Document of The World Bank FOR OFCIAL USE ONLY FILE COPY Report No.2467 PROJECT PERFORMANCE AUDIT REPORT BRAZIL - USIMINAS STAGE II EXPANSION PROJECT (LOAN 812-BR) April 13, 1979 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT BRAZIL - USIMINAS STAGE II EXPANSION PROJECT (LOAN 812-BR) TABLE OF CONTENTS Page No. Preface Basic Data Sheet Highlights iii - iv PROJECT PERFORMANCE AUDIT MEMORANDUM 1 I. The Steel Expansion Program 2 - 4 II. The USININAS Stage II Expansion Project 4 The Bank's Role 5 - 6 Project Implementation 6 - 8 Factors in Successful Project Implementation 8 - 9 Production, Financial Results and Return on Investment 9 - 10 III. Summing Up 10 Attachment: Project Completion Report Summary and Conclusions 11 - 12 I. Project Description and Implementation 13 A. Project Objectives and Description 13 - 14 B. Project Summary Data 14 - 15 C. Project Construction and Completion 15 D. Project Scope and Cost 15 - 18 E. Financial Plan and Cost Overrun Financing 18 - 19 F. Procurement and Allocation of Bank Loan 19 - 21 II. Project Operation 21 A. Production and Sales 21 - 22 B. Financial Results and Return on Investment 22 - 25 C. Economic Benefits of the Project 25 D. Environmental Aspects 25 - 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (Cont1d) Page No. III. The Steel Market 26 IV. The Company 28 A. Ownership and Control 28 B. Organization and Management 29 V. The Bank's Role 29 A. Project Formulation and Supervision 29 B. Lessons to be Learned 29 - 30 Annexes Annex I - Actual and Planned Project Implementation Schedules 31 Annex II - Reasons for Delays in Project Completion '32 Annex III - Stage II Capital Cost Summary (Phase I & II) 33 - 35 Annex IV - Equipment Cost Variations due to Changes of Scope 36 - 40 Annex V - Amortization Schedule 41 Annex VI - Procurement Summary 42 - 45 Annex VII - Historical Production Performance 46 - 47 Annex VIII - Historical Profit and Loss Statement 48 - 49 Annex IX - Selling Prices 50 Annex X - Projected Profit and Loss Statement 51 - 53 Annex XI - Projected Profit and Loss Sheets 54 - 56 Annex XII - Ecology 57 - 58 PROJECT PERFORMANCE AUDIT REPORT BRAZIL - USIMINAS STAGE II EXPANSION PROJECT (LOAN 812-BR) PRVACF This report covers an audit of achievement under Loan 812-BR to the Usinas Siderurgicas de Minas Gerais S. A. (USIMINAS) in Brazil. The loan, in an amount of US$63 million, was signed in April 1972 and closed in June 1977 with a total disbursement of US$57.9 million; the outstanding balance of the loan (US$5.1 million) was cancelled in October 1977. An OED mission visited Brazil in November 1978 and had discus- sions with projects officials, officials of the Ministry of Planning, CONSIDER 1/ and SIDERBRAS 2/ on various aspects of project preparation And implementation, Assistance rendered to the mission during its visit is gratefully acknowledged. The audit memorandum is based on the attached Project Comple- tion Report (PCR) prepared by the Industrial Projects Department of the Bank, file review and discussions with Bank staff, as well as various project and other officials during the OED mission. It describes the major steps in the preparation of Brazil's steel industry expansion program and the role of the Bank in this process; it further outlines the reasons which have made USIMINAS Stage II Expansion Program a particularly successful project in comparison with other Bank-financed steel projects in Brazil and other developing countries. The Government and the Borrower indicated that they had no comments to offer on the report. 1/ Conselho Nacional da Industria Siderurgica, the Government entity responsible for planning and coordinating the development of the Brazilian steel industry. 2/ Siderurgia Brasileira S. A., a Government holding company for the public sector steel companies.  - ii - PROJECT PERFORMANCE AUDIT REPORT BRAZIL - USIMINAS STAGE II EXPANSION PROJECT (LOAN 812-BR) BASIC DATA SHEET Amounts (in US$ mln) As of 2/28/79 Original Disbursed Cancelled Repaid Outstanding Loan 812-BR 63.00 57.88 5.12 13.13 44.75 Cumulative Loan Disbursement 1972 1973 1974 1975 1976 1977 (i) Planned 11.5 46.8 57.3 63.0 63.0 63.0 (ii) Actual 1.2 13.7 37.1 47.7 55.7 57.9 % of (ii) to (i) 10.4 29.3 64.7 75.7 88.4 91.9 Project Data Actual or Original Estimate Re-Estimate Board Approval 4/04/72 Loan Agreement 4/11/72 Effectiveness - 7/28/72 Physical Completion 7/75 11/76 Loan Closing 6/01/76 6/01/77 Total Costs (mln) 507.9 898.4 Economic Rate of Return 11% 13.5% Mission Data No.of No. of Month, Year Weeks Persons Manweeks Date of Report Pre-appraisal November 1970 3 3 9 - Appraisal May/June 1971 3 3 9 March 20, 1972 Sub-total 6 18 Supervision I June 1972 1 x 1/3 1 1/3 June 22, 1972 Supervision II October 1972 1 x 1/3 2 2/3 Nov. 20, 1972 Supervision III June 1973 1 x 1/3 1 1/3 - Supervision IV October 1973 2-1/2x1/3 3 2 1/2 - Supervision V February 1974 2 x 1/3 2 1 1/3 Feb. 26, 1974 Supervision VI October 1975 1 2 2 Oct. 10, 1975 Sub-total 7 1/6 Completion January 1978 3 2 6 June 14, 1978  - iii - PROJECT PERFORMANCE AUDIT REPORT BRAZIL - USIMINAS STAGE II EXPANSION PROJECT (LOAN 812-BR) HIGHLIGHTS Loan 812-BR for US$67 million was made by the Bank to the Usinas Siderurgicas de Minas Gerais S. A. (USIMINAS) in April 1972 to contribute to the financing of the company's Stage II expansion program which was to bring its raw steel production capacity from 1.0 to 2.4 million tons. The project was part of an overall expansion program conducted by the three major steel producers in Brazil to meet the expected domestic demand for steel in the mid- to late-seventies. Facilities to be installed under the project were started up with a composite delay of about 8 months which is quite satisfactory in comparison with the experience under other steel projects assisted by the Bank in Brazil and other countries. Moreover, initial delays were to a large extent compensated by a faster than originally expected learn- ing process and the ability of USIMINAS to reach eventually a level of production 12.5% above the nominal estimate (vide paras. 16 and 17 of PPAM; paras. 1.05 and 2.01 to 2.03 of PCR). Total project cost (US$898.4 million) exceeded the appraisal estimate (US$507.9 million) by 77%, mostly on account of higher local construction costs, physical contingencies not anticipated at the time of appraisal and higher project administration and supervision costs; by themselves, inflation and exchange rate variations accounted for 25% of total cost overruns (vide paras. 18 to 20 of PPAM, paras. 1.08 to 1.10 of PCR). In spite of higher investment and operating costs, USIMINAS has enjoyed a comfortable financial position owing to higher steel prices. In December 1978, the financial rate of return on the project was reestimated at 11% as against an appraisal estimate of 12.6%. On the basis of prevailing trigger prices, the economic rate of return on the project was reestimated at 13.5% as against 11% estimated at appraisal (vide paras. 25 and 26 of PPAM and para. 2.08 of PCR). - iv - Special points of interest are: - the "parallel financing" mechanism introduced for the financ- ing of imported equipment (para. 7 of PPAM); - the inability of USIMINAS' cost control procedures to handle the supervision tasks generated by the large-scale construc- tion and erection works involved in the project (paras. 20 and 21 of PPAM); - the advantages of the intermediate position assumed by USIMINAS of not entering into turn-key contracts (so as to benefit from the learning process in the field of engineer- ing) but signing a relatively small number of large package contracts (so as to limit the amount of supervision left to itself) (paras. 21 and 23 of PPAM); and - the limited meaningfulness of intenal rate of return calcula- tions in the case of intermediate expansion projects which include substantial built-in excess capacity in some sections (para. 27 of PPAM). PROJECT PERFORMANCE AUDIT MEMORANDUM BRAZIL - USIMINAS STAGE II EXPANSION PROJECT (LOAN 812-BR) 1. Loan 812-BR, in an amount of US$63 million, was made by the Bank to the Usinas Siderurgicas de Minas Gerais S. A. (USIMINAS) in April 1972. This was the second of three loans totalling US$192 million made by the Bank between February and June 1972 to the three principal flat-rolled steel producers in Brazil--the other two companies being the Companhia Siderurgica Nacional (CSN) and the Companhia Siderurgica Paulista (COSIPA) 1/--to finance their simultaneous Stage II expansion program. All these companies are Government controlled. Stage II was the inter- mediate part of an overall expansion program which was expected to bring their combined annual capacity from 3.2 million tons in 1971 to 11 million tons of raw steel equivalent by 1980. Following an initial expansion phase (Stage I) which the Bank did not contribute to finance, Stage II was expected to meet domestic demand for steel in the mid- to late-seventies, increasing annual steel production from 3.7 to 7.2 million tons, USIMINAS's production along progressing from 1.0 million to 2.4 million tons. In the case of USIMINAS, however, Stage I did not by itself increase raw steel capacity, and was fully merged with Stage II. 2. USIMINAS was formed in 1956 by the Government of Brazil and public institutions of the State of Minas Gerais. Subsequent negotiations led to participation by Nippon Usiminas 2/ in its share capital; this was linked to a program of technical cooperation for the construction and initial operation of the new steel plant. The plant is located at Ipatinga in the State of Minas Gerais, close to its main source of iron ore, but less well located with regard to coking coal and export outlets; further- more, with respect to the main domestic market centers for flat steel products of Sao Paulo and Rio de Janeiro, USIMINAS is at a transport cost disadvantage in relation to its two main competitors, CSN and COSIPA. 1/ To.which Loans 797-BR and 828-BR were made, respectively 2/ Nippon-Usiminas is a company founded by a number of Japanese steel companies and equipment suppliers and the Overseas Economic Cooperation Fund of Japan. - 2 - I. The Steel Expansion Program 3. A substantial acceleration in the growth of domestic demand for steel during the late sixties led the three major Government-controlled flat-rolled steel producers to consider a substantial expansion of their respective steel-making capacity. The basis for these expansions was a study commissioned by the Government in 1965 to assess the gap between supply and demand of steel products in Brazil in the period 1966 to 1972 and make recommendations on the most economical expansion program of the industry. This study, conducted by the U.S. consulting firm Booz, Allen & Hamilton International, Inc. (BAHINT), was financed by a US$420,000 technical assistance grant from the Bank. 4. The BAHINT study concluded that the comparative advantages Brazil had in producing steel (namely, its abundant sources of high-grade iron ore and relatively inexpensive labor force), coupled with the prospective growth of domestic demand, justified a substantial expansion of the country's steel-making capacity. The study further concluded that the best strategy to bring about such an expansion was first to expand each of the three large integrated mills (CSN, USIMINAS and COSIPA) to a balance capacity of 3.5 - 4.0 million tons of raw steel in stages rather than establishing a new integrated plant. The Bank participated in the supervision of this study but when, in 1971, it became involved in the financing of the second stage of the iLd-usty' expansion program, the Bank questioned the simultaneous expansion of the three mills, suggesting, in particular, the deferral of the expansion of CSN which involved higher investment costs; eventually, however, the Bank accepted the consultants' viewpoint which emphasized the advantages presented by CSN in management and capital structure. The adequacy of this expansion strategy will be reviewed progressively as loans made in connection with the Stage II expansion of each company come up for audit. 5. An important factor in the Bank's decisions to assist in the financing of Brazil's steel expansion program was the creation in June 1970 of a new executive body, CONSIDER 1/,responsible for planning and coordinating the development of the Brazilian steel industry, testifying to the Government's intention to bring about a rational development of the sector. CONSIDER's principal role was tc causc CSN, USIMINAS and COSIPA to prepare 10-year expansion plans. At the same time, CONSIDER commissioned a new market study to update the market forecast made by BAHINT in 1966. It then coordinated the companies' plans with the results of the new study (conducted by Tecnometal, a Brazilian consulting firm) and consolidated them into a National Steel Plan. 1/ Conselho Nacional da Industria Siderurgica - 3 - 6. These developments occurred in the context of a rapid accelera- tion of economic activity, with the overall feeling that future prospects for the national economy were indeed very bright. Actual demand levels were well above the forecasts given in the BAHINT study and new projec- tions suggested an annual growth rate for domestic demand around 10%. Flat products were expected to experience the fastest growth, explaining the emphasis which was then placed on them by the Government. In this context, the Government's objective was to increase domestic production more or less in line with domestic demand so as to minimize imports as much as possible. 