T R E S T RESTRICTED CIRCULATING COPY Report No. P-1049 TO BE RETURNED TO REPORTS DESK This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or citcd without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO USINAS SIDERURGICAS DE MINAS GERAIS, S.A. WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A STEEL EXPANSION PROJECT March 22, 1972 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO USINAS SIDERURGICAS DE MINAS GERAIS, S.A. FOR A STEEL EXPANSION PROJECT 1. I submit the following report and recommendation on a proposed loan to Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) with the guarantee of the Federative Republic of Brazil for the equivalent of $63 million to help finance the expansion of USIMINAS' steel mill from a capacity of 1.0 million to 2.4 million tons of raw steel per year. The loan would have a final maturity of 151 years, including a h½ year grace period; interest thereon would be charged at the rate of 71 percent per annum. The USIMINAS project together with the Companhia Siderurgica Nacional (CSN) and Companhia Siderurgica Paulista (COSIPA) projects comprise Brazil's current program for the expansion of its flat steel products capacity. Total World Bank and Inter-American Development Bank (IDB) financing of about $320 million is being sought by the Government of Brazil which has also negotiated bilateral credit lines from nine major steel-equipment producing countries. A $6h.5 million loan to Companhia Siderurgica Nacional (CSN) was approved by the Executive Directors on February 1 and signed on February 8, and a loan of approximately $64.5 million for COSIPA is expected to be presented to the Executive Directors within the next three months. The IDB has already made a $43 million loan to CSN and is considering loans aggregating $85 million for USIMINAS and COSIPA. PART I - THE ECONOMY 2. An economic report entitled "Current Economic Position and Prospects of Brazil" (WH-210a), dated November 30, 1971, was distributed to the Executive Directors on December 2, 1971. Its main conclusions were summarized in my Report and Recommendation to the Executive Directors on the CSN loan, dated January 17, 1972. I then noted that in order to be effective external assistance could not be tied entirely to the foreign exchange component of project costs since the Brazilian capital goods industry has a proven ability to compete successfully under international competitive bidding. I also stressed that the balance of payments is likely to be the most critical constraint to continued high economic growth rates and that there would be a continuous need for an inflow of capital from abroad. A country data sheet is attached as Annex II. - 2 - PART II - THE BANKIS ROLE IN BRA2IL 3. Since 1949, Brazil has received 39 loans from the Bank amounting to $1,245.1 million (net of cancellations). A summary state- ment of loans and credits, as of February 29, 1972 is attached as Annex I. The status of these loans including the reasons for certain delays in disbursement and in project implementation were analyzed in my Report and Recommendation to the Executive Directors on the CSN loan. 4. The Report and Recommendation to the Executive Directors on the Third Highway Construction Project, dated February 25, 1972, described the Bank's current lending program in Brazil. We are actively processing four loans for projects in the power, agriculture and steel sectors. In this fiscal year, four loans totalling $249.5 mlllion have been approved for the MBR and related railway, CSN and Third Highways projects. 