SYRIA ENERGY EFFICIENCY IMPROVEENT IN THE CEMENT SECTOR A PRELIMINARY ECONOMIC AND FINANCIAL EVALUATION VOLUME I JULY 1989 Energy Efficiency and Strategy Unit Industry and Energy Department The World Bank Washingtong D.C. 20433 PRoVOtD The Energy Assessment report on Syria 1/ identified the rapid rise in energy ciemand and the decline of energy supplies (particularly oil) as major issues in the energy sector, other issues being the low gas utilization compared to potential, and the need to strengthen the institutional framework in overall energy planning and coordination in refining, planning of the power sector, and capability to handle large integrated gas development projects. Subsequently, the Government of Syria requested assistance from the Joint UNDPtWorld Bank Energy Sector Management Program (ESMAP) to evaluate the potential for increasing the efficiency of energy use in the industrial sector. The cement industry, under the Ministry of Industry, received first priority as the most energy intensive activity. The present report evaluates the Syria Cement Industry. It was to include measures to conserve the use of energy and to substitute less costly fuels, particularly natural gas. In 1983, the cement industry accounted for 341 of the energy consumption of the industrial sector. The General Organization for Cement and Construction Materials (GOC), under the Ministry of Industry, comprises seven cement companies involving eleven factories, all subsidiaries of GOC. GOC accounts for approximately 86% of Syria's total cement production, the balance being made up by the cement company under the Military Housing Corporation. A rough comparison of the energy consumption of the GOC with European standards indicates a difference in efficiency of more than 15X. This report presents an overview of the cement industry and evaluates the economic and financial feasibility of measures recommended by the consulting firm Holderbank Management and Consulting Ltd. (the consultants) to improve its performance and make it viable. The report was prepared by ESMAP 2/ with the assistance of the Consultants. It is a companion to another report, separately bound, prepared by Holderbank "Energy Efficiency Improvement in the Cement Sector: Consultants' Report" (Volume II). Funding for the bulk of the consulting firm work and the ESMAP supervision was provided by IPF resources from the UNDP under the project "Energy Efficiency Improvement in the Cement Sector" 1/ "Syria: Issues and Options in the Energy Sector", Report No. SYR- 5822 of the Joint UNDP/World Bank Energy Sector Assessment Program, May 1986, referred to hereinafter as "Syria Issues and Options." 2/ The ESMAP activity was initiated by Mr. Jivat N. Thadani, Senior Economist. This report (Volume I) was prepared by Mr. Hany Assaad, Researcher, with the assistance of Mr. Matthew Mitchell, Researcher, under the supervision Mr. Abderrahmane Megateli, Energy Planner, Task Manager. It was finalized by Mr. Djamal Mostefai, Industrial Energy Conservation Specialist. under the project "Energy Efficiency Improvement in the Cement Sector" (DP/SYR/86'003). The consultants were supervised jointly by the ESMAP staff, GOC and the Government of Syria. Two points should be noted about the report. First, the Syrian cement industry was studied bv selecting three of the seven Syrian cement companies, Tartous, Arabian and Adra, and visiting three of their plants. Second, the focus was on identifying production constraints and energy consumption patterns, and defining improvements to the areas of the cement ;eoduction process that consume large amounts of thermal energy and electric power for the three plants studied. Therefore, the consultants' findings should be interpreted and implemented carefully before investment projects are selected for detailed feasibility analysis and engineering design. This requires a thorough analysis, and a global and rational approach to the Syrian cement industry and its future. The consultants' report (Volume II) confirms the above- indicated potential in energy savings, and recommends specific measures to achieve the identified energy efficiency improvements on three levels: (a) by operational improvements; (b) by modifications requiring small investments; and (c) by long-term investments. This report (Volume I) confirms the viability of the cement industry and summarizes the specific measures to achieve energy efficiency improvements recommended by the Consultants in Volume II. The consultants' report (Volume II) was prepared by cement specialists with the aim of assisting the cemelt industry in Syria and presents the Consultants' findings; it does not necessarily represent the views of either the Government of Syria, the UNDP, the World Bank or ESMAP. Additional copies of the report are available on request. ABBREVIATIONS cli clinker GWh Gigawatt hour IRR Internal Rate of Return kcal kilocalorie kg kilogram kV kilovolt kWh kilowatt hour kWh/t kilowatt hours per ton LRMC Long Run Marginal Cost MWh Megawatt hour NPV Net Present Value LS Syrian pound TOE Ton of Oil Equivalent tpd Ton per day tpy Ton per year ACONMS ESMAP Energy Sector Management Assistance Program GDP Gross Domestic Product CDR German Democratic Republic GOC General Organization for Cement and Construction Materials PEE Public Establishment of Electricity UNDP United Nations Development Progreame HICHAUGE RTES USS 1.00 - Syrian Pound (LS) 11.25 -- 1987 LS 1.00 - 100 Piaster (ps) TABLE OF CONTES page SUMMARY AND RECOMMENDATIONS ................................. i I. THE CEMENT INDUSTRY IN SYRIA ................................ 1 History and Organization of the Cement Industry......... 1 Consumption of Cement ............................ ..... 5 Demand Projectionh...................................... 7 Energy Consumption .........0......................... 11 Fuel Oil.......0..........................................00 13 Electricity ................. .......................... 13 Financial Performance........ ................... ...... 15 Exchange Rates............................................ 16 Reporting and Auditing Requirements................... 16 Cement Distribution, Sales and Prices................. 17 Cost and Priceso...o.o.....o...... ...oo... o...... ..* 18 Profitability and Financial Position.................. 20 Economic Performance............................................. 24 Cost of Production versus Importoooooo9***.......o.o.o 25 II. ECONOMIC AND FINANCIAL EVALUATION.s..oo..... *............ooo 23 SxhneRt ..................... ...................... ............... 28 CotoArdcinvru mot....................... ............. ..................... 28 ~rEOOICADPNNCA VLATO ........................ .. ... .......... ................... 32 Objectiveso..o.oo..s.o ....... .....oooo... ........oo.* 28 Assumptionsoooooeo.o* ..oo.ooooo..o. *ooo 28 BasePCas .............C.. ... ............... ............ 34 Sensitivity Analysiso......o...o........ ... ..e.....o......o 35 Coniclusionso...ooooo..............ooo...o.oo...o........ooo...oo 35 III* PLAN OF ACTIO" ..o............................................000000. 37 Phase I......o....................*..............o........ 41 Phase II...................... ........... ...............o 41 Technical Assistanceo.................................... 42 TABLES I Summary Results of Operational Improvemente.................. vi 1 Summary Results of Small Investment Modifications............ vii 3 Summary Results of Long-Term Investments..................... viii 1.1 Syria Cement Industry: Production, Imports, Exports and Apparent Consumption of Cement in Tons (1951-1986)......... 1 1.2 General Organization for Cement Installed Plant Capacity and Production in 1986............ 3 1.3 Projected Cement Consumption and Productiont 1990-2000...... 7 1.4 Cement Industry Investment Profile, 1986-1990............... 9 1.5 Sixth Five-Year National Development Plan Planned Production per Company............................. 9 1.6 Syria Cement Industry: Clinker and Cement Production, Fuel and Electricity Consumption (1985-1986)............... 12 1.7 Public Electricity Establishment: Electricity Tariffs for Industrial Consumers (1980-1987) ......0................. 15 1.8 Cement Prices (1980-1987) ....... 18 1.9 Historical Cost per Ton of Cement (1980-1986) ................ 19 1.10 Production Cost per Ton of Cement (1986)..................... 19 1.11 Tartous Cement Company: Estimated Financial Cost of One Ton of Cement in 1988............................... 21 1.12 General Organization of Cement Selected Income Statement Items (1986)..................... 22 1.13 Summary Balance Sheets (1986)................................ 23 1.14 Tartous Cement Company: Estimated Economic Cost of One Ton of Cement in 1988............................... 27 2.1 Key Parameters for Economic and Financial Analysis........... 29 2.2 Estimated Financial and Economic Cost of One Ton of Cement in 1988............................... 31 2.3 Results of Financial Analysis: Base Case and Sensitivity Tests ............................. ........ 33 2.4 Results of Economic Analysis: Base Case and Sensitivity Tests................... ................... 34 3.1 Project Cost Estimates............ ................... ........ 38 3.2 Production Increase after Each Stage of Improvements Total Energy Savings and Investment Costs.................. 39 3.3 Syria Cement Industry: Preliminary Multi-Phase Production Plan .......................... 40 ANEES 1. Financial Analysis of Proposed Improvement Projects per Production Line........................................ 44 2. Product.on Cost Analysiso........ . . . .. ....... . . .. . .. .. .. . . ..... 46 3. Balance Sheets .........ooo*00*00*000*000000000 5S 4. Financial and Economic Analysis.............................. 58 MAP IBRD 21600 SUMMARY AND RXC0MMENDATIONS Objectives 1. The ob'ectives of the study that served as the basis for this report were to: (a) define ways to improve the efficiency of energy use in the Syrian cement industry and reduce production costs; (b) identify long-term investments aimed at improving the industry's production capacity; and (c) prepare preliminary economic and financial analyses of the proposed projects to determine whether or not full economic and financial appraisals of these projects for the Syrian cement industry would be warranted. Study Approach 2. The approach of the study was to select plants managed by three of Syria's seven cement companies (Tartous, Arabian and Adra), identify energy consumption patterns and constraints, and define improvements to the areas of the cement production process that consume large amounts of thermal energy and electric power, viz. the raw mills, kilns and cement mills. Three major categories of improvements were defined: (a) operational improvements; (b) modifications requiring small investments; and (c) long-term investments. Operational Improvements 3. The measures proposed under this heading include improvement of maintenance, repair work, and general rehabilitation of the production line, as well as the streamlining and strengthening of plant manage- ment. No new investment in machinery and equipment is required and other costs would be included in the budget for routine maintenance and repair work. All operations can be conducted by the plant's own personnel. A technical assistance program, including a training component, is envisioned to provide support to plant personnel. These operational improvements should result in fuel and electric energy savings of about 2.7Z and 15Z respectively, on average, and increase production by 30X. Modifications Requiring Small Investments 4. These modifications focus on savings in thermal energy and power, and an increase of the production of the plants at least to the rated capacity. Improvements would include the installation of more efficient drives, small modifications to the equipment, and improved operating conditions. - ii - Long-Term Investments 5. Long-term investments are designed both to save energy and to substantially increase plant capacity, thereby raising the overall efficiency of the plants. The anticipated modifications require moderate investments in the range of US$ 33 to US$ 45/annual ton of cement produced. The major changes would be the installation of efficient preheater systems for the kilns, and roller presses for the raw and cement mills. In addition, these modifications would include prehomogenizing storage systems for the Tartous and Adra plants. Policy Issues 6. Several policy issues were identified during the mission, which affect the industry as a whole and impact on its performance. These issues are: cement demand, cement pricing, the financial structure of the cement companies, the rationalization of production, personnel policies, management organization and equipment, and spare parts procurement. It is strongly recommended that these issues be addressed before any major investments in the industry are undertaken. These issues can be briefly summarized as follows: (a) The cement demand forecasts presented in the Sixth Five-Year National Development Plan covering the period 1986-1990 and the new cement forecast up to 2000 should be revised. The mission did not have access to the basis for these forecasts. It is the opinion of the mission that they are too optimistic. It is recommended that a new forecast be prepared taking into consideration the changing economic environment of the country, the latest growth projections, new exchange rates and the revised estimates of population growth. (b) The present structure of cement pricing (bagged versus bulk cement price differentiation, ex-plant, wholesale and retail prices, and geographical differentiations) is an issue that requires immediate attention from the government and the cement industry. The underlying objectives of the pricing policies should be clearly identified. Such objectives as demand management, foreign exchange management (i.e. import substitution or export promotion), subsidies, and employment generation should be ranked in terms of government priorities and the pricing policies should reflect this ranking. The subsidy element in cement prices should be clearly determined to identify the real cost of the objective being pursued. Pinally, the cement exporting policy that the government is trying to pursue should be reviewed in the light of the high real production costs, excluding energy subsidies and exchange rate distortions. Instead of pursuing exports, where the local cement industry will not be in a position to competitively underbid large cement producing countries in the Mediterranean, such as Spain and Greece, for equivalent quality, the local - iii - market should be the focus, with a higher quality cement at the lowest production cost achievable. Exports, if feasible, can only be profitable to the national economy when the real variable production costs are comparable to those of other Mediterranean exporters. (c) The financial structure of the cement companies shows a high level of debt with a very weak capital base. Both debt and equity come from the same source, i.e., the national treasury. The government should reconsider its strategy of burdening those companies with high debts, and should consider converting the long term loans and accumulated interest into equity capital. A revision of the financial structure of these companies would allow them to show actual performance and identify to the government the real costs of the various objectives that may be pursued. (d) The rationalization of production through adequate operational management on an industry-wide basis should be a primary goal at this stage before any new investments are considered. The shutdown of old inefficient plants and improvement of production efficiencies in others are key issues that must be addressed. Management of GOC and its various companies are often powerless when faced with such decisions because of the inadequacy of the present government policies to tackle these problems. Measures proposed in this report cannot give any positive results if these issues are not addressed and the underlying policies are not reviewed. (e) The government should also review its foreign exchange alloca- tion policy. It appears that there is a tendency to favor the allocation of foreign exchange to the purchase of new plancs over the purchase of essential spare parts to keep the existing plants running at optimum capacity. Hence, the existing plants are aging rapidly and shutdowns are frequent. Moreover, long- term costs for rehabilitating these plants will be very high if adequate maintenance and repair are not carried out on a periodic and regular basis. Background 7. The need for a preinvestment evaluation of energy efficiency improvements in the cement industry arose from recommendations in the Syria 1neray Assessment report which identified such improvements in the industrial sector as an important potential opportunity for reducing Syria's energy demand. 3/ A rapid increase in energy demand of over 10l per year during the last decade, during which oil production could not be 3/ "Syria: Issues and Options." - iv - increased significantly, has led to a sharp reduction of net earnings from oil exports. This constrained the availability of foreign exchange and contributed to the slowdown of economic growth. It appears that partly because of the historical emphasis on energy supply projects and inappropriate energy pricing policy, the prospects for energy demand management in Syria have, until recently, not been explored in much detail. However, the preliminary analyses carried out during the Assessment, as well as in the context of other exercises in the energy sector, suggest that the potential savings from a concerted energy demand management program are substantial. 8. Although the Energy Assessment did not include a detailed analysis of energy efficiency issues, it concluded that preinvestment evaluation of energy efficiency improvements was warranted in the cement, fertilizer and general manufacturing subsectors. These subsectors together accounted for 1,550 thousand TOE in 1983 or 26X of the country's total domestic energy consumption. The cement industry alone accounted for 34% of the 1983 industrial energy consumption, and about 9Z of total energy consumption. It is the most energy intensive industry in the country. By comparison, the cement subsector in developing countries generally accounts for an estimated 2X to 62 of the total industrial/commercial energy consumption. Energy efficiency improvements in the Syrian cement industry would thus have a significant impact in the reduction of the country's total energy demand. 9. Between 19?9 and 1985 Syria's cement production increased from 1.8 million tons to 4.4 million tons. In 1986, the cement subsector 4/ with an installed capacity of about 5 million tons per year (tpy) of clinker in twelve plants and employing more than 9,000 people, produced 4.3 million tons of cement. The new plants use the dry process system (3.5 million tons of cement in 1986), while the older factories use the wet process (0.8 million tons in 1986). Consequently, energy requirements vary greatly, ranging from 0.13 TOE per ton of cement in the new dry process Tartous plant to 0.18 TOE per ton of output in the old wet process Dummar factory. These figures compare to 0.095 TOE per ton of cement achieved in other developing coun..ries in plants using the dry process system and 0.14 TOE per ton of cement using the wet process. This comparison indicates that the Syrian cement industry has significant scope for rationalizing output and conserving energy. 