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FiLE -iXPY
DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION
Not For Public Use
Report No.P-1554-BD
REPORT AND RECOMMENDATION
OF THE
PRESIDENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED CREDIT
TO
THE PEOPLE'S REPUBLIC OF BANGLADESH
FOR THE
ASHUGANJ FERTILIZER. PROJECT
January 16, 1975
This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not acceptresponsibility for the accuracy or completeness of the report.
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CURRICY BEUIVALNTS-(as of November 30, 1974)
Currency Unit Bangladesh Taka (Tk.)US$g1.00 = Tk. 7.90Tk. 1.00 = US: f.126Tk. 1 million US$126,000
WEIGHTS AND MEASURES EQUIVALENTS
1 acre = 0.405 hectare (ha)1 mile = 1.609 kilometres1 sq. mile = 640 acres1 sq. mile 259 hectare1 maund 82.3 lbs.
37.3 kg.1 ton (T) 1.016 metric tons
= 27.2 maunds1 mile 1.609 kilometres
PRINCIPAL ABBREVIATIONS USED
ADB Asian Development BankAFCC Ashuganj Fertilizer and Chemical CompanyBFCPC Bangladesh Fertilizer Chemical and
Pharmaceutical CorporationKFW Kreditinstalt fur WiederafbauODM Ministry of Overseas Development (UK)USAID United States Agency for International
Development
FISCAL YEAP.
end June 30
1/ The Talca is officially valued at 18.9677 to the pound sterling. Thepound now floats relative to the US Dollar with the result that theTakca-US Dollar rate is subject to change. The exchange rate used forthe purposes of preparing data for this report is USs1 to Tk. 8.0 inPart I (the rate prevailing in August/September 1974, the time of thelast economic mission), and US:vl to Tk. 7.5 (the date prevailing at thetime of appraisal, March/April, 1974) elsewhere in the report. Using thesetwo different rates has no significant effects on the analysis.
INTERNATIONAL DEVELOPMENT ASSOCIATION
REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT
TO THE PEOPLE'S REPUBLIC OF BANGLADESHFOR THE ASHUGANJ FERTILIZER PROJECT
1. I submit the following report and recommendation on a proposed
development credit of an amount in various currencies equivalent to US$33.0
million to the People's Republic of Bangladesh, on standard IDA terms, to
help finance the Ashuganj Fertilizer Project. The proposed project would
also be financed by a credit of US$30 million from the Asian DevelopmentBank (ADB), a credit of US$30 million from the United States Agency forInternational Development (USAID), a credit of E 8 million (currently
equivalent to about US$18 million) from the United Kingdom (UK), a credit
of about US$12.4 million from Iran, a credit of DM 30 million (currentlyequivalent to about US$12 million) from Kreditanstalt fur Wiederaufbau (KFW),
and a credit of 20 million Swiss Francs (currently equivalent to about US$6.5
million) from Switzerland. All foreign loans would be on soft terms, with an
average interest rate of about 1.0% and an average term of about 4U years.
PART I - THE ECONOMY
2. A Basic Economic Report on Bangladesh, entitled "Bangladesh:
Development in a Rural Economy" (Report No. 455b-BD, dated September 15,
1974) has been distributed to the Executive Directors. An economic up-
dating mission was in the field in August/September and the followingparagraphs are based on its findings. Another updating mission willvisit Bangladesh in February 1975. Country data sheets are attached as
Annex I.
Background
3. The Basic Economic Report describes the obstacles to development
in Bangladesh and outlines a course of action to maximize the country'slimited development prospects. The high ratio of population to natural
resources, the slow development of the productive and infrastructural base
and the weakness of the administrative and institutional framework lead the
Report to project a growth rate of GDP over the next five years of between
2 and 3.5% per year only, the variation within that range depending on the
appropriateness of the policy framework and on levels of aid. This compares
with an expected population growth of about 3% per year so that, even under
the most optimistic assumptions, per capita GDP - already one of the lowest
in the world - is not likely to rise by more than 0.5% per year during the
period ending in 1977/78.
4. Encouraging progress was made in the period immediately follow-
ing Bangladesh's independence as an enthusiastic Government, supported by
massive external assistance, strove to overcome the devastations of the
cyclone of 1970 and the struggle for independence in 1971. Large amounts
-2-
of food aid were distributed, refugees were resettled, vital port, road
and rail facilities were brought back into operation, a new constitution
was adopted, and the first national elections, held in March 1973, brought
Sheik Mujibur Rahman's Awami League party into power with an overwhelming
parliamentary majority.
5. But such achievements pale in the face of the problems which
remain to be solved. The country is desperately poor, with a per capita
income of only about US$70, and overcrowded, with more than 1,400 people
per square mile. Continued population growth puts ever-increasing strains
on a nation already lacking most basic resources. Bangladesh remains ex-
tremely vulnerable to the devastations of both drought and flood. External
assistance has declined to a level considerably below the initial infusions
of aid. Stocks of raw materials and spare parts are very low, many staple
consumer items continue to be scarce or simply not available, and inflation-
ary pressures are a serious continuing problem. Law and order deteriorated
in both rural and urban areas during 1973 and early 1974. In March and
April of this year there were civil disturbances in Dacca. The problem
became severe again late in 1974 and contributed to the Government's decision
to declare a State of Emergency in December.
6. With the attention of policy-makers focused on the immediate
short-term needs and on the preparation of the First Five Year Plan, many
fundamental policy decisions concerning such issues as pricing of external
resources and capital and the widespread subsidies, on which realization
of the Plan itself was based, were not taken. Drought and other natural
factors also undermined recovery efforts, bringing 1972/73 per capita GDP
down to 80-85% of 1969/70 levels. Despite substantial increases in pro-
duction during 1973/74, standards of living are still lower now than in
1969/70.
7. Even a healthy, well-managed economy would have been badly hurt by
the adverse shift in the terms of trade which Bangladesh experienced during
1973/74. For Bangladesh the impact has been severe. As discussed in more
detail in paragraph 14 below, while the average prices of Bangladesh's im-
ports rose by some 65%, the average price of exports rose by less than 6%
and export volumes did not reach projected levels, so that the gap between
foreign exchange expenditures and receipts widened rapidly. Early in the
summer of 1974, Bangladesh sought assistance from a number of donors to
ease this crisis and asked the Bank to form an Aid Group to raise addition-
al resources. The already critical balance of payments situation was made
far worse when floods of record levels struck the country in July and August
1974, inflicting widespread human misery, decreasing crop production and in-
creasing the need for food imports. At the Aid Group meeting held in Paris
on October 24 and 25, 1974, members gave indications of new aid they were
prepared to commit for 1974/75. While these commitments (see para 16 below)
were significant, disbursements from them, together with disbursements from
the existing pipelines, will not fully meet the needs of Bangladesh even in
terms of the "minimum" import program suggested by the Bank to the Aid Group
(see para 15 below). The Government is now considering the adjustments that
must be made in its 1974/75 import program.
- 3 -
8. Bangladesh is thus in an extremely difficult situation. While
import prices have risen much faster than export prices, Bangladesh, as the
paragraphs below indicate, remains dependent on substantial food imports
even in years of favorable weather. Meanwhile its volume of jute exports
has stagnated and may perhaps decline. As a consequence, the import-dependent
industrial sector is starved for raw materials and spare parts and must
operate well below capacity. During the October Aid Group meeting discussions
took place concerning the need for Government action to improve the farmgate
price of jute vis-a-vis rice, accelerate implementation of aid financed
projects and increase internal procurement of food for the ration system.
Progress will be reviewed with the Government during the February updating
economic mission and at the next meeting of the Aid Group, now scheduled
for early June 1975. Regardless of the policies adopted, Bangladesh will
depend for the foreseeable future on substantial quantities of aid, especially
program aid.
Agricultural Production
9. The gravest problem confronting the Government has been, and is,
the food situation. The 1970/71 crops were poor and the crop of December
1971 was disrupted by the war. Large-scale foodgrain imports of about
1 million tons during the first six months of 1972 prevented famine. Im-
ports continued at record levels during 1972/73, but as the Table below
indicates, drought reduced local production of rice, so that estimated per
capita foodgrain availabilities remained well below 1969/70 levels. This,
combined with internal transport difficulties, and smuggling of foodgrains
into India, led to a 50% rise in food prices over the year. Foodgrain pro-
duction in 1973/74 reached a near record of about 11.8 million tons, an
increase of about 18% over 1972/73 levels, due primarily to very favorable
weather and continued increases in the use of high-yielding varieties. Food-
grain production, however, was still substantially below the target of 12.6
million tons and even slightly below the record 1969/70 crop. In part the
production shortfall was due to severe shortages of fertilizer.
FOODGRAIN PRODUCTION, IMPORTS AND AVAILABILITY
1969/70 1972/73 1973/74
Production (man. tons) 11.9 10.0 11.8
Net available (mn. tons) /a 10.7 9.0 10.6
Imports (mn. tons) 1.5 2.8 1.7
Total available (mn. tons) 12.2 11.8 12.3
Total available per capita 17.1 15.4 15.6
(oz. per day)
/a Excluding seed, feed and waste; excludes changes in stocks,
accurate data for which are not available.
10. In spite of the increase ir. too.irrtr prod. ctiomn A. 19/ >3-4, SUD-
stanti.-l foodgrain imports were r_cquired but1;, b u.i s pvs-t.rr i, I v257as Lo c
as great as anticipated arLd becautse Go-vec-r:inont. om e- d rice procure-ment program liad little success, leav-ng t'Pe .?i Lt :..-tf 3S/stemN ai test
entirely dependent on imaporLed suurfli . *ri cm; PO-mcS pro-cureTnent programn Was due. to ad_ix' 's -'." x -;he 1' a e tnr in
procurement and thle difficultPtie r r s- n i n- du
domestic stocks b farme-rs, hoorit, w; ",- mr¾Lt-.;,r' co-'I.. ' tnw d
reduce the amiiounts available. on the 0eEn fmaLiLS t AL; u.e lE Ve e;
price of rice. rose rapidly ir t0e ea fly n-)ntLlt of 1 97', ra;'7 2 si er Frrund(U1SSO. t13 per lb. int January to Tt' , 3 -er oaund (i i 1. r'.)iotpritThe Governmmen t,t iln response., pR3ec'd slrers for llarge amioi.;tc.S if foe ra, lr in(whleat) imports at prices some "0,Z xi lr th-a the rrev-vio-, ear 's . The
romw7pcosItion of available ald was sucli tnaet nuch of thles. ilor rts had to befinanced from tthe r;Coverrnner(t n /'s orfn c(Sh resources . Uburn the Govern-ment
real ized in. ov 1al974, the effect thlese orders wlere h aving1, on its foreignexchange situation, rmanv orders were postponecd. Food -imports in '1973/74
amotunted to about 1.7 trillion tons, significantly below 1972/73 imports, butwhichr resulted in drawing down iTiuch more of the nati--i's foreign exchangethan had been expected. With the flow of food imports cu.t down, Government
stocks were not built up and it appeared that substantial foodgrain imports
would be required in 1974/75 even before the floods began. It was expected
that the floods would have at 'Least two effects: first, a reduction in the
output of the Aus and Arian harvests by perhaps 0.9 - . 1 million tons and,
second, a rise in the offtake from the import dependenL rationing svstem,
as food bad, to be provided to f-lood victims w:c normally woul(d not be under
the rationing system. The Government launclhed a Special AgriculturalRehabilitation Program (SARP) to expand output of winter crops to moderate
the effects of the floods. It is still too earil to assess the impact of
this program. However, tentative forecasts of the Asian crop estimiate the
yield to be about 7 million tons of rice. Thi would be sliightly higher
than last year's crop>. The Government has also intensified its procurement
drive and taken punitive measures against hoarding and smuggling. The
pipeline of imports of foodgrain has also been restored to much higher
levels than inr recent months. Rice pr-ces nave, therefore, in recent weeks
declined from the very higph levels that obtained in the previous few months.