5. Since 1957, IFC has made 13 commitments in Brazil totalling $61.8 million. A summary of IFC investments is given in Annex I. 6. The USIMINAS project was appraised by a joint mission of the Bank and the IDB in May - June 1971. Negotiations took place from March 1 to March 10, 1972. USIMINAS was represented by a delegation headed by Mr. Luis Verano, Director-Superintendent. The Government of Brazil was represented by Mr. Jayme Alipio de Barros, Attorney-General for Finance, Mr. Antonio Miranda, Assistant to the Executive Secretary of the Conselho Nacional da Industria Siderurgica (CONSIDER), Mr. Gabriel Costa Carvalho, Legal Adviser and Mr. Sebastiao Martins Soares, Manager of the Department of Equity Investments of Banco Nacional do Desenvolvimento Economico (ENDE). PART III - THE STEEL INDUSTRY 7. A report "Brazilian Steel Expansion Program - Part I" (PI-16), dated January 10, 1972 was distributed to the Executive Directors on January 20, 1972, together with the Appraisal Report of the CSN Expansion Project. A description and evaluation of Brazil's current expansion program for flat steel products, including related market and competitive aspects as well as an analysis of the rationale for the Bankts support for the program, were contained in my Report and Recommendation on the CSN loan. PART IV - THE PROJECT 8. A report "Appraisal of the USIMINAS Expansion Project" (PI-17), dated March 17, 1972, is being distributed separately. A summary of it is in Annex III. -3- The Compan 9. USIMINAS is a Brazilian corporation, whose two major shareholders are the Government Development Bank (BNDE) with 63 percent of the shares and a Japanese corporation, Nippon-USIMINAS Kabushiki Kaisha with 21 percent of the shares. The remaining shareholders are under the control of the Brazilian Government. USIMINAS' plant is located at Ipatinga, a town about 210 km northeast of Belo Horizonte, the capital of the State of Minas Gerais. The plant is at a short distance from the mines that supply its iron ore requirements and is connected by road and railway to its major markets, in the States of Guanabara and Sao Paulo. The site permits expansion to about 5 million annual tons of raw steel without modification of the original layout concept. Production includes hot and cold rolled coil,sheet and plate. Description of Project 10. The Project consists of the expansion of the plant's basic iron and steel making capacity from 1.0 to 2.4 million annual tons of raw steel and of related increases in rolling and finishing capacity. IMajor facili- ties comprise a blast furnace which together with the two already existing ones will be sufficient to provide the hot metal requirements of future expansion to 3.5 million annual tons of raw steel, a coke oven battery, a sinter plant, a BOF shop, two continuous casting machines, a wide plate mill and a cold reduction mill. II. Some of these facilities comprised a previously planned minor expansion which was subsequently modified and integrated into the Project. ENDE and Japanese credits were arranged by USIMINAS for the financing of those facilities (Phase I of the Project) prior to the final foc.-mulation of the Project and to the Government's request for Bank and IDB assistance for Brazil's current steel expansion program. Phase II constitut,*s the rest of the Project and includes all the equipment to be financed by the Bank/IDB and by the parallel bilateral credits referred to in paragraph 1, above. The Bank has reviewed the specifications and financing terms related to the procurement of all Project items and found them to be compatible with the efficient carrying out of the Project on a sound financial basis. 12. The cost of the Project is estimated at the equivalent of $573 million, including incremental working capital and interest during construction. Although the original cost estimates were expressed in February 1971 dollars, they have been readjusted to reflect the inter- national currency realignments of the second half of 1971. Assuming that about 29 percent of equipment orders will be won by Brazilian suppliers, local currency costs would be $27L million and foreign exchange costs would amount to $299 million. -14.