by 1983. Last withdrawals of loan.proceeds took place in the second quarter of 1984, as compared to theoriginal estimate of the fourth quarter of 1982. Actual disbursements andcommitments of the EIB and other loans, and of Government capitalallications are given in Annex 3-7.

- 11 -

IV. OPERATING PERFORMANCE

A. Commissioning and Start-up

4.01 After overcoming initial implementation delays, the ammonia plantwas commissioned and final performance tests took place during September/November 1984. Unfortunately, a major mishap due to failure of the weldingof the dished head to the walls of the high pressure vessel in the co-shiftconversion reactor, led to plant shut down on August 15, 1985, after anacceptable average production level had been reached. The defective vesselhad to be reshipped to, and replaced by, the supplier, and a claim has beenmade by Qutmigal to the insurance company which bore the cost of renlacinpzthe defective equipment.

4.02 Mechanical completion-of the revamped urea plant (June 1981), andstart-up (July 1981) had a six-month delay. The nitric acid plants weresimilarly behind schedule in commissioning due to delays in delivery ofequipment and, in the case of the Lavradio plant, to difficulties inmaterial take-off. Similar problems affected the commissioning of theammonium nitrate plant.

B. Production Build-uP

4.03 Physical production and sales of the various plants have becadifferent from estimates essentially as a result of the delay/mishap of theammonia plant, and consequently the lag in production. The results of theammonia plant operations over a full year are not yet available to theBank, so that long-term capacity utilization cannot be assessed accurately,although the indication so far is that It would be soon reaching ratedcapacity. The urea and amonium nitrate plants have been operating atcapacity.

C. Market Development

4.04 nata from the PAO show a shortfall in fertilizer consumption inPortugal, as compared to appraisal estimates, with in fact an overalldecline of about 122 in the 1985 consumption level as compared to 1980.Domestic consumption figures for the fertilizer years 1980-85 are detailedin Annex 4-1 and, for nitrogen fertilizers, given in the following table:

Nitrogenous Fertilizer Consumption('000 Nutrient Tons)

Appraisal_Y Estimate Actual

1980 160 155.91981 170 145.01982 180 138.61983 191 125.71984 202 123.2-1985 214 131.11986 - 135.5

- i2 -

4.05 The main reasons for the decline in fertilizer consumption inPortugal can be attributed to (i) the recession of the world agriculturaleconomies, given the availability of large stocks of supply; (ii) thefailure in the policies to increase fertilizer application levels inPortugal, inter-alia in removing existing sector constraints, enhancing theperformance of the agricultural credit system, and strengthening andexpanding extention services and bring them closer to those prevailing inother European countries. The recommendations of the study on fertilizeruse in Portugal are yet to be implemented. In addition, Portugal hasexperienced severe drought in 1981-82 with an attendant reduction infertilizer use. Finally, the increase in domestic prices of fertilizers asof 1983 has also taken its toll of fertilizer demand by farmers.

V. FINANCIAL PERFORMANCE

A. Company Performance

5.01 The vulnerable financial position of Quimigal at the time ofappraisal led the Bank to saek, from the Government and Quimigal, assur-ances which went beyond maintaining standard financial ratios usual in thistype of projects. The Bank thus required that studies be carried out onthe profitability of the Company (Section 4.05 - Loan Agreement) and of itonon-fertilizer operations (Section 3.03(a) - Guarantee Agreement). Thestudy on Quimigal's profitability was presented for Bank review in January1984, and served as the starting point for the preparation of Quimigal'srestructuring plan.

5.02 Quimigal has not been immune to the recession which has affectedlarge segments of the world chemical industry. Following massive invest-meats in the early 1980's, in projects which later proved to be of dubiousmerit and some of which are now closed down, the financial structure ofQuimigal has been weakened, and large losses were associated with theseoperations. The financial performance of Quimigal (table below) consider-ably worsened in 1983 leading to a depletion of Quimigal's equity. Themain reasons for this situation relate to: (i) the low producer prices forfertilizers then set by the Government, and late payments, by the Govern-ment, of offsetting compensations to producers; (ii) Government's failureto pay-in its agreed contributions to capital expenditures including thoseunder the Fertilizer Modernization Project; (iii) mounting debt withinterest payments at levels well above those sustainable by the compaAy'sbusiness; (iv) world-wide recession of the bulk chemical/fertilizers andmetal industries; and (v) heavy losses in most of the non-fertilizer-particularly metal-related-operations more than offsetting the earnings inQuimigal's profitable units. Delays in adjusting fertilizer prices anduntimely payment of related compensation funds had been recurrent problemsfor Quimigal. The provisions of Section 4.05 of the Loan Agreement,referring to the continuous review by the Government of the profitabilityof Quimigal's fertilizer and non-fertilizer operations were notsatisfactorily fulfilled.

- 13 -

Quidigal - Summarized Overall Financial Statements(Esc. millions)

1979 1980 1981 1982 1983 1984

Sales 16,985 21,559 26,194 34,031 41,971 61,048Domestic Market 14,153 19,365 24,158 31,460 38,780 56,138Exports 2,832 2,194 2,036 2,571 3,191 4,910

Operating Result 1,870 1,463 1,051 6 -837 6,927Net Results of the Year 107 -926 -1,870 -6,114 -12,559 -10,117Provisions 75 - 280 124 200 220Depreciation 1,242 1,324 1,971 3,468 5,293 6,807Financial Charges 1,768 2,630 2,939 7,520 9,050 13,811Cash Flow 1,424 398 381 -2,522 -7,066 -3,090

Total Net Assets 35,320 44,113 57,118 69,323 81,936 105,188Capital and Reserves 14,908 14,401 13,377 15,245 4,397 12,444

B. Strategic Studies a8d Financial Restructuring Plan

5.03 Upon the Bank's request, Quimigal commissioned on a StrategicPlanning Study for which consultants were contracted in March 1983, andwhich was completed in October 1983. The main conclusions of the study, asreviewed and discussed with the Bank, were to highlight the major role thatQuimigal plays in the Portuguese economy, and that (i) Ouimigal financialsituation was no longer tenable without major restructuring, given aconsiderable debt burden and depletion of equity; (ii) the structural rootsof the problem are-in QUINIGAL's economically unviabl.e and financiallyunprofitable businesses, which account for about 552 of net assets, andless than 15X of total sales; and (iii) a main part of the Company'sactivities, mainly fertilizer production, is economically viable with apositive cashflow that can contribute to cover general overhead andfinancial !harges.

