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  • V

    Document of

    The World Bank

    FOR OFFICIAL USE ONLY

    / ./ Z - / 7ZO-

    Report No. P-5182-JO

    MEMORANDUM AND RECOMMENDATION

    OF THE

    PRESIDENT OF THE

    INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

    TO THE

    EXECUTIVE DIRECTORS

    ON A

    PROPOSED LOAN

    IN AN AMOUNT EQUIVALENT TO US$25.0 MILLION

    TO THE

    JORDAN PHOSPHATE MINES COMPANY LIMITED

    WITH THE GUARANTEE OF THE

    HASHEMITE KINGDOM OF JORDAN

    FOR THE

    INTEGRATED PHOSPHATE PROJECT

    t

    JANUARY 8, 1990

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

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  • HASHEMITE KINGDOM OF JORDAN

    INTEGRATED PHOSPHATE PROJECT

    CURRENCY EOUIVALENTS

    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

    ABBREVIATIONS AND 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

    HASHEMITE KINGDOM OF JORDAN

    INTEGRATED PHOSPHATE 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 Development Bank 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 official duties. Its contents may not otherwise be disclosed without World Bank authorization.

  • REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

    TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO USS25.0 MILLION TO THE JORDAN PHOSPHATE MINES COMPANY LIMITED WITH THE GUARANTEE OF THE HASHEMITE KINGDOM OF JORDAN FOR THE INTE. RATED PHOSPHATE PROJECT

    1. The following memorandum and recommendation on 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 guaranteed by 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 increased exports 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 progressively replace declining production at existing mines and will enable rock exports to be increased to 6.5 mt by 1991. Implementation of this project is proceeding satisfactorily and phosphate rock production is planned at 0.3, 1.0 and 1.5 mt in 1989, 1990 and 1991, respectively. The fertilizer plant at Aqaba continues to face technical constraints that limit production of fertilizer products to 74 percent of design capacity, compared to a typical capacity utilization of 90-95 percent at most worldwide fertilizer plants. Following initial years of financial and technical difficulties at the fertilizer plant, the Government decided to integrate phosphate mining and fertilizer operations and transferred responsibility 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 fertilizer operation reached a profitable status in 1988.

    3. The proposed borrower (JPMC) is a commercial enterprise. 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 institutional investors, the Government of 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

  • institutional shareholders. In view of its present debt/equity ratio of 0.44, JPMC is not planning a capital increase in the near future. JPMC's shares are listed on the Amman Stock Exchange and are openly traded and available to private sector interests.

    4. Rationale for Bank Involvement. The Bank has been requested by JPMC and the Government to continue to provide extensive technical, economic and strategy advice to assist the development of the phosphate sector. Under the previous loan, the Bank assisted JPMC to (i) initiate mine development at Shidiya in a low-cost, low-risk manner; (ii) initiate rationalization of the phosphate sector; and (iii) address the need to rehabilitate the financially- troubled fertilizer plant. The Jordanian authorities regard the Bank as a unique source of technical advice and financial support for JPMC in this crucial transition period. Following the merger with JFI, JPMC is trying to resolve complex technical problems at the fertilizer plant and to introduce modern beneficiation technology to improve the efficiency and the economics of mine operations. The Government is also considering merging the ailing Aqaba Railway Corporation with JPMIC, since it is the railway's only customer. At this critical juncture, the Government and JPMC have requested continued Bank involvement to ensure (i) systematic introduction o' complex phosphate beneficiation technology into Jordan along with a rational project design; (ii) the further development and integration of Shidiya phosphate rock production with declining production from traditional mine areas; and (iii) the systematic rehabilitation of Jordan's fertilizer sub-sector. The proposed project is consistent with the Bank's lending strategv, which includes support for export- oriented projects. IFC has not shown any interest in participating in this project, in view of the still public sector nature of the company, and IFC's earlier withdrawal of equity from the fertilizer unit of JPMC. Bank participation would fill in the gap in the financing plan, after the support available through cofinancing and an appropriate level of JPMC-generated funds have been taken into account.

    5. Sector Strateev. JPMC recognizes that Jordan's phosphate industry requires further expansion and vertical integration, to increase domestic value- added and to enhance product diversification and market flexibility. To meet these objectives, JPMC plans, as initial steps to continue expansion at Shidiya; to rehabilitate its fertilizer plant; and to collect and utilize phosphate fines in that plant. For the longer-term, JPMC has initiated extensive discussions with various countries to expand fertilizer production in Jordan through joint- venture operations. Further restructuring of the phosphate sector is being initiated by the Government through the investigation of alternative institutional arrangements for captive phosphate rail transport.

    6. Project Objectives. The main project objectives, designed to support this strategy, would be (i) the development of a beneficiation plant at Shidiya to increase rock production and raise rock exports to 7.0 mtpy by 1994, thus enhancing Jordan's foreign exchange earning capability while offsetting the declining production at existing mines; and (ii) the rehabilitation of the technically and financially troubled fertilizer plant to meet and, nominally, exceed original design capacity. The project would also aim at [i] integrating the expanding Shidiya development with traditional mine areas, where reserves will be exhausted over the next 10-15 ye