Document of The World Bank FOR OFFICIAL USE ONLY 10 /. 10) 1> -K Report No. 5994-CHA STAFF APPRAISAL REPORT CHINA SHANGHAI MACHINE TOOL PROJECT January 28, 1987 Industry Department This docunent has a restricted distribution and may be used by recipients only in the performance of their official duties. lts rontents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Name - Renminbi Currency Unit - Yuan (Y) US$1.00 = Y 3.70 Y 1.00 = US$0.27 (as of October 1986) WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet 1 square meter (nm2) = 10.76 square feet 1 cubic meter (m3) = 35.31 cubic feet 1 milligram (mg) = 0.001 gram or 0.015 grain 1 kilogram (kg) = 1,000 grams or 2.205 pounds 1 metric ton (ton, t) = 1,000 kilograms or 2,205 pounds 1 carat (ct) = 200 milligrams GLOSSARY OF ABBREVIATIONS cif - Cost, Insurance and Freight ct - Carat CNC - Computerized Numerically Controlled ERR - Economic Rate of Return GOC - Government of China ICB - International Competitive Bidding IRR - Internal Rate of Return kg - kilogram in - meter ...mg - milligram MMBI - Ministry of Machine Building Industry NC - Numerically Controlled PCS - Pieces PIU - Project Implementation Unit ppm - parts per million SBMEIA - Shanghai Bureau of Mechanical and Electrical Industries Administration SD - Synthetic Diamond SMG - Shanghai Municipal Government SMTC - Shanghai Machine Tool Corpration SMTW - Shanghai Machine Tool Works t - tons tpy - tons per year FISCAL YEAR January 1 - December 31 FOR OFMCL USE ONLY CHINA SHANGHAI MACHINE TOOL PROJECT TABLE OF CONTENTS Page No. LOAN AND PROJECT SUMMARY ......................................... iv - v Io INTRODUCTION ...... .....eooo ............................... I II. THE MACHINE TOOL SECTOR ............... ...................... 2 A. International Status of the Sector ....................... 2 B. Status of the Sector in China ............................ 2 C. The Government's Sector Objective and Strategy ........... 6 D. Project Justification and the Rationale for Bank Support . 6 III. THE PROJECT BENEFICIARIES ..... .............................. 7 A. Organizational Structure ... ... . ....................... 7 B. SMTTW ..................................................... 8 C* SMTC ......................................... ......... 9 IV. THE PROJECT **.......... ................................ 10 A. Project Objectives ..* ............................ 10 B. Project Descriptions ... - ............... .......... 10 1. Plant Rehabilitation and Modernization Component ...... 11 2. Technology Transfer Component ......................... 17 3. Management System Component ........................... 18 4. Training Component .... *.........* ................ 18 C. Materials, ':omponents and Energy Inputs O-*.............. 18 D. Demand and Market Aspects ..... ........... 20 E. Environmental Aspects ............. .............. . .. ..... 21 V. PROJECT IMPLEMENTATION ......... .............................. ........ 21 A. Project Management ....................................... 21 B. Engineering ............................................ .*....... 22 C. Technology Transfer, Management System and Training ...... 22 D. Implementation Schedule ...... ..... .... .... ... ..... ..... * ... 23 E. Status of Preparation ....... ............................. 24 VI. CAPITAL COSTS, FINANCING PLAN, PROCUREMENT AND DISBTRSEMENT . 25 A. Capital Costs .... ................... ....... de......*....... 25 B. Financing Plan ............ .............................. ...... 26 C. Channelling of the Proposed Loan ......................... 27 D. Procurement .............................................. 28 E. Allocation and Disbursement of Bank Loan ................. 29 This report has been prepared by M.R. Amin, A.J. Ewing, K.K. Zamani and S-W. Leong of the Industry Department. Mrs. V. Sellappan provided word processing assistance, and secretarial support was provided by Mmes. F. Tate and E. Tam. This document has a resticted distribution and may be used by rcipients only in the performance of their official duties. Its contents may not otherwise bc disclosed without World Bank authrization - ii- Page No. VII. FINANCIAL ANALYSIS ...... ................ 31 A. Basis of Projections *................................... 31 B. Sales Volume and Revenues o.o......ee ........... 31 C. Production Costs ........ ............................... 32 D. Financial Projections ............* ........................ 32 E. Financial Rates of Return and Sensitivity Analysis ....... 34 F. Financial Covenants ...... .............* 37 G. Auditing and Reporting Requirements ...................... 38 VIII. ECONOMIC ANALYSIS ................ ...... ......... 38 A. Adjusted Costs and Benefits for Economic Analysis *s....s 38 B. Economic Rates of Return and Sensitivity Analysis ........ 39 C. Net Foreign Exchange Savings .* .......................... 40 D. Other Benefits ........ ...................... . ........ 41 E. Risks .. ......... ..... ... ......... ..... *........ 41 IX. AGREEMENTS AND UNDERSTANDINGS REACHED AND RECOMMENDATIONS ... 42 ANNEXES 2 World Machine Tool Production and Trade ..................... 44 3-1 SMTW's Organization Chart .... ........................ .............. 45 3-2 SMTC Headquarters' Organization Chart ....................... 46 4-1 List of SMTC Plants and Institute ........................... 47 4-2 Guidelines for the Control of the Foundry Environment ....... 48 5-1 Scope of Work for Engineering Consultancy Services .......... 52 5-2A SMTC Terms of Reference for Management Consultancy Services . 53 5-2B SMTW Terms of Reference for Management Consultancy Services . 59 5-3 SMTW Project Implementation Schedule sscsscescssescccccsecccs 64 5-4 SMTC Project Implementation Schedule ............ .........c.... 65 6-1 Plant Capital Cost Estimates .......................... 66 6-2 Projected Di-bursement Schedule for Proposed Bank Loan ...c... 67 7-1 Assumptions Used in Financial Analysis ....... ..........c...... 68 7-2 SMTW Production and Revenue Tables Table 1: Projected Production Volume .ceeeece.ceeeecsc..cc 71 Table 2: Projected Export and Domestic Sales Volume and Revenues ....... ...e cc........ c..s sc........o..... 72 7-3 SMTC Production and Revenue Tables Table 1: Foundries and Forge - Prices, Production and Sales Revenues ....c. ........ c..*.*.c.......... 73 Table 2: Accessory Works - Projected Production Volume .. ... 74 Table 3: Accessory Works - Projected Selling Prices ........ 75 Table 4: Accessory Works - Projected Sales Revenues ........ 76 - iii - Page No. Table 5: #2 and #3 Metal Cutting Nachine Works - Prices, Production and Sales Revenues ................... 77 Table 6: #4 and #8 Netal Cutting Machine Works - Prices, Production and Sales Revenues ................... 78 Table 7: Metal Forming Machine Works - Prices, Production and Sales Revenues ..... ......... ................ 79 Table 8: #2 Metal Forming Machine Works - Prices, Production Sales Revenues * ...................... 80 7-4 SMTW Projected Financial Performance Table 1: Historical and Projected Income Statements ........ 81 Table 2: Historical and Projected Fubnd Flow Statements .... 82 rable 3: Historical and Projected Balance Sheets ........s.. 83 7-5 SMTC Projected Financial Performance Table 1: Historical and Projected Income Statements ........ 84 Table 2: Historical and Projected Funds Flow Statements .... 85 Table 3: Historical and Projected Balance Sheets ........... 86 7-6 SMTW - Cost-Benefit Streams for Financial Rate of Return .... 87 7-7 SMTC - Cost-Benefit Streams for Financial Rate of Return *... 88 7-8 Financial Rates of Return for SHTC Project Plants ........... 89 8-1 Assumptions Used in Economic Analysis ....................... 90 8-2 SMTW - Cost Benefit Streams for Economic Rate of Return ..... 92 8-3 SMTC - Cost Benefit Streams for Economic Rate of Return *.... 93 8-4 Economic Rates of Return for SMTC Project Plants ............ 94 8-5 Analysis of Foreign Exchange Effects *----------------------- 95 9 Selected Documents and Data Available in the Project File .. 96 MAP IBRD 19458 - iv - CHINA SHANGHAI MACHINE TOOL PROJECT Loan and Project Summary Borrower: People's Republic of China Beneficiaries: Shanghai Machine Tool Works (SMTW) Shanghai Machine Tool Corporation (SMTC) Amount: US$100.0 million equivalent Terms: 20 years, including 5 years of grace, at standard variable interest rate. Onlending Terms: The Government will onlend, through Shanghai Municipal Government, US$36.0 million equivalent to SMIW and US$64.0 million equivalent to SMTC for a period of 15 years, including 5 years of grace, at a fixed annual interest rate of 8.5% and a commitment charge of 0.75%. SMTW and SMTC will bear the foreign exchange risk. Project Description: The .ajor objectives of the Project are: product rationalization; product upgrading and manufacture of precision machines; improvements in quality and quantity of inputs; increase in manufacturing efficiency; expansion of design and engineering capabilities; and improvements in management systems. The Project consists of: (a) rehabilitation and modernization of 18 plants and 2 research institutes, owned by the two beneficiaries; (b) import of appropriate technology; (c) establishment of a modern management structure and system; and (d) development and implementation of a comprehensive training program. Benefits: import of technology will enable the beneficiaries to manufacture quality products and precision machine tools efficiently. Rationalization measures during project preparation have already led to a restructuring of SMTC's organization and agreements to: reduce overlapping operations among the beneficiaries' plants; and close down two polluting foundries. Management support will add considerable flexibility to the operations, improve maintenance and inventory control, and facilitate the introduction of cost-accounting techniques. Support to the research institutes will streamline product development and help to ensure the compatibility of product design with market requirements. The training program will result in expansion of the beneficiaries' design and engineering capabilities and will improve the - v - managerial abilities of shop, plant and corporate managers. The Project will have a demonstration effect on other provincial machive tool manufacturers as well as capital goods manufactJring industries. Risks: The Project's potential risks are: whether the technology can be transferred to the project entity; and whether the products which result from the introduction of the new technology can be marketed on the scale anticipated. These risks have been carefully addressed in project preparation and design to the extent that necessary safeguards and other measures to minimize their potential impact are in place. Local Foreign Total Estimated Cost: - (US$ millions) - SMTw: Plant Cost 15.0 28.2 43.2 Engineering, Management, Training & Technology Transfer 0.7 7.6 8.3 SMTC: Plant Cost 16.5 53.4 69.9 Engineering, Management, Training e Technology Transfer 1.4 10.9 12.3 Base Cost a/ 33.6 100.1 133.7 Physical Contingencies 3.4 10.0 13.4 Price Escalation F'0 9.8 15.8 Installed Cost 43.0 119.9 162.9 Incremental Working Capital 38.1 3.4 41.5 Interest During Construction 8.8 9.9 18.7 Total Financing Required 89.9 133.2 Z23.1 -~~~~~~ -i Local Foreign Total Financing Plan: - (US$ millions) - IBRD Loan - 100.0 100.0 Domestic Loans 51.8 29.8 81.6 Self-generated Funds 38.1 3.4 41.5 Total 89.9 133.2 223.1 Estimated Bank FY: 1987 1988 1989 1990 1991 1992 Disbursements: -- - (US$ millions) - Annual 0.9 22.9 33.2 25.0 15.4 2.6 Cumulative 0.9 23.8 57.0 82.0 97.4 100.0 Economic Rate SMTW - 31Z of Return: SMTC - 31Z a/ Estimated Project costs exclude taxes. CHINA - SHANGHAI MACHINE TOOL PROJECT I. INTRODUCTION 1.01 The Government of the People's Republic of China (the Government, GOC) has requested a Bank loan of US$100 million equivalent to finance 75Z of the foreign exchange cost of rehabilitation and modernization of two major machine tool manufacturing corporations in Shanghai (the Project); the balance of financing to be provided by domestic banks. For the machine tool industry, the Project is expected to meet two of the Government's major objectives in the industrial sector: (a) modernization of existing enterprises, particularly through import of new technologies; and (b) generation of foreign exchange indirectly through import substitution and directly through increased exports. The Project also aims at rationalization of organizational and physical structures, improvement in management systems, improvements in quality and quantity of inputs, increase in manufacturing efficiency and expansion of design and engineering capabilities. 1.02 The Project consists of four components: (a) rehabilitation and modernization of 18 plants and 2 research institutes, all of which are owned by one or other of the two Shanghai machine tool manufacturing corporations; (b) import of appropriate technology; (c) establishment of a modern management structure and system; and (d) development and implementation of a comprehensive training program with emphasis on middle management training. The Project will require total financing, including physical and price contingencies and interest during construction of about US$223.1 million equivalent, of which US$133.2 million will be in foreign exchange. 1.03 The Project was proposed to the Bank's Industrial Reconnaissance Mission in May 1983. The Bank's first preparation mission (September 1983) prepared a comprehensive sector review of the machine tool industry in Shanghai,,/ which identified the sectoral issues and the core of the Project, and recommended three major feasibility studies to be carried out by foreign consultants. The studies were prepared by: Foundry Management and Design Co. Ltd. of the UK in association with Forging Development (International) Ltd. of the UK; Roland Berger and Partner of the FRG in association with Hayek International Ltd. of Switzerland; and Ingersol Engineers Inc. of the USA. These studies, which were financed by the Bank's Technical Cooperation Credit to China (CR-1412 CHA), together with the sector review formed the major steps in project preparation. The Project was appraised in October/November 1985 by Messrs. M.R. Amin, A.J. Ewing, K.K. Zamani and S-W. Leong (Industry Department), and Mr. H.G. Rohs (Consultant). Financial information and projections were updated in October 1986. 1/ Industry Department: China - Shanghai Machine Tool Project, Preparation Mission's Full Report, December 1983. -2- II. THE MACHINE TOOL SECTOR A. International Status of the Sector 2.01 Metal-working machine tools, which form the core of the metal-working machinery industry, are divided into two distinct main categories, namely the metal-cutting and the metal-forming machines with the former accounting for the major share (65-71%) of the machine tool output in the industrialized countries. Technologically, all the basic types of machine tools in use today had been developed by the end of the 19th century. The next significant impetus to development of machine tools was the emergence of the automobile industry and the moving assembly line which created the demand for more productive and accurate machines. During the past two decades, the major area of development has been automation by incorporating the fruits of the electronic industry in machine tools as exemplified by the development of sophisticated numerically controlled (NC) and computerized numerically controlled (CNC) machines. While a relatively small portion of machine tools in use today is numerically controlled, the share of NC machines in the annual machine tools output of the world's advanced producers has been rising since the early 1970s. it reached a range of 26-39% in 1980 and is currently estimated at about 50Z for the USA and Japan. 2.02 Although it serves as the backbone for au engineering industries including several major industries such as capital goods, cransport machinery and aerospace equipment manufacturing, the machine tool industry's share of all manufactured goods in the industrialized countries is small (0.2% to 0.8% in 1980). In 1981, about 99% of the world production of machine tools (approximately US$26.8 billion) was accounted for by 35 industrialized and newly industrialized countries, with the first 10 leading countries' share amounting to about 84Z. The bulk of international trade (about US$10 billion in 1981) takes place among the leading industrialized countries. In 1981, USA, FRG, Japan, USSR, GDR, Canada, UK, France, Italy and Switzerland accounted for about 80% and 57% of the world's exports and imports, respectively. The world machine tool production and trade for 1981 and 1982 are given in Annex 2. Analysis of gross investments in machine tools in developing and developed countries indicates high correlation coefficients between per capita consumption of machine tools, and per capita gross national product and industrial investment. In 1981, among the 35 countries referred to above, Switzerland and India with a per capita machine tools consumptions of US$46.5 and US$0.35 ranked the highest and the lowest, respectively, while China with a per capita consumption of about US$1.05 ranked 34th. B. Status of the Sector in China 2.03 Structure and Production. During the last three decades China's machine tool production grew by almost 10 times from 13,700 sets in 1952 to about 100,000 metal-cutting and 30,000 metal-forming machine tools in 1982. The sector, which includes manufacture of metal-working machine tools, casting and wood-working machinery and machine tools accessories, comprised over 400 small, medium and large plants, employing about 600,000 -3- people (about 1X of industrial employment).2/ Among these plants, 121 are considered the main enterprises which, operating under the direction of Ministry of Machine Building Industry (MMBI), account for the bulk of machine tools and accessories production, i.e., 79 and 42 plants, respectively. Of the former group, 10 large plants (each with employment of over 5,000 people) provide 10% of the total machine tools production. In 1981, the value of the sector's output was about Y 3.2 billion, corresponding to approximately 1% of China's industrial output. With the share of machine tools (metal-cutting and metal-forming) in the total sector output amounting to about Y 1.6 billion, China ranked sixth among the world's machine tool manufacturing countries. In 1982, 1984 and 1985, the value of China's machine tool output reached Y 1.8, Y 2.5 and Y 2.7 billion (in 1981 prices), respectively. 2.04 Technology. A major issue facing the machine tool industry in China is its outmoded technology. In its early development (1950s), the industry was based on the USSR technology of the time, while during tihe 1960s and 1970s development depended on the indigenous technology which was based on the work of Chinese research/design institutes, internationally published literature and occasional imports of sample machine tools. 'The policy of development based exclusively on indigenous technology, which prevailed until the late 1970s, resulted in a very slow and probably costly technological development and in China's current technological backwardness. During recent years as a result of China's adjustment policy (para 2.13) and the increasing demand of the user industries for better quality and more efficient machine tools, some 20 collaboration agreements (mostly buy-back agreements) have been signed with advanced manufacturers in the industrialized countries. With the exception of a limited number of machine tools which are built through these recently acquired technologies, the currently employed technology in the vast majority of machine tool manufacturing plants is about 20 years old. Old designs combined with poor quality purchased components (e.g., castings, bearings, electric parts and hydraulic equipment), inadequate manufacturing facilities and insufficient experience in production management result in products which in addition to having a short life (5-7 years compared to 12-15 years in the industrialized countries), are unreliable and not suitable for precision work. 2.05 Trade. Although China started exporting machine tools in 1957, published literature (Chinese and international) presents very sketchy data on Chinese exports and imports prior to 1978. During 1978-82, China's exports and imports of machine tools averaged about US$40 million and US$100 million per annum, respectively - a low trade activity for the world's sixth-ranking producer and consumer of machine tools. The main reasons for the low trade level were that while poor quality and outmoded technology of domestically manufactured machine tools limited exports to low-priced conventional machines, restrictions by the Government resulted in imports of only badly needed sophisticated machines. The bulk of Chinese machine tools exports is still to traditional markets in Southeast 2/ In China, the industry includes manufacturing, mining and electric power generation. - 4 - Asia, though exports to the other parts of the world - including the industrialized countries - has increased during recent years. 2.06 Supply/Demand. With exports and imports amounting to about 3% and 10% of the value of domestic production, the average annual apparent consumption of machine tools during 1980-82 has been estimated at about 107% of the domestic output. In 1982, China's installed machine tools were estimated at about 3 million units which, when compared with the machine tools in use in the USA and FRG during 1980 (2.63 and 1.25 million units, respectively), appears excessive. This is partly explained by the adherence of the Chinese industry to the principle of self-sufficiency and the fact that contrary to the practice in the industrialized countries where old and obsolete machines are replaced with modern machines, in China old machines are kept and new machines are simply added. To this end, based on visits to a number of industrial plants by various Bank missions, it is estimated that about one third of machine tools installed in China are idle. Another reason for the relatively high number of installed machine tools in China is the low productive level of Chinese machine tools due to their old designs, short life and unreliable performance. Considering these factors, a significant element of future demand will be replacement of a large portion of existing machine tools with machines of better quality and longer economic life. 2.07 National demand projections for machine tools are not available. International studies, however, using the world's and the Chinese historical consumption growth rates (3.3% and 6.4% per annum during 1965-80, respectively) project demand growth rates of 2.4% and 4.9% per annum for the world and China during 1980-95, respectively.3/ The projected growth rate for China is considered conservative when compared with the Bank's least growth case scenario for the Chinese economic growth during 1981-2000.4/ Under this scenario gross domestic product is projected to grow at 5.4% per annum and the machine building industry - the main market for machine tools - at 7.6%. Thus, with a consumption level of about Y 1.7 billion in 1981 and a projected growth rate of 5-7% per annum during the succeeding two decades, the main issue is not the demand but the supply, and in this respect, whether China will be able to modernize its machine tool industry fast enough to meet the domestic demand for reliable and efficient machines. 2.08 Distribution System. Until 1982, production and output of all the main enterprises (para 2.03) were subject to the Government's quota and allocation system. In this respect, annual production quotas were established by the Government for each enterprise and then the products were allocated to the domestic users under the centrally controlled unified distribution system. One of the major deficiencies of this system, among others, was that the manufacturer seldom knew the users of its products and the latter had no freedom in choosing the manufacturer. In line with the 3/ Source: Predicasts Incorporated, Cleveland, Ohio, USA; Industry Study No. 270 entitled 'World Machine Tools to 1995, May 1982. 4/ -China: Long-term Issues and Options,- Report No. 5206-CHA, May 22, 1985. - 5 - Government's recent reforms, there has been a continued reduction of the Government's quotas since 1982. As an example, in 1985, about 50X of metal-cutting machines and 47Z of metal-forming machines, manufactured by the Shanghai machine tool industry, was under the Government's quota and allocation system. With the expected increase in the non-allocated share of output, the main enterprises' responsibilities for marketing their products, providing after-sales services, and responding to the market signals in production planning would also increase. Most of China's exports of machine tools are handled by the China National Machinery and Equipment Import and Export Corporation, a centrally controlled organization. There are, however, a number of enterprises, among them the project beneficiaries, which are allowed direct exports. 2.09 Input Prices. The principal inputs for machine tool manufacturing are iron and steel castings, steel products, bearings, and electrical and hydraulic components. The industry is not energy intensive and the share of energy cost in the total cost of production is relatively small (3% in Shanghai). The foundry industry, whose principal inputs are sand, scrap, pig iron and coke, is on the other hand, energy intensive - the share of energy amounting to about 14% of the direct production cost. The sector review (para 1.03), which included a detailed financial and economic analysis of the Shanghai machine tool industry in 1983, concluded that: all material input prices were reasonable when compared with international prices; electrical energy prices were compatible with economic prices; and coke prices were about 30% of economic/international prices. Discussions held in the context of the Bank's first coal project in China (the Changeun Coal Mining Project, Loan 2501-CHA) indicate that within a few years coal/coke prices will be progressively raised to be in line with long-run marginal costs, i.e., be set at economic levels. The appraisal mission confirmed that the sector review's findings regarding all input prices were valid in 1985 and found that coke prices had already been increased to about 64Z of international prices. 2.10 Output Prices. For the purpose of pricing, machine tools are divided into two broad categories: special purpose machines, i.e., machines which are built to the customers' orders; and general purpose machines, i.e., machines which are manufactured for sale in the market on a regular basis. There are no price restrictions on the first category and these machines are sold at negotiated prices. The second category is, however, subject to price control by the Government, but the system includes the following important adjustment rules: (a) price review and adjustment every 2-3 years on the basis of market conditions and changes in input prices; (b) 8-20% price increases allowed if a product is upgraded; (c) higher price increase allowed if a product is priced abnormally low; (d) negotiated prices permitted up to 20% higher than fixed prices if input materials are not provided under the unified distribution system; and (e) no price control for exports. The above price incentives, which were introduced in 1982, have been implemented as exemplified by the experience of the Shanghai machine tool industry during 1983-85. 2.11 The sector review of 1983 (para 1.03) provides detailed analysis of the then prevailing prices of domestically manufactured machine tools in - 6 - Shanghai. The conclusion reached was that these prices, after adjustment for quality, life and reliability, were generally competitive when compared with the international prices. This conclusion was supported by the export prices which were either the same or slightly higher than the domestic prices. Thus, with the implementation of the price adjvscments (para 2.10), the current level of prices is considered reasonable. In the future, as a result of reduction in the share of 'overnment-allocated products (para 2.08), the manufacturers, in proposing adjustment in existing product prices or prices for new products, would have to consider not only their costs but also the prices of comparable machines. C. The Goverrment's Sector Objective and Strategy 2.12 Objective. China plans to quadruple its 1980 agricultural and industrial output by the end of the century, with per capita GNP increasing from US$300 to US$800 (in 1980 dollars). The focus of GOC is not only a major quantitative increase in the industrial output, but also a substantial improvement in product quality. To achieve the latter, better quality and more reliable machinery will be required - a requirement which cannot be met without upgrading the quality of the domestically manufactured machine tools. Given the above objective and requirement, modernization of the machine tool industry has been assigned high priority, with the Project being the first major effort in that respect. 