Upper Volta - Perkoa Mining Exploration and Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11289 PROJECT COMPLETION REPORT BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (CREDIT 1482-BUR) OCTOBER 16, 1992 Energy and Industry Division Country Department V Africa Regional Office 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 = CFA Franc (CFAF) Exchange Rate: In the President's Report for the Project (May 1984) US$2,632 = CFAF I million US$1.00 = CFAF 380 US$1.06 = SDR 1.0 At project completion (April 1992) US$3,628 = CFAF I million US$1.00 = CFAF 275.6 US$1.38 = SDR 1.00 WEIGHTS AND MEASURES 1 meter (m) = 3.281 feet I kilometer (kIm) = 0.622 miles I kilogram (kg) = 2.205 pounds I metric ton (t) = 1. I short ton ACRONYMS AND ABBREVIATIONS BUMIGEB Bureau des Mines et de la Geologie du Burkina BUVOGMI Bureau Voltaique de la Geologie et des Mines GDP Gross Domestic Product IDA International Development Association PCR Project Completion Report PPF Project Preparation Facility RAN Abidjan-Niger Railway UNDP United Nations Development Programme FISCAL YEAR January I to December 31  FOR OFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation October 16, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Burkina Faso Perkoa Mining Exploration and Technical Assistance Project (Credit 1482-BUR) Attached, for information, is a copy of a report entitled "Project Completion Report on Burkina Faso - Perkoa Mining Exploration and Technical Assistance Project (Credit 1482-BUR)" prepared by the Energy and Industry Division, Country Department V, Africa Regional Office, with Part II contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment 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 COMPLETION REPORT BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) TABLE OF CONTENTS PREFACE . ................................................. EVALUATION SUMMARY .....................................iii PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE ... ...... 1 1. Project Identity ....................................... 1 2. Background ............ 1 3. Preparation and Design .................................. 2 4. Objectives and Description ................................ 3 5. Project Implementation .................................. 3 6. Major Project Achievements .............................. 7 7. Sustainability ........................................ 9 8. Borrower Performance .................................. 10 9. Bank Performance ..................................... 10 10. Consultant Performance ................................. 10 11. Project Relationships ................................... 10 12. Project Documentation and Data ............................ 11 13. Conclusions and Lessons Learned ........................... 11 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ....... 13 PART III: STATISTICAL INFORMATION ......................... 17 Table 1: Related IDA Credits ................................. 17 Table 2: Project Timetable ................................... 18 Table 3: Cumulative Credit Disbursements ......................... 19 Table 4: Project Implementation Indicators ......................... 20 Table 5: Project Costs and Financing ............................ 21 Table 6: Project Results ..................................... 22 Table 7: Status of Project Covenants ............................. 24 Table 8: Use of Bank Resources ............................... 26 ATTACHMENT: Comments from Borrower on Parts I and III ............... 27 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.   PROJECT COMPLETION REPORT BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) PREFACE This is the Project Completion Report (PCR) for the Perkoa Mining Exploration and Technical Assistance Project, for which the Board approved a credit of SDR 7.0 million (US$7.4 million) equivalent on May 24, 1984. The Credit closed on December 31, 1991, three and a half years behind schedule. IDA disbursed SDR 5.1 million (US$6.55 million) of the original Credit amount and has cancelled SDRI.9 million (US$2.6 million). The PCR was prepared jointly by the Energy and Industry Division of the Sahelian Department (Preface, Evaluation Summary, Parts I and III), and the "Bureau des Mines et de la Geologie du Burkina", BUMIGEB (Part II). Preparation of Parts I and III is based, inter alia, on data available in the project files, supervision reports, correspondence between IDA and the Borrower, internal memoranda and discussions in Washington with a representative from BUMIGEB. The Borrower provided comments on Parts I and III of this PCR (Attachment I).   - iii - PROJECT COMPLETION REPORT BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) EVALUATION SUMMARY Background 1. In the early 1980s, Burkina embarked on a strategy for mineral resource development which would: (a) concentrate exploration on minerals of high value (precious base metals, diamonds, etc.); (b) develop mining production capacity on a small and medium scale through the creation of mining companies with foreign participation; (c) strengthen the capability of the "Bureau Voltaique de la Geologie et des Mines" (BUVOGMI)W in prefeasibility work, particulaily in the area of mineral economics; and (d) attract foreign firms to provide the financial resources and technical management skills for mineral development. The Perkoa Mining Exploration and Technical Assistance Project was an integral part of this strategy. The Government, in June 1982, requested assistance for mineral exploration, as part of its strategy to diversify the economy. IDA provided the Government with a project preparation facility advance (PPF) of US$107,000 (SDR77,400). Using this PPF, the Government contracted a consulting firm to review the earlier exploration works on the Perkoa deposit, as well as the Dori Yalogo gold deposit, and to assist them in preparing the project. Appraisal of the resulting Perkoa Mining Exploration and Technical Assistance Project took place in May 1983. Obiectives 2. The main objective of the project was to provide the Bureau des Mines et de la Geologie du Burkina (BUMIGEB), the project implementing agency, with a complete technical and economic evaluation of the sulfide zinc-silver deposit at Perkoa and promote the deposit to private foreign investors for development. The Project was to take place in two phases. Phase I was to assess the reserves of the deposit, prepare a prefeasibility study and promote the Perkoa deposit to foreign investors for development. Phase 11, if warranted by the results of Phase 1, was to establish the feasibility of the deposit's commercial development with a joint venture. IDA provided a credit of SDR 7 million (US$7.4 million) for a project with a total cost of US$8.2 million. The scope of the project covered equipment for drilling and laboratory analysis of ore as well as technical assistance in reserve evaluation, promotion to international mining companies, the development of an appropriate legal framework for mining agreements and various studies related to mining sector development (para. 4. 1). 1/ On November 23, 1988 an Amendment was made to the Project Agreement whereby the terms 'Bureau Voltaique de la Geologic et des Mines (BUVOGMI)' were deleted and replaced by "Bureau des Mines et de la Geologic du Burkina (BUMIGEB)".  - iv - Implementation Experience 3. The completion of the project took place in seven years, instead of approximately three years, as estimated during the project's appraisal. The delay occurred for a number of reasons, mainly because the project was the first of its kind in Burkina and both the Bank and the Borrower underestimated the amount of time required for the entire exploration promotion process (paras. 5.1- 5.4). Furthermore, there was a one-year delay in the effectiveness of the Credit for the project and other delays resulted from various changes to the project's scope (paras. 5.6 and 5.17). After four extensions of the closing date, the Credit closed on December 31, 1991. A total of SDR 5.1 million were disbursed, the remaining SDR 1.9 million were canceled. In November 1988, the original Credit Agreement was modified to permit the financing of operating costs for the "Direction Generale du Projet Perkoa", and to reallocate expenditure categories to allow for the purchase of additional drilling equipment (para. 5.6). Phase I of the project produced encouraging results, identifying a zinc sulphide deposit of about 5.6 million tons. These results, combined with the improved legal framework for mining resulting from technical assistance, were instrumental in attracting a joint mining venture partner for the development of a mine at Perkoa. The project's major achievements in Phase I are outlined in Part I (paras. 