They had increased to over TV. 200 per maun; (lfS$0.31 per lb.) in eerlv
August l974, and to Tk. '360 per maund (US0.)f56 per lb.) bv October 1974,
but by early November theY had . ecl _ntd to Tk. 280 per rmund iibS$O .43 per
lb.). However, prospects for avertij,; ri turn Lo rising prices, anrd for
avoiding further food shortages and emi--l ,,ency leo Irnort irn thiie next Iorw
months, will depend on the a:nan crop 'cd heh succes9 of i b;Qvsrn7erm1tprocurement efforts.
11, 'The rapid increase in the price of rice over the pa.s;t: two and a
half years has increased the profitability of cultivating rice relativ, ctc
jute, Bangladesh's second most important crop and the source of about 85%of its foreign excharge earnings. ConsequentJy, farmers have shifted out
of jute into rice cultivation, bringing produiction of jute and Similar
fibers in 1973/74 down to about 6.0 million bales, well below tite 1972/73
- 5 -
level of 6.6 million bales. The relative price of jute continued to dete-
riorate throughout 1973/74, and as a consequence the 1974/75 jute crop is
expected to be on the order of only 4.0 - 4.5 million bales. Even if ex-
isting jute stocks (about 1.6 million bales) are used up, this means the
total volume of raw and processed jute exports will not increase in 1974/75
and may decrease substantially in 1975/76. To prevent a further reduction
in raw jute production in 1975/76, steps should be taken immediately to in-
crease the domestic jute procurement price. In the longer run more effec-
tive extension of improved jute cultivation techniques and an intensive re-
search effort will be essential if jute is to become competitive with rice
cultivation at home and synthetic substitutes abroad.
Industrial Production
12. Many components of the industrial sector registered substantial
increases in output during 1973/74, due primarily to increased availability
of essential imported raw materials and spare parts and to reduced labor
unrest. Program lending by IDA and other donors was instrumental in making
additional imports available. Nevertheless, production for most industries
was well below 1973/74 targets and for many industries even below 1969/70
actual levels. Moreover, by the end of 1973/74 shortages of raw materials
and spare parts emerged again, bringing monthly production rates in many
industries below those achieved earlier in the year. With imports now
further constrained by the current balance of payments crisis and with
continuing inflation threatening to upset an uneasy peace with labor,
the outlook for the industrial sector is far from bright. The low level
of industrial output has been one of the major factors contributing to
high levels of inflation. The general cost of living indices for Dacca
and Narayanganj rose by 50% during 1972/73 and by 40% during 1973/74.
The First Five Year Plan and the 1974/75 Annual Plan
13. The changes in Bangladesh's terms of trade in the past year and
the effects of the recent flood have rendered the First Five Year Plan's
financial and economic projections and development program almost com-pletely out of date. The Five Year Plan, however, remains useful as an
indicator of broad policy options. Within this broad framework major
revisions will have to be made. The 1974/75 Annual Plan, prepared in
the midst of the emerging crisis, provides no specific guideline for re-
structuring the development program in the light of the dramatic change
in the terms of trade. Already, however, the implications of the past
year are clear: a much less ambitious development program (and hence
rate of growth) will require more resources, foreign and domestic, than
projected for the original, larger program. Foreign resources are not
the only constraint. Domestic resources have not been mobilized at any-
thing like the levels envisaged in the Five Year Plan, while rapid domes-
tic price increases have raised the requirements for domestic finance for
both the current and development budgets. As a result, substantial deficit
financing (Tk. 1.8 billion as opposed to the planned Tk. 0.2 billion) was
-6-
required in 1973/74 merely to achieve a level of development expenditures
lower in current prices, and far lower, in real terms, than originally pro-
jected. In fact, the level of development expenditures in 1973/74 was some
28% below that of 1972/73 in real terms. The budgetary deficit has in turn
contributed to the nearly 20% expansion in moniey supply during the year and
further fueled domestic inflation. The 1974/75 Budget indicates that real
development expenditures in 1974/75 are unlikely to exceed 1973/74 levels,
Trade and Balance of Payments
14. During 1973/74, the average cost of imports rose by about 65% over
that of the previous year, so that the import bill of US$920 million bought
less, in real terms, than the US$680 million spent on imports in the depressed
year of 1972/73. The volume of non-food imports, while greater than in 1972/
73, continued to be inadequate to lift industrial production back to 1969/70
levels. Export performance was also far from satisfactory. While export
prices began to rise in the latter part of the year, they did not rise as
fast as import prices and because most of Bangladesh's exports are shipped
on a deferred payment basis, their impact on earnings was postponed. More-
over, export volume did not improve substantially. As a result, the total
value of exports in 1973/74 amounted to only about US$318 million, in con-
trast to the target of US$400 million.
15. As the gap between Bangladesh's imports and exports grew during
1973/74, reserves dropped sharply despite substantial short-term borrowings
and a drawing from the IMF. As the emerging foreign exchange crisis became
evident in May 1974, the Government sharply restricted imports which, while
easing the short-term crisis, implied lower levels of industrial production
in the near future as supplies of imported inputs dwindled. The outlook for
1974/75 is thus very precarious. A summary of the financing gap in the
balance of pavments is given below. While exports may increase to about
US$400 - USS410 millionI, due primarily to export price increases, a minimum
import program for 1974/75 would be about US$1,400 million. This import
program is based on a modest US$185 million for imports of capital goods
(primarily for aid-financed projects); food imports of 2.3 million tons
(about US$514 million, including the import requirements of SARP); and
other non-capital goods imports totalling about US$700 million (representing
an increase of less than 10% over the 1973/74 volume of suchi imports at
1974/75 prices). In addlition, imports are likely to go up by a further
US$50 million, as a result of fertilizer needs consequent upon the explosion
at the Ghorasal fertilizer factory. As illustrated below, allowing for
deferred payments for 1973/74 imports (about USS38 million) and the maintenance
of the present verv low levels of reserves (about USS60 million), the deficit
on current account remaining to he financed by foreign assistance amounts to
over US$ 1 billion.
- 7 -
ESTIMTAED FINANCING GAP, 1974-75(US$ Million)
1. Imports - 1,438 /a
2. Projected Net Earnings 418
3. Deficit - 1,020
4. Additional Fertilizer - 50
5. Gap - 1,070
6. Estimated Aid Disbursements 922
7. Uncovered Gap 148
/a Includes deferred payments of $38 million for1973/74 imports.
External Assistance to Bangladesl
16. It is clear that Bangladesh depends on a substantial increase inaid merely to prevent the economy from retrogressing, let alone achieve anysignificant growth. Roughly US$922 million of aid disbursements could beobtained in FY1975 from the pipeline existing on July 1, 1974 and from newcommitments so far made in 1974/75. This includes a sum of US$61.8 millionBangladesh has obtained from the IMF oil facility. Bangladesh has not yetreached agreement with the INF on the terms and conditions of additionalcredit tranches under the regular facilities. If an agreement were reached,it could have access to about US$75 million. The composition of the newcommitments and disbursements is, however, as important as their level;much more finance is required for food and otlher commodities than forcapital goods, which are already well covered by a pipeline of project aid.While new project aid is required, it will need to be restricted to projectsof the very highest priority. At the Aid Group meeting in Paris there wasconsiderable evidence that donors were fully seized of this problem and anumber of delegations emphasized that they would endeavor to structuretheir aid to maximize early disbursement.
17. Less than a year ago, Bangladesh's economic situation justifieda sharply different view of aid priorities; then it appeared that commo-dity assistance would be an important but diminishing part of the aidpackage as an increasing portion of aid would be used to finance the dev-elopment projects outlined in the First Five Year Plan. But the eventsof the past year have altered that view. The shift in Bangladesh's termsof trade, combined with the effects of the flood, make necessary substantialincreases in food and other commodity aid merely to maintain last year's
-8-
relatively low level of both food consumption and non-food imports in real
terms. The Bangladesh Government, shortly after the payments crisis emerged,
indicated to major donors its desire to shift the composition of aid at the
present time from project aid to commodity or program aid, and some donors
have already responded to this request. In an effort to raise the addi-
tional resources it requires and to achieve better coordination of aid,
the Government in July 1974 took steps to establish an Aid Group of countries
and institutions which are interested in Bangladesh's development. The first
meeting of the Group was held in Paris on October 24 and 25, 1974.
18. For the foreseeable future, program lending is likely to be a
major feature of development aid to Bangladesh. At the same time, how-
ever, a carefully selected group of priority projects needs to be imple-
mented, in a phasing consistent with available resources, which will re-
duce the country's dependence on imports (e.g. by increasing production
of food and fertilizer and by reducing the rate of population growth) and
promote exports. For this approach to contribute to the long-term devel-
opment of Bangladesh, it will be increasingly important for the Government
to adopt an appropriate policy framework. The administrative system will
have to deal more effectively with the development tasks ahead. W7hile
the events of the past year have severely disrupted planning efforts, in
recent months the Government has taken a number of difficult economic
decisions. Interest rates were increased in June 1974, with the central
bank's lending rate rising from 5% to 8% and the commercial banks' lending
rate rising from a maximum of 10Z to about 13%. New taxes have been levied
which the Government projects will increase revenues by 50% over 1973/74
levels. Steps have been taken to reduce subsidies, particularly those for
rationed food items, fertilizer and pesticides. A major change in industrial
policy has vastly increased the scope for the private sector by raising the
ceiling on private investment in industry from US$330,000 to nearly USS4 mil-
lion. The army has been posted on the borders to restrict smuggling and an
anti-corruption drive has led to the reroval of a number of officials. If
Bangladesh is to survive its present difficulties without even greater human
tragedy than the past has witnessed, many more difficult steps will have to
be taken to bring the economy to grips with the realities of the world economy
and to increase the effectiveness of the administration. Of particular
importance will be efforts to improve the competitive position of jute, to
restrict the subsidized food distribution system and reduce its dependence
on imports, to mobilize domestic resources and to improve the performance
of the public sector enterprises. If appropriate action is taken in such
areas and if the world community responds to Bangladesh's needs with adequate
amounts of aid of the proper composition, then Bangladesh stands a chance of
passing through the current situation and establishing the foundations for
future economic development.
