Colombia - Cerro Matoso Nickel Project

Document of The World Bank FOR OMCIAL USE ONLY Report No. 5384 PROJECT COMPLETION REPORT COLOMBIA CERRO MATOSO NICKEL PROJECT (LOAN 1762-CO) December 28, 1984 Industry Department This document has a restricted distribution and way be used by recipients only in the performance of their official duties. Its contects may not otberwise be disclosed without World Banlk authozation.i  FOR OFFICIL USE ONLY PROJECT COMPLETION REPORT COLOMBIA: CERRO MAOSO NICKEL PROJECT (LOAN 1762-CO) TABLE OF CONTENTS Page No PREFACE .......................... a... O..* ..............e. *.. i BASIC DATA SHEET ...o............................ ................ ... HIGHLIGHT ........ ............... . ***.........e....... iV PART 1 .................. **** *********.. ............. I I. PROJECT IDENTIFICATION, PRE-APPRAISAL AND APPRAISAL .......... I II. PROJECT iMPLEXENTATION AND MANAGEMENT ........................ 3 III. OPERATING PERFORMANCE . ............... . 19 IV. FI,NANCIAL AND ECONOMIC PERFORKU{NCE ........................... 34 V. TABLES 1. Implementation Schedule 2. Project Capital Costs 3. Disbursements for Bank Loan .4. Disbursements for the Project 5. Organization Chart of Project Team 6. Chronology of Significant Events 7. Procurement Schedule Under Bank Loan S. Production 9. Financial Projections PART 2 ............................................... 58 I. PRODUCTION BUILD-UP AND PLANT CAPACITY ......... o ............ 58 II. NICKEL PRICES .......... ............... .... . 59 III. FINANCING PLAN .............................................. 60 IV. FINANCIAL AND ECONOMIC RATES OF RETURN ...... ................ 61 V. OVERALL ASSESSMENT ........................................... 62 VI. LESSONS FOR SIMILAR PROJECTS ................................ 63 PART 3 .. ......... 65 I. COMMENTS RECEIVED FROM THE GOVERNMENT ................. ..... 65 II. COMMENTS RECEIVED FROM THE BORROWER .o ........................ 67 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 COLOMBIA - CERRO MATOSO NICKEL PROJECT (Loan 1762-CO) PREFACE This is a completion report on Loan 1762-CO which provided financing for the development of the mining and processing facilities to produce annually about 50 million pounds of nickel contained in ferron-ckel, for the export market. The project has been implemented by the Borrower, Cerro Matoso S.A. (CMSA). a Colombian corporation specially created for such purpose. A loan for the amount of US$80 million was approved on October 16, 1979; the Closing Date was June 30, 1983. The Borrower has prepared a comprehensive and well documented Project Completion Report, covering project preparation, implementation, operating performance and financial and economic performance. This is presented in part 1 of the report. Bank staff shares by and large the judgements and conclusions of the Borrower's PCR. However, certain aspects are discussed in more detail in part 2 (prepared by the Staff), to enable drawing conclusions of general applicability to the Bank's involvement in similar projects in the future. The Government and CMSA have offered specific coments and clarifications; these have,been taken into account in finalizing the report and are reproduced as part 3. This project has not been audited by the Operations Evaluation Department.  -ii- PROJECT COMPLETION REPORT COLOMBIA: CERRO MATOSO NICKEL PROJECT (Loan 1762-CO) BASIC DATA SHEET A. KEY PROJECT DATA Appraisal Estimate Actual Total Project Cost (USS Million) 320.5 a/ 433.4 b/ Overrun (x) - 34Z Fixed Assets 276.8 387.5 Working Capital 16.3 a/ 11.3 b/ Interest during Construction 27.4 34.6 Financing Equity Contribution 114.0 200.0 World Bank 80.0 80.0 US Exim Bank 25.6 25.7 Commercial Banks 100.9 150.0 Loan Amount Disbursed 80.0 80.0 Cancelled 0 0 Repaid to IBRD Physical Project Completion Completion of Physical Component (date) April 1, 1982 April 1, 1982 Start-up of Operation April 1, 1982 May 1, 1982 Production Level '83 (lbs nickel contained) 40.6 million lb 28.7 million lb Financial Rate of Return 17% 2-7% Cl Economic Rate of Return 19% 4-9% C/ a/ The.e figures have been adjusted to reflect working capital requirements by December 1982. The SAR estimate is based on working capital requirements to full production. b/ The actual project cost indicated by CMSA in its PCR is US$427.7 million (Table 2). This figure has been adjusted to reflect the Company's working capital by December 1982, as indicated in its balance sheet. c/ Based on revised estimates for costs and benefits.  - iii - B. OTHER PROJECT DATA Board Approval October 16,1979 Loan Agreement Date December 20,1979 Effective Date July 3, 1980 Closing Date June 30, 1983 MISSION DATA No. of No. of Date of Month/Year Weeks Persons Manweeks Report Identifi ation 08/71 n.a n.a n.a n.a Preparation 08/76 n.a n.a n.a n.a Preparation 11/76 0.4 1 0.4 11/05/76 Preparation 01/77 1.0 1 1.0 02122/77 Appraisal 03/78 4.2 3 12.6 05/02/78 Supervision 05/79 1.0 4 4.0 05122/79 Supervision 05/80 2.0 2 4.0 05/27/80 Supervision 03/81 1.4 2 2.8 03119181 Supervision 11/81 0.8 2 1.6 11/23/81 Supervision 08/82 0.6 1 0.6 09/15/82 CURRENCY EQUIVALENTS Currency Unit - Colombian Peso (Col$) April 1979 USI.0 Col$42.40 Col$1,000 US$23.58 December 1983 US$1.0 - ColS88.77 Col$1,000 - US$11.27 GLOSSARY OF ABBREVIATIONS CMSA - Cerro Matoso, S.A. CONICOL - Compania de Niquel Colombiano, S.A. CONPES - Consejo de politica Economica y Social CORELCA - Corporacion Electrica de la Costa Atlantica DNP ' - Departamento Nacional de Planeacion ECOMINAS - Empresa Colombiana de Minas ECONIQUEL - Empresa Colombiana de Niquel, Ltda. ECOPETROL - Empresa Colonbiana Petroleos IFI - Instituto de Fomento Industrial INCOMEX - Instituto Nacional de Comercio Exterior INGEOMINAS - Instituto Nacional de Geologia y Minas ISA - Interconexion Electrica, S.A. SENA - Servicio Nacional de Aprendizaje COLOMBIAN FISCAL YEAR January 1 - December 31  -iv- PROJECT COMPLETION REPORT COLOMBIA: CERRO MATOSO NICKEL PROJECT (Loan 1762-CO) HIGHLIGHTS The Bank involvement with this project dates back to 1967. During the mid-1970s, after project preparation was fairly advanced, the ownership structure of the new company to be created began to take its present shape, with the Government holding 45Z of the shares, the Shell Group (through Billiton) 44% and the Hanna Mining Company (through CONICOL) 11%. CMSA was incorporated in March 1979, shortly before implementation began, and a project management organization was established with support from the shareholders and engineering, procurement and project management services provided by a major US engineering firm. (Part 1, section I). Implementation proceeded quite expeditiously and construction activities were completed in April 1982, as planned on the original schedule. There was, however, a cost overrun of US$113 million, representing a 34% of the appraisal estimate. This cost overrun, some initial technical difficulties resulting in a production buildup at a lower rate than anticipated, and present and projected trends in the international nickel prices have resulted in additional financial requirements and lower financial and economic rates of return than anticipated. Price trends were acknowledged at appraisal as the main risk affecting the project. Actual prices during the initial two years of operation and current trends are well below the original projection. This has been the major cause of the very tight financial situation faced by the borrower. Additionally, current changes in the metal markets have expanded the uncertainty associated with price projections, widening the possible ranges and adding a new dimension to the analysis of project risks. Conse- quently, a careful assessment of the Bank's price forecasting methodology appears warranted for its use in future appraisals. (Part 2,paras. 