10. Experience has shown that savings of 10 to 152 in energy consumption in the cement industry in developing countries can be achieved through improvements in operating procedures, maintenance and management; these are usually attainable in the short term without major investments. Further savings may require substantial investments involving plant modifications or replacement of specific operational 4/ Excluding one 1000 tons/day cement plant which is controlled by the Military Housing Corporation under the Ministry of Defense. - v - units. A savings of 10% to 15X in energy consumption in the Syrian cement industry, which is readily feasible through improvements in operating procedures and relatively minor investments alone, would therefore imply an estimated annual reduction in the country's energy consumption of at least 160 thousand TOE or about US$ 23.5 million per year in economic terms at mid-1987 international oil prices. 11. This report presents the findings of an energy audit of three cement plants, conducted in June 1987; briefly reviews the financial and economic performance of the cement industry; outlines the scope for viable energy conservation projects in the cement industry; and presents proposals for energy efficiency improvements in the three plants studied with recommendations on industry-wide project proposals that could serve as a basis for project appraisal covering the cement industry as a whole. The recommendations focus on housekeeping measures, interfuel substitution, and eventual process changes. The economic and financial viability of the proposals is also examined and recommendations on subsector policies are also included. Proposed Energy Efficiency Improvement Measures 12. Volume II of this report presents the results of a more detailed evaluation by the specialized consultants, Holderbank Management and Consulting Ltd. (Holderbank) in collaboration with ESMAP's and GOC's staff. The report confirms the above indicated potential in energy savings, and elaborates on specific measures to achieve the identified efficiency improvements on three levels: (a) by operational improvements; (b) modifications requiring small investments; and (c) with long-term investments. The key results for each category of improvements are presented in Tables 1, 2 and 3. Table 1: SUMMARY RtESULTS OF OPERATIONAL IWROVEMENTS TARTOUS ARABIAN ADRA 1 Line 4 lines 1 Line 2 Lines 1 Line 3 Lines 1966 clinker production t/a 311,083 1,244,331 302,402 604,804 225,153 675,460 1986 cement production t/e 322,000 1,288,001 321,034 642,067 230,137 690,410 Expected clinker production t/a 365,000 1,460,000 438,000 876,000 292,000 876,000 Expected cement productlon t/a 381,500 1,526,000 459,000 919,800 320,000 960,000 Specific fuel oil savings 22 kcal/kg cl I 2.3 kg/t/ cll 15 kcalIkg ciI a 1.6 kg/t cli 45 kcal/kg cli 4.7 kg/t cli Specific power savings 23.6 kWh/t cea 13.6 kWh/t cem 34.2 kVW/t cem Fuel oil savings t/a 836.5 3,346 684 1,368 1,369 4,107 Power savings MWh/a 8,991 35,964 6,242 12,484 10,940 32,820 Energy savings In LS 3,939,115 15,757,540 2,821,815 5,643,630 5,088,010 15,264,030 Energy savings in US S 350,170 1,400,680 250,800 501,600 452,270 1.356,810 Capital cost foreign US S - - - - - - Capital cost local LS Source: Holderbank (Volume 11). Table 2: SUMMARY RESULTS OF SMALL INVESTMENT MODIFICATIONS TARTOUS ARABIMN AMA 1 Llne 4 Lines I Line 2 Lines 1 Line 3 Lines Table I clinker production tia 365,083 1,460,000 438,000 876,000 292,000 876,000 Table I cement production t/a 381,500 1,526,000 459,000 919,800 320,000 960,000 Expected clinker production t/a 385,000 1,540,000 465,000 930,000 310,000 930,000 Expected cement production t/a 402,000 1,608000 488,250 976,500 340,000 1,020,000 Specific fuel oil savings 40 kcal/kg cil 4.2 kg/t/ cil 25 kcal/Ag cil = 2.6 kg/t cil 55 kcal/kg cit 5.7 kg/t cil Specific power savings 5.7 kWh/t cem 8.5 kWh/t cer 11.0 kVH/"t cem 4 Fuel oil savings t/a 1,604 6,416 1,210 2,420 1,776 5,328 Power savings MWh/a 2,310 9,240 4,139 8,278 3,720 11,160 Energy savings In LS 2,179,100 8,716,400 2,507,050 5,014,100 2,830,950 8,492,850 Energy savings In US S 193,680 774,720 222,840 445,680 251,640 754,920 Capital cost foreign US S 2,942,400 11,769,600 1,963,000 3,926,000 2,126,800 6,380,400 Capital cost local LS 1,230,000 4,920,000 320,000 640,000 805,000 2,415,000 Source: Holderbank (Volume 11). Table 3: SUWARY RESULTS OF LONG TERM INVESTMENTS LONG TERM INVESTMENT TARTOUS ARABIAN ADRA 1 Line 4 Lines 1 Line 2 Lines 1 Line 3 Lines Table II clinker production t/a 385,000 1,540,000 465,000 930.000 310,000 930,000 Table II cement production t/a 402,000 1,608,000 488,250 976,500 340,000 1,020,000 Expected clinker production t/a 20,000 2,480,000 620,000 1,240,000 465,000 1,395,000 Expected cement production t/a 647,900 2,591,600 651,000 1,302,000 509,600 1.528,800 Specific fuel oil savings 40 kcal/kg cl I 4.2 kg/t/ cil 20 kca lkg ci I 2.1 kg/t cli 40 kcal/kg ct I 4.2 kg/t ci I Specific power savIngs 12.3 kVh/t cam 12.3 kVh/t cem 12.0 kWH/t co m Fuel ofl savings t/a 2,583.3 10,333 1,292 2,584 1,938 5,814 Power savings NVh/a 7,998 31,916 7,998 15,996 6,127 18,381 Energy savings In LS 5,042,580 20,170,320 3,964,280 7,928,560 3,833,080 11,499,240 Energy savings In US S 448,230 1,792,920 357 710 704,680 340,670 1,022,010 Capital cost foreign US S 9,272,300 37,090,000 4,450,000 8,900,000 6,083,000 18,249,000 Capital cost local ILS 12,325,000 49,300,000 7,600,000 15,200,000 9,347,000 28,041,000 Source: Holderbank (Volume 11). - ix - 13. Given the rates of return in these preliminary financial and economic analyses, fu'l financial and economic appraisals of the proposed projects would appear warranted. These appraisals could lead to the preparation of an energy efficiency program for the cement industry that would include a full scale industry modernization and rehabilitation project. They would use the preliminary analyses in this report as a point of departure. Moreover, key parameters will have to be evaluated more comprehensively, including shadow rate of foreign exchange, economic cost of energy, and potential productivity increases and the impact of the various industry conditions, issues, and policies on the financial and economic viability of the proposed improvements. Among the major factors to be considered are: (a) the high cost of local cement production compared to imported cement; (b) the small pricing structure differential between bulk and bagged cement; (c) the demand projections for cement; (d) the formulation of a strategy for cement exports; ,e) the lack of individual cement company control over the sources and cost of inputs within the constraint of a fixed government selling price; and (f) organization and personnel policies. 14. Before any major investments are to be considered for the cement industry, these issues should be dealt with and a clear strategy identified and established to carry the industry into the next century while responding to the demand for cement, and becoming more efficient and viable. Volume II of this report elaborates on the technical details of the identified energy savings potential, as well as the corresponding production capacity increase for Tartous, Arabian and Adra obtainable by: (a) operational improvements; (b) modifications requiring small investments; and (c) long term investments. I. THE CEMENT INDUSTRY IN SYBIA History and Organization of the Cement Industry 1.1 The first cement plant built in Syria was a wet process plant which was put in operation in 1933 with a production capacity of 28,000 tpy (100 tpd). Located near Damascus at Dummar, this plant is still in operation today and is one of the eleven plants under the General Organization for Cement (COC) of the Ministry of Industry. The development history of cement production and apparent consumption is shown in Table 1.1. Table 1.1: SYRIA CEMENT INDUSTRY - PRODUCTION, IMPORTS, EXPORTS AND APPARENT CONSUMPTION OF CEMENT IN TONS (1951-1986) Local Apparent Year Production Imports Exports Consumption 1951 76,600 80,700 157,300 1952 101,200 42,200 143,400 1961 540,000 42,200 582,200 1962 606,800 85,000 691,800 1963 684,700 8,058 6 692,752 1964 636,000 8,075 350 643,725 1965 654,642 10,867 34,626 630,883 1966 691,233 42,858 648,375 1967 688,171 643 29,897 658,917 1968 915,857 3,858 21,541 898,174 1969 931,019 206,701 1,137,720 1970 984,237 69,053 1,053,290 1971 900,931 374,027 1,274,958 1972 999,893 22,208 1,022,101 1973 840,599 435,053 1,275,652 1974 965,105 429,830 1,394,935 1975 994,490 841,000 1,835,490 1976 1,110,127 1,081,000 2,191,127 1977 1,394,535 881,745 2,276,280 1978 1,497,337 1,119,767 2,617,104 1979 1,849,395 1,068,561 2,917,956 1980 1,994,727 1,258,000 3,252,727 1981 2,309,600 937,815 3,247,415 1982 2,849,660 1,675,728 4,525,388 1983 3,719,06 21,608 3,740,644 1984 4,278,657 63,443 4,215,214 1985 4,357,489 92,783 4,264,706 1986 4,315,768 33,184 4,282,584 Source: General Organization for Cement and Building Materials, June 1987; CEMBUiREAi. Note: CEMBUREAU data was used to fill gaps In data provided by GOC. -2- 1.2 The first plants were all of the wet process type and their combined production was not sufficient to fulfill local demand. Nationalized in the early 1960., the cement industry was expanded with new cement plants, all of the wet process type, commissioned in the late 1950s and the 19609, which allowed for some exports in 1967 and 1968, mainly to Lebanon and Jordan. In 1968 and 1973, the first two dry process plants, ote erected at Hama and the other at Moslemeya adjacent to the older wet process plants, were commissioned each with a capacity of 1000 tpd of clinker. These plants, as well as three others, Adra, Moslemeya 3 and Tartous, commissioned between 1978 and 1983, were provided for through an industrial cooperation agreement with the German Democratic Republic (GDR), which offered the foreign currency component on concessional terms. These plants were built by SKET of GDR, using its technology and standards. One other plant, the Sheikh Said plant of the Arabian Cement Company, was built by a Rumanian contractor and commissioned in 1981. 1.3 Since nationalization, the government owns and controls the cement industry with seven companies (involving 11 plants) under the GOC of the Ministry of Industry, accounting for 95% of installed capacity, and one plant under the Military Housing Corporation of the Ministry of Defense making up the balance. Table 1.2 lists the plants under the jurisdiction of GOC, their dates of commissioning, and production capacities. Capacity utilization in the country's 12 cement plants reportedly ranged from 63% to 123% in 1986 with an average for the GOC plants of about 71% of available capacity after allowing for an average of 45 days per year or 12% downtime for regular maintenance. Productivity gains of another 10-15% are attainable especially in the new dry process plants. This report will explore the potential for reducing production costs and increasing capacity utilization in the three largest plants. The plants are concentrated within the western north-south axis where most of the urban centers are located. The eastern areas, including the cities of Deir ez-Zor and Al-Hasakeh, are supplied from these plants. Table 1,2: GENERAL ORGANIZATION FOR CEMENT INSTALLED PLANT CAPACITY AND PRODUCTION IN 1986 -------Clinker Production----- Production lines Capacity Capacity Actual Percent Year No. Capacity Rated No. e 100% 0 80% Prod. Achieved Company Plant Process Commistioned tons/day days/yr. ----------tons/yr.------ of 100% NATIONAL Dummar Semi- 1934 1 300 320 Wet n.e. 1 300 320 Total 192,000 153,600 129,115 67.2 ADRA Dry 1978 2 1,000 320 1983 1 1,000 320 Total 960,000 768,000 675,460 70.4 RASTAN Wet 1958 1 360 335 120,600 96,480 122,709 101.7 SYRIAN Old Hama Wet 1964 1 504 300 151,200 120,960 122,487 81.0 New Hama Dry 1976 1 1,000 320 319,997 255,997 306,675 95.8 Total SYRIAN 471,197 376,957 429,162 91.1 SHAHiBA Sheikh Said Wet 1937 2 300 320 192,000 153,600 188,761 98.3 Old Moslemeya Wet n.a. 1 300 320 96,000 76,800 118,161 123.1 Moslemeya 2 Dry 1973 1 1,000 320 320,000 256,000 260,524 81.4 Moslemeya 3 Dry 1980 1 1,000 320 320,000 256,000 260,524 81.4 Borg Islam Wet n.a. 1 300 320 96,000 76,800 79,384 82.7 Total SHAHBA 1,024,000 819,200 907,353 88.6 ARABIAN Sheikh Said Dry 1981 2 1,500 320 960,000 768,000 604,804 63.0 TARTOUS Dry 1983 4 1,600 320 2,048,000 1,638,400 1,244,331 60.8 TOTAL (GOC) 18,064 5,775,797 4,620,637 4,112,934 71.2 Source: General Organization for Cement. 1.4 The Ministry of Industry is the highest authority over the seven cement companies. The ministry, in consultation with other relevant ministries such as the Ministry of Planning and the Ministry of Finance, formulates the budget for GOC and the companies under it, decides sales prices and policies regarding production, and provides directives in various areas of operation and management. It also approves major projects and investments, and recommends them to the Central Planning Committee and the Council of Ministers. 1.5 In 1975 GOC was established to oversee and coordinate the cement companies, one asbestos cement products company and one ceramic and porcelain company, and to plan and supervise new projects in this industry. The total invested capital of GOC's companies in 1986 reached - 4 - LS 3,225 million with a total revenue of LS 1,713 million. The main activities of the GOC are as follows: (a) participates with affiliated companies in the preparation of the expansion of existing facilities, introduction of new processes and products, as well as replacement and renewal projects; (b) prepares aggregate development plans for the industry; (c) participates in the financial, economic and commercial aspects of the companies' activities; (d) assists the companies in solving their problems with the competent authorities; (e) participates with the affiliated companies in administrative matters, such as public relations, training systems, personnel affairs, and international affairs; (f) conducts industry-wide financial studies; (g) prepares, in collaboration with the companies, planning budgets, production schedules, and financial reports; and (h) controls the quality of the companies' products. 1.6 The seven cement companies under GOC are separate companies, each headed by a General Manager, and each organized along functional lines with departments and sections covering production, maintenance, management, accounting, finance, planning, purchasing and sales. Many of these functions have their counterparts in GOC. The companies operate on yearly plans and budgets. As profit centers, the companies are expected to survive on their own financially, but they have little or even no direct control over the unit costs or sources of inputs. Selling prices are fixed by the government, and the cement producers only have one customer, the Omran Company for Building Materials, the agency responsible for procurement and distribution of all building materials, including cement, inside the country. 1.7 Investment decisions and the flow of funds of the cement companies are defined by law and illustrate the degree to which the government participates directly in major decisions. The companies submit their budget forecasts and year-end accounts to GOC for supervision and auditing. The companies can utilize their depreciation reserves and a proportion of their net profit at their discretion with the approval and supervision of GOC, but any proposal for expansion or modification must be cleared by GOC, the Ministry of Industry and the Ministry of Planning. Foreign currency payments to foreign suppliers are made through the Central Bank when the funds are made available for this purpose. The cement companies and GOC pay the Central Bank for the - 5 - were calculated at the official rate of exchange of LS 3.95/US$. By mid- 1987, a new exchange rate of LS 11.25/US$ was being established for public sector foreign exchange transactions. Availability of foreign exchange has been scarce especially since 1985. GOC estimates that only about 40 to 601 of its foreign exchange needs for vital expenditures such as for wear and spare parts have been met in the last two years. Previously, COC would place orders with foreign suppliers without having to ascertain that the foreign exchange funds were actually on hand, since these orders were within the allocated foreign funds for GOC. Lately, the system has changed due to the shortage of foreign exchange and competition for the limited resources by other state enterprises. Before a Letter of Credit is opened or an order is placed with a foreign supplier, GOC must make sure that the required funds are available, even though these funds have previously been allocated for it. 1.8 Larger projects requiring major investments are included in the Five-Year Plan and are defined within the national development strategy. The cement companies prepare the feasibility studies with the assistance of consultants and the supervision of COC. These studies are presented to the State Planning Commission for review and in.Zegration within the national development plan. The project(s) are then presented for review and discussion to the Council of Ministers and the Central Planning Committee. Once approved, local and foreign investment funds are allocated and the project(s) is included in the Five-Year National Development Plan for execution. Consumption of Cement 1.9 In the 1970s, cement consumption grew at an average annual rate of 12X as a result of increased building activities and major public works such as new cities, large housing complexes, public buildings, and sports facilities (Table 1.1). The war effort also contributed to this sharp increase in consumption. Since 1985 growth of consumption has been on the decline due to shortages of imported building materials such as reinforcing bars and wood. There is currently sufficient supply of locally produced cement to meet the restricted demand with even a surplus estimated at 500,000 tons for 1987. With a population estimated at 12 million in 1986, Syria's apparent consumption of cement is equivalent to 360 kg per capita, compared to 542 kg per capita for Jordan and 644 kg for Lebanon. 1.10 Since capacities put in operation lagged behind demand, imports of cement were required especially during the seventies when imports averaged 331 of total consumption, reaching 491 in 1976. With the commissioning in 1983 of the newest and largest plant at Tartous-- capacity 1.6 million tpy-no more Portland cement has been imported. Imports have been restricted to special cements that are not locally produced, such as white cement. White cement is imported from a plant located in northern Jordan that is jointly owned by Syria and Jordan with an annual capacity of 220,000 tons, sufficient to meet the demand for white cement in the area. -6 Exports 1.11 Exports have not been significant mainly due to the availability of cement in neighboring countries such as Lebanon, Jordan, Cyprus, Turkey and Saudi Arabia. Most of these countries are self- sufficient in cement production, and some are reported to have large surpluses. Moreover, it appears that some of the traditional European exporters, e.g., Spain and Greece, will continue to be active in regional trading with very competitive landed prices. The availability of cheap cement in the eastern Mediterranean poses a challenge for the Syrian cement producers to be able to export. Long-term prices have averaged US$ 30-32 per ton of cement CIF port of entry, with spot prices reaching as low as US$ 18 per ton. With the current regional surplus of cement, it appears that prices may remain at this level for a while as evidenced by the consistently low prices available to Egypt. These competitive prices pose a challenge to GOC in its effort to develop an export market. 