World Bank Document

Home , Jordan Phosphate Mines

V Document of The WorldBank

FOR OFFICIALUSE ONLY

Public Disclosure Authorized / ./ Z - / 7ZO-

ReportNo. P-5182-JO

MEMORANDUMAND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONALBANK FOR RECONSTRUCTIONAND DEVELOPMENT

Public Disclosure Authorized TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$25.0 MILLION

TO THE

JORDAN PHOSPHATEMINES COMPANY LIMITED Public Disclosure Authorized

WITH THE GUARANTEE OF THE

HASHEMITE KINGDOM OF JORDAN

FOR THE

INTEGRATEDPHOSPHATE PROJECT

t JANUARY8, 1990 Public Disclosure Authorized

INTEGRATEDPHOSPHATE PROJECT

CURRENCYEOUIVALENTS

Currency Unit - Jordan Dinar (JD) JD 1.00 - US$1.54 JD 0.65 - US$1.00

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

1 cubic meter (i 3 ) - 1.308 cubic yards 1 metric tonne (t) = 2204.6 pounds 1 kilometer (km) - 0.62 miles

ABBREVIATIONSAND ACRONYMS

JFI - Jordan Fertilizer Industries JPMC - Jordan Phosphate Mines Company, Ltd. mt - million metric tonnes mtpy - million metric tonnes per year TPC - The Aqaba Port Corporation FOR OFFICIAL USE ONLY

HASHEMITEKINGDOM OF JORDAN

INTEGRATEDPHOSPHATE PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Jordan Phosphate Mines Company, Ltd. (JPMC)

Amount: US$25 million equivalent

Terms: 17 years, including 5 years of grace, at standard variable interest rate. JPAC will bear the foreign excharge and interest risks,

Financing Plan: Kuwait/Arab Funds US$ 70.7 million Islamic DevelopmentBank US$ 9.0 million IBRD Loan US$ 25.0 million JPMC USS 57.0 million

Total US$161.7 million

Economic Rates of Return: 26% - Beneficiation Plant Component 28% - Fertilizer Plant Component

Staff Appraisal ReRort: Report No. 8190-JO

Map: IBRD No. 21619

This document has a restricted distribution and may be used by recipients only in the performance of their officialduties. Its contents may not otherwise be disclosedwithout World Bank authorization. REPORT AND RECOMMENDATIONOF THE PRESIDENT OF THE INTERNATIONALBANK FOR RECONSTRUCTIONAND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENTTO USS25.0 MILLION TO THE JORDAN PHOSPHATE MINES COMPANY LIMITED WITH THE GUARANTEE OF THE HASHEMITE KINGDOM OF JORDAN FOR THE INTE. RATEDPHOSPHATE PROJECT

1. The following memorandum and recommendationon a proposed loan to the Jordan Phosphate Mines Company Limited (JPMC) for US$25.0 million equivalent is submitted for approval. The proposed loan, which would help finance the Integrated Phosphate Project and would be guaranteedby the Hashemite Kingdom of Jordan, would carry a standard variable interest rate with a maturity of 17 years including 5 years of grace.

2. Background. Phosphate is Jordan's most important natural resource and the country's major foreign exchange earner. JPMC is an integrated company engaged in mining and beneficiation of phosphate rock and the manufacture of phosphate fertilizer. It has progressively increasedexports of phosphate rock from 2.2 mt in 1978 to 5.8 mt in 1988, 12.7 percent of present world trade, by taking advantage of Jordan's favorable location relative to growing Asian/Far Eastern markets and ensuring that FOB costs are competitive with other world producers. Traditional phosphate areas have limited reserves. Under Loan 2902-JO, approved in January 1988, production from the new Shidiya deposit, which contains over 1 billion tonnes reserves at low stripping ratios, is being initiated. Production at Shidiya will progressivelyreplace declining production at existing mines and will enable rock exports to be increased to 6.5 mt by 1991. Implementationof this project is proceeding satisfactorilyand phosphate rock production is planned at 0.3, 1.0 and 1.5 mt in 1989, 1990 and 1991, respectively. The fertilizerplant at Aqaba continues to face technical constraints that limit production of fertilizerproducts to 74 percent of design capacity, compared to a typical capacity utilization of 90-95 percent at most worldwide fertilizerplants. Following initial years of financial and technical difficultiesat the fertilizerplant, the Government decided to integrate phosphate mining and fertilizeroperations and transferredresponsibility for the fertilizer plant from Jordan Fertilizer Industries (JFI) to JPMC in 1985. At that time, the Government assumed IFC's interests. JPMC has effectively managed the plant and through aggressive marketing, the fertilizeroperation reached a profitable status in 1988.

