Document of

The World Bank FILE COPYFOR OFFICIAL USE ONLY

Report No. P-3186-BD

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

PEOPLE'S REPUBLIC OF BANGLADESH

FOR A

CHITTAGONG UREA FERTILIZER PROJECT

January 15, 1982

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENT

The Bangladesh Taka (Tk) is fixed in relation toa basket of reference currencies, with the Pound Sterlingserving as intervention currency. On December 30, 1981, theexchange rate was set at Tk 37.9568 buying and Tk 38.0568selling per Pound Sterling. Depending on exchange ratemovements between Sterling and the US Dollar, the Taka/Dollar cross-rate is subject to change. In recent monthsthis rate has fluctuated between Tk 18 and Tk 20 per US$.Unless otherwise indicated the following rate has been usedthroughout this report.

US$1 - Tk 19.00 1/Tk 1 - US$0.0526

Tk 1 million - US$52,632

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ADB - Asian Development BankADFAED - Abu Dhabi Fund for Arab Economic DevelopmentBADC - Bangladesh Agricultural Development CorporationBCIC - Bangladesh Chemical Industries CorporationBGSL - Bakhrabad Gas System, Ltd.BNP - Bangladesh Nationalist PartyCIDA - Canadian International Development AgencyCUFL - Chittagong Urea Fertilizer LimitedGOB - Government of BangladeshIsDB - Islamic Development BankMTFPP - Medium-Term Foodgrain Production PlanOECF - Overseas Economic Cooperation Fund of JapanSFD - Saudi Fund for DevelopmentSFYP - Second Five-Year Plan (FY81-FY85)

FISCAL YEAR (FY)

July 1 - June 30

1/ For purposes of converting local cost estimates into US$ equivalent inthe Credit and Project Summary and in Part IV of the Report a rate ofUS$1 to Tk 16, which was current at the time of appraisal, has beenused.

BANGLADESH FOR OMFICIAL USE ONLY

CHITTAGONG UREA FERTILIZER PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: People's Republic of Bangladesh

Beneficiary: Chittagong Urea Fertilizer Limited (CUFL)

Amounts: SDR 12.8 Million (US$15 million equivalent)

Terms: Standard.

Relending Terms: The proceeds of the proposed credit would be relent toCUFL for a term of 15 years, including 5 years of grace,at 12% per annum interest. CUFL would bear the foreignexchange risk.

Project Objectives The objectives of the proposed Project are to increase theand Description: country's urea fertilizer production capacity principally

to meet local demand and through import substitution toconserve scarce foreign exchange resources. The projectconsists of:

(i) acquisition and preparation of the site forthe ammonia/urea plant;

(ii) design, engineering and construction of:

(a) a 1,000 mt per day (TPD) ammonia unit;

(b) a 1,700 TPD urea unit; and

(c) utilities, off-site and ancillaryfacilities for the ammonia and ureaunits;

(iii) construction of office and plant buildingsand a staff housing colony, including com-munity facilities for persons to be employedin the management and operation of the plant;

(iv) supply of equipment for the construction ofthe plant;

(v) employment of a Technical Advisor to assistand advise CUFL on the design, constructionand start-up of the plant;

(vi) employment of a Management Advisory and Opera-tional Services Team to assist CUFL to manage,operate and maintain the plant during theinitial three years after commissioning ofthe plant; and

This document has a restricted distribution and nmy be used by recipients only in the performance of |their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.

(ii)

(vii) training for selected CUFL personnel insimilar fertilizer plants in Bangladeshand abroad.

Natural gas, which is an important resource of Bangladesh withabundant proven reserves, will be used both as a feedstock and fuel forthe project. The project will reduce the country's fertilizer importrequirements. The net foreign exchange savings resulting from the project areestimated at about US$114 million a year, in 1981 dollars. Direct employmentcreated by the project will be about 1,300 permanent jobs. At the peak periodof construction activity, more than 3,000 people will be employed for projectimplementation. The operational risks are expected to be minimal becauseof the adoption of commercially proven technology; the main risks facingthe project are possible implementation delays and low capacity utilization.This should also be minimized by the implementation arrangements made forthis project, which include hiring of a general contractor, and providingtechnical assistance to CUFL in operating the plant and in training itsstaff.

Estimated Project Costs

Local Foreign Total--------US $ Million-------

T. Fixed Capital

1. Land Acquisition 0.5 - 0.52. Site Preparation 8.7 9.7 18.43. Process Equipment - 58.9 58.94. Catalyst, Chemicals and Spare Parts - 9.8 9.85. Utility and Offsite Facilities 1.0 37.2 38.26. Materials Handling Equipment - 12.6 12.67. Construction Equipment - 14.9 14.98. Buildings and Structures 16.1 11.4 27.59. Construction and Erection 12.4 2.8 15.210. Freight, Insurance and Customs Duty 4.7 15.8 20.511. Professional Services 2.5 42.3 44.812. Pre-Operating Expenses (including

staff training expenses) 4.7 3.2 7.9

Base Cost Estimates 50.6 218.6 269.2Physical Contingency 6.1 16.8 22.9Price Contingency 15.8 49.3 65.1

Total Fixed Capital Cost 72.5 284.7 357.2

II. Working Capital 29.8 5.3 35.1

III. Interest During Construction 1/ 75.3 - 75.3

Total Financing Required 177.6 290.0 467.6

1/ Capitalized, reflecting interest rate of 12% p.a. payable by CUFL to GOB.

(iii)

Financing Plan: Seven co-financiers, under the leadership of the AsianDevelopment Bank, would finance the entire foreign ex-change cost of the project while the Government ofBangladesh (GOB) would meet the local financing require-ments. The contributions of all co-financiers would beprovided to GOB on concessional terms. Following is asummary of the financing plan.

Financing Plan

-US$ Million Equivalent--Source Local Costs Foreign Costs Total

GOB 177.6 - 177.6

The Asian Development Bank (ADB) - 72.0 1/

The Abu Dhabi Fund for Arab Economic Devel-opment (ADFAED) - 25.0 25.0

Canadian International Development Agency(CIDA) _ 20.0 20.0

Islamic Development Bank (IsDB) - 16.0 16.0

overseas Economic Cooperation Fund of Japan(OECF) - 60.0 60.0

Saudi Fund for Development (SFD) - 85.0 85.0

International Development Association (IDA) 15.0 15.0

Total 177.6 293.0 1/ 470.6 1/

1/ US$2.0 million of the proposed ADB loan will be used to refinance anexisting ADB technical assistance loan which was provided for projectpreparation. Hence, the difference in project costs and total financingavailability.

(iv)

Estimated Disbursement: FY83 FY84 FY85

(Proposed IDA Credit Only)

Annual 3.0 10.0 2.0

Cumulative 3.0 13.0 15.0

Economic Rate of Return: 19.0%

Staff Appraisal Report: No separate IDA Staff Appraisal Report wasprepared. ADB's Appraisal Report, which is

used as a basis of this report and is cir-culated separately, is entitled: "Appraisal

of the Chittagong Urea Fertilizer Project in

Bangladesh" (Report No. BAN:Ap-35) dated

October 1981.

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT TOTHE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT

TO THE PEOPLE'S REPUBLIC OF BANGLADESHFOR A CHITTAGONG UREA FERTILIZER PROJECT

1. I submit the following report and recommendation on a proposedcredit to the People's Republic of Bangladesh of SDR 12.8 million (theequivalent of US$15.0 million), on standard IDA terms, to help co-financea Chittagong Urea Fertilizer Project with the Asian Development Bank (ADB;US$72 equivalent), Abu Dhabi Fund for Arab Economic Development (ADFAED;US$25 million equivalent), the Canadian International Development Agency(CIDA; US$20 million equivalent), the Islamic Development Bank (IsDB; US$16million equivalent), the Overseas Economic Cooperation Fund of Japan (OECF;US$60 million equivalent), and the Saudi Fund for Development (SFD; US$85million equivalent). The contributions of all co-financiers will be providedto the Government of Bangladesh (GOB) on concessional terms. ADB will be thelead co-financing agency and will coordinate the supervision of the project;this report is mainly based on ADB-s appraisal of the project. The proceedsof the proposed IDA credit, as well as the proceeds of funds provided byother co-financiers, would be relent by GOB to the Chittagong Urea FertilizerLimited (CUFL) for 15 years including 5 years of grace at 12% per annuminterest. CUFL would bear the foreign exchange risk.

PART I - THE ECONOMY

Introduction

2. An economic report entitled "Bangladesh: Current Economic Situa-tion and Review of the Second Five-Year Plan" (Report No. 3309-BD, datedFebruary 23, 1981) has been distributed to the Executive Directors.

3. The first years of independence were difficult for Bangladesh.Its economy was disrupted and its infrastructure severely damaged by thestruggle for independence. The country was afflicted by poor harvests anddevastating floods in the early 1970s. Production in both agriculture andmanufacturing fell drastically and only recovered to pre-independence levelsin the mid 19 70s. The terms of trade deteriorated. Inflation, decliningreal wages, rapid population growth, labor unrest and political instabilityadded to the difficulties. In these early years, Bangladesh's policy makerswere by nec-'ssity largely preoccupied with matters of relief and rehabilitation and the need to shape a national government out of a provincial ad-ministration. The First Five-Year Plan (FY74-78) had to be scrapped andreplaced by a scaled-down and refocussed three-year "Hardcore Programme"(FY76-78) in response to the enormity of the country-s difficulties.

4. Economic progress and increased political stability in the secondhalf of the past decade provided planners the opportunity to turn theirattention from crisis management to the longer-range objectives of devel-opment. Between FY75 and FY80, GDP increased by about 5.5% p.a. despite

- 2-

several serious setbacks in agricultural production. Output in manufacturing(as measured by the production index for large and medium-scale industries)rose by about 7.5% annually between FY75 and FY80, most of this growth takingplace outside the jute industry. Although shortfalls in domestic foodgrainsupplies and increases in international petroleum prices led to a deteriora-tion in the balance of payments in FY80, which was accompanied by some acceler-ation in domestic inflation rate in FY81, the concluding years of the decadewitnessed a number of encouraging developments and positive policy measuresto attain longer-term development goals. These included a strengtheningof budgetary policies, improvements in agricultural and food distributionpolicies and steps to promote a more active role by the private sector indeveloping the economy.

.

5. The past few years have also brought significant political change.From 1975 until March 1979, Bangladesh was governed under martial law. Inelections held in February 1979, 29 political parties and groups contested300 seats in the new National Assembly. Roughly two-thirds of the seatswere won by the Bangladesh Nationalist Party (BNP) headed by President ZiaurRahman, who had won the presidential election in June 1978. Thirty additionalseats, reserved for women, were subsequently filled by the BNP. Following theconvening of the new Parliament in March 1979, martial law was lifted and anew cabinet appointed. In May 1981 President Ziaur Rahman was assassinated.The Vice-President, Mr. Justice Abdus Sattar, was named Acting Presidentand subsequently won the presidential elections held on November 15, 1981.

Recent Economic Developments

6. The economic consolidation during the second half of the pastdecade was followed by continued improvements in production in FY81. Favor-able weather and several years of stepped-up provision of agricultural inputshelped turn the foodgrain supply situation around. Rice production reacheda record 13.7 million tons--an increase of 9% over the disappointing FY80level--while wheat production continued to expand rapidly, totalling 1.2million tons. As output in industrial and service sectors also increasedsubstantially over their FY80 levels, overall GDP growth for the year isestimated to have been of the order of 7.5%. While the recent increase inagricultural production can be partly attributed to favorable weather, asignificant part of the increase is due to Government policies in increas-ing investment in irrigation, improving distribution of inputs especiallythrough increased private sector involvement, and substantially increasingthe Government foodgrain procurement program.

7. Notwithstanding these improvements in production, Bangladeshexperienced growing financial difficulties during FY81. Sharply higherpetroleum prices, declining export prices for jute goods and a shortfallin commodity aid availabilities below the Government's expectations af-fected the balance of payments. The shortfall in aid receipts, an unan-ticipated shortfall in debt service payments from public enterprises, andsubstantial expenditures of food procurements which were necessary in orderto maintain incentive farmgate prices in a record crop year also affected

- 3 -

the budget. A budget deficit of Tk 5 billion, equivalent to about 2 1/2%of GNP at market prices, emerged in FY81. As a result, credit ceilingsfor June 1981 established in consultation with the IMF in the context ofthe EFF arrangement were exceeded by a substantial margin and the EFF arrange-ment was temporarily suspended. An IMF mission visited Bangladesh in November/December 1981 and a follow-up mission is scheduled for late January 1982, toreview the Government's plans to restore financial stability and to discussthe possible resumption of Fund assistance.

The Balance of Payments

8. Bangladesh's balance of payments is characterized by a massivestructural trade deficit and heavy dependence on foreign aid. Export earn-ings in FY81 represented a mere 6% of GDP and less than 30% of the importbill. Moreover, Bangladesh's exports continue to be dominated by raw juteand jute goods, which together account for two thirds of total export earn-ings. A sharp decline in export prices of raw jute and jute goods and ofmajor non-traditional exports, notably leather and fish products, meant thatexports in value terms stagnated in FY81, although increasing substantiallyin volume terms. Imports, hawever, rose rapidly through FY81 in value terms,as a result of increased costs of crude petroleum and petroleum products(although the volume of these imports increased very slowly since the early1970s they now account for 20% of import payments), and capital goods imports,which have risen rapidly in recent years and currently account for 26% oftotal imports. Bangladesh's terms of trade, mainly as a result of higherpetroleum import prices and the sharp decline in export prices noted earlier,deteriorated in FY81.

9. The current account deficit--US$1.45 billion in FY81--has beenconsiderably smaller than the trade deficit, due mainly to the rapid growthof workers' remittances from the Middle East; these receipts are now thesecond most important source of foreign exchange earnings. The paymentsgap was largely covered by aid disbursements estimated at US$1.15 billion,close to half of merchandise imports. Although project aid disbursementsincreased substantially, reflecting in part the country's growing absorptivecapacity, there was, as noted earlier, a crucial shortfall in commodity aidavailabilities and new commitments. Bangladesh also made considerable useof IMF resources, including initial drawings on a SDR 800 million EFF ar-rangement which became effective in December 1980 and which was recentlytemporarily suspended.

10. The balance of payments outlook for FY82 remains difficult. Whilea significant increase in export earnings seems unlikely, Bangladesh againfaces the unwelcome prospect of limited commodity aid availabilities. Giventhe tight foreign exchange position, imports will have to be reduced belowFY81 levels in real terms with consequent detrimental effects on production,especially in the manufacturing sector. Gross reserves in October 1981 werearound US$130 million, the equivalent of three weeks imports; there appearsto be little scope for running down reserves further or for substantiallyincreasing short-term borrowing to tide-over present payment difficulties.

- 4 -

11. Debt service payments totalled US$94 million in FY80 and US$110million in FY81. Bangladesh's debt service ratio, about 11.6% in FY80 fol-lowing some debt relief measures undertaken by various donors, increasedto about 13.2% in FY81. The debt service ratio might exceed 20% by the

mid-1980s, unless careful debt management policies are pursued and aid isprovided on concessional terms. Bangladesh's total outstanding and disbursedexternal public debt amounted to just under US$3.5 billion as of December 31,1980 with IDA credits and the single IBRD loan accounting for 28.1% of thetotal. In FY81, the Bank Group accounted for 3% of the Bangladesh's totaldebt service payments; because assistance is now entirely in the form of IDA

credits, debt service to the Bank Group will rise slowly.