1.12 GOC attempted to export to Iran in 1985 but that experiment was not very successful. Around 35,000 tons were exported from the Tartous plant, but several problems were encountered including packaging, shipping, exchange rates and prices. With the expected local surplus for 1987 and maybe beyond, GOC is exploring ways to find new export possibilities such as to Lebanon and Turkey. It currently exports small quantities of bagged cement to the eastern part of Lebanon from the Adra plant. COC has calculated the dollar value of its cement in order to determine a suitable and competitive price for export. Difficulties have been ermcountered in determining which exchange rate to use and how to price internal transport costs to port of export. GOC is willing to sell cement at about US$ 20 per ton ex-plant, and maintains that it has received requests to export more than 400,000 tons of cement. However, when the cost of shipping is included, this price is not competitive in the region. This is particularly true when transport costs are converted at the official exchange rate. 5/ 5/ For instance, a client in Saudi Arabia was willing to purchase Syrian cement in 1986 at $40/ton at the Saudi border. GOC was in the position to supply the required quantity at $25/ton ex-plant. The buyer wanted GOC to deliver the cement to the Saudi border, thus assuming the cost of land transport from the nearest plant (most likely Adra) through Jordan. Road transport cost to the Saudi border would have amounted to SL 400/ton. Since the government requires GOC to use the official exchange rate for all its transac- tions, at the official rate of SL 3.95/US$ in use at that time, the truck transport cost would be exorbitantly expensive at $101.27/ton. Even if converted at the proposed official exchange rate of SL 11.25/US$, transport cost would still be significant at $35.56/ton. This exchange rate distortion is a major barrier for GOC to export its surplus cment and earn badly needed hard currency. - 7 - 1.13 The government, so far, has not set a price for export cement, and has not formulated a strategy regarding exporting cemaent. It considers this the responsibility of COC. COC has to find a solution to the problem because of the perceived risk of setting an export price that may not be considered acceptable by the Government. However, this study has revealed that cement production in Syria is currently not economi- cally viable. This means that by exporting cement Syria is, in factt subsidizing foreign consumers, most significantly through subsidized energy. In developing any export policy, COC should deal with this issue either by pricing exports at the economic cost of production or by reducing the production costs to make exports a viable alternative to its surplus production. 1.14 In order to compete with such large exporters as Greece and Spain, COC will have to set prices based on variable costs only, i.e., excluding salaries and wages, depreciation, interest charges and taxes. Since exporting is not the primary goal of the cement industry in Syria, only surplus production caused by temporary local market imbalances can be exported, and thus priced at the margin. Demand Projections 1.15 Demand for cement has been estimated by COC and the State Planning Commission for the Sixth Five-Year National Development Plea. These estimates, prepared in 1985, were based on economic forecasts for the growth in the gross national product, planned construction activities, availability of other construction materials, and taking into account large national projects planned for the period requiring significant amounts of cement, such as electricity generating stations. 1.16 The Sixth Five-Year National Development Plan covering the period 1986-1990 projects that cement consumption by the year 2000 will be as followsS Table 1.3: PROJECTED CEMENT CONSUMPTION AND PRODUCTION, 1990-2000 Projected Projected Year Consumption Local Production Shortage …( __'000 tons) - ---… 1990 6,007 5,845 162 1995 6,933 5,845 1,088 2000 9,749 5,845 3,904 Source: General Organization of Cement. - 8 - 1.17 These projections take into account the government's outlook and objectives as of late 1985. These projections are currently being adjusted in light of recent economic developments, particularly the fall in the price of exported oil and the consequent shortage of foreign exchange. This has reduced investment and depressed the demand for cement. In addition, the foreign exchange restrictions influence the importation of related construction materials such as reinforced steel bars and wood, which impacts on the consumption of cement. Adverse economic circumstances have reduced the consumption of cement from the projected 5.5 million to 4.3 million tons in 1986. The 1987 sales up to mid-year have been sluggish, and it is projected that thare will be a 500,000 tons surplus. Moreover, a situation may develop where there will be a greater pressure to curtail production due to the acute shortage of paper bags, which are imported and therefore require foreign exchange. 1.18 Despite the economic difficulties the country is facing, the Plan still aims for an average real growth rate of 7.2% during 1986-90. In fact, real GDP has been officially estimated to have increased by only 0.7% in 1985, and 3.7% in 1986 (because of a bountiful agricultural crop in that year). However, this estimate of the growth rate for 1986 seems optimistic in the light of the spreading supply shortages and deepening recession in other sectors of the economy. During the past five years, the Syrian economy has suffered from growing external resource constraints. These constraints added further pressures on the economy since the decline in external resources has not been accompanied by a corresponding Teduction in domestic demand. Pressures on the balance of payments persist as domestic demand still excteds GDP by a wide margin. Foreign exchange reserves are virtually depleted. This has led to a sharp curtailment of imports. As a result, domestic production has suffered because of supply shortages, while inflation has accelerated sharply, reaching close to 10% a month in 1987. The outlook for the near future is not promising, with a projected GDP decline in real terms in 1V87. Hence, cement demand projections should be reviewed and modified downwards to take into account the current economic situation. The mission estimates that at best, demand will level off from the 1987 level, with an average local consumption of 4.5 million tons of cement per year for the next 3 to 5 years. 1.19 GOC's projections for the Sixth Five-Year Plan call for an increase in production from 4.9 million tons of cement planned for 1986 to 5.4 million in 1990 or an increase of about 11% over the five years as shown in Table 1.3. These production projections are based on detailed calculations of available capacity per plant section and production line for each plant in the respective years, based on 1985 actual capacity utilization. The installed capacity by the year 1990 is planned to increase by a net of 92,800 annual tons. This increase will be partially accomplished, on the one hand, by additional capacity at Rastan to produce 364,800 tons per year and, on the other hand, by closing the Dummar cement plant of the National Company by the end of 1988, which accounts for an installed capacity of 272,000, and an actual annual production capability projected at 192,000 tons by 1988 or less than 4X - 9 - of total production. The Plan calls for additional capacity at Rastan through enlargement and modification of the existing plant and conversion of the wet process to dry. A second production line is assumed to come into operation by 1990, producing an additional 360,000 tons per year. The three largest and newest plants, Tartous, Adra and Arabian, are planned to achieve higher capacity utilization through improvements in the production lines. No specifics were given as to how these improvements would be achieved. The wet process lines will be replaced by dry process technology in most, if not all, of the older plants with consequential increase in production. The resultant increase in productivity or improved capacity utilization is equivalent to an average of 5.3X over the five years. The investment profile which GOC presented for the preparation of the Five-Year Plan is shown in Table 1.4: Table 1.4; CEMENT INDUSTRY INVESTMENT PROFILE, 1966-1990. Investment In LS '000 Replacement and Renewal 58,605 Improvements 337,761 Ongoing Projects 148,955 New Projects - approved 182,570 New Projects - not yet approved 669,589 New Projects In Preparation 132,500 Probable Projects and Studles 160, Total 1,689,980 Source: General Organization of Cement. Table 1.5: SIXTH FIVE YEAR NATIONAL DEVELOPMENT PLAN PLANNED CEMENT PRODUCTION PER COMPANY (tons) Company 1986 1987 1988 1989 1990 National 192,000 192,000 192,000 0 0 Adra 816,000 820,000 825,000 830,000 830,000 Reston 121,600 123,000 123,000 123,000 483,000 Syrian 401,480 405,000 405,000 413,000 413,000 Shahba Ordinary 805,960 805,500 815,500 914,000 964,000 Special 142,500 150,000 150,000 150,000 150,000 Arabian 816,000 820,000 825,000 830,000 900,000 Tartous 1,604,460 1,605,000 1,655,00O 1,655,000 1 685,000 Total 4,900,000 4,920,500 4,990,500 4,915,000 5,425,000 Annual Growth Rate 0.42% 1.42% -1.51% 10.38S Source: General Organization of Ceent, Department of Planning, - 10 - 1.20 However, this investment program was prepared in the light of the forecast cement demand described above, and is based on an LS 3.95/US$ exchange rate. Since the time the forecast was prepared, the economic situation has deteriorated dramaticelly, calling for a new forecast and a reappraisal of GOC's development plan and investment program. Moreover, with a gradual shift away from the official rate of exchange prevalent in 1985 to a new official rate of exchange of LS 11.25/US$, adjustments should be made to reflect this new rate in the foreign component part of any new investment program, and the local component should reflect the high levels of inflation experienced in 1986-87. A new cement forecast should be prepared and a new investment program should be designed in the light of the economic situation and forecast, before any major investments are made in increasing production capacity. 1.21 In the short term, GOC should prioritize its development program to: (a) reduce the investment needs especially in foreign currency by improving the capacity utilization of the most promising plants, and by delaying any investments in new production lines; and (b) reduce its production costs in order to make local cement production more economically viable. iJnder current economic conditions, the mission has found that local cement production is not economically viable as described in para. 1.56 below. However, this report shows how cement production can be made economically viable through improved operating procedures and better maintenance, and with the implementation of small modifications to improve the efficiency and capacity utilization of existing plants. With a possible falling demand growth rate, GOC has the opportunity to rationalize the industry by: (i) closing down the old inefficient and environmentally hazardous National plant before 1990, at the latest; (ii) increasing production in the new wet process plants while rationalizing production in the older, less efficient wet process plants; and (iii) designing an investment program that emphasizes improvements in the utilization of available production capacities, rather than installing new lines and erecting new plants. A slowdown in the demand for cement, coupled with the increase in output from existing plants could mean that the gap between domestic demand and production officially projected for the 1990s may not materialize. - 11 - 1.22 The government believes that in the long run, Syria needs to increase production to meet growing demand, and to maintain self- sufficiency in cement. A sew plant was envisioned to be put in operation before the end of the century. However, it does not appear that such plans are warranted at this time. Studies were underway to determine the location of this possible new cement plant. Two areas were considered, the area of Deir ez-Zor in the northeast or the southern area near the border with Jordan. A one million tons per year plant was being considered with an approximate investment estimated for the Five-Year Plan of LS 600 million in 1985 prices and exchange rates. Based on an international average of US$ 200 per annual ton of capacity, it is estimated that the cost of this plant would be closer to LS 2,250 million reflecting recent changes in exchange rates. With the current and forecasted shortage of foreign exchange, and ambiguity still persisting regarding the forecast of cement demand, delaying this investment is a high priority. At a later stage, studies should be undertaken to identify the need and timing for the implementation of such a major investment, taking into account a more up-to-date demand forecast, and the implementation of an industry wide production rationalization. Energy Consumption 1.23 Table 1.6 gives an overview of the energy consumption of the cement plants under GOC for 1985 and 1986. (Details on production, energy consumption, and kiln and cement mill stoppages are presented in Annex 1.) Total fuel consumption for all plants exceeded 500 thousand tons of fuel oil in 1986, increasing by 5% from 1985, while electricity consumption was in the range of 660 GWh in 1986 with a smaller increase of 4Z from 1985. As shown in Table 1.6, the dry process plants are lower consumers of fuel oil and higher consumers of electricity than the wet process plants. 1.24 In 1983 GOC conducted a study of energy consumption of the plants and set the rated consumption per ton for each plant as the achievable target. This target consumption is based on the average consumption of the previous three years for each unit, and takes into consideration the differences in the production processes and the technical specifications of the equipment and machinery. These rated consumption figures are adjusted to reflect changes in operations based on annual investigations to identify the causes of variances. In 1985 and 1986 some plants, especially of the wet process type, achieved energy consumption per ton lower than rated consumption, while the newest plants, namely Tartous, Adra and Arabian, exceeded their rated energy consumption for 1986 with only Tartous achieving energy consumption below rate in 1985. A 10% reduction of energy consumption in these three plants, which is considered easily achievable, would represent a saving of 27 thousand tons of fuel oil and 41 GWh of electricity per year. Table lA: SYRIA IENT EIDUSlRY CLI.hER N OMM FROJCrtION, FUEL AND ELECICITY 001WTICN - 1965-86 1985 _ 18 CWlker Fuel Co04~ti 0_et Electle Consu.tiom Claoke Fuet coesatica Cent Electric Co>atla C_any Plant Prloducteo K/t ellakr TOte Prodwclor kIb/t e_mnt Total Poductlon Kg/t cil nkr Total Productlen _/t ceme Totot ton) Rated Actul (tons) (ton) Ratd Acul (M1) (tons) Rated Actal (tons) (tos) Rted Actul Om) ational D_mmw 152,946 170 196.90 30,421 176,790 115 137.00 24,220,230 129,115 170 216.82 27,995 127,5619 1I 152.96 19,518,565 Adra 757,900 103 103.93 78,769 792,060 170 182.14 144,263,9617 6n5,460 103 10.07 71,646 690,410 170 1t2.80 126,262,181 Restan 119,064 170 156.73 18,661 136,686 90 87.84 12,006,498 122,709 170 153.87 16,881 126,926 100 84.67 10,746,824 Syrian Old 1m 127,250 170 164.10 20,971 135,166 90 92.00 12,435,m 122,487 170 166.59 20,650 142,863 90 91.00 13.000,53 RaW tm 286,255 103 117.35 33,827 316,764 170 177.00 56,421,22 306,675 105 100.76 33,354 330,707 170 165.00 54,566,655 Sba_o Sheiksh Said 195,559 185 194.41 38,019 229,452 110 111.00 25,469,172 165,761 190 197.23 37,229 210,876 120 118.00 24,863,366 Old Delemepa 114,200 180 192.67 22,003 80 118,161 190 201.15 23,766 tN Ilayeya 263 533,659 103 102.90 56,992 716,993 170 173.00 124,365,703 521,047 105 106.20 56,377 672,630 170 174.00 117,073,986 Iobg 1sm 75,800 190 190.93 14,472 60,055 92 83.00 6,644,56 79,364 190 188.84 14,961 63,40 100 85,00 7,094,355 Arabln Sidilk Sold 477,167 103 117.75 56,186 516,679 130 137.63 71,213,667 604,604 105 120.93 73,139 642,067 130 149,72 96,130,27 Tarteus 1,131,063 100 96.20 106,606 1,252,654 150 137.00 171,640,998 1,244,331 100 100.49 125,043 1,288,001 145 146.21 186,318,626 Totals C) 3,99065 119.99 479,129 4,357,469 146.67 648,701,519 4,112,934 122.31 503,073 4,315,741 152.3J 07,55,165 Sources Getne_l ra Q zeti. of COmnt. - 13 - Fuel Oil 1.25 Fuel oil is available from two sources, the Banias and Homs refineries. Both refineries are owned and operated by the Ministry of Petroleum, and charge uniform prices for their products. Fuel oil is ample to meet local demand with a surplus that is exported. Ex-refinery price of fuel oil is fixed within the controlled petroleum product prices. A petroleum products sales and distribution company, under the Ministry of Petroleum, is the only supplier of fuel oil to the cement plants. Distribution to the plants is done by rail tanker cars and tanker trucks. The delivered price of fuel oil to the plants is marginally different from plant to plant, taking into account differences in transport costs and distances from the refineries. 1.26 Fuel prices were increased in 1981 before the major drop in petroleum prices in 1985-86 with no further increase up to the time of the mission in June 1987. Since 1981, fuel cost ex-refineries has been fixed at LS 786/ton, while transport costs from the refineries to the cement plants have been increasing from LS 24 to LS 74 per ton in 1986, according to distances. Fuel costs to the cement plants have thus ranged in 1986 from LS 825 to 860 per ton. The current local price of fuel oil, compared to international border prices, depends on which exchange rate is used. The local price compares favorably with the Syrian export price which was about US$ 85/ton of Banker C fuel oil in June 1986, when converted at the rate of exchange of LS 11.251US$. At the rate of exchange of LS 3.95/US4, which is the rate still applied for petroleum industry imports and exports as of June 1987, the local price of fuel oil is more than double the export price. Compared to the shadow price of fuel of LS 2,040/ton as derived in the economic analysis section below, the local price is about 40X of the border price. Electricity 1.27 Electricity is supplied to the cement plants by the Public Establishment of Electricity (PEE). No plant has its own generating capacity except for small standby generators sufficient to keep the kilns turning during power outages. Electricity consumption in Syria has grown by close to 20X per year over the past decade and is expected to continue to grow at a rapid rate for the next five years. The cement industry alone accounts for about 10 of total electricity consumed in the country and 201 of industry consumption, with about 660 GWh in 1986. 1.28 The reliability of electric supply has declined in recent years due to high electricity demand and insufficient generation capacity. The cement industry suffered from power cuts and voltage drops resulting from a national electric generation capacity shortage of about 201 in 1986. The spread of electricity throughout the country has been impressive with almost 1001 coverage of urban centers and 76X coverage of the rural population. However, losses are high, amounting to about 25X of electricity generated. A Power Efficiency Audit project was undertaken by the Joint UNDP/World Bank Energy Sector Management Assistance Program, - 14 - to address the problems faced by PEE and to present proposals for power improvement projects. 6/ 1.29 Due to the shortage of electricity generation capacity, PEE has had to manage electricity consumption by blacking out large sections of the country on a rotating basis every working day. These planned blackouts do not include the cement plants. However, these plants are affected by the electricity shortages, experiencing sporadic cuts. These power cuts have had adverse effects on cement production especially in early 1987 when the unplanned cuts increased noticeably. In Tartous, for instance, long cuts have reduced the number of hours the cement mills were available for operation, which contributed to an unprecedented overstocking of clinker in the order of 125,000 tons by early June 1987. Although power generation capacity is expected to increase as a result of ongoing and new projects, including the proposed improvement projects, power shortages are likely to continue for another few years. For this reason, and given the prominence of the cement industry as a consumer of electricity, PEE has been attempting to reach an agreement with GOC and the cement companies on a program of load management. 