L-97 FILE(NE V This report is restricted to use within the Bank Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized LOAN ADMINISTRATION REPORT ON THE $12,000,000 LOAN TO THE GRAND DUCHY OF LUXEMBOURG Public Disclosure Authorized Granted August 28, 1947 Public Disclosure Authorized June 30, 1950 Loan Department TABLE OF CONTENTS Loan AdministrationReport LUXEMBOURG Loan of $12,000,000to the Grand Duchy of Luxembourg Page Paragraph I INTRODUCTION 1 -4 II DISBURSEiVENTOF THF LOAN 1 Rate of Withdrawals 5 - 6 Disbursementby Categories 7 Disbursementby 0urrencies 8 Disbursement Procedure 9 III END-USE OF THE LOAN 2 Steel Mill 11 Railway Equipment 12-24 IV USE OF COUNTERPARTFUNDS 3 15 V SERVICE or' THE LOAN 4 16-19 VI RELATIONSBETWEEN\. THE BANKAND THE BORROWER 4 20-22 VII POLITICAL DEVELOPMENTS 5 23 VIII ECONOMICPOSITION ANDPROSPECTS 5 24-26 Annex I: Disbursement by Quarterly Periods Annex II: Disbursemnentby Categories Annex III: Table of Amortizationand Interest and Loan CommissionPayable Over the Life of the Loan An,nexIV: The Economic Situation and Prospects of the Belgo-LuxembourgEconomic Union Annex V: External Debt of Belgium at January 1, 1950 Annex VI: External Debt of Luxembourgat December 31, 1949 Annex VII: Total Interest and AmortizationCharges Required on the External Debt of Belgium Annex VIII: Total Interest and Amortization Charges Required on the External Debt of Luxembourg Annex IX: Total Interest and Amortization Charges Required on the External Debt of Belgium and Luxembourg LOAN ADMINIATRATIONREPORT XEEMBUG Basic Statistics Area: 1,160 square miles Population: 300,000 (December1949) Currene unit: LuxembourgFranc (L. Frs.) E change Rate: L, Frs. 50.15 - U.S. $1 (April 1950) National Income (1949) (In current L.Frs, at factor cost) L,Frs. 8.80 billion Budget in 1950 I/ Receipts L.Frs. 3,019 billion ExpendituresL,Frs. 3,421 billion Public debt External debt (January 1, 1950) (expressedin U.S.0) $19,83 mil. Retail Drices (1937 w 100) 325 as of April 1950 Gold and foreign assets 1940 .12L8 19k (end of year) Short-termassets in the U.S. (millionof U,S.$) 22.9 16,0 13.6 J2/ Ordinary and extraordinarybudgets LOAN ADMINISTRATIONREPORT ON LUXEMBOURGLOAN I INTRODUCTION 1, The $12 millionloan to the GrandDuchy of Luxembourgwas made on August28, 1947, and the Loan Agreement became effective on October 24, 1947, The loan was for twenty-fiveyears. Amortizationbegan on July 15, 1949,and interestis at the rate of 4-$ per annum,including the statutory commission of 1%, 2, An undrawnamount of $238,017was cancelledat the requestof the Borroweras of December19, 1947,reducing the amountof the loan to $11,761,983. 3. The purposeof the loan was to financeimports of equipmehtfor a hot rolling and a cold rolling steel mill of the Acieries Reunies de Burbach-Eich-Dudelange (ARBED)and of rolling stock for the Luxembourg rail- ways* 4. The Luxembourg loan differed from those previously made by the Bank. It was the first project loan, and it was the first case in which the Bank recognizedthe need of a membercountry for internalfinancing. It was also the first loan where the Bank made use of the 18% subscription of a membercountry other than the V,S., and the equivalentof nearly$1 millionwas disbursedin Belgianfrancs from the BelgianGovernmentts capitalsubscription, II DISBURSEMNT OF THE LOAN Rate of Withdrawals 5,, The Luxembourg Government originally expected to complete withdrawalsbefore the end of 1948 and the closingdate was originally December31, 1948. Deliveryof railwayequipment from Franceand Belgium was, however,delayed and the Bank agreedon December14, 1948,to an extensionof the closingdate untilMarch 31, 1949,and again on March 14, 1949,to a furtherextension until December 31, 1949, 6. In December 1949, the Bank advanced to the Luxembourg Govern- ment $1#6 millionfor the purposeof making,in 1950, certainfinal pay- ments on outstanding contracts and, as mentioned in paragraph 2, cancelled the residuum. Disbursements by quarterly periods are sumarized in Annex I, Disbursement by Cate ories 7, Disbursement by categories differed from the amountsshown in the original list as a result of modifications effectedAugust 16, 1948, in accordancewith ArticleIII of the Loan Agreement(see Annex II). The most significant change was the substitution of 5 additional diesel auto, rail oars and 6 dieseltrailers for 200 coveredfreight cars and 30 trucks, - 2 - Disbursement by Currencies 8, Disbursementin dollarsinc: 1lded $7,500000 for the purchase of rolling mill equipmentin the United$-Z't.tes and 11,634,500for the purchase of railway equipment in France. The balanoe of the loan covered purchases in Belgian francs,of which 42.3 millionwere obtainedfrom the Belgian 18% capitalsubscription and 78.6 