5.04 The Bank undertook, first through the Project's regular-althoughintensive--supervision, and subsequently under the Public Sector EnterpriseReview, to make an in-depth analysis of QUIMIGAL's problems. ARehabilitation Program was prep.sred by QUIMIGAL with Bank assistance, whichincluded:

(a) Physical Restructuring, under which those activitiesyielding a positive cashflow would continue operating aspart of QUIMIGAL, while the main loss-making operations(Kowa-Seiko, metal refining, glass fiber, aniline and syngasplants) would be formally sepatated, the first three beingshut down and the last two being restructured within ISOPORin which QUIMIGAL has an equity holding.

(b) Performance Improvement, with a plan to enhance operational- and financial performance of the remaining operations

- 14 -

including (1) further reduction in labor costs, mainlyoverhead, above those already accomplished by simpleattrition; (i1) overall increased efficiency; and (iii)reduction In working capital through improved inventorycontrol, billing and collection procedures, etc.

(c) Strategic Development Program, outlined on the basis ofQUIMIGAL's competitive position and growth potentials, and(i) comprising modest investments focussing on replacementand capacity balancing aimed at increasing productivity; and(il) targeting growth along more selective lines of businessbased on QUIMIGAL's strength in technical areas and specificmarkets.

(d) Financial Restructuring Plan, which in addition to thesubstantive physical action program, called for prompt andmassive financial support to offset the accumulated lossesand liabilities. Failing such support, It would beimpossible for QUIMIGAL to recover and pursue itsactivities. The funds required (in equity, long-term ioansor debt rescheduling) were massive given the naeed to achieveeffective restructuriag of the Company's capital base andallow a more efficient borrowing policy.

Quimigal's restructuring plan was approved by the Government in March19E4. In parallel, the Bank had initiated a review of the publicenterprise sector In Portugal, and Quimigal's corporate restructuringprogram became linked to a potential Public Enterprise Restructuring Loan(PERL) aimed at broad policy and institutional reforms through a globalapproach to the public enterprise sector. Difficulties In reachingagreement with the Government on basic Issues of pricing policies,investment decisions, system of control and proredures to settle arrears,led, after considerabl delays, to halting the PERL program, as theGoverdment was not prepared to undertake the structural reforms sug4-estedby the Bank. Unfortunately, the action on Quimigal's restructuring planwas also stalle1, &lthough the Government did allocate to Quimigal's partof the required eqtaity.

B. Financial R,.te of Return

5.05 For the calculation of the financial rate of return (IRR) for theProject's various components, capital and operating costs have beenadjusted to constant 1985 US$ terms, and actual unit consumption figures ofinputs have been used in the calculation of costs. The value of salesderived from the volume of product sold, through 1986, are also adjusted to1985 constant terms. Fertilizer sales and feedstock costs (in constant1985 terms) from 1987 through 2000, are derived from the Bank's EPDprojections. Other operating costs are assumed to be constant in 1985-US$ terms. The revised IRR has been calculated under these conditions forthe Project's various components, namely the ammonia plant - which accountsfor about 752 of the total investment - with an IRR of 42; the urearevamped unit (13%); the ammonia/urea complex as a whole (52); and the

- 15 -

CUF-nitric acid/ammonium nitrate unit (13%) (Annex 5-1). The revised IRtbefore tax for the aggregate investment Is equal to 8% against theappraisal estimate of 15%. Despite a decline in fertilizer prices comparedto appraisal forecasts, the analysis shows acceptable returns (i) on theurea unit given the revamping nature of the investment with 1w associatedcapital outlays; and (11) on the nitric acld/ammonimum nitrate complexgiven the premium --assumed to be 10% on a nutrient content basis comparedto urea--which is commanded by ammonium nitrate.

VI. ECONOMIC PERPORMANCE

A. Economic Rate of Return

6.01 For the calculation of the economic rate of return (ERR) in con-stant 1985 terms for the Project's various components, traded items havebeen priced based on Bank's projected international prices adjusted fortransportation and handling costs. For non-tradeable items, financialprices have been used. As a result of the progressive increase in fertil-izer prices in Portugal, which has brought domestic prices closer to inter-national levels, revenues in economic and financial terms are projected tobe closely similar. As a result, the ERR for each project component isequal to the (pre-tax) financial rate of return (pars 5.05). The revisedERR are thus as follows: (i) the ammonia plant with an ERR of 4X againstthe apprsisal estimate of 13-17%; (11) the urea plant with 13% against theappraisal estimate of 13-16%; (iii) the ammonia/urea as a whole with 5Z;and (iv) the nitric acid/ammonium ritrate complex with 13% against theappraisal estimate of 13-16%. The revised ERR on the total Project Iscalculated to be 8% against the appraisal estimate of 14-18X. The analysissho-ws the influence of the ammonia plan: related investment on the Projectoverall economics.

B. Foreign Exchange Savi.gs

6.02 Taking into account imported fuel oil feedstock (based on thelatest Bank EPD commodity price projection) the foreign exchange savingsamount to US$28.20 per ton of ammonia produced, or US$7.6 million annuallywhen the plant is operating at full capacity. Thus, over the Projectlifetime of 15 years, total foreign exchange savings are estimated atabout US$250 million.

C. Technology Transfer

6.03 Although Quimigal had a broad and solid technical base,implementation of the Project has been conducive to further absorption ofmodern technology in the production of ammonia and other products and newtechnology has been successfully transferred through the execution of thePro4ect. There has also been a considerable technology transfer to localengineering companies that were heavily involved in the detailedengineering and erection under the supervision of the foreign engineeringcompanies.

- 1t -

VII. BANK ROLE

7.01 The Bank has worked closely with Quimigal and its Consultantst-'oughout all phases of Project implementation. The Bank'srp-ommandations related to financial and organizational issues affectingthe Company, in addition to technical aspects. Quimigal was well managedand receptive to Bank recommendations aimed at improving execution of thePrcject as well as at overcoming the serious obstacles encountered forefficient operation of all the Company's activities. In the course of anunusually intensive and lengthy Project supervision, the Bank played acrucial role in the preparation of Quimigal's restructuring plan with thedual aim of (i) restoring the financial integrity of the Company with anacceptable degree of creditworthiness and level of liquidity; and(ii) developing a sound strategic business plan.