-9-
PART II - BANK GROUP OPERATIONS IN BANGLADESH
19. After Bangladesh became a member of the Bank and the Associationin August 1972, Bank Group operations in Bangladesh concentrated initiallyon reactivation of IDA credits for uncompleted projects financed undercredits to Pakistan before the independence of Bangladesh. Eleven suchcredits in an aggregate amount of US$151.35 million (including US$44.1million for the repayment of amounts that had been disbursed under the
corresponding previous credits to Pakistan) have been made to Bangladesh.The last reactivation credit (US$25.0 million for the Highway Project) wassigned on June 29, 1973. In addition, seven new credits have been made,totalling US$185.6 million: US$50 million for the Reconstruction (First)Imports Program Credit; US$7.5 million for the Cereal Seeds Project; US$4.0million for the Technical Assistance Project; US$4.1 million for the InlandWater Transport Rehabilitation Project; US$50.0 million for a (Second) Im-ports Program Credit; US$20.0 million for a Second TelecommunicationsProject; and US$50.0 million for a (Third) Imports Program Credit.
20. Negotiations are underway between the Government of Bangladesh andthe various bilateral and multilateral donors concerning the assumption byBangladesh of a portion of the debt contracted by Pakistan before Bangladeshbecame independent. Until such negotiations are complete, it is not possibleto estimate precisely Bangladesh's total public indebtedness, or its totaldebt service. The Association has engaged in discussions with the Govern-ment on the assumption of the debt to the Bank Group. The Bank and theAssociation initially requested Bangladesh to assume responsibility forabout US$114 million of debt to the Bank Group originally incurred byPakistan. Of this amount, Bangladesh has so far agreed to accept liabilityas of July 1, 1974 for about US$92 million, about US$55 million to the Bankand US$37 million to IDA. Presentation of the appropriate documents to theBoards of the Bank and the Association for approval is expected in February.Meanwhile, the Government of Pakistan continues to make the service paymentson all of these obligations to the Bank Group.
21. Annex II contains a summary statement of IDA credits made toBangladesh as of November 30, 1974, and notes on the status of execution ofongoing projects. Bangladesh is not yet a member of IFC. Of the totalof IDA credits of US$336.95 million made to Bangladesh as of December 31, 1974only USS160.7 million (including US$44.1 million for repayments of amountsdisbursed under some of the corresponding credits to Pakistan) had beendisbursed. Excluding disbursements under the three program credits, onlyabout US$19.5 million had been disbursed under project credits for ex-penditures since independence. This poor performance is attributable toa combination of factors including Government procedures for hiring con-sultants and for awarding procurement and civil works contracts, and shortagesof construction materials such as cement. Various ways of improving thissituation are being discussed with the Government including improvement ofprocurement procedures, a comprehensive study of the import control system,and increasing the role of the Resident Mission in project supervision.
- 10 -
22. As the analysis in paragraph 18 above indicates, increased priority
must be given to flexible, fast disbursing aid. Program lending must there-
fore remain a necessary feature of IDA assistance, and the amount should be
commensurate with Bangladesh's needs. It is intended that, as soon as the
Fourth Replenishment Agreement becomes effective, an amendment will be proposed
increasing the amount of the Third Program Credit from US$50 million to US$75
million. For the next several years the requirements of existing productive
capacity will remain high for the types of goods - spares, components and raw
materials - financed by IDA program credits. However, long-term improvement
in the Bangladesh economy can be expected only if sound policies, programs,
and development projects are pursued. Thus, projects of the highest priority
must also be supported. The Association recognizes the prime importance of
the agricultural sector and of efforts to close Bangladesh's food gap. This
proposed fertilizer project and the forthcoming Barisal Irrigation Projectboth support this critical goal. Another vital sector, population planning,must be accorded the highest priority, and a population planning project for
which joint financing is being arranged, is expected to be presented earlyin 1975.
23. Other priority projects are an advanced stage of preparation -
maany of them in the agricultural sector. These include irrigation worksin the Muhuri and Karnafuli river areas, an Agricultural Training Project
and a Rural Development Project. The growth of other sectors, particularly
as they provide infrastructure for, or process or provide outlets for the
products of the rural economy, is also important. Several sector studies
supported by the Association - for example in small scale industry and
transportation (also assisted by the United Kingdom) - should help the
Government and the Association to develop a suitable pipeline of projects
consonant with mutual assessments of economic priorities. Further economic
studies will be oriented to the same goal. Finally, the Association has
provided funds under the Technical Assistance Credit to assist the government
in preparing a stream of development projects for financing by the Association
and other lenders.
PART III - THE FERTILIZER SECTOR
24. Increased fertilizer production is an essential feature of
Bangladesh's program to increase agricultural production. Given the lim-
ited acreage of arable land and the growth in population, more intensive
use of fertilizer is of critical importance for the country if it is to
be able to reduce its reliance on food imports and enhance the output of
cash crops which are the mainstay of its exports.
25. Agriculture dominates the national economy, contributing more than
55% to GDP and employing over 75% of the labor force. The sector's inter-
action with the rest of the economy is crucial to the pace and direction
of economic development. It is a primary determinant of foreign exchange
earnings through exports of cash crops (jute and jute textiles accounting
for some 85% of the country's foreign exchange earnings). The size of the
rice crop determines the need for foodgrain imports (in 1969/70, the last
normal year before independence, some 20% of total imports were foodgrains).
The growth of the sector has, in general, a stimulating impact on growth in
all other sectors. Faced with the physical constraints on expansion of ara-
ble land, and the necessarily slow pace of irrigation development, the major
focus of Bangladesh's agricultural strategy must be on more intensive agri-
culture with greater yields and higher cropping intensities. The wider use
of high-yielding seeds combined with increased fertilizer application is
central to such a strategy, and shortfalls in the supply of fertilizer, whether
imported or produced domestically, have consequences of the utnost gravitv for
essential food supplies and the economy as a whole.
26. Fertilizer use in Bangladesh has grown rapidly. Over the last
decade consumption of all fertilizer has increased from 48,000 tons of
nutrient in 1963/64 to 143,000 tons in 1970/71, an annual increase of 17%.
After the disruption of the 1971 war, despite scarcity and significant in-
creases in local fertilizer prices, consumption again picked up sharply
and reached 176,000 tons in 1972/73, of which local production mainly in
the form of urea accounted for about 50%. High and rising prices for rice
and the spread of high-yielding, fertilizer responsive rice crops have con-
tributed to the strength and resilience of fertilizer demand - particularly
for urea. Although official prices of fertilizer more than doubled between
1972/73 and April 1974 to about $180 a ton of urea, demand still outstrips
supply and there are widespread reports of a fertilizer black market charg-
ing two to three times the official price. This increase in use has occurred
in spite of the serious deficiencies which exist in Bangladesh's extension
service and agriculture credit institutions. It appears that these insti-
tutional deficiencies have not been a major factor in restraining the rate
of growth of fertilizer usage, and that the major constraining factor has
been inadequacy of supply. In addition it should be noted that deficiencies
in the extension and credit systems do not appear to have been a relative
handicap for the small farmers. In fact the last agricultural survey in
1967/68 indicated that farmers with less than 2.5 acres used more fertilizer
per acre than did farmers with larger farms.
27. To meet the country's fertilizer requirements, the East Pakistan
Industrial Development Corporation completed in 1961 a 106,000 ton per year
urea plant at Fenchuganj and, in 1970, another 340,000 ton per year urea
plant at Ghorasal, both plants using the country's ample reserves of non-
associated low sulphur natural gas. To meet phosphate fertilizer needs the
Corporation also completed, in 1969 and 1970, two triple superphosphate
plants at Chittagong, based on imported rock phosphate and sulphur. After
independence, the Bangladesh Fertilizer, Chemical and Pharmaceutical
Corporation (BFCPC) was established to control, supervise and coordinate
these, as well as other enterprises. The Ghorasal plant initially en-
countered mechanical problems and did not achieve 80% of its rated cnpacity
- 12 -
until the first half of 1974. In June 1972 the Government enlisted the
services of the Toyo Engineering Corporation, which engineered and built
the plant, to bring it to full capacity output. The problems were due for
correction during the plant's first scheduled maintenance overhaul in 1974
when, in the fall of 1974, an explosion destroyed the control room. BFCPC
hopes to have the plant back in operation in May 1975, when it could be ex-
pected to come close to capacity operation. The Fenchuganj Plant, which
operated satisfactorily in the past, is now in need of major maintenance
and the Government is considering proposals for major rehabilitation, with
foreign assistance. Only one of the two Chittagong plants is in operation.
The smaller of the two plants will commence operations in early 1975, when
supplies of suitable rock phiosphate have been received. The Third Imports
Program Credit (Credit No. 515-BD) includes provision for financing required
fertilizer raw materials, spare parts and packaging materials. A USAID
financed study of the operation of the fertilizer industry has identified
other important problems such as inadequacy of foreign exchange for spare
parts and deficiencies in the inventory control system. The proposed
Development Credit Agreement (DCA) provides that the Government uses its
best efforts to improve the production of the existing fertilizer plants,
taking into account the recommendations of the recently completed study
mentioned above (DCA 3.05 (a)), and to consult with the Association on
progress in this regard. In addition, a consultant will be employed to
assist in the implementation of an adequate inventory control system for
the fertilizer industry (DCA 3.05 (b)). The proposed DCA also includes a
commitment by the Government to allocate adequate foreign exchange resources
for spare parts (DCA Schedule 3, paragraph c), and the Third Imports Credit
includes provision for financing ch spares.
28. Fertilizer demand projections based on present farming practices
and changes likely to arise from (a) probable increases in irrigated land,
(b) expected increase in the use of high yielding varieties, and (c) ex-
pected reductions in the fertilizer subsidy and changes in crop prices,
indicate that the demand for urea will grow at an average annual rate of
12.3% between 1972/73 and 1982/83, that local demand will exceed local
production until 1978/79 (the first year of production of the proposed
Ashuganj plant), and that for about three further years there will be a
modest surplus production before demand again exceeds supply. There will be
no difficulty in exporting this surplus urea. Given the economies of natural
gas feedstock, Bangladesh urea should be competitive and India alone is a
market which is expected to need imports of more than 1 million tons of
urea in 1979. The above projections of fertilizer usage are not based upon
any assumed strengthening of the extension services or the agricultural cred-
it facilities. While the deficiencies of these institutions are a source of
serious concern to Bangladesh (and various proposals are under consideration
for strengthening these institutions, including a proposed agricultural train-
ing project), it is not likely that those weaknesses will prove to be a serious
constraint in using the output of the proposed urea factory, given Lhe present
low level of fertilizer use and the farmers' demand for fertilizer.