- Financing Plan 13. Financing for the Project will come from the following sources: In $ Million Cash generation 134.6 Share capital increase 75.0 209.6 long-term debt IBRD 63.0 IDB 12.0 Bilateral credits (Phase II) 8h.6 Japanese credit (Phase I) 67.0 ENDE 106.4 363.0 - 572.6 14. The proposed Bank loan to USJnINAS of $63.0 million would be on the same terms as the loan for CSN, namely, for 15½ years, including a grace period of 414 years. The Government of Brazil would charge USIMINAS a 1-3/4 percent per annum guarantee fee on the outstanding amount of the Bank loan, thereby bringing the cost of the Bank loan to USLMINAS to 9 percent. The amortization period of the IDB loan would be identical to that of the Bank loan and the IDB's interest rate would be 8 percent per annum. 15. The Bank and IDB loans would be jointly disbursed in a 60:140 proportion for equipment items to be procured under full international competitive bidding. Brazilian manufacturers would be given a 15 percent margin of preference. Making certain assumptions on the extent to which Brazilian bidders may win contract awards, and on the foreign exchange costs of producing in Brazil the equipment in question, it is estimated that up to 38 percent of Bank and IDB loan proceeds would be used for local currency costs. The economic justification for external financing of local expenditures on Brazilian development projects is mentioned in paragraph 2, above. 16. The bilateral credits will finance 90 percent of the value of equipment items ordered from suppliers in the respective countries (other than equipment for Phase I and equipment included in the Bank/IDB list) after competitive bidding. Credit terms will be 15 years after signing (12 years after commissioning of the equipment) with interest charged at the most favorable rates provided by the bilateral credit agencies at the time contracts are awarded. The Japanese credit for Phase I carries interest at the rate of 6.2 percent per annum and will be repaid in 15 years including a three years grace period. - 5 - 17. ENDE has undertaken to provide USIMINAS sufficient funds, in the form of loans and equity investments, to complete the Project. It is estimated that the total BNDE financing will amount to about $181 million of which about $106 million would be loans. ENDE has agreed to purchase additional shares of the Company during the construction of the Project to the extent necessary to complete the financing of the Project and to allow USIMINAS to maintain a debt to equity ratio of no more than 1:1. USIMINAS expects to raise about $75 million in new share capital during the 1972-75 period; BNDE would commit itself to take up all the issues not subscribed by other shareholders. In addition to BNDEts commitment, the Government would undertake to make available to USIMINAS whatever funds are required to complete the Project. Projected Results 18. Projections of USIMINAS' financial statements after completion of the Project, assuming full production and sales prices generally in line with recent international prices, indicate an incremental financial rate of return, after taxes, of about 13 percent. On the conservative assumption that following completion of the Project in 1975, domestic sales would correspond to only about 80 percent of capacity for three years and, disregarding export sales, the return would still be 12 percent. 19. The financial projections show long-term debt service coverage ranging from 1.4 times in 1972 to 2.6 times by 1980. The USIMINAS Loan Agreement contains provisions in respect of USIMINAS' liquidity, namely, restrictions on common dividends, borrowings and non- project investments. Futhermore, USIMINAS undertakes to maintain a minimum current ratio of 1.3 times for the term of the Bankts loan. 20. The Project will help avoid massive imports of flat rolled steel products which Brazil can produce competitively. The domestic Brazilian prices of plates and hot rolled products, which will constitute the main- stay of USIMINAS' output after completion of the Project, are somewhat lower than equivalent CIF import prices. Based on the estimated import