VIII. CONCLUSIONS AND LESSONS LEARNED

A. Conclusions

8.01 Quimiga' utilized to the full extent the setvices and advice ofthe main engineering firms for the execution of the Project. Except for anaccidental failure in one key equipment item, the Project was wellimplemented physically.

8.02 The market potential/projections for fertilizers as assessed atappraisal did not materialize, particularly as regards tbe timelyimplementation of poliies that would bring the productivity of Portugueseagriculture to levels more iv line with those of othter Buropean countries.Bowever, the failure of the domestic market to expand as anticipated atappraisal did not, and is not expected - given export opportunities - toresult in a limitation of Quimigal's fertilizer sales, although the issuesof price controls and delays in compensatory payments to fertilizermanufacturers did put an additional strain on Quimigal's financing.

8.03 Finally, the Company suffered the consequences of having inparallel embarked on a large program of investments in a variety offields. Most of these investments, some of which now closed, proved to beuneconomic, with associated losses offsetting che relatively modest profitsmade by some profitable units. The analysis of these investments(Annex 3-1) and their viability was at the core of the strategic study andrestructuring program proposed for Quimigal (para 5.04).

B. Lessons Learned

8.04 The Fertilizer Modernization Project particularly illustratesthe problems encountered in financing large enterprises with several linesof business and operations, as well as a large investment program underway. The main lessons drawn from this case are:

- 17 -

(a) The need for a critical company-wide review of ongoing/plannedinvestments with large potential impact relative to the size ofthe Bank-financed project, or to the Entity's existing assets.If the merit and impact of such a parallel investment programcannot be accurately assessed, measures should be deviced toallow the operation of the Bank-financed project in a way that itcould be isolated from the vagaries of other operations.

(b) The need to enforce third parties (Government or shareholders)commitments to (i) make equity contributions in the Projectsponsor's capital to maintain an acceptable financial structure;(ii) reschedule debt as required to strengthen the Projectsponsor's financial base; and (iii) set prices at appropriatelevels or make prompt payments to compensate for losses that theProject sponsor may suffer as a result of inadequatepricing/compensation system.

(c) The relative cha. ge in input/output prices, particularly thecollapse of world fertilizer prices, has dealt a considerableblow to the Project profitability, and further weakened thevulnerable structure of Quimigal at the very time when severalinvestments of dubious merit were taking their toll of thecompany's finances. However, with the (limited) restructuringthat has taken piace in Quimigal, and the forecast recovery ofthe fertilizer market, the worst may have already been weathered-by Quimigal. Finally, despite the sensitivity analyses carried,but under which the possibility of such a considerable decline inammonia/urea prices was not captured, this evaluation once moreshows the difficulty of accurately predicting developments thatmight affect the world prices of commodities, and reinforces theneed for considering the effects of sharp prices decline, andbuilding adequate safety margins, in particular when designingthe financial structure of a capital intensive investment, towithstand cycles of depression.

(d) In the case of time-critical equipment, tighter prequalificationprocedures should be followed to ensure that firms with recordsof serious failures in complying with delivery terms should notbe considered in the vendors lists unless financial guarantees ofsufficient value to compensate for potential production lossescan be obtained.

- 18 -ANNEX 3-1



QUIMIGAL - EXPANSION PROJECTS

1. QUIMIGAL's prodecessor companies, CUF and AMPOR embarked on the followingnine projects, the implementation of which was well advanced at the time ofappraisal.

Cost(US$ million) Completion

1. Kowa Seiko Pelletization of pyrites(342,000 t/year) and recoveryof non-ferrous metals 44.4 1981

2. Contce 7 Sulfurlc Acid (250,000 t/year) 17.5 1979

3. Metallic 11,000 t/year from pyritesZinc 20.2 1980

4. Copper Modernization to incceaseRefinery capacity from 3,900 vo 5,300 t/year

of electrolytic copper1.2 1979

5. Polyethers, 10,000 t/year for local manufacturePolyols and of plastiles and detergents 11.8EthyleneOxide Products

6. Polyester 5,000 t/year for local manufactureResins and of plastic and textiles 28.0Polyurethanes

7. Glass Fibers 2,000 t/years for local production ofreinforced plastics 6.8

8. Aniline 55,000 t/year from local nitric acidand benzene, for supply to local MDIproducer, mainly for export 36.0 1978

9. Power To increase capacity to supply newGeneration projects and to stabilize supply to

existing units 9.3 1980

Total Cost 175.2

- 19 -

ANNEX 3-2Page I of 2

PROJECTION COMPLETION REPORT

FERTILIZER MODERNIZATION PROJECT

i. PROCUREMENT OF TURBO-COMPRESSORS FOR QUIMIGAL

1. In its telex of Nobember 6, 1979, Quimigal informed the Bank thatthe following bids for Turbo Sets had been received and evaluated:

Bidder Country Quoted Price Evaluated Bidaf

1. Italy US$3.8 million VS$12.4 million2. FRG/Switzerland 4.6 million 13.2 million

FRG/Switzerland 6.3 million 14.9 millionFRG/Switzerland 6.2 million 14.8 millionFRG/Switzerland 5.9 million 14.7 million

a/ After adjustments specified in the bidding documents for consumptionof utilities during a five-year period.

2. The bidding took place under the two envelope system, aftertechnical evaluation. The engineering firm (E. F.) concluded that the bidswere formally in accordance with the technical specifications issued withthe bidding documents and all commercial envelopes were therefore opened.E.F. expressed, however, some reservation on the proposals. On thePRG/Swiss (G/S) offer, E.F. felt that the turbo set requried moreflexibility in the start-up point. Regarding the Italian offer (ITY),while the company's bid complied with the technical specifications, E.F. inits final review did not feel comfortable with the fact that the compressorrequired an automatic inlet-guide-vane speed adjuster in order to achievepartial load operation. E.Y. felt that further detailed discussions onthis matter were necessary before it could accept the ITY speed controlsystem. The Italian supplier in turn invited E.F. and Quimigal to havethese discussions.