- 13 -
29. The Bangladesh Agricultural Development Corporation, a publicsector corporation, procures and distributes nearly all the fertilizerused in Bangladesh down to the thana (county) level. There, fertilizeris purchased either by one of the 29,000 private licensed retail dealersor by the Thana Central Cooperative Association which acts as a wholesaleagent for its member village cooperatives or private retail agents. Thissystem, despite the difficulties of transportation in Bangladesh, has,until recently, proved sufficiently flexible to handle the substantialincrease in fertilizer use and has brought fertilizer within reach of vir-tually every farmer. In the past few years, however, the rapid increasein volume, shortages, pri-e distortions and disruption to transport havestrained the system and attracted criticism. For this reason and to developa system capable of effectively distributing much greater quantities inthe future, the Government has agreed to undertake a detailed study offertilizer marketing and distribution, to review the study with theAssociation and other co-lenders, and to take the necessary action foreliminating physical and institutional constraints which would be expectedto arise as the volume of fertilizer to be distributed grows (DCA Section3.04). The Association is now preparing terms of reference for consultantswho would undertake this study, with finance to be arranged from the TechnicalAssistance Project (Cr. No. 409-BD). It is expected that this study may leadto a fertilizer storage and marketing project suitable for external financing.
PART IV - THE PROJECT
30. The project was appraised in March/April 1974. The appraisalreport (No. 593-BD, dated December 18, 1974) is being distributed separatelyto the Executive Directors. Negotiations were held in Washington duringOctober/November 1974. The Government of Bangladesh was represented bya team led by Mr. M. Syeduzzaman, the Secretary of the Planning Commission.The colenders, except KFW and Iran, also participated in these negotiations.All the colenders participating in the negotiations have reached agreementin principle with the Borrower on their respective agreements; agreementwith KFW and Iran is expected early in 1975. Attached as Annex III is acredit and project summary.
Project Scope
31. The project, to be located at Ashuganj, 60 km northeast of Dacca,would consist of a 1,600 TPD urea plant with an intermediate 925 TPD ammo-nia production plant having annual capacities of 528,000 tons of urea and305,000 tons of ammonia. Modern, commercially proven technology would beutilized. The principal raw material would be natural gas supplied undercontract from the Titas gasfield, some 12 kms away, through an existinghigh pressure gas transmission line which passes within 2 km. of the proj-ect site. This gas field has proven reserves estimated to last for another30 years even if demand continues to increase at 11% annually over the nextten years. Power would be supplied either from the nearby Ashuganj power
- 14 -
station, which has adequate capacity to serve the project, or from captive
power generation facilities in the project (for which provision has been
made in the project cost), depending on the proposals made by the Engineer-
ing Firm selected to carry out the General Contract. (See paragraph 32 below.)
Satisfactory pollution control facilities would be provided at about 2% of
project cost. (The provisions concerning gas supply, power supply and
pollution control are included in DCA Sections 3.03 and 5.01 and Sections
2.04, 2.05 and 3.04 of the Project Agreement (PA).)
Project Execution
32. The project would be carried out by a newly created company - the
Ashuganj Fertilizer and Chemical Company Ltd. (AFCC). However, until the
new Company is adequately staffed and becomes operational, which is expected
to be in mid-1975, BFCPC will act for it in further project preparation and
implementation, gradually withdrawing to its supervisory and coordinating
functions which will be exercised through its two nominees on the Board of
AFCC. BFCPC has employed a Technical Advisor, a joint venture of the
Scientific Design Company Ltd. (UK) and James Chemical Engineering (US),
and is organizing a project team to help implement the project. This team
will subsequently be transferred to AFCC. AFCC will be the owner, and the
Technical Advisor will act as consultant to the owner throughout the course
of the project. The initial services of the Technical Advisor up to the
date of effectiveness of the Credit are being financed out of the US$4.0
million IDA Technical Assistance Credit (Credit No. 409-BD). Invitations
to bid for a General Contract have been issued to four engineering firms
prequalified in accordance with the Association's guidelines. Bids are
being sought on a fixed price basis for provision of process licenses and
all services, with equipment, materials and construction costs being re-
imbursable at cost. The firm awarded the General Contract (referred to
hereafter as the Engineering Firm) would undertake design and detailed
engineering and would supervise civil construction, which would be carried
out either by subcontractors or by local labor directly hired by the
Engineering Firm. Additional outside assistance would be needed during
project implementation and the early years of operation in positions for
which qualified and experienced local staff are not available, and to train
local staff to take over full responsibility in the shortest possible time.
The scope and role of such assistance has been agreed in principle with
the Government and funds for such assistance are included in the cost
estimates.
Capital Costs and Financing Plan
33. Total project cost is estimated as US1 249.4 million, including
US$142.3 million foreign exchange cost of which US$0.4 million has already
been provided from the Technical Assistance Credit. Physical contingencies
provided are 9.6% of both local and foreign base estimates. Total price
escalation of 30% for local and 17% for foreign costs are based on escalation
- 15 -
rates for equipment at 14% for 1974, 11% for 1975 and 7.5% for 1976 onwards,and for civil works at 18% for 1974, 15% for 1975 and 12% for 1976 onwards.The estimate assumes a project implementation period of 52 months datingfrom April 1, 1974.
34. The financing plan for the project provides that the Government'scontribution will cover local expenditures of US$107.1 million (includingabout US$33 million of duties), while foreign loans will cover the estimatedforeign exchange costs of US$141.9 million (57% of estimated total projectcost). In addition to the US$33 million of IDA funds, other co-lenderswould provide US$108.9 million at concessionary rates as follows:
US$ Million
Asian Development Bank 30.0USAID 30.0United Kingdom 18.0Iran 12.4Federal Republic of Germany 12.0Switzerland 6.5
The Government's contribution would be passed on as equity, up to at least40% of the total capitalization of AFCC. The Government would be permittedto lend to the company its contribution exceeding 40% of AFCC's capital.The proceeds of the IDA credit and the other external loans would be onlentby the Government to AFCC except to the extent that this would result ina debt:equity ratio exceeding 60:40, in which case a portion of the IDAcredit would be passed on to AFCC as equity. The onlending to AFCC wouldbe at a 10% annual interest rate, with repayments to be completed in 15 yearsincluding 5 years of grace. AFCC would bear the foreign exchange risk.The Government would undertake the normal cost overrun obligations.
Procurement and Allocation of Foreign Funds
35. Approximately 66% of the foreign funds available for the projectwould be untied with the balance being tied to procurement in the USA ordeveloping countries (21%) and the UK (13%). Foreign exchange financingwould be partially on a parallel basis, with separate specific lists ofgoods being allocated to ADB (US$30.0 million, substantially untied), USAID(US$20.7 million, tied), UK (US$11.7 million, tied) 1/ and Germany (US$12
1/ If the engineering contract (US$24.5 million) should be awarded to aUK firm, half of the contract would be financed by the UK and half byIDa. In such case most of the list of goods currently shown as allo-cated to UK would be transferred to the unallocated category, subjectto international competitive bidding.
- 16 -
million, untied). The pre-allocation of certain supplies to countries con-
tributing tied funds has been made on the basis of their general competitive-
ness in a particular supply category. The pre-allocation is also expected
to simplify administrative procedures and accelerate project implementation.
Except for some critical items (see next paragraph) all goods and services
not so pre-allocated (US$67.5 million) would be subject to international
competition. It is expected that the remaining tied funds of USAID (US$9.3
million) and UK (US$6.3 million) would be committed for contracts awarded
to eligible suppliers on the basis of international bidding. The Association,
together with Iran and Switzerland, would finance the estimated foreign
exchange cost of all items not pre-allocated to one of the other lenders and
ineligible for financing from tied funds, or goods and services remaining
after such funds have been utilized. It is proposed that IDA provide retro-
active financing of up to US$600,000 not eligible for USAID financing for
certain costs associated with site development work after November 1, 1974.
36. There would be prequalification of all suppliers of equipment
and materials, independent of the source of finance. The technical eval-
uation would be doine by the Engineering Firm and reviewed by the Technical
Advisor. Although none of the IDA financed goods are expected to be procured
in Bangladesh, prequalified local suppliers would receive for purposes of
bid evaluation a preference of 15% or the level of customs duty, whichever
is the less. Local contractors would receive 7-1/2% preference. Items
which are critical, either technically or because of their limited availabi-
lity or long lead times would be subject to bidding among prequalified
suppliers with the approval of the lender concerned. The total of such
items is expected to be between US$10-13 million for the entire project.
The value of such critical items which may be financed by IDA is unlikely
to exceed US$3 million.
Financial Covenants
37. To ensure the sound financial management of the Company, it has
been agreed that the Company would not exceed a debt/equity ratio of 60:40;
that it would maintain a minimum ratio of current assets to current liabil-
ities of 1.5:1 with dividend payments or other cash distributions to be
made out of accumulated earnings and subject to that ratio; that the ex-
factory price of urea would be set by the Government at a level sufficient
to meet the current ratio, a debt service coverage ratio of at least 1.5
at any time, and to earn a reasonable rate of return; and that AFCC's
capital investment program would be restricted to US$3 million equivalent
per year during the initial three years of commercial production. (PA
Sections 4.04, 4.06, 4.07, and 4.08 and DCA Sections 3.07 and 3.01 (b).)
Returns and Benefits
38. The estimated financial rate of return is 9.2% (13.8% before
income taxes) at an assumed ex-factory price of US$155 per ton of urea
(which compares favorably with the estimated 1978 c.i.'. price for urea of
US$170 plus US$5 for port handling). The return rises by about one
- 17 -
percentage point for each US$15 increase in the urea price. Sensitivity
analyses indicate the rate of return is only mildly sensitive to fairly
adverse developmiients dropping to 6.7% if a 20% cost overrun and a one-year
delay in construction are assumed. The financial rate of return is lower
than for similar projects in other countries, due to the conservative
estimate of the construction period, high capital costs resulting from heavy
import duties and site development costs, the low ex-factory price assumed,
the high corporate tax rate and the assumption that surplus funds are not
invested in revenue-earning assets.
39. The economic rate of return at the official exchange rate is 21.2%
and rises to 25.0% if a shadow rate of exchange of Tk 14 per US$ is used.
A 20% cost overrun would reduce the return by 3.6 percentage points. Sen-
sitivity analysis indicates that the rate of return is still satisfactory
even under fairly adverse conditions. Gross foreign exchange savings
would be significant; assuming a c.i.f. price of US$170 per ton there would
be a gross annual saving of US$74 million at 90% capacity output.
