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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 4649a-YU
APPRAISAL OF
FERTILIZER SECTOR LOAN
YUGOSLAVIA
March 29, 1984
Regional Projects DepartmentEurope, Middle East and North
AfricaAgriculture III/Industry Department (INDII)
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.
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CURRENCY EQUIVALENTS*
US$1 = Dinars (Din) 124.0Din 1 = US$ 0.008
WEIGHTS AND MEASURES
1 meter (m) = 1.09 yards1 square meter (m 2 ) = 10.76 square
feet1 kilometer (km) = 0.62 miles1 square kilometer (km2) = 0.384
square miles1 hectare (ha) = 2.47 acres1 liter (1) = 0.264 US
gallons1 hectoliter (hl = 100 liter1 cubic meter (m ) - 1.31 cubic
yards1 kilogram (kg) = 2.20 pounds1 metric ton (m ton)= 1,000 kg =
0.98 long tons
ABBREVIATIONS
BOAL - Basic Organization of Associated LaborBTU - British
Thermal UnitCAN - Calcium Ammonium NitrateCOAL - Composite
Organization of Associated LaborDAP - Diammonium PhosphateFCE -
Federal Chamber of EconomyFOD - Foreign Operation Department (of
the Vojvodjanska Banka)GMP - Gross Material ProductHIP - Hemijska
Industrija, PancevoICB - International Competitive BiddingIUP -
Industrija Hemijskih Proizvoda, PrahavoINA - INA Petrochemija,
KutinaKcal - KilocaloriesMAP - Monoammonium PhosphateN - Nitrogen
Content in FertilizersNCI - Non-Contracting Individua:L
(Farmers)NH3 - AmmoniaNPK - Nitrogen-Phosphate-PotashP205 -
Phosphorous Pentoxide Content in FertilizerSAP - Socialist
Autonomous ProviinceSDK - Social Accounting ServiceSFRY - Socialist
Federal Republic of YugoslaviaSL - Sector LoanSMA - Self Management
ActSR - Socialist RepublicSSP - Single SuperphosphateTSP - Triple
Superphosphatetpy - ton per yearVB - Vojvodjanska Banka, Udruzena
BankaWO - Work Organization
FISCAL YEAR
January 1 - December 31
* The Yugoslav Dinar has been floating since July 13, 1973. The
currencyequivalents given above are those effective in January,
1984.
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FOR OFFICIAL USE ONLYAPPRAISAL OF
FERTILIZER SECTOR LOAN
YUGOSLAVIA
Table of Contents
Page No.
I. INTRODUCTION .............................................
1
II. AGRICULTURAL SECTOR . .....................................
3
A. Role and Performance .......... ....................... 3B.
Structural Issues . ................................... 6
III. FERTILIZER SUB-SECTOR ....................................
8
A. Plan Performance . .................................... 8B.
Consumption ........................................... 10C.
Marketing/Distribution ........ ....................... 12
IV. FERTILIZER INDUSTRY ......................................
14
A. Industrial Sector . .................................... 14B.
Fertilizer Producers .......... ........................ 14C.
Fertilizer Production and Capacity ..... .............. 16D.
Capacity Utilization ......... ........................ 17E. Raw
Materials ......................................... 17F. Structure
of the Industry ....... ..................... 18G. Production
Economics ........................., 18H. Prices
........................ 20I. Foreign Exchange
Requirements/Allocation ............. 2CJ. Financial Situation of
the Industry .... .............. 22
V. THE SECTOR LOAN (SL) ......... ............................
22
A. Need for the SL ........................,,,.,._ . 22B.
Objective/Concept: ....................... 23C. Statement of
Policy.. . ................... 24D. SL Description
....................... 24E. Implementation Time Frame
............................ 25F. SL Cost ............ 25G.
Financing ............ 25H. Production/Import Schedule
............................ 26I. Procurement
..................................... 26J. Disbursement
.................................... 26
VI. SL IMPLEMENTATION ........................................
27
A. Borrower ........................................... 27B.
On-Lending Procedures ........... ..................... 28C.
On-Lending Terms and Conditions ...................... 29
This document has a restricted distribution and may be used by
recipients only in the performance oftheir official duties. Its
contents may riot otherwise be disclosed without World Bank
authorization.
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Table of Contents (Con'd) - ii -
Page No.
D. Technical and Energy Studies ......................... 29E.
Organization .30F. Monitoring/Reporting
................................. 31G. Second Tranche .
....................................... 31H. Accounts and Audits
........... ....................... 32
I. Completion Report . .....................................
32
VII. ECONOMIC JUSTIFICATION AND BENEFITS ...... ................
32
A. Incremental Fertilizer Production ............ 32B. Marketing
Arrangements ....................... 33C. Distribution Analysis
......... ....................... 34
D. Import Substitution .......... ....................... 35E.
NCI Farmers Income ............ ....................... 36F. Risks
.............................................. 36
VIII. RECOMMENDATIONS ...................... 37
ANNEXES
Annex 1: Distribution of the Arable Land by Sectors, 1982 ....
40
Annex 2: Fertilizer Consumption Plan for Yugoslavia -1983/1985
........................................... 41
Annex 3: Actual Fertilizer Application Rates and Grain Yieldin
1982 by Republics/Provinces and by Sectors ....... 44
Annex 4: List and Geographical Coverage of Trading Agenciesto be
involved in Fertilizer Distribution under theLoan . 45
Annex 5: Fertilizer Industry (Production, Capacities,Domestic
Prices 1982 and 1983, Economics) ........... 46
Annex 6: Cost Estimates ......................................
55
Annex 7: Disbursement Schedule ....................... 56
Annex 8: Vojvodjanska Banka Consolidated Balance Sheet1980-1982
........................................... 57
Annex 9: Draft Terms of Reference for Technical and Audit
Studies ........... .................................. 60
Annex 10: Draft Terms of Reference for Monitoring -Agrohemija
and FCE .................................. 66
Annex 11: Proposed Allocation of Incremental Fertilizer by
Republics/Provinces and by Sectors ..... ............. 87
MAPIBRD No. 17368
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APPRAISAL OF
FERTILIZER SECTOR LOAN
YUGOSLAVIA
I. INTRODUCTION
1.01 Since 1979 Yugoslavia, like many other middle-income
countries, hasexperienced serious economic turmoil 1/. Severe
domestic inflation continuedto threaten the economy, rising from
22% in 1979 to 40% in 1982 and reaching anew high of about 55% in
1983. Industrial and agricultural production havedeclined.
Industrial output, which recorded a growth rate of 8.2% in
1979,fell to 4.1% in 1980 and 1981 and was estimated at only 0.4%
in 1982.Agricultural performance is reviewed in paragraphs
2.03-2.06. Merchandiseexports recorded a drop of 5.6% in 1982.
Gross Domestic Product (GDP) grew ata rate of 2.2% in 1980,
compared to 4.2% in 1979. It is estimated that GDPgrew by only 0.8%
in 1982. The international debt, in convertible currency,reached
$19.0 billion. Principal repayments on medium and long-term debt,
duein 1982, were estimated at $1.9 billion. In addition, short-term
debts alsoequaled this amount by the end of 1982. The deteriorating
economic situationcaused the Government to introduce a series of
stabilization measures; 2/investment and imports have been sharply
curtailed through restrictivemonetary and fiscal policies. Fixed
investment, which grew at an average rateof 9.5% between 1975 and
1979, declined by 6.0% per year in 1979-82.Merchandise imports were
cut by about 10% in 1980 and a further 12.3% in1981. The volume of
merchandise imports fell by a further 10.6% in 1982. Anyshortfall
in the export targets is compensated by a reduction in
imports;trade movements are now being monitored on a monthly basis
and any divergencesfrom the targets have to be made good in the
following month.
1.02 Yugoslavia's stabilization efforts have been complicated by
adversedevelopments in the international capital markets. An
increase ininternational interest rates since 1979 has caused
interest repayments to risefrom $0.8 billion in 1979 to $2.0
billion in 1982. The overall economicsituation has eroded the
confidence of the international financial communityand thus the
country's access to international commercial bank credit has
beensignificantly reduced. Durin,g 1982, medium and long-term
credits to
1/ For details, see "Yugoslalvia: Adjustment Policies and
DevelopmentPerspectives." - IBRD, Report No. 3954-YU and
"Structural Adjustment Loan"IBRD, Report No. P-3606-YU.
2/ A high-level body of Yugoslav policy-makers and academics,
known as the"Commission on Economic Stabilization", was formed in
the second half of1981 to prepare a comprethensive blueprint for
reform in a wide variety ofsubject areas. The Commission issued a
series of working papers over thecourse of 1982 and the final
report is issued. The term "stabilization"is used rather broadly in
Yugoslavia to denote an overall policy ofbalanced development,
rather than just the achievement of internal andexternal
macro-economic balance.
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Yugoslavia declined to about $2.0 billion, cormpared with $4.2
billion in1980. Short-term capital outflows placed further pressure
on the balance ofpayments. The Government, in the second half of
1982, experienced mountingexternal liquidity difficulties. By the
beginning of 1983, total foreignexchange reserves were $1.7
billion, or one month's imports from theconvertible areas. External
resources remained approximately unchanged in the
first half of 1983. Imports have, consequently, been further
tightened. Toease the foreign exchange problems, the Goverament
requested the assistance ofthe Bank and other donors. In response,
the Bank, in June 1983, approved aStructural Adjustment Loan (SAL)
of $275 million to assist the country in itsforeign exchange
problems and in its attempt to overcome structuraldeficiencies in
economic management.