1.30 Electricity tariffs have been low compared to the cost of generation. The cost of producing electricity has increased dramatically because of higher fuel prices during the past decade. Conversely, tariffs have not risen in proportion, with the result that the electricity subsector has required increasing subsidies to cover both operating and maintenance costs, and to provide funds for investment in new plants. To reduce the subsidy, new tariff increases affecting the cement industry were approved by the Cabinet in May 1987. Table 1.7 shows the tariffs before and after these increases. Tariffs for industry and irrigation were raised by about 116% in nominal terms. The tariff increase was implemented in two stages: half of the increase became effective in June 1987, and the other half in December 1987. However, with inflation at the retail level of about 13% annually during 1981-85 and an estimated 36Z in 1986, real prices for electricity have been falling for several years and have remained well below the long run marginal cost (LRMC). The LRMC estimated by the Power Efficiency project, 7/ is about LS 1.92/kWh as described in para. 1.54. The tariff achieved after the second increase would thus be 19% of the LRMC. 6/ fiSyria: Electric Power System Efficiency Audit, November 1987, Joint UNDP/ orld Bank Energy Sector Management Assistance Program. Referred to hereinafter as "Syria Electric Power". 7/ Ibid, Annex 7. - 15 - Table 1.7: PUBLIC ELECTRICITY ESTABLISHMENT ELECTRICITY TARIFFS FOR INDUSTRIAL CONSUMERS 1980-1997 (Plasters per kWh) (LS 1-100 plasters) Tariffs 1980-87 Tariffs as of June 1987 Tariffs as of December 1987 230 kV 66 kV 20 kV 230 kv 66 kV 20 kV 230 kV 66 kV 20 kV Average 10.0 12.0 20,0 22.0 24.0 31.0 34.0 36.0 42.0 Peak 14.0 15.0 24.0 29.0 32.0 42,0 44.0 54.0 58.0 Daytime 12.0 12.0 20.0 22.0 24.0 31.0 34.0 33.0 42.0 Night 8.0 10.0 14*0 18.0 19.0 26.0 28.0 29.0 32.0 Source: Public Establishment of Electricity. 1.31 Cement plants are of the 66 kV consumer group with tariffs rising from an average of LS 0.12/kWh to LS 0.36/kWh resulting in a tripling of electricity cost. The new tariff structure also encourages the management of electricity uonsumption with a greater spread for time of day pricing. At the new tariff, the financial incentive to organize the operation of heavy electricity consuming centers, such as the raw mills and the cement mills, in order to take advantage of the differen- tial time of day electricity prices, is much stronger. It is now a necessity to reduce electricity consumption and the highest priority should be given to devising operational strategies to do so. This report and Volume II outline some of the alternatives available and present operational proposals for their implementation. Financial Performance 1.32 The objective of the analysis presented in this section is to briefly evaluate the performance of the cement industry in Syria in financial terms with a particular emphasis on the three plants visited, Tartous, Arabian and Adra. This analysis is not intended to be a thorough examination of the industry and the cement companies. Its purpose is to shed some light on the relationships between the cost of producing cement and the selling price for cement. GOC and the three plants provided adequate, though not very accurate data for this purpose. 8/ Since historical data were not as detailed as data provided for 1986, the study concentrates primarily on operations during 1986. 8/ There were many discrepancies in the data obtained from GOC, the plants and their different departments. Some data may not be reconciled in the tables and the annexes included in this report, due to the different sources. - 16 - 1.33 The financial performance of the cement companies is based on the cost of producing cement and the selling price of cement. Since the selling price is set by the Government with no control over it by the cement companies, this section concentrates on the cost structure of cement production, foreign versus local costs, and the impact of input price increases on the cost of production. This evaluation may be useful in highlighting a few areas of concern that would enable the Government to review its policies targeted to the cement industry. Exchange Rates 1.34 By mid-1967, eight official exchange rates were applicable for different international transactions. The lowest is the official selling rate of LS 3.95 to US$ 1.00, which was the long-standing official rate, and is now only used for a limited number of special cases. Most other transactions of the Government and the public sector occur at the rates of LS ,.409 9.75, or 11.25 to US$ 1.00. On January 11, 1987, public sector imports and exports (except for oil, cotton and phosphates) were moved from LS 5.40/US$ to LS 11.25/US$. Since most, if not all of the foreign currency financial transactions of the cement companies would take place at this rate, it was selected in this report as the conversion rate for all foreign currency financial transactions. Reporting and Auditing Requirements 1.35 The cement companies submit to GOC periodic reports concerning their operations and projects under implementation. These reports generally provide adequate information for proper supervision and for overall management of the resources available to the industry. The accounting system employed by GOC and its companies, which was estab- lished in 1974 and modified in 1978 for all public sector industrial and trading companies in Syria, is referred to as the "Unified Accounting System", and is designed to meet the accounting and statistical needs of the government. It is fairly consistent with generally accepted Western accounting practices. In addition to the internal audit carried out by GOC, the companies' accounts are audited annually by the Central State Audit Department. 1.36 The cement industry in Syria was one of the first business activities to apply a cost accounting system as early as the first plant in the 1930s. As a one-product industry with distinguishable and separate production stages where inputs and outputs can be either directly measured or calculated, the application of cost accounting has a direct impact on operating decisions. The cost accounting system used was based on an earlier Egyptian system, which over the years was modified and improved, and is now applied at all plants. This standardization allows comparisons between the different plants. Most of the data presented in this report are based on the financial statements and reports of the plants visited and of GOC, as well as data collected from the plants. Some shortcomings were identified by the mission especially in the way data are gathered and analyzed. A few managerial level reports are too detailed, thus obscuring the essential operating - 17 - data. For instance, all data logged in the control rooms are presented as is to the managers, who have to sort through the information to identify the relevant operating factors and identify any problems. Cause and effect relationships are not clear if the data are not analyzed and monito-ed. If these data were manipulated to present only relevant statistics, then operating decisions taken might be more timely. Cement Distribution, Sales and Prices 1.37 Distribution and sales of cement in Syrid are handled by the Omran Company for Building Materials (Omran Co.) under the Ministry of Supply and Internal Trade. The Omran Co. is the sole agency responsible for the selling and distribution of all government controlled building materials, which it acquires from public sector producers or through imports. 1.38 Since the annual production of the cement plants is established through the annual planning exercise, the monthly production is also planned by each plant in coordination with the Omran Co. Weekly and daily production schedules are set according to the distribution schedule of the Omran Co., based on its sales and storage levels. Omran Co. is in charge of transporting the cement from all the plants to its storage and distribution centers across the country. Trucks and rail wagons are the two means of transport, and their daily schedules are organized and coordinated by the Omran Co. Since the retail prices of cement are unified for the whole country, the distribution company averages its transport costs for all locations from the farthest cement plants to the- nearest. 1.39 Cement prices in Syria are fixed by the government from the plants to the retail level and are uniform throughout the country. Table 1.8 shows the unified prices for bulk and bagged cement from July 1980 to June 1987, at different stages of the sales cycle. Retail prices were increased by 40X in early 1987 reaching LS 700/ton (US$ 62/ton) of bagged cement, in order to bring the price of cement more into line with prices of other construction materials. This last price increase was not passed on to the producers but was targeted to the Omran Co. to compensate for increased transport costs. 1.40 One of the areas that need to be reviewed in the pricing structure is the price differential between bagged and bulk cement. At present, this difference amuunts to only LS 5/ton. Such a small difference is not sufficient to encourage the sales of bulk cement. Since paper bags, which are imported, are difficult to acquire considering the restrictions on foreign exchange, the availability of bagged cement may be constrained. A larger price differential between bagged and bulk cement might help reverse the current trend of preference for bagged cement. Other than possible adjustments to the price differential, COC and the Government should consider the benefits of increasing the sales of bulk cement, and identify the modifications required in transport, storage and utilization for bulk cement. - 18 - 1.41 Excise taxes, amounting to LS 22/ton are included in the cement prices, which are charged to the Omran Co., and collected by the cement companies for the government. A charge of LS 50/ton, levied by the government and collected by the Omran Co., goes to a special price equalization account used to finance subsidies. This charge has not changed in several years. Table 1.8: CEMENT PRICES, 1980-1987. (LS/ton) 1980 1981 1982 1983 1984 1985 1986 1987 ased CeFent Ex-plant, (excl. taxes) 178 243 258 273 273 273 355 355 Tax"s 22 22 22 22 22 22 22 22 Price to distribution co. 200 265 280 295 295 295 377 377 Margin for distribution co. 50 85 70 55 55 155 73 273 Price equalization charge 50 50 50 50 50 50 S0 50 Retail Price 300 400 400 400 400 400 500 700 Bulk Cement Ex-plant, (excl. taxes) 173 238 253 268 268 268 340 340 Taxes 22 22 22 22 22 22 22 22 Price to distribution co. 195 260 275 290 290 290 362 362 Margin for distribution co. 50 85 70 55 55 155 73 273 Price equalization charge 50 50 50 50 50 50 50 50 Retail Price 295 395 395 395 395 495 485 685 Sources: General Organization of Cement; mission estimates. Cost and Prices 1.42 To evaluate the financial performance of the cement industry, a detailed analysis of the cost structure of cement production is needed, since it is the controllable factor at the industry level when compared to the fixed selling prices. The data used in this analysis were pro- vided by GOC and the three cement companies studied. 9/ Annex 2 presents a detailed analysis of the cost structure of the three companies, 9/ Some data may not be comparable because of difference in years. Arabian C mpany was the only one which provided detailed historical data. - 19 - comparing the composition and cost allocation per ton of cement produced, as well as the distribution of costs to the production cost centers. 1.43 Table 1.9 compares the cost per ton of cement for all cement producers in Syria for the years 1981 to 1986. Since there is a uniform accounting system for all cement companies, comparisons between the plants are possible. However, due to the difference in the ages of the plants, depreciation as a proportion of the cost per ton is low for older plants and high for the newest plants such as Tartous. Table 1.10 compares the production cost per ton of cement excluding depreciation, interest, taxes and other nonproduction related costs. As expected, the wet process plants have a higher direct production cost per ton of cement than the dry process plants. Table 1.9: HISTORICAL COST PER TON OF CEMENT (LS/ton) Company Process 1981 1982 1983 1984 1985 1986 National Wet 325,59 385.77 355.98 363.51 375.61 484.37 Adra Dry 288.02 331.59 304.74 274.63 272.92 343.87 Rastan Wet 276.58 298.77 294.33 294.85 298.07 345.45 Syrian Wet+Dry 342.70 385.94 287.52 305.69 311.13 323.96 Shahba Wet+Dry 246.58 268.13 266.92 261.37 268.56 303.59 Arabian Dry 320.84 263.90 281.39 267.49 348.57 312.77 Tartous Dry - - 322,00 332.15 353.10 371.17 Source: General Organization of Cement. Table 1.10: PROiDUCTION ODST PER TON OF CEMENT (1986) a/ (LS/ton) Company Process 1986 National Wet 453.38 Adra Dry 232.01 Rastan Wet 324.79 Syrian Wet + Dry 227.13 Shahba Wet + Dry 245.02 Arab'an Dry 235.85 Tartous Dry 205.09 Source: Mission estimates. a/ Excluding depreciation, Interest, taxes and other costs. - 20 - 1.44 The National Company has been the most expensive producer of the seven companies compared, even though it has been fully depreciated. Its 1986 capacity utilization was about 56% and has recorded the highest fuel consumption per ton of clinker produced reaching 216.82 kg/ton clinker, as compared to an average of 119.25 kg/ton clinker for all the other plants. As its plant is the oldest plant still in operation, it is due to be shut down. It was scheduled to be shut down in 1981 but due to Syria's need for cement, it was decided to leave it in operation for another few years even though its production represents less than 3Z of total GOC production. However, GOC decided that the plant must not continue to produce beyond 1987 due to its environmental pollution to the residential areas that have sprung up nearby around the town of Dummar, and to its unaconomic production of cement with a cost of LS 484.58/ton in 1986 compared to an average cost of LS 334.80/ton for all the other plants. In the Five-Year Plan it is targeted for conversion to produce other materials. A final decision about this plant had not been taken at the time of writing of this report. 1.45 Tartous, the newest plant put in operation, has seen its cost per ton increase by 5X per year, reaching LS 371.17/ton in 1986 as shown in Table 1.9. Even though it is the most expensive producer of cement, after the National Company, when depreciation is excluded at full cost it has the lowest direct production cost per ton as shown in Table 1.10. Moreover, the consumption of fuel and electricity per ton of cement is the lowest among the dry process producers--100.49 kg of fuel oil and 146.21 kWh per ton in 1986 compared to an average of 111.25 kg of fuel oil and 178.16 kWh per ton for all plants. Since Tartous is the newest and largest plant, depreciation and interest charges on the capital investment for this plant are the highest. 1.46 With the application of the rate of LS 11.25/US$ for all public sector imports and exports, and thus applicable to the cement companies at present, the costs of all imported materials, supplies; and spare parts are expected to increase by nearly three times to reflect the new rate. Table 1.11 shows the estimated 1988 cost per ton of cement at Tartous, based on projected production, after the increase in electricity tariff, and including the increase of foreign costs due to the higher exchange rate with estimates of increased local costs. The estimated cost would thus be LS 448.41 per ton versus a selling price of LS 355/ton. If no increase in the selling price of cement is introduced, GOC and the cement companies will be incurring tremendous losses. Profitability and Financial Position 1.47 The Government of Syria considers the cement industry as a vital industry with the objective of providing a basic construction material at a price low enough to encourage increased building activity and produce affordable housing. Because of this social role, GOC and its companies do not have to show a financial profit. The state maintains that subsidized fuel oil and electricity prices justify the established low cement prices. - 21 - Table 1.11: TARTOUS CEMENT COMPANY ESTIMATED FINANCIAL COST OF ONE TON OF CEMENT IN 1988 a/ (LS 11.25/5) Item Foreign Local Total USS LS LS LS USS Variable P. vduction Costs: Main raw materials 7.44 7.44 0.66 Additional raw material 2.97 2.97 0.26 Electricity 63.00 63.00 5.60 Fuel Oil 82.40 82.40 7.32 Diesel 3.90 3.90 0.35 Gasoline 1.62 1.62 0.14 Oil nd Lubricants 1,80 1.80 0.16 Spare parts 1.89 21.28 21.28 1.89 Grinding balls, refractories 0.92 10.34 10.34 0.92 Packing materials 2.97 33.41 29.72 63.13 5.61 Misc. supplies 5.87 5.87 0.52 Total variable production costs: 5.78 65.03 198.72 263.75 23.44 Fixed Production Costs: Salaries & wages 61.07 61.07 5.43 Depreciation equip & machin. 17.22 17.22 1.53 Depreciation vehicles 3.86 3.86 0.34 Depreciation other 33.27 33.27 2.96 Total Productlon Costs: 5.78 65.03 314.14 379.17 33.70 Other Fixed Costs: Interest on Govt. loan 68.56 68.56 7.09 Other financial exp. 0.68 0.68 0.06 Total cost/ton In LS 65.03 383.38 448.41 Cost/ton In S 5.78 34.08 39.86 Cost/ton % 14.5 85.S 100.0 Source: Mission estimates, based on Annex 2 (Table 2), and GOC 1988 budget and estimates. a/ Includes electrlilty tariff increase to end of 1987. - 22 - 1.48 Table 1.12 presents selected income statement items for the seven cement companies. Total sales revenues for 1986 amounted to LS 1.6 billion with a gross profit before interest and taxes of LS 268 million or 17Z of sales. Interest is paid on the long-term debt owed to the government, which represents for the most part the cost of the investment in the plants as explained below. None of the companies paid income taxes in 1986 because of cumulative losses from previous years. For the most part, 1986 was a good year with a net profit of the cement companies of LS 60 million, reversing a trend of losses, which accumulated by the end of 1985 to LS 616 million. The major reason for this profit was the increase in the selling price of cement from LS 273/ton bagged in 1985 to LS 355/ton in 1986. Average return on investment for GOC's cement companies was 2Z, with the Rastan Company achieving the highest profit and a return on investment ef 19%. Table 1.12: GENERAL ORGANIZATION OF CEMENT SELECTED INCOME STATEMENT ITEMS - 1986 (LS '000) Tartous Arabian Adra Shahba Syrian Rastan National I/ Tot. GOC Sales Revenues 449,108 228,998 237,802 385,595 175,696 44,935 80,060 1,602,194 Operating costs 367,273 191,924 198,411 304,633 137,439 39,640 94,750 1,334,070 Gross profit (loss) 81,835 37,074 39,391 80,962 38,257 5,295 14,690) (before Int. & taxes) Interest 100,787 9,545 39,000 24,863 33,407 0 0 207,511 Profit (loss) before taxes (18,952) 27,620 391 56,099 4,850 5,295 (14,690) 60,613 Taxes 0 0 0 0 0 0 0 0 Net profit (loss) (18,952) 27,620 391 56,099 4,850 5,295 (14,690) 60,613 Accumulated profit (loss) (252,951) (13,558) (135,151) 4,596 (75,507) (10,938) (72,069) (555,578) Capital Investment 1,175,543 624,654 439,891 444,344 285,163 27,957 71,058 3,068,590 Return on Investment NA 4,42% 0.09% 12.63S 1.70% 18.95% NA 1.98% (before taxes) Source: General Organization of Cesent. NA a Not available. a/ 1986 Annual Report not completed. 