Document of

The World Bank

FOR OMCIAL USE ONLY

Report No. P4647-JO

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERMATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED WAS

IN AN AMOUNT EQUIVALENT TO US$31.0 MILLION

TO THE

JORDAN PHOSPHATE MINES COMPANY LIMITED

WITH THE GUARANTEE OF THE

HASHEMITE KINGDOM OF JORDAN

FOR THE

SHIDIYA PHOSPHATE MINE PROJECT

De: mber 18, 1987

ni document has a resricted distrbudon and may be used by recdpis only in the peance ofthei officil duies. Its contents may not othebwse be disclsed witout Wodd BDk n.

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HASHEMITE KINGDOM OF JORDANSHIDIYA PhOSPHATE MINE PROJECT

CURRENCY EQUIVALENTS

Currency Unit - Jordan Dinar (JD)JD 1.00 - US$3.02JD 0.33 - US$1.00

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

1 cubic meter (m3 ) 1.308 cubic yardsI metric tonne (t) 2204.6 pounds1 kilometer (km) 0.62 mile

ABBREVIATIONS AND ACRONYMS

JFI - Jordan Fertilizer IndustriesJPMC - Jordan Phosphate Mines Company Ltd.

* mt - million metric tonnesmtpy - million metric tonnes per yearTPC - The Aqaba Port Corporation

FM ovuCuI. US ONLY

HASHEMITE KINGDOM OF JORDANSHIDIYA PHOSPHATE MINE PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Jordan Phosphate Mines Company Ltd. (JPMC)

Amount: US$31 million equivalent

Terms: 17 years, including 4 years of grace, atstandard variable interest rate. JPIC will bearthe foreign exchange and interest risks.

Financing Plan: IBID Loan US$31.0 millionJPMC US$58.0 million

Total US$89.0 million

Economic Rate of Return: 372

Staff Appraisal Report: Report No. 6932-JO

* Map: IBRD No. 19920 R

This document ha a stictd distributon andA y be usd by edpints only in the pefmdinceof thew offca dutes its contents may not otrwse be dilosd without Wodd bnk aut'-snati.en

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THEINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORS ON APROPOSED-LOAN IN Ai AMOUNT EQUIVALENT TO US$31.0 MILLION TO THEJORDAN PHOSPHATE MINES COMPANY LIMITED WITH THE GUARANTEE OF THE

HASHEMITE KINGDOM OF JORDAN FOR THE SHIDIYA PHOSPHATE MINE PROJECT

1. The following memorandum and recommendation on a proposed loan tothe Jordan Phosphate Mines Company Limited (JPMC) for US$31.0 millionequivalent is submitted for approval. The proposed loan would beguaranteed by the Hashemite Kingdom of Jordan and would carry a standardvariable interest rate with a maturity of 17 years, including 4 years ofgrace and would help finance the Shidiya Phosphate Mine Project.

2. Background. Phosphate is Jordan's most important naturalresource and the country's major foreign exchange earner. The JordanPhosphate Mines Company has increased exports of phosphate rock from2.2 mt in 1978 to more than 5.1 mt in 1986 (about 10 percent of presentworld trade), taking advantage of a favorable location for the growingmarkets of Asia, the Far East and, to a lesser extent, Eastern Europe,combined with low costs relative to major competitors. Existing mines havelimited reserves. The Shidiya deposit has higher grade rock, good miningconditions, and over 1 billion tonnes of reserves. Restructuring of thesector has been initiated by the Government by absorbing the former JordanFertilizer Co. (JFI) into JPMC. The project will support the initial phaseof the Shidiya mine development and would enable Jordan to sustain andincrease its exports.

3. Rationale for Bank Involvement. The Bank has had a long-standingrelationship with Jordan on the development of its important mining sectorand has been advising the Government on technical, financial and marketaspects for a number of years. This advice has been accepted by theGovernment as evidenced most recently by its substantial downsizing of theProject. The Bank's continued involvement will provide the JordanianGovernment and JPMC with technical advice and assistance for sector insti-tution building, and to ensure a proper techno-economic evaluation of thefurther second-stage developments at Shidiya and an optimal phasing of suchdevelopment in relation to the depletion of existing mines in the1990's. Bank involvement will help improve JPMC's financial position,temporarily weakened by the costly absorption of JFI, and thus help attractpotential private sector partners for iPMC. Through the Project, the Bankwould work closely with JPMC to ensure that dust control measures are takento reduce phosphate dust pollution at Aqaba port to internationallyaccepted environmental standards. Finally, the proposed Project is well inline with the Bank's lending strategy. It will increase the country'sforeign exchange earnings by about US$45 million per year; it will expandJordan's exploitation of natural resources and its industrial sector.

