Tunisia - SOFOMECA Foundry Modernization and Expansion (Fourth Industry) Project

Document of The World Bank FILEO QP. FOR OFFICIAL USE ONLY _ Report No. P-3573-TUN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US$16.8 MILLION TO THE SOCIETE DE FONDERIES ET DE MECANIQUE (SOFOMECA) WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA FOR A FOUNDRY MODERNIZATION AND EXPANSION PROJECT May 10, 1983 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.  CURRENCY EQUIVALENTS Currency Unit = Tunisian Dinar (TD) The exchange rate of the Tunisian Dinar is floating. The rate which is used in the Staff Appraisal Report approximates the current rate. It is; 1 US $ = IDO.63 I TD US $1.59 SOFOMECA's Fiscal Year January 1 - December 31 ACRONYMS AND ABBVREVIATIONS AIIC - Arab Industrial Investment Company API - Investment Promotion Agency ARMICO - Arab Mining Company BTEI - Tuniso-Emirates Investment Bank BTKD - Tuniso-Kuwaiti Development Bank CMT - Mechanical Industrial Complex of Tunisia CNEI - National Industries Studies Center CNSS - National Security Fund ERR - Economic Rate of Return GDP - Gross Domestic Product ICB - International Competitive Bidding IDB - Islamic Development Bank KHD - Kloeckner-Humboldt-Deutz OTTEEFP - Employment Office SOFOMECA - Foundry and Mechanical Company STIA - Tunisian Automobile Corporation STUSID - Tuniso-Saudi Investment and Development Corporation  FOR OFFICIAL USE ONLY REPUBLIC OF IUNISIA SOFOMECA FOUNDRY MODERNIZATION AND EXPANSION PROJECT Loan and Project Summary Borrower: Societe de Fonderies et de M6canique (SOFONECA) Guarantor: Republic of Tunisia Amount: US $16.8 million equivalent, including a capitalized front-end fee. Terms: 15 years, including three and one-tialt years of grace, at the standard variable interest rate. Project Description: The project would support the Government objective of developing and efficiently operating the foundry industry in Tunisia. It would help meet the growing local demana for foundry products, and improve the quality and cost competLtiveness of castings thus creating also a sound basis for exports. It would form an important backwara link for engineering industries which have been given the highest priority by the Tunisian Government. Further, it would serve to strengthen and upgrade technological and managment capabilities through technical assistance and a management improvement program. The project consists ot (i) moderni- zation of SOFOMECA's existing iron and steel foundry by reorganizing the productive facilities and installing new equipment; (ii) installation of a new fully-equipped foundry for mechanical castings; and (iii) construction of a sand treatment plant to supply Tunisian foundries and other industrial users with high-quality sand. The project would belp increase the output of foundry products in Tunisia by more than 100 percent over present levels at full production, wbich is expected to be attained in 1988. The main risk of the project is related to its reliance on two principal clients for its output. This risk is minimized through appropriate arrangements between SOFOMECA and its main future clients and tbrougb flexibility in the product-mix permitting the opening up of new markets, if necessary. 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.  - ii - Estimated Cost: Local Foreign Total -------------US $ Million--------------- Modernization Civil works 0.6 0.2 0.8 Equipment 1.0 7.0 8.0 Engineering and other services 0.1 0.2 /1 0.3 Subtotal 1.7 7.4 97 New Foundry Civil works 2.8 0.8 3.6 Equipment 2.7 17.7 20.4 Engineering and other services 0.9 2.3 /1 3.2 Subtotal 6.4 20.8 27.2 Sand Treatment Civil works 0.1 0.0 0.1 Equipment 0.1 1.0 1.1 Engineering and other services 0.1 0.2 /1 0.3 Subtotal 0.3 125 Total Base Cost 8.4 /2 29.4 37.8 Physical Contingencies 0.8 3.0 3.8 Price Contingencies 1.6 5.2 6.8 Incremental Working Capital 2.2 0.9 3.1 Total Project Cost 13.0 38.5 51.5 Interest During Constr. 0.4 2.2 2.6 Front-end-fee on Bank Loan - 0.0 /3 0.0 Total Financing required 13.4 40.7 54.1 Financing Plan: Local Foreign Total