1.49 The balance sheets of the three plants studied are summarized in Table 1.13 with the detailed balance sheets presented in Annex 3. Current ratios ranged from 1.7 to 18 for the three plants. The large current assets of the Arabian Company include an advance to GOC of LS 168 million. In view of the cement shortages, the inventory of finished goods was indeed low, ranging from 4.1 days for Tartous to 7.2 days for - 23 - Arabian, indicating that cement was delivered almost directly from the cement mills to the packing section. The inventory levels for materials, work-in-progress and semi-finished goods are high, reflecting a high raw material storage due in part to the long lead time required to acquire imported wear and spare parts. Accumulated depreciation represented 33Z and 48X of fixed assets respectively for Tartous and Arabian in 1986, and 34% for Adra in 1985. Depreciation rates applied in 1986 were around a% of gross fixed assets for both Tartous and Arabian, and about the same for Adra in 1985. Table 1.13: SUMMARY BALANCE SHEETS - 1986 (LS 1000" Tartous Arabian Adra Assets: Current assets 272,578 333,033 266,208 Fixed Assets 1,216,147 527,499 478,509 Less accumulated depreciation 400,561 253,022 188,239 Net fixed assets 815,587 274,477 290,270 tmrojects In preparation 136,514 1,287 18,47 Total Assets: 1,224,678 608,797 574,625 Liabilitles & Equity: Current liabiIlties 158,689 18,439 50,090 Long term loan 1,318,881 63,916 652,299 Paid-in capital 0 540,000 0 Reserves 60 0 1,017 Accumulated losses (252,951) (13,558) (128,781) Total Liabiities and Equity 1,224,678 608,797 574,625 Current Ratios: 1.72 18.06 5.31 Inventory: Finished goods 4,329,340 3,529,709 5,890,320 Materials, WIP, semi-finished goods 154,087,135 73,219,347 40,376,810 Cost of goods sold 382,005,424 179,585,566 211,442,755 Days of production in Inventories: Finished goods 4.1 7,2 10. Materials, WIP, semi-finished goods 147.2 148.9 69,7 Source: Tartous Cement Company, Arabian Cement Company, Adra Cement Co. 1.50 Paid-in equity is minimal with most of the capitalization in the form of long term debt to the government. Arabian shows a capital of LS 540 million which is the capital amount specified in its articles of incorporation, however, this amount has not yet been approved by the - 24 - govern-ent as paid-in capital. It is essentially composed of the long- term loans related to the purchase and installation of the plant equipment and machinery, and plant erection, which have been credited to the company from the government. Since fixed funds are advanced by the government in the form of long-term debt to finance fixed assets, these loans still bear interest of about 9X per annum, calculated on the outstanding amount of each loan and compounded semi-annually. 10/ The loans are usually for periods ranging from 7 to 10 years. These loans are calculated based on payments to foreign suppliers, converted at the official exchange rate. For all of the outstanding loans by the end of 1986, the exchange rate used was the official LB 3.95/US$. ll/ GOC is negotiating with the government to convert these long-term loans and accumulated interest owed into equity capital. The key issue is the definition of equity capital. With the present system, the government is getting a fixed return on investment in the form of interest charged. Other long-term liabilities are small. All three companies show accumulated losses, with Arabian being low in 1986 because of the operating profits achieved during this fiscal year. Economic Performance 1.51 The economic cost of cement production in Syria is analyzed from two points of view: (a) the apparent subsidies are identified in order to assess the social cost that the government attaches to this basic construction material; and (b) the cost of production is compared to the cost of importing cement in order to evaluate the economic effi- ciency of the industry. The following discussion is not intended to be a rigorous economic analysis of the cement industry. Its purpose is to shed some light on the economic viability of cement production in Syria and on the implications of the present pricing policy of cement. 12/ Exchange Rate 1.52 In the economic analysis, a proxy to the shadow exchange rate is used to correct distortions that may exist in the prices of non-traded goods relative to the prices of traded goods. A proxy is used as an approximate measure of the shadow exchange rate. Over and above the 10/ The date of each shipment is used as the starting date for the different portions of the loan on which interest is calculated. 11/ Starting in 1987, the new exchange rate of LS 11.25/US$ is used. 12/ It is beyond the scope of this study to undertake a comprehensive economic analysis of the cement industry in Syria. Such a study would need to be undertaken when justified investments in new cement plants are contemplated. - 25 - official exchange rates described in para. 1.34, there is an unrestricted promotion rate, which is set by the government, and is based on conditions in the unofficial foreign exchange market. This rate was set at LS 24/US$ at the time of the mission in June 1987. 13/ This rate is used in this report as the nearest proxy to the shadow rate of exchange, and applied to the economic analysis, for the following reasons: (a) it represents the rate at which marginal foreign exchange transactions (and hence the costs and benefits of the proposed projects) occur; and (b) it closely reflects the rate at which foreign exchange transactions take place in the unofficial open market, and hence the true value to the economy of foreign exchange. Cost of Production versus Import 1.53 The financial analysis presented above revealed that the financial total cost of producing one ton of cement by the end of 1987 can be estimated at LS 465/ton, excluding the newest and largest Tartous plant. Operating costs excluding depreciation and financial charges were estimated at LB 330.66/ton of which LS 62.40 or 19Z are foreign costs. This figure is more relevant since it excludes capital costs as these are sunk costs. In addition, there are several subsidies included in this cost, most significantly energy subsidies. Two elements in the cost structure of cement that seem to include an intrinsic economic subsidy are electricity and fuel oil. In order to derive the economic cost of cement production, the analysis needs to consider adjusting these to reflect their economic costs. 1.54 Electricity, an important cost element in cement production, is subsidized. The large subsidization of electricity rates is being reduced through two tariff increases for industrial users, resulting in an average of LB 0.36/kWh by the end of 1987, in effect tripling the electricity bill for the cement companies in six months. PEE estimates that even this increase would not be sufficient to cover the economic cost of electricity supply for this class of consumers. The marginal cost of electricity supply to the cement industry that PEE calculated was LS 0.36/kWh at the old official exchange rate, and LS 0.51/kWh at the new official exchange rate. The marginal cost as calculated by the Power Efficiency mission of the Bank is about US$ 0.08kWh. 14/ Converted at the marginal cost of foreign exchange, the economic cost of electricity 13/ The unofficial open market rate ranged between LB 30 to LB 45 per US$ in 1986-87. 14/ This marginal cost is based on an energy cost of US$ 0.055/kWh and a capacity cost of US$ 0.023/kWh for an average plant demand of 401 of maximum demand. See "Syria Electric Power," Annex 7. - 26 - supplied to the cement plants would be LS 1.92/kWh. At this cost, the inherent economic subsidy in the electricity price is about LS 1.56/kWh for a total subsidy per year of more than LS 1 billion for the cement industry. 1.55 Fuel oil is a tradeable product with an export price associated with it. The estimated average export price for fuel oil from Syria is at least US$ 85/ton FOB Syrian port, as of June 1987. 15/ At the marginal cost of foreign exchange, the economic cost of fuel oil is about LS 2,040/ton. After adjusting for transport costs, the inherent subsidy of fuel oil amounts to about LS 1,185/ton of fuel oil. The implicit economic subsidy on fuel oil would amount to about LS 592 million per year, since the cement industry consumes about 500 thousand tons per year at the marginal cost of exchange of LB 24.00/US$, equivalent to LS 137/ton of cement produced. This subsidy represents the social cost of producing local cement. 1.56 The average long-term price of cement in the eastern Mediterranean has been estimated at US$ 31/ton bagged C.I.F. Syrian port. This estimate is based on cement price trends in the area. Lower spot prices have been recorded in the area during the first half of 1987 due to availability of surplus production from Greece and Spain. Such export prices are usually based on variable cost of production since producers export on the margin. At this average long-term price, the economic price of cement would be equivalent to LB 744/ton at the marginal cost of foreign exchange. Local cement production appears not to be economically viable when the border price of LB 744/ton is compared to the approximately derived economic cost of locally produced cement of LB 810/ton calculated in Table 1.14. Therefore, it would appear that under current conditions, it is more beneficial for the economy on the margin to import cement than to produce it locally. Since one of the concerns of the government is to achieve self-sufficiency in cement production for strategic reasons, the cost to the economy for this self- sufficiency is real and heavy. 1.57 As shown in Table 1.14, energy efficiency improvements which would reduce energy consumption by about 15X would improve the economic cost of cement produced in Syria to LB 732/ton. These energy savings would make cement production in Syria more economically viable. It is therefore of utmost importance to achieve these savings in energy consumption in order to marginally improve the economic viability of cement production in the country. 15/ This price would represent LB 956/ton in terms of revenues for the government if petroleum exports are converted at the rate of LB 11.25/US$. Compared to LS 786/ton charged to local consumers for fuel oil, every ton saved of locally consumed fuel oil represents an additional export revenue gain of LS 170/ton. - 27 - 1.58 The proposed energy improvement projects should be given top priority since these proposals not only reduce energy consumption per ton of cement produced but also increase overall capacity utilization. The increase in capacity utilization is 15% after the implementation of the operational improvements, and an additional 5% after the small investment modifications are completed. Further increases in production are achievable in the three plants through long-term investment modifications, which would lead to an increase in installed capacity by at least 50%. Such capacity gains would have a positive impact on the economic viability of producing cement in Syria. Table 1.14: TARTOtiS CEMENT COMPANY EST1IMATED ECONOMIC COST OF ONE TON OF CEMENT IN 1988 a/ (LS 24/$) Economic Cost Item Foreign Local Total after Energy USS LS LS LS Savings b/ LS Salaries and wages 0.28 6.62 46.98 53.60 53.60 Main raw materials 7.44 7.44 7.44 Additional raw material 2.97 2.97 2.97 Electricity 2.40 57.60 230.40 288.00 244.80 Fuel Oi1 9.65 231.53 231.53 196.80 Diesel 0.76 18.24 18.24 18.24 Gasoline 0.41 9.84 9.84 9.84 Oil & Lubricants 0.46 11.04 11.04 11.04 Spare Parts 1.89 45.39 45.39 45.39 Grinding balls, refra. 0.92 22.06 22.06 22.06 Packing Materials 2.46 59.06 55.28 114.34 114.34 Misc, supplies 5.87 5.87 5.87 19.22 461.37 348.94 810.31 732.8 Cost/ton In S 19.22 14.54 33.76 30.52 Cost/ton In S 56.9 43.1 100.0 Source: Mission estimates, derived from financial costs presented In Table 1.9. a/ Includes electricity tariff increase to end of 1987. b/ Energy savings of 15% for electricity and fuel oll. - 28 - II. *COuMoC AND FIxANCIAL EVALUATION Objectives 2.1 The economic analysis in this report shows the possible benefits of proposed energy efficiency improvement measures for the Syrian economy, while the financial analysis focuses on the potential financial returns such measures would generate to the three cement plants selected for the study. The objective of these analyses is to indicate whether or not full economic and financial appraisals leading to a possible energy efficiency program or a comprehensive cement industry rehabilitation project would be warranted. Assumptions 2.2 The economic and financial analyses of proposed measures are organized in the three categories of improvements: operational impro- vements, small investment modifications and long term investments. The figures for costs and benefits are for a single production line for each plant. However, the technical assistance component including training costs, which forms the main capital cost of the operational improvements would be a one time cost that will benefit the plant as a whole. Since the first stage of implementation of an energy efficiency improvement program in each plant is the operational improvements to one production line, the technical assistance proposed is assumed to be the required investment to achieve the benefits associatad with these improvements. Inclusion of other production lines within each plant vould be done by plant personnel requiring no further technical assistance. Moreover, some of the long term investments at Tartous and Adra, such as the prehomogenizing storage, are to be for all production lines of the respective plants. This implies that to achieve the associated benefits of these long-term investments all production lines within a plant must be rehabilitated, and, therefore, the capital investments required would be a multiple of those presented here. 2.3 Therefore, the base case for each analysis assumes: (a) costs and benefits of a single production line per plant; however, some of the long-term investment modifications at Tartous and Adra such as the prehomogenizing storage are to be for all production lines in the respective plant; (b) constant prices and costs; (c) a lifetime of 15 years for small investment modifications and long-term investment modifications; and (d) no additional cost for personnel; the present personnel is adequate for the operation's needs. - 29 - Table 2.1 summarizes the different assumptions for key parameters used in the economic and financial analyses to determine revenue and operating cost streams for each type of improvement recommended. Table 2.1: KEY PARAMETERS FOR ECONOMIC AND FINANCIAL ANALYSIS Economic Analysis Financial Analysis Cement selling price USS 31 (LS 744) LS 355 (per ton (per ton bagged) bagged) Electricity cost LS 1.92/ton LS 0.36/ton Fuel oil cost USS 85 (LS 2,040)/ton LS 820/ton Exchange Rate a/ LS 24/USS LS 11.25/USS Discount Rate 12% 10% Source: Mission estimates. a/ Quoted at the time of the mission to Syria In June 1987. 2.4 These parameters are discussed and analyzed in a scattered manner in various parts of this chapter; however, the) will be reviewed breifly here in order to explain further the analytical approach used in the preparation of the economic and financial analyses. They are as follows: (a) Selling prices of cement. Since cement is a tradeable good, the economic analysis reflects the average long-term price of bagged cement c.i.f. at the Syrian border, adjusted by the shadow exchange rate. As discussed in Chapter I, para. 1.56 a comparison of the border price (LS 744/ton) with the derived economic cost of producing cement locally (LS 810/ton) indicates that, at the present time, it appears more economic to import cement than to produce it locally. However, the Government of Syria prefers to be self-sufficient in cement production for strategic reasons and employment creation. In the financial analysis, the local price of cement of LS 355/ton (as of June 1987) is used. (b) Electricity cost. The economic analysis uses the long-run marginal cost of electricity supply to cement consumers. This cost is calculated in the Syria Pover System Efficiency Study. 16/ The financial analysis uses the average electricity 16/ "Syria Electric Power". - 30 - price for the cement industry (66 kV consumers), which reflects tariff increases to take effect by year end 1987. (c) Fuel oil cost. Since fuel oil is a tradeable good, its average export price adjusted at the shadow rate of foreign exchange was used as the economic cost of fuel oil to the cement industry. The international price of fuel oil in the eastern Mediterranean, and thus Syria's export price for fuel oil (Bunker C), has fluctuated with world oil prices. Prices have varied from around US$ 100/ton to about US$ 83/ton. The average Syrian price of export has been calculated at US$ 85/ton. This price can be taken as the shadow price of fuel oil at plant gate after adjusting for transport cost. The financial analysis uses the actual selling price to the cement industry of about LS 820/ton, which is the average cost of fuel oil to the cement plants after adjusting for transport costs. (d) Exchange rate. For the economic analysis, the exchange rate used is an approximate shadow rate. It reflects the rate at which foreign exchange transactions take place in the unofficial open market, and is believed to be much closer to the true value of foreign exchange to the economy than the official exchange rates. The rate used is that prevailing in June 1987. For the financial analysis, the rate is that which public enterprises use to convert foreign transactions for their account as of June 1987. (e) Discount rate (cost of capital). For the economic analysis, the economic cost of capital was taken as 12%. This rate was used in the Syria Power System Efficiency Study 17/ to calculate the long-run marginal cost of electricity. For the financial analysis, the Bank mission estimated the real financial cost of capital for the General Organization for Cement (GOC) to be 10%. The State Planning Commission and GOC use a rate of 9%. (f) Variable Costs. The estimated variable costs of producing one ton of cement are presented in Table 2.2. The table distinguishes between the financial versus the economic costs, i.e., the actual costs versus the adjusted shadow prices and costs. These costs do not include labor since no added labor is required with any of the proposed modifications, and, therefore, this cost item is fixed, i.e., does not vary with changes in quantities produced. Energy and packaging costs are the most significant, accounting for 54.9% and 44.9Z of the financial and economic costs respectively. 