7. In the fall of 1970, the Brazilian Government requested the Bank and the Inter-American Development Bank (IDB) to organize a consortium with potential bilateral lenders to finance the Stage II expansion program on a joint basis, similar to that applied by the Bank to the Marimbondo hydroelectric project. In early 1971, however, the U.S. Eximbank indicated that it would not participate in the financing of the steel expansion program on a "joint financing" basis. Several alternatives were considered and eventually the Brazilian proposal for "parallel financing" was accepted by all parties. Under this arrangement, part of the equipment was to be financed jointly by the Bank and IDB on a 60/40 proportion, and procured on the basis of international competitive bidding (ICB) in accordance with Bank guidelines, Brazilian suppliers receiving a 15% margin of preference; the remaining equipment, largely outside the capability of the Brazilian capital goods industry, was to be financed bilaterally with bidding restricted to suppliers in the countries providing the credits. At this point, the Government expressed its intention to take credit terms into consideration when awarding contracts under this second list of equipment; discussions among members of the consortium led then to more or less uniform credit conditions, with, as a consequence, somewhat higher rates on hard currency loans than would have been the case otherwise. 8. In October 1973, control of the public sector steel companies and steel projects in Brazil was vested in a new holding company, SIDERBRAS 1/, under which the Government's holdings of the companies' share equity were regrouped. SIDERBRAS now holds the majority of ordinary shares of most of the Government-owned steel companies, including the three major ones, although BNDE 2/ has remained for these companies the major source of local funds, with substantial holdings of preferred shares and long-term loans. 9. The evolution of the Brazilian steel industry's production capacity and its kctual levels of production (in terms of raw steel equivalent) since 1971 is shown in the following table. 1/ Siderurgia Brasileira S. A. 2/ Banco Nacional do Desenvolvimento Economico Table 1 (Million tons) Annual Growth 1971 1977 Rate (%) Production Capacity 6.5 11.5 10.1 (of which flat products) (3.2) (5.9) (10.6) Production 6.0 11.2 10.9 (of which flat products) (2.8) (5.9) (12.9) Consumption 6.8 11.8 9.6 (of which flat products) (3.5) (6.6) (11.5) Source: CONSIDER Steel production increased at the annual rate of 11%, production capacity reaching 11.5 million tons of raw steel equivalent in 1977. Growth was particularly impressive in the flat-product sector which received the special attention of the Government and benefitted from the fastest growth in domestic demand. 10. This, however, constitutes a relative set-back from the Govern- ment's initial program which called for an increase in steel production capacity to 20 million tons by 1980 and is now lagging behind two to three years, production capacity in 1980 being projected at 15.6 million tons. The expansion program of the three larger companies assisted by the Bank registered a slippage similar to that of the industry as a whole; their combined production capacity is now expected to reach 7.6 million by 1980 instead of 11.0 million tons as was expected at appraisal. However, slower progress in implementing expansion projects was to some extent compensated by a lower than expected growth in domestic demand which has subsided considerably since 1974 as a result of the general economic recession. II. The USIMINAS Stage II Expansion Project 11. The project under review consisted of the expansion of USIMINAS' basic iron and steel making capacity from 1.0 to 2.4 million tons per year of raw steel equivalent and the addition of major facilities to increase rolling and finishing capacity for the production of plates and hot- and cold-rolled coils and sheets. The necessity to break up the company's long-range expansion program in two separate stages (Stage II and Stage III) led to some built-in excess capacity in Stage II in some sections (e.g. the blast furnaces and the B.O.F. shop) to take care of Stage III needs; in particular, the new blast furnace, together with the two existing furnaces, will be able to meet the hot metal requirements of the further expansion (now under implementation) and its full benefit, therefore, will not be reaped before completion of Stage III. Nonetheless, the basic concept on which expansion program of USIMINAS was based permitted a relatively balanced utilization of existing facilities at the end of Stage II. The expansion was carried out in two partly overlapping phases--Phase I being a rennant of the initial Stage I which had been fully merged with Stage 11. The two phases being fully integrated, the project concept refers to the overall Stage II expansion even though Bank finance was entirely allocated to Phase II (vide para. 14). 12. The major elements included in both phases of the project were: (i) installation of a (third) blast furnace with ancillary equipment (coke ovens, sinter plant); (ii) expansion of steel making capacity by installing a third basic oxygen furnace (BOF) steel producing vessel in the existing melt-shop, and two larger BOF vessels in a new shop, as well as two continuous slab casting machines; (iii) installation of a new plate mill; and (iv) expansion of cold-rolling capacity. 13. The Bank's role. The Bank was not involved in the initial for- mulation of the project which emerged from studies made by NSC and Nippon- USIMINAS (USIMINAS Japanese shareholder). As mentioned in the PCR (vide para. 5.01), the Bank's comments on the project's technical aspects were limited to its drawing attention to an inconsistency in the original lay- out of the continuous casting plant. The Bank's involvement also led to an upward adjustment in capital cost estimates to compensate for currency changes in the second half of 1971. 14. The Bank's contribution, however, was particularly crucial in finalizing the financing plan of the project as referred to earlier. When the Bank was asked to participate in the financing of the Stage II expansion program, the financing of Phase I had already been arranged and Bank finance was allocated entirely to Phase II for which its contribution to the organization of a parallel financing system with bilateral lenders appears to have been essential. Moreover, the Bank's participation in the project helped to some extent USIMINAS to install high quality machinery by holding down pressures for procurement of domestically procured machinery. In particular, in contrast to procurement procedures under - 6 - Stage I, the "Law of National Similars", which insists on local procure- ment whenever possible, did not apply to Stage II; delays in receiving equipment from Brazilian suppliers under the two first stages of the expan- sion program suggests in any case that additional local procurement would have excessively stretched the limits of the capabilities of the Brazilian capital goods industry. 15. When the loan was made, USIMINAS was only beginning to recover from financial difficulties which had stemmed partly from the past imbalance between its iron and steel making facilities and rolling facil- ities, and partly from its heavy debt burden which it was unable to service. As a prerequisite to its loan, the Bank insisted that USIMINAS's financial position be strengthened so as to provide a suitable basis for the financing of its expansion program. This was done mainly through the sale of preferred shares to BNDE which permitted the reduction of USIMINAS' outstanding long-term debt. 16. Project implementation has been particularly successful, specially when viewed in the context of difficulties experienced in the implementa- tion of other steel projects in Brazil as well as in other developing countries. Facilities to be installed under Stage II were started up with a composite delay of about 8 months (vide para. 1.05 of PCR) ,which led to a small shortfall in production in 1974, 1975 and 1976 in comparison with appraisal estimates. This aggregate figure, however, tends to ignore sub- stantial differences among the various components of the project; of the major elements, the new (No. 3) blast furnace was completed with a delay of six months; the new BOF shop with approximately a one-year delay and the plate mill with a 1-1/2 year delay. Overall, the longest slippages occurred rather upstream in the chain of production, causing relatively little slippage in overall production; thus, pending the installation of its plate mill which was delayed by longer than expected excavation and civil works, USIMINAS was able to process its increased production of raw steel through its existing hot strip mill facilities. 17. Delays in implementation were to a large extent compensated by a faster than originally expected learning curve. Full production was reached in 1977, amounting to 2.7 million tons of raw steel, 12.5% higher than the appraisal estimate of 2.4 million tons. USIMINAS is now selling part of its slab production to CSN and COSIPA as its present milling facil- ities are not sufficient to handle its surplus in raw steel production. 18. The one negative element in the implementation of the project was the sharp increase in total cost. Cost overruns amounted to 77% of cost estimates made at appraisal, total project cost increasing from US$507.9 million to US$898.4 million. Cost overruns did not cause USININAS any substantial financial difficulties, as the company was able to raise adequate long-term resources (equity and loans) so as to cover additional expenses, although it was not able to keep its debt/equity ratio consis- tently within the 50/50 limit as required under its loan agreement with the Bank. Higher inflation (in dollar terms) and exchange rate variations - 7 - accounted for about 25% of cost overruns. Another 64.1% resulted from three independent factors: (i) higher project administration and super- vision costs; (ii) physical contingencies not anticipated at the time of appraisal; and (iii) higher local construction (civil works) and erection works (vide para. 1.08 of PCR). 19. The first two of these elements reflect, to some extent, imper- fect project preparation and appraisal inadequacies. Administration and supervision cost estimates, which were taken as a fixed percentage (4%) of the estimated cost of fixed assets related to the project, were clearly underestimated. The expectation that most of administration work could be carried out by existing staff turned out to be impracticable and additional administrative costs reached a level ten times higher than that projected. Physical contingencies (10% of the estimated cost of fixed assets) were also exceeded. A number of additional items of equipment were added to the initial list which led to improved productivity and product quality at various stages of the production line (No. 3 blast furnace, No. 1 BOF shop, hot strip mill and plate mill); this normal adaptation on the margin of new facilities caused additional costs in an amount of US$88 million, 2.6 times that of physical contingencies. 20. Higher costs of civil works resulted to a large extent from the form of contract used by USIMINAS. All contracts placed with local con- tractors were made on a cost-plus basis, partly because of the lack of experience of local firms and the heavy demand placed on them in the early seventies, which would have made it difficult for USIMINAS to enter contractual arrangements with them even on the basis of a schedule of rates. In this context, USIMINAS' own lack of experience in supervision large-scale civil works led to insufficient cost control and eventually to a more than fivefold increase in construction and installation costs and a final figure totally out of proportion with (actually, higher than) equipment costs. Whatever the difficulties of entering into unit price contracts (with monetary correction) in the initial phase of project implementation, it appears that the Bank did not succeed in keeping USIMINAS away from cost-plus contracts. 21. A related issue arises out of the possibility of USIMINAS placing turn-key contracts with suppliers for particular pieces of equipment. Such procedure has been found to be beneficial in the case of other industrial projects financed by the Bank as it relieves the management of a project of part of its supervision duties. However, in the case of USIMINAS it would also have denied USIMINAS participation in the detailed engineering design work carried out under the project and the build-up of such facil- ities in-house. One consequence of USIMINAS undertaking the job is that it has led it to change later on the form of its contracts for civil works and that most of the contracts placed for its Stage III expan- sion program have been entered into on a unit price basis. USIMINAS, however, is still reluctant to accept the idea of including, within its equipment contracts, the cost of erection on the ground that Brazilian -8- suppliers lack experience to enter into such arrangements and that foreign suppliers would tend to favor use of foreign contractors, contrary to the Government's policy of maximizing the use of local capabilities to the extent possible. The audit feels that a special covenant in equipment contracts would take care of the latter argument. Overall, given the potential for further expansion of steel-producing capacity in the country offered by the availability of large reserves of iron ore it appears that the substantial cost overrun which occurred under the project was not an unduly large price to pay for the learning process which resulted from adopting the procedure actually used, as reflected by the subsequent change in the form of contracting used for civil works and by USIMINAS's emerging role as a management consultant for other steel projects in the country. 