3. In view of E.F.'s reservations and since Quimigal had some doubtsabout the ability of the Italian supplier to deliver the orders in time,Quimigal recommended to the Bank that this supplier be disqualified and thecontract awarded to FRG/Swiss. The Bank questioned the disqualification ofthe Italian supplier since Turbo compressors from this firm had beenaccepted for other Bank-financed projects*

4. Since the Italian was the lowest priced and lowest evaluatedbidder, E.F. and Quimigal, with Bank's agreement held further discussionswith this firm. During these discussions it was agreed that in order toavoid the use-of the automatic speed adjuster, it would be better if theItalian design was modified to widen the range of operation (by Increasing

- 20 -

ANNEX 3-2Page 2 of 2

the number of stages, an alternative with which E.F. was familiar). Thisavoids the use of the automatic adjuster and provides for a more reliableoperation. The Italian supplier agreed to make the change requested byQuimigal without changing the price and reconfirmed its ability to deliverthe equipment as desired the Italian supplier Quimigal. With Bank'sconcurrence, the contract was awarded to the Italian supplier in December1979.

5. On Jdnuary 25, 1980, the G/S supplier complained that thecompetitor submitted a technically different proposal after bid opening andtherefore the new proposal should be considered null and void. The Bankindicated that the holding of discussions with ITY was correct since theITY bid complied with the technical specifications of the bidding documents(as confirmed by E.F.'s recommendations to Quimigal to open theircommercial bid), was the lowest price and was the lowest evaluated. Themodification in the equipment (to further improve its operationalreliability) was not a reason for disqualification of ITY since it wasrequested by the engineer after accepting the original technical bid asbeing formally in conformity with the technical specifications. As amatter of fact, if ITY had been disqualified and the order placed with GIS,the Bank would have had to consider whether misprocurement had taken place.

6. While discussions between Quimigal and the Bank were takingplace, G/S was apparently led to believe (by E.F. presumably) that thecontract would be awarded to them and therefore went to Lisbon to negotiatea contract. Quimigal conveyed to them at that time that no decisin on theorder had yet been made. Quimigal assured the Bank that it had not givenG/S any indication that the order would be placed with them. GIS was veryunhappy having been invited to Lisbon, only to learn there that it had notbeen awarded the contract.

7. The Bank concluded that the procurement for this purchase wascorrect and so informed G/S by letter dated February 5, 1980.

- 21 -

ANNEX 3-3



BANK-FINANCED PROCUREMENT OF GOODS ANDSERVICES BY COUNTRY OF ORIGIN

US$ million Percentages

Engineering, Licensesand SupervisionPortujal 2.57 4.4F.R. of Germaliy 0.24 0.4Others (Guatemala, France, Belgium) 0.95 1.6

-3.76 6.4

Equipment, Machineryand SparesF.R. of Germany 30.72 52.9Italy 7.21 12.3France 7.05 12.1Netherlands 4.54 7.7Spain 1.31 2.2U-.K 1.30 2.2U.S.A. 0.83 1.4Others (Belgium, Norway, Finland, Sweden,Switzerland, Denmark, Austria, Portugal) 0.87 1.5

S3.84 92.3

Consultancy for FertilizerStudyF.R. of Germany 0.39 0.6Other (ItRly) 0.41 0.7

0.40i.

Total 58.00 100.0

Last digit difference due to rounding off.

- 22 -




PLANNED AND ACTUAL IMPLEMENTATION SCHEDULE

AMMONIA PLANT

Planned Actual

End of mechanical erection March 1982 July 1983

End of erection of off-site June 1982 February 1984units

Start-up of the off-site March 1982 June 1982units

Start-up of the air February 1982 November 1982compressor (1st unit)

First feed June 1982 February 1984

Start of production October 1982 May 1984

1. In summary, a delay of about one and a half year, between plannedand real date, has occurred. One of the reasons has been the incapacity ofsome of the Portugese engineering firms that had no sufficient skilledstaff, to shoulder the workload they had to perform. This limitation gaverise to both direct delays (on the delivery of technical documentation) andindirect ones (during erection), given the required corrections that had tobe made.

2. Although to a limited extent, a reason for the delay can be foundin the low productivity of local erection companies mainly because ofdeficiencies in work preparation and deterioration of labor conditions.

UREA REVAMPING

Scheduled Real

End of mechanical erection December 1980 June 1981

Start-up January 1981 July 1981

3. In this case the delays are also related to the detailedengineering, particularly for the rehabilitation of existing units.

- 23 -

ANNEX 3-4Page Zi of 2

NITRIC ACID PLANTS

Alverca Nitric Lavaradio NitricAcid Plant Acid Plant

Scheduled Real Scheduled Real

End of mechanical August November March Juneerection 1981 1981 1982 1982

First feed October March May October1981 1982 1982 1982

AMMONIUN NITRATE SOLUTION PLANT

Scheduled Real

End of mechanical erection April 1982 October 1982

First feed June 1982 December 1982

4. The delays in the case of these plants can also be attributed toreasons silmilar to those which occurred for the ammonia and urea plants.

- x4 -




CAPITAL COST AND FINANCING REOUIRED(USS million)

Total for the ProjectAppraisal Estimate Actual

Local ForeignCurrency Exchange Total Total

Machinery, Equipment& Spares 33.1 95.5 128.5 113.1

Civil Works 8.1 1.5 9.5 26.7Erection 30.1 3.4 33.6 21.3Engineering, Licensing

& Supervision 7.4 12.3 19.8 28.9Pre-Operating andStart-up Expenses 1.7 2.2 3.8 22.9

Installed Cost 80.4 114.9 195.3 212.9Working Capital 4.0 8..8 10.6

Project Cost 84.4 123.7 208.1 223.5ITterest duringConstruction 12.0 22.2 34.2 41.5

Total FinancingRequired 96.4 145.9 242.3 265.0a

- m

a/ QUIMIGAL figure is US$307 million as it incorporates US$42 million on account offoreign exchange differences resulting from the depreciation of tWe Escudo; thisamount, however, should not appear in a US$ demoninated account and the issue hasbeen clarified with Quimigal.

- 25 -




ESTIMATED AND ACTT!AL CAPITAL COST AND FINANCING REQUIRED

MUS$ million)

Ammonia PlantAppraisal Estimate Actual

Local ForeignCurrency Exchange Total- Total

Machinery, Equipment& Spares . 25.1 76.9 102.0 87.4

Civil Works 6.2 1.2 7.4 23.7Erectiln 26.4 3.0 29.4 16.5EngineeTing, Licensing

& Supervision 5.8 9.1 14.9 22.7Pre-Operating andStart-up Expenses i.6 1.5 3.1 22.1

Installed Cost 65.2 91.7 156.9 172.4Working Capital 1.5 3.0 14.5 2.3

-Project Cost 6t.7 94.7 161.4 174.7Interest duringConstruction 9.0 16.7 25.7 33.0

Total FinancingRequired 75.7 144.4 187.1 207.7a/

m m

aI QUIMIGAL's figures show total financing at US$249.7 million, including US$42.0million due to exchange rate differences result.'ng from depreciation of the localcurrency. This should not, however, appear in a.' account denominated in US$ andthe issue has been clarified with Quimigal.