17/ "Syria Electric Power". - 31 - Table 2.2: ESTIMATED FINANCIAL AND ECONOMIC COST OF ONE TON OF CEMENT - 1988 a/ (in LS) Item Financial Cost Economic Cost Variable co ts: Main raw materials 7.44 7.44 Additlonal raw oatelais 2.97 2.97 Electricity I/ 54.00 288.00 Fuel oil 82.40 204.96 Diesel 3,90 18.24 asolne 1,62 9.84 Oil and lubricants 1.80 11.04 Spwre parts 21.28 45.39 Grlndin1j balls, refractories 10.34 22.06 Packing matw-R'ls 63.13 101.00 Misc, supplies 5.87 5.87 Total Incremental Production Costs 254,74 716.80 Incremental cost per ton In USS 22.64 29.87 Source: Mlsslon estimates. a/ Financial exchange rate assumed * 11.25/USS Economic exchange rate assumed * 24.00/USS (as per time of mission In June 1987) b/ Electricity cost reflects new tariffs as of January 1988, and Includes savIngs from Improved time-of-day scheduling. The proposed efficiency improvements fall into three major categories: (a) Operational improvements. These consist of improving maintenance anA repair procedures to save energy in target areas of the plant. The cost of this work would be covered under the plant's operating and maintenance budget. (b) Modifications requiring small investments. These small investments are designed to save energy and bring the plants to their rated production capacity, as well as to increase the plant utilization factors to at least 852 from the current average of 71X. The major modifications consist of installing more efficient drives, making small equipment changes and improvin8 operating conditions. (c) Long-term investment. The long-term investments are proposed not only to achieve further energy savings but also to bring about substantial improvements to the production capacity of - 32 - the plants. The main changes are the installation of efficient preheater systems for the kilns and roller presses for the cement mills. The modifications also include prehomogenizing storage for the Tartous and Adra plants. This type of modification is not line-oriented but rather is for all lines in the plant. This implies that in order to implement these modifications in Tartous and Adra, all production in each plant must be rehabilitated, and the operational and small investment modifications completed for all lines. Only after this can the long term modifications be effective. However, the following financial and economic analysis is based on modifications to one production line per plant. Therefore, the costs and benefits of the long-term modifications are calculated for one line with the clear understanding that these modifications are not implementable for one line only, and that all previous modifications have to be already undertaken on all other lines in that plant. Findings Overview 2.5 The results of the financial and economic analyses are given in Tables 2.3 and 2.4 respectively. Annex 4 shows the detailed calculations and assumptions used in these analyses. The base case of the financial analysis shows that most improvements would result in an IRR in the range of 181 to 631 compared with the 10% financial cost of capital assumed. In the same way, the base case of the economic analysis shows that most improvements proposed give an IRR of between 211 and 451 compared to the 121 economic cost of capital assumed. - 33 - Table 2.3: RESULTS OF FINANCIAL ANALYSIS: BASE CASE AND SENSITIVITY TESTS Base Case Sensitivity Test tIRR In %) Capital costs Increase In local NPV 8 10% IRR Increase Decrease selling price of cement (min LS) (%) +10% -10% +10% +15% +20% (LS391) (LS408) (LS426) Tartous: Operational lmprovements 34.8 26.90 24.48 29.76 32.30 34.89 37.41 Small Investment molificatIons (7.9) 5.35 3.70 7.21 8.17 9.48 10.74 Long-term Investments _4.0 22.41 .29 24.87 28.70 31.68 34.57 120.9 20.52 18.45 22.91 26.04 28.85 31.19 Arabian: Operational lmprovements 74.3 42.19 38.81 46.19 52.89 57.95 62.84 SmaSl Investment modificatlons 14.5 20.56 18.28 23.22 24.55 26.46 28.32 Long-term Investments 81.6 30.48 17.9 33.36 38.14 41.78 34.31 170.5 32.10 29.41 35.25 40.01 43.76 47.40 Adra: Operational Improvements 61.2 37.35 34.28 40.99 44.66 48.15 51.56 Small Investment modifications 6.0 14.28 12.33 16.53 17.14 18.50 19.84 Long-term Investments 79.3 25.33 23.09 27.93 31.63 3 37.54 146.5 26.49 24.12 29.25 32.45 33.30 38.07 Source: MIssion calculations based on Annex 4. Notes: NPV a Net Present Value LS u Syrian Pound IRR a Internal Rate of Return a) a Negative NPV - 34 - Table 2.4 RESULTS OF FINANCIAL ANALYSIS: BASE CASE AND SENSITIVITY TESTS Base Case Sensitivity Test (IRM In ) Capital costs Increase In local NPV e 10% IRR Increase Decrease seling price of cement (min LS) (S) +10% -10% +10% +15% +20S (534) (536) (537) Tartous: Operational Improvements 55.1 26.29 22.64 30.72 31.64 34.20 36.70 Small investment modifications (21.7) 5.19 2.75 8.14 8.03 9.35 10.62 Long-term Investments 11.6 12.94 10.45 16.08 20.40 23.83 27.10 45.0 14.31 11.68 17.62 20.52 23.39 26.16 Arabian: Operational Improvements 26.9 19.97 17.05 23.69 32.91 38.72 44.23 Small Investent modIficatIons 25.1 21.06 18.23 25.96 25.53 27.40 29.22 Long-term Investments S5.5 20.63 1Q,57 2448 29.59 33.74 37.73 109.6 20.65 17.56 24.56 29.76 33.97 38.00 Adra: operational improvements 85.8 33.07 29.02 38.29 40.52 44.07 47.52 Small Investment modifications 17.3 18.29 15.15 22.23 20.93 22.20 23.46 Long-term Investments 57.4 18.69 15.76 22.37 25.84 29.18 32.40 160.5 22.38 19.15 26.48 28.79 31.81 34.74 Sources Misslon calculations based on Annex 4. Ntes: NPV a Net Present Value LS u Syrian Pound IRR a Internal Rate of Return () a Negative NPV Base Case Analysis 2.6 The base case results, as shown in Tables 2.3 and 2.4, indicates (a) overall, the proposed improvement projects appear profitable from both the financial and economic perspectives; (b) internal rates of return are well above the relevant cost of capital for operational improvements and long term investments in all three cement plants, and small investment modifications for the Arabian and Adra plants; (c) the net present value (NPV) of all investments is positive in every case, except that of smell investment modifications for - 35 - the Tartous plant, with an IRR below the cost of capital assumed in both the financial and economic analyses. These results may be partially explained by the fact that Tartous is a relatively new plant, and, therefore, investments in small modifications to improve energy efficiency would not be expected to have the same impact as in the octher plants; (d) for each plant, operational improvements for greater energy efficiency give the highest IRR. This seems plausible since no additional investment is required to implement better maintenance and repair procedures, except for the technical assistance component. Also, long-term investment projects result in higher rates of return than those of small investment modifications because the long-term investment projects include substantial production capacity increases; and (e) on an individual plant basis, energy efficiency improvement projects appear more profitable for the older plants, Arabian and Adra than the new plant, Tartous. Sensitivity Analysis 2.7 Two parameters in the base case were varied, independently, in both the financial and economic analyses: capital cost and the selling price of cement. From these analyses, it appears that increases or decreases of 10-5l in capital costs would not have a significant impact on the financial or economic viability of most improvements proposed. Conclusions 2.8 Civen the rates of return in these preliminary financial and economic analyses, full financial and economic appraisals of the proposed projects would appear warranted. These appraisals could lead either to the preparation of an energy efficiency program for the cement industry or a full scale industry modernization and rehabilitation project. They would use the preliminary analyses in this report as a point of departure. Moreover, key parameters will have to be evaluated more comprehensively, including shadow rate of foreign exchange, economic cost of energy, and potential productivity increases and the impact of various industry conditions, issues, and policies on the financial and economic viability of the proposed improvements. Among the major factors to be considered are: (a) the high cost of local cement production compared to imported cement; (b) the small pricing structure differential between bulk and bagged cement; (c) the demand projections for cement; - 36 - (d) formulation of a strategy for cement exports; (e) the lack of individual cement company control over the sources, and cost of inputs within the constraint of a fixed government selling price; and (f) organization and personnel policies. 2.9 Before any major investments are to be considered for the cement industry, these issues should be dealt with, and a clear strategy identified avd establishe4 to carry the industry into the next century while responding to the demand for cement, and becoming more efficient and viable. - 37 - III. PLAN OF ACTION 3.1 A preliminary plan of action is proposed in order to achieve the energy efficiency improvements necessary to improve the efficiency and viability of the Syrian cement industry. It will need to be further modified and refined after the implementation of the pilot phase proposed as Phase I. The proposed plan is based on the following considerationst (a) reducing energy consumption; (b) reducing production costs per ton of cement; (c) increasing production output of the large plants even beyond the original installed capacities while at the same time improving the quality of the product; (d) reducing the manpower in the industry and releasing it to other potential industries as is reasonably possible; (e) achieving economies of scale by favoring large plants and phasing out older small plants; (f) delaying as much as possible the construction of any new plant (at least for the next five years); and (g) enhancing environmental protection by improving environmental controls in the new plants, and closing down old outdated facilities without pollution controls. Beyond energy efficiency improvements, the plan also aims at rationalizing the industry and improving existing facilities, taking into consideration the limited financial options available and the persistent foreign exchange constraints. 3.2 Stages of project implementation, project cost and schedule. Table 3.1 shows the project cost at the different stages for each of the three plants and total project cost. - 38 - Table 3.1: PROJECT COST ESTIMATES ('000) Foreign Cost Local Cost Total Cost USS LS LS LS USS Tartouss Operational improvements 2,800 31,500 0 31,500 2,800 Small lnvestment modifications 12,286 138,218 5,920 144,138 12,812 Long-term investments 31,850 358,313 44,200 402,513 ,779 46,936 528,030 50,120 578,150 51,391 Arabian: Operational Improvements 3,106 34,941 0 34,941 3,106 Small Investment modifications 3,926 44,168 640 44,808 3,983 Long-term Investments 8,900 100,125 15.200 115,325 10,251 15,932 179,234 15,840 195,074 17,340 Adra: Operational Improvements 2,800 31,500 0 31,500 2,800 Small Investment modifications 6,101 68,641 2,415 71,056 6,316 Long-term investments 18,249 205,301 28.041 233,342 20.742 27,150 305,442 30,456 335,898 29,858 Total: 90,018 1,012,706 96,416 1,109,122 98,589 Su"W4RY OF PROJECT COST (USS '000) Tartous Arabian Adra Totals Operational Improvements 2,800 3,106 2,800 '8,706 Small Investment modifications 12,812 3,983 6,316 23,111 Long-term Investments 35,779 10251 20.742 66,772 51,391 17,340 29,858 98,589 Source: Holderbank and Mlslon estimates. Notes: Exchange rate at time of mission (June 1987) 11.25 LSAJSS. 3.3 Table 3.2 shows the production output achievable after each stage of the recommended improvements is completed for Tartous, Arabian and Adra. The plan also calls for the closure of the old wet process plants, which account for about 790,000 tons of cement production per year. After all improvements have been completed in all three plants, and without the production of the wet process plants, total production of cement in Syria would thus increase by 44X to 6.2 million tons per year for a total investment of US$ 98 million. - 39 - Table 3.2: PROIXDCTION INCREASE AFTER EACH STAGE OF IMPROVEMENTS TOTAL ENERGY SAVINGS AND INVESTMENT COSTS Tartous Line 1-4 Arabian Line 1 l 2 Adra Line I to 3 Increase Total Increase Total Increase Total 1. 1986 Production (tons): Clinker 1,244,331 604,804 675,460 Cement 1,288,001 642,067 690,410 2. Operational Improvenmnts Clinker (tpa) 215,669 1,460,000 271,196 876,000 200,540 876,000 Cement Ctpa) 238,000 1,526,000 277,733 919,8C0 269,590 960,000 Fuel oil savings (tpa) 3,650 1,402 4,117 Power savings (iWh/year) 36,014 12,509 23,232 3. Small Investment Modifications Clinker (tpa) 80,000 1,540,000 54,000 930,000 54,000 930,000 Cement (tpa) 82,000 1,608,000 56,700 976,700 60,000 1,020,000 Fuel Oil savings (tpa) 6,468 2,418 5,301 Power savings MWh/year 9,166 8,300 '1,220 Investment cost estimate (LS) 144,133,000 44,807,500 71,055,750 Investment cost estimate (USS) 12,811,822 3,982,888 6,316,066 4. Long Term Investment Clinker (tpa) 940,000 2,480,000 310,000 1,240,000 465,000 1,395,000 Cement (tpa) 983,600 2,591,600 315,500 1,302,000 508,800 1,528,800 Fuel oil savings (tpa) 10,416 2,604 5,859 Power Savings CMIWh/year) 31,877 16,015 14,371 Investment cost estimate (LS) 402,512,500 115,325,000 233,342,250 Investment cost estimate (USS) 35,778,888 10,251,111 20,741,533 5. Totals Total Increase In prod. (tpa) 1,303,600 649,933 838,390 Incr. In prod. 3 U4 only (tpa) 1,065,600 372,200 568,800 Investment In 3 6 4 (US$) 48,590,710 14,233,999 27,057,599 Specific Inv. cost (USS/ton) 45.60 38.24 47.57 Source: Holderbank (Volume II). 3.4 Table 3.3 also shows the impact on production if similar recommendations are extended to two other plants, namely Syrian Hama 2 and Shahba Moslemeyah lines 2 and 3. Table 3.3: SYRIA CEMENT INDUSTRY : PRELIMINARY MULTI-PHASE PROOUCTION PLAN Production In tpa after Implementation of: Extension of similar Operational Small investment Long tem Improvements to the Company Plant Capacity Process Actual Improvements obdif Ications Investments other plants (no. of lInes (tpa) (tpa) xtpd) Natlonal 04 or 1 x 270 semi-wet 1 x 230 sgml-wt 129,115 0 0 0 0 1 x 380 semi-wet Adra 3 x 1000 dry 675,460 876,000 930,000 1,395,000 1,395,000 Rastan 1x 370 wet 122,709 0 0 0 0 Syrian Old Hmo 1 x 395 wet 122,487 122,487 0 0 0 Mmw Ham 1 x 1000 dry 306,675 306,675 306,675 306,675 465,000 Shahba Shelkh Sold 3 x 210 wet 188,761 0 0 0 0 Old Moslme_ya 1 x 333 wet 118,161 0 0 0 0 Moslemeya 2&U 2 x 1000 dry 521,047 S21,047 521,047 521,047 930,000 Ebrg Islam 1 x 252 wet 79,384 0 0 0 0 Arabian Shelkh Said 2 x 1500 dry 604,804 676,000 930,000 1,710,000 1,240,000 Tartous 4 x 1600 dry 1,244.331 1.460.000 1.540,000 2.480.000 2,480 000 Total Clinker Production 4,112,934 4,162,209 4,227,722 5,942,722 760,617 Total Cement Production 4,370,319 4,439,108 6,229,858 6,835,500 Total Clinker Capacity of stopped wet plants 638,130 760,617 760,617 760,617 Total Clinker Capacity with all wet plants 4,800,339 4,988,339 6,703,339 7,270,617 Total Cement Capacity wIth all wet plants 5.016.354 5.212.814 7.005.000 759.800 Specific Average fuel consumption In kg/t cil 122.3 107.6 102.2 98.0 95.2 In kcalAkg cl . 1,174 1,033 981 940 914 In percent 100 88 84 80 78 Source: Mission estimates. - 41 - 3.5 The average specific fuel consumption for the industry would thus drop from a 1986 level of 1,174 kcal/kg clinker (122.3 kg fuel oil/ton clinker) to 914 kcal/kg clinker (95.2 kg fuel oil/ton clinker) or a saving of 221. 18/ 3.6 The closure of the wet process plants should be done in phases to coincide with the completion of the improvement projects at the three dry process plants. The criteria to select the plant to close down first and subsequently should be as follows: (a) highest operating costs; and (b) size of production and capacity of the plant to maintain an adequate overall national production level with the increase of the production from the improvement projects. 3.7 On the basis of the above, a possible two-phased implementation plan could be drawn. Phase I would be a pilot test phase with the execution of the operational improvements in one plant. Phase II would be a wider implementation extending the program in stages in the plants. Phase I 3.8 This phase will comprise the execution of the operational improvements at the Arabian Company with a particular emphasis on one production line. This company is selected because the chances of success are great and the emulation effect on other companies exists. A technical assistance program, as described below, will be the core of this effort. The success of this phase is essential since it will be the pilot test to demonstrate the feasibility and applicability of the whole program. Foreign exchange needs must be met for the purchase of the required supplies, otherwise the effort expanded in technical assistance and training would be ineffective and thus wasted. This is an essential requirement. On completion of Phase I, an assessment of the results should be carried out in order to optimally plan the implementation of Phase II. Phase II 3.9 Several plans may be selected to implement Phase II. This selection as well as a combination of various plans and implementations are only possible after the completion of the evaluation of Phase I. 18/ A similar calculation of the electric power consumption could not be done because too many assumptions would have been necessary to project the savings for the whole industry based on the analysis of the three plants analyzed. However, a preliminary estimate identified that these savings should fall within a range of 181 to 251. - 42 - These plans are as follows: - Plan A: Extension of Phase I (operational improvements) to production line 2 at Arabian with or without technical assistance. - Plan B: Implementation of operational improvements with or without technical assistance in either Tartous, Adra or both. - Plan C: Implementation of small investment modifications (if long term investments are not envisaged within a five-year horizon or more) in Arabian and/or Adra, on either one or all production lines in each plant. - Plan Ds Implementation of small and long term investments at Tartous for all production lines. - Pl1u E: Implementation of long term investments at Adra for all lines and/or at Arabian for one or both lines after five years or more. - Plan F: Implementation of similar programs at Syrian Hama 2, and Moslemeya 2 and 3. 3.10 The execution of Phase II should follow a comprehensive appraisal, which is to include a cement demand study, a price structure study, and an evaluation of the structure and organization of the cement industry. A global Master Plan for the cement industry should then be drawn within which Phase II would then be implemented. Technical Assistance 3.11 A technical assistance program is an essential component of Phase I as described above. This program can be initiated as follows: (a) selection, through tendering, of a qualifiad international firm with extensive experience in the cement industry with relevant operating know-how of large cement plants; and (b) conclusion of a contract with the selected firm, extending initially for a minimum period of 12 months renewable, to provide a team of up to 12 experts covering the range of cement production specialities. Clearly defined terms of reference should be provided. 3.12 The terms of reference should have the following key objectives: (a) ilAement the operational improvements recommended by Holderbank/Vorld Bank as presented in this report (Volume I and II) through direct assistance in the day-to-day operations of the plant selected (Arabian); - 43 - (b) direct and supervise the elimination of the technical deficiencies listed in the above-named report; (c) implement on-the-job training of plant operating personnel; and (d) assist in the establishment of adequate operating procedures for all aspects of the plant. 3.13 A preliminary estimate of the cost of such a technical assistance contract would be in the range of US$ 2.5 million at 1987 prices and exchange rates. The funding of such a contract could be obtained through international funding agencies. However, the spare and wear parts component of the program, a prerequisite for this assistance and for the success of the plan of action as indicated above, should be the contribution of the Government of Syria through the GOC. The amount required is to be determined jointly by GOC and the technical assistance team upon approval of the plan of action. 3.14 An essential component of the implementation program is training of operating personnel of the cement company(ies). Two options are proposed which should enhance the operating skills of key plant personnel. These are: (a) individual training abroad of key operating personnel (2 people per plant for a total of 6 persons) in all aspects of cement manufacturing for a period of a minimum of 6 weeks. A rough estimate of the cost of this option is about US$ 120,000 (1987 prices), including all travel and subsistence expenses and course material; and (b) a specially designed cement seminar in Syria for 15 to 25 persons, concentrating on cement manufacturing, operation and maintenance, and optimization of mill and kiln operatior. (for energy savings). This seminar would be organized in two sessions of 2 weeks each, and could take place in the new training center at the Adra plant. World experts in the different fields would conduct the sessions. The estimated total cost of this seminar is roughly about US$ 120,000 (at 1987 prices). 