Documat of The World Bank FOR OFFMCIAL USE ONLY MICROFICHE COPY Report No. 10280-BD Type: (PCR) ANDERSON, / X31676 / T9 111/ OEDD2 ReporNo. 10280 PROJECT COMPLETION REPORT BANGLADESH SECOND TEXTILE INDUSTRY REHABILITATION PROJECT (CREDIT 1477-BD/SF-022-BD) JANUARY 15, 1992 Industry and Energy Operations Division Country Department I South Asia This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization. -URRENCY EQUIVALENTS Currencv Unit Taka (Tk) USSl.C0 = Tk 34.90 Tk 1.00 = USSO.0287 ABBREVIATIONS /ACRONYMS 3MR - Balancing. Modernization and Replacement BSB - Bangladesh Shilpa Bank BSRS - Bangladesh Shilpa Rin Sangstha BTMC - Bangladesh Textile Mills Corporation GOB - Government of Bangladesh MOT Ministry of Textiles SF = Special Fund 'JNIDO - United Nations Industrial Development Organization 1JNDP - United Nations Development Program FISCAL YEAR BTMC 5 July 1 to June 30 GOB = July 1 to June 30 FOR OFmFCIAL USE ONLY THE WORLD 8ANK Washington. D.C 20433 U.S A. Office of Ourecut(WGeea Operatkwo tva%uatk,n January 15, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Bangladesh Second Textile Industry Rehabilitation Proiect (Credit 1477-BD/SF-022-BD Attached, for information, is a copy of a report entitled "Project Completion Report on Bangladesh - Second Textile Industry Rehabilitation Project (Credit 1477-BD/SF-022-BD)" jointly prepared by the Industry and Energy Unit of the Resident Mission, Bangladesh, and the Industry and Energy Operations Division of Country Department 1, South Asia with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operatiorns Evaluation Department at this time. Attachment 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. FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT BANGLADESH SECOND TEXTILE INDUSTRY REHABILITATION PROJECT (CREDIT 1477-BD/SF-022-BD) Table of Contents page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . Evaluaticn Summary ... PART :: ?ROJECT REVIEW FROM IDA'S PERSPECTIVE . . . . . . . . Proiect :denit . . . . . . . . . . . . . . . . . . . . 1 Background .1... . . . . . . . . . . . . . . . . . . . . . . Link with Industrial and Macro Policy Objectives . . . . 2 Proiect Obiectives and Descriotion . . . . . . . . . . . . . . 2 Objectives . . . . . . . . . . . . . . . . . . . . . . . 2 Project Description . . . . . . . . . . . . . . . . . . . 2 Project Costs and Financing . . . . . . . . . . . . . . 2 Project Design and Organization ... . . . . . . . . . . .. 2 Project Imolementation. . . . . . . . . . . . . . . . 3 Credit Effectiveness and Project Start up . . . . . . . . 3 Credit Suspension . . . . . . . . . . . . . . . . . . . . 3 Project Scope .... . . . . . . . . . . . . . . . . . . 4 Procurement . . . . . . . . . . . . . . . . . . . . . . . 4 Implement:tion Schedule . . . . . . . . . . . . . . . . . 4 Project Costs . . . . . . . . . . . . . . . . . . . . . . 5 Disbursements .... . . . . . . . . . . . . . . . . . . S Closing Date . . . . . . . . . . . . . . . . . . . . . . 5 Risk Identification . . . . . . . . . . . . . . . . . . 5 Health, Safety and Environment . . . . . . . . . . . . . 6 Project Results . . . . . . . . . . . . . . . . . . . . . . . . 6 Operations Performance - Public Sector Hills . . . . . . 6 Operations Performance - Private Sector Mills . . . . . 8 Public vs. Private Mill Comparison . . . . . . . . . . . 9 Policy and Institutional Components . . . . . . . . . . . 9 Institution Building . . . . . . . . . . . . . . . . . 9 International Competitiveness . . . . . . . . . . . . . 10 BTHC's Marketing System . . . . . . . . . . . . . . . . 10 This dorument 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. Paae No. Proiect Sustainabilitv .0 :ZA's Performance . . 3orrower's Performance :1 Project Relationship 11 Consultancy Services . . 11 Project Documentation and Data. 11 Lessons from the Project .12 improving Public Mill's Performance .12 Project Design .12 PART ::: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 14 PART :1I: STATISTICAL INFORMATION .15 Tables 1. Related Bank Loan .15 2. List of the Project Mills .16 3. Project Costs and Financing. 17 4. Subloan Relending Terms and Conditions .19 5. Project Timetable .20 6. Credit Disbursement .21 7. IDA vs. GOB's Reform Package .22 8. Project Implementation . 23 9. Indicators of Project Achievements .24 10. Operational Performance of Public and Private Project Mills .25 11. Financial Performance of Public and Private Project Mills .27 12. Financial Performance of all Public and Private Mills .30 13. Financial Restructuring .31 14. Financial Rate of Return of Private Mill . . . . . 32 15. Comparative Operational Performance of Public and Private Mills (Y85-9)) . . . . . . . . . . . 33 16. TA Studies .34 17. Use of Bank Resources. 35 18. Status of Compliance with Covenants .38 - i - PROJECT COMPLETION REPORT BANGLADESH SECOND TEXTILE INDUSTRY REHABILITATION PROJECT (CREDIT 1477-BD/SF-022-BD) PREFACE This is the Project Completion Report (PCR) for the Second Textile Irtdustry Rehabilitation Project in Bangladesh for which Credit 1477-BD/SF-022-BD, in the amount of US $45.0 million, was approved on May 22, 1984. The Credit closed on June 30, 1990, after a one year extension. On closing, US$24.0 million of the Credit had been disbursed, and the balance of US$21.0 million was canceled. The PCR (Preface, Evaluation Summary and Parts I and III) was jointly prepared by the Industry and Energy Unit of the Resident Mission, Bangladesh, and the Industry and Energy Operations Division of Country Department 1, South Asia. This PCR was prepared during FY91 and is based inter alia on the Staff Appraisal Report, the Development Credit and Project Agreements, supervision reports, correspondence between the IDA and the Borrower and internal IDA memoranda. - iii - PROJECT COMPLETION REPORT BANGLADESH SECOND TEXTILE INDUSTRY REHABILITATION PROJECT (CREDIT 1477-BD/SF-022-BD) EVALUATION SUMMARY Obiectives 1. The project's main objective (para. 3.1) was to make a group of preselected denationalized private mills and public sector mills of the Bangladesh Textile Mills Corporation (BTMC) internationally competitive and financially viable through a program of equipment balancing, modernization and replacement (BMR). This BMR program was supported by efforts to improve the sector's overall performance through the provision of technical assistance to strengthen sectoral planning, improve the management capacities of BTMC and private mills, implement financial restructuring, and change yarn pricing and distribution policies. This project was initiated two years after a first textile project (Credit 1205-BD) which has generally similar objectives except that it focussed solely on public sector millb as there were no private mills at that time. 2. The project included financing for the BMR of 22 mills -- 15 private and 7 public -- and technical assistance to strengthen the BTMC Training Institute's capabilities and undertake studies on the Handloom Sector and a Consumer Market Survey (para. 3.2). Total project costs "ere projected at US$61.0 million, of which the IDA credit was to finance US$22.98 million, a Special Fund (SP) Credit US$22.02 million, UNDP US$1.0 million and BTHC and public mills US$15.0 million. Implementation Experience 3. From the outset, the project's implementation by both the public and private mills was disappointing. The project's scope significantly changed due to: (a) poor response from the private sector, largely because of failure of potential sub-borrowers to settle their overdues with the financing institutions (the number of participating private mills was reduced to four); and (b) denationalization of public mills, which reduced the number of original public project mills to four. However, because of procurement delays, only two private mills were able to use the Credit funds. Later at BTMC's request, 15 additional mills which could not be financed under the first project were included, increasing the number of public mills to 19 (para. 5.4). IDA agreed to reallocate SDR 15.0 million from the unutilized private sector component for the public mills' use. IDA also stipulated that before BTMC could use these reallocated funds (para. 5.5), the Government of Bangladesh (GOB) /BTMC had to put in place a satisfactory package of reforms to enhance commercialization of public mills and divest some BTMC enterprises. Because of inordinate procurement delay - iv - (para. 5.6) and inability to est..blish a saciofactory reform proposal, BTMC could not use the realloceted funds by the extended closing date. 4. At appraisal, it was envisaged that 59% of the _redit would be used by the private mills and 36Z by the public mills; at closing, utilization (as a Z of the disbursed amount) was 79% by public and 21% by private mills. Although the Handloom Study and Market Survey were undertaken, no effort was made to disseminate the findings of these studies or incorporate them in a Textile Policy Paper subsequently prepared by the Ministry of Textile (MOT). Because of MOT's and BTMC's failure to employ consultants, the Training Center's capability was not enhanced, and in-plant training was not provided to the extent envisaged (para. 6.18). 5. At closing, actual project costs were 52% of the appraisal estimates (para. 5.8), and US$24.0 million was disbursed (para. 5.9). Result 6. Overall the project did not meet its objectives. It has little impact upon the reform of sectoral policies and procedures and achieved inadequate improvement in physical output and financial performance (paras. 6.2 and 6.14). Incremental yarn production for the public and private project mills increased by 7% and 21%, respectively and public mills' fabric production increased by 16%, compared to appraisal targets of 29% for yarn and 222 for fabric. Despite massive equity infusions BTMC's overall financial performance, and that of the project mills in particular, did not improve, and the mills did not achieve viability; nine of the project mills had losses in five or more years (Table 9) during FY82-FY90. The institution building objectives for the most part were not achieved because of lack of Government/BTMC comitment. One of the project's private mills forwhich information was available showed good financial performance. Sustainabilitv 7. Gains in productivity and profitability of the project's private sector component will be sustainable. Although public project mills have achieved some incremental improvement, given the continued policy, procedural and institutional constraints that face BTMC and the rehabilitated mills, their operations are unsustainable (para. 7.1). Findings and Lessons Learned 8. Overall, the project's impact was disappointing. The project failed to meet its objectives and did little to address the more pervasi re issues constraining efficient performance by the public sector. IDA gave undue weight to physical rehabilitation of the mills (expectations were particularly unrealistic as to what could be achieved through limited BMR rehabilitation) and to the Government's commitment to the project and policy reform, and too little to the broader problems that constrained BTMC's ability to impl-ment the project and operate commercially. This project and the first project were initiated when the Bank had more faith in the possibility of reforming public enterprises in Bangladesh; experiences from both the projects has undermined this faith. The most important lesson (paras. 13.2 through 13.6) learned from the project is that interventions in improving public sector performance have a high risk of failure unless actions have already been taken to ensure that: (a) a satisfactory framework of autonomy/accountability exists through elimination of excessive government controls; (b) enterprises are not used as vehicles of patronage; (c) the labor unions are not politicized; and (d) wage awards are based upon actual productivity improvement. Equally importantly, unless there is a strong rationale for maintaining public participation in specific activities, the main objective of Bank involvement should be to encourage privatization. PROJECT COMPLETION REPORT BANGLADESH SECOND TEXTILE INDUSTRY REHABILITATION PROJECT (CREDIT 1477-BD/SF-022-BD) PART I: PROJECT REVIEW FROM IDA'S PERSPECTIVE 1. PROJECT IDENTITY Name Second Textils Industry Rehabilitation Project Credit No. 1477-BD/SF-022-BD (Code: 4BANPA106) RVP Unit Asia Region Country Bangladesh Sector : Industry Subsector Textile :I. BACKGROUND 2.1 At the time of project initiation in 1984/85. Bangladesh's textile sector accounted for about 302 of manufacturing value added, employed about one million people and provided about 852 of the country's total cloth consumption. The textile industry comprised the organized and decentralized sectors. All 61 spinning and weaving mills were in the organized sector under both public and private ownership. Thirty six public sector mills were under Bangladesh Textile Mills Corporation (BTMC), but prior to denationalization in 1982 all the private mills had also been in the public sector. In 1985, the organized public and private sector mills represented 56Z and 442 of spinning and 522 and 48? of loom capacity, respectively; and provided about 102 of the textile employment. The decentralized sector was mainly represented by handloom weaving and a small power loom industry. It supplied almost 702 of domestic fabrics and provided about 80Z of textile employment. The ready-made garments industry, which accounted for about 102 of textile employment, also started gaining importance in the mid-1980s. 2.2 An IDA industrial sector review in the early 1970s identified the need for a significant restructuring and rehabilitation of the mills under the control of the BTMC and proposed a major program of balancing, modernization and replacement (BMR). The recommendation was taken up under IDA's Fourth through Eighth Imports Program Credits in the 1970s through action programs to improve maintenance, increase the availability of spares. strengthen management, restructure capital and formulate pricing poicies to improve the BTMC mills' financial viability. As part of these programs. the BTMC carried out a detailed review of mill rehabilitation with technical assistance from UNDPIUNIDO. This review. which was completed in 1979. led to the submission to IDA of a project proposal by GOB and BTMC for the BMR of 50 BTMC mills. Given BTMC's limited implementation capability, IDA agreed to finance this program in phases. Phase one, which was intended to cover rehabilitating 15 selected mills, formed the basis of the first IDA-financ"d project -- Textile Industry Rehabilitation Project, Credit 1205-BD (Table 1) which was approved in February 1982 and closed in December 1986; the PCR was completed in May 1990. 