2.03,2.12,2.18). Overall the project made an important contribution to the Colombian mining and industrial sector as well as to the development of a remote area. CMSA was very successful in establishing a very competent management team, integrating Colombian staff with expatriates, which also provided a positive influence in the interaction with local consulting firms and contractors. Recruitment and training of the workforce was another successful achievement of the project, by making available adequate numbers of skilled operators needed for a plant utilizing a sophisticated technology. The support provided to the project by CMSA's shareholders,. can also be singled out as positive lesson of good cooperation between a host government of a developing country and foreign investors. The approach of joint ownership between local (state and/or private) and foreign interests are found to provide a good basis for undertaking mining projects by combining the availability of-natural resources and knowledge of the local environment with the access to technology, international markets and managerial capabilities, as well as facilitating access to capital markets. The Bank can play a catalytic role in bringing together local and foreign interests for the implementation of mining projects. (Part 2, para. 2.17).  PART 1 COLCiBIB: CERRO HATOSO NICKEL PROJECT - LOAN 1762 CO. PROJECT COKPLETION REPORT PROJECT IDENTIFICATION, PR'A RAS AMD APPRAISAL. (a) The Project. The Project consis:s, generally, of mining and production facilities for the processing of up to approximately 120 dry metric tons of lateritic-nickel ore per bour to produce approximately 38.000.000 to 50.000.000 pounds per year of contained nickel in the form of ferronickel -when operating at full capacity. In 1979 CERRO MATOSO S. A. (CISA), the owner of the Project, was organized with the participation of Empresa Colombiana de Niquel Ltd. (ECONIQUEL), Billiton Overseas Ltd. (BILLITON)X and The Hanna- mining Company (ILANNA). ECONIQUEL is the Colombian entity which possesses the consession contract with the Colombian Government to produce ferromickel f om the mine at Cerromatoso, in the Municipality of Montelibano, Departamento de C6rdoba, Colombia. BII.ITON is a company of the Royal Dutch/Shell Group, another company of that group having the contractual coanitment with CISA for selling the ferronickel produced by the Project. Eanna is a Corporation incorporated under the laws of the State of DeLaware, United States of America. Eanna assisted COSA in connection with the engineering, construction, testing and start up of the Project. Also, Hanna has the contractual commitment to assist C1SA in reaching the design capacity of the Project and in monitoring the Project providing technical and administrative services. She first activity to define the project scope was an extensive exploration drilling and sampling program which was the basis for a comprehensive study covering geology, mining, marketing, operatiag. costs, cash flow analysis and financing.  -2- Regarding the process, two experimental programs were developed into two major pilot plant campaigns. One of these was at the Elkem-Spigerverket research center in Fiska&, Norway treating approximately 350 Rg of ore per bour. Later tests were conducted at Riddle, Oregon, in a pilot plant designed to treat approsxiately two tons per hour. Estimates for mining capital expenditures, preproduction costs, operating costs, overhead requirements, allowance for employee housing, iirstrip and other Montelfbano improvements were also prepared. Based on the above mentioned information, Bechtel Engineering, Incorporated, an affiliate of Bechtel International Corporation and Overseas Bechtel Incorporated (collectively Bechtel), prepared the feasibility study, covering the original project scope. (b) Role of Bank in formulating Project scope and implementation arrangement. Role of Bank in formulating project scope and project implementation arrangements was that of a consultant to guide CISA in the preparation and presentation of loan requests according to proper procedures and requirements. (c) Role of Bechtel and Consultants in Project preparation. Bechtel had a basic role in the project preparation because, as pointed out in I (a), they worked -on the feasibility study and provided assistance in the implementation of that study. Colombian consultants participated in the studies related to thL -arcbitectural design of the towosite and aocial aspects (sanitation, environmental protection, educacional facilities, training for local personnel), that C1SA had to consider in order to make the project of ost benefit to the community. (d) Bank involvement to formalize Loan. As pointed out in I (b), the Bank's involvement was mostly as sn advisor to belp CISA in acccmplishing requirements and procedurr.a stated by be 3ank and contributing with the experience gained by the Bank in similar projects in tehe world.  -3- 31 PROJECT IPLEHENTATION AND MANACEHENT (a) Project Scooe Neither project scope nor the teChnology has been cbanged except; (i) The availability of natural gas, mentioned as a probability, was confirmed and is the fuel source for drying and calcining. (ii) It bas not been found necessary to dry ore to 7Z as predicted. Drying to only 14 or 152 has resulted in excess drying capacity available. (iii) Test work did not prove the possibility of the reduction of as much as 50Z of the nickel oxide to metal realized comercially up to now and in this way reduce the full load requirements of the smelting furnace by as much as 10. - (iv) The subscitution of slag dispos:l by granulation rather than deposit in slag pits. Cv) No metal recovery equipment has yet been provided as described to remove metal from refining slags. Cvi) Reagents for refiuing have needed substantially more than the estimated amount of energy for melting. (b) Project Management (i) Organization Chart and Functions. Table 5 shows the organization chart of CQSA's Project Management. Roles of parties involved in that organization were as follows; 1. Board of Directors. Board of Directors kept permanent control of the whole Project covering financial, administrative and technical matters, decided about recommendations and approval requests presenced for their consideration and indicated policies to be observed by 04SA's organization.  2. Engineering, Procurement and Construction Comittee. The EPCC was a group organized with representatives of the stockholders with the main purpose to expedite decisions and approvals in relation to engineering, procurement and construction requirements presented by Bechtel and beyond the level of authorization of CISA's General Manager and Project Manager. The EPCC was permanently informed about the status of the Project, received recommendations from OaSA's General Manager and held monthly meetings with the COSh's General Manager and Project Manager and representatives of Bechtel to discuss the monthly Progress Report prepared by Bechtel. Maiu subjects covered during those monthly meetings were the schedule and progress of engineering, coastruction, commitments, ezpenditures, the control of manhours expenditures, the status of material requisitions for materials and equipment and the status of import licences. 3. General Manager of CMSA. General Manager of OCSA received daily reports from the Project Manager, decided about approvals and/or recoimendations presented by Project Manager, kept informed the members of the Board of Directors about the progress of the Project, presented recommendations to the EPCC and the Board of Directors, maintained close relationships with government officers to expedite apprcvals and/or authorizations necessary for the progress of the Project, kept permanent contacts with fimnacial sources of CISA to comply with all formal requirements on behalf of CMSA axd managed C4SA's organization. 4. Project Manager of CISA. Project Manager of CKSA had a day to day coatrol and supervision of the Project at the plant site in close relationship with Becbtel and consultants and was provided by the stockholder with all necessary authority to keep the project moving. The system used by the project nager to plan and monitor the implementation of the project included the following activities:  -5- Review of schedules and estimates prepared by Prime Contractor. Participation in project reviews, negotiations and important meetings. - Moni.toring all activities for compliance with plans, schedules and budgets. - Monitoring cuatoms clearance of material and equipment as required. - Approval of purchase. of material and equipment as required. - Approval of changes or additions to the scope of work. - Analysis and choice of techniques, procedures, actions, etc., to acknowledge and respond to problems. - Monitoring of detailed design activities to ensure conformity with specifications. - Revieving and commenting on contractors' design drawings. - Reviewing layout drawings and plot plans. - Providing technical assistance in review of contractors' plans to return to schedule. - Monitoring of procurement activities by: Revieving purchase requisitions. Reviewing and commenting on vendors' quotations for selected process equipment. Reviewing and commenting on inspections ana expediting procedures. Inspecting selected process equipment during fabrication. - Attending the construction kickoff meeting to ensure understanding of quality control, field changes and acceptance procedures. - Field iaspections at the sire as considered necessary. - Monitoring of acceptance tests.  - Assisting in establishing checklists for plant cAmpletion. (ii) Coordination Procedures. Relationships during implementation betw*en borrower, consultants, technical advisors, contractors and suppliers were as follows; : She representative of CISA for the project Vas the Project Manager. 2 CQSA entered into an agrecement with Bechtel for engineering, procurement And project coordinating. services. 3 According to this agreemeuc, and subject to the direction and control of C1SA, Bechtel acted as COSA's-, agent and performed engineering, procurement, project coordination, pre-operational testing and start up services. Also Bechtel represented (C(SA in dealing with third parties in conneccion with those services. 4 Consultants, contractors and suppliers participated and/or contributed to the implementation of the project within the fraievork of the agreement between !MSA and Bechtel. (iii) Coordination problems found during implementation. In general the coordination procedures were appropriate for all purposes. One exception was the relationship between Bechtel and a Colombian consultant firm. In that relationship there were conf.icts for the following reasons: 1. Traditionally that consultant, one of the most qualified engineering consultants in the country, has worked exactly in the position of Bc-btel, as owner representative before contractors, suppliers and other consultants and in direct communication with owner. 2. Bechtel's and consultant's systems to conduct planning, scheduling and cost control, contracts administratiou,  -7- field engineering, construction and procuremnet services, vere different and this situation required an adaptation and learning process simultaneously with the execution of the project. To avoid the problems created by that situation vould have required: Detailed discussions betweeu Bechtel/consultant, to- clarify systems and procedures to be used in the job before the work started. - Incorporation of some experienced Bechtel staff in the consultant's organization in the field until those systems and procedures were clearly understood and practised. (iv) Bank involvement to forralize Loac. Basically the Bank's role in the design of the project implementatioa was to provide assistance to formalize arrangements for the coordination between CKS&, Bechtel, Hanna and Contract. (c) Performance of Consultants C) In general, consultatnts performance was good. The only dificulty found during project implementation has been mentioned in point II (b) (iii). (d) Performance of Contractors and Suppliers (i) Problems found by contractors. Performance of contractors was good with following exceptions: 1. One contractor had troubles because of lack of adequate equipment and know-how to overcome difficulties in severe weather conditions. 2. One contractor had organizational problems because they were overextended with the scope of work of their contract.  -8- (ii) tSuStious to avoid problem suffered by contractors. Those problems could have bee avoided by: 1. Here detailed analysis of bids to see What construction equipment was available in the country. 2. Defiuing that necessary construction equipment to work under difficult wether conditions bad to be available in the country. 3. Expediting temporary import licences for that equipmeut which could be critical in case of those weather caditions. 4. Sharing between different contractors the scope of work of any activity whenever there was the possibility that said activity could have overextended the capacity of one contractor. (iii) Examples of lack of performance. Specific ezamples to illustrate lack of performance by contractors are: 1. Gas pipeline installation. At a certain poiAt in the construction activities there was the possibility that the plant would be completed on schedule without having gas for the start-up because of delays in the construction of the gas pipeline. Therefore, the scope of work of the original contractor was substantially reduced and a new contractor was awarded a contract to cover the balance. 2. Tovwsite Construction. The contracts L:\ build bouses (excluding prefabricated and workers' houses) were awarded to only one contractor, who simultaneously had other contractual commitments in the construction of the Plant. This fact caused delays in the construction of the townsite and problems in other activities, as pointed out in III (f) (iii);  -9- (e) Procurement Wi) Procedures. 05.5A employed the following procedures for the purchase of machinery equipment, materials, and -other goods during the construction period: 1. Preliminary Equipment List and Source Categories Bechtel developed a Preliminary Equipment List and made an assessement of possible sources. CXsA and Bechtel conducted a survey of Colombian Industry to determine what equipment and material were available from Colombia fabricators and developed a preliminary list of Colombian and worLdwide potential bidders for each item as appropriatae. This list (a copy of which was furnished to the Stockholders) was classified in the following categories: * Category I Bulk materials, mining and process equipment (and correspond:ng spare parts) which could be purchased competitively from Colombian fabricators, in compliance with specifications, and which was available in sufficient quantities to meet delivery schedules. Category II Bulk -aterials, mining equipment, process equipment, accessories, and spare parts which could be fabricated in Colombia, but purchased on a worldvide competitive basis, wherein Colambian fabricatcrs received preferential considerations within che limitations of the Project financing policy. Category III -Bulk materials, tools -or construction -mining equipment, process equipment, accessories, and spare parts which were not available in Colombia and should be purchased from foreign suppliers. Category IV Nop-process equipment and tools required exclusively for construction which could be either rented or purchased and could be imported under bond, exempt from ducies and  - 10 - taxes on the same basis as process equipment but subject to export or to be otherwise disposed of when no longer naceded. In its preliminary form this Equipment List was presented to CISA and the stockholders for cornents. From time to time the Preliminary Equipment List was revised 4ad updated and copies of 5uch revised list were issued by Bechtel and furnished to CHSU and to Stockholders. Bechtel prepared an estimate of the cost of equipment and bulk materials for use by CiSA in projecting loan requiremements or allocation of equity funds as they related to funding of purchases in Colombia and from foreign sources. At the appropriate time when estimated costs were assigned to items on the Preliminary Equipment List. and Bechtel considered that data and information contained therein was sufficiently developed, OIS& submitted such List to the Board for approval. After approval by the Board, significant changes in such List were presented to the Board for approval from time to time. Based oa Board approval, CiSA autborized Bechtel to proceed. On the basis of the Preliminary Equipment List, CISA with the assistance of Bechtel made applications to the ninistry of mines, Income% and the Customs Administration for a Global Import Licence. vith copies.- to Government agencies, as required.. At this time the List was classified according to the Brussels Romenclature. 