The World Bank

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 7232 Public Disclosure Authorized

PROJECT COMPLETION REPORT

BRAZIL

Public Disclosure Authorized CSN STEEL EXPANSION PROJECT STAGE III (LOAN 1151-BR)

May 5, 1988 Public Disclosure Authorized

Industry Department Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PRINCIPAL ABBREVIATIONS AND ACRONYMSUSED

BNDE - Banco Nacional do Desenvolvimento Economico (National Economic Development Bank) BOF - Basic Oxygen Furnace COBRAPI - Companhia Brasileira de Projetos Industriais CONSIDER - Conselho de Nao Perrosos e de Siderurgica (Council on non-Ferrous Metals and Steel) COSIPA - Companhia Siderurgica Paulista CSN - Companh,ia Siderurgica Nacional FINAME - Agencia Especial de Financiamento Industrial (Special Agency for Industrial Financing) Government - Federal Republic of Brazil ICM - Imposto Sobre Circulacao de Mercadorias (State Sales Tax) IDB - Inter-American Development Bank IPI - Imposto Sobre Produtos Industrializados (Federal Excise Tax) SIDERBRAS - Siderurgica Brasileira S.A. (Government Steel Holding Company) TPY - (Metric) Tons Per Year USIMINAS - Usinas Siderurgicas de Minas Gerais, S.A. UEC - US Steel Engineers and Consultants

CURRENCY EQUIVALENTS Cruzeiros (Cr$)

Appraisal : US$1 = Cr$ 7.44 a/ Completion: US$1 = Cr$6,222.00 bt

FISCAL YEAR

January 1 - December 31

a! April 1975. b/ Average for the year. 101 OUDAL IONLY TO*WOtLD SANK Washaton. DC i0433 USA

may 5, 1988

MEMORANDUMTO THE MECUTIVEDIRECTORS AND THE PRESIDENT

SUBJECTs Project Completion Report on Brazil - CSN Steel Expansion Prolect State III (Loan 1151-BR)

Attached,for information,is a copy of a reportentitled 'ProjectCompletion Report on Brazil - CSN Steel Expansion Project Stage III (Loan 1151-BR)"prepared by the formerIndustr) Department. Underthe modifiedsystem for projectperformance auditing, further evaluationof this projectby the OperationsEvaluation Department has not been made.

Yves Rovani by Ram K. Chopra

Attachment

This documenthas a restricteddistribution and ay be used by recipientsonly in theperformance of their oficial duties.Its contentsmay not otherwise be disclosed without World Bank authorization. FOR OFFIIAL U ONLY

PROJECT COMPLETIONREPORT

BRAZIL

CSN STEEL ZXPANSIONPROJECT STAGE III (Loan 1151-BR)

TABLE OF CO'ATENTS

Page No.

Preface ...... *a*...... i

[ ~~~BasslcData Sheet ...4...... 0...... {

Evaluation Sunmary ...... iv

I. PROJECT DESCRIPTION AND IMPLEMENTATION ...... 1 A. Project Objectives and Description ...... s.... 1 B. Project Implementation...... 1 C. Project Scope and Capital Cost ...... 2 D. CSN's FinancialPosition ...... 3 E. ProcurementAllocation and Disbursement of Bank Loan ...... 4 F. Project Administration and Use of Consultants ...... o....*...... 5

II. PROJECT OPERATION ...... ****.*...... ses.. 5 A. Production and Sales ...... * 5 B. Financial Results and Return on Investment ...... 6 C. Economic Benefits .. 0*000* .... $6000000 ...... 7 D. Environmental Aspects .*...... 7

III. BANK'S ROLE ...... 7 A. Project Formulation and Supervision ...... * 7

IV. LESSONS TO BE LEARNED ..... *****...... ** .* 8

Attachment I - Borrower's Comments .. 00...... 10

BORROWER'S PROJECT COMPLETION REPORT ...... 11

FOREWORD ...... 13

SUMMARY AND CONCLUSIONS ...... 15

This documenthas a restricteddistribution and may be used by recipientsonly in the performanmc of their officialduties. Its contents may not otherwise be disclosedwithout WorldBank authorization. TABLE OF CONTENTS (cont'd.)

Pate No.

INTRODUCTION ...... 19 I. History of the Project ...... 19 II. Comparisonbetween 'Appraisaland Review ...... 24 1. Scope ...... 24 2. Programming - Project Schedules .... 26 3. Capital Costs ...... *O .... 29 4. Direct Cost of Production .... 35 5. Steel Market ...... 000.** ...... 36 6. Production Plan - Product Mix ...... 39 7. Financing Plan ...... *...... 44 8. Selected Financial Indicators ...... 45 9. Performanceof the EconomicalIndicators .... 46

I. PROJECT DESCRIPTION AND IMPLEMENTATION ...... 47 A. Project Objectives and Description ...... 47 B. Project Summary Data.*...... *...... 49 C. Project Constructionand Completion...... 50 D. Project Scope and Cost ...... o... 56 E. Financing Plan and Financing Reduction ...... 63 F. Procurement and Allocation of Bank Loan ...... 69 G. Project Administration - External Consultants ... 73

II. PROJECT OPERATION ...... 78 A. Production and Sales ...... 78 '. Product Mix ...... 81 2. Price and Cost Relationship ...... 86 3. Production Cost ...... 96 B. Financial Results and Return on Investments ..... 101 C. Economic Benefits of the Project ...... 106 D. Environmental Aspects ...... 109

III. THE STEEL MARKET ...... 112

IV. CSN - THE COMPANY ...... 121 A. Ownership and Control ...... 121 B. Organization and Management ...... 125

V. THE BANK'S ROLE ...... 129 A. Project Formulation and Supervision ...... 129 B. Lessons to be Learned ...... 131 TABLE OF CONTENTS (cont'd.)

Pare No.

ANNEXES

1: Scope of the Project - Comparison wAppraisal'/'Review*...... 135 2: General Project Data ...... 0.00 141 3: Production Facilities of Stage III ... *...... 142 4/1: Actual and Planned Project Implementation Schedules 999999999..... **** ...9 ...*... * 143 4/2s Summary Schedule of Constructionand Erection - Main Installations to be Concluded ... 144 5: Reasons for Delay in Project Completion ...... 145 6: Stage III Capital Cost Suamary ...... 146 7: Change of Scope ....* ...... 147 8: Disbursement Schedule of the Bank Loan ...... 148 9: Equipment Financing by IBRD Loan ...... 149 10/1: EngineeringDirection ...... 150 10/2: Engineering Direction - Basic Structure ...... 151 11/1: Project CompletionReport - HistoricalSales Performance...... s ...#s...... 152 11/2: Materials for Direct Resale and Processing *...... 153 12/1: General Price Index Exchange Rate and Deflator ..... 154 1212: General Price Index Exchange Rate and Inflator *...... 155 13: Profit and Loss .... **O***OO ...... *...... 156 14/1: Balance Sheet ...... 157 14/2: Balance Sheet ...... 158 15: Sources and Applications of Funds ...... 159 16/1: Incremental Financial Rate of Return ...... 160 1612: Incremental Economic Rate of Return ...... 161 17/1: Air Pollution Control Equipment ...... 162 17/2: Water Pollution Control Equipment ...... 163 17/3: Noise Pollution Control Equipment ...... 164 - 1 -

PROJECT COMPLETIONREPORT

BRAZIL CSN STEEL EXPANSIONPROJECT STAGE III (Loan 1151-BR)

PREFACE

The Loan to CompanhiaSiderurgica Naclonal (CSN) in the amount of US$95 million was approved on Hay 30, 1974, and signed on August 4, 1975. On the same date a GuaranteeAgreement with the Republic of Brazil and the Project Funds Agreementwith S±derurgicaBrasileira S.A. - SIDERBRASwere also signed. These Agreementsbecame effective on April 30, 1976. The Loan Account was closed on January 28, 1985, compared to the original estimate of June 30, 1980. US$0.4 million equivalentwas cancelled.

The main objectivesof the loan were to increase CSN's steel-making capacity from 2.4 million to 4.4 million tpy, place more emphasis on coated products in order to satisfy market requirements,replace obsolete equipment, improveproduct quality and reduce production costs.

The Project CompletionReport (PCR) has been prepared by the Industry Department based on the completionreport prepared by the Borrower (BCR) and supplementedwith informationin the Project File, as well as knowledge of staff in the IndustryDepartment who were associatedwith the project. A Bank mission visited CSN in December 1985 to discuss the first draft of the report prepared by CSN. The final draft of the Borrower's BCR incorporatesall of the commentsmade by the Bank mission. The Borrower had no further comments (see Attachment I).

This project has not been audited; however, OED proposes to evaluate it in depth as part of a group of steel projects in several countries, includinganother project in Brazil (COSIPA: Steel Expansion Phase III), tentativelyscheduled for FY89. - iL -

PROJECT COMPLETIONREPORT

BRAZIL

CSN STEEL EXPANSIONPROJECT STAGE III (Loan 1151-BR)

BASIC DATA SHEET (Amounts in US$M)

LOAN POSITION

Oritinal Disbursed Csacell&d Retaid Outstandinm

Loan 1151-BR 95.0 94.6 0.4 60.7 33.9

CUMULATIVELOAN DXSSURSEMENTS

1976 1977 1976 1979 190 166 192 19U 1904

(1) Planned 19.9 47.5 8.4 96.6 90.0 96.9 9W. 96.0 96.6 (I i) Actual 6.0 2.4 12.6 68.5 64.5 79.2 67.6 91.1 94.6 (III) (I 1) as S of (1) 9.0 5.1 1.6 46.5 67.9 68.4 92.2 96.1 99.6

KEY PROJECT DATA

Original Actual or Plan Re-estimated

First mention in Files 10/73 Government's Application 12/73 Negotiations 4175 4175 Board Approval 6/75 6175 Signing Date 8/75 8/75 EffectivenessDate 4176 4/76 Closing Date 6/80 1/85 Borrower CompanhiaSiderurgica Nacional (CSN) Guarantor Government of Brazil Date of Physical Completion 6/80 3/84 Date of Start-up of Operations 10/76 12/76 Total Project Cost (US$1) 2.115 3,439 Cost Overrun (Z) 0 62.6 FinancialRate of Return (S) 10.8 10.5 Economic Rate of Return (Z) 17.0 13.6 - iii -

3ASIC DATA SHEET (cont'd.)

MISSION DATA

Monthi' No. of No. of Report Year Weeks Persons Manweeks Date

Preappraisal 3174 - - - _ Appraisal 5/74 3 6 18 5/75 Follow-upAppraisal 9/74 3 3 9 _ SupervisionI 10/75 2 2 4 10/75 II 7/76 2 2 4 7/76 III 10/76 2 2 4 1/77 IV 2/77 1 2 2 3/77 V 4/77 2 1 2 4/77 VI 10/77 1 2 2 12/77 VII 5/78 2 2 4 9/78 VIII 7/78 2 2 4 8/78 Ix 1/79 2 3 6 3/79 x 1/80 1 2 2 2/80 XI 4/80 1 3 3 5/80 XII 3/81 2 4 8 5/81 XIII 3/82 2 2 4 4/82 XIV 9/82 3 2 6 11/82 xv 1/83 2 2 4 3/83 XVI 8/83 2 3 6 9/83 XVII 2/84 3 2 6 3/84 Completion Mission 12/85 1 3 3 6/86

FY74 CO MS EM MEi! fi EQ E8I1 EM EY P3 EU EYM FIlL TeTAI

Proeppraeil 12.4 0.2 ------12.6 Appraisal 16.0 45.0 ------61.0 Ngotistan - 12.5 ------12.5 Suiervision - 0.6 14.S S5.8 15.2 16.S 15.0 10.0 17.6 13.2 16.9 2.9 9.6 1.5 167.5

ToaI a 28.4 58.5 14.3 35.6 15.2 16.5 13.0 10.0 17.6 15.2 16.9 2.9 9.5 1.5 2S3.6 - iv -

PROJECT COMPLETIONREPORT

BRAZIL

CSN STEEL EXPANSIONPROJECT STAGE III (Loan 1151-BR)

EVALUATIONSUMMARY

Introduction i. Companhia SiderurgicaNacional (CSN), a government-ownedentity, commencedoperations in 1946 with an initial ingot capacity of 270,000 tpy. Subsequentexpansions brought productionup to 1.5 million tons of raw steel in 1970. CSN then undertooka long-termexpansion program in three stagess Stage I was designed for a nominal capacity of 1.7 million tons of raw steel, Stages II and III, assisted*y the World Bank, were designed for nominal capacitiesof 2.45 million tons nd 4.4 million tons of raw steel, respectively. In 1971172, the Bank and IDB jointly appraisedStage II and subsequentlyagreed to lend US$64.5 million and US$43.0 million, respectively, to help finance the project. The Stage III project was appraised by joint missions of the Bank and IDB in May/June and September 1974, January 1975, and various subsequentdiscussions with representativesof CSN and the holding company SIDERBRAS (PCR, para. 1.01). Obiectives

ii. The projectwas intended to (a) increaseCSN's Volta Redonda plant capacity from 2.4 million tons (Stage II) to 4.4 million tpy by 1979 and add rolling and finishingcapacity, primarily for the productionof flat rolled products, of which about one half would be coated; (b) reduce productioncosts and improveproduct quality through modernizationof CSN's installations;and (c) satisfy domestic and export market demand (PCR, para. 1.01; BCR, pp. 47-48).

ImplementationExperience

iii. Shortly after Loan effectivenessin August 1976, it was realized that the project scope agreed during appraisalwould have to be changed. The Bank therefore requestedthat CSN carry out, with the assistanceof a Brazilian and a foreign engineeringconsultant, a technical,economic and financial review of Stage III. As a result of this Review, a number of major changeswere introduced. Liquid steel production-. as increased from 4.4 million tpy to 4.6 million tpy and balancing capacitywas added in some of the major equipment;the planned implementationschedule was extended from four to six years; and capital costs rose from US$1,840 million estimated at appraisal to US$2,401 million (excludingworking capital and interest during construction)4I/ A now company budget and long-term financingprojections incorporating a revised financingplan were also prepared (BCR, pp. 19-46, 63-68).

11 Unless specified,future comparisonsand referencesin this PCR are made between the "Review"and the actual results. - v iv. Delays in basic .ngineeringand procurement,resulting from the Review and the financial constraints*xperienced by CSN during implementation, contributed substantiallyto an overall delay in project completion amountingto 43 months. The financialconstraints stemuaed from: (a) the shortfallof local resourcesnot compensatedfor in a timely manner by additionalequity cortributions;and (b) the lower than projected revenues due to price controls which did not keep pace with inflation (PCR, pares. 1.02-1.04,1.07, 1.13-1.15;BCR, pp. 50-55, 69-72). v. CSN's basic corporate structureunderwent successivemodifications during the period 1977-85 in order to define clearer functional responsi- bilities and improve control of operations and expansion. Heads of the executivevice presidency,finance, marketing, operations, procurement and engineeringwere roplacedby new staff. The Company, and the prioject implementationgroup in particular,benefitted from this new stronger leadershipthat emerged (PCR, para. 3.01; BCR, pp. 121-128). vi. The total financingrequired to complete the project is estimated at US$3,439.0million, which is 62.6% higher than the appraisal estimate but 7.6% lower than the Review estimate. Compared to the appraisal,the main elements of the increasewere (a) equipmentprocurement (43%) due to the increasedproject scope; (b) civil works (15%) due to the larger scope and underestimationof complexity;and (c) interest during construction (240%) due to the longer implementationperiod. At the same time, increaseddomestic supply and the beneficialeffect of competitivebidding resulted in considerablesavings (PCR, paras. 1.05, 1.06; BCR, pp. 56-68).

Results vii. CSN's productionperformance during the period 1977 to 1985 was about 25% lower than projected in the Review. This resulted from the combined effects of delays in completingthe Stage II project, unrealistic targets for productionbuild-up for Stage III, operationalproblems, and the domestic recession resultingfrom the second oil price increasesin 1979. However, with all new facilitiesof Stage III almost completedand started up, productionperformance is expected to improve and exceed the volumes foreseen at the time of appraisal. CSN is presently (actual 1985) operating at about 80% of capacity (PCR, paras. 2.01-2.04;BCR, pp. 78-100, 112-120).

viii. On the whole, although there has been considerabledelay in implementation and a slower than expectedbuild-up of production,the project retains its economic merit, CSN is competitivein the internationalmarket, and its export performancehas been remarkable. It is now estimatedthat the project's economic rate of return is 13.62 comparedwith 17.02 at the time of appraisal. However, CSN's overall financialperformance and situationhas been weak throughoutthe period compared to the Review estimates. Net income and cash generationwere substantiallybelow budget expectationsmainly because of a depresseddomestic market and delayed and inadequateprice adjustmentsduring a period of rapid inflation. These factors led the Company to rely heavily on short-termborrowings to meet capital and operating expenses. An action plan for the financial restructuringof CSN was adopted in 1983, which included revision of pricing policies, capital contributionsto reduce or liquidateoutstanding - vi - short-termdebt, and reschedulingof bank loons. Although CSN's liquidity and debt service coverage had improvedby 1985, financialratios had not reached agreed targets. The financialrate of return, if the underlying assumptionshold, is estimated at 10.5Z (PCR, param. 1.07-1.12,2.05-2.09, 3.031 BCR, pp. 101-108).

Sustainability ix. The project had not been completedat the time the completion report had been prepared -- alb*it the Bank's funds had been disbursed. Although the project is well managed, it has had serious financialproblems due to factors largely beyond the management'scontrol, and a financial restructuring program was under implementation at the time the PCR was prepared. Nonetheless,although economicallysound, the sustainability of the project is conditionedon the successful implementationof the financial restructuringprogram under way.

Overall Assessment and Lessons x* The main objectives of the project have been attained. OED proposes to re-examineall three stages of CSN's expansionprogram and CSN's financial situation in a sectoral context in the course of an upcoming audit of a group of other steel projects, includingBrazil - COSIPA ExpansionPhase III, at which time the sustainabilityof the project'sbenefits will be more firmly established. The Bank has followed the project very closely since its inceptionand has been instrumentalin improvingCSN's organizationand management structure,project implementation and operationsin many ways (PCR, para. 3.02). A13o, t'heBank's participationencouraged project cofinancing,while financialcovenants and frequent Bank supervisionmissions were helpful in maintaininga dialogue with the Governmentand in focussingiss attentionon CSN's financial difficulties(PCR, paras. 3.01-3.02,3.04; BCR, pp. 129-130). xi. The project experienceis instructivein several respects. It suggests thatt

(a) Significantchanges in scope right after-loaneffectiveress, impacting inter alia on the project's capital cost and financingplan, could be avoided through a more diligent appraisaleffort.

(b) The potential disruptiveeffects of an expansionproject on ongoing operationsshould be carefully assessed during the stage of project preparation.

(c) Greater attentionshould be given during preparationand appraisalto the sponsor'sorganizational structure and leadership, to ensure proper management and control of the complex nexus of project activities. For instance, the -weak management style within CSN and the inadequacy of financial planning created a potentiallyserious managementsituation that was improved only after a major reorganizationeffort. - vii -

(d) The Bank should be more firm in its position with respect to continuedbreach of financialcovenants and non-compliance with other major commitmentsby the project sponsor and, in this case, the guarantor (the Government). The guarantor did not live up to its commitmontsto (i) maintain the required financialratios; (ii) provide timely and adequate equity increases; (iii) maintain price/cost relationshipsat such level* as would enable CSN to earn a reasonablereturn on its assets, meet its financialobligations and further provide funds for capital investments;or (iv) exchange views with the Bank on the developmentof the steel sector (PCR, paras. 4.01-4.05;BCR, p. 131). PROJECT COMPLETIONREPORT

BRAZIL

CSN STEEL EXPANSIONPROJECT STAGE III (Loan 1151-BR)

I. PROJECT DESCRIPTIONAND IMPLEMENTATION

A. Project Objectivesand Description

1.01 CSN Stage III, which overlapswith Stage 11, was part of an overall program, simultaneouslywith two other major Government-controlled steel companies,to increaseBrazilian raw steel-makingcapacity from 7.9 million tons to 22.3 million tpy. The project'smain objectiveswere to maximize steel-makingcapacity, satisfy market requirpments,reduce productioncosts and improveproduct quality through the acquisitionof new or revamp and replacementof obsolete equipment,service and utilities installations. It would complementinvestments made for Stages I and II and make CSN, upon completion,one of the largest integratedsteel plants in the SouthernHemisphere and one of the most modern in the world. With the ultimate developmentof Stage III, the expansionof Casa de Pedra iron ore mines in the state of Minas Gerais, about 420 km from the plant, was also required. The mines expansionincluded crushing facilities, reclaimingsystem, loadingand distributionfacilities. As part of Stage III, the mine operationswere to be expanded from 2 million tpy to 9.2 million tpy of iron ore with the excess productionover the Stage III requirementsto be sold.

B. Project Implementation

1.02 Completionof the projectwas originallyenvisaged for June 1981 and subsequentlychanged to 1982 to include improvementsto the cold strip mills 1 and 2. The main productioninstallations start up delay ranged from 6 to 43 months and the weighted average delay was about 31 months. The actual implementationschedule of major facilitiescompared with the plan is summarizedbelow.

Original Actual Delay (mos.)

Revamp of Blast Furnace #1 Mid-1980 1st Qtr. 1984 43 Revamp of Blast Furnace #2 Mid-1980 3rd Qtr. 1982 26 BOF Vessel #3 (LD Connector) 4th Qtr. 1980 1st Qtr. 1982 16 Oxygen Plant #4 3rd Qtr. 1980 1st Qtr. 1981 6 ContinuousCaster #1 1st Qtr. 1981 Mid-1982 17 ContinuousCaster #2 2nd Qtr. 1981 Mid-1983 25

1.03 Delays in procurementand equipmentmanufacturi.ng were responsiblefor about one third of the overall delay. In that respect, administrativedelays in obtainingimport licenses for imported componentscontributed to longer delivery periods. Lack of local funds, particularlytowards the end of project implementation,was responsiblefor about one half of the overalldelay because erection serv'ces for equipment already received at site could not be contracted.

1.04 Among some of the steps taken by the managementto reduce implementationdela s were. (i) subcontractingdetailed engineeringwork and creating a third shift for erectionof steel structuresand equipment; (ii) establishmentof expeditingteams to follow-upon local suppliers' performance;and (iii) procurementpolicy for civil works and erection contractswas changed so that most of them were placed with large contractorson a unit cost basis rather than on cost plus basis. This reduced the load on the purchasingand constructionsupervision departments and facilitatedcost control follow up.

C. Project Scope and Capital Cost

1.05 The total financingrequired for Stage III, includingworking capital and interestduring construction,was estimated at US$3,439.0million. Expressed in 1976 dollars, this correspondsto an actual total financingrequired of US$2,219 million compared to a Review estimate of US$2,813million. Hence total cost underrunsreached 19% in constant terms and 7.5Z in currentterms. The followingtable comparesthe three estimates (appraisal,review and final).

Review or Revised New Appraisal Estimate Estimate (US$ million) -

Equipt/SP,Eng'g/Proc., Administration 676.0 1,549.3 1,576.3 Construction/Installation 418.8 1,157.5 733.2 Total Base Cost 1,094.8 2,706.8 2,309.5

Pre-operatingExpenses 28.3 84.5 65.1 Contingencies/PriceEscalation 680.6 233.7 26.6 1,803.7 3,025.0 2,401.2

Increase in Working Capital 97.7 313.6 313.6 InterestDuring Construction 213.2 381.2 724.0

Total Project Financing 2,114.6 3,719.8 3,438.8 m

1.06 As stated, Stage III was completedwith a total cost underrun of US$281.0million taking into accountan amount of US$87.5million (US$60.6million in 1986 and US$26.9million in 1987) to cover the estimatedcost of the remainingconstruction and erectionwork. These savings were brought about by (i) savings of about US$345.0million on domestic supply, and (ii) the beneficialeffect of competitivebidding on equipmentpackages plus the use of turnkey system in construction contracts. This, however, was partiallyoffset by the increase in interest during construction(US$342.8 million) caused by delays in start-up and the - 3 -

increase (due to appreciationof the yen) in equipment cost from Japan which supplied the majority of importedequipment.

D. CSN's FinancialPosition

1.07 The Company'sproblems during project implementationresulted from two main areas: First, there was a shortage of local resources contributions(BNDES particularly)which were not timely compensatedby sufficientcapital infusions. Second, steel prices until the end of 1983 did not keep pace with inflation- average 1983 real prices were 15X below those in 1981. Thus revenues lost from price controls further contributed to CSN's financialand project problems forcing it to rely on increasing amounts of debt to financeoperating and project expendituresand to meet debt service comitments. These problems were compoundedby the fact that two other Governmentsteel projects (CST and AOMINAS), which had strong politicalsupport, were being constructedat the same time and given priority thus divertingresources from CSN.

1.08 CSN's financialposition started to deterioratein 1978 and acceleratedduring 1980 and 1982. This situationwas caused by a number of factors, including: (i) lower cash generationdespite aggressivecost cuttingmeasures as a result of weaker domesticmarkets; (ii) higher financialcharges on increasedlevels of short-termdebt; (iii) the staggeringof authorizedprice increaseswhich in fact reducedplanned average real revenues;(iv) increase in inflationwith the effect of increasingcurrent liabilitiesfaster than current assets thus deterioratingliquidity; and (v) difficult internationalcredit markets which preventedCSN from raisingthe budgeted levels of longer-termdebt to pay off excessivecarrent liabilities.

1.09 In mid 1982, representativesof the BrazilianGovernmen., SIDERBRAS,CSN and IDB met in Washington to discuss measures which would enable CSN to complete the project as quickly as possible and thus improve its financialviability. In the resultingMemorandum of Understanding,the Governmentagreed on a number of measures to fulfill this objective. In support of these measures the Bank agreed to support Brazil's foreign borrowingrequirements and to amend the financial ratios covenantsof the loan agreements- which had been in default for several years - in line with the financialrecovery plan.

1.10 Pursuant to the Memorandumof Understanding,the Governmenttook some correctiveaction, particularly with regard to bringing the price levels in line with inflation. Over the followingthree years, though, the timing of price increaseswas such that the desired results in terms of cash generationwere not fully obtained,and since price increaseswere given only quarterly,inflation between periods of price adjustment significantlyreduced the average price realization.

1.11 By the end of 1983, despite operatingperformance at capacity levels and an aggressiveexport marketingprogram which doubled export shipmentsduring that year, CSN's financialposition was critical and foreign debt repayments,including interest, had to be made on CSN's behalf - 4 - by Banco do Brasil in order to avoid default. In December 1983, a Braziliandelegation visited the Bank to explain a plan of action for the financial restructuringof CSN (in order to achieve the revised financial ratios agreed in the Memorandumof Understanding)and other companiesin the SIDERBRASgroup. The plan included,as its main features,a revised pricing policy, capital contributionsto reduce or liquidatemost of the short-term debt and reschedulingof BNDE's loans.

1.12 In early 1984, at the request of the Government,the Bank started discussionson the prospectsfor Bank involvementin the study of the steel sector to serve as the basis for the effort to re-structureand re-finance the sector. Such study would provide the strategy to achieve adequate operating and profitabilitylevels throughoutt:-^ qector and allow SIDERBRASto completeCSN and other ongoing projects, in a timely manner. In February 1984 it was agreed that a committeeof independentexperts would be set up to recommendthe set of policies and decisions to be taken by the Governmentand the Bank to achieve the objectivesoutlined above. The Committeecompleted its report in December 1984. On July 2, 1985, the undisbursedbalance of about US$0.4 million equivalentwas cancelled effectiveJanuary 28, 1985. At the time, although liquidityand debt-servicecoverage had improved,the agreed ratios had not reached the targets establishedin the 1982 Memorandumof Understanding.

E. ProcurementAllocation and Disbursementof Bank Loan

1.13 The equipmentpackages financedby the Bank were procured through ICB in accordancewith the Bank's guidelines. Brazilianmanufacturers received a 15% preference,which also applied to bids for equipment containingclearly identifiedcomponents manufactured or supplied in Brazil, equal to at least 50% of the value of the complete goods. Financing of these packageswas shared with IDB on a 60:40 basis. The remainingequipment packageswere financed from bilateral creditsof the supplyingcountries, while the line of credit for locally supplied equipmentwas providedby BNDE throughFINAME using the same proceduresas IBRD/IDB procurement. Civil works and constructionequipment installation were competitivelybid in Brazil and financed locally. Brazilian manufacturerswon 41% of the IBRD/IDB financedpackages against 60% forecast at appraisal,and 61.5% of the packages financed by other sources, or a total of 59.1% equivalentto US$712.9 million against the total of US$1,206.0million. The large Brazilianparticipation (which was partly due to incentivesavailable to Brazilianmanufacturers through the terms of BNDE and FINA&E loans) partly contributedto longer implementationtime due to slightly longer deliveries.

1.14 After the Brazilians,the Japanese were the next major equipment supplier winning about 36% of IBRD/IDB equipmentcontracts or US$384.9 million in dollar terms. The table below shows the breakdownby supplying countriesfor all equipmentand spare parts bid under the project: - 5 -

Sources of Equipment Packages a/

Bilateral IIRD IDB & Local Total TsS$ US$ US$ US$ Million X Million % Million % Million % Country Source Brazil 37.2 39.3 24.8 39.3 650.9 61.6 712.9 59.1 Japan 34.1 36.1 22.8 36.1 328.0 31.0 384.9 31.9 Germany 10.6 11.2 7.1 11.2 23.7 2.2 41.4 3.4 U.S.A. 4.6 4.9 3.0 4.8 38.8 3.7 46.4 3.9 Italy 1.8 1.9 1.2 1.9 - - 3.0 0.3 France - - - - 15.9 1.5 15.9 1.3 Belgium 0.1 0.1 - - - - 0.1 ) Switzerland 0.3 0.3 0.2 0.3 0.3 - 0.8 ) 0.1 England 0.4 0.4 0.3 0.5 - - 0.7 ) Subtotal 89.1 94.2 59.4 94.1 1,057.6 100.0 1,206.1 100.0

Spare Parts Brazil 1.6 1.7 1.1 1.7 Japan 2.6 2.4 1.5 2.4 Others 1.3 1.7 1.1 1.8 Total 94.6 100.0 63.1 100.0 := -MM2M =mo==

a/ Excludes freight, insurance and engineering services.

F. Project Administration and Use of Consultants

1.15 The Brazilian consultant played a major role in project administration, together with the external consultants who provided limited technical assistance in the preparation of equipment specifications, process flow, general design and procurement, as well as project management assistance in budgeting, implementation, construction and start-up. The manpower used for the project management is quite significant (46.7 man-years) and is one of the reasons of the cost underrun, and the very good quality of construction works.

II. PROJECT OPERATION

A. Production and Sales

2.01 Productivity in 1984, particularly of coke, sinter and pig iron, dropped relative to 1983 due to lower production of raw steel brought about by the revamping of blast furnace #3 and the labor problems that CSN experienced for the first time in its history. However, with the start-up of some major facilities in the same year and the rationalized operating methods and better trained personnel, productivity improved appreciably in 1985. Although still below the forecast, sales slowly gained through 1985 as a result of CSN's effort to push sales in the international market. 2.02 CSN's sales took a sharp dip in 1980 as a result of slackening demand, particularlyfrom the domestic auto industry and increased protectionismfrom the US and Western Europe. The reduced shipmentsto local markets, however, were partly offset by increasedexports in 1982/83 which accountedfor about 25% of CSN's tonnage sales.

Price and Cost Relationship

2.03 CSN's gross profit margin per ton of finishedproducts averaged from 54% to 67% or US$117 to 145 from 1977 through 1985, as shown below:

(A) (B) (B)/(A) Average Sales Average Direct Relation Price per Ton a/ Cost per Ton b/ Cost/Price Actual Review Actual Review Actual Review Years ----- (US$, September 1976) -…

1977 456 418 300 231 0.66 0.55 1978 373 418 234 215 0.63 0.51 1979 377 418 232 215 0.62 0.51 1980 381 418 244 220 0.64 0.53 1981 379 418 233 212 0.61 0.51 1982 351 418 234 198 0.67 0.47 1983 283 418 165 204 0.58 0.49 1984 312 418 175 202 0.56 0.48 1985 (up to Nov.) 316 418 171 n/a 0.54 n/a a/ Internal prices include sales tax (ICM); external prices on FOB basis. b/ The average direct cost includes ICM on the materials and does not includedepreciation, provisions and other fixed costs.

2.04 From 1980, the Braziliansteel prices were among the lowest in the world, comparedwith domestic prices in Japan, US and UK. The price adjustmentsauthorized by the Government,aside from the rates being insufficient,were much delayed from the expected implementationor applicationdate. This has caused CSN losses in sales income of approximatelyUS$315.0 million in the period 1982-84alone. In 1982 price adjustmentstagnated due to the Government'scounter inflationarymeasures.

B. FinancialResults and Return on Investrment

2.05 The overall financialperformance of CSN has been weak throughout the period compared to the Review estimates. Net income and cash generationwere substantiallybelow budget expectationsmainly on account of a depresseddomestic market, and delayed and inadequateprice adjustmentsduring a period of rapid inflation. These factorswere largely accountablefor CSN's poor financialsituation that led the Company to heavily rely on short-termborrowings in order to meet capital and operatingexpenses. 2.06 After the Bank repeatedlyemph sized to the Govc.rnmentand SIDERBRASthe need to improve CSN's financialsituation throughadequate price adjustmentsand increase in owner's equity, in 1984 the Government agreed to deve'op a comprehensivepricing policy for the steel sector allowing producersa reasonableprofit margin over costs at efficient operations,at the same time taking into account domestic and foreign market conditions. The impact of this policy has yet to show its effect in CSN finances.