2.3 Shortly after the first Credit became effective in 1982. GOB denationalized 22 BTMC mills. At the request of GOB/BTMC, IDA agreed to support a second project to meet the BMR needs of the denationalized private mills' and to provide turther support for the BMR of BTMC mills that could not be accommodated under the first project. A UNDP/UNIDO team also helped prepare the second project, and two projects were implemented largely simultaneously. 2.4 Link with Industrial and Macro Policy Objectives. The proiect supported the objectives of the '"w Industrial Policy announced in !982 under which GOB intended to expand t ivate sector's role by encouraging new private investment and privati.- -ion of public mills. It initiated privatization of textile mills by returning 22 mills to their previous owners. GOB believed that such a strategy would enable the textile sector to meet domestic cloth consumption needs on a competitive basis and also help sustain employment in the handloom sector. Rehabilitation and expansion of textile capacity was envisaged as generating employment and improving income distribution in Bangladesh. III. PROJECT OBJECTIVES AND DESCRIPTION 3.1 Objectives.The project's main objectives were to: (a) improve labor and machine productivity, capacity utilization and product quaiity to make the textile mill sector (public and private) competitive and ultimately capable of exports in selected product areas: (b) upgrade the managerial, administrative and technical skills of private and public mills: (c) improve the policy environment to provide public encerprise managers greater autonomy; and (d) support GOB's privatization efforts. The first three of these cbjectives were very similar to the objectives of the First Textile Rehabilitation Project. 3.2 Project Description. The project had two components: (a) an investment component to finance the BMR of seven public and 15 private mills (Table 2); and (b) a technical assistance component to assist private mills in carrying out their BMR and improving their production management systems, conduct a Handloom Sector Study and a Textile Consumer Market and Demand Survey and enhance training capabilities of the BTMC's Savar Training Institute. 3.3 Project Costs and Financing. Project costs were estimated at US$61.0 illion, of which the IDA Credit was to finance US$22.98 million, a Special Fund (SP) Credit US$22.02 million, a UNDP grant US$1.0 million and the remaining US$15.0 million by public and private mills (Table 3). Of the total credit amount, the private and public mills' investment components were allocated 59Z and 36Z, respectively, 32 was allocated for consultancy and 22 was unallocated. The financing for the investment component was provided as subloans to the mills. In the case of public sector mills, subloans were provided directly by the Government to BTMC which in turn channelled them to its mills. In the case of private mills, subloans were channelled through the two Government-owned Development Finance Institutions--Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Sangstha (BSRS). The terms and conditions of subloans are given in Table 4. IV. PROJECT DESIGN AND ORGANIZATION 4.1 The project design sought primarily to address the need to improve private and public mills's productivity and profitability. Using BTMC's - 3 - technical and financial parameters (based upon the UNDP/UNIDO BMR reviews) which were reviewed by IDA's technical consultants (Geerdes International), seven public mills were selected for rehabilitation. BMR parameters for the private mills were based on the mill-by-mill survey carried out by a UNDP team, their BTMC counterparts and mill managements. The BMR program developed for each mill was selective rather than comprehensive in scope, focussing on the BMR modernization of old equipment with less emphasis given to the needs of balancing the entire producticn process and replacement (rather than modernization) of obsolete equipment. 4.2 The implementation arrangements of the project were as follows: (a) for public mills, the BTMC was responsible for the rehabilitation component. The Project Implementatian Cell (PIC) created under the first project was to implement the second project as well, through BMR task forces established within each mill, while a roving BTMC BMR task force would assist with the more aifficult elements of each mill's program. Procurement was to be hsndled by the Procurement Unit (PU) created within PIC; (b) private mill managements were responsible for implementation of their own projects, including procurement. However, in the installation of equipment, they were to be assisted by the consultants; and (c) the Planning Cell (PC) created in the Ministry of Textiles (MOT) under the first project was responsible for analysis and advice on sectoral issues and policy reforms. V. PROJECT IMPLEMENTATION 5.1 Overall implementation of the project by both the public and private sector mills was disappointing. The project did not meet its objectives and had little impact on the sector's policy environment and operational performance. The reasons for the project's poor performance and slow implementation aspects are discussed below. However, excessive reliance on GOB's commitments to implement the policy components of the action program resulted in inadequate consideration being given to safeguarding against the adverse effects of non-compliance in key areas in strengthening BTMC's weak implementation capacity, increasing the autonomy of BTMC enterprises and settlement of outstanding overdue debt of private mills. 5.2 Credit Effectiveness and Project Start up. The Credit was approved on May 22, 1984 and signed on July 25, 1984 (Table 5). However, it did not become effective until June 6, 1985 due mainly to delays in government approval of the project and finalizing of subloan lending arrangements. 5.3 Credit Suspension. During 1985, successive supervision missions noted the non-fulfillment of DCA conditions and delayed implementation of action program requirements under both BMR projects. However, undue reliance was still placed upon GOB/BTMC's agreement to take rectifying action. Following a supervision mission in March 1986, IDA requested GOB to implement a package of policy reforms and actions that would: (a) provide BTMC enterprises with greater autonomy in revising labor incentive plans and fixing output prices; (b) further financially restructure the BTMC mills; (c) settle an ongoing dispute between BTMC and the country's major banks concerning the loan liabilities of BTMC's liquidated mills; and (d) reduce tariffs on imported raw cotton. GOB's reluctance to implement these reforms by DecemDer 1986 led IDA not only to refuse further extension of the closing day for Credit 1205-BD, but also to suspend Credit 1477-BD/SF-022-BD. In September 1987, GOB issued administrative orders to implement the above actions, and on -4- the basis of these orders IDA lifted the suspension in October 1987. In retrospect, the continuation of poor performance indicates that these actions were inadequate to overcome BTMC's deep-seated problems. 5.4 Project Scspe. At appraisal, it was envisaged that the project would support BMR in a total of 22 mills, comprising 15 private mills and 7 public mills. At the close of the project, BMR has been carried out in 20 mills comprising two private mills and 18 public mills. There were two main reasons for the variance in the number of mills. First the private sector's response had been poor due to the failure of potential sub-borrowers t. settle their outstanding overdue debt with BSB/BSRS and investor demand was lower than anticipated because of a weak yarn/cloth market caused by the influx of a large volume of smuggled goods during 1985-88. Second, the number of public mills was initially reduced from seven to four as a result of the denationalization of two mills and the use of Dutch technical assistance to undertake BMR for another. Subsequently the number of mills was increased to 19 (Table 2) with the inclusion of mills appraised under the first project; 18 mills actually used IDA funds. 5.5 In April 1989, because of savings in the private sector component, !DA agreed to BTMC's request to transfer SDR 15.0 million from the private to the public sector component to finance completion of the first projects's BMR needs. However, IDA stipulated that: (a) the funds would be available to both public and private sector mills on a first-come-first-served basis; (b) SDR 3.9 million could be used without subproject reappraisals for 11 mills, each of which required a small amount of funds to complete their BMR; and (c) the remaining SDR 11.1 million could finance comprehensive BMR for 2-3 mills, for which subproject reappraisals would be required. Although BTMC submitted revised proposals for 4 mills, they were not technically comprehensive and the assumptions underlying the future operational and financial performance were not consistent with BTMC's past achievements. In the end, the transferred funds remained largely unutilized. 5.6 Procurement. Procurement delay was a major reason for the poor project implementation as it took BTMC almost three years to prepare and agree bid documents with IDA and to award contracts. This delay was subsequently exacerbated by modifications to bid documents, poor evaluation and to the lengthy approval procedures of BTMC's Board and MOT in approving contract awards. Delays were compounded by frequent exchanges between BTMC and IDA on proposed amendments. Moreover, mid-way through the project BTMC switched from mill-by-mill procurement to ordering machinery in bulk to reduce procurement costs. This change delayed project implementatior. even more, disturbed the sequence of mill rehabilitation and led to mills having incomplete/partial BMR. The delay in procurement by private mills was caused by inadequate and inexperienced staff and lack of familiarity with IDA's procurement guidelines. 5.7 Implementation Schedule. The private sector component was scheduled to be completed by December 1987 and the public sector component by June 1988. However, by those dates neither of the components had been completed. For the public mills the main reasons were delays in effectiveness (para. 5.2), temporary Credit suspension (para. 5.3), the change in project scope (para. 5.4), frequent changes of management personnel, weak implementation capacity and changes in the method of procurement (para. 5.6). Of the 18 public mills, BMR for four mills was completed according to project design, while for the remaining fourteen mills it was only partially completed because of the inability of BTMC to utilize transferred funds (para. 5.5). In the -5- case or private mills, the main reasons for delayed implementation were non- settlement of overdue loans and weak investor demand (para. 5.4), Of the two private mills, one mill is completing BMR in phases through two separate sub- loans: implementation of the first phase BMR of this mill was completed in June 1988: while the second phase is expected to be completed in Januarv 1991. The BMR for the other mill is expected to be completed in June 1991. 5.8 Project Costs. Actual project costs were USS31.6 million, about 52Z of the original estimate of US$61.0 million (Table 3), with the costs for public mills almost the same as the original estimate, while for private mills, the actual costs were only about 23Z, mainly due to the fewer number of private mills participating. 5.9 Disbursements. At appraisal, it was projected that disbursements would begin at the end of FY84 and that the Credit would be fully disbursed by December 1988. However. the first disbursement was not made until the end of FY87, and the final disbursement in FY91 (Table 6). Of the total credit of US$45.0 million, only US$24.0 million (53Z) was disbursed, and the balance of US$21.0 million was cancelled. 