2.13 Strategy. In industry, the Government's current policy of adjustment and reform is to correct several fundamental weaknesses, which became prominent by the end of the 1970s: inefficiency in the use of capital, labor, raw materials and energy; poor product quality; and an imbalance in capacity. The adopted adjustment policy includes: generation of foreign exchange indirectly through import substitution and directly through increased exports; stress on modernization of existing enterprises; and improvement of energy efficiency. In line with phe overall industrial adjustment policy, the Government's specific strategies for the machine tool industry are: to keep the current level of output in nuLibers but increase output value by changes in product-mix and improvemen: of product quality; to improve machine design and manufacturing techniques through import of appropriate technologies; to discontinue production of obsolete ui3chines and to manufacture precision machine tools; to satisfy, primarily, thle needs of the light user industries; and to improve management systems in machine tool manufacturing enterprises. D. Project Justification and the Rationale for Bank Support 2.14 In line with the above objective and strategy, GOC has selected the Project as its first major operation in the sector. The choice is appropriate because the Shanghai machine tool industry covers a wide spectrum of metal-cutting and metal-forming machines as well as accessory equipment and foundry products, and accounts for about 10% of the country's machine tools output and about 20% of its exports. The Project also meets most of the Bank's industrial objectives in China, namely: improving policies and institutions; technology upgrading; energy conservation; and export promotion. 2.15 One of the major shortcomings which contributed to the weaknesses of the Chinese industry (para 2.13) has been identified by the Government as lack of proper preparation and evaluation of investment projects. The Bank, through its sector review and the subsequent Bank-assisted feasibility studies, has already played an important role in the preparation of the Project. The sector review identified a number of major issues and made the following recommendations for their resolution: (a) organizational restructuring cf the beneficiaries; (b) physical restructuring of plants involving gradual phasing out of three cast iron foundries and mergers of some of the machine tool and accessory manufacturing plants; (c) rationalization of production and reduction of overlapping operations among the Shanghai plants; (d) measures to assure adequate supply of sanc, scrap, pig iron and coke for the foundries; and (e) conclusion of collaboration agreements between experienced foreign manufacturers and the relevant Shanghai enterprises, not included in the Project, for the manufacture of quality bearings, electric parts and hydraulic components. These recommendationE either have been implemented or agreement has been reached to implement them during the course of project execution. The feasibility studies, which started with comprehensive market studies, have identified the required products for the fiture and thus have suggested changes in layout and addition/deletion of manufacturing equipment for each plant involved in the Project to meet these requirements. Participation of the beneficiaries' personnel and a domestic consulting firm in the sector review and the feasibility studies, both of which involved financial and economic analysis, has resulted in the transfer of project preparation and evaluation techniques to the sector in Shanghai. The Bank's role in the future, inter alia, would include assisting the Chinese in import of technology, establishiment of management systpms at plant and corporate levels, ard training of personnel. III. THE PROJECT BENEFICIARIES A. Organizational Structure 3.01 The project beneficiaries are the Shanghai Machine Tool Works (SMTW) and the Shanghai Machine Tool Corporation (SMTC) whose combined output of mar*-ine tools amounted to over US$100 million equivalent in 1982, corresponding tc about 50% of India's production in that year. SMTW was registered as an independent industrial enterprise in 1981 and SMTC, which was an administrative agency of the Shanghai Municipal Government ZSMG) until August 1984, changed its status to an independent enterprise. Both corporations are owned by the Government and, for administrative purposes, report to the Shanghai Bureau of MechaniLal and Electrical Industries Administration (SBMEIA), an organ of the SMG. SBMEIA, which also reports to the MMBI, appoints the corporations' general managers, issues the central and municipal governments' guidelines and directives to the corporations, reviews price proposals by the corporations, and makes sure that the Government's allocated produ'cts are manufactured and delivered. -8- 3.02 Articles of association (charters) for SHTW and SHTC, describing the scope of activities, responsibilities and authorities of their organizations, were prepared by the beneficiaries and reviewed by the Bank in 1985. According to these Charters, which were approved by SBMEIA and became effective as of January 1986, the beneficiaries have full responsibility for managing their affairs and are authorized to: change their organizational structures; determine their employment policies; 'uarket their non-allocated products; enter into contracts with domestic and foreign organizations; borrow from domestic and foreign sources; and allocate and use their retained earnings. 3.03 While SMTW operates an integrated plant, SMTC behaves more like a holding company with 44 plants and 1 research institute under its purview. Locations of SMTW and SMTC's plants and research institute are given in the attached Map (IBRD 19458). For SNTC's research institute and each of its 16 plants included in the Project, detailed descriptions covering organization chart, existing physical facilities, product types, output level, employment and financiel performance are given in the Project File. This file also includes brief descriptions of SNTC's 28 non-Project plants. The financial projections contained in Chapter VII detail the recent financial performance of SMTW and SMTC which is satisfactory. The management and staff at SMTW and SMTC are competent and, with the assistance of foreign advisors and consultants, will be able to implement the Project efficiently. However, for plant and corporate operation, the mangement systems at both corporations are inadequate and management skills from shop to corporate level need improvement. These shortcomings have been addressed under the Project (paras 4.13 and 4.14). The important features of the beneficiaries' structure and operations are described briefly in the succeeding paragraphs. B. SMTW 3.04 SMTW's integrated plant comprises three distinct sections: the captive foundry; the hydraulic compGaent manufacturing section; and the grinding machine manufacturing section which also includes manufacturing of roundness testers and coordinate measuring machines. The plant's principal products are cylindrical, surface, double disc, crankshaft, roll, thread and gear grinding machines. SHTW's existing organization chart is presented as Annex 3-1. Salient features of the operations are summarized below: - 9 - SMTW - Salient Features Unit 1985 Employees person 6,366 Gross fixed assets million yuan 73.4 Machine tool output set 2,221 Domestic sales million yuan 71.1 Of which, machine tLols million yuan 60.2 Exports million US$ 1.1 Profit before tax million yuan 22.4 Source: SMTW. C. SMTC 3.05 As stated earlier SMTC currently has 44 plants and one research institute, spread throughout Shanghai, under its purview. Based on the Bank mission's recommendations, SMTC's corporate organization was changed drastically to reduce the number of people reporting directly to the corporate manager from 47 to 8 and decentralize the decision-making process. SMTC's new organization chart is given in Annex 3-2. The plants are grouped in four divisions comprising foundry and forging, accessories and tools, metal-forming machines and metal-cutting machines. SMTC issues guidelines to the plants, reviews and approves/disapproves plant investments, appoints plant managers, allocates the Government's product quotas to the plants and handles the exports. Other than the Government quotas, the plants are free to plan production and are responsible for the domestic sale of non-quota products. The plants are free to manage their affairs within SMTC's guidelines. Each plant produces its own independent annual financial statements and pays SMTC a fee for the provision of services. SMTC has not prepared consolidated financial statements in the past, but has agreed to do so on a regular basis beginning in FY87. Confirmation of this agreement was obtained during negotiations. 3.06 SMTC manufactures a broad range of products. The plants in the foundry and forging division manufacture steel castings, iron castings and forged products. While steel castings are sold to SMTC's machine tool plants as well as other manufacturers, iron castings and forged products are exclusively for sale to the SMTC plants. The accessory division's plants manufacture a wide variety of measuring equipment and machine tool accessories which are sold to STHC's plants and other machine tool manufacturers throughout the country. SMTC's principal metal-cutting machines output includes: lathes, milling machines, drilling machines, shaping machines, gear cutting and gear grinding machines, guideway grinding machines, electro-discharge machine and wire-cutting machines, special purpose machines and transfer lines. The metal-forming machines, manufactured by SMTC, are: mechanical presses, folding machines, guillotine shears, extrusion presses, die-casting machines and pipe-bending machines. The salient features of SMTC operations are summarized below: - 10 - SMTC - Salient Features Unit 1985 Employees person 30,042 Gross fixed assets million yuan 316.8 M{achine tool output set 17,186 Domestic sales million yuan 364.9 Of which, machine tools million yuan 217.0 Exports million US$ 8.5 Profit before cax million yuan 102.8 Source: SMTC. IV. THE PROJECT A. Project nbjectives 4.01 The principal goals of the Project are: (a) rationalization of products through physical restructuring of plants; (b) upgrading of products and manufacture of precision machines through technology transfer; (c) improvements in quality and quantity of inputs through alleviation of existing constraints; (d) increase in manufacturing efficiency through renovation of buildings, removal of obsolete machinery, installation of suitable new equipment, training of middle management and establishment of appropriate production planning and control systems; (e) expansion of design and engineering capabilities through strengthening of the research institutes; and (f) improvements in the plant/corporate management systems through employment of modern management techniques. Successful implementation of the Project is expected to have a demonstration effect on other provincial machine tool industries as well as capital goods manufacturing industries. B. Project Description 4.02 The Project includes four components: (a) plant rehabilitation and modernization component covering four cast iron foundries, one forging plant, six accessory equipment manufacturing plants, five metal-cutting machine manufacturing plants, two metal-forming machine manufacturing plants and two research institutes; (b) technology transfer component; (c) management system component; and (d) training component. Of the plants under component (a) one cast iron foundry, one metal-cutting machine manufacturing plant and one research institute belong to SMTW while the rest of the plants/institutes are under the purview of SMTC. Annex 4-1 lists the titles of all SMTC's plants and institute, and designates those included in the Projact. Components (b), (c) and (d) cover SNTW and SMTC's central organizational units as well as all plants and institutes involved in the Project. Because of the heterogeneity of products and in order to avoid repetition, instead of presenting detailed project description for each corporation, homogeneous operations are grouped and the relevant details are described. - 11 - 1. Plant Rehabilitation and Modernization Component 4.03 The principal criteria used for the rehabilitation and modernization program of each plant were rationalization of production and identification of marketable products. Under the first criterion, the extent of diversification will be reduced in favor of specialization to improve quality and efficiency. In other words, the principle of plant self-sufficiency, a common practice in China, will be replaced with the interdependency principle. The second criterion was used to choose the appropriate product-mix for each plant. In this respect, domestic market studies were carried out first and then existing products were divided into three categories: products to be phased out, products to be retained 'as is- and products to be upgraded. New products to be manufactured by each plant were also identified by the market studies and form the fourth product category. Alternative manufacturing technologies were studied and an appropriate technology was chosen for each plant (para 4.11). The chosen product categories and manufacturing technologies will necessitate changes in plants' layouts and removal/addition of machinery and equipment in each plant. The overall results of these changes will be that: the number of installed machinery will be reduced considerably; with the exception of two new buildings, the civil works will be limited to renovation and, in some cases, extension of existing buildings; and the additional land requirement of the Project will be about 12,000 m2. To this end, because of closure of two existing foundries (para 4.04), there will be a net gain of about 11,000 m2 in available land which will contribute to the alleviation of the land constraint in the Shanghai area. 4.04 (i) Foundry Subcomponent. Due to the poor quality of castings, the foundries will be modernized and their product mixes will be rationalized. The resulting adjusted capacities are expected to satisfy over 97% of the future needs of SMTW and SMTC for quality castings. At SMTW, the existing foundry will be expanded to meet all SMTW's future needs, except castings weighing more than 10 tons which will be procured from external domestic suppliers. At present, SMTC operates six cast iron foundries of which five are independent and the sixth is a part of one of SMTC's machine tool plants. The current practice is that each foundry serves a selected number of machine tool manufacturing plants, producing the whole range of their requirements, i.e., from the very small to the very large castings. As this practice is highly inefficient and as two of the independent foundries are very old and located in congested residential areas, the future foundry operations of SMTC will be limited to three plants which will be specialized in manufacture of small, medium and large castings, respectively. Consequently, the two foundries in the residential areas and the foundry in the machine tool manufacturing plant will be closed down, and the remaining foundries, after rehabilitation, will serve all SMTC plants according to the size requirements. The following table compares the current and projected output of the foundries. - 12 - Shanghai Machine Tool Project - Annual Foundry Output (in tons) After Project Completion Foundry 1985 a/ Output Range A. SMTW 10,700 16,000 Up to 10 t castings B. SMTC: Foundry No. 1 7,600 22,000 Large Castings Foundry No. 2 3,900 - None Foundry No. 3 6,600 10,900 Small Castings Foundry No. 4 12,200 - None Foundry No. 5 9,500 7,500 Medium Castings Foundry in Machine Tool Plant. 2,700 - None Subtotal (B) 42,500 40,400 Total 53,200 56,400 a/ Preliminary. As the above table indicates, the capacity of the SMTW foundry will increase as a result of design changes and a slight increase in the number of machine tools produced. For SMTC, however, there wlll be a reduction in the combined foundry outpuxt as a result of rationalization and decrease in the number of machine tools produced (para 4.09). 4.05 (ii) Forging Subcomponents. The present forging operation at SMTC's forging plant is unsatisfactory due to poor material handling practices, inefficient furnace operation and use of outmoded equipment. The rehabilitation/expansion program will result in increasing the plant's output from 2,500 tons in 1985 to 10,000 tons in 1991. The annual output of 10,000 tons will satisfy SMTC's projected demand of 4,500 tpy and about 73Z of the demand of other consumers for shaft forgings, including SMTW, in the Shanghai area. The plant's future capacity was determined on the basis of the demand analysis and the smallest available economic-size forging machine. With completion of the rehabilitation program, major forging operations in all SMTC's other plants and SMTW will be discontinued. 4.06 (iii) Accessories Subcomponent. At present, SMTC has 14 independent accessory equipment manufacturing plants which provide SMTW and other consumers (domestic and international) with parts used in the manufacture of machine tools as well as abrasive materials/tools for grinding. Under the rationalization program: one of these plants, located in the Anhui Province, will be transferred to that province; another plant, engaged in manufacture of various types of gears, rotary tables and universal milling attachments, will discontinue manufacture of these products and the plant facilities will be used for assembly of numerical control devices (para 4.16); a third plant, currently engaged in the manufacture of lathes and name plates, will stop production of the former - 13 - and concentrate on the manufacture of the latter. Six of the remaining plants, which should be rehabilitated on a priority basis, have been included in the Project. These comprise five parts-manufacturing plants and the plant which nanufactures grinding wheels and abrasive paper/cloth. 4.07 The purpose of plant modernization for the five parts-manufacturing plants is to upgrade their existing products, introduce new products required for manufacture of the more sophisticated machine tools of the future and adjustlexpand capacities. As all but synthetic diamond (SD) products manufactured by the Grinding Wheel plant, are acceptable in quality, modernization of this plant will be limited to the import of equipment and technology for manufacture of synthetic diamond tools. A significant feature of the rehabilitation program concerns the Gear Works, one of the five parts manufacturing plants. With modernization of this plant, gear manufacturing will be discontinued in all but three of SMTC's metal-cutting machine and accessory msnufacturing plants. Concentration of metal-cutting machines' gears manufacturing in one plant will result in proision of uniforu, standard and precise gears to manufacturers and consumers (as spare parts). The following table summarizes the rehabilitation program for and its effects on the selected six accessory manufacturing plants. - 14 - SMIC - Rehabilitation of Accessory Parts Manufacturing Plants Annual Value of (i mwillion yuam at 1986 Prices) After Plant Existing Project Title Products Change New Products 1985 a/ Co2pl. NO. I Tooling systems Upgrade Drill Chucks None 5.6 9.7 No. 3 Sheet covers None Telescopic covers Channels Upgrade Guards Cabinets Upgrade Wipers Upgrade 2.2 4.4 No. 6 Lead Screw Upgrade Aluminium, Plastic Steel Op. Units None and Coated Operating Units 3.3 4.8 Gear Grade 7-8 Gears Upgrade Grade 5 Gears Works Grade 6 Gears Upgrade 3.3 12.0 Level Inductosyn Upgrade Linear Glass Scale Works Levels, Encoders None Digital Tool Presetters Optical Tool Pre- setters None Opt. Reading head None 2.4 20.6 Grinding Conventional None Synthetic Diamond (SD) Wheel Wheels Tools Works Abrasive Cloth/ None Paper SD Grains None 65.3 89.5 a/ Preliminary. 4.C8 (iv) Machine Tool Manufacturing Subcomponent. This subcomponent, which accounts for about 55% of the value of the Project's imported machinery, includes the entire parts and machine manufacturing of SMTW's integrated planws and six of SMTC's machine tool manufacturing plants (four metal-cutting and two metal-forming) which would have a significant impact on SMTC's operation. At present, SMTC has 14 plants in its metal-cutting division and 7 plants in its metal-forming division. As a part of rationalization program at SMTC: one metal-cutting machine manufacturing plant, located in Anhui Province, will be transferred to that province; because of oversupply of conventional lathes, output of lathes will be decreased and the lathe manufacturing plants wifl be reduced from six to five; manufacture of conventional grinding machines will be discontinued at SMTC plants and will be concentrated at SMTW; and - 15 - metal-forming machine manufacturing plants will be reduced from four to three with the welding operations for all metal-forming machines to be concentrated in one of these plants. 4.09 Using the criteria discussed in para 4.03 and taking the Government's sector strategy (para 2.13) into consideration, the future product-mix of each of the seven plants in this subcomponent was determined. Based on the projected product-mix and the chosen manufacturing technology (para 4.11) existing machinery and equipment in each plant were assessed and the required new manufacturing machines were identified. The result of these analyses is that in the 7 selected plants, about 1,000 old, obsolete and uaproductive machines would have to be removed, and about 120 new maceaines, with high precision and productivity, would have to be added. The slgnificant reduction ln the number of installed machines will provide additional space which in turn would remove the current congestion constraint and allow better material flows. The changes in the product-mix as well as current and future volume and value of production for each plant are presented in the following table. - 16 - Sm dbm Mahie Too! Project Machine Tool Manufacturing Plante' product iz nxd Annual Volum and Value of Production Umber of Ptoduct Tyne Phase Maim- Up- Volume Cets Product 1985 out tad grade Now Future a/ N985 Future *l SHiV Grinding Machines 22 7 11 4 10 25 2,212 2,320 Keasuring Equipment 4 - 4 - 3 7 9 130 Total 26 7 15 4 3 2.221 2,450 Value of Production (in milIlon ) c/ (64.4) (206.5) SMTC No.2 Metal-Cutting Works Conventional Lathes 9 S - 4 - 4 1,235 400 CNC Lathes 4 - 4 - 182 Total 9 5 - 4 T 8 1,235 582 Value of Production (in million Y) c/ (15.7) (54.9) SHTC No. 3 Metal-Cutt£% Works Conventional Grinders/Lapping Machines 6 6 - - - - 685 - Optical Profile Grinders I I - - 2 2 40 15 Jig Boring Machines 1 1 - L 1 27 15 Jig Grinders I - L - 3 4 1 53 Machining Centers (small) - - - - 3 3 - 85 Total 9 8 9 10 753 168 Value of Production (l million Y) cf (13.7) (48.4) SMTC No. 4 Metal-Cuttlang Works Convectional Milling Mochines 5 5 - - 3 3 125 25 NC Milling Machines 2 - 2 - - 2 24 50 Precilsion Milling Machine - - - - I 1 - 25 Machining Centers (.edlue) - - - - 3 3 - 29 Total 7 S 2 - 7 9 149 129 Value of Production (in million Y) cI (7.5) (30.5) SnTC No. 8 Metal-Cutting Works Conventional Electro-Discharge Machines 4 - - 4 - 4 290 145 NC Electro-Discharge Machines - 3 3 - 100 CNC Electro-Diacharge Machines Z - - - I i - 30 Total 4 - - 4 4 8 290 275 Value of Production (in million Y) c/ (12.5) (29.3) SMTC Metal-FormIng Works Single Polnt Presses 6 1 - 5 - 5 127 145 Double Action Presses 2 - - 2 - 2 55 IS Open Back Presses - - - - 2 2 - 40 Mech. Cold Extrusion Presses 1 - - 1 2 3 2 32 Toggle-Type Extrusion Presses 2 2 - - I 1 19 10 Hydraullc Presses 3 1 - 2 - 2 22 20 Transfer Presses - - - - 4 4 - 29 Total 14 4 - 10 9 19 225 291 Value of Production (in million Y) cJ (22.8) (53.0) SMTC No. 2 Metal-Forming Vorks Open Back, Inclinable Presses 12 11 1 - - 1 1,995 218 Open Back, Fixed Bed - - - - 6 6 - 198 High Speed Presses - - - - 6 6 - 150 Transfer Presses - - - - 3 3 - 57 CNC Turret Presses - - 4 4 - 15 Subtotal 12 11 I - 19 20 1.995 638 Press Accessories and Dies - - - - - - 852 Total 12 11 I - 19 W 1,995 1.490 Value of Production (In million Y) cl (15.2) (48.7) al Year in which the plant reaches full production. b/ Preliminary. cl In constant 1986 prices. - 17 - 4.10 (v) Research Institute Subcomponent. SMTW's research institute is a part of its integrated operation, while SNTC's research institute operates as an independent organization under the management of SMTC. These institutes will be modernized to enhance their capabilities in achieving their goals which include: improvement of design and engineering skills; improvement of existing products; development of new products and processes; testing of improved/new products; and technology transfer. At SMTW, two recently constructed buildings will house the research equipment and a new machine shop/office structure (7,000 m2) will be built at the SMTC's institute. In both institutes old and obsolete equipment will be removed and the institutes will be equipped with modern machine tools, precision measuring and testing equipment, duplicating and microfiche systems, and computers. The computers will be used primarily in research and development work and in the application of computer aided designs. The principal areas of research and development will be: grinding machines and measuring equipment at the SMTW's institute; and metal-cutting and metal-forming machines at the SMTC's institute. 2. Technology Transfer Component 4.11 The required technologies for the Project comprise two principal categories; namely, manufacturing technology and design/process technology. The former includes the types and arrangements of machines to manufacture the desired product-mix and the latter covers specific design/process criteria required for manufacture o. a particular product. The feasibility studies (para 1.03) assessed alternative manufacturing technologies for each plant involved in the Project and recommended the appropriate technology. In what follows, the significant choices made are described briefly. For the foundries, modern chemically bonded moulding for large- and medium-sized castings and advanced mechanized green sand moulding for small-sized casting will be used, and electric holding furnaces will be installed to control the composition and temperature of cupola-iurnaces' output. For the forging plant, a multiple hammer precision forging machine will be installed. In selection of the manufacturing technologies for the foundry and forging plants special consideration was given to the electric power constraint in the Shanghai area. For each of the machine tool and accessory manufacturing plants, four alternative technologies were studied. These were: job shop (random grouping of machines); process flow shop (grouping of machines according to their functions); product cell or group technology (grouping of machines according to the steps required to produce a product); and transfer lines (highly automated system designed for mass production). For machine tool manufacturing the choice was group technology and for accessory manufacturing, depending on the type and quantity of output, either process flow or group technology was chosen. 4.12 The feasibility studies also identified the design/prorcess technologies which should be imported. These relate to the following products: bigh strength cascings (foundries); linear glass scales and synthetic diamond tools (SMTCts accessory manufacturing plants); advanced grinding machines and 3-dimensional precision measuring machines (SMTW); CNC lathes, jig grinders and machining centers (SMTC's metal-cutting - 18 - machine manufacturing plants); and variable speed press drives, high-speed precision presses, turret presses and press accessories (SMTC's metal-forming machine manufacturing plants). A number of sources for such technology have been identified in the feasibility studies and this list will be further developed during project implementation (para 5.05). 