Guinea - Boke Infrastructure Project

R ESTRI CTED ,. 5 U nK Report No. TO-506c TO BE RET URNED TO REPORTS DESK, This report was prepared for use within the Bank and its affiliathd organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION ENGINEERING LOAN FOR BOKE INFRASTRUCTURE PROJECT REPUBLIC OF GUINEA March 14, 1966 Projects Department  CTURRENCY EQUIVALENTS US $1 = GFs 247 GFs 1 - US $0. 004 GFs 1 million = US $4, 049  ENGINEERING LOAN FOR BOKE INFRASTRUCTURE PROJEC.2 REPUBLIC OF GUINEA TABLE OF CONTENTS Page I. BACKGROUND 1 The Boke Mining Project 1 Proposed Production of Bauxite 2 Proposed Transportation Infrastructure 3 Engineering Considerations 4 Economic and Financial 4 'Considerations II. THE NEED FOR AN ENGINEERING LOAN 5 III. THE ENGINEERING PROJECT 6 Services to be Provided by TRACTIONEL 7 Services to be Provided by the Engineering Advisors to the Office 8 IV. RECOMMENDATIONS 8 TABLE 1: Estimates of Engineering Cost Map: Guinea  ENGINEERINTG LOAN FOR BOKE INFRASTRUCTURE PROJECT REPUBLIC OF GUINEA I. BACKGROUND 1. The Government of the Republic of Guinea has requested Bank financial assistance for a project in the Boke region, involving the con- struction of a new railroad, a port, and a townsite, which together constitute the transportation infrastructure for a proposed bauxite mining operation. A Bank mission composed of Messrs. Brechot and Engelmarn visited Guinea in April, 1965. It is proposed at this stage to help finance field surveys and detailed engineering for the infrastructure project through an engineering loan. The Bok MnnPrjc 2. The bauxite deposits in the Boke region of Guinea are known to be among the most abundant reserves of high grade bauxite in the world. The concession held by the Campagnie des Bauxites de Guinee (hereinafter called CBG) consists of 114 specific permits, each covering an area of 5 square kilometers. Available data on the deposits were reviewed on behalf of the Bank by a mining geologist, who concluded that the first permit area to be exploited, at Sangaredi, covers "at least a quarter of a billion natural metric tons of bauxite with a dry available alumina content of more than 57%." The geologist concluded that the bauxite meets U.S. Government's specifi- cations for stockpile metallurgical bauxite and that a considerable amount of the ore is of a grade suitable as raw material for premium calcine. The deposits at Sangaredi are located approximately 130 kilometers east of the coastal village of Dougoufissa, where transshipment of the ore from rail to ocean carrier is contemplated. 3. Between 1957 and 1961 a previous concessionaire, Compagnie des Bauxites du Midi, a French company wholly owned by Aluminium Limited (Alcan) undertook a project for large scale mining of bauxite and the production of alumina. By 1961, it had constructed a small pier at Dougoufissa and com- pleted 55 km. of railroad bed and structures. In connection with thiL pro- ject, Alcan set up a consortium with other aluminum companies. In 1961, the Government of Guinea terminated Compagnie des Bauxites du Midi's con- cession alleging failure by that Company to meet its obligations under the concession and took over its assets in Guinea. No construction work has been done since 1961. In spring 1965, Bauxite du Midi filed a claim for compensation but the Bank has been informed that further action on the claim has been suspended in view of negotiations between Alcan and Harvey Al7uminum Incorporated (hereafter called Harvey) on purchase of bauxite from Boke and settlement of claims arising from termination of the concession. 4. In 1963, the Government of Guinea entered into a long-term convention with Halco (Mining) Inc. (hereinafter called HALCO), a sub- sidiary of Harvey, with respect to the exploitation of the Boke deposits. Under the agreement, the parties undertook to create a mixed corporation, CBG, in which the Government owns 49% of the shares and HiALCO 51%; on the board of directors of the corporation, each party is represented by five  -2- directors, the Government designating one of its directors as chairman. The president and chief executive officer of CBG is designated by HALCO: he is not a member of the board, but may attend meetings and cast the deciding vote in case of a tie. Under the agreement, HALCO is entitled to dividends while the Government of Guinea will receive tax payments of 65% on the profits of CBG, but in view of the composition of the board, decisions bearing upon the availability of profits and distribution of dividends will to a large extent be controlled by HALCO. A particular feature of the agreement is that CBG will construct the mining facilities whereas the Government of Guinea will provide the infrastructure consisting of a railroad between Dougoufissa and the mine, a townsite at Dougoufisoa, and port facilities for ocean carriers. 5. Harvev is one of six producers of primary aluminum in the United States. It accounts for 3 to 4 percent of the J.S. aluminum market and operates a reduction plant (85,000 tons per year) and two extrusion and forging plants (75,000 tons per year). An alumina plant on the island of St. Croix, W.I. (500,000 tons per year) and a rolling mill (60,000 tons per year) are under construction and the company's investment program includes a second reduction plant (100,000 tons per year) and participa- tions in joint ventures in Norway for aluminum production and in Guinea for bauxite mining. 