5.10 Closing Date. Given the delays in project implementation (para. 5.7), the original Closing Date of June 30, 1989 was first extended by one year. GOB requested a further extension of one year which was not approved because of the continued poor project implementation performance and GOB's unwillingness to put in place a reform package comprising: (a) partially (49Z) privatizing of three to four successful BTMC mills; (b) inclusion of two to three private sector members on the Enterprise Board of each BTMC mills; (c) the granting to the Boards of subproject mills the same powers available to the Boards of Directors of companies incorporated under Company's Act of 1913; and (d) the improvement of BTMC's operating environment by retaining enterprise managers for at least three years and granting them autonomy in procurement, output pricing, recruitment and incentive bonus packages. GOB proposed an alternative reform package to IDA (Table 7), but its scop.e was much narrower than the reform package proposed by IDA. 5.11 Risk Identification. The main project risks identified at appraisal were: (a) weak implementation capability of private mills; (b) inability of private sponsors to contribute 30Z to subproject costs; and (c) lack of trained manpower and managerial weaknesses in private and public mills. The project design accommodated these risks by : (a) making provision for consultants to advise private mills at the trial stage, before equipment was accepted as meeting performance criteria; (b) calculating overall project costs on a conservative basis, recognizing that a few of the expected BMR investments might not materialize due to insufficient equity; and (c) providing consultancy services to private and public mills to upgrade managerial capacity and in-plant training to technicians. However, inadequate consideration was given to assessing the adverse impact of non compliance with agreed commitments upon: (a) BTMC's implementation capacity; (b) the procurement methods used by BTMC, i.e. bulk procurement on the basis of subprocess, rather than mill-by-mill; (c) the liquidity of the BTMC and private mills; (d) the considerable political and trade union pressure on BTMC in running of its mills, which undermined commercial operations dnd the sequential mill-by-mill BMR implementation; (el the scope and timing of nieasures to increase public mill management's autonomy on key matters such as pricing, production and worker incentives; (f) the merits of selecting fewer BTMC mills for comprehensive BMR in view of the risks associated with selective BMR; (g) the settlement of outstanding overdue debt of private mills, which prevented a sizable number of potential sub-borrowers from availing themselves of the Credit; and (h) the implementation capability of private mills especially in preparation and evaluation of bids. 5.12 Health, Safety and Environment. It was envisaged and incorporated into the design of the project, that the BMR program would include requirements for improving pollution control and health and safety standards for dyeing and finishing mills which were surveyed by the Environmental Pollution Control Department. BTMC carried out some low cost investments such as installation of fire fighting equipment and central dust collecting facilities to improve health and safety standards of a number of mills. However, BTMC has been slow in implementing the survey recommendations. VI. PROJECT RESULTS 6.1 In the prevailing climate of reluztant privatization/- commercialization of the sector by GOB, the project had little real hope for success and failed to meet many of its objectives including improving productivity and quality, strengthening BTMC's management capability, improving the policy environment to provide public enterprise managers greater autonomy with accountability and to support p-ivatization efforts. In the public sector, the project w.s able to arrest further deterioration of project mills and improve certain areas of operational and financial performance (see Chap. 6-9) while some improvement in operational and financial performance was achieved in the private sector. A. Physical/Financial Performance of Public Sector Mills 6.2 Overall Physical Results. The project targeted to modernize 331,630 spindles and install 151,340 new spindles. At the completion (by June 1991) of the BMR programs in the public and private mills, it is expected that 85,056 spindles will be modernized and 15,504 new spindles will be installed i.e. 26Z and 102 of the respective targets will be met (Tables 2 and 8). About 90Z of the modernized spindles are in the public mills, while installation of the new spindles has been undertaken entirely by the private mills. 6.3 Physical Performance. In Epinning, it was envisaged that 113,480 spindles would be modernized and 32,396 new spindles would be added to balance the production processes. The actual number of spindles modernized was 76,464, while no new spindles were installed (Table 8). The project mills' capacity utilization increased from 80Z (pre-BMR) to 83Z (post -BMR), as a result of some improvement in process balancing. The attained capacity utilization was much lower than the appraisal target of 89Z (Table 9). This was due to raw material shortage, power failure, labor absenteeism and machinery breakdown. Actual increase in spindle productivity was only 0.42, whereas it was expected to increase by 29.3Z. Because of the failure to attain productivity, capacity utilization and spindle capacity targets, yarn production only increased by about 7Z compared to an envisaged increase of 29Z. About 52Z, 23Z and 25Z of this shortfall in yarn production was due to shortfall in productivity, lower capacity utilization and reduced number of spindles, respectively. A noteworthy achievement was the significant reduction, of about 7Z, in spinning wastage. 7- 6.4 In weaving, no loom rehabilitation was originally envisaged but, as a result of subsequent repairs and replacement of some preparatory machinery, capacity utilization increased by 10Z, loom productivity by 7? and production by 16Z (Table 9), but these were much lower than the anticipated targeted increases of 172, 22Z and 22Z, respectively. About 39Z, 33Z and 28Z of the shortfall in production were on account of shortfalls in productivity, capacity utilization and reduced number of looms, respectively. Two noteworthy achievements were reduction in wastage by about 26Z and improvement in fabric quality. 6.5 The Intra-inill comparison of the 18 project mills (Table 10) and inter-mill comparison between BMR and non-BMR mills gives confusing results. The mills with incomplete BMR have higher increases in spinning capacity utilization and productivity, equal increase in production and greater reduction in wastage than the mills with completed BMR. In weaving, the incomplete BMR mills also performed better than the completed mills. The project mills' operational performance, while mixed, was generally better than BTMC's non-BMR mills. In spinning, the project mills' productivity and waste reduction were higher but capacity utilization was lower. In weaving, the project mill's capacity utilization was higher but the productivity and wastage level were lower than the non-BMR mills. This suggests that while BMR would certainly have made a positive contribution, performance of mills did not depend on whether or not BMR was completed or undertaken, but that other factors contributed more to performance than the physical condition of machinery. These included autonomy, quality and efficiency of mill management, market determined production planning, skill of operatives, regular maintenance, low absenteeism and good labor relations. 6.6 Financial Performance.Financial performance of public mills has been analyzed in the following manner: (a) performance of BTMC's project mills; (b) comparison of BTMC project mills among themselves and with non-project mills; (c) overall performance of BTMC mills; (d) impact of financial restructuring of BTMC mills; and (e) financial rates of return of BTMC project mills. 6.7 The BTMC project mills were unprofitable before BMR and continued to lose money after BMR (Table 11). In FY90, only six mills had an operating profit, and nine mills have had losses in five or more years during FY82-FY90. Analysis of performance over the last decade suggests that mills turn profitable only when the labor, conversion and raw material costs together are less than 90Z of sales. Labor costs during FY89-90 were about 30Z of sales, or about 7Z higher than the pre-project level. At appraisal, labor costs were projected to decline to 10? of sales through retrenchment and stricter control of wage increase. However, continued excess employment and unwarranted increases in public sector wages in recent years suggest that labor costs are unlikely to decline significantly in the future. Other conversion costs were projected to decline to about 8Z after BMR. During FY89-90, these costs were about 18Z; the anticipated reduction did not take place due to failure to arrest increases of maintenance, utilities and depreciation costs. Raw material costs averaged about 53Z of sales during FY82-90. With a total labor and conversion costs of about 48Z of sales, the raw material costs must be less than 42Z of sales for mills to be profitable. However, in seven out of nine years, the raw material costs to sales ratio has been over 45Z, and it is unlikely that a ratio of 42Z can be achieved on a sustained basis. Thus, unless there is a significant labor rationalization, substantial increases in productivity and product quality and a quantum increase in management efficiency together with increase in managerial autonomy (to buy raw materials, adjust product prices according to market demand, have independent recruitment policy having their own compensation structure and incentive policy), it is unlikely that BTMC or the individual mills will emerge as profitable entities on a sustained basis. 6.8 Inter and Intra-mill Comparison. An inter-mill comparison of key financial ratios (Table 11) shows a mixed performance. 'Incomplete" project mills were able to reduce their cost of sales to sales ratio significantly and as a result showed a better financial performance than completed BMR mills. This suggests that the relationship between financial performance and BMR is at best tenuous and the other factors (para. 6.6) are equally important. While intra-mill comparison (Table 11) suggests that the project mills have better performance than non-BMR mills, this improved performance cannot be fully attributed to the BMR program. 6.9 Review of BTMC's overall financial performance (Table 12) indicates that only one mill has consistently made a profit in the last nine years (FY82-90), while 22 mills have had losses in six or more years. As in the case of project mills, most BTMC mills made profits in those years when the three key cost items (para. 6.8) amounted to less than 90Z of sales. As it is highly unlikely that this break even cost to sales ratio would be achieved in the future, most BTMC mills are likely to continue to operate unprofitably. 6.10 As part of the financial restructuring program agreed under Credit 1205-BD, GOB provided Tk.1.6 billion (USS million) through cash infusions and conversion of debt to equity (Table 13). This capital infusion did not improve BTMC's financial viability, as continuing losses contributed to the further worsening of financial performance, leading to the failure to achieve a 70:30 debt/equity ratio by FY86 as projec,.ed. As of June 30, 1990 only five mills had met this target. Because of liquidity problems, few of the mills are servicing their subloans, forcing BTMC to reschedule its loan to GOB. 6.11 Ex-post financial rates of return (FRR) have not been estimated for BTMC project mills, as they continue to show losses. While for some project mills, there has been a reduction in net losses, it is unlikely to be sustained. It is difficult to conclude that much of this reduction in losses was directly due to the BMR program (para. 6.8). B. Physical/Financial Performance of Private Sector Mills 6.12 Only two private mills are implementing BMR programs (para. 5.7). By June 1991 it is expected that 8,592 spindles would be modernized and 15,504 new spindles installed in the two mills (Table 8). Unlike the public mills, it is difficult to ascertain the reliability of the information supplied by the private project mills and the published data on the private sector, and therefore their performance assessment needs to the interpreted with caution. 6.13 Physical Performance. Physical performance is assessed in the case of one of the mills which has completed its first phase BMR program, which was entirely focused on the spinning section. This mill's spinning capacity utilization has increased by about 11X, production by about 21Z, productivity by 6Z, while its wastage has been reduced by about 9Z (Table 9). Although these achievements are significant, they fell snort of the appraisal targets, which were 14Z for capacity utilization and 29Z each for production and productivity. -9- 6.14 Financial perfomance. The project mills' financial performance has been good (Table 11). During last eight years (FY83-90), they continued to be profitable exceot in one year when one of the project mills incurred 3 loss. The project. mill which completed first phase BMR consistently made profits during this period and marginally decreased conversion costs (labor plus other costs) from 25Z to 24Z. While its wage cost as a percentage of sales increased from 12Z to 15Z during BMR, other costs decreased significantly from 13% to 9Z. This mill's lower conversion costs has been the key factor underlying its profitability; its subloan is in the repayment stage and is being repaid on time. The estimated ex-post FRR for the private mill which has completed its first phase BMR is about 18Z (Table 14). C. Public vs. Private Mill Compar:ison 6.15 It is difficult to draw firm conclusions from a comparison of performance between public and private sectors due to questionable reliability of the private sector data. However, a mill-by-mill review of key statistics suggests that there are some good mills in both the public and private sectors which performed significantly better than the rest of the mills. 