C. Economic Benefits

2.07 Although there has been considerabledelay in implementation and a slow build up of production,the project is considered to be of economic advantageto the country. CSN is already competitivein the internationalmarket. CSN, however, did not generate the foreignexchange savings as anticipatedin the original appraisal(US$440 million yearly by 1981 and US$550 million by 1992). Due to the Braziliancruzeiro's devaluation,CSN's expenses in foreignexchange increasedby about Cr$1.8 billion annually while its yearly earningsgrew only by Cr$0.5 billion, leaving a net foreignexchange outflow of about Cr$1.3 billion (US$30 million) per year.

2.08 The internal economicrate of return of the project in real terms is estimated at 13.6% compared to the 17% of the original appraisal.l/ This was essentiallydue to the higher capital cost resultingfrom the increasedproject scope, delayed project completionand lower than estimated border prices resulting in smallermargins.

2.09 The project has had other economic effectswith its impact on local manufacturerswho participatedin the supply of equipmentand resulted in transfer of technologythrough consortiaformed between Brazilian and foreignmanufacturers. Local participationin equipment supply increasedfrom 10X in Stage I to 19% in Stage II to 59.1% in Stage III.

D. EnvironmentalAspects

2.10 Many environmentaldevices needed for the project were already installedas part of Stage II. The remainingequipment to be installed, includingmeasuring devices, are expected to meet the acceptablepollution and environmentalquality levels set by the State of Rio de Janeiro. The Company has set .p a program for environmentalcontrol management to assess progress on a continuingbasis.

III. BANK'S ROLE

A. Project Formulationand Supervision

3.01 Stage III overlappedwith the Stage II expansionprogram along with the other Government-ownedsteel companies,CST, COSIPA and AgOMINAS.

1/ Economic rate of return was not calculatedat re-appraisal. The project was appraisedjointly by the Bank and IDB in 1974/75and both played a major role in its formulation. The leadershipand organizational changes, particularlyunder the Vice Presidentof Engineering,suggested by the Bank, led to the implementationof a new project management team which resulted in more efficientworking conditionsand better performance.

3.02 The Bank was instrumentalin many aspects towards the improvement of CSN's management and operation. On implementation,the Bank recommended that detailed engineeringfor civil works be subcontractedand responsibilityfor erection and installationbe given to equipment suppliers to relieve CSN of too much coordinationwork and expense. Upon Bank advice, CSN exerted pressure on suppliersto provide drawingsmore expeditiously. On manpower constraints,CSN engaged a third shift for erection of steel structureand equipmentin order to recover lost time due to delayed deliveries. The computerizedcosting system introducedin 1974, which was of limited use to the commercialand productiondepartments, was improved on Bank's suggestionso that managementpersonnel and supervisors in all departmentscould make use of it as a decision-makingtool. Data processingprocedures for monthly costs and product costs were implemented. Attentionwas also paid to training and upgradingof skills of the existingwork force which helped CSN achieved a high production level. Studieson cost reductionand standard costing were carried out and emphasizedto all operatingmanagers.

3.03 CSNts export performancehas been remarkable. Its efforts to push sales in the internationalmarket since 1982 have been responsiblefor increasesin its export sales with a peak of 1.1 million tons or 48% of total sales reported in first quarter of 1985. It helped offset the reduced demand in the local market. Tnis achievementis mainly due to the outstandingquality of steel products produced by the facilitiesinstalled under Stage III (the project).

3.04 Through its participation,the Bank encouragedproject cofinancing. The Bank has made it possible for CSN to acquire foreign equipment at competitiveprices through internationalcompetitive bidding. Financial covenantsand frequent Bank supervisionmissions were helpful in maintaininga dialoguewith the BrazilianGovernment and focus its attentionon the financialdifficulties of CSN.

IV. LESSONS TO BE LEARNED

4.01 The performanceof CSN in the implementationof the Stage III expansion program, characterizedby its size, complexityand financial magnitude, calls for several comments.

4.02 The first and most importantlesson is that greater appraisal efforts should be given to evLluate fully not only such a complex project, but more importantly,the ongoing operationsand the interfa.._ebetween the two.

4.03 Second, the Bank should be more firm in its positionwith the continuedviolation of the financialcovenants and non-complianceto other - 9 - major commitmentsby the Borrower and, in this cast, the guarantor (Governmentof Brazil). The BrazilianGovernment did not live up to its commitmentsto (a) maintain the requiredfinancial ratios; (b) provide timely and adequate equity increases;(c) maintain price/costrelationships at such levels as would enable CSN to earn a reasonablereturn on its assets, meet its financialobligations and further provide funds for capital investments;or (d) exchange views with the Bank on the development of the steel sector.

4.04 Third, greater attentionshould be given during preparati-nand appraisal to the organizationalstructure and leadershipcompetence to ensure proper managementand control of the operation and project. The weak managementstyle within CSN and the inadequacyof financialplanning created a potentiallyserious management situation that was improved only after major reshuffle.

4.05 Finally, steel projectsof this complexityand magnitudewill continue to be the most difficultamong the large industrialprojects, and the experiencegained by the Bank staff in this project has made them aware of the lessons for future steel projects. While CSN Stage III has fallen short in terms of delays and financialperformance, they are only temporary in nature. The implementationof Stage III facilitieswill serve to strengthenBrazil's competitiveposition in the export market and is seen as having a substantialbeneficial impact on its balance of payments through foreign exchange earnings when full productioncapacity is reached contributingto making the Braziliansteel industryone of the most efficientin the world.

August 1986 - 10 -

ATTACHMENTI

Borrower's Comments UORLDDANKMSS

ZCZCOERPOO8 JUS0642 OEDD2 REF : TCPSD * "*** * ** * * OEDD2 *

JUS0642JCD361 IN 14/14:08OUT 14/14:10 2123025CSNCCOR

RIO 14/04/88TDF/036-88 HR.ALEXANDER NOUICKI DIV.CHIEFPOLICY-BASED LENDING,INDUSTRY.PUBLIC UTILITIES/URBANSECTOR OPERATIONSEVALUATION- DEPARTMENT- UORLD BANK USA INTBAFRAD

RE: PROJECTCOMPLETION REPORT ON BRAZIL-CSNSTEEL EXPANSIONSTAGE III PROJECT (LOAN 1151-BR) FED 26,1988. REFERRINGYOUR TELEX OF FEBRUARY26, 1988,UE INFORMYOU THATUE NAVENO COMMENTSTO MAKWON THEPROJECT COMPLETION REPORT(PCR), FEB, AND UE AGREEUITH ALL ITSTERMS. YOURSSINCERELY, ALEXANDREHENRIZUES LEAL FILHO FINANCIALDIRECTOR COMPANHIASIDERURGICA NACIONWL

2123025C$NCCBR6GGG .guos - -- l NVI ^oteix

| ~~ ~ ~ ~ - -

mu. P - 13- Comel Sidw "k N_Il

FOREWORD

This document,os required by IMO, costitutes on anticipated report on thn completionof the Stage III project of the CSN's Expansion'D Plan.

The project following-up hasbeen a matter of succosivo CSN monthly pro- gressreports, duly forwardedto IBRD.

This Reportfollows the model suggetedby IBRD,in accordancewith its letter doted July 12, 1985to CSN.

It Is importantto notice that the project In executioncorresponds to that of the Alternative I of the work 'Review and Reworkof Stage IlIl ExpansIonProject' developped in 1976byCSNwifl the technicalasistance of Cornponhicde Projetc Industrials(COBRAPI ond USSEnginee and Consultants,Inc. (UEC).This Al ternative chosen by CSNtobe executod, amongthree studiedalternotives, diffen, undercertain spects,from the project which had its generalfeatures summorized in the Report754-BR-'BRASIL-Approisal of CSN Steel ExpansionProject StageIll, preparedby IBRDin 1975.

It is presentedIn the * Introduction' of this Reporto short comparative study betweenthe IBRD's'Appraisal and the CSN's *Reviewand Rework.

This Reportsuperndes theReports SP-4/86 - Revision1, of January,1986, and SP-7/86 of April, 1986. I containsnot only revisedand up-dated information, but a I so further data and clarification, as requestedin the World Bank'stelex datedDecmber 4,1985, anddiscuss with both Banka CSN personalin the meetingshelp In Volta Redonda, on December5 and 6, 1985.

UnI4SI -15 - Gcm CompanhhaS;.i6rgcoa Nadonal

I_ ,_,______* _ _ -_ _

SUMMARYAND CONCLUSIONS

i, In 1962,CSN undertook a longterm expansion programn, developeJ :r thr2ee stages. TheStage I hadfor scopeto increasetherowsteelpreduct;one;pacifytol,7 niilion peryear and became completed in 1974.The Stages Irand Ill, which wereossis;ed by th-e WorldBank, ained to rase the capocityof productionto 2,45 and4,4 mili.n i or s per I year of liluid steel(later on increasedto 2,5 and 4,6 million) respectively.

The StageIII, 171

. The IBRDalid IDBsh"res in the Stage ll project f,ionci t e u c - d t h e amo-untsof US$95.0 mil:ion and US$63.0 million, respectiveiy.

Mom. 148101 -16- cma Compankih SldeGrgica Nacional

iI. In spite of the overall teclhnical.and administrativesteps taken Ly the CSN's top manogement,and especially thoserelated to improve the Engineeringsector responsiblefor the StageIII project erection, the project itself wasnot completed.yet.

The completionoriginally forecastedto June, 1981was successively postponed. The I as t estimatesindicate the completionin the first quarter of 1987and the full capacity to be reachedin 198k. The weightedaverage delay of thP S'oS?*'II project is now around 30.8 months.Althoughthere are several causesfor this de'ay, the most ;mportontof themis the scarcity of own financ;al resources;This defficiency con.e. fromthe CSN's inability t o generateown capital and from the restrictedcontributions of the share ho Ido r s to the capital stock.

iit.. The total capital cost, as estimatedin the'Review; amounted to US$3,720.4 million. The presentestimate is of USS3,439.4 million, with an apparent difference of US$285,0 million.

Thisdifference Is due to a reductionof the projecl cost fzomUS$3,025.00 million to USS2,401.2 million (n,inusUSS 624,0 million) counteiboloncedby a increase on interest during constructionthat possedfrom USS381.2 millioni to UJS $ 724. 0 million (plus USS342,8 million).

Themain causesfor thesevalue changeswere the devGluation of the Braz1lian cruzeiro ' (CrS) in relation to the Americondollar, a smaller lf6ecast for the price contingenciesond thloproject delay.

iv. The actual cummulativeproduction of liquid steel during the peri od cf 1977to 1984plus the estimatedcummulalive production during th pepiodof 1985 to 1987, by the end of the Stage III, is around20% lower than the"Review" forecast. Th.s factwoujd havebee,. causedby the combinedeffects of tho aclual and future project de- liys and by other interval troubles, suchas equipmentstoppoge for ,evomping,strike onar fire.

Mop. aW,JI -17- CM WAI ompanhiaSi rglco Nacional

At present,all the metallurgical area of the Stage III project is completed and o the Comrpanyis ableto producealready 4.6million tomnof liquid stel per annun. Regardingthe rolled produch, the productionof 2.841 million tons in 1985represents yet around7D% of the maximumcapacity 6f 4.067 million tons that is forecastedfor year' of full opwution, from 1988on.

Thesituation of the project in December1985 Is as follows:

Description' Unit IPresentEstimate(A)jActual_(B) &/A (%)

Drowi.igs un 218,525 218,525 100 Concret pouring m3 836,971 1 829,763. 99 Equipmentand Structures | I Erection ton 215,038 205,440 96

v. (Note: Commentson ftconornic rate of return will be presentedloter).

vi. The actual IBRD'sloan, ontheamountQtUSS94.6million,was proctically fully utilized by CSN up to now.

vii. Improvedorganizational set-up in the CSN's engineeringsecto; c!.dicated to the expunsionworks enabled theCompany io canryout the Stage IlIl project better thln the Stage II.

viii. Endeavouringall the efforts to improvethe implerneat;tionol I51eStnipe IlIl project, CSN did not dispensethe contractedservices, as consultonts,of Compar'hin Brasi I¢ira de ProjotosIndustriais (COBRAPI) and USSEngineering Consultonts In. (I C) for specific taseks,all necessaryto help CSN to overcaroethe difficult;es of ih complo.vproj ect and its ;nteiferenceswith the prod'kctionarea.

ix. During the period of the implementatTonof the Sin,t IIl p-olecct,that is since 1977to this date, someimportant chonges hove hken Introjducedin t he crgonize- tional structuralof the Boardof Directors,aswell sin theoverall admiinistritive struclu,e,

Map. 146/nz .^,2 ~~~~~~-16 - mL.:iF..'3 CompankliSidor6rgicu Nocionol x^ WU

affectijig all the managerialsystem. Such modificotions, as a whole,let to a su',51ol-1! distanicefrom tlei structutol reotpan;zationreomnmended anwJ implemented I'- e .e,nul | tonts Ai hur D. Little, Inc.

Mav. 146/$j - 19 -, , * uru CompanhiaSideirrgka Nadonal

INTRODUCTION

I - H ISTORYOF THEPROJECT

CompanhiaSiderugrica iNaciona! (C SN) wasfo-nmed in 1941a n d i ts operotionsstarted in 1946,with the prodactioncapacity of 270 000tons per year, of stcel,iningots. In 1962,CSN beganits Plan' D' of Expansion.in three stages,as a partof the executionof the BruzilianGovemment Generol policy whichciined to sig- ! nificantly reducethe country'sdependance on externullyproduced steel. j Sfcge 1, completedin 1974,raised the CSN'ssteel produclcion czpoc- * ity from1.27 to 1.7 million tonsper year. |

Stage11, suirted in 1972and completedin September197/, increosed the Steelpioduction capacity io 2.5 million tonsper year, be;ngin fuli opera.ion by ! 1979. Theworks for the developpirentof Stoao Ill of expansionbegan ;n 1973, i andthe techricol-econci-nicolfees .b-lity sludywas preserated lo the Banks(13RD/iDD) inr _ 20 - V.c'Sur '.u CompanhTaSidertrfica Ncadon(Il

a preliminaryissue in octoberof someyear, liaving as its scopea pioduction copocitv growthto 4.0 million tonsof liquid steelper yeqr.

Thefeasibility study was examined by IBR'Dand IDB joint missions in May, Juneand September 1974 as well asJantuary 1975, aside from several subsequent discussionmoretitigs with CSN andSIDERBPJ.S representatives. All the feasibilitystudy revisions since March, i9Y4 cilready purposed , a totoI production capacity of 4.6 millinn tonsper year ofliquid steel.

Consolidatingthe resultsof the inissionrito liazilin IA*ay,June indSex temiber1974, as well asJanuary 1975, and mainly the f(evi3ionI of the Stage II Eat- pansionFeusibility Study - Alternative2, of April 1975,the IBRD/IDRprepared the l'- PeitNo. 7S4-bik-' B-AZIL-Apprrisai of CSNSteel Zxparsion - StroecStugeII! ", o' : May 25,1975, which vwac core;il exomi: -ition of the Stuge IIl expvnsionrproject. From now cin, this itp,art w;11be ref ricd to in tis work.as the ;APPRAISAL".

In accorda'vewillh the 'Appraiscl, the growthof ;he C SlNproctuct iornf caparityin the Volta Redondosteel plant around11279 would be fromn2.4 (StageII) to 4.4 milliontons p;r year, together with cnincroase in produc4or, cf rcllad fl;t pv.vc'*, 46%,of whichshould be coated.

Forthe financingof this project, IBPJDwould grant a loanequivalent to US$95 million, that is about4.5% of US$2 iOOrnililon, which is tlhetotal financing requrement, for the internotioncilbidding of the equipmurn. In August1976, CSN casipned Compcnhaia Brasileiro c Piaje:c.ln;.-- triais (COBRAPI)- which wos a s.!bsidiaryComp.-iny under the CSNcontrol, and, todavy is underSIDERBRAS control - to makea 'deep revisionof the scope,scheduling aond budgetingof the StvgeIll expansionprcject ". C SNand COBRAPI decided thot thin loj vision would ho woiked cut wI;h cut external technical ussistance.

Consequently,the firm USSEngineering and Consultants,Inc. (Ui:C j v'cs ccntrtmctcd,UIEC was e!hredy,c.tm,cunted with the p-oject,since P- maintl,eahed c i

operationaland tcchnicit; gc1urp*.i the Volta Redondopcmlat, ac.comjunying the &vulop * ..

'hN . i4r,"* ' C.bN. Ji'j'.I - 21 -

3ir : CompanhiaSiderOrgica Nacional

mentof the StageIlIl project.

COBRAPI'smain role in this revisionwas to restudythe projectsfinawi- cial andeconomical feasibility with UECtechnical assistance. The U ECgroup stayed in Brazilduring the entirestudy phase and took part in all studysubjects, except that of MKrketing(S-etion 3), whichwas dcvelopped by CSN. Thisrevision comprisedthe 'up-kdatingof the marketingdoa, row mrate| rials, investmentcosts operationtl practices and costs productssolos and associated fi nancialevaluations .

Thefinal reportof the restudyhod two versionsof eciualcontent, one in cnglisi, ur.d_rthe title " Reviewand Rework of StageIlIl FxpensionPfoject ", lanteo D,a cembnr11, 1976,und the other, in portuotiese,en;itled 'Rovisut e Ref arn.luiJodo Pao jeto de Exponsjodo Esta3ioIlIl , dated Jurie 10,1977. This finao ropoit will b: rfc.rdcr4;d to, fromnnow on, in this documentas 1he " RsEVIEW" .

Tl-s deep reexaminationoi the StageIlIl expansionproject by CSN/ COBRAPVULCled to the est6blishmentof threesoniewhot different alternctives,buil ull of themwith the commonobjective of gettingthe maximumpossible cupaci:ies of t heo mainunits.simultaneously,a significont growthof CSNchances in the morkst. Amongall the propoe-sdaltematives, Alter-ative I, in its bcsic prem- ises,was more than the others,in harmror:ywitih tho mustrecent conclusionsof the studies I on the StageIlIl expansion,at thattime.

All the evaluationsof the alternativas for the StugeIlIl xronsion weret comparedwith the norrnalopercilicnal conditiorn of thQStago li, whi_h wos t a!;en QS BaseCase.

In the entirework, the prices,rates, costs, factors anid foror.asts I - a I appearare referredto Septemrr 1,19/6. The exchangerate Oi- Septem'.cr 1, 1976xv GS i Cr$11,17 por one US dollar. I

All threeproposed alte'nc-ives were considered co ii in e rc i a I I y ond

~~c,.. u,' - 22- 1 C4 ' Companhia Sirtaru'gico M4ac!c.asl

operationally sound.

At the time of the "Review",it was foreLscentihat the" Bao,o (asc would reach its NoamalOperotionol Conditionsin 197V/1979on-] the StaGcIII in 1984.

The comparativedata of the * BaseCase " and Alternat;ve I are slowl ; in tie TaL-le1, next pagc.

IABL. I COMMIZAfiATIVISUI. YOATA

No. _ UI : bl1 A4.

~~Ic C~~N-19a4 1lWD ley 7/ ~ 71 w:_i Y ;S ' I 63j .AvGu; {Helo CS.N- Y4 I')!Y 77Q1 7Z1 el C SM, SUNS on ., :3 3 J1ab

2 _ _ vXl;fi;'w'*lcl ~ lu- lr.QI^ 2:' 4 54 Li S;l 2 4S44s diiIcoG'4"J rJ 1 lo iaI I (13 I 3 t0i

.).) CFlagCoklngO~' Coal S.i2s:.;p '109.6o7,i*n 206, i. b) Plets

COCooling t:4folk ; 3.7 ' Y,: I, I,#,t.'....i o. Co,ag;a ¶e I0 :2

01$ElcteJhPsu er. 14.7 | 30.?';

i v ;n 11olsolo tl; US',", R 2Z95 30?5.0; b! Conta1 1 v l0. >,;;:38t ,2 ..... ; AddadFwiiki.t sfv,nr; /l. 3142 17

5 P.;i:la) rCCAiIt oi A,c__-q 1l, 22l. ~,0 i- .. d iies Oal !ga .,ie.' .3~ 59*.44

t) Cc t of SA.CS ..967,2 .2416/. .) dPof; l"ll Q 1i. .(5 c

toI 7oiooCjl .',aan P,ca, -4.

b) Co.[ ul SAS o, | 4'2 | c 1, tiT,es?.i( { B |134.1 | S9,S5 | § ~~~4l'lelil 31e:0 I,l I-4' EW."| :;; | 7 |!rutoicJllric\_S.sti~.r-ve | Yr/P. | 19t,2|

l| IrellI 1j (;Q | U.i/ton t 2t4

| L- '!,' r ;~~~~~tos:. N.co-t A~.G,; -- l. ~~~~~~~~~~~~~-!

I .. , -23 - '.-r Componhia Slder4raica Nacional

CSN decidedto adoprthe Alternative I for the following rca.ons:

Q) It wasmore feasible from a financialstandpoint, not only in regardto I ho return on investritent,but alsoin regardto the total net profit; b) It wasquite well balanced,with regard to the ur:it capecities aimingut a high utilization roteof the mainunits, and sal, sufficiencywith regord to the metallics, except witlh referenceto small purchiasesof ro II ets (500,000tons per year);.

c) It did not presentthe discvoantagesof th'le Alternatives If undIll, dependirigon I a supplierof plotesand on the reductionof sclesof finishedproducft,repoctive ly. Alterna.iveI wouldconipiete the proctica! ;olenticlof the \Volto-Rdcn do plant, a.idin accordaunce with the C'!N's judgeirent, it would meettie C ormpany 's obioc4iveo- noi dep,ndinsor semi-finishedproducts sopplied by oftherdomest' i plo- duces.

Bymolkina such a decision,CSN wa; awareof tl e fcct tha, altva.o' it hadalready executed a considerablework in benefitof the StageIII, as in sQnecases basicengineering, specifications preporLtion, issuing of proposalsand revisions of prices offer, all the mainoptions presenied in the restudy conclusionswert still opened.They couldbe adoptedand executed without progratTming losses or losscsof workexecuted up to thot moment.

CbN 4VIt,l. - 24 - m rnm CompanhiaSide4rglca Nadonal

II - COMPARISONBE7WEEN "APP'UAISAL" AND 'R&VI.kW

1 - - -.- - - . ------

A detailed comparison unit by unit, betvweenthe installations fireseen, as projectscope, in the mAppraisal"and in the "Review" i presentedin the Annex1.

hs a resume,the main changeswere as follows:

a) SinterPlant no. 4

It had its capacityincreased from 1,510,000 to 2,175,000tons er year, becausethe "Appraisal"took into consideration a load- I ing of pelletsin the BlastFurnaces, havit:q in sinht th4tCSNr 3t thattime, was planningto buildin -Casade Pedra" a pelIetif -,i plant,with the productioncapacity of 3,000,000tons of pellets peryear, 58S of which,was for its own use.

b)jnxygenPlant

Ithad its capacityincreased from 1,100 to 1,400toins per day, because,in the "Review",besides the needof oxygenfor the BOF shon, the enrichmentof the air for the BlastFurnaces was stilltaken into account(22% for the BlastFurnaces na. 1 and 2 and 25% for the Blast Furnaceqo. 3).

c) ContinuousCasting

This had its capacityincreased from 3,200,000 to 3,700,000tons of Steelper year.bacause, studies canducted by CStIled to the conclu- sionthat the BloomingHiill, in viewof itSobsob301e:ce.-ce,w o u 1 d hardlyproduce more than 1 milltontons per year,without a tota; revamp.

It was thus chosen to revamp the Continuous Castinq Machine no. 1, in | order to enable it to pass froni1,000,000 to l,200,000tons per year,

C8N. 140,M - 25 - W* a4 CompanhlaSidwrgica NHadonal

whilethe machinesnos. 2 and 3 hadtheir capacities specified for 1,250,000tons each per year.

d) RotStrip Mill no. 2

Themaximum weight of thecoils was raised,in orderto reauce thecoils handling and in consequence,to imporve the metallic ef ficiencyand theproductivity of the producing units.

e) PlateFinishing Line no. 2

Thisline was plannedto be installedin existingbuildirIs.LAter on,more detailed studies indicited the inadeqoiacy of this instal- lationdue to thesize of thebuildings, layout continnencies and productshandling.

f) ColdStrip llill no. 3

This mill, w-:ithS stands, is able to perform adequate reductions in products for sheets.

9) BatchAnnealing, TemperMill no. 4 andCold Polled Sheets Finish- ingLine no. 3.

CSNchose theOalvarized products market in viewof its *iteract- iveness;this led to thecancellation of lines of productionof coldrolled sheets and gave a chanceto the irclusionof t h e GalvanizingLine no.2, which had notbeen orifainally planned.

h) ContinuousCalvanizinn Line no. 3

Thisline was includedto enableCS4 to cover311 thc market thicknessband, from 0.21 to 2.67nim,besides the fact that there is a moreattractive r;iarket for this product than that for colU rolled sheets.

CA."...' *e,i ru Companhhi Siderurgica Nacional

i) PaintingLine

The Painting Line wascancelled, due to the fact tha.t thiI,a:ke i section wasalready being assignedto private comnpariies.

2 - PROGRAM!MNG- PROjtCT SCHEDUWLES

The main diffarence Detweenthe Stage III project schedules of the "Appraisal" (Schedule"A") and of the "Review"(Schedule "B") lies i n the delay of the Cold Strip Mill nos.l and 2 revamping,andin the delay o f the Cold Str.p tillno. 3 installation. Thesedelays were necessaryto avoid thevery long paralization of the cold rolling lines which c¢nbe no..ed i n the or'iginal planning.

With this chanqe,the to,al implcmentationtime of theState I111 project passedfrom 4 to 6 years, referred to the time of the purchisc- s issuance. Aside from that, somelines had their start-un dates de!ayed 6 *months,due to the inclusion, in the "Review"schedule, of the item relative to thebuildings erection, that had been originally omitted. In thisway, the linesthat extended their ending date of installationbeyond-the original fouryears were as follovws:

- ContinuousCasting nos. 2 and 3 - Hot StripMill no. 2 - ContinuousPickling Lines nos. 3 and4 - Cold Strip Mill no. 3 - ContinuousAnnealing no. 1 - Continuous Galvanizing Line no. 3

To enablethe comparison,schedules "A" a.1d "B" are presz. :...d in the next paqes.

C8N - 140,G11 -27 -

, CSl; E'>tSlU;lw&qslm PtCZN I.,. SCI:FDULE"t'

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w ;e-T '- a - t t - _ __~~~~~~~~vvmnw_ -r. 0 t'l § ' 3 - ' i '- - 4 '- '; 7 ow CN4SAHIAIDERRGIC NACONAE REVIE'N AND RtEWOR< OF STAGE III EXPANSSONPROJECT C . | ~~~~~~~~~~~~~ENGINEER)NG-CONSTRUCTIONSCEiEDULE,

1979 tio196 | 1at | t D £ 5CR t ifrEoN 45rS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~!197 1977 1078 1982

1itl .1~~~~~~~~~~~~~~eq w- *ol .. l 11tg'';FIXIAI-I )IJs S_0 -ID 'l''i* IJIN

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X n s~~~~~~~~~~ _ i _ _ l > t6t~~~~~~~trfa"4 Pi'^t^ 2'l>'* A,*-,Q8*^ eV^N..L-N~~~~~~~- a r-Jf n | EG5LJ= = yL~~~~~l t 'z_ r'-l +~~~~~~~~~~~~~~~~~~~~~.=t2

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:4; LI% O I@ ,14P:M -29 - amW Companhia S1dor6rgicaNacdonal

3 - CAPITALCOSTS / *~ 'j. The table below, with the heading 'Budget" 'A", showsthe summary of capital costs presentedon page 16 of the "Appraisal", at n;arket nrices.

A secondtable, as set forth, with the heading "Budget"A" corrected" meansthe first one converted to values referred t 0 September 1971,but with the line"Price Contingencies' suppressed. This conversion is necessary,to enable thecomparison between Budget 'A" values and the values presentedin the "Review"budget.

Suchcriterium was adopted in orderto allcia comparison on thesame basis. Thie values adjustment foliowed the tablepresentcd i n the Annex12.

SLUtCT'A'

6TAGEI1I CAPITALCOStS - MMU *.SAL)

uss 106 Description Foreign Local Too I

1 - Equlpment(lncl.Sperics. freight andinsurance) 48A1 97.4 581.8 3 - Engineering. Procuretent andInspection 18.3 28.8 47.1 j Constructionand Instal- 41.9 376.9 418.8

2 - Adsinistratlon 18.3 28.8 47.1 - Pre-operating Ea,enses 11.0 17.3 2f.3 6- Physical Cont1ngenc1cs 61.6 92.6 154.2 7.- Price escalation 236.3 20.1 52S.4

SubtotfI 871.8 931.9 1,G3.7

9 - IncreaseIn Workiu'g _ 97.7 97.7 Capital 8 - Ititerst Olring fjgn;- 121.1 92.1 213.2 truction Tolol 992.9 1,121.7 2,114.6

caN. ,_ _ . czr.t:.2 Compatitla Sidorirsica Nacional

WiOSIMU?L

BUDGET'A' - CORRECTED

. TAAF1!T CA?JT#LCOSTS - (APPRAYSAL)

*______*__ Sept.76 -Us$ l Des'cription Foreiqn lo.0c Total

. - Equipmleet(jincludinqsWa- res,freightand insuranes) 565.8 113.8 679.6

3 - £nji ie,:ring,procjreinent. and lns:,rclia,- 21.4 33.6 55.0

4 - ronistruction and inbtal- 48:9 . 440.2 489.1

2 - Administration 21.4 . 33.6 55.0

5 - Pre-operating Expenses 12.9 20.2 33.1`

* 6 - Physicalcontingencies 71.9 108.2 180.1

…------Subtotal 742.3 749.6 1r491.9

8 - Increasein workingCapit - 114.2 . 114.2

7 - Interestduring construction 141.5 107.6 249.1

Total 883.8 971.4 1,855.2

.,~~~ i - .I ~ ~ . . ____ wa Companhia Side4rgica Nadonal

*1*

Theestimate on capitalcosts in valuesreferred to September 1st,1976 as shownin the "Review"is hereinconsidered as "Dudget"B", end so presentedin thenext table. BUDGET'"" I CAPITALCOSTd - (REVIFW

Current'lonev USS lO ~~._,._-______- ; =.~. - Description Foreign Local Tota1

I - Equipment(Incl. spares, fre4aNtand insurance) 322.8 6,°2.5 1,01-.3

3 - Engineering,procurement and inspection 21.3 105.8 127.1 4 _.Ccnstructionandinstat- . 736.6 -736.6 1lation 2 - Administration 9.9 49.4 59.3 5- Pre-operatinoExpenses 1.0.6 47.5 58.1

6- Pnysicalcontincencies 21.6 279.2 300.8 7 -Priceescalation 84.2 643.6 727.8 ------t------Subtotol 470.4 2,554.6 I 3,025.0

9 -Increasein WorkingCapi- - 313.6 313.6 tal1 8- Interestduring Construc- 381.2 381.2 tion

TotaI 170.4 3,249.4 3,719.8

.()fiot includedthe 0L1: 6s supervision. on the am.ountof U$S.63,,CO|

C8N - 146A01 -32- - - C.mpahib Sidergicu Nadonal

. 4

Th! coWparisonbetween Budgets WAand "B", in values referred to Septeuber 1976, shows that the Budget "B surpasses Budget "A" by USS 1,136.8 million, that-is, 61.3%.

The main variationsthat causedthis difference were as follaws: a) Highervalue of the costof equipment,due to the fact that the new estimatetook intoaccount the changesof scope,asalready c a m - mented.This.estimate, which considered the data relativeto Stage II as well as the advicefrom the manufacturers,(asidefrom t h e actualvalues from biddings already realized) p.esented a higher degreeof reliability.

In Consequencethere were also changesin the estimatesfor con - itruction,erection.installations, and interestduring construction.

b) Highervalue for "phvsicalcontingencies' due to the fact that the calculationof this ttem in Budget03" used a higher per4-ntage (onepoint more) than in Budget"A".

The item "physicalcontingenciesu is takenas the amountof r e - servesassigned to coverdeviations caused by changesof scope due to occasionalerror in the originalforecast as well as t o smallimprovements introduced in the unitsand installationsorig- inallyspecified.

c) Highervalue for the amountassigned to workingcapital increase, havingin sightthe projecteddifferences between Assets and Lia- bilitiesshown in the "Appraisal"and in the "Review".

C8U.I-46, J~~~~~z~~~~ . - . ~~~~~~~~~~~------

= .= 3z Comp.nhia Siderurgica Nacional

STAGEIII CAPITALCOSTS 6 Comparisonbetween "ApDraisalo ant "Revie, r 7 US$6O

Variation'Bw - "A Appraisal "A" Review 'B" Description - -_____ Totcl ioreign Local Total Foreign Local Total Foreign Local 6 , _ _ - - 1 - Equipment(including

sparesand insur.) 565.8 113.8 679.6 322.8 692.5 1.015.3 (243.0) 578.7 335.7 49.4 3._.Engineering,procurement and installatic 21 4 33.6 55.0 21.3 '05.8 127.1 (0.1) 72.2 72.1 131.1

4 - Construc.andInstal.) 48.9 44).2 489.1 - 736.6 736.6 (48.9) 296.4 247.5 90.6 2 - Admninistration 21.4 33.6 55.0 9.9. 49.4 59.3 (11.5) 15.8 4.3 7.8 5 -Pre-operatingExpense 12.9 20.2 33.1 10.6 47.5 58.1 (2.3) 27;3 25.O 75.5 6- PhysicalContingenciE 71.9 .108.2 180.1 21.6 279.2 300.8 (50.3) 171.0 120.7 67.0

Subtotal 742.3 749.6 1,491.9 386.2 1,911.0 2,297.2 0356.1) 1 161.4 805.3 54.0

8 - Increasein Viorkin3 . 8-ICreiasein Working - 114.27 114.2 _ 313.6 313.6 _ 199.4 199.4 174.6

7 - Interest during .unstruction 141.5 107.6 249.1 - 381.2 381.2 %14 1a.) 273.6 132.1 53.0

Totcl 971.4083.8 1,855; 366.2 2,605.8 2,992.0 (.497.6),'63K,4 1.136.8 61.3 -17 -8.8 _ . . ._. ______I _ * V/O1/8t' 2' -. ' I.t Jn ; o c linI * Componhia SldM6rgIca Nadonal

The price adjustmentrates adoptedin Budgets"Am and, "Bu were not the same, as indicated below:

I)ESCRIPTIOl Biou(ET"A". _BUSGET "B," (APPRAISAL") ('RtVIEW")

Equipment Spares 1975 - 12% 1976 - 10% ,aterial i976 - 10% 1977 - 8% SteelStructures 1977 on 12% 1980/85- 7% Frei;htand Insurance Portrates

Construction t~krictiol Engineering 95 -1%17 5 Inspection 17 6 96 -1"" Adnijnis-tr-ation 1976. .- 14% 1977 - 14c.I Pre-operational Expenses 1977 on lr2% 1978 - 13%! 1979 - 12% .1980/85- 1 0%

Althoughthe price adjustmeptrates in Budget"A" were *preater thar. those usedin BudgetUB", the nrice contincencies of the latter a r e greaterthan those of thc former, due to the factthat t' total Capital Cost in Budget"BU is higher.