22. Factors in Successful Project Implementation. Apart from the occurrence of large cost overruns, project implementation and initial start-up can be described as particularly successful. This resulted from a number of factors. First, the expansion project benefitted from a well-conceived site layout which had been prepared at a very early stage in the history of the company in taking the possibility of future expan- sion into consideration. Planned build-up of expansion facilities facil- itated construction works while minimizing the extent of interferences with existing production areas. This, in turn, allowed USIMINAS to main- tain and indeed increase the production of its plant while implementing Stage II and thereby, assuring a satisfactory internal cash generation, albeit somewhat lower than expected on account of much higher operating costs. 23. A second critical element in facilitating project implementa- tion was the relatively small number of large package contracts, which limited the amount of coordination work left to USIMINAS. A further element was the contribution of consultants (NSC) which, USIMINAS and the Bank agree, seems to have been prominent. NSC was responsible for the initial project design and contributed to the detailed design work. This was supplemented, at a later stage, by a number of smaller contracts focusing on specific production areas, allowing USIMINAS to minimize initial operating difficulties and to eliminate rapidly most of the bottlenecks in its chain of production. Overall, responsibilities given to consultants were substantially higher than in the other steel projects; this, of course, was facilitated by the fact that, aside from SIDERBRAS 1/ and BNDE, NSC was itself (indirectly) one of USIMINAS' major shareholders- it still demonstrates USIMINAS' willingness to accept foreign assistance as compared to its Brazilian competitors. USIMINAS' experience with its organization consultants (BAHINT) was quite comparable; recommendations made were, on the whole, implemented in a timely fashion, leading to a substantial improvement in project management. 1/ By end-1977, Nippon-USIMINAS held 17% of the company's equity, down from 21% in 1971. NSC is one of the largest shareholders of Nippon- USIMINAS. - 9 - 24. A final contributing factor to USIMINAS' production performance was the emphasis it placed, since an early stage, on personnel training. A special department within the company now deals exclusively with this function; moreover, a substantial proportion of the staff (at all levels of responsibility) has been sent abroad (to Japan) for job training. This, coupled with the management's commitment to decentralize( decision- making, appears to have been critical in bringing about substantial productivity improvements. 25. Production, Financial Results and Return on Investment. Produc- tion during the first two years of project implementation (1972 and 1973) exceeded appraisal forecasts. This was due in part to the early comple- tion of a few critical components of the project (installation of a third converter in the former BOF shop and expansion of rolling mill facilities), and in part, to the fact that actual production after completion of Stage I turned out to be in excess of nominal production upon which appraisal fore- cast had been based. Subsequently, because of the slight delay in implementing the project (as also, partly, the international coal crisis in 1974), production was somewhat below projections until 1976. As mentioned above, full production was reached in 1977 at a level 12.5% above nominal production. The better than anticipated production built-up, coupled with adequate selling prices, have provided USIMINAS with a comfortable financial position, even though operational costs increased faster than sales value in relation to appraisal estimates (+251% vs +197%) and internal cash generation was somewhat lower than expected (vide paras. 2.01 to 2.07 of PCR). 26. The project yields a satisfactory financial rate of return reestimated at 11% as against 12.6% estimated at appraisal. When the internal rate of return was reestimated (in 1978), domestic steel prices were, on average, 10% higher than international prices. On the basis of international prices, the project would still have had a positive finan- cial rate of return, though substantially lower. The economic rate of return whose calculation takes account of taxes, import duties and over- valued exchange rate, was reestimated at 13.5% as against 11% estimated at appraisal (vide para. 2.08 of PCR). Since then trigger prices have increased and domestic prices are now more in line with international prices. 27. However, in the case of such an expansion project which included a number of balancing elements, the calculation of an internal rate of return is not fully significant, as one cannot really consider it inde- pendently from previous investment; the same would naturally apply to Stage III which will bring a number of investments undertaken under Stage IIto full utilization, suggesting that the computation of an overall rate of return on the investment for the whole expansion program after completion of Stage III (which the Bank is not financing) would be an interesting exercise to measure the long-term viability of the investment program undertaken by USIMINAS. Overall, it appears, however, that the - 10 - rates of return mentioned above tend to underestimate the benefits generated by the project since some of the facilities included in the project for full utilization in subsequent years have not been given full credit. III. Summing up 28. A number of factors have been critical in assuring the success- ful implementation of this project, although a number of them appear not to have been considered as such at appraisal. Most prominently, the close collaboration between USIMINAS and NSC has been instrumental in permitting a timely installation and rapid start-up of new production facilities with simultaneous improvement in USIMINAS' staff capabilities at all levels of responsibility. 29. The Bank's contribution to project preparation was essential in arranging. the project's financing plan and assuring the participation of a large number of bilateral lenders even though its own participation to total costs (US$898.4 million) remained quite small (6%). However, while focussing on financial matters as well as macroeconomic issues (e.g. market projections, and coordination of the project with the expansion programs of CSN and COSIPA), the Bank appears to have devoted little time to a critical review of the company's management procedures, In the case of USIMINAS, however, problems encountered during implementation were minimal; a noticeable exception was the inability of the company's cost control procedures to handle the amount and complexity of supervision tasks generated by the large-scale construction works which were part of the project, leading to substantial cost overruns on construction and installation works. 30. Higher investment costs were, to a large extent, compensated by the increase in real prices of steel products in international markets and better than anticipated production build-up, leading to a satisfactory economic internal rate of return of 13.5%. Based on domestic prices (10% above international prices on average), the project yields a satisfactory financial rate of return of 11%, indicating an adequate return on capital emloved. However, these rates of return are of limited significance because of the built-in capacity involved in the project; they certainly tend to underestimate actual performance, suggesting the computation of an internal rate of return for the whole expansion program after comple- tion. Operations Evaluation Department April 13, 1979 - 11 - PROJECT COMPLETION REPORT BRAZIL - USIMINAS STAGE II EXPANSION PROJECT (LOAN 812-BR) SUMMARY AND CONCLUSIONS i. USIMINAS was founded in 1956 as a privately owned Brazilian Company. In 1957 an agreement was signed with Nippon USIMINAS KK, a holding Company representing the interests of the Nippon Steel Corporation and other Japanese steel producers and equipment suppliers that established the basis for the construction of Stage I of the steel plant situated at Ipatinga. Stage I was designed to produce 1.0 million tons 1/ of raw steel equivalent per year. During 1971 the Bank and the IDB jointly appraised Stage II of the Company's expansion plans and subsequently agreed to lend US$63.0 million and US$42 million, respectively, to help finance the project. The Stage II project was carried out in two partly overlapping phases (Phases I and II) and involved the planned expansion of the Company's raw steel capacity from 1.0 to 2.4 million tons per year and the provision of additional rolling and finishing facilities. In 1975 USIMINAS embarked on its Stage III expansion project with Bank approval, but without Bank participation. This project was designed to increase production capacity to 3.5 million tons of raw steel equivalent by 1979. USIMINAS is now the largest steel producer in South America. ii. The total financing required to complete the project was US$950.3 million, which was US$377.7 million (66%) more than anticipated at the time of appraisal. The main element of this increase was a construction cost overrun totalling US$289.0 million (436%) which resulted from an over- estimation of the Brazilian construction industry's capabilities, an inflation rate in the construction industry that was higher than anticipated at the time of appraisal, and design underestimates. The execution of the project, however, which was completed with a composite overall delay of eight months, was considered to be of a high standard, especially in relation to the per- formance of other Brazilian companies that embarked on similar expansion projects at the same time as USIMINAS and completed their projects with more significant delays. iii. Despite the US coal miner's strike which led to an international shortage of metallurgical coal in 1973 and 1974 and which in turn obliged USIMINAS to use more national coal in the coke ovens which reduced steel making performance, USIMINAS' cumulative production performance during 1972 and 1977 was 3.6% higher than projected at the time of appraisal. In 1977 USIMINAS produced 2.7 million tons of raw steel which was 12.5% higher than anticipated at the time of appraisal. USIMINAS' operational performance is considered to be good by international comparison. iv. It is'now estimated that the project's economic rate of return is 13.5% compared with 11.5% at the time of appraisal and that the incremental foreign exchange benefits associated with the substitution of domestically produced steel for imported equivalents offset the foreign exchange component of the total project cost in less than two years at full production. v. The Bank loan of US$63.0 million was not fully utilized by USIMINAS as alternative financing was arranged by the Company on some packages origin- ally intended for Bank participation. Effective October 27, 1977 the Bank cancelled the loan's outstanding balance of US$5.1 million. 1/ Metric tons - 12 - vi. USIMINAS is currently completing its Stage III expansion project which is designed to increase production to 3.5 million tons of raw steel equivalent per annum by 1980. No significant problems relating to this project's implementation are being experienced by USIMINAS. vii. USIMINAS fully utilized the services of specialist consultant firms, in particular the Nippon Steel Corporation of Japan, and this contributed largely to the strengthening of USIMINAS' management and operational perform- ance during the implementation of the Stage II project. USIMINAS' management and technical capacities are now recognized in Brazil and the Company was recently awarded a project management contract by ACOMINAS to construct a 2 million ton per year steel plant in the state of Minas Gerais. - 13 - I. PROJECT DESCRIPTION AND IMPLEMENTATION A. Project Objectives and Description 1.01 The project consisted of the construction of facilities and the installation of equipment to increase USIMINAS' existing raw steel capacity from about 1.0 to 2.4 million tons per year and to transform that steel into uncoated flat products. The plant is situated in Ipatinga in the State of Minas Gerais, Brazil, which is located about 210 km northeast of Belo Horizonte, the capital of the State and the site of the Company's head office. The plant is connected through roads and railways to the main domestic market centers for flat steel products in Sao Paulo, Rio de Janeiro and Belo Horizonte, and to the port of Vitoria, through which finished products are exported and imports of coal are unloaded. The plant is also connected by rail with the large Itabira iron ore mines of CVRD some 100 km distant which provides all of the Company's iron ore requirements. 