6.16 Operational Performance. Comparison of BTMC project mills with the private project mill shows that the BTMC project mills' capacity utilization, productivity and production were respectively 9Z, 6Z and 13Z lower than that of private mills, while reduction in wastage was about 2Z higher (Table 10). However, for the entire public sector mills' operational performance in spinning and weaving was better than that of the private mills during FY85-90 (Table 15). This is probably due to the poor condition of private mills' machinery, most of which was installed in the 1960s and which has not been substantially modernized or rehabilitated since then. 6.17 Financial Performance of both public and private mills is poor. In the public sector, only one mill has consistently made a profit during the last nine years, while 22 mills have had losses in six or more years. Among the reporting private mills, during FY85-90, two mills (one of which is a project mill) have made profit consistently, while 11 mills incurred losses in fcur or more years (Table 12). It is not clear how these private mills can continue operations, unless they have been defaulting on payments to financial institutions. However, it is quite possible that reported profits are not accurate and that there are hidden profits which are helping to sustain their operations. D. Policy and Institutional Components 6.18 Institution Building efforts comprised training, strengthening of planning capabilities and studies. These efforts have not had the desired impact: (i) While a substantial number of technicians from both public and private sector mills were providing in-plant and management development training at the Savar Training Center, the quality and scope of training of the Center did not develop as consultants to be employed under the Credit to help develop training capabilities were not engaged: (ii) the Industrial Economist remained on employment in MOT for only 27 months (out of 42 months) from the effectiveness of the project and his services were not utilized in building up th'e MOT's capacity for policy analysis and reforms; and (iii) two studies, a Handloom Sector Study and a Consumer Demand and Market Survey, were conducted under the project. The handloom study was intended to formulate a - 10 - program and institutional arrangements to enable this sector to play an important role in product areas where it could remain competitive. The consumer demand and market Ftudy was to establish the basis for the industry's expansion, particularly into non-traditional product lines. A Policy Paper prepared in 1988 was intended to take full benefit of the findings of these studies. However, a review of this paper suggests that these studies' findings and recommendations were not taken into account (Table 16). Moreover, the policy paper neither fully addressed many of the important issues nor was effective in translating broad goals into implementable programs. 6.19 International Competitiveness. A major objective of the project was to assist the spinning and weaving sector to become intcrnationally competitive. Based upon available data, a number of private project and non- project mills are engaged in direct or indirect exports, and therefore must be internationally competitive. However, public sector mills are not internationally competitive and given the current cost structure of BTMC products and the inefficient operations of the large majority of BTMC mills, they are unlikely to be internationally competitive without a fundamental change in BTMC operations. 6.20 BTMC's Marketing System reform focussed on changing distribution and pricirig policies. While some changes were made in the yarn distribution svstec., it is still not based on sound commercial grounds and is used as a source of patronage. The present distribution system prevents the enterprise managers from responding to changes in market demand and prices, and consequently benefits accruing from increases in market prices largely go to the distributors. Although pricing policies were changed tc give partial autonomy to the enterprise managers to change prices according to the market conditions, this autonomy wras not adequate to respond fully and in a timely manner to market conditions. Moreover, in many cases enterprise managers are hesitant to even use the limited autonomy available. VII. PROJECT SUSTAINABILITY 7.1 The project's sustainability has been assessed separately for the private and public mills. Gains in productivity and profitability of the project's private sector component appear to be sustainable based on the results of discussions with the private mill managements and review of their past operations (para. 6.13). However, because of the public mills' continued poor performance and lack of sustained efforts and commitment of GOB/BTMC to policy reform, there is no assurance that the public project mills can become financially sound and commercially viable entities on a sustained basis. VIII. IDA'S PERFORMANCE 8.1 During the 61 months between the Credit's effectiveness and its closing, IDA formally supervised the project 14 times (Table 17) in addition to intermittent follow-up by the Resident Mission. Some of these supervisions were carried out jointly for Credit 1205-BD and Credit 1477-BD/SF-022-BD. However, effectiveness of the project supervision was significantly reduced by: (a) inadequate technical staffing (eight out of 14 missions did not include technical staff). Although the last few missions included technical staff, by then it was too late to make any technical change in the project - 11 - design; (b) IDA's failure to enforce remedial measures to improve procurement. Use of standard bid documents for procurement agreed by IDA and BTMC and establishment of a PU with a Procurement Specialist within PIC did not receive priority. BTMC's failure to comply with these had a serious impact on project implementation; and (c) undue reliance placed on the UNDP/UNIDO technical teams. During the supervision missions, the technical design and mill cost structure should have been updated and monitored closely. 8.2 On two occasions IDA took a firm stand after GOB/BTMC failed to address the issues which led to poor project performance, suspending credit disbursements in 1987 and refusing to extend the Credit Closing Date in May 1990 until GOB adopted a reform package along the lines recommended by IDA. However, even these decisions did not provide sufficient incentive for GOB to take adequate steps to improve the BTMC's performance, and consequently IDA closed both projects and cancelled all undisbursed funds. 8.3 At the institutional level, BTMC, BSB and BSRS's performances were mixed. During project preparation, these institutions cooperated effectively in providing technical and financial information to support project appraisal. However, during project implementation, their performances were unsatisfactory. BTMC did not strengthen its implementation capacity (para. 6.20) or achieve satisfactory operational/financial performance (paras. 6.3-6.6) while GCB was slow in pressing institutional and policy reforms (paras. 6.18-6.20). BSB and BSRS could have made greater efforts to encourage potential sub-borrowers identified during project preparation and appraisal to use Credit funds. 8.4 The relationships between IDA and GOB/BTMC/BSB/BSRS were cordial during project preparation and for most of the implementation stage. This relationship deteriorated towards the Credit Closing Date, when IDA indicated to GOB/BTMC that it would not extend the Credit (para. 5.10). GOB/BTMC felt that IDA was often inflexibLe in its position, and failed to recognize operating realities during project implementation, and as a result, implementation was impeded. BSB/BSRS felt that the Credit was untimely terminated without proper consultation with them, at a time, when the potential sub-borrowers were showing keen interest to avail of the Credit fund. 8.5 The agreed IDA, BTMC, BSB and BSRS's project documents provided a sound basis for project implementation. However, while the Project Agreement (PA) and Development Credit Agreement (DCA) were adequate for implementation of the project's hardware component, they should have contained, as dated covenants, specific policy reform actions, although even if more appropriate reforms had been incorporated in specific covenants, it is unclear whether GOB/BTMC was sufficiently committed to reform to implement them consistently and effectively. IX. CONSULTANCY SERVICES 9.1 The implementation of the consultancy services component was also unsatisfactory: (i) the completion of the Handloom Sector and Market Demand Studies was delayed by a year because of inability to undertake field survey due to severe floods in the country. These studies were undertaken by a local economic research institution which was selected on the basis of ICB. While the consultants followed closely the studies' TORs, the recommendations and - 12 - action programs were weak in certain areas (para. 6.18); and (ii) although forty-eight months of consultancy services were provided under the Credit (para. 5.11), no efforts were made from MOT and BTMC to employ the consultants. However, UNDP grant funds were used to employ a consultant for 24 months to improve the operational efficiency of private mills' dyeing and finishing units. The failure to employ consultants prevented at least two private mills from carrying out procurement in time to apply for Credit funds, as these mills did not have in-house capability to prepare and evaluate bids. Moreover, the capability of BTMC's Training Center at Savar did not fully develop (para. 6.18). X. LESSONS FROM THE PROJECT 10.1 A number of important lessons were learned from implementation of the first project and reflected in its PCR. These lessons apply equally to tha first and second project and are therefore reiterated in this PCR. 10.2 Improving public mills' performance. Both projects aimed at improving BTMC's performance. The failure to achieve this objective clearly indicates that for public mills the technical upgrading of capacity and financial restructuring are unlikely to yield benefits unless the following improvements can be ensured: (a) less political and bureaucratic interventions in the enterprises' operational matters such as procurement, output pricing, staffing and compensation; (b) preventing politicization of labor unions and use of enterprises as a vehicle for patronage; (c) provision of full operational autonomy to managers, concomitantly with establishment of effective management accountability systems and a rewards/penalties based compensation package for managers and labor; and (d) strengthening management and selecting qualified persons for management positions. 10.3 Both the first and second projects were initiated when IDA had more faith in the possibility of reforming public enterprise to improve their efficiency. Experiences such as those under these two projects have undermined this faith. Unless there is a strong rationale for maintaining public participation in specific activities, the main objective of IDA's involvement should be to encourage privatization. Thus before embarking on a public enterprise restructuring project the Government's commitment and willingness to implement privatization and measures of the type noted. If there are any doubts about a government's long-term commitment to take the necessary actions, the project should include significant up-front actions (i.e. prior to Board presentation) rather than studies and agreements on future changes. Thus, public enterprise reform projects should typically require a combination of privatization, policy/institutional measures as well as investments. The alternative of supporting reform through adjustment or hybrid operations rather than an investment project should be carefully considered. 10.4 Project Design. The implementation capacity of the private sector was untested, while for the public sector it was poor. This project's scope was too ambitious and unrealistic as was that of the first project, given the limited implementation capacity of BTMC and other Government agencies involved in the textile sector. Importantly, BTMC's managerial capabilities were weak, and it operated in a very constrained environment. In retrospect, in a situation involving a public sector with a poor past record, resources and supervision efforts should have been concentrated on selected mills to which - 13 - good managers were posted. in this way 'model' public sector mills might have been established, and this strategy could have been extended to the other public mills. At the same time, more specific dated covenants should have been established, to improve the autonomy/accountability framework of the public mills. This would have created a more competitive operating environmient for both the private and public mills, 10.5 Another design weakness was the failure to provide for or request a formal mid-term review to enable a reformulation of the original project concept to reflect major physical changes or to include the BMR of machines which became obsolete during the proposed five year implementation period. 