2. Procurement Procedures and Approvals. In general. procurement of machinery, equipment, materials, and other goods were carried out as follows; as Bechtel proceeded with detailed engineering of the Project, technical specificationz were prepared for each item, bidders were pre-qualified, bids weze solicited, suppliers selected,. purchase orders awarded, fabrication and shipment were monitored and expedited and equipment imported, all in accordance vith the General Procurement - Procedures. These General Procurement Procedures were designed to provide a broad general framework within which there was flexibility to- utilize different purchase methods other  - 11 - than the standard equipment purchase order, such as negotiated awards and unit price purchases. Bechtel and rWSA from time to time proposed to the Board for its approval the use of these special purchase concepts for specified items, which also were identified in the- progrw:s and budgets presented to the Board for approval. The general sequence of steps in the procurement process was as follows: 2.1 Technical specifications for each item of equipment and a corresponding list of bidders were submitted by Bechtel to the stockholders for review and to CKSA for approval, prior to issuing for bids. Any written comments of CoS& thereon were furnished to the stockholders. QISA, taking into account comments from the stockholders advised Bechtel of its approval or comment s. 2.2 After receipt of CMSA's approval of the technical specifications, Bechtel incorporated changes requested by C1SA and then issued invitations to bid to pre-qualified bidders. Copies of complete bid packages and corresponding lists of bidders were forwarded to CkSA and the stockholders. 2.3 Imediately after receipt and opening of proposals, Bechtel forwarded copies- directly to CKSA and the stockholders for information, while Bechtel condurted technical, commercial, and financial evaluations and prepared its recommendations for award. Upon completion, Bechtel forwarded these to CKSA and the stockholders. CISA, taking into account the recomendation of Bechtel and any comments received from the stockholders, forwarded its recommendation for the award of the stockholders and presented the same for approval by the proper approving body as follows: A. Project Manager of OiSA - ItL s under $l00.OOO B. General Manager of 01SA - items under $500,000 C. EPCC -items over $500,000 and under $2,500,000 D. Board-items over $2,500,000.  - 12 - 2.4 The approving body acted an each purchase order proposal submitted to it vithin the following policies and procedures: 2.4.1 Procedures were in effect to assure that all required information -relative to purchases was available to the stockholders as the information was developed. 2.4.2 The purchase order recoimnndations of Bechtel and OLSA were furnished to the stockholders. 2.4.3 The approving body (during the construction period) held regular monthly meetings. 2.4.4 It was the intention of the stockholders that decisions with respect to purchase orders were to be takeu by the approving body as promptly as possible and in any event, unless CISA indicated otherwise, no later than the next regular monthly meeting following the furnishing of the reco mendations as described in (2.4.2) above. Notwithstanding this general rule, which applied to the great majority of purchase orders, the Parties recognized that in certain cases it could be necessary for the approving body to act more expeditiously on selected purchase orders because of their importance to a continuation of the conitructioan in accordance with the project - schedule, and for these cases the two following procedures were available. Emergency orders. Bechtel and QiSA when furnishing the recommendations as described in (2.4.2) above certified that a purcbasC order was an "Emergency order" and provided an appropriate explanation and in this case CQSA called a speciaL meeting of the approving body to act upon such purchase order with a minimum of 48 hours notice after furnishing sucb re..ommendations. If such a purchase order was not rejected at that meeting, CQSA proceeded with the avarding of the purchase order. It was the  -13- itntjn3f of the Parties to utilize the emergency order procedure only in the most abnormal situations. Critical orders. Bechtel and CHSA when furnishing the recommendations as described in (2.4.2) above certified that a purchase order was a "critical order". If a critical order was not rejected by the approving body on or before the next regular monthly meeting of the approving body following the furnishing of such reco-mendations, QiSA could any time aftez such second meeting proceed with the awarding of such purchase order. It was the intention of the Parties to utilize this critical order procedure only 'where the postponement of approving body action could result in a substantial cost exposure to the Project. A purchase order awarded by CMSA under either the emergency order or critical order procedures and neither approved nor rejected by the approving body within the specified time periods was resubmitted by -OISA to the approving body as promptly as possible for confirmation and, in the event such- order was, not confirmed, any costs due to cancellation would be for CMSA account. 2.4.5 The Parties, considering the magnitude of the investment required for the project and its importance to the development of the national and regional economy, made every effort to act as quickly as possible under the procedures described above. 2.5 CKSA notified Bechtel of the approved award and directed that the award be carried out, in whicb. case Bechtel placed the order with the selected supplier. At this point application was made to the Ministry of Mines, Incomex, and the Customs Ad-inistration for an individual import licence. 2.6 As detailed engineering prcveeded suppliera furnished data and detailed drawings of the equipment to be supplied. Such drawings were reviewed by Bechtel for compliance with specifications and afesr approval the supplier  - 14 - certified such drawings and forwarded final copies to Bechtel for distribution to CISA, and the stockholders. 2.7 When a revision to an approved purchase order generated an increase in the approved purchase priCe (or estimated total value of a purchase order) and if such increase was more that $2.500,000 or its equivalent, then such revision was brought to the Board for approval. When the amount of an increase in an approved purchase order was greater than $500,000 and l.ss than $2.500,000, such revision was submitted to the EPCC for approval. When the amount of an increase in an approved purchase order was less than the amount stipulated above or wben the revision to the purchase price was due to escalation as provided in the terms of the purchase order, CISA and the stockholders were kept advised of such increases though the information transmission procedures but it was not necessary to submit such increases for approval. 2.8 Bechtel's expediters monitored each fabricator for timely transmittal of certified drawings, purchase of materials, subcontracting, shop fabrication, and shipping schedules. Expediting extended to the shops of subsuppliers and subfabricators. Bechtel furnished periodic expediting reports to CISA and the stockholders. 2.9 During the course of manufacturing and prior to shipment, Bechtel's inspectors examined the goods for compliance with specifications, quality of workmanship, comoliance with codes and Vitnessing tests. Copies of inspection reports were. forwarded to CISA for record and to the stockholders. 2.10 When the material was ready for shipment by the supplier, Bechtel traffic representative assisted in determining the routings, monitored, and expedited the shipment and, if purchased outside of Colombia, arranged for ocean shipping space. 2.11 In the case of purchases from foreign suppliers, a freight forwarder assigned by Bechtel received the cargo at the port of exit and arranged for storage  - 15 - or delivery to shipside as required. The freight forwarder prepared and asseabLed all the documentation required by the shipper, the consignee, and the Colombian customs authorities. These documents were then forwarded to their destinations in accordance with the instructions issued by Bechtel. 