1.02 The main characteristics of USIMINAS' overall expansion project are as follows: (a) the expansion of coking capacity to 1,037,000 tons per annum using a mixture of imported and domestic coal. At the time of appraisal, USIMINAS assumed that it would be able to reduce the proportional use of low grade local coal from approximately 1/3 to about 1/5 by 1975 to improve iron making efficiency. This reduction was accomplished in 1976; (b) the expansion of sintering capacity to 3.7 million tons per annum to permit the use of a 100% sinter burden in the blast furnace. Due to the project's higher than anticipated steel making output and the resultant increased sinter requirement of the project, the production of 3.7 million tons per annum of sinter did not allow USIMINAS to achieve the above utiliza- tion objective with the completion of the sinter plant in late 1974. Nevertheless, this did not affect USIMINAS' per- formance as the shortfall was filled with purchased lump ore and pellets; (c) the expansion of hot metal capacity with the addition of a large modern blast furnace with a daily production of 5,500 tons with provision for high top pressure operation and fuel injection. This unit was blown in during December 1974; (d) the expansion of the existing BOF steel making plant with the installation of a third vessel of 70 ton capacity, and the construction of a second BOF steel making plant incor- porating two 160 ton converters. These vessels commenced operations in August 1973, September 1975 and January 1976 respectively; - 14 - (e) the installation of continuous slab casting equipment with a capacity of 1.0 million tons of slabs per year supplemented by ingot casting and primary reduction in the existing slabbing mill. These continuous casting machines were started up in March 1976; (f) the installation of a single-stand, 160" wide plate mill with a capacity of 700,000 tons per annum. This unit which was the last major unit included in Stage II to be completed commenced operations in October 1976; (g) the expansion of cold-rolling capacity to 155,000 tons per annum with the installation of a new 5-stand tandem mill. This unit commenced operations in March 1974. B. Project Summary Data 1.03 The following table compares major project parameters at appraisal with actual results on completion: Project Data Units Appraisal Actual Capital Cost of Project US$ millions 572.6 950.3 Capital Cost of Bank Financed Items US$ millions 63.0 57.9 Capital Cost per Annual Ton of Raw Steel Equivalent US$/ton /l 409.0 559.0 Construction Period Months 53 61 Start-Up Dates From: June '73 July '73 To: August '75 October '76 Plant Capacity 1,000 tons 2,400 2,700 Total Sales 1975 1,000 tpy 1,690 1,552 1977 1,000 tpy 1,879 2,294 Steel Plant Manpower 8,800 11,700 Average Selling Prices 1975 US$/ton /2 212.6 /3 340.0 1977 US$/ton /2 236.4 /3 358.0 Cash Operating Costs 1975 US$/ton 149.2 13 293.8 '4 1977 US$/ton 162.7 /3 295.2 /4 Profit Before Taxes 1975 US$ millions 102.3 13 84.9 1977 US$ millions 93.4 13 185.0 /1 All tons are expressed in metric units. /2 Prices are on an ex-works basis and are net of IPI tax. /3 Appraisal estimates converted to current dollar for comparison with actual results. /4 Includes cost of imported 3teal products. - 15 - 1.04 The major project objectives of USIMINAS' Stage II project which included the expansion of basic iron and steel making capacity and the incor- poration of rolling and finishing facilities to achieve an integrated produc- tion capacity of approximately 2.4 million tons of raw steel per annum have been successfully fulfilled at a reasonable cost. C. Project Construction and Completion 1.05 USIMINAS' Stage II expansion project was completed in two partly overlapping phases as illustrated in Annex II. The total composite average delay for boTh Phases I and II of the Stage it expansion project was about eight months. The major delays occurred in the following activities: Average Composite Delays Reasons Delays (months) Detailed Engineering 1.5 Procurement 0.8 Fabrication of Equipment 2.0 Construction and Start-up 4.0 Total 8.3 1.06 While the completion of some of the Phase I expansion facilities were delayed by more than one year (coke plant, sintering plant and lime plant) and while the composite average delay for this phase was approximately eight months, USIMINAS achieved the production targets for 1972 and 1973 set at the time of appraisal. These targets were achieved due to the completion of the No. 1 BOF shop (3rd converter) four months ahead of schedule and the completion of the expansion of rolling mill capacity five months after the start-up of the No. 3 converter. Phase II facilities were started up with a composite average delay of ei3ht months. As a result of this delay, USIMINAS' production was 430,000 tons of raw steel lower than the appraisal estimate for 1975. Annex III details the major reasons for these delays. Considering the complexity of the expansion project, the tightness of the implementation schedule, the fact that it took place in a plant under operation and given the production performance of USIMINAS during that period, the construction time schedule achieved by the Company can be considered as highly satisfactory. This result can be attributed to USIMINAS' top management and its engineering and construction department, which was established by USIMINAS and assisted and trained by the Nippon Steel Corporation of Japan. D. Project Scope and Cost 1 1.07 Total financing required for the Stage II project amounted to US$950.3 million, of which US$292.7 million was required to complete Phase I and US$657.6 million was required to complete Phase II. Detailed capital cost estimates are shown in Annex IV, and the following table compares the estimates made at the time of appraisal with USIMINAS' actual performance for both Phase I and II of the Stage II expansion project. - 16 - Total Financing Required Stage II (US$ millions - current terms) Phase I Phase II Phases I & II Appraisal Actual Appraisal Actual Appraisal Actual Equipment (incl. spares) 80.9 144.2 138.4 178.6 219.3 322.8 Freight, Insurance, Import Fees and Taxes 6.7 11.0 14.0 33.0 20.7 44.0 Project Administration & Supervision 4.2 10.5 4.4 80.3 8.6 90.8 Engineering 5.7 6.4 10.3 12.5 16.0 18.9 Construction & Installation 24.0 100.8 42.3 254.5 66.3 355.3 Physical Contingencies 10.5 - 23.5 - 34.0 - Price Contingencies 13.7 - 57.5 - 71.2 - Total Fixed Assets 145.7 272.9 290.4 558.9 436.1 831.8 Pre-Operating Expenses - - 9.6 9.6 9.6 9.6 Working Capital 5.8 6.1 56.4 50.9 62.2 57.0 Total Project Cost 151.5 279.0 356.4 619.4 507.9 898.4 Interest & Financing Charges during Construction 13.9 13.7 50.8 38.2 64.7 51.9 Total Financing Required 165.4 292.7 407.2 657.6 572.6 950.3 1.08 Phases I and II of the Stage II project were completed with total cost overruns of US$127.3 million (77%) and US$250.4 million (61%) respec- tively, which resulted in an increase in the financing required to complete the project over that anticipated at appraisal of US$377.7 million (66%). Details of the US$377.7 million cost overrun are highlighted in Annex IV and tabulated below: - 17 - Details of Cost Overruns US$ millions Changes in project scope fl 34.3 Higher local construction costs 107.1 Higher project administration and supervision costs 82.2 Cost increases due to exchange rate variations 23.7 Price increases due to extended project implementation 71.1 Physical contingencies not anticipated at the time of appraisal 54.0 Freight insurance and import fees 23.3 A reduction in working capital requirements and interest during construction costs (18.0) Total 377.7 /I As detailed in Annex V. 1.09 The higher than anticipated local construction costs were due to the overestimation of the Brazilian construction industry's capabilities at the time of appraisal and the form of construction contract used by USIMINAS which made cost control difficult and which were subsequently improved upon during the implementation of the Stage III project. The determination of the con- struction industry's capabilities was based on Japanese experience at the time of appraisal and the cost overruns reflected in part the lower efficiency factors experienced in Brazil. Project administration and supervision costs represented 10.1% of the final project cost compared with the 1.7% estimated at the time of appraisal. While the high cost of this element largely related to USIMINAS' learning experience in the field of engineering this aspect was substantially underestimated at the time of appraisal. 1.10 The major project cost overruns related to locally procured items and in particular construction, installation and administration costs. The following table compares the estimates made at the time of appraisal with USIMINAS' actual performance for the completed Stage II expansion project. Details are highlighted in Annex IV of this report and Annex XII of the Appraisal Report. - 18 - Foreign and Local Cost Estimates f1 Stage II (US$ millions - current terms) Foreign Local Total Appraisal Actual Appraisal Actual Appraisal Actual Equipment (incl. spares) 156.9 205.7 62.4 117.1 219.3 322.8 Freight, Insurance, Import Fees 10.9 25.8 9.8 18.2 20.7 44.0 Project Administration & Supervision 0.2 0.2 8.4 90.6 8.6 90.8 Engineering 9.8 12.2 6.2 6.7 16.0 18.9 Construction & Installation - - 66.3 355.3 66.3 355.3 Physical Contingencies 15.7 - 18.3 - 34.0 - Price Contingencies 33.2 - 38.0 - 71.2 - Total Fixed Assets 226.7 243.9 209.4 587.9 436.1 831.8 Pre-Operating Expenses - - 9.6 9.6 9.6 9.6 Working Capital - - 62.2 57.0 62.2 57.0 Total Project Cost 226.7 243.9 281.2 654.5 507.9 898.4 Interest during Construction 48.5 31.3 16.2 20.6 64.7 51.9 Total Financing Required 275.2 275.2 297.4 675.1 572.6 950.3 E. Financial Plan and Cost Overrun Financing 1.11 The project and the ensuing cost overruns were financed as antic- ipated at the time of appraisal with the additional US$377.7 million required to complete the project being provided largely in the form of shareholder subscriptions and BNDE loans. Details of the project's financing plan com- pared with the arrangements envisaged at the time of appraisal are highlighted below. - 19 - Financing Plan US$ millions % Appraisal Actual Difference Appraisal Actual Equity Shareholder Subscriptions 75.0 309.2 234.2 13.1 32.5 Internal Cash Generation 134.6 115.4 (19.2) 23.5 12.1 Subtotal 209.6 424.6 215.0 36.6 44.6 Loans World Bank 63.0 57.9 (5.1) 11.0 6.1 Inter-American Bank 42.0 39.0 (3.0) 7.3 4.1 BNDE 106.4 263.7 157.3 18.6 27.8 Japanese Commercial Banks 67.0 67.0 - 11.7 7.1 Bilateral Agencies 84.6 98.1 13.5 14.8 10.3 Subtotal 363.0 525.7 162.7 63.4 55.4 Total 572.6 950.3 377.7 100.0 100.0 1.12 USIMINAS did not fully utilize the Bank's loan as alternative finan- cing was arranged by the Company on some packages originally intended for Bank financing, and effective August 19, 1977, the Bank cancelled the outstanding balance of US$5,060,48 as agreement could not be reached with the Company on further suitable items for Bank financing. This amount was subsequently amended effective October 27, 1977 to US$5,118,365 after USIMINAS received a refund from an equipment supplier under a warranty agreement. The IDB was also involved in these discussions and it agreed to cancel approximately US$2.9 million of its loan. Annex VI details the revised amortization schedule for the Bank loan. F. Procurement and Allocation of Bank Loan 1.13 The items recommended to be financed out of the proceeds of the Bank loan compared with actual disbursements were as follows: - 20 - IBRD Loan Withdrawal Schedule Appraisal Actual US$ million % US$ million % Categories Iron Making Equipment, including blast furnace and equipment for coke oven plant and spare parts 18.2 28.9 19.3 33.3 Steel Making Equipment, including components of BOF shop, continuous casting, oxygen plant and spare parts 5.3 8.4 3.2 5.5 Equipment for Slabbing plant and hot and cold strip mills, and spare parts 14.1 22.4 14.3 24.7 Equipment and Materials for Water and Energy Systems and Maintenance and spare parts 12.5 19.8 9.9 17.2 Mobile Equipment and Rolling Stock and spare parts 6.6 10.5 7.2 12.4 Foreign Freight and Insurance 16 2.5 4.0 6.0 Unallocated 4.7 7.5 - - Total 63.0 100.0 57.9 100.0 1.14 The equipment packages financed by the Bank were procured by inter- national competitive bidding in accordance with the Bank's procurement guide- lines and with Brazilian manufacturers receiving a 15% preference. Financing of these packages was shared between the Bank and the IDB on a 60:40 basis. The remaining equipment packages were bid in the countries supplying lines of bilateral credit. All construction and installation packages were com- petitively bid in Brazil and financed locally. At the time of appraisal, it was anticipated that Brazilian equipment manufacturers with a 15% prefer- ence and the same incentives that are normally granted to exporting firms would win 38% of the equipment financed by the Bank and the IDB loans. Brazilian manufacturers were as competitive as envisaged at the time of appraisal, winning 37% of all equipment items financed by the Bank and the IDB. The following table highlights the breakdown of supplying countries for (i) internationally bid equipment packages, and for (ii) equipment packages bid in Brazil and in countries supplying bilateral credit facilities. - 21 - Source of Equipment Packages Bank Financed Bilaterally & Locally Items Financed Items Total Source US$ million % US$ million % US$ million % Brazil 32.4 37.1 85.9 36.5 1!8.3 36.7 Japan 46.7 53.3 119.0 50.5 165.7 51.3 USA 3.5 4.0 0.4 0.2 3.9 1.2 Germany 0.9 1.0 27.0 11.5 27.9 8.6 Austria 1.9 2.2 - - 1.9 0.6 Other 2.1 2.4 3.0 1.3 5.1 1.6 Total 87.5/1 100.0 235.3 100.0 322.8 100.0 /1 Excludes freight, insurance, equipment erection and dupervision costs which amounted to approximately US$10 million. 