3. Management System Component 4.13 Realizing that one of their major deficiencies is lack of adequate management systems, the beneficiaries plan to develop comprehensive management systems for their plants, institutes and headquarters. With the assistance of foreign consultants, the analyses carried out during the feasibility studies will be reviewed, detailed assessment of existing systems will be made and new systems will be developed. These systems will be implemented first on a manual basis and then, after trial, will be automated. For the plants, the proposed management system shall include: production scheduling; quality control measures; maintenance program; cost accounting and financial control; personnel management; customers service; internal information flow system; and management control system. For the beneficiaries' headquarters, the management system will include development of: comprehensive information flow system; procurement and sales systems; market research mechanism and information feed-back system; accounting system which would include compilation of financial information and prompt reporting of such information to the management; and management performance evaluation system. Following the management system development, the organizational structure of each plant/institute involved in the Project and SMTW/SMTC's headquarters will be reviewed and, if needed, will be adjusted to match the developed management system. 4. Training Component 4.14 The existing facilities and programs for training skilled workers are adequate. Management and design capabilities, hoa.vever, need improvement. Therefore, the beneficiaries would concentrate on training their shop, plant and corporate managers as well their design engineers. Furthermore, for the imported sophisticated machinery, operators will be trained by equipment suppliers. Since knowledge of foreign languages is a prerequisite for training abroad, the language training facilities will be improved/expanded by addition of audio-visual systems. The planned training program would involve: 4-6 months training for mansgers and design engineers at foreign plants and institutes; 4-6 weeks training for engineers/operators at foreign plants; and training of staff in China by foreign experts through 6-8 weeks seminars. Under this program approximately 250 SMTC staff and 100 SMTW staff will be trained abroad, and 400 SMTC staff and 150 SMTW staff will be trained in China. C. Materials, Components and Energy Inputs 4.15 The principal material inputs for the foundries are sand, coke, scrap and pig iron. Shortages of these materials in the Shanghai area have created supply constraints. The following measures would alleviate these - 19 - constraints. Arrangements have been made to use the collecting and loading facilities of Donshan County in Fujian Province (built for supply of good-quality silica sand to Shanghai's new Float Process Glass Plant) for delivery of sufficient quantity of sand to the foundries. As Shanghai's Wunjin coke plant has sufficient capacity to supply the foundries with adequate coke, in case of shortages in the supply of domestic coking coal, supplementary needs will be imported. The SMG, responsible for the supply and distribution of scrap and pig Iron in the Shanghai area, has assured the beneficiaries regarding the supply of sufficient quantity of these materials. Confirmation of this assurance was provided during negotiations. 4.16 In the past, the poor quality and unreliability of the bought-out items (electric parts, hydraulic components and bearings) have contributed to the quality deficiencies of manufactured machine tools. To remedy this shortcoming, a number of technical collaboration agreements for the manufacture of the above mentioned items have been concluded between Shanghai manufacturers (not involved in the Project) and experienced foreign firms from Switzerland, France, FRG, Japan and USA. Control devices for numerically controlled machine tools form another significant category of bought-out items for future machines. Most of the beneficiaries' requirements will be supplied by the Beijing Research Institute which manufactures such devices under the license of and in collaboration with Fanuc of Japan. In order to increase the supply of electronic control equipment and to create domestic competition, the Government has authorized SMTC to enter into negotiations with a US manufacturer for assembly/manufacture of electronic control devices. Negotiations are under way and operation is expected to start within the next two years, using the facilities of one of the accessory manufacturing plants which will be closed down (para 4.06). Despite the above measures, the beneficiaries plan to import a number of critical components, such as precision bearings and advanced electronic controls, until such time that these components become domestically available. To this end, SMG has assured the beneficiaries of availability of sufficient foreign exchange from its own resources for this purpose. Confirmation of this assurance was provided during negotiations. 4.17 At SMTW, due to an increase of about 50Z in the foundry output (para 4.04) and the rise in the total number of machine tool output, the fuel and electric energy consumptions will increase by 36% and 133Z, respectively, as compared to the 1985 consumption levels. For SMTC plants, including the foundries to be closed down (para 4.04), there will be virtually no increase in fuel energy consumption and the increase in electric energy consumption will be about 28%. As a result, the Project's demand for electric energy will increase by 46% over the 1985 consumption level mainly due to installation of electric holding furnaces in the foundries (para 4.11) and substantial expansion of the forging plant (para 4.05). Although the current electric power shortages in the Shanghai area are expected to diminish by 1990 as a result of the ongoing investments, SMG has assured the beneficiaries that sufficient electric power will be available to the Project. Confirmation of this assurance was provided during negotiations. - 20 - D. Demand and Market Aspects 4.18 In 1982, China's consumption of nachine tools was about Y 1,950 million (1982 prices). During that year the combined machine tools output of SMTC and SMTW amounted to approximately 10% of China's total consumption. Assuming a 6% per annum growth in China's machine tool demand (para 2.07), by 1995, when the Project output reaches its stabilized level, China's demand would amount to about Y 4,160 million (1982 prices). The machine tools output of SNTW and SMTC in 1995 is expected to be about Y 435 million (1982 prices). Thus, the Project would enable the beneficiaries to maintain their 1982 share of the domestic market. 4.19 The Project's feasibility studies included two comprehensive market studies on SMTW's grinding machines and the products of SKTC's accessory equipment and machine tool manufacturing plants iuLvolved in the Project. These studies covered: the world's historical machine tools output and the international projections through 1995; China's past and future demand for machine tools; product and tecbnology trends; and, through interviews with user industries (61 for SKM products and 100 for SMTC products), the future demand for the beneficiaries' products. The domestic market surveys included major machine tool user industries; namely, machine tool manufacturers, light and heavy industrial machinery manufacturers, component manufacturers and transport equipment manufacturers. The user industries' general requirements for machine tools were better reliability, higher accuracy, more automated functions and improved tooling systems. Their specific future demands comprised advanced numerically controlled grinding machines, CNC electro-discharge machines, CNC precision-type jig grinders and multi-axis CNC machining centers. The international and domestic market analyses resulted in identification of the beneficiaries future products, as described in paras 4.07 and 4.09. 4.20 Historically both beneficiaries have been involved in exports and during the recent vears have accounted for about 20Z of China's export of machine tools. Since 1980, SHTW has been permitted to export its products directly while all SMTC's exports were handled by national export agencies until 1985. SMTC received authorization for direct export of its machine tools in 1985 and expects extension of this authorization to cover all its products by 1987. Machine tools exports of both beneficiaries have been limited to conventional machines. SMTC's traditional export markets have been the Southeast Asian countries, but SMTW has been marketing its products in the USA and the PRG as well as those countries. The 1985 exports of SMTW is estimated at about US$1.1 million and SMTC's export of machine tools and other products are estimated at US$4.5 and US$4.0 million, respectively, during that year. In view of SMIV and SHTC's competitive position, the international market surveys indicate very good prospects for increase in export of the beneficiaries' machine tools which fal' within the lower range of the technological spectrum of the machine tool industry. Accordingly, increase in the annual cc.nbined exports of both beneficiaries, as a result of the Project, has been estimated conservatively at US$6.2 million (1986 prices), corresponding to about 65% of the beneficiaries' exports in 1985. - 21 - 4.21 With the responsibility of domestic and international sales shifting from the national agencies to the beneficiarles, SMTV and SMTC plan to strengthen their marketing efforts by developing market information gathering systems, and capabilities to respond quickly to the customers' queries and to provide the users with after-sales services. These aspects of the beneficiaries' plans will be addressed under the Project's management system component (para 4.13). E. EnvironsenteZ. Aspects 4.22 Because of virtually clean operations in the accessory equipment and machine tool manufacturing plants, the environmental aspects of these plants are minor. The major health, safety and environment issues arise primarily in connection with foundry operations. In this respect, the two foundries which are located in the congested urban areas will be closed down (para 4.04) and for the remaining foundries, which will be modernized under the Project, strict attention will be given to establishing and maintaining high standards of environmental control. The relevant feasibility studies present guidelines for the control of the working environment in and around the foundries, based on the recent requirements specified for major European plants. These guidelines, presented as Annex 4-2, are acceptable to the Bank. During negotiations, assurance was obtained from SMrW and SMTC that these guidelines will be observed by them in the implementation and operation of the Project. V. PROJECT INPLEMENTATION A. Project Management 5.01 Each of the beneficiaries has established a project implementation unit (PIU) within its organization. The PIUs wil1 have the overall responsibility for implementation of the Project. Their responsibilities include: preparation of bid packages and equipment specifications; approval of the engineering designs and drawings; bid evaluation and selection of suppli"rs/contractors; preparation of deteiled Terms of Reference for consulting services and selection of consultants; identification of priority areas for technology transfer and selection of appropriate technologies; preparation of detailed scope of work for establishment of modern management systems and selection of foreign consultants for this purpose; development of comprehensive training programs; monitoring implementation of the Project components; and preparation of quazterly progress reports for their managements and the Bank. 5.02 Qualified sta'r with expertise in engineering, finance, administration and training will be assignad to the PIUs. In carrying out their duties, the PIUs will be supported by the concerned departments of SMTC and StTW. The assigned staff shall be full time members of the PIUs and would total at least 20 persons at SMTW. At SMTC, 10 persons from the headquarters and one or two persons from each plant involved in the Project and the research institute will be assigned to the PIU. During project - 22 - implementation, the PIUs will be supported by forei6n advisors. The beneficiaries have already assigned the key people to the PIUs and negotiations are under way with a highly qualified foreign machine tool expert to serve as advisor to SMTW and SMTC. During negotiations, assurance was obtained from the beneficiaries regarding the PIUs' responsibilities, staffing and technical expert support. B. Engineering 5.03 The available domestic capabilities and the work already carried out under the feasibility studies suggest different approaches for the engineering of the foundries and the accessory/machine tool manufacturing plants. For the former group, a foreign engineering consulting firm will be employed to carry out the detailed engineering in association with the domestic engineering consultants. The scope of work for the consulting firm's services, including assistance during project implementation, as per agreement reached during negotiations, is presented in Annex 5-1. The selection of the consulting firm will be made in accordance with the Bank's Guidelines for the Use of Consultants by the end of June 1987. 5.04 Considerab'.e ex.perience in design and engineering of machine tool plants already exists at SMTW and SNTC. Furthermore, the feasibility studies have specified the machinery requirements and needed changes in flow patterns and layouts for the accessory/machine tool manufacturing plants. Therefore, detailed engineering for this part of the Project shall be carried out by the Sixth Institute of Project Planning and Research of the Ministry of Machine Building, a qualified and experienced domestic enterprise which has been involved in the Project. The detailed design and engineering prepared by this company shall be reviewed and approved by the PIUs and their technical advisors. C. Technology Transfer, Management System and Training 5.05 The PIUs will develop a priority list for import of the identified technologies (para 4.12). Sources, in addition to those listed in the feasibility studies, will be also identified. Then, evaluation of alternative sources fcr each technology will be carried out and the most suitable suppliers wilk b, selected on a competitive basis. Contract awards will be subject to the Bank's prior review. 5.06 For the establishment of the management systems, the PIUs will be assisted by foreign consultants. The work would involve two separate studies covering SMTC and SMTW's operations. Consultants' selection will be carried out as per the Bank's Guidelines for the Use of Consultants. The terms of reference for the consultancy services, as agreed during negotiations are presented in Annex 5-2A and Annex 5-2B. The beneficiaries are expected to issue letters of invitation for such services by the end of March 1987 and to award the contracts by the end of June 1987. - 23 - 5.07 The PIUs, in collaboration with the corporations' training departments, vill prepare plans for the Project's training component (para 4.14). This work would involve: designation of the qualifications and number of persons to be trained abroad; identification of potential foreign plants/institutes for training; and preparation of the training schedule. Furthermore, for training in China, the PlUs will propose the number, contents and schedules of seminars to be held, and the qualifications of foreign experts to conduct the seminars. The detailed training program is expected to be completed and submitted to the Bank for review by the end of June 1987. Assurance regarding this commitment was obtained from the beneficiaries during negotiations. D. Implementation Schedule 5.08 The complexity of the Project, and the requirement that during its implementation interruption in production should be minimized, have resulted in a phasing system for implementation of the various components. Accordingly, the Project is expected to be implemented over a period of five years. The project implementation schedule is given below and separate schedules for SNTC and SMTW are given in Annex 5-3 and Annex 5-4. - 24 - Shanghai Macbine Tool Project - Implementation Schedule Activity 186 1987 1988 1989 1990 1991 '92 Preliminary Eriineering_ _ Detadiled Engineering Procurement Technical Specifications Tendering & Contracts Award Equipment Received Civil Works & Installation SMTC Foundries & Forge SITC Accessry Plants _ X I SMTC Machine Tool Plants - - -I- SMIC Research Institute - - - - I Technology Transfer Preparatory Work Implementation Mafnamnt system Consultants Contracts Concluded Implementation Training Preparatory Work Implementation Note: X indicates completion of comuissioning. E. Status of Preparation 5.09 The general project design and detailed lists of machinery and equipment have been prepared. The packages for procurement under international competitive bidding (ICB) and international shopping have been prepared and tentatively agreed upon between the beneficiaries and the Bank. For assistance in preparation of technical specifications, the beneficiaries have appointed, in accordance with the Bank's Guidelines for the Use of Consultants, the Foundry Management and Design Co. Ltd. of the UK for the foundry equipment and a prominent expert from FRG for the machine tools. The general procurement notice will be issued on January 31, 1987 and documents calling for bids under ICB will be ready in May 1987. The foreign exchange cost for preparatory work - between October 1, 1986, and the loan signature date - estimated at about US$250,000, is proposed to be retroactively financed by the Bank (para 6.10). - 25 - VI. CAPITAL COSTS, FINANCING PLAN, PROCUREMENT AND DISBURSEMENT A. Capital Costs 6.01 The total project cost is estimated to be US$223.1 million equivalent, of which US$133.2 million is foreign exchange, and US$89.9 million equivalent (Y 333 million) is domestic currency cost. A summary of project costs, including the breakdown of costs between SMTC and SMTW, is presented in the following table. Shanghai Machine Tool Project - Summary of Project Cost For- Fbr- Z of Local eign Total Local eign Total BCE - (Y millions) - (US$ millions) - (Z) SHrW Plant Cost 55.6 104.3 159.9 15.0 28.2 43.2 84 Engineering/Management 2.6 7.5 10.1 0.7 2.0 2.7 5 Training - 4.1 4.1 - 1.1 1.1 2 Technology Transfer - 16.6 16.6 - 4.5 4.5 9 Base Cost Estimate 58.2 132.5 190.7 15.7 35.8 51.5 100 Physical Contingencies 5.8 13.2 19.0 1.6 3.6 5.2 10 Price Escalation 12.5 11.0 23.5 3.4 2.9 6.3 12 Installed Cost 76.5 156.7 233.2 20.7 42.3 63.0 Incremental Worklng Capital 44.4 4.0 48.4 12.0 1.1 13.1 Interest During Construction 10.0 10.7 20.7 2.7 2.9 5.6 Total for SH1TW 130.9 171.4 302.3 35.4 46.3 81.7 S!fEC Plant Cost 61.3 197.4 258.7 16.5 53.4 69.9 85 Engineering/Management 5.0 13.0 18.0 1.4 3.5 4.9 6 Training - 10.3 10.3 - 2.8 2.8 3 Technology Transfer - 17.0 17.0 - 4.6 4.6 6 Base Cost Estimate 66.3 237.7 304.0 17.9 64.3 82.2 100 Physical Contingencies 6.6 23.8 30.4 1.8 6.4 8.2 10 Price Escalation 9.7 25.4 35.1 2.6 6.9 9.5 12 Installed Cost 82.6 286.9 369.5 22.3 77.6 99.9 Incremental Working Capital 96.5 8.4 104.9 26.1 2.3 28.4 Interest During Construction 22.5 25.9 48.4 6.1 7.0 13.1 Total for SMTC 201.6 321.2 522.8 54.5 86.9 141.4 Total Financing Required 332.5 6-92.6 825.1 89.9 133.2 223.1 x_ mm - - 26 - 6.02 The base cost estimates are in October 1986 prices. Civil works costs have been estimated by SMTW and SHTC engineering staff and their domestic consultants on the basis of current actual construction costs. The machinery and equipment estimate is based on detailed equipment lists prepared by the five foreign consulting companies who carried out the feasibility studies, together with SMTW and SMTC, and subsequently reviewed and updated in detail by the Bank. For foreign equipment, the estimate includes all delivery costs to the various plant sites. Taxes and duties would not be applied. For local equipment, ex-factory prices have been provided by SHTC and SMTW and provision has been made for delivery to the plant sites. The estimates for machinery and equipment presented in the summary table include all necessary tooling, fixtures, and spare parts together with local and foreign installation costs. Further details of the base cost estimate are contained in Annex 6-1. 6.03 The estimate for technical assistance includes: (a) engineering costs associated with the design of civil works and the specification of new machines to be provided under the Project, together with management assistance aimed at improving the scheduling, maintenance, inventory and quality control, financial control systems, market information gathering system and other operations of the two corporations; (b) training for the operators of the new equipment and design and management personnel; and (c) licensing and other fees associated with the transfer of new technology. For engineering, management and training (in China), a total of 330 man-months of foreign technical assistance is envisaged. In addition, provision has been made for overseas training for 350 management and technical personnel. 6.04 Physical contingencies have been allowed for at 10 of the base cost estimate. Price escalation has been calculated from the base cost estimate assuming a five-year implementation period and inflation rates for foreign costs of 12% in 1986, 3% in 1987, 1% in 1988 through 1990, and 3.5% annually thereafter; and for domestic costs of 5Z in 1986, 7% in 1987, and 6.5% annually thereafter. The allowances for price contingencies represent 12% of the base cost estimate for both SMTW and SMTC. The estimate of incremental working capital requirements has been based on the current experience in each of the plants, with allowance for some modest reduction due to improved inventory control in some cases. Interest during construction, which has been capitalized for a three-year period through 1989, has been calculated on the basis of the financing plan and disbursement schedules given below. B. Financing Plan 6.05 A financing plan has been developed on the basis of a proposed World Bank loan of US$100 milion, which would cover some 83% of foreign installed cost. Working capital would be financed by the two corporations' own resources, and domestic loans would finance all other local costs togetter with the balance of the foreign installed cost and foreign interest during construction. The financing plan prepared on this basis is summarized in the following table. - 27 - Shanghai Machine Tool Project - Financing Plan For- For- Local eign Total Local eign Totel -- (Y millions) - - (US$ millions) - Z SNwr World Bank Loan - 133.2 133.2 - 36.0 36.0 44 Domestic Loans 86.6 34.2 120.8 23.4 9.2 32.6 40 Self-generated Funds 44.3 4.0 48.3 12.0 1.1 13.1 16 Total for SMTW 130.9 171.4 302.3 35.4 46.3 81.7 100 SMTC World Bank Loan - 236.8 236.8 - 64.0 64.0 45 Domestic Loans 105.2 76.0 181.2 28.4 20.6 49.0 35 Self-generated Funds 96.4 8.4 104.8 26.1 2.3 28.4 20 Total for SMTC 201.6 321.2 522.8 54.5 86.9 141.4 100 Total Project Financing World Bank Loan - 370.0 370.0 - 100.0 100.0 45 Domestic Loans 191.8 110.2 302.0 51.8 29.8 81.6 37 Self-generated Funds 140.7 12.4 153.1 38.1 3.4 41.5 18 Total 332.5 492.6 825.1 89.9 133.2 223.1 100 - - - 6.06 The proposed Bank loan would cover 45% of the total financing required, and wo-uld represent 75% of the total foreign exchange requirements. The Chinese contribution to the Project would be in the form of loans from domestic banks (37% of total financing required) including US$29.8 million in foreign exchange,5/ and self-generated funds from SMTC and SMTW to finance additional working capital requirements (18%). This financing plan implies that about 82% of the total project financing would be in the form of long-term loans. A careful analysis of the projected financial performance for each corporation shows that both during and after project implementation, acceptable levels of debt-service coverage and current ratio are maintained and this financing plan is therefore satisfactory. During negotiations, the Government confirmed that the necessary authorizations for domestic loans, to cover foreign and local Project costs as detailed in the financing plan, will be made available as required. The Governmcent also confirmed that in the event of any cost over-run, it will ensure that such additional funds as may be required will be made available under terms and conditions acceptable to the Bank. C. Channelling of the Proposed Loan 6.07 The proposed loan of US$100 million would be made to the Government at the standard variable interest rate for Bank loans (currently 5/ The Government has indicated that the portion of this foreign exchange to be used to finance interest during construction on the proposed World Bank loan (US$9.9 million) could be borrowed by the corporations, and paid to the Government, in local currency. - 28 - 7.92Z) for a period of 20 years including 5 years' grace. Under Subsidiary Loan Agreements, the Government will onlend the proceeds of the Loan to SNG, for a period of 15 years, including 5 years of grace, at a fixed annual interest rate of 8.5Z and a commitment charge of 0.75Z, which in turn will relend US$64 million equivalent to SNTC and US$36 million equivalent to SMTW on the same terms and conditions. The foreign exchange risk will be borne by the corporations. The onlending interest rate of 8.5X is in line with an agreement recently reached for onlending proceeds of Bank loans from the China Investment Bank, and with rates normally charged by the Bank of China for foreign exchange loans. The signing of the Subsidiary Loan Agreements, under terms and conditions satisfactory to the Bank, will be a condition of loan effectiveness. These arrangements were confirmed during negotiations. Domestic bank loans will be made directly to SMTC and SMTW, at standard terms and conditions for loans of this type, namely: interest rates of 8.5X for the foreign exchange portion and 10.08Z for local currency; an eight-year term with no grace period; and no commitment fee. D. Procurement 6.08 The preparation of technical specifications and bid packages for foreign procurement is being carried out by the PIUs of SMTC and SMTW together with their consultants. In accordance with Chinese procedures, bid documents will be issued, and tenders received, by the China National Technical Import Corporation who will follow ICB procedures. For bid comparisons under ICB, domestic manufacturers will be eligible for a margin of preference of 15X or the prevailing customs duty, whichever is lower. For local procurement of civil works, which the Bank is not financing, local competitive bidding procedures will be followed. This entails receiving bids from between three and seven civil works contractors. Bids are evaluated on the basis of price and estimated completion date. Bonuses and penalties are applied for early or late completion. Local equipment and material will be procured for SMTC and SNTW by an agency of the HMBI. 6.09 As shown in the following table, approximately US$75 million, or 75X of the proposed Bank loan, would be used for about 45 packages of goods procured under ICB. The first 15 packages and all packages in excess of US$1.0 million will be subject to the Bank's prior review. This is expected to cover about 75X of all the ICB packages. -29 - Shanghai Machine Tool Pro aect - PrEopsed Procurement Plan (US$ millionis) Procurement Method Total ICB LCB Other Cost Civil Works - 21.0 - 21.0 Equipment & Machinery 97.5 - 19.5 117.0 (74.5) (7.0) (81.5) Engineering & Management - - 9.2 9.2 (5.5) (5.5) Training 4.7 4.7 (3.9) (3.9) Technology Transfer - - 11.1 11.1 (9.1) (9.1) Other a/ - - 60.1 60.1 Total Financing 97.5 21.0 104.6 223.1 (74.5) (25.5) (100.0) Note: Figures in parentheses represent the respective amount to be financed by the Bank. a/ Including working capital and interest during construction. 