6.1-6.7). IDA will not need to financially support Phase II of the project (feasibility and mine development) because agreement with the foreign partner covers the cost of this phase (para. 5.4 & 5.17). Sustainability of Benefits 4. The joint venture that resulted from the project will continue to operate on the Perkoa deposit by proceeding with further exploratory work leading to full feasibility work to bring the mine into production. The project, through the transfer of technical know-how, has built a fairly solid foundation for expanding activities in the mining sector. Four engineers, a mineral economist, eight administrative staff and a fifteen-member drilling team were involved in the project execution. Based on the achievements in the mining sector under the Perkoa Project, IDA and BUMIGEB have identified a complementary program of assistance which would: (a) establish a data base of the geological information on the country, which would include maps and publications of geological studies; (b) assist BUMIGEB in additional investment promotion work; (c) investigate options for privatizing public enterprises in the mining sector; ard (d) help define a clear mining sector policy and an improved legal and institutional framework. Conclusions and Lessons Learned 5. The Perkoa Mining Exploration and Technical Assistance Project was the first Bank project in the mineral resource sector in Burkina; it was successful in its two main objectives : (a) monitoring private sector involvement in the diversification of the economy by attracting a foreign partner for a joint venture agreement to develop the Perkoa zinc sulphide deposit; and (b) strengthening the capabilities of BUMIGEB to do the necessary prefeasibility work and prepare a mineral resource promotion program to attract a joint venture partner. IDA and the Borrower learned several lessons from this project: (i) Technical assistance of the type provided under this project, though of a relatively modest cost (about US$6 million in the case of Perkoa) can serve as a sound basis for attracting substantial foreign investment. In the development of Perkoa, the associated foreign investment has been estimated in the order of US$120 million, pending the results of feasibility work, which should be completed by mid 1994. Additionally, the transfer  v - of know-how to BUMIGEB, including support in legal matters and negotiations, will accrue further benefits through the evaluation and promotion of other mineral assets and the attraction of further investment to develop them. (ii) A significant shortcoming in the design of this type of project, as originally conceived, was the lack of a local counterpart team involved full time in the promotion work for the mineral deposit. Fortunately, the project was flexible enough to allow for establishment of a special directorate for this work. Future projects in Burkina and other countries should take account of this experience. (iii) Technical assistance and exploration projects take time to execute and, therefore, should have a realistic timeframe which takes account of (i) the time required to resolve difficult technical and legal issues; (ii) the linkages among the various project components; and (iii) the need to phase their implementation accordingly. The project assumed the implementation of all Phase I activities supporting exploration promotion, in parallel -- technical, legal and promotional assistance along with drilling, delineation of the deposit and prefeasibility study -- over a period of 15 months. This was much too ambitious and did not allow time to resolve some problems which emerged during project implementation. A more reasonable estimate would be about four years for the full exploration promotion process, from the initial prefeasibility work through the establishment of a joint venture. (iv) In preparing an initial project in the mining sector, it is important to give sufficient attention to related infrastructure needs, which should become part of an integrated mineral development plan. Such a plan could be either a specific component of the project or a covenant in the legal agreements related to the project. Uncertainty about the transport infrastructure continued through most of the project period. Given the Government's uncertainty about rehabilitation of the railroad and transport costs, the joint venture partner for the development of the Perkoa deposit is planning to invest in road transport of the zinc concentrate to be produced. However, the joint venture partner is open to reconsidering this decision depending on the performance of the railway with assistance under the IDA Transport Sector Adjustment/Investment program, which was approved on February 4, 1992 (para. 5.12). (v) The achievements under this project stand out in light of the significant political and economic difficulties and changes which took place in Burkina Faso over the project period. These events explain some of the delays in implementation and highlight the importance of clear relatively simple project objectives and design.   PROJECT COMPLETION REPORT BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) PART I: REVIEW FROM THE BANK'S PERSPECTIVE 1. PROJECT IDENTITY Project Name Perkoa Mining Exploration and Technical Assistance Project Credit No. 1482-BUR RVP Unit Africa Country Burkina Faso Sector Mining 2. BACKGROUND 2.1 In 1983, when IDA appraised the Perkoa Mining Exploration and Technical Assistance Project, Burkina (formerly Upper Volta), was in political and economic turmoil. The Government had changed three times in less than two years, there was economic recession and drought, and political uncertainties were threatening international aid flows and private investment. In profile, the country had 6.4 million inhabitants, a per capita income of US$210 and an economy which depended heavily on agriculture, accounting for 80-90 percent of employment and exports, as well as 35-40 percent of GDP. The conditions for agriculture were difficult, characterized by highly variable rainfall and shallow, poorly-structured soils, and few rivers with a permanent flow throughout the year. As a result, Burkina was exploring various options for reducing dependence on agriculture. One option was the development of the country's significant mineral resources (zinc, silver, phosphorus, etc.) but their full economic potential was unknown. So Burkina adopted a mineral resource strategy which would (a) concentrate exploration on minerals of high value (precious base metals, diamonds, etc.), (b) develop mining production capacity on a small and medium scale through the creation of mining companies with foreign participation, (c) strengthen the capability of the Bureau VoltaYque de la Geologie et des Mines (BUVOGMI)2' in prefeasibility work, particularly in the area of mineral economics, and (d) attract foreign firms to provide the financial resources and technical management skills for mineral development. 2.2 The key organization in charge of the Government's mineral development strategy was BUMIGEB, which the Government created in 1978, as an autonomous government institution for managing all mining and hydrocarbon activities in the country under the auspices of the Ministry of Commerce Industry and Mines. BUMIGEB, with a staff of 260 and an annual budget of about US$2 million, had financial autonomy and authority over the planning, programming and execution of all mineral exploration and development. It also was in charge of enforcing mineral legislation. The 2/ On November 23, 1988 an Amendment was mnade to the Project Agreement whereby the terms 'Bureau VoltaTque de la Geologie et des Mines (BUVOGMI)- were deleted and replaced by 'Bureau des Mines et de la Geologic du Burkina (BUMIGEB)'.  - 2 - organization had been successful in discovering some promising mineral deposits in collaboration with bilateral and multilateral agencies. Its staff had improved its technical skills and developed a credible capability in geological exploration. 2.3 In the early 1980s, IDA had embarked on a series of projects for petroleum exploration projects as part of an energy strategy to lessen the dependence of developing countries on costly imported oil. It was in this context that a review of Burkina's petroleum and mineral resource potential was carried out. When prospects for petroleum resources proved to be disappointing, Burkina requested assistance in promoting other mineral resources which were more promising. IDA viewed the project as a step toward overcoming the resource constraints that the country was facing, promoting a new range of productive economic activities and establishing a new source of government revenues. Therefore, the Government, in June 1982, requested IDA to assist in mineral exploration. 3. PREPARATION, DESIGN AND ORGANIZATION 3.1 An IDA project identification mission visited the country in October 1982, responding to the Government's request for assistance in mineral development. This mission focussed on the exploration and development of the Perkoa zinc sulfide deposit. Burkina had discovered this deposit in 1979/80 with the assistance of a UNDP-financed exploration team. IDA provided the Government with a project preparation facility (PPF) of US$107,000, which the Government used to review the earlier exploration works on the Perkoa deposit as well as the Dori Yalogo gold deposit and to prepare the project. A consultant to the Government in April 1983, prepared a report, which identified the deposit as significant enough to warrant appraisal and prefeasibility work. 3.2 The Perkoa project was appraised in May 1983 but a coup in the country constrained the appraisal mission's work. The main change in the original plan for the scope of the project was the deletion of the gold deposit component because the Government already had established joint ventures for developing the gold deposit with foreign partners. Furthermore, the Minister of Commerce, Industry and Mines apparently surprised BUMIGEB and IDA by his opposition to the project, indicating his preference for a joint venture with a mining company for the exploratory work and deferment of Bank assistance until the development stage. However, we advised the Minister that it could better serve the country's interest by preparing a comprehensive dossier on the deposit and helping to secure the best possible terms for the development, pointing out that past contracts had not been very favorable to the country's interest. 3.3 Following the appraisal mission, it was decided to postpone making a final decision on the project, noting that the Minister's views did not necessarily reflect the Government's views accurately. This decision left the door open for further definition of the Project to a post-appraisal mission (July 1983) which reconfirmed Government interest in the project and led to its further formulation as described in para. 4.1. The main concern in the design of the project was the adequacy of technical assistance provided in relation to institutional development needs. This issue was raised early in the project cycle. Bank staff involved in preparing the project pointed out that BUMIGEB was relatively well-equipped with technical staff, though lacking the requisite economic, financial and legal expertise to evaluate projects and enter into contractual arrangements with foreign partners. The intention seems to have been to fill in the gaps of expertise without imposing a large expatriate presence on BUMIGEB.  - 3 - 4. OBJECTIVES AND DESCRIPTION 4.1 The main objective of the project was to provide BUMIGEB with a complete technical and economic evaluation of the sulfide zinc-silver deposit at Perkoa and promote the deposit to private foreign investors for development. The Project was to take place in two phases. Phase I was to assess the reserves of the deposit, prepare a prefeasibility study and promote Perkoa to foreign investors for development. Phase II, if warranted by the results of Phase I, was to establish the feasibility of the deposit's commercial development with a joint venture. In support of these objectives, Phase I activities were to consist of (a) drilling and delineation of the deposit and neighboring anomalies, geophysical/geochemical surveys and preparation of a prefeasibility report; (b) technical assistance to BUMIGEB for establishing a mineral dressing laboratory and developing a project preparation unit capable of evaluating mineral deposits and managing the evaluation program at Perkoa; (c) comparative review of mining legislation and concession agreements for base and precious metals along with the preparation of model agreements and draft contractual arrangements for the Perkoa deposit; and (d) assistance in the promotion work to attract potential investors to the Perkoa deposit. In the case of a successful outcome in Phase I, Phase II was to consist of constructing an access ramp to the deposit, drilling underground to determine mining conditions, sampling bulk ore, conducting metallurgical tests and preparing a full feasibility study for mine development. The technical assistance for the project preparation unit mentioned above also was to continue through Phase II. The total cost of the project was estimated at US$8.2 million, of which the IDA credit amounted to US$7.4 million (SDR 7.0 million). 5. PROJECT IMPLEMENTATION 5.1 The Credit became effective in January 1985, instead of November 1984, as originally planned, due to administrative delays resulting from a change in government. The project timetable, attached as Table 2 of Part III, shows the closing date of the Credit, originally planned for June 1988, was extended four times, as outlined in para. 5.5. Credit disbursements were slow and Burkina did not use the entire amount of the credit. The Credit closed on December 31, 1991. 5.2 There were considerable delays in project implementation which extended over a seven year period, instead of the projected three-year initial design. These delays were primarily due to (i) the project being the first of its kind in Burkina; and (ii) both IDA and the Borrower significantly underestimated the time required for the entire exploration promotion process. For example, the actual completion of a promotional brochure took place in 1987 as compared to the 1985 original schedule. Likewise, the invitation for mining companies to bid for the joint venture took place in 1988 instead of the originally planned 1985. Furthermore, there were delays in the effectiveness of the Credit resulting from various changes in project scope (paras. 5.6 and 5.17). 5.3 There were two modifications to the original Credit Agreement --one in November 1988, to permit the financing of operating costs for the Direction Generale du Projet Perkoa and another, in 1991, to reallocate expenditure categories to allow for the purchase of additional equipment (para. 5.6). Phase I of the project produced a prefeasibility study with encouraging results, improved the legal framework for joint mining venture agreements with foreign investors and led to the signing of a mining agreement for the development of Perkoa between the Government of Burkina and a Swedish mining company. 5.4 The Bank will not participate in Phase II (feasibility and mine development) because the foreign partner is assuming the cost of this phase. However, the extension of the Credit's closing  date to December 31 1991, provided Burkina with funds to complete its capital contribution to the joint venture, prepare additional mining sector studies, and compensate consultants for additional legal services in negotiating a joint venture agreement, as well as technical services in the preparation of a brochure in the mining sector (para. 6.8). REVIEW OF PHASE I Project Delays and Credit Extensions 5.5 The first extension of the Credit closing date (from June 1988 to June 1989) was necessary because the project's promotional phase was not yet complete and had begun to intensify after a period of difficulty. The promotion effort took longer than initially estimated due to an overly optimistic implementation schedule, which did not leave much time to resolve some of the major issues that arose in the project's implementation (paras. 5.9-5.16). By the end of the first extension (June 1989), Phase I still was not completed, although Burkina had entered into serious discussions with Boliden. So the closing date of the Credit was extended to June 1990. By the end of the second one-year extension (June 1990), Boliden and Burkina had only recently signed a Mining Investment Agreement (April 1990), but had not begun Phase II of the project (mine reconnaissance and feasibility study), pending Boliden's efforts to secure necessary funding. A further extension of the closing date through June 1991, allowed Burkina to acquire equipment representing its share of the capital contribution to the joint venture and finance additional mining sector studies. However, by the end of June 1991, these additional components were not yet completed due to delayed action on the part of the Borrower and related procurement problems. IDA agreed to a final extension through December 1991 to provide Burkina with the funds to complete work contracted but not finished. Amendments to the Credit Agreement 5.6 In November, 1988, IDA agreed to amend the Credit Agreement to provide for a full-time local counterpart in the promotion process and to take account of the name change of the Borrower's implementing agency from BUVOGMI to Bureau des Mines et de la Geologie de Burkina (BUMIGEB). The amendment acknowledged the creation of the General Directorate for the Perkoa Project, to be the agent within the Borrower's State Secretariat for Mines, responsible for the promotion of the Perkoa deposit to potential investors. It also allowed for the financing, under the Credit, of the newly-created directorate's operating costs, defining these as "..the reasonable cost of airfares, hotels and subsistence abroad and on promotional trips, vehicle operation and maintenance, and office rental for the General Directorate of the Perkoa project." IDA made a second amendment to the Credit Agreement in March 1991, reallocating the categories of expenditures to allow for the purchase of additional drilling equipment and by deleting expenditures on mining works, since it would not be participating in Phase II of the project. Project Costs and Credit Disbursements 5.7 The total project costs are estimated at US$6.9 million (excluding Phase II) compared to US$8.2 million at the time of project appraisal (see Part III, Table 5). IDA has disbursed US$6.55 million of the original US$7.4 million Credit and canceled the remaining 21 percent.  -5 - Status of Covenants 5.8 As indicated in Table 7 of Part III, the Borrower has complied with all major covenants of the Credit and Project Agreements, although there were delays in the submission of audit reports on BUMIGEB accounts and the Special Account for the Project. Maor Issues 5.9 The major issues that arose in implementing the project were (a) the reserve figures to be used for the mining promotion; (b) the mode of transport for the concentrate; (c) several points concerning the legal framework for a mining joint venture agreement; and (d) procurement procedures and timing for certain equipment and services. 5.10 Reserve Estimates. The French consultant in charge of the prefeasibility study estimated the reserves of the Perkoa zinc deposit to be about 3.5 million tons. But a review of the calculations by an independent Bank consultant found the approach to be too theoretical, not taking sufficient account of particular characteristics of the mineral occurrences. The Canadian consultant providing technical assistance to BUMIGEB later revised the study and estimated the reserves in the order of 4.0 to 4.5 million tons. Subsequent further drilling has increased the reserve estimate to 5.6 million tons, thus significantly improving the financial viability of the project. 5.11 Transpor The most difficult issue surrounding the development of the Perkoa deposit from the outset of the project, was determining the least-cost option for the transport of zinc concentrate in a landlocked country with a railway in poor operating condition. The President's Report on the project noted the weak condition of transport infrastructure as a risk threatening the viability of the project. IDA sought to minimize this risk by including an evaluation of transport options as part of the prefeasibility study and preparing a transport rehabilitation project. The basic transport modes and routing were to be truck transport from the processing plant at Perkoa to Koudougou (35 km), followed by railway transport from Koudougou to Abidjan (1,070 km) and sea freight from Abidjan to a European port. However, it seems that the prefeasibility study did not address the transport issue adequately and used rail transport costs that were 20 percent below RAN tariffs. 5.12 Due to the uncertainty surrounding the rehabilitation of the railway, Boliden International has not yet made a decision on whether, based on financial costs, they should transport the concentrate from Perkoa to Lome, by road or by rail to Abidjan. However, Boliden remains open to reconsider this decision depending on results from the Transport Sector Adjustment Investment Loan which has two subcomponents for rehabilitating the railroad from Koudougou to the port of Abidjan. The first component will provide emergency assistance to the railroad -- spare parts, rehabilitation of the depot for railcar maintenance and technical assistance to the joint agency managing international freight traffic and to SCFB. If the railroad can demonstrate its efficiency and convince the Perkoa joint venture to use it, the second component will be further rehabilitation which needs the Perkoa traffic to be justified economically. If the railway were not successful in securing the Perkoa traffic, it would have to initiate liquidation procedures. There would also be the possibility of selling the assets to a different entity, perhaps converting them into a dedicated transport system for Perkoa. 