Public Finance

12. Government finances which had improved considerably in FY79 deter-iorated in FY80 and FY81, partly as a result of expenditures for investmentsin foodgrain stocks, and lower than expected contributions by the major publicsector corporations to the revenue budget. Faced with the choice of cuttingback development outlays or resorting to bank financing well in excess ofestablished credit ceilings, the Government chose to reduce the developmentbudget by about 13%. Nevertheless, the final deficit for FY81 substantiallyexceeded revised forecasts and necessitated bank borrowing of about Taka 5billion. The budgetary situation is expected to continue to be tight in FY82.The severe balance of payments situation will have a substantial impact ontax revenues while the continued need for large government food grain pro-curements will add to financing requirements. Even with major efforts tomobilize additional budgetary resources, a reduction in development expendi-tures of at least 15% below budgeted levels will be necessary to contain thebudget deficit to manageable proportions.

13. The Government has shown a growing awareness of the need to improvethe financial performance of the public sector enterprises and utilities andto reduce major subsidies. In recent years, GOB has raised foodgrain rationprices and a number of utility rates and commodity sales prices of publicsector enterprises. In some cases, these price adjustments only kept pacewith inflation, but in others--notably fertilizer and foodgrains--theyserved to reduce the unit subsidy in real terms. Petroleum product priceshave been raised by roughly 140% since November 1979. Nevertheless, follow-ing the depreciation of the taka, further adjustments will be required toeliminate the subsidy on this account.

14. Foodgrain prices remained stable during FY81, but the cost ofother essentials continued to increase and pushed the general cost-of-livingindex up by about 9% for FY81 as a whole. Measured by the implicit GDPdeflator, aggregate inflation--which had spurted from a rate of 6.5% in FY79to 17.3% in FY80--declined substantially in FY81 to only about 8%. However,

as a result of the rapid expansion in credit in FY81 and the decline in foodproduction in FY82, inflation has accelerated during the first few months ofFY82 and is now running at an annual rate of about 15%. Tight controls wereplaced on credit growth in the early part of FY82 in order to re-establishfinancial stability and, as a consequence, the rate of inflation is expected

to slow down.

- 5-

Development Planning and Policy Issues

15. The Second Five-Year Plan (issued in draft form in May 1980)accords high priority to three major goals: (i) achievement of self-sufficiency in foodgrains by FY85, with domestic foodgrain productiontargeted to increase to 20 million tons by FY85; (ii) reduction of thepopulation growth rate with a view to bringing down the net reproductionrate to unity by 1990; and (iii) progress towards mass literacy throughfree universal primary education. Priority is also to be given to energydevelopment, particularly through accelerated exploitation of known reservesof natural gas.

16. The potential for increasing foodgrain output in Bangladesh isconsiderable. Yields and cropping intensities are well below potentiallevels, fertilizer application rates are modest, and surface and ground-water resources permit a substantial expansion of irrigation. There islarge unsatisfied demand for irrigation. Where irrigation is available,the increase in fertilizer use and the shift to high-yielding varietiesof rice and from dry season rice to wheat have been widespread and rapid.The positive developments in Bangladesh agriculture over the past fewyears justify some optimism concerning the ability of the country toachieve self-sufficiency in foodgrains in the foreseeable future.

17. The Government has formulated, with assistance from IDA, aMedium-Term Foodgrain Production Plan (MTFPP) which provides an investmentportfolio geared towards the attainment of the SFYP target of 20 million tonsof foodgrains. While this target is feasible, its achievement will dependconsiderably on the allocation of sufficient resources to provide neededinputs to farmers and to permit the private sector to play an expanded rolein the provision and servicing of modern agricultural implements and inputs.Other necessary requirements are adequate levels of foreign aid to financeimported inputs, improved extension services and training, and appropriateproducer incentives.

18. Achievement of the second objective, reduction of the populationgrowth rate, will require more determined efforts than have been made thusfar, especially with regard to birth control efforts which have generallysuffered from poor implementation and have had only limited success. Recently,however, birth control activities within the Government have been coordinated,while training programs for field staff have been revised and are now, for thefirst time, considered adequate. GOB is now preparing, with bank assistance,a medium-term implementation plan for the population sector.

19. The third major objective of the SFYP is the attainment of generalliteracy. The planners recognize that it will take longer than five years,but they have set themselves the ambitious target of introducing universalprimary education and enrolling 90% of all children of primary-school ageby 1985. This program is to be supplemented by a national non-formal masseducation scheme for those already past primary school age. IDA is assistingGOB in preparing a medium-term plan for the education sector.

- 6 -

20. A Plan aimed at effecting significant departures from past trendswill place severe strains on financial resources and managerial skills. Amajor challenge which the Government is now facing is to translate theobjectives of the SFYP into an operational implementation program on anannual basis. The Government is now revising the draft SFYP, but more workand considerable discipline will be needed in identifying core programs andprojects and protecting them to the extent possible in a situation of re-source scarcity. A critical factor will also be the extent to which projectimplementation capabilities are improved. Although immediate improvementscan be made, it is unlikely that the efforts of public agencies alone wouldbe adequate to achieve the targeted breakthrough. The Government recognizesthat in certain key areas greater reliance will have to be placed on theprivate sector. It also believes that, to a certain extent, activities suchas education and rural development should be carried out in a decentralizedfashion, with greater emphasis on local initiative and grass-roots partici-pation. 1/

21. Over the past few years, a series of studies undertaken by GOB,IDA and other organizations have concluded that existing trade and indus-trial policies have distortionary effects on resource allocations withinthe industrial sector. The Government is now preparing a program for tradeand industrial policy reform which is expected to lead to a medium-termprogram of actions to be pursued across a broad front, including modificationsin the tariff structure, the pattern of domestic indirect taxation, investmentincentives, export policies and the mechanism for industrial promotion andplanning.

PART II - BANK GROUP OPERATIONS IN BANGLADESH

22. Bangladesh became a member of the Bank and IDA in 1972. Initially,Bank Group operations in Bangladesh concentrated on the reactivation ofeleven credits, amounting to US$148.6 million, made originally to Pakistanbefore 1971. In addition, as of October 31, 1981, 54 new credits have beenapproved, totalling US$1632.7 million; of these, US$665 million have beenfor import credits (ten imports program credits and two fertilizer importscredits). Annex II contains a summary statement of IDA credits and disburse-ments as of September 30, 1981, and notes on the execution of ongoing proj-ects. On June 18, 1976 Bangladesh became a member of the IFC, and threeinvestments (for a shipbuilding company an investment promotion company anda leather factory) have been approved.

23. The focus of IDA assistance in recent years has been on agriculture(18 of the 43 new projects approved since independence, and two fertilizerimports credits). This is consistent with the country's needs and the Govern-ment-s priorities. Particular emphasis continues to be placed on projects

1/ A review of the (draft) Second Five-Year Plan is contained in theBank's 1981 economic report, No. 3309-BD, dated February 23, 1981.

that provide agricultural inputs, including fertlizer, fertilizer transport,irrigation, improved seeds, extension, and credit and storage facilities.In addition to agricultural projects, emphasis is also being placed upon com-plementary infrastructural projects in sectors which facilitate agriculturaldevelopment or which reduce bottlenecks interfering with the economy-s overallperformance. In the power sector, for example, IDA plans to emphasize ruralelectrification and elimination of shortages of generation capacity or dis-tribution facilities which have been a major impediment to utilization ofexisting industrial capacity.

24. Industry has been the main beneficiary of the ten imports programcredits approved to date. Given the need for substantial net transfers ofresources and the persistent structural imbalance and weakness of the economy,program lending will continue to be an important component of IDA operationsin Bangladesh. The industrial sector has also benefited from two fertilizerproduction projects, a jute industry rehabilitation project, several DFCand small-scale industry projects and three IFC loans.

25. The enormity of Bangladesh's population problem makes this a highpriority sector as well, limited only by its absorptive capacity. IDA hasmade two credits available in support of the GOB's population program,which is now making some progress. Improved education and availability oftrained manpower are also crucial, and lending in this field has emphasizedagricultural, technical and vocational training, and primary education.

26. Disbursement of the imports program credits has proceeded satis-factorily. Project disbursements have, however, lagged behind expectations,owing largely to delays in the release of local funds, approval of contracts,employment of consultants, and appointment of staff. Underlying these delaysare serious constraints that include a shortage of qualified staff, over-centralized bureaucratic procedures and organizational deficiencies. IDA andGOB have given increased attention to regular monitoring and supervision inorder to identify and resolve potential problems. IDA is providing assistanceboth under specific projects and under technical assistance credits to improveplanning, project preparation and implementation capabilities.

27. In view of Bangladesh's difficult foreign exchange position, IDAcredits should continue to cover all foreign exchange costs; and in order todirect IDA lending to sectors where the percentage of foreign exchange costsis relatively low, local currency expenditures also are being financed incertain priority areas such as agriculture and rural development, includingsmall-scale and cottage industries.

28. Economic and sector work continues to provide the basis for a dia-logue between the Bank Group and the Government on economic policy and devel-opment strategy. It is also designed to enhance the coordination of externalassistance within the framework of the Bangladesh Aid Group. Recent activitieshave concentrated on food policy, irrigation strategy, industrial investmentstrategy, and increased domestic resource mobilization and have been under-taken in the context of the recent detailed review of the Government-s SecondFive-Year Plan.

-8 -

PART III - THE FERTILIZER SECTOR

Background

29. Agriculture dominates the Bangladesh economy, accounting for 55%of GDP, over 75% of the labor force and, directly or indirectly, over 90% ofthe country s exports (mainly jute and jute manufactures). Bangladesh has agross area of 35 million acres, of which about 22.5 million acres are undercultivation at a cropping intensity averaging close to 150% in recent years.Foodgrains, mainly rice, comprise the major agricultural crops, contributeabout 35% of GDP, and constitute the principal source of income of subsistencefarmers. Rice and, to a lesser exent, wheat provide almost 85% of the calorieand 70% of the protein intake of the population. The size of the grain cropsdetermines the need for foodgrain imports which increased from less than0.6 million tons in FY61 to over 1.5 million tons annually during the1970s.

30. Due to heavy population pressure on limited land, there is vir-tually no possibility of achieving substantial acreage expansion in Bangla-desh; arable land per capita is only 0.34 acre. Thus growth in food andother agricultural production depends upon the increased and complementaryuse of modern inputs--fertilizer, irrigation, HYV seeds, and pesticides--and upon improvements in cultivation and farm management practices. TheGovernment has set an official target of achieving foodgrain self-suffi-ciency by 1985, which would require average annual output growth rates ofabout 6%. This is an ambitious goal, but it is considered to be achievable.It will require: (i) adequate and timely supply of fertilizer, diesel fuel,seeds and pesticides; (ii) better utilization of existing irrigation systemsand equipment; (iii) expanding investments in quick-yielding low-cost small-scale irrigation, drainage and flood control facilities; (iv) maintenance ofincentive prices for foodgrains and improvement in the foodgrain procurementand marketing systems; (v) strengthening of extension services and suppor-tive applied research; (vi) improved provision of institutional credit;(vii) increased utilization of private financial and managerial resources inagricultural input delivery, servicing and utilization; and (viii) improvedproject planning and implementation. These requirements have been incorpor-ated in the Medium-Term Foodgrain Production Plan (see paragraph 17), nowunder implementation, and actual input supply and output performance duringits first year, FY81, have been very good (see paragraph 6). Various ongoingIDA assisted projects are aimed at supporting the achievement of the foodself-sufficiency goal; the proposed project is directed at providing suffi-cient fertilizer to sustain the progress after 1985.

Fertilizer Consumption in Bangladesh

31. Chemical fertilizer has been used progressively on a large scalein Bangladesh since its introduction in 1958. The principal fertilizersused in Bangladesh are urea (46% nitrogen nutrient), triple superphosphates(TSP; 46% phosphate nutrient), muriate of potash (MP; 60% potassium nutri-ent), and the recently introduced Diammonium Phosphate (DAP; 18% nitrogen

- 9 -

and 46% phosphate nutrient). In FY80, urea accounted for 64%, TSP and DAPfor 29%, and MP and micronutrient fertilizers for 7% of the fertilizer used.Fertilizer is used by all categories of farmers in Bangladesh. Availablestatistics indicate that fertilizer is used by as many as 65% to 70% ofowner-cultivators and between 45% and 65% of tenant farmers.

32. Since 1966, fertilizer consumption has increased at an annualaverage rate of about 16%, reaching 840,000 tons in FY80. Fertilizerconsumption should continue to increase rapidly. Present average applica-tion rates--about 24 lbs of nutrient per gross cropped acre--are among thelowest in the world, and the incremental output response to fertilizer usewill remain high. It has been estimated that--based on current croppingpatterns, and with adequate flood control and irrigation--the application ofthe agronomically recommended optimal quantities of fertilizer in Bangladeshwould require between 4.5 and 5 million tons of fertilizer per year. Althoughthe incremental productivity of fertilizer rises with the provision of com-plementary inputs, (HYVs, pesticides, irrigation and flood control facili-ties) an increase in fertilizer application alone, without any additionalother inputs or changes in cultivation practices, will result in substantialinitial yield increases for more than half of the present rice and wheatacreage. In order to achieve the target of 20 million tons of foodgrainproduction under the Medium-Term Foodgrain Production Plan (MTFPP) aggregatefertilizer requirements for FY85 are estimated to be on the order of 1.9million tons--equivalent to an annual increase in consumption of about 17.5%per year over the FY80 consumption level of 840,000 tons, i.e. slightly abovethe average growth rates from FY66 to FY80.

Domestic Fertilizer Production

33. In 1981 fertilizer was produced at two urea plants at Ghorasal andFenchuganj and at the TSP complex in Chittagong. These plants have a combinedinstalled capacity of 490,000 tons per year (tpy) of urea, 13,200 tpy ofammonium sulfate and 152,000 tpy of TSP. The nitrogen production is based ondomestic natural gas and the sulfate and phosphate production on importedsulfur, currently from Iraq, and rock phosphate, from Jordan and Morocco. Allof these plants are operated by Government-owned corporations.

34. Production from these plants has been erratic and below expectations,but has shown improvement over the past three years from 256,000 tons (39% ofcapacity) in FY78 to 431,000 tons (66% of capacity) in FY80. In FY81, produc-tion declined somewhat to 415,000 tons: 336,000 tons of urea (69% of capacity),9,100 tons of ammonium sulfate (69% of capacity) and 70,000 tons of TSP (46%of capacity), largely due to equipment breakdowns. A program for removingbottlenecks to efficient production is being financed under IDA Credit No.1023-BD, Fertilizer Industry Rehabilitation Project, approved by the Board inMay 1980. In addition, under a UNDP-financed project, a contract has beensigned with UNICO International of Japan to provide operations assistance tothe Ghorasal and Chittagong plants and to train managerial, supervisory,skilled technical and operating staff.

- 10 -

35. A fifth plant financed by IDA (Credit 527-SD) and nine other donors,has recently come on stream at Ashuganj. The plant, designed to produce about520,000 tpy of urea, encountered substantial initial delays and cost overruns,but was inaugurated in December 1981 and urea production has started.

36. Agreement has also been reached with the People's Republic of Chinafor additional facilities for the production of 110,000 tpy of urea to beset up at Ghorasal, with Chinese technical and financial assistance. Theplant is expected to come on stream by mid 1984. However, even with thisadditional capacity and improvements in the existing ones, Bangladesh willneed additional fertilizer to sustain its food self-sufficiency program.