C8N - 14041 . 351 Wm Companhia Sider6rgicaNational

4 - DIRECTCOST OF PRODUCTION

Thecomptft Riof the productd rectcosdforenoon inthe 'Appraisal" with thoseof the 'Review' is shownin the table Weow. Bothcases assume a productionof 4600 mililontonsof liquidsteelp.ryear.; the valuesar expressedin dollarsof Septemberper ton of product. . ( usyt

APPRAIsAPOL kEV.' Variation . Prod u CT5 r ~~~~~~(1989_ (198.4) . s1% ProducTs _ nA I_.___ _ A _ _w a ~ Railsand Accessories 142 162 114.1 Mediumana HeavyStructural 338 163 138.1 lleavy Plates 142 157 111.3 I-HotRolled CGils- Not Pickled 136 149 109,6 Hot RolledSheets- Not Pickled 14s 152 104.8

Cold RolledCoV- 149 .179 120.3 Cold RolledSheets 160 187 116.9 LeoadCoated Sheets(Terne Plctes) 21a -339 155.5 .G`'lvanizedSheets - liiinersion 232 246 106.0 GalvanizedSheets- Continuous 270 251 93.0

N0t CoatedSheets (Block-Plates) .173 209 120,8 Tin-Plates -212265 125.0

Averago 1D*81 202. 111. .

N-t.: The direct costdoes not include value of depreciation, provisionsand o t h e r costs. Asshow in the compafisontable: a) in a groupof 12(twelve) product types, 5(five) had growth below the average (111.6%)and 7 (sevn) abovei7 b) onlyone (1) product(gal vanized stie.ts-continuous) had an acthtalcost reductiot#.

Thecost growths iafl.ct ingen.eml,the factthat, in the "R.view'the pricos of rawmaterials were greater that, those considered in the "Appraisal,

Moo. ja .4 - 36 - CompanhicSldrCgica Nodonal

5 - STEELMARKET

Thereare thre documentsthat r basedon diffnt evoludtionsof the Brzilion steelmarket deman that or* involvedin the sudi concerningthe imPlerenta tion andthe revisionof the StageIll expansionproject:

a) 'Feaiiblity Study: - 'Rovision1 - StageIII FeasibilityStudy- Altermtive 2 of April 1975,of CSN.

b) 'Appralsal: Reportno. 754-BR",of May 1975,of IBRD

c) 'Review: - 'Reviww andRework of StageII ExpansionPnoject, of December 1976,of CSWCO6RAP/UEC.

I - The"Fessibility Study" was based on the documentknown as 'MSA-3', prepared in 1974,that evaluatedthe steeldemand in the domesticmar*et, ;n the1974-1985 period.This projection wasm2de by TECNOMETAL,aconsultants firn contracted by IBS/CONSIDEP/BNDF/SUDENV/SUDAv. The 'MBA-3"applied a methodologyof evaluationof the steeldemand by industrialsectors, supported by a macroeconomicglobal demand projection, based on aneconomic gowth at anaverage rate of 10%per year. Thisrate was compe lble,atthe time, with the official goalsof the 11 PND( '11 National Development Plan")

2- Consideringthat the presureon the balanceofpayments would still remainfor a nwnberof years,the WordBank mission that visitedBrazil in January75 estimated in the "Appmaisal"a GDPgrowth atan average rate of 7% for the period 1975 - 1980,insfead of 10%as consideedin the If PND.

Winhthe consumptionstructure that prevoiledto 1975,the Word Bank used as a basemucroeconomic prevision, prepared a newseries of demand projec tion for the mainflat products.

3- The"Rqviewtook into accountthe steeldetiandevuluationforthel 975-1986 pe riodthat was presented in the work'RAM-M3A-No. 1I', by the SteelMarket Cor mittee(CONS1DEliYIB4SIDERBA4S),in 1975.

Mae. 146101 m Companhia SiderGrgicaNodonal

Tho'AM-MBA-t 1o."projections were worked out whenthe *ffech of the intemationalenergy crisis hit the Brzilian balanceof paymentsand finally caused the reductionof the country'sdevelopment rhythm.

TheGDP growth rate, that waskWpt around 10% along seven consecutive years,dropped to 5% in 1975,this makingthe prior projectionno longer reliable.

Andso, for the shapingof the futuresteel demand, it w*sasummed that the mobtprobable GDP growth rates i the 1976-1985perod wouldbe asshown in the tablebolow, which indiates a presuppositionthat therewouldboa reaccel ortion of the eco nomicalgrowth by 1981. Year AnnualGLIPGrowth Rates Year (%/) 1976 5.0 1977 6.0. 1978 7.0 1979 8.0 1980 8.0 1981 10.0 1982 10.0 1983 10.0 1984 10.0 1985 10.0

Thecomoarison between the WordBank proiections ("Appraisal ")and the projectionsof the"RAM-MBA-No. " ("Review")is presentedin the followin tablea

CB.,e, ' mm mm Companhic Sider6rgica Nocional

Comparisonbetween the "Appiaisal" and "Review" Projectionsforthe Braziliandemand on flat rolled steelproducts

______Unit: 1000 tons 1975 1976 I 1977 1978 1979 ProductsP sro d u ct ~~APP. REIV.v APP.. REV.v. | ADP. Iv.FtV. APP.. | REV- | APP.AP. | i. V.

tlaavy Platesand Coils 11430- 1,448 1,650 1,614 !1y8001 892 2000 2?120 12,300 2 369

Hot RolledSheets and Coils 1 350 1?064 1,400 1,150 1,600 11273 1)800 1 409 2tooo 582

Cld RolledShets and Cotls 11350 1,203 1,450 1,280 1)600 1,453 1,800 1,586 12,000 1 747 Ga!vanizedSheots and Teme Plates 150 145 I 200 .179 250 206 250 243 | 250 293 Tin-Platesand Non-CoatedSheets 550 480 t CW 528 650 608 750 670 850 748

_ _ . _ I __ . _ - U~~~~~~~~~~~~~~~~~~~~~~~~~~-n;t:l00tgnl_ 1980 1981 1982 J 1983 1984 * 1985 'Products I 4 -- iApp. Rt. |AF. REV.Vg PPP. IP3. A°P. !RE APP. AP .

HeavyPNots and Coils 21500 2,669 2,800 3,078 - 13t548 4 ,092 4;718 _ 5t440

Hot R&iledSheets andCoGls 2,250 10781 J2.500 2.031 - 2,317 - 2,642 3-13014 3437

Cold RolledSh"ets and Coils 2.250 1X925 j2.500 2,171 2t44 - 2,761 13,113 3-3,511

GalvanizedSheets and TomePlate 300 354 350 404j - 462 - 1528 - j603 | 1689

Tin-Plotesand Non-CoatedSheet 1000 833 !11150 945 - 11071 _ 11215 - , 11377 *

* 1- _ _ _ __ - t'ote .: APP ="/APPPAISAL" PEV "RE'/IEW" jot ~~~~~~-n - am am Companhia Sldwrgca Naclonal

6- PRODUCTIONPLAN - PRODUCTMIX

/ Theptoduction plans for the yearsof full operation,as forewsted in t h e "Apprmisll (198i) andin the 'Review', areshown in the followingtables 'A' and "B"|

Thecomparison between these production plans is presentedin table 'C furtheron andleads to the followingconclusions

i- Inboth plans, the liquidsteel production was considered as4,600, 000tons peryeor. 2I- Theincrease of (3,771- 3,512)x iO00= 25O0Otonsperyeor in finishedproducts in the "Review'plan waspfincipally a resultof the followingpoints a) Increas,of the forecastedcapacity and of theefficiency of the continuouscr-st- ingmaichines,whichmadepossibleoniincreaseof700,000 'eonsper year of slabsvia the continuouscasting against a reductionof 582,000tons par y*3r| of slabsvia the bloomingmil. ihis changelad to a gain on liquid steel of Ff674 -128 36 674-128 36 110848 t37 - 0.95 + 49 x,000=112,O00tonsper -~ ~~~~~~l\ ~ ~ ~~~~~year/1 b) Reductionof 36,000tons peryearof non-flatproducts, which resulted in an I increse of 21,000tom peryear of liquid steelfor the productionor flat products.

c) Incraseof productionof platesIn coils, with improvenentof officiency and shut-downof the 3/16" shearline, of low efficiency. d) Improvementof the forecastedefficiency of the picklinglines nos. 3and4 end shut-downof the picklingline no.2, for low efficiency.

3 - Hot RolledFlat Products

The'Review' offeris 275,000tons greater, in view of the copacity in- crse of the continuouscsting machinesand the 36,000tons reduction of noni- flat products.

Nov. 14810:.__ - a Companhia Sldwrgka Nedonai %of

hI the Review,them was also a significantoffor increase of plates (446,000tos) an reuction of hot roll ed shet (171,000tons). This offe.cuange is du to tho gre differencebween the donevaluations of the "Apprai;al and Rsview'.

In 1975,the fint yew of the serew"he demandof hotrollIed shoots, a s

foresen in the "Rcv;ew'is subskintially lower (22%), whi;o the demnd of L _t rolled plat is practicallythe someas that of the 'Appraisal".

In 1981,the Reviiow etimatesa greaterdomand of heavyp'ates and a continuationof a snallerdemand for sheets(19%). This fact causedthe reoriente tion of the CSN'soffer for a rematertonnage of heavyplates.

4- CoddRolled Flat Products In viewofthe transferenceof pertof the coldflat productsfor the area o f coatedproducts (gaivanized sheets and colis arndtin- plates),the offer of coldrol led flat productswas 301,000 tons lower. Tis lteration of offer broughtthe followingequipment clanges 4 o cancellationof the tempermill no. andof the finishingline no.3; * incluion of the contirous galvanizingline no.3; * tncreas of the foresseenproduction capacity of tin-plates

5- CDotedFlat Product

In view of higherdemand for packicgshet andgalvaniz./teme plates sheets,aipmiectedby the 'Rview (1984),in comparisonwith those c f the "Appraisalr(1981) andin v;ewof the pfiority givenby CSNto the supplyof coa ted products,the Reviewoffer wasincreased of 321,000 tons. This offer increse wasdue to the inclusionof the galvanizingline no.3 andto the incrne of capac ity of the tin-platesline.

Thepaniting lines were also cancel led.Th;s resulted from fhie policy of as;g ing to the privatefinms tholreatmenhtobeappliedtothabasic rolled products.

Km , .! - m #Companhia Slder6rglcaNaclonal

CSN- STAGE[if Report *Appr.1isal I (1981)

Unit: 1,000 towr Pi (1) . ~~~~~~Semzi-finished(2) (3)Efl;(X uds b~Fduction Blooming ll u*tou UjfuidSteel .(2)/(3) (1)/(3') -~ ~ -

n-FIZ ~~~~436 48'6 -570 : BS. 3 76. 5

,Hct Rolled 5 99 . 674 _795 4 .8B 75, 3 92u4 .. 'Flab L 32i. , _ 353 *375 .94.1 85.4

ColdRolled { 32 36 8 3.7 74,4 . ~ ~~~2156 .43.. *Flts 124 - 2647 2 817 94.0 75.4

Total 31512 11196 3,000 4,600 91, 2 76.3 4,196

171 18 1) 1 ,Pl/1O/6 ~Le !3 141 ioi i - .ll Socrctoria de Plonejemenro jC= cz Companhio Siderirgica Necional

CSN - STAGE111

Report "REVIEW" - (1984)

Unit: 1,000 toiW year

Products Production Sem-finishedICIGsing Liquid Steol | (2)(3) (I)/(3)

.Non-Flat 400 450 549 92.0 72.9

Not Iolled | 108. 128 - 154 83.1 70.1 1.195 N Fiats j0_7 _ 1,148 1X209 9500 89.9

Cold Rolled

FNats .2X176 2,552 2,688 94.9 Ot.0

Total 3,771 5a73 3,700 49600 . 93,0 82.0 Total

!.) t 0 ___ 3 -- _71 i: S:cr.etark; de Fl.cnremcnto e:r Companhia Siderurgica Nacional

Cotnparisonbetween the plant productionsforesseen in the "Apprcisal" and in the "Review", at full operatton

to year ______U n it: t,O 000 q j. Production at Full Operation r Products "Appraisal" "Review"arietin (B) - (A) (1981) (A) i (1984) (8) _

30 Semi-finished 1 i Railsand Accesories l0i180 30 Mediumand HeavyStructurals 286 j 2200 (66)6 HeavyPlates 310 756 446 1

HoOtRolled Sheets cnd Coils 610 439 (171) *

GCldRolled Sheetsand Coils 790 489 (301)

Galvanized Sheetsand TemePletes 306 558 252

Pre-pointecaSheets 60 I _ (60) Tin-Platesand Non-CoatedSheets (Block-Plate4 l1OC ,129 I 129

T O T A I. 3, 3 712771 259 0?/,- 2.4 1 Gj 1. lo!

Sace~tar; de P;ar.ej6am3nto 44 WO r\u Companhia SiderGrgicaNncional

7- FINANCINGPLAN

Rearding the sourcesof funds,the comparisonbotween the "Appraiscl2L and "Review" estimatesis shownin the table below.

The major causesof the variationsare as follows:

* A higher contribution of the local financing sources,due to the increased bud- getary amountsforesseen for local medeequipment (FINAME) and for construction and erectionservices (BNDES - Associatedcredit).

* A tower contributionof biletemulloans, as a result of the reduction, in the bud get, of tho amountforossen for importedequipkaent.

* A higlier contributionof shareholdersand cashgon'-ation, in consequence o f the changesin the remainingbudget iHe-ns, the iter, "Contingencies" beir.g mainly resl)onsiblefor this var;ation.

STAGEIlIl - FINANCING PLAN US$10 (G.,rrentMWney Sept.76)

It ems Review(A) ppraisal - _ x

Shareholdersand CashGeneration 1,246 830 50. 1 Loans IBRD 95 95 O.O IDB 63 63 .0,0 Btlaterals 281 493 (43. 0) Local 2,035 634 121 0 TotalLoans 2,474 1,285 92.5 Total Financing 3,720 2,115 75.9

C~~,_ . = -45- 97i r-= Compenhia Siderirgica Nacionnl

8 - SELECTEDFINANCIAL INDICATORS ('Appraisal"x "Review'")

Asfar as the financialterms are concemed,the "Review"'reflects, in com parisonto the "Appraisal"a situationof lowercash genertion in the first years,although theis is a relative advantagein 1985. Nev,;tIeless, in consequenceof the innebase o f longand short term debts, as foreseen in tho"Review", there is an unfavorable provision for the evolutionof the currentratio anddebt/equity ratio. Thesoconstraints also affect the longterm debt service coverage, since the Profitbefore Taxes, aside from other items of cashgeneration, form the numeratorand the longterm debt service forms the denor.;no! tor of the fraction usedto calculozethe coveragefacior.

SELECTEDFNANCIAL INDICATORS

Items J I9Ps (Al B ~ArPRAisLnPV11, t PPR:S!. EM UE: A|PNA!SAL I 11;:1d Curronit Reatio(a) 1.33 1,C a .35 l i.' 3 56 1,43 *Debt/Equity .47/53 4S/SS 33/67 $1/49 |'2a;,7 5i/69 Debt Coverage * 68 O.S1 3.0 o.ar8 9.St 3

A) Year of ful I operation capacity as forectscadin bothiReports B) Includescash surplus in the currentassets

CSN-i IO$) - 46- al Vr13 Companhla Slder6rgica Nacional

9- PERFORMANCEOF THEECONOMICAL INDICATORS ("Appraisal' x 'Review") 0

The"Review", compared with the "Appraisal",reflects, irn 1977 and 1981, a lowercash genertion, dueto the fact that it foreseensa longer term for the project im plementation.Ai theend of the period,in 1985(1983 for the "Appraisal"), tho "reviow' indicatodalready high productionlevels, wtli a richor product mix, which includes a r. importedportion of tin-plate sheetsand coils, well knownas nobler products.

In the "Review",the forecastof a smallerGCst of the Pl',ductsand Sor- vicesSold, in the first yoars, reflectstht sm3llerquantities to be produced,w hi 1a, i n 1985,the forecastof costgrceeter tham that assummedin the "Apraisal' re;acctsn3t on5 a productionat higherlIvels, but alsoa richprmix.

However,as far es thc resultsare concerned, hl " Review" f ; i e c a s t s a profit in 1985lowat then that of tha "Appraiscl", duemainly to the foreseenhigh Iong andshort terms financial expones an=d depreciation.

PERFORIMANCEOF THE ECONOM!C INDICATORS

1917 1781 lAS Production . Az,MUAt(C) E) =.=ALSA1 14M: A--...) (1,000 lonVyear)(A) 1, 60 1i,.5003,512 2,4433,512 3271

Discriminatron * a1915 0DMIZL)J97.A^L 1976 AML1S75 (U)ML1576ML19S76 ML1975 WjQ;1$76 L1576|

Net Sales(G) 857 58§ 146 1,925 2,221 1,677 1,925 2.221 2.;10 Cot of Prod.and Serv.Sold 4*u a 4$2 921 1,C63 1,00; 92X 1O63 1,132 Motprofit before Inc. Tax 219 2S3 8 426 494 1 4w S19 42& %.of NetProfiton Net Sales 2s.6 2!., 3,0 2>,2 22,2 7.1 23.4 2 ,4 34 5 Total CashGeneration m 3120 l s9n 689 192 621 717 533

(A) Productionof rolledproduhts (B) IncludesICM (Salg&tax) (C) In dollarsof Jan. 75 (D) Valuesdeflated to Sopteriber1976. (See Annex 16)

CdN - 140,$u) -47- A Companhia Slder6rgica National

I - PROJECTDESCRIPTION A4D IMPI.LMENTATION

A - Project Objectives and Description

1.01 rhe project vtaspcrt of cn overoli prcgromto increos:.Brazil's raw stee I | copacity from6.0 to 20.0 million tons per year by 1985and wesfcrmulated by Consellho Nactonalde IndustriaSiderurgica CQNSICER, t.'Ae National Steel council)' I

Themainobjectiveof Straz HI project was to exp!nd thm copucity pronuc. tion of raw steel from 2.5 to 4.6 mil!;on tons per year and to processthe whole steol po | ductionby meansof the installation of additionul units and the iniprovemientof sornmexiS- ting facilities.

In the metallurgical areathe project comprisedthe installation cfa t l. i rd I BQOFvessel (LD Converter) in the existing buildinr, a n^w bintering plont(no.4), Iwo n-w coke oven batteries(no. 4 and 5), and thle rcvcmpof thc existing blest-furnucesno. I cnd 2, besidesthe noesury works in the row niaterial yord3.

* Todoy,Cnla-z?ho da NaQ-Fcrro,c.e Ck&Y!deru.;Zia - CONSID)EPR (The Iron, Steeland iNionferrousM4ni'S Council%

4w~~~______...... ____eE- -48- r ar :~u Companhla Siderurgica Nacional wOosleo s

To increasethe processingcapacity, the stool plantreceived a setcondhot strip m;ll (no.2), comperablein processingcapa,ity and-quality to the most mnodernunits of its typeexisting in the world,and also complementory cold rolling.unitsand . finisbing lines.

I Thegeneral data of the Projectare shown in theAnnex 2.

Detailson the facilities of tSe Stuc,eIIl projectare givenin the Annex 3 andon the generalschedule in Annex4. pu,, -~~~~~~~49- I' A r. "m Companhia Sie¶erOrgicaNacional cu.e si'wAs

B- Projoct Summary Data

1.02 The fo!owing tcble conmparesmajor projcct parainetersofthc 0review' | with actualresults on completion: KEYPROJECT DATA

Item IReviewEstimate, Actual Total ProjectCost (US$ million) (a) 3,720.4 3,439.4 CapitolCost (%) 100.0 79.4 LoonAmount (US$ Million) 95.0 94.6 Disbursed ( ) _ 94.6 Cancelled ( " ) 0.4 Repaid ( " ) _ 38.4 Outstanding ( ' ) 56.2 Doit PhysicalComponents Completed 12/832 12/86 ProporticnCompleted by Above Data(°) 100.0 98.0 FinancialRate of Return(%) (b) 79 () 10.8 (a) Including interestduring constructio.nand working copitol inoreutt.. (b) Anne#x16

H...I~6.. - 50- C.I L. D Companhia Siderrgica Nacional

C-Project Construction and Completion

1.03 The Stage Ill completion acsostimated at timeof Revie4,to tolkcplacr. in June 1981;hovwever, due to reasonsset forthin tho courseof this report,the plant wili only be completedin thc first quarter of 19U.lndeed* ,the main productioninstcl ations !uvJv their start-up delayedabout 18 rrontis.

The actual implemcntationtime .chedule compcredwith thcRview" p.o-i gram is given in Annex4. As shown there, ihe no. 1 and 2 blust furnacerrevcmp p,nto. 3 LD converter, no. 4 oxygenplant and Po. l and 2 continuouscaster, i.e.,the mo*pr p.o- duction facilities hod delaysvarying from.i6 to 43 months.Th_ aver-rge co.nposited o y wasobout 30.8 montls and major delaysoccuwred in the following act;vities:

Mol.. 3146t13 -51-

t: 7f* Companhia Sideru'rica N.,clon3f wc snuss

AverogeCumpositN Delays

Principol Reasonsfor Delays Delays (months)

Engineering 2.0 Procurement 0.4 Fabricotionof Equipment 7.7 C oinstruction and Assembling 3.7 Financinl Resojrces 15.0 Othors 2.0 Total 30.8

1.04 In 1?77priority wasg iven to fabrication and erection of 1herolling rnll j buildingswith the purposeof arrangingadequato storage areas for the ecquipmen;as well as to assenmblethe crenesfoa immcdiate use. Threeconcreto plar.ts were strotegicoll- in*alled inside the steel plant to ossurcbettcr conduction of cal the ceistruccinn works (civil workW

The moin purchaseorders were placed on time to follow the project onid a careful expediting wasdone.with the suppliersin order fo ovoid deloayondaowirg.anc! fabrication detaiIs.

Although all stepshove been taken, therewere doloysas set forth in Annex4.|

On the main reasonsfor the delays indicated above, it is nece ary to make the following comments:

a) Enigineering

Thedelay in the issuingof drawingsand informationby t he *equipmr-n-t supp~ingconsortiaiwos detrimental to t'n project development,mainly with reoiad to te foundoti'ondrawings,as well as to the drawingson electrical iristolhtairn a.-d fetLmn- tatloni. In somecases there were drawingrevisions already int thie constroctionr-hae, so unsettlingthe execution of the field services.

dan. H.0 hw"N ~~~-52 - .nr~u ComponhiaSider6rgica Nacional

GUosIMMA

Theremittance of drawingsand information related to certain units becanne initially boundto the obtaining of the import licensesand this wasc6using.delays; however,after further understandingswith the supplierts,part of thmnagreed to providcl.hq in fownation,so preventinglonger delays.

The developmentof the drowingsfor civil worksdid not follow as well the time-schedule,so hinderinig.he services xaecution.

b) Procurement

Just after the approvalof the 'Review', a detailed programwas es ta b - lished for the main phasesof the equipmentsupply contract;ng. The comparisonbetween the scheduledand the effective executiondates reflects a nuinberoi delayswhich can be summarizedas follows: requcstsfrom the biddersto postponethe dotessettled for tcch nical and commercialbid opernings;revisionsof specifications; technical or cornmc;c;al anolyses;definition of Brazilian sub-contractor- changeof consortiummember;and obtaining of import licenses.

c) EquipmentManufacturing

Therewere significent delays in the mechanicaland electricol equipment manufacturing.

The erection of someunits %vas affected by the delivery of supporting, structuresand equip.nentout of the settled crection sequenceschedules;and other units were offectedby defectsof fabricatior.

The delay toobtain import licensesbecome a seriousproblem. Insprite of CSN'soften understandingswith the suppliers,ttky did not agree in starting fabiicotion without having the import licenseduly grmnted.

Until now, the erecrionot sorneprncess lines is paraly ed by I n c 1 o f equipment.

No-. 1401 Of /1 -~~~~~~~~53- r'a El CompanhiaSider6rgica Naclonal

. *IZ.

cd)Construction and Erection

I lntorferencesand needof special supportsnot initially foreseendelayed the foundationdigging services.Some controcton in chargeof the foundation n nd other concreteworks delayed too.

Therewere postponementsof the endingof mechanicalerection, e I e c | trical installation, piping and tests,in consequenceof delays causedby the coiitractors.

Somecontractors that were not following the time-schedulesfor the foun dation constijctions and for the erection servicesor not rspcnding to the service ne6ds have to be replacedby others,irl order to avoid longer delays.

Someunith were affected by accidei,tswith equipmentduringthe erection, | including fire.

e) Financial Rescurces

Since March 1981, due to the restriction of finoncial re.-ouices,priority was given to the areasof steel production, hot rolling and cold rolling. The units f or the productionof coatedand non coatedsheets were paralysed.

Lateron, theseunits were executedas requiredby the production p!an, but in line with the restriction of the financial resources.

f) Others

The componentsdamaged during the tost cofthe units in erection and thoseused by the mointenanceservices were replacedby thosepurchased for *he units that had the erectionpostponed. This wasdone tr) avoidy ut the timerthe purchaseofnew components.As the erection servicesrestarted, all componentsno ionyer avaiinble had to be acquired.

Mm. 146101 -54 - :arn.cZ CompanhiaSiderGrica Nacional

1 t 516WS

Thestar- up of someunits waited for the conclusionof otherswhich were delayedand also for the decisionof the Companywith respectto plan of production.

Partof the abovementioned delaos was absorved by the succeedin_as- tivities. However,other delay affected the conclusionof thework, as it is showmin the Annex5 by operationalunit andby maincothegories.

1.05 TheStage Ill hasa physicalrealization of about98% and a finoncialrea ltzationof 96%.

The investmenlsestimates for the years of 19P6 and 19831to completethe Stage Ill are, respectively, US$60.440 millioni anidUS$ 26.905 million, at a total of US$87.545 million.

The following table showsthe breakdownof the:;eintvestmients. by units and seri,.es which needcompletion.

TheAnnex 4/2, containsa scheduleon Ihe completionof the ivinuining units.

Moe.. 146/10 i Cz1 Companhia Sidermrgica Nacional -

STAGEIlIl - INVESTMENTFORECAST TO COMPLETEREMAINING UNITS

______USS1,000

Description Investme nt 1 tol ".upto 1986 1987

Benzol Refiningand HydrogenUnit 40,775 3,187 712 44,674 marDistiller ond NophtollenVVasher 32,338 2,052 430 34,820 Hot Strip MflI no. 2 - 4th S!ab Oven 22,120 3,254 882 26,256

CoritinuonsAnr.ealing Line no.1 (ForSheets) 39,060 3,218 - 42,278 ContinuonsMneoling Line no.2 (ForTinplates) 19,137 4,439 1,509 25,135 CcntinuonsGalvani=ing Line no.2 32,098 3,588 490 36,176 E!ectro!yficTinning Line no.5 34,730 4,612 _ 39,342 ElectrolyticTinning Line no.6 33,286 3,737 2,008 39,C31 PowerDistrbution System 31,525 820 356 32,701 Utilities | 83,584 5,339 2,046 90,969 Railroodsand Roads 15,137 2,217 397 17,751 Fovrd.y 7,405 1,086 - 8,491 AuxiliaryServices 26,117 6,072 1,25W 33,445 Oik.er 1,725,458 8,886 14,540 1,748,884 Adminid,ration _ 170,891 8,083 2, 279 181,253 To t a I 2,313,661 60,640 26,q05 2,401,2C6 ==c__.._ __ X- =.=. - r. _C 1g7/cJ6 113 i i 77 I. 110! Secretoric d. Pfr-.ogca.ert( _ - 56- WArC Companhi Sider6rgica Nacional

w c SIKMAs

.~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

D-, Project Scope and Cost

1.06 Thecost of StageIll was US$2,401.2 million comparedto the original fore cost of US$3,025.0 million. The final capital costsare detailed in Annex6 and the following table comparesthe estimatemade at the time of the 'Review" with the final cost.

The needof keepingin service port of the odministration,due to theproject delay, representeda cost increoseof US$93,0 million.

I Lo>s^el . 110 Companhic Sider6rgica Nacional-

CAPITALCOST AS IN THEOREVIEW" AND PRESENTLYESTIMATED

I______(USSMillion - CurrentTerms) Foreign Local Total Description Present e Present Review Estimate Review Estirnatq-- _ Review Ise Equipment(Including Spares) 366.0 493.2 334.5 712.9 1,200.5 1,206.1 Freight, Insurance,Import Fees 47.6 53.6 24.5 16.1 72.1 69.7 ProjectAdministration 14.5 - 71.8 179.6 86.3 179.6 En;zineer',ng 31.4 14.2 159.0 106.7 190.4 120.9 Constriction and Installation - - 1,157.5 *733.2 1,1i57.5 733.2

Total FixedAssets 459.5 561.0 .2,247.3 1,748.5 2,706.8 2,309.5 Pro-OperatingExpenses , 15.4 . 69.1 65.1 84.5 65.1 Contingencies 16.8 _ 216,9 26.6 233.7 26.6

Total ProjectCost 491.7 j 561.0 2,533.3 1,840.2 3,025.0 2,401.2 InterestDuring Construction - _ 381.2 | 724.0 381.2 724.0 Increasein WorkingCapitol (*) - | _ 313.6 313.6 313.6 313.6

- .. .. _ _ .______* _ .______T ota 491.7 56?.0 2,228.)I 2,877.8 3,.719.8 3,438.8 __~~~~~~~~i tk __a~ . . . f*) No change has beenassurmed because in tha Stacelit it hosbeen impossibleto calculate working capitol in:reose. X... !D3's SLPOrAsi1or.on the esti2vctcdr.amount of US$63,(i0 Vis not irciuded.

9",c/r5 2'C1/27ir 6 '3' i57:s- Sec.r-tetv.i de, P!an>n.rmcnta C.3e¢1r-o CompaithiaSidArrgica Nucional

Thetable below shows details of variationsobserved in the cost of theproject:

VARIATIONSOBSERVED IN THEPROJECT (US$Million) DomesticEquipment (121.6) ImportedEquipment 127.2 Construction (424.3);. Freights (2.4) Administration 93.3 Engineering (69.5) Pre-OperationalCosts (19.4) Contingencies (207.1) Interestduring construct'.on 342.8 Total (231.0)

1.07 Thecost variations, as indicated above, leading to an apparenttotal reduction of US$281.0 million canbe explainedas follows:

o) Thedomestic portion corresponding to 745 of the projectcost was strongly 1 influencedby two maxi-devaluotionsof cruzeirosin comrison to d o I I a rsi whichrepresented a saving of aboutUS$ 345 million; b) A substantialvalorization of yeneswas perhaps the moincause of the 35%in- creuseon the costof importedeq,sipment from Japan where t;he rnajor volume of purchasewas concentrated;

c) Lorgeand.welldefinedpackagesbecomrmeittractive notonly for the equIpment s4ppliers6utmainly to severalcontractors leadingthe Comonny to good co.> tractingconditions. Several constnuction contracts were done by using the: "turhkey`systcmresulting in betterbeneFits thon the system used in Stagel,i .e. contracts'by administration".

d) The Oecessityof mainthainingport of the orgoonzationnl set-up due topreject's delay representeda co.t increaseof US$93 mlilion.

Mco..146/ (1 f,7-^a\ 5 9- u3 t'DA CompanhiaSiderurgica Nacional

e) Theoriginal calculation (provision) of the pricecontingoncies was w-r ke d out consideringdifferontiated indoxes for equipmentand its f re i,. t, and others,whilo it shouldhave been done taking into considerationthe differen I tiotion betweendomesic and foreign currencies. I

f) Dueto delaysof the equipmentstart-uN the interestduring construction sur- passedthe original provision,around US$ 343 million.

1.08 Fcrthe executionof'the constructionand erection services of the t:ige !I1 project,some finms already registered in CSNwere contracted. The selection wasbased on the workir.gcapacity of the contractorand on the extensionof the workto be executed. CSNused two conftractmodes:

- globalprice - unit prices

Theglobal price contract was the preferredmode; only whe.athis contrac; modewas not possible,CSN adopted the unit pricescontract, where the main parcmeaers werothe workchoracteristics and the CompleteProject. This system brought better results thonthe oneused in the Stage11.

Therewere problems in somejobs, thatdisturbed the accomplishmnentof the time schedule:delay of the comrpletioniof the erectionservices, c'h a ng e of contractors whichwere not workingsatisfactorily and Intorferences with existinginstallations. Howev- er, the generclperformance can be consideredas a goodone.