5.13 Legal Framework for Joint Ventures in Mining. The main issue that arose in the formulation of a model mining agreement was a law on mixed companies which provided that at least 50 percent of the Board consist of political, special interest and workers' representatives. The application of this law to the project would have been very unattractive to foreign investors. There seems to have been  - 6 - considerable discussion of the issue in an attempt to find a way of representing the interests of the aforementioned groups without alienating potential shareholders. However, the Government decided not to include such a provision in the final mining agreement. 5.14 Procurement Procedures and Timing. An important issue that arose during the project was the lack of sufficient attention given by BUMIGEB and its consultant advisors to the Bank's procedures, and their timely implementation in the bidding for laboratory equipment and consultant services for two studies under the project. 5.15 In the case of the laboratory equipment, BUMIGEB's consultant advisors had prepared in August 1984 a list of equipment and services needed to establish a mineral dressing laboratory with specifications and prices for individual pieces of equipment. The estimated cost of basic equipment and services to establish the laboratory was about US$40,000. From the project files, it appears that BUMIGEB, with consultant assistance, set up a basic laboratory sometime in 1986. In April 1991, BUMIGEB requested additional equipment to expand and upgrade the lab, totalling US$370,000. However, BUMIGEB did not prepare the international bidding documents for the equipment according to Bank specifications and given the time constraint to reopening the bidding process, BUMIGEB decided to drop its request for the equipment. 5.16 Concerning the sulfuric acid market study, there was only one bid as the closing date of the Credit was approaching, so the Bank made an exception to its procurement rules and allowed BUMIGEB to contract directly with the firm. For the mineral treatment facility, BUMIGEB had received several bids and was to rank bids based on technical qualifications. Although a Canadian firm received an overall ranking which was significantly higher than the other firms, BUMIGEB proposed giving the contract to the firm which had the lowest cost estimate but not the highest ranking qualifications. The Bank noted that according to procurement guidelines, BUMIGEB needed to follow the procedures set forth in the letter of invitation to consultants and select the firm with the highest technical qualifications. PHASE II Change in Project Scooe 5.17 Originally the Bank was to participate in Phase II, the feasibility work for the project, including additional drilling, underground works and preparation of the full feasibility study for mine development. However, according to the mining investment agreement negotiated with Boliden, Burkina will contribute about US$1 million to the required expenditures since Boliden has agreed to finance 90 percent of the total cost of Phase 11. Thereafter, there will be no further contribution from Burkina to the development of the deposit which will be financed by additional equity contributions from Boliden and through external financing sources, to be defined. Thus the Government will not require IDA assistance to complete Phase 11 or future phases of the joint venture. However, the Government will need assistance in financing related infrastructure, such as the upgrading of the feeder road to the Koudougou railway station, the construction of a dam at Sebou, as well as the building of a pipeline from the dam to the Perkoa property, as specified in the Mining Investment Agreement. IDA and the Government have included some of this work in the Transport Sector Adjustment/Investment Credit operation which was approved in February 1992.  - 7 - Joint Venture Arrangement and Timetable 5.18 Burkina and Boliden entered into a formal joint venture agreement in April 1990. Beginning in May 1990, the joint venture administration assumed the operating costs and overhead of the "Direction Generale du Projet Perkoa", except for activities connected with securing the financing of future government commitments for the road (Perkoa-Koutougou) and dam construction to provide water to the mine site. The joint venture has completed Stage 1 of the mine development--additional drilling of the deposit (6,500 meters). The drilling program took less than four months instead of the anticipated eight months. Furthermore, the results of this drilling have indicated much higher reserves than originally anticipated -- 5.6 million tons. There has been some delay in proceeding with Stage 2 of the joint venture (mine investigation and feasibility) mainly due to the need for the mining company to receive assurances that they will be allowed to set up a foreign account for the Project. The company made its decision to move to Stage 2 some time in 1990. 5.19 The financial arrangements of the Mining Investment Agreement amount to an equity participation of 35 percent (Burkina) and 65 percent (Boliden) which in fact was constituted by way of exception to Structural Adjustment Lending policy of limiting Government's participation to no more than 25 percent. Burkina's participation is based mainly on previous exploration expenses, financed to a large extent under the project. During Phase II, the joint venture for the mine will incorporate under Perkoa Mineral S.A., and will conduct further exploratory work underground through shaft sinking (250 m shaft and rifts), bulk sampling and beneficiation tests, after which it will prepare the feasibility study for the mine. The second phase is expected to take approximately two years, until late 1994. At that time, the joint venture expects to make a decision on the construction of the mine, based on the feasibility study results. If mine development proves to be economically viable, production should begin mid-1996. 6. MAJOR PROJECT ACHIEVEMENTS Prefeasibility Study 6.1 Burkina contracted with a French company to prepare a prefeasibility study on the Perkoa deposit. The findings of the study estimated reserves at 3.5 million tons with 18 percent zinc. The estimate of future production was 350,000 tons per year or 100,000 tpy of zinc concentrate, with a recovery factor of 88 percent. The investment to bring the deposit into production was estimated at US$50 million. The marketing of the concentrate was to involve transporting it 35 km by truck from the mine to the railway station, after which the Abidjan -Niger Railway would carry it about 1,000 km to the port of Abidjan. The report estimated the rate of return at 9.7 percent with a payback period of six years. The main issue that arose in the discussions of the feasibility report was the calculation of reserve estimates. The original prefeasibility study with subsequent modifications on the technical and financial side, became part of the promotional literature for the project which was instrumental in attracting a joint venture partner. Perkoa Promotion and Joint Venture Agreement 6.2 Early in 1987, the Canadian consultant assisting BUMIGEB prepared a promotional brochure based on the revised prefeasibility report and legal assistance in establishing an appropriate legal framework (para. 6.5) for mining investment with foreign partners. The Canadian consultant and BUMIGEB completed the promotional documentation phase in June 1987 and sent the promotional literature to about 40 international mining companies. The project originally was designed to entrust the promotion of the deposit entirely to outside consultants, with BUMIGEB as the technical partner  in Burkina, responsible for overall project management. However, during the promotion effort, the Government found that this arrangement was not proving very effective since the consultants lacked the authority to speak for the country. So the Government, in April 1988, decided to create a counterpart promotional office (Direction Generale du Projet Perkoa) to follow-up with the consultants on direct contracts with interested mining companies, mobilize internal support and interest in the project and provide a central contact base on matters related to Perkoa. 6.3 Since the special unit was not foreseen at the time of project appraisal, the Government had no budget for it, and asked the Bank to finance the operating costs of the unit under an IDA Credit. The Bank granted the request and modified the Credit accordingly (para. 5.4). Later, in September 1988, the Government also created an interministerial technical commission to deal with cross-sector considerations in planning the Perkoa project. This commission consisted of representatives from the Ministries of Mines, Water, Transport and Environment, Energy, Finance, Planning and Cooperation, and Agriculture, and Health. 6.4 In March 1989, Boliden partially updated the original prefeasibility study which a French consultant had prepared. A major point raised in this updated report concerned the transport mode for the ore concentrate (paras. 