3.15 Another component of the implementation plan is the detailed planning of the development and rehabilitation of the cement plants including engineering design, equipment selection and tender preparation. These preparatory works will have to be tendered to competent engineering, planning and consulting firms. Table 1 CL I AMD CMION IcTOU,lUL AND EI2ZCSRS CON3WlT!CO Ln 1985 C0PANT PLANT .......... CLISXOR PROOCTI0 .......... go of Days Stop. FUEL COIISIWTZ .... CEU8T P3O9CTlIO .....* o of Deys top ELECT. OOSEUNPTK to"e per year Percent of Kllns. * tst clinker Total of Tos per ear Percent of Mills kWt cemat Total of Capacity Pla_Aed Actual Achieved 1ln Plan Actual Rated Actual Ter in tons Plenned Actual AchLevwd Mill Plan Actual Rated Acutal Tar" In kW& NSfOIAL Dum: 272.000 183,000 152.948 82.72 2 43 204.0 170 198.90 30.421 192,000 176.790 92.12 2 236.0 115 137.00 74,220,230 3 45 155.7 3 310.7 4 45 185.3 4 221.2 Tot. 135 343.0 Tot. 767.9 ADRA 08.000 768,000 737,900 98.T7 1 45 50.0 103 103.93 78,769 816,000 792,050 97.12 1 63 37.0 170 182.14 144,263.987 2 43 41.0 2 65 88.0 3 45 38.0 3 63 62.0 Tot. 135 129.0 Tot. 195 207.0 RASTrA 123,840 113,809 119,064 102.82 30 35.4 170 156.73 18,641 121.600 136,686 112.42 63 78.5 90 87.84 12,006,498 SREXAM Old pmm 129,600 121,600 127,250 104.6X 30 12.4 170 164.80 20,971 128.000 138S166 105.65 113.3 90 92.00 12.433,272 New _ama 256.000 256,000 288,255 112.62 45 43.3 103 117.35 33.827 2t2.000 318.764 117.22 110.0 170 177.00 36,421,228 TOTAL SYRIAN 385,600 377,600 4153505 110.02 75 55.6 131.88 54,798 400.000 453.930 113.53 223.3 151.69 68,856.500 SHAUBA Shelkh Said 209.280 197,500 195.359 99.02 45 30.0 185 194.41 38,019 207.300 229,452 110.6S 154.0 110 111.00 25,469,172 Old Hoslemaya 117.120 105,000 114.200 108.82 45 30.0 180 192.67 22,003 193.372 124.0 80 Moslemey 243 512,000 512,000 553.859 108.2X 45 41.0 103 102.90 56.992 462.128 718,9"3 155.6X 1 158.0 170 173.00 124.385.703 2 132.5 sorg Islam 84,480 76,000 73.800 99.72 45 32.5 190 190.93 14,472 80,000 80,053 100.12 111.8 92 83.00 6,644.565 TOTAL SMABBA 922,880 890,500 939,418 105.52 180 133.5 139.97 131,486 943,000 1,028,500 109.12 680.2 152.16 156,499,440 AMASIAM Shelkh SaLd 768,e80 784,000 477.167 60.92 1 45 175.7 103 117.75 36,186 816.000 516,679 63.32 1 170.5 130 137.83 71,213.867 2 45 132.5 2 230.1 Tot. 90 300.2 Tot. 400.6 TARTOUS 1,638,400 1.596.480 1,131,063 70.82 1 45 121.8 100 96.20 108,808 1,663,000 1,252,854 75.3X 1 64 253.9 150 137.00 171,640,998 2 45 136.7 2 64 255.6 3 43 120.0 3 64 241.1 4 43 96.2 4 64 230.3 Tot. 180 474.7 Tot. 256 982.9 TOtALS (COC) 4.878,720 4,717,389 3,993,065 84.6X 1,095 2,355 119.99 479,129 4,951,600 4,337,489 88.0X 4,183 148.87 648.701,319 Scrce: General Organisation of Cement. 0 Table 2: CLINKMR AND CENT PRDOUCSION UEL AlSA ELECsxCITs COMsu3UION In 1986 COKANT PL40T .......... CLXER PRODUCSTIO .......... o of Days Stop. YUL CONSUwON ... . CEE9T PRODUCTIOS ..... No of Days Stop. v vr. CSUHnPZON teo" per year Percent of Kilns K./t clinker Total of Tons per year Pere nt of Hills khlt ement Total of Capacity Planned Actual AchLeved Kiln Plan Actual Rated Actual YTr in tens Planne Actual Achieved Ull Plan Actual Rated AcUtel Year In kUh MASTOKAL Dumar 272.000 185.000 19. 115 69.8X 2 45 238.0 170 216.82 27.995 192,000 127,589 66.5S 2 166.6 115 152.98 19.518.56S s 45 212.9 5 165.0 4 45 178.7 4 205.2 Tot. 135 629.6 Tot. 837.0 ADRA 768000 768,000 675,460 88.02 1 45 80 2 103 106.07 71.646 816.000 690.410 84.62 1 65 205.4 170 182.88 126.262.181 2 45 109.4 2 65 208.1 3 45 70.0 3 6 164.4 Tot. 135 259.6 Tot. 195 577.9 RASTAN 123.840 115U810 122.709 106.02 30 32.0 170 153.87 18.881 121.600 126.926 104.42 65 126.4 100 64.67 10,746,824 SYRIAN Old HMa 129.600 118.750 122.487 103.11 30 29.3 170 168.59 20,650 125,000 142.863 114.31 67.5 90 91.00 13,000,533 sew Nama 256.000 256.000 306,675 119.82 45 41.9 109 108.76 33,354 276.480 330.707 119.61 115.5 170 165.00 54.566.655 SOTAL SYRlAN 385,600 374,750 429.162 114.51 75 71.2 125.84 54,004 401,480 473,570 118.0S 183.0 142.68 67.567,188 SHAHB3 SbeLkh Said 209.280 197.500 188,761 95.62 45 37.0 190 197.23 37,229 207.500 210.876 101.62 128.3 120 118.00 24,883.368 Old Moslemays 117.120 105,000 118.161 112.52 45 21.0 190 201.15 25,768 140.4 Mmsleneya 2.J 512.000 512.000 521,047 101.8S 45 61.0 105 108.20 56,577 662,960 672,839 101.5t 1 192.0 170 174.00 117.075.986 1 2 165.3 Boca Itlam 84,480 74.500 79,384 106.62 45 26.0 190 188.84 14,"1 78.000 835463 107.02 124.2 100 85.00 7.094.3s5t.p TOTAL SR3RA 922,880 889,000 907.353 102.12 180 145.0 145.88 132.366 948,460 967,178 102.02 750.2 154.11 149,051.709 *3RL8* SheLkh Said 68.000 750,000 604.804 80.62 1 45 120.8 105 120.9 73,1S9 816,000 642,067 78.72 1 122.5 130 149.72 96,130,271 2 45 117.4 2 103.7 Tot. 90 238.2 Tot. 226.0 TARTOUS 1.638,400 1,485,611 1.244.311 S3.L1 1 45 90.5 100 100.49 125.045 1,604,460 1.288,001 80.35 1 44 215.1 145 146.21 188,518.626 2 45 93.0 2 64 258.8 3 45 76.2 3 64 212.8 4 45 90.6 4 64 252.6 Tat. 1SO 150.3 Tot. 256 939.2 TOTALS (COC) 4,878.720 4,568.171 4,112,934 90.0X 1,095 2.615 122.31 503,073 4,900.000 4,315,741 88.12 4,889 152.37 657.595,S35 Sources Ceral Orsanluatlon of Cmet.n Ii! Annex 2 Page 1 of 9 PODUCTION COST ANALYSIS Introduction Production costs of the cement plants are fairly comparable because of uniform price structures for energy and imported materials such as bags. Cost variations among the plants depend on the most part on technical and operating differences. The following analysis describes the cost composition of cement production in the three plants audited and studied. Cost Comparison Table 1 presents a comparison of the cost composition per ton of cement for Tartous, Arabian and Adra. The costs and prices are ex- plant and are calculated from actual payments of invoices and quantities consumed. Labor and staff costs are comparable at LS 54.29/ton for Tartous and LS 49.89/ton at Arabian or about 15 and 16X of total cost respectively. The Tartous plant has a higher labor cost than Arabian, reflecting a larger number of workers per unit of production, while administrative salaries are lower for Tartous since the production volume is more than double. Production of cement per person--including management and labor-for 1985 at Tartous, Arabian and Adra were 598 tons, 473 tons and 511 tons respectively, compared to an average for the eleven plants of about 540 tons per cement. These production levels per person are comparable to those of other developing countries but are low (about 19X) compared with industrialized countries. Labor and staff remunerations in the cement companies are in accordance with government standards, and compare favorably with other public sector companies in Syria, averaging LB 2,000/year per person. Table 1s COUPOSZTW & COST ALLOXATOW PER To9 in 1986 (SyrLin Pounds) _____------ TARTOUS ---------- -------_--- ARAB ---------- ------------ ARA ------- Q!Y PRICE VALUE PERCENT QTY PRICE VALUE PERCENT QTT PRICE VALUE PERCENT SALARIES & WAGMES (LS/ton cement) Productien Labor 49.13 13.385 40.61 13.15S 40.61 13.86X AduLnstratioc 5.16 1.41X 9.28 3.01X 9.28 3.171 Total Salaries & Wages: 54.29 14.791 49.89 16.161 49.89 17.031 PIWDUCTION INPUTS & KATERIALS: Fuel O1i (Ke/tort clinker) 100.49 0.81 81.40 22.17S 120.93 0.81 97.95 31.72S 105.33 0.85 89.53 30.56X Electricity (kW/ton cement) 150.00 0.13 20.10 5.481 149.72 0.14 21.50 6.961 186.93 0.14 26.84 9.161 Diesel (l/ton ce mt) 1.75 1.31 2.29 0.621 1.41 1.50 2.11 0.68X 2.34 2.S9 6.06 2.07S Gasoline (l/tin cement) 0.27 2.75 0.74 0.201 0.19 2.85 0.53 0.17X 0.34 2.79 0.95 0.321 Olls & Lub. (grlton cement) 167.00 0.01 1.10 0.30X 195.00 0.01 1.95 0.63S 177.31 0.01 1.86 0.64S Packaging (bagsiten cemet) 21.33 1.19 25.38 6.912 21.81 1.32 28.79 9.32X 21.91 1.80 39.44 13.461 Sand (kglton cement) 95.00 0.04 3.33 0.91X 24.90 0.04 1.00 0.32X 0.00 0.04 0.00 0.002 Flyash (kg/tan cement) 49.00 0.04 1.97 0.541 40.00 0.04 1.60 0.521 40.00 0.04 1.60 0.5SX 6 Gpsum (kgltan cement) 35.00 0.05 1.81 0.49X 34.40 0.04 1.38 0.452 34.40 0.04 1.38 0.471 Refractories (k4|tan cement) 1.30 2.47 3.21 0.87X 1.81 2.90 5.25 1.701 1.81 2.90 5.25 1.79X GrLnding bells (gr/ton cement) 0.23 5.53 1.29 0.351 0.12 2.21 0.26 0.081 0.12 2.21 0.26 0.09X LiL8n plates (gr/ton cement) 0.23 4.39 1.01 0.282 0.08 11.08 0.85 0.28X 0.08 11.08 0.85 0.29X Kise. item 7.17 1.95 22.79 7.38X 15.53 5.30X Total prod. inputs & materials: 150.80 41.08X 185.96 60.221 189.55 64.711 TOTAL PRODUCTION COST: 205.09 55.87X 235.85 76.38X 239.44 81.741 GENERAL & ADHIN. EXPENSESs Costiton of cement 2.50 0.68X 5.04 1.63X 5.04 1.72X DEPRECIATIONI INTEREST & TAXES: Cost/ton of cement 159.52 43.451 67.90 21."9 48.45 16.54X TOTAL OPERATING COST PFR TON OF CEMENT: 367.11 100.001 308.79 100.001 292.93 100.002 IV Other Indlrect Expenses Net: 4.06 16.82 16.82 00 E Ajustement for imentory cange (12.86) (12.86) 1 TJTAL COST PER TON OF CDUNT: 371.17 312.75 296.89 O Source: Tartous Cemet Company; Arabian Cment Compan Annex 2 - 48 - Page 3 of 9 Input prices do not vary substantially among the two producers due on the one hand to the uniform prices in Syria for energy and other goods, and on the other hand to GOC's coordination for the purchase of imported spare and wear parts. Differences in consumption of the input materials reflect the differences in the design, layout and operating practices of the plants. Of the two plants, Tartous has a lower production cost per ton as anticipated for a newer plant. However, the difference is not significant since the costs of the miscellaneous items account for the largest vAriance. These differences may be due to variant accounting allocation of non-categorized costs. All three plants operate their own quarries, and only additives such as gypsum are purchased. Paper bags are mostly if not all imported, and a shortage of bags is a problem that the plants have to constantly battle with. None of the three plants manufactures its own bags. The cost comparison also reveals that the major difference between the cost structure for the two plants is in depreciation, interest and taxes. Since neither of the two companies had tax obligations in 1986, the higher capital cost and financing charges for the new Tartous plant resulted in more than double the cost of depreciation and interest. Input prices do not seem to have increased significantly over the last few years, while production costs per ton have increased. Table 2 shows the composition and cost allocation per ton for the years 1983 to 1986 at the Arabian-Sheikh Said plant. The table shows that the value of energy inputs (fuel oil and electricity) decreased as a proportion of total input and materials costs from 731 in 1983 to 641 in 1986 or a decrease of 91, while the cost per kilogram of fuel oil and kWh of electricity have not changed from 1983 to 1986, and the quantities consumed per ton of cement produced have increased by 8.5X for fuel oil and 18X for electricity over the same period. This observation implies that the prices for all other inputs have increased significantly while the prices of energy have remained unchanged over the vsame period. Moreover, the increased energy consumption reflects operational inefficiencies, i.e., using more inputs per unit of output. Considering that electricity costs were doubled in June 1987 and were increased again by 501 in December 1987, the proportion of energy cost to total production cost per ton increased to 581 from 501 (keeping all other costs constant) as shown in Table 3. 19/ 19/ The weighted average electricity cost of the Arabian Company was LS 0.1437/kWh in 1986, while PEE's average was LS 0.12/kWh. Keeping the same weights, the new tariffs would increase the average of the cement plant to LS 0.32/kWh as compared to PEE's new average of LS 0.36/kWh. table 2, ARABIA CENENt COEPANY - S "I SD PLANT cOOKPOlsIO L COSt ALLOCATION PER W (in syrlcn Pouna) -------RAmED ----- ---- ACTUAL 1983 ---- ---- ACTUAL 1984 ---- ACTUAL 1985 ---- ACTAL 1986 -- QTY PRItC VALUE QTY PRICE VALUE QTT PRICE VALUE QTrY P8IO VALUE QIT PRICE VALUB SALARIES W IZAGES (LSiton cement) Produotion Labor 29.63 27.58 31.54 42.12 40.61 dlalstration 5.74 6.25 6.60 9.19 9.28 Eperets a Consultants 7.50 3.50 Total Salaries & Wb8ess 35.37 41.33 41.64 51.31 49.089 PRODUCTION INPUTS & MATERIALS% Fuel Ol (tK/ton clinker) 110.00 0.80 88.00 111.50 0.80 89.20 105.70 0.82 86.31 117.76 0.82 96.56 120.90 0.81 97.93 Electricity (kWhltan cemet) 130.00 0.114 18.20 127.00 0.14 18.25 126.57 0.15 18.56 137.83 0.14 19.30 149.72 0.14 21.50 Diesel (l/ton cement) 1.40 1.00 1.40 1.18 1.00 1.18 1.12 1.00 1.12 1.38 1.03 1.42 1.41 1.50 2.11 Gasoline (Iitan cement) 0.13 2.20 0.29 0.16 2.20 0.35 0.12 2.20 0.26 0.28 2.21 0.62 0.19 2.85 0.53 Oils & Lub. (griton cemaet) 137.90 0.01 1.38 156.00 0.01 1.56 120.00 0.01 1.56 215.00 0.01 2.15 195.00 0.01 1.95 PackasLang (bags/ton cemet) 20.50 0.80 16.40 20.13 1.20 24.16 20.08 1.20 24.10 20.10 1.20 24.12 21.81 1.32 28.79 Sand (kglton e_mt) 45.00 0.04 1.76 23.53 0.04 0.94 37.72 0.04 1.51 63.58 0.04 2.54 24.90 0.04 1.00 Flyash (kg/ton cement) 0.00 31.00 0.06 1.86 31.00 0.06 1.86 9.68 0.04 0.34 40.00 0.04 1.60 Gpsum (kg/toan cesent) 35.00 0.04 1.40 38.10 0.04 1.33 40.00 0.04 1.48 37.43 0.04 1.31 34.40 0.04 1.38 Refractories (k/toan cement) 1.20 2.25 2.70 0.89 2.25 2.00 1.05 3.00 3.15 2.03 2.37 4.81 1.81 2.90 5.25 GrLnding balls (sriton cement) 0.23 4.00 0.90 0.21 4.00 0.83 2.07 1.72 3.56 1.93 2.47 4.77 0.12 2.21 0.26 Lnlng plates (sr/ton cement) 0.23 8.00 1.80 0.02 8.00 0.13 0.74 4.25 3.16 0.15 8.20 1.26 0.08 11.08 0.85 Wosn. items 5.55 5.41 7.73 11.46 22.79 tot"l prd. inputs & materlils: 139.77 147.20 154.36 170.66 185.93 GCNERAL & ADM. 3WINSESz Cost/ton of cemet 2.66 3.69 3.06 5.01 5.04 DEPRECIATION. INTEREST & TAXES: Coatiton of cement 56.97 69.02 65.25 89.82 67.90 TOTAL OPERATING COST PE TOM OF CEME6Ts 234.77 261.24 264.31 316.80 308.76 Other Iditect Espen-es 14.64 12.71 24.19 16.86 Adjuatement for inventory changes 5.51 (9.53) 7.58 (12.85) TOTAL COST PER TON OF CEMENT* 234.77 281.39 267.49 348.57 312.77 Sources Arabian Cment Compay. II -50 - Anex2 PaSe 5 of 9 Table 3Si COPOSITON & COST ALLOCATION PM TON RESULT OF 1987 ELECTRICITY TARIFF INCREAUs a/ (Syrian Pounds) .......- TARTOUS .......... .......... ARABIAN ---------- QTY PRMCE bl VALUE PERCENT QTY PRICE b/ VALUE PERCENT SALARESB & WA0ESa (LS/ton ceesnt) Produetlon Labor 49.13 17.83X 40.51 13.60X dminstration, 5.16 1.87X 9.28 3.11X Total salarles * Wases: 54.29 19.71X 49.89 16.702 PRODUCTION INPUTS MATERIALS: Fuel Oil (KI/ton clinker) 100.00 0.83 82.77 30.05X 110.00 0.88 96.80 32.41X EleotricLty (kWh/ton eement) 146.00 0.36 52.56 19.08X 144.00 0.36 51.i4 17.306 Diesel (I/ton eoment) 1.75 2.00 3.50 1.27X 1.41 2.00 2.82 0.94X Gsoline (1/ton ceesnt) 0.27 6.50 1.76 0.64X 0.19 6.50 1.20 0.40X Ot1 & Lub. (ariton cemoent) 167.00 0.01 1.10 0.40X 195.00 0.01 1.95 0.65X Packasins (bass/ton cement) 21.33 2.80 59.72 21.68X 21.81 2.80 61.07 20.45X Sand (ks/ton cement) 95.00 0.04 3.35 1.212 24.90 0.04 1.00 0.332 Flyash (baton cement) 49.00 0.04 1.97 0.722 40.00 0.04 1.60 0.54X Gypsum (kg/ton cement) 35.00 0.05 1.81 0.66X 34.40 0.04 1.38 0.46X Reftactorles (ks/ton cement) 1.30 2.47 3.21 1.17X 1.81 2.90 5.25 1.76X Ortiding balls (as/ton ecemnt) 0.23 5.53 1.29 0.47X 0.12 2.21 0.26 0.092 Lining plates (Sr/ton cement) 0.23 4.39 1.01 0.372 0.08 11.08 0.85 0.292 Misc. items 7.17 2.602 22.79 7.632 Tot"l psod. laputs & materialss 221.19 80.292 248.80 83.302 TOTAL PRODUCTION COST PER TON OF CEMENT: 275.48 100.002 298.69 100.002 8Seos Mission estimates based on Table 1 of Annex 2 Notes: at Based on 1986 performance figures an costs. b/ Electricity coat inereased to LS 0.36/koh, average cost per kWh after December 1987 tariff increase, all other costs maintained constant at 1986 levels. - S1 - Annex 2 Page 6 of 9 Tables 4 and 5 show the costs as allocated to the cost centers, and the gross profits generated for Arabian and Adra. These tables show that the most expensive cost center in both plants is the kilns, accounting for more than 45% of total cost, followed by the raw materials preparation (raw mills), the cement mills, and packaging. With the 1986 price of cement of LS 355.00/ton bagged, the Arabian company was capable of making a gross profit of about LS 28 million, reversing a trend of losses. In order to calculate the foreign component of the cost per ton, COC prepared an analysis of the local and foreign costs per ton of cement produced at the Tartous plant as shown in Table 6. This analysis was not an evaluation of the economic cost of cement, its only purpose for GOC was to provide a basis for calculating the minimum export price of cement in dollars. This table is based on the official exchange rate of LS 3.95/US$. At this rate, foreign costs amounted to about 23% of total cost, and thus the minimum export price to be charged in order to recover the foreign currency component, according to GOC, would be US$ 21/ton versus a total cost of US$ 93/ton. The minimum price that GOC established for export cement of US$ 25/ton would therefore be substantiated. Table 4: ARABIAN CEMENT COOPANY PRODUCTION COSTS PER COST CENTER FOR 1986 (in Syrian Pounds) COMT CUSTER SLARXIES MATERIALS SERVICES & TAXES, DEPR. ALLOC. COSTS PRODJCTION PROD. COST CMULATIV A MACES & SUPPLIES WIPERS &INTEREST SERV. CENTERS TOTAL in tons per ton COST/ton Quarries 1,391,669 1,349,685 328,852 1,477,231 6,104,416 10,651,853 1,200,885 8.87 8.87 Crushers 753,231 172,146 3,097 2,955,667 1,843,507 5,727,648 1,063,532 5.39 14.26 Rav materials prep. 2,650,340 9,208,800 1,189 6,415,363 17,113,995 35,389,687 995,952 35.53 49.79 Kllns 2,979,315 56,466,541 348,428 9,905,066 14,888,617 84,587,967 604,804 139.86 189.65 Cement mills 1,412,506 4,249,859 16,722 5,378,536 7,729,882 18.787,506 642,066 29.26 218.91 Packlng 3,362,492 299,771 2,277 2,756,823 3,134,477 9,353,839 643,806 14.84 233.75 Paper bags 17,240,812 17,240,812 599,881 28.74 262.49 Total 12,549,553 88,987,615 700,565 28,888,686 50,814,894 181,941,313 Rejects Rejects: 18.42 280.91 Total cost of cement production: 181,941,313 Less: Inventory adjustment (beg. to and of period): (1,057,292) Less: Quarylng revenues from Shaba Co. (1,298,455) Less: Cost of paper bags: (17,240,812) 599,881 28.74 Production cost per ton of bulk cement: 162,344,754 643,806 252.16 Add: SellLng, admin. & general expenses 20,462,838 Total cost of sales of cement Ln bulk: 182,807,591 643,806 283.95 Cost of bagged cement sold: 187,575,976 599,881 tons 312.69 LS/ton Cost of bulk cement sold: 12,472,427 43,925 tons 283.95 LS/ton TOTAL COST OP CENET SOLD: 200,048,403 643,806 tons SALES & GROSS PROFIT Bulk Bagged Sales price 340.00 355.00 LS/ton Cost of sales 283.95 312.69 LS/ton Gross proflt 56.05 42.31 LS/ton Sales volume 43,925 599,881 tons Gross profit 2,462,073 25,381,779 LS Oo Total: LS 27,843,852 4 A Source: Arabian CeBeat Company.M Sable 5s ADRA CEMENT COPANY PRODUCTIOt COSTS PER COST CEN1ER FOR 1986 (in Syrian Pounds) COST CENTER SALARIES MATEUIALS SERVICES & TAXES, DEPR. ALLOC. OOSTS PRCDUCTION PROD. COST CUNULATMVE & WAGES S SUPPLIES EXPENSES SINTEREST SERV. CENTERS TOTAL la tons per ton CO6SIton Quarries 3,076,793 5,824,810 95,353 745,393 3,748,534 13,490,883 1,190,051 1134 11.34 Crushers 1,329,534 603,171 2,949 5,249,840 3,648,616 10,834,110 1,117,876 9.69 21.03 Dryers 746,017 1,562,659 1,674 3,662,995 4,144,691 10,118,036 393,863 25.69 46.72 Raw materials prep. 2,516,549 3,338,099 8,625 8,722,622 10,759,513 25,345,408 1,035,513 24.48 45.50 KDInS 2,609,105 62,319,560 24,478 22,890,607 16,027,996 103,871,745 675,460 153.78 199.28 Cemet mills 2,420,242 5,438,624 14,632 7,664,952 8,524,742 24,063,191 690,410 34.85 234.14 Packing 3,826,811 14,556,902 4,354 2,155,545 8,797,452 29,341,064 662,737 44.27 278.41 Total 16,525,052 93,643,825 152,064 51,091,933 55,651,544 217,064,437 Total cost of ce met production: 217,064,437 Less: Inventory adjustmAnt (beg. to end of period): (5,621,682) Less: Packing costs (29,341,064) Productlon cost pe- ton of bulk eemet: 182,101,691 662,737 274.77 Adds Selling and distribution 1,655,437 662,737 2.50 Add: General, administratlve and finacial expeases 9,339,433 662,737 14.09 Total cost of sales of cement In bulk: 193,096,561 662,737 291.36 l Cost of bagged cement sold: 183,568,441 529,332 tons 346.79 LSlton Cost of bulk cement solds 38,869,185 133,405 tons 291.36 LSIten TOTAL COST OF CEMENT SOLDs 222,437,625 662,737 tons SALES & GROSS PROFIT Bulk Bagged Sales price 268.00 273.00 LS/ton Cost of sales 291.36 346.79 LS/ton Gross profit (23.36) (73.79)LS/ton Sales volume 133,405 529,332 tons Gross profit (3,116,645) (39,060,805)LS Total: LS (42,177,449) 0 A Source: Adra Cement Company. Ph 9 54 - Annex 2 Page 9 of 9 able Gs TARTOUS CEMENT COWPANY LOCAL AND FOREIGN CONPONTSE iN COST OF ONE TON OF CEMENT at Actual 1985 Costsiton Actual 1986 Costslton EstLmated 1987 Costs/ton I T B N to produce 1,252.854 tons to produce 1,288,001 tons to pro4uce 1,605,000 tons Foreign Local Total Forelgn Local Total Foreign Local Total Labor costs 2.06 50.80 52.86 1.76 52.52 54.28 1.09 46.98 48.0? Maln raw materials 9.03 9.03 6.86 6.86 7.44 7.44 Addltional Raw Mat. 1.56 1.56 1.25 1.25 2.97 2.97 Electricty 18.21 18.21 20.11 20.11 21.75 21.75 Fuel Ol1 32.55 44.71 77.26 33.73 46.91 80.64 33.57 46.43 80.00 Dlesel 1.80 1.80 2.29 2.29 3.00 3.00 Gasoline 0.47 0.47 0.74 0.74 1.62 1.62 Oil & Lubricants 1.03 1.03 1.10 1.10 1.80 1.80 spare Parts 4.28 4.28 5.71 5.71 7.47 7.47 srindLng balls, refra. 