TheStage Ill projectwas much more conplex jhon tle Stage1, dueto thb I sevve-raoJtypes of units.tobe installed,revamp ond modetnizatinnof others,and the shutdownof old oneswhich were considered outclaused and overtaken for the greutperfor manceof the futureproject.

Theinternational bidding for the SiogeIll projectwasappliedfor the acqusis 4ionof the equipment,taking into conAderotionlijat mostof the unitsvere of foreigntecb nologyond the Brazilianindustry had nol yet the necessury"know-how" to satisfy the

Mam. 1461 1 -60 - g-.-I r'a Companhia Slder6rgica Nacional

GglSi SIDERiS

market demand. In consequence,this 9aveorigin to the organization of "consortin usually formedby foreigner and local suppliers,which, as requiredby contrachtul formalities, had to be led by a local supplier.

The consortiawere awardedwith the main equipmentpackage contracts ancr broughtto the grazilian industrya gain of notionalization of about 70%,agoinst 22% i n the Stage11 project execution.

During the developnientof the oroject, there were somediscrepancies related to the forwardingof informationand basic instruction, which were attributed by the contraictorsto their subcontractors,so cousingdelays and discontinutties.

At the sametime, repenteddelays in the remittanceof drawingsby fore!sn supplier causedniany project revisionsthat; in consequenceaffected the ttme-scheduleof the expansior......

As a consequenceof conjuncturalproblems, the project time-schedule had to be altered, in somecases, in rooson of technical and econormicolconditions of Ihe s'Jp- pliers.

As a whole, however, the performancethe Stage I11project wasgood not- wisthstandingthe mentioneddeviations.

1.09 Duringthe project detailing samealterations were introducod i n t hi9e scopeof the expansionproject which omountedUS$ 67 million und are listud in Ainex 7. Major alterationswere doneto improvethe operationalcroa as follows: complementary

torpedo cars, increase in the' productsstocking haust, .. ndF buildings,niod l fication in the platestronsfor and refiigerotion systemin the continuouscosting arec. In the utilities area, new systemshad to be included as a consequenceof mor e detailed l studiesof the project.

Mon. 14C1t'I - 61 - .ompanhia Sidar6rgicaNacional

In the item AuxilIiry Servicesother expenseswere udded to face warohous. Ing. cleaning, protectionof the equipmentwhose erection was interrupteddue to limita tion of financicl res.ourcosos well as exponsesior the preparationor worehousing areas for matcrialsand equipment.

Thesedifferent scopcchanges deserve some comments, as follov s:

a) TorpedoCars

Usingthe torpedocars since 1976,CSN foundout that their inde :es of mcaintenancetime were substantialy higherthln theforecastedoaes. Moreover, W it thiP introduction of the operationof pig iron desulphiration,theo.3 wase aemarkoale incrnase i-nthe time of the car rur,ning up to the steel mni;l. Bosedon this experience, the. CH;a ny decided to add 8 (ei. t) new uniMhto its torpedcl rars fle*t.

b) Stond-by Compressor- FOX's 85Uond 1200 t/d

- The imperative need of inclusion of a stand-bycompressorfor ihee;:;s: ng Oxygen Shopswas a consequence of the hard difficulties experienced by CSN .hen fo- cing the problems presented by the oripinal compressorof the FOX 850 t/d (Siege 11)in 1977.

So, the cddition of such a unit'woa determined strictly to gjuomrnteothe minimum wfety level required for the continuous operation of 1he BOF Shop.

c) Continuous Casting - Plates Transfer ond Cooling Systemn

At the time of development of the !wsic project for the instcilotion of the coslers no.2 and 3, it was realized ihat the area available for the instnllutionoft[.e cooling systemwould not be s'ifficient, if a spray system like the exisling ones were toi be used. In consecluence, a system for the cooling of the plnies by immersion in tar,ks, installed in a,ea with o foding ;bles !qItcfnn,wa, pref-riu.

Me.-. s s., - 62 - c c_za ComapornhiaSider&vaic Naecional

\ 1

This solutionavoided soac problentsof interferencewiti the c*oro han- dli ic and4withc c.i auver;ngand of railwaycars necessry for the, tiport- tioInof platesup to the HotStrip Mill no.2.

d) Utilities

Thechangeofscopeinthe ulilities aorawas due to tile followinrgveasons:

.1 Thedeficit of 1, 314.65I/s of clarified wrter, us calculatedi n the balance w.orkedout after the definition of the origitnl scope,forced to the additional acquisivioo of the WoterClarification 'lont no.3.

7!;'sdetenrined somre nlterations in tl,e projectof t.hewote r Treomrin1:

Plantfor the Hot Strip Mvill no.l, to odquntaeit to the limitotior. OT' wnt;r | feeding.

2) AddiiToniincu;f;hiol sewc'gJ and rain woiei(tWSiaing, w hichcotld {a c,ualia f ed onlyriflar Nhedefiniticn of the mochinzryand buildirgs,soreq.iring sys:em changesor newsewers.

3) Adjustmenisiii the fuel andstecnm boloncos, provided arter ihe defirn;,iono 1 the originalscope, which showed the needof insiullotoii of odditic,n3l gas pi,fing.i -63- I,: Companhic Sideorrjica a! a f

______._ _.______

E - Financing Plan asid Financing Reduction

1. 10 The comparisonibotv,ee.n the proiect financing plan 'asfo-esav., in th.- ftc- view and Its achievementis sIhownInIliah~ following table. It can be not-edthct there is a reductionof a1'o'j LIS4715 midliort in rc- i laticiu to the ostimateditotal financing. It is impoetantto m3rtion that the ImrMi'fcieiLita-nnuncii (. t;x loc%J 1c0ai.,

and s!icr'4holders.

Mon'.140 10 -64- 6; ' E Companhia Sider6qrica Noclonal

FINANCING PLAN

. ~~~~us$Million % I tem Rview (A) Actul(B)bifference(BlA) PAview Actuul

Shareholdorsandr 1,w245 1,680 434 Owvnresourcos 33.5 4. 9 Loans

JBRD . 95 95 0 2.6 2.7 l[;iG 63 63 0 1.7 i.e Bilotetals 281 208 27 7.6 .Q . ~~~~Covm-,rclal 6arks____| LocalLoans 2,5 9,293 (72 54.6 3 A Totar Locas 2,474 1,759 I L4Lor 714 66.565__ 151,1 GrancdTotal ! 3'. °20 i(25 100.

(1) Includng US$313.6million foresseenfor workingcapital in ,ceas.-

1.11 At the time of the prolect's bejinirtg, the perspectiveslo 4htcin fl;ait- cial rasourceswerequite tronquNi.However-in Januaiy 1979,the pr,njectwis hz;.ALv .- ;; | shtnrial restrictlon of resourcessocous-ig SlDERBR%Atocortsklera;otai inlemuptrin for G.-* year.

At that time the Compcny wos ohb'e.o denote tiun riist equip;ner.t su,lj!iu;r deloyswhich poponatJ the eqjipr.ent ;4stcdlatt;onuntil Seplumher1979.

The financic;l resourcesfoom FINAAE and aT--; d;e!notc recachtle t-x pected levels because the;ropr.;otional rules wurc riol jAopci io il:w.ct ! aorsuc prominctssuch a steel pronects.os well as duteto s rbc tior. irnpouedL-ty :- . Iattys {aci,r dleterrnincd th0t the .'ncncilsj sure cs hadrtv bc slowly tu,b4itutedI. Cro; i.yevny'so leI

144' bll -65- -: V. a Compoa.hiaSider6rgica Ncdonal .*~~u s_Wms

souices,arid this was dot.. with greal delayin relation to the time of their need, eit.er dueto lack of cashor to fixation by SEST/SIDERBRASof the application limits.

This gap between the time of application necessary to follow t h * ap- rtroved project schedule and the time of actuol availability of the fundsciauj:d tt.e stop- ping of the installation of someunits which had beenalready totally or partial lIye- ceived. Suchsituation broughtupadditicr.Iul, non- forecostedexpenses on storogi;,g, maintenanceand recuperatioIn,notto mentionthe lack of incomeIhct could be generated by thoseunits.

The effect of thete problemssoon became apparent, since, the lock of in- conlealong thc time worsenedye. the liquidation of dueoccounts. .t becamethnn n£ccs sory to call for shotl termcredits .o foce the egrovot.d rinanci ce.!dtions. Thcsr-- ,ont term finoncinc_,contracted under not :o attroctivo ccndition3ca tNhc-c ori:,pir,ally forecasted, led to a debt service griwth, vwich only in p;At wcsco..j ctbyth: ni.ion of funds.

It ws then as.,ummedthut CSN did not receive the fundsforecosut! ft-' the Stage Ill working capital growth. This -way, sinco there was nor calcu!=oion neithaw accountingofanyparcel for capitnl growth, pertinentto the ztortingup of the rnot par4t of the StageIll equimxnernt,it wcasconsidered that the orrcunt yet to be prov,ccd fi.; wu;h an item will be the sarneas forecastedin tha 'Review'.

It is possibleto evaluate, throughthelvNi- and cha;ssprestnted hercin, the unfavourabledifferences year by year betweenthe forescat.t funckand t4owseactt- all, available (suy, free for poyment),from BNDES/FIN,AJvF, eS vcil us ihdŽ .'.ouruubie

differences betw-vcnthe forecaited SIDEREP5AScaFltul additions anul t;oWse i4tally fo- vided.