6. Harvey's total capitalization on September 30, 1964 was $145 million and its equity $84 million. HALCO's investment in CBG's shares in an amount of $1,020,000 and additional contributions up to $1,480,000 have been guaranteed against certain risks (including incorvertibility, expropriation and war) by U.S. A.I.D. which has also agreed to guarantee further investments by HALCO in CBG to finance the construction of the mining facilities, subject to the fulfillment of certain conditions regarding t-he terms and conditions of the financing of both the mining facilities and the infrastructure, adequato volume of sales and price of bauxite, and adequate profitability for Guinea. Proposed Production of Bauxite 7. The total volume of bauxite to be produced by CBG during the initial years of operation has not yet been determined. Harvey proposes to buy one million tons of bauxite per year for its own use. Negotiations are in progress with other North American and European companies for the purpose of selling additional quantities of bauxite, but no firm commit- ments for such sales have as yet been obtained. 8. It is proposed to ship most of the mined bauxite in its natural state, but up to 11% of the ore will be calcined at the storage facilities proposed to be constructed by CBG, near the terminal at Dougoufissa. The bauxite in the natural state and the calcined bauxite would be handled at the same port loading facilities. Local production of alumina and  I- 3.- refining facilities for production of inetallic aluminum are not contem- plated in connection with the present Boke mining project, but the possibility of such developments may be explored in the future. Pr-posed Transportation Infrastructure 9. The facilities to be provided by the Government of Guinea under the present concession agreement with CBG will comprise the following: (a) a single track, standard gauge railroad line, approximately 137 km. long, from the proposed bauxite mine at Sangaredi to a port to at Dougoufisoa; (b) a port at Dougoufissa consisting of an ore pier with ship- loading equipment having a capacity of 2 000 tols of bauxite per hour, and ancillary port facilities; (c) an access channel, approximately 18 km. long, to be dredged in the Rio Nunez, and a turning basin at the site of the ore pier; and (d) a townsite with housing,roadways and ancillary facilities for an estimated population of approximately 1,600 persons, and with comnunity facilities and connecting services (water, power and sewerage) designed for a total population of approximately 4,000 persons. 10. The capacity of the proposed infrastructure will be five million tons of bauxite per year, with provisions for future expansion if greater volumes are produced by the mining operation, It is contemplated that the ore trains would be operated by CBG, who unuld supply, own, and maintain all rolling stock and locomotives for the bauxite movement; the Government of Guinea would make the infrastructure available to CBG and would be compensated for the cost of construction by revellues from CBG. 11. In addition to the benefits to be derived from the mining operations, the Government of Guinea also attaches great importance to the potential developmental effect of the railroad on the Boke region. * T'Thile the prospective volume of agricultural products and passengers to be carried on the railroad is not yet known, such traffic would be moved with rolling stock and locomotives used for construction and some additional coaches which are proposed to be provided as a part of the infrastructure project. 12. The construction cost of the railroad, port, and townsite is at present estimated at about US$50 million, including contingencies of 15% and allowances for price escalation and interest during construction. Of this total, approximately US$40 million would be in foreign exchange and approximately US$10 million equivalent in local currency. As indicated below, however, this cost estimate is still very rough, and one of the main  -4- purposes of the Engineering Loan is to remove some of the existing un- certainties and tiaereby arrive at more reliable estimates. 13. Administrative arrangements for construction, maintenance, and operation of the proposed railroad, port and townsite are still being worked out. In preliminary discussions with the Government of Guinea and HALCO, the Bank has suggested consideration of an arrangement whereby CEG would con- struct and maintain the transportation infrastructure for and on behalf of the Government of Guinea, but the Government has expressed its interest in exploring alternative arrangements for construction, before final decisions are reached on administration. Engineering Considerations 14. Preliminary engineering studies for the infrastructure project have been made in 1964 and 1965 for CBG by the consulting firm Societe de Traction et d'Electricite (TRACTIONEL) of Brussels, Belgium. Except for visual inspection of the site and review of available engineering data, no field surveys have been made by TRACTIOTEL. The preliminiary engineering studies completed by TRACTIONEL to date are considered inadequate to serve as a basis for estimating construction cost. Additional data are required on the following: (a) topography of terrain and foundation conditions for the 82 kilometers of railroad route on which construction has not yet started; (b) hydraulic and sub-surface conditions in the estuary of the Rio Nunez, where an 18-kilometer access channel is to be dredged; and (c) foundation conditions at the site of the proposed baux- ite loading docks and at the townsite. 