1.15 The Japanese were the most successful equipment suppliers, winning 51.3% of all the equipment contracts in dollar terms. In particular they supplied the 160" plate mill (US$34.4 million), the continuous casting machine (US$18.5 million), the No. 3 Blast Furnace (a share of US$9.9 million), the No. 1 reheating furnace (US$4.2 million) and the electrolytic cleaning line (US$4.5 million). Annex VII details the different stages of the procurement bidding process for all packages procured during the implementation of Phase II of the project. II. PROJECT OPERATION A. Production and Sales 2.01 During the period 1972 to 1977 USIMINAS' cumulative production per- formance was 3.6% higher than projected at the time of appraisal. This was despite the effects of the international shortage of metallurgical coal in 1973 and 1974 and the effects of the composite eight month delay in the com- pletion of the project. Production in 1977 reached 2.7 million tons of raw steel, which was .3 million tons (12.5%) higher than the appraisal estimates. Annex VIII details USIMINAS historical production performance. 2.02 In order to maintain sales in the strong domestic steel market and to compensate for the effects of the delays in project completion and the coal shortages on pig iron production, USIMINAS imported semi-finished and finished steel for processing and sale and placed less emphasis than anticipated at the time of appraisal on export sales during 1973 and 1976 inclusively. The following table highlights the impact of imports and exports on USIMINAS' sales performance as compared with that anticipated at the time of appraisal. - 22 - Sales Performance ('000 tons) /1 1972 1975 1977 Appraisal Actual Appraisal Actual Appraisal Actual Domestic Sales 662 823 1,354 1,526 1,507 2,283 Export Sales 75 86 336 26 372 11 Total 737 909 1,690 1,552 1,879 2,294 From Production 737 828 1,690 1,283 1,879 2,201 From Imports - 81 - 269 - 93 Total 737 909 1,690 1,552 2,294 /1 Finished product. 2.03 As a result of the expeditious manner in which USIMINAS completed the Stage II expansion project, USIMINAS' share of the total sales effected by itself, COSIPA and CSN (the two other major flat steel product producers in Brazil) increased from 40% to 57% during the six years to 1977 inclusively, compared with the increase to 48% anticipated at the time of appraisal. USIMINAS' production and sales performance reflects management's operational strength. B. Financial Results and Return on Investment 2.04 At the time of appraisal the financial projections for the project apart from the capital cost estimate were expressed in constant 1972 terms as it was assumed that the local inflation rate would be offset by changes in the cruzeiro exchange rate and that the dollar would not be subject to sig- nificant inflationary pressures. This was not the case and inflationary pressures resulting from the energy crisis, and which could not have been anticipated at the time of appraisal had a major impact on the project. In fact the total capitalized cost of the project, sales revenues and cash operating costs were 66%, 197% and 251% respectively higher than the appraisal estimate in 1977. The increase in sales revenues and cash operating costs were partially attributable to the 17% increase in sales volume but the bal- ance largely relates to the effects of inflation. Annex IX details USIMINAS' audited accounts since 1971 while the main operating performance indicators are compared with the appraisal estimates below: - 23 - Performance Indicators Financial Year 1976 1977 1978 Ending December 31 Appraisal Actual Appraisal Actual Appraisal Actual ------------------million tons /1------------------- Production 2.4 2.3 2.4 2.7 2.4 2.7 --------------------US$ million--------------------- Net Revenues /L2 314.4 709.4 318.5 948.6 321.1 1001.9 Cash Operating Costs /2 187.7 487.0 190.2 667.1 192.5 712.5 Net Profit Before Taxes 53.8 128.1 58.1 184.9 61.0 175.7 Net Profit as a % of Revenues 17.1 18.1 18.2 19.4 19.0 17.6 Internal Cash Generation 95.3 98.2 99.3 143.4 101.9 194.4 /1 Raw steel equivalent. /2 Including sales and excise taxes. 2.05 During appraisal it was assumed that USIMINAS would achieve an aver- age selling price ex-plant of about US$147 per ton of finished steel, between 1971 and 1975 exclusively, and that there would be minor price reductions thereafter. This forecast did not eventuate as there was little evidence at the time of appraisal on which to base estimates which could take into consid- eration the world wide impact of inflation between 1971 and 1977. In fact in 1977 USIMINAS' average ex-works domestic selling price (net of IPI tax) was US$357.9 per ton and US$222.6 per ton in 1972 terms. The ex-works domestic price compares reasonably favorably with the US$320.5 per ton which is the CIF East coast port trigger price for similar produts imported into the US and which is based on the cost structure of Japanese producers. Annex X compares the price assumptions made at the time of appraisal with the prices actually achieved by USIMINAS. 2.06 USIMINAS maintained a strong corporate structure throughout the implementation of the Stage II project. The following table compares selected financial indicators with those anticipated at the time of appraisal. Selected Financial Indicators Year Ending December 31 1974 1976 1977 Appraisal Actual Appraisal Actual Appraisal Actual Current Ratio 1.8 1.0 2.9 1.4 3.4 1.6 Debt Equity Ratio 51:49 50:50 43:57 50:50 38:62 43:57 Debt Service Coverage 1.4 1.2 2.3 1.3 2.1 1.5 - 24 - 2.07 Sections 5.09 and 5.08(i) of the Bank's Loan Agreement dated April 11, 1972 requires USIMINAS to maintain a minimum current ratio of 1.3 or 1.5 after the payment of any dividend. As the Company's Stage III expansion project required the raising of substantial equity funds from its foreign partners and as no dividends had been paid on the ordinary shares since the formation of the Company in 1956, USIMINAS informed the Bank of its intention to pay a dividend and requested that the current ratio restriction, after the payment of dividends, be lowered to 1.3. This request was approved by the Bank and the Company was informed of this decision on December 2, 1975. 2.08 At appraisal it was estimated that the project's financial rate of return after tax would be 12.6% based on a project life of 22.5 years including a construction period of 4.5 years. Present indications are that the likely financial rate of return for the project will now be approximately 11%. The main reason for this decline was the fact that the 66% increase in the total project cost and the reduced real cash operating margin was not offset by the 12.5% increase in the actual production capacity of the Stage II project, and the better than anticipated production build up performance of the Company. In 1977 the net real cash operating margin per ton of steel produced was in fact 15% lower than anticipated at the time of appraisal. Annex XI details the financial projections for the Stage II expansion project to 1987. 2.09 USIMINAS is currently embarked on a Stage III expansion project which will take production to 3.5 million tons of raw steel equivalent per annum. While the Bank reviewed and subsequently approved USIMINAS' Stage III expansion plans in accordance with the provisions of Section 5.06 of the Bank's Loan Agreement which restricts investment expenditures by the Company without Bank approval, it did not participate in the financing of this project. It is now estimated that the Stage III project will be essentially complete by mid 1979, which is 12 months behind schedule at a total project cost of about US$989 million (excluding incremental working capital and interest during construction). This is approximately 35% above the estimate made by USIMINAS at the time that the project was reviewed by the Bank. Assuming that the total project cost does not exceed the current estimate and produc- tion capacity reaches 3.5 million tons of raw steel equivalent in 1981, it is estimated that the financial rate of return for the Stage III project will be in the order of 11.5%. Annex XII details the financial projections for the Stage III expansion project to 1987. 2.10 Section 5.05 of the Bank's Loan Agreement restricts USIMINAS and any of its subsidiaries from incurring any debt without the prior approval of the Bank if such action would cause the debt equity ratio to exceed 50:50. In response to a request from USIMINAS and based on financial projections detailing the implications of the Stage III expansion, the Bank informed the Company on May 4, 1976 that it could raise its debt equity ratio to 60:40, between the years 1976 to 1978. Due to delays in its implementation of the Stage III project and better than anticipated operating results it is now estimated that USIMINAS will only exceed the 50:50 debt equity ratio criteria in 1978 and 1979. - 25 - 2.11 In accordance with Section 3.01 of the Loan Agreement, it is considered that the Stage II project was carried out with due diligence and efficiency using sound engineering, financial and administrative practices. At December 31, 1977 the project met all generally accepted conditions of completion and was in compliance with all covenants in the Bank's Loan Agreements. C. Economic Benefits of the Project 2.12 The net incremental foreign exchange benefits generated by the project in 1977 and 1978 before any foreign debt servicing is estimated to be approximately US$210 million and US$220 million, respectively. This, compares with the US$82 million of annual incremental foreign exchange benefits anticipated at full production at the time of appraisal. The main reason for this difference was the unanticipated level of inflation particularly in relation to selling prices since the time of appraisal. It is estimated that the incremental foreign exchange benefits accruing to the Stage II project would offset the foreign exchange component of the total project cost amounting to approximately US$275 million in less than two years at full production. This compares with a pay-back period of four years estimated at the time of appraisal. 2.13 Based on the US trigger prices for steel products, it is estimated that the internal economic rate of return for the Stage II expansion project is 13.5%. This compares with 11% estimated at the time of appraisal. 2.14 The Stage II project generated 5,500 new jobs in USIMINAS. 2.15 Management has placed considerable emphasis on job training and research and development and the Company is now in a position to act as project managers in other expansion schemes and to advise on the operation practices of other steel producers in Brazil and elsewhere. There is little doubt that the Stage II project resulted in a significant exchange of technology. 2.16 The establishment of USIMINAS and the completion of the Stage II project has contributed towards the decentralization of industry in Brazil and was a major influence in the decision to establish Krupp's, Demag's and Fiat's manufacturing shops in the state of Minas Gerais. D. Environmental Aspects 2.17 USIMINAS designed the Stage II project facilities in 1972 and 1973 to conform with European and American environmental standards to minimize the impact of the project on the environment. During the construction of the Stage II facilities US$21.0 million was spent on water and air management equipment, compared with the US$11.0 million estimated at the time of ap- praisal. In 1973 SEMA (Secretaria Especial do Meio Ambiante), the Federal Pollution Control Board, was set up within the Brazilian Ministry of the Interior to set environmental standards. In 1976 SEMA issued specific standards in relation to water and air quality and these are incorporated - 26 - in Annex XIII. At the same time, USIMINAS contracted with CETESB, a special- ist consultant firm, to quantify the environmental impact of the steel works on the residential district of Ipatinga. Results show that except for dust content close to the sintering plant, all particulate and gaseous residues are below the emission values set by SEMA. Further improvements will be achieved with the installation of a gas cleaning system for the No. 1 BOF shop in 1978. III. THE STEEL MARKET 3.01 USIMINAS produces noncoated flat products in the form of plates, hot rolled coils and sheets and cold rolled coils and sheets, and competes in the domestic market with CSN and COSIPA. Domestic consumption of these products has grown by approximately 11% per annum over the last five years, however, it is anticipated that the growth rate will fall to about 8.8% to 1980 and then recover to sustain a rate of 11.8% thereafter. The following table highlights the actual consumption of noncoated flat products until 1976 and the estimated consumption levels for the years 1980 and 1985. Brazilian Consumption of Noncoated Flat Products (1,000 tons) /1 Historical Forecast Years 1972 1973 1974 1975 1976 1980 1985 Consumption 2,294 2,936 3,465 3,589 3,850 5,436 9,494 /1 Source: CONSIDER Market Study RAM. 2 (macroeconomic study assuming a GDP growth rate of 5.5% p.a. until 1980 and 7.3% thereafer with an elasticity factor of 1.58 for flat products). 