40. There are major risks involved in the project. The most important
risks are slow project execution and low capacity utilization due to deficient
project management, weak company organization and administrative inertia. To
minimize these risks agreement has been reached on the scope and duration
of substantial management assistance during project implementation and the
initial years of commercial operation (P.A. Section 2.02 a) (ii)). Pro-
cedures have also been agreed upon to accelerate Government approval (where
required) customs clearance, payment of duties and the grant of import
licenses. (DCA Schedule 3). With such safeguards the risks are considered
acceptable. There are also risks in further price escalation in a strong
seller's market for fertilizer plant and equipment, and in delivery delays
from fully booked suppliers, though the most recent procurement experience
conveyed by consultants and engineering firms indicates at least a slowdownin price escalation.
PART V - LEGAL INSTRUMENTS AND AUTHIORITY
41. A draft Development Credit Agreement between the People's Republic
of Bangladesh and the Association, a draft Project Agreement between the
Ashuganj Fertilizer and Chemical Company Limited and the Association, a
draft Memorandum of Agreement between the Association and other lenders,
the recommendation of the Committee provided for in Article V, Section l(d)
of the Articles of Agreement of the Association and the text of a resolultion
approving the proposed Development Credit Agreement, Project Agreement and
Memorandum of Agreement are being distributed separately to the Executive
Directors. Special features of these agreements have been highlighted in
- 18 -
paragraphs 27, 29, 31, 37 and 40 above. Conditions of effectiveness (DCA
Section 5.01) include execution and delivery of the Project Agreement, the
Financing Agreement between the Government of Bangladesh and AFCC, and the
Gas Supply Agreement, satisfactory arrangements with the other lenders,
appointment of the Managing Director of AFCC, satisfactory arrangements
for the employment of certain consultants, the dedication of sufficient
gas reserves for the plant, agreement on terms of reference for a study
of fertilizer marketing and distribution, and agreement between the Govern-
ment of Bangladesh and AFCC on a detailed budget for the project.
42. I am satisfied that the proposed development credit would comply
with the Articles of Agreement of the Association.
PART VI - RECOMMENDATION
43. I recommend that the Executive Directors approve the proposed
development credit.
Robert S. McNamaraPresident
AttachmentsJanuary 16, 1975
ANNEX IPage 1 of 3 pages
COUNTRY DATA_ - BANGLADESH
AREA POPULATICON O&NiEnD
=I e1?u 72.5 slicie (mid-1972) 840 Per ra2ar ...able lead
SOCIAL rNDICATORS
ON? PER CAPTA -5$j(ATLASBASIS) . 70A/ 90 /a 110 4a 30 I5
MUO Fhrate (Per thoueand) 47 /b 4. /4 8/e.g 38
Ac-c 30 /d
Crude death rate (per thoe.end) 20 [D.c 21l'& 62ie 7Infant mortality rate (per thousand live birtha) I v1W Ic . 120-140 /~,- 4 _
Life expectancy at birth (Yaere) .. 0 7? 46 50 59
Ornee -repedntisa rat./ 3.5 /b 373 3*.2I 2.9 2.7Pop.latica grate, rate . ./ 2.0/i1 2.3/A -. oAi
PaPlattion gr.at rate - urban ... 7-k
Age struct.re (percent)0-14 07 /h 45 Acl 45 /c 40 03 /A
i5-6L 497-h 527T 537?c 55 537?d
65 and ner 071; 377T 77? 1 7?
DenoedOo.y ratio /0 1. . .0 7?- 1.2 /c .c 1.3 7,
Ilrban populati- as percent nt- total I? . 7 20 /b 29 Id
Fanily placcing,: ON. of acceptors vuultie- (thou,.) * .13(5 .. 20 7tN.. of U.er- (5 nf carried weec) *.....iS 7?d
EPDWYhENTTntel loper force (tho-oade 17,100e 2,30'C 40,2003 221,000 /;.s3,200 Id
Percntvage employed in agriculture 76 71 u3 71 45 7?dPsIeatagm -neployed ... 2 .8 7?
INCOME DISTRIBUTIOhPercent of ati nnal v..... r...aieen by highest 5% 19 4na 7I~ .22 Ir s 22 /r. t.u
Percent nfnationaI incom ra-i-ee ny high-ut 20% 45~ 48 7~ 52 i.t
Percant ofnational Inc.n- ranelei- by lcw..st 20% 9.4 t 0I
Percent uf na tional inconme received by lowest 40% 18 __ .1912
rI2STRIBUTION OF LAND OiNERSHIP
% c-and by top 10% -of -owners 30 /
% caned by snellant 10% of -wsr-. 1 7?
HEALTH AND NUTRITIONPopulation per physician 10,000 In 7,600 /t, 27,650 0,800 38,60 /da
Population per nursing pereco 110,0007? 72,030 /tc ,olo 5,110 1,obo___
Population per hospital be- 11,000 7- 8,120 /7 170 i6220 /t.a 30
Per caPita caoiespply an 8 of ecqeirments /5... 82 In 87 lab 90 /d.a
Per caPita protein supply, total (gran pee dayT7 ..6.43 7?c 09 7-7b 09/dv
Of which, animal and pulse.. 147? 16 7.7 20
Death rate 1-0 years /7 ... . .6
EHOUCATIONAJusted /8 primacy school enrllleent ratio 42 aA.ae 50 /ab.a 71 79 /af 89 /e.
A.djuetad 7? menondary school enr-1et ratio 8 /~ g 15 7u.o 12 28 7?7 31. 7?Tears of schooling provided, first aed second lasa1 10o Ilb 21 37
Vocational e-roi..et as % of nec. echool enrollment ... 28 6 /ai 3 7?
Adult literacy rate % .. 56 d3o,u 36 7o 89 ~3~HOUSING
Average No. of p-cens in rv (ron .
Perc.nt of occpied unite otticot puped acten...A.o.em to electricity (an 5 c tcevol popultton).....Parom..t of Aural popu-t-c nccteeo lvrct . - ..
Radio renaeer per 1000 ppulatIon.. 1 16- 21 57
Pam agrsnr per 1000 Jpoputltio . 2 1 26 6,-o
Electric pe~amo consiumption (kch p.c.) 3 11 19 1ll 3Ce6 7jNws.print conso-ption P.c. hi pee year-.. 0.2 0.3 3.8 7r-.
N.ten, Fig-re refer ether Ic tic p-oc eiuds cr to accout of enirc-Omenal tempeI.ratr, bcdy meighte, ;and
the latest years. Lateel perluo refer iv principle to dostribotlon by age aacd era of satiomsi popalatione.
the years 1956-60 or 1966-70; tin istost yearn in prl- /6 Protein etandards (reqairemente) for all coun.tries as metab-
ciple in 1960 and 1970. Ilobed by ISODA Econosic Ne-a-rh Service provide for a miomna
a1 The Per Capita GNP estinato iv o' cook- -ri-a for alun f 60 gram of toshl protein per day, and 20 gran of
Yrae vthrr than b§o,nctve y the com --nvrsion ani-el and pu1se protein, of hbih 10 grams should he animal
technique cm tie 1972 iWr-d iceb Atio- protimi. Theme etandarde ar ecemaht l-owr than those of 75
/2 ieA...ge number of daoghierr par oncon of veyroduclive gram. of totel. protein and 23 grams of animal protein ae an
age. average for the acrId, prop-osd by FAG in the Third World Food
a Plepulatios growh cco ten -r for the dnr-d- endiog In Survy.
1960 end 1970. /7 Son stodi.e hove moggested that crude death rtate of childra.
A Ratio of under 15 end 65 and -ec uge broohoto eto agoe 1 through I, say he sed amafiret approximeoton index of
those in labor foroc bochec of ng- 15 through 60. maicatritho..
Fj AO reference standordo ropreect o1hysiulogieol ro- /8 Perentage enrol led of norrem- pouding pcpulation nf school age
qilomebc~ for -c,olOtliviy vol~ ev-th, tablog andefiocci for each country.
/~1911; lb 19o1; ,v Etmae d West Malaysia; . Ragietered esly; /f Projectian, 1973; /I 1965-70;
/b 1960-61;7 .I 196o-7?; Zj fnslicipities, regency capitals and tiha planes with urban characete,tettca; A Per
defteittee of u banmn U Deor leTabak17 . 5; a 1972-73;- /e Ratio of populatios under l5 and 65
and eve be total boor -n0a.u.tlas under 15ad u, and ovrto total labor force in age group 15-59;
to Gazetted areas af 12,000 or more Tichobiuante; /P AID estimate of labor force in age group 15-59; BROD repart gieeaa
figure of 180.4 milliun b.asd an the 1971 population census. Ths differencea im due io changee in the definition of a
wo.rker. .In the 1971vns, perso.ns wer ..aeeified only on the banie of their eels ctiVltiee; this lad to the
eaciue ona several cabagerlas, each anbueie; /q 1963-o4; /0 Houcebolde; /a 1960-65; It 1969;
/c Tease; A/ 19v7-e8, g-graph-ulivepoalo; 1 Number cc toe register, cot all worcing in tie country;
7?- Nursee. in-goveromeni .erc.ca only; ly Gi-versentWcepitals onlp; In, 1968, lea Including rural hospitals;
771b 1969-70; lan 1964-66; lad 1959-10; /ea Apprcaleatte esroll.ect am percentag-eof populaltion in 6-10 age groap;
71! Eatimate ehtlW incubdes vorera, stadeobo~; '7
g Approxinate enrollment cc PO,rca.itge of j-popultion in 11-15 age group;
7i? Up to end f eacond level; /ai 1965; /. 15 Ye-.arund over; /akc Popolation of ii yaare cod ever base.d on one
percent eaple data ef 3'l;3 ~7al 19
6o; Ian Definition of literac-y asikoow * a.n 1971; Inc 1966-67.
oSelection cf malaysia us cv, ohmtv ouctry le. homed ou 2hlayetae. oceeIn ain,tiaolong a high rate of eunoomic
groth and adequate level of welfar -c-arenily wtho div-rifyiug lie, e-nvee ~sic trctre.a
1fl01801010 DEPE).DP?err DATA ~~~~~PA-gNeX2 or 3 Pages
(Amouts InmlIn of U3.S. dollars)
Estimated for Ecn. Pahiston Li. ng.-h3/
Actual 191 175Po~ced 17 1960- 19 65 - 197Cr - 19 - 1.970 191 19 7413
L-___ _ L ____ ____ _Z__ 195 1965 19 70 A2za 19 __9___
AT.TONA.L ACCOIINTo __ ___ __
93-Soar A-og ot196~7- 99Pi_ Avrg d ascol Goot Fates As Percent of GDY
Gross EDso-tic Product 5,303 6,151 .. 5,i . , . . .2 101.6 102.0
Gales' from Terms of Trade() 21 -97 . 0 -127 -239 -2.6 -7.0
Cro-ss Dometic IcnC- 3772 3772 22 3723 =77 377 5.6 2.6 3.1 - 150.0
Import (i-1. N30) 640 506 727 592 731 70.6 -4.7 3.9
Exporto " import caacity) I48 334 II33 247 21, 12.3 7.7 5.2
Besurc Cap 155 174 . 389 345 500 - - -
C-os-aption llspeoditur-o 4~942 5,516 . 5,624 6,317 6,142 5.7 2.2 2.7
loveatmont " (tori. st.cka) 531 713 .. 290 313 286 13.3 6.5 10.4.