Urea Supply and Demand

37. Although steps are being taken to move towards a more balancedconsumption of fertilizer nutrients, because of domestic availability of rawmaterial feedstock (natural gas) and a growing experience in its production,urea is expected to continue dominating fertilizer usage in Bangladesh inthe forseeable future. Of the 875,000 tons of fertilizer consumed in FY81,urea accounted for 560,500 tons or about 64%. Consumption of urea in the lastfive years has grown at an average annual rate of 12.5%, a growth rate whichis expected to be maintained through to FY83. Increases beyond the FY83 levelare projected at 10% per annum, which will bring urea requirement in FY90 toabout 1.53 million tons.

38. With the improvements expected under the Fertilizer RehabilitationProject (Credit 1023-BD), capacity utilization at existing plants shouldimprove. With the coming on stream of Ashuganj and the proposed Chineseassisted plant and this project, Bangladesh would have urea production capacityof approximately 1.7 million tons by FY86. However, future supply of locally-produced urea will depend on the performance of the existing urea plants(Fenchuganj and Ghorasal) and capacity utilization build-up of the Ashuganjplant, the proposed Chinese assisted plant and this project. The proposedproject is expected to come on stream in November 1985, at an initial capacityutilization of 50%, increasing to 75% the second year and stabilizing at 90%thereafter. Based on this and the projected capacity utilization of theother plants, the projected local supply/demand balance of urea is projectedto remain in deficit through 1984/ 5, moving into surplus for the three years1985/6 through 1987/8 and back into deficit thereafter. Taking into accountthe world urea situation and the geographical position of Bangladesh therewould be no difficulty in exporting any surplus. In fact, IFC, together witha group of private investors, is examining the possibility of establishingan entirely export-oriented urea plant at Chittagong under the ownership ofa new joint venture company, Karnaphuli Fertilizer Company Limited.

Marketing and Distribution

39. The Bangladesh Agricultural Development Corporation (BADC), anautonomous agency under the Ministry of Agriculture and Forests, is respon-sible for the procurement, distribution and wholesale marketing of agricul-tural inputs, including fertilizers, seeds, irrigation equipment and diesel

- 11 -

fuel, and various types of agricultural machinery. While the major con-straint to increased fertilizer consumption has been inadequate supply,the fertilizer distribution system has also been handicapped by inadequateplanning and coordination and the lack of transport and storage facilities.An IDA-financed fertilizer marketing study, completed in 1977, providedthe basis for BADC to formulate a comprehensive and improved marketing andstorage program. This program includes a USAID-financed project for con-struction of additional storage capacity and a phased program to developgreater private sector involvement in fertilizer distribution.

40. Marketing. Until recently, BADC's marketing system limited privateparticipation to the retail level. In 1978, backed by the USAID FertilizerDistribution Improvement Grant, BADC introduced wholesale and retail compe-tition among fertilizer dealers--private and cooperative--in a pilot projectin the five districts of Chittagong Division which account for about a thirdof total fertilizer consumption. Since July 1980, the new system has beenextended throughout the country. The new marketing system has enjoyed asuccessful beginning and has reduced BADC's costs of multiple handling,transport and losses.

41. Transportation. The transportation system has been a constraintto fertilizer availability and use. In order to expedite fertilizer move-ment and distribution, IDA is assisting in the financing of a fertilizertransport project (Credit 1096-BD) to: (i) improve landing and storagefacilities at two ports to serve as transit centers for the entire north-west section of the country; (ii) dredge the channel at Chittagong port inorder to raise the maximum limit of fertilizer (and other cargo) that shipscan bring into the port; (iii) improve the railway fertilizer handlingfacilities; and (iv) improve contracting procedures for fertilizer movements.The feasibility of bulk handling and bagging facilities for imported ferti-lizer has been under review for some time, since ocean shipping and porthandling in bulk form would give significant savings. An IFAD FertilizerSector Program Loan approved in December 1979 includes financing of a pilotproject at Chittagong which would upgrade existing jetty facilities to handlesmall bulk ships.

42. Storage. BADC bases its present and future storage needs onhaving inventories equivalent to five months of expected offtake for importedfertilizers and three months of expected sales for domestically producedfertilizers. On this basis, the stockholding requirements would rise to600,000 tons by the end of FY83 and to about 800,000 tons by the end of FY85if consumption develops as estimated and required in the context of theMedium-Term Foodgrain Production Plan (see para 32). Projects are underwayto expand BADC's own storage capacity as well as increase storage capacity atvarious factories under construction. Total storage capacity available by1985 (including rented and factory capacity, but excluding supplies in tran-sit) would be about 808,000 tons. As transportation capacity improves and asmore of the total urea requirements is met from domestic production ratherthan from imports, it should be possible to reduce the buffer stocks that needto be kept within BADC warehouses and thereby reduce the costly burden on the

- 12 -

distribution system. Furthermore, additional private storage should becomeavailable with greater reliance on private wholesalers under the new market-ing system.

Fertilizer Pricing

43. Farmer demand for fertilizer depends largely on the ratio betweenthe expected output price at harvest time and the cost of fertilizer thatwill make fertilizer use sufficiently rewarding financially for the farmerto take the risk of purchasing and applying it. In Bangladesh, droughts andfloods make fertilizer use a more risky undertaking than in many countries.The impact of successive increases in fertilizer prices on the trend offarmer use of fertilizer must be monitored carefully.

44. Since its introduction in Bangladesh, fertilizer has been subsi-dized to promote its use. BADC receives a subsidy from the Government tocover the difference between its procurement and distribution costs and itssales revenues. The subsidy thus defined has risen rapidly in recent yearsand the burden on the Government has remained substantial. In connectionwith the Fertilizer Imports Credit (Credit 944-BD), IDA and GOB have agreed toreview, at the request of either party, but in any case at least once a year,the effect of fertilizer price movements on the level of the subsidy so as toensure continued progess towards elimination of the subsidy by June 30, 1985.As a result, the Government has increased its fertilizer sales prices toreduce the subsidy from 42%. in FY80 to 33% in FY81. A further increase infertilizer sales prices by an average of about 21% was announced in December1981, thus lowering the unit subsidy to 28% in FY82.

45. The level of subsidy reduction is linked to the Government procure-ment prices for foodgrains. Under Credit 944-BD, the Government has agreedto set foodgrain procurement prices at levels judged to provide adequateproduction incentives to farmers and to review at the time of each increasein fertilizer prices whether or not such prices might require adjustment.In June 1979, the ratio of the paddy and wheat procurement prices to thefertilizer sales price was about 1.3. As a result of subsequent increasesin fertilizer and procurement prices the present paddy/fertilizer price ratiohas been reduced to about 1. The present paddy/fertilizer price ratio isconsidered adequate to continue to make the use of fertilizer attractive;for comparison, the present ratio in India is about 0.40, and in Pakistanis about 0.55.

Credit

46. Generally, availability of institutional credit does not appearto be a major constraint to increased fertilizer use. Institutional creditfor fertilizer is provided primarily by six commercial banks and one agri-cultural bank under a liberalized short-term credit program introduced inFY78 and designed to increase the use of agricultural inputs. The share ofthe program going to small farmers has proved less than originally intended.To increase access to credit by small farmers, the banks have opened morerural branch offices and have improved staff training. The Government has

- 13 -

also employed consultants, financed under the First and Second IDA TechnicalAssistance Credits (409-BD and 622-BD), to recommend measures for longer-term improvements in the agricultural credit system. Several experimentalprojects to provide credit to small farmers and sharecroppers are in progress,but their results are not yet available. The recently approved IDA assistedAgricultural Credit Project (Cr 1147-BD) would help strengthen the agricul-tural credit system and expand access to credit by small farmers.

PART IV - THE PROJECT

Project History and Location

47. In November 1976, the Asian Development Bank provided Bangladeshwith an engineering loan of US$2.0 million equivalent to carry out thefeasibility study and detailed engineering for (i) the development of theBakhrabad gas field and transmission line to supply gas to end-users inChittagong, Bangladesh's leading commercial and industrial center; and (ii)an ammonia-urea complex that would use part of the gas from the Bakhrabadfield. UNICO, a Japanese consulting firm, was contracted to provide thetechnical services. Following completion of the feasibility study in late1979, GOB requested IDA to consider financing, and mobilizing and coordinat-ing other donor assistance, for the gas development and transmission project;IDA appraised the Bakhrabad Gas Development Project in January/February,1980 and the credit (Credit 1091-BD), was approved by the Executive Directorsin December, 1980 with co-financing from OPEC and OECF. The ADB was requestedto perform a similar role for the ammonia-urea complex (the proposed project).

48. The ammonia-urea complex was appraised by the ADB over a 10-monthperiod beginning February 1980. Because of its linkages with the gas develop-ment and transmission project, IDA had followed its inception and subsequentpreparation very closely, particularly during the appraisal of the BakhrabadGas Development Project (Credit 1091-BD). Negotiations for the proposedcredit were completed in January 1982.

Project Description

49. The project consists of (a) design, engineering and constructionof (i) a 1,000 tons per day (tpd) ammonia unit; (ii) a 1,700 tpd urea unit;and (iii) utilities, offsite and ancillary facilities; (b) construction ofoffice and plant buildings and a staff housing colony, including communityfacilities; (c) supply of construction equipment for building the plant;(d) retention of a technical advisor to assist and advise on design, procure-ment, construction and startup of the facility; (e) a management advisory andoperational services team to assist in the management, operation and mainte-nance of the plant during the initial three years after commissioning; and (f)training inplant and abroad of key plant personnel.

- 14 -

50. The proposed project will be located south of the Marine Academyin Chittagong, on the opposite side of the Chittagong port. The site wasselected after extensive evaluation of alternative locations, taking intoaccount the soil conditions, effects of possible earthquakes, ease and costof distribution of the project's output, availability of skilled manpowerand infrastructure, and access to international shipping for potentialfuture exports of urea from Bangladesh. The selected site is in a relativelyundeveloped region of the Chittagong District and is easily accessible to thedomestic fertilizer markets. By waterways, the urea output of the proposedproject can be transported to the western districts of Noakhali, Barisal andPatuakhali and to the ports of Khulna and Chalna for distribution to thesouthwest and northwest regions of Bangladesh. The construction of a 5 kmroad to link the Project site with the Patiya-Anwaro highway, now underconstruction, will enable urea to be transported by road to consuming areasin the Chittagong district.

Raw Material and Utility Requirements

51. The principal raw material required by the project will be naturalgas from the Bakhrabad gas field. The gas is to be used both as a feedstockand as fuel for the plant. The maximum daily gas requirement for the plantis estimated at 55 million standard cubic feet (MMSCF). The already provengas reserves at Bahkrabad would be sufficient to support the projectedtotal gas requirements of the plant and other gas end-users, at least untilthe year 2000. The gas to the proposed project will be delivered via a161-km long, 24 inch-diameter transmission pipeline to the Chittagong CityGate Terminal, from where gas will be distributed to the proposed projectand other gas end-users in the Chittagong area. The IDA-financed gas systemproject is being implemented by the Bakhrabad Gas System, Ltd. (BGSL). Afterinitial delays caused by rains and some material shortages, project imple-mentation is proceeding satisfactorily and is expected to be completed byJune 30, 1984.

52. The project entity, Chittagong Urea Fertilizer Limited (CUFL),will enter into a long-term gas supply contract with BGSL on terms andconditions satisfactory to IDA. The contract will obligate BGSL to completethe development of the related gas system project before the completion ofthe proposed project (expected by December 1985) and to give priority to thisproject in allocating gas from the Bakhrabad fields; Government has alsoprovided an assurance to this effect (Section 3.03 of the draft DevelopmentCredit Agreement and Section 2.02(b) of the draft Project Agreement). Theexecution of this contract will be a condition for credit effectiveness(Section 5.01(c) of the draft Development Credit Agreement).

53. Other major requirements of the plant are steam, power and water.Steam for the urea unit and for other purposes such as plant start-up willbe supplied by gas-fired boilers. The plant will be equipped with two 12MW generators to provide its own captive power. Additionally, the plantwill be connected to the national grid for standby use prior to completionof plant construction (Section 3.04 of the draft Development Credit Agreement).

- 15 -

54. The plant and the housing colony will require about 1,050 cubicmeters of water per hour. The nearest reliable source of water of acceptablequality would be at the confluence of the Karnaphuli and the Helda riversabout 25 km north of the selected site. A pipeline route has been selected,and the Government and CUFL are in the process of finalizing the acquisitionof the right-of-way for laying the pipeline; GOB and CUFL would agree tocomplete the acquisition by December 31, 1982 (Section 3.02 of the draftDevelopment Credit Agreement and Section 2.08(b) of the draft Project Agree-ment). All other lands, properties and rights of way necessary for theconstruction of the plant will be acquired by CUFL as a condition of crediteffectiveness (Section 5.02(d) of the draft Development Credit Agreement).

Project Cost

55. A detailed breakdown of project cost is presented in the Projectand Credit Summary. Total financing required for the project, includingphysical and price contingencies, pre-operating expenses, permanent workingcapital and interest during construction, is estimated at about US$467.6million, of which US$290.0 million or 62% is in foreign exchange and US$177.6million or 38% is in local currency. The base cost estimate is calculatedin April 1981 prices. Price contingencies on the foreign component werebased on estimated international inflation rates of 9% in 1981, 8.5% in1982 and 7.5% in 1983 through 1985; price escalation for local costs wasbased on estimated inflation rates in Bangladesh of 12% in 1981 and 10% perannum thereafter. 1/ The working capital requirements are calculated on thebasis of 90% operating level needs, and are estimated at US$35.1 million witha foreign exchange component of US$5.3 million. Interest during constructionis calculated at 12% per annum on the foreign loans, which is the rate atwhich GOB will pass on the foreign contributions, including the proceeds ofthe proposed IDA credit (Section 3.01(b) of the draft Development CreditAgreement).

Financing Plan

56. Seven co-financiers would finance the US$290 million equivalentforeign exchange cost of the project. These funds, including the proposed IDAcredit, would be relent by GOB to CUFL for a term of 15 years, including 5years of grace, at 12% per annum. This is expected to result in a slightlypositive rate in real term over the medium term. CUFL would bear theforeign exchange risk. The local cost component will be provided by GOB fromits annual development budget as equity to CUFL to be used to finance localcurrency expenditures. GOB½s contribution will amount to 38% of the totalproject cost. The project components and proposed contributions of theco-financing agencies are as follows:

1/ Although the inflation rate in FY82 is expected to be around 15%, asindicated in paragraph 14 above, these price contingencies are consideredadequate because (i) local costs associated with the project (includingcivil works) are not expected to rise so rapidly as the general pricelevel (consumer price index) and (ii) the inflation rate is likely toslow down as a result of Government-s policy measures aimed at financialstabilization.

- 16 -

US$Million

Source Equivalent Items to be Financed

Asian Development Bank 72 Service fees for General Contractor,(ADB) Technical Advisors, and Operational

Management Advisory Team, civil works,some offsite facilities and administra-tion building, catalysts and chemicals,working capital and freight.

Abu Dhabi Fund for Arab 25 Water treatment plant, water intakeEconomic Development pipe, construction equipment, spares(ADFAED) and freight.

Canadian International 20 Steam generation facilities, ammoniaDevelopment Agency storage and refrigeration facilities,(CIDA) maintenance equipment, spares and

freight.

Islamic Development 16 Power generation and distributionBank (IsDB) facilities, air and inert gas

facilities, spares and freight.

Overseas Economic 60 Urea unit including services (lump-Cooperation Fund sum basis), material handling equip-of Japan (OECF) ment, spares and freight.