The tovourabiedifferences on the.SIDI' RBPAS :"pit&il c.ddction-'^re- ie)i suff.cient, in thcir total 0nount, to bulanrcethe unfavouralle doifkrenceson th;: B1,rJEV FlINAMEprovis:ons.

~~~~~~~~~~~~~~~~~~~~~~~I..

Ifca. i4EIIf) s;.-.L.3 Companhia Sid.rgugica National

SOURCESOF FUNDS

us$ milionII oIwn

DAIG BIRD BID WILAT VINAME 8NDES cawJ!c . eertion OTAL

P R P A P A P A P R P R P R P a 1977 179 120 t1.9 96 151 636 229 F88 29.7 128.3 953 1071 6.7 9e 41015 414 1970 37) 9?2 250 62 1586 69 3 140 1 1734 135 4 1099 67 4 75 7 6 1 6.9 873 1 4g,(. 18979.2 345 238 244 472 1109 2t12 1393 2929 1299 1205 1353 110 124 7459 5F lYEO 34 61 23 24 16A 333 465 01tt 4'60 132 450 bS C2 4 ' 19SI .15.2 - 0L.O 42tP( 0 887 382 124 I 51 9472 2777 22 250 52: :1 ,.3 193 .1 . . 16.63 2068 12.8 237.6 2b7 3 21 5 ?f.2 272? 198. - 3.0 -2.0 , 44 4.2 4.4 3.7 116.2 411 *.2R 3; 2.0 56 i 5. i 196S 2.4 . 1.7. ,7 01 - 21.5 157.5 52 1985- - 12 - O.1 - 8. - 17.4- 31' 55.9,

_ __1_._ _ I SOURCESOF FUNDS

BI 9RDBDt Bliterals TFNAME BNME5 Cap.Subsc. TOTAL h OwnGmer. I

s--- !-- 1--- fm X :Xb~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~---~- I ~ I ~~~~~~~~~~~~~~~~III

L on~~~~~iiLJAIJ McJ -< H_S S-tl! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~m......

Forcosted ___. Actua ,, .ae - CompanhiaSidorugica Nacional

6kc SlirkWi

1.12 Intlhe IBRD and IlCBfinoncing,small deviations of US$0.4 and VS$ . I mill ton respectivelywe.-e roted in relition to the prevision.3oth deviations orosc froin the fact that the disbursemienttorms expired wlien CSN did not have;invoices to goiea- ate the cornp!ementa.yfunds. Regaidingihe bilateral fisnuncing,the increosingof -approximate! y US$ 2/million bosical!y occuneddue to i-heva!orization of the yen in rela:ion to I he dollar in the yen loon of the JaponeseExin!bank.

The reductionof cbout U S$ 742 millio;i in, the loca! ioaun-ho;p_rned &ss to the budgeturylimitotions experiencedby the financing entities which rodLeed su l,- static'tky the incomn.

The Aunex8 sho'.mSth3 d.sbuisenentsche'lte for ICNksokn a:nd .he An-i

nex 9 showsih& aquilnmont fine'n^edby .hot l in a coinprariwoLewetve,:. h fore'Kr: in the 'Review' and the ectucdilydonc.

______I_ -69- *ra .A CompanhiaSiJeOrgkac Nacional

F- Procurement and Allocation -of Bank Loan

i. 13 The equipmentpackoges financed by Ia1RDwere proctod b,/ in'tilio! competitivebidding itnaccc-donce with the Bank'sprocuremont guiJelinesvand wi-ii Sr;,zi lion manufacturersreceiving a@15% p r e f e re n c e. I h i s b o n e f zi was applii c' to bids which competedwith othersthat indiccatculless icra SC°' unoi -et,ziticon.

The finncing of these packageswas shared btwe6enIBRr) ijnr! INS ori 60:40 basis, resp¢ctively.

The rewaining eqgiipmant packages we.-%covore- *,, iinc 0I G.- d erd

it in the cuuntries-f origin, of equipment. The linteof credi. fur E-xzlii.:. _qtj§pmn'n 'V,'1 5 fror. BNDF throughFINAME, following tho samajuidelinet. cdoj,tzd foe ,, IFi/ i j

finuncing.This allowed CSN to htnmefit from wider comretiti.n rtrcl e-* t hn quipmcntat morefovo.rbie prices.

Ma4. 14,a,rn f11WhL - 70- 5.. C62U Companhia Sider6rglco Nadonal

AJI the civil con5tauctionand the equipmenterection were bidded and fioancedin Brazil.

ThieBrazilian industry sharing in StageIll, in dollarterms, was very successfulby reaching41,8% of tho packagesfinanced by IBRD/IDBanid 61,5% of the packagesfinanced by the otherline of caedits.

Asu whole, this sharingreoched 51.90/o,say US$ 712.9 million, a- gainsta total of US$1,206.1 million.

Thefollowing table gives a breakdownby supplyingcountries for all e- quipmentand spares procured under the project.(See para. 1.06).

Mo.. 146101 -71- s_r. Companhic.Sidergica Noaconal

* 651 SIKhUS

SOUJRCESOF EQlJIPMENTPACKiAGES *

Bilateral & IBRD IDB Local Total

Country US$ US$ US$ US$ Source Million MilloMiionn % Million %% %

Brzil 37.2 39.3 24.8 39.3 650.9 61.6 712.9 59.1 Japan .34.1. 36.1 22.8 36.1 328.0 31.0 384.9 31.9 Gemiany 10.6 11.2 7.1 11.2 23.7 2.2 41.4 3.4 U. S.A. 4.6 4.9 3.0 4.8 38.8 3.7. 'i64 3.9 Italy 1.8: 1.9 1.2 1.9 - - 3.0 0.3

France - _- - 15.9 1.5 15.9 1.3 Belgium 0.1 0.1 0.1

Switzerlkiid 0.3 0.3 0.2 0.3 0.3 *.. 0.1

England 0.4 0.4 0.3 0.5 _ - 0.7 - Subtotal 89.1 94.2 59.4 94.1 1,057.6 100.0 1,206.1 100.0

SPAREPARTS

Brazil 1.6 1.7 1.1 |1.7 Japan 2.6 2.4 1 .5 2.4

Total 94.6 100.0 63.1 100,0_

( Excludesfreight, insuranceand engineu;ing sen-ices.

Km,. 1461t(I -72- -2 Companhia SlderGrgicaNacional

I..~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

1 14 Amongthe foreignindustries, the Japanesewas that of the greatEst participation, supplyingabout 31.9% of all the StcgeIlIl equipmentcontracts, that is, US$384.9 million agoinsta total supplyof US$1,206.1 million.

In particular,the moinexprnses with the Japones.osupply relate to tlhe followingequipment units:

Equi pment U nits TotalValue JapaneseParcel aponese Fai cc!

USSmillion USSm;illion _

1- Cokeoven cad by-products plant 98.044 45.738 46.6 2- Oxygenplont 1,200 tons 21.917 15 -4C'2 70.2 3- Contin,uouscastins machine 2 and3 63.453 26,169 41.z 4- Hotstrip mill no. 2 270.455 104 855 38,7 5- Continuouspickling lines not3 and 4 72.958 33.916 46,4

6- Cold stripmill nos.1and2 - revump 60.873 20.750 34.0 7- Coldstrip mill no.3 64.306 22.741 35.3

8- Continuousannealing lines rKt.2, 3 57.107 .24.517 47,9 and4 for tinplates _

Mo... 1"16______._ -73 - t:- a Companhic Siderurgica Nacional

GameSILkf!WS

G- Project Administration - Externel Consultants

1.15 The executionof the Stage lll psojectwas preceded of a general planning wheresolutiou were studied for severalproblems, such as: a) Intemratraffic, especially during the critical phaseof the civil con*ruction taking into account rootonly the productionactivities of the pcant, but cAsnthe transportationof great massesof cotistructionmaterials;

.b Most economicalsites for the disposalof excavationmaterials and normalindus trial reiects;

c) Need of concrete, rich and thin, and adaquatesites for r.ev 'concrcet cen- tral8e, consideringthe area to be atkenⅆ

cORds and railways, provisional oa.uot, , attend the rvil.rials handlirg;

hI. 14_10 -74- ti-w5.a 31 Companhia Siderurgica Nackinal

e) Settlementof job sites, provisionallodging and sanitor, installations for work- on;

O Settlementof storagesites for materialscand equipment;

g) Auxiliory services, as mechanicalshops, iron bendingcentrak, corpentries, manitenanceservices for mobile equipment,topographic services, etc.

At the sometime, preliminary CPMnetworks for the construction and erectionof eoch item, as well as specific programsfor the equipmentprocurement were workedout. Theseprograms, which intendedto help the organization of ihe G enerol Scheduleand .to guide the bidding judgement,were up-dated immediatelyafter approv el of the "Review", In 1977.

The above mentionedCMP networksvwere later eniiched with t he detailed taslk reloted to engineering, drawingand informationforwarding, equi pment fabricaiion and transportation,so periniiiing a better follow-up,analyses of tendencies and control of contract terms.

Yet underthe standpoint of global planning, priority wcs given the fabrication, constructionand erection of the buildingsof the rolling mills area, in order, with it, to providesuitable areasfor the storageof equipment.

During the phaseof ordersplacement, there were regular meetings, even ot the level of the Boardof Directors, to follow up the main events.

COBRAPIdevelopped a strong expeditingservice to assuret h e trans- mittal of drawinysand informationfrom the suppliers,by meansof meetings, messages, letters and visits to those firms, even overseas,ull to avoid delaysor, in some cases, even to anticipate data necessaryto carry on the project.

The preparationof drowingsfor the foundationsand general installa- t tions was assignedo contrc4cted locai technicel firriis, just avoiding concentration of serviceson COBRAPIand peatnitting a better control.

M o . H14/011 - 75 - C. %. CompanhicSider6rgica Nacional

6R35 StkIStAS

Thelocal andforeign manufocturers were closely followed u p, with groundon previouslyd;scussed and approved piograms. The fabrication of morecritical equipmentitems, their packagingancd their transportationwere appreciated tthrough monthlyreportssent by the suppliersand monitored by meansof messages,meetingscnd the presenceof CSNrepresentatives in t'ne factories. In the phaseof contracting thecivil worksand erectio'i servces, a pre viousprogram was broadly discussedwith the intereseedparties and telen a pp roved. Throughthis pr-ogram,the monthlyreports from the contructorsand the follow/ing-upby the CSNcontrolling team, it waspossible to check the developmentof the works, to act immcdiateiyin caseof deviationand even So rrmove future prob!rems thiat c oul d hursr.t'ne work.

1.16 CSNtool: parI in thie. Stoje iII projectirmplementation throuvh u relna-X riol s:ructhircaccordin3 to the orgcrtization presentedin the Ann-xes 10/1 an d 10/2 beingable :o operutein tha followingwvork phases: Planning and Control, Pro'ject Eng,i- neeringand Construction arid InstallationEngineering.

However,as time passed,the initialstructure utndetwentchanijcs, includ ing when,in 1982,the Engineering Direclory was extinguished and the expans;cncoorli tiationpassed to responsobilityof treiOperations Directory. Todoy, even due to the acr that the Sta3eIlIl projectis neurcompletion, the moaagerialstructure is morcsimnplified yet.

1.17 TTheCOGRAP's participation gas also very importuntduring Sta%elfl; t'le projectengireering devciopped by COBRAPI,as the enginecr;nz of thielocal equipnm^nl industry,gained a grcaterautunamy, increasing i;s notionalizationindexes in tile cdiffer ent stagesof planning.

In St%eIlli planning p'-uso,thetchnicel-economicst%dytho: wa; tkvel-

oppiedby CSMI,COBRAIvP bIud a significantporticipulion ih: the project review arid t - work, in 1MU6,wit b thc ossis.unceof USSEnjin-aers and CoI sullitS, Inc. (UEC).

Mo'.. 1461,11 -76- fe Zs CompanhticSideru'rqica Nadonal

In orderto cccomplish ihe great numbetof tasksrelated to,thecrngineer- ingphase of the StaoLeIIl project(basic engineering, technical specifications, .procure ment, detoilin3enginieering and suppott to constructionand erection) COBRAPi hod to adoptils orgonizalionalstructure and to cxpondits techriicalteams. *

Asidefrom this, aimingolt te complemenIarion ori the taskforce, C03RAPIsubcontracted about 27: of th3 d3taulingworks. Ore main diFficulty in t his pl-osewas the low capacityof the existingengineering firms, obliuin3 COBRAPI to iloi a greatnumber of them.

Additionaly,os tihesefirmns were not dtily prepaied to c.rrply III ;e 13brc;uirern1nis, COBRAPI hQdto develop u I ordwork vf tidhn.i;n'ionu od teC!ac -.Gl folowI,nq-up.

As soonas tne feasibilityauiici t rip,;o;ysteps oi the iiasic pro'ec:( s-sr cificatioris)werc settled, CSNand COGr:Arl prepored l'ne divi-on of the erjuip.lent ; n i individualpackaoes oF puichiosing.

TheStage Ill internationalbiddings started in 1975,wilh IURD/IDBor bi i laterolfinancing (FINAME, in Brazil),to acquireequipment in the tothl o, ('SS1r,n,IOS0 I ion.

Thepcrforn.ance ot suppiiersand sub-sup. liers duain&tile StageI!I ;Irn* men;alion wasclosely controlled by COBPAi'l.

n respectto externalconsultons, two firmswern contaoctecd ; ha Uei (UI;S- Fn.ineersend Consjllants Inc.) andi;a NKK (NipponKickkon KK.'). h- UC wos rc ponsiblefo.- tecrizrIal specifications, basic lprojects, clraificall?on c I ! retin3,iids exua.i....ion, issuanceoftecr,nicol advica eports,on:1 tecliniccl '.onr,;l-

jt.i- for orcre-fonc!p ;oi,4;in thcipwliod ,. Aptil 1st, 17'75lo A4r;I IC, 19j;l, at a t., til crutof USS3,955,000 for 42,.500vworked hours.

cs14",.& -77- -c&:-a Companhia Sider6rgica Ncional

The NKK (Nippon Kokkon K. K.)wus cootruc'ed in th3 pcriod of Febru- cry ist, 1978to Octol er 31, 1981;at a totot coit of US$6,970, 1O, for 54,63 %vor'add

l ~~~~~~~~~~*l

*Borrower's coments deleted In accordance with Bank Guidelines for preparation of PCRs.

(X~~. !I.D /1"N ~~~-78 - ar ' Companhia Siderurgica Nacinnal

11- PROJECTOPERATION

l~~~~~~~~~~~~~~~~~~~~~~~~~~~

A- Production and Sales

2.01 After conclusionof StcgeIt of the ExpansionPlan in 1977,CSN's Corti productionreached 2.2 million tonsof liquid steel in 1978,. presentingan increaseof approximatelyo. 8% over the preceedingyear. The big effort is now concentrcted o n the complotionof tho Stage Ill Expaniionup to 15987,to reach the production.capacity of .3,841million tons of rolled productsin thatyearand 4067million from1.9° 8 on.

In operating terms,the equipmentIn t-hemetallurgical sector posted goodperformances, however due to the BlastFurnoce no.3 revampand the firsi strike in CSN's history, the productionof coke, sinter and pig iron wor.substantially affected in 1984.

In 1984, besidesthe no. 3 3icst I nQ_iu.erevarplp Iht following equip- I ment startedup for experimentaloperation: no.4 Cod FinishingI ire, no. 3 Continuous

KOh. 146e ol -79- . C2 CompanhiaSlder6rgica Nacional 6msosuteMas

Galvanizing Una, no.4 Coil PmeparationLine, no.4 ContinuousAnnealing Line for rin- plates, no. 3 SlabFufmce of the Hot Strip Mill no.2 and no.5 Coke Oven Battery.

The BlastFurnce no.3 andthe CpntinuousCasting Machine no.1 reer- tered in operation, respectively, in January and December1985.

IThestart-up of thesepieces of equipmentwill practically allow the Plant to reach in 198i the prouction levels c!oser to those foreseen for lite Project of the Stage II of the "D ExpansionPlan, not only in terns of quantity but mainly in tenrm of qual;ty and commercialvalue.

The actual productioncompared with the PRview,since 1977, astwe!l as the production forecast for 1986 to 1989 are presented in the followina toble.

2.02 The historicol salesperformance which reflects the cornbinedefficicnqy of expinsion, opeiation and mark!ctingunits i5 given in Anex1I/D.t

2.03 The Annex 11/2 showsmaterHals purchased for resaleand for proceeing in the Plant;

In face of the sluggishdomestic demand,since 1981,the. Companyresolvec. in 1992to expend appreciable effort to pushsale3 in the intemational rm.trketplorce.

Then;,equipped with the latest pzoductionplant turning out a wido line of qualify products at operating rates comparablewith the mostdeveloped steel-making cel tons, could CSN competein o wide marketspectrum that i n cl u d ed the indussriolized world.

2.04 The start-up of severalpietces of new equipmentrequired the trcin-nr 0 f personnelqualified to operntetiem. Likewise,the ineviiable needto control cost; dc- mandedon-going unreluxed vigi!unce in the humanresources area. A pioglam to rat ionalt ize operating methodsand upgradepersonnel quolificul-ions oppr6ciubly improvestho CoGn pany'soperational pirductivity rutes.

Thctable balow;hows tie evalutionof t harionpower productivity indcx sinco 1977to 198.

Uua. 14660'- ' ,w r:_= Corpanhia Sidori'~rgie'aNacdonoi -

*STAGE'lilP26JECT nCiOUCT1ONReiwci Ryo CIIR IAl Ata eiwAII RjZ p4,A,.

* ?,odvctloo 1978 ~~~~~ ~~~1977 1979 1980 1981 1982 1983 1 984 1 1985 1986 198S7 1 931 I 182 A-Io. A_u1UlwAt* cm eiv'vij~v kto cw o Ae'."fR,wAwl de -#-rq '41i A A.-'&... * UquWSt.4.VI,.t, '2, 2,2,4992416 2,640 2 4600 0 4,2,00 0246200 49620

* Rew * - 4 20 - 212 -23;-23;stper* ,4 3,8 -fO j2.420, O , fO ,0 ,0 ,2).,0 , ,0 j6 4A6004,344*4,6Cw.4ow row for - ;1,92 - .14 2,42-233 - 230 -285- 2,468 13,410 '4,389 4,109 4,389 4.5A04 I Sw-T_Fi__ 4 * 33 39 455 15 519 152 - 421 238 - i1:i 8 2 38 5 4,.o!' P,dcft 34 20 34 12 394 207 400 265 400 203 4I0 196 43 183100 17_0 40 247 4001 202 400ZW 400 02 4.

* 2171~~~~~~~~139 ~~~i**.w%s .219 143 219' 103 220 145 220 137 220, 94 220 lOS 220 98 220 13C 220 96 220 9622022 9

71st P.tdu~~~~~~~~~~s096 004',262g ~ ~ 1,24 W6tI1 2__~05 3.371 2.227 3,3712,440 3,31 3,23 3371 3 N 31713.866 13.US6

25417 277 2129 22" 227 159 382 166 520 1771 702 160 756 254 756 294 756261 756 266j 756 00 75 V

Ord I,A 137 1811 298 23 298 257 356 301' 533 304 Sr3 _SC' .428 tit1 439 1,643 439 1,031 439 1,343 43 i,473 439 i,V4 d3;~ 1,v- C.doledSI...i56sewd 4 56' 55 113 55 113 58 79 341 III 399~ 104 480 150 489 209 489 254 489 560 489 629 437 75.5 A22 740, C-0:. s*-iz.d :-ma.hNW -444lem,plter 178 136 188 10 0 *188' 191 188 191 287 176 -501 193- 531 I 51 97170 38 100 311 100 410 SU0 5620 ' 3 S

cr4 C*iI~~ 48 04 wae 474 4741 5421 474 6061 50 449 634 491 1,125 456 l,l29 524 1,129. 533 10 2 T~~~~~~~~~~~~1atu J ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1,029615 1,029 680 1,129 2C1,103 SW

* . Tota I ~ 0 27 ,2 1,784 1.830j1,969 i.ss 2,21243167326~1,724537128137134851 4,671 13,77t 4 a .nnnnj..r I j.5 t37 ~ ,43 s~~~~~~~~~~~~~~~~~~Wfi 71a2 ,71 -. _,7 *sT I.a- CompanhiaSiderurgica Naciornal

GRIPOSIaLURS

MANPOWERPRODUCTIVITY Unit: ton/ina,n/ar 1977 |1978 1979 1980 | 1901 1982 1983 1984 |1985A

Global 89.32 97.47 106.67 106.23 102.21 106.63 138.17121.10! 152.6 General 97.57 105.48116.71 115.99 108.49 108.51 140.27 123.531 155.2 Operational 155.90179.02 195.21 i76.41 170.13163.18 195.29 167.331 210.2

(*) Forecasted

Global RawSteel Production(Yearly Forecast) Average Own Personnel+ Contracted - Mining

RawSteel Production(Yeerly Forecest) General - Average Own Personnel- Mining

lbw Stee! Production IvForoc st) Operational =-ri AvorogeOwn Personneli Plroduction and Produe.i4nSupporr Arer-s, riot including Personnelin twoiningfor Iow expunskonstages, Peournl of the ExpansionCenter and of Minning.-

The productivity dropobserved in 1984in relation ro 1983,was a ccr.s^.- quenceof I owe r productionof raw steel betweenSeptember and December,due ta the paralysationof the Elast Furnace no. 3 for revampand to the five daysstrike in Juns. If, instead,the tonnageof finishedrolled pioductsis considered,the productivity rate of 165.13 tcn/W/yeor in 1984is better than 158.18 ton/&,iyecr obtaiinedin 1983.

1 Product Mix

2.05 Theannual sales volume of thoStage Ill pro:cctat full c.putati_n it nov. estimatedas of 4,067,000tons of finishedproducts against 3,771,000 tons as rrecasted ill the "Rovv;ew".

Theantecipated produci mix for the comingyears, soy from 1988 rn, irdi- I catesa reductionin non-flatproducts, in comparisonwith the tonnagein'liceter *n t h ^ 'ReviewM. On the otherhand, .t isnow expected a greaterproduction or hot cind co Id 1c.s t. 1 Companhia Sidergica Nacior;al

GRIwOSiLESUlS

rolled flat products.

Thequantities of galvanizedproducts ore quite the someof the "Rsviqw", evenwith the withdrawalfrom opertion of the semicontinuousgalvanizing line and lead coatingrnachine. The present estimates on packingsheets show a lesstonnage rhan t lie 'Review', but a greaterproduct area, due to a thinneraverage thickness.

Theimprovements on the delivery of rolledproducts are duem:ainly to th materialefficiency along the process.Only in the metallurgicolsector, where the Review' I

forecasteda productionof 4,278,000 tons of semi-finishedproducts, the presentes t i - matesindica te 4,451,000tons for the somequant;ty of liquid steel,with an apparent.4* % growth.The rolling mill is responsiblefor additional4% gain in the do!lvery.

Thefollowingtabe cotmpoareshep-oductnmixfor'-eenbythe 'Rview" witl the presentlyestimated product mix for 1909a.nd not for 19k thcf year o. fill opetrm, tion of the plant, becautein 1988there will be anovrhoAuhngof the Bla:-Funioceno. 2, with the cor,:pondingproduction of 4,344,000to&is of liquid steel,instead of 4,600,000 tons.

&4.*. 3401*S ,83- c' i i.s Comparhla SiderurgicaNociunal

Ca;wa SIbLCW

PRODUCTMIX AT STAGEIll FULLCAPACITY

Review Currsbt ijmates

Products 1984onwards (1989on) 1,000tons % 1;0 ) tons %

LIQUID STEEL 4 4, RolledProducts Semi-finishedand Ingots _ _ Non-Flat Products 400 11 202 I 5 Railsand Accessoeies 180 5 106 3 Structurals 220 6 96 2 Flat Products 3,371 89 3,8S565 9 Plates 756 20 270 6 Hot Rolled Coils and Sheets 439 11 1,274 31 Cold RolledCotis and Sheets 489 13 756 ;9 Galvanizcd ShAgtt and Coils * 558 15 565 14 Non GooteciSheets aprd Coils (Block Plates) 100 3 120 I 3 lin Plates 1,029 27 80| 22 Total 3,771 100.0 4,067 100.0

2.06 The smtalla offer of non-flat prodicts in favour of a greater offer of t he flat ones is due lo the fact that the Gompanydecided not to compete,in the future, in the marketof rails and teavy structurals,where the presenceof other producerswas expLcted.

In consequence, CSN did not implementthe changesnecessoryto incre.se the productionof the structuralsand rails tolling mill, w hich slhouldbasically involve alterationmon the prcjects of 1hecylinden:; for the 3 -stcndi, optimizing thoirnwifth t tio intermnediaterolling mill. So, CSN centalized the offos in the flat products,produced by modem equipmentand, in consequence,more competitive.

Additionally, since the 2nd half-year of 1985, CSNtook stronR mcesues to reducethc prrporitionof productsout of litic and :t-!l othersoim;njI to the m=4-.etinc F| moreprofitable products,among then. noblnr produ:s ond piching s!ioetsof smllor Il.c'.! nesses.

ME., 146101 a;;2-aCompanhia Sideqrgica Nadconal

Thetable in tho next pagesihows the *xpectedeffect of suchmoa*sures on the growthof tho avemgoprice of differentproducts, comparing the presontsituoionwith that forecastedforthe yeanafter 1988.

MoF.10I6 -__1 CompanhiaSider3rqica Macional

PRODUCTIONIMPROVEMENTAND CONSEQUENT AVERAGE PRICES GROWTH Unit %

Situction up to the ForecastedSi'uotion - 1st hloff-Ysarof 1985 for 1988and on Aveaoge Wer reason for the Avera9 Prociu cts Ponoa. GranGnrIe. aml se GrowthPretcoe Priceesnfo Improvcnt h vrg Out of Line and Nobler Out of Line and Nobler Products Frolucts

Hot Rolled 30 70 3 97 10.3 2% increas on generaluse productsand 25% increaseon. oobler products. Cold Rolled 15 85 3 97 9.2 30% increaseon nobler products Galvanized She.ts and Coils 11 89 4 96 9.6 Thicknon roduction,stamping i'm- provemont,streight improvement PackingShett 14 86 5 95 108 Th;cknessreduction.

,__ee = P______t^ ' O'g3C,/2b ! 3 ! _ ! _o_ 4. _!_i______1_,-_I_j_s_I_!_9_i ______i i)' .Secceoe.- s'e P'anejcmcntzo Pok ~~~~~86- i .w Companhia Siderdr9lca Naclcinal

RW'OzIkIIRSS

2- Price and Cost Relationship

2.07 The actual relation betweenaverage direct cost and avera "e price within .ne period 1977-1985compared with the Reviewwas higher 6cch yecarancd . va;i- able betweenthe minimumof 0.54(1984) and the maximumof 0.67 (1982),wvith an over oge variation jf 0.61. The variation foresawin the Reviewindi a.o,da maximumof 0.55 (1977)and a mrrinimumof 0.47 (1982),with an averageof 0.51. The folhwing iab4eshows this price and cost relationship.

CSN: PRICEAND COSTRELATIONSHIP

US$ (Sepicmber,176.) . SolesAv6rage Price Averago Direct Cot | Rclation Cust/Price Years PerTon (A) (*) Per Ton (B) (*) ( PA)

. - r Actual Review Actual Review Actuol biev1ew

1q77 456 418 300 231 0.6S 0.55 1978 373 418 234 215 0.63 0.51 1979 377 418 232 215 0.62 0.51 1980 381 418 244 220 0.64 0.53 1981 379 418 233 212 0.61 0.51 1932 351 418 234 198 0.67 0.47 1983 283 418 165 204 0.58 0.49 1984 312 418 175 202 0.56 0.48 1085 316 418 171 - 0.54 -

Note: 1) InternalPrices, incldes saies tax (l'Jv, exterm.\ pricoson FOa b6tis. 2) TheAverage Ditect Cost includes ICM on the moterialsand doesnot includc depreciation, provisionsand other fixed costs.

2.08 TrUditionally,the eseelproducts hove fheir prices undercontrol, in 'rder to help to keep back the inflation.

From1974 to 1978,approximately, Iho price adjustmentskept pace w i t h the costsevolution, but this did not happenedduring the succeedingyears. Fromthb 2ndi. half-yeor of 1987, whenthe inflation ratesbaLcme too high, the price adjustments ii:d

.~~______-

.. f 0 -87- Mla Fa Compankia Sider6rgica Nadonal

no longerfixed and dateminote data to be applied,and pnsodto be grnted in purce!* on datesconvenient to the counterinflationiaryp o Icy O ny I n 1983,the stc .1 productspriceturnedtokeeppacewiththeinflation.frcknth3rd.. quarterof 1984 on, the accumulatedprice adjustments redched higher mrors.

In the periodup to November1985, the steelproducts price had a realin- crease.

It isworth noting that, frequently,the priceadjustments for tha steelprod uctswere authorized by the Governmentwith a greotdelay in relationto the expfcted dateof application:this causedlosaes of salesincorne, besides a growthof CSN's short tnintdebts, since such adjustmcnts fall behindthe growthof oosts.

Tkoughthe tolloving tableand charts, it is possibleto raolize, in regord with the domesticm=1k<6, that the priccadjus'ment rates of tho smni-finishcdprodJcts, rails cnd accesories, structumisand bors, galvOnizoaend leadcooted shecis-r!d coils5 and also the non-coatedflat products,werokept bv!ow the WioleanlePricez i dex (IPA) sinceSeptember, 1976, when it wasexpected that tle pricevariation would kccp pcca with that index(IPA).

Rogardingthe coatedandnon-coated coil: andpacking sheets, their Price adjustmenirates, up to 1982,were indeed higher than the IPA;however, this sittiatic:n wasthen inverted and ir; that year,theaccumulated price adjustment remnained blcwthle IPA.

Onthe whole,it is possibleto noticethat, by the comparisonof thoeAver agoWeightedPrice Index of the CSNproducts with IPA,there were threedisiinct phases:

a) from1976 to 1979the priceadjustments were, in general,higher than tfio IPA variation;

b) in 1980and 198), therewas a bvlancobetween the uccumultcd p;iccovera tion andthat of IPA,and

it IPA= "ndico do Pragospor AIocado". (Wholesole Paico Index)

W m______L7 a c , Companhia Siderrgria Natonal

c) sincg1902, tho priceacc-.mulaied adjustment were lower tlh2nthe corrosnondingIPA variation.

Suchbehaviour of the pricoadjustment in relationto tho IPAvariotton rep resenteda lossof aboutUS$315 million in tie CSNsale-, income, only in the period from1982 to 1984.

Mooa. 1461q9i c::n Companhia SiderCrgica Nacioral

PRICEADJUSTMENT INDEX AS AUTHORIZED'BY CIP

Semi~ Pollsand Struc1urols.Galvani;ze led |b Coatedo Weighted Wnlolsale Av.raS PricoIndex finisyedfinine6 Acc.ssoriesccotoosand and B ars SheetsCloilsand SheetsCoated T;nplates. SheetsCoated ProducSets) Index9 (IPA)

1.°76W 100 100 100 100 100 100 100 100 . 100 100 1977 125 127 126 123 124 167 156 125 147 128 1978 168 161 159 148 158 225 201 168 196 178 1979 245 229 226 210 230 348 335 245 295 277

1980 442 418 412 382 422 672 653 442 558 579

1981 g 1,005 942 934 864 93.3 .11497 1 479 1,005 *1 250 1,234

1982 | 1.,959 1s845 1j841 1,715 1?801 2p465 2,211 1 969 2,191 21394 1983 41834 4t528 4p522 4,219 4,421 5,432 4y772 4y834 5,060 67336 198A '6,912 15,105 15,3191 14,216 15,727 i9r733 17y334 16,912 17,997 21,095

1965 77 339 69,745 70,017 62-456 74y'81 ;193 77-472 77 g01905 179-

p*) Sept6mber (.) October

- !O;j75i7Y/6 ~J21I1 4jJ7I 81o io1 Se4r~clrctcth.de P1-.l;joCPOn!o r-,L Companhia Siderirgica Nocional -_--

I PER-CENTDEVIATVON OF STEELPRICES IN RELATIONTO THEIPA (Whol9sale Prices Index)

.- _~ Somi-Railsand' iructrals ead Non Coatd Weighted Year Ruissznd Stncturads Ij S tSemi- Cocted Tin plates Coated p VdctiAvorage RFinishod. Accessories and B irz S'cQtS|f Sie,ts I 6 Sheets) Index

1976 0.0 0°0 0.0 °.°0.0 f 0.0 0.0 0.0 1977 (2.3) (0.8) (1.6) (3.9) (3. 1) 30.5 21.9 (2.3) 14.8 1978 1 (5~6) (9.6) (10.7) (16.9) (11.2) 26.4 12.9 (5.6) 10.

1979 ; (I1.6) (17.3) (1&.4) (24.2) (17.0) 25.6. 20.9 (11.6) 6.5 1980 1 (23.7) (27.8) (28.8) (34.0) (27.1) 16.1 12.8 (23.7) (3.6)

1981 (18.6) (23.7) (24.3) (3O.0) 1 (-4A4). 21.3 19.9 (18.6) 1.3

1982 | (17.8) (22.9) (23.1) (28.4) (24.8) 3.0 (7.6) (17.8) (8.2)

1983 (23.7) (28.5) (28.6) (33.4) (30.2) (14.3) (24.7) (23.7) (20.1)

1984 (19.e) (28.4) (27.4). (32.6)0 (25.4). (6.5) (17.8) (19.8) (14.7)

1965 (11.9) (20.6) I (2.2) (2§.9) (15.5) 0'5 (11.8) (11.9) (7.8) _~L..iuqr.iiJ _ . - )JF.tember 'l) October

i'01/O9/86 21 III 141 . i. _ _ 51 !71 19s jii Sccr'etc'riotfi tte.;3mn r \ - ~~~~~~~~91_ r ir t'I Companhic Side,Urgita Nacional

WEIGHTEDAVEPAGEINDEX 20

' ~~~I °o 20 5

10/ SEJMW-FINISHE-D 0 77 78 79 80 81 82 83 84 6 20 1~~ 71U I.'

30 RAILSAND ACCESSOMJES, o 77 78 79, .0 81 82 83 84 85

30j STRUCTURALSAND BARS 0 * 77 78 79 80 81 82 83 84 85

GALVANIZED SHEETSAND COILS | o 77 78 79 80 81 8283 84 I

30.

* Moo. 4010 rr s Companhia Siderurg5caNacional

PM six Uds

(%o) LEADCOATED SHELTS set. 83 84 85 I ~~~~76'77 73 79 80 81 82 10

30 .,TINPLATES|

30 NON-COATEDSHEETS (81.ACK PLATES)

10- 20 1

NON-COATEDFLAT PRODUCTS 0 1477 78 79 80 81 0285

30 * -'3- l -,e Companhia Sider6irgicaNaCIin

GWARS1KW)AS

It is irmpoeantto mentionthat the prices in the domesticm:rkut were, on

the average, lower thoti thoseprevailing in th6 domesticmarkets of England,Japon c: nd USA,as shownin the following table, where tlhe typical productschosen have thc svtecifM cation tlere indicated'

INTERNALAVERAGE PRICE COMPARISON OF STEELPRODUCTS IN SEVERAL COUNTRIES

, * US$/ton. AnQo Typtcl Products. az2il U. S. . England Jopon

Plotes 401 572 595 419 19o Hot Roied Products 407 552 544 443 Cold PolledProducts 400 510 567 464 Tinplates 712 733 891 759 Strudunl Slhapes 274 45A 501 401

568 429 379 330 ts 0Iled Products 507 611 462 487 ivci Cold PolledProductl 497 562 480 I $70 Tinplcies 370 I 780 772 776 Stvcturol Shop.s 340 529 469 1 411

Plates 492 469 48% 397 Hot Rolld Products 498 627 464 442 1982 Cd WoI!edP educt 4S8 574l 490 423 Tinplotes 747 854 772 714 StructuralShapes 343 585 441 354

Plotes 343 686 424 426 Not RolledProdu:ts 347 678 422 478 1983 Cold PolledProducts 340 622 456 453 Tlnptest 476 859 675 781 Stndurti Shapes 239 550 383 337

. Plates | 324 698 423 424 Hat RolledProducts 1 34S 712 385 A77 1984 Cold Pclled Produds 337 653 417 452 Tinpictes 498 S05 669 760 . Stn,cturl Shapes 242 506 336 310 Plates 3Q3 698 4;J9 403 Hot RoHladProducht1 327 012 380 453 1985 Cold PolledPdu 333 15340S 429 1 Tinlates" | 479 8S7 617 758 StrucourlShapes 234 527 1334 319

______I__ I~ - ______

Mt..i 4,i *t CompanbieSideu6rgiee N_HsI

Typical ProductsSpocificatios:

Plftc. ASTMA-242 - Typo2 12,5 x 2.20Dx 12.000mm Hot RolledProducts ASTMA-606 - type 4 2. 0x 1.000x 2.OO0mm Cold RolledProducts ASTMA-620 1,90x 1.200mm Tinplatos Thickness 0 25 enm- Rev. no. 25 Hardness3 - Con,momPacking Dimensions711 x 914 iam StructurolShapes I Boom- 100(254 mm) - I st web ASTMA-36 - Standtrdleiigth

In surmlnasy,CSN obh-.ned a soleoverage price per ton sub5.anticfiylover thon.theprevi:iorvwhatwas- caused, in ne harnd,by a price controlpolicy qnd,in the otherhand, by havingused a lessrichi mix than the prevision,the latter havinga higihor incidenceof coatedproducts.

Regardingthe avotage direct costpc-r ton,asshovoninthetciblc 1item 2.07, ihe actual volus were lowerthGn those foresseon in the Reviewin 1S983and 1984, t h is rsflectingthe Govemmentalwagas control pol;cy at that time and yet ci poorer product mix, -oy,one composedof productswith productioncosts lower than ihoseof tho forecc;st admix. Thiseffect wasincGreasod by the purchoseof rcvwmaterichs and o t ho r. i t em s at priceslower then foreseen.

As consequence,the tableahows co=V/price relationships higher, in rao I terms,than those foresseun, although, at the endof the,period, such relorionship hecamcr raiorefavormble,due to the alreadymentioned inrieovarannt of the price c.diustmcnfpoli- cy.

M.,-,. 14a1 svi : 's - 95- VI ' Companhia Sidtrdrica Nacional

In theextenal morkot, theorwere lowor prices from 1977 to 198Q as c'n I sequeanceof a crecatrr proportion of semi-finished products. Since 1981, the prices l;acama higher, in viow ;of the replacomnontof semi-finislhedproducts by hot rolled productsand to the increasing prose;nceof coatod flut prouuc4 in) the ;xporis.

cliN It-l4' ; I -9'- F a i ComponhiaSider6igico Hadonol

3 - Prodtiction Cost

i.09 The comparisonof the direct production costs accountedin 1.5 ! (averarieof tlicperiod of Januaryto Noveniber)wih those foressen in t h e 'Review",as si,owriik tne iollowiniq table, indicatesi for the±most oroducts, t.hat thc present averaoedire_t p:oduction cost, in real tenns, is 'ower t;hI.n that.foresLan in the "Review", due basically to the real wagelosse:., AS a corlsiMlenceof qcvern-..ientalwages policy, t:te overestirntion of rav:raterials prices in the "!Review"and, as well, to the Pffects of tria excihancrepolicy, in the period.

C. . 4 :i3t. CompanhicSidor;6rnica Nocional

Dixr.CT:-.-iUl(I:l COSTIII DOLLAP.(Sept.,76 PERTCi.-

FORvSI1ILALRP.tODUCTION ("REVIEW AND"ACTUAL")

Liquid Stcel l'rodut | "Review": 3,189mrillion tons "Actual" (Jan-NCv/&8r): 3,1MOmillicn tons

P R 0 D U C T 1981 A B_ C B-_,

1 Rails anti 4 cessorie: 17i 178 104.1

.t-ediu. am. lIeavy Strictuvrls 173 150 86.7 Plates 13 laz, 167 123 73.7 | Coils (plates) 165 125 75.Ez

tlot rolled coils - ;ot pic0:led . 176 133 75.6

htot rolled sheets - lot j;ickwj 181 - 5 29 71.3" Cold rolled coils 196 167 85.2Z Cold rolled shieets 221 3.83 82.£ Lead Co4ted Sheets (Terne plat:es) 371 266 71.7 GalvanizedSheets (bi"nersicn type) 290 269 92.6: ContinuousCalvamiized Sheets 268 275 102.C ContinuousGalvanized Coils 256 244 95.3 Non-CoatedSl,eets (Black Plates) 229 214 93.4 Tinplates 2n8 252 8,.5

AverageCost 2.2 t71 ThO |

Nlote:The d.rect cost doe;z not inc!utic ar.-,,,nts o; 'pr2l1 't;ct, pro,1.irI5onie ot.lwr fix costs.

Mot.. 144 01 -9- ¢ i r: z Compznhic S;ierrrgicoa N Jotoal

2.10 wT&taba hpnlnw 1i7nw';1i1e rcAl Drice variations of roweciateriA1 vricet and wAnvsbetw:eer 197? and 1985.

,tCALVARIATT01;iS (OI lirr:r- AtUnrM:Tr91.L PRICIT.S

, ~~~~~~~~~~~~~~~~~~~~~S"...N, 11..F;, t RCTlL StP.^,G I;' TCti I PRILFS T~~~'IOTALCnST ,;. 4C.Ai TiCI. UNIT -. T------___

.FNIEW br 21985 ',. .!.t;-9 Rz>2 . 1 9;S:5* 5

;-g¢'s .-';] Zo;:ia] Ch!;?i-~S US$/5 Z 463 -12.1 28

t.- C0i'( ;, (tJ;:: {tsShfrl 80 64 -20,0 3 1 3j i",:( * * 6346 -27,0 7 3

I! ;l 7 7 -12,5 9

10 6 -40.0C 3 2

i :1rrj-A';I.. .. y \s .n506 450 -)-1I 51 2 3.,130 9,652 --26.5 8 | 4

5.) . It 1,406 928 -34.0 4 5

flue) C. i ., 60 118 +96.7 3 4

Elertric Power U^ 12 . -16 +33.3 5 8

1.vi r;:-e (ost US$/t.n 120 111 -7.5 2o ilo3

__ ._._ __ _ 1_ . .

Rcv;ew- 1977 - =2, 484 'o!t3l1f r Jan A.OV. 1985 =3,189 r.vii ion tons

.______..______.______.______...______.. ,,______4S, r : .a Companhia Sider6rgics aJodonal natos9itw.UAS

2.11 The unit price of the direct matipowerr;:al wagesis lower about 12.1 thait thc prevision,reflectingthe effects of thc real wtagereduction by governr.1ePte1policy.

Regardirn thie raw materials, the actual prices were lower WLan tie Reviewaind their coiiversion ir.to dollars contributed to reduce thc,i more vet, due tn the "crtuzeiros" I1iaxide:.ilvtin,n occurree in 1979and 1983.

Theoil price, on the contrary, was increased, as a conse- rquenceof the effects fronmthe internationaloil crisis.

Finally, the electric powerprice was higher than the prevision as it reflects t;ie ro.ernric,nt policy of n.aintaining the real val:se of tive pub

The Cc;7parkvec-veloped iimpurtant provr.ins to roduce the con;.;- tior, of slectrinr p r-ie aJd oil, t i e iract icaI C.'-ev.ePinnts Ir sloiri i , t5e lollowia, charts:

E\'O' U ION OF CSN's 'Y-CIIFIC OIL CONSUMAPTION

K&Aoli uid Steel 2A0- 260-- t- 7 ---- 240,

220~~ 160 \4 .ii 140_. _ _ t 1-°°An\.-----

60 - 40~~~~~~~~~~~~~~~' 20 .. j .x

76 /7 ;"3 '~ 1.i~y-rl - o 7 - - - -- ______i_,.,__y ___ - 100 - -a.t Companhic Sider6rgica Nadoiwul

.An $Ik13AS

EVOLUTIONOF GLOBALPOWER SPECIFIC CONSUMPTION

Mcal/ton liquid Steel

10.5O00 _ - _

10.000-- - -1_------9.5W0 _ .- _._~ 1_- 9.000.

8.500 - - - 8.000 -A- 7.500 ' . _ tl 1_- 7.0G0091 ;- -\ttN7 I.

6.500 * .

76 77 78 79 83 81 82 83 84 85 yccr

2.12 Thereduction of the real costof productionproves that therewas a small efficiencygain, which is difficult to be measured,due to the followingrcasons:

a) Theprices of monpowerand of the rmainraw inaterials were actually he' s the previson;tne conversioninto coliars contrinutca nioreyet t.) re- ducethemn,due to the "cruzeiroc"maxidevaluationlsn5hich occurred in 1979and 1983.

b'Ile mix effectivelv sold w!as less rich ttian the orevision.

Mo14.14Af(.i -101- . -ii.-u Companhic Sidwrgica Nadonal

B-Financial Results and Return on Investment

2.13 Theoverall financial performanceof CSN between 1977 a n d 1985 is sho4n in the financial statements(Annexes 13.14 ond ,5) andin the following financialindicqtor toble. in order to comparethe financial perfoewmancewith tV.eReview,de- flators refetred to Sc-ptcrnber1976 were used, as shown in Annex 1211.

FINANCIAL PERFORMANCEINDICATORS

1977 1981 1985

I t em s Review Actual Review Actual Review1 Actuoi (g) (Productienj

Production(thou- enr:dtons)(a) 2,146 2,009 3,189 2,4281 4,600 3,,'G

- ___ . . . j _ US mrnion| Items Real RealW) . Real Real(t3 Reol eal(x) 1976 1976 - rrurit 1976 1976 GCre 119760t '1976 Cuint

Net Revenues(b) 7T6 739 767 1,6:)7 672 99 ?2,950 11,157 1,271 Costof Goods . Sold (c) 452 456 474 1,002 433 619 632 634 C97 Not Profit Before Taxes 8 47 1i9 115 47 67 427 (12'2 (156) Net ProfitBefore Taxes/NetReve nues(%j 1.1 6.4 6.4 7.1 7.() 7.1 14.A - - Total lnkrnal Cash Generation 81 106 110 192 1B6 221 699 (p2X | (25t)

(a) Total Liquid Steel (b)Includinn TC..Aad rpvwntipeufrwr.rosale of iwiioorted pro;iucts (c) Including ICM (value addedtax levied by state andlocal governmenKi)and cost of imhportedproducts. (*) ue18tod val;s~ in accordancewith the tdbleprcpares by CSHt P1-'nrlir. Secretary

ch;}e d:~nt:e of the 'Control RRport-convet:;ionusinn .vrerageex- cMw.., rate 14GG-16/885) - 102- r a ;p CompanhiaSideruroica Naclonal

Comparingthese results with the Reviewit couldbe notedthat a favorable posttiononly happened in 19/7.

In 1981,thesteel consumption had a strong impactfrom tho establsked an

ti-inflationary policy, reducingthe large governmentplans and retracting the consumption of the main steel products,leading the buyersto scheduleagain the,ractivities ta4ing into considerationsubstontioi cuts on ordersto CSN. The cost of c-oo.is sold tias influenced by this sales t-ductiol, and the net profit before taxes still reflects the operational expenses above tiheprevision which are predominanitly composed by financial expenses.

Regarding 1985. the lower results cbtvainlid in tl.e first i a 1 f were due to a stcel production low!er than that schc-duled by operational prob- lenS(no.3 Bl;Jst Funnace stoo) and by loss of Pjrojfit ;,!argin due to. t h e steel product prices that wiere atuthorized at a lcvel belo. tl.e expected c,one and retarded in relation to the gro':th. As also noticed, the exportaticn3 was lower becauseof prohlems related with the opening of new ttade channels thien forcedby some traditionalmarkets, which imiposedreduced quotas to Ct.|

The cost of goods and services sold follows this tendency a n d the net resultbefore incometax was negativedue to high operational e x - penses,where the financialexpenses, reflected the high level of CSN debt.

Though the indicatorsshow an unfavorableperfoniance for 1°85, the perspectivesof improvementwill depend on politicaldecisions and also on exogenousfactors cuch as prices Policy,domesticmarket perfonrmance,inter- nationalconmerce policy, interust taxes (Libor,Prime Riate)and possibility of exploringnex potentialmarrets.

2.14 As a consequenceof the mentionedfactors (low incrementof the real price in relationto the real increaseof costs, reducedproduction level in comparison with the Rovie;, less rich mix by imposition of the mar:ket), the net incoameof good5 for;-.'J for 19P corras-'onJl to 3').T, of tie .\ | esti!late, vohile the cost rer;iele! ?.fi.3.. Tho total internal casn qencrat ion - 103- cg~ 'ts ComponkliaSidor6r9ica Nacioncl

forcsaw for 1905 is USS 175 million nenative, which is SuOstantially 1 o - er than USS 69S9mnillion positive If the Review, and still reflects' t.ie high operationalexpenses where the financialexpenses stand out, due to C9'.high levelof shortand long-termoutstandirn debts, as ;e11as to the unfavola'.le inflationaryeffects expected for 1985, as a result of the exchange and nione tary correction of CS'Nbalance ol payrients.

2.15 The following table comparesselected financial indicators verifiedbetw^n 197Uand 1985(impiementotion of StageIll) with thoseaiticipated at fhe Review:

SELECTED FINANCIAL INDICATORS

1978 1979 1930 1981 lte rs

Items j Actual k-virwk WeviewActual 1,RbVCeW9 Actua l ReviewIActuMI

Current Ratio 1.37 1.19 1.09 1.04 1.03 0.73 | 1.0 | 0.60t Debt/Equity Ratio( ) 59/41 53/47 60/40 47/53 56/44 50/50 51/49 43/57

Debt Service Coveroge 1.70 0.79 1.01 0.24 I 0.91 1.02 0.o9 0.6i 1982 19 83 11984 1 935(*) Items --- Review Actual Review Actual keview Actual Review Actual

Current Ratio 1.13 0.51 1.19 0.57 1.30 0.68 1.43 0.61 Debt/Equity Ratio( ) 45/55 45/55 41/59 34/66 36/64 37/63 31/69 46/'54

Debt Service Coverage 1.11 0.37 1.64 0.81 1.86 0.72 1.43 -

(*) CSN Controi Report - 1985

(1) Includes advanced capital contributions from SIDERBRAS

2. 16 In general,+ne comparison shnws that the financial position of CSN wo ok ened along tthe period. The decrcase of the current i-dtio refleJ.s tile eff'-.*s generated by several fi-ctors.such as: less richi mix th.n that fore.cifled:

Mo.s. 148101 - 104- ac Sa Cosnpanrh; Sider6vglca Naconal

GVQ SIRW*USA

recessionin doiesticand foreignmarkets (the foreign markethurt by protec- tionjistpolicy), ands regarding the domestic market i governmertalpolicy for thesteel prices that &uthorizedlo-wer prices than expected and retarded in relationto thecosts gro:th.These factors which caused the income drop- ping,contributed to increase CSN's short-term debt, affecting its liquidity.

The Deht/Equity showssome improvement along the period..with a slight redjctionin thelovq-term liabilities and an increasein theshare ca pital.anidreserves, nowever, w/ith insufficient funds supplied for future share capital increase, considering C5"'s necessity.It is expectedan unfa- vorableposition it, 1987 when comparedwith the Review. Only in 1982,'.tk debt /Equityrelationship was equal to th;atof theReviet.

TheDebt/Service Coverage shovws a biggi-r anc! b;nger distonce from the forecosi,basicolly reflecling the low internolcash generation, !ong-term debt level and insufficienitresources fron shoreholders(SIDERtB1P.S), causing inclusive tlt- sucessivecle- laysin the Exponsionprogram.

2.17 Thecalculation of the finoncialrate of returnon the StageliI investment (Annex16/1) was based on the followingcriteria:

a) the projectperiod of life wasassumed to be 18 yearsstarting in the year of commissioning; b) the costand benefit streams were calculcted in constantmoney referred to Sep- tember,1976; c) the puoductioncosts were those indicated in thieSIDERBPAS Financial Projec- tions- Hypothesis'E" (November,1985). These projections weoe prepared with the objectiveof gettingoptional operational resuits, which coverednot onlya aignificcntmtduction of the unit cosis,but alsoa betterproduct quality anda noblermix;

d) the incremce:'alindirect costswere considered, each year, as the sun of the incrementaladminisirative at-d salcs expenses. Tl.e incie;ner.dcl irdirect costs adoptedfor the yecrs1983 through 198.5 were those correspOncling to effective

M. 146/C1 - 203 - i: r.~ ,.Companhia Sidenirgica Nacional

| expenses.For the years1966 through 1988, iheadopted values wore taken fromthe SIDERBRASFinancial Projections - Hypothesis'E' (November,.198N) . The value indicated for 1988was kept constantin tho yeoroah¢:d up to the endof the period; e) the net soleswere calculated with busison the quantitiesand pikoes indicated in the abovementioned SIDERBPAS projections. The latter, for the dornestic rmarket,considered a pr;ce increaseof 5% from1987 on, dueto a productm i x improvement,and mnore 5%/o from 1988 on, as explainedin the item2.06; oit wasasrur:eed the recupem.;eion,at the endof the period, of the workingcopital anclof 10°oof the SlageIll total investments.

2.18 Underthese osavm. ptions, as cilculated, the financial rotc o f retturn anountsto iO.4S%, in comparison with 7. 9%;, as ostiralated in the "Review'. ThmvM a in ccusesof suchvariation are assutned.o be tht rmcuperation,at the endof period, of the working capitol andof the amountcorrespondiiig to 10%of the Stage Ill investments.

Mob. 14e/') Y;wg".% ~~-106- ir.:. Companhic Sider6rgzca Nadonal

C - Economic Benefits of the Projocr

2.19 Thecriter!a for the calculotionof the economicrateof returnof the Stage III investment(Annex 162) wereas follows:

a) the projectperiod of life wosassumed to be 18years from the yearof commissioning;

b) the foreignexchange was shadow priced by 20%, includingir, the exportsubsNi tution; c) the costand benefit streams were calculated in constontcurrency (JS$)rcFerrod to September,19764

d) the adoptedproduction cests were those of the SlDEP3lRASFinancial Pr'jections - Hypothesis"E" (November,1985), affected by the shadow-pricingof the im porteditems and of the exportableiron cre with tic ocluSicr.of all taxc5and duties;

Mo.s. 14610h * - ~~~~~~10' r i c a Companhi. Siderurgicarlacional

NmrSIIAISAS

a) all the parcelscorrespoliding to taxesand duties were excludeKof the capital costs, but the loiter were affected by the shadow-pricingof the imporied items.

Thegreater reductionthot car, he observedsinco 1988reflects the cancel loaionof fiscal incentives linked to the Stage Ill;

f) the salesrevenues were calculatedon the grcunclof import prices CIF-rio deJo neiro for the productsof the CSN's mix, affected by the shadow-pricing;

g) the working capital and 10%of the StageIlI investmentswere assumedto -be recup,eratedat the end of the period.

2.20 Thc calculation of the salesrevcnues WtusJ de 1in accordancewith the following importp.;ces:

IMPORTPRICES USS/Ion'

Product |FOB Vclue I Freiglt | Port Rates CIF'/R

* ~- ,-j_ I Hot Polled Flats I 240 24 1 21 285 Cold Rol'ed Flats 310 24 21 355 Galvanized Sheets 400 24 21 445 PackingSheets 570 24 , 21 615

2.21 The 'Rev;ew" doesnot pres,';ntfhe esth;..iteof economicml e of return of the investment.So there is no date to ble comparedwith the econotnicicle of retium of 13.58%, as calculated in th - Annex 16/2.

i M~~~~~~~LOD.tiC/rol ~~~~~~~~~- 106 - c M Companhia Sider6rgica Nodonal

003SIDEW&hS

2.22 Thisrmte of 13.58%,if compared,however, with thatof 17.0% estimated in the "Appraisal',shows itself quite distantfrorn the lotter. Sucha distancecon be ex- plained,ma;nly, by the fact that the Stage1II project, which wos executed in live wiih the 'Reviev;",substantially differs from that designedin the "Aopraisal". These differ- encesshould respond for a greaterin"luence of the factorswhiclh would contribuie to a re ductionof the economicrote of return,such as the projectdelay, the shadow-pricingand the higherproduction costs, capital cost and working capitcl, thanthe factors w hi ch wouldcontribute t. on improvementof that rate, suchas the increaseof salos revenue andthe recuperationof the workingcopital and of 10%of the investmentsat the end .of the period.

2.23 TheStoge IIl projectincreased the genuroaeconomic effects thot brought to the country, principally,through thc stimulationof the devocopn.entof the capital goodsmanufacturing sector. Thesupply to the steelindushy of equipmentmnnuFactured byBra =i I i an firmsilon3or in consortiawith foreignmonufacturers,increased substantially since the expansionp-ojects of the steelplants have started. As far cs CSNis concerned,the participationof the local industryin the supplyof equipmentincreased from 10% in theStage I project(1974) to 19%to 19%in the Stage11 project (1977) and to 69%in the Stage Ill project. In recentprojects of modemizationat Volta RedondaPlarnt units, that partici- pationwas almost total.

mob.. 140101 /.5E ~~~~-1W- t- r* Companhia Sider6rglca Nodoi.

D-Environ:enolo Aspects

2.24 The StOgeIII exFons;onprcfect comprised several pozluticr.cb-,teen& it cilities, whichimprowd the environmentalquciily in the areain.Iuenced b the ac:tivities.

Thisir.fluence may ba cl=ssi.iedas locol oad regiorol.At sh, lo;cl l'evei, the plant is surroundedby tr;c city of VsoltaPe.odn-Je, _-.d lha . tl;roblcrnspnio .. - mwseiatLdwiih air psollutioncoeQ noise . At tiie regional level, the p5cnt's lItquid t1et are dischargedinto the iPcrai.-ado Sul ;e,sh: wcirena-e used -'ort.'-o doi' ^.u- Cioanof 10n ..... ioa 5 noia:-......

The-Co.rpor;y is investinrein its S!age III-Expension- th-. etmonfu. c USS123 mill1.cn in poiltutio.eccnfrol equip.-- nt, irX1Lji1ns in;--a.ol:.oncos~. * io;oIwos.

O:s lit:Th

th. e -110- sra v:: Cornpanhia Sider6rgica Nadonal

cao sIIWI

USSMil lion (%) Air pollution 63.0 51 Waterpollution 46.0 37 No1sepollution 12.0 10 Soil pollution 2.0 2 Total 123.0 100

2.25 ,he air pollutioncontroldevices installed during the StageIll ore shown in A nnex 1.7/ 1 * Mostof thesedevkces bre dustremoval devkes,atthough there is a COGdesuiphurisation plant ondsome gos cleaning system too.

The Annex 17/2 .showvthewaterpoliukioncontro!acUfitlos ins'al!ed during Stage111. The water recircuiation rote hasbeen raised to 75%,and,consequent ly , only 259%of the water usedin the plant needsto be treatedprior to dischargeIn the Paraibado Sul river. After the completionof thieStage ll; oll the plant'sindustrial .ff!u entswill be trootedaccording to the standardsof the Stateof Riode Janciro'slogislaticrn.

The Annex I7/3 showsthe noise controldevices installed d uring StageIll, whichbrotight a reductionin the noiselevels around the plant.

2.26 Almost completed tie Stage III expansion project. it can be ver- ified that, not withstanding the efforts endeavoured, the pollution control equipnent installed at theplant do not aistirelycomply with the environmental quality standards put in force by the laws of the State of Riode Ja- neiro.

Notonly some of theforeseen systems were nut yet installed(as, for instance, the Effluent Treatment Stationi of the Hot Strip M1ill no. 1 and theelectrostatic precipitrator of the Sintering Plant no.4), bur also the levelof efficiencyof partof theinstalled control equipmerit is not satis- factory, in view of the fact that their effluents present pollution levels abovethe maximumlimits established by the standards.

Moa. 246101 - 111 - C. c -in Companhia Sider6rcicaNodonal

It is opoortuneto pointout that therewas a timenap between the preparationof the Stage III expansionproject and the actuul c-C)niza- tionof the instrutentsnecessary to makeeffective the environrmentalconf-ol policyin the State.This policy came up afterthe instrumentsorganization. By thisreasQn, althiouqh therue were alreadylaws in forceestahlishing t h e allowableleyels of polluterconcentrations in the environment,thcre was a lack,at the timeof the StageIII project,of a mana.prialstructure to care of the environment,not onlyon the part of governmentalcontrol agencies,but alsoon the partof the Coi'ipany.This factprevented a globalevaluation of the impactsthat would be generatedby the expansionof CStf'sproduction capacity,at the levelconsidered by the stageIII proiect.This wav,the nollu- tion controlsystems were specifiedwith qrou,nd on conventionalsystemns ;| ready ia service in plants overseas, disregording the neculiarities CV1 tI1 Volta RedondaSteel Plant, the riainproilcm oif which is t!eextreme conti- guity of the comunityall aroundthe plant limits.

Today,although; the Company has a definite proqraniof environmental control management,it facesa lot of problenmson pollution co r, | that derivedFrom the successiveplant expansion stages and that asks f o - promptsolutions, as alreadyperemptorily required by the controllingagency of theState of Rio de Janeiro whicOdemands high capital investment. r e - gardingthis question, it deservesto be pointedout thatthe invest.mento f USS 123millions still insufficient to completesatisfy the claimsthat are beingpresented. It is underrevision the so-called"Corinlementary en.i roCn mental Plan", subjectto IBRDin 1980,wthich covers all v i e prot._ici I nieasuresrequired by the Volta l'edondaplant.

CSS -!146_ __ _ Cb' IE-l2^ lu cfl CumpanbioSomA vie imd

III - THESTEEL MARKET

l~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

3.01 The time of implementation of the Stage. III projcct elapsed through two very distinct periods of the Brazillian economy.

a) Period1974 - 1980 As a resultof the nearlyexhaustion of its productivecapacity dur lng the firstyears of the 70'sdecade, Brazil passed to import ca- pitalgoods in orderto keep up the domesticeconomical grawth. On the otherhand, the purchasingof big oil quantitiesat high prices and of othernecessary products and raw materialscaused a substbn- tial intrease of importation, at the same time.

The secondraise of the oil pricesin 1979and the high interest rates of the international loans harmedthe Brazilian balance of payments, so compelling the country to ati economicalrecession In 1981,as a mean to recov er.

lieD. 11481 I ~~~~~~~~~~-U)3 - n a ComiponhiaSidg&qrglca Nadoal

b) Period1981 - 1984 / Theeconomical crisis was generalized,withhigh inflation ;ates come from the.prior period and a high unemploymentrate. A moresignificant credit valuein the commercialbalance of tradewas a- chieved only by a strong imporI.sreduction in 1983,and then consoli dated by an exportincrease in 1984.This exporting attitude allowed theretaking of theeconomical growth in 1984and its prossecution in 1985.

Generaldata on Brazilian§ross domestic product (GDP)* yearly variation, exportation andimportation values in the period 1974-1984 a r e shownin the table below:

. .GrD . EXIJ.URTATIO14- FOB p.TiT - OB GPD I FB * cRTl, O . YEAR YEARLY'VA.RIOT70OJ1 _%s) 109 US$ (2) 109 US$ (2)

1974 9,7 8.0 12.6 1975 5.4 8.7 12.2 1976 9.7 10.1 12.4 1977 5.7 12.1 12.0 1978 5.0 12.7 13.7

1979 6.4 . 15.2 18.1 1980 7.2 20.1 23.0 1S81 (1.6) 23.3 22.1 '1932 0.9 20.2 19.4

1983 . (3.2) 21,9 15.4

1984 4.5 2?70 13-9

S. URCL: (1) Conjuntura Economica -H MarcO /85 (2) Suna Econ6mica - thi: /85. *GPD= PIS (Poduto InternoBiruto) -

MO. 146 /Of - 114 - m' e-I= CompanhiaSider6rasca Nadnul

&Ait s1iDEftWAS

3.02 The Braziliandomestic steel market followed, as it would be expected,the economic evo'sutior,.The year of 1980was that of the utmost steel demandin the conuntry, respondingto the veracity of a heated ecQfol;y. However,starting in 1981, therewas a decayin the steel demand,which ar- rivedto 1984with ratessimnilar to thoseof 1978. It is worth noting thzat there wasa certiinrecuperation in 1934,due to tLher-.-Lkin.g ' Le ec-nowV expansionand to ti;eex,)ortttic;. -f productswith a high participation o f steel.

The table below giv. eneral infonmation on the actual demandof steel productsin tVe domesticmarket, along the period 1974- 1984.

ACTllALDEMA!NiD OFSTEEL PRO-.IDCTS BYTiiE D10OESTICi-0RKET

- - -- Unit: 10o0s-

Yoor 1nC.TC COMTDFl.A % 'rhu; % FL'T PL0bJLI1 UCT PR 5 STRUCTU.i&LS

1974 3,464 - 620 -497 - 1975 3,579 3.3 614 (1.0) 730 46.9 1976 3,850 7.6 698 13.7 625 (14.4) 1977 3,949 2.6 707 1.3 385 (38.4) 1978 4,297 8.8 750 6.1 472 22.6 1979 4,793 11.5 805 7.3 346 (26.7) 1980 5,382 12.3 851 5.7 388 12.1

1981 4,217 (21.6) 706 (17.0) . 302 (22.2) 1982 3,970 (5.9) 740 4.8 316 4.6 1983 3,621 (8.8) 694 (6.2) 246 (22.2) 1984 4,239 17.1 735 5.9 310 26.0

SOe'f[C.E;RAM-N13h-rr2 e Nci 3 -CSN (CeN\SIOLDATO-N0OF FM) RAM 1985

Uow.. 148ilI . - 115- * o'm CompanhiaSId5wqke ?mdIe

Followingthe sigmnfrom the government,the threebig steelsistcr companies (CSN,COSIPA,USIMINAS)triedo penetrate more deeply in the internationalmorket,eon- joying the advantageof their modernplants, as it can be appreciatedin the .followingtable

( IsP?JYLINF.XPORTTIO! OF STEEL P90DUCTS Unit: 103tons

l -.05.TC .JiF AT STPUCTUIALS+ R.AILS YEAR f'R-;DUCTS COATLI)FLAT PRODUCTS AN-)i%CCESSIr..JrS

1974 25 6 1975 56 2 4

1976 32 * 5 2 1977 13 3 4 1978 148 1 31 1979 418 18 32 1980 687 43 13 1981 735 23 38 1982 1,308 49 12

1983 *2,875 ' 83 28 1984 2,417 76 53

SOURCE:- NS.J-YEARBOOK - 1982/1985

Moo.~~~~~~~~~~~~~~~~_ .4 . sa &= CompanhiaSiderqrgca Nmckna ~o sicuM

3.03 CSNhas a diversifiedproduction constituted of semifinished products(billetsand slabs),non-flat products (structurals and rails), non- coatedflat products (plates, sheets and coilshot and cold rolled)andcoated flat products (tinplates, chromedand galvanized sheets)

The Company;nthedomestic morket, is the sole producerof tinplates, chromrrdsheets and galvanizedsheets and coils.Together w i t h USItlINAS,CSN produces,as well, non-coated sheets and coils(black plates)

Theproduct mix thatwould be achieved after the StageIII completion, as foreseen in tne "Review",would conmprise 0X of semi-finishedproducts, 11"'of non-flat products and 89%of flat products,the latterincluding 42%of coated products.

In full operation, in 1988; the expected product mix shall be different: 0% of semi-finished, 5S of non-flat and 95%of flat products, t h e latter including 39%of coated products.

The reductionin the offer of iron-flat products in favour of flat .oneswas alreadyexplained..

3.04 The tablebelow shows, for the CSN'sproducts line,the comparison betweenthe m,arketdemand as forecastedin the "Review" and the actual CSN's offer,in the periodfrom 1977to 1985.The "Review"forecasts indicated an yearlyaverage demind increase rate of 13.B%,but, actually, the ratewas only of0.8%/6 perannum. On the otherhand, by the "Review",the CSN'soffer in the StageIII, in 1985, shouldsatisfay 22% of the forecastedinarket dei,and, say, 3.77million tons of finishedproducts. This, however, did not happen. With the marketrecession observed sirnce 1981, the actualdemand in 1985 reac'ied only33% of the forecastedone and the CSN demandshare, restrictedto 1.6 milliontons, turned at lastto be about 6 percentual points superiorto the forecastedshare.

A greatpart of the C'N offer,since 1981, was directedto the externalnarket, in orderto coripensate the retractionoccurred in the domestic market;the exportedtonnages were greater than 1 milliontons in 1,83 and in 1985.

Moo. 14^610 /P*-1.17- Ci- r!* CompanhiaSIder6rigca Nademl

GfJ SIKESIAS

nlOMFsTICI4APKFt - nIMATn ANn rCNMe rFFFQ 3 T "nLLCnCTFFI PRnlnlir-TS Unf: lOtons

1UTi4. UiA;ij CS'l4sOFFLR CSN SIARING J,iTHE li1hW:iAL

YEAR FO>.tTr' FOR[C.)T E1LED ... :IN . )ACTUAL 1:T EXT: f0;ZASTEi h AP(TUP.LCTUA | RFYIF (A) (T(rAL) (C) (D) RENIEW (C/A) (DB)

24 1977 6,263 5,284 1,492 1,287 6 24 25 1978 6.,930 5,510 1,686 1,364 50 24 25 1979 7,720 5,963 1.,679 1,491 54 22 1989 8,651 6,683 1,703 1,630 39 20 * 24 22 1981 9,898 5,330 2,443 1,176 155 25 1982 11,329 4,995 3,27e 1,275 373 29 26 1983 12,974 4,215 3,692 1,148 1,060 28 27 1954 14,861 5,429 3,771 1,542 817 25 28 23 1985 - 17 031 *5i639 3'771 -1,603 *1,077 - 22 -__ Note: Excl, Ingots, SlaoD and Blooms

As it can be observedin the tablebelowv, there was in the period 1977- 1981a considerablesurplus of semi-finishedproducts, as 3 consequenceof the gap betweenthe forecastedand actualstart-up dates of t h c plantnew units.

NW. 146101 - 116 - s" IRM CompanhiaSid.r6rgica Naoc al

CSNOFFER OF INGOTS,SLABS AND BLOCKS Unit: .10 lois

CSU OFFTP YEAR F'ORECA*STIt! RlEVIEWv i .CTLAL (TOTAL) O0;ESt.MAARKET XTr R TOTAL

1977 8 31 67 98 1978 139 34 407 441 1979 151 139 336 475

1980 152 ' 283 273 554

1981 - 168 42 210

1982 - 3 60 63

1983- - 18 51 69

1984 - 56 - 56

1985 - 150 - 150

3.05 Regarding the perioo19C6 - 1989, when CSNwill reach its maxiri.um production capacity, recent SIDEPBRASprojections estimate the averace annual rates of growth of doriestic demdndof non-coated flat products and coated flat products as of 9.OZ and 5.4%, respectively.

A comparison between CSN's offer and the domestic market demand of flatproducts is presentedin the followingtazle:

Mat. 140101 _ ~~~~~~~~-119 - W rmwnCompanhia SiderGrgica NoahmuI

6RIWOSIILENIUM

COMPARISONBETWEEN CSN's OFFER AND D31CSTIC ilARKET DEMAND OF FLAT PRODUCTS Unit 10tons NON-COATEDFLAT COATEDFLAT PRODUCTS __~JLILUi)ESflO- COATED) SNEED)

YEAR DOMESTIC SHARINGIN DOMESTIC --- ,-IC V-. DEMAND14ARKET MARKET 1 OipIESTI MhJ-IARKiET-1 [lA R KET RE (%

1986 4,920 805 1,253 16 830 758 311 91 1987 5,327 1,030 1,312. 19 872 800 471 92 1988 5,820 1,279 991 22 920 848 717 92 -1989 6,365 1,522 748 24 973 9(1 661 93

SOURCE:DOC. SP-32/85 : CSN

As regards the coatedflat products, the rate of growth of the CSN'soffer (5.9%) even go beyond that of the demand,keeping the - Company's share in the domesticmarket around 91X to 93%.This comesfrom the CSN's positionas the solesupplier of galvanizedsheets and fromthe small market participationof USItlINAS,with its non-coatedsheets, which are includedin thisproduct class.

In referenceto the non-coatedflat prodticts,CSN chase t.o furnishonly plates of the "hotstrip mill", since its exparsiondid not in- volvedany "platemill", as thoseof the sisterCom'panies. To countcrbalance, the modern"hot strip mill", in the hot area,alliedto the alsomodern "cold stripmill" and to the "continuousannealing and processingsline",in :h6 cold line,will allowa greaterparticipation in thisproduct class. Sc, the 23.7?o

M 4.1 I 01 -120- Wm WM CompanhiaSid.,6rgicu N.ciode

annual averagerate of growth of CSN'soffer to the domesticmarket is jus- tified by the comparativeadvantage of the CSNhot and cold thin sheets before the competitors.

I theabove mentioned period, CSN will continue, in viewof the domesticmarkft narrowing, as one of themain exporters of Brazilian steel products.

bW.140101 Wo.146103 we CY* Companhia Sidrw6rgia Nadem,g

IV - CSN THECOMPANY

/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

A - Ownership and Control

4.01 CSN'sshares ore held by severalagencies of the Brazilian Government. Theholdind Cormny Stderugio BrosileiraS.A. (SIDERBRAS)hasnow reached 98. 18%of CSN'scapital stock. Theiollowing tables highlights the evolutionof the sharoholdingin CSNbetween 1975 and 1985 and of the dividends. CSN'sOWNERSHIP (%) Jan1, 1975 June,30 t985 SIDERBRAS 21.59 98.18 NationalTreawry 58.88 0.54 I.A.P.A.S r 13.58 0.26 CaioxEconomica Federcl 0.18 Bancodo Brasil 0.75 PrivateShareholderm 5.95 0.09 {. 100.0 100.0

U41,.14101- f+ - ' ~~~~~~~22- C: It m Companhia Siderurglca Nacionol

6tili SIWULPWS

Regardingthe contributionsto the capitol stockand to the dividends paid and reinvested,the table belowthows theamountscorrespondirigto yeorsof 19?5to 1935.

CS.-I- CAPITALSTOCK AND DIVIrIENDS (USSMillion)

Year Capital Contributed DividendsReinvested DividendsPaid In Cash(1) 1975 99,4 5,0 2,3 1976 107,8 12,8 0,8 1977 179,1 8,0 1,1 1978 163,9 12,2 0,5 1979 204 1 . -

190 I 195,2 _- _ 19i811 367,0 _ 1982 271,2 - - 1983 I 413,6 _ 1984 28,8 _ (2) 1885 4,3 _ -

Total 2,039,- 38,0 4,7

(1) Includesvdvznced coarribu;ionscr future capital stock increase. (2) Ref.: S3ptemberIst, 1985

Irnthe period 197.5/1985(t Hulf), it is observeda changeIn the way of transforpnceof SIDERBRASfunds, which, since 1977,ccme to CSN, not only as a capitol contribution,out alsoas .oso advancements.Ttese advancements in due accounting ore MonetaryCorrected (ORTN) ond partial;y or totully usedfor capital contributionsin any futuredate. Thereis to be consideredtoo the returnto CSNofpart of IPI, in form of ad- 9 vuncemeiitfor cup;tul conti i6ution, os a. fiscLi LenaFit glantedby Lawn 1547/77,t1trough SIDERBIRAS.

Mto... 146 101 -123- a =u ComponhiaSidor6rgice Ndemul

Asshown in the table presented,the peakvalue of contributionsoccurred In 1983.The decoy In the subsequentyears Is dueto SIDERBRASbudgetary limitations.

Thispolicy of fundsadvancements followed by capital contributions .hy SIDERBRAScombined with the CSNbad financial results in the last yearsled to almost total shnriiigcontrol by the holdingCompany, in prejudice of the sharingof the oth e r stockholders.

4.02 CSN-hod in 1975eight subsidiary companies which consisted mnostly of row materialsuppliers of the parentcompany or of previouscorporate departments transformed invo independententities (in arcosof engineering, real state and hou6ingprogrms, and powergeneration).

In April,1976 the UTE-Servigos de Eletricidade S.A.( poVJer.company) was liquidated.

Alsoin 1976wcsconstitutedthe Fobricode EstruturasMet iicGs S.A - FEM for the fabricationof structuresof rolledand welded shapes.

In 1982,received recommendationsissued by a Special Commissioncrea- ted by the Govemnmentto tdke care of the liquidationor the.transference of the stateowned companiesto privateowners. In line with suchrecommendation, CSN took steps wtch resulted In the reductionof the numberof Its subsidiariesto twoonly - FEMandPRO'SPERA.

MCO..146/1,1 -124- Wm Wm Companhia Sider6rgica N_uIs1u

Thetable belowshows the shreof CSNIn the captl sit cif their controlled companiesin 1975and 1985 and t+ti changesoccurred:

CSNCONTROLLED COMPANIES CapiIal Stock Share of CSN n Y% Companies Jan 1,1975 June30,1985 ImobiliariaSanta Cocilia S/A-CECISA 99.47 (2) Cia. Brosileirade ProjetosIndustriais 92.% (3) COBRAPI EmissooePlonejamento de SegurosS/A 41.66 (4) EPLAN Lavadorde CapivariS/A 99.69 (5) 61eos de PaoinaS/A - OPALMA 56.63 (6) CarboniferaProspera S/A 83.16 95.97 Soc.Tecnicade Adm.Corret. de Seguros 86 (7 LTDA- SOTECNA . (7) F;bricade EstruturasMetodices S/A - FEM (1) 99.98

Changes: (1) Constitutedon April 22, 1976 (2) Liquidatedon December27, 1984 (3) Passedto the Controlof SIDERBRASon June 3, 1982 (4) Liquidatedon August30, 1983 (5) Joinedto CarboniferaProspera S/A on January3, 1983 (6) Soldto UsinaPaanaguw S/A on March3, 1983 (7) Liquidatedon August29, 1983 (8) Liquidatedon April, 1976

M1o. 146/01 -125- C 1f CompanhiaSideru'r9ici Nacional \k_.. J Gt SIUIIUS