6.10 Procurement with Bank funds using non-ICE procedures includes: (a) royalty and licensing payments together with associated equipment, including the transfer of technology of a proprietary nature, subject to the Bank's prior review, estimated to amount to a total of US$11.1 million; (b) small and miscellaneous itess costing less than US$200,000 each, wbich may be procured through international shopping; the aggregate amount of purchases of this type will not exceed US$7,000,000 (US$3,000,000 for SMIW and US$4,000,000 for SNTC); and (c) technical assistance and associated expense for engineering, management system development and training for which Bank-financed expenditures are estimated to cost US$9.4 million and which will be procured according to BDank guidelines. As previously noted (para 5.09), up to US$250,000 in this category is being proposed for retroactive financing. Selected nonr-ICB purchases will be subject to post-award review. E. Allocation and Disbursement of Bank Loan 6.11 The proposed allocation of the Dank loan is summarized in the following table. - 30 - Shanghai Machine Tool Project - Bank Loan Allocation (US$ million equivalent) SMTW SMTC Total Disbursement 1. Equipment, materials, tooling & 26.6 48.2 74.8 100% of foreign spares, incl. installation expenditures (cif); 100Z of local expenditures (ex-factory cost) 2. Engineering & management system 1.8 3.1 4.9 100Z of foreign development expenditures 3. Technology transfer, incl. 4.0 4.1 8.1 100% of foreign license & royalty payments expenditures 4. Overseas training and visits, 1.3 3.2 4.5 100% and consultants services for training 5. Unallocated 2.3 5.4 7.7 - Totals 36.0 64.0 100.0 - 7.- - 6.12 The proposed Bank loan will cover: (a) 100% of foreign expenditures (cif) for directly imported goods or 100% of ex-factory costs of domestic manufactures procured through ICB; (b) 100X of foreign expenditures for engineering and technical services for development of management systems; (c) 100% of foreign expenditures for technology transfer, including the cost of licenses and other payments for specialized technology and associated equipment of a proprietary nature; and (d) 100% of the cost of overseas training and consultant services in China, and of the costs of overseas visits by local staff for engineering, procurement and technology transfer. To facilitate disbursements, a revolving-fund account will be established in US dollars in a bank acceptable to the Bank, with an authorized allocation of US$1 million for SMTW, and US$2 million for SMTC. Disbursements will be against full documentation except for training, overseas visits by local staff for procurement and engineering, and contracts valued at less than US$200,000 equivalent each, which would be against statements of expenditure. Documents in support of statements of expenditure will be retained by the PIUs of SMW and SMTC and made available for the Bank for review during project supervision. 6.13 An estimated disbursement schedule for the Project along with disbursement profiles of other Bank-financed industrial projects in the East Asia and Pacific Region, and elsewhere, are contained in Annex 6-2. The expected disbursement of the proposed Bank loan for the project has been based on a careful analysis of actual project schedules and budgets. The resulting disbursement schedule lies between the historical disbursement profiles for a recent selection of Bank-wide industrial projects, and for a selected number of projects in the East Asia and Pacific region, where disbursements have been faster. - 31 - VII. FINANCIAL ANALYSIS A. Basis of Projections 7.01 The assumptions used in the financial analysis of the proposed project are discussed in the following paragraphs and detailed in Annex 7-1. The basic projections have been prepared in yuan at October 1986 prices. Foreign exchange costs have been converted to yuan using an exchange rate of Y 3.70 per US$1.00. For the projection of financial statements, the 1986 prices have been escalated to current prices through 1992, the first year after completion of the project, using annual escalation rates of 5% in 1986, 7Z in 1987, and 6.5Z annually thereafter. 7.02 Rate of return analysis has been prepared by comparing "with Project- and 'without Project' cost and revenue streams for SMTW and for each of the 16 plants of SHTC. The 'without Project' case is essentially a projection of the current (1986) operations, although known changes as a result of ongoing activities have been taken into account where appropriate. The costs of project components which are not profit centers (the research institutes of both SMTW and SMTC, and the corporations' headquarters, including computer facilities), have been incorporated in the rate of return analysis for each corporation. B. Sales Volume and Revenues 7.03 Projected production volumes, price and sales revenues for SMTW, and for each plant of SMTC included in the Project, are contained in Annex 7-2 (SMTW) and Annex 7-3 (SMTC). The projections were developed by the corporations and their consultants essentially on the basis of the following assumptions: (a) Projections of production volume are based on the detailed market assessments carried out by the consultants as discussed in Chapter IV. In general, for SMKW and the metal-cutting and metal-forming plants of SNTC, there is a significant decrease in the production of the relatively simple machines which make up the bulk of the corporations' output, and a moderate increase in the number of precision machines and NC machines which are now being produced. In addition, new NC and CNC machines are introduced over the next five years on the basis of the consultants' assessment of market requirements and the corporations" technical capabilities (paras 4.08-4.09). For tha foundries, forge and accessory plants of SMTC, production volume projections have been based on the requirements of the machine tool plants, together with outside sales, as appropriate (paras 4.04-4.07). (b) Price projections have been prepared on the basis that existing machines which would not be changed as a result of the Project would continue to be sold at current prices, improved machines - 32 - would show a 20Z price increase at the time of improvement (para 2.10), and new machiues would be priced at about 70Z of the current cost of importing a similar machine. (c) Export sales would generally continue at present levels (about 6% of total sales) although there would be modest increases based on markets which have been identified for a number of specified products. C. Production Costs 7.04 Unit material costs for each machine have been estimated by the corporations and their consultants, based on actual costs, modified as appropriate for the changes in product type which are envisaged. Energy consumption for the relatively energy-intensive operations (foundries and forge) has been estimated for each plant on the basis of the new equipment to be installed. For other plants, it has been assumed that there would be no change in energy consumption although In some plants there could be some modest reduction due to the smaller number of machines to be produced, and the installation of more energy-efficient equipment. Energy prices have been taken at existing levels. Labor rates have recently been increased by as much as 35-402 and these figures have been used In projecting future labor costs. Although the Project could lead to some reduction in the number of workers in some plants, this has not been reflected in the projections of annual labor costs as under present economic policies, reductions in manning are wore likely to lead to higher salaries to the workers who remain. Annual labor costs have therefore been projected to continue at the 1986 levels. Overhead costs have been estimated from current experience, modified in the projections to reflect increases in sales revenues and capital investments. D. Financial Projections 7.05 Projected income, funds flow, and balance sheets for SMTW, including the effects of the proposed Project, are presented in Annex 7-4 (Tables 1-3) and summarized in the following table. - 33 - SMIW - Suaarvy of Praoected Financial Data (Y million at current prices) 1987 1988 1989 1990 1991 1992 1993 Net Sales Revenue 85 98 117 143 187 219 256 Operating Income 34 37 44 58 67 88 118 Net Ino-me (After Tax) 16 19 26 24 30 50 82 Cash from Operations 23 27 36 50 78 98 127 Total Debt Service - 2 5 25 31 45 43 Net Cash Flow 9 9 8 -5 7 13 37 Accumulated Cash 19 28 36 31 38 52 89 Operating Profit on Net Net Revenue () 36 34 34 36 33 36 42 Debt Service Coverage Ratio - - 6.5 2.0 2.5 2.1 3.0 Current Ratio 3.7 3.6 3.4 3.1 2.6 2.9 3.6 Long-term Debt:Equity 28:72 49:51 59:41 63:37 60:40 51:49 39:61 7.06 The summary shows the steady increase in sales revenue, profits and cash flow as a result of the Project. A somewhat-tight cash situation develops in 1990 as a result of the necessity to make full interest payments (Y 14 million), repayments of the domestic bank loans without benefit of a grace period (Y 10 million), and to finance significant increases in working capital (Y 11 million). The projections indicate that the cash deficit projected for 1990 could easily be covered from accumulated cash from previous years. There is a significant margin of safety in this situation because SMTW has the option of continuing, as at present, to finance as much as 50Z of its working capital through short-term borrowings, which would provide some Y 20 million of additional financing during the period 1988-91. According to the base-case projections this would not be necessary, but the possibility does provide a cushion against a possible cash shortfall during these critical years. 7.07 Operating profits as a percentage of net sales for SM!W remain relatively constant at a satisfactory level of around 35% turing the period of project implementation, but subsequently rise to over 40% by the mid-1990s (Annex 7-4, Table 1). Debt service coverage remains above 2.0 through the critical start-up years, and rises quickly after 1992. The current ratio never falls below 2.5 and although long-term debt:equity reaches a peak of 63:37 in 1990 (reflecting the fact that .ost of the proposed investment is to be financed through loans), it declines quickly after 1991 and the projections indicate that the corporati. a can comfortably support this level of debt financing. 7.08 Detailed financial projections for SMTC are contained in Annex 7-5 (Tables 1-3) and summarized below. - 34 - SMTC - Summary of Projected Financial Data (Y million at current prices) 1987 1988 1989 1990 1991 1992 1993 Net Sales Revenue 377 414 488 564 656 787 814 Operating Income 119 134 173 215 242 327 339 Net Income (After Tax) 28 41 75 86 106 186 200 Cash from Operations 51 68 105 144 198 277 289 Total Debt Service - 5 14 47 49 71 68 Net Cash Flow 13 21 19 16 54 76 119 Operating Profit on Net Revenue (%) 30 31 33 36 35 39 39 Debt Service Coverage Ratio - 12.7 7.6 3.1 4.0 3.9 4.3 Current Ratio 2.5 2.5 2.7 2.9 2.9 3.7 4.5 Long-term Debt:Equity 19:81 38:62 43:57 42:58 36:64 28:72 21:79 7.09 Sales from the consolidated operations of SMTC are significantly higher than those of SMTW and the improved financial stability which this provides is clearly reflected in the summarized financial projections. Cash flow remains healthy even in the start-up, while debt-service coverage never drops below 2.5. The current ratio is satisfactory and, reflecting the larger existing fixed asset base, debt:equity reaches a peak of only 43:57 despite the fact that the SMTC investments, like those of SMTW, are largely financed through loans. E. Financial Rates of Retu-n and Sensitivity Analysis 7.10 The incremental pre-tax financial rates of return for SMUW and SMTC have been calculated and cost and benefit streams for each plant are rresented in Arnex 7-6 and Annex 7-7. Results are summarized in the following table: Shanghai Machine Tool Project Financial Rates of Retuzn (Z) Company IRR 51TW 23.1 SKTC 24.5 In &ddition, individual rates of return for each SNTC plant included in the Project have been computed and are presented in Annex 7-8. 7.11 As discussed above, the base case financial projections and' rates of return presented above have been developed from a number of assumptions. A sensitivity analysis has been undertaken to show the - 35 - effects of modifications to these assumptions. Results for SMTW are summarized below: MM - Sensitivity Tests on Fimcial. Rates of Retum Proj Switdt- HinLn Debt Aditiotl Pre-Tar lig Coverage Service Fininig DhR V'alue a/ Ratio bi te 1u c/ Z Z - - y i11n A. Buse Case 23 70 2.1 2.0 B. Prlcing 1. A PricesUp lO% 26 64 2.8 2.6 - 2. AUPrices D7m 10% 2D 77 1.4 1.5 7 3. Prices for Inwrvei Madne Inrese by aly 75% of Anticipated hmt 22 73 2.0 2. - 4. Prices for Nw Maddin Reach Only 75Z of Aticipateleirels 17 84 1.3 1.6 - C. Capital Costs 1. A Costs Up 1O% 22 73 1.9 1.8 - 2. local sts Up 20Z 22 72 1.9 1.8 - D. Production Costs 1. Raw 1terals Up 20Z 21 76 1.7 1.7 - 2. EnergyUp 25% 23 71 2.1 2.0 - 3. labor Costs Doule In Real Terms, 1987-91 19 79 1.7 1.7 - E. Project euplmentat 1. Me-year Dela durig f ' 81 1.8 2.0 - F. Production Volum 1. Produactim of New Madnes Reaes only 75Z of Projected Levels 21 70 2.0 1.6 - a/ Perceat of bse-cas prices at vftch IRR falls to 12X b/ Net presxt vale of fue after-taz cai flow over project life divided by loi balm cJ Iu eI e of sErt tm borzwiig for up to 50% of Incremeal 'orldg capital reqpirxezts, ubich iuld first be itized if rqirdL 7.12 The sensitivity analysis for SMTW shows that while the rate of return remains satisfactory over a wide range of variation in base-case assumptions, the projected financial performance, and in particular the coverage ratio and debt-service coverage, are rather sensitive to price and cost variations, and to a significant delay in project implementation. The most serious case is one where all prices, including those of existing machines, are reduced by 10%. Under these circumstances, although the - 36 - pre-tax IRR would fall to only 20X, debt service coverage would fall to as low as 1.5 (in 1990), and a coverage ratio of only 1.4 would be encountered in the same year. Furthermore, under these circumstances, even were SMW to borrow 50% of its capitalized working capital (a short-term loan of about Y 20 million), it would require additional financing of about Y 7 million to cover operating losses during the period 1990-1993. 7.13 It is not surprising that in a project financed 84% through loans, the debt-related measures of financial viability are rather sensitive to changes in assumptions which will significantly reduce the cash generated from o,-rations. However as the relationship between prices and costs is closely monit%,r,ad in China (para 2.10), a 1OZ drop in price (particularly for existing machines), without any drop in production costs, is highly unlikely. Similarly, uncontrollable increases in raw material ccsts (which the sensitivity analysis shcws would also have a rather severe impact on coverage and debt service ratios), would almost certainly be matched by increases in prices, at least so long as domestic machine prices remain below international prices. In other respects, and given the rather low level of technical risk in the Project, the results of the sensitivity analysis do not reveal any unusual areas of concern. 7.14 Tne following table shows a similar sensitivity analysis for SMTC: - 37 - MM - Samiluity Tits aon Plukaca.es of BAum a Projec 9tdt- Miu Debt Aditionl Pre-Zu IM Owege Secvice FiHncig IR Vale Ratio e d I I - US$ mllion A. leCme 25 69 2.5 3.1 - B. Ed1N 1. AU Priem Up l&C 28 63 3.8 4.3 - 2. ALEPdm D11 20 77 1.2 1.9 26 3. Pdrem for Iqpavwd Wdine Inre_e b only 751 of lipated -¢ 24 70 1.8 2.6 - 4. Pdr for Mmw N dii Ridb Only 75Z of biIdpatd Levls 20 79 1.4 2.7 - 1. costs up l(X 23 71 2.3 2.8 - 2.Iocalcosts p2m 24 70 2.4 2.9 - D. Prodcm Cbs L 1e N lusUp 2OZ 23 74 1.5 2.1 23 2.3 BrgUp Z5Z 24 B9 2.4 3.0 - 3. 1 CODts lle In Rml m, 1987-91 19 83 2.0 2.6 - - Pnject Twintato L D-mr Dlay & g ald I eatknn 17 80 1.9 1.8 2 F. PLuhctin Vabse 1. ProdIctian of Now Man 1hae only 75Z of Pmojected leels 22 73 1.6 1.5 - a For deflultimi of finauidA meamrs, see table In psrs 7.11. 7*15 As could be expected, given the relative size of the company compared to the size of the Project, the projected results for SHTC are rather less sensitive than those of SNTW to changes in proj ect-related variables exadmned, and the Project appears to be well able to withstand the effects of rather significant changes from the base-case assumptions. An with SKZr, however, price or cost changes affecting all of the operations of SMTC, would have a significant effect on cash flow and lead to a requirment for additional financing for the Project to cover start-up losses. As noted above (para 7.13), this situation is not likely to occur. F. Financial Covenants 7.16 Current and projected financial performance of the two corporations is satisfactory, and the purpose of seeking covenants in this regard is to ensure that unforeseen future actions will not prejudice the -38 - financial stability of the corporations, and possibly the success of the Project itself. During negotiations, therefore, agreements were obtained from SMrW and SMTC, that except as the Bank may otherwise agree, during the term of the proposed loan: (a) the corporations will maintain a current ratio of 1.5; and (b) the corporations will not incur any additional debt if the projected cash generation during the term of the debt to be incurred will be less than 1.5 times the projected debt service requirement in such years. G. Auditing and Reporting Requirements 7.17 The two corporations financial accounting and internal control systems are adequate to record and report project related financial transactions. In conformity with the New Accounting Law which became effective on June 1, 1985, each corporation is in the process of establishing an internal auditing unit. At the same time, a Bureau of Auditing is being established by the SMG,6/ under guidelines established by the State Audit Administration, and this authority will assume full responsibility for conducting external audits for all enterprises in Shanghai, including SMTW and SMTC. 7.18 During negotiations, the corporations agreed to provide quarterly p;:-oject progress and cost reports, and other such documentation as the Bank maly reasonably request, and to furnish to the Bank the records, financial statements and audited reports that are normally requested from Bank borrowers and beneficiaries. Audited financial statements, in the English language will be furnished not later than six months after the close of each financial year. The corporations also undertook to prepare and submit to the Bank within six months of project completion, a comprehensive Project Completion Report, covering all related activities during project implementation and initial operation, and describing the Project's costs and benefits. VIII. ECONOMIC ANALYSIS A. Adjusted Costs and Benefits for Economic Analysis 8.01 The detailed assumptions concerning adjustments made to financial costs and benefits to obtain economic values are contained in Annex 8-1. Domestic product prices have been adjusted to international prices except that for new machines, lOZ has been deducted for possible quality differentials. Local-clrrency capital and production costs have been adjusted using conversion factors derived from a variety of economic 6/ Even prior to the establishment of this new Bureau, audits are being carried out, on a regular basis, by the Shanghai Municipal B- au of Finance. - 39 - studies,7/ updated as appropriate based on current relationship between financial and econo-ic prices. Labor has been shadow-priced using factors ranging from 0.56 for unskllled labor to 4.0 for technical and engineering staff. B. Economic Rates of Return and Sensitivity Analysis 8.02 Incremental economic cost and benefit streams for SMTW and SHTC are presented in Annex 8-2 and Annex 8-3, while ERR results for the SMTC plants included in the Project are contained in Annex 8-4. For both SMTW and SHTC, the ERR is 31Z. These figures are somewhat higher than the financial IRR (23Z and 25Z, respectively), and the importance of the various adjustments in obtaining this result are presented in the following table. Shanghai Machine Tool Project Comparison of IRR and ERR (X) SMTW SMTC Financial IRR 23.1 24.5 Effect of adjustments to: - Product prices +9.0 +7.5 - Capital costs -0.9 -0.8 - Raw material costs -0.4 -0.5 - Energy costs -0.1 -0.1 - Labor costs +0.1 +0.1 - Overheads -0.2 -0.2 Total Adjustments +7.5 +6.0 Economic ERR 30.6 30.5 From the foregoing, it can be seen that by far the most significant adjustment is to product prices. 8.03 The sensitivity of the base-case economic rates of return to changes in base-case assumptions has been tested, and the results summarized below: 7/ Including, in particular, S. Ichishima and A. Wcod, Econom5c Analysis of Aluminum Milling in Shanghai (May 1982); and M. R. Amin et al., China: Shanghai Machine Tool Project, Preparation Mission's Full Report (December 1983). -40 - Sbanshai Machine Tool Prosect Sensitivity Tests on EcOnO iC Rates of Return Pr.oect ERR (z) sK sNr A. Base Case 31 31 B. Pricing 1. All Prices Up OZ 34 36 2. All Prices Down 10X 27 25 3. Prices for Improved Machines Increase by only 75Z of Anticipated Amount 29 30 4. Prices for New Machines Reach Only 75Z of Anticipated Levels 23 24 C. Capital Costs 1. All Costs Up 1OZ 28 29 2. Local Costs Up 20G 29 30 D. Production Costs 1. Raw Materials Up 20X 28 28 2. Energy Up 25Z 30 30 3. Labor Costs Double in Real Terms, 1987-91 26 25 4. Combined Case (C2 with Di and D3) 23 22 E. Project Implementation 1. Two-year 'elay during Implementation 23 23 F. Production Volume 1. Production of New Machines Reaches only 751 of Projected Levels 27 27 As with the IRR, economic rates of return are relatively insensitive to change& in assumptions within the ranges shown. C. Net Foreign Exchange Savings 8.04 Net foreign exchange savings have been calculated on the basis of: a modest increase in export earnings; import savings, based on the production of the high-technology CNC machines which could not be produced without the Project (these represent about 25Z of all aachines in production), offset by importea materials (direct and indirect); and debt service on foreign exchange loans. Details are contained in Annex 8-5. When fully operational, the Project will generate net foreign exchange flows of about US$40 million annually, sufficient to repay the foreign exchange cost of the Project in about three years. The net present value of future foreign exchange savings over the life of the Project is some US$300 million. - 41 - D. Other Benefits 8.05 In addition to the quantified benefits resulting from the introduction of new and improved product lines to SMTW and SMTC, the Project is expected to provide significant additional benefits, as follows: (a) Rationalization support during the course of project preparation which has already led to a restructuring of SMTC's organization and agreements to reduce overlapping operations between SMTW and SMTC, and among SMTC plants; (b) Management support in the Project, including the introduction of computerized costing and information systems for both SMTW and SMTC, which should add considerable flexibility to the operations of both corporations, improve maintenance practices and .nventory control, and facilitate the introduction of essential cost-accounting techniques; 5c) Support to the Research Institutes of both corporations which will streamline product development and help to ensure the compatibility of product design with market requirements; (d) Support to training of professional staff of both corporations which will increase the beneficiaries' design and engineering capabilities and improve the manager'al abilities of shop, plant and corporate managers; and Ce) Introduction of new .dsting techniques which will reduce the level of pollutan-. emission from the SMTW Foundry and SMTC Foundries #1,; #3, and #5, and most importantly in this respect, will allow the shutdown of the SMTC Machine Tools Foundry and Foundry #2 which are in built-up areas and have serious pollution problems. E. Risks 8.06 In any project which aims at introducing new technology, the major risks must clearly be first, whether the technology can be satisfactorily transferred to the project entity, and second, whether the products which result from the introduction of the new technology can be marketed on the scale anticipated. These risks are clearly present in the Shanghai Mae-hine Tools Project but have been carefully addressed in project preparation and design to the extent that necessary safeguards and other measures to minimize their potential impact are in place. 8.07 As detailed in Chapter IV, (paras 4.11-4.12), extensive attention has been paid to the need for, and means of obtaining and introducing the new technologies demanded by the Project. Sources of such technologies have been identified, and preliminary investigations have led to an understanding of the licenses, specialized equipment and training which are required for their introduction. Project cost estimates incorporate adequate allowances for financing these items. The consultants who helped - 42 - prepare the Project, and the Bank's own consultant, have carefully reviewed all options for technology transfer and it may be concluded that the type and level proposed are appropriate and attainable for the two project corporations. 8.08 Similar care has been paid to assessing the market and market growth for machines incorporating new technology. As detailed in Chapter IV (paras 4.08-4.09), no sudden change in consumption patterns is anticipated, but rather a gradual move away from the relatively simple machines which make up the bulk of present production to a higher proportion of precision NC and CNC units. Market forecasts developed in this way form the basis for the production and sales forecasts developed for SMTV and SMTC. As this type of growth reflects the experience in other developing economies, the assumptions which have been made are reasonable, and the risk that market development assumptions are over-optimistic are minimal. IX. AGREEMENTS AND UNDERSTANDINGS REACHED AND RECOMMENDATIONS 9.01 During negotiations, SMTW and SMTC provided a letter of assurance from SMG confirming the undertaking to provide the corporations with adequate supplies of scrap and pig iron (para 4.15), foreign exchange for the import of critical components (para 4.16), and electric power (para 4.17). 9.02 During negotiations, the Government confirmed: (a) that the necessary authorization for domestic loans included in the financing plan will be provided (para 6.06); (b) that arrangements for any necessary cost over-run financing will be made, under terms and conditions acceptable to the Bank (para 6.06); and tc) the proposed arrangements and conditions for onlending the proceeds of the Bank loan to SMTW and SMTC (para 6.07). 9.03 During negotiations, SMTC confirmed that it will prepare consolidated financial statements on a regular basis beginning in FY87 (para 3.05); 9.04 During negotiations, SMTW and SMTC each confirmed that: (a) they will observe the environmental guidelines during the implementation and operation of the Project (para 4.22); (b) the PIUs of each company will be staffed with full time members, the PIUs scope of responsibilities will remain as defined in para-5.01 and foreign experts will be employed as advisors to the PIUs (para 5.02); - 43 - (c) they will prepare and subLuit to the Bank for review the detailed training program by June 30, 1987 (para 5.07); (d) they will conform to the financial covenants as detailed in para 7.16; and (e) they will ensure that periodic reporting, such as the Bank may reasonably request, will be maintained, and that a comprehensive Project Completion Report will be prepared (para 7.18). 9.05 The signing of satisfactory Subsidiary Loan Agreements between GOC and SMG, and SMG and SMTW and SMTC (para 6.07), and the approval of the Loan Agreement by theL State Council will be conditions of effectiveness of the Bank loan to China. 