Rehabilitation and expansion of Mehalla Textiles

EVALUATION COVERS THE PERIOD 9/4/76 TO 6/30/80 AND WAS BASED UPON AUDIT REVIEWS OF PROJECT AND LOAN DOCUMENTATION, FILES AND PROCEDURES; DISCUSSIONS WITH USAID AND MEHALLA OFFICIALS; AND AN ONSITE VISIT TO THE MEHALLA PLANT. THE LOAN PROJECT IS DIVIDED INTO THREE PHASES: (A) ARCHITECTURAL AND ENGINEERING (A&E) SERVICES, (B) TRAINING AND TRAVEL AND (C) EQUIPMENT AND SELECTED SERVICES. ALTHOUGH THE PROJECT IS SIX MONTHS BEHIND SCHEDULE, IT SEEMS TO BE GOING WELL. MOST OF THE FUNDS ($39 MILLION) ARE BEING EXPENDED FOR EQUIPMENT WHICH IS BEING PROCURED THROUGH FIXED PRICE CONTRACT. PROCEDURES TO AWARD THESE CONTRACTS ARE ADEQUATE. NOT ALL OF THE EQUIPMENT HAS BEEN RECEIVED, BUT SOME HAS BEEN DELIVERED AND IS BEING INSTALLED AND PRODUCTION AND/OR TESTING IS TAKING PLACE, AS IS TRAINING IN THE USE OF EQUIPMENT. THIS TRAINING HAB BEEN AUTHORIZED BY THE LOAN AS NECESSARY TRAINING RELATED TO AID-FINANCED EQUIPMENT. MOST OF THE TRAINING HAS BEEN INCLUDED IN INDIVIDUAL CONTRACTS, THE COST OF WHICH IS NOT ALWAYS IDENTIFIABEL. MEHALLA HAS HAD TO PROVIDE SOME FUNDING FOR CONTRACT RELATED TRAINING SUCH AS PER DIEM EXPENSES. AID HAS APPROVED $175,000 FOR THESE USES. MOST OF THE PROJECT INPUTS, WITH THE EXCEPTION OF THE POWER PLANT AND HOSPITAL EQUIPMENT, ARE EXPECTED TO BE IN PLACE AND OPERATIONAL BY THE END OF CY 1980. AT THIS TIME, THERE IS NO DATA ON CHANGES IN PRODUCTION, SALES OR PROFITS ASSOCIATED WITH THE USE OF PROJECT MACHINERY. THEREFORE, NO EVALUATION CAN BE MADE ON THE EFFECT OF THE AID-FINANCED EQUIPMENT AND MACHINERY ON THE MEHALLA OPERATIONS UNTIL THAT DATA IS AVAILABLE. THERE ARE FIVE A&E CONTRACTS BEING FUNDED, TOTALLING $1.3 MILLION, OF WHICH $772,000 HAS BEEN DISBURSED. ALL ARE COST REIMBURSIBLE TYPES WITH PROVISIONAL OVERHEAD RATES. THE PRIMARY AUDIT RESPONSIBILITY FOR THESE RESTS WITH THE HOST COUNTRY. ONLY ONE HAS BEEN AUDITED. THEREFORE, IT IS SUGGESTED USAID MAKE ARRANGEMENTS FOR AUDITS OF THE COSTS OF THE CONTRACTS. SINCE THE PROJECT IS GOING WELL, IT IS NOT RECOMMENDED THAT A FULL AUDIT BE DONE.