10.6 Considering the past pcor performance of BTMC mills at the time of appraisal, the spindle productivity and capacity utilization targets (based on norms in Ildia, Hong kong and Thailand) were optimistic. Moreover, it was optimistically assumed that BTMC would achieve financial profitability from FY81 onward, when in fact in the previous 10 years BTMC as a whole only made profits in two odd years when the ratio of raw material costs to sales was abnormally low. - 14 - PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE A. ANALYSIS OF KEY ISSUES 1. The Textile Industry Rehabilitation Project Phase-II originally comprised BMR of 7 mills which were scheduled for financing under Credits 1477-BD and SF-22-BD. These Credits were signed on July 25, 1984 with the following conditions for effectiveness to be fulfilled by GOB/BTMC: (a) appointment of Industrial Economist; (b) appointment of BTMC consultants; (c) arrangements for an UNDP productivity Team to assist the private mills; (d) approval of Project Proforma; and (e) signing of Administrative Agreements between GOB and GOB/BSRS and subsidiary loan agreements between GOB and BTMC. The credit was declared effective June 5, 1985 (i.e. after 14 months) on fuifillment of the above conditions. 2. An allocation of SDR 15.042 million was made for 7 mills (namely R.R, Carillon, Olympia. Magna. Caldera, Eagle Star and Pahartali T.M.) of BTMC but subsequently two mills, namely Eagle Star and Pahartali, were denationalized and another mill--Caldera Textile Mills--was removed from the IDA credit and its BME. was financed under a Dutch Grant. which left a balance of four mills under this credit. 3. On completing the necessary formalities for International Competitive Bidding for the procurement of machinery, including preparation of tender specifications and obtaining approval by BTMC, GOB and IDA; BTMC floated international tenders on June 5, 1985 and December 18, 1985 which were then opened on March 18, 1986. Technical evaluation of the bid documents took five months (July 1986 to December 1986) and after obtaining BTMC and GOB approval, these were submitted to the World Bank over the period September 1985 to December 1986. Because of a delay by GOB in fulfilling the six conditions imposed by IDA for extension of the Credit closing date (Cr. 1205- BD) by one year to December 31, 1986, the Bank returned the bidding documents on January 28, 1987 and cancelled the un-utilized Credit amount of SDR 19.158 million effective 1 January, 1987 (total credit amount SDR 26.10 million) even though the evaluated bid documents for the machinery for the remaining mills under the project were with the Bank pending approval. As a result, completion of the balance of BMR works for three mills (Ahmed Bawany, Dhaka Cotton and eenat Textile Mills) and the entire BMR works for the mills under TIRP-Phase I became uncertain. Under these conditions, IDA, on request of GOB, agreed in principle in November 1987 to finance the balance of work required for these BMR mills out of the unutilized private sector allocation of Credits 1477-BD and SF-22-BD. As a result both projects (balance of work under TIRP-Phase 1 and entire work under TIRP-Phase II) were scheduled for funding under Crs. 1477-BD and SF-22-BD. Due to the inclusion of the balance of unfinished BKiR work under TIRP-Phase I, the volume of physical works increased considerably which resulted in an increased requirement for funds which exceeded the original allocation of SDR 15.042 million for public sector mills under these credits. At the request of GOB, IDA, in principle, agreed to divert an additional SDR 15.0 million from the - 15 - unutilized funds for the private sector to finance the balance of work under TIRP-Phase II which included BMR of the 15 mills originally included in TIRP-Phase I subject to fulfillment of five preconditions by these mills. 4. The total allocation for BMR of 19 BMR mills (15 mills under TIRP- Phase I and 4 mills under TIRP-Phase II) was SDR 30.042 million (15.042 + 15.00). It should be pointed out that IDA imposed no conditions for utilization of funds for BMR works for 11 selected mills provided the amendment letters to the Project Agreement and DCA were siRned by BTMC/GOB respectively and the credit made effective. These amendment letter were signed on 27th and 29th April, 1989 by GOB & BTMC respectively, and declared effective. 5. For the BMR of the remaining eight mills (19-11 unconditional) BTMC submitted additional appraisal reports well ahead of time frame previously approved by the IDA. Despite BTMC's arguments/requests in favor of implementing the balance of work for eight sub-projects as earlier approved by IDA, IDA missions visiting Dhaka during 1988-89 and 1989-90 were uncompromising with respect to implementation of the BMR program approved earlier by IDA as well as the new proposal by IDA for comprehensive BMR of 2- 3 mills. The missions, ignoring IDA's earlier decision and time constraints for fresh appraisal and re-appraisals for comprehensive BMR proposal of three sub-projects forced BTMC to undergo lengthy time consuming appraisal exercises. The mission members gave BTMC the impression that formulation of comprehi:' sive BMR although time consuming, would not be difficult to implement because extension of the Credit closing date would not be a problem. With this in mind, BTMC undertook fresh appraisal of the three sub-projects which were revised per instructions by IDA's Resident Mission in Bangladesh and submitted for approval within the scheduled time. IDA was then only willing to finance comprehensive BMR of two or three mills on fulfillment of additional conditions such as: (a) Privatization of at least 3-4 successful BTMC mills within 9- 12 months beginning October, 1989 and privatization of 3 sub- projects within a short period upon completion of the BMR programme; (b) inclusion of 2-3 members of the private sector on each enterprise board; (c) giving the Board of sub-project mills the same power available to Board of Directors under the Company's Act; and (d) other conditions such as retaining existing top management for at least three years, providing additional incentives, full autonomy in pricing of raw materials, procurement etc. 6. It is pointed out that GOB agreed on an action program to implement a considerable portion of these conditions and this program was forwarded to IDA on time. In response, IDA opined that GOB's program was unlikely to bring about a fundamental change in the environment in which the public sector mills operate and, based on this, IDA decided not to extend the Credit closing date. This action jeopardized TIRP-Phase I and Phase II projects, thereby creating uncertainty and leaving most of the BMR works incomplete and imbalanced. - 16 B. BANK'S PERFORMANCE 7. IDA's original conception was to rehabilitate the war ravaged textile industry in Bangladesh and indicated an interest in financing a rehabilitation program over a phased period In order to ascertain priority for sub-projects u..der the program, a mill by mill survey was undertaken by BTMC with arsistance from a UNDP productivity team per IDA guidelines. The survey results indicated a need for immediate implementation of BMR for a large number of existing antiquated units of BTMC. A BTMC/UNDP productivity team established under guidelines provided by IDA supervision missions, conducted a techno-economic appraisal of 50 old enterprises to determine priority for rehabilitation. After evaluating the appraisal reports for each of the individual mills, IDA allocated SDR 26.10 million under Credit 1205-BD to finance Phase I of the project which comprised BMR of 15 mills. The second project, Phase II, initially comprised seven mills but only four mills were selected. The legal documents for .DA Credits 1477-BD and SF-22-BD were signed on July 25, 1984 subject to fulfillment of certain conditions. The credit was declared effective June 6, 1985 after fulfillment of conditions, which IDA could have waived for the sake of timely implementation of the project. Again the conditions imposed for extension of the Credit closing date for Credit 1205-BD were also made applicable for the Phase II project (Credits 1477-BD and SF-22-BD). Thus, with the termination of Credit 1205-BD on January 1, 1987, the execution of sub-projects under Phase II were suspended from January 1, 1987 to October 1987 for reasons best known to IDA. This caused serious problems for Phase II implementation delaying it by an additional ten months. Due to the cancellation of the un-utilized funds under Credit 1205-BD, GOB requested that SDR 15.00 million be diverted from the private sector unutilized allocation under Credits 1477-BD and SF-22-BD to complete the balance of BMR for sub-projects under Phase I. The decision regarding reallocation of funds was time consuming and unnecessarily lengthy due to the Bank's repeated requests to appraise and reappraise the sub- projects at the final hour of execution, after BTMC had earlier prepared these after discussion with UNDP experts and IDA missions, who had approved the same. Moreover, imposition of additional conditions regarding diversion of private sector funds for completing remaining BMR works unaer the Phase I project did not reflect the assistance and logical approach of IDA in timely completion of the project. With only 15 months left for project completion after signing the amended DCA, IDA un-compromisingly compelled BTMC to undertake comprehensive BMR of two-three mills with so many conditions, knowing full well that implementation of these new programs would not be possible for BTMC to accomplish within the credit validity period. 8. Once again, the unconditional allocation of SDR 3.892 million could not be utilized as IDA came up with additional conditions requiring tenders to be done under IDA's revised guidelines and bidding procedures, after BTMC had already completed tendering and evaluation under IDA's previous guidelines/procedures. Prior to signing the amended PA and DCA, BTMC floated tenders on December 5, 1988 and February 28, 1989 for procurement of machinery utilizing the unconditional allocation. After technical evaluation of the bids and obtaining approval from GOB, BTMC submitted same to IDA on August 9, 1989. IDA, at such a critical point, refused to clear the bids on the grounds that the tender should be floated again per revised IDA guidelines and prescribed bidding documents. Accordingly, BTMC invited fresh bids on November 16, 1989 and after technical and financial evaluation and obtaining GOB's approval submitted it to the Bank cn March 5, 1990 for clearance. The Bank in a letter dated May 8, 1990 indicated that extension of the Credit - 1 7 - beyond June 30. 1990 was not possible, leaving execution of BMR works for the sub-projects under TIRP-Phase I and Phase II incomplete. This action created alarm among BTMC's concerned sub-project mills that most of them were unable to procure the required productive machinery, such as ring frames/modernization of ring frames etc., thereby causing the additional production envisaged in the appraisal report not being achieved after considerable investment had already been made in the back process sections. 9. The additional debt burden this decision created on half completed BMR works will not improve the mills financial performance; rather this has put the mills in a difficult position with respect to repayment of long term debt obligations. C. BANK OFFICIALS 10. Quite a number of Bank officials, including mission members, were involved with the implementation of the project. Most missions were composed of officials with finance and economic backgrounds. Of the supervision missions connected with implementation of the project, only three included members with a textile background. The BMR program of sub-projects under the projects were designed by representatives from the BTMC/UNDP productivity team and World Bank textile experts. At the end of implementation, Resident Mission members proposed a comprehensive BMR of 2-3 mills against the approved BMR program for the remaining eight mills which were approved earlier by GOB and IDA. The revised comprehensive BMR program proposals, imposed by IDA, were contrary to Government policy and lead to a gross deviation from the earlier decision of EC/NEC (the highest approving authority of the GOB). The complex.ties that might arise in connection with approval of such a revised BMR program by the EC/NEC, in such a short period of time, were explained to mission members but, surprisingly, they did not seem to pay any attention to the reasons put forward by BTMC officials. It has always been observed that in cases of chaiiges in the implementation program and extension of credit clos;ng dates or diversion of funds from one category of expenditure to another, the Bank seemed to come up with a complete new set of conditions thereby hindered progress and inhibiting timely implementation of the projects. D. EVALUATION OF BORROWER'S OWN PERFORMANCE 11. The Textile Industry Rehabilitation Project Phase II was taken up for the implementation of BMR cf seven sub-projects for BTMC under Credits 1477-BD and SF-22-BD. Since the carried over BMR programs of Phase I were mixed up with the fresh BMR program of Phase !I, BTMC, with the consent of the Bank, followed the same approach of section-wide procurement of machinery instead of a project-wide procurement approach. This procurement approach ultimately led to the sub-projects being incomplete, although a considerable amount of the Credit funds were utilized within the validity period of the Credit. The denationalization process also posed problems in project implementation at different stages. Moreover, since the procurement process was very cumbersome and time consuming, including obtaining GOB and IDA approval. BTMC could not handle the activities concerned with procurement processing per the schedule which resulted in an unusual delay in machinery procurement. To allow for timely implementation of such a project, it would have been better had the concerned officials of the implementing agency, soon - 18 - after signing the Credit been given proper guidelines and training in the practical problems and conditionalities. E. ASSESSMENT OF EFFECTIVENESS OF THE RELATIONSHIP BETWEEN THE BANK AND THE BORROWER 12. The relationship between Bank Officials/mission members and officials of BTMC and GOB were cordial at the personal level. Bank officials, as a donor, were initially found to be very cooperative in problem solving but as the execution of the program continued, the Bank officials started to show rigidity in their attitude to solving problems as well as fulfilling conditions leading to serious confusion and impediments in project implementation. F. BANGLADESH SHILPA BANK - HEAD OFFICE DHAKA PROJECT IMPLEMENTATION DEPARTMENT 13. A Development Credit Agreement for Special Drawing Right (SDR) 21.600 million (Credit No. 1477-BD) and a Special Fund Credit Agreement (Credit SF-22-BD) for SDR 20.700 million were executed between GOB and IDA on July 25. 