1.03 The lack of availability of foreign exchange and tightening
ofimports seriously affected the Yugoslav fertilizer industry,
which reliesheavily on imported raw materials. Of the total
production value offertilizer, imports represent about 40%; of this
60% are from the convertiblecurrency areas. In 1982, due to foreign
exchange constraints, the plannedtarget of 2.8 million tons of
fertilizer production was not achieved; onlyabout 2.6 million tons
were actually produced. Similarly in 1983, aproduction of 3.1
million tons of fertilizer was planned; this was
subsequently revised downward to 2.8 million tons; in fact, in
the end, onlyabout 2.6 million tons were produced, or the same as
in 1982. The lack ofadequate fertilizer has adversely affected
agricultural production, inparticular grain, resulting in a decline
of agricultural exports as well asnecessitating grain imports,
thereby further exacerbating the balance ofpayments problems.
Inadequate domestic availability of fertilizer, coupledwith the
imbalanced distribution of fertilizer in the domestic market,
hascontributed significantly to the poor performance of the
agricultural sector(para 2.03). At the same time, the fertilizer
industry, in particular ammoniaplants, due to outdated technology
(high energy consumption) is not fullycompetitive and appears to
need modernization/rehabilitation. However, beforesuch a plan of
action could be developed, detailed energy audits and
technicalstudies would be required to determine technicalL and
economic viability and toplace the industry on a sound footing.
1.04 In view of this, the Government requested the Bank to
providefinancial assistance to the fertilizer sub-sector. The Bank,
recognizing thecritical importance of fertilizer for the revival of
agriculture and, in turn,the economy as a whole, sent a Review
Mission in October 1982, followed by apre-appraisal mission in
January 1983. A comprehensive Project Briefexamining the
sub-sector's structural issues was prepared and recommended afuture
course of action. This appraisal report is based on the findings of
anappraisal mission consisting of Messrs. S. Bbatia (Mission
Leader), R. Heath,H. Aomatsu and F. Anderson (Consultant) which
visited Yugoslavia from May8-27, 1983. Mr. J. Ingram (Programs) and
Ms. N. Lichtenstein (Legal) alsoparticipated. However due to policy
considerations, a longer deliberationperiod than usual was required
in the country, resulting in follow-up missionsand a delay in loan
negotiation.
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1.05 The proposed Sector Loan (SL), to be made under the Special
ActionProgram for Yugoslavia, would provide the foreign exchange
for imports of rawmaterials and spare parts to iincrease the
domestic availability of fertilizerfor 1984 (Fall) and 1985 (Spring
and Fall). 1/ The SL would address policyand institutional issues
of domestic distribution, and assist the Governmentin the long-term
modernization and rehabilitation of the domestic fertilizer
industry, through the financing of technical studies. This would
thus form anintegral part of the Government's on-going Fertilizer
Development Plan(1981-1985). The SL would be the first of its type
in Yugoslavia dealing witha critical sub-sector nationwide and
attempting to overcome the structuralproblems of the sector, both
from the long and short-term points of view. TheSL, by increasing
domestic fertilizer availability, would assist theGovernment in its
major objective of raising grain production and therebyassist the
balance of payments situation and on-going stabilization
efforts.
II. AGRICULTURAL SECTOR
A. Role and Performance
2.01 The Agricultural Sector, in spite of its declining share
of
Yugoslavia's social product ia the post-War period, remains
critical inoverall economic development. It contributes about 12%
of social product andemploys about 30% of the country's active
population, primarily in rural areaswhere few alternative gainful
employment opportunities exist. This section of
the rural population, with a per capita income of under $850 per
annum, is inthe relative poverty target group. Agriculture
contributes income for onethird of the total population. In
addition, agricultural exports constitutean important source of
foreign exchange for the country (contributing about12% of total
exports). In 1983, it was planned that agricultural exportswould
contribute about $1.0 billion; this target was not achieved due to
thegeneral decline in international prices for agricultural
products. Moreover,about 2/3 of Yugoslavia's agricultural exports
took place under barter deals.However, the country has a large
agricultural reserve base and favorableclimatic conditions,
providing essential ingredients for a rapid growth of thesector,
with a significant potential to contribute in overall
economicdevelopment.
2.02 Agricultural production is undertaken by three groups - the
SocialSector, 2/ the Cooperatives 21 and the Non-Contracting
Individual (NCI)farmers. The Social Sector consists of
Agrokombinats which own their land andoperate on a large scale (an
average of 800-1,200 ha) with modern,capital-intensive facilities
and well-trained staff. However, the SocialSector, in general, is
neither noted for its dynamic commercial organizationnor its
efficiency. Agrokombinats, in addition to cultivating their own
land,provide credit, inputs and other assistance to those
individual farmers whoenter into contracts with them for the sale
of their products. TheCooperatives, known as "zadrugas", are
basically associations of individual
1/ The fertilizer provided under the Loan would be mainly used
for theproduction of wheat and mlaize. The fertilizer for these two
crops isapplied in Spring and Fall. The Spring application
generally takes place
mid-February to mid-March and the Fall application end-October
tomid-December.
2/ Including individual farm,ers who enter into contracts with
theseorganizations for the sale of their products.
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farmers and are managed by elected officials. Members, in fact,
have verylittle say in the management of the Cooperatives (para
2.08). While retainingthe rights to their land, members receive
credit, agricultural inputs andtechnical assistance. In return,
farmers must sign an agreement to sell theirproduce to the
Cooperatives which market it to the Social Sector and to
otherGovernment enterprises (flour mills, etc.). Variations exist
in the types ofassociation contracts. Some farmers have long-term
contracts, while othersmay have short-term contracts covering the
production and marketing of onlyone or more crops. The major
feature of all these contracts (withAgrokombinats or Cooperatives)
is that repayment of credit, inputs, etc.should be made in
agricultural produce, in order to control the marketablesurplus
(para 3.12). NCI farmers are those who are in no way associated
witheither the Social or Cooperative Sectors in the production or
marketing oftheir produce. The distribution of total arable land
between these threegroups and their contribution in agricultural
production are discussed inparas 2.08 to 2.12.
2.03 A review of the agricultural sector performance in
Five-Year Planperiods, commencing in 1961, indicates that the
agricultural sector failed toachieve its planned target growth
rates, although these were realistic.
Table 1
Annual Rates of Growth of Agriculture(in %)
Period Planned Realized % Realized
1961-65 7.5 1.4 191966-70 4.6 3.0 651971-75 3.5 2.8 801976-80
4.0 2.0 501981-85 4.5 2.0 /a 44
/a Related to 1981-82 period.Source: "Long-Term Programme of
Agroindustrial Production". Belgrade,
1983
Agricultural production grew slower than the demand for food
products,resulting in increased imports, particularly of wheat, oil
crops, proteinnutrients, etc. The major reason for this is the
Government's over-relianceon a Social Sector suffering from poor
management and often inappropriateinvestment choices, while
ignoring the potential of the Individual Sector.This attitude
influenced the Government's policy for both investment and
inputsupply, favoring the Social Sector. The causes of the Plan's
failures havebeen examined in detail by a group of Yugoslav
experts, which was commissionedto analyze the long-term program for
agricultural sector development, as apart of the Economic
Stabilization Program. Their report (hereafter referredto as "the
Yugoslav Agricultural Stabilization Report") states
that"appropriate economic and social preconditions were not
created" and that theagrarian policy was not responsive. 1/
1/ Long-Term Programme of Agro-industrial Production, Report of
theCommission of Federal Social Advisors for Economic Stabilization
Problems,Belgrade, 1983, p. 3, para 2.1.
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1976-80
2.04 In the last Plan period, 1976-80, agriculture grew by 2%
per annum,against a planned growth of 4%. Crop production was
virtually stagnant; agrowth rate of only 0.4% was recorded,
compared to a projected 5%. Moreimportant, the performance
disparity between the Social and Individual sectorswas clearly
evident, particularly taking into consideration the fact that
theindividual farmers own a substantial share of the total arable
land (para2.08).
Table 2
Agricultural Performance 1971-80(average annual growth rates in
%)
Total By Type of Production By SectorAgriculture Crop Livestock
Other Social Individual
1976-80Plan 4.0 4.8 4.0 3.6 8.0 3.0Actual 1.9 0.4 3.1 2.0 4.6
0.6
1971-75Actual 2.7 2.3 5.4 -2.2 5.6 1.8
Source: Federal Institute of Planning, Belgrade.
Agricultural exports declined and their share in total export
earnings droppedfrom 13% in 1976 to 10.6% in 1980. At the same
time, agricultural importsincreased from 0.6 million tons in 1977
to about 1.4 million tons in 1980,with wheat and animal feed
accounting for 90% of imports. This furtheraccentuated the balance
of payment problems.
1981-85
2.05 The 1981-85 Plan for the agricultural sector pursues
fundamentallythe same objectives as the preceding Plan.
Specifically, emphasis is placedon increasing primary production to
meet domestic demand, thus reducingimports, particularly of wheat,
and expanding agricultural exports to ease thecritical balance of
payments situation. Intensive cultivation of currentlyunused and
abandoned lands through land reclamation work and Social
Sectorpurchase is emphasized. Agricultural output is planned to
grow at an annualrate of 4.5% (Social and Individual sectors at 6%
and 4% respectively).Agricultural exports are projected to grow at
an annual rate of 10% andimports to fall to 5%. To achieve these
objectives, the Plan provides forinvestment equal to 9.6% of total
production investment in the Social Sector.Overall, the Plan,
assessed against past performance, and with minimal changein the
policy framework, represents a relatively optimistic view
ofagricultural production possibilities. 1/
1/ The planning procedure for 1981-83 period has been amended
and the revisedapproach including targets; will be reflected in the
Gray Cover version.
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2.06 The 1981 agricultural performance was dismal - production
increasedby only 1% over 1980, inclement weather being cited as the
major cause. Ahealthy recovery was recorded in 1982 - total
agricultural productionincreased by about 6% over 1981; however a
shortfall in basic food items,particularly wheat, continued.