9.06 Given the preceding agreements and commitments, the Project is suitable for a Bank loan of US$100 million to the Government of China, including up to US$250,000 - for expenditures between October 1, 1986, and the date of loan signing - which would be retroactively financed, for a term of 20 years, including 5 years' grace, at the standard variable interest rate. Industry Department January 1987 -44- -ANEX 2 CHINA - SHANGHAI M&CRINB TOOL PROJECT World Machine Tool Production and Trade (in current US$ uillion) 1981 1982 Pro- Pro- duction Export Import duction Export Import 1. USA 5,111.3 949.6 1,431.5 3,744.3 574.6 1,217.7 2. Japan 4,797.1 1,685.5 215.5 3,794.8 1,263.4 220.3 3. FRG 3,953.4 2,448.8 597.8 3,504.9 2,129.0 509.6 4. USSR 2,932.3 242.4 951.9 2,934.0 245.0 960.0 5. Italy 1,539.4 795.2 300.3 1,138.6 639.9 208.6 6. China 947.3 32.0 95.0 972.3 40.0 100.0 7. Switzerland 846.2 740.3 188.8 768.4 714.0 157.7 8. GDR 827.7 673.6 214.6 808.0 642.0 197.0 9. France 809.5 390.5 566.6 622.1 295.0 479.3 10. UK 720.7 570.3 425.7 735.5 436.0 404.4 11. Romania 624.9 133.1 311.5 615.5 144.5 197.5 12. Czechoslovakia 357.8 310.4 168.2 438.8 329.1 112.7 13. Spain 320.0 206.8 141.9 260.2 175.5 176.7 14. Poland 310.0 170.0 200.0 280.0 120.0 140.0 15. Brazil 305.0 73.9 123.6 210.5 20.8 111.3 16. Yugoslavia 276.7 55.1 131.0 303.8 95.6 101.& 17. Canada 269.2 99.8 674.5 221.5 154.5 328.7 18. Taiwan 249.4 182.6 99.2 199.9 149.2 80.9 19. Sweden 210.9 164.3 191.6 179.8 138.5 151.2 20. Bulgaria 201.5 200.9 267.8 221.0 219.7 273.0 21. India 184.6 17.1 86.6 211.3 26.4 105.7 22. Korea 178.1 32.0 324.5 200.0 65.0 250.0 23. Hungary 127.7 95.7 127.3 130.6 97.8 126.8 24. Austria 108.4 108.4 292.1 105.3 97.1 271.9 25. Belgium 103.3 119.2 139.5 88.8 116.0 123.6 26. Israel 70.0 33.8 71.5 70.0 25.0 100.0 27. Australia 68.9 7.3 195.6 61.7 4.9 183.8 28. Netherlands 55.5 74.8 113.5 42.8 69.7 107.5 29. Singapore 43.5 27.0 114.4 40.2 22.0 107.4 30. Denmark 41.6 47.9 45.1 38.9 37.5 24.5 31. South Africa 36.8 5.0 250.0 21.2 4.0 212.0 32. Argentina 35.3 19.5 70.0 35.3 15.6 47.0 33. Mexico 24.0 4.0 450.0 18.0 2.0 200.0 34. Portugal 16.3 4.1 53.9 16.0 3.1 50.2 35. Hong Kong 12.5 4.1 4.0 7.6 4.3 4.5 Sources: For China, data gathered by the Bank missions and converted to US$ at the rates of US$1.0 - Y 1.71 for 1981 and US$1.0 - Y 1.89 for 1982; for others, National Machine Tool Builders' Association of the USA, Economic Handbook of the Machine Tool Industry (1983184). Industry DeppArtment January 1987 aUIA - SUAJ6MI NAUIUtN TIL PIflJW gmlV's Orgisatiom Chart Offloe iYqctOfe Deputy Dimctor Deputy DIrector t | Deuttr I ofuty D tr ctet | DeputQ Dloto |hf 8k 1eUlD Quality Control Prodcton Accoauntratnonnol Coral ffcir | fIcnamig I Griq Ka- , Qual1ty Control Pro tioInee n l & u| nael Seamios --- Dto VW Ow. D ptpt*Dept v DOpt Dept. T Scdmcel | Ccoputer l erLS Nnfacturing Idcton | | S@oitatlo savWas Dept.dlDept . D opt. D.pt. | Sott Dept. | Jzndy FAelatonG " T r6 I Patten~~~ ~~ shoq Dope. sho t v bepsrteot_ J y1987 CHINA - SHANHAI KAOHI TtOOL PROJECT SKTC Ee-dquarter' Org anization Chart |GCcnral Manap r| Vice Gnera Chief Vice General Vice General Vtce Genral Vice General Vice General Vime Genernal Manager Accountant mbag r Man ger HaurXnager Manager Knaget p rsonnel * Finance & Sales & Procure- Technical Div. Metal Cutting Metal Farmlng Accesory &Pondry & Educatton Div. Accounting Div. eent Div. (Chief Engineer) Hachines Div. Hachines Div. Tools Div. Forging DIv. L AdMin. Dept. Finance D_ _. Sales Dept. Developumnt Technical Technical Technical lechnical Secretary Finance (Domestic) Dept. Dect De t Prods VW. Administration Coet Planning & Research (4) I1 6T Housing Price Statistics New Products Coordination & Accounting Sales Marketing Development Refcrs (9) Production TechnologY Computer Rom Control & Development (12) Coordination Technology Purhases & Transfer StorZa 12 Service Project q Personnel & g Contract (72) Planni Dept. Production Production ProductLon Adminietratlon a, Ad dnis. IIStr ttegtc Dept. I DeDt.__ | | Dott. r ategic I {Per onnel | | Planning (4)1 (4) (3) Iexptoy_nt 1 lInternational Renovation & (11) |De pt. Pollution Export Control Import Equipmnt (27) Construction - Zducatton I I I (14) 1 Education Trainitng Se|oroary quality Administration mnistration AhErnistration School Control Dept. Dept. Doet. DeotI Technical Supervision (3) (3) school Control Apprentice (6) School (15) |colleg) |I Industry Department Total Staffi 220 w January 19N7 N -.47 - ANNEX 4-1 CHINA - SEHNGRAI MACHINE TOOL PROJECT List of SMTC Plants and Institute No. Title 1 Shanghai Heavy Duty Machine Tool Works 2 Shanghai Instrument Machine Tool Works 3 Shanghai No. 1 Machine Tool Works 4 *Shanghai No. 2 Machine Tool Works 5 *Shanghai No. 3 Machine Tool Works 6 *Shanghai No. 4 Machine Tool Works 7 Shanghai No. 5 Machine Tool Works 8 Shanghai No. 7 Machine Tool Works 9 *Shanghai No. 8 Machine Tool Works 10 Shanghai No. 10 Machine Tool Works 11 Shangliai No. 11 Machine Tool Works 12 Shanghai No. 12 Machine Tool Works 13 Shanghai Hu Dong Machine Tool Works 14 Shanghai Jiang Ning Machine Tool Works 15 Shanghai Hong Qi Machinery Works 16 Shanghai Punching and Shearing Machine Works 17 *Shanghai Metal-forming Works 18 *Shanghai No. 2 Metal-forming Works 19 Shanghai Die-casting Machine Works 20 Shanghai Woodworking Machine Works 21 Shanghai Testing Machine Works 22 Shanghai Flaw-Detector Manufacturing Works 23 Shanghai Measuring Instrument and Cutting Tool Works 24 Shanghai Cutting Tool Manufacturing Plant 25 *Shanghai Level Works 26 *Shanghai Grinding Wheel Manufacturer 27 *Shanghai No. 1 Machine Tool Accessory Factory 28 Shanghai No. 2 Machine Tool Accessory Factory 29 *Shanghai No. 3 Machine Tool Accessory Factory 30 Shanghai No. 4 Machine Tool Accessory Factory 31 *Shanghai No. 6 Machine Tool Accessory Factory 32 *Shanghai Machine Tool Gear Manufacturing Plant 33 Shanghai Assembly Fixture Manufacturing Plant 34 Shanghai Machine Tool Foundry 35 *Shanghai No. 1 Machine Tool Foundry 36 Shanghai No. 2 Machine Tool Foundry 37 *Shanghai No. 3 Machine Tool Foundry 38 *Shanghai No. 5 Machine Tool Foundry 39 Shanghai Steel Foundry 40 *Shanghai Machine Tool Forging Plant 41 Shanghai Machine Tool Mould Manufacturing Plant 42 Shanghai Yue Jin Machine Tool Mould Manufacturing Plant 43 Shanghai Heat-treating Plant 44 Shanghai Machine Tool Plating Plant 45 *Shanghai Machine Tool Research Institute * Plants/Institute included in the Project. Industry Department January 1987 ARNEM 4-2 - 48 - PUage 1 CHINA - SHNGHA MCINE TOOL PROJECT Guidelines for the Control of the Foundry Environment Introduction 1. The Foundry anagement and Design Co. Ltd. of the UK, who prepared the feasibility studies for the STWI/SMTC foundries, has recommended a number of guidelines for the control of working environment in the foundries. These guidelinos are described in the succeeding paragraphs. Detailed requirements for the control of pollution in the form of dust, fumes and noise will be included in the technical specifications for machinary and equipment. Cupola Emission 2. The majority of the cupolas observed in the SMTW/SMTC organizations have no more than a simple dry collector on top of the cupola stack, which would generally be expected to discharge at least 7 kg of dust particles for each ton of iron melted. Two SMTC cupolas have been fitted with pollution control equipment in which the cupola gases are drawn off above the charge door, through water-cooled ducts, to two stages of cyclone separation equipment, before discharge through a stack. Reports from SMTC persounel indicate that this equipment works well in relation to local (Shanghai) requirements for pollutlon control, and equipment working on a similar principle (with milti-cyclone second-stage cleaning) in the UK would be expected to discharge no more than 2 4g of solid particles per ton of metal melted. Only the emission from hot blast cupolas (with full independent or recuperative blast heating) is subject to legislation in the UK, tbough local authority health inspectors are entitled to demand reasonable standards of pollution control from cold blast cupola operators. The recommended limits for solid particle emission are generally as follows: Emission Cupolas I to 3 ton/hour 3.0 kg per ton melted 5 ton/hour 1.6 kg per ton melted 10 ton/hour 1.0 kg per ton oelted It is recormeuded that all the cupolas Un the foundries subject to development should be fitted with dust coutrol equipment comprising ducting of the stack gases through a two-stage dry cyclone plant with exhaust fan and discharge stack. Metal Treatment and Pouring 3. Direct launder transfer of molten metal from a continuous tapping cupola into the totally enclosed bath of a channel induction holding furnace is not a source of significant fumes and does not require any fuse extration equipment. Neither is the tapping of the Induction furnace into ANNEX 4-2 49 - Page 2 a pouring ladle associated with significant fuse production. The desulphurization and nodularization processes used in the production of ductile iron are likely to give rise to fumes, and it will be appropriate to provide fuse extraction, in the form of a collection hood and a fan-exhausted duct to atmosphere, at the site(s) where these operations are performed. Where molds are poured in predetermined positions, i.e., on mechanical handling conveyors, these conveyors should be fitted with suitable side-extraction hoods with fan-exhausted ducting to atmosphere. Where larger molds are poured throughout the mold assembly/pouring bay of the foundry, localized fuse extraction is impractical and the best way for dealing with hot air and fumes is to allow them to rise by convection to the roof of the foundry where roof extraction fans can be mounted to exhaust the foul air to the atmosphere. The capacity of those fans is calculated to provide of the order of three to five changes of air in that bay of the foundry per hour. Sand Preparation and Molding 4. The health hazard associated with the presence of finely divided quartz in the air is well known, and the allowable levels of dust in the air breathed by foundry work people is defined according to the percentage of quartz it contains. In the UK, the threshold limit value for respirable dust (defiued as the dust that remains airborne long enough to reach the terminal air sacs of the lung) is expressed as follows: 10 mg per m3 Z respirable quartz + 2 The principle adopted in modern sand plant design, to avoid the generation of dust clouds exceeding this density, is to totally enclose as much of the sand handling as possible. The loading of sand and additions into a sand mill (for greensand preparation) is a significant cause of dust generation, but this operation can be contained within an enclosure around the mill, which is only opened at the end of the milling cycle, by which time the addition of moisture to the sand suppresses dust generation. The types of sand-handling operations which require dust extraction hoods or, preferably, enclosures, are as follows: (a) sand mills and associated additions dispensers; (b) chute/hopper discharge and belt to belt transfers; (c) screening operations; (d) storage hoppers; and (e) underground sand transportation of hot, damp sand. 5. The transfer of dry silica sand within the foundry is now almost universally undertaken by pneumatic transport, which has the advantage that it is a totally enclosed system, which, under normal cirrumstances, cannot ANNEX 4-2 - 50 - release dust into the alr. The jneumatic transport system is now being adopted to a greater extent to handle moist greensand, to avoid the problem of dust generation caused by the release of adhering sand from the underside of belt conveyors. Molding operations are generally free from hazards arising from airborne dust, as the combination of moisture or binders with the sand in the molding medium suppresses any tendency towards dust formation. In the jobbing foundry using furan resins, however, some precautions must be taken at the point where the mixed sand is first released into the air, in order to capture the fume from formaldehyde and related c-..pounds, which might otherwise represent a major irritant to the molding personnel. Simple extraction from the discharge head of the mixer-filler to atmosphere provides adequate safeguards against emission of levels of fume which exceed the limits set by health authorities, which are, for example: Allowable Concentr.ion (ppm) Furfuryl Alcohol Phenol Formaldehyde USA (OSHA) 50 5 3 UK 5 5 2 West Germany 50 5 1 Switzerland 5 5 1 China 2.5 (10 ug/u3) - 2.25 (3 mg/m3) Dry bag filter units can be used for the cleaning of polluted air extracted from equipment handling moisture-free sand, but, in view of the dangers associated with dry silica, or quartz dust, there is a general preference for wet collector units for sand plant extraction equipment. Greensand plants £ust, of course, employ wet collector units. Shake Out 6. A major emission of dust and fumes takes place as molds are shaken out to release the solidified casting, particularly if shake out takes place while the casting is still hot. Shake out units for large molds (which have to be individually handled by crane onto the shake out) cannot conveniently be totally enclosed or totally covered by dust and fume extraction hoods. The more enclosed the shake out the lower will be the air volume needed to capture all the dust and fumes released from the shaken mold. For large molds, however, it is inevitable that a considerable air volume will be necessary for dust and fume extraction, which will generally be accomplished by side extraction hoods, possibly extended with some partial overhead hooding. The latter must, however, give clearance for the crane slings used in the transfer of the mold onto the shake out deck. The air volume specified must give "positive dust and fume capture, with none escaping into the foundry. As with sand-handling plant the preferred method for collecting dust from the shake out extraction equipment is to employ wet collector units, though a dry bag system could be used for chemical bond (moisture-free) molding. ANNEX 4-2 - 51 - Page 4 Casting Cleaning 7. It is unacceptable in modern foundry practice for personnel to carry out manual finishing operations on castings coated with sand, because of the hazard arising from the generation of quartz dust in such circumstances. As soon as possible after shake out, therefore, castings should be subject to efficient shotblast cleaning. Preferably this should be accomplished as far as possible in a totally enclosed, unmanned shotblast cabinet, though it is accepted that some manual "spot-blasting' with a hand-held shot blasting hose may be necessary for the final clearance of core cavities in some large castings. Modern shotblast equipment incorporates efficient equipment for the extraction of dust from inside the cabinet and for the separation of sand and dust from the shot before reuse of the latter. Fettling Operations 8. Modern pedestal and swing frame grinders are now designed with efficient extraction to avoid the release of grinding dust into the breathing zone of the operator. For medium-sized castings the use of ventilated fettling benches can avoid the escape of dust into the atmosphere, despite the use of portable tools for which the design of individual excraction ducts may not be entirely feasible. With larger castings, however, that do not suit bench fettling techniques, the elimination of airborne dust pollution can be more complicated and certainly uay involve much larger volumes of extraction air than that required for a ventilated bench. A large ventilated booth can be employed, but the capital cost of such a booth for castings exceeding 10 tons in weight would be excessive. The air volumes for dust extraction may also be so large that they cause discomfort to the operators working on the casting. The optimum solution for very large castings is to employ some general extraction in the form of portable booth sections (with integral dust extraction), that can be moved to the area of the casting on which the operator is working, together with portable extraction (counterbalanced for easy positioning) associated with the hand tools that the operator utilizes. For all fettling operations dry bag filter units are preferable, as fettling dust tends to form a dense "concrete- when wet. The most convenient system, for operational and maintenance purposes, is the use of small individual bag filters for each work station or pair of work stations. Industry Department January 1987 -52 - ANNEX 5-1 CHINA - SHANGHAI M&CHINU TOOL PROJECT Engineering and Implementatlon of the Foundry Subcomponent Scope of Work for Consultancy Servlces Introduction 1. For assistance in design, engineering aad implementation of the projectj' foundries, SHTC and SMTW will employ a foreign engineering consulting firm in accordance with the World Bank's Guidelines for the Use of Consultants. The selected consultants will collaborate with the Sixth Institute of Project Planning and Research of the Ministry of Machine Building Industry whose main responsibility would be preparation of detailed designs and drawings for the execution of the foundry subcomponent. Scope of Work 2. The consultants' scope of services will include assistance in the various stages of project implementation. A summary of these services follows: (a) Based on the modernization plans recom ended in the feasibility studies, detailed technical specifications for the plant and equipment including measures for environmental protection will be prepared. These specifications will be supported by all necessary drawings. (b) Outline specifications for the buildings, cranes, mechanical and electrical services, water, gas, compressed air and other utilities will be provided. These specifications will be accompanied by drawings indicating dimensions and elevations. (c) The bids will be evaluated on the basis of quality, performance and price. (d) Following the selection of suppliers, co-posite general arrangement drawings of each foundry will be prepared. These drawings will be in sufficient detail to ensure satisfactory integration of equipment, buildings and structures. (e) Working drawings relating to the installation of plant and equipment will be checked. 3. The consultants will be required to assign a qualified engineer to supervise the installation, commissioning and start-up of the plant and equipment. Participation in evaluation of acceptance tests would be another important task required from the consultants. Industry Department January 1987 ANNEX 5-2A - 53 - Page I CHINA - SHANGHAI MACHINE TOOL PROJECT Shanghal Machine Tool Corporation Development and Establishment of Management Systems Terms of Reference for Consultancy Services A. Introduction 1. To improve the efficiency of the Shanghai Machine Tool Corporation (SNTC) in technical, financial and economic terms, a rehabilitat.on and modernization project will be carried out by the Corporation with the financial support of the Government of China and the World Bank. There are 44 diversified manufacturing plants and a research institute under the purview of SMTC. Of these, 16 plants and the research institute have been selected for inclusion in the project. The 16 plants comprise 3 cast iron foundries, 1 forging plant, 6 accessory equipment manufacturing plants, 4 metal-cutting machine manufacturing plants and 2 metal-forming machine manufacturing plants. As one of the main objectives of the project is -q - %li .ihment of modern management systems at plant and corporate level, SMTC plans to employ a foreign consulting fiLm in accordance with the World Bank's Guidelines for the Use of Consultants to assist it in achieving this objective. B. Objectives of the Work 2. The objectives of the proposed consultancy services are: design and development of appropriate management systems for each plant included in the project, the research institute and SNMTC headquarters; assistance in implementing these new systems, first on a manual and then, after trial, on an automated basis; and assistance in developing and implementing training programs for the staff of the plants, the institute and SMTC headquarters. The management system so designed and implemented should result in considerable improvement in operational efficiency which, inter alia, ineludes: accelerated new product development; reduction of production lead time; Improved capacity utilization rate; reduction of inventories; and cost-effective production. C. Background Information 3. The consulting firms which respond affirmatively to the letter of invitation for consultancy services shall be provided with the following background information: (a) the Charter of SMTC; (b) the organization chart of SNTC's headquarters; ANNEX 5-2A 54 - Page 2 (c) particulars of the selected plants and the research institute including their employment, products, sales volume and organization charts; and (d) suggested improvements in management systems by the foreign consultants who prepared the project feasibility studies. The above material should be treated as confidential and should be used only for preparing the consulting firm's proposal and reports. D. Scope of Services 4. The consultants are expected to carry out their assignment in two separate phases. Phase I shall include: (i) review and assessment of the existing systems and structures; (ii) preparation and presentation of outline of management systems to SNTC for its review and approval; and (iii) submission of the consultants' proposal for undertaking services required in Phase II. Upon approval of the consultants' proposed outline by SMTC and agreement between the consultants and SMTC on terms and conditions for implementation of Phase II,1/ the consultants shall start work on this phase which will include: (i) detailed design of the systems and training program; (ii) implementation of the systems on manual bases to test the systems and start of training program; and (iii) systems automation and implementation. 5. During part (i) of Phase I, the consultants will: review the relevant feasibility studies wherein the existing management systems have been analyzed and certain recommendations have been made; gain a full understanding of MTC's objectives and constraints as reflected in its Charter; review the organizational structures of the plants, the research institute and SMTC headquarters; and by visiting each plant, the institute and SNTC headquarters, carry out a detailed assessment of their existing management systems and capabilities. 6. During part (ii) of Phase I, the consultants will, by taking into consideration the prevailing conditions in China, develop an appropriate management philosophy and prepare the criteria and parameters which will form the basis for management system design. Then, they should present these together with proposed changes in the organizational structure of the plants, the institute and SMTC headquarters to SMTC for its review and approval. 7. During part (iii) of Phase I, the consultants will prepare a detailed estimate of the manpower and the cost required to implement Phase II. The manpower requirement should be broken down into the number and the man-months required for each of the consultants' professional staff 1f In case of disagreement between the selected consultants and SMTC on terms and conditions for this phase, SM.TC reserves the right to select another consulting firm for this purpose as per the World Bank's Guidelines for the use of Consultants. ANNEX 5-2A 55 - Page 3 in the field and at the consultants' head office. A similar estimate should be prepared for the manpower required from the domestic consultants (para 17). The consultants' costs will be based on the man-month rates agreed upon in the contract for Phase I. 8. During part (i) of Phase II, detailed management sysL.n designs for each plant, the institute and SMTC headquarters as well as the training program will be prepared. Each system design will include step-by-step implementation procedures, justification of the design and the expected benefits when implemented. The training program which should be prepared for training of managers at all levels, from shop floor to corporate headquarters, will specify: the number and qualification of the persons to be trained at home and abroad; the type, content and method of training at home and the suitable potential training institutes/plants abroad; and the timing and duration of each type of training. Furthermore, the consultants should specify the role they expect to have in management system implementation and the training program. 9. During part (ii) of Phase II, the consultants will assist SMTC to implement the uanagement system on a trial basis and to start the training program. It is proposed that at this stage the management systems be implemented on a manual basis for the SNTC headquarters, the institute and at least one plant in each of SMTC's four divisions, i.e., the metal-forming, the metal-cutting, the accessory-manufacturing and the foundry and forging divisions. 10. During part (iii) Phase II, the experience gained and the lessons learned during implementation should be incorporated in the management system designs, and revised systems, suitable for automation, will be developed. For the purpose of automation, the consultants will identify suitable computer hardware and software, estimate the relevant costs, prepare detailed technical specifications and assist SMTC in implementing the automated management system. 11. A broad outline of the scope of management systems is presented in the succeeding paragraphs. It should be noted, however, that the consultancy services will cover, but not be limited to, the given outline. The consultants, in their proposals, should suggest other areas which in their judgement should be included in the management system to be developed. 12. Project Plants. The systems described below will be included in the management system of each plant included in the project. (a) Market and sales system covering: market research and market information feedback mechanism to assess users' reactions to the plant's products and services, and to estimate future demands; sales planning and management including plant's response to customers' inquiries; and after-sales service. - 56 - ANNEX 5-2A Page 4 (b) Planning system covering: quarterly, semi-annual and annual production planning; long-term development plan for products and renovation of facilities; and control mechanisms for the plans. (c) Production scheduling system covering: master schedule; bill of materials; routings from customers/management order entry to shipment of products; capacity utilization plan; and shop floor control. (d) Material management system covering: estimation of the plant's needs; identification of potential sources of supply and timely purchase of goods; and warehouse and inventory management. (e) Quality control system covering: comprehensive quality control during the whole manufacturing process from materials and components' arrival to the shipment of products; operator and equipment certification; and statistical analysis to evaluate the system. (f) Maintenance system covering: regular maintenance of the buildings and equipment; preventive maintenance; and overhauling schedule. (g) Research and development system covering: procedures for new products and manufacturing processes development; and the relationship with the research institute. (h) Personnel administration system covering: labor and staff management procedures; labor and staff requirements; wages and salaries; incentive system; training; and career development. (i) Financial management system covering: management of the plant's funds; control of working capital and inventory; cost accounting system which should generate information for measuring productivity against standards and determining the profitability at product and plant level; compilation and prompt reporting of financial and related information; establishment of appropriate systems of financial ratios and targets for internal control; and auditing system. (j) Management performance evaluation and incentive system. (k) Internal information flow system. 13. Non-Project Plants. Detailed management systems for these plants are not required. However, as these plants should provide inputs to tha Corporation's management systems, the consultants, in conjunction with their work on development of the management system for SHTC headquarterv (para 15), will identify and describe the type and extent of information required from each of these plants. AEX 5-2A - 57 - Page 5 14. The Research Institute. The management system for the research institute will include: its relationship with the plants and SMTC headquarters; decision-making system for research project selection and implementation; review and control of the projects; assessment of the institute's performance; and the appropriate management and financial control systems. 