Saudi Fund for 85 Ammonia plant, jetty, buildings andDeveliopment (SFD) structures, spares and freight.

International Develop- 15 Site preparation, constructionment Association (IDA) equipment and freight.

Total Foreign Exchange 293.0 1/

1/ $2.0 million of the ADB's proposed loan of US$72 million would refinancean existing ADB technical assistance loan made for the preparation ofthis project. This amount is excluded from the cost estimates presentedin the Project Summary.

Project Implementation Arrangements

57. The Implementing Agency. The proposed project will be implemented(over a 53 month period) and operated by the Chittagong Urea FertilizerLimited (CUFL), a recently-created limited liability company under theBangladesh Companies Act. The company is wholly-owned by the BangladeshChemical Industries Corporation (BCIC) on behalf of GOB. Its authorizedcapital is $187.5 million and will be subscribed to by the Government. Pay-ment will be made when capital is required to pay local currency expenditures

- 17 -

on the proposed project. CUFL's Articles of Association were approved byGOB in October 1980. CUFL's Board of Directors will be appointed by GOB,and will have not less than five and not more than eight members. The Boardof Directors of CUFL is the policy-making body; the Managing Director is theChief Executive and will be responsible for the day-to-day operations ofthe company. Any changes in this position and those of the Project Directorand Finance Director of CUFL would be subject to prior consultation with IDA(Section 3.02(b) of the draft Project Agreement). While CUFL will improveits technical staff capacity through a comprehensive training program (seepara. 61), it plans to draw technical and managerial support from BCIC, theGOB-owned chemical industries holding corporation, and other fertilizercompanies in Bangladesh. At full operating level, CUFL will employ about1,300 people. To assist in implementing the project and in efficientlyoperating the plant in the initial years following its construction CUFLwould engage the services of a General Contractor, a Technical Advisor anda Management Advisory and Operational Services Team (Sections 2.03 and 2.09of the draft Project Agreement). Details of their functions are describedbelow.

58. The General Contractor. The General Contractor, whose qualifica-tions and contract terms shall be satisfactory to IDA, will be engaged byCUFL after international competitive bidding. The general contractor willhave overall responsibility for the construction and commissioning of theproject. His responsibilities will include, but not be limited to (i) provi-sion of process licenses, and basic and detailed designs of the ammonia unitand all off-site and ancilliary facilities; (ii) management of procurementfor all materials and equipment for the ammonia unit and for all off-siteand ancilliary facilities; (iii) supervision of erection and construction ofthe entire integrated plant, including the urea unit, and all civil works;(iv) testing, start-up, and the commissioning of the entire integrated plant,including the urea unit; and (v) training of CUFL personnel. The GeneralContractor will be paid on a fixed fee plus reimbursable cost basis for itsservices. Equipment and materials will be procured by the General Contrac-tor on behalf of CUFL in accordance with the procurement procedures of therespective co-financiers. Civil works, construction and erection workscontracts for the project will be awarded by CUFL under separate contracts.The General Contractor will, however , supervise such works. To meet OECFrequirements for its funds to be utilized for financing the urea unit on alump-sum basis, CUFL will engage a sub-contractor who will be responsiblefor providing the process licenses, basic and detailed engineering designs,supply of equipment and technical supervision for the erection of the ureaunit under the overall coordination and supervision of the General Contractor.

59. Technical Advisor. UNICO International of Japan is being retainedas Technical Advisor (i) to assist CUFL in the preparation of process speci-fications and bidding documents for the general contract, pre-qualificationof contractors and selection of the General Contractor; and (ii) to provideCUFL with management and technical advisory services during the projectimplementation period. Provision of 274 man-months to cover these servicesis included in the total project cost.

- 18 -

60. Management Advisory Team. CUFL will engage a Management Advisoryand Operational Services Team with experience in the technical management ofammonia-urea fertilizer plants to assist CUFL in managing and operating theplant for at least the initial three years of its operation (Section 2.09 ofthe draft Project Agreement). It is envisaged that a small group of expatriatemanagement and operational advisors would be required to assist CUFL to reachand maintain the production rate of the plant at about 90% of rated capacity.An input of up to 288 man-months by the team of expatriate experts is estimatedto be required for assisting CUFL in the efficient operation and maintenanceof the Plant and for providing on-the-job training for CUFL's managerial andtechnical staff.

61. Employment, Training and Operating Management. About 240 of the1,300 persons to be employed by CUFL would be managerial and administrativestaff, and the remaining would be plant personnel and other supporting staff.More than half of the plant personnel would be technologists, technicians andskilled workers such as engineers, chemists, fitters, mechanics, welders andelectricians. The rest of the plant personnel would be semi-skilled andunskilled laborers required for tasks such as materials handling and bagging.CUFL will recruit all of the key technical staff during the construction phaseof the project, and will provide such staff with the necessary training priorto the start-up of the plant. Training programs would be drawn up by CUFL'sGeneral Contractor in close cooperation with the Technical Advisor. Theprograms will be carried out mainly in the Ashuganj and Ghorasal fertilizertraining centers but will also include intensive training abroad for selectedstaff in fertilizer plants similar to the proposed project. Arrangements forthis training would be made by the General Contractor as part of its contrac-tual responsibility. In addition, the General Contractor in consultation withUNICO will be required to organize on-the-job training for CUFL staff duringconstruction and initial operation of the plant. The training program fortechnical staff would be submitted to IDA by December 31, 1984 for approvalprior to its implementation (Section 2.06 of the draft Project Agreement).

Coordination Among Co-financiers

62. A Memorandum of Agreement between the co-financiers sets out theagreed arrangements for coordination among co-financing agencies. While IDAwill retain the right to supervise the project, in order to minimize informa-tion demand on GOB and CUFL and to develop joint and consistent approachesto the project by co-financiers, ADB will monitor and channel informationregarding the project and its progress, as well as organize review missionsof co-financiers on a regular basis. In the course of these missions, thestatus of compliance with the Credit covenants, latest budgetary cost esti-mates, status of implementation schedule, the performance activities, andprojected disbursements of the project will be reviewed. ADB will alsoarrange joint meetings among co-financiers as and when necessary for takingsteps for jointly resolving any problems. A separate agreement will besigned between IDA and ADB outlining the role ADB would play in administer-ing the proposed IDA credit. ADB would undertake inter alia to: (a) reviewcontracts for civil works and equipment supplies under the proposed IDAcredit to ensure that the procurement procedures in these cases followedIDA's Guidelines; and (b) review disbursement applications and advise IDAof approvals for disbursement.

- 19 -

Procurement and Disbursement

63. Procurement of goods and works to be financed under the Credit byIDA will be in accordance with IDA's guidelines. Contracts for the procure-ment of goods and civil works estimated to cost the equivalent of US$200,000or more will be awarded on the basis of international competitive bidding.Local bidders would be given the usual margins of preference. Bidders forcivil works, construction and erection contracts will be prequalified beforebidding in accordance with procedures satisfactory to IDA. Contracts forthe procurement of goods and civil works estimated to cost less than theequivalent of US$200,000 will be awarded on the basis of limited internationaltendering. Disbursement would be made against 100% of foreign expendituresand 65% of local expenditures for civil works and against 100% of foreignexpenditures for imported goods and 100% of local expenditures ex-factory oflocally procured equipment.

Auditing Requirements

64. CUFL will furnish to IDA within 45 days after the close of eachof the first three quarters of each fiscal year of CUFL (i) an unauditedquarterly financial statement; and (ii) a written statement by an authorizedfinancial officer of CUFL setting out the status of compliance with thefinancial covenants agreed upon between CUFL and IDA. Within six monthsafter the close of each fiscal year, CUFL will further submit to IDA finan-cial statements audited by an independent auditor acceptable to IDA (Section4.02 of the draft Project Agreement).

Financial Targets

65. Current ex-factory urea prices administered by the Government arebased on production costs in the fertilizer plants now in operation. Theprices do not allow sufficient provision for depreciation on revalued assetsand are often inadequate to meet debt service obligations of fertilizer plants.Under the IDA credit for the Fertilizer Industry Rehabilitation Project(1023-BD), the Government has agreed to review, at least once a year, theex-factory prices of all fertilizer plants and establish such ex-factoryprices for the following year to enable the facilities operating efficiently(defined as 80% capacity utilization) to (i) obtain revenues sufficient tocover operating and administrative expenses, including adequate provisons formaintenance, depreciation, taxes and other levies; and (ii) provide a netincome after interest and taxes which will yield a reasonable return agreedupon between Government and IDA on the revalued equity; a rate of return ofat least 10% was agreed upon for this purpose. The Government has agreed tomake the above pricing mechanism also applicable to the proposed project(Section 3.05(a) of the draft Development Credit Agreement; Section 4.03(f)(ii)of the draft Project Agreement). To further ensure sound financial operationsof the project, CUFL has undertaken (i) after the commercial operation date,not to incur any long-term debt, if after such occurrence the debt equityratio will exceed 60:40; or the debt service ratio will become less than 1.5times; (ii) prior to the commercial operation date, not to make expenditures,or commitments for expenditures for capital additions except expendituresrequired for the project; (iii) for the three-year period following the

- 20 -

commercial operation date, not to make any expenditures or commitmentsexcept: (a) expenditures required for operation of the plant; (b) investmentin short-term marketable securities solely for the purpose of temporarilyemploying funds at the time not required to be held as cash; (c) otherexpenditures or commitments for expenditures not exceeding in the aggregatethe equivalent of US$3 million in any fiscal year. Finally, CUFL will notpay any dividend or make any other distribution with respect to its sharecapital if, after giving effect to such action, the current ratio would beless than 1.5 (Section 4.03 of the draft Project Agreement).

Benefits and Risks

66. The project will increase Bangladesh's domestic fertilizer produc-tion and directly reduce the country's import requirements. The net foreignexchange savings resulting from the project, after deduction of principalpayments and service charges on the foreign funds and deducting the foreignexchange components of operating cost, are estimated at US$114 million a year,in 1981 dollars. The increased domestic production will also help ensure acontinuous and secured supply of fertilizer, thus allowing Bangladesh topursue its agricultural growth targets with more certainty. The Governmenthas put a heavy emphasis on agricultural stability and growth, and stepped-upfertilizer production will play a key role in increasing agricultural outputby improving yields. In fact, by 1988 when the project reaches full capacityoperation, it alone will provide 37% of the forecast domestic urea supply and36% of forecast urea consumption. Direct employment created by the projectwill be about 1,300 permanent jobs. The investment cost per permanent directjob is about US$350,000. At the peak period of construction activity, morethan 3,000 people will be employed for project implementation. Furthermore,it is conservatively estimated that through secondary and tertiary employmentcreation effects, the project will generate some 4,000 jobs in the transportand service sectors. The local erection and civil works contracts will alsohave a positive impact on the local economy. Installation of a large fer-tilizer complex in the area will help attract small and medium scale serviceindustries needed to provide maintenance and other services for the complex,and the road connection can assist in the industrial development of that areaof Chittagong.

67. The economic rate of return on the project is estimated at 19%.ADB's economic analysis uses the official exchange rate at the time ofappraisal (Tk 16.00 per US$1.00) and assumes an opportunity cost for gasbased on the value of crude oil alternative source of energy when the gasis exhausted in 30 years time (US$1.44 per million BTU in 1985 prices). Forthe purposes of sensitivity analysis, IDA staff have used a shadow exchangerate of Tk 20.00 per US$1.00, and have conservatively assumed a higheropportunity cost for gas (US$5.4 per million BTU in 1981 prices) based on thecalorific value equivalent of fuel oil at present prices. Based on theseassumptions, the economic rate of return would be 14%, which is satisfactory.Using a shadow exchange rate of Tk 20.00 per US dollar and placing a value ofUS$3 per million BTU on the natural gas, the economic rate of return increasesto 22%; on the other hand, if project completion were delayed by one year andcapacity utilization of the plant builds up substantially more slowly, underthe IDA sensitivity analysis the economic rate of return for the project

- 21 -

could fall to 5.4%. Based on an ex-factory price for urea of $280 per metricton for the domestic market and $330 per metric ton for the export market in1985 constant values, the financial rate of return of the project is estimatedat 11.7%.

68. Other than the operational risks inherent in all chemical industries,which for this project are expected to be minimal because of the adoption oftechnology commercially proven both in developed and developing countries,the main risks facing the project are possible implementation delays, lowcapacity utilization and unsatisfactory financial performance resulting fromGovernment pricing policy. IDA, ADB, the other co-financiers and GOB havesought to minimize the possible risk of implementation delays by the adoptionof the implementation arrangements described above. The risk of low capacityutilization is expected to be minimized by the inclusion of provisions for atraining program for CUFL staff and employment of expatriate management andoperational advisors during the initial three years of operation. Satisfac-tory financial performance of CUFL would be largely dependent on implementa-tion of a pricing mechanism which allows for timely price adjustments duringperiods of rapidly rising production costs. This risk is expected to beadequately met by the proposed agreements with the Government, which willallow CUFL to earn a minimum agreed return on its equity.

Environmental Safeguards

69. Statutory regulations for industrial pollution control in Bangladeshare in the process of being enacted; their standards are expected to followclosely those adopted in developed countries. The project will be designedin accordance with acceptable standards of pollution control, including thoserelated to solid, liquid and gaseous emissions. Since natural gas fromthe Bakhrabad gas field is virtually sulfur-free, atmospheric pollution isexpected to be minimal. Solid emission from the prilling of urea will beminimized through the installation of a dust removal system. Liquid effluentfrom the plant will be treated in waste water treatment units before beingdischarged into the Karnaphuli river. Under these circumstances, the adverseeffect of the project on the environment is expected to be negligible.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

70. The draft Development Credit Agreement between the People's Republicof Bangladesh and the Association, the draft Project Agreement between theAssociation and Chittagong Urea Fertilizer Limited (CUFL) and the Recommenda-tion of the Committee provided for in Article V, Section l(d) of the Articlesof Agreement are being distributed to the Executive Directors separately.Special conditions of the project are listed in Section III of Annex III.Additional conditions of credit effectiveness are: (a) that the SubsidiaryLoan Agreement between GOB and CUFL has been executed; (b) that all conditionsprecedent to the effectiveness of the ADB loan agreement and those of otherco-financiers have been met; (c) that GOB has entered into a supply contractwith Balkhrabad Gas System Ltd; and (d) that CUFL has acquired lands andproperties required for the construction of the plant.

- 22 -

71. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

72. I recommend that the Executive Directors approve the proposedcredit.

A. W. ClausenPresident

by Ernest Stern

Washington, D.C.

