Pakistan - Fauji fertilizer project completion report

Final report is made by the Fauji Fertilizer Company Ltd. (FFC) (the contractor) and covers the period 1977-83. Lenders" appraisals indicated that despite delays in project completion, the FFC project was one of the best managed in the developing countries, resulting in a viable, modern plant capable of producing 569,000 M tons of prilled urea annually. The natural gas-based 1725 TPD urea plant includes an intermediate 1000 TPD ammonia plant, a 52 km pipeline to transport gas from the Mari gas field, related infrastructures and facilities, and a housing colony. The plant achieved 99% production efficiency during its first year of commercial operation, 80% of total production was marketed, and FFC captured 30% of the nitrogenous fertilizer market. Foreign exchange savings arising from substitution of urea imports were estimated annually at US$ 62 million; thus the foreign exchange costs of the project would be recovered in about three years. However, due to an unforeseen increase in global fertilizer production, the economic rate of return is now projected at only 9.6% over a 10-year operating life, instead of the 1978 estimate of 23%. An effective marketing development program included numerous training courses on distribution and selling, extension services, and interaction with farmers. A network of 1487 distributors was built up, and fertilizer storage points were established at selected locations, with a fully trained marketing force. Other benefits include employment for over 600 persons, technology transfer, and generation of revenue for government operations. While the general contractor"s (Snamprogetti"s) performance in design and engineering was technically good, delays in procurement resulted in time and cost overruns. Other problems included the contractor"s unfamiliarity with multi-lender ICB procurement and with working within a fixed fee and guaranteed equipment price contract. Major lessons learned are the importance of assessing the comparative economic advantage of any import substitution program, with a strong effort to accurately predict future price trends; and of facilitating contracting and procurement, especially when multiple lenders are involved.