Exports did not show any improvement. In1983, preliminary estimates
indicate that grain production fell short of theplanned targets;
the country has already announced 1.4 million tons ofagricultural
imports, wheat being the major item. In the meantime, due
toeconomic problems and the stabilization program (para 1.01), the
targets forthe 1984-85 period are being revised downward. The above
Plan performancereview indicates that the sector is constrained by
structural deficiencieswhich preclude the realization of its
potential. Without basic corrections,sector performance will
continue to pose problems.
B. Structural Issues
2.07 The Bank, together with the Government of Yugoslavia, is
undertakinga comprehensive review of the agricultural sector. The
results are expectedto be available by the middle of 1984. The only
factors which have beenexamined here are those which directly
affect the fertilizer sub-sector andgrain production - the main
areas of concern of the proposed Loan. With thisin mind, the major
issues are examined below.
Production Organization/Policies
2.08 The Government's stated policy is to integrate all
individual farmersinto the socialized production system 1/ in order
to organize agriculturalproduction more efficiently. However such
integration has not progressed asplanned. At the end of 1982, of
total arable land, the Social Sector occupiedabout 19% 2/, the
Cooperatives about 36% 2/ arLd the NCI farmers about 45%. Adetailed
breakdown by Republics and Provinces is given in Annex 1.
TheFederal Chamber of Economy (FCE) and the National Association of
Cooperativesestimate that out of 2.6 million farm families in
Yugoslavia, about 1.1 to 1.2million families (45%) are still
classified as NCI farmers. The distributionof land owned by such
farmers, in different Republics and Provinces, varies.For example,
in the Socialist Republics (SR) of Bosnia-Herzegovina,
Croatia,Montenegro and the Socialist Autonomous Province (SAP) of
Kosovo, the NCIfarmers own between 50-80% of total arable land,
while in Slovenia andVojvodina, this percentage is only 10% and
15%, respectively (Annex 1). Theland distribution pattern for the
country as a whole has remained basically
1/ "This means the extension and economic strengthening of the
Social Sector,the development of farmers' Cooperatives and
associating, taking intoaccount various forms of cooperative
collaboration of farmers' personalwork with the Social Sector." -
Long-Term Programme of Agro-industrialProduction, Report of the
Commission of Federal Social Advisors forEconomic Stabilization
Problems; Belgrade, 1983, p. 6, para 3.2.
2/ The land distribution figures presented above for the Social
andCooperative Sectors also include those individual farmers who
have chosento associate themselves by means of production and/or
marketing contracts.
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unchanged for the past decade. The Yugoslavia Agricultural
StabilizationReport, examining the causes for the slow integration,
concludes that theprogress in socialization of individual farmers
is "stagnant", due to the lackof appropriate economic incentives to
the individual farmers, as well as aninept and inert management of
Cooperatives. 1/
Input Distribution
2.09 At present, the Government relies for agricultural input
distribution(fertilizer, credit, etc.) on Agrokombinats,
Cooperatives and to a minorextent on the Trading Agencies. This
leads to a discriminatory policyfavoring the Social and Cooperative
sectors particularly in times of inputshortage. Agrokombinats, in
spite of giving the impression that they areoriented towards the
social and economic betterment of the total farmingpopulation, act
basically like a private monopoly. Their input distributionactions
are primarily guided by their interests as producers. In view
ofthis, other producers are simply considered as their competitors
andAgrokombinats/Cooperatives have naturally very little interest
in assistingthose who will not contribute to their goals. Thus,
there is an inherentconceptual problem with the present
distribution policy.
210 This is clearly evident in the case of fertilizer
distribution andconsumption. Between 1977-1981, of the total
domestic fertilizerdistribution, about 35% was consumed by the
Social Sector, 60% by Cooperativesand the residual (5%) by NCI
farmers (para 3.06). As of the beginning of1983, due to fertilizer
shortages, there has been a practice of not makingfertilizer
available to those farmers who are not associated with the Socialor
Cooperative Sectors (para 3.10). This distribution/consumption
pattern hasvery little relationship either with the actual land
ownership as shown inpara 2.08 , or with contribution to total
grain prodiction. The Social andCooperative Sectors together
produce about 60% of total wheat and 40% of totalmaize production.
The remainder, a substantial percentage, is contributed byNCI
farmers.
2.11 Similarly, no formal credit and very little technical
guidance isavailable to the NCI farmer. His association with the
Social or CooperativeSectors alone renders him eligible for credit
consideration. There aremodern, well-equipped and well-staffed
agricultural research institutes ineach Republic/Province; however,
since these are financed by Agrokombinats andCooperatives,
attention is paid mainly to Social Sector needs. For example,at
present in Yugoslavia, only the Social Sector's soils are analyzed
on aregular and scientific basis. An overall review/modification of
theproduction organization and policies, input delivery and
technical assistancesystem is an appropriate focus of future
projects (proposed MontenegroRegional Development Project) and of
the proposed SAL II.
1/ "... the self-management r;ights provided by the Constitution
andAssociated Labor Act were not used in order to support their
economic andsocial interest for higher production results and
farmers cooperativedevelopment. On the contrary, those rights were
often and vehementlyusurped." - Long-Term Programme of
Agro-industrial Production, Report ofthe Commission of Federal
Social Advisors for Economic StabilizationProblems; Belgrade, 1983,
p.7.
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2.12 Thus the Government's present policy, which effectively
excludes NCIfarmers from formal access to credit and inputs is, in
fact, hinderingrealization of the full potential of agricultural
production. In no way doesit appear to contribute to the
Government's critical on-going stabilizationprogram. In view of
this, at least in the short run, the agricultural inputdistribution
policy, particularly for fertilizer, should be re-oriented tomeet
present economic needs (para 7.05). This assessment is
clearlyrecognized by the Yugoslav Agricultural Stabilization Report
which concludesthat:
"Even to unassociated farmers, it is necessary to create
economicconditions to produce more, acquire higher incomes, produce
more forthe market and to be stimulated by the economic policy to
associatewith the aim to be more rational in business doing, market
approachand inclusion into the mechanism of self-management
system." 1/
III. FERTILIZER SUB-SECTOR
A. Plan Performance
Planning/Organizations
3.01 For each Five-Year Plan period a comprehensive, detailed
FertilizerProduction/Consumption Plan is prepared; such Plans are
broken down byRepublics and Provinces, by sectors (Social and
Individual), by crops and bySpring and Fall applications. The
1983-85 Consumption Plan (excerpted fromthe 1981-85 Plan) is
presented in Annex 2. Detailed Plan preparation isundertaken by the
FCE, in close cooperation and association with
theRepublican/Provincial Committee for Agriculture, the Association
ofCooperatives and Agrohemija (a business community representing 11
fertilizercompanies in Yugoslavia). Plans are reviewed every year,
again in detail, andare adjusted in light of needs and
circumstances. The FCE, established underthe new Constitution and
Associated Labor Act, has counterparts at theRepublican, Provincial
and regional levels. The Republican Chambers ofEconomy have offices
at Regional and Commune levels which, in association withthe
fertilizer users, namely the Social Sector (Agrokombinats)
andCooperatives, assess fertilizer needs and prepare a Plan for
their region. Intheory, in preparing such a Plan, the requirements
of all agricultural users,including NCI farmers, should be taken
into account. However in reality, dueto the lack of active
communication between Planners and NCI farmers, thelatter's needs
are not adequately reflected.
3.02 Regional plans are forwarded to the Republican Chamber of
Economy,where they are reviewed by the Republican authorities and
agencies - theCommittee for Agriculture, the Secretariat for
Markets and General Economics,the Association of Cooperatives and
the Trading Organizations responsible forfertilizer distribution
for the Republic. After the plan has been approved bythe Republican
authorities, it is forwarded to the FCE in Belgrade, where the
1/ Long-Term Programme of Agro-industrial Production, Report of
theCommission of Federal Social Advisors for Economic Stabilization
Problems,Belgrade, 1983, p. 31.
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plans are collated. The plans are reviewed and finalized at the
Federal levelby the Federal authorities and agencies - the
Committee for Agriculture, theSecretariat for Markets and General
Economics, the National Association ofCooperatives and
Agrohemija.
Monitoring
3.03 Once a fertilizer plan has been finalized, its
implementation ismonitored very closely. The Regional Chamber of
Economy is primarilyresponsible for following and monitoring its
implementation. A weekly reportis prepared by them, outlining the
achievement of the planned targets(percentage of fertilizer
received and its distribution by farm location andapplication by
crops, etc.) and this is sent to the Republican Chamber ofEconomy
which collates the information and prepares a monthly report for
theRepublic/Province as a whole. Copies of such reports are
forwarded to theRepublican and Federal authorities. Inspectors from
the Committee ofAgriculture and the Secretariat for Marketing and
General Economics visit theRegional offices and ensure that correct
reporting is undertaken by theRegional Chamber of Economy. In
short, the present arrangements for themonitoring of plan
implementation are comprehensive and satisfactory.
Fertilizer Plan Performance
3.04 The current 1981-85 Fertilizer Production Plan has, in its
first twoyears, failed to achieve its planned targets, mainly due
to foreign exchangeconstraints in importing raw materials for
fertilizer production. Forexample, in 1982 the production target
was 2.8 million tons. In fact, only2.6 million tons were produced.
Similarly in 1983, only about 2.6 milliontons of fertilizer were
produced against a Plan target of 3.1 million tons.
3.05 According to the Plan, in 1984 and 1985, domestic
fertilizerproduction is expected to be about 3.8 million tons and
4.0 million tonsrespectively. Detailed breakdowns, by types of
fertilizer, are given below:
Fertilizer Production
1984 1985--- in '000 tons---
CAN 992 992Urea 535 625NPK 2,320 2,424Total Production 3,847
4,041
Source: Agrohemija, Belgrade, 1983.
