AID LOAN NO. 391-T-164 TO GOVERNMENT OF PAKISTAN FOR FAUJI FERTILIZER PROJECT

Evaluation covers the period 4/1/77-9/30/80 and was based on an audit review of project documents, site visits, and interviews with project personnel. Project progress is satisfactory. Construction of the fertilizer plant will be finished by the revised 12/31/81 target date. Advisory consultants to the Fauji Fertilizer Company (FFC), which is implementing the project, estimate that 32% of the overall construction is near completion, as are 48% of the civil, 92% of the engineering, and 9.5% of the mechanical works. A 4-month construction delay has led to accelerating project costs, forcing FFC to seek loans from Kuwait and West Germany, as well as from domestic financial sources. Subject to USAID approval, FFC also will sell obsolete AID-financed project equipment and materials to raise additional funds. Sale activities should be closely monitored to ensure that all proceeds are used according to loan agreement requirements. USAID has not effectively monitored project activities. USAID was unaware of FFC"s receiving $20.8 million in project commodities; of the use, damage, or loss of the commodities; whether FFC"s insurance coverage was adequate; and/or whether FFC adhered to USAID shipping requirements concerning U.S. flag vessels. FFC records were available and adequate for monitoring purposes but showed problems in insurance claim processing procedures. It is recommended that USAID require that FFC develop adequate processing procedures, file claims for all existing losses, and ensure that insurance coverage levels meet loan agreement and USAID requirements. AID/W determined that FFC had not complied with the 50/50 shipping requirements and that U.S. vessels carried only 87 of the approximate 633 tons shipped to Pakistan under this project. USAID action on the matter has consisted of referring it to ASIA/PD and AID/W. FFC asserts it was uninformed concerning the compliance and reporting requirements. It is recommended that USAID either obtain waivers of the shipping requirements or require FFC to comply with the requirements.