January 15, 1982

- 23 -

Page ITABLE 3A

BANGI.DESB - SOCIAL INDICATORS DATA SHLEET

BANGLAMESH REFERENCE GROUPS (WEIGHTED AVERAGESLAND AREA (THOUSAND SQ. MOM.) H MOST RECENT ESTIMATE)-

TOTAL 144.0 H~~~~~~~~OST RECENT WV INCOME MIDDLE INCONEAGRICULTURAL 97.3 1960 /b 1970 /b ESTIMATE /b ASIA 4 PACIFIC ASIA & PACIFIC

GNP PER CAPITA (US$) 30.0 50.0 90.0 232.3 1136.1

ENERGY CONSUMPTION PER CAPITA(KILOGRAHS OF COAL EQUIVALENT) .. 32.0/e 40.8 499.4 1150.6

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (THOUSANDS) 53491.0 68117.0 88934.0URBAN POPULATION (PERCENT OF TOTAL) 5.1 7.6 10.8 17.3 40.8

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 148.3STATIONARY POPULATION (MILLIONS) 338.0YEAR STATIONARY POPULATION IS REACHED 2105

POPULATION DENSITYPER SQ. M0. 371.5 473.0 617.6 153.6 373.1PER SQ. KM. AGRICULTURAL LAND 561.9 702.2 888.6 360.3 2382.8

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 44.3 46.3 43.5 37.4 39.8

15-64 YRS. 52.5 51.0 53.9 59.2 56.765 YRS. AND ABOVE 3.2 2.7 2.6 3.5 3.5

POPULATION GROWTR RATE (PERCFNT)TOTAL 1.9 2.4 3.0 2.1 2.3URBAN 3.6 6.3 6.8 3.4 3.8

CRUDE BIRTH RATE (PER THOUSAND) 49.2 47.6 43.5 27.7 29.7CRUDE DEATH RATE (PER THOUSAND) 22.5 19.9 15.7 10.2 7.5GROSS REPRODUCTION RATE 3.5 3.1 2.8 2.5 1.9FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 429.5 1143.0USERS (PERCENT OF MARRIED WOMEN) .. .. 8.9 20.4 44.1

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 106.0 101.0 88.0 107.1 123.7

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

EOQUIREMENTS) 85.0 85.0 91.0 98.6 112.6PROTEINS (GRAMS PER DAY) 43.0 43.0 58.5 56.9 62.5

OF WHICH ANIMAL AND PULSE 9.0 9.0 9.0 14.2 19.7

CHILD (AGES 1-4) MORTALITY RATE 24.9 23.5 18.7 14.6 4.8

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 42.6 44.9 48.8 57.7 64.0INFANT MORTALITY RATE (PERTHOUSAND) .- 153.0 130.0 89.1 50.2

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL 45.0 53.0 30.1 45.9URBAN .. 13.0 15.0 65.8 68.0RURAL .. 47.0 55.0 20.1 34.4

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 6.0 5.0 17.6 53.4URBAN .. .. 40.0 71.0 71.0RURAL .. .. .. 4.8 42.4

POPULATION PER PHYSICIAN .. 8427.2/c 8775.0 3857.7 4428.7POPULATION PER NURSING PERSON .. 91872.9 56876.6 6411.8 2229.7POPULATION PER HOSPITAL BED

TOTAL *- 6610.0/d 4402.0 1132.8 588.5URBAN .. .. 637.6 322.3 579.6RURAL .. .. 23754.3 5600.5 1138.5

ADMISSIONS PER HOSPITAL BED

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.9/ 5.9URBAN .. 6.17 6.1RURAL 5. 97 5.9

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. ..URBAN .. ..RURAL .. ..

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. ..URBAN .. 3.O/eRURAL .. ..

- 24 -

Page 2TABLE 3A

BANGLADESH - SOCIAL INDICATORS DATA SHEET

BANGLADESH REFERENCE GROUPS (WEIGHTED AVERAGES- MOST RECENT ESTIMATE)-

MOST RECENT LOW INCOME MIDDLE INCOME1960 lb 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 47.0 52.0 72.0 85.9 99.8MALE 66.0 68.0 103.0 94.4 100.6FEFALE 26.0 34.0 40.0 64.5 98.8

SECONDARY: TOTAL 8.0 19.0 22.0 38.0/aa 53.5MALE 14.0 29.0 32.0 34.61am 58.4FEMALE 1.0 8.0 11.0 18.0/ma 48.6

VO(ATIONAL ENROL. (X OF SECONDARY) 1.0 1.0 1.0 3.8 21.1

PUPIL-TEACHER RATIOPRIMARY .. 49.0 44.0 32.8 34.2 -

SECONDARY .. 26.0 24.0 19.9 31.7

ADULT LITERACY RATE (PERCENT) 21.6/f 23.0 26.0 52.8 86.5

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION .. 0.4 0.4 1.7 12.7RADIO KECEIVERS PER THOUSAND

POPULATION .. 6.0 6.0 35.3 174.1TV RECEIVERS PER THOUSAND

POPULATION .. .. 0.4 3.7 50.6NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION .. .. 4.3 14.6 106.8CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. 3.4 4.3

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 19251.6 23611.0 31390.3

FEMALE (PERCENT) 15.2 16.6 17.4 29.3 37.4AGRICULTURE (PERCENT) 86.8 85.9 74.0 69.8 50.2INDUSTRY (PERCENT) 3.3 3.5 11.0 14.1 21.9

PARTICIPATION RATE (PERCENT)TOTAL 36.0 34.7 35.3 39.7 40.2MALE 58.7 55.9 56.5 51.5 49.8FEMALE 11.4 11.9 12.7 23.3 31.1

ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.3 1.1 1.1

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST $ PERCENT OF HOUSEHOLDS 18.3/g 16.7/hHIGHEST 20 PERCENT OF HOUSEHOLDS 44.5/ 42.3/h 38.0/iLOWEST 20 PERCENT OF HOUSEHOLDS 6.9/ 7.9/h 8.07..LOWEST 40 PERCENT OF HOUSEHOLDS 17.9/ 19.67.h

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 139.0 134.1 248.6RURAL *- *- 111.0 111.6 193.7

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. .. .. 249.8RURAL .. .. .. .. 234.3

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. 86.0 41.7 21.2RURAL *- *- 86.0 51.7 32.2

Not availableNot applicable.

NOTES

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countriesamong the indicators depends on availability of data and is not uniform.

/aa China included in total only.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1976 and 1979.

jc Registered, not all practicing in the country; /d Government hospital establishments only; /e 1973;if 1962; /g 1963-64; /h 1966-67; /i Estimated percent of national income.

May, 1981

P.ne 3

DEFINITIlON OP SOCIAL UI20IATOAS

Nets. Although tba data -r draw fro .s...... ge-rlly judged the mest uthorittiv- and reliable, it shold also ha uted that they ay not be in.te-aati-sly .amp...bl. beacon of the leek of tnaadadtesd dafiitiom end ... n.ePt. used by different noutri.a Ia ollec.ting the data. The data ore, none-thbl.... u...ufl to dewnoiba ocd.re of esgatude. indicate trends, mo obhooteri .... etain naJor differanos hstwsano..u.toie..

Trha redfreno gmeup. Al (1) the asm ooutry group of the eubjeot -utry end (2) A ouutry group with a..eeh.r highe- -vrge Iocon thao the coutry grou.pof the eubist .outry (eatapt for 'Capital surplus Oil gaorsr" rop eh... "Siddla Intn North Afrion sod Middlo host" Ia cho... h..a... of stonOsrrsone-uw1t.ral affimitigs). 1n th. r.fareno grop data the avrages sre popultion wighted arithmetic wean. f. oneah hidicator nod cho only henmejority of the aentrlsin. a. group ba. data fo that indi.tatr. Sinu the ong of nontrina amog tics todiostora depends oo the evail.bility of dotesad In eat -uif.-. oatlen -ne be meeroisad ha ..s.ltig ov sofon idc tor0 unhr These a--rae ar .nly uaa fut to c-p.riog the .nlu. ofem Sedhaste An A ties smeg tho coutty end reference gan,ups.

LAIM AREA (thousand eq.k..) yopniatio per Hospital Bed - cta.t1 urh-r oaf rural - Pop.lution (tota.1fetal - Tona-lsrfeos sraa coprising land Area and inland waters, urba. ad rura) divtd.d by thiar rep-cti- rasher of honpita1 bedsAalrteu1tr.1 - Eatimt. of -giatue m uad tenporrily or permanetly urilable In pbhi~ to d private gnenl1 and epe-iolcod hospitl1 andr

for r pa.pastrns, market and kitobn gard-n or to lie fallow; 1979 data. habillition. cetr ..hopit.l. one ost.blishnot. pormanetly ntaffedby on lea..t nor phynician. Eatoblish ..nta providing pnintip.lly ounto-

GNOP PER CAPITA (US$) - GNOP pea capita esetmat.. At oufoet maktn pro-, -a1- dia1lvra an. non included. Runul boapitele. howve. - toolade healthoolat.d by sam -renioo method an World lank Atlas (197y-79 basis); 1960, and ad iol1 centvos nun p-naaet7y tof fed by a phyeiaio (hut by A1970, amd 1979 data, medical ... sai.tt noose., midife. etc.) which of fr io-patiet Atoem-

dation and provide a limied range uf medical feciliti.a. P00 tiatin-UUERT CagglgrIOTIa PER CAPITA - dAau1 -osuptlon of -nmroha1 -eagy (coal tioal prpo.... urben huapital. inolud. WHO. pri.cipal/ge....al hospitels,and lignite. ps -la.wtuel1 gas and hydra,-.1nalrn an gathorsa blc- and rura b.spit.14 bI .. on -Ioa hoapitala nod adloal and eatenitytrinity) I. kilogoam of -ea quivalent pwr onpits; 1960. 1970,..ad 1979 nenteo. Spocielle-d huapit.l.oare holuded 01y undar total..dana. Admissions per B.apit.l led - Toto1 number of adminion to or dinohoegos

fruw hospitals dtitdnd by the nenher of beds.POPOUL0OO AND VITAL STATISTICS

Tonal Peel.tlem. Xid-YeAr (thoesaads - As of Suly 1; 1960. 1970, and 1979 HOUSING

Orba Peulaten pnroat P toal)- Pti.oef arben t total population; A household' ouninnf a group ufp individua .t0ls h o livig qeateradifgfen-t deiiiu f tI ban reaw may aff..t aompsbility of data end their main -I.l. A hoarder or lodger way or way not be iooladed Insmoe wemtnies; 1960, 1970. end 1979 d.ta, the household for atatistioul porpusen.

a ~~~~~~~~PwruLatIo Prelmetiom Averaeouber uf rer-In par noun~- total, other, and rural - Avrage oP.:! atin ha ea 2000 - Curret popolatie. proj.otinus Ale bs..ed to 1980 bar of paa.... per noon in 011nro end auralvocpiod caeoa

ttL pouaitio by a4e and sen sad their mortality and fertility ranes, dwellings, -ap-civ-ly. Dwolli.ge en lude soo.--ponan ntutnoadPonj.etion pasmtare for -otaity astes cempfis of three lsvsl nasu- onucopied yarns.lag lfe sapstotay at birth lneagwith -awtoy's per ..pita imomeAarw to 11tiecoicy (ecn fdolua tol.t ubo.adrua

lee,aad Pals lifs sapsotamy stbileinig An 77.) years. The pana- Cnotoa wlig ihontiiyi iigqatr apretgmoans fo frtility r.te also hav than. level assuing derline in of tot1, urban, and renl1 dealioge re-pe-tinely.fsreIlityaooo,rdcog no Inow - eval sad past f-mily plaing arfi een,Zsoh tou_toy is then assigned . of thass nin. ..ebiwtione of mentality EDUCATIONsnd fertility trends fea proj.otioa purposes. Adluetad E-11leet Satios

StatiosaY PoPnlstion - In. .ettionry Ppoplatica then Is me growh ino. Pnr=ey schol - onl wl end fenal - Gr... ttn1, wale end Pestlethe birth rate Ia quaI tn the death fete, and slew the Aga enutarto a- enrolmen of al agr n.t abe primary leve as perc..otago of ras:pootiv-mains te...nt_t. ThIs Is sohieved only after frtility rates d-eliec tn prleary arhctl -ag pepulations; onrualy iacludee childre aged 6-Ilth. neplareet Isoa of -mit net reprodmetian reta, when enb genwetia years but adjusrtd for diPff.enat lengths of priwary educa.ti.n; forof wmnrnpl.... itself samtly. The tnetinnry ppulation J.s. was nn,;toite with universa ed...tinc -rlen way exted 100 Porroteimated"onthe basis of the pnojantsd ohar-taristio of the ppalatiec aos som Pupile ore ln on ebo- tho official ubool ege.ha th. yea 2000, and the rate of denlina of fsatility rane no ospleo-Ocodr ho- itl. wale and female -Cnpoted oeabone;ercondarymet banl, edcto rqie at lean fnnr yasne of approvd priseny Ins..tinolo;

year statinay pnp.lathan Is reached - The yenr when stsnin y poplation provides getaril vocaional, on teaher tuloinog i-et-tion frPpite hsbee ena.oulyo 12 to 17 year of age; rcr-epcod-tc lvrs .r gnrllyPeIaultiosDenity metudad.

Pe s. -. - Mid-yasa pPopuation poe squa kilomtar (100 heotares) of VI,ica:rtica arllsat I contet of ..... davy - Voca.tiona institutionst00.1ara 1960. 19710 sd 1979 data. inu.tehIon, indoetli.l, or other_p'r-Arn which oper.n isdtpond-

Pee so. .. amnrnl .oe land - Computd ma abve for agiutrl.lad - snly r us deporrots of secon dary Intuto .eey; 1960. 1970 snd 1970 date. Pu _tiltasor ratio - primary, and ..... dary - Total trdenta enrolled In

'PIalatio AL, Onrutnap vAsreet) - Childeen (0-16 pemos), warkiag-ag. (15- prtway and -ncodsry lo-ol divided by tobers of teachers ha the64 year). adrtirsd (65 y9ao and vw)As perosntsgs of eld-yan popu- urpoin leaelation; 1960 1970. sa 1979 dana. Adult liteacrar pe-et) - Litarate adults (nblo to ted and write)

Pena.tlon Growh late isan_t) -ttnsl1 Annas growth rates of tote1 mid- asp-rnetsgo of tvtn1 adult population egod 11 years and over.year poltiou' fo 1950-0. 1960-70. ad 1970-79.