5.9-5.10). Burkina held serious negotiations with the company in June of 1989 but was not able to reach agreement on a joint venture arrangement. The main problem was the lack of agreement on the asset value of the deposit. Another area of disagreement involved certain taxes and duties which the company apparently had not been aware of in earlier discussions; Boliden's main concern was the potential impact of those additional costs on the financial viability of the venture. The company left it to Burkina to propose an acceptable compromise solution. In September 1989, Boliden and Burkina signed a protocol agreement on the development of the Perkoa deposit. The development of the mine was to take place in three stages: (a) additional drilling (8 months); (b) detailed mine investigation, including underground exploration, beneficiation tests and feasibility study (18 months); and (c) design, procurement, construction, development and testing (24 months). The Government and Boliden signed a mining agreement in April 1990. Legal Regime for Mining Investment 6.5 The approach BUMIGEB and the consultant legal advisors favored was the establishment of a model Convention d'Investissement Minier and a related Contrat d'Association. The Convention was to (a) be ratified and have the force of law; (b) provide a self-contained and comprehensive coverage of the mining fiscal and investment regime specific to the Perkoa deposit; and (c) ensure protection and certainty of the terms of development for both the State and the foreign investor. The Contrat d'Association would set out, in advance, the terms of the relationship and respective rights and obligations of BUMIGEB and the foreign investor that would jointly develop the deposit. Also it was possible to complete both the Convention and the Contrat in a much shorter time frame than establishing a new mining code or amending existing legislation. The legal advisors completed a model mining agreement and helped BUMIGEB negotiate a mining investment agreement with Boliden, the joint venture partner. Technical Strengthening of BUMIGEB. 6.6 The French consultant that prepared the prefeasibility study on Perkoa apparently instructed BUMIGEB staff in evaluation techniques and computer software for reserve evaluation. The staff also worked closely with the Canadian consultant handling the promotion work to acquire skills for preparing a promotion brochure and negotiating with foreign mining companies. The establishment of a mineral economist position in BUMIGEB, a condition of the Credit's effectiveness, improved _ - --------- ---------  - 9 - the organization's capability for economic evaluation. The project also provided BUMIGEB with equipment and technical assistance to establish a mineral dressing laboratory (para.5. 15). Studies 6.7 In November 1990, a Bank consultant prepared draft terms of reference for five studies under the Project: (a) a market study for the commercialization of sulfuric acid from Perkoa pyrites; (b) an environmental study on potential mining operations in Perkoa; (c) a study for an ore treatment facility in Northeast Burkina; (d) preparation of a mineral development plan for Burkina; and (e) preparation of a promotional brochure for the mining sector in Burkina. By the end of the Credit's third extension (to June 1991), with the exception of the promotional brochure for the mining sector, the studies have only recently been contracted. The fourth extension (through December 1991) allowed the completion of these studies, except for the mineral development plan, which will become part of a follow-up project. Concerning the promotional brochure for the mining sector, the same consultant that had assisted BUMIGEB in its promotional work for the Perkoa deposit prepared the brochure. There was some confusion about payment for these services since the consultant contracted directly with BUMIGEB but the consultant's payment has been settled under the fourth extension of the project. 6.8 The market study for sulfuric acid production at Perkoa provided a broad survey of the international market for sulfuric acid and the amount that Perkoa could produce, estimated at 65,000 tonnes. However, further work on the transportation logistics and the details of commercialization will be required to determine the financial viability of the operation. 6.9 The design of the environmental study of Perkoa's mining operations consisted of three phases. Phase I, the development of a program of environmental studies, is complete. The report of the consultant on Phase I also provides terms of reference and the methodology for Phase II, the study of basic environmental data. Phase III, the analysis of the environmental impact will take place after the compilation of the data base under Phase II. 6.10 The study for a gold ore treatment facility in north-east of Burkina consisted of three parts: (a) estimates of recoverable ore reserves; (b) an assessment of ore treatment alternatives; and (c) an evaluation of the financial viability of the treatment method selected. The study indicated recoverable gold ore reserves of 0.42 million tonnes containing about 4,300 tonnes of gold. The processing method the consultant selected to give the best overall gold recovery, consists of a reducing the size of the ore to particles of about 100 microns and dating a gravimetric separation followed by cyanide leaching and absorption of the gold by activated carbon. This process should allow a gold recovery rate of 90-92 percent. Based on current recoverable reserves, the study recommends a facility of 125 tonnes per day (40,000 tonnes per year) at a total investment cost of US$5.5 million. The consultant's estimated financial rate of return on the facility is 23 percent for a gold price of US$10 per gram and 46 percent at a gold price of US$12 per gram. 7. SUSTAINABILITY 7.1 The joint venture that resulted from the project will sustain the preparatory work on the Perkoa deposit by proceeding with further exploratory work leading to a full feasibility study for bringing the mine into production. The project, through the transfer of technical know-how, has built a fairly solid foundation for expanding activities in the mining sector. Four engineers, a mineral economist, eight administrative staff and a fifteen-member drilling team were involved in the project.  - 10 - Taking into account the achievements in the mining sector under the Perkoa Project, the Bank and BUMIGEB have identified a complementary program of assistance which would: (a) centralize a data base of the geological information on the country with the necessary maps, evaluations and a descriptive brochure; (b) assist BUMIGEB in additional investment promotion work; (c) investigate options for privatizing public enterprises in the mining sector; and (d) help define a clear mining sector policy and an improved legal and institutional framework. 8. BORROWER PERFORMANCE 8.1 The performance of BUMIGEB, the implementing agency of the Borrower, was satisfactory overall. They consistently showed a strong interest in the project. In order to improve the implementation of the promotion phase, the Government created the Direction General de Perkoa which provided a governmental focal point for establishing a joint venture. Their staff have acquired the requisite skills for feasibility work and preparation of a promotion package. Their compliance with all project covenants was satisfactory except for some delay in the submission of audited financial statements on BUMIGEB accounts and the Special Account for the project (See Part III, Table 7). Also, there were occasions where BUMIGEB did not pay sufficient attention to Bank procurement procedures (paras. 5.14-5.16) and certain contractors experienced delays in payment for their services, partly because there was some ambiguity about their contract status. 9. BANK PERFORMANCE 9.1 Performance under the project was satisfactory overall, indicating IDA's considerable commitment to the project and flexibility towards the achievement of its end results. This is reflected in two modifications to the Credit Agreement designed to ease project implementation and four extensions of the closing date, which helped Burkina find a joint venture partner and contribute capital to the resulting joint venture. During the supervision of the project, an important omission in its design became apparent -- the project did not provide for a central contact point within BUMIGEB during the promotion phase. However, following a Government request, IDA agreed to finance the promotion unit (para. 5.6). Also, it seems that the Bank should have insisted more on the resolution of the transport issue (paras. 5.11-5.12) given that it posed a significant risk to the success of the project. 10. CONSULTANT PERFORMANCE 10.1 Consultant performance was satisfactory. The French consultant that prepared the prefeasibility study for the project did an acceptable job although their reserve estimates were rather conservative and that the methodology used, although adequate, may not have been the most appropriate for the characteristics of the deposit. The Canadian consultant advising BUMIGEB and handling the promotion work performed well. 11. PROJECT RELATIONSHIPS 11.1 The relationship between the implementing agency and IDA were generally good. However, towards the end of the project (1991) it appears that BUMIGEB was not sufficiently mindful about adherence to procurement procedures (paras. 5.14-5.16) and could have been more diligent in keeping the Bank sufficiently informed about progress made with the joint venture partner towards Phase 11 of the Perkoa mine development.  - 11 - 12. PROJECT DOCUMENTATION AND DATA 12.1 Most of the necessary data to prepare the PCR was available in the Bank, although the central project files were missing some supervision reports, which, however, were available in Bank staff files. 