D-octic SavIngs 376 538 -104 -35 -319 4.3 7.4
Na.tional Saings25 525 . -99 -32 -212 8,7 151,
ff1RC0A1f001E TRADE Ar.nual Data at Curret Pri-o As. Percet of Total
Cupitol goode 176 .. 100 151 18s 19.7 30.2 16.9
Tos.errndlote goods )ascfmelo) . 157 . 250 390 702 19.8 26.9 42.1-
Soels Cod related suleialsof hloloh Petroles- . 11 .. 25 77 119 21.0 1.9 0.4
Ceson.01to- goods 02 352 295 463 -18.0 L0 - 0
Totu! M.rch. Th01rt,s (col) .. 503 727 917 1,490818 100.0 100.0
EDportePrsryproducts ~sml. fueol3( . 212 . 147 150 6 . 134.
PrIess -,.d roluted satertoloouhich: Petrol7r
FOoiotsu-md goods - - 301 . 151 210 244, 18.6 58d 3
Total Ferri. Raprt (fob) . 13 . 330 369 409 14.2 100.0 100.0
M-rhas,dis- Trade Isdiee A-ergo 19 67-6f9 -ICC-L3 14
Esport Pic TeArs 94.2 88.3 .. 100 107.2 118.6 -. .
Import Pis Icdeo '.5 166.7 .. 10 162.3 196.6 18,7 7.3
Tr-- of Trade- Imd-o 134.2 53.0 .. ic 66.1 60.3 -20.2 -I.0
Exports Volu.- inder 101.5 112.08 . 100 102.9 113.8 3.0 7.0
VALUE ADDED BY SECTO0 Lcoal~a flota at 1962- 69 Prioe sod Euchange Ratea3 A-orage Asosul GroWth Rates As Percent of Total
Agr Icul2re7904 3 .45 a 3,209 3usc8 3,384 3.5 3.6 56.6 54.7
lo~duor o Oc 601 783 .. 477 562 495 5.5 1.0 12.88.
1,605 1 870 . ,030 3,342 2,202 3.31902,6 _
Total 5,110 6,111 .. 5793 717 0700 3.6 3.2 100.0 100.0
.P.18L1C P1561150 1969/70 1970/31 197 1/72 1972/73 ~~ 1974 75 As Percent of CDPPUBLIFI~~
7eNAN Ent6) 17/11917 92/3L7/7 2 7969/70 1972/73 1973/74
Cots-ent Re-iPta 318 .. .. 286 486 71749 9. 7.
Corr ent Fbp-sdit-e 14_8 .. .. 39 590 6 29 2.3 6.8 9.z
udtySavings 170 .. .. -103 -104 88 2.6 -1.8 -16
Other lOablic Sector.. ., .
Public looter Oseet-et 389 . . 266 284 322 4.0 4.6 4.4
US $ million L7iCU NNT D1iR013 tDET01610Acia Por.. lot. Budgot DETAIL OR At -cd 1972 P sod E0
As % Toa Cur c Eupend.) 19 19 1972/73 1973/74 1574/75 JLC2T0Fis Pln %oStaEducationa 14.8 14.9 19.1 INVESTMCCNT P03047A1 (1973 / 74 -1.37 7 / 78
Othr Suciol loroico 4.0 3.3 4.5 S,olal Sectors 19 803 15.3
Ag,i-olt-r & 018cr Agri-ltur-130 2.
LoosmcSerl 11.2 10.7 5.9 Ind-otry sod MIi.-g 1,085 30.7
Adiolntrtton sd Defoo- 67.4 68.0 61.4 Psr51 1.
(the- 2.7A 3.1 /4 9. 1- Tr-ropot acdoeuitin 850 16.3
Total Current Esp-oditure 100.0 -1000 o T 100.0 Other 555 10.6
___________________________________________________________________________ TolsEtppeddtture 5,234 100.
SELEC TEI ISTICATGp.S 1960- 1969- 1970- 1973- P1INANC1NG
(calculatd ion5-year --rgod data) 19A5 1979 1975 19308
lo-rao !C01 Nb~TZ 2 77l9uii Odo.r S-Oiog5 2,157 48.7
Tesprt Elusticity ,. 1.29 .. 3.9 Prugroe aid -oterpart 1,076 24.3
issoglool Domoetic l-iags Rate .. 22 .34 Foreego1 .Projeet Aid 1.200 27.0
Marginal at,oonul Sovings Rote. .35 . .. Total fioacing 4,433 100.0
LABOR fOR C E AND0 Total Labor Forc Taloc Added Per Worker (1963 -69 Pricen & Blo.Rt es)
OGTPIJT PER WORKER In Filios $ of Total 1340/61-72/73 Is U.S.DSullaro P ercent ot Average 19 !-
1950/61 192/J73 134 061 1972/73 Growh Rote 1920 1973L3 99 1973 Groth Rate
Agricolt.r, 16.1 20.9 81.1 78.2 2.0 .. 150 71
Ind-ntry 1.0 1.8 5.2 6.9 3.0 . 265 121
Service 1.~~~~~i8 3.9 9.3 14.9 6.7.. 523 239
Total 189 2 9393 T76To 2 57 73 - -0
sot applicable - 11 or negligIble
sot aailabe --leja than half thesm1alet unit shown
laeut op to 1969/70 perrais to -rtohile cost Pahitc.,
/2 1s-lodes jote masorreand other e-ports.
/3 1973/74 on-ada are mnc..I dora, is 1972/73 pri-e and eoh-ee r.en; industry -nl.d-n --t-rutieo and
utilitie- for which no separte esiae wr ,d-
/4 Dcht serice
/5 RehLi aeri-e sd cotiog-oY.
/6 Io-lsdescdoatioe, health aed u-fare.
/7 These are original Plan torgais, which -r out of reah lm the p--oct croou s
Ntote: All figare -r .. f-cal yea b-sie I1y 1 - Jtse- 30.
ANNEX I
Page 3 of 3 pages
BAlANCE 0? P?aIS 1 EnUIlRAL ASSISTANCB AND DEBY
is-niets in melhlass of U.S. doll-rs *t ou-rent prices)
Estimted foe East Pakistan A C L A D E s H Avg. Anntal
ActUal Estimated ProJected Grath Rate
1969 1970 19 72173 L973/174 974/15 1975/76 196/7I 1977/78 19. 19 1965-19 70
1U1MNARY RALANCE OP PAYKNS
Euporta (incl. NPS) 449 488 338 360 409 472 556 615 . . 3.6
7Jsporta (incl NF3j 630 711 727 917 1,488 1,298 1,339 1,438 . . .9
R.3ource l3lnce (X-ff 11 -2 3Y-M 59 -a U 2
Intereet (net)Direct nceatment Income 53 58 30 -3 -1 -6 -21 -36
Workers' Remittance .
Current Trane-sra (ret) - 75 -56
BalaIne on iC ir1et Acsount. 320 7r - 5 lSfl T 17 -eo) 51
Private Direct Tnveame-tOfficial Capital Grants 202 204 425 330 350 350
ulable HkLS3 iconsDisbarienMeto 73 231 427 480 430 470 .
-RepaFnta- -24 -6 -10 -18 -27 -29 .. .
Net o i a b u r s e = e n t - -,1 -2 702 r -
Othler M&SLT Loana
at DitstbentsNct flkbiPbredi6iii- - - - - -
Actuml Zetirated
Capital Tracaacti.na n.e.i. lgt7 1970 197i 172
Chaw-c in Net ReaeSe- LEbT AND DEbT SERVICEPublic Debt DOt. & Disbursed
GRANT AIID LOAN CCMMI7ffBNTSOfficial Grants & Grant-like 84 Interest on Pablic Debt
RsPAoe-te en pablic Debt
Public MhsLT loans Tctal Pablic Debt Service
TBRD Other Debt Sercice (net)
DA 74 Tctal Debt Service (net)
otGerOther Multilateral 17 Earden on Eaort Ehrnings (%) 10.2 10.6 13.3 9.4
rSavernmentaSuppliers
241 Poblic Debt Service
Finncial 1,astitutions 114 Tctal Debt Service
Bonud TDSf'irnvt Invest. Ins.
Public icaDa nei. -i
Total Public MfhLT lbio.a 446 Average Tetmt oa Public Debt
EXTERNALDEBT /Actual Debt Oatetasding on Jle 30, 1973 Ict. as % Pricr Year Dl)kD 2.7 2.7 2.4 1.1 2.4
WrIDABk DbYred Only Percen Amcrt. as S Prior Year DODA 4.6 4.1 3.5 7.0 4.3
IDA- 16.2 9.2 38RD Debt Out. & Diabureed
Other Mltilaterel _ as S Public Debt O&D 5.7 5.7 5.3 4.4 3.8
_ver- te-ts 104.0 59.0 * as % Public Debt Service 10.7 11.2 14.0 22.1 9.7
Suppliers 56.1 31.8
FiD3ncial Institutions - - TDA Debt Oat. & Disbursed
Iutds * - % Public Debt OhD 8.3 7.9 7.3 6.9 9.9
Public Debts ..i as 9 Public Debt Service 1.0 1.0 1.0 1.6 .9
PoAid Public MILTY Debt iOther 11hLT DebtsShort-te,n Debt (dieb. onay)
nct applicable e tat?f etifte
not available nil or ngligible
not available separatly - less than hbla the
bat iOcluded in total smalleat unit shion
Li Lccldcn only Insse ceteacted since idepcndesce. The settlenest of debt contracted by Pakitana on bebhif
h/ bee iastcrn Wtng a-itas atlutin, Estinat-s of I1RD laens for Prajects vIsibly le-uted in Bsngladeab acneIsapaiacy 00261.8 niise o.
/2 Data not inciude dlnbar-enestn of app-ssinately U8S29.8 eillis frIcn pee-indepeedecn- debt tbat hba beet takho
-ver by hniglsdceb. As of Octtbar 31, 1974, IDA diabuara-ests eqssi U8S143.9 nillion.