PPacclt=onOn hO RAts _ergan - urban - Aan1a growh retas of nban pupo CM ONPISlanitn for 1950-60. 1960-70. and 1970-79. Passsnar Core (P.. thnueand Popenltioo)- peseg lcr comprise eaton

Crud. girth lens fpr thasand) - dAssllr itsprtosn fsdpa sentn esta ight poras .. c.ud.. awb1coces hearses andpo aian; 1960.1970. end 1979 data, -iiay vehils

Ceeds Death ltferth_use'a, - Aen1a datba per thousan ds of mid-year RadioI 1 Isoivrebe thousan d aer:latina) - All typ.on f r-oi-vfosPr radioPop.lattam; 1960. 1970. and 1979 dana. b..adoat no anRa1 public arthounuod of popu lation; secludeson

Orome Reoedmetian lata - A-..sge nuber of daghner A -as will bea I. Iic..ns.d r-nivere In coutries and In Pera h.a. r.gi.tl.tien of radiobnr -- rI rprsdooti- period if she sapAri-a p-eea AS.-spenif it fan- a-te wa In effet;idate for r..ot years way met ha nWpgrabls siss

tiliap rae; usealy fiws-pee acacags sadhasIn10. 1970. sd 1979 eatc triw abolishd liasicTesil Planins- AttstOr. Anual (honeods A-oAnul nmber of a...apeers TV tci-wer p-loa -th _aa ou ltio -;T r Mrdirer. foo broadcas.t to

nfA biet=tosoald-noe medr ..aspi... of eatiwna feed.il7 PI_'ng prga.gntlpbi a busdppltion onoude Aorli-.od TV ae...i-ers

_aiyPasm - _sr (esanen of meaisd mws - P-rntass of manind hacutaics and in years wh- nottainof TV nete n ha fcfot.- of thild-hesrig eg. (15-44 years) who u.. birth-control danic..o.sna Cousot e tthesadtotlaie ISow th -orge nit-

.lI marid woman In saeg -gop. caaI.tion o.f"dailyn1 gnR.- IntrntnwPapr", def inedh. Aupevidica1publication de Pe -rlaily uc nceding geerlros It Ia -ousidne

F000 ANDS NUTRITION no hr "daily" iftlit por tlatPfourniearekLoden of food Predutioc ewn Carits (1969-71-100) - ledw of pan capita aune Cinew Aon1a AttsedAno- po ~~Capita Os Y-o - la..dIuo the cubAr of

pr-d-vtha of all fund _oadities, Panduotien snldes seed and f sad and tickate sld during tho your, incldio adinsico .. t driv-ia, cincais .on..a.ede year basis. Cua-ditis cove pliesry goods (e.g. sagero.n. andme uIsinentad of sugar which ste dibls snd ... ntein etrints (e.gS.cfe andtea Ars ncldad ). Agge.sgta prudctoni of eank inany is basedfo 10.00 FORCEnutiow1 erera producer pra eItb,, 1961-65. 1970 .an 9197 deta. Total Laobo Porco (th-uads) - 0 conieAllly -ci-o paruona, inclodiogp-Pan xits supl f sorasl :rat uf r .. ir_nt -_Computed Pra amn fortesandi nsployd hoc noc"lgda oswvs tdn t.

oncog sqoivlent If net food auppliss avalable ha -outry per caplta covering po aiouf all ages. Defintosi aiu on tper dAy. A-Ilable supplies copris dometic plondutie.. faporos lass not coparable; 1960. 1970 end 1979 data.eapnder, and cagsIn stak. Nt supplies enoladeanimal fee. used. F_enl fon_r_t) _ PF_al igo oc nprerg ftotal labor forro.

quanitis ued n fod poweea. ad loss.. In dis tributIo.Oqaie aiotr orcol-Lbofrei favt. icretry. otn nate moe etimated by 1.0 hosd on phy.iloloite -,d. for norma ati- fisiga p--crgs of -ct1 lubor for-; 1960. 1970 and 1979 data.vity and health to0sidening emirometaltmp1 tu bey esights, ae nusr (otet - "abcr forro In elig, co.tetrctioc, ean.cntoriofand se di.t.ibution of population , and a11wieg 10 peroot for _ase sad eleoticity, caner und sue as perContago of tonal labor f.ro.; 1960.houshold level; 71961-65, 1970, and 1977 data. 1970 and 1979 data.yco citad nuPIyf rsnrla lana own day) - Protein runneor of per capits PeticiratiorSt (tece2 - oa. ah oad fmal - Pa'tioipatioo orIst supl oflPond pea dsy. iNt enpply of food isrdefim As abv.t.R. aolivity ratesar comptedatcl mae,adof-swa labori 00equirenets Pot all coeee stablinhd by USDA proide formtn, o onoso total wlc and fen1l p.pol.tit Ifalaget respotiroy

alwosof 60 gram of ttns1 protein pot day and 20 gram of animal end 1960. 1970:. adl19t79 dat. Thestsro buse.d on ILl' purtioipattonrn.topulse pratein. of which 10 nra shoald he snllpoeo:Tensn-rflctning age-sea ofotue the populatiot, and loag than ttend. A

ens -r lnr tha those of 75S ta of total proteIn nod 23 gaeo e siae r inecnannoanimal protein as anavr.ge for the world. poeposed by PAO Ia the Third OttEeh-a Doroodnc ttic - Satin of .popletior ucdr 15 and 65 nod oveb'rld Pood Survy; 1961-65. 1970 and 1977 dsa to tha aotu ahv fnrc_

Pan cap itak -rorni mmly f- ani_al andeue- Pactei. spply of food do-rie fo exa -ead pulses In gr- per day; 1961-65. 1970 and 1977 data. INCOME DISTRIBlliOb

Child bases 1-1Mrait, Patn (am thouand) - Annua dateh po- thaceond ic I'ercetatag ofPIaelca bt 0cn ndbd cardb ihago 9-wp 1-i years, no childaeo in thi age group; for meetdeveloping -00 eoet iot. 1--pon brtr pican -hi; Iocat ud) p dv bye hOipc-tOrias dmna derived frow liPs tabl.a; 1960. 1970 s.d 1979 dsta ofpbonbod

U61TO POVERT'Y TARIOT GROUPSLifs taoattsme An bitrh (Y.-.) - Av-ag nuber of year of lif raining The following -altae arc vary app-iontacrsnu of povoty le-al,

an; biotb; 19,60.R 1970 sad 1979 data. sad uhold he intorprtad with cc...id-ralocuioIn st Motlity Pts a tbmuend - dA-u deaths oP infants under one year OsiE e booePvnrIcm nol(O aio ra n uaolf spa pan nheued Ivo birth.. Abeoluto Povorry Incow lc-'el I.trhar locoso lvo bt1o uhich a aiti-.l

Acesta SaPs. Water! br toe .f sonltiA I otl arha, and -ura - Nu-. -ritivn..llyodaquate door pi-oo .... ctia1 cco.-fod roquivam ts Is cother of pwapl (total, uran drua) with r- b ..he toe atsf.lodhrwotar supply (hald-s treate suface waters or untreated ht -ccot:.tAmiod tetifte bolatv.. et oonlyl(S 00c ia ra n uowater saa as that from prtotetd horbhole, springs, an= tAd saiaywll)O sRolativ- Povety icm levl. L In one-thr ofaeaeprcpita)-l-- p_nc_tngas: of their ecepanti, popatious. It an urban arnanhi pIInicm frocory raolvli aia o h oafonti or tandPaet 1oatsd not -oa than 200 eatsrs from h... war bc lo-a with adjustmet for h'gn cor nf livin in rbo areas

ooadrd as heing ithin asasooble ros of that hoas.. In rura stm eiee Palto eo Absgo~ltr- Pvert Incmeleve (porcont)-orebesaal a..n.. wold imply that the ho...wif. on woehen of abshonsh.. d adrtl-rce of popoltilot (rbat ned rro1) who are "absolute

dt o have t spend A disploportiosote part of thc day In fetching thc pur"

fsm.ly's oner e _ds

N.mbar of p.op1o (total, urban, sad rurl srve by --catdhisposalssIoonas of hir r-potiv- poua En.Ocreta di..p .. lImay include

ths I c llecio sad disposal, with or aithout treatmen, of human osc-n Oonm ord Social Pain DirIioonod wsewnaby -ua-b-u systa or th. usa oP pit privi.. and st-r roctt Oaalyutuucd 'rc7-ti... Doparrat-

PoruitIa our Phy.ici.. - FPup1ltin dIie Y nme fpntcu lOsnqaiidfrom A sedi-l scoo aI emi-rsity leel

pooaIpaer gor,isa Paran - Popul.ting divided by eumber of pratitiog_ln end Pal gradmat nre,p..ntioul nurses.. ad ass istant nuress.

-26- Annex I

Page 4

BANGLADESH

ECONOMIC INDICATORS

Population: 92.9 million (January 1981)GNP Per Capita: US$120 (FY80)

Amount Average Annual Increase (1) Share of GDP at Market Prices (X)(million US$ (in constant FY75 prices) (in current prices)

Indicator in current prices)FY80 FY60-70 FY70-75 FY75-80 FY60 FY70 FY75 FY80

NATIONAL ACCOUNTSGross domestic product /a 11,346 4.0 -0.6 5.7 100.0 100.0 100.0 100.0

Agriculture /a 6,085 3.1 -1.3 3.6 59.9 56.9 62.5 53.6Industry /a 1,383 7.9 -3.2 5.9 7.7 9.6 11.3 12.2Services /a 3,877 4.9 3.3 9.0 30.1 30.0 26.2 34.2

Consumption 11.466 4.4 -0.7 5.2 92.4 92.8 100.0 101.1Gross investment 1,660 10.9 -10.9 13.5 6.9 11.3 7.0 14.6Exports of goods & nfs 820 0.8 -11.7 4.0 10.0 8.3 3.1 7.2Imports of goods & nfs 2,600 8.8 -12.0 5.3 9.3 12.5 10.1 22.9

Gross national savings 36 26.5 -17.7 -8.4 0.9 6.1 0.6 0.3

Amount Composition of Merchandise Trade (X)(million US$ (in current prices)

in current prices)FY80 FY73 FY75 FY79 FY80

MERCHANDISE TRADEMerchandise exports 719.2 100.0 100.0 100.0 100.0

Primary 198.0 40.6 34.2 35.7 32.1Manufactures 521.2 59.4 65.8 64.3 67.9

Merchandise imports 2,352.0 100.0 100.0 100.0 100.0Food 691.0 44.1 41.5 16.1 29.4Petroleum 390.0 3.2 11.1 11.5 16.6Machinery & equipment 491.0 13.8 9.6 25.0 20.9Other 780.0 38.9 37.8 47.4 33.1

FY74 FY75 FY76 FY77 FY78 FY79 FY80

PRICES AND TERMS OF TRADE (1972/73=100)GDP Deflator 140.6 240.5 183.1 177.2 203.6 216.8 254.4Exchange rate (Tk/US$) 7.9661 8.8759 14.8521 15.4667 15.1215 15.2228 15.4779

Export price index 104.4 126.0 108.3 118.7 129.6 165.6 207.1Import price index 153.0 186.5 179.4 173.7 172.7 205.5 241.5Terms of trade index 68.2 67.6 60.4 68.3 75.0 80.6 85.8

As % GDP(at current prices)

FY73 FY75 FY77 FY80

PUBLIC FINANCECurrent revenue 5.0 5.4 9.5 10.4Current expenditure 6.5 4.5 7.8 7.6Surplus (+) or deficit (-) -1.5 +0.9 +1.7 +2.8Capital expenditure 8.8 3.1 9.5 13.3Foreign financing 7.1 2.4 6.0 8.2

1960-70 1970-75 1975-80OTHER INDICATORS

GNP growth rate (%) 4.2 -0.7 5.8GNP per capita growth rate(%) 1.5 -3.3 3.0Energy consumption growth rate (%)

/a At market prices.

= not availablenot applicable

ASADDJuly 15, 1981

- 27-

Annex I

Page 5

BANGLADESHBALANCE OF PAYIENTS, EXTERNAL CAPITAL AND DEBT

(million US$, in current prices)

Actual Est. ProjectedFY74 FY75 FY76 FY77 PY78 FY79 FY80 FY8-1 FY82 FY83

BAL4NCE OF PAYMENTSNet exports of goods & services -573 -1,031 - 901 -426 - 870 - 947 -1,640 -1,859 -1,920 -2.180

Exports of goods & services 403 453 454 514 559 690 809 833 980 1,120Imports of goods & services -976 -1,484 -1,355 -940 -1.429 -1,637 -2,449 -2,692 -2,900 -3,300

Net transfers 19 34 62 81 113 140 163 219 262 320

Current account balance -554 -997 -839 -345 -757 -807 -1,477 -1,640 -1,658 -1,860

Direct private investment 20 25 30 40MLT loans (net) 276 498 498 238 398 420 581 659 750 850Grants & grant-like flows 169 383 243 253 386 555 601 700 750 800Other capital flows (net) 51 267 45 -65 -52 -44 133 236 97 220

Change in reserves (- = increase) 58 -151 53 -81 25 -124 142 20 31 -50

International reserves (end of period) 115 266 213 294 269 393 251 231 200 250Reserves as months of imports of next year 0.93 2.36 2.72 2.47 1.97 1.93 1.12 0.96 0.73 0.83

ActualFY74 FY75 FY76 FY77 FY78 FY79 FY80

GROSS DISBURSEMENTS

Official grants 168.6 383.1 243.5 252.7 385.7 555.2 600.1Gross disbursements of MLT loans 287.4 518.9 563.5 268.3 435.3 476.8 631.4Concessional 201.4 458.4 533.0 244.1 400.8 456.4 601.6

Bilateral 150.4 342.8 389.9 144.0 261.9 212.6 272.7IDA 51.0 112.5 127.8 86.1 88.2 152.5 152.1Other multilateral - 3.1 15.3 14.1 50.7 91.3 176.9

Non-concessional 86.0 60.4 30.4 24.1 34.5 20.4 29.8Official export credits 40.6 45.2 16.5 5.6 1.7 3.3 16.8IBRD

Other multilateral 5.4 0.3 1.1 0.5 0.5 0.1 0.3Private 40.0 14.9 12.8 18.0 32.3 17.0 12.7

EXTERNAL DEBTDebt outstanding and disbursed (end of period) 492.8 1,352.6 1,795.9 2,051.5 2,569.2 2,949.2 3,215.6

Official 383.3 1,232.8 1,689.0 1,939.8 2,435.6 2,808.3 3,068.8IBRD - 54.9 54.9 54.9 54.9 54.9 54.9IDA 105.6 255.3 379.8 465.9 554.2 706.7 858.8Other 222.8 922.6 1,254.3 1,419.0 1,826.5 2,046.7 2,155.1

Private 109.5 119.8 106.9 111.6 133.6 140.9 146.8Undisbursed Debt 580.8 1,019.4 947.5 1,015.8 1,335.4 1,659.1 1,716.7

DEBT SERVICETotal debt service pa.yments 18.0 31.3 87.4 58.5 69.3 95.1 93.7

Interest 7.3 10.1 21.9 28.4 32.1 38.1 43.3Payments as % exports 4.5 6.9 19.3 11.4 12.4 13.8 11.6Payments as Z GNP 0.2 0.2 1.2 0.9 0.8 1.0 0.8

Average interest rate on new loans (%) 3.2 2.0 1.7 1.6 1.5 1.4 1.4Official 2.9 2.0 1.6 1.5 1.3 1.4 1.2Private 5.1 2.3 7.8 6.4 6.2 6.1 6.9

Averageomaturity of new loans (years) 26.1 35.5 41.6 40.1 37.7 35.9 33.6Official 28.3 35.8 42.2 40.8 38.6 36.3 34.2Private 13.3 15.3 11.3 11.0 9.5 14.8 19.3

BANK GROUP EXPOSURE (%)IBRD DOD/total DOD - 4.0 3.0 2.6 2.1 1.8 1.7IBRD disbursements/totl gross disbursenents - - - - - - -IBRB debt service/total debt service - - 1.8 5.6 4.8 4.1 3.7IDA DOD/total DOD 21.4 18.3 21.1 22.7 21.6 24.0 26.7IDA disbursements/total gross disbursements 17.7 21.7 22.7 32.1 20.3 32.0 24.0IDA debt service/total debt service 1.3 3.1 2.5 5.3 5.4 4.6 6.0

As % of Debt Outstandingat End of FY80

TERM STRUCTURE

Maturity structure of debt outstanding (%)Maturities due within 5 years 12.2Maturities due within 10 years 36.5

Interest structure of debt outstanding (%)Interest due within first year 1.6

= not available.