4. Project Objectives. The Project's objectives would he to (i)bring the Shidiya deposit into production at a level of 1.5 mtpy to allowJordan to pursue its successful export strategy; (ii) improve efficiency in

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mining and downstream fertilizer production through accelerated research;(iii) help secure the overall viability of the restructured phosphatefertilizer sector; and (iv) reduce environmental pollution at Aqaba portfrom loading/unloading of phosphate rock.

5. Proiect Description. A new mine and beneficiation plantwould be developed at Shidiya, 120 kms north of the port of Aqaba, toproduce 1.5 mtpy of phosphate rock. The project is an important first stepin the development of the large unexploited Shidlya deposit. It comprisesopen-pit mine equipment; millsite equipment, including screening plant withproduct storage and handling facllities; and associated social andindustrial infrastructure, including townsite development, water and powersupply and distribution, and an access road. The Project's technicalassistance component will help to orient and implement (i) research forphosphate fines and slimes recovery; and (ii) appropriate beneficiationresearch programs to define future mine and beneficiation developmentphases at Shidiya to ensure optimal sector configuration. It will alsoupgrade corporate planning, financial studies, personnel administration andlnternal audit functions. The total cost of the project is estimated atUS$89.0 million equivalent, with a foreign exchange component of US$65.6million. A breakdown of the costs and the financing plan are shown inSchedule A. Amounts and methods of procurement, disbursements and thedisbursement schedule are shown in Schedule B. A timetable of key projectprocessing events and the status of Bank Group operations in Jordan aregiven in Schedules C and D, respectively. A map is also attached. TheStaff Appraisal Report No. 6932-Jo, dated December 18, 1987, is beingdistributed separately.

6. Actions Agreed on. Agreement was reached with JPNC duringnegotiations that it will:

(a) implement an action plan for completion of JPMC's ManagerialIntegration (following absorption of JFI) by December 31,1988;

(b) Submit annual audited financial statements, together withthe auditor's report, to the Bank within 6 months of the endof each fiscal year;

(c) progressively reduce phosphate dust pollution at Aqaba tointernationally acceptable standards by December 31, 1990;

(d) prepare and submit an implementation plan for the projecttechnical assistance component for Bank review by end-FY88and that hiring of consultants will commence by mid-FY89;

(e) achieve and maintain a working ratio (working expenditures/current revenues) below 0.8 from FY88 onward, and satisfact-ory debt service and long-term debt/equity ratios of above1.5 and below 60/40 respectively in FY88 and thereafter;

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(f) update 5-year investment plans annually in consultation withthe Bank at least 6 months prior to the beginning of thefiscal year;

(g) seek prior Bank agreement before contracting new long-termloans in excess of JD 1.5 million; and

(h) raise its capital and special reserve by minimum JD 25million by end-FY88.

7. Agreement was reached with the Government during negotiatons thatit will: (a) complete construction of access road to Shidiya by December31, 1988; (b) cause JEA to complete the construction of the power line andsubstation for the Project by December 31, 1988; and (c) subscribe to a newissue of capital stock in JPMC to increase JPMC's equity to JD 80 millionif the present JPMC capital share offering is not fully subscribed. Theproposed loan will become effective only upon receipt of satisfactoryevidence that JPMC has all necessary rights for use of water and land at(i) the Shidiya mine site and townsite, and (ii) water wells and waterpipelines.

8. Benefits. The project would contribute to increasing Jordan'sforeign exchange earnings and to rationalizing and streamlining thephosphate industry. Favorable geological/geographical conditions place theproject among the lowest in terms of production and investment costworldwide as reflected in the projected FRR and ERR in excess of 35%. Thenet balance of payment impact of the Project is about US$850 million over20 years (average: US$43 million p.a.). In addition, the Project willgenerate directly about 750 jobs and at least 150 indirect jobs. TheProject will reduce the environmental pollution at Aqaba due toloading/unloading of phosphate rock. It will contribute to institutionalimprovements in JPMC.

9. Risks. Given the oversupply of phosphate rock in the worldmarket, market an9 price risks associated with the Project have beenreviewed in detail and found acceptable. The production increase resultingfrom the Project represents less than 1% of world demand, and will notincrease significantly Jordan's phosphate market share. The Project'sproduction will be absorbed mainly by the growing Asia and Far Eastmarkets, and replace depleting mines in Oceania. Jordan has a significantcost advantage on these markets, compared to its major competitors.Sensitivity analyses have demonstrated that the company and the Project cansustain substantially lower price and market prospects and remainfinancially viable. The project faces no higher technical risks than thosenormally associated with open-pit mining. All project activities involveproven technology that has been in regular use in the industrialized worldand in Jordan. JPMC has considerable experience with the implementation ofsimilar open-pit mines in Jordan and has developed sound project managementtechniques and tools.