prices of steel over the assumed 18-year life of the assets, and current exchange rates, the Project yields an incremental internal economic rate of return of 12 percent. Net foreign exchange savings resulting from the Project are estimated at about $80 million per year, offsetting the estimated foreign exchange costs of the Project in about 4 years of full operation. General Aspects 21. In connection with the CSN loan, the Bank negotiated the following commitments of a general nature which would be extended to the USIMINAS project. -6- Price Policy 22. The Government of Brazil periodically establishes maximum selling prices for steel products, which are at present at satisfactory levels. The Government has given the Bank &ssurances regarding the aims of its steel pricing policies and has agreed to consult with the Bank if the financial return on the aggregate operat- ing assets of CSN, USIMINAS and COSIPA should fall below 10 percent or rise above 15 percent in any year. USIMINAS has undertaken not to reduce the average price in real terms of its product mix before the end of 1975 without exchanging views with the Bank. Future Steel Expansion Projects 23. The Government's Steel Expansion Program for the 1970's, upon which our financing is based, entails building iron making facilities which wrill be fully utilized only after the capacities of CSN, USIMINAS and COSIPA have been raised to 4.0, 3.5 and 3.5 million annual tons of raw steel. The Government has confirmed to the Bank its policy of giving priority to the further expansion of the three companies and will not, without first consulting with the Bank, establish or provide incentives for the establishment of new integrated flat product plants outside of those three companies. Coal Policy 24. The Government has followed a policy of requiring the steel companies to procure domestically certain minimum percentages of their total coking coal consumption. Since domestic coal is relatively expensive and of poor quality, this policy tends to offset to some extent the Brazilian steel industry's comparative cost advantage stemming from relatively cheap iron ore and labor costs. The loan documents provide that USIMINAS will not, after completion of the Project, consume more than 20 percent of its coking coal in the form of coal whose cost and technical characteristics do not meet specified standards. Civil TWlorks 25. The proposed loan would not finance any part of the civil works of USIMINAS. The Company intends to use local resources for this purpose and to engage the services of reputable Brazilian contractors, including subsidiaries of foreign firms. However, if during the execution of the Project contract prices and completion schedules are seen to be rising significantly in relation to those currently prevailing, USIMINAS will take corrective measures, including, if necessary, the employment of foreign contractors. This procedure should ensure the efficient and economic execution of the civil works. - 7- Coordination with the IDB 26. As in the case of the CSN Project, a close relationship has been maintained with the IDB. A joint mission appraised the three steel projects. Both agencies have agreed on joint action with respect to procurement, disbursement, supervision procedures and exchange of information. The two Banks are presently reviewing the proposals submitted by three firms of consulting engineers with a view to selecting a coordinating consultant for the construction phase of the CSN, USIIMNAS and COSIPA Projects. PART V - LEGAL INSTRUMENTS AND AUTHORITY 27. The draft Loan Agreement between the Bank and Usinas Siderurgicas de Iliinas Gerais, S.A.; the draft Guarantee Agreement between the Federative Republic of Brazil and the Bank; the draft BNDE Shareholder Agreement between the Bank and Banco Nacional do Desenvolvimento Economico (BNDE); and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and draft Resolution approving the proposed loan, are being distributed to the Executive Directors separately. The major features of these agreements have already been described in this report. 