However, it should be noted thiat, as mentioned earlier, due to
theStabilization Program, all plans, at present, are being reviewed
andadjusted. It is now planned that in 1984 and 1985, domestic
fertilizerproduction will increase by 15% annually over the actual
1983 figure(2.6 million tons), i.e. 3.0 mtillion tons in 1984 and
3.45 million tons in1985. This appears realistic and is also in
line with the country'sabsorptive capacity (para 5.04).
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B. Consumption
3.06 Between 1977-81, domestic consumption recorded an annual
increase ofabout 3% per year. Of total fertilizer consumption, it
should be noted that85% is consumed by the SR of Croatia, Serbia,
Slovenia and the SAP ofVojvodina, the major grain producers in the
country. More important is thatwhile overall fertilizer consumption
in the Social and Cooperative Sectorsincreased, the quantities
available for the NCI farmers, in the country as awhole, in fact
declined from 243,000 tons in 1977 to 93,000 tons in 1981. In1982,
a very insignificant quantity (about 50,000 tons) of fertilizer was
madeavailable to them.
Table 3
1977 1978 1979 1980 1981----------------(in '000
tons)--------------
Fertilizer production 2,501.0 2,580.0 2,634.0 2,541.0
2,805.0Imports 9.0 39.0 110.0 167.0 228.0Total availability 2,510.0
2,619.0 2,744.0 2,708.0 3,037.0
Export 211.0 266.0 369.0 503.0 400.0Available for
domesticconsumption 2,299.0 2,353.0 2,375.0 2,205.0 2,633.0
of which consumed by:Social Sector 792.0 775.0 797.0 724.0
952.0Cooperative 1,264.0 1,372.0 1,406.0 1,407.0 1,588.0
Sub-total 2,056.0 2,147.0 2,203.0 2,131.0 2,540.0NCI Farmers
243.0 206.0 172.0 74.0 93.0
Source: Federal Chamber of Economy and the National Association
ofCooperatives, Belgrade, May 1983.
This has resulted from the shortage of fertilizer available in
the country aswell as from the complete control of domestic
fertilizer marketing anddistribution by the Social Sector (paras
3.11 to 3.14). The Social Sector hasfirst call and is under few
economic constraints in fertilizer application.As a result it has
passed the peak of the response curve, while NCI farmerslag far
behind, resulting in significant yield differentials. A
detailedbreakdown is given in Annex 3 and summarized below:
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Table 4
Average Fertilizer Rates and Yield of Field Crops in Yugoslavia
- 1982(for all Provinces and Republics)
Fertilizer Application YieldSector Sector
NCI /a NCI /aCrop Social Cooperative Farmers Social Coo erative
Farmers
-- kg/ha-------------- ------------ton/ha-------------
Wheat 810 550 240 5.0 4.2 2.9Maize 1,050 830 340 6.5 5.6
4.4Barley 600 450 160 3.8 3.2 2.1Soybean 415 400 - 2.2 2.1
-Sunflower 650 550 - 1.9 1.8Sugarbeet 1,070 900 - 43.2 41.8
/a NCI = Individual farmers with no contract for the grain crops
with eitherAgrokombinats or Cooperatives; application rates are
estimated.
Source: Federal Chamber of Economy, Belgrade, May 1983.
3.07 It is generally agreed in Yugoslavia that additional
application offertilizer in the Social Sector would not result in
increased production ofgrain. In fact present application rates are
sufficient to produce evenhigher yields than are attained at
present. For example in the Social Sectorin Croatia and Vojvodina,
about 260 kg of fertilizer per ha (in activenutrients) is applied
for maize, providing a yield of 6.5-6.9 tons/ha. Withthe same
chernozem soil conditions that exist in these areas, a
similarfertilizer application in the U.S. would provide a maize
yield of 7.5tons/ha. In short, it appears that fertility is not the
limiting factor incrop yields in the Social Sector.l/ Rather,
restraint in the use offertilizer in the Social Sector would be
more appropriate and economic.
3.08 Although the Cooperative Sector consumes about 60% of the
totalfertilizer available for the domestic market, its application
rates are belowthe Social Sector. This is also reflected in present
yields. Additionalfertilizer would provide some small increase in
yields.
3.09 The largest potential increase from additional fertilizer
applicationwould be from the NCI farmers, since their present
fertilizer applicationrates are significantly lower. It should be
noted that hybrid maize and wheatvarieties are now available to the
NCI farmers on a cash basis throughresearch institutes at the local
level and, therefore, the constraint on
1/ "The cause of the declining yields in the Social Sector
during recentyears has to be found in the neglect of crop rotation
system." Long-TermProgramme of Agroindustrial Production, Report of
the Commission ofFederal Social Advisors for Economic Stabilization
Problems, Belgrade,1983, p. 10.
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yields does not appear the result of seed quality, but rather of
soilfertility. Both scientists and planners in Yugoslavia, based on
pastexperience, believe that if adequate fertilizer were available,
the NCIfarmers could double present yields in crops presently
suffering from nutrientdeficiencies. Thus, the critical role of
increased fertilizer use by the NCIfarmers requires special
recognition at the policy level during the presentperiod of
economic stabilization since this represents a
low-cost,quick-yielding means of increasing output - the major
objective of theStabilization Program.
3.10 Government officials have indicated that, due to the
shortage offertilizer in the country, it has been necessary to
suspend the past practiceof providing residual fertilizer to NCI
farmers (para 3.14); fertilizer isgenerally made available only to
the Social and Cooperative Sectors and to theindividual farmers who
are associated with those sectors. However, failure toprovide
fertilizer to the NCI farmers will have serious implications on
grainproduction (para 7.05) and, in turn, on the Stabilization
Program (para 7.06).
C. Marketing/Distribution
3.11 Fertilizer distribution is completely controlled by the
Social Sector- the major channels being Agrokombinats and Trading
Agencies, with the formerplaying the dominant role. Fertilizer
plants market their production, at aGovernment fixed price (paras
4.17 and 4.18), directly to Agrokombinats, whichusually have some
financial interest in these plants. The Agrokombinats actas
wholesalers for a specified geographical area. In the contracts
betweenthe Agrokombinats and the fertilizer plants, quantity, types
and delivery timeare specified. Agrokombinats are responsible for
transportation from theseplants. Most of the fertilizer is
transported in bulk form and is shippeddirectly to the Cooperatives
or Agrokombinat farms, where it is either applieddirectly to the
fields or bagged and sold to contractual farmers.Agrokombinats
charge a 2% margin for Cooperatives and contractual
farmers.Cooperatives, in turn, distribute it to their members, at a
margin of 4%,through their village shops, which market agricultural
inputs, implements andfertilizer. Total marketing and distribution
costs, including transportation,at present constitute about 17% of
the retail price, which is reasonable.
3.12 Those farmers who enter into contracts receive fertilizer
from theCooperative village shops or from Agrokombinats'
organizations dealing withcontractual farmers. Farmers generally
receive fertilizer on credit and areobliged to repay in the form of
agricultural produce. Before obtaining thefertilizer, the farmers
sign a printed form which frequently states only thequantity of
fertilizer or other inputs received. Often, no mention is made
ofthe value of the inputs received or the detailed terms and
conditions ofrepayment. Thus the farmers are not aware of the
prices of the fertilizer orthe amount to be repaid to the
Social/Cooperative Sectors. This type ofambiguity tends to cause
confusion, can lead to unfair terms and act as a
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deterrent to farmers to enter into such contracts. 1J The
existing printedforms, if more comprehensively filled out, could
resolve this issue and the
additional information would prove beneficial to both the Social
andCooperative Sectors as well as to the individual farmers. The
FederalGovernment has indicated its willingness, within the limits
of its authority,to enforce this.
3.13 There are 29 major Trading Agencies spanning the country
and involved
in the distribution and marketing of agricultural inputs. These
agenciesoperate more than 1,700 retail shops, most with their own
storage facilities,located in communes (on average 5-6 villages
constitute a single commune).Annex 4 lists the names and the
geographical coverage of Trading Agencies andthe number of retail
shops owned by each of them. Until 1982, these TradingAgencies
acted as wholesalers and retailers in the domestic marketing
offertilizer, i.e. the Trading Agencies procured a portion of
fertilizer fromthe plants and channeled it in a wholesale capacity
to Agrokombinats and
Cooperatives, which, in turn, distributed it to their members,
after havingmet their own requirements. A certain quantity of the
total handled by the
Trading Agencies was sold on a cash basis, without obligation,
to individual(generally NCI) farmers by retail shops. For such cash
sales, triplicate
receipts were prepared - one for the customer, one for the
shop's records andone was forwarded to the Trading Agency's
headquarters. Based on suchreceipts, monitoring could be readily
undertaken to determine the fertilizerquantity sold to NCI farmers
with no new mechanism or system required (para6.14). In addition,
based on the Mission's examination, it appears that thedistribution
cost of fertilizer through the Trading Agencies' retail shops
issomewhat lower than the prices charged by Agrokombinats and
Cooperatives totheir members, since the latter organizations must
cover the distribution costto villages, whereas the Trading
Agencies, located in Communes, are not facedwith such delivery
costs. Farmers transport fertilizer purchased at retail
shops by their own means (generally tractors).
3.14 However, as of 1982, sales of fertilizer through retail
shops ceased(para 3.10). The Trading Agencies have continued to act
as wholesalers only -distributing fertilizer to the! Agrokombinats
and Cooperatives. The retailshops market other agricultural inputs
and small tools to farmers, excludingfertilizer. Thus a
comprehensive marketing infrastructure and system doesexist in
Yugoslavia to handle fertilizer marketing to all segments
ofagricultural producers, includling NCI farmers. However, to meet
the needs of
the latter, a policy change and an increase in domestic
fertilizeravailability are reouired (para 7.02).