6.55 6.55 5.52 5.52 3.63 3.63 Packing Materials 9.72 13.84 23.56 9.72 15.48 25.20 9.72 55.28 65.00 Office & other supplies 4.63 4.63 7.17 7.1? 5.87 5.87 Depreciation equip. & machin. 22.07 22.07 21.46 21.46 17.22 17.22 DeprecLation vehclles 3.20 3.20 4.56 4.56 3.86 3.86 Depreciation other 51.74 51.74 55.00 55.00 43.79 43.79 Interest on Gov't Loan 69.63 69.63 78.25 78.25 68.56 68.56 Other fLiancial ESp. 1.69 1.69 0.24 0.24 0.68 0.68 Total cost/ton ln LS 83.73 265.84 349.57 86.59 283.79 370.38 82.98 299.75 382.73 Cost/ton La 8 1/ 21.20 67.30 88.50 21.92 71.85 93.77 21.01 75.89 96.89 Cost/ton ln X 24.0Z 76.02 100.02 23.4X 76.62 100.02 21.7X 78.3X 100.02 Source: General OrganisatLon of Cement. Notest _ At the rate of exchange of LS 3.95/1US. Table 1: TARTOUS CEMEST COQPANY BALAECZ SHEET as of Dec. 31, 1986 ASSETS L A IL I EXS CURENT ASSETS: CUBRETN LlAILSSSE: Cash an bend and in eank 18,729,477 Accounts payable 131,689,043 Acuommts Recelvable 46,049,480 Misc. credLts 27,000,000 Loans to others 4,814,445 158,689,043 Pre-paid expenses 224,167 Pie-paid Insurance & deposits 8,242,333 LOW TERM LABSILITES * EQUITY: 78,059,902 Oving to G0M 1,318,880,724 Reserves 59,746 INUYUTDRTt Accumulated losses (252.951.119) Rav materials 134,244,895 1,065,989,351 Work-in-progress 19,842,240 VinLsbed product (cement) 4.329,340 TOTAL LAUSILITIES: 1,224,678,394 Credit to purchase materials & marchendi 36,101,540 194,518,015 FISXD ASSETS: Land 18,010,831 - Less accuulated depreciatioe 631,673 17,379,158 Buildings & infrastructure 665,004,061 - Less accumulated depreciation 108,340,9 8 556,663,073 Machinery & equipment 201,235,964 - Lass accumulated depreciatton 39.659,886 141,576,078 Vehicles 42,915,000 - Less accumulated depreciation 16,636,859 26,278,141 Tools and forms 2,224,251 - Less accumulated depreciation 2.415,118 (190,867) Office furniture & equipment 3,692,155 - Less accumulated deprecLation 1,217,101 2,475,034 Pre-operating expenses 283,065,213 - Lass accumlated depreciation 21t,.658,920 71,406,293 Total Fixed Assets: 815,586,930 PROJECTS IN PREPARATION: Buildings & infrasetructure 28,143,623 Machinery S equipment 24,118,849 Loans & credits to purchase fixed assets 84,251,075 136,513,547 TOTAL ASSETS: 1,224,678,394 Sources Tartous Company Fiw 0 Table 2: ARABIA CEES COUANY BALANCE SME? as of Dec. 31, 1986 ASSETS LIABIL TISIS CURTI ASSETS: CURRENT LSILITUES: Cash en hand and in Bank 55,660,888 Accounts payable 16,606,029 Aecenats lecelyable 13,447,703 Misc. credits 1,832,898 Certiflcates of deposit 7,800 18,438,927 Pre-paid ezpenses 396,068 Pre-paid Insuranee & deposits 173,212,457 LONG TERM LIABILITIES b EJQUISY 242,744,916 Paid-in capital 540,000,000 Investments In new projects 14,521,229 INYWNTOET: Owing to GOC 49,394,496 Rav materials 69,354,949 Accumulated losses (13,557,514) Work-in-progress 3,884,398 590,358,211 Vanished product (cement) 3,529,709 Credit to purchase materials & merchand. 13,519,179 TOTAL LIABILITIES: 608,797,138 90,288,234 FIXED ASSETS: Land 8,024,796 - Less accumulated depreciation 558,182 7,466,615 Buildings & infrastructure 146,088,930 - Less accumlated depreclatlon 30,787,177 115,301,753 Machinery & equipment 323,038,533 - Less accumulated depreciation 174,917,513 148,121,021 Vehieles 4,525,649 - Less acauutlated depreciation 2,238,756 2,286,893 Tools and forms 1,687.345 - Less accumlated depreciation 1,615,872 71,473 Office furniture & equlpment 1,306,107 - Less accuutulated depreciatLon 713,032 593,075 Pre-operating expenses 42,827,162 - Less accumulated depreciation 42,191,259 635,903 Total Flxed Assets: 274,476,732 PROJECTS IN PREPARATION: Buildings & Lnfrastructure 1,000,000 Loans & credits to purchase fixed assets 287,256 1,287,256 TOTAL ASSETS: 608,797,138 Sourcet Arabian Cement Company, 0 0 w Table 3s ADRA CUEHS COAPADY BALASCB SHEMS as of Dec. 31, 1986 ASS TS LIABI LITI ES CUMRENT ASSBTSs CURRENT LIABILITIES: Cash on band and ln Bank 25,776,962 Accounts payable 44,525,984 Aceounts ReceLvable 92,458,238 Ml. crcedits 5,563,837 Loans to others 47,736,306 50,089,l21 Pro-pald nsurnce & deposits 18,751,495 184,723,001 LONG TER LlABILITIES & EQU ITY OvLng to Govermant (National Debt) 42,308,350 INVENTORYs Owing to GOC 382,311,035 Raw materils 31,710,410 Owing to Industrial PyoJects Establishme 227,680,045 Vork-L-prQgress 8,666,400 Reserves 1,017,121 Finished product (cement) 5,890,320 Accumulated losses (128,781,165) Credlt to purchase materials erchand. 35,217,794 524,535,405 81,484,924 TOTAL LIABILITIESt 574,625,226 PIElD ASSETS: Land 0 - Less accumulated depreciation 0 0 luildings & infrastxrt ture 235,261,611 - Less accumulated depreclation 60,974,349 174,287,262 Machinsry & equipment 169,627,208 - Less accumlated depreciation 66,446,319 103,180,890 Vehicles 11,527,605 - Less accumulated depreciation 10,383,646 1,143,959 Tools and fozms 947,281 n - Less accumulated depreciation 798,990 148,291 Offlce furniture & equipment 956,680 - Less accumalated depreciation 600,185 356,495 Pre-operating expenses 60,188,394 - Less accumlated depreciation 49,035,454 11,152,940 Total Flied Assets: 290.269,837 PROJECS IN PREPARATION: Buildings & Lnfrastructure 9,120,538 Nachinery & equipment 3,677,520 Vehicles 5,014,496 Loans & credits to purcbase fixed assets 127,285 Pre-operating expeoes 207,4'Z5 18,147,463 TOTAL ASSETSS 574,625,225 Sources Atra Cement Company - 58 - Annex 4 Page 1 of 5 FINANCIAL AND ECONOMIC ANALYSIS ASSUMPTIONS Introduction Tables 1 and 2 present the methodology used to calculate the financial and economic costs and benefits, respectively. The assumptions of the base cases for each are listed at the top of each table. All costs (and investment figures) are in constant 1987 prices, and therefore the results are in real terms, i.e., excluding inflation. .SLJ vm... inw ow .ui x_n iin _ a gn3.19. - .- --- cm am ----- --------- --------- ---- ------ _org - - _ miw my D_ MinM nnuW t .---vt. ---..-%oca total ...-...Vcas &m"a st"l Sloukotw&t 64.14oi --.- otg Toms ---- 1213S & TIM "WNW mu2 or U$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ U _ t~~~~~~~~~~~l an astl.11 La g o 11 s 11n. la n.Z as o is La an& =Jo bf ans in,z s n tot & 1%i toTOW oLS &II ft.t Di irn X _oem 3.4M.eoo s21.mo.mt * n.M... a a It 0 M.. o3 *49 2tO.3 n .9325.3 3.931.9 as 34.633.635 36.60 smll tassecamt 64dtito.tlom 3.942.440 $.503.m.0 s.m.a.om S6.32.oft IIS.A m.00 0 in.... 5.1 4.2 220.91 2.671449 3.005.434% is .43.10) SaS X_n ToX Zom.tamo a *.332.m 104.315,633 22.325.400 216.640.635 3110.175 3.29.469 0 3.19.469 12.3 4.a 1041. 0*.0.9= 24.432.34 20 3.971.006 23.4 ltoal.s I5.04.40 2440.011.43 13.553.490 1412.413.425 364.14 4.22.829 0 4.2n.13" 01.6 10.1 1.340.969 550.366 33.44.19 1066.9 20.333 mi . opsuotlocal lqrowoata 2.000.000 21.200.600 0 11.90.0000 0 a 0 0t 13.6 1.6 M.id 3.40.010 II.93.13 is 74.S33.949 43.19 omi s _t 0.it*nga" 1.903.000 3.403.150 32.00 33.4103.10 3.4"0 462.333 0 663.53 0.5 a.. 266.620 3.236.13 3,42.5nT is 14.33.00n 30.33 Im torn 2m.t_ 4,4 20.00 .0.0 1.000.000 31.662.300 133.14u 1.ce1.615 0 s,301.013 22.3 3.a sw.4 s.11.6 3,31.313 0 3,59.2S1s3 23.04 totate '.23S.000 203.040.230 7.920.000 111.3.00 1632."0 3.104.0 0 3.144.36 3.4 6.3 a.".M k.90.03 33.0.4s 10.4.1 2.0 _t 1ml 2q.vmot0 a.me.a. nm.eeDe e 2.9.ooo 0 0 0 0 34.3 4.1 430.164 *.0*1.093 9.013.90 13 41.197.336 St.352 Sl1 lnstog Ifsloo _m. 3.320.600 3 23.926.3 $00.000 34.732.300 6.604 1111 0 11.n *2.0 3..7 *".00 3.2143.9 i.91.0s 1 6.03.51 14.3m Low TOM 3nornot 6.063.000 ".43.10 9.413.40 1.710.130 112.410 e .05S.013 0 5.33.013 22.0 4.3' -. 1. e549 11.02.16" 39 9.261.12 MM.33t total. 22.909.4160 123.4060.330 10.352.40" 134.013.330 344.2. 2.710.619 0 3.110.00 11.2 54.6 2.490302 316.916.643 210.023.004 146.496.260 26.692 Avg. 31.16. ems, 0.30 U.U , 9 e.1406 PCs". tm-o.mkJ. 333 LOtte boned Iml all ces. 434.00 8*92. crement al vo0.osI Coot 33 tat185. bond 3o_. Ibs., i.11.35 1896 tacaal Mt locals, NO LAItr 4qgoad DtO_ooi se. a tft suce..ocome l* Gap""l CoOt as -60- Ann"x 4 1;1! " # i " a ^ s t tt age 3 of 5 liii ! 2321i § {i i S I t i i i I S i t I -"~~0 |u | 4|it!et U4.' |X Ij 4.. Z i 5 III t -!g r 5 1 3 ,# ,l II P. 8 s Ae *I 000 000 ;*00;;;0 8 1: e e e e e * e 1j '1 4..4 9 3iz *'i 1S 13. ! .13* 1 ,1 .IA *53 **3g : S 4.4.a @ g I- '3 3 4 ; e 4 ; t - 3 | | I ! X 1 1 Xi iIi I X - - 61 - Annex 4 Page 4 of 5 Capital Costs The capital costs for each plant and each stage of improvements are based on the estimates provided by the consultants and are detailed in the consultants' report (Volume II). The cost of the technical assistance program has been included as an investment cost for operational improvements at each plant, or an average of US$ 2.8 million equivalent per plant. These costs should be considered per plant rather than per line. Operating Costs Annual operating costs are 3X of the foreign capital costs for additional spare and wear parts. No other incremental operating costs were identified by the consultants since the proposed improvement measures should bring a reduction in operating costs, not an increase. Energy Savings The potential energy savings are based on the estimates derived by the consultants for each plant and for each improvement measure as detailed in the consultants report. These savings are assumed to be incremental, i.e., after the long term investments, the savings achievable would be the total of the savings for each of the categories. For instance, the annual savings at Tartous after the third stage would amount to 41.6 kWh/ton cement and 10.9 kg of fuel oil/ton clinker and 647,900 tons cement, thus the savings would amount to LS 15 million per year in financial terms for the base case. These savings are calculated in LS and then converted to US$. The energy savings for each category of improvements are those directly ascribable to the modifications undertaken at this stage. To differentiate the benefits of each category of modifications, a complex method of calculation was devised as described below. For instance, once the small investment modifications are completed, the energy savings ascribable to these modifications would be the incremental savings achieved through these modifications on the total production volume reached at that point (i.e., including the increased production), plus the incremental energy savings achievable from the operational improvements on the added production. In order to calculate these energy savings ascribable to the specific improvement measures, the total energy savings to this stage of improvements is calculated for the total production reached at this point, minus the energy savings ascribable to the previous stage or stages. Table 3 illustrates these calculations. - 62 - Annex 4 Page 5 of 5 Table 3: ESTIMATED ENERGY SAVINGS FOR THE TARTOUS CEMENT PLANT AFTER RECOMMENDED IMPROVEMENTS HAVE BEEN MADE After Operational After Small After Long Production Current Improvements Investments Term Investments Clinker 311,083 tpa 53,917 tpa 20,000 tpa 235,000 tpa Cement 322,000 tpa 59,425 tpa 20,900 tpa 245,575 tpa Savings Operational Improvements: Fuel oil: 2.5 kg x 365,000 tpa - Savings I Power: 23.6 kWh x 381,425 tpa Small Investments Modifications: Fuel oil: 6.7 kg x 385,000 tpa-Savings I Savings II Power: 29.3 kWh x 402,325 tpa Long Term Investments: Fuel Oil: 10.9 kg x 620,000 tpa - Savings I - Savings II a Savings III Power : 41.6 kWh x 647,900 tpa Sources Mission. Incremental Increase in Production The benefits from the incremental increase in production, resulting after each set of modifications/investments, are based on the average incremental net benefit per ton of cement calculated at the top of the table, multiplied by the additional production generated after that stage of modifications. Results The net present value (NPV) and the internal rate of return (IRR) were calculated based on cash flows of 15 years. This method seems to be more realistic than to calculate energy savings and additional production for the last 5 years since after 15 years more investments would be needed in the renovation and rehabilitation of the rest of the production lines. ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAM Activities Completed Country Project Date Number ENERGY EFFICIENCY AND STRATEGY Africa Regional Participants' Reports - Regional Power Seminar on Reducing Electric System Losses in Africa 8/88 087/88 Bangladesh Power System Efficiency Study 2/85 031/85 Botswana Pump Electrification Prefeasibility Study 1/86 047/86 Review of Electricity Service Connection Policy 7/87 071/87 Tuli Block Farms Electrification Prefeasibility Study 7/87 072/87 Burkina Technical Assistance Program 3/86 052/86 Burundi Presentation of Energy Projects for the Fourth Five-Year Plan (1983-1987) 5/85 036/85 Review of Petroleum Import and Distribution Arrangements 1/84 012/84 Burundi/Rwanda/Zaire Evaluation de l'Energie des Pays des Grands Lacs (EGL) 2/89 098/89 Costa Rica Recommended Technical Assistance Projects 11/84 027/84 Ethiopia Power System Efficiency Study 10/85 045/85 The Gambia Petroleum Supply Management Assistance 4/85 035/85 Ghana Energy Rationalization in the Industrial Sector of Ghana 6/88 084/88 Guinea- Recommended Technical Assistance Bissau Projects in the Electric Power Sector 4/85 033/85 Management Options for the Electric Power and Water Supply Subsectors 6/89 100/89 Indonesia Energy Efficiency Improvement in the Brick, Tile and Lime Industries on Java 4/87 067/87 Power Generation Efficiency Study 2/86 050/86 Diesel Generation Efficiency Improvement Study 12/88 095/88 Jamaica Petroleum Procurement, Refining, and Distribution 11/86 061/86 Kenya Power System Efficiency Report 3/84 014/84 Liberia Power System Efficiency Study 12/87 081/87 Recommended Technical Assistance Projects 6/85 038/85 Madagascar Power System Efficiency Study 12/87 075/87 Malaysia Sabah Power System Efficiency Study 3/87 068/87 Mauritius Power System Efficiency Study 5/87 070/87 Panama Power System Loss Reduction Study 6/83 004/83 Papua New Energy Sector Institutional Review: Proposals Guinea for Strengthening the Department of Minerals and Energy 10/84 023/84 Power Tariff Study 10/84 024/84 Senegal Assistance Given for Preparation of Documents for Energy Sector Donors' Meeting 4/86 056/86 Seychelles Electric Power System Efficiency Study 8/84 021/84 Sri Lanka Power System Loss Reduction Study 7/83 007/83 Syria Electric Power Efficiency Study 9/88 089/88 Energy Efficiency in the Cement Industry 7/89 099/89 Sudan Power System Efficiency Study 6/84 018/84 Management Assistance to the Ministry of Energy and Mining 5/83 003/83 ENERGY SECTOR MANAGEMENT ASSISTANCE PROCRAN Activities Completed Country Project Date Number ENERGY EFFICIENCY AND STRATEGY (Continued) Togo Power System Efficiency Study 12/87 078/87 Uganda Energy Efficiency in Tobacco Curing Industry 2/86 049/86 Institutional Strengthening in the Energy Sector 1/85 029/85 Power System Efficiency Study 12/88 092/88 Zambia Energy Sector Institutional Review 11/86 060/86 Energy Sector Strategy 12/88 094/88 Power System Efficiency Study 12/88 093/88 Zimbabwe Power Sector Management Assistance Project: Background, Objectives, and Work Plan 4/85 034/85 Power System Loss Reduction Study 6/83 005/83 HOUSEHOLD, RURAL,, AND RENABLE ENERCY Burundi Peat Utilization Project 11/85 046/85 Improved Charcoal Cookstove Strategy 9/85 042/85 China Country-Level Rural Energy Assessments: A Joint Study of ESMAP and Chinese Experts 5/89 101/89 C8te Improved Biomass Utilization--Pilot Projects d'Ivoire Using Agro-Industrial Residues 4/87 069/87 Ethiopia Agricultural Residue Briquetting: Pilot Project 12/86 062/86 Bagasse Study 12/86 063/86 The Gambia Solar Water Heating Retrofit Project 2/85 030/85 Solar Photovoltaic Applications 3/85 032/85 Global Proceedings of the ESMAP Eastern & Southern Africa Household Energy Planning Seminar 6/88 085/88 India Opportunities for Commercialization of Non-Conventional Energy Systems 11/88 091/88 Jamaica FIDCO Sawmill Residues Utilization Study 9/88 088/88 Charcoal Production Project 9/88 090/88 Kenya Solar Water Heating Study 2/87 066/87 Urban Woodfuel Development 10/87 076/87 Malawi Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry 11/83 009/83 Mauritius Bagasse Power Potential 10/87 077/87 Niger Household Energy Conservation and Substitution 12/87 082/87 Improved Stoves Project 12/87 080/87 Peru Proposal for a Stove Dissemination Program in the Sierra 2/87 064/87 Rwanda Improved Charcoal Cookstove Strategy 8/86 059/86 Improved Charcoal Production Techniques 2/87 065/87 Senegal Industrial Energy Conservation Project 6/85 037/85 Urban Household Energy Strategy 2/89 096/89 Sri Lanka Industrial Energy Conservation: Feasibility Studies for Selected Industries 3/86 054/86 Sudan Wood Energy/Forestry Project 4/88 073/88 Tanzania Woodfuel/Forestry Project 8/88 086/88 Small-Holder Tobacco Curing Efficiency Project 5/89 102/89 Thailand Accelerated Dissemination of Improved Stoves and Charcoal Kilns 9/87 079/87 Rural Energy Issues and Options 9/85 044/85 Northeast Region Village Forestry and Woodfuel Pre-Investment Study 2/88 083/88 Togo Wood Recovery in the Nangbeto Lake 4/86 055/86 Uganda Fuelwood/Forestry Feasibility Study 3/86 053/86 Energy Efficiency Improvement in the Brick and Tile Industry 2/89 097/89 3;i- W 40 410 420 0~~ ~ - - 9(MA 0 L 370 TURKEY E Y UME To Aon.o T. A Q ~~~~~~~~%o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ o 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ei TO , oklo ROW0 ssw OW36b- o.w Ei ffll . $5/ i ~~~~~~~~~~~~~~SOUKHNE //;| LEBANON j . SYRIAN ARAB REPUBLIC e REmUT ( j ,' ENERGY EFFICIENCY STUDY CEMENT INDJISTRY RAOA Co. S OIL FIELDS - PAVED ROADS ,8Di 0umo,00 , . GAS FIELDS GRAVEL/EARTH SURFACE ROAS NAIOSA eSCUS Adio 11 OIL PIPELINES RAILROADS s // /r KioeX -w<* -GAS PIPELINES L RIVERS R < > I \ >Sd T. 1 IL REFINERIES lfi PORTS o-\-- EISTING 400 kV POWERLINES * AIRPORTS AND SUBSTATIONS 0 TOWNS 0 @ |n }t \ o / i O R D A N\ PLANNED 400 V POWERIINE MAAFAZOk EGOVERNORATE) Q w .J 0 R D A N ~ ~ ~~~~~3 EWT LNT OFIE ~AAioRND CAP m A i)Shohbo - 0 NATIONAL CAPITALS KILOCMTERS OCCUPIED TERRITORIES To A. s 1'_.0 0 38° 3F° 40° 4P 4r 4AY 19Si To Anonno 350 310 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~400 1'4 MAY 1Th9