3.02 CONSIDER was instrumental in setting up a marketing committee which consisted of representatives from CONSIDER, SIDERBRAS, IBS (Brazilian Steel Institute), the steel producers and major consumers. This committee meets twice a year and under the auspices of CONSIDER carries out on a permanent basis various market surveys. These surveys indicate that the noncoated flat products sector will show a supply deficit between 1982 and 1985 inclusively as summarized in the table below. - 27 - Market Projections (1,000 tons) 1982 1983 1984 1985 Demand 7,238 8,179 9,242 10,445 Supply A1 6,505 6,955 7,045 7,045 Deficit 733 1,224 2,197 3,400 /1 Supply includes all projects currently approved by the Brazilian Government but does not include Stage IV of CSN, USIMINAS and COSIPA. Source: CONSIDER - Market Study RAM 2. 3.03 USIMINAS' share of the uncoated flat products' market has improved significantly since 1972 as a result of the implementation of the Stage II project. The table below illustrates this evolution: USIMINAS' Market Share /l (%) 1972 1974 1976 1977 Domestic Sales Plate 57 65 67 70 Hot Rolled Coil/Sheet 41 50 54 54 Cold Rolled Coil/Sheet 24 24 52 47 Bloom/Slab 41 38 96 43 Export Sales Plate 93 100 97 100 Hot Rolled Coil/Sheet 30 94 22 100 Cold Rolled Coil/Sheet 16 26 23 100 Bloom/Slab 44 - 70 - Total Sales 40 45 58 57 /1 As a % of total tonnage supplied by CSN, COSIPA and USIMINAS. 3.04 While the states of Rio de Janeiro and Sao Paulo have traditionally accounted for the major proportion of USIMINAS' sales, USIMINAS' regional marketing pattern has changed over the last six years with the State of Minas Gerais consuming an increasingly important part of that Company's production. This is due to the rapid industrialization of the area surrounding Belo - 28 - Horizonte which can be partly attributed to the establishment and expansion of the USIMINAS project. The following table details USIMINAS' changing pattern of distribution. Distribution Pattern (%) Market Participation States 1973 1974 1975 1976 1977 Sao Paulo 53 44 52 53 47 Rio de Janeiro 22 21 18 15 19 Minas Gerais 12 20 18 20 22 Others 13 15 12 12 12 Total 100 100 100 100 100 IV. THE COMPANY A. Ownership and Control 4.01 At December 31, 1977 USIMINAS had an issued capital of US$539 mil- lion of which 50% was in the form of common shares, carrying all the voting rights in the Company, and 50% was in the form of 8% cumulative preference shares. While BNDE is the largest shareholder owning 46.4% of the Company's issued capital, control is vested in SIDERBRAS based on its ownership of 51.8% of the ordinary shares. SIDERBRAS was established within the Ministry of Industry and Commerce in accordance with Law 6159/74 to coordinate and control the development of the steel industry in Brazil. The following highlights the shareholding in USIMINAS. Shareholder Participation in USIMINAS /l (%) Ordinary Preferred Total SIDERBRAS 51.8 16.5 34.2 BNDE 28.2 64.6 46.4 Nippon-USIMINAS 18.6 16.0 17.3 Other 1.4 2.9 2.1 Total 100.0 100.0 100.0 /1 At December 31, 1977 USIMINAS had an issue capital of US$539 million divided equally between common and preferred shares. - 29 - B. Organization and Management 4.02 USIMINAS is considered to be well managed by any international comparison with a production efficiency factor of 10 manhours per ton of raw steel produced compared with 7 and 9 in Japan and the US respectively. The development of the USIMINAS organization and management can largely be attributed to their efforts in critically reviewing their own operations in concert with the recommendations of consultant firms employed by the Company. Since 1965, USIMINAS has entered into approximately 40 separate consultant contracts designed to review and assist in the areas of management, expansion and operations. The Company's relationship with the Nippon Steel Corporation has been most productive and USIMINAS would now appear to have the management capacity and skills to implement other expansion projects with minimal outside assistance. While Japanese shareholder interests are represented on the Board of USIMINAS, the Company is managed entirely by Brazilians. V. THE BANK'S ROLE A. Project Formulation and Supervision 5.01 The Bank's role in the formulation of the project was essentially two-fold. In the first place it drew attention to an inconsistency in the original concept for the continuous casting plant, and secondly it questioned the Company's low capital cost estimate. This estimate was subsequently increased by US$184.5 million during the appraisal process. Throughout the appraisal process USIMINAS impressed Bank staff with the manner in which the project had been prepared. 5.02 Since the appraisal of the project, Bank staff has devoted 78 man- weeks to the supervision of the Stage II project. Discussions with management were considered to be most positive by both the Bank and the Company as USIMINAS placed considerable emphasis on regular reviews of its expansion plans and operations and on maintaining a constructive and positive dialogue with the Bank. These discussions were supported by the preparation of concise and regular quarterly reports. As high management and technical standards were maintained by the Company, the supervision process largely related to the more positive role of reviewing the implementation schedule, the existing operations, the training program and plans for further expansion. B. Lessons to be Learned 5.03 Given the size and complexity of the project, the scarceness of trained manpower, the existence of ongoing operations, and considering the technical and financial achievements described in this report, it can be concluded that USIMINAS' management succeeded in establishing an efficient work force capable of managing and operating the project. This achievement was mainly due to the emphasis placed on personnel training and personnel policies that allowed staff to be promoted and retired on favorable terms and which retained management flexibility. - 30 - 5.04 The original project layout designed by the Nippon Steel Corporation took a long-term view of the future expansion plans of the Company and pro- vided for the expansion of production capacity up to 6 million tons of raw steel equivalent per year. This allowed operations and expansion to proceed on a stage by stage basis with minimum interference between these different activities. 5.05 USIMINAS did not overestimate its capacity to coordinate the various tasks related to the Stage II project, and rightly decided to rely on the Nippon Steel Engineering Department and major suppliers to prepare basic and detailed engineering. Consequently, the Stage II project was divided into a rather small number of packages and coordination of the engineering require- ments was left to the major suppliers. This contrasted with the large number of contracts placed by CSN which increased their coordination problems. 5.06 The participation of the Nippon Steel Corporation in the project, through its shareholding in Nippon USIMINAS, as an operating partner and professionally retained consultant contributed to USIMINAS' good performance. During the implementation of the Stage I project, management functions were jointly held by Japanese and Brazilian staff. Today, Brazilians manage the Company with the Japanese interests only having representation at Board level. While Nippon Steel's influence is certainly very strong within the Company, management did not restrict itself to Japanese technology but endeavored to incorporate steel making and management techniques from other countries including the US and France. The participation of the Nippon Steel Corporation played an important part in the success of the project. Industrial Projects Department June 1978 u mI SI bILLLt Exr ',!A(N PROJECT PROJECT COMPLETION 1P ACTUAL AND PLANNED PROJECT IMPLi21YNTATION SCHEDULES PL ANT MAN EQUIPMENTS T5AGE 1970 1971 1972 1973 1974 1975 1976 1977 - - l,a 3 3sr Fa&nAcE ZtV- c ý !C.JIV .3 cc,£ C,£,, 6Arr£R'f - o2 .s/,r3.q;V NAcNr"E -- 1~~~~~ cré r031 o vÆ£ .2. 1 srlc a tocc-£•4R 10 .. 2 Sr6E4 S .3 5 40 CON krR - r1 c1'rincos1c_ri_a CAsr,-r No 2 C0,.4OsU C4SrlIO 1 ', 0 A P, ?rs vL -53/_G_No_- sA~a_G Irs O . 6 S5DAX~G PIrS SLBCCOl-r 'Sr5lT:: i 1 Q k i Vo 3 RuAr» owc .02 4~ s, PASS 0 \7 PLr /L /6o" PLAr£ M'/HL l i AL----~~1 1 o2P/c×4N, LINE t C { 0 P6.4 rr_-g Nre I 3 Arl~A~G0 IRWAC£ c v No. 0 R£coIZIG £/NE No a R1 c1 N . . e Nvo 3 GE,Er'f'rOR __x_____ _I No 4 GeNE-R.AroR? L ÄtC /LN No.2 RorA , /9y _ o s No 4' eow,Een Alo 0 R Sy~S4S: E XP A NATON OF SYM.iott Z 0 - CofyrqAcr -s,rAs ru.cT- C _ sr.4Aor o, civiL vok,,s - $c,/E0uE3 srTAUr.yP 7- Acro O4r or 5rAer-u$ + - ADDITIONAL SCOPE Industrial Projects Department April 1978 - 32 - ANNEX II BRAZIL USIMINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT REASONS FOR DELAYS IN PROJECT COMPLETION (Months) DETAILED CONSTRUCTION FACILITIES PHASE TOTAL ENGINEERING PROCUREMENT FABRICATION, AND START-UP No. 3 Coke Plant I 14 3 4 7 No. 2 Sinter Plant I 14.5 3 6 3 2.5 No. 3 Blast Furnace II 6 2 1.5 2.5 No. 1 Steel Making Plant I -4 No. 2 Steel Makint Plant II 10 3 1 3 3 No. 1 & 2 Cont.Cast. Plant II 12 2 10 No. 4 Oxygen Plant II 2 2 No. 2 Lime Plant I 14 5 1 7 1 No. 4 & 5 Soaking Pits I & II 5 5 No. 3 Reheating Furnace I 2 2 Hot Skin Pass I 7 7 Plate Mill II 18 7 4 7 Cold Tamdem Drill I 8 6 2 No. 2 Pickling Line I 12 3 2 4 3 Annealing Furnaces I & II 5 1 4 No. 2 Shearing Line I 5 3 2 No. 1 Recoiling Line I 9 9 No. 2 Recoiling Line II 6 1 1 4 Industrial Projects Department April 1978 BRAZIL - US1J,iflAS STEEL 1JUJECT PROJECT COMI'LETION REIORT STAGE II CAPITAL COST SUMARY (PRASE I & II) (US$ 1,000) EQUIPMENT CONSTRUCTION TOTAL CAPITAL COSTS AND INSTALIATION DIRECT DIRECT GPND TT'S FOREIGN LOCAL TOTAL (IOCAL) FOREIGN LOCAL TO1AL 01 - Blast Furnace 11,972 5,036 17,008 11,533 11,972 16,569 28,541 02 - Sintering Plant 7,541 11,379 18,920 17,896 7,541 29,275 36,816 C3 - Co' scM-c. 60 t". Sme osasn' :K54-200-01 Cold Rollil; MI L1 R,llin,g il1 Treatnent Thc Rollin Otl l-a~rent to Equipment. Equipmenrrt i r ntalled to 134-200-16 pretent arrinstater rollutlion I.-VI Eotetrolytct In original 66" Electrolytic The Electrol>ti C 'ring Clenng Line scope Cleing.1 Line 35 t Line wa~ .italld to cty er.e. i set. 00t a better cold roIled Steel structure, strip surfce clene.. so as to redce the problems of carbron dleposit at SK-421 to SK-423 Anne ln Fo1ent -ilK: Ca- Cencr- .h Cb Generator . N Ca'r (~ntor The cN 00 was replced LiV tor. 281 N,n/i 1,000 Kml/h e i eet 1,00 n,/h x i sct by lN sine the letier i x 3 et llN storage taink . NN storae tank. indicaLted to ebtamn letter strip quality, w t tha clear turfe. 14e 1090 11,3/, wasocontidered un suf facirent SK-441 to SK-47 She,ring Lir 56" lying Shete- 66" ilying 5hear- inr, Line 1 ret ing i Ie' i set L-VIII Roll Shop oli Ftcini Shot Tbc thot bl..t Ili-roe BLo:.t orierbine installed in ored. rr to i- p5oe tie0 dull o.d je- ef cold strtip eurts. Work Ireli chrl Thl. cq.rlpren: . l'rrl,udrd At0etri i. 'se',- 5t .rr,t, - , 1 ni " POWER~~~~~n.n dYs.EM 11,111,V1 ,ÅF-dn,ILF Fofe .Ven ehenk~ tVrbsote uing the nr.r , Ion SYIOI.-405 Air Air Col rtot, Air Cr,e.or An"ther A5r -Ad err r Ct'mretssor 35 Nn mmmni. o 35 l.mr'/l. x 300 iiP 35o.000 '.n/m .', -dded 300liP. A sets 5 sets teo inc I hI. - , deliver-J. -l-~ rdr it i II _________________ get bert:.t tr. c -.. POWlER SYSTEM - Marin Sub. 154/6,KV - 30 iNA Forcet Coolteng Feored Ventlion , rn. staltion irner Trorn. feor Systcn installed 0inlrh thir 30 x l- MVA ettsting tran,,forr e. -C2 11ant Tub- 11,5/3,45 CV - Addied Tfronsforer stot Ion 13 MVA/ Pero. n o.- Vermn_r x ___ _________ _ _ - ColiiN rrlip MIll Subrtation, 11,%/3,45 kV Added Tren.oer 4,5/5, HVA Pown Trran- forner x 2 1,5/3.45 CV In/ 13 "lA lort _________ ~~~Ttrrr-fiern _____________ Widt Rtrrlti - - i1,5/3.45 -'1,5/ dJed Tr :Nm-.r e ion 5, t mA re'ret Trerns- • ¯¯ otrrirr ern ~ii,O2,.0 l l¯¯t Added 1Ir an frnet Soh. rtinn___ _________ Prier Troanformer x i _______________ l kV in,, lted 11,5 kV l-.tid --cab___Ce.-t C. abe - 2,300 m. WATIR CIRCtLA- SWI.,-C003 Pump, for LIeten Net included ln orilr- TOrY Ss I'i .____.______R n 1oe e SIt4-Ui'0', lt' fer Chrenrtcal Not i icud,.d inr orignal -..r. N.fre P' _ ý z . Not Incl1ded Ie erigieal SW-U 005 Chlorinator scope ~-419-04 PnmP. for Not incrluded >,r rit.in,Al SWHA-419-04o. PupPe Ce>a Not trelrded In eriginal 5VB4-419-0 Mit for Chreeca System, iA cA uing th. e eqrri rnt /7 I, prctore nrrber. /3 The installation in thich tire equipment was installed. /L4 Te rquipment foreneen for Phrase I(.14 mi1. Tr1). /1 11r,luipmnt frror, n forri'h.