1/ "The relation with farmers is often manager like - to buy at
low pricesand to sell by the biggest margin .... Too big margins
kept in this sectora bulky clerical apparatus, absence of working
habits..." - Long-TermProgramme of Agroindustrial Production -
Report of the Commission ofFederal Social Advisors for Economic
Stabilization Problems, Belgrade,1983, p. 15.
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IV. FERTILIZER INDUSTRY
A. Industrial Sector
4.01 The industrial sector of Yugoslavia has been the leading
sector inthe country's economic growth, and has played an important
role in capitalformation of the economy as well as in foreign
trade. While Yugoslavia'sGross Material Product (GMP) grew at an
annual rate of 5.8% between 1970 and1980, the industrial sector
grew at an annual rate of 7.3% during the sameperiod. In 1980,
industry accounted for 39% of GMP, about 40% of fixed
assetsinvestment, over 90% of merchandise trade, and one third of
the labor force.After decades of rapid growth, the industrial
sector is well diversified, andproduces a wide range of capital,
intermediate and consumer goods. Thecountry, utilizing sizable
domestic energy and mineral resou-ces, has alsodeveloped a number
of important basic processing and extractive industries.The
industrial sector is to play a central role in the process of
externaladjustment called for in the 1981-85 Plan. The strategy of
importsubstitution of the last Plan continues to be pursued, with
increased emphasison import-substitution in capital goods. The
Plan, however, puts a muchstronger stress on export-orientation.
There is also to be an emphasis onrationalization and greater
efficiency of investment planning, implementation,and completion of
on-going projects. Energy, basic metals, minerals and
basicchemicals (including fertilizer), capital goods and exports
have beendesignated as priority activities for industrial
investment.
B. Fertilizer Producers
4.02 There are 11 fertilizer producing enterprises located in
fiveRepublics and two Autonomous Provinces. Production plants/units
are organizedinto a Basic Organization of Associated Labor
(BOAL).l/ Several BOALstogether constitute a Work Organization
(WO). In turn, they are part of aComposite Organization of
Associated Labor (COAL) which also deals in othereconomic
activities (oil refinery, petrochemicals and metal refining).
Thelocations of fertilizer producing enterprises are shown in the
Map (IBRDNo. 17368). Many of these facilities were constructed
15-20 years ago.Details of installed capacity, technology used,
etc. are given in Annex 5,Tables l(a) and (b) and are summarized in
the following Table on page 15.
l/ Decision-making at all levels is governed by the principle of
workers'self-management, involving a unique set of institutions and
instruments ofeconomic policy. The current system has evolved over
the years with major
changes introduced through the Constitution of 1974.
-
Table 5
FERTILIZER ENTERPRISFS IN YUGOSLAVIA
Year ofEnterprise Location Establishment Production Capacity
Remarks
Nitrogen ('000 tpy N) Phosphate ('000 tPY P205)Ammonia
Processing P205 Processing
Tovarna Dusika Rose Slovenia 1963 - 12.5 - - NPK processing
only.
INA Petrochemijal/ Kutina, 1968 176.6 154.6 37.2 58.4 Major
ammonia production capacity based an nearby natural gas;Croatia INA
is part of the largest COAL in Yugoslavia, responsible for
546.2 494.7 202.2 218.4 activities in fertilizers, refineries,
petrochemicals, oil and(1983) (1984/85) (1984/85) (1984/85) gas
emploration and trade; major capacity exapnsion is underway
for both nitrogenous and phosphatic fertilizers.
Zorka Subotical/ Subotica, 1954 - 12.0 17.0 51.0 Intermediates
are supplied by others; capacity expansionVojvodina is
underway.
111.0 62.0 96.0(1985) (1985) (1985)
Agrochem. Novi Sad, - 21.0 - 21.0 Established by IHP, Prahavo
for NPK manufacture only.Vojvodina
HIP Pancevol/ Pancevo, 1962 254.1 188.2 - 32.0 Major ammonia
production capacity based on nearby natural gas;Vojvodina major
capacity expansion is underway.
508.2 326.2(1984) (1985)
Zorka Sabac Sabac, 1954 - 62.9 148.5 82.2 Zorka Sabac is part of
the Zorka COAL including mining and refinerySerbia of zinc, lead,
and pyrites ores which are used for sulfuric acid and
phosphatic fertilizer manufacture.
IHP Prahavol/ Prahavo, 1962 - 17.9 218.1 17.9 Major phosphatic
fertilizer producer relying e sulfur sources ofSerbia nearby zinc
smelters and pyrites; damaged facilities are due back into
318.1 operation in 1984.(1984)
Trepca Mitrovica Kosovo 1964 - 16.5 75.1 22.0 Minor phosphoric
acid producer with associated NPK facilities.
Azotara Obilic Kosovo 1972 89.72/ 79.0 - - Due to the lack of
feedstock, ammonia production facilities have neveroperated.
Azotara Lukavac Lukavac, 1962 26.4 26.0 - - Minor ammonia
producer.Bosnia-Herzegovina
NI Veles Tito Veles, 1980 - 18.0 50.0 29.3 Minor phosphoric acid
producer with associated NPK facilities.Macedonia
Present Total Capacity 457.1 608.6 545.9 313.8Future Total
Capacity 1 ,080.8 1,185.7 855.9 518.R
1/ Future total production capacities including those under
construction andscheduled completion years are indicated.
2/ Not included in the totals.
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4.03 As can be seen from the Table, HIP Pancevo and INA
Petrochemija arethe two major nitrogenous fertilizer producers,
accounting for 94% of thetotal ammonia production capacity of
Yugoslavia. IHP Prahavo and Zorka Sabacare the major phosphatic
fertilizer producers, accounting for 67% of the totalphosphoric
acid production capacity of the country. When the planned
newphosphoric acid and related MAP and NPK facilities of INA
Petrochemija arecompleted, INA will become another major phosphatic
fertilizer producer,accounting for 25% of the future total capacity
of the country.
C. Fertilizer Production and Capacity
4.04 Historically, Yugoslav nitrogen production has relied
substantiallyon imports of ammonia, nitrogen solutions (ammonium
nitrate plus ammonia), andammonium sulphate for further processing
into calcium ammonium nitrate (CAN)and NPK fertilizers to
supplement local nitrogen production. Details ofnitrogenous
fertilizer production, imports and exports of intermediaries
andfinished products are given in Annex 5, Table 2. In brief,
between 1975-82,despite yearly fluctuations, the production of
nitrogen (active nutrient)recorded an increase. During the same
period, Yugoslavia imported about 28%of primary nitrogen
requirements, principally a[mmonia (57% of the total),nitrogen
solutions (ammonia plus ammonium nitraste in water) and
ammoniumsulphate. In many instances, in the same year Yugoslavia
has both importedand exported finished nitrogenous fertilizer
products, such as urea and CAN.However, on balance, during the
period under review, the country has been anet importer of urea
(25% of urea production) and a net exporter of NPK (16%of NPK
production).
4.05 Of the total existing capacity of 608,000 tons of nitrogen
offinished products (CAN, urea, and NPK/MAP), approximately 177,000
tons ofnitrogen production is based on imported intermediaries. The
facilities underconstruction would more than double current
domestic ammonia productioncapacity from 457,000 tons to 1,080,000
tons of nitrogen and finishednitrogenous fertilizer production
capacity from 609,000 tons to 1,186,000 tonsby 1987. This would
still leave a deficit of some 105,000 tons of primarynitrogen, to
be obtained through imports in order to operate the
processingfacilities at designed throughput. It is also estimated
that while CAN, atpresent accounts for about 44% of nitrogenous
materials 11, its share willdecline to 32% by 1987 and urea will
become the major (38%) nitrogenousfinished fertilizer and NPK
fertilizers will form about 30%.
4.06 Present primary phosphates production capacity is 546,000
tpyP205 2/ against a finished NPK processing capacity of 314,000
tons tpyP205. With the completion of the facilities under
construction at INA andSubotica, and the reconstruction of a
phosphoric acid plant at Prahavo by1985, primary phosphate
production capacity would increase to
1/ At present, nitrogen in NPK accounts for about 41% with the
remaining 15%accounted for by urea.
2/ Includes straight phosphate fertilizers.
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- 17 -
856,000 tpy P205 against a finished processing capacity of
519,000 tpyP205. The apparent imbalance between primary and
finished phosphateproduction capacities is due to exports of both
SSP (to the USSR) and TSP, theoperation of NPK facilities at
considerably higher than nominal capacity, andthe non-fertilizer
uses of phosphoric acid. Although SSP was formerlyimportant for
direct application, its use, since the early 1960's, hasdeclined
and has generally been replaced by NPK blends, which also provide
forall potash applications. Details of phosphatic fertilizer
production and netexports are given in Annex 5. Table 3.
D. Capacity Utilization
4.07 Capacity utilization for ammonia and nitrogen processing
plants,compare favorably with international industry standards.
Capacity utilizationat INA and Azotara Lukovac is better than the
industry's average of 90%. Thecapacity utilization at Pancevo since
1971 has averaged 83%. The majorreasons for the relatively marginal
performance have been process designfaults and mechanical problems
with the centrifugal compressors that limittheir reliability and
performance. Similar problems with the same plantdesign have been
common in the industry. Capacity utilization for thephosphoric acid
industry has ranged, since 1970, from a low of 30% to a highof 88%
as against an expected industry norm of 90%. Capacity utilization
overthe period 1970-81 has averaged approximately 75%. The major
reason for thislow figure has been problems at the Trepca Mitrovica
plant stemming from theselection of an unproven process and lack of
financial resources to rectifyprocess design defects that became
apparent during initial operation. Therecent poor start-up
performance of the Tito Veles plant in Macedonia has beendue to the
relative inexperience of this new company and shortages of
foreignexchange for the commissioning phase of operation during
1980, 1981 and 1982.Plant operation and maintenance is generally of
a high standard, particularlyin the larger companies, and, except
as noted, the technology used isappropriate.