13. CONCLUSIONS AND LESSONS LEARNED 13.1 The Perkoa Mining Exploration and Technical Assistance Project was the first Bank project in Burkina's mineral resource sector and was successful in its two main objectives: (a) attracting a foreign partner for a joint venture agreement to develop the Perkoa zinc sulphide deposit and (b) strengthening the capabilities of BUMIGEB to do the necessary prefeasibility work and prepare a mineral resource promotion program to attract a joint venture partner. The Bank and the Borrower also learned several lessons from this project: (a) The type of technical assistance under this project, at a relatively modest cost (about US$6 million in the case of Perkoa) can be very useful in attracting substantial foreign investment, which in the development of Perkoa, is in the order of US$120 million for the Perkoa deposit. Furthermore, the investment in the transfer of know-how, computer software, the provision of a model mining agreement, the establishment of a mineral dressing laboratory, etc., will continue to have benefits by attracting further investments in the development of other mineral deposits. (b) The Bank could improve on the original project design in the implementation of promotion work towards finding a joint venture partner for mine development. A significant drawback to the project, as originally conceived, was the lack of a Burkinabe counterpart, within the implementing agency of the borrower, as the focal point of the promotion effort. The consultants handling the promotion were constrained in negotiations because they lacked the authority to speak for the Government and this began to result in delays. However, the Goverrnent recognized the problem early on and proposed the establishment of the General Directorate for the Perkoa Project. The Bank responded by modifying the Credit Agreement for the Project to recognize this directorate as having the responsibility for the promotion of the Perkoa deposit to potential investors and allowing the withdrawal of project funds to meet the directorate's operating costs. (c) In designing future projects, it is also important to be much more realistic about the project time frame so that it will not be impossible for the Borrower to adhere to the project implementation schedule, avoiding the need to request multiple extensions or jeopardize the potential benefits of the project in case the extensions are not granted. The project, as originally designed, assumed the implementation of all Phase I activities, supporting exploration promotion, in parallel -- technical, legal and promotional assistance along with drilling, delineation of the deposit and prefeasibility study -- over a period of 15 months. This time frame was far too short and did not allow time to handle potential problems, which easily should have been foreseen given that the operation was IDA's first in Burkina's mining  - 12 - sector. In particular, there were some legal problems to work out and it was clear from the outset that the lack of the necessary transport infrastructure also could pose a problem. Furthermore, it was not possible for all components to take place in parallel, particularly the promotion effort. The design of the promotional literature and the invitation of bids depended on the results of the prefeasibility study, the resolution of various issues which arose in the study (concerning reserves, transport infrastructure, financial parameters, etc.) and agreement on the legal framework for the establishment of the joint venture. A more reasonable estimate would be about four years for the full exploration promotion process, from the initial prefeasibility work through the establishment of a joint venture. (d) In formulating a new project in the mining sector, it is especially desirable to prepare a plan for mineral development and its related infrastructure, as a focal point for dialogue among the various entities involved in the development of mineral deposits, including transport and energy infrastructures. Although an interministerial technical committee did emerge during the project (para. 6.3) it did not succeed in solving the basic infrastructure problems and its effectiveness may have been enhanced with a mineral development plan from which to work. Such a plan could be effective if it were either a specific component of the project or a covenant in the legal agreements related to the project. In the case of Perkoa, the joint venture partner is planning investments for road transport of the zinc concentrate to be produced, given the uncertainty about rehabilitation of the railroad and transport costs. However, the joint venture partner is open to reconsidering this decision depending on the performance of the railway with assistance under the IDA Transport Sector Adjustment/Investment program, which was approved on February 4. 1992 (para. 5.12).  - 13 - PROJECT COMPLETION REPORT BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) PART II: REVIEW FROM BORROWER'S PERSPECTIVE' BANK'S PERFORMANCE 1. Introduction Up to the 1980s, the World Bank -- like most donors -- believed that Burkina Faso should establish more important priorities for its development than the mining sector. However, to enable the low-income countries to address the problems arising from the second oil shock in the 1980s, the Bretton Woods institutions agreed to make loans to countries that had the potential for finding alternative sources of energy. As a result, Mauritania and Mali received assistance for hydrocarbon exploration in the Taoudeni basin. Because of its granitic basement, Burkina Faso had no chance of obtaining financing for such a project. On the other hand, the Bank was persuaded by some of its officials who had responsibility for the Sahelian countries to agree, in principle, to examine projects for mining high market-value minerals such as gold, and projects that were of a sufficient scale to warrant their implementation, in spite of being located a long way from the sea. It was against this background that a World Bank identification mission examined the Perkoa zinc deposit in October 1982, i.e. less than a year after its discovery in January 1982. 2. Project Appraisal As indicated in the Introduction, the World Bank dispatched a mining appraisal mission in October 1982 at the request of Burkina Faso. The mission identified the following two potential areas: (a) Dori-Yalogo (gold); (b) Perkoa (zinc). As a result of this mission's positive report, a preparation mission took place in April 1983. I/ Translation from the French version received by IDA in February 1992.  - 14 - The short time that elapsed between project identification (October 1982) and signature of the Credit Agreement (June 29, 1984) is evidence of the degree of interest that the World Bank showed from the outset toward the Perkoa Project. Similarly, several missions from the World Bank's Mining Division visited the country between the beginning of the project and its final phase (December 1991), enabling the viewpoints of the Government and the World Bank to be harmonized, thus facilitating project execution. In spite of a series of staff changes in both Washington and Burkina Faso, there was at all times a harmony of views over the Perkoa Project, and this ensured its success. The success of the project's implementation, the originality of its design, and the challenges it faced meant that the main parties concerned -- including the World Bank representatives -- felt increasingly involved, so that the project can be seen as the result of teamwork rather than the efforts of separate institutions. Many lessons can be learned from this project, and the World Bank staff became clearly aware of its requirements, and thus took its part whenever necessary. Consequently, the project benefitted from certain exceptions that were allowed to the rigid rules imposed by large financial institutions such as the World Bank, such as the financing of the local costs of the Directorate General and the promotion phase (with the inclusion of Burkinabe nationals), together with the four extensions of the Credit period, etc. BORROWER'S PERFORMANCE 1. In spite of World Bank assistance with project design, the lack of experience with such projects on the Burkinabe side resulted in overambitious plans, with Phase I including drilling and indirect exploration and Phase 2 consisting of mining works and the preparation of a feasibility report. 2. The experience of project execution showed that it was preferable to identify a series of complementary stages, each being determined by the performance achieved in the preceding stage. 3. Similarly, important issues such as transportation and energy infrastructure could have been considered in the initial stages of the project. 4. At the beginning of the project, the World Bank had hoped that a preparation and monitoring unit would be established. This approach proved to be purely theoretical, because in practice issues relating to project implementation were often bound up with the concerns of BUMIGEB, which was responsible for project monitoring. It was for this reason that the Government decided in April 1988 to establish a Directorate General to be solely responsible for Perkoa, but without providing the necessary resources to operate it. This problem was overcome as a result of the sympathetic attitude adopted by the Bank. 5. At the end of Phase 1, Government and World Bank representatives took stock of the situation at a meeting in Washington in October 1986, where the suggestion was made that a promotional brochure should be prepared, instead of the unspent balance being used to continue the studies.  - 15 - Although the Government representatives showed some skepticism toward this proposal, it later became apparent that, in spite of Burkina Faso's problems, a well-prepared project could prove attractive to external partners. 6. As regards the unspent balance, the failure to use the Credit in its entirety was the result of dissent among the various Burkinabe agencies (i.e., SEEM, BUMIGEB, and the Directorate General). In our opinion, the idea of turning Perkoa into an integrated project was excellent, since it would thus have been possible to solve difficult problems such as infrastructure, transportation, water and power supply, etc. Similarly, a crucial point was that BUMIGEB did not possess a mineral-dressing unit, which would have reduced the foreign exchange cost to the country. Unfortunately, the failure to clarify the various functions and roles of the various Burkinabe agencies concerned made it impossible to achieve some of the objectives of the related projects, and particularly to mobilize the US$2 million remaining in the unspent balance, even though this would have been sufficient to provide BUMIGEB with this valuable equipment. LESSONS LEARNED 1. Among the lessons already learned is that the World Bank's plan for assisting low-income countries to overcome the oil shock by financing alternative sources of energy could be applied to a country like Burkina Faso which has little chance of discovering such resources, except for hydropower and solar energy. As a result of the Perkoa project, therefore, Burkina Faso's mining sector is becoming increasingly capable of contributing to the country's economic development. 