~~~~~~~~~~~~I .

- Orgonizatioit and Management

4.03 Thecorporate structures and managerialsysterms of CSN, aris;nofrom t h:. general reorganization plan designeclby Arthur D. Little lnr. (USA),a consultorit f!rer,| wero implementedin 1974,6ut suffered succ')ssive alterations in the period from 1977 to 1985.

Under the consultcnts'concept.ors, Ihi CSli's top rrnaQgemnt waS iniliw.. | ly composedof a Boardof Directorscomnpnsed of I (onm)President and 5 (five) Directors and a Boardof Executivescompos^d of 1 (une)Executive Vice-Presidentand 9 (nine)Vi- ce-Presidents to managethe followirg functional areas: Enginc-erit.g, Pirimlning,Finci.icicjk Commercial, Industriel,General Services,Supplyingand Sds:diar'as.

In 19/8, by force of Law, t.heConipany ele*ciad an AdministrationCoun.i

coostitut:dof ;S(three)Membiers ii .juduvinits Clicirmati,wtio was the CSNls Fresidcnii.Al I the somelitno, the Boardof DirecsoNwas modiiied as to he composedof 1(orie)Prasidnt |

Mola.. 146/Eli _ -~~~~~~~~~126- cax CompanhicSider6rgia N il,a waosrli l s

I (one)Director and Executive, V;ce-President and 4 (four)Directors directly ir chargeof the mon"g.mentof the followingareas: Engineering, Industrial, Commercial'and Finan- cial. Additionallythe Boardof Executiveswas reduced to 5 (five) Vice-Presidents,later nominatedas Vice-t)irectors, to managethe followin'gareas: Planning, Supplying, Con- trolling, ContiolledCompanies (subsidiaries) and Hu%nan Resources and Social Services.

Theupper corporate structure was again changed in 1980as follows:

a) suppressionof the positionsof Director,Executive Vice-President and Vice-Di rectors; b) creationof the positionof Director,to managethe administrativearea; c) criationo c 4(four)Secretories, to coordinoteGeneral Planning, Supplying ar d ControlledCompanies(Subsidiaries), directly connected to the CSN's Preside;cy. d) Thespecific areas of ConWollingand Human Resources/Social Services wereres pectivelyincorporated the Financioland Administrative functionol arees.

In 1982,there was a newchange in the CSN'sBoard of Directorsin order to ma k e ;t similarto thatof SIDERBRAS. The new Board was composed as fo Il o ws : 1 (one)President and 5 (five) Directorsin chargeof the followingareas: Operations, De- velopment,financial, Administrationand Coordination. The Operations Director a_-cumu- latedthe functionsbefore attributed to theEngineering Director. The Development Direc tar tookover the functionsbefore attributed to the CommercialDirector and incorporated the SupplyingSecretary later on, the latter wastransformod in a managerialfunction.

A newchange occurred in 1983in the Boardof Directors.The number o f Directorswas increased from S (five) Io 7 (seven),to managethe areasof Social Service$ andProperties, which pertained until thento areaunder thc AdministrativeDirector.

Besidesthe changesmade in the CSN'sBoard of Directors,a greatnuFnber of otherchanges accurred in the corporatestructure, at the level of the roanagerialsys - lems. Suchchcnges were due not onlyto newadministrative philosophies of SiDERBRk,ks the holdingCompany, but alsoto personvacriteria of the Directorsthemselves,hoving no

mop. 14601 - 127 _ gig tv7 Companhia Sidertrgica Ne&e

sight the needsof the CSN's expanion (StageIII)and the specific administrativegoals in their respectivefunctional arew.

4.04 Undr the administrotivepoint of v..w, manyefforts were mode to get a better interrelationship betweenthe key uniht, a higher rationalization and simplifica- tion of working|methodsondprocesses and, aswell, a morecorrect and faster Infonnation flow, throughthe improvementof the communicationcrhnnels and. the expansionof the date processingequipment in the Company.

Theeconoric recessionin the Countrybroughta numberof additional pro blemsof financial and operationalcharacter which affected tha overall administration of the Compcnyuand workedagoinst the activities related to the corporateplonning dirdculy and indirectly since it determinedan increaSeof Governmentalinterrerences and con- straintson the leading of CSN's business.

4.05 The activities regardingthe manpowerpreparation and imporovement.con- .inued along the whole period of Stage Ill implementation.

Specialattention was paid toprogramsformanagerisa irnprovemenw as well asfor professionaland operational trainlng of the personnelassigned to the operation of new equipmentunits..

Theefforts madeby the Com.ponyaiming to improvethe professionolabi - lity of its monpower,needed to follow the techonological evolution of theequipments and to better operateit, Included training programsabroad, in courses,congresses cnd working 6tages,vwhich involved a total expensearotund US$ 2.8 million, from 1977to. 1934, o re shownin the following table.

Me. .1.0.. .1 -126- mm a Companhia Sidbrglica Ned di

EXTERNALTRAINING PROGRAM

Years Expenses US$

1977 326,900 1978 331,000 1979 590,350 1q80 745,550 1981 693,085 1982 66,300 1983 3,123 1984 23,090

Total 2,779,398

Thelower investments observed in 1982,1983 and 1984resulted from the CSN'sfinancial difficulties in that period.

Thegenral resultof the activities reflect Itself In the Improvementof the qualificationprofile oftih Company'smenpower occurred along the last 10 (ten)yes, w shownin the tablebelow:

MANPOWERQUALIFICATION PROFILE

Manpower June, 1975(%) June, 1985(%) Qualification Superior 5 8 Technicol 7 14 Foremenshtp 9 12 Qualified 44 51 Semi-qualified 23 11 Non-qualified 12 4

Total 100 100

mob. H46ol. -129- Compunhlc SlidergIca NModm

V - THEBANK'S ROLE

!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

/~~~~~~~~~~~

A-Project Formulation and Supervision

5.01 Theanalysis of the conductof bothCSN and lb RDin the executionand supervisionof the Stageil project,already completed, brought many lessons to both par ties,that led to Importantsteps for a betterperformwnce concerning the StageIII project, as follows:

a) a deeperanalysis of the StageIlIl project concerningits basic engincering,i ts inherentcomplexity and the interferencesof its execution in on-going opela- tions of the steel plant;

b) a morerigid statementof project scopes;

c) proceduresfor the improvementof the project detailing,in comparison wi th that of the StageII, execu'ion of the worksregarding all tho technical aspects, procurementof equipmentphysical and financial controls)

Mc,. 146010 - 130 - c 8e Conrpanhic Skiler6Otku Waconal

ClltYUSibLPRtAS

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

I ~~~~d)the iystematic obeycnce to the terrii of the contractssigned by CS1',!witl's 16RDt and IDB.

5.02 The Stage Ill projoct was oppraised by IBRD..The approisalducumnnt wo; issuedirn Muy 21, 1975as 'Report NY 754-R-PJRAZIL- CSN SteelExpansion P ro j e c t - Stage IlI', usudllyknown and referred to as "AppraTsale.

In 1976, as recommendedby IBRD,CSN promoted,jointly vwithits subs;c ioty COBIfAPI- CompanhiaBrasileiro de Projctoi Especiais and underthe Supervisiono0 ULC- Uniled Siotes Engineering Consultants, a complete re-study of the StageIlIl project'

which comprisedthe ano!ysisof 3 (t'N.re) pr-reject'Orernatives.TViis *:cs issueeundEr the titio 'Review and Reworkingof the StageII F:xponsicnProject", since t.r,-n ':no;n unrij roferred to as "Rnview".

Ths@pro,ect alternative chokin for exucuticn wasl.Ke Alternotive ,wihichi had a scopa very similar to ihat of the project consideredin the '"Approirol".

5.03 The iEPI)Dbyipproving the prcsjct, eiicouroged the LMio;eralUancies !o porticipating in Its financing and CSN was able to qather tle required funos.The BANK, made it possible *orCSN, by intemational competitive bidding, to acquire for.aig;i und locally made equipment at competitive prices..

5.04 The domestic price control by the Governmentand ;hc country ical recession made it moredi&;icult yct for CSN overcemetheir tfnanciai diftic9tes.

.o. 1.04* sa r"iS CompanhiaSid6rgka Ngd.ea

B -Lessons to be Learned

5.05 The executionof the StageIII Project of the CSN expanion was hit by troublescrising fr(m the deteriorationof the countryeconomic-financial situation. Th e Increaseof Inflation rates, the exPansionof the public debts, the dropof consumption, the increaseof the oxternal debts, and so on forced the Government,to take stepsthat , simultaneously delayed the project completion, increasedits cest, constrainedthe lcons, of Goverrnmentalfinancial agenciesaffected the CSN economnic-financialconditions.

5.06 Apporen~tly,in a prelect of sucha dimension,the troublesarising from extemnalcauses and out of the Company'sControl are of difficult or even imipossiblecor- rectioanor detour by the Companyitself and/or by financial agentsthat initially we re gathered.toprovic:e the necessarysupport to the executionof thewworks.

. co. I4610 i. (j)-

CA~ ~ ~~~~~~~~~~~~~~~'

. .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~U - us - f. ConspanltmaSisjtmjic Sacicpaien Xd _ ~ FJANEX 1I

I ______...... ,__., .wrs_ss

MA14N DFFERENCiS SEIWtEN TIlL APPRAISAL AND THE RtEVIW

In,tallutlotn Appeolo;l Pevi beMain Diffesences

Coae rlunt No. 4 Battery-52 owens No. 4 Sattey-51 ov . Slat and rb ovens Me. S Palt Jty - 5t eAr ns iNO. 5 to Irsy - 52otve

S4* at tie et Sire Ofte ove: C.mlcen..._ion height - e00M height '- .O4 lentil - 15.40. lengil. 14.e00l width - 45m widh - 45fd

Coat cons'inption to StageIll: Ccoi canusjeplionfor Siage ;Ih . 3,150,000TPY t 3,205,000TPY

b-prodct roeilt-is inelude to? lectre.-ti e pr

Blast-r ..roces Pig-lrio need of Stage fit: PIlo-tfron ed for Stage llt lheBlast furntmeet 1 2 revawr.p 4,3i3,000 TPY 4,320,000 TPY - wereexecuted with the purlose to ______- ~ ~ - -1mod;fy tne following sysrern: Daily pieijctlons Doily poducttont - Supplying SFI 4 N2 + OF3- 12,OQOTPD SFI + tDi2 * PF3- 11,t363TPD stockhouse BF1= 7.000 TrD BF3* 7,044 1PD - chugging i2 - 2,000 ltt withoul big BFI + tF7 - 4,792 TPD The waking volwne was.. o increcid i ~~~~~changtes. BF3 3,000 TPD, whith ;nreosed capacity

1mpravrementso Blast Furmces1 & 2: - the regen-eratiol keoti.ng area wasenlarged Sll-Lesn top p-eswr. increase - i-bstallatn do new s I ock; n a and chaogingsysttt

Sintcr Plant Sinter t0lnt No. 4: Sinter Plont No. 4 Snlter No. 4 capet4y inreose t(ot 4,600 1PL screenedsinter 6,650 1 PD of screenedsdr-ter 1,510,000 TPYto 2,175,0O TPY 1,510,000 TPYofdccaned sinter. 2,175,000 tPY of screenedsinter

2 Crate aree: 165.am Grato atea: 190.O 2

fnldrgeesonlof the ore yard Ircluding conveyer tysten,stackr, Dltto reclatmer

BOF Shop Proac6ton capocety:4,600,000TPY Addition of a third 200ton vessel. Average or 63 heals per day Top to tp heat lime: 45.7m;n. Ditto lhe 8Of Shopwill epefoto with two veselts at a timn

Oxygen Plant Instollel;rn of a:new oxygen ptant Installotion a the oxygen Plont NaA Cyen rapocity in4ieaieIon 1,1It with a capacity of I,100 ltD wili capacity df 1,400 1PD 1PC to I,4001PD

_~ __ __- -_ _ . I

__T ~ I f Th~I i tt - 5 t'q Cotn&,anhiazSidcruegica Nocional i _____.-- - . .

* F MAIN olFrEtrNCES BETWEEN TilE AIPPAISAI A14D ItIE PEVItW lr.ssellation Appralsatl Pevlew Main DIffe,ences

Celciniag Addittim of two 400TPt'CPlaits.sNi far c.entt the other for celcined ;Iolt Date. lotal needt 1,200 TPOof Usie 000TPD of Celtcined otleaS

CenninuousCastet FeleseesProduction far Stope III: ForeseesPreductian for Stoag Ill: The lefreste Prductcn of 30700.000 3,200,000 TPY 3,700,ao0 TPY TPY%m incteoedsote3,7Ct.O0 7PY installation of two two-sta nstallation of twa two-stland obtained bv: casting machineswith the costing r-achsinesard revomp of te - lncetoe of sdasthIckses pro- following date extist;g machine No. I tn p.oduce duc.d 6r, macbuies2 and 3, faen 0 Casting speed:2.Wn/min slobswith th;ickess up to 20tmm 2 3m n to 254mm Slabwidths 760 to I,500m Size d slobscoted by mrchine 2 - revsnspfo machtne 1 to l,rodJce Slob thickness:203. 8 sm ond 3: stabs of 203mmnntlead of 1.SOmrn Capacity: 1.2miloi,n lPt' cech Widtls 700 to 1,5SOnm Prodcts Dates Thickness 254nm ;ta .II ge1 Lenght 4.420tolO.670m Moax.SabLength-W3. 219w Max. Sla Width 1260m 1,520ss Maxs.Slob *Thtekress 1SOnvn 20S81mm

Bloomtngan Slabbing Revanpof the exbing mill con - Mill sisting of a new Ingot receiving teble, a new mill prooch table Dtto and a new mill runcut toLe Theexisting 35 and 50HP motors will ba uved