millionwere bought with dollars, Dieburemeut Procedure 9. The Bank reimbursedthe LuxembourgGovernment for $3,477,059 paid by ARBED,prior to the effectivedate, under contractsfor steel mill equipmenttotalling originally $14,071,787, The balanceof $4,022,941 allocatedto ARBEDwas advancedby the Bank betweenNovember 1947 and May 1948 to enable ARBEDto make various payments as they becamedue. Payments were made by the Bank, on the instructions of the Borrower, either directly to the suppliersof the railwayequipment or else to the SocieteNationale des Cheminsde Fer to enableit to make paymentsto supplierswhen due, IT END-USEOF THE LOAN 10, Representativesof the Bank have visitedARBED headquarters and inspectedthe plant, In the case of the railways,supervision was carriedout mainlyby correspondencewith the Luxembourgrailway authori- ties, Steel Mill ill The amountset aside for this categoryserved to financepart of the cost of the equipmentordered by ARBEDfrom the followingmanu- facturersin the UnitedStates to erecta hot rollingmill and a cold roll- ing mill at Dudelange. Contractor Revised Value of Contract AmountFinanced by Bank UnitedEngineering Co. $8,005,013 $5,2$4,426 66% GeneralElectric Co. 4,027,363 1,894,669) 47% Salem Engineering Coo 650,555 2,30,100 20% Wean Engineering Coo 1$372,052 l190$805 -JAL 14,054,983 7p500,000 54.3% Accordingto the originalplans, deliveries of the equipmentordered under the above contractswere to begin in April 1948 and to be completedby December1949; it was expectedthat the mills couldbegin operationlate in 1950. There was delay in the receiptof workingplans from the United Engineeringand FoundryCompany and therewere also delaysin shipmentof equipmentfrom the UnitedStates. The aim is now to completethe hot mill by November1950 and the cold mill by March 1951;three more monthswill be neededfor tests beforethe plantscan start industrialoperations, The capacityof the new installationswill be about350,000 to 400,000tons of steel per annum. -3- RaiLwavEquipment 12, Three categoriesof railwayequipment were financedunder the loan, namely,locomotives and autocars flat freightcars (chieflyfor the transportationof steelproducts), and miscellaneousequipment 0 De- liveriesunder the first categoryto the Luxembourg railways were composed of: Equipment Full ValueFinanced by IDRD Loan_ 10 Graffenstaden Locomotives $667,488.U0 10 Vulcan Locomiotives 357,864,00 I S.N.C.B, Locomotive 82,240,O0 10 De DietrichDiesel Auto Cars 12481485.O0 6 DecauvilleDiesel Trailers 3841+OO,00 $2,739,977.00 1 3 . The equipment financed in the secondcategory consisted of 150 flat cars and 4 bogie cars for whichthe Bank disbursed$1,132,722. Equipment in the third categorycomprised train lightingequipment, dynamos, batteries,speed indicators,etcq, for which the Bank disbursed$389,284.04, Q4, The followingtable givesan indicationof' the damagesuffered by the Luxembourgrailways during the war and the progressmade with their rehabilitation: 1938 19/-5 Julv 1. 19L9 Locomotives 170 231 162 (including48 (including21 loan- in bad order) financedlocomotives) FreightCars 6,976 4,269 4,792 PassengerCars 394 295 316 (including120 in bad order) The 19,49total for locomotivesdoes not includethe 10 dieselauto cars and 6 dieseltrailers which w3re receivedby the Luxembourgrailways after July l1 1949. Iv USE OF COUNTERRTFUNDS 15, The domestic currency oounterpart of the loan was used by the Luxembourg government for budgetary expenditure in connection with the reconstructione of the warrdamaged areas of the country, V SERVICEOF THE LOANi 16, The loan bears 34% interestplus 1% commission.In accordance with the terms of the Loan.Agreementthe LuxembourgGovernment has made five semi-annualpayments on accountof chargesaccruing under the loan, The firstpayment was January15, 1948 and the totalamounts paid-up till January15, 1950 were $847,204and Belgianfrancs 3,707,445. Luxembourg has made two principalrepayments, the firston July 15, 1949 and the secondon January15, 1950. The totalprincipal repaid to date is $90,938 and Belgianfrancs 378,467, 17. The followingsemi-annual payments have been receivedfrom the GrandDuchy of Luxembourgon account of commitmentcharge, interest, com- missionand principal: CommitmentCharge Interest& Loan Due Date Currency Commission_ Total (Expressedin UnitedStates Dollar Equivalent) Jan, 15, 1948 U.S. Dollars 57,994 57,994 BelgianFrs. 1,085 - 1,085 Jul, 15, 1948 U.S. Dollars 172,661 -- 172,661 BelgianFrs, 19,054 __ 19,054 Jan,,15, 1949 U.S. Dollars 191,716 191,716 Belgian Fro. 20,569 -- 20,569 Jul.15, 1949 U,S, Dollars 208,417 45,967 254,384 BelgianFrs. 20,569 4,033 24,602 Jan. 152 1950 U.S, Dollars 216,416 44,971 261,387 BelgianFrs, 20,484 4,033 24,517 18. $238,017was cancelledfrom the originalloan