Remark: Last digit discrepancies due to rounding-off.

- 26 -




ESTIMATED AND ACTUAL CAPITAL COST AND FINANCING REQUIRED(US$ Million)

Urea RevampingAppraisal Estimate Actual

Machinery, Equipment& Spares 5.6 5.0

Civil Works 0.2 0.3Erection 0.5 1.3Engineering, Licensing

& Supervision 1.3 1.3Pre-Operating andStart-up Expenses 0.1 0.3

Installed Cost 7.7 8.1Working Capital 0.8 0.8

Project Cost 8.5 8.9Intarest duringConstruction 1.6 1.6

Total FinancingRequired 10.1 1O.;

- 27 -




ESTIMATED AND ACTUAL CAPITAL COST AND FINANCING REQUIR5D(TU~Ssmi`llion) ID

Downstream Nitric Acid and Ammonium Nitrate PlantsAppraisal Estimate Actual

Machinery, Equipment& Spares 21.0 20.7

Civil Works 1.6 2.7Erection 3.6 3.6Engineering, Licensing& Supervision 3.5 4.9

Pre-Operating andStart-up ExpeAses 0.7 0.5

Installed Cost 30.4 32.4Working Capital 7.5 7.5

Project Cost 37.9 39.9Interest duringConstruction 6.9 6.9

Total FinancingRequired 44.9 46.8

Remark: Last digit discrepancies are due to rounding-off.

- 28 -

ANNEX 3-6



SCHEDULE OF DISBURSEMENTS FOR BANK LOAN(US$ million)

ActualCalendar Year Appraisal Estimate Revised Estimateand Quarter Disbursement Cumulative Disbursement Fumulative

1979 II 2.2 2.2 - -III 3.5 1.9 1.9 1.9IV 4.1 9.6 0.0 1.9

1980 I 5.0 14.6 2.8 4.7II 5.6 20.2 1.0 5.7III 5.9 26.1 1.4 7.1IV 5.9 32.0 4.1 11.2

1981 I 5.9 37.9 3.0 14.2II 4.5 42.4 4.3 19.5III 4.0 46.4 2.8 22.3IV 3.9 50.3 4.0 26.3

1982 I 3.0 53.3 10.7 37.0II 2.0 55.3 4.9 41.9III 2.0 57.3 4.4 46.3IV 0.7 58.0 2.8 49.1

1983 I - 58.0 2.7 51.8II - 58.0 1.0 51.5III - 58.0 1.0 55.3IV - 58.0 2.8 56.7

1984 1 - 58.0 3.2 58.0

- 29 -

ANNEX 3-7



CUMULATIVE DISBURSEMENT OF OTHER FINANCING SOURCES

(US$ million)

EIB Lenders8/ Government Total b/

1979 III Q 0.1 0.6 2.0 4.6IV 0.3 0.7 3.1 6.2

1980 I 1.1 0.7 3.6 10.2II 3.2 1.8 5.9 16.0III 3.5 2.3 7.1 19.4TV 5.7 8.3 13.8 38.6

1981 I 7.5 12.1 21.3 57.0II 7.7 13.3 21.7 60.0III 11.S 14.6 31.2 82.2IV 11.8 18.9 39.1 102.6

1982 I 12.4 20.8 44.7 119.4-I 13.0 21.2 52.9 129.1

III 13.3 21.3 54.0 131.6IV 13.7 21.7 57.3 140.5

1983 I 13.7 24.0 72.4 161.0II 13.9 29.0 75.1 169.0III 15.7 41.9 83.1 196.0IV 19.4 70.1 87.6 235.1

1984 I 19.4 71.7 87.6 236.8

a/ This column should be broken down between foreign currency sources(Kreditsbank, Suppliers' credits) and local currency credit(commercial banks)

b/ This should be completed with self-generated fund. The total shownhere Includes Bank loan disbursements as recorded by Quimigal, whichdiffer from Bank data shown in Annex 3-6.

- 30 -ANNEX 4-1



Fertilizer Consumption(in tons '000)

FY N P205 KzO Totals

1967 94.7 59.4 18.5 172.6

1972 130.9 73.4 25.6 229.9

1975 118.9 64.4 24.2 207.5r

1977 143.3 74.9 34.9 253.1

1978 144.3 74.8 35.3 254.4

1979 148.0 74.9 38.8 261.7

1980 155.9 84.2 43.7 283.9

1981 134.8 77.3 41.0 253.1

1982 148.2 78.9 41.3 268.4

1983 113.9 62.2 31.4 207.5

1984 141.2 72.2 35.1 248.5

1985 131.1 72.2 34.6 237.9

1986 135.5 71.3 34.0 240.e

1987 153.2 82.7 45.5 281.4

Sources: QUIMIGAL

- 31 -ANNEX 5-1Page 1 of 7

PortugalEconouic Riteof ketumn

Alfwon! aiCanstnt jQ515 8 S " illien)

Year rasital Wvrking Operating Cos%$ Total Aevenues NetgosLs Zapitil F.Ci: 3ther Var Fiied To.Op.Co tosts Aeona a.h Flow