1984. Subsequently, an Administrative Agreement for this project was signed between the Government of the People's Republic of Bangladesh and Bangladesh Shilpa 3ank on 25th April, 1985. As per the Administrative Agreement, IDA agreed to extend to the Government a Credit, in various currencies, equivalent to SDR 21.600 million, known as IDA Development Credit and SDR 20.700 million as Special Fund Credit totalling SDR 42.300 million (approximately), out of which SDR 26.318 million was earmarked for financing the BMR of private sector textile mills, on June 6, 1985. Of this amount, Bangladesh Bank allocated a sum of SDR 13.159 million each to BSB and BSRS. 14. Sixteen Textile mills from BSB's portfolio were identified for BMR financing. Of these, two were finally financed and the remaining 14 cases were either closed or the sponsors did not seek utilization of the credit facilities for various reasons. Details on the 14 closed cases, giving reasons for not utilizing the credit facilities, are furnished in Attachment 1. 15. The BMR proposals of M/S Eagle Star Textile Mills Ltd., Chittagong and M/S Jalil Textile Mills Ltd., Chittagong were approved by the former Investment Board on certain conditions. After fulfilling these conditions, BSB sent appraisal reports on these projects to the World Bank for approval. IDA conveyed its approval for withdrawal authorization as follows:- - 19 - Nome *nd Location Date of Amount of Amount of loan of the Projects Approval Loan Sanctioned Approved Stages of Implwmentation 1. M/S Eagle Star Textile Mills d. Chittagong 1st Phase 11/09/86 Y. 344,318,838 SOR 1,878,000 The complete range of A (USS 2,290,130) machinery imported under the US2815,758.69 Phase I BUR Scheme are (Total now under commercial USS 1,977,727 operation and Phase II eqvt. Tk 60.998 BMR Scheme machinery has million) already undergone successful trial runs. 2nd Phase 18/0e/89 USS 1,086,743 SDR 878,000 (Eqvt. (USS 1,086,743) Tk. 34.880 mln) 2. M/S Jalil Textile US32,696,981 SDR 2,800,000 All machinery except one Mills Ltd. (Eqvt. (USS 3,389,048) simplex fly frame were Chittagong 14/09/86 Tk. 84.071 min) shipped within the extended last date of Total: USS5,881,461 US86,785,921 negotiation, i.e. 30/10/90. (Eqvt. (Eqvt. Construction is progressing Tk. 179.95 min) Tk. 215.09 min) satisfactorily. The unit has now requested BSB to arrange funding for import of one simplex fly frome immediately to enable the unit to implement the rehabilitation program successfully. 16. From funds of SDR 13.159 million only two projects ultimately used this credit line, amoui,ting to SDR 4.453 million (MIS Eagle Star Textile Mills Ltd. - SDR 2.596 million and M/S Jalil Textile Mills Ltd. - SDR 1.947 million) leaving a balance of SDR 8.616 (13.159 - 4.543) million. Per procurement procedures, the mills prepared bid documents and submitted same to BSB. BSB sent these to the World Bank Resident Mission for clearance/approval before publication in the newspaper inviting tenders. Likewise, price proposals were also first examined by the mills and submitted to BSB; BSB sent those to the World Bank Resident Mission for decision/approval before obtaining final quotation and establishment of L/C. Because of the inability of sponsors to open L/Cs in time and the delayed shipment of machinery, required a time extension which IDA generously allowed. But even then, M/S Jalil Textile Mills Ltd., Chittagong, could not utilize the funds for the last shipment of one simplex machine amounting to IRS. 721,112.00, i.e. US$39,130.00. For import of this machine, the sponsors requested BSB to arrange funds so the rehabilitation might be implemented successfully. IDA may consider extending the validity of the credit line for the said amount, allowing the above mentioned machinery to be imported by M/S Jalil Textile Mills Ltd. G. BANGLADESH SHILPA RIN SANGTMA - HEAD OFFICE DHAKA FINANCIAL RESOURCES DEPARTMENT 17. A Development Credit Agreement for Special Drawing Right (SDR) 21.600 million (Credit No. 1477-BD) and Special Fund Credit Agreement for SDR 20.700 million (Credit No SF-22-BD) were executed between GOB and IDA on - 20 - 25.07.1984. Subsequently, an Administrative Agreement for Second Textile Rehabilitation Project was signed between the Governmet.t of the People's Republic of Bangladesh and Bangladesh Shilpa Rin Sangstha on 25th May, 1985. It was mentioned in the Administrative 4tgreement that IDA agreed to extend to GOB in various currencies the equivalent of twenty one million six hundred thousand Special Drawing Rights (SDR 21,600,000) as IDA credit and twenty million seven hundred thousand Special Drawing Rights (SDR 20,700,000) as Special Fund Credit totalling SDR 42.300 (approximately), of which SDR 26.000 million (approximately) was earmarked for financing the BMR of the private sector textile mills, effective June 6, 1985. 18. Seven textile mills ii BSRS's portfolio were initially identified for BMR financing, out of which one unit, Chittagong Textile Mills Limited, Chittagong, was sanctioned a F.C. loan of USS3,000,000 million under Credit No. 1477-BD on 05.03.86. The remaining six BMR cases were closed for various reasons (see Attachment 2). 19. The BMR proposal was approved by the Investment Board on September 14, 1986 with certain conditions. After fulfilling these conditions, BSRS sent appraisal reports to the World Bank for approval on March 31, 1987. IDA in a telex dated the 22nd September 1987 conveyed its approval for withdrawal of SDR 2.300 million (US$3,000,000 million) in respect of Chittagong Textile Mills Limited, Chittagong. Subsequently, BSRS requested approval by the Finance Division, Ministry of Finance, in a letter dated September 29, 1987. The Finance Division, Ministry of Finance, gave its approval for BMR financing in a letter dated June 1, 1988. It should be mentioned here that the last date for disbursement under Credit 1477-BD was June 30, 1989. The World Bank Resident Mission in Bangladesh communicated the decision of the last date for disbursements under Credit 1477-BD to June 30, 1990. Procedural Problems 20. For financing projects under the IDA credit, project appraisal reports (PAR) had to be prepared following IDA guidelines. In this context a preferred presentation format was supplied by the IDA. Following this format, the PAR was be prepared showing projections for 15 years from the starting year of the project. Further, for calculating conversion cost and preparing revenue statements the following had to be calculated: (a) Spinning conversion costs had to be allocated to each county in proportion to the quantity of equivalent 32 Ne year produced; (b) weaving conversion costs had to be allocated to each construction in propcrtion to the number of yards at equivalent 54 picks; (c) bleaching, dyeing & printing costs had to be allocated to each construction in proportion to the number of actual yards processed; and (d) division of fixed and variable costs had to be determined from mills' records. Following these guidelines, a detailed and elaborate PAR was prepared in a totally different format than is normally followed by BSRS. Extra time was - 21 - required for BSRS people to become acquainted with IDA guidelines and calculate the numerous figures necessitated by IDA's guidelines. 21. In this case, Chittagong Textile Mills Limited, the only eligible project awaiting IDA funds, could not complete selection of machinery within the given time limit, i.e., by the 30th June, 1990. Even the same has not yet been finished by the borrowers, thereby by the Sangstha. As IDA did not agree to extend the utilization date of the credit line, these funds col'ld not be utilized. H. BANGLADESH INSTITUTE OF DEVELOPMENT STUDIES 22. The two research contracts, secured by BIDS (under the Second Textile Industry Rehabilitation Project, Credit No. 1477-BD) were bided for globally. Award of the research contracts to BIDS was a unique example of utilizing national expertise under technical assistance (TA). 23. BIDS's in-nouse professionals and consultants labored for two years to produce a comprehensive and substantive set of reports (each prefaced by an executive summary) in eight volumes about supply, demand and institutional aspects of the entire textile sector. For dissemination of the research output a day-long policy seminar with participation by all concerned parties, was organized following completion of the Droject. Successful completion of this research assigrunent within the stipulated time and budgetary limits was significant. The efficient support services provided by the World Bank, in this regard, are gratefully acknowledged. 24. The studies could have been further enhanced had there been a greater degree of systematic interaction between the Textile Ministry and the World Bank during the execution phase. Unfortunately, the Textile Ministry, particularly as a major stakeholder in the studies, gave little input within a pre-designed institutional format. As a result, the Textile Ministry could not exploit the research findings to maximum benefit while drawing up the Textile Policy of 1988. 25. There was also little professional interaction between BIDS and the World Bank. BIDS had hoped that as the institutional supervisor, the Bank would invest in a detailed technical evaluation of BIDS products. The review by IDA staff was basically confined to an expression of interest as an end- user of the findings of the studies. 26. The experience concretely suggests that: (a) Under IDA technical assistance, there is scope to successfully utilize national expertise for high quality professional work; (b) there should be in-built mechanism for professional (not regulatory) interaction between the major stakehol(iers of the project; and (c) IDA should equally invest in exploiting the project output as in the project implementation. - 22 - ATTACHMENT 1 Page 1 of 2 DETAXILS OF THE 14 CLOSED CASES SHOWING THE REASONS FOR NOT AVAILING OF THE CREDIT FACILITY NAME OF LOCATION OF THE PROJECTS REASONS FOR CLOSURE M. H/S Al-Haj Textile Mills The appraisal report was sent to IDA Limited, Padna. on 05/25/90. IDA, in a letter dated 07/10/90 did not approve this project for funding. 2. MIS Bogra Cotton Spinning Mills The company had a large liability Ltd., Bogra. with Sonali Bank and could not submit no objection certificate (NOC) from said Bank. They also failed to make required project deposit with BSB and the case was, therefore, closed. 3. M/S Calico Cotton Mills Ltd., Sanction was withdrawn when sponsors Padna. did not complete documentation formalities. 4. M/S Mainamoti Textile Mills Sanction was withdrawn when sponsors Ltd., Chittagong. did not complete documentation formalities. 5. M/S Ibrahim Textile Mills Ltd., Sanction was withdrawn due to Chittagong. sponsor failing to comply with terms and conditions of the loan. 6. M/S Mowla Textile Mills Ltd., The loan proposal was closed as the Dhaka. sponsors would not agree to the pre- sanction terms and conditions of the loan. 7. M/S Raj Textile Mills Ltd., The case was closed due to non- Jessore. regularization of loan A/Cs of other BSB financed projects. 8. M/S Habibur Rahman Textile The case was not considered for Mills Ltd., Comilla. additional financing because of sponsor's failure to arrive at an amicable settlement regarding their swelled-up dues. 9. M/S Muslin Cotton Mills Ltd., The case was not considered for Kaligonj. additional financing because of sponsor's failure to arrive at an amicable settlement regarding their swelled-up dues. - 23 - ATTACHMENT 1 Page 2 of 2 NAME OF LOCATION OF THE PROJECTS REASONS FOR CLOSURE 10. M/S Chand Textile (Spinning) The sponsors were not interested in Mills Ltd., Dhaka. availing themselves of the funds for BMR of their existing unit. 11. M/S Gawsia Cotton Spinning Mills The case was not considered for Ltd., Dhaka. additional financing because of sponsor's failure to arrive at an amicable settlement regarding their swelled-up dues. 12. M/S Jabe Textile Mills Ltd., The sponsors did not apply formally Narshingdi. for loan co BSB. 13. M/S Halima Textile Mills Ltd., The sponsors did not apply formally Comilla. for loan to BSB. '4. M/S Goalundo Textile Mills Ltd., Sponscrs' procurement proposal Rajbari. approved by BSB was sent to IDA for approval. The amount of procurement increased to eqvt. US$ 2.28 million as against IDA approval of US$ 1.30 million. Considering the impact of increased cost on project viability and limited time left before the closing date of the credit, IDA did not approve of the procurement proposal. BANGLADESH SHILPA RIN SANOSTHA REASONS FOR CLOSURE OF SIX BMRE PROPOSALS UNDER IDA TEXTILE BMR CREDIT Si. Existing Capacity Proposed Expansion Other Components Current Status NO. Name of Mill Looms Spindle Looms Spindle of the Project of the Project Remarks 1. M/S Asiatic Cotton Mills 207 Nos 26,808 Nos. 160 Nos Nil Small finishing unit In view of apparent The equity deposit Limited, Panchisish, like calendaring, excess capacity in was refunded and Chittagong folding A inspect- the country for the project ing. finishing of cloth, proposal was BSRS Board at its treated as closed meeting held on with effect from 10/27/88 advised to 02/11/87. process the OMR proposal without finishing unit. The company did not agree to the proposal and requested to refund the part equity deposit kept with BSRS. 2. u/S Ashraf Textiles Nil 37,440 Nos. Nil 3380 -- The company did not The proposal was Mills Ltd., Tongi, Dhaka come forward for closed in October execution of docu- 1985. ments. 