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10. R.couendation. I am sstisfled that the proposed loan wouldcomply with the Articles of Agreement of the Bank and recomend that theExecutive Directovs approve it.

Barber ConablePresident

AttachmentsWashington, D.C.December 18, 1987

IASHEMITE KINGDOM OF JORDANSHIDIYA PHOSPHATE MINE PROJECT

SCHEDULE A

ESTIMATED COSTS AND FINANCING PLAN

Project Cost Summary

Local Foreign Total- - US$ million -

Mine Equipment 2.9 30.3 33.2Millsite Equipment 1.3 6.2 7.5Civil Works and Infrastructure 8.1 8.2 16.3Dust Control Equipment 0.6 1.5 2.1Engineering & Technical Assistance 4.6 0.7 5.3

Base Cost (September 1987 Prices) 17.5 46.9 64.4

Physical Coatingencies 0.9 4.7 5.6Price Contingencies 0.7 2.1 2.8

Installed Cost 19.1 53.7 72.8

Working Capital 4.3 10.0 14.3

Total Project Cost a/ 23.4 63.7 87.1

Interest During Construction - 1.9 1.9

Total Financing Required 23.4 65.6 89.0

a/ The project is exempt from import duties and taxes.

Financing Plan Local Foreign Total------- US$ million --

IBRD Loan - 31.0 31.0JPMC 23.4 34.6 58.0

Total 23.4 65.6 89.0

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HASHEMITE KINGDOM OF JORDANSHIDIYA PHOSPHATE MINE PROJECT

SCHEDULE B

I. PROCUREMENT TABLE

Project Element Procurement MethodTotal

ICB LIB Other b/ Cost

Mine Equipment 32.5 1.7 3.3 37.5(18.0)8/ (1.7) (-) (19.7)

Millsite Equipment 6.9 - 1.5 8.4(6.9) (-) (-) (6.9)

Civil Works & Infrastructure 5.3 - 13.1 18.4(3.6)cI (-) (-) (3.6)

Dust Control Equipment - - 2.5 2.5

Engineering & Technical Assistance - 0.8 5.2 6.0(-) (0.8) (-) (0.8)

44.7 2.5 25.6 72.8(28.5) (2.5) (-) (31.0)

al Figures in parenthesis are the respective amounts to be financed by theBank loan

b/ Other includes mine development, civil works, infrastructure andengineering being undertaken by local bidding procedures.

c/ The Bank loan will finance only select items of infrastructureequipment. JPMC will finance all civil works.

II. LOAN DISBURSEMENTS

Category Amount S

(US$ million)

Mine and Infrastructure 23.3 100% (of foreign orEquipment ex-factory cost)

Millsite Equipment 6.9 100% (of foreign orex-factory cost)

Engineering & Technical.Assistance 0.8 100% (of foreiga cost)

Estimated IBRD Disbursements

IBRD Fiscal Year1988 1989 1990 1991 1992 1993 1994------ US$ millio

Annual 2.0 7.9 7.5 5.6 3.8 3.4 0.8Cumulative 2.0 9.9 17.4 23.0 26.8 30.2 31.0

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HASHEMITE KINGDOM OF JORDANSHIDIYA PHOSPHATE MWNE PROJECT

SCHEDULE C

TIMETABLE OF KEY PROJECT PROCESSING EVENTS

(a) Time Taken to Prepare: 31 months

(b) Prepared by: Jordan Phosphate Mines Company Ltd.assisted by Sofremines (Consultants)

