Document of The World Bank FOR OFFICIAL USE ONLY Ca- ZC~ / 3 7 Public Disclosure Authorized Report No. 7630-BO STAFF APPRAISALREPORT Public Disclosure Authorized REPUBLICOF BOLIVIA MINING SECTORREHABILITATION PROJECT APRIL 17, 1989 Public Disclosure Authorized Industry,Trade and FinanceOperations Division Country DepartmentIII Public Disclosure Authorized Latin America and the CaribbeanRegion This document hasa resticted dsibuto0vand may be used by oenpienlsoly In the perdonnanoe of their official duties. Its contents may - A otherwise be disclosed wt World Bank authorizatin CURRENCYEQUIVALENTS Currency Name - Boliviano US$1.00 - Bolivianos 2.47 Bolivianos 1.00 - US$0.405 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) G 3.281 feet (ft) 1 kilometer (km) = 0.622 miles (mi) 1 kilogram (kg) 2.205 pounds (lb) 1 troy ounce (troy oz) - 31.: grams 1 gram (g) - .032 troy ox 1 metric tonne (mt) - S2,151 troy oz | 2.205 lbs 1 short ton (T) - 2,000 lbs PRINCIPAL ABBREVIATIONS AND ACRONYMS BAMIN - Banco Minero BCB - Banco Central de Bolivia SA - Banco Industrial SA . - Centro de Investigacion Minero Metalurgica IMITBOL - Corporacion Hinera de Bolivia -'D - Development Credit Department (Central Bank) ,TAW - Empresa Nacional de Fundiciones FCNEM - Fondo Nacional de Exploracion Minera FSE - Fondo Social de Emergencia FSTMN - Federacion Sindical de Trabajadores Mineros de Bolivia GEOBOL - Servicio Geologico de Bolivia IDB - Interamerican Developi*ent Bank IDM - Instituto de Desarrollo Minero INK - Instituto de Investigacion Minero Metalurgica MMK - Ministry of Mining and Metallurgy STCM - Servicio Tecnico del Cadastro Minero FOR OMFCIL USE ONLY STAFF APPRAISAL REPORT BOLIVIA MINING SECTOR REHABILITATION PROJECT TABLE OF CONTENTS Page No. CREDIT AND PROJECT SUMMARY ............... .... ............. i I. THE MINING SECTOR ................... ............. 1 A. Background and Recent. Developments .... .......... 1 B. Mineral Resources and Reserves .................. 3 II. INSTITUTIONS, PRODUCERS, AND SECTORAL STRATEGY ...... 4 A. Government Institutions ........... ............. 4 B. Private Producers ................... ... 6 C-. COMIBOL ... o............... ..... ........ ............ * 7 D. Health, Safety and Environment .................. 10 E. Financing of Mining Investments .............* ... 11 F. Sectoral Strategy ............................... 13 G. Outlook for the Sector .......................*...* 16 III. THE PROJECT ......................................... 17 A. Role of IDA .....................................17 B. Project Objectives ..............................18 1. Promotion of Mining Investment .#.... ......... 18 2. Rehabilitation of COMIBOL ................... 19 C. Project Description ............ .................. 20 1. Institutional Strengthening ...........**O..# 20 2. Financing of Private Mines and Cooperatives . 21 3. COMIBOL .............................. 23 D. Project Implementation Arrangements and Schedule 27 1. Project Coordination ..... ..................27 2. Financing of Private Mines ................. 28 3. COMIBOL ....................................31 IV. PROJECT COST, FINANCING PLAN. PROCUREMENT AND DISBURSEMENT ............................................... 31 A. Project Cost ................................... 31 B. Financing Plan .................................. 33 C. Procurement .....................................35 D. Allocation and Disbursement of IDA Credit ...... 37 l ~~~~Thisdocument has a festricted distribution and may be used by recipients only in the porformace of their officialduties. Its contents may not otherwise be disclosedwithout Wofi et, authoroun. -2- Page No. V. FINANCIAL ANALYSIS OF COMIBOL ....................... 38 A. Financial Projections ........ ................... 38 B. Breakeven Analysis . ............. 40 C. Sensitivity Analysis ...... .. 41 D. Financial Rate of Return and Sensitivity Tests .. 42 E. FinancialCovenants .... .... .... 43 F. Auditing and Reporting Requirements ........ 43 VI. ECONOMIC ANALYSIS ..... ..... 44 A. Economic Benefits of the Project ........ 44 B. Economic Rates of Return ........ 45 C. Risks ....... 46 V£II. AGREEMENTS AND RECOMMENDATION ..... .. 47 A. Agreements .. .............. 47 B. Recomendation . .......... .......... 50 TABLES IN TEXT Bolivia - Mineral Exports and Mining Sector Contribution to GDP .................... Bolivia - Value of Mineral Exports by Product ...... Bolivia - Contribution of Mining Sector to Government Revenues ....... ..... .... Bolivia - Employment in Mining ..................... Bolivia - Estimated Mineral Reserves ............... Bolivia - Indicators of the Medium Mines ........... Bolivia - Production of Medium Mines ........... Bolivia - Production by Small Miners ............... COMIBOL - Tin Production and Workforce ............. COMIBOL - Production Costs .................... COMIBOL - Financial Results ........................ Summary of Project Costs ........................... Financing Plan .................................... Procurement Arrangements ........................... Allocation of IDA Credit ........................... COMIBOL - Summary of Financial Projections, 1989-93 COMIBOL - Breakeven Price for Tin, 1989-93 ......... COMIBOL - Sensitivity Analysis of Cash Flow and Profitability .......................... Switching Values of Critical Variables ............. -ANEXS 1-1 Bolivia - Production of Minerals 1973-1987 ........ 51 1-2 Bolivia - Estimated Mineral Resources and Reserves 52 2-1 Bolivia - Mining Sector Institutions ..... ......... 55 2-2 Bolivia - COMIBOL - Historical Cost Breakdown, 1979-1987 ...........................................58 2-3 Bolivia - COMIBOL - Summary of Historical Income Statements, 1980-1988 ................. 59 2-4 BolivJia - COMIBOL - Summary of Historical Cash Flows, 1980-1984 ............................ 60 2-5 Bolivia - COMIBCL - Summary of Historical Balance Sheets, 1980-1988 .................... 61 2-6 Bolivia - GOB Mining 3ector Policy ............... 62 2-7 Bolivia - Mining Export Projections, 1987-1997 ... 91 3-1 Bolivia - InstitutionalMaster Plan Organigram ... 92 3-2 Bolivia - MMM Organizational Structure ........... 93 3-3 Bolivia - GEOBOL Organizational Structure ........ 94 3-4 Bolivia - Institutional Strengthening Program .... 95 3-5 Bolivia - New Institutional Relatione'hips........ 110 3-6 Bolivia - COMIBOL - Rehabilitation Sub-component . 111 3-7 Bolivia - COMIBOL - Environmental Program . ....... 113 3-8 Bolivia - COMIBOL - Management Strengthening Sub-component..... .. ....... 115 3-9 Bolivia - COMIBOL - Training Sub-component... 116 3-10 Bolivia - COMIBOL - Management Development (Training) Program Model ............ 118 3-11 Bolivia - COMIBOL - Management (Training) Course t ~~~~~~~~~~Outline ......... $ ...... 119 3-12 Bolivia - COMIBOL - Training Manual Format... 122 3-13 Bolivia - COMIBOL - Training Profile ............. 124 3-14 Bolivia - COMIBOL - Project Implementation Scheaule 129 3-15 Bolivia - Project Management .. ........... 131 3-16 Main Elements of Credit Guarantee Scheme..... 132 3-17 Guidelinesand OperatingRegulations of Credit Line....... 137 4-1 Summary of Five Year Program .... ...... 145 4-2 Detailed Cost Tables. ............. 146 4-3 Flow Chart of Project Funding . ........... 160 4-4 Procurement Packages . ........ 161 4-5 Disbursement Schedule for IDA Credit .. .... 162 5-1 Metal Markets . ..... .................. 163 5-2 COMIBOL Assumptionsfor FinancialProjections and Projected Financial Statements. ...... 171 5-3 Financial Rate of Return Calculations ............ 176 Documents in the Project File ......... ..... 181 MAP IBRD No. 21474 - i - REPUBLICOF BOLIV$A MNING SECTOR1anBILIT&UION PROJECT CREDITAND PROJECT SUMNIRY Borrowers Republic of Bolivia Beneficiariess Ministry of Mining ana Metallurgy tMM) Geological Service of Bolivia (GEOBOL) Institute for Mining Deve3opmeut (IDMK Small and Medium Miners and Cooperatives State Mining Corporation(COMIBOL) Amounts SDR 26.5 million (US$35.0million equivalent) Terms: Standard,with 40 years maturity OnlendingTerms: The Governmentwill make availableas grant up to US$3.7 million to the Ministry of Mining and Metallurgy and its dependencies. US$ 7.3 million would be onlent to the Central Bank at IDA terms. The Central Bank would onlend these funds to financialintermediaries including the Minins Bank (BAMIN) at LIBOR + 12. The intermediarieswould in turn lend to subborrowersat LIBOR + 62, with maturities and grace periods adapted to individual mining projects. The Government would onlend US$22.7 million to the State Mining CorporationCOMIBOL at LIBOR + 22, for ten years with five years grace, with the exceptionof funds for studies and joint venture promotion which would be passed on at IDA terms. Proiect Description: The project would assist the Government in the im.plementationof its mining sector strategy by promotingnew private mining investmentand supporting the rehabilitationof COMIBOL. The project includes three components: (i) strengtheningof the Ministry of Hining and Metallurgy and its dependenciesto improve the basic public servicesto the industry,create a reliable data base, and establish an attractive environmentfor investors; (ii) financingof private mines and cooperativesand provision of technical assistance to small miners; and (iii) rehabilitationof COMIBOL by strengtheningthe viability of core mining operations, improving management and technical capabilities,and supporting the preparation of joint ventures with the private sector.