3. The proposed borrower (JPMC) is a commercialenterprise. In November 1987, as part of the first project, JPMC sought to double its share capital and publicized the offering at home and abroad, with a view to attracting private sector participation in the share holdings. However, private sector response was poor, most likely due to the political and economic uncertainties in Jordan and the Middle East; only 2 percent of the offered shares were purchiased. Eventually, two major institutionalinvestors, the Governmentof Kuwait and the Jordanian Social Security organization,purchased all the offered shares. As a result, the direct ownership of JPMC by the Government of Jordan has been reduced to 38 percent. The Jordan Social Security fund owns 20 percent of JPMC, another 20 percent is owned by the Government of Kuwait, and the balance, 22 percent, is owned by numerous Jordanian and Arab individual and private institutionalshareholders. In view of its presentdebt/equity ratio of 0.44, JPMC is not planninga capitalincrease in the near future. JPMC's sharesare listedon the Amman StockExchange and are openlytraded and availableto privatesector interests.

4. Rationalefor Bank Involvement.The Bank has been requestedby JPMC and the Governmentto continueto provideextensive technical, economic and strategyadvice to assistthe developmentof the phosphatesector. Under the previousloan, the Bank assistedJPMC to (i) initiatemine developmentat Shidiyain a low-cost,low-risk manner; (ii) initiaterationalization of the phosphatesector; and (iii)address the need to rehabilitatethe financially- troubledfertilizer plant. The Jordanianauthorities regard the Bank as a uniquesource of technicaladvice and financialsupport for JPMC in this crucial transitionperiod. Following the mergerwith JFI, JPMC is tryingto resolve complextechnical problems at the fertilizerplant and to introducemodern beneficiationtechnology to improvethe efficiencyand the economicsof mine operations.The Governmentis also consideringmerging the ailingAqaba Railway Corporationwith JPMIC,since it is the railway'sonly customer. At this criticaljuncture, the Governmentand JPMC have requestedcontinued Bank involvementto ensure (i) systematicintroduction o' complexphosphate beneficiationtechnology into Jordanalong with a rationalproject design; (ii) the furtherdevelopment and integrationof Shidiyaphosphate rock production with decliningproduction from traditionalmine areas;and (iii) the systematic rehabilitationof Jordan'sfertilizer sub-sector. The proposedproject is consistentwith the Bank'slending strategv, which includessupport for export- orientedprojects. IFC has not shown any interestin participatingin this project,in view of the still publicsector nature of the company,and IFC's earlierwithdrawal of equityfrom the fertilizerunit of JPMC. Bank participationwould fill in the gap in the financingplan, after the support availablethrough cofinancing and an appropriatelevel of JPMC-generatedfunds have been taken into account.

5. SectorStrateev. JPMC recognizesthat Jordan'sphosphate industry requiresfurther expansion and verticalintegration, to increasedomestic value- addedand to enhanceproduct diversification and marketflexibility. To meet these objectives,JPMC plans,as initialsteps to continueexpansion at Shidiya; to rehabilitateits fertilizerplant; and to collectand utilizephosphate fines in that plant. For the longer-term,JPMC has initiatedextensive discussions with variouscountries to expandfertilizer production in Jordan throughjoint- ventureoperations. Further restructuring of the phosphatesector is being initiatedby the Governmentthrough the investigationof alternative institutionalarrangements for captivephosphate rail transport.

6. ProjectObjectives. The main projectobjectives, designed to support this strategy,would be (i) the developmentof a beneficiationplant at Shidiya to increaserock productionand raiserock exportsto 7.0 mtpy by 1994, thus enhancingJordan's foreign exchange earning capability while offsettingthe decliningproduction at existingmines; and (ii) the rehabilitationof the technicallyand financiallytroubled fertilizer plant to meet and, nominally, exceedoriginal design capacity. The projectwould also aim at [i] integrating the expandingShidiya development with traditionalmine areas,where reserves will be exhaustedover the next 10-15years; and [ii]enhancing the overall profitabilityof the restructuredphosphate industry sector. - 3 -