28. I am satisfied that the proposed loan will comply with the Articles of Agreement of the Bank. PART VI - RECONNENDATION 29. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments March 17, 1972 ANNEX I Page 1 BRAZIL SUMMARY STATEMENT OF LOANS As of February 29, 1972 Loan Amount Less No. Year Borrower Purpose Cancellations Undisbursed (US$ million) Loans fully disbursed 288.9 403 1965 Centrais Eletricas de Furnas - Estreito I Power 57.0 1.2 404 1965 Centrais Eletricas de Sao Paulo - Xavantes Power 19.8 4.2 442 1966 Centrais Eletricas de Minas Gerais - Jaguara Power 49.0 12.7 474 1966 Centrais Eletricas de Furnas - Estreito II Power 39.0 22.8 475 1956 Cia. Brasileira de Energia Eletrica Power 6.2 2.0 476 1966 Cia. Forca e Luz do Parana Power 8.1 1.8 477 1966 Cia. Paulista de Forca e Luz Power 41.0 11.4 478 1966 Cia. Forca e Luz de Minas Gerais Power 6.3 0.2 516 1967 Brazil Livestock 40.0 27.1 565 1968 Centrais Eletricas de Furnas - Porto Colombia Power 22.3 17.5 566 1968 Centrais Eletricas de Minas Gerais - Volta Grande Power 26.6 21.3 567 1968 Brazil Roads 26.0 6.6 656 1970 Banco do Nordeste do Brasil Industry 25.0 18.5 676 1970 Brazil Roads 100.0 76.5 677 1970 Centrais Eletricas de Furnas - Marimbondo Power 80.0 68.9 ANNEX I Page 2 Loan Amount Less No. Year Borrower Purpose Cancellations Undisbursed (US$ million) 728 1971 Centrais Eletricas do Sul do Brasil - Salto Osorio Power 70.0 67.3 755 1971 Brazil Education 8.4 8.0 756 1971 Brazil Ports 45.0 44.6 757 1971 Superintendencia de Agua e Water Esgotos da Capital Supply 22.0 22.0 758 1971 Companhia Metropolitana de Pollution Saneamento de Sao Paulo Control 15.0 15.0 786 1971 Rede Ferroviaria Federal Railways 46.o 46.o 787 1971 Mineracoes Brasileiras Reunidas Industry 50.0 48.o 797 1972 Companhia Siderurgica Nacional Industry 64.5 64.5 1972 Brazil1, Roads 89.0 89.0 Total (less cancellations) 1245.1 697.1 of which has been repaid to Bank and others: 185.9 Total now outstanding 1059.2 Amount sold 10.7 of which has been repaid 9.8 0.9 Total now held by Bank 1058.3 Total undisbursed 697.1 / Approved on March 14, 1972; not yet signed. No IDA credits have been made to Brazil. ANNEX I Page 3 SUMI4ARY STATEMENT OF IFC INVESTMENTS As of February 29, 1972 Amount Less Year Borrower Purpose Cancellations Undisbursed kUS$ thousand) Loans Equity Completed Investments 5,607 _ 1958 D.L.R. Plasticos do Automotive Brasil, S.A. Parts 450 - 1959 Champion Celulose, S.A. Pulp 4L,000 - 1966&Acos Villares, S.A. Steel 4L,000 959 1966& Papel e Celulose Pulp and 1969 Catarinense, S.A. Paper 3,984 3,133 1967 Ultrafertil, S.A. Fertilizer 7,632 3,025 1969 Petroquimica Uniao, S.A. Petrochemicals 5,500 2,880 725 1970 Poliolefinas, S.A. Petrochemicals 5,500 2,877 1,077 1971 Oxiteno, S.A. Petrochemicals 4,600 13440 5,281 1971 Industrial de Celulose Borregaard, S.A. Pulp 4,900 - Total (less cancellations) 46,173 14,314 Less: Repaid to IFC 5,067 Sold 13,393 15,852 2,608 Held by IFC 30,321 11,706 Total Undisbursed 5,325 1,758 7,083 ANNEX II Page 1 BRAZIL - COUNTRY DATA Area: 8,512,000 km2 (3,286,000 sq mi) Population: Estimate, mid-1970: 93.2 million Gross Domestic Product: GDP at market prices 1970 Cr$167.9 billion Approximate US$ equivalent US$ 36.5 billion Real Growth in 1970 9.5 percent Average Real Growth, 1965-70 7.3 percent Per Capita GDP in 1970 US$392 Percentage Contribution to GDP 1960 1970 Agriculture 23.4 20.2 Industry 32.1 34.7 Services 44.5 45.1 Saving and Investment: 1968 1969 1970 Gross Fixed Domestic Investment as Percentage of GDP 17.0 17.1 18.0 Percentage Composition of Investment and Savings in 1968 Gross Fixed Domestic Investment 95.9 Construction 39.1 Capital Equipment 56.8 Inventory Change 4.1 Gross Domestic Investment 100.0 Private Sector Savings 7207 Government Savings 1801 Current Account Deficit 9.2 Central Government Finances: 