- 11 (2.4 ni i. pY). / 6 T equtpmen tho, re -ctually insalled. /7 Corets en thte difft,e,nibeteen tr equrr nt rntisnrrd at thre tinrt el a1prn.ci and the equIpmetr uttrallyrnnltriced. Intdurr li Projects It prntroent ArnIi'i197 - 41 - ANNEX V BRAZIL USIMINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT AMORTIZATION SCHEDULE (US$) Original Amount Revised Date Payment Due Schedule 2 Cancelled Schedule 2 October 15, 1976 $ 2,740,000 $ - $ 2,740,000.00 April 15, 1977 2,740,000 2,740,000.00 October 15, 1977 2,740,000 - 2,740,000.00 April 15, 1978 2,740,000 313,364.85 2,426,635.15 October 15, 1978 2,740,000 253,000.00 2,487,000.00 April 15, 1979 2,740,000 253,000.00 2,487,000.00 October 15, 1979 2,740,000 253,000.00 2,487,000.00 April 15, 1980 2,740,000 253,000.00 2,487,000.00 October 15, 1980 2,740,000 253,000.00 2,487,000.00 April 15, 1981 2,740,000 253,000.00 2,487,000.00 October 15, 1981 2,740,000 253,000.00 2,487,000.00 April 15, 1982 2,740,000 253,000.00 2,487,000.00 October 15, 1982 2,740,000 253,000.00 2,487,000.00 April 15, 1983 2,740,000 253,000.00 2,487,000.00 October 15, 1983 2,740,000 253,000.00 2,487,000.00 April 15, 1984 2,740,000 253,000.00 2,487,000.00 October 15, 1984 2,740,000 253,000.00 2,487,000.00 April 15, 1985 2,740,000 253,000.00 2,487,000.00 October 15, 1985 2,740,000 253,000.00 2,487,000.00 April 15, 1986 2,740,000 253,000.00 2,487,000.00 October 15, 1986 2,740,000 253,000.00 2,487,000.00 April 15, 1987 2,740,000 253,000.00 2,487,000.00 October 15, 1987 2,720,000 251,000.00 2,469,000.00 $ 63,000,000 $ 5,118,364.85 $ 57,881,635.15 Industrial Projects Department March 1978 - 42 - ANNEX VI BRAZIL Page 1 USIMINAS STEEL EXPANSTON PROJECT PROJECT COMPLETION REPORT PROCUREMENT SUMMARY IBRD/IDB FINANCING PHASE II Equipment Date Suppliers Disbursed Until Dec. 31, 1977 (US$ 1.000 JAPAN No.3 Blast Furnace 23.08.72 ISHIRAWAJIMA-MARINA 9,946 Boiler For No.3 Blast Furnace 23.01.73 Mitsubishi Corp. 2,941 Blower For No.3 Blast Furnace 22.02.73 Mitsubishi Corp. 3,207 Truck Cranes Handling Equipment 15.03.73 Sumitomo Shipbuilding 689 Fire Bricks for Blast Furnace and 26.04.73 Mitsubishi Corp. 3,901 Hot Stoves Water Recirculating System For Blast 06.04.73 Kurita Water 2,653 Furnace "56" Recolling Line Transfer Car 17.04.73 Saskbo Heavy Ind. 1,418 Stack and Wheel Loader 22.05.73 Mitsui Miike 607 Diesel Hydraulic Locomotive 11.06.73 Hitachi Ltd 410 Roll Grinder for Cold Strip Mill 18,06.73 Toshiba Machine 408 Cranes for Cast House 19.06.73 Nippon Crane 495 20/30 Soaking Pit Crane 06.07.73 Sumitomo Shipbuilding 363 Heavy Cranes for No.2 Steel Making Plant and Claw Cranes in Continuous Casting 10.07.73 Mitsubishi Corp. 2,373 Plant No. 1 Reheating Furnace 10.09.73 Motsubishi Corp. 4,178 Cranes for Hot Skin Pass 12.09.72 Mitsubishi Corp. 103 Normalizing Furnace 05.10.73 Ishikawajima-Harina 1,969 Cranes for Plate Mill 19.10.73 Mitsubishi Corp. 2,124 No.6 Soaking Pit 19.10.73 Mitsubishi Corp. 658 240/40 Overhead Crane For Plate Mill 17.12.73 Ishikawajima-Harina 374 Alarm and Signal for Rail-Road 20.12.73 Mitsubishi Corp. 258 Water Recirculating System for Plate Mill 15.03.74 Kurita Water 1,233 Water Recirculating System for Continuous Casting 12.11.74 Chiyoda-Chemical 1,357 Electrolytical Cleaning Line 24.09.74 Sasebo Heavy Ind. 4,492 Roll Shot Blasting With Vibrating Screen 21.10.74 Sintokogio Ltd. 108 Computer 25.10.75 Fuji Electric 439 SUB TOTAL 46,704 (Continued) Industrial Projects Department April 1978 -43 - ANNEX VI Page 2 BRAZIL USIINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT PROCUREMENT SUMMARY IBRD/IDB FINANCING PHASE II Equipment Date Suppliers Disbursed Until Dec. 31, 1977 (US$ 1,000) USA Truck Cranes Handling Equipment 15.03.73 FMC-Corporation L. Belt 525 Fork Lifts and Straddle Carrier 30.03.73 Hyster Co. 475 Handling Equipment Fire Bricks for Blast Furnace and Hot Stoves 06.04.73 General Refractories 780 Annealing Furnace 06.04.73 Lee Wilson 636 Bulldozer and Bucket Loader 24.04.73 Caterpillar Machinery 257 Cranes for Hot Skin Pass 12.09.72 -The Alliance Machine Co. 148 Cranes for Hot Skin Pass 12.09.73 Cutler Hammer Intl. 177 Spectrometers With Computers 29.08.75 Applied Research Lab. 470 SUB TOTAl 3,458 GERMANY Roll Grinder for Plate Mill 20.10.73 Waldrich 681 Ladles for No.2 B.O.F. Plant 07.04.75 G H H 211 SUB TOTAL 892 AUSTRIA Brick Plant 13.01.75 Voest Alpine AG. 771 Revamping of No.1 BOF Dust Gas Collector 04.03.76 Waagner Biro 1,108 SUB TOTAL 1,879 U.K. and ITALY Steel Structure for Building of 160" Plate Mill Plant 17.04.73 Redpath Dorman Long,Ltd. 2,067 Electric Power Equipment 21.09.73 Pirelli S/A 63 SUB TOTAL 2,130 (Continued) Industrial Projects Department April 1978 -44 - ANNEX VI BRAZIL Page 3 USIMINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT PROCUREMENT SUMMARY IBRD/IDB FINANCING PHASE II Equipment Date Suppliers Disbursed Until Dec. 31, 1977 (US$ 1,000) BRAZIL No.3 Blast Furnace 23.08.72 Ishibras 1,418 No.3 Blast Furnace 23.08.72 L P W 1,466 No.3 Blast Furnace 23.08.72 USIMEC 1,844 Boiler for No.3 Blast Furnace 23.01.73 Combracal 1,599 Fork Lifts and Straddle Carrier Handling Equipment 30.03.73 Hyster Do Brasil 239 Red Bricks for No.3 Blast Furnace 06.04.73 Cer. Ibituruna 63 Scales for Railroad Wagon 06.04.73 Toledo Do Brasil 34 Diesel Electric Locomotives 06.04.73 General Electric 875 Fire Bricks for Blast Furnace and Hot Stoves 06.04.73 Cer. S. Caetano 1,268 Fire Bricks for Blast Furnace and Hot Stoves 06.04.73 Magnesita S/A 294 Annealing Furnace 06.04.73 Cer. de Guarulhos 85 Annealing Furnace 06.04.73 Briez-Prod. Magneticos 8 Annealing Furnace 06.04.73 Pirelli S/A 14 Annealing Furnace 06.04.73 Mecanox 118 Annealing Furnace 06.04.73 Confab Industrial 31 Annealing Furnace 06.04.73 Equifabril 204 Annealing Furnace 06.04.73 Alsfer S/A 29 Bulldozer and Bucket Loader 24.04.73 Sotreq S/A 8 57kg. Rail for Railroad 11.06.73 Cobrasma 847 57kg. Rail for Railroad 11.06.73 C S N 409 Dump.Torpedo, Slag and Teaming Car 12.06.73 Cobrasma 1,315 95 Railroad Wagons 20.06.73 Mafersa 1,521 No.1 Reheating Furnace 10.09.73 Combracal 46 No.1 Reheating Furnace 10.09.73 Fichet 159 No.1 Reheating Furnace 10.09.73 Cer. S. Judas Tadeu 1 No.1 Reheating Furnace 10.09.73 Magnesita S/A 170 Electric Power Equipment 04.09.73 Siemens S/A 474 Electric Power Equipment 04.03.73 Pirelli S/A 1,125 Cranes for Hot Skin Pass 12.09.73 Bardella S/A 1,111 Cranes for Plate Mill 10.10.73 Bardella S/A 330 No.6 Soaking Pit 19.10.73 Combracal 13 No.6 Soaking Pit 19.10.73 Fichet 192 No.6 Soaking Pit 19.10.73 Cer. S. Caetano 43 No.6 Soaking Pit 19.10.73 Cer. S. Judas Tadeu 2 No.6 Soaking Pit 19.10.73 Magnesita S/A 131 250/40 Overhead Crane for Plate Mill 17.12.73 Ishibras 454 Transfer Car and Special Wagon 17.12.73 Cobrasma S/A 196 Eletrolytical Cleaning Line 24.09.74 Ishibras 196 Cranes in Converter and Continuous Casting Yard 13.10.74 Bardella S/A 8,468 Cranes in Converter and Continuous Casting Yard 13.10.74 Industrias Villares 119 Dust Collector Equipment 18.12.74 Aero Mecanica Darma 51 Steel Structures for Eletrolytical Cleaning Line 25.03.75 Fichet 1,113 Ladles for No.2 B.O.F. Plant 07.04.75 Usimec 542 SUB TOTAL 32,443 TOTAL IBRD/IDB FINANCING 87,506 Industrial Projects Department April 1978 - 45 - ANNEX VI BRAZIL Page 4 USIMINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT PROcuREMENT SUMMARY BILATERAL FINANCING PHASE II Equipment Date Suppliers Disbursed Until Dec. 31, 1977 (US$ 1,000) JAPAN Spare Parts for Sintering 25.03.75 Mitsubishi Corporation 1,081 Slab Continuous Casting 16.14.73 Hitachi Shipbuilding 18,468 No.4 Oxygen Generator 30.04.73 Kobe Steel 4,189 "160" Plate Mill 10.04.73 Ishikawajima Harima 34,399 Cold Strip Mill Work Rolls 31.10.73 Mitsubishi Corporation 124 Hot Skin Pass Work Rolls 26.09.73 Yodogawa Steel Works 54 Cold Strip Mill Work Rolls 06.06.73 Japan Steel Works 143 Cold Strip Mill Back up Rolls 06.06.73 Japan Steel Works 246 Cold Strip Mill Work Rolls 06.06.73 Hitachi Metals 119 Cold Strip Mill Back up Rolls 06.06.73 Hitachi Metals 226 Hot Skin Pass Mill-Spares for Chocks and Coupling 29.06.73 Kobe Steel 196 Cold Strip Mill-Spares for Chocks and Coupling 23.07.73 Ishikawajima Harima H. 970 Cold Strip Mill Work Rolls 26.07.73 Kanto Special 124 Side Burners 06.03.75 Mitsubishi Corporation 299 SUB TOTAL 60,638 GE4ANY No.2 Steel Making Plant 16.04.77 G.H.H. Ferrostal 25,418 Revamping for Cold Strip Mill and O.C. Mergek Bearing 29.05.74 Siemag 1,605 SUB TOTAL 27,023 USA Hot Scarfing Machine 28.02.73 Union Carbide Co. 436 SUB TOTAL 436 U.K. Steel Structure for Plate Mill 15.03.74 Redpath Dorman Long Ltd. 2,982 SUB TOTAL 2,982 TOTAL BILATERAL FINANCING 123,522 Industrial Projects Department April 1978 BRAZIL USLM\IAS STEEL EXPA":;ION' PROJECT PROJECT CO'lPLEIDIN RLPORT HISTORICAL PRODUCT1o: PRFOR.A::CE (tons '000) PRODUCTS 1972 1973 1974 1975 1976 1977 __ _ C'. APPRAISAL ACTUAL APPRAISAL ACIIJAL APPRAISAL AC TUAL APPRAISAL ACIUAL APPRAISAL ACTUAL APPRAISAL ACTUAL APPRAI,SAL C_ I A. COKE 501 613 501 634 765 604 901 1.011 1.03 1 0 Q1 1 _ _ - B. Sr.TER 31544 2,097 1.390 3 2.871 3 3.134 3,696 3,450 15.575 C. PIG :RON 900 , 900 1.197 1 2 2 2 167 iLL2 L 2 LA9 D. 1.IC 1.00 1 1. 130 1.300 1 1 2 2 2, 2LL 10,3--, E. FINI 1ED PRODUCTS 757 917 754 1,04 984 952 16 1.3 1.845 1.708 1.279 Slab- 20 9 - 15 - 9 - 20 - 79 20 18 .0 Plate 216 422 228 436 235 442 540 598 700 569 700 979 2,619 Hot Coil 141 236 86 313 160 178 407 186 407 400 480 529 1,631 Hot Sheet 147 101 159 114 212 107 228 93 146 94 153 97 1,C45 Cold Coil 90 39 126 35 163 50 225 222 302 339 236 395 1,1-2, Cold Sheet 143 110 155 134 214 166 290 193 290 227 290 236 1,382 a Y01 Avera/e Yield (ED) 75.7 77.8 75.4 78.0 75.7 80.2 76.8 74.1 76.9 72.8 78.3 82.8 76.8 77.7 /1 For Sale .7dLstrial Projects Department April, 1978 00 (VE BRAZIL USIMINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT HISTORICAL PROIICTION PERFORMANCE 2I 2, 0co I II II II t, 00 0 - - Actual Appraisal 1970 1971 171 973 197 197S 1376 19-77 Industrial Projects Department April 1978 ANNEX VIII - 48 -Page 1 BRAZIL USIMINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT HISTORICAL PROFIT AND LOSS STATEMENT 1971 1972 1973 1974 1975 1976 Gross Sales 145,738 170,884 241,080 353,789 608,896 709,356 Manufactured Products Tax-IPI 5,143 5,394 8,648 12,361 19,546 24,292 Net Sales 140,595 165,490 232,432 341,428 589,350 685,064 Cost of Products Sold 75,720 83,346 129,460 213,780 357,338 351,831 Selling Expenses 20,945 22,664 31,921 42,581 69,579 100,309 Sales Commissions 903 1,175 1,787 1,993 3,281 614 Distribution Costs 2,313 2,803 2,868 1,429 1,979 30,769 Value Added Sales Tax-ICM 17,729 17,818 25,968 37,710 62,081 66,100 Other Expenses - 868 1,298 1,449 2,238 2,826 General Expenses 4,754 15,119 20,671 41,066 59,047 69,855 Director's and Advisory Council I Fees - 34 43 43 79 202 Administrative Expenses 4,754 5,830 9,245 10,010 7,964 9,931 Sundry Taxes - 509 560 1,564 1,250 128 Financial Expenses - 8,607 10,738 27,745 49,580 59,280 Sundry Losses - 139 85 1,704 174 314 Depreciation and Amortization 11,081 13,734 14,057 15,862 25,565 41,134 Gross Operating Income 28,095 30,627 36,323 28,139 77,821 121,935 Non-Operating Income (Expenses) (7,906) 10,088 5,477 11,476 14,381 14,613 Financial (7,906) 8,953 4,448 7,875 9,255 8,139 Sales of Property and Equipment - 1,390 1,157 1,170 752 807 Other Income - 752 1,555 3,984 6,839 7,549 Other Expenses - (1,007) (1,683) (1,553) (2,465) (1,882) Provisions 2,065 7,277 14,564 7,878 19,778 14,845 Provision for Doubtful Debts 229 6 231 1,001 1,156 1,543 Provision for Income Tax 1,400 1,500 2,550 1,565 12,491 6,615 Maintenance of Working Capital - - 5,905 - - - Other Provisions 436 5,771 5,878 5,312 6,131 6,887 Profit or Loss on Translation -(3,129) (7,137) (5,285) (1,739) (27,079) (62,856) Net Income After Taxes 14,995 26,301 21,951 29,998 45,345 58,847 /1 Audited accounts for the year ending December 31. Industrial Projects Department March 1978 - 49 - ILkA,'. ANNEX VIII 50lIN.iS ittTI IV\ANtoN j'tiiT 13app 2 (11:$ 1000) 1971 1972 1973 1Q74 1975 1976 ASSETS Cash and Banks 4.590 23.545 14,198 17,4,7 16,345 27,880 Accounts Rceivable Local Customers 23,962 30,962 41,167 76,959 114,359 174,072 Foreign Customers 386 2,190 989 389 940 142 Trade Bills Piscounted ( 6.564) (10,414) (21,016) (39,300) (43,865) (37,025) Alloeanee for Doubtful D7'tS (856) (850) (1,011) (3.235) (4.781) Affilited Co.p.,,y - 2,927 3,433 - - - Current Acconta 5.114 2,155 668 3,883 7,072 5,750 Notes Receivable 750 365 241 13 3,216 64 Advance for Suppliers and for Services 2,204 7,370 1,784 9,034 3,590 3,022 Restricted Bank Accounts 303 262 1,404 7,316 3.229 5,849 Marketable Securities 26,584 - 5,853 - 8,666 18,512 Compulsory Loans and Deposits - - - - 11,955 42,495 Fixed Assets for Sale - 384 346 - - - Other 3 2 - 1 394 360 Inventories 260684 33,69 484 80,473 139,188 185,72 83,160 92,166 86,470 154,093 261,841 422,052 Non-Current Assetn Receivables tor Properties Sold 4,226 4,164 4,051 3,882 5,091 4,909 Properties for Sale 6,647 5,288 5,568 8,645 8,058 9,110 Compulsory Leans and Deposits 2,500 585 4,936 8,811 11,013 16,709 Centrals Electrices Brasileirs SA ELETROBRAS (bonds and deposits) - 5,206 8,879 - - - Adjustable Treasury Bond Obligations - - - 6,663 - - Investments 2.970 1,567 1,200 8,931 7,961 8,199 Loans Destined to be Converted into a Share Investment 1,995 1,218 1,537 46 38 - Notes Receivable 232 - - - - - Others 