3. M/S Afser Cotton Mills Nil 12,480 Nos. Nil 12480 -- The company could not The proposal was come forward for closed in March settlement of their 1988. post loan liabilities with the BSRS. 4. M/S Qussee Cotton Mills Nil 12,628 Nos. Nil 9072 Nos -- The company had to The proposal was settle their past closed in March loan liabiliti-s with 1988. BSRS. The company could not fulfill this requiremsent. 6. M/S Serajgong Cotton Nil 12,400 Nos. Nil 9800 -- There were disputes The proposal was Spinning Mills Ltd. among the Directors closed in August Serajgong, Padna of the company. BSRS 1988. could process the case only on settlement of the dispute which was not done in due time. 8. M/S Cotton Spinning Co. 204 Nos 20,000 Nos. Nil 4800 Nos -- -- Because of negative net worth, BSRS could not process the case and treated it as closed. - 25 - PART III: STATISTICAL INFORMATION TABLE 1: RELATED BANK LOANS No. Loa,s/Cr.dit Purpose Year of Status Title Approval 1206-BD T*xt i ls Industry To rehabilitate toxtile 1981 Completed Rehabilitation Project. capacity of STLC in order to improve quantity and quality of output and improve institutional dolivories. Follow on Project: None. Because of the GOB'c reluctance to undertake major reforms of the public sector to mprove environment as to operate public mills coiaercially, no project is conceptualized in the next five years credit pipeline. - 26 - TABLE 2: LIST OF PROJECT MILLS BMR Hills Status of BMR A. Public Sector Mills 1. Original Credit 1477-BD/SF-022-BD 1. Karilin Silk Partially completed 2. Monno Textile w 3. Olympia Textile a 4. R.R. Textile a 2. Credit 1205-BD 1. Ahmed Bawani Textile Partially completed 2. Bangladesh Textile Completed 3. Chittaranjan Cotton a 4. Dhaka Cotton Partially completed 5. Luxmi Narayan Cotton Completed 6. Zeenat Textile Partially completed Substitute Mills 1. Amin Textile Partially completed 2. Bangal Textile i 3. Chisty Textile a 4. Dost Textile a 5. Kokil Textile a 6. Meghna Textile a 7. Satrang Textile a 8. Sharmin Textile a 9. Tangail Cotton Completed B. Private Sector Mills 1. Eagle Star Textile Under implementation 11 (Phase I and II) 2. Jalil Textile a 1/ Phase I is completed. _ 27 - TAM 8: P0JWT COSTS AMO fNANCI0 A. PwROJr COS Local Foreign Local foroign Item Coots Eachangn Costs Total Cos" Exchnnge Cost. Total BIM - Private Hil II 7.7 28.7 31.4 2.7 5.6 8.5 am - Public Mills 4.7 17.6 22.3 6.1 16.3 22.4 T'ichnicml Assistaence ConfuItaniep 0.1 1.4 1.8 - 0.1 0.1 Handloan Study 0.1 0.2 0.3 - 0.2 0.2 Maret Study 0.1 0 3 0.4 - 0.4 0.4 Total 12.S 48.2 61.0 8.8 22.6 31.6 1. Sinc 008 provided the sntirs equito contribution. it is pemsu_o that the incremental working capital for all WflC sills hs been fully provided for. 2. Dooe not include interest during construction (MDA), which was not included in appraisal estimate. STIC stimatem interest of about IJSU.6 million. 1. PROJWr FD4ICDVS Actual Planned as S of Source (Croed; A4reeian) Actual Eaeoti_t Local Foreign Total LosoI Foreign Total MDAjSF 1/ 2.9 42.1 45.0 1.1 22.2 2S.3 81.6 LOW - 1.0 1.0 - 0. 0.6 60.0 0CoS1CIiI; IIs 9.e 6.1 15.0 7.7 - 7.7 51.8 Totel 12.6 48.2 61.0 6.S 22.6 31.6 51.6 I/ UF: Special Fund - 28 - TABLE 4: SUBLOAND RELENDING TERMS AND CONDITIONS The Credit was relent to BTMC and the participating private Mills pursuant to Sections 3.01 and 3.02 of the Development Credit Agreement, inter alia, on the following terms and conditions: 1. Interest rates: 14.5Z per annum (for BTMC and the participating Mills located in developed areas (as defined by the Borrower)) and 13.3Z per annum (for the participating Mills located in other areas), all subject to adjustment, as needed, such adjustment to yield positive rates in real terms. 2. Spread to private 2.5Z per annum charge as an administration sector implem'enting fee out of interest realizable from each agencies, BSB and BSRS: subloan. 3. Repayment period: not exceeding 15 years, including a grace period not exceeding 4 years. 4. Collateral: to be given by the participating Private Mills. 5. Foreign Exchange Risk: to be borne by the Borrower upon payment of an additional fee of 2.52 per annum on the principal amounts relent and outstanding from time to time. - 29 - TABLE 5: PROJECT TIMETABLE Date Date Item Planned Actual Identification Preparation December, 1980 Appraisal Mission September. 1983 Loan/Credit Negotiations April 6, 1984 Board Approval May 22, 1984 Loan/Credit Signature August 25, 1984 Loan/Credit Effectiveness July 6, 1984 June 6, 1985 1 Loan/Credit Closing June 30, 1989 June 30, 1990 Loan/Credit Completion October 31, 1989 June 30, 1990 1/ Loan effectiveness was delayed because GOB did not secure timely approval of Project Proformas from the Planning Commission and executed Subsidiary Loan Agreement (SLA) with BTMC and Administrative Agreement with BSR and BSRS. - 30 - TABLE 6 Credit Dlsburommnt Cumlativo Estimated and Actual Disbure.eet. rus U Million) Aegroiall I Stimnte Actual Bank Fiscal Yea quarterly iuim;at-e X Qu rO wly Cumulatlve Actual X of and Quarter Dlabuesnto Eatimated Deburieto Estimated Sept 1984 0.06 0.06 0.18 Dec 1984 0.06 0.12 0.26 Mar 1986 0.26 0.87 0.82 June 1986 0.26 0.62 1.38 Sept 1986 1.68 2.20 4.89 Doc 1986 2.92 6.12 11.38 Mar 1988 6.28 11.40 25.33 June 1988 7.11 18.51 41.13 Sept 1988 7.45 25.96 67.69 Dec 1988 8.11 32.07 71.27 Mar 1987 8.19 36.26 78.36 June 1987 2.386 37.62 83.60 Sept 1987 1.09 38.71 88.02 0.66 0.65 1.42 Dec 1987 1.09 39.60 88.44 0.63 1.06 2.71 War 1986 1.76 41.68 92.36 1.22 2.30 6.58 June 1986 1.76 43.82 96.27 0.69 2.99 6.90 Sept 1988 0.84 44.18 98.18 6.80 8.29 18.77 Dec 1980 0.84 46.00 100.00 3.38 11.67 26.93 Mar 1989 - 46.00 100.00 8.82 14.99 33.31 June 1989 - 46.00 100.00 1.60 16.49 36.76 Sept ls98 - 46.00 100.00 0.05 16.54 38.04 Dec 1989 - 46.00 100.00 0.68 17.12 38.87 Mar 1990 - 46.00 100.00 0.37 17.49 38.67 June 1990 - 45.00 100.00 3.19 21.68 48.13 Sept 1990 - 46.00 100.00 1.77 28.48 62.10 1 - 31 - TABLE 7: IDA -vs- GOB's REFORM PACKAGE Si. IDA's Proposed Reform GOB's Reform Program No. Elements 1. Full or partial (49Z) Partial (49Z) privatization of 3-4 BTMC's privatization of 1 or 2 successful mills, including 3 mills and further sub-projects for wh4ch IDA commitment to partially funds would be used to privatize 3 sub- undertake comprehensive BMR. projects. 2. Each Enterprise Board of BTMC Willingness to include mills should include 2-3 private sector member in private sector members. 3 sub-project mills; numbers to be included is not mentioned. 3. Transfer of the sub-project Not agreed. mills under Companies Act of 1913, and provide Enterprise Board the power available under the Act. 4. Tmprovements in the operating Willingness to delegate environment, preferably for greater authority on all mills but least for the (a) procurement and mills to be privatized and the (b) pricing and sale of future sub-project mills, yarn to the Enterprise which include: (i) retained Board of 3 sub-projects existing General Managers for mills. Further, GOB at least three years; (ii) an would take measures to additional incentive scheme (a) ensure continuity of for meeting targeted profit; services of senior level (iii) full autonomy in Officers for at least pricing; and (iv) full three years; and (b) autonomy in raw material expand incentive scheme. procurement. TABLE 8: PROJECT IMPLEMENTATION Indicator Appraisal Estimate Actual(or PCR Estimates) Z of Achievement --------------------------------------------------------------__-------------__----------------------------- a. Rehabilitation of 15 private a. 2 private mill's 13Z mills. rehaibliation is under implementation. Indicator 1 b. Rehabilitation of 7 public b. 18 public mills are 2.6 times mills. rehabilitated (4 completely and 14 partially). a. Modernization of 331,360 a. A total of 85,056 spindles. spindles is expected to be modernized (76,464 spindles in public and 26Z 2592 spindles in private mills have already been modernized). Indicator 2 b. Installation of 159,640 new b. A total of 16,504 spindles. new spindles is expected to be installed in 1OZ private sector (5,320 new spindles have already been installed). ------------------------------------------------------------__---------------__----------------------------- Indicator 3 Modernization of 1,376 looms. a. No looms were modernized. b. A total of 115 new looms is expected to be installed in private mills. (60 looms have already been installed). ------------------------------------------------------------__---------------__----------------------------- - 33 - TA9LE 9 ndicatara of Project Achi.wvmnt (Estimated and Actual for Project Mills) BEFiRE ESTIKATD AFrER INtCREASE (ECREASE) 8MR TARCEr Om ------------------------ (FY82-PY87) AFTER OE (FYi9-FY90) TARCET ACTUAL (1) (2) (3) (4) 1/ (S) 3/ PUHLIC MILLS SPI1.INIC CAPACITY UTILIZATION (t) 80.00 (a) 89.00 83.00 10.50 3.80 PROOUCTION (MILLION LOS) 38.00 (a) 49.20 (a) 40.70 29.30 7.10 SPINXE PRoIICTIVIm 2.39 (a) 3.09 2.40 29.30 0.40 (OZ/SHIFT/SPINDlE) wASTAGE (S) 9.00 (a) 8.40 - (6.7) WEAVING CAPACITy UTILIZATION (5) 72.00 (a) 84.00 79.00 16.70 9.70 PROOUCTION (MILLION YAF35) 34.30 (a) 41.9 (s) 39.80 22.20 16.00 LOOM PROOUCTIVrTY 20.76 (a) 25.33 22.23 22.01 7.10 (YARDS/SNIFT/LO0M) WASTAGE (1) 4.20 (a) 3.10 - (26.2) PRIVATE MILLS SP>iINC CAPACITY LUrILUZATION (11) 81.00 (a) 90.00 92.00 10.50 13.60 PROGUCTION (MILLION LOS) 2.90 (a) 3.80 3.50 29.30 20.70 SPINLE PRODUCTIVM 2.68 (a) 3.47 2.85 29.30 6.30 (OZ/SHiIFT/SPrNXlE) WASTAGE (S) 8.20 (a) 7.50 (8.50) Note: (a): actual (e): *aprajiel *atumt; 1/ (Col.2 - Col.1) davided by Col.1 2/ (Col.3 - Col.1) devided by Col.1 - 34 - TA8LE 10 Operational Performance of Public end Privat. Project Mills (Compsr son *=*ng Coeprehensivs, Non-comprehensie r N'i l l-) (All in S) A. SPINNIC MILLS VITH COMPLETED OM ----------------------------------M-------- HILLS WITH COMPRB'BGIVE NON-CW.P9e6IVE TOTAL IMCOWLEraD TOTAL 8FE ----- BMR ----- (1 MILL) (3 MILLS) (4 MILLS) (14 MILLS) (18 MILLS) CAPACrTY UTILIZATION (S) Incremental Change: - 8TlC Project Mill 1/ -3.2 1.9 0.5 4.7 4.2 - STMC Project Vs Non-Project Mit -9.1 -4.0 -5.4 -1.2 -1.6 - P,'tK Projest Vs Privs te i I l 3/ -16.52 -11.46 -12.53 -8.59 -9.02 PROOUCTION (MILLION LBS) Incremental Change: - STMC Project Mille 1/ 5.0 5.6 5.5 7.5 7.1 - STMC Project Vs Non-Project Mil 15.0 15.6 15.4 17.4 17.1 - SUC Project V- Private MIte 3 -15.05 -14.45 -14.62 -12.62 -12.97 PRODCTIVmTY (0Z/SHIFrt/SPINLE) Inereental Change: - WffC Project Mills 1/ 4 2 -0.9 0.8 0.8 0.4 - SYMC Project Ve Non-Proj ect Hi 16.7 13.6 15.3 15.3 14,9 - 8OlC Project Vs Private Mill1- 3 -2.11 -7.21 -5.5 5.5 -5.92 WASTAGE (C) Incremental Change: - 8trC Project Mills I/ -1.3 0.1 -0.1 -8.1 -7.0 - SYTC Project Vs Non-Project Mil 4.4 5.9 5.6 -2.3 -1.3 - STYC Project VY Private Mills 7.33 8.78 8.52 0.56 1.65 1/ Incremental change is the increaee (or decrease), in the performance meaure (e.g Spinning Capacity Utilization) between the Post-8OM (FY8Q-90) and Pro-OM (FY82.07) period,. A N egtive change indicates that compared to all SI C project mile, the sil'() compared had relative decrease in either capecity utilization or production or productivity or wastage. 2/ Incremental Chan3s, as defined abovr, in the SNC project mills compared to incremental change in non -project mills durino the similar period. A negative change indicates that flC project mills had rolative decrease in the particular performance indicator compared to non-project mill-. 3/ Incremeted change, s defined above, in tho 8TC project mill compred to incremental change in private mills during the similar priod. A negative change indicateo that SfrC project mill, had relative decreame in particular performance indicator compared to the private Project *ill-. - 35 - TA8LE 10 Operstional Prformnnce of Puclic and Private Project Mill1 (Cosesrison amng Comprehenisiv. N_-ceeorsheneiv. am 14i l l-) (All in S) 9. WEAVING __________ 1MILLS WITH COMPLE1W GM -------------------------------- MILLS WITh COMPRUGIVE NON-COMRE6IVE TOTAL IMCWLETED TOTAL 8tR BM ----- t --- (1 MILL) (3 MILLS) (4 MILLS) (14 MILLS) (18 MILLS) CAPAcm UITILIZATION (S) Increowntal Chenge: - Project Hills I/ -2.3 4.3 2.1 15.6 10.2 - Project Ve Non-Project Mille 2/ -11.3 -5.2 -7.5 6.1 0.7 PRIXXCTION (MILLION YA1DS) Incrments I Chance: - Project Mills 1/ 2.3 10.4 7.4 21 16 - Project Vs Non-Project Mille 2/ -11.6 -3.6 -6.6 7.1 2.1 PMOOUCTIVIM (YDS/SMIFT/LDO4) Incrsa.ntel Change: - Project Mi lla 1/ 3.5 9.6 9.6 7 7.1 - Project Vs Non-Project Mille 2/ -19.1 -13 -15.3 -15.6 -15.6 WASTAOE (S) Increment l Change: - Project Mil 1e / -31.6 -26.3 -22.9 -25.9 -24.3 - Project Vs Non-Project Mille 2/ -0.9 54 3 4.7 4.3 - 36 - TABLE 11 FINANCIAL PERFORMANCE OF PUBLIC AND PRIVATE PROJECT MILLS …-------------------------------------------------------- A. NO OF MILLS HAVING OPERATING PROFIT FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 Public Mills No of Mills 18 18 18 18 18 18 18 18 18 No. of Profitable Mills 1 9 16 13 1 5 2 8 6 No. of Loss Making Mills 17 9 2 5 17 13 16 10 12 Private Mills o.