15. The uncertainties resulting from inadequate field information on the above items are of such a nature that it would not be possible to cover them by a reasonable percentage of contingencies on preliminary estimates of construction cost; for instance, frcm available data it is impossible to determine the type of material to be dredged in the access channel, the quantities of earthwork to be moved for the railroad, or the foundation conditions at the railroad bridges, the ore pier, and the townsite. Sconomiio and Financial Considerations 16. A preliminary analysis of the future mining and infrastructure project, involving an investment of about $83-million for the bauxite mining facilities and the infrastructure combined (including the invest- ment previously made in the existing 55 km. of railroad), indicates that the operation would yield an economic return in the order of 13% at a level of production of 2.5 to 3.0 million tons of bauxite per year.  17. Other potential benefits from the project as a whole to the Republic of Guinea cannot be quantified at this time; they include the possible development of agriculture in the Boke region and any build-up of general commerce and of service industries that might be induced by the mining project. 18. Funds for uhe local currency component of the infrastructure construction cost are expected to be supplied to the Government of Guinea by U.S. A.I.D. and would be relent by the Government to the proposed Government Authority for the project on terms identical to Bank loan terms for the foreign currency component. II. THE NEED FOR AN ENGINEERING LOAN 19. The information presently available to the Bank on the Boke mining operation indicates the probability of a project suitable for Bank financing, consisting of the construction of the proposed railroad, port and townsite. However, before a loan to finance the construction of this project can actually be made, numerous agreements will have to be concluded among various parties, as was the case in other loans made by the Bank involving large mining or industrial complexes, to give adequate assurances on financial and administrative matters such as the construction and operation of the mining facilities and the infrastructure, volume of sale and price of bauxite, reasonable return on the investment, profitability for Guinea, arrangements to secure the Bank loan, and other related matters. 20. Before the Bank is in a position to make a final study of the construction project and before negotiations for a construction loan may be started, it will be necessary to have: (a) firm estimates of coristruction costs; and (b) additional information on the sources of financing of the mining project and the probable volume of bauxite sales. 21. It is estimated that field surveys necessary to provide accep- table estimates of construction cost would require eight to nine months (but wave and current observations would be continued, to obtain complete records for at least one year). Detailed engineering work on final designs and contract documents for construction could be completed within the same eight to nine months' period. 22. Harvey is holding extensive discussions with other aluminum producers in the United States, Canada and Europe, to obtain firm con- tracts for additional sales of bauxite. In view of the attractiveness of the Guinea deposits, there is a likelihood that additional sales ranging in total amount up to l,500,000 or 2,000,000 tons could be negotiated.  -6- However, these negotiations are proceeding slowly, since they also con- cern (a) possible participation by various firms in the Boke operation. (b) claims relating to the previous concession, and (c) uncertainties about the time when the project will. go forward, as governed by inter- national financing of the transportation infrastructure. In this sit- uation, the Bankts willingness to finance the detailed engineering, which would set the stage for carrying out the transportation investment and clarify the matter ot transportation costs, could act as a catalyst in obtaining satisfactory arrangements for the exploitation of the bauxite deposits. It is recognized that to grant an engineering loan in the absence of firm commitments entails a certain amount of risk, but in view of the importance of the project, it is recommended that the Bank accept this calculated risk. 23. It would be difficult for the Government of Guinea to obtain funds for financing the foreign exchange cost of the field surveys and final engineering from its own resources at this time. 24. In summary, the Engineering Loan would enable the Government of Guinea to proceed with the project in the most expeditious manner and would permit advancement of the project to a point where appraisal of a loan for construction of the infrastructure can be made on a sound basis. III. THE ENGINEERING PROJECT 25. The engineering project for the railroad, port and townsite will cover all work required prior to the issuance of tender documents for the construction work, including field surveys, final engineering design, preparation of contract documents and prequalification of contractors. 