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 It may not be published,quoted or cited without Bank Group authorization.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

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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.

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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

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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

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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.

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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

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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.

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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.

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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.