15. SHTC Headquarters The management system to be developed should be such that SNTC manageent will be able to control the corporate operations efficiently and to respond to the Government's targets as well as domestic and international markets promptly. The system should include: comprehensive information flow between the headquarters and the plants; coordination of work among the plants; market research and information feedback through the plants and/or directly; procurement system for goods and services to be purchased at the corporate level; marketing system including exports for those products which are sold through the headquarters; financial/accounting system to reflect the total corporate operation clearly and provide the management with means of timely control; internal auditing system; umagement performance evaluation system; and incentive systems for all employees. In line Wita tbe SNTC's charter, the management system should facilitate local control of the day-to-day operations of the plants, without the necessity of interference from Headquarters. E. Suervision 16. SHTC will supervise and coordinate the work of the consultants. In Shanghai, the following services will be provided to the consultants at S-f1C cost: (a) interpreters and counterparts; (b) office space; and (c) transportation. F. Collaboration 17. SMTC will designate a group of its own staff for collaboration with the foreign consultants. Furthermore, a competent domestic consulting firm will be appointed by SNTC either directly or as per the foreign consultants' suggestion, to cooperate with the foreign consultants in carrying out the work. This involvement, however, should not affect the foreign consultants' full responsibility for the consultancy services. In their proposals, the foreign consultants should present their suggestion regarding the extent of the domestic consulting firm's participation in the work and specify the services which che domestic consulting firm is expected to provide. ANNEX 5-2A - 58 - Page 6 G. Manpower Requirement 18. It is provisionally estimated that the work during Phase I would require about 16 man-months of the foreign consultants' professional staff spread over a period of approximately 6 months. Of this, about 10 man-months would be required in the field and the balance at the consultants' head office. Industry Department January 1987 ANNEX 5-2B 59 - Page 1 CHINA - SHANGHAI MACHINE TOOL PROJECT Shanghai Machine Tool Works Development and Establishment of Management Systems Terms of Reference for Consultancy Services A. Introduction 1. To improve the efficiency of the Shanghai Machine Tool Works (SMTW) in technical, financial and economic terms, a rehabilitation and modernization project will be carried out by the SMTf with the financial support of the Government of China and the World Bank. SITW operates an integrated works comprising: the foundry, the hydraulic components manufacturing section, and the grinding and measuring machines manufacturing section (hereinafter referred to as the plant); the grinding machine research institute; and SMTW Leadquarters. As one of the main objectives of the project is establishment of modern management systems at the works, SMTW plans to employ a foreign consulting firm in accordance with the World Bank's Guidelines for the Use of Consultants to assist it in achieving this objective. B. Objectives of the Work 2. The objectives of the proposed consultancy services are: design and development of appropriate management systems for the plant, the research institute and SMW headquarters; assistance in implementing these new systems, first on a manual and then, after trial, on an automated basis; and assistance in developing and implementing training programs for the staff of the plant, the institute and SHTW headquarters. The management systems so designed and implemented should result in considerable improvement in operational efficiency which, inter alia, includes: accelerated new product development; reduction of production lead time; improved capacity utilization rate; reduction of inventories; and cost-effective production. C. Background Information 3. The consulting firms which respond affirmatively to the letter of invitation for consultancy services shall be provided with the fc lowing background information: (a) the Charter of SMTW; (b) the organization chart of SHTW; (c) particulars of the plant and the research institute; and (d) suggested improvements in management system by the foreign consultants who prepared the project feasibility studies. A1111 5-23 Page 2 -60- The above material should be treated an confidential and should be used only for preparing the consulting firm's proposal and reports. D. Scope of Services 4. The consultants are expected to carry out their assigument in two separate phases. Phase I shall include: (i) review and assessment of the existing systems and structures; (ii) preparation and presentation of outline of management systems to SMTW for its review and approval; and (iii) submission of the consultants' proposal for undertaking services required in Phase II. Upon approval of the consultants' proposed outline by SMTW and agreement between the consultants and SNTW on terms and conditions for implementation of Phase 11,1/ the consultants shall start work on this phase which will include: (i) detailed design of the system and training program; (ii) implementation of the system on mnual bases to test the system and start of training program; and (iii) system automation and implementation. 5. During part (i) of Phase I, the consultants will: review the relevant feasibility studies wherein the existing management systems have been analyzed and certain recommendations have been made; gain a full understanding of SHTW's objectives and constraints as reflected in its Charter; review the organizational structure of SBMW; and by visiting the plant, the institute and SMTW headquarters, carry out a detailed assessment of their existing management systems and capabilities. 6. During part (ii) of Phase I, the consultants will, by taking into consideration the prevailing conditions in China, develop an appropriate management philosophy and prepare the criteria and parameters which vill form the basis for management system design. Then, they should present these together with proposed changes in the organizational structure of the plant, the institute and SMTW headquarters to SBMW for its review and approval. 7. During part (iii) of Phase I, the consultants will prepare a detailed estimate of the manpower and the cost required to implement Phase II. The manpower requirement should be broken down into the number and the man-months required for each of the consultants' professional staff in the field and at the consultants' head office. The consultants' costs will be based on the man-month rates agreed upon in the contract for Phase I. 8. During part (i) of Phase II, detailed management system designs for the plant, the institute and S W headquarters as well as the training program will be prepared. Each system design will include step-by-step implementation procedures, justification of the design and the expected 1/ In case of disagreement between the selected consultants and SMTW on terms and conditions for this phase, SMTW reserves the right to select another consulting firm for this purpose as per the World Bank's Guidelines for the Use of Consultants. ANN8X 5-2B - 61 - Page 3 benefits vhen implemented. The training program vhich should be prepared for training of managers at all level. * from shop floor to corporate headquarters, will specify: the number and qualification of the persons to be trained at home and abroad; the type, content and method of training at home and the suitable potential training institutes/plants abroad; and the timing and luration of each type of training. Furthermore, the consultants should specify the role they expect to have in management system implementation and the training program. 9. During part (ii) of Phase II, the consultants will asslt SMTW to implement the management system on a trial basis and to start the training program. It is proposed that at this stage the management systems be implemented on a manual basis for the SMTW headquarters, the institute and the plant. 10. During part (iii) Phase 113 the experience gained and the lessons learned during implementation should be Incorporated in the management system designs, and revised systems, suitable for automation, will be developed. For the purpose of automation, the consultants will identify suitable computer hardware and software, estimate the relevant costs, prepare detailed technical specifications and assist SNTU in implementing the automated management system. U1. A broad outline of the scope of management system is presented in the succeeding paragraphs. It should be noted, however, that the consultancy services will cover, but not be limited to, the given outline. The consultants, in their proposals, should suggest other areas which in their judgement should be included in the management system to be developed. 12. The Plant. The systems described below will be included in the management system of the plant. (a) Planning system covering: quarterly, semi-annual and annual production planning; long-term development plan for products and renovation of facilities; and control mechanism for the plans. (b) Production scheduling system covering: master schedule; bill of materials; routings from customers/management order entry to shipment of products; capacity utilization plan; and shop floor control. (c) Material management system covering: estimation of the plant's needs; identification of potential sources of supply and timely purchase of goods; and warehouse and inventory management. (d) Quality control system covering: comprehensive quality control during the whole sanufacturing process from materials and components' arrival to the shipment of products; operator and equipmevz certification; and statistical analysis to evaluate the system. * 1. - . ANNEX 5-2B -62- Page 4 -62- (a); Maintenance system covering: regular uaintenance of the buildings and equipment; preventive maintenance; and overhauling schedule. 13. The Research Institute. The management system for the research institute will include: procedures for new products and manufacturing processes development; decision-making system for research project selection and implementation; review and control of the projects; assessment of the institute's performance; and the appropriate management and financial control systems. 14. SWhV Headquarters. The management system to be developed should be such that SMTW management will be able to control the corporate operations efficiently and to respond to the Government's targets as well as '-mestic and international markets promptly. The systems described below will be included in the management system for the integrated works. (a) Market and sales system covering: market research and market information feedback mechanism to assess users' reaction to SMTWI's products and services, and to estimate future demands; sales planning and management including exports; and after-sales services. (,b) Procurement system covering measures to assure timely delivery of gooCs and services. (c) Personnel administration system covering: labor and staff uanagement procedures; labor and staff requirements; wages and salaries; incentive system; training, and carreer development; (d) Financial management system covering: management of the funds; controi of working capital and inventory; cost accounting system which should generate information for measuring productivity against standards and determining the rrofitability at product and plant level; compilation and prompt reporting of financial end related information to the management with the means for timely control; establishment of appropriate systems of financial ratios and targets for financial control; and auditing system. (e,) Performance evaluation and incentive system for the plant, the Institute and1 SMTW headquarters. (f) Iaterrual information flow system among all sections of the works. B.. Suiervis'-on 15. SMTW will supervise and coordinate the work of the consultants. In Shanghai, the following services will be provided to the consultant, at SMTW cost: (a) interpreters and counterparts; ANNEX 5-2B -63- Page 5 (b) office space; and (c) transportation. F. Collaboration 16. SNTW will designate a group of its own staff for collaboration with the foreign consultants. This involvement, however, should not affect the foreign consultants' full responsibility for the consultancy services. In their proposals, the foreign consultants should present their suggestion regarding SMTW's staff participation in the work and specify the services which the domestic consulting firm is expected to provide. G. Manpower Requirement 17. It is provisionally estimated that the work during Phase I would require about eight man-months of the foreign consultants' professional staff spread over a period of approximately 6 months. Of this, about five man-months would be required in the field and the balance at the consultants' head office. Industry Department January 1987 CHINA-SHANGHAI MACHINE TOOL PROJECT SMTW PROJECT IMPLEMENTATION SCHEDULE Implementatlon SWag- Prep of Tech Spec PtelilmInary Engr. ' Detailed Engr , _,, _ Equip Procurement Civil Works: . -Foundry -Existing Buildings * * , -New Buildings 2 Sz . 6 6 2 Equip Installatlon: S , -Foundry . -Machine Tool Works ,2Z Commissioning _ S S ,. . Tech. Transfer * / . . Management System . -. . - Training1 . 1987 1988 1989 1990 1991 I * REPRESENT PREPARATORY WORK Industry Department January 1987 AN= 5-4 - 65 - I-u - --1 , t .. .......... ..... ... .......... . .. ........ .... .. ................... . tY~~~~....... I ... ...... ... ....... .. .. ....... .. .......... CL C LLE L _ Z . . . . - - -. - -. - --.-.-. - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I, 0 - -|...... .. ... ...... .. .... .... ..... .... ... . .. ........ -c,, ,, o - H::: l E -_ a ZO. Q() I -z Liif -i ...... _... _... _... _........ _... _... _... _.... _.... ...._._....- CL~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 <~~~~~~~~~~~~~~~~~~~~~~ EL~~~~~~~~~~~~~~~~~~.. z ~ 1..... . .... .... .... .... ........ ....... .............. ........ ... * ~~~~~~~~.... ..... ...*... ~ co Ai -66 - ANNEX 6-1 MM - S11i i mIor TJOM PROJECT 'IJT CIEPIl COSTSTTMIES (thunds of crrmncyu satcoutat 1 19S prics) Civil lichin adv Engiuneri4 I Thnolqw Uriks a EO1pnent Inutace Intalatio I bmt Training Trnder lhe Cost Estibate Locd Loal foreipn Lcal foreip Locl rweip Local rorip n Lcalreal rig Local rFalmi Total O) V(Y) (Ua) (Y) (USS) C) (USS) C) CUSS) N) (aSS) (Y) CUSs) (Y) (USSr C) rmkv 220 1 654579101 366 27 252 315 224 - 221 - 560 915 6206 32116 hdbne Tool Plnt 2672 16133 1M35 1603 737 1579 737 2310 1690 - 7W - D929 47996 21293 11528 eewch Institute - 903 91 6 39 5 39 - 112 - 112 -174 12N 5U3 Cuquter iter - - 2016 - - - - - - - - 2016 7459 Totdl SITU 29992 2M212 2601 2097 1143 291l 1029 2625 20 16 - 1120 - 149D 59225 3579919K80 SITC 1 IbddnteJTool Fou* 3952 1763 3937 376 315 739 217 61 347 - 90 2 219432 51292 9 13 lhcidne Tm old F y 5093 4138 315 326 772 610 187 514 336 - 98 - 112 10691 4102 2697 15 ddi1eJTodFmudrp 2M15 71 2295 217 14 1 29 126 358 Z13 - 56 - 224 6126 397 17596 hdIne Tod Fre 2312 1661 3619 272 20 576 199 41 169 - 56 - - 5292 4331 21318 Sub-totld Frunits IForge 13791 13262 132S 1192 1060 2393 729 1913 136t - 291 - 560 32541 16959 991 11 RcesaryUurks - 312 194t 125 76 125 76 200 90 - 146 - 224 791 2S16 1098 13 lcc ary IJks - 158 741 *9 30 t9 30 95 i5 - i5 - - 350 89D 364S 16 kcessory girks 9? 591 69 20 3 20 3 2 22 - 67 - - 759 165 1360 eri lorks 578 439 1920 128 77 12 77 218 9P - 78 - - 193 2229 7m 6riding Wicel gork 525 - 2213 134 89 134 89 284 112 - 112 - 336 1077 2950 11992 Levd UUDs 107 76 1120 70 S 70 15 160 Se - 7 - 560 491 1893 749 Sbetal c Plants 16 595 7969526 319 526 319 998 414 - 515 - 1129 "5S 106554374 I2leta l tti Uurks 379 1502 3789 279 152 279 152 294 235 - 336 - 336 2731 5800 21238 13 Ikbl Ctti Uorks 2905 542 33BP 229 136 29 136 294 23S - 289 - 336 4299 t111209 OIketdt uttiwtcs 210D 757 2792 196 112 196 112 242 23' - 179.2 - 336 349 3766 17424 se llNWl CttIU rk 1974 959 2619 152 106 192 106 231 2V5 - 168 - 336 3548 3600 1868 Ikbl e ngUorlw 33Z2 1922 997 366 20 366 200 429 41 - 336- 096 6397 704 35 1211ct Frdnlg U.s 19 427 5439 35 218 35 219 399 t1 - 29167 672 3523 725 4 3 JToWl Jul Urks 125?3 6109 238SS 1615 922 1615 922 30 1770 - 1590 - 2912 23790 31171 139123 Rerch ltitute 3675 263 3157 19 126 19t 126 168 31 - 168 - -4 93 3611 179SS SWC lN wters 52S - 1109 - - - - - 224 - 224 - - 525 1949 7363 lotalSIlTE 31970 21271 435 3526 2294 719 2096 495 3506 - 2799 - 4S92630 6421530096 Total Be Cut 60862 34 7% 5623 3571 7201 3125 7583 5522 - 390 - 972 1215 10043 6 umi m m mm~= us.. mm= u.=a ~mu uW. B m um saME smu gmi S=mu m L mm. Note: N1U ctingdes ae excluded frm tis Ease Cost Estiite Iq19J7 - 67 - ANNEX 6-2 CHINA - SHANGHAI MACHINE TOOL PROJECT PROJECTED DISBURSEMENT SCHEDULE FOR PROPOSED BANK LOAN Comparator Profiles Projected Disbursement for Industrial Projects Calendar Financial ------------------------- ------------------------ Year end Year and Curulative AEP Bank- Quarter Quarter Ariount Amount Percent Region(a) Wide(b) (US$ rillions) (M) (X) (X} 1987 I FY87 III - - - II IV 0.9 0.9 0.9X III FY88 I 1.7 2.6 2.6% 2.0% 2.0% IV II 6.9 9.5 9.5% 1988 I III 7.8 17.2 17.2% 11.0% 9.0% II IV 6.6 23.8 23.8% III FY89 I 8.2 32.1 32.1% 26.0% 18.0% IV II 8.2 40.3 40.3% 1989 I III 9.9 50.2 50.2% 45.0% 29.08 II IV 6.8 57.0 57.0% III FY98 I 6.8 63.8 63.8% 62.0% 41.0% IV II 6.8 70.7 70.7% 1990 I iI 6.8 77.5 77.5% 86.0% 54.0% II IV 4.6 82.0 82.0% III FY91 I 4.6 86.6 86.6% 93.0% 66.0% IV II 4.6 91.1 91.1% 1991 I III 4.6 95.7 95.7% 98.0% 75.0% II IV 1.7 97.4 97.4% III FY92 1 1.3 98.7 98.7% 100.0% 84.0% IV II 0.9 99.6 99.6% 1992 I III 0.4 100.0 100.8% 90.0% II IV III FY93 I 95.0% IV II 1993 I III 98.U% II IV III FY94 T 140.4% (a) Based on 15 industrial projects in the East Asia and Pacific Region. IBRD financed, all fully disbursed. (b) Based on 104 industrial projects, IBRO financed, all fully disbursed. Industry Department January 1987 ANNEX 7-1 -68 - Page 1 CHINA - SHANGHAI MACHINE TOOL PROJECT Assumptions Used in Financial Analysis 1. The base projections have been prepared in yuan at October 1986 prices, using an exchange rate of Y 3.7 per US$. 2. It has been assumed that physical work on the Project would begin at the beginning of 1987, and that all components of the Project would be completed by the end of 1991. A 15-year life after 1991 has been assumed for rate of return analysis. 3. For financial projections, the following escalation rates have been used: Escalation Z Year Domestic Foreign 1986 5.0 12.0 1987 7.0 3.0 1988 6.5 1.0 1989 6.5 1.0 1990 6.5 1.0 1991 6.5 3.5 1992 6.5 3.5 The projections are in terms of current prices through 1992, the first year of operation of all project facilities, and at constant 1992 prlces thereafter. 4. Projections of the production of aU of the major pieces of equipment, including existing, improved and new units, have been made by SMTW and SMTC, together with their consultants, on the basis of production capacity, realistic estimates of the rate of development of new machines, and market constraints. These projections are contained in Annex 7-2 (for SMTW) !nd Annex 7-3 (for SMTC). 5. Prices for existing products have been projected to continue at prevailing levels (in 1986 terms) through the life of the Project. For products which are produced at present, but which will be significantly improved in design and quality as a result of the Project, prices have been set at levels 20Z above the present price level. In no case does this increase the price to a level exceeding about 701 of the world price for equivalent machines. For new products, prices have been set at approximately 701 of the world price for equivalent machines. Details of the basic price assumptions are also contained in Annexes 7-2 and 7.3. 6. The principal elements of production cost are raw materials, energy, labor and salary costs, and overheads. Raw material requirements have been assessed for each plant, year by year, on the basis of the number ANNEX 7-1 - 69 - Page 2 and type of machines to be produced. Material costs have been taken at 1986 price levels, except where the price of components such as castings and accessories will Increase as a result of quality improvements. Labor and salary costs have been projected on the basis of current manning levels and wage rates, with minor adjustments In some plants where a requirement for addLeional managerial and technical personnel is foreseen. Overhead costs have similarly been based on actual current experience, suitably adjusted to reflect future changes in output and product mix. Details of production cost by plant and principal product are available in the Project File. 7. Financing for the Project has been assumed as follows: smT S!rC (US$ million) World Bank Loan 36.0 64.0 Self-generated Funds for Working Capital 13.1 28.4 Domestic Loans 32.6 49.0 The financial analysis is based on the assumption that the proceeds of the World Bank loan would be onlent to the companies, through SWG, for a period of 15 years, including 5 years of grace, at an interest rate of 8.5Z. Normal commitment charges would apply. For the domestic loans, an 8-year term has been assumed with no grace period. The current interest rates for such loans, 8.5Z for the foreign exchange portion and 10.08Z for domestic currency, have been incorporated. No comcitment charge has been levied on domestic loans. 8. Annex 7-4 (Tables 1-3) shows projected income statements, cash flows ani balance sheets for S!TN, while Annex 7-5 (Tables 1-3) shows the corresponding information for the consolidated operations of SlTC. For comparison purposes, the projections show actual figures for 1983 and 1984, and preliminary figures for 1985. For the purpose of these projections, based on information supplied by the companies and confirmed by SMG, during the duration of the loan, income taxes in project plants have been held at estimated 1985 levels (a total of about 70Z of 1985 income) because additional profits are assumed to be a result of the Project and therefore available to repay project loans. 9. Financial rates of return for SMTW, for each subproject of SMTC, and for the entire SNTC Project, have been determined by developing differential "with" and "wiLthout' cost-benefit streams For this purpose, all costs and benefits have been presented in yuan at 1986 prices. The 'with Project' cases have generally been predicated on the basis that without the Project, revenues and costs would continue at the levels projected for 1986, although in the case of the SMTC foundries, the impact of the Project on non-project foundries (which would be disposed of) has been incorporated. The costs of project components which are not profit centers (the research institutes of both SXTI and SMTC, and the companies' headquarters, including computer facilities), have been incorporated in the ANNEX 7-1 - 70 - Page 3 rate of return analysis for each company. A 15-year project life has been assumed, with a residual value in year 15 equal to 10 of the initial plant cost, together with the working capital. Cost and benefit streams for STKW are presented in Annex 7-6, and for the consolidated operations of STMC in Annex 7-7. Annex 7-8 presents a summary of ,he financial rates of return for each of the SNTC subprojects: detailed cost and benefit streame for these components are available in the Project File. Industry Department January 1987 ANNEX 7-2 -7 - Table 1 DIM - SmIuI ItlN TOIL PR rJECr S9I - PROJECTED RONmCTIE WU£ pries (Y'000) ...... proimeted nubr of mta.. PrAucta 1t96 future 1985 1986 1907 199 1o 991 1951 1952 1993 199 1995 19!6 1957 199 320 suies COlindrial 6rinding rchints -ml329,m 20.2 la.2 05 0 770 720 62 t3 3W un - - - - - - -MIiZ B (qroed) NR 35.0 - - - 20 100 20 30 tDK 5Soo500 D i0 465 5D -I 1332 0 33.6 33.6 95 95 lO 1K 1OD N U 0 - - - - - - -H8 133 I riew d) NR 39.0 - - - 10 20 10 50 60 1K 80 89 60 60 60 - 1332( CIC) (n) HR 59.5 - - - - 10 20 1D 80 1N 120 120 110 110 160 -H51132 1,B 46.1 16.1 108 121 1 0 170 180 t13 150 1D - - - - - - -I16 ltR I (iU r d) NIR 60.0 - - - - - 10 50 100 200 2 0D 200 1 235 240 SD nies Cylindrical 6rinding lhhnes -miss R3113i0 R 9.3 10.3 207 215 220 2ZO 190 193 160 10 - - - - - - -11150 a (apruved) NO 9S.0 - - - - 10 10 50 100 190 190 190 170 160 160 -11 1350 (CIC) (n) 1N 133.5 - - - - 10 20 20 10 60 60 7U 10 110 120 Crankhaft Grinding Wlcines -119860 24.0 24.0 165 165 170 170 190 190 10 180 100 185 195 15 195 l85 -11260R tD.0 10.0 L O 30 50 50 55 50 U 3 30 30 30 D20 2a 2 -3C=20 (CL) (niu) HR 198.2 - - - - - 10 20 N 30 30 30 40 40 0 -R165 (secial) (nw) IR 396.4 - 5 5 5 5 5 20 20 25 25 25 25 25 25 Srface 6rinding Iredines -117120 0 13.5 13.5 N4010 36D 350 290 200 230 190 150 l40 1140 110 130 - 17120 (nu) R 146.3 - - 10 25 40 50 50 610 8 80 8 0 80 3 0 - 1117120 (nw) 11859.5 - - - - 10 203 1 N 401 10 1010 t0 -775 ,.C 26.2 26.2 142 1S5 150 150 150 130 11 150 1t0 110 150 150 160 110 -11760 0n() NR 79.3 - - - - 10 30 10 50 60 60 5 50 10 60 - ii7?50 66.0 66.0 SS 65 70 UD 60 50 - - - - - - - - - 117150 C (n) HRl 15i - - - - 10 20 8K 80 90 90 90 90 90 90 oumblet-DiA rinding lachines -1m7750 IIR 69.8 - 10 30 20 10 - - - - - - - - - - m7660 (na) HR 145.4 - - - 10 20 30 U0 40 40 40 40 10 10 40 Rall Grinding lachines =M11150 R 60.860.0 5 10 10 10 10 15 15 20 2525 20 20 20 Specia Grinding Whines -320 33.0 33.0 N 0 0 80 8D E0 60 5 5 060U 70 U - 500 57.0 57.0 15 19 21 25 25 30 20 10 10 50 60 70 60 70 6er Grinding iadines -Y1232 I 216.0 Z16.0 6 10 14 14 16 15 15 15 10 - - - - - - Y732 0 (nu) 1R 396.4 - - - - - 5 10 15 20 35 35 35 35 10 - M63 A 132.0132. 5 7 8 10 10 10 10 10 IS 15 20 20 20 20 -Y7063 a50.0 595.6 - - 2 2 5 5 5 5 5 5 5 5 5 10 Thred 6riranic betines - 57332 191.2 - 8 - 14 - 10 10 1i5 1 25 40 30 10 30 -97250 IR 158.6 - - - - - - 10 - - 10 - 20 - 30 hwsrin Instrmnts - 30R 60 (ne) IIR 158.6 - - t 8 10 10 10 15 15 15 15 15 15 15 -30.Z 100 O 261.3 - 2 5 5 10 10 5 5 8 10 10 10 10 10 -30 (rm model n) KR 396.4 - - - - - 2 10 10 15 15 15 15 15 15 Rumudess flsuring Insitrv - IYROlI NR 63.1 - - 6 8 10 10 10 10 10 5 5 10 10 10 - YO31 12.0 42.0 9 12 16 16 20 20 20 20 10 15 15 20 20 20 - OO lot"r TaTle NO 39.6 - - - - 10 10 20 20 20 2 0 30 31 30 -NI lebtry Table I 46.3 - - 16 16 20 20 25 30 1 40 0 30 30 Tetal bitsroduced 221 222 2260 22 2305 2305 Z335 2320 2312 M5 2380 2M00 2910 2150 e- - - - - =m r a a - a - M Oqry - JmAry 197 -2n 7-2 -72 - Tab]1e 2 No111 - so"III f I 1 r IIIL fIOJR snu - ECON m a SI u 55 0 M 1913 1911 1!111 1 1!107 l911t 1919 M!1 I"1 1992 1993 19" 1995 19% 1997 IM§ Omestc Sales Value (Units) 20 Serites Clind. 1 737 46 1030 107 69 971 976 911 196 354 1219 02! 0 ID 32 129 5W Serie I tini 16 140 103 2Z0 211 M1 215 205 213 225 23i 242 242 22 232 262 m Croksft 1 180 216 I7§ 189 211 211 2X 22! 242 241 245 250 2D 2YI5 11 25 0 S Swrfa eE 763 713 617 56 539 540 51 S22 510 S09 Im 481 4 4 1 474 Double Dis i 34 25 - 10 3N 30 30 0 V N 38 3 30 3 3 3 hill 12 10 9 10 1i 10 5 15 15 20 21 21 16 16 16 16 SpoicIa o 37 54 2 90 97 101 IlU 106 9 9 73 3 1 03 113 113 123 6 91 5 14 11 17 24 26 A 33 4 43 46 51 56 56 5 66 TNe 13 8 IS 0 - 14 0 11 23 13 8 29 34 34 54 Ieawring Instrmts - - 2 9 13 20 21 25 28 39 3 0 10 11 40 Roness fi 1211 5 IZ 9 1243 60 6 75 *0 U0 50 WI A 90 lTtal DOestic ealRe 1W9O 2137 2134 2118 2141 2171 2165 2159 2171 2160 2114 2147 2102 22? 2212 2Z2 Sdtes Ualunits) Ire Sweries lind. GM 37 48 3A 32 41 49 54 59 64 66 71 71 71 71 71 71 SOD Series Cyind. 6 19 8 5 4 6 5 5 7 5 6 6 3 I 9 9 8 Craud ft 21 14 11 11 14 14 1S 16 18 19 20 20 2a 2a 20 20 Suface el 31 21 30 48 51 55 56 58 60 61 66 66 66 66 66 66 Ohiule Dlzk - - - - - - - - - - 2 2 2 2 2 2 il6 - - - - - - I - - - 4 4 4 1 4 4 SpU alD 2 1 3 9 7 4 5 4 10 2 17 17 17 17 17 17 w Gn - 1 - - - - - 1 - 2 4 I 4 4 4 4 lire d 1 1 - - - - 2 6 6 6 6 6 6 I tn Instnwnts - - - - - - I - 2 - - - - - - ota Elwprt iune 110 54 17 104 119 127 136 146 157 160 198 198 1N 198 19 198 Sales Ruee Uith the Project (thousnds of sn oith prnjectins at costant 1986 pnees) Drastc Sale. -kndnlg lhxes 49473 56781 60204 64519 70672 77312 87114i1f10151265 1395C1 1565IM165699169348 175C 175668187153 Other Produts - - 810 348 MIl 8700 9158 1010 11659 120 15680 16658 1095 2 11 M1 23400 - HyIaulic System 2234 2429 25tD 2500 250 Z 2500 25 2511 304 IW StO 5D00 SN S0W 5 9D00 - Sdtoetd 50707 55219 71104 75418 9M 88532 98764 114415 1412 15611 17719 1973493248 02 55 20106 215$53 xprt SWes 1005 3217 4196 6562 9013 8432 635 10559 11134 12258 19372 19372 19372 19372 15372 15372 6ross Sales 5712 62427 75255 870 895856564 10403 125009 153374 160619 196563 206722 21260 219831 220"1 234525 Sales Taes 3283 3920 7153 726 89511 9212 1029 11876 14542 16019 18673 1535 29155 20994 2 22318 Net Sales leme 51429 59537 68146 74 910 87752 98115 113113 13532 152691 1771 19739 1921421 15155 I95 52126617 Hetes: (1) Imstic sales rems h be nadjnted to allcm for estited sdes of 2 of units at prices 20! dove official 6wermmnt prices. (2) Exprt sales reuems as ba ed ot n rraw t evort pnie lich rane fro 5U t 1909 aboue deastic price levels. (S. Rmelele without the project are asmed to r n at the levels projected for 195. ln -nt horny 1987 ANNEX 7-3 _ 73 - Table I mmn - mau uuc tO Mmu MC ICES 1N raw - rnc. umznu s S KM ~~....prumd.s 1!113 5 1911 l§f 19 0? 