Hat Strip Mil No.2 New semit-contirwous6-lnch hot 3/4-inelic^tinvousmillfor peo- Incinaostoffteslalbthickness from I i strip mill designedto produce duction rf 3,072,000 1PY 203,6n snfo35n n and inrtasseof 3,000,000 VPY It will handle slabsct: the slob weight from 27,540 S.g to Ih will handleslabs of 203.8mm thickness - 150 to 305mm 40,860 kg ..Idlsiess, 1,575mmnwidth and width - 610 to 1,600tm 14,020mmlenth kngtil - 4.9 to 1067m Finishedstrip wi l heae up to weight - 3,560 to 40,860kg 12.7mm thickness, 1,575mm coal, Widthondmoximumxcoilweight of width - 6lO to l,575mm 27,540 kg thlirkness -1.7 to 12.7mm the instollation still includes two Insidediameter - 750mm usobyords, four 250 tonA,Aojr outer diameter -1,237 to2,286nms eoc;hslab heating furnaces wight - 3,540 to 40,860kg TheItot tfrip mill will hae: The Installotion tcludest 1 Edgingmill 1 Edgingmill 5 Standsroughing mill 5 Stondsroughing mill 7 Standsfinishing mill 7 Stondsfinishing mill Its Is also Included scorling equipment for the s&I, yard and four 250 ton,sAur each slab heating furnacs

FininshingiUne No.2 Hat finishing capoctty will *x- Copc;ty: 390,OOOTPY Capoacty Increase fran 3d0,C3itPY Sheets hpndedby th installation of a Everythingtelse remains the seme t c 390,0OO .Tp1*.p .i,W, ci4!: 1/4 plate haring line vwth as- except tfe coil weight: 10.5 to et.41 tens htncedof 27.6 tons. pocity of 3W0OlOOIPY 41.0 tons. It will handle plates ofd Max lengthi 12m .ialtxWidth 1,575mm MoxThicknes 6.3mm Moxximuncail weight Its27/08kg

___._,,.77_ __-__ *F 1 T T~ ==_Ie_'='. - ~5i - 1 . - 13 -

*1- - vs'4. ** C a4mpicnhisi .iJrralcw i waicfon.l-

MAIN DirFLFlNCES *C1Wiml4 1H4E APPRAISAt AND Ttif REVIEW

Ilgstollatlos Appraisal Rorevew Aelts fDllferenee,

Flat. Finsihins Line Plate Flnitsl.irJ tIne, 14o.3, wlthce- this ne finishing line wascencelted No.2 pacley 450,000 IPY. twill huidNe co;Ilsoft:Nincue Plete Thickness: 6.3 to 12.7 Net Ittluded a Plete Width: 610 to 1,57S_ W1eIght:24.5 tons

Centinusis Pickling Expandedpickling facilities witl Continuouspickling lines No.3 ed Capacitu Incre from 1,I100,000 Lines conist of No. 3 ond No. 4 lifts, No. 4 with capacity of 1,165,000 1Pf 4e 1,165.000tYPY will capacity ,I.100,000 tiY IPY each aed maximuspeed of Ihickn reiltdien frae 6.3mm to iids end nixuletumspeed of 3i) ni/mn. 4.itr4m 310m/win. Coil Dale: Call Daut: Maximum Thickness- 4.8mm Maxima,. Thickne - 6.3mm taxinmumWidth - 1,575mm Maximum Width - 1.575mm

Cold Sth;pMill No. I Revamp of existing facilltlets Revampaf existing facilitiess Addition of snd No. 6 In the Cold and No.2 Cola Strip Mill No. 1 Cold Sttip Mill No. Strip M1il No. 1 snd No. 2. imnpravementsinclude new entry - ncreaseof neoxirmunspeed to feeding euipment for hondling 1,372Mn/min loygaxcoils (up to 1,753mm autat - New entry ond exit equipmtent diomnetoand 15.9 tan weight); - Addition of Stand No. 6 new coil chsnsefacilities,electuic - Addition df quick roll chang' conirtos,motor cewindingand new equipment for ot leost stands 4,5 auxiliory equipment (sysieemsfor and 6. rocooling oil lubtilction, fog -Altertiorr of stand No. 1 fer hy- exhaustand hydioulic system) droulic type Cold Strp Mill No.2 - Metars overvoal and replacement tw. II receive a new roll change of elctrie controls fatel;ty - Addition of automaoticgoe control wity X-rtoy moterts,de- seenudingcontrol of stand No. 1 hy tulicsrew end speedcontrol d stand No. 6 .- nprovementsIn the roll cooling systeom Cold Strip Mill No. 2 Stme altearetlansof Cold StripMill No. 1, considering 1,676n7/min th speedof standNo. 6

Cold Strip Mtlr No. 3 Six-stnd mill (584 x 1,524 x Five-Stand mill (584 x 1,524 x Capadty incresefron 1,250.000 1.676mm) with capacity 1,250,000 1,727mnm)with capaety 1,395000 tPY to 1,3%5,000TPY TrY of strip ranging frkam TPY of strip raging from: Ratkittion from 6 standsto 5 sttnds. Width - 610to 1,575mm Width - 610to1,575mtt Thicknt - 25to3,48m lnehickuna- *25to2.67mn Weight - 3,493 to 40,816 Kg

Cail Trnsfetr Cal$ Threwbattery driven cars will be Five battery driven cars caryrintg Addition of two transfer car installed carrying coils as followst cois as follows: four cars from the two tarsfran the new continuous new continuamupicklino linesNo.3 pickling lines No. 3 and No. 4 to and No. 4 to the existing cold the existing cold mills Nos. 1 end mill Nos. I end 2: one car frta 2; one ewr fram the new cold srrip t'e new cold strip mill No. 3 to mill No. 31, tie existing con- thevontinuait gilvanitting lines tinuousgalvaniging litb, Nos. I bu;dlnr ffd2

I~~~~~~~~~~~~~~~~~~~~~~~~~~==.o r*0 *~~~I * e s (..nriglslX,irt 5~ti ..r(tiUNc~* . -. -. ..-. *..-...... - h r -u -. ttr-..

'.MAIN DIsFFEPENCLS RiTWEEN Till APPPAISAL AND tli REVIIV/

IlIs aI lt. i on Appraisal Review Main Diff.rcrc's

Continuous ,-,.teolinS Two c.ntrintous aonnealig lines LiitesItor 51,ars.

batch Anncoling 84 bese oand42 single stock".vaes .the boitchannealing vws co.tcelled will lx. installed, Wilthctpacity of Excluded 120,000 IPY I

Cooatirwous Annrealing Tbhn:ecoztinuous ennwoling lines for Thre continuousannealing lines Cepoctty incrase freom190.007iPY Lines Ic., linpileo ilnrlute wi.th capacity of 190.000 Not. ?, 3 ond 4 for tinplate, with to 233t,0OI PY 1PY cach. tripup to96,nrm wide capucity of 733,OlIPY,ech. The wiA l.e processedon lier No. 2 tIl:ee lIett will prosess coils with ond strip up to 1 ,O06#.mwill be tIt following uimensions: pro,osoadon Iines N31s-3oid 4. VWidth - 610 to 11,0Q7m All lines will hos''on rxirit m Thickness - 15 to 33icm.. Iuwnioceseclion speedof 533nr/mrsn MaxsinumW/eight - 19,95SkR and tlie (mrirre rating will be 44 Ile tariomun,speed In the furnece tOnsAiOuFOt mXirmumsbip tefper section will Le 533m/min and the alvie of 7049 . maoximumspeed In the entry and exit seOtionswill be 640mAnin. The fuinace capacity will be.i1onst hour cl moximumstrip temperature of 704CC

TemperW111 No. 3 Theesxi$ing tIw-stond tearpel mill Coceellothon of the alletrolltn oI No. 3 will eCesiseadditional tempe. mill No. 3 poxer, utilizing existing motor ondti,ie cwnponerts to inctese Not Included raill speedfrom 014n%/minISj 1,524 r/n,in. when operatiqg os douSk rdcretion m;ill

TemperMill No. 4 The ntw No. 4 temper mrill will be Cancellotion of the Instollatton of a 609 x 1,524 x 1, 67 mm fwur- Not Included temper mill No. 4 .hight, tvo-stond to process coisI up to 1.524mm wide

TemperMill No. 5 The flew No. 5 tenper mill will be a The new No. 5 tempermill will be a Maximumspeed was IncreosedIrons 533x 1,245 x 1,143mm,four-high. 534 x 1,295x 1,220mm,four-high, 1,524nr/mtn to 1,830m/nin two-stand handling coils fortinplate twoislond, to processonneoledond up to 1,016mmwide. . cold rllcd cols far tinplite pro. The maximumspeed will be l,524rn/ duction. with capacity of 515,000 mtm TfY Coil dimensions: width - olO*o1,067mm thiielSness .15to .38mm Max. weight - 20,O000kg The maximumspeed will be 1,83iW min.

Cold Strip 'nrishing No. 3 Cold Polled Fi-.hshingLine The IrnslolIlion of the No. 3 Cold Linet Will be insiolled to procas coilb Rolled Finishing Uinc was concrled up to 1,524mmw;de. Not Included Ifncludesequipment for uncoiling, levelling,shearing. and ili;ng

No. 4 Cold Polled FinishItngLine No. 4 Cold Rolled Finishing Line of Will i c ienstalledto proce-s coils 1,727mm will he a combined line up to 1,524mmwide. for shtelch levelling, side-trimming, InchlrIdsequipment for uncoiling, wind*r and sherfing weldinig, stetch les lling, tide- Capacity - 202,000 TPY Innrirg, oiling ,sh,riag and bi tdnno .i5 .

4_ 17___1 i - 139-

w' ~ V. * I tf

*. , 'MAIN Li II rkf 4CcSCE IiEftl 14 TIlE APPl:'I SAL AND Til FtLVIEW Approisnl Reviow Main Differences

tI *.fi . ginContinuous C.ulvuol.inq lm. No.2 Co Sit-s, solvo-,lr;nLLtneNo.2 AditiinaftheConintirous Calve- with coepocityIC0,C U Tlt' Ysd o V4it, Caprcily 10000 Illy niuing Lir.. NO. 3 wlih top*city of lfrnace preoductiolrate of Mtoans/ 180,0001PY { +' # - . . -- ~~ ~~htf ..

* * * Width$ will range (ran 610 to Widilhs will sonupefrora 610 to 1,524mnmwith OiM.ltwss.24 to 1,57-awn will, thickinet fron .46 1.5mm 2.6arm and coils up to 25tans

I* -. Cont;nuous Galvanizing Une No. 3 I: . . with copacitY 10,OOOTPY Widths wilt rouqs fiacn 610 to 1,24Gmaxond thkkness fron .21 to.91. Will njlnlacoils up to 40.8 or,s

Call PreporottonLine Iht new No.4 Coil PreprootionLine j SUsm;,except tlh sitip width which will proces str;p ftro the r.w will range fram 610 to 1,016nrm, temper .1il No. S to produce mo- with capacily cf 202,000 TPY tetiol for the new olctrclyti. . tinning line No. 5 anl No. 6 Strip of 406 to 1,016mmwidth will be processed,mitll a nivArrwmum t *%trip sp"ed of 1,524m/m;n

EleirOytiTc Ti,ning Addition of two lines, No. 5 and Addition of Iwo lines, No. 5 and Lires No. 6. Strip will rcn3egfrcrn d61o No. A.s-rip will tr-'e fram 610 to 1,016mmwfidth andfroct.13 to 1,016nmawidil and fron .15 to 38r.n thickness. .38mn thiekluws.. l.'orcirft-vnLine speedwll be 3OXm/ tdc

Painting Untz A new polnting line to p~ess calls Addition ota rww poititnrS l;ne was wIth 610 to 1,524nmt w,dth and concelled L .25 to 1.6mmthickn-ss Moi.';um speed- 82m/min Not Included Monthly production - 5,000tons of galvaniz'ed coils ond 4,50 Itonsof cold end hot rollad coils

Poll Shops Two new rall shcp will be provided Poll shops6 aid 7 for preparationand repoating of Poll shopNo. 6 for the No.2 hot rdlls froat tlw No. 2 hot strip mill strip will ad roll shop No. 7 far (roll shop No.6) ond of rolls frorn the cold strip nill No.3. L the cold mill No.3and tempermilt No.5 (rall shop 1lo. 7)

U0tl!ttes Steam Additrion of two new loawpessue bailers with capacity of 100 tons/ Ditto hour eachi

sw,ttoianars will Thepresent substolions will frceive Utilities Elecitrtel lh pesent 13311v t Sy$ m rceive fdditionol equipment In- addilional equi;rnent as fol ow: cluding twitcho3, Circuit blifeears, - southwl,.stotian tfransfcrm cubicles rmndunir sub 4 transfr,rtm..of 37.5/5OMVA stationS ond o new sut,stoltoauwill - Blower M sstolions be odded to serveco*tirrous one tsousfwmerof 17/16/20 piCis. fs Nos. 3 an.l ,tertpe m.ll tAVA No.4 and cold illl No.3 - South-wests,.ssota0on ontran,fomtermoff37./5OMVA n _ .. ._--r __._4=7_ -140-

tt U IzJ Conpankig Side,rGtrgca Nticlanul

MAIN DlIf ERtNCES iETWlLN Ilif APPRAISAL A1tD tIlL ItlVIEW

Instolltilon Appfelsul Revlrw Aoln DIffeeelicel

stvegnteef substales tif 2 x,500 kVA on.l 171 2a t,000KVA IGcalzuJ indiftirent I .molcos Ib tte pIunt

Utilities Gas System Gas systemextensions and atditions tdditton dofon tonksotrf.et all .Ihit will include piping lines (or asy- cteVlye of 1,g00.3 Von, nitrog.n, bles* (vmace gas, DitJo clek oven got end odd;tional OG oft wsr.

No odditions o necesary fat cem Artdirio of one tonk of ftrl oil with pressedair or 'sal olt. cepocity of 1,?00m3

Utiliths Waler System hAdtditionor recfirculating systems, Towelseitersulon: Including now pumnshouses, - ertension of cooimnatowers: cooling towers end p;p;ng . systems B c lls ,~~~~~~~~~~~~~~ - llese Impoundingtwlter pumpsof 2,800m3/laour ond 40tn ot woter column each - Fou pumpsfor the clort;ufotion station, 9004m3Aur oir 70'n of water colurrrneach

Foundryand Mointe- Morlernizatiomof maintenanceshopo Not included Modernization of mointenances t eps t enec Slopt cancelled

Expat ionotfoiundry opocity forrell looibcotion ar-d msachiningas well Diet. ae for mointenance works

jbiiomd Focilities Exter.sionand re-air,rogerrent of Roadsand Vehicles e%istingroads - d tmil linesu Addition and replacementof rail equipment and otlcr meobile - Ditto quiprent, Inclvding locomtotive tail cors,crones, Industrial i ~~~~~~~~~~tratorshl,etc.

Ceettruction Aqddtootarolndtepltoernent con- t fl~~~~quipmnent structfon equipmnentwi II include. tractorn,payloetrs, rubboertired l ~~~~~~~~~~crincs,topeg.ephic Instrume nt,Dit I * *r~~~~~~~eectiontools wtelding machines,. punnp end air comproesors

CozOdo Pedro lion Orsi Capacity increoseor Casode Pedro Minrt Iron Ore Mins, front 2.0 million Dltt to9.2million TPYof products (10 million TPY of crude ore)

__ _ ., ______.__ 1-41 - I= g,Is CompanmhbSidwOrglica Nado a

ANNEX 2

GENERALPROJECT DATA

- Company: CompanhiaSiderutgica 143cional - Project: CSNSteel Expansion Plan 'D' - StogeIlIl - IBRDLoan Contrct ND.1151/BR Date: August4, 1975 Amount: US$95,0million . i - SummaryProfect Description

TheStage Ill - Plan"D" wasprojected to increasethe rawsteel copacity of the Volta PodondoPlont from 2.5 to,4.6 mill:on ionsand to addcoriresponding rolling and I finishingfacilities.

- ProjectCompletion OriginalFormcast - June, 1981 PresentForecast - 1st Quarter, 1987

- Major Problems: Averagedelay - 30.8 months Shortageof domesticfinancing Cordrolof domesticsteel prices Dropof domesticsteel consumption Raiseof inflatiot

Moo. 14/010 -142- 3a.ott..¢;E low,4 - *. i ~~~~~~ccv.m§~ t'Uii CW..PANIA 5*OiguICA NAC0.b . J....

aW,O SlM..&INAS

CSI EANSION PROJECT- STAGE It and ill PROJECTCOiPLETION REPORT PROOUCTIONrftCILITIES ,

INSTALLEDWUACITIES

* _ *PRLSENT ru. STME 11 IIST:.LED CAPIC:TY

- COKEBATTrRitS 1.,2 and 3 1,270,000 COKEBATTERIES 4 and 5 1,304,0.30 SINTtRIlAllrtNE 1.2 and 3 4,l7S,000 SIUTCRMACIItfE 4 .?,)75,&00 6,sI,:c B-LAST FURNACE to. 3 *,571,000 BLASTFURNIACES I dnd 2 - REVAMPED 1,749,000 4,;,,07o - DOFSHOP - 2 VESSELS- 200ton 2,30c,oro OOFSHOP - 1 VESSEL2?0ton. ',s,:o ; CONTINUousCAS1ING - 1 MAChIINEl,ocG;ooo COtNTINUOUSCASTIIG -'2 and 3 XC1'.ACHvS 2sSooo T CONTilNUZUSCASTING to. 1 AF ER J,2000ooo 5 :.il - ~~~~~~~~~~~~~~~REVAFiP11'G - SLABBItIGAhD BLOO11NG HILL 1,4t0,000 - - I,4O - IAIL ANnSTRUCTURAL HILL 41S,000 _ s_J C0 - IIOTSTRIP M-ILL lo. 1 ,s.oxo0 UOTSTRIP HIILL No. 2 3,2C0,030 4,rE:,:C i - IIOTFINISll:iG LINENo. 1 lzo,oon IOTrINISIN;G LINENo. 2 32l,030 441, '0 IS.-'. *f SIlllSIIEAP 311G°3G llS,~.OC'_ - ll:,:Q6. - CORITINUOUSPICrLIHG LINE No. 2 *S2,000 tICKLING'INCSl4os. 3 and 4 2,t,ceo :, no tCOLDSTRI,' ISILLS Nos. 1 and 2 (

- COLDSTRIP MILL t0os. 1 an' ? 770, 0o (AFTERREV 4PIt:! J,2uc,vu -*.fi ! ~~~~~~~~~~~~~~~COM)STR'P MIlLLNo. 3 I'0,so,oo - ELECTROLYTICCLEAING LINE L flos. 1. 2 nad 3 46$,000 46i,:o CONTINUOUSANNEALINiG No. 1 FORSHEETS 460,000eo *:10 ; - CONTINUOUSlAtNNEALING LINES Nos. TEI*VERMILt No. 4 1, 2 and 3 1,038,000 SiS,000 1,5s5,-t - IONRTUNShINPLEALRE NG LINE lo0 CONTINUOUSANNEALING L1NE Nos. 5 tFOR.TINPLARES 212,000 2, 3 and.4 FORTINPIATES 20,000 is:, 3.c - COILPRLPARATICH LINES Nos. COILPREPARATION LINE No. 4 1,2 and 3 722,00C 401,000 1, I:, 0to0 s ELECTROLYTICTINNlING LINES Nos. ELECTROLYTICTIMNING LINES nos. 1, 2. 3 and 4 #4,ooo 5 and 6 440,000 i,060 O :0 BOXANNEALING FUPIACES AREAStJos. 1 and 2 670,000 , 6 ,0 | - CONTINUOUSGALVANIZING LIKE No. 17o,coo cONTINUCUSGALVANIZING LINES Nos. 2 0000 s:o,-c 30,:co - HOTDIP GALVANIZING LtNE so0o00 and 3 - TERNIEPLATESLINE 14,000 . - SHEAR48' Nos. I and 2 n20,000 2101 CiO COLDFINISHING LIIIE No. 4 COILS 1i0,ooo01,:?0 SNEETS 112,000 1I2,:20. - CASADE PEDRA MINING 2,$00,000 CASADE PEDRA MINING bo,ooo,coo lO,CC^,:.;o

.. : - * . ;Z .A p ; -- tS.eC S N C:SN- EXPANSIO0NPROJECT - STAGE 111 O -: Sl: C.CF%i V-m x DIPXWEUX0 DE OPERAoES PROJECTCCIY,?LcTON FEtP. t t.t _-.STAN ;.s_ U?~ 'X' ~ ~ ~ ~ ~ ~~~OE AM'ALAND ANNEDro.RET ,'I?LEwsN7^TAIC% SCHEULsDo-_

o_>~~ ~ ~~~~~~~~~~~~~~~9- a 1iN:979 19>a((tsEt0 19f3 l 194 s I9 1.1 19at . ise |

j ar~~~~',-n=.- CTSPLN p F0+- It g 11

i,I{;}ttA ttij !!11 tig, PLAN"D OF EXPANSION STAGE[it SUMMARYSCHEDULE OF CONSTRUCTIONAND ERECTION _ MAIN INSTALLATIONSTO BECONCLUDED

1 9 8 S 1 9 8 6 1987 7 ITEM ; I ,- - 1 - r ______% 53rd 4th 1 19 °29 39 49 19 290 39 49

!13IJZOL t1IlF4INi5 'I,,, .. iaasae.aaaeIsaaa*asa,. maiaa ;. I 13DIZOLICTINING ~ ~ NoOlf~ .*j__I~ s-li-I. 1- I IA . . TAPREFINING ANDWASHING WITH NaOHI | smaaulll *usslmspa*aa.1,;e I I . | . t~~~~~~~~~~~~~~~~~~-, -1----- i -- I- -- ;I'. I ;?LATESFUP.aNACE No. 4 -.. i.Sm1a3. ISa!aisg ...... s I z

CONTINJOUS ANNEALING LINE No.1 FOR . - | I *- TPL.ATES . . - - - _.. . . , . .---- 1 j-I '-_ ~~~~~~*i-1 ~~~ ! I *.d

LECTROLYTIC TINGALVANIZING LINE5 No. 2 I ,g,i,i SI''' 3 1 3 I TINPLATS- 1------. I-I--1 - _ i i | !rE~~ L-E _" j---M -I-- -i- |-i.- ELECTROLYTICTINNING LINENo. 5

I~~~ ~~~~85, I I 3 Ij 3m ! ELECTROLY'TICTINNING LINENO. 6 I j ',S*...... ,.||SIS'3333*JS'l*'IS...... }ISI

I j______I___,_I UTILITIES 1 I

1 FOUNDRt I ' I T - -

GENERAL SERViCES .i . -

Note: Thistabdo is valid only if the investmentof US$60.6 miiion in 1936is coi';nird - - tCeupmhIC610100111116 Sibbttt Naenl11:' .' !O"WOM| .!:

CSN -Expom Pra e- Stop "I' ;,t 0

Projet Completton Report - Reasonsfer D.leys tlrProleet Completl.*

i . : . ,,-,:*,UeS. - -~~~~~w -PA ICowtn,ctia,Ico. .nCsei. Facility of Item Tot|al Engiijring i Ferecohwn__a_ d w .tr hCSetopedW

Col6 kniftv No.4 is | 2 2 6 2 . , 6 Coke sotery Noe I O 4 2334 Cezo Olenrs-b-Pr&clsbPlont le16 * 3 S 4 ST- fJ4#*A'cchireNo.4 ! i 9 . 0 . 6 3.... 6lostFu ".cs Noe.1 43t 4 4 6 3 14 5 4 Blrxt FumweNo.2 ! a26 3 4 5 10 - , SO Sce; - 3rd. Von i$: 16 2 0 9 5 _ _ _ - Cxyer., o.4 'For Tinplates) 48 2 0 0 10 26 10 . . ' Te-,per';1 jQ 4 Ms:b&stitutatNo.S) 34 3 0 4 7 14 . : *- Setor No. A 39 * 0 0 15 0 24 . . . Cc- wo1u1AGCicri'zxn1g Line No.2 71 (b) 0 0 17 0 54 - . . - C:r.tiro%.s.3olvoriizing ULnNo.3 41 2 0 17 4 14 4 . Coil Fiepota+:nLUne No.4 57 4 0 22 0 22 5 . 4 E!ecTo1ytic Ti;nng Lip. No.5 73a) 4 0 23 0 46 - . ElectrolytieT;?n'rg Une No.6 80(b) 4 0 21 0 55 _ . . . Ro! Sp No.6 t0 0 0 0 o10 . * Roll ShopNo.7 3 0 0 0 3. _ . _ _ -r~euluei 16 .2068 - Low r - - - I -

- a) to sicwprgven "e to lknttattlnofInvesmnt ; b) t.;errup!eddue to lirmitottenof FinoncialRescums

I 2!/OAiP5 2 31 141 i7 181 1 I!l IH1. 22 1*. * -

CSN - EIpsiwohoitS 510b III

PeolectsCernpl.tlon ltport Stage III CopiUlo Cost Summery

~~~~~~~~_ ____ ., - Ct;a______- CanShwIiEUn UnIltzL1..... 1 (,fJOG$ tqs,lptmstt end Total Capital Costb facility or It.m _ h lb tle _ tzise De, Dceti sic, Grl I'r,to

CokaeOve oenJ ely-Ner&ch 48,737 49,3tV 90,044 57,024 48,737 106,401 is5,140 Sirter MachineNo.4 J YasdOse 9,756 41,458 51,214 50,102 9,756 91,50 101,316 BlastFuttcsi I and2 - Itvmrp 23,115 5:,057 76,a92 61,488 23,135 114,54S 138,3^0 W Shep- 3rdV"sml 12,016 26,961 38,f/7) 16,411 12,016 43,372 35,353 OCxyanShop 16,713 5,204 21,917 15,097 16,713 20,301 37,014 Celcr;4nq 3,413 4,693 8,106 6,434 3,413 11,127 14,540 C.ntinauesCostirng - Machires 2 end3 40,199 23,254 63,453 34,237 40,199 57,491 97,690 Slabbingend lamuinMill - Im- proemants _ 1,364 1,364 137 - 1,501 1,501 HofSttip MIII No. 2 113,227 157,228 270,455 119,654 113,27 276,882 390,1vt9 itotrlnhsitng LUfveNo. 2 0,267 15,907 24,114 17,335 8,267 33,242 41'509 PicklingUnes :land 4 36,050 36,908 72,9i8 30,310 36,050 67,218 103,2LO Cold StripM;ll) ond2 - Ravamp 20,759 40,114 60,8?3 11,874 20,759 51,9a8 72,747 Cold S.ip Mile No. 3 22,751 41,555 64,306 29,36 22,751 70,922 93,873 Coil Trante,venccCars 719 3,700 4,419 1,786 719 5,486 6,205 ContinuousAnnealingLo. No. 1 (Shosh) 11,689 17,372 29,061 14,449 11,689 31,821 43,510 Ci.stint.ousAnnealing Nci. 2, 3 and 4 (tinbplat) 25,611 25,496 51,107 21,006 25,611 46,502 72,1'3 leTparMIll No.5 8,420 .9,430 17,850 4,025 8,420 13,455 21,875 CohliIiilshing Lin No. 4 6,232 6,991 13,223 5,176 6,232 12,167 1C,)x- Calvanizin.jLim n 2 ond 3 23,188 21,255 44,443 26,523 23,188 47.7?o 70,9$o CoailPrepo ioL.m No. 4 1,827 2,519 1,346 2,909 1,827 5,428 7,255 ElectsolyticTmnngIint-s Soid 6 21550 29,883 51,433 19,921 21,550 49,804 71,354 RnPlShep% 6 7 6,631 5,947 12,578 5,569 6,6.1 11,516 lI,!47 FiectricolSystio - Alternatiots 1,751 11,196 12,947 16,497 1,751 27,693 29,444 Utilities (Wower,Al, Gts, ect.) 1,124 9,8S3 10,977 70,436 1,124 80,289 8),A13 SteenSystem ond Lao, Peessura Doiler 509 3,887 4,396 7,792 509 11.679 12 a3t Rail-Raodsend ar.od - 90 909 13,958 , 14,867 14,1167 olling MAAterioland Vehicles 1,965 19,619 21,584 77 1,965 19,696 21,&6-1 Foundry 937 3,SY5 4,532 3,852 937 7,447 8,384 Comstruet;onEquiprent 1,087 42 1,129 113 1,087 ISS 1,242 AuxliarySeOrvces 480 5,500 5,9aa 22,172 480 27,680 28,160 Cosade PedraMinIna 23,774 38,707 62,481 47,426 23,774 86,133 109,907 tAMisllaneos(Includes Stocks) ------

Subtoal' 493,217 712,919 1,206,136 733,227 493,217 1,446,146 1,939,363

Freights,hnuance and Taxes 53,557 16,117 69,674 - S3,557 16,117 69,674 Admnihhtrat;en(3.5%) 179,585 179,535 - . 179,585 179,!SSS Englovering,Purchzo and Inpaction - 120,896 120,896 - , 120,e96 120,896 Subtotal 546,774 1,029,517 1,576,291 733,227 546,774 1,762,7442,309,518

Pte-OperatlmalCcsts - 65,103 655,103 _ 65,103 65,103 Subtotal 546,774 1,094,620 1,641,394 733,227 546,774 1,827,847 2,374,62)

PhishcolContIngencles - 10,633 1C,6333 _ 10,633 10,(6q3 Subtotal 546,774 1,105,253 1,652,07/ 733,227 546,774 1,838,480 2,335,2.54 htca Contingencles - 15,952 15,952 - _ 15,9'%2 15,952

TOTAL 546,774 1,121,2051,667,979 733,227 546,774 I 8,4,432 2,401,706

fl t l n rW S inrn wn e fl S a r, r

~1I2~~ .j~~~ ~ _ roo~a CempanhiCemponlie ld.eg&EuI7*Side;Crii1 ANNEX7

CIANGE OF SCOPE . ~~ ~ ~ ~ ~ . .

Jtem Facility or Item * Volue

3 8 TorpodCars Purchse 8:4 5 Stn Dy Compressorfor OCygenShops 850 and 1,200torVday 4.0 7 onfinuousCasting - Tansferenceand Cooling Down Systmslfor Itlotes 16.2 9 Cranes336 and 341 1.6 23 Building"F "- GalvanizedSheets Storage 8.9 26 Bu.ildingE" - rin PlatesStorage 1.3 28 ElectricalSystem Alteration 1.8 29 Uitilities 9.2 ClarifiedWater Unit No. 3 WaterTreatment Unit * Hot StripMo11 o. 1 GeaieralEmissary .SouthZone Emissary CokeGas DistributionSyslem BlastFurnace Gas System for 8 and9 BoilersFeeding 32 -ElectricalPilers, Hauled Car and Hoists 2.0 33 LatheUt-SD/i 0.9 35 AutomaticCorrugating Machine , 1.4 36 Auxiliary Services 7.8

Others 3.5

-_ Total 67.0

*1109//8521 21141 131 51 ' (1 1# S

NA - 5 -form. A . 4 Aj' % r:M::M Companhlia Slderubigca Nlonel ANNi.X 8 -148-

DISBURSEMENTSCHIEDULE OF THE0NK LOAN

______(US$ Million) CalondarYo3r Quarter ApprnisalFoiecosts Actual

1975 _ _ _

/1976 - _ _ ! 1977 1 st 519 0.-1 2 nd 12.0 2.3 1978 1 st 17.0 3.2 2 nd 20.5 7.0 1.979 1 st *20.5 17.0 2 nd 15.7 8.9 1980 1st . 3.4 16.3

2 nod - 9.7 1981 1 st _ 6.1 2 nd 8.6 1982 1st . 6.2 2 nd - : 2 1 983 1 st - 2.9 2 nd - 0.8 1984 1 st . 1.9

2 ni - 1.4 1985 _ _

Total _ 95.Q0 _6

I1q/26/t;5 i21 131 141 1t1F. I d,27L-- NA. S rotr.A * 4 -9 ANtIFX 9 L-: Companhia Siderorgico Nacional . ". .

EQlIPMENTFINANCED BY IBRDLOAN

.Povew Actoc-t Discrimination US$ % riS$ __ Million Million

CalciningPlant 5.1 5.4 4.2 4.4 ColtiwuousCastinp Plant 28.2 29.7 26.3 27.7 RDllInfjMill And ltinisiing 13.2 13.9 10.8 11.4 CronesAnd l'oists 19.0 20.0 16.6 17.6 Ele.trical Utilities And LaboraooryF&6ilities 25.0 26.3 13.6 19.6 FoundryAnd Construction 1.1 1.2 1.0 1.1 Mobil5 Equipment . 0.2 0.2 0.1 0.1 Improvementof Blost Fuenacas1 E. 2 0.7 0.7 1.1 1.2 Mining EquipmentAnd Facilities . 1.7 1.8 1.7 1.8 Supervision 0.4 0.4 2.7 2.99 Not ConsidoreJonThe OCiginal Estimate 0.4 0.4 6.1 6..4

Additional SparePorts - _ 1.6 1.7 blast FurnaceNo.3 * | 3.9 4.1

~~~- .--.. _ Tota I 95.0 100.0 94.6 0;1.0

NB - 6 - fotm. A = *

.S~~~~~~~~~~~~~~______

.,_ __ _ ,______. _ ~~~~N.5iqA. - 150 -

_____ ~ANNEXKI/I =. tr.t Companhia Sider6rgica Naclonal

ENGINWERINCGDIReCTION

Abbreviation Offices DV EnginceringDirector GDbVRJ EngineeringDirector Office - Riode Janeiro GGPS Wor! and SystemsPlanning General Ntnagrnetnt GGAE ExpansionPlanning and Followin-,- up Generel Maragement DET Cost EstirnuteDivision GPA Programmingand PhysicalFoIIoN-.'inq-up Management GCE Expansion Cost Accoa,lt Mt9rat%ernent GAO Budgetingand Physiceil- Financingi..onsolici-tion Analysis Motnigernerit SGEN I ngineeringGeneral Superintendert GGCT Purchesingard ContracisGeneral Management GAG Materials _toragoand Purcfi:sinj ancigement DCX ExpansionPurchusin, Division) DTQ StoreskeepingCGontrol C:ivision DAs Dciivery cnd Werehousin- Division DRII j quipment, MUterialsiie-yi1urizertion, Inspectioti eind Beiving Division G(:Q ItnEquipantnIPurchasin

1NB A/a 4___j61 - T - - 171 - Na.*. rx(t,m.A. 4 Lj ~~~~~ENGINEERINGDIRECTION BASICSTRUCTURE

GDE-Ai ~ GD/V

ADC1 7 ~~ADCJ GSGI

I _ _~~~~~~~~~~~~~~~~~~~~~~~~.