2.12 At the port of entry in Colombia, Bechtel or its agent arranged for unloading the vessel and shipping the goods via truck, under seal, directly to the customs zone at Cerro Matoso for clearance. 2.13 Purchase of mining and mobile equipment was made by CISA, with the assistance of Bechtel. 2.14 Purchases of bulk and consumable materials were made by CtSA or Bechtel. Procurement procedures for such materials were the same as -the procurement procedures applicable to fabricated equipment. 3. Cormitment Authority Items within the approved Program and Budget and having an estimated purchase price of $500,000 or less were purchased by Bechtel with the approval of CXSA without - further reference to the Engineering, Procurement and Construction Co mittee and the Board. Items having an estimated purchase price of more than $500,000 and less than $ 2,500.000 required approval of the EPCC. Items having an estimated purchase price of more than $2,500.000 required approval of the Board. The stockholders, however were kept- informed of all transactions reLating to such procurement. (ii) Problems with standards and units. Some problems occurred during construction because of differences in specifications and units used by different suppliers in U. S. A., Europe and Japan. There were no tabulations or lists presenting standards from different countries to determine equivalances -in specifications for certain materials (hetals, plastics, lubricants, insulating, etc.). - For steels, for instance, there are the standards ASTH, AISI (USA); JIS (Japan); DIN (Europe); ICONTEC (Colombia); etc.  - 16 - Sometimes in a document the specifications referred. to certain standards and in some other document there were -eferences to some other different standard for the same material. To use units according to the International System (SI) requires mathematical operations to couvert those units to the traditional units used in every country. SI system utilizes Newtou, d4eter, Second, Pascal, Joule, whereas in Colombia the units used are kilogram, meter, second, Kg/cm2, Xi/hr, etc. None of these problems had any relation with the procurement guidelines of the Bank. (iii) Some problems occurred during construction because of differences in specifications and units used by different suppliers in U.S.A., Europe and Japan. None of these problems had any relation with the procurement guidelines of the Bank. (iv) One specific benefit that international competitive bidding provided to QiSA was the obtaining of better prices. (f) Implementation Schedule (i) Comparison between appraisal and actual implementation. Comparison between appraisal and actual implementation is shown in table I. (ii) Major factors of delays. Major factors causing delays in the project were importation time and housing. (iii) Actions taken by CMSA to remedy delays. Actions taken by CQSA and contractors to remedy delays were: 1. Project Manager was provided witlh all necessary authority to expedite decisions as mentioned in point (II) (b) (i). 2. The scope of work of contractors who were causing delays was reduced and the job split between two or more other contractors.-  - 17 - 3. Programs with wore intensive rhythm of work using more vorkers and equipment to compress the schedules 4_ Close supervision of euployees responsible for obtaining tbe import licences. Summarizing, the main achievement on implementation schedule was that in spite of delays that occurred in importation of some materials and equipments in the construction of the houses and in the installation of the gas pipeline, those delays were properly corrected and the overall program was not affected. Importations were finally expedited by CfSA through action taken by General Manager with the Government. When the materials and equipments were at the plantsite, contractors were organized according to acceleration programs. To overcome housing problems the contractor giving rise to delays was reLeased and the balance of that job was split between other contractors and COSA with Bechtel intensified supervision. The installation of the gas pipeline was timely completed because CXSA decided to reduce the scope of work of the original contractor and to engage a highly qualified contractor to complete the work. (g) Capital Cost, Financing and Disbursements. (i} Breakdown of actual and estimated project cost. Information about actual and estimated project cost is presented in Table 2. Table 2A presents summarized information about the main items which caused the difference between the estimate and the actual cost of the Project. One additional aud general reason of that difference, which is not particularly mentioned in table 2A, was the Colombian contractors productivity. It vas observed that actutl productivity was better than expected, but the cost per hour was higher than forecasted. rhe net result was a 10 to 15% increase in contracts prices.  - 18 - The principal reasons that cost per hour was higher wer-: - host of the qualified labor came from other places far from Cerro Natoso, and required imcentives to vork at the plant site. - Was necessary to organize works with intensive use of oVTartime to complete .the job.on schedule. J6i) Financing plan. The financing plan that was developed envisaged a combination of shareholder investment and third party borrowing. There was a commitment from the shareholders tc contribute an initial US$25 m increasing to a minimum of US$75 i and thereafter up to US$ 200 m to the extent that the additional funds were needed for the project. Lenders undertook to provide the following: The World Bank US$ ac.o X Eximbank of U.S. 12.85 a Chase Manhattan/Bankers Trust 12.85 n Chase Manhattan plus 12 other Commercial Banks, 120.0 m TOTAL 225.7 m With the exception of the World Bank loan that carries the guarantee of the Republic of Colombia the remaining loans depend on the success of the proj'ect for the repayment of interest and principal. The loans were all fully drawn and the full investment of US$200 u made by the shareholders by mid-1982, the period of start-up and the period of sharp reduction in the interuational nickel price. The cormercial banks agreed to coutribute a further US$30 a in 1982 on the same terms as their initial loan and agreed to some deferment of the principal repayments due to them in 1984/85 to the later years of the term f the loan. -The principal shareholders agreed to contribute up to a further US$44.625 m either as equity or as subordinated debt should they be r!quired and these funds had all been drawn by July 1983.  - 19 - (iii) Follow up system. By the nature of the loan agreement and shareholder conitments the control of the sources of financing was straigbt forvard and the follow-up straight forvard. (iv) Delays in disbursements. These delays are shown in table 3. Retsons for deviations and delays on disbursements by the Bank were: 1. The loan was not declared effective until July, 1980 and - most disbursements were therefore obtained via the reimbursement procedure. 2. The time spent in gathering all supporting documentation required to obtain reimbursement from the Bank also caused some delays. (v) Problems witb Bank procedures. The borrower did not experience any problems with Bank procedures nor encounter any unreasonable delays. (vi) Performance of other Lenders. 1. Chase Syndicate Loan. Good performance 2. Eximbank Loan. Good performance. 3. Exim related Commercial Loan. Good performance. (vii) Disbursement schedule. The schedule of drawdowns of the loans is given in Table 4. III OPERATING PERFORMANCE (a) Commissioning and Start-Up (i) Major problems in start-up and comaissioning.  - 20 - Dry out and heat up of the electric furnace commenced April 10 1982 with the aid of gas burners followed by first power 'to the electrodes on April 26 1982. First slag was tapped on May 11 1982. First uetal was tspped on June 25 1982; this activity was later than expected due to the gradual loas of the sacrificial lining in the furnace crucible which resulted in the need to make an additional 1000 tonnes of Fe-Ni to replace that volume of sacrificial lining lost. The following are the major causes of lost production since start-up through to mid-1983: 1. Calcinine crane hoist motors During May 1982 it became apparent that there was an inherent design problem in the two calcine crane hoist motors. Repeated failure of these motors severely limited the capacility of hoisting calcine as feed for the electric furnace. This cendition prevailed through June and most of July, at which time modified motors supplied by the vendor resolved the problem. Since then the calcine crane bas not been a limiting factor in achieving production 'capacity. 