7. FrolectDescriRtion. A beneficiationplant and relatedfacilities for phosphaterock and cake handling,storing, reclaiming and loadingwould be developedat Shidiyato produce1.5 mtpy phosphaterock products. The expansion of mine and socialinfrastructure would be encompassedby the projectas would technicalassistance. The fertilizerplant would be rehabilitatedto increase phosphoricacid productionby 36 percentand to nominallyincrease exports of DAP and phosphoricacid to 740,000and 59,000tpy by 1993. The totalcost of the projectis estimatedat US$161.7million equivalent, with a foreignexchange componentof US$128.5million equivalent. A breakdownof the costs and the financingplan are shown in ScheduleA. Amountsand methodsof procurement, disbursementand the disbursementschedule are shown in ScheduleB. A timetable of key p'rojectprocessing events and the statusof Bank group operationsin Jordanare given in SchedulesC and D respectively.A map is also attached. The Staff AppraisalReport No. 8190-JO,dated January 8, 1990, is being distributed separately.

8. ActionsAgreed On. Agreementwas reachedwith JPMC duringnegotiations that it will:

(i) maintainseparate accounts for the Miningand Fertilizer Units,as well as consolidatedaccounts;

(ii) submitannual audited financial statements, together with the auditor'sreport to the Bank within six monthsof the end of each fiscalyear;

(iii) enforceand monitorthe environmentaland occupational healthand safetystandards at the beneficiationplant and fertilizerplant ane ensurethat the standardsare maintainedin a mannersatisfactory to the Bank;

(iv) establishProject and Cost ControlUnits with company personnelof qualificationsand experiencesatisfactory to the Bank;

(v) execute a contract, to terms and conditions acceptable to the Bank, for projectmanagement services for the rehabilitationof the fertilizerplant;

(vi) maintaina workingratio (workingexpenditures/current revenues)below 0.8, and satisfactorydebt serviceand long-termdebt/equity ratios of above 1.5 and 60/40 respectively;

(vii)update annually its five-yearinvestment plan in consultatiou;with the Bank at least six monthsprior to the beginningof the fiscalyear;

9. Agreementwas reachedduring negotiations that the Government will providethe Bank with an opportunityto reviewand commenton proposalsfor institutionaland financialarrangements for phosphaterail transport. The proposedloan will becomeeffective only upon receiptof satisfactoryevidence that all project-relatedcofinancing loan - 4 - agreementswith the Kuwaitand Arab Funds are effectiveand that JPMC has establishedProject and Cost ControlUnits with companypersonnel of qualificationsand experiencesatisfactory to the Bank. The executionof a projectmanagement services agreement to terms and conditions satisfactoryto the Bank will be a conditionof disbursementfor the fertilizercomponent of the project. 10. Benefits. The projectwould contributeto increasingJordan's foreign exchangeearnings and to rationalizingand streamliningthe phosphateindustry. Favorablegeological/metallurgical and geographicalconditions place the be,leficiationplant componentof the projectamong the lowestin terms of worldwideproduction and investmentcosts. The fertilizerplant rehabilitation componentof the projectwould enablefertilizer production to attaina profitablestatus. These factorsare evidencqdby the projectedfinancial and economicrates of returnin excessof 17 perceatand 26 percent,respectively. The net balanceof paymentimpact of the projectis approximatelyUS$1 billion, over 20 years.In addition,the projectwould generatedirectly about 350 jobs and, indirectly,at least 100 jobs. 11. Risks. Althoughthe oversupplyof phosphatefertilizers in the world markethas declined,market and price risks associatedwith the projecthave been reviewedin detailand, on a conservativebasis been found acceptable.The phosphaterock productionincrease resulting from the projectrepresents less than 1 percentof world demandand would not increasesignificantly Jordan's phosphatemarket share. The project'srock productionwould be absorbedmainly by the growingAsian and Far Easternmarkets, and would help to replacethe outputfrom depletedmines in Oceania. Jordanhas a significantcost advantage in thesemarkets, compared to its major competitors.Jordan is a marginal producerof phosphatefertilizers and the project'sincrease in fertilizer productionis insignificantin relationto world trade.Jordan's fertilizer marketshare will continueto decline. Sensitivityanalyses have demonstrated that the companyand the projectcan sustainprice and marketprospects substantiallylower than projectedand remainfinancially viable. The project's beneficiationcomponent faces no highertechnical risks than thosenormally associatedwith mineralbeneficiation. All projectactivities involve proven technologythat has been in regularuse in the industrializedworld and, with the exceptionof the flotationcomponent of the beneficiationplant, in Jordan. JPMC has considerableexperience with the implementationof beneficiationplants and has developedsound projectmanagement techniques and tools. The risk of projectimplementation delay has been reducedby the carefulselection of turnkeycontractors for criticalpath activitiesand by the selectionof an internationalconstruction management group to supervisethe fertilizerplant rehabilitation. 12. Recommendation.I am satisfiedthat the proposedloan would comply with the Articlesof Agreementof the Bank and recommendthat the Executive Directorsapprove it.