26. The Government of Guinea has established a new agency, the Office d'Amenagement de Boke (hereinafter called the Office) to carry out the engineering project on behalf of the Government. The Office, which is attached to the Ministry of Economic Development, will be responsible for general administration of the project and will retain the services of consulting firms, as indicated in paragraph 27, to do the engineering work under contracts acceptable to the Bank. 27. In view of the work done by TRACTIONEL in preliminary studies V for this project, it has been agreed that this firm will continue with the field surveys and detailed engineering required to complete the pro- ject design. To assist the Office in administering the technical aspects of the project, and in reviewi.ng the work done by TRACTIONEL, it has been agreed that another consulting firm will be retained as engineering advisors to the Office. Selection of this firm has not yet been made, but will be on a basis acceptable to the Bank.  -7- 28. Arrangements have been made with the Government of Guinea to ensure that (a) the Office will be adeauately organized and staffed to fulfill its functions efficiently, (b) the retention of the engineering advisors to the Office will coincide with the start of the main field work by TRACTIONEL, (c) the Office and CBG will cooperate to ensure that the work done by TRACTIONEL satisfies the requirements of the mining operation, and (d) the Government will make available to the Office all funds required by it to carry out the project, and for this purpose will transfer to it the proceeds of the Engineering Loan. The foreign ex- change costs of the consulting services for the project would be met by the Engineering Loan and the local currency cost by the Government, which is negotiating a loan with U.S.A.I.D. for this purpose. 29. The estimated costs of the engineering work for this project are $1.92 million, of which $1.70 million would be in foreign exchange. These estimates are based on preliminary quotations by TRACTIONEL, which appear reasonable. A detailed breakdown is given in Table 1. Services to be Provided by TRACTIONEL 3Q. The engineering services to be performed by TRACTIONEL would include the following: (1) Field surveys for the railroad, port, and townsite, comprising - (a) detailed inspection of all existing construction; (b) topographic surveys and test borings at bridge locations for approximately 82 kilometers of rail- road line from Km. 55 to the proposed mine at Sangaredi; (c) soundings and measurement of currents and wave action in the river estuary; (d) observation of tidal variations; (e) studies of siltation and of littoral drift; and (f) sub-surface investigations in the areas of the proposed access channel, ore loading pier and town- site. (2) Final engineering design for the tctal project and prepara- tion of contract documents, specifications, and construction drawings for -the railroad, port and townsite. (3) Preparation of a final engineer's estimate of construction costs and of a detailed time schedule for the construction. (4) Prequalification of contractors.  -8- 31. Under the proposed contract for the above services, TRACTIONEI would also provide equipment Tequired by its own staff and by the eng- irieering advisors to the Office during the field surveys in the Boke region. This equipment would include vehicles, trailers for residential purposes, office trailers, and teclmical instruments. It has been agreed that the Office will safeguard and maintain this equipment after comple- tion of the engineering project and keep it available for possible future use by the consultants to be engaged to supervise the construction of the infrastructure, Services to be Provided by the jn eering Advisors to the Office 32. The services to be provided by the engineering advisors to the Office would consist of inspection and review of the work by TRACTIONEL outlined in paragraph 31 above and assistance to the Office in the technical administration of the project. IV. RECOMMENDATIONS 33. It is recommended that the Bank make an Engineering Loan of $1.70 million to the Republic of Guiinea, to finance the foreign exchange cost of the field surveys and detailed engineering for the transportation infrastructure of the Boke project. Suggested terms for repayment are ten years, including a three year per&'od of giace. 34. Assurances have been obtained from the Government of Guinea that it will: (1) enter into an agreement with the Office satisfactory to the Bank,, setting forth the terms and conditions under which the Office will carry o-t the project and providing for the transfer of the proceeds of the Loan to the Office (para. 28); and (2) engage the services of two consulting Lirms, through the Office, under conditions acceptable to the Bank (paras. 26, 27 & 28); and (3) provide the local currency for the engineering project as and when required (para. 29). March 14, 1966  TABLE I ESTIMATES OF ENGINEERING COST US Dol,lars (Thousands) Foreign Local Total Exchange Currencp 1. Cost of Engineering Services by TRACTIONEL: (a) Field Survey and Investigations .... 1,000 180 1,180 (b) Final Design, Preparation of Contract Documents and Prequali- fication of Contractors .40* hlO - 410 Subtotal: 1,41 180 1,590 2. Cost of Engineering Services by Eng- ineering Advisors to the Office: (a) Supervision of Fieldwork (20 man-months) .................... 100 20 120 (b) Review of Final Design and Contract Documents (4 man-months) 15 - 15 (c) Review of Engineer's Estimate and Prequalification Process ......... 15 - 15 Subtotal: 130 20 150 Contingencies: 160 20 180 Total: 1,700 220 1,920  S E N E G A L *Younkounkouno.) PORTUGUESE U E S E ? -- G U I N E A -Moi, ,',r .I Q o~GAOUAL- T'u SIGUIRI 0 . O ODinguiroye .5 Songaredi LABE PITA, <~ BOKE elimele