2. Electric Furnace Hetal Tapboles See section III (d) (ii) 1 .3. Refining See section III (d) (ii) 4 4. Casting Sticking pigs and poor quality pigs bave resulted in poor cast-to-product recoveries. The main reason for this has been a mould-wash application system design not consistent with the pig mould desiga. In colaboration with the pig machine supplier and the mould wash supplier the application system has been revised and the problem of sticking pigs has essent >lly been resolved-.- The quality of the pigs still requires improving but overall recoveries have now improved to more acceptable levels.  - 21 - 5 Ladle burn - throughs and electric furnace rum-outs On two occassions molten metal has burued through refining ladles causing damage to electrical and mechanical components associated with the ASE& refining system. Carbon boils, resulting in slag and metal splash into the same components, have additionally caused lost production. In the electric furnace, a small run-out occurred at a metal taphole and two larger rum-outs occurred from one of the slag taphole areas. In total, approximately 7 weeks of lost production time has occurred because of these reasons. (ii) Effectiveness of performance guarantees. As stated above, there were problems with the two calcine crane hoist-motors. Eovever, the supplier provided modified motors which have performed satisfactorily.- (iii) Cooperation from suppliers during start up. Response from ASEA in resolving start-up problems was initially not satisfactory. Only after considerable pressure had been exerted by QiSA through Bechtel and Hanna was a =-re positive attitude forthcoming. Even then, their cooperation fell short of that provided by most other vendors, a good ezample of Vaich was Elkem. At all times the response and attitude of the latter company was one of total cooperation to resolve any problem. Manpover Developments (i) Staffing Recruitment The following forms of staff recruitment were used. 1. Local Personnel: 1.1 CASA's officers visited locations where similar industrial activities to those of OiSA are being carried out in order to establish contact with qualified perionnel. 1.2 Interviews with candidates in different cicies following advertisements in local newspapers.  - 22 - 1.3 Advertiseuents in newspapers iuviting all possible candidates to send in their resues. 1.4 Recruitment of cIltidates through specialized agecies. 2. Expatriate Personnel: Expatriate personnel were mainly hired through. the services of HAnna. The =ost successful forms of recruitment were 1.1 and 1.4 (ii) Training and Development Programs. The programs were laid out principally on the basis of requirements of labor to support the development of the mine, plant and supporting facilities taking --into consideration the following points: - - -Educational leveL of the local people - Non-mining and nom-industrial tradition of the area. - 'Technical requirements of the plant. - Development of the socio-economic structure of thv area. - Use of external training facilities. For this purpoee CISA obtained the cooperation of the National training services (SEN) . (iii) Training Objectives. 1. Provide the most efficient way to train Supervisory Nanagement to meet present and future needs. 2. Provide the most efficient way to train craftsmen and operators to meet present and future needs. 3. Assure an adequate supply of skilled tradesmen in relation to employment opportunities of QISA. 4. Increase the individual vorker's productivity. - - 5. Give the individual worker a greater sense of aecusrity. 6. Improve employee-management relations.  -23- 7. Elln=nate close supervision because the craftsmen are trained to use their initiative, imaginatiot and ability in planning and performing their vork. 8. Ensure compliance with CXSA's obligations under the supplemental coucession so that Colombian personnel can substantially replace the foreign personnel in the ac.ivities they have been performing. (iv) Training Programs. 1. Training for the construction of plant. * 1.1 In order to provide contractors an essy access to a skilled and semi-skilled work force a training program with SENA was started in Moncel bano. The- courses included the following crafts: - 1.1.1 Electricians (Basic) 1.1.2 Auto Uechanics (General) 1.1.3 Diesel Mechanics 1.1.4 Carpentry 1.1.5 Construction 1.1.6 Welding, etc. The duration of the courses was from 4-6 montbs. Sena took about 500 people from Moatelfbaho area. Almost all were employed by the contractors building the plana. COSA provided financial assistance to SENA. The training activities lasted for 1 1/2 years. 2. Training for start-up needs. 2.1 Training in SENA Centers. Twenty three high school graduates from Montelfbano were sponsored by CISA in July 1980, to study in the Centc.rs of SENA, Electricity, General Mechanics, Smelting, Refining, Instrumentation and Mining at Technician level. The majority of them are now working with CHSA,.  - 24 - 2.2 Mine Training. All the training for Kine operators and Kech anucs was arranged through GENERAL ELECTRIC C=TRPILLAR of Colombia. Xechanics received a six weeks course at ,the CAT. installations in 2Barranquilla. Operators received theoretical and practical "on the job" training at the site for six weeks, under the direction of a CAT. Instructor. LIEBRERR operators and maintenance workers were given on site training by the LIEBHERK representatives. Also two maintenance Supervisors took a course in U.S.A. One special operator course was given on site by a CAt. Representative from Peoria, r. S. A. CSA Training Dept. provided safety training using audiovisual aids from CATERPTLIAR. Manuals were vritten and distributed among operators.. 2.3 Plant Operators' Training This activity included two main phases: 2.3.1 Writiug of Operators Hanuals: In February, 1981, Training Dept. hired or borrowed from - other departments five engineers tQ prepare seven manuals of operation covering, Primary Crusher, Stacker, Secondary Crusher -ad Dryer, Rotary Kiln and Peletizing Disc, Calcine Transfer, Electric Fur--ace, and Refining. Since the plant was stiLl under construction, the process and instrumentation drawings were used as the main source of technical information. Almost eight months was required to complete the preparation. Most of the manuals were revised by expatriate staff. 2.3.2 Hiring and training of operators: High school graduates from Montelfbano were selected for training as operators. Process Department hired Supervi-ors - Colombisiai for the Oreprep area and expatriates from Guatemala. Their first job was the training of their operacors. The supervisors took charge of this training in October 1981.  -25- The theoretical part lasted almost three months with frequent visits to the plant under construction. In February 1982 all the operators were put on shift work for practical and "on the job" training. The engineers who wrote the manuals were heavily involved in the training efforts. 2.4' Plant Maintenance Training It was the intention to hire all craftsmen with as much experience as possible. However refresher courses were arranged, including a one month course for General Maintenance personnel. SENA also provided courses on welding and electricity. Expatriates provided "on the job" training for mechanics and electricians. Almost all our electricians have considerable experience and needec only some time to familiarize themselves iith the plant under the guidance of equipment vendors. 3. Safety Training. Almost all the workers in the Hine and Plant have received safety courses of about 2 weeks duration covering: - Safety rules and regulations (Mine and Plant) - First aid - Basic fire fighting A ten hours safety course was given to all Supervisors covering: - Responsibility of supervisors - Investigation of accidents - Accident reports - Instructions to workers Extensive use of audiovisual aids was made througboutt training programs. 4. Training by Vendors.