15,7 .23 3.0Q t.0O 0.00 0.°0 0.00 2.20 0.00 -2.20.980 20.10 '(p.00 ,0.00 (1.00 0.00 0.00 20.10 0.00 -20.101981 37.30 (.00 M.Oo 0.00 0.00 0.0(' 7.30 0.00 -37.30198. 22.60 (t.00 0.00 0.00 0.00 0.00 22.80 0.00 -22.901°93 46.90 0.0(P 0.00 0.00 0.00 0.00 44.90 0.00 -46.901984 27.50 ('.00 0.00 0.0 0.00' 0.00 27.50 0.00 -27.501?85 12.10 2.30 0.00 0.00 2.00 2.00 16.40 0.00 -16.401986 0.00 0. t0 5.54 3.54 3.97 12.95 12.95 14.69 1.731987 0.00 0.00 13.29 7.08 3.87 24.24 24.24 30.97 6.731981 0.00 0.00 14.10 7.08 W.8 25.05 25.05 34.58 11.531989 0.00 0.00 13.44 7,09 3.87 24.59 24.59 43.52 18 931990 0.00 0.00 13.98 7.08 3.87 24.93 24.93 52.87 27.1991 0.00 0.00 14.68 7.06 3.87 25.63 25.63 52.33 26.701992 0.00 0.00 15.49 7.08 3.67 26.44 26.44 51.53 25.091993 0.00 0.00 16.30 7.08 3.7 27.25 27.25 51.00 23.741994 0.00 0.00 17.00 7.08 3.87 27.95 27.95 50.20 22.251995 0.00 0.00 17.93 7.08 3.87 28.88 28.88 49.66 20.781996 0.0 0.00 19.43 7.09 3.87 3.36 30.36 50.20 19.811997 0.00 0.00 20.94 7.08 3.87 '1.69 31.i9 51.00 19.101"8 0.00 (.00 22.68 7.08 3.87 33.63 33.63 51.43 17.9019S9 0.00 0.00 24.54 7.08 3.87 35.49 35.49 52.33 16.842000 0.00 0.00 26.51 7.08 3.87 37.46 37.44 53.13 15.672(01 -16.89 -2.30 0.00 0.00 0.00 0.00 -19.19 0.00 19.1

IRR z 4%

ANNE 5-1Page 3 of 7

| ~~~~~~~~~~~~~~~~PortugalEcraouic Rate of Return

tuani a-Utrea'C2natant ;?85 ;JS$ li;lUon)

Year Capital Workinqg operant:g Costs Total 5evenues Revenues Total NetCosts cntall Ameonia Fuel Gil Other Var Fixed Total Casts Aweonia Urea Revenues Cash Flow

PLrchase Costs Costs Go.costs

1979 4.20 0.00 0.00 0.00 0.00 0.00 0.00 4.20 0.00 0.00 0.00 -4.201990 23.09 0.o: 0.00 0.00 0.00 0.00 0.00 23.09 0.00 0.00 0.00 -23.081081 40.13 0.00 0.00 0.00 0.00 0.00 0.00 40.13 0.00 0.00 0.00 -40.13.992 23.bO 0.80 0.0 0.00 0.00. 0.00 0.00 24.40 0.00 0.00 0.00 -24.401983 46.92 0.00 6.69 0.00 0.00 1.39 8.07 54.99 0.00 10.22 10.22 -44.771984 27.55 0.00 8.52 0.00 0.00 1.39 9.91 37.46 0.00 .13.03 13.03 -24.431985 12.10 2.30 7.68 0.00 0.00 3.39 11.07 25.47 0.00 10.37 10.37 -15.101996 0.00 0.00 0.00 5.54 4.76 5.26 15.56 15.56 12.39 7.06 19.43 3.871987 0.00 0.00 0.00 13.29 8.30 5.26 24.85 26.85 26.10 7.49 33.59 a.7i1988 0.00 0.00 0.00 14.10 8.30 5.26 27.66 27.66 30.83 ?.00 39.83 12.1t1989 0.00 0.00 0.00 13.64 8.30 5.26 27.20 36.68 10.87 47.55 20.351990 0.00 0.00 0.00 13.99 9.30 5.26 27.54 27.54 44.55 13.39 57.9 30.401991 0.00 0.00 0.00 14.60 0.30 5.26 28.24 28.24 44.10 13.25 57.35 29.111992 0.00 0.00 0.00 15.49 8.30 5.26 29.05 29.05 43.43 l3.03 56.46 27.41

-1993 0.00 0.00 C.00 14.30 8.30 5.26 29.86 29.80 42.98 12.86 55.96 26.001994 0.00 0.00 0.00 17.00 8.30 5.2J 30.56 30.56 42.30 12.67 54.97 24.41

0995 Q.00 v.00 0.00 17.93 8.30 5.24 31.49 31.49 41.95 12.53 54.38 22.891994 0.00 0.00 3.90. 1943 9.30 5.26 32.99 32.99 42.30 12.67 54.97 21.981997 0.00 0.00 0.00 20.94 8.30 5.26 34.50 34.50 42." 12.89 S5.86 21.361999 0.00 0.00 0.00 22.69 9.3j0 5.26 36.24 36.24 43.43 13.03 56.46 20.221999 0.00 0.00 0.00 24.54 0.30 5.26 38.10 38.10 44.10 13.25 57.35 19.252000 0.00 0.00 0.00 26.51 9.30 5.26 40.07 40.07 44.78 13.46 5B.24 18.172001 -1a.89 -2.30 0.00 0.00 0.00 0.00 0.00 -19.19 0.00 0.00 0.00 19.1?

IRR a 5%

-33 -

ARM 5-1

Page 4 of7

Portuca1Fertili:er modernization ProiectEconomic Rate of ReturnNitric AcidlAgmnium Nitrate

iUHS il ibi) I

fear Cip.Cost Deflator Cap.Cost W.Capital Oper.Costs Total Total Revenues Net(CurrentI985zI00 (1985) (1935) Asmonia Other.Var Fixed fp.Csts Costs 8t.Nitrate Cash Flo*