1911 19 99 "I1 1 0 192 1993 1b 199 199 199 199 Prodictn (tin) In ut. Toi r..n 7567Mn 76 I Inns IDOIDnn inn 1i urn 2a Zn M ma N UN i Zn nZn 331.h5. hul Fat; 6613 6lK 66 66W0 6646 6610 6640 m IM06 IMl IMU 19M IUN lUM 1M 10 i0 Knadurulred r= 9%9 n in o 95 100 1901D M5I 7 5031 75l1 75110 51 15110 ?5061 710 Toldl Fou&1 Ptdti, 23669 2M 2m as1a 2641 26140 26110 an 3WMI iun ai 41 0111 S M OD rer Preductin 2170 260 2511 250 25W 25N0 2S500 II 7510 INNIOI ID IIS I MD IIID 1 MS IDIDIIO PR 'ag Priem (m pw ton vith " ectin at conant 1916 wics) 31. tdu Tool ratV 633 Mz 12n rn110 3 141 ill 164 0 iK 11 1803 INU IN 159 ilK INK I I3f lh i l redul F 6111 701 1i 1900 I'o 1356 16S 11W 1370 1701 170 173 1iK 1700 1109 1760 Whare t lr Fdury 613 663 1WI 1 1000 0 TO 15 1510 Inn ZOW 2IN 2011 201 2D a Forqins 62 9 21S0 21502150 23Z5 925 U21 0 Z 25 S01 2500 25N Z 00251 Z50 Sales Rnue by Plot (tU _si of wa vith prnjectims at conset 1916 prices) 31 ud.s r.i rae t, Saleofnstiqi IN s56z m9 1 u1W ii 1 16100 261,O 3I2WM 31600 an 3m WM 3n u00 39610 Salms las 2Z 225 365 S50 560 Si 656 10" 136B ISiIoISe im 151H ISII ISI isu - - - - - - - - - - - - - - - - - W6 W Net Sales 4 5337 355 13"40 131 13 S"0 15 55 32 3016 316 6 316 39663 6 13 raehne Tol ro_dry Sale if Cstings 4156 9263 665 6640 6610 9961 10359 1363 III!) 11530 11b31 191 19 11130i 150 Sales Tax IE 13263 26M 266 359 411 S 741 741 i l I7'1 MI 'MI 71 1 741 et Sales 31926 9163 636 634 637 M 999 1356 177 1 1770 9 17 M 17799 1779 17799 IS ricrne Tool rF dr Salt of Catinp S- 663 9500 95D0 9500 1500 9XO 11250 135 151 IS150 150 10 1 110 3 151M Sales Tax 261 261 310 310 380 3 3 150 S0 600 611 C6 60 600 600 600 Net Sales 5531 636! 9129 9120 9120 9120 9120 Inn 1296D0 il 10ll I149 1440 144( 141 19"00 forge Sale of orgipns 1590 231 5375 553735 51813 6075 12506 7 I 25000 25011 D NU 250D 02 25900 MM Salu Talx 13D 215 215 215 2 33 2t3 SW 750 lw Oi 1lo 1in 1in I 1000 I Net Sles 1506 Z17 SIU 5160 5160 5590 5932 SW 7 1 M 7000 2403 M0 29630 2 90 20 200 6roup SaLes (tonads o with projections at consstt 190i prices) Totl Sales 16327 137 36595 35515 35515 3277 42333 63450 14930 91139 1130 90130 139 930 98130 91130 Sdes Ta"es 747 7m9 1224 1121 1421 1;31 1693 2539 3399 392 5 392 3925 32 3525 325S 3925 Plet 6roq Sales 1550171 I 2931 3M 3443 3674540649 60912 IIS1 94205115929 5 9d5 OS 25 9QOS9QOS Note: _tlt th etith ass tt md ren c= at the levels o_ a f . r 1196. Ihte: Uitheut the arolect, it hs bka ssred thet sales mlold nn eenstan at the lavls projecte for 1911. Jawe 197 -74..- AMNEx 7-3 Table 2 -III - SNEaK O E IIIIL fIhCT 91TC RCCESS1 VES - RIIJECTED R Irm IUIE ber at hnits ...actul.. prelim ..proeted. Units 1103 191 1905 1596 198? 1999 1 91955 1991 1992 1993 1994 1995 1556 199 11 KCCESSDV USES TIling Sstems -Detic OW pcs 30 36 36 43 52 57 6E 70 60 50 SD 50 50 50 50 - Exprt 05, pcs - - - - - 5 10 20 3N I B e 40 140 40 Orill OChks - Owstic 000 pcs 325 36 360 315 34S 315 34 3t5 345 345 35 345 345 345 345 -Export OOD pCs 100 61 65 U 0 8 0 0 0 0 U 80 80 E0 E0 00 13 RCCESSOI USES Sheet Stee wers sets 9780 900 000 - 0 D E 801 D 800 9000 70 00 7000 700 7100 70D 7300 Cable DM Chinmels sets 100 lSO 250 25 250 313 391 198 763 763 763 76363 763 763 Precidon l/T Cbinets sets 10 25 50 50 50 78 90 137 269 269 269 269 269 269 269 Electrical Cinets sets 20 30 40 40 40 54 73 98 179 1?9 179 179 175 179 179 Telescoping wers sets 3 50 125 125 125 11 165 190 251 251 251 25 1 251 251Z 6hidsa aiprs It 300 400 500 500 SOO 600 720 961 12ff 124 12" 12" 121i 12ff 124 wrds/Prec. Cover5 sets 0 200 500 SOO SOO 6Z5 70 1 977 1526 1526 1526 1526 1526 1526 1526 16 naCssor UDRs Cold Rolled Lad Scrms EN pcs 7 7 8 9 9 5 5 5 5 5 5 5 5 5 5 Oerating Units - Steel *O pcs 261 365 335 3i7 304 292 Z90 269 269 269 269 269 269 269 269 OprtinglUnits - Rlu. O pcs - - - - 17 2 2 29 35 35 35 3 35 35 Operating Units - Plastic 000p - - - - - 26 53 69 90 116 151 151 151 151 1S5 Operating Units - Coatd OD pcs - - - - - 9 19 23 30 40 SD 50 50 50 50 eieler 6aus 000 set 1150 1031 1025 1025 1075 1040 1040 1310O 1010 1040 100 1040 1040 10I0 1840 6ERII WEZ 6rade 7-0 Sas DM pcs 130 160 170 17 170 167 156 115 125 125 125 125 175 125 125 6rade 6 6ears 000 pcs - 2 3 3 3 10 25 15 60 75 75 75 75 75 75 rek 5 6ears DM pCs - - 2 2 2 4 7 14 3N 50 S O 50 SD SO 50 RINDIS UEL UORKS Conetiami 6rindirn Uhtels tons 2500 2600 2600 26 2700 2800 2900 300D 3100 3200 32 320032W 3200 320 0 -rasiue Cloth OU s 9500 9150 9660 960 19000 101! 10770 11130 11470 11950 11850 11950 ;lS50 11950 11950 Rbrauiue Paper E up 2093 1610 1932 1932 1596 2170 2228 2325 2154 2602 2602 2602 2602 2682 2602 Rbrasive Paper eter grain)O9O sq 3000 300 0 3010 3000 3000 300 300 0 3000 3000 3E 3000 3100 3000 3M00 3000 50 6rain DOO ct 120 192 115 125 135 15 20B Z10 Z 50 260 260 260 26 260 t SO Tools 000 ct 500 950 1500 1600 1900 220o 2600 3090 3000 3000 300 0 3800 3000 300 Others rODO 2100 2400 2100 2400 2 0 24 10 2400 Z100 2100 2 400 2 400 2400 2100 LEEtL USRES Linwar nduItoso sets 3000 9000 19O0 23000 2300 31000 35000 t 470 50000 590000 50000 SO O MOO1O 50000 Levds pcs 4000 00 000 1000 4000 300 D30 200D OO200 2 00 D 0M200 ZO 2000 2000 OptiD caBader (Pulse en.) pXs 250 150 600 600 600 720 964 1037 1100 1400 14 140110 1400 1400 1400 Optical Tol Presetters pcs 1 5 10 10 1D 15 2a 25 25 25 25 25 25 25 25 Optical bading H ad pcs 381 300 321 321 211 12 9 1 0Z 2 52 52 52 52 52 52 52 Lmnear 61ass Scales pCs - 100 - - - 650 1690 43 1W00 150002000 25000 D 30 0000 300 Oigital tool Presetters pcs - - 1 4 4 5 6 7 10 10 10 10 10 10 10 Note: For the 6rinding Uxheu Uerks, only the Increnae in synthetic di.muI tool production is attributable to the puroc ht increases in the sales of all other products in all other plants is as a result of te projecw Frtheseproducts,ithout the project it hs been assued that production ud continue at the levls projected for IS. IndustrDq - 75 _ AMX 7-3 Table 3 -m - so" MKc s Pwusc SIC ccun aS - wuEaccm murn umccs (yiu pr alt with projec-ttis at n1set 1986 prim) ...actl. preia.projected . .... ..... Unit 193 13014 INS 1 9516 13 i15 9- 190 1991 1992 1993 195 f 15 19% 1557 11 RMESSOY W1 Tooling Sytem - Diic O*lpcs 420n 121u00 5000 - s5 45000 iSM IBM 15W0 MOn 530W010 SW - - SAM S5m -CE¶rt NO*pc. I M I R KR S 6 59 71036 703 *036 70136 7Wmisi0836 7ss 7MuE glrill Ceksm -owstic DMpa R30 8230 960 9W 96 9460 4608 1 960 9460 96 9M60 9460 960 946 - E rt 000 PCs 8230 30 9460 12501 12501 12501 12501 12501 1301 12501 12501 12561 12591 12501 12591 33 CMESSE USSZ Shet Stl Coe sets 125 12 150 150 150 150 150 IS1 150 150 150 150 150 ISO 150 EHile ragO'jes stt1 167 167 20 20 200 200 2 20 240 2 0 20 M 240 240 ridsm IIT libinets se 50500 601600 6W 601 601 720 720 73 720 720 720 l0 Electid Cabiruets sets 833 w3 m IBM0 Iwo lmog IOz 10Wz 1200 1201 12110 12z 1o00 12 o 1200 Teledcoping Coe set 290 3i0 300 36AD 3600 3610 3609 360 3600 3600 36 3600 3600 3AN 3600 uidsw UipQ-s I* 141l 17 17 17 17 17 20 20 20 29 29 20 20 20 wds/Prec. Emrs ats 833 91 lo lWo 1000 1000 10 0 1 1 290 1290 13 u 1200 IDO 1230 USi IEESSUY UWES Cold Rilled Lad Scram 000 pcs 129 25940 S500 30 0 73010 l? OO lEO E 1_9 0 I o 00 I B01 0D19 I901 o00 0 00 IW OOO 1 10009 Ikeratinglbits- Ste- 000 Up. 2670 2650 2903 310 34.0 34008 30 340M 3400 3400 3400 3400 3990 3409 3400 pertinhits-lMm. uBp. m * o so a a 350936 3500 3 W 3oo 350o 3a10 SW 3 pe Urdtig1ts - Plastic 000 pcs IIE *1 0 I 0 1OWO 1000 000 400 * 04 I100 IOIOD 10 000 Ibntinghits-CtW 0dpes IIR N I U * 6400 64N0 60 64C000 6436 6490 6410 61U eerlbmes DDD W et 2370 1980 1991 mu 221 mo mu 221D 2210 221m 221D mu mu 22 2210 2210 sm awIIs kde-?I Sears Eoes 50s00 15000 19903 1300 196 00 l IBM 2163 2161) 21601 21690 21600 21630 2169 2163 6rade 6Gars UO pcs M 25000 45900 4SO0 45090 4509 1 6000 0 600 6 09C 6 0D00 69016 00 6030 rade 5 6 s 00C Po 111 80H10 ON Or 960Do %ODD 9CIOD -M 96100 600 96D 00 o 96 000 56O3 nentioun l rinding Uheeds tm 75 2759 323 3200 320 3200 3Z1 3 3290 3200 33 320D 3210 320 3200 Rbrasive Cloth ODDs 5p 3570 3 570 3579 30 3570 3570 379 3 3570 35 3 570 35 7 30 3570 3570 tsi e Paer U0 up 26tO 2619 Z619 2649 2 610 2 Z619 26 0 26t0 2610 26 10 2610 26 O 2610 Z619 2610 tbradve Pwr iteraiu)OUID sp3D 83 93 0 80 30 83B 9 B 0 9 831 90 830 830 830 830 SO 6ran a w ae mo t500 GM gOO Is t t50 is 11D t5o 0 m i m m s muo i t5m SD Tw ls ODD et 1100 11W0 9031l00 8 10D 000B 0 m mo0o 00 0D no 80a0 LEEL UOPKS Linermductop sets 64 64 61 64 1 64 77 77 77 7 77 77 17 7 Levels pcs 100 IO 10 100 IN 1:00 1N 100 100 100 10 19 100 100 190 DptiolEneodr(Pulse 6en.)pes on Bo a 0O W 000 8000 ON N 0 900 OM U0D 80 0 8W 8 0ptical Tool Presetters pCs lOD0 19110000 10090 l O WOI 1 00m0 l0O lO 1O D 0 1000 10000 1900 10000D Opticalleadl lead pcs 75D 75D 750 750 75D 75D 750 750 75D 750 750 750 750 750 750 LinearG ea l Sdes pcs MI 5W500 5D0 50D 500 509 500 500 500 509 500 50D 50 Digital Tool Preetters pCs h MN 1500W 150 150 15001 15W 150 15000 1!CG 1500 1500 1S10 150 15M Note: litlot the project, it ha bee assWd tht. prnces wold cs nmm at the levels projected fvw 1996. _1Fy 1987 -76 - ANNE 7-3 Table 4 -e - SON DE EMIL MM N onc Essw 1WVW - FES 31 OM (tlniu i df pin vith proJeUta d eit u tu 1S vimi) .im.. Ctin ............. psldL *-........... S.@......s......... ...... ,. ...... 1913 !l 19 5 91 19 1197IW I 11 19l 19!11 1 1 9112 199 191" 1995 19% 197 19ll n iizsw n htch 4E5 61AN SW " SW 5 5 961," (Al 4 P5 5914 S5 51 1145 3 S4 M Eil Ses 879 593 615 IN 1W 127 1555 2139 1 30D1 3Z11 3 11 1 31 30 30 lotwi.es 663 i6 563966 V 71n3 n3 355 71557l5 9715 971597159715 Sdesax tII i563 52 46 52Z 5719 1 610 74 m m m m m m m7M Let Sl 463 6111 5193 5793 675 65 711 7915 17M1 ON 9 11 OM IN M I himic Wh 1325 1431 2M 2279 2275 252 27 3497 142 "42 "12 42 " 42 12 442 liuwt Si.e - - lotil Sles 1325 1430 Z2Z2 9 273 275 2512 275 3497 402 0442 4M2 4 4M 2 4 42 4 492 Sidh ina 65 77 110 114 114 126 149 178 2 2 2D9 22 2 2211 221 220 Z Nketi1 126 1353 I 3S 165165 M17 265732 7 37?102 1O2R I1Z 9202 82419241R2 1OR owh. stlch 3122 39 324 -= 3594 4112 419 CO2 4367 455 476 476 476 476 176 475 Tota Sde 3tZZ 37 32" 0 391H 4112 It Z1 f lli S ? f Mi56 XIM fl6 ft SWI Emprt Smles - - - - - - - - - - - - - - - - Toal5 T1x 312Z 3611 323 4W1 39 4012 4149 4229 4367 4556 4769 476 176U 4763 4769 4769 letSies z16 3373 3037 3760 75 3772 31 3967 4195 4292 447 47 4 47 4 7 4474 Immutc Sd 2559 3117 3355 3355 3355 3449 465 7176 910 t21 1290 1290 129 12W 120lI 12= Exip0t - - - - - - Toui hies 2459 319 3355 35335355 3 C05 7176 9190 120 fU 12399 1ZW 12390 120 12M S.e1 7x 155 Z26 BS 235 235 269 322 52 6 0 00 III H0 Hl Ikt 51.e 2393 2081 312D 3120 3120 3571 428 6674 1537 111 68 11161116D 11168 1116D 1116D 11160 filEt DEEL IDES mestc S.s1 473 47295 933 59771 53736 51514 63117 67396 69190 797 7197 V 7 77M7 7 79109 Ewt Side 154 15SM 1 15M 1 1635 16575 179417636 119173 174 1977 137741117741774 19774 1977I Total 5. 62713 6273 65314 66159 65793 75855 9 8291 I5442 97361 33474 9M74 S .es1To 273 2754 2613 261 2732 3 Z1113 3419 344 3575 3570 3519 3579 3579 3579 3 Net Si.e 5573 59559 62792 63513 57901 7 7653 92924 967 5355 51955 155 M535 1535 11953 51l9 _m _ -_-- - _n - - _m mm - m betiSbes 2952 2544 24 27M3 253 3596 47 6869 I39 1395 151 1939 2959 52955 2855 21599 rOrtsl - - - - - - - - - - - - - - - ToW Sles h2092 25f4 243 2753 2753 3506 45W 6869 1935 13099 155931199Z299 2G59320559 21599 Sules T 14 193 195 22 l Z8D 361 ff549 1 2 12t 111 14I 1649 164B lNt Mm1 1958 251 2238 23 2533 3226 O41 6319 991211 14351 1651 1951 111951 19551M _ _ _ _ _ m _ _ m_ _ _ _ __ 77 - AMEX 7-3 Table 5 mel - u WE EE- mm, rIIEET RI 2K a I 1( Elf MM - mm. 1UI a an um (rim .1 ruumuwo fro 195 in at .. 1 S pi.) Ihhiff ofits hit cin MOIOD) w d.- Pricet .. atal|@.-. " n............. - i ........... 19 16 Ig Q_ om 19 19l5 19; 1911 19 I! 1!ll 1!8l I9 !s3 92l1L" tt_ UIS -) Sales (imufi if wilt) - Eqire Uth 11.4 12. IL 1U19 M1 I13231 I11N4S 6614 359 3 30 33 - Preiulin ilu 3.5.0 *6. - 5 5 10 3 5 9 I 10 I 1 -KCeturLof 72 *77 U - - - 2 I 20 29 10 - - - - - TIwu Cet 111 257.7 - - - 1 12 26 54 l6 146 1Q2 12 - Toal hd6I d his 14 9 R 13 1235 12M 1, 93 7 546 56 516 592 W Reum (thomn ds wuI) -rli Sales hum 14599 15Z1915673 1 6 !62 2177 26327 319 37199 5W 9% 5495 o uhid,uprh 711 "9 m9 f9 999 1189 1199 tin 1199 1189 1199 - Sales T5s 779 m 11 4106 11 135 1703 2064 2151 2952 3552 352 htle 14139 1441"697 1460 12 157 19 5131 5131 13 NEl CITIII uE Praihtio (nur of Nts) -Ill5 16.1 ILI.3 - 10 29 - - - - - - - - - -me niUD 100 11913.0 40 3 E35D 9 31 3D 19 - -150 -m1n119 14.01.9 111 102 120 19I 19 151 l10 3 60 - - - - - minI9 19.019. 1 53 9 199 li91919 9 103511 D - - - - 191120 60.0611 11 - 15 29 A 31 0 58 60 60 - - - - BallUpFifqIhcbl 1.9. 19.5 10 A 45 5 5 A 33 A 30 - - - - tcul Prfile kfl,s -079 36.1 3 .0 1 39 37 9 *0 25 28 20 2D - - - -N 11 75.2 1 - - - - - - I - 5 10 10 10 -K90 (NC) a M.8 2 . - - - - - - - 1 2 5 5 5 - krticd J 0rig hBhdus T-41$6 6U.56130 20 2E 24 24 24 20 29 10 - - - - - T1415 M 1 6l.0 I - - - - - 2 5 10 15 20 15 15 -16t115 132.1 12.1 U - - 1 - - - - - - - - - - TK11 D(I) 393.9 39L9 I - - I 1 1 - - - - - - - -TJt610 (ND 30.4 331.4 I - - 1 1 1 - - - - - - - -li inders - 1W8 311.11. 31111.6 3: - - 1 1 5 5 - 2933 J I ZS7.9 1 - - - - I 1 2 is I 5 is -11mm45(3) 1 49.3 M - - - 1 2 2 5 5 10 1 2 12 -1192 (ND) U 3 3730 - - - - - - 1 2 6 6 6 - 'tea flbliniq Centr - TNK414CiI M 1356t.9 U - - - 2 1D 29 3A f0 19 49 - TH14153(ND U 1422.9 Up - - - - - - - 2 5 5 5 5 - TN3413Z (C) 11 331.4 1 1 1 - - - - 2 10 2D 40 1 Tutal er d Iuits 79 m 753 7 746 31551 1 26 166 168 168 kiwi (timum ds FM ia) rops Sdalt Ib 11254 111C9 13761 14659 15t39 1512 19Z25 26712 3111 tS697 97 4937 -Selb Tm 652 59 1364 109 1149 1398 1939 252? 3393 351Z 3512 kt Iuel 13394 12762 1359140 1i 69 17861 24773 32Z93 3I 44559 "95 It: (1) [ tw 121W Culting flwb we tksl Wiled Eo 69[ a se, ttin Ith. PImesti Sell pricn. CZ) h,I svithithtke t F uw we lo utoii tU e at l luru jtei 196. j01 jowl 1Sl -78- ANNME 7-3 Tab3Le 6 aMM - sImi mor Ti EWEE SITC H 0N RNETI 11MII TI11 MDR VW - RIMIE, PROIIM l SWIE MM (price ad reu u fr 1916 a t cuubt IS price) Ibr of Udit Unit Price (Y'O ) Ver uf -~ PrleFri ce ...actul.. predin . . ..rejected . 19 916 n. am p 199 3 191199 19B 6 1907 19i..9R9519 0i 1 19-2192 3 1.. 31 PEL CuTIE Uuo Praductin (mbIer of uits) - C: njentiod 1illi WC 15.1 10.0 I IR Z5! 190 125 1259 9 0 - - - - - - Updatedta Con atIo2 "c HR No 55.0 HR - - - - - - 35 35 25 25 25 25 - Precisimn Kllin qw/c U II 10.0 U - - - 13 13 30 45 45 35 30 25 25 -K rlling IeflacM 220.0 22Q0 22D.0 U 8 15 21 2 26 33 35 N0 1 50 50 50 - Nidne Centr U 555.0 U - - - - 1 3 3 3 6 19 29 29 - Total Hbe of Units 266 205 119 162 130 106 118 123 111 124 129 129 Renues (thausids oa un) =ress Sales Reum 6615 6819 7530 0510 9535 1205 190 15990 175 25320 3070 30470 - Sales Taxes 342 380 527 600 625 943 1012 1119 1218 17 2133 2133 Net Revenues 6303 6439 7003 7970 O 11202 13910 14871 16107 23519 29337 29337 --n. inn . nS nn =_s MME C =0= 18 tETR CUfTT116 UOI1 Prentm (umber of units) - Comnuntied Uire Cutting [ON 35.0 43.0 S2.0 1989 291 293 290 260 260 239 238 19 167 115 145 145 -NC El" RR N 99.1 HR - - - - - - 30 60 00100 100 100 -D E [in KR 3R 370.0 - - - - - - 3 8 10 20 20 20 -bE ort CIIC E011 H o 444.0 HR - - - - - - 2 2 5 10 10 -lotalt Nuber of Units 291 293 290 260 260 239 271 21 267 270 75 275 Revus (thousands of wan) -kiss Sales eenue S956 9409 12470 11190 11190 10277 16159 17451 21993 27071 29291 25291 of which exports 0 0 0 0 0 1173 1173 2934 5907 SK67 - lesu Txes 607 608 998 8954 S1 22 1317 1399 1759 2166 2313 2343 Net vnues 9357 9901 11472 10296 10296 9555 15142 16091 2034 245 26997 2694? 2223 cau 33233 3333 23323 3322um ES 2 322 = Cc= =XXMX 332C Co n bte: Revenue vithout the preject re assed to contine at the su levd as projected fer 1936. Ir 3_" w 1 _ 79 - ANNEX 7-3 Table 7 CUE - SRIUI IIIKEH TIOL PWt U1C IETRl r6 ECEKS U- - PECES, PMKTIM U SALES KUEE (prim and rewm prDJectim5 in th_ands of yun at cmnutt 1916 rice.) kiukb of Units Unit Price (V'UO) Year e - - Pri. u p ........... Prcte ctu d .... prq ...ect. 191 1986 futwe Change 198 198 1985 195K 1987 1918 1989 199 1551 1992 1995 195 Product J211-WOU toiw,Fixedled NU NR 79.3 n- - - - - - 2 S 15 10 - - - J21-168 en bck, fldied O U IIL9 -w - - - - - - 2 - 5 40 40 10 J23-H Two Point, Open8.ck M MI 221.6 n- - - - - - - - - 2 - - - J31-10 Singa PeuntSS N 3.0 55.0 1989 - - 7 7 7 20 50 50 SO 50 50 J31-160 Singe Paint 5S 39.6 18.5 70.0 1596 127 121 100 1 l0 100 80 60 60 60 60 60 60 J31-250 SingePeint SS M 76.8 115.0 I199 2 - 15 15 15 25 25 20 20 20 20 20 J31-q10 Si,le Paint, SS M.0 110.0 190.0 i9B9 ia le s 5 5 10 10 io a 10 le 10 J31-800 Si PlePint SS M No 150.0 19R9 - 2 - 1 - 5 5 5 J5550 derdrie,oa 57.0 7.O 7 10 l0 1 6 40 4 10 40 35 25 2 - - - 341-U Unb driler M 130.0 150.0 190.0 1t99 5 20 1S 15 t5 10 10 1s - 1S 1S 15 JB7-250 DWl Culd Erusion M 97.8 120.0 198 - - 2 2 2 5 10 20 a zz 22 22 JB7-IEO nlh Ec ld Extrusim M1 178.0 376.6 n- - - - - - 2 5 5 10 10 10 10 J87-630 fech Cold Extrusion M 11 59.6 nem - - - - - - 2 - I - - - J1-150 Togle-Type Extr M 152.0 -IM - - - - - - - 2 5 10 10 10 J83-200 Tuure-Type Cxtr 55.0 55.0 63.5 1909 11 25 15 15 15 10 - - - - - J" luI L-Tpe Extr 155.0 175.0 175.0 19R9 - 3 ' 2 2 - - - - - - - J1163-00 H Cold-tm1 OC 140.0 360.0 360.0 19B9 5 2 2 2 2 5 - - - - - - Y9350 E lli c 21o. 456.0 550.0 19B9 B 9 10 10 10 10 16 10 15 10 10 10 -28-50 * Hydr.lic 175.0 250.0 130.0 1959 9 6 10 10 10 10 10 10 10 10 10 10 VfMS0 Eo raulic * 1OO.0 lODU.0 1939 - - 2 2 2 - 3 - 2 - - - 100' TransferPress K KR 330.1mw - - - - - 1 2 5 2 10 10 10 200T Transfer Press M 1 162.5 n- - - - - - 0 2 5 - 5 5 5 2W Extrusim, Traufer NR M 52.6 nw - - - - - - - - 2 - - - lOOT Eruion. Transfer * 660.7 n - - - - - 2 2 5 5 10 10 10 SOOT TIvPuiut Struight Hl I00.0 52Z.6 ni - - - - - 2 - 5 - 1 1 1 uz-100 bt rar Ibehine 360.3 360.0 NR RoeB - t Others U KR HR - - Totl mbEr of Units 296 2t3 225 2 252 236 23 Z66 292 291 291 1 91 Eross Sles Ivtnue 15415 16272 22754 22751 2275 25290 36069 43137 47501 52970 52575 52970 of tdch exports 28 52 52 52 52 52 52 52 52 52 52 Sales Taxes 651 817 1456 1456 1156 1618 2360 2761 3819 3390 3390 3390 Net Reuena. 11761 15425 21297 12?7 21297 23662 31509 10376 4461 4"90 15580 49580 * = n s. AM _as M. s _uZ Hote: aitw the project. reem are asmed to r in at the leuds projected fr 196. Jzg 1r -ANNU 7-3 Table 8 sme - * I _ - - II SIaE a (price - rem prouUm I u of vu aW t unat 136 pIm) Udr of bits hit Price lrD Yar of 191 lfutul hsue is 1in 15 isa is igs 19111"in 19 is is19 i JZ3-16 fphtnIuubhl 4.7 S? 5.7 M 516 96 II 96 40 295 - - - - - J23-25 *n Ib nclimle L 9 7.0 7.1 MZ 3111 35 31 3" 31D 3111 31 31D 30 - - - J23-10 ribh clir l 1.5 10.U 10.3 UR I" N 1 I UIN - - - - 3234 3p l imck. ce 13.5 13.S 13.5 U 215 2W 219 219 213 213 211 219 219 211 218 219 J23-16ri' wuhct,JndUSe 5.2 6S 6.5 U 23 IN 1" 199 159 155 1N 1" 195 - - - J23-2S bnhck Incliule 7.0 LI. . U N 11 0 8U 0 U U U0 U - - - J23-IW IUuli.Ince IIR 1s.E 10.1i U I - 1 1 1 1 1 1 - - - - 323-61 Open luck. Incliuile 13.0 156 15.6 U 3D 43 17 17 17 17 17 1? 17 t7 6R}ElC 1mhtIndllue 6I l.6 6.6 U 2 7 1 1 1 1 1 1 - JH23-25 InhI k bl,e 7.6 9.2 9.2 s m is iD i 4s 9 is *9 is 11123-N InIbi IndiSble l2. 12 S 12.8 IR 50 59 SO D1 0 50 SO 50 5D J313-63 tchctlcllsdde 17.9 17.3 17.3 U 20 11 15 19 19 19 19 19 19 - IN rh xedhd 113 1.3 10.3 IN - 19 - - 2 53 53 56 559 3 6 63 251 rmnhd,lzedh U U 26.1 rs - - - - 2 Ao 3 56 5 5 59 ill rIhIb UW U 1 39.6 - - - - 2 2n 22 24 6 26 26 6fT shck. ilued U U 52.9 Mm - - - - - 2 23 22 Zq 26 26 26 * en ck. flixud d U U 72.7 mu - - - - - - - 11 12 12 12 1131 Ip ck Fixedhd U U 91.2 - - - - - - - 10 11 12 12 12 UT Sfraiukt B U 1 1 1EILI s - - - - - - - 2 10 3 51 3 5 1ST Stral n Se. 5 M 111 1. - - - - - - - Z 5 2l 20 2a SET Sfraht Side. U U 2N3.5 uS - - - - 2 5 5 5 31 C-f , H Spuud am U 78 0. 0 n - - 2 10 5o 5D SO 95T CFran., ^ ISp.S U U StE nu - - - - - - - 2 5 2D 2D 20 *iT trmm,Hljilpn U U 131.3 is - - - - - - - - 2 5 5 5 331 C-fra rw, M U U 150.6 - - - - - - - - 2 1O S3 53 so 11 C-Free Tr fer I11 U 135.5 ns - - - - - - - - 2 5 5 5 6 Ci ;rm. Mfr U U 290.5 JU - - - - - - - - - 2 2 2 201 OCTrt U *370.0 - - - - - - 2 3 I 5 5 5 331 MKIi ret U M 16.S nu - - - - - - 2 3 4 5 5 5 451 CI Trret M * 555.3is - - - - - - 2 3 3 3 -DT OClTurrt le M92.5 ns - - - - - - - - - 2 2 2 Si- iirFeer U EIRM 1.9 - - 2 5D 53 565 9 63 63 63 2-2 ir reeder M U 2.0 u - - 2 59 53 56 55 63 63 63 ZS4-3 r fid r FeII * 2.3 mu - 2 SI 53 56 9 59 59 ZS 159 hlI ruek} r UI U 3.0 r- - 2 53 53 56 59 63 63 63 ZS 220 ID ler Fedr M U 3.2 mu - - - 2 D 53 56 59 63 63 63 ZS 2D2D llrf reer M U 3M 6 ra - - - - - 2 50 53 56 59 59 59 Jf-1 Ladler M I 2.0 - - - - - - 2 2 223 23 23 JJI-2 Laeler 2.0 - - - - - - - 2 29 22 22 JJP-15 Ledler * 2.2 - - - - - - -f 2 22 22 22 JM-4 ldler M E1 2 s - - - - - - - - 2 20 20 20 JL21 luil Crae MI U 15.6 au - - - - - - 2 5 6 7 7 7 ALl Col /1aie 1 U 16.0 i - - - - - - - - 2 5 5 3 Jf-15D Cil Cradle M U 16.1 mu - - - - - - - - - 2 2 2 3121 Cuil Cade U 1.2 mL - - - - - - -- 2 2 2 mWUP *1 M to 9nu M - a a m w v 39 337 379 0tirs U1 U1 UIR U - - - - - - - - - - TrtalIhm* efl dUdb23 2393 1555 15 2215 2142 2171 293 145 1453 1450 Dress Wm. less.. tis 119 52 152MR 15207 172 17099 2101 2376 35 477 4 3707 11?11 of dd* Hprts 1616 3N5 353953953S536 395 395 36HS 36 di. la" 511 511 173 973 U 975 1211 139 1746 mc 2796 2756 MlEs.. 11455 13H191 1433 1 CZZ11 2210 1 2 3Z665 512 5112 1g12 Ibt: U th e re m. n emm et6 at th ls pojct fwr 16lf r -81 - AM- 7-4 Table I amm - miff In MCC sn11 - nsrwc. FEIO [NC SlimBTS (Ilni m d t f wrest t pric. tiU 192 ad mant 1992 prics tihrfter) WWI... p1i, ......p. . mqe td. 1913 1119 191 191 17 15 159 1591551 19!3 195 19S 1996 1997 1990 0UR1116 REIMK Sala 54.7 Q4 75.3 12.1 93.1 1I9.4 129.0 S.LS 201.7 242.5 22.7 297.3 357316.1i 317.0 337.9 lea: Sales Taxes 3.3 3.5 7.2 7.9 1.9 10.3 12.3 15.1 19.6 23.0 265 21.2 25.0 31.D 31.1 32.1 lst rating Rems 51. 5L5 68.1 14.6 14.9 9.1 116.1 143.4 197.0 219.1 25S.9 269.0 276.7 216.1 296. 3S5.7 RmIIG CDSTS RNltriuls 19.2 23.2 22.5 21.5 26.6 32.1 3.9 1V. 55.1 67.9 73.3 77.1 79.9 9L3 83.0 O.5 Eua 1.2 Z0 2.1 2.1 2.2 3.2 3.9 4.6 .9 5.2 S2 53 5.3 5.4 5.4 5.5 Ues I Slries 1.1 5.7 7.2 8.1 1.6 9. 19.Z 11.9 11.9 12.7 12.7 12.7 12.7 12.7 12.7 12.7 iiutratim a bwhead 6.7 5.3 6.6 6.9 7.3 L.O 9.1 11.5 13.4 15.2 15.6 15.6 15.6 15.6 15.6 15.6 Overaul g lm e 1.1 0.9 1.6 1.6 2 36 5.3 6.6 7.2 7.2 7.7. 3.3 7.3 7.3 7.3 7.3 a Ihrtlton L2 2.2 3.9 4.0 4.2 4.3 4.5 4.7 23.2 23.4 23.6 23.7 23.9 ILI 19.6 11.0 otalOperating Cots 34.1 39.3 43.9 47.2 51.2 60.7 72.5 5.9 119.9 131.7 137.6 141.7 143.6 14. 14.6 10.3 Operating Incan, 17.3 19.2 24.3 27.1 33.7 37.4 44.3 57.7 67.2 97.9 111.2 127.4 133.1 113.6 144.3 157.4 lll cOISTS Selino Eues 0.2 O.1 0.3 0.9 0.9 1.1 1.3 1.6 2.1 2.4 2.9 3.0 3.1 3.2 3.2 3.4 Other Emp(#)fInc(-) 1.1 0.7 0.9 1.0 1.1 1.3 1.5 1.9 2.5 2.9 3.4 3.6 3.7 3.8 3.8 4.0 Interest Oware operating Lo 0.5 0.6 O.7 0.7 7 L 0.7 ?7 L97 O., .7 0.7 9.7 0.7 L7 0.7 - Unrld M lo-- - 8.7 IO.7 I.0 9.6 3.5 7.4 6.2 5.1 4.0 - astic Lons - - - - - 5.15. 6 6 62 5.1 4.0 2.9 1.0O.9 0 .4 Total oneatuag Cost 1.7 1.5 1.9 2.5 2.7 3.1 3.5 19.6 22.6 23.0 21.6 19.7 17.6 15.7 13.1 12.4 Eross Profit 15.6 17.9 22.1 24.9 319 34.3 40.0 39.0 44.6 fl.8 56.6 107.7 15.S 121.0 130.6 14S.0 Incresed Profit o.n o 1 4.7 7.1 13.1 16.6 23.0 35.7 44.2 6E.l 93.6 102.4 107.9 110. 113.9 131.6 TIDES IN KIICE1 S Incn Tax 3.6 19.0 12.6 12.6 126 12.6 12.6 12.6 IZ.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 1djustnent Tax 2.6 1.9 2.2 2.2 2. L2 2. 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 Z.2 Other Ruitts - I.S - - - - - - - - - - - - - Energyx -T - -a - - - - - Total Reittances 11.2 13.2 14.8 14.0 14.8 14.8 14.9 14.8 14.8 14.0 14.9 14.1 14.0 14.9 14.9 14.8 Net Inew 4.4 4.6 7.6 10.0 16.1 19.5 26.1 24.2 29.9 49.9 01.9 52.9 19.6 113.1 1151. 130.1 OTDt INER ITIONS Or DIlC Uelfare I bras rS 2.4 l31 4.2 4.8 6.3 7.1 8.6 11.6 13.7 19.4 25.5 27.6 28.9 31.3 31.5 31.5 Spcia Frtd lesm 2.9 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 etained Earmngs - - 1.9 3.0 8.4 11.0 15.5 11.1 14.7 39.1 54.9 630 79.3 EO.3 9. 954.2 1110(.sales) Opeating Invm 31.61 30.91 32.31 33.21 35.51 34.55 34.31 36.41 S 2 36.21 41.9? 429 ? 43.51 45.4 45.51 46.6S 6rs Profit 215S 21.5? 25.81 302S 33.09 31.71 31.61 24.6? 21.6? Z6.7? 34.21 36.2 37.91 451 41.2S1 I2.q Inhv O0ertmt J_wv 1987 -82 - AhNIZ7-4 Table 2 NIaM - Sam1 KNIII IIr mica Shil - HISIOICIC l PRIIJCCTEU -U an sianoIs (Mllions of yen at current prie throuh 1992 ad constat 199t prices thereefter) ..actual... prelim . projected...... 1913 191 195 1986 1537 1998 1i9 1990 1991 1992 193 199 195 1996 i 997 19t Operations After-Tax Ince 1.4 4.6 7.6 10.0 16.1 19.5 26.0 21.2 29.9 19.9 81.9 92.8 100.6 113.1 115.3 130.1 Ad: Depreciation 2.9 2.2 3.9 t.O 1.2 4.3 t.5 4.7 23.2 23.4 23.6 23.7 23.9 18.4 19.6 19.8 LI Interest - - - - - - - 11.S 17.3 17.0 11.3 I.5 10.2 9.0 6.0 4.3 Overbul Aluaence 1.1 0.9 1.1 1.6 2.3 3.6 5.3 6.6 7.2 7.2 7.3 7.3 7.3 7.3 7.3 7.3 Cash 6enerated by Uperatiuns befwre Debt Service 8.1 7.6 13.0 IS.6 22.5 7.5 35.8 SO.5 77.6 97.6 127.3 136.3 12.1 116.9 117.7 160.6 Lonrler Durraving Uorld Bad Loan - - - - 17.4 29.4 38.1 31.3 11.0 - - - - - - - Donestic Loans - - - - 12.0 31.9 37.8 21.0 15.0 - - - - Other Loans Total Lonrlern Brrouing - - - - 29.4 61.3 75.9 S.2 2.1 - - - - - - - Short Ter1 Loans 0.2 1.3 - - - - - - - - - - - - - - ther Sources External Special funds -2.1 1.6 - - - - - - - - - - - - - - Enterprise Circulating fund - .0 - - - - - - - - - - - rotal Sources 6.5 13.6 13.0 15.6 52.0 88.3 IE1.? 108.2 106.6 97.6 127.3 136.3 112.1 146.9 17.7 160.6 .PPLICRTIOHS rixed Capital Investents Nan-Project Inestnents 0.4 2.5 0.3 0.3 0.3 0.3 0.3 0.3 1.3 0.4 0.S 0.1 0.4 0.4 0.4 0.4 Project - - - - 29.4 61.3 75.9 S.2 29.1 - - - - - - Total fixed Captal 8. 2.5 0.3 9.3 259. 61.6 76.2 58.6 29.1 0.1 O.4 ILI 0.1 I.t 0.1 0.1 Bon Purchas - 0.1 - - - - - - - - - - - - - - Increase in Lorkang Capital -0.9 1.0 6.5 2.6 4.5 5.7 8.1 11.1 18.8 12.8 19.0 5.9 3.1 4.2 0.1 8.4 Increase in Specal Rssets 3.5 3.3 - - - - - - - - - - - - - - Long-Tern Debt Service Interest - - - - - - 0.0 14.5 17.3 17.0 11.9 12.5 10.2 8.0 6.0 t.3 Repayents - - - - 1.5 5.5 10.2 13.2 28.1 29.4 2.1 28.1 26.9 2Z.9 18.2 Total LT Debt Senrice - - - - - 1.5 5.5 24.? 3u.5 IS.I 43.2 40.9 38.7 31.9 29.0 22.5 Specal Fund Expenditures Uefare I Bonus 3.3 3.1 1.2 S.8 6.3 ?.1 8.6 11.6 13.7 19.4 25.5 27.6 28.9 31.3 3.5 34.5 vjerhaul Expenditures 0.4 1.9 1.6 1.6 2.3 3.6 5.3 6.6 7.2 7.2 7.3 7.3 7.3 7.3 7.3 7.3 Other - - - - - Total SF Expenditures 3.7 4.0 5.8 6.4 8.5 10.7 13.9 11.2 20.9 25.6 32.7 31.9 36.2 38.6 38.8 S1.8 Total Applications 6.6 10.9 12.i 9.3 1237 9.5 103.5 112.9 95.6 81.2 90.2 81.9 7.6 78.1 68.1 73.1 -== =_ 5=s== Q-~~~~ .. := c c s C _= =%= Cc . = -a= =5=cc ===== === e-- IPt Cash Flom -0.1 IZ 0.1 6.3 9.3 9.3 8.0 -47 7.0 13.3 37.1 5S.4 63.5 68.8 79.2 87.5 ccwuulated Cash - 2.7 3.1 9.5 18.7 28.0 36.0 31.3 39.3 51.6 89.9 113.1 206.6 M75.4 351.6 112.1 RATIOS D'bt Service Coverage Ratio U M HA NO RH M 6.5 2.0 2.5 2.1 3.0 3.3 3.7 9.2 5.1 7.1 Industry Dewartment Jlyv I987 -83- ~~~ANNE 7-4 83 Y~~~~~a-bl e 3 CHIMI - OMNII PENIlE TIR. NIRiCT 2991 - HISTIERCU U PROuEEIEB tKE SETS (nilhimns of pmn at arrent prices through 1592 ad constant 1992 prices therefter) ~~ S Depos ~its 1594 195 1966 15917 19K 1585 155 1551 1552 15 1554 1555 1956 155 159 OpeatngCah Dpoit 15 0.6 1.5 1.6 1.5 2.2 2.5 3.2 4.1 4I.9 5.? 5.9 fi.1 6.3 6.3 6.9 kccuns Receivable 1.1 1.3 1.3 1.1 1.6 1.9 2.2 2.1 3.5 1.1 4I.9 6.1 5.2 5.4 5.4 5.? Prepaid Expense 1L9 0.5 1.1 1.2 1.1 1.6 1.9 2.4 Li1 3.6 4.2 1.5 4.6 4. 4.9 5.1 Fr'nlus Cash - 2.7 3.1 9.5 18.7 29.9 36.0 31.5 39.3 51.6 9L.9 143.1 296.6 275.4 354.6 44.1I Inventories FinmfN enos. - In transit 3.3 2.5 3.0 U3.3 5. .3 5.2 6.3 9.3 9.? 11.3 11.5 12.2 12.6 12.? 13.5 - In iwehouse 3.0 2.3 2.9 L3 4.3 1.5 6.3 LI 11.2 13.5 17.9 17.9 18.3 15.90 15.0 20.3 Smi-hinish,ed Goods 16.1 16.7 20.1 2L9. 22.5 24.6 27.6 31.7 39.6 42.0 45.2 417.6 40.5 55.6 50.7? 54.1 Ilaterials I tosmambles 15 19.4 12.6 13.5 16.0 11.6 22.4 277.98 36.5 413.3 50.5 53. 