- 4.1 Instrumentation and computer training was given at the sir.e for four weeks to all Maintenance and  - 26 - Control Room operators by_,an instzuttor from taylor USA. Two engineers attended OD TT I9aintenance courses iu U.S.f. for Ce month. 4.2 General. Electric, U.S.A. provided courses on SCR Rotors and other equipment. 4.3 CATERPTLTTAR training on heavy equipment (see 2.2 above). 5. Training Abroad. Over twenty five QtS& technical personnel have taken training courses or attended seminars and conferences in differert parts of the world. Similar courses are being arranged for 1983. 6. "On the job" Training. Considering the new technology being introduced into Colombia, it was necessary to bring experienced, skilled staff from similar operations such as E=XI3AL (Guatemala) to help train tappers and over-head crane operators. They started training activities on slag on 11 May 1982 and metal tapping on 26 June 1982. (v) Numbers of professio*als trained. - MINE Mining Engineers 3 Xining Technicians 2 Sbift Supervisors 3 Geologist I ORE PREP ARWA Control Room Operators 5 Shift supervisors 5 General Foreman 1 =ELTING AND REFINING Control Room Operators 5 Shift Supervisors 2 MAINTENANCE AREA Electrical 3 Mechanical 5 Shop 3 Instrumentation 5 Computer 3 (wi) Number of workers trained. )4flN.E taintenance 24 Operators 32  - 27 - ORE PREP.AREA Maintenace 12 Operators 48 SMELTING/REFINING Maintenance 30 AND PIG HANDLING Operators 155 CENTRAL MAINTENC. Shop 8 mechanical 12 Electrical 6 Instrumentation 16 Brick Layers 22 SUPPORT SERVICES Laboratory 6 Materials 12 383 (vii) Obstacles in Staffing. The following obstacles were encountered during staffing with Colombian Nationals. - Local residents from the coastal region were given preference for policital and socio-econimic reasons. It was hard to find suitable candidates from the region because the area is more agricultural thau industrial. Since the ferronickel smelting operation was new to the Colombian industry professionals were accepted with little or no experience, being trained later on the job by the expatriate staff. mKnmoledge of the English language was another restraint in hiring the staff. It was difficult to attract established professionals from other regions of the country because of remoteness of the area. (c) Borrower'-s Organization. It is the policy of QMSA to train and qualify local personnel to carry out the jobs required to operate and administer the plant efficiently. Changes have been made in CKSA's organization to allov local personnel to take over most staff positions originally occupied by expatriates.  - 28 - (d) Build up aof Production and Capacity. (i) Projected, bud v ted and actual production build-up. Table 8 presents the information about planned production for the second year of operation according to the feasibility study, the production budgeted, by quarters, for 1983 and the actual productiou build-up. Reasons for the differences between projected and actual figures are: 1. The skull plant to recover ferronickel from refining slag, included in the feasibility study, was not installed. 2. Up to second quarter of 1983 the ASEA refining system was a limiting factor to production. This probiem was then resolved. 3. In third quarter furnace reached design capacity demoustrating ability to run at full load on a continuous basis. 4. Production curtailed in fourth quarter due to a major runout on November 28, 1983. (ii) Problems in production build up.- Major problems affecting production build - up since commercial start - up are as follows: 1. l1etal Tapholes Physical deterioration of the metal taphole blocks in a short period of time was causing a. potentially hazhardous situation for both men and equipment. In order to maintain the safety of the operation, the taphole blocks were having to be changed on a frequent basis; often, it was necessary to take power off the furnace for several hours, (sometimes one or two days) to cbange these blocks safely. There were originally nine blocks installed in each metal taphole; each block. is 9 x 9" x 6" deep and has a 50 mm 1ameter hole. The problem is not unique to Cerro Matoso S. A. It is being experienced to a lesser or greater degree at moat ferro-nickel smelters. It is caused by a combination of thermal shock on the refractory material used, type of  plugging mixture used to plug the taphole after tapping, metal composition and tempera-ure, tapping practice, general furnace operating practice and, to a minor degree, erosion of the refrActory by the metal stream. Many different types of refractory taphole blocks bave been tried, based on the experience of other operations and vendor recommendations. OiSA personnel made visits to other plants, including those in Japan which seem, to bave the best taphole life. From these visits information was gained not only on type of refractory being used but on preparation and use of plugging mixes, tapping practices and any other practices which could conceivably improve taphole block life. Based on this iAformation gained and on in-house experience and expertize, the plugging mix originally used has been changed to a magnesite/tar mix; some types of refractory tapbole blocks are no longer used, tapping practice (used of drill and oxygen to open the hole) has been improved and standardized as far as possible, experimental water cooling plates have been installed - around the blocks, more rigid maintenance of the taphole guns has been implemented- and the metal temperature is controlled as far as possible. -. Tie result has been a greatly improved taphole block life and a safer operation. The problem has not, however, been solved completely and a task force, set up several months ago, continues to. examine further materials and methods which can extend the life of c.ae *tapholes. 2. Slag Tapholes The slag tapholes consist of water cooled copper cones set into a carbon block, which in turn is built into the furnace wall. Notwithstanding the cooling effect of the copper cones, the carbon was corroded away, resulting in leaks of slag. Additionally differential movement of the refractory bricks around the carbon block caused gaps to occur between the bricks and the block, again resulting in leaks of slag. Sometimes che slag leak was accompanied by metal when the lower two of the four tapholes vas giving a problem. Tominimise the problem, the lower to slag tapholes have been eliminated, and modifications made to the remaining two as follow.;  - 30 - 2.1 The carbon block has been replaced by a high ngO material. 2.2 Additional water-cooled jacketing bas been provide at the interface between the magnesia block and the surrounding brickwork. 3. Furnace Roof Loss of castable and brick refrac:ory in the delta area of the furnace roof, primarily around electrode, charge pipe and inspection hole openings, was giving rise to the possible danger of widespread failure of the roof refractories and support steelvork. The cause of the problem has not been definitely established; it appears to be a possible combination of mechanical spalling and chemical corrosion. The- refractory material used in high alumina, and in this particular case was manufactured from andalusite rather than bauxite as the source of A12 03 One body of- expert opinion asserts that the grains of andalusite are more susceptible to spalling than bauxite-based grains and consequently thermal cycling, which has occurred -due to other problems, was the reason for failure. This opinion was based on samples of failed brick sent to various laboratories; the samples indicated little chemical attack although visual observation of the roof in situ indicated at least some surface chemical attack. Although high operating temperatures have not been cited as a possible reasoa for the failure, steps have been taken to operate the furnace under a more pcoitive pressure, eliminating any ingress of air which can react with carbon monoxide in the furnace atmosphere and produce locally high temperatures. This also has the benefit of maintaining a more uniform brick temperature across the furnace roof. For this and other reasons, the aim has been to attain a constant operation, reducing downtime to a minimun; that is, thermal cycling has been reduced to the minimum possible. The roof is being kept clean to avoid build up of dust vhich might cause local overheating of steelvork supports. - 4. Refinery The length of time being taken to refine a ladle of crude ferronickel was excessive, resulting in insufficient - refining capacity to meet production requirements-  31 - The ;rocedure :iD.itially envisaged for refining the ASEA ladle refining system was based on traditional methods employed in small electric a c refining furnaces. The kinetics of the metallurgical process and the chemistry of the slags were not adequate for the COSA unrefined metal composition. An itnv.