GCQ~~~~ r SGCO .;sc. SGMI t GA

L.C...DI SGE ~ LVj {~~~A*I!. - iiI I I GP -DCX j D

1-=D7' ___ DA't 2t_Rx-5M6D_ J* 0 JECrwi-!-L4_2rI . !e~~~~~~~~~~~~~~~~~~~~~~~~~~f '-CCC^2¢tX-! ' , p~~ .* Av Companhic Siderrtsiica National

*. s%; - £ia.?cf P ejet-Slog. III '** t;Paisc Co-plet;on Report - Hilstorteal Sole, Perfonronce

197 . 1 78 1 979 19 0 I 1983 19S* 19c5 Pr____L_c_ _i_ Ackal R Actoi ;eA|w7Actvol f R ev;e A:twl SW_Rve ActualvI;w T AetAtl , w ; - A:t.-

Se".:ePo-se _s- 432.6 26_.S ao.o 458.1 o23.0 490.3 623.3 535.0 1,199-5 433.7 1,671.9 449.7 1,57S.5 447.S 1 tt60.* 1 77?.2 : k.4A M42 * sa':1 F,es.as 666.0 715.2 662.0 778.6 662.0 790.2 661.2 820.0 765.5 578.7 1.017.6 637.4 1,te3.5 53.3 1,66J.8 633.4 f1t.- e74.0

Tta:' it %.jcm 1,098.6 1,051.1 1,292.0 1,236.7 1,285.0 1,280.5 1,284.5 1,364.u 9t,9S.0 1,012.4 2,755.4 1,087.1 3,112.3 98M.1 3,329.2 1,409.46 .329.? ,256.0 tt, .--F!:. A4cts 393.9 20!.7 394.0 127.1 394.0 21C.6 393.1 265.5 339.3 163.7 390.3 188.3 391.2 144.7 393.9 132.3 303.91P* 94.0 14.4 _ 33.7 - .39.0 _ 232.5 142.6 3.2 11.6 _5.- _ a o.S _ _ 0.2 - - 25.3 _ - - 6.5 _

: -02fe 1,492.5 1.317.S 1,686.0 1,397.5 1;679.C ' 63C.2 ;677,.6 1,912.0 2.354.3 1.3AA.0 3,145.7 1,278.6 3,533.5 1,165.9 3,723.1 1597:5 3,723.1 1 9 .s.-C:te' F:t.d truds - 0.5 | 0.1 - 13.80 4.5 22.0 110.5 29.1 319.2 - 94.8 - 695.4 r.0 ;^- t: *. *'.h;n _ 2.2 - 0.6 - 25.8 _ 34.7 2.0 20.5 40.0 47,9 42.1 77.1 74.61

.: * : : 2.7W:ts - _0.7 - 39.6 - 39.2 24.0 131.0 69.1 367.1 42.1 1,026.9 _ 774.0' - 't0 152.0

- -*J . wk _-v< 3,1 - 49.7 - )I.4 [ - - 2t.0 _ 5.6 - 32.7 - 46.8 4!.C

7.5 17.0 139.0 39;.1 151.0 325.7 152.A 197.3 - 37.7 _ 59.7 - 51.1' - - _-

- n 49.7 - 16.5 - .10.0 - 174,0 4.0 - - -_ _- _

:7.5 72.5 139.0 457.0 151.0 389.7 152.4 310.5 24.0 196.7 69.1 432.4 42.1 1,10.7 - 3216.S -

e} - -: t:*.. I:*5ttt 1.3cO.3 1.s25.0 1,854.51.320.0 2,019.9 1230.D j2.,??.5 2,378.3 1,-0.7 3,21A.8I1l71.Q 3.625.6 2,276.6 2.7 4?'.2 3 JI.3. 1 l2.710

*' - (*v) | 92.7 1 101.6 1'0.4 121.4 64.8 53.2 62.8 64.8 *2.9M ~~,it. ..- - ,~ I _ -_ I

?*je w;c - tovqwand 1vworkof Staop111 Expansgon Puiet

Pe.:r: esw. -1 ,., IC8D to 19S5 Section tt G - E;'btt A-2 lC,Z .wd19S9: on 6 A - Ebib* A - pageI of2

CStCSN- tts74a.

.. . T -nmpunhic : SidertOgicaNocional

C N EXPANSIONPROJECT - STAGEIIl - PROJECICOMPLETION REPORT MaterIals for Direct Resole and Processirtg

Discrimin.ation 1977 197 179 1580 93 1982 194 99

kctenal Purchasedfor Direct PesaleWi;hout Reprcccssing (10tnris.)

UncoetedFlat Products 6.5 - - - - _ _ 1 _ _ Co,':cd F!at Produc's 87.2 98.7 79.2 53,3 1.4 Totcl Flat P_ducts 93.7 98.7 79.2 53.3 1.4 | _ Serni-F.nislhed _ _ - 20.0 - _ I _ N C.-ma'Prcts 3.7 0.3 9.5 0.4 _ _ _ _

Toea! 97.4 99.0 79.2 £2,8 1.3 _ _ _ _

SaiesRevenues From Direct Res%le(U1S$Million) 67.7 69,4 67.3 68.8 7.3 - _ _ _ CosL'OfIm30-?ts (US$ MuIf'on) 50.4 54.8 51,6 67.7 2.5. - _ _ G-'ss .crgin (USSMillion) 17.3 -14.6 15.7 7.1 4.8 -

ztiereul Purcl:csedforProcezsin9 inthe Plant O0e,I)ns Ingnts _ _ 4rO 5.0 _ _ _ _ Slabs _- _ - 353-.0 115.0 Hot-FRoNedC:i1s 56.0 - _ _ 9.0 - - ColJFPblcd Cls 65.0 121.0 142,0 189.0 118.0 50.0 - _

_jt-i21.0 121.0 j>.0 194,0 118.0 '0.0 9.0 353,0 t11.0

- . 4f>2I:;! i&42 __t4_1__-______..___F;

^ ,- ,. ' ;'. :fre,r^t 2 Companhic SiderOrgicaNacional -_

CSN - Expand;onProiect - Stage IlIl

P.oiect Completion Report

General Price Index Exchange Rate and.Def,lator

_.______... W= ...... General Price Index('*) EXchangeRot.e( Acurnulated Period _Lv Variation Varoon Deflator ______ndex Level Incr 2e=(/o , II~nc case 0/%) (%/______1976(*a) 77 - 11.310 - _ 100.0 1.000 1977 i00 29.9 14.147 25.1 3.8 103.8 0,963 1978 139 39.0 18.074 27.8 8.8 112.9 0,886 1 1979 214 54.0 26.904 48.9 3.4 116.8 0.856M 1980 428 100.0 .52.720 96.0 j 2.0 119.1 0.840 1981 897 109,6 S3,172 76.7 18.6 141.3 0.708 1982 1,754 95.5 179.635 92.18 1.4 143.2 0,698 19t33 4,464 .154.5 577.748 221.6 (26,4) 113.3 0.883 1984 14,312 220.6 1.847.634 219.8 0.3 11. 7 0.88 1985 (***) 46,621 225.7 6,.222,548 236.8 (3.4) 109.9 0.910 1986(**) J A530 171.4 17,,000.000 173.2 (0.7) 109.2 0.916

(:)Averegeoffll! fmarye zZ ( ') September1st, 19;76 ' X ,(-.*) EsTimatedfromSFST/PG * * I-'

'b! 9/26,/5/ i:' 141 i7 l !8i 91 lo; MM-n=Companhic SiderOrgicaNacional

C.N - Expansion Project - Stago iII Project CompIetion ReporW General Price index E xchange Rate and Inflator

5=.- - ~ ~ * . = Period General Price Index Exch.cnae,Rh'e Vaiation Acumulatod

Year | M,onth_I !ndox LevelMior~~th Rtedj_,tion(¢o/~~o'~~( fr~dOX L~~'OI CrUS;CrV USS OiM Variation

1976 Seotsmbei 77 _ 11,310 - 1000 1.000 1975 June 49 57,1 7.991 41.5 11.0 90.1 1.170 1975 1Mc> 48 2-1 7.92v O 0.9 1.2 89 0 1.123 1975 AApril 47 2,1 7.808 1.4 0,7 88.4 1.131 1 .975 Morcn 46 2.2 7.668 1.8 0.4 88.1 1.136 1975 'February 45 2.2 7.5;72 1.3 0,9 87,3 1.146 1975 J an-jry 44 2.3 i 7.450 1.6 0.7 86.7 1.154

974 iDeccomber 43 2.3 7-360 1.1 1.2 85.6 1.168 1974 Noven4.b- 42 2.4 1.5 0.9 84.9 1.178

____.______14__71-

* * * ~rr- rt j88? tiEls rz-, fZ.3 Companhia SiderGrgica aiodna I

PROFITAND LCVSS

s _ USSAN'll70n Item* _978 1979 19i0 198a1 1932 1983 1984 1 st hl6P

Gross Soles 942 9 [:0 1.028 1.050 807 1- M01

ManuracturedPoducts Tax (Excise Tx) (34) (37) (42) (38) (3;) (23) (31) (16) Sales Tax (101) (113! (136) (ICSj (92) (63) (90) (46) Other Exp r ' 0 0 0 (4A) (56) (34) (39) (28)

: Net Sales , 87 834 I 92 4 850 767 876 411

Cost of Goods (728) (616) p21) (L627 (637) )

Gross Profit 230 238 194 218 137 140 239 8S

Operational Expenses . Gene,al and Ackn;;shat;evs (53) (65) 1(69) (56) (85) $1,) (4i) (41) Sales ,49) (53) (56j (16) (22) (35) '31) (13) F;nanciel Net (75) (52) (C) (126) (191) (255) (217) (155) Deprecdotion (56) (60) (4) (6' (6) ) (41) E27)

Profit (Loss) Operational 3 3 3 14 IE) (0 (91 (148)

Non-O.nerational Income fInancicl 4 I la IS 6 2 1 0 Othes 74 75 82 55 73 40 1 4

Non-Oporataonol Excenses

Othersncl 26) (V) (76) (12) () (4) (3) (1) Profit (Loss) 8efore Income Tax e 26 17 67 S95 4 (I9 1146)

Proviston for InrePme Tax or Defe-red T Income ax 2 30 2 6 0 0 0 0

Profit (Lost) Aftev Income Tax 11 56 18 73 (95) (204) (89) (146)

I~ i .Ina . X

,' OD9b/,85 '2 1 ' 3 i4f - t;, I U 191t) IOj_ p^:::ota es F(ssr!ejiC:nnto - IS57 -

______I!X J / -40 wK* Componh'u SaGO;oaoicaN060nal ~~~~AtJI

SALACAtE SiWT . . *. . ~~~4% .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~U T. ,,z -n,-

Discrillminct,on 1978 .1979 . 1960 1981 1902 1960 19a4 I * I vEi -~~~~~~~~~~~~~~~~.t . . ._ . I. I ASSETS . .

Cutrent A'icl.

Cashel d&ws . 44,650 45,313 36,981 25,71' 20,115 21,512 130,8f 36,098 AccoumntSRaceIvablo 149,402 163, 19 334,369 224,271 201,099 167,e19 245,274 213,000 T,ad. billsOiscosmted (34,7431 (56,216)1 (93,8an (42,681) (82.5431 (20,5771 74,447 (79,311) NOviaon far DoUbtfuIDebts (956 (720) (470 (3,614. (073 (7-5 W2-9 (121) AfInleOtorisnPn S 15,808 12,159 1S, 2b 68D 10,473 1,425 11,976O 2 1,C03 hSn§OtH1S . 22e,675 . 122,519 227,390 348,200 2C9,166i 217,537 329,6791 263, ofo 42,401 30,645 9,065, 3,7151 12,.941 17,876 27, r32 15,791

Total Of Ctrrc;nt Assets 445,437 376,e84 514,747 556,0e8 o.9931{ 404,s36 671,044 4;9,507

LOWoTYermA5seI5

ELEnRO8I.&S (Law 415s463 26,361 3X,047 4j,266 44,178 53,712 39,C£9 40,865 43,627

lOl Staidfor Snle . 1,523 496 430 6,128 16,$3 1,610 2,009 I,Ss;. DfrcItd lnwre Tax 0 30,07a 33,610 30,76,l 33,469 4,309 9,508 5,591 Othilers C,169 2,761 1,681 4,99A 4,412 3,061J 3,2611 2,36i _ , ___~~~~~~~ ~--.-__ _--{_.-.--_-.-._ .. - 4_ TotO I of Long -Term Assets 36e053 66.3S2j 81,C371 C6,O,? 10E.426; 48,0.9 5 6 5

Permanent Assets

Investments 56,924 56,014 61,939 71,751 75,934 76,£90 EO,090 80,114 DeferredCharges 50,098 43,212 39,629 450,432 643,985 866,236 776,110 793,290 t FixedAnt5s

TuchnlcolFixed Asstts 1,53P,.99 1,538,849 1,560,18711,56l,465 2,5530#A&2, sSs,112 2,556,650 3, 265,956 -. .()e;eciotionandAccumulboid Eidwustton (490, 9iO 155.7,362 (628,580) j,08,443) (792,3il (936, 396 (I, 07, 9 35111, 5, * 91) FixedAssohts in Corse - 129,639 101,763 100,263 159,907. 174,3231 169,454 170,633 176,4.5 r1 ¢OnsitsOn Expk.,:o;On 57C,740 1,144,649 1,79,144 2,002, 7771 1,047, 2 1,11 ,190 1,150,971 49, 613

l-tol of Fixed Assets 1,48,430 2,727,899 2,761,014 3.,015,703|2,9:9,737 2.8<8,260;2,v0,,39I2,714,f3 Total of Pormrnnet ssets 1 544G12,327 1252 , P1225r 2 3,537,80663,Z jT,-----5 _Total of A sets 5 1 IC0.04, 4,294,89y 3?,7:9.5-416IA, 131, 129

- ()Includes USS.100,252thiucwnd of Conp'uls3 'y Dwosit - Resoh.ron479 Or DACEM

ppof Resolution114,CEM~~~~~~~~~~~~~~~~~~~ 479

__~~~~~~~~~~____ rI :1z i r -;*r;1.r. ,_ 701-f.. Ii! - 156i_

i"i tl Coapo

BALANCEstET

______tJ~~~~~~~~~~~~~~~~~SSThc..sol.e Dlscklminetion ion 1979 19- 1981 1982 1981 1984 Id hot(8s5

tLIABILITIES Current Liabilities SuppllersI Contactors 31,829 31,706 112,1198 141,348 93,967 48,247 83,513 113,961 Afliliated Componies 17,596 8,975 265 27,5'.9 23,932 16,561 124,898 E.569 * FinancedtImports . 98,712 72,404 160,963 1R13,656 175,EiO2 83,849 31,160 23,984 DividendsPayable 4,178 1,972 540 286 59 1 0 0 Localand ForeignFinoncing 145,024 144,721 179,075 297,7CW 272,612 263,073 481,512 554,372 hIterestand OtherFinancing Char- - "sPuyable 8,429 14,129 52,841 43,811 86,616 57,255 75,745 99,C43 Ptrovistonsfor InconmeTax 1,912 0 2,745 0 0 0 0 0 TaxesandSocial Security Payable 27,102 25,638 59,901 26,800 27,110 21,095- 18,889 23,057 AccounfshP6yable 37,636 35,661 114,256 94,836 90,974 125,386 64,878 93,611 Advoncson Lettefsof Cred;t (Ex- orot) 5,154 13,656 3,922 13,301 28,051 58,653 46,90 34,177 - CurrentAccounts of Govertnl . Entities 753 12,890 22,585 101,079 124,C02 38,480 53,It1 l 36,937

Total Current Liabilities 3/3,3251 36!,7521 7-9,311 930,375j 923,200 712,600W 9810,6o701,063,731

Long-Term Liabilities 1 . LOcaland ForeignFinoncing 1,029,365 1,124,457 1, 377,070;, 34 ,71 1,434,515 1,216,328 1,251,491 1,161,1ll2 PrDvislonandAccounts Poyobl 2,528 1,514 1,3981 36,233 5;,949 7,574 11,3791 16,554

Total of Long-Torm Liabilities1,031,B93 1,125,971 1,378,468 1,381,945 1,492,464 1,223,902 1,26?,8/.I 1,177,736

Results From Future Periods 53 Q0 Q .0 o-* Q Q. Stockholders' Equity ShoreCapital 895,560 907,686 1,050,6861,366,056 1,518,106 2,018,024 2,324,669 2,32A.669 CopftalResevs 70,802 100,247 129,310 10,195 0 (te) (758) 0 0 RIwaouationRkerves 0 0 0 756 755 754 754 ;54 ProfitResarves 45,425 0 545 0 0 0 0 0 Profiti(Lases Accumulated (1k) (80,108) 111,810 4,053 139,077 (172, 847 (02,762) (326,781)B (58S,428j AdvanceFor future Capitol Sub- i scription 0 162,925 186,043 351,6031 496,30S 422,639 144,038I 152,667 Total ,ofStockholder's Fquity 9_1,679 1,282,668 1,370,67 1,067,717 1,842.319i2,357,897 2.142,6M0 1,S89,662

Total of Assets 12,336,950 2,770,391 |3,4S8,41b 4,1S,037014,257,983! 4,2'4,399I43,226 I4,131,129

(it) Includes ExchongeDjf ference on the Conversion

(T) Treyun Stock

IpO9/2ug85T21 1:T i?-Tf1 rF.-r - - 15A -

|C:S t. Companhio Sldoer4gicc Nocaona --

SM1BCESANID APMICATIO OF sU*S * _ ¢ 0t~~~~~~~~~~~IS t.V-l?

(1lstrtl.flnul. ' 3Im 19P 19 MI 1982 1 19C4 1 S- L.afV 3

I_ >sstXW - *(10) 192 62 42218() 303 s (i:0) Not Noflt (LOW 10 56 18 (-195) (204) (7 (1,16) Dewpciaion,Ex?ineon and AnmwlttaW * 74 73 . 5 103 * 1E63 lip LensVTo Poovi;on O a O O is 2 4 6R bauIt on salesof l'emaOne,vAa1s 0 0 a 0 251 (7 *Emnoi (LOWn)in Cavnwnn (9f) . e ;i) so (64) 296 (19) (Iw) 0 cm* m 0) (9) 23 (4) 0

*2- fnStoclasldm * . 176 2S4 195 378 209 - 426 29 9 3 - on Loa-S 490 499 243 396 284 217 240 5 tLocal . 32. 239 155 143 66 193 22 0 fomisn hencdinu 166 240 se 251 218 24 218 5 14- F amalw oumes 9 10 9 *o . IS 11 29 De-mosseof Otfin to.n T*n Ansets 0 0 I I 0 1 9 Incmo of Other bo TefmAcats ya"to 0 O. 0 _ 3 7 0 0O Soir of Pal Stoh and Invt~wt 0 0 0 0 0 IS 3 13 Olw. 9 10 9 22 0 0 7 7

Total of Sources 665 905 509 1,021 533 961 3u8 'c;!)

APPlICATIONS

5 - FixerdAseh cnd Usferred Ciomes 49 550 614 759 393 342 155 67 III .47 544 601 674 372 332 137 59 S"tg 3 Con!,ectlon Plan b'avap of Blost urvwe 1,s. P.ma. nel Nbtoeral 19 6 13 85 21 10 li 8

6 - Investments 3 I 1 4 0 1 O |

7-finnen iTron.nwce for Shortt:n . . 126 404 92 444 196 435 205 100

others_ 41 r 1t 23 10 IC lnceao of Otl Long-TTmAws 8 7 11 0 (1) 6 4 Oacrfe of Other or4m Acounh lP:be 0 0 0 0 0 52 0 0 DivndWId - *2 0 1 .- 0 0 0 0 0 t . ~OiIh . 13 0 0 16 23 (13) 4 6

. _ lotelof Appitcotlons 666 962 719 1,224 612 816 370 I 17

N. ? Worktin Capital (') (57) (210) (20i) (79) 14t (2) (?VI 141 .._ . . . . _

Sqc.eIati@ d.a Plovqrnanrnli- , r :5,J CcO.)ponhiaS;derurgica Naeiortal

CSN- EXPANSICNPaCJECT - STAGEIII Fincnenil Note of Return Igt'rp.ntol o'-i-r .__ ___ ,.______. sD-:0mination 1977 1978 197 1980 1981 1982 193 94 1lM 1986 1987 M3 1989 10 191 im 19 I4 I 19; l- 34 Salesitag III 693 837 834 922 834 858 767 876 958 1,238 1,351 1;5 1t558 1,S83 1,581 1,403 1,553 1,57i I.S7z 11 3 I,!:,% :.:1 Sol Stptl °693 807 834 922 34 858 639 641 620 620 620 6 3 620 620 620 620 620 'I * o 6 e:: v- 95S 9i3 i- (1)l saw,wsoISoIs 0 0 0 *0 0 0 128 235 2338 618 731 914 938 963 961 7M5 9*. 9S3

ite cetCS5fe its 460 503 518 643 515 655t 4A04 450 523 684 737 775 752 777 757 743 54 781 ,5M777 I 73 75;.- D;e Cab Sftp it 46D Sfl 518 643 SIS 603 370 371 4D7 437 407 407 407 407 4W D47 407 437 407 43 : 12 Sner fl Dim"Cet 0 0 0 0 0 0 74 79 116 277 330 368 345 370 3 3431 347 374 348 370J 3U 3U V!}O

f3 osoIMrine Cats h ae0 0 0 0 0 0 19 4 38 33 40 4S 48 48 ....48 4e a..458 ..141J8 . 43 |4:

(4) coots'. CC$ft 156 371 435 462 414 186 82 45 39 101 67 41 33 47 4 42 47 4 4 47 Al .; * .

2 ; (St New dtVWmintancis(iroeto" O O . O O O O O 1 12 10 12 S 1 121 10l 13 11 31

___------______- 1------__ ._ _

twf in t=.eclCoshl-;tnt (156 ¢71)(435) t462) (414)1 (186). (47) 107 14i OD 156 416 4651 489. 51c6i35S 494 474r 5D2 41,17 4f": j- 11,77l. (5)-{)lt |l l llll l|.{ (Zt- (-l -(4) -- _ ------...ii-1rrw.t tat CashFlom -' ., ------~ ------f-- --- _ __--1------l I--- Defiet 95 1oe2.lo.60.9530.080.806 0.83856 0.8iO40 0.708 0.692 00910.8830.910800 0.910 0.910 0.910 0.90O.S:1.0...... 0.9...0..0.9...0..0..910..0..910...0..910...0.910....0.910...0.....3.....9",

('Apt -Sert./76) (150) (2i 1445)0t72) t41 )130) 132 73 142 39 423 47 321 449 431 | I 13 44 : t _~~~~~~~~ _a.4 n.._ . _ _-i =* _ a *. .- a ...... !. ,__

lt'awsw Paot*of Ibt, 10% * 73.96 73.96 1% (79.72) 10 +-- 10.4

Note Th fo1efuaDtwirfe ed. udiptedhn shedewlpsnt of te oIe eh,. 1, L.0 nl,es U-*d to A. Celculationof the berneental Rtd of RatwnuO enpremd .; USSof September,1976; 2i 1 esoleso. o-sccorn 183M aedte h Tlowgyne wae thsectcfeedt the Sragell, duted hutoorductpiono2.5Illoto f anodete4 3i * v.-g c;tOl inc,em in the rsea esated in the 'CWptdlCoo", distributedaver he ptiod 198-1989z 4, Tw r,cup.nion of the tacncntol WorkingCct;l enIdof 10%of thc Fi Invesmentswer creWdwr es eccwisgIn 1999 St Iegognmme cther item : a) tp to 1984,ell the sws cwrespd to r values; b) in 1985,all the mr carrqand to the reel va up tohSpmbr cod to fosceOed vlues for Octeor, Novembwrnd DOecemb. c) ft 1986to 2t00, ell t eAe coweepento the SIVENRASnentbel Stoel - Hlpothel i,d Nwmbr, 19m8

5-~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~1

_ ..2. :.-i0 de P.co;iomento ter CompanhiaSiderrrgica Nacional

CSN - EX?AMSIONPROJECr - STAGEIII

Incre.nsntal Econotric Rate of Return

I*3 | D;scriu;ntl o n 1977 1978 1979 1980 1981 1982 1983 1934 1985 1986 1987 1988 1989 1990 1991 m 1993 1994 1995 1996 1997

Selu11 tep1 ~~~~~~5e3596 690 742 690 814 9ft t O50 1,159 1,39 1,53-5 1,700 1,70U 1,700 1,700 1,700 Ir70t7 1 7, 1 7dO t7x 1XAV7JX 7 X$ 1 ?X !, i: SolStopr Y 583 596 690 742 690 814 793 793 793 793 793 793 793 793 793 m 7S3 793 793 7V 7 .3 .:C Si I :7 Inc..um:+e..toISoe0 0 0 0 0 0 158 257 366 576 742 97 990 90 99 09 907 9 7 9C7 gap 9C %038 13 LO1 80#t :Z I tE.S3 2 1 Inrrentlc Sales x ,20 /I 0 0 0 . 0 0 190 308 439 691 M90 1,088 1,088 1088 1,088 1,088 1,08 1,088 ! - . -- - -. ------.------. ------.------, -. - . - - . -…… 37320 3 329 3S 32° *-- il 1 2- . emDetr ect Cmts 0 A . 0 0 0 70 44 109 262 312 347 326 549 331 0 3.x 3 -' 313 33 ioma?. ntl iDk*.ctCosft x 1,0 /2 0 0 0 0 0 0 76 Ps 119 285 339 37V 355 380 360 351 3W 314 3 # 380

(j; tnIntel Indiccr Costs 0 0 0. 0 0 0 19 4 38 33 40 48 48 48 48 48 48 48 48 443 t43

4i 4i 43 i4C Cc1el Coas? 150 358 420 446 400 180 79 43 38 98 65 38 35 43 43 39 43 43 43 43 1 4,: i 4,5| * -') P't,1Coam x I,037 /3 155 371 435 462 415 187 82 45 39 102 67 39 36 45 145 40 45 45 45

__I _ .~ _ I~--'t .-- _---.-___ . _- ___.--_ .- _ _ ._.___----.--- ~-- .--- t--- … - ~-~----.-- (l.r fretlt/alorc;ir-ep?aOl… 0 0 0 0 0 0 0 0 0 126 126 31 30 O 0 0 0 D ° 0 0 el

11 31 3i Rpai ndtA;oi,tene~.(lncrmemntbl) 0 0 0 0 0 0 0 0 0 1 12 10 12 9 _ 1 12 110 13 12 9 _ 1 12 10 13 I1 3 | ,,) R.p.rwtdtlaint.EOncrneatel)xl, 0 0 0 0 0 0 ° 0 0 1 12 10 3 /3 ------_------_*------___.- ----. *---- i i 1.et In:te-eta, C017 Flew-C.xrent F 634 04 34' ^t;o~e,t.IttHl~3H4HS)6) (15S) (371) (435) (462) (415) (187) 13 178 243 144 306 582 60 606 635; 648 626 601 624 60 _ _ _ ~~ ~~r ------~~ ------r------..- - t ----- 1 :.; i .86MU0.963 0.856 0.840 0.708 0.698 0.833 0.880 10.9100.910 0.910 0.910 0.910 0.910 0.910 0.910 0.910 0.910 000.910 9.91010.f ° .'

S 77 7 Net4hc 'e t rl CO Fawf ~(10) (329) (372) (38) (294)130) 11 157 221 131 278 530 552 551 590 7 54o | 5687 50)' . *:.J!SSaw.p 763 _a _ t= = maW S .: .a - ______. a- . _ _ _ _ _a _ ~. _ a -- ma ma

e - (54;87) 13 + 75.87 135 11

/I Sboda r:keotren 8 - WOxchaxer e 520,*.xbng rot of thx yea? /2 44. of d;re cat??>reprrs.l e,penusin foreigncurr.nciee er udtillztin of .moetdtjerow-tatelr;ol 1,20a 0,44 I x 0,56 *I,oes ,I 18,5* of cpitl xpendettw we incoed in foign cmncits

1l,20 x1,185+IA,815l,087 141~~~~~~~~~~~~~~~1 g. t II Ig l Ii-St 1.04/28/8 5N4 n1htJ 3 4 K5 ci -162- r. C(' .FTtA.rlc C;aClonoI NDlOA -_- * ___*_Al1IiLE I//1

'*4., 4*|F *.14 ' '"-' - STAIE '

qulpmeAl

-,___.a.S,S1 t_.Da * tt~ t, - .as . . W i d *t .fl. . 2 * - . quin.orent Air rollution Contiolrqui;ent Colt

CoL. Munt ctole Ovive wtlt.ry no. 4l/YA antd5 Loriycar, jenolteas#yfrE2,-;M' *- | Queh*cincStotions Glslter;e,r,,.A.44AA ca:it Spraysoniu bc.ffes for dustrcmoval 7,456 5 Sr-PruAuctPlhnai bonr.)l rcefning 7,927,7i'4 ColW Olen Co: Dc-.ulrt,izut ton Gas cironing systemand rusra in the plant 6, Ol,7:1

SVt:nl lloot ino.4 tlticlonesMu andgob illers 4,042,.9i1

ISM t u1-naeo Stock 1-,e Ars sno.I oild 2 Cycltolss ics 2*;7

S:tel Mi't I'lirnt Pig Iron lDe.uMIvlsolion has filter 1,0?1,54p

Calcish, Cw4;de Cru.'iing Plant og filter . 55,9;3 Sle. lker.nvrngSystem rg54 filtor 14,235

...... , _;.,,lt Ma.1tWt.. type lilns 3 64 Siaulkers LUmtsumouend D vt,dilounlooding Spraytfor dust rmrnoval SI |Clcir.-- rolns looISitJ awk U,,ka.dir,g Bog filler 17, I c oPln LD(10 177.,-, - | C;me Plant Pla flmi4liionilteri 177,

_ ir, Mt2 I-lot 5t;;p VVIli no.2 Scru9bat 2ro 536

. RaiI !iup niot 2l;s.a7intorS5ni7 . 1 ;, ColdSthip Mill rno.3 ScrulSbe: Cont;irucusAnulr.ling Line for lin Plate no. Scrubber .. S1 d 2, 3 nid4 (a) GontinuousAnnscol!ng Plont Line *o. Ic) Scrubber 10t,_7 ContinuousPick4;i Line no.30nd4 Scnubbers 957, ?60 Acid Peteoing Plant ne 1 and 2 Absorptiiontores tcrubben 4, IC;, r.;,

r-,*.*1-. . CsntiltsiousZ;nc Cooinq Line no.2 (I) ond 3 Scnrbbers 147, t?- Electrolytic lIr.ninq t i,e no.5 and6 Scrubbers ; 10; 5

All CEuipmnCn _ 31,1i,8f

(a) ^ l s.,On yet

ct:a. and erection cosvsnot Included

;i z@,2~TEf.1 Jfl- 4 TiL;__ ...... _. 7 _ -=r .h'L. -__' -163-

I s Coeipanhie Sidorrgkita Necionel ANNrX 17/p

CSN- IXNANSIONPROJECT- STACE IlIl Weter Pellutlnn Control Equilpment

A rem EquIpmmnt WaerAlr Pollut;onControl Equipmrnt (ussI (00 *

HlDtSEtlp "Ill tit StripMill no2 CI, greasend scole movalwith weter weling andf eirculatiensyswn 16,030,500 Nsctmlisationtank byion rsin

iat StripM'l no. I CII. greaseC.r.d scale lnval w%It b water coalingand recircublatinsystem (a) 6,837,087 ColdSi r;i M;II ColdStrip Mill no. 1, 2 and3 Oil, greoseand sale rrnoval plont 1. 23, 193 PFntuhti,UnM ContinuousPickliing Line no. 3 and4 Chwmealtreatrent Flant 2,379,6o6 Eluctolytt CleaoningLine no. I and 2 ContireousAmealing PlateLine no. 1 (a) |(ictinvoi-s Anne&lirj L!neno. 1,2 Qt!, 3 end

GonttnuousZinc Cooti;i' Unano. 1,2 (k)and

Semoi-Ctinwous Ztnc Cooting Line Leoadcootirva line .ECl*trolyticTin:n g Uneios. 1,2,.' urnti4 . rome.coating line

CokePib 1 Byf-ProducftPlont BiologicalTreatmen; plant (compleanant)(l 1,093,863 Blast irnce BlasFumnac no. I and2 Treotmtntplaht, watercooling and racircuio- tionsem (C) 62 ,S54

Powcrl:Pen.ntion Plant oile nA * a9 Neutfaliaatlon tbnk by lonrtin 1,611.323

All Equipment 30,501,206

(4 Engin.ermnn,constnrcticn otid traction costsnct included

_Q'L5j~. ______T

,j~ _ __z4rsr1 -- A.--;--- __ 2L r_ l- _r Compcnhia Siderfirgica Nacions!

CSN- EXPANSIONPROJECT -STAGE0i--

Noise Pollution Control EquipmentC

(Uz$%) Area !uipment r Ncise Pollut.on Cntrot Euipment ( _._ - _ _ _ 337,233 S.ntcr Piont Sinter Pant no. 4 Silenccr ond enclosure

SteelMiu P;Cnt BOFShop Silencerwith acousticinsulating cocting 1,335,028 insulating coating 44,888 8mt Ll.e Plont RegenerativeKilns, Merz Type Silencer with acoustic O Cxyg.:nPlcnt Oxygen Plant FON-1200 Silencer Box 179,CO

Ali Equipment 1,896,149

(")EngTheering constuct'on and erection costsnot included

______.41 - i 1' !7^,7 '9!