667 J,02 1,619 19 14 19,237 19,049 26,551 38,600 34,073 40,348 Fixed Assets Property, Plant, Equipmient 252,908 310,702 479,245 758,211 947,729 1.037,375 Permanent Investments sImin. Mecanica S.A. - 133 2,072 2,920 4,475 6,713 Fiscal Inventive Inveionvmts - 598 1,147 1,419 1.833 1,913 Persanent Deposits and thwrs - 196 468 148 - - 252,908 311.599 482,937 762,698 954,037 1,046,001 Deferred Charges Deferred Fxpenses 3,797 2,542 1,358 2,099 3,829 904 Job Orders for Promotion of the Use of Steel - - 919 - - - Other 384 420 445 311 1 678 4,181 2,962 272.?22 2,10 TOTAl. ASSETS LIABILITIES Current Liabilities Suppliers 1,289 2,194 9,841 10,489 7,283 12,359 Affiliated Company - 1,163 272 - - - Loans. - - 3,216 68,391 67,705 129,985 Preferred Share Dividends Payable 466 5,772 5.833 5,317 6,135 6,006 Local and Foreign Financing 18,608 15,264 12,948 19,544 26,671 34,108 Notes Payable 2,544 4,120 6,945 5,720 2.182 3,154 Income Tax Payable 1,514 2,024 3.087 2,980 13,160 12,728 Accounts Pa.able 8,079 8.120 13,893 23,842 33,566 49,882 Other T.ix- and Secial Secutity Pav-ble - 8,208 10,666 14,350 19,363 26,968 A.1vances Received on Acco-l vf Iut,irv Sale. 2,413 - 3,776 3,790 10.659 16,554 Itotsion for Fmplovres' H*oI ts 55 188 330 - - - ,,:her 287 _ 732 206 3,379 1 199 964 34,255 48,775 72.903 157,802 187,912 292,707 Non-Current Lf1.1b 1 te Local and For,ign finning 6ln.'oc Iv4 A, 1 99 32-34 ILI f"? f1o r -- 94,646 118,499 ?3',,<. le.110 s1.0 9 5.s Iteferred Credits 764 622 415 - 989 27 764 622 415 - 989 27 Provisions 129"i 4,101 8127 1,451 19,779 21,61 1,295 4,103 8,776 12,451 19,779 21,617 Stocikholdr's iL Capital Stock 323,632 351,789 351,789 418,929 418,929 538,547 Reserves Legsl Reserve 576 1,769 2,796 3,555 4,567 5,921 Reserve for Mainteii,ce of Working Capital - - 12,599 - - - Reserve froz Retained iarning 28,157 3.176 6,105 7,191 7,191 - Ke,erve Ariring fr-, the In1-e of Shore at a Prium - - - 19,511 19,511 - Feierve fo, the Sitthount o fiodlro' Blils (nstatutory) - 75 126 - - - Adva-e for Iutore 1 I,i1l ul.crlption - - - - 51,190 8,988 Lo ropireirted Plt''in al Arnlnps (17_13) (01,012) (91RTT) ('PL7) _?(6 4) 45 409 722H? 251 /77 21 P8 P2' 29 ')!S64 599 2V5 1O Adit*d ar, 1nS, 7/Io'Oil11.', ar7 enOing '/,cember2it. Isftst f111 5 r 000 i I ,rii )en t r lie l , ,,r . T h 1 /' - 50 - ANNEX IX BRAZIL USIMINAS STEEL EXPANSION PROJECT PROJECT COMPLETION REPORT SELLING PRICES (US$/Ton) 1977 /1 Domestic-- USA Product Appraisal Actual Trigger Price Semi-finished Slab 81 - - Plate 143 362 329 Hot-rolled Coil 119 289 287 Hot-rolled Sheet 136 323 287 Cold-rolled Coil 157 404 358 Cold-rolled Sheet 190 450 358 Chippings 62 - /1 Prices are on an ex-works basis and net of ICM and IPI tax. Industrial Projects Department Inv1 1079 BRAZIL USIMINAS STEEL EXPANSION PROJECT PROJECT COYLETIO\ REPORT STAGE II PROJECTED PROFIT AT LOSS STATEM 1977 1978 1979 1980 1981 1982 1983 1984 1985 1966 1 rrc's a e D1 948,595 11,001952 1,001,952 1,0,5 1,0,5 1...01.L952 1.001.952 1,0,5 1,001,952 1,00)1.952 1' ::ct zcise Tax 35,492 35,817 35,817 35,817 35,617 35,817 35,817 35,817 35,817 35,S1 5,:17 -stributio-z Cost 63,644 47,814 47,814 47,814 47,814 47,814 47,814 47,814 47,814 47,8, NE:__Z__S 15 91,2 91,2 919,321 918,21 91,2 91,2 918.321 918,321 91S.321 1 Cc-,-Of ^oods Sold 451,269 510,1C0 510,100 510,100 510,100 510,100 510,100 510,100 510,100 510,1o 5 .t nales Tax 92,01) 84,861 84,861 84,861 84,861 84,861 84,861 84,861 84,861 84,S6' C:.- ?7ri 3j917 323,3 323,360 323.360 32,6 32,3 323,360 323,360 323.360 323,360 -stration Expenses 22,592 28,487 28,487 28,487 28,417 28,487 28,487 28,487 28,487 28,47 . ale: rpenses 5,116 5,436 5,436 5,436 5,436 5,436 5,436 5,436 5,436 5,436 a 3 60,,16 61,601 62,245 62,689 63,133 63,577 64,021 64,465 64,909 65,353 65,-17 --rtiza-io762 64 64 64 64 64 64 64 67 - - r= : -e- erat ion 22,8 22,7 22j7,128 2226684 0 225,796 225,352 224,908 224.461 224,0--2 2277.'- C!" er 2-colies 3553 3035 30,359 3035 30.359 303 30,359 30.359 30.359 30,359 32.359 -inanc-at 35,539 30,359 30,359 30,359 30,359 33,359 30,359 30,359 30,359 30,359 3,35i Ot'-er 1m,:es es 71,-0~.6 81,42 7578 82,598 7810 75,157 6936 65.553 61,728 57,916 54,-22 :nterest in Fixed Assets 22,123 40,710 36,137 33,591 29,719 25,645 21,789 17,976 14,151 10,339 6,b5. Others 49,283 40,715 39,647 49,007 48,384 49,512 47,577 47,577 47,577 47,577 47.577 :-cY-e !efore Provisions 184.819 176,505 18,73 174,"5 178.496 180.998 186.345 189,714 193,092 196,527 lg9.7 Allo'ance cor Bad Debts ( 179) 809 - - - - - - - - ze: lTcome Eafore Income Tax 175.997 181.70 193.092 196.527 199.7-2 1r.c.e Tax 26,976 52,709 54,510 52,333 53,548 54,299 55,903 56,914 57,927 58,958 59,931 Net Inco=e After Income Tax 158,021 122,988 127.193 122.193 124,948 126.699 130.42 132.800 135.165 137.569 139,841 /l Excludes sales of imported steel after 1977 inclusively. 12 Current dollars to 1978 and constant dollars thereafter. 3 Year ending December 31. Ind-strial Projects Department February 1978 b KAZ IL USIMINAS S7EEL EXPANS10N POJECT PAOJECT CO:LETION RIPORT STAGE II PRO ILCTED SOLRCES A\D APPLIC.TON OF FUiNDS STATEMEN7 (LS$ '000)12 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1957 e f ~ 239 2243,203 230,5472 29 2441 2 2633 2:raceeeain143,351 194,358 193,502 188,946 192.145 194,340 198,527 2n1,329 204,141 206.922 209.636ý er -zxes 158,021 122,4£8 127,193 122,193 124,948 126,699 130,442 132,500 135,165 137,569 139,ý41 ard Azortizaticon 60,778 61,265 62,309 62,753 63,197 63,641 64,085 64,529 64,976 65,353 65, - eser.e 7,5'5 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,-' 2,000 2,000 - - - - - - - - (84,953) - - - - - - - i- c utre Capital Increase - - - - - - - -a.ta Stock - - - -t 13a-2,05 17.075 26.152 27.551 20.570 - - - - - Cre ts a-d Expenses 1,04 - - - - - - - Sales -1,719 23.549 14.050 15,504 45292 2960 - - - d_/5 276,396 213 152 243,203 2 47 228,219 239,632 201.487 201 329 204 141 206,Q22 209.535 F:yzd :--est-e,ts 23,133 - - - - - - - Ynase i a-d II 23,133 - - - - - - - - - 2crezee.ts of Existing Facilities 9,765 8,000 8.000 8.000 8.000 8.000 8,000 8,000 8.000 8,000 8,000 Lo-ý Ter= Assets 4.416 30.648 39.552 39.990 32,005 9.785 8,814 7.891 7.014 6,181 5,390 2 v s 17,582 17,582 17,582 17.582 17.582 17.582 17,582 17.582 17,582 17.582 17.582 atrs - 5,000 - 15,000 - 5,000 5.000 - - -15.003 i-. Cz,ftel inerease 47.585 ( 24,476) - - - - - . .a: , 16,377 26,155 - - - - - -erries ( 2,428) 1,496 - - - - - - ;.3sets ( 2,429) ( 24,678) ( 7,196) ( 17,946) - - - -- rre-t 'iabilities 36,065 ( 27,449) ( 1,801) 2,177 ( 1,215) ( 751) ( 1,604) ( 1,011) ( 1,013) ( 1,031) ( 973) - - cf e rs 164,093 158,061 87.821 73.560 67,91 96.536 48,629 48 629 48,590 47.257 42,7E3 ca=- %r1.s Dr eficit 9,822 13,337 99,245 92,184 103,934 103.480 115,066 120,238 123,968- 128.933 121,8s6 E-* des sales of i,m,ported steel. 71 C_rre,r collars to 1978 and constant dollars thereafter. car enir. ,ccabcr 31. ''ss on tra..slation from dollars to crulzeiros. e . xcludc4 inestrents irStage- III projt. indstrial Projects Department Febrarj 1978 BRAZIL USIMINAS STEEL EXPAN:.ION PROJECT PROJECT COMPLL 110.N REPORT STACE IT PROJECTED BAIANC:: SHEETS- (US$ 'OOU)/2 r:v 1977 1978 1979 1980 1981 1982 1983 1984 1985 1966 1957 1.-668 1,443,060 19603 1"542.&228 1.07466 I.1.9 .8.3 175.23 3 1.JO23I190.000 97.4 C'---: 424,604 45.914 537,963 61,0 716.135 619.615 934.681 1,054,919 1.178.887 1,307,820 1,429,767 18,912 37,249 136,494 228,678 332,612 436,092 551,158 671,396 795,364 924,297 1,046,.153 Feceivable 148,785 174,940 174,940 - 174,940 174,940 174,940 174,940 174,940 174,940 174,940 174., 40 183,274 184,770 184,770 184,770 184,770 184,770 184,770 184,770 184,770 184,773 164,73 Cc-- scry Oe?osits 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,600 4,600 'a,t~eSect:rities 36,449 - - - - - - -- - - a curte 19,013 19,013 19,013 19,013 19,013 19,013 19,013 19,013 19,013 19,013 19,013 I-lportation - Compulary Deposits 13,371 25,142 17,946 - - - - - - - - ipl____=2__ASS77S ".764 73.693 8969 11,3 132,137 96.630 102.484 110,375 11,8 12,7 12,6 515 451 387 323 259 195 131 67 - -976,803 923,002 868.757 81,6 758,935 703,358 647,337 590,872 53,6 476,610 ?!lant 291,300 291,300 291,300 291,300 291,300 291,300 291,300 291,300 291,300 291,300 291,300 z-zlrst. Eistng Facilities 48,266 56,266 64,266 72,266 80,266 88,266 96,266 104,266 112,266 120,266 12S,-' UL ?-.ase I & II 869,454 869,454 869,4% 869,454 869,454 869,454 869,454 869,454 869,454 869,454 869,4% w Depreciation ( 232,217) ( 294,018) ( 356,263) ( 418,952) ( 482,085) ( 545,662) ( 609,683) ( 674,148) ( 739,057) ( 804,410) ( 870,207) in 7E 1,446.686 1,49606 803 4.2 .6746 169.9 .8.3 1,756.233 1,830.239 1, OOO !.!.'.B=____i_S 257,657 20,9 208,034 21,5 217,373 17,1 171.821 17,9 17,7 16900 1~49,1 L:A31LIIES 503.156 438.884 379,374 326.965 275.721 227.092 178.463 12,7 8261 39,833 ..... L. ______31,122 35.627 39,627 28.627 3262 31.627 30.627 34,627 38.627 4262 31,627 Sc- 71 S z: -rY 654,751 760.157 869.768 974.379 1,8,4 1.190,862 1.303.722 1.418.940 1,3,2 1,5,1 1.77s.-69 Cap'tal Stock 538,947 538,947 538,947 538,947 538,947 538,947 538,947 538,947 538,947 538,947 535,947 Capial Resentes 4,285 4,285 4,285 4,285 4,285 4,285 4,285 4,285 4,285 4,285 4,2e5 ?etairy. Profits 63,519 168,925 278,536 383,147 490,513 599,630 712,490 827,708 945,291 1,065,278 1,187,537 Advance for Increase Cap. Stock 8,988 8,988 8,988 8.958 8,988 8,938 8,988 8,968 8,988 6,966 6,93s Currency Exchange variation 39,012 39,012 39,012 39,012 39,012 39,012 39,012 39,012 39,012 39,012 39,012 E-./EQ21y 43/57 36/64 30/70 25/75 20/80 16/84 12/88 08/92 05/95 02/98 00/100 C-R.r vao 1.6 2.1 2.6 2.9 3.3 4.8 5.4 6.1 6.8 1.3 9.6 E7c.I'es sales of imported steel /2 Carrent dollars until 1978 and constant dollars thereafter. 3 Year ending December 31. 1. Excludes investments in Stage III Project. TT-d,strial Projects Department February 1978 IWA/ I. USIMINAS STEEL. I XPANSION PROJECT PROJECT COMPLETION REPORT SIAGIE III PROJECTED PROFIT A':D LOSS SHEES- (Us$ '000)>l 197& 1979 1980 1981 1982 1983 1984 1985 108,- S S 1,001,952 1,231,946 1,585,887 1,585,887 1,585,887 1,555,887 1.585.887 1.585.87 1.55,887 55 Excýse Ta 35,317 44,039 54,691 56 ,6)1 56,691 56,691 56,691 56,691 56,611 bost 47,6 60,087 83,959 75,2u2 78,202 76,202 7b,202 7o,292 76,232 ,: -718,321 1,127.820 1,445,237 1,450,9',4 1450,94 1.450.994 1.450.994 1,450,9.04 1.45'0c4 C:st of 2Goods Sold 51C,130 640,681 895,936 835,335 835,335 635,335 835,335 8-5,335 835,335 535,335 8aies Tax 4,E61 104,340 134,318 124,328 134,3-8 134,318 134,318 134,31S 134,3- 5 ____________T__ 323.5 0 382,799 414,983 481.341 4E1,341 I31 4131 48.1 C1.341 ' 1 .on EYpenses 2,,4,7 35,799 50,022 46,592 46,592 46,592 46,592 46,5112 46,592 -., - ases 5,436 6,831 9,545 8,890 8,S90 5,893 8,890 8, 90 8,890 61,631 62,245 121,612 122,056 122,550 122,944 123,388 123,,32 124,27b k.-rz.zoý2on 64 1,574 1,574 1,574 1,574 1,574 1,574 1,577 1,510 1,5.0 7227572 276.350 232,230 302,229 301.765 301,341 300,897 300,450 300C.73 2L.Lz 7 ^ S 3,,359 37.328 48.052 48,052 48.052 48.052 48,052 48.052 48,052 - Ln 3r,359 37,328 48,052 48,052 48,052 48,052 48,052 48,052 48,052 -S,-52 .SS_81_425 75784 1 144742 136,909 123,845 113 152 102 9274_3 _ rinancin8 687 509 347 192 39 - - - -- P a e 4,905 4,354 3,804 3,362 2,720 2,182 1,645 1,106 569 146 se 35,118 31,274 29,440 26,165 22,886 19,607 16,331 13.045 9,770 6,534 P-ase :1- - - 64,613 66,639 61,752 54,479 47,599 40,852 34,824 28,773 3rre-t Loans 10,656 2,689 1,430 807 1,935 - - - - 30,059 36,958 47,577 47,577 47,577 47,577 47,577 47,57- 47,577 '7,57 S? 101,50 PO''ISOS 176.506 237.894 133.071 205.539 212.928 225,548 235.797 245.922 255,385 2_4.ri_ Allos,a,ce for lad Debts 609 1,242 1,911 - - - - - - - rC~ C 12007?E IENCOW TAX 175.697 236.652 131,160 205,539 212.928 225.548 235.797 245.922 255.385 264,8.1 -e Tax 52,709 70,996 39,348 61,662 63,878 67,664 70,739 73,777 76,616 79,-3 '2 9':2'.AF-7' F:20yE TAX _ 22.988 165.988 91.812 143,877 149.050 157,884 165.058 172.145 178,769 185.277 3T SERVICE COVERACE 2.7 2.4 2.0 2.2 2.3 2.4 2.6 2.8 3.1 3.4 /1 Excludes sales of imported steel 77 Con.stant 1978 dollars /3 Year ending December 31 I,dustrial Proiects Department February 1978 U'-TMIAS SrEEL EXPASION PROJH,r PROJECT COXPLFTION REPORT STAGE III PROJECTED ,foiRCES AND APPLICATION OF FUNDS STATF:-TS- (uS$ OOO 1978- 1979 1980 1981 1982 1983 1984 1985 1986 1Z87 S 'CE OF FU"DS 659,407 772,158 391,164 435,224 450,390 422.093 4 42,198 452.S71 409,546 I'Tr?PAAL .SH GE:.ERATION 277,899 3 317,758 3 4 413,478 424.171 434,743 444,5F3 400,467 :;et Ine Eefore Tax 175,697 236,652 131,160 205,539 212,928 225,548 235,797 245,922 255,355 2o4,oil Depreciation 61,801 62,245 121,612 122,056 122,500 122,944 123,388 123,832 124,276 12.,720 Anortization 64 1,547 1,574 1,574 1,574 1,574 1,574 1,577 1,510 1,510 Proi s ic.s 6,311 7,154 9,556 9,556 9,556 9,556 9,556 9,556 9,556 9,556 Excise Tax Incentive 34,026 41,837 53,856 53,856 53,856 53,856 53,856 53,856 53,856 - Fi1 (prrr A.7D Lo1ANs 28,0 37,3 38.825 23.478------ .ilaterals -?-.ase III 39,517 125,095 - - - . . . Nippon Us.-inas - Phase III 13,200 - - . . . . . - :.zse III 110,252 128,467 - - . - . . - Phase III 15,000 - - . . . - Lar a eiro/hase - Phase III 23,000 - . . . - . .C*Sir ?rogra- Financing 17,075 26,152 27,551 20,570 - - - - 1-1ase III 72,561 92,520 11,294 2,908 - - - - 50,922_ 26,913 20,531 3,661 4,684 5,655, 6,578 7,455 8,288 9.C79