-sive metallurgical program was initiated, in conjnaction with ASEA, and other consultants, which has culminated in a metallurgical procedure specifically designed for QiSA conditions. Additionally, a separate oxygen blowing test station was constructed which enabled simultaneous refining activities to proceed, further reducing overall refining cycle time. Cycle times have been reduced to levels consistent whith overall plant capacity requirements although much work remains to further optimize practices and materials. 5. Stacks The stacks on the electric furnace became plugged with dust causing Loss of pressure control in the furnace and excessive evclution of f:lame above the furnace roof. To remove the plug, it was necessary to take power off the furnace and clean the stacks by various methods, all of which were time consuming. Dust produced in the electric furnace adheres to the refractory lined stacks, gradually closing off the cross section. Depending on the temperature in the stack, the dust was either quite soft or very hard; the latter was sintered material resulting from locally high temperatures and became very difficult to remove. Tests indicated that ingress of air through the furnace roof and around inspection doors in the stacks was causing locally bigh temperatures and sintering. Additionally certain areas of the stack system were more prone to plug than others. To alleviate the problem, the furnace is nov operated under a more positive pressure, eliminating ingress of air; inspection doors have been sealed. Water cooled sections (not refractory lined) have been installed in the more critical areas on a test '-sais. On a longer term basis the dust produced in the furnace vill be mainimised by the use of extensions to the charge pipes inside the furnace below the furnace roof. To-date, experimentation has not found a material which will survive the furnace environment for a significant length of time.  - 32 - (e) Environmental Effects. At this moment, the activities of Cerro Matoso S. A. are too recent to make an analysis of any significant environmental consequences of the project. So far only the following points are relevant: 1. - CXSA produced its "Environmental Impact Statement" to comply with its legal obligation to 1 ensure the environmental qualities be compatible vith the productive survival of vegetable, animal and human species". 2. Based on the "Environmental Impact Statement", which ittdicated the type of processing equipment and environmental control program to be utilized, authorization was obtained from, the appropriate governmental entity to start mining-metallurgical activities. 3. The following facilities to control pollution have been installed. 3.1 Air pollution. 3 3.11 Electrostatic precipitators, installed after the dryer. 3.1.2 Scrubbers. One is installed at the inlet of the kiln and the other collects gases produced in the refining unit. 3.1.3 Bag houses. These pollution control units are installed as follows: - - One at the discharge of the secondary crusher. - One at the transfer house of the fine ore conveyors. - One at the top.of the coal bin. - One at the fine ore bin discharge.- - One at the balling feed conveyor discharge. 3.2 Water pollution - Waste Water Treatment Plant for primary and secondary treatments.  - 33 - - Settlizg pond. - Settling ditch at the base of the bill near farming and cattle-raising lands. 3.3 leat pollution There is a settling pond to discharge the water coming from the Process Plant, specially from the slag granulation section, so that the solids in suspension settle and the water cools down before being poured into the natural flowing water. 3.4 Noise pollution In areas withiv. the plant, especially at the west side of the electric furnace around the cooling fans, wnere bigh levels of noise are reached -above 85 decibels- recommended earplugs are used. * CMSA is engaged in the implementation of the solid residual3 handling through the use of sanitary waste disposal. To check the efficiency of the pollution control facilities there is a program, which is part of the "Environmental Impact Statement", which envisages the installation of equipment to measure emissions and the establishment of biosensory stations. All this equipment has been acquired and its installation and calibration is foreseen within the next three months. Biosensory stations are functioning and up to the moment no environmental changes of any nature have been detected.  - 34 - IV FIHAZCIAL AND ECONOKIC PERFODMACZ. (a) Revenues. Sales QCSA Revenue Volumes Selling Price Actual M. lbs Ni US$Ilb Ni USt (US$ 1983) 1982 1.4 1.55 2.2 Estimates 1983 34.8 1.56 54.3 1984 47.0 2.01 94.6 1985 54.3 2.56 139.0 1986 50.3 3.23 162.5 1987 47.6 3.52 167.6 Notes Estimated volumes assume a build up of scrap ferronickel between 1982 and 1984 whicb is recovered, remelted and refined as necessary in 1984/85 in additional facilities to be instal-ied in 1983-4. Estimated prices beyond 1984 are tbose prices required to camble the company to meet its projected financial obligatious without recourse to additional shareholders' funds under a .)roposed refinancing scbeme uuder consideration as of May 1983. (b) Operating Costs (i) Inputs and Utilities Consumption Cost / Unit Cost/Lb Ni (US$ 1983) (US$ 1983) Gas -Ore Preparation - Dryer 1.3 MCF/DtT Ore 1.46 /KCP 0.03 -Rotary Kiln 2.64 MCF/IDT ORE 1.46 /I1CF 0.07 Coal 6.5 Tonne/100 DLT -Ore 52/Tonne 0.06  - 35 - Electric Power-Furnace 520 KWI/IhT Ore 0.042/J1E 0.39 Furnace Electrode Paste 3.5 Kgs/DIHT Ore 0.89 Ks 0.05 Casing 0.4 Xgs/DKtT Ore 0.66 Kg 0.005 Oxygen-Furnace and Refining 6 L/Tonne FeNi 0.53/M3 0.005 Refining- Electric Porwer 168 KM/tome FeNi 0.042/DI 0.01 - Graphite Electrodes 6.267 Kg/Toone FeNi 3.43 /Kg 0.03 - Reagents: .Lime 80 Kg/Tonne FeNi 0.13 Kg 0.01 .Fluorspar 12 Xg/Tonne FeNi 0.50 /Kg 0.01. .Aluminu 18 Kg/Tome FeNi 2.28 /Kg 0.05 .FeSi 4 Ig/Tone FeNi 0.86 /Kg 0.005 Ladle Refractory Replacement. -Basic Refraccories 12 Tounes/Reline- Every 6 beats 918/Tonne 0.06 -A1203 Refractories 9 Tonnes /Reline- Every 15 heats 664/Tonne 0.01 Personnel Establishment and Cost Establishment Labor Cost/Year/Person (As From July 83) US$ 000 Staff - Expatriate 23 64 - Colombian 257 23 - Labor 402 8 682 (ii) Financial projects 1983-88. (Table 9) The financial projections are expressed in US$ 1983 and assume uo differential inflation/devaluatiou between the US$ and Colombian peso costs arising over the period of the projections. (c) Other Benefits Other economic benefits of the project include the following: (i) Construction of a road from the main highvay to Montelfbano and the Plant.  - 36 - (ii) Rebuilding and paving of the )lontel$bano airport, which h-a permitted the establishment of comercial setvices. (iii) Construction of a housing development adjacent to the town, intended for company personnel. (iv) Expainsion and upgrading of the Xunicipal Hospital. (v) Contribution to provide a stable electric -power for the mu=icipality and adjacent areas. (vi) Royalty advance to finauce the conatruction of water supply, sever system and the electric power network in Montelfbano. (vii) Organization and support of studies related to heaLth and education in lontelfbano to desiga programs nov in operation. (viii) Upgrading of educational establishments of the area. - (ix) Impetus to commerce in Montelfbano through salaries paid by the Company to its employees and the acquisition of materials, consumables aud services for construction and operation of the plant.  TABLE I PROJECT IMPLEMENTATION SCHEDULE A CTUA_ -N 1.079 1.900 ' 1.9PZ J A_ ON 0 J F MP A U J J A S O N 0 JiF _ MA U J J A ION M O MA MI 11-UNtl IIIg CC41RACtl l l l. l l l l ~it COLOCMiAS IN(MI19EINdN j0;. STUN EI OUIIANiZ AViON- - - -