ASADDJuly 15, 1981

28

ANNEX IIPage 1

THE STATUS OF BANK GROUP OPERATIONS - BANGLADESH

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 30, 1981)

Amount(less cancellations)

Loan or US$ Million /aCreditNumber Year Borrower Purpose Bank IDA Undisbursed

One loan and 19 credits fully disbursed 54.90 639.75 -

341 1972 Bangladesh Tubewells (replacesCredit No. 208-PAKof 1970) - 14.00 0.85

407 1973 Bangladesh Education (replacesCredit Nos. 49-PAKand 87-PAK of 1964 and1966) - 21.00 1.39

408 1973 Bangladesh Highways (replaces CreditNo. 53-PAK of 1964) - 25.00 2.77

410 1973 Bangladesh Cereal Seeds - 7.50 2.64487 1974 Bangladesh Telecommunications II - 20.00 7.04527 1975 Bangladesh Ashuganj Fertilizer - 62.00 6.33533 1975 Bangladesh Population - 15.00 4.22542 1975 Bangladesh Barisal Irrigation - 27.00 14.86605 1976 Bangladesh Karnafuli Irrigation - 22.00 9.56621 1976 Bangladesh Agricultural and Rural Training - 12.00 4.99631 1976 Bangladesh Rural Development - 16.00 6.90632 1976 Bangladesh Bangladesh Shilpa Bank - 25.00 5.85724 1977 Bangladesh Shallow Tubewells - 16.00 3.66725 1977 Bangladesh Muhuri Irrigation - 21.00 13.71729 1977 Bangladesh Extension and Research - 10.00 5.36735 1977 Bangladesh Inland Water Transport II - 5.00 2.82765 1978 Bangladesh Jute - 21.00 14.81787 1978 Bangladesh Foodgrain Storage II - 25.00 20.82

/a Prior to exchange rate adjustments.

- 29 -

ANNEX IIPage 2

A. Bank Loans and IDA Credits to Bangladesh (Cont'd)

Amount(less cancellations)

Loan or US$ million /a /bCreditNumber Year Borrower Purpose Bank IDA Undisbursed

825 1978 Bangladesh Small-Scale Industry II - 7.00 4.20828 1978 Bangladesh Agricultural Research - 6.00 3.48

864 1978 Bangladesh Drainage and Flood Control - 19.00 15.58872 1978 Bangladesh Technical Assistance III - 10.00 6.98890 1979 Bangladesh Oxbow Lakes Fisheries - 6.00 5.32912 1979 Bangladesh Vocational Training - 25.00 22.39921 1979 Bangladesh Population & Family Health II - 32.00 29.84934 1979 Bangladesh Greater Khulna Power

Distribution - 28.00 27.81941 1979 Bangladesh Dacca Water Supply &

Sewerage II - 22.00 14.96944 1979 Bangladesh Fertilizer Imports - 25.00 0.03955 1979 Bangladesh Small-Scale Drainage and

Flood Control - 25.00 24.02964 1979 Bangladesh Highways II - 10.00 9.56980 1980 Bangladesh Imports Program VIII - 50.00 7.47990 1980 Bangladesh Low-Lift Pumps - 37.00 23.201001 1980 Bangladesh Chittagong Water Supply II - 20.00 19.611023 1980 Bangladesh Fertilizer Industry

Rehabilitation - 29.00 29.001032 1980 Bangladesh Jute Industry

Rehabilitation - 20.00 19.611042 1980 Bangladesh Mangrove Afforestation - 11.00 10.871044 1980 Bangladesh Fertilizer Imports II - 25.00 1.871054 1980 Bangladesh Education IV (Primary

Education) - 40.00 38.97Total 54.90 1,451.25 443.35of which has been repaid - 0.40 -

Total now outstanding 54.90 1,450.85 443.35Amount sold 0.00Total now held by Bank and IDA 54.90 1,450.85

Total undisbursed - 443.35 443.35

/a Prior to exchange adjustments.7H See Part B for IDA Credits expressed in SDRs.

_30 _ ANNEX II-30 - ~~~~Page 3

B. STATEMENIT OF IDA CREDITS EXPRESSED IN SDR (As of September 30, 1981)

Credit Fiscal Amount in SDR MillionNumber Year Borrower Purpose Original Undisbursed

1065 1981 Bangladesh Small Scale Industry III 26.7 26.71071 1981 Bangladesh Imports Program IX 49.5 23.71091 1981 Bangladesh Bakhrabad Gas Development 64.7 63.81096 1981 Bangladesh Fertilizer Transport

Project 19.1 19.01117 1981 Bangladesh Bangladesh Shilpa Bank II 40.2 40.21124 1981 Bangladesh Technical Assistance IV 12.9 12.91140 1/ 1981 Bangladesh Hand Tubewells 14.8 14.81147 2/ 1981 Bangladesh Agricultural Credit 32.6 32.6

Total 260.50 233.7of which has been repaid 0.00 -

Total now outstanding 260.50 233.7

Amount sold 0.00

Total now held by IDA (in SDR) 260.50

Total Undisbursed 233.7

1/ Not yet effective.2/ Became effective in October.

C. STATEMENT OF IFC INVESTIMENTS -/(as of September 30, 1981)

Fiscal Amount in US$ MillionYkear Obligor Type of Business Loan Equity Total

1979 Highspeed Shipbuilding Ship-and Heavy Engineering buildingCo. Ltd. 1.20 0.36 1.56

1980 IPDC DFC - 1.05 1.05

Total gross commitments 1.20. 1.41 2.61less cancellations, terminations, repayments and sales - - -

Total commitments now held by IFC 1.20 1.41 2.61

Total undisbursed 0.65 1.05 1.70

3/ The following IFC investment has been approved but not yet signed:

1981 Asia Leather IndustrialCompany Ltd. Tannery 2.1 .2 2.3

31 -

ANNEX IIPage 4

D. STATUS OF PROJECTS IN EXECUTION AS OF SEPTEMBER 30, 1981 1/

Agricultural Projects

Cr. No. 341 Tubewells Project; US$14.0 Million Credit ofNovember 6, 1972; Effective Date: January 17, 1973;Closing Date: December 31, 1982

Implementation of the tubewell component is complete and a PCRhas been issued. However, the credit remains open to permit completion of adelayed pilot command area development component which is also being financedunder the Extension and Research Project (Credit 729-BD).

Cr. No. 410 Cereal Seeds Project: US$7.5 Million Credit of June 29, 1973;Effective Date: January 30, 1974; Closing Date: December 31,1981

Improvements have been made in procurement and installation ofprocessing equipment, and in completion of civil works and land development,with the exception of 8,000 tons of additional storage, for which bids arebeing evaluated. Construction should be completed by December 1981. Similarprogress is being made in completing the Seed Certification Agency (SCA) com-ponent. However, the Bangladesh Rice Research Institute (BRRI) componentremains behind schedule due to inadequate funding. The contract grower schemecontinues to make good progress: wheat seed sales have exceeded appraisalestimates. However, paddy seed sales remain well below appraisal targetsbecause of poor marketing arrangements and lack of suitable improved varie-ties for multiplication. Consultants have already submitted recommendationsfor improvements in seed distribution and marketing. The Seed CertificationAgency would be further strengthened through an intensive training programmecurrently being prepared. GOB made full ADP allocations for SCA and BRRI topermit completion of their FY81 work programs.

Cr. No. 542 Barisal Irrigation Project: US$27 Million Credit of April 29,1975; Effective Date: September 30, 1975; Closing Date:June 30, 1984

The project design has been modified and the Closing Date extendedto June 30, 1984, to permit the irrigation of a wider area while retainingthe number of primary pumping stations and sluices included in the originalproject. Civil works in the original project area are completed. About735 low lift pumps were fielded in the FY80 boro season irrigating about30,000 acres. However, extension and cooperatives staffing constraintscontinue to inhibit full utilization of existing irrigation facilities.They are, however, improving.

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

32 -

ANNEX IIPage 5

Cr. No. 605 Karnafuli Irrigation Project: US$22 Million Credit ofJanuary 28, 1976; Effective Date: February 24, 1976;Closing Date: December 31, 1981

Overall project implementation is about 2.5 years behind schedulewith about 50 percent of works completed. Construction contracts for remainingstructures were awarded by WDB in early 1981. Works on embankments, a majorproject component, have not started. The current project cost estimatesprepared by WDB are about 30 percent higher than the appraisal estimate.WDB has been urged to adopt additional cost saving measures, with particularregard to the requirements for the embankments, which are likely to be sub-stantially reduced and eliminated from the IDA Credit. Without embankmentconstruction, the project is expected to be completed in June 1983.

Cr. No. 631 Rural Development Project: USS16.0 Million Credit of June 3,1976; Effective Date: August 3, 1976; Closing Date:December 31, 1981

After initial difficulties, project implementation is now proceedingsatisfactorily with project management much improved. The supply of irrigationequipment and inputs is now satisfactory and the rural works program is makinggood physical progress. However, contract supervision and maintenance of com-pleted works need improvement. GOB has requested that the credit closing datebe extended by one year to allow use of project savings (about US$5 million)on an expansion of existing components in the present project area.

Cr. No. 724 Shallow Tubewells Project: US$16 Million Credit of July 1,1977; Effective Date: December 9, 1977; Closing Date:December 31, 1981.

Progress in procurement has been satisfactory. All 10,500 pumpsetshave been procured. About 55% of the pumpsets have already been sold. Theconstruction of workshops is proceeding with a modified program and workshopequipment has been ordered.

Cr. No. 725 Muhuri Irrigation Project: US$21.0 Million Credit of July 1,1977; Effective Date: January 6, 1978; Closing Date: June 30,1983.

Project implementation is about two years behind schedule. Recentdelays were experienced because of equipment break downs, lack of heavy equip-ment for excavation, and heavy rains. This has been resolved through thepurchase of new equipment and the renting of others. Construction worksof Feni Regulator considerably improved. Prequalification documents for theclosure dam and embankments, the only remaining major works, have been issued,and tender documents are being finalized. A revised cost estimate shows a10% increase over the appraisal estimates.

- 33 -

ANNEX IIPage 6

Cr. No. 729 Extension and Research Project: US$10 Million Credit ofJuly 1, 1977; Effective Date: January 6, 1978; ClosingDate: June 30, 1982.

Project implementation has improved. Most of the vehicles have beenprocured and Phase I civil works construction is nearing completion. Contactfarmer attendance has increased by 60 to 100% in most areas. Main achievementof the extension service has been in expanding wheat cultivation throughoutNorthwest. Some delays have been experienced due to late release of localfunds by the Government.

Cr. No. 765 Jute Project: US$21 Million Credit of February 8, 1978;Effective Date: April 14, 1978; Closing Date: June 30,1983.

Farmers have been encouraged to use higher quantities of fertilizer,resulting in higher yields. As expected, higher jute production forced marginaljute farmers to switch to rice production in the aus season. Consequently riceproduction has increased. IDA credit on lending problem has also been solved.Staff travel allowance is inadequate and that is hampering production creditrecovery effort. Local fund allocation is also inadequate. A review missionis now in the field to evaluate the project's progress.

Cr. No. 787 Foodgrain Storage II Project: US$25 Million Credit of April 12,1978; Effective Date: September 29, 1978; Closing Date:December 31, 1982

The project had a slow start due to administrative difficulties,problems in land acquisition and material shortages. Implementation of theproject's 145,000 ton procurement storage component is now progressing satis-factorily, but the storage rehabilitation and relief storage programs haveonly now been taken up. Quality control operations are yet to be improved,and paddy dryers still need to be procured. Consultants have been engaged forengineering, quality control and paddy drying; and the pilot marketing projectis doing well at the Muktagacha Thana Central Cooperative Association, thefirst one to participate in the project. The project is now anticipated to becompleted by December 31, 1982, six months behind schedule.

Cr. No. 828 Agricultural Research Project: US$6 Million Credit of June 16,1978; Effective Date: November 15, 1978; Closing Date:December 31, 1984

Project implementation is satisfactory. The BARC headquartersbuilding has been completed and is occupied. Construction and farm develop-ment at the three regional stations is progressing slowly. The BARC researchgrant scheme is in operation and the consultants appointed to advise BARC onprocedures for financial planning and recording and for research monitoringand evaluation have completed their work. A total of 31 students have beensent abroad for PhD training.

- 34 -

ANNEX IIPage 7

Cr. No. 864 Drainage and Flood Control Project: US$19.0 Million Creditof December 22, 1978; Effective Date: October 19, 1979;Closing Date: June 30, 1984

Of the three sub-projects financed under the project, Chenchuri Beel(CCB) and Kolabashakhali (KBK) are expected to be completed on schedule inmid-1983. Delays have been experienced, however, in the implementation of theBrahmaputra Right Embankment (BRE). Agreement has recently been reached onretirement of the embankment and disbursement for this part of the project isexpected to accelerate.

Cr. No. 890 Oxbow Lakes Fishery Project: US$6 Million Credit of April 3,1979; Effective Date: February 13, 1980; Closing Date:June 30, 1984

A 45 ha. site has been acquired for the construction of the centralcarp hatchery facility, the designs for which have already been prepared andapproved by IDA.

Cr. No. 955 Small Scale Drainage & Flood Control Project: US$25.0 MillionCredit of October 30, 1979; Effective Date: May 21, 1980;Closing Date: December 31, 1984

A total of 19 subprojects have been approved to date. Constructionhas been completed on nine subprojects, and tendering is in progress on theremainder.

Cr. No. 990 Low Lift Pump Project: US$37.0 Million Credit of April 4,1980; Effective Date: September 8, 1980; Closing Date:December 31, 1984

Orders placed for 3,000 two-cusec LLPs and 1,500 one-cusec LLPs(Phase I of the sales program) were delivered in October 1980. Orders havealso been placed on the remaining 4,000 LLPs. Sales for the first phase hasbegun with about 1,000 LLPs sold. A detailed project Action Plan has alsobeen prepared.

Cr. No. 1042 Mangrove Afforestation Project: US$11.0 Million Creditof June 27, 1980; Effective Date: September 26, 1980;Closing Date: December 31, 1985

Overall progress is satisfactory. The Project Director and all keypersonnel are in post. The PTU consultant has been appointed; his first visitis scheduled for August/September 1981. It has been agreed that SPARRSO (for-merly Bangladesh Landset Programme) should undertake the 5 year Remote SensingProgramme and a draft scheme has been prepared; Landset imagery tapes obtainedin February will be processed shortly; aerial photography will be completed atthe end of the year.

- 35 -

ANNEX IIPage 8

Cr. No. 1140 Hand Tubewells Project: US$18.0 Million Credit of July 8, 1981;Closing Date: March 31, 1985

This Credit is not yet effective. IDA has extended effectivenessperiod and has established November 10, 1981 as later date. Progress towardsmeeting conditions for effectiveness is satisfactory.

Cr. No. 1147 Agricultural Credit Project: US$40.0 Million Credit ofJune 9, 1981; Effective Date: October 6, 1981; Closing Date:December 31, 1985

This Credit has become effective very recently.

Industry and Imports Program Credits

Cr. No. 527 Ashuganj Fertilizer Project: US$62.0 Million Credit ofFebruary 11, 1975, as amended by Amending Agreement of June 18,1979; Original Credit Effective Date: December 19, 1975;Supplementary Credit Effective Date: August 1, 1979;Closing Date: June 30, 1985

The project is being cofinanced by the Asian Development Bank, KfW,EEC, IFAD, the OPEC Special Fund, and the Governments of Iran, Switzerland,UK and US, for a total of about US$190 million equivalent, in addition to theIDA credit. The project is about three years behind schedule because of theadditional site works required to protect the proposed plant from earthquakerisks and initial delays in the placement of orders and construction planning.Because of the additional site works, the delays and currency fluctuations,supplemental financing was necessary and has been obtained. Plant mechanicallypractically completed. Despite continuing minor commissioning problems,production of urea is expected to start around end 1981, slightly later thananticipated at the time of supplementary financing, and total projects costsare likely to be close to that approved at the time of IDA supplementaryfinancing.

Cr. No. 632 Bangladesh Shilpa Bank Project: US$25.0 Million Credit ofMay 20, 1976; Effective Date: November 8, 1976; Closing Date:June 30, 1982

As of September 30, 1981, disbursements were about US$19.2 million.

