Announcement of Seventy Million Loan for the Las Truchas Steel Project in Mexico on September 6, 1973

1 • 1818 H STREET, N.W., WASHINGTON (\ D. C. 20433 Subject: TELEPHONE: EXECUTIVE 3-6360 $70 million loan for the Las Bank Press Release No~ 73/64 · September 6, 1973 Truchas steel project in Mexico The World Bank announced today a loan of $70 million to help finance a new steel plant at Lazaro Cardenas, on the Pacific Coast of Mexico. The new plant will have an annual production capacity of 1.1 million tons of crude steel equalling one million tons of light non-flat finished steel p·roducts. The project is the first in the Mexican steel industry to be supported by the Bank. The International Finance Corporation, a Bank affiliate, has previously extended assistance to a private Mexican steel company. The steel industry is one of the most dynamic in Mexico's economy. Con- sumption of steel products has increased at an annual average rate of 8.3% over the last 10 ye.ars, reaching some 3.1 million tons in 1972. Consumption is expected to increase at a rate of 10.4% annually up to 1980, leading to an • estimated total steel product demand of about 6. 7 million tons. The steel plant being assisted by the Bank will be operated by Siderurgica Lazaro cardenas - Las Truchas, S.A. (SICARTSA), a Mexican public sector enter- prise established in 1969. Located at the south of the River .Balsas on the border of the States of Guerrero and Michoacan, about 465 miles from Mexico City, the project will make use of local iron ore resources and will support the Government's efforts to direct public investment towards less developed areas of Mexico •. The area depends mainly on agriculture and is among the poorer and less developed in the country. The plant will be near the new port town of Lazaro Cardenas .,_d the Las Truchas iron ore deposits. Other raw materials such as limestone, manganese ore and bentonite needed by the plant will be obtained fran Mexican sources. Electric power will be provided by the nearby La Vill.ita hydro- " electric station built with Bank financial assistance under previous loans to the pOW'er sector in Mexico. Water, \will come from the River Balsas. • Note: Money figures are expressed in US dollar equivalents • /more Bank P.R. No. 73/64 -- Mexico -- steel - 2 - Steps are being taken by SICARTSA and the Govel'Dment to avoid or minimize adverse environmental effects of the mine and steel works on 'the • area. The project is designed to help aeet projected steel demand after 1976. SICARTSA's output will be mainly for the domestic market. At the beginning, the plant's production wiil be shipped by road and sea- to all parts of Mexico, and later by rail. By 1978, a new railway link will connect Lazaro Cardenas with the national railway network. Construction of the steel works is under way and the new plant is expected to start operations by mid-1976. The present 1,200-man labor force will increase to about 7,000 by the end of 1974, and will reach 9,300 in 1975~ The operational labor force of the steel works at completion is estimated at about 4,000. The project is estimated to require total financing of $678.5 million, • slightly more than half of which will be provided locally. The World Bank loan of $70 million will cover part of t·he foreign exchange requirements estimated at $310.0 million. The balance will be provided by other long-term loans, including a forthcoming $54 million loan from th,:! Inter-American Development Bank, and by foreign bilateral credits for which agreements have been completed or are under negotiation with Austria, Belgium, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. ThEi Mexican Government will provide financing to complete projected financing requirements in 1976 and 1977. Local cost~:. will be covered mainly by SICARTSA's equity. The loan is being made to Siderurgica Lazaro Cardenas - Las Truchas, S.A. and to Nacional Financiera, S.A., for a term of 15 years, including five years of grace, ,at 73a interest per annum. It will be guaranteed by United Mexican States. Union Bank of Switzerland, Zurich, is participating in the Bank loan. • - 0 - • • TECHNICAL DATA September 6, 1973 PROJECl: Las Truchas Steel COUNTRY: United Mexican States TOTAL COST: Estimated at $678.S million.· • BANK FINANCING: $70 million, 15 years, including S years of'grace, 7'a per annum. In addition, there is a 13/S% per ann\llll gua;antee fee payable to the Government. <ml!R FINANCING: Inter-American De-vel.op•nt Bank (IDB); export credit• from Austria, Belgium, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States; Mexican Govemaent. IMPLEMENTING ORGANIZATION: Siderurgica Lazaro Cardenas - Laa Truchas, S.A. (SICARTSA) will be responsible for the execution of the project. Addre~s: SICARTSA,. Avda. Yucatan 15, Mexico 7, D. F. , Mexico. • PROJEcr DESCRIPTION: The project consists of the construction of facilities in an iron ore mine and for a fully integrated iron and steel works on Mexico's Pacific Coast,. at the border of the States of Gue.rrero and Michom:an. ill .its first stage, to which the Bank loan wUl apply, the works will have an annual production capacity of 1.1 million tQDS of crude steel equalli~g I million tons of light non-flat finished steel produc;ts. The works are· 1{)~cated near iron ore reserves sufficient for at least 30 years of producti't>n at Stage I level. Goal supplies rill be imported through an adjacent deep-water port. The new works will include mining equipment and a concentration plant, a concentrate pipeline, a pelletiz- ing plant, a coke oven plant, a blast furnace plant, a buic oxygen steel- making plant, a continuous casting plant, a rod 8lld bar mill, a bar and light section mill,a power plant, water supply and treatment equipment, an air compressor station, an oxygen plant, and engineering workshops. PROCUREMENT: The Bank loan and a forthcoming IDB loan will finance equipMnt, ccnponents, spares and structures procured through international com- petitive bidding. The balance of the equip111ent will be procured after two-stage bidding. The balance of the equipment will be procured after two-stage bidding among suppliers in the countries which have agreed to provide financing. Procurement on items to be financed by the Bank is underway and orders for equipment are expected to be placed during September/ October 1973. CONSULTANTS: British Steel Corporation has been selected as operating and • technical advisor. The Bank loan does not cover expenditures for ccn- sultants. ESTIMATED COMPLETION DATE: Mid-1976. Note: Money figures are expressed in. US dollar equivalents. - 0 -