1968 1969 1970 (Millions of cruzeiros) Revenues 8930 12802 17661 Total (103°0) (139j3) (192X94) Minus: Revenue Sharing (1460) (1151) " l;33) Current Expenditures 6628 8956 11629 Current Account Surplus 230;2 38h6 6032 Investment Outlays 3465 4WC?2 6770 Overall Cash Deficit 1163 756 738 -AiVEX II Page 2 End- End- End- 14oney Supply 1968 1969 1970 Millions of cruzeiros 20230 26691 34318 Prices 1967 1968 1969 1970 General Price Index 128 159 192 230 (Annual Averages) Guanabara Cost of Living Index 130 159 194 238 (Annual Averages) End- End- End- Exchange Rate 1968 1969 1970 Principal Exchange Rate, Selling 3.830 4.350 4.950 (Cruzeiros per U.S.Dollar) Balance of Payments, 1968-70 1968 1969 1970 (Millions of U.S.Dollars) FOB Merchandise Exports 1881 2311 2739 (of which coffee) (797) (846) (982) FOB Merchandise Imports -1855 -1993 -2526 Net Services -328 -369 -494 Factor Payments to Foreigners -228 -261 -351 Net Transfers 22 31 10 Current Account Balance -508 -281 -622 Foreign Direct Investment 61 124 85 Import Financing 106 182 278 Financial Credits 412 591 653 Errors and Omissions -104 5 164 Increase in Central Bank Reserves -33 621 518 Increase in Commercial Bank Reserves 24 -36 -11 External Public Debt End-1969 End-1970 (Millions of U.S.Dollars) IBRD Total IBRD Total Disbursed 199 4407 258 5204 Import Financing 199 2802 258 2946 Financial Credits - 1605 - 2258 Undisbursed 284 2010 16 2473 Import Financing E 2010 g 2473 Financial Credits - - - - TOTAL 483 6417 674 7677 Debt Service Ratio 1969 1970 (excl. financial credits) 15.4 1609 (incl. financial credits) 55.5 46.1 ANNEX II Page 3 End- End- End- End- Net External Reserves of the Central Bank 1968 1q69 1970 1071 iIllicns of U.S. Dollars)!/ 342& 955 1473 2!M0 (est.) INF Position at End of 1971 Quota US$X0d.1o nllion Net Drawings US$ ,25 milJion Fund Holdings of cruzeiros Cr$1824 million Fund Holdings of cruzeiros as percentage of Quota 74 percent Rate of Exchange as of March 15, 1972 Cr$5,845/US$1.00 LOANS AUTHORIZED BY MAIN OFFICIAL LENDING AGENCIES 1960-71 (US millionsJ USAID IBRD IDB TOTAL By Ye ar 1960-64 570.8 - 204.7 775.5 1965 132.0 79.5 78.8 290.3 1966 210.8 149.6 71.5 431.9 1967 152.7 40O0 97.0 289.7 1968 85.6 96.9 51.4 233.9 1969 65.2 - 110.5 175.7 1970 20.9 205.0 130.5 356.4 1971 129.4 256.4 108.9 494.7 By Sector Agriculture 44.4 40.0 107.8 192.2 Industry (including credit) 37.2 97.0 165.3 299.5 Power 236.4 428.o 245.8 910.2 Transport 154.1 217.0 120.7 491.8 Health and Sanitation 81.1 37.0 120.0 238.1 Education 83.7 8.4 26.o l18.l Housing 7.9 - 18.9 26.8 Program and Other Loans 722M6 - 48.8 771. TOTAL 1367.h 827.4 83.3 3041 / This definition of Brazil's net external reserves differs from that of the IMF in excluding liabilities of the monetary authorities arising from debt rescheduling and from the contracting of external financial credits by the Bank of Brazil. The Bank's Economic Report classifies these liabilities as part of Brazil's external debt. iJJNEX II Page 4 SOCIAL AND RELATED INDICATORS 1970 Total population 93.204 million Growth rate (% per year) 2.89 Urban population growth rate 1960-70 (% per year) 5.5 Infant mortality rate (per 1,000 live births) 170 Median age of the population (years) 19 Dependent population (% of total population)i/ 45.2 Literacy rate (population aged 10 or more) 65% Urban 81.4 Rural 54. 2% Primary school enrollment (% of 1968 school age population) 64 Urban 62.3 Rural 37.7 Secondary school enrollment (P of 1968 school age population) 16 Eduication expenditures as % of GNP (;i968) 3.5 Primary school retenbion ratio (1964) 14% Secondary school retention ratio (1968) 33% Population per hospital bed 290 Doctors per 10,000 population 4.3 Access to potable water (% of population with access to general distribution) Urban 54 95 Rural 2c47 Economically active population (% of total population) 31.7 Employmsnt of economically active population (% of total) Agriculture, hunting and fishing 44.2 Mining and manufacturing 12.6 