___2___2 222 No. of Mills 2 2 2 2 2 2 2 2 2 No. of Profitable Mills 1 2 2 2 2 1 1 2 No. of Loss Makin.g Mills 2 1 1 -37 - TABLE 11 0: Inter-Hill Co_arison among Project Mille and Between Project and Non-Project end Private Mille BEFORE SW (FY82-87) AFTER bSW (FY89-FY90) Not Not Coat of Operating Cost of Operating Sales Salve to Profit Profit Sales Sales to Profit Profit i of No. of Aeet to Sales To Sales (TK to Assete Sales To Sale* (Tk Change Type of rills Mille Ratio Ratio Ratio million) Ratio Ratio Ratio Million) After 8HR AbL PROJECT MILLS 1B 0.99 0.95 neg. -138.61 O.6 0.92 nmg. -38.43 72 PROJECT MILLS WMTh COPLET9D am 4 1 0.94 neg. -14.7 0.9 0.92 nag. -29.66 -102 a. Non-Comprehensive 3 0.93 0.96 neg. j17.j9 08.4 0.92 n.e 25.64 -49 b. Coserehena,ve 1 1.2 0 9 0.03 2.48 1.12 0.91 neg. -4.02 -262 INCOpLETE PROJEIT MILLS 14 0.90 0.95 n.eb -121.9 0.85 0.92 neg. -8.77 93 NON-OM MILLS 2/ 3 0.88 0.92 neg. -6.33 1.32 0.93 neg. -9.08 -70 PRIVATE MILLS 3/ 1 0.92 0.81 0.16 15.98 0.98 0.71 0.06 11.11 -30 1/ A marginal imorovement in the rat.o of *sles resulted largely due to a eiQnficiant reduction in raw cotton pricee in FY89 an4 FY90. This ham reduced lo ese of the oroject mills by 72%. 2/ Non EH mi I ll- These are mi lls for which no 8N was undertaken since their nationalization in 1972. 3/ Private i l l: Finenciel date presented here i for one project si l, in which Phase I of SW was completed in early 1988; financial inforeation for this mill is available for FY86 and FY89. For the other Sill. implementation of PP is expected to be co,aleted in Jwne 1991; financial information for FY89 is partially available, whilt for the provisional accouht ia yet to be completed. - 38 - TA8LE 11 Financial rforserne of Project Killed C. Conversion Costs (as S of Seles) 19 Mille Pro GM After SW FY92-8U FY89-90 (Actual) (Actul) Public Mills - Labour Other 28 18 Total - - 41 48 Privte mill Labor 12 15 Other 13 9 Total 25 24 0. Raw sateriel (R/1) Costs (as 7 of Sales) Public Mills FY82 FY83 FY84 FY85 F FY88 FY87 FYo8 FY89 FY90 Average R/N Coat as lof soles 72 58 Si 63 54 38 45 41 47 3 Private 4ill 1I/ R/M Cost as S eSof sle 77 67 59 70 50 55 S 47 51 59 1/ Production cost date is analyzed for one will only, for which the first. phase am one i9laentedl. -39 - TABLE 12 Financial Performance of all Public and Private Mills A. No of Mills Showing Profit/Loss FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 Public Mills No. of Mills 40 30 33 36 37 38 37 39 39 No. of Profitable Mills 2 14 25 17 3 10 6 17 10 No. of Loss Making Mills 28 16 8 19 34 28 31 22 29 Private Mills 1/ 1lo. of Mills - - - 21 21 21 21 18 18 No. of Profitable Mills - - - 11 6 8 5 4 5 No. of Loss Making Mills - - - 10 15 13 16 14 13 B. No of Mills Meeting Financial Ratio Covenants 2/ Public Mills ____________ Debt/Equity Ratio 21 19 19 20 19 21 21 10 11 Current Ratio 3 5 2 2 4 6 5 8 4 No. of Mills with negative Equity Ratio 7 6 4 4 8 10 15 14 20 Private Project Mills _____________________ Debt/Equity Ratio 2 2 2 2 2 2 2 2 2 Current Ratio - 1 1 1 2 1 - 2 2 No. of Mills with negative Equity Rate - - - - - - - ____________ 1/ Information on private mills are obtained from Bangladesh Textile Mills Association (BJMA). Information obtained is not complete for all private mills, therefore, the number of profitable mills given here is based on reporting mills. - 40 - TABLE 13: FINANCIAL RESTRUCTURING AAA. Cash Infusion and Conversion of ADP Loan to Equity for BTMC Mills (FY 82-89) (Tk. Mlillion) Annual Actual Contribution X of Year Contribution Cash Infusion Conversion Total Estimated = ======= …=====_ = = = = = -,= = = = = = -… == ====== = = FY82 250.0 135.0 - 135.0 54 FY83 250.0 149.0 - 1.49.0 60 FY84 240.0 200.0 513.0 713.0 297 FY85 240.0 150.0 - 150,0 63 FY86 200.0 259.0 200.0 459.0 230 …--- --- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- - _ -_- _ -_ Sub-Total (FY82-86) 1,180.0 893.0 713.0 1,606.0 136 …-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _-_- _ FY87 - 164.0 - 164.0 - FY88 - 92.0 92.0 FY89 - 92.0 - 92.0 - FY90 134.0 132.0 - …-- - - - - - - - - - - -- - - - - - - - - - - - -- - - - - - - - - ___ Sub-Total (FY87-90) - 482.0 713 482.0 - …-- -- --- -- --- -- --- -- --- -- --- -- --- -- --- -- --- -- --- --_ -- -- TOTAL (FY82-90) 1,180.0 1,375.0 713 2088.0 177 …-- -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -- - -_ - -- - _ - 41 - TABLE 14: FINANCIAL RATE OF RETURN OF PRIVATE MILL 1/ Project Annual Benefit Cost Stream FRR(Z) (Tk. Million) (Tk. Million) Appraisal Actual (1) (2) (3) (4) Eagle Star Textile 83.38 12.53 29.0 18 1/ Revised ERR has not been calculated because these are not likely to be too different from the revised IRR. Underlying Assumptions: 1. Project life is considered for a period of 15 years. 2. All project costs are assumed to be incurred in one year, prior to the year when project benefit started to flow. 3. Project benefits are calculated on the basis of incremental production before BMR (FY82-87) and after BMR (FY88-90). 4. Net profit margin (i.e. net benefit) has been estimated at 20Z of sales. Tihis is based on average net profit margin for last two years (FY88-90). 5. Price premium of yarns is assumed to be an average of 5Z of the total gross sales. 6. Annual benefit steam (Col. 2) comprises two benefit streams: (i) increment productinn (Item 3) x net profit margin (Item 4) x FY90 unit sales price; and (ii) FY90 gross sales x price premium (Item 5). 7. No salvage value of the project is considered. - 42 - TABLE 15 Cou..e.t.v. 00orstiorfi Perforeance of Public and Peivate Sector 1Hill- (FY1.-O0) Public Mill Private Mill* SPINN4I Capacity utilizatiwi (1) 76 83 Production (Mill lb*) so 47.97 Producti'nn/Spindlo/Yoor (lb-) 147.3 117.3 Production/Work.r/Y.ar (lb.) 2360 2338 Soindle Productruly (oz/sh ift/wPindle) 2.62 2.09 WEAVING Capacity utilisation (S) 75 62 Production (Mill. m*tor) 43.48 23.87 Production/Laoo/Year (a/year) 16027 12349 Loco productrul (m/loou/ohift) 20.03 13.72 - 43 - TABLE 16: TA STUDIES TA Studies Volum stu " Purpose Status Impact of oNo, the Study Bangladesh Handloom Soctor Study 1. Bangladesh landloe. Examines structural (loom ComplOtAX n Partly implemented. Induotry: Annlysis of its and product use, labor February 1988 Some of tho Structural Adjustment, use pattern, etc) and recommondation of Rolativo Efficioncy and financiol (rate of this study In the Strategic Options for roturne) foatureo and Textilo Policy, 1988 Future Developoent Institutional deliveries of the handloom sector. II. Bangladesh Handloom Anolyeis of nominal and February 1988 Not Implemented Industry: Analysis of *ffective rates of Finance, Assistance Policy protection and credit and Financial relations. Instrumentalities for the Development of Handloom in Bangladesh. III. Bangladesh Handloom Providoe technological February 1988 Not implomented Industry: Towards Achieving instrumentalitios to a More Productive revive the sector, Technologiceal basis. focussing on skill development, product standardization and production foasibility. IV. Market Structure of Imports Provideo Character of February 1908 Not implemented and output, Marketing markets, markoting Potential and ralitios and potential Instrumntalities. Including export. V. An Investment Program for Present six interventions October 1988 Party Implemented Bangladesh Handloom on investment proj3ets Industry. involving institutional reorganization, loom modern Izaton, Improvement of product design, entreprenourial skills, marketing and institutional supports. Consumer Demand and Market Survey. I. Domestic Doemnd for Textile Estimates level and October 1988 Not implemented Products in Bangladesh - an composition, analyses Exercise Into its Evolving determinants and provide, Structure. projection of textile demands upto years 2000. II. Bangladesh's Textile Examines performance of October, 1988 Not implemented Economy and World Market a garmnts Industry and mid Evolving Trade external environment Regulation, facing export expansion of garments, fabrics and yarn. III. Understanding Prices and Formulates a model of October, 1988 Not impleonted Reforming Pricing Policies textile sector in for Textiles in Bangladesh. Bangladesh; deals with Issues of price formation and competitive structure of the fabric market; and puts forward a pricing policy for the textile sector. - 44 - TABLE 17: USE OF BANK RESOURCES A. Staff Inputs (Staff Week) Stage of Project Cycle Planned Final Through Appraisal 81.8 Appraisal through Board Approval 16.1 Supervi sion 83.6 TOTAL 181.5 ----------------- -------------- _-- --_ _ ----------- _ 45 - TABLE 17: MISSION DATA Stage of Month/ Number of SW in Specialiaation Performance Types of Project Cycle Year Persons Field Repreoentod Rating Prob I sm Preparation 01/83 4 2 Economist Financial Analyst Textile Engineer Pro-appraisal 06/83 3 3 Financial Analysts Textile Engineer Appraisal 09/83 4 3 Economist Financial Analysts Toxtile Engineer Post-Appraisal 02/84 4 2 Economist - Cost estimate of private mills Financial Analyst - Revaluation of assets of Toxtile Enrineer private mills - request for TA fund for Handloom sector study. Follow-up 08/84 4 3 Financial Ana ysto - Appointment of Industrial Textile Engineer Economist. Economist - approval of project proforms - Signing of SLA betwen OB and BSB/BSRS. Supervision 10/84 3 3 Financial Analysts NA - approval of PP - Signing of SLA - Funding arrangement with UNOP for (a) Handloom, (b) market study and (c) productivity tem. Supervision 03/85 2 3 FInsncial Analysts NA - Signing of SLA - UNDP funding agreement - signing of administrative agrement. 08/86 1 1 Financial Analysts 2 - Slow impleiontation of recomm- ondation of Environment Pollution Control Department - Slow start of Handloom sector study. - slow properation of tender documents. 03/88 2 2 Financial Analysts 4 - Project Implementation is slow - Slow in granting autonomy authority to STMC enterprises - rosponse of private sector to undertake 8MR Is poor. 0/ST 2 2 Financial Analysts 4 - BTUC Is slow in impleomnting - autonqy/incentive package - Credit utilization by the private sector is slow. - GOB slow in settlement of liabilities of liquidated mills. - 46 - 0418 3 1 Financial Analysts 4 - b oo in impls_mntation of Textile Specialist tho policy component. - slov credit utilization - Poor response from tho private soctor - Handloom and Market studios are behind schedule. 10/88 2 1 Financial Analyst 4 - delay in signing amendment Textile Specialist letter enabling transfer of fund and extension of credit - slow project implementation - poor financial performance. 12/89 2 1 Textile Specialist - slow procurement Flnancia Analyst - 4'3'a reluctance to agree on a roform package enabling privatization of som -TMC mil ls a and providing enterpriseos autonomy. Final 07/90 2 2 Textile Specialist 4 - slow procure- nt Supervision Financial Analyst - poor utilization of credit by public and private sectors. - 47 - TABLE 18: STATUS OF COMPLIANCE WITH COVENANTS Covenant Statue 1. ection 3.01 DCA (): The Borrower declares its commi nt to the obj ctive of the Project as set forth in Schedul- 2 to this Agreemnt and, to this end will: Part A: Balance Modernize and Replacemnt Part A facilitiSt at (I) about 7 Public milln, and N_u-br of mills for which BMR will be (ii) about 16 Private mills through (a) undertaken was amended on April 27, 1989 carrying out of renovation and extension works replacing the numbers 175 and ,165 by '22 and and (b) provision of equipment, spare part, *6 respectivoly for public and private sector. raw materials and othar facilities. Utilization of Credit, particularly by private sector; is disappointing. Only two mills availed the Credit. Part B: Technical Assistance and Studies Part a Provision of consult nto services to assist in: (i) carrying out Part A (ii) of the Project: (i) Implemented. (ii) improving production management system (ii) Implemnted. within tho Private mills (iii) carrying out a handloom sector study: (iii) Study carried out by BIDS; report completed. Implementation of the recommendations provided in the study report has not been undertaken. (iv) conducting a market and (iv) Study carried out by BIDS; report demand survey: and completed. Implementation of the recommondations made in the study report has not been undertaken. (v) carrying out inservice training at the (v) Training of STMC mid-level technicians in Savor Training Institute batches had been contuning at tho Institute. 2. Section 4.01 DCA (c): The Borrower shall: Separate audit reports for each of the 19 (i) -haehe Maccounts for each fiscal year project mills were submitted in april 1990. audited, in accordance with appropriate Audited report for FY89 and provisional auditing principles consistently applied, by accounts for FY90 for entire BTMC are rec,ived independent auditors acceptable to the in October, 1990. Association; (;i) furnish to the Association, as soon as available, but In any case not later than six months after the end of each year, a certified copy of the report of such audit by such auditors, of such scope and In such dot il as the Association shall have reasonably requested. 3. Section 4.02. (a): By September 30, 1984, or Report submitted to BTMC but implemntation of such lter date as the Association may agree, findings are considerably behind schedule. furnish or cause to be furnished to tho Association for ito comente the findings and recommendations baosd on the rosults of the review carried out by the Borrower's Environmental Pollution Control Dopartment and