E. Raw Materials
4.08 All of Yugoslavia's ammonia plants, including those
underconstruction, with the exception of Lukovac and Obilic, are
based on naturalgas, the most efficient and economic raw material
for nitrogenous fertilizerproduction. The original ammonia plants
(HIP and INA) were based on nearbydomestic gas fields but, due to
nationally increased gas consumption, whichnow exceeds domestic
sources, the increased gas requirements arising from theexpansion
plants of HIP and INA will be supplied by gas from the
USSR.Domestic natural gas has been sold to ammonia producers at
pricessubstantially lower (50-80%) than those for imported gas,
which areessentially at international fuel oil price parity costs.
However, under SAL,the Government has agreed to increase domestic
gas prices to world marketprice levels over the next several
years.
4.09 The impetus for development of the phosphatic fertilizer
industry hasbeen the availability of sulphuric acid (required for
SSP and phosphoric acidproduction) as a by-product from smelting of
local ores (sulphide of copper,zinc and lead). Iron pyrites, a
by-product of non-ferrous metals operations,is also used to produce
sulphuric acid. As a result, phosphate fertilizersare produced
close to smelters, located at Bor in Serbia, Trepca in Kosovo
and
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Titov Velas in Macedonia. The one exception is the new INA plant
in Croatia,which is based on imported sulphur. There are no
commercial phosphate rock orpotash deposits in Yugoslavia; all
requirements are imported.
F. Structure of the i[ndustry
4.10 Fertilizer producers are structured strongly along regional
lineswith the development of capacity initiated by the needs of
theRepublic/Province in which the enterprise is located. The
producers withineach region have strong links with Agrokombinats or
Cooperatives throughlong-term agreements under which most of the
fertilizer for domesticconsumption is sold. As a result,
Agrokombinats often provide long-termfinancing for capacity
expansion, necessary foreign exchange, and on occasion,even
payments to offset losses of the fertilizer enterprises. Due
tomarketing agreements with Agrokombinats, the fertilizer producers
do not havetheir own sales, marketing and distribution setup; and
do not provide evenrudimentary extension services.
4.11 The regional basis for capacity development has worked
quite well forregions with access to regional raw materials
(Croatia, Vojvodina, and Serbiafor natural gas; Serbia and
Vojvodina for sulphuric acid). However, in otherareas the desire
for regional self-sufficiency has tended to distortdevelopment;
i.e. construction of small uneconomically sized phosphoric
acidunits in Kosovo and Macedonia, high cost coal-gasification
based ammoniaproduction in Kosovo, and the recent construction of
imported sulphur-basedphosphoric acid capacity by INA in Croatia.
The promotion of national ratherthan regional priorities is one of
the major functions of Agrohemija, theBusiness Community of
Fertilizer Producers. However, while Agrohemija carriesout useful
work in investigating technical problems, coordinating imports
andexports, and as a channel for communication with Federal
authorities inparticular on pricing, it has not succeeded in
breaking down interregionalbarriers.
4.12 Under the present fertilizer investment planning system,
eachfertilizer enterprise first initiates its own investment plan,
which afterapproval by the workers and the Republican/Provincial
authorities is presentedto Agrohemija. At Agrohemija, investment
plans of the various fertilizerenterprises are reviewed by member
enterprises to reach general agreement ontotal investment size and
new capacity and product mix. The draft plan isthen presented to
the FCE as well as to the Republican/Provincial Chamber ofEconomy.
The FCE examines the plan to determine its overall suitability
withYugoslavia's macro development plan, fertilizer demand/supply
perspectives,financial viability of the projects, foreign exchange,
energy and rawmaterials availability, and other relevant factors.
The staff of the FederalCommittee for Agriculture, the Federal
Secretariat for Finance, and theFederal Committee for Industry and
Energy are also involved in the evaluationof the plan to provide
needed information and overall coordination. Inpractice, investment
plans with strong regional backing (including financing)invariably
pass the various screening levels.
G. Production Economics
4.13 The economic viability of three of the four existing
ammonia plants(accounting for 94% of ammonia production capacity)
and the INA plant underconstruction has been reviewed. The existing
plants have very high energy
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-19-
consumption and this has adversely affected their economics
(Annex 5,
Table 4). As compared to the present imported ammonia cost of
about $175 per
ton CIF (expected to rise to $255 per ton by 1990, in 1983
prices), the directeconomic production costs of ammonia in the
three existing plants range from
$246 to $283 per ton (excluding depreciation, interest and
capital charges)with a weighted average of $262 per ton. The new
ammonia plant of INA will
have an economic direct production cost of about $198 per ton,
indicating thateven this plant can be marginally economic only in
the long term, and is
unlikely to generate any meani.ngful return on the original
investment.
4.14 The reason for this is that the existing ammonia plants,
constructed
between 1960-70 when energy costs were low, were designed on the
basis of
minimizing initial investment cost, even though this implied
relatively high
energy consumption during operation. For example, modern plants
consume about7.3 million kilocalories (kcaL) per metric ton of
ammonia produced, whereas
Yugoslav plants consume about 10.9-12.4 million kcal per ton of
ammonia. Theimpact of high energy consumption on production costs
is substantial, since
typically about 85% of the production costs are for energy
(natural gas,electricity and steam). Although at present
uneconomic, there is a strong
likelihood that many of the existing ammonia plants could be
economicallyrehabilitated, if energy conservation investments were
to be implemented.
However the extent to which these investments would be able to
reduce energyconsumption and render the plants economically viable
could only be determined
on the basis of energy audits and detailed engineering studies
for each plant(para 6.08).
4.15 The economic viability of the downstream ammonia processing
units
(urea and CAN) has been reviewed (Annex 5, Table 5), and their
economic directproduction costs are well below economic benefits.
Hence, the financing ofimports of ammonia and ammonia-related
intermediaries for production of urea
and CAN is justified on economic grounds.
4.16 In the phosphatic fertilizer industry, the traditional
source ofsulphuric acid for the production of phosphoric acid has
been the domestic
smelting industry and local pyrites. These sources of sulphuric
acid havegiven Yugoslavia a competitive advantage in the production
of phosphate
fertilizers, compared to other countries which may need to
import bothphosphate rock and sulphur. The economic viability of
existing phosphoric
acid production, based on domestic pyrites, has been reviewed
(Annex 5,
Table 6). The economic production costs of $285 per ton of P20 5
comparesfavorably with a cost of $318 per ton of P2 05 for imported
phosphoricacid. Hence the financing of imports of phosphate rock
for the existing
phosphoric acid production is economically justified. However,
in the case of
the new INA phosphoric acid plant (Kutina), scheduled to
commence productionin 1984, the economics are less favorable due to
the high cost of imported
sulphur required in the production of phosphoric acid (Annex 5,
Table 7). TheBank has explained the issues involved and recommended
to the Governmnent thatinterim measures should be taken to improve
the economics of the new INAplant. It was confirmed by the
Government during negotiations that for
phosphate rock financing under the loan, before a purchase order
is placed forthe procurement of rock and sulphur, the sub-borrower
would also obtain
quotations for the supply of phosphoric acid, in order to
ascertain if at thattime, the processing of raw materials is more
economic than importing the
phosphoric acid. only if processing the raw materials is more
economic wouldthe sub-borrower place the purchase order for the
phosphate rock; other
questions, if any, would be examined and resolved under the
proposed technicaland energy studies (para 6.08).
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H. Prices
4.17 Efforts are being made to bring domestic prices of
finishedfertilizer in line with world market prices . Until 1982,
prices were keptintentionally low to stimulate demand, with an
adverse effect on the financialresults of the fertilizer plants
(para 4.24). In 1980, the Federal Governmentabolished the price
subsidy for the domestic market and prices were raised.In January
1983, domestic sale prices of urea, CAN and NPK were raised by
53%,bringing them to world market levels. Details are given in
Annex 5, Table 8.Recent price increases, however, do not appear to
have had any adverse effecton the domestic demand. The
Republican/Provincial authorities do provide asmall indirect
subsidy to the fertilizer producers in the form of lower waterand
electricity charges and land rent, etc. This practice, in the
presentcircumstances, is acceptable.
4.18 The Federal Secretariat for Markets and General Economics,
in closecollaboration with Agrohemija and the fertilizer producers
and users, isresponsible for price determination. Periodic reviews
are made, taking intoconsideration the world market situation and
the domestic production cost.The Secretariat has indicated that
domestic fertilizer prices will shortly beraised by another 50% to
ease the financial position of the fertilizerplants. The price
determination review mechanism is satisfactory. However,in the
future, it should be ensured that the country does not revert to
thesystem of subsidizing fertilizer for the domestic market (para
5.04).
I. Foreign Exchange Requirements/Allocation
4.19 The shortage of foreign exchange for imports of raw
materials hasbeen a major constraint to increased production. In
1982, to produce about2.6 million tons of fertilizer, the total
foreign exchange requirement was
about $229 million, of which 60% was from convertible areas and
40% fromGOMECON countries (Annex 6). Essentially all phosphate rock
and catalysts arefrom hard currency areas, while potash is
generally imported through clearingarrangements. Although major
suppliers of nitrogen intermediaries are fromEastern Europe, the
greater part of the cost has to be paid in convertiblecurrencies.
The total foreign exchange requirements for imports of spareparts
were about $25 million, of which about 80% was from convertible
currencyareas.
4.20 Until 1982, the major source of foreign exchange for the
fertilizerindustry was from exports of finished fertilizer. Between
1977-79, about 11%of the total domestic production was exported to
earn foreign exchangeessential for the import of raw materials. In
1980, when the foreign exchangecrisis first reached serious
proportions, exports rose to about 20% of totalfertilizer
production (para 3.06, Table 3). Fertilizer exports either
reducedthe quantity available for the domestic market, or if
exports were reduced toincrease domestic fertilizer availability,
the industry failed to obtain thenecessary foreign exchange to
import raw materials, resulting in reducedfertilizer production.