ANNEX IIPage 1
BANGLADESH
STATUS OF BANK GROUP OPERATIONS
As of December 31, 1974
A. IDA Credits to Bangladesh
Credit US$ MillionNumber Year Purpose Amount Undisbursed
339 1972 Cyclone Area Reconstruction(replaces Credit No. 228-PAK of 1971) 25.0 20.3
340 1972 Chandpur Irrigation II (replacesCredit No. 184 of 1970) 13.0 10.2
341 1972 Tubewells (replaces Credit No. 208-PAKof 1970) 14.0 12.4
343 1972 Telecommunications (replaces partof Credit No. 145-PAK of 1969) 7.3 5.1
345 1972 Reconstruction Imports 50.0 4.7353 1973 Small-Scale Industry (replaces
Credit No. 192-PAK of 1970) 3.0 1.2367 1973 Chittagong Water Supply (replaces
Credit No. 42-PAK of 1963) 7.0 2.5368 1973 Dacca Water Supply and Sewage (replaces
Credit No. 41-PAK of 1963) 13.2 3.9S-14 1973 Irrigation Engineering (replaces
Credits Nos. S-8-PAK and S-10-PAKof 1969 and 1970) 3.15 0.1
381 1973 Foodgrain Storage (replaces CreditNo. 83-PAK of 1966) 19.7 0.8
407 1973 Education (replaces Credit Nos. 49-PAKand 87-PAK of 1964 and 1966) 21.0 12.6
408 1973 Highways (replaces Credit No. 53-PAKof 1964) 25.0 19.2
409 1973 Technical Assistance 4.0 3.6410 1973 Cereal Seeds 7.5 7.5424 1973 Inland Water Transport Rehabilitation 4.1 3.9458 1974 (Second) Imports Program 50.0 10.7487 1974 Second Telecommunications 20.0 20.0515 1974 (Third) Imports Program 50.0 37.5
Total 336.95 176.2
ANNEX IIPage 2
B. PROJECTS IN EXECUTION
Cr. No. 339 Cyclone Area Reconstruction Project; US$25.0 MillionCredit of October 18, 1972; Closing Date: June 30, 1976
Credit became effective January 17, 1973. Implementation of theoriginal project, financed tmder Credit No. 228-PAK of 1971, had not commencedprior to the suspension of disbursements. Earthwork has been completed forfifty-four miles of primary roads, and 60 cyclone shelters are under construc-tion. However, progress has been slow due to the severe shortages of construc-tion materials in Bangladesh. For the other subprojects (inland water trans-port, telecommunications, feeder roads, coastal fisheries and cyclone warning)progress has been maainly limited to the preparation and floating of tendersand ordering of equipment and materials. Project completion is expected tobe about Lwo years behind the schedule anticipated at appraisal. The Govern-ment has submitted to the Association a proposal for reducing the scope ofthe project in order to cope with the sharp increase in construction costssince the Project was appraised. The proposal involved reductions in thefeeder roads to be financed by the Credit (a proposal for financing theseroads is under discussion with the W4orld Food Program), reductions in thefisheries subproject, and minor reductions in other project items. Giventhe very early stage of procurement under the project, it was decided notto formally amend the project at this stage. Meanwhile it was agreed thatthe Government's proposals for reducing the project provided a reasonablebasis for proceeding for the time being. In about six months, when bettercost estimates are available, and when we have more experience concerningthe success of the various project components, a decision will be madeconcerning the amendments required under the credit.
Cr. No. 340 Chandpur Irrigation II Project; US$13.0 Million Credit ofOctober 18, 1972; Closing Date: Deceiber 31, 1977
The Project is far behind schedule and continues to be plagued withproblems. Major flood-ng, work stoppages caused by 100% increase in con-struction labor costs, shortages of cement and operable construction equip-ment, ineffective management, inadequate provision of local funds and generalinflation are factors which affect the project adversely. Recent procurementof 1,600 tons of cement has slightly eased the shortage. Spart parts arenow available for repair of construction equipment, but the lack of trainedmechanics and repair facilities will delay getting the equipment intooperation. Manufacture of the electrical and mechanical equipment for theregulators and pumping plant has been completed, but no delivery has beenmade. The award of contracts for low lift irrigation pumps is scheduled
for the second quarter of 1975. Continuing inflation and other adversefactors are expected to increase the Project costs to more than 50% abovethe latest estimate.
ANNEX IIPage 3
Cr. No. 341 Tubewells Project; US$14.0 Million Credit of November 6, 1972,
Closing Date: December 31, 1976
This project was originally financed by IDA Credit No. 208-PAK of
1970 and credits from Sweden and Canada. Although bids had been received
in 1971, fio contracts were awarded before the disturbances. The present
Credit, again in conjunction with a US$6 million Credit from Sweden and a
US$6 million grant from Canada, became effective on January 17, 1973. Well
construction on this project began during January, 1974. In April, IDA
approved award of the contract for supply ofi the well pumnDs and engines.
Due to initial delays, present implementation is about one year behind sched-
ule, and new dates have been agreed for the completion of the activities on
which original deadlines have passed. Increases in project costs may require
a reallocation of credit proceeds. In January 1974, the Government and the
engineering consultants signed a revised contract providing for the additional
engineering and agriculture consulting services needed for the project. In
February, the agricultural consultants (who were under sub-contract to the
engineering consultants) withdrew from the project, stating that the salary
scales in the revised contract signed by the engineering consultants were
inadequate to attract staff of the calibre required for the project. The
Consultants also noted the lack of progress by the Government in making
necessary preparations for implementation of the agricultural development
component of the project. While progress on implementation of the agricul-
tural component has meanwhile improved, the Government has remained unwilling
to pay the agricultural consultants nore than had been agreed in the contract
with the engineering consultants. The engineering consultants are making
new arrangements to provide the required agricultural consulting services.
Cr. No. 343 Telecommunications Project; US$7.3 Million Credit of
November 15, 1972; Closing Date: December 31, 1975
Credit became effective January 17, 1973. The project was origi-
nally financed as part of Credit iNo. 145-PAK of 1969, and goods and services
valued at about US$2.2 million were received in Dacca prior to suspension of
disbursements. Orders have been placed for most of the remaining equipment
required under the project, but delays in finalizing the contracts and
in organizing delivery and installation of the equipment will probably
necessitate an extension of the Closing Date.
Cr. No. 345 Reconstruction Imports Project; US$50.0 FIillion Credit of
November 30, 1972; Closing Date: March 31, 1975
Credit became effective January 30, 1973. As of December 31, 1974
disbursements were US$45.3 million and, in addition, letters of credit
guaranteed by IDA had been opened for US$3.7 million. Due to initial
delays, the Credit had no inmpact on production in 1972/73, and its impact
on production only began to be felt this year. The Bangladesh Bank has
fully committed the proceeds of the Credit, but due mainly to delays in
finalizing contracts with suppliers and arranging shipping for the imported
ANNEX IIPage 4
goods, the Credit was not fully disbursed by August 31, 1974, the originalclosing date, and the Association agreed to a request for the extensionof the Closing Date to March 31, 1975.
Cr. No. 353 Small-Scale Industry Project; US$3.0 Million Creditof January 19, 1973; Closing Date: June 30, 1976
Credit became effective May 14, 1973. The project was originallyfinanced by IDA Credit No. 192-PAK of 1970. The Credit has financed no-
tional repayment of amounts previously disbursed under Credit No. 192-PAK(US$187,000) and payment of outstanding amounts for consulting servicesperformed under Credit No. 192-PAK (US$12,000). Disbursements for newactivities up to December 31, 1974 amounted to approximately US$1.5 million.Projects pipeline requirements now exceed available foreign exchange re-sources during 1975/76 and a second credit operation is under consideration.More emphasis will be needed on speed of implementation of projects. A UNDP/
UNIDO technical assistance project is expected to help BSIC reorganizationduring 1975/76.
Cr. No. 367 Chittagong Water Supply Project; US$7.0 Million Creditof April 9, 1973; Closing Date: June 30, 1975
Credit became effective June 7, 1973. The project was originallyfinanced by IDA Credit No. 42-PAK of 1963. By December 1971 when disburse-ments were suspended, US$3.3 million had been disbursed. The project, asreappraised in 1972, is now about 65% completed. Construction progress has
been slow due to problems with land acquisition, poorly performing and de-faulting contractors and suppliers, and the shortage of supplies and materi-
als. Construction and material prices have risen sharply. Constructionprogress is expected to improve as materials become available, but exten-sion of the closing date by at least two years may be required. Management,labor and union problems are diminishing following appointment of new Chair-man. While collection performance has improved recently, financial opera-tions and financial management remain weak. The Water Authority and thePlanning Commission are currently preparing proposals for revising tariffs,
billing and collection procedures and arrangements for capital financing.
Cr. No. 368 Dacca Water and Sewerage Project; US$13.2 Million Creditof April 9, 1973; Closing Date: June 30, 1975
Credit became effective June 7, 1973. The project was originallyfinanced by IDA Credit No. 41-PAK of 1963. By December 1971, when disburse-
ments were suspended, US$6.0 million had been disbursed. The water supplyportion of the project, as reappraised in 1972, is now about 60% completed
and the sewerage portion about 30% completed. Construction progress hasbeen slow due to problems with land acquisition, poorly performing and de-
faulting contractors and suppliers, and the shortage of supplies and mate-
rials. Construction and material prices have risen sharply. Construction
ANNEX IIPage 5
progress is expected to improve as materials become available, but exten-
sion of the closing date by at least two years may be required. Manage-
ment, labor and union problems continue. The financial operations and
financial management are weak. The Water and Sewerage Authority is cur-
rently preparing proposals for revising tariffs and capital financing.
Cr. No. 381 Foodgrain Storage Project; US$19.7 Million Credit
of May 18, 1973; Closing Date: December 31, 1975
Credit became effective July 17, 1973. The project was originally
financed by a US$19.2 million IDA Credit No. 83 of 1966 and a 25 million
Kronor credit from the Kingdom of Sweden. The Kingdom of Sweden is again
providing a 25 million Kronor Credit. The project is almost completed and
95 percent of the new IDA and Swedish credits were used for repaying the
previous credits. The remaining funds (US$1.25 million from IDA and about
US$0.25 million equivalent from Sweden) are being used to pay outstanding
bills for work completed prior to the war, completion of some supporting
facilities for the grain storage silos, replacement of spares and equipment
damaged during the war, and a feasibility study for a second grain storage
project. The closing date has been postponed by one year to December 31, 1975
due mainly to delays in reaching agreement with the consultants who are
designing modifications for the jetty at Chittagong and with the consultants
preparing the feasibility study for a second stage project. The designs
for the jetty modifications are expected shortly and will be followed by
invitations to tender for the construction. The draft final report for
the feasibility study was completed in December and is being reviewed by
IDA and the Government. A supervision mission which visited in November
reported serious deterioration in the silos mechanical equipment due to
inadequate maintenance. In addition, delays in ordering spare parts (for
which funds are available under the credit) increased the risk of breakdown.
Measures to be taken to alleviate these problems are under discussion with
the Government.
Cr. No. 407 Education Project; US$21.0 Million Credit of June 29, 1973;
Closing Date: June 30, 1978
Credit became effective September 27, 1973. The project was
originally financed by two IDA credits, Credits Nos. 49-PAK and 87-PAK.
By December 1971, when disbursements were suspended, US$7.7 million had
been disbursed out of US$17.5 million, the aggregate total of the two
former credits. The credit adds US$3.5 million to the total of the
original credits, in order to help the government meet part of the in-
crease in total project cost. Progress on the agricultural university
portion of the project has been delayed due to difficulties in reaching
agreement with the consultant architects on a revised contract. Thlese
difficulties have now been finally resolved. Construction has also been
delayed due to shortage of building material.