5 55. 0 56.5 57. 1 60.8 Total Inventories 30.5 31.9 38.5 41.4 46.3 52.5S 61.4 74. 0 54.6 109.9 124.4 130.9 K 134.5 139.1S5. 149.6 Total Current Assets 33.3 37.4 45.5 55.1 65.9 96.2 104.1 113.5 143.7 173.1 227.9 299.4 3NU.430.9 519.6 689.3 Gros Fixed Assets 70.7 73.2 73.41 13.7 103.4 165.0 241.2 295.9 325.1 32. 329.59 33012 330.6 330.5 331.3 331.? less: depreciation 51.4 5I3.6 51. 61.4 65. 5 65.5 74.4I 7Q.1 I1022.3 125S.7 145.2 173.0 1%96. 215.3 233.9 252.7 Net Fixed Assets 15.3 15.6 16.1 12. 37.5 55.1 166.8 220.7 226.9 203.9 130.6 157.2 133.7 115.6 51. 79.9 Gomemut Bonds 9.2 0.3 1.3 0.3 0.3 0.3 0.3 0.3 0.3 013 0.3 0.3 0.3 0.3 0.3 1.3 Special Assets 9.b 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.9 faoalAssets 61.4 I 65.2 73.7 75.6 115.5 193.4 2983.1 346.3 392.7 315.0 420.6 459.9 502.9 559.7 6290.1 6559.4I LIKBIUTIES AN EQUITY Curret Liabilities Advances from Custoners 4.9 4.5 5.5 6.5 1. 9.6 10.2 12.5S 16.3 15.2. 22.3 23.5 24.2 25. 0 25.0 26.7 Accounts Payable 0.7 0.9 091. 1.0 1.1 1.3 1.5 1.9 2.5 2.5 3.4 3.6 3.7 3.9 3.8 4.1 Shot Tern Loans 1. 9.6 1.6 8.6 8.6 816 8.6 8.6 1.6 9.6 8.6 8.6 8.6 9.6 8.6 9.6 Payebles to State 9 Others -o.z 0.1 0.1 0.1 1.1 0.1 0.? 8 .1 0.1 L 0.1 0.1 0.1 0.1 0.1 LI1 0.1 Long Tern DebthDe- - - - - 1.5 5.5 10.2 13.2 29. 8. 4 - 28.4I 28.4 26.9 2.59 11.2 - Tota!] Current Liabilities 12.7 14.4 15.6 16.2 1.89 24.1 30.7 36. 4 SS. 9 59.2 2.98 64. 2 63.4 60.4 55.8 35.5 Lw,.;Tpmn Debt Ovld bib' Loan - - - - 17.4 46.8 8i.5 9119.2 119.5 106.6 53.2 75.5 66.6 53.3 40. 0 40.0 Donetac Loan, - 10.5 36.5 64. 75. 3 75.2 60.1 45. 0 30.0 16.4I 6.9 1.9 1.0 Other Loans - ...r - - ~~ ~~~~~~- ---- -- - ---- - - Total Lon-eri. Debt - - - - 27.9 83.8 1`49.4 194.5 115.1 166.7 13M. 109.9 83.0 60.0 411.8 4.9 Enmty State Fixed Funds 19.3 19.6 iLl 12.3 9.5 11. 17.4i 6. 2 31.7 37.1 42.3 47.4 50.7 S5. 6 55.5 37.1 State Circulating Funds 17.6 17.6 17. 176 17.6 11. 6 17.6 17. 17.6 17.6 17.6 17.6 17.6 17.6 17.6 11.6 Enterprise Circulating funds LI0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .8 .0 .0 .0 .0 Special Reseve Funds 5.1 14.9 15.9 24.5 28.98 28.8B 24.2 16.9 12.7 8.9 5.0 1.5 -0.4' -3.9 -2.4' 17.5 Retained Earmning 2.8 2.8 4.1 1.5 16.9 21.5 3.8 54. 9 6ig.5 99.6 154. 218.3 288.6 3689. 451.9 5S6. 4987 54.8 59.2 63.4 73.2 85. 6 103.0 1 IS5S 11.6 163.1 219.4 284.7 356.4 438.2 522.5 blIl Total Liabilities It Fquitt 61.4 65.2 Z?3.7 79.6 119.9 153.4' 293.1 3416.3 3392.7 3954.0 420.6 459.8 502.9 559.7 620. 1 695.4 RATIOS Current Rtioa 2.6 2.6 2.5 Li4 3.7 3.6 3. 3.1 26 2.5 3.6 4.5 5.6 7.1 9.2 15.1 LI Iieht.T Debt-Equaty '1) OZ0? or or ox 29 49? 59? 63? 60? 51? 39? 282 19?n 12? 7? 6? Industry Departnent Jamry 1997 -84- AMNK 7-5 Tablea I mmr - m~ -m s ruuc SUK - CKOLIITO ESTECL U MCOM UK 513001 (nillIm .1 gm at curret rices thru 1932 ad untut 1392 plie tliriter) Sals 14 311.6 351t9 371.6 399.4 139.2 $17.5 599.9 699.6 I 9 11 69.4 97259756 75.6975.63875.6 lets: Sales Taoe 1t.9 16.3 23.2 21.6 22.3 24.3 309 35.9 13.2 52.9 55.1 514 5L7 55.7 55.7 55.7 Net Operating Enses 265.? 296.3 317351.0 371114.3 497.5 561.0 656. 797.2 8111.3 917. 1 91.3 313.3 81913. 19.3 UPERRTIHE CosTs RNe Iltmnals 135.8 155.5 161.3 177.6 192.5 217.1 237.9 ALI. 299.2 W9.5 3919 ;42 3112 3112 310.2 Energ 11.2 12.9 13.1 13.9 1ts IS.9 ILI 21.9 23t4 BA. zu i aL I aM i 23.1 Jages I Salaries 29.5 23.4 24.6 26.1 26.3 29.6 39.5 3ai 34 3 4.5 34.5 31 5 4.5 ASAS 5. 34.S HAdnirsratiom I IOvehed 15.9 15.6 16.1 19.5 19.i 23.8 3168 3.9 42.3 4I.9 42.5 42.3 42.9 11.7 11.4 Ovurtal hiseune 6.4 6.6 7.9 7.2 9.4 13.3 15.3 17.2 17.5 17.9 19.1 ILI )t.7 19.0 193 19.6 I Ihortizatimn 11.1 11.3 11.9 12.6 13.1 13.5 13.9 11.3 17.3 49.4 49.0 19.6 51.3 ILI 49. 11.I Total Giating Cuts 173.3 200.5 230.5 234.6 259.5 279.9 314.9 34LI 411.7 469.6 475.3 477.3 475. 492 469.3179.5 Operating Icue 92. 97.9 MA4. 116.1 111.6 131.5 172.6 215.2 241. 7326.6 339.0 339.6 3415 3591.7 3510 313.4 NI)N-WERHNi COSTS Selling Expenss 0.3 1.2 1.1 1.5 1.7 1.9 2.1 2.5 3.0 3.5 3.1 37 3. 3. 3. 3.7L Dtiaer Exp(#s'Jnc(-) 4.5 4.7 5.0 5.1 5.5 6.6 7.3 9.7 12.0 1S.4 16.2 16.2 16. 16.3 16.3 16.3 Intferes Cir3e - Ikrating Leon 2.4 3.1 4.9 4.3 1.9 1.3 4.3 4.9 1.9 4.9 4.9 1.9 1.3 4.9 4.9 1.9 -Unrid hi Lom - - - - 13.6 20. 0 19.1 17.1 15.1 13.1 11.1 9.1 7.0 - Domestic Lens - - - - 7.1 6.? 5.6 4.4 3.2 1.9 9. 9. 0.1 - Othr - --. - - - - - - - - - - - Tota Nhn-Orating Costs 7.7 9.1 11.3 11.6 12.0 ILI 14.9 I3L1 46.7 46.4 16.2 13. iLI 369 34.3 32.0 firos Profit 94.7 96.9 102.3 104.6 106.6 121.1 157.7 172.2 19S.1 278.1 292.3 296.7 30.5 313. 315.9 317.4 Incrase Profit (ever 1964) HR U 14.0 15.3 17.3 32.3 69.9 109.3 133.9 214.0 225.5 226.1 226.6 237.9 236.3 235.7 TRIES FM RD1ITTKES IncomeTax 15.3 M. 49.6 4186 50. 1 51.3 53.1 55.9 57.1 I59.3 59.3 59.3 59.3 59.3 59.3 59.3 Adjustment Tax 23.4 23Z.3 27.2 27.2 28.0 28.6i 29.6 30.7 31.8 33.9 33.9 33.0 33.9 33.0 33.9 33.0 Energy Tax 190 U. - - - - - - - - - - - - Special Loa Payhci 1.3 1.1 - - - - - - - - - - - - - Dtters 0.1 LI - - - - - - - - - - - - Total Remittances 75.6 78.2 75.9 75.9 79.1 79.9 92.7 05.7 91.9 92. 92.4 92.L I 9Z .4 92.4 52.4 Income Retained 9.1 10.6 27.0 29.3 28.4 41.3 75.0 96.4 11.1 195.6 u.s 23.3 799.2 221.4 223. 225.0 OTIE AiKLLE sRTE If lCR Ueliare £ hmns run 6.2 7.3 11.5 11.2 12.0 16.0 25.1 35.1 41.1 6ILS 63.7 63.9 64.0 66.4 66.2 66.1 Speci ral d Reseve 2.9 3.4 3.1 3. 3.5 3. 3.9 4.0 4.1 4.3 1.3 1.3 4.3 1. 1.3 1.3 Retained Earngin -12 . 11.2 12.9 21.? 46.1 47.4 619I 120.5 132.5 136.2 139.9 159.7 152.3 151.6 RATIOS (1 on sales) Operating Income 32.9! 31.1I231.31231.31 29.7! 30.6! 33.42 35.91 34.S! 39.9! 39.9! 31.91 39.91 49.1! 40.9? 39.9: Gros "rfit 31.21 29.2? 28.2? 28.11 2i12 27.62 39.5! 29.71 27MI 33.1? 33.7? 34.91 34.31 35.91 36.1? 36.21 -85 - ANX 7-5 Table 2 m - u rn 1im aim sOC - CuLu su u rMEco rm rEw SuliS tern. of VW i aT ga prt im thr.* 1992 ad emtat 1992 price tiurufta) au.s. or. ........ .......... ,fce ......................... 198 19n 195 1986 IW 19M 1^ M 1 991M01991 1992 1993 199 199 19% 197 199 hiMd I S.l 116 27.0 29.0 2L 11.3 75.9 86.4 151 1I.9 2915 29H.3 213.2 221.4 223.4 225.0 me hprma 11.1 11.3 11.9 12.6 13.1 13.5 13.1 11.3 47.9 49.1 419 19.6 513 9.1 L.7 11.1 LT ltest - - - - - - - 26.0 25I 24.7 21.5 10.2 15.0 IL 9.4 7.1 u MiiniMe 5.4 6.6 7. 7.2 9.4 13.9 15.9 17.2 17.5 17.3 1L9 18.4 18.7 19.0 19.3 19.6 hul td tp baiUm . heie hat Smiem 26.6 2.6 15.9 48.6 59.9 67.9 194.6 143.9 199.1 276.6 299.9 291L6 292.2 29L5 29L2 293.1 Lug-In hrrflqn bald h 1a. - - - - 16.4 92.5 62.9 33.1 1.9 - - - - - - - te lc - - - - 2.6 67.3 54.9 15.1 1.9 - - - - - - utar - - - - - - -- -- -- - - - - Fata L.q-Tew barr q - - - - 89.0 159.0 117.7 9.5 3.9 - - - - - - - sin r.. Inn 1.9 13. - - - - - - - - - - - - - - mar Swc Citav Specal fob 1.9 10.9 - - - -1.2 - - - - - - - - - - Stab tirmlatlqFrd 0.L -0.5 - - - -0.9 - - - - - lTot Sv 21L6 52.4 15.9 1.6 139.9 222.5 2223 192.3 201.1 276.6 299.0 299.6 292.2 292.5 29L0 293.1 wi-s Fld cits 1_a P--. rect lpitaut 7.9 11.6 15.2 9.2 9.3 6.2 11.1 11.3 12.6 ILl 13.4 13.4 13.1 13.4 13. 13.4 project - - - - W9.5 160.7 110.3 46.6 2.9 - - - - - - Totl ind Ilmtt 7.9 11.6 15.2 99.3 166.9 129.1 5.4 1.5 1. 13.4 13.1 134 13. 13.1 13.4 kw PaNdusm - - - - - -O.I - - - nrs in Uartwq Cptal 1.5 14.0 12.0 1.6 6.6 1.0 11.9 19.1 24.0 37.4 7.0 0.7 0.7 Icr. in Sjed bats 3. 13.3 - - - -3.4 - - - - - - - - LurTem Det Sevce Inteest - - - - - - - 26.0 26.3 24.7 21.5 13.2 15.0 ItD 9.1 7.1 5.3 13.7 2A.6 2LS 4.3 46.3 46.3 46.3 41.0 32.6 25.7 TJtelI T 0t Serce - - - - - 5.3 13.7 46.6 49.3 71.0 67.9 64.6 61.4 53.0 41.9 32.8 Secial rU. Efg t&r Dlfare £ ha. 5.2 S.5 11.0 11.2 12.0 16.0 25.1 35.1 11.1 60.9 63.7 63.9 64.0 6.4 66.2 66.1 Orul Eatres 6.4 6.6 7.0 7.2 9.t 13.0 15.9 17.2 77.5 17.8 18.1 ILI 18.7 19.0 19.3 19.6 Ot - - - - - - -h_ TOtl sr EC t 12.6 122 19.0 I. 21.3 29.0 4.9 52.3 59.6 79.1 91.8 32.2 32.7 5.4 95.5 05.7 Tot Applicato 29.6 51.0 45.2 29.2 127.2 201.7 293.0 176.3 147.4 290.5 169.9 160.9 159.2 151.0 140.9 131.9 _aa ma_ man ma_ _m csaasmmamn s umsasas . mat. mai let Cmh nol - 1.1 9.7 11 12.7 20.8 19.3 16.0 53.6 7.1 119.1 129.7 131.019.7 151.! 151.1 IImlaw alt - 1.4 LI 21.5 34.2 54.9 74.3 90.3 143.9 220.0 339.1 460.7 60L9 743.4 995.3 1056.4 t Service owi ke U U U U U 12.7 7.6 Li I .0 3.9 4.3 .5 .8 S.5 7.0 8.9 listr lt -86 - ANNEX 7-5 Table 3 MOm - SWMou net TIL INJECT infc - caIstarc uzSrOuCiL m PuEiccr KMac seaS (millions of Vun at current prices t*r.* 1552 ad cmnstad 1552 prices ther'ufter) ..actual... prelim ................. projced...e c t ed............. ...... 1593 159 IN95 1596 137 159199 150 1551 1552 1953 1555 1555 1556 1557 1596 Cwrrent Assets kerating Cas I Deposits 5.4 5.5 11.1 10.2 10.6 10.5 11.6 12.9 14.3 16.6 17.0 17.1 17.1 17.1 17.1 17.1 Alccmuts Receltile 3.7 4.8 5.2 5.2 5.4 5.0 5.6 6.2 6.9 6.1 6.3 8. 8.4 .4 Li 9Li 6.4 Preped Exqpense 3.3 5.4 5.7 4.9 5. 0 5.0 5.6 6.1 6.9 7.5 9.1 9.1 9.1 9.1 9.1 9.1 Surplus Cash - 1.5 2.1 21.5 35.2 54.5 75. 50.3 113.5 220.0 339.1 461.7 602.8 713.5 955.3 1056.4 luwentones Fairshed Gods - In transit 5.0 U. 5.6 5.7 4.5 5.0 5.6 6.1 6.9 7.5 9.1 9.1 3.1 9. 19.1 9.1 - In waehouse 14.2 16.0 17.3 17.5 18.2 18.7 21.7 22.7 25.2 29.2 29.5 30.0 30.1 30.1 30.1 31.1 Swa-finished Gwod IL?7 55.1 61.3 69.9 63.3 65.3 72.3 75.5 0.2 102.01IM.6 101.915.1 15S.1 15.1 105.1 flotenads I Cmnsuaubles 72.5 76.3 92.4 93.2 96.5S 9B.7 99.2 107.5 120.0 130.9 142.3 152.7 113.1 143.1 143.1 153.1 Total In tentries 1315 152.5 164.5 166.1 172.8 177.7 156.9 216.0 240.2 277.5 201.5 35S.6 296. 296. 256.4 25.5 Total Errent Assets 154.8 172.5 196.6 297.9 229.0 253.2 253.9 331.4 412.2 50.5 6S7.5 798.0 922.8 1063.5 1215.1 1376.5 Gross raxed Assts 250.0 301.6 316.3 326.1 125.3 552.2 771.6 780.0 755.5 898.0 922.5 935.9 815.3 962.7 97.1 U.S3 less: depecation 137.2 135.6 151.5 161.1 177.1 150.6 205.5 219.7 266. 315.9 363.9 413.4 563.7 503.8 555.6 505.59 Net Fazed b"ets 161.9 162.0 165.4i 162.0 241.2 501.6 517.2 561.3 525.1 454.2 55B.6 122.4 385.5 358.5 331.6 303.6 Govement Bunds 1.1 1.1 1.1 1.1 1.1 1.0 1.0 1.0 1.0 2.0 1.0 1.0 1.0 1.0 1.0 1.9 Specia Assets 50.5 53.? 5S3.7 53. 7 -53. 7 50.3 51O.3 51 50.3 50.3 50.I S.3 50.3 5S0.3 5 0.3 50.3 50.3 Total Assets 39. 13895.2 406.9 42.6 531.0 706.1 962. 994.1 552.6 1076.0 1167.4 1261.7 1355.6 1573.7 1556.2 1731.5 LIFInUTIES UD EQUITY Currant Liabilities RIhane frm Customers 15.5 19.5 21.1 21.6 22.5 23.1 25.5 20.0 31.2 36.1 37.0 37.1 37.2 37.2 37.2 37.2 Other Accoauts Payable 3.9 -0.1I -0.1I -0.1I -0.1I -0.2 -0.2 -0.2 -0.2 -0. 2- -0.2 -0. 2 -0.2 -0.2 -02 -0.2Z Short Tern Lemi 49.6 62.0 62.0 62.0 62.0 62.9 62.0 62.0 62.0 E2. 0 62. 0 62.0 62.0 62. 0 LI 1 62.0 Pattes to State -1.5 -0.3J -8.3 -1.3 -0.3 -0.5 -0.5I -0.5I -0.54 -O.1 -i.LI -0.1I -0.1I-O -0.4 -L -0.14 LI Rebt Dhue - - - 5.3 13.7 20.6 22.5 46i.3 46.3 %.3 16.3 11.0 32. 6 25.7 23.9 Total turrent Liabilities 65.9 81.5 93.1 83.3 99.5 58.3 107.6 112.1 138.5 IlLS 144.7 141.9 135.6 131.2 121.3 P.2.4 Long-Tern Debt Uorld Dank Leans .46. 138.5 201.8 234.5 213.1 135.4i 165.8 142.1 119.4 55.7 71.0 574 Dnestic Loans 37.3 90.5 125.1 I117.9 56.3 73.7 51.6 21.4 11.1 2.2 1.1 a0 Other- - - - - - - - - - - - - - - Total Lug-Tern Det 8 3.7 229.9 326.5 352.1 309.4 263.1 216.3 170.5 1219.5 56.5 71.2 57. (guty State Faxed funds 161.9 162.0 165.4 162.0 165.5 171.9 150.1 299.5 215.7 231.1 241.8 251.5 256.0 262.0 260.4 256.2 State Circulating funds 78. 077.4 77. 4 77.4i 77.5 76.5 76.5 76.5 76.5 76.5 76.5 76.5 76. 76.5 76.5 76.5 Enterprise Circulating Furds 0.0 0.1 1.1 0.1 1.1 0.1 0.1 1.1 0.1 0.1 0.1 L I 0.1 0.1 0.1 0.1 Special ResereFunds 5Z.5 61.2 69.3 75.1I 76.1 68.2 53.5S 35.3 32.3 25. 3 189. 13.1 13.3 11.7 17.6 26.1 Retained Earnings - ~ 12.6 26.8 35.7 61.4i 107.5 154. 215.6 336.1 469.6 605.9 754.6 855.3 105.' 1202.7 Total Equity 252.2 307.7 323 9 311.3 357.98 3?8.O 429.0 175. 3 544.2 665.1 &is.59 546.41050.6 1255.6 1502. 1561.7 Total Liabilities I Equity 359.1 385.2 106.9 4254.6 53.0 7061- 962.1 _951.1 592.6 1-076.0-1167-.4 1-261.71359. 6 147. 15592 1731.1I Current Rato 2.4 2.1 2.2 2.5 2.5 2.6 2.7 3.0 3.0 3.7 4.5 5.1 6.6 1.1 5.8 11.2 LTBebtfLT0bt-Equzty () DI or 0a Dl 15? 39? 413 421 31 292 21?15 11?II 71 5I 3? lkisby wbn - 87 - ANNE 7-6 Oa - USIU 1110 TOIL P1t3 91M - CtST-IIWIT SlTEICI R M UfI L WET Uf IETIb (tumdu d gm at cnst 1996 pries) oect Capital Prolction Cwts Suems Iku Plant Uerklnn Incrox Inu CWital Capitl Uitheut Uith frm Uithwt Uith fran Ikt Cast Inrase Pro ect Project Project Project Project Project Iiefit 195 - - 3968 39601 - 69146 69196 - - 1916 - - 9Z213 2213 - 715 7 - - 19i7 26016 9258 92213 99750 2537 79559 91079 6521 -26290 Igo 5930 5064 92213 49301 7089 7559 87752 13199 -9979 199 57720 6769 12213 55010 12757 74554 9110S 23551 -53735 199D 51868 9927 92213 61903 19271 74559 113133 38590 -4377 1991 24113 13905 12213 69579 27366 71559 131532 63976 -1907 1992 - 1925 97213 73962 31749 79554 152601 73897 37372 1993 - 9709 si213 78537 36325 74559 177099 103336 57302 199 - 91071 2213 81996 39279 79554 19793 112530 6912 1995 - 2365 2213 25 10622 7959 192121 117067 7490 1596 - 2892 2213 96019 13796 74559 198997 124359 7779 1997 - 24 92213 86D05 13792 79 199999 124995 98909 1999 - 5O0N 92213 90155 7942 79554 212607 138069 993 199 - - 42213 90155 97992 7454 212607 139054 98111 2000 - - 92213 90155 7942 794 212607 138059 90111 ZoN - - 12213 9155 7992 74559 212607 139805 91111 02 - - 9213 90155 47942 71 212607 138054 9011 2003 - - 92213 90155 47992 7155 212607 138059 90111 203 - - 92213 90155 475Z 7554 212607 138059 90111 2o05 - - 92213 90155 47942 7S554 212607 138054 9011 2896 -20575 -73841 12213 90155 47512 79554 212607 139054 184127 rinancial IN z 23.1Z id"..pvt -88 - AM= 7-7 Dlii-1 UWNElI JL NUEa OTC - COSEIT MM r IIS WIE V KM (thmh Po w itut 133 ail) Promect C4ital Prdctian lots s5a h.u Pliat Uw1k Inwa 1w COWle cwtal UAthWt Uth Irs t ittat Ul frm let Cest lI me Project Project Proect rect ect Project bufit 195 - -22 71 2M07 - 34662 36 - 1916 - - 3196 Z318 - 317 34 - - 197 784325 46 231356 23321 6391 3975 W3 7314 -1945 19411 131213 15673 Z31896 242S9 1093 39753 366164 13176 -135733 1939 31696 140 21 23 263116 317533 S -632 199 10515 1759 231896 2715 A320? 31 GM IM611 17 -41 1991 29 2556 26 Z31896 279 1556 397513 4 3 13229? 5i572 1992 - - 23169 296140 69295 319753 59366 19277 12M35 1993 - - 231956 3 5 74560 9M3 SI 211915 I315 199 - - Z31896 30719 56U 39791 51323 2133R 137737 1995 - - 23191 3 1 76615 3179 2 21565 1362 1996 - - 231899 333591 76695 397 5632S3 215265 136W 197 - - 23139 3AN51 76615 34733 533 21S265 130623 1998 - - 231696 3091 7W665 39M793 5635 21535 13620 1999 - - 231396 3M591 76U5 395 56353 215Z25 13123 20 - - 73191X 3591 76615 3 533 215Z6 136W 21 - - i3106 30591 7S615 39M79 532 215265 1323 2002 - - 23139 30591 76615 31733 563 21!;26 1316Z 2 - - 2319 301 76695 31 79362 21526i5 136I23 200 - - 231696 30591 76695 371 563253 21535 13101 2005 - - - 21096 33591 76695 3793 532 215Z65 13123 2007 -3391l -73701 Z3139 30051 7665 317 56353 Z1521E 2572 riuncsia if D 29.52 -I k1 - 89 - ANNEX 7-8 CHINA - SHANGHAI MACHINE TOOL PROJECT Financial Rates of Return for SMTC Project Plants (X) Price Changes ------------- Switching Base Up Down Value (a) Case :O2 10X (Z) No. 1 Machine Tool Foundry 18.3 21.9 14.3 84 No. 3 Machine Tool Foundry 15.3 17.9 12.5 88 No. S Machine Tool Foundry 11.1 13.6 8.4 104 Machine Tool Forging Plant 25.1 28.0 21.8 58 No. 1 Machine Tool Accessory Factory 13.7 16.3 10.9 94 No. 3 Machine Tool Accessory Factory 27.6 30.3 24.8 44 No. 6 Machine-Tool Accessory Factory 13.2 15.5 11.0 95 Machine Tool Gear Manufacturing Plant 32.0 35.4 28.5 42 Grinding Wheel Manufacturing Plant 32.6 50.0 19.6 85 Level Works 34.4 39.0 29.4 54 No. 2 Machine Tool Works 46.9 55.6 37.8 61 No. 3 Machine Tool Works 27.8 34.0 20.8 77 No. 4 Machine Tool Works 19.3 25.4 12.2 90 No. 8 Machine Tool Works 30.2 33.6 26.4 SO Metal Forming Works 35.6 39.8 31.0 47 No. 2 Metal Foriqing Works 33.7 37.6 29.8 44 SMTC Project Consolidated 24.5 27.8 20.4 69 ---------------------------------------- (0i) Percent of base-case prices at which rate of return falls to 12% Industry Department January 1987 ANNEX 8-1 -90- Page 1 CHINA - SHANGHAI MACHINE TOOL PROJECT Assumptions Used in Economic Analysis 1. Economic rates of return (ERR) have been calculated for SMTW, for each sub-project of SMTC, and for the entire SMTC component, by developing 'with' and "without" cost-benefit streams using economic prices for all products and inputs. Calculations are in constant 1986 yuan terms. At the end of the economic life of the Project in 2006, 15 years after project implementation is completed, it has been assumed that the salvage value of the investments would be 10% of the initial economic plant cost, together with the incremental working capital calculated using economic prices. Duties and taxes are excluded from all cost and benefit streams. The basic assumptions concerning incremental production as a result of the Project parallel those which were made for the financial analysis, as detailed in Annex 7-1. 2. For local currency capital and production costs, the following conversion factors have been applied to 1986 domestic financial prices in order to approximate economic prices. Item Conversion Factor Capital Costs Coratruction Wark 1.08 Local Machinery - for Foundries 1.15 Local Machinery - for Other Plants 1.34 Production Materials Foundry Raw Materials 1.12 Foundry Binders 0.76 Steel Castings, Plate, Shapes & Forgings 1.17 Iron Castings 1.14 Electric Equipment & Motors 1.10 Electronics 1.00 Pumps and Bearings 1.27 Other Components 1.00 Consumables 1 .00 Energy Electricity 1.00 Fuel Oil 0.80 Gas 1.00 Coke 1.56 Wages and Salaries Unskilled Labor 0.56 Skilled Labor 1.11 Technical and Engineering Staff 4.00 Managerial and Administrative Staff 1.11 Overheads Maintenance 1.20 Other Overheads 1.00 ANNEX 8-1 -91- Page 2 3. For local capital costs, these factors have been applied directly to the appropriate cost components in the estimate. For local production costs, conversion factors have been developed for each plant for each major cost component (materials, energy, labor and overheads) based on the cost of the various sub-categories within the component. 4. Selling prices of all products have been adjusted to international prices for comparable equipment. For machines which are currently exported, the current export price (FOB) has been applied for domestic as well as export sales. For new machines which will be developed, and which for the financial analysis were priced at approximately 70% of international prices, prices have been adjusted to international prices except that 10% has been deducted for possible quality differentials. 5. Conversion factors developed in this way vary from plant to plant and from year to year, depending on the production and sales mix. The following table shows cL -version factors for a typical year (1994) for each plant included in the Project. Raw Sales Material Energy Labor Overhead Revenue S--TW 1.04 1.18 1.20 1.08 1.30 SMTC #1 Foundry 0.95 1.13 1.06 1.06 1.44 #3 Foundry 1.03 1.10 1.08 1.12 1.53 #5 Foundry 0.95 1.11 1.09 1.12 1.30 Forge Works 1.00 1.00 1.01 1.04 1.20 11 Accessory Works 1.00 1.00 1.05 1.10 1.00 #3 Accessory Works 1.00 1.00 1.13 1.10 1.00 #6 Accessory Works 1.00 1.00 1.16 1.10 1.00 Gear Works 1.19 1.00 1.11 1.10 1.19 Grinding Wheel Works 1.00 1.00 1.09 1.10 1.00 Level Works 1.00 1.00 1.20 1.10 1.19 #2 Metal Cutting Works 1.09 1.00 1.03 1.16 1.29 #3 Metal Cutting Works 1.10 1.00 1.00 1.16 1.31 #4 Metal Cutting Works 1.09 1.00 0.97 1.16 1.38 #8 Metal Cutting Works 1.10 1.00 1.02 1.16 1.28 Metal Forming Works 1.33 1.11 1.21 1.10 1.28 #2 Metal Forming Works 1.15 1.00 1.19 1.10 1.28 6. Economic cost and benefit streams for SMTW are presented in Annex 8-2, and for the consolidated operations of SMTC in Annex 8-3. Annex 8-4 presents a summary of the economic rates of return for each SMTC sub-project: detailed economic cost and benefit streams for these components are available in the Project File. Industry Department January 1987 - 92 - ANNEX 8-2 01f1K - SHhlNGNRI iRCHIHE 11TOR PROJECT SITU - COST-BEFIT STOWS FOR ECOHERC RRTE S RETURN (thousnds of uan at constant 1986 prices) Project Capital Prodiction Costs Sales Revenue Plant Uorkinq Increase Increase Capital Capita Uihout Uith fron Uithout Uith frm Net Cost Inrase Project Project Project Project Project Project Benefit 1985 - - 02971 ¶2q71 - 113586 113596 - - 1986 - - 45963 45963 - 122627 122627 - - 1907 26621 5529 59563 48589 2726 122627 137305 9678 -25198 1988 5255 6575 15063 53629 7766 122621 1 42178 1951 -1701 9q89 59372 8798 15963 S5995 14136 122627 156695 31068 -¶8228 1990 S2SZ9 11720 5963 67168 21395 1226Z1 177051 51124 -31129 1991 25092 18054 15863 76075 302712 1M257 210385 87759 1t0t 192 - 1159E ¶5863 90931 34968 12Z627 25135 ID25D8 55561 1993 - 12605 15963 95766 39903 122527 250509 1278829 7157 1955 - 5289 5963 89021 13159 122621 262578 140351 9154 1995 - 3071 45863 90539 1676 12Z5 271mS 119524 100777 195% - 3154 45863 94027 19164 122621 79519 156921 105002 1997 - 317 45063 49t36 40173 122527 28692 150055 109565 1998 - 7511 1S863 98684 52741 122627 297190 175163 114t88 1995 - - 45963 98601 52741 122521 297750 175163 121422 2000 - - 59563 98604 52741 122621 2977 90 175163 122422 2001 - - 4563 99604 52741 1L2262 291750 175163 121422 Z0 - - 45963 9861 52711 122627 297590 175163 122122 2993 - - 5863 98604 52741 1226Z7 Z97750 175163 122122 2904 - - 45863 59504 52711 122621 297750 175163 122122 2005 - - 45863 986 52741 122577 297790 175163 122422 2006 -21621 -94932 15963 98650 52741 172627 297790 175163 238875 Econtic I!RR = 30.61 Indutn kpatntt laDry 1987 - 93 - ANNEX 8-3 CNINR - SHOWIIRNI NKEINE TOOL PROJECT SMTC - COSI-BEFIT STIENIS FE £CORMNC RR1E OF RUEI (thousands of yuan at constant 1996 prices) Project Capital Production Costs Sales Renue Plant Uorking Increase Increase Capital Capital Uithout Uith frm Uithout Uith frm Net Cost Increase Project Project Project Project Project Project Benefit 1985 - - 168999 168948 - 200t15 260115 - - 1996 - - 180506 198506 - 291121 291121 - - 1987 90291 371 161667 197013 5346 303912 299935 1079 -92596 198B 130101 545 162157 197007 11250 303912 319qZ9 15017 -131999 1969 90985 19901 183731 217767 34036 303912 357301 53386 -O9938 1990 tS516 17139 185116 258356 65213 303912 125177 121265 -6901 1991 2775 22159 196390 27933 91936 303912 501411 197501 90632 1992 - - 197766 308756 120990 303912 592625 289713 167723 1993 - - 187766 315650 127081 303912 616966 313053 185169 1991 - - 187766 319016 130290 303912 619539 315625 1953t6 1995 - - 197766 319494 131728 303912 619297 315394 183656 1996 - - 187777 319517 131740 303912 619297 315394 183614 1997 - - 18M7 319517 131740 303912 619297 31534 193644 1998 - - 187777 319517 131740 303912 619297 315394 183641 1999 - - 18777 319517 131740 303912 61929 315394 1936B 2080 - 1877 319517 131740 303912 619297 315394 183644 ZO - - 1977 31951? 131740 30391Z 619297 3153M 1836 2002 - - 187M 319517 13174 303912 619297 315394 1361M 003 - - 187777 319517 131740 303912 619 97 315314 193641 2091 - - 187777 319517 131740 303912 619297 315384 183641 2005 - - 187777 319517 131740 303912 619297 315394 19364 2007 -35018 -65316 187777 319517 131740 303912 619297 315394 203978 Ecomic IRR 30.SZ Industry Departent Janwy 1987 - 94 - MNNEX &-4 CHINA - SHANGHAI MACHINE TOOL PROJECT ------------------------------------- Economic Rates of Return for SMTC Project Plants ------------------------------------------------ (X? Price Changes ------------- Switching Base Up Down Value (a) Case 10% 10% (X) No. 1 Machine Tool Foundry 35.0 38.7 31.0 41 No. 3 Machine Tool Foundry 29.9 33.4 26.4 48 No. 5 Machine Tool Foundry 10.7 12.7 8.6 106 Machine Tool Forging Plant 29.4 32.3 26.2 43 No. 1 Machine Tool Accessory Factory 15.4 18.2 12.5 88 No. 3 Machine Tool Accessory Factory 28.4 31.2 25.5 43 No. 6 Machine Tool Accessory Factory 13.6 15.7 11.3 93 Machine Tool Gear Manufacturing Plant 36.3 39.7 32.6 31 6rinding Wheel Manufacturing Plant 37.6 57.8 23.1 84 Level Works 37.7 42.3 32.8 46 No. 2 Machine Tool Works 52.0 59.5 44.0 49 No. 3 Machine Tool Works _.5.0 40.9 28.3 64 No. 4 Machine Tool Works 32.7 38.5 26.5 66 No. E Machine Tool Works 28.5 31.6 25.0 50 Metal Forming Works 31.1 35.0 26.9 53 No. 2 Metal Forming Works 36.1 39.5 32.6 30 SMTC Project Consolidated 30.5 35.6 25.3 64 ---------------------------------------- (a) Percent of base-case prices at which rate of return falls to 12% Industry Department January 1987 - 95 - ANNEX 8-5 CHIN - MSII nIOIE I PROJEfT mRLYsIs or FoREisN DEW ErrCIS (nillions of SUS at constant 1906 prices) 1987 1986 1909 1990 I199 199R 1993 199 1995 199 1997 1991 1999 2000 2091 2002 FOREIGN E[CHREE INFLOUS Project Financing - Proceedb of Uorld Bank Loan 17.2 32.9 27.3 19.2 1.3 - - - - - Goverment-financed foreign Exchange 6.5 10.0 7.7 3.5 1.5 - - - - - - - - - - - Sub-total 23.7 t2.9 35.0 21.7 5.8 - - - - - - - - - - - Production Benefits - increase in Exports - 0.3 0.9 1.8 2.6 3.5 6.2 6.2 6 6.2 6.Z 6.2 6.2 6.2 *6 6.2 - Inport Savings (1) - 1.9 13.9 33.4 2. 6 63.2 71. 71.6 75.2 71.5 78.1 78.8 78.9 70.8 71.8 78.8 - Sub-total - 5.2 1A.8 35.27 5.2 66.7 77.9 77.9 81.1. 80.7 85.0 85.8 85.9 85. 0 85.9 85.0 lotal Inflous 23.7 10.2 49.8 56.9 S1.0 66.7 77.9 77.8 81.1 80.7 85.0 95.0 05.0 85.0 85.0 85.0 FOP.EINP EXCHARNE OUTFLOUS Production Costs - Directly Inported - 0.7 I.i 2.8 4.1 6.S 7.9 8.1 8. 2 .5 8.5 8.9 8.9 0.9 8.9 8.9 Materials - Indirect Irports (2) - 0.3 1.1 2.0 3.1 i.7 5.S S.S S.5 5.b 5.6 5.7 5.7 5.7 5.7 5.7 - 5ub-total - 1.Q 2.8 1.8 7.2 11.2 13.1 13.7 13.7 1R 1H. I1. 14.6 1..6 14.6 14.6 Det Service - Ucrld Dank Loan - Interest - - - 8.3 8.1 7.2 6.4 S.S 4.7 3.8 3.0 2.1 1.3 0.1 - - fepaynent - - - - - 18.0 10.9 19.0 10. 0 19.0 10.0 10.0 10.0 19.0 19.0 - Locally-financed foreign Eschange - Interest - - - - 2.0 1.8 1.1 1.0 E.7 0.4 0.7 0.! -0.1 - - - Repa,,nent - 0.8 2.0 2. 3.3 3.4 3.4 3.1 3.1 2.6 I.S 0.6 0.6 - - - - Sut-tota! - 0.0 2.D0 2. 13.b 23.; 22.1 20.9 19.7 17.? 15.4 13.6 12.7 11.3 10.4 8.0 lota! 0utflous - 1.8 4.7 ?.b 2O.8 3t.t 35.' 31.5 33.1 31.8 29.5 28.2 27.2 25.0 25.0 11.6 Net Foreign Exchange f ou 23.? 16.1 ¶5.0 49.3 30.2 35. 2 12.1 13.7 18.0 48.9 55.4 56.8 57.7 59.2 60.0 70.1 === === === == = -= --- ---- ---- --- ==--== === ===Z ==== ==Z= =c =_= ==== Net foreigni exchange benefit during project life: 5US 1050.6 millons ITs above, brought to constant 198b terns uath a lii discount rate 'NP!'): SDC 3D3.0 nillions gisswmrtwns: O!! Inport saulgs calculated at 991 of the snport price for CH and other high-technology nachines uhic could not be roduced uithout the project. (21' Indirect imports calculated as O of the cost of donestically-assembled NCI units. ;3b The project life i5 assred t- eitend until 2006, 15 years after the conpletion of implenentation. lndustry hepartnent January 19? - 96 - ANNEX 9 CHINA - SHANGHAI MACHINE TOOL PROJECT Selected Documents and Data Available in the Project File A. Sector Industry Department: China - Shanghai Machine Tool Project, Preparation Mission's Full Report, December 1983. B. Project 1. Development of the Machine Tool Foundries, eight volumes; prepared by Foundry Management and Design Co. Ltd., UK, October 1985. 2. Feasibility study of the Forge Works, three volumes; prepared by Forging Developments (International) Ltd., UK, October 1985. 3. Feasibility Study of the Shanghai Machine Tool Works, two volumes; prepared by Roland Berger and Partner of the FRG in association with Hayek International Ltd. of Switzerland, August 1985. 4. Feasibility Studies for Rehabilitation and Modernization of Shanghai Machine Tool Corporation's Selected Plants and Research Institute, six volumes; prepared by Ingersoll Engineers Inc., USA, October 1985. 5. Detailed cost and benefit data by plant; prepared by the Appraisal Mission, January 1986, and updated in October 1986. Industry Department January 1987 'AP SECTION C H I N A SHANGHAI MACHINE TOOL PROJECT Location of SMTW and SMTC Plants Shanghai Municipal Area ToNap- ISEI PROPOSED PROJECT PLANTS BAOSHAN 300 EXISTING SMTC PLANTS7 / 340 PLANTS TO BE PHASED OUT AFTER PROJECT - ROADS I RAILROADS N H CITY RIVERS - - -- DtSTRICT BOUNDARIES - - - MUNICIPAL BOUNDARIES t, Nonpng - - INTERNATIONAL BOUNDARIES X 017 'SMTCp*w,mweizidin An .;4-1 NOTE: Plant numDcrs 8 and 15 are joint menbems of SMTC located o.fswde of Shanghai n.,ncipolity- L /34\ - C H A NIN G C O U N T Y_ \ _ ___ DI TP\ MONGOIA 32r\ X.. __ at f s3,~~.0 _ B_qe C>4 mmn Z zo ''''.'' \ YV \ /r o-x;A'xIzr-9r' I:_ IBRD 19458 j BAOSHA fi L COUNTK 1~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~- . -n .4 - - zh N U~~~* JIANGgD II ITH Cl Y C J 26 0 I I , _ , ]Lt'e A S 3 KILOMETERS jHJIANGSU To Ha.~ ~ ~~HA HA A, .hA .- SHI -seAN SHA 1-^ " ,. COUNTY h. 26- | 0 s~~~~~ILOMETERS ZHEJIANG = | To Ho~~~~~~~~~~~~~~~~~~~~~~~~~~iyo -POVINCE IlONDARlES