BarberB. Conable President

Attachments Washington,D.C. January8, 1990 . 5 -

HASHEHITEKINGDOM OF JORDAN

INTEGRATEDPHOSPHATE PROJECT

SCHEDULEA

ESTIMATEDCOSTS AND FINANCING PLAN

Project Cost Summary

Local Foreign Total -(US$ million)-

BeneficiationPlant Equipment 7.1 39.6 46.7 Support Equipment 1.1 4.8 5.9 Fert. Plant Equipment 3.7 21.1 24.8 Civil Works & Infrastructure 10.4 12.8 23.2 Dust Control Equipment 0.3 2.2 2.5 Engineering & Tech. Assist. LA1.0 3.2

Base Cost 24A -81.5 106.3

Physical Contingencies 1.4 9.2 10.6 Price Contingencies 6.3 10.3 16.6

Installed Cost 32.5 101.0 1335

IncrementalWorking Capital 0.7 15.5 16.2

Project Cost V/ 2 116.5 149,7

Interest During Construction 0.0 12.0 12.0

Total Financing Reguired 128.5 161.7 a/ The Project is exempt from import duties and taxes.

Financing Plan

Local Foreign Total --- (US$ million)------

Arab/Kuwait Fund Loans 9.5 61.2 70.7 Islamic Dev. Bank Loan 9.0 9.0 LBRD Loan - 25.0 25.0 JPMC 23. 33.3 57.0

Total Financing 33.2 128.5 161.7 . 6 -

HAgEMTEKINGDOM Or JORDAN

INEGRATEDiP Se PROJECT H

I. PROCUREMENTTABLE ProiectElement ProcurementHethod _ Total = IhI LA Cost MillsiteEquipment 51.8 7.4 59.2 (21.8)V/ () (.) (21.8)

SupportEquipment - 1.5 4.2 5.7

FertilizerPlant Revamp 32.7 - 32.7 (3.2)/ (-) (*) (3.2)

CivilWorks/Infrastructure 28.8 28.8

Dust ControlEquipment - 3.2 3.2

Engineering/Tech.Assist. (-) 3.9 3.9

TOTAL 84.5 1.5 47.5 133.5 (25.0) (.) (-) (25.0) ~/ Includeslocal bidding procedures. k/ Figuresin parenthesisare the respectiveamounts to be financedby the Bank Loan.

II. LOAN DISBURSEMENTS Category Amount (US$Million)

BeneficiationPlant Equipment 21.8 100% of foreignor ex-factorycost FertilizerPlant Equipment 3.2 100% of foreignor ex-factorycost

EstimatedIBRD Disbursements

IBRD FiscalYear 1991 1993 1994 1995 ------US$ million------Annual 2.2 6.7 8.1 4.8 3.2 Cumulative 2.2 8.9 17.0 21.8 25.0 - 7 -

HASHEMITEKINGDOM OF JORDAN

INTEGRATEDPHOSPHATE PROJECT

SCHEDULEC

TIMETABLE-OF KEY PROJECT PROCESSING EVENTS

(a) Time Taken to Prepare: 11 months

(b) Prepared by: Jordan Phosphate Mines Company, Ltd.

(d) Appraisal Mission Departure: June 1989

(e) Negotiations: December 1989

(f) Planned Date of Effectiveness: End-March 1990

(g) Relevant PCRs and PPARs: None HASHEMITEKINGDOM OF JOP,.-.N INTEGRATEDPHOSPHATE PROJECT

A, STATUSOF BANKAROUP OIRATIONI IN JtRAN IPNRO25* RYSTATININT OF LOCA AND IDA CllDIT8 (LOADATA Al OF9/30/89 * NIl DATAAl OF11/01/89) CHEDULED ...... ' ' D rage 1 or 2 AId%nt n US ml l I lon (less ceelltloae) *ee...... Loanor Fiscal Undis. Closirn Credit No. Year lorrowr Purpose ank IDA bursed Date ......