Construction 4.4 Commerce and services 38.8 Land Distribution -- 12.6% of farms contain 81% of usable land. j/ Population 14 years and younger and 65 years and over as percent of total. ANNEX III Page 1 BRAZIL LOAN AND PROJECT SUMMARY I. LOAN SUMMARY Borrower: Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) Guarantor: Federative Republic of Brazil Amount: US$63.0 million equivalent; 11% of total cost of the project. Terms: Payable in 15½ years with 4½ year grace period and 71M4 interest. Guarantee fee 1-3/4% per annum payable to Brazil. II. PROJECT DATA Brief Description: Expansion of USIMINAS's production facilities from about 1.0 to 2.4 million metric tons of raw steel per year to produce about 1.85 million tons of flat rolled products. The new facilities will include a battery of coke ovens, sintering plant, a blast furnace, a new basic oxygen plant and additions to the existing basic oxygen plant, two continuous slabcasting machines, additions to the existing slabbing mill, a heavy plate mill, additions to the existing hot strip mill, a hot skin pass line, a pickling line, a tandem cold strip mill, annealing furnaces and ancillary equipment. Cost of Project: (US$ millions) Component Local Foreign Total Equipment 58.6 183.6 242.2 Freight, Insurance, Import Charges 9.8 10.9 20.7 Engineering 13.4 9.4 22.8 Construction 59.7 6.6 66.3 Contingencies 28.3 40.1 68.4 Pre-operating Expenses 11.1 - 11.1 Working Capital 76.4 76.14 Sub-Total 257.3 250.6 507.9 Interest During Construction 16.3 48.4 64.7 Total Financing Requirement 273.6 299.0 572.6 ANNEX III Page 2 Financing: Long-Term Debt US$ Million IERD --753e IDB 42.0 Japanese Credits 67.0 Bilateral Credits 84.6 ENDE Loans 106.4 Equity USIMINAS Contribution 209.6 TOTAL 572.6 Expenditures to be Financed by Bank Loan: (a) Equipment 60% of specified equipment submitted to international competitive bidding 56.7 (b) Freight and Insurance 60% of foreign freight and insurance 16 (c) Unallocated h4,7 TOTAL 6'.0 Procurement: Brazilian manufacturers of equipmnent and materials will be given a 15% margin of preference which would result in local currency expenditure financing estimated to be US$39,0 million of the Bank's loan. Estimated Disbursements: 1972 US$11.5 million 1973 US$35.3 million 1974 US$10.5 million 1975 US$ 5.7 million Internal Economic Rate of Return: 12% Internal Financial Rate of Return: 13% Estimated Project Completion Date: Second Quarter of 1975 46- 4. 42- Jo- BRAZiL ( LOCATION OF THE THREE MAJOR FLAT STEEL PRODUCERS A Plants of Major Flat Steel Producers |SAO FAULO |Principal Domestic Markets for Flot Steel Products FV T=R9IAJ Seoports for Dispotch of Exports Roods for Flat Steel Transport -4*-v---.- Railways for Flat Steel Transport (Broad Gauge) Railways for Flat Steel Transport(Norrow Gauge) - Z2Ž-- Rivers X ____ ~~~~State BoundaJriesJ tr 20. ^20 0 20 40 60 0o 100 / -\\, KILOMIETERS *\f . \ 4t < g M ~~~~~~~~~~~I N A S G E R A I S / \ A n Oc e / n P A U L r 0 R P A U J L 0 < g , <> ~~~~~~~~~~~~~ ~ ~~~CSN, E.p.,t ; A b, o . )\ Cv ~~~~~~~~~~~~~~~~~~~~A tlaczn tl/c O c e a n COSIPA, Fspt 46' 44° 42' NOVEMBER 1971 IBRD-3662 46' 42 - B R A Z I L USIMINAS, LOCATION OF PLANT AND RAW MATERIAL SOURCES LIMESTONE Matosinhos Railway 320 KM A USIMINAS Plant IRON ORE Itabira --Railway 100 KM -i--* ' Railways(Narrow Gauge) COAL(Dornestic and Imported) Roads Porto Vitoria---Railway 440KM State Boundaries (usIMefA I DOLOMITE Belo Horizonte--- Road 225 KM 4oIoESOhNoE s MANGANESE ORE Rio Acima---- Railway 360 KM tabirO Lafaiere-----Railway 375 KM DoOMITE/ BIELO Z~~~~~~~~~~~~~~~~~~~ \ ~~~~~~~~~~~ ~ ~~~ ~ ~~HORI, 0 TE 4 250 0 20 40 00 00 toO2 -20' qo ~~~~~~~~KILOMETERS lo ,_ MANGANESE ORE| 20 MANGAI ~~~~~~~~~~~~~~~~~~~~~~~~~~~~(D!on.~t Santo Tot-njoa La V. - E S P I R I T 0 tp. oo,N "'-'iA 4e < 1 5~~~~~~~~ ~ ~ A N TO0 M I N A S G E R A I S / -22- ( /22 \\ , -<\ ~~~~~~~~~R I O D E J A N E I R O 0 {_ _~~~~~~~~~~ _ /-~_T,AABARA t S A O P A U L O 0 JANEIRO BRA Z LJ ISAO PAULO / /