ANNEX IIPage 6
Cr. No. 408 Highways Project; US$25.0 Million of June 29, 1973;
Closing Date: December 31, 1977
The Credit Agreement became effective on September 27, 1973. The
project was originally financed by IDA Credit No. 53-PAK. By December 1971,
when disbursements were suspended, US$3.62 million had been disbursed, out
of the original credit of US$22.5 million. The new credit adds US$2.5 mil-
lion to the original credit amount, in order to help the Government meet part
of the increase in total project cost as a result of currency realignments.
Four construction contracts were signed in September 1973 for the Sitalakhya
Bridge and the Feni Section of the Dacca/Chittagong road worth about US$9.2
million. A fifth contract with consultants for construction supervision was
signed in February 1974 but they were in the field earlier. The progress of
the project is slow but it is improving and the outlook, generally, is satis-
factory. The major problems are shortage of essential supplies, like cement
and steel, and rising prices. The Government is making its best efforts to
make materials available for the execution of the project and, at least for
the present construction season, no disruption of the work is anticipated.
A cost overrun is likely as prices continue to rise. A supervision mission
was in the field in October/November and new cost estimates are currently
being prepared.
Cr. No. 409 Technical Assistance Project; US$4.0 Million Credit of
June 29, 1973; Closing Date: December 31, 1975
Credit became effective August 20, 1973. Consultants contracts
have been signed for an inland water transport study, technical advisory
services for preparation of this proposed fertilizer project, a study of
areas suitable for rainfed HYV rice and for preparation of a fisheries
project. Discussions are under way concerning several other subproject
proposals.
Cr. No. 410 Cereal Seeds Project; US$7.5 Million Credit of June 29, 1973;
Closing Date: December 31, 1977
Credit became effective January 30, 1974. A contract for consult-
ants services has been signed and the consultants (specialists in seed pro-
duction, seed legislation and certification, and farm machinery) commenced
their duties in Bangladesh March 1974. Bids for the major items to be pur-
chased (farm equipment and processing plants) are expected to be received
early in 1975.
Cr. No. 424 Inland Water Transport Rehabilitation Project; US$4.1 Million
Credit of August 10, 1973; Closing Date: December 31, 1975
Credit became effective September 27, 1973. Detailed investiga-
tions have indicated that the damage to the Chittagong offshore oil terminal
was more severe than previously believed. Consultants appointed late in 1973
to study several alternative technical solutions submitted their findings and
ANNEX IIPage 7
recommendations to the Government in late January. The Government has re-
quested the Association's agreement to a modification of the project descrip-
tion to enable the implementation of a proposed alternative solution which
will require more foreign exchange than has been provided in the Credit.
This is presently under review. The Association has cleared, after some
modifications, the lists of spare parts, tools and equipment submitted by
the Bangladesh Inland Water Transport Authority and Bangladesh Inland
Water Transport Corporation, Chittagong Port Trust and Bangladesh Engineer-
ing and Shipping Corporation for financing under the Credit. The lists
submitted may have to be reduced to remain within the credit allocations.
Cr. No. 458 Imports Program; US$50 Million Credit of February 7, 1974;
Closing Date: March 31, 1976
Credit became effective February 13, 1974. By June 1974 licences
for the full amount of the credit had been issued to the various eligible
industries. As of December 31, 1974 disbursements amounted to US$39.3
million and, in addition, letters of credit guaranteed by IDA had been
opened for US$9.5 million. Import orders have been placed for the balance,
and the credit is expected to be fully disbursed by December 31, 1975.
Cr. No. S-14 Irrigation Engineering Project; US$3.15 Million Credit
of April 9, 1973; Closing Date: July 31, 1975
Credit became effective July 8, 1973. When IDA suspended disburse-
ments under the original credits to Pakistan (Credit Nos. S-8 and S-10) in
December 1971, the Dacca Southwest feasibility studies were completed and
the Karnafuli-Muhuri studies were about three quarters completed. Interim
financing from Sweden allowed the work to continue. The feasibility studies
for the Muhuri and Karnafuli projects are now completed. Progress has been
made on the studies for the Comilla-Noakhali project (Dakatia Unit) and a
preliminary draft report has been submitted to the Government. In September
1974 a Bank mission appraised the Muhuri and Karnafuli projects, appraisal
reports are now being prepared.
Cr. No. 487 Second Telecommunications Project; US$20.0 Million Credit
of June 26, 1974; Closing Date: June 30, 1979
Credit became effective on July 23, 1974. Tender documents for
the microwave systems and multiplex equipment have now been prepared and
approved by the Association for tendering. Proposed legislation for
establishment of a telecommunications board has been prepared and submitted
to the Minister of Communications for approval. Consultants proposals for
accounting services have been submitted and are being reviewed by theTelecommunications Department.
APPENDIX IIPage 8
Cr. No. 515 (Third Imports Program; US$50 Million Credit ofOctober 9, 1974; Closing Date: December 31, 1976
Credit became effective on October 10, 1974. Provision was madeto reimburse the Government for up to US$10 million for eligible importspaid for after July 1, 1974 but prior to the date of the credit. Disburse-
ments amounted to $12.5 million as of December 31, 1974. The Government has
allocated the remaining credit funds among the various eligible industries.
Letters of credit guaranteed by IDA amount to US$4.7 million and import
orders for the balance are expected to be placed by January 31, 1975. Itis intended that as soon as the Fourth Replenishment Agreement becomes
effective an amendment will be proposed increasing the amount of the credit
to US$75 million.
ANNEX IIIPage 1
BANGLADESH
ASHUGANJ FERTILIZER PROJECT
CREDIT AND PROJECT SUMMARY
Borrower: People's Republic of Bangladesh.
Beneficiary: The Ashuganj Fertilizer and Chemical CompanyLtd. (AFCC).
Amount: US$33.0 million.
Terms: Standard.
Relending Terms: From Bangladesh to AFCC, US$33.0 million at 10% perannum interest for 15 years, including 5 years grace.To the extent, however, that this would result in a
debt/equity ratio in excess of 60:40, a portion ofthe Credit would be passed on as equity.
ProjectDescription: Construction of a 1,600 TPD urea plant at Ashuganj
with an intermediate ammonia production plant of925 TPD and all necessary ancillary facilities,management assistance during construction and theinitial period of operation, and training of staff.
ANNEX IIIPage 2
US$ Million Base Cost
/aLocal- Foreign Total Estimate
Land Acquisition 0.4 0 0.4 0.2
Site Preparation 2.1 9.4 11.5 6.9
Process Equipment and Spare Parts 0 36.4 36.4 21.7
Auxiliary Service Equipment andSpare Parts 0 8.3 8.3 5.0
Materials Handling Equipment andSpare Parts 0 4.9 4.9 2.9
Construction Equipment 0 5.3 5.3 3.2
Miscellaneous Equipment 0 1.2 1.2 0.7
Buildings and Structures 4.0 6.4 10.4 6.2
Freight, Insurance and Duty 30.5 6.1 36.6 21.8
Construction and Erection 6.9 1.9 8.8 5.3
Services 0.6 24.0 24.6 14.7
Preoperating Expenses 3.4 1.6 5.0 3.0
Management Assistance 1.0 4.6 5.6 3.3
Initial Working Capital 7.2 1.3 8.5 5.1
Base Cost Estimate 56.1 111.4 167.5 100.0
Physical Contingency (9.6%of BCE) 5.4 10.7 16.1
Expected Price Increases(21% of the sum of BCE andPhysical Contingency) 18.4 20.2 38.6
Total Project Cost 79.9 142.3 222.2
Interest During Construction/ 27.2 0 27.2
Total Financing Required 107.1 142.3 249.4
/cLess IDA Tech. Asst. Credit- 0 0.4 0.4
Net Financing Required 107.1 141.9 249.0
/a The rate of exchange used in this estimate is US$1 = Tk 7.50.
/b Including escalation.
/c Refer to para. 33.
ANNEX IIIPage 3
Financing Plan: (US$ Million)Debt Local Foreign Total
IDA - 33.0 33.0ADB - 30.0 30.0AID - 30.0 30.0UK (ODM) - 18.0 18.0Iran - 12.4 12.4FRG (KFW) - 12.0 12.0Switzerland - 6.5 6.5IDA Technical Assistance - 0.4 0.4
Equity
Government of Bangladesh 107.1 - 107.1
Total 107.1 142.3 249.4
Allocation ofForeign LoanFunds: (US$ Million)
ADB AID ODM KfW Unallocated Total
Ammonia PlantEquipment 30.0 - - - - 30.0Urea PlantEquipment - - - 12.0 1.9 13.9Other Equip-ment and /aMaterials - 12.6 11.7-/ - 19.7 44.0Civil Worksand Cons-truction - 8.1 - - 5.9 14.0
Services - - - - 35.4/ 35.4Others - 5.0 5.0
Total 30.0 20.7 11.7 12.0 67.9 142.3
/a If a UK firm should win the General Contractor contract,this contract would be financed half by UK and half byIDA. In this case the other equipment and materialscurrently shown as allocated to UK would be transferredto unallocated.
ANNEX IIIPage 4
Funds from IDA, Iran and Switzerland (US$51.9 million), and the unallocated
funds (US$15.6 million) from AID and ODM would be used to finance unallocated
goods and services, with the allocation of contracts to US or UK tied funds
based on international competitive bidding.
EstimatedDisbursements: FY 75 FY 76 FY 77 FY 78 FY 79 Total
7.1 56.5 93.6 70.0 22.2 249.4
(IDA disbursements have been estimated at approximately US$8.0 million in
each fiscal year.)
ProcurementArrangements: Plant and equipment allocated to a specific lender
would be procured under that lender's procurement
procedures either by international competitive bidding
(KFW), bidding among special Fund members and developing
countries in Asia (ADB), or national competitive bidding
(USAID - in the U.S. and 0DM in the U.K.). The unallo-
cated balance of goods and services would be procured
under IDA Guidelines and financed from the proposed IDA
Credit. Contracts won by U.S. suppliers or suppliers
from developing countries or the U.K. would be allocated
to the remaining US and U.K. tied funds or to the Swiss
or Iranian loans. The site development contract has
been won by a U.S. contractor after international
competitive bidding and will be financed by USAID.
IDA participation in this contract amounts to US$800,000
of which US$600,000 represents reimbursement for
expenditures made prior to credit effectiveness. Although
none of the IDA financed goods are expected to be procured
in Bangladesh, prequalified local suppliers would receive,
for purposes of bid evaluation, a preference of 15% or
the level of customs duty, whichever is less. Local
Contractors would receive 7-1/2% preference.
Rate of Return: Economic Rate of Return: 21.2%
AppraisalReport: Report No. 598-BD dated December 18, 1974. Industrial
Projects Department Central Projects staff.
Recommended