Credits 15 CrediUts()olcoad 86.13 ALLcloed for JORDAN TOTALrdgf*r Credits * 0 Loa 9 Loa(s) closed 167.59 L2080*JOR1982 JORDAN EMUCTIONIV 21.42 2.00 12/31/89(R) L22130-JOR1983 JORDAN WATERSUPLY V 17.00 .41 06/30/89 L23340J0R1984 JORDAN AItN TRANS& JNi. D 25.00 11.30 06/30/90CR) L23710-JOR1984 JORDAN ENERGYCIVELOPNT 30.00 2.59 12/31/89CR) L23780JOR 1984 JORDAN EDUCATIONVI 40.00 5.53 12/31/89 L24250#JOR1984 JORDAN EIGHTCITIES /S 30.00 06/30/90 L24b30-JR 1985 JORDAN TRANSPORTII 30.00 14.05 06/30/90 L24U30JR 1965 JORDAN GRTR.AINANVATER. 30.00 12/31J91 L25310'JOR1985 JORDAN HEALTH 13.50 7.80 12/31/92 L25870-JOR1985 JORDAN URfN II 26.56 16.18 06/30/91 L26140-JOR1986 JORDAN CVDBII 15.00 7.54 06/30/91 L26330-JOR1986 JORDAN MUNPOARDEV. 10.20 4.55 12/31/92 L26940-JOR1986 JORDAM WATERSUPPLY L SE?ER 50.00 21.75 12/31/92 L27100.JOR1986 JORDAN POWERVI-DISTRIB. 27.50 11.5406/30/91 L27860-JOR1987 JORDAN POTASHII 12.00 1.75 06/30/92 L28350-JOR1987 JORDAN POIERVII AQABA2 06/30/94 L28410-JOR1987 JORDAN NATIONALLRBAN DEV. 26.40 22.80 06/30/93 L26900-J0R1988 JORDAN EDUC.VII 40.00 34.22 12/31/94 L29020-JOR1988 JORDAN SHIDIYAPHOSPHATE 31.00 21.87 06/30/94 L29530-JOR1988 JORDAN TELECOSIS. 36.00 36.00 12/31/93 L31060-JOR1989 JORDAN ASIANRES. SECTOR IN 73.00 73.00 06/30/94

TOTAL iwer Loansa 21 584.58 294.69

TOTAL*** 752.18 86.13 ofiAich repsid 105.86 7.33 ...... TOTALheld by Bank& IDA 6.32 78.80 Amountsold 11.53 of Wiich repaid

TOTALur.disbursed 294.69

NOTES:

* Not yet effective ** Not yet signed TotaLApproved, Repayments, and Outstanding bsaLnce represent both active and inactive Loansand Credits. tR)indIcates forwalLyrevised Closins Date. TheNet Approvedand Bank Repesynants are historical value, all others are merketvalue. TheSigning, Effective, andCLosing datcs are basedupon the LoanDepartment offical dataand are not taken fron the TaskBudget file. 1 9 1

B. STATEMENTOF IF- INVESTMENTSIN JORDANf/ (As of October31, 1989)

SCHEDULED Page 2 of 2

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

1974 JordanCeramic CeramicTiles 1.6 0.2 1.8 Ind. Co., Ltd. 1974/78/ JordanFertilizer Phosphatic 79.5 8.7 88.2 81/82 Ind. Co. Fertilizer

1979/85 JordanLime and BuildingMaterials 2.5 1.3 3.8 Silicate

1979 JordanSecurities Money and Capital - 0.7 0.7 Corp. Market

1980 JordanLeasing Co., Leasing 0.3 0.3 Ltd.

1987 Al-Hikma Pharmaceuticals 2.2- 2.2 Pharmaceuticals

Total Commitments(original gross) M/ 11.2 97.1 Less CommitmentsRepaid, Sold, or Cancelled Z4L. 10.7 85.5

Total Commitmentsnow held by IFC 11. 0.5_/ 11.6

Total Undisbursed --

a/ All investmentsin Jordanare fully disbursed. k/ Includingparticipants. p/ Net of repayments,cancellations and sales,and adjustedfor exchangerate changes. IBRD21619

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