2. Considerable attention should be given to the discovery of a mining deposit in a landlocked country such as Burkina Faso. To this end, not only must the issues relating strictly to mining and the roles of the various parties concerned be properly defined, but also considerable attention must be given to all the other problems arising from the area's future development, such as energy, transportation, the environment, and living conditions. In future, investors who wish to make a profit from mining activities should not also be called upon to accept responsibilities of a social nature. 3. For projects such as Perkoa to be a success, all the parties involved must have an interest in that success. Only frequent consultations for clarifying the various aspects of the project will make this possible. The advantage for Perkoa was that, from the outset, it was found attractive by the Bank officials who were responsible for it, the consultants who acted as advisors, the economic operators responsible for execution, and the citizens of Burkina Faso who believed in it. 4. In order to avoid the adverse effects of prejudice resulting from the false information on nations such as Burkina Faso in the media in the developed countries, it is essential for decisionmakers to be brought into direct contact with the realities of the situation when a project such as Perkoa is promoted. 5. Although there is still room for improvement in the Perkoa Project, its design makes it a model worthy of application in Burkina Faso and elsewhere.   - 17 - PROJECT COMPLETION REPORT BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) PART III: STATISTICAL INFORMATION Table 1: RELATED CREDITS _/I Not applicable. No previous or subsequent credits in the mining sector. BURTABI .PCR 812191  - 18 - BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) Table 2: PROJECT TIMETABLE Original Revised Actual Identification 10/00/82 NA 10/00/82 Preparation 04/00/83 NA 04/00/83 Appraisal 05/00/83 NA 05/00/83 Negotiations 03/00/84 NA 03/00/84 Board Approval 05/24/84 NA 05/24/84 Signature 06/29/84 NA 06/29/84 Effectiveness 11/00/84 NA 01/23/85 Closing 06/30/88 06/30/91 12/31/91 Completion 10/31/88 10/31/91 04/30/92 NA = Not applicable. Available files indicate no apparent revisions to the timing of this activity. Source: World Bank Management Information System  - 19 - BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) Table 3: CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (USS millions) Years- End Status FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 Appraisal Estimate 2.00 5.00 7.00 7.40 7.40 7.40 7.40 7.40 Actual 1.88 2.88 3.36 4.33 4.48 4.57 4.57 6.55 Actual as % of Appraisal 94 58 48 59 61 62 72 89 Date of Last Disbursement 04/29/92 Memo Item: The final disbursement figures for the Credit and the amount of credit cancellation are given by the Bank's Loan Department in SDRs. However, the historical disbursement figures available from the Bank's MIS are in US dollars. According to the Loan Department, the Bank has disbursed SDR 5.1 million and has canceled SDR 1.9 million. When converted to US dollars at the current exchange rate of 1.38 SDR/US dollar, total amount disbursed would amount to USS 7.0 million and the total amount canceled would amount to USS 2.6 million. The final disbursement figure converted to US dollars is higher than the historical amounta in Table 3 because of historical fluctuations between the SDR and the US dollar. Source: Loan Department Data. BURTAB3.PCR 0501191  - 20 - BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) Table 4: PROJECT IMPLEMENTATION Indicators Appraisal Estimate a/ Actual Completion of Prefeasability Study September 1985 September 1986 Preparation of Promotional Brochure September 1985 June 1987 Invitation of offers from Mining Companies August 1985 February 1988 Conclusion of Agreement with Mining Company Not Specified September 1989 Completion of Phase II (Feasibility) June 1988 late 1994 i/ Approximate dates Source: Bank Supervision Report of 2/15/90 and PCR estimation.  - 21 - BURKINA FASO PERKOA MINING EXPLORATION AND TECBNCAL ASSISTANCE PROJECT (Credit 1482-BUR) Table 5: PROJECT COSTS AND FINANCING A. Proiect Costs (USS'000) Appraisal Estimate Revised Estimate Estimated Actual f/ Foreign Foreign Foreign Item Local Exchan2e Total Local Exchan2e Total Local Exchanze Total Drilline and Minin2 Works a. Equipment b/ 0 805 805 0 2,970 2,970 0 2,197 2,197 b. Supplies and Materials 145 565 710 145 1,606 1,751 94 934 1,026 c. Laboratory and Mining Works a 190 2.030 2.Q22 0 0 0 0 0 0 Subtotal 335 3.400 3.735 145 4 576 4.721 94 3.131 3 225 Services a. Local Personnel c/ 400 - 400 400 0 400 329 0 329 b. Exploration Consultant d/ 435 2.200 2.635 435 3.915 4.350 0 3 254 3.254 Subtotal 835 2Q 3.035 835 3.915 4.750 329 3 254 3.583 Reimbursement of PPF 108 108 '107 107 Total Base Cost 1,170 5,600 6,770 0 0 0 0 0 0 Contingencies el 270 1,160 1,430 - - - - - TOTAL COST 1.440 6.760 800 980 8.599 94579 423 6.492 6.915 B. Proiect Financinz (USS'000) Orizinal Plan Revised Plan A;tual Plan Local Foreign Local Foreign Local Foreign Financier Costs Costs Total Costs Costs Total Costs Costs Total IDA 900 6,500 7,400 60 8,599 8,659 60 6,492 6,552 Government 540 260 800 920 - 920 363 - 363 TOTAL 1.440 6.760 8.200 980 8.599 9.579 423 6.492 6.915 a! MotUy allocated to miniiJ worib h babt USS 240,00 allocated to Ut laboratory. -s aqwi. ofic qstda,-., i Tctu/l farspv. Iased m atiaun a,ppIed by d_ le tOfcr. y lochsles, tht ecpv It.. st.WaIl ad'oy a-es be g.a dv c/ Corsit. of pu d,ical Id pcke orck nowd in t Pcdenl's Rapt. fl BRed ac,dit dislbuieemu of Apti] 30, 1992 aW a report fIr BUSMIGEB of Febeuy 1992. MEMO rfrFMS I. Tha ,cviacd prc~act emncet. based then allocatioc if ft Bank Crdit calcilatod in 19 March 1991 w. oweaed to US$ dollan ftmm SDRa at USSI.3SDIDR, tlt fat pcmvllag at tl Utin. As a eati, Ut I.d pocrct costs a hilbne Lbtn Ut orIgk p,ojed coau, whicb baed ct a a mtS of USS .06SDR. 2. Tba actol oou der,d Ifo mcdit d . data of It Bank onvrted from SDRs at thc rea of USSI.3U/SDR (May 1992). Ta Icbml local ocsts d calcula at t acac bntc of (FAF) 275.561USS (Feb. 1992). Sowoc: Lcan l,DapstoaW data, BUMIGEB upvt ed proje staff Leat tee.  - 22 - BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) Table 6: PROJECT RESULTS A. DIRECT BENEFITS Indicator 1: Provision of technical, economic, and legal tools for attracting private investors in zinc mining as well as establishing an ongoing capability for evaluation work by BUMIGEB. Appraisal Estimate: Completion of pre-feasibility study on the Perkoa deposit, preparation of a promotional brochure, invitation of offers from mining companies and preparation of a model legal mining agreement along with a draft contract. Estimate at Project Closing: Same as appraisal estimate. Indicator 2: Eventual development of the Perkoa deposit, expansion of zinc concentrate exports, expanded mining development and increased mining sector employment. Appraisal Estimate: Conclusion of a development agreement with a mining company. Eventual gross zinc export earnings of about US$ 50 million annually. Estimate at Project Completion: Conclusion of a mining agreement. Feasibility work not yet completed so there is no updated estimate of anticipated mining sector earnings or employment creation. B. ECONOMIC IMPACT Calculation of an economic rate of return not applicable to this project. C. FINANCIAL IMPACT Calculation of a financial rate of return not applicable to this project. D. STUDIES 1. Prefeasibility Study (Phase I) Purpose: To determine the technical and economic viability of developing the Perkoa zinc sulphide deposit through sample ore testing, review of manpower training and infrastructure needs and identification of potential users of Perkoa production. Status: Completed and revised by the joint-venture partner. Impact: Conclusion of an agreement with an international mining company for the development of the Perkoa deposit.  - 23 - 2. Feasibility Study (Phase II) Purpose: To provide detailed information for establishing mining operations. Status: Not completed within the framework of the project. The expected completion time is late 1994. Impact: Cannot be determined at this time. 3. Establishment of an Ore Treatment Facility Purpose: Investigate the technical and economic viability of establishing an ore treatment facility in northeast Burkina. Status: Completed. Impact: See Part 1, para. 6.10. 4. Market Study Purpose: Determine the feasibility of commercializing the Perkoa deposit. Status: Completed. Impact: See Part 1, para. 6.8 5. Environmental Study Purpose: Assess the potential environmental impact of proposed mining activities at Perkoa. Status: Completed. Impact: See Part 1, para. 6.9 Source: Central Project files, consultant studies and project staff comments.  - 24 - BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) Table 7: STATUS OF PRINCIPAL LEGAL COVENANTS A. Credit Agreement Section 3.01: Borrower commitment to cause BUVOGMI (later known as BUMIGEB) to perform obligations under the Project Agreement and make the proceeds of the Credit available to BUMIGEB as a grant. Status: In compliance. B. Project Agreement Section 2.03 (a): Agreed actions concerning the employment of consultants. Status: In compliance. Section 2.03 (a) (i): Agreed actions concerning exploration consultants. Status: In compliance. Section 2.03 (a) (ii): Agreed actions concerning employment of a mineral economist. Status: In compliance. Section 2.03 (a) (iii): Employment of a legal consultant by February 28, 1985. Status: Delayed Compliance. Section 2.03 (b): Preparation of terms of reference for the legal consultant by October 31, 1984. Status: In compliance. Section 2.05 (a): Submission of prefeasibility report to IDA two months after its completion. Status: In compliance. Section 2.05 (b): Preparation of an action plan for Part C of the project (mining works) three months after IDA's comments on the prefeasibility study. Status: Delayed compliance. Action Plan completed in September 1989 due to delays in the search for a foreign partner. Section 2.05 (c) (i): Preparation of a promotion strategy by June 30, 1986. Status: In compliance. Promotion strategy implemented during 1987-88 and foreign investor identified.  - 25 - Section 2.05 (c) (ii): Solicitation of proposals from at least three companies promptly after IDA'a approval of promotion strategy. Status: In compliance. Proposals solicited from five companies in February 1988. Section 2.05 (c) (iii): Submission of investment proposal to IDA shortly after of receipt of proposal. Status: In compliance. No written proposal submitted but agreement reached over a series of meetings of which IDA was kept informed. Section 2.05 (c) (iv): Commencement of follow-up actions on the proposal shortly after its receipt. Status: In compliance. IDA's input was provided and taken into account. Section 2.06: Consultation with IDA during the feasibility stage of the project. Status: Not applicable. IDA did will not participate in the feasibility stage. Section 2.07 (a): Submission of model agreements and draft contractors to IDA two months after completion. Status: In compliance. Documents completed June 15, 1987 and submitted to IDA shortly thereafter. Secvon 2.07 (b): Completion of prefeasibility study and model agreements and establishment of satisfactory terms before entering into an investment agreement. Status: In compliance. Section 3.05: Establishment and maintenance of a mineral dressing unit. Status: Partial compliance. Basic laboratory equipment procured for analysis of ore characteristics. The rest of the equipment was canceled. Section 4.02 (a) and (Ni: Yearly audit of BUMIGEB accounts by independent auditors acceptable to IDA and submission of the audit to IDA within six months after the end of the year. Status: Delayed compliance. Audit reports prepared by Government auditors but submitted to IDA with delay. The only audit report on file is for 1990. Section 4.02 (c) and (d): Annual audit of the project's Special Account by independent auditors and submission of the audit report to IDA within six months after the end of the year. Status: Delayed compliance. Audit report prepared by Government auditors but submitted with delay. The only audit report on rile is for 1990. Source: Credit and Project Agreements, supervision repors and Bank Staff cormnents.  - 26 - BURKINA FASO PERKOA MINING EXPLORATION AND TECHNICAL ASSISTANCE PROJECT (Credit 1482-BUR) Table 8: USE OF BANK RESOURCES (FY84-FY92) (in Staff Weeks) Planned Revised Plan Actual Through Appraisal NS NS 26.5 Negotiations NS NS 3.8 Supervision NS NS 73.9 a/ NS: Information not specified in available Bank MIS data. Planned and revised plan data available for supervision activities in FY91 only. In FY91, planned supervision resources were 7.5 staffweeks, with 9.0 staffsweeks in the revised plan and 9.7 actual staffweeks. a/ The actual figure for supervision is an estimate which includes 12.0 staffweeks for FY92 of which 5.0 staffweeks are estimated for the preparation of the PCR. B. Major Project Mission Stage of Month/ Number Days Specializations Performance Types of Proiect Cycle Year of Persons in Field Represented Status Problems Identification 10/82 2 7 NS NA NA Preparation 04/83 _1 NS NS NS NA NA Appraisal 05/83 2 10 ME,FA NA NA Post Appraisal 07/83 1 4 FA NA NA Supervision 1 05/85 1 7 ME b/ 1 NA Supervision 2 04/10/86 2 6 ME,EC NS NS Supervision 3 06/87 2 6 EC,L 2 1 Supervision 4 01/88 1 7 MF b/ NS NS Supervision 5 08/89 c/ NS NS NS NS NS Supervision 6 01/90 1 7 FA 2 P,S,M _/ Prepared by a consultancy firm under a Project Preparation Facility (PPF) b/ Consultants cI Referenced in the Form 590 for 01/90 but there is no Form 590 or other description on this supervision in the files. Specialization Codes: EC = Economist; FA = Financial Analyst. L= Lawyer; ME = Mining Engineer. Performance Codes: 1 = Problems free or Minor problems; 2 = Moderate problems; 3 = Major problems. Problem Codes: F = Financial, G = Government Legislation; I = Infrastructure; Other Codes: NA = Not applicable; NS = Not specified. Source: Central Project Files and Bank Staff files.  - 27 - A17ACHMENT I Page 1 of 4 COMMENTS ON PART I 1. Introduction Overall, the World Bank's Report on the Perkoa Project provides an accurate account of the various stages of implementation, the results achieved and the lessons learned. The World Bank's view of the objectives is correct, but it should be pointed out that they were ambitious and not very clearly defined in the Credit Agreement. For example, Part C of Agreement 1482-BUR provided for the construction of a ramp for access to the deposit and preparation of a feasibility study for the development of the deposit. It was not possible to fulfill these objectives. Similarly, some of the objectives identified in Part B were not achieved, i.e.: (a) The mineral-dressing unit was not completed. (b) The mining legislation and the tax legislation applicable to mining operations were not revised. (c) The Borrower's Investment Code was not revised. On the other hand, the model agreement and draft contract were prepared, and were used in the negotiations between Government and the external partner. 2. Experience Gained There was no clear grasp of the scheduling of Phase 1 of the project and the transition to Phase 2, and this led to a series of applications from the Borrower to the Bank (with four successive extensions of the Credit up to December 1991). We agree with the World Bank that the success of such a program depends on the establishment of a team having exclusive responsibility for monitoring project execution and promoting its results. Such a team must be financially autonomous (i.e. its cost must be included among the project allocations). 3. Substantive Benefits from the Credit Agreement As the World Bank's Report emphasizes, the project helped bring about a definite transfer of technology, but we also agree that the various parties involved should prepare a complementary assistance program, in order to ensure that such technology is better utilized. The purpose of the program would be to establish a geological database for Burkina (including maps), leading to the preparation of a promotional brochure and the provision of institutional assistance for BUMIGEB. These measures would help promote the mining sector at international level, by the following means:  - 28 - ATTACHMENT I Page 2 of 4 (a) organization of seminars at national level; (b) participation in other regional and international seminars; (c) participation in conferences and meetings organized to promote the mining sector. Originally Burkina's mining projects were mainly Government-financed, but the problems that have arisen in such projects will make it necessary for some of the cost of their partial or total privatization to be borne by donors. 4. Conclusions and Lessons Learned Viewed as Burkina's first mining project to be financed by the World Bank, the operation was a success because it enabled BUMIGEB to identify a mining partner with which to form first a joint venture and then a company for continuing the development and operation of the Perkoa zinc deposit. Even though the amount allocated was small, the project was a success, because of the flexibility the partners were willing to adopt (i.e. in providing financing from the Credit itself for a Directorate General to take special responsibility for promoting the project, with assistance on technical issues and mining-related legislation). However, attention must be given in future to related issues such as infrastructure for providing access to such areas, particularly in the case of a landlocked country like Burkina Faso. COMMENTS ON PART III It is difficult to confirm or analyze by component the figures to be incorporated into Part III, because of the wide range of currencies used by the Bank. However, the date of the final disbursement was December 11, 1991, without prejudice to the final settlement of Application for Withdrawal No. 48, submitted on behalf of Duncan Allen and Mitchell and totaling US$25,057.40, of which US$7,982.95 has been paid. The balance as of that date was US$17,074.45. Aggregating all Applications, including the entire amount of No. 48, brings the total as of end-1991 to US$6,167,680.78, a performance rate of 83 percent. Additional US$0.4 million were spent on final payments for sector studies and legal technical assistance. As regards the Government's contribution, the costs of works at the Perkoa site are as follows:  - 29 - ATTACHMENT I Page 3 of 4 A. PRELIMINARY PHASE OF PERKOA PROJECT: BUMIGEB WORKS (in CFAF) 1. Geophysical (1983) 11 IP (Induced Polarization) 2,540 points 17,145,000 12 Magnotometry 4,426 points 7,966,800 13 EM (Slingram) 1,520 points 4,104,000 14 SP (Spontaneous Polarization) 980 points 3,096,800 15 Fold analyses [?I 2,608,200 Subtotal for A. l. 34.920.800 2. Topo2raphy (1983) 21 Embanked: 0.8 km2 at 1:1,000 2,160,000 22 Profile: 15 km 1,275,000 Subtotal for A.2. 3,435.000 3. Laboratory Work (1983) 3.1 Preparation (soil + cores) 1,415,075 3.2 Ore content assays 2,611,792 3.3 Sampling 7,681,392 Subtotal for A.3. 11.708.259 4. Mining Drilline (1983) 4.1 Cores 2,370 ml 102,250,000 4.2 Power auger 4,091 ml 118,500,000 4.3 Trenching cuts 218 m3 1,635,000 Subtotal for A.4. 222.385,000 5. Geologv (1983) 5.1 Engineer 5,491,990 5.2 Higher-level technician 3,313,530 5.3 Logistics 5,107,100 Subtotal for A.5. 13.912.620 TOTAL: 1-5 286.361.679 6. Mana2ement 10% (of total for 1-5) 28,636,168 7. Joint UNDP/Burkina Faso Financing 7.1 Management and shared costs 7.2 Geochemistry/geology 7.3 Drilling 7.4 Laboratory Subtotal for A.7. 501.426.387  - 30 - ATTACHMENT I Page 4 of 4 B. EXPLORATION PHASE 1. Personnel (October 1985 to December 1988) 1.1 SuPervisory staff: I project director, 13 months 10,647,993 2 engineers, 59.4 months 32,951,115 2 engineers and similar categories, 45.93 months 25,581,596 1 engineer and similar, 9 months 3,598,344 1 supervisor, 20.33 months 6,830,287 1 supervisor, 9 months 3,190,023 Subtotal for 1.1: 82,800,258 1.2 Line staff: 3 skilled workers, 11 months 1,769,482 3 skilled workers, 27 months 4,777,596 2 skilled workers, 8 months 1,286,896 Subtotal for 1.2: 7,833,974 Total for B.1. 90.634.232 2. Loeistics 2.1 3 Isuzu trucks, 14 months 3,850,000 2.2 1 compressor, 12 months 1,680,000 2.1 Small items of equipment 252,000 Subtotal for B.2. 5.782.000 3. Consumables 3.1 Fuel 3.2 Lubricants 260,000 Subtotal for B.3. 20.260.000 (sic) GRAND TOTAL = TOTAL A + TOTAL B 915.100.466 DIRECTORATE GENERAL OF THE PERKOA PROJECT, FEBRUARY 1992