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The side effect of putting sed inside of the while loop is that the sourcefile is processed for each search/replace pair in the control file. May I suggest:# Args: Control-File Source-File
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Single quotes after sed do not allow variable expansion, use double. Also, -e not necessary.

awk 'NR==FNR && !/^#|^$/ {a[$1]=$2;next;} NR==FNR {next;} {if(a[$1]) $1=a[$1]; print;} Control_file Source_file