Cr. No. 825 Small Scale Industry II Project: US$7 Million of June 16,1978; Effective Date: September 15, 1978; Closing Date:March 31, 1983

The Project appraisal and processing capabilities of the implement-ing Banks have developed rapidly, and the Project is expected to be completedahead of schedule. There has been significant improvement in institutionalcapabilities of the commercial banks; and staff of the Small and CottageIndustries Corporation have begun preparation of subsector and area studiesfor small industry promotion. The project was fully committed by the commer-cial banks in July 1980.

- 36 -

ANNEX IIPage 9

Cr. No. 944 Fertilizer Imports Project: US$25 Million Credit of June 29,1979; Effective Date: August 29, 1979; Closing Date: June 30,1981

As of September 30, 1981, disbursements were about US$24.97 million.In total, the Credit will have financed the imports of about US$70,000 t ureaand 40,000 t TSP. The credit was closed on June 30, 1981 and payment forcommitments in the pipeline will continue.

Cr. No. 980 Eighth Imports Program: US$50 Million Credit of April 4, 1980;Effective Date: April 21, 1980; Closing Date: February 28, 1982

As of September 30, 1981, US$42.53 million had been disbursed.

Cr. No. 1023 Fertilizer Industry Rehabilitation Project: US$29 Million Creditof June 4, 1980; Effective Date: September 8, 1980; Closing Date:December 31, 1983.

The reorganization of the project entities into three separatefertilizer manufacturing companies has been accomplished, and project financingagreements have been executed. Consultants for providing engineering serviceshave been selected and their contracts approved.

Cr. No. 1032 Jute Industry Rehabilitation Project: US$20 Million Creditof June 4, 1980; Effective Date: July 22, 1980; Closing Date:June 30, 1984

Project implementation has been fairly satisfactory though somedelay has been experienced in the recruitment of consultants. Tender Noticesfor procurement of spares have been issued and those for the construction oftwo new training centers are in preparation.

Cr. No. 1044 Second Fertilizer Imports Project: US$25 Million Credit ofJune 27, 1980; Effective Date: November 11, 1980; ClosingDate: June 30, 1981

As of September 30, 1981 US$23.13 million had been disbursed. Thecredit was closed on June 30, 1981 and payment for commitments in the pipelinewill continue.

Cr. No. 1065 Small-Scale Industry III Project: US$35 Million of October 17,1980; Effective Date: January 15, 1981; Closing Date:June 30, 1984

This Credit became effective on January 15, 1981. As of July 15,1981 US$1.2 million had been committed.

37ANNEX IIPage 10

Cr. No. 1071 Ninth Imports Program: US$65 Million Credit of October 17, 1980;Effective Date: November 11, 1980; Closing Date: December 31,1982

As of September 30, 1981 disbursements were about SDR 25.8 million.

Cr. No. 1117 Bangladesh Shilpa Bank II Project: US$50.0 Million Credit ofMarch 31, 1981; Effective Date: August 12, 1981; Closing Date:April 30, 1986

This Credit became effective on August 12, 1981. As of September 30,1981 US$21.7 million had been committed.

Education Projects

Cr. No. 407 Education Project: US$21.0 Million Credit of June 29, 1973;Effective Date: September 27, 1973; Closing Date: December 31,1980

The project financed completion of the construction of the BangladeshAgricultural University (BAU), a fellowship program for BAU and building offive new and equipping of eight existing technical institutes (polytechnics).The credit was closed on December 31, 1980. It is estimated that about US$1.4million will be cancelled during November 1981 as soon as payments of existingcommitments in the pipeline are made. Project costs (in dollar terms) areclose to appraisal estimates due to currency devaluation. At credit closingthe technical education (polytechnics) component was completed in most respectsbut the BAU continues with the construction of the auditorium, student hostelsand other non academic buildings. The government has committed itself tothe completion of this project from its own resources. Efforts to arrangefor architectural supervision financed under a T.A. credit are underway.A Technical Education consultant is currently in the field assisting thegovernment to prepare a project completion report.

Cr. No. 621 Agricultural and Rural Training Project: US$12.0 MillionCredit of March 25, 1976; Effective Date: June 30, 1976;Closing Date: June 30, 1982

Implementation of the civil works associated with the traininginstitutions is about 85% complete and about 95% of the equipment has beenprocured, although training programs are running at 75% of trainee capacity.The physical aspects of the project are generally on schedule. However,the recruitment of consultants, to assist in implementation of studies andin developing training programs has been delayed by about two years, largelybecause of the ineffectiveness of the National Committee on Rural Training(NCRT). IDA has agreed to finance the cost of local consultants to assistthe NCRT in performing its functions. These consultants have already producedan interim report. Part I of the Agricultural Management Training Institutecourses, organized by Coverdale consultants for training staff has beencompleted, and the program will continue to completion in March 1982.

- 38

ANNEX IIPage 11

Cr. No. 912 Vocational Training Project: US$25.0 Million Credit of May 31,1979; Effective Date: November 2, 1979; Closing Date:June 30, 1985

The project was declared effective on November 5, 1979. Shortcourses of about six months duration have replaced longer programs at fourtechnical training centers, and will be offered at the five TTCs to beconstructed and equipped under the project. A team of ILO trade trainingconsultants is assisting project development, and a project related fellowshipprogram of overseas training is available to Government and industrial officers.Additional staff have been appointed to manage project implementation, thoughsome delays are occurring in reaching agreed staffing levels. Efforts arealso being made to increase recruitment and improve retention of skilledinstructors, which is essential to project success.

Cr. No. 1054 Fourth Education (Primary) Project: US$40.0 Million Creditof June 27, 1980; Effective Date: December 1, 1980; ClosingDate: December 31, 1986

The project was declared effective on December 1, 1980. Activitiesplanned for the first year (1981), i.e. staff training, base-line evaluation,materials production (textbook, girls uniforms) and distribution and theformation of school Management Committees are underway and progressingsteadily. Delays in two areas, evaluation and physical construction, havebeen identified. The remedial steps introduced by GOB and UNESCO (evaluation)will, however, minimize the delays.

Population Project

Cr. No. 533 Population Project: US$15 Million Credit of March 10, 1975;Effective Date: September 25, 1975; Closing Date: December 31,1981

Except for Part A (Training and Service Facilities), implementationof five of the project's six main parts was completed in mid-1980. The onlymajor problem delaying project completion, in respect of which the originalClosing Date was extended by one year to December 31, 1981, is the slowimplementation of the Training and Service Facilities part of the project.Although 6 of the 21 facilities are now fully completed and 7 more areexpected to be completed between July-September, 1981, a second extensionof the Closing Date may be needed to permit full project completion and fulldisbursement of credit proceeds.

39

ANNEX IIPage 12

Cr. No. 921 Second Population and Family Health Project: US$32.0 MillionCredit of May 31, 1979; Effective Date: April 1, 1980;Closing Date: December 31, 1983

Except for the first tranche (1979/80) of the Family WelfareCenters' component, project execution effectively commenced only in July,1980 and, in relation to the original four year implementation period, iscurrently about one year behind schedule. While the impact of this delayon two parts of the project (Information, Education and Motivation (IEM)and Research and Evaluation) is not significant except in terms of creditdisbursements, the civil works components of the service delivery andtraining parts of the project are experiencing problems owing not only todelayed implementation but also to proposed budget cuts, revised buildingdesign standards, and domestic and international price inflation. Solutionsto these problems are currently being discussed with the Government.

Transport Projects

Cr. No. 408 Highways Project: US$25.0 Million Credit of June 29, 1973;Effective Date: August 7, 1973; Closing Date: December 31,1982

All works under the project are now complete. Arbitration on theSitalakhya Bridge contractor's claims is in progress. The Closing Date ofthe credit extended to March 31, 1981 has been extended to December 31, 1982to enable the use of uncommitted credit balance to cover short term protectiveFeni Bypass pavement work, and to meet the cost of eligible components of thearbitration. Significant failures have appeared on Feni Bypass. GOB and IDAare investigating causes of the failures and possible remedies.

Cr. No. 735 Inland Water Transport II Project: US$5.0 Million Creditof September 30, 1977; Effective Date: March 13, 1978;Closing Date: December 31, 1982

Credit effectiveness was three and a half months behind originalschedule. Spare parts for BIWTA vessels, navigation aids, hydrographic andcargo handling have been ordered, and bid documents for telecommunicationsequipment are ready and awaiting clearance by TTB. Lists of spare partsfor BIWTC cargo vessel have been prepared and most items have been ordered.Consultants appointed to carry out studies on IWT sector, fleet schedulingof BIWTC and accounting systems for BIWTA and BIWTC have submitted theirreports. Implementation of the recommendations of the accounting studiesis in progress. At the request of the Borrower the closing date has beenextended to December 31, 1982.

- 40 -

ANNEX IIPage 13

Cr. No. 964 Second Highway Project: US$10.0 Million Credit of December 21,1979; Effective Date: August 29, 1980; Closing Date: June 30,1984.

Implementation of the project has been delayed as a result of theBorrower's failure to make timely recommendations for award of constructioncontracts. Since these contracts were scheduled to commence early October1980, at the beginning of the construction season, the project has beendelayed by about two years and completion by the anticipated completiondate of May 1983 is no longer possible. Completion by the Credit ClosingDate of June 30, 1984 is possible but is dependent on much improved Borrowerperformance and avoidance of further unnecessary delays.

Cr. No. 1096 Fertilizer Transport Project: US$25.0 Million Creditof February 13, 1981; Effective Date: July 24, 1981;Closing Date: December 31, 1984

This Credit became effective on July 24, 1981. Contract for trialdredging at Chittagong for which retroactive financing has been approved,has been under execution since April 1981 and is progressing satisfactorily.

Telecommunications Projects

Cr. No. 487 Second Telecommunications Project: US$20.0 Million Creditof June 26, 1974; Effective Date: July 23, 1974; ClosingDate: June 30, 1983

The project execution is largely behind schedule due to previousdelays in procurement, civil works and reduced output of the domestic telephonecables and switching equipment factories. Difficulties were also experiencedin completing the local construction and installation of the systems. TTB, aGovernment board since April 1979, is making significant progress in organizingits finances and accounts, and in managing its operations and development. TTBfunds have until recently all been deposited in an overall Government account.This was changed and, since July 1981, TTB has a designated bank account towhich all funds are deposited and withdrawn. Thus, TTB has achieved a level offinancial autonomy that will permit it to adjust its development program withinthe overall framework of the agreed budget. Training on commercial accountsis about to be completed and commercial accounts will be prepared from FY82/83onward. In general, financial performance of TTB is reasonably good. Cove-nants under the project are now being complied with. TTB has recently takenfinal procurement action to commit the funds remaining under the project.Works related to last procurement will be completed by June 1983. Adequateactions as would be required to further improve TTB's management, operationsand development capability, will be considered under the proposed third tele-communications project.

- 41 -

ANNEX IIPage 14

Technical Assistance Credits

Cr. No. 872 Third Technical Assistance Pro ject: US$10.0 Million Creditof December 22, 1978; Effective Date: January 19, 1979;Closing Date: June 30, 1982

35 subprojects, totaling about $9.0 million have been approved anda further 10 subprojects, totaling about $9 million have been approved inprinciple. Those that are finalized first would be considered under thiscredit (with the remainder being funded under the recently approved FourthTechnical Assistance credit).

Cr. No. 1124 Fourth Technical Assistance Project: US$16.0 Million Credit ofMarch 31, 1981; Effective Date: June 10, 1981; Closing Date:April 30, 1985

This Credit became effective on June 10, 1981. A number ofproposed subprojects have been agreed in principle and steps are being takento secure consultant services.

Power Projects

Cr. No. 934 Greater Khulna Power Distribution Project: US$28.0 MillionCredit of June 18, 1979; Effective Date: November 20, 1979;Closing Date: June 30, 1984

Foreign consultants (Motor Columbus - Switzerland) have been ap-pointed as scheduled and have begun design work. Project execution is aboutone year behind schedule due to administrative difficulties in preparing mapsfor the project areas and to the inability of the beneficiary (Power Develop-ment Board) to provide adequate local staff for project implementation. Toimprove the situation, local consultants have been appointed in September1981.

Cr. No. 1091 Bakhrabad Gas Development Project: US$85.0 Million Creditof February 13, 1981; Effective Date: June 16, 1981;Closing Date: December 31, 1984

Pipeline design and preparation of procurement documents is pro-ceeding satisfactorily. After initial delays due to unseasonal rains andmaterials shortages, BK-2 well has been completed. Production tests confirmthe adequacy of reserves of the Bakhrabad gas fields, and the procurementof materials and services for the pipeline portion of the project has beenauthorized. Pipeline materials and construction contracts are expected tobe awarded in time to complete crossings and other preliminary phases duringthe 1981/82 dry season and the entire pipeline the following year.

- 42 -

ANNEX IIPage 15

Water Supply and Sewerage Projects

Cr. No. 941 Second Dacca Water Supply and Sewerage Project: USS22.0 MillionCredit of June 29, 1979; Effective Date: November 30, 1979;Closing Date: June 30, 1983

DACCA WASA's consulting engineers have virtually completed designand it is expected that procurement will be completed by end 1981. Physicalprogress is one year behind schedule. Early delays resulted from slow start-up and sluggish procurement but are currently due to land acquisition problemsand shortage of local currency with which to pay civil works contractors.

Cr. No. 1001 Second Chittagong Water Supply Project: US$20.0 Million Creditof April 4, 1980; Effective Date: April 9, 1981; ClosingDate: December 31, 1985

After early delays in selecting consultants for the project a firmis now in place and design is now progressing satisfactorily. Selection ofa second consultant for a sewerage/sanitation study is now in progress. Anexpatriate financial adviser has taken post and is proving effective. Pro-curement has started but implementation will be about 1 1/2 years behindschedule.

- 43 - ANNEX IIIPage 1

BANGLADESH

CHITTAGONG UREA FERTILIZER PROJECT

Section I: Timetable of Key Events

(a) Time taken to prepare project : 48 months

(b) Project prepared by : GOB with assistancefrom consultants

(c) First presented to IDA : August, 1979

(d) Preparation mission : September, 1979

(e) Departure of ADB appraisal mission : February, 1980

(f) Completion of negotiations : January, 1982

(g) Estimated date of effectiveness : Within 90 days ofcredit signing

Section II: Special IDA Implementation Action

None

Section III: Special Conditions

Conditions of Effectiveness:

(a) A Subsidiary Loan Agreement between the Government (GOB) andthe Chittagong Urea Fertilizer Ltd. (CUFL) will have beenexecuted (para. 70);

(b) All conditions of effectiveness related to the agreementsof the Asian Development Bank (ADB) and other co-financierswill have been met (para. 70);

(c) Government will have entered into a long-term gas supply contractwith Bakhrabad Gas System, Ltd. (BGSL) (paras. 52 and 70); and

(d) CUFL will have acquired all lands and properties required forthe construction of the plant (paras. 54 and 70).

- 44 -

ANNEX IIIPage 2

Other Conditions:

(a) CUFL would engage a General Contractor, a Technical Advisorand a Management Advisory Team with qualifications andterms and conditions of contract satisfactory to IDA (para.59 and 60); and

(b) CUFL would be allowed to charge prices that would enable itto earn a reasonable return on its equity agreed upon betweenGovernment and IDA (10%). To ensure a sound financial position,CUFL would also observe other financial performance criteriaagreed to under this project (debt equity ratio of 60:40, debtservice ratio of 1:5 and investment limitations (para. 65).