Both alternatives adversely affected agriculturalproduction. The
Federal Government has recognized the need to rationalize
theallocation of foreign exchange for the fertilizer industry in
order toincrease domestic production and, in turn, the availability
for domesticconsumption.
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4.21 Two measures have been taken in this regard. First, under
theForeign Exchange Allocation Policy for priority items 1/, the
Government hasallocated for 1984, US$100 million for the import of
raw materials forfertilizer producers, compared to US$70 million in
1983 (an increase of morethan 42%). The Government has indicated
that increased amounts under thispolicy will be allocated for
fertilizer raw material imports in 1985 andonward, if the present
foreign exchange constraint continues. Second, inJanuary 1983, a
Social Compact was agreed among the Federal Executive Council,FCE
and the Republican/Provincial Executive Councils and Chambers of
Economy,under which 20% of the foreign exchange proceeds from
agricultural exports,excluding meat and fish, is automatically
allocated to the "Fertilizer Import
Fund" for the purchase of raw materials by the fertilizer
industry. This Fundis administered at the national level by
Beogradska Banka, but in 1983, it didnot operate effectively. It
was introduced only in late April, the
administrative mechanism was not fully developed or understood
and, asexplained earlier, 2/3 of the total agricultural exports in
1983 were underbarter deals. All these factors adversely affected
the "Import Fund" and onlyabout $30 million was made available for
the import of raw materials for thefertilizer industry. Government
officials have indicated, however, that in1984, the Fund is
expected to operate more efficiently and will provide about$50
million to meet the fertilizer industry's imports. In addition,
sinceJanuary 1983, the fertilizer industry has been permitted to
retain up to 75%(instead of the previous 30%) of export earnings
from finished fertilizer.
4.22 The mechanisms to ensure foreign exchange availability
describedabove will continue through 1984; there is no certainty of
their continuationafter that time. In view of this, it was agreed
during negotiations that aSelf-Management Agreement (SMA), among
VB, Agrohemija, the FertilizerProducers and the Agrokombinats
(AIKs), would be executed whereby foreignexchange would be made
available to VB to convert Dinar repayments bysub-borrowers into
foreign exchange which would be onlent for new sub-loans.Execution
of such an agreement (SMA) would be a condition of effectiveness
forthe SL (para 8.04 (ii)). The major source of foreign exchange
contributionwould be the AIKs, which are currently exporting
agricultural productsestimated to be about $1.3 billion per annum.
This agreed mechanism is a
satisfactory vehicle for ensuring the Borrower adequate amounts
of foreignexchange for recycling sub-loans. All these measures
provide strong evidencethat the Government is giving very high
priority to increasing domesticfertilizer production. Government
officials have indicated that under theproposed Loan, the Borrower
would continue to have access to foreign exchangefor recycling or
rollover of fertilizer sub-loans from the sources mentioned
above (para 6.07). However, the total demand for foreign
exchange in theeconomy at present is such that it cannot yet be
taken for granted that thefertilizer industry will receive all of
its foreign exchange requirements.Assurances were obtained during
negotiations that the Borrower would (a)deposit in a special
account all amounts in Dinars received from theFertilizer Producers
in repayments of the sub-loans; (b) convert such Dinarsinto foreign
exchange providecl to the Borrower, through the mechanismsoutlined
above; and (c) use the foreign exchange for the provision
ofadditional sub-loans under the project until June 30, 1989 (para
8.02 (i)).Assurances were also obtained that the Guarantor would
take all measuresnecessary to ensure that the Borrower is able to
carry out this obligation(para 8.01 (i)).
1/ Decision on Common Yugoslav Foreign Exchange Policy for 1984,
Sluzbeni
List SFRY, No. 70, Belgracle, December 30, 1983.
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J. Financial Situation of the Industry
4.23 Basic Banks are the main financial institutions providing
short andlong-term funds to the fertilizer enterprises. In
addition, the fertilizerenterprises, like other industries in
Yugoslavia, have access to various otherfunds particularly when
they incur losses. These include reserves of otherBOALs with which
they are linked by a self-management agreement (SMA),"solidarity
contributions" from Agrokombinats (para 4.10), and pooled
reservesof the Commune and the Republic or Province. Additionally,
rescheduling ofbank loans, write-off of debts, tax exemptions,
contribution obligations tosocio-political communities, and
deferred payment for purchase of goods arealso, upon occasion,
available to the fertilizer enterprises.
4.24 In recent years, the financial condition of the fertilizer
industryhas not been very favorable. In both 1981 and 1982, eight
out of elevenfertilizer enterprises incurred losses 1/ amounting,
on average, to 11% oftheir total revenues. In addition, their
liquidity position, in general, doesnot appear very sound. Several
factors lie behind this situation. First, inrecent years, domestic
fertilizer prices have been kept artificially low bythe Government
in order to promote fertilizer use and increase
agriculturalproduction (para 4.17). Second, as stated in para 4.14,
energy consumptionfor fertilizer production in Yugoslavia is
relatively high, compared withcurrent international standards,
resulting in high production costs. Andthird, capacity utilization
of some of the fertilizer enterprises has beenrelatively low due to
the design defects or start-up problems (para 4.07).While the
energy efficiency improvements need to be examined more in detail
inthe proposed energy conservation studies under the SL (para
6.08), otherloss-causing factors are expected to be lessened in the
near future. Forexample, planned domestic price increases would
increase sales revenues of theenterprises immediately. Also,
improvements in the foreign exchange
allocation system and the availability of foreign exchange to
the fertilizerenterprises would facilitate imports of
spare/replacement parts (and rawmaterials) to improve capacity
utilization, and would expedite start-up of newplants. These
measures are, thus, expected to improve the overall
financialposition of the fertilizer industry.
V. THE SECTOR LOAN (SL)
A. Need for the SL
5.01 The foregoing demonstrates the urgent need for the
development of a
comprehensive integrated program to revitalize the fertilizer
sub-sector. Tothis end there is an economically justified need to
increase fertilizeravailability immediately for the domestic market
(para 7.05). This would
1/ In the Yugoslavian accounting system, loss is defined as
total revenuesminus production costs, minus other general overhead
expenses (includingfinancial charges and tax payments), minus
individual incomes (equivalentto labor costs), minus contribution
to funds. Although the "funds"portion includes what is equivalent
to retained earnings in the GenerallyAccepted Accounting
Principles, when loss is incurred, the funds portionis generally
nil.
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assist the country to achieve its primary objective of
increasing grainproduction, wheat and maize, the two major crops,
in which the country mustattain self-sufficiency in the shortest
possible time in order to achieve theobjectives of the
Stabilization Program. At the same time, the modificationof the
distribution policy to ensure the optimum utilization of the
fertilizeris required. In addition, there is an urgent need to
restructure andmodernize the fertilizer indusitry to place it on a
sound technical andeconomic footing.
B. Objective/Concept
5.02 The SL would assist the Government in increasing the
domesticavailability of finished fertilizer for 1984 (Fall) and
1985 (Spring andFall). The incremental fertilizer produced as a
result of the Loan would bemainly used for wheat and maize
production. The SL would address policy andinstitutional issues
concerning domestic distribution, by making incremental
fertilizer accessible to NCI fairmers, as well as assisting the
Government inmodernizing and rehabilitating the industry in the
long run, through thefinancing of technical studies to define a
program for improving productioneconomics. The SL would thus expand
and enhance the Government's on-going
Fertilizer Production/Consumption Program.
5.03 Taking into consideration the unfilled potential domestic
demand, thetechnical capacity and the economics of domestic
production, the urgency ofthe increased fertilizer application and
the improvements envisaged in theforeign exchange allocation
mechanism (para 4.21), as well as the domesticdistribution system
(para 7.02), a realistic growth rate of 15% per year fordomestic
fertilizer consumption for 1984 and 1985 has been estimated
jointlyby the Government and the Bank. The incremental consumption
has beencalculated against the actual domestic production of 2.6
million tons offertilizer in 1983. The SL wouald provide the
foreign exchange to import rawmaterials and spare parts for the
production of the incremental consumptionrequirements for 1984 and
1985 - a total of 850,000 tons. Of the totalincremental production,
680,000 tons, equivalent to 80% of the incrementalfertilizer
production, would be sold through the retail shops of
theparticipating Trading Agencies on a cash basis to individual
(primarily NCI)farmers, the production group where the increased
application of fertilizerwould yield the optimum results in the
immediate future. This percentage(80%) has been derived, taking
into consideration the relevant fertilizerneeds of the Social
Sector, the Cooperatives and the NCI farmers, the cropresponse in
these three production groups, and their individual economicreturns
(para 7.05). It was agreed during negotiations that VB,
Agrohemijaand Fertilizer Producers would enter a Self-Management
Agreement (SMA), inaccordance with which the Fertilizer Producers
would make available to theTrading Agencies for sale on a cash
basis through their retail shops to
individual farmers (NCI). It was also agreed that the execution
of the SMAwould be a condition of loan effectiveness (para 8.04
(i)). The quantities offertilizer which would be channelled through
this system are: about 240,000tons of fertilizer in the fall of
1984 and about 440,000 tons of fertilizer in1985 (para 8.04 (i)).
In addition, although the SL would be for a two-yearperiod, the
Second Tranche (June 1985) would only be released after
asatisfactory review of the SL implementation for 1984 (para 6.16).
Theproposed concept appears an appropriate mechanism to assist the
country inaddressing both short and long-term fertilizer sub-sector
problems and, inturn, the on-going economic stabilization
efforts.