1979 0.63 95.20 0.66 0.00 0.00 0.00 0.00 0.00 0.66 0.00 -0.66:950 1.67 104.40 1.60 0.00 0.00 0.00 0.00 0.00 1.60 0.00 -1.601981 .1.27 104.90 5.99 0.00 0.00 0.00 0.00 0.00 S.98 0.00 -5.981L982 3.97 1l3.40 3.84 3.00 0.00 0.00 0.00 0.00 6.84 0.00 -6.841983 9.36 100.80 8.29 2.00 0.00 0.00 0.00 0.00 10.29 0.00 -10.291984 0.00 99.10 0.00 0.00 9.93 0.75 1.20 11.88 11.98 17.09 5.211995 0.00 100.00 0.00 0.00 7.93 0.75 1.20 9.98 9.88 13.59 3.711986 O.00 118.90 0.00 0.00 5.44 0.75 1.20 7.39 7.39 9.25 1.86VW7 0.00 120.10 0.00 0.00 5.76 0.75 1.20 7.71 7.71 9.82 2.11*998 0.)O - M.uO 0.00 6.90 0.75 1.20 9.85 8.85 11.80 2.95!9B9 0.00 - 0.00 0.00 8.31 0.75 1.20 10.26 10.26 14.25 3.991990 0.00 - 0.00 0.00 10.20 0.75 1.20 12.15 12.15 17.56 5.4119?1 0.00 - 0.00 0.00 10.09 0.75 1.20 12.04 12.04 17.37 5.331992 M.Ov - 0.00 0.00 9.93 0.75 1.20 11.99 11.98 17.09 5.211993 0.00 - 4.00 0.00 9.82 ..75 1.20 11.77 11.77 16.90 5.131994 0.00 - 0.00 0.00 9.66 0.75 1.20 11.11 11.61 16.61 5.001995 0.00 - 0.00 0.00 9.55 0.75 1.20 11.50 11.50 11.43 4.93199b 0.00 - 0.00 0.00 9.66 0.75 1.20 11.61 11.61 16.41 5.001997 0.00 - 0.00 0.00 9.02 0.75 1.20 11.77 11.77 16.90 5.131q98 0.00 - 0.0 0.00 9.93 0.73 1.20 11.88 il.88 17.09 5.211999 ).00 - 0.00 0.00 10.09 0.75 1.20 12.04 12.04 17.37 5.332000 ;f.00 - 0.00 0.00 10.26 0.7? 1.20 12.21 1i.21 17.65 5.44001 *:.00 - -1.49 -3.6O 0.00 0.00 0.00 0.00 -5.08 0.00 5.08

iRR 13t

pwtvualFwtilluur Ndui atioa ProijtProeKt ODall late of Rturn

ICanstaut 19 OnS lIllionm

Capital Costs Total Uohimq Put hae Othw Total Total evenues Total Netlear OAsnia Urea N.A-A.Nit 4.kid Cap.Costs Capital Ful Oil humia Op.Costs Op.Costs Costs tAsonia Ureg kNit Revenes Cash Flje

1979 2.20 2.00 0.44 0.46 5.34 0.00 0.00 0.0 0.00 0.00 5.34 0.09 0.00 0.00 0.00 -5.341990 20.10 2.97 1.40 1.17 25.64 0.00 0.00 0.0 000 0.00 25.94 0.00 0.00 0.00 0.00 -25.841961 37.30 2.37 5.98 4.35 50.50 0.00 0.0 0.00 0.0 0.00 50.50 0.00 0.00 0.00 0.00 -50.50M912 22.80 0.77 3.9 2.79 30.20 6.80 0.00 0.00 0.00 0.00 37.00 0.00 0.0 0.00 0.00 -37.00

1993 44.90 0.00 9.29 4.03 61.22 4.00 0.0 4.48 1.39 9.07 73.29 0.00 10.22 0.0) 10.22 -63.071964 27.50 0.00 0.00 0.00 27.50 0.00 0.00 9.52 5.29 13.91 41.31 0.00 13.03 34.17 47.21 5.901m 12.10 0.00 0.00 0.00 12.10 2.30 0.00 7.46 1.29 14.97 29.37 0.00 10.37 27.19 37.54 9.192994 0.00 0.00 0.00 0.00 0.0 0.00 5.54 0.00 13.92 19.4U 19.44 4.14 7.04 10.50 31.72 12.26I"19 0.00 0.00 0.00 0.00 0.00 0.00 13.29 0.00 17.44 30.75 30.15 12.99 7.49 19.64 4u.12 9.372999 0.00 0.00 0.00 0.00 0.00 0.00 14.10 0.00 17.44 31.54 31.5S 15.14 9.00 23.60 47.94 14.30199 0.00 0.00 0.00 0.00 0.00 0.00 13.64 0.00 17.46 31.10 31.10 18.24 10.87 20.51 57.44 26.54199 0.00 0.00 0.00 0.00 0.00 0.00 13.99 0.00 17.46 31.44 31.44 22.13 13.39 35.12 70.49 39.24191 0.00 0.00 0.00 0.00 0.00 0.0 M 14.4 0.00 17.4 32.14 32.14 21.95 13.25 34.74 69.94 37.80192 0.00 0.00 0.00 0.00 0.00 0.00 15.49 0.00 17.44 32.95 32.95 21.42 13.03 34.17 48.02 35.871993 0.00 0.00 0.00 0.00 0.00 0.00 14.30 0.00 17.44 33.74 33.14 21.39 12.89 33.90 U.08 34.31294 O."0 0.00 0.00 0.00 0.00 0.00 17.00 0.00 17.44 34.44 34.44 21.04 12.67 33.23 44.94 32.501995 0.00 0.00 0.00 0.00 0.00 0.00 17.93 0.00 17.44 35.39 35.39 20.83 12.33 32.65 66.21 30.921 0.00 0.00 0.00 0.00 0.00 0.00 19.43 0.00 17.44 3.89 3.09 21.04 - 12.47 33.23 44.94 30.06197 0.00 0.00 0.00 0.00 0.0 0.00 29.9 0.00 17.4 38.40 30.40 21.39 12.89 33.80 48.09 29.47IM 0.00 0.0Q 0.00 0.00 0.00 0.00 22.41 0.00 17.4U 0.14 40.14 21.42 13.03 34.17 48.82 29.49If9l 0.00 0.00 0.00 0.00 0.00 0.00 24.54 0.00 17.44 42.00 42.00 21.95 13.25 34.74 49.94 27.94200 0.00 0.00 0.00 0.0 0.00 0.00 2.51 0.00 17.44 43.97 43.97 22.29 13.4U 35.31 72.04 27."2001 -14.9 0.09 -1.49 -1.49 -19.95 -9.50 .o0 0 .00 0 .0oo .00 -29.35 0.00 0.00 0.00 0.00 29.35

lEs-? .3IIIRs0t ' YD~~~~~~~~~~~~~~~~~~~~~~

- 35 -

ANNIX 5-1Page 6 of 7

icrtuqa1Fertil. erorj'gerni.atIor Project^atOan: a;jra-ragitas .OES:

i ear 43aotia Deilatr' 4pktes IJea retlator Urea Aua/eJrea Deflator AesiUreaCurrent 1810if Consta.nt Currermt 19M3l'd0 Constmnt Current 1985:lO0 Constant

(1085) (,985i 11985)