(c) First IBRD Mission: October 1984

(d) Appraisal Mission Departure: May 1987

(e) Negotiations: December 1987

(f) Planned Date of Effectiveness: ELid-January 1988

(g) Relevant PCRs and PPARs: None

-

HAMSINII KDEM4 OF XCaW

SWtUE DPar 1 of 2

SMMUS OF BAW =LT OPAI(1 IN MMN

A. Sum ta of Ban T ae d BA Credits a/(As of October 30, 1987)

AmDunt Less C1OSfrCredit 1 Year Bormr Sector Coe1atiais UrdJsbused Dote

20 Lon(s)/Credit(s) Closed 185.81

LU8930 1981 Jordan Urban 20.55 3.57 12/31/87120680 1982 Jordan E tn 25.00 6.42 12/31/8812162D 1982 GerimJ AJE& PAer 35.00 1.23 12/31/8812213D 1983 GoverroeantNA Water Supply & S&ma 17.00 3.06 06/30/89122460 1983 Jordan Education 18.80 4.73 06/30/88123340 1984 Jordan Urban 25.00 18j8 06/30/89L23710 1984 Govt/JF.XD-1I Pawer 30.00 7.22 12/31/88123780 1984 Jordar uaxtion 40.00 23.27 12/31/89124250 1984 GveuemmntJ Water Supply & Sewqp 30.00 0.60 06/30/90124630 1985 Jordan/PR0-M Transportation 30.00 20.52 06/30/90124830 1985 GC ta/AJ Water Supply & SeuW 30.00 O.99 12/31/91125310 1985 GovtMin. of Health Populatio 13.0 12.66 12/31/92L25870 1985 Jordan Urban 26.56 24.47 06/30/91126140 1986 Jordan/ID intrial Dev./Pice 15.00 12.40 06/30/91L26330 1986 Jodan 10.20 9.03 12/31/92126940 1986 GovernmntAIAJ Water Supply & S_mp 50.00 31.99 12/31/92127100 1986 GoVt/JEA-JE.WO E-D Power 27.50 26.31 12/31/91127860 1987 Arab Potash Co., Ltd. Industry 12.00 10.50 06/30/92L28350 1987 Jordan Power 70.00 70.00L2B410 1987 Jordanb/ Urban 26.40 26.0 12/31/93

1988 Govt of Jordnc/ Edecatico 40.00 40.00

Total Number of Loans - 20 592.51 353.85

Total (Not Approved)d/ 778.32Of 1&dch Has Been Rpaid to the Bark

Total Now Outstanding 657.19

Total Undisbursed 353.85

/ he status of the above projects Is described in a semae report on all Bark/ID& frnond projects Inexertion, w*dch Is updated twie yearly and cirolated to the ERmotive Directors on April 30 and October 31.

b/ Not yet effective.c/ Not yet sigred.d/ Total appved, rsWmnts, asd outstanding balne rprmee both active and inacive loans and credits.

The approved, canllation and disbruemnt ants for Im-6/Mkr7 Credts as tiken from Acwntig haw beencanerted to their US dollar equivalents, based on the acrrent exdwar rate.

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B. STATEMENT OF IFC INVESTMENTS(As of October 30, 1987)

SCHEDULE DPage 2-of 2

---- US$ Million---Year Obligor Type of Business Loan Equity Total

1974 Jordan CeramicInd. Co., Ltd. Ceramic Tiles 1.6 0.2 1.8

1975/78/ Jordan Fertilizer Phosphatic81/82 Ind. Co. Fertilizer 79.58/ 8.7 8 8 . 2 a/

1979 Jordan Lime andSilicate Building Materials 2.5 1.3 3.8

1979 Jordan Securities Money and CapitalCorp. Market - 0.7 0.7

1980 Jordan Leasing Co.Ltd. Leasing -- 0.3 0.3

Total Commitments 83.6 a/ 11.2 94.8 a,

Less Commitments Repaid, Sold or Cancelled 63.9 a/ 9.3 73.2 a/

Total Commitments now held by IFC 19.7 1.9 21.6

Total Undisbursed -- -- --

a/ Includes a US$50 million loan managed by IFC on behalf of otherparticipants.

360

.' ' 'i'$'' 7_ s /v w"^ssi t s° S Y R I A N .

-320 32'' , tf t- 3

JORDAN( r ,i SHIDIYA PHOSPHATE MINE

. -~~~. . ~PROJECT7._- - . _75 MINING AND INTEGRATED

TRANSPORTATION NETWORK

[ZIPROJECT AREA[F PJPMC EXSTING PHOSPHATE MINE AEAS

AREA Of POTENTIAL PHOSPHATE DEPOSITS

detafl ~ 44INTERNATIONAL AlIRPORlT

0 OTIES' TOWNS AND VILLAGEST( * 0NATIONAL CAPItAL

-NATIONAL HIGHWAYS

SECONDARY ROADS

i OT-h-3te / st ' --- ER ROADS

-I--i RAILtOADS

-- WADIS

MUDFLATS

- ~~~~ OCCUPIED TERRITORIES

1 ~~~~AMERtpAANfANI

K-L ~ ~ ~ ~ ~ ~ ~ ~ ~ IC 50 2 0 70/

,, ~~~~~~~~ A 0 A A ~ ~ 5A 01 RA9

OMEODR 1987

I

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