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C. Statement of Policy
5.04 As stated earlier, in view of the stabilization measures
and theoverall economic position of the country, both the
fertilizer production andconsumption targets for the remaining
years (1984-85) of the current Five-YearPlan are being revised. The
domestic fertilizer production targets of3.0 million tons in 1984
and 3.45 million tons in 1985; and the fertilizerconsumption
targets of 3.0 million tons in 1984, 3.4 million tons in 1985,3.7
million tons in 1986, 4.0 million tons in 1987, 4.3 million tons in
1988and 4.6 million tons in 1989, were agreed to with the Guarantor
duringnegotiations. This agreement on the fertilizer consumption
targets for1984-1989 would ensure that fertilizer is not exported
until the fertilizerrequirements of the domestic market are met. In
addition, assurances wereobtained from the Guarantor that the
present fertilizer pricing system for thedomestic market, which
does not allow for Federal subsidy, would be maintainedand the
Guarantor would take all necessary steps to facilitate the
achievementof both production and consumption targets (para 8.01
(ii)).
D. SL Description
5.05 The SL would be implemented over a two-year period (Fall
1984 throughFall 1985) and would finance the following:
(i) Raw Materials: The SL would finance the foreign exchange
tocover the cost of the raw materials to be imported from
theconvertible currency areas for the incremental
production.Imported raw materials would mainly consist of phosphate
rock forphosphate production, intermediat,es such as MAP, DAP,
ammonia andammonia solution for NPK production. It is estimated
that theraw materials, financed under the SL, would enable the
country toproduce an incremental 0.85 million tons of finished
fertilizer(para 7.01).
(ii) Spare Parts: The total spare parts requirements are
estimated atabout $25 million; of this 80% would be from the
convertiblecurrency area. The SL would finance about $21 million
forcritical spare parts and essentiaL catalysts for Fall
1984through 1985. Major items would be corrosion-resistant
materialsfor sulphuric and phosphatic acid plants, stainless steel
pipingand catalysts for ammonia production.
(iii) Technical Study: About $1.85 million would be provided
under theSL to cover the cost of technical and energy studies
offertilizer plants. It is estimated that about 190 man-monthswould
be required to complete the studies. Of the totalestimated
man-months, about 60% would be provided by foreignconsultants and
the remainder by local consultants. Such astudy, including
production cost analysis, would cover allfertilizer plants, in
order to assess their operating and energyefficiency. The
examination should identify all potentialsources of sulphuric acid
and other major inputs, both local andforeign, to determine the
most economic sources of supply. Itshould also identify measures
and investments that might berequired to reduce costs and quantify
savings that would therebybe achieved. The economic and financial
viability of thesemeasures and investments should also be
adequately assessed (para6.08).
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E. Implementation Time Frame
5.06 The SL implementation would be immediate, since it would
mainlyconsist of procurement of raw materials and spare parts for
the domesticfertilizer industry (11 plants). There would be no
major issues of design;technical specifications are
well-established. The industry has had longexperience in importing
such raw materials/spare parts annually. Both theindustry and the
Government have been pressing for the quick finalization ofthe
proposed SL in order to avoid delays in their ongoing
production/distribution schedule.
F. SL Cost
5.07 In view of the critical foreign exchange constraint, the
proposedSL is designed to cover the foreign exchange requirements
from the convertiblearea only (Annex 6). Without such foreign
exchange assistance, the plannedincreased production would not be
feasible. Hence, in this context, the costrepresents the
convertible foreign exchange requirements for the
incrementaldomestic production. The cost of consultants is based on
an estimatedrequirement of 190 man-months comprising 110 man-months
provided by foreignconsultants at a total cost of $12,000 per man
month and 80 man monthsprovided by local consultants at a total
cost of $5,000 per man month. Costestimates are based on March 1984
prices. Price contingencies for rawmaterials have been calculated
on the basis of annual projected internationalinflation rates for
fertilizer raw materials of 9.8% in 1984 and the same in1985; price
contingencies for spare parts and consultant services have
beencalculated on the basis of projected international inflation
rates of 3.3% in1984 and 8.0% in 1985. The front end fee on the
Bank's loan would amount to$224,439 and would be capitalized. The
details are summarized below (Annex 6):
Cost Estimates($ ?000J)
Component 1984 1985 Total
Raw Material 27,000 30,200 57,200Spare Parts 10,000 11,000
21,000Study 720 1,000 1,720
Total 37,720 42,200 79,920
Price Contingencies 3,300 6,556 9,856
Front End Fee 224 - 224
Total 41,244 48,756 90,000
G. Financing
5.08 The proposed Bank loan would provide $90.0 million to cover
theforeign exchange cost of the incremental production.
Vojvodjanska Banka (VB),the proposed Borrower, during its appraisal
of the sub-borrowers, would ensurethat they had sufficient
resources to utilize the Bank funds efficiently (para6.05). The
Bank loan would be for 15 years, including three years of grace
atstandard variable interest rate.
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H. Production/Import Schedule
5.09 As stated earlier, the incremental quantity of fertilizer
financedunder the Loan would be used only for two crops - wheat and
maize. Thefertilizer for these two crops is generally applied in
Spring and Fall. TheSpring application normally takes place in
mid-February to mid-March and theFall application, from end-October
to mid-December. The latter application isthe more critical
one.
5.10 In order to meet the above application schedule, the
fertilizerplants must place orders for imported raw materials 3-4
months in advance,i.e. for Spring application by November at the
latest and for Fall, by
August. Shipping arrangements are satisfactorily developed and
thetransportation network for delivery of imported raw materials is
adequate andwell established. Thus no infrastructural constraints
appear to exist forhandling imported raw materials; however all
legal and administrativearrangements must be made to ensure that
the import schedule specified aboveis met.
I. Procurement
5.11 International Competitive Bidding (ICB) would be used for
rawmaterials and spare parts, except for (i) those items of a value
equivalent toless than $100,000 per contract, which would be
procured following evaluationand comparison of bids from at least
three qualified suppliers eligible underthe Bank's Guidelines, and
(ii) for proprietary spare parts agreed with theBank which may be
procured through direct negotiations with suppliers. Theaggregate
of such contracts would not exceed the equivalent of $8.0
million.Consultants' services to be financed under the SL would be
procured inaccordance with the Bank's Guidelines for the Use of
Consultants. Consultantswould be employed in accordance with Bank
Guidelines for the Use ofConsultants. Local consultants may form
joint ventures with foreign companiesto carry out the energy audit
studies (para 6.08). The proceeds of the SLwould thus be used only
to finance imported raw materials, spare parts andservices to be
supplied from sources eligible under the Bank's Guidelines.
5.12 Procurement of all fertilizer raw materials would be
coordinated byAgrohemija in accordance with existing practices, so
that the benefits of bulkpurchases would be achieved for the same
materials required by more than onefertilizer company. Procurement
of spare parts would be made via thepurchasing department of the
relevant fertilizer companies under thesupervision of VB to ensure
that Bank procurement Guidelines were adhered to(para 6.02).
J. Disbursement
5.13 Allocation and disbursement of the SL proceeds would be as
follows:
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Allocation of Bank Loan Proceeds($ million)
1. Raw materials for fertilizer 61.0 100% of foreignproduction
expenditures.
2. Spare parts for fertilizer 21.0 100% of foreignproduction
facilities expenditures
3. Consultants 0.8 1/ 100% of expenditures
4. Unallocated 7.0
5. Front-end fee 0.2
Total 90.0
The SL is expected to be disbursed over two Bank fiscal years
(FY85-FY86),starting in the first quarter of FY85. Disbursement
would be against fulldocumentation. The detailed disbursement
schedule is given in Annex 7; sinceitems to be financed by the Loan
are all quick disbursing (para 5.06), thedisbursement profile does
not conform to the typical disbursement profile.The First Tranche
would cover the period June/July 1984 to May/June 1985 andwould
amount to about $50.0 million. The Second Tranche, consisting of
about$40.0 million, would only be released after a satisfactory
review by the Bankin May, 1985 of the SL implementation and would
cover the period July toDecember, 1985 (para 6.16).
VI. SL IMPLEMENTATION
A. Borrower
6.01 Vojvodjanska Banka - Udruzena Banka (VB) has been proposed
by theGovernment as the Borrower under the SL, as a result of its
involvement in theimplementation of the First, Second and Third
Agricultural Credit Projects, 2/financed by the Bank. It is
conversant with the Bank's requirements inappraising and
supervising sub-borrowers, has a nucleus of trained staff
toundertake these functions and has gained some degree of
experience inimplementing nationwide projects of this nature.
1/ It was agreed during negotiations that the total cost of the
technical andenergy audits of fertilizer plants could be as high as
US$1.85 million,and in that event, loan proceeds would be
re-allocated from other loancategories to finance the
shortfall.
2/ First Agricultural Credit Project, Loan 1129-YU, Second
AgriculturalCredit Project, Loan 1477-YU and Third Agricultural
Credit Project, Loan1801-YU. Of these, the First Agricultural
Credit Project has recentlybeen completed and a Project Completion
Report prepared.
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6.02 VB, an apex Bank, consists of sixteen basic banks and
hasheadquarters in Novi Sad in the Socialist Autonomous Province of
Vojvodina.The apex Bank is divided into five Departments: Foreign
Operations, ProjectOperations (IBRD), Local Operations, Other
Operations and Economic Analysis.As of May 1983, staff at
headquarters totaled 335. The Foreign OperationsDepartment (FOD)
would be directly responsible for implementation of theproposed SL;
appraisal and supervision of sub-borrowers would be undertaken
bythis Department. The Project Operations Department, which has
hadresponsibility for the implementation of the Bank-financed
Agricultural CreditProjects, would assist FOD in
procurement-related matters, since the formerhas already gained
experience in procurement. FOD has been selected for
Loanimplementation in view of the natu