1q79 2.10 95 .o 2.2X 1.^0 95.20 2.00 4.00 95.20 4.20i980 21.00 104.40! !. 1 3.0 104.40. 2.97 24.10 104.40 23.0319891 3.10 1ij4.93 37.3 ..0I 104.90 2.36 194.27 104.90 40.131982 23.60 103.40 22.9 v.90 103.40 O.77 24.40 103.40 23.601983 47.30 100.0 46.9 0.00 100.80 0.00 47.30 100.80 46.921994 '7.30 99.10 2?.5 0.00 99.10 O-i)0 7.30 99.10 27.55ABs 14.40 100.09 14.4 Q.Z)O 0i:.00 0.00 14.40 100.00 14.401986 0.00 119.90 0.0 0.00 1;8.9% 0.00 0.00 119.90 0.001987 0.00 120.13 0.0 0.00 120.10 0.00 0.00 120.10 0.0

- 36 -ANNEX 5-1

page 7 of 7

Fertili:er ioderqjition ProiectQuantities and%£2tSN

APrices in Constant 193 15$)

Yeir Zrup Cil.utI Cil F.qes!cueFGR./!Lis Amm,FPod Fael Cons area Ammonia Bag.'Urea Anftnia 49#2nidUB$Ibbl USITgan US$lTon L9$fTon aer gear oer vear EigNWEurF08/NWEur CIF/Lisb'CIFVLisb US$ Pred

8*7.30.,7 C*0.85 D-89 Tcns 'LSS nil S/!Ton USSIT/n US$/Ton U5$/Top Fok(8) ! C. iD4 tE F! M1,

1960 29.20 149.21 126.563 11.83 0 0.00 - - - )1i31 32.70 167.10 142.03 1:4.03 y 0.00 - - - - 0.982 30.00 153.30 13"0.31 122.31 0 0.00 - - - 01993 27.90 142.57 121.18 113.19 0 0.00 134.00 134.00 142.00 114.00 01984 27.70 141.55 120.31 112.71 0 0.00 173.00 173.00 181.00 193.00 01995 26.70 136.44 115.97 107.?7 9 0.00 136.00 136.00 144.00 156.00 01986 11.40 59.25 49.52 41.52 133500 5.54 90.00 90.00 98.00 110.00 14,695,0001987 13.30 67.96 57.77 49.77 20000 13.29 96.00 9o.00 104.00 116.00 30,972,0001988 14.00 71.54 60.81 M2.e1 267000 14.10 117.00 117.00 125.00 137.00 36579,0001V89 1M.O 69.50 59.07 51.u7 267000 13.64 143.00 143.00 151.0)0 163.00 43,521,000i90 13.i0 71.03 60.37 !2.37 267000 13.98 178.00 178.00 196.00 198.00 52,966,0001M91 14.50 75.10 62.99 54.98 267000 14.68 176.00 176.00 184.00 196.00 52,332,0001992 15.20 77.67 66.02 58.02 26?000 15.49 173.00 173.00 191.00 193.00 51,531,0001993 15.90 91.25 69.06 61.06 267000 16.30 171.00 171.00 179.00 191.00 50,997,000;994 16.50 84.32 71.67 6:.67 267000 17.00 168.00 168.00 176.00 188.00 50,196,000195 17.30 88.40 75.14 67.14 267000 17.93 lib.00 166.00 174.00 186.00 4,662,000496 19.60 95.05 80.79 '12.79 297000 19.43 169.00 169.00 176.00 198.00 50,19&.0001997 19.90 101.6q 9b.44 7.44 2i7000 20.94 171.00 171.00 179.00 191.00 50,997,0001978 21.40 V.4.35 92.95 94.95 2'7000 22.68 l 73.00 173.00 181.00 193.00 51,31s,000j9:q 23.0) 11 .53 ;9.90 91.90 267000 24.54 176.00 176.00 184.90 196.00 52,332,0002Z.%I6 4.70 12'.22 l d?.28 : .29 2b7000 26.51 !79.00 179.00 197.00 199.00 53,133,000

- 37 -PORTUGAL ANNEX 6-1

FERTILIZER MODERNIZATION PROJECT Page 1 of 2

Comments Received from the Borrower

Av. Inant Snbt. 2

3UIMIEGAL BUiMCa NE PORTUGRL.E.P ==& 6CONSELHO DE GEReNCIA T 'FAIL-

Telex 123Ol-12-1A6U FebwII.P

No.42/88/01020/JMM/MN Lisbon, 10th March, 1988

Mr. Alexander NowickiChief Policy-Based Lending, Industry,Public Utilities and Urban SectorsOperations Evaluation DepartmentThe World Bank1818 H Street, N.W.Washington, D.C.20433 - U.S.A.

Dear Mr. Nowicki,

Project Completion Report on PortugalFertilizer Modernization Project (Loan 1649-PO)

With many thanks I acknowledge receipt of yourletter of February 19, as well as of the draft of the abovereferred PCR you have sent us for comments.

We should be much obliged if you kindly considerour attached comments:

1 - Comments on technical aspects

2 - Comments oni fertilizer consumption

Waiting for the final version of the PCR, Iremain,

Yours sincerely,

Al to JustinianoPresident

Encl.

- 38 - ANNEX 6-1Page 2 of 2

GUI MIGRL

Re: PORTUGAL PROJECT COMPLETION REPORTFERTILIZER MODERNIZATION PROJECT

(DRAFT)

1 - Comments on Technical Aspects

a) In what -oncerns 1985 accident appears wrongly referred"Synth sis Reactor" (Page IV, paragraph IV) and "AmmoniaConverter" (Page 10 - paragraph 3.19 - last line and also

pdge 11 - paragraph 4.01). In both cases the correct designation must be "CO SHIFT CONVERSION REACTOR".

b) It is related on page 6, paragraph 3.10, an incident of"Procurement" which must be applyed to the "Turbo-Set" ofthe Nitric Acid Plant and not to the "Ammonia CentrifugalCompressor".

Such correction is necessary on the paragraphs 3.11 and3.12 of the page 7, where the references "Ammonia Compressor"and "Centrifugal Compressor for Ammonia" must be replacedby "Nitric Acid Turboset".

2 - Comments on Fertilizer Consumption

a) Page 11 - Please correct as follows:

1985 (Actual) .......... 131.11986 (Actual) .......... 135.5

b) The Annex 4-1 